Big Think’s “What Went Wrong?” is a series of interviews with a number of key members of government, business, academia, and media on the subject of the financial crises.
Talk to us!
The Economics Blog is now accepting comments on some posts. You just need to click on the “Comments” link, such as the one below. Your comment will not be immediately visible, but it should be in a day or so. We are looking forward to reading your responses–so talk to us, comment to your heart’s content!
Eco-bling
This article in The Times reports on a study by the Royal Academy of Engineering, claiming that
Roof-mounted wind turbines and solar panels are “eco-bling” that allow their owners to flaunt their green credentials but contribute very little towards meeting Britain’s carbon reduction targets.
I guess if one were to engage in conspicuous consumption using eco-bling, this might work a lot better.
Management Consulting Summit
The Lawrence Scholars in Business program is hosting a Management Consulting Summit on Saturday, January 23rd from 9:00 to 12:00, with lunch following. All students who are interested in learning more about management consulting from successful Lawrence alumni are encouraged to attend. Lawrentians from major consulting firms will talk about their careers, about the field, and what you can do if you are interested in becoming a consultant. There will also be an interactive case study. Students interested in lunch afterward should go through the line in Andrew Commons and join us in the Parrish/Perille room. Please sign up in the Career Center for the summit as well as for the lunch. We hope to see you there!
Making the Grade
College kids these days seem to have it easy. When I was that age, I had to walk twelve miles uphill through a blizzard to get to class, and then make a similarly brutal trip uphill to get back home. Not to mention that back then the median grade was somewhere around a C-. And this was during the easy courses in summer session.
Well, perhaps that isn’t all completely accurate, but according to a forthcoming paper by Philip Babcock in Economic Inquiry, it seems likely that we did study more back then. The key result is that students spend more time studying in classes where the expected grade is lower. So, if grade inflation leads to higher expected grades, I read that to mean that on average students will study less.
Abstract: College grade point averages in the United States rose substantially between the 1960s and the 2000s. Over the same period, study time declined by almost a half. This paper uses a 12-quarter panel of course evaluations from the University of California, San Diego to discern whether a link between grades and effort investment holds up in a micro setting. Results indicate that average study time would be about 50% lower in a class in which the average expected grade was an “A” than in the same course taught by the same instructor in which students expected a “C.“… Findings do not appear to be driven primarily by the individual student’s expected grade, but by the average expected grade of others in the class. Class-specific characteristics that generate low expected grades appear to produce higher effort choices — evidence that nominal changes in grades may lead to real changes in effort investment.
The emphasis is mine.
If we here in economics announced that the average course grade is a half point lower than the average campus grade, would we get harder-working students? Or just fewer students?
Twitter to Solve Corporate Governance Problems — Screenshots at 11
That’s according to former New York Governor,* Eliot Spitzer, writing in Slate.com. As emphasized in the Economics of the Firm course (Econ 450), the evolution of the ubiquitous “M-Form” corporate structure created a chasm between equity shareholders and company managers. The split presents the classic principal-agent problem (or simply “agency” problem) where the incentives of owners and managers might not be aligned. Although Williamson (1975) goes to great pains to show how the problem is resolved, Chandler (1977) flat out says that corporate managers are clearly not maximizing shareholder wealth.
However you come down on the issue, the Spitzer piece argues that new communications technologies that (allegedly) transformed political campaigns in 2008 can also be used for shareholders to reclaim ownership of their firms.
Whether that is a good thing or not, I suppose, is an open question. Some would argue that shareholders are more interested in short-turn returns than looking out for the long-run health of the country. Certainly, this question isn’t settled.
Data Analyst
Alum and former Admission Office colleague Seth Harris recently moved to consulting firm Hardwick-Day. Below and posted on the Econ board you will find an advertisement for a data analyst position at Hardwick-Day.
KC Fed Financial Stress Index not yet back to normal
The KCFSI suggests financial stress resumed falling in December but remained somewhat higher than at the start of the crisis.
Economics of the Environment from The Economists’ Voice
We continue to reap benefits from our subscription to The Economists’ Voice. The site provides short, readable pieces on economics and public policy topics of the day, typically from some of the top scholars in the field.
For those of you interested in environmental issues (or simply a preview to Econ 225), the latest edition has several articles on incentive systems for reducing carbon emissions. For those of you not up to speed on the lingo, the basic mechanisms are “command-and-control,” where the regulator typically specifies some cleaner technology; a per-unit tax on emissions; and a “cap-and-trade” system, where the regulator picks a maximum quantity of emissions (the cap) and uses a market that allows firms to sort out which has the lowest cost of reducing emissions (trade). A basic result is that under the right conditions, the pollution tax and the cap-and-trade systems give equivalent outcomes. However, in practice, the cap-and-trade seems to be the route that is taken.
Don Fullerton and Daniel Karney start out The Economists’ Voice articles by looking at issues associated with the allocation of pollution permits within the US. Should they be handed out for free or auctioned off to the highest bidder? What are the distributional impacts? That is, are poor people hardest hit because increased firm costs are passed on in the form of higher energy prices.
Next, Ozge Islegen and Stefan J. Reichelstein look at the economics of carbon capture This is an interesting technology that involves capturing carbon before it goes into the atmosphere, compressing it into a supercritical state, and then “sequestering” it underground or under the sea for time eternal. The pro side of this is that we can still burn fossil fuels without having increased atmospheric carbon concentrations.
Lee Friedman and Jeff Deason discuss whether regulators are markets are better fit to determine when carbon emissions are reduce. And, finally, Éloi Laurent looks at France’s pending carbon tax. Ah, the French.
While we’re playing the blame game, we might as well ask whether we should blame the Copenhagen debacle on China or on the economists?
Don’t look at me.
Is Wall Street Ruining America?!?
Last week I posted a blurb that pointed to a New Yorker article by finance writer John Cassidy on how members of The Chicago School think of the financial meltdown. For some perspective on how a writer views economics and finance, you might check out his new book: How Markets Fail: The Logic of Economic Calamities. (Let me know what you think). One of the giants of the economics profession, Robert Solow reviews it here on The New Republic‘s new book site.
As I suggested before, Cassidy seems a bit antagonistic to the pro-market guys at Chicago (e.g., Fama and Cochrane) and Professor Solow suggests that we get a similar white hat, black hat story here. Even so, the take home point seems to be this:
John Cassidy’s book should confer on a thoughtful reader a lasting immunity to erroneous free-market sloganeering, whether simpleminded or devious, while still conveying some feeling for what a well-functioning market system can actually do. Both ideas are important.
Making America More Innovative through, wait for it…
There are lots and lots of Lawrence folks out there interested in how to improve US innovation. How, indeed? One answer comes from a recent article at Slate.com, where Economist Ray Fisman discusses how, surprise!, giving scientists greater incentives can foment higher levels and more novel types of medical innovation.
His source is a new paper from Azouly, Zivan, and Manzo that looks at the relative successes of different groups of medical researchers with similar academic pedigrees: Here’s a key excerpt from the abstract:
[W]e study the careers of investigators of the Howard Hughes Medical Institute (HHMI), which tolerates early failure, rewards long-term success, and gives its appointees great freedom to experiment; and grantees from the National Institute of Health, which are subject to short review cycles, pre-dened deliverables, and renewal policies unforgiving of failure… We find that HHMI investigators produce high-impact papers at a much higher rate than two control groups of similarly-accomplished NIH-funded scientists. Moreover, the direction of their research changes in ways that suggest the program induces them to explore novel lines of inquiry.
You can find the research paper here.
Much more on the topic of innovation and entrepreneurship as the term progresses.
Global Health Workshop at Beloit
Do you have any interest or expertise in global health issues? If so, you might consider checking out the March 12 and 13 workshop on Global Health and the Liberal Arts Curriculum at Beloit College. shelia Tlou, former Minister of Health for Botswana, will speak about the AIDS there on Friday night, and the conference runs Saturday. They are looking for presenters and participants, including student posters.
The Elasticity of Demand for Superstar Bankers
The first lesson of Economics 300 is that the economic incidence of a tax is independent of the legal incidence. So who will pay a tax on banker bonuses?
Not the bankers, evidently. Here’s the skinny:
“The tax is going to be 90 per cent absorbed by the banks,” said one senior recruitment consultant with clients in the City.
In many cases that will mean banks doubling bonus pools, with the cost of the tax borne by shareholders. Dividends, already under pressure as regulators force banks to retain earnings to boost capital, are likely to be hit, bankers concede. tax?
Seems like a reasonably good question for coin-toss Tuesday.
Organs for Sale?!?
Alex Tabarrok has an op-ed in the Wall Street Journal discussing how various countries regulate the exchange &/or sale of human organs. Unfortunately, in the US the quantity supplied of organs is insufficient to meet the quantity demanded, and thousand of folks die each year waiting for a viable organ.
We talked about this a bit in Econ 300 this week, specifically discussing how Becker and Elias derive an estimated market-clearing price if organ trade were liberalized in the US. This is a really nice piece that really illustrates how economists think about what supply and demand curves represent.
I also highly recommend an accompanying article in the Journal of Economic Perspectives by Alvin Roth about how repugnance can constrain market exchange.
Bjorklunden
This year the Department of Economics is holding a symposium at Björklunden involving three courses: Urban Economics, Economics of the Firm, and Social Choice Theory. Students in these courses will be presenting their work to other students and to economics faculty. We will also have a session on presentation skills and writing in economics. Students in aforementioned courses will be coming along as part of their coursework, but we may have a few spaces for others (not enrolled in these courses) to join us. If you are interested in joining us, please let Adam Galambos know.
Does economics make you a money-maniac?
In a recent post, Professor Gerard wonders whether “we take our models too seriously or not seriously enough.” His question was prompted by this article from the Wall Street Journal describing the many ways in which certain well-known and less well-known economists seem to be obsessed with… well, economizing. But, if that is true, is it because cheapskates are attracted to the study of economics, or because economics makes people obsessed with money? One prominent economic theorist, Ariel Rubinstein, was so concerned with what he saw as excessive emphasis on profit maximization in economics that he decided to study this question empirically. His paper, A Sceptic’s Comment on the Study of Economics, seems to confirm his fears.
I am with Rubinstein on this one, and I find it important to emphasize that economics is not about selfishness and profit maximization at the expense of anything else that’s part of the “bigger picture.” On the other hand, some more of rational thought and maximization would do many people and organizations a great deal of good…
New resource in Economics
The Mudd Library just subscribed to the New Palgrave Dictionary of Economics, a very useful resource for students and faculty. The dictionary contains readable, comprehensive and up-to-date articles on topics from all fields in Economics. The dictionary is catalogued in LUCIA, and it is directly accessible here (probably only on campus).
I recently found the article on “unforeseen contingencies” very useful–non-technical, yet conveying the important points. The 10 most accessed articles include “liquidity trap,” “Wal-Mart, economics of,” and “financial structure and economic development.”
The Real Estate Crash: Evidence in Search of a Theory
Megan McCardle at The Atlantic Monthly has an interesting column on the commercial real estate crash, and what it might imply about the residential crash. It turns out, the boom and bust of commercial property follows pretty much exactly the same trajectory as the residential market. Echoing Paul Krugman’s piece, McCardle points out that the overlapping trends undermine any number of explanations:
Yet we can’t blame this on predatory lenders tricking the unsophisticated into unwise loans, because these were basically all professionals. Nor can we argue that banks were willing to write toxic loans because they were just going to sell the garbage off to investors; a much smaller percentage of commercial mortgages were securitized (though that percentage did increase as the bubble inflated). And we certainly cannot blame them because they “should have known better” than their borrwers, who usually had more experience than the banks in pricing commercial real estate.
Somehow, everyone got stupid all at once.
So what was it?
To answer that question, John Cassidy of The New Yorker headed to Chicago to chat up the big thinkers from The Chicago School about what they think. Although the beginning presents what I think is a misleading caricature of Chicago versus the Keynesians in a black hat, white had fashion, it’s interesting to hear what the likes of Richard Posner, Gary Becker, John Cochrane, and Eugene Fama view the crisis. I especially liked reading about Fama, who canceled his subscription to The Economist because he was tired of reading the word “bubble.”
His piece is currently gated, but I have a copy if you care to take a look.
The Costs and Benefits of Grad School
Well, there’s good news and bad news making the rounds on the blogosphere. The good news, as most of you probably know, is that a bachelors degree (on average, of course) is a pretty good investment in terms of future income stream.
About a third of you (again, on average) will make a return to the ivory tower to pursue an advanced degree. And that’s where the bad news, if you can call it that, comes in. Check out the data from this post on law school and especially the figure showing salary differentials.
The table is especially revealing in the dangers of relying on “averages” when making a decision. If I was making a decision about heading to law school, I’d want to know whether I was more likely to end up in the high or the low-income humps of that distribution.
Ninth Carroll Round at Georgetown University, April 22-25, 2010
Applications are now being accepted for the Ninth Carroll Round at Georgetown University be be held on April 22-25, 2010.
The conference should be of interest to those students who are interested in international economic theory or policy and have done research in the field. If you have written a paper in the field or have a research proposal in place, this is a great venue to present your work and meet some of the nation’s best undergraduate students, practitioners, and scholars in the field. For more information, please see:
http://carrollround.georgetown.edu/
The submission deadline is February 15.