Bedtime reading

Tag: Bedtime reading

An Obscure National Holiday

I was informed earlier today that today is, in fact, national underwear day. That said, here is a piece I wrote on life-cycle consumption not too long ago:

Back in the day, Modigliani and Brumberg (from their perches in Urbana-Champaign!) posited that individuals smooth out their consumption over the course of their lifetimes. In other words, total individual consumption expenditures are pretty stable, or smooth, from year-to-year, rather than having individuals curb consumption in one year to pay for big expenditures in the next. The big-picture implication is that individuals base their consumption spending on their expectations of lifetime earnings. So, if I expect to make a lot of money years from now, I will spend at higher levels now, even if I don’t have it yet. As a result, the young and the old spend more than they make, whereas the middle aged make more than they spend.

The Modigliani and Brumberg work is now known as the Life Cycle Hypothesis, and it is a seminal contribution for a number of reasons. First, it is a micro model that has significant macro implications –aggregate consumption depends on (expected) lifetime income, not current income. It also implies that government deficits are a source of fiscal “drag” on economic growth. You can check out more on Modigliani and his contributions at The New Palgrave Dictionary of Economics (available at campus IP addresses; otherwise, Google it).

Even if people spend the same total amount of money every year, however, they will probably be some variation in the items they actually spend it on. And empirically, of course, this turns out to be the case. Exhibit A: The Atlantic Monthlyhas a fascinating set of figures showing how U.S. consumer spending on various goods and services ranging from booze and smokes to lawn and garden services to men’s furs vary by the age of the consumer.

Presented without comment — Send Grandpa some new drawers

The figures are instructive.

First off, it appears that men pour increasing amounts of money into their undergarments as they age, reaching “peak underwear” at around age 50. The average male aged 45-54 will drop about $120 on his drawers during that ten-year stretch. After that, underwear spending falls like a stone, and by age 75 or 80 it appears that most men are only spending a couple bucks a year on those closest to them.

At the same time, however, there is a decided uptick in spending on sleepwear/loungewear. I wonder what’s going on? (Seems like a job for the Economic Naturalist).

In addition to these brief insights, the graphs seem to corroborate some intuition about how spending changes. For example, it seems that people in their late 20s and early 30s start dropping money on childcare services, which temporarily cuts into the amount spent going out boozing. I guess kids and the nightlife are substitutes, not complements.

It is also noteworthy and possibly surprising that 70-year olds spend as much on the sauce as 20-year olds do.

Or, perhaps that isn’t surprising.

As a bonus, some clever interns at The Atlantic have peppered each graph’s url with sometimes amusing, sometimes trenchant, and sometimes bordering on subversive commentary.

Well played all around.

Legalized It

As some of you may know, a number of states have legalized the sale and use of marijuana for general (that is, non-medicinal) purposes. For your weekend reading pleasure, I give you a theoretical and empirical assessments of what has happened since the votes were counted. First up is EconoMonitor‘s Ed Dolan, who diagnoses the mystery of the missing marijuana in his home state of Washington, complete with some tasty supply & demand diagrams. Dolan sees “government failure in the making”, as overzealous licensing requirements and prohibitive taxes work together to keep the market thin.

A little-ways east, however, the Colorado market has been blossoming, and there are some early empirical assessments of the results (see here for the story and here for the report). Is it not surprising that actual demand is 30-90% higher than the “experts” projected? Tough to say. Paging through the report, I see that 20% of the users account for roughly 70% of total demand, a familiar phenomenon. Taking that a step further, there are approximately 175,000 adults who smoke 21+ times per month, and these folks on average consume more “per time” than the less dedicated users (a lot more, it turns out).

You can see more on economists’ views of drug prohibition and legalization in one of our previous posts.

Summer Reading

My summer reading is being colored by our new, exciting fall additions. And people named Thomas.

Thomas Schelling, Micromotives and Macrobehavior. This is a new one on the Freshman Studies reading list for the fall and parts of it promise to feature prominently in our instruction as we continue to emphasize the utility of abstract modeling.

Thomas Piketty, Capital in the 21st Century. This is all the rage right now, and even the critical reviews say it’s worth a read. So read it I will!

Glen Greenwald, No Place to Hide. As William Burroughs once said, “Paranoia is just having the right information.” If you’ve ever wondered who General Keith Alexander is, what a FISA court is, or what the whole Edward Snowden thing is all about, Greenwald lays it out for you. I was planning on doing some reading on security regulations, and this seemed like an appropriate preface…

John Mueller and John Stewart, Terror, Security, and Money. This has been on my shelf taunting me for a couple of years. It walks through security regulations and gives a sketch of how benefit-cost analyses are done (or not done). This will make its way into ECON 444 in the Winter, I am certain.

Thomas Pynchon, Inherent Vice. Speaking of paranoia, nobody does it better than Pynchon. This is a quintessential summer read, the SoCal surf-side detective story from an iconic American author. Here’s a taste:

“It’s like Donald and Goofy, right, and they’re out in a life raft, adrift at sea? for what looks like weeks? and what you start noticing after a while, in Donald’s close-ups, is that he has this whisker stubble? like, growing out of his beak? You get the significance of that?”

Ain’t that the truth? This one is coming to a theater near you, so read it before the hype-la.

William Nordhaus, The Climate Casino: Risk, Uncertainty and Economics for a Warming World. A lot of interest on climate change and its effects, so I will probably revisit this one and do a seminar on it with interested students next year. A great book for anyone interested in the nuts-and-bolts of the economics of climate change from the president of the American Economics Association.

Summer Innovation Links: Disruption, Stagnation, and Fame

Clayton Christensen’s well-known theory of disruptive innovation has been applied all over the place, from personal computers to cellular telephones to higher education — he seems to have written about 500 books on the topic. From his perch at the Harvard business school, he has established himself as one of the more influential thinkers on the planet.

Jill Lepore, also from Harvard, has been spreading her influence via her explorations of various academic “literatures” (including this one) for the New Yorker. This week Lepore sets to disrupt the disruptive innovation mojo with a lengthy, critical takedown of Christensen’s prime examples (“easy targets” according to Joshua Gans).

It seems to be making some noise on my RSS feed (do people still have RSS feeds?) along these lines:

Here is Lepore’s NYer piece.
Slate provides the Cliffs Notes.
Lynne Kiesling frames the issues very well; I like this post.
Joshua Gans on Lepore on Christensen.
Peter Klein on Gans on Lepore on Christensen.

I suppose I should offer my thoughts (Gerard on Klein on Gans on Lepore on Christensen) to keep that whole thing rolling, but instead I return to the “stagnation” debate, this time between Northwestern heavyweights, Joel Mokyr and Robert Gordon. If you know a Google trick or two, you can get access to this piece in the Wall Street Journal.

The upshot is that Mokyr thinks innovation is booming, whereas Gordon thinks it isn’t. We’ve seen this before in the Gordon v. Brynjolfsson TED smackdown, and I suspect we will continue to see it going forward.

We get the pointer via the Cheap Talk guys — also from Northwestern — who are somewhat bemused by the WSJ reporter’s assertion that Gordon is “more famous” than Mokyr:

Since when is Bob Gordon more famous than Joel Mokyr? I suppose it depends on the audience you ask – Joel is not known to journalists. But in academic circles, the fame ranking is reversed.

For a summer starter kit, you can learn a lot about how people think about innovation by reading through some of these links.

UPDATE: Christensen responds to Lepore!

Environmental Econ Updates

Here are some quick hits as we wrap up this term’s ENST 151 and ECON 280 courses:

Will shuttering the Keystone pipeline leave a “billion” barrels of oil from tar sand production in the ground? That’s a recent assessment out of Berkeley (blog post).

Speaking of not opening Keystone, what’s with all of these tank car explosions? Tradeoffs, tradeoffs. Yikes.

In other news, should we take a “wait-and-see” approach to climate change? Not according to this recent Brookings piece. Tax, baby, tax!

Or cap, baby, cap. The New York Times shows us how a carbon market works!

And, finally, James Hamilton gives the rundown on resource scarcity and prices for myriad commodities.

Reading Break

As per usual when winter break hits week three, my phone is ringing off the hook* from students asking me for my reading suggestions. So, here you go:

Charlie Calomiris and Steven Haber in Foreign Affairs, “Why Banking Systems Succeed — And Fail.” It’s worth it for this gem alone:

As George Bernard Shaw wrote, “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Meaningful banking reform in a democracy depends on informed and stubborn unreasonableness.

Mike Veseth “Deconstructing and Disentangling the Disintermediation of the Wine Business.” Professor Finkler turned me on to this nice piece on cutting out the middleman from The Wine Economist himself. I should really read Wine Wars, which looks rather fascinating. My grossly under-informed musings on the coming “wine shortage” here.

I just received William Nordhaus’ The Climate Casino: Risk, Uncertainty, and Economics for a Warming World in the mail and it seems like I should take a look at (though the audience seems to be the informed general audience rather than for academic economists). It seems probable that I will adopt chunks of this for ECON 280 this Spring. Nordhaus is the incoming president of the American Economics Association (!), so he has plenty of street cred among economics types. Among the environmental crowd he is famous for his DICE and RICE models, and is certainly one of the most influential economists working on matters of thinking about global climate change. Paul Krugman was Nordhaus’ RA back in the day! There is a high probability that I will offer this as a reading group option next term.

Speaking of Reading Groups, don’t sleep on The Great Leap Forward: 1930s Depression and US Economic Growth, the principal source material for this year’s Senior Experience read.

And, last for this installment, I finally started making my way through Science Mart: Privatizing American Science. Wow, this is an experience. If this looks good to you, let me know and we can talk.

*Well, maybe not “off the hook,” but I did get one email.

Back Off, Man, I’m a Scientist

I picked up a recent New Yorker and was astonished to find a lengthy review article on the social science work measuring the polarization of American politics.

The piece features work by Keith Poole and Howard Rosenthal, who (along with co-author Nolan McCarty) have created a cottage industry by using roll-call votes to map politician preferences (see the very cool VoteView page for many of the gory details).

I have been following this work since I read their chapter in Goldin & Libecap’s edited volume, The Regulated Economy: A Historical Approach to Political Economy, back in grad school, and I have Political Bubbles in the queue on my “to read” shelf. Yum.

Of course, aside from the New Yorker piece, these are a bit heady for holiday reading, so perhaps just consult SMBC for your political economy needs.

Summers v. Hubbard

The Sunday New York Times has a contrast of Larry Summers and Glenn Hubbard on our collective economic future.

Summers is a past president of Harvard and economic-adviser extraordinaire to President Obama. Hubbard is the dean of the NYU Business School, and star of this ‘stinging’ sendup of Ben Bernanke.

Neither lacks confidence, that’s for sure.

He’s a doctor, he’s a college professor [but] he’s also a sort of rough and tumble guy

No, that’s not me introducing Professor Galambos at a recent Economics Colloquium; it’s George Lucas hashing out his initial vision of the Indiana Jones character with Steven Spielberg and Lawrence Kasden.

In what has to be one of our greatest “Bedtime Reading” finds ever, behold this remarkable 90-page transcript of the “spitballing” sessions available online. The sessions are excerpted in a recent New Yorker piece.

If you have ever wanted to see creative genius at work in all its fits-and-starts, here you go.

Kasdan: Do you have a name for this person?”

Lucas: I do.

Spielberg: I hate this, but go ahead.

Lucas: Indiana Smith.

And, if you have 13 minutes and would like your mind completely blown, you might check this side-by-side out.

The BI5 team?

It may not be as exciting and mysterious as the MI5 unit, but the UK government’s Behavioural Insights Team could be the economist’s version of influencing the world from the shadows. BIT is also known as the “Nudge Unit.” As The Telegraph explains,

The unit’s work is described by them as “libertarian paternalism”, a phrase coined in the 2008 book Nudge: Improving Decisions About Health, Wealth and Happiness by Chicago University professor Richard Thaler and Cass Sunstein (now required reading for the Coalition front bench). And yet while their language might sometimes seem worryingly close to management-speak – using “choice architecture” to create “rational economic optimisers” – it belies some basic common sense.

Cass Sunstein now has a new book (to be published April 9th), Simpler: The Future of Government. Sunstein has some experience in putting his ideas to practice, as this Fortune article describes:

Cass Sunstein, a friend of Obama’s from his University of Chicago Law School days, spent the last four years running the Office of Information and Regulatory Affairs (OIRA). It’s an obscure but exceedingly powerful perch that enabled Sunstein to put his imprint on everything from fuel efficiency standards and the redesign of the food pyramid to the rules for the landmark health care and Wall Street overhauls.

Sunstein used his office as a laboratory for his brand of “libertarian paternalism” — his self-described and seemingly paradoxical approach to structuring prompts for people that promote their welfare by protecting them from their more self-destructive impulses.

I suppose we are bound to hear more and more about libertarian paternalism. This is not new to those of you who just took Comparative Economic Systems, and neither are the warnings of Harvard’s Ed Glaeser on the dangers of “soft paternalism.” That leaves just one last question: What would Hayek say? Economics student Ryan Kottman answered that question for the Comparative Economics crowd in his presentation on “libertarian paternalism:” Hayek would worry very much about the government’s nudging leading to less individual responsibility. Kottman quotes Hayek’s Constitution of Liberty: “We assign responsibility to a man, not in order to say that as he was he might have acted differently, but in order to make him different.”

Rainy Days and Mondays and 8 a.m. Finals

The big events seem to be steady rain and the onset of finals, so my guess is that you are busy being busy, doing things like studying and writing papers. Or, possibly even taking a break and surfing the internet. Why else would you be reading this?

How much is that internet worth to you, anyway? Probably a lot.

The Economist surveys the evidence.

See you in the Spring.

Presidential Candidates and the Economy

Tonight (Tuesday, 10/30) Amnesty International is hosting a panel of Lawrence professors talking about the presidential candidates at 7 p.m. in the Cinema. In addition to human rights issues, the panel will address the potential economic implications of the upcoming elections. In preparation for the panel, I took a look for some general sentiment from the economics profession. Here are a few choice items:

The Council on Foreign Relations provides a background brief, The Candidates and the Economy.
Yale’s Zack Cooper gives an overview of the candidates and U.S. healthcare situation at Vox.
Nicholas Bloom and his colleagues talk about the role of policy uncertainty, and in particular the role of polarization, also at Vox.

My first-order reaction was that it doesn’t matter much one way or the other who gets put into office in terms of the broad macro implications, but that is possibly because my macro expertise isn’t what it might be. It’s pretty clear that November’s winner will have a pretty pronounced influence on certain aspects of administrative regulation, with possibly significant implications for the energy and health care sectors.

UPDATE: Here are some links to works discussed this evening:

Andrew Gelman, Red State, Blue State, Rich State, Poor State, Why Americans Vote the Way They Do. (Article in Quarterly Journal of Political Science and link to the Book).

Thomas Frank, What’s the Matter with Kansas?

More Principals of Economics

David Warsh of Economic Principals has a nice piece on the Nobel Prize winners, Al Roth and Lloyd Shapley. You may have heard something about Roth, and Warsh describes him as immediately relevant to modern market making:

[H]e is surrounded by generations of students and researchers, some of them computer scientists, working on all kinds of cutting-edge topics. These include circuit breakers (forced trading halts) in panicked markets, random assignments in long waiting lines, school choice, new wrinkles in the auction of broadcast spectrum rights, corporate restructuring refinements and all manner of other market processes, anything, in other words, that might be improved by a little engineering.

As for Shapley, I didn’t know much about him beyond my familiarity with the Shapley Value. It turns out Shapley kept rather spectacular company, including the likes of John Von Neumann and John Nash. Robert Aumann called him the “greatest mathematical game theorist.” Wow.

You’ll definitely learn something from reading this piece.

More here. Cool.

Coase Goes to China… Literally

Back in 1937 Ronald Coase asked a question fundamental to the economics of organizations — why are there firms? Then in 1960 he pointed out that externalities stem from the reciprocity of the relationship between harmer and harmee, and that the failure to negotiate and enforce contracts is fundamental to the persistence of “externalities.” As he says in his essay in “The Nature of the Firm: Influence“:

Transaction costs were used in the one case to show that if they are not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose (62).

For these seminal contributions he picked up the Nobel Prize in Economics in 1991 and shortly thereafter helped found — along with Douglass North — the International Society for the New Institutional Economics.

Now, in 2011, he asks the questions, how and why did China go capitalist? And here comes the book later this month.

China’s road to capitalism was forged by two movements. One was orchestrated by Beijing; its self-proclaimed goal being to turn China into a “modern, powerful socialist country.” The other, more important, one was the gross product of what we like to call “marginal revolutions.” It involved a concatenation of grass-roots movements and local initiatives.

Here’s some more.

There’s a lot of New Institutional Economics work on China, by some very heavy hitters.

Ben Bernanke: The Hero or the Villian?

Just in time for your Spring break, Roger Lowenstein (of When Genius Failed fame) gives us an exhaustive profile of Fed chair Ben Bernanke in this month’s Atlantic Monthly.

I am in the middle of big stacks of papers here, so I haven’t had time to plow through the 8,000+ word article, but I like the teaser:

The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.

Lowenstein appears to cover a lot of ground, including the Krugman v. Rogoff debate. Here’s a summary and discussion at The Money Illusion blog.

Keynes, Cowen & Capitalism — Related Items

I checked my RSS feeds today and saw two interesting items, spot on in terms of our class discussion. First up, an important technological breakthrough in medicine? Here’s Walter Russell Mead:

The medical world may be on the verge of a major breakthrough on par with the discovery of penicillin. As profiled in this NYT piece, a number of Silicon Valley companies and entrepreneurs are looking to lower the price of genome sequencing to the point that it will be within reach of the average consumer (below $1,000)—a development which could lead to the biggest revolution in drugs and medical treatments in years.

On par with penicillin? That’s a lot of value.

Now for something completely different, Derek Lowe suggests that maybe, just maybe, we don’t need more scientists after all. Hmm. I’m not sure I agree with that whole bit. Nonetheless, it’s thought provoking.

As a bonus, he cites a fantastically titled piece by Virginia Postrel, “How Art History Majors Power the U.S. Economy.” Postrel seems to agree with his point:

The argument that public policy should herd students into [Science, Technology, Engineering & Mathematics] is as wrong-headed as the notion that industrial policy should drive investment into manufacturing or “green” industries. It’s just the old technocratic central planning impulse in a new guise. It misses the complexity and diversity of occupations in a modern economy, forgets the dispersed knowledge of aptitudes, preferences and job requirements that makes labor markets work, and ignores the profound uncertainty about what skills will be valuable not just next year but decades in the future.

If you are interested in the average salaries and unemployment rates for different college major choices, Postrel cites this report out of Georgetown University that has some very illuminating figures.

Man Bites Dog Reading Book

It is well known that author’s clamor for Oprah’s endorsement because the book sales go bonkers, and sales of the author’s other books also go bonkers. The conventional wisdom is that publishers love Oprah because she pumps up book sales.

On the other side of Chicago, however, Northwestern’s Craig Garthwaite has another tale to tell: Oprah’s endorsements reduce overall book sales:

In the publishing sector, endorsements from the Oprah Winfrey Book Club are found to be a business stealing form of advertising that raises title level sales without increasing the market size. The endorsements decrease aggregate adult fiction sales; likely as a result of the endorsed books being more difficult than those that otherwise would have been purchased.

It is I who emphasized that startling finding. Here’s how Garthwaite describes it:

At the genre level, the post-endorsement period is marked by large sales declines in the romance, mystery, and action categories. These genres were popular prior to the endorsements in the geographic areas demonstrating the largest endorsement responses. Using quantitative measures of text readability, I show that endorsed titles require one additional year of education to read than is typical for romance, mystery and action books. Furthermore, the post-endorsement sales decline was largest following the endorsement of classic novels, which require nearly four more years of education to comprehend than typical romance, mystery, or action titles. Since the cost of consuming a book is the combination of the retail price and the opportunity cost of the time spent reading the text, the post-endorsement sales decline in publishing should be considered similar to endorsements in other sectors that shift consumers towards more expensive products.

I read through the paper this evening, and this will likely wind up on my Industrial Organization reading list for next year. We’ve seen a similar phenomenon in our analysis of the beer industry — advertising doesn’t increase overall sales so much as it redistributes sales within the sector. Indeed, we kick off that class with a simple advertising game model, where advertising expenditures are treated as a prisoner’s dilemma, and we learn why incumbents are often copacetic with an advertising ban. The analogy here, I guess, is that a beer producer that heavily advertises a new, difficult-to-drink product could cause an overall beer consumption to go down (possible ad line: New Bud Super Dark: It’s Like Drinking a Bagel ! ).

I wonder if the “light beer” revolution of the 1970s had the opposite effect?

Via the fellas at Marginal Revolution.

Keynes, Cowen, Brynjolfsson, McAfee & Capitalism

Here’s the update from the reading group.

On the subject of big, fat profits in the financial sector, you might consider visiting some of these pieces. On the subject of big, fat incomes in the financial world, Cowen offers up a simple theory on why so many smart young people go into finance, law, and consulting. Adding fuel to this fire, “Mr. D” sends me this helpful blog post from Ezra Klein, arguing that Ivy Leaguers head to the Street because that’s where they get their “real” education. Do you buy that? And, in a similar vein, “Mr. P” wants to know why Americans don’t elect scientists.

We left off yesterday with the open question of what the best-case scenario is for market economies moving forward. Where are the big productivity gains going to come from? What type of work is to be done? Is manufacturing dead or alive, or does it even matter? (See Professor Finkler’s previous post). Has John Stuart Mill’s concern about the inevitable decline in radical breakthrough inventions finally come home to roost?

And, this opens the door for next week’s book, Brynjolfsson and McAfee’s Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. There are a couple of secondary sources on this, as well, including pieces from The Economist and The Wall Street Journal.

By all rights, this term’s 391 DS reading group should be titled Keynes, Cowen, Brynjolfsson, Backhouse, Bateman, McAfee, and Capitalism, but that doesn’t quite roll of the tongue, does it?

Nor would it fit on your transcript.

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