from The Atlantic

Tag: from The Atlantic

In Which The Atlantic Monthly Sees the Light

The cover of the May Atlantic Monthly states flatly that “We Will Never Run Out of Oil.”

In its typically exhaustive style, The Atlantic takes a few thousand words to come to this conclusion.

This, of course, is what pretty much any off-the-shelf economist has been saying for years, though we didn’t need a series of enormous technologically driven supply shocks to lead us down the path to that conclusion. Here’s Tim Haab on why Peak Oil doesn’t matter if markets are at all functional. Here’s a peek at oil futures.

Oh, and by the way, Peak Oil?

Deregulation and Consumers

This week in Industrial Organization we will talk about the peculiarities of the deregulation movement that got going in the Jimmy Carter administration (?). One peculiarity is that — like the Spanish Inquisition — no one expected the deregulation movement. Why? Because the benefits of regulation generally flowed to a nice, concentrated group of producers at the expense of diffuse, often clueless consumers. This is pretty much the point of the Stigler-Peltzman-Becker characterizations of regulation.

A second puzzle is the public suspicion of regulation, and in particular the lack of recognition that consumers have been the overwhelming beneficiaries of the deregulation movement. On each of these points, I refer my students to the Clifford Winston’s excellent (but somewhat dated) piece from the Journal of Economic Literature.

Derek Thompson has a quite excellent piece in The Atlantic online, “How Airline Ticket Prices Fell 50% in 30 Years (and Why Nobody Noticed).” Well, some of us noticed, I guess, like those of us who teach IO.

Of course, deregulation has had its share of fiascoes and industry handouts as well, so perhaps that’s more etched in our brains than the radical price differences and innovation that often accompany industry deregulation.

Consumption Smoothing and Peak Underwear

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 Monthly has 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.

InTrade Market Manipulation Fail

Though the recent presidential election polls show a virtual dead heat, the prediction markets (particularly InTrade) have consistently shown President Obama with a decisive 3:2 advantage or better. The 3:2 advantage for Obama amounts to paying $0.60 to win $1, which is (loosely) interpreted as a 60% chance of winning — though it’s not really a probability. In contrast, you can buy Romney shares at around $0.40 to win $1.

Yesterday, however, some heavy money came flooding in on Romney, temporarily pushing the Romeny price / odds closer to $0.50. This spike was short lived, however, and the price soon settled back down to the $0.40 range.

Was it an attempt to manipulate the market? And if so, who would do such a thing? Derek Thompson at The Atlantic talks with prediction-market guru Justin Wolfers:

At around 9:57am this morning, I noticed something funny happening on InTrade: Obama’s stock was tanking, and this was happening in the absence of any concrete political news… Romney’s stock shot up from 41 to 48 in a matter of minutes (suggesting that his chances of winning the election had risen from 41% to 48%).

Notice though that the effect disappeared very quickly. The Obama Flash Crash disappeared nearly as quickly as it appeared.

Two conclusions follow. First, you can manipulate prediction markets fairly easily. But second, you won’t get much bang for your buck.

This made news in about a dozen wonky blogs, so it appears that prediction markets are here to stay.

Those of you who don’t know what I’m talking about might start by checking our previous posts on prediction markets for some background.

I should mention that since that time the Romney price / odds have been rising a bit, to about $0.45; I knew I should have bought at $0.25. I could have cashed in.

Incidentally, InTrade has a state-by-state breakdown based on its current market prices, showing Obama with a razor-thin lead. At current prices (Oct 24 at noon), if Wisconsin flipped, it would be an electoral college tie. Zoinks.

Some argue that the prediction markets simply follow the polls. I guess we’ll see.

77 Cents is really more Like 91 Cents, but It’s Still Not a Dollar

Here is a very interesting interview with leading labor economist Francine Blau’s at The Atlantic Monthly about differences between male and female pay.

The topic is one that you have probably heard before — “women only make 77 cents for every dollar men make.” Now why would that be? Is it because of discrimination?

Many economists discount the idea that discrimination is the driver, because bigotry is such an expensive vice. Consider the following: Suppose Bigoted Bob’s hires only men and has annual labor costs of $100 million per year. If the difference in male and female earnings is due solely to discrimination, then it should be possible to hire a staff of women who are exactly the same quality and produce exactly the same quality and quantity of output for only $77 million per year. So, it hardly takes benevolence to hire women — simple greed, er, profit maximization will do — the “benevolent” employer can presumably pocket the $23 million in labor savings! In other words, a business that wants to exercise its discriminatory preferences for men over women for whatever reason will have to pay a steep price on the labor market.

So, perhaps it’s some other factors, and this is partly true. If you control for human capital accumulation (education and experience, for example) and industry choice, the gap is less than the largely purported, but there is still a gap of about nine cents on a dollar. In other words, controlling for what we control for, women only make 91 cents for every dollar men make.

You might also take a look at this WSJ piece on the pay to female executives. Hmm.

Income Deciles Through the Years

Jordan Weissmann at The Atlantic points us to a noteworthy breakdown of income changes through the years.

The Rich Get Poorer, The Poor Get Poorer

This tells a pretty interesting story. Coming out of World War II, the gains in the bottom decile are pretty solid up until the 1970s, when they seem to stagnate along with all other income groups. It isn’t until the 1980s and 1990s that the top income bracket really takes off.

There are, of course, dozens of caveats with data like these. But those aside, data guru Andrew Gelman simply doesn’t like this plot, so he takes some pains to make this clearer. Here’s Gelman’s discussion, and below you can see roughly the same data in a more conventional time series format.

As Gelman correctly points out, his full series tells a different story. In particular, the sharp income decrease of the last decade occurred principally since 2007. Yikes.

Gelman is great with data. If you are interested in empirical social sciences, I recommend you check him out at The Monkey Cage or at his blog, or one of his many excellent books.

“Spain is Doomed, Greece is Toast”

Here’s some more on the situation in Greece. When I see a blog post titled “The Scariest Chart in Europe Just Got Even Scarier,” I typically think the author is invoking some grand hyperbole.

Perhaps not in this case.

Here’s Derek Thompson at The Atlantic:

Thompson points us to a link that draws this conclusion: “Spain is doomed and Greece is toast.” Of course, last year we pointed to Michael Lewis’s similarly dire predictions for Greece, where he observes “the closer you look, the worse it gets.” He concluded Greece is simply incapable of reform in its current form.

That unemployment bar looks like a big fuse.

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.

Could tiny organisms carried by house cats be creeping into our brains?

Crazy, awesome, completely plausible:

Jaroslav Flegr is no kook. And yet, for years, he suspected his mind had been taken over by parasites that had invaded his brain. So the prolific biologist took his science-fiction hunch into the lab. What he’s now discovering will startle you. Could tiny organisms carried by house cats be creeping into our brains, causing everything from car wrecks to schizophrenia? A biologist’s science- fiction hunch is gaining credence and shaping the emerging science of mind- controlling parasites.

In other words, Reading Period continues…

Streaming Profitability? Less So Than July

Back in July I was telling you about Netflix and its remarkable stock price ascension. At the time, its price was rising rapidly with a price flirting with $300, and it was overall looking like a good bet (click on the chart to your right). If the author was to be believed, it was a great bet. Indeed, the stock price rose 60 points in the week following that post (did our loyal readers run out and bid the price up?).

So let this be a lesson about getting your stock tips from The Atlantic, things can change pretty fast these days. Today I pick up my local computer and Netflix shareholders — the ones who haven’t bailed, that is — are bemoaning a stream of remarkable decisions that have kneecapped the company’s stock price, sending it into a free fall back toward $100 per share.

UPDATE: During the time I was writing this post, the stock price opened 40 points lower at about $75. Wow. Here it is in real time.

Of course, this could be one of those cases where Netflix management is taking the long view instead of grubbing for short-term profits. The original argument is that there were significant barriers to entry in streaming content, and that seems to be what management still believes — no close substitutes, no potential entrants with the same type of content.

This will likely make its way into both IO and the Senior Read. A very interesting situation, indeed.

Paul Romer Speaks on Charter Cities

Paul Romer has a vision of turning dystopias into engines of economic growth by establishing “Charter Cities” — new cities with a new set of rules.

How does this work? Well, we’ve plowed this ground once. But for those of you who didn’t wade through The Atlantic Monthly piece, “The Politically Correct Guide to Ending Poverty,” you can get condensed versions with Paul Romer’s TED talk or his interview at VoxEU.

Romer is an exceptional intellect and this is probably worth your 12 minutes. Or 24 if you listen to both.

This Side of The Atlantic

Though the publishing industry is on the rocks, I’ve been getting The Atlantic Monthly for more than 20 years. It’s a great general interest publication that has contained some of my all-time favorites, like “Why McDonalds French Fries Taste So Good,” “The Truth About Dogs,” and the extraordinary “Laws Concerning Food and Drink.” I often will send these to my former students in the Peace Corps, who are always happy to get something interesting. Actually, they are happy to get anything, period.

I was reminded of these when my renewal notice came along with my latest edition and I was wondering whether I should continue to support these guys. The answer was a resounding yes.

Why?

Here are few sample sentences from this month’s issue to wet your beak:

Simpson is not yet selling his rum by the bottle—he serves it at his bar and trades it for other exotic liquors—but I had a chance to try it recently when a sample arrived in the mail. It came in Simpson’s standard packaging: a used whiskey bottle tightly wrapped in a brown paper bag, the cap sealed with duct tape. “Gunpowder on the Rocks“

Then there is this strange and horrifying image:

Many of the visitors to the tin-roofed shrine labeled Pol Pot Cwmation site in Anlong Veng are local men who light incense in the hope that the spirit of the murderous Communist leader will provide them with money for prostitutes. “Dark Tourism“

And, finally, this bit of comedy of absurdity, also strange and horrifying in a different dimension:

“If you’re a terrorist, you’re going to hide your weapons in your anus or your vagina.” He blushed when I said “vagina.”

“Yes, but starting tomorrow, we’re going to start searching your crotchal area” — this is the word he used, “crotchal” — and you’re not going to like it.” “For the First Time, TSA Meets Resistance“

And all that is before I’ve gotten to the feature articles I want to read, which generally run about 2000 words longer than a reasonable person would find reasonable.

The economics writing is a different matter, a lot of what Paul Krugman used to call “pop internationalism.” I remember reading a cover story when I was in grad school called “Head to Head,” where Lester Thurow was arguing that the Japanese and Europeans were going to bury the US in the 1990s (I don’t see that one in the archives now?). It’s not clear why they keep giving that guy space. But, I don’t read it for the economics.

So there you have it, my pitch for you to subscribe to The Atlantic.

Robot Traders

There’s a peculiar piece in The Atlantic about peculiar behavior of robot traders.

As usual, I have no idea what these robots are up to, but it probably isn’t about making me rich. The picture shows “an extreme closeup of just one second of trading of the stock SHG, the Shinhan Financial Group. This is 760 quotes from a total of 10,000 made in 12 seconds.”

RobotVictim — 1000 quotes per second, baby

Now, why would a robot do that? There’s no telling with these robot traders.

My suggestion is to take these pictures and ask Professor Azzi.

I bet he has an explanation.

Can You Think of a Radical Idea to End Poverty?

What’s the best idea out there to reduce poverty and improve urban life? Well, Paul Romer thinks a big part of the answer is his charter city idea. What’s the charter city idea, you ask? I’m not sure, actually. Professor Finkler has been on me to read about it, and I may finally take him up on it, as the new issue of The Atlantic has a feature piece, “The Politically Incorrect Guide to Ending Poverty.”

How’s that for a provocative title?

The article of course profiles Romer, who is by any account a fascinating character.

In the 1990s, Paul Romer revolutionized economics. In the aughts, he became rich as a software entrepreneur. Now he’s trying to help the poorest countries grow rich—by convincing them to establish foreign-run “charter cities” within their borders. Romer’s idea is unconventional, even neo-colonial—the best analogy is Britain’s historic lease of Hong Kong. And against all odds, he just might make it happen.

We’ll see.

In addition to charter cities and making Aplia happen, Romer is also the hero of David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery. The first half of the book is a short course in the history of economic thought; the second is an accounting of Romer’s role in launching endogenous growth theory. Both halfs are well worth reading.

An Oz. of Prevention

The indefatigable Ralph Nader came, he saw, he sold some books, and he raised some hell. Are you wasting the prime of your life with hang ups you should have dealt with as a teenager? Do you find yourself spending more time looking at yourself in the mirror than keeping tabs on Congress? Mr. Nader isn’t shy about asking the tough questions.

I was amazed and surprised with his digression on the 1872 Mining Law and his browbeating of the audience about our ignorance of the statute and its implications. Having done some research on the subject myself, I would put the ball back in his court. Does he know that environmental group opposition is stifling volunteer cleanups of abandoned mines? In this month’s Atlantic Monthly there is a short piece describing the situation. The basic problem is that there is a single policy instrument in place to prevent pollution and to govern cleanups. It turns out, this is like throwing one stone at two birds:

But as these volunteers prepare to tackle the main source of the pollution, the mines themselves, they face an unexpected obstacle—the Clean Water Act. Under federal law, anyone wanting to clean up water flowing from a hard-rock mine must bring it up to the act’s stringent water-quality standards and take responsibility for containing the pollution—forever. Would-be do-gooders become the legal “operators” of abandoned mines like those near Silverton, and therefore liable for their condition. In mid-October, Senator Mark Udall of Colorado introduced a bill that would allow such “good Samaritans” to obtain, under the Clean Water Act, special mine-cleanup permits that would protect them from some liability. Previous good-Samaritan bills have met opposition from national environmental organizations, including the Sierra Club, the Natural Resources Defense Council, and even the American Bird Conservancy, for whom any weakening of Clean Water Act standards is anathema.

In other words, it is the environmental groups who are standing in the way of environmental progress in this case. The reasons for this are straightforward, predictable, and understandable. It is all described cogently in this testimony on similar proposed legislation from ten years ago!

The sad state of affairs is that as the various groups dig in their heels, the acid drainage continues to pollute the waters in the west. Again, from The Atlantic:

Just a few miles from Silverton, in an icy valley creased with avalanche chutes, groundwater burbles out of the long-abandoned Red and Bonita gold mine. Loaded with aluminum, cadmium, and lead, it pours downhill, at 300 gallons a minute, into an alpine stream. The Silverton volunteers aren’t expecting a federal windfall anytime soon—even Superfund-designated mine sites have waited years for cleanup funding, and Udall’s bill has been held up in a Senate committee since last fall. Without a good-Samaritan provision to protect them from liability, they have few choices but to watch the Red and Bonita, and the rest of their local mines, continue to drain.

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