Steven Landsburg: Just Wow

Tag: Steven Landsburg: Just Wow

Summertime Rolls: Flipping Out, Going Bananas, and Finally Tying the Knot

It’s been a while since we updated the blog here, so let’s kick off the summer by getting back to the basics.

First, the Food Lab grills us on our grilling knowledge. Do you think you should only flip your steak once? Perhaps you are cooking your steaks wrong. Wouldn’t surprise me.

Next up, Radius Foundation director Terry Moore gets up at a TED conference and tells us we are tying our shoes wrong. Who knew?

Finally, an oldie but goodie, Steven Landsburg wonders whether we are peeling our bananas from the wrong end. Bananas have been a ripe topic in both my Econ 300 course and Econ 100 courses. On the one hand, they are both delicious and nutritious. On the other hand, one of our “Economic Naturalists” wonders why they are such a scarce resource on Warch first.

Who says a liberal education isn’t transformative?

The Antitrust Legacy of Robert Bork

Whether one looks at the texts of the antitrust statutes, the legislative intent behind them, or the requirements of proper judicial behavior, therefore, the case is overwhelming for the judicial adherence to the single goal of consumer welfare in the interpretation of the antitrust laws.

That’s from the late Robert Bork, who died earlier this week. I’m putting this one in a “people you should know” category. Bork was a Yale law professor and sometimes Justice Department official who is most famous for having his nomination to the Supreme Court shot down for being too conservative, or too wacky, or too something. Whatever the reasons, the confirmation hearings and their aftermath are stuff of legend. (As was Bork’s beard!).

But for economists Bork’s greatest influence was certainly in the area of antitrust, and in particular his book, The Antitrust Paradox, from whence the above quotation was plucked. Indeed, Bork is a seminal figure in the law and economics movement. Note that Bork contends that consumer welfare is the end of antitrust policy, not the protection of firms from competition, not whether a given market is competitive or not, not even total welfare (!). Think about that.

Steven Landsburg says that Bork won the antitrust argument and that we’re all the better for it.

Tyler Cowen also points us to some links discussing Bork’s life and legacy.

UPDATE: A big piece on Bork’s influence in the Washington Post.

Money in the Market

There has been a recent spate of students asking me for advice on how to “invest” their extra money. My initial reaction has generally been “in a better hair cut,” but it is probably also useful to tell them how economists think about what’s going on in the equities and securities markets.

So, in that spirit, here are a couple of introductory readings that I would recommend, all available in The Mudd or free online:

Steven Landsburg, “Random Walks and Stock Market Prices: A Primer for Investors,” in The Armchair Economist (initial publication in 1993, updated “for the 21st century” in 2012).

Burton Malkiel, A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (most recent edition in 2007).

Burton Malkiel, “The Efficient Market Hypothesis and Its Critics,” Journal of Economic Perspectives, 17(1):59-82

Robert J. Shiller “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives, 17(1): 83–104.

Again, these are simply very good accounts of how mainstream economists view the financial world, so this is not an endorsement of any particular investment strategy and shouldn’t be taken as investment advice.

Unless it works, in which case by all means I’m happy to take credit.

“Get Her Something Expensive and Useless”

It’s that time of year where we bid you Happy Holidays from the Economics profession.

Up first, we have a truly heroic figure, Joel Waldfogel, author of Scroogeonomics.* I don’t know your preferences as well as you do, so whatever I give you is probably sub-optimal, unless you tell me exactly what you want. And even then, wouldn’t you rather just have the cash anyway? For those of you intermediate micro students, you know that kids prefer cash over any in-kind equivalent.

Kudos to Professor Waldfogel for willing to be “that guy.”

Speaking of Scrooge, was he really such a bad guy? Not so, says Steven Landsburg. Let’s give it up for our annual Scrooge endorsement from this classic Slate piece:

In this whole world, there is nobody more generous than the miser–the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer–because you produced a dollar’s worth of goods and didn’t consume them.

Ah, I just feel all warm and fuzzy inside.

Moving on to The Atlantic, where we have “The Behavioral Economist’s Guide to Buying Presents.” Now this is some truly indispensable advice. Like Waldfogel above, the money point is to just give money. But, for the true romantics who feel compelled to give a gift, the behavioralists recommend this:

Buying for a guy? Get him a gadget. Buying for a girl? Get her something expensive and useless.

The gadget I get.** The expensive and useless? That’s from Geoffrey Miller’s, The Mating Mind. Here’s a brief explanation of courtship:

The wastefulness of courtship is what makes it romantic. The wasteful dancing, the wasteful gift-giving, the wasteful conversation, the wasteful laughter, the wasteful foreplay, the wasteful adventures. From the viewpoint of “survival of the fittest” the waste looks mad and pointless and maladaptive… However, from the viewpoint of fitness indicator theory, this waste is the most efficient and reliable way to discover someone’s fitness. Where you see conspicuous waste in nature, sexual choice has often been at work.

This presents something of a conundrum because “expensive and useless” seems to be at odds with Waldfogel’s hyper-utilitarian cold, hard cash suggestion.

So if you want to hedge your bets, give her Euro!

…

* The book is a follow up to the classic, “The Deadweight Loss of Christmas.” Clearly, the book title Scroogonomics can be chalked up to the value-added of the publishing house.

**Conceptually, that is. I generally get ties and socks.

Capitalism and Friedman

Yesterday was the 50th anniversary of John F. Kennedy’s inaugural address that exhorted Americans to “Ask not what your country can do for you — ask what you can do for your country.” Although the expression is iconic and emblematic of the selfless nature of public service, not everyone was impressed. Indeed, free-market champion Milton Friedman opens his libertarian polemic, Capitalism and Freedom, with this:

IN A MUCH QUOTED PASSAGE in his inaugural address, President Kennedy said, “Ask not what your country can do for you — ask what you can do for your country.” It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic “what your country can do for you” implies that government is the patron, the citizen the ward, a view that is at odds with the free man’s belief in his own responsibility for his own destiny. The organismic, “what you can do for your country” implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather “What can I and my compatriots do through government” to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom? And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect? Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Well, that’s a take I didn’t hear in my civics classes.

I was reminded of this in a recent discussion of theory of advocacy revolving around Schumpeter and Marx, where Friedman’s name came up. Schumpeter fleshes out the implications of science and ideology in his brilliant 1948 address to the American Economics Association, “Science and Ideology.”

Our Annual Scrooge Endorsement

From last year: an oldie, but goodie.:

Before The Accidental Theorist, before Freakonomics, there was The Armchair Economist, and that’s Steven Landsburg.

In this Slate piece, Landsburg makes the case that Scrooge wasn’t such a bad guy, and that savings, in fact, might just be more virtuous than spending. To wit:

In this whole world, there is nobody more generous than the miser–the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer–because you produced a dollar’s worth of goods and didn’t consume them.

You will know you’ve arrived as an economist when you can annoy your brethren by expounding on the virtues of Scrooge over the holiday season. For more pithy advice from Landsburg, we’ll be using his text in Economics 300 next fall.

See you there.

You might also want to check out the links at the O&M blog, including the fabulous Santa on leadership.

What Can Brownies Do for You?

After yesterday’s spirited discussion of the nature of the long-run supply curve, tomorrow we will kick off with the classic brownie problem:

Brownies sell for $12 a dozen and are available only in packs of a dozen. You choose to buy two packs a month. If sellers begin offering brownies at $1 each, what can you say about the quantity you will buy?

Check into Econ 300 Friday for the answer.

The 300 Challenge, Parts 1 & 2

What is it with Steven Landsburg and apples?

PART 1: Audrey shops at Wegman’s supermarket, where she spends $20 a week to buy 10 apples and 5 bananas. IF she bought the same 10 apples and 5 bananas at Top’s supermarket, she’d pay $30. True or False: Audrey is wise to continue shopping at Wegman’s. (Hint: This is easy).

PART 2: You earn $100. You can use your $100 to buy 100 current apples, 200 future apples, or any combination in between.

Consider a 50% tax on wages versus a 40% tax on all income (that is, wages and interest income) and assume both taxes raise the same amount of revenue.

Which tax do you prefer? Under which tax do you consume more (and save less) today? (Hint: I’m not sure if this is easy or not).

Landsburg on Reinhart on Efficiency

Last week, Professor Finkler posted some preliminary thoughts on Uwe Reinhart’s “Is ‘More Efficient” Always Better?” This week, everybody’s favorite textbook author, Steven Landsburg, chimes in with a nice exposition on why it’s worthwhile for economists to beat the drum for efficiency analysis.

First, emphasizing efficiency forces us to concentrate on the most important problems. Second, emphasizing efficiency forces us to be honest about our goals.

He then runs through some nice examples (that Econ 300 students will be looking at when we get to Chapter 9), and concludes with this:

The advantage of an efficiency analysis (along, say, the lines suggested here) is that it would force Professor Reinhardt’s colleague to be clear about his priorities. Is he, for example, concerned primarily about increasing current output or about redistributing current output? Either might be a worthy goal, but we can’t have a useful debate with someone who won’t tell us what his goals are.

Wow, I’m getting excited just thinking about this.

Can you hear me?

There often seems to be a disconnect between what academics say and what other people hear, but the problem seems particularly acute in the economics profession. Steven Landsburg has a rather amusing post on the subject, detailing how what we think are rather innocent comments can make us sound rather callous, to say the least.

Here’s my favorite from that piece:

A few years ago, in the state of Washington, some apartment buildings were converted to public housing. The buildings were described as having “million dollar views”. I was a silent witness to a conversation that went like this:

Person A: They’re giving million-dollar views to people below the poverty line?!!!???!

Person B (in an aside to Person C): He’s got some problem with that?

Well of course he’s got a problem with that. Ask any poor person in America to choose between a million-dollar view and a million dollars cash, and I guarantee you he will take the cash. So how callous would you have to be to give that person a grand apartment instead of selling the apartment and giving him the cash?

That, I am certain, is what Person A (who had some economics training) meant. What Person B heard was something like: “Why would you want to do anything nice for poor people?”

I’d probably take the cash, too.

Food for Thought, Students Going Bananas

This question came up in class the other day — are you peeling your bananas wrong? As usual, the Armchair Economist Steven Landsburg has something to say about the matter:

My friend Petal peels her bananas from the bottom. Well, it’s the top, actually, since bananas grow upside down. Come to think of it, that’s not quite right either—bananas grow the way they grow, which should be right-side up by definition, even if we think of them as upside down. So let me start over. Petal peels her bananas from the end without the stem.

Petal’s method is counterintuitive and thus instantly appealing to economists, who love nothing more than to overturn conventional wisdom. Multiple experiments (well, two experiments, actually, since we only had two bananas) quickly convinced a majority of the department that Petal’s way is—surprisingly—easier than the traditional method, though the econometricians thought you’d need to test at least 30 bananas to report that result with confidence. The labor economists immediately resolved to apply for a grant.

Still not convinced? Well, you aren’t alone. But the peel-from-the-bottom case is a compelling one:

In the anti-Petal camp, we have the theorists who argue that peeling from the stem end must be optimal because that’s what people do. But Petal counters—and indeed this is her clincher argument—that monkeys do it her way (though I think it would be more accurate to say that she does it the monkeys’ way) and monkeys are the real experts.

If such knotty problems interest you, you should consider taking Econ 300 with me this fall. In fact, you should consider it anyway.

Savings = Investment, Ebenezer Scrooge Edition