Lawrence Economics Blog

Creative Instruction

Fed Chair Breaking All the Rules?

This bit of amusement is brought to you by the University of Oklahoma’s Kevin Grier. Federal Reserve Chair Ben Bernanke opposes a congressional rule that would require the Fed to follow a policy rule.

“The Fed already has a rule,” Mr. Bernanke said during a panel discussion at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. “It’s committed to hitting a 2% inflation target and aiming for the natural rate of unemployment. These are rules.”

And here are the data showing 33 straight months of consumer prices rising at less than 2%:

 

Provisional Schedule 2015-16

Click here if the times are bleeding into your right margin.

Note UPDATES IN BOLD.  Also, ECON 421 Investments will be offered in a special, directed study format on Tuesdays at 12:30.

Term  # Title Instructor Time
Fall 100 Introductory Microeconomics Lhost MWF 1:50-3
Fall 290 Health Economics Finkler TR  9-10:50
Fall 271 Public Economics Gerard TR 12:30
Fall 208 Sustainable China Brozek TR 2:30
Fall 211 Pursuit of Innovation Galambos MWF 11:10
Fall 300 Intermediate Micro Gerard MTWR 8:30
Fall 405 Innovation & Entrepreneurship Galambos MWF 8:30
Fall 460 International Development Caruthers MWF 1:50-3

 

Term # Title Instructor Time
Winter 100 Introductory Microeconomics Caruthers MWF 9:50-11
Winter 245 Law & Economics Lhost TR 12:30
Winter 200 Development Caruthers TR 2:30-4:20
Winter 380 Econometrics Lhost MTWR 3:10
Winter 420 Money & Monetary Policy Finkler TR 12:30
Winter 444 Political Economy of Regulation Gerard TR 9
Winter 601 / 602 Senior Experience T / R 2:30

 

Term # Title Instructor Time
Spring 100 Introductory Microeconomics Gerard MTWR 8:30
Spring 215 Comparative Economic Systems Galambos MWF 11:10
Spring 225 Decision Theory Lhost MWF 1:50-3
Spring 280 Environmental Economics Gerard TR 12:30
Spring 295 Special Topics: Finance Vaughn MWF 12:30
Spring 320 Intermediate Macro Caruthers MTWR 9:50
Spring 320 Intermediate Macro Caruthers MTWR 3:10
Spring 481 Advanced Econometrics Lhost MWF 11:10
Spring 410 Game Theory Galambos MWF 8:30

 

 

Playing the Market

For those of you interested in financial markets, we have an upcoming talk and a fall seminar that may be of interest.   First up, this Monday, Grinnell College professor, Mark Montgomery, will give a lecture about the ins and outs of “The Notorious Efficient Market Hypothesis,” as he calls it.

The efficient market hypothesis is essentially in two parts:  First, that all publicly available information is immediately internalized into the extant stock price.  Immediately is pretty fast, so it’s tough to beat the market.  So, secondly, it is not possible to earn above average returns without taking above average risks — a disheartening message for any would-be financiers.   I’m certain that Professor Montgomery will give us a lively talk.

The talk is Monday at 4:30 p.m. in Seitz 102.

For those of you interested in learning about how economists think about investments should consider the Investments directed study that we will offer in the fall of 2015.  In the next few weeks we will roll out our 2015-16 schedule, so watch this space for details.

Upcoming Talks (Two from Professor Finkler!)

Monday, February 16, 4:30 p.m., Steitz 102

Mark Montgomery, Grinnell College, “The Notorious Efficient Market Hypothesis,” Economics Colloquium

 

Wednesday February 18, 4:30 p.m.,  Steitz 102 

Merton Finkler, Lawrence University, “Health Policy – A Comparison of UK and US Approaches,”  London Week Special

 

Thursday, February 19, 7:30 p.m., Wriston Auditorium

Merton Finkler, Lawrence University, “China Ranks #1 or Does It? Should We Care?” Povolny Lecture, Wriston Auditorium

 

Tuesday, March 3, 4:30 p.m.,  Wriston Auditorium

Werner Troesken, University of Pittsburgh, “The Pox of Liberty: How the Constitution Left Americans Rich, Free, and Prone to Infection,”  Economics Colloquium sponsored by the Mellon Senior Experience Grant

 

 

 

Non-Trivial Career Services and LSB Message

Following what will undoubtedly be a busy Trivia Weekend, we turn our attention to Career Services and some of the upcoming opportunities for you to consider Life After Lawrence Now.  Starting Wednesday, January 28, and running through the weekend, a number of alumni and friends will be on campus to help you think about your career.  You can see who is going to be here and when by looking at the upcoming events calendar.   Send an email to Career Services if you’d like to reserve a time to meet for a general career chat  (careerservices@lawrence.edu ).

Go to the Career Services website or go drop in for more information.  Check out some of the events after the break:

Continue reading Non-Trivial Career Services and LSB Message

2015 American Economic Association Meetings

Every January, thousands of economists gather for the American Economic Association meetings, to present papers, discuss ideas, and hire new faculty members (!).   Leave it to Nate Silver and his Five Thirty Eight website to send correspondents to cover the proceedings and reports back on what they consider to be the interesting sessions.  These reports include session summaries of Behavioral Economics and Public Policy: A Pragmatic Perspective;  The Economics of Secular Stagnation; and A Discussion of Thomas Piketty’s “Capital in the 21st Century”.  Here is what the last one looks like:

Session Title: A Discussion of Thomas Piketty’s “Capital in the 21st Century”

Presenters: David Weil, Alan J. Auerbach, N. Gregory Mankiw, and Thomas Piketty

Key takeaway: Thomas Piketty, the French economist whose book Capital in the 21st Century — which documented a surge in economic inequality — was a surprising best-seller last year, stood by his work despite some academic economists questioning his statistical analysis and policy recommendations.

Discussion: In his book, Piketty argues that inequality rises when the rate of return on assets (“r”) is higher than the economy’s growth rate (“g”). To him, this is, the principal cause of the current high levels of inequality. He wants to tax wealth to reduce this inequality.

The other economists on this panel had some problems with Piketty’s data, but even more so with his analysis of rising inequality. Specifically, they thought Piketty overestimated “r” in not adjusting for other variables such as taxation and risk.

They further argued that even if he was right, they disagreed with his suggestion for a global wealth tax. Instead, they would favor a progressive tax on consumption — for example, an 80 percent tax on yachts.

Piketty responded that it’s hard to define and measure the consumption of the extremely rich. As he remarked, “billionaires consume more than food or clothes — they consume power, politicians, journalists, and academics.” He argued that a wealth tax has practical advantages over a progressive consumption tax: it’s easier to implement because wealth is easier to define.

Not surprisingly, the Five Thirty Eight correspondents gravitated to some of the high-profile sessions where some of the bigger names in the profession participated.  The  secular stagnation session, for example, includes Greg Mankiw, William Nordhaus, Larry Summers, and Robert Gordon, each “famous” in his own right.

If the titles above have piqued your interest, you can go to the AEA website and check out webcasts of selected sessions, including each of the sessions listed above.

 

FT Best Books List

Professor Finkler points me to The Financial Times ten best books of 2014, including these that have been on my radar in one form or another:

We will be reading an abbreviated version (via Foreign Affairs) of the Calomiris and Haber book in Political Economy of Regulation course this term.  They forward a theory on why some banking systems are stable and have few crises (Canada, Scottland), whilst others are more susceptible to shenanigans and hence are less stable (U.S., England).

The Dixit book might be just what we are looking for in terms of a “textbook” for Econ 100, as the Very Short Introduction series is generally excellent.   I have also been collecting links for the Piketty book for the better part of the last year and a half.   I have read at least ten review pieces, and perhaps this summer I will sit down and slog through it.  More to come on that one.

Finally, I am starting up with John Lanchester, a name possibly more familiar to English majors than economists.  Nonetheless, Lanchester seeks to use “plain language” to convey complicated economics and financial terms to the layman.  More on that later.

Annual Holiday Guide

It is once again that time of year where we bid you Happy Holidays from the Economics profession.  Long-time readers may recognize this post from the past three or four year’s worth of iterations, but I guarantee 10% new content per year.

And, away we go!

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 who are intermediate micro students, you know that the kids (a.k.a., utility-maximizing agents) always prefer cash over any in-kind equivalent.

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

It is probably noteworthy that the median leading economist probably doesn’t believe this.

Although Berkeley’s Hillary Hoynes is in strong agreement, her colleague Carl Shapiro cries “Balderdash!” Princeton’s Angus Deaton goes so far to say that “This is the sort of narrow view that rightly gives economics bad name.”  Harvard’s David Cutler is not sure what to say, but he is sure that he doesn’t “want to be a Scrooge”. (See here for a complete summary, replete with Christmas Cards!).

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. This year I expect shoelaces.

***Okay, that was a solid joke back when I wrote it and the Euro was doomed.

Coming Soon

Behold!, the schedule for the remainder of the year.  Click here to see a less jumbled version.   Click here for the Registrar’s version.  Grab an econ professor if you have any questions.

 

WINTER TERM

● ECON 100 ● INTRODUCTORY MICROECONOMICS ●  08:30-09:40 MWF BRIG 423 ● Hillary Caruthers

● ECON 200 ● ECONOMIC DEVELOPMENT ● 01:50-03:00 MWF BRIG 217 ● Hillary Caruthers

● ECON 225 ● DECISION THEORY ● 12:30-01:40 MWF BRIG 223 ● Adam Galambos

● ECON 380 ● ECONOMETRICS ● 03:10-04:20 MTWF BRIG 223 ● Jonathan Lhost

●ECON 380 ● ECONOMETRICS ● 08:30-09:40 MTWF BRIG 223 ● Jonathan Lhost

● ECON 410 ● ADV GAME THEORY & APPLICATIONS ● 09:50-11:00 MWF BRIG 217 ● Adam Galambos

● ECON 415 ● INDIVIDUALITY & COMMUNITY ● 12:30-02:20 TR BRIG 225 ● Steven Wulf

● ECON 425 ● ENTREPRENEURIAL VENTURES ● 11:10-12:20 MWF BRIG 223 ● Gary T. Vaughan

● ECON 444 ● POLITICAL ECONOMY OF REGULATION ● 09:00-10:50 TR BRIG 217 ● David Gerard

● ECON 601 ● SENIOR EXPERIENCE: READING OPTION ● 12:30-02:20 T BRIG 217 ● David Gerard

● ECON 602 ● SENIOR EXPERIENCE: PAPER ● APR ● 12:30-02:20 R BRIG 217 ● Merton D. Finkler

 

SPRING TERM

● ECON 100 ● INTRODUCTORY MICROECONOMICS ● 01:50-03:00 MWF BRIG 223 ● Hillary Caruthers

● ECON 223 ● QUANTITATIVE DECISION-MAKING ● 09:00-10:50 TR BRIG 223 ● David Gerard, Alan Parks

● ECON 245 ● LAW AND ECONOMICS ● 12:30-02:20 TR ● Jonathan Lhost

● ECON 255 ● START-UP THEATRE ● APR ● 02:30-04:20 TR ● Timothy X. Troy

● ECON 280 ● ENVIRONMENTAL ECONOMICS ● 12:30-02:20 TR ● David Gerard

● ECON 295 ● TOP: FINANCE ● 12:30-01:40 MWF BRIG 223 ● Gary T. Vaughan

● ECON 320 ● MACROECONOMIC THEORY ● 03:10-04:20 MTWR BRIG 223 ● Merton D. Finkler

● ECON 460 ● INTERNATIONAL TRADE ● 09:50-11:00 MWF BRIG 217 ● Hillary Caruthers

● ECON 495 ● TOP: APPLIED ECONOMETRICS ● 03:10-04:20 MWF ● Jonathan Lhost

“Pencil-necked academics” and the VSL

H. Spencer Banzhaf has a very cool piece in the new Journal of Economic Perspectives on the intellectual history of the concept of the value of a statistical life (VSL).  This evidently owes some debt to work at the RAND Corporation, where analysts were addressing the “classic problem” of maximizing damages to the enemy subject to a budget constraint.  The proposed solution of sending up lots of vulnerable decoy planes to distract the Soviets, however, hit a snag with the Air Force:

While RAND was initially proud of this work, pride and a haughty spirit often go before a fall. RAND’s patrons in the US Air Force, some of whom were always skeptical of the idea that pencil-necked academics could contribute to military strategy, were apoplectic. RAND had chosen a strategy that would result in high casualties, in part because the objective function had given zero weight to the lives of airplane crews. In itself, this failure to weigh the lives of crews offended the US Air Force brass, many of whom were former pilots.* (Banzhaf 215).

In response, some of the big thinkers at RAND, including legendary UCLA economists Jack Hirshleifer and Armen Alchian, went to work framing the problem.

In our society, personnel lives do have intrinsic value over and above the investment they represent. This value is not directly represented by any dollar figure because, while labor services are bought and sold in our society,human beings are not. Even so, there will be some price range beyond which society will not go to save military lives. In principle, therefore, there is some exchange ratio between human lives and dollars appropriate for the historical context envisioned to any particular systems analysis. Needless to say, we would be on very uncertain ground if we attempted to predict what this exchange ratio should be.

But picking out what the exchange ratio should be is exactly what the Value of Statistical Life is all about.  So, eventually, Thomas Schelling picked up on the problem with Ph.D. student Jack Carlson, culminating in Schelling’s 1968 piece, “The Life You Save May Be Your Own” exploring tradeoffs in willingness to pay for reductions in microrisks.  According to Banzhaf, Schelling’s contribution was to make the connection between public policy tradeoffs between lives and equipment and individual decisions involving risk (e.g., taking “hazard pay” that provides a premium for taking more dangerous assignments) (Banzhaf 222).

Earlier this term I gave the Freshman Studies lecture on Schelling’s Micromotives and Macrobehavior and spoke extensively about microrisks, though I was not aware of this particular contribution.  I guess I will put that incorporate that if I give another talk next year.

References after the break.

* Banzhaf also gives us a taste of public choice to go along with that:  “But moreover, that failure led RAND’s program to select cheap propeller bombers rather than the newer turbojets the US Air Force preferred” (215).

Continue reading “Pencil-necked academics” and the VSL

Semi-Annual Daylight Savings Post

Those of you who follow this blog have probably noticed that I (a) study mortality risks, and (b) that I have something to say about how those mortality risks change when the clocks spring forward and fall backward.   This fall is no exception, as I am quoted in a blurb on the Time magazine blog about how things are about to get more dangerous late in the day as a result of the time change.

Behold!:   The break in the series starting in month 11:

The Appleton Day

 

That’s daylight for Appleton, Wisconsin, from the remarkable Gaisma.com site.  Starting Sunday it is going to be dark at 5 p.m.  meaning that you are far more likely to get hit by a car at 5 p.m. next week than you are this week.   When I say “far more likely,” our estimate is that the risk is about three times as high!

Of course, you are also far less likely to get hit at 6 a.m. in the extremely unlikely event that you are out 6 a.m.  But, notice, but January 1 the sun won’t rise until after 7 a.m., and if DST was permanent, that would be 8 a.m.   Sunlight is the ultimate scarce resource.

Here is our previous coverage.

 

Economics / Gender Studies Talk

Claudena Skran
Professor of Government
Lawrence University

UNHCR’s Gender Policy for Refugees in Sierra Leone: Economic vs. Political Agency​

 ABSTRACT: The challenge of integrating refugee women into societies recovering from warfare is a difficult one.  Although numerous programs by the UN and other actors exist to promote women’s economic agency and political participation, few studies have examined their impact.  This project tries  to close that gap by examining the gender policy of the Refugee Agency of the UN in Sierra Leone, West Africa.  Based on research in the Kailahun District, the site of the recent Ebola outbreak, this talk will argue that while many projects benefited women and girls by improving economic livelihoods and access to education, similar efforts to improve health care failed.   In addition, the talk will consider how to best promote the participation of women in a democratic political process.

Thursday, October 30
Steitz Hall 202
4:30 p.m.

Why Study the Liberal Arts?

Economist and President of Randolph College, Brad Bateman, discusses the value of the liberal arts in an opinion piece in the Pittsburgh Post-Gazette.   Here’s the punchline:

There is a deep irony in the fact that a liberal-arts education is great preparation for employment. It is not designed for that purpose, but rather to prepare people to live as free citizens. It just happens that the breadth of learning required to create well-functioning citizens also is great preparation for being an effective employee.

President Bateman was on campus in 2013 discussing the role of advising as an integral part of the liberal education.

Tirole wins Nobel; Galambos wins Nobel-Picking Contest

Jean Tirole is the sole winner of the 2014 Nobel Prize in Economics, for his work on industrial organization. He is certainly well-known among graduate students, as his industrial organization textbook was the industry standard for decades.  He is a favorite on Briggs 2nd for, among other things, his classic 1980s co-authored piece, “The Fat-Cat Effect,the Puppy-Dog Ploy, and the Lean and Hungry Look.”

Some of his more recent work is on platform markets, which is the subject of our ECON 495 course this term!   Here is Alex Tabarrok’s take:

Platform markets or two-sided markets are markets where a firm brings together two or more sides both of whom benefit by the existence of the platform and both of whom may (or may not) be charged. A trivial but telling example is the singles bar that brings together men and (usually) women. Other examples are the Xbox a platform for game players and game developers, credit cards bring together buyers and firms that accept that card, newspapers bring together readers and advertisers, mall brings together stores and customers.

A key difficulty in these markets is that the price charged to one side of the market influences the demand on the other side of the market… [T]he cost of the technology that goes into an X-box console is often more than or not much less than the price of the console. So Microsoft sells the console at near cost and instead makes it money by charging game developers for the right to write games for the Xbox.  Antitrust and regulation issues come into play here because the two sets of prices may look discriminatory or unfair. In a mall, for example, it’s often the largest firm (the anchor) that gets the lowest price (sometimes even zero!). Does this represent an unfair advantage that a large firm has over smaller rivals or is it a rational consequence of the fact that the anchor store may bring the most customers to the other, smaller stores in the mall so that the total package is welfare maximizing? Is Microsoft engaging in predatory pricing if it prices the Xbox at or below cost?…  Platform markets mean that pricing at marginal cost can no longer be considered optimal in every market and pricing above marginal cost can no longer be considered as an indication of monopoly power.

Professor Galambos picks up the department prize for his selection.