Lawrence Economics Blog

Creative Instruction

“You could walk out rich. Rich!”

Jordan Weissmann at Slate has a fabulous opening in his most recent post:

Want to guarantee yourself a steady, well-paid career? Major in engineering. Want to take a shot at striking it rich? Then major in economics.

Now, I realize that money isn’t everything, it can’t buy you love, etc, etc… but the idea that economics majors are disproportionately represented at the top of the income distribution is too tempting to pass by.  Weissmann draws this conclusion after looking at a Hamilton Project report and an accompanying interactive tool that probes the distribution rather than the average earnings of various college majors (as well as comparing a college degree to various other levels of education).  As one might expect, the college degree is still a premium, and you can bank on quantitative skills:

Majors that emphasize quantitative skills tend to have graduates with the highest lifetime earnings. The highest-earning majors are those in engineering fields, computer science, operations and logistics, physics, economics, and finance.

That takes care of average earnings.   But the Hamilton Project does something clever and plots the distribution of lifetime earnings by major.  Here, Weissmann shows the lifetime present discounted value of earnings for a selection of popular majors — engineering, English, business administration.   Note that the median (50th percentile) engineering major earns more than the other majors, but as you move to the upper-end of the distribution, economics majors make considerably more money:

Economists surpass engineers at about the 60th percentile and the highest-paid econ grads can expect to make $3 million more (in NPV terms) than the highest-paid engineering grads.  Notice that economics and business management are not close substitutes at all in the figure, as the management grads don’t fare nearly as well at any point in the distribution, and certainly not at the  top. That observation is possibly consistent with some evidence on who becomes a CEO.

The lifetime earnings calculation is not a straight number, but a present value calculation at a 3% discount rate.  To provide a wee bit of perspective, an individual that graduated college into a $50,000 per year job and got a 3% raise every year would retire at age 65 with an income of approximately $175,000.  The NPV of that individual’s lifetime earnings would be just north of $2 million, which is right about the median lifetime earnings of a typical engineering and econ graduate. Not bad, but not exactly the 1%, either.

The interactive tool is pretty cool.  I changed the majors to include computer science, mathematics, and art history.  Predictably, the art history majors lag behind the other disciplines, but it is interesting to note that the top-earning, say, 10% of art history graduates have lifetime earnings higher than about 70% of the economics graduates.

Earnings Data

The thread title, of course, is a quote from Ben Loman.

The 4th or Possibly the 5th Predict the Nobel Prize in Economics Competition

Nobel
Any news?

Once again it’s time where I (sometimes) remember to post the Vegas odds on the Nobel Prize in Economics.  Here are the venerable Thomson Reuters predictions for the 2014 cycle:

  • Philippe M. Aghion and Peter W. Howitt for contributions to Schumpeterian growth theory
  • William J. Baumol and Israel M. Kirzner for their advancement of the study of entrepreneurism
  • Mark S. Granovetter for his pioneering research in economic sociology

Wow, if you had to pick three topics of interest at Lawrence economics, you could do worse than Schumpeterian growth theory, entrepreneurism, and economic sociology.

For my pick, I would probably  take Daron Acemoglu if he wasn’t so young.   Last year I picked Philippe Aghion, so maybe I should just go ahead and pick him again this year?

Professor Galambos is going with Paul Milgrom and/or Jean Tirole.

Professor Caruthers is picking Daniel Hamermesh

UPDATE:  Tyler Cowen goes with William Baumol and William Bowen for their work on the venerable cost disease.

Send me your picks or put them in the comments.

Must be 18 or older to enter, void where prohibited.

Econ Colloquium, Wednesday at 4:30

Have you ever wondered if school boards matter?  What the trade-off is between administrative expertise and the public will?   If so, it’s your lucky day…

Knowledge, Vision, and Academic Return on Investment:
Do School Boards Matter?
 
Arnold Shober, Lawrence University
Michael Hartney, Lake Forest College
 

What is the trade-off between representation and expertise?  The American school board is an iconic institution of representative, local government, but one that attracts very little attention.  Fewer than 10 percent of voters bother to meander to the polls for school board elections.  Yet school boards are in the center of high-stakes debates about the Common Core, academic achievement, property taxes, school finance, and teacher assessment.  Using a national survey of school board members and our own calculation of district-level student achievement, we describe whether school board members appear to have the capacity to govern — and how that capacity relates to a key policy output, students’ academic performance.

Wednesday, October 1, 4:30 p.m.

Steitz Hall 102

Econo Life, It’s Super Fun!

John Cawley has updated his indispensable paper for young Ph.D. economists searching for new positions, “A Guide and Advice for Economists on the U.S. Junior Academic Job Market: 2014-2015 Edition.”  Though I realize most of the paper is irrelevant for this (or any) audience, these facts are remarkable:

[A]lmost everyone lands a job that they like…. In fact, National Science Foundation data indicate that Ph.D. economists have the lowest unemployment rate (0.9%) of any doctoral field, as well as one of the highest median salaries of any doctoral field. Finally, the vast majority of people are happy with the outcome of their search. Of the new Ph.D. economists in 2001-02, 94% reported that they liked their jobs very much or fairly well.

My emphasis because, Wow!   Those of you interested in pursuing a Ph.D. in economics, applied economics, agricultural economics, law & economics, or public policy, should consider having a chat with several members of our faculty.

For our previous coverage, see here.

iArbitrage Opportunities?

The limited release of the iPhone 6 has Jason Kottke wondering about international arbitrage, what he calls a “black market.”   Check out the video.

He links us up to Bloomberg News report on international arbitrageur, Mr. Liu, who is a specialist in matching up international supply and demand:

While the device debuted today in the U.S., Hong Kong, Japan and Australia, there is no release date set for the world’s biggest smartphone market. That creates an opportunity for Liu, who promises two-day delivery of a 16-gigabyte iPhone 6 for 8,000 yuan ($1,303) — almost double the price on Apple’s Hong Kong website. 

What a great quote:

“It’s going to be a while before the new iPhone comes to China officially, so if you want it now, you have to pay up…  Give me a call if you want one.”

It’s not clear to me where the moral high ground is — why should citizens in western countries have preferential access to these new technologies?  Is there really anything wrong with hooking our Chinese brethren up with a phone when they come out, rather than having them wait three months like the last iPhone release?   Again, here’s Bloomberg:

The phones are multiband devices that will work anywhere. Yet anyone selling a device on China’s black market breaks at least two laws — the requirements to pay hefty import duties and to only use mobile phones sanctioned for sale by the government.

There it is.

Does Free Trade Raise Prices?

Good question?  Seems like something that would make economists snort coffee through their collective noses, but according to today’s Wall Street Journal, the better part of the world holds a contrarian view:

Yikes!   That’s kind of depressing, though it dovetails nicely with my discussion of comparative advantage in ECON 300 tomorrow, along with Paul Krugman’s classic piece, “Ricardo’s Difficult Idea.”

My objective in this essay is to try to explain why intellectuals who are interested in economic issues so consistently balk at the concept of comparative advantage. Why do journalists who have a reputation as deep thinkers about world affairs begin squirming in their seats if you try to explain how trade can lead to mutually beneficial specialization? Why is it virtually impossible to get a discussion of comparative advantage, not only onto newspaper op-ed pages, but even into magazines that cheerfully publish long discussions of the work of Jacques Derrida? Why do policy wonks who will happily watch hundreds of hours of talking heads droning on about the global economy refuse to sit still for the ten minutes or so it takes to explain Ricardo?

All good questions, and I buy most of Krugman’s answers:

(ii) [C]omparative advantage is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. A trained economist looks at the simple Ricardian model and sees a story that can be told in a few minutes; but in fact to tell that story so quickly one must presume that one’s audience understands a number of other stories involving how competitive markets work, what determines wages, how the balance of payments adds up, and so on.

(iii) [O]pposition to comparative advantage — like opposition to the theory of evolution — reflects the aversion of many intellectuals to an essentially mathematical way of understanding the world. Both comparative advantage and natural selection are ideas grounded, at base, in mathematical models — simple models that can be stated without actually writing down any equations, but mathematical models all the same.

My emphasis.  See you tomorrow.

 

Intermediate Micro on the Horizon

Undergraduates are not yet like the white queen, willing to believe 6 impossible things before breakfast.  — Rakesh Vohra

Not sure what about that quote is so amusing to me.

Professor Vohra is blogging on his re-imagining of the intermediate theory course.   I am not certain that I am ready for a wholesale overhaul, but I will be following this one closely.

 

 

Advice to Potential Majors

Students interested in a major in Economics should begin with introductory classes in economics and mathematics.  The first economics class is ECON 100.*

Students who have taken intro or who have Advanced Placement credit should consider taking 200-level classes based on their own interests (e.g., 200 Development Economics, 205 International Economics, 245 Law & Economics, 280 Environmental Economics).

There are three intermediate theory courses that are offered sequentially each year – ECON 300 Microeconomics in the fall, ECON 380 Econometrics in the winter, ECON 320 in the spring.  These courses are most effective when taken sequentially in either the sophomore or junior year.  Freshman should not enroll in these courses.

Sophomore year is a good time to take ECON 225 Decision Theory.   This is not a required course, but we recommend it for all majors and minors.

The introductory mathematics courses are essential because they are foundational both to intermediate theory courses and to elementary statistics.  Calculus (MATH 120 and 130 or MATH 140) is a prerequisite for ECON 300 and ECON 320.  Calculus is also a prerequisite for Statistics (MATH 207), and Statistics (MATH 107 or the equivalent) is a prerequisite for ECON 380.

For the purposes of the Economics Department, we believe students should consider MATH 120 and 130 if they are interested in applied problem solving and developing some Excel skills.   Students who plan to take math beyond the calculus sequence should take MATH 140.   The decision on which calculus to take is probably worth a discussion both with the math and the econ department faculty.

A typical sequence for a student who comes in as an economics major.

Freshman:          Introductory Economics (ECON 100), 200-level courses based on student interest, Calculus (MATH 120 and 130 or MATH 140).

Sophomore:       Intermediate sequence (ECON 300, 380, 320), 200-level courses based on student interest, Statistics (MATH 207 107).  ECON 300 and MATH 207  107 are offered in the fall.

Junior-Senior:    Advanced electives.

 This sequence can be pushed back a year for those who decide during their sophomore year to pursue an economics degree.

MINOR: At this point the minor requirements are indeed minor.  No significant planning is necessary during the Freshman year to complete this degree, though our recommendations in terms of taking introductory economics and mathematics courses remains the same for majors and minors alike.

 

 

 

Updated Schedule, Redux

This is the amended schedule for 2014-15 as of July 21.  The Registrar’s office will incorporate these changes in the next few weeks.   The one addition is the 8:30 a.m. econometrics section!!!    Development Economics has moved from the fall to the winter.

 

FALL TERM
100 INTRO MICRO Lhost MWF 1:50-3:00
200 DEVELOPMENT Staff MWF 9:50-11
205 INTERNATIONAL ECON Caruthers MWF 12:30-1:40
211 IN PURSUIT OF INNOVATION Galambos, Brandenberger MWF 11:10
300 MICROECONOMIC THEORY Gerard MTWR 8:30-9:40
300 MICROECONOMIC THEORY Gerard MTWR 9:50-11
495 MARKETS AND INNOVATION Galambos, Gerard MWF 1:50-3:00
500 ADVANCED MICROECONOMICS Galambos See Instructor
WINTER TERM
100 INTRO MICRO Caruthers MWF 8:30-9:40
200 DEVELOPMENT Caruthers MWF 1:50-3:00
225 DECISION THEORY Galambos MWF 12:30-1:40
215 COMPARATIVE ECON SYSTEMS Galambos MWF 8:30-9:40
380 ECONOMETRICS Lhost MTWF 8:30-9:40
380 ECONOMETRICS Lhost MTWF 3:10-4:20
410 ADV GAME THEORY Galambos MWF 9:50-11:00
425 ENTREPRENEURIAL VENTURES Vaughan MWF 11:10-12:20
444 POLITICAL ECON OF REGULATION Gerard TR 9:00-10:50
495 INDIVIDUALITY & COMMUNITY Wulf TR 12:30-2:20
601 SENIOR EXPERIENCE: READING Gerard T 12:30
602 SENIOR EXPERIENCE: PAPER Finkler R 12:30
SPRING TERM
100 INTRO MICRO Caruthers MWF 1:50-3:00
223 QUANTITATIVE DECISION-MAKING Gerard, Parks TR    9:00-10:50
245 LAW AND ECONOMICS Lhost TR    12:30-2:20
280 ENVIRONMENTAL ECONOMICS Gerard TR  12:30-2:20
295 TOP: FINANCE Vaughan MWF 12:30-1:40
320 MACROECONOMIC THEORY Finkler MTWR 3:10-4:20
460 INTERNATIONAL TRADE Caruthers MWF 9:50-11:00
495 APPLIED ECONOMETRICS Lhost MWF 3:10-4:20

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.

Supremes 1 Economists 0

No, this is not the score of a virtual soccer match designed to parallel the World Cup.  It’s Uwe Reinhardt’s assessment of Monday’s Supreme Court ruling in Burwell v. Hobby Lobby.

As Reinhardt puts it “These justices seem to believe that the owners of ‘closely held’ business firms buy health insurance for their employees out of the kindness of their hearts and with the owners’ money.  On that belief they accord these owners the right to impose some of their personal preferences – in this case their religious beliefs – on their employee’s health insurance.”

The literature in economics is clear on who pays for employer organized health insurance: most of the burden is borne by employees, no matter who actually “writes the check.”  Health plan coverage benefits are part of employee compensation.  In contrast with the argument made by “The Supremes,” all employers subject to competition in the goods and services they produce and sell have to compare the total compensation to labor with the value generated by such labor.

Since many employees have virtually no choice in the type of health care coverage they receive, in the United States we effectively grant “quasi parental power” to their employers.  Furthermore, such powers carry over into other aspects of employee’s personal life including retirement plan choices and wellness programs.  I find it intriguing that a Supreme Court with a strong contingent that believes in primacy of liberty accepts such restrictions on personal freedom.

The Affordable Care Act (aka ObamaCare) may right the balance as next year small businesses and their employees, in addition to the more than 8 million individuals who signed up this year through the exchanges, will leave employer paternalism for more choice and better value (especially for those who are able to take advantage of income-related Federal governmental subsidies.) Wouldn’t it be ironic if this Supreme Court decision actually underpins support for participation in the health plan exchanges and thus the ACA?

World Cup Infographic

From the always helpful folks at Deadspin, I give you an infographic with the rundown of the US prospects to advance to the Round of 16.  Note that the “Ghana Score Differential” on the top axis is for the Ghana-Portugal game.  The first tiebreaker is goal differential, which is what this graphic breaks down.  The second tiebreaker is total goals scored over three games (the gold boxes).

Here are the take-home points:

  • The US are in with a win or a tie.
  • The US are in with a Ghana-Portugal tie.
  • Absent that, US fans should probably root for a low-scoring Ghana-Portugal contest, with Portugal as the rooting interest.

 

Deadspin

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:

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!

 

World Cup Predictions

analyst

Once again the World Cup is upon us, and once again my friends and colleagues are pumping me for information about who I’m picking. Well,like American coach Jurgen Klinsmann, I am not picking the Americans.   

Who then?  

Well, I suppose you could do worse than ask a bunch of economists:

Brazil will beat Germany to win soccer’s World Cup and also will score the most goals, according to a survey of economists across 52 countries.

The tournament’s host nation eclipsed Germany and Argentina as the top choice among 171 economists from 139 companies in a Bloomberg News poll published today. The Latin American country is also tipped to find the net the most times, topping Argentina and Spain.

Projections of a sixth World Cup victory for Brazil mesh with bookmaker odds and forecasts based on economic models created by Goldman Sachs Group Inc., UniCredit SpA and Danske Bank A/S. Paddy Power Plc and Ladbrokes Plc both rank Brazil as favorite, at odds of 3/1….

How this survey is newsworthy is an interesting question, I suppose.    As I type this, Brazil is down 1-0 to Croatia in the opening match.

Updated Schedule

This is the schedule for 2014-15 that we have submitted to the Registrar.   The courses listed as “Staff” will be covered by our incoming assistant professors.  UPDATE:  ECON 120 in the Spring will be canceled and replaced with ECON 100.

FALL TERM
100 INTRO MICRO Staff MWF 1:50-3:00
200 DEVELOPMENT Staff MWF 9:50-11:00
205 INTRO TO INTERNATNL ECON Staff MWF 12:30-1:40
211 PURSUIT OF INNOVATION Galambos, Vaughan MWF 11:10-12:20
300 MICROECONOMIC THEORY Gerard MTWR 8:30-9:40
300 MICROECONOMIC THEORY Gerard MTWR 9:50-11
495 MARKETS AND INNOVATION Galambos, Gerard MWF 1:50-3:00
500 ADVANCED MICROECONOMICS Galambos See Instructor
WINTER TERM
100 INTRO MICRO Staff MWF 8:30-9:40
225 DECISION THEORY Staff MWF 12:30-1:40
215 COMPARATIVE ECON SYSTEMS Galambos MWF 8:30-9:40
380 ECONOMETRICS Staff MTWF 3:10-4:20
410 ADV GAME THEORY Galambos MWF 9:50-11:00
425 ENTREPRENEURIAL VENTURES Vaughan MWF 11:10-12:20
444 POLITICAL ECON OF REGULATION Gerard TR 9:00-10:50
495 INDIVIDUALITY & COMMUNITY Wulf TR 12:30-2:20
601 SENIOR EXPERIENCE: READING Gerard T 12:30
602 SENIOR EXPERIENCE: PAPER Finkler R 12:30
SPRING TERM
120 100 INTRO MACRO MICRO Staff MWF 1:50-3:00
223 QUANTITATIVE DECISION-MAKING Gerard, Parks TR    9:00-10:50
245 LAW AND ECONOMICS Staff TR    12:30-2:20
280 ENVIRONMENTAL ECONOMICS Gerard TR  12:30-2:20
295 TOP: FINANCE Vaughan MWF 12:30-1:40
320 MACROECONOMIC THEORY Finkler MTWR 3:10-4:20
460 INTERNATIONAL TRADE Staff MWF 9:50-11:00
495 APPLIED ECONOMETRICS Staff MWF 3:10-4:20

Course Cancellations and Adds, Part 2

Here are what we hope are some of the final changes to the 2014-15 schedule.   We would appreciate your patience as we clean this up.

Click here for the non-garbled page view.

FALL
ADD ECON 300: INTERMEDIATE MICRO MTWR 9:50-11 Gerard
ADD ECON 200: DEVELOPMENT MWF 9:50-11 Staff
ADD ECON 495: TOPICS: MARKETS AND INNOVATION MWF 1:50-3 Galambos and Gerard
CANCEL ECON 444 (Moved to Winter)
CANCEL ECON 500 (Changed to tutorial)
WINTER
ADD ECON 444: POLITICAL ECONOMY OF REGULATION TR 9:00-10:50 Gerard
ADD ECON 215: COMPARATIVE ECONOMIC SYSTEMS MWF 8:30-9:40 Galambos
CANCEL ECON 400

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.