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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 Cwmationsite 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.”
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.
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.”
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.
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.
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 someresearch 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.
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.