Month: March 2004

Can suicide be rational?

Carolyn G. Heilbrun’s suicide this past October could not have come as a great surprise to her family and friends. After all, the 77-year-old former Columbia University literature professor and mystery author [pen name Amanda Cross] had written for years about her plans to kill herself.

Heilbrun was suffering from none of the conditions commonly associated with suicide when she evidently took an overdose of pills and put a plastic bag over her head. She was neither terminally ill, in severe pain nor, apparently, depressed. Instead, she committed what some have called “rational suicide” — ending one’s life out of a conviction that one has lived long enough, that the likely future holds more pain than joy.

Rational suicide, a coinage dating back nearly a century, has also been called balance-sheet suicide, suggesting that sane individuals can objectively weigh the pros and cons of continued life, and then decide in favor of death.

Read the whole story. (You will note that The Washington Post has new registration procedures, it takes no more than a minute, and we link to them frequently, you are encouraged to register.) Or sometimes you may attempt suicide to get more attention and resources from other people.

I am a skeptic, and unlike many economists I am willing to point The Finger of Irrationality. Consider the following:

Heilbrun’s decision [is] such a disturbing one, says suicide expert John L. McIntosh, chairman of the psychology department at Indiana University South Bend. Even someone making what appears to be a thoroughly rational case for suicide, McIntosh says, can be suffering from depression or cognitive rigidity, an unwillingness to consider other options. Health professionals, he stresses, should be diagnosing and then treating such individuals.

So what happened?

Heilbrun…had been especially open about her plans. In her 1997 book, “The Last Gift of Time,” she described life after age 70 as “dangerous, lest we live past both the right point and our chance to die.”

Two concerns that Heilbrun mentioned were her “inevitable decline” and becoming a burden on others. Her motto, she said, was, “Quit while you’re ahead.” But though she was then 71 years old, Heilbrun chose not to act — not yet. Her sixties, to her surprise, had been a source of astonishing pleasure. She wanted to keep writing, enjoy her family and friends, spend time in a new home and keep certain “promises.”

In the July 2003 issue of the Women’s Review of Books, however, Heilbrun wrote that she feared “living with certainty that there was no further work demanding to be done.” She had consented to life, she stated, “only on the terms of borrowed time.”

On Oct. 9, 2003, Heilbrun was found dead in her New York apartment, having committed suicide. A nearby note read “The journey is over. Love to all.”

My take: I plan on hanging on until the bitter end. Perhaps that is why I cannot so easily imagine a rational suicide, apart from cases of extreme pain and terminal illness.

The baby boomers take over music

For the first time, people in their 40s are buying more albums than teenagers. According to recent figures from the British Phonographic Industry (BPI), the 12-to-19 age group accounted for 16.4% of album sales in 2002, a sharp fall on 2000 (22.1%), while 40- to-49-year-olds went the other way, rising from 16.5% to 19.1%. Buyers in their 50s (14.3%) are not far behind. Soon, half of albums will be bought by people who have passed their 40th birthday.

That’s Britain, of course. Here is the full story. America is not yet at this point, but a mix of demographics and downloading has changed our music market as well. So expect more stars like Norah Jones and more Paul Simon reissues.

And does this line make you feel old?

The term “adult oriented rock”, meaning the Eagles if you were lucky and Boston if you weren’t, was common currency 30 years ago.

In the U.S. last year, the biggest musical earners were The Rolling Stones and the Eagles, largely through touring. Paul McCartney was next in line, I shelled out over $100 to see him lip synch through the high notes of “Maybe I’m Amazed.”

Economic freedom in North America

The Fraser Institute has just put out its Economic Freedom of North America, 2004 report, here is the full and lengthy text, including all the data.

And how do the freedom rankings look? If you look at all sources of government intervention, the winners are:

1. Delaware
2. Colorado
3. Georgia
4. Nevada
5. New Hampshire

Louisiana comes in seventh, Alberta comes in ninth. Here is a short piece on enterprise culture in Alberta, here is a press release on possible declines in economic freedom in Alberta.

The eight biggest losers are all Canadian provinces, with Prince Edward Island as the least free. Here is a bureaucratic report on their current economic situation. Here is a summary of other Canadian results, including a recent upward freedom trend in Canada as a whole.

As for the States, West Virginia comes in last; for the full list go the linked report. If you look only at “sub-national” freedom (state-level regulations but not federal impacts), Colorado moves into first place, most of the other results do not change very much.

Economic freedom and prosperity are strongly correlated (Louisiana is an outlier), although the direction of causality of course can be debated. Here is a link to other Fraser data sources.

Children’s Television that I like too

Cyberchase is a PBS show for kids that teaches math. It’s designed for children 8-12 but my 5 year old loves it. I’m impressed too. My son picked up on the concept of negative numbers from one episode involving an elevator traveling from above ground to below ground. In another episode, the cyber-kids use backwards induction to save the world! The cyber-kids even figure out the value of having a medium of exchange. If you have kids, check it out.

I also recommend, Between the Lions, the hippest kids tv show I have ever seen. One episode featured the music of Charlie Parker, recurring bits are Dr. Ruth playing Dr. Wordheimer (she counsels words on how to blend together), Martha Reader and the Vowelles, Gawain’s Word and more.

Why I am not as pessimistic as Alex

Alex, citing Larry Kotlikoff, despairs for our fiscal future, read his earlier post as well.

I agree with the Krugman-DeLong-A.Sullivan-Tabarrok (if I may call it that) critique of current fiscal policies. But I don’t agree that our government is “bankrupt,” or accept the cited claim by Kotlikoff that “our country is in worse long-term fiscal shape than Brazil.” Neither is close to being true, check out Brazil’s BB bond rating for a start.

What is the real cost of our fiscal irresponsibility? First, we could be using current resources more effectively. But productivity trends have been strongly positive for some time now. So while things could and should be better, current magnitudes are not themselves evidence of disaster.

Second, when the time comes to pay off the debts, we will require some combination of inflation, spending cuts, and tax increases. Since most of the debt is short-term, inflation won’t do it. The real problem has to be taxes. Spending cuts Alex probably favors, at least I get that feeling reading the guy’s blog. The danger is that we will end up with Western European levels of taxation, stifling our entrepreneurial culture.

So the real cost of our current fiscal irresponsibility is the increase in deadweight loss, resulting from the required increase in taxation, as will be needed to pay off all those trillions. The real cost is not equal to the number of trillions that need to be paid back. And most of the associated transfers are within a generation (tax some living people to pay off bondholders, other living people at the time), rather than across the generations. Let’s not confuse the size of the deficit, or the debt, with the size of the intergenerational transfer.

Keep two other things in mind as well. First, there is some chance that the growth rate of the economy will exceed the real rate of interest. In that case we can simply grow out of our debt, which over time will become small relative to the size of the economy. It is irresponsible for a government to take the risk of spending on this basis. Nonetheless it is at least possible that, in technical parlance, “g > r”.

Second, America will likely experience favorable demographics. Here is Nicholas Eberstadt:

…the United States is envisioned to grow from 285 million in 2000 to 358 million in 2025. In absolute terms, this would be by far the greatest increase projected for any industrialized society; in relative terms, this projected 26 percent increment would almost exactly match the proportional growth of the Asia/Eurasia region as a whole. Under these trajectories, the United States would remain the world’s third most populous country in 2025, and by the early 2020s, the U.S. population growth rate – a projected 0.7 percent per year – would in this scenario actually be higher than that of Indonesia, Thailand, or virtually any country in East Asia, China included.

No, that won’t solve the problem but it is a help.

I should note that Alex and I probably do not disagree about the economics of the matter (if we do, you will hear from him soon enough). But I think he is neglecting the importance of the following:

The United States remains a strong and prosperous country. Our infrastructure, national culture of innovation, human capital, and economic dynamism are unparalelled in world history. The Bush fiscal policies, whatever their irresponsibilities, costs, and drawbacks, haven’t changed those core facts.

So I walked down to Alex’s office and issued him the following challenge: if you think I am wrong, sell all your stocks and go short on U.S. Treasury securities (and long on Brazil, if you wish!). With all the money you will make, you can buy out my half of this blog.

A Rose by Any Other Name?

Years ago, the possibility of adopting a 28% “flat” tax on income (generally no deductions allowed) was seen as the solution for fixing the complex tax system. Today, there is outcry over a tax calculation that preserves a preferential 15% tax rate for dividends and capital gains, allows deductions for home interest and charitable contributions, but generally taxes income at 28%. A modified version of the flat tax? No, it’s called the AMT.

That is Kenneth Barkoff’s letter in the March 8 issue of Business Week, Barkoff is a tax specialist.

Some people complaining about the Alternative Minimum Tax may be objecting to its unfairness, as not everyone falls under its rubric. People with high deductions, as might arise from a second home, are the most likely victims. Other objections cite the height of the rate. Yet other critics may not like the process through which the AMT became so binding, namely the so-called Bush tax cuts, which made more people eligible for AMT status.

Gary Becker’s analysis suggests that a flat tax, if it is efficient, also will make government larger in size. Efficient taxation will make it easier to afford large government.

My take: I’ve never understood the conservative/right-wing obsession with flat taxation. I don’t favor arbitrary taxation per se, but we already have something resembling a flat tax right under our noses, and no one is very happy with it.

Haitian update

FoxNews reports that U.S. troops are protecting “key sites” in Port-Au-Prince. Let’s hope that this includes the murals at the Episcopal Church of Haiti, the high point of Haitian artistic achievement, dating from 1950-1951. Please let us be more prepared than we were in Iraq.

View some images, but they don’t come close to seeing the murals in person. Here are some more visuals, combined with a brief essay on Haiti by DeWitt Peters, an early patron saint of Haitian art. Here is the best single view. Note that the murals are currently falling apart from moisture and leakage, they require extensive renovation.

Here is The Lord’s Prayer According to Papa Doc Duvalier, a less notable Haitian achievement. Here is a picture of the voodoo gods, pondering Haiti’s destiny.

Addendum: Here is Daniel Drezner on Haiti and drugs.

Why celebrities are good for your kids

Celebrity worship may play an important part of growing up, suggest the results of a UK study.

Star-struck teens are generally emotionally well-adjusted and popular, with their celebrity interests forming a healthy part of adolescent development and bonding, say psychologists from the Universities of Leicester and Coventry.

However, those with extreme celebrity fascination, are likely to be lonely children without close attachments to friends or family, suggests the new study.

John Maltby and David Giles surveyed 191 English schoolchildren between the ages of 11 and 16. They found that those who avidly followed celebrities’ lives were the most popular.

For about 30 per cent of the children, gossiping about favourite celebrities with their peer group took up much of their social time. These children were found to have a particularly strong and close network of friends and to have created a healthy emotional distance from their parents.

“As children grow up, they start to transfer their attachment from parents to their peers. Celebrities start to take on the hero status role that their parents formerly fulfilled when the children were younger and it seems to be a healthy part of development,” explains Maltby, who led the study.

“The main function of celebrity attachments in adolescence may be as an extended social network – a group of ‘pseudo-friends’ who form the subject of peer gossip and discussion,” he told New Scientist. “The ongoing subject of celebrities’ lives can provide a valuable bonding tool among their friends, while enabling them to be emotionally autonomous from their parents.”

Here is the full story. And don’t forget my book on fame, which views the production of celebrity as one of the most beneficial aspects of modern popular culture. Not only do stars give us focal points for social orientation, but we gain by paying them with fame rather than having to part with more money.

Buy one get one free

Washington Post consumer columnist Margaret Webb Pressler writes:

I also got a huge response about the growing use of buy-one-get-one-free promotions, or BOGOs, as they’re called in the industry….Shoppers don’t understand why retailers offer this kind of promotion when it’s no better for customers and no more profitable for stores than a half-price sale.

On the contrary, BOGOs can be much more profitable for stores than a half-price sale. To see why, assume that you value your first pizza of the night at $15.01 and the second at $5.01 and let’s say it costs the store $2 to make each pizza. If the pizza store has a buy-one-get-one-free offer at $20 then you will buy two pizzas and the store will have profits of $16 ($20-$2-$2). But if the store sells pizzas for half price, $10 each, you will buy just one pizza and the store will have profits of just $8 ($10-$2). The BOGO doubles the store’s profits!

Carefully designed BOGOs increase profits because they let the firm price more flexibly, what economists unfortunately call “price discrimination.” At $20, the BOGO is equivalent to charging $15 for the first pizza and $5 for the second. Notice that these prices are ideal for the firm since they are the maximum the consumer will pay – any more and the consumer won’t buy.

Although BOGOs may make consumers worse off they generally increase total welfare because the price on the last unit sold is pushed closer to marginal cost and because of this output expands. Even if the efficiency gain from price discrimination goes mostly to firms don’t forget that firms are owned by people too!

For more on price discrimination see Hal Varian’s classic, Differential Pricing and Welfare.

Children masquerading as adults

Laurence Kotlikoff, whose work I mentioned in my post, The U.S. Government is Bankrupt, had some very strong words in response to Greenspan’s recent testimony on social security.

It’s nice that Alan Greenspan is finally prodding our politicians to address the nation’s long-term fiscal problems. But he’s using a feather, when a cattle prod is what’s needed. Whether or not Greenspan knows it, our country is in worse long-term fiscal shape than Brazil. Once financial markets absorb this fact, interest and inflation rates will soar and there will be economic hell to pay. Greenspan’s proposed cuts in Social Security are trivial relative to what’s needed and perpetuate the myth that we can finance the baby boomers’ retirement with minor fiscal adjustments.

Senators Kerry and Edwards — along with President Bush — are fixated on the next election and ducking their responsibilities to the next generation. Like previous politicians who’ve failed to address our long-term Social Security, Medicare, and Medicaid problems, they are simply children masquerading as adults. What’s needed are real statesmen to propose and enact the radical and extremely painful reforms required to ensure our nation’s fiscal solvency.

For more, see Kotlikoff’s forthcoming book with Scott Burns, The Coming Generational Storm (prologue here, chapter 1 here)

Hat tip to Greg Ransom of PrestoPundit.

Markets in everything, continued…

…Maybe it’s a sign of the times — or just a gimmick — but celebrities, athletes and high-powered business executives who want protection from potential rape or other sexual charges can now obtain consent forms for their would-be partner to sign, acknowledging the pair is about to engage in consensual sex.

“This really is for someone you don’t know,” said attorney Evan Spencer, who wrote the one-page, “pre-sexual agreement” form for Colorado-based Protect Condoms Inc. “If you’re a professional athlete on the road, and you encounter someone you don’t know, certainly a person who is a man of means will want to be protected by something like this.”

The company has sold more than 4,000 forms at $7.99 each, according to president Nelson Banes. The standard consent forms are one-page documents to be signed by two parties, both of whom agree “to engage in any and all sexual acts legally permissible under state and federal law with consentee,” according to the Protect Condoms form, which includes two condoms in its package.

Here is the story. This link will bring you back to previous installments of Markets in Everything.

The economics of Internet phone calls

A new essay from Clay Shirky is almost always blogworthy. Recently he offered up his treatment of VOIP. Here is his entree into the topic:

“When” could still be a very long time, however. The incumbent local phone companies — Verizon, SBC, BellSouth and Qwest — have various degrees of interest in VoIP, but are loathe to embrace it quickly or completely, because doing so means admitting to everyone — shareholders, regulators, customers — that both monopoly control and artificially high voice revenues are going away. (The fact that this is true does not much lessen the pain of saying so.) As a result, they will likely try to convince regulatory agencies, both the FCC and the states’, to burden competitive VoIP firms like Vonage with additional costs and rules, while delaying their own offerings.

Complicating this de facto Plan A, however, is the fact that VoIP isn’t a service, it’s just a set of protocols, meaning that competitors don’t have to set themselves up as upstart phone companies to deploy VoIP. If Plan A is “Replace the phone system slowly and from within,” Plan B is far more radical: “Replace the phone system. Period.”

Here are two excellent paragraphs:

The official tradeoff in current telecom regulation is service guarantees in return for monopoly control. Over the decades, though, a third part of the bargain has arisen. Phone companies tolerated high taxation as well, in part because it guaranteed continued freedom from competition. As a result, telephony is treated as a vice instead of an essential service — the taxes and surcharges on a phone bill are more in line with the markup on alcohol and tobacco than with gas or air travel.

However, monopoly control, essential for the current bargain, is ending. The cumulative threats of competitive local phone companies, the decrease of second lines due to DSL and cellphone use, and now VoIP have made the old deal unsustainable. The rise of a competitive market seems conceptually simple, but most parts of the US have had a phone monopoly for longer than they’ve had indoor plumbing, so the possibility of phone service without the incumbent phone company is hard for many observers to understand.

The bottom line:

I can’t do better than to quote Clay:

With railroad bankruptcies in the 1940s, no one thought that the tracks would be ripped up and sold for scrap. Similarly, the question of whether the incumbent phone companies can survive if VoIP pops the bubble of voice revenues is separate from the question of whether the wires in the ground will continue to exist. Someone will sell data transmission over copper wires, but there’s no reason it has to be the existing phone companies, in the same way that someone still runs trains from St. Louis to Chicago, but it isn’t the B&O Railroad anymore.

Clay makes blogging easy, though arguably less fun. Just quote him and say yup, yup, and yup.