Month: May 2006

Dismal’s Paradox

Here is the Daily Show’s John Hodgman explaining how the Dismal Science got its name:

Jon Stewart: Uh, the way you’ve explained the tax cuts doesn’t really seem fair.

John Hodgman: Fairness isn’t really the point.  They don’t call economics the dismal science because it’s fair. 

JS:  Well, I suppose not.

JH: No, no, they call it that after Sir Eustice Dismal.  The 18th century English economist who proposed making smokestacks out of children. 

JS: I uh, I actually never knew that.

JH: Yes, it was a very interesting proposal but ultimately flawed.  I mean if you make the smokestacks out of children who will you force to clean them?…

JH: Yes, it’s referred to as Dismal’s paradox.

The real story which, contrary to popular opinion has nothing to do with Malthus, can be found here.

Sensation seekers trade stocks more frequently

This study analyzes the role that two psychological attributes–sensation seeking and overconfidence–play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor’s tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.

Here is the full paper.

Which Mexicans end up coming here?

Here is a long and valuable paper on the topic.  From the abstract:

Consistent with positive selection of emigrants in terms of observable skill, emigration rates appear to be highest among individuals with earnings in the top half of the wage distribution.

There is much more along those lines.  To be frank, I know this paper will not convince most of the skeptics.  They will say, or perhaps think, "Yikes, what must the others be like?"  But at the very least evidence should improve a debate.  The next time you hear it argued that we receive "the dregs" of Mexico, send along this link.

The paper also finds that wages tend to rise in parts of Mexico where many people leave.  You could argue this one of two ways.  First, it might cause you to doubt David Card’s view that wage effects in the U.S. are small (although the U.S. is a much bigger economy and thus the labor shift should have a smaller impact here).  Second, it raises our estimate of how much Mexico benefits from emigration.

Thanks to Eric Husman for the pointer.  Here is another relevant paper on Mexican emigration, forthcoming in the Journal of Economic Literature.  Full of facts, as they say.

A contrarian look at CEO pay

Here is my latest New York Times column (non-gated).  Excerpt:

Their [Gabaix and Landier) core argument is simple. If we look at recent history,
compensation for executives has risen with the market capitalization of
the largest companies. For instance, from 1980 to 2003, the average
value of the top 500 companies rose by a factor of six. Two commonly
used indexes of chief executive compensation show close to a
proportional sixfold matching increase (the correlation coefficients
are 0.93 and 0.97, respectively; 1.0 would be a perfect match).

By the way, Japanese CEOs are paid much more than many popular or Internet sources indicate.  American CEOs are paid about three times more than their Japanese counterparts (on average), but not forty or so times more.

Rockonomics

"Early on in the entertainment industry, it’s in the interest of the business to think of themselves as throwing a party, not selling a product. I think they attract more of a following that way," he said.

"But over time, the industry takes more the form of a market and is driven by market forces. The Superbowl initially felt like it was rewarding its fans. But then it becomes established and the League finds it in its interest to push up prices."

That is Alan Krueger, from this BBC article on his work on the economics of rock music.   Hat tip to EconBall blog.

Markets in everything, literary edition

Write the next page:

A first-time author has bypassed the traditional route of getting an agent, and is publishing a collaborative thriller on eBay. The novel is being written one page at a time, one writer to a page. As each installment is finished, the chance to create the next is offered for auction on eBay. So far, 17 pages have been completed, with 234 to go, and while the quality of the writing might charitably be described as variable, there is no shortage of plot.

By the way: "Money generated from page auctions goes to Macmillan Cancer Support."

Open Letter on Immigration

I have written an open letter on immigration reflecting the consensus opinion of economists on the major issues.  In cooperation with the Independent Institute I am looking for as many
signatures as possible from economists and other social scientists.  Brad DeLong, Greg Mankiw, Vernon Smith, Tyler Cowen and many others from both the left and the right have already signed on. 

You can sign by emailing your Name, Title and Organization.

I do hope that bloggers of all political stripes will circulate the letter.

The goal of the letter is not to cover all the issues but rather to say, ‘here is the hard-won consensus that economists have come to on these major issues.  By all means let us have a debate but let it be an informed debate.’

References and further information can be found here.

Here is the text.

Dear President George W. Bush and All Members of Congress:

People
from around the world are drawn to America for its promise of freedom
and opportunity. That promise has been fulfilled for the tens of
millions of immigrants who came here in the twentieth century.

Throughout
our history as an immigrant nation, those who are already here worry
about the impact of newcomers. Yet, over time, immigrants have become
part of a richer America, richer both economically and culturally. The
current debate over immigration is a healthy part of a democratic
society, but as economists and other social scientists we are concerned
that some of the fundamental economics of immigration are too often
obscured by misguided commentary.

Overall, immigration has
been a net gain for existing American citizens, though a modest one in
proportion to the size of our 13 trillion-dollar economy.

Immigrants
do not take American jobs. The American economy can create as many jobs
as there are workers willing to work so long as labor markets remain
free, flexible and open to all workers on an equal basis.

Immigration
in recent decades of low-skilled workers may have lowered the wages of
domestic low-skilled workers, but the effect is likely to be small,
with estimates of wage reductions for high-school dropouts ranging from
eight percent to as little as zero percent.

While a small
percentage of native-born Americans may be harmed by immigration,
vastly more Americans benefit from the contributions that immigrants
make to our economy, including lower consumer prices. As with trade in
goods and services, the gains from immigration outweigh the losses. The
effect of all immigration on low-skilled workers is very likely
positive as many immigrants bring skills, capital and entrepreneurship
to the American economy.

Legitimate concerns about the impact
of immigration on the poorest Americans should not be addressed by
penalizing even poorer immigrants. Instead, we should promote policies,
such as improving our education system that enables Americans to be
more productive with high-wage skills.

We must not forget
that the gains to immigrants from coming to the United States are
immense. Immigration is the greatest anti-poverty program ever devised.
The American dream is a reality for many immigrants who not only
increase their own living standards but who also send billions of
dollars of their money back to their families in their home countries–a
form of truly effective foreign aid..

America is a generous
and open country and these qualities make America a beacon to the
world. We should not let exaggerated fears dim that beacon.

Sign here if you are in agreement.  Thanks!

Med Mal Talk

On Thursday morning I will be speaking in New York at the Harvard Club on my new Manhattan Institute study (with Amanda Agan), Medical Malpractice Awards, Insurance, and Negligence: Which are Related?  No link yet, the study will be released Thursday.

There is a reception, 8-8:30 am, followed by the seminar and questions, 8:30-9:30 am.  If you would like to attend RSPV to (212) 599-7000 and be sure and give me the secret MR signal at the club so I know who you are.

Bordeaux bleg

Next week I am headed to Bordeaux for the inaugural meeting of the Society for Quantitative Gastronomy.  How will they react to hearing I am not (yet?) much of a wine drinker?  They will be talking of Michelin stars and the econometrics of wine prices; I will be harping on Texas barbecue, Sichuan peppercorns, and why Hyderabad has the best Biryani. 

Your suggestions for Bordeaux, wine or otherwise, would be most welcome.  I might have a free day or two for a side trip as well.

Luxury markets in everything

Some khaki pants are now selling for as much as $1055; $400 and $500 khaki pants are becoming common.

See The Wall Street Journal, May 13-14, p.P7.  Makes you want to sign up with Peter Singer, doesn’t it?

One Saks Fifth Avenue fashion director noted: "For some of these brands, that’s a lot of money."

If you know of other absurd luxury markets, please mention them in the comments.