Month: September 2006

Wages track productivity in Canada

More or less.  Here are the graphs.  The implications?

…consider the hypothesis that US real wages are being held
back by competition from low-wage countries such as China.  This is a
plausible story – we’d expect wages to converge eventually – but it
doesn’t square with the Canadian experience.  If anything, we’d expect
the effect to be even stronger in Canada, what with the 40%
appreciation of the CAD against the yuan since 2002.

The pointer is from New Economist blog.  And no, the difference is not there because the Canadians are caring people or because they did not elect that nasty Mr. Bush.  Mexican immigrants won’t explain stagnant wages along the middle end of the distribution.  One commentator has an intriguing suggestion:

Positive net employment change in Canada is most concentrated in the
high-paying energy sector in Alberta.  A great proportion of the jobs
being created demand high-skilled workers.  I wonder how much of the discrepancy in median incomes between Canada
and the US can be explained by the increase in job creation in Canada’s
energy sector relative to the type of job creation occurring in the US. 
Entry-level workers in BC and Alberta are getting paid big bucks.

Might the United States have experienced sectoral shifts which are unfavorable for median wages but favorable for wages at the upper ends of the distribution?  Another factor is that rising health care costs in the U.S. are absorbed into benefit costs but in Canada these costs are socialized to greater degree.  In any case economists have yet to get to the bottom of this mystery…

Economics and sociology: gains from trade

1. Here is a new paper by Fabio Rojas on that topic.  Hat tip to Organizations and Markets blog.

2. is just starting betting on the new NBA season.  I looked at Sporting News; of their five experts, two picked Phoenix, two San Antonio, and one Miami.  No Dallas supporters there, or for that matter here.

3. Analysis of the new Booker shortlist; is it a changing of the literary guard?

4. Update: prediction markets and the law.

Should couples keep separate finances?

Megan Non-McArdle continues her transformation into a rational choice theorist:

While I can’t guess how
it will actually work out when I am faced with this in real life, I
like the idea of both partners putting two-thirds of each paycheck in a
joint account and reserving one-third to themselves.  ‘Cause why argue,
or even discuss, some personal purchases?  Buy it for yourself with your
own money, and look, no one cares!  It would also make gifts more
meaningful, if it came from your own hoard rather than shared money. 
And give you a reserve, if you are the cautious type.

Convexifying the choice set.  Who would expect that from a water engineer?  Money decisions do not have to be all-or-nothing.  Totally separate finances are undesirable, if only for symbolic reasons, but why not opt for a middle point? 

The key problem, in my view, is not overspending from a common pool of money.  Rather it is that couples use money as a medium for conducting ongoing fights, and thus the value of partially separate finances as a safety valve. 

The percentage of separate funds should rise with:

1. The age of the parties when married.  The two people might be very good together, but used to making their own money decisions.

2. The number of preceding marriages.

3. The two parties each earning decent or at least roughly comparable incomes. 

4. Small numbers of children or grown, out-of-college children.

5. Portfolio safety.  Portfolio riskiness should be borne jointly.

6. Inversely with the size of the mortgage and other fixed commitments.  The common fund should be spent on something which is not merely automatic.

Surely state property laws should matter, as should the strength of Kahneman-Tversky framing effects, but I haven’t quite figured out how.

Can you think of other relevant variables?

Let the Dog Out!

Dog the Bounty Hunter was arrested and jailed recently on charges related to his capture of Andrew Luster in Mexico.  Here’s a couple of paragraphs from a long-term project:

Luster had it all, a multi-million dollar trust fund, good looks, and a bachelor
pad just off the beach in Mussel Shoals, California. Luster, the great-grandson of cosmetics
legend Max Factor, spent his days surfing and cruising the clubs. His life would have been unremarkable if sad had
he not had a fetish for sex with the unconscious. When the first woman alleged rape, Luster
claimed mutual consent but the videotapes that the police discovered when they searched
his home told a different story. Eventually
more than ten women came forward and Luster was convicted of twenty counts of
rape and sentenced to 124 years in prison. There was only one problem. Luster could not be found.

before he was expected to take the stand, Luster withdrew funds from his stock
accounts, arranged for his dog to be taken care of and skipped town on a one
million dollar bail bond. The FBI put
Luster on their Most Wanted list but months passed with no results. In the end, the authorities never found him.  But Luster but he was brought to justice – by
a dog. Duane Chapman, now known by the
title of his television show, Dog: The Bounty Hunter, had been tracking Luster
for months. He picked up clues to his whereabouts
from old phone bills and from Luster’s mother who inadvertently revealed that
Luster spoke fluent Spanish. Finally, a
tip from someone who had seen Dog on television brought Dog to a small town in Mexico with great surfing. Days later Dog spotted Luster at a taco stand and made the arrest.

Unfortunately for Dog, bounty hunting is illegal in Mexico and the US authorities, who in my opinion are embarrassed by their failure to capture Luster, haven’t tried to intervene with the Mexican government to let the charges drop in the interests of justice.

For more on the effectiveness of bounty hunters versus the police see my paper.

Private spam regulation?

What if Google decided to make a Gmail account cost $1 a year instead of giving it away for free?  And what if you had to use a valid credit card to pay for it?

And further, what if your Google e-mail address had to include your real name?

And what if a violation of Google’s anti-spam rules (I’m assuming they’d have some) would cost $20 per incident?

Suddenly Google would become the gold standard.  People would happily let it through the spam filters.  You could trust it.  People would become suspicious of anyone who used any other online e-mail service.

That is from Seth Godin’s Small is the New Big.  Being a naive economist, I would sooner conclude that spam isn’t so big a problem any more.  It is at least a smaller problem than the costs of forcing everyone to use a single credit card-based email service.  Of course we can imagine less monopolistic versions of this idea but we return to the notion that the open-access provision of the Internet seems more valuable than avoiding spam.

Beckett vs. Duchamp

The two were not evenly matched.  Duchamp was one of the best players in France, and no doubt swept Beckett off the board in most of their encounters.  But still they enjoyed each other’s company, and continued to play.  The two came together again in the summer of 1940, converging on the Atlantic coastal town of Arcachon, southwest of Bordeaux, as they fled the Nazi onslaught.  All summer they played lengthy chess games together in a seafront cafe.  While their conversations were not recorded, we can imagine that they discussed their mutual interest in chess’s dialectic between total freedom and complete constriction, between choice and futility…[Beckett] once remarked that the ideal chess game for him would end with the pieces back in their starting positions.

That is from David Shenk’s new The Immortal Game: A History of Chess.  If you are going to read only one book on chess, this is it.  I don’t read this stuff any more, but was persuaded to buy it by Stephen Dubner’s strong blurb.

The Great Risk Shift

That is the new book by Jacob Hacker which should, and probably will, have a big impact on national debate.  The main argument is that American incomes have been growing steadily riskier.  (Here is a related article by Hacker, and here is U.S. Census data.)  A few points:

1. The most convincing of the graphs is the one which shows "Americans’ Chance of a 50 Percent or Greater Income Drop."  In 1970 this risk was at about 7 percent; it has been rising upward and now stands at a little over 16 percent.  I would be happier if the relatively wealthy were excluded from this diagram, although I doubt if those people are driving the results. 

2. Chapter two blames the new ethic of personal responsibility, and associated policy changes, for increased income volatility.  Data suddenly are absent, and I cannot help but note that most forms of domestic government spending, including social insurance programs, have grown steadily.  Nor can Clinton welfare reform be blamed here.  This is the weakest chapter in the book.

3. Chapter three on risky jobs is not strong on data compared to the contrasting results found in this working paper and also the writings of John Haltiwanger and others.

4. Chapter four on families discusses divorce, but we do not learn how much of the growth in income volatility stems from family splits.  The author does point out that the divorce rate peaked in the 1980s yet income volatility continues to climb.  The relative importance of divorce is the one question this book should have answered, and could have answered, but didn’t answer.

While divorce raises income risk, it may lower utility risk, especially for women.

I am also dismayed that the author cites a U.S. savings rate of zero, overstates the risk of housing investments (if all homes exogenously became very cheap even homeowners are better off), and cites the dubious book The Two-Income Trap.  There is not enough discussion of asset values and new possibilities for consumption smoothing.  How volatile are the data on consumption?

5. Chapter five on risky retirement focuses on pensions and nails it.

6. I don’t buy chapter six on "Risky Health Care."  The real risk of dying too young, or being severely crippled too young, has never been lower.  Again, risk is more than just financial risk.

The bottom line: We do need pension reform.  Otherwise Hacker needs to separate out the importance of divorce and better distinguish financial risk from utility risk.  If people are spending more money to lower their utility risk — most of all spending on divorce and healh care — the results are suddenly less troubling.  I am far from certain this is the relevant scenario, but Hacker does not establish, or even try to establish, the contrary.

Addendum: Arnold Kling argues that, in a risky world, we should strengthen incentives to save.

When should we consume culture in small, sequential bits?

I almost always read novels in bits.  That is, I put the book down for a few times before finishing it.

I rarely watch movies in bits.  That just seems wrong.  But, assuming we are watching on DVD, why?  Why do pauses ruin a movie but not a book?  I can think of a few hypotheses:

1. Movies manipulate our neurophysiology over a two-hour time horizon.  If we restart in the middle after a two-day pause, we are not worked up in the right manner.

2. Most books are longer than most movies, but there is otherwise no good reason for the difference in our consumption pattern.

3. We like the idea that we are "reading Camus," and thus we wish to stretch it out.  Few people get comparable status or feel-good values from watching movies and thus there is no need to prolong that experience.

4. We don’t actually like reading enough to keep on paying attention for so many hours in a row.

The ever-wise Natasha notes that we are mostly likely to read action novels — such as The da Vinci Code
— straight through without pause.  But action movies are the easiest to
watch in bits.  Ever try just a half hour of Jackie Chan?  Wonderful.  But breaking up a good drama is criminal.

Your thoughts?

Bias vs. predictability

One MR reader writes in the comments:

I’m very interested to hear what you come up with for your paper.  I hope that I can’t guess what it says already.

I was a bit taken aback by this.  I’ve written about (guessing) 3500 blog posts over the last three years, on a wide variety of economic issues, plus earlier posts at  Plus many books and articles.

Wouldn’t it be odd if she couldn’t predict my views on most issues?

I understand procedural bias, which happens when a person throws out valuable information because he doesn’t like the conclusion.  And I understand ideological rigidity, which suggests that a person’s view on one issue predicts his view on most other issues far too readily.  I also understand that a curious and open-minded person should be absorbing enough information to change (how much?) percent of his views every (how many?) years or so.  (Is it worse if I am changing my views in predictable fashion, or should the change be a random walk?)  But is it so bad for the prolific to be predictable?  Am I not allowed to have a shelf life?

Here are my cards: Given previous investigations, I expect the United States to be a leader in global medical innovation.

On related topics, here is Jane Galt on bias.

On-line comments?

Nature, one of the world’s most prestigious scientific research journals, has embarked on an experiment of its own.

In addition to having articles submitted for publication subjected to peer reviews by a handful of experts in the field, the 136-year-old journal is trying out a new system for authors who agree to participate: posting the paper online and inviting scientists in the field to submit comments praising — or poking holes — in it.

Lay readers can see the submitted articles as well, but the site says postings are only for scientists in the discipline, who must list their names and institutional email addresses.  Nature says its editors screen out those they find irrelevant, intemperate or otherwise inappropriate.

Meanwhile, the papers also make their way through the journal’s traditional peer-review gauntlet.  Nature says it’s taking both sets of comments into account when deciding whether to publish.

So far, there have been only 70 posts on the 62 papers that authors have decided to put on the Web site, according to Linda Miller, U.S. executive editor of Nature, published by a unit of Macmillan Publishers Ltd.

The experiment (at is an early sign of how the scientific publishing establishment is pushing the limits of its hallowed but opaque peer-review system.  Critics of the traditional process say it lets not only low-quality papers, but also sometimes fraudulent ones, slip through the gates.  The Nature trial of a Web-based system could usher the spirit of Wikipedia, the online encyclopedia edited by its readers, from the margins of scientific publishing to the mainstream.

That is part of an article by the excellent Nicholas Zamiska, in today’s Wall Street Journal, p.B1.  I have long wanted to see this happen, but I fear for economics, and perhaps other fields, it will not work.  The simple problem is that not enough people care about the results of enough papers to start a fruitful dialogue.  Still, at least opening up the papers for on-line comments seems to be a simple free lunch, at least for the world if not always for the reputation of the authors and journal editors.

Comments are on this post are…open…