Category: Economics

Utah payday lenders began refusing Monday to make loans to members of
the military rather than give them much lower rates mandated by a new
federal law.

That new law, which took effect Monday, caps the annual interest on
payday, car title or tax refund anticipation loans at 36 percent
annually for members of the military and their families….

"At 36 percent annual percent rate, the total fees we could charge are
$1.38 per $100 for a two-week loan. That is less than 10 cents a day,"
Walker said.

"Payroll advance lenders could not even meet employee payroll at that
rate, let alone cover other fixed expenses and make a profit," he said.

I’m surprised that it is constitutional for the government to require firms to lower prices for certain groups.  I’m not surprised that the law has unintended consequences – but perhaps the consequences were not unintended.

"The protection the regulation offers is not a wall preventing a
service member from getting assistance, rather it is more like a
flashing sign pointing out danger and directing the borrower to a safer
way of satisfying immediate financial need," said Leslye A. Arsht,
deputy undersecretary of defense for military community and family
policy.

He said financial help for members of the military is available through
a member’s chain of command, legal assistance office or military aid
society.

So the military doesn’t pay you enough to pay your bills and then they reduce your borrowing options while suggesting that you can borrow more from them.  Hmmm… reminds me of a company town.

More on the story here and a hat tip to Overlawyered and Bob M.

Greg Mankiw asks and receives many answers. 

One guess is William Nordhaus, for his concept of "green accounting."  An environmental prize is overdue but perhaps Nordhaus is too skeptical about stringent anti-global warming measures to get the appropriate reception in Stockholm.

Another option is Eugene Fama, both for testing CAPM for securities prices and for figuring out what is wrong with it.  You can imagine pairing his prize with either Richard Thaler (behavioral finance) or Kenneth French (Fama’s co-author on many important papers).

Or how about Oliver Williamson and/or Jean Tirole for principal-agent theory as applied to the business firm?

I would offer the prize jointly to Anne Krueger, Jagdish Bhagwati, and Gordon Tullock for their work on rent-seeking, but that is not my prediction.  Readers, what do you think?

For those after the full debate, see:

1. McCloskey and Ziliak, "The Standard Error of Regressions," Journal of Economic Literature 1996.
2. Ziliak and McCloskey, "Size Matters: The Standard Error of Regressions in the American Economic Review," Journal of Socio-Economics 2004.
3. Hoover and Siegler, "Sound and Fury: McCloskey and Significance Testing in Economics," Journal of Economic Methodology, 2008.
4. McCloskey and Ziliak, "Signifying Nothing: Reply to Hoover and Siegler."

McCloskey has been making this point for some time, and a longer list of papers is available here, including several shorter (yet unsurprisingly persuasive) pieces.

I’m spending a couple of days at Dartmouth right now, visiting friends and colleagues at the economics department.  I’ll be trying to sneak in posts between meetings.  But one thing I can’t help but notice: this department is a persistent overperformer.  Click on just about anyone’s homepage, and you’ll find creative folks doing first-rate (usually empirical) research on important questions.  And worse: They are all so damn friendly.

Dartmouth have also just hired one of my favorite economists and coauthors, Eric Zitzewitz.  Look for creativity and colleagiality to continue.

Labour-market flexibility, deregulation of the service industry,
pension reforms and greater competition in university funding is not
anti-equality. Such reforms shift financing from taxpayers to the users
themselves and, as such, tend to eliminate rents. They tend to increase
productivity by basing rewards on merit rather than on being an
insider. They tend to open up opportunities for younger workers who are
not yet well-connected. Pursuing pro-market reforms does not imply
facing a trade-off between efficiency and social justice. In this
sense, pro-market policies are “left wing”, if that means reducing the
economic privileges enjoyed by “insiders”.

…If the European left wants to be able to say honestly that it fights
for the neediest members of our society, it must adopt as its battle
cry the pursuit of competition, reforms and a system based on
meritocracy.

Amen.  This is from an excellent op-ed by Alberto Alesina and Francesco Giavazzi writing in Vox.  My only complaint is that they write as if this is new.  In fact, liberalism, meaning classical liberalism, has never been conservative.  It began as a movement of the left against feudalistic, conservative insiders and it remains so today.

It is rare that an Op-Ed is written praising an economist.  It makes many good points but there is one unjustified slap:

Goolsbee no doubt has lots of dubious ideas — he is, after all, a Democrat — about how government can creatively fiddle with the market’s allocation of wealth and opportunity.

Does the use of "no doubt" mean Will actually knows this?  But the next sentence comes and the piece closes on a different note altogether:

…he seems to be the sort of person — amiable, empirical and reasonable — you would want at the elbow of a Democratic president, if such there must be.

There’s a hot market for demilitarized ICBM silos. There are three of
them on offer at eBay right now, with the asking price of $500,000 per
silo, which includes underground and above ground support facilities.
Hundreds of ICBM silos have been sold off in the last twenty years, as
new missile forces were reduced with the end of the Cold War, and the
enactment of arms reduction treaties.  Most of these are located in
remote areas.  For example, the three silo complex being offered on eBay
sits on 57 acres in central Washington State.

Here is further information. 

And while we are on the markets in everything topic, here is what Indians will do for you (if you pay them).

And here is a New Zealand market: lingerie for men (TC: clicking on this site is a mistake, please don’t do it, if only to avoid the music), who said small population and fixed costs limit product diversity (though they do ship by mail, how much of their business is Kiwi)? 

Thanks to several loyal MR readers for the pointers, at least one of them may wish to remain anonymous.

I tend to listen to NPR while showering, and really enjoyed this morning’s interview with Robert Frank.  The interview draws heavily from his book, The Economic Naturalist – previous blogged about by Tyler, here and here.

Robert Frank’s observations on economics teaching will fundamentally change what I do in the classroom.  What he has to say is important.  Read it.  Here.

Yes, this was previously covered on MR (here and here).  But I am intrigued by Frank’s ambition in arguing that we need to emphasize the "deep" concepts of economics in a way that transforms how our students see the world.  We econ profs probably fail, and it is hard to see how to do better.  But it is worth doing.

Perhaps blogs like Marginal Revolution help one better see the world through an economists lens.  But most econ profs teach in the classroom, not the blogosphere, and so I want to ask: How can we do a better job teaching what is important, true and beautiful in economics? Comments open.  But a request: Please only comment if you have taken the time to read the Frank piece (this one).

…a group of economists at George Mason University, and other
prominent researchers, say this notion of a free-market mainstream is
oversimplified at best and inaccurate at worst.

“There’s really not any data, and there’s a caricature, that
economists are extremely free market,” said Tyler Cowen, a professor of
economics at George Mason who is popular in free-market and libertarian
circles. “I think the differences are overdrawn.”

My colleague Daniel Klein, the central focus of this article, has shown that economists’ views are quite mainstream and often closely aligned with the Democratic Party:

And Klein has numbers to back up his claims. Some of those numbers come in the form of party donations, similar to studies (some of which have also been done by Klein at George Mason) purporting to show political bias among professors in academe: For example, one Econ Journal Watch study
found a 5.1 to 1 ratio between contributors to the Democratic versus
Republican party among a sample of 2,000 members of the AEA. Klein
found similar lopsidedness in the authors and editors of journals
(including the Journal of Economic Literature) and even within the groups of people listed in authors’ acknowledgments in journal articles.

Read the whole thing, which also includes a debunking of the notion of heterodox economics.  Often the real dissent in economics comes from the free market side; left-wing heterodoxy is more aligned with the mainstream than it cares to admit.  The piece closes with some me:

“So, everyone in a debate always wants to call the other side
ideologues, essentially, and the critics of economics are doing that
here,” Cowen explained. “They like to think they’re on the outside,
there’s something new, they’re warring against some powerful authority.”

About theories that run counter to the neoclassical model, he said, “It’s a view that’s been with us for centuries.”

Probably influenced by Tyler’s post on Radiohead, my last post ended by providing computer code for "regression-heads" to replicate some numbers.  But what is the right term for those I just called (affectionately) regression-heads?

1. Ian Ayres would call you a Super Cruncher
2. Steve Levitt would suggest you are a Freakonomist
3. If this were the Society for American Baseball Research you would be a Sabermetrician
4. Our friends in finance would call you a quant.

Perhaps readers of this blog are Marginal Revolters?  Other ideas?

(Yes, I’ve heard Econometrician.)