Category: Economics

…you ask why we Americans work more hours than do Europeans.  But perhaps we don’t.  While the data do show that Americans work more hours AT FORMAL JOBS, it doesn’t follow that Americans work more hours in total.  The reason is that, compared to Europeans, Americans have more time-saving household appliances, as well as greater access to other time-saving amenities such as prepared foods, child care, and housecleaning services.  As a result, we Americans work fewer hours taking care of our households and, hence, can work more hours earning income.

Let’s not forget that buying things is much easier in the U.S. as well.  Don Boudreaux just submitted the above in a letter to The Economist.

Here is a very recent interview.

On Karl Rove: "To the extent there was a political constraint, it wasn’t from Karl’s shop, it was from Congress."

On the Bush administration: "The policy process worked extremely well."

On the trade deficit and savings: "I don’t think we really have a good sense of what the limits are, especially since we’re growing so much faster than most of the world. This might sound glib, but it might be fruitful to think about immigration and the trade deficit as reflecting the same thing–capital and labor both want to flee here because we’re the most productive economy.

On the other hand, while the trade deficit isn’t a problem in itself, it may be a symptom of a problem. The problem is that Americans aren’t saving enough. I don’t think there’s a single magic bullet to increase national saving, but I do think a switch from an income tax to a consumption tax would help."

On Paul Krugman: No love lost, read for yourself.

Fascinating all around.

Whatever tenuous hold the joke had left by the 1990’s may have been broken by the Internet, Mr. Nilsen said. The torrent of e-mail jokes in the late 1990’s and joke Web sites made every joke available at once, essentially diluting the effect of what had been an spoken form. While getting up and telling a joke requires courage, forwarding a joke by e-mail takes hardly any effort at all. So everyone did it, until it wasn’t funny anymore.

Here is the full and fascinating story of how the joke has died as a dominant institution of humor.

Relative to other drugs, that is.  In a CrookedTimber symposium on Steve Levitt, I offer a few speculative and possibly false hypotheses:

1. Heroin and pot make you sleepy.  Crack gets you riled up.

2. Crack was a new drug when it hit the market.  Gangs were competing to hook new buyers.  This is a far more violent activity than serving established drug clientele.

3. In dollar terms crack was a "bigger" drug than ever before.  The gross and the profit margins were bigger.  The resulting turf wars over profits led to murders.  It is not worth killing people over a few marijuana sales.  (Yet still I find this puzzling.  Falling prices have taken profits out of the market; the gangs must either have had an extraordinarily high discount rate or they behaved irrationally in killing each other.  In the latter case we have no economic explanation at all for the hike in crime.)

4. Perhaps you buy other drugs from your friends, but you buy crack from dealers.  (Most people get Ecstasy from their friends, and this market is not very violent.)  The new question is then why this might be.  Could crack somehow require less personal certification from trusted acquaintances?

Here is my full post.  I have opened up comments for your ideas.  Contributions from economically literate and (previously) violent crackheads are especially welcome.

Jesse Shapiro.  Yes, he is a mere Youngling, having just finished his Ph.d. at Harvard (he was a Shleifer student, and now visiting at Chicago).  But he is likely to be one of the leading economists of the next generation.  He studies why and how large numbers of people can make, or appear to make, systematic errors.  This is perhaps the frontier question in contemporary economics.  Here is the abstract from Jesse’s paper on advertising:

I present a model of advertising in the presence of bounded memory and limited recall.  In the model, consumers’ memories record the quality of their experiences with a product.  Exposure to advertising leads to memories of good experiences.  Crucially, I assume that consumers cannot recall whether a memory orginates from a genuine consumption experience or from exposure to advertising.  The model yields several novel implications.  First, advertisers will concentrate their efforts on past customers, because experienced consumers will be more likely to trust that their positive feelings toward the brand are genuine.  The model may therefore help to explain why established, familiar brands continue to advertise extensively.  Second, the firm’s desire to "saturate" the consumer with positive memories can lead to the commonly observed phenomenon of "pulsing," in which a firm oscillates between no advertising and some positive amount.  Third, exaggeration is limited, in the sense that advertisers may not cause consumers to remember haivng extraordinary experiences with the brand.  Indeed, under some conditions an equilibrium in which advertising conveys the best possible impression of the brand can exist only when the total amount of advertising is small.

Another paper of Jesse’s challenges analytical egalitarianism — the entire foundation of economics.  Here is a previous installment of underappreciated economists.

The transcripts are now available on the web here.  Speakers include James Buchanan, Bob Tollison, Dwight Lee, Mancur Olson, Edgar Browning, and Thomas Willett, among other luminaries.  Bob Tollison discusses the economics of the medieval church.

Kash at Angry Bear, a left of center economist, writes eloquently on trade and economic integration:

I’m not sure why we care more about economic integration than other
types of economic change. Every time there is a technological
innovation, some people benefit but others lose. Every time a person
decides to patronize one store over another, some people benefit but
others lose. Every time any economic transaction happens, in fact,
there are winners and losers. Why does it make a crucial difference
whether or not that transaction happened to cross a national border?…

When thinking about the costs and benefits of economic integration, why
should we only consider those that apply to people in our own country?
Is there any particular reason that I should care more about the
welfare effects of economic integration on people in Lubbock, Santa
Barbara, or Chattanooga than the effects on people in Lucknow, Sao
Paolo, or Chongqing? Personally, I can’t think of any good reason why.

Me neither.  I also like Kash on the market test.

I realize that some of you are disappointed that I agree with the
orthodoxy by thinking that international economic integration is
generally a good thing, despite the fact that I call myself "liberal".
And I realize that some of you think that economists are all simply
brain-washed when it comes to international trade. But…if the vast majority of economists agree
about something, it’s not because we are simply turning off our brains
(and analytical power) on that one subject. It’s because the theory and
evidence on the subject are convincing, and have withstood relentless
efforts to debunk it. In general most economists think economic
integration is a good thing, not because it’s convenient to do so, but
because the work of thousands of extremely smart people working over
decades has convinced us that it usually is.

The Tax Foundation now has a blog on tax policy.  Andrew Chamberlain, of The Idea Shop, is one of the writers.

Here are estimates of the sizes of various underground economies.  Here are the winners and losers for federal highway dollars.  Here are states with high cell phone taxes.

So asks Eugene Volokh. His commentators adduce a number of reasons involving children, or a desire to change an ugly last name. 

The cynical economist looks for signaling explanations for why the practice persists.  By taking a man’s last name — a costly move — a woman signals her long-term commitment to the relationship.  The real question is why the man does not take the last name of the woman.  Yes this is disruptive of the man’s career but that is precisely the point.  And don’t more men wreck marriages than do women, thereby implying they require more constraint? 

Some men do take their wives’ last names, and more choose a hyphenated version of the two names.  But do they not signal weakness in a bargaining game?  (Do you see any professional wrestlers named Smythe-Thomson?)  Could signaling strength in bargaining games be worth more to men than to women?

Steve Levitt responds to critics on his blog.  This is not a debate I have followed, but Steve maintains his politically incorrect claim that easier abortion — following Roe vs. Wade — explains a later decline in crime rates.

This paper reviews the recent evidence on U.S. immigration, focusing on two key questions: (1) Does immigration reduce the labor market opportunities of less-skilled natives? (2) Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated? Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts. Nevertheless, data from the 2000 Census shows that relative wages of native dropouts are uncorrelated with the relative supply of less-educated workers, as they were in earlier years. At the aggregate level, the wage gap between dropouts and high school graduates has remained nearly constant since 1980, despite supply pressure from immigration and the rise of other education-related wage gaps. Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant.

That is from David Card, here is the paper.  And there is more:

On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least educated immigrant origin groups have closed most of the education gap with the children of natives.

The core intuition is that increases in housing demand boost supply, but supply is durable so declines in demand show up mainly in price.  Given this point, Ed Glaeser and Joseph Gyourko tell us the following:

1. Cities grow more rapidly than they decline.

2. Urban decline is highly persistent (you can be stuck deep in the range where new building is unprofitable).

3. Positive shocks increase population more than housing (there is an option value to not building right away).

4. Negative shocks decrease housing prices more than population (housing supply cannot contract readily).

5. The combination of cheap housing and low labor demand attracts individuals of low human capital to those locations.  Bill Gates does not live in Buffalo.

Here is the paper, a later version of which just appeared in the Journal of Political Economy.  Glaeser also has a recent paper explaining how much and why immigrant segregation has been increasing.

Many public goods and club goods exhibit increasing returns.  A lighthouse, for example, is useless unless complete.  It’s difficult to get voluntary contributions to these types of good not only because of the free rider problem but also because contributors fear that their contribution will be wasted if others do not also contribute.  An assurance contract makes contributions contingent on some level of total contribution being reached.

Assurance contracts can help to solve coordination problems.  I agree to contribute to build the lighthouse if and only if enough others also agree so that production is guaranteed.

Fundable.org is making assurance contracts easier to implement.  If you want to raise money for a cause you can set up a Fundable group.  Contributions to the group goal are held by Fundable in escrow.  All money is returned unless the group goal is met.  If the group goal is met the funds are paid to the group leader.

It’s a cool idea but even more is possible.  In a paper published a few years ago, I show that the idea of assurance contracts can be extended to what I call dominant assurance contracts.  In a dominant assurance contract if the group goal is not met then everyone who offered to contribute is given their money back plus a bonus.  It turns out that it then becomes a dominant strategy to contribute and the public good is always provided!