Category: Economics

Robert Heilbroner, author of Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers and among the most influential economic historians of the 20th century, has died in New York. He was 85.

Dr
Heilbroner, who had suffered for the past three years with Lewy Body
disease, a rare Alzheimer’s-like illness, died of a stroke last
Wednesday, according to his son, David.

Here is an obituary.

I have just returned from the annual meeting of the American Economic Assocation.  I was mostly stuck in a hotel room interviewing job candidates but what David Warsh reports about the conference I can also say was true of our interview candidates.

When historians look back on economics in the last quarter of the 20th century, one of its more striking features will be the explosion in the quantity and quality of empirical work that was done…

[T]he advent of the desk-top computer made it possible to make a distinguished career doing something besides theory, namely sorting through the rich details of the real world in hopes of illuminating underlying mechanisms that are supposed to exist, or even finding relationships whose existence was unexpected.   

That much was on conspicuous last week when the American Economic Association and its many affiliates held its annual meeting here….

Work was presented on all kinds of of practical topics. For example: cars,  gas and pollution policies; downtown parking and traffic congestion;  kidney exchange; private funding in china’s education system; patent examiners impact on enforcement;  rural and urban poverty in Africa; the sources of racial differences in health care in the United States; the relationship between wealth and democracy; the U.S. gender pay gap; the growing population of postdoctoral students in U.S. universities; the question of who receives IPO allocations and why  — all of them buttressed by careful empirical work….

And in the forthcoming spring 2005 issue of the Journal of Economic Perspectives, David Colander of Middlebury College reports the results of a survey of students in seven top graduate schools of economics that he conducted, first in the early 1980s, then again last year….

The proportion of those reporting a belief that empirical work was very important had doubled (to 30 percent), while those describing excellence in math as vital to a successful career halved (to 30 percent). 

Which prediction markets ("information futures") had the best year last year?  Worst?  Which contract performed the best or was the most interesting?  What was the best academic paper in the area?

Find the answers to these questions, and many others here.

Thanks to Robin Hanson for the pointer, I will note that Robin was named (deservingly) as person of the year in this area, even though he bet Saddam would not be captured.

After more than a year of delay, Toll Collect, Germany’s high-tech system of road pricing for big trucks, started operation earlier this week and appears to be working well.  Some 800,000 trucks use Germany’s 12,000 km of highways every day – all of these trucks will soon be tracked by GPS (i.e. from outer space!) and the big ones will be billed.  The toll system will also be tied into traffic reports and routing systems.

In other tolling news, Texas is considering a massive superhighway project that would be privately built, operated and tolled.

I see toll roads, most privately operated and some privately owned, as the road of the future.  Road pricing can not only reduce congestion it can also help with accident externalities.

Previous posts on this topic including my debate with Tyler can be found here.

Swofford, a postal worker from Seminole County, claimed his prize Tuesday in a $34.7 million lump sum payout, ending weeks of mystery about who won the November 24 drawing.

Swofford, 53, and his wife separated three years ago. But two weeks after the winning numbers were announced, Ann Swofford served him with divorce papers and claimed a share of the prize.

Just before Christmas, the Swoffords and their lawyers hammered out an agreement. His wife will get $5.25 million and $1 million will be set aside to support their 11-year-old son. In return, she agreed not to seek any more of Swofford’s winnings.

Swofford said he remembered reading about a divorce case where a lottery winner kept it a secret and was penalized in court.

Here is the full story.  And here is a very different discussion of how incentives can matter.

Gerard Debreu, 83, a former University of California
at Berkeley economist who won a Nobel Prize for breakthroughs in the
study of supply and demand, died Dec. 31 in Paris. No cause of death
was reported.

Dr. Debreu taught at Berkeley for more than 30 years.
He won the 1983 Nobel Prize in economic sciences for his theoretical
work on how prices operate to balance supply and demand.

Here is an obituary.  Here is The New York Times account.

Wednesday I reported on the Bush Administration plan to check the growth of social security benefits.  To take an extreme version of the idea, what if nominal benefits rose with the price index rather than with the general level of wages?  Real benefits then would be constant rather than rising over time.

I see the following possible problems:

1. Perhaps the elderly face rates of price inflation (e.g., health care, personal servants) above and beyond the measured CPI.

2. It is unjust to keep our real contribution to the elderly constant over time.

3. The elderly will suffer a negative relative status effect.  Everyone else will have nanotechnology robots, but the elderly in 2075 will not.  They will be left behind.

4. The value of the social security program will grow small, in real terms, relative to the economy as a whole.

On #1, we should be willing to make all required differential adjustments (email me if you know a good source on rates of price inflation faced by the elderly, and yes it must adjust for changes in medical technology).  On #2, I will grant the point but dollars can be used to fight many injustices.  Rising real benefits, although "automatic" on today’s books, are in fact a new expenditure and should be evaluated as such.  It is unlikely that this is the best anti-poverty program we can devise.  Plus the elderly will enjoy a rising standard of living, over time, as the economy grows wealthier and they can save more when young.  #3 boils down to #2.  #4 is not a problem per se, if it results from growing riches.  And note that price indexing would not kick in until the more distant future.

The real issue, I suspect, boils down to medical care.  Many life-saving improvements are falling in price in real terms (what did a triple bypass cost in 1940? — infinity).  So we encounter more opportunities to prolong lives.  But if benefits are fixed in real terms, not all of these opportunities can be exploited.  That is, more people will use the new improvements, but constant benefit levels mean that access will be more differential than if real benefits would rise.  Are you prepared for this?

If you are a critic, here is the real problem.  The most important service for many of the elderly is health care.  Yet price indices are notoriously inaccurate and unjust when many prices are falling from levels of "infinity" to "very high."

The bottom line: I am ready to push the "yes button" on this change.  That being said, I would use the money to address our broader fiscal problems, and not to finance a transition to government-run personalized accounts.  As the economy grows, over time, we would in any case move toward a greater importance for private saving.  And if you wish, bundle the whole thing with greater means-testing.

Here is a good discussion on how social security indexing works and would work under possible reforms.  Here is further useful commentary.  Here is Matt Yglesias on tinkering with the retirement age, another good idea.  Russ Roberts offers general comments on the problem of social security, try Arnold Kling as well.  Brad DeLong lays down the party line.

Read here, from the Cleveland Fed, the charts and graphs are useful as well.  It is the single best source I have seen on this issue.

The bottom line: (with which I agree)

I explain why growing current account deficits and expanding inflows of foreign savings are not indefinitely sustainable, and why big deficits imply big corrections. Throughout the trip, however, I emphasize that we simply have no basis for determining when, how fast, or how  jarring any adjustment might be. Those who claim a definitive word on that topic may just be spinning their wheels.

Thanks to the very useful Macroblog for the pointer.  And on a related note, Brad DeLong and Brad Setser discuss the difference between the trade deficit and the current account.

Addendum: Here is Brad Setser on why the dollar is not in free fall.

Author of The Tipping Point, and the forthcoming Blink, Malcolm Gladwell is one of the most influential economic (and social) journalists today.  Whatever I see by him I read immediately; I enjoyed this profile as well.  Learn why he receives $40,000 per lecture.  And if you don’t know Gladwell’s work, here is an archive of his articles.

Thanks to www.geekpress.com for the pointer.

Online site Betfair this month introduced wagering on the fates of CEOs of nine troubled companies…

CEO wagering is legal in the United Kingdom but is not available because the Brits are bored by the prospects of CEOs getting sacked, says Jordan Ferguson, Betfair’s head of international sales.

Brits use Betfair to wager on everything from snooker to U.S. football, but the only gamblers interested in CEOs are North American, and U.S. laws make Betfair restricted to Canada, Ferguson says.

Betfair does not back wagers but acts as a middleman for customers wishing to take different sides of a bet. Betfair’s revenue comes from keeping 2% to 5% of the winning bet, Ferguson said.

Volume has been light. Less than $100,000 was wagered for or against CEOs in the first two weeks, Ferguson says.

Arthur Millholland, CEO of Calgary-based oil exploration company Oilexco, has been the most likely to lose his job by April 30, 2005, according to Monday’s betting on the Betfair site. Someone who bets $10 that Millholland will still be around next spring would get about $20 if he survives.

Here is the full story.

I share with Tyler a high opinion of Jared Diamond’s work but at least part of his explanation for the collapse of the Norse settlements in Greenland does not pass the smell test.  As relayed by Malcolm Gladwell in his review, the Norse used inappropriate farming techniques which stripped the land bare.  Fair enough, mistakes happen.  But a key part of the morality lesson that Diamond wants to tell is that cultural straitjackets doomed the Norse to failure.  The most important piece of evidence being, in Diamond’s telling, that even as they starved the Norse refused to eat the fish that were there for the taking.

Frankly, I think this part of the story is absurd.  As Diamond notes, the evidence from bones is that at the end the Norse were eating their pets.  A cultural norm against eating fish that is stronger than eating pets?  I don’t think so.  A few martyrs might refrain but thousands of people?  No way.  We know that starving people eat insects, they eat dirt, sometimes they even eat each other.  I reject this one from my armchair.

Addendum: Matt Yglesias gets up from his armchair, at least far enough to reach Google, and casts further doubt on the fish story.