Why does unemployment remain high?

Here is the take of Brad DeLong:

First, and most important, the unemployment rate is high because the Federal Reserve misjudged how much investment spending would fall in the aftermath of the collapse of the NASDAQ bubble, and because the Federal Reserve then misjudged how fast productivity would grow. If the Federal Reserve had had an accurate forecast of the investment-spending slowdown, it would have taken appropriate action and the labor market would be in good shape. And if labor productivity growth had exhibited its “normal” recession-and-stagnation slowdown rather than zooming ahead, the amount of demand growth we have had in the past two years would have been enough to put the labor market in good shape. However, don’t blame the Federal Reserve too much: it has a very hard task, it’s policies can’t be perfect, and all-in-all its performance over the past two decades has been amazing.

Plus the Bush tax cuts have not had much of a stimulatory effect on employment. Most of all, Brad tells us, we should not blame trade with China. I am less negative toward the Bush economists than is Brad, but I agree with the core of his analysis.

Can suicide attempts be rational?

…after people attempt suicide and fail, their incomes increase by an average of 20.6 percent compared to peers who seriously contemplate suicide but never make an attempt. In fact, the more serious the attempt, the larger the boost–”hard-suicide” attempts, in which luck is the only reason the attempts fail, are associated with a 36.3 percent increase in income. (The presence of nonattempters as a control group suggests the suicide effort is the root cause of the boost.)

Here is a link to the original research.

Now, you may wonder, how can this be?

Why should suicide be an economic boon? Once you attempt suicide you suddenly have access to lots of resources–medical care, psychiatric attention, familial love and concern–that were previously expensive or unavailable. Doubters may ask why the depressed don’t seek out resources earlier. But studies have demonstrated that psychological and familial resources become “cheaper” after a suicide attempt: It is difficult to find free medical care when you are sad, but once you try to kill yourself, it’s forced on you.

So what should we do? The Slate.com article, the source of this post, suggests “well funded educational campaigns”. A cynical economist might suggest social stigma for suicide, rather than forgiveness. Personally, I suspect that few people attempt suicide for the resulting free medical care, but rather for the attention. We can’t precommit to ignoring them, so perhaps we are simply stuck. I invite Alex to offer some suggestions on how to limit the number of suicides; keep in mind it is a bigger killer in the United States than is homicide.

Addendum: Thanks to Fabio for the pointer. And Eric Crampton suggests the following: “I have a different take on the suicide post – mean reversion. Assume that people are hit with heterogeneous shocks, positive and negative. If people are most likely to commit suicide at the worst point (after the biggest negative shock), then future income increases are just mean reversion. People who just contemplate it have had negative shocks, but not as strongly negative.”

Thank you all for reading

Alex told me that today we broke 10,000 readers for the first time! Many thanks to you all for reading, and for your feedback and ideas. I’ve found blogging to be an enormously rewarding experience.

My favorite article on blogs, by the way, is this piece by Clay Shirky. It tells me, among other things, that I shouldn’t expect to make any money blogging. No problem, and I look forward to writing tomorrow’s posts.

Has Google peaked?

The economic theory of adverse selection suggests that we should be suspicious when companies go public. Here is a summary of some research on the topic. If your big idea has such a stunning future, why let other people in on the action?

Google.com will be going public, and John Gapper at The Financial Times has his doubts. Are they trying to cash out at their peak? Here is part of his critique:

The more pertinent question is whether its business model will retain the lead. To start with, it can no longer rely on others failing to grasp the importance of search. Algorithmic search engines are tough to design and maintain but others such as Teoma, owned by Ask Jeeves, and Yahoo’s Inktomi are catching up.

So is Microsoft, which is developing an algorithmic search engine that may be launched by spring next year – the likely time of Google’s IPO. By 2006, it will be bundled into the next generation of Windows – Microsoft’s usual tactic when faced with superior technology owned by others.

The biggest uncertainty is whether its focus on internet searches to the exclusion of anything else will remain the best strategy. Although it has clearly been popular so far – Google performs 200m searches a day and is responsible for an estimated 75 per cent of all referrals to websites – it could become an Achilles’ heel. It means that Google has no unique content, and no long-term customer relationship with the individuals who use its technology; it is only as good as its last search. That contrasts with sites that have their own databases and customer networks, such as Yahoo, with its 100m registered users, or Amazon, which holds a mass of data about the products that it sells.

The difficulty for Google will come as rivals combine search with other resources in ways that it will find hard to match. The launch of Amazon’s “Search Inside the Book”, which allows customers to search pages on its database for references and information, is one example of how search technology can be applied to data within internet sites.

Yahoo is augmenting internet search with its own information. Its Yahoo Shopping service not only allows users to search for the cheapest outlet for different models of digital cameras but also combines the results with its own guide to buying cameras, and with user reviews. Google’s own shopping service, known as Froogle, also displays the cheapest prices but looks flat by comparison.

My take: I’m not buying any shares. My understanding of the technical issues is weak. But I understand the theory of adverse selection pretty well.

Does Motherhood Change the Brain?

This knack for calmly sailing through the rigors of parenting is no accident, however. Mothers have cooler heads and better coping skills than nonmothers.
It’s all part of the “maternal brain,” according to Craig Kinsley, a psychologist with the University of Richmond. He has presented his findings in the journal Physiology and Behavior this month.
“Reproduction shapes and alters a female’s brain in significant ways,” he said yesterday.
Essentially, the motherly mind does not tend to dwell on fear or confusion in the face of adversity or challenge.

The experiment was done with rats:

He based the conclusions on four years of research with female rats who had, well, their little paws full. Mr. Kinsley and his research team found that veteran mother rats were less stressed by a series of lab challenges than females who had never faced a litter of needy babies.
The rats were placed in an open space as well as inside clear plastic tubing in bright light – hair-raising environments for a rat, according to Mr. Kinsley. The researchers found that the momma rats methodically and fearlessly explored the unknown territories, looking for a way out.
The nonmothers froze up or moved with great caution.
In the aftermath, the mother rat’s brains showed less activation of the amydaglia, an area that regulates fear.
“Pregnancy and offspring create a more adaptive brain, one that’s generally less susceptible to fear and stress,” Mr. Kinsley said.

Nor does the effect seem to vanish:

“But what’s most intriguing is that this seems to be a long-lasting effect which persists throughout life,” he added. “It is not temporary.”

Here is Kinsley’s home page. Here is his claim that pregnancy makes women smarter, in addition to calmer.

My take: I can cite one data point, my mother, in favor of the hypothesis.

Tuned-in tots

According to the 1,065 parents surveyed for the national study “Zero to Six: Electronic Media in the Lives of Infants, Toddlers and Preschoolers,” a quarter of children under 2 have televisions in their bedrooms. Two-thirds of kids under 2 use some kind of screen media (computer, DVD, television) on a typical day, for an average of about two hours a day. And for children under the age of 6, the average of two hours a day spent with screen media is more than three times the amount of time they spend reading or being read to.

For the full story, click here.

And here is a whack at Teletubbies:

“When children watch television, they are being marketed to,” he said. ” ‘Teletubbies’ was targeted to 1-year-old children, when the purpose was to market those toys and it was effective. They sold a lot of toys. . . . We are making children consumers at age 1. I don’t know what’s educational about it. They are walking around going ‘ooh-ooh, ugh-ugh,’ and they talk like babies.”

My take: I am from an older generation (41!), and I love books far more than electronic media. So part of me is sad to read this. More realistically, I realize that the next generation will need significant computer skills, and that such skills will bring great benefits to the world. So I don’t see the harm in this, provided that electronic media become a complement to time spent with grown-ups, not a substitute for such time.

How to advertise money

Earlier this month the U.S. Treasury Department’s Bureau of Engraving and Printing brought out a new $20 bill. Curiously, the debut of this redesigned piece of currency was accompanied by a marketing campaign–at a reported cost of $32 million. That’s a decent budget and includes events, print ads, some Web goodies, and even TV spots…The ads have been in heavy rotation, and they raise an obvious question: Why bother to advertise money itself?

Here is a description of one commercial:

In one spot, a guy with glasses gets some dough from an ATM, but the upbeat, swingy background music hints that this no ordinary withdrawal. And indeed, the machine spits out a stack of new $20 bills. He pauses and holds one up to study it closely (always a good idea to raise a twenty in the air and lose yourself in thought on a city sidewalk). An announcer says, “You can see right away that things are different.” A smile of satisfaction creeps over the guy’s face. “We’ve added color,” the announcer says, “and changed the portrait.” We follow Mr. Glasses as he buys some flowers, paying with a new $20 bill that seems to vaguely impress the vendor. The announcer mentions improved “security features” and assures us that the new twenty, like the old one, is worth 20 bucks. He then concludes with the new money’s tag line: “Safer, smarter, more secure.”

My take: We need to advertise the money to limit counterfeiting, and to maintain the status of the U.S. dollar in black markets and abroad. We need to tell the world that the $20 bill has changed.

Here is the full story, which includes a video link to one of the commercials. Thanks to Eugene Volokh for the pointer. By the way, I’ve yet to receive one of these bills.

Why wait?

Tired of sitting at endless red lights? Frustrated by lights that turn from green to red too quickly, trapping you in traffic?

Now anyone can breeze through congested intersections just like the police, thanks to a $300 dashboard device that changes traffic lights from red to green, making nasty commutes a thing of the past and leaving other drivers open-mouthed at your ability to manipulate traffic.

But what if everyone had one?

Fire engines, of course, have been using these devices for some time now, but they appear to be spreading more generally. Here is the full story, courtesy of www.geekpress.com.

The bottom line: “The potential for chaos is enormous,” Macomb County Sheriff Mark Hackel said.

Dealers have promised to sell only to police and the proper authorities, but there appear to be no laws against the devices.

The cruelest month…

The most dangerous month for accidents is August, which is twenty percent riskier than the average month, presumably because people spend more time outdoors then and more time vacationing. You are most likely to drown in July, most likely to be shot in November, and most likely to fall to your death in December. Could that latter figure be driven by Christmas-time depressives committing suicide?

From The World’s Most Dangerous Places.

Once burned, twice shy?

Our colleague Vernon Smith argues that new traders are most susceptible to asset market bubbles, largely because of their inexperience. If the market rises again after a bubble bursts, we should take the run up in prices seriously:

Smith points out that market double dips don’t occur in rapid sequence. Indeed, since 1926 the space between down years for the broad market has always been at least two years, and usually much longer, according to Ibbotson Associates data. The closest sequence in the recent past was the two positive years between the 1973-74 bear market and the 7% downturn in 1977.

In other words, Smith argues that the second round of high prices is usually for real. Experience has beaten the traders down into a state of fearfulness, so presumably there is good grounds for their optimism.

I would like to see the more systematic time series evidence, in the meantime here is the article from Forbes.

Here is my favorite part from the article:

To Professor Smith, bubbles perform a great service for capitalism. “Every bubble is driven by great innovations, and they all leave behind a lot of long-term value,” he says.

Watch out for Dad

Many of Ms Sternheimer’s points are as striking as they are valid – as when she points out that for all the overheated media reaction to the shootings at Columbine High School in Colorado in 1999, far more children are killed by their parents than by their classmates. In that year alone, she says, 1,000 children were killed by their parents – compared with 35 killed by their classmates.

Karen Sternheimer, a 34-year-old sociologist at the University of Southern California, just published a book It’s Not The Media: The Truth About Pop Culture’s Influence On Children, arguing that the media doesn’t ruin our children as much as we imagine. Here is a useful review of the work. Thanks to www.politicaltheory.info for the pointer.

Here is a good bit from the review:

‘Young people today are less likely to be violent, sexually active, smoke or use drugs compared with their parents when they were young.’

Arrest rates for violent offences among people under 17 fell steadily through the 1990s. Only 13 per cent of 12- to 17-year-olds drank alcohol in 1999, compared with 33 per cent in 1990, and 50 per cent in 1979.

The teen birthrate declined 22 per cent in the 1990s and is now at what Ms Sternheimer says is an all-time low. (In 1950, the pregnancy rate for 15- to 19-year-olds was 80.6 per thousand, whereas by 1999 the rate had dropped to 49.6 per thousand.)

We’ve needed a book like this for some time now.

Addendum: Many of you have written to suggest that the blog post title should have been “Watch Out for Mom.”

How generous is the United States?

Immigration and remittances are the most effective welfare programs ever devised. Anyone who claims to speak for the world’s poor should embrace them. Here are some relevant facts:

1. Total remittances around the world are now about $80 billion a year, twice the amount of so-called “foreign aid,” which often goes to corrupt governments, not poor citizens.

2. Remittances are now ten times the amount of net private capital flows, after adjusting for profit repatriation and interest payments.

3. Mexicans working in the United States send back home $20 billion every year. This sum is twice the value of Mexico’s agricultural exports, and over a third more than tourist revenue.

All the figures are from the November/December issue of Foreign Policy, not yet on-line.

My take: There is altogether too much talk about the United States being ungenerous with foreign aid. We show up as 21st in the rankings, in per capita terms, according to one estimate. These figures neglect remittances, where the U.S. is a very clear first with $28.4 billion a year sent to other countries. The bottom line: when it comes to other nations, the United States is the most generous country in the world.

Are you interested in the rest of the top ten, for remittances? Saudi Arabia, with $15.1 billion a year, is a clear number two. Then you have Germany, Belgium, Switzerland, France, Luxembourg, Israel, Italy, and Japan. The Scandinavian nations receive so much kudos for their high foreign aid per capita, but when it comes to remittances, even tiny Luxembourg, population 437,389, beats them out.