EclectEcon

$100 for the Vanastra Curling Club?

As many of you know, my former student Mike Moffat has made a binding contract with 12 economics bloggers. If he is not successful in meeting certain goals (involving fitness and weight loss) over the next few months, he will pay each of us, or the charity of our choice, $100.



This contract has created some interesting incentives. Greg Mankiw has specified that his $100 go to a group dedicated to furthering economic education. This is a nice idea, but it is probably not one that's good for Mike. After all, he can just say, "Oh well, it's going for a good cause."



My goal when Mike offered to include me in his contract was to come up with an option that I would really like and that he would really hate. That way he would have a very strong incentive to keep his commitment, but if he didn't I'd feel bad for him, but at the same time I (or the charity of my choice) would feel pretty happy. I want Mike to reach his goal. But if he doesn't, I want some deserving group to receive his money.



My first thought to was list the UWO Dept of Sociology, anticipating that listing that group as a recipient of Mike's money would provide a seriously huge incentive for him to lose weight and get in shape. But then I thought, "Wait a minute.... What if has to pay them? How happy would that make ME?"



So then I decided to list the local curling club. Mike has no connection with the club, so far as I know, and the club is struggling financially. They can use the money.



But I suspect others, such as the demons at Marginal Revolution, have come up with even better ideas. Mike will reveal the options on March 1st on his blog.



Update: One of my friends at the curling club says she knows a wonderful wheat-free recipe for chocolate cookies. We're sending it to Mike in April. 8-)

Colours and CSI

Have you noticed that the various CSI shows have different colour themes? CSI-Miami is definitely yellow -- lots of backgrounds and backgound lightings are yellow, almost vividly yellow.



CSI-Las Vegas seems to have blue theme. The lab is blue or seems blue, and often the lights in the non-lab scenes are bluish.



But what on earth colour is associated with CSI NY? It seems grey or maybe silver, but it has far less blue and far less yellow than either of the related CSIs. [btw, I thought Gary Sinise was a whole lot better in Forest Gump than he is in this TV series].



Sorry for the dearth of postings lately. Travel, family illnesses, and then computer problems slowed me down considerably.

Hypocrisy and Ignorance in the Sub-Prime Aftermath

Let's face it: the only people who will end up being bailed out by any action "to help homeowners" who are losing their homes during this credit crunch are the financial institutions who were left holding the mortgage paper on the homes.



No matter how politicians might dress up a bail-out programme to make it look as if they are trying to help the poor folks who are losing their homes, the really big losers in this crisis are the financial institutions, not the homeowners.



Sure, some "homeowners" (as if they really owned much, if anything) are being evicted. They are being evicted from homes in which they had little (if any) equity; many are being evicted from homes they had no business buying in the first place; many are being evicted because they were encouraged to take out huge crazy sub-prime mortgages that they should have realized they might not be able to carry through with. They might have a case against their mortgage brokers, but that doesn't make a case for gubmnt intervention.



When visiting in the US recently, I saw a RE-Max sign that said, "See us for our list of foreclosures"! And that was in Texas, where real estate markets are not suffering nearly as much as they are elsewhere.



It is the financial institutions that are getting stuck with these foreclosures. They are having a hard time selling them, and they are leaking funds madly as a result.



In a recent BEPRess column, Joe Stiglitz suggests that it is hypocritical of politicians to suggest that such bail-outs are for homeowners, when the real beneficiaries are Wall Street financiers. I agree. Let me add that it is ignorance on the part of voters that allows such hypocrisy and sham policy to slip past us.



My vote, if I had one, would go to the politician who says "assume some responsibility for downside risks if you want the benefits of upside risks."

Flag-Football Cheerleading

There are cheerleaders for flag football?



Well, I guess I can imagine there might be, given that this sign was along the highway in Texas, the high school football and cheerleading centre of the universe.

More on Kroger's Pricing

I got so excited by this price sign that I shook the camera:

"I'll take my three one-at-a-time, please."

Horny Goat Weed

What on earth is this stuff and what is it used for? My younger son, Adam Smith Palmer, quite enjoyed discovering its existence while we shopped at Kroger's.

Speaking of Kroger's, where he and his wife used to live, we could readily find plonk (cheap table wine) for $2-$3 a bottle at the local Kroger's -- something cherished by those of us in the Philistine Liberation Organization. Now that they live in the suburbs, the cheapest wine we could find a the local Kroger's was $5.99/bottle. I will refrain from making comments about suburban snobs who fail to understand the pleasures of drinking plonk while sitting on the catwalks of water towers. At the same time I fully understand the marketing decisions made by Kroger's.

Great Marketing and Web Design

For a fun website, check out this one from HEMA in The Netherlands. Once you connect to it, wait a few seconds for the action to begin.



http://producten.hema.nl/

HEMA is a Dutch department store. The first store opened on November 4 1926, in Amsterdam. Now there are 150 stores all over the Netherlands. HEMA also has stores in Belgium, Luxemburg, and Germany. In June of this year, HEMA was sold to British investment company Lion Capital.

[h/t to Ron]

Support Freedom of the PressSubscribe to Maclean's

$30 for 52 issues of a magazine that stood up for freedom of the press is a great deal. Click here to subscribe.



Note: I receive no commission or payment or anything for posting this information.

Urinals I Have Known #17 in the series

At Pavilion 6 in Tom Bass Park, south of Houston, TX. An unusual shape for a "stainless steel" urinal.

More Advice for Students Entering Economics Graduate School

Gabriel Mihalache is about to embark on a graduate school adventure in North America, and he became concerned after reading this advice to incoming economics grad students. Here are some edited comments I have provided for him (and others):



1. Some schools (but not all) have profs who seem to think it is some measure of their masculinity to fail students and be tough on them. If you have selected one of those schools imbued with testosterone poisoning, and you find that out ex post, you have little choice but to suck it up and tough it out (or drop out). Usually there are cooler, more rational folks around who won’t let them fail everyone they teach just to prove how tough, smart, and rigorous they are.



2. Get the old exams! Study from the old exams! For some courses, I could not for the life of me figure out why so many of my classmates were getting such high grades. Then they told me about the old exams that had been floating around. Many/most profs use variants of the same types of questions, even if they don't ask exactly the same questions, and studying from the old exams is great preparation for those courses.



3. Study groups! I had some dynamite study partners in grad school. We complemented each other beautifully, and we all gained from it.



4. Read all the papers the prof has written on the topic of the course, even if the papers are not on the course reading list. Egomaniacs that they/we are, they/we teach from these papers and ask about them on exams. If the prof has written tonnes of stuff on that topic, at least try to read the abstracts, introductions, and conclusions (and any published comments/debates!)



I once had a prof who was lecturing almost exclusively from his own papers. When I asked him about it, he replied in shock, “Why are you reading those papers? They’re not on the reading list.” I guess he had never had a student do more than the minimum. I had read them during the break before his course began, just to get ready for the course.



5. Don’t give up on a subject. I had one course in which the prof (citing a book review in the old AER) pointed out that in one place the number of equations didn’t equal the number of unknowns. After the course was over, I felt uneasy about that particular material, so I went through my text to make sure I understood what he had been teaching. No matter how hard I worked on the math, I couldn’t see an error in the text, so I went to see him about it. It turned out the math had been edited in the second printing of the text (which I was using, but he still had the first printing). My doing this showed him I was a serious scholar, and in the process I learned some more.



6. Being buddies with profs is not a bad thing, but do NOT expect it to help with grades, reference letters, etc. Performance matters.



I realize you have a sense of foreboding when you read a piece like the one to which you linked. Let me assure you that it is mostly correct. Life in graduate school can be unpleasant. One particularly bad year (bad admission decisions, bad profs) many years ago, we had nearly a third of our first year class drop out. Given the environment that existed then, I didn’t blame them.



But most schools have fixed these problems and try to fix them quickly when they are discovered.



Nevertheless, much of grad school is a test of your desire and stamina. Learn from it, because once you become an assistant professor it’s just more of the same. If you throw yourself into it and really get a kick out of learning new stuff, you'll be well-prepared for the future. It might even be fun.



Addendum: Mike Moffatt has more here.

You Bought HOW Much Stuff?

Soon we will be visiting my son, Adam Smith Palmer, who lives in the US. In anticipation of that visit, we have ordered a number of things that are less expensive there.



To prepare us, he wrote that we should bring at least one empty suitcase, and he sent this photo of himself, standing next to the pile of boxes.



The incremental shipping costs, added onto our trip costs, are essentially zero, so stocking up while we're there provides a net benefit for us.

Snail? Armadillo? How Quick Are Your Reactions?

from Jack,

How good a driver are you?



Getting old, are we? Reflexes slowing down? As I remember, the automobile driving manual says the average driver's reaction time is . 75 seconds -or- 1 car length for every 10 mph.

Here is a test of your reaction times.



http://www.bbc.co.uk/science/humanbody/sleep/sheep/reaction_version5.swf



Make sure you have your mouse or glidepad ready when the game begins. Also, I found that just tapping the glidepad was pretty slow compared with clicking the right button.

NIU

John Lott has a proposal for dealing with mass shootings: let students and professors carry guns.

Then

1. murderers would be less likely to engage in the activity, knowing that they might well be shot themselves before being shoot many or any victims, and
2. even if they aren't deterred, the shooters can be stopped much more quickly, before killing very many victims, if someone in the room or restaurant has a gun and can shoot the murderer.

The Leica Freedom Train

An impressive story. It is available from many different sources on the internet. Here is an excerpt from Wikipaedia:

During the 1930s and 40s the son of the founder of the Leica camera company, Ernst Leitz II, a Protestant, and his daughter Dr. Elsie Kuehn-Leitz smuggled hundreds of Jews out of Germany before the Holocaust.



The story has only recently been told in detail, as the Leitz family members involved did not want the details made public during their lifetime. ...



To help his Jewish workers and colleagues, Leitz quietly established what has become known among historians of the Holocaust as "the Leica Freedom Train," a covert means of allowing Jews to leave Germany in the guise of Leitz employees being assigned overseas.



Employees, retailers, family members, even friends of family members were "assigned" to Leitz sales offices in France, Britain, Hong Kong and the United States.



Leitz's activities intensified after the Kristallnacht of November 1938, during which synagogues and Jewish shops were burned across Germany.



Before long, German "employees" were disembarking from the ocean liner Bremen at a New York pier and making their way to the Manhattan office of Leitz Inc., where executives quickly found them jobs in the photographic industry.

Northern Illinois

Stephen Karlson, who blogs at Cold Spring Shops, is an economics professor at Northern Illinois University. You can follow his thoughts and concerns here. A childhood friend also teaches there, in the history department.



My own thoughts: anger, sadness, sympathy, horror.... all jumbled together.

The Broken Window Fallacy All Over Again

On a recent exam, I asked students to explain why economists argue that the optimal crime rate is likely greater than zero. The typical answer uses the concept of opportunity costs to explain that scarce resources used in crime prevention are then not available for the production of other things. But here is what one of the students wrote:

People committing crimes creates a need for labour. There are more police officers needed to patrol the streets and make sure that all is safe. There are lawyers needed to defend clients involved in crime, and the judges to run the hearings. After that there are more jobs created in needing people to construct the prisons and more people are then needed to guard them. With all of these new jobs that are created by crime, these people will be bringing more money into the economy as well as increasing the demand for these positions.

When I read answers like this, I wonder if perhaps I should be relieved of my teaching duties. Clearly I have failed to teach these students the very fundamental concept of opportunity costs.



For the non-economists among the readers, the problem with this answer is that for all the workers are employed in these jobs, there is a foregone opportunity in the economy: they could have been doing something else, producing other things that we value. For more on the Broken Window Fallacy, see this.



Addendum: I posted the above-quoted answer on my office door. A few hours later, I observed a young man reading it. I said, "I hope you're not the person who wrote that!" He said he wasn't and then went on, "I guess in economics you can prove just about anything you want..." I tried, in a sentence or two, to emphasize that job creation is a bogus goal but that opportunity costs are really important. He pretended to understand and scurried off, presumably back to the department of hydraulic socionomology, whose offices are one floor below the those of the economics department.

To make matters more disheartening, I tried to use the above answer as an example to teach more about opportunity costs, and was dismayed to see that many students still did not understand the point. We need a better paradigm, and we need to dispel the notion that job creation is somehow "a good thing".

Understanding European Geography

A tough game that tests not only your knowledge of European geography but also your ability to use that knowledge quickly.

Via Alan Adamson, who scored higher than I did.

Update: Rondi did better than either of us, scoring nearly 29,000.

The Role of the Economist

Bens recently recommended that I look into some of Murray Rothbard's writings. One bit that struck a chord with me was this, from Wikipaedia,

Rothbard notes that the functions of the economist on the free market differ strongly from those of the economist on the hampered market. "What can the economist do on the purely free market?" Rothbard asks. "He can explain the workings of the market economy (a vital task, especially since the untutored person tends to regard the market economy as sheer chaos), but he can do little else."

And that, it seems, is more than enough to provide full-time endeavours for hundreds, if not thousands, of economists.



I hasten to add that most philosophical debates about libertarian thought and the role of gubmnt are way over my head. I'm sure the more anarcho-libertarians will disagree with me, but I see an important role for gubmnt in helping to define, provide, and enforce property rights and contracts.

Did Bill Clinton Try to Sabotage Hillary Clinton's Campaign On Purpose?"The guy's a walking erection."

Here is one theory from The Agitator (via the Adam Smith Institute blog):

Clinton had to have known that marginalizing Obama wouldn’t work. He knows Obama is a talented politician, that he isn’t a demagogue like Jackson, and that he has already demonstrated that he can attract white voters in large swaths–Obama certainly didn’t win Iowa by dominating the black vote, did he?



So why would Clinton do it? Well, maybe he doesn’t want his wife to be president.



They don’t come much more alpha male than Bill Clinton. The guy’s a walking erection. I can’t imagine anything more emasculating to an alpha-alpha like Bill than to watch his wife arc over him–for her to become more powerful than he. Actually, it’s quite a bit worse than that. Hillary Clinton was on the verge of not only becoming more powerful than Bill, she was ready to become the most powerful person on the planet. ... I can’t see how that wouldn’t mess with the psychology of a guy like Clinton.



More to support my theory: It’s pretty clear that Hillary Clinton’s reputation and public image have never been of much concern to Bill Clinton. He has publicly humiliated his wife over and over and over again, then counted on her to stand by him in the interests of his career–at which point he inevitably turns around and humiliates her again. It isn’t all that hard to believe that a guy who’s alpha enough to risk his entire political career and presidential legacy for a few hummers from a pudgy intern might subconsciously sabotage his wife’s ascent to power, is it?

Irrationality and Sunk Costs

A month or two ago, I received a $10 gift certificate from LL Bean. It expires in a few days, and so during the past week, I browsed their on-line offerings to see if there was anything I might want to buy soon. There wasn't really anything, but I did see a hydration pack (a back pack designed to carry 2 litres of water, and which might come in handy for long hikes, except that this particular one is really small and has little room in it for much else). I wasn't sure whether I wanted it.



Then I checked the Mountain Equipment Co-op [MEC] website and saw the exact same thing for $11 less than the LL Bean sale price (I'm leaving out a discussion of taxes, duties, shipping costs, etc. here to simplify the story).



But because I had the gift certificate from LL Bean, I felt as if I ought to use it. I felt as if they'd be getting away with something if I didn't use it, even though the total price from MEC would have been lower. I didn't care about "sunk costs" and all that stuff, I just had this gut feeling that even though I knew the MEC price was better, I should order it from LL Bean.



I'm an economist. I am supposed to understand these things. It didn't matter, though; I still had these feelings and instincts.



In the end I decided against ordering the pack from either source. But the phenomenology of the experience was illuminating. No wonder we (or at least I) have trouble teaching these concepts in economics courses.

Does Using a CrockPot Save Energy?

How can something that cooks so much food at such a low heat possibly not be a money-saving appliance? Here is one answer [h/t to Jack]:

When a crock pot is cooking, it runs on very low energy, cooking at low temperatures - hence slow cookers. An oven works on a more cyclical basis, where it cycles on and off, but cooking times are much shorter than crock pot cooking.



Some ovens run at 120volts, some 220, 240 etc... Lets say we're using a stove with 220volts X 10amps = 2200watts in an hour. The oven's heating element is controlled by the temperature of the oven (which you set), so it's turned on and off to maintain a desired temperature. The heat is kept in the oven by the insulation. So during one hour, the heating element is turned on and off a few times. Depending on your oven and the temperature, the heating element may only be used for a fraction of an hour, say 10 or 15 minutes. So, really, your energy consumption is only 1/4 X 2200 = 550 watts (maybe more, maybe less).



Crock pots run at 120volts with low amps. If we cook with a crock pot that runs at 120v X 1.5amps = 180 watts (This is about medium heat). If we let the crock pot cook for 8 hours, you get 180 X 6 = 1080.

Even if the oven element is on twice as much as this person says it will be, the oven and the crockpot come out about even.



Crockpots are great for some things, but it looks as if they might not be great at saving energy!

A Word to the Wise (but forgetful)

I have an entry in my Outlook calendar that pops up every February 11th. It says,

Buy Valentines or Die



That entry has proven to be a life-saver.

The Economics of Higgs Boson Particles

Soon I will be traveling to Houston, Texas, where I will be visiting my younger son, Adam Smith Palmer, and presenting an extremely brief seminar on "The Economics of the Higgs boson particle." Here is the essence (i.e. sum total) of what I know about the topic:



The Higgs Boson particle has never been observed. It may never be observed. It may not even exist.



And yet zillions and quadzillions have been spent trying to observe the (or even "a") Higgs boson particle. From Wikipaedia,

As of 2008, the Higgs boson has not been observed experimentally, despite large efforts invested in accelerator experiments at CERN and Fermilab.



... There have been optimistic articles about potential evidence of the Higgs Boson, but no evidence is yet compelling enough to convince the scientific community as a whole.

And from Wired,

The cost: $3 billion and change. The goal: to find one lousy subatomic particle.



Specifically, the Higgs boson, the most elusive speck of matter in the universe. Often called the God particle, it's supposed to be the key to explaining why matter has mass. Physicists believe that Higgs particles generate a kind of soupy ether through which other particles move, picking up drag that translates into mass on the macroscopic scale. The Higgs is the cornerstone of 21st-century physics; it simply has to be there, otherwise the standard model of the universe collapses.

The expected net social value of observing one of these things must be very high. Or maybe it's just that the particle physics lobby is very strong.

Life Expectancy

Of interest primarily to the older readers of EclectEcon is this site which provides a life expectancy calculator for people over 60 [h/t to BenS]. According to this site, I'm expected to live into my 80s, and I have a 4% chance of dying within the next 4 years.



Note to my children: It looks as if you will most likely have plenty of time, still, to save up to cover the negative inheritance.

Loose Flakes in the Sky with Diamonds

Last week we had a combination of very cold weather and a fair amount of snow. Then the sun came out while it was windy. From my office on the 7th floor of the building where the economics department is housed at The University of Guelph, I looked out and saw hundreds of snowflakes, dancing in the sunlight. They looked like diamonds floating in the sky.



Here is a photograph of some of the diamonds on the ground, but it is not the same thing.

Some things I just cannot capture in a photograph...

an "interesting" product

My older son, David Ricardo Palmer, used his cell phone to take this photo at a local grocery store last weekend. He is warning people not to shop there...

Human Rights Commissions in Canada

via BenS and John Meuller:

Do the Dutch Have a Fear of Islam? How Much?

It sure looks as if the answers are a resounding "YES" and "LOTS"[h/t to BenS].

A Dutch politician cautioned that the government of the Netherlands was dominated by a "fear of Islam," after it delayed the release of a short film he had made attacking the Koran. In the film, Geert Wilders, the leader of the conservative Dutch Freedom Party (PVV) compares the sacred Muslim text to Hitler's Mein Kampf.



In an open letter to the Dutch De Volkskrant newspaper Wednesday, Wilders claims that the panic shown by politicians and by police served only to prove his point.



Police and politicians were afraid that the film would spark riots and even went so far as to tell Wilders that he would have to leave the country,



"If I had announced that I was going to make a film about the fascist character of the Bible would there have been a crisis meeting of Holland's security forces?" he asked. "Would I have received as many death threats as I have done since announcing I was making a film about the Koran? Of course not."



"The fact that a 10-minute film not yet shown could, according to some, lead to economic boycotts, riots and other horrible things says everything about the nature of Islam. Nothing about me. The cabinet acknowledges with its panicky reaction that Islam is not comparable to Christianity, but is a unique ideology. And this ideology thus demands a separate, unique approach. The Koran film has thus already demonstrated its usefulness."



The Iranian parliament has warned of "extensive repercussions from Muslims throughout the globe" if the film is released.



The film will be broadcast in a number of weeks, the PVV leader said.

Proof the Economy Is Tanking

Do the changes in the content of spam during the past year reflect "the gloomier economic climate", or do they reflect the comparative intelligence (and ability to learn and adapt) of investors/savers versus those worried about sexual prowess (or who would like to be worried about it)?



From The Economist,

LAST year, spam accounted for up to 96% of all e-mail traffic, according to Commtouch, a security-software company. Undeterred by tough legislation and better security, spammers use increasingly sophisticated methods to evade filters and fool increasingly savvy internet users. But the nature of spam remains pretty basic. In the last three months of 2007, 70% of e-mails offered sexual enhancers, 16 percentage points more than during the first three months of that year. Financial offers accounted for 5%, down from 23%, possibly reflecting the gloomier economic climate. Around 10% tempted holiday-season shoppers with counterfeit goods.

Or is it more likely that when the economy tanks, people start worrying more about sexual prowess?



And what about all that phishing spam we receive? Or were those counted among the "financial offers", in which case, generalizing from the spam I receive, I'd say the numbers probably have a wide confidence interval around them.

The REAL Cause of the Sub-Prime Mortgage Crisis? Affirmative Action in Lending

Many years ago, Stan Liebowitz analyzed the Boston Fed's study on mortgage discrimination. His finding? It was flawed beyond belief. From the NYPost (via Newmark's Door [still the first blog I read each weekday]),

...[A] "landmark" 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.



That study was tremendously flawed - a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.

Nevertheless, political correctness carried the day:

No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: "discrimination may be observed when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants."



Some of these "outdated" criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant's ability to manage debt.

Stan warned back then that such policies could lead to bigger problems in the future:

For years, rising house prices hid the default problems since quick refinances were possible. But now that house prices have stopped rising, we can clearly see the damage caused by relaxed lending standards.



This damage was quite predictable: "After the warm and fuzzy glow of 'flexible underwriting standards' has worn off, we may discover that they are nothing more than standards that lead to bad loans . . . these policies will have done a disservice to their putative beneficiaries if . . . they are dispossessed from their homes." I wrote that, with Ted Day, in a 1998 academic article.



Sadly, we were spitting into the wind.

What bothers/puzzles me is that investment bankers bought these collateralized debt instruments. Surely, even three years ago, people could see that these sub-prime mortgage packages were not bundles of independent risks but were bundles of highly correlated risks, all of which would tumble if/when housing prices began to fall. Even if the regulators forced lenders to make crappy loans, and even if the lenders fobbed them off on investors as quickly as they could, who was forcing these investors to buy the packages? Didn't they do their due-diligence and risk-analyisis?