EclectEcon

The Geese Are Gone for the Winter

Yesterday, Ms. Eclectic noticed that there were no geese flying overhead in our area. Then we realized we hadn't seen any that day in the nearby fields or ponds. We drove to Lake Huron this morning and couldn't spot any Canadian geese there or at their usual hang-outs along the way.

According to Wikipoedia, we live just north of an area where Canadian geese tend to stay year 'round. They certainly thrive year 'round on the Thames River near the sewage treatment plant in London.

But they're gone from up here now.

How Much for a Gold Medal?

Last week I posted that I had just sold my 10K gold teaching award medal and wondered whether others could guess how much I received for it, given that I live in a small town in a rural area of Ontario.

I had posted that the medal was about 2 ounces. It turns out it was only 54 grams, not 62 grams, which is one reason all the estimates were a bit high. But the major point that people overlooked is that transaction costs for selling old gold are pretty high for those of us who live in the boonies and who do not wish to spend hours packaging, shipping, and possibly doing that several times to receive various estimates.

Quite frankly, I had gone into the buyer's temporary site in a jewelry store in a nearby even smaller town with the reservation price of only $250, expecting that the lack of major competition would lead the buyer to extract a truckload of monopsonistic returns. She offered about $400 initially and finally agreed to pay me $454 Cdn, much less than any of the people commenting on that earlier post had expected. 

At the same time, Eliot had some good insight about my motives in selling the medal. I figured that if I didn't sell it, it would become a part of my estate when I die, and my heirs would sell it as part of a box of crud for only a song to someone who buys up boxes of stuff at estate sales. And, as Eliot noted, I really don't have a tonne of warm feelings about the issuer of the award.

The Simple Economics of Health-Care Reform

While some politicians talk about programmes designed to bring more people under the health-care umbrella, others talk about making health care more affordable. The former (combined with an aging population) will shift the demand curve outward; the latter will cause a movement downward along that shifted demand curve (a lower price increases the quantity demanded).

But if the supply curve doesn't shift outward, the above two policies will create more shortages and longer waiting periods (and committees of death, due to the shortages, no matter what they are called).

The only way to shift the demand curve outward, lower the prices to the users AND avoid shortages is to increase the supply.

Starting now, without delay, gubmnts should be encouraging medical schools to admit more students. They should also be encouraging more use of nurse practitioners and prescribing pharmacists. But as the demand increases, the shortages will not go away so long as prices are fixed below the equilibrium level.

Not from the Onion: UN Investigates Canada for Discrimination, Ignores Serious Abusers of Human Rights

From a UN Watch Briefing (received via e-mail, not yet on their website, vol. 209, as I write this),

U.N. Discrimination Investigator Focuses on Canada, Ignores China, Sudan, Iran

 

News:  Ms. Gay McDougall, the U.N.'s chief monitor of discrimination against minority groups, and a leading defender of the 2001 Durban conference, just wrapped up a 10-day investigation of Canada by accusing it of failures and "significant and persistent problems." She has never investigated any of the countries listed by Freedom House as the world's worst abusers: not China, Cuba, Libya, Saudi Arabia, Belarus, Burma, Chinese-ruled Tibet, South Ossetia in Georgia, Chechnya in Russia, or Zimbabwe.

 

Analysis: While it's perfectly legitimate to hold free societies accountable, the reality is that immigrants of every color and creed rightly seek out Canada as a haven of tolerance, equality and opportunity. UN Watch launched a protest against this U.N. official's skewed set of priorities: picking on the most tolerant countries like Canada -- possibly as U.N. payback for Ottawa being the first of 10 Western governments to pull out of the world body's ill-fated Durban II conference -- while she consistently turns a blind eye to the world's worst abusers. ...

 

   In a related development, the U.N. human rights office is also investigating the United States as a country of singular concern. The “special rapporteur on the right to adequate housing” has decided to conduct her next investigation in the U.S., particularly in New York City. Writing in the Opinio Juris blog, Professor Julian Ku of Hofstra Law School notes that the U.N. monitor "is going to spend her time on a country which is unlikely to be in the top ten places with lack of adequate housing, and which in any event, is not a party to any of the treaties which form her mandate." But the anti-Western voting blocs that control the U.N. Human Rights Council -- and appoint its experts -- will no doubt be very pleased.

The Price Elasticity of Supply of Top Executives: very high to any given firm"...the ugly hubris of wannabe central planners"

The market for top executives is highly competitive, and as a result many top executives are expected to be available for job changes all the time. As many people warned when the gubmnt began to make noises about limiting the compensation of top executives in bailed-out firms, these executives are not slaves. Nor are their employers monopsonists. The executives are free to move to other firms where they can receive compensation more in line with their expected productivity. In econ-speak, the price elasticity of supply is very high.

Now, we see the process in action as top executives from AIG are being lured away to work for an upstart competitor in the insurance business, in part because of the ugly hubris of wannabe central planners. From the NYTimes,

Even as he has been lambasting the government for its handling of A.I.G. after its near collapse, Mr. Greenberg has been quietly building up a family of insurance companies that could compete with A.I.G. To fill the ranks of his venture, C.V. Starr & Company, he has been hiring some people he once employed. ...

“To me, it’s just going to be a matter of time before the valuation of what he’s building is greater than the valuation of A.I.G.,” said Andrew J. Barile, an insurance consultant in Rancho Santa Fe, Calif. ...

At 84, Mr. Greenberg remains larger than life. He spent nearly four decades forging A.I.G. out of private companies, devising its Rubik’s Cube structure and building it into the world’s largest insurance group, with a $1 trillion balance sheet. He lost most of his fortune when the company nearly collapsed last year....

He was ousted from A.I.G. in an accounting scandal in 2005, and has insisted that he was not responsible for the problems that almost brought down A.I.G. last year — extremely risky trading in derivatives by its financial products unit. At the moment, C. V. Starr does not have a financial products unit, a spokesman for Mr. Greenberg said....

As to whether Mr. Greenberg was poaching his former employees, Mr. Wolosky said, “C. V. Starr does employ a number of former A.I.G. personnel, but far fewer than the global insurance companies that are A.I.G.’s direct competitors.” He declined to provide a specific number....

Treasury officials said their special master for pay, Kenneth R. Feinberg, was aware that if he set pay standards that were too stringent, he could further harm A.I.G. by driving away its executives. “We’re acutely aware of this possibility,” said Andrew Williams, a department spokesman. “That’s why Ken Feinberg spent hours at A.I.G. trying to understand that specific dynamic and strike the right balance.”

i.e., "We just need more tax dollars so we can plan even better."

NFL Coaches and Dictators

Someone has done up a quiz asking the quizee to identify (i.e. mostly guess) whether a statement was made by an NFL coach or by a famous dictator [h/t Craig Newmark and Alan Adamson]. My own experience has been that athletic coaches often do tend to sound like military dictators, so I was reluctant to try the quiz. I wondered whether I would be able to tell them apart.

No worries. My enjoyment of spectator sports and reading a lot helped. I scored 12 out of 12.

Fresh, Juicy Peaches Late in October. Ain't Life Grand!

I just ate a fresh, ripe, juicy peach. I live in a small town in midwestern Ontario, in Canada, and yet I was able to enjoy this fruit for a price and a cost that I don't even know, it was so small. Geez, the market sure does help perform miracles, doesn't it! Some days I feel mighty lucky.

A Gold Medal in 1988: I Sold It This Week

In 1988, I received a gold medal for teaching excellence from the The University of Western Ontario. I also received a certificate, signed with a rubber-stamp signature from the then provost.

Here are photos of the medal, taken on Wednesday, the day I sold it:

According to my scales at home, the medal weighed about 2 ounces. Ignoring transaction costs, if it had been pure gold (it wasn't, it was only 10K gold),

it might have been worth about $2200 Cdn.

But I live in a small town. Transaction costs mount as people travel from place-to-place to buy up old gold and as others bear the costs of re-smelting the gold products.

How much do you think I received for the medal?

Next week, I will post the answer, along with an answer to the question "Why now?"

Meanwhile, my advice to the university is: in the future, give cash and save the money that would have to be spent to strike these puppies.

Rent-Seeking: A Major Cost of Increased Gubmnt Intervention in the Economy

From today's WSJ online:

The renewed assault on Washington comes as the Capitol Hill debate begins on a broad overhaul of financial-services regulations that is strongly backed by President Barack Obama and opposed by large swaths of the finance industry. The spending could also heighten tensions with Mr. Obama, who as recently as Tuesday called on Wall Street to stop lobbying against the proposed regulations.

Wall Street and the Obama administration are at loggerheads over a number of issues, including compensation. The Treasury's pay czar, Kenneth Feinberg, is expected in coming days to slash pay at firms receiving substantial government assistance, including Citigroup Inc. and Bank of America.

Even though political spending and lobbying expenses are not as high as they were a couple of years ago, they are growing again. Assuming these spenders are long-run maximizers, one infers that they spend on gubmnt gifts up to the point at which the expected incremental revenue from a programme just equals the expected incremental cost of spending on the programme (setting aside free-rider problems with political spending).

The more the gubmnt creates programmes that intervene in the market, the more incentive people have to use scarce resources to influence the shape and outcome of these programmes. Those scarce resources have alternative uses which presumably have some value. This is a serious opportunity cost.

What Next? English Language Signs Put Up By Private Businesses?

Canada's Supreme Court has unanimously declared Quebec's Bill 104 unconstitutional. This, after Quebec's own court of appeals struck the bill down for the same reason two years ago. From the CBC (via Ms. Eclectic):

Canada's top court has declared a Quebec law barring certain students from going to public English-language schools unconstitutional, a decision that has "angered" the province's government.

The Supreme Court of Canada released its unanimous ruling on Bill 104 Thursday morning, effectively throwing out two appeals by the Quebec government to preserve the legislation.

The SCOC called Bill 104 "excessive" and lacking nuance, and is giving Quebec one year to replace it with an appropriate compromise.

Quebec's Culture Minister Christine St-Pierre reacted almost immediately to the decision, telling reporters she is "disappointed and angered" by the ruling.

Ironic sidenote: one comment on the CBC article asserts that St.-Pierre made the "disappointed and angered" comment in English. I don't know if that's correct.

Next: whether people have the right to display signs on private property in the language of their choice. In my dreams.

You Are What You Choose

About a week ago, I received e-mail asking if I would like to examine a book called You Are What You Choose for review on this blog. I decline more of these offers than I accept, but after reading the blurb and press release, I was intrigued, largely because so much of economics is viewed as "the science of choice." So Iasked them to go ahead and send it.

The book arrived yesterday, but I still haven't had a chance to look at it. Ms. Eclectic, a retired psychologist, took one look at it and grabbed it from me because it looked interesting. I don't know if/when I will get it back.

What intrigued me about it was that the authors, Scott de Marchi and James T. Hamilton, claim that they have identified traits that, inter alia, help explain why a person who is a gambler in one aspect of life will also be a gambler in others. This claim intrigued and puzzled me because I know that many, many people buy lottery tickets (or gamble in other ways) and also buy insurance; i.e., people are risk averse and gamblers at the same time. I am hoping that the authors will explain this in their book (or possibly with a guest posting here).

I am, of course, familiar with the classic 1948 article by Friedman and Savage that relies on a 3rd degree polynomial total-utility-of-wealth function for their explanation for the apparent contradiction [with diminishing marginal utility of wealth for declining wealth and increasing marginal utility of wealth for rising wealth]. Their explanation is clever, but I'm not completely sold on it. I'm looking forward to seeing whether this book has anything better to offer.

Apologies to my Students

No, it's not for the exams or for the f-bombs I sprinkle throughout the lectures.

This apology is for the fact that I have not been able to update the course websites for the past two days. The course websites had been hosted by Bluewater Cable which was sold last summer to East-Link Cable. On Tuesday, they made a number of changes, several of which had some serious side effects, including intermittent telephone service, intermittent internet service, lost telephone messages, and most seriously for this posting: something which makes it impossible for me to gain access to the websites via FTP.

Allegedly, they have been working on this problem for over 24 hours but still haven't solved it. I'm skeptical. And pretty upset about their (lack of) service.

Fortunately they do not have a complete monopoly here. We have telephone options, satellite television and server options, etc. Changing would be a pain, so they can "exploit" us to some extent by providing unreliable service. But not much.

Update: I just spent a half hour on the phone with their tech support and received exactly the same final response that I received 24 hours ago: everything is set up properly and it should work but it doesn't, so we'll have to get back to you. This annoyed me for three reasons:

1. They play crappy C&W music while I'm on hold. How about some Haydn string quartets for once, eh?
2. They have now known about this problem for 24 hours and done nothing about it.
3. They seem to be VERY busy trying to deal many problems that arose during the changeover/integration of the systems. They should not have attempted this change if they weren't ready for it; and clearly they weren't ready for it.

"The Warning" on PBS's Frontline: Typical Elitist Interventionism

I recorded "The Warning", a PBS episode of Frontline, last night. After reading the write-up about it, I realized I would likely not like it much, so I recorded it rather than subject Ms. Eclectic to my ranting and screaming. I then watched it early this morning. The programme met my expectations.

It appeared to photoshop portraits of Greenspan, Summers, and Rubin together in menacing poses at various points throughout yet had elegant interviews with Joe Stiglitz and with the heroine of the show, Brooksley Born. Born seemed to be an intelligent, sensible person who was concerned about the growth of the over-the-counter market in derivatives. She was bullied and/or out-maneouvered by the evil triumvirate into abandoning attempts to regulate the market.

What bothered me was that the programme showed Greenspan's mea culpa in which said he had over-estimated the potential for buyers and sellers in sophisticated markets to police their own activities. At the same time, it said little about Fannie May, Freddie Mac, the moral hazard created by the bail-out of Long-Term Capital, or any of the multitude of other examples of gubmnt failure.

I'm not enough of a libertarian that I want to leave it solely to the market to control fraud. And I expect there are many other regulations I would be content with, much to the dismay of my staunch libertarian friends. At the same time, I would like the laws and regulations governing finance and investment to encourage people to do due diligence or to hire people to do it for them (and to be able to sue those people for negligence if they screw up). It looked to me as if too much of the programme was concerned with providing ways to protect people from themselves, and I'm not nearly so keen on such programmes.

Global Warming? Did Somebody Cook the Data?

When I see the retreating glaciers in certain parts of the world, I can understand why so many people find it so easy to accept the fear that global warming will soon cause major problems for many human beings. And yet the overall evidence that the earth is warming is spotty, at best. And now it looks as if some of the most popular evidence supporting the global warming hypothesis was not just incorrect but possibly even fudged or cooked.

Ross McKitrick is a calm, pleasant, careful kind of guy. I worked with him while I was on leave a couple of years ago. He is not a firebrand. And yet, here is an illustrative paragraph from one of his recent pieces [h/t Craig Newmark]:

I have been probing the arguments for global warming for well over a decade. In collaboration with a lot of excellent coauthors I have consistently found that when the layers get peeled back, what lies at the core is either flawed, misleading or simply non-existent. The surface temperature data is [sic] a contaminated mess with a significant warm bias, and as I have detailed elsewhere the IPCC fabricated evidence in its 2007 report to cover up the problem. Climate models are in gross disagreement with observations, and the discrepancy is growing with each passing year. The often-hyped claim that the modern climate has departed from natural variability depended on flawed statistical methods and low-quality data. The IPCC review process, of which I was a member last time, is nothing at all like what the public has been told: Conflicts of interest are endemic, critical evidence is systematically ignored and there are no effective checks and balances against bias or distortion.

For more, see Taken by Storm, a book about global warming by Ross McKitrick and Chris Essex.

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Fifty Forever?

Today is my birthday. And possibly in celebration, Jack sent me this link

Centenarians with the bodies of 50-year-olds will one day be a realistic possibility, say scientists.

Half of babies now born in the UK will reach 100, thanks to higher living standards, but our bodies are wearing out at the same rate.

To achieve "50 active years after 50", experts at Leeds University are spending £50m over five years looking at innovative solutions.

They plan to provide pensioners with own-grown tissues and durable implants.

New hips, knees and heart valves are the starting points, but eventually they envisage most of the body parts that flounder with age could be upgraded.

Exploiting Refugees and Asylum-Seekers

David Friedman provides a very insightful and humane perspective:

From the standpoint of the asylum seekers, [Australia's Home Minister] O'Connor and the Australian navy are the enemy. The "people smugglers" are the ones on their side, the people who, for a price, are trying to get them into Australia. O'Connor is trying to keep them out. In an attempt to obscure that fact, he describes the situation as the immigrants "falling prey to" the people smugglers.

I am reminded of President Clinton's explanation that the reason he was having the U.S. coastguard turn back people trying to escape from Haiti to the U.S. was for their own good, the crossing being a dangerous one. That was the point at which I decided that, whatever his qualifications as a President, Clinton was a pretty poor excuse for a human being. Stopping desperate people from escaping from their particular hell may, under some circumstances, be excusable. Pretending that you are doing it for their good is not.

If only there had been enough more of those wicked people smugglers in the late thirties for desperate emigrants to fall prey too, it might have been only five million. [Emphasis added]

The Goldstone Report: Cowardice, Hypocrisy, and Duplicity

Remember Richard Goldstone? The South African Jewish Lawyer who led a "fact-finding" mission into allegations about war crimes in Israel and Gaza during the war last year? He appears to be doing a LOT of back-tracking, re-explaining, and outright prevaricating. From Alan Dershowitz [h/t to Jack],

In an interview with Jewish Forward, Goldstone denied that his group had conducted “an investigation.”  Instead, it was what he called a “fact-finding mission” based largely on the limited “material we had.”  Since this “material” was cherry-picked by Hamas guides and spokesmen, Goldstone acknowledged that “if this was a court of law, there would have been nothing proven.”  He emphasized to the Forward that the report was no more than “a road map” for real investigators and that it contained no actual “evidence,” of wrongdoing by Israel. 

“Nothing proven!”  No “evidence!”  Only “a road map!”  You wouldn’t know any of that, of course, by reading the report itself or its accompanying media release.  In the text of the report itself, Goldstone neither sought to clarify nor explain what he now claims is the limited scope and legal implications of the report.  The language of the report reads like a judicial decision, making findings of fact (nearly all wrong), stating conclusions of law (nearly all questionable) and making specific recommendations (nearly all one-sided).

It is as if there were two entirely different “Goldstone Reports.”  The first submitted to the United Nations and the second to the Jewish community.  In speaking so differently to different “audiences,” Goldstone is reminiscent of Yassir Arafat, who perfected the art of double-speak, by using bellicose language when addressing Arab audiences and more accommodating language when addressing western audiences.  ...

 

Goldstone apparently lacked the courage to stand up to the other members and staffers of his commission and to insist that his clarifying language be included in the report itself.  Nor did he have the courage to file a dissenting or concurring statement.  Instead, he spoke out of both sides of his mouth, sending one message to those who read the actual report and a very different message to those who read his words in the Jewish Forward (and the New York Times for whom he wrote a more ameliorative op-ed on the day after the release of the Report).  In doing so, he is trying to have it both ways. 

I challenge the UN to hire Alan Dershowitz to conduct their next investigation into human rights violations in the middle east.

Tips for Being a Better Student

Now that my students (and many, many others) are beginning realize how much work university involves, here are some tips from Execupundit, whose experiences as a student and teacher must have been pretty similar to mine. If I had followed this advice as an undergrad, I might very well have done a whole lot better (and avoided those Ds and Fs). My additional comments are in brackets.

1. Less memorization and more translation. If you cannot explain a concept in plain language, you probably don't know it. [EE: throw away your highlighters and write in the margins of your books! Argue and discuss with the authors.]
   


2. Less procrastination. Work in increments and then review. Don't permit masses of work to accumulate. ... [EE: procrastination is worse than blowing off homework to have fun. But if you're in university, there's not really a good excuse for blowing off your homework.]
   


3. More engagement. It is a rare professor who does not appreciate a serious student. Don't make a habit of darting out at the end of class. Stay and ask questions if clarification is needed. [EE: I always learned more if I swallowed my pride and asked profs for help. I also found that seeing a prof  about a question after a course had ended was usually a valuable experience.]
   


4. Less resistance. Learning can be like swimming. You can panic at the sense of being overwhelmed or you can relax, comprehend the surroundings, and eventually move forward. [EE: sometimes a concept that seems incomprehensible becomes clear after you work with it for awhile; unfortunately, sometimes it doesn't]
   


5. Clear vision. Knowing the subject is not the same as getting a high grade. Understand what is needed for the grade and don't confuse that with a deeper knowledge of the subject. Try to achieve both. [EE: but if you want to get into bizskool or whatever, at least make sure you figure out how to get good grades. I failed miserably even at that as an undergrad.]
   


6. Act like a great student. What do the best students do? They don't spend a lot of time groaning about how tough the class is. They seek help and create a system for absorbing the information.


7. Know your barriers. What sort of learner are you? Does your impatience cause you to rush through analysis? Are you too analytical? Are you trying to fit the square subject in a round hole? Which parts of learning do you enjoy and which do you dislike? Is your ego causing you to try to bend the subject to your viewpoint rather than accepting the reality of the subject?

Police Brutality at The University of Western Ontario? How many officers does it take to subdue a student?

I work at home on Wednesdays, and so I missed the events of late yesterday afternoon in the building where I work.

Here is the initial YouTube video that many people have seen, showing one heck of a lot of officers beating on and trying to subdue a student:

I'm pretty impressed that it is presented without running commentary. And here is a link to a follow-up video of the officers and the student again, outside the building. This one has a bit of commentary/speculation (including a bizarre discussion of the racialization of gender [?]).



This morning, the UWO communications folks put out the following press release.

A student at The University of Western Ontario has been arrested following violent confrontations on a number of floors at Western's Social Sciences Building.

The incident began shortly after 5 p.m., Wednesday, Oct. 14 when campus police were contacted by a student in the Social Sciences building who reported being followed by another student acting in a strange manner. 

 

A short time later, campus police received calls regarding a disoriented and threatening individual who had appeared on two different floors attempting to enter offices. On the 8^th floor, the suspect entered an office and attempted to force the occupant to leave. Being unsuccessful, the suspect left and subsequently barricaded himself in a 7^th floor office. London Police were called.  

 

Two campus officers arrived on the scene and the suspect came out of the barricaded office and charged the officers in a violent manner. Other persons on the floor fled for their own safety and some locked themselves in their own offices.  

 

A third officer arrived and the three officers attempted to subdue the suspect, but he was able to break away from officers and fled.  

 

On the main floor the suspect was stopped by a campus police officer and a confrontation took place as the suspect attempted to flee. London Police officers arrived on the scene to assist campus police and tried to subdue the suspect, who continued to fight violently and would not allow himself to be handcuffed. 

 

After numerous loud requests to the suspect to stop resisting, officers used punches and strikes to the suspect’s arms to apply handcuffs.  

 

The suspect was eventually subdued and as he was being led outside, he began to fight once again. He was further restrained by officers. An ambulance arrived at this time. Paramedics had been called because officers felt the behaviour exhibited by the individual indicated he should be assessed at hospital.  

 

The resistance continued after the individual was transported to hospital. He was released into police custody at 3 a.m. October 15.   

The individual has been charged with mischief, resisting arrest, assault, and escaping custody.

No, I don't know who the student is, nor do I know if he is or was a student in any of my courses.

Update #1: Jack suggests that perhaps the student was on crack cocaine.

Update #2: Ms. Eclectic agrees drugs may have been involved. But I think I prefer Gabriel's suggestion in the comments here.

Update #3: Jack and others have also suggested that the student might have been on crystal meth.

Increases in Arctic Sea Ice During the Past Two Years

David Friedman points out that although the levels of arctic sea ice are lower than they were ten years ago, they have been increasing for the past two years:

Regular readers of this blog will remember a series of posts (the three links are to three different posts) a few months back dealing with the question of whether NASA/JPL was lying when they claimed on a JPL web page that:

"The latest Arctic sea ice data from NASA and the National Snow and Ice Data Center show that the decade-long trend of shrinking sea ice cover is continuing."

I argued at the time that the latest data actually showed the shrinking to have reversed, although there was no way of knowing if that was more than a temporary deviation. ...

Out of curiousity, I checked back today on the NSDIC web page, and found:

"The 2009 minimum is the third-lowest recorded since 1979, 580,000 square kilometers (220,000 square miles) above 2008 and 970,000 square kilometers (370,000 square miles) above the record low in 2007."

Or in other words, the extent of arctic sea ice has been increasing for the last two years, contrary to the claim I quoted above. The NSDIC puts the result in a way that emphasizes the fact that it is still below its long term level and obscures the fact that, for the past two years, arctic sea ice extent has been going up, not down. But at least they tell the truth about the facts.

Military Recruiting: an increase in supply AND an increase in the quantity supplied

For the first time since the US military became an all-volunteer military force in 1973, the armed forces have more than met their recruiting goals (see this from the WashPost). The increase in the number of volunteers can be described as both an increase in the quantity supplied and an increase in supply.

Historically, there has been a strong correlation between rising unemployment and increases in "high quality" enlistments, according to Curt Gilroy, the Pentagon's director of accession policy.

As other options for young adults become less valuable or less certain, the opportunity costs of joining the military fall. The drop in opportunity costs shifts the supply curve to the right as more people volunteer at each potential salary. In economics jargon, this is an increase in the supply.

At the same time, there has been a movement upward along the new supply curve:

[Bill Carr, deputy undersecretary of defense for military personnel policy] also credited hefty enlistment bonuses for the military's success, saying 40 percent of recruits received an average bonus of $14,000, compared with $12,000 on average in 2008.

An increase in the wage rate, ceteris paribus, causes a movement along the supply curve or, in econ-speak, an increase in the quantity supplied.

In this case, both things were happening: the supply curve shifted to the right, and there was a movement upward along that new supply curve at the same time.

Oliver Williamson, co-Nobelist, 2009

I have known Williamson's work for over 4 decades. One of his early pieces, on economies of scale as an anti-trust defence, became a classic in the industrial organization literature. It has formed an important portion of the rule of reason in merger cases and is explicitly behind most merger defences in Canada. Back in the 1970s I was inspired to do a minor piece in an obscure journal that extended his work to mergers and trade policy in small, open economies.

That was after I had already taken a job teaching economics here at UWO. Earlier, I became aware of Williamson's work on managerial discretion in large corporations (based on his dissertation). It was insightful, and it played a role in so much of the work that I published early in my career on the effects of the separation of ownership from control in large corporations.

But another important thread of work by Williamson seems to have been neglected by so many current commentators. This relates to comparisons of gubmnt intervention by direct regulation vs. contracting.

In industries characterized as "natural monopolies", the traditional argument had been that rate-of-return regulation (average-cost pricing) would be the best way to promote economic efficiency. This traditional view was set on its backside by the work of Telser and Demsetz, in different ways, arguing that the gubmnt can get out of the business of regulating firms by encouraging competition FOR the market as opposed to competition within a market.

Williamson, in a 1976 Bell Journal article, pointed out how this notion of "contestable markets" was very difficult to apply in the real world. He chronicled cable tv problems and noted that when a city let a contract to  a company that promised the broadest service at the lowest price, the contract often had to be revised over and over again as the firm that won the contract repeatedly faced losses and imminent bankruptcy. Eventually, the gubmnt found itself constantly monitoring prices and terms of service to the point that it was, essentially, regulating the firm.

This careful work by Williamson challenged so much of what I had believed. By looking carefully at practical implementations, Williamson illustrated that the divide between privatization and regulation was not nearly so clean as I had hoped and deeply wanted to believe.

Co-naming him for the Nobel Prize in Economics was a good choice.

How Smart Is This? Advance Warning that Security Cameras Will Not be Operating

We recently received a campus-wide e-mail, telling us, in part:

On [date deleted], wireless in the building will experience two brief outages as well as a number of the cameras on the Camera surveillance system.

Ignore the issue of how the announcement is worded [how does wireless experience a number of cameras? But one assumes the notice means that security cameras will be inoperable.].

Given that so much theft that occurs is carried out by people who have inside information,  is it really wise to announce this in advance?

Or is this announcement a ploy to entice thieves to attempt to steal something so they can be caught? If this is the case, one suspects there has been a rash of campus thefts leading up to such a strategy.

And if it is a ploy, does my writing about the possibility have any impact on its likely success?

Or do I just watch too many crime shows on television?

Education Costs and Opportunity Costs

There are reasons that spending per student on education has increased over the past four decades. There are reasons that the number of staff members per student in education has grown over time even though average performance scores haven't changed much (see this).

One reason, of course, is the growing strength of the teachers' unions. Another, more important reason, is opportunity costs. As technologies improve and as capital grows throughout the economy, labour becomes more productive. In a market economy, this increased productivity means that labour will be paid more and be offered better working conditions.

Even if there have been no technological changes and even if the capital/labour ratio has not changed in education, if workers in other occupations are increasingly receiving better offers over time, then school boards will have to improve their offers for potential teachers if they wish to attract and keep them.

In other words, to hire teachers, the employers must meet or exceed people's opportunity costs. And these costs are constantly rising as potential teachers have better and better options outside teaching.

Happy Thanksgiving

The corn is being harvested in some places. The soybeans appear to be ready. Pumpkins are already being stacked. As the harvest proceeds, we celebrate thanksgiving in Canada today [h/t Harve].

For some typical self-deprecating Canadian humour, watch this:

"It isn't every day that we have a Canadian over for dinner." [h/t Alan Adamson]

Jewish? Not Jewish?

I have no idea how much of the following is correct. It came via BenS and Bessie.

> When Paul Newman died, they said how great he was but they failed to mention he considered himself Jewish (born half-Jewish).

> When the woman (Helen Suzman) who helped Nelson Mandela died recently, they said how great she was, but they failed to mention she was Jewish.

> On the other side of the equation, when Ivan Boesky or Andrew Fastow or Bernie Madoff committed fraud, almost every article mentioned they were Jewish.

> However, when Ken Lay, Jeff Skilling, Martha Stewart, Randy Cunningham, Gov. Edwards, Conrad Black, Senator Keating, Gov Ryan, and Gov Blagojevich messed up; no one reported what religion or denomination they were, because they were not Jewish.

> This is a reminder of a famous Einstein quote:
  In 1921, Albert Einstein presented a paper on his then-infant Theory of Relativity at the Sorbonne, the prestigious French university.
  "If I am proved correct," he said, "the Germans will call me a German, the Swiss will call me a Swiss citizen, and the French will call me a great scientist.
"If relativity is proved wrong, the French will call me a Swiss,
the Swiss will call me a German, and the Germans will call me a Jew".

York University Lottery: $3 million prize

Someone recently told me that York University is holding a lottery with a $3 million prize: it pays $3/yr for a million years.

To all economics students: what is the approximate net present value of the prize?

Moral Hazard and "Too Big To Fail"

Ten years ago, Tom Hoenig, a former classmate in the doctoral programme at Iowa State (and now President of the Kansas City Fed) wrote about how "too big to fail" can induce banks to take on too much risk in the expectation that the gubmnt will bail them out if there is a serious crash. From his summary,

To the extent these institutions become ‘too big to fail,’ and where uninsured depositors and other creditors are protected by implicit government guarantees, the consequences can be quite serious. Indeed, the result may be a less stable and a less efficient financial system.

Prescient.

Baseball and the Economy: What Happened to Television Ratings?

Attendance at MLB games this past season was 6.9% lower than it had been the previous year. That is a HUGE drop. An intriguing question is, what happened?

1. One possibility is that the rather sudden drop in housing prices and employment led people (individuals AND corporations) to cut back on their spending on entertainment, including baseball. If so, and if people's tastes for baseball haven't changed much, we should expect that the television ratings wouldn't have changed much from 2008 to 2009. In fact, tv viewership might even have increased as more people stay home to watch the game on tv instead going to the ballpark in person. Of course the change in television programming (notably the change at TBS) from one season to the next will have confounded this effect.
   
   Unfortunately, I haven't been able to locate the full season ratings for 2009. One source I did come across said that as of late May, the tv ratings were about the same as they had been the previous season, but that was early in the season.


2. Another possible explanation is that there was only one close play-off race, the AL Central. Most of the other play-off teams were well-decided a week or two or more before the season ended.  If increasing numbers of the races were, in this sense, "less interesting", that, too might have had an impact on attendance at the ballpark. If this hypothesis is correct, then tv ratings should have been lower in 2009 as well, especially near the end of the season.

In other words, the data on television ratings might help us discern the relative strengths of the two hypotheses. Given these competing hypotheses (both of which could be right, of course in varying strengths), can anyone shed any light on what happened with tv ratings this past season?

The Nobel Prize in Economics

Okay, I know that's not its proper name. But here are my picks:

• As everyone who even glances at this site knows, I would like to see Richard Posner receive the prize for his work in Economic Analysis of Law. But that is a very long shot.
• Here is a less-long shot, but even though people in the profession seem to be mentioning Fama and Tirole as best-bets, my guess is that Jagdish Bhagwati will receive it.