voluntaryXchange

Quote About Race

From James Taranto:

It strikes us that the biggest disparity between black and white Americans   may be precisely that racial identity is so important for many blacks and so   unimportant for almost all whites. That this is so is understandable for reasons   of history and demography.

Class Blog Up Again

The blog written by my students is up again.

You can check it out at Tufte's Economics Classes Blog.

Posting and commenting on this blog is part of the students's grade. They are docked points for spelling and grammar, but for poor economics they are just redirected in the comments.

I took a hiatus from this project since April. Doing this requires a class that is neither too small (ten is about the limit) or too large (it's a lot of work with more than 25 to 30). I have had classes outside that range since last spring.

George and the Terrible, Horrible, No Good, Very Bad Year

To hear some people tell it, the U.S. economy is in the pits.

Reasonable people can disagree over the specifics, but the numbers say a good chunk of those people have crossed the line into outright lying.

We now have the real GDP numbers for 2006 available. Despite 2 weak quarters, the economy grew 3.4% in 2006.

Using my preferred grading scale, that's a B.

Using a grading scale comparable to what is used in colleges across the country, this is an A.

I wonder how many of those kids who have trouble pulling themselves out of bed for their gut class on Toni Morrison realize that Dubya's economic performance is kicking their academic performance?

In fairness, let me note that 2006 was the second best of Dubya's 6 years, although it only beat 2 out of Clinton's eight years.

With apologies to Judith Viorst.

Grading Real GDP Growth

The advance estimates of real GDP growth for the fourth quarter of 2006 came in at 3.5%.

That's a very low B on my preferred grading scale.

It's a low A on a grading scale comparable to what U.S. college students are use to.

Epidimiology and SUU's New President

In epidimiology, they evaluate the transmission of communicable disease by degrees.

Here at SUU, I've been evaluating our new president, and the problem has been degrees of familiarity.

With disease, a first degree case is one in which the patient has risk factors. A second degree case is where the patient has no risk factors, but has contact with those who do. A third order case is where the patient has no risk factors, and doesn't know anyone who does.

AIDS was a huge issue in the 80s because there was second degree transmission, but it wasn't clear at that time whether third degree transmission (say, by touching doorknobs) was possible. AIDS turned out not to be a true epidemic because third degree transmission didn't occur. By the same token, public health officials are really freaked out about bird flu because flu viruses are so good at third degree transmission.

In the case of the new SUU President, we've heard nothing but great things from people who know him (one of whom made a large donation). This is first degree information, and it probably ought to be discounted: he may well be great, but his friends might lie about him if he isn't.

There's also been a lot of second degree information out there: people who don't actually know President Benson, but who have a friend, family member, academic or church acquaintance who knows him and says great things about him. Again ... this could be true ... but ... maybe not.

My nervousness since the announcement of his choice has been the paucity of third degree evidence that President Benson is worth his salt. One of the few pieces of third degree evidence out there was pretty bad: an ad hoc student committee that met him in an unscheduled way voted unanimously against him. That's pretty bad ... but I've seen enough student groups to heavily discount that.

But, a few days ago, really positive third degree evidence fell into my lap.

An acquaintance from another school called me out of the blue with a technical question. After wrapping that up, he mentioned that he'd been reading my posts about President Benson. I'm paraphrasing, but he basically said that the guy is everything he's cracked up to be: he may have faults, but he is a first class rainmaker when it comes to raising money.

That is exactly what SUU needs, so count me as satisfied.

Technological Improvements Cause Recessions

Economists still don't understand how business cycles work (think about it: if we did, we'd be rich, and you wouldn't have to worry about it). This is not for lack of trying.

The last 25 years have seen a lot of work on whether technological improvements cause business fluctuations. There's some evidence to support this, and it seems pretty basic that improving technology would lead the economy to expand.

The problem is that this suggests that recessions occur when technology doesn't improve. Since there are few examples of the latter since the dark ages, folks are a bit dubious.

There are a few theories around to reconcile this, most focusing on the rate or technological change rather than the level of technology, and a new empirical piece appears to have (rather strongly) confirmed one of them.

The skinny goes like this. In the short-run (a year or two) the macroeconomy is stiff, and change can't be quickly accomodated. So, the initial response to a technological improvement is - since it lets you produce the same amount with less labor - to lay some people off. This is a recession. Later on, as the economy digests the improvement and relaxes a bit, the new technology is combined with new and/or rehired labor to increase output. This is the boom.

Bits and pieces of this theory have been around for quite a while, as it combines aspects of Keynes' macroeconomics from the 30's with new classical elements developed since the 70's.

The upshot is that the very real problems of the 30's (or the 70's) were caused by the technological improvements that made the following decades so sweet. In the 30's, those were things like automobiles, radio, talkies, and so on. In the 70's it was integrated circuits, mice, GUI's, and so on.

You can read the whole thing in the December issue of American Economic Review; it's entitled "Are Technology Improvements Contractionary?", and it's by Basu, Fernald and Kimball. To the inexperienced, the paper looks like theory, but the real trick is to back out a number that captures technological change.

Sowell on "The Greed Fallacy"

Thomas Sowell has hit another home run with his currently circulating piece entitled "The Greed Fallacy".

Here's one of the sources:

In an era when our media and even our education system exalt emotions, while ignoring facts and logic, perhaps we should not be surprised that so many people explain economics by "greed."

Greed goes almost nowhere as an explanation of why CEO salaries are high:

Think about it: I could become so greedy that I wanted a fortune twice the size of Bill Gates' -- but this greed would not increase my income by one cent.

If you want to explain why some people have astronomical incomes, it cannot be simply because of their own desires -- whether "greedy" or not -- but because of what other people are willing to pay them.

Recognizing that answers require thinking helps quite a bit:

The real question, then, is: Why do other people choose to pay corporate executives so much?

One popular explanation is that executive salaries are set by boards of directors who are spending the stockholders' money and do not care that they are overpaying ...

... What deals a body blow to this theory, however, is that CEO compensation is even higher in corporations owned by a few giant investment firms ...

... it is precisely where people are spending their own money and have financial expertise that they bid highest for CEOs...

Don't let your ego get bruised (emphasis added)

Many observers who say that they cannot understand how anyone can be worth $100 million a year do not realize that it is not necessary that they understand it, since it is not their money.

... Demanding that everything "justify itself before the bar of reason" means demanding that people who know what they are doing must be subject to the veto of people who don't have a clue about the decisions that they are second-guessing.

... It means demanding that ignorance override knowledge...

... [But] everybody is ignorant, but just about different things.

Oh, and, by the way, if the oil companies are no longer greedy (and prices are lower) does that mean your greed (don't tell me you're not enjoying the lower prices) is hurting them?

Now that oil prices have dropped big time, does that mean that oil companies have lost their "greed"?

Read the whole thing at RealClearPolitics.

Opportunity Cost of a Shirt

Well, at any rate ... the opportunity cost of the energy used in owning a shirt.

This chart appeared in the January 25 issue of The New York Times in an article entitled "Can Polyester Save the World?". It made the point that polyester is a greener choice than cotton.

I have no doubt that if we measured all opportunity costs that polyester would come out looking cheaper than cotton.

However, this graphic was limited to the energy usage. When you buy a shirt the price you pay includes the cost of the energy required to make it. In this case, both kinds of shirts require about 13 kilowatt-hours of energy (about a buck where I live).

But there are costs you have to pay after you buy the shirt (for laundering). The piece makes the huge jump that people who buy polyester actually washing it according to the directions, but, if you do, the energy costs are about 90% lower over the lifetime of the shirt.

Economists recognize those laundering costs as an opportunity cost of your choice of fabric.

Unfortunately, my experience is that people just end up washing the polyester as if it were cotton, voiding the argument.

Climatologists Are Worried

Here's the take from No Se Nada - a geophycist and supporter of anthropogenic global warming - on the feeling at December's meeting of the American Geophysical Union.

What I am starting to hear is internal backlash...

What I see is something that I am having a hard time labeling, but that I might call either a "hangover" or a "sophomore slump" or "buyers remorse." ... We tried for years - decades - to get them to listen to us about climate change ... But now they are listening. Now they do believe us. Now they say they're ready to take action. And now we're wondering if we didn't create a monster. We're wondering if they realize how uncertain our projections of future climate are. We wonder if we've oversold the science.

... I think some people feel that we've created a monster by limiting the ability of people in our community to question results that say "climate change is right here!" ... Many of us are downplaying uncertainties for fear of not being listened to.

... Dealing with uncertainty is exactly what Congresspeople do, and they do it a lot better than we do ... For politicians and unelected decision-makers, uncertainty is life-or-death, yet decisions must still be made. [must they?] Politicians constantly make decisions amid levels of uncertainty that would stifle the publication of any academic climate change paper. We need to realize that, give the politicians their due, and get the hell out of their way.

... I sense a sea change in attitudes amongst climsci [climate science] people that I know as good scientists without agendas. These are solid scientists, and some told me in no uncertain terms that we are not giving full voice to uncertainties; others implied as much.

One snarky editorial comment added, and one enlightening comment added.

That second to last paragraph that I quoted is really scary. There is an entire subfield of economics called public choice - for which a Nobel Prize was awarded over 20 years ago - arguing that it is common for elected officials and bureaucrats to not do what is in the public interest.

Oh gosh ... now there's more reason than ever to make sure that economics is a GenEd requirement.

Here we have a well-informed, reasonable and influential climatologist who has an engineer's view of the public policy process. He lives by garbage-in-garbage-out and thinks the inverse has to hold: so the key to outputting good public policy is to input good (climate) science. And yet the whole point of why public choice is so influential is that it provides a reasonable explanation of why you don't have to put garbage in (to democratic decision-making processes) to get garbage out.

Y'all know I'm moderately convinced of global warming, and completely unconvinced of its anthropogenic causes ... but that isn't the point here.

The point is that the climatological community is like Dan Ackroyd in Ghostbusters. Their innocence is going to be perverted by D.C. into this century's Stay Puft Marshmallow Man - policy choices that randomly wreck aspects of our culture and society while the bureaucrats smile happily.

Accordion Jokes

It's a long story, but my high school friends are shooting accordion jokes through e-mail:

Q: Whadya call "perfect pitch" in music?
A: When ya throw the banjo into the dumpster and it lands in the middle of a accordian!

Did you hear about the accordian player in NYC who left his car unlocked, with his prized accordian inside?  He came back and found three more accordians inside.