Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, December 11, 2004

In Praise of Scrooge

Steven Landsburg has a wonderful piece in Slate, pointing out the generosity of saving real resources and freeing them up for others to use. I can't do it justice, so just read it!

Sperm Supply Dries Up

According to this piece on the rarely reliable BBC website, The Cardiff Assisted Reproduction Unit (in Wales) has only two regular donors left.

Staff at the clinic have blamed new rules which will allow donors to be identified from next April.
It's interesting, isn't it, that potential donors do not wish to be traceable by their progeny. What is their concern? Future disruptions to their lives by offspring suddenly showing up? Future demands on their personal wealth?
Whatever the reason, we see once again that people respond to incentives, no matter how they perceive those incentives.
I wonder if the Cardiff Unit will raise the price they offer for donations -- isn't that the way supply and demand are supposed to work in unfettered markets?
[thanks to John C for the pointer]

Friday, December 10, 2004

Gay Marriages in Canada

From the CBC:

The Liberal government will introduce legislation to legalize same-sex marriage when Parliament resumes sitting in January, Prime Minister Paul Martin said Thursday.

In an opinion released earlier in the day, nine Supreme Court judges asked to review draft legislation extending marriage rights to gays and lesbians said such a move would be constitutional.

That legal opinion clears the way for the Liberal government to introduce a bill early in the new year.

"Marriage"? "Civil Union"? Much of the debate seems to be over whether it is appropriate to alter the definition of "marriage." There probably are economic ramifications, though, including such things as pension and benefit entitlements.

An Apple a Day??

According to research at Cornell University, apple phenolic extract has lots of desireable health effects on laboratory rats:

"What we found was that the apple phenolics, which are naturally occurring antioxidants found in fresh apples, can protect nerve cells from neurotoxicity induced by oxidative stress."
[Thanks to Ben for the pointer. As Ben points out, Cornell is a school well-known for its agricultural research, and there are numerous apple orchards in upstate NY]

Freedom from Surprises and Hassles

One of the reasons that nation-wide brands and chains have been so successful is that customers know what to expect from each of them. A Big Mac is a Big Mac everywhere; a Whopper is a Whopper everywhere. We are willing to sacrifice the possibility of a pleasant surprise that we might get if we have a wonderful dining experience at a local, non-chain, restaurant in order to avoid the possibility that eating there might be a truly unpleasant event. We often like stability and certainty. As the old Holiday Inn advertisement used to say, "the best suprise is no suprises."

Cafe Hayek quotes from a forthcoming paper by Nobel Prize winning economist, James Buchanan, which extends this concept to people's preferences about political and economic systems:

...Almost subconsciously, those scientists-scholars-academics who have tried to look at the “big picture” have assumed that, other things being equal, persons want to be at liberty to make their own choices, to be free from coercion by others, including indirect coercion through means of persuasion. They have failed to emphasize sufficiently, and to examine the implications of, the fact that liberty carries with it responsibility. And it seems evident that many persons do not want to shoulder the final responsibility for their own actions. Many persons are, indeed, afraid to be free.
I can understand this from another perspective. There are times I just don't want to be bothered searching for information or products. Life would be so much easier if I didn't have to worry about things, wouldn't it?

Unfortunately, this attitude is what gives us Big Brother, with all the downside of paternalism and parentalism.

Thursday, December 09, 2004

The Economic Impact of the NHL Lockout

Here it is. Yet another story (NYTimes, registration required)about businesses being hurt by the NHL lockout. phhhhttt.

I guess it's just too hard to write about what people are doing with the money that they don't spend attending NHL games. What are they spending their money on now? Where are they saving it? What are they doing with their time? Who is benefitting from this change in spending?

I Love Christmas Carols!

All types, all genres. I own at least 25 different CDs of Christmas Carols. I even have two different neckties that play Christmas Carols when I push a button on them (thanks to Ben and Eleanor for my latest one). This is just one more thing about which I disagree with Maureen Dowd of the NYTimes (free registration required). She writes:
It's a scientific fact, or should be, that Christmas music can turn you into a fruitcake. It either sends you into a Pavlovian shopping trance, buying stupid things like the Robosapien, or, if you hear repeated Clockwork-Orange choruses of "Ring, Christmas Bells" drilling into your brain with that slasher-movie staccato, makes you feel as possessed with Christmas spirit as Norman Bates.

That's it! I've been brainwashed by the Mormon Tabernacle Choir, Gene Autry, and Bing Crosby.

feh. I guess this means Ms. Dowd won't be joining the PLO...

Punitive Damages and Statistical Error

In all that has been written about punitive damages (see here and here for two recent papers), one important rationale for allowing, even encouraging, punitive damages has been ignored. Punitive damages, at least in some instances, allow us to adjust for type II errors brought about by the high standard of proof required in criminal law. Here's what I mean:

Suppose we think a defendent has commited a crime; in fact, we're pretty sure the defendant committed the crime, but we doubt if we can prove it beyond a reasonable doubt. This standard of proof (beyond a reasonable doubt) is in place because we don't want to convict innocent people -- i.e. we want to minimize what statisticians refer to as Type I errors. But reducing Type I errors by requiring such a high standard of proof means that there will be more guilty defendants on the loose - Type II errors.

One way to punish some of the guilty defendants who would otherwise be let off (i.e., one way to reduce the incidence of Type II errors) in some instances is to allow plaintiffs to sue them in civil court for both compensatory and punitive damages. The standard of proof in civil court is a "balancing of the probabilities", a much lower standard of proof than "beyond a reasonable doubt". This lower standard means more Type I errors will be committed, but fewer Type II errors will be committed. It appears that by allowing plaintiffs to seek punitive damages, society is saying that we are willing to commit more Type I errors (punish the innocent) in this way, with less punishment than criminal punishment. But we're doing it to cut down on the Type II errors and create some more deterrence and punishment of some types of activities.

Note that it doesn't matter who receives the punitive damages for them to have this deterrent and punishment effect. And so my suggestion is (somewhat) consistent with the State of California's recent legislation, attempting to claim for itself 75% of all punitive damages awarded in cases in that state.

Wednesday, December 08, 2004

Corporate Finance and Manchester United Soccer

Malcolm Glazer, owner of the Tampa Bay Buccaneers of the NFL, has apparently been trying to buy Manchester United, of the British Premier soccer league. According to this article in Slate, one reason (from among many) that many Brits oppose his buying the team is that he is trying to use a leveraged buyout to effect the deal; he is trying to increase the debt-equity ratio of the firm/team.

The financial structure of any firm affects both its risk and its rate of return, with both rising as the debt-equity ratio rises. That is, when firms take on more debt, they become more profitable for the stockholders, but they also become riskier.

In most instances, investors see it as a good idea for firms to take on at least some risk, and if Manchester United has little or no debt as of now, then perhaps a leveraged buyout of the team would substantially increase the team's value.

As Slate's writer says, though, increased debt does add to a firm's risk because if there is a downturn in the firm's revenues, interest payments on the debt must still be made:
If revenues don't materialize as expected, teams with debt must sell off assets (players), cut costs (players' salaries), or raise prices (jacked-up tickets)[italics added].
What?? Hold on, there!
How would raising ticket prices help if "revenues don't materialize as expected"? Is the writer saying the demand for tickets is price inelastic? If so, that means the team was pricing tickets such that their marginal revenue was negative! They should raise prices anyway, if they're profit maximizers.

Or is the writer implicitly assuming that the team is a satisficer instead of a maximizer? If this is the case, then the firm is ripe for a takeover, as so lucidly argued nearly 40 years ago by Henry Manne. And if Glazer's attempt to buy the firm is successfully fended off, there will likely be another attempt, soon, by someone else.

I wonder if this argument has already been capitalized into the price of Manchester United's common stock. If capital markets are efficient, it should have been; if they aren't, now might be a good time to buy.

One Thing about Regulation

One thing about regulation and licensing is that they sometimes induce phenomenal creativity on the part of those being regulated. For example, in Wales, individuals are supposed to pay a license fee for their television sets. As you might expect, some people try to evade the licence fee. Here are two of the creative excuses/alibis/explanations they offered when the inspectors came to their homes.

1. "No, that's not a TV you can hear in the background, it's a tape of adverts I play to entertain the children"

2. "The TV is to keep the cat warm - we don't watch it"

for more, click here: I.C. Wales
[Thanks to John C. for the pointer]

Racial Profiling and Political Correctness

David Friedman is a very interesting thinker and writer. He has recently blogged, very persuasively, that if all the recent terrorists are Muslim fundamentalists, it makes sense to direct additional security efforts toward Muslim fundamentalists, and if they cannot be readily identified, then toward Muslims. He quotes Heather MacDonald:

But "racial profiling" is irrelevant. What is at issue is religious profiling. By definition--by Usama bin Ladin's own definition when he called on all Muslims to kill Americans wherever they can find them--Muslim terrorists must be Muslim. Because religious identity is not always apparent, however, national origin or ethnic heritage should be available as surrogates.
Regular readers of The Econoclast know I'm concerned about any kind of murdering that is promoted by religious fundamentalism.

At the same time, I have considerable sympathy for my friend, Ali, who is studying and working diligently to become a pilot. What are the odds he will not face discrimination in the job market for pilots?

Tuesday, December 07, 2004

2 Centimeters of Snow Paralyze Toronto

If Canadians are so smart (see the posting below), how did this happen? We expect this to happen in D.C. or Raleigh, but not in Calgary or Trono.
Let's hear it for good old "adaptive expectations" models.
(thanks to Jack for the tip).

Canadians Smarter Than Americans

At least that's what is indicated by an OECD survey of 15-year-olds reported in the NYTimes (registration required. I couldn't find the original OECD report online, but the survey results seem to have been reported in numerous papers):

In the United States, 10 percent of the students were in one of the top two groups, less than half as many as in Canada.

That was in math.
Over all in reading, the top countries were Finland, South Korea, Canada and Australia. The United States finished 18th

As the
instapundit would say, "Indeed."

Cheesy Movie Lines

All You Ever Wanted to Know about Japanese Toilets

and then some!
[Thanks to Ben for the link; we're not surprised he provided it.]

An open letter to my students

Damn. I had another case of plagiarism this term. What's with these folks -- they think I'm too dumb to recognize plagiarism???
So as we approach end-of-term exams, I would like my students to see this. I flagrantly lifted and adapted it from an anonymous poster somewhere (I would gladly include an acknowledgement if I knew who wrote it; it came via a link from Newmark's Door).

To my students:
  • I’m a better liar than you. It’s because I’m probably above average in intelligence, and I've had lots of experience. When I was an undergrad, I had friends who got out of all sorts of things for all sorts of reasons; and any excuse I didn't hear about as an undergrad I've heard enough times as a prof to be familiar with it. Deaths in the family, tears on command, cars breaking down, feigning symptoms of depression, you name it, I either knew someone who used it or have had to deal with it in my 92 years of teaching. I know when you’re trying to bull$hit me, so don’t try. And while I’m very sympathetic if it’s legitimate, I’m a son-of-a-bitch if you lie to me.
  • I’m also a decent writer, and I read a lot. The thing is, copious readers and good writers notice writing style. If you try to plagiarize, I will be able to tell. And, I will give you hell for it, and I will report you, and you will be very sorry because I will fail you in the course and may try to get you expelled from the university.
  • If you miss class, don’t ask me if anything important happened. Asking this is extremely insulting; I wouldn't give the lecture if I didn't think it was important. What do you expect me to answer? “Yes, actually, on the one day you missed I decided to give a pop quiz that counts for 50% of your grade. Oh yeah, and then we discussed the answers to the final exam and then I gave everybody real, not invisible, chocolate chip cookies. Too bad you missed it.”
  • Just because I seem fun and amusing doesn’t mean my tests are easy. My classes are hard. Here, I am not lying. Believe me. Reading all the material and going to class does not guarantee you an A or even a B unless you’re super-duper smart. You actually have to study too.
  • You’re not nearly as cool as you think. Class clowns were funny in high school, but not now.
  • If you’re out on the town drunk and want to yell at me about your grade, then please don’t ever take any of my classes again.
  • And don't send me nasty e-mails when you're in a drunken stupor at 4am. Believe me, you'll regret it in the morning.
  • I’m not actually all that good at keeping my mouth shut. Please don’t tell the other faculty members (including those in the department of hydraulic socionomy) what I say, unless it’s good and about them; or it’s something you learned that you thought was really neat that also does not clash with their theoretical viewpoint, because they’re sensitive about that.
  • Please don’t get offended by my jokes. They’re funny, but sometimes not to conservative Christians or most liberals.
  • If I’m late for a meeting and rushing out of my office, or if I’m trying to eat lunch in between classes, or if I’m out with friends on a Friday night, I might not be all that keen to answer questions about the upcoming midterm. I might be grouchy. Just so you know.
  • This is for the boys: I'm hetero.
  • This is for the girls: If you’re flunking my class, don’t make sly little suggestions about what you might do to earn a passing grade. You’re flunking my class. Why would I think your performance would be better in any other areas? Besides, I'm too old to care.
  • Incompletes are for students who, for legitimate, documented reasons, couldn't finish the class. If you don't like your grade, you can't take an incomplete.
  • I will do my best to give the first midterm before the drop deadline. If you take the midterm and do badly, and then don't drop the class, and then come back 3 months later and try to play it like you were never in my class and you want me to sign a form, I won't.
  • If I see you out on the town on a weekend night and you want to buy me a drink, you cannot currently be in my classes or ever take any of my classes again. Ever. Then maybe you can buy me a drink. Alright probably. Okay.
  • Similarly, I'm glad you like my art work. And, yes, it is for sale. But don't think that if you buy some, you'll get a higher mark in my class. You won't. So it's probably best if you wait to buy anything until at least a year after you've had your last class from me. And don't tell me while you're taking a class that you'd like to buy something a year later - that won't work either.
  • If I set up extra office hours to help you, and you don’t show up, I will refuse to set up any other office hours outside of regularly scheduled ones.
  • When you tell me, “I’m getting kicked out of school because of the grade I got in your class,” this makes me feel bad, but it also makes me wonder if this is the first bad grade you’ve received, and what kind of slave driver is supporting you that would cut you off for one bad grade.
  • When you come to see me because you’re worried about your grade, and you use all the study suggestions that I tell you to, and I really honestly believe that you’re trying hard but you’re still getting a bad grade, I will wish I had the guts to gently tell you that not everyone is meant for university, but I most likely won’t. I will feel bad instead .
  • When you ask a stupid question in class I will try not to laugh at your question. However, I do reserve the right to tell my friends later and to laugh then. Sorry, but sometimes I just have to. Your name and any identifying information will not be used.
  • Please ask all the questions you want to in class. Really. I learn from my mistakes. If I see anyone so much as roll an eye, I will pull them aside after class and tell them that’s inappropriate.
  • I’m kind of a talker. I like to tell stories. Please, if you figure this out, do not use it to postpone lecture, and hence, the amount of material you will be responsible for. You will still be responsible for the same material regardless of whether we cover it in class.
  • If you work for me on a project, and you do a good job, I will write you a kick-ass letter of recommendation. If you work for me and do a lousy job, I will writer a letter that, while not direct, will let the program or job you are applying for know what kind of a student you are. Remember that things like, “She was often on time,” or, “From my conversations with him, it is clear that he very much wants to go to graduate school,” are not really compliments.
  • And, please, if you like my class, if you feel that it changed the way you think, if you learned a lot, if you were challenged, please tell me. In this age of limited resources and time, that’s what keeps me going. I love teaching, and I’m clearly not in it for the money.
  • Tell me if you got something out of my class. I really really need to hear that sometimes. Actually, this last item goes for all your professors.

Monday, December 06, 2004


A good friend recently asked whether it is appropriate for retirees to look for part-time work in our community: "But won't it deprive some young person of a job if a retiree takes it?"

Arrgghhh. It is a real struggle, trying to explain the importance of real output and growth, not jobs. It is especially difficult in a community where young people, having difficulty finding jobs they like, tend move to larger population centres. For some reason, people in these smaller communities see the out-migration as something bad, not as a welcome opportunity for young people to increase their earnings (and I don't think that's just because the out-migration causes a comparative reduction in demand for real estate).

If retirees would like to work and are barred from doing so, then society ends up with less output. When retirees work, real output and real incomes go up, on average. Unfortunately, there are just too many people who would rather have a smaller pie in the mistaken belief that recutting the slices will make some favoured group better off. It won't, at least not for long.

The situation is analogous to my earlier piece on hurricanes. Also see EconLog on the same subject. And Cafe Hayek has a related (and very depressing) posting about security jobs in airports.

The Best Gifts

Posted last year by Tyler Cowen at The Marginal Revolution:
Experiences, not possessions. Concerts and travel are remembered for longer than clothes and jewellery. The result is robust to different ages and groups, but tends to be strongest for high-income individuals. Here is the full story, here is another summary. Here is the original paper. The home page of Van Boven, one of the researchers, offers many interesting papers on human psychology.

Sunday, December 05, 2004

A&E's Biography of the Year?

On December 15th, A&E will air its show, "Biography of the Year". Who will they choose? Please note that inclusion on the list below does not indicate my endorsement. In the promo, they show pictures of Kerry with Edwards and of Janet Jackson. Keep in mind that the goal is to predict who A&E will select, not who you think should be named in the biography of the year.

Anti-trust in 2 Easy Lessons

1. You must compete.
2. You must not win.

At least that's how too many people think of Walmart. See this interview with a former Walmart manager and ask yourself, "Now just how is it that consumers are being hurt here?" (pointer via hispanicpundit).

Speaking of Walmart, there's a spoof going around announcing Walmart's entry into the ballistic missile submarine market. Maybe Canada should have shopped at Walmart instead of buying those used subs from the UK!

Robert Barro: The Media have a left-wing bias

Most economists suspected it, but here are some fairly convincing empirical results confirming the left-wing bias of the media.

Particularly striking are the high liberal ratings for the New York Times and CBS Evening News...

Barro predicts,

"...if the political opinions of viewers, listeners, and readers are similar to those of their elected representatives, the political leanings of most of the media are far to the left of those of most of their customers. This mismatch suggests profit opportunities for conservative-oriented, or at least balanced, media outlets. Fox News is probably only the beginning. Maybe the next conservative entrant will be a recreated CBS News."

Yup. People respond to incentives, and if mainstream media are out of touch with their customer base, they won't remain mainstream for long.
(Thanks to Ben for the pointer)
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