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, January 15, 2005

When will Randy Moss Go Bankrupt?

Perhaps I have been overly influenced by the mediots of the MSM (mainstream media), but I have to wonder how smart Minnesota Vikings wide-receiver Randy Moss really is. According to his agent (from a radio interview I heard during my commute), Moss is very smart and would do well in any occupation, which implies he is earning very small rents from being a wide receiver in the NFL. And yet the MSM suggest, based on his actions and interviews, that he is not very smart.

If the MSM are correct, then what alternatives will he have for earning an income when his football-playing days are over? If he is, indeed, earning considerable economic rent as a football player, then how is he different from the typical, financially naive person who wins the lottery? If the situations are analogous, give him seven years, maximum, after retirement before he loses everything.

If, however, he is smarter than the MSM give him credit for being, and/or if he has hired some good financial advisors, he will do well for a long time.

This would be a great contract for Tradesports to offer.

People Respond to Incentives...
So what else is new?

From the Khaleej Times Online [Thanks to JC for the pointer]:
BANGALORE — Beggars from the south Indian technology capital Bangalore have shifted operations to the tsunami-hit coastline where aid cash and supplies are overflowing, a newspaper reported on Wednesday.

The traditional haunts of Bangalore’s beggars – temples, mosques and churches as well as train and bus stations – are virtually deserted, The Times of India said.

So even poor labourers become mobile in response to changing opportunities. Do you think there might be some policy relevance for Canada's Maritimes?

Pop Quizzes in Academic Job Market Interviews

Many academic job interviews include a little section in which the interviewer tries to ask questions for which a job candidate is unprepared (this presumably is not the same as the section in which people are asked about their dissertations). I guess one reason for these types of questions is to see how bright the candidate is and quickly s/he can come up with good insights on the spur of the moment. Here's a recent example, posted by Alex Tabarrok about what he and Tyler Cowen asked:
At the AEAs Tyler and I would ask our job candidates what countries do you think are currently overvalued and what countries do you think are currently undervalued (in terms of growth prospects, reasons for investment optimism etc.) Many candidates were surprised by this question.

I've been on hiring committees. I've done the same thing, so I do not mean to single them out. But I am not convinced this is a good way to find out who would be a good hire. Most academics have little need to be quick on their feet/seat. If we screw up in the classroom, we go back to our offices, figure it out, and correct ourselves in the next class. And for research, we mostly take interesting puzzles and look into them in depth over some time. If we want to determine who can do this well, why not give them all a question (like the one Alex and Tyler used) roughly 48 hours before the meetings begin and let them prepare a bit?

But possibly another reason to ask questions like this is to see whether the candidate has thought about anything other than narrowly defined coursework and thesis work. If we want to hire people who have intellectual curiosity and breadth, then the interview pop-quizzes might be a reasonable filter.

Or maybe it's just fun to ask these questions so we can discuss them with the candidate, and doing so has nothing to do with the hiring process other than finding out who is fun to talk to.

Friday, January 14, 2005

MSN's weird sense of humour?
Brits: Here Comes Hagar the Horrible

Their maps and directions folks may have the routing from Haugesund, Norway, to Trondheim, Norway, fixed by now, but just in case they don't yet (I'm whispering this in smaller font so they won't see it) check out the quickest route. Now look at the shortest route. It doesn't work in reverse, though.
Thanks to AlexK for the tip.

A "Kindness" Gene?

According recent research, humans have a gene that determines their proclivity toward altruism. Here is report of the research, from ABC news. Here is the abstract (full article by subscription only):

Although 51 twin and adoption studies have been performed on the genetic architecture of antisocial behaviour, only four previous studies have examined a genetic contribution to pro-social behaviour. Earlier work by the author with the University of London Institute of Psychiatry Adult Twin Register found that genes contributed approximately half of the variance to measures of self-report altruism, empathy, nurturance and aggression, including acts of violence. The present study extends those results by using a 22-item Social Responsibility Questionnaire with 174 pairs of monozygotic twins and 148 pairs of dizygotic twins. Fortytwo per cent of the reliable variance was due to the twins’ genes, 23% to the twins’ common environment and the remainder to the twins’ non-shared environment.

Why does this "kindness" gene still exist? Wouldn't people who are free-riders tend to out-survive those with the "kindness" gene over time?

[thanks to BenS for the tip]

Trade Liberalization as Relief Aid

One of the best ways to aid developing countries, regardless of whether they were hit by the earthquake and tsunami, is to open the borders to their exports. The EU is doing this by speeding up the implementation of trade liberalization policies for Sri Lanka, India, Thailand, et al.:

"Under the new system Sri Lanka for example, will receive duty free access to the EU for almost all its GSP exports including on its vital textile and clothing exports. India, Indonesia and Thailand will benefit from reduced duties and wider product coverage, especially on crucial seafood exports"
Don't get excited by their generosity. All the EU is doing is speeding up the implementation of trade liberalization, which may not mean much if it is going to take months or years to rebuild the productive capacities of these countries.

Link supplied in a comment on Ben Muse's blog.

Naive [stupid] Models and Economics

Newmark's Door has a good example of ignorance in the application of computer simulations to economic phenomena. The link he provides is to an article which shows that if the only way people determine which restaurant to patronize is probablistically based on how many customers are already there, then whoever gets the first patron will get many more patrons, while the other suppliers languish.

That is a very big "if". I hope people do not try to extrapolate the results of this rather dumb (oops -- incomplete) model to the market for computer software.

A better model would assume that most customers play a repeated game with the restaurants having favourites but sampling others now and then. It would also assume that if customers find something that satisfies them more than the current popular restaurant, in terms of quality, service, price, etc. [geez, where are these economic variables in most such simulations?], then customers will respond to these incentives by shifting their patronage.

There's a reason some schools call it "Price Theory" and not microeconomics.

Let's face it: consumers are not robots responding to only one variable. We may take popularity as a signal of quality, but we also look at other variables or sources of information, and we especially ignore popularity as a measure of quality if we have repeated samplings ourselves.

Do you think this doesn't happen with software because people get locked into bad technology? Contrast the following:
  • CPM -- MSDOS
  • Lotus -- Excel
  • Wordstar -- WordPerfect
  • WordPerfect -- MSWord
  • Internet Explorer -- Firefox
  • Windows XP -- Linux

If a better product comes along, more people are more likely to use it (okay, there hasn't been a stampede to Firefox and Linux, but they are gaining market share). Despite the cries and fears of our being locked into inferior technologies by market failures, there sure has been a lot of change in the computer industry over the past 25 years.

For a rigorous, yet highly readable, treatment of this problem within the context of computer software, see Winners, Losers, & Microsoft by Stan Liebowitz. And for a good selection of work on the topic in general, see this collection of works by Liebowitz and Margolis, which includes their famous QWERTY article.

Thursday, January 13, 2005

Altruism Escalation

My friend, Jack, wonders what will happen in the next few months if there is another disaster requiring considerable relief aid (e.g. Sudan? Congo? Rwanda?) now that so many individuals and gubmnts seem to have engaged in a competition of Pharisees to see who could donate more in relief aid for the victims of the Indian Ocean's tsunami. How much more will people be willing to donate in the next few months or year if another disaster strikes?

In Canada, the gubmnt announced it would match all private donations up to $150 million. One of my students suggested that the plan might actually lead to smaller private donations. [Presumably he believed the income effect would dominate the substitution effect.] It turned out that private donations were huge. Every conceivable club or organization had a fund-raising activity.

For a different perspective, here's a pretty biting and thought-provoking comment on the political posturing of the politicians who didn't seem to learn the lesson of the Parable of the Widow's Mite.

Teaching Evaluations Don't Tell Us Much about Teaching Effectiveness

University student evaluations of the "overall effectiveness" of their instructors play an important role in assessing consumer satisfaction with product that universities sell. I am skeptical about whether they measure anything else, and I have been ever since Geoff Carliner, Tom Romer, and I published an empirical piece many years ago showing that evaluations were not related either to the amount a particular instructor taught the students or to how lenient the instructor was [I don't have an on-line link, but see "Leniency, Learning, and Evaluations" (with G. Carliner and T. Romer), Journal of Educational Psychology 70 (Fall 1978): 855-863].

Now there is further evidence:

Students asked to watch five seconds of soundless videotape of a teacher in the classroom came up with evaluations of the teacher's effectiveness that matched those given by his own students after a full semester of classes.
[from Slate; thanks to Marginal Revolution for the link.]

If students can, in five seconds(!!!), provide instructor evaluations that are the same as the ones we get from students who have actually been in the course for an entire semester, there is a very good chance that the standard evaluations conducted near the end of each term are not measuring much more than presentability, performance, and atmosphere. Otherwise I would expect there to be much more of a difference between the 5-second evaluations and the 1-semester evaluations.

It is possible that professors who present themselves better within five seconds also teach better and teach more.

I doubt it.

My skepticism does not, however, mean I would favour abolishing student evaluations of instructors. As I said at the outset, evaluations are probably important for measuring consumer satisfaction with the product universities provide.

Fat Stars

Kip Esquire blames junk-food vending machines in the schools.
note: 8-)

Wednesday, January 12, 2005

Top 25 Innovations

From CNN, here is a list of 24 of the top 25 non-medical innovations from the past 25 years. Notice they are talking about innovations, not inventions.


The number one innovation will be announced on
Sunday, January 16, at 8 p.m. ET.

2. Cell phone
3. Personal computers
4. Fiber optics
5. E-mail
6. Commercialized GPS
7. Portable computers
8. Memory storage discs
9. Consumer level digital camera
10. Radio frequency ID tags
11. MEMS
12. DNA fingerprinting
13. Air bags
14. ATM
15. Advanced batteries
16. Hybrid car
17. OLEDs
18. Display panels
19. HDTV
20. Space shuttle
21. Nanotechnology
22. Flash memory
23. Voice mail
24. Modern hearing aids
25. Short Range, High Frequency Radio

What is your guess about what they will declare as the #1 innovation? How about the internet or world-wide-web?

or possibly microwavable popcorn?
or maybe the use of replays by NFL officials?
My granddaughters would say MP3 players.

How Many Remotes Do You Have in Your Home?

According to item #5 of "100 Things We Didn't Know at This Time Last Year" [link from The Marginal Revolution], 52% of UK households have five or more remote control units. Here's my total for our home (two adults, children grown and gone [for now]):
  • Television remotes -- 14
  • Stereo-related remotes -- 4
  • VCR/DVD remotes -- 4
  • camcorder remote -- 1
  • Total: 23 (and counting)

(We find it easier to buy lots of tv remotes and leave each one in a designated spot rather than carry and pass them around; also, we have LOTs of televisions)

Dueling remotes can be a fun game sometimes.

The Sports Economist

Last week, Professor Skip Sauer invited Professor Phil Miller of the Market Power blog and me to join him as co-bloggers on The Sports Economist. I immediately accepted the invitation.

The Sports Economist is a premier sports economics blog. It was strongly recommended reading for my students last term, and it was required reading for Professor Miller's students. I was especially pleased with the joint invitation because Professor Miller and I have only recently come to know each other and have already decided to work together on several research projects.

I will, of course, continue to post articles here, at The Eclectic Econoclast.

Mad Cows and Beef Futures

The Canadian gubmnt has just reported a third case of "mad cow disease" on an Alberta farm. This news comes just as the U.S. is considering the removal of most of its restrictions on importing Canadian beef.

The proposed lifting of the U.S. ban would ordinarily have been expected to raise the price of cattle in Canada and lower the price in the U.S. But with two cases of mad cow disease discovered in the past ten days in Canada, and with a suit by U.S. beef farmers arguing that reopening the border would harm the farmers and endanger consumers, what do you figure the odds are that the U.S. really will lift those restrictions?

Would you like to place a bet on whether the U.S. will open its borders, as planned, to Canadian beef by March 7th? You don't need Tradesports to do it -- you can take a position in cattle futures. Here was the immediate market reaction (from Reuters):
In Chicago, [U.S.] cattle futures rose sharply on the news of another case of mad cow disease in Canada and the possibility that the USDA would withdraw its beef trade rule. Live cattle contracts for February delivery closed up 1.025 cents at 90 cents per pound.

Tuesday, January 11, 2005

Why the Name Change?

I've decided to change the name of this blog because, it turns out, someone else has trademarked the name "The Econoclast" for his economics consulting business in the United States.
I think I've been using the name longer than he has, but he registered it several years ago, and he does a lot of consulting under this name, so it makes sense for me to change the name of the blog.

My First Curling Experience

I've been watching curling on television for over 20 years, mostly with encouragement and helpful explanations from my wife. Until last Friday night, I had never tried it.

For those of you who don't know what "curling" is, it isn't a hair-styling contest (as is obvious from my photo to the right). In curling, the contestants slide heavy rocks with handles down the ice. The goal is for your team to get more rocks closer to the centre of the target (called a house) than your opponents.

It is called "curling" because just as the curler lets go of the rock, s/he puts a very slight rotation on it by turning the handle. This spin makes the rock curve as it goes down the ice, unlike the disks that are pushed in shuffleboard. The physics of curling is similar to the Physics of Baseball, a book I strongly recommend. What helps make curling really interesting is that how far the rock slides, and how much it curves, can be affected by the sweepers who literally sweep the ice in front of the rock. The more they sweep, the farther rock goes and the less it curves, making the sweeping an important part of the game. Here are some pretty decent books about curling but there are plenty of others,

including Curling for Dummies, which I just ordered for myself.

We had gone to the curling rink several times over the past month, just to "throw rocks" and get the feel of the ice. But last Friday night we were thrust into team play. My wife was pretty good; I sucked.
And sweeping is very hard work!

Update: My wife and I both use push sticks to deliver the stones, but the books I've mentioned above don't have anything about the use of the push sticks.
Also, after our third time out, I had improved considerably (thank goodness!)

Social Security, the U.S. Federal Gubmnt Deficit, and the Supply of Lendable Funds

Many economists are concerned about the expected growing drain on the U.S. Social Security Trust Fund over the next 20-30 years (see Tyler Cowen here, see ColdSpringsShop's Stephen Karlson here, and Ben Muse here, for example). This concern is the main force driving calls for reform of the Social Security System.

In a recent posting, "Is There a Social Security 'Crisis'?", Donald Luskin (who typically [though somewhat understandably] seems to have a perpetual bee up his butt about Paul Krugman) points out that once the surplus in the Social Security Trust Fund stops growing, the result will be that the fund will stop buying so many gubmnt bills and bonds, which will reduce the supply of lendable funds on the market:
But then in 2009, just 5 years from now, the surplus will start to shrink. In 2009 it will fall to $103.7 billion, and in that year the federal government will have to go to the capital markets to raise $4.3 billion that it didn't have to raise the year before. That's not a lot of money in the grand governmental scheme of things nowadays. But it's an important turning point for Social Security -- it's the year the crisis begins.
It could very well be that even before 2009, the slowdown in the rate of growth of the surplus will be a harbinger of what Donald Luskin is writing about. The continued, gradual reduction in the supply of lendable funds will likely have only negligible effects in any one year, but the accumulated withdrawal of over $100 billion from the financial markets could have an important impact on interest rates, investment, and economic growth.

I expect that those who worry only about the direct impact on real output see less cause for concern if they ignore this effect.

Lotteries, Gambling, and Suicide:
Natural Selection at Work?

Some people spend a considerable amount on their hobbies and habits. I realized about a year or two ago, in fact, that I was spending more each month on photography than most people lose in a year at our town's mini-casino (slot machines and horse-race betting only).

Maybe, in the extreme, gambling is different though. You never hear of people spending so much money on hobbies like photography or model trains or quilting that they lose everything, turn to a life of crime, and/or commit suicide. I find it truly sad that people cannot control themselves to the extent that they become problem gamblers, especially when I heard this CBC report last month:

The Canada Safety Council is calling for a moratorium on casino and gambling expansion across the country because as many as 360 problem gamblers are committing suicide every year.
Dave Friedman argues quite convincingly that people who gamble and lose big tend to be less intelligent and/or less well-informed than the rest of us. He also links to this article at Motley Fool.

One point emphasized by Motley Fool is that the expected value of gambling is negative. And one thing that really irritates me about the gubmnt monopoly over gambling in so many jurisdictions is that the gubmnt finds itself in a serious conflict-of-interest position about the expected value of gambling. They have, for the most part, monopolized the education business, wherein people are supposed to be taught valuable, useful things, such as, "On average, casinos make money because you gamblers lose." At the same time they abrogate this usurped responsibility by advertising all the wonderful things that can happen if you just keep spending your money on gambling.

Bill Sjostrom has this to say about state-run lotteries in particular and gambling in general:

The low expected return on state lotteries compared to other kinds of gambling (including illegal gambling) is well known.

Then again, there is evidence that state lotteries are funded from household budgets primarily by reducing non-gambling items, rather than from other forms of gambling.

When I once expressed dismay, while working at a fund-raising bingo for the Kidney Foundation, that so many of the gamblers were gambling away the proceeds from their welfare cheques, a friend told me to relax. "Think of it as the recycling of tax dollars for kidney research."

Bottom Line: it looks as if most of the people who lose a lot while gambling exemplify the view that state-run gambling is a tax on innumeracy. If it weren't so tragic in general and especially for their friends and relatives, it would be pretty easy to write off the suicides of problem gamblers as little more than natural selection.

Monday, January 10, 2005

If You Build It, They Won't Necessarily Come

A major complex is being developed around an artificial lake in Dubai: 78 planned high rises, 35+ floors each.

Designs for 14 of the buildings were recently approved. [Thanks for the pointer, JC]. Here is a description of three of them:
The Dubai Metals and Commodities Center (DMCC) recently launched three towers at Jumeirah Lake Towers. Named “Almas”, “Au” and “Elaf”, the towers have been conceptualized and designed to address specific requirements.

The 64-story, highly secure Almas tower is meant for regional and international diamond communities and will be home to the Dubai Diamond Exchange. While the Au tower is designed for the gold and jeweler market participants and will be the base of the Dubai Gold and Commodities Exchange, the Elaf Tower is designed specifically for commodities trade.

The entire project is extremely ambitious. It could become a major centre. After having been accused of cynicism in a recent comment, let me ask, nevertheless:

What are the odds that all 78 high-rises will be built in the next 50 years? What do you think the vacancy rate would be over time?
[hint: Petronas Twin Towers in Malaysia].

Kidnap a Child -
Get Six Months, maximum

A woman in Red Deer, Alberta, has been found guilty of kidnapping her son 18 years ago, just before her husband was about to be granted sole custody. She took the child to Mexico, then California, where he was raised for 15 years before she was caught. The end came when the U.S. did a background check after she applied for U.S. citizenship. She will return to court "...for sentencing on Feb. 9. She could face up to six months in jail or a $2,000 fine."

WHAT?? six months? for kidnapping?
It seems the father did not file a victim-impact statement; also, according to the on-air CBC report, the son has had a happy, healthy life.

But if the law is to provide signals and incentives, this is an outrageous sentence. It says to parents in the midst of a custody battle: go ahead, take the kid if you think might lose custody. And if you can stay in hiding for 15 years or so, and if the kid turns out okay, you'll get by with it.

If this woman gets off this lightly (or with a complete discharge, as seems most likely), imagine how many more Carline Vandenelsons there are likely to be.

Maybe the CBC report missed something, but on the face of it, this seems outrageous.

Two Important Websites

It has been many years since I've been burned by an internet hoax. One reason (aside from my generally perceptive and suspicious nature) is that I check even remotely questionable items with Snopes and with UrbanLegends.

A recent example that Jack has drawn to my attention includes a number of photos that are being circulated, purportedly of the tsunami. They aren't. See here and here.

Sunday, January 09, 2005

Economic Scatology

When I first read about "World Famous Stock Proctologist, Stepan N. Stool" and his "Anals of Stock Proctology" I nearly fell out of my office recliner laughing. Anyone who bills himself like this must have something on the ball, right? You can learn more about the science of "economic scatology" by clicking on his ad.


Most of you reading this are probably not old enough to become members of the AARP (American Association of Retired Persons); nevertheless, you should pay attention to their lobbying efforts, along with those of CARP, the Canadian Associaton of Retired Persons.

Their basic premise is, "We don't care about future generations. We're gonna lobby for as much as we can get now, for us, 'cuz we're gonna be dead in not too many years."

Here is a very informative posting about them.

The nonprofit group has an operating budget of nearly $800 million, without parallel in Washington. AARP also makes millions from royalties, investments and sales of insurance policies and prescription drugs.
like for-profit corporations, lawyers, doctors and magazines -- the AARP can only endure by keeping their current customers/clients/patients/subscribers/members and acquiring new ones. In the AARP's case, they choose to do so by peddling lies and fear.

The AARP is a huge lobbying force to be reckoned with. If you are young and/or are concerned for future generations, be prepared to fight the AARP's short-sightedness.

I am old enough to have seen AARP's literature for many many years. I care enough about the welfare of my children and grandchildren to think the AARP is evil.

Well, I'll Tell Ya

I used to enjoy Paul Maguire's colour analysis of NFL games. But now he begins over 95% of his interjections, "Well, I'll tell ya,...". Phhhtt.
Apparently I'm not the only one who feels this way.

Update: Good grief, do they all do it? Is it a required part of the colour announcers' lexicon? It sure sounds that way.
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