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, April 16, 2005

License Plates

My earlier post about my vanity plate:

T1 TA3
led to a comment on Fark (fourth comment down from the top), and considerable e-mail discussion.

The most recent entry in this e-mail discussion was from The Emirates Economist, who sent me this link, which seems to be "carnival" of license plate links.

By the way, my younger son, Adam Smith Palmer, was considerably distressed that I didn't get a plate that read
3M TA3.
It would have turned out to be appropriate, I guess, now that my older son, David Ricardo Palmer, works for 3M of Canada.

Are You Feeling a Little Low?

I hope you don't feel this low. [link via Phil Miller at Market Power].

[with special thoughts for students writing exams]

Manitoba Margarine

Last month I wrote this about the margarine/butter controversy in Quebec, where, according to Lisa, of London Fog, oleomargarine must be white to distinguish it from butter because, "Citizens in Quebec are apparently too stupid to read labels." Or at least their gubmnt treats them that way.

Now Sean Incognito informs us that in Manitoba, the government [sic] introduced legislation on Wednesday to repeal the Margarine Act, the province's law that keeps butter substitutes at arm's length, label-wise, from the real thing.

As Winnipeg radio station CJOB reports:
"The government [sic] wants to repeal the act because they believe people can distinguish the difference by now."

It is nice to know that in at least one province in Canada, the gubmnt has some confidence in consumer sovereignty.

Friday, April 15, 2005

The "Field of Dreams" Fallacy

Phil Miller, at the Market Power blog, decries the continued use of the phrase, "If you build it, they will come."

The problem, as he points out, is that fans who come to a sports stadium usually would have spent their money in some other way in the same economic area if they hadn't attended a sporting event. This "diversion effect" negates any impact that having a professional sports team might have had on a local economy.

Mayor Michael R. Bloomberg recently provided a new reason for building a 75,000-seat stadium on the Far West Side of Manhattan - and it's not the Olympics, conventions, or professional football.

"Keep in mind that what this is about is jobs, jobs, jobs - and people need those jobs now," Mr. Bloomberg said the day the Metropolitan Transportation Authority voted to sell development rights to the Jets so that they can build a $2.2 billion home on the Hudson.

Mr. Bloomberg, like so many others, make the implicit claim that if the public doesn't build this stadium it won't get built and if so, then x jobs will no longer exist and/or will never exist. But this is silly.

It is silly, not only because of the diversion effect, but also because, in the long-run, the aggregate supply curve is vertical and labour is mobile. Job creation is an empty argument.

Private Health Care in Canada

Alan Adamson, co-blogger on Curling, also has a blog entitled Silly Little Country. One of his latest postings is about one sector of health care in Canada that has been privatized and seems to work quite well:

I encountered it recently - my loved one was unwell, and I had an
appointment that day for examination (and experience suggests that even without a family doctor, I could have found one that day or the next). Lab results were available the next day, and the diagnosis a little rough, as home care would be needed. This was arranged the same day. Since then the patient has improved, though we know he has a serious kidney problem and are just trying to keep him well, but he seems to be enjoying life, and really looking forward to this summer.

Of course the loved one is my cat.

Why can't we find a way to treat humans so well?

I know cats and humans are different, but Alan's case deserves serious consideration. His view is consistent with what I wrote earlier here and what Brian Ferguson wrote here.

For another recent assessment of Canada's Health System, you might also want to look at the recent Fraser Institute study:

Critical Surgery for Health Care: Canada is currently under-performing virtually all industrialized nations offering universal health coverage. Harris and Manning propose eliminating the federal role in health care management and financing, strengthening health care financing by granting the provinces the tax room vacated by the federal government, eliminating barriers to private delivery and financing of health services, giving Canadians freedom to choose their health care providers, and giving those providers the freedom and incentive to provide faster access to better care at lower cost.

Viagra, Religion, and the Economy:
a Set of Simultaneous Equations?

Many religious leaders would like to have us believe that religious rules provide parameters for an economy. In contrast, those of us who tend toward economic imperialism see religious rules as endogenous to the economy, being changed in the face of changes in technology and/or relative prices.

There is probably a bit of both in this story (thanks to BrianF for the link):
Viagra had been deemed not kosher since 1998 under strict dietary laws over the week-long Jewish spring holiday. ...

The drug was previously prohibited because its coating was considered inedible over Passover, when contact with everyday ingredients, known as hametz, is forbidden under Jewish law.

...Viagra's Israeli manufacturers said they sought an answer after receiving queries from worried religious men.

Rabbi Mordechai Eliahu said the pill can be swallowed if it is encased in a special soluble kosher capsule first.
So Viagra is Kosher, now, so long as the coating is Kosher. I wonder if the same ruling applies to Cialis.

Thursday, April 14, 2005

Cigarette Butt Sells for $5300 (US)

When I read the headline about this sale, my first reaction was , "What groupie paid for what celebrity's cigarette butt and why?"

It turns out that

The cigarette was smoked at 11:59pm on 9 December 2004 by the owners of popular Auckland bar Malt.

New Zealand introduced a law banning smoking in most public places at midnight on 10 December.

The cigarette butt was described on the auction website TradeMe as a "priceless Kiwiana collector's item".

The successful bidder, who has not been identified, also received a certificate of authenticity, and a mounted display case.

I hope it was a really nice display case.

Sometimes people get a lot of utility from the process of acquiring an object, but not from the use of the object; this seems like one of those times. [h/t to BF for the pointer]

They Taste a Little Bit Like Chicken

Alex just sent me this:

Wisconsin Residents Seek Legalized Cat Hunting

Doyle says cat hunting won't happen

April 13, 2005 — Wisconsin residents support a controversial plan that would allow hunters to take out wild felines that kill birds and other small mammals. Governor Doyle says Wisconsin shouldn't become known as a state that shoots cats

Residents voted 6,830 to 5,201 for the plan last night at the spring meeting of the Wisconsin Conservation Congress.

The Department of Natural Resources says the plan passed in 51 counties, failed in 20, and tied in one. Statewide a majority of votes were in favor.

The question asked residents in all 72 counties whether the state should classify free-roaming cats as an unprotected species. That would allow hunters to kill them at will.
"Don't shoot 'til you see the nameplate on the collar."

Addendum: It occurs to me that this story provides an excellent opportunity to reiterate the standard economic analysis of law questions, and ask them of concerned cat owners who worry that their cats might be shot:
  1. What is the risk?
  2. Who is the least-cost bearer of the risk?

Update: Alex disagrees with the title - says they taste more like rabbit.

Canadian MPs to Visit Hungary?

In their continuing interest in individual freedom and liberalizing the economy, several politicians have recommended that Canada legalize prostitution. Some have even gone so far as to recommend a junket to the Netherlands, Sweden, and Las Vegas study the possibilities.

It looks as if they will have to add Hungary to the itinerary:
The Hungarian Interior Ministry looks set to allow prostitutes to tout for business in shopping malls, local media reported.

The ministry is thinking of allowing dedicated shopping centres where prostitutes could strike deals for sex as long as they move to a place of their own to carry out the transaction, the daily Nepszabadsag said.

[h/t to BF for this link]


There is quite a bit of evidence that transfatty acids are bad for us. Here is some information from this site.
In a recent survey, five popular restaurant or takeout foods were randomly selected and analyzed for their trans fat content. Trans fats were found in all of the products that were tested:
• Five small chicken nuggets from a fast food chicken outlet contained nearly 4 grams of trans fat.
• An apple danish from a donut shop contained about 2.7 grams of trans fat.
• Two vegetable spring rolls from a Chinese takeout contained about 1.7 grams of trans fat.
• Just one fillet of battered fish from a fish and chips restaurant dinner contained about 1.2 grams of trans fat -- and that's not including the trans fat in the French fries.
• Even in pizza you'd most likely ingest about 1 gram of trans fat in two slices -- most of it from vegetable shortening used to process the crust.

Click here to read the report about the restaurant survey.

For those of you who eat at McDonald's in the United States, click here for the amount of trans fat in each product. One large French fries contains 6 grams. A baked apple pie contains 4.5 grams.

Incidentally, don't think that the problem is only at McDonald's or other fast-food chains. Nothing could be further from the truth. Many other restaurants, including "quality" restaurants, fry their food in partially hydrogenated oil and served baked goods containing partially hydrogenated oil. At least McDonald's is diligently trying to reduce trans fats in its cooking oil and has had some success in reducing it in its fried chicken products. Many other restaurant operations are not even trying.
The above link is courtesy of Jack.

Raising the Minimum Wage?
Not Again!

I suspect there were no economists on this committee:

HALIFAX (CP) - A report has recommended that Nova Scotians receive a 30 cent increase in their minimum wage this fall.The Department of Environment and Labour released a report Friday from the Minimum Wage Review Committee. The minister has until the end of May to respond. The report recommended the minimum wage be increased to $6.90 per hour.It also recommends a further increase to $7.15 by next April.The committee includes two employer and two employee representatives.

As BrianF said when he sent this to me, it would be interesting to learn more about the industries the employers and employees are from.

For a carnival of links to minimum wage articles, see this piece by the Hispanic Pundit. Also, King has this at SCSU Scholars.

Wednesday, April 13, 2005

Canadians Love Michael Moore

Or so it seems. His movie, Fahrenheit 911, did very well in most Canadian markets relative to expectations and relative to many similar U.S. markets.
It did very well in Canada. Fahrenheit 9/11 consistently overperformed in Canadian cities; without that boffo business, the film's gross would have been significantly smaller than it was.

quoted from The Vast Left-Wing Conspiracy by Byron York; cited and referenced by Donald Luskin.

Property Rights to Pandas

Here is an interesting example of long-term planning for contingencies:

Under the loan agreement with China, all pandas born at zoos outside the country must be returned to China after the animals mature.

  • Pandas are lent to U.S. zoos;
  • U.S. zoo patrons get to see pandas;
  • U.S. veterinarians and zoo-keepers devote many scarce resources to trying to get the pandas to mate;
  • U.S. zoo patrons get to see baby pandas grow up; and
  • China gets the grown-up off-spring at some distant future date.

    an interesting set of trade-offs.
    [h/t to Jack, who was more interested in the photo than in the economics]

Trade and Fiscal Deficits:
So Why Aren't People Saving More?

When I read in the NYTimes that

The United States trade deficit expanded in February for the third month in a row, reaching a record $61 billion, as rising oil prices coupled with America's hunger for foreign goods pushed imports to unprecedented new heights,
my reaction was, "How long are foreigners, especially foreign central banks, going to continue to hunger for U.S. dollar-denominated financial assets (e.g. dollars and t-bills)?" As I have said before, I can be convinced otherwise, but I have some pretty strong concerns about what will happen if and when foreign central banks decide not to buy as much U.S.debt.

It turns out that I am not the only one. Here is Charles Mackay of The Wall Street Examiner:

The US trade deficit in international goods and services is now increasing at an annualized rate of more than $200 billion per year. The accelerating trade gap is the primary reason that the US economy has been able to maintain its growth and shrug off higher energy prices. In the past few years, foreigners (mostly foreign central banks (FCBs)) have been willing to finance the expansion of the trade deficit.

That deficit however, can no longer continue to be financed by the FCBs. The total deficit is now well beyond the collective resources of all FCBs acting as group. ... the total current account deficit is now quickly approaching a theoretical limit of free total world savings.
Jack, who tipped me to this article, wonders if now is a good time to buy gold.

Who Should Celebrate?

Please do not ask how I happened across this site, announcing a celebration and reunion marking the 40th anniversary of the creation the socionomology department at The University of Western Ontario. It was created in 1965 when it and the economics department formed separate entities.

I wonder if the wrong department is celebrating...

Tuesday, April 12, 2005

Review of Law and Economics

A new journal in the economic analysis of law has recently been announced by the Berkeley Electronic Press. The inaugural issue has articles by Posner, Ribstein, Goldberg and other notables, with the next issue containing articles by equally well-known writers in the field. One sign of its quality: it has articles by, and an editor from, George Mason University. Click here to see the abstracts [and links to the full articles!] from the first issue.

Pet Marriages:
A Clear Case for Civil Unions

This past weekend, I heard a brief snippet on the radio about an attorney in Virginia who is lobbying for marriage rights for pets. Paraphrasing from memory,
People hold marriage ceremonies for their pets. The pets live together and become dependent on each other emotionally. When one member of the union dies, the other becomes despondent. They need to have some rights, to compensate them for their loss.

This strikes me as an area perfectly designed for contract law and civil-union-type law. If people want to this sort of thing, why not? But I see no reason for special legislation.

I was not about to write anything about this topic without checking out the story. Here is the result of Googling "pet marriage". The top links refer not to marriages between pets, but to marriages of owners to pets. E.g., -- "Specialists in catering for those who would like to demonstrate a long-term commitment to their pet."

no comment, but feel free to add your own...

Markets and Corruption

There is a strong case to be made that when gubmnts support the use of markets, there is considerably less opportunity for corruption. Here is a recent example from Mexico (h/t to BF for the link). The article is about another topic:
A vote by Mexico's congress to strip leading presidential candidate Andres Manuel Lopez Obrador of immunity from prosecution over a minor public-works matter has laid bare the brutal battle to succeed President Vicente Fox in next year's election. ...
But innocuously tucked away in the middle of the article is this:

Alejandro Hope, a political analyst with the GEA consulting group, said market-oriented economic changes over the last 15 years have eliminated much of the potential for payoffs and influence-peddling.

"It's not that Mexico is cleaner, but there is less opportunity to engage in corruption," he said.

Garbage Collection:
The Importance of Transaction Costs

One of the basic tenets of the Coase Theorem:
A necessary condition for resources to move to their most highly valued use is that the transaction costs be low. Otherwise the inital allocation of ownership will affect efficiency.

Applying this concept to garbage collection and disposal, Peter Menell examined variable rate pricing for garbage and found:
The economic theory underlying variable rate pricing has proven, after some tinkering at the implementation stage, to be quite workable in practice. In fact, the practical realities of implementing charges have shown that theoretical perfection in terms of getting the prices right is less important in the grand scheme than keeping the transaction costs manageable. [Emphasis added]
As I have written before here and here, we have pay-as-you-throw garbage collection in Clinton, Ontario. The major monitoring costs come at the collection point, making sure households do not mix garbage in with their recyclables or with leaves inside the large leaf bags. The recyclable collectors perform the first task curbside; the latter problem is reduced with the requirement that households use clear plastic leaf bags, not orange or opaque leaf bags.

Also, in Clinton, we are able to purchase stickers or clips from several different variety stores for the private collection of our garbage, thus keeping transaction costs low.

In general, transaction and monitoring costs are low in Clinton, Ontario; that is why pay-as-you-throw works so well here.

Thanks to Out of Control for the link.

Monday, April 11, 2005

Capital-Labour Substitution:
An Example from UAE

The Emirates Economist has a short piece and link about the use of robots instead of jockeys in camel-racing.

"With the introduction of this law and the production of the first generation of robot jockeys in August this year, the UAE will have adhered to the international regulations governing camel-racing while at the same time preserving the traditional character of camel races as a popular local heritage."

Here is an earlier piece on capital-labour substitution in the fast food industry.

The economics is similar: in fast-food restaurants, the capital-labour substitution occurs because of rising real minimum wages (primarily for young people); in camel-racing, the capital-labour substitution takes place because of bans on the use of children as jockeys. See here and here for additional references.

I find it interesting that the countries holding camel races presumably find it more efficient to substitute capital for labour than to monitor the ages of the jockeys.

Update: belatedly, others have become intrigued by the issue as well, but none so thoroughly as the Emirates Economist. See here for his latest on how the robot operators will have to have good video-game skills -- lots of great job opportunities for racing camels.

How will the authorities monitor the ages of the remote control operators?
Will this solution be less costly than monitor ages of camel jockeys? Perhaps so, if jockeys tend to come from jurisdictions that provide little in the way of birth-certificate documentation.

Not a Bayesian Posterior

To read about Bayes Law and Posterior Probabilities, click here.

But to read about using E-Bay to auction off one's posterior as a billboard, click here.
Parman, 27, is one of the nation's foremost female practitioners of jujitsu, a martial art that involves a good deal of choking and painful contortion of various limbs. She and her posterior are often in the public eye at tournaments, classes and demonstrations. They make regular appearances on the pages of such magazines as Grappling, and Submission Fighter. Parman is bent over in many of these pictures, committing serious violence against a supine opponent; her face is obscured but her fundament is in plain view. [thanks to BF for the link].

As of the writing of that article in the Miami Herald, the top bid was $2,225, but she was hoping to raise $50,000. Part 2 of the attempt is here, though I doubt if the link will last very long.

Pain Relief and Time Preference

Many people taking Celebrex or Bextra or similar pain relievers do not much care about the health risks -- the medication helps alleviate their pain and that is all that matters to them. See, for example, Warnings Aside, Some Still Want Their Painkillers. [registration required; thanks to BrianF for the link]
As Pfizer removed Bextra from the market this week under pressure from federal drug regulators who also issued broad warnings that other popular painkillers could hurt the heart, stomach or skin, people who rely on such drugs responded with dismay and a sense of weariness.
In interviews around the country on Friday, many people expressed skepticism about the new warnings and said they would rather tolerate health risks than constant pain.

There are two reasons for this reaction.

The first reason is the standard neo-classical economics one: the individuals do not have to bear much, if any, of the financial cost of future healthcare if they suffer heart or other health problems; this explanation applies to those who have generous and/or socialized health plans.

The second is probably stronger, but just as plausibly neo-classical economics: pain sharply elevates an individual's time preference. From Wikipedia:

Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well.

When people are in great pain, they don't much care about the future; they want the pain relieved. However, once the pain is relieved, they tend to lower their time preferences. The combined effect is that when people are on pain relievers, they might think about and be concerned about future costs; but when they think about the pain they might be experiencing without the pain-relievers, their concern shifts dramatically to the present.

Sunday, April 10, 2005

Fake Microsoft Security Update

There appears to be a worm circulating that is propagated via a fake Microsoft security update. I have seen warnings about it on both PCWorld and ZDnet.

An e-mail campaign designed to lure people to a bogus Microsoft Web site is making the rounds as part of an attempt to install a Trojan horse, antivirus company Sophos said Friday.

Attackers are sending out fake e-mails that claim to come from Microsoft's Windows Update. People who click on the link in the message are steered to a site that looks like Microsoft's security update site, where they are urged to download fake patches.

.... "Microsoft does not issue security warnings this way," said Graham Cluley, Sophos senior technology consultant. "They don't send updates in an HTML format, so don't follow the links in an e-mail. If you want to see if an update is real, you need to go to the real Microsoft Web site and check there."

People, however, are likely to click on the phony Microsoft update notices, given that they are making the rounds at the same time as Microsoft is poised to issue its regular monthly security update.

Thanks to Jack for the tip.

Pity the Disadvantaged Canadian Students

Classes for the academic year ended Friday at my university. Students and faculty, alike, rejoiced. [update: we still have three-week examination period].

The short academic year is a major selling point when we try to recruit new faculty members at The University of Western Ontario. Students like it, too, since it gives them an early start on finding summer or post-graduation jobs.

The short academic year short-changes Canadian students in two ways, however.
  1. We have two 13-week terms instead of the 15-week semesters at most major U.S. institutions. Students are in class less and, not surprisingly, cover less material in each term-length course.
  2. Spring on campus is almost non-existent. We may get a few days resembling spring in late March and early April, but for the most part students must experience spring away from campus. And springtime on a university campus is incomparable. Pity the poor students who do not get to experience it.

Responding to Incentives
Sobering Up

We know that people respond to incentives, if for no other reason than that our models based on this assumption do a pretty decent job of explaining and predicting reality. Sometimes (surprise!) people even respond to monetary incentives:

Social drinking can be fun, but sometimes knocking back just a few
can get a person in a lot of trouble. Alcohol is a depressant, thereby weakening the control we have over our behaviour and making us less inhibited. After just a few drinks we may tell off our boss at the Christmas party or flirt shamelessly with someone. Aha, say some people, as long as the drinking isn't too excessive, these problems can be licked with either strong coffee or a personal incentive to stay out of trouble. How true is this folk wisdom?

Research psychologists at the University of Waterloo got a bunch of
undergraduates sloshed to find the answer. The researchers were interested in how much control could be regained by drunk students if they were given either caffeine (equal to about 2 1/2 cups of coffee) or a small financial incentive to sober up. Upon being inebriated with an alcohol-laced soft drink (equivalent to about three beers for someone weighing 150 pounds), the students were asked to complete a rather complex word game. The students who had been given just alcohol performed the worst, the drunk students with the small financial incentive to do well in the word game performed the best, and those who were given caffeine performed somewhere in the middle.

The study, appearing in this month's Experimental and Clinical Psychopharmacology journal, only looked at behavioural control and has no implications for other effects of alcohol, such as diminished reflexes and spatial distortion.

My worry is that some well-meaning politician will now argue we should pay people for being sober when they drive.

I wonder if students had to be paid or were willing to pay to be involved in this experiment. [h/t to BF]
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