Sunday, October 31, 2010

Immigration Creates Jobs

I've posted before on selfish reasons, moral reasons, economic reasons, and population reasons for allowing more immigration. In light of reading the disgusting mix of business and government in imprisoning illegal immigrants, here's a benefit I haven't mentioned, employment:
The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.

American economic sectors with much exposure to immigration fared better in employment growth than more insulated sectors, even for low-skilled labor, the authors found.
Hat tip to everyone's favorite economist, Tyler Cowen.

The Danger of Stranger Danger

Today is Halloween and that means more candy, more costumes, and yes, more absurd fears. I'm not one to say the past was better, but Halloween safety is getting out of hand. Whether it's setting trick-or-treating curfews, setting an age limit of 12, or forcing sex offenders to attend a mandatory class about sex-offense laws on Halloween night (even though children are no more likely to be molested and sex offender registration programs don't do much good). In fact,'s Lenore Skenazy suggests in the Wall Street Journal that Halloween may be one of the safest days of the year. Is there a day where parents spend more time with their children outside the home, meeting and greeting neighbors?

So what's the danger in stranger danger? It's the opportunity cost of focus. Like my earlier post on moral math, we only have so much attention we can give to important matters. We we focus on rare problems (kidnapping, school snipers, terrorists, dangerous strangers, drugs), we lose focus on real threats (homicide and abuse from people who know the child, drowning, and car accidents). And let's not forget, there are plenty of economic lessons to be learned in trick-or-treating.

Friday, October 29, 2010

Limited Importance of American Elections

I've spent a considerable amount on time on this blog describing the reasons why I and others vote, even though the expected value of the vote is close to zero. What I haven't discussed, is how important the outcome of those election actually are. According to The Economist, not that important:
But I think you'll also find that policy doesn't swing very wildly when government changes hands. Parties do what they can to reward supporters, but they can't do too much. Many interest groups play both sides, exerting significant influence on policy regardless of the party in power. Military suppliers, big Wall Street interests, and the economic middle-class may do better or worse, but they always do pretty well. Moreover, policy is quite constrained by general public opinion. Neither party will drift too far from the median voter.
Certainly there is a marginal value to each vote and to each election, but it's probably much less than the pundits and politicians would have us believe.

Thursday, October 28, 2010

Warming Up Before a Show

Over at the newly created College Improv Resource, Ben asks a question about why performers warm up before a show? Basic Yes &, group bonding, and practicing patterns were all mentioned. Here's one that wasn't initially obvious, feeling like a kid:
Individuals imagining themselves as children subsequently produced more original responses on the TTCT. Further results showed that the manipulation was particularly effective among more introverted individuals, who are typically less spontaneous and more inhibited in their daily lives. The results thus establish that there is a benefit in thinking like a child to subsequent creative originality, particularly among introverted individuals. The discussion links the findings to mindset factors, play and spontaneity, and relevant personality processes.
Here's a similar article at The Independent.

Wednesday, October 27, 2010

Difference Between Humans and Animals, Part XII

In this series I've been focusing mostly on the things humans can do that animals can't. Well, here's something we can't do, be other animals:

Here's part one, two, three, four, five, six, seven, eight, nine, ten, and eleven of this series.

Tuesday, October 26, 2010

The Future Will Be Rented

I've expressed my concerns about owning homes in a previous post. In a recent article from The Economist, they mention some popular sites where all kinds of things can be rented. Here are some examples:
Here's a few they missed:
Cheaper. Greener. Less risky. The future will be rented and the future is now.

Monday, October 25, 2010

Economics of Seinfeld

Recently came across a blog,, that uses the "show about nothing" to explain the "dismal science". Here are several of my favorites:

Moral hazard and the car rental: Jerry's car is stolen, so he rents a car. The rental company doesn't give him the car he reserved; he gets a small economy car. They ask if he wants insurance, and he replies, “Yes, because I'm going to beat the hell out of this car.”

Signaling and wedding rings: George discovers that when he wears a wedding band, women come on to him. The band signals 1) that you are not gay, and 2) that you are of marriageable quality. A girl discusses the signal with George; she uses the ring as a screening device.

Cost-benefit analysis and the job offer: George thinks he has been offered a job, but the man offering it to him got interrupted in the middle of the offer, and will be on vacation for the next week. George, unsure whether an offer has actually been extended, decides that his best strategy is to show up. If the job was indeed his, this is the right move. But even if the job is not, he believes that the benefits outweigh the costs.

Costs and the bottle deposit: Kramer and Newman hatch a scheme to arbitrage bottles from NY, where the deposit is 5 cents, to Michigan, where the deposit is 10 cents. They can't figure out how to make the costs work; gas is too expensive (variable costs), and there's too much overhead (fixed costs of tolls, permits, etc.) with using a semi to haul the bottles in volume. Finally, they hatch a scheme to use a mail truck, which lowers their variable and fixed costs to zero.

Altruism and the calzone: George puts a dollar in the tip jar at the pizzeria, but the counterman's head was turned and he didn't see it. George laments that it cost him a dollar, but he got no credit for it. His altruism is not pure—he gets utility not from giving, but from getting credit for giving.

Tragedy of the commons and golf: Kramer has been playing on a private golf course, but has lost his access. He gives an impassioned speech about what it's like to play on a public course—the crowds, the brown patches of grass, etc.

Opportunity cost and friends with benefits: Jerry and Elaine are contemplating having sex. “We can have this...or we can have that." But clearly, they can't have them both, though they try. Later, in the coffee shop, George chastises Jerry for trying to have them both.

Intellectual property rights and the bedroom: Elaine's new boyfriend, Jerry's mechanic David, has stolen a bedroom move from Jerry. Jerry wants him to stop using it, but Elaine wants to continue to enjoy it. In the end, Jerry ends up “selling” the property right for a cheaper bill for car repair.

Sunday, October 24, 2010

Geography and the Wealth of Nations

Adam Smith, the founder of modern economics, had one central question he attempted to answer in his masterpiece: An Inquiry into the Nature and Causes of the Wealth of Nations. It's clear that free markets are the key to the the Industrial Revolution. Tyler Cowen's given me his thoughts on the causes. There's probably some cultural factors. But one there's two geographical factors I hadn't given enough consideration. The first is latitude:
Geography determined that when the world warmed up at the end of the Ice Age a band of lucky latitudes stretching across Eurasia from the Mediterranean to China developed agriculture earlier than other parts of the world and then went on to be the first to invent cities, states and empires. But as social development increased, it changed what geography meant and the centres of power and wealth shifted around within these lucky latitudes. Until about ad 500 the Western end of Eurasia hung on to its early lead, but after the fall of the Roman Empire and Han dynasty the centre of gravity moved eastward to China, where it stayed for more than a millennium. Only around 1700 did it shift westward again, largely due to inventions – guns, compasses, ocean-going ships – which were originally pioneered in the East but which, thanks to geography, proved more useful in the West. Westerners then created an Atlantic economy which raised profound new questions about how the world worked, pushing westerners into a Scientific Revolution, an Enlightenment and the Industrial Revolution.
The second is rainfall:
Why have some countries remained obstinately authoritarian despite repeated waves of democratization while others have exhibited uninterrupted democracy? This paper explores the emergence and persistence of authoritarianism and democracy. We argue that settled agriculture requires moderate levels of precipitation, and that settled agriculture eventually gave birth to the fundamental institutions that under-gird today’s stable democracies. Although all of the world’s societies were initially tribal, the bonds of tribalism weakened in places where the surpluses associated with settled agriculture gave rise to trade, social differentiation, and taxation. In turn, the economies of scale required to efficiently administer trade and taxes meant that feudalism was eventually replaced by the modern territorial state, which favored the initial emergence of representative institutions in Western Europe. Subsequently, when these initial territorial states set out to conquer regions populated by tribal peoples, the institutions that could emerge in those conquered areas again reflected nature’s constraints. An instrumental variables approach demonstrates that while low levels of rainfall cause persistent autocracy and high levels of rainfall strongly favor it as well, moderate rainfall supports stable democracy. This econometric strategy also shows that rainfall works through the institutions of the modern territorial state borne from settled agriculture, institutions that are proxied for by low levels of contemporary tribalism.
It's humbling to consider how most of the reasons why I'm rich are not only out of my control, but also out of the control of my family, my country, and at least in this case, my entire species (not to discount the importance of human ingenuity).

Saturday, October 23, 2010

Sometimes Bad Service is Good Business

I hate bad service. So when I see it, I assume it's a market failure. In a recent audio podcast from the new Freakonomics Radio, economist Steve Levitt set me straight:
I've hypothesized that it has to do with the income level of the customers, and that wealthier customers are less willing to tolerate incredibly bad service. I saw this when I spent a year visiting at Stanford University and I lived in Palo Alto. The share of rich people in Palo Alto is almost unparalleled.


I think the business can decide, do they want to pay more and have good workers? Or do they just want to coast along, do they just want to provide the minimum amount of service, and get by? It costs money to provide good service; businesses adapt to that.
Go here for more episodes on topics ranging from custom education to safety with Glenn Beck.

Friday, October 22, 2010

Inequality and the Economy

Every time I teach the reasons for the Great Depression, one possibility often mentioned in textbooks is income inequality. Here it is in Wikipedia's reasons for the Depression. The link I just shared and what I've read before all point to an over-investment (or what I'd call a mis-investment) of resources. Perhaps the mistakes of a few can have a large ripple effect, but there's no reason to think the wealthy would be so much worse at investment than the average person. The inequality explanation never seemed to have legs, until I read this article:
The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those just below them, who travel in overlapping social circles. So this second group, too, spends more, which shifts the frame of reference for the group just below it, and so on, all the way down the income ladder. These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.

In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine (a postdoctoral researcher in political science at Vanderbilt University), Oege Dijk (an economics Ph.D. student at the European University Institute) and I found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress.
This helps explain consumers buying houses they can't afford, a main cause of the most recent recession. It's difficult for economists to put a value on fairness, but we know there is one and now we see it has an important measurable impact.

Thursday, October 21, 2010

Trade Off Between Charity and Employment

Two years ago I posted about how wages are a great signal of where you can do the most good. The more you produce, the more you get paid, the better off society is. Apparently, the richest man in the world agrees:
Billionaire Carlos Slim, the richest man in the world according to Forbes magazine, said he’d rather spend money on projects that create jobs than give away his cash as part of a fight against poverty.

“The only way to fight poverty is with employment,” Slim said at a conference in Sydney today. “Trillions of dollars have been given to charity in the last 50 years, and they don’t solve anything.”
I'm certainly not against all charity, but I continue to feel the cost of it, especially in the hands of entrepreneurs famous for creating wealth.

Emptying the Bottle: Late-October '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
 As always, feel free to email me anything interesting you come across.

Wednesday, October 20, 2010

Global Aging and Underpopulation

A recent article from Foreign Policy magazine discusses the growing worldwide elderly population. As discussed in the article, this demographic transition has huge implications, for example a growing percentage of non-working citizens. One of the surprising discoveries FP makes is that this is not only occurring in "developed" nations, but also in "developing" nations like India and Iran. Although the Earth didn't hold a billion people until the early 1800's, it is quickly approaching 7 billion. The reasons for the population increase are clear. Modern technology allowed us to safely have children and lived much longer. Mankind has come a long way, especially in the last 200 years.

However this population growth is now turning into population aging and will probably be followed by a population slowdown. I'm curious if we will ever have more than 10 billion people total. Europe and Japan are currently experiencing a natural population decrease, with immigrants keeping their total population from decreasing. However the explanation for decreasing fertility rates isn't so clear. Economist Oded Galor has crunched some numbers and confirmed the following reasons:
First there is the theory that the higher demand for human capital during industrialization lead to a decline in fertility as parents concentrated more on the quality of their children rather than their quantity. Second, as the wage gap between females and males decreased, the increase in female labor force participation and the associated higher opportunity cost of having children for mothers reinforced the decrease in fertility.
Also interesting is the reasons that don't seem to be true:
the theory that the emergence of financial markets made in less necessary for parents to have been adult children to support them in old age; the theory that a decline in mortality lead to a too high number of surviving children; and the theory that the general increase in income lead to a rising opportunity cost of raising children.
So do your part and have more kids, as soon as you can.

Tuesday, October 19, 2010

The 708 Presents Harold

I've posted old improv videos before, here and here, but here's a Harold team I'm currently on. Harold is the most famous structured form in improvisation. It was created by Del Close, who is pictured on the back of the stage. Here's a recent show from my team, The 708, the theater's longest running Harold team:

We also have two shows coming up, one in Raleigh on October 26th and one at the theater on November 20th. Keep up with The 708 on our Twitter page.

Monday, October 18, 2010

Difference Between Humans and Animals, Part XI

In this continuing series I've mostly been mostly focusing on differences, but every so often I mention interesting similarities. Here's another example of the latter, Butterflies use medicine:
“What we do find is that the monarchs prefer to lay their eggs on the medicinal species when they are infected. However, when they are not infected with the parasite, they do not prefer this species over this one, they lay their eggs equally between these two species. So somehow they know that they’re infected and they know what to do about it.”
And here's another, monkey's wear power ties:
In many non-human primate species, a display of red by a female increases attraction behavior in male conspecifics. In two experiments, we investigate an analogous effect in humans, specifically, whether red on a woman's shirt increases attraction behavior in men. In Experiment 1, men who viewed an ostensible conversation partner in a red versus a green shirt chose to ask her more intimate questions. In Experiment 2, men who viewed an ostensible interaction partner in a red versus a blue shirt chose to sit closer to her. These effects were observed across participants' perceptions of their own attractiveness (Experiment 1) and general activation and mood (Experiment 2). Our findings suggest that red acts as a basic, non-lexical prime, influencing reproduction-relevant behavior in like manner across species.
Here's part one, two, three, four, five, six, seven, eight, nine, and ten of this series.

Sunday, October 17, 2010

Worthwhile Sentences on Charity

From Mother Teresa: “If I look at the masses I will never act, but if I look at the one I will."

From  Liz Lemon: "words are the first step on the way to deeds"

From Amazon founder Jeff Bezos: "it's harder to be kind than clever"

From the Boston Globe: "My argument is that the cause of poverty has been poverty."

From Robert A. Heinlein: "Progress doesn't come from early risers — progress is made by lazy men looking for easier ways to do things."

From previous worthwhile sentences.

Saturday, October 16, 2010

The Blinding Power of Power

In Peter Jackson's The Lord of the Rings, the One Ring lures all who are near with its power. When put on, it also turns the wearer invisible. I'd never considered the reasons for this power of invisibility, until I read this article:
Power, explains Prof. Galinsky, focuses people on their own internal goals—blinding them, in the process, to how others may view them. In Plato's "Republic," Socrates invokes the myth of the ring of Gyges, which conferred upon its wearer the power of being invisible to others. If we wear such a ring at will, Socrates says, "No man would keep his hands off what was not his own when he could safely take what he liked."
No surprise, the same goes for earthly power:
Being in a position of power also may make people feel that they can do no wrong. In recent experiments, Dana Carney, a psychologist at Columbia University's business school, has found that acquiring power makes people more comfortable committing acts they might otherwise be reluctant to commit, like lying or cheating. As people rise to a position of power, she has shown, their bodies generate more testosterone, a hormone associated with aggression and risk-taking, and less cortisol, a chemical that the body generates in response to stress.

Friday, October 15, 2010

The History of Government Debt

Our debt isn't Obama's or Bush's fault. It's every President and Congress for the last 80 years.

Increase Quantity of Labor by Decreasing Price

Here's something I've been thinking about, but could never articulate so clearly:
This shouldn't be big news. In economics, prices fall with demand. Demand is down. The price for work -- wages -- should be down, too. But wages have a tendency to flat-line, not fall, in recessions. Workers refuse to work at lower pay and employers are afraid to lose good workers by demanding pay cuts. So instead of falling wages, you get falling employment.

Pearlstein suggests we all "look for creative new wage structures" to get the economy rolling again. That means "look for ways employers can pay employees less money." There are a couple ways to do this. Some we've tried, and some we haven't. We have tried hiring more part-time workers, off-shoring more jobs, and adding cheap positions. We haven't tried "job-sharing," the German plan where government and employers split the check for workers to keep more people in their old jobs even when demand for their product falls.
This "stickiness" helps explain why unemployment is a slow measure of an improving economy.

Thursday, October 14, 2010

Patriotic Speeding Overweight Smokers

In response to my recent economics of human life post, a reader linked a story about measuring human deaths. The big reveal was that smoking (and I suspect other major killers like heart disease and motor vehicle crashes) may actually decrease (or at least not impact) government spending. Because smoking and other major killers shorten lifespan, society is saved the costs of caring for elderly (and Medicare, Social Security). This certainly isn't an encouragement to die early, but if there are no negative spillovers to society, then perhaps government shouldn't intervene (like banning drugs, taxing sodas or limiting fatty foods).

Wednesday, October 13, 2010

Limits of Human Progress and the Power of Prayer

Earlier this year I posted C.S. Lewis' fictional description of hell, a world without scarcity. Before that I had confessed that a world without death be very challenging to my understand of Christianity. Recently, my good friend Justin posted a great interview with Christian and renowned scientist, Francis Collins. Although the entire conservation is worth reading, I especially enjoyed his response to the question of scientific innovation removing suffering from our world:
In spite of the fact that we have achieved all these wonderful medical advances and made it possible to live longer and eradicate diseases, we will probably still figure out ways to argue with each other and sometimes to kill each other, out of our self-righteousness and our determination that we have to be on top. So the death rate will continue to be one per person, whatever the means. We may understand a lot about biology, we may understand a lot about how to prevent illness, and we may understand the life span. But I don't think we'll ever figure out how to stop humans from doing bad things to each other. That will always be our greatest and most distressing experience here on this planet, and that will make us long the most for something more.
Mankind has come far, but we still have a long way to go. One way to do that is through prayer. Again, Francis Collins:
Also, prayer for me is not a way to manipulate God into doing what we want him to do. Prayer for me is much more a sense of trying to get into fellowship with God. I'm trying to figure out what I should be doing rather than telling Almighty God what he should be doing. Look at the Lord's Prayer. It says, "Thy will be done." It wasn't, "Our Father who art in Heaven, please get me a parking space."
This idea of prayer influencing the prayer isn't just theological, it's measurable:
the participants were randomly assigned to one of four daily activities: praying for the well-being of their partner, engaging in undirected prayer, thinking about positive aspects of their partner or reflecting upon their day. Participants did as they were asked for four weeks, and kept written logs of what they were praying (or thinking). At the end of this period, the team again measured infidelity and how sacred the participants felt their romantic relationships were.

Dr Fincham and his colleagues report in the Journal of Personality and Social Psychology that although all participants had similar infidelity ratings, averaging 3.5, to start with, at the end those ratings varied considerably between the four groups. People who had prayed for their partners averaged 2.4, significantly lower than their initial scores, whereas those who thought positively about their partners or considered their day both showed ratings of 3.9—significantly higher.


Scores reflecting participants’ views of how sacred their romantic relationships were changed during the four-week period as well. Values at the start of the study were much the same among all participants, averaging 3.2. However, by the end of the study, those who had prayed for their partners showed stronger beliefs that their relationships were sacred than those who had just had positive thoughts about their partners, with average scores of 3.7 and 2.8 respectively. Dr Fincham suspects that the act of praying about romantic partners leads people to view their relationship as something sacred and not to be damaged. This, he argues, is the force that is reducing infidelity in the study.
Though that data is self-reported, it was confirmed by unbiased observers giving their own assumptions about changes in fidelity.

Tuesday, October 12, 2010

Emptying the Bottle: Mid-October '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
Always feel free to send me any interesting sites or articles you come across.

Monday, October 11, 2010

Post-Industrial Man

I observed before how new generations of men are different. Here's the reason for the change:
Hanna Rosin, says the Alpha Male is obsolete. The postindustrial world has no need for his aggression, physical strength and command-and-control mentality.

She argues that today's jobs require communication skills, social intelligence and the ability to sit still and focus, and let's be honest, gents, that kind of stuff isn't exactly in our wheelhouse.
The article is a little more extreme than reality confirms, but it may turn out to be as important as birth control was for women.

Sunday, October 10, 2010

Economics of Human Life

Collectively, the choices we make can allow researchers to put prices on items we might normally be uncomfortable valuing. Here's how much we value our life:
Value of life issues traditionally pertain to insurance of the losses of accident victims, for which replacement of the economic loss is often an appropriate concept. Deterrence measures of the value of life focus on risk-money tradeoffs involving small changes in risk. Using market data for risky jobs and product risk contexts often yields substantial estimates of the value of life in the range of $3 million to $9 million. These estimates are useful in providing guidance for regulatory policy and assessments of liability.

Saturday, October 09, 2010

Changes in Income Inequality

In case you haven't heard the news, income inequality is growing. Also when polled, Americans grossly underestimate how unequal it is. My initial response is that this is the trade off between capitalism and socialism. The pie gets bigger, but a larger percentage of the increase goes to the already wealthy. However,  it's important to note that because income is reported through taxation, and tax rates have decreased in the last 30 years, that the data may be exaggerated. It's also important to remember that high tax rates do inhibit economic growth. That's not to say taxes are total losses. Here's a great NPR story about a hard working single mother, and millions like her, use transfer payments (Medicaid, welfare, food stamps, etc) to meet their needs and in the long run create more overall economic production (because of human capital improvements). Surprising however, we find that inequality can actually cause the poor to support policy that allows for more inequality. Either way, economic freedom will create more wealth, but even small difference in skills can create huge differences in wealth.

Another important thing to understand is that global income inequality is shrinking. It's often phrased that "America’s dominance of global wealth is slipping", which is technically true. But a more accurate way to put it, as Hans Rosling does, is that the last 200 years has seen the biggest increase in global wealth and the last 50 years has seen the biggest equalization in global wealth (and will most likely continue to do so). Income equality is an important issue. Fairness does matter. But the fact remains that capitalism has been shown to be the best way to end poverty and extend life. It's also important to remember that even if the top tier is gaining more (which can cause problems of its own), small changes in income of the bottom tier can have much larger impacts on overall satisfaction.

Friday, October 08, 2010

Humorous Myths About Blind People

From last week's Mister Diplomat show:

To see the free comedy that comes after, come to the theater any Friday night.

Economics of Afghani Votes

No this isn't one of my usual tirades against voting. Though I guess this isn't a celebration of democracy either. Last month Afghanistan their parliamentary elections. Unsurprisingly there was rampant fraud. One example, was vote buying:
In northern Kunduz Province, Afghan votes cost $15 each; in eastern Ghazni Province, a vote can be bought for $18. In Kandahar, they sell their rights for as little as $1 a ballot. More commonly, the price seems to hover in the $5 to $6 range, as quoted to New York Times reporters in places like Helmand and Khost Provinces.
And the exchange process was surprisingly formal:
In many places, so-called vote maleks organize the trade. These are brokers who collect all the voter registration cards in a community, and then peddle them to the highest bidder. Typically, the vote malek keeps half of the money and the voters get half.
Though the votes may seem cheap, you must consider Afghanistan is one of the poorest countries in the world with a per capita GDP of less than $1000 (compared to the US at $46,000). So, accounting for relative wealth (and ignoring the international importance of US elections), it's like an American vote going for around $250. Here's the silver lining of the fraud. It's less fraudulent than it could have been:
Vote buying is much more common in this election than the last national balloting here last year. The feeling, experts say, was that last year’s election was stolen wholesale by supporters of President Hamid Karzai, so there was little need for vote buying.
And it's also good news that fake voter cards, which apparently aren't as effective, went for about 23 cents each. But don't let the price of a vote imply anything about the patriotic value of the vote. If anything, illegal vote getting implies there are other illegal gains to be had once elected.

Hat tip to Marginal Revolution.

Thursday, October 07, 2010

God Allows for Inefficiency

I recently came across these verses in Deuteronomy 15:1-3:
1 At the end of every seven years you must cancel debts. 2 This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the LORD's time for canceling debts has been proclaimed. 3 You may require payment from a foreigner, but you must cancel any debt your brother owes you.
As you might have predicted, it caused some problems:
Seeing that the law which prescribed the release of all debts every seventh year brought about the harmful consequence that people refused to loan to one another and thus violated what was written in the Law, namely, that a money loan should not be withheld because of the approach of the Sabbatical year
deadweight loss, that is a loss to society, was created. It hurt lenders and it hurt borrowers. This was no surprise to God. Here are verses 7-9:
7 If there is a poor man among your brothers in any of the towns of the land that the LORD your God is giving you, do not be hardhearted or tightfisted toward your poor brother. 8 Rather be openhanded and freely lend him whatever he needs. 9 Be careful not to harbor this wicked thought: "The seventh year, the year for canceling debts, is near," so that you do not show ill will toward your needy brother and give him nothing.
Although the problem was predicted and offered a solution (be generous), the problem still occurred. So much so that Jewish culture created the compromise of an interest-free loan in the seventh year. I'm not sure where I stand on the issue. It is certainly something created specifically for the Jewish people's interaction with each other (with the emphasis on "brother" in verse 3). Either way, I think there is a characteristic of God that cannot be missed: He was willing to created inefficiencies in the market to strengthen cultural and relational bonds. And since he is unchanging, he still is.

Wednesday, October 06, 2010

The Wire Never Ends

Last night my wife and I finished HBO's Baltimore based television drama, The Wire. It is, without a doubt, the best show I have ever seen. Created by Baltimore native and former newspaper reporter, David Simon, the story unfolds in five different seasons, each with their own focus. Starting with the street drug trade, it moved into the city ports, then the Baltimore government, then into the school system, and ending with the local newspaper industry. I was simultaneously frustrated and charmed by a city I've never even visited. It made me wish David Simon would make a show about the city I grew up in.

The series ties the riveting plot, dynamic characters, and poignant themes together with a metaphorical "wire" constantly revealing truth through fiction. It shows the destruction of the drug war on American streets. It shows young street kids full of hope turned into dealers, users, and killers. The trade off borne after September 11th when the federal government began focusing more of its attention on terrorism. Without giving too much away, one of the few success stories doesn't come from one of the featured institutions, but instead when a struggling "corner kid" is adopted into a functional middle-class family. It shows the great ingenuity of humanity and how that can be used for corruption and destruction.

The show never feared taking risks. It used former drug dealers, addicts, and murders as actors. The drug dealing entrepreneur Stringer Bells takes economics classes in night school. And it uses a murdering, thieving, homosexual, stick-up man as the voice of morality. I don't mind revealing these small spoilers because it truly wasn't the destination, but the journey that makes this show. Not just a good televion show, but a visual novel. It impacted how I think about drug laws, political corruption, and my own role as a teacher in the classroom. Even the theme music, which uses the same lyrics reconstructed into different genres for every season, gives it a bookend feeling.

Finally, the series closing montage shows us that the The Wire, or the ideas presented in the show never end. "The game", legal and illegal, continues as new characters replace old, often dead, ones. Though the mini-series to which the show is based, The Corner (and the book before that), won an emmy, the show was never recognized with awards or overwhelming viewers. Journalist Joe Klein puts it best on the DVD extras: "The Wire never won an Emmy? The Wire should win the Nobel Prize for literature!” However, it did recently win a $500,000 "genius grant" from the MacArthur Foundation. If you haven't yet had the privilege, take the time and enjoy the series. You will not be disappointed.

Tuesday, October 05, 2010

Emptying the Bottle: Early-October '10 Links

Here is a list of the worthwhile sites I've Bookmarked recently:
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Monday, October 04, 2010

Takeaways from Predictably Irrational, Part IV

I recently finished Dan Ariely's Predictably Irrational. You can read Dan's current writing at his blog. Here is part onepart two, and part three in a multi-part series of my takeaways from the book. Here is the next and final part, focusing mostly on irrationality in our morals:

Economics is a lot like physics, if particles could think.

There are two types of dishonesty: malice and under the rug. The latter represents a much larger percentage than the first. When cheating is possible, it's not that a few that cheat a lot. It's most people will cheat a little.

Robberies in the US totaled $508 million in losses. Burglary offenses suffered $4.6 billion in lost property. Employee theft from small businesses in America equals $40 billion!

For most people, cheating isn't based on whether you will get caught, but based on whether you can justify it (at least for upper middle class college students).

Reminding people of their morals, for example having them write the Ten Commandments, greatly increases their chances of acting morally. I used this recently in the classroom when I gave my AP Micro students a take home test and made them sign an oath not to work together.

Honesty and trustworthiness are an important factors for wealth creation. It is costly to prevent immorality.

Surprisingly, the presence of cash decreases cheating. People are more likely to cheat when money is not involved. For example if you left a wallet with dollars in it in a break room few people will steal. But if you put sodas in a fridge they will get taken. One way to combat the theft of stuff is to put a price tag on it.

Non-cash cheating is an increasing problem was we move away from cash dealings. Think credit card fraud, trading online, or credit default swaps.

Like the take home test oath, clear contracts can help prevent fraud. Cash even looks like a tiny contract. In person deals can also prevent cheating. In fact, even putting a picture of human eyes nearby can decrease theft. Is this why we put pictures of trusted leaders on our dollars?

Improving our rationality can create "free lunches" by improving our decision making. This is one of the best practical applications for economics.

My summary of the book: Thinking has a cost, so we find shortcuts. Those shortcuts aren't full proof. So these are actually rational responses to the costs of mental calculations and moral reasoning. This can be helpful to people by making the "best" decision easier to make (by pre-committing to retirement savings). It can also be helpful to businesses by making the most profitable decision easier to make (example from the Economist). The way to avoid irrational habits is to constantly reevaluate what you do and why you do it. However, the benefits of getting it right may not be worth the cost of figuring it out. "The unexamined life is not worth living", but perhaps the overly examined isn't either.

Although I loved the book, I'm not convinced people are Predictably Irrational. Instead, I think they are Rationally Irrational.

Sunday, October 03, 2010

Possible Solution to American Prison Crisis

The United States puts more of its citizens behind bars than any other country in the world. Over two million Americans, or about one out of a hundred adults, are currently in prison at a cost of $50,000 per inmate per year. Those behind bars are overwhelmingly poor and overwhelmingly black. One of the saddest results of this is that one in twenty-eight children are missing a parent (mostly for non-violent crimes) because of arrest. And the numbers are only getting worse. With more than a fifth of incarcerations for drug offenses, the most obvious solution is to decriminalize drugs. But I understand most Americans, even liberals and especially conservatives, don't want that. However, a more practical solution may already be in use. As many people as we have in prison, we have even more under "correctional supervision".

In a great article from The Atlantic, the idea of a "prison without walls" is discussed. Instead of putting citizens behind bars, keep them under close surveillance, mostly using GPS ankle bracelets. This is cheaper for taxpaying families and the families of inmates. The most extreme would of course remain locked up, but the majority of offenders could be rehabilitated where it really counts, in society. They can help nudge those that need it the most. One company in Indianapolis is already preventing sex offenders from getting near schools, drunk drivers from getting near bars, and general trouble makers in their home at night. Hawaii is also trying a this kind of long-distance babysitting with similar success.

As uncomfortable as Big Brother tracking its citizens is to me, it's better than locking them away. The sad reality is that putting criminals in a den of criminals will rarely help them avoid the mistakes that got them there. Something needs to change. I think this may be one step in the right direction.

Friday, October 01, 2010

Takeaways from Predictably Irrational, Part III

I recently finished Dan Ariely's Predictably Irrational. You can read Dan's current writing at his blog. Here is part one and part two in a multi-part series of my takeaways from the book. Here is the next part, focusing mostly on where irrationality comes from:

This book is one sentence is an economist looking through the lens of psychology.

When men are sexually aroused there are about twice as likely to admit to interest in what they would deem as morally reprehensible. My guess is there is a similar correlation between other intense emotions like anger, jealousy, sadness, excitement, etc.

These moments of irrationality seem to be evidence to support Biblical truths about fleeing from sin. Avoiding temptation is easier than overcoming it.

There seem to be trade offs between reason and emotion. Like Jekyll and Hyde, each side has it's own strengths. In 2010 America, the calm collected Dr. Jekyll is preferred.

Often there are ways to predict how we might act when emotion arises. Another example from the book is for women deciding whether to pre-plan for an epidural during childbirth. She should attempt putting her hand in freezing water for 2 minutes. Amidst the pain she can predict what she'll want when the pain of birthing begins.

There are also steps we can take to put ourselves a step or two removed from making emotionally driven bad decisions. One unique example from the book is putting your credit card in the freezer in a cup of frozen water.

Predict their savings rates: USA, Europe, Japan, China. Approximate answers (in order): 0%, 20%, 25%, 50%.

The endowment effect is a well documented theory that people value something more after they own it (related to the aforementioned loss aversion). This can lead to a couple different problems: 1) fall in love with what we have to the detriment of what we could have, 2) expect others to value it just as much. So should we  buy less things? Sell less things?

Advertisements play off this owning effect through "virtual ownership".

Another problem associated with this is people don't like giving up potential options. Like the story of Buridan's ass, not making a choice is often the worst choice. Here's an article on the main experimental example in the book. Here's my earlier post on too much choice.

This helps describe the problems of constant career changers, over-activities kids, and people with too many hobbies. In fact, it challenged me, someone who spends a significant amount of time blogging and improvising.

This endowing effect also effects what we believe? It's why first impressions are so important. If you have something bad to reveal, pre-load it with good news. Here's an example: beautiful catering trays with fancy food labels.

Another real world example is prejudice and stereotypes. Surprisingly, it impacts prejudice on those being stereotyped. For example Asians are viewed as good at math, women generally said to be worse at math. In an experiment Asian women were asked to take a math test. Half were initially asked questions about being a woman and they did worse on the test. The other half were asked questions about being Asian and they did better on the test.

A final example from the real world is the placebo effect. I've discussed how perhaps education and ignorance can be placebos, but I'd never considered the reverse placebo effect. If something is perceived as low quality (often measured in price), it may not have it's highest possible effect. Perhaps this may be one of the trade offs in our attempt to decrease health care costs.

I'm unsure how this should impact the pricing of an improv show. Does an expensive show signal quality and therefore increase the average enjoyment of the show? Going back to the first takeaways on the word free, which would get better ratings from an audience, a $12 show or a free show?

This unconscious effect of placebos can be counteracted by the acknowledgement of them.

A related Einstein quote: “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”