Walk on! Walk off!

If you read Sunday’s opening day post, you know where I was last night, Nationals Opening Night. It almost seems like I wrote that after going to the game, but another magical moment by Nats favorite Ryan Zimmerman. Walk off home run two outs bottom of the ninth, it was awesome! Fans like winning and homeruns (see yesterday).
Some economic thoughts on going to the game. First, someone must not have calculated the opportunity costs of taking all the extra time to run people through metal detectors that were necessary for President Bush to throw out the first pitch. I waited 30 minutes to get into the stadium, probably so did thousands of other people.

Second, if run properly there are great economies of scale by taking public transportation. That is one more person on the metro or bus doesn’t really cost much more as opposed to one more car. The metro ride in worked pretty well, it was a little congested leaving the station to get to the game. We opted for the bus to another metro on the way home, which was pretty easy.

Finally, I was feeling some great DC pride yesterday even though like many here I’m a transplant. It’s hard to put a figure on it, but I wonder about the public good of civic pride that comes out of having. But of course some economists have tried (link, link2)

Happy opening day.

Life Begins on Opening Day: National Opening Day

Tonight I’ll be heading to the opening of the Washington Nationals new baseball park. I’ll leave aside my feelings for government funding of stadiums, and instead focus on some lessons learned from some of my favorite baseball games I have attended.

Best Game of All Time I have Attended: October 14, 2006 Tigers versus Oakland A’s ALCS Game Four

It was a magical season after years of futility the Tigers, my favorite team, had finally pulled it together, winning 95 games and making the playoffs for the first time in almost 20 years. Leading 3 games to none in a seven game series, barring Red Sox magic, the Tigers were going to the World Series, but I wanted to see it happen on that night when I had flown in from Wisconsin, my wife from DC, and my Dad driven from Columbus Ohio. It was one of those games, where after 2 innings the Tigers were down 3-0 and I felt like even after the Tigers tied it 3-3 they still were going to lose. I can’t do it justice with the 2 outs bottom of ninth type description, but when I realized Magglio’s fly ball had landed in the bullpen it was awesome.

Economic lesson learned fans like winning and homeruns. In a paper I’m writing with a Towson colleague, this appears to be true not just for major league teams, but also minor league teams. Watching a winning team is more fun and there is something about a homerun that brings such satisfaction.

June 24th, 2001 Baltimore Orioles and Chicago White Sox: First baseball game with my wife

Although my wife had been to a major league game before, she was really young and didn’t know much about the game. I taught her to keep score by recording plays, which she thought was like a lab notebook. Being a new baseball fan I told her a lot of stories that I had learned through my Dad or watching and listening to games growing up. For some reason I told her that it was traditional to get nachos in the sixth inning, I made this up but my wife likes nachos so she was willing to go along with the story. Now most sixth innings we get Nachos, they are a great complement to attending a baseball game.

Economic lessons: sometimes goods are complements eating nachos is a lot more fun watching a baseball game then when you are running a 5k race. Sometimes goods can substitute for each other instead of nachos you can have hotdogs, pretzels, or peanuts. The Nationals new ball park promises local food including Ben's Chilli Bowl half-smokes

At this point I’m not sure how many Major League Baseball games I have attended hopefully tonight will be up there with some of my other favorites (Cecil Fielder game tying roof shot, Prince Fielder’s first home run, a rainy day in Fenway watching 04 playoff highlights, Latin night at RFK). Each new year brings new possibilities and plenty of more games to attend.

Go Nationals!

Housing Bubble: (maybe?) bad for tax revnues, pollution, and employment

My friend Jenny asks how housing markets impact other aspects of other society. I have been reluctant to way into discussion of the housing crisis situation, since I don’t know a lot about it. But here are a few random thoughts.

First, as Jenny points out in her request local taxes and sometimes state taxes are tied to housing prices. Since taxes are usually put on the value of the house, if house prices go down so does revenue. This article in the Sacramento Bee, suggests that in California where only local areas collect property taxes the decline in the housing market will hurt revenues.


What other avenues are there? This is purely theoretical, but one problem with the current housing market is that people might be less willing to move if they have to sell their home at a loss. At the same time gas prices are going up. The increase in gas prices, which seems to be more permanent than temporary should encourage people to move closer to their jobs, but this may be prevented if people cannot sell their home. So the credit crunch could be increasing pollution if it prevents response to gas prices.

More importantly as Tim Harford, the undercover economist, explains in a slate article, home ownership can lead to more unemployment. He makes this assment based on an

"An English economist Andrew Oswald has shown that across European countries, and across U.S. states, high levels of home ownership are correlated with high levels of unemployment.”

In short the theory goes, people with houses can’t move to where the jobs are as easly. Similarly I would assume that people who can’t afford to sell their house, can’t move to where the good jobs are.. possibly increasing the recession.

I don’t know enough to say if a bailout is a good idea or not, but there are some possible other fallout from the housing market.

Bargaining

Around 10 years ago, while I was visiting family friends in Canada I heard this story of a Canadian official. In response to complaints that welfare recipients were not getting enough money to eat the official said that people should go to the grocery store and bargain for lower prices. This seemed rather silly to me as teenager, you can’t bargain with a grocery store. It also seemed silly to my father’s Canadian Economist friend who told the story, so it isn’t some difference between the US and Canada.

The New York Times had an article about bargaining for Electronics with megastores like Best Buy, Circuit City:

It appears that you can bargain at these types of places.
So why is bargaining out of fashion at a North American grocery store, but acceptable on a car lot or perhaps an electronic store?

If I hazard a guess it would be that bargaining makes more sense on big ticket items. Imagine how long it would take if I bargained on everything in my grocery cart. This is because there are fixed cost to bargaining. Second a company needs to empower employees to make deals. This works well for cars, since negotiations can be made at the reduction of the salesperson’s commission.

Microcredit

Over break I was speaking with one of my wife’s relatives and she asked me about my opinion on micro-credit programs like the Grameen Bank. For my next week’s class I’m having my student read an essay Karol Bourdeaux and Tyler Cowen.
If you want a great overview, I suggest you read it. If you want the key point here it is:

“Bang¬la¬desh, where Gram¬een Bank was born, is still a desperately poor country. The more modest truth is that microcredit may help some people, perhaps earning $2 a day, to earn something like $2.50 a day. That may not sound dramatic, but when you are earning $2 a day it is a big step forward. And progress is not the natural state of humankind; microcredit is important even when it does nothing more than stave off ¬decline.”

Development economics is difficult there is no easy answer, but yes microcredit is helping, but it is just one of many things that needs to be done.

World Water Day

Well, I didn’t have the best of luck out on the water over the weekend (0 fish caught). While I was out on the water it turns out the Saturday was International Water Day (as declared by the UN). It has also been declared by the UN and World Health Organization as the year of sanitation. While, building latrines and water pumps might not be some of the most glamorous work, there is plenty to be done. As the WHO points out

2.4 BILLION people (about 40% of the World’s population) live without access to proper sanitation.

From what I gathered from the few history classes I have taken, from Rome to London to New York great economic powers have been built on their ability to provide clean water to their citizens. Clean water to drink and wash is key to keeping people healthy, and a workforce or population needs to be healthy before economic development can take place.

This 10 things you should know about sanitation from the WHO provides a good overview or this website on world water day.

Now the tough question, how do you get clean water to 2.4 billion people?

Gone Fishing!

I’m leaving for a trip with my wife and in-laws in Oklahoma, which will include some bass fishing!

I thought I would post some bass fishing related economics analysis.
Just like other sports there are pro-bass fishers. In fact by 2007, 17 anglers had career earning of over 1 million dollars. However, unlike major team sports salary as I understand it these pro fisherman have to pay their own way to tournaments and buy their own equipment or get sponsorships.

One pro-angler (and University of Oklahoma Economics Graduate), Jeff Kriet, who was fifth in the Bassmaster 2007 angler-of-the-year points list. Discussed the difficulties of making a living as a pro-bass fisherman in this article (here).

"The past four years, Kriet said, he earned $200,000-$300,000 a year from winnings and sponsorships. “You need to win $150,000 to put money away,” he said. “This sport is expensive.”

Or as Skeet Reese one of pro bass fishing legends describes bass fishing:
“It’s no different than wanting to become a neurosurgeon. It takes a lot of time and schooling, time on the water, to become proficient”

So what have we learned? When considering wages or profits you cannot just take into account earnings you also have to look at costs. When there are a limited number of jobs and that job is also reasonably enjoyable people will work hard to get those jobs making the competition tougher.

As I have only fished a handful of times, I’ll stick to the pro-economics circuit, where I have a better chance at $1 million dollars in career earnings. If you are thinking of going pro, here’s what it takes.

Can’t Someone Else Do It? Best Stata Command Ever!

To perform my research I use a statistical software package called Stata. Stata is a great program, but I have always had this problem where I run a regression and get a bunch of output. I then want to put this output in a particular format that is standard to the economic literature, so I have to cut and paste the output into Excel. Then I have to spend 10 minutes or so reformatting what I have pasted into Excel so I can put the results into a paper. This may not sound like a big deal, but I would say on average I probably spend at least ½ to 1 hour a week doing this. I thought to myself……

Can’t Someone Else Do It?

The answer is yes, I have two great graduate student co-authors who often put together results for me (although I do a lot myself, particularly when I’m working with my advisor). But I would rather have my co-authors working on improving the paper than making pretty tables. So I asked google…

Can’t a Computer Do It?

The answer is yes! Thanks to John Luke Gallop. He wrote a wonderful little program that with one line of extra code that takes 30 seconds to write saves minutes. The command put the results directly into a word document, cutting out the formating step.

The command is called outreg (for those of you who use Stata type “help outreg” in your command prompt.)

So what does this teach us. Tasks that can be automated, require a fixed cost. I’m sure Dr. Gallop, spent a while writing the program. But once that task is automated others can use the knowledge gain through conversion to make the process easier for themselves. There is a large economic literature on this idea typically referred to as spillovers. As knowledge grows productivity increases, just like once I learned outreg, I taught it to my two co-authors. Now we are all more productive.

Thank you John Luke Gallop!

Save Abe!

A college friend asked for my take on the penny. I’m one of those people that practically throws them away, although I once sold 17 lbs of Canadian pennies on Ebay for my father-in-law (that’s a different story.) Currently it cost about 1.7 cents to make a 1 cent penny (link). In part the rising cost is due to increasing cost of the materials used to make them. It is currently illegal to melt pennies for profit.

So if millions of dollars could be saved by getting rid of the penny, why not do it. First as the US Treasury Secretary points out “it’s not politically doable” since people have an attachment to pennies. I agree a smart move may be to make pennies out of cheaper metals.

Here is another thought. It might be a good idea at some point to get rid of the penny. Now is not the time. Because if we got rid of the penny there would be a cost to converting prices to the nearest nickel. Restaurants would have to print new menus and all super market products would have to be relabeled. There would be a cost to changing these prices (economist call this cost menu costs). When most of Western Europe converted to the Euro, the inflation effects were small 0.12 - 0.29 % (according to this paper). Given the current state of the US economy and other possible inflationary problems, if we are going to do away with the penny let’s wait until a good economic time.

Midwest Economics Meeting Wrap Up

This weekend I was in Chicago for the Midwest Economics Association meetings. While the rest of the city was drinking and kissing Irish people, a bunch of economists were in the Hyatt on Wacker discussing their research. For those of you who have not been to an academic conference, typically there are 4 two hour sessions each day. Each session has four papers, where the author gives a 15-20 minute talk, then a discussant who has read their paper (hopefully), comments on the paper for 5 minutes.
At Economic conferences results are typically preliminary so it wouldn’t be right to cite any presentation specifically, but two interesting results I saw. First, I saw two presentations on the impact of Mexican wages, be they immigrants to the US or staying in Mexico. Both presentations suggested that Mexican workers were not bringing down US wages. George Borjas a leading immigration economist, who was not at the conference, suggests that in the short run migration to the US will bring down US wages, but in the long run this immigration will lead to growth. Below is a table of his estimates of impacts of migration on wages (from Econlog).


Impact of Mexican Immigration on US Wages
Short Run Long Run

All native workers -3.4% 0.0%

High school dropouts -8.2% -4.8%

High school graduates -2.2% +1.2%

Some college -2.7% +0.7%

College graduates -3.9% -0.5%

The other topic that seemed popular at the conference was childhood obesity. Patricia Reagan, Prof. at Ohio State, as President of the MEA gave a talk on her own work on the causes of childhood obesity. Her general conclusion is that “that overweight prevention may need to begin before pregnancy and in early childhood.” In particular she suggests that attention should be paid to the movement of puberty to earlier years, which has been associated with obesity and other health problems.

Externalities 101: Cigar Smoke

To demonstrate a point in class today I brought in a cigar (not just any cigar, but a Dutch Masters Grape Flavored one, retail price $1.25). I told the class how I wanted to pay $2 for the cigar, but bought it for $1.25, so I gained 75 cents worth of surplus. So to enjoy the surplus I needed to light the cigar and smoke it. I took out my matches and asked if anybody cared.

Apparently, my students do not like the smell of Dutch Masters Grape Cigars. These negative effects experienced by students are called negative externalities, that is they didn’t buy or sell the cigar yet it had a negative impact on them.

In many places of work including my University, Towson, it is illegal to smoke. Standard economic theory suggests that instead of bans we should allow people the right to pay off other people to smoke (or pay people not to smoke). This works well if there are low cost to these types of payments. But, there is a benefit to these bans. Some NBERs papers suggest that smoking bans, lower smoking rates (here), which may improve public health, although it may increase teenage smoking (here), and certainly improves the odor fellow bar partons.

Even Fidel Castro is behind smoking bans.

Luckily, this being a fictitious example I did not have to smoke the grape cigar, but it still left a grape taste in my mouth. What I do for my students.

No NPR in Silver Spring, that’s OK.

NPR was proposing to move its head quarters from downtown DC to Silver Spring the DC suburb where I live. The chose to stay in DC instead. Although it would be great to see Karl Castle at the local Chipotle, I’m always a little weary of big tax breaks used to lure companies. As the Silver Spring Penguin a local blog points out

“Montgomery County offered NPR about $32 million in permanent property-tax breaks and would have flipped the bill for an $18 million garage, The Washington Post reports. ”
So Montgomery County where Silver Spring is located would have been losing out on 50 million dollars. Granted some of those tax breaks might be from taxes that would not be collected if the current site sits empty. But as the Penguin also points in another article Montgomery County is facing a 300 million dollar budget shortfall next year.

Given that NPR has about 600, that’s about $83,000 per job for what they are spending. I would like to see a more indepth economic analysis (can’t find one on google), but my gut tells me Silver Spring is better off keeping the money.

Update on previous posts

The New York Times and Salon have picked up on the surrogate parent in India story: my take here.


Some more thoughts on the median wage from Brad Schiller via Greg Mankiw. In short perhaps the median wage is greatly effected by immigration. I'm less sure of my previous posts (here and here) on median wages, but the issue needs a closer look

Bud Selig Makes How Much?

I never thought how much Bud Selig, the Commissioner of Baseball makes, but according to the business of baseball blog he made 14.5 million dollars last year (link). That was the salary earned by Vlad Guerrero, Lance Berkman, and JD Drew. That salary was topped by only 13 players (including 5 Yankees). He’s getting a 4% raise this year and will make over 15 million next year too.

So next time you feel like booing Alex Rodriguez for his 25 million dollar contract, make sure to boo Bud Selig too. Actually I don't boo anyone for high salaries, I boo A-rod, because he is a Yankee and Bud Selig for black out restrictions, the 1994 strike and I heard he puts ketchup on his brat.

h/t baseballthinkfactory.org

$11,000 Coffee Maker,! How much for the coffee? The Clover Coffee Maker.

How much do you think a cup of coffee would cost from a new $11,000 coffee maker on the market, the Clover? You might think a lot, but as the Economist Magazine points out the Clover costs about as much as the typical espresso machine found in a coffee shop. Given this description in Slate it sounds like it takes about as much work to make a cup of coffee in a Clover as it does to brew an espresso. So the costs are similar to an espresso drink so given the plethora of coffee shops the price should approach costs or price of espresso drinks. So not surprisingly coffee from the Clover goes for $3.50 a cup.

But if you pay $3.50 a cup for clover coffee and $1.75 for a regular non-clover cup, there must be something different between the two. In the description of the Clover it seems the real key is the ability to control the coffee making process so the same great cup of coffee can be made each time. This allows coffee shops to use high end beans and distinguish the difference between regular beans.

It looks like (link) Alexandria’s Grape and Bean is the first DC area coffee shop to get one. Perhaps a field trip is in order.

The Dude Never Bowled Alone: Social Capital from Walter and Donny

I didn’t quite make it over to the AFI for tonight’s showing of the Big Lebowski. Instead I was surfing the internet and drinking some beer. I was reading Lazy Man and Money a good personal finance website. Like our friend from the Big Lebowski, the Dude, Lazy Man likes to take it easy for all us sinners. In a recent post Lazy Man was talking about how he just learned about Social Capital. I guess I had taken it for granted everyone knew what social capital meant, but I hang out with too many economists.

Social Capital is a term that came on to my and most social scientists’ radar screen after Robert Putnam’s book “Bowling Alone.” The argument in the book was Americans were participating in fewer clubs like bowling leagues, churches, elks, moose, masons, Kiwanis, varmints … what have you. Unlike the Dude many Americans were moving from leagues to Bowling Alone from Putnam’s website.

“We are bowling alone. While a record number of Americans bowl today, bowling in organized leagues plunged 40 percent from 1980 to 1993. Lest you think this a trivial factoid, over 25% more Americans (91 million) bowled once or more in 1996 than voted in the 1998 congressional elections.”

By not bowling in Leagues people we are very unDude like, we do not have friends like Walter and Donny to call on when Germans demand a ransom from us or someone steals our car. The dude even used his social capital with his land lord gained by going to his performance to tied him over until he could pay rent.
For those of you not familiar with the Big Lebowski or Social Capital: From a seminar series on social capital related to Putnam’s book here is a quick primer on social capital (full link). If you haven’t seen the Big Lebowski go do it.

What does “social capital” mean?
Social networks have value – that is the central premise of social capital. Social capital refers to the collective value of all “social networks” [who people know] and the inclinations that arise from these networks to do things for each other [“norms of reciprocity”].
How does social capital work?
The term social capital emphasizes not just warm and cuddly feelings, but a wide variety of quite specific benefits that flow from the trust, reciprocity, information, and cooperation associated with social networks. Social capital creates value for the people who are connected and – at least sometimes – for bystanders as well. Social capital works through multiple channels:
a) information flows (e.g. about jobs, AIDS, college, etc.) depend on social capital
b) norms of reciprocity (mutual aid) are dependent on social networks.
• Bonding networks sustain particularized (in-group) reciprocity.
• Bridging networks sustain generalized reciprocity.
c) Collective action depends upon social networks (e.g., the role that the black church played in the civic rights movement) although collective action can also foster new networks.
d) Broader identities and solidarity are encouraged by social networks that help translate an “I” focus into a “we”.

Pass This Test Win $50

Most of my research deals with conditional cash transfer programs in Latin America. These programs pay households if their children go to school and the family goes to health clinics. In the ones I have studied these incentives increase school enrollment between 5-20% and do all sorts of other great things.


The programs have worked so well that New York City has adopted them (link). However, New York city has added an extra wrinkle. In the US most kids go to school, but many do not achieve what they should. So Ronald Fryer, a Harvard Economist, helped design a program that paid kids money if they passed tests. Seems like the kids are liking the rewards according to this New York Times article.

Dr. Fryer has an interesting story in his own right from juvenile delinquent to Harvard professor in about 10 years.

Baltimore is giving the pay to pass option a chance too (link).


It is too early to tell if these programs in New York and Baltimore have worked as well as the conditional cash transfer programs, but it is worth a shot.
One final thought, the reason the successes of programs in Latin America has been so clear is they have been run as experiments, where half of children receive the program and half don’t (usually separated by communities).

Why get a Ph.D. in Economics?

One take from Andrea Waddle, a first year University of Pennsylvania graduate student, talks about a passion for international development fostered from living in Bolivia. But many other fields study economic development (Sociology, History, Anthropology, and Political Science). Dani Rodrik, a Harvard Economist, chose Economics over Political science based on this epiphany (link)

“One day in the library, I picked up copies of the flagship publications of the two disciplines--the American Political Science Review and the American Economic Review--and put them side by side. One was written in English, the other in Greek. I thought that if I did a PhD in economics, I would be able to read both journals, but that if I did a PhD in political science, it would be goodbye economics.”

I think a similar thought went through my head. Although there is a large opportunity cost to learning all the Greek (i.e. Math) associated with Economics. Is it worth it? Perhaps to help people the best route is a Masters in Public Policy. Chris Blattman, a student of Rodrik’s compares, masters programs with Ph.D.

I agree with Blattman, if you want to be a professor get a PhD. If not try a masters program and see what you think.

Homeromics: Learning Economics Through The Simpsons

Homer Simpson teaches us many economic lessons. One of my favorite comes from this exchange:

[Homer is looking for a lost peanut under the couch]
Homer : Aww, twenty dollars. I wanted a peanut!
Homer’s Brain: Twenty dollars can buy many peanuts!
Homer : Explain how.
Homer’s Brain: Money can be exchanged for goods and services.

Or Homer’s apparent lack of understanding of opportunity cost in the grease episode, where he spends all day collecting grease to earn a few dollars but loses out on his work pay check.

I was thinking of all this while reading a paper on using the Simpsons to teach economics. The paper is written by Josh Hall a prof. at Beloit College. Josh has commented on my blog a few times, so I hope he’s still reading, it’s a good paper for economists and non-economist alike.

The Paper is Linked Here:

Scrabulous and Scrabble: Substitutes?

I was playing Scrabble last night with a couple of friends. It turns out many people are playing Scrabble on Facebook too, only I didn’t know this since I’m one of 5 people my age not on Facebook. Two Indian Scrabble lovers, Jayant and Rajat Agarwalla, created an on-line version of Scrabble called Scrabulous. They then turned it into a Facebook application now they have 2.3 million users a month and bring in $25,000 a month is ad sales.

So of course now Scrabulous is being sued by Hasbro makers of Scrabble for copy right infringement. In terms of copy right as lawyer, Jeremy Hertzog , put it “They'd [Jayant and Rajat Agarwalla] have to show that there is some risk the average person would likely confuse Scrabble and Scrabulous, and my instinct is there would be such confusion,"

Copy right law is best left to lawyers. But after reading the comments on the linked blog entry, I can’t help but wonder if more people buy Scrabble board games after playing it on line, or are people buying fewer Scrabble board games since they can play online for free. The comments suggest that it is the first explanation. Or in other words there is no substitute for playing real Scrabble with your friends on a Sunday night.