Monday, August 31, 2009

Reading to Your Kids is Important

I was listening to This American Life’s podcast (episode 364 Going Big) over the weekend. The first story follows a project called the Harlem Children’s Zone. The basic point of the story is that to make a real change in Children’s lives you had to start at an early age. Geoffrey Canada who runs the program philosophy is that poorer families need to do the same things middle class and rich families think is obvious: read to your young children, encourage them a lot, and use time outs and reasoning instead of corporal punishment.

As part of the episode the reporter interviewed James Heckman, Nobel Prize winner and U Chicago Economist. I wrote about Heckman’s work on these types of programs about a year ago (see this post). Heckman findings can be summed up with to make a difference you need to intervene before a child gets to 3 years old to make a difference.

A close look at the Harlem Children’s Zone data by Dobbie and Fryer in a recent paper shows “….Harlem Children’s Zone is enormously effective at increasing the achievement of the poorest minority children. Taken at face value, the effects in middle school are enough to reverse the black-white achievement gap in mathematics and reduce it in English Language Arts.”

Bookmark and Share

Friday, August 28, 2009

You Don’t Have to Take My Word for It: Reading Rainbow Teaches Economics

I heard on NPR this morning that after 26 years Reading Rainbow is ending its television run. It made me a little sad as it was one of my favorite program growing up.

So I got to looking at YouTube videos of old Reading Rainbow episode to find one that teaches economics. This awesome Flash Dance style video praises the benefits of teamwork. Teamwork is the foundation of Adam Smith’s economic thought. The famous example from his book Wealth of Nations talks about a pin factory, where each worker does a different task. When each worker specializes and works together more gets done.

It doesn’t matter if you are making pins, running a restaurant, fighting fires, or dancing, specialization is a fancy word for teamwork.

But you don’t have to take my word for it: Watch the Video or check out Adam Smith’s Wealth of Nations.

Bookmark and Share

Thursday, August 27, 2009

Bud, Coors, and Miller are Inferior Goods

"Heineken and Corona are struggling more than Anheuser-Busch and MillerCoors -- which have 80% of the U.S. market by volume -- because beer drinkers are picking out the cheapest drink from the cooler."

From a recent CNN article on beer prices. Economist call any good where demand increases when income goes down an inferior good, famous examples include hot dogs, ramen, and low quality toilet paper. Incomes are going down now and people are reaching for the cheap beer (at least according to CNN).

My Dad forwarded me this article and said it was bad news. I'm not so sure if it so bad for people like me and my dad. If non-bud beers are normal goods, as income goes down people buy less. Then beer prices for good beers should actually fall during an economic downturn. Since we don't drink bud type beers we should be good.

But I don't worry about this too much, I just relax and have a homebrew.

Bookmark and Share

Wednesday, August 26, 2009

Ben Bernanke and Joe Torre

Obama tapped Ben Bernanke to serve as Federal Reserve chairman for another 4 years, but has Bernanke been good at his job? Most economists seem happy with the reappointment , I haven’t seen anyone really against.

It got me thinking though judging the quality of a Fed chair is like judging the quality of a baseball manager. Was Allan Greenspan a good Fed chair or was the economic situation such that it made him look good. One could ask something similar about Joe Torre did he manage the Yankees to several World Series titles because he was a good manager or was it mostly his players. When they didn’t win the World Series how much was his fault.

I think it is hard to separate the factors outside of the control of the Fed chairman and a baseball manager and what is in their control? I think we tend to over estimate the ability of Fed chairman and managers.

So perhaps the baseball analogy is that Bernanke has been rocked early in his start in part due to some bad defense, but managed to escape a bases loaded jam and manager Obama is going to keep him in the game.

Bookmark and Share

Tuesday, August 25, 2009

The Women's Crusade and Duflo

Esther Duflo of M.I.T. found that when the men’s crops flourish, the household spends more money on alcohol and tobacco. When the women have a good crop, the households spend more money on food. “When women command greater power, child health and nutrition improves,” Duflo says

From the NY Times on the role of women in economic development.

Duflo’s findings aren’t new that women are more likely to funnel extra money to their children. But this idea has been part of the two biggest successes in my view for household based economic development. Conditional Cash Transfers that pay women if their children attend school and microcredit that gives small loans that are typically targeted towards women.

Although maybe microcredit isn’t as great as some people think. Duflo is also behind recent research showing microcredit doesn't increase household consumption. See this link for a good summary of her recent work with her co-authors.

Thanks to my former student Kelly for forwarding the NY Times article to me.

Bookmark and Share

Monday, August 24, 2009

Who Turned Off the AC?

Pepco our local utility sent us an offer in the mail to participate in their energy wise program. I decided to consult my in home energy expert, my wife, to figure out what this is all about. So here’s my interpretation (i.e. the views and opinions below are mine).

The Problem: On really hot days the power grid is taxed with all the ac units running. To keep up with demand the power company (PEPCO) has to keep excess capacity. This excess capacity is expensive and not used a lot of the time, so the power company would like to find a way to have fewer power plants.

Possible Solution 1: Turn off power to some people when PEPCO hits excess capacity sometimes called a rolling blackout. This type of measure is used in developing countries, but it hurts business. Imagine trying to buy something at just about any store in the US without power, in 95% plus my guess is it is not possible. Plus not having electricity is a pain for our modern lives, so it will anger consumers.

Possible Solution 2: Charge people more for power during peak times. This probably won’t work too well since people are generally price inelastic to energy cost (that is an increase in the cost of electricity does not change my electricity use too much).

Possible Solution 3 (Energy Wise): Now back to energy wise the program that started the post. The program will pay my wife and me a monthly credit ($16)* to turn off our air conditioner on days when the company really needs it. PEPCO will be able to
turn off our AC through remote control when they need the power.

This is really a case where behavioral economics will come into play. If solution 2 does not work and 3 solution 3 does I think this shows that people will respond differently to a $16 increase in their bill (probably not at all) and a $16 decrease (join the program thereby cutting their electricity use), even though economic theory would suggest there should not be a difference.

Of course there are also questions about losing control of your AC. Will allowing people to override the system and turn their AC back on twice during the year be enough? I’ll be curious to see how successful the program is at cutting energy use and saving on PowerPlant construction.

We have to check with our landlord, but we’re strongly thinking of participating.

*correction it was $16 a month not $10 a month as I had in an early draft.

Bookmark and Share

Thursday, August 20, 2009

The Economics of Toilet Scrubbing

About a month ago Marketplace did a story on recent college grads who had hired someone to come in to clean their apartment. Their roommate the reporter seemed a bit stunned that her roommates weren’t cleaning the house themselves.

I was thinking about this from an econ 101 standpoint. Which would generally tells us that if someone could clean your house for cheaper per hour than your hourly wage, then you should hire a house keeper and work an extra hour. You might also take into account how much you like working and how much you like cleaning.

But then again most people can’t just work another hour. So what else is in the calculation? It’s a set of 3 roommates. Sure they could divide the chores. But monitoring who does what is a pain, so is enforcing that your roommates actually clean or their effort. Splitting a house keeper is a lot easier.

Final thought, I’m really not impressed with the Psychologist interviewed as part of the story. Why is hiring a housecleaner such a big deal and indicative of a spoiled generation? In short my guess is that generation Y was more likely to grow up with a house cleaner, since their mom was more likely to work .

For what it is worth growing up we had our house cleaned about once a week by someone my parents hired. I don’t hire someone to do it now, but probably will at some point….

Anyone interested in cleaning my house in exchange for economics lectures?

Bookmark and Share

Wednesday, August 19, 2009

Price Check in Aisle Argentina

NPR had a story this morning that the Argentine government is purposely underreporting the inflation rate in the country. Why would they do this?

As the story points out Argentina sold inflation indexed bonds, that is if you bought the bond you got a certain interest rate plus whatever the inflation rate was. So the government could save money on these bonds by under reporting an inflation rate.

Another way it could have saved money is if government workers received a cost of living adjustment (COLA). If the government reported inflation rate is lower than the actual rate it could pay workers less. Similarly, welfare payments may be linked to COLA.

Another issue is that hyper inflation has led to the downfall of several presidents including the 2001 peso crisis that saw 3 presidents it just 2 weeks. So maybe under reporting inflation is a way to help the current regime stay in power.

Bookmark and Share

Tuesday, August 18, 2009

Dollar Dance: The Economics of the JK Wedding Video

On Friday and Saturday nights during my college years at Grinnell we would all head over to the Harris Center for dance parties. As Grinnellians grow older they don’t have as many places to bust a move, but when a wedding comes for a Grinnell alum the old Harris dance moves come out again. Jill Peterson who graduated one year after me and her husband, Kevin Heinz, took it to a worldwide level with their JK wedding dance video, which has been a Youtube sensation.

If you haven’t seen it, the video is along with this post. Now here is where the story could have turned sad. They used Chris Brown’s song “Forever” for their processional number. Many YouTube videos have been pulled off because of use of a copy righted song. But who ever controlled the rights to “Forever” realized that by posting the JK wedding video with links to iTunes for “Forever” more copies of the song will be sold. As the Google blog (which owns YouTube) documents this strategy has worked with “Forever” jumping to the top of the internet charts.

h/t to newmarksdoor

Bookmark and Share

Monday, August 17, 2009

Maybe it is Time to Buy a House?

Over the weekend I had a house warming party (thanks to all those who came!). I didn’t buy a house, I’m still renting. I’m not ready to pull the trigger yet on buying as I’m not sure where in the DC-Baltimore area I’m going to want to live in the coming years.

People have told me over the last couple of years, that now is the time to buy a house and the down turn is over. I’ve ignored the real estate agents, I’ve ignored the arm chair economists, I’ve ignored my economists friends, but here is another data point.

It appears that a few people who predicted real estate crash are starting to get back into real estate. This LA Times article chronicles a few including most famously Paul Krugman.

This still isn’t enough to sway me but just another data point indicating that things might be looking up in the real estate market.

Bookmark and Share

Thursday, August 13, 2009

Stephen Strasburg and the Ultimatum Game

One of the classic games in game theory is called the ultimatum game. In the game there is a stack of money, say $100 in $1 bills, and two people. Person A, let’s call him Mark, gets to make an offer of how to split the $100 with person B, let’s call him Stephen. Once Mark offers Stephen an amount of money, Stephen has two choices he can accept the offer or reject it. If he accepts Stephen keeps the amount offered and Mark keeps the rest. Now Stephen can also reject the offer in which case they both get nothing.

Economic Theory says Mark should offer Stephen $1, since Stephen will think $1 is better than nothing he we’ll accept so the result is Mark gets $99 and Stephen gets $1. But when economists do experiments they find that people in Mark’s position usually offer between $25 and $50 to people in Stephen’s position. Why because those in Stephen’s position will typically reject offers if they feel they are unfair, so even though it might better for Stephen to accept an offer of $10 he might reject it because it is unfair.

This situation in some sense is happening in real life. Mark in this story is Mark Lerner the owner of the Nationals (Washington DC’s baseball team). This year they drafted Stephen Strasburg with the #1 pick in the draft. Now suppose instead of the $100, we think of the pot as the future value of Stasburg as a baseball player. Mark will make Stephen a contract offer, which is Stephen’s share of the pot. Now there are slight differences since during contract negotiations Mark can make multiple offers. But in the end (Monday at midnight) if Stephen rejects it he gets nothing, but so does Mark.

Well not exactly, the Nationals get another pick next year to make up for their inability to reach a deal with Strasburg, while Strasburg gets to try to be drafted last year. We can model this with game theory too, but it just raises the minimum offer Strasburg will accept. A rejected offer happened in negotiations with Adam Crow the Nationals top pick last year.

The lesson is that Mark Lerner and the Nationals are playing a game with a real human, so they need to make an offer that Strasburg thinks is fair.

Bookmark and Share

Wednesday, August 12, 2009

Bill and Seth’s Excellent Adventure

Bill Easterly gives this response to the Queen of England’s question to British economists why they could not predict the current crisis.

“First, Your Majesty, economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market.”

When I first read this response it kind of blew my mind and I really liked. I still really like it, but it got me thinking about a conversation I was having recently about time travel (yes, bear with me on this one). The what if game was suppose you were transported back to a certain year with all your current knowledge and abilities. What would you do?

So let's suppose Bill Easterly and I are transported back in time with all of our current knowledge to January 1st 2006. We know there is a financial crisis coming. With our perfect knowledge of the crisis, how do we stop things. I don’t think we can. Sure we can sell all of our stock and maybe try to short a bunch of stock. One issue is that we could be capital constrained, we likely couldn’t get a hold of enough money to really make a difference in the market.

So not only would a person have to have perfect knowledge, but also the ability to change things. That’s asking a lot.

But I’m sure Bill and I would have one most excellent adventure.

Bookmark and Share

Tuesday, August 11, 2009

Pan Asian and Menu Design

Thanks to Greg and my dad who commented on yesterday's post and helped me think of other types of food that is served like dim sum . Greg mentioned Mongolian BBQ, in the past when I have had it, you build your own stir fry at a salad bar then give it to a grill cook. My dad suggests the Brazilian steak house, but I have not been to one either, I knew about the meat part but I thought there was also a salad bar involved. I think more research is needed. Who is up for some grilled meat?

Now on to today’s topic Pan Asian restaurants. Last week I ate at two places that serve sushi, Chinese, Thai, and Vietnamese food. The first (Asian Bistro, Silver Spring) I think does a decent job on sushi, but misses the mark on Chinese I haven’t strayed from the sushi too much. The second (Spices, Cleveland Park) seems to do a decent job at all with a type of greatest hits menu (California Rolls, Pad Thai, Pho).

The benefit to having an eclectic menu is if my friend wants curry and I want sushi we can go to the same place. If a menu gets too small (say one or two items) the restautant loses groups with one person who doesn’t like the food. If a restaurant’s menu gets too big, it will be harder for the cooks to do any well or have enough fresh ingredients. Maybe that is why the second restaurant with the shorter greatest hits menu tends to do better at any one dish. Other factors like higher prices and location probably play a roll too.

My advice be weary of restaurants with too many menu items (unless they are on wheels)

Bookmark and Share

Monday, August 10, 2009

Dim Sum: Why is it the only buffet on wheels?

On Saturday I went out to eat dim sum with 15 friends. For those of you have not experienced the fun of dim sum. At many places you sit down and then waitresses come by with carts full of tasty steamed dumplings and little dishes of tasty things. You point to what you like then it is set on your table and you eat. Many times you have hardly sat down and there are 5 or 6 dishes on your table already.

I can’t think of another cuisine that all the food is prepared then brought around for you to choose. To do this type of style I think you would need several things: a restaurant with high turnover and many customers, dishes that work well in small plate style, and cheep workers to bring around the food. Dim sum has all three. There are sushi boat/train places where sushi passes you by and you can pick it up, but perhaps labor is too expensive in Japanese restaurants and sushi has more expensive ingredients. Other than that if a place is not a food made to order place, then it is a buffet.

If you can think of other foods sold like dim sum let me know.

Bookmark and Share

Thursday, August 6, 2009

Poor People Everywhere “Waste” Money

Only now he's off to collect their unemployment benefits, electronically delivered to their bank accounts by the state of Indiana: $268 for Kelly, $390 for him.
"Payday," he says, driving to an ATM.

He withdraws $700, which he tucks into a front pocket of his jeans. He buys a Pepsi, four packs of Marlboro Lights and $20 in gas.

From this article in the Washington Post follows a family of four in Indiana struggling in the current recession. We might be quick to judge that Scott the dad of the family in the story is wasting money on cigarettes and Pepsi, later we read he spends an afternoon at a bar. It made me think of some work on developing countries where people who make less than $1 a day still save money for parties instead of eating (previous post here).

In some ways the similarities between the family living off of $1 a day and the one profiled by the Post are closer than we might think

Bookmark and Share

Tuesday, August 4, 2009

Cash for Clunkers: The Money is Actually Being Spent

I think one thing is being missed by economists criticizing the cash for clunkers program (see freakonomics), the money is actually being spent, which seems to be the point of a stimulus to get people to spend money. I’m a little reluctant to trust the estimates of a sales analyst from GM, but one quoted in the LA Times suggests that the cash for clunkers has increased sales 115,000 since the program’s start.

A back of the envelope calculation using an estimate of $27,000 per car (average US car sale price in 2009), suggested the 1 billion dollar program created over 3 billion dollars in sales. The impact of a stimulus is often tied to a concept economists call a multiplier (see detailed description here), in short the multiplier is for each dollar the government spends how many times is that $ spent in the economy. A multiplier of 3 (as in my back of the envelope calculation) would be on the high end of the impact of government. This doesn’t even take into account what the car dealer and companies will do with the extra sales, which calculating the multiplier for cash for clunkers should take into account.

Sure there is a lot of other things to consider, but the money is being spent quickly, that's worth noting.

Bookmark and Share