Stolen Credit Cards and Economics

Maybe you have had your credit card number stolen and the thieves purchased computer equipment, electronics, or gasoline. With all the reports of stolen credit card numbers it is unlikely that anyone hacker who steals you number is going to use it, but instead that hacker is likely to resell that information.

So what is your credit card information worth? About 40 cents. At least according to the market place story I heard last night, criminals can purchase credit card numbers for a mere .40 cents. So what determines price, marketplace says supply and demand. I think that is true but a little more accurate would be for demand.

Demand: Willingness to pay for credit card = expected payoff of credit card – opportunity cost of using credit card – negative value of expected jail time for using credit card.

Banks are getting better at stopping fraudulent use of credit cards so the expected payoff is going down. The time it takes to use a stolen credit card is about the same (just order something or buy something).

Supply: Willingness to supply (least hacker would sell info for) = time to steal + negative value of expected jail time for using credit card.

Jail time is a factor, but it is also important how likely are people to be caught.

I think I'll keep my credit card number to myself though.

Job Market for College Seniors

One of my colleagues forwarded me an article from the Wall Street Journal on starting salaries by major for graduating college seniors. From on average of $49,000 for Engineers to $28,000 for Philosophy there is quite a range.

Economics majors rank fourth behind Engineering, Computer Programming, and Math, with average starting salary of $43,000.

So Towson business majors take note, economics majors make on average almost $8,000 more starting out than business and marketing majors.

Soylent Green: Economics of famine

Over the weekend Charlton Heston passed away. From Ape Agitator to Dr Zaius (in the remake), he made some great movies. I have always been partial to the movie Soylent Green. In a dystopic future the world is short on food and heavy on pollution, Charlton Heston lives in New York City of 40 million people with few supplies left. Most of the population subsists on a food product called soylent green. Spoiler alert!

Soylent green is made out of people, its people!

For those of you who know me, you know I have a habit of responding to the question about anything “what is this object made out of?” with “ITS PEOPLE! (insert name of object) Made out of people!”

Despite my love of this movie (or at least that line), I’m still an optimist about the future of the world. In fact a lot of economists have made the term dismal science a little bit of a misnomer.

So a couple of soylent green related examples. Nobel Prize winning economist,
Amartya Sen, in his work on famines has generally found that lack of distribution and not production has been the problem or as he notes:

“If we took the waste of the Western World and gave it to those who are starving then there would be no famines.”

Another famous optimistic economist was Julian Simon. Critic of population bomb author Paul Ehrlich (not an economist), Simon argued that:
“..There is no reason why material life on earth should not continue to improve, and that increasing population contributes to that improvement in the long run.”

After reading Sen and Simon’s work, I generally feel good about humans ability to overcome problems. Although I have not seen any economic writings on how to defend against a class of extremely intelligent Apes.

Bonus Post: More on the Farm Bill

My friend with a lot more knowledge about agriculture than me points why the Farm Bill is so screwed up, its not about farm policy, from a recent story on the bill

Ways and Means Committee Chairman Charles B. Rangel , D-N.Y., wants more funding for nutrition if he’s going to agree to find scarce offsets to support about $10 billion more in funding, Senate Agriculture Committee Chairman Tom Harkin said.

“If they give us more money, sure,” said the Iowa Democrat. “We have scrubbed really hard” to get the $9.5 billion in funding for food stamps and other nutrition programs that Rangel’s New York City constituents rely on, Harkin said.

Rebate Checks, Direct Deposit: Testing how to fool people

A friend from Grinnell was discussing how she thought the NPR’s Marketplace April Fools’ joke about sending everyone a gift like an air conditioner could have been true. She also thought it would be just like the government to do something like that or send everyone Visa gift cards so people could not repay debt, but had to spend the money.

In turns out my friend is not alone. Not only did Wednesday's post on the April Fools’ joke generate the most hits ever for this blog (so many people must have believed it to). But her visa comment might need some thought too. Dan Ariely, MIT Economist, suggested today that the government should test how households will make decisions to spend based on how the rebate is receive (e.g. by check, direct deposit, or debit card. )

As Dr. Ariely pointed out on Marketplace (link) :

“The field of behavioral economics has rather convincingly shown that money given in different forms can have different effects. For example, paying for dinner in cash feels very different than paying the same bill with a credit card. And an increase in monthly salary has a different effect on a person's spending than the same amount in an equivalent yearly bonus. These results suggest that how you deliver the stimulus package will have a considerable effect on how the money is spent.”

As my friend from Grinnell suggests, if we received Visa cards we would be less likely to pay down debt. Dr. Ariely, suggests the only way we will know which system will work the best is to try to send some people checks and some people direct deposit and some debit card. This type of suggestion is part of a growing trend in economics to test impacts of a policy by running experiments where you give treatment to some and no treatment to a comparable control group just like you would with a new pharmaceutical drug. Compare to the treatment and control group and you have an experiment!

If the government needs any test subjects, they can send my rebate check, deposit it directly, or give me a debit card. Just don’t send pennies.

Contrasting Agricultural Policies: Cry for the Argentine Farmers

Although, it probably is not getting a lot of press the US farm bill is currently being debated in the Senate. As I see it the main debates are how much subsidies to give out and who should get them. In particular, farmers of food stuff crops like corn, wheat, and soybeans get subsidies while growers of fruit do not. Take this NY Times OP Ed from a Minnesotan farmer, where the farmer complains that he cannot afford land prices because they are inflated by grain growers getting subsidies. Another point of contention is that most payments go to large farmers, highlighted here by the USDA. So in the US we are debating how much to pay farmers.

In Argentina, the debate is over how much in taxes to charge exporting farmers. As this LA Times article details strikes by farmers over a tax increase on Soy Bean exports. The strikes have led to food shortages, although farmers are currently taking a break from their strike because of this.

So why would Argentina place high taxes on their farm exports. The government needs money and it is difficult to collect taxes from individuals, but exports are easier to tax if they must go through major ports they are easier to verify.

April Fools: The Government Used Your Tax Rebate to Buy You a Gift.

I usually detest April Fools jokes. However, marketplace had a great one yesterday. (link) They had a fake story where the IRS instead of sending a check to an Arizona couple behind on their mortgage, they sent them an air conditioner. The story goes on to say how the IRS will look into charactestics based on where people live to find out what should be sent to them. As Robert Reich, former Labor Secretary and my college graduation speaker, points out in the piece:

Also, the government is not terribly good at knowing what individual people want, even in the same neighborhood. I mean, my neighbor might want, say, Viagra, but if the government ships a toaster oven to my neighbor and ships Viagra to me -- and by the say, I don't use Viagra -- that's not going to be terribly efficient; I would much rather get the toaster oven. Now, I suppose my neighbor and I could barter, but then I would have to know exactly what the government shipped my neighbors and it would be difficult for all of us to get together and know that fact.

The humorous piece make a couple of good economic points.

1.People will always prefer a cash transfer of equal value to a transfer of an item if with that cash they could buy that item or something else they prefer more they must be better off with the cash or at least just as well off.

2.The point of the cash payments is a short term increase in consumption, but if people save it will not stimulate the economy.

One final thought in some cases giving people something instead of money might actually be better than cash if there are benefits to people besides the recipients. An example of this might be vaccines or school supplies. As vaccines prevent the spread of disease, while school supplies might promote education and therefore long term economic growth.

In case Uncle Sam wants to know what transfer I want, let me go on record as saying baseball tickets or good local DC restaurant gift certificates would be more fun than stashing the rebate check in the housing fund.