December 13, 2010

It's a nice idea but…

Changing over to energy efficient lightbulbs, driving a Prius, opting for the train rather than the airplane are all emotionally appealing ways of reducing our personal carbon footprints. But are they really ways of dealing with global  warming? The eminently unpopular (with Eco-warriors anyway) Bjorn Lomborg thinks not. In fact, he is thinking like an economist (i.e. making sense) in his article "No, you can't" which discuss the work of energy economist Harry Saunders and four co-authors. Lomborg writes:

For this reason, the proportion of resources that we expend on lighting has remained virtually unchanged for the past three centuries, at about 0.72% of gross domestic product. As Saunders and his colleagues observe in their journal article, “This was the case in the UK in 1700, is the case in the undeveloped world not on grid electricity in modern times, and is the case for the developed world in modern times using the most advanced lighting technologies.”

The conclusion that Saunders and his co-authors draw from this is both surprising and hard to dispute: rather than shrinking our electricity use, the introduction of ever more efficient lighting technologies is much more likely to lead to “massive…growth in the consumption of light.”

As the cost of leaving the lights on goes down, we will end up leaving the lights on longer. Read the whole thing here. And for those of you interested in environmental issue, please do read more of Bjorn's work. He brings a dispassionate voice and some very good statistical analysis to the conversation. He is very much worth listening to.

November 16, 2010

This is what it has come to…

This anonymous author has written about his experiences writing custom essays for students. He claims to have written for students at Ivy League schools, Master's theses, Doctoral dissertations, entrance essays, proposals and a thesis on business ethics. It's incredible the mount of work he produces. He says:

I live well on the desperation, misery, and incompetence that your educational system has created. Granted, as a writer, I could earn more; certainly there are ways to earn less. But I never struggle to find work. And as my peers trudge through thankless office jobs that seem more intolerable with every passing month of our sustained recession, I am on pace for my best year yet. I will make roughly $66,000 this year. Not a king's ransom, but higher than what many actual educators are paid.


Apparently 61% of students report cheating in one way or another. But why? Nobody is forced to go to university and you get to choose what you want to study, so why do people make such an effort to avoid actually learning?

Economist have long discussed education as a signal. That is, you get university degree to signal something about your ability to the job market. It is a way of differentiating yourself. But if a degree itself is the signal, why bother actually learning anything? Studying is hard work and there is a large opportunity cost. If students are only interested in the signal, than the return from studying is very small and so they are more likely to cheat.

If employers that use a university degree as a signal of an applicants ability start to notice that people with degrees are not necessarily more capable or better trained (because they cheated their way through uni) then the degree is no longer a valuable signal. People interested in obtaining a university degree as a signal, will no longer go to uni. Why spend the time and money if their is nothing to show for it in the end? The people left going to university will be the one's who actually want to learn. Of course, that means a university degree is a good signal. A balance between cheaters and learners will be achieved when a high school kid is indifferent about going to university or not going to university when consider her future earnings and the costs involved.

I would be interested to see if the rates of cheating vary by degree type. Some degrees are regarded as better signals to employers than others. As such, I would expect such degrees to attract more students interested in the signal rather than learning per se and so would be expected to cheat more often. Here is a paper (by my own PhD supervisor!) about returns to education by degree subject. Which subjects do you think would have the most cheating?

via The Browser

November 13, 2010

Tarot card readers have been right all along!

A new study has found that future events can affect our behaviour today. And the results are not being wholly dismissed. In his paper titled "Feeling the Future: Experimental Evidence for Anomalous Retroactive Influences on Cognition and Affect", Daryl Bern found that treatments applied in after an experiment affected the performance of subjects. In one example,  subject were given a list of words and then asked to recall words from it. Some students were then asked to type a random selection of the words.The incredible thing is that subjects that were eventually asked to type the words were displayed better recall!

It seems to amazing to be true but the paper has undergone review and is forthcoming in the Journal of Personality and Social Psychology.

Such a result could have a major impact on, well, basically everything.

November 10, 2010

More on the Week in Weakness

Follow-up to The Week in Weakness from Economics for people who don't like Economics

If you want more detail and better writing, here is a very good piece on how the world's currencies are organised from The Economist.

The Week in Weakness

There has been a lot of news recently on the coming "Currency Wars" and weak currencies and "beggaring thy neighbour". So what does it all mean?

Let's consider a world with only two countries: the US and China. The US borrows dollars and China lends dollars. The US borrows money from China so that the US can import more than it exports (it can spend more than it earns). China, conversely, exports more than it imports (it saves money). So far, everyone is happy.

Now, let's say there is a recession in the US and US GDP (income) starts to fall. The US finds it increasingly difficult to pay off the debt to China. What can they do? The US could increase GDP by cutting interest rates. This lowers the cost of borrowing and gets the economy moving. As GDP increases, the US will be able to pay off its debt. A second way to pay off its debts is to simply print money. This is the quantitative easing you have been hearing so much about. The US government has the right to print dollars. If it owes China $100, it could simply print a $100 bill and give it to them.In reality these two options are intimately related.

China is not overly keen on either option. The reason has to do with currencies. China lent the US dollars. But China itself uses the Yuan.

If the US cuts interest rates, non-US investors will be less likely to want to invest in the US as it is now paying a lower rate of return. This means those investors will not need to buy as many dollars at the currency market. A Frenchman cannot buy a US bond in Euros. He must first use his Euros to buy dollars, then he can buy the US bond. If the demand for dollars falls, the price of a dollar (the exchange rate) will also fall.The dollar has gotten weaker.

What is the US prints money to pay off the debt? Doing so will increase the number of dollars available at the currency market. As the supply of dollars increases, the price of dollars falls. Again, the dollar has gotten weaker.

Let's say the US prints the $100 bill and pays off the debt to China. The US is happy as it is able to pay off its debt. Moreover, the reduced value of the dollar means exports go up, imports go down and US GDP increases. Hurray!

But China is pissed. Why? If that $100 was worth 50 yuan when China first lent the money to the US, printing that $100 bill causes the value of the dollar to fall. Now the $100 is worth only 25 yuan. So, while China gets the face value of the debt back ($100) the value of that debt in yuan has fallen by half.

This is obviously a simplification, but the general idea is there. Sometimes being weak is good though there are downsides like importing inflation.  And the currency wars are essentially about a number of countries wanting weaker currencies as it helps them pay off debt, increases exports and decreases imports thus increasing GDP.

November 03, 2010

Economics and fairness

Will Hutton has a new book about fairness, what it means and what Economics and economic policy have to say about it. Here is a well written review by Will Davies.

"Every orthodox economics education begins with a lie. This is that, in the vernacular of neo-classical economics, we can and must split questions of ‘equity’ from those of ‘efficiency’. To put this another way, economics begins by ignoring moral philosophy, arguing that it is still possible to analyse, model and criticise social and economic relations without resorting to the language of values or justice."

I think this is a bit harsh, though certainly the teaching of Economics could take a more heuristic approach. Despite what some economists seem to think, we aren't physicists. We are still social scientists and the tools of our trade ought to be presented as such.

There are good examples of this out there like Sen's "On Ethics and Economics" or Julie Nelson's "Economics for Humans".

via The Browser.

October 26, 2010

How about a little accountability?

Corporate Social Responsibility (CSR) has always struck me as a bit of an odd idea. Firms exist to maximise profit. Laws provide the rules they must abide by while doing so. CSR requires firms to forgo profit in the name of a supposed social preference that is not enshrined in law. Why? Jagdish Bhagwati makes a very good point in this article

But are CSR obligations really good practice? Milton Friedman and other critics often asked if it was the business of businesses to practice corporate altruism. Prior to the rise of the corporation, there were mainly family firms, such as the Rothschilds. When they made money, it accrued principally to the family itself. Altruism, where it existed, also was undertaken by the family, which decided how and on what to spend its money. Whether the firm or its shareholders and other stakeholders spent the money was beside the point.

With the rise of the business corporation, large family firms have generally disappeared. But that does not mean that a corporation is the right entity to engage in altruism – though its various stakeholders obviously can spend any portion of the income they earn from the corporation and other sources in altruistic ways. Instead of CSR, we should have PSR (personal social responsibility).

PSR! Brilliant. We demand that firms engage in some CSR activities because we do not trust ourselves to take the personal responsibility and avoid buying the t-shirt from the company that might use sweatshop labour or the chocolate manufacturer with unfair labour practises. CSR is a product of our own inability to commit to make sacrifices. If we all took more personal responsibility CSR would be a irrelevant.

October 25, 2010

The Economics of Seinfeld

Applications of Economics to the world of George, Jerry, Cosmo and Elaine. Unfortunately, you can't watch the clips on the website but if you have one of the seasons on DVD dive in!

via Marginal Revolution

The horror…the horror…

John Heilemann of New York Magazine outlines a scenario in which Sarah Palin becomes president. Of the USA. Sweet mother of God!

The article makes clear that many democrats are hoping that Palin wins the Republican nomination, counting on here policies or lack-there-of, to give her no chance of winning in the general election against Obama. However, given just how unpopular Palin is among many Republicans, Heilemann suggests the following thought (terrible as it is) experiment. Obama vs. Palin would be a landslide victory for Obama.

"Or would it? In a two-way contest, almost certainly. But what if a Palin nomination provoked a credible independent candidacy? What if the candidacy in question was that of, oh, Michael Rubens Bloomberg? What would happen then?"

What would happen, Heilemann hypothesises, is that the more fiscally conservative Democrats would vote for Bloomberg creating an opening for Palin to (gulp) win the election.

Obama knows this and so the article cites examples of  "the White House has made a gaudy show of sucking up to the mayor: inviting him to play golf in Martha’s Vineyard with Obama, floating his name as a potential Treasury secretary, dispatching Joe Biden and Tim Geithner to have breakfast with him and seek his economic counsel." The idea is to befriend Bloomberg so that he does not run.

However, if Bloomberg sees a chance to win, it seems unlikely that any breakfast with Tim Geithner (handsome though he may be) would disuade the New York mayor from running.

If Obama thinks like a game theorist he might change tactics. He or his minions, may want to do what they can to increase the chance that a less extreme Republican (I think they still exist) wins the Republican nomination in 2012. This would reduce the policy space that Bloomberg could occupy. Obama would face stiffer competition from a more reasonable Republican but would still have the incumbents advantage. That is Obama might increase his chances of re-election if he faces a tougher Republican opponent.

October 21, 2010

Is Twitter actually useful?

Prof Johan Bollen has found a relationship between what people are expressing on Twitter and the performance of the Dow. He found that changes in the stock market could be predicted by messages posted on Twitter, not by investors or bankers but by everyone. He gauged to public mood by how many times emotional adjectives appeared in Twitter posts. Looking at 9.8 million tweets from 2.7 million individuals he found he was able to predict the rise and fall of the market with nearly 90% accuracy. Here is a link to him chatting about this.

The last mystery is why he shared this information with all of us rather than investing according to it and retiring.

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