You must see this econ video!

Watch this, now!

(It's only four minutes long, but if you're like me, you'll be watching it and forwarding it a lot more.)

Sylvia Nasar had huge success with her book A Beautiful Mind about John Nash. Her follow up is due out this month and is Grand Pursuit: The Quest for Economic Genius. It concerns the effect of people (Dickens, Marx, Keynes, etc.) who worked on developing and applying economic thinking, and how this lead to the modern growth miracle.

It's Sylvia Nasar, it's a topic I like, I'd probably have picked up the book...but then I saw the promotional video, and now I feel like I'm waiting for the next installment of Harry Potter. Will I be dressed up as Alfred Marshall and be in line outside the bookstore at midnight the day the book comes out?

My only concern is who will direct the movie? I'll never forgive Ron Howard for screwing up the presentation of Nash Equilibrium in a move about John Nash!

Really?! Paperclips? REALLY!?!

So the Onion glories in mocking the behavior of our government...but it's really hard to keep up with reality. Tyler Cowen in Marginal Revolution reports that the US paperclip market is dominated by domestic producers because the US has a comparative advantage in producing small, bent-wire, office supplies...hold on...no, domestic US paperclip producers have the advantage of huge protective import tariffs. Yes, on paperclips. Frickin' paperclips.

This makes for a nice essay question about the effects of such a policy; and Matt Yglesias does a nice stab at working some of it out. He hits on an issue that has long bothered me: the preference for government policies that have no budgetary fingerprints (i.e. minimum wage, conscription, regulation), even though their implicit costs may be much greater than an equivalent tax-and-spending system.

I do wish that one of them had given a hat tip to Mancur Olsen's idea of "concentrated benefits and dispersed costs" to explain how this sort of thing gets started and continues.

Krueger to the CEA! Does this mean the minimum wage will be going up?

There’s been a big talent outflow from the Obama administration as various economists head back to their academic appointments. This included Christina Romer, Larry Summers, and now Austin Goolsbee. So, it’s great news that Goolsbee will be replaced as the chair of the Council of Economic Advisers by Princeton labor economics Alan Krueger.

Herb Stein, who chaired he council under Presidents Nixon and Ford, described the job as being one of articulating the president’s economic policies to the rest of the world, and to advocate on behalf of markets within the administration. Krueger is an exceptionally lucid writer and speaker on economic issues.

Krueger’s research has breadth, but he is known as one of the best applied labor economists in the field today. His work has been heavily involved with policy applications and also education.

Krueger’s most famous research was his 1994 American Economic Review paper with David Card on “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” It had not flashy theory or econometrics, but it was great, nevertheless. Early in 1992 Card and Krueger noted that the minimum wage in New Jersey was set to rise from $4.25 to $5.05, while across the river in Pennsylvania, the minimum wage would stay the same. They realized that this would create a wonderful “natural experiment”, where Pennsylvania would serve as a control group and New Jersey would be the treatment group. They surveyed fast food restaurants on both sides of the New Jersey-Pennsylvania border before and after the New Jersey minimum wage change, with some hope of estimating an elasticity of labor demand for the change of the minimum wage, but found that instead of the higher New Jersey minimum wage reducing employment, fast food jobs on that side of the border actually rose relative to what happened in Pennsylvania.

This was a fun result for many reasons. One, it’s a simple paper to understand, with a surprising result. Two, it was a fun question to ask, since it was something that almost everyone thought they were sure they knew they answer to. The workhorse model in almost every microeconomics textbook about messing with prices is that a higher minimum wage decreases employment! But here was a great example of where empirical work can challenge even the most widely accepted theoretical results.

Their result should not be interpreted to say that higher minimum wages would never have the predicted bad effects on employment, or even that there weren’t confounding effects or errors in measurement that might affect their results. Further, the mechanism by which increased costs of low wage labor lead to increased fast food employment aren’t particularly developed. However, this was strong evidence that increasing a low minimum wage by a bit wouldn’t have obvious terrible effects.

Short, accessible examples of some of Krueger’s writings can be found in his columns for the New York Times Economix blog and his Economic Scene columns. These make for nice class readings or discussion pieces.

Something You Can Use the First Day

For those of you who have been gone all summer, I haven't been particularly prolific - too busy. But there are some very usable resources in the archive so you might want to spend some time back-tracking. Regardless, welcome back.

For those of you who are just starting school or haven't started yet, here's something to use on day one.

Team or Trade

There is a thought-provoking article in today's issue of The Wall Street Journal (subscriber content at this writing). Matt Ridley discusses the work of evolutionary biologist David Sloan Wilson. Wilson has done some work on cooperative behavior and, according to Ridley, sees cooperation evolving from generosity or altruism. Ridley notes that others in the field see ideas like reciprocity and see groups of people agreeing to punish non-social behavior.

Ridley notes Adam Smith pointed out that this works among small groups of friends and family.  But for larger groups of strangers, another mechanism is needed. Smith's idea of division of labor and the corresponding idea of specialization promotes cooperation because of interdependence.  We need each other and we benefit from cooperating with each other. As Ridley states "trade dissolves hostility between groups."

This article caught my attention because it connects with insights from Adam Smith: An Enlightened Life by Nicholas Phillipson.  In that book, the author recounts that Smith felt the origin of language resides in our need to convince one another of mutual benefit from cooperative behavior.

If you can find an un-gated version of the Ridley article, I strongly recommend it. If you can't, see if you can access it through a library or other legitimate source. Barring that, I again recommend Phillipson's book.

An Enlightend Life

Almost a year ago, I linked to a review of Adam Smith: An Enlightened Life by Nicholas Phillipson. Twice more I linked to other reviews and even added it to my carousel at left as a result of the reviews. I received a copy and added the book to my “to be read” pile – and moved it up as a result of some of the reviews. I finally got to the book this month. I’m only sorry to say I didn’t get to it sooner.

While I’ve read many good biographies of Smith, this one stands near the top.  I don’t say that because it revealed some interesting piece of trivia previously hidden.  Rather my statement is based on the intellectual ground that is covered. This book reveals Smith’s intellectual foundations. It covers familiar ground about Smith’s debt to Hume and the French philosophers and economistes. But it also makes clear Smith’s grounding in his geography and time. Glasgow and Edinburgh had an effect on his world view, politics of England and Scotland social and intellectual climate in which he was raised. As such, much of his work takes on new meaning.

If you would acquaint yourself with the foundation of economics and the mind that helped shape it, I encourage you to consider this book. While not a beach read (it’s getting late for that anyway) the length is not daunting. And if, like me, you like to mark significant passages, you may find yourself stopping frequently to do so.  For this volume offers much to think about and much to learn. Please share your thoughts.

Choice: Is Decision Fatigue Worth Talking About? (Your Choice)

I suspect most of us don't go very far into the decision-making process. After all, most of us are teaching a specific curriculum and time is a scarce resource. We have to choose. 

We probably discuss why we have to make choices and perhaps we introduce a decision-making model. But unless we're really into behavioral economics or we're enamored by categorizing people into optimizers or satisficers, we probably don't go much further.  That's okay. Nevertheless, here's a recent article from The New York Times that discusses something called decision fatigue.

The research highlighted in the article looks at the types of decisions we make when we have to make a lot of decisions. The results may not be of much immediate use in our classroom. But students often ask why we don't always make rational decisions. I think the article goes well with this TED Talk on The Paradox of Choice with Barry Schwartz. 

 

It may be something for an extra credit assignment. What do you think?

Business Cycles and Recession Measures

One thing we do either in our macro courses or in our survey courses is discuss briefly the business cycle.

Many of us, along with some textbooks, fall back on the "two consecutive quarters of negative GDP growth" definition. We should all be directing our students to the indicators used by the National Bureau of Economic Research (NBER) definition.

Here is an interesting post from Calculated Risk (HT to Econlog) that speaks to the NBER definition. It also provides a sobering view of where we are in the current cycle. While we can definitely see we're past the trough, we still have a considerable amount of ground to cover to get back to the previous peak.

Externality

Greg Mankiw relates something that I'm sure many of us can remember seeing. Whether we think it's touching or it's corny and embarrassing, Greg points out an aspect I know I hadn't thought of before.How many incidents like this have I seen at football games alone over the years?