Friday, February 29, 2008


A good definition of how our resources are finite and how the choices we make impose a cost on future generations can be found on this video. It's opinionated but well documented and lively. Look for a post on student drinking at MHS late this weekend.

Wednesday, February 27, 2008


Matt at has a nice video on how how the stimulus package will change the economy. The video can be accessed here. Just about every economist agrees that the package is too little too late. I think the package is a political ploy to hurt Democratic candidates. I think a rebate now will mean higher taxes later and crowding out of investment. I think the rebate are intended to rise autonomous consumption and multiply incomes, but most of the rebate will find their way into foreign markets. So, imports will rise, the deficit will increase an the effect of the stimulus will be nothing in the long run. The video does and excellent job of capturing what I just wrote in satire. Thanks, Matt.

Sunday, February 24, 2008

Intertemporal Choice

Say it's Christmas Eve and there's candy, cookies, and roast duck on the table. When would you start your diet? I think most would say something like, "I'll start my diet tomorrow." In laboratory experiments, people where asked questions about indulging in a pleasure now and making up for later. For example, "Would you rather have the candy bar today and fruit tomorrow or fruit today and the candy bar tomorrow?" Repondants chose the candy today and healthy choice later.

Say you're at a New Year's party and someone offers you illegal drugs. Or perhaps the choice is alcohol. Now this is a one time choice. You know you won't become addicted to drugs or become a raging alcoholic. What choice do you make--use or abuse? This question is answered by some economists saying that the in the short-run people will choose to use and go back to healthy behavior later. Does this explain teenage drinking? I'm not sure.

Saturday, February 23, 2008

Rational Showers

When I take a shower at the Community Y, I've noticed that the ones on the right get warmer quickly and the ones on the left take forever. Since time is a cost, it makes sense to me that people would select the ones on the right. Lately, I've been hanging around the showers a lot to see if my theory predicts behavior. There's a lot of jokes here, but does show that people compare the relative costs when showering.

Wednesday, February 20, 2008

Why Are So Many Black Mothers Single?

In the Logic of Life, by Tim Harford, the author suggests that a high incareration level of African American men has reduced the supply of eligible men in the marriage market. In Iowa, there's a disproportionate number of black men who are institutionalized relative to white and hispanic. That means that there are less black men eligible for marriage. In econ 101 language, the supply of men has shifted to the left. In order to make themselves more attractive to black men, black women go to college to increase their human capital. These same women also learn how to raise children without a male counterpart and develop jobs skills far superior to institutionalized men.

According to the Logic of Life, the black men who are not behind bars, can be very choosy about who they marry since there are 3 black women to every 1 black male. Can I add that those black men who are not behind bars must be more highly educated, more prone to work, and less affiliated with gangs so society views them as "better"? These men are accutely aware that they are in high demand so they are selective about whom they marry. Man civilian noninstitutionalized African males simply choose not to marry and play the field. What's left is a number of nonmarried black females who earn more than black males.
Every word in every chapter is significant. If you read one book this year for economics, read this one. Tim's treatment of Thomas Schelling's chessboard is brilliant and compelling. Mr. Harford shows again and again who marginal changes result in equilibrium.

Monday, February 18, 2008

Income Distribution

At the Community Y, Mr. Foxen was watching an interview with the heir to the Johnson and Johnson empire. He asked me what I thought about income distribution. I wrote a 5-page essay which I'll send to anyone who is interested. Simply email me at:

In the essay, I included a joke sent to me by Ken Norman about 10 men who share the cost of beer the way the income is taxed today, several analogies including, "Should Mike and Kathy Split the Bill?", as well as a discussion of Utilitarianism and Libritarianism. I conclude using Greg Mankiw's analogy of a teacher who assigns grades based on what is earned.

This is a discussion of normative economics sure to start a fight at your next dinner party. Be sure to cite me as the source of the irascible arguement.

Wanna know where your $3 a gallon is going?

My sister sent an email asking the $3 question. Pictures showing tremendous infrastructure growth accompanied the email. One is shown with this blog. The email connotates that the high gas prices are helping Dubai grow rich at our expense. How ridiculous. I begin by asking about wages in subsaharan Africa v. wages in the poor exploited United states. In the US, the median wage is around $18 per hour where as in Tanzania, the wage is less than a $1 per day. Shouldn't wages be equal in both Africa and the US? That isn't fair, is it that there's wage differentials. People in the US have skills that command a greater wage whereas those in Tanzania work for subsistence wages in agriculture. My point is wealth accures to the efficient use of the factors of production.
Should Dubai just give us the oil? That makes no sense. Oil is scarce and the price reflects that scarcity. In order for the country of Dubai to supply more oil to the US, the price has to increase. That price should include a markup to make it worthwhile for producers to take a chance that market conditions might change.
Dubai is building new cities. That's great as its citizens life is improving. Would you rather have them live in tents so you can buy your gas cheaper? When Microsoft builds better software, everyone gains. When Dubai sells more oil, everyone gains.
In our society we believe that trade should be voluntary. People trade because they believe they will be better off. In this case, the value of the oil is greater than the value of the $3 I pay at the pump. If the value wasn't greater, I would not voluntarily pay it.
Wikipedia has the following facts about Dubai: Dubai's gross domestic product as of 2006 was US$46 billion. Although Dubai's economy was built on the back of the oil industry,[60] revenues from oil and natural gas currently account for less than 6% of the emirate's revenues.[7] It is estimated that Dubai produces 240,000 barrels of oil a day and substantial quantities of gas from offshore fields. The emirate's share in UAE's gas revenues is about 2%. Dubai's oil reserves have diminished significantly and are expected to be exhausted in 20 years.[61] Trade (16%), entrepôt (15%) and financial services (11%) are the largest contributors to Dubai's economy. [62]
Here's more. Dubai has a current account surplus which means exports are greater than imports. The surplus represents direct foreign investment which is being used to build schools, roads, and construction. I argue that more education will result in peaceful solutions to conflict. If people are arguing for trade restrictions against Dubai, then they are ignorant of the benefits of trade, volunatary exchanges, current account and investment, and how prices work to ration a scare good.
If the people of Dubai are benefiting from higher oil prices, then that's good. How could anyone rationally ask Dubai to give up a better standard of living so citizens in the US can have cheaper gas prices?

Sunday, February 17, 2008

Dante's Hell and Game Theory

Somewhere in my college background, I heard a hypothetical story about what Hell would look like. In this story, you are seated at a large banquet with the best food you could imagine. Seated across from you is another person. You both have forks long enough to feed the other person, but too long to feed yourself. In order for you to get fed, you must feed the person across the table and trust that they will feed you. In Hell no one trusts the person across the table from them so they both go hungry. This story is intended to show that you treat people as you see them. When you look for the good in others and that’s what you see, you both get fed. In econ 101 terms, I am not sure why this equilibrium exists in Hell.

If Kyle feeds Flad and Flad feeds Kyle, they both eat 1000 calories. Since they both don't trust each other, they don't feed each other and receive zero calories. It's clear there are two equilibria here, but because it's Hell, they equate in a suboptimal equilibrium where they both starve. I think the correct term for this is a noncooperative equilibrium.

Sunday, February 10, 2008

Broken Window Theory

The tornados in Tennessee are tragic and exert an exogenous externality on society. Does the clean up, rebuilding of infrastructure, and emergency spending increase the income and employment in Tennessee? Some argue that a broken window will create a multiplier effect in the economy that will increase employment and income. I'm not sure this is rational. Since money has alternate uses, the money that was going to buy a new dish washer is now going to a new roof. When the spending on tornado reconstruction is weighted against the opportunity costs, society doesn't benefit through jobs and income. I argue that the cost is greater than the benefit. For the USA Today photos and story, set your browser here.

Weak Dollar

The WSJ has a graph showing the decline of the USD vs other major currencies. How does a "weak dollar" help the US economy? In econ 101, our goods become cheaper so our exports increase. The weak dollar should chip away at the massive trade deficit. US corporations who do business in foreign countries also benefit since sales abroad are converted in the more US dollars.
Has the weak dollar increased exports? Harvard economist, Greg Mankiw has a post here that shows that exports are tied to the exchange rate.
I'd like to know what the candidates are saying to the population about the weak dollar. Any help would be appreciated.

Recession Spending

Fox News ran a video segment on how to recession proof yourself. The segment which aired on Fox and Friends told a national audience to "Slash Spending" by cutting back on spending on food and energy consumption. Did the newscasters commit the Fallacy of Composition? If consumers become pessimistic about the future and refrain from spending, the aggregate demand curve will shift to the left and consumers will induce a recession. I'm not advocating profligate consumption, but to point out the econ 101 disagrees with Fox News.

Wednesday, February 06, 2008

Comic Book and Marginal Benefit

At a graduation party in 2003, a mother thanked me for telling a story in class about a frog who gives a black widow spider a ride. She said that story made such an impact on her child that her child quit drinking. I have heard similar comments from parents and student over the last four years. Telling the story is emotionally draining. I thought it would be a good idea to make the story into a comic book. I have literally spent years working on it having to learn how to draw, work with technology, and deal with frustrations. In the last two days, I have spent eight hours working on the dedication page. Is the marginal benefit equal to the marginal cost? I don't think so.

I know students will literally glance at the dedication page. Futhermore, I watch students read great works of literature turning the pages in seconds rather than absorbing the content, literary style, and art. I would drink that page, but 99% of readers skim that page and miss the beauty of metaphor, cadence, and layers of ethos. My point is esoteric. Why do I spend so much time on something with little marginal value to my readers? Is this a form of narcissim?

I am hoping to save lives with my work. My comic book is almost complete and will be available in May at a cost of $5. I used Comic Book Creator from to format, add balloons, and organize. This is awesomely cool software. The scene where Bull becomes worm food is shown in the graphic.

Tuesday, February 05, 2008

Bad Weather and School Closing

Suppose that an ice storm is dumping a wintery mix and school is in session. It will take 10 minutes to scrape the ice from your windshield. The back roads are coated with black ice. Kids slip when they walk on the sidewalk. In other words, it's bad outside. Should school officials cancel classes and send students home or should they keep kids in school and wait until the it's safe to drive? I can't remember school officials ever choosing to wait, yet the expected value of that choice clearly outweights sending students home at the height of the storm.

Clearly, waiting for the salt trucks and plows to secure the road is the optimal strategy. Yet, students are released early exacerbating the externality. The social cost is even higher than the danger of releasing 5,000 children in Muscatine. Parents will take time off of work to get home and pick up children from sitters or babysit. This is the class negative externality case in my opinion. Everyone is acting without thinking about the cost they are imposing on others so the marginal social cost is higher than the marginal private cost. The optimal equilibrium is lower. Clearly, school officials should consider all of these costs and keep students in school.

I don't have to make the decision to release students early. Maybe the community response to my decision would make me unpopular or the threat of a lawsuit makes it an easier strategy. But if the safety of our students is the number one priority, then keeping students in school while a storm is raging is in line with our priorities regardless of the backwash.

Sunday, February 03, 2008

Laffer Curve

Cafe Hayek provided a link to a YouTube video on the Laffer Curve. This is excellent. Simply, click here. Dr. Mitchell will have follow-up parts that includes data too. He also makes a pitch for a flat tax. I was impressed with the excellent video editing and his sense of humor.


In "The Travels of a T-Shirt in the Global Economy" Pietra Rivoli writes how North American t-shirts find their way to Africa in a secondary market. Like a hand-me-down from a brother or sister, some east Africans despise the Mitumba as a symbol that black is still enslaved by the white. Many gorillia leaders like Idi Amin promise economic freedom to the country after a coup. They will produce everything domestically.

Just think how little citizens in Iowa would have if we didn't trade goods and services with Illinois, Michigan, and New York. Yet, this is what leaders in African countries do directly and indirectly. The impose tarriffs and quotas on imports. Africa's problems are compounded by lack of a legal system, high child mortality, agricultual based economy, and political unrest.

For a photojournalist report on how political unrest in the Congo disrupts the economy, click here. Congo reports over 5.4 million deaths from a raging civil war in the last 19 years. A land-locked country makes international trade difficult. Like Kenya, many doubt the integrity of the election process.

It's not the Mitumba that enslaves Africa, but the economics of war, agriculture, and lack of a legal system.

Saturday, February 02, 2008

Respect Index

Latino, Hispanic, and African American students will improve on standardized tests administered in Iowa when treated with respect. This is my contention unsupported with any empirical evidence. The cliche in football is "He'd run through a brick wall for the team." Students want respect and will run through a brick wall for you if respect is given. Consider the following poem by Martin Espada.
Whenever my name is mispronounced, I want to buy a toy pistol, push my beret to an angle, comb my beard to a point, hijack a busload of republican tourists from Wisconsin, force them to chant anti-american slogans in Spanish, and wait for a bilingual SWAT team to helicopter overhead begging me to be responsible.

My index with relative weights is: Golden Rule (5), Solving conflicts nonviolently (3), Listening (3), Nonjudgmental in actions and appearance (2), Courtsey (1), No putdowns (1), Reprocity (1), Trading Up (1), Perceived Fairness (1).

I interpret the index components as follows: Treat others as you want to be treated. When dealing with problems refrain from win-lose arguements. You must listen. Listening is seeking to understand not to retort. Often times our children of color have different appearances. We need to judge our children on the content of their character and not my the clothes they wear. Always refrain from altering the balance of power in your interactions by refraining from put downs. During an interaction with a student, don't strive to teach them a lesson or get even by lowering their grade. A grade should never be influenced by your values. Always listen to what the student is saying and resist "trading up" by switching to a student who you want to help more or listen. You might be as fair as a Supreme Court justice, but if the student perceives you as unfair, the perception is the reality.

Use the index as follows: Suppose you are having difficulty with student X. Assign numbers to each category, then multiply by the relative weight. A high number shows respect. A low number shows deficiency. Zero in on the areas of the index that are low and build respect in that area.

In my classes, respect is given to the students but it seems I have to earn it. You earn respect by practicing the elements from the respect index. I believe that this index will be Pareto efficient as both you and your students will both gain. I like to say that I'm the adult in the classroom. I love all of my students no matter what grade, ability, or background. You treat people as you see them. You should neither look down--nor up--to any man. The best teacher seeks what is right not who is right. As Zig Ziglar said, the way to get what you want is to help someone else get what they want. Like the Revolutionary Spanish Lesson, most want respect.