Less kids = economic growth?

This may be too early in the year for you guys to talk intelligently about the determinants of economic growth since we have not studied any Macroeconomics, but you can take a stab at it anyway:

On his blog, Economist Tyler Cowen summarizes a debate about whether the strong economic growth that Ireland has been experiencing is due to its "youth dependency ratio" being low. This means that there are less children per each working adult (therefore, there are less children that must be supported). Dr. Cowen explains the reasons why the youth dependency ratio might have an effect on economic growth here.

Also, here is the original article by Malcolm Gladwell in the New Yorker that started the debate, which might give a less techincal explanation and may be a better place to start..

(Source: Marginal Revolution)

Economics of Haircuts

Economist Bryan Caplan has posted an interesting question at his blog:

When is demand for haircuts higher? When short hair is in fashion, or long hair? Or is the relationship more complex?

When you talk about demand for haircuts, I think you can talk about two different things: the number of haircuts demanded from professional barbers and stylists or instead the amount of money spent on haircuts from professional barbers and stylists.

(Source: EconLog)

Economics Makes You Fat

There have been a lot of debates recently about why people are so much fatter than they used to be. Well, the answer has a lot to do with the law of demand as you can see by this discussion in the Wall Street Journal by economist Darius Lakdawalla, and it basically boils down to the fact that food is now cheaper and and work nowadays demands less physical activity:

It's no secret that Americans have been getting fatter over the last several decades. But in fact, weight has been rising for more than 150 years, as shown by the economic historians Dora Costa and Richard Steckel. From the Civil War to the 1990s, the weight of a 6-foot-tall American male increased by about 30 pounds on average.

These historical trends are not hard to understand. As we have gotten wealthier and more technologically advanced, food has gotten cheaper and work more sedentary. Both these factors have contributed to rising weight over the time-frame of centuries, and the recent rise in obesity has likewise been fueled by reductions in the price of food.

Since 1976, food has fallen in price by more than 12% compared to other goods. My colleague Tomas Philipson and I have shown that this reduction in price can explain at least half the recent growth in obesity. Shin-Yi Chou, Michael Grossman and Henry Saffer reached similar conclusions about the importance of price. In addition to its overall price, they stressed the increasing availability of food service establishments.

While it is not entirely clear whether restaurants make people heavier, or heavier people attract more restaurants, there is no question that eating is cheaper and easier than it used to be. As if that were not enough, the most calorie-dense foods have seen the biggest price reductions. David Cutler, Edward Glaeser, and Jesse Shapiro have shown that technological advances have especially lowered the price of processed and snack foods -- like french fries and vending machine treats -- which are particularly high in calories.

The evidence above suggests that obesity is a by-product of prosperity and technological advance.

(Source: Greg Mankiw's Blog)

Why it seems like everyone goes to college

A minor detail that I found interesting in the map from the previous post on Starbucks and McDonald's, is that I did not know that KFC and Taco Bell had higher revenues than Starbucks. I expected Starbucks to make more money than either because I know a lot more people that spend a lot of money at Starbucks as opposed to KFC or Taco Bell.

The problem with my logic is an idea called selection bias. This is where you come to the wrong conclusion due to the fact that the sample of people you know or study does not represent the population as a whole. So just because I don't know many people who eat at KFC or Taco Bell, that might just mean that the type of people I know don't eat there as much as the general population.

Another example of this bias is how students at Walker are surprised to find out that only 60% or so of high school students go to college right out of high school. There is a selection bias at work here since almost everyone you know at Walker or other Cobb county schools plan on going to college, but that does not represent the country as a whole. If you went to an inner city public school or lived in a very rural area, that percentage may seem high instead.

Can you think of any other cases where you had a misconception due to selection bias? Or perhaps a common selection bias amongst Walker students or people you know?

Starbucks and McDonald's

Here is a map that shows the number of Starbucks and McDonald's outlets in each country around the world. A couple of interesting details is that 3 new Starbucks outlets open daily, and McDonald's has annual sales that double Afghanistan's GDP.

The main question that springs to mind when I see these two graphs is why it is these companies that have such a global reach? Why aren't there as many Burger King and Kentucky Fried Chicken outlets in foreign countries as there are Starbucks?

(Source: Marginal Revolution)

Why Don't People Buy More CD Box Sets?

Economist Tyler Cowen of Marginal Revolution has a post talking about CD box sets and why people do not buy many of them (they buy the individual CDs over time instead):

There is a neuroeconomics critique of Big Box Sets. So much of the pleasure of a purchase lies in the anticipation of the buy rather than the having. The anticipatory pleasure of a Big Box Set, no matter how large, is not so much greater than the anticipatory pleasure from a single CD. Yet once you own a large box it sits around. You can't listen to the CDs all at once. They start to feel "stale," and then you go out and want that anticipatory fix again. Bryan Caplan aside, the anticipatory pleasure of "listening to the seventh CD in the box" is somehow not the same.

Are there any other examples of this phenomenon where you buy smaller packages to get more enjoyment out of actually buying them?

There is also the other issue where people buy huge packages of stuff at Costco and Sam’s Club when they most likely won’t use the whole box. Maybe because there is no “anticipatory pleasure” from buying lots of small packages of granola bars and socks (or at least not enough to outweigh the cost savings).

Voting Lotteries

Related to the last post on voter turnout, Arizona is considering a $1 million lottery program to increase voter turnout. Basically, if you vote in Arizona, you have one lottery ticket to a possible grand prize of $1 million dollars.

This program goes right along with our current discussion of incentives and voter turnout. What do you guys think of this program? Is it a good idea? How much of an effect do you think it will have?

I think an even more interesting question is: will this program change the demographics of the people voting in Arizona?

(Source: Volokh Conspiracy)

Which is worse: not voting or not knowing anything about the candidates?

Last week in class, we explained why so many people don't vote or don't know anything about the candidates because of rational ignorance. Basically, the probability that one vote will have any affect on an election means that many people think their time is more valuably spent on other activities.

Law Professor Ilya Somin has an interesting blog post about whether we should be concerned about low voter turnout (which was about 59% in the last Presidential election). He argues voter turnout is not low enough to be really concerned about and that the bigger problem is that most people don't know anything about the candidates they are voting for or against. (Read the post for his specific arguments)

What do you guys think is the bigger problem here? Should we be more concerned with the fact that only 60% of the country votes in the Presidential elections and even less vote in local elections? Or should we be more concerned about getting those people who do vote to be more educated on the candidates or issues they are voting on?

(Source: Cato @ Liberty)

Blog is Back with Waterparks

The Walker Economics Blog is back for a new school year, and the theme of the first week of the course is the wide reach of Economics: in other words, how many topics there are that are studied or written about by economists that are not normally considered to be part of the subject.

In honor of that theme, here is a link to a blog run by Steven Levitt, the author of Freakonomics, where he wonders why there are so many water parks in Wisconsin Dells, Wisconsin. In fact, the Wisconsin Dells Visitor's Bureau lists 6 large waterparks in the city and calls Wisconsin Dells "the Waterpark Capital of the World."

Any ideas of why they would put so many waterparks in one city in the middle of central Wisconsin? Why aren't there 6 waterparks in a random city in a warm state like Florida or Texas instead? Why not have 6 waterparks in Orlando or Las Vegas where you have millions of tourists every year?

(Feel free to discuss the validity of the answers offered by commenters on the Freakonomics blog.)

See You in August

As an FYI, this blog will not see any new posts for awhile due to AP exams and the summer. The blog will pick up in August again when my next AP Microeconomics class begins.

For any of my students who read this, you can continue to be updated with thoughtful, interesting applications of economics by visiting Marginal Revolution, Freakonomics blog, or Greg Mankiw's blog, among others.

Evidence of Point Shaving in College Basketball

Since the NCAA tournament starts tomorrow (I don't really count the play-in game), here is a college basketball related story:

An economist at Penn argues that point shaving occurs in 5% of games with large spreads. The interesting part is how he examines the data for clues that this is happening. It is very similar to the chapter on cheating teachers in Freakonomics.

(Source: Freakonomics Blog)

The $39 Experiment

This site describes an experiment where a guy mailed letters to various companies asking for free stuff. He keeps updates on who gives him rejections and who sends him free stuff. Some of the letters are fairly entertaining:

To McDonalds:

Dear Sir or Madam:
You may love to see me smile, but I, however, love to see me eat. Please send me coupons for free McDonald's product, so that I may continue to eat (and smile).
Thank you well in advance, Tom Locke, eating enthusiast

To Nylabone:

Dear Sir or Madam:
My dog (a random mutt) loves your "Healthy Edibles" bones. I wanted to name the dog "Bonecrusher", but my wife ended up naming him "Rudy Huxtable". What a stupid name for a dog. Anyway, your bones are the only thing that stops this dog from molesting my leg while I'm working on the computer. Any chance you could send over some free samples? My dog – and my leg – would greatly appreciate it! Thanks well in advance, Tom Locke, "keeping my dog off of my leg" enthusiast

He has already gotten more responses than I thought he would. Any predictions for what type of companies are likely to give him free stuff? Any explanation for the type of companies who already have? If you had to pick another company that he did not choose that you think would be very likely to send you free stuff if you asked, which would you choose?

(Source: Marginal Revolution)

Are DVDs the death of movie theaters?

There has been a lot of talk about how movie theaters are in big trouble due to the fact that people buy a lot of DVDs nowadays, can watch recorded TV shows on their TiVo or DVR, and can watch all of these media forms on big plasma TVs that are close to theater experience anyway.

Here is an interview in the NY Times with the CEO of Regal where he explains why he thinks DVDs are good for the movie theater business. Here is his response to the question of how much of a threat DVDs are to movie theaters:

I think DVD's have been the savior of not only the studio model but have been beneficial to theater owners, too, because it funnels more money back into the studios, which in turn fuels higher production budgets, greater numbers of films, and so on.

We have seen the window shrink from an average of about six months between theatrical to video 10 years ago to about four and a half months today. Some compression of that window over time is justified, or has been justified at least in the past, because we generate our piece of the pie at the box office much quicker today than we did a decade ago.

People who run the studios are smart people, and I think they realize the tremendous value of having that theatrical launch pad. And I don't think that's going to change. They make films to be released on the big screen.

Which side do you believe? The side saying that movie theaters are on their way out or the side saying that movie theaters are helped by the popularity of DVDs, etc.?

(Source: Marginal Revolution)

Car-buying in China

Another China Fact of the Day courtesy of Business Week via Marginal Revolution:

84 percent of new car sales in China are to first-time buyers. In the U.S., just 1 percent are.

What does this tell us about China? If you were starting a business in China, what type of business would you start (other than a car company)?

Wind Power Off Cape Cod

This article posted on the Environmental and Urban Economics Blog discusses a project to build a "wind farm" to provide 3/4 of the power to the Cape Cod area of Massachusetts. However, the efforts are currently being blocked by a group of residents called the Alliance to Protect Nantucket Sound. The author states that the Coase theorem should be applicable here.

How could the Coase theorem be used in this case? Any guesses at what the efficient solution may look like?

Wal-Mart Lawsuit

A post on Division of Labour discusses an unusual lawsuit that has been filed against Wal-Mart (the original article is from the Detroit News):

"LANSING -- State Attorney General Mike Cox said Wednesday he is taking legal action against Wal-Mart after an investigation at five of the retailer's stores found up to 80 percent of the merchandise didn't carry price tags."

Nearly 100% of the merchandise in my local Wal-Mart doesn't have price tags so what's the rub? Michigan has an item pricing law mandating that merchandise have old-fashioned price tags. So-called consumer advocates bleat about mispricing from scanners and barcodes, but the law is most likely a make-work sop to unionists. The Michigan AG is now using the law to beat up Wal-Mart--I'd bet dollars to donuts that it's either outright false or a case of selective enforcement.
BTW, Emory's Paul Rubin has a paper (with co-authors) examining the effects of item pricing laws. The money line:

"We find consistent evidence across products, product categories, stores, chains, states, and sampling periods, that the prices at stores facing item-pricing laws are higher than the prices at stores not facing the item-pricing laws by about 25 cents or 9.6% per item."

Why would forcing companies to list prices result in higher prices at the stores?

Also, explain what the author means when he says that the Michigan law is "most likely a make-work sop to unionists"?

(Source: Division of Labour)

Valentine's Day Economics

To stay with the same theme, what about interesting economic effects of Valentine's Day?

Stay away from the obvious: increased demand for flowers and chocolates, etc. The more creative the economic effect, the better.

Groundhog Day

So last week was Groundhog Day, which of course only reminds me of the Bill Murray movie from awhile back where he wakes up and every day is the same -- he keeps reliving Groundhog Day over and over again.

So to throw out an irrelevant, abstract though experiment, what do you think the economic effects would be if the world was stuck in a Groundhog Day (instead of just the Bill Murray character in the movie)? Keep in mind that everything resets when you wake up the morning to exactly what it was like when you woke up the day before.

You're so ugly it's criminal

A new paper from the National Bureau of Economic Research finds that, controlling for other factors, people that are ugly are more likely to commit crimes. The paper is called, simply enough, "Ugly Criminals," and below is the abstract:

Using data from three waves of Add Health we find that being very attractive reduces a young adult's (ages 18-26) propensity for criminal activity and being unattractive increases it for a number of crimes, ranging from burglary to selling drugs. A variety of tests demonstrate that this result is not because beauty is acting as a proxy for socio-economic status. Being very attractive is also positively associated adult vocabulary test scores, which suggests the possibility that beauty may have an impact on human capital formation. We demonstrate that, especially for females, holding constant current beauty, high school beauty (pre-labor market beauty) has a separate impact on crime, and that high school beauty is correlated with variables that gauge various aspects of high school experience, such as GPA, suspension or having being expelled from school, and problems with teachers. These results suggest two handicaps faced by unattractive individuals. First, a labor market penalty provides a direct incentive for unattractive individuals toward criminal activity. Second, the level of beauty in high school has an effect on criminal propensity 7-8 years later, which seems to be due to the impact of the level of beauty in high school on human capital formation, although this second avenue seems to be effective for females only.

And yes, this is economics.

Any ideas of why this might be? Remember that the authors establish that it is not because rich people are less likely to be ugly.

(Source: Marginal Revolution)

The Nuclear Threat of Iran

A current issue in the news is the concern over the nuclear program in Iran. There are fears that if Iran obtains (or seriously attempts to obtain) nuclear weapons the situation would become a new Iraq or that the nuclear technology would be given to terrorists by the Iranians or that Iran would use the nuclear weapons on the US or Israel.

This issue of course has relevance to economics through the application of game theory. This first article is a post by Tyler Cowen that discusses his relative optimism that nuclear weapons would not be used if obtained by Iran. This article is by Thomas Schelling, who as you remember, won this past year's Nobel prize in part for his work on the application of game theory to nuclear deterrence. Each article remains optimistic about the situation using past evidence of nuclear weapons not being used, particularly with Israel, India, and Pakistan.

Both articles are very interesting and give a further example of the application of economic thinking to current important problems.