School's out for...Election Day?

Schools are closed on Election Day here in West Virginia. No complaints here--it misses the days of the week in which I teach, but I do get a day off from Econometrics. When I first heard this, I chalked it up as yet another "only in West Virginia" phenomenon.

Not so. Nine other states (and D.C.) close all schools on Election Day, and another nine on top of that have laws that close some school to some degree.

What is the point of this? My officemates say it's because a lot of voting places happen to be at schools; I voted in the California recall election in 2003 in the midst of many vocal elementary school students. Municipalities in every state use schools as voting grounds since they are publicly owned and necessarily local to the majority of the population.

I suspected that these ten states probably have a lower economic freedom than the rest-- not that these laws create any sort of imposing regulatory environment, but instead show a willingness to pass foolish laws (or not to purge old ones from the books). Sure enough, the school-closure states come in around 6.4 on average (though Delaware is in this group), and the rest come in at about 6.7.

I wonder if this is related to school spending? Do schools get a lump sum from the state to host an election, from which they can siphon off excess funds for other purposes?

I wonder if this is related to voting rates? I wouldn't be surprised if this lowered voter turn out rates at all-- working parents probably wouldn't be too affected, but stay-at-home parents now have kids to deal with.

The Economics of Oprah

Oprah's back trying to save the world.

I've got nothing against charity, but I would love to see one of the audience members spend the entire $1,000 on something frivolous, say that the current expenditure creates a lot of good things for a lot of people, and then turn in a John Stossel video back to Oprah. But that's just me.

Survivor-nomics

If you're not a fan of Survivor, you can probably just skip this one.

We here in the Economics Department at West Virginia University are fans of Survivor. Big fans. Building voting coalitions is a crucial aspect to the game-- you certainly see the Groseclose supermajority come into play more often than not. Over the seasons, end-game strategies have migrated themselves to the beginning of the game.

In the last two seasons, CBS introduced the idea of an exile island-- at certain junctions in the game, players can be sent to this island for a couple of days. On the downside, there is no shelter on the island, you have to fend for yourself with regards to nourishment, and you are removed from the social doings of your tribe. There does exist, however, a hidden immunity idol on the island-- if you find it, you (or anyone you choose to give it to) basically have a get-out-of-being-voted-off-the-island free card. If you receive enough votes to be voted off the island, you present the idol, your votes become null, and the remaining votes then eliminate the next highest vote-getter from the game.

Here's the question: Do you reveal to anyone, or everyone, that you ever have the hidden immunity idol, and at what point do you do so?

I'm of the opinion that there does not exist any situation by which it would be strictly beneficial to withhold the information from the rest of the players that you have the coveted immunity idol. The only time that the immunity idol would become a factor is when your tribe wants to vote you out. (Let's assume for the time being that you are not considering giving it to someone else.) Should you choose not to tell your tribemates and they want you gone, they will vote accordingly, you will present the idol, and a surprised member of the tribe will be sent home. At this point, they know that the idol can't be played at any point in the game henceforth, and can move forward with confidence in pursuing your exit from the game.

Now let's consider that the tribe wants you out and you do choose to tell them that you have the idol. Knowing the voting rules, the majority faction looking to eliminate you from the game now knows that it is going to have to take one for the team this round in order to remove the immunity idol from the game, and then vote you out during the next meeting. Now, with payment redistribution from the winners to the "sacrificial lamb," an agreement could be reached to value the sacrifice. Survivor, however, expressly prohibits this-- so who would volunteer to be placed in the situation of being picked off for the good of those remaining in the game?

Of course, here's the kicker-- once the "sacrificial lamb" effect is strong enough to deter the voting, it only gets stronger in the next round, in the sense that each person would have a higher probability of becoming that "sacrificial lamb." It's not like the idol is good for only one round-- it is good every round as long as you don't have to use it. It would seem to me that once you could incorporate this effect, you could stroll well into the depths of the game without having to worry a large amount over coalition building. Any coalition looking to vote you off would necessarily have to lose one of its members before doing so.

Alternatively, the majority faction (and necessarily a supermajority greater than 2/3) could arrange a voting strategy such that two members of a minority faction receive enough votes to be voted off. In my example, it is known who has the immunity idol, and thus the other member could simply be targeted. However, if the immunity idol were suspected to be held by a minority faction, a spread voting strategy against the minority grouping could achieve the desired effects. And this is actually what happened in last week's episode-- or was attempted , anyway. Combined with the fact that the organizer of this voting theory was not in the entire tribe's best graces, the opportunities for shirking with this strategy are just too great. With trust being anything but a certainty on the island, I don't think it's a stretch to say that a two-pronged voting strategy, as such, will never likely be achieved in the game.

Anyway-- the lesson is: Let everyone know you have the hidden immunity idol, and ride the "sacrificial lamb" wave to the Final 3!

File this under: Seafood, government knowledge of

It turns out that seafood is fine to eat. This is a change from the stance that seafood shouldn't be consumed since it might contain unsafe levels of mercury, which was itself a change to the fact that fish is low in fat and so we should eat a lot of it, which, in turn, was a change in the fact that we shouldn't consume fish because...

Anyhow, you get the gist. A couple of choice lines:

"Even so, the government needs to help consumers figure out which seafood is safer, an Institute report said."

"Environmental and conservation groups said it should have listed 'good fish' and 'bad fish,' which the researchers said would be too difficult."

"They seem to be unaware that children are smaller than adults..."

And the coup de grace...

"In all seafood, levels of dioxin, PCBs and other contaminants do not pose health risks when eaten in government-recommended amounts."

Do you believe there exist people that actually adjust their food consumption according to government recommendations? Would these be the same people that check the Homeland Security terrorism level before they leave the house in the morning? The major impact of government food guidelines in my life is that until the FDA says raw spinach won't unleash hordes of predatory E. coli into society, our local Subway won't carry any. I'd imagine public schools have to follow some sort of health pointers as well-- just so long as there's no peanut butter.

The Marshallian System of Economics

In a letter to Pigou, Alfred Marshall laid out the following six rules of expressing economics:

(1) Use mathematics as shorthand language, rather than as an engine of inquiry.
(2) Keep to them till you have done.
(3) Translate into English.
(4) Then illustrate by examples that are important in real life.
(5) Burn the mathematics.
(6) If you can’t succeed in 4, burn 3.

Fondler's remorse

It doesn't need too much of an introduction, so I'll just give the title of this story from Finland: "Court says $32,000 is too much to fondle bosom."

The kicker is the direct quote from Judge Hasse Hakki-- "Based on general life experience alone, it is indisputably clear that a 25,500 euro charge is disproportionate to the compensation in question." Is this the judge's way of saying that the woman isn't worth that amount? I read it as: "On behalf of the state, we have determined that you are cheaper than $32,000." Naturally, value is subjective, so the judge's preferences imposed on the situation will lead to a different level of proposed compensation than the "victim's." Evidently the man willingly paid the amount at the time, yet filed the charges anyway-- sounds like a case of "fondler's remorse."

More importantly: How does the punishment do anything to rectify the situation? In the eyes of the court, the man was overcharged for the service. Jail time does nothing to rectify that fact. Further, throwing her in jail prevents her from generating any more wealth from similar activities, though she may now have access to a different segment of the market. Not that any case should be brought against the girl in this matter, but restitution would be the only verdict that would make any sense.

Back to the moon

Why do we have to return to the moon? First, the obvious negative before the debatable positives: the fiscal drain is enormous. The article notes that President Bush called for a $12 billion commitment from NASA for the start of the program, with more to follow. That's $40 per American; what could every American do with that money back in their pocket? Further, is it worth it to you to get back to the moon for $40?

(And if $12 billion had to be committed to this program, why not situate some sort of Ansari X setup and let the best team win?)

It seems like all of the positives attributed to this project are speculative, at best. The "deep geological record" of the moon is of importance; if we know what's there, we don't need to return to confirm it, and if we aren't sure what's there, there is a chance that what is found won't be of any importance at all. It's an information search problem. The moon could also be a great opportunity to support robotic and human exploration of space-- while that is probably true, that just shifts the "Why look here?" problem from the moon to outer space. Do companies engage in such massive research outlays with such spotty prospects for anything good coming from it? Drug companies spend a ton on Phase III testing, but those are on drugs they know are pretty effective-- that's just to appease the FDA.

One plus that would likely come about would be a technology spillover...but at $40 a head for the entire country? Seems a bit...astronomical. (HA!)

File this under: Markets can work

The worst eminent domain cases tend to hit the headlines, especially since Kelo v. New London, but it's nice to see cases of the market working it out. Read about Evelyn Wray's settlement with the Dallas Cowboys. (Though it is a bit troublesome to see a court-appointed panel setting private land values.) It sounds like the case was heading to a bitter conclusion in the court system...but it's nice to see property rights respected, isn't it? Even if it's just a little bit?

Dead Leaves and the Dirty Ground

The seed collectors of the world get their day in the spotlight today. My two favorites:

"...the 8,000 unique species of fijnbos [in South Africa] are a real worry."

"Tony Kirkham, tree specialist at the world famous Royal Botanical Gardens at Kew in southwest London, noted that the Macedonian Leaf Miner moth had invaded in recent years and was attacking -- and eventually killing -- Horse Chestnut Trees."

Basically, some plants species are dying in response to the climate change, and some are doing a bit better. The feeling is, generally, that plants dying is a bad thing.

In markets, it's commonly assumed that a business dying is also a bad thing. It has been shown, however, that business failure is an indicator of economic progress. If businesses are failing, capital is being directed from less valued uses to more valued uses; entrepreneurial spirit is therefore strong. Preventing "bad" businesses from failing hinders the ability of capital to find its best use.

Can the same be said for plant species? Is an effort to keep all plant species alive making the overall plant regime...weaker? Inefficient?

In other science news: the unintended consequences of wearing a bicycle helmet.

Socializing the mines

Death fades with time. It's a fact of life that a lot of people don't like to admit to, but it's nonetheless true. September 11 is no less horrific now than it was five years ago, but the general public is less resolved. It's the same for any tragedy-- Flight 800, the Loma Prieta earthquake, Pearl Harbor. Even Katrina isn't what it was a year ago. It's just a fact of life.

What doesn't fade from these tragedies is the knee-jerk regulation that comes from it. The Patriot Act is a glaring example. More specific to West Virginia is the M.I.N.E.R. Act (that's a .pdf), an across the board increase in safety regulations after the Sago and Massey Energy Mine accidents early in the year. I remember thinking that the only good that can come from this act is the one-time psychic boost the public would get. The safety improvements were marginal, at best, while the costs of such measures had certain and deleterious effect on mine operators. (One common example is that two hours of oxygen is now required, above the previous level of one hour-- then recall that the Sago miners were trapped for nearly two days.) The increased safety regulations really don't make anyone any safer-- but it does keep the tragedy fresh in the minds of those who would probably be best being able to heal and move forward.

Of course, this is all assuming that the safety regulations are actually being enforced.

Many miners still choose to work for mines despite conditions, but this is an informed choice that they make--no one is being taken advantage of. Many of the families of the Sago miners were quoted as saying that they didn't like the fact that their relatives were working in the mines, but the money was just too good to consider other (safer) jobs. Who has the right to make a cost/benefit decision on behalf of any family?

Furthermore, is requiring costly safety improvements any different than requiring a remittance from miners who received a wage premium even though they never got hurt?

It's not the place of legislators to eliminate risk from the workplace (though they often feel exactly the opposite), much less do so with an uneven hand.

It's peanut butter jelly time!

Respect us and our peanut-restricted schools. In short, peanuts and peanut-related products are banned. Well, not banned, but merely strongly suggested against. Though a note from your parents will suffice if that's all that your child will eat. Another well-defined law here in West Virginia! I'll try to provide as many of these as I can, as I run across them.

Does this remind anyone else of the learning disability policy? Note from parents? Forced acquiescence to the policy?

Cheers!

Vladimir vodka is the drink of choice in West Virginia. Only the highest quality here in the Mountain State. Maybe a lot of people here in Morgantown are conducting scientific experiments. Maybe not.

Regardless, people here in West Virginia still can't buy liquor on Sundays. There's an op-ed here and a general rundown of blue laws here. This has to be one of more comical laws in West, right up there with the business and occupation tax and the franchise tax ("for the right to do business in West Virginia"). What is the intention of preventing people from buying liquor on Sundays, anyway? Is it to prevent people from drinking on Sundays? Why doesn't the law say that instead? It's one thing to have an idiotic law; this is an idiotic, passive-aggressive law. There is a push to repeal this law, but since most of the legislative effort in West Virginia is focused towards November's Special Session, it's probably not likely that anything will happen until the Spring.

Then again, one of the reasons legislators are targeting this law is to increase tax revenue-- estimated at over $1 million a year. Less liberty, but lower taxes? Dish out more in taxes, but have a shot of freedom? Such are the choices here in No. 50 West Virginia.

The thicker the waistband...

Yes, West Virginia is near the top of the obesity list, too.

Though the more interesting comparison comes when income is thrown into the mix. The five most obese states-- Mississippi, West Virginia, Alabama, Louisiana, and Kentucky-- all have higher poverty rates than the norm. The five least obese states-- Colorado, Hawaii, Massachusetts, Rhode Island and Vermont-- exhibit just the opposite.

It seems to imply that exercise-- if that plays a distinct role in obesity-- is a luxury good. What's more interesting is that as incomes rise, the cost of exercise becomes higher as well (in the sense that the opportunity cost of an hour of exercise is an hour away from working at your higher wage). Does this make exercise an uber-luxury good? My first inclination was that you could describe leisure in the same light, but leisure doesn't necessarily increase as we move up the income scale-- not until we get pretty far up the ladder, anyway. I'm trying to think of another good that would cost more for higher income individuals, yet would show an increase in consumption as well.

Business lunches? But couldn't those be construed to help business and increase income?

Gladwell on collectivized pensions

There is a great piece by Malcolm Gladwell on the history of collectivized pension funds in today's paper version of The New Yorker. Interestingly, the word "diversification" does not appear once in the entire piece.

There are a couple of problems with company-operated pension funds:

- The more successful your company is over long-term, the more of a burden you are saddled with as employees get older and retire.

- The incentive to innovate (in terms of labor-reducing technology) is depressed, due to the need of having a large workforce to keep the pension fund afloat.

- Employees of a company-run pension fund face an obvious diversification issue, especially if said pension is the sole source of retirement income.

- Collectivizing pension funds would reduce the risks that employees see, but like the existence of the government's Pension Benefit Guaranty Corporation, it provides a lower incentive for companies to be responsible for their own funds if someone else is there to bail them out if they get into trouble. On the plus side (for the employees), it would take a whole collectivized group to fail instead of just one firm (which would then default to the PBGC). On the downside (for the company), any one employer could be in the situation of carrying more than its own weight in the group. I think that this is the exact fear any one company would have in joining a collectivized pension fund. And with the existence of the PBGC, the benefits seem almost nil.

Though only tangentially related to pension funds, Gladwell also gets into dependency ratios and their role in economic development. Saying that dependency ratios have an impact on economic growth implicitly assumes a welfare state in any country...which, sadly, probably isn't too far from the truth (if not spot on).

Do you have a beef with accents?

This blog hasn't devoted enough time to writing about cows.

I'm not sure I can believe that cows are emulating the accents of their owners; that would mean that cows are trying to communicate in a human manner, and I just don't think there's any way to confirm that intention. What I do think it happening is a simple picture of path dependency in nature-- presumably, calves learn vocal habits from the elder cows in the pasture, and as they age, they pass along the same "speech" pattern. Without mixing cow groups, any alteration in speech, genetic or otherwise, can lead to two different groups of cows talking in two different manners over time. (Are there any...zoologists that can comment?)

Could the same thing be said for people raised in socialist regimes as opposed to capitalist regimes? Could the incentive to make yourself better off be weaned out of a human after the passing of a few generations? And if that's the case, how much effort would be needed to re-incorporate a capitalist mentality in, say, any of the former Soviet republics?

File this under: West Virginia is #50 in...

To break the record of "Most e-mails I've received pointing to something in the news about West Virginia," this article was brought to my attention. It turns out West Virginia has an immigration problem to go along with its economic, mining, government and dental problems. Of the fifty states, only West Virginia and Hawaii saw their percentage of whites rise over the last five years-- and Hawaii's white population is still an overall minority. The argument could then be made that West Virginia is the only state becoming less diverse.

Diversity for diversity's sake is fruitless, but as the article alludes to, increased immigration leads to increased economic prosperity. Immigrant labor is typically cheaper and leads to a lower cost of production.

Paper idea? Immigrant streams and economic freedom? Spatial model?

The Cost of Comprehensive Exams

Studying for comprehensive exams is something just about every aspiring Ph.D. student in economics has to deal with. The more time I devote to learning the theoretical ins and outs of my profession, the more I realize that this whole comprehensive exam process is a big, real-life cost minimization problem. (Quick, write up the Lagrangian for it.)

In a sense, studying for exams is a tax. You are required to devote your resource (time) into studying (as opposed to a "productive" activity, such as researching). An argument could be made that the process of studying for the exams is something that will yield productivity benefits in the future, but that effect is likely minimal, especially considering the sheer amount of hours you put into it. Naturally, you aren't allowed to continue if you can't (eventually) pass these exams, but that is a self-imposed restriction-- that's like saying a company's efforts towards preparing tax returns is worthwhile, because if they didn't, the IRS would come and get them.

As with any tax, there is some deadweight loss. The way I see it, there are two types of deadweight loss associated with studying for comprehensive exams. There exists an amount of time that each person must study in order to pass the exam, unobservable to the person themself. This is the imposed fixed cost of having to study for a comprehensive exam. Since this amount of time is unobservable, however, students are forced to estimate how much time they think they will need to study to receive a passing mark. The descrepancy between the actual time put in and the unobserved required time is the variable cost. Risk aversion will certainly play a role in the decision of how much actual time to spend. The more risk averse the student, the more time they will spend studying in order to secure a more probable positive outcome. If the goal is simply to pass the exam, the problem becomes one of cost minimization-- reducing the amount of time spent studying on the exam per your risk preferences. Errors will always tend towards the higher cost side of the fixed cost since the threat of failing the exam and re-incurring the fixed cost the next time around is very real. After all, incurring an additional 4 hours now and increasing your chances of passing could be rational given your risk preferences when compared to potentially having to incur another 50 hour fixed cost of taking the exam again.

My sage officemate offers the following: "I've found economics at the graduate level to be very inefficient."

Here's to passing by a hair!

Choice in Marriage

Colin P.A. Jones wrote a terrific piece on the privatization of marriage for the San Francisco Chronicle earlier this year; it is linked here through The Independent Institute. If you like what you read, the extended version is here, linked from The Independent Review.

In short, government has forced marriage into a one-size-fits-all agreement, over which it has monopoly control. Why not privatize it and let people choose a marriage agreement that fits them best?

I'm not sure that the divorce rate would change a whole lot-- marriage corporations could emerge that exhibit relatively low-cost dissolution services as compared to the current situation, which could cause more divorces as well as cause more people to get married that wouldn't have gotten married in the first place. There would be, however, a host of public choice issues with regards to which marriage corporations got which federal benefits.

When information is scarce...

...let markets get the job done. There's nothing like a little profit motive to get information to the surface.

(Dave, that picture is just for you.)

There was quite a hubbub a while back on betting markets for terrorism. BetUS.com has a moneyline set up for the month in which Fidel Castro will pass. As of 9:30AM on Thursday morning, the board shows the following:

August 2006................+350
September 2006.........+400
October 2006..............+500
November 2006..........+600
December 2006...........+600

(Moneyline bets yield the positive amount for each $100 increment bet. Thus, a $100 bet on October would win $500. M0neylines can also bet negative; if September were to read -180, then it would take a $180 bet to win $100. Bets don't need to be in $100 amounts; the ratios hold to all levels.)

I would have guessed that Castro would have been in a lot worse shape than the figures seem to indicate. Then again, betting markets are about flushing out and profiting off of new information-- are those with better information (read: Cubans) in a position to be able to profit from that advanced knowledge?

I grant you one wish

A recent debate over drinks...

If you had the power to eliminate one and only one umbrella economic policy, which one would it be?

The first topic that came up was tariffs. With gains from trade pushing billions out of poverty, anything working against such progress causes incalculable damage.

A friend of mine settled on the minimum wage. The existence of the minimum wage distorts prices in the labor market, and this effect multiplies the inefficiency across the economy. Tariffs may prevent comparative advantage wealth generation across economies, but minimum wages prevent that singular economy from operating where it should.

I settled on eminent domain. While both of the above would certainly be beneficial to any economy, even tariff- and minimum wage-free economies wouldn't be terrifically prosperous without secure property rights.

You?