July 2009 Archives

Why do the poor pay more?

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A good friend (Suzanne Bates) pointed me to this provocative and insightful article in The Washington Post from May 18, 2009 entitled "Poor? Pay Up." The article carefully documents many of the ways in which the poor pay more for the same goods and services that higher income households consume. The clever opening line is, "You have to be rich to be poor."
Greg Mankiw posted this video sketch yesterday from The Daily Show on a major signal that the housing market has not yet stabilized. Hilarious! My favorite part is when Robert Shiller starts giving advice on how Geithner should redecorate his bathroom.


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Chinn on the State of Macro

Menzie Chinn had a great post a week-and-a-half ago addressing the hot topic of the state of macroeconomics. This is something that Jason and I have discussed as well (post 1, post 2, post 3). Chinn has some great analysis of why macro is still very relevant and informative despite many perceived failures in the press. His two main points that jumped out at me were the following:

1) The first dimension on which you should rate any macroeconomic (or any economic) research is "How good is the question?" This is something that was always driven home to me by my macroeconomic professors at the University of Texas. Chinn emphasizes that methodology should follow from the question, not vice versa.

2) "...[T]he supposed failure of macroeconomics is more the failure of macroeconomics as described in the popular press, rather than of the discipline itself...."
Mark Showalter sent me a link to this article in Roll Call last week describing how Democrats blocked House Republicans from mailing the diagram below to their constituents. The diagram below was created by the staff of Rep. Kevin Brady (R-TX) and the Republican staff of the Joint Economic Committee. I thought that this diagram was a funny enough caricature to include on the economic jokes page. However, despite the expansive, complicated, government-private, heavily regulated nature of both current and proposed U.S. health care, ours is probably the most privatized system of all developed countries.

DemHealthPlan.png

A "balanced" diet

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Scott Adams, the author of the Dilbert cartoon, wrote an insightful piece back in 2007 entitled, "On the Other Hand", in which he extolled the skill of economists to deal with cognitive dissonance. In short, economists do not need absolute outcomes. We focus on the delicate balance between costs and benefits.

Roger Cohen had a wonderful op-ed in today's New York Times entitled, "The Meaning of Life," that beautifully illustrates this balance in questions of diet. He uses a prominent study of how diet affects monkeys to make the point that I have been making to my wife for a few years now. Sure I could give up hamburgers and soft drinks. I would probably live longer. But I wouldn't be as happy. The difficult economic problem is to find the exact balance between the costs and the benefits that maximizes two of the things I enjoy--food and longevity.
The Consumer Price Index (CPI) numbers for June were released today, and the initial press was that inflation was higher than expected. The inflation hawks would point to today's numbers as an indication that the massive injections of money by the Federal Reserve and Congress are starting to increase prices toward the great inflation they have been predicting. But don't go there so fast. Headline CPI inflation increased by 0.7% in June, the highest monthly increase since June 2008. However take a look at the figure below of the headline CPI percent change over the last 12 months.

CPIallSApctyoy2009-07.png
How would interest rates be different if we all "aged" like Benjamin Button?  The movie made me wonder if consumption and youth might be complements--would you rather have the red convertible at 56 or 16?  Would rates be different still if our minds (and not just bodies, as in the movie) aged in reverse?  For example, we seem to get more risk averse as we grow older.
With Senator Orrin Hatch's (R-UT) editorial in this week's Sports Illustrated and congressional hearings ready to get underway tomorrow, I couldn't wait any longer to put up this picture. The figure below shows total NCAA bowl payout revenues adjusted for inflation (2008 dollars, CPI) and divided into revenues that went to BCS conference teams and non-BCS conference teams.

TotBowlRevInfAdj2.png

My son found this for me in today's Sunday comics.

Dilbert2009-07-05.png
This most recent New Yorker has a very interesting piece in the "Talk of the Town" section about the influence of African pop music on the King of Pop.  In 1972, Manu Dibango released an album with the song "Soul Makossa".  A decade later, Michael Jackson released "Thriller" on which the second track, "Wanna Be Startin' Somethin'" borrows a few syllables from "Soul Makossa" (Dibango sings "Ma-mako, ma-ma-ssa, mako-makossa" while Jackson sings "Ma ma se, ma ma sa, ma ma coo sa").  In 2007, Rihanna released "Don't Stop the Music", which credits Jackson and closes with the same syllables as "Wanna Be Startin' Somethin'".  Dibango took Jackson and, more recently, Rihanna, to court for copyright infringement.  A settlement was reached with Jackson, but the Rihanna case is ongoing.

All this reminded me of one of my favorite Econ Talk episodes- where Roberts interviews Michele Boldrin.  A key point that Boldrin makes is that while our argument for copyrights is that if musicians are not given the monopoly rents from their copyrighted work, they will not produce- in practice we often give too much protection since the opportunity costs for these musicians is usually quite low.  Would Dibango have put "Soul Makossa" with the single he wrote for the Comeroon soccer team if he didn't know of the royalties he'd get from a artist who, ten years later, used a similar 10 syllables?
The employment numbers that came out today show that the economy is still in the process of gearing down. The normalized peak plot below shows U.S. employment levels as a percentage of their peak level in the last 14 recessions back to the Great Depression (dark black line). Employment in our current recession (the heavy lime green line) is 4.7% lower than its peak back in December 2007. The only recession that looks like this since the Great Depression is the post WWII reduction in spending in 1945. It looks like the recession still has some room to run. Similar comparisons of GDP and stock prices are in my post from a month ago.

EmpRecessCompGraph09-07b.png

Why newborns cry

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BabiesPayStimulus.png
(Thanks to Mary Hokanson for sending me this.)

Authors

  • Richard W. Evans is an Assistant Professor of Economics at Brigham Young University

  • Jason DeBacker is an Assistant Professor of Economics at Middle Tennessee State University

  • Kerk L. Phillips is an Associate Professor of Economics at Brigham Young University