October 13, 2010, 2:30 pm
By DWYER GUNN
Photo: Shawn Moore, US Department of LaborWe recently solicited your questions for Betsey Stevenson, a sometimes Freakonomics contributor and newly minted Chief Economist of the Department of Labor. Your questions were excellent and varied, and Betsey’s responses cover everything from persistent unemployment to parental leave. Thanks to Betsey and everyone who participated.
Q.
What do you make of the argument that the long-run structural level of unemployment has increased because of the economic crisis? – David (and several others who asked a variant)
A.
It’s an interesting story, but there’s just not much evidence for it. The concern is that there’s a mismatch between the skills possessed by workers displaced from contracting sectors and the skills demanded in expanding sectors. The evidence for this argument is coming from recent increases in job vacancies that have occurred without a corresponding decrease in unemployment. This relationship is known as the Beveridge Curve and insights about how this relationship can go haywire during a downturn were part of today’s Nobel Prize in economics.
I think it’s way too soon to conclude that there has been a permanent shift in the relationship between vacancies and unemployment. If we were really seeing an increase in mismatch, then we would see declines in some industries but expansion in others. But we don’t. And we would see qualified workers being inundated with job offers, while others remain unemployed. Again, we don’t. Read more…
October 13, 2010, 1:00 pm
FP interviews Bob Woodward about Jim Jones’s departure and President Obama’s foreign policy strategy. “[I]t is now clear Obama’s his own chief foreign policy strategist,” says Woodward. “He designed the Afpak option himself.” Woodward also weighs in on a possible Obama/Clinton ticket in 2012: “The numbers are stunning in those four areas that [Mark] Penn identifies: with voters who are women, Latinos, working class and seniors. In the primaries she was two to one with those groups over Obama.”
October 13, 2010, 11:00 am
By STEPHEN J. DUBNER
The recent financial crisis clearly had many contributing villains. But if you’re looking to sue someone to recover losses, Nassim Nicholas Taleb maintains, the choice is clear: the Swedish Central Bank, which awards the Nobel Prize in Economics*:
Taleb said that the Nobel Prize for Economics has conferred legitimacy on risk models that caused investors’ losses and taxpayer-funded bailouts. … Taleb singled out the Nobel award to Harry Markowitz, Merton Miller and William Sharpe in 1990 for their work on portfolio theory and asset-pricing models. Read more…
October 13, 2010, 9:45 am
By JUSTIN WOLFERS
You’ve probably heard the latest marriage narrative: With the recession upon us, young lovers can’t afford to marry. As appealing as this story is, it has one problem: It’s not true.
I have an op-ed in today’s New York Times, making this point at length. But sometimes a picture does a better job. Here’s the marriage rate, measured as new marriage certificates issued each year, per 1000 people. The grey bars are recessions.
Read more…
October 12, 2010, 3:30 pm
Dan Ariely brings behavioral economics to the awkward, boring first date conversation: “Basically, in an attempt to coordinate on the right dating strategy, we stick to universally shared interests like food or the weather.” Ariely gave online daters a list of “interesting and personally revealing” questions they were allowed to ask. “What we learned from this little experiment is that when people are free to choose what type of discussions they want to have, they often gravitate toward an equilibrium that is easy to maintain but one that no one really enjoys or benefits from,” writes Ariely. “The good news is that if we restrict the equilibria we can get people to gravitate toward behaviors that are better for everyone (more generally this suggests that some restricted marketplaces can yield more desirable outcomes).”
October 12, 2010, 2:00 pm
By IAN AYRES
The results are in. I’m happy to report that my eBay auction ended with a winning bid of $282.85. Twenty-three bidders put in a total of 45 bids. The bidders were a mixture of seasoned eBay users (some with more than 150 eBay purchases) and newbie eBay users.
The winning bidder is a co-author of mine and auction guru, Peter Cramton. Peter has lots of friends in New Haven who will tell him if it looks like I’m not in compliance. Friendship, he tells me, was not his motive. In fact, he engaged in bid snipping – entering the fray with one minute to go (5 a.m.!) so as not to induce unwanted competition: “I definitely did not intend to push the price up,” Peter emailed me. “I was looking for profits. Profit maximization was my objective.” So I am especially indebted to eBay bidder “gody22” who bid $277.85 at 4:19 in the morning. It was gody22 (who is unknown to me) who pushed Peter up so high. Read more…
October 12, 2010, 12:00 pm
By DANIEL HAMERMESH
We “Greedy Geezers” will not be getting an increase in our monthly Social Security benefit payments in January, because the CPI is still below what it was in 2008. Stories on the Web are talking about how unhappy recipients will be to not get an increase, especially because the CPI rose about 1 percent over the past 12 months. Of course, I didn’t hear any complaints from recipients in 2009, when their benefits remained unchanged while the CPI dropped; nor was there any complaint when benefits were “over-indexed” between 2007 and 2008. This is a classic illustration of asymmetry in perception—“what’s mine is mine, what’s yours is negotiable.” Proposals to give a special $250 increase this year to recipients are politicians’ sop to this perception bias.
Wouldn’t the country be better off if politicians explained why the current system makes sense rather than catering to people’s mis-perceptions? Or if they were honest and modified the system to allow for benefit cuts when the CPI drops? (Fat chance of that!)
October 12, 2010, 10:30 am
By STEVEN D. LEVITT
I did not think that Paul Krugman was still writing academic papers. Nor have I seen any evidence in the last decade that he still has any sense of humor.
Consequently, I was surprised to see an article written by him entitled “The Theory of Interstellar Trade,” published recently in the journal Economic Inquiry. Here is the abstract of the paper:
This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.
A quick look at the acknowledgments, however, clears things up. The original manuscript was written in July 1978, when Krugman was an active researcher and being a curmudgeon wasn’t part of his professional identity.
October 12, 2010, 9:30 am
If you want to live somewhere particularly innovative, consider Boston, Paris or Amsterdam. The Innovations Cities rankings, released last month, rely on measurements of “31 common industry and community segments weighted against global trends. This was reduced to a 3-factor score out of 10 measuring the cultural assets, human infrastructure and networked markets of an innovation economy. The complex process of scoring cities included the analysts assessment of the market confidence of the cities, to form a final city ranking.” In the U.S., New York, San Francisco, Washington D.C. and Philadelphia were also named as “nexus cities” of innovation.
October 11, 2010, 11:35 am
By STEVEN D. LEVITT
Even Nobel Laureate economists suffer from lack of name recognition.
The latest example: Ezra Klein, a frequent writer on the subject of economics, headlined a blog post about the most recent Nobel Laureate on his Washington Post website:
The only problem is that the Nobel Laureate’s first name is Peter, not Larry.
(The mistake on Ezra Klein’s blog has been corrected.)
October 11, 2010, 10:45 am
By STEVEN D. LEVITT
The first time I met Peter Diamond, nearly 20 years ago, I was a prospective student visiting MIT. He was wearing sandals without socks as he taught a graduate class. I remember thinking that was odd. As I sit here in my office, I am wearing sandals without socks. Perhaps Peter Diamond influenced me in ways I never imagined.
I was delighted to see that Peter Diamond shared the Nobel Prize today with two other economists (Mortensen and Pissarides, whom I don’t know personally but are very highly respected). Diamond’s intellect was legendary when I was a student at MIT. In his research, he worked on very hard problems. He wrote the kind of papers that I would have to read four or five times to get a handle on what he was doing, and even then, I couldn’t understand it all. (For more on the specifics of these papers, see Tyler Cowen’s post at Marginal Revolution.) Read more…
October 8, 2010, 2:30 pm
By JUSTIN WOLFERS
We’ve all done it. You’ve been introduced to someone, but forget his or her name. And so you spend the rest of the conversation studiously avoiding needing to refer to your new friend by name. Well, as far as I can gather, the same thing happened on Wednesday to Treasury Secretary Tim Geithner. He gave a talk at Brookings that was all about China, but if you didn’t know better, you could be forgiven for thinking he had forgotten her name.
Geithner is an impressive guy. But perhaps this talk was more interesting for its linguistics than its economics. Play spot-the-China-euphemism as we wander through his speech:
- He began by noting that “there must also be a change in the pattern of global growth.”
- “For too long, many countries oriented their economies toward producing for export rather than consuming at home, counting on the United States to import many more of their goods and services than they bought of ours.” [video]
- And: “countries overly reliant on exports to us for their own growth will need to change their policies”
Read more…
October 8, 2010, 12:00 pm
By STEPHEN J. DUBNER
There are plenty of dire predictions about what will happen to our cities if the worst predictions about global warming were to come true: flooding, droughts, famine, chaos and massive death. But Matthew Kahn, an economist at UCLA’s Institute of the Environment and Sustainability, sees a different future. He tells that story in his new book Climatopolis: How Our Cities Will Thrive in the Hotter Future.
Kahn looks to the past for clues to how cities adapt to changing circumstances. Chicago recovered strongly from the devastating Chicago Fire of 1871. He argues that Japanese and German cities recovered rapidly after World War II and experienced sharp population growth. So how will cities adapt in the future? Kahn expects that cities will continue to compete for desirable residents, and that residents will make their own locational decisions based on risk preferences. For example, while the risk-averse may choose to locate to “safe” cities like Salt Lake City, Milwaukee, Buffalo, Minneapolis or Detroit (Kahn’s top 5 picks), cities like Los Angeles, San Francisco and New York will continue to attract people. Especially if these cities prepare for a warmer future. Read more…
October 8, 2010, 10:30 am
Recent research on willpower suggests that it’s a limited resource that can be depleted. Now there’s evidence that something else affects willpower: women’s menstrual cycles. A new study by Karen Pine and Ben Fletcher finds that the further a woman is in her cycle, the more likely she is to make “impulsive purchases.” Pine and Fletcher believe their results are linked to the resource depletion theory of willpower: “We suggest that, in common with other cognitive competencies, the resources that govern spending may also be menstrual-cycle sensitive, and our data reflect women’s lower self-regulatory resources during the luteal (pre-menstrual) phase.” (HT: Nathan Yang)
October 8, 2010, 9:30 am
By JUSTIN WOLFERS
While speculation is rising about just who will win this year’s Nobel Prize in Economics (to be announced on Monday), it’s probably worth pointing out that the far more important Ig Nobel Prizes for the year have already been announced. And the winner of the Economics Prize?
The executives and directors of Goldman Sachs, AIG, Lehman Brothers, Bear Stearns, Merrill Lynch, and Magnetar for creating and promoting new ways to invest money—ways that maximize financial gain and minimize financial risk for the world economy, or for a portion thereof.
