Oregon State University Economics Club

Is it the same? Also econ club at the bottom

2012-01-23T10:48:00.000-08:00

Are these two scenarios the same?

A) You work and earn 50 dollars. You spend that money to buy socks, and you're given a fifty dollar toy that enriches your life.

B) You work and earn 50 dollars. You spend that money on a toy that enriches your life, and you're given a gift of 50 dollars worth of socks.

I had an argument with Professor Stone on this. Rationally, these two outcomes are the same; in both you end up with 50 dollars in socks and 50 dollars in toys. However, I argue that, for homo sapiens instead of homo economicus, the scenarios are not the same. One is clearly better for you than the other.

As econ students, we're taught that people convert their leisure into work, and through that work they receive an income which they then convert to goods and services. Because of this idea, I believe it matters to people how they spend their money versus what they receive as gifts. Especially if your job is demeaning and life has lost its purpose and joy, buying necessities using your income is doubly defeating. You are giving up a part of your life to buy things to sustain a life already joyless. The only thing that keeps you going is an endowment of something enriching like a toy at Christmas. This is the world of scenario A.

Although the material outcome of scenario B is the same, the story and the agent's satisfaction with life are different. The same demeaning work is not used to perpetuate a dreary life. Instead the work goes towards a good which the agent genuinely values. The necessities to continue living are taken care of by a gift.

Not only are the scenarios different, I would argue that B is preferable to A. At this time in many of our lives as college students with low income jobs, I claim that we should be grateful for gifts of socks and tooth paste and other necessities so that it frees up our income to buy things that will be meaningful to our lives. Work is so much more palatable a sacrifice when I think that it's going towards an opera ticket versus next month's gas & electric bill.

So are these scenarios the same to you? Or would you prefer to receive gifts of luxury while converting your work into necessities? Or am I overthinking this whole thing because I've been spending too much time in economics?

Econ club will be meeting this Thursday, Jan 26th with Professor Stone at 5pm upstairs in McMenamins.

For real this time: Club meeting with Prof. McGough!

2011-11-28T13:35:00.000-08:00

Econ club is meeting at our standard time, this Thursday (Dec 1st) at 5pm upstairs at the Monroe McMenamins. Professor McGough should be joining us unless he decides again that his kids are more worthwhile.

Club Meeting with Professor Bruce McGough

2011-11-03T19:15:00.001-07:00

Professor Bruce McGough, the Department's macroeconomist and boogeyman, will be joining Econ Club on Thursday Nov 10, at 5pm at McMenamins. As usual, we will be meeting upstairs. Come for entertaining and raucous discussion!

CORRECTION! Change in Meeting Place and Time

2011-10-26T14:55:00.001-07:00

Tomorrow's meeting will start @ 4:30pm in McMenamins on Monroe.

Meeting on Thursday Oct 27 5pm @ Bombs

2011-10-23T21:49:00.001-07:00

The Econ Club will be meeting this Thursday 5pm Oct 27 at Bombs Away Cafe. Our guest this week will be Professor Todd Pugatch, the department's newest faculty. Stop by and share drinks and food with your fellow econ majors while we slowly try to figure out the future of the club!

An Econ Club Meeting

2011-04-05T17:03:00.001-07:00

Tomorrow, April 6th, the Econ club will be meeting with Professor Dan Stone at McMenamins at 5:45pm, after Behavioral Econ class. This blog post makes it official!

Tutors! Tutors!

2011-01-04T10:19:00.001-08:00

Hey just in case you come to this website for actual news instead of blatherings, I'm proud to announce that the Department of Economics will still have regular tutoring during Winter 2011!

Tutors will be available from 11am-4:30pm at the Economics Undergraduate Lab on the third floor of Ballard Extension Hall. We're at the north end of the long hallway, and we can help you with ECON 201 and 202, principles of microeconomics and macroeconomics. We also have computers at the lab if you need help with blackboard or other internet material.

Comic books and misplaced incentives

2011-01-04T09:50:00.001-08:00

I've started reading a new comic book called Chew, mostly because the main character is Asian, and how often does that happen? Chew is about detective Tony Chu, a cibopath. When he eats something, animal, vegetable, or mineral, he gets visions of the dead meal's life. This becomes useful when he's recruited by the FDA to be a lead investigator. In the world of Chew, the FDA is the largest and most powerful law enforcement agency in America. After avian bird flu turned out to be a dangerous plague killing millions of Americans, the FDA declared a prohibition on chicken, and became a tyrannical secret police force.

Though of course this comic book is a humorous exaggeration of real life, it does touch upon a weird problem government agencies have. The FDA both advises food and drug laws and enforces those laws passed by our legislatures. This gives the FDA incentive to push for laws that increase enforcement levels and argue against laws that require less enforcement. The FDA wants to survive, so obviously it may have incentive to tell a story more grim than may be true.

If this is sounding a bit like mad conspiracy talk, I'll try to respond with that I don't think the amount this conflict of interest causes poor governance is necessarily high. I have no proof of that. I do think though that most economically-educated people would agree that having an agency both in charge of advising policy and enforcing policy creates an unwanted incentive for the agency to overpromote enforcement.

Poor Economics at OSU's Library

2010-12-08T00:15:00.000-08:00

I don't buy text books anymore. Whenever I think about buying a $300 text book I won't ever read except when it's eight hours before an exam, I imagine instead of buying a mountain of $1 Jr. Bacon Cheesburgers, a much better investment if you ask me.

So I'm forced to use course reserves at Valley library. It's normally a good system except that its late charges are horribly underpriced. A buck an hour? That's ridiculous! Find me this prat whose been holding on to "Public and Private Families" for the last four hours and I will pay him oodles of cash to have this book now so I can study and go to sleep at a reasonable hour.

Valley Library needs to realize that this price is resulting in market inefficiency. Certainly the damage of this jerk holding onto the book beyond the due date is causing me more than a dollar's worth of damage. I wonder how successful a floating overdue fee would work out. I may use this excess waiting time to draft just that kind of model.

Credible Threats and Murdering Children

2010-08-11T23:19:00.001-07:00

While looking at my loan repayment plan today, I started thinking about the fairy tale of the Pied Piper.

For anyone who isn't familiar with the story, back once upon a time there was a town infested with rats. The townpeople hired an expert rat-catcher to lure the vermin out of town with his magic flute. The rat-catcher did his job, but when it came time for the town to pay him, they reneged on their payment. To retaliate, the Pied Piper came back, and used his flute to lure the children of the town away and into a cave, and one can only assume he ate them all.

The moral of the story is if you don't pay the man, he'll come and take your babies from you. The fault is almost always placed on the greedy, cheating villagers and rarely on the child-killing psychopath, but my inner economists sometimes wants to side with the town.

First, let's take this incident in isolation. Granted, defaulting on promised payments can have deleterious effects on long term growth (just ask any country that's had problems repaying loans), the town could have assumed that it would be a long time before they would have another rat problem, long enough that their bad credit history with rat-catchers would have been buried with age. That's not so hard to believe, as credit agencies back in once upon a time were probably rubbish at bookkeeping, and professionals would have been starved for work anyway.

Second, no one could have predicted that the duped rat-catcher would make good on his threats. It doesn't make rational, economic sense! In game theory we learn to analyze if threats are credible. In this case, the Piper threatens to kill the town's children if he isn't paid, and that's a textbook example of a non-credible threat. If the town doesn't pay, then the Piper is left with two options: kill the kids or don't. Neither of those options will get him his money back, so at that point he would have no reason to kill the kids. Really if he were a better hostile negotiator, he would have threaten to just kidnap the kids and hold them ransom. That is a much more credible threat, and would probably have gotten him paid in the first place.

Instead the Pied Piper makes an non-credible threat, and the town rightfully called his bluff. I fully support their decision; it was just unfortunate that the Pied Piper turned out to be an irrational, child-murdering agent. Economically, the town's logic was sound, but I'll be repaying my student loans in case my creditors turn out to be as irrationally homicidal as the Pied Piper.

Look at me, I'm reading The Economist! How reading The Economist is like drinking Indonesian cat poop coffee.

2010-07-25T18:23:00.000-07:00

I only read three publications regularly: The Daily Barometer for its raunchy forums section, The Jakarta Post for news from Old Country, and The Economist because, as one Vanity Fair writer put it, it's "like that exotic coffee that comes from beans that have been eaten and shat out undigested by an Indonesian civet cat."

The Economist has an undeniable snob appeal, and I admit that's probably at least 50% of the reason I subscribe. One immediate indicator is its price, which has been consistently more expansive than Newsweek or Times, even after both American magazines had to update their prices due to reduced circulation. Another plus for The Economist is that its character is ostensibly that of a worldly, cynical quantitative social scientist. The magazine takes a center-right position, advocating economic liberalism, but also sensible government intervention where appropriate. These folks aren't your typical gun totting teabaggers, but you won't see them at a WTO protest either.

Lastly, The Economist insists upon itself with its cheeky petulance. Though obviously a magazine, it demands to be called a newspaper. Bylines are dropped, opting for an idea of a single, unified voice. The humor used is like an inside joke between readers and the writer. It's that kind of subtle, sarcastic wit that makes you smile smugly and go, "Heh." I bet you were beaten up a lot on the playground, too, nerd.

But while the smug appeal of The Economist might justify a slight premium, its content also excuses its price. My favorite sections of The Economist are actually its smaller articles, the ones that focus on events too local to make headlines. One article was about a woman in Washington who started a grassroots campaign to stop eminent domain, but was obstructed by bureaucratic regulations of political activism. The Economist writers often look at these minute events and interpret them from its consistent position of economism. The Economist is like that kid in your class who insists on talking about hair products from the perspective of microeconomics. You'll either hate it, or spend $120 on a yearly subscription.

Whoa, a thing is happening!

2010-06-30T09:15:00.000-07:00

If you're in Portland from now until July 3rd, the 85th annual conference of the Western Economic Association International is meeting to talk econ things and do econ stuff, which I think means drinking, a great tradition I'm proud our econ club follows. The registration fee is outrageous, but someone in our department told us you can sneak in real easy. It'll be like jumping the fence at Coachella, except a lot less cool.

The real draw is that on Friday, July 2nd, our very own Patrick Emerson will be organizing and chairing a session on Issues in Growth and Development. Other celebrity panelists include Bruce McGough and Elizabeth Schroeder, who will be teaching at Oregon State starting in the Fall. Other OSU professors and grad students will also be presenting papers at the conference, so click here for more information about the conference.

June is John Maynard Keynes Month

2010-06-13T05:34:00.000-07:00

June 5th is the birthday of both John Maynard Keynes and Adam Smith. What an auspicious day to be an economist!

Keynes, a Depression-era macroeconomist, has come back into popular (popular for an economist) focus after this most recent economic crisis. His solution to depressed markets could be grossly simplified as fiscal expansion. If governments spend more, total output will increase.

In fact, looking at the Keynesian Cross model, even a modest increase in aggregate demand will lead to a much larger boost in output. The story is delightfully simple. Imagine today the government gives you 10 bucks to build a dam. You take that 10 bucks, save maybe 2 dollars, and spend the other 8 on Carls Jr. Carl then takes your 8, saves a dollar from it, and spends the other 7 buying more beef. The rancher saves a bit, spends the rest on fertilizer, and so on and so on. We see that from that initial 10 dollars, the money goes a long way in generating transactions.

Of course we learn this the first week of Intermediate Macroeconomics I. Week two, with its IS-LM and A Sad World models, shows us why this doesn't work and why we should all be good little monetarists. Still, enjoy your time in the sun, Mr. Keynes! June is your month!

Last thing I want to share, hip hop artist Slim Thug giving props to Sir John. Skip to 1:40 for the coolest moment macroeconomics will ever have.

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Seminar! Seminar!

2010-06-02T12:59:00.000-07:00

Our very own Zheng Cao and Daniel Stone will be presenting a paper on choking under pressure in the NBA this Friday, 1pm in Kelley 1001. You're all welcome to come and show support and pretend you understand economics for a while until the speakers get to the punchy conclusion. Afterwards we may have an econ club meeting to elect the new president, or I'll just assume power.

Thinking about Grad School? Me neither!

2010-05-25T18:03:00.000-07:00

But in case you decide 3 more years of sadness is in your future, an anonymous ~~senior level cabinet official~~ professor from the department linked me to this page full of advice on applying to grad school.

My favorite tidbit is: "Get to know some professors well. Professors will be very excited that you want to get a Ph.D. in economics. Don't be afraid to approach them. Listen to their advice."

In other words, come to the econ club meetings more often! Get to know the professors better, gamble on whether they'll pay for the food, and banter nonsensically about things tangentially related to economics!

That's the beauty of it - it doesn't do anything!

2010-05-04T20:38:00.001-07:00

Lately some econ buddies and I have discovered that we really don't know how to define exactly what economics is. You know when you're in an econ class, but why exactly is uncertain. Vaguely it has something to do with limited supply and infinite demand. The solution is always where marginal benefit equals marginal cost. There damn well better be some calculus in it at some point.

So we have a laundry list of "You know you're in an econ class when..." but no real answer as to what economics is. My peers have been offering me some really neat explanations, but I prefer to pound economics into two realizations:

1. Economics is life sans bullshit.
Every important facet of human life will eventually be studied by an economist, and they will strip it down to its integral parts. While most people have some misguided notion that econ students study the stock market all day, anyone who has sat through Prof. Grosskopf's efficiency class and has listened to students' research proposal knows that economics studies everything imaginable. Some people are studying airports. I'm looking at tobacco ads. A bunch of guys are doing baseball. People who have never opened an econ journal or read Freakonomics might be puzzled to see the scope economists encompass. Economics is varied and everywhere.

More importantly, economics does away with the bullshit that accrues when other fields study issues. Sit in on a business class and listen to them talk about value. For them, value = quality / price. What is quality? Personal value to customer. How is that different from the value on the left side of the equation? Hell if I know, because to an economist, value = price you're willing to pay. Bam. Simple.

Here's another example. Ask a person what goes into their decision to buy goods. They might go on all day about why this product is good, why this one's a bargain, why these ones are crap, why they're addicted this those, etc etc. To an economist, it's just D^x(P_x, P_y, I) Booya, a demand function.

Economics takes a subject and does away with the frills, gimmicks, and buzzwords. What's left is what's essential. There is a methodical, mathematical cleanliness to economics that you just won't get from other social sciences or business disciplines. If there is a relentless difficulty to economics, it's because you cannot escape it with bullshit.

Which leads me to my second conclusion:

2. The World operates on bullshit.
My econ degree makes me feel helpless and frustrated. Economists know the answer. Fiscal policy is ineffective in the medium run. Externalities can be solved with the Coase solution. Businesses should operate until marginal cost equals marginal benefit. There are no profits in the long run.

So why the hell do I find myself arguing with the newspaper every morning? Why are politicians doing silly things, and why can't I get a job after graduating? I can only conclude that this is because the world actually operates on bullshit. All the useless variables I've spent my education learning to assume away is actually the most important part of the function.

It turns out, kiddos, that you won't be paid the marginal product of your labor; it's who you know. Politicians will whimsically order some parts of your life and not others. Businesses actually want you to use buzzwords. You will not need calculus.

It's a rather cynical conclusion. Studying econ has told me that economics is right, but ignored and possibly useless. We come after the fact, so some other discipline will come up with a new idea, and economists can explain why is succeeded or failed. Getting people to listen to our own ideas, or maybe even just coming up with original ideas on our own, is a harder, meaner feat.

I'm hoping to be proved wrong, though, and I heard someone in our department recently got an internship with the Fed, so there might be hope yet. Also they keep telling me that economics majors make money after college, so maybe there is a demand for less bullshit.

May is Karl Marx Month

2010-05-04T04:58:00.000-07:00

Cinco de Mayo, more than just a Mexican holiday, is also the birthday of Karl Marx, notorious political economist and Evil Santa Look-a-like. When I was in the 10th grade, we had to read the Communist Manifesto for an English class. At the time, I was also working in retail and a member of a union, UFCW Local Chapter 555, so it was an exciting time to be a budding communist.

Then I took 11th grade Economics and promptly forgot about class struggles and command economies. Looking back, I wonder how communist economics would be taught in a true econ class using models and mathematics instead of just rhetoric. It's too bad Oregon State doesn't offer a course on heterodoxical economic models.

May is an important month for working people. May 1st is International Workers' Day, when unions and left-wing political groups take to the streets and protest for better living standards for the working class. Even though May Day started in Chicago, it has lost popularity. in America. Labor demonstrations remain very aggressive in the rest of the world, with protests turning violent in cities such as Athens, Macau, and Berlin.

Karl's grim specter of Communism hasn't completely left the world even after the end of the USSR. Workers around the world have yet to buy into free market liberalism and remain skeptical of its promises. Although I haven't been an active member of my union in years, I'm going to make an effort to wear red this month to show at least superficial camaraderie for my working brothers and sisters.

Natural Level of Output: A less-than-sober argument

2010-04-24T01:40:00.000-07:00

Yesterday afternoon a few members of the econ club had our usual unofficial meeting at McMenamins on Monroe, something of a tradition every Friday at 4 (you're all welcome to join, of course). Our guest of honor was Professor Stone, who entertained us with stories about academia, the person he lives with (his wife), and the Broncos. We hope he comes back to us soon.

Fellow economics major Ben Price and I got in an argument about medium-run macroeconomics. I've heard macroeconomics called a moon science by other econ majors around the country, but I still accept that these are the best models we have at describing the macroeconomy. At the very least, they're worthwhile classes that I enjoy occasionally being awake in.

Ben, my esteemed interlocutor, disagrees more intensely about the assumptions of macroeconomics. Today, after a few beers and Cuba Libres, Ben challenged the idea of a natural level of output, which Oliver Blanchard identifies as that level of output economies return to after a change in fiscal or monetary policy. Ben demanded proof of such a natural rate, asking for real world data that I usually find distracting and unimportant to economics.

For me, the intuition behind a natural level of output is solid. Imagine a simplified economy where all people did was pick bananas all day. There is a limit to how many bananas can be picked, and that limit is hard to change. We can only be so efficient at banana picking. A government can come in and try to tinker with our output, telling us there's more hours in a day, or inflating the value of a banana to encourage us to work harder, but these are short run solutions. In the end, our bodies are only so good at picking bananas.

A macroeconomic natural level of output figures in the same way. Economies can only be so productive before artificial means of accelerating an economy such as expansionary monetary or fiscal policies only provide short run gains. In the medium run, when people can adjust price expectations and therefore reevaluate the values of goods, economies return to their natural levels.

Makes sense, right? Of course, I don't feel the need to prove any of this with data. It's a moon science!

Facebook Page

2010-04-21T10:00:00.001-07:00

I have created an OSU Econ Club Facebook group. JOIN!

I have also created one for the Economics Deparment, so join that as well.

Fat Kow, Monopolistic Competitition, and College Diet

2010-04-21T00:40:00.000-07:00

A couple of econ colleagues and I were talking about the Business College's latest squatter, the Fat Kow. A new food cart has showed up in front of Bexell, offering a vegetarian menu at the pleasantly low price of $3.50. I'm planning my first visit tomorrow, where they'll be serving Red Beans and Brown Rice Salad. Maybe I can co-opt this blog into a college food reviewer.

The econ kids were talking about how come we don't see more of these food carts in Corvallis. Econ undergrads are notoriously price sensitive (this is why we meet in a bar during happy hour), but there is also a genuine economic intuition behind our curiosity.

Restaurants generally fall under the microeconomic umbrella of monopolistic competition. Like perfect competition, there are many firms and few barriers to entry. But like monopolies, restaurants have a degree of market power and product differentiation. Still, in the long-run, monopolistic competitors should find themselves producing zero economic profits, as any profit should be eaten away by new firms entering the market.

The introduction of food carts has the potential to upset the status quo, as they are generally regarded to have a lower average cost than restaurants. No wait staff, no building costs, and low maintenance needs all might drive costs down enough to seriously change the food game. Restaurants will still serve a purpose; you could probably never bring a date to a food cart unless you both are exceptionally open-minded. But for those quick and cheap dashes for food in between classes, food carts might finally break Carl's Jr.'s $1 spicy chicken dominance over the market.

But while my econ buddies were optimistic about the future of food carts on campus, I was personally hesitant. Thanks to my rigorous theoretical education from Professor McGough, I am now convinced that there are no more good ideas left in the world. If campus food carts are such a lucrative venture, why haven't more entrepreneurs taken up the gauntlet? There must be a reason, maybe some rule banning food carts that the University heads and the angry Panda Express lady cooked up in a back room a few years back. I'm just too pessimistic to believe that a few tipsy undergrads can come up with an original business plan someone else hasn't already tried and failed.

Then again, if I thought I could make money, I'd probably be inside Bexell rather than outside eating savory tofu and garbanzo beans.

Boom, Bust, Wicka Wicka

2010-04-20T00:31:00.001-07:00

As promised:

I'm not a big fan of ironic white hip hop, but this video is too important to ignore. It's only in times like these that macroeconomics gets any love. Still, the video focuses on Keynes and Hayek, but ignores Friedman? I'm guessing they're waiting for a sequel where Milton does a drive-by on these fools. And then maybe Blanchard can do a tender folksy acoustic cover.

Next time I'll have a video of a real hip hop artist giving love for expansionary fiscal policy. Or maybe I'll go back to actually talking about economics. Won't that be a treat!

Broadway does Economics

2010-04-17T16:32:00.001-07:00

I'm a fan of Ira Glass's This American Life, especially this week's episode, which focuses on the recent Global Calamitous Money Disappearing Event (thanks to Max Barry for that phrase). Alex Blumberg of Planet Money investigates Magnetar Capital, a hedge fund with dubious investment practices.

The story has a lot of complicated financial gobbledygook, but the intuition is pretty simple. Magnetar bought a bunch of risky housing assets, knowing they were risky. But instead of expecting big returns for big risk, Magnetar had a different plan. They took out insurance on these assets in the form of Credit Default Swaps, hoping that the assets fail and Magnetar can collect massive profits from their insurance payoffs. Well, it worked. The company made record profits buying garbage assets, and thus laid the groundwork for a financial collapse.

It sounds like insurance fraud to me, but Alex made a more comical connection. Ever seen The Producers? In that musical, two Broadway producers realize they can make oodles of money by overselling shares on a play they plan to make terrible. NPR takes the analogy a step further by parodying one of The Producers' song in this humorous and informative number:

'Bet Against The American Dream' from Planet Money on Vimeo.

Pretty good stuff, right? Almost as good as this macroeconomics gangster rap I'll be sharing next time. Stay tuned!

Last on his list, first in his heart.

2010-04-14T22:47:00.001-07:00

Today some econ club buddies of mine were talking about our adviser, Patrick Emerson, and his Oregon Economics Blog. Someone mentioned that our own blog was placed last on his list of other econ blogs like that was a deliberate insult or something. Well I'm happy to announce that on Friday, April 16th, Patrick Emerson will be speaking to the econ club at 4pm at McMenamins on Monroe. He'll probably talk about the new changes made to the economics major, the state of department, and beer. Accost him there.

Another Meeting and Some Things I Think About In Class

2010-04-08T02:34:00.001-07:00

Big news first, the Econ club is having a meeting tonight, April 8th, at McMenamins on Monroe at 10pm. Come and enjoy happy hour with the company of fellow disaffected Econ majors and watch diminishing marginal returns at work. 21+ only, because we still live in a fascist state that's keeping the free market down.

Speaking of diminishing marginal returns, that has to be one of my favorite concepts in Economics. Econ professors like to joke during a long afternoon class that they can definitely see evidence of downward sloping marginal benefits when their students start napping, getting off-topic, and daydreaming out the window. Of course, professors from other departments must also be aware of the gradual decline in focus over the course of a long lecture, but I wonder if economists take less offense to it. I sure hope so because sleeping in class gives me wicked awesome dreams.

A meeting today!

2010-02-25T08:03:00.000-08:00

Just as a reminder, there will be a general Econ Club meeting today at 6pm at Valley Library 1422 (that's the big room in the basement). We also baked brownies, which will be available if Jennifer can smuggle them past the library watchdogs.

Should I split or should I steal?

2010-02-22T04:17:00.001-08:00

Aside from always sounding prim and intelligent, the Brits also have a knack with game shows. They invented Who Wants to Be A Millionaire and Deal or No Deal. Right now I'm hooked on one that hasn't made its way across the Pond, called Golden Balls.

The interesting part about Golden Balls is the way every game ends. It starts out with two random players working together to build up a pot of money. It's pretty much a lottery game up until the end, where the add an element of game theory, and my econ senses tingle. Anyone who knows the Prisoner's Dilemma will find it familiar.

After the jackpot is final, each player gets to choose whether they will split or steal the pot. If both choose split, each one gets 50% of the pot. If one steals while the other splits, the thief gets all. If both try to steal, though, they both walk away with nothing. There is discussion before hand, but both players must announce their decision before hands.

All good economists know the Nash equilibrium. Both should decide to steal, and walk away with nothing. Sometimes this happens, but sometimes not. Sometimes, a little miracle happens and both choose split and both hug each other and even in me, a little part thinks I have it all wrong about how cruel and evil the world is. Sometimes, a good soul chooses split while the partner chooses steal, and I feel the loser will go on to be a cynical economist.

This game does break the standard prisoner's dilemma because the agents can communicate and collude. Real life prisoners have done the same thing by forming criminal organizations that have oaths of silence. Suddenly a little bit more jail time doesn't sound so bad when faced with having your loved ones killed by vengeful gangsters. Morality and social pressure work in similar ways. The crowd cheers when the partners reach a split-split decision, and boo when someone steals. Is that extra cash worth being televised as a jerk?

So what would you do? Split or steal? Personally I would split, but only because I'd be diversifying my risk. If my partner splits, I walk out with money and a sense of human progress. If my partner steals, at least I'll be assured that I did not make a mistake in studying the dismal science of economics.

Keeping up with the Joneses

2010-02-10T13:31:00.001-08:00

Recently I've been looking at various government websites targetted to kids. The Energy Information Kids is highly informative and well made, but the Federal Reserve System Kids page is horribly lacking. I will be writing to Ben about this unfortunate situation. Stay tuned for my progress reports.

February is Edgeworth Month

2010-02-04T20:31:00.000-08:00

Someone gave my an American Economic Association 2010 Calendar that highlights a different economist every month, sort of like a cat calendar but without the cuteness and warmth. February is Francis Edgeworth Month.

Frank is famous for giving us the Edgeworth Box, one of my favorite economics gizmos. Aside from having fistfuls of innuendos shoved into every crack, the Edgeworth Box combines mathematical economics with the more talking-points economics (my personal favorite). An Edgeworth Box is great for demonstrating the first two fundamental theorems of welfare economics. The first theorem tells us that if certain conditions are met, self-serving agents will naturally come to a socially optimal outcome. The second tells us that by manipulating initial endowments, any socially optimal point is accessible.

What does this mean for the pundit economist? It means we should emphasize trade, trade, trade. Governments should establish property rights and allow individuals to exchange goods, and all parties will be better off. This sort of mutual benefaction is a good counter against those who are cautious about capitalism and see it as a zero-sum game.

There's some calculus in the Edgeworth Box which will not doubt please the more mathematically inclined econ student, but most of its concepts can also be demonstrated visually with some curves and lines. Overall, it's one of the sexiest things I've ever seen in my life.

Cynicism and the Science of Poverty Reduction

2010-01-30T23:04:00.000-08:00

I love microfinance because it helps people by assuming the worst in them.

Elizabeth Schroeder came by Oregon State yesterday to give a lecture on the efficacy of microfinance. For those who don't know, microfinance is a lending system used in developing countries where normal credit markets don't exist. Lending is a pretty hard thing to do in the long run. Imagine people came up to you and asked to borrow some money with interest. Would you do it? You might if they appeared wealthy, gave collateral, and had good references. Those don't necessarily exist in the developing world. Banks understand the same thing.

This can be damning for poor communities. Starting even a simple business can have substantial start-up costs, which become problematic barriers without lending. Wealthy nations also suffer. Our simplest economic models tell us that you can get a lot of bang from your first bucks invested than from your billionth, and yet capital is not flowing into these economies of great potential. The uncertainty is just too great for traditional financial systems, even though there is money to be made in the developing world.

Enter microfinance. In this system, you, the lender, still don't know much about your clients in the developing world, but those potential borrowers probably know a bit about each other. They have friends just like everyone else, and they gossip and pry and quietly judge one another just like you. It's simple, then. Offer individual loans, but only to people who have formed a group of five other interested borrowers. If anyone in the group defaults, you cut credit off to everyone in the group. What happens is that people will only invite into a group friends who they trust not to default. As an added bonus, you might even get a little social pressure on deadbeat debtors to make their payments, and you don't spend a dime on collection agencies.

There's money to be made in these lending groups. The average interest rate is around 20%, while the repayment rate is an impressive 90%. It doesn't take a finance major to see the profit in microfinance. Oh yeah, you're also helping the poor of the world (as Ms. Schroeder demonstrated in her paper), but it's an example of cold economics turning the gears and not high-minded idealism. Bankers want to make money, struggling entrepreneurs will self-select, the incentives are there, and everyone is made better off.

Econ Club Fall 2008

2008-10-13T20:20:00.000-07:00

The first (organizational) meeting of the Econ Club needs to get set. If you were a member of the club last year and are interested in continuing and perhaps willing to help run it, please let me know.

Patrick Emerson

P.S. Disregard the calendar below, it is doing its own thing...

Cross-Price Elasticity of Demand

2008-05-02T09:02:00.000-07:00

Here

Why Do We Keep Seeing This?

2008-04-30T06:59:00.000-07:00

Econ101 folks...
http://krugman.blogs.nytimes.com/2008/04/29/gas-tax-follies/

The future...

2008-04-04T15:22:00.000-07:00

Interesting paper on brain drain here.

ED RAY

2008-04-01T08:51:00.001-07:00

We will meet with Ed Ray at 4pm on Wednesday in 650 Kerr. If possible try and show up around 3:50 and gather in the elevator lobby of Kerr so we can all go up together.

Think of some good questions!

Memory Lame

2008-03-26T10:25:00.000-07:00

by Wade Murff

I remember very clearly how I spent my entire winter break completing the application process for over a dozen law schools. It can be a tedious affair, for the information you provide in your application must include full disclosure of your triumphant-yet-checkered past and the embellishment gently massaged into your personal statement had better accompany at least a wide brushstroke of the truth. Failure to provide a legitimate representation of yourself may land you in hot water when you apply to sit for the bar exam and the supervisory authority finds a discrepancy in your past and decides to investigate.

I remember receiving my first acceptance letter. "Whew!" I sighed. "Well, at least I know I am in somewhere!" To my astonishment, the acceptance letters just kept coming. During a 3-day period the "big envelopes" were shooting into my mailbox like sniper fire. One day I had to run for cover to avoid being hit by incoming acceptance letters.

Wait a tick! You mean to tell me that I have received only a couple of acceptance letters, several rejection letters, and that my mail was never actually shooting into my mailbox like sniper fire? Oh, the humanity! Well, okay then. I must have made a mistake in talking about it. I guess I just have a different memory about the affair. It's just that I worked so hard for the last four years and put a lot of time into my applications and I wanted to be viewed as a great candidate for the position to which I aspire. So I made a mistake. That happens. It proves I'm human, which, you know, for some people, is a revelation. (click hyperlink)

Subprime Lending

2008-03-21T13:31:00.000-07:00

by Wade Murff

During the 2006 winter term I chose to do a small descriptive report on the subprime lending industry for my ECON383 class. The title of the class is "The Economics of Discrimination" so naturally I set upon the task of rooting out a connection between the subprime lending market and discrimination. Looking back on the paper I am naturally overcome with a light syrupy film of embarrassment; as an undergrad, one’s writing and technical skills can improve drastically in a years time, if one chooses to put the time in, I guess. At any rate, I stumbled upon some relevant considerations that do not receive much airtime in the ratings-driven mass media outlets: discriminatory practices of lending institutions. Fox News, CNN, MSNBC, USA Today, etc., while assisting corporate sponsors in smearing their logo feces all over the mass media landscape, more or less provide the same glut of information as each other, focusing on the current interest rates and the effect of the “crisis” or “meltdown” on the overall economy; all formulated for maximum ratings.

In a 2004, Paul Calem, Susan Wachter, and Kevin Gillan produced a study on subprime activity in Chicago And Philadelphia. Their findings on the percentage of subprime loans, by borrower and race, reveal that in Chicago 21.4% of subprime purchase-type loans and 51.8% of subprime refinance-type loans belong to African-Americans alone. Similarly, Philadelphia’s numbers show that 13.7% of subprime purchase-type loans and 60.3% of subprime refinance-type loans belong to African-Americans. Sounds like, at least in Chicago or Philly, being of African American descent increases the likelihood of being a subprime borrower. In addition to providing evidence of strong correlations between African-American homeowners and subprime shares of neighborhood loans, the Calem et al paper also reveals that participation in subprime lending increases with borrower risk but some borrowers appear qualified for prime loans. Hmm.

According to Jack Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, part of the problem is that some prospective borrowers have difficulty in determining whether or not they qualify for prime rates. Lack of knowledge and/or experience, coupled with disparate state-to-state, lender-to-lender underwriting requirements may cause some otherwise prime rate-qualified consumers, not in the know, to opt into subprime arrangements. In his recent work, “What Is a Sub-Prime Mortgage Lender?” Guttentag asserts, “The main reason some prime borrowers end up paying sub-prime prices is that they are solicited by subprime lenders and go along with the deal pitched to them without ever contacting a mainstream lender."

Lawful preferential actions based exclusively on individual borrowers’ financial qualifications on the part of risk-garnering lenders are warranted and seem their respective right as legitimate businesses. Consistent within the Calem paper and many others, however, are references to asymmetrical or “imperfect” information between the borrowers who are justly or unjustly offered subprime mortgage rates, and the lenders. Many of these studies produce empirical evidence indicating that some subprime lenders directly target selected demographics for their attractive deals, particularly low-income, African-American neighborhoods.

The discovery of high concentrations of subprime loans among African Americans suggests the use of statistical discrimination as not only a means of targeting advertising, but also as a conduit through which a larger portion of a valued demographic may be drawn into a profit-maximizing model that utilizes price discrimination. The unintended consequence of municipal-, state-, and federal-level regulations legislated on subprime loan market activity thus far is an apparent contraction in the supply of subprime loans. Some lenders, responding to the subprime market’s rising regulation and negative publicity have simply announced their withdrawal from subprime lending.

Perhaps the real battle that underserved prospective homeowners and those looking to upgrade their financial viability face is one of information; maybe some consumers aren’t sure where to turn, who to trust, or who not to trust, figuring that they couldn’t possibly be led to financial ruin and destitution legally. While the Home Owners Equal Protection Act (HEOPA) of 1994 provides guidelines for high-rate and/or high-fee consumers, the law does not protect prime rate-qualified borrowers from unnecessarily entering into a high-rate contract. Borrowers are therefore responsible for knowing their credit-worthiness (such as FICO scores) and arming themselves with such information in the event that they are in need of a mortgage or home equity loan.

Predatory lending activities may not be explicitly racially motivated, but they most certainly are profit-fueled and ultimately criminal. Perhaps the disparities in responsible credit knowledge found between the prime loan consumers and minority or low-income consumers reflects a carryover effect resulting from a long history of general economic disadvantage. Maybe not. One thing seems for sure though, a consumer’s well-being can hinge on her knowledge about her credit standing, credit options, and the laws that are in place to better the system.

The charge of government, however, seems clear and immediately pursuable; to reiterate the principles contained within HOEPA, both to the consumer and the producer, and to threaten with and carry out punitive measures against lending institutions, such as commercial banks (or their compartments) and savings and loan associations, who engage in activity consistent with predatory lending practices. Assuming that the benefits outweigh the costs, and that the market’s efficiency would be increased given fully-informed consumers, a highly-publicized federally-funded consumer credit campaign could prove beneficial.

The FTC provides a wealth of consumer information regarding consumer credit on its website but it is unlikely that the consumers who earnestly need such information will happen across it while surfing the internet. In terms of visibility, the FTC might do well by taking inspiration from current subprime mortgage lender advertising techniques, such as search engine marketing and strategic ad placement. In the interim, state and municipal government should strongly encourage prospective refinance- and home equity installment-type borrowers to first seek loan counseling from a consumer advocacy agency or a city or county housing department.

If you're interested in reading the full paper by Calem et al, you will find it here.

Most Lucrative Undergraduate Degrees

2008-02-12T11:30:00.000-08:00

In terms of average starting salary, economics is a pretty good choice (from CNN Money):

The average starting offer for seniors majoring in:

Economics: $51,631
Finance: $47,905
Marketing: $41,323
Business Administration: $43,523
Mechanical engineering: $54,587
Chemical engineering: $60,054
Management information systems: $46,568
Civil engineering: $47,145
Electrical engineering: $54,599
Computer science: $51,070
Accounting: $46,508
Logistics/Materials management: $43,294
Liberal arts (including psychology, political science history, English): $30,502

OK, so maybe engineering is more lucrative, but then there is the compensating wage differential to consider.

Bruce McGough

2008-02-12T11:00:00.001-08:00

Bruce will join us on Wednesday, Feb 13. He is a macro-economist, so be prepared to ask him about the macro-economy.

I'll look into Pizza...

-Patrick

President Ed Ray to Speak to the Economics Club April 2nd

2008-01-22T10:00:00.000-08:00

Ed Ray, President of OSU, has accepted an invitation to speak to the Economics Club. He is scheduled to meet with the club at its regular meeting on April 2nd. We will meet with him in the 6th Floor Conference Room in Kerr Admin Building (Kerr 650). Please don't be late as Ed has only a hour to spend with us.

In the meantime, why did we ask President Ray to speak to us (other than the fact that he is the president)? He is a eminent trade economist who made some major contributions to the trade literature before he became a full time administrator. Here is a sample of his early work.

State Representative Sara Gelser to Speak on Jan 30th

2008-01-22T09:49:00.001-08:00

Sara will join us at our regular meeting, so think about questions you have about legislating and economics.

From her bio:

Sara Gelser (Democrat, Corvallis) was sworn in as State Representative for House District 16 on December 2, 2005 after being appointed to fill a legislative vacancy. In 2006, she was elected to the position. Soon thereafter, she was elected as Assistant Majority Leader for Policy for the 2007 legislative session.

During the 2007 session, Sara served on the Revenue Committee, the Health Care Committee, and was Vice Chair of the Human Services and Women's Wellness Committee. She was also appointed to chair the House Guidelines Committee, which was created to oversee stringent ethics reform in the Oregon House of Representatives. In her first full term in office, Sara was able to pass several bills she introduced. Most significantly, she passed Karly's Law which will improve child abuse investigations statewide and a Mediciad waiver bill which will allow children with severe disabilities to grow up in their family homes rather than foster care or nursing facilities. She also saw successful passage of a bill to allow statewide electronic permitting for contractors. This was the largest regulatory streamlining initiative for the construction industry in the United States. Sara was also a founding member of the new Oregon Senior and Disability Caucus.

Link to Club Documents

2007-11-15T14:31:00.001-08:00

I have added a link to the club documents page (to the right) and have posted there the slides from Ayca's presentation.

-Patrick

Field Trip to Rogue

2007-11-13T17:05:00.000-08:00

Jack Joyce, owner of Rogue, has graciously invited the Econ Club to go to the brewery in Newport and chat about the beer business. We are now scheduled to visit on Friday, December 7th at 1:30pm. The economics department will cover the cost of a 12 passenger van and I will drive. We will plan on leaving at 12:30pm.

What is going on in the beer business you ask? Lots!

Professor Tekin-Koru to Present on Wednesday

2007-11-05T08:51:00.000-08:00

Ayca Tekin-Koru will join us for the meeting on Wednesday where she will talk about the new class she has designed "Multinational Corporations" and will give a bit of a preview about the economics of MNCs.

Professor McMullen

2007-11-01T18:51:00.000-07:00

Professor McMullen will present sometime in December or next term. She is part of the Oregon Governor's Council of Economics Advisors and they will be meeting mid-November. They release an economic forecast for the state and nothing can be disclosed until after the meeting. She will come in and talk about the topics of this meeting. Currently she is teaching a class during our normal meeting hours, so it might be better to schedule her out for next term.