The Economics of Marriage The Economics of Marriage

Interesting article by the Undercover Economist, Tim Harford: The Economics of Marriage. This should be read in concert with the previous article by Megan McArdle: No Country for Young Men. Together, the two articles make a lot of sense out of marriage, divorce, sex, college, and the pill.

One of the interesting points here is the viewing of marriage through the lens of comparative advantage, and going all the way back to Adam Smith's pin makers. He posits that one of the reasons that we had stay-at-home moms for so long was that women had a comparative advantage in child raising, and that the combined wealth of both in a marriage was (often significantly) higher when the two specialized, just as Smith's pin makers did. When I was born, men would average 50 hours a week working outside the house, and women would average a similar number of hours in the home. But one thing that happened is that the 50 hours expended in the home has dropped significantly through automation. What he didn't mention, is that it also dropped considerably through smaller average family sizes (and, thus, fewer kids around the house, for a shorter period of time). Thus, the eon long bargain between men and women has broken down, resulting in significantly increased divorces, etc. Megan would point out that this caused the value of a college degree and profession to increase significantly for women.

No Country for Young Men No Country for Young Men

Megan McArdle has a great article out on marriage and retirement of the Baby Boomers: No Country for Young Men. This should be read in connection with the next article: The Economics of Marriage by the Undercover Economist.

Unrest grows amid gas rationing in Iran Unrest grows amid gas rationing in Iran

Unrest grows amid gas rationing in Iran points out that things are not going well right now for the Iranian government:

TEHRAN: Unrest spread in Tehran on Thursday, the second day of gasoline rationing in oil-rich Iran, with drivers lining up for miles, gas stations being set on fire and state-run banks and business centers coming under attack.

And this is primarily a result of trying to ignore basic economics:

The Iranian government had planned for a year to ration gasoline but had postponed the move, fearing unrest. Iran offers the highest subsidies for gasoline in the region, buying foreign gasoline for slightly more than $2 a gallon, according to official figures, and offering it for 34 cents a gallon.
..
The price of subsidized gasoline was raised by 25 percent last month. The new regulation allows private cars 26 gallons of gasoline a month for 34 cents a gallon. Taxis are allowed 211 gallons a month.

This would not be a problem if mass transit were available, but that, along with refinery capacity, were never properly funded. So, Tehran at least has about half the buses it needs, and the people don't have the gas to get to work. But the gas they do get is cheap.

4 for $11 or 2 for $5.50? Revisited 4 for $11 or 2 for $5.50? Revisited

I posted earlier about how packaging pricing does seem to work in: 4 for $11 or 2 for $5.50? where I compared different prices for Coke, based on packaging. And, surprisingly, there was no correlation between cost and value. Here are some pictures I tried to take tonight.

Here we have 8 8oz cans of coke for $3.49:


Now we have 6 12 oz plastic bottles for $3.49:

Here, 12 12oz cans for $2.75, or 4 for $11:


Here are 6 12oz glass bottles for $4.29:


And two liter bottles for $1 (10 for $10):


I should note that the Kroger's brand was even cheaper: their cola, etc., cost $.50 for a two liter bottle (20 for $10).

Ahmadinejad's Inflammable Blunder Ahmadinejad's Inflammable Blunder

Pajamas Media: Ahmadinejad's Inflammable Blunder by Meir Javedanfar points out that the Iraqi government, and in particular, their president, have screwed up royally when it comes to gasoline. It is heavily subsidized, costing a fraction of what it should cost. That was because Ahmadinejad used low gas prices to bribe the less wealthy to vote him into the Iranian presidency. But, the problem with an artificially low price is that consumers respond by greatly increasing demand for the product. But Iran, one of the richest countries in the world in terms of oil reserves, imports some 40% of its gasoline, due to a shortage of refineries. Instead of building refineries, which would have helped to reduce this, the government committed to spending money on any number of less urgent, but more politically advantageous products. So, with demand exceeding supply, which is inevitable with subsidized pricing, the government imposed severe rationing. To make matters worse, the purchase of more buses was also left mostly undone, again because infrastructure money was spent elsewhere. The result is not surprising - there are a lot of very angry Iranians right now. Not the rich, because they easily find ways around the gas rationing, but rather, the lower and lower middle classes.

None of this should be a surprise. This is economics 101. But it did point out the failings of the socialist philosophies off the Iranian leaders to understand how economics really works. Of course, if they did understand economics, they probably wouldn't be socialists.

The Real Deal The Real Deal

Amity Shlaes in AEI: The Real Deal takes to task historians, and probably economists, for refusing to look at the reality of the New Deal. The evidence continues to mount that Hoover screwed up by walking away from his free enterprise roots, but then FDR came in and totally demolished the economy, greatly lengthening and deepening what should have only been a couple years of hardship into the Great Depression. Little of what FDR did helped the economy, most hurt it, and some was devastating. And one of the oft missed problems was that FDR never could hold the course very long, whatever course he chose to chart for the country.

One interesting point that Ms. Shlaes points out is that much of the socialism of the New Deal is forgiven as necessary to prevent a socialist takeover of this country. But this ignores the reality that FDR's Brain Trust had spent time with the Communists in Russia and the Fascists in Italy before coming to power in this country. They were, in essence, fellow travelers with the socialists taking power then in Europe, whether they be Communists in Russia, Fascists in Italy, or Nazis in Germany.

What she doesn't address is the why for this failure to investigate one of the more momentous epochs in our history. My belief is that it is almost entirely a result of the extreme liberalism we now find in academia, and notably in the social sciences. This questioning of the demi-god FDR and his legacy would be political suicide in many universities right now, the height of political correctness, worse than challenging affirmative action, white male oppression, etc.

George Will: Democrats' Prosperity Problem George Will: Democrats' Prosperity Problem

George Will: Democrats' Prosperity Problem

They have a problem. How do you exclaim, as Hillary Clinton does, that today's economy is "like going back to the era of the robber barons" and insist that the nation urgently needs substantial tax increases, in the face of these facts:

In the 102 quarters since Ronald Reagan's tax cuts went into effect more than 25 years ago, there have been 96 quarters of growth. Since the Bush tax cuts and the current expansion began, the economy's growth has averaged 3 percent per quarter, and more than 8 million jobs have been created. The deficit as a percentage of gross domestic product is below the post-World War II average.

Democrats, economic hypochondriacs all, see economic sickness. They should get on with legislating their cure.

President Reagan talked about a rising tide raising all boats. The reality is that it does. Crying about rising inequality is class warfare language aimed at garnering votes from the less fortunate. The problem is that if it is pursued, all suffer, and those at the bottom, suffer the most.

What Roosevelt Didn't Know What Roosevelt Didn't Know

TCS Daily: What Roosevelt Didn't Know points out that many of the actions that presidents Hoover and then Roosevelt undertook during the Great Depression were counterproductive at a minimu, and in some cases, quite harmful.

Many have argued that the major fault was in following the precepts of John Maynard Keynes. This article suggests that Keynes wasn't really that wrong, but rather, these administrations didn't understand what was going on well enough, and so in many cases, did exactly the wrong thing.

Probably the best example is that of inflation/ deflation. Closing all the banks, and then reopening only some of them, was horribly deflationary. But possibly as destructive, the Roosevelt Administration attempted to fight inflation by reducing supply, by essentially destroying foodstocks, despite people going to bed hungry. It didn't solve the deflationary problem, but did send even more people to bed hungry.

A lot of critics have suggested that much of the New Deal was implemented in order to forstall a communist revolution here. The idea being that if we had some socialism, the more radical communist version would not be as attractive. But this article suggests that most of the negative impact of the New Deal was rather just a result of totally misunderstanding economics.

Democrats trying to soak the "rich" (again) Democrats trying to soak the "rich" (again)

According to WaPo: Democrats Seek Formula To Blunt AMT, the Democrats running Congress are trying to crank up the taxes on the "rich" to alleviate the AMT that is expected to bite 23 million taxpayers this next spring. One proposal by the Urban and Brookings Institutes would raise taxes on individuals making more than $100k (and families over $200k) by 4% in order to reduce the bite of the AMT. Never mind that $100k is far from rich, or that those getting hit by this surtax are already paying most of the taxes in this country. So, the more reasonable proposal is making the rounds, of only applying a (slightly larger) surcharge of 4.3% to incomes over $250k (or $500k for married filing jointly).

Of course, the solution would be to just eliminate the **** AMT. But that can't happen, because of the static analysis that Congress has intentionally imposed upon itself. Tax cuts must be offset with either spending cuts or other tax increases. And, of course, Congress is incapable of cutting spending. But this rule ignores that taxes significantly cut into economic growth, so cutting tax rates can often bring in more taxes.

4 for $11 or 2 for $5.50? 4 for $11 or 2 for $5.50?

The local grocery stores have been going crazy over the last couple of years trying to confuse their customers with marking many of their products as x for $y. At least under Colorado law, they have to sell the products at $y/x, so logically, the only way that they would make money this way would be on the partial pennies you pay when x doesn't divide $y evenly.

Tonight I discovered that this sort of thing really does confuse people to the store's advantage. I was shopping for soft drinks, and found that you could buy 2 12 packs of 12 oz Diet RC for $5.50 or 6 12 packs of 12 oz Diet Coke (with either Splenda or Nutrisweet) for $11. That is a wash, which is obvious when you compute that one 12 pack is $2.75, or 48 cans sell for $11. So, I bought one of each, to compare the taste of the two Splenda sweatened colas.

But then, I watched a woman grab a 24 can box of 12 oz Cokes. I figured that if the store was selling four 12 can boxes for $11, it would be cheaper to buy a 24 can box instead of two 12 can boxes. Larger packages are always cheaper.

Wrong. The 24 can box cost $6.99, $1.49 more than if she had bought two 12 can boxes. Worse, mixed in were 8 packs of 12 oz bottles for $5.99. This works out to $17.97 for 24 12 oz bottles.

So, within a foot or so in the Coke section the store had:

• 12 packs of 12 oz cans @ 48/$11
• 24 packs of 12 oz cans @ 48/$13.98
• 8 packs of 12 oz bottles @ 48/$35.94

All presumably containing the identical Coke product in 12 oz servings.

The Real Solution to Poverty The Real Solution to Poverty

TCS DailyThe Real Solution to Poverty is getting the government out of the way and letting capitalism work its magic.

Our moral and mental development, and the high productivity that accompanies it, have taken place under a system of decentralized capitalism. I would claim that the capitalist system accounts for more than 100 percent of the reduction in poverty that has taken place over the past hundred years.

How can capitalism account for more than 100 percent of the reduction in poverty? Is that mathematically possible?

If we take into account the factors that have retarded poverty reduction, then we can argue that, by overcoming those factors, capitalism accounts for even more than 100 percent of poverty reduction. That is, if world poverty has fallen from 90 percent to 20 percent over the past 200 years, then capitalism would have reduced it by even more were it not for the retarding factors.

Ironically, the biggest factor retarding the capitalist solution to poverty may well be the crusade to end poverty using conscious planning. Certainly if one includes among the planned solutions to poverty the experiment with Communism (and I see no reason why it ought to be excluded), then the case against intentional anti-poverty efforts is rather compelling. Simply compare poverty in North Korea with that in South Korea, for exa

Unbalancing act: Congress' spending plans don't add up Unbalancing act: Congress' spending plans don't add up

Ed Feulner at the Heritage Foundation in: Unbalancing act: Congress' spending plans don't add up points out that the Democrats in Congress are intent on raising taxes. And even using discredited CBO static analysis, tax revenues are scheduled to raise significantly due to the AMT and the expiration of the Death Tax.

I do wonder how many of those switching their votes to the Democrats in the last election realized that without further relief, their average taxes for their families are expected to jump $2,641 each year over the next decade. And that doesn't consider entitlements, where Social Security and Medicare would skyrocket to 19% of GDP by 2050, necessitating that we'd have to raise taxes by $11,651 per household a year.

Not a pretty picture.

The Big Business of Blocking Entry The Big Business of Blocking Entry

TCS Daily: The Big Business of Blocking Entry points out that companies climbing aboard Algore's bandwagon may be doing it for purely capitalistic reasons. For example, an oil company can't prevent more oil exploration, etc., but it can prevent more refineries being built in this country through "green" actions, and that works even better, given that we are running at close to full refinery capacity right now. As the demand for refined petroleum products rises, while supply is frozen, oil company profits are liable to rise even faster.

Are the poor that poor? Are the poor that poor?

TCS Daily: Poor Performances looks into the fact that after spending $10 trillion on poverty programs since LBJ's Great Society was launched, poverty in this country is supposedly at an all time high. But is it? Not when the average "poor" person in this country has 1/3 more living space than the average Japanese, 1/4 more than the average Frenchman, etc., and while 41% own their own homes, averaging three bedrooms and 1 1/2 baths and $150,000, 70% own at least one car, and 27% owned two or more cars.

Two big reasons that the "poor" in this country are not, on average, that poor. First, poverty figures don't include non-cash income, such as: food stamps; Medicare; WIC; etc. And, secondly, the poor tend to grossly underreport their incomes to the Census Bureau. Indeed, the poor on average spend $1.94 for every dollar that they earn.

The Political Economy of Alternative Energy The Political Economy of Alternative Energy

TCS Daily: The Political Economy of Alternative Energy looks at the economics of carbon offsets, energy subsidies, etc. and finds that most such ideas are bad economics. This is related to my earlier posts: A tale of two markets and Carbon Cap and Charade.

Slouching Toward Socialized Medicine? Slouching Toward Socialized Medicine?

TCS Daily: Slouching Toward Socialized Medicine? points at the trend towards socializing our medical system. I find this esp. horrifying given my free market orientation. Of particular note:

That would be bad for erstwhile slackers of Generation X and Gen Next. It would be even worse for the rest of the country. That's because the slouch could easily become a straitjacket, for any move toward state-run healthcare will happen in the context of already exploding debt.

Even if they've already paid off their student loans (snicker) and have exactly no credit card debt (giggles giving way to loud gasps of laughter), X-ers and Nexters are already up to their eyeballs in debt for the big three entitlement programs - Social Security, Medicare and Medicaid.

Federal Reserve Board Chairman Ben Bernanke recently testified to Congress, "Expenditures for entitlement programs are projected to rise sharply over the next few decades." They're being driven by a combination of increasing life expectancies and decreasing fertility.

Spending on the big three currently amounts to more than 8 percent of America's GDP. That will rise to more than 10 percent in 2015; and to more than 15 percent in 2030, if projections by the Congressional Budget Office hold true. The percentage of Americans more than 65 years old is also expected to increase pretty dramatically too, from 12 percent of the U.S. population to 19 percent in 2030.

That puts the slouch towards socialized medicine in its proper context.

No one knows what a government-run health care system would cost. (John Edwards put the price of his universal care plan at $90 to $120 billion per year.) But it is almost certain to be far more expensive and far less efficient than advertised.

John Edwards can maybe be forgiven for his politcally driven optimism here. After all, this is someone who has made millions by driving up health care costs. But how do you control costs while disengaging supply even more from demand? Especially when there are always reasons to add new mandates?

We abandoned our no-fault insurance here in Colorado because in the end, the legislature had piled more and more mandates on the program. By the end, not only were Chiropractors being paid (at quite high rates), but so was aroma therapy. Of course, the obvious answer is to put ever stricter controls on payments for services. But that again ignores supply and demand, and as the pressure to keep down costs escalates, reasons for people to spend the decade or so after college becoming physicians will shrink. When I was in college, the best and the brightest went ot medical school. No more.

For those supporting this slouching towards socialized medicine, presumably in sympathy for those unable (or choosing not) to pay for their own healthcare, the inevitable reduction in quality and quantity of medical care will presumably not be of great concern. But I worry because in the next decade or so, I will likely be availing myself of socialized medicine (in the form of Medicare), and I frankly don't look forward to long lines and refusals for life saving procedures. And I worry about the pressure that this will all put on my offspring.

Don’t Hide Money In The Toilet: More Conversation With A Burglar Don’t Hide Money In The Toilet: More Conversation With A Burglar

Personal Finance Advice: Don’t Hide Money In The Toilet: More Conversation With A Burglar gives some good advice:

99% of the burglars on the street aren’t like the ones you see in the movies where stealing is their chosen profession. They are motivated by more sinister reasons. They are part of organized crime, they are part of a gang or, as in my case at the time, they are drug addicts.

When you realize that you are most likely hiding your money away from people described above and not the professional burglars you see in the movies and on TV, it gives a different perspective of where you absolutely shouldn’t be hiding your money.

What he explained was that when people hide their money, they usually think of a place where they would never look themselves instead of where a burglar is unlikely to find the money.

In other words, don't hide your valuables from yourself, hide them from the burglars.

Up or down? Up or down?

Up or Down? A Male Economist’s Manifesto on the Toilet Seat Etiquette by economist Jay Pil Choi is a good example of why economists have a place in this world.

Almost every guy who has had the pleasure of living around one or more females has run into the problem that somehow it is the guy's fault when the female falls in when she forgets to put the seat down on the toilet before use. The author shows that the economically most efficient algorithm in most instances is the "selfish" rule where the user of a toilet puts the seat where he or she needs it before use, and then leaves it there afterwords. It is only in the extreme situations where it is more efficient to have either an "always up" or "always down" rule. For example, growing up in a family of six males and one female, it would have been better to have an "up" rule, except that she (my mother) made it clear that that meant that we would have to clean the toilets too. Which changes the situation to one where a "down" rule was preferable. (Actually, being grossed out coming downstairs, she pretty much let us use the "selfish" rule in the bathrooms there, and imposed the "down" rule upstairs in the bathrooms she used).

Nevertheless, this is ammunition for every guy facing the prospect of an irate woman who tries to tell him that it was his fault that she didn't check and fell in in the middle of the night.

'No Money Down' Falls Flat 'No Money Down' Falls Flat

Steven Pearlstein in the WaPo: 'No Money Down' Falls Flat talks about why we are where we are in the mortgage market. And he gives a bit more information about "tranches."

In the old days, when my father was first involved in the mortgage industry (in his case, representing a S&L as an attorney and sitting on its board of directors), mortgage lenders, like Savings and Loans, loaned money for mortgages, which they then kept and serviced until paid off. Later, the selling, holding, and servicing of loans were all split up into separate functions where different parties specialized. The mortgages were packaged and sold in large batches or bundles. The S&Ls pretty much found themselves in the mortgage selling end of the business. And when they found that they could grow much more quickly this way, a lot of them got in trouble and collapsed.

This newest financial scandal is a result of even more sophistication in the mortgage market. Instead of just packaging mortgages into bundles to be sold as securities, the risks in the bundles (the tranches) were split up too, with some of the tranches for a bundle being low risk and low return, while others are high risk and high return.

Part of the problem is that high risk/high return tranches are being bought by parties that shouldn't, such as pension funds trying to make up for previous losses (see "Taxpayers should be afraid, really afraid" below). The other side of the equation is that there are a lot of people who have borrowed to buy overpriced houses (due to the increased demand caused by this whole scheme) using gimmick mortgages, now are rapidly finding themselves over their heads. And, thus, we can expect the foreclosures to continue, if not increase.

Which gets us to part of the flaw in the whole scheme.

And therein lies the problem: an incentive structure that encourages originators to write risky loans, collect the big fees and let someone else suffer the consequences.

In other words, since the originators no longer have to either hold the loans or service them, their incentive is to sell them, and as the market got more competitive for higher quality borrowers, the originators became ever more ingenious, inventing every more fanciful ways to get people into mortgages.

What we have here is a failure of common sense. With occasional exceptions, bankers shouldn't make -- or be allowed to make -- mortgage loans that require no money down and no documentation of income to people who won't be able to afford the monthly payments if interest rates rise, house prices fall or the roof springs a leak. It's not a whole lot more complicated than that.

Taxpayers should be afraid, really afraid Taxpayers should be afraid, really afraid

Economist.com: Yes, they can go down too points out that some of the subprime mortgage market is being funded by state and local pension plans trying to recoup losses.

It's a pretty common story: investors with big losses behave essentially like gamblers in a casino, trying to double down in order to recover their previous position. In this case, state and local pensions have enormous unfunded liabilities. This is due in part to unrealistic valuations of their asset base during the stock market bubble, which left them with an enormous hole when the bubble collapsed. It is also due to the massively overgenerous promises politicians made, in part because the bubble inflated tax revenues to unrealistic levels in many localities, and in part because until recently they didn't have to account for their pension liabilities the way private companies do, which made big boosts for public sector pensions feel like a freebie for their supporters in the civil service unions.

So now you have these pension funds pouring into risky instruments that promise higher potential returns in order to close up the holes. Instruments that, from the quotation, they don't understand too well, or keep track of too closely. It's not entirely clear that this fellow grasped the fact that the reason the CDO's offered such attractive returns was that they were extremely risky, potentially leaving him with nothing at all.

Pension funds are meant to cover one of the most predictible risks of all: the risk of growing old. I find it hard to believe that responsible fund managers could be pouring much cash into the riskier tranches of credit derivatives...