Posts Tagged ‘economics’
Adam Smith once famously observed…
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
– Theory of Moral Sentiments, 1759
He is a member of a stream of observers of the human condition, stretching back to the ancient Greeks, who believe that an innate goodness is at work in us all. But is it so?
Behavioral economists have revolutionized the standard view of human nature. No longer are people presumed to be purely selfish, only acting in their own interest. Hundreds of experiments appear to show that most people are pro-social, preferring to sacrifice their own success in order to benefit others. That’s altruism.
If the interpretations of these experiments are true, then we have to rip up the textbooks for both economics and evolutionary biology! Economic and evolutionary models assume that individuals only act unselfishly when they stand to benefit some way. Yet humans appear to be unique in the animal kingdom as experiments suggest they willingly sacrifice their own success on behalf of strangers they will never meet. These results have led researchers to look for the evolutionary precursors of such exceptional altruism by also running these kinds of experiments with non-human primates.
But are these altruism experiments really evidence of humans being special? Our new study says probably not…
Read more– and draw your own conclusion– at “Does behavioral economics show people are altruistic or just confused?”
[TotH to Mark Stahlman]
* P.J. O’Rourke
As we calculate the angles, we might spare a thought for Johannes Schöner; this is both his birthday (1477) and the anniversary of his death (1547). A priest, astronomer, astrologer, geographer, cosmographer, cartographer, mathematician, globe and scientific instrument maker, and editor and publisher of scientific texts, he is probably best remembered today (and was renowned in his own tine) as a pioneering maker of globes. In 1515 he created one of the earliest surviving globes produced following the discovery of new lands by Christopher Columbus. It was the first to show the name “America” that had been suggested by Waldseemüller– and tantalizingly, it depicts a passage around South America before it was recorded as having been discovered by Magellan. In his roles as professor and academic publisher, he played a significant part in the events that led up to the publishing of Copernicus’ epoch-making “De revolutionibus” in Nürnberg in 1543.
People sometimes say “If I had all the money in the world …” in order to discuss what they would do if they had no financial constraints. I’m curious, though, what would happen if one person had all of the world’s money?
- Daniel Pino
So you’ve somehow found a way to gather all the world’s money. We won’t worry about how you did it—let’s just assume you invented some kind of money-summoning magic spell.
Physical currency—coins and bills—represents just a small percentage of the world’s wealth. In theory, you could edit all the property records on Earth to say that you own all the land and edit all the banking records to say you own all the money. But everyone else would disagree with those records, and they would edit them back or ignore them. Money is an idea, and you can’t make the entire world respect your idea.
Getting all the world’s cash, on the other hand, is much more straightforward. There’s a certain amount of cash in the world—it’s about $4 trillion—and you want it all…
Find out what you’d have to do with all that scratch on Randall Monroe’s What If? at “All the Money.”
* Sociologist William Bruce Cameron (though often attributed to Albert Einstein)
As we go all Scrooge McDuck, we might send imperial birthday greetings to Titus Flavius Caesar Vespasianus Augustus (better known as Vespasian); he was born on this date in 9 CE. Vespasian was crowned Emperor of Rome in 69 after a year of civil strife following the death of Nero; he served for six years and founded the Flavian Dynasty that ruled the Empire for another 20 years. Vespasian was judged (by Suetonius and others) to have been a witty and effective ruler, even as he had to govern through severe financial turmoil. Indeed, to this day urinals are known in Italian as vespasiano, a vestige of Vespasian’s tax on urine (which was valuable in his day for its ammoniac content).
Just about everyone on the planet agrees that CEOs earn too much. Except CEOs. But how much is too much? Let’s put it this way: the average American worker would earn almost $2 million a year if he were paid a fair salary based on the compensation of U.S. CEOs.
That’s just one of the many details to emerge from a fascinating post over at the Harvard Business Review, visualizing the pay-gap ratio between chief executives and average workers internationally…
CEOs are making a lot more than what people deem fair. In the United States, the average American CEO makes a whopping 354 times the salary of the average worker. But ask Americans what a fair salary for a CEO is, and the consensus is just 6.7 times the salary of an average worker.
That means that if the average American were paid the “ideal” fraction of the average CEO’s actual salary, he would rake in $1.8 million a year.
In 1984, legendary management guru Peter Drucker argued that paying any CEO more than 20 times the wages of the average American worker was anathema to the well-being of corporations. Pay your CEO more than that, Drucker argued, and all you did was increase employee resentment, decrease morale, and reward greed over responsibility. If Drucker could see the size of the paychecks of today’s CEOs, he’d be spinning in his grave…
Read more at “The Insanity Of CEO Paychecks, Visualized“; read the HBR piece (and see more charts) here; and then read this short piece at the Financial Times that unpacks the mechanics of greed– and its stifling effect on innovation and growth– here.
* Peter Drucker
As we fume over fatted cats, we might take a moment to celebrate Ask a Stupid Question Day, celebrated by teachers and students on this date (or sometimes, the last school day of September).
What would be the most expensive way to fill a size 11 shoebox (e.g. with 64 GB MicroSD cards all full of legally purchased music)?
- Rick Lewis
A shoebox full of valuable stuff seems to top out at about $2 billion. Surprisingly, this turns out to be true for a wide range of possible fillings…
Randall Munroe explains, as he runs through the candidates– from diamonds to Lucy in the Sky with Diamonds– at What If?
As we ponder pricing, we might might send simple birthday greetings to Henry George; he was born on this date in 1839. A writer, politician and political economist, George is best remembered for Progress and Poverty, published in 1879, which treats inequality and the cyclic nature of industrialized economies, and proposes the use of a land value tax (AKA a “single tax” on real estate) as a remedy– an economic philosophy known as Georgism, the main tenet of which is that, while individuals should own what they create, everything found in nature, most importantly the value of land, belongs equally to all mankind.
It was George’s work that inspired Elizabeth Magie to created The Landlord’s Game in 1904 to demonstrate his theories; ironically, it was Magie’s board game that became (as recently noted here and here) the basis for Monopoly.
In 1977, Joseph Stiglitz showed that under certain conditions, spending by the government on public goods will increase aggregate land rents/returns by the same amount. Stiglitz’s findings were dubbed “the Henry George Theorem,” as they illustrate a situation in which Henry George’s “single tax” is not only efficient, it is the only tax necessary to finance public expenditures.
A not-so-dismal look at the “science” of economics: “the world’s first and only stand-up economist” Yoram Bauman reviews the weirdest and most wonderful papers ever published in economics journals… Consider, e.g.,
“Japan’s Phillips Curve looks like Japan” (2008) by Gregor Smith
Smith’s webpage used to link to a version of the paper with this note: “The title is also the abstract and, frankly, most of the text.”
Japan’s Phillips Curve is shown in the right-hand panel of Figure 1. The data are monthly from January 1980 to August 2005.
For ease of viewing, the left-hand panel of Figure 1 rotates the Phillips Curve around the vertical axis so that minus the unemployment rate now is on the horizontal axis. Clearly visible are the islands of Hokkaido and Honshu, though it is somewhat difficult to separately distinguish the southern islands of Kyushu and Shikoku. The Noto-Hanto Penninsula is evident to the north of the southern end of the main island of Honshu. Tokyo Bay is also visible. The data point to the far left in Figure 1 is the island of Fukue-Jima.
Ten others– including Bauman’s own hysterical take-down of Gregory Mankiw and “On the efficiency of AC/DC? Bon Scott versus Brian Johnson,” featured here in pre-blog times– at “Top 11 Funniest Papers in the History of Economics.”
* Nikita Khrushchev (widely attributed)
As we search for one-armed economists, we might spare a thought for Charles Darrow; he died on this date in 1967. It was Darrow who took a Quaker game that inveighed against acquisitiveness and turned it into the monopoly that is Monopoly.
One may imagine that economics has little bearing on the more frivolous frontiers of everyday life; but in fact it explains why one consumes so much “animal antics” online and so little Shakespearean seriousness…
Economics sometimes has surprising applications. One example is the Alchian-Allen theorem, an observation that came from a footnote in an economics textbook in the 1960s about how quality demand is affected by transport costs…
The Allen-Alchian theorem explains why places with high-quality produce (Allen and Alchian had in mind apples in Seattle, which is where apples come from in the US) nevertheless do not always get to consume that same high quality (they pointed to the market for apples in New York city, where no apples grow) because of the relative costs faced by consumers in each case (for New York consumers, a high-quality apple, once you account for transportation costs, was actually relatively cheaper than a low-quality apple compared to relative prices in Seattle). Hence the market sent the high-quality apples to New York.
You’re still with me? It’s all about relative costs. When you move something, or impose any fixed cost, the higher-quality item always wins, because it now has a lower relative cost compared to the lower-quality item.
The interesting idea is that this also applies in reverse – namely when we remove a fixed cost. The internet does this: it removes a cost of transport, and it does so equally for high quality and low quality content. Following the Allen-Alchian theorem, this should mean the opposite. Low-quality items are now relatively cheaper and high-quality items are now relatively more expensive. This idea was first explained by Tyler Cowen, but the upshot is that the internet is made of cats…
The internet lowers the cost of “transport” for every idea, high and low quality alike. It’s the opposite of the apples situation. It means that low quality apples are now relatively cheaper. It means that cats-doing-funny-things is now relatively cheaper than say German Opera. Economics insists that when demand curves look like this we can expect more cat watching, and less German opera watching.
This theorem means that we expect a lower quality, “bittier” consumption to proliferate on the internet (as a technology that lowers transport costs of high-quality and low-quality ideas alike). Which is what we observe. So that’s a win for micro-economic demand theory.
Is this really what’s happened? Have we all gotten dumber? Read more– including the arguments, pro and con– at “The internet is made of cats – and you can blame economists“: and read the paper the lays out the “economics of cute” in “The Alchian-Allen Theorem and the Economics of Internet Animals.”
* John Kenneth Galbraith
As we come to terms with the fact that all our bases are belong to them, we might spare a slightly skewed thought for Giuseppe Arcimboldo; he died on this date in 1593. An Italian painter best known for creating partraits composed entirely of such objects as fruits, vegetables, flowers, fish, and books, he is considered a Mannerist… though he might well be the first Surrealist. He was certainly cited by many– from Dali through Ocampo to Švankmajer– as an influence.
LittleSis– the opposite of Big Brother–is a free database of who-knows-who at the heights of business and government.
It’s a kind of “involuntary Facebook of the 1%”…
We’re a grassroots watchdog network connecting the dots between the world’s most powerful people and organizations… We bring transparency to influential social networks by tracking the key relationships of politicians, business leaders, lobbyists, financiers, and their affiliated institutions. We help answer questions such as:
- Who do the wealthiest Americans donate their money to?
- Where did White House officials work before they were appointed?
- Which lobbyists are married to politicians? Who do they lobby for?
All of this information is public, but scattered. We bring it together in one place. Our data derives from government filings, news articles, and other reputable sources. Some data sets are updated automatically; the rest is filled in by our user community.
The database is large; at this writing:
And as the explanation above suggests, it’s growing.
Readers might do well to browse. If, as a recent Princeton study suggests, the U.S. is no longer a democracy, but an oligarchy, it’d be wise to meet the new bosses.
* Alice Walker
As we contemplate cronyism, we might recall that it was on this date in 1884 that the brokerage firm of Grant & Ward, in which former President Ulysses S. Grant was a partner, failed under the weight of $16,725,466 worth of debts. The firm, founded in 1881, had done well at first, bolstered by the salesmanship of Ferdinand Ward– “The Young Napoleon of Finance”– and by Grant’s name. The former president bragged to friends that he was worth two and a half million dollars, and family members and friends poured money into the firm. But Grant was largely disengaged from the company’s business (he later argued in his autobiography), often signing papers without reading them. In the event, it turned out that Ward was running a Ponzi scheme (before Ponzi had given the technique its name). Ward was eventually convicted of fraud and served six years at Sing Sing. Grant was financially ruined, but was bailed out by William Henry Vanderbilt, who paid off Grant’s debts, and by Mark Twain, whose generous offer for Grant’s autobiography financed the ex-President’s final years.