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    Money and Happiness

    Jun 8 • Thinking Economically • 302 Views

    Does money buy happiness? A 2006 report from the Pew Research Center said yes and no.

    If we compare income groups, the answer is yes. Almost 50% of people earning more than $100,000 annually said they were happy. However, as income levels dropped, so too did happiness. Only 24% of those who earned $30,000 a year said they were happy.

    Pew researchers, though, have been asking the same question for three decades during which per capita income has risen. As a nation, we are richer and yet happiness levels have remained constant. They did discover, though, that when we discover we are earning more than others, we do experience a pop in happiness.

    In another study Richard Easterlin investigated whether we experienced increasingly more or less happiness each time our income grew. If, he hypotheisized, our behavior paralleled typical economic behavior (diminishing marginal utility), we would display less extra happiness with increases in income. Instead, he found no marginal utility. There was no increase in happiness.

    I do suspect though that the recession has affected happiness for many of us.

    Your interpretation?

    The Economic Lesson

    When eating chocolate chip cookies, our total utility (satisfaction) usually increases. However, economists like to point out that the increase-the marginal utility- for each additional cookie is less and less. Numerically, we could say the first cookie gives us 10 units of utillity as does the second one. Then though, a third cookie might provide 3 units of pleasure and the fourth one only one unit of pleasure. Adding them all together, our pleasure is ascending. However, as we eat more and more, pleasure rises more slowly. Economists call this phenomenom diminishing marginal utility.


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    Health Care Reform and Sausages

    Jun 7 • Government, Regulation • 313 Views

    Now that we have a health care reform bill, I wondered about the next step. After a law is passed, how are the provisions implemented? A recent Washington Post article provided the answers.

    The next step unfolds in government offices where staffers decide what each provision means and how it will be applied. With more than 2,000 pages of provisions, for health care reform, the decisions are countless and the logistics unfathomable. According to the Washington Post, government staffers are arriving earlier, staying later, and seeing White House officials oversee key timing and content decisions.

    Immediately, $250 checks have to be sent to seniors because of Medicare’s drug benefit coverage gap, small businesses will receive a tax break in exchange for their employees’ insurance coverage, and insurers will have to let families keep adult children on their policies. The law prohibits an “unreasonable” premium increase but what is “unreasonable”? Because the law says that insurers have to spend premiums on improving members’ health, insurers have begun to reclassify activities as improving members’ health. Who determines their validity? Even agency names are being debated. Creators of OCIIO (The Office of Consumer Information and Insurance Oversight), for example, have to decide what to call themselves, “oh-sig-oh” or “C-C-I-I-O”. And this is only the beginning.

    Reading the legislation (H.R.4872 and H.R. 3590), I recalled that Otto von Bismarck said, “Laws are like sausages. It is better not to see them being made.” And we should add, “and implemented”.

    The Economic Lesson

    Fiscal polcy can be defined as the activities of the President and the Congress that relate to spending, taxing, and borrowing. It sounds so concise and clear until we look at health care reform and see how complicated fiscal policy can be.

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    Social Contagion

    Jun 6 • Behavioral Economics, Labor, Thinking Economically • 343 Views

    If unemployment creates unhappiness, then will people be less unhappy if their friends are also unemployed? According to a recent IMF paper, not only are people less unhappy when they and their friends are unemployed, but also, they then tend to be jobless for a longer time period.

    Somewhat similarly, a Harvard medical sociology professor discovered that people gain weight when their friends gain weight. Saying that weight gain was similar to the spread of a virus, he observed that obesity spread through social networks.    

    The Economic Lesson

    Economically speaking, we are looking at “utility differences”. An individual who is very unhappy being unemployed gets satisfaction (utility) from job hunting although it requires considerable effort. By contrast, a less unhappy person will discover that the job hunting effort does not elevate his or her happiness level enough to be worth the effort.


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    Jobs and Crocodiles

    Jun 5 • Labor, Macroeconomic Measurement • 335 Views

    Hearing yesterday’s employment numbers, I recalled the Malaysian proverb, “Don’t think there are no crocodiles because the water is calm.” Everyone is worried about crocodiles.

    Looking beneath the surface, the employment numbers could be troublesome. The water may look smooth because we added jobs; however, they primarily resulted from temporary census workers. During the beginning of May, census hiring peaked at nearly 600,000. Similarly, the good news is that the unemployment rate dropped to 9.7% from 9.9%. Still, though, the broader U-6 rate which included workers marginally connected to the labor force, worsened.

    A jobs bill, also could have crocodiles lurking nearby. In a Teaching Company lecture from Professor Robert Whaples, he explained high European unemployment rates through supply and demand. Providing skills, labor is on the supply side. Meanwhile, we have businesses who hire labor as the source of demand. Whaples says that on the supply side, workers tended to be more comfortable remaining jobless because of generous and sometimes unending unemployment benefits. On the demand side, businesses were looking for fewer employees because of higher minimum wage laws and union control over the workplace. Consequently, workers in France, for example, remain unemployed longer than U.S. workers. In the United States, is the crocodile the cost of a European approach?

    Maybe we need a new proverb:

    “The reverse side always has a reverse side.” (Japanese proverb)

    The Economic Lesson

    The unemployment rate is calculated by dividing the number of people in the labor force who are actively looking for a job by the the size of the entire labor force. People are defined as being in the labor force if they are 16 or older, employed and receiving a wage or salary or unemployed but looking for a job.

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    Michael Lewis and the U.S. Congress

    Jun 4 • Economic History, Financial Markets, Regulation • 283 Views

    The Big Short by Michael Lewis (who also wrote The Blind Side) is a “hot read” on Capital Hill. Senate Majority Whip Dick Durbin (D-Ill) recommended it. Chris Dodd (D-CT) referred to it during a speech on Fannie and Freddie. And, Senators Harry Reid (D-Nev), John Ensign (R-Nev.), and Ted Kaufman (D-Del.) were among several other lawmakers who said, “Read it.”

    Meanwhile, in a fictitious NY Times letter called “Shorting Reform,” Lewis expressed withering skepticism about Congress.  


    The Economic Lesson
    The 34 page Glass-Steagall Act functioned productively between 1933 and the mid-1970s. Lessons from it?


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