• More people vote when they believe it is a social norm.

    The Difference That a Sticker Makes

    Nov 10 • Behavioral Economics, Economic Debates, Environment, Government, Lifestyle, Tech, Thinking Economically • 304 Views

    Last Tuesday, after casting my ballot for a U.S. Senator from NJ and local officials, I was given an “I Voted” sticker. Proudly, I stuck it on my coat. Had I voted in Polk City, Iowa, though, I would have had to pay for my sticker. And in Chicago, there were none.

    Where are we going? More than we might expect, the stickers matter.

    The Voting Paradox

    Let’s start by thinking economically. If you want to increase voter participation, the logical thing to do is some cost-benefit analysis. It can be a hassle to get to the polls. There are lines, parking, it takes time and we all know that one vote alone makes no difference. And yet, displaying a voting paradox, we “pay” the cost and vote.

    Hoping to decrease that cost and increase voter participation, Swiss officials decided to experiment with a mail-in ballot. The results were not quite what they expected. Explained in economic research, overall, there was no statistical difference between mail-in voting and turnout in cantons (districts) that retained their polls. There was, however, a seven percent voting decline in smaller mail-in cantons.

    So, if mail-in is easier, why the decrease?

    The connection between a voting booth and voting stickers is our community. With both, we like feeling that we are a part of a larger group that votes. So, when local officials start to complain about the expense, at $6 per 1000, we should tell them that the stickers are worth the money.

    Our Bottom Line: Social Norms

    Knowing a behavior is a social norm makes a difference. The members of the UK’s Nudge Team have been able to increase tax revenue through letters to delinquents that say everyone pays taxes—so you should, too. For using less electricity, researchers discovered it was more effective to say your neighbors are all savers than to remind them it is good to help the environment.

    Similarly for voters, knowing that voting is a social norm means you will do it too.

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  • Everyday economics and the minimum wage

    The Policy that 600 Economists Support and 500 Oppose

    Nov 9 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, Labor, Macroeconomic Measurement, Regulation • 336 Views

    Towards the end of the 1937-1938 recession, the Congress passed the Fair Labor Standards Act and the President signed it. Although it mandated $.25 as the first federal hourly minimum wage and affected less than one-fifth of the labor force, the Act was controversial. The night before signing the bill, President Roosevelt said in his fireside chat, “Do not let any calamity-howling executive with an income of $1,000 a day, …tell you…that a wage of $11 a week is going to have a disastrous effect on all American industry.”

    Where are we going? To the timeless minimum wage debate.

    The Past

    Let’s start though by looking at the increase in the federal minimum wage:

    Minimum wage history

    The Present

    These are the jobs that typically pay the federal minimum wage:

    Occupations dominated by federal minimum wage workers

     The Future

    You can see below where the minimum wage will increase during 2015:

    Minimum wage hikes for 2015 and beyond

    From: BloombergBusinessweek

     

    The Economic Disagreement

    Here is a letter signed by 500 economists that states their opposition to minimum wage hikes. Representing the opposition, the letter says the minimum wage is the wrong approach if diminishing poverty and job growth are the goals.

    Minimum wage hike opposed by 500 economists.

    By contrast, in the letter signed by 600 economists who support minimum wage hikes, the focus is the income boost provided by a higher minimum wage and the job growth they believe it creates.

    Minimum wage supported in economists' letter.

    Our Bottom Line: Confirmation Bias

    With the minimum wage divide pretty close among economists, I suspect they and most of us are guilty of confirmation bias. Depending on our opinion of the minimum wage, we can find the statistics to support our position.

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  • The econlife.com Weekly Roundup

    Our Weekly Roundup: From Being Cool to Being a Wise Investor

    Nov 8 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Financial Markets, Government, Innovation, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 343 Views

    Our Posts Roundup

    Everyday economics and air conditioning as an innovation SUNDAY 11.02.14

    How being cool changed our lives…more

    Everyday economics and the opportunity cost of Daylight Saving Time is too high. MONDAY 11.03.14

    What daylight saving does not save…more

    As long as countries have good credit, perpetual debt is okay. TUESDAY  11.04.14

    The debts that the U.S. and U.K. waited forever to repay…more

    Everyday economics and Warren Buffett investment advice WEDNESDAY 11.05.14

    Easy investing advice that is tough to follow…more

    Crowd funding is the source of a new group of financial intermediaries. THURSDAY 11.06.14

    Uber and an unexpected financial intermediary…more

    Marijuana demand is changing because of legalization. FRIDAY 11.07.14

    Marijuana economics…more

     

    Ideas Roundup

    • positive externalities
    • spillover
    • innovation
    • incentive
    • opportunity cost
    • sovereign debt
    • probability neglect
    • cost/benefit analysis
    • financial intermediaries
    • recession
    • demand

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  • Marijuana demand is changing because of legalization.

    Four Ways to Understand Marijuana Demand

    Nov 7 • Demand, Supply, and Markets, Economic Growth, Economic History, Entertainment, Government, Households, Lifestyle, Regulation, Thinking Economically • 297 Views

    Marijuana was another election winner.

    Displaying our change in attitudes, voters said, “Okay,” to legalizing marijuana in Oregon, Alaska, and Washington D.C. By contrast, reflecting an older voting population and the need for 60 percent approval because it would have amended the constitution, Florida said “No” to medical marijuana.

    Where are we going? Marijuana markets are being transformed by a change in demand.

    Changes in Marijuana Demand

    Let’s start with the size of the demand side of marijuana markets.

    Below, by state, we have the percent of marijuana use among persons aged 18 to 25. Looking at the numbers more specifically, one of the lowest user states (in white) is Utah with 3,091 marijuana users per 100,000 citizens while (in red) Vermont is among the highest with users numbering 9,849 per 100,000 citizens.

     

    Marijuana demand in UT and VT

    Next, let’s see where legalization is changing the demand side.

    Changing demand will affect marijuana markets.

     

    Asking why the demand side is changing, we can cite new attitudes that an economist might call an increase in utility:

    Changing attitudes about marijuana.

     

    As always, the closer you look, the more you see. For marijuana demand, you can see below that the heaviest users—approximately one-fifth of Colorado’s legal pot buyers—constitute close to two-thirds of their estimated demand:

    Supply and Demand marijuana users profile

    From: Colorado Department of Revenue

    Finally, because price affects quantity demanded, we should note that Alaska plans a $50 per ounce tax, Oregon, $35 at the point of sale while Colorado’s sales tax has been close to 30 percent of the purchase price. As we wondered for Colorado, will high sales taxes nudge some demand back to the black market?

    Our Bottom Line: Determinants of Marijuana Demand

    Legalizing marijuana creates an economic idea bonanza. When a substance is no longer illegal, the utility, the number of buyers and the attractiveness of a black market substitute all change while the demand for complementary goods increases. In addition, taxation enters the picture.

    And… We haven’t even started to look at the supply side!

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  • Crowd funding is the source of a new group of financial intermediaries.

    One Woman’s Response To Uber

    Nov 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Financial Markets, Government, Households, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy • 287 Views

    I just read about a woman who was horrified to discover that she had spent her rent money on one 20-minute Uber ride. The story involves a birthday celebration, a “cab” ride home, and a realization the next morning of what she had done. Distraught, she posted her plight on the crowdfundng site GoFund.Me, raised $512 in 12 hours and solved her problem.

    Here is her Uber receipt and what she said on Instagram.

    GoFund.Me is a financial intermediary.

    From: BusinessInsider

     

    The media focused on her anger with the Uber fare. Since we have already applauded Uber’s surge pricing here, my thoughts were drawn to how she got her money.

    A Financial Infrastructure

    Just like a transportation infrastructure moves people and goods on the ground, in the water and in the air, a financial infrastructure also helps things move. However, because money and credit move around a financial infrastructure, the network is a bit tougher to imagine.

    If you want to picture how money travels around a financial infrastructure, you could think of the mid-19th century bonds that were sold to investors in the U.S.and abroad. Through investment bankers like J.P. Morgan who we would call financial intermediaries, investors got the bonds and the railroads got their money.

    Or, you could think about how 1920s legislation limited the reach of a bank to its home state. That meant some states had more money than others for home mortgages. Responding, the federal government established Fannie Mae. As a national institution, it could create a more extensive financial infrastructure through which home mortgage money could flow.

    Our Bottom Line: The Importance of Financial Intermediaries

    How does all of this relate to Uber and a distraught young woman? We can say that the imaginary tubes that compose our financial infrastructure are now connected to firms like GoFund.Me. Just like a bank is a financial intermediary, so too will GoFund.Me pair people who have some extra money with the individuals and businesses that need it.

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