• everyday economics and risk for pop musicians

    Pop Music’s Risk Takers

    Apr 1 • Behavioral Economics, Businesses, Economic History, Economic Thinkers, Entertainment, Health Care, Labor, Lifestyle, Thinking Economically • 118 Views

    A professor of psychology and music at the University of Sydney entered the world of economics with her study of musicians, genre and mortality rates.

    Risk and mortality rates for musicians

    From: Dianna Theadora Kenny, Univesity of Sydney

     

    Dr. Dianna Kenny explains that, “The rock scene is a volatile mix of glamour, instant wealth, risk-taking, rebellion and psychological distress accompanied by taken-for-granted assumptions that pop musicians will live dangerously, abuse substances and die early.”

    Risk and musicians' mortality rates

    From: Dianna Theadora Kenny

     

    Our Bottom Line: Risk

    Although not directly related to mortality rates, risk is as institutionally life threatening to economics and finance as it is in pop music. In the three disciplines, risk is a common denominator.

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  • Everyday economics and the wealth gap

    What We Should Ask About the Wealth Gap

    Mar 31 • Businesses, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 158 Views

    Like Supreme Court Justice Potter Stewart said about pornography, with wealth we can say, “I know it when I see it.”

    However, it too is not so easy to quantify.

    Where are we going? Let’s see what we really know when we discuss wealth inequality.

    Measuring the Wealth Gap

    Defining wealth as the value of a family’s assets like a car, a house, jewelry and investments minus its debt, Pew Research based their conclusions about the wealth gap on the Fed’s Survey of Consumer Finances.

    First they had to define upper and middle income:

    Defining income categories for wealth distribution

     

    Then they could tell us that the wealth gap between the two was getting bigger:

    Wealth distribution: a widening gap

    It all looks pretty clear cut.

    Not necessarily.

    The Wealth Gap Debate

    Because it all depends on your yardstick, economists do not agree on the extent of the wealth gap.

    Instead of the Survey of Consumer Finances (CSF), other studies are based on estate records and a third group focuses on tax data that relate to capital. The CSF depends on a survey that participants have volunteered for, the second looks at inheritance and the third, your returns from capital. Complicating the comparison even more so, the CSF only dates back to 1989, estates to 1916 and capital to the income tax which takes us to 1913.

    Researchers using the different data pretty much share three conclusions. 1) Wealth has always been concentrated at the top; 2) the share of the top 1% peaked during the 1920s; 3) the share of the top 1% plunged with the Great Depression.

    Once though we touch the 1980s, the metrics diverge. The statistics that relate to capital indicate the most affluent are accumulating considerably more wealth. By contrast, our estates and survey of consumer finances lead to different conclusions.

    Income distribution and the top 1 percent

    From: “What Do We Know About the Evolution of Top Wealth Shares in the United States?”

    Each data set has its own problems. And we have not even asked if income disparities rather than wealth might be a better metric for understanding inequality.

    Our Bottom Line: Incentives

    Whatever data we use, as economists, we should always remember incentives. And that takes us to an entirely different perspective.

    In The Haves and the Have-Nots, economist Branko Milanovic suggests we use three questions to assess the impact of inequality.

    1. Identify the cause of inequality. For example, determine whether income inequality increases or decreases as the economy grows.
    2. Identify the impact of inequality. For example, does inequality create positive or negative economic incentives?
    3. Identify the ethical implications of inequality. For example, are there good and bad ways to have ascended to affluence?

    So, even if we do know wealth when we see it, perhaps it is most important to look at its cause, impact and ethical implications.

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  • Everyday economics and almond water demand

    The Unexpected Cost of An Almond

    Mar 30 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Environment, Government, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 163 Views

    Using sacrifice as our economic definition of cost, we can say that droughts increase the cost of water. When we use water in one place, the cost is using it somewhere else.

    And that takes us to California almonds.

    Tradeoffs water usage for almonds

    Viewed slightly differently, you can see below that almond production requires more water than Los Angeles.

    The water tradeoffs from almond production.

    From: Mother Jone

     

    The California Drought

    The California drought is now into its fourth year. The water runoff to California reservoirs from this year’s Sierra Nevada snowpack is expected to plunge. Farmers are depleting their “backup” supplies of groundwater. And an SF Gate blog tells us that people are starting to experience CWAS: California Water Anxiety Syndrome.

    In almond growing regions of California, the drought is intense:

    Tradeoffs for water and California almonds

    From: Mother Jones

    Meanwhile…

    Almond Production

    Demand for California almonds is surging. California provides almost all of the almonds we consume in the U.S. and exports much more.

    California soaring nut production and the tradeoffs Our Bottom Line: Tradeoffs

    On the one hand, California is benefiting from a thriving industry. But the cost of almond production is water that could have an alternative use in a drought stricken state. And therein lies the tradeoff.

     

     

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  • Everyday economics and performance metrics can create a perverse incentive.

    Why It’s Tough to Evaluate Job Performance

    Mar 29 • Behavioral Economics, Businesses, Developing Economies, Economic History, Government, Labor, Macroeconomic Measurement, Regulation, Thinking Economically, Uncategorized • 147 Views

    After being told that the number of accidental deaths had to decrease, certain Chinese bureaucrats appear to have quickly improved safety.

    Chinese Death Ceilings

    In 2004, the State Council of China proclaimed that safety would equal levels in middle income countries by 2020. Using the number of accidental fatalities as one yardstick, SAWS, the State Administration of Work Safety, implemented a program to reduce accidental deaths by 2.5 percent annually with the People’s Daily reporting the data. An incentive for certain local officials was NSNP–No Safety No Promotion.

    If more safety will get you a promotion, it makes sense that the 20 provinces with officials who were told NSNP became safer places. Yes?

    Not necessarily.

    Where are we going? To the unintended consequences of an incentive.

    The Impact of No Safety No Promotion

    Using statistical anomalies, researchers from USC and Columbia University concluded that China’s saftey numbers might have improved because they were manipulated. Too many deaths, for example, occurred on the eighth day after an accident–a bit fishy when a death is counted as natural only after day seven, The numbers could also look better by shifting their classification, like saying the fatality was caused by disease rather than coal mining.

    Looking at this graph, we can ask if China’s accidental deaths plummet because of improved safety or statistical manipulation.

    Unintended consequences from a valid safety incentive.

    From:”The Economics of Death Ceilings”

     

    Our Bottom Line: Unintended Consequences

    The Chinese death study is about a lot more than China. Instead, it probably confirm’s Goodhart’s Law that “A performance metric is only useful as a performance metric as long as it is not used as a performance metric.” The reason? Distorting the activity that it is measuring, the target ceases to be valid.

    The implications are monumental. At schools, universal testing is supposed to create the incentive to improve education but some teachers then teach for the test and little else. In cities trying for lower crime rates, law enforcement could feel the pressure to reclassify crime statistics.  And of course, you and I can talk anecdotally about the impact of performance metrics on our job.

    Whether looking at safety in China or human capital at work, evaluation targets have not necessarily improved performance even when the numbers reflect success.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Fake Stats to Slippery Glue

    Mar 28 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Humor, Economic Thinkers, fiscal policy, Government, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Sports, Tech, Thinking Economically • 121 Views

    Our Posts Roundup

    Everyday economics and temptation bundling. Sunday 3.22.15

    The bundles that make life pleasant…more

    Everyday economics and Free trade agreements make Mexico an attractive place for car makers. Monday 3.23.15

    Where American cars are made…more

    Everyday economics and March Madness is about big business. Tuesday 3.24.15

    What March Madness really represents…more

    Everyday economics and Sunday shopping productivity Wednesday 3.25.15

    Why Sunday shopping matters…more

    Everyday economics and adding an interior slippery surface to a container is an innovation that will save time and lessen waste. Thursday 3.26.15

    Making ketchup that glides…more

     

    Everyday economics and inaccurate Greek statistics Friday 3.27.15

    How statistics can land you in jail…more

     

    Ideas Roundup

    • behavioral economics
    • utility
    • cost and benefit
    • temptation bundling
    • globalization
    • developing economies
    • competition
    • GDP
    • economic growth
    • productivity
    • regulation
    • positive externalities
    • deficit
    • austerity
    • sovereign debt
    • moral hazard

     

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