• The sale price of a Nobel prize medal conveys information.

    How To Price a Nobel Prize

    Feb 27 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Government, Innovation, Macroeconomic Measurement, Thinking Economically • 137 Views

    Last night, Simon Kuznets’s 1971 Nobel Prize medal was sold at auction for $321,540.

    I wonder what the price tells us.

    Nobel Medals

    The Nobel Economics prize is slightly different from the other Nobel awards because it was first given in 1969 through an endowed gift from the Sveriges Riksbank. Made of 23-carat gold that is worth $8700 or so, this is the medal:

    The price system gives information during an auction.

    From: Nate D. Sanders Auctions

     

    The history of Nobel medallion sales is sparse. Examples include a $4.76 million sale at a Christie’s 2014 auction of James Watson’s Nobel medal for his DNA research and William Randal Cremer’s Nobel medal for the 1903 Peace Prize sold in 1985 at Sotheby’s for $16,750.

    What Kuznets Figured Out

    Simon Kuznets gave us the GDP.

    Concerned that the country could not precisely answer “How are we doing?”, he created the statistical approach for calculating annual U.S. production and economic growth. The decade was the 1930s and his task was deciding which goods and services would count. Concluding that the GDP, then called national income accounting, had to measure the wealth of the country, he said to add together the prices of all goods and services that were legally produced during one year. Work done at home that had no price would not count. Neither would sales of illegal goods and services like prostitution and marijuana.

    Handy during World War II, national income accounting illustrated our productive capacity. Once we knew what we we had, we could determine the land, labor and capital available for war production. The steel we had been using for cars told us how many airplanes we could make. Cotton shirt production provided the information we needed for making uniforms. People have said that Kuznets’s national income models were as important as the guns that won the war.

    Our Bottom Line: Price System

    We take prices for granted.

    As consumers, prices tell us about quality and affordability. Two dollar gas conveys an incentive that encourages us to buy it. Without market generated prices, whether calculating the GDP or buying groceries, we would miss the messages they send to us.

    For a Nobel Prize medal, the price says something about the recipient. What is the message when a James Watson medal gets so much more than the Simon Kuznets medallion?

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  • Everyday economics and marriage trafeoffs

    Tradeoffs and Marriage: Like a Horse and Carriage

    Feb 26 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Economic Thinkers, Education, Gender Issues, Households, Innovation, Labor, Lifestyle, Thinking Economically • 160 Views

    With Bride’s Magazine suggesting that the average couple spend a year completing a 44-item checklist, in 2013, the average wedding cost $29,814. Fifty-five years ago that checklist numbered 22 and we were supposed to spend two months preparing.

    Even our ring behavior has changed. Before World War II, 10 percent of all brides got diamond wedding rings. By 2000, the proportion had risen to 80 percent.

    Correlating the cost of weddings and divorce for more than 3,000 “ever-married” individuals, one group of researchers concluded that women spending more than $20,000 on a wedding were 3.5 times more likely to divorce than those whose wedding cost $5,000 to $10,000.

    Where are we going? To behavioral economics, and how marriage and divorce have changed.

    The New Marriage

    We really should start with Nobel Laureate Gary Becker (1930-2014). Saying the family is a production unit, in his 1981 “Treatise on the Family” paper and two decades of work that preceded it, Becker described the division of labor between husbands and wives. At that time, most men went to work while women were the “domestic specialists” who managed the home and took care of the children.

    Becker said that men and women selected each other in marriage markets. Like all other markets, we had supply and demand. The men and women who were “bidding” for each had a value based on what they could contribute to their lives together.

    Now those contributions have changed.

    The pill made it easier for women to decide when they would have children. It empowered them to enter professions that were more time consuming and paid higher wages. Consequently, a new cohort of females became a different kind of wife. More valuable in marriage markets with fewer housewifely skills, the new wife was a companion.

    For her and her husband, marriage became a different kind of economic unit. In many households, both partners were earning income and both (or none) cooked. Washing machines, dishwashers and microwave ovens minimized chores. Day care and take-out entered their lives.

    With the division of labor changing, so too has the institution. As economists Justin Wolfers and Betsey Stevenson have pointed out, more marriages are about companionship rather than children. Instead of production complementarities, we have consumption complementarities.

    And that returns us to the cost of the wedding and the chance of divorce.

    Our Bottom Line: New Tradeoffs

    Although no one is sure of the cause of the pricey wedding/divorce correlation, as economists we can return to tradeoffs.

    Deciding whether to cohabit, marry or divorce, couples compare the gains from marriage and the gains from being single. Now though, with consumption complementarities becoming more important, the tradeoffs have changed.

    From the following Pew data, it appears that women and men have a different opinion of the tradeoffs of remarriage.

    Tradeoff considerations for remarriage

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  • Everyday economics, success and voice pitch

    The Importance of a Good (Voice) Pitch

    Feb 25 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Humor, Gender Issues, Labor, Lifestyle, Thinking Economically • 163 Views

    Because of Laurence Olivier, Margaret Thatcher lowered her pitch. Taking advantage of a chance meeting with Olivier on a train from Brighton in 1979, a Thatcher advisor asked how she might eliminate her shrill sound. Olivier arranged for her to work with the speech coach from the National Theater. One voice coach says that rather than bring her pitch down, Thatcher made her voice sound lower with a new cadence and physical cues like less of a smile, a mobile jaw and a relaxed diaphragm .

    Please, decide for yourself:

    Where are we going? To how lower voices affect success.

    Your Voice and Your Income

    Looking at 792 CEOs, researchers at Duke’s Fuqua School of Business found that men with deeper voices had more earning power and longer tenures in office. Correlating pitch, salary and firm size, they concluded that a one percent drop in pitch meant an extra $19,000 a year for the CEO and a firm that was worth $30 million more. Deep voices, they concluded, were associated with competence, confidence, trustworthiness, and persuasiveness.

    Where are we going? To a cause of gender inequality.

    Your Voice and Your Job

    In politics and business the message for women is similar. When men and women were recorded at different pitches saying “I urge you to vote for me this November,” a majority of the study’s participants said they would vote for the candidates with the lower pitched voices. As for business, one litigator told an NPR interviewer that she headed straight for the voice coach when told that her voice was “screechy, high pitched, and quick talking.” She learned, like Thatcher, that it was about your diaphragm and facial muscles. You have to watch out for “uptalk” an the end of sentences. Don’t sound chirpy. Use fewer words. And say “one minute” instead of “Got a minute?” and “hello,” not “hi.”

    Our Bottom Line: Gender Inequality

    Even if we agree that the female voice helps to generate inequality, finding a solution is far more difficult. Perhaps though Reese Witherspoon’s Legally Blond (2001) has the answer. You can dress in pink, chirp and have a tiny dog and be very smart.

    For many smiles, do watch this trailer:

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  • Everyday economics and the positive externalities of childhood vaccination have an economic impact.

    The Vaccine Benefits That No One Talks About

    Feb 24 • Behavioral Economics, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Education, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 160 Views

    On July 16, 1776 John Adams received a letter from Abigail’s uncle saying that she, the children, and other relatives (17 of them) were in his house in Boston for their smallpox inoculation because of an outbreak that threatened all of them. Distraught, Adams said he had to remain in Philadelphia because he was “…in the midst of scenes of business, which must not stop for anything.”

    In John Adams, David McCulloch tells us that the procedure was “to make a small incision, then with a quill scoop the ‘pus from the ripe pustules’ of a smallpox patient into the open cut.” The goal was to create a mild case of the disease that developed the patient’s immunity. Adams’s family all recovered from an ordeal that he believed everyone should undergo.

    John Adams wisely recognized the health benefits of vaccination. By choosing inoculation though, the Adams family was also helping the economy of their developing nation.

    The Economic Impact of Vaccination

    Researchers at Harvard used data from the Philippines to hypothesize that vaccinations have an impact on human capital development. Although they point out that their data is not sufficiently definitive, they cite vaccinated children’s test scores to show they fare better than a non-vaccinated control group. Consequently, they say, healthier children attend school more frequently, fare better in school and as a result, learn more. As adults, they then are able to be more productive at work and to earn more and to live longer.

    Furthermore, vaccinations diminish family size because more children survive beyond five years old and smaller families mean more attention is given to each child. On the national level, as we saw with the Ebola outbreak, disease affects the level of foreign direct investment and tourism.

    Here is a broad picture of the income to health connection…

    Positive Externalities vaccinations, income and health

     

    And the synergy they create…

    Positive Externalities vaccinations, health and income

    Our Bottom Line: Positive Externalities

    In The Wealth and Poverty of Nations, Harvard professor emeritus David Landes says, “Institutions and culture first; money next; but from the beginning and increasingly, the payoff was from knowledge.”

    The payoff is a ripple of positive externalities. We start with a child who is vaccinated. Avoiding a host of childhood diseases, that child can benefit more from school and share her learning as a daughter, a worker and a mother. Looking at its ROI (return on investment), for developing nations like the U.S. 250 years ago or in contemporary Africa, vaccinations help the economy.

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  • everyday economics and the driver license renewal process shows the tradeoffs of public goods and services.

    A Renewing My License Story

    Feb 23 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Humor, Government, Health Care, International Trade and Finance, Regulation, Thinking Economically • 206 Views

    Renewing my license at the NJ Department of Motor Vehicles, I started wondering about standing in line.

    Please imagine the following.

    My local DMV is a free standing, old and rather small, rectangular one story brick building. When you enter, a clerk standing behind a counter gives you a number on a blue piece of paper and suggests you sit down on one of maybe 200 folding chairs that are set up in a series of rows. Soon, 242, my number is called out by another clerk who checks my documents and then sends me to another row of chairs to await a picture.

    It is crucial, I gather, for me to sit next to the lady with the black and white bag. I do what I am told and then hear a clerk call out, “Next.” That next person was sitting in the first chair in our row. When he goes to the counter for his picture, the person who sat next to him moves into his chair. And everyone else is supposed to switch to the seat on the left. Sort of like musical chairs, every time a new person goes to the counter, we all get up in unison, and then sit down in the next chair.

    And that is when I started asking the people around me, why are we doing this? I learn that this is the DMV method for determining who is next in line.

    Government and Lines

    Government has never been very good at lines. But the worst stories I’ve heard are from the former Soviet Union and communist Eastern Europe. In Poland during the 1970s, you might have taken an hour or two off from work, rotating with a brother or sister, to stand in line. Everyone could have been waiting for a pair of shoes but if a shampoo were available, you bought it. There were even queue rules like mothers with small children got to go first. So people temporarily borrowed small children.

    Where are we going? Back to the NJ DMV.

    Looking at the bigger picture, let’s ask if issuing drivers’ licenses should be a government responsibility.

    Our Bottom Line: Public Goods

    Using an economist’s definition of a public good, we can identify the minimum and for some of us the maximum of what government should provide.

    A lighthouse is typically classified as a public good because its service is non-excludable and a necessity. Non-excludable just means that we cannot prevent everyone from using the beacon. Similarly, since everyone enjoys the benefits of national defense and tornado sirens, they too are non-excludable necessities. Because businesses have a tough time profiting from non-excludable items, if they are necessities, government provides them.

    If our criteria is that government should only provide a non-excludable necessity, does that cover driver licenses?

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