Tuesday, October 17, 2017

econlife - The Story of a Nudge and the Nobel Economics Prize by Elaine Schwartz


A 70 out of 100 points and a 96 from 137 are the same grade. But Richard Thaler’s students did not think so. Told they got a 70, most were angry. But the 96 made them happy. Thaler even said that scores above 100 generated “a reaction approaching ecstasy.”

A rational thinking economist would say a 70% on a test is a 70% no matter what the point score. However, Richard Thaler is an economist who believes people can behave irrationally. And for that reason, he is the 2017 recipient of the Nobel Memorial Prize in Economics.


Thaler’s Nudges


By understanding the gap between economic logic and how we behave, Richard Thaler with co-author Cass Sunstein created a new niche for public policy called the “nudge.” Behavioral economists call it choice architecture. They are “organizing the context in which people make decisions.”

Thaler reminds us that public and private programs shape our behavior. So why not “organize the context” to optimize results? Deciding whether to save for retirement, most of us take the default option. Consequently, that default should be an optimal choice. To maximize tax revenue, government’s nudge squads have discovered that they need to tell scofflaws that their neighbors pay taxes. Emphasizing a social norm gets more money than frightening people with penalties.

Similarly, Dr. Thaler explained that consumers will not necessarily do what economists expect. One tendency is to look back at sunk costs (what we have already sacrificed) rather than assessing future tradeoffs. If we wait for someone to pick up the phone, we have a greater tendency to continue waiting. If government starts a project, it is more likely to try and finish it. In each instance, the decision makers are ignoring the current cost of proceeding. Instead they are looking back.

In a The Big Short (2015) cameo, Dr. Thaler briefly tells Selena Gomez about the Hot Hand Fallacy:

  

You can see where all of this is going. The rational economic thinker cares about opportunity cost. Believing in the “hot hand,” she pyramids a bet and then loses. A behavioral economist can explain why our behavior is less than optimal.


Our Bottom Line: Libertarian Paternalism


Taking the final step with Richard Thaler’s work, we wind up with policy suggestions. In contrast to Adam Smith’s invisible hand, the nudge recognizes human irrationality. But like the invisible hand, it can bring the best out of us.

Talking about the nudge, Thaler and Sunstein called it libertarian paternalism. It is libertarian because you don’t have to listen to the nudge. But it is also paternalism because a more powerful authority is trying to manipulate your behavior.

And that returns us to a 96 on that 137 point test. You can recognize it as a 70/C or just be happy with your 96.

My sources and more: For Thaler the person, I recommend this Chicago Tribune article. Combined with this discussion of his work, you get a portrait of a fascinating gentleman and scholar. But, if you just want the grades story, it is in the NY Times.


Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, October 12, 2017

econlife - Choosing the Best Healthcare Country by Elaine Schwartz


The one number we can be sure of for the Cassidy-Graham Healthcare Plan is 141. Its length is 141 pages.

With no “score” from the Congressional Budget Office, lawmakers have no shared estimate of its fiscal and coverage impact. Meanwhile, predictions vary among respected experts. So, because the healthcare legislation has been in the news, let’s begin will a quickie summary of the plan and then an international overview that could be helpful in the future.

Under the Affordable Care Act, the federal government has a direct massive financial obligation in these three areas:

What_you_need_to_know_about_the_GOP_s_Graham-Cassidy_health_care_bill_-_YouTube
But, under Cassidy-Graham, those $1.4 trillion in federal obligations get shifted to individual states through block grants. And, each state can decide what it wants to do with those responsibilities. And, the amount states get will not necessarily correspond to what they now receive. So, depending on the state, a lot can change.

In this quickie video from a healthcare expert, you can get a sense of the legislation. Although Dr. Carroll’s bias is quite clear, still, the facts come across:


 The Best Healthcare Country

The Best Healthcare Country


Through a healthcare tournament, the NY Times let five experts and more than 50,000 readers choose a winning healthcare country. The competitors were eight nations. The ladder was like any in a tennis or soccer match.

Britain v. Canada

When Great Britain and Canada battled each other for the single payer title, Britain won. While Britain’s single payer has government paying and providing the care, the Canadians pay and then primarily have the private sector provide. Britain won for its lower cost and faster access. The expert vote was 4 to 1 while participants were 76% to 23% pro Britain.

U.S. v. Singapore

The main theme for the U.S./Singapore competition was the many ideas that each system combined. Here, the U.S. won for its capacity to innovate. Again, the expert vote was 4 to 1. Although Singapore spends much less and controls much more, there was considerable opposition to its 37% wage tax. The popular vote was U.S. with 56% to Singapore’s 43%.

France v. Australia and Switzerland v. Germany

In the rest of the ladder, we had France against Australia with France winning for its accessibility. Last, Switzerland beat Germany. Then, in the semi-finals, the U.S. lost to France because accessibility topped innovation. With Switzerland against Britain, the market drew more votes.

The Finals

That left them with Switzerland and France and a split opinion. Switzerland won, 3-2 for the experts who especially liked its public/private combination and cost control. But in the popular vote, readers favored France, 57% to 42%.


Our Bottom Line: Fiscal Policy


Because we define fiscal policy as spending, taxing and borrowing, healthcare legislation relates to all three. In the U.S., with the financial problems that Medicare and Social Security will soon experience, the expense of healthcare policy looms large.

However, Cassidy-Graham and the NY Times tournament show us that there is so much more.

When the tournament’s experts expressed their votes, they cited taxes and wait times. They were concerned with accessibility and quality for all socio-economic groups. They brought up efficiency and innovation.

Where does this leave us? With many different variations of universal coverage.

My sources and more: You could start or end with the 141 page Cassidy-Graham Plan or skip it entirely. Instead, I recommend the NY Times Tournament and a series of superb YouTube videos. They covered key healthcare topics and were brief. The Graham-Cassidy video is above. But Aaron Carroll also did healthcare system overviews of the eight countries in the “tournament.” It was a perfect shortcut to some grasp of a complex topic. At the least, it will help you decide and defend your own opinion more knowledgeably.

Please note that I had to decide between Cassidy-Graham and Graham-Cassidy. In the media, there was no consistency.

Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Tuesday, October 10, 2017

Fall Wall by Alicia Stansell


Loving what you do is sometimes easier said than done. As a teacher my heart rejoices when a student reaches understanding of a difficult concept or when a student gets excited about coming to class. During late Fall though it is all too common place to fall on the other side of love, the painful side where circumstances try to convince you that you do not love your job. You put your heart, soul, emotions, and sometimes well being into the job, and wonder if you are making a difference. Seeing growth in student’s takes time, and burn out is high in the teaching profession. It is important to focus on the little milestones. The day to day has many joys and much heartache, so it is all about staying focused on the good you are making in the classroom. Actively seek out the things that made you choose teaching and try to block out the rest. 



Teaching in late Fall is much like swimming to a distant shore. The paperwork, the e-mails, and low grades can create an ocean so deep and vast that you feel alone without hope of survival. You feel your muscles fatigue and contemplate giving up. The more you swim and use those muscles, the greater the pain sometimes feels. Sometimes you just have to lay back, relax, and take a deep breath while watching the clear blue sky. Doing so allows you to float while you recharge those aching muscles so you can find your inner calm. Once your strength is back you can regain your treading towards the shore that will eventually come. Find the good in the day-to-day, search for the clam, and do not be afraid to let yourself relax so you can come back stronger the next day or the next week. 

Give yourself a break so you can keep loving what you do, even when times are hard.



Alicia is in her 8th year of teaching STEM contents with public schools. She believes in the power of education to improve peoples lives. 

Tuesday, October 3, 2017

econlife - Fracking and India’s Guar Bean Bubble by Elaine Schwartz



Like me, you might have seen guar gum in the ingredients list of a pint of ice cream. Who knew it was crucial for fracking?

The Guar Bubble


Around Lordi, in India’s Rajasthani Desert, farmers grow the guar bean. For centuries it was a dietary staple. But then Western food processors and pharmaceutical companies realized that guar’s ability to absorb water could come in handy. (It’s the guar gum that keeps the ice cream thick.)

Fracking_in_U_S__Lifts_Guar_Farmers_in_India_-_The_New_York_Times

For fracking also, guar is a thickener. Because of guar, the water becomes stiff enough to shoot sand sideways through rock. Once the shale fractures, sand particles keep the cracks open for oil and gas to seep through.


We all know that fracking vastly increased U.S. oil and natural gas production. In addition, it spiked demand for guar and pushed prices skyward. However, with acreage increasing, substitutes emerging, and then fracking demand subsiding, after 2013 (see below) guar markets reversed:

Guar_gum_prices_nosedive_to_four-year-low___Business_Standard_News

It is rather amazing that more than 13,000 miles from the fracking fields, India’s guar bean farmers, traders and processors thrived like never before. FT called it a bean bubble. Farmers built stone houses and bought tractors. There was more money for trips, for dowries, for elaborate weddings.

Our Bottom Line; Supply and Demand


Like peanut butter and jelly, fracking and guar seeds have a complementary relationship. When the demand for peanut butter goes up, we want more jelly. So too, with fracking and guar seeds.

And as you would expect, when price popped, the supply side had the incentive to produce more and develop cheaper alternatives. Supply (and quantity supplied) increased, demand decreased and guar prices dropped. When oil prices crashed in 2014, the boom truly became a bust.

Now? Guar prices are rising again as fracking activity accelerates.

My sources and more: For all you could ever want to know about the guar bean, do go to the NY Timeshere, and here, and to Quartz. Then, for the price update, Business Standard data is here and here. Perhaps most interesting though is seeing how guar’s ups and downs resemble fracking’s sand suppliers.

Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, September 28, 2017

econlife - Is Your Self-Driving Car Ethical Enough? by Elaine Schwartz



Assume for a moment that you are driving a car and suddenly see some debris in the road. If you veer to the side into a crowd of pedestrians, you can avoid injuring yourself.

Harm yourself or someone else? As the debris approaches, the decision is yours to make.

Where are we going? To self-driving cars that make decisions for us. 



AV Ethical Contradictions


In a survey on the most moral way to program AVs (autonomous vehicles), the results were somewhat inconsistent. When asked if in an emergency situation, the car should kill its occupant or 10 pedestrians, most respondents selected the passenger.

The_social_dilemma_of_autonomous_vehicles___Science-4

Similarly, many consistently selected minimizing casualties whenever the choice was the passengers or avoiding others outside the car.

All changed though when survey respondents were personally impacted. Then they would not buy a car that was programmed to sacrifice their safety or their family’s well-being.

As a result, autonomous vehicle designers will have philosophical decisions that have an economic impact. How they reconcile our aversion to self-harm with the need for “the greater good” will impact sales.

Out Bottom Line: Externalities


For AVs, ethical programming is far from abstract. Creating positive and negative externalities, the decisions that AV programmers make will affect pedestrians and passenger, regulators, insurance companies…the list is endless.

For now though, when you see one of Google’s self-driving cars, you can wonder whether it is ethical.

My sources…For a specific look at A.V. ethical dilemmas, these articles from the NY Times and  Science are ideal. Then, for the broader picture, Quartz takes us to robotic 
morality.


Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Tuesday, September 19, 2017

econlife - Lighting Up Our Lives by Elaine Schwartz


Artificial light was once too costly to use. And now, it is so cheap that we barely notice it.
One reason is our illumination infrastructure. But first let’s start with some history.


Costly Light

In one of his farm journals, Thomas Jefferson documented the importance of light.
You can see below how the length of the workday varied with the seasons. During July, more daylight meant they could increase their spinning:

Screenshot_8_8_17__8_06_PM

We depended on natural light because artificial illumination was too expensive. The president of Harvard noted in a 1743 diary entry that it took his household two days to make 78 pounds of tallow candles. Six months later he wrote, “Candles all gone.” Similarly, George Washington calculated that it cost him £8 a year (more than $1,000 today) to burn a spermaceti candle for five hours a night.


Cheaper Light


Like candles, nineteenth century sperm oil, gas, and kerosene lamps were expensive. In 1800, a typical middle class urban household spent approximately 4% of its income on the oil, lamps, matches and candles that illuminated their lives.

Today we spend much less for so much more. A Yale scholar estimated that we use less than 1% of our income for approximately 100 times as much artificial illumination. It is mind boggling to think that the labor that had created close to one hour of quality light several centuries ago now can illuminate us for 52 years.

You can see (below) the lighting price plunge at the beginning of the 20th century:

The_Price_for_Lighting__per_million_lumen-hours__in_the_UK_in_British_Pound__1300-2006

Our Bottom Line: An Illumination Infrastructure

Rather than a revolution that directly boosted the GDP, the illumination that spread across our country became a nationwide network. Similar to our financial and transportation infrastructures, our illumination infrastructure sustains our economy.

The Washington Post mapped the infrastructure that provides the power for our lighting:

U_S_electricity_generation_by_source__Natural_gas_vs_coal_-_Washington_Post

And these are the 160,000 miles of high-voltage electric transmission lines:

Six_maps_that_show_the_anatomy_of_America’s_vast_infrastructure_-_Washington_Post-1
Amazing to think that it all started with a tallow candle.

Sources and resources: This article conveys where the U.S. began while this one is about our current infrastructure. If you want more detail on illumination history and wage inflation, this Nordhaus paper is a classic (and summarized somewhat here). Then switching to the light side, this Tim Harford podcast is wonderful. Please note that I paraphrase several sentences from Tim Harford in this post.

After publication, this post was slightly edited.

Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, September 14, 2017

econlife -The Upside of Texas Price Gouging by Elaine Schwartz



During the Hurricane Katrina clean-up, a man from Kentucky loaded 19 generators onto his rented U-Haul. Driving 600 miles to an area of Mississippi with no power, he tried to sell them. His price was double what he had paid.

The man never sold his generators. He was called a price gouger and wound up in jail for four days. Disagreeing, an economist would say he was solving a shortage problem.


Price Gouging

The Texas Attorney General’s office has received complaints about $3.50 a gallon gasoline and a $99.00 case of water. Because the Governor of Texas declared Harvey a disaster, those excessive prices for necessities are illegal in Texas.

As of 2012, more than 30 states had regulations that prohibited “excessive” price hikes during a disaster. (I could find no evidence that any of those states eliminated the regulation since then.):

List_of_State_Anti-Price_Gouging_Laws_–_Knowledge_Problem

When Hurricane Sandy struck my neighborhood in 2012, I learned firsthand about anti-price gouging regulation. New Jersey says that any retailer charging prices that rise more than 10% above their normal level during a state of emergency is violating the law.

During the NJ emergency, my local gas station resembled the following picture. Where they could find an open station, people waited on gas lines for as long as 3 hours:

In_praise_of__price_gouging____Fox_News

Our Bottom Line: The Price Gouging Debate

If you oppose disaster price hikes, you are in good company. Nobel economics prize winner Daniel Kahneman said that businesses need to be known as fair in “Fairness as a Constraint on Profit.” Referring to economists who favor “gouging,” one of his co-authors, Richard Thaler recently added, “They are misunderstanding that if you piss people off, you pay a price…”

However, anti-gouging laws create a tradeoff.

On the supply side, higher prices encourage producers to sell more gas. They work a little harder to find extra, they extend their hours, and they buy generators in areas that tend to lose power. Meanwhile, higher prices encourage consumers to buy less. As a result, those of us at the back of the line have a chance of getting gas.

It can be win-win. Price increases during an emergency encourage the supply side to provide more and the demand side to conserve.

By contrast, the price ceiling that a price gouging law establishes creates a shortage:
Laws_Against__Price_Gouging__Aren_t_Helpful___Mises_Wire
So maybe $3.50 gas and $100 water in Houston are okay?

My sources and more: This excellent HBR article on price gouging gave some good background for assessing Texas policy as did this Mises Insitute discussion. More broadly, this econtalk podcast on a just price made one of my morning walks fascinating. But for the up-to-date news and regulation, you might just want to look at Business Insider and the Texas Attorney General’s office. And finally, here is the Kahneman fairness paper.

Please note that parts of this post were previously published at econlife.

Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.