Pilgrims' Progress

Next week marks my forty-fourth Thanksgiving holiday. I have much to be thankful for -- a terrific family, a job, some savings, a comfortable life. I was lucky to have been born in the greatest country on the planet, in a place where individual initiative often brings wonderful rewards.

But things were not always that way in America, and I thought it might be useful to look back at the Pilgrims' first few years, years when there was little enough to be thankful for. Those years were, in a word, bleak. By the end of  the first winter, half the colonists had died, victims of disease and starvation. And while historians often credit the weather for those disastrous first years, a look back through the economist's lens reveals the true source of the economic chaos that reigned: the lack of private property.

Upon landing in the new world, the Pilgrims quickly established communal ownership of all pastures, and communal ownership of all agricultural production. As any introductory student of economics could predict, the result was underproduction and overconsumption, a net shortage of food. 

How, then, did the Pilgrims achieve their first bountiful harvest? Governor William Bradford, noting that communal ownership "was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort," assigned each family a parcel of land to do with as they pleased. Bradford writes, "This had very good success, for it made all the hands very industrious, so as much more corn was planted than otherwise would have been by any means the Governor or any other could use . . . "

Bradford's recipe worked, and it worked well. It was so successful that, as abhorrent as private property was to communist leaders, country after country in the communist bloc relied on similar schemes to feed their people. In the Soviet Union, private garden plots accounted for less than four percent of arable land, but were responsible for a third of total Soviet agricultural production.

Private property encourages harder work, smarter work, and more useful work. It encourages it through the promise of reward commensurate with effort, vision, and intelligence. Sometimes, of course, working harder or smarter fails to bring those rewards. Perhaps one's timing is wrong, or the market misunderstood. But private property gets it right more often than not, and it is only the system of private property that contains the promise of ever richer and more bountiful Thanksgivings to come. So this Thanksgiving, raise your glass to private property. It's earned your thanks .

I believe that universities should hire people with Ph.D.s not because they want people who have achieved distinction in the past, but because they want people who will achieve distinction in the future.

It's the thought that counts . . .

Why spend perfectly good money on a gift someone will hate when you can find something they'll hate just as much in your own basement?

I believe that when a university becomes unable to staff its course offerings to the point that students are regularly enouraged to fulfil their requirements at a different institution, that university is being overly ambitious in both its course offerings and its requirements.

I Know It Pisses You Off, But

Last week, former Chairman of the Council of Economic Advisors and current Harvard University professor Greg Mankiw asserted that if the Obama administration rolled back the Bush tax cuts, he might no longer write a column for the newspaper. After taxes, there simply isn't enough reward in it. This, of course, has infuriated those who support the tax increase; one colleague of mine (and a colleague that I respect, like, and appreciate) responded with a resounding, "Oh, what a freaking selfish prick is Mankiw . . . "

And my friend may be right (though I cannot claim to have knowledge whether Mankiw is either freaking or selfish or a prick), but my friend misses two very important points. First, whatever he thinks of Mankiw and his selfishness, Mankiw is demonstrating that actions have consequences--if you increase the tax on an activity, you'll get less of it. Study after study has demonstrated that even addictive behaviors like smoking respond predictably to taxation. And so, if you increase the tax on being wealthy, which often follows as a result of taking unusual risks or having extraordinary talents, then you'll get fewer people taking risks and fewer people exercising their talents. And it should not come as a surprise that the rich are more sensitive to tax changes--increase income taxes on someone whose budget is tight, and they'll still go to work every day. But the rich, with income beyond their needs, have the luxury of simply reducing their effort with little consequence for their lifestyle.

In other words, Mankiw is purposefully and pointedly, through his actions, making the larger point that there are thousands and thousands of people at the top of the income ladder whose behavior will mimic his own. And perhaps these people, too, are all freaking selfish pricks. But that's out of your hands, my friend, and irrelevant for policymakers who must, when designing policy such as a tax increase, account only for the rich's behaviors and not their attitudes. Raising taxes will reduce investment and innovation and activity, and you may not like that, but it is what it is. No matter how much lipstick you put on a pig, it's still a pig.

The second point that eludes my friend, when he calls Mankiw a selfish freaking prick for cutting back work when taxes rise, is this: It's. Not. Your. Money! My friend wants Mankiw to continue working, regardless of the cost or benefit to Mankiw. And he wants this not because it does Mankiw any good, but because when Mankiw works, my friend receives the benefits Mankiw's taxes provide. And so my friend asks Greg Mankiw, who is no stranger to hard work, to work some more and pay some more so that my friend can pay less.


And so, dear friend, I ask the same of you. If you really believe that it's okay to ask Mankiw to work out of the goodness of his heart so that your life can be a bit easier, then it seems only fair that you to sacrifice your evenings and your weekends and take a job at the Home Depot or Baldwin City Market so that others' lives would be easier. And make it a low-paying job, please, or donate your salary to the federal government, because I want you to know in your heart that you are not working for the money it brings you (lest someone have the temerity to call you a freaking selfish prick), but so that the taxes you earn can be put to good service helping those below you on the income ladder.


In the end, it's not really the money we're talking about, it's the work. Mankiw wishes to work less, and you condemn him for it. If you are to point an accusing finger at those richer than you who don't wish to fill their every waking moment with work on your behalf, then you must also be willing to stand in their shoes and fill your every waking moment with work on behalf of those poorer than you.

The President's Right-hand Man has resigned . . .

Not Joe Biden, but Lawrence Summers, his chief economic advisor. Summers will return to Harvard, where he has a professorship in economics, and where more famously he was pressured to resign as president after making some much-misinterpreted comments about the abilities of men and women in science.

Summers has had a distinguished academic career (it does take some qualifications to get tenure at Harvard, after all), and is known predominantly as a macroeconomist. Perhaps this is why he was tapped to serve as Treasury Secretary under Clinton. But one of the pieces of his work (with Andrei Schleifer and Lawrence Katz) I find most interesting cuts to the core of family relations: how often children visit their parents in nursing homes.  Here is their work in a nutshell:

1) Children of rich parents visit more often than children of poor parents.
2) Result 1) holds only if there is more than one child.
3) In the instance of one-child families, there is no difference in visitation rates among rich and poor.

In other words, children visit their nursing-home-ridden parents because there's money on the line. But money is only on the line when there's competition for that money in the form of siblings.

Ah, family!

Something Pithy:

One of my all-time favorite students bestowed this bit of wisdom on me:  Declaring something 'priceless' is just a way to get people to pay nothing for things that are worth something.

A short one-liner . . .

I believe there is a big difference between a society in which 95% of the people decide to each sacrifice a little to help the other 5%, and a society in which 90% of the people agree to take a lot from the remaining 10% and parcel it out among themselves.

A short note on growth and horses and life at Baker

At the dawn of the 20th century, no less a respected publication than Scientific American reported that economic growth in Manhattan was about to reach its limit because the island could not support any more horses.

Economic growth did continue continue in Manhattan in spite of its equine capacity, largely because people found new ways to use the space they had more efficiently. The lesson to learn is that economic growth stems not from cramming more horses onto your island, but from figuring out new, smarter, better ways to use the island that you've got.

Fast forward a hundred and ten years to Baker University, the little university that tried to be big. Truth be told, the marketplace is tough--Baker looks a lot like a thousand other small, struggling, liberal arts colleges. To compete, Baker tries to offer as many opportunities as possible to its students. We have dozens of sports teams, organizations, honor societies, and fraternal organizations. And that's just for students (and a relatively small student body it is). As faculty (and a relatively small faculty it is), we're advising or sponsoring those groups, serving on committees and task forces, supervising internships, and advising students. This in addition to teaching a heavy load of classes and trying to stay current in our fields.

Last year, I served as a faculty advisor to a student group. The group suffered, as groups sometimes do, from lack of mission. The meetings were poorly attended, and in a vicious spiral of causation, the main topic of conversation at each meeting was how to get more students to come to meetings. 

This exercise in absurdity is symptomatic of a life in which people are stretched too thin to give their full attention to the pursuits they have chosen. Baker will not distinguish itself, nor will it effectively compete with its rivals, if its faculty and students persist in the attitude that growth occurs because we've crammed more opportunities, activities, committees . . . horses onto our little island. True growth, the growth that allows a village to become a New York City or a Baker to become a Harvard, comes from doing fewer things, but giving them the time and attention necessary to do them better than anyone else. 

In that spirit, this year I plan to spend less time worrying about "more and more," and more time focusing on "better and better." 

Enough of the broken windows, already!

President Obama has assembled an economic team with tremendous brainpower.  These guys are super.  Really. So it's pretty amazing to me that the collective wisdom of that team must surely have been ignored when the administration created this little project:

Part 1: "We, the U.S. Government, will purchase your used car for $4,500 if you buy a new vehicle."

Okay, so some might find that part of the plan objectionable--government is not generally in the habit of subsidizing our purchases, and some training in economics will allow you to show that every dollar car buyers receive from the program costs someone else (we don't know who, but why quibble) a bit more than a dollar. But we were in a recession, and car companies were having a hard time, so if government believes that the auto industry is important and needs to weather the storm, I at least understand that. It's the second part of the plan that I find absolutely stunning:

Part 2: "After we purchase your used car, we will destroy that car by pouring molten glass into the motor."

So if the goal of propping up ailing automakers is accomplished by part 1, then why the need for part 2? All the plan does is take a perfectly good car that someone might have gotten a great deal of use from--perhaps someone who couldn't afford a new car even with the subsidy--and destroy it in the name of job creation.

That car simply becomes another broken window. And the lesson for Obama's economic team is that they should try harder to impress upon our policymakers that nobody--not a gang of hooligans, a hurricane, or a government--can create wealth by destroying wealth.

Meet Cooper!

I warned you that this wasn't going to be an "all-business" blog, didn't I?  So meet my little boy, Cooper!

More broken windows . . .

Of course, the idea that the broken window created a flurry of economic activity is neither new nor particularly original.  One hears the same thing about wars -- "WWII pulled us out of the Great Depression" -- and about natural disasters -- "Hurricane Andrew created thousands of jobs in Homestead, Florida."

The problem with such reasoning is this: it is true that the broken window made our guy spend money with the glass dude, who could then buy a TV, who could . . .  But here's what's often ignored: what might the first guy have done with his money if he didn't have to spend it on a new window? Perhaps he would have spent it on a flat panel television. Or perhaps he would have put it in the bank, where someone could have borrowed it to buy a new car. Either of these actions would have touched off just as much spending as the broken window did.

The point is that in the first case, we get a lot of spending. But in the second case, we get exactly the same amount of spending and we save ourselves a broken window. WWII was indeed a great thing for the American economy, unless, of course you count the half-million people who died and all of the tanks, jeeps, ships, and planes that were destroyed in the process.  And those jobs in Homestead were jobs created simply to replace what had been destroyed, not to create anything new.

When we evaluate the impact of an event, it is not right, accurate, or fair for us to look only at the benefits, we must also look at the costs.

About broken windows . . .

A man wakes one morning to find that some punks have thrown a rock through his living room window. He calls his window dude, and the window guy rushes out to replace the window at a cost of a few hundred bucks.





The window guy is now a few hundred dollars to the good, and after all, it's March Madness, so he rushes to the appliance store to buy a flat-panel TV.

The appliance salesman had been wondering how he was going to pay for his daughter's college tuition, but no more. With the few hundred bucks he received from the window guy, his daughter is free to take that econ class she's always wanted.

The econ professor has been needing some new suede patches on the elbows of his sportcoats, so he takes the appliance guy's money and . . . well, you get the picture by now. Just look at all of the economic activity, all of the income, that has been created by that broken window.

Aren't we lucky that window got broken?

And if breaking windows makes a society rich, then maybe we should hire those young punks to go out and break some more.



The town in the photo above is surely very wealthy.

Immigration and Free Trade

It's fascinating to me how many people are advocates of free trade but opposed to free immigration. You can import your labor in human form, or you can import it embodied in a product or service. In either case, you are hiring an foreigner to perform work for you; where the work actually gets performed is largely immaterial. 

Sunk Costs are Sunk

One of the cornerstones of economic analysis is what we call "marginal thinking."  Marginal thinking simply means that we look forward one step from wherever we happen to be, compare costs and benefits of actions that we're considering, and take those actions whose benefits outweigh their costs. It takes some calculus to prove, but making marginal decisions in this way tends to produce the highest level of available well-being for those that practice it. 


Despite the fact that we do marginal analysis every day, it's still easy to fall into the trap of chasing sunk costs.  Sunk costs are costs that have already been incurred;  the saddest thing about sunk costs is that no matter how badly you want to, or how hard you try, you cannot get them back.  And making decisions based on what has already occurred violates the forward-looking principles of marginal analysis.


Consider, for example, the moviegoer who plunks down $15 to sit through what might possibly be the worst movie of all time: "Dude, Where's My Car?"  Within minutes, the moviegoer knows the movie will be terrible, but sits through the rest of the movie because, "I've already bought the ticket."  Or the college senior who discovers that she hates French literature and never wants to speak another word of French, but continues taking courses in the major because, "I've already got 20 credit hours."  Both of these people are choosing an action based not on what is to come, but what has gone before.  The moviegoer should be asking, "What else can I be doing with the next two hours that is better than watching this stinkpot of a film?" The student should be asking, "What field of study can I choose that I will enjoy more than this stinkpot of a major?"


I recently found myself guilty of chasing sunk costs when I spent the weekend with a friend of 32 years.  At the end of the weekend I realized that I really don't like him, have not liked him for many years, and that I spend time with him primarily because we have a shared history. My friend is a human version of "Dude, Where's My Car," and it's time I realize that this is one movie that's not going to get better if I wait.  Every minute I spend indulging my once-friend is time away from more valuable uses...and so I'm walking out of the theater.

Assessment

One thing that universities need to do is answer the question, "Are our students learning what we want them to?" The process by which that answer is found is called "assessment," and the answers are supposed to inform us of where we need to make changes in our programming. I understand the goals of assessment, but I often get frustrated by the language and culture of assessment, and I often lament that for many, the process is more about the data than it is about using the data to make positive changes to programs. Furthermore, assessment involves lots of data gathering and analysis, both of which tend to happen at the busiest times of the semester. Isn't it serendipitous, then, that I am the semi-official department assessment coordinator?

Recently one of my colleagues who has been doing mostly administrative work decided to return to the department full time.  Last night, Judy emailed me and asked if she could take over as department assessment coordinator.  Here was my response, lifted wholesale from a source much more talented than I:

“Why, it’s you, Judy! I warn’t noticing.”

“Say - I’m going in a -swimming, I am. Don’t you wish you could? But of course you’d druther do assessment - wouldn’t you? Course you would!”

Al contemplated the woman a bit, and said:

“What do you call work?”

“Why, ain’t that work?”

Al resumed his assessing, and answered carelessly:

“Well, maybe it is, and maybe it ain’t. All I know it suits Alan Grant.”

“Oh, come now, you don’t mean to let on that you like it?”

The magic assessment pen continued to move.

“Like it? Well, I don’t see why I oughtn’t to like it. Does a guy get a chance to assess learning outcomes every day?”

That put the thing in a new light. Judy stopped nibbling her apple. Al swept his pen daintily back and forth - leaned back to note the effect - added a touch here and there - criticized the effect again - Judy watching every move and getting more and more interested, more and more absorbed. Presently she said:

“Say, Al, let me assess a little.”

Al considered, was about to consent; but he altered his mind:

“No-no-I reckon it wouldn’t hardly do, Judy. You see, Dean Flaherty’s awful particular about this summative assessment - right here in the public eye, you know - and if it was just low-level formative assessment, I wouldn’t mind, and he wouldn’t. Yes, he’s awful particular about summative assessment; it’s got to be done very careful; I recon there ain’t one person in a thousand, maybe two thousand, that can do it the way it’s got to be done.”

“No-is that so? Oh, come now - lemme try. Only just a little - I’d let you, if you was me, Al.”

“Judy, I’d like to, honest injun; but Dean Flaherty - well, Gary wanted to do it, but he wouldn’t let him; Kevin wanted to do it, and he wouldn’t let Kevin. Now, don’t you see how I’ fixed? If you was to tackle assessment and anything was to happen to it --”

“Oh, shucks, I’ll be just as careful. Now lemme try. Say - I’ll give you the core of my apple.”

“Well, here - No, Judy, no you don’t. I’m afeared --”

“I’ll give you all of it!”

Al gave up the assessment pen with reluctance in his face, but alacrity in his heart. And while Judy worked and sweated over the assessment, the retired department assessment coordinator sat on a barrel in the shade close by, dangled his legs, munched his apple, and planned the slaughter of more innocents.

Perfection

I'm an academic economist by day, which means that my job is to help students develop a working understanding of economics.  It turns out that economics is hard to learn for some--economists think in strange ways about problems, and we use graphical tools that are abstract and hard to learn.  Students, even the best students, rarely walk out of an econ course feeling as if they have mastered the material.  Students might be encouraged to learn that I've been studying economics for 25 years, and I don't feel as if I've mastered the material either.

But rather than being encouraged, some might feel that because they're learning their economics from less than a master, they are being cheated out of what they paid for.  I might be tempted to feel guilty about that.  But at night, I hang up my economist hat and put on a woodworking hat.  I love working with wood, reading about working with wood, and thinking about wood. There are a few woodworking giants whose names pop up everyhere woodworkers gather--among them are Roy Underhill, James Krenov, and Sam Maloof.

Roy Underhill hosts the longest-running woodworking show on television, "The Woodwright's Shop."  He was for many years the housewright in Colonial Williamsburg, works only with hand tools, and is known by his devotees as "St. Roy," because he's cut himself so many times on the air (his shows are always shot in one continuous take) that it's a miracle he's alive.  He is charming and charismatic and perhaps the most beloved soul in woodworking.

James Krenov, recently deceased, made his name by crafting high-end cabinetry.  Later, he opened the most famous woodworking school in America, where he perfected a type of handmade wooden plane that came to be known worldwide as a Krenov-style plane.

Sam Maloof made chairs--chairs unlike any that had ever been seen before, with traditional bones and natural and contemporary lines.  His work has spawned a slew of imitators who produce knockoffs that are referred to only as "Maloof-style chairs."

Here's why I mention these icons:  they are not perfect.  Roy Underhill's books are full of pictures of tables and boxes and chests that he's literally crafted out of trees--this is pretty amazing to me.  And yet, if you look at the pictures closely you'll often see torn and splintered wood, mis-cut pieces, and gappy joints.  James Krenov, crafter of some of the finest furniture in the world, chose as the cover of his "Cabinetmaker's Notebook" a photo of a jewelry box that clearly shows where he mis-marked his joints with a knife and had to strike a second line.  And Sam Maloof used *gasp* metal screws to hold his chairs together instead of more traditional wood-to-wood joinery.

Roy's boxes, James' cabinets, and Sam's chairs all do what they are supposed to, and all are probably far finer than I will ever produce.  Yet these three giants are not ashamed to display the errors and imperfections in their work. They know that, master craftsmen though they may be, they will never totally master the wood they use.

Students of economics, take heart.  You might not master economics, but that doesn't mean that you can't be good enough at it to produce a useful, and even beautiful, end product.

A new semester begins...

So tomorrow is the first day of classes for the spring semester of 2010.  I've just had six weeks off, and yet I'm still not ready for classes to begin. Even my course syllabi are not yet done, as I am a living example of the philosophy, "Never put off for tomorrow what you can put off for the day after."

Nevertheless, I'm excited about the semester beginning, and nervous about what I'm going to cover in class.  Even after fifteen years of doing this, my courses and style continue to evolve, at least incrementally.  One of the projects that I've committed to this spring is to post regularly to a departmental blog.  This is that blog, though it will also contain things of a personal nature because, frankly, I'm too flighty to regularly contribute to more than one writing space.

So welcome back, eager students.  Next time I write, it will be about achieving perfection.