Author: Joy Buchanan

Alabama Demographic Change

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According to the 2020 Census, Alabama’s population grew by 5% since 2010. Recently, the death rate started to exceed the birth rate in Alabama, as I think it has in most states. Tom Spencer of PARCA reports that most of the population growth in Alabama was driven by people migrating to the state. From 2011 to 2016, those new people were mostly immigrants from other countries. International migration slowed down in 2017, but that is exactly when Alabama experienced a surge (well, a few tens of thousands of people) in domestic migration. I arrived, as it happens, precisely at the start of the domestic migration surge. See my earlier post on the nice weather here.

It’s pretty humid currently in mid-summer. Could that be why Alabamians take summer vacation so seriously? This place really shuts down around the 4th of July so that people can be undisturbed at “the lake”.

Scale and Online Learning

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A simplistic view that I have heard about online learning is that it is of worse quality but cheaper than traditional classroom learning.

We should take the cheaper part seriously. Cheaper can mean new opportunities for many people. Delivering a lecture online can mean that, once the fixed cost of creating the video is incurred, the marginal cost of adding a student is nearly zero. The average cost of delivering instruction goes down with every student who joins the course. Economy of scale is a wonderful thing.

Now, let’s assume a family that has a quiet home and reliable internet service. Assume that a mom, m, signed up for a rock/geology class, r, for her school-aged son who cannot read. It’s me. I signed my son up for an online “rock camp”. I thought it would give me 45 minutes of time to get work done while my son was distracted in a Zoom room.

This week I got an email from the online school company about how to get ready for rock camp. I’m instructed to assemble a supply kit of about 30 items so that my kid can do a hands-on science experiment every day of the camp. This is not what I thought I was signing up for, and I no longer think rock camp is going to save me any time.  It gets me thinking about scale and online education for kids.

All the parents of rock campers will have to separately assemble a kit of supplies. The economies of scale would come from having the children in a physical school. Buy the supplies in bulk and hand out a pack to each kid all at the same time. It would be great to have a *classroom* where the students could *go*. Even though many classes do not involve vinegar and magnets, the point can generalize.

We should take scale seriously. I support experimenting with different kinds of education and giving students choices. Personally, I benefitted from getting to pilot an experimental program at my high school that allowed me to take microeconomics for college credit online. I also participate in online education sometimes as an educator.

However, it’s overly simplistic to say that the scale idea always points us in the direction of online education. Even at the university level, some products/services can be cheaper to deliver in a traditional class setting.

CEA on Inflation Today and WWII

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This week the Biden Council of Economic Advisers blogged about “Historical Parallels to Today’s Inflationary Episode”.

Consumer demand in 2021 is roaring back after pandemic shutdowns. Demand for airline travel is exceeding expectations. Car dealer lots are empty.

The authors argue that, of all the periods of rapid inflation in American history, the boom after WWII has the most parallels to today.

During WWII, Americans were obviously in war mode. Price controls and supply shortages led to deprivation on the Homefront. Families had trouble buying cars, just like today.

Instead of focusing on consumer or industrial durable goods, manufacturing capabilities were concentrated on military production. Today’s shortage of durable goods is similar—a national crisis necessitated disrupting normal production processes. Instead of redirecting resources to support a war effort, however, manufacturing capabilities were temporarily shut down or reduced to avoid COVID contagion.

Remember when oil had a negative price in 2020? While people in the US were staying home, many were building up personal savings. As soon as the “war” ends, consumers compete as buyers and drive up the prices of the limited available goods.

They present the post-war inflationary episode as dramatic but temporary, because it only lasted for two years. It’s short compared to inflation of the late ‘70’s. They are standing behind the Powell “transitory” story, in their conclusion.

On the other hand, they say that the most comparable moment in history to today involved the price level spiking 20% and taking two years to come down. I’m pondering a very expensive repair on our car, just make sure I don’t have to buy a new one soon.

Happy Fourth of July

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Like most works of genuis, the Hamilton soundtrack is the result of much deliberate work. I just watched the documentary called “Hamilton: One Shot to Broadway”.

In one of the interviews with creater Lin-Manuel Miranda, he explained how he wrote each character with a different msuical style. George Washington has lines that sound militaristic, as opposed to the synchopated complex raps that Alexander Hamilton spits out. Hamilton is not merely undifferentiated “hip hop” music. Miranda used jazz music to inspire the Thomas Jefferson solos.

If you have already enjoyed the Disney+ recorded version and/or the soundtrack, then I recommend the documentary as an extension of the fun.

Happy Independence Day from EWED!

Results on stability and gift-exchange

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Bejarano, Corgnet, and Gómez-Miñambres have a newly published paper on gift-exchange.

Abstract: We extend Akerlof’s (1982) gift-exchange model to the case in which reference wages respond to changes in economic conditions. Our model shows that these changes spur disagreements between workers and employers regarding the reference wage. These disagreements tend to weaken the gift-exchange relationship, thus reducing production levels and wages. We find support for these predictions in a controlled yet realistic workplace environment. Our work also sheds light on several stylized facts regarding employment relationships, such as the increased intensity of labor conflicts when economic conditions are unstable.

Next, I will provide some background on gift-exchange and experiments.

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The Question of When to Act

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The collapsed condo building in Florida has been in the headlines for days. Two recent reports come from USA Today and the WSJ.

This is a tragedy that will be associated with many deaths. A steady decay in the concrete structure appears to the be the cause, although there is no professional consensus on the reason for the sudden collapse (see WSJ).

In 2018, an engineering firm recommended repairs in a report. Every 40 years, a building like that needs to be re-certified, and the tower happened to be 40 years old when it collapsed. The recommended repairs had not started.

According to USA Today, a letter circulated in April 2021 (two months before the collapse) warned condo residents that expensive repairs were necessary. Meetings were being held. The condo board was gathering information from engineers and lawyers.

A line from the letter is chilling (see USA Today):

We have discussed, debated, and argued for years now, and will continue to do so for years to come as different items come into play.

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Philosopher dude, c. 1770

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This joke is relevant to the recent discussions within the economics profession about rigor in research. It’s also just funny and shouldn’t be lost, as so many memes quickly are.

The worst philosopher dude offender is Rousseau. Rousseau is cringe.

Here are his misleading thoughts from the bath about primitive humans, “The produce of the earth furnished [man] with all he needed, and instinct told him how to use it.”

A quick search about primitive humans brings up this from Psychology Today:

The caveman diet is a great diet if you want to live to be 30 or 35 years old. That was the adult life expectancy until very, very recently (indeed, it wasn’t until well after the advent of agriculture that life expectancies began to rise—in agricultural communities!). We know this from skeletal evidence.

The data is very sketchy on primitive life. However, there is no reading of the available evidence that makes it sound like people were well-provisioned to care for themselves and their children. This BBC article provides more sources on life expectancy throughout history.  

Sympathy and Predicting Behavior

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Part One of The Theory of Moral Sentiments by Adam Smith is called “Of the Propriety of Action”.  Smith argues that we naturally share the emotions and to a certain extent the physical sensations that we witness in others. “Sympathy” is a term Smith used for the feeling of moral sentiments.

In Section One, Chapter Five, Smith writes

In all such cases, that there may be some correspondence of sentiments between the spectator and the person principally concerned, the spectator must, first of all, endeavour … to put himself in the situation of the other, and to bring home to himself every little circumstance of distress which can possibly occur to the sufferer. He must adopt the whole case of his companion with all its minutest incidents; and strive to render as perfect as possible, that imaginary change of situation upon which his sympathy is founded.

After all this, however, the emotions of the spectator will still be very apt to fall short of the violence of what is felt by the sufferer. Mankind, though naturally sympathetic, never conceive, for what has befallen another… That imaginary change of situation, upon which their sympathy is founded, is but momentary. The thought of their own safety… continually intrudes itself upon them…  

The modern word “empathy” is the capacity to step into the shoes of another person and feel their pain or joy from within the other person’s frame of reference.

Adam Smith suggests that if we hear a neighbor just experienced the death of a loved one, then we can briefly experience some sadness on their account. The more we put ourselves in their shoes, the more sadness we can experience on their behalf.

We usually think of it as a nice thing to have empathy for others. It can also be instrumental to be able to think through the perspective of another person, in order to predict what they will do next. In practical dealings, it is an economic advantage to make accurate predictions about future behavior.

If I work backward through my 2020 paper “My Reference Point, Not Yours”, then I can start by saying that people can sometimes predict what others will do.

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Fertility and Choices

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James blogged this week about fertility in rich countries. I’m presenting an anecdote that was interesting to me in light of the data he presented on college. He presented a “J-curve” demonstrating that the highest fertility rate (2.2 children per woman) occurs among women who did not complete high school in the US. Women who had 4 years of college are collectively at below-replacement fertility. Women with more than 16 years of school, meaning they have an advanced degree, are closer to having 2 children on average, although still below replacement.

According to Hazan and Zoabi (2015), “By substituting their own time for market services to raise children and run their households, highly educated women are able to have more children and work longer hours.” At least some of that J-curve can be explained by the fact that the most highly educated women have more money than the woman who are at only 15 years of schooling. So, the highly educated woman can buy childcare for multiple children in the US. (Having two kids in full-time daycare usually costs more than $20,000 per year).

I saw a discussion on Twitter this week that made me think about the marginal choice to have children and how that relates to education. A journalist who lives in New York City tweeted that, “there is literally nothing encouraging me to have a kid right now in the US even though I am a prime candidate on paper”. Another woman replied that she, similarly, feels like she could have a child right now but is leaning toward not doing it. She explained, “I’m torn because part of me believes in helping raise the next generation to be conscious citizens and all that, but another part of me thinks climate change has already claimed our future and it’s futile?!” 

This sounds like the position of a college-educated “global citizen”. The way I relate it to James’s post is that I think someone who never went to college is less likely to hold her normative view of parenting.

I’m reading the Theory of Moral Sentiments. Here is what Adam Smith wrote about about global citizens mindset or what he called “universal benevolence”.

This universal benevolence, how noble and generous soever, can be the source of no solid happiness to any man who is not thoroughly convinced that all the inhabitants of the universe… are under the immediate care and protection of that great… all-wise Being… To this universal benevolence, on the contrary, the very suspicion of a fatherless world, must be the most melancholy of all reflections…

TMS

Chapman Economic Forecast 2021

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I watched the Chapman Economic Forecast Update 2021 live on June 16. Anyone can still watch it for free. (Thank you to to sponsors Edwards Lifesciences and BOA.)

Dr. Jim Doti believes inflation will go up. He didn’t present a forecast of wild double-digit inflation for 2022, however he does believe the data points to higher inflation. He and his team have a good track record of being correct.

They suggest that if inflation is going to increase, we can expect house prices to go down because mortgage rates rise. Housing is an excellent long-term inflation hedge. Yet, in the short term rising inflation leads to a decrease in home prices, historically. House prices have been rising for a long time, and their model suggests that there will be a short term minor correction.

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