Helpful Teaching Resources

In this brief post, I want to commend a few teaching resources that have been helpful over the past few months of teaching.

For teaching students the nuts and bolts of causal inference, the new Mastering Metrics videos with Josh Angrist on Marginal Revolution University are terrific. The causal animations from Nick Huntington-Klein (and other resources) are also very helpful. This app on linear regression from Luke M. Froeb and Keyuan Jiang is a helpful way to help students gain econometric intuition. They have a companion paper to the app on SSRN.

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Vegetarian Culpability Part 2 (Economics of Information Edition)

Previously, I wrote about the paralysis that a vegetarian would face if confronted with a broad view of production inputs. Namely, that hunting Cecil the lion was part of the dentist’s maintenance of his own labor. Given that preferences are diverse, we’re all perpetually facing a similar dilemma: If we trade with someone, then we are definitely, 100% helping them to do immoral things with which we disagree.

After a good night’s rest, I awoke and realized an age-old tool that humans have used to address the issue. As humans, we care and know most about those people who are closest to us. My previous analysis took as given that all of the relevant information concerning our trade partners was available. However, as Stigler knew well, information is a good and it’s costly to obtain.

When you know that your local lawyer is also a drug-dealer and a lecher, you don’t employ his services. Of course, your moral taste dictates a boycott as appropriate because his actions would be aided by your cooperative trade. The information about his divergent moral preferences is cheap and easy to obtain.

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Reddit GameStop Stock Bubble Deflates; Roaring Kitty Speaks; Hearings Loom

Last week we noted how a hive of millions of small, mainly young investors in the Reddit user group, r/wallstreetbets (“WSB”) targeted GME, the small, heavily shorted stock of troubled video game retailer GameStop. In a classic short squeeze, the stock price was driven up from a more or less rational price of $20 per share, to over $400.

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The Matriculant Theory of Value

The Labor Theory of Value goes like this: the value of a good, and the price it should command in the market, will (should) reflect the amount of labor it takes to produce it. It’s a classic fallacy, but not one we should mock. Yes, Marxist thought still often cling to it as it chases its own Hegelian dragon, but Adam Smith and David Ricardo both struggled with understanding why something that yields so little predictive value could still feel so right.

Which brings me to the updated credentialist version of this fallacy:

Now, I apologize for picking on this person, and this tweet, in particular. Similar gripes appear appear regularly in social media and The Chronicle of Higher Education on a regular basis. The formula runs as such: I, and people such of myself, have spent many years in school, have successfully been credentialed with a BA/MA/MFA/PhD, but the labor market refuses to reward us appropriately.

To be clear, I understand the deeply intuitive appeal of the Labor Theory of Value– the more labor I put into making something, the more people should pay me for the product of my labor. The problem with this logic is the very core of the economic puzzle: goods are only worth what people are willing to exchange for them. If you spend a year molding rotting eggshells into a 25-foot statue of Mickey Mouse, it might earn you something at an art auction, but probably not as much as you would have earned working an equivalent number of hours at Taco Bell. At the same time, you could take an art class at a local community college, paint a soft focus acrylic of the local high school, and sell it to an alum for $100. Or you could find a dinosaur egg in your backyard the day after you bought the house and sell it for $2000. Which is the more compelling artistic statement or mantle centerpiece is debatable, but the price each commands in the market is entirely objective, and has nothing to do with the hours of labor that went into them.

Which me brings to me the Matriculant Theory of Value: the more labor and tuition money I put towards producing a more credentialed version of myself, the more people should pay for the product of my labor. I’m sorry to report that the market doesn’t care about your degrees, it cares about what you can produce and the value the market places on that product. If you didn’t acquire any skills valued by the labor market, then your degree is only worth however much the firm values any marginal prestige it might enjoy from your credentials or the interesting conversation you may offer in the break room. If I’m an academic drawing a salary from an institution of higher education (and I am), then I’m reading not as a sign that I should be angry we’re not getting paid enough, but as a sign that I should be terrified that employers don’t value educational product I am currently producing.

Now, unlike a lot of scolds, I am sympathetic to the academic misinformation that students often find themselves marinating in. Professors enjoy telling students who might be wary of joining the glut of PhDs applying for scarce academic jobs, “Don’t worry, you’ll get a job. You’re special and brilliant and you deserve a job.” Given that these professors need cheap labor, but often lack resources, they are all to happy to pay “in trade” i.e. with an advanced degree. For that deal to work though, you have to convince students that the degree has value. They are all too quick to valorize a “life of the mind” not unlike acolytes being invited to take a vow of poverty, and with more than a little implied denigration of more proletarian endeavors.

We also have a tendency to grossly overemphasize grades, academic status, and completion. Rarely do I see a student told that it might be better to get a C in a challenging technical class than dodge it for the sake of their GPA. Who is going to be better valued in the market: a 3.9 GPA student who glided on fluff for four years, or a student who took 5 challenging technical courses over 4 years, failing 2 of them, and collapses at the finish line with a 2.1 GPA and hard earned BS?

What I am less sympathetic to is the frequent failure to admit the other allures of degrees less valued by the market: they’re fun. For a certain type of person, there is pleasure bordering on euphoric to sitting in a comfortable chair and reading histories, grand theories, and poetics for 8 hours a day. If you love your job, you don’t have to work a day in your life. True, but that doesn’t mean anyone has to pay you for it. It should worry you if your anticipated vocation is what other people do on their vacation. Not that it doesn’t have social value (it may have significant social value), but you should be terrified of trying to make a career doing what someone else is willing to do for free. You’ll not be surprised to learn no one is paying me to write these rambling diatribes.

So, yes, $38k a year for 9 months of work giving 10 hours of lectures a week, plus prep, grading, and office hours maybe doesn’t seem like much in the way of wages to you. I was paid $34k (2003 dollars) for 10 months a year teaching 19 hours of lectures a week, plus prep, grading, and parent meetings when I was a high school teacher, so I guess I could make a snarky case that the professor in question is being overpaid, especially since I hold to the belief that public K-12 teachers are underpaid relative to the social value they produce, but that is another post. But I also have enough awareness to know not to complain too much about how an indoor job with no heavy lifting is underpaid, particularly if we are resorting to any version of the labor theory of value. I dare you to walk into any professional kitchen and tell them these exact contract details, the nature of your work, and then explain to them that you’re the one who deserves to be paid more.

One last gripe. If you are sufficiently talented, conscientious, and privileged to complete a PhD, but your field of study offers you no option better than $38k/year to teach, my guess is that you’ve been not just unlucky, but proactively diligent in dodging every bit of coursework that could lead to a higher wage in the market. And I don’t just mean all of that unpleasant math you hate. Or statistics. Or java/C++/Python/etc. I mean even the adjacent courses of study or research projects where the skill acquisition path is that much more taxing or unpleasant. You didn’t study computational anthropology or physical anthropology or field anthropology. You studied cultural anthropology, fine…but you were also careful to avoid data at every step, opting instead you to memorize soft theory jargon and write the kind of dissertation that tells everyone exactly how smart you are, but not much else. Make no mistake, if you spend 5-8 years getting a PhD you may have gotten bad advice, you may have suffered the fallacy of sunk costs, you may have been done a gratuitous disservice by the faculty guiding your education, and may have been deluded by the matriculant theory of value, but on the bright side you chose a safe and comfortable line of work.

And make no mistake, you did choose it.

Sex Ratios and the Marriage Market: WW1

Last week I wrote about the “marriage market“. In many ways, the marriage market is like a labor market: there are search costs, match quality, competition for mates, and so on. When one side of the market becomes more abundant, that side become less picky — their minimum willingness to accept goes down.

Today we examine war as a shock that makes women more abundant than men. The marriage market predicts this shock will mean a smaller fraction of women will marry but those that do receive a smaller share of the benefits from marriage. Also, a larger fraction of men will marry and receive a larger share of the benefits from marriage.

Ran Abramitzky, Adeline Delavande, and Luis Vasconcelos investigate marriage in pre-and-post World War 1 (WW1) France where an estimated 16.5 percent of the French male population died or were missing in WW1. You can see from the map below that some “departments” suffered greater losses than others. Across France, the sex ratio was nearly even before the war and after the war, “If we focus on singles, widows, and divorces who were 30 years old or younger but of marriageable age, there were approximately 2 men for every 3 women.”

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The GameStop Short Squeeze: Swarm of Small Investors Stings Wall Street Hedge Funds

If you think the price of a stock is going to go up, you can buy shares and wait for the price to go up, then sell the shares to someone else. This is called being “long” a stock. If it turns out that the stock price goes down and stays down, the most money you can lose is the amount you put in, since the stock price cannot go below zero.

But what if you think the stock price is going to go down instead of up? You may believe the price has run up irrationally high, or your analysis uncovers poor earnings prospects. A favorite tactic of Wall Street pros, including hedge funds, in this case is to “short” a stock.

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Vegetarian Culpability

Do you remember that dentist who went to Africa and shot Cecil the lion? I had a vegan friend who said that she would boycott him – had he been her dentist.

I can’t tell you how many questions I had. Why boycott him? In a competitive market, it would have no long-run impact on his economic profits. Was it important that his murder of Cecil was part of his consumption/leisure behavior rather than part of his provision of dental services? Does trading with people who have different preferences make one morally culpable for their consequently afforded activities?

A Trip Down Reasoning Lane

Let’s take some things as given. 

  • My friend is vegan and didn’t want Cecil to be on the receiving end of homicide (leon-icide?). 
  • Big-game hunting was a consumption activity for, who I’ll call, the dentist.
  • Everyone has unique preferences – including moral tastes.
  • Voluntary trade makes both parties better off.
  • There are a variety of input combinations that a firm can adopt in order to create output.
  • Humans are responsible for their own behavior to varying degrees.

My understanding of my friend’s would-be boycott is that lion-hunting was a direct result of the dentist’s inappropriate preferences and economic empowerment. Therefore, boycotting the dentist would reduce the dentist’s budget, and consequently reduce his spending on improper activities. Knowing that the dentist would spend his income in this manner makes each transaction with him a contribution to satisfying his illicit preferences.

Mo’ Money Mo’ Problems

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The idea of a “marriage market”

For those not familiar with the idea of a “marriage market”, consider the following quote from Gary Becker from his paper “A Theory of Marriage, Part 1” (emphasis own),

“Two simple principles form the heart of the analysis. The first is that, since marriage is practically always voluntary … the theory of preferences can be readily applied, and persons marrying can be assumed to expect to raise their utility level above what it would be were they to remain single. The second is that, since many men and many women compete as they seek mates, a market can be presumed to exist. Each person tries to find the best mate, subject to … market conditions” (p. 814)

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The Kalecki Profit Equation: Why Government Deficit Spending (Typically) MUST Boost Corporate Earnings

Some equations or relations in economics are inspired guesswork, which may or may not precisely describe the real world. There are other equations which always hold, since they are simple accounting identities. The Kalecki Profit Equation is of the latter type. It describes precisely the factors which determine corporate profits. Knowing this relation can give investors a leg up in predicting earnings.

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