Opportunity cost: Beer and papers

There was this professor at Carleton who decided he'd be cool and relevant by replacing the old Samuelson-ian 'guns versus butter' example with 'beer versus pizza.' It drove me nuts, and I swore never to discuss either beer or pizza in a classroom setting. But, it seems that a Czech Ornithologist from my former host institution, Palacky University, has polled 34 of his closest friends and found that more beer translates into fewer papers.
To pick at the methodology is on par with criticizing a tabloid's sourcing practices, though it doesn't stop the WSJ from doing it. Still, it's a fun idea that has been picked up by such high profile commentators as PhD commics and Freakonomics but neither is making a few essential observations.
1) Freakonomics notes that the Czechs are the biggest beer drinkers, but doesn't get at the interesting irony that Palacky is in Moravia, which is wine country in the Czech Republic!
2) The new PhD cohort is just arriving on campus and the traditional welcome dance prominently features beer drinking. As EGSO president, I guess I have to question whether this is a good thing, because I'm positionally obligated to participate in the installation process here. Rigorous statistical methods are probably unnecessary here, because its obvious that too much partying is detrimental to productivity, whether in research or school. I saw two of my cohort miss their qualifiers pretty directly due to lots of partying.
On the other side, I'm starting the conference circuit and at my first one I was told that I need to go out for "beers with the boys." There's a pretty good case to be made for networking in academia and bar-talk is a big part of the networking game.
In conclusion: beer good when around important other economists who are also drinking and beer bad when around friends. Maybe we should add another objective called something like "happiness."

Defining poverty by social exclusion

Thanks to Slate for the nod to a great article about defining the poverty line. "Poverty" in the rich world is especially tricky to define. Developing countries have a sizable portion whose survival is threatened by their material want. I can't afford to have a body guard to clear away grapes from my path in the grocery store, but generally my graduate student stipend allows me to live with basically the same probability of death/injury as anyone else in the society.
The poor then, have to be defined more broadly than just physical necessities for survival. The Slate article cites Adam Smith's early discussion of the topic:

Adam Smith put his finger on the problem back in 1776. In The Wealth of Nations, he wrote: "A linen shirt, for example, is, strictly speaking, not a necessity of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt. ..."
Smith's point is not that poverty is relative but that it is a social construction. A person can lack the money necessary to participate in society. Whatever Eurostat may say, people don't become poor just because the median citizen receives a pay raise, but they may become poor if something they cannot afford—such as an Internet connection—becomes viewed as a social essential.

But then how to define a social essential? This seems to be one of the few times that it's best to ask society, i.e. survey data. Instead of asking people whether they think inflation will be higher next year, something they could not possibly know nor have an educated way to guess, ask them what they feel like they need to consume as a member of society. Everyone's got a valid opinion but no single expert exists in this regard. It's a perfect case for aggregating collective wisdom.
Here, a British NGO seems to be leading the way. Incidentally, it's the namesake of the first Victorian philanthropist to try and define a poverty line at the turn of the
the century. The Joseph Rowntree Institute has survey data on goods that a majority of survey respondents feel are necessary to participate in society and who lacks them. Interesting that part of social cohesion is consumption, but that seems reasonable to me. This goes beyond the "consumer society" where kids compete about who's got a nicer cell phone accoutrement; affording a nice dinner once in a while is participating in the pleasures of our society.
The Slate article is good to point out that this is different from just measuring social iniquity. Poverty is not consumption below a certain portion of the median, it's consumption that does not include a basket that is deemed "necessary." This is probably related to the median household consumption, but not the same.
The other desirable feature of this definition is that it defines poverty by consumption habits, rather than income. It's well documented that consumption inequality in the US has not expanded like income inequality. One could have income shocks year to year that push income below some poverty threshold, but credit markets allow consumption to stay at decent levels. Poverty defined by income will systematically over estimate the overall level of poverty and even if we just adjust the line lower, the adjustment should depend upon the variance of income and the completeness of credit markets for low earners. Even with the adjustment, we could get the total amount of consumption poverty but not the right individuals.
There's some cool research on how standard lifecycle consumption smoothing could generate this response by Giorgio Primiceri. He poses that some income shocks could even be foreseen by individuals, who will save/borrow against them. I have an inkling I'll be laid off soon because I'm on an assembly line at an American car maker so I build up a buffer stock, or I'm a med school student and tops in my class so I'll get a pretty huge income shock pretty soon though I'm income poor now.

Czech artists and The New Yorker

The famous Justice Oliver Wendell Holmes in 1919 came up with the more famous analogy for limitations on free speech: one can't yell "fire" in a crowded theater. We also have this long tradition of performance art taking advantage of public fears, like 1938's War of the Worlds. In a country where artists have long been society's heros, some Czech artists tried a latter day fear-mongering piece of media-saavy performance art. The court's aren't sure what to make of it. Is staging a fake nuke the same as yelling fire, and if we all watch TV, is that like a crowded theater? So there's this article in the NYT,

An appeals court has ordered a retrial for seven artists who hacked into a Czech television weather broadcast to show a fake nuclear explosion in the Czech mountains, The Associated Press reported. Members of the Ztohoven art group, based in Prague, admitted tampering with equipment so that viewers watching a live shot of the Krkonose Mountains in June last year saw a flash of bright light and a mushroom cloud rising on the horizon. In March the artists were acquitted of spreading false information, but the state prosecutor appealed the verdict. An appeals court in Hradec Kralove overturned the decision last week in a ruling made public on Monday, said Michal Strnad, a court spokesman. The court ordered a new trial but did not yet set a date. If found guilty, the artists face maximum jail terms of three years. The group claimed its project wanted to show how reality could be manipulated by the media. Czech Television called such stunts improper and said they could incite panic.

This may be a heroic stretch, but this somehow bridges to The New Yorker cover of fears of Obama as a terorist. When art uses mass media it can be particularly effective at evoking human emotions but when it piques at our overwrought fears it does a valuable social service. But we, or our authorities are scared of scaring people. Frequently, however, these paternalists base their arguments on some supposition that "others" need to be protected. They won't understand the irony or the art. On Charlie Rose, David Remnick, the New Yorker's Editor-in-Chief was completely unsympathetic to this perspective. It's good when our opinion leaders beleive that the public is smart enough to follow along and it's good when our artists beleive that the public is sophisticated enough to appreciate. I hope the courts get it.

Proof of my point

Evidence that the British Press is much more fun:
The Independent's headline about the G-8 and food policy

Over caviar and sea urchin, G8 leaders mull food crisis

And the NY Times on the same topic

G - 8 worried about food, oil; optimistic on economy

What the US press needs: more British journalists

Any obituary that starts by calling "profane" that the man should die on an important holiday is pretty stirring. I've never really heard a random process called anything more riling than "stochastic." But Christopher Hitchens, of "God is not great" and starched white suit fame, is really injecting some very opinionated life into Slate Magazine. This sort of wit reminds one of the Juno line, where she compliments her boyfriend that he's "so cool and doesn't even try," and he replies "actually I try really hard." Hitchens is witty and clearly tries very hard at it. Let's have a look at this fun:

"It seemed somehow profane that Sen. Jesse Helms should have managed to depart this life on the 232^nd anniversary of the declaration of American independence."

Of course the facts stand against the man who
"[played a] role in opposing the Martin Luther King Jr. holiday, in protecting the apartheid state from the imposition of sanctions, or in defending white Rhodesia. (Margaret Thatcher's government complained officially at one point about the role played by Helms staffer John Carbaugh in urging the white settler regime of Ian Smith to hang tough in the independence negotiations.)"

Other real gems include: "To the delicacy of foreign relations, he brought all the sophistication of a crusader against "modern art." (On this issue, the New York Times obituarist felt more confident, I noticed, allowing himself a mild smirk at Helms' admitted failure to "figure out" the Alexander Calder mobile that was installed in the lobby of the Senate's newly opened Hart Building. Philistinism is an offense, even if it is not as rank as racism.)"

Read the whole article at Slate

Guess the better way to spend you refund

Greg Mankiw's blog mentions a strange rise (no pun intended) in the revenues of adult websites in the near aftermath of the tax refund.

According to Kirk Mishkin, Head Research Consultant for AIMRCo (Adult Internet Market Research Company), "Many of the [adult] sites we surveyed have reported 20-30% growth in membership rates since mid-May when the checks were first sent out, and typically the summer is a slow period for this market."

This prompts a question: is it better stimulus policy to spur spending on internet smut or an investment credit that helps people to pay down credit cards? From a macroeconomic counter-cyclical policy perspective, it'd be better to push consumption spending-- including for dirty pictures.
The key lies in investment costs. When spending goes to savings/investment, which is the effect of paying down credit cards, some of that additional output is essentially covering the investment costs and not into greater present output.
With costly adjustment, if tax policy puts us at a higher savings rate, then we do have a long-run higher level of capital and we'll be wealthier. However, the short run is an out-of-equilibrium situation. Essentially, there's a shortage of capital and so the market price (like Tobin's q) rises to attract it. Austan Goolsbee, of Obama fame, has a 1997 research paper where he finds evidence for this phenomenon.

Using data on the prices of capital goods, this paper shows that much of the benefit of investment tax incentives does not go to investing firms but rather to capital suppliers through higher prices. A 10 percent investment tax credit increases equipment prices 3.5-7.0 percent. This lasts several years and is largest for assets with large order backlogs or low import competition.

In our neat economic models there are investment tax credits and there are consumption taxes and people respond accordingly. The investment tax has this poor performance for cyclical policy, so that justifies a consumption benefit.
This tax was a lump sum. Presumably this should actually be non-distortionary and people will instead spend as they already would, but in greater quantities. As far as personal welfare, it's the best sort and as far as cyclical moderation is superior to the investment credit. I guess that still leaves the moral crusaders upset at pornography's gain. So long as they don't go and invest their tax refunds in more TV broadcast equipment I think we're ok.

Tortilla riots and swiss chard

The world food market is in a tremendous flux from a capricious regime of agricultural subsidies, protections, regulations and trendy alternative uses. Throughout the developing world this has meant real hardship, bringing Tortilla riots in Mexico City, and deadly riots from Haiti to Egypt. In many of those countries they rely upon a single staple crop and the price distortions have forced them to rethink and perhaps substitute. Peru, the birthplace of the potato has rediscovered its charm as its light world trade keeps prices relatively cheap.
Americans don't rely upon a single staple, but some stalwarts of our diet have become quite expensive. The prices of eggs has risen by almost 20% over the year, milk by 11%. Bread inflation was 16% and peanut butter prices rose 13% (source of all of this is the BLS urban CPI).
Just as economic theory suggests that we substitute when relative prices change, maybe this dramatic price brings some very dramatic substitution. But food items are usually consumed together with others, so maybe one substitution starts a cascade. If Americans had developed unhealthy dietary habits, maybe the price changes of a few anchors of these meals will bring wholesale changes.
Into the void is an NYT article about the 11 best foods the we're not eating. Maybe prices are telling us that it's a good time to start? Some highlights from the list:

• Beets: Think of beets as red spinach, Dr. Bowden said, because they are a rich source of folate as well as natural red pigments that may be cancer fighters.
  How to eat: Fresh, raw and grated to make a salad. Heating decreases the antioxidant power.
• Swiss chard: A leafy green vegetable packed with carotenoids that protect aging eyes.
  How to eat it: Chop and saute in olive oil.
• Cinnamon: May help control blood sugar and cholesterol.
  How to eat it: Sprinkle on coffee or oatmeal.
• Pumpkin seeds: The most nutritious part of the pumpkin and packed with magnesium; high levels of the mineral are associated with lower risk for early death.
  How to eat: Roasted as a snack, or sprinkled on salad.
• Sardines: Dr. Bowden calls them “health food in a can.'’ They are high in omega-3’s, contain virtually no mercury and are loaded with calcium. They also contain iron, magnesium, phosphorus, potassium, zinc, copper and manganese as well as a full complement of B vitamins.
  How to eat: Choose sardines packed in olive or sardine oil. Eat plain, mixed with salad, on toast, or mashed with dijon mustard and onions as a spread.
• Turmeric: The “superstar of spices,'’ it has anti-inflammatory and anti-cancer properties.
  How to eat: Mix with scrambled eggs or in any vegetable dish.
• Canned pumpkin: A low-calorie vegetable that is high in fiber and immune-stimulating vitamin A; fills you up on very few calories.
  How to eat: Mix with a little butter, cinnamon and nutmeg.