Shutdown is not the answer, to anything really

I spoke with a friend yesterday who has been waiting for a launch window for his astronomy research balloon, the culmination of years of work by talented astronomers, programmers, designers, and more. The most likely day for the launch window to open is Saturday, and if the government is shut down, the balloon doesn’t go up, and there’s no funding to continue the project. So zero science, zero new knowledge, comes out of an expensive, years-long project because Congress can’t get its act together and a minority of extremists believe this is the appropriate forum to push forward their agenda. Even if the shutdown is short, getting back up and running means delays and backlogs and the possibility of success is low. This is not cost-effective. Though science may be a minor part of the deficit, it’s definitely not going to be part of any “partial shutdown” deal. It’s so maddening how little foresight is being shown in these negotiations. And this is just one tiny example, totally ignoring the millions of 1,800,000 people who won’t get paychecks, threatening a fragile recovery, and myriad other hidden costs of shutdown.

There’s plenty of good analysis out there concerning the impending government shutdown. The Guardian, in particular, is live-tweeting the day and will hopefully be both entertaining and informative.

*Updated to reflect partial shutdown number of estimated employees furloughed 800,000 and another million to work without pay.

GBV and social norms. By me! In print!

I’m constantly amazed at both how long the publishing process is and how quickly the years have gone since I started a handbook chapter with my wonderful, talented colleagues, Betsy Levy Paluck and Laurie Ball Cooper. I’m happy to say that today, the The SAGE Handbook of Gender and Psychology┬áis available for sale and has some great essays on gender, including ours on gender based violence and social norms around the world.

Beer: Actually not a Giffen good

One of the great things about being a professor on twitter is that you have a built-in following. A few professors I know even require that their students follow them as part of their grade (in a social media sociology class, but details, shemtails, right?). I don’t force students to follow me, but I do invite them to, and I promise I will not read their tweets unless they ask me to follow them back. This is better for all involved, I promise.

Occasionally, though, students send me really interesting and novel pieces of news or goings on that relate to economics, and that’s where the joy of twitterteaching, yeah, I just made up a new word, comes in. Last night, a former student sent me an article on Oktoberfest beer, which claimed that Oktoberfest beer is a great example of the Giffen paradox because as the price went up, so too did sales, per capita!

If this immediately puts up red flags for you, you’re right to be thinking it sounds a little bit fishy. It is.

The law of demand states that as price rises, quantity demanded decreases. A Giffen good is a good for which price increases translate to increased consumption, hence the paradox, but the part the article is missing is that all else must remain equal. The only thing that can change is the price.

The example I use in class comes from my principles of microeoconomics professor, Thomas Nechyba. Imagine a family living on the Upper Peninsula in Michigan who heats their house with coal and spends two months in Florida each year during the winter. Now imagine that the price of coal rises so much that the family can no longer afford to go to Florida for the winter. In turn, they spend more time in Michigan, and actually use more coal because they need to heat their house during months in which they otherwise wouldn’t have heated their house. The price of the good is the only thing that changed, and it caused them to buy more of it.

Paul Krugman‘s Microeconomics textbook (written with Robin Wells) uses the example of potatoes during the Great Famine in Ireland. As a result of the potato blight, potatoes–a staple food for many Irish, but particularly the poorest–became increasingly expensive. In fact, they became so expensive that the poor couldn’t afford to buy other vegetables and meat, so they actually bought more potatoes. Again, a price rise translates to increased consumption.

By now, it should be clear that Oktoberfest beer doesn’t fit in with these goods. In these examples, the Giffen good is an inferior good (meaning we buy less of it as we get richer) and commands a large share of the budget. It’s also probably a little weird that I the only example I use was given to me over ten years ago when I was a student. The reason is that there just aren’t that many Giffen goods in the real world.

There are plenty of goods that we consume more of, on a macro level, as the price rises: Luxury goods, conspicuous consumption goods, goods for which advertising budgets increase substantially, goods that gain popularity through use by a celebrity, goods that start at introductory low pricing and creep up as they gain notoriety. None of these is a Giffen good, necessarily, and all probably still follow the law of demand, but notice that other things changed besides the price. There are few goods individuals consume more of as the price rises, and even fewer for which nothing changes but the price and we consume more.

The article demonstrates a fallacy of economic logic as it’s often applied by journalists, pundits, and politicians. This is a rather benign example of why I say that a little economics is a dangerous thing. In order for Oktoberfest beer to be a Giffen good, nothing else would have been able to change. Not the number of people attending Oktoberfest, not the composition of people attending Oktoberfest, not the price or availability of substitutes or complements, not advertising or popularity around the event, nothing. Those simply aren’t realistic assumptions normally, but particularly not when we aggregate up individual decisions to a big, world-renowned event.

So, I say not a Giffen good. What do you think?

(As a side note, I realize this space has been lightly used of late. Thanks for continuing to read.)

IWPR, Janet Yellen, and the next Fed Chair

All signs lately point to Larry Summers being named as the next Chairman of the Federal Reserve. I have to say I’m rather disappointed. I’m sure he’s very intelligent and qualified, but for someone with those qualities, he’s certainly made a few public blunders that seem to indicate he wouldn’t be an effective leader. There have been several articles written about this over the past two months and so I will not attempt to either link to them, summarize them, or even provide novel arguments. I will however, encourage professional economists to read (and sign if you are so moved) this open letter to President Obama in support of Janet Yellen for that same position.

The letter is being supported by IWPR, an organization that tends to focus on issues pertaining to gender, but what is so wonderful about this letter, and about Yellen, is that her gender is irrelevant. The letter doesn’t even mention it. I kind of feel like this is one of those experiments where we sent identical resumes, just changing the names and apparent genders of the applicants to show discrimination. Not because we’re trying to identify discrimination, but rather because she’s that good. Her experience and qualifications put her at the top of the bunch, regardless of gender or other demographic consideration.