Monthly Archives: November 2007

Dear Economist,

My wife and I have separated. Naturally our relationship is not great, but it’s OK. Now divorce proceedings have started and we will be dividing up our assets. Should I hire a lawyer? I am not convinced that it is worth the expense.

Seth, via e-mail

Dear Seth,

You have obviously grasped that this is a zero-sum game with two to four players. The assets will be divided between you, your soon-to-be-ex wife, and any lawyers the two of you bring on board.

I can sympathise with your suspicion that the lawyer is money down the drain.

It is worth considering the scant evidence available.

The Austrian economist Martin Halla has collected data from divorce proceedings in his home country, and he finds a curious pattern. Husbands end up paying the smallest alimony when no lawyers are involved. If the husband hires a lawyer, but his wife does not, the alimony payment rises (and then there are fees to be paid, too). If the wife hires a lawyer, or the couple hires a joint lawyer, the husband forks out still more. Worst case scenario for hubby is if both sides hire their own lawyer. On top of that the proceedings are longer and more expensive.

Interpret that result with caution, because it is not clear whether the lawyers cause poor settlements for husbands, or whether husbands hire lawyers when things look grim. Still, the pattern that Halla discovered does bolster your scepticism.

In the absence of better information, then, Halla’s research suggests that you have a dominant strategy, meaning one that is best no matter what your wife does. That strategy is not to hire a lawyer. And for goodness sake, don’t let your wife see any research from Martin Halla.

Questions to economist@ft.com

One thing you can rely on economists to generate is a big bunch of numbers. For that, you can blame a man named William Petty. He developed the first national income accounts, concluding in 1664 that English national income was £40m.

We rely on numbers like those calculated by Petty to help make policy decisions.

First came GDP and inflation, now a plethora of statistics on everything from income distribution to the number of days it takes to start a legal business. We rely on them for policy decisions, and usually we take it for granted that the data actually mean something.

That is an assumption worth questioning. Fraud or simple incompetence might be distorting some economic or accounting data. It would be nice to have a way to check, but it is often impossible to do so directly. So an alternative is to look for patterns in the data that might indicate that something is amiss.

The remainder of this column can be read here.

I earlier trailed the Trudie vs. Prudie cage-fight. The video is here. I’ve not even seen it yet but I’m confident it will be worth watching. (HT: MR)

DilnotAs I enter the porter’s lodge at St Hugh’s College, Oxford, I fleetingly reflect that I may be about to receive an intimidating tutorial from the college principal, Andrew Dilnot. It is not that the economist has a stern reputation, but today’s circumstances are unusual. He recently stepped down from presenting More or Less, a BBC Radio 4 series about numbers in the news. I have been recruited as the new presenter, and am ready to be patronised – or worse.

I needn’t have worried: as he strides into the lodge in a pale brown linen suit and blue tie, Dilnot’s smile is genuine enough, and as we walk together through north Oxford’s leafy residential streets, he is more eager to identify shared acquaintances in the world of economics than to lecture me on the art of radio presenting…

Read the whole piece here or in the FT on Saturday. My previous lunches have been with Gary Becker, Steven Levitt and Thomas Schelling.

Water4life First Giselle, now Jay-Z:

Wads of dollar bills are usually as much a part of rap videos as fast cars, diamond-encrusted jewellery and scantily-clad models. But in an apparent nod to the low value of the dollar, rapper Jay-Z’s new video Blue Magic features another currency. He is seen cruising the streets of New York in Bentleys and Rolls Royces (now owned by Germany’s Volkswagen and BMW) with a briefcase of 500 euro notes. [BBC News]

What can I say? The dollar is surely doomed.

On the BBC website, Jonathan Moore opines:

The past decade has seen phenomenal increases in property prices across the whole of the UK, making buy-to-let an attractive investment option.

This is odd. Compare an alternative:

The past decade has seen phenomenal increases in salaries, making it more attractive to employ workers.

Or

The past decade has seen phonomenal increases in the price of machinery, making it more attractive to set up a factory.

Typically, I’d say that when something has become more expensive, that makes it a less attractive proposition, not the other way around.

Of course, I’m deliberately acting dumb. Jonathan Moore has a hidden premise, which I guess is:

When prices have increased dramatically in the past, they will continue to increase dramatically in future.

That’s presumably what people are using as a rule of thumb. Baldly stated, it looks less convincing.

Arnold Kling of EconLog alerts me to a new and rather grim term: the ultrapoor. These are people on less than 50 cents a day. Fortunately, there seem to be fewer of them than there used to be.
Ultrapoor_2

The original report is here. I do not know what it is like to live on 50 cents a day – or even a dollar a day – but there’s some interesting research into the lives of the poor around.

Here’s an extract from a previous column:

Guntur, in south-east India, is a city short of money but not of entrepreneurs. Stroll through the main thoroughfare of the largest slum at nine in the morning and outside every sixth house you will pass a woman sitting behind a kerosene stove, ready to prepare dosa for passers-by with a rupee to spare. An hour later, each woman will be on to her next job. One earns cash by sewing fancy beads on to cheap, plain saris. Others are labourers, rubbish collectors or pickle-makers.

The scene is described by two MIT economics professors, Abhijit Banerjee and Esther Duflo, in a recent article, ”The Economic Lives of the Poor”. They set themselves the task of explaining how very poor people make money, and how they spend it…

051215_eveco_xboxtn_2 The BBC reports that there will be a shortage of the much-loved Wii console this year. These stories bloom reliably every Christmas.
The economists’ question, of course, is why on earth Nintendo doesn’t raise the price until supply equals demand? There are obvious answers – which I am not sure are correct – and then there are less obvious ones.
The curious may wish to consult two articles I wrote about the XBox for Slate. XBox Part one and, replying to a vast number of reader responses, XBox Part two.

The cost of the average used car in Europe is now cheaper than the cost of gasoline to drive it for a year.

That is Shai Agassi, via Chris Anderson.

From Bluematter:

The implications of the public’s mistrust of markets are profound. Simply put, it’s the resource allocation equivalent of having invented the chainshaw and insisting on using your nails to cut down trees.

The Undercover Economist: a guide

Publishing schedule: Excerpts from "The Undercover Economist" and "Dear Economist", Tim's weekly columns for the FT Magazine, are published on this blog on Saturday mornings.
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