Monthly Archives: June 2008

Joshua Gans, author of Parentonomics, is auctioning a signed copy to raise money for the MS Readathon. Joshua says he’ll ship anywhere in the world – check out the eBay listing here. It closes 4 July.

And when you’ve done that, you can read about my favourite Joshua Gans paper here, on how taxes provided people with an incentive to postpone the date of their death…

On the FT op-ed page today, I write:

It is true that cash has recently performed better than property and better than shares, with the FTSE 100 down about 15 per cent over the past year. Still, the savvy investor should be looking for inflation-beating returns. It is possible. According to the UK Office for National Statistics, the price of spirits is up nearly 10 per cent, milk, cheese and eggs are up more than 15 per cent, and the price of edible oils and fats is up more than 20 per cent. Here, surely, are the new investment classes. Had you sold shares last summer and stocked up on Nido and Mazola, you could have beaten the stock market by up to a third.

Past performance is no guarantee of future performance, of course, so it would be rash to jump headlong into a portfolio that is short on equities and long on powdered milk. Still, an investment strategy that would also see you through the collapse of western civilisation has something going for it.

You can read the whole thing here.

My mother-in-law’s favourite complaint is that the government ignores the interests of rural communities in favour of cities. I was reminded of that view when reading a recent report from the UK’s “Rural Advocate”, a government appointee whose job is to worry about such things. Stuart Burgess argued that rural areas were not living up to their potential, in part because of a lack of government support.

This isn’t a uniquely British trait. Proclaiming support for rural areas is de rigueur for a US presidential candidate. (Barack Obama: “If Washington continues policies that work against America’s family farmers, our rural communities will fall further behind.” John McCain, although lukewarm on government-funded anything, would make an exception for better internet access: “Government has a role to play in assuring every community in America can develop that infrastructure.”)

But who really gets the bad deal: the rural hicks or the city slickers? Urban areas are, on average, richer than rural ones, but it is a real stretch to blame that fact on a lack of government support.

The remainder of the column can be read here. Please post comments below.  

I am about to leave university and have received employment offers from management consulting firms in both London and New York. I have to say that I like the idea of living in either one of these global cities – the question is which one should I plump for?
R. A., Cambridge, UK

Dear R.A.,

Congratulations on asking the right question. Too many people relocate based on a nice job offer – or love affair – without considering the significance of the geographical decision. The economist and urbanophile, Richard Florida, argues that your choice of city is the most important decision you can make, because it determines job options, the quality of your everyday life, your love life and much else.

That said, you seem to have made this decision already. Cities such as Seattle, Berlin, Dar es Salaam, Hong Kong and Moscow each offer something unique, but it is hard to see much difference between New York and London. In fact, London has more in common with New York than any British city.

If you must restrict your choice, you are at least taking advantage of the trend for the big global cities to become ever more dominant. Perhaps you should consider New York: you have a network of friends in the UK; New York would diversify your life experiences and expand your networks. And apparently, if you can make it there, you can make it anywhere.

Questions to economist@ft.com

Richard McKenzie’s book, Why Popcorn Costs So Much at the Movies, and other pricing puzzles, is out. I have not seen the finished book yet but I interviewed McKenzie recently and read a couple of chapters, which I enjoyed. It looks like a good microeconomics primer to me – a nice mix of thoughtful price theory and contemporary examples.

What is unusual about the book – I am going here on McKenzie’s description – is that it not only explains the everyman theory (popcorn costs a lot because multiplex operators are scoundrels) and the standard economic explanations (popcorn costs a lot because that’s a good way to differentiate price-insensitive customers) but also alternatives. McKenzie often seems to find a twist.

I was cold-called the other day by a television researcher wanting to pick my brain about a hypothetical scenario: a “drop the debt” for the UK consumer, in which all our debts were forgiven. She wanted to know whether this would be good for the economy. Like many stupid questions, this one was surprisingly deep.
She seemed to be under the impression that all consumer debt is simply a loan from banks, and such a campaign would transfer cash from banks to consumers, denting those fat-cat bank profits. I pointed out that banks do not print money: they borrow it from depositors or others, repackage it and lend it out. (This is why banks are often called “financial intermediaries”.) The most obvious result of this “drop the debt” idea would be the sudden collapse of the financial system, which was unlikely to be good news for most people.
But assume, somehow, that the banks could be kept alive. I argued that it would be hard to say much about the effects of the “drop the debt” campaign without identifying who had lent the money in the first place: domestic savers, foreign investors – who?
What I should have said, of course, is that the easiest way to arrange a “drop the debt” campaign would be to have a quick burst of 100,000 per cent inflation, wiping out the value of all debt and all savings. Most economists believe that as an economic shot in the arm, this strategy is not recommended.

The very excellent Vox EU is one year old this week.

…is a function of the monthly cycle of welfare payments, according to Fritz Foley of Harvard Business School. Here’s the paper; here is the abstract:

This paper tests the hypothesis that the timing of welfare payments affects criminal activity. Analysis of daily reported incidents of major crimes in twelve U.S. cities reveals an increase in crime over the course of monthly welfare payment cycles. This increase reflects an increase in crimes that are likely to have a direct financial motivation like burglary, larceny-theft, motor vehicle theft, and robbery, as opposed to other kinds of crime like arson, assault, homicide, and rape. Temporal patterns in crime are observed in jurisdictions in which disbursements are focused at the beginning of monthly welfare payment cycles and not in jurisdictions in which disbursements are relatively more staggered.

In other words, some cities pay everyone at the same time of the month, and those cities there’s a spike in theft but not rape or arson. Foley concludes that crime might be reduced by switching to weekly handouts. At a minimum, police departments should keep the welfare disbursement schedule on the station wall.

Zubin Jelveh offers more, including links to papers about how people spend their welfare checks.

So says a new IZA working paper from Stephan Meier and Charles Sprenger, anyway:

Discounting Financial Literacy: Time Preferences and Participation in Financial Education Programs. Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education.


In the early hours of November 8 2000, the vice-president of the United States, Al Gore, was travelling to Nashville to make his concession speech. But then the messages began to arrive on Gore’s pager, suggesting that perhaps he wasn’t behind. Having already conceded, informally and in private, Gore called Bush again to tell him that he’d changed his mind.

November 8 was not the only pivotal date. On December 8, the Florida Supreme Court ordered a recount in certain counties, raising the chance that Gore would win. On December 13, after the federal Supreme Court halted the recount, Gore conceded to Bush.

Because these sudden decisions were hard to anticipate, they provide an excellent test of the value of political connections to listed companies. If politics means profit, a “Republican” company should have taken a knock on December 8, but surged on December 13, when Bush’s victory was confirmed.

A recent study by financial economists Eitan Goldman, Jongil So and Jorg Rocholl found exactly that: Republican companies beat the market by 3 per cent over the week after Bush’s victory was assured; Democratic companies took almost a 3 per cent knock. Goldman, So and Rocholl defined “Republican” companies as those with board members who had served as Republican senators or congressmen or members of a Republican administration, and with no Democratically connected board members.

The remainder of the column can be read here. Please post comments below.  

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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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