Monthly Archives: August 2008

Over at Freakonomics, Sudhir Venkatesh introduces Michael (multimillionaire trying to learn how to be a philanthropist) to Curtis (Chicago squatter):

Curtis showed Michael a rag and cleaning brush. “See this, Michael? Keep this around, and you’ll always have a meal or a place to sleep — or both.” Michael looked confused. Curtis explained further. “People who got places to sleep will let you stay a night. But you have to pay $10. And I don’t have money, so I clean up, fix things. That woman you saw — she probably will clean for a good night’s sleep. Maybe a store needs mopping, maybe your uncle needs his garage cleaned.”

“Why not stay at a shelter?” Michael asked.

“Not enough of them around,” Curtis replied. “And you have to be out by 6 a.m. If you got kids, you can’t take them out in the cold. So you stay in a store, or you stay in a vacant building. And no more food kitchens since the projects went down. Not a lot for poor people.”

Curtis then took out a cigarette. “See this? Always have a loose cigarette. You can always use a bathroom in somebody’s house — maybe even get a shower — for one. Maybe your kid took a dump in his pants. Maybe you need some toilet tissue. Always keep a cigarette for emergencies.”

After reading that, the rest of the post surely recommends itself.

Clive Crook has an excellent post on Adam Smith’s legacy. He concludes, however:

As a general matter, it would be true to the spirit of Moral Sentiments to say that owners of businesses should attune their conduct to the good opinion of mankind. But note that I say “owners”, not managers. Who knows what Smith would have thought of 21st century corporate governance? The modern corporation is a form he could barely have envisaged.

An alternative view:

Adam Smith would not have been surprised by Enron, Parmalat and the rest. The father of economics famously believed that joint-stock companies could never prosper because managers had no incentive to take care of the interests of widely dispersed shareholders. “Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company,” he wrote in The Wealth of Nations.

But Clive is perhaps right not to draw too many conclusions from an 18th century view of 21st century corporations.

When people discover that I am an economist, they rarely ask me for my views on subjects that economists know a bit about – such as how to respond to climate change or pay less at a supermarket. Instead they ask me what will happen to the economy.

Why is it that people won’t take “I don’t really know” for an answer? People often chuckle about the forecasting skills of economists, but after the sniggers die down, they keep demanding more forecasts. Is there any reason to believe that economists can deliver?

One answer can be gleaned from previous forecasts. Back in 1995, the economist and FT columnist John Kay examined the record of 34 British forecasters from 1987 to 1994, and he concluded that they were birds of a feather. They tended to make similar forecasts, and then the economy disobligingly did something else, with economic growth usually falling outside the range of all 34 forecasters.

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

While at a recent Elton John concert, I observed a heated altercation between two ladies. The younger lady wanted to stand up, dance and sing along with Elton. The older lady, seated directly behind her, wanted to stay seated, watch the band and enjoy the music. The older lady asked the younger to sit down, but was told that she should also stand up and dance. An argument quickly broke out. Any thoughts on how they might have resolved the conflict without swinging handbags? 
David Walker

Dear David,

I blame Elton John himself, since he apparently did not clearly define property rights, contrary to the recommendations of the great economist Ronald Coase.

Should a concert seat come bundled with the right to get up and dance, the older woman could have offered to pay her tormentor to sit down. Conversely, should a seat come bundled with the right to an unobstructed view, it would have been the younger woman offering the bribe. Either way, the dance would have continued only if the dancer’s enjoyment outweighed its victim’s frustration. Perhaps the bargaining might also have involved swapping seats?

Sadly, with no clear property rights, there was no basis for a deal. No wonder the night turned out to be all right for fighting.

Questions to

Apparently. Here’s the press release about this new Economic Journal paper:

The prevalence of the sexually transmitted infection syphilis has fallen by nearly a half in parts of continental Europe as a result of recently introduced national laws that allow for the legal recognition of same-sex partnerships. That is the central finding of new research by Professor Thomas Dee.

How might these laws have influenced the prevalence of sexually transmitted diseases such as syphilis? Professor Dee conjectures that the legal recognition of same-sex partnerships may reduce the levels of sexual promiscuity among homosexuals by creating legal and financial incentives as well as social norms similar to those associated with heterosexual relationships.

What’s more, by reducing the social stigma of homosexuality, these laws could limit the transmission of sexually transmitted infections by discouraging furtive, high-risk sexual activity and the ‘closeting’ of sexually active homosexuals in heterosexual relationships.

The study uses World Health Organization (WHO) data on European countries from 1980 to 2003. During this period, nine European nations – Denmark, Norway, Sweden, Iceland, Netherlands, France, Germany, Finland, and Belgium – introduced new laws that allowed same-sex couples to form legally recognised partnerships and, in some countries, marriages.

So that’s interesting. Here’s the author’s home page; here’s an NBER version of the research. The direction of the effect sounds right to me but the size seems implausibly large. Still, I have not read the paper. (I’m on holiday, remember?)

After [the move to 1050 Mass Ave.], economists traveled twice a year or more to conferences, often in Cambridge, where they met their peers in sessions governed by a strict new protocol:  twenty minutes (no reading!); a serious discussant to furnish tough-minded criticism; followed by twenty minutes of open discussion. (In contrast, university historians still read their papers at conferences, word for word.)  Between times, conference-goers compared notes on latest developments in minicomputers, the new “personal computers,” and increasingly powerful software that economists were developing to analyze data that had begun to circulate, first on floppy disks and then via the mysteries of the Arpanet. Yellowjackets gradually morphed into pdf files.

Read the whole thing: unmissable for economist-watchers.

I have recently agreed with my student partner that she will move into my flat during the Edinburgh Festival so that she can sublet her room and pay for her half of our holiday together. She maintains that she should pay me for staying in the flat, whereas I argue that this would defeat the purpose of the exercise. How can we effectively resolve this dispute and look forward to our holiday? Should I simply charge her for any increase in my bills, or are there other considerations?
Ben, Edinburgh

Dear Ben,

Stop the tiptoeing about who pays what to whom. Let’s be blunt: she can’t afford this holiday, you can afford to subsidise her, but she doesn’t seem to want to incur too large a debt. It seems to me there are two solutions: an explicit contract, or an implicit one.

The implicit contract: quietly subsidise her holiday. Accept a little money from her as a tenant, and pick up a few of the extra holiday costs. The explicit contract: charge her the market rate for staying in your flat. Do not be surprised, however, if she begins to charge you for “services” provided either during her stay or on your holiday.

Choose whichever contract is to your taste. It will set the tone for your relationship – and the explicit contract may be cheaper in the long run.

Questions to

Going overdrawn can be an expensive business. In the UK, unauthorised overdrafts averaged £680m on any given day in 2006 – just over £10 per bank account. According to the Office of Fair Trading, the charges levied by banks on those overdrafts were £1.5bn, a tasty return of more than 220 per cent. Banks also make money by paying risible interest on positive balances – an incentive to keep your current account lean and, Doh!, to overdraw accidentally – and by other obscure charges. The Office of Fair Trading doesn’t like it and nor do many customers – although they rarely express their displeasure by switching bank accounts.

There are two common responses. People either grumble about money-grabbing banks or point out, smugly, that if only others would manage their affairs responsibly, they wouldn’t incur any of these charges.

There’s a certain amount of truth in both responses. Yes, banks are money-grabbing, but healthy competition would keep the greed in check. And, yes, careful customers are being subsidised, heavily, by careless ones. The trouble is that the whimsicality of the pricing makes it hard to find out which bank is offering a good deal. Most people realise that overdraft charges are steep, just as they realise that popcorn in cinemas is expensive and mobile-phone companies will all but pick your pocket if you make calls overseas. Knowing this doesn’t make it easy to find the best product, which means competition won’t work well. When competition works poorly, many customers lose out – even those who bring their own snacks to the cinema and use public phones on holiday.

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

I got the chance to discuss the idea on the Today program last Friday. Here’s the result.

Tim Harford’s blog

This blog is no longer updated but it remains open as an archive.

Tim, also known as the Undercover Economist, writes about the economics of everyday life.