Casey Mulligan's Grapes

November 29, 2011
Posted by Jay Livingston

Bloomberg reports (here) that the November increase in hiring – 120,000 jobs – will probably not affect the unemployment rate, which will remain at 9%.

Casey Mulligan, at the New York Times Economix blog, knows why unemployment is high: the safety net.

Government assistance programs have not only supported more people but become more generous, thanks to changes in benefit rules since 2007.
Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. [emphasis added]

In February 2008, the official unemployment rate was 4.8% – about 7.4 million people.  By October 2009, the rate had more than doubled to 10.1% or more than 15 million unemployed people. 
 

Mulligan assures us that that in that 20-month period, “millions” of those newly-unemployed people decided that they preferred to live off government benefits rather than work. 

I had thought that the sharp increase in unemployment was caused by the crash set off by the bursting of the housing bubble, with its inflated house prices and dubious financial schemes based on those prices. Companies were laying off workers or going out of business entirely.  People didn’t lose their desire to work, they lost their jobs.

But what do I know? Mulligan is an economist at the prestigious University of Chicago, and presumably he has insight into the life-decisions of poor people. Still, I’m a bit puzzled because the official unemployment rate counts only those people who are looking for a job. So apparently they have chosen to live off government benefits and are lying when they say they are looking for work.  I guess you just can’t trust these people who aren’t working.

Mulligan’s solution to unemployment, consistent with his view of its cause, is to cut these overly generous benefits.

I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

He’s talking mostly about the magnanimous $330 a week unemployment check, but he may also have in mind other programs like TAFN, food stamps, and the rest. 

(more after the break – or what should be a break if this new version of Blogger is working correctly)

In Other Words

November 28, 2011

Posted by Jay Livingston

From The Social Construction of Reality by Peter Berger and Thomas Luckman

Reciprocal typifications of actions are built up in the course of a shared history. . . .

The habitualizations and typifications undertaken in the common life of A and B, formations that until this point still had the quality of ad hoc conceptions of two individuals, now become historical institutions. . . . This means that the institutions that have now been crystallized . . . are experiences as existing over and beyond the individuals who “happen to” embody them at the moment. In other words, the institutions are now experienced as possessing a reality of their own, a reality that confronts the individual as external and coercive fact.

From Collected Poems, by Philip Larkin

The daily things we do
For money or for fun
Can disappear like dew
Or harden and live on.
Strange reciprocity:
The circumstance we cause
In time gives rise to us,
Becomes our memory.

Thanksgiving — a Classroom Memory

November 24, 2011
Posted by Jay Livingston

If you become a teacher
By your pupils you’ll be taught
                                   — Oscar Hammerstein, “The King and I”

It was my Monday-Tuesday-Thursday criminology class, and the two guys, both tall and slightly overweight, always sat in the back row together. They weren’t the best students in the class, but I liked them because they were willing to get into the discussion, often with something that was both on-topic and funny. 

This was decades ago.  One day I was talking after class with one of them, and our conversation drifted to the topic of football and betting.  “George is incredible,” he said.  “Every Thursday he gives me a couple of teams for the weekend. He’s like nineteen and one. This guy’s paying my tuition.”

The next week was Thanksgiving, and on Tuesday, I ended class wishing the students all a good holiday. Then I said, “So George, what do you like this weekend?”

Without missing a beat, George leaned back, raised his index finger to indicate certainty, and said, “The Lions at home on Turkey Day.”

I can’t remember if the Lions won on the field, but I’m sure they covered.  I did not forget or ignore his words of wisdom, not that year, or the next, or the next.  As I said, this was decades ago.  In recent years you could have lost a lot of money following his advice. This year, the Packers are seemingly unstoppable.  They opened as 5½ or 6 point favorites and the line got bet up as high as 7 before settling down to 6 or 6½ this morning.  But the Lions are much improved team this year.

UPDATE:  The betting public must have been paying attention.  A lot of money came in on Detroit, and by game time the spread had dropped to 4½ or even 4.  It looked like a test for my skepticism about “wisdom of crowds” in sports betting (see an earlier blog post here with links to even earlier posts).  The crowd was on Detroit, and the crowd lost its shirt.  The Packers won 27-15. 

I wonder what George would say.

Constructing Value

November 23, 2011

Posted by Jay Livingston
Cross posted at Sociological Images

I don’t know the sociological research on auctions – surely it must exist – but auctions seem like a wonderful illustration of how value is socially constructed. I didn’t really need to be convinced that people don’t always live up to economists’ ideals of rationality, but I was reminded of it on Saturday when I watched the auction of items from my mother’s “estate” (i.e., stuff in her apartment). I wasn’t in the actual auction room; nowadays you can watch – and bid – online.

As someone who is relatively ignorant about art, I of course was puzzled as to why one piece was worth several hundred dollars while another might fetch only a $50 or no bids at all. But I thought that potential buyers would have an idea of how much something is worth – the objects and information about them are all available beforehand – and they would bid and stop bidding according to these prior valuations. But look at this lithograph, which graced my parents’ wall for as long as I can remember.

The opening asking price was $20.* None of the people at the auction house or online would offer that much. For the potential bidders, the picture was not worth $20. 

The auctioneer then lowered the opening bid to $10. Someone offered the ten bucks. A bargain. But then someone else bid $20. The picture which had not been worth $20 suddenly was. And then it was worth $30. You can see the bidding history to the right of the lithograph. The bidders were reluctant – twice someone came in just as the gavel was about to come down – but in the end, the picture that nobody thought was worth $20 eventually sold for twice that much. In the interval of a few minutes, this minimal interaction between bidders had quadrupled the value of the picture.

There’s also a cognitive-dissonance explanation. If I bid $10 for the item, I’m not just telling myself, “I think this picture is worth $10.” Instead, the message I’m sending to myself is more general: “I want this picture.” Once we decide to buy something, our subjective valuation of it goes up – we’re more comfortable thinking that we got a good deal than thinking that we wasted our money. Most transactions end there; we buy something at a price, and we are happy with it. But an auction encourages us to turn that subjective valuation into higher and higher cash bids.

-------------
* It can be a bit daunting, depressing even, to think that a picture so familiar that it feels like a part of your life turns out to be worth so little to other people.