And the Prize Goes To . . .

May 12, 2013
Posted by Jay Livingston

When you hustle you keep score real simple. At the end of the game you count up your money. That’s how you find out who’s best. 
        “The Hustler,” screenplay by Sidney Carroll and Robert Rossen

I missed this Freakonomics post by Dave Berri back in February* – the one arguing that the Oscar award for best picture should follow the money.  Why would a presumably intelligent economist make such an argument?  I have a guess. Read on.

According to Berri, box office receipts reveal the opinion of a different but more important set of judges – “people who actually spend money to go to the movies.” 

According to that group, Marvel’s the Avengers was the “best” picture in 2012. With domestic revenues in excess of $600 million, this filmed earned nearly $200 million more than any other picture. And when we look at world-wide revenues, this film brought in more than $1.5 billion.

To rule out The Avengers is an insult to moviegoers around the world

Essentially the Oscars are an industry statement to their customers that says: “We don’t think our customers are smart enough to tell us which of our products are good. So we created a ceremony to correct our customers.”

The only reason the Oscars are of any use at all, says Berri, is that the they get people interested in the nominated films, and this interest “generates value.”  See, it’s still about the money.

OK, it’s a really stupid argument. (Some readers may have thought that Dave Berri was a typo and that the author was Dave Barry.)  The 50+ comments on the post were not kind.  Many of the comments criticised Berri’s economics, noting that many factors besides the quality of the movie can influence gross sales –  advertising budgets, production costs, barriers to entry, etc.

But I think everyone overlooked the real point of the post.  It’s not about movies.  Consider that it was posted on Freakonomics.  Consider also that the Freakomics blog, books, and movie have far more viewers than do most other economic works, even widely used economics textbooks.  The implication couldn’t be clearer: when it comes time to give out the prizes in economics – the Nobel and lesser awards – the judges should factor in book sales, blog hits, movie tickets, and TV appearances.. 

Levitt, Dubner, and contributors like, oh, maybe Dave Berri would be shoo-ins . . . if it weren’t for competitors like Suze Orman and Jim Cramer.  As for Ostrom, Sen, Diamond, Schelling, Kahneman, et al. – nice try you guys, but really?

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*Andrew Gelman dusted it off recently on his blog (here).

Rich and Happy

May 11, 2013
Posted by Jay Livingston
Cross posted (in edited form) at Sociological Images

In America I saw the freest and most enlightened men placed in the happiest circumstances that the world affords, yet it seemed to me as if a cloud habitually hung upon their brow, and I thought them serious and almost sad, even in their pleasures.
    DeTocqueville, Democracy In America, Book II, Chapter 13 

Mo money, mo problems  
    Notorious B.I.G.

Forty years ago Richard Easterlin proposed the paradox that people in wealthier countries were no happier than those in less wealthy countries.  Subsequent research on money and happiness brought modifications and variations, notably that within a single country, while for the poor, more money meant fewer problems, for the wealthier people – those with enough or a bit more – enough is enough.  Increasing your income from $100,000 to $200,000 isn’t going to make you happier.  

It was nice to hear researchers singing the same lyrics we’ll soon be hearing in commencement speeches and that you hear in Sunday sermons and pop songs, both the earnest (“The best things in life are free”) or ironic (“Money, it's a gas / Grab that cash with both hands / And make a stash” sounds anything but joyful).  But this moral has a sour-grapes taste; it’s a comforting fable we nonwealthy tell ourselves all the while suspecting that it probably isn’t true.

A recent Brookings paper by Betsey Stevenson and Justin Wolfers (here) confirms that suspicion.  Looking at comparisons among countries and within countries, they find that when it comes to happiness, you can never be too rich.

Stevenson and Wolfers also find no “satiation point,” some amount where happiness levels off despite increases in income.  They provide US data from a 2007 Gallup survey.

The data are pretty convincing.  Even as you go from rich to very rich, the proportion of “very satisfied” keeps increasing.* 

Did Biggie and Alexis get it wrong? 

Around the time that the Stevenson-Wolfers study was getting attention in the world beyond Brookings, I was having lunch with a friend who sometimes chats with higher ups at places like hedge funds and Goldman Sachs.  He hears wheeler dealers complaining about their bonuses. “I only got ten bucks.”  Stevenson and Wolfers would predict that this guy’s happiness would be off the charts given the extra $10 million.  But he does not sound like a happy master of the universe.** 

I haven’t read Robert Frank’s Richistan, but the New York Times review had this to say: “If  Richistan is travel journalism, then . . . do we want to go there? Not much. The people sound dreadful and not very happy, to boot.”

I think that the difference is more than just the clash of anecdotal and systematic evidence.  It’s about defining and measuring happiness.  The Stevenson-Wolfers paper uses measures of “life satisfaction.”  Some surveys ask people to place themselves on a ladder according to “how you feel about your life.”  Others ask

All things considered, how satisfied are you with your life as a whole these days?

The GSS uses happy instead of satisfied, but the effect is the same.

Taken all together, how would you say things are these days - would you say that you are very happy, pretty happy, or not too happy?

When people hear these questions, they may think about their lives in a broader context and compare themselves to a wider segment of humanity.  I imagine that Goldman trader griping about his “ten bucks.”  He was probably thinking of the guy down the hall who got twelve.  But when the survey researcher asks him where he is on that ladder, he may take a more global view and recognize that he has little cause for complaint.  Yet moment to moment during the day, he may look anything but happy.  There’s a difference between “affect” and life satisfaction. 

Measuring affect is much more difficult – one method requires that people log in several times a day to report how they’re feeling at that moment – but the correlation with income is weaker. 

In any case, it’s nice to know that the rich are benefiting from getting richer.  We can stop worrying about their being sad even in their wealthy pleasure and turn our attention elsewhere.  We got 99 problems, but the rich ain’t one.

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* Sample size in the income stratosphere might be a problem.  As the authors footnote, “While 100 percent of those reporting annual incomes over $500,000 are in the top bucket of ‘very happy’, there are only 8 individuals in this category.” I suspect that bucket is a Cupertino and that they intended it to be bracket.  But bucket is a much more colorful metaphor.

** In Tom Wolfe’s Bonfire of the Vanities (1987), the yuppie bond traders appropriated the Mattel action figure title to refer to themselves.  And they were not being entirely facetious.  Wolfe does research for his fiction – he was a first a journalist, then a novelist – and I suspect that in this use of MOTU he was reporting, not inventing. 

More Certain About Uncertainty

May 7, 2013
Posted by Jay Livingston

It’s nice to have your hunches confirmed by real data.

Two years ago, the Republicans were blaming the slow recovery on “uncertainty.”  The job creators (businesses), so their theory went, were not creating jobs because they were uncertain about regulations and taxes that might be in store.  I was skeptical. I’ve never been in business, but I suspected that the real problem in job creation was that business weren’t doing business.  It was the demand – or lack of demand – stupid.

One of my posts (this one) actually got some attention from economists. 

That post was based data from a survey of small businesses. It’s not the highest-quality evidence – business owners could be wrong about the causes of recession and even about what was affecting their businesses – but at least it was more than the single anecdote that law professor/columnist/novelist Stephen L. Carter based his views on.

Now, real evidence is available, allowing us to compare economic recovery in the different states, those laboratories of democracy and economic policy.  If the uncertaintists are right, states where businesses ranked regulation and taxes as their biggest problem should show the slowest recovery.  But in fact there was no correlation.   Owen Zidar at the New York Times Economix blog (here) summarizes the evidence from a few studies.*

Using state-level data from National Federation of Independent Businesses, however, [researchers] found almost no relationship between job growth and the share of small businesses that cite regulation and taxes as their top concern.  (Rather, they found a strong correlation between weak job growth and complaints of a lack of demand.)

So we are now more certain about the irrelevance of uncertainty.

 
Zidar also reports on other state-level research that adds to our certaint about  other aspects of the economic policy debate:

• Fiscal stiumlus boosts employment.
• Increased taxes on the wealthy have a “negligible to small impact on job creation.”
• Cuts in government spending (e.g., sequestration) constitute a fiscal anti-stimulus and inhibit job creation

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* Zidar posted his article two months ago. I found out about it today thanks to a link on Brad DeLong’s blog.

No Keynes Please, We’re Straight

May 4, 2013
Posted by Jay Livingston

Hard money, a strong currency, Spartan-like austerity, concern that inflation will weaken the dollar.  It’s not just that the conservative analysis of the crisis has been wrong or that the conservative solutions have been disastrous (even the Austerians in Europe have had second thoughts). It’s not just that the last few years have provided much support for the Keynesian view and little for its opponents.  But until now, I never saw the connection between right-wing economics and right-wing reaction to social issues.

Then Niall Ferguson made it all clear. Never mind that the Keynesians were right and Ferguson and other conservatives wrong in predictions about inflation and interest rates.  Keynes was wrong, says Ferguson. Why? Because Keynes was gay.

According to a report in Financial Advisor,

Ferguson asked the audience how many children Keynes had. He explained that Keynes had none because he was a homosexual and was married to a ballerina, with whom he likely talked of “poetry” rather than procreated.

I think that homophobia as a term is often inaccurate.  Gay bashers don’t fear homosexuality so much just dislike it.  But Ferguson’s ad hominem (ad homo-hominem?) argument is changing my mind. Why else would he bring up poetry and ballet as at all relevant to economic theories?

Ferguson says U.S. laws and institutions have become degenerate.

It’s the classic language of a brittle machismo.

I don’t know if anyone has looked at the linguistics of economics, but I would expect that conservatives turn to this strength-vs-degeneracy language mostly for policies that bring suffering to others – the unemployed and others with little economic or political power.

Throughout his remarks, Ferguson referred to his “friends” in high places.

For policies like bank bailouts that benefit these friends – investors, traders, banksters – these same economists may choose a different set of metaphors.

UPDATE, 8:00 p.m.: Ferguson has posted a sincere “unqualified apology” (here).  Still, the thoughts he expressed and the words he used in the speech were his own.  Maybe he was drunk. He says his remarks were “of the cuff.” Whatever. It’s clear that he was not being thoughtful or careful about what he was saying. But that’s the Freudian point – and you don’t have to be much of a Freudian to see it.  It takes some effort to keep unconscious, unacceptable ideas and impulses in check.  When the conscious, the thoughtful and careful monitor, relaxes or is distracted, those untoward ideas come spilling out like an ugly oil slick. 

UPDATE 2: May 5, 8:30 a.m. Ferguson’s off-the-cuff comments came in response to a question about Keynes’s line that “in the long run, we’re all dead.”  Paul Krugman points out that Ferguson’s response, aside from its other sins, distorts the point Keynes was making when he used it.