Susan, we need to talk. I’ve been doing a lot of thinking lately. About us. I really like you, but ever since we met in that econ class in college I knew there was something missing from how I felt: quantitative reasoning. We can say we love each other all we want, but I just can’t trust it without the data. And after performing an in-depth cost-benefit analysis of our relationship, I just don’t think this is working out.

Please know that this decision was not rash. In fact, it was anything but—it was completely devoid of emotion. I just made a series of quantitative calculations, culled from available OECD data on comparable families and conservative estimates of future likelihoods. I then assigned weights to various “feelings” based on importance, as judged by the relevant scholarly literature. From this, it was easy to determine that given all of the options available, the winning decision on both cost-effectiveness and comparative-effectiveness grounds was to see other people.

It’s not you, it’s me. Well, it’s not me either: it’s just common sense, given the nature of my utility function.

— from IT’S NOT YOU, IT’S QUANTITATIVE COST-BENEFIT ANALYSIS by Josh Freedman

$100 Bills Make Up 80% of All U.S. Currency—But Why?
[Above] is what [Alan Krueger, the chairman of the Council of Economic Advisers] dubs the Great Gatsby Curve. On the horizontal axis is the Gini coefficient, a measure of inequality. On the vertical axis is the intergenerational elasticity of income — how much a 1 percent rise in your father’s income affects your expected income; the higher this number, the lower is social mobility.As he shows, America is both especially unequal and has especially low mobility. But he also argues that because we are even more unequal now than we were a generation ago, we should expect even less social mobility going forward.Very illuminating — and disturbing.
[Above] is what [Alan Krueger, the chairman of the Council of Economic Advisers] dubs the Great Gatsby Curve. On the horizontal axis is the Gini coefficient, a measure of inequality. On the vertical axis is the intergenerational elasticity of income — how much a 1 percent rise in your father’s income affects your expected income; the higher this number, the lower is social mobility.

As he shows, America is both especially unequal and has especially low mobility. But he also argues that because we are even more unequal now than we were a generation ago, we should expect even less social mobility going forward.

Very illuminating — and disturbing.
motherjones:

Today’s Depressing Chart: Child poverty has skyrocketed during the Great Recession, particularly among Latinos.
newshour:

“The latest numbers on poverty among U.S. children are so striking that they make you do a double take.”
More

newshour:

“The latest numbers on poverty among U.S. children are so striking that they make you do a double take.”

More

LAST October, I won the Nobel Prize in economics for my work on unemployment and the labor market. But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?

PETER A. DIAMOND, When a Nobel Prize Isn’t Enough

nationaljournal:

Money is important, but it isn’t everything.  The Organization for  Economic Cooperation and Development created the Your Better Life Index  to compare the quality of life as well as economic prowess of its 34  member countries. The index measures each country using 11 different  lines, including income, employment, health, education, environmental  quality, and its citizens’ opinions about life satisfaction, work-life  balance, and a sense of community.  Because people have different  priorities, the OECD index allows them to rank countries according to  their own values. The United States remains at the top for income and  wealth, but it lags behind as a place to live a long and happy life.

nationaljournal:

Money is important, but it isn’t everything. The Organization for Economic Cooperation and Development created the Your Better Life Index to compare the quality of life as well as economic prowess of its 34 member countries. The index measures each country using 11 different lines, including income, employment, health, education, environmental quality, and its citizens’ opinions about life satisfaction, work-life balance, and a sense of community. Because people have different priorities, the OECD index allows them to rank countries according to their own values. The United States remains at the top for income and wealth, but it lags behind as a place to live a long and happy life.

Consider, though, that if the question of how to live a good life has challenged us since ancient times, and the unprecedented technologies of today have complicated that conundrum, the matter remains something of a luxury in a world where a billion or more people still live in the most extreme poverty despite endless labor. For the moment, the question of justice in global distribution remains at least as urgent as that of optimal production and consumption among the affluent.

John Quiggin, The Economics of Unhappiness

laypeople tend to draw strong conclusions based on few observations, and that biases are common and systematic when predicting improbable events. In a more general perspective, such biases may induce public opinion and the media to call for dramatic swings in policy in response to highly improbable events. Politicians are then under pressure to yield to popular demands for drastic regulation. However, regulators would be well-advised to be aware of the common tendency to over-infer regularities from rare events and to carefully investigate whether observed data indeed warrants a dramatic swing in policy.

1. Life is a gift, and the more the better.

2. “Do what you love and you’ll never work a day in your life.”  Yep.

3.  Be friendly as a matter of policy. Turn the other cheek in the face of ad hominem attacks.  It might seem crazy, but  it works .

4. Obsessiveness is an powerful solution for physical and social problems.  Unfortunately it’s also a major cause of emotional problems.

5. Once you’re an adult, religious people will leave you alone if you leave them alone .

6. People vary more widely than you think. Tell yourself it’s nobody’s fault.

7. Selection is the key to social harmony.  Surround yourself with true friends who love you just as you are. If you don’t see any around, quest for them.

8. Raise your children with kindness and respect. “I’m your parent, not you’re friend” is a reason to treat your kids better than their peers do, not worse.

9. Your mind ages at a slower rate than you expect when you’re young, your body at a faster rate.

10.  Evolutionary psychology is by far the best universal theory of human motivation.  Ignore it at your own peril

If we drop change in a beggar’s hand without donating to a charity, we’re acting to relieve our guilt rather than underlying crisis of poverty. The same calculus applies to the beggar who relies on panhandling for a booze hit. In short, both sides fail each other by being lured into fleeting sense of relief rather than a lasting solution to the structural problem of homelessness.

— Derek Thompson (Should You Give Money to Homeless People?)

theatlantic:

The Case for Happiness-Based Economics:

In 2008, economists Betsey Stevenson and Justin Wolfers painstakingly converted incomes to purchase price parity, normalized different scales for happiness, and even re-interpreted survey questions in other languages. They then reexamined Easterlin’s claims and found that they didn’t hold up. Their conclusion: Absolute income matters. Life satisfaction continues to increase with greater income, after all.
Neoliberal economists cheered. Angus Deaton said wryly, “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.” Stevenson and Wolfers wrote triumphantly that their findings “put to rest the earlier claim that economic development does not raise subjective well-being,” and all but broke out the green pom-poms to cheer for GDP.
Their research, however, also emphasizes something that most economists are less eager to discuss. Central to Stevenson and Wolfers’s analysis is the use of a logarithmic scale to relate happiness to income. What correlates with a fixed increment of happiness is not a dollar increase in absolute income (e.g., an additional $1000), but a percentage increment (e.g., an additional 100%). So, going from a $5000 annual income to $50,000 links with as much additional happiness as going from $50K to $500K, or from $500K to $5 million, or even from $5 million to $50 million.
To put it another way, as income rises, every additional dollar represents a smaller increment of happiness. At one level, this is perfectly obvious. The first increase of $45K — from $5K to $50K — would take a family from hunger and homelessness to being well-fed in an apartment, probably with a TV to boot. An additional $45K of income to $95K might allow for a few luxuries, but certainly nothing close to the difference between starvation and the middle class!
Economists know this at some level, but they largely neglect it in their models.

Read on at The Atlantic.

theatlantic:

The Case for Happiness-Based Economics:

In 2008, economists Betsey Stevenson and Justin Wolfers painstakingly converted incomes to purchase price parity, normalized different scales for happiness, and even re-interpreted survey questions in other languages. They then reexamined Easterlin’s claims and found that they didn’t hold up. Their conclusion: Absolute income matters. Life satisfaction continues to increase with greater income, after all.

Neoliberal economists cheered. Angus Deaton said wryly, “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.” Stevenson and Wolfers wrote triumphantly that their findings “put to rest the earlier claim that economic development does not raise subjective well-being,” and all but broke out the green pom-poms to cheer for GDP.

Their research, however, also emphasizes something that most economists are less eager to discuss. Central to Stevenson and Wolfers’s analysis is the use of a logarithmic scale to relate happiness to income. What correlates with a fixed increment of happiness is not a dollar increase in absolute income (e.g., an additional $1000), but a percentage increment (e.g., an additional 100%). So, going from a $5000 annual income to $50,000 links with as much additional happiness as going from $50K to $500K, or from $500K to $5 million, or even from $5 million to $50 million.

To put it another way, as income rises, every additional dollar represents a smaller increment of happiness. At one level, this is perfectly obvious. The first increase of $45K — from $5K to $50K — would take a family from hunger and homelessness to being well-fed in an apartment, probably with a TV to boot. An additional $45K of income to $95K might allow for a few luxuries, but certainly nothing close to the difference between starvation and the middle class!

Economists know this at some level, but they largely neglect it in their models.

Read on at The Atlantic.

Teaching is unusual among the professions in that it pays poorly but has strong union protections and lockstep wage increases. It’s a factory model of compensation, and critics are right to fault it. But the bottom line is that we should pay teachers more, not less — and that politicians who falsely lambaste teachers as greedy are simply making it more difficult to attract the kind of above-average teachers our above-average children deserve.

Go buy a box of Franzia Cabernet (not the Merlot or Chianti), which I consider a decent yardstick of value in a good cheap blend. The box costs $15 for five liters. A standard wine bottle has 750 ml, so the Franzia works out to about $2.25 a bottle—about what they pay in Europe for a bottle of good, cheap wine, usually blended. Do a taste test comparing that Franzia to any $15 bottle on the shelf. Unless you choose well or get lucky, the Franzia easily wins at least half the time. And even when it loses, ask yourself: Was the bottle seven times better than the box? That’s a personal question, of course, one that’s directly linked to your wallet.

Boxed wine has a bad rap largely because once upon a time notoriously bad wine was often sold that way. Sometimes it still is, but so what? That’s not a reflection on the packaging.

In fact, sealing wine inside a plastic bag inside a box is less expensive and more environmentally friendly than using a bottle, especially when it’s done with large quantities of wine. And unlike the contents of a bottle, which will go south soon after opening, boxed wine can easily last for weeks after opening, because the valve doesn’t allow air in.

The Atlantic

When you take a sip of Cabernet, what are you tasting? The grape? The tannins? The oak barrel? Or the price?

Believe it or not, the most dominant flavor may be the dollars. Thanks to the work of some intrepid and wine-obsessed economists (yes, there is an American Association of Wine Economists), we are starting to gain a new understanding of the relationship between wine, critics and consumers.

One of these researchers is Robin Goldstein, whose paper detailing more than 6,000 blind tastings reaches the conclusion that “individuals who are unaware of the price do not derive more enjoyment from more expensive wine.”

Freakonomics Radio: Do More Expensive Wines Taste Better? - NYTimes.com