Friday, March 30, 2012

Marriage and the Safety Net

Casey Mulligan has an interesting post on the effect of a more generous safety net on propensity to work.  The key intuition lies in the difference between two graphics.  First, the share of unemployed who are married women versus unmarried women at the start of an unemployment spell.


Second, those same shares at around 7 months into an unemployment spell.


Mulligan attributes the widening gap in the second figure to the expanded safety net provisions that went into effect in 2008-2009.  This pattern, Mulligan argues, is not due to some differential flow into unemployment (see the first figure), but must be due to unmarried women staying unemployed for longer, post 2008-2009.  According to Mulligan: 
A married woman (and her family) with a husband earning above the poverty line – the vast majority of husbands do so – is ineligible for a number of safety-net programs regardless of whether she’s employed, because her family’s income is above the poverty line regardless of her employment status. 
Unmarried household heads, on the other hand, are usually the sole breadwinner for the family, and when their income falls to zero, the household income essentially does, too. For this reason, more unmarried women who are heads of households can expect anti-poverty programs to help them when they are out of work than married women can. 
In other words, anti-poverty programs provide significantly more cushion for unmarried women than they do for married women.
Click through to read the rest.

Wednesday, March 28, 2012

Bottled Up

Here is a poster that can be found in a coffee shop on University of Chicago's campus.


When I saw this poster, my first immediate thought was "There's no such thing as free tap water!"  My second thought was "Gas would be more expensive if it had to be bottled for convenience."  

Nevertheless, the point about bottled water being bad for the environment is actually not too bad.  But, I should qualify this statement because my reasoning has nothing to do with plastic bottles.  The kind of bottled water that is especially bad for the environment is bottled spring water -- i.e., water from a natural spring that manufacturers put into a bottle.  Once a bottling company finds a spring to harvest for its water, there are plenty of adverse consequences for the ecosystem surrounding that spring.  The bottles may have adverse consequences, but my impression is that these pale in comparison to what happens to natural springs.

The person who drove this idea home for me was law professor Robert Glennon, whose presentation on his water research transformed the way I think about bottled water whom I met at the Property and Environment Research Center.  I was a graduate fellow, and he was a visiting scholar.  I have since seen him on the Daily Show where he was marketing his book Unquenchable.  Now, as I check his website, I see he is involved with a new documentary about water.  Here's the trailer.



Looks interesting to me.

Tuesday, March 13, 2012

Casinos v. Finance

Chicago Billionaire investor Ken Griffin made the following remark in a fascinating interview with the Chicago Tribune:
Q. The casino. Why does that matter to you?

A. There is no great city in America that has a casino (downtown). And there's a reason for it. Casinos do not represent the values of a great city.

Q. There's some people who will see a lot of irony in that given the speculation that takes place in the financial industry.

A. I think there's a huge difference. Gambling is entertainment. We have great destinations for that, like Las Vegas. Just not in Chicago. Financial markets, what one often refers to as speculation, is really the force by which we move capital to the best and highest use. Investors who find the best businesses to put their money behind are rewarded for their research. It's not the prettiest way you can ever imagine to allocate capital. But if you look across the entire world, it's the best way we know to allocate capital.
There's much more to the discussion. The rest is here.

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Self-referential note: There's more on casinos and finance here.

Sunday, March 11, 2012

Emotions and Reasoning

Economic reasoning requires emotional discipline. When studying the economics of contraception, abortion, slavery or other hot button issues, the economic analyst sets aside personal preconceptions about what is right and wrong to examine cause and effect. Cause-and-effect questions tend to be questions of reasoning, and right-versus-wrong questions tend to be questions of emotions (or, if you wish, morals and norms).

Economists tend to focus on questions of reasoning first, and if there is time, questions of emotions second. To non-economists, this comes off as cold, calculating and callous. After all, how can you reduce an emotional issue to hypotheses, premises, logic, conclusions and extensions? The answer is that it can be insightful to set emotions aside because emotions can get in the way of reasoning.

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To see why, take an example about why economan would get married to econowoman. Here is a list of reasons that were taught to me in a class on the economics of the family:
  1. Specialization within the household. For tasks that cannot be outsourced to the market, it is useful to have one individual specialize in household tasks, and another specialize in market tasks. This way, the household can reap the benefits of comparative advantage.
  2. Income Pooling. A multiple-income households with two adults has a less variable income stream than a single-adult household. Labor market shocks like layoffs affects married couples less drastically because the other adult can pick up the slack.
  3. Public Goods. Living in the same space has certain economies of scale. For example, providing heat, television entertainment, common shelter, etc. is like a public good in the sense that my consumption of the heat, TV and shelter does not diminish the other adult's consumption of the same unit of that good. This works for wireless internet as well. And yes, children and their accomplishments can be thought of as a public good.
Notice that there's nothing about love or caring for the other person in this list of reasons to get married and stay married. In fact, if you take the kids out of the equation, this is a theory of optimal roommates. To a non-economist, it seems wrong to leave out so many elements that give life to a marriage/ life partnership. To an economist, the above framework is useful for understanding broad trends in marriage and divorce. For example, why have we seen a rise in divorce over the last half century?

Setting aside the issue of marriage for love, the specialization motive to get married has become much less of an issue with better processed food (sliced bread, microwave dinners, etc.) and better household technology (dishwashers, washer-dryer, etc.). There is still room for specialization in the modern household, but it is not as binding as it was a hundred years ago (or even 50). This technological improvement combined with female advancement in the labor market has generally led many young adults (both men and women) to have a better outside option to marriage. Certainly, there are a lot fewer reasons to stick with an unhappy marriage today, compared with 50 years ago.

This is a partial explanation for why one might expect the divorce rate to have risen during a time where both household technology and female labor market prospects improved. It does not say that divorce is right or moral, but it does cast broad trends in marriage and divorce in a different light than they are popularly conceived. By this account, divorce is a decision that is optimal, given the set of choices before the couple. Perhaps the couple's preferences are wrong and marriage should be forever, but taking their preferences as given, we would have a hard time convincing them that they made a mistake. This suggests that the rising divorce rate -- if you view it as a problem -- is a persistent problem. After all, it has become a convenient and cheap option relative to how it was in the past.

Is it due to the corruption of our morals? This is possible, but the logical framework is perfectly consistent with corrupt morals before and after the technological change. It is also possible that trying to change people's preferences about marriage will save a few marriages, and potentially, inject some extra happiness into those existing marriages. But, these conclusions need not be true to describe the broad trends we observe.

What does this suggest for someone who is trying to change social preferences in order to achieve stable and happy marriages?
  • First, this effort is noble, but the problem is more difficult than rebooting our preferences 50 years. Circumstances have changed, and these circumstances reduce the ties that bind economan and econowoman.
  • Second, the marriages that lead to divorce are the most unhappy of the existing ones. In the absence of a more nuanced story, the average happiness of married couples should increase. No, that's not a good reason for divorce if you view marriage as a sacred sacrament, but it is a stable reason for divorce, which suggests that this is tougher problem than first glance.
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As you can see from this example, it is not that emotional questions are not as (or more) important than reasoning questions, but distinguishing cause from effect is useful for informing what conclusions we draw. Those who are able to draw the line between cause-and-effect questions and right-versus-wrong questions tend to have more incisive reasoning and more sensible conclusions about incentives, motivations and likely behavior.

For some reading on what inspired this post, check out Landsburg's controversial set of posts on the contraception debate (1, 2, 3, 4, and 5). Landsburg could have used less harsh wording to describe other people's failures of reasoning, but his reasoning is sound. It is right to point out that some calculated reasoning can clarify the debate around contraception and government's role in that market, but harsh language (even if it is harsh language directed specifically at people for being illogical) may inflame the debate rather than get other people to think more logically.

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Note: There is much more to the literature on the economics of the family than I lead on in this post, including additional points and counterpoints. Aside from broad trends and basic models, I am relatively uninitiated to that literature and the relevant data (I study industrial organization). One should not take my example as a complete characterization of the state of that literature, but merely an example of how basic economic reasoning works in a controversial setting.

Wednesday, March 7, 2012

Graph of the Week: Flying

I thought this was a particularly accessible post in my R Bloggers feed.


When taking the average price of domestic airline fares, there is a clear trend indicating that flying is becoming more affordable - when adjusted for inflation. This may seem impossible when you look at the current price of your ticket and see that it is higher than last year. That's because the last two years have seen an increase, but the overall trend is still downward.
There's not much discussion if you click through, but I thought the graph was interesting enough to share.

One thought that comes to mind when seeing this graph is whether the type of fares people choose have changed. If people are somehow choosing systematically shorter trips now versus in 1995, this might explain the downward trend. Then again, maybe flying is getting cheaper after all.

Monday, March 5, 2012

Birth control pills are provided by monopolists, and monopolists should be subsidized

Steve Landsburg considers and evaluates a host of different arguments for subsidizing contraception.
Bottom line: There are both good and bad arguments for subsidizing contraception (and good and bad arguments against). From what I’ve seen in the past few days, the bad pro-subsidy arguments have largely crowded out the good ones. But the good ones are worth taking seriously.
Read the post to see whether the title reason is good or bad.

Follow up: Landsburg's remarks have generated considerable controversy. Here's Landsburg on some of the aftermath.