econlife - One Way That Norway Is Different from Nigeria by Elaine Schwartz

When it comes to New York City parking tickets, Norway and Nigeria are quite different.

As you know, a foreign diplomat need not pay a parking ticket. But many of them do. In  a 2006 parking ticket study, two economists found that diplomats from countries with minimal corruption were most likely to pay. The ones who didn’t came from countries where corruption was the norm and the U.S. was unpopular.

Including Norway, there were 22 countries (out of 146) with no outstanding parking tickets. Israel, Japan, Ecuador, the United Kingdom, Oman, and Greece also had none. Then at the other end, Kuwait topped the scofflaw list with 246 per diplomat. Nigeria was #15 with 58.6 for each consular official:

The cost to NYC was more than $18 million dollars between 1997 and 2002. However, in the home countries of those diplomats, the cost of corruption was much more.

The Cost of Corruption

The World Economic Forum considered the economic impact of public corruption. Looking at highly corrupt resource-rich nations, they suggested that people benefit less from their nation’s wealth. In addition, bribes cut the amount of tax revenue and make tax evasion more acceptable.

Tax Revenue

You can see the difference in tax revenue between more and less corrupt countries:

Education

Furthermore, corruption siphons public revenue away from schools and healthcare. In an IMF paper, researchers report that the share of spending on education and health is lower where corruption is widespread.

Below, where corruption is less controlled (blue bars), there is relatively less education and health spending:

Correspondingly, we wind up with an inverse relationship between corruption and student test scores. (As did I you may wonder if the correlation is misleading. However, the WEF notes that “the correlation remains significant even when controlling for GDP per capita.):

Our Bottom Line: Social Norms

When corruption becomes a social norm, it can be rather “sticky.” Consequently, when diplomats travel to New York City, behavior that is approved at home sticks with them. At the same time, that stickiness prevails at home in private and public commerce as corruption channels money away from a more efficient destination.

Finally, I thought you might want to see which countries are more corrupt so I went to the corruption index at transparency.org (whose criteria have been debated but still, the map conveys a pretty valid picture of corruption.)

Returning to where we began, Norway is #7 while Nigeria is #144 out of 180 countries  that are ranked from least to most corrupt.


My sources and more: I suspect that you will want to read more after this Bloomberg article on parking. So from there, I recommend this 2006 paper on diplomats’ parking tickets. After that, my path took me to The World Economic Forum and this IMF report.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - How Healthcare Is Like Car Repair by Elaine Schwartz

When we think of productivity, Lucy, Ethel, and some smiles could be a good starting point:

Since the Lucy episode in 1952, each worker can make many more chocolates per hour. We have people in charge of machines that can move far faster (and eat much less) than Lucy and Ethel:

Here is where the Baumol’s Cost Disease enters the picture.

Baumol’s Cost Disease

Listening to four musicians play Beethoven’s string quartet #14 for 40 minutes, there is no way to guess the date. The performance could be 1826 or 1926 or 2026. The music, the pace, the instruments are all pretty much the same.

However, since 1826, people are getting paid more. In 1826, the average real wage for a typical worker was $1.14 an hour. Fast forward to 2010 and you have $26.44. Most workers are paid more because they produce more.

But not our string quartet. It still takes 40 minutes to play the same Beethoven piece and probably the same amount of preparation time.

Called Baumol’s cost disease (or the Baumol Effect), we have wage increases for workers without productivity increases. Because their labor depends on a human input that cannot go up, more productivity is impossible. And yet still, their wages rise when everyone else earns more. And, as society’s affluence grows, we could want more Beethoven even though its cost ascends.

Our Bottom Line: Healthcare Costs

According to Baumol’s cost disease, it’s tough to increase productivity when a task depends on a person. You cannot play the Beethoven piece faster. A physician still has to see patients personally, A car repair ship will need technicians to do some of the work and instructors need the same hour to teach a concept. Yes, I know that technology can enter health care and car repair and there is more media in the classroom. But still the role of people remains important.

As the more productive sectors of the economy increase our wealth, we want more of the areas with limited productivity like healthcare, education, and car repair. As Marginal Revolution’s Alex Tabarrok explains, we have more doctors and nurses even though they are paid more. Their higher pay and our increased demand nudge healthcare costs skyward:

And, returning to our title, because healthcare and car repair both have Baumol’s cost disease, they are rather similar.

My sources and more: Thanks to Marginal Revolution for its summary of the Baumol Effect. But then for more, do take a look at, Why Are The Prices So D*mn High?

After publication, this post was slightly edited to improve its clarity.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - What You Might Not Know About Debt by Elaine Schwartz

Comparing $1.48 trillion to $1.46 trillion, student loan debt is more now than last year:

But we shouldn’t necessarily be worried.

In one experiment, community college students who were encouraged to borrow fared better academically than their debtless peers and those with smaller loans. The reason? The people who borrowed took more courses and got higher grades. Some could transfer to four-year colleges.

Scholars have hypothesized that larger loans led to more learning, better jobs, and the ability to repay debt.

Where are we going? To other consumer debt facts.

Little Known Debt Facts

How we borrow has changed a bit.

The credit products we use have shifted slightly during the past 19 years. Looking at the proportion of the population with a credit product, we see that auto loans display the biggest increase in consumer debt while mortgages are on the way down:

Our ages have changed too.

Particularly from 2008 to 2012, the proportion of people aged 20 to 29 who had credit card accounts dipped precipitously to 41%. One reason was 2009 Credit Card legislation that targeted abusive credit card practices. Now though the trend has reversed:

In the student category of consumer debt, women owe more than men.


Whether looking at the total or specific groups, women with bachelor’s degrees borrowed more than their male counterparts:

Compared to other kinds of consumer debt, student loan delinquencies are most noticeably up.

We are looking below at loans that transitioned into delinquencies that could be as long as 90 days:

Our Bottom Line: Consumer Spending

A loan represents the extra money that we have for consumption. When economists consider how we spend any extra money, they say they are looking at our marginal propensity to consume (MPC). Really though, we are asking what we tend to do when we have extra income.

Whether looking at our credit cards or what we borrow for school, for autos, and for our homes, it all tells us how we spend our extra money. It provides some insight about our MPC.

My sources and more: My go-to website for debt facts is the NY Federal Reserve’s Liberty Street blog. However, this summary from NBC also came in handy. After that, I recommend this paper from the NY Fed on the marginal propensity to consume an extra $500 to $5,000. And lastly (but actually initially), this NY Times Upshot column was the perfect intro for an overview of our response to student debt.

Our featured image is from Pixabay.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

21st Century Learning by Scott Harris

I like to ask educators who use the phrase “21st century learning” how learning is different now than in the past? Blank stares are often the response to this impertinent inquiry.  

When I do get an answer, it usually involves skills such as: critical thinking, creativity, collaboration, communication, media literacy, and of course, technology. 

I then ask if they think these skills were unimportant in the past: Did farmers in the 15th century need critical thinking skills or collaboration when planting crops, harvesting, and learning to let fields lie fallow?

Did people need media literacy in the 17th century, when newspapers first flourished? Did people need creativity as pioneers migrated into the western territories of the United States?

“Well, sure,” they say, “but we need them even more now!” While that’s debatable, the central thread in this latest educational panic is that somehow our students won’t be ready for a changing world, and technology is the answer.

“Students love technology!”, we’re told. Administrators love to see technology being used in the delivery of instruction. If we are using technology, clearly, we are preparing students for 21st century learning! 

The first problem with this approach is the risk of creating electronic Grecian urns (https://www.cultofpedagogy.com/grecian-urn-lesson/), i.e. an assignment that uses technology, but not much of the other critical skills we claim are necessary. 

The second problem is that when you talk to students about the use of technology, they say that they enjoy it, but only if the content and intellectual challenge are there. In other words, they recognize that technology is a means to an end. 

They also say that if there is a better challenge in a non-technological way, they would prefer that over a weak lesson at the end of a plug.

Technology is a tool, like the printing press or a shovel. Whether we build better minds depends on how we use it, not that we use it.

Scott K. Harris teaches The Moral Sciences: A.P. Macroeconomics, A.P. Psychology, and Philosophy. He holds a B.A. in History/Psychology and a M.Ed. in Teacher Leadership. He has also taught U.S. History, World History, International Baccalaureate’s Theory of Knowledge, and coached swimming and water polo. He piloted curriculum for Stossel-in-the-Classroom and is an associate producer for izzit.org. 

econlife - When To Ignore Your Email by Elaine Schwartz

Whenever my friends and family discover that I have 117,000 (or so) unopened emails, with genuine horror, they condemn rather than compliment me. Now though, a Georgetown computer scientist has explained how my habits could help the entire economy.

Digital Distractions

I should start by saying that I do read my email but I don’t use up time or energy deleting what I don’t read. I just decide which emails to open and when to read them. According to this Georgetown scholar, which and when are crucial.

When the Washington Post took a look, it concluded that we consistently divert ourselves from other tasks to read our email. In a lifetime of work, we use more than 47,000 hours:

In his book Deep Work, Georgetown’s Cal Newport hypothesizes that distraction free concentration pushes our “cognitive capabilities to their limit.” In other words, we think best when we focus. He warns us that even just a peek at email eliminates our optimal cognitive focus. And then, because of our “attention residue,” it takes awhile to regain our previous concentration.

From there, the Bank of England blog takes the malady to the next stage. When we fall prey to digital distraction, it can only get worse. Unable to resist, we experience “continuous partial attention.” The ultimate result could indeed be less productivity and less satisfaction for each of us.

Below, you can see the correlation between diminished productivity growth and increased Smartphone shipments:

But Dr. Newport does have a solution. He believes we should schedule long blocks of time when digital peeks are prohibited.

Our Bottom Line: Market Failure

In her guest blog, my former student Michaela Markels insightfully said that digital distractions were the result of market failure. Markets fail when the cost of a negative externality–a negative impact of the activity–is ignored. As a result, the price is too low.

In the following graph, you see that the second supply curve, the one that does not exist, reflects the high cost of the digital distractions. That second curve elevates the “price” and thereby diminishes the quantity demanded. However, the market is at P1. It failed to select the appropriate “price” for a digital distraction:

Just a final thought that reflects the timelessness of distractions. I can’t help but think of Odysseus. Sailing past the irresistible Sirens, he knew he had to be tied to the mast. What is the digital equivalent?

My sources and more: Thanks to the Hidden Brain podcast on Deep Work for introducing me to Georgetown associate professor Cal Newport. Next, my search for some statistical validation took me to The Washington Post and to The Economist. From there this Bank of England essay added some substance to the argument.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - How to Calculate the Cost of a Disaster by Elaine Schwartz

With Dorian in the news, this year we’ve moved past Andrea, Barry, and Chantal, and might soon learn about Erin, Fernand, and Gabrielle. As for the rest, these names complete the 2019 hurricane list:

• Humberto
• Imelda
• Jerry
• Karen
• Lorenzo
• Melissa
• Nestor
• Olga
• Pablo
• Rebekah
• Sebastien
• Tanya
• Van
• Wendy

When we think about a hurricane or some other disaster like a drought or a wildfire, it helps to calculate the cost. Knowing the numbers, we can better assess risk, determine insurance needs, and do some planning for the future.

So let’s take a look at how they figure out the cost.

Calculating Disaster Costs

In a recent update, NOAA looked at the weather and climate disasters whose cost exceeded $1 billion. So far there have been six:

Totaling 14, during 2018 the weather and climate events whose cost was more than $1 billion topped the average of 6.3 events from 1980 to 2018:

Ranging from wildfires and hurricanes to droughts and hail storms, these were the 14:

The cost “scorekeeper” for the U.S. government is the National Center for Environmental Information (NCEI). When they figure out the cost of a disaster, they include items like the following:

If we were to rank storm costs, then hurricanes are at the top of the list at an average of $22.3 billion per event. Valued at far less, drought is #2 at an average cost of $9.6 billion. Then, dropping to an average of $5.0 billion per event, we have wildfires.

This was the NCEI summary:

However, the NCEI points out that they do not include the value of lives lost or the cost of healthcare. If they included what U.S. regulatory agencies call the Value of a Statistical Life (VSL) each fatality could add many millions of dollars to disaster costs. You can see below that no one quite agrees how much:

Our Bottom Line: GDP Impact

The Broken Window Fallacy is one way to explain the economic impact of a disaster. In “What is Seen, and What is Not Seen,” economist Frédéric Bastiat (1801-1850) reminds us of what we are not doing as we recover from a calamity. When a window is broken, the glazier gets employment and the GDP rises. However, we just wind up with the window we had once had. Or, as he said, “To break, to spoil, to waste, is not to encourage natural labour; or, more briefly, ‘destruction is not profit.'”

My sources and more: Good for weather information, NOAA had the up-to-date disaster facts and also cost calculation information. Next, The Farmers Almanac was a handy place to get 2019 hurricane names. And finally, this paper takes a brief contrarian look at how NOAA calculates losses. However, my most interesting read was Bloomberg’s VSL discussion.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.