My Favorite Economics Department

Greg Mankiw often talks about his favorite economics textbook: his own. I have a similar preference in economics departments. The University of Colorado Economics Department furnished their website's front page with some pictures from the Spring 2011 Commencement Ceremony. I just happen to be on one of them, enjoy:

I am honored to be featured on my favorite economics department's website.

The Onion hits Home

National Dating Standards Lowered

What can we learn from this video? My thought is that we shouldn't lower our expectations just because we've hit hard times. Just because the dating market is a little slow doesn't mean that we should all start settling because we'll pay for it in the long run. This might also apply to regulations. But that's just the secret liberal in me talking.

Loveless Lawyers

As I slowly get ready for law school, this blog will begin to take on more legal issues. Of course this doesn't mean that I will ignore economics, but rather that I will combine law and economics. As a fun first step, I found this article from the ABA.

In a nutshell, some D.C. lawyer is making good money but setting up lawyers with potential partners. First of all, this is an amazing business venture. Second, this is really sad. The unfortunate truth is that law school and the law profession take up a lot of time so there is a market opportunity for anyone willing to set lawyers up on dates if they know what lawyers want. This attorney apparently makes good money but acting as a professional match maker.

But why the need? Here are some numbers from The American Lawyer:

Associates Wachtell, Lipton, Rosen & Katz worked on average 71.1 (and billed 62.5) hours per week [in 2005].

The Avery Index does some math to show that makes up more than 60% of a waking-week.

Some of the prices the D.C. attorney charges seem a little high, even for a lawyer. Fortunately you can find some helpful information on how to date a lawyer. Might I add that you should read his blog.

Turns out my International Trade Professor was Right

Time Magazine has a great article about the miracle of international trade. In the US, we are used to everything being "made in China." Who would think that one of the most Chinese things (at least from an American perspective), chop sticks, are actually imported to China from a small town in Georgia?

The idea is comparative advantage: the US is better at making chop sticks because we have great wood (not a reference to Rep. Weiner). The unfortunate thing is that chop sticks don't necessarily rake in the money. While we may be good at crafting tiny wood sticks, the Chinese are getting better at making solar panels and submarines. I don't mean to be critical, but our firms are too focused on developing "iClouds"and not enough at creating responsible and necessary technologies for the future. This has all been foretold. Read up on world-systems theory.  Do it!

Book Review: Animal Spirits

I must say that this was one of the best books on economics I have read in a long time. Unfortunately, the title lent itself poorly to my college/hippie town because I was often asked to tell people what their animal spirits were when they saw me reading.

The book itself is broken down into questions that the authors, Robert Shiller and George Akerlof, attempt to answer based on their theory of irrationality and exuberance. They claim that often the reasons for economic malfunction are due to behavior that is far from rational. I loved this book because it captures extremely well my general belief in economics. Unfortunately, not everyone is an economist. Most people don't quite pick up on rational behavior because they aren't well-informed, dumb, or even just too busy to care. Classical economics reasons that people should behavior rationally and to maximize their utility. Honestly, it doesn't seem like corporations, let alone individuals, have enough know how to behave the way much of economics expects them to.

In a sense, this transforms economics from a logical science to one that deals more with psychology.

I highly recommend this book if you haven't read it yet.

Bumper Sticker

I want this for my birthday. Great description of me from an old rival put in bumper sticker form:

Though this is not a reference to Dominique Strauss-Kahn, it may as well be.

Dave Morin and the Future of the Internet

One of the great benefits of being a student is the wide variety of people you get to interact with. In particular, universities go to great lengths to get empowering graduation speakers at their commencement ceremonies. Harvard, for example, has had many powerful speakers including Madeleine Albright, Bill Gates, and (perhaps the most influential) J.K. Rowling. My institution, or as of last Friday alma mater, The University of Colorado, does not have as much money to spend on graduation speakers. The primary commencements ceremony had the founder and CEO of Chipotle, a burrito joint - needless to say, I did not attend that event. The economics department had a much more interesting speaker: Dave Morin, a co-developer of Facebook, and entrepreneur. Currently, he is developing his own creation, Path, a social network devoted to your closest friends.


Students were invited to a more private conversation with Mr. Morin the day before graduation which I was fortunate enough to attend. His conversation was very intriguing from both an economic and investment point-of-view.


Entrepreneurs
One of the most hard hitting points that Mr. Morin made was that there weren't enough entrepreneurs in the world. In essence, in fact, almost by definition, entrepreneurs are the driving force of the economy. In this day and age, I believe it has become to easy to be complacent with the system: you go to college, you graduate, you find a cookie-cutter job for a big company, you work your way up, you retire. Unfortunately, subjecting yourself to the system like that can only get you so far; the people in the world that really go far are those that invent, take risks, and create real gains for the economy. For example: Bill Gates, Mark Zuckerburg, Steve Jobs - three technology giants who have transformed the world as we know it. They didn't get where they were by joining big corporations; instead, they created their own.

So why aren't there more entrepreneurs? The easy scapegoat is risk. But why? We take on risk all the time, with investing, driving, relationships...everything! Why would the risk involved with starting a business be so high? One reason is that the fixed costs (i.e.: college) are so high. The Economist recently did a few blog posts about higher education being the next big bubble, something I have been saying for years! According to N+1, since 1978, tuition has risen 650 percentage-points above inflation. And since you really can't start a great business without at least a college education (there are a few exceptions, I'm sure), that means that there is an increasing disincentive to become an entrepreneur. The average student graduates with $20,000 in loans, making it nearly impossible to invest in a good idea. Instead, most graduates take the route of working for a big corporation and paying their dues to society.

Keeping on the Facebook theme, there is an excellent quote in The Social Network that I might have mentioned before: "Here at Harvard, we don't teach our students to find jobs, but to invent their own jobs" (paraphrased). This mentality, I feel, is the exception in higher education. Instead, universities are caught in a divide between being academic institutions versus being professional academies. This issue could drag on for pages, but the main point is clear: our colleges and universities are failing at providing the entrepreneurs that would otherwise power the economy of the future.

The Internet
Another point that Mr. Morin made was that there aren't enough internet companies. Here I have to disagree; however, he did make a strong argument. According to him, there are so many uses of the internet that haven't been taken on yet. For exampled, he mentioned a company that was scheduling reservations for restaurants without the need for expensive equipment. Apparently, it is relatively easy to get start up money from angel investors and investment banks for internet projects.

I find this surprising because I question the economic benefit from internet firms. Yes, the reservations company is making restaurants more efficient and helping allocate capital to newer developments, but that is not usually the benefit from internet firms. Facebook is the ultimate example of a company that should be worth nothing: it adds nothing to the economy. Some would make efficiency claims but I content that any added efficiency gotten from Facebook is negated by the loss of time spent on Farmville. So where is the benefit? Most social networks and internet entrepreneurial companies amount to nothing more than toys. They may be a hit now, but the economy should be focusing on real growth: physical technology, medicine, defense, etc... I'm not saying there is no benefit to social networks and the like, but definitely not billions worth.

I get the impression that somehow people have forgotten what being a value to society is. It may be possible to make good money selling your stuff on Etsy, but really that doesn't add anything. The world needs more engineers and inventors and entrepreneurs. But my advice to those is to avoid gimmicks and stick to hard capital. Invent machines and medicines, not internet toys. As a country, if we want to maintain our status, we have a lot of work to do. For me it's too late, I'm going to law school. But for those still studying as undergraduates: don't just make something of yourselves, make something of the world.