The Economics of Parenting

As an economist and father of two I am prone to applying economic principles in parenting.  I am not unique among economists, after all we spend our lives appreciating and understanding the power of incentives.  Fortunately my non-economist spouse keeps my instincts check so that I don't go overboard (she is a humanities-type, a good yang to my ying).  But plenty of incentives remain in my parenting style I suppose, though I think that many are common to all parents such as insisting on doing homework before play.

Anyway, a student of mine sent this to me ages ago and am only now just getting around to it.  This is a great NPR Planet Money story on an Australian economist whose economics-based parenting style is perhaps a bit extreme.  Here is a great bit about unintended consequences of incentives (what we would call in economics as a principal-agent problem):

So when the time came to potty train his daughter, B., he designed what seemed like an economically rational incentive: B. would receive a jelly bean every time she went to the toilet.

Once the new policy was in place, B. suddenly had to go to the toilet really, really often.


A few years later, B.'s younger brother needed to be potty trained. And Gans decided to expand the incentive system: Every time B. helped her brother go to the bathroom, she would get a treat.

"I realized that the more that goes in, the more comes out," says B., who is now 11. "So I was just feeding my brother buckets and buckets of water."

"It didn't really work out too well," Gans says.

My experience is that when I tried to throw positive incentives of this type at the potty training problem my sons realized that by being obstinate they could get me to up the ante; after all if an incentive is not working it must not be big enough, right? THis is precisely the problem with trying to parent as an economist. So now I try to parent like a humanities major, but that 'aint working out so well either. In the end there is no shortcut: parenting is hard. And wonderful.

Eco-nomics: Concentrated Solar

AFP reports on the pending opening of Egypt's concentrated solar power plant which, when open, will be among the world's largest.

Egypt will open its first solar energy plant by the end of this year, electricity and energy minister Hassan Yunis said in a report published on Monday on the ministry's website.

The plant will be among four in the world with a 140-megawatt capacity, the report said.
Yunis had earlier said the government-run plant south of Cairo would be linked to the national grid as Egypt tries to meet a target of producing 20 percent of its energy needs from renewable sources by the end of 2020.

The country's oil and gas reserves are projected to last for three more decades.

Last week another Middle Eastern country, the United Arab Emirates, said it was building "the world's largest" concentrated solar power plant.

State-owned Masdar in the UAE said that French oil firm Total and Spain's Abengoa Solar were partners in a project to build the 100-megawatt facility.

Concentrated solar plants use mirrors to heat liquid which then heats water to power a steam generator that produces electricity.

To give you an idea of the relative size, PGEs Boardman coal-fired power plant has a 585 megawatt capacity.

What Was the Failure of Economics?

Macroeconomists have been taking a lot of heat for the failure of the sub-discipline to forecast and/or forestall the crisis. This has often been enlarged to suggest that there is something wrong with the economics discipline as a whole.

This suggests an attitude that I am increasingly running into when I identify myself as a professor of economics: that somehow 'economists' run the economy. Ummm, no. The most important thing to understand is that the economy exists as a natural artifact of human interaction. We don't create it, pull the levers, etc. What we strive to do is understand it, and through this understanding, help governments manage it better.

And here there was a failure. However, I don't think it was with macroeconomics in general, but in the failure of the IO principal-agent and contracting folks to interact enough with the finance and macro types. In other words, there was a trust of the internal incentives of the firm (in this case banks) on the part of finance/macro types that was misplaced. It shouldn't have been: there is a lot of research on incentive problems in CEO compensation, in principal-agent contracts and the like. But macro-types that set policy ignored the lessons of this literature in pushing too far on bank deregulation, trusing the internal incentives to do the trick.

Alan Blinder says something similar in an op-ed in the Wall Street Journal but he blames the corporate boards. But again, we know the incentives were/are skewed there too. Still, his answer is along the same lines, get the incentives right through increased regulation.

Enrollments in Economics Courses Surge

An NPR story yesterday about how students are flocking to economics classes. I don't know if it is happening here at Oregon State, but it might not matter because we are struggling here in the economics department to even cover the bare bones curriculum we currently offer - an artifact of the university's long and recently renewed underinvestment in core arts and sciences in favor of more applied areas. This is a good strategy for chasing grant money but horrible for undergrads. OSU gets lots of recognition for things like forestry and oceanography, but there is a reason it is the worst ranked school in the Pac 10 - it does not have strength in the areas that are fundamental to undergraduate education.

OSU gets another mention, this time in the New York Times, about a surge in undergraduate applications (up 12 percent and transfer apps up 31 percent). I am sure the temptation is to admit a large freshman and transfer class. But with budgets being slashed one wonders how they are going to find classes to take. Even if we find people to teach the classes we don't have the classroom space to do it in. My spring term International Economics course immediately filled up and I don't have any desks left to add more students. What a shame, has their ever been a better time to understand international economics?

Ah well, the reality is that the economic downturn is comprehensive and we are all going to have to deal with it as best we can. And if anyone out there wants to study economics at OSU, you will find a group of dedicated scholars and educators excited to have you join us. We will make it work, don't worry - if there is one thing economists are good at, it is dealing with scarcity. We are currently undergoing a comprehensive restructuring of the economics major to make it more flexible and to offer more options, so stay tuned, but for a look at what we currently offer, go here.

Land Grant Universities and the Liberal Arts and Sciences

I have spent all of my graduate school at three land grant institutions: University of Cal – Davis, University of Wisconsin – Madison and Cornell University. Never had I encountered the opinion that because the university is a land grant, not only should we accept mediocrity in the core liberal arts and sciences, but in fact, we should actively seek it lest we sacrifice the strengths of the other units, such as agriculture, until I came to Oregon State. There is some sense to this logic – the core arts and sciences are expensive in that they tend not to bring in as much grant funding as the more applied areas, but the problem with this logic is that it is the core arts and sciences that make up the heart of the undergraduate education. In fact the quality of the core arts and sciences are in large part what determine the reputation and the overall quality of the university. Is it any wonder then, that the three universities I mention above are considered exceptional while Oregon State is ranked in the third tier of the US News university rankings? In fact, it is the only Pac 10 school in the third tier.

Though it may seem a good strategy in response to a resource poor environment, this subjugation of the core arts and sciences at OSU is not a good long term strategy. OSU has a shockingly low undergraduate retention rate, a poor academic reputation, low undergraduate morale and a very big need for quality in-state as well as the high price paying out-of-state students. It is not going to attract these students with big grants to the forestry college. In fact the course that OSU is on will lead it right back to where it started – a four year vocational college. It is also not a zero-sum game. Strength in the core arts and sciences would help other units and especially the interdisciplinary programs OSU's administration is so hot on. I don't think you build strong interdisciplinary programs on top of poor discipline specific programs. Strong interdisciplinary programs come from strong discipline specific programs.

I am constantly dumbfounded and wonder where this attitude that a Land Grant university has no business being strong in the core arts and sciences comes from. Let’s look at the College of Liberal Arts and compare the departments at OSU with key departments at the three universities I mention. Here are the US News rankings of departments at Cornell, Wisconsin and Davis (in that order) in Economics: 12, 38, 42; English: 17, 11, 28; History: 11, 11, 26; Political Science: 18, 16, 29; Psychology: 16, 9, 47; and Sociology: 14, 1, 29. Where is OSU in all of this? In most of these disciplines, OSU doesn’t even have PhD programs, so they don’t qualify to be ranked, the couple that do (Econ and History – sort of, History's program is in the history of science and is mostly moribund) are too low to rank. The point is this good universities, land grant or not, excel in the core arts and sciences. So this idea that OSU has no business trying to be strong in those areas is completely baseless. By neglecting the core arts and sciences, OSU is not just a poor university, but it is getting worse.

I think that part of this attitude springs from a shockingly (to this outsider at least) insular culture at OSU. Much of the administration has started out as students here, spent their entire careers here, and have very little perspective. I often hear expressed the attitude that OSU is ‘different’ as if this is a point of pride. Well I have news for the OSU cognoscenti: OSU is competing in an increasingly international market for talent, it needs to stop being ‘different’ and start being ‘competitive.’

So why this lengthy diatribe? Well in addition to the cutting of language arts, which has received a little attention, starting this year, if you wish to pursue a graduate degree in economics, don’t bother applying to OSU - the administration has shut us down. This leaves the College of Liberal Arts with exactly zero legitimate PhD programs. Good luck trying to get good faculty in economics now - I, for one, would not have come here without a PhD program. This is an interesting decision at a time when Economics is one of the most popular undergraduate majors across the country and is the most popular major at schools such as Harvard, Duke and NYU. To abolish econ when it was the only legitimate PhD program in the entire College of Liberal Arts is truly dumbfounding and sends a very bad signal about the future of the University.

What is a Blog? Economics and the Marketplace of Ideas

Astute readers of this blog will have long ago noticed a connection with the BlueOregon blog edited by Kari Chisholm, Jeff Alworth and Charlie Burr. This connection is personal, not political, and is due to the fact that Jeff is a very close friend and has been for two decades. Jeff and Kari, from time to time, mention my blog on BlueOregon and have increased my traffic considerably. However, I try not to engage in politics (as opposed to policy) in my blog and have just as often rankled BlueOregon readers as have pleased them with my analyses of policy proposals. In my blog roll, I link to BlueOregon and its closest right-wing counterpart, Oregon Catalyst, because I have the arrogance to believe that people of all political persuasions can benefit from some well thought out economic reason.

With that said, BlueOregon has become the target of a little yellow journalism hatchet job from Willamette Week which attacks the blog and suggests bias and conflict of interest. This amuses me for just what does WW think a blog is? It appears it thinks blogs are a form of journalism and thus should be subject to the rules of journalistic ethics. But this is patently absurd. While a few blogs explicitly aspire to a form of journalism, most notably Talking Points Memo and especially its related projects, the vast majority are simply opinion. Even at TPM the bias is up front: "Commentary on political events from a politically left perspective."

I have no illusions about what a blog is; it took me about 3 minutes on Blogger to set up this blog and get it up on the world wide web. This blog is a representation of my opinions, biases, peccadilloes, etc. What I love about the web and the blog-o-sphere is the very embodiment of the "marketplace of ideas." But in this market, as in any market, the burden is on the consumer: "caveat emptor." This does also suggest a burden on producers to truthfully reveal relevant information about the product. I have disclosed that I am a economist and professor and, in fact you can visit my web site and CV to decide if you think anything I say should be taken seriously or not. You can easily satisfy yourself with an echo chamber of like minded bloggers, or you can (as I do) look to find a spectrum of opinions that will challenge your views on an issue and make you a better and more nuanced thinker. It is entirely up to you.

But this is a marketplace and the consumer has only to click a mouse button to quickly express their preferences. Which gets me back to the WW article. The logic of the article seems to go like this, because BlueOregon is so popular it should be held to journalistic standards of ethics, and conflicts of interest on the part of its editors should not be allowed. Then, through strong innuendo they imply terrible bias on the pert of BlueOregon itself (talk about journalistic ethics). There are two things wrong with this argument. First, as I said above, a blog is not journalism, and second, WW does not seem to believe in markets.

If the blog is biased and there are a lot of dissenting voices that are being suppressed, then other outlets could and should emerge. BlueOregon is in a hyper-competitive market: new entrants can start up at zero cost - there are no barriers to entry. This is very different than print journalism in which there are extremely high start-up costs. So the very fact that BlueOregon is so popular does not suggest that they are some kind of gate-keeper for Oregon progressives on the web, it suggests the opposite - that BlueOregon is extremely good at doing what it aspires to do, provide a forum for these progressive minded Oregonians to express themselves. Its success in the marketplace of ideas in other words, is not due to some market power, come corner on the market, but is due rather to the fact that it offers a product many want to consume. There is one requirement for the market outcome to be efficient and that is full information. Thus it is important for the editors of the blog to be up front about conflicts of interest they may have, and the editors of BlueOregon are.

Finally, though it is in one's nature to defend oneself against unfounded and unreasonable attacks, BlueOregon really has no need to do so. The product and its success speaks for itself.

By the way in the further interest of disclosure, I do not define myself by political party but I did once take a (slightly silly) test on Political Compass to assess my economic and social leanings - here is my result:
So there. Apparently I am in good company with the Dalai Lama...

Public Goods Redux: Even Bill Sizemore Recognizes a Role for Government

This story has been getting a lot of circulation: Bill Sizemore finally realizes that taxes and government services are connected. Brings me back to something I ruminated about around the election: what is the proper extent of government involvement in society? These questions are never easy, but relentless cries of "taxes must be cut" without any discussion of what programs are unnecessary or specific examples of waste are destructive because they avoid asking the hard questions. As an economist I believe very strongly in incentives and I also believe that taxes are distortionary and often create disincentives to do things we want more of in society. But I understand market failures and the limits of private markets providing public goods as well. To this end, I often find myself arguing with those on the left about the former and with those on the right about the latter. What I hope is that we can get back to a place where left and right can talk to each other about these issues directly. What I think is necessary for this to happen is a good understanding of economics. So contrary to the opinion of some other economists, I think more economic knowledge is actually a good thing for society. Thus this blog. You are all welcome.