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So much attention has been focussed on Chapter 5 of Superfreakonomics which dealt with climate change policy that there has been little discussion of other chapters. I have now read Chapter 1 which explored how prostitution was related to Santa Claus and was the second issue — “Patriotic Prostitutes” — on the Superfreakonomics byline.

That chapter has been held up as being most like the original Freakonomics as it focussed on research carried out by Steve Levitt and sociologist Sudhir Venkatesh. And as Tim Harford notes, it does have some interesting results concerning the role of pimps (it turns out that they help prostitutes earn more) and the seasonal nature of supply (a reverse Says’ Law) which is the reason why Santa Claus gets a shout out here. (By the way, what is the total supply of Santas in Australia? 175; you won’t find that in this book, it is just something I happen to know).

This chapter is fun to read and is supposedly about the whole ‘strip the morals arise and focus on the economic forces’ type of investigation. But it is descriptive. The results are ‘hey this is a market’ and some have wondered whether we should care.

The problem is that we should care but that this chapter — for all of its research base — does not address why. And the issue is drugs. This a market where the suppliers’ choices are influenced by addiction (Jon Stewart noted it by the way). Yes, it is a market and there is some elasticity of supply but I was left wondering whether the research was focussed on the wrong thing. I want to know whether supply decisions are distorted by addiction and is this problematic for welfare. I think it is but when you think about interventions to do something about it, you can see the potential for unintended consequences everywhere.

Surely, there is more research that could have balanced up this chapter. For example, there are countries with more liberalised laws for both drugs and prostitution. Where is the real, data-driven, comparative analysis? I don’t know about this stuff but I wanted to know more. There was surely room in this chapter to provide it. In the end, we are left with stories, a bit of data and not just a stripping away of the moral and welfare issues but what is generally a complete avoidance of them. The issue is not “who cares?” We all do. The issue is that this chapter provides a surface treatment without delving or even pointing the way on the stuff we ought to care about. But why isn’t there more outrage about that?

I don’t like the killing of wild animals.  Even fishing now seems to me  like unnecessarily cruel plunder of the natural world, whereas years ago I was keen on line fishing and spearfishing.  I don’t like the killing of whales and dolphins.  I don’t like the shooting of wild bears in the US.  When I lived in New Hampshire 250 licences were issued in that state each year for the killing of black bears, which are majestic creatures that do no harm to anyone.  Likewise, I don’t like the killing of kangaroos. 

Advocates of Japanese whaling point out that Australia is hypocritical in its opposition to whaling because we slaughter millions of kangaroos.  They are right aren’t they?  It is hypocritical to pillory Japan for killing wild creatures in their natural environment when we do it on such a massive scale ourselves.  Ken Henry stated in a speech on 22 October that licences for the slaughter of 50 million kangaroos have been issued in the last 10 years.  Read more

It is not often that you get to see the data being collected by the Australian Bureau of Statistics first hand. However, this year our family was selected (randomly) to be part of a survey (conducted monthly) on various house things. It is still going on but the first part was a 90 minute home visit interview that spent much of its time quizzing our children on various aspects of their lives. The initial results of that survey have just come out. Here is an analysis. There is little surprising. 5-14 year olds are using the Internet and more so where it is available. They use it at home and at school and the time spent is growing but not yet at TV viewing levels. Lots of the use is nominally for “education.”

Looking at the results, it is clear our kids where outliers. I suspected as much as they were interviewed. They are high up on the internet use (especially at home) and undertake a variety of activities. They also use educational sites — StarFall, Mathletics and BrainPop — regularly. But I suspect that web-based games and social games are the main activity. My 8 year old son, in particular, likes new stuff and is enjoying being the youngest person on Google Wave.

But at each step of the process I knew they were not asked enough. They asked all manner of questions regarding use but very little in the way of controls. For instance, how many computers were in the house? Who owned a mobile phone? Operating systems used? Parental use of computers are work and home. And all manner of other household information that would surely be of relevance including how much exercise did parents do during the week? It was painful because I knew that this was going to allow some description but not nearly enough for serious research.

The message is to the survey designers at the ABS is this. If you are going to take up that amount of time collecting data, go for it. Don’t hold back on questions and come up with a dataset that will really tackle some important questions related to policy. At the moment, we didn’t get anything here that would help us with the whole NBN value question let alone what educational and health consequences there might be from all of this.

What is it with books and competition? In Australia, we have seen continual moves to keep foreign editions out of the country with parallel importing laws. In this case, it is nominally to protect Australian authors but in reality it protects Australian publishers of foreign best-sellers and harms bookstores and, of course, readers. And our copyright laws seem to pervade this entire space to restrict free trade. Amazon.com finally launched an International kindle but some books aren’t available (for instance, Parentonomics although Australian readers can look at much of it for free on their computers but not others) and others are much more expensive. For instance, Malcolm Gladwell’s new book is US$9.99 to US customers but US$17.24 to Australian ones! So there, booksellers as well as publishers are protected.

This doesn’t seem confined to Australia. Today, the American Booksellers Association which represents independent bookstores complained to the DOJ about predatory pricing by Amazon, Wal-Mart and Target. Apparently, Wal-Mart decided to discount some new release hardcovers to $10 (from about $25 or more) and a price war ensued and you can pick up these titles for under $9. That is the same as the Kindle price.

The argument is that this is a deliberate strategy by these chains to put smaller stores out of business. Now it may have that impact but the question is whether that is the purpose of this action. Two things suggest otherwise. First, to reap the benefits they would surely want to put other chains out of business. What value is it to Wal-Mart to engage in a nation-wide strategy to get rid of smaller bookstores who carry a larger range than it or eliminate them as sellers to best-sellers if Amazon.com is still around? Second, if Amazon.com was wanting to put Wal-Mart out of business why keep the Kindle price of its books the same? Once again we are led to wonder whether those in the book industry really like reading.

[Update: Malcolm Gladwell's price for Australians changed today to $11.99.]

Yesterday’s inflation figures from the ABS show inflation trending up sharply again.  Have a look at a graph of CPI figures and the ABS figures here.  My take on the data is that inflationary pressures grew as national income grew with the terms of trade and volumes of trade during the resources boom.   The terms of trade moved down in the GFC, but they are still much higher than 2002, and resource export volumes have grown even through the GFC.

Right up to April 2008 — nearly a year into the global financial crisis — the RBA is raising rates to tackle inflation driven by the extra demand of the resources boom.  Inflation remained high, quarter by quarter, until the global shock following the collapse of Lehman Brothers.  Australian CPI went to zero in that quarter and has accelerated rapidly in every quarter since.  The $A went down to near $US 0.60 in the same cycle, but is back where it was before September 2008.   The inflation driven by the resources boom is unfinished business for the RBA.  So expect long cycle of rate rises from the RBA.  Read more

The front page of the Age newspaper today had “onward, upward for the aussie” as the lead in to Saul Eslake’s piece about the value of the AUD.  I have written before about our bank’s poor forecasts when compared with a random walk – in fact I came across a paper yesterday (Eun and Saberwal, “Forecasting Exchange Rates: Do Banks Know Better?” in the Global Finance Journal, 2002) that compared bank forecasts with a random walk forecast over 3, 6, 9 and 12 month horizons, for four currencies against the USD. Each bank had 16 opportunities to beat (or just use) the random walk – the ANZ was one of the 10 banks in the comparison table, and they mangaged to beat the random walk with 4 of their 16 forecasts! In the event the description of Saul’s piece was a bit misleading. Saul did write that it is “likely that the US dollar will keep falling” but he gave good reasons for this and was careful not to forecast. Saul has left ANZ Bank, but I notice in their results that were released today they have their USD forecast for 2010 at 92c – pretty much the random walk given that the forecast table was presumably finalised at least a few days ago when the exchange rate was close enough to that rate. Interestingly, their 2011 forecast for the AUD is 81c – I’d still debate the logic of going against a random walk at that 18 month horizon, though by then a small move closer to fundamental value (nearer to 81c than 92c) is not without some sense.

It’s fashionable to disparage the US for having a legal drinking age of 21. But there’s pretty solid evidence to suggest that Australia could save lives by following suit. From a new research paper:

Long Term Effects of Minimum Legal Drinking Age Laws on Adult Alcohol Use and Driving Fatalities (gated, sorry)
Robert Kaestner and Benjamin Yarnoff
We examine whether adult alcohol consumption and traffic fatalities are associated with the legal drinking environment when a person was between the ages of 18 and 20. We find that moving from an environment in which a person was never allowed to drink legally to one in which a person could always drink legally was associated with a 20 to 30 percent increase in alcohol consumption and a ten percent increase in fatal accidents for adult males. There were no statistically significant or practically important associations between the legal drinking environment when young and adult female alcohol consumption and driving fatalities.

What’s the mechanism? The authors theorise that “a lower legal drinking age puts the youth on a higher trajectory of alcohol use, and alcohol consumption in later life would be higher for those who could legally drink prior to age 21”.

Their estimates suggest that reducing the US drinking age from 21 to 18 would in the long run cost 4000 lives per year. If these magnitudes hold in Australia, this would translate into a few hundred lives saved per year by raising the drinking age.

Of course, the loss would be the pleasure that is currently enjoyed by those who drink legally from ages 18-20. Kaestner and Yarnoff don’t attempt to value this, which is a pity.

Last night my computer suffered a bad crash while attempting a software upgrade. Fortunately everything was backed up, so things are back to normal again. I thought I’d write a short note to answer a question I’m often asked: “how do you back up your files?”. My approach is based on two rules: (a) recovery should be simple and (b) the most important things to back up are those that are unique, like my documents, pictures and datasets. Everything else is replaceable, including software and all those music and movie files. So here’s how I do my backups. It may not work for you, but hopefully something similar will be usable.

• Daily: Files on my main computers are backed up daily using Apple’s Time Machine. A second daily copy is made onto a linux home server. This is pretty much my entire life, so there must be two “live” backups, just in case one fails to restore (this has happened to me!).
• Offsite Data: All datasets, personal documents, and project files are automatically backed up regularly onto Amazon S3 using jungledisk. Amazon is very affordable and very good especially if you have lots of files. My family members using PCs use Mozy. Friends and colleagues have also had good experiences with sugarsync. The main idea is that if your house or office burns down or if you’re hit by a hurricane or earthquake, you’ll still have your files. All you need is your web browser. It also helps if you are not traumatized enough to forget your password and private key.
• Offsite Media: Photos and home videos are backed up on smugmug immediately after being downloaded from my camera. Sixty dollars a year for unlimited space is my definition of a good deal. If you use something else, watch out for copyright especially with the free sites, ie. make sure you own all your photos and are not automatically giving the service provider a free perpetual license.
• Cloning: Once a month (and before any major software upgrades or major trips) I use Carbon Copy Cloner to make a complete image of my notebook hard disk onto an external USB drive. Lots of alternatives exists for Windows and Linux. Note the Apple’s Time Machine is good for recovering the odd file or two, but takes forever for an entire system restore. We’ve also been locked out of it before due to permissions issues. Nothing beats a cloned disk image.

That’s it: daily backups, monthly clones and offsite copies. With improvements in synchronization software, all this takes place with little intervention, and backups happen quickly. No matter how busy you are, take a few minutes to plan your own backup strategy.

Some new education-related links:

• David Brooks on the willingness of the Obama-Duncan team to push radical school reform
• Elena Silva on re-organising teachers’ work to make schools more effective (use of teams, integrating on-the-job training, removing needless admin tasks).

And a link that is neither ed-related or new, but which I realised I’ve never blogged about.

• Ian Harper’s 30-minute lecture on Australian economic history is a corker. One for econ-poddies everywhere.

So I waited a little while to install Windows 7 on my MacBook until the VMWare Fusion 3.0 came out. That happened yesterday and I did a clean install (as I previously had XP). In half an hour I was done with Google Pack installed and just Office to go. Smooth as anything and lightning fast. Also, none of the annoying security features others found on Vista. This bodes well for productivity in my network.

[Update: I take it a little back. Windows 7 is running slower than Windows XP -- side by side and with XP getting a head start! It is annoying enough to stay with XP at least until I work out why. Fortunately on a Mac I can switch easily.]

A few years ago, I put together a list of tips for budding opinion piece writers. My friend Dalton Conley (an NYU sociologist who thinks like an economist) has just emailed me his own set of suggestions, which are much better than mine. Since they weren’t already online, Dalton has kindly given me permission to host them on my website.

The Walkley Magazine has published an article by myself and Andrew Leigh on media slant. It is reproduced over the fold.

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When your city spreads out, so does your paunch – at least according to new work from the NBER stable. Their IV strategy seems credible, suggesting that the relationship is probably causal.

Effects of Urban Sprawl on Obesity (unstable ungated, stable gated)
Zhenxiang Zhao and Robert Kaestner
In this paper, we examine the effect of changes in population density–urban sprawl–between 1970 and 2000 on BMI and obesity of residents in metropolitan areas in the US. We address the possible endogeneity of population density by using a two-step instrumental variables approach. We exploit the plausibly exogenous variation in population density caused by the expansion of the U.S. Interstate Highway System, which largely followed the original 1947 plan for the Interstate Highway System. We find a negative association between population density and obesity and estimates are robust across a wide range of specifications. Estimates indicate that if the average metropolitan area had not experienced the decline in the proportion of population living in dense areas over the last 30 years, the rate of obesity would have been reduced by approximately 13%.

I added to my blog on time in the sharemarket for the following piece that was published in the Weekend Australian Financial Review on 17-18 October…

As we all now know, financial markets are irrational and inefficient, but probably less understood is the fact that financial markets are also very superstitious. Particular numbers are given special significance by many in the markets, and one such number is a Dow Jones Industrial average value of 10,000. On Wednesday this week the Dow again rose above 10,000, up 53 percent from this years low in March, though still well below its peak of 14165 in October 2007.

One market expert who tends not to be too superstitious is Warren Buffett. Buffettt once noted that in the 34 year period from 1964 to 1998 the capital gain on holding shares in the US market was a respectable enough 7 percent or so. Over this period the Dow rose from around the 800 level up into the 9000s. Read More

In the US, some industries have antitrust exemption – including baseball and insurance. The latter is under scrutiny to see if its exemption should be removed. This is a complex argument – exemption allows information sharing about risks that may otherwise be illegal. The insurance companies are also State regulated – so it is not simply a competition law no-go-zone. But one claim is that the exemption gives the insurance companies market power as buyers. This supposedly leads to lower input prices that are passed on to customers. So (it is claimed) removing the exemption will mean higher input prices and higher prices for customers. Unfortunately, as a matter of basic economics, this idea of consumer-friendly market power is, at best, dubious and, at worst, just wrong. Read more

Claims of predatory pricing by Qantas when Rex started servicing some new routes in Queensland are made here. Now we have heard such claims before both when Compass and when Virgin began their airline services. Such claims are notoriously hard to prove under the Trade Practices Act. And as a former ACCC Commissioner, I know how often the ‘victims’ of legitimate but vigorous competition make claims of ‘predation’ to disguise their own shortcomings. The claims in this article, however, are notable for two reasons.

First the article claims that:

in 2007, the ACCC won new provisions of the Trade Practices Act, which made even more explicit the definition of predatory pricing, where an incumbent operator uses its market power to engage in prolonged sub-economic pricing to drive out a rival.

This presumably refers to the so-called Birdsville amendment to the Trade Practices Act. This is a poorly thought out amendment to our laws on abuse of market power (s.46 of the Act). To say this amendment was ‘won’ by the ACCC is to rewrite history – it was foisted on Australian business and the ACCC in the lead up to the last Federal election, is badly written and unlikely to ever lead to a serious court case because it is so full of ill-defined terms.

Second – and far more interesting  – is another claim in the article:

Davis says Qantas responded by introducing a third lunchtime return service on most weekdays, on top of the twice-daily services operated by either 50- or 70-seat Dash 8 turboprops, compared with Rex’s 35-seat Saab 340s.

This is interesting because it is difficult to find a rational pro-competitive argument for such an increase in capacity. When a competitor enters a market that has been a monopoly then it is very likely prices will fall – as they have in the case of Rex and Qantas. Total output in the market is likely to rise. But output of the incumbent is likely to either stay the same or fall. It is difficult to see how it could legitimately rise. After all, the incumbent starts out as a monopoly. After entry the demand for its product has fallen to the degree that the entrant steals some customers. To lower prices and increase output in such circumstances cannot be profit maximising in the absence of a strategic reason – such as predatory behaviour to force out the entrant.

Now, it is not impossible to find an alternative non-predatory rationale for such an increase in output. But it is not easy, and suggests that the ACCC may want to have a closer look at the airline war in North Queensland.

Steve Thomas was one of the four who won a free ticket to attend Per Capita’s annual Policy Exchange conference. Here’s his views on the event:

Read more

Phil Dobbie pulled my testimony from the Senate Select Committee on the NBN and you can hear it here (around 2/3 of the way through). Of course, to pull in the crowds the headline he uses is “NBN should be free, says economist” which of course is not what I say at all. Anyhow, if you listen to the podcast, it does represent my views well.

In a post a few weeks back, I raised the question of what additional production factor one would have to include into the current production function framework in order to have a plausible story about the recent crisis.

That post included a set of conditions any candidate would have to pass in order to fit the current crisis and be interpretable as a true factor of production. From the ensuing reactions, two main candidates emerged: a mystery factor that gives a role to lines of credit (suggested by James A); and input and output linkages (suggested by doctorpat, Ian King, and, implicitly, _Tel).
Let us now add more information to this question and see whether the proposed production factors have something to say about other major economic crises that we have known in relatively recent economic history.

The hope is that we need only one factor to generate a reasonable story for several major downturns. If  we’d need a very different new factor to explain each different major economic downturn, then the exercise of looking for new production factors becomes more futile because there is then less hope that having a good  explanation for each of the previous downturns will say anything of much use to inform us about what to do to prevent or cope with the next one.

Below is a graph that summarises the GDP movement of three other major economic downturns.

The blue line shows the Great Depression, in which case the 0 point on the X-axis denotes 1929; the red line shows the collapse of the Russian economy after the changes in 1990; and the green line shows the Indonesian collapse after the Asian Financial Crisis of 1997. In each case, GDP is normalised to be 100 at the start of the crisis and time is re-set to 0 at the start.
The first striking observation is that these three crises are far bigger in magnitude than the current crisis. Indeed, the Russian collapse was so spectacular that I have long wondered how it is possible that our macro-textbooks are not full of insights gained during such a spectacular macro-event. Stiglitz already noted in the 90s that the Russian collapse shouldn’t have occurred under the conditions we still teach as good descriptions of the aggregate economy, but it clearly hasn’t mattered for Western textbooks that a large economy on the periphery did something interesting.
The main question to briefly consider though, is whether the two candidate factors X are known to have been involved in these downturns too? Lines of credit were certainly important in the Russian case (as in the whole of the former USSR), where firms had large amounts of outstanding debt with other firms and the unwinding was a tricky business.

Lines of credit were also important in Indonesia and the Great Depression. Hence credit lines can at least potentially ‘fit’, though it should still be worked out via which actual production factor they affect sold production.

Linkages are clearly of relevance in the Russian case where the whole central coordination mechanism fell away and the ensuing ‘disorganisation’ (A phrase used by Blanchard and Kremer 1997) created many firms who had no suppliers and no clients. Campos and Coricelli in their 2002 Journal of Economic Literature article also point to within-sector reorganisation of links as a probable factor in the collapse.

Whilst linkages are probably relevant in the Asian Financial crisis, it is not well-documented how they might have played a role. We know many city labourers went back to the countryside, however exact numbers are unknown because most people who originally came from the country to find urban employment are unregistered and therefore not included in unemployment and migration data etc (explanation paraphrased from a paper by Tran Tho Dat).
We also know that the capital embedded in collapsing firms was not quickly re-used by others, but there’s no specific account I know of that  discusses the collapse in terms of broken linkages.

For the Great Depression, on which acres have been written, I also do not know of anyone looking at it through the lens of links. One might say it is implicitly there when people talk about the issue of bankruptcy, as bankruptcy to a perfect market economist merely means the freeing up of previously inefficiently used production factors. From a link point of view, the importance of bankrupcy is that people and capital are idle for quite a while before they are ‘re-linked’.

Any ideas on how we should think of disruptions in lines of credit and its impact on the real economy via a production factor in these three crises or the current one? Any anecdotes on links?

Chapter 5 of Superfreakonomics must be the most discussed pre-release book chapter ever. And I have participated in debates before but nothing as seemingly intense as this. My Sunday morning thoughts on the whole matter were picked up by Brad DeLong (who classed me as a defender of Levitt and Dubner), Paul Krugman (who didn’t) and Tim Harford (who was reflective). The discussion has moved on from anger and resignation; near as I can tell. Stephen Dubner has responded but somehow he and Levitt have both come out of this somewhat tarnished. Brad DeLong summarises what many are thinking and that is disappointment.

And I think disappointment is the word. The Chapter was always going to be controversial. Indeed, that is the point of the chapter as it tries to argue that the climate change debate has been distorted by emotion rather than evidence in so many places. This is why the extreme alarmists and denialists are just that and the scientific debate is caught in the middle trying to lay out the options and risks in a more level headed manner. But what that meant is that Levitt and Dubner had to be extra-careful. “A strong but one-sided story” as Tim Harford so aptly put it (enough interestingly for him to also be labelled a defender of Levitt and Dubner by DeLong) was not going to cut it as a contribution to the debate.

In retrospect, there are many, including myself, who think they could have done much better. Indeed, what they wanted to say was what Nathan Myhrvold wrote today:

The point of the chapter in SuperFreakonomics is that geoengineering might be good insurance in case we don’t get global warming under control. Nobody can tell you today exactly how much CO2 we can emit without causing grave environmental harm. Nobody can tell you at what point the world will find the political will, the money, and the technological innovation to solve the problem. In a situation like that, can the world afford to turn its back on what could be a promising approach should we fail with our other efforts?

But it does not come out that way and that is a pity.

The Superfreakonomists should take heart on one matter. This disappointment arises because of high expectations and a high reputation. Economists know that whatever they might think of these popular books, they have lifted economics in the eyes of the public. It is a platform that has assisted many of us. I just wish that the stewards of that platform had been more careful in their stewardship. Reading by sceptics and other economics colleagues would surely have been a start. The one thing we know from academia is that peer input prior to wide dissemination is valuable and a good insurance policy.

Taking a soft line on asylum seekers would seem to be the third rail of Australian politics.  Prime Minister Rudd is so worried about appearing weak on the matter that he has resorted to the Orwellian double-speak of “having a hardline and humane approach to dealing with asylum seekers”.  But Kevin Rudd is really just reacting to the hot button nature of the asylum seeker issue, just as John Howard did.  There is a real and deep seated fear in the Australian electorate of asylum seekers arriving by boat.  The fear doesn’t seem to match the threat.  The total number of refugees arriving by boat in Australia since 1979 is only about 0.5% of legal arrivals.  So what is the fear about?

Here is my opinion.  Two things are at the heart of the fear.  First, we are only 22 million people occupying a whole continental land mass.  Many Australians worry that the demographic vacuum that is Australia will one day be collapsed by an irresistable surge of illegal arrivals.   Many Australians have a nagging fear that if we don’t hold back a trickle of arrivals, a flood will follow.  Compounding this fear of loss of control of our destiny is the nagging doubt about whether it is legitimate in such an over-crowded world for a mere 22 million to occupy so much space.  Read more

Nothing seems to generate as much controversy as immigration. My post the other day in support of Chris Berg’s call for freeing up immigration laws is a good example. But what is interesting to me is how it seems to cut across usual right-wing and left-wing divides.

The right-wing case against immigration has to do with rights. Australia supposedly has a right to self-interest and to pick and choose who gets to come here based on self-interest. That self-interest often includes getting the right cultural mix. The left-wing case against immigration is similar. It often has to do with jobs and the protection of them by erecting immigration barriers. Sometimes it includes housing and even the environment in that mix. In each case, there is a presumption that nations should operate according to a group interest and choose who gets to join and enjoy the fruits of the group. Read more

My AFR op-ed today is on education and the economic “downturn” (formerly known as the Australian recession). Full text over the fold, along with all the usual hyperlinks.

Much thanks (but no responsibility) to Andrew Norton, who helped me understand the university financing issues, although he doesn’t agree with all my recommendations.

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It is clear that a gap has opened between the RBA’s view of Australia’s economic prospects and that of the Federal Government and its Treasury Department.  The Reserve Bank Board is winding back its “emergency” monetary policy, but the Treasury sees no need for winding back the emergency fiscal policy of stimulus spending and large budget deficits.  Glenn Stevens (15 October) and Ken Henry (23 September) have expressed these views in recent speeches on how the GFC is playing out in Australia. 

The most striking aspect of Steven’s speech is his comments on inflation.  My guess is that the RBA Governor considers that the inflationary pressures  in Australia that came with the 2002-2008 surge in the terms of trade represent unfinished business for monetary policy.   His speech began with a unequivocal statement that the undiluted purpose of monetary policy is stabilisation of prices.   Read more

and his name is Joel Waldfogel. Who is Scrooge? He is someone who hates Christmas and thinks that Christmas activities are a waste. Joel Waldfogel in his new book, Scroogenomics (will the onomics trend know no end?) tell us in a series of essays why you shouldn’t buy presents for the holidays. Actually, he does better than that, he calculates it. It is around $12 billion per year made up of the money value of the total difference between what a gift is worth to someone versus just having the money. And that is not counting the whole hassle of the fruitless exercise of trying to make that value less by shopping and making the thoughts that count.

Scroogeonomics is an aptly titled 170 odd page presentation of the case against Christmas but more generally against gift giving. (Note to self: don’t invite Joel to birthday parties). That said, it is completely compelling. You just can’t read this book without thinking about how to get out of the whole gift giving mess. And the book doesn’t even mention the classic Seinfeld episode about bringing stuff to dinner parties. So Joel is like George Castanza too.

But the book is not without hope. We can end the inefficiency yet preserve the ‘social’ value of gift giving. One way is to use gift cards or money rather than trying the ‘thought’ approach. Another is to give to charities in someone’s name although that is still kind of complex as you can get that wrong too. One thing you should not do is do what I have said and encourage self-made gifts. That seems to only exacerbate the inefficiency.

And what of the book itself. It is published by Princeton University Press but if you excepting the usual academic sized affair that is not to be. Instead it is ‘made for gifts.’ A small little book that you might see as a last minute counter purchase at a Borders. In other words, Waldfogel is capitalising on the problem and potentially creating more inefficiency.

So let me help get out of this. Don’t buy this book as a Christmas gift. Go out and buy it now and send it to one friend and ask them to read it and pass it on. That would be efficiency enhancing by the book’s own metric. By the time we get to December, enough may have read it to have killed Christmas for good.

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