Another reason to rein in population

Forget about the age-old debate on Malthus' dismal claim regarding over-population. He says that if population grows at an exponential rate, there wouldn't be enough resources left to satiate the consumption of everyone. Modern growth economists would say "That's what technology is there for, Malthus old boy. So don't worry about it." Malthus' primary message is just simply for nations to control population growth, but people nowadays are simply not too concerned about it. Fortunately for Malthus, there's a new research that analyzed a new reason for people to take the old boy seriously.

From the Economist, according to Thomas Wire, a postgraduate student at the London School of Economics, controlling the surge in population may benefit more than making sure everybody has still something to eat years from now--it will benefit the environment:

"Mr Wire totted up the cost of supplying contraception to women who wished either to delay their childbearing years or to end them artificially but who were not using contraception. He examined projections of population growth and of carbon-dioxide emissions made by the United Nations and concluded that reducing carbon emissions by one tonne would cost just $7 spent on family planning, as opposed to at least $32 spent on green technologies.

Mr Wire points out that if all women who wanted contraception were provided with it, it would prevent the release of 34 billion tonnes of carbon dioxide between 2010 and 2050."

Talk about hitting two birds with one stone (climate change and population growth). If you really think about it, it's really a no-brainer: population growth can influence the environment--and it's not just on the issue of contraception. Take for example the most common case of garbage control. The more people there is, the more trash is thrown to the garbage. But of course, that's just one of those that you can observe on the surface. Definitely the relationship between population and environmental degradation is more intricate to the point that you may arrive concluding that we should all then be self-sufficient enough so that there wouldn't be any industrial waste from companies that are selling us things that we need. But we don't need to get into that.

What Mr. Wire did is a good thing because he puts some hard facts on at least one aspect of the issue. Now what we need is more of these kinds of discoveries and laying-down-of-facts to finally put the age-long debate to rest.

Missouri Bushwackers?

Well, not really economics related, but I'd like to share something about the University of Missouri.

Some of the college athletic teams these days have names that are connected to people in their history. The Kansas Jayhawks have their name based on a group of people during the Civil War:

"The Jayhawk is a mythical cross between two common birds -- the noisy blue jay and the quiet sparrow hawk. The word came to prominence just before the Civil War, in Bleeding Kansas, where it was adopted by militant abolitionist groups known as Jayhawkers. With the admission of Kansas as a free state in 1861, Jayhawker became synonymous with the people of Kansas. The Jayhawk appears in several Kansas cheers, most notably, the "Rock Chalk, Jayhawk" chant in unison before and during games."

We also have the Sooners of Oklahoma:

"The University of Oklahoma features 17 varsity sports teams. Both men's and women's teams are called the Sooners, a nickname given to the early participants in the land rushes which initially opened the Oklahoma Indian Territory to non-native settlement."

And then we have some other collegiate teams whose names are based on Indian tribes or chiefs.

Now as for the Missouri Tigers:

"In 1864, while in the midst of the American Civil War, the board of curators suspended operations of the University. It was during this time that the residents of Columbia formed a "home guard" unit that became notoriously known as the "Fighting Tigers of Columbia". This name was given because of the group's steadfast readiness to fight against Confederate bushwhackers, hoping to plunder the city and university, under the command of "Bloody Bill" Anderson. Later, in 1890, an alumnus suggested the University's newly-formed football team be called the "Tigers" out of respect for those who fought to defend Columbia."

But, it turns out that the term bushwacker is more synonimously associated with Missourians fighters during the Civil War:

"The term was widely used during the conflict, though it came to be particularly associated with the guerrillas of Missouri, where such warfare was most intense. Guerrilla warfare also wracked Kentucky, Tennessee, Arkansas, and northern Virginia, among other locations. One of the most vicious actions during the Civil War by the bushwhackers was the Lawrence Massacre.

Pro-Union guerrilla fighters in Kansas were called "jayhawkers". They used tactics similar to the bushwhackers. A typical jayhawker action was a cross border raid into Missouri."

So, what I'm trying to point out is that there is definitely a good argument for using "Bushwacker" as the name of Mizzou's athletic teams instead of "Tigers." This is specially the case when we consider the "Border War" rivalry games between the University of Kansas (Jayhawks) and the University of Missouri (Tigers), which are based on a historical period of time shared between the two states during the Civil War:

"The intense rivalry between the two universities can be traced to the open violence involving anti-slavery and pro-slavery elements that took place in the Kansas Territory and the western frontier towns of Missouri throughout the 1850s."

And those involved are no less than jayhawkers from the Kansas side of the border and bushwackers from the Missouri side of the border. So it seems more appropriate to have the Missouri Bushwackers fight the Kansas Jayhawks during these Border War games.

But then again, there is also a strongly negative association with the bushwackers (unless you're a Clint Eastwood fan). They're not really the sort of peple you'd like to get involved with back then ("Bloddy Bill" Anderson and Jesse James are among them). And there's the massacres and such. So I guess "Tigers" was the best decision.

And the fact that I'm starting to like Truman the Tiger doesn't hurt as well.

GDP as the not-so-right measure of well-being

Well, the debate on whether gross domestic product (GDP) per capita is the measure of economic well-being is not new. This has been going on for some time, and some institutions, like the Centre for Bhutan Studies, came up with other alternative measures of well-being, like the happiness index.

Now, even France is getting in on the forefront. From the Economist website:

"Among those convinced that official statisticians should join in is Nicolas Sarkozy, the French president. On September 14th a commission he appointed last year, comprising 25 prominent social scientists, five with Nobel prices in economics, presented its findings. Joseph Stiglitz, the group's chairman and one of the laureates, said the 292-page report was a call to abadon 'GDP fetishism'."

I think the effort is noble. I support looking for other measurements of well-being. But to abandon one of the pillars of Keynesian economics because of the notion that "Americans may be well fed yet are fed up" or that "an Indian may be desperately poor and yet say he is happy" may miss the whole point. The Indian is happy because he is satisfied with what little he has left. But in the first place, he has little because he can't afford anything else. And he can't afford is because he may not have a job, or at least he has a job that earns him only a little. This last fact can be captured by GDP per capita. If the Indian has as much access to many things as the average American does, it's not impossible to see that the Indian can also be well fed but is fed up.

GDP is not just about production. One of the basic things being taught in macroeconomics is that it's a circular flow. Whatever is produced is what is earned. It may sound simplistic, but indeed if less is produced, then less is expected of what is earned. As a result, it is least likely that an average person from a low GDP country (a.k.a., the Indian) can purchase the things that the average person from a high GDP country (a.k.a., the American) can buy.

So it seems like these new measures are trying to compare apples and oranges. You just can't compare the two, unless you take into account the differences in the environment facing the two. The funny thing is we accept the fact that we are now living in a world where everything is becoming more globalized, so how is it that we forget that we should not try to isolate the things that can only be bought in America from the things that can only be bought in India and try to say that the Indian is more happy compared to the American.

So before they replace GDP with these new measures of economic well-being, maybe finding measurements based on subjective interpretations may not be the right way to go. They may be good complimentary measures, but definitely not substitutes.

NFL coaches are not irrational; just eccentric

I'd like to go back to my previous post about punters in danger of losing their jobs. I'd like to focus this time on one of the papers mentioned by the source. David Romer analyzed why the behavior of National Football league (NFL) teams on fourth down situations depart from the behavior that would maximie their chances of winning in a way that is highly systematic, clear-cut, and statistically significant.

Let me restate his findings clearly and in detail:

1. What is the situation?

The choice on fourth down between kicking (either for a punt or field goal) or going for it and trying for a first down (or better yet, a touchdown).

2. So what would teams do to maximize their chances of winning?

Like any rational agents in an economic system, NFL teams maximize their objective function, which is simply to win the game. Now going for it on fourth down or simply kick the ball would depend on the attractiveness of the distributions of ball possession and field position, but Romer came up with what could be considered objective-maximiing decisions using dynamic programming analysis:

"On the team's own half of the field, going for it is better on average if there is less than 4 yards to go. After midfield, the gain from kicking falls, and so the critical value rises [the critical value is the yardage-treshold where a value lesser than this treshold means that the team should go for it]. It is 6.5 yards at the opponent's 45 and peaks at 9.8 on the opponent's 33. As the team gets into field goal range, the critical value falls rapidly; its lowest point is 4 yards on the 21. Thereafter, the value of kicking changes little while the value of going for it rises. As a result, the critical value rises again. The analysis implies that once a team reaches its opponent's 5, it is always better off on average going for it."

3. So now that we have some scientific metersticks on how "rational" teams would maximize their objectives during fourth downs, what did Romer's empirical findings show on how NFL teams actually decided on these situations:

"Team's actual choices are dramatically more conservative than those recommended by the dunamic-programming analysis. On the 1,604 fourth downs in the sample for which the analysis implies that teams are on average better off kicking, they went for it only 9 times. But on the 1,068 fourth downs for which the analysis implies that teams are on average better off going for it, they kicked 959 times... Over most of the field, teams usually kick even with only 1 yard to go. Teams are slightly more aggressive in the [red] one, but are still far less aggressive than the dynamic programming analysis suggests."

Romer attributes these not-so rational behaviors to two some-what "eccentric" qualities: NFL teams could have more complicated objective functions as merely just winning the game, like through "subtle" channels--their risk aversions could come from the fans, it could come from owners, even coaches or players. The other attricbute of this "irrational" behavior is that these NFL teams are just simply imperfect maximizers. Rather than use mathematical and statistical tools, decision makers rely mostly on experience and intiotion than formal analysis in their quest to maximize the team's chances of winning.

It's a good thing the Missouri Tigers turn out to be less "eccentric" and more "rational" in last night's game against the Bowling Green Falcons. In the fourth quarter, the Tigers were down 20-13 and they find themselves in a situation where the had the ball and they're facing fourth down at the opponent's 39 yard line. Did they go for it? You bet they did, and they converted it successfully. They eventually scored during that drive that tied the game. They scored another one on a run after the Mizzou defense stepped up and stopped the Falcon's next offensive drive.

They maximied their objective.

And they won the game.

I have to thank a good friend of mine, Dottie Heibel, for bringing me to that game--the first live football match of my life (also enjoyed my first tailgate party! Thanks to Dottie's sister Nancy and his husband Ed). And what a game it was. Spirits were way down at half-time with the Tigers trailing behind the Falcons with 13-6 at the score board. But I guess the Tigers were just experiencing the jitters of having to play on home turf for the first time this season. Coach Gary Pinkel might have one hell of a motivational talk with the team as quarterback-sensation Blaine Gabbert and his crew got back in high spirits from the locker room and managed a comeback win. What a game.

Romer's original intention for his study may have been to analyze an eccentric behavior among firms by using NFL teams as an illustration. But I think he showed us that he can become a very good NFL coach. And I wouldn't be surprised if Coach Pinkel managed to read Romer's paper before the game.

Reference:

David Romer (2006) "Do firms maximize? Evidence from professional football." Journal of Political Economy 114(21): 340-365.

Asian Enterprises Amidst the Global Crisis

Before I left Asian Development Bank to pursue Ph.D. education in the great state of Missouri, I was involved with a team in chanrge of analyzing the impact of the recent global economic crisis on enterprsiees in Asia. Led by my great mentor and colleague, Rana Hasan, the resulting paper would be included as the special chapter for the volume, Key Indicators 2009, one of the flagship publications of the Asian Development Bank.

I'm happy to know that the launching of the publication was good, and that the special chapter itself is even better. Among the highlight of the study, I'd like to share three excellent points:

1. There's no question about it: Asian enterprises has been hit hard, and this is evidenced by scaling back of operations, cutting of production, and laying-off of workers in many of the region's most dynamic and export-oriented enterprises. Most hit hard is the manufcturing sector--among the eight Asian countries we studied, seven reported declines in manufacturing employment by about 2 percent to 7 percent between the first quarters of 2008 and 2009.

2. Since one of the consequences of the global crisis is weaker export demand, we saw large enterprises hit by the crisis. But the smaller enterprises (the SMEs) are victims as well. This is because another consequence of the global crisis is reduced aggregate demand in Asian countries. Since SMEs tend to be more domestically-oriented, we also saw SMES hit by the crisis as well. As for the large firms, it will be a slow recovery because it is expected that demand for exports to likely only recover gradually. And this is an important point because looking back to the 1997 Asian Financial Crisis, the Asian economies were quick to get back on track primarily because strong export demand is there. That is clearly not the case this time.

3. Seeing that export would not help much, it is recommended that some economies rebalance their economic growth toward domestic sources. A potential source is the rapidly growing urban middle class, which will be key to increasing domestic demand. Now, because most Asian workers depend on SMEs for their livelihood, the expansion of the middle class hinge on the dynamism of SMEs (or Asian enterprises in general). Given this, constraints to entry and growth of SMEs (a.k.a. nonproductive-related transactions costs) should be eliminated. Governments should promote adoption of productivity-enhancing modern technologies that will not only provide well-paying jobs, but increase the supply of goods and services required by the domestic market as well.

The key here is to increase domestic demand in each of the Asian economies.

Punters beware: Your days are numbered

Your a coach of a high school football team. It's fourth quarter, and your trailing behind your opponent in score. You have the ball at your opponents 40, but it's fourth down and long. Should you punt or go for it? Well, some statistics would encourage you to go for it.

James Kwak of the Baseline Scenario blog shares with us these two links (including one which David Romer of UC-Berkeley wrote) that discuss some statistics and the game theory behind the scenario above. The bottomline is: never punt the ball. Well, at least for the most part. It's funny because in playing Madden in Playstation, I never like to punt. Most of the time, I go for it at fourth down. I don't know if it's just my preference or some kind of intuition, but lo and behold, there's some statistical facts that would back up such strategy.

Very interesting. Not so for punters.

On a slightly unrelated note, for what would be the last Arch Rivalry game in the near future, Mizzou beat Illinois 37-9 last Saturday, September 5. Mizzou won the last Arch Rivalry game. With star players such as Chase Daniel and Jeremy Maclin already in NFL, Illinois is expected to have a chance at winning the series after they lost to Mizzou in the last four games. Unfortunately for them, new quarterback Blaine Gabbert was excellent and helped the Mizzou team notch a fifth win. Well, they didn't employ the no-punt strategy, but then again, I don't think they need it either.

Return of Keynesian Macroeconomics (a.k.a., The Great Divide... Again)

In one of his newest and provocative but excellent articles, Paul Krugman asks of the recent financial bubble of 2008, "How did economists get it so wrong?" For him, "the economics profession" went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth." And what was this beauty he's referring to? Neoclassical economics.

"Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn't sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals intereact in perfect markets, this time gussied up with fancy equations."

Here afterwards, Krugman points at the downside of the neoclassical thought:

"They turn a blind eye to the limitations of human rationality that often leads to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets... that can cause the economy's operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don't believe in regulation."

And so, among Krugman's recommendations for economists is:

"... [T]hey have to admit... that Keynesian economics remains the best framework we have for making sense of recessions and depressions."

Krugman has many excellent points in his article, particularly ont he part where all these neoclassical theories and finance theories have not been successful in explaining what happened during the recent crisis--or more importantly, predict it. I agree with his assessment that economists must take into consideration that the market is not all perfect and frictionless, and that economists may not even need to start from scratch when they begin to. As Krugman correctly refers to, behavioral economics, particularly behavioral finance, has already covered much on how human cognition can bias the decisions of what economists initially assume to be rational individuals.

But then again, maybe part of the solution would need not be the complete dismissal of neoclassical economics. If we follow Krugman word per word that the Keynsian doctrine is best in handling recessions and depressions, what about periods outside of these incidents? Maybe the solution is to find a way to reconcile both schools of thought--and this is what I consider perhaps the Holy Grail of economics (a very difficult one to accomplish, otherwise someone would have done it by now). Let's take Krugman's point exactly: individuals are rational, but certain cognitive biasses would make it appear they are irrational. And I think this kind of analysis that is within the heart of behavioral economics can still be analyzed within the framework of neoclassical economics.

Krugman would categorize me as a "freshwater" economist (and this is not simply because I'm associated with the University of Missouri), and that he expected me to always have a "reason to cling to neoclassicism." But I'm not among the "purists," and I can see the advantages of Keynesian theory. I just hope he also sees some advantages of neoclassical theory.