Articles published in December, 2005

Dear Economist,
My husband is a successful accountant in his early 40s but his behaviour can only be described as workaholic. He is often at the office until 8pm and always brings work home. How can I convince him to cut back on his workload and spend more time with me and the children?
Margot Hillens, London

Dear Mrs Hillens,

Although you describe your husband as workaholic, that term is ambiguous. (You may wish to consult a paper by Hamermesh and Slemrod on “The Economics of Workaholism” subtitled “We Should Not Have Worked on this Paper”.) The first possibility is that your husband is not addicted to work, he simply prefers working to being at home – or, to be blunt, he prefers accountancy to you. If this is true, the solution is to make home life more attractive: learn to cook, invest in a better haircut and spend some time on an exercise bike.

Alternatively, your husband may be desperately trying to cut down on his work and need your help. He may be wracked with guilt after every late night. If this seems more accurate, you must remove temptations and create strong barriers against relapses. Hide his BlackBerry and take him out to dinner with important guests. A final possibility is that your husband is a “rational addict”. His work is addictive in the sense that the more he does it the more he wants to do it, but his activity is rational in the sense that he has anticipated this and still decides to work. The path away from rational addiction is not to “cut back” but to go cold turkey. That would mean your husband retiring immediately. Be careful what you wish for.

Also published at ft.com.

Dear Economist,
Two friends and I have taken out a lease on a three-bedroom flat. The rooms are all different sizes. How should we decide who gets which room and the share of the rent that they should pay?
Daniel Chin, Haywards Heath, UK

Dear Daniel,

This reminds me of the cake-cutting problem: one person cuts the cake, the other chooses which piece to eat. The person making the cut knows he will get the smallest piece and will try hard to make the pieces the same size.

With two rooms you can do the same thing. The first person decides on the size of the subsidy to the smaller room. For instance, for a Pounds 1,000-a-month flat, she might declare the small room costs Pounds 400 monthly and the large room costs Pounds 600. Her flatmate decides which deal she prefers.

With three rooms in a Pounds 1,000-a-month flat, things are more complicated. The first housemate fixes the rent on one room, say, Pounds 200 for the broom cupboard. The second housemate can take that offer or make the first housemate take it.

The third housemate then decides how the Pounds 800 should be split between the two remaining rooms and whoever did not get the first room decides which one to live in.

This scheme should be fair for the same reason as cake-cutting is fair: anybody who creates an unattractive option will immediately find himself having to take it.

Admittedly, if your housemates have different priorities it is an advantage to be the one making the divisions. For example, if your housemate needs a big room you can make sure it is expensive because you know he has to choose it. More sophisticated schemes can fix this problem but it may be better to make sure your housemates don’t read this reply and simply go first yourself.

Also published at ft.com.

I explained my theory on Marketplace this evening, and on Marginal Revolution this morning.

Last week I wrote that the shortage of Xbox 360 consoles seemed inexplicable, at least to me and my fellow economists. I invited readers to provide better explanations, and you did.A reminder of the puzzle: Xbox 360s are the latest in a long line of Christmas products to suffer spectacular shortages. The shortage of supply isn’t the puzzle; the low price is. Why doesn’t Microsoft raise prices temporarily from the current floor of $300 for a basic console? Why doesn’t the company auction them all on eBay, where consoles are currently reselling for $700 and up?

If I had a dollar for every e-mail I received on the subject, I’d be able to afford an Xbox myself. Most of the suggestions I received were wrong, but a few got me thinking, and they may get you thinking, too.

Continued at Slate.com

On Sunday the New York Times reviewed The Undercover Economist, starting:

A funny thing seems to be happening to economics writing: it’s getting better,

and ending with

For those of you, even now, still stuck in the bookstore cafe, this is a book to savor.

You can read the whole review, including the ‘quibbles’.

Dear Economist,
After several years, I recently noted that I only really fancy my girlfriend after I’ve had a few drinks. Is this relationship worth pursuing?
David Pigeon, London

Dear David,

I know how you feel: I only fancy chips with mayonnaise. Sadly for my waistline, my relationship with chips has not suffered.

You are saying that like chips and mayonnaise, alcohol and your girlfriend are complementary goods. I am not sure this is a problem.

It might be a problem if your predicament were unusual. It is not. Many people have found that alcohol has aphrodisiac qualities, even if it occasionally dampens the ability to follow through. This Christmas, thousands of couples like you and your girlfriend will rediscover each other with the help of the Yuletide brandy. I’m a September baby myself, as is my father, my sister, her husband and their son. You are not alone!

Of course, it is easy to drink more alcohol than is good for you. Perhaps this is what is concerning you, but there seems to be no need for worry. The Government advises that the average man should aim to drink no more than three to four “units” of alcohol – about two pints of ordinary-strength lager – a day. Since the typical British couple claims to make love every three days or so, you should be able to lubricate yourself appropriately without putting too much strain on your liver. Just steer clear of prodigious feats of love.

It seems to me that there is one cause for concern: your girlfriend must never suspect that you need to don the beer goggles to find her appealing. Drinking is commonplace in our culture, so you shouldn’t find it hard to camouflage the limits of your infatuation. Just don’t do anything stupid, such as discussing it in the pages of a national newspaper.

Also published at ft.com.

At first it looked as if I would never get to have lunch with Thomas Schelling, this year’s winner of the Nobel prize for economics. When I first tried to see him, he told me to wait a week or two, so he could “get over the celebrity activity” surrounding the prize. We picked another date but then he had to cancel: “I have to be at the Swedish Embassy and the White House,” he e-mailed. “I knew I should have asked my wife… sorry to confuse you with my confusion.” Read the rest of this entry »

The Undercover Economist – FT Magazine, 17 December 2005

Early in the Christmas season, we received an e-mail from some hippy friends. “We have decided to have a ‘gift-free’ Christmas this year,” they began, before warning that they would not be sending out any presents, and would request none in return. Wise, charming and kooky in equal measure, the last thing this e-mail conveyed was emotional impoverishment. Yet when economists take the same attitude towards Christmas, emotional impoverishment is exactly the crime of which they are accused. Read the rest of this entry »

Originally published on the New York Times op-ed page, 16 December 2005.

At this week’s ministerial meeting of the World Trade Organization in Hong Kong, negotiators have once again hit an impasse over how and when to open the rich world’s agricultural markets to farmers in the poorest countries. What few people have realized, however, is that poor countries don’t have to wait for the World Trade Organization. There is plenty that they can and should do to help their own farmers to trade.
Imagine a dream scenario in which the trade ministers emerge from their negotiations this weekend holding hands and proclaiming an end to all agricultural protectionism. What then?

For, say, a banana picker in the Central African Republic, not a lot. Read the rest of this entry »

At this week’s ministerial meeting of the World Trade Organization in Hong Kong, negotiators have once again hit an impasse over how and when to open the rich world’s agricultural markets to farmers in the poorest countries. What few people have realized, however, is that poor countries don’t have to wait for the World Trade Organization. There is plenty that they can and should do to help their own farmers to trade.
Imagine a dream scenario in which the trade ministers emerge from their negotiations this weekend holding hands and proclaiming an end to all agricultural protectionism. What then?
For, say, a banana picker in the Central African Republic, not a lot…

Continued at the New York Times, or on my favourites page.

Why you can’t buy the one present you really need

Gaming enthusiasts camp outside electronics stores, desperate to buy the hot new game console. Corporate flacks are deployed to fend off PR calamity: “Consumer demand for the new console has exceeded our expectations, and we are doing all we can to fulfill the wish lists of people who want a new console under their tree this holiday season.”

Video-gamers are clamoring for the new Xbox 360 console, but that statement didn’t come from Microsoft: It came from Sony at the beginning of last year’s buying frenzy for the new slim-line PlayStation 2. In 1996, parents wrestled to get hold of a Tickle Me Elmo. 1988 saw parental panic sparked by shortages of Nintendo game cartridges. And we’re now celebrating the 20th anniversary of the Cabbage Patch Kid craze: They sold $600 million of those things in 1985, and that was in the days when $600 million was worth something…

Continued at Slate Magazine – no registration necessary.

Why you can’t get the one present you really need

Gaming enthusiasts camp outside electronics stores, desperate to buy the hot new game console. Corporate flacks are deployed to fend off PR calamity: “Consumer demand for the new console has exceeded our expectations, and we are doing all we can to fulfill the wish lists of people who want a new console under their tree this holiday season.”

Video-gamers are clamoring for the new Xbox 360 console, but that statement didn’t come from Microsoft: It came from Sony at the beginning of last year’s buying frenzy for the new slim-line PlayStation 2. In 1996, parents wrestled to get hold of a Tickle Me Elmo. 1988 saw parental panic sparked by shortages of Nintendo game cartridges. And we’re now celebrating the 20^th anniversary of the Cabbage Patch Kid craze: They sold $600 million of those things in 1985, and that was in the days when $600 million was worth something.

These spectacular sellouts have become as much of a holiday staple as turkey and stuffing. And, of course, they have inspired conspiracy theories. Isn’t it a little odd that the same story comes round year after year? Is Microsoft really running short of consoles? Yet, for economists, the Xbox 360 crisis is more alarming than a conspiracy, because these supply shortages make no economic sense whatsoever. Despite their suspicious regularity, the shortages benefit nobody.

Continued at Slate.com.

The Toronto Globe and Mail says:

The Undercover Economist is dulcet stuff. It should interest both economists and schmoozers at Starbucks. Brief, chatty and digestible, the book should refute the old canard that economics is dismal.

In a Washington Times op-ed, William H. Peterson writes:

Mr. Harford’s fetching book is part a field guide to economics in action and part an expose of Economics 101 principles lurking beneath the action. As he says in the introduction, he is out to convert his reader into a more savvy consumer, no matter how hard advertising puffs, and into a more savvy voter able to dig out the truth behind the tall stories that politicians may tell.

If you missed it, you can hear my brief interview with NPR’s Marketplace.

Dear Economist,
I have a drawer full of odd socks. Where do the missing socks go?
Christian Turner, Washington DC

Dear Mr Turner,

Like most investments in physical capital, your sock supply is depreciating. Depreciation happens. I suggest that you should work out how to minimise the damage, rather than questing after the lost socks.

The problem is simple: each half of a unique pair of socks is a perfect complement to the other half. The marginal value of the first sock is close to zero, unless you favour unconventional dress. The marginal value of the second sock is a matching pair of socks. The result of a lost sock is in fact the loss of two socks.

This problem also plagues machines: when one component fails, the entire machine may need to be scrapped. The solution is to make interchangeable parts, so that the damaged piece can be replaced. Interchangeability dates back at least to Gutenberg and the printing press in the 1450s, but formidable technical problems meant that interchangeability didn’t become common until the assembly lines of the early 20th century. Generations of engineers knew that the struggle across the centuries would eventually pay economic dividends. You, on the other hand, do not need to wait for some hard-won technological breakthrough. You should have no difficulty providing interchangeable parts for your sock drawer. Throw out your pre-industrial inventory, then go out and buy two dozen pairs of identical socks at once.

I personally find this method works extremely well. What you lose in sartorial flexibility you make up in a less wasteful pattern of sock depreciation, and a vastly quicker search of the sock drawer each morning. Your socks will still vanish mysteriously, but you are far less likely to ask metaphysical questions about the phenomenon.

Also published at ft.com.

The Undercover Economist – FT Magazine, 10 December 2005

Cheap foreign labour has recently made inroads into the economy of Family Harford. My wife pays a student, “Sally”, to look after the imperious Miss Harford for a few hours a week, so that my wife can get on with running her photography business. This is the simplest and most straightforward of transactions. My wife is happy, Sally is happy and even Miss Harford appears to approve of the arrangement.

How strange that if it were judged by the conventional wisdom applied to trade negotiations by newspapers, pub pundits and even our own trade negotiator, this arrangement would be regarded as economic suicide on both sides.

Family Harford runs a substantial bilateral trade deficit with Sally. A bilateral trade deficit is what you spend with a particular trading partner, less what you earn from them. We spend $100 a week on service exports from Sally, and we earn nothing at all from her. That’s a yawning bilateral trade deficit, but we’re happy enough with it.

If politicians were in charge of Family Harford trade policy they would bully Sally to raise her hourly rates, so that trade would take place on a “fairer” basis. The politicians in charge of Sally’s trade policy would refuse.

Boggled already? You should be. But this matches perfectly the state of US-China trade relations: China keeps selling cheap stuff to the US, the US isn’t selling so much to China (but plenty to other parts of the world). The Americans are demanding that the Chinese charge more, and the Chinese are refusing.

Judged by the standards of conventional wisdom, Sally should refuse to trade with Family Harford at all because she is uncompetitive. My wife possesses impressive productive capacities in three industries: childcare, tertiary education and photography. That is, she’s good at looking after Miss Harford, she’s good at passing exams, and she’s good at taking photos of people for money.

Sally can also look after Miss Harford, pass exams, and take photos, but she’s not as good at babysitting as Miss Harford’s own mother, she lacks the discipline and experience to ace all her social science exams the way my wife did, and the market has shown no interest whatsoever in paying Sally to take photographs. The pub philosopher concludes that without some kind of trade protection, my wife will not only look after the baby and run her own business, but muscle in and sit Sally’s exams for her, in between taking Sally’s family snapshots.

That doesn’t make any sense either. First, my wife doesn’t have time to do Sally’s work for her, even though she would do it quicker and better. Second, even if my wife did have time, why on earth would she offer to do all this stuff for nothing? Contrary to popular belief, it’s simply not possible for cheap foreign labour to take all the jobs in Britain, because the British have to work to pay for all the nice stuff the foreigners send us. In the long run, all imports are paid for by exports, and barriers to imports into Britain are also barriers to the exports we send out to pay for them.

Peter Mandelson, the EU trade commissioner, believes that in the run-up to the latest WTO trade negotiations he has offered tariff cuts “even where it hurts us the most” – that is, areas vulnerable to competition.

For Family Harford my wife’s childcare activities fall into that category: lacking tariff protection, they have been eroded by cheap competition from Sally. Have we been “hurt” by this? My wife believes she’s been liberated to spend more time on her photography business. She has a better grasp of trade policy than Mandelson.

Marta Salij opines in the Detroit Free Press:

Best of all, Harford can clarify how economics is a science that deals with human behavior, especially when it goes wrong. “The Undercover Economist” has the human touch to make econ fun.

Martha Lagace writes for the Harvard Business School:

As a well-rounded practitioner of the dismal science, Tim Harford has emerged as one of those rare creatures: an economist for Everyman, a person who can set “oligopoly market” and “probability theory” in harmony with everyday conundrums without making you wrinkle your brow even once.

While at Tech Central Station, Arnold Kling writes:

The substance of UE is so strong, that I am tempted to review it as if it were a textbook. Not because it resembles the freshman textbooks that are commonly used today, but because it resembles what I believe such books ought to be. In fact, it is not far from the book that I argued for five years ago. If the Ivy League economics courses were designed for the benefit of students rather than the convenience of professors, then Harford, not Greg Mankiw, would be the $1.4 million man.

Given Dr Kling’s expertise, that review is particularly heart-warming.

Dear Economist,

Recently I was waiting, baby in pushchair, for the bus. The driver refused to let me on unless the pushchair was folded up, then sped on leaving me stranded. It would only have taken a moment to fold up the pushchair. Is this efficient?
Mary McLaren, Hackney

Dear Ms McLaren,
I’m sorry to hear of your distressing experience, but the driver did the right thing. You say it would have taken a moment to fold up the pushchair. My generous estimate is that you would have delayed the bus by at least 30 seconds. London buses seat up to 75, plus those standing. Let us be conservative and say that there were only 40 passengers on it.
By waiting for you to faff with your baby and pushchair, the bus would have delayed 40 people for 30 seconds, an aggregate delay of 20 minutes. You and your baby should have picked up the next bus in about six to 10 minutes, so the aggregate delay there is around 16 minutes. Sixteen minutes is less than 20 minutes, so the driver maximised social welfare by refusing to wait.
Of course, not every political philosopher accepts the tools of cost-benefit analysis. The two modern greats, John Rawls and Robert Nozick, have different views. Rawls is concerned with the welfare of the worst-off in society: you, standing at the bus stop, rather than the happy multitude already on the bus. Rawls presumably believes no delay is too great to allow you to get your baby on the bus…

Continued at ft.com.

“Several times in my life, a tenuous connection was strengthened by the exchange of Christmas cards and letters.” So says “Marty” in his testimonial on the Hallmark Cards website, surely one of the only places in the world that you can find people singing the praises of the Christmas card list. Christmas cards are all about tenuous connections all right: prolonging them long after they should have been severed. Read the rest of this entry »

You can see me on C-Span 2, Book-TV, at 10.30pm on Saturday 3rd (Eastern Time).
For those of you with better things to do of a Saturday evening, why not listen to a PodCast with 800-CEO-READ – or read an article about the book by Used Car News.

Update: Interview with Marketplace on Tuesday 6 December – listen here.