No, dig up stupid!

When I meet people at parties and tell them I'm an economist, they inevitably ask me how we can get out of the economic hole we've dug for ourselves.  The problem is, I'm still a PhD student, and this is a bit above my pay-grade.  So I thought I could provide some context via two of the country's top economists, Paul Krugman and Greg Mankiw.  Krugman and Mankiw are the most eloquent and succinct advocates of the two major plans currently on the table.

At this point it's a forgone conclusion that the government will implement some sort of stimulus plan early in 2009 (eg, in the next month).  With demand faltering, the government has been called upon to pick up the slack.  Unfortunately, that's where the agreement ends (insert "one-armed economist" jokes here).  One idea is fiscal expansion, or more simply having the government buy a lot of stuff: infrastructure, military equipment, healthcare, it almost doesn't matter.  This was the common perspective during the Great Depression, when John Maynard Keynes even went so far as to advocate burying money and paying people to dig it up.

The other plan is to stimulate the economy through tax cuts.  Under this plan, the same amount of money that would have gone into fiscal expansion is used to provide tax rebates.  That way the money gets spent in the economy, but the spending is done by ordinary citizens, who presumably can spend it better than the government.

The crux of the issue is whether the government or private citizens will get more bang for the buck out of the stimulus spending.  There are good arguments on both sides.  Government money will get spent, whereas tax rebates may simply be put in the bank.  Plus, government spending on infrastructure and education will yield long-term benefits.  On the other side, empirical evidence from Christina Romer (recently appointed to head Obama's Council of Economic Advisors) suggests that tax cuts boost economic growth by more than government spending.  Moreover, government spending is channelled through the political process, which means funds may get misallocated.

Of course the two plans are not mutually exclusive.  Krugman has noted recently that while FDR expanded government spending, he also raised taxes to maintain a balanced budget, limiting the effect of the stimulus.  The current prevailing view is that government can (and indeed should) run deficits in a recession in order to stimulate the economy.  So we'll probably get combination of both.  The tough part is figuring out the right mix.

As I watch the ball drop tonight, I'll be thinking about 2009 and the way forward for our economy.  Like I said, this is above my pay grade.  I'm just glad I don't have to make the decision.

Happy New Year!

Paying attention to ... attention

Amid the frantic holiday season as the last groans of work are squeezed in before a new billing year --- I'd begun to reflect on the illusion of true multitasking. And just in time to support my theory that multitasking, like sanity, is a cozy lie - I came across Mike Elgan's recent post on work ethic and attention spans.

Elgan suggests that the workplace ideal of workaholism must be replaced by task-centricity during modern times in which we can all easily fake work diligence in front of a Internet-enabled computer screen. Therefore rather than glorify the worker that puts in late hours, prepare to glorify the worker that knows the place of work, home and Web-surfing.

I completely agree that I spend much too much time splitting my brain and my computer screen to attend simultaneously to a myriad of tasks across my personal and professional life. Although, I must admit that it would be hard to dismiss the instant martyrdom that comes with staying late and coming in early. In trying to imagine the champion of the new age, I picture someone difficult to praise (they are deaf to accolades while attentive to tasks) and even harder to pity as the newly attuned focus would provide actual quality leisure time.

Christmas changes everything

The Christmas holiday season - for JC followers and non-JC followers alike - can be counted on to provide an atmosphere of piped-in upbeat music, crowded stores filled with plastic sock-sized trinkets, decadent character-shaped chocolate and mint candy and enough red and green bunting to drown a warehouse full of elves.

I normally revel in all of this - I hum to the tunes, smile at the worn-out sales clerks and eat more than my share of holiday-themed treats. But this morning, when my regular NPR news coverage was disrupted for a segment that could be called "What are sugar plums?" in which experts spoke on the fruity specialty mentioned in holiday poem "Twas the night before Christmas" it gave me pause. It wasn't newsy, it wasn't particularly unique, it was just done in the "spirit of Christmas."

Some things - Rockefeller Center can-cans, neighborhood caroling, family feasts, food bank donations - are appropriately done in the Christmas spirit. News coverage is not on this list. Loosening content standards because people expect only light, off-beat news at holiday times belittles readers/listeners and reporters alike.

The icing on the fruitcake for me was CNN's approach to the Somalian pirates situation. In a peice published Christmas Eve, the outlet expands on a 'Holidays with Pirates' theme. People are suffering in the cold waters at gunpoint and the holiday themed approach to the story sounds more like a direct-to-DVD children's action film. Shame on CNN for attempting a light-hearted spin on real news - leave this approach to comedians and let the reader choose whether they can handle real news over the holiday.

Ponzi schemes galore!

One of our readers asked for my opinion on Paul Krugman's recent oped, "The Madoff Economy". In it, Krugman wonders if Wall Street hasn't been operating its own Ponzi scheme the past few years:

"Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

O.K., maybe my example wasn’t hypothetical after all."

A bit harsh, but kind of hard to argue with. The whole thing worked as long as people believed that prices could keep going up. The main difference between Wall Street's financial wizardry and a Ponzi scheme is that the latter is deliberately designed to dupe investors, while the former was based on honest (but ultimately inaccurate) measures of risk. There's a difference in intent, and I think that matters a lot.

Arnold Kling adds that Wall Street isn't the only one running a Ponzi scheme:

"Meanwhile, I've been thinking that Madoff is a perfect analogy for the public sector. The government gives people money, which it expects to obtain by taking the money from people in the future. Even the Center on Budget Policy and Priorities, not known as a right-wing organization, sees the U.S. fiscal stance as unsustainable (pointer from Ezra Klein via Tyler Cowen)--in other words, a Ponzi scheme."

Social Security is a good example, since it's based on borrowing money from future Americans to pay current Americans. Then again, Social Security is in no where near that danger that some critics have suggested.

So there you have it. We live in a world of Ponzi schemes, some that work and some that don't, at least not for long.

On Food

I've been thing about Dan's post on secretary of food.

Urban farming is a growing sector of this issue.

Shanghai is a city where somewhere around 76% of the vegetables consumed in the city are produced within the inner city limits. Fish ponds are used to process human waste. This is quite a marvel in urban agriculture, but also a demonstration in how committed the city government (or national government even) needs to be to make this process work.

There are thousands of urban gardens in the United States. Will Allen just received a MacArthur grant this year for his work in urban agriculture. It’s a growing trend, but it’s still on the fringes, in part, because it takes dedicated and talented community organizers like Will to make these projects work.

Some of the major issues this movement faces:
1) People are not aware of the commodity chain of the food they put into their bodies.
2) People have come accustomed to fast food, exotic ingredients, and lots of meat. These are difficult habits to change and will have to be reduced for urban agriculture to work.
3) “Lawns” today are vast swaths of unused grass land. We spend quite a lot of resources maintaining these spaces because they are “pretty”. What’s considered ‘pretty’ are not necessarily vegetables. There are a lot of plants in cities, but most fall into the ‘pretty’ category, or are ‘weeds’ growing because of neglect.
4) When a developer and his investors look at a vacant lot to develop, a low monetary yielding garden seems a foolish way to develop given the value and costs of property in cities. (Never mind the soil contamination clean-up…)
5) City governments, in an effort to attract investors, appeal to a certain type of developer. Farmers do not necessarily fit that ideal.

In essence, this is a change that will require both top-down policy change and vision as well as a bottom up commitment to changing our relationship to food. Some simple steps are just changing the plants in our houses from flowers to herbs, using the outdoor space we have access to for growing vegetables, being mindful of what we eat.

This is about control over the food we need to survive. When we depend on going to the market every time we are hungry, we are left vulnerable.

"Efficient" doesn't necessarily mean "accurate"

Robert Skidelsky has an interesting article in this week's New York Times Magazine Section on the relevance of John Maynard Keynes in today's economy. However, Skidelsky makes an odd mistake for an economist, stating:

"Greenspan must have believed something like the “efficient-market hypothesis,” which holds that financial markets always price assets correctly. Given that markets are efficient, they would need only the lightest regulation. Government officials who control the money supply have only one task — to keep prices roughly stable."

That's not exactly what the "efficient market hypothesis" says. Rather, the idea is that market prices contain all relevant information about assets, which means that no one can consistently make above-average financial returns. There's a weak form of the argument (prices reflect all past information about the asset) and a strong form (prices reflect all present and future information about the asset). But no matter which form, the argument does not preclude the possibility that the information is wrong. It simply says that all the available information is reflected in the price. Princeton Professor Burton Malkiel, author of A Random Walk Down Wall Street explains:

"...it is important to make clear what I mean by the term “efficiency”. I will use as a definition of efficient financial markets that they do not allow investors to earn above-average returns without accepting above-average risks.

A well-known story tells of a finance professor and a student who come across a $100 bill lying on the ground. As the student stops to pick it up, the professor says, “Don’t bother—if it were really a $100 bill, it wouldn’t be there.” The story well illustrates what financial economists usually mean when they say markets are efficient.

Markets can be efficient in this sense even if they sometimes make errors in valuation, as was certainly true during the 1999-early 2000 internet bubble. Markets can be efficient even if many market participants are quite irrational. Markets can be efficient even if stock prices exhibit greater volatility than can apparently be explained by fundamentals such as earnings and dividends. Many of us economists who believe in efficiency do so because we view markets as amazingly successful devices for reflecting new information rapidly and, for the most part, accurately. Above all, we believe that financial markets are efficient because they don’t allow investors to earn above-average risk-adjusted returns. In short, we believe that $100 bills are not lying around for the taking, either by the professional or the amateur investor."

Markets are really, really good at aggregating information. However, if the information is bad, then prices will not reflect the "true" value of goods. In computer science terms, markets can be victims of GIGO.

Should the Department of Agriculture have a new mission?

Nicholas Kristof argues that instead of an Secretary of Agriculture, we should have a "Secretary of Food":

"Renaming the department would signal that Mr. Obama seeks to move away from a bankrupt structure of factory farming that squanders energy, exacerbates climate change and makes Americans unhealthy — all while costing taxpayers billions of dollars."

Kristof points out a number of absurdities of our system of agricultural subsidies, including the fact that he himself receives $588 from the government, "in exchange for me not growing crops on timberland I own in Oregon (I forward the money to a charity)."

It does seem strange that we have a whole department devoted to agriculture when we don't have one devoted to other specific industries or even economic sectors. After all, 98% of Americans work outside of the agricultural industry.

It's important to remember why the government got so involved in agriculture in the first place. According to Bruce Gardner and Daniel A. Sumner:

"Poverty in rural America was a major force behind the original establishment of commodity programs in the 1930s. Rural poverty remains a blight in the American economy to this day, and the idea that higher commodity prices could reduce that poverty attracts support to these programs. Evaluating farm policies therefore must be considered in light of their effects on farm and rural incomes, and especially on the effectiveness at dealing with rural poverty compared to other approaches to this concern."

Rural poverty is still very much a concern, but agricultural supports are clearly not a good way to solve it. First, 75% of agricultural production comes from family farms with over $250,000 in annual revenue. These are not people who need government support. Smaller family farms derive a majority of their income from non-farming activities. And these families still earn well above the average US household:

We spend over $300 billion in agricultural subsidies, which ultimately go to agricultural corporations and families that are comfortably above the average US household income. So I agree with Kristof: it's time to shift the focus of the Department of Agriculture towards the needs of the nation's 300 million consumers of food.

Question?

This week's New York Times magazine section has an interesting article about Cuba, titled "The End of the End of the Revolution". It quotes an official with the Cuban Ministry of Economics discussing Cuba's economic successes and failures:

"Álvarez reeled off some numbers. There were 6,000 doctors in Cuba at the time of the revolution; there are now close to 80,000 for a population of 11.3 million, one of the highest per-capita rates in the world. The U.S. embargo has cost Cuba about $200 billion in real terms. When the Berlin Wall crumbled, 80 percent of Cuba’s international trade was with Soviet-bloc countries. About 98 percent of oil came from them. Back to the Communist bloc states, at inflated prices, went Cuba’s sugar and rum.

'We’ve had to reinsert ourselves in the global economy twice in 30 years, once in 1960 and again in 1990,' Álvarez said."

If capitalism and globalization lead to the exploitation of the developing world, then the US embargo should be viewed as a positive for Cuba, right?.

If trade impoverishes developing countries then how could lack of trade also impoverish developing countries?

But does anyone want to buy their cars?

David Leonhardt has a great piece in today's New York Times, explaining why the Big 3 auto manufacturers are really in trouble (hint: it's not simply the labor costs)

"...here’s a little experiment. Imagine that a Congressional bailout effectively pays for $10 an hour of the retiree benefits. That’s roughly the gap between the Big Three’s retiree costs and those of the Japanese-owned plants in this country. Imagine, also, that the U.A.W. agrees to reduce pay and benefits for current workers to $45 an hour — the same as at Honda and Toyota.

Do you know how much that would reduce the cost of producing a Big Three vehicle? Only about $800.

That’s because labor costs, for all the attention they have been receiving, make up only about 10 percent of the cost of making a vehicle. An extra $800 per vehicle would certainly help Detroit, but the Big Three already often sell their cars for about $2,500 less than equivalent cars from Japanese companies, analysts at the International Motor Vehicle Program say. Even so, many Americans no longer want to own the cars being made by General Motors, Ford and Chrysler."

When you exclude the cost of pensions, GM, Chrysler and Ford offer compensation packages that are close to what foreign manufactures pay their American, non-unionized labor.

But the real point is that American's are being asked to bail out companies that don't make products people want to buy. That seems like a bad strategy to me. We can bail these companies out, we can subsidize their production and we can protect them from competition. But unless we require American's to buy their cars* (now there's a Patriot Act for you!) then these companies won't be profitable. I wish Congress would acknowledge that. The real problem is that the Big 3 make sub-par products in the US that are out of touch with consumers.

Until they fix that problem, we shouldn't be bailing them out. You can't help an addict until they admit they have a problem.

*Please note this is sarcasm. I don't think we should do this.

Doogie Howser, PhD

In the Funny or Die video "Proposition 8 - The Musical", Neil Patrick Harris brings together supporters and opponents of the ballot measure by reminding everyone that there's money to be made in gay marriage. According to Ian Ayers over at Freakonomics, NPH isn't the first to have this idea. Jennifer Gerard Brown, Ayers co-author, estimated that:

"...the present value of a change in marriage law for the first-mover state could reach three or four billion dollars. [E]ach tourist dollar spent generates additional private income, tax revenue, and jobs. Forbes magazine recently estimated that if same-sex couples currently living together would marry, they would spend $16.8 billion in the first several years following legalization."

Ayers also points out that "Brad Sears and Lee Badgett have estimated that same-sex marriage would “boost California state and local government revenues by over $63.8 million.'"

Same-sex marriage doesn't need to be justified on the basis of economic benefits. But it's a useful reminder that restrictions on human liberty don't lead to prosperity.

Arnold Kling on the housing collapse

In a very wise move, Congress has asked Arnold Kling to testify about the housing crisis and the crater is has left in financial markets. Kling posted his planned remarks on his blog. He has a much more nuanced understanding of the crisis than many of the louder voices out there:

Speaking as a former financial engineer, I have many regrets about the role played by modern financial methods in this crisis. Rather than speak defensively about financial innovation, I want to offer constructive suggestions for public policy going forward.

I emphatically disagree with the extreme partisan narratives for this crisis. To blame the Community Reinvestment Act for what happened is wrong, To blame financial deregulation for what happened is wrong. The narrative I present in my written testimony describes a combination of government failure and market failure.

I want to focus on how both industry executives and regulators were fooled about the risks in the system. In particular, perverse incentives in bank capital requirements encouraged unsound lending practices and promoted excessive securitization.

Kling also offers 4 lessons from the crisis:

1. Capital requirements matter. Details that are easily overlooked by regulators can turn out to cause major distortions.

2. Securitization is not necessary for mortgage lending. On a level regulatory playing field, traditional mortgage lending by depository institutions probably would prevail over securitized lending. Rather than try to revive Freddie Mac and Fannie Mae, I would recommend that Congress encourage a mortgage lending system based on 30-year mortgages originated and held by old-fashioned banks and savings and loans. This would require instructing the regulators of Freddie Mac, Fannie Mae, banks, and savings and loans to all use the same capital standard for mortgages, one that is based on a stress test methodology.

3. Subsidized mortgage credit is an inefficient tool for promoting home ownership. Unless what you want is home buyers who are buried in debt and speculating on house price appreciation, I recommend that Congress not try to create cheap mortgages and instead use other means to encourage home ownership.

4. Recent financial innovations, particularly credit default swaps, have changed our financial system in ways that current policymakers fail to recognize. Bailouts and rescues are counterproductive in today's financial crisis. Within the financial sector, de-leveraging needs to slow down and the process of shutting down failed institutions needs to speed up. Relative to these necessities, handouts from the taxpayers are a hindrance, not a help.

Definitely read the whole thing.

The 12 Days of Bailouts

Courtesy of Economix:



Anyone else sick of Christmas music yet?

Did he just say what I think he said?

Dan Neil thinks we should nationalize General Motors:

"What to do about the domestic automakers? My modest proposal: Nationalize GM.

To be clear, I mean that the federal government should buy GM; forget rathole loans or nonvoting equity shares. The company's stockholder value has been essentially wiped out. The company's enterprise value -- the lock, stock and forklift price -- is about $32 billion; its total debt is $45 billion. Let's make GM an offer.

If you feel the gall of free-market ideology rising, consider that the measures being bruited about as preconditions for a bailout -- firing GM's top management; forcing a bankruptcy-like renegotiation of contracts with the UAW, suppliers and dealers (it has too many); and creating a czar of product development to force the building of green cars -- are nationalization in all but name. I say embrace it. GM-USA."

Neil argues that there are many benefits to nationalizing GM. In particular, he argues that the government has a longer-term view that is crucial for getting GM prepared for the future:

"The government can afford long-term planning. Many of GM's strategic missteps -- such as betting large on trucks and SUVs and not investing early in hybrid technology -- were the result of willful shortsightedness at the board level, responding to a financial market in which shareholders look for the quick return. Putting Uncle Sam in charge would fundamentally enlarge the return-on-investment horizon."

I heard Mr. Neil speaking on NPR last week. He said that while markets are really good at responding to consumer demands, they are really bad at anticipating them. So, if you want to get car companies to invest in environmentally sustainable technologies, the government needs to step in.

This is a terrible, terrible idea. If you think GM's management is bad now, just wait till Congress is in charge. Any company run by a group of people with no personal investment at stake and tons of external political pressure is doomed for failure.

I also completely disagree that government is any better at anticipating future needs. Markets have considerably more information with which to make those sorts of decisions and better incentives for investing in new ideas that will actually work. When Congress decided we needed alternative fuels, they put the brunt of their resources into corn-based ethonol, which we now know yields less energy than is required to create it. Government does not have a good track record with picking the winners.

Additionally, Neil claims Japanese and European manufacturers are "quasi-national" because of the government's role in healthcare and retirement costs. Fair enough. But isn't that an argument for universal healthcare and a stronger social safety net?

I'm a big proponent of people sticking to what they're good at. Congress is good at bloviation, not running corporations.

Drunk History

It's finals season and nothing puts off writing papers like watching online videos.

One of my recent favorites is Drunk History. Currently a 5 part series where the producers liquor up knowledge historians and have them tell a favorite historical tale. These stories are then acted out by actors like Jack Black, Michael Cera, and Danny McBride.

Here's one of my favorites because it connects so well with our nation's relationship with race. It's a great example of how the private lives of politicians influences public policy. (Caution: strong language and inappropriate behavior will ensue.)



I'm working on a paper on historical social science (hermeneutical constructivism specifically as it relates to separatist movements) and I was wondering why history isn't tied into more of our every day lives. Why is it that historians feel the need to get ripping lit to even discuss history on camera?

One of my other favorite history programs is a podcast called Hardcore History and is Dan Carlin's attempt to put listeners into the shoes of people in past periods.

Help me procrastinate and leave a comment about your favorite online history programs.

Robert Frank on the Bush tax cuts

Robert Frank makes an eloquent case for repealing the Bush tax cuts sooner rather than later:

"With few exceptions, high-income taxpayers earn substantially more during their lifetimes than they spend, generally bequeathing the surplus to heirs or charities. If these taxpayers faced slightly higher rates, they would have ample resources to maintain their current lifestyles, so most would keep spending as before. The only consequence would be that, years from now, they would leave smaller bequests.

The added revenue from eliminating the Bush tax cuts would pay for larger temporary tax cuts for low- and middle-income families than the permanent ones now planned. And because these families spend most or all of their post-tax income, the immediate effect would be an increase in total spending roughly equal to the additional revenue from repealing the cuts."

He also counters the argument that repealing the tax cuts will have adverse effects on small business hiring decisions:

"If the goods produced by additional workers can be sold for at least enough to cover their salaries, hiring makes economic sense, no matter how poor a business owner might be. But if additional workers won’t produce enough to cover their salaries, hiring is a losing move, even for the richest owners. The after-tax personal incomes of business owners are irrelevant in hiring decisions."

Frank makes a crucial point about tax cuts. While raising taxes on high-income earners, by itself, may not be good for the economy, that money can be used for stimulus. Lower income earners spend a larger proportion of their income, so directing stimulus plans toward the middle and lower classes will be more beneficial to the economy than directing them to the top.

Again, it's important to remind everyone that we're not talking about huge increases here. We're talking about 5 percentage points on a marginal rate.

Should we prop-up the housing market?

Given the current crisis, it seems natural for Congress to want to prop-up housing values in order to prevent further losses of wealth. But according to Harvard economist Ed Glaeser, this could be ineffective at best, and would likely be counterproductive:

"One of the clearest lessons of the past year is that these lending policies are anything but cheap. To get banks to lend at below-market rates, the government must insure mortgages against default. When those mortgages do default, as they have in droves over the past two years, taxpayers are on the hook. Ordinary taxpayers are currently facing the prospect of paying for the last rash of government-subsidized lending. No one should be thrilled at the idea of a new government guarantee program that makes us liable for billions, or trillions, of dollars of new, bad mortgages...

In fact, the government shouldn't really be in the business of making housing more expensive at all. Price supports are usually a bad idea, because they distort supply decisions and redistribute from buyers to sellers. Why, exactly, should the government be encouraging more overbuilding in Las Vegas? Why, in an age of global warming, should the government subsidize more McMansions? Some economists argue that price supports are needed because prices are below fundamentals, but prices today remain significantly higher than either historical norms or supply costs."

As right as we are to blame the financial crisis on the baffling decisions made on Wall Street, we shouldn't ignore the long history of government policy designed to encourage home buying, which exposed taxpayers and the financial system to an enormous amount of risk.

Additionally, much of the environmental critique of the American landscape is the direct result of conscious public policy efforts, as described above.

Turning a blind eye to science

Andrew Revkin writes about the decline in science coverage by major news outlets:

"Newspaper coverage of science outside of health and wellness is steadily eroding. Even here at The Times, where the Science Times section celebrated its 25th anniversary in 2003 and management has always supported strong science coverage, we (like everyone in print media) are doing ever more with less. At CNN, among those leaving will be Peter Dykstra, a seasoned producer focused on science and the environment, and Miles O’Brien, a longtime CNN reporter and former morning news anchor, who I got to know when he turned to climate coverage in a big way several years ago. (See his spicy interview with Senator James Inhofe, the Oklahoma Republican who challenges dire climate projections.)"

This is an important time for science in America. More and more we are facing an ideological struggle over the role of science and rationalism in society. In this clip from the "Big Think", Princeton geneticist Bonnie Bassler laments the fact that our culture has become weary, or even fearful of science:



We cannot forget that science is more than simply a collection of facts and figures. Science is a framework for understanding our world, for expanding knowledge and understanding. Science is what allows us to move forward. As Olivia Judson notes, science also provides a level-playing field for sharing ideas:

"...the beauty of the scientific approach is that even when individuals do succumb to bias or partiality, others can correct them using a framework of evidence that everyone broadly agrees on. (Admittedly, this can sometimes be a slow process.) But arguing over data is different from suppressing it. Or changing it. Or ignoring it. For these activities debase the whole enterprise and threaten its credibility. When data can’t be accessed or trusted, when “facts” are actually illusions — well, this threatens the nature of knowledge itself. And a society without knowledge is steering blind. The rubbishing of science is far more serious than any particular decision over whether to fund research into stem cells, the sexual behavior of fruit flies or the quarks and quirks of particle physics. Undoing the damage of the past eight years may take another eight. But it must be done. We are probably one of the last generations that will be able to use our knowledge and methods to guide human civilization to a sustainable future. This is our time."

Prop 8 - The Musical

See more Jack Black videos at Funny or Die

Neil Patrick Harris just might be the greatest visionary of our time...

There's a 94% chance that my marriage will succeed!

I'm getting married next year, so I was intrigued when Justin Wolfers, writing in the Freakonomics blog, posted about a widget that calculates your risk for divorce.

The divorce calculator is based on research from Wolfers partner and frequent collaborator, Betsy Stevenson. One of the interesting trends that it highlights is that divorce risk varies greatly among different groups. Specifically, women with higher levels of education are much more likely to be married and stay married. Good news for me, as my fiance has a graduate degree.

In the past 30 years, there has been a shift from marriage as a division of labor (the 50's-style woman as homemaker and man as bread winner) to marriage as a matching of consumption patterns (both partners earn money and use it to enjoy their leasure time together)*. This is in part due to the increase in labor saving technologies that reduce the relative value of low-educated marriage partners. This, of course helps explain the differences in marriage rates by education level.

Of course, this presents a public policy dilemma. Stable families are a very strong predictor of student academic achievement. But education levels are a good predictor of family (more specifically marriage) stability. Clearly you can't address one problem without addressing the other.

*yes, my fiance loves it when I use econ-jargon to talk about marriage.