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Why the rule of law matters for human flourishing April 17, 2017

Posted by OromianEconomist in Uncategorized.
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“Rule of law is essential if you want to have a functioning economy,” says Samuel Gregg in the PovertyCure series. “You cannot have a functioning economy without secure property rights. You cannot have a functioning economy unless contracts are enforced. You cannot have a functioning economy if government officials can act in an arbitrary fashion.”

Indeed, as the following excerpt explains, a society can have the right people with the right skills and the right tangible goods and materials, but if individuals lack things like property rights, fair rules, access to courts, and access to markets, economic activity will fizzle as social frustration climbs.

“Try and imagine a football match without rules,” says economist Hernando De Soto. “…The rules are crucial to get that game going. But everyone knows how to drive a ball. Everybody knows how to buy and sell, so there is plenty of entrepreneurship in the world. The problem is the rules. In two-thirds of the world, there isn’t yet the rule of law.”

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Economic Humour: 11 Funniest Papers in the History of Economics August 27, 2014

Posted by OromianEconomist in Economic Humour, Economics.
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Top  11 Funniest Papers in the History of Economics

By  Yoram Bauman

Yoram Bauman, Ph.D., is the co-author of the Cartoon Introduction to Economics (volumes I & II) and the just-released Cartoon Introduction to Climate Change (see below)You can find Yoram at This post is adapted from New Developments in Economics Education.

This list is naturally a subjective endeavor, so readers are welcome to fault me for selecting one of my own articles for the list. Many of these articles are from the Miscellany section in the Journal of Political Economy from the days when George Stigler was the editor, or a similar section in Economic Inquiry., which I oversee. Many of them are in the compendium of economics humor that I maintain on my website or in Caroline Postelle Clotfelter’s 1997 book On the Third Hand: Wit and Humor in the Dismal Science. Clotfelter is one of the few women engaged in the field of economics humor, and I have high hopes that women will be more prominently features in future Top Ten lists of economics humor.

1. “Life among the Econ” (1973) by Axel Leijonhufvud

I have hopes that Economic Inquiry will republish this article on the 40th or 50th anniversary of its original publication.

[S]tatus is tied to the manufacture of certain types of implements called “modls.” The status of the adult male is determined by his skill at making the “modl” of his “field.” The facts (a) that the Econ are highly status-motivated, (b) that status is only to be achieved by making “modls,” and (c) that most of these “modls” seem to be of little or no practical use, probably accounts for the backwardness and abject cultural poverty of the tribe.

The dominant role of “modl” is perhaps best illustrated by the (unfortunately very incomplete) accounts we have of relationships between the two largest of the Econ castes, the “Micro” and the “Macro”… If a Micro-Econ is asked why the Micro do not intermarry with the Macro, he will answer “They make a different modl,” or “They do not know the Micro modl.”

It would be to fail in one’s responsibility to the Econ people to end this brief sketch of life in their society without a few words about their future. The prospect for the Econ is bleak. Their social structure and culture should be studied now before it is gone forever.

2. “The theory of interstellar trade” (1978/2010) by Paul Krugman

The paper might have disappeared had it not been for Joshua Gans. Gans told me that he was Krugman’s TA in 1993 and ended up with a paper copy of the article, which came up “in 2008, [when] a discussion arose on the Internet about interstellar trade.” Gans sent Krugman a scanned version of the article, which Krugman posted online, noting that “Thirty years ago I was an oppressed assistant professor, caught up in the academic rat race. To cheer myself up I wrote — well, see for yourself.”

This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.

Many critics of conventional economics have argued, with considerable justification, that the assumptions underlying neoclassical theory bear little resemblance to the world we know. These critics have, however, been too quick to assert that this shows that mainstream economics can never be of any use. Recent progress in the technology of space travel… make this assertion doubtful; for they raise the distinct possibility that we may eventually discover or construct a world to which orthodox economic theory applies.

3. “The effect of prayer on God’s attitude toward mankind” (1980/2010) by James Heckman

Heckman wrote this paper in 1980  was not published until2010. (It is unknown if Heckman ever submitted it for publication in 1980.)

This article uses data available from the National Opinion Research Center’s survey on religious attitudes and powerful statistical methods to evaluate the effect of prayer on the attitude of God toward human beings.

The technique—due to Singh (1977)—is briefly described here. Let Y be God’s attitude arrayed on a scale ranging from 0 to 1. This is an unobserved variable. Let X be the intensity of prayer in the population. It too is scaled between 0 and 1. The population density of prayer is summarized by a univariate density f(X), which has been estimated by Father Greeley (1972).

The empirical conclusion from this analysis is important. A little prayer does no good and may make things worse. Much prayer helps a lot.

4. “The conference handbook” (1982) by George Stigler

There is an ancient joke about the two traveling salesmen in the age of the train. The younger drummer was being initiated into the social life of the traveler by the older. They proceeded to the smoking parlor on the train, where a group of drummers were congregated. One said, “87,” and a wave of laughter went through the group. The older drummer explained to the younger that they traveled together so often that they had numbered their jokes. The younger drummer wished to participate in the event and diffidently ventured to say, “36.” He was greeted by cool silence. The older drummer took him aside and explained that they had already heard that joke. (In another version, the younger drummer was told that he had told the joke badly.)

Economists travel together a great deal, and there is no reason why the discussions which follow the presentation of papers should not utilize a handbook of commentary. The following is a preliminary list of numbered comments, which itself will cover a large share of the comments elicited in most conferences.

  • I can be very sympathetic with the author; until 2 years ago I was thinking along similar lines.
  • This paper contains much that is new and much that is good.
  • Theorizing is not fruitful at this stage: we need a series of case studies.
  • Case studies are a clue, but no real progress can be made until a model of the process is constructed.
  • The conclusions change if you introduce uncertainty.
  • The central argument is not only a tautology, it is false.

5. “Macroeconomic policy and the optimal destruction of vampires” (1982) by Dennis Snower

Although human beings have endured the recurring ravages of vampires for centuries, scarcely any attempts have been made to analyze the macroeconomic implications of this problem and to devise socially optimal policy responses.

Over the past few centuries, a number of prominent investigators… have suggested that all vampires should be destroyed… [We show that] such a policy would not be socially optimal.


6. “American economic growth and the voyage of Columbus” (1983) by Preston McAfee

Since the imaginative, pathbreaking, inventive analysis of Robert Fogel (1962), the counterfactual analysis has intrigued and scintillated a generation of economists. Fogel considered the state of the American economy in 1890, had the railroads never been invented. He found that less than 10 percent of the American output could be attributed to the single innovation of railroads, thus demonstrating irrevocably that the loss of trains would not derail the American economic juggernaut.

In order to perform a valid test of the invincibility of the American economic cornucopia, the counterfactual must predate the development of the celebrated entrepreneur and the waves of immigrants whose sweat was an important input into the production process. Consequently, it is hypothesized that, rather than stumble upon the two American continents, Columbus fell off the edge of the earth. Certainly this is a valid test, for if America were to be virtually unchanged, despite not being discovered, certainly the “American century” was inevitable. I choose the year 2000 as a target date, and compare America as it will be in the year 2000 to the way it would have been then, had Columbus fallen off the edge.

7. “Mankiw’s ten principles of economics, translated” (2003) by Yoram Bauman

This paper, which launched my own career as “the world’s first and only stand-up economist”, was written during my graduate school days at the University of Washington in Seattle and eventually published in AIR. (Also available on YouTube.)

The second table below summarizes my attempt to translate [Gregory] Mankiw’s Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.


8. “Can financial innovation help to explain the reduced volatility of economic activity?” (2006) by Karen E. Dynan et al.

This paper was not meant to be humorous. But given how financial innovation has increased economic volatility since the Great Depression, it arguably deserves a place in this list. It is a modern equivalent of Irving Fischer’s proclamation three days before the 1929 stock market crash that “Stock prices have reached what looks like a permanently high plateau.”

The stabilization of economic activity in the mid-1980s has received considerable attention. Research has focused primarily on the role played by milder economic shocks, improved inventory management, and better monetary policy. This paper explores another potential explanation: financial innovation. Examples of such innovation include developments in lending practices and loan markets that have enhanced the ability of households and firms to borrow and changes in government policy such as the demise of Regulation Q. We employ a variety of simple empirical techniques to identify links between the observed moderation in economic activity and the influence of financial innovation on consumer spending, housing investment, and business fixed investment. Our results suggest that financial innovation should be added to the list of likely contributors to the mid-1980s stabilization.

9. “Japan’s Phillips Curve looks like Japan” (2008) by Gregor Smith

Smith’s webpage used to link to a version of the paper with this note: “The title is also the abstract and, frankly, most of the text.”

Japan’s Phillips Curve is shown in the right-hand panel of Figure 1. The data are monthly from January 1980 to August 2005.

For ease of viewing, the left-hand panel of Figure 1 rotates the Phillips Curve around the vertical axis so that minus the unemployment rate now is on the horizontal axis. Clearly visible are the islands of Hokkaido and Honshu, though it is somewhat difficult to separately distinguish the southern islands of Kyushu and Shikoku. The Noto-Hanto Penninsula is evident to the north of the southern end of the main island of Honshu. Tokyo Bay is also visible. The data point to the far left in Figure 1 is the island of Fukue-Jima.  


10. “On the efficiency of AC/DC? Bon Scott versus Brian Johnson” (2009) by Robert Oxoby

Unfortunately, Steven Levitt failed to get the joke, prompting him to post on the Freakonomics blog that “This is what happens to people who listen to too much AC/DC… I hope for this guy’s sake he has tenure.” Oxoby wrote in the comments that “I have tenure” and added some details on the paper: “The paper was written using old data from a grad student studying the effects of different genres of music on behavior (following previous research identifying the effect of different genres on heart rate, etc.; her original interest was on the use of music in behavior therapy). She abandoned the project and has since disappeared from her program. The AC/DC spin was due to a mistake in the protocols: different songs were played in two sessions.” The next day Levittacknowledged that “There is hope for economics: The AC/DC paper was a joke”:

Abstract: We use tools from experimental economics to address the age-old debate regarding who was a better singer in the band AC/DC. Our results suggest that (using wealth maximization as a measure of “better”) listening to Brian Johnson (relative to listening to Bon Scott) resulted in “better” outcomes in an ultimatum game. These results may have important implications for settling drunken music debates and environmental design issues in organizations.

Acknowledgments: We thank Steven Levitt for his support and popularization of this research (see, for example, Levitt 2007). We thank Nathan Berg, Gary Charness, Bill Harbaugh, and Kendra McLeish for valuable suggestions and comments. We also thank a delayed Air Canada flight and a bar in the Vancouver airport for providing the time, space, and resources necessary to pursue this research. All errors are attributable to Air Canada.

11. “An option value problem from Seinfeld” (2011) by Avinash Dixit

Abstract: This is a paper about nothing.

In an episode of the sitcom Seinfeld (Season 7, Episode 9, original air date December 7, 1995), Elaine Benes uses a contraceptive sponge that gets taken off the market. She scours pharmacies in the neighborhood to stock a large supply, but it is finite. So she must “re-evaluate her whole screening process.” Every time she dates a new man, which happens very frequently, she has to consider a new issue: Is he spongeworthy”? The purpose of this article is to quantify this concept of spongeworthiness.

When Elaine uses up a sponge, she is giving up the option to have it available when an even better man comes along. Therefore using the sponge amounts to exercising a real option to wait and spongeworthiness is an option value. It can be calculated using standard option-pricing techniques. However, unlike the standard theory of financial or many real options, there are no complete markets and no replicating portfolios. Stochastic dynamic programming methods must be used.

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