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economics is the shit

Cancer is Contagious and Ice Cream Causes Crime… If You Manipulate Statistics

ice-cream-killer

People may think this title is insensitive to those who have cancer. I have had a parent die from this disease so I am no stranger to how horrific it is. My apologies to those who are offended.

I’m going to show you how I can create a “study” that shows how mouth cancer is potentially contagious. Many studies that fill my newsfeed use a flawed analysis that is highly comparable to what I’m proposing. The flaw is called “omitted variable bias.” In statistics, this means that we are claiming X causes Y, but you are leaving out important variables that are related to both X and Y.

Here is an example of omitted variable bias. You can show that ice cream sales are correlated with crime rates. This, of course, sounds absurd, but here is the reason: 1. Ice cream sales increase during hotter months and 2. Crime rates increase during hotter months. Therefore, if you leave out the variable “temperature,” you can be wrongly giving ice cream sales all the credit for the increase in crime rates.

Now, I’m going to show you how this can be used to make it seem that mouth cancer is contagious. If you simply look at the relationship between the likelihood of having mouth cancer with having a friend who has had mouth cancer, you can probably find a significant effect. Next, your newsfeeds will be filled with articles stating “Mouth Cancer is Contagious!”

Now, what can be related to 1. Increasing your chances of having mouth cancer and 2. Having a friend who has had mouth cancer? Using chewing tobacco! People who use chewing tobacco are more likely to become friends with other individuals who use chewing tobacco. Therefore, both these individuals are already at an increased risk for mouth cancer. Therefore, omitting a variable on the usage of chewing tobacco can make it seem like mouth cancer is contagious.

This may seem very obvious, however, many logical arguments are put forward that correlate two variables and many people believe them. Before sharing an article, question whether or not some important aspect is being left out. Happy correlating.

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Workforce Discrimination, a Woman’s Best Friend?

BlobServlet

Before I give my argument, I must give a disclaimer: THIS POST, IN NO WAY, ADVOCATES DISCRIMINATION OF ANY KIND. Discrimination holds back innovation and creates issues we end up paying for in the long run. We can never know how much we have hurt our society by racial and gender discrimination. Imagine if gender roles had been reversed and men were seen as the “lesser” gender. If this were the case, we may not have printing (started by Johannes Gutenberg), long-distance telephone communication (Mihajlo Pupin helped innovate the field), and environmentally friendly batteries (Stanford R. Ovshinksy invented an environmentally friendly battery that has been used in many modern electronic devices). We most likely prevented many females from revolutionizing the world around us.

How has discriminating against women, in the workforce, been helping to raise their wages? The main point of creating a business is to make a lot of money. When a company finds a new, cheaper way of producing a product, they have an advantage. Think about it, if I discovered a way to build houses at a cheaper cost than others, I could sell them for a lower price and take over the market. Since a women who is equally as productive as a man, will, on average, make less than a man, a company has an incentive to hire her to save money.

Many companies have begun to realize the advantage of hiring women. How does this help to raise their wages? Let’s say Walmart sees that they can hire a female manager for $12.50 who will be just as productive as a male manager who makes $14.00. They will be saving $1.50 per hour (14-12.5=1.5). However, Target realizes the benefit of hiring the female manager as well and decides to offer her $12.75 since they will still be saving money (14-12.75=1.25). Walmart is onto Targets strategy and offers the women $13.00. Theoretically, both companies will compete to hire the women until they no longer save money. Therefore, they have raised her wages.

I do not believe that this will lead to completely equal wages among men and women. However, I wanted to help others think about issues in a more dynamic way than they otherwise might have. We have a long way to go before we create an equal and fair playing ground among men and women in the workforce.

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Title by: David Taylor

Bernie Sanders Diabolical Plot to Save the Rainforest

rainforest-pictures-2

Democratic presidential candidate Bernie Sanders has proposed a reform that would lead to free college tuition. This would be achieved by introducing fees and taxes on Wall Street banks and hedge funds that will result in $70 billion a year to go towards tuition and fees. His argument:

“Now, $70 billion is a lot of money, but in a nation in which we lose $100 billion every year because corporations stash their money in tax havens around the world, that’s one way you can approach it.”

I believe that Senator Sanders has a secret motive for this policy: He’s trying to save the rainforest. If you think about it, the individuals who are going to be taxed to pay for our education are some of the wealthiest people in the United States. Now, what do most rich people have in common? They buy mansions.

Hear me out on this because it will all begin to unravel and make sense. If we tax the nations’ wealthiest individuals, they will have less money to spend on mansions. This will lead to them buying less of this upper class item, so construction companies will build less of these gargantuan houses. Now, what is a major item used in the construction of mansions? WOOD. In turn, construction companies are going to be buying less wood, which means less trees will be harmed! Bernie, we are on to you.

Sources:

http://www.finalternatives.com/node/30864

http://dealbreaker.com/2015/05/bernie-sanders-new-legislation-is-a-glorious-piece-of-wall-street-revenge-porn/

Does Borat Make More Because He’s a Man? Evidence from Kazakhstan

Borat

There has been a lot of reports by the media that women are discriminated against in the workforce. Specifically, there has been a lot of focus on the differences in what females earn relative to their male counterparts. This led me on an erratic thought process: “Do men make more than women because of discrimination? Is it possible that differences in pay are because men are more assertive and are more likely to ask for a raise? Well, Borat is a man, so let me look at evidence from Kazakhstan.”

This brought me to an interesting study conducted in 2010. Specifically, these researchers wanted to see if personality accounts for a significant part of the differences in pay between men and women. Semykina and Liz (2010) found that men from Kazakhstan, Armenia, and Russia, were more likely to attribute success to their own personal actions than females.

Overall, the study found that these personality differences accounted for 5.5% of the difference in pay in Armenia, 7% in Russia, and 2.7% in Kazakhstan. A brilliant individual in my life brought to my attention a potential way to alleviate this issue of “differences in assertiveness.” Specifically, if companies posted the wages of all their employees, women would be able to increase their confidence when bargaining for a starting salary (after all, they will now have more information on what their male counterparts make). The moral of this story is, companies should post their employees’ salaries or women should act more like Borat.

Sources:

Semykina and Linz (2010), “Analyzing the Gender Pay Gap in Transition Economies: How Much Does Personality Matter?” published in Human Relations Volume 63, No.4.

Recessions are Great!

People are constantly complaining about a lack of jobs and how there is a non-acceptable level of income inequality in the United States. What if I told you that I could generate an extra $470 BILLION for the economy and 15.2 million new jobs? The answer: Throw our economy into a constant recession!

Since 1855, 57% of the Fortune 500 companies were started during bad economic times (Stangler, 2009). In 2011, the Fortune 500 generated $824.5 billion in earnings (57% of $824.5 billion is equal to $470 billion). That’s approximately 2.5% of the United States national debt!

Don’t just take my word for it. Many well known and highly published economists agree that recessions create jobs. According to Carrasco (1999), recessions “push” people to become entrepreneurs since there aren’t enough job openings. Carrasco’s research was even published by Oxford University; note that Oxford University was ranked as the number one school for eleven consecutive years by the Times Good University Guide.

According to the Federal Reserve Database, as of last month, the United States had approximately 16.5 million unemployed individuals. My proposal can lower this number by 15.2 million. Think about it, the Fortune 500 companies employed approximately 26.7 million people in 2015. Now, 57% of 26.7 million is 15.2 million. Therefore, 15.2 million jobs can potentially be created! Stop the madness of the government trying to help our economy, it makes more sense for them to hurt it.

Please note, this article shows how statistics can be used to turn illogical arguments into seemingly logical proposals.

Sources:

1. Stangler (2009), “The Economic Future Just Happened,” published by the Kauffman foundation.

2. Tully (2012), “Fortune 500 Top 20,” published by Fortune.

3. Carrasco (1999), “Transitions To and From Self-Employment in Spain: An Empirical Analysis,” published in the Oxford Bulleting of Economics and Statistics.

4. 2015, “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons,” published by the Federal Reserve Bank of St. Louis.

5. Jones (2015), “7 Fortune 500 companies with the most employees,” published by Fortune.

We Should Loan Our Military Budget to China for Zero Interest!

In 2014, the United States estimated to have spent $610 billion on military expenditures. This is, by far, the highest amount spent on any military in the world! I will propose a new policy that would make better use of our money: loaning it all to China, interest free.

Now, this may seem radical, but let me explain. According to the Mercatus Center, which I must note is a libertarian think tank, for every dollar we spend on our military, we lose 40 cents. According to Wang and Wen (2013), for every dollar the Chinese government spends, they make about $3.

Now, if we combine both these findings, loaning our military budget to China seems like a better investment. We actually lose money when we invest in the military, which makes this a horrible investment by most of Wall Streets’ standards! However, by these same standards, China is making an incredible investment. The average return made in the stock market from 1928 to 2014 was around 11%, whereas the average return the Chinese government makes is 200%.

So, if we loaned our military budget to the Chinese government, they’d easily be able to pay us back. Now you may say, why invest money into China without making a return? Recall, we lose an estimated 40 cents of every dollar spent on our military (a $610 billion investment). Since we won’t be losing money investing in China, whereas we lose 40% of our military investment, we save $244 billion! Who cares about security when you can save some money.

Please note:

1. This article is written from a purely satirical and economic standpoint; I don’t condone loaning our total military budget to China.

2. This information stems from different published economic and political science literature. Many papers will likely find completely different results, so I encourage you all to do your own research and contribute to the debate.

Sources:

1. Perlo-Freeman, Fleurant, Wezeman, and Wezeman (2014), “Trends in world military expenditure, 2014,” published by SIPRI.
2. Barro and Rugy (2013), “Defense Spending and the Economy,” published by the Mercatus Center.
3. Wang and Wen (2013), “Multiplier Effects of Government Speding: A Tale of China,” published on economicdynamics.org.
4. “Annual Returns on Stock, T.Bonds and T.Bills: 1928-Current, by Aswatch Damodaran, published by New York University.

Electrons vs. Humans: The Minimum Wage and Big Macs that Cost Three Pennies More

A brilliant professor of mine made a comment that really stuck with me: Why don’t you see physicists arguing over the weight of an electron? There isn’t a divide where half of them say “the mass of an electron is 9.11 × 10−31” while the other half says “no, the mass of an electron is 9.09 x 10-31.” So tell me, do you think we’ve really come to the conclusion that the minimum wage is harmful when most researchers are divided on the topic?

So, what are the arguments against minimum wage, what are the arguments for minimum wage, and what does the actual research conclude?

Skeptics of minimum wage state many different reasons as to why they think the policy is dangerous. Claims are made that employers will hire less low-skilled workers since they now have to pay more for these individuals. Thus, this idea states that minimum wage will actually hurt the poor, that is, individuals who tend to be low-skilled workers. Others state that increasing the minimum wage will cause companies to replace their labor with machines; an argument that seems plausible with all the recent technological advances. Furthermore, some believe that companies will raise prices, making items more expensive for poor people.

Advocates of minimum wage argue that it will help to ensure companies do not take advantage of laborers. They claim that the evidence shows that the poor are not more likely to lose their jobs due to increases in minimum wage and that prices don’t increase by much.

What does the research find? Like in most economic literature, the evidence is mixed. Mattila (1978) found the minimum wage actually leads to more teenagers enrolling in school. This can be explained by the following argument: since teenagers now earn more, they will remain in school in an effort to ensure their resumes are competitive enough to obtain this new minimum wage. Neumark and Wascher (1995) find that school enrollment actually decreases. They argue that people now have the incentive to work rather than continue their education because they are given a higher wage. Additionally, they state teenagers who possess more skills are more likely to obtain these positions than those with less skills. You can infer this hurts individuals who are in poverty since they are the ones who typically are less skilled.

Addison and Blackburn (1999) find that increases in the minimum wage back in the 1990s led to reductions in poverty, and they may have led to increases in employment among junior high school dropouts. However, they also found that increases in the minimum wage, in the 1980s, did not reduce poverty. What about the effects on prices? Lemos (2008) reviewed research on how the minimum wage effects prices. One paper found that increasing the minimum wage by 10% would increase prices anywhere from 0.15% to 0.76%. To put this into context, a Big Mac entrée currently costs $3.99. Then raising a worker’s income from the federal minimum wage of $7.25 to $7.98 would potentially cause Big Mac prices to rise by a maximum of 3 pennies.

The evidence is inconclusive on how this policy effects individuals. One thing to keep in mind: from 2007 through 2009, the federal minimum wage increased from $5.15, to $5.85, to $6.55, to $7.25. We have never conducted studies that had data on a change of the federal minimum wage from $7.25 to $15.00. Thus, we can’t be certain of how this would affect the economy. It will be exciting to see the effects of states like New York requiring a minimum of $15.00 per hour for fast food workers.

Sources:

1. Matilla, J. P. (1978), “Youth Labor Markets, Enrollments, and Minimum Wages,” published in Proceedings of the Thirty-First Annual Meetings.
2. Neumark and Wascher (1995), “Minimum Wage Effects on Employment and School Enrollment,” published in the Journal of Business and Economic Statistics, Volume 13, No. 2.
3. Addison and Blackburn (1999), “Minimum Wages and Poverty,” published in the Industrial and Labor Relations Review, Volume 52, No. 3.
4. Lemos (2008), “A Survey of the Effects of the Minimum Wage on Prices,” published in the Journal of Economic Surveys, Volume 22, No. 1.

A Ridiculously Brief Summary of Six Studies on Gun Control

There has been a lot of debates recently on gun control in the United States. This is a synopsis of many many pages of literature on whether increased gun ownership leads to increased crimes:

1. “Capital Punishment, Gun Ownership, and Homicide” by Gary Kleck, published in 1979 in the American Journal of Sociology, Volume 84, No. 4.
– notes that higher gun ownership can cause higher homicide rates, but this relationship is hard to explain because higher homicide rates may cause higher gun ownership. It is difficult to state which causes which. For example, higher access to guns may lead to higher homicide rates. However, in an area with higher homicide rates, individuals may purchase guns to feel more protected, so it may be an area with a violent culture and the homicides may not necessarily be caused by high gun ownership; because the high level of crimes leads to more gun purchases for self-protection so does X cause Y or does Y cause X?

2.”Gun Availability and Violent Crime: New Evidence from the National Incident-Based Reporting System” by Lisa Stolzenberg and Stewart J. D’Alessio, published in 2000 in Social Forces Volume 78. No. 4, which is published by Oxford University Press.
– checks to see whether gun availability is related to violent crime, gun crime, juvenile gun crime, and violent crimes committed with a knife. The “violent crimes committed with a knife” aspect is important because the authors want to check if criminals are substituting knives with guns as their weapon of choice. They also distinguish between illegal gun availability and legitimate, legal gun availability. Illegal gun availability is determined by the number of stolen guns reported to the police. Legal gun availability is measured by the yearly number of concealed weapon permits issued to citizens in each county.
– The results were that gun theft rates were very significantly related to violent crime rates, gun crime rates, and youth gun crime rates. However, they couldn’t find an effect of legal gun availability on violent crime rate, gun crime rate, youth gun crime rate, or knife crime rate.
– The implications of this study are that policy should be aimed at having legitimate gun owners store their guns in a more secure manner (an article by Cook and Ludwig in 1997 estimate that slightly more than 50% of all owned guns in this country are stored unlocked). The second strategy they suggest is having local law enforcement focus on efforts to reduce the theft of firearms.

3. “National Case-Control Study of Homicide Offending and Gun Ownership” by Gary Kleck and Michael Hogan, published in Social Problems, Volume 46, No. 2, which is published by Oxford University Press.
– This study estimates the probability of becoming a killer in relation to whether the individual owned a gun while making sure to account for age, sex, race, Hispanic ethnicity, income, education, marital status, the region, veteran status, and whether the individual had children.
– The results were that gun ownership has a weak effect on homicidal behavior in the population in general. However, it was shown to have a substantially higher impact on homicidal behavior for women than men. The theory as to why this can happen is that “Gun possession gives a smaller person of less physical strength the ability to inflict lethal violence on others… while a weapon is more likely to be redundant among male aggressors.” The study also found that guns appear to contribute more to homicide rates among blacks than whites, even after controlling for income, education, and residence in the South.

4. “The Impact of Gun Control and Gun Ownership Levels on Violence Rates” by Gary Kleck and E. Britt Patterson, published in the Journal of Quantitative Criminology in 1993, Volume 9, No. 3.
– Data on all 170 U.S. cities with a 1980 population of at least 100,000 were used.
– Results: the prevalence of guns generally does not increase the rate of violence in the area, increased crimes actually lead to increased gun ownership to aid in protection, gun control restrictions were not found to have an effect on the prevalence of guns in the area, and most gun control restrictions were not found to have an effect on the rates of violence. An exception to the last finding, “most gun control restrictions were not found to have an effect on the rates of violence”, of 108 different assessments for how effective different gun laws were at preventing violence, 7 found good support and 11 found partial support.

5. “Guns and Crime” by Carlisle E. Moody and Thomas B. Marvell, published in the Southern Economic Journal in 2005, Volume 71, No. 4.
– Estimates the effect of handguns on crime in different states from 1977 to 1998.
– The results were that they found a negligible effect of handguns on crime.

6. “More Guns, More Crime” by Mark Duggan, published in the Journal of Political Economy in 2001 which is published by the University of Chicago Press, Volume 109, No. 5.
– The paper studies the relationship between gun ownership and crime in states and in counties while accounting for income, the unemployment rate, and the fraction of state residents between 18 and 24 years old..
– The results are that increases in gun ownership lead to substantial increases in homicide rates.

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