You Are What You Spend

“Household consumption statistics indicate that the gap between the rich and the poor is less than most assume”.

Brilliant. Also, this underlies the issue of a “negative saving rate”. The definition of “income” – and therefore, “saving” – often doesn’t account for wealth that people can use for consumption.

Krugman: Are we headed into a recession?

A Long Story from the NYT

I pretty much agree with his arguments. For some time, I’ve argued that the US was not headed into a recession, but somewhere along the line – after several indicators (perhaps hardest-hitting was the employment release) came out, I started to think that it might be a recession. And as Krugman points out, this recession may be relatively bad due to the combination of economic conditions now – though many economists think that the Fed can prevent recessions in magnitudes comparable to what we’ve seen in the past.

I guess we’ll just have to wait and see.

Rogoff on China

From the Financial Times: China may yet be economy to lose sleep over

I’m not sure how I actually feel about said issues – I’ve only skimmed the issues through – but it seems pretty convincing. In any case, I’m taking Rogoff’s class this semester at Harvard, and I’m pretty excited (and not just because the girl:guy ratio is about 3:30).  I’m relatively worried about it, no lies – quite technical, which is awesome and fine, but i just haven’t learned to think intuitively in formulas yet (usually juniors and seniors take this class, too, which means i have to meet people to do psets …).

And Rogoff is a really nice, extremely knowledgeable professor. I’m just a tad intimidated by him (I always am, with prestigious professors), but I’m super excited.

Shopping period

Yesterday, I shopped Feldstein’s Public Policy class. I’ve seriously considered taking it as a 6th class … I’m not sure my parents will be very happy about it, nor do I think it would be sustainable should I get serious about doing the research that I’m potentially starting this term (commuting to Harvard Business School, across the river).

It’s also a 9am MWF class, and right now I have straight class from 10-4, not including sections (including sections, I’m just screwed, but … yes. It’s what happens when you book 5 classes back to back). It’s alright, I guess – I’m always up then anyways, but I’ve been working out before class and I know the 9am would make my mornings too crazy. In any case, so far I like having my classes back to back – I’ve found I don’t get hungry (though I usually need a coffee around noon), and I still concentrate in my later class(es) – maybe because so far I find them interesting, or so far I haven’t burnt out, or the whole thing is just so novel right now.

Shopping period is really stressful, though. Am I making a mistake by not taking 6 [note: the College standard here is 4. Some seniors take 3 to have time to pursue research/thesis work; many sophs and juniors take 5]? Am I making a mistake by booking 5 back to back? Am I making a mistake of taking the really intense econ class? Am I making a mistake by pursuing HBS research instead of work with the economics dept?

I still have time to lose sleep over this before I turn in the final study card, but time is ticking and I feel more indecisive than ever.

Fed’s next move

Excerpt from Dismal.com:

A U.S. economy that is on the edge of a recession, if not already in one; controlled inflation; and unsettled financial markets all argue for additional rate cuts when the Federal Open Market Committee concludes its two-day meeting on Wednesday. Today’s dour report on new-home sales and growing fears of a recession have led markets to increase their bets on a 50-basis point reduction in the target rate. According to fed funds futures, there is roughly a 90% probability that the Fed will cut interest rates to 3% from its current 3.5%, bringing the total reduction to 125 basis points in just more than a week.

——

I’ve heard from several sources that the FOMC is expected to cut rates about 50 basis points, consistent with the above excerpt. It’s a huge, quick drop, but I think it’s actually necessary, especially given the expectations. If the Fed doesn’t cut rates by 50 basis points, I’m afraid confidence in the economy’s going to moderate too much, and fears of recession will be higher than ever.

economic analysis 101: college dating scenario

My friend recently sent me an inquiry:

Stephanie, what are your thoughts on this? One guy in love with five girls, is very dedicated to all of them… wooing them all, but completely honest that he is very confused and not ready for a relationship.

My response:

From an economist’s perspective:

1) The guy’s optimal solution is to do what makes him happiest, which appears to be wooing them all. If he eventually makes up his mind, then he dates that girl; if he continues to be “confused” (eg values them roughly equally), then he continues seeing them all until they all drop to one. Honesty remains the best policy with all of them, in my opinion.

2) The girls’ optimal solution: judge how much they like him, how attached they are, and how willing they are to wait. If they can attach and detach easily, they should hang around and hope for the best, and detach when necessary (or they get impatient/get bad vibes). If they get attached (as most girls do), they should try to let go now as much as they can and move on from here. Or … you know, take the pain, and hope it allows them to get over him later.

3) The societal optimal solution: He should flip and coin, pick a girl, and pursue her. That one girl is happy (especially if he doesn’t reveal his method). He is happy (to a certain extent … he now has one girl and no decision to make). The other girls get a clear signal that it’s time to get out.

Just the academic perspective. Of course I have a slightly different personal perspective.

—

In a later message, I elaborate:

So rationally, I recognize that the “best”/moral thing to do is for him to be single and the girls to move on their merry way. … but life isn’t so easy. It’s hard for him to make that choice and for the girls to get over a single guy.

From experience, I know it hurts a lot. [...]
Emotionally, I know what it is like to hope, to *want* the attention and enjoy him and want to be “the one”. And I know what it’s like to make “the decision” to get over him and then find that you’re still head over heels.

So … the girls should get out if they can. With the understanding that the girls might be “too deep” to get themselves out, they should just try to be wary. Honesty’s always the best policy in these cases (as much as it hurts in the moment, lies would hurt more in the long run). If the girl enjoys the date enough that the joy overshadows the potential confusion/upset-state afterward, then she should still go on the dates, acknowledging that she may not be the only one. When the pain is too much to bear, then maybe she has incentive, finally, and enough strength/motivation to get out.

—

It all sounds pretty economical to me; even my personal perspective has the underlying concept of “producing” until marginal revenue equals marginal cost. … Economics does make sense in real-life.