Thursday, December 11, 2008

Giving to the alma mater: Why?

Do you give money to your alma mater? If not, does it have anything to with your experience at the school? For Canadians, despite their fond experiences at Canadian universities and colleges, they don't give back to their alma mater; and, perhaps, it's not obvious why one should.

In Canada, students enter a post-secondary institution under the following assumptions: I and/or my family pay tuition and taxes fund the rest; once I finish paying tuition, my obligation is fulfilled. By contrast, American schools strike a much different deal with their students upon admission: You pay tuition now, but give more later (implicitly: based on your success). From the first day students set a foot on Harvard campus, they know that alumni have given so they could have excellent experience; and, once they graduate, they are expected to (and about 60% do) give what they can to keep the excellent experience going. In Canada, the best participation rates are near 30% (Trinity College at UofT and Mount Allison take this lofty ranking), while the average is close to 10% - which is 50% less than top US schools.

In summary, I argue that Canadians and Americans differ in the type on the agreement upon admittance with their students. On average, 90% of Canadian university graduates don't feel that it is necessary to donate to their university's annual fund because they don't think that giving after graduation was part of the deal (so to speak). Economic incentives help re-enforce this belief because, perhaps for many, the 'perceived' benefits to getting a degree are given at graduation with no strings attached; I say 'perceived' because the returns to education is not the piece of paper but the benefits realized throughout one's working life (for example, a higher salary or happiness in a profession). From what I understand, American schools help counter act this attitude by social pressure if you don't give (someone might show-up at your place of employment).

Why do I give? At the University of King's College, the New Academic Building was raised a few years ago with no government funding to cover the $9 million bill. From a very small University community (1120 students currently), this was a huge effort. To everyone involved, it was clear that if they believe in the institution, they wanted to keep it alive, and they appreciated that others gave before them so they could have the King's experience. The obligation I feel comes from two factors: (1) I believe in the institution; that is, I want it to live on; and, (2) because I had a great experience as a result of others giving to the university, it is now my turn to give back.

Finally, let me clarify a misconception. Giving to the alma mater's annual fund is not about the amount of money collected, but the number of alumni giving. In the US, the participation rate in the annual fund is used to recruit top talent because it says: "people who came to this place found it of such value, they give back in thanks". Not surprisingly, big donors often ask about participation rates because they want to know if the experience is of value.

The motto of the Wardroom 30th Anniversary Renovation Campaign - an alumni led project to renovate the campus bar at King's is:

"Those who came before us gave so we could party, and now we give to keep the party alive!" - perhaps it should be shortened to "Keep the party alive!"

King's Alumni or anyone else can give online: - tax receipts are given for anything over $10.

Wednesday, December 10, 2008

A description of recent events: The Black Sawn Drive ...

Sorry I have been away. I have been very busy with some recent volunteer work (at the University of King's College ) and, because of my position, it is difficult to provide guidance on the post-Lehman Brothers intensification.

However, there has been some great research produced of late. Most interestingly, the article (dated November 20th) by a group of researchers at Desjardins (article here!) said that puts into perspective why many of us have been left speechless:

"In the past month, investors have observed two events so rare that, when last witnessed, Franklin Roosevelt was midway through his second term as President of the United States—only eight single-day rallies in the S&P 500 have exceeded 10% since 1928, with the 11.58% gain on October 13 representing a ‘10.06-sigma’ event, and the 10.79% rally on October 28 being a similarly unthinkable 9.34 sigmas.

As rare as these events may seem, they are not nearly rare enough (at least according to the normal distribution). To put the recent experience in context, daily returns exceeding 7.5 standard deviations should only occur roughly once every 33 trillion trading days; to have observed even a single such event, the universe would have to have been approximately 10x older than it actually is!"

It is a great time to be an economist. These are historic times that will change the way we think about the world, models and how we evaluate risk. After all this is said, I am really looking forward to teaching again in a few weeks. More postings to come.

Sunday, September 7, 2008

Google Inc.: I salute you!

Google Inc. turns 10 years today and I think a part of all of us should celebrate with them.

As almost everyone knows, this internet giant was started by two Standford University students with little more than a couple of CPUs and a desire to create something better. The secret to their success is also just as well known: amazing working conditions for their staff, a motto to "do no evil", they think big, and never settle for the status quo. They never stand still. (Yesterday's Globe and Mail had a great story on Google's contributions with a cool timeline of the company.)

Hats off to Google Inc.! Thank you for keep blogger, gmail, google analytics, and the new and improved search engine free. Free! Amazing!

Sunday, August 31, 2008

Are even the rich changing behaviour?

A couple years ago, I engaged in an rather intense discussion with a friend of mine about the future of oil prices. He holds the view of the classic peak oil theorist . The height of our debate was when I claimed that people will change behaviour and prices would come back down. He disagreed, stating that the world is hooked on oil and there is little room for change.

Now, a few years later, prices have continued to rise more (and much to my surprise). Although I continue to have egg on my face, I remain optimistic.

What is proping up my optimistic view? Well, for one, Sean "Diddy" Combs is even changing behaviour ... WATCH IT HERE (warning: course language)!! Because the artist formally known as "Puff Daddy" can't afford the $250K fuel bill for his private jet, he is once again flying commercial and calling out to "his Saudi Arabian brothers and sisters" to lend him some oil.

Thursday, August 21, 2008

Speculation in the oil market

As a follow-up to my previous posting on speculation (a.k.a betting the farm on a hope and a prayer), the world learned a little bit more about how much oil speculation was driving prices ( See the true story here.)
Today's news came one month after the U.S. Interagency Task Force on Commodity Markets released an interim report saying record oil prices were the result of fundamental supply and demand factors. The Commodity Futures Trading Commission made an unusual request last month for data from Vitol Group, a private Swiss energy company that regulators thought was helping industrial firms get the oil they needed, according to The Washington Post. The commission discovered, however, that the Vitol would be better described as a speculator, trading oil contracts to turn profits rather than assisting companies that actually needed oil delivered for their operations ( CNN Money).

So what is the big deal? Well, think "Dot-Com Bust" or the story of how one natural gas trader lost $3 Billion on price speculation (his punishment: he got fired and had to take his $100+ million he made in the previous year from bonuses because he was such a good speculator ...).

Speculation can create asset bubbles - large run-ups in asset values that quickly fall; taking huge amounts of wealth to the grave in the process. Even if there is never a bubble, it can create wild swings in prices. Most importantly when we are taking about oil or rice, the price acceleration hurts some of the poorest people on the planet and it often wipes-out the wealth (sometimes the cash socked away for retirement) of those who had nothing to do with the decisions that were made (just ask the employees of Bear Stearns).

Comments? Thoughts? Additions? Anything going on up there? Does anyone read this thing?

Friday, August 8, 2008

Til Debt Do Us Part: food for the financial soul

Til Debt Do Us Part is the one and only reality TV show I enjoy. For savers, it is probably does not peak their interest (unless it makes them feel good). But, for everyone else, a weekly "o'no-you-don't, Mr&Mrs-spend-thrift" might help keep you from over spending - it is like watching a horror movie. This show should also be part of every marriage prep-course.

Here is the shtick: (The show claims that) "Money is the number one cause of failed marriages. Rare is the couple that agrees on how the pot should be divided and the bills paid. Most families are in debt, and with debt come family arguments, tears, tantrums and marriages on the verge of divorce. To save families from the doldrums of debt, each episode of Til Debt Do Us Part follows financial wizard Gail Vaz-Oxlade as she helps families go from red to black by getting to the root of their destructive spending habits." The show's website calls Gail a "financial wizard" but she is more like the over consumption destroyer. Although I would love to see if the 50+ couples she has helped have kept their new regimes, my speculation takes nothing away from the show's power.

Why is this show amazing to watch? It gives people easy to follow tips to get their financial house in order. Although Gail does over blow the situation sometimes, I think that she does a good job of scaring everyone within listening range with her classic "if you continue spending this way, you will be in debt by [really-big-number-here] in 5 years" - I get the shakes even thinking about it. So why is this so helpful? It forces couples to add their bills subtract it from their income, and then talk about it. Most couples don't want to talk about their debt, let alone take steps to curb their spending and plan for the future ("I hate saying "no" to Jim = I would rather the bank take our house"). No really, it happens more often than you think. So, how does one get their financial house in order? The show provides some work sheets online ( here ) and a 12 step program ( here ). This 12 step program may seem over simplified to some of you, but if you read the show's comment section, it has helped a lot of people. Personally, I think people fear Gail coming to their house to talk to them about their daily Starbucks and pint of Guinness (Oh wait, might be just me).

Although this show appears on Slice, all four seasons (50+ episodes) can be viewed online ( click here and then click Full Episodes).

Wednesday, August 6, 2008

How to strike it rich in the love market

In honour of the first ever "The Economics of Sex and Love" course that will be taught at Dalhousie University this year, I would like to draw your attention to Lessons in Love, by Way of Economics . Needless to say, like the enrolment number of this Dalhousie class reflects, economists have been very successful at finding ways to popularize our discipline - let's call it: "Freakonomizing". Yes, that's a verb not a noun.

In this NY Times article, Ben Stein's proposes 8 lessons to mastering your return in the love market. I find some of his economics confusing, so I have cut and pasted a few gems and provided a bit of my own interpretation below for my dear readers.

1.) Stein's number #1 rule seems to be: Success in the love market takes smart investing and a long-term view. There are three Stein Love-vestment tips: (a) The returns in love situations are roughly proportional to the amount of time and devotion invested. If you invest caring, patience and unselfishness, you'll get those things back if the person loves you too(and if you don't ...): (b)Once you find that you are in a junk relationship, sell immediately. High-quality bonds consistently yield more return than junk, and so it is with high-quality love;(c)Research pays off. Diversification in love is impossible, so it’s necessary to do a lot of research on the choice you make. Get and give exclusive licensing rights to maximize returns.

2.) The returns on your investment should at least equal the cost of the investment and keep your expectations rational. If you are getting less back than you put in over a considerable period of time, sell-sell-sell. But remember, it is a long-run game. Stein says: The impatient day player will fare poorly without inside information or market-controlling power. He or she will have a few good days but years of agony in the world of love. To coin a phrase: Fall in love in haste, repent at leisure. (Stein's phrase - I will take no credit for that).

As we all know, the love market is a complex beast. I agree with Stein's recommendations to invest conservatively (say no to junk), do your research, take a long-term view, but because we have to put all our eggs in one basket (to make a real run at it), it means that we run the risk of losing it all if we take the plunge. While there is a market for those who believe you can buy happiness , nothing superficial and shallow lasts.

Did this post make you think of David Lee Roth too?

Monday, July 28, 2008

Open Table: The future of dining in Halifax?

My friends at Cuzoogle recently wrote Open Table . What's the deal? You choose the date and time, and this website tells you what restaurant has a table open for your party. Currently 50 Canadian cities have restaurants using this web-booking site. And why not? From the perspective of the restaurant, it's labour saving - the host can concentrate on the customers there in person and the reservations are made with accuracy. And, perhaps on the margin, it will make it easier for their customers to books a table and attract new customers if this web-booking becomes popular. For the consumer, you can search the local restaurant scene in seconds at the last minute (which is much easier than searching the yellow pages and calling).

Currently, Halifax only has two restaurants on signed-up (Onyx and the Cut Steakhouse). I hope they can add a few of my favorites! . Getting a critical mass of restaurants in each city is going to be a big challenge for this website - do you think they have promoters in Halifax? Maybe I should call the Herald or The Coast! Without a large number of already popular restaurant favorites on this list, the website will not survive in Halifax or any city because the benefit to the consumer depends on it! But I like the business case. We currently buy books, movie tickets and almost everything else online, why not book a dinner for 2 online.

Thursday, July 24, 2008

On Das Kapital: One of the greatest books of all time

Thanks to Mad Jenny’s recent post, "Globe and Mail's 50 Greatest Books" has grabbed my attention. What defines a great book? The Globe and Mail's view is that "a book is not simply a searchable database, and a great book is adjudged a great book over time by virtue of offering things — astonishing ideas, unforgettable characters, imaginative sublimity, glorious prose — that cannot be got elsewhere, and that tell us something new about the human (or other) condition." So far two economists have made the list of the 50 best: Adam Smith's Wealth of Nations and Karl Marx's Das Kapital. I covered selected readings from these works when I was at the University of King's College (the latter as part of a special lecture series entitled "The Future of Marxism"). With respect to Smith, his contribution needs no introduction. The G&M article on it is interesting and worth a read. I think it correctly points to Smith's genius and often misunderstood concept of the "invisible hand" - Smith did not think markets alone would solve the all world's problems (more on Smith in a future posting).

What stirred me to blog about this today? Mad Jenny asked why Das Kapital has made G&M 50 greatest books of all time list. Why? Here is my letter to my dear friend:

Dear Mad Jenny,

In response to your question regarding the worthiness of Das Kapital on the G&M top 50 list, I have the following thoughts. Given the terms set-out by the G&M, Das Kapital is easily in the top 50 because, simply put, it offers a unique perspective into the human condition. Das Kapital marks the beginning of a new order in political approach and moral thought about how our economic system affects (if not solely responsible for – according to Marx-) our human condition. Marx believed that it was the capitalist system is responsible for greed, and huge and ever growing inequality in wealth he observed in the world. As you know, this kind of critic can only be found in Marx and it is still contributing today. In addition to his obvious contributions to sociology and modern philosophy, Marx was, in one way, one of the first modern economist. How so? Marx spent many years reading and analyzing government blue books to understand the economy; which is something now thousands of economists do everyday.

In my view, many are quick to point-out that Marx's failures - he did not predict the rise of the middle class and the welfare state - but no one else did either. And, after people cite line and verse from Marx's more famous works (for example, "from each according to their ability, to each according to their need"), they quickly discount his contribution to economics and his influence on our own thoughts about society and morality. In addition, he, next to Hayek and Keynes (both should make the list), had great influence on how societies were run in the 20th century and they were instrumental in shaping world history.

I am not a Marxist, nor do I confess to be an expert on his works. But, Marx's best and only completed work in his life time, Das Kapital, is one of the greatest books of all time because of its analysis of the human condition and its influence on world history.

I know this was somewhat generalized and vague, but I hope you are convinced.

Canadian Economist

Monday, July 21, 2008

Seeing Paris on the Cheap: Where to Eat and More

I travelled to Paris a few weeks ago to attend a conference at Université Paris-Sorbonne (Paris IV) and my wife and I were on a tight budget. We wanted to enjoy Paris's best eats and see some of the attractions we missed on our previous visits, without having to declare personal bankruptcy when we returned home. Here are some lessons we learned from meandering around the famous French capital.

Eating: The ethnic food in Paris provides the best value for money. The restaurant business in Paris is very competitive and only the best survive. And, since non-traditional Parisian food sells at a discount, it has to be popular to survive (hint: busy=good). If you are into, or have never tried lamb couscous, here are two recommendations: (1) Chez Jaafar, 22, rue Sommerard, Latin Quarter, and (2) Chez Omar, 47 Rue de Bretagne, Le Marais ( a review ). Avoid tourist trap Rue de la Huchette, or as the French all it "bacteria alley". Besides not knowing its alias, many foreign tourists who eat here are under the impression that this is the celebrated Latin Quarter. A shame. In this case, busy with other tourists.

Sleeping: Hotels in Paris are very expensive and often booked well in advance during the peak summer season. Going to Paris in April or October seem the ideal times to visit. We used to rent a apartment for 6 days ( see here ). It was small, but in a nice location and was only $94US per night, which for July is a good rate. A more centrally located place is Hotel Paris Rivoli (many reviews here . The rooms are a bit small, but the location is great (near St. Paul's Metro). When checking into a hotel, always see the room first and check for signs of bed bugs (yes, I am very serious).

Notes to the first time travelers to Paris:
(1) Read a good travel guide: we love the Lonely Planet. It is well written and has a fairly good map. It's not perfect, but one of the best.
(2) Unlike Canada, this old city is not friendly if you have mobility issues. There are many stairs, and older buildings (including hotels and apartments) don't elevators. If you have mobility problems, plan extra time and make sure to ask the usual questions before booking.
(3) Don't act like a typical American tourist: (a) Before ordering something or asking a question, always begin with "Bonjour Madam/Sir". (b) Gratuities are included in the price of your meal (most servers get paid (often 15%) no matter how the meal goes from your perspective). So don't double tip (although many believe this is the only reason the French let Americans into their country).
(4) Don't keep all your money in one place, lock your luggage, and hold your purse close to your body. Your white sneakers, fanny-pack, map or guide book, and incessant stop-point-and-click, blows your cover too easily making you easy prey.

Thursday, July 10, 2008

Attention Zoom Airlines: Replace your calculator!

For the second time in three years, I selected Zoom Airlines to get me and my wife to Paris. If you booking in advance, the trip from Toronto or Montreal is fairly cheap (even in today's high oil price environment) - including the extra trip from Halifax, they had the best price. I think this discount airline has great service; however, thier in flight service pricing makes me scream!

Let me explain: The announcement comes over the speaking on the flight: "You can purchase a headset for $6CND or 4€". This is fine; since the current exchange rate is somewhere near $1.60 per euro, it is cheaper to pay in Canadian Dollars. And then it happened: "You can also purchase a blanket for $5 or 4 €". WHAT? How does this make any sense? And they said it like it was no big deal. I was floored. They go to all this effort to round to the number 4,5, and 6, but then use two different implided exchange rates?

Dear Zoom Airlines: Please choose an single exchange rate for inflight service. As far as I am concerned, exchange rates are not item specific!

Canadian Economist.

Monday, July 7, 2008

Top 25 Emerging Artist: Works by Emily are on display in Toronto

Art work from an emerging young artist are similar to an undervalued stock: buy it and hold. The benefit on holding art in your portfolio is that it also gives a visually based utility. Here is how to have a look into 25 Canadian emerging artists.

This year, Fido and the historic Distillery District in Toronto are getting together to celebrate and support a shared commitment to arts and culture (some details here . This partnership comes in the form of the largest outdoor projector screen in Toronto. The projector is located in the Distillery District’s Pure Spirits Patio (also known as the Fido Spot).

After having carefully reviewed numerous excellent submissions, several of Emily's paintings were selected to be part of the slideshow that will run daily at the Distillery District during the month of July. The entire slideshow will be comprised of pieces from only 25 artists. Congratulations Emily!

I understand that Emily's work is being shown at:
Pure Spirits Oyster House and Grill Patio
Distillery District
55 Mill Street

Emily's work can be view on this "a work in progress" blog .

Thursday, June 12, 2008

Tagged, pinned, and forced to confess.

The well regarded McWooby has tagged me. I was shocked, because asking me to share five things that people don't know about me is hard (I don't really have a overwhelming sense of privacy - I'm a blabbermouth). Let me try:

1.) Most people know that I cheer for the Leafs, but they might not know that I now find the vast majority of memorabilia terribly tacky (no posters, bar chairs or stickers, please); on the other hand, no one has the right to sell or dispose of my McDonald's hockey card collection or my autographed Rick Vive picture.
2.) Although I have loved Tim's coffee for years, I have been switching to fair trade organic every chance I get. But I did have a Tim's today.
3.) I believe that there is a most efficient way to travel from A to B and that any conversation about how C is better is non-sense.
4.) I am rarely silent, and I avoid white noise.
5.) I am currently drinking some brandy, but just because I have some. I drank everything else in the house.

End of confession.

Understanding Happiness

For the first time in months I was able to have a relaxing Saturday morning (ok, it was two weeks ago now ...). I was neither so exhausted from the week nor rushing around to complete my list of tasks. I hope to have more mornings like this, if I can do it. You see, dear reader, it was not that I had an easy 5 X 9-to-5 or that the honey-do-list was finished, I just decided to stress less.

With a coffee in hand, I enjoyed Saturday's (May 31st) Globe and Mail. In particular, Margaret Wente wrote an article entitled: "The happiness ... gap" . As the title suggests, Margaret filled this week's commentary by given a punchy review of "Gross National Happiness", by Arthur Brooks (a political scientist, not an economist but we will not hold that against him ... much). The gap referred to in the title is about the happiness gap between US conservatives and liberals that has now lasted for at least a generation (note: this is not Canadian data and comparisons are limited, but ...). The conclusion that Brooks draws is that this gap is driven by marriage and religion. Although I believe that the book may be a stirring read (in other words, it might really make you mad! Like where is the economics eh?), I loved the way this article reads.

Let me share two parts of the article with you, and I hope you will read the rest:
The intro:
"Here's a bit of bad news for all my latte-loving, liberal-leaning friends who believe that jobs in retail stink, traditional religion is for morons, and income inequality has made society a lot worse off. You're a miserable bunch. "

A highlight:
Beyond marriage and religion?
"There's another factor, too, which, he argues, centres on world view. Conservatives generally believe that people who work hard can get ahead and be successful. They believe success is in their own control. Liberals are more inclined to believe in collective solutions to social problems – and that people's success depends on factors outside their control. 'I compared poor conservatives with rich liberals,' he told me. 'Ninety per cent of poor conservatives say that hard work and perseverance can overcome disadvantage. But only 65 per cent of rich liberals believe that.'"

What to take away from this article?
1.) Money (alone?) does not produce happiness (there is only marginal-to-no return beyond the median wage - aka having a decent security).
2.) The equality of opportunity is important to everyone (yeah education!).
3.) Happiness is U-shaped in terms of age (44 year old men cry like babies).
4.) Give away your money and time to find happiness.

Please share you thoughts.

Appendix: What about Canadians?
My favorite Canadian on this topic is John Helliwell. See this G&M article from last fall with some great economic analysis (ok, I can't resist sharing this): "Using Canadian survey data and some mind-numbing arithmetic, Helliwell and UBC colleague Haifang Huang were able to put a cash value on the effect of job satisfaction on general happiness. That number varies along a bell curve. But take, for example, a single employee who rates her job satisfaction a nine out of 10, and who makes $65,000 a year. Imagine some work-culture corrosion triggers a one-point drop in her job satisfaction. It would take an extra $30,000 a year to compensate for the negative effect this would have on her general happiness."

Tuesday, June 3, 2008

The tables have been turned

Now that all of students' marks have been finalized, I got my grade yesterday. It was not a review from the department chair, but rather from my students. The university asks students to fill out a standardized survey to provide feedback to faculty in conjunction with written comments. So, how did I do and what did I learn?

How did I do?
Find those alphabet letters (or other childhood fridge magnets) and post it on the fridge, I got a "G" or a "E" (a good to excellent rating). Yes! Better than expected. Out of the eight categories, I received an good to excellent rating, and matching most of the department mean scores. Yes, this was a pleasant surprise and, needless to say, much better than my first review. The best result, both in terms of above the department average and giving me the warm fuzzies, was students' response to: "The instructor showed genuine concern for students." = 70% of respondents said excellent.

What did I learn?

The lowest category was "The instructor was fair and reasonable in evaluating and marking student work". Now this seems somewhat in contrast to the above listed result, but it does suggest that I need to do a better job communicating my strategy. But wait! I have already told you about my complex insensitive structure ... (see earlier post). On second thought, this was done by students before they received their final marks, and I always wait to the end to adjust my grades (if required). Over the next few months I will find time to review my comments and these scores to improve my teaching. My next class starts in January 2009 (it will be here before we know it!).

I have been notified that I now appear on this infamous website ...

Monday, June 2, 2008

We can all swim in the Halifax Harbour!

Yes! This title is not an error. A study conducted by the CBC (see here ), proved that Halifax city council's prediction has come true. Well, at least I think.

According to the CBC, samples taken last Thursday from Black Rock Beach in Point Pleasant Park, the Dingle on the Northwest Arm, and Lions Park Beach in the Bedford Basin showed that bacteria levels (enterococci to be exact) were within acceptable levels according to Capital Health Environment Services Laboratory testing.

This finding is really surprising since the second plant on the Dartmouth will not be running for a few months, with a third treatment facility for Herring Cove will not be running until later this year.

Personally, I am not swimming until all three planets are up and running. Perhaps I will do the Polar Bear dig on New Year's Day - a tradition that was put on hold since 2000. Anyone else whan to join me? I am kind of excited.

Appendix: Taken from the CBC.
The safe level for swimming is 35 colonies per 100 millilitres. Anything below that is safe.
- The Dingle - less than 10.
- Black Rock Beach - less than 10.
- Lions Park Beach - less than 10.

Back on the blog again

I have once again failed to produce a constaint stream of postings for you, my dear reader (if you are still there!). But I am back. I am going to post a few items that have gabbed my attention over the last few months. They will be short and sweet, more of a FYI.

More to come ...

Monday, April 28, 2008

Teaching: More utility the second time around

After submitting my final grades, I feel a bit of a loss. I am sad it's over. Although I have failed to understand Generation "Why (am I failing?)", I have made some (perhaps not so new to anyone that teaches) discoveries.

1- The second time around is easier, but not how you think ... In a word: confidence. I no longer worry about making mistakes on the board (although it does happen). The classroom is welcoming. It seems my perception of risk is lower because I understand the nature of supply (the content) and demand (what students need) better.

2- Students appreciate win-falls and they respond to incentives (I know, not surprising, we all do). When I offered to re-weight their grades after their rather poor performance on the first midterm, they were happy because their expected outcome (their final grade) was revised upwards. It seemed they quickly priced-in the rewards of working harder. Because the class content was cumulative (Chapter 10 requires knowledge of Chapters 1-9) I was able to do this. Although it is possible that a few students would actual decrease the level of effort because it would be easier to reach their targeted grade, I felt that this "Do better, I will re-weight" approach was appreciated and useful for motivation ("You can turn this around!"). In fact, a number of students earned 20% better on the final than the first exam.

3- Why didn't more students "turn-it-around"? Clearly ability and effort play an important role, but is there something else? Most times students write papers or exams with little or no consultation afterwards. This semester I asked all failing students to speak with me about how they studied and what they were going to do differently for the second midterm and final. Although students were reluctant to meet, they were general appreciative when we did because they were shown where they went wrong and I made suggestions on how to study for the next exam. On the downside, these types of demand performances are time consuming and may negatively affect my evaluations.

4- Should we teach how to study during class? Over the past few months I started saying things like: "On page 458, the author says '...', this is an excellent summary." or "If you don't understand how we derived this result, please don't let it go: talk to me or the TA". Because I get very few questions in class and no one seems to use office hours, perhaps providing detailed study hints during class may yield good results.

5- Because I was more relaxed I could be more over the top and enjoy their reaction. I played for them the sub-prime mortgage blues!

Teaching: loved it.

Saturday, March 15, 2008

Now Spinning: No hype; all quality

Since my friends and family want me to stop playing "sub-prime mortgage blues" over and over again, I had to find some new tunes. So, I pulled these two gems to the top of my play list.

The Guardian recently published a wonderful congratulations to Jenn Grant's CBC Galaxie Rising Star award for her debut full-length album “Orchestra for the Moon”. To put this in context, Jenn was selected over the Joel Plaskett Emergency (sorry Joel) and several other (including indie faves The Weakerthans ). Give this article a read. Give a listen a few hits of hers here . I hope to see her in the Maritimes this summer.

Second, the international acclaim for Amy Whinehouse is not why I am a fan. Sure, popularity could be a strong buy signal, but it was not until I was getting my hair cut a few weeks ago that I heard this salty album (Previously, I had only heard that she does not want to go to rehab no, no, no). I was surprised and delighted.

Yes, economists do have taste.

sub-prime mortgage blues

Believe it or not people visit my blog in search on "economics songs" and leave disappointed. Finally, supply meets demand: Thanks Greg Mankiw, here is a (soon to be) classic.

Please enjoy.

Saturday, March 8, 2008

Beyond Reason: From Jelly Beans to 'Group Think'

Every once in a while the Economist publishes a great article that one can use to teach undergraduate economics students. In the February 23rd edition (page 90), the Economist turned a jar of jelly beans into a look behind stock market anomalies.

"Perhaps the most compelling reason why market prices are tough to beat is the 'wisdom of crowds' phenomenon.

If people are asked to estimate the number of jellybeans in a jar, their average estimate is usually quite close to the truth; indeed, the average guess is far better than the vast majority of individual guesses. In other words, , as Michael Mauboussin of the fund-management group Legg Mason remarks, the collective is smarter than the average person within the collective."

Wait for it ... the twist:

"But this wisdom depends on the diversity of the people making the guesses", without a high degree of diversity, "group-think" takes over and investors "no longer guess how many jelly beans are in the jar, but what other people's guesses might turn out to be".

A little clearer: "There is an old test that neatly makes this point. Participants have to choose a number between zero and 100 that will be two-thirds of the average choice of the others taking part. So if you thought the average would be 50, you would go for 33. However, if everyone makes this logical leap, the best guess should be 22 (two-thirds 33). Extending this process a few times and you can work out that the best choice would be zero. In real life, however, not everyone is so rational and the correct answer is never that low."

In essence, this is why it is nearly impossible to quantify the precise of irrationality of investors. In addition, this is also why stocks can deviate far from their underlying worth (according to price-to-earnings ratios or otherwise) for a long period of time only to quickly come crashing back to reality (the dot-com case and point). The problem for investors is that if they do not join the party on the way up (such as the rise of Nortel to $120+), there client's complain of their poorly performance compared to their competitors in the short-run. Sadly, because if this, they may not be around to see the correction (and claim victory). We all wish we could pick the peak and the trough - making money (jumping) up and down.

Thoughts, comments, and/or objections wanted.

Saturday, March 1, 2008

"The Big Picture" on the US Housing Market

Today I have added some popular US blogs links (Canadian blogs coming soon) to my blog, including Barry Ritholtz's "The Big Picture". It got my attention by posting this chart on the state of the US housing market today. I have not had much time to review these blogs thoroughly, but I hope to in the coming days. According to the NY Times, it looks like the number of foreclosures is close to the total housing sales in January - pointing a large amount of excess supply on the US housing market. This picture also adds some interesting regional flavor to this story (I feel for Nevada) .... go to The Big Picture for more!

BC is leading the Pigou way

The British Columbia Provincial Budget was the most "green" in Canadian history. It did not go unnoticed by this economist nor Greg Mankiw .

There has been a lot of news about the BC budget but the aspect I like the best is the revenue neutral nature of the structures: The money raised through carbon taxes are going to be redistributed to individuals and companies by tax reductions. Great! Exactly what I (and many others) have been suggesting.

My Favorite Details
1.) As of July 1st, gasoline will go up 2.4 cents and raise to 7.2 cents by 2012; 2.) Low-income West coasters will receive an annual "climate-action credit" worth $100 per adult and $30 per child; 3.) They have added a new transit plan; 4.) They plan to renovate public buildings and pay home owners to make energy saving changes.

I am not endorsing everything in this budget - for example, the increase in gasoline tax is less than what I was hoping (more like a $1.00 would of made a much bigger statement). However, it is start! Congratulations to the Province of British Columbia!

Friday, February 29, 2008

Pricing to Province: A Saab Example

For years I have taken advantage of the fact that Ontario's LCBO sells wine cheaper than the NSLC in Nova Scotia. Aside from this I have not found many other worthwhile arbitrage opportunities between provinces that I could take advantage of in my travels. That is, until now!

If you go to the Saab website and click on the ad on the main screen, you arrive at a map of Canada . Now most of us would just click our province of residence, but us economists pause, shake our head and say "why the hell do I need to choose a province?" And then we clue in: They are pricing to market in Canada. Amazing. As of today (29 Feb 2008), Saab (a GM company) is selling the same 2008 Saab 9-3 Sport Sedan (a nice car) for different prices across the country. Why are they doing this? Well, we know that each province has different economic conditions and access to the US market (where manufacturers' suggested retail prices or MSRPs are much lower). So, manufacturers can take advantage of this by pricing to market. By doing so, they can grab more consumer surplus . And yes, another way to think of this is: price discrimination.

How different?
In Nova Scotia, the cash purchase price is: $35,850. In Ontario, the same car costs $34,450, and in Alberta $37,450. The lease prices are also different. And for the other advertised models, such as the Saab 9-5 Sedan, some provinces have different prices. In the USA, the same Saab 9-3 Sport Sedan starts at $28,825. (Did you notice how the Saab Canada ads says "Your dollar goes further with Saab" - yeah right.)

Do other car companies do this? Not as far as I know; the rest have one MSRP for the country.

If you are thinking of buying the new Saab, you should print the Ontario price and take to your nearest dealership and demand a better deal. This is crazy. Or better yet, bring in the US price and ask "What the hell?".

Appendix: Walmart: A Master at Price Discrimination
We all know that Walmart has done this in Canada for years. From what I understand each Walmart tracks inventory in each story very closely: in fact, they record each sale and use the information to tell the store manager when to "roll-back-prices". They can plot the demand curve with this technology (O'boy I would love to see that data!), which means they can forecast how many pencils will sell in the next week if they drop the price by 10 cents. Wild.

Sunday, February 24, 2008

Teaching Update: New feedback, new inputs, the same output.

I am now two months into my second teaching experience. I am teaching the same second year macroeconomics class and I have a few more students this time. In response to the students feedback I received last winter, I entered the term enthusiastic! I thought I could motivate my students by delivering better lectures and by creating an new evaluation structure that will motivate them to work harder. To improve classroom attendance, and to provide more frequent feedback (to them and me), I have added 10 in class mini-tests (1% of their final mark for each); they don't get a mark for answering correctly, just for attempting the question. This is like giving points for attendance, but it forces them to think, write, and it gives me insight into their learning. I provide each student an exam booklet to answer the questions, I provide the answers in class, and provide them with specific feedback in their booklets. The costs: 33 exam booklets, 100 classroom minutes (10 minutes per question), and 20 hours of marking (~2 hours each). The Benefits: much harder to measure, but higher midterm marks would be a good start.

After the first five tests and one midterm exam, my experiment has failed to produce the desired results: midterm scores remain very low and attendance is only marginally higher. Why the unexpected result?

(1) With respect to attendance, I guess I was over optimistic with respect to the size of the carrot: 1% per in class test is not big enough to get people to come. (2) The feedback has not provided a strong enough signal to students about their comprehension. Because I do not penalize them for an incorrect answer, I can only assess that they pay little or no attention to the outcome and place little weight on the signal. Now, I know that we can "lead a horse to water, but can't make it drink", but I believe that there must be some incentive structure that will motivate these students to study.

In the short-term, I am going to ask more difficult questions in class and grade them as if it was a test. Because it would be unfair to revise the evaluation method at this point, I can only try to increase the signal that tells them that they are "on track" or that they have "fallen off the train". The next exam is in a few weeks, and I hope to see a strong performance. I remain optimistic.

I hope to use the reading week to research more on "Generation Y" to educate myself more about how to reach today's university students. I will report back with my findings.

Appendix: An Incentive Structure that Works?
After several conversations with the faculty member teaching the same class, we agreed that in class tests based on the textbook assignments or randomly marking one of the assignment question might be the way to go. It is a work in progress. Comments/suggestions welcome.

Friday, February 15, 2008

Does Energy Efficiency Save Energy?

Back on November 27th, Jeff Rubin and Benjamin Tal (two respected CIBC economists) released a report that tries to answer the question: "Does Energy Efficiency Save Energy?" The release can be found on the CIBC website here .

The Question: "Much is being banked on the notion that improvements in energy efficiency will be the answer to both oil depletion and greenhouse gas emissions. But is it a realistic economic premise that technological change can reduce energy usage, and by implication, its carbon trail?"

The Answer: "The road to hell is paved with good intentions."

The Economic Logic: "As improvements in energy efficiency lower the effective cost of energy relative to what otherwise would have prevailed, the resulting substitution and income effects that flow from any price change result in more of the good being consumed." Take an(over simplified) example: a switch energy efficient cars (such as hybrids) provide an initial drop in the amount of gasoline beginning consumed. Now, we can drive more for less. The energy efficient cars could result in higher consumption of gasoline. This has been referred to the Jevons Paradox .

Their bottom line: "In the past, the efficiency paradox has been used as an argument against efforts to promote greater energy efficiency and conservation. That is not our intention here. On the contrary, for a world facing the twin challenges of oil depletion and global climate change, there has never been a more urgent need for both. But in order for total efficiency to actually curb total energy usage, as opposed to energy intensity, consumers must be kept from reaping the benefits of those initiatives in ever-greater energy consumption. Otherwise, energy usage will be the beneficiary of our best efforts towards greater energy efficiency."

My two cents: Yes! We are all concerned that any savings in energy costs will lead to more energy consumption. In general, savings in one area of the budget is not going to lead to less aggregate consumption but more. What can we do? To start, we need to increase the price of gasoline to reflect the social cost by taxing it and by setting a price floor on gasoline prices. Flow the tax revenue into helping lower income individuals and into research and development. (as I said before) .

Economic History
The article also given a wonderful throw-back to Jevons! "Jevons observed that after the huge efficiency gains following the advent of James Watt’s steam engine, coal consumption, after dropping initially, rose by tenfold between 1830 and 1860."

Saturday, February 9, 2008

Why can't this beautiful woman find an $500K+ man?

A real posting on Craig's List - it is now been widely circulated, but I had to share it.

"What am I doing wrong?"

Okay, I’m tired of beating around the bush. I’m a beautiful(spectacularly beautiful) 25 year old girl. I’m articulate and classy. I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.
Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 - 250. But that’s where I seem to hit a roadblock. 250,000 won’t get me to central park west. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level? Here are my questions specifically:
- Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms
-What are you looking for in a mate? Be honest guys, you won’t hurt my feelings
-Is there an age range I should be targeting (I’m 25)?
- Why are some of the women living lavish lifestyles on the upper east side so plain? I’ve seen really ‘plain jane’ boring types who have nothing to offer married to incredibly wealthy guys. I’ve seen drop dead gorgeous girls in singles bars in the east village. What’s the story there?
- Jobs I should look out for? Everyone knows - lawyer, investment
banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?
- How you decide marriage vs. just a girlfriend? I am looking for MARRIAGE ONLY
Please hold your insults - I’m putting myself out there in an honest way. Most beautiful women are superficial; at least I’m being up front about it. I wouldn’t be searching for these kind of guys if I wasn’t able to match them - in looks, culture, sophistication, and keeping a nice home and hearth.
PostingID: 432279810"

And a great response:
"Dear Pers-431649184:
I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament.
Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.
Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!
So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!
So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.
Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.
By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation.
With all that said, I must say you’re going about it the right way. Classic “pump and dump.” I hope this is helpful, and if you want to enter into some sort of lease, let me know."

Monday, February 4, 2008

Back in blog (soon)

Dear Reader(s),

I have not forgotten you. It has been too long.

Over the last few months, the economics landscape has been changing rapidly. Many interesting stories and economic tales have filled my "to be posted" file.

"The Manley Report", "GDP Growth and Energy Consumption", and "Back at the Chalk and Talk" are a few postings I am working on.

Be right back ...