Yesterday I had the opportunity to visit Titanic: the Artifact Exhibition at the Minnesota Science Center in St. Paul. I’m not sure what I was expecting, but I left saddened and amazed at the same time.

In 1912, you had an America and Western Europe that was going through amazing technological progress. The sheer size of the ship was massive: it took over 3 million rivets to assemble the outer hull, and it burned 40 pounds of coal per second. Titanic was a symbol of the times, a ship that was presumed indestructable, offering both unsurpassed luxury for the wealthy and affordability for the working class – a third-class (“steerage”) room cost the equivalent of $650 today, far less than many from Mexico and South America pay people to get them to our country. Its three-turbine propulsion system was an engineering marvel.  Titanic was divided into a dozen or so watertight chambers so that if one or two of them were breached, the boat would still float. The iceberg took down 6 of them, if I remember correctly.

One fact stuck in my head: of all the women that were on Titanic, only three had husbands who survived the disaster. Only 20% of the men on board survived – but of men who had wives, only three men survived. (Here for more on survival rates.) That tells me that the men whose families were on the ship had one foremost priority: get their families off safely. The men whose families were not on board had no such higher motive, and did not cede room in the lifeboats for others’ women and children. As they say, tragedy often reveals both the best and worst in people.

[Quick note: the Titanic had more than enough lifeboats for all of its passengers. Most of them launched prematurely, with husbands worrying about the safety of their families, wanting to make sure the lifeboat was not so crowded that it might sink. If I remember correctly, the first third or so of all lifeboats launched were filled with less than a third of their potential passengers. There were life preservers for everyone (white vests filled with blocks of cork for bouyancy), but the water was below freezing and hypothermia set in within a half hour.]

As you make your way through the exhibit, you cross an amazing collection of personal materials. Teapots from the dining room that somehow survived in perfect condition. Personal items of passengers. A wide assortment of money. Playing cards that look remarkably similar to what we use almost a century later. This is where the exhibit hits home, and Titanic becomes not just a boat that hit an iceberg, but a collection of people. People from the highest social standing to the lowest. Some making their way back to America to resume their businesses, some headed there to start a new life, filled with hope and aspirations. These were real people, and seeing their combs, luggage, and postcards is what reminds you of that.

On a wall at the end of the exhibit is a quote by an Irish poet named Jack Foster: “We are all passengers on the Titanic.” Sound familiar? After 9/11, we were all New Yorkers. We all understood the horror of the tragedy that occurred and felt it could have happened to us. As a country, we banded together to give assistance however we could to the families who lost loved ones. The children who survived the Titanic were assisted through massive charitable giving, even putting some through college. It is sad that it takes a disaster on a scale like this to unite people, but apparently not much has changed in a century.

There are many lessons to be drawn from the Titanic. In an effort to make its planned departure date, much was rushed. The ship ended up sailing without one pair of binoculars on board, a simple detail that may have prevented the disaster. The iceberg field that the Titanic passed through was also navigated by a half dozen other ships that night and the following day, including the Carpathia that rescued its survivors. None of these ships was hit because they were able to steer around the icebergs. They had binoculars to see them, and they weren’t so big that they could not maneuver easily. Rushing through a giant venture and overlooking important details because you are trying to meet some arbitrary date can have major adverse consequences. (Are you listening, Nancy Pelosi?)

You know I’m a supporter of free markets, but there is room for some government guidelines in many industries. People have to know what the rules are in order to compete, and part of the government’s role is to define basic rules of the game. After the Titanic sank, the U.S. and other countries agreed on a variety of new changes. They restricted some radio frequencies from personal use and designated which frequencies would be used by ships, making it easier for them to communicate quickly when they are in trouble. They imposed restrictions on how far north a shipping vessel could navigate, to avoid the kind of waters Titanic found. The result of these actions: since the Titanic, no other such ship has sunk because it hit an iceberg.

If you are down in the St. Paul area, I encourage you to check out the exhibit. It’s $23 for admission to the museum and the exhibit, but it was definitely well worth the money.

I have had the iPhone application for a while and haven’t used it but I’m watching my students take their Intro to Econ midterm and thought this would be a great time to start wig a short post.

Netflix recently announced it would stream movies to it’s customers via the PS3 starting next month. Currently, Xbox360 users have the option. Sounds great but PS3 users can already stream by using the web browser built into the PS3. I use it to watch shows on Hulu (which apparently is going to start charging for their service soon, much to my disappointment. No free lunch indeed.) It is not easy to navigate or type in URLs with the controller but for something simple like watching a video, it works okay.

Apparently this will be a little better quality (the system is supposed to vary the quality of the video based on the speed of your internet connection, and will provide DVD quality if you have a fast internet connection) but the number of titles is still limited to what it is now when streaming online with a computer or the PS3 browser. No major new releases are available to be streamed. Only 1 of the 20 movies in my Netflix queue has the streaming option available.

And for at least a few months, PS3 users will have to insert a disc to enable the streaming function. (This does not count as one of the discs you can have out — it’s a freebie.) Sure, it is probably easier than the built-in web browser but it will be annoying to have to switch out discs when you want to watch a movie. Next year, Netflix plans on having the software built into a PS3 firmware update. If you have a PS3 and Netflix and want to explore the streaming option, go to Netflix, click on the streaming video, then explore the different player options — click the PS3 and you should be able to find the option to put yourself on the list to have a streaming disc shipped to you when they are available in a few weeks.

When I first heard about the option I was excited. But the more I learn about it, the more I think this is just a minor improvent over the status quo — the only real difference is better picture quality and hopefully a more navigable interface. But I guess if it were a really significant improvement, like expanding the list of streamable movies, they would start raising prices. And the last time they did that, for Blu-ray, I had to cut back my purchases.

I’ve talked about the gender pay gap before here. To summarize it as I see it, here is a quick rundown of the facts. For the same job with the same experience and qualifications, men make perhaps 5-10% more than women — that is clearly unfair. Yet the average woman working full time earns only 78% of what the average man earns working full time. How do we explain these two results? It boils down to either inequality of opportunity (men are keeping women out of high-paying professions) or a difference in choices — women choose different jobs, either because of personal choice or societal pressures. It’s hard to prove any of those causes — and it is probably a little of each of these — and it’s unclear what the solution is exactly.

This morning on Meet the Press, there was a roundtable discussion on the state of women in America. I was struck by a comment at the very end by Maria Shriver. In the context of a discussion about Hillary Clinton’s role in last year’s presidential primary, she was asked by the moderator why there are not as many women as men in politics. Her response was that women do not want their lives exposed the way politicians’ lives are these days. She finished up saying, ”It’s not that women aren’t competent, but women view success differently than men. They view power differently than men. And they often want very different lives than men.”

I am glad that Maria Shriver, a self-described feminist, can be honest enough to admit that women want different things out of life than men. I think anyone with half a brain can realize that. Yet some women’s rights groups, like the Women’s Center at my university, would lead you to believe that somehow this should not translate into different occupational decisions or different salaries.  The WC has send out information in the past saying that women working full time should earn 100% of men working full time, regardless of the occupations they choose. To them, anything less is discrimination.

Studies have shown that men take jobs that require them to travel more; they work outdoors more often in harsh temperatures; and they work riskier jobs (94% of all workplace fatalities are men).  To borrow from President Obama’s favorite phrase: “Let me be clear:” I think women should be paid the same amount of money for the same work with the same qualifications, plain and simple. One study of people at age 30 grouped people by major and, without even correcting for job or industry, found that women who majored in economics earned 99% of what men who majored in economics earned. I think that’s a pretty good statement for the economics profession.

Yet I don’t think that, for the economy as a whole, women’s average salaries should equal men’s average salaries — at least not if women are working more convenient hours, in less risky and less stressful jobs. The difference lies in whether you are comparing the same job or a different job — and if you work a different job you should not expect the same pay. For example, the research requirements for tenure at SCSU are much lower than those at Harvard and, not coincidentally, SCSU pays a much lower salary than Harvard. It would be ridiculous for me to complain that I do not get paid as much as a Harvard professor when their lives are much more stressful because their tenure requirements are more strict. I made a decision based on what I wanted out of life and I live with the consequence that others in my profession get paid more than I do for working what is clearly a more difficult and stressful job.

Some women’s rights groups want women to have equal incomes despite having different goals, making different decisions and working in different jobs — “wanting different lives,” according to Shriver. That is asking for special treatment, not equal treatment.

I’m a libertarian and my general stance is that we should try free market solutions first and then, if those don’t work, look to the government. The  main problem I have with government is that when they change the rules of the game, they change the way people behave and that creates new problems — which invariably call for more government intervention (spend more on education because we’re not getting good outcomes!) instead of less. For example, taxing high incomes but not bonuses caused Wall Street to change their whole pay structure so that now executives get huge bonuses. The government didn’t like that, so they tried forcing companies to offer stock instead of cash, so that executives have a stake in company performance. But that just increases the reward for cooking the books to make the stock overvalued. So now they have to have new accounting rules and other ways of trying to fix that problem, using “clawback” features and trying to base bonus pay on long-term stock performance instead of short-term performance. That will invariably cause another problem they’ll try to fix. It’s not that the goverment TRIES to screw things up — it’s just that they end up doing that because they fail to account for how people will respond to changes in laws that change their incentives.

Now this from the bill in the Senate Finance Committee makes me reconsider the notion that nobody in Washington understands incentives:

Under current regulation, incentives based on health factors can be no larger than 20 percent of the premium paid by employer and employee combined. The legislation passed by the Health and Finance committees would increase the limit to 30 percent, and it would give government officials the power to raise it to 50 percent.

and

Douglas J. Short, BeniComp’s chief executive, said the incentives he uses focus on outcomes, not conditions.

“I can’t give you an incentive based on being a diabetic or not being a diabetic, but whether you’re managing your blood glucose level — I can give you an incentive based on that,” Short said.

I understand the concern that people wil pre-existing conditions have, but I also understand the perspective of health insurance companies. If insurance is supposed to be for things beyond your control (like flood insurance, for example, which is completely beyond my control as a homeowner), then insurance companies base rates on observable characteristics and statistics. If I live in a flood plain, they charge me higher rates — not because of anything I did but because the risk is higher.

And in some cases, that’s what health insurance is. I could get cancer, fall down and crack my skull open or any number of things. And the premiums I have paid will cover the cost of the treatment — I use health insurance to smooth my payments for medical care over my entire life rather than have massive expenditures every once in a while. But when I have a pre-existing condition, the risks and expected costs are higher. Granted, there may be nothing I can do about it, but forcing health insurance companies to take people with pre-existing conditions at the same rates as everyone else is forcing health insurance companies to pay for something that will make them lose money overall on that person. How is that fair to them?

Back to the story, and my main conclusion: I love this. We’ve become a society of people that mostly eat too much and exercise too little because, well, we can. I like the compromise the Finance bill makes: force insurance companies to take everyone but allow them to charge higher rates to people whose behaviors are resulting in higher costs. If you are overweight and eat fast food 5 times a week, and put yourself at higher risk for heart disease, why should your insurance company bear that risk? They shouldn’t — you should. Many companies have tried incentivizing good behaviors, like paying for part of a subscriber’s gym membership fees if the person exercises at least twice a week. That’s all well and good. But in addition to carrots, sometimes you need sticks.

As a libertarian, I believe you have the right to do whatever you want with your body and your property, as long as nobody else has to bear the costs of your actions. If we legislate a health insurance system where insurance companies are forced to take you regardless of your condition, there should still be a way of making you pay for the poor health choices you make from that point on. The Finance bill seems to recognize this.

In my Managerial Economics class today, we were wrapping up the section on perfect competition. Economic models are often assailed because their assumptions are not always realistic. In perfect competition, we assume every firm is identical — an assumption that is clearly not true in many competitive markets. Farms come in a wide variety of sizes. The assumption of equal size is not a crucial one; it just makes the analysis easier. But more important than the accuracy of the assumptions of a model is the accuracy of its testable implications — does the market behave in ways the model predicts it should? For example, one common attack on Keynesian models is that their aggregate supply assumptions typically assume that when output is high it is because real wages are low and that is why firms are using a lot of workers – however, we usually see high real wages during economic booms. Two  major implications of the model of perfect competition are that prices should be a) relatively stable, and b) rising slower than those in less competitive markets.

Prices must be relatively stable because, if price were trending upward over time persistently, it would indicate positive economic profits in the market and this would invite entry, which would increase supply and bring prices down. Sure, there will be small fluctuations, but they should not be large or prolonged.

Prices should be rising slower than average (slower than the rate of inflation) because of the extreme importance that perfect competition places on cost-cutting. If you want to increase profits, advertising won’t do it — you’re already selling as much output as you can and advertising is pointless when your product is the same as every other firm’s. But every dollar you cut in costs is a dollar of profits. And the large size of competitive markets makes it likely that others will develop innovative technologies that they can sell to all the firms in the market. This is one of the reasons why the relative price of food in this country has fallen so dramatically in the last 150 years — produce a new farm implement, fertilizer, or tool and you have millions of customers, all buying your product so they can have a cost advantage over their competitors (except they all buy it, so the price drops and they still have zero economic profit).

I decided to try to test the implications of the theory to see if this holds. While agriculture is often characterized by perfect competition, most people association agriculture with fruits and vegetables. That adds more complications, as farmers plant crops based on expectations of future prices when the crop is harvested; and plants are subject to changes in weather like droughts and freezing. But agriculture also includes beef, poultry, and eggs. These are not as susceptible to changes in supply due to weather, and it only takes about a month to raise a chicken to 3.5-lb broiler size — a relatively quick time to respond to changes in market conditions.

So I compared the average monthly prices of a few different goods. For competitive markets, I used turkey (a very competitive market, with an HHI of about 50) and chicken. For comparison, I also looked at gasoline (a mildly concentrated market as classified by the Department of Justice, with an HHI of about 1600). The numbers on the horizontal axis indicate months, 180 in total (Jan 1990-Dec 2004). The numbers on the vertical axis are both nominal prices — gas is per gallon, turkey is per pound (I think — it says nominal prices to consumers for frozen birds, but the data does not specify the units) and chicken is a retail price index.

Average monthly prices, January 1990-December 2004

Note that turkey prices rise at less than 1% per year, much lower than the rate of inflation. Chicken starts out at a higher price (it’s an index, not an actual price) and rises at around 2.4% per year. Gas prices rise at around 7% per year, twice the rate of inflation. Notice also that while gas prices have swings of 10-20% per month on a pretty regular basis, chicken and turkey prices have much smaller monthly fluctuations. Chicken prices are incredibly stable. In only two of 180 months is the change in prices greater than 3.5% and the highest change is 7%.  (in absolute value, so we include both increases and decreases) is only 1% per month. In contrast, the largest monthly change in gas prices is a 19% increase, and 40% of the monthly changes exceed 3.5%. The turkey market would be as stable as the chicken market except for those big drops about the same time every year in, you guessed it, November.

If explore the turkey data, you will find that in all 15 years, the month with the lowest average price is November, the month when demand is unquestionably the highest: consumption in November is now about 50% higher than the monthly average. (50 years ago it was 200% higher and 20 years ago it was 100% higher; the dropping increase in November consumption, relative to other months, is due to increased consumption of turkey in these other months, a trend that started in around 1990.) I think the likely explanation is that supermarket competition for such a huge consumer base causes firms to reduce prices, hoping to entice customers to do the rest of their Thanksgiving shopping in their store. It’s useful to have the basic model to help our understanding of markets, but also to acknowledge unique features of each market that can’t be simplified or assumed away, like the fact that turkey sales are heavily holiday-dependent, but chicken sales are not.

These are only three examples, but you can find a lot more markets and I’m pretty certain you would find a similar result: competitive markets are more stable and predictable, and offer consumers lower prices. It’s nice when we can point to observable outcomes in markets and justify our models. They might not be perfect, but sometimes they’re a pretty decent approximation of reality.

(I wanted to include the image below in my comment, but I can’t, so I’m doing it here.)

I haven’t posted anything in a while — I’ve been sick since Thursday and it doesn’t seem to be getting much better. I don’t do sick well — I worry about my classes, getting behind in the semester schedule, and rescheduling exams, when I should just be relaxing so my body can fight whatever’s going on inside me.

When the semester began, administration e-mailed faculty and told us that due to H1N1 fears, they were advising students to stay home if they felt sick. They told us that we could not require notes from doctors, as that would give students a disincentive to stay home if they felt sick but couldn’t get to a doctor. This basically gives students a get-out-of-jail-free card in case they haven’t studied for an exam. There’s no doubt that some students will take advantage of it, so some (including me) were a bit annoyed by the policy. It means that many of us will have to write another version of an exam and hope that students aren’t playing us for suckers. But I understand the issues at play and the administration’s concern about the flu, and I realize there’s no perfect solution here. Their primary concern is limiting the spread of the flu, and everything else comes second.

Fortunately, I don’t have H1N1 — my temperature has been about 2 degrees below normal, the opposite effect of H1N1. But I decided that it was better to be safe and cancel class today and stay home in bed. I didn’t want to give anybody what I have, and with my immune system compromised, I didn’t really want to risk catching the flu from someone at school. I was hoping that I could rest up and get better but that didn’t happen today. So I’ll stay in bed tomorrow, catch up on Maury (“You are… NOT the father!” ), and hopefully turn the corner on this thing so I can at least go to my classes on Wednesday.

And yes, I’m drinking lots of orange juice, Mom.

Wordpress introduced a new app for the iPhone that should allow me to post from my phone. If you’re reading this, it works.