Economists Like Jokes Too

Economics may be known as the dismal science, but we know how to crack a joke here and there as well.  Here's some proof that the Fed isn't just a bunch of tightly-wound Ph.D's but people who know how to appreciate a good laugh:

These jokes are from Mr. Stockton who works in the research arm of the Federal Reserve Bank:

In March 2004: “When asked in the past how confident I have been about various aspects of our projection, I believe the record will show that I have almost consistently responded “not very.” It looks as though I’ll be pretty safe sticking to that answer.” [Laughter]

In May 2004: “After countless meetings and much effort to assemble the Greenbook over the past few weeks, I must admit that it was disappointing to come to work last Thursday to find that our forecast had a half-life shorter than a jar of mayonnaise in the Mojave Desert. [Laughter] As you know, the BEA reported that their advance estimate of the growth in real GDP in the first quarter was 4.2 percent at an annual rate—a full percentage point less than the forecast that we had published only the day before. {WSJ NOTE: The Greenbook is the internal economic forecast of Fed staff.}

In November 2004: I suspect that for many current and former New Englanders, the stirring victory of the Boston Red Sox last month gave hope to other long-deferred dreams. In my case, I mused that if the Red Sox could come from behind to beat the Yankees and then sweep the World Series, wasn’t it possible for the staff one day to get the near-term employment forecast right? [Laughter]

In December 2004: “If the partial-expensing effect turns out to be smaller than we have estimated and underlying demand for equipment correspondingly stronger, the economy is likely to carry somewhat greater momentum into early next year than is implicit in our forecast. While crossing one’s fingers is not a forecasting methodology typically covered in graduate-level econometrics, that is what we will be doing over the next few months.” [Laughter]

On second thought, I don't think Dane Cook has to worry about this upcoming comedian too much.

(Original article is found here.)

-Brandon

Cash or Couch?

NOTE: This post is going to be a little dense for non-economics majors. I'll do my best to make this clear, but if you want a further explanation, email us at bsingeconomics@gmail.com and we'll give you a crash course in public economics.

I hardly ever enter into those giveaways and sweepstakes you see advertised on t.v. They take forever to sign up for, your inbox is always filled with spam from them and the chances of actually winning are slim to none. My mom, however, is a huge fan of them; she enters everyone she sees and generally has good luck with them (she won a car several years ago from McDonald's). Just to prove to her that my luck is greater than her's, I entered. Well low and behold, I got a call yesterday from the local news station informing me that I have won a (bright) red sofa and love seat! Astonished, I thanked the gentleman on the phone and started wondering what I'm going to do with it. It was easy to figure out what what would maximize my utility- Sell it.

Its a proven fact in public economics that people prefer receiving cash rather than in-kind goods. Lets say Ryan, a food-stamp recipient, just picked up his monthly food subsidy card. He is given $100 of free food through the program but, due to his preferences, he only eats and therefore wants $80 worth of food. He would prefer to buy the lesser amount of food and spend the rest on some other goods (such as books, gasoline, and/or crack). If he could realize his preferences his utility would be maximized; however, he is forced to spend the extra $20 on food rather that what he really wants, and therefore is unable to buy the amount of food and crack that will make him the happiest (maximize his utility).

Consider this sofa I won to be the equivalence of a food-stamp. It is a payment to me in the form of an in-kind good rather than cash. Much like Ryan, I'd rather receive the cash value of the furniture so I can spend it in the way that maximizes my utility. I currently do not want a couch, so I'd purchase zero couches and instead buy thirty copies of Stephen Colbert's "I am America (And So Can You!)." My utility would be maximized and the news station would be making me as happy as they could. (The law of diminishing marginal utility does not apply to Stephen Colbert)

If maximizing utility is the goal of a public policy or random giveaway, writing a check to the recipient is the way to go not just because it makes the receiver the happiest, but also because it costs the same as the in-kind good if not less! In the food stamp situation, whether the money is given out in the form of a normal check or the form of a check earmarked for food makes no difference, the cost to the government is the same (We'll ignore any kickbacks from special interests). The only difference is one option has the potential to make people happier by giving them the option to buy less food and more of anything else! In my situation with the sofa, the news station could give me the sofa (which they would go through the expense of purchasing and having it shipped to them) or they could write me a check for the value of the sofa and not have to pay oversize shipping fees. So not only would them writing me a check make me happier than me receiving the couch, but it would cost the news station less!

Lets look at a snazzy graph about this:

Look at the first graph.  The red line is my original budget constraint and the green one is the constraint plus the sofa.  By giving me the sofa instead of cash, I am forced to shift to a corner solution on the new budget constraint. I am happier than before, but I'd rather be in the area above my original consumption of Other Goods and not have a bright red couch.

Graph number two shows what would happen if the news station gives me the cash value instead.  I have enough extra income to purchase the couch if I want to, but I'd rather spend it on the thirty-three copies of Colbert's book; therefore, I consume zero couches and thirty-three books.  I shift from Indifference Curve 1 (IC1) to IC2 and maximize my utility.

By them giving me the money, I'd be happier and therefore more likely to tell people to watch that particular news station, which is their goal in the first place. Now I'm off to enter more contests. Wish me luck.

Economics Rap

Need a break from studying for all those finals? Take a break and enjoy this video. Its kinda like studying so you wont feel bad about being on youtube.

Procrastinate and learn economics by clicking here

Tip of the hat to Econstories, the people who made this rap.

-Brandon

Price Gouging?

Does such a thing exist?

I do not think so, but then again I am an econ major. If you think it does happen, read this article on a recent situation in Boston. The author does a better job than I can at defending my point (mostly because I have a final tomorrow and I need to study).

(HT Dr. Mankiw, there are some other good posts on his blog)