Saturday, October 23, 2010

Is the NCAA Welfare Enhancing? (Addendum)

I've found it harder to not watch college football than I hoped it would be. I admit I watched the second half of the UK-SC game last week and was quite happy with the outcome. But while I was sitting there, I did some research and stumbled across a working paper from Vanderbilt's economics department:
"What Does Intercollegiate Athletics Do To or For Colleges and Universities?" by Malcolm Geltz and John Siegfried.

They more scientifically ask the questions I pose in one of my posts on this subject. They look at various research done investigating the usual "benefits" listed by universities like boosting marketing, enrollment, and donations to the overall university. The authors find the anecdotal stories lack supporting evidence. Their concluding paragraphs (emphasis mine):

What has received virtually no attention is the opportunity cost accompanying any of these possible changes. If athletic success does boost donations and attract more and
better credentialed applicants to the successful institutions, from where do the donations and
students come, and is the reallocation of these resources efficient and equitable?

It is impossible to decide if the indirect effects of college athletics are desirable or undesirable
by looking at just one side of a reallocation of resources. If a university wants to attract
more or different students or to increase donations that support general academic purposes, might the funds currently spent subsidizing intercollegiate athletics be more productive in addressing these goals directly by bolstering the budgets of university development and admissions offices? Up to this point, the net social welfare and equity implications of any indirect effects of college sports on the institutions that host big-time intercollegiate teams really remain unknown. It is possible that these effects could be sufficiently large and undesirable to outweigh the consumers surplus created by the direct entertainment value of intercollegiate athletic competition.

Wednesday, October 13, 2010

On Monetary Policy

Today I finally got around to reading Lawrence H. White's paper from a few years back entitled "Did Hayek and Robbins deepen the Great Depression?" in which White points out that:

1. The Hayek-Robbins Austrian business cycle model was not used by nor was it influential on the U.S. Treasury or the Federal Reserve of the 1920s and early 1930s.

2. The Hayek-Robbins model calls for monetary policy that stabilizes nominal income (PxY).

3. Both Hayek and Robbins, contrary to their model, called for a deflationist liquidation during the Great Depression which they both later regretted and recanted. Hayek later stated that there is no useful role for deflation in such setting.

(HT: David Beckworth)

I got there because of this week's buzz about the minutes from the latest FOMC meeting indicating that the FOMC had a discussion about both price level and NGDP (PxY) targeting. I have been "converted" to this idea by Scott Sumner and a few other economist bloggers whose voices have grown louder over the course of the last year in the face of falling inflation expectations and a prolonged economic recovery.

I find it interesting that Hayek's idea above, and his agreement with Milton Friedman in regards to the Fed's role in the Great Depression, is rejected by many Austrians, who I would call "hypercalvinist Austrians."

It's worth noting, however, that both New Keynesian-type and Austrian economists believe the Fed "leaned with the wind" both in the 1920s and the 2000s. (*update* okay, maybe I'm wrong about this). During a time of increasing real output/income (increasing productivity) the Fed responded by pushing down interest rates. David Beckworth has been one of the biggest critics of the Fed about the 2002-2006 period, as is John Taylor (ie: the Fed inflated the housing bubble). In the 1920s it was because the Fed was following a "real bills" doctrine that White describes in his paper, while in the 2000's we were too worried about becoming Japanese. The Fed saw disinflation and panicked.

Meanwhile, the difference between New Keynesians and New Monetarists has apparently narrowed to nothing. Krugman calls himself a New Keynesian (which some take issue with) and he calls guys like Sumner "quasi-monetarists," which they take no issue with--and both camps are on the same page in regards to the Fed. New Keynesian stalwarts like Greg Mankiw long ago called on the Fed to break the "liquidity trap" using unconventional monetary policy--with most quoting Milton Friedman along the way. And these folks have firmed up my beliefs in the importance of PxY or aggregate demand.

The only camps left out in the cold are those who believe that:
1. There is no such thing as aggregate demand.
2. Aggregate demand must never be mentioned-- we must only talk about the supply side.

Such people have spent the last couple years warning of hyperinflation due any minute, claiming most of our unemployment is either voluntary or structural, and generally wanting everyone to forget that they told us the Dow would hit 36,000 soon or that housing prices wouldn't necessarily fall very far, or that the Bush tax cuts would pay for themselves.

Tuesday, October 05, 2010

On Minimum Wage

I was surprised to see The Atlantic Wire pick up a "controversy" brewing about minimum wage. Some Republican candidates--Tea Party brand-- have made some comments about abolishing or reducing the minimum wage. Democrats are apparently picking up on it as "political death wishes."

We've been discussing price ceilings in the current unit of Principles of Microeconomics. Minimum wage increased in the middle of our recession and the result, as illustrated here, was an increase in teenage unemployment above what it would likely have been even due to the recession.

Here's a simple illustration from our campus:
We only have so much room in our operating budget to spend on student workers. Most of the jobs aren't very productive or difficult--many are work/study who spend most of their time studying or playing on Facebook while getting on paid to be on call to do odd jobs for their department. We have a lot of students willing to be paid less than $7.25/hour for doing this but the government says they don't have that freedom. If we could pay them less than $7.25, we could afford to hire many more than we do. So, we have a lot more applicants than jobs, or structural unemployment.

Some "progressives" find the minimum wage abhorrently low and would criticize SBU for paying it. Indeed, we could increase the wage paid to our work/study, but that means hiring even fewer students (increasing unemployment). Nancy Pelosi has unpaid workers (interns) in her office and no one raises a stink about that.

So, I hope some of these Republican candidates make this a teachable moment. It's not that hard.

NASCAR weekend

A friend of ours gave us tickets to the Nationwide series race in Kansas City on Saturday. We jumped at the opportunity to go, and my parents came in town to take care of Elias-- which went extremely well. My wife chronicled most of the event on her blog.

NASCAR is the guilt-free sport.

There are no worries about wins being stripped away because someone lied about their high school transcript, or lied about taking the SAT. No coaches who get penalized for sending too many text messages or funneling cash to prospective recruits. It's not odd to see a 20 year old professional, and no one cares that he skipped college-- it's seen as a career choice like any other. You also don't have players celebrating after first downs as if they'd won the Super Bowl, no scantily clad women doing dance routines, and very few competitors have criminal histories.

NASCAR also gives you access to the competitors in a way other sports don't, you can be right there with them in the days before the race getting autographs and striking up conversations.

We spent $15 for FanWalk passes, which gave us access to the "infield" where the garages and pit areas are. We got to see Sprint Cup practice on Saturday. Here is Chad Knaus, the greatest crew chief in the world, who we were about 30 feet away from.
The only other racing event I have to compare this weekend to is the racing at the Lucas Oil speedway (dirt track) in Wheatland, MO-- which I blogged about here. I was amazed at the similarities. Wheatland actually has the better facility-- they have free wifi and the jumbotron is larger relative to the track, and they have stores and restaurants you can go into to get away from the noise and crowd.

General observations:
Sea of humanity: Cars, RVs, and people as far as the eye can see. I've been to plenty of football games but I've never seen anything like this in size and spirit. It's an incredible feeling to be a part of it.

Couples: There are an army of women who love NASCAR, and most of the guys you see at the track are there with either a girlfriend or spouse. Here's me and my bride as a case in point.
Alcohol: I've never seen so much in one place. It's not just beer ($7/can) but rum, bloody maries, and more sold all over the place. You're allowed to take a cooler into the track, so everyone does.
I felt out of place not having a beer in my hand. And I have never felt more nervous driving home.

Noise: At most sporting events, the crowd makes the noise. At NASCAR the crowd is silent because you can't hear anything over the noise.

Driving in circles: The race is actually pretty boring in person, and hard to follow. If you have a scanner or a headset to catch what's going on, you miss out on all the little nuances and don't know what teams are thinking. The Sprint-sponsored jumbotrons were not very jumbo and unhelpful. I definitely missed the TV commentary and multiple camera angles. Watching the computer animated cars online (using GPS) through NASCAR.com's digital track pass is probably still the most fun way to watch a race, in my opinion.

In all, we really enjoyed the experience. Not sure I would shell out the big bucks it takes to attend again. NASCAR sells all of its tickets as a package-- you have to buy Nationwide and Sprint Cup races together. So, you end up shelling out a large amount for the weekend.

We're thankful to our friends who gave us their Saturday tickets.