From 18th March, 2006:
When I first came to London to seek my fortune, was taken out to lunch by a family friend with about three decades more experience than I. She cheerfully told me that I wasn’t worth the salary that my brand new job was paying me. She was right, as it happens, since I was an extraordinarily bad management consultant, but she was betting against the odds. The typical young person is worth more than he or she is paid. Young people who feel that the odds are stacked against them turn out to be right.
Older workers, on the other hand, tend to be overpaid relative to what they produce. This is not because they are less productive than the young – although many important skills do start to decline at the age of thirty, or even earlier – but because they are paid so much more. Decades of economic studies have produced the conclusion that average wages increase with age almost until retirement, yet average productivity seems to be flat or perhaps even declining after the age of fifty. (The studies are not unanimous, because productivity is very hard to measure and, of course, the averages hide huge variations from job to job and person to person). Perhaps my plain-speaking mentor was paid five times as much as I was, but if she was only three times as productive then I was the bargain basement employee.
Continued at timharford.com.
July 27th, 2010 12:40am in Undercover Economist | Permalink |
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On New Year’s Eve 2007, the Financial Times, in its customary look at the year ahead, declared that “the US will skate along the brink of recession in early 2008, but should avoid tipping over the brink”. In retrospect, we can ruefully enjoy that forecast not because it proved to be wrong – although it was – but because it was wrong even as it was published. The recession actually began in December 2007, just as the FT was announcing that it wouldn’t begin at all. To modify the old quip, “prediction is very difficult, even when it’s not about the future”.
The remainder of the article can be read here. Please post comments below.
July 24th, 2010 12:37am in Undercover Economist | Permalink |
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You may be surprised to receive a question from a 13-year-old reader of the FT, but I always steal the weekend paper from my father, who is an economics professor.
Everyone in my family is well educated, which is why simple dinner chit-chat usually segues into an exuberant discussion chock full of sarcasm, wit and the occasional clash of opinions. Being the youngest gives me some leeway if I happen to be misinformed. But it also makes it hard to express my opinion on the topics being discussed.
Is there any way I could let myself be heard without having to throw a teenage tantrum?
Abisha Dowla
The answer to this question can be read here. Please post comments below.
July 24th, 2010 12:37am in Dear Economist | Permalink |
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FT Comment, 21 July 2010
It says a lot about the talents of John Maynard Keynes – and just as much about the shortcomings of modern macroeconomics – that when the financial crisis struck, policymakers instinctively reached not for their fancy models, but for the Keynesian idea of fiscal stimulus. These pages have been filled with eminent thinkers arguing over whether it is time to bring the stimulus to an end.
Perhaps we should turn the question around: if stimulus were to be the solution, what would be the problem? The problem would be that too many of us wanted to save money or pay off debts; that is, we wanted others to pay for our services but weren’t so keen on paying for theirs right now. Simple arithmetic suggests this would leave slack in the economy. In addition, the problem would be that businesses, pessimistic about prospects for recovery, didn’t harness all the spare savings floating around and plough them into new investment projects. The slack would stay slack, possibly for a long time. If that was the problem then government stimulus would be the solution.
And the above paragraph doesn’t seem to be a bad description of the US or UK economy, which suggests the case for stimulus is strong. True, the patience of the bond markets is surely not boundless (and say what you like about kowtowing to the markets, if we’d like them to lend us money we have good reason to care whether they are willing to lend it). And there already is an awful lot of stimulus spending going on right now, so it’s not absurd to suggest we could get by with less as the economy bounces back. I realise that I am sitting on the fence here, but it’s part of my new maxim, which is never to stand in the middle of a fight between Paul Krugman and Niall Ferguson.
Continued on ft.com
July 21st, 2010 9:34am in Everyday economics | Permalink |
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In a sprawling convention centre in Essen, western Germany, the busiest day in the German board games calendar – Saturday at “Spiel” – is about to begin. Hall after hall of stands are piled high with board game boxes, most eschewing the garish graphics of the toy shop for evocative paintings of lands far off and times long ago.
A few minutes before the official start time of 10am, the doors are thrown open. There’s a rumble and then a roar as thousands of gamers surge into the hall, breaking and swirling around the stands, sweeping into the farthest corners of the halls, seeking out rare second-hand products or the hottest of the 500 new games being launched, or simply a good place to sit and play. The biggest stands resemble pavement cafés whose patrons grab games instead of coffee: they are filled with tables, each just big enough to seat four players and a board. Before long, the spaces in between the tables are colonised, too, with gamers sitting cross-legged around their boards.
Beyond the sheer number of enthusiasts, the striking thing is that they look, well, normal. The convention centre boasts nearly as many mothers with prams as heavy-metal-T-shirted, body-pierced teens. In one of the farthest halls, Dungeons and Dragons merchandise is on sale, and I counted more than one person wearing a sword and a cloak. But for the most part, the convention centre’s population wouldn’t look out of place on any German high street.
Continued at ft.com
July 17th, 2010 8:40pm in Everyday economics | Permalink |
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It is a truth grudgingly acknowledged that mixed ethnic communities are not as mixed as they appear. In the school playground I find myself talking to the other white middle-class mums and dads, in spite of the fact that in a Hackney school there are plenty of parents who are neither. We know the white couple at number four but have had little contact with the African family at number two. It’s not something I am proud of, but there it is.
The remainder of the article can be read here. Please post comments below.
July 17th, 2010 1:14am in Undercover Economist | Permalink |
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My daily journey requires a change of train at Mumbai station, which is extremely crowded. One day I was in a hurry and jumped into first class without a ticket.
As luck would have it, the inspector arrived. I admitted I did not have a ticket and paid Rs258 (£3.60) as a fine – hefty compared with an Rs8 one-way ticket.
I have always been a risk taker – I’m an economics student – and now I do not fear the inspector or the fine. I decided I would travel ticket-less for a further 15 days, by which time I would have received all the journeys which I could have bought for Rs258. Should I continue to travel in this way? Do fines work as a deterrent?
Ela Bodas
The answer to this question can be read here. Please post comments below.
July 17th, 2010 1:11am in Dear Economist | Permalink |
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From The Tipping Point to Nudge, the rise of pop-social science has been a noticeable feature of the past decade in publishing. Not everyone is impressed. I recently interviewed a professor of education who is an expert in policy evaluation. She lamented the fact that politicians tend to get their facts from popular social science books containing innacuracies. A couple of hours later, I interviewed a politician who was fizzing with excitement about a popular social science book. If only I’d been able to introduce them, the explosion would have been something to see.
The remainder of the article can be read here. Please post comments below.
July 10th, 2010 1:29am in Undercover Economist | Permalink |
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For the past year I’ve been looking for a new job in banking. No matter what I did or to whom I talked, there were no opportunities and I received nothing but rejections.
One month ago, it began to turn. As of this week, I have five job offers – as well as one internal opportunity. How could this happen? Yes, the economic situation has improved, but can that explain the leap from zero to six offers? If so, aren’t employers completely irrational in their hiring policies? As my supply is completely inelastic, their increased demand means that they now have to pay a significant mark-up compared with six months ago. Are employers just bad at planning or is there another reason why my dry spell has come to such a sudden and inflationary end?
In Demand
The answer to this question can be read here. Please post comments below.
July 10th, 2010 1:25am in Dear Economist | Permalink |
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Tom Ellis, author of the puzzle that is even harder than the hardest logic puzzle ever, writes with another problem:
Alice and Bob are at a party and Alice says to Bob “Mrs Smith over there has two children. At least one is a boy.” What is the probability that both her children are boys?
The first trick is that the naive puzzler will answer “one half”, whereas his mathematical challenger will explain that the correct answer is one third.
There are three ways that Mrs Smith can have at least one boy: her elder a boy and her younger a boy; her elder a boy and her younger a girl; her elder a girl and her younger a boy. These are all equally likely, so the probability that both are boys is one third.
The naive puzzler will smile at the correct answer, pleased that he now understands the application of conditional probability theory.
But there’s a second trick. The second trick is that the answer is not “one third”. The answer is “it depends”; what it depends upon is how Alice reached her decision to tell Bob about Mrs Smith’s children.
Suppose that Alice has met exactly one of Mrs Smith’s children, a boy. Then she can quite truthfully say “At least one is a boy.” But now there are only two possibilities, equally likely: the child Alice hasn’t met is a boy; and the child Alice hasn’t met is a girl. Thus the probability that both are boys is one half.
It’s actually *harder* to construct a realistic motivation for Alice in which the probability of two boys is one third. Perhaps whilst checking her e-mail on Mrs Smith’s computer she saw an icon for the GI Joe website.
Political correctness aside, she might take that as a cast iron indicator that one of the following three possibilities holds: Mrs Smith’s eldest is a boy; her youngest is a boy; both her children are boys. In this case the chance that both are boys *is* one third.
Mathematics is an indispensable means of understanding the world, but if someone says to you “At least one of my children is a boy” then the reason that they said it and the precise meaning of what they said are far more important than the probabilistic content. The mathmatical form of reasoning should not trump the psychological and the linguistic.
Deep waters. For a discussion of the even-harder “Tuesday Boy” problem, check this out.
July 8th, 2010 11:45am in Everyday economics | Permalink |
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Tim, also known as the Undercover Economist, writes about the economics of everyday life.
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