Yes, if you're reading this you ARE rich or will be during your life

Now before you shake your heads and dash of e-mails accusing me of being presumptuous...

The richest 2% in the world own half the world wealth according to a comprehensive study by the United Nations University. The bottom half of the world's adult population accounted for only 1% of the global wealth.

To be among the richest 10% of adults in the world required $61,000 in assets, and more than $500,000 was needed to belong to the richest 1%, a group which — with 37 million members worldwide — is far from an exclusive club.

...The concentration of wealth within countries varies significantly but is generally high. The share of the top 10% ranges from around 40% in China to 70% in the United States, and higher still in other countries.

As Greg Mankiw put it "So, from a global perspective, if you have net worth of more than $61,000, you are rich."

If you're interested in seeing how you stack up on income, play with the Global Rich List calculator. The results should astound you and show you how fortunate you are. You are in the top 1% for the planet if you earn more than $36,000 per year.

I find the inequality quite startling and what the world needs are more individuals like Warren Buffet, Bill Gates, and George Soros who use their resources to help those who haven't been fortunate enough to have access to reserouces that are taken for granted in the Western industrialised world.

Hidden fees and bad math

Greg Mankiw links to:

1) A guest lecturer in his economics class whose recent column in the NYT explains why companies have "hidden" fees.

Their argument assumes the existence of two kinds of consumers — sophisticates and “myopes.” Sophisticates play the hidden-fee game well. They seek out low advertised rates and whenever possible avoid or find substitutes for the hidden fees, using cellphones at hotels, steering clear of the minibar and setting their printers to draft mode. Myopes, by contrast, obliviously sip $5 Cokes.

2) According to Verizon $100 = 100 cents. I laud the patience of the caller (a math teacher), because I would have been have hung up long ago. The call also provides anecdocal evidence of the state of math education in the US.

Milton Friedman

While I sometimes disagreed with Nobel Laureate Milton Friedman's positions, I greatly admired and respected him for his prodigious intellect, his superlative debating skills, and his ability to revisit the data and acknowledge that alternative hypothesis could also exist.

My favorite Milton Friedman quote was "to spend is to tax." This is very important in an era where increases in spending (defense, entitlement, bridge to nowhere etc) are made by those who decry and vilify those who even suggest "raising taxes."

Brad Delong starts his obituary to Milton Friedman with:

"Lord, enlighten thou our enemies," prayed nineteenth-century British economist and moral philosopher John Stuart Mill in his Essay on Coleridge. "Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength."

For every left-of-center American economist in the second half of the twentieth century, Milton Friedman (1912-2006) was the incarnate answer to John Stuart Mill's prayer. His wits were smart, his perceptions acute, his arguments strong, his reasoning powers clear, coherent, and terrifyingly quick. You tangled with him at your peril. And you left not necessarily convinced, but well aware of the weak points in your own argument.

...As George Shultz likes to say: "Everybody loves to argue with Milton, particularly when he isn't there."

...His world-view began with a bedrock faith in people, in their ability to make judgments for themselves, and thus an imperative to maximize individual freedom. On top of that was layered a deep faith and conviction that free markets were almost always the best and most magical way of coordinating every conceivable task. On top of that was layered a powerful conviction that a look at the empirical facts--a marking-to-market of your beliefs to reality--would generate the right conclusions. And on top of that was layered a fear and suspicion of government as an easily-captured tool for the enrichment of cynical and selfish interests that sought to grab whatever they could. Suffusing all was a faith in the power of argument and the utility of reason.

...This did not mean that government had no role to play. Enforcement of property rights, adjudication of contract disputes--the standard powerful rule-of-law underpinnings of the market--plus a host of other government interventions when empirical circumstances made them appropriate: Mayor Ken Livingstone's congestion tax on cars in central London is Milton Friedman's. Friedman's negative income tax is one of the parents of what is now America's largest anti-poverty program: the Earned Income Tax Credit. And, most important, government had a very powerful and necessary role to play in keeping the monetary system working smoothly through proper control of the money stock. If there was always sufficient liquidity in the economy--enough but not too much--then you could trust the market system to do its job. If not, you got the Great Depression, or hyperinflation.

...Milton Friedman's thought is, I believe, best seen as the fusion of two strongly American currents: libertarianism and pragmatism. Friedman was a pragmatic libertarian. He believed that--as an empirical matter--giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results. It was not that he thought this was natural law--that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets did fail there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; that the market system would create now opportunities for trade that would route around market failures; and that government failure was pervasive--that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.

...For right-of-center American libertarian economists, Milton Friedman was a powerful leader. For left-of-center American liberal economists, Milton Friedman was an enlightened adversary. We are all the stronger for his work. We will miss him.

Greg Mankiw explains why he is both a Friedmanite and Keynesian.

In my view, unless you have learned a lot of economics from both of these great thinkers, you haven't learned enough.

I'm always surprised by people who claim that Friedman and Keynes were polar opposites. In fact, they were both of the same mould!

Links

1) Ever wondered why children cover their faces and think that they are invisible? Well, here's the answer.

2) Why people don't get economics.

I'm back!

Finishing up applications, interviewing at schools, work, making up for missed taekwondo classes and playing with the pussycat has resulted in a neglected blog. But that's OK since nobody reads this blog!

Stuff I've been meaning to blog about:

1) Tyler on "Why is it so hard to keep the house clean?"

I like reasons 3 & 4.

3. We overrate the liquidity value of inventories. We want many things at hand which are of little or no use, perhaps because of an endowment effect. Most people should throw away anything they have not touched for the last three years.

4. Framing effects mean that we can get used to many kinds of messes. The real problems come from the people who keep their homes clean. Tax them and their cleanliness, for the same reasons that Bob Frank wishes to tax status goods.

2) MR again on "Auction strategy and dating"

In terms of dating, if you run an English auction you go out with many people, if not simultaneously then relatively closely bunched in time, and you stick with the one who offers the most. If you run a Dutch auction you signal clearly your standards (lowering the standards over time if need be), and stick with the first person who bites.

3) It's always suprised me that doctors have succesfully resisted computer-based diagnostic systems in favor of, umm, human memory. MR has the story (again).

4) Is the US the best place in the world to be a woman?
I say yes because of the freedom to afforded to women, but no because of the absence of paid maternity leave and the prevalence of little girls being raised to unrealistic media images of women.

5) How to game "Who wants to be a millionaire" from the folks at MR.

6) Freakonomics on "Why men check cell phones." For the record, I check mine because I use it in lieau of a wrist-watch.

7) MR postulates that the reason people live in cities is because there's more sex available. I prefer cities because there are more restaurants, cultural activities, and plain ol' "stuff to do" than in small towns. However, I really dislike the smug, couldn't care less attitude that is all-too common in cities.

8) Congratulations to Muhammad Yunus for winning the Nobel peace prize.

9) Tyler's "Christmas Gifts" If there's one book that you read/gift/buy this year please, please make it "Stumbling upon Happiness" by Harvard professor Daniel Gilbert.

10) And don't forget to use only fee-based insurance agents/financial planners.

How do I know that I can trust you?

“You don’t. But trust is overrated. Numerous studies have shown that most people are not good at judging who is trustworthy and who isn’t. They think they are, but they’re not. How many times have you seen a story about someone who got duped by a supposedly trustworthy person?”

The Ten Principles of Economics by Greg Mankiw

Simplistic, but you get the idea.

Economist Tim Harford on why your colleagues are stupid and why you can't buy a decent used car.

First the cars...

His [Nobel laureate Akerlof's] basic insight was simple: If somebody who has plenty of experience driving a particular car is keen to sell it to you, why should you be so keen to buy it?

A person with a good car would hold onto it because he couldn't prove it was good and so wouldn't expect an attractive offer for it. And if the good cars aren't put up for sale, the lemons will be what is left. This is a problem not just for buyers, but for sellers, too, who wish they could be trusted.

Your co-workers...

Then there's the market for jobs. How many of your colleagues are lemons? If you're competent but can't prove it to your boss, you may prefer to be a freelancer. If other competent workers think that way, it may explain why you think your colleagues are idiots and they think the same about you.

These problems can be solved, but at a cost.

And an explanation of the signalling value of higher education (Yes, MBAs included).

Employees spend years acquiring qualifications with little value other than proving that they're smart and work hard.

And used-car buyers will look for trusted sellers, even if that raises the cost of doing business. I bought my Volvo from my brother-in-law because I thought that would lower the risk of being sold a lemon.

And that ladies and gentleman is an answer to the "Why MBA, Why now" question that you should NEVER share with the Admission Committee.

Economics is extremely useful as a form of employment for economists." - J. K. Galbraith

JKG was one of the most eloquent economists of all times. He did not hesitate to call a spade a spade and made some truly prescient observations and he was years ahead of his time.

From the NYT Obit:

He argued that America had become so obsessed with overproducing consumer goods that it had increased the perils of both inflation and recession by creating an artificial demand for frivolous or useless products, by encouraging overextension of consumer credit and by emphasizing the private sector at the expense of the public sector.

Incidentally, he was also; ambassador to India; served as an informal advisor to the newly-formed Indian government; got on splendidly with Nehru (no surprises here); and was an avid collector of Indian Art.

More JKG Quotes:
In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.

The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.

One of my greatest pleasures in my writing has come from the thought that perhaps my work might annoy someone of comfortably pretentious position. Then comes the realization that such people rarely read.

All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership.

Economist Speak -- Silly plus stupid = inefficient!

...it would be silly plus stupid (i.e., "inefficient" to an economist). But, who cares in an election year...