Do What you Want to do and Excel at it

There's an old (bad) joke bout statistics (especially averages): They're like bikinis - what they reveal is interesting, but what they conceal is essential.

Statistics reveal that Engineering majors earn more (on average) than Economics majors, who earn more than Business, and Philosophy majors, respectively. But what these statistics conceal is that the choice of major is not random - not everyone has a knack or interest for engineering. In fact the sorting is pretty one-dimensional. As my undergraduate Money and Banking prof used to say, "theres people who can do calculus and people who can't."

That's not the news. What is, as Free Exchange points out, new research shows that individual differences in ability within each major explains most if not all of the difference. After all, an exceptional student in philosophy can go on to a great career as a lawyer.

Here's the bad news for the artsy-fartsies: the research underlying on which the post is based long-run lifetime earnings. So, if you're a philosophy major, be patient. You'll be surpassing your business major classmates around the time your kids are following in your footsteps as philosohpy majors.

Prohibition, the War on Drugs, Zero-Tolerance Laws, and Abstinence

The world is full of perverse unintended consequences in response to government attempts to eradicate markets, even when there is a well-intended reason for attempting to do so (usually to "save the children"). Fewer children drinking, using, driving under the influence or being sexually promiscuous is clearly a good thing. Does that mean that we should advocate for a monolithic policy of prohibition or should we take a more nuanced approach?

We certainly learned this lesson the hard way during prohibition. The prohibition of alcohol led to more crime, and while some individuals may have done without, significantly more folks simply used and produced alcohol more recklessly than they ever would have before prohibition.

There is also considerable dissent against the stupid war we are waging against drugs. This policy has driven the price of narcotics through the roof, created a monopolistic cartel market structure that has introduced an incentive to engage in violence to capture profits and other rents, and created entrenched bureaucracies in government that distort information and lobby for higher budgetary allocations and/or rights to retain money and property seized in raids. (A nice paper on this is Benson, Ramussen, and Sollars, “Police Bureaucrats, Their Incentives, and the War on Drugs,” Public Choice 83 n. 1, 21-45, 1995.)

Zero-Tolernce and lowering absolute thresholds in DUI laws also doesn't work. Under 0.10% BAC laws you've got a window of about 3 drinks before you're over. Basically, it has a divergent effect on use: a few more drinkers will abstain knowing that if they drive at about two drinks they're over the limit, but it raises the BAC levels of other social drinkers who drive after a party because being over the limit at 3 drinks is not much different from being over the limit t 5 drinks once you're caught. My friend Darren Grant has a neat forthcoming paper in Economic Inquiry on this.

If that weren't enough, check out this article from the Economist. Basically, Britain is trying to get kids to drink less by forbidding it, and forcing pubs to show more diligence in enforcing the 18 or older law on drinking. As a result, more teens are abstaining, but their volume of use is on the rise! As it turns out, for kids who were sidling up to the bar at 17, 16, 15 years of age, the old drunks and bartenders actually did a pretty good job of keeping an eye out and keeping them from obliterating themselves. Neat!

Growth, Emerging Economies, and the Leverage in the WTO

From the PBS NewsHour (click the picture to link to video).

Having your Cake and Eating it Too

I'll just post the link. Make your own judgements – I'd like to simply think about it in terms of opportunity costs.

Lou Dobbs, Hoax Victim

He's actually sunk to reporting urban legend as if it is fact. Thanks, Lou, needed more fodder! Check out these mythbuster articles by actual journalists: Seattle Times; Interntional Herald Tribune; The Economist. Wheeeeeeeee! (See Below):

"NO BOUNDARIES" to Sweet Lou's Gullibilitiy

Making the Grade

As it turns out, getting good grades in college is not a tricky empirical question. There is a simple formula:

1. Be smart;
   
2. Work hard.
   

Studies by James Michaels and Terance Miethe (1989, Social Forces) and William Rau and Ann Durand (2000, Sociology of Education) show a convincing relationship between time spent studying and working on classwork and grades. They also show that things like class rank/high school GPA/SAT scores/other preexisting characteristics have a strong effect.

One thing I found interesting is this: verbal SAT scores (satv) may have a stronger impact than math SAT (satm). Check it out (data analyzed using STATA):

Variable Mean Std. Dev. Min Max
gpas 2.797741 .368208 1.787 3.555
satm 584.1852 42.62034 484 730
satv 573.4815 38.59501 507 668
satc 1157.685 67.05358 1008 1330
------------------------------------------------------------------------------
. reg gpas class satm ecbu [aw=n], beta
-------------+------------------------------ F( 3, 50) = 12.71
-------------+------------------------------ Adj R-squared = 0.3986
------------------------------------------------------------------------------
gpas Coef. Std. Err. t P>t Beta
------+----------------------------------------------------------------
class -.125275 .0250027 -5.01 0.000 -.5486035
satm .001759 .0010401 1.69 0.097 .1894219
ecbu -.1364445 .0820951 -1.66 0.103 -.1812849
_cons 253.4883 50.38878 5.03 0.000
------------------------------------------------------------------------------

. reg gpas class satv ecbu [aw=n], beta
-------------+------------------------------ F( 3, 50) = 16.97
-------------+------------------------------ Adj R-squared = 0.4749
------------------------------------------------------------------------------
gpas Coef. Std. Err. t P>t Beta
------+----------------------------------------------------------------
class -.1028173 .0248065 -4.14 0.000 -.4502567
satv .0033683 .0010379 3.25 0.002 .3962096
ecbu -.0308692 .085759 -0.36 0.720 -.041014
_cons 207.4469 50.09281 4.14 0.000
------------------------------------------------------------------------------
. reg gpas class satm satv ecbu [aw=n], beta
-------------+------------------------------ F( 4, 49) = 12.98
-------------+------------------------------ Adj R-squared = 0.4748
------------------------------------------------------------------------------
gpas Coef. Std. Err. t P>t Beta
------+----------------------------------------------------------------
class -.0999089 .0249782 -4.00 0.000 -.4375205
satm .0010047 .0010068 1.00 0.323 .1081956
satv .0030886 .0010751 2.87 0.006 .3632994
ecbu -.0250653 .0859596 -0.29 0.772 -.0333027
_cons 201.1831 50.48664 3.98 0.000

Based on this, a one-standard-deviation increase in verbal SAT (about 38.6 points) increased these students' semester GPAs by about 0.13 points; math SAT was insignificant. Your choice of major does not seem to have a substantial impact, except perhaps on your salary when you're finished.

Finite Simple Group (of Order Two)

For no particular reason, something I got about a couple years ago that needs some new life.

Farm Programs and the Poor in LDCs

Last week there was a good article on farm programs and their focus as part of the Doha Round. I think it's an interesting question – The farm programs are bad, but mainly from the standpoint (in LDCs) that they are second-best solutions to their hunger problems. Export controls, etc. do lower the domestic price and may lead to more affordable staples for the world's poorest, BUT they are by far the second-best way to go about helping those who are hungry and in poverty. In addition to the usual reduction in output and economic distortions, these programs sometimes lead to producers in these countries hoarding of crops to try to hold out against the government and pressure for assistance, as has been the case in Thailand. Therefore the trade negotiations tread a fine line: Removing the trade restrictions is good on average, but doing so without replacing the trade controls with more sensible and direct ways of helping the hungry and poor could hijack what small measure of political support for trade liberalization we may have built over the last 20 years.