Not a Slippery Slope

The California Supreme Court Case overturning the ban on same sex marriage has led some observers to argue that the repeal of the ban on same-sex marriage is the start of a slippery slope to polygamy. Recent events in the West Texas town of El Dorado uncovered a polygamous compound of the FLDS (Fundamentalist Church of Jesus Christ of Latter Day Saints). While the compound is real, polygyny is also rare in industrialized economies. A recent article in the American Economic Review by Eric Gould, Omer Moav, and Avid Simhon (vol. 98, no. 1, pp.333-357) explains why. The authors build a model that explains the transition from polygyny to monogamy. Stripped to its bare essentials, the authors repeat the biological and anthropological argument that polygyny tends to arise in economies where males have unequal endowments of wealth or earnings. Male inequality allows the richest males to attract multiple females who produce large quantities of children.

How does the transition to monogamy occur? The authors first make the case that the source of male income is itself a determinant of polygyny. When male income and wealth are derived from non-labor sources such as land and natural resources or via corruption as they frequently are in less developed economies, rich males have a comparative advantage in producing large quantities of children. As industrialization proceeds, the return to land and natural resources declines and the returns to human capital rise. A key characteristic of the development process is that women are allowed to become more productive. As female inequality in human capital increases, males and females with high levels of human capital begin to enjoy a comparative advantage in producing quality (educated) children. In addition, as female inequality in human capital increases, women gain the upper hand in determining the terms of the marriage contract and are able to extract (enforce) a monogamous, rather than polygynous contract, from males.

My interpretation of the author's model is that the slippery slope argument against same-sex marriage is a straw man, unlikely to lead the way to polygamous marriage in the future.

Unintended consequences of the death penalty for child rapists

The Southeast Missourian newspaper reports that Governor Matt Blunt would like to extend the death penalty for child rapists. While child rape is a heinous crime, increasing the penalty might actually cause an increase in murders of children who have been raped. Economist Don Boudreaux argues that once a rapist commits the rape and they are subject to being executed if caught, the rapist has the incentive to get rid of the eyewitness. "Punishing rape less severely than murder ensures that rapists still have something more to lose if they kill their victims."

Econ Majors Rank Highest in Business Salaries

Here is the link.

Food for Thought

This from Holman Jenkins in today's WSJ: "Of the nation's $11 trillion in housing debt, at most about $1 trillion is 'unfunded.' How much more likely is the political class to fail us when confronting $99 trillion in unfunded entitlement liability?"

Words of Wisdom

This from Allan Meltzer in today's WSJ,
"If the government underwrites all the risks, call it socialism. If it underwrites only the failures, call it foolishness."

Behavioral Economics for Business People

Economists argue that opportunity costs are the relevant metric when it comes to making decisions. However, individuals sometime appear to weigh money costs and implicit opportunity costs differently. The result is often characterized as "loss aversion," where the disutility of giving up an object is greater than the utility associated with acquiring it. For instance,
people are often reluctant to sell a stock that has performed poorly until it is back to the price it was originally bought at. A consequence of loss aversion is that these same people become risk averse for gains, but risk-takers for losses.

I was reading V.S. Naipaul's A Bend in the River when I came across this passage that helps fix the idea. The narrator is in the process of buying a business from an owner wishing to sell and receives this advice from the owner of the business.

"You must always know when to pull out. A businessman isn't a mathematician. Remember that. Never become hypnotized by the beauty of numbers. A businessman is someone who buys at ten and is happy to get out at twelve. The other kind of man buys at ten, sees it rise to eighteen and does nothing. He is waiting for it to get to twenty. The beauty of numbers. When it drops to ten again he waits for it to get back to eighteen. When it drops to two he waits for it to get back to ten. Well, it gets back there. But he has wasted a quarter of his life. And all he's got out of his money is a little mathematical excitement."

Savers of the World, Unite!

The Fed is at it again, pumping another $200 billion into the nation's supply of liquidity in an effort to undo the housing mess and credit crunch that it created. It is doubtful this will have much of an impact on the housing market except to delay the inevitable write-offs and losses that are still to come in that sector.
But it is likely that the Fed is sowing the seeds of further inflation. Pumping liquidity into the system to fix what is primarily a sector problem (excess supply and weak demand in the housing sector) never has made sense, and still doesn't. The Fed tried that in the 1970s when oil first zoomed in price and all we got was stagflation. It is beginning to look as if we may have a repeat of that era. Is it any wonder that the price of oil has gotten so high today (over $110) as the dollar has slumped to record lows?
There is no doubt that the Fed's current policies are anathema to anyone in our economy with savings. The combination of low interest rates (banks seem to be playing a game of how low can you go with the interest rates that they pay) and accelerating price increases means negative returns for anyone with money in the bank. In addition, the faltering stock market eats away at people's retirement accounts, many of whom are Baby Boomers who might like to retire soon. Where's the incentive to save in such an environment?
It might be argued that savers need to tolerate lower returns for a while for the greater good: improving the economy's performance. I could accept that argument if the Fed were actually trying to do that; but its current mix of policies seem unlikely to improve anything.