What to do with your economics degree?

"The American Association of Wine Economists (AAWE) is a non-profit, educational organization dedicated to encouraging and communicating economic research and analyses and exchanging ideas in wine economics."

Charlie Munger on Economists

From an interview with Warren Buffett's partner Charlie Munger:

How and why do you think economists have gotten this so wrong?

I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.

HT to Paul Kedrosky

Final Grades, but Not Final Thoughts

Grades for the last homework and the final exam have been posted, and I'm very pleased with mine. The final was tough but I scored 57/60. I'm glad (and, I must admit, relieved) that my first class grade as a readmitted student will be an A.

This semester I've done a lot of thinking—but not much blogging—about both economics and going back to school. Over the summer I plan to organize some of those thoughts and write about them here.

Next semester I'll be taking Dr. Gervais' macro class. If you'll be in my class let me know!

(Early) ECO 304K Final Today

Since I'll be out of town tomorrow I've elected to take the early final exam (my first since December 1992!) today from 3p-6p.

I've reviewed my notes from the semester and am working the problems on the exams from the other section of the class. Then I'll "take" the sample final, make one last run through my notes, and then take the real one.

The best news is that I'll have three hours in which to complete the final but it only has roughly twice as many questions as each of the previous exams, so I shouldn't be time-constrained (ceteris paribus ;).

Wish me luck!

(A #2 pencil is required for the machine-graded multiple choice section of the exam. I honestly can't remember the last time I used a pencil, and couldn't find one in my house. My wife bought me these last night. :)

Extracurricular Economics Reading: The Company of Strangers

I just started reading Paul Seabright's The Company of Strangers: A Natural History of Economic Life. Based on the introduction it looks like it's going to be fascinating.

Much Better!

I got my regraded midterm #2 back today and am pleased to report that I was awarded all of the points I disputed, bringing my score up from 24 to a perfect 30. Much better! I'm not sure what the scribble is below my new score though—is that a heart? Hmm.

Today I also went by the Liberal Arts Dean's Office to transfer to the LA college and change majors from from computer science to economics. I felt guilty, like I should have sent a breakup note to the CS department: "Hey CS, thanks for the degree. I'm leaving you for something new and more interesting." But I didn't.

One nice aspect of my new school is the (slightly) lower tuition. For a full course load, natural sciences students (Texas residents) pay $4,421/semester while liberal arts students pay only $4,260. Even only taking three hours I'll save $71. That's not much but it's not nothing either. (The curious can see the whole tuition schedule here.)

Registered for 304L

I just registered for Intro Macro for the Fall semester:

33670 ECO 304L MWF 1:00-2:00P UTC 2.102A INTRODUCTION TO MACROECONOMICS

Based on Juan's recommendation and on the available session meeting times, I decided to take Dr. Gervais' class instead of Dr. Norman's (which, strangely, is TTH 5:00-6:30P).

UT Economics Graduate Program Ranked #25

US News and World Report has just published their annual grad school rankings, and UT's economics program comes in at the middle of the pack, tied for #25 (out of 54) with Johns Hopkins.

Third Exam Done

I'm not sure how I feel about this exam. There wasn't anything I didn't know, but I got wrapped around the axle on one of the long-answer questions and spent more time on it that I had wanted to. I again wound up finishing with seconds to spare and no time to check my work on anything.

I'm going to go through the questions now while my answers are fresh in my mind and see how I think I did. I'm also going to check the exam questions against the condensed study guide I made for myself to judge whether a similar approach would be a good idea for the final.

One more homework assignment and the final to go.

P.J. O'Rourke on Micro vs Macro

This article by Tim "The Undercover Economist" Hartford has a great quote from P.J. O'Rourke:

"Microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things that they are wrong about generally."

The rest of the article is worth reading too.

Loss! Despair! Oblivion! And Yet...

I got my exam back. 24/30. Oof! I took my seat feeling like I had been punched in the gut.

A few minutes to recover, and then I started looking for what I had gotten wrong.

• Section I: 8/8. Good.
• Section II: 11/11. Great.
• Section III: 5/11. WTF?

The hour dragged on as I waited for Dr. Hickenbottom to get to the answers for Section III. I had chosen the latter of the two problems, so there was only a couple of minutes left in the class before he got to mine.

• Part A: Check. 2/2
• Part B: Yep, that's what I got. But no credit! Not even a 0 or a slash to indicate I had gotten it wrong. Hmm.
• Part C: Right again. 1/3. Huh?
• Part D: Correct. 2/2

So here's what I think happened: the grader didn't even see my answer to Part B and overlooked the part of my answer to Part C that I wrote on the back of the page. So I'm 90% sure I scored at least 28/30, with which I'd be satisfied since it was the highest grade reported, and 80% sure I scored 30/30, with which I'd be quite pleased.

Unfortunately we have Friday off and since Dr. Hickenbottom won't be back in his office until Monday I won't be able to turn in a regrade form until then. When I eventually get it back I'll let you know how it went.

Update: I was awarded all of the points I disputed, so I scored 30/30. More here.

Getting Exam #2 Back Today

When I finished the exam I was pretty sure I had gotten everything right, but since then my confidence has eroded daily. Now I'm afraid I totally blew it. The good news is that I'll know one way or the other in about 74 minutes. Wish me luck!

Economic Forecasts with Google Data

From Predicting the Present with Google Trends on the Google Research Blog:

Our work to date is summarized in a paper called Predicting the Present with Google Trends. We find that Google Trends data can help improve forecasts of the current level of activity for a number of different economic time series, including automobile sales, home sales, retail sales, and travel behavior.

In a world of data, Google is king. Note to self: buy more GOOG.

Summer and Fall Course Schedules

The 2009 Summer and Fall course schedules are now online.

I had considered taking a class this summer but I'll be in Colorado most of July, which overlaps both of the short sessions (June 4-July 11 and July 13-July 30). Looks like I'll be back August 26 for macro in the Fall semester.

Google Chief Economist Hal Varian on Economics as Hard Science

One of my basic questions about economics (and a recurring theme on this blog) is whether or not it should be considered a hard science. As it turns out, Hal Varian wrote a (short, accessible) paper addressing this question 20 years ago. He sums up his position in a comment to a post on Mark Thoma's blog:

My thesis is that economics should not be compared to physics but to engineering. Or, alternatively, not to biology but to medicine. That is, economics is inherently a "policy science" where the value of an economic theory should be judged according to its contribution to economic policy.

The whole paper is worth a read, especially knowing that Dr. Varian wound up at Google.

Macroeconomic Theory for a World of Imperfect Knowledge

The field of economics seems to be in crisis, with economists everywhere questioning the fundamentals of their beliefs, specifically whether rigid mathematical models are useful in predicting the outcome of sometimes-irrational behavior.

Roman Frydman of NYU and Michael Goldberg of UNH wrote a book about their approach which they call "imperfect knowledge economics", but it costs $55 and runs 386 pages. Luckily they also wrote a more manageable 69-page paper on the same topic, which is free for download (after registration—ugh) here.

I've added their paper to my summer reading list. If anyone gets through it before then, let me know what you think.

Midterm #2 Down

I was more stressed about this exam than the first so I studied harder for it, which I think paid off. I had time to double-check all of my answers and found a couple of things I would have otherwise gotten wrong. Overall I'm cautiously optimistic that I did pretty well.

Someone overheard the TA's talking about grading this weekend so hopefully it won't take long to get grades back. Three more homework assignments, one more exam, and a final to go.

Michael Lewis Speaking at UT Next Week

Sure, we'll all be holed up studying for next Friday's exam, but if anyone else wants to take a break and listen to the author of Liar's Poker, Moneyball, The Blind Side, he's speaking at the Texas Union Ballroom next Tuesday, March 24, at 6:00pm. The event listing is here.

I'm a fan of Lewis' books and his continued writing about the crash, the bailout, and the backlash, and hope to make it to the event.

Seating is limited to 1,000, so you might want to pick up tickets at the Events & Info Desk (UNB 4.300) in advance.

Learning Out Loud

It's always been hard for me to ask questions in class since doing so makes it clear to everyone that I don't already know the answer. As Abraham Lincoln said, "Better to remain silent and be thought a fool than to speak out and remove all doubt."

But I recognize this as an impediment to my education and am actively trying to overcome it. One of the ways I'm doing that is by posing questions on this blog. Doing so puts my ignorance on display for a (theoretically) global audience, but for me it's a great way to learn.

Update: Case in point: Ryan just posted a terrific answer to my question in the comments, and included a long quote from Hayek on the subject that I would have otherwise totally missed. Discussion FTW.

The Crisis of Credit Visualized

Everyone should understand at least the basics of what happened:



(Thanks to Dan Ariely for the link to this.)

What Happens When the Short Run is the Long Run?

We've recently been talking about short-run versus long-run decisions, the distinction being that in the short run firms operate at a fixed scale and firms can neither enter nor exit the industry, while in the long run these restrictions don't apply. I understand the concept, but I'm having some trouble relating it to my own business.

The textbook examples are pretty straightforward. For example, in the short run a manufacturing firm's production is limited by the capacity of its factories. In the long run it can build more factories. So far, so good. But in my business the analog to "building a new factory" is adding a server, which I can do in less then an hour. I fill out an online form, someone in our data center provisions a new machine, I get an email, run a config script, and we've expanded our capacity. In fact, I consider this to be a relatively inefficient process and look forward to the day when we move to a more elastic infrastructure.

As for entering or leaving the industry, that happens pretty quickly too. Our entire infrastructure is leased month-to-month, so if we really had to we could wind down our business and exit the industry in a month or less. (Of course we would never do that since we have tens of thousands of customers who rely on our service, but technically we could. Competitors have.) And other firms can enter our industry at any time too.

So in our industry, and more broadly in the software-as-a-service (SaaS) world in general, is the short run the same as the long run, and if so what are the implications?

As I write this I realize that maybe I've simply misapplied the idea of "fixed scale" to my own business. Sure, we can add a server in no time, and that sounds like a reasonable analog to a factory for a manufacturer. But to roll out a completely new product takes a relatively long time. It requires analysis, design, implementation, and testing. That process usually takes months. And if a competitor wants to enter our industry they have to go through that same process too. Maybe a better analogy is that our software products, as opposed to our servers, that are our factories. And in that sense it takes quite a while to build a new factory.

OK, that makes sense. For us servers, unlike factories, are variable inputs. Our fixed inputs (which we happen to output for ourselves) are our software products. So the question becomes, "What happens when most of a firm's inputs are variable, and how does that affect competitiveness?" Interesting.

iPhone WiFi on Campus

Maybe this is obvious to everyone else but I had to look around to find it. Before you can access the restricted.utexas.edu 802.1x wireless network on campus from your iPhone, you need to configure a profile. Check the first checkbox and leave the rest blank.

Is Economics Really teh New Hotness?

NPR says economics is the hot new college major. (Click here to listen.)

Of course, students currently taking economics classes must have enrolled in them months ago, long before the front pages of every newspaper and magazine were dominated by "celebrity" economists, which leads me to suspect that the reporter's findings suffer from confirmation bias.

That said, I certainly agree that it's a great time to be studying economics. Then again, maybe it's like the passengers of an airplane in mid-crash studying aerospace engineering.

(Am I equivocating enough to qualify as an economist-in-training?)

Microeconomics and the Stimulus Package

Christina Romer, the Chair of the White House Council of Economic Advisers, recently spoke at the University of Chicago about the American Recovery and Reinvestment Act, of which she was a principal architect. She laid out in simple terms why she believes the act will work, and what that means.

As part of her discussion she supported the plan's breadth with some basic concepts from microeconomics:

The microeconomic reason is the simple one of diminishing returns or diminishing marginal utility. While all spending provides stimulus, it is obviously important to devote the spending to valuable activities. The short-run aggregate demand effects of government outlays are generally similar across different activities, but the effects on social welfare or on long-run productivity can be quite different. Moreover, these benefits—like the macroeconomic benefits—tend to decline as the government does more of a particular type of spending.

This puts diminishing marginal utility and short-run vs. long-run effects into a context that's more meaningful to me than the textbook examples. Is this a great time to be studying economics or what? :-)

The Opportunity Cost of Time in a Job Search

Cross-posted from my personal blog.

On the first day of class Dr. Hickenbottom listed three reasons to study economics, the first of which was "to learn a way of thinking". Well, it seems to be working. When I learned this week that my sister Martha had just been laid off from her tech writer/editor position at Freescale here in Austin, I saw her job search in terms of opportunity cost.

She's already begun her search for a similar position here in town and will undoubtedly find something suitable soon. But there's an opportunity cost for the time she spends searching (and not earning).

It occurred to me that she would come out ahead if she could pay to reduce that amount of time as long as her out-of-pocket cost was less than the opportunity cost of the time saved. (Dr. Hickenbottom, do I get extra credit for this?)

This is also an interesting opportunity to crowdsource a job hunt, something I've never done before.

So I called her up and asked if I could offer a $500 bounty to the person who finds her her next job. She agreed (and will be paying the $500 herself), so that's the offer:

The first person to lead her to the job she winds up taking gets $500.

Specifically, she's looking for a full-time technical writer or editor job in the Austin area. She's held similar roles at companies as diverse as ichat, HP, and Freescale, and is exceptionally smart and very professional.

Please don't bother sending in every listing on Monster.com. You're guaranteed not to be the first person to send any of those in. This is for people who personally know of an open position and can make the connection.

Please email your job leads to martha.wood.jobs@gmail.com. And as always, you can reach me directly at charlie.wood@gmail.com.

This should be interesting.

Cries in the Night

I just checked my email and found several messages sent to all 300 people in my class asking for help with the homework that's due today. Actually it was due 42 minutes ago so it's too late now. Bummer.

But to answer the questions:

• "MRS" stands for "Marginal Rate of Substitution", which was discussed in class on 2/16 and is defined in the text on p. 130.
• Problem #3 is nearly identical to the problem Dr. Hickenbottom worked through in class on Monday. The $1,000 computer is capital, and since her other business has a rate of return of 8%, the forgone return (opportunity cost of capital) for the computer is $80.

Both of these concepts were also covered in the Supplemental Instruction (SI) sessions, so if you're struggling you should seriously consider attending those. The one I go to is in PAR 301 Mondays at 5:00pm.

As an aside, before the first SI session I asked the session leader who typically attends: students in the most need of help or those who will probably get an A anyway. He said the program is targeted at the former but in practice is used by the latter.

Finally Eligible to Wear a Class Ring!

Despite the name of this blog I'm not a freshman but a "degree-holding senior". So I get emails like this one I just found in my inbox:

Congratulations!

You have reached an elite status at The University of Texas - you have completed enough credit hours and are now eligible to wear the Official UT Ring!

Be part of the tradition. The University of Texas Official Class Ring stands as a time-honored tradition that links students with their experiences on campus. The ring designates the wearer as a proud Texas Ex and serves as a constant reminder of time spent as a Longhorn.

The Official UT Ring will be sold next week (Monday, March 2 - Friday, March 6 from 10am-4pm) at the Etter-Harbin Alumni Center at 2110 San Jacinto Boulevard (located across from Memorial stadium).

Rings will be personally presented during the Official Ring Ceremonies at the Alumni Center in mid-April. Eligible students who order their rings by March 6 will receive a personal invitation to the ring ceremonies.

For more information about the Class Ring, click here.

I suppose I'll get emails like this every semester I'm enrolled as an undergraduate. Maybe I should have called this blog The Neverending Senior Year.

The Behavior of Profit-Maximizing Firms

I decided to study economics because after 20 years or so in business I have a pretty good understanding of how business works, but not why it works, at least not in any formal sense. For me, this isn't just a casual interest. I run a business, and realize that many of the decisions we make could be better-informed by a formal education in economics. So I'm thrilled that my class has gotten past the basic supply-and-demand stuff and is moving into a study of how firms make decisions.

First Grades Back: So Far, So Good

We got our first homework and the first midterm back today. I scored 9/9 on the homework and 27/30 on the midterm, which was a relief. I had almost convinced myself that I had made a bunch of stupid one-point mistakes on the midterm. Luckily I only made two. I don't understand why the third point was deducted so I'm going to contest it.

The midterm was instructive in a couple of ways. First, as I've mentioned, my biggest problem was the time constraint. If I had had a little more time to check my work I think I would have gotten a better grade. So for the next test I'll make sure I not only know the material but also can do the problems very quickly. I also realize that my answers were a lot more verbose than they needed to be. Next time I'll try to keep it short.

So far I have a solid A in the class. But Dr. Hickenbottom warned that the next two midterms would be notably more difficult, and that anyone with a perfect score on the first homework should expect their average to come down somewhat over the course of the semester.

The next homework is due Wednesday but since it's due at 9:00am I plan on turning it in Monday. We'll be doing the same informal homework review session immediately before class then.

At a Time Like This Who Cares About Macroeconomics?

That may sound like a stupid question—obviously some people need to care a lot about macroeconomics right now. But why should I?

Every morning my feed reader is full of the analysis, meta-analysis, and personal infighting of macroeconomists. Massive spending, massive tax cuts, or something else? Is $800 billion enough? Should we nationalize the banking system? Is this time like last time, or maybe the time before that? Shouldn't we have seen it coming? Are we in a depression?

To which I say, "Who cares?"

The macro guys can squawk about these questions all day long, but what matters to me is something completely different. I want to know how the crisis affects me, my family, and my business, and how I can use it to my best advantage.

The New York Times Economix blog (ooh, edgy!) today features a Harvard economics professor telling me to spend whatever cash I have. What a joke. Not following absurd advice that like is the reason I still have cash to spend.

I want to know who not only survived the Great Depression but got rich from it and how. Anticipating inflation, should I borrow at today's super-low interest rates to buy distressed assets like real estate? How do I hedge against the possibility of a further collapse in both equities and corporate bonds? Is there an international angle to this (e.g., Canada) that has been overlooked?

Until the talking heads have something useful to tell me personally, I think I'll learn more from Chapter 6: Household Behavior and Consumer Choice.