Very Cool

Economics in the Weekly Torah Portion

I actually thought about this just-posted bit of Freakonomics when I was preparing for my leining of the last 7th portion of this past week's Torah reading.

One of the better-known biblical passages, Leviticus 27:1-7, lists the value of pledges of silver to the temple based on the value of a person: 50 shekels for a man between the ages of 20 and 60, 30 shekels for a woman of the same age, 15 shekels for a man over 60, and 10 shekels for a woman over 60. Hourly wage rates of workers in the U.S. in 2008 differed greatly from the ratios implied by Leviticus. The average female worker between 20 and 60 years old earns, per hour, nearly 80 percent of a male worker the same age, not 60 percent; and the average older male worker earns nearly as much per hour as the average male worker between 20 and 60.

Most older men and women don’t participate in the labor force, and fewer 20- to 60-year-old women work than men that age. Take all U.S. citizens in each age/sex group, whether or not they work, and assume that men aged 20 to 60 earned 50 shekels per time period in 2008. Then women aged 20 to 60 earned 34 shekels, men 61 plus earned 14 shekels, and women 61 plus earned 7 shekels. Once we ignore differences in labor-force participation, the earnings ratios are not that far from what was expected 3,000 years ago.

I'll bet if you adjust for lifespans (say 60->85) and number of children (forced time out of the workforce) these ratios would be still pretty accurate. It's interesting that these values are clearly not an attempt to NPV future earnings since a 20 year old is treated the same as a 59 year old.

New Feature: Parse that Headline

Pound Down Sharply As BOE Expands Quant Easing

or

British Pound Worthless Because The Government Is Willing To Give You Free Cash For That Crap Sitting In The Giveaway Pile In Your Garage

Gamma Sector, Here We Come!

Looks like scientists believe we're closer to getting our warp on:

Some physicists say the faster-than-light travel technology may one day enable humans to jet between stars for weekend getaways. Clearly it won't be an easy task. The science is complex, but not strictly impossible, according to some researchers studying how to make it happen.

...

One reason this idea seems credible is that scientists think it may already have happened. Some models suggest that space-time expanded at a rate faster than light speed during a period of rapid inflation shortly after the Big Bang.

Sorry Mitt, it looks like Obama, Bernanke, Geitner and Co. are just doing their best to herald a new golden age of deep space exploration.

There's An "R" In March, Right?

It's like an alternate version of my life where: (i) I looked slightly more like Dwight from The Office; (ii) I was less lazy; (iii) I was 30 years younger older and worked in NY; and (iv) I had even a remote clue what the heck you were supposed to do with Oysters.

You Wouldn't Cry Too If It Happened To You

Read through the comments on any blog post about AIG bonuses, Rahm Emmanuel's Fredie Mac gig, or any other aspect touching the high pay in Finance, and you will see that on both sides of the political spectrum, there is an underlying disbelief and disgust that anyone could possibly justifiably earn these large amounts ($1M/year). Now, I am not going to argue that specific people earned their dough, but it irks me that so many people refuse to consider the possibility.

In one of his books Nassim Taleb recounts the advice he was given when selecting a career path, "pick something that scales." Burger flippers, bus drivers, auto assemblers and scientists can only earn so much with their 40 hours a week (even with steady raises and some overtime). With luck they will get relatively wealthier over time and retire nicely, but they will never get rich via their day jobs without a lawsuit being involved. Doctors, dentists, accountants, engineers, plumbers and the like can make a nice living billing a few hundred dollars an hour, but there are only so many hours in a week, and after expenses and long hours these professionals can themselves only expect to earn a comfortable, but not super-rich, low- to mid-six figures.

To get truly rich in these jobs you need to be able to leverage your time. This can be done either by taking a cut of other peoples time (dental practice with technicians, plumber with assistants, engineer as partner in a firm). As you add more and more people underneath you, you can get good and rich. However, at this point you are making your money as an entrepreneur not as a doctor, dentist, etc. To a large extent, this is how high-level managers earn their keep too (and explains part of why executive pay has grown as a ratio to median pay as organizations get bigger).

The other way to get rich through your job is to work with a lot of money. This often translates to a lot of other people's money. If you make decisions that add and subtract significantly to the value of $100M transactions on a regular basis, your employer has incentive to pay someone to do a good job in your role. If you give them reason to thing you (will) do a good job, they will be willing to pay you for a portion of the value you add. Again, I'm not saying that everyone deserves what they get, just that it's possible to deserve that much. When you are structuring a $100M deal and you are able to turn it into a $110M deal, or even just eliminating $20M of risk, you are doing the equivalent of flipping a lot of burgers (or performing a lot of root canals).

Now, due to the declining marginal utility of money, you have to keep paying the good people more to stay. Rahm Emmanuel made $16M in his first few years on Wall Street. If you won $16M in the lottery tonight, how easy would it be for your employer to keep you on? Would you stay for your current salary? What if they doubled it? What if they quadrupled it and said you only have to work 1 day a week? You might be willing to do a few hours of work over 14 monthsfor $20K and a bunch of stock options (again, I'm not arguing that Rahm did a good job or was worth it, just that it would be reasonable for him to require that level of motivation for that level of work).

Even without 7 figure bonuses, as the returns on folk's savings approach and exceed their annual income, a significant focus will shift from the day job to the investment portfolio. Anyone who works in an office environment will have noticed that prudent and responsible mid-forties professionals with ~$1M+ net worth and low-six-figure incomes spend a lot of time staring at their brokerage in that Internet Explorer window that's always hiding behind their TPS report (if not permanently plastered on their second monitor).

Are You Pure Enough To Chuck A Squirrel?

South Park is like the Simpsons in that when you look back to the first few seasons when it was huge in popular culture, the show itself was pretty lousy. I've only caught a few episodes since then (Smug Alert!, Cartoon Wars I & II) and they have all been great. I guess the quality of a show is inversely proportional to lunchbox licensing sales.

This week's episode addresses the current economic crisis and its solution through analogy with the life of Jesus. Trust me, it works. Also, I appreciate the shots taken at the Margaritaville blenders I keep seeing at Bed Bath and Beyond (I guess it qualifies as Beyond?), William Sonoma, and the like. I've always wondered why anyone would need a huge plastic blending machine that cost seven times the price of a regular blender and is the size of a small car. That extra $300 buys a lot of Tequila and limes (which average 8 for a buck in Houston).

I Wish I Knew How To Quit You

It would have been better written on a cake, but today's letter to the NYT is pretty powerful. Mr. DeSantis working in a profitable unit of A.I.G.-F.P. agreed to take a symbolic $1/year salary to stay on and work on the sale of his profitable commodities unit (pending to UBS). According to him Liddy made 3 reassurances on bonuses in his first month (proving he knew about them them) and even prepaid a portion in December. Reducing/returning the bonuses was never discussed until just before the congressional inquisition.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised. None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.

Many of the employees have, in the past six months, turned down job offers from more stable employers, based on A.I.G.’s assurances that the contracts would be honored. They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

Mr. DeSantis has generously agreed to donate his entire post-tax bonus (post-"real tax" value of $742k) once that actual amount has been determined. He admits to having had a long and successful career that enables him this luxury; most of his coworkers have not .

I wonder how the UAW feels about workers being paid $1 for a year's worth of 12 hour days. Maybe the organizers can descend on Wall Street once Card Check gets pushed through.

I hope those holding torches and pitchforks feel at least a twinge of shame.