Would you rather have $200,000 or your hovel back?

Ed Glaser suggests that it may be cheaper and wiser to give displaced New Orleans resident a voucher than it would be to rebuild the city. He writes

To put the numbers in context, imagine that we were to spend $100 billion
dollars on infrastructure for the residents of the city. An alternative to
this spending is to give each one of the city of New Orleans’ residents a
check for more than $200,000.

Annual per capita income in that city is less than $20,000, so this
check would amount to ten years’ income, on average—a hefty, and potentially
life-changing sum. That is enough to send several children to college, to buy
a modest home, and/or to relocate and start a dreamed-of business.

(Hat tip to Dennis Sullivan)

E.H. Harriman is not rational!

Butch Cassidy uses the concept of dominated strategies to explain why. Other game theory illustrations from the movies are here.

The long and short of elasticity

Austan Goolsbee argues that exhortations to conserve gasoline or temporary price increases are unlikely to lead to significant declines in gasoline consumption. What will be effective? Permanent price hikes! (Hat tip to Nicole Kozdron)

Happiness in Bhutan

In an attempt to internalize external costs (and/or to buy favor with the rural population), the Bhutanese government (hat tip to Brian Roberson)

devolved power to local councils and are researching Gross National
Happiness as a more inclusive measurement of progress than Gross National
Product.

An important econometric lesson

Arnold Kling makes metrics interesting. I think so, anyway.

Xavier's Place

Think economists are stuffy? Check out Xavier's website. Be sure to check out the links for Marxists and Keynesians.

Fed hikes funds rate

The Federal Open Market Committee raised the target federal funds to 3.75%. The Fed's statement is here.

Gains from trade

Voluntary exchange improves he welfare of each participant, even when it is real dollars for virtual goods. Mike Musgrove describes the market for virtual goods and services. (hat tip to Jared Barton)

Budget deficits and more disagreement

Jim Hamilton has a deficit quiz. It is multiple choice and it is tricky.

Why experts disagree

Brad Delong describes the disagreement among economic experts at the recent conference in Jackson Hole, Wyoming. The controversy was over the potential effects of a sharp depreciation of the dollar. Delong concludes

It was very interesting. And very disturbing. Brilliant economists, thinking hard, unable to reach even the beginnings of analytical agreement about how to model the distribution of possible futures.

Good news for college students-wage inequality is up

From 1975 to 1995 the college wage premium rose from 1.35 to 1.7. This rise appears to have contributed to increased wage inequality over the same period. Aaron Steelman and John Weinberg survey the data and discuss competing explanations of changing wage inequality. They conclude that skill-biased technological change is the driving force behind this recent rise in inequality.

Disasters and Prices

The New Orleans flood reminds us that life and property are fragile. They also remind us that the laws of economics are not. In the aftermath of last years Tsunami, prices rose sharply for goats, chickens, and salt as supplies declined and the price of beef fell as rumors of contamination spread. For the details see this WSJ online article. A subscription is required, but it should be accessible from Miami computers.

Trade and jobs

When US residents buy imports jobs are created or sustained elsewhere, but when foreign residents buy our exports jobs are created or sustained here. Erica Goshen, Bart Hobijn, and Margaret McConnell estimate the net effect of trade on US jobs. It is important to take both sides into account. Among their conclusions

the number of jobs lost through gross imports is nearly five times as large as the number we find for net imports. Thus, omitting the benefits of jobs created through export production - a common practice in discussions of offshoring - will substantially overstate the costs of trade for the U.S. labor market.

Religion, politics, and insurance

How are religion, politics, and insurance all connected through economics? This business week article by Robert Barro and this piece by Virginia Postrel that describe recent research by economists provide some clues.

Katrina may keep Fed from hiking rate

In addition to the unfathomable human tragedy, Katrina brought an economic catastrophe. It seemed certain that the Fed would hike rates this month, but now in the wake of Katrina it may not.

Primer on China

A leading Chinese economist answers some key questions about China's economy. There are lots of interesting links on China nearby.

It can be very important to make sure your incentives are compatible

David Friedman drives the point home with the following story from his Hidden Order.

Jose robbed a bank and fled south across the Rio Grande, with the Texas Rangers in hot pursuit. They caught up with him in a small Mexican town; since Jose knew no English and none of them spoke Spanish, they found a local resident willing to act as translator, and began their questioning.

"Where did you hide the money?"

"The Gringos want to know where you hid the money."

"Tell the Gringos I will never tell them."

"Jose says he will never tell you."

The rangers all cock their pistols and point them at Jose.
"Tell him that if he does not tell us where he hid the money, we will shoot him."

"The Gringos say that if you do not tell them, they will shoot you."

Jose begins to shake with fear.
"Tell the Gringos that I hid the money by the bridge over the river."

"Jose says that he is not afraid to die."

There is more Hidden Order on line here.

Economists and Opportunity Cost

Robert Frank wonders if many economics professors are still struggling to learn the principles of economics. (Hat tip to Bill Craighead)

Katrina and Gasoline Prices

Some of the Katrina's shock will temporarily affect gas prices, but it will take years to rebuild drilling capacity lost in the hurricane. Jim Hamilton of econbrowser describes the bleak news.