Huzzah for a fun weekend with friends!

One of the things about going to Kalamazoo College is that you know all of your friends will be scattered across the globe in your third year. This is because of K's popular study abroad programs which about 80% of the students take advantage of at some point during their four years. It'll be over a year before I see many of my friends, who, as I've mentioned before, are awesome. Fortunately, I had a chance to see many of them one last time in Chicago before our big travels. Adam (my roommate of two years) and his family were kind enough to host us in their house in Wilmette, a suburb just outside Chicago. Although not all of us could make it, it was still a fun gathering.

I received this birthday gift from Adam, a touching memorial to Chairman Meow, a golden waving cat of mine who passed away in a tragic accident freshman year. Adam has video coverage of the event. 

I had a great time going to the Sushi Station, a "rotating sushi bar", where plates of sushi roll by your table on a conveyor belt and you grab plates as they go by. You pay at the end based on how many plates you grabbed and what colors they are. It was my first time trying sushi outside of the occasional california roll and I was pleasantly surprised! I also had some sake (rice wine) to go with my meal. I believe it was the first time I've ordered an alcoholic beverage at a restaurant. Special shout out goes to my friend Bo who managed to down ten plates of sushi.

The hero of the faire 

Now we'll never get to study abroad! 

The next morning brought a trip to the Bristol Renaissance Faire on the Illinois/Wisconsin border, which Adam's parents graciously bought us the tickets for. At the faire, it's huzzah this and huzzah that, hence the title of the post. The faire has the immersion and fantasy of Disney World combined with some of the hocky countryness of a state fair. The fairgrounds are huge and covered with hundreds of stores that sell armor, weapons, books, music, and just about any medieval knick knack you can imagine. There are also plenty of games, rides, and events sprinkled around the area. We had a good time watching an entertaining minstrel and listening to a few bawdy tunes. There was one station called "vegetable justice", where a man caught in stockades insulted passing visitors who could then purchase tomatoes to chuck at him. The insult comic was pretty good at pushing peoples' buttons. My favorite activity of all was the jousts. At the very end of the fairground lies a large jousting court with wooden stands set up along the sides. Much like a real 16th century joust, the crowd spilled out of the stands, so we watched in a large crowd surrounded by dirt, dust, and cheers. The actual joust was quite exciting. I can't be 100% sure, but I think the competition was authentic. There were some satisfying views of riders getting knocked flat onto the dirt by a well placed lance, and one round that featured quite a few broken lances and shattered shields (which means a mighty good joust, or so I'm assured by Game of Thrones). Unfortunately, we ran out of energy before the 5:00 joust to the death, which I didn't know was the kind of thing you could just schedule. That night, Adam's parents treated us to some classic Chicago deep dish pizza, a prerequisite to any visit to the area.

Heading to the faire for a good olde time 

It was a highly successful trip! The group that made it included people who will be studying in the UK, Germany, Spain, three different sites in Japan, and Kalamazoo. I'm sure we'll all come back senior year with fascinating stories to tell.

The gang

The Macroeconomics of a North Korean Collapse

While I was weekend with some of my friends from K this past weekend in Chicago (post about that pending), we had an interesting conversation about North Korea. It started with this article that I read about an ongoing crystal meth epidemic in the hermit kingdom itself. My friend Adam, who's an East Asian Civilization major, was surprised by this downslide in social stability in North Korea. This led to us talking about the possibility (inevitability?) of a regime collapse in the North and how South Korea and China would respond. We all speculated about what impact the flood of North Korean refugees would have on the neighboring countries. One thing that I forgot to mention is what macroeconomics has to say about those refugees.

Let's say that the Korean peninsula becomes reunified. The first thing an economist would note is that South Korea is much more productive than North Korea. By this, we don't mean that North Koreans are lazy, just that their workers don't have the same level of capital - things like machines, roads, and knowledge - to produce goods and services. In economics, workers are paid by their marginal productivity, or how much extra stuff is made by having one more worker (this is of course a simplification, but there are good reasons to think this is approximately true. Watch this video for more info). The productivity of a worker is determined by the capital per worker. If you have a lot of workers, you're going to need a lot of capital to keep them employed productively. Clearly, South Korea has a lot more capital per worker than North Korea, as evidenced by their higher GDP per capita.

So what's going to happen when the Koreas merge? Well, South Korea is going to have a lot more workers but not much more capital. Because the number of workers has grown significantly while the amount of capital has not, we can expect wages to fall for South Korean workers. But it's not all bad! North Koreans will get to take advantage of all that great South Korean capital, so their wages will likely go up.

Plus, this is only the short term we're talking about. You see, in the long run (which has a notoriously vague definition) capital doesn't just stay at some constant level. Much as workers are paid by their marginal productivity, the owners of capital are paid by the marginal productivity of their capital. What determines the marginal productivity of capital? How many workers there are! A factory is much more useful if it can be fully manned than if there's only one person to work it. Thus, when all those North Koreans flood south, we can expect the marginal productivity of capital to shoot upwards. This means owning capital becomes quite profitable, so we can expect entrepreneurs to invest in new factories and machines. It would also behoove the government to beef up its spending on roads and education to accommodate its larger workforce. Eventually, we can expect to get back to the same capital per worker we had before, bringing wages for everyone back to their old high.

Unfortunately, this increase in investment doesn't come free. The government and entrepreneurs will have to borrow in order to finance their investments, and that means someone will have to save instead of spend. Either the citizens of Korea will have to tighten their belts for awhile or the country will have to borrow from foreigners. Either way, it won't be fun for a bit. But, once that great long run comes around, everyone will be happy once again (assuming, as Keynes quipped, they're not dead).

Overall, I'd say this economic analysis is positive for Korean reunification. North Koreans should be able to attain the prosperity enjoyed by their southern brethren, and although there will be a brief period of falling wages for the South Koreans, they should be able to build back up to their old lifestyle. Plus, this model makes some simplifications that ignore some potential benefits of a united Korea. First of all, there's trade. North Korea and South Korea have limited economic interaction, and as we know from comparative advantage, trade can make everyone better off! The extra workers may allow for more specialization and efficiency. Plus, I've been ignoring technology this whole time, which affects the marginal productivity of both labor and capital. There's a good reason to believe that technology is positively impacted by population size. Thus, we can expect the incoming North Koreans to spur innovation, helping make Korea richer than ever before. The possibilities for how North Koreans could become more productive by becoming integrated into the global economy are numerous. One possibility that enters my mind is that Japan could use some North Korean immigrants to fill the holes in its workforce left by its rapidly aging population.

This sort of speculation is one of my favorite parts of economics. The models applied here involve breathtaking simplifications - assuming all workers and capital are the same, for one - and yet it gives us some pretty actionable predictions about a very complex and specific topic. I don't think the falling wages, rising return to capital, and long term return to the old capital per worker are immediately obvious to anyone who thinks about North Korean refugees flooding into South Korea. Best of all, I think we can be pretty confident that this is roughly how the story would (will?) play out. And if it doesn't, we can look for what went wrong to make these models non-applicable. We also have some policy recommendations from this model's prediction - more investment and saving if the refugees arrive. To be clear, I'd be highly skeptical of any specific prediction like wages will fall by X based on these models. But, this kind of an analysis can certainly point to more specific promising areas of research. I'm sure there are people smarter than me who are already thinking beyond the scope of this model on the economic impact of Korean reunification.

I know East and West Germany went through a very similar process with the fall of the Berlin Wall, so I'd be curious to learn more about how that played out economically. I'd say that the sooner North Korea collapses the better. There will surely be some unrest in the short term as wages fall and capital is built up, but the welfare gains for the impoverished North Koreans will be huge, and even those living outside of Kim Jong Un's control could benefit.

The Economics of Eritrean Kidnapping

I listened to a fascinating This American Life while driving back from Chicago entitled "This Call May be Recorded to Save Your Life". It tells the (true) story of a journalist who gets pulled into helping to rescue an extensive network of kidnapped Eritrean refugees. I recommend giving the episode a listen before reading the rest of the post.

But, for those of you short on time, I'll give a brief summary here. The journalist, Meron Estefanos, is put in contact with the kidnapped individuals via cell phone. Talking to them, she is told stories about how they are being tortured and will be killed unless someone can pay $20000 (each). She begins talking to the hostages daily, and their plight slowly consumes her life. She ultimately speaks to hundreds of captives and learns that there is an industry built around ransoming refugees. Meron tries to raise awareness of the issue with her radio program, but finds the NGOs and governments who could help are ineffective. And as if raising the hundreds of thousands of dollars necessary to free the captives isn't enough, the nature of the kidnappings make the issue even more complex. How can she be sure that she isn't being lied to? Allegedly, paying up will get the captives freed from where they are being held in the Sinai Desert into Israel, but how does she know the kidnappers will play fair? And of course, paying up only encourages the kidnappers to commit more kidnapping. Ultimately, Meron does get many hostages free by raising money and working with the families involved, but to this day she is still actively working to free an ever increasing number of hostages.

This story was fascinating to me not just because of the human elements, but also because of all the great economics involved. First of all, you have some serious asymmetrical information problems at play. In his famous "Market for Lemons" paper, economist George Akerlof uses used car sales to illustrate how uncertainty over the quality of a product can drive down an entire market. Consumers of used cars have a hard time knowing if the car they're buying will be a "lemon", one that will break down quickly. Thus, they aren't willing to pay very much for a car. This drives out the people with good used cars to sell, leaving a greater proportion of lemons on the market. This further drives down the price consumers are willing to pay, driving out more good cars, and so on and so on until all you have is a market where the product is cheap and the quality highly suspect. The root problem is asymmetric information - the car owner knows a lot about the quality of the car while the car buyer knows very little.

Asymmetric information also plays a key role in Meron's kidnapping dilemma. How are the hostages being treated? Meron can't be sure all the tales of torture and threatening are true - what if the hostages are being forced to tell her lies, or it's all part of some hoax? When she pays the money, will the hostages be freed? The kidnappers are trying to create a market for the people they've captured, but information asymmetry makes it a tough market to operate efficiently. Sure enough, the $20,000 price tag gets dropped to $5,000 at one point, and even when Meron pays the hostages aren't released at first, although the kidnappers attempt to fool her into thinking they are. Just as in any market for lemons, shady dealers dominate the market while quality and price drop. Understandably, all these issues make it difficult for Meron to raise money.

The kidnapping tale is also a great illustration of incentives at work. The only reason the thugs Meron deals with engage in kidnapping is to get rich, but they only get rich if Meron gets them ransoms. One of the hostages Meron frees relates how the kidnappers' moods would rise and fall with Meron's reports on her progress in raising funds. Meron is not only the hostages' main source of hope, but also the kidnappers'. Since she's had success freeing dozens of hostages, it's not surprising that Meron is the first person the kidnappers contact when they capture a new group.

This leads to an illustration of another economic principle: collective action problems. If all of Eritrea could sit down and create a binding pact for how to deal with these kidnappers, they'd probably agree to just stop all payments altogether and send in some guys with guns to kill the criminals. Either way, would-be kidnappers would realize there is only danger and no reward in kidnapping. But of course, all of Eritrea has not created a binding pact for how to deal with kidnappers. Instead, each family is more or less on its own. The families of those who are kidnapped are concerned with saving their loved ones. They are less worried about how their payments will create incentives that will lead to others being kidnapped. Ideally, Eritrea would have a security force that would stop these things, but it's not a stable country at the moment. This is also a piece of evidence against the libertarian theory that markets will overcome collective action problems. Theoretically, instead of paying thousands of dollars to these kidnappers, the families should pool their money to hire some mercenaries. Of course, it's difficult and costly for the families to cooperate, so nothing gets done. Notably, the kidnappers made sure to get Meron emotionally attached to a few of the hostages in particular so she would become compromised by the collective action failure. As an independent observer, Meron was hesitant about perpetuating the kidnapping by paying into the system. But as she came to sympathize with the hostages she spoke to, she became determined to raise the money to free them. Apparently, Meron now has formed a semi-official organization for freeing the hostages. She tries to pressure governments into action, but I believe the money is still flowing. Maybe Meron could organize the hiring of some mercenaries?

As long as I'm typing up these economics posts, I'll write sometime soon about the mystery of why Dairy Queen doesn't raise its prices on hot days.

The Big Twenty-One

Brobee

On August 11th, the state of Michigan arbitrarily decided (primarily in order to get their full share of highway funding) that I am mature enough to consume alcohol. Why has it taken me ten full days to make a post about my birthday? The reason is that at the Mulder household, we celebrate a full birthday week, so really I'm only three days late in posting an update on my festivities.

 I was lucky to receive some great gifts. I got cool root beers from Keith, Lisa, and Riley (kind of a last hurray for my pre-alcohol days). Riley actually picked up her selection from The Root Beer Store just outside Seattle where they boast hundreds of unique brews. I've tasted about half of them so far, and I can report that they are delicious. Many of you probably know that since the beginning of high school, I've had exceptionally dorky headphones. Well, Bryan and Jessie finally fixed that by getting me a cool new set of headphones. Most importantly, these headphones fit comfortably while running. Bryan and Jessie also got me a Brobee doll that matches one Matilda owns, in celebration of our joint love of Yo Gabba Gabba. Mom and dad got me a bottle of gin from a northern Michigan distillery. Drinking it is reminiscent of licking a pine tree, but in a good way.

Rootbeer

Enjoying a beer minutes after turning 21, courtesy of my big sister

Besides getting cool stuff, my birthday also involved doing fun things! On the night of my birthday, Laurel took me out to The Woods in Grand Rapids where I had some drinks and danced along with a few of her friends from medical school. The next weekend I went with Bryan and Jessie to Headquarters Beercade in Chicago, a cross between a bar and arcade. They had an impressive and well curated set of pinball machines and old arcade games, as well as some tasty (albeit expensive) beers. While it was a little crowded, I managed to get some good gaming in.

If you're looking to do something for me in honor of my birthday, I'd appreciate donations to the Against Malaria Foundation. It is the top rated charity by GiveWell, an organization that carefully evaluates the impact and efficiency of hundreds of charities.

I enjoyed a great 21st birthday and am grateful to everyone who helped make it special.

A few of the many pinball machines at HQ Beercade

Gin

A Question about Garages

I heard a story on NPR today that just really confused me.

This week, the Dearborn Planning Commission approved changes in rules governing the way Dearbornites may use their garages, and there are those in the Arab community who feel these rule changes are a direct slap at them.

Apparently the issue is that many people in Dearborn, especially those in the Arab community, have started decking out their garages with furniture and sliding glass doors so they can be used as social spaces. I'm trying to fathom why anyone cares what anyone does in their garages. What's next, zoning laws about whether you can have TVs in your kitchen? Should I not be allowed to have a microwave in my bedroom?

I'm just trying to figure out what special interest is pushing regulations on what people can use their garages for. I'm also confused as to why it's legal to put a limit on what people can use their garages for. If you have any insight into why this would be an issue, do share.

 

An Excellent Article on Board Games

I have no idea why it took me so long to find this article, but in 2010 the Financial Time's undercover economist published a great article. He reports from a German board gaming convention, and covers all sorts of board game topics and history, from the first Spiel de Jahres, to Rio Grande Games, to the most prolific board game designer in the world. He also solicits some interesting thoughts regarding the enduring popularity of board games in the face of the computer age. 

“You can know someone for 10 years,” explains Teuber with some passion, “and the first time you play a game with them you see a side you never saw before. But when you’re playing a game on your PC, you’re just playing a computer’s artificial intelligence. This is a partner with no emotion. You can’t see the computer smiling. You can’t see the computer … what’s the word?” He presses his fists to his head.“Get cross?”

Do read the whole thing, I don't think it's gated.  

The Cabins: 2013

A gorgeous view from a hike at Pyramid Point

I'm sure all my readers have been wondering where I disappeared to these past two weeks. Well, the answer for August 11th up until now is that I was being lazy, but from August 3rd - 10th, I was with the Mulders and Riley at some cabins at Platte Lake, about 45 minutes west of Traverse City near Lake Michigan.

The cabins are an annual tradition for my dad's side of the family. We've been going up for 20 years now, and in that time we've only missed two trips (once for a wedding and another time for a birth). While the size of the group varies year to year and many can only stay for a few days, it's usually a large gathering. This year we had about 25 people most days.

Saying hi to Matilda as we start our hike

Yet another gorgeous view

The cabins are always a good chance for me to get in touch with my rustic side through kayaking, hiking, running, and relaxing on the beach. I also got to hang out with my often busy siblings, which included much board game playing. The game list included Le Havre, Agricola, the fearsome Eclipse, a few games of Mage Wars, Ra the Dice Game, 7 Wonders, and the intriguing Citadels. I also managed to reach the point where I'm competitive with Bryan on a 6 stone handicap in Go. Of course, there were also the Mulder Olympics, where teams of two compete in bocce ball, croquet, and a canoe race. Although I didn't place with either of my teams in bocce ball or croquet, I did make it to the finals in the canoe race with Riley!

Riley and I in front of the gorgeous view

This year's cabins were a relaxing time to reconnect with some wonderful family that I don't get to see very often. It was also a great to have some time to spend with Riley as our departures to Europe draw every closer.

There's a chance I'll have more photos to put up in the coming days, and I'll try to do a post on my 21st birthday soon!

Riley being fabulous at the Sleeping Bear Dunes

Riley and I at the Sleeping Bear Dunes

DC: Overall Impression

So I come to my concluding post on DC. I'm just going to make a few observations:

• DC is the most European American city (that I've seen) 

I think it must be a combination of the building height restrictions (which as I've mentioned before, are bad) and all the monolithic government buildings. My parents said it reminded them of Moscow or maybe Vienna. That having been said, DC still has many American elements. In the big monuments and war memorial area, I was struck by how many huge fields of grass there were. All the green space was like an individual monument to America's obsession with suburban lawns. I thought the most euro-American object of all was the National Cathedral. As you walk in, you are reminded of countless gothic cathedrals in Europe, but as you look closer, you see all these unmistakably American details. Woodrow Wilson's grave is inside, paratroopers, civil war generals, and a moon rock decorate stained glass windows, and even Darth Vader makes an appearance.

• DC is really young

With the exception of when I'm inside of a school, I've never felt like I was surrounded by so many young people as when I was in DC. Indeed, DC made #7 in a 2013 ranking of the youngest cities. I think many of the lobbying jobs and political internships attract all the yuppies.

• DC would be cooler without height restrictions 

It gives DC a unique feel, but the height restrictions means that DC doesn't have a very impressive skyline compared to other cities. Even more important than my aesthetic concerns is the fact that these height restrictions are extremely costly! When you have a denser city, transportation is easier without the sprawl, there are more retail and food options in any given area, and most importantly, rent costs are lower which brings down every other price. There's even evidence in the economic literature that density leads to higher worker productivity and wages. 

I was very glad to go to DC! It was a novel experience to live alone and work in a big city for two weeks. As an aspiring economist, I may very well return to the city someday. It is home to many employers of economists, including the Department of Treasury and Federal Reserve as well as a variety of other federal departments. I thought it was a great city, and if they just allowed some dang skyscrapers, then the sky would literally be the limit.