The Placebo Price Effect

On my way home from work, I heard this story on Marketplace explaining a new drug placebo study done recently. From the story:

Participants thought they were testing a new drug for pain relief. In fact, everybody got placebos. Only one difference. Some were told the pills cost $2.50, while others were told they only cost a dime. Dan Ariely, author of “Predictably Irrational,” was the lead researcher.

DAN ARIELY: What we found was that the expensive pill reduced pain to a much larger degree than the cheap pills.

This could be significant for the $59 billion generic drug industry. The study helps explain why patients generally prefer brand-name drugs, and why consumers think they are more effective than generic drugs, even though they have the same active ingredients. Glen Melnick is a health economics professor at USC.

Globalization is Green

[cross-posted from GreenCouple.com, where my fiancee and I talk about how we're trying to live green(er) together]

I’ve stolen this counterintuitive title from a section in Tim Harford’s interesting economic book (and who thought that phrase would ever be used?), The Undercover Economist. The book as a whole is a great overview of economic thinking applied to a variety of topics, from finding a good used car to pricing coffee. Near the end, Harford attempts to debunk the idea that trade protectionism prevents globalization from damaging the environment. I find most of his arguments very persuasive, although there might be more arguments against globalization that he doesn’t cover. Hardford identifies three main anti-globalization arguments: a “race to the bottom,” transportation costs, and the idea that economic growth inherently hurts the planet.

Stop saying “recession”

This is a plea to anyone who currently holds a position in news broadcasting. You could be a news anchor, a writer, or even a person likely to be interviewed on economic issues. I am begging you, please, please stop saying the word “recession.” After everyone involved has taken five minutes out of their lives to carefully consider the meaning of the word, you may resume using it, on the sole condition that you do so correctly.

So, to be clear, let me take a moment to share the correct definition here. In the United States, the Bureau of Economic Analysis is responsible for tracking and officially measuring and reporting on the gross domestic product (GDP). This Bureau, one of a number of them under the auspices of the Commerce Department, defines the term as follows:

“A recession is a decline in a country’s gross domestic product, or negative real economic growth, for two or more successive quarters of a year”

Now then. Now that we all are working with the definition, as defined by the organization empowered by law in this country to handle these matters and widely accepted by macro economists, let us consider for a moment how this term might apply to an issue near and dear to my heart and likely to yours: the current status of the United States economy.

What’s your escape plan?

I’ve been noticing stories on the news lately about the Iraqi refugees in Syria. The latest one I heard was about all the services needed to take care of that many people with no income. The one that really stuck with me, though, was from a while ago, talking about how so many of the refugees in Syria had actually been quite wealthy when they first arrived, but as the years have dragged on and they still feel unsafe returning to Iraq, their savings have dwindled. They can no longer afford to rent the large houses they settled in originally; they have sold many of the possessions they brought with them; any business they possibly once owned in Iraq has been taken over. They do not have the right to work in Syria, no matter how highly trained, so they have no hope of income. And these were the people who planned ahead and had means to leave.

Today, one of my friends sent me the link to this NYTimes story about Venezuelan immigrants to the US. They are moving to Florida in droves to escape Chavez, or at least his policies. My friend, who is currently living in South Florida as well, pointed out that none of these people are anything but upper class, especially given which Miami suburbs they seem to be settling in. Luckily, many of these people seem to have found a way into the US that allows them to work. They are the wealthy ones, the lucky ones.

Do you live in an “agriculture state”?

And (while we’re on the subject) another thing about Iowa…

Is it really a farm state? Is any state really a farm state?

Fun fact: Agriculture provides 3 percent of Iowa’s gross domestic product. (Manufacturing provides 21 percent.)

Diplomatic Draft to Occur in Iraq

The Washington Post reports today that due to foreseen shortfalls in the number of diplomats volunteering to serve in Iraq, up to 50 foreign service officers may be “drafted” into service.

Over 10% of the diplomatic core has already served in Iraq, which “has become the largest U.S. Embassy in history.” It currently employs nearly 6000 people and has only gotten larger since its reopening in 2004, says the Post.

The “recruits” are tipped to fill positions with the Provincial Reconstruction Teams (PRTs), which were intended to be staffed by diplomats and civilians. When the relatively small State Department couldn’t muster enough employees, the Pentagon sent staff to work instead. The State Department has continued to seek volunteers for the positions, but nevertheless came up short.

Hugo Chavez: Ex-hero of the people?

It’s catalog season again! As a young single person who’s been moving a lot since college, I don’t get nearly as many as, say, my parents, but since I’ve been living in my current apartment for slightly more than 2 years now, they’re starting to roll in. One that I’m actually legitimately on the mailing list for is the Syracuse Cultural Workers, since I ordered some buttons from them at one point. Full of feel-good, liberal, power to the people “tools for change,” it’s got some fun stuff to look at. But I’ve been torn over one item they’ve had for a while: the Hugo Chavez poster.

If you click on the image, you can better see the poster’s message, which reads, “The hurricane of revolution has begun, and it will never be calmed. -Hugo Chavez, presidente de Venezuela.” Given how much Chavez and Venezuelan politics have been in the news lately, I flipped through my latest SCW catalog the first time specifically to see if they still had the poster listed. They didn’t, though, as you can see above, they do still appear to have it on the website. I don’t actually know if this was a conscious decision on their part, or simply due to the fact that they’re a non-profit and can’t afford to put every item in the print catalog every time. If it was a conscious decision, though, I can certainly understand.

For those who may not have been keeping up with Latin American politics, Chavez has proposed a bunch of constitutional reforms that are due to go up for a ratification soon. Here’s a recent BBC article summarizing what’s happening right now. In a nutshell, two of his main reforms would be removing presidential term limits and increasing the current term from six to seven years. (See Hilary’s post on presidential term limits for further discussion of that particular issue.) Other reforms would increase presidential control over the central bank. He is currently in his second term, having been reelected last year, but the opposition party so strongly objected to his policies that they (unwisely) protested by withdrawing from those elections, leaving only his supporters in parliament. Sort of does away with the idea of checks and balances, doesn’t it?

The financial state of the union (part IV)

What’s changed in the nine months since I first started entering my expenses into a spreadsheet? Back then, you’ll remember, I was afraid of writing down a budget, I had no health insurance, I didn’t feel like I could track my money with an irregular income, and I always felt guilty about paying for things. Now, I have a budget that I’m working towards, I have health, dental, and an IRA, I set things up so that I can budget my income as if it were regular, and I know when I have enough money to buy things so I feel less guilty. Best of all, I no longer feel like my money is just disappearing. I still don’t make all that much money (less than $1000/month), but I have a much better handle on where it’s coming from, where it’s going, and how I can use that to prepare for adverse situations.

My current setup isn’t sustainable, of course, but it doesn’t have to be. This is just a stepping stone on the way towards the life I want. Eventually, I’ll be in a place where I can get rid of my car, I’ll own a house, and I’ll be making enough money that I can set aside more for retirement. Until then, I’ll keep sticking to my budget and suffering the pitying stares and rolled eyes of those who just don’t understand.

If I leave you with one thought, let it be this one: controlling your finances is a long process and a hard process, but it’s a great process.

When you’re ready to take the plunge, there are all kinds of resources that make it easier. One of the best is Get Rich Slowly, a daily financial blog for normal folks.

Other posts in this series:
How I learned to love my budget (part I)
Lattes are expensive, but cell phones are worse (part II)
Failure is still success (part III)

– Will

Failure is still success (part III)

By this point, I had several months’ worth of expenses recorded in my simple spreadsheet. I sat down one weekend and read through it all, sketching out general categories. Despite all of the reading I’d done online, I ended up with a budget that was entirely my own. A budget is a very personal thing and even the categories that you choose help you figure out where you’re spending more than you want and where you want to spend more (often savings and retirement, but it might also include hobbies).

In my case, I ended up with: fast food, groceries, entertainment, car insurance, gas, miscellaneous, restaurants, rent, snacks, vacation, cell phone, utilities, and gifts. As I focused on problem areas (like my car) and brought them under control, I merged them with other categories. I also added some categories for saving and modified some categories for joint spending with me and my fiancé. Right now, my budget has: joint expenses (rent, utilities, groceries, dates, etc), fast food, snacks, miscellaneous, entertainment, insurance, cell phone, and savings. My budget is a living document and I change it as my goals and living situations change.

At first, my budget was literally just set up to mirror my average costs. It was descriptive rather than prescriptive, which let me keep the illusion that it wasn’t really a budget at all. Of course, by trying to keep my costs at or below their average, I was still managing to reduce my expenses.

Lattes are expensive, but cell phones are worse (part II)

As I wrote my budget down, I started realizing that most of my big expenses were fixed expenses: rent, Internet connection, cable TV, car expenses, cell phone. Rent was my largest dollar cost, of course, but it was reasonably low since I lived away from town with roommates. My Internet and cable costs were tied up in that as well because of the roommates and car expenses didn’t seem under my short-term control.

So I started with my cell phone. I’ve never been a big talker, so it was a natural place to cut costs. I looked through six months of statements to figure out my average and peak monthly usage (150 and 300 minutes). With that information in hand, I searched around for the cheapest plans possible. In the end, I got a T-Mobile pre-paid phone and 1250 minutes for $140. I’ve since paid 30-50% of my previous bill each month without changing my calling habits at all.