Conventional economics invokes the idea of a race between our limited means and our unlimited wants. Let’s run faster and spend more! But what if we opt out of that race, finding ways to get more satisfaction without consuming more? On this site I explore these ideas, plus themes from popular culture and other random thoughts.
This is a story I used with my senior economics students who were just about to go out into the wider world.
Once there were two tribes divided by a mountain ridge. They knew little of each other until, one day, a hiker began traveling between the two tribes. He got to know each tribe well and promoted friendly relationships between the two. As time went by, the tribes began to visit, interact, and trade — but always with the possibility of misunderstanding their different cultures. Still, they were far richer in culture and material wealth than when they had been isolated from each other.
My lesson to the students: Listen to the hiker. (I am the hiker). I spent major amounts of time in the student culture and also with the businesses that employed them. Each culture has some things you will find unusual, but respect the native culture.
And out in the wider world, after listening to the hiker, work to be the hiker — the one who can span cultures, with full respect for both.
Here are some practical applications in the fields my students entered in large numbers (banking, finance, real estate):
- Don’t make your appearance scary. The interview coaches who suggest conservative business attire know what they’re talking about. By dressing professionally, you’re signaling that you will be a productive team member.
- Clean up your social media. Even if you end up at a firm that likes its alcohol, that firm doesn’t want to hire people who post pictures of their extreme drinking.
- Clean up your language. Even in firms where day-to-day operations involve salty language, recruiters don’t want to hear f-bombs in initial interviews.
And finally, about the counter-argument that says: “Ignore the hiker and show your own individuality through dress, social media, and language.” Or: “People should not judge you by appearance.” Fine, go ahead. But understand that the system is corrupt and if you’re coming from a regional university or small liberal arts college, the system is looking for a reason to exclude you. You are almost certain to have no effect on that system. Better to get your foot in the door, game the system — and then use the money and influence you acquire to make the system better.
Listen to the hiker.
It’s here — books just arrived hot off the presses! For the middle and high school grades, Economic Episodes in Civics and American Government shows how an economic way of thinking can add insight to these important subjects. Like its companion text Economic Episodes in American History, this title focuses on the decisions people make, strengthening the critical thinking skills of students and helping them become more thoughtful and engaged citizens. These books do not require any previous class in economics.
With Wohl Publishing’s support, we will be rolling out this title at professional meetings of social studies teachers.
It was great to work with coauthors Mark Schug, Scott Niederjohn, and Signè Thomas on this project. Special thanks are also due to copyeditor Theresa Kay and designer Jeremy Munns. You made us look good!
“Dave who?” was my first answer to the question, “What do you think of the financial advice of Dave Ramsey?” This was many years ago, but I was soon to learn that Ramsey is the host of a national radio show on personal finance with a huge audience.
He also has a rule-based and faith-based system for financial prosperity.
Over the years, I have developed two responses to the original question:
- As a volunteer financial counselor, I can tell you that Dave Ramsey’s materials are the best for people in financial trouble.
- As an academic economist, I have my reservations.
For several years now, my coauthor Scott Niederjohn and I have been working on a review of Ramsey’s system. That effort recently resulted in an article that we think is the first peer-reviewed study of Ramsey’s financial advice.
Peer review is a funny thing. It’s the most reliable system for getting accurate academic work published, and yet sometimes the back-and-forth with reviewers changes the tone of what you wanted to say. In this case, peer review made our article more accurate but also more critical and snarky.
Anyway, here’s a little news release on our article. Enjoy!
The first peer-reviewed study of talk show host Dave Ramsey’s financial advice has been published in the Journal of Economics and Finance Education.
“Dave Ramsey’s Personal Finance: A Primer and Critique” was recently published by the journal. (Because of pandemic-related delays, it was dated fall 2020.) It was authored by the head of James Madison University’s economics department, William C. Wood, and the director of Concordia University’s center for economic education, M. Scott Niederjohn.
“When we began work on this project, we expected to see a lot published on Ramsey’s financial system because it is so widely taught and adopted,” Wood said. However, the two researchers found Ramsey had been neglected by economics and personal finance scholars.
Writing for an audience of economics and finance educators, Wood and Niederjohn show how Ramsey’s “Baby Steps” start with the fundamental assumption that people are not good at seeking their own best interests – the opposite of what is typically assumed in academic economics.
Ramsey’s rules-based approach often directly contradicts conventional instruction in personal finance, as the authors show in a table comparing the Ramsey Baby Steps with national standards in personal finance education.
After making these contrasts, the article outlines implications for educators. “Whether educators agree or disagree with his approach, they need to know what he is saying,” Wood and Niederjohn write.
Wood said he had mixed feelings in writing about Ramsey’s system. “As a volunteer counselor, I can tell you Dave Ramsey’s materials work,” he said. “But Dr. Niederjohn and I are academic economists – and from that standpoint we have some reservations.”
As an example, Wood talked about Ramsey’s observation that self-identified millionaires followed his strategies. “Many people did, but what about the people who tried and did not succeed, or those who became millionaires in other ways? The evidence falls far short of a fully controlled experiment.”
Still, Wood himself admits that his financial successes came from following advice similar to Ramsey’s. Wood, a fan of Ramsey’s talk show, says he has heard the host refer to “broke finance professors” who cannot manage the own finances well. “There was a time when I was the broke econ professor,” Wood said.
“I used to buy new cars and finance them. I once convinced my family to buy a rental property before we were ready.” Ramsey recommends paying cash for used cars and being debt-free before investing in rental property.
Wood said that his family overcame early mistakes and began to make better decisions. Then they paid off their home mortgage early – “something my economics friends considered irrational.” Conventional personal finance would call for investing funds that otherwise would have been used to pay off the mortgage, while reaping the advantages of tax deductions and relatively lower interest rates.
Wood said he had followed a parallel “Dave-ish” strategy before coming across Ramsey’s work while getting ready to teach a personal finance short course.
“We don’t agree with everything Dave Ramsey has written and said,” Wood reported, “but on the basic emphasis of budgeting and avoiding debt, his advice can help a lot of people.”
Here’s a set of twenty videos I did for my econometrics students. I hope you’ll find them useful or even enjoy them.
Confession: I am an econometric impostor. I have published papers with econometric findings for more than 40 years now. Some of them have attracted tens, if not dozens, of readers. But I never have been an econometrics hawk. All along, I just kept trying things and looking up references until I figured things out. As a result, about a fourth of what I’m about to show you is wrong — I just don’t know which fourth.
And yet, it’s useful, because as an econometric impostor I developed a lot of intuition.
This is “hit and run” by analogy to baseball — on that play, the batter swings at everything and the runner gets a fast start. (Ask a baseball fan if you’re interested.) I modestly think you can get a lot of econometric intuition by watching these videos. Email me when you find mistakes and I’ll start a list.
I especially recommend these if your significant other is an economist and you just don’t understand that person! Watch these and you’ll have everything you need to keep the conversation going.
If you find these unhelpful, you get all of your money back!
1. Excel regression and a trap. Yes, you can do regression analysis in lowly Excel! . . . but here’s a trap that one beginning student fell into.
2. Deviation notation is not a big deal, but the Fisher Equation is a great thing to know about and it provides a nice illustration.
3. What’s more accurate, a watch that’s always a minute off or a watch that’s stopped? Here’s a new take on that old folk riddle.
4. There are many choices out there for statistical packages, but here are a few that stand out. Find out why there’s a big buzz about R.
5. If you drive a new car off the lot, you lose a lot of value — you’ve heard that, right? See what the t-test can tell us about new and used cars.
6. The Gauss-Markov Theorem is important in econometrics. See why in this video.
7. Where does R-squared come from? Here’s an answer that helps point out why this statistic is so often consulted.
8. Why did the invention of cable TV and the videocassette recorder come to be known as “the video revolution”? These inventions foreshadowed our media landscape today, and media historians can learn from the econometrics of the revolution.
9. Can you interpret β in a regression equation? Can you paint by numbers? What do these questions have to do with each other?
10. Multicollinearity can mess up your estimates; it can be cured; but sometimes the cure is worse than the illness.
11. How could nonlinearity be “cheap”? The Phillips Curve from macroeconomics provides an example. Hint: This is a trick that’s way easier than true nonlinearity.
12. An interaction term can help you sort out the sources of discrimination in the labor market. Find out how.
13. Testing for structural change can be done a lot of different ways. Find out how, and also find out why “This Time It’s Different” may be the most dangerous words ever for individual investors.
14. The Koyck Lag is a nifty piece of math that, in this video, helps illuminate the effects of threatened price controls on research and development in the pharmaceutical industry.
15. Specification error is a serious problem in econometrics and this is a really compact treatment.
16. Generalized Least Squares can fix the problem of autocorrelated errors, but there’s a big “if.” Find out why fixing it might be worse than leaving it alone.
17. And Generalized Least Squares can also fix problems with heteroskedastic errors but — you guessed it! — it might be better to leave it alone.
18. Did class and gender influence who survived the sinking of the Titanic? A logit model helps us get answers.
19. Simultaneity bias is bad and it’s everywhere! Here are some of the reasons why.
20. OK, time for blind spots — what are the biggest blind spots in the sort of econometrics taught at the undergraduate level? Here are my candidates: the McCloskey reservation and the Taleb reservation. (Hint: Are there any swans that are black?)
Note: This is something I wrote for my high school class’s 50-year reunion page:
Everybody has a story. Here’s mine: Fifty years ago this month, I left Berry High School for Auburn University intent on becoming an engineer and not thinking much about the whole marriage thing. Ten years later, I was a married economics professor after five crazy years in the ethic of journalism (four as a major, one as a working reporter). Life changed a lot faster back then.
In all of those changes, I’m now pretty confident that journalism brought out the worst in me and economics, by the grace of God, has brought out the best in me. Most of this was from the influence of two people:
- My graduate school girlfriend Jane, now my wife of 43 years, who has made me kinder and gentler – not by nagging, but by the everyday living of life.
- My mentor Professor Kenneth Elzinga at U.Va., who modeled what it was like to care deeply for students, care deeply for the field of economics, and view life as a calling. I can’t describe his influence in words, but this video helps explain why he’s a legend at U.Va.: https://www.youtube.com/watch?v=hXMTk4MBTqI .
And to think I had the opportunity to study under him, teach alongside him, do research with him in antitrust economics, and be in a Bible study with him. Yes, there are Jesus-followers in the universities and in the field of economics – but to the extent that we succeed, students of all faiths will be glad to have been in our classes because of our commitment to them and our respect for the varied faith traditions that students bring to their college years.
Many of us can claim that we are blessed, and I do, but that doesn’t mean the absence of sadness. It’s been years now, but I still feel the loss of our friend and Berry classmate Melanie Albright ’70. Some of you knew my brother Alan Wood, Berry Class of ’68, whom we lost to cancer at the age of 67. I miss him keenly. Time being what it is, there are more than a few other graduates from our time that have passed on also. We honor their memory by carrying on.
And, to all my Alabama friends from years past: You probably wouldn’t imagine how I value memories and friendships from our time together, because of the years and miles between us. I left for Virginia after wrapping up at Auburn and have not been back much. But for the record: I value all of you and I hope life has been kind to you.
Fifty years out, I wish all of you the best.
Now with Star Wars IX: The Rise of Skywalker, the nine Star Wars films are complete. I was in the theater for the first film with my girlfriend about 43 years ago. A lot has happened in my life (that girlfriend is now my wife of 42 years), and . . . I’m a fan. I truly enjoyed what Star Wars did for filmmaking. I’m not a big-time movie-goer, but Star Wars will always get me to the theater.
Still, after leaving the theater this time I felt mostly relief and exhaustion — relief that the producers ended it with one that didn’t stink up the theater, and exhaustion because they have more than fully exploited that Star Wars universe. Taking the whole series in perspective (and from re-watching the first six at home), here are my impressions:
Star Wars I: The Phantom Menace. On seeing it again, the best part was the opening fanfare and crawl. “The franchise will live!” I thought, after Star Wars was absent from theaters from 1983 until 1999’s Star Wars I premiere . . . and everything was downhill from there.
Star Wars II: Attack of the Clones. Now after seeing it again, my favorite scene is the closing: Anakin and Padme’s wedding, with C3PO and R2D2 as witnesses. Why my favorite? Because the music foreshadows the tragedy and, more importantly, the bride and groom speak no words. Thus they save us from more dialogue like the earlier: “Now that I’m with you again, I’m in agony.”
Star Wars III: Revenge of the Sith. Now we’re getting somewhere. It’s not so good, but at least we find out why Darth Vader turned out to be the baddest guy in the galaxy. The best scenes are the ones that link him to Star Wars IV.
Star Wars IV: A New Hope. Woohoo! Somebody just opened the creative windows in a stuffy oppressive room (so to speak), and a fresh breeze is blowing in. What else from 1977 holds up so well as this movie?
Star Wars V: The Empire Strikes Back. Another great film, in which a running time of just over two hours gets us action, romance, Yoda and the big reveal: Darth Vader is Luke’s father! (I was one of the three people in a packed Birmingham, Alabama, theater who did not see that coming.) And the scene still shocks me on the Blu-Ray replay, even though I know every line.
Star Wars VI: Return of the Jedi. Nice film to wrap up the Darth Vader story line. The franchise is getting a little tired by now, but seeing the characters again makes it worthwhile. The scene where Luke tells Leia she’s his sister, the pyre on which Vader’s body burns, and the celebrations at the end wrap things up nicely. (Hey, I didn’t know somebody would save the melted face helmet from the pyre.)
I’m a fan through and through, so I can only quibble a little with the franchise on this point: The bad guys have a fatal over-reliance on A Big Destructive Space Technology That Has a Key Weakness to be Exploited by a Few Inside Attackers and a Few Bold Fighter Pilots.
Star Wars VII: The Force Awakens. And you know what? The bad guys change their name from the Empire to the First Order but they still didn’t learn their lesson about A Big Destructive Space Technology That Has a Key Weakness to be Exploited by a Few Inside Attackers and a Few Bold Fighter Pilots. This time the space station is actually an entire planet but it’s just as vulnerable. The inability of the villains to learn and adapt puts them way below the level of the Borg (different universe, I know).
All that made Star Wars VII for me a competent sequel and no more. (Better a competent sequel than three incompetent prequels, you think?) And because I’m a Star Wars fan, a competent sequel was good enough. I loved it! – seeing the old characters aged about 38 Earth years, and meeting Finn and Rey.
Star Wars VIII: The Last Jedi. I’ll just say that after seeing VIII, I then liked VII as more than a competent sequel, because it nicely set up Finn and Rey for VIII. To me, “The Last Jedi” redeemed “The Force Awakens” in much the same way that “Revenge of the Sith” redeemed “Attack of the Clones.” But in this film, clearly the franchise is getting old. There was no time in this movie that in the theater I told myself “Wow, I didn’t expect that!” Contrast that with the original Star Wars IV (1977), which surprised and delighted at every turn.
Star Wars IX: The Rise of Skywalker. On this one I’ll leave the big reviews to others and just sink down in relief and exhaustion. Yes, I’m relieved that the franchise’s new owners didn’t totally stink up the theater with this one. But as I walked out of the theater, I realized that I have set the bar very low — “just get it over with.” I’m still a fan. I’ll go to anything Star Wars. But:
- The franchise is getting old. Lightsaber battles can’t do very much that’s creative.
- The franchise is getting old. Yet another Big Destructive Space Technology That Has a Key Weakness to be Exploited by a Few Inside Attackers. An empire that has faster-than-light propulsion never invented GPS for navigation? Come on!
- The franchise is getting old. The complexity of the space battle scenes has gotten out of hand — to the point that it interferes with the story-telling. Example: The opening scene of “A New Hope” still looks great, 40 years later. A huge Star Destroyer is going by overhead, firing on Princess Leia’s much smaller ship. The scene had to be simple because it’s all that the limited technology of the time would allow, but it works better than the more complicated battles now technically possible.
- The franchise is getting old. There cannot now be a new introduction of a villain as bad as Darth Vader in “A New Hope.” Kylo Ren is a weak reflection of Vader, despite Adam Driver’s excellent portrayal of the character. (Did I mention that I think the franchise is getting old?)
- Carrie Fisher as Leia (posthumously) and Mark Hamill as Luke finally line up nicely with their characters, as written. In the original trilogy they were young and inexperienced actors, but that played nicely into the impossible situations their characters faced. All these years later, Fisher had aged to become a thoughtful general rather than a princess with an attitude. Hamill played the embittered former hero well before mellowing out at the end. Neither actor was a superstar, but the writing and direction were just right for them and their characters.
Finally, an economic meta-point. (Well, I’m an economist; what did you expect?) The original Star Wars of 1977 was produced by Hollywood’s rebels — a merry band defying convention. Star Wars IX was produced by the Galactic Empire, or its modern day equivalent: a crushing conglomerate with loads of intellectual property and no sense of humor. Economic freedom, “you’re my only hope” for resisting the Mouse’s dominance, and your shields are failing.
Effective July 1, 2019, I became the department head in economics at James Madison University. This is my second term of service in this job — but when I did it before, I was Luke Skywalker and now I’m Obi-Wan Kenobi (“or Yoda!” says my Star Wars analogy-checker). Anyway, in my Obi-Wan role I’m looking forward to helping all the department faculty be the best they can be, with a special emphasis on those launching their academic careers. And, on the student side, I’m starting a few initiatives to try to help students in our department get the classes they need. Let’s make it happen!
In spring 2019 I’m teaching the macro principles class for the first time in a few years — and I’m looking forward to it. I’m a regular participant in our department’s weekly macro seminar and I have some new material and in-class tricks to try out. One important note at the start: Macroeconomics is harder than you’d think if you spend much time on social media. There, people get lots of agreement when they say the case is “overwhelming” for one macro policy and there’s “no evidence” for another. Trust me, on all of the major controversies, from the minimum wage to monetary policy, there are no overwhelming cases or totally unsupported positions. With the framework of introductory macroeconomics, though, you can make sense of the competing arguments and come to a reasoned judgment. Here we go!
“Don’t mix business and pleasure,” says the old proverb, but this vacation worked out well with both — a trip to Lambeau Field for a professional conference with lots of fun and sightseeing with my family too. (Trust me, the actual body of water Green Bay is big, and it’s just a bay on Lake Michigan with is really big! And the town Green Bay is delightful, though very much centered on the Packers. You can see Lambeau Field from all over town and navigate by the street that runs right by — Lombardi Street, of course.) I could have acted dignified on conference day, I suppose, but I went around instead during free time taking pictures with classic Packers art.
- Great regional jet service through our own community airport, the Shenandoah Valley Regional Airport.
- Dinner at a restaurant that serves elk and other wild game.
- A hotel with plumbing so advanced, the three-head shower has an electronic control panel.
- Opening authors’ meeting for a book I’m writing together with three good friends.
Here I am below with Coach Lombardi:
Update: Yes, in 2019 I went to that conference again and had a great time again — check this out: https://www.facebook.com/EconEpisodes