Happy birthday Ronald Coase!

Ronald Harry Coase, the Clifton R. Musser Emeritus Professor of Economics at the University of Chicago Law School and the 1991 Nobel Laureate in Economics has his 102nd birthday today!

Ronald H. Coase was born on December 29, 1910 in Willesden, a London suburb. His article “The Problem of Social Cost” published at the Journal of Law & Economics in 1960 was the founding stone of Law & Economics.

Everyone who had the luck to meet him, even once, will never forget his intelligence, humor and liveliness.

Happy birthday Prof. Coase and thank you for everything!

U of C Law Profile

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The Ronald Coase Institute

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When women dare to outearn men

Economist
December 18, 2012

Of the many glass ceilings constraining women's careers, one is particularly important yet often overlooked: the wage of the husband. In a new paper, Marianne Bertrand, Emir Kamenica (both University of Chicago) and Jessica Pan (National University of Singapore) show how thick this ceiling really is.

In a country like America, in which men on average earn more than women, it follows almost naturally that the wife often earns less. However, the pattern of relative income of men and women at young(ish) ages in a marriage is striking: there are many young couples in which the wife earns slightly less than her husband, or just as much, but far fewer as relative income reverses, that is, when the wife earns more. And this pattern is not driven by older couples; the researcher only use couples around the time of first marriage (22-34) for this part of the study. Despite some progress in recent decades, the social norm "men should earn more than their wives" seems to be alive and well.

That is not only a curious fact; it has consequences, too. The researchers show that women with the potential to earn more than their husbands quit their job altogether more often than otherwise similar women in comparable families. If they do work, they use their earnings potential to a lower degree. That's bad news for the economy.

The paper offers some hints as to why women who could outearn their husbands choose not to work at all, or to work less. For instance, norms affect the division of household chores, but economically in the wrong direction. If a husband earns less than his wife, she might rightfully expect him to take on some additional responsibilities at home. In reality, however, if she earns more, she spends more time taking care of the household and their children than otherwise similar women in comparable families, who earn less than the husband. One wonders whether such women feel compelled to soothe their husbands' unease at earning less.

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Peter Temin, "The Roman Market Economy"

Princeton University Press
December 2012

The quality of life for ordinary Roman citizens at the height of the Roman Empire probably was better than that of any other large group of people living before the Industrial Revolution. The Roman Market Economy uses the tools of modern economics to show how trade, markets, and the Pax Romana were critical to ancient Rome's prosperity.

Peter Temin, one of the world's foremost economic historians, argues that markets dominated the Roman economy. He traces how the Pax Romana encouraged trade around the Mediterranean, and how Roman law promoted commerce and banking. Temin shows that a reasonably vibrant market for wheat extended throughout the empire, and suggests that the Antonine Plague may have been responsible for turning the stable prices of the early empire into the persistent inflation of the late. He vividly describes how various markets operated in Roman times, from commodities and slaves to the buying and selling of land. Applying modern methods for evaluating economic growth to data culled from historical sources, Temin argues that Roman Italy in the second century was as prosperous as the Dutch Republic in its golden age of the seventeenth century.

The Roman Market Economy reveals how economics can help us understand how the Roman Empire could have ruled seventy million people and endured for centuries.

Peter Temin is the Gray Professor Emeritus of Economics at the Massachusetts Institute of Technology. His books include The World Economy between the World Wars.

Income and Democracy: Lipset's Law Revisited

by Anke Hoeffler, Robert H. Bates and Ghada Fayad

International Monetary Fund
Working Paper No. 12/295
December 17, 2012

We revisit Lipset‘s law, which posits a positive and significant relationship between income and democracy. Using dynamic and heterogeneous panel data estimation techniques, we find a significant and negative relationship between income and democracy: higher/lower incomes per capita hinder/trigger democratization. Decomposing overall income per capita into its resource and non-resource components, we find that the coefficient on the latter is positive and significant while that on the former is significant but negative, indicating that the role of resource income is central to the result.

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Saving Economics from the Economists

by Ronald Coase

Harvard Business Review
December 2012

Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

That was not the case in the past. When modern economics was born, Adam Smith envisioned it as a study of the “nature and causes of the wealth of nations.” His seminal work, The Wealth of Nations, was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, shortsightedness, and other defects. The book also stirred up and guided debates among politicians on trade and other economic policies. The academic community in those days was small, and economists had to appeal to a broad audience. Even at the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Economics remained relevant to industrialists.

In the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter. Today, production is marginalized in economics, and the paradigmatic question is a rather static one of resource allocation. The tools used by economists to analyze business firms are too abstract and speculative to offer any guidance to entrepreneurs and managers in their constant struggle to bring novel products to consumers at low cost.

This separation of economics from the working economy has severely damaged both the business community and the academic discipline. Since economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions. In times of crisis, when business leaders lose their self-confidence, they often look to political power to fill the void. Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.

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