Category: Economics – General

‘If all your friends jumped off a bridge, would you?’ This is a common parenting phrase is meant to motivate kids to reject peer’s actions that are bad behaviors. While this blogger will not comment how effective this parenting phrase is, peer effects are real.

Consider the recent NBER working paper by Finkelstein, Gentzkow, and William (2019). They find that peer effects are real in the case of opioid abuse:

… movement to a county with a 20 percent higher rate of opioid abuse (equivalent to a move from a 25th to 75th percentile county) increases rates of opioid abuse by 4.5 percent, suggesting that roughly 20 percent of the gap between these areas is due to place-specific factors. These effects are particularly pronounced for prior opioid users, who experience an increase in opioid abuse nearly 1.5 times larger than the increase for opioid naives.

Source:

• Finkelstein A, Gentzkow M, Williams H. What drives prescription opioid abuse? Evidence from migration. Stanford Institute for Economic Policy Research Working Paper. 2018 Aug:18-028.

From John Maynard Keynes’ Essays in Biography:

The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together.  He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature of his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.

Hat tip: Marginal Revolution.

Results from a survey titled “Coronavirus Impact and Recovery of the Small Businesses Economy“, which has collected responses from over 520,000 business owners in the US and Canada. Some general positive trends, but still over 20% of small business owners have concerns of their financial reserves running out and nearly 20% are concerned that the COVID-19 could cause the government to close businesses again.

More specifics by industry:

• Bars. Total consumer spending at local bars is down 35% from the prior year and 36% of all local bars are closed.
• Retail. Total consumer spending at local retail shops is up 5% but 16% of all local shops are closed.
• Health and beauty. With more people working from home, consumer spending in this sector is down 39% YOY, with 25% of all local health and beauty businesses closed.
• Arts and Entertainment. Cultural attractions have been hit hard with consumer spending down 74% year over year. Further, 63% of all local arts & entertainment businesses are closed.

In short, despite some positive trends, COVID-19 has had a huge negative financial impact on many small businesses.