I predict she is going to make it big. I’m not sure how, but remember you heard it here first.
A couple of months later, I received a letter out of the blue from a legit movie producer who said he was writing to thank me for that post because from it he learned how talented Sarah is. He wrote that he had just signed a contract with her to develop a screenplay.
Fast forward to the present, and while I can’t find any movies made with Sarah’s scripts, I was happy to hear this NPR interview with her about an album she just released. The album is called “Stupid Things.” My favorite song, “Gym Looks Nice,” is a school dance tone poem that is characteristically moving. My daughter tells me that at one point, it made it into the top twenty downloads on iTunes. Sarah’s also released a music video of her song “Peonies”:
I wouldn’t claim that my “make it big” prediction has come true yet. But she seems to be on her way.
At the British Library, the special exhibition about Georgian England has a concession (old folks) price of ₤7, but also a listed concession (gift) price of ₤8. With the latter, one gets a receipt and can deduct the ₤8 from one’s income at tax time. If one is in the 20 percent bracket (taxable income from almost nothing up to ₤32,000), the net admission price is ₤6.40. So the incidence of the subsidy is typically shared nicely by the library and the taxpayer. But for the highest-income visitors — tax rate of 40 percent — the overwhelming share of the benefit goes to the taxpayer. I’ve never seen this double-pricing scheme made so explicit — and the sharing of the gains made so clear — in the U.S.
What could be less controversial than the principle that the public should be consulted about transportation policy? In future posts, I’m going to write about why puppy dogs are despicable and why we should all root for the Miami Heat, but for today I’m going to question this seemingly unquestionable proposition.
There is good reason that one of modern transportation planning’s most fundamental precepts is that the public should be consulted on policies large and small, from constructing a new subway line to changing a humble bus schedule. This is the product of very real abuses, particularly during the creation of the Interstate Highway System. At that time, government had virtual carte blanche to displace residents and bulldoze neighborhoods. For example, for Los Angeles’s Harbor Freeway in the late 1940s, the condemnation resolution for the right-of-way was approved by the court the day after it was filed by the state. The following day, every piece of property along the route was posted with a fifteen day notice to vacate. And less than three weeks after the filing of the condemnation resolution, the Division of Highways began clearing the property.
The apparently sensible response to this arbitrary exercise of authority has been the rise of public power and participation, which is something of a mantra among transportation planners. But while this is great in principle, there are some severe problems in practice.
The first is actually getting the public interested. Here in Greenville, S.C., for example, public hearings about the long-range planning of the transportation system, which is presumably of considerable import, often attract attendees who can be counted on the fingers of one hand, despite herculean efforts to drum up interest. In such a situation, a handful of people who may have turned out because that night’s episode of Real Housewives of New Jersey was a rerun may have an outsized voice in making policy.
Meetings about near-term, specific programs often don’t have this problem—in fact, they are sometimes swamped with eager attendees. However, this raises another problem: a small number of committed citizens can, and often do, stymie projects that would have very great benefits for the public at large.
I say stymie projects, as opposed to promote them, because this is typically what happens. Economists have long noted that people are generally highly averse to change, no matter what that change is. They also hate losing much more than they enjoy gaining. Most people vastly prefer to avoid losing ten dollars than to get ten dollars, despite the fact that they are the exact same thing.
People are also quite imaginative. So public officials who want to do anything at all are often bombarded with apocalyptic charges that a change to the transportation system, no matter how minor, will jam residential streets with a sea of traffic, result in cars parked on front lawns, generate earsplitting noise, block out the sun, invite armies of miscreants and criminals into the neighborhood, and result in boils, locusts, frogs, and slaying of the neighborhood’s firstborn. In contrast to the hyperbole about the costs, the potential benefits receive scant attention, even when the residents who are complaining would be the biggest beneficiaries of the accessibility the project will generate.
Of course, the benefits of such projects may be large, even gigantic, in the case of things like freeways, subway lines, or port or airport expansions. Literally hundreds of millions of travelers might save money and/or time. Even those who do not use the facilities benefit due to economic growth, wealth, and jobs for the entire region. The problem is that few of those future travelers or residents of the region are going to turn out at public meetings or bombard legislators with emails and calls, because the benefits, though widespread, are hard to conceptualize. How can anybody be expected to be able to understand and calculate, let alone get out and campaign for, potential savings on airline tickets or more convenient connections a decade in the future? The main voices representing the interests of those travelers are the airlines, but it is easy enough for opponents to dismiss them as greedy capitalists. (This they certainly are, but for the most part the only way they can satisfy their greed is to serve the public interest, a fact that few critics of the evils of the profit motive ever consider.)
For the relatively small number of airport neighbors, however, the costs—or at least the imagined costs—are great enough to prompt energetic lobbying. In turn, their elected representatives are willing to focus all of their efforts on blocking these projects, and are willing to horse-trade their votes on other issues to bring other legislators onboard.
In addition to political lobbying, another favorite tactic is recourse to the legal system. Of course, the ability of citizens to seek restitution for harm is one of the great strengths of our system of government, but as we all know, it can also be badly abused. I once heard a talk from an activist fighting the expansion of Los Angeles’s ports, who boasted that her organization’s immediate response to any such project was the filing of a lawsuit based on California’s Environmental Quality Act. This person happily admitted that the actual merit of such suit was of little relevance, since even if it was ultimately unsuccessful it would have to be defended against, raising the project’s cost and delaying it long enough for opponents to dream up other obstructionist tactics.
Contrast Los Angeles’s Harbor Freeway experience with the building of the Century Freeway a few decades later. For the Century Freeway, acquiring and clearing the land for the right-of-way took 20 years. The project faced numerous lawsuits from residents and pressure groups, resulting in ten years of delay and costly litigation. The suits were eventually settled with a consent decree that resulted in costs ballooning to $250m/mile (today’s dollars), well more than double what was initially forecast. For these reasons, the era of building urban freeways is basically over.
You may hate freeways, and consider this a success, and in some respects it is. But don’t forget that this same principle will stymie other interventions that might be more to your liking. For example, for reasons that are entirely unclear to me, residents of Beverly Hills have long blocked making the curb lane on Wilshire Blvd. a bus lane during rush hours, despite the fact that this would ease the lives of transit riders, help to get Angelenos out of their cars, and reduce traffic on Wilshire, of which Beverly Hills residents themselves are the biggest victims.
Or maybe you simply don’t like transportation. But few stop to consider the mammoth cost of a world with no highways or airports. Their benefits are utterly taken for granted by most people, who grouse only about the system’s failings. Yet while I know of many passionate critics of the Interstates, I don’t know a single one who doesn’t travel on them. Past sacrifices were essential for today’s prosperity, but thanks to the current gridlock, we ourselves are now unwilling to make such sacrifices for future generations.
There are certainly some modern-day examples of projects, like the Three Gorges Dam in China, which have had terrible environmental impacts and where the displaced residents (there were 1.24 million of them) should have had more of a voice. And okay, the solution here isn’t amending the Constitution to permit autocratic rule by Robert Mugabe. But it would be nice if our press and elected officials occasionally reminded us of the admittedly vote-losing proposition that the price of living in a community is that sometimes we all must tolerate some discomfort for the benefit of the polity as a whole. Also, in addition to blaming the easy targets of self-interested neighbors, parochial interest groups, and craven elected officials, it might behoove us to take a look in the mirror. The situation where the interests of the few are trumping the interests of the many exists because the rest of us are too uninformed and apathetic to participate in the process in an educated and energetic manner. Public participation can work, but only if the public actually takes the trouble to participate.
A new (gated) NBER paper looks at the relationship between breastfeeding and childhood disability. The author, George Wehby, finds that a longer duration of breastfeeding is associated with a slightly lower risk of child disability:
Little is known about whether breastfeeding may prevent disabilities throughout childhood. We evaluate the effects of breastfeeding on child disability using data from the National Survey of Family Growth merged to the National Health Interview Survey for a large nationally representative sample of children aged 1 to 18 years from the U.S. including over 3,000 siblings who are discordant on breastfeeding status/duration. We focus on a mother fixed effect model that compares siblings in order to account for family-level unobservable confounders and employ multiple specifications including a dynamic model that accounts for disability status of the prior child. Breastfeeding the child for a longer duration is associated with a lower risk of child disability, by about 0.2 percentage-points per month of breastfeeding. This effect is only observed on the intensive margin among breastfed children, as any breastfeeding has no effect on the extensive margin. We conclude that very short breastfeeding durations are unlikely to have an effect on reducing disability risk.
Our “Riding the Herd Mentality” podcast argued that one surprisingly effective way to encourage pro-social behavior is to simply tell people that everybody else is already doing it.
A reader named Freek Rijna — “Jep, that’s my real name and it’s typically Dutch. :-)” — sends in this example from the Singapore subway. “Thought you might enjoy it,” Freek writes. “Not sure about the penguins though …”
I see Freek’s point. Also, I might have to stop for a minute to think whether “alighting” means getting off or getting on …
We’ve blogged before about how easy it is to create false memories. A new psychology study explores which of our senses are generally more influential in imprinting memory. “As it turns out, there is merit to the Chinese proverb ‘I hear, and I forget; I see, and I remember,” says James Bigelow, a graduate student at the University of Iowa who is lead author of the study.
From Pacific Standard:
The study consisted of two experiments that focused on short-term memory. Participants were exposed to different pictures, sounds, and objects to touch (shielded from view), and then asked to distinguish each thing from a similar item or identify it among a larger group. Sometimes participants’ memories were tested after only a matter of seconds, but in other instances the study stretched the time before recall to a day or even a week. While the accuracy of the participants’ memories declined across the board as time went on, the accuracy of their auditory recall plummeted more rapidly than that of the the other two senses.
…“We tend to think that the parts of our brain wired for memory are integrated,” says Amy Poremba, one of the study’s two authors, in a press release. “But our findings indicate our brain may use separate pathways to process information. Even more, our study suggests the brain may process auditory information differently than visual and tactile information, and alternative strategies—such as increased mental repetition—may be needed when trying to improve memory.”
Our latest podcast is called “Is Learning a Foreign Language Really Worth It?” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.) We produced the episode in response to a question from a listener named Doug Ahmann, who wrote in to say:
I’m very curious how it came to be that teaching students a foreign language has reached the status it has in the U.S. … My oldest daughter is a college freshman, and not only have I paid for her to study Spanish for the last four or more years — they even do it in grade school now! — but her college is requiring her to study EVEN MORE!
What on earth is going on? How did it ever get this far?
In a day and age where schools at every level are complaining about limited resources, why on earth do we continue to force these kids to study a foreign language that few will ever use, and virtually all do not retain?
Or to put it in economics terms, where is the ROI?
Great question, Doug! We do our best to provide some answers.
In the episode you’ll hear from Albert Saiz, an MIT economist who specializes in immigration. In a paper called “Listening to What the World Says: Bilingualism and Earnings in the United States”(abstract; PDF*), Saiz calculated how much learning a foreign language can boost future earnings.
Learning a language is of course not just about making money — and you’ll hear about the other benefits. Research shows that being bilingual improves executive function and memory in kids, and may stall the onset of Alzheimer’s disease.
Bryan Caplan, an economist at George Mason University, talks about how much time the average U.S. student spends learning a language, and how well that learning is retained. (Spoiler alert: not very well!) Caplan also tells us what he really thinks about foreign language education in the U.S.:
CAPLAN: If people are going to get some basic career benefit out of it, or it enriches their personal life, then foreign language study is great. But if it’s a language that doesn’t really help their career, they’re not going to use it, and they’re not happy when they’re there, I really don’t see the point, it seems cruel to me.
Perhaps most important, Caplan points to the opportunity cost of language study:
CAPLAN: There are so many kids who remain barely literate, and numerate in their own language.
Finally: a big thanks to the fourth- and eighth-grade Spanish and Mandarin students at LREI (Little Red School House and Elisabeth Irwin High School) in Manhattan, and to their teachers and principal, for letting us listen in on a lesson. Or, shall we say: muchas gracias and xie xie.
*Review of Economics and Statistics 87, no. 3 (August 2005), pp. 523-538; published by MIT Press Journals. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This is a transcript of the Freakonomics Radio podcast “Is Learning a Foreign Language Really Worth It?“
[MUSIC: The Jaguars, “Shimmy Go Go” (from The Jaguars)]
Stephen J. Dubner: Hey podcast listeners. You’re about to hear an episode about the ROI, or return on investment, of studying a foreign language. Which might lead you to think — huh, what’s the ROI on listening to Freakonomics Radio? Well, if it’s anything above zero, then we hope you’ll consider making a contribution to keep this public-radio podcast free and easy. Just go to Freakonomics.com and click on donate. Merci beaucoup… Toda raba… and ank-thay-ou-yay-ery-vay-uch-may!
[MUSIC: Grupo Tlacotalpan, “Siquisiri” (from Son Jarocho De Tlacotalpan)]
DUBNER: The average American student will study a foreign language for two or three years. Little Red School House is a well-regarded private school in Manhattan with a progressive style. Here, kids start with a second language in pre-kindergarten and go all the way through graduation.
SPANISH TEACHER: Ok, we are at Little Red Elisabeth Irwin and we are going to be in a classroom of 4th grade Spanish learners.
SPANISH TEACHER: Escuchan y repetan: Un genero.
SPANISH STUDENTS: Un genero.
SPANISH TEACHER: Excellente.
DUBNER: Kids at Little Red start out studying Spanish…
SPANISH STUDENT: Quien es un autor que te gusta mucho?
DUBNER: And as they get older they can either stick with Spanish or take Mandarin or French. How are they doing so far?
FOURTH GRADE STUDENT: Compared to like a normal Spanish speaking person in Peru, I’d say we are pretty bad, but like, for a person in 4th grade who is learning Spanish, I can say we are pretty good.
DUBNER: They are good! And they have big dreams about what learning a foreign language will help them accomplish.
FOURTH GRADER: If you have like a big business deal with someone and they don’t speak English then you could make, like, a lot of money.
FOURTH GRADER: I think I might want to work at a pastry shop or a bakery and maybe there will be Chinese or French people, so I could talk to them, like, “make another bread roll,” or something like that in a different language.
FOURTH GRADER: I might work at a store because then people who speak other languages might ask you questions.
FOURTH GRADER: So, I’m going to be a world-traveling architect, or I might be a scientist, or I might be a mechanic, or I might be a person who invents a car and gets millions of dollars.
[MUSIC: The Jaguars, “Taco Taco” (from The Jaguars)]
DUBNER: On today’s show we’re asking: What is the value of learning a second language? It started with an e-mail from a listener named Doug Ahmann. He wrote to say:
I’m very curious how it came to be that teaching students a foreign language has reached the status it has in the U.S. … My oldest daughter is a college freshman, and not only have I paid for her to study Spanish for the last 4 or more years — they even do it in grade school now! — but her college is requiring her to study EVEN MORE!
What on earth is going on? How did it ever get this far?
In a day and age where schools at every level are complaining about limited resources, why on earth do we continue to force these kids to study a foreign language that few will ever use, and virtually all do not retain?
Or to put it in economics terms, where is the ROI?
DUBNER: Okay, we’ll bite: hey kid, what is the ROI on learning a foreign language?
FOURTH GRADER: If you learn, like, Spanish for example in this school maybe 20 years later you could become a billionaire in another country… but… very rare.
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.
[MUSIC: Pearl Django, “Eleventh Hour” (from Eleven)]
DUBNER: On today’s show, we’re talking about learning a foreign language, like Mandarin:
EIGHTH GRADE STUDENT: When I asked him (speaking in Mandarin) I was asking him how old he is. So when he said (speaking in Mandarin) he’s saying, “I’m 14.”
DUBNER: Why do we do this, teach our kids a second language? The answer might seem obvious – like all education, it stretches your brain on any number of dimensions. But let’s try to quantify it a bit more than that. We’ll start with Boaz Keysar. He’s a psychology professor at the University of Chicago; his speciality is communication.
Boaz KEYSAR: Really, studying communication is entirely autobiographical because I realize that I am different when I’m using almost any language other than Hebrew.
DUBNER: Keysar is from Israel. His particular interest in communication has to do with how our decision-making is affected when we operate in a foreign language.
KEYSAR: Things like making investments. I’m much more likely to invest in the stock market when I do it in English. If I think about it in Hebrew I feel that I become more conservative.
DUBNER: So that’s surprising. But maybe, he thought, it was just him. So he ran an experiment with University of Chicago students, a little game with money.
KEYSAR: So, you imagine I give you $20.
DUBNER: Here’s the way Keysar’s game works. If he gives you $20, you’ll play a game with 20 rounds, a dollar a round. In each round, you can either keep the dollar, just put it in your pocket, or put the dollar on the table and flip a coin. If it’s tails, you lose the dollar. But if it’s heads, you get $2.50 — meaning you get your original dollar back and you win a dollar a half.
KEYSAR: So you don’t need to know a lot of math to realize that the expected value is positive, in other words, that on average you’re better off with the bet than with pocketing the dollar.
DUBNER: Now what does have to do with a foreign language?
KEYSAR: We were interested to see what happened when you make this decision when you are using a foreign language.
DUBNER: So the researchers had some students play in English. And others students play in a foreign language, Spanish.
KEYSAR: And it turns out, indeed, people were like almost 20 percentage points more willing to take bets. They were significantly more willing to take the risk in a foreign language.
[MUSIC: Ruby Velle & The Soulphonics, “It’s About Time” (from It’s About Time)]
DUBNER: That isn’t at all the result that he was expecting.
KEYSAR: I was actually stunned that it happened because it’s really the same person. All that person does is use Spanish now. And it’s the same dollar, it’s the same person, and it’s just randomly the case that you’re doing it in Spanish.
DUBNER: Now, it could just be that people didn’t understand as well in a second language – that this was more a comprehension issue than a risk issue. But Keysar, at least, was persuaded that he was onto something…
KEYSAR: Because of that we started thinking that maybe it’s an even stronger and more pervasive phenomenon than we even think, and not just about risk. And indeed we find that there’s all sorts of systematic differences that exist when you’re using a foreign language.
DUBNER: For instance?
KEYSAR: Like when we asked people to think about moral dilemmas. So would you sacrifice one person to save five.
DUBNER: You’ve heard this kind of dilemma before, right? A bus driver, let’s say, is going to run over five people and kill them – so do you go ahead and kill the driver before he can kill the other five? Now, normally, people are reluctant to say yes. But if you ask them in a foreign language…
KEYSAR: …we found that people are twice as likely to do that, to actually go for the utilitarian option to sacrifice one person to save five. Now, we didn’t do this for real. But I used hypothetical scenarios. But still, they said yes, I will do that.
DUBNER: So why might this happen?
KEYSAR: Now, the reason this could be interesting is that we know that the foreign language is much less emotional. It gives you less emotional resonance when you use it. The same word, love and amour, even though you know exactly the meaning, and when the meaning is identical. You still, if you’re a native English speaker you get a lot more out of love. And that’s been demonstrated in all sorts of ways. There are also physiological reactions, so you can show that people’s arousal is higher when they use their native tongue when these kind of emotional related words are used.
DUBNER: And so, Keysar says, when people think in a foreign language…
KEYSAR: They’re more reflective about their choices. They’re more likely to engage in cost-benefit analysis, in a way, and less likely to be swayed by all sorts of emotional reactions that they might have in general.
[MUSIC: Sonogram, “Brakhage by Seashore” (from Pixels)]
DUBNER: From Keysar’s point of view, this isn’t necessarily a good or bad thing – and in fact, his experimental examples aren’t very consistent, at least it strikes me that way. In one instance, the foreign language seems to increase your appetite for risk; in another, it makes you “more reflective.” But what matters is that the language always seems to affect something in the way you think, or process information, or make a decision. And that, really, is the point of the argument in favor of teaching a foreign language to kids. Learning a second language changes the brain! Now, the evidence for this is pretty compelling. Bilingual kids have been shown to have better memory and executive function. There’s some evidence that being bilingual stalls the onset of Alzheimer’s disease. And there are other, more utilitarian pluses, as the fourth-graders at Little Red School House reminded us:
FOURTH GRADER: Well, I think a good thing that comes from learning a foreign language is that you can speak to more people. You know how to speak to other people if they don’t know how to speak your language you just go right into their language.
FOURTH GRADER: And also it sort of just makes you smarter to know all these different languages and it helps your education.
DUBNER: Okay, so that’s all good stuff. But, coming up on Freakonomics Radio – what about the opportunity cost of all that time spent learning a second language?
CAPLAN: There are so many kids who remain barely literate, and numerate in their own language.
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.
[MUSIC: Heavy G and the Boogaloo Communicators, “Ms. Persuasive”]
DUBNER: I’d like you to meet Albert Sigh-eeze… Sayz… Sah-ez?
Albert SAIZ: I’ve been called almost everything so I don’t mind it.
DUBNER: Sorry, Albert Saiz.
SAIZ: It’s a Spanish name, and it’s pronounced scythe, exactly like the agricultural tool you use to mow the grass.
DUBNER: But it’s spelled S-A-I-Z.
SAIZ: S-A-I-Z, yeah, and again I get all types of mispronunciations, so I’m used to whatever you say.
DUBNER: Saiz is from Barcelona – Barthelona – and he’s an economist at MIT, where he teaches urban planning. On today’s show we’re asking about the return on investment of learning a foreign language and, wouldn’t you know it, Saiz has calculated exactly that. He tracked about 9,000 college graduates to see how a foreign language affected their wages.He was surprised by what he found.
SAIZ: Yeah, unfortunately, and I have to say, of course, because I try to speak three, I was pretty disappointed, and actually we found a very, very small return. What we did find is that after controlling for a host of characteristics, and using, a lot of experimental research designs that are basically trying to compare people who are identical for everything except for the second language, we did tend to find a premium in the labor market of about 2 percent of wages. In other words, if you speak a second language, you can expect to earn, on average, and that’s across many, many different people, on average you can be expected to earn about 2 percent higher wages. To contextualize this, think about your income or your wage being about $30,000, then you would expect to earn about $600 more per year.
[MUSIC: Matthew Aguiluz, “Organism”]
DUBNER: Now that’s not nothing. There are a lot of things you can do that won’t increase your earnings by even 2 percent. But still, that’s not a huge premium. And, I hate to tell this to our young Spanish speakers back at the Little Red School House in New York…
[Little Red student speaking Spanish]
DUBNER: … but there is a rank order in terms of how different foreign languages translate into higher earnings:
SAIZ: We know that the lowest return is Spanish, where you get about 1.5 percent, and then French 2.7 percent, and then German 4 percent. So you know learning a second language is something that’s worth to do by itself, but as a financial decision, probably, if you’re focusing on financial returns, they’re relatively low, and you should focus on languages that are rarely spoken in the United States.
[Little Red students speaking Mandarin]
DUBNER: Okay, so the financial returns to learning a foreign language are not so large. Which leads some economists to think that it’s mostly a waste of time.
Bryan CAPLAN: It makes me think that people are spending three years of their lives to acquire very few skills.
DUBNER: This is Bryan Caplan, at George Mason University.
CAPLAN: All of this study seems to totally fail to teach people how to fluently speak foreign languages. So we can actually see in the data is that under 1 percent of Americans have learned to speak a foreign language very well in school. And this is very well according to them. And since people tend to exaggerate how good they are at things. If under 1 percent claim that they learned to speak a foreign language very well in school, then God knows how many actually did.
DUBNER: Caplan says about a quarter of Americans say they speak a language other than English. And the people who say they speak it well tended to learn it at home, not at school. And all that school instruction does not come cheap – in money or time.
CAPLAN: It’s pretty close to about one sixth of the time that students are spending in high school assuming that they start the foreign language in high school. So maybe if you average over junior high and high school then you might be spending a total of about a 12th of your time. So I think a pretty reasonable first pass is to say that the cost of a foreign language study in U.S. schools is about a twelfth of the cost of junior high and high school. And when you multiply that by the total amount of spending, that is a lot. And remember there is something else that students could be learning at that time. There are so many kids who remain barely literate, and numerate in their own language. And that’s something where yes it’s true, it would probably not dramatically change their ability to read and write just to go and take the time on foreign language and putting it into that. But that’s a skill that actually really does pay in the world, so it’s really worth thinking about doing that.
[MUSIC: Das Vibenbass, “The Beast” (from Animals & Robots)]
DUBNER: So as Bryan Caplan sees it, learning a foreign language, especially in school, just may not be worth it. Unless – that foreign language is English. Remember what Albert Saiz told us? His study of college graduates found only a 2 percent wage premium for learning a foreign language. But those were American college graduates:
SAIZ: I can tell you that there’s research in other countries. Actually the findings in the United States do contrast with what other people following the same methodology found in Turkey, in Russia and in Israel. In these three countries, actually speaking English, which would be the second language, was associated with a substantial return of around 10 to 20 percent. So it’s really I think English speaking countries where that effect is relatively low. And again I think the explanation is very clear. English is the lingua franca.
DUBNER: Even Bryan Caplan, our language skeptic, is not so surprised by the English-language premium:
CAPLAN: Right, the incentive of real life is a very strong one. If you want to understand why so many people on earth learn English, it is because there are a lot of jobs on Earth that you can get because you learn English. And it also opens a lot of doors. It opens doors for you in terms of things that you can read, movies that you can watch, people that you can talk to, you know tourism, all of these things, these are all doors that are opened by English. Once when I was in Guatemala I was actually asking them how much does English improve your life here, being able to speak English improve your lives here, and all the Guatemalans that I talked to could, of course, speak very good English. And it’s night and day. Really the doorway into the international world if you can speak English here.
DUBNER: And by the way, Bryan Caplan, for all that he sounds like a language skeptic, or at least a language utilitarian, in real life, he’s a language romantic. He was in college. He fell in love with German – the literature…
CAPLAN: I can read Nietzsche in German…
DUBNER: The cuisine…
CAPLAN: [GERMAN WORD] which is kind of a fancy sundae. It’s really good.
DUBNER: German music…
CAPLAN: My favorite composer is Richard Wagner, of course.
[MUSIC: Lilo Brockhaus, “Wagner: Die Walküre” (from Wagner: Overtures & Preludes)]
DUBNER: But still… the economist in him trumps the romantic.
CAPLAN: But again, for me it fits the basic story of: if people either are going to get some big career benefit out of it or it enriches their personal life, then foreign language study is great. But if it’s a language that doesn’t help their career, they’re not going to use it, and they’re not happy when they’re there, I really do not see the point, it seems cruel to me.
[MUSIC: The Jaguars, “Taco Taco” from (The Jaguars)]
DUBNER: For what it’s worth: we get e-mails all the time from listeners in foreign countries who tell us that they listen to Freakonomics Radio in order to learn English. So, have two things to say to you people. One, good luck with that! And two… you’re welcome.
FOURTH GRADERS: Adios amigos… Adios!
This is a transcript of the Freakonomics Radio podcast “Is Learning a Foreign Language Really Worth It?“
This is the first in a series of posts about the problem of excess fees charged to defined contribution retirement plans, a subject I’ve been researching with Quinn Curtis. Our findings about the pervasiveness of excess fees spurred me to reassess my own retirement investments. I was embarrassed to find that, among other things, my old Stanford University 401k was invested in “CREF Stock Account,” which uses a combination of “active management, enhanced indexing and pure indexing” and charges 49 basis points (.49%) as its “Estimated Expense Charge.” Now 49 basis points is not an outrageously high fee, but it is substantially higher than the fees charged by a low-cost index.
So I called TIAA-CREF and asked for help in rolling over my Stanford account to a Fidelity IRA. The TIAA CREF rollover specialist asked why I wanted a rollover, we had the follow brief exchange:
IAN: Because the fees on my CREF account are too high.
TIAA-CREF advisor: Well, if you care about costs, you don’t want to rollover to Fidelity.
Frankly, I was shocked by this representation. I think of TIAA-CREF as a reputable organization that has provided valuable services to legions of the professoriate. But the implicature that Fidelity funds charge higher fees than TIAA-CREF is misleading. I asked the adviser how much he thought Fidelity indexes charge and he said he didn’t know but was willing to look it up for me. After a pause he reported accurately that Fidelity offers index ETFs with “net expense ratios” of just 7 basis points – one seventh the cost of my current Stanford investment.
I want to be clear that I don’t think that the adviser intentionally tried to mislead me when he suggested that Fidelity has higher expenses, but even negligently misleading participants about the relative costs of different investments is legally troubling.
After the adviser discovered that Fidelity in fact offers much lower costs index ETFs, he next offered that it wasn’t really a fair apples-to-apples comparison because the CREF fund was actively managed. To which I replied that, for my Stanford plan, TIAA-CREF doesn’t offer any index options. Failure to offer an option is a good justification for charging higher fees.
A new NBER working paper (abstract; PDF) by Tom Chang, Joshua Graff Zivin, Tal Gross, and Matthew Neidell looks at how outdoor air pollution affects the productivity of indoor workers. They studied the effect of PM2.5, “a harmful pollutant that easily penetrates indoor settings,” on employees at a pear-packing factory in California, and the potential cost savings of eliminating such pollution:
We find that an increase in PM2.5 outdoors leads to a statistically and economically significant decrease in packing speeds inside the factory, with effects arising at levels well below current air quality standards. In contrast, we find little effect of PM2.5 on hours worked or the decision to work, and little effect of pollutants that do not travel indoors, such as ozone. This effect of outdoor pollution on the productivity of indoor workers suggests a thus far overlooked consequence of pollution. Back-of-the-envelope calculations suggest that nationwide reductions in PM2.5 from 1999 to 2008 generated $19.5 billion in labor cost savings, which is roughly one-third of the total welfare benefits associated with this change.
We recently put out four Freakonomics Radio episodes that developed an arc of a theme: “Reasons to Not Be Ugly,” “What You Don’t Know About Online Dating,” “Why Marry? (Part 1)” and “Why Marry? (Part 2).” These episodes prompted a lot of interesting listener/reader replies. Here is a particularly interesting one, from a woman we’ll call R.:
I recently listened to your podcast on online dating and found it fascinating — not so much because of the economics of dating, but more how it contrasted and compared with the economics of the dating world I live in: the Orthodox Jewish semi-arranged marriages.
I grew up in upstate New York, in a village that is almost only Haredi Orthodox. The world I live in is sort of like Jane Austen, very marriage-oriented. Every girl (and boy for that matter) wants to get married, and does so in her early twenties. The systems at play to get everyone married off must fascinate an outsider. Out of my class of about sixty, about 95% got married within the first five years out of school. So far, only one girl is divorced. It’s hard to quantify happiness in all these marriages but from what my friends tend to tell me, most seem very happy in their relationships. I know that the Orthodox Union has done research into the area. They collected a lot of data by surveying thousands of Orthodox couples, including Haredim, with in-depth online questionnaires. While I have not examined their data (and what a treasure trove that must be to an economist!) I think that this success in matching quickly, efficiently, and happily is due to changing the incentives you talk about in your podcast. The entire process seems to have been designed to reduce outer beauty from being the main incentive in a marriage market.
Instead of online profiles, we Orthodox Jews have been using the age old shadkhan (matchmaker) solution — namely, that a third party suggests a match to the two prospective parties. The incentive of the shadkhan is twofold: one is the great spiritual merit of bringing about a successful match and the other is monetary — they are gifted money for a successful match. The shadkhan has no incentive to limit his or her scope to the local community they live in. They can suggest boys or girls from all over the world. Similarity is seen as having to do with religious standards, not native-born culture.
Since the parents are involved in sorting through the suggested matches, their incentives are as important as their son’s or daughter’s. Men, as you note in the podcast, seem to go for the mean women just for their looks — but can you imagine what would happen if their mothers narrowed the dating fields for them? Not only are looks less important to parents, but since the information they receive usually contains only verbal descriptions of looks, they tend to look for qualities they want their child’s spouse to have, such as: maturity, stability, kindness, etc. For most people I know, the character of the girl or boy was the most important factor in a match. Parents want to see their child married to someone who will be kind, caring, and capable of unselfishly loving their son or daughter.
Unlike the rest of the world, a man’s academic level can be really important to a woman and her parents, since studying in Jewish terms is really held in high esteem. Most Haredi communities are built on the ideal of Torah scholarship, so many parents of girls seek out the greatest yeshiva student they can for their daughters. In this, the modern-day Haredi community is a little different than the shtetl Jews of Europe: wealthy father-in-laws sometimes offer lifetime financial support to a budding scholar to marry his daughter. The scholar gains the ability to continue studying without worrying about finances, and the father-in-law gains the religious merit of Torah scholarship.
The gathering of information precedes the couple meeting. Parents (and sometimes the prospective couple too) will make phone calls to friends of the suggested match, or to people they know in common. The shadkhan provides these numbers. They then try to get as much knowledge about the suggested person. The positive traits of the match are considered, and many of the negatives are likewise discovered by this process.
It is only at this point, when everything seems perfect on paper, that the young man and woman meet. By the time they meet, they are relatively confident that the person they are meeting comes from a family they are comfortable joining and is the right person for them on a personality level. Their meeting leaves only one question still open-ended: do the boy and girl actually like each other? Do they find chemistry and attraction with each other? The decision to marry a person is therefore made first with the head and only then is the heart allowed to play. The boy and girl then can date, depending on what the norm is in their community, anywhere from a few days to a few months. During that time, they date only in open public environments like parks, hotel lobbies, and restaurants — and they don’t touch, so physical attraction can’t get ahead of a solid mindful decision of the intended’s merits. This again is a buffer against making a choice of marriage based only on the physical aspects. When they are each satisfied (or dissatisfied), they either get engaged or stop dating.
The system is no utopia. It solves many problems of the marriage and dating markets, but the changed incentives create different ones. Men and women suffer very little from the heartache, breakups, and competition that dating in the long and unvetted manner usually causes. Women in particular are fortunate in this system, because their looks are not the first thing that is judged; it is one of the last. Inner qualities become much more important: “good,” sweet, compassionate, kind-hearted girls, the ones who spite no one, tend to get more and “better” matches in this marriage market. Women also don’t have to worry about men seeking short-term superficial relationships, because that is not an option. On the other hand, women suffer because statistically there seem to be more girls than boys in the Orthodox marriage market today. There is also a higher demand for academically successful yeshiva students than are available. This makes it a man’s world, with men having the ability to be pickier and women finding the need to compromise much more often. Men have the short end of the stick in other areas. Men who don’t exceed scholastically are much less of a catch — though even there, there is another market for them, as there are girls who seek to marry boys who will work directly after marriage rather than studying (and thereby be potentially more financially successful).
There are also incentives at play that would affect a parent more than a child, namely the family situation of the suggested boy or girl. Parents tend to care more about what sort of family they are aligning themselves with. They might be drawn to suggestions in which the family is prestigious, have some great standing, or are financially well off. Any sort of unstable home also detracts from the match in the parents’ eyes, in a way that wouldn’t as easily bother a child. Divorced homes, as there are so few, are a considerable stain.
The Orthodox marriage market is hardly monolithic, so what I am writing here about Haredim is not the sole method. Dating in the more modern end of Orthodoxy is mostly like the rest of America, with the exception that marriage is its only intent. Regardless, it makes a fascinating comparison to the online dating matchmaking sites. It’s really a much more economically balanced market, with so many more factors that affect supply and demand, than the online dating market. An attractive woman does not usually beat an unattractive one in offer volume or quality, nor does a wealthy man win over a poor one.
I hope you continue to produce such thought provoking material.
R. followed up with a further thought:
In your podcast, you have an economist discuss how more information in the online dating market should, in the abstract, help people make better choices. I think the mistake there is equating quantity of information with the quality of the information. Is the fact that a guy writes that he likes whiskey and other funny incidental information, all written by the person themselves and thereby totally biased, really important? Even if the person wrote anything important, it is lost in the noise of irrelevant information, and this is not to mention that your podcast recommended writing white lies. In the Haredi marriage market, we not only have much more information before proceeding into any marriage, but it is high-quality information. We ask tons of friends, employers, and other people about the perspective match. Although most people tend to try to give mostly good information, a few prying questions will always reveal any major faults. With such high quality information, people are much better equipped to make much better decisions on whether someone, with all their good, bad and in-betweens, is “right” for them before ever meeting them and losing their heart.
Artists may often be eccentric, but does eccentricity increase the worth of an artist’s work? That’s the question asked by psychologists Wijnand van Tilburg and Eric Igou in a new paper on eccentricity and art. Here’s a summary from BPS Research Digest:
Wijnand van Tilberg and Eric Igou tested these ideas across five studies. In the first, 38 students rated a painting by Van Gogh more positively if they were first told about the ear-cutting incident. In two other studies, dozens more students rated paintings by a fictional Icelandic artist more positively and estimated it to be more valuable if they were told he had an eccentric personality, or if they saw a photograph showing him looking eccentric, unshaven with half-long hair (as opposed to seeing a photo showing him looking conventional, with short hair and neat clothing).
The fourth and fifth studies highlighted some caveats. Students rated the unconventional art of Joseph Beuys (“The Pack”) more positively if they were told that Beuys was eccentric in that he had a habit of carrying roadside stones on his head. However, the same yarn about Andrea del Verrocchio did not lead to higher ratings for his conventional art (“Lady of Flowers”). Similarly, seeing a photo of Lady Gaga crouching in an usual outfit (tight, all black, with shiny mask) led student participants to rate her as more highly skilled compared to seeing her seated in a conventional black dress; unless, that is, the students were told that Gaga’s eccentricity is fake and no more than a marketing ploy. In other words, eccentricity of the artist leads to more positive ratings of their work, unless that work is conventional, and/or the artist’s unusual behaviour is seen as contrived.
Our very first Freakonomics Radio podcast focused on brain trauma among NFL players, and its link to chronic traumatic encephalopathy. Researchers now believe they’ve identified the first case of C.T.E. in a soccer player; from The New York Times:
Chronic traumatic encephalopathy, the degenerative brain disease linked to repeated blows to the head, has been found posthumously in the brain of a 29-year-old former soccer player, the strongest indication yet that the condition is not limited to athletes who played violent collision sports like football and boxing.
The researchers at Boston University who have diagnosed scores of cases of C.T.E. said Patrick Grange of Albuquerque represents the first named case of C.T.E. in a soccer player. On a four-point scale of severity, his was considered Stage 2.
C.T.E. is no longer just a concern for boxers and football players:
C.T.E. is believed to be caused by repetitive hits to the head — even subconcussive ones barely noted. Once considered unique to boxers, it has been diagnosed over the past decade in dozens of deceased football players and several hockey players. In December, it was found for the first time in a baseball player. Symptoms can include depression, memory loss, impulse control disorders and, eventually, progressive dementia, scientists said.
Boston University researchers also found a severe case of C.T.E. in a 77-year-old former rugby player from Australia named Barry Taylor, who was known by his nickname, Tizza. A hard-charging sort, he played competitive rugby for 19 years, including 235 games for Manly Rugby Union, an Australian professional team near Sydney.
Our recent podcast, “What You Don’t Know About Online Dating,” offered an economist’s guide to dating online. Here’s one more perk: a report by CovergEx Group estimates that online dating is more cost-efficient than traditional dating. From Business Insider:
The ConvergEx folks, using data from statisticbrain.com, note the average courtship time for “off-line,” traditional dating ahead of a marriage runs around 42 months – or two years longer than the 18.5-month, average dating-to-marriage cycle for people who meet online.
And using that data, they came up with a formula.
“At a conservative estimate of one date per week and a cost of $130 per date – $100 for a meal and drinks at a nice restaurant, plus $30 for two movie tickets and popcorn – the dating phase prior to an offline marriage runs up a $23,660 tab,” ConvergEx said.
“The average dating site customer spends just $239 a year for online memberships, which more than pays for itself to the tune of $12,803 in cost savings from fewer dates,” they continued. “Assuming you go Dutch, each party saves a touch over $6,400 in choosing the online route to marital bliss.”
Watching The Wolf of Wall Street was a guilty pleasure for me. It wasn’t that the movie valorizes Jordan Belfort’s crimes, which defrauded victims of more than a hundred million dollars, but I felt uneasy about being entertained by a work of art indirectly derived from the pain of others – especially since it wasn’t clear that the injured parties were participating in the movie’s profits.
The movie literally and figuratively kept the victims of Belfort’s fraud outside the frame. In only a few scenes do we hear even the disembodied voices of the defrauded investors. But imagine what it would be like to watch the movie in the presence of one of Belfort’s 1,500 real-life victims, whose ranks included architects, engineers, insurance agents, real estate appraisers, and other middle-class professionals.
The movie repeats Belfort’s claim that his firm only targeted the super-rich. The idea is that we needn’t worry so much about who was hurt by these crimes, because these investors were so wealthy that they wouldn’t be as impacted by the loss of a few dollars. But some of his victims’ families tell a very different story: “My father lost practically a quarter-million dollars,” said one man, whose father, an engineer, was cold-called at home by a Stratton broker. His father suffered a stroke under the stress of his losses. As another investor puts it: “I’m not a rich guy, and I’ve been paying for it ever since.”
I would have felt a lot better if I had some confidence that these victims were also benefiting from the movie. But to date it doesn’t seem that either Belfort or the movie producers have stepped up to the plate.
Belfort is under a court order to pay 50% of his gross income towards restitution for his crimes—and he claimed that he’s turning over “100% of the profits of both books and the movie.” But in 2011, when Belfort sold the film rights to The Wolf of Wall Street for over $1 million, he contributed just $21,000 to the restitution fund. On October 11, 2013, Loretta Lynch, the U.S. attorney for the Eastern District of New York, asked a federal court to hold Belfort in default on his court-ordered restitution obligations.
Since its release, The Wolf of Wall Street has earned over $300 million worldwide, becoming Martin Scorsese’s highest-grossing film. But the producers of the film, Red Granite, may have paid as little as $125,000 to the victims’ fund—seemingly under a court order. In short, buying a ticket to this movie isn’t like buying a bottle of Newman’s Own dressing, where you can rest assured that a non-trivial portion of the profits will go to charity.
The idea behind “fair trade” might be applied to movies and books derived from crimes to assure that the victims also participate in the profits. Just as some consumers embrace the idea of carbon-neutral consumption by buying carbon credits, some moviegoers might prefer an “exploitation-neutral” way to consume the The Wolf of Wall Street.
New York and other states passed “Son of Sam” laws not just to deprive convicts from cashing in on movie and book deals depicting their crimes, but to redirect those proceeds to the crimes’ victims. The Supreme Court has appropriately struck down those statutes on 1st Amendment grounds for singling out speech on a certain kinds of speech. But there is nothing to stop consumers from voting with their wallets to assure some minimal victim participation.
That’s why I wrote to Judge John Gleeson of the District Court for the Eastern District of New York, who is administering the restitution fund for the Belfort victims, and asked whether it would be possible for members of the general public to make small contributions to the fund that the court had established to aid victims of Belfort’s crimes. I’m happy to report that not only is it possible to give, but that no amount is too small. Working together with Yale Law student, Colson Lin, I’ve launched belfortvictimsfund.org, which tells anyone how they can contribute.
I am not claiming that moviegoers have a moral duty to remedy the harms done by Belfort. But by going to the movie and taking even a moment’s pleasure makes us more than passive bystanders. We have a tenuous connection to the victimization. By giving a buck or two, you can be fairly confident that a majority of Belfort’s victims would not object to your seeing the movie.
There are many worthy charities to which you could direct your giving. But turning your back on Belfort’s victims simply because they are the “undeserving rich” is buying into what seems to be another one of Belfort’s lies.
Sadly, Leonardo DiCaprio seems to be drinking the Belfort Kool-Aid. DiCaprio has endorsed Belfort as a motivational speaker, saying that “Jordan stands as a shining example of the transformative qualities of ambition and hard work, and in that regard, he is a true motivator.” On the red carpet this Sunday, when Ryan Seacrest is asking “what are you wearing?” it might be appropriate to ask DiCaprio whether he also endorses supporting Belfort’s victims.
In most countries, houses get more valuable over time. In Japan, a new buyer will often bulldoze the home. Why? That’s the question we try to answer in our latest Freakonomics Radio podcast, “Why Are Japanese Homes Disposable?” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript.)
Jiro Yoshida, a professor at Penn State University who specializes in real-estate economics, tells us that, per capita, there are nearly four times as many architects in Japan as in the U.S. (here’s data from the International Union of Architects), and more than twice as many construction workers. There is also a huge demand for new homes. When you put all those numbers together, it sounds like a pretty typical housing boom — and yet Japan has a shrinking population and a long-stagnant economy.
It turns out that half of all homes in Japan are demolished within 38 years — compared to 100 years in the U.S. There is virtually no market for pre-owned homes in Japan, and 60 percent of all homes were built after 1980. In Yoshida’s estimation, while land continues to hold value, physical homes become worthless within 30 years. Other studies have shown this to happen in as little as 15 years.
Does this make sense? Not according to Alastair Townsend, a British-American architect living in Japan, who is perplexed — and awestruck — by the housing scenario there:
TOWNSEND: The houses that are built today exceed the quality of just about any other country in the world, at least for timber buildings. So there’s really no reason that they should drop in value and be demolished.
In the podcast, we look into several factors that conspire to produce this strange scenario. They include: economics, culture, World War II, and seismic activity.
Richard Koo, chief economist at the Nomura Research Institute, has argued in a paper called “Obstacles to Affluence: Thoughts on Japanese Housing” that whatever the rationale behind the disposable-home situation, the outcome isn’t desirable:
KOO: And so you tear down the building, you build another one, then you tear down the building, and you keep on building another one, you’re not building wealth on top of wealth…And it’s a very poor investment. Compared to Americans or Europeans, or even other Asian countries where people are building wealth on top of wealth because your house is [a] capital good. And if you do a certain amount of maintenance you can expect to sell the house at a higher price. But in the Japanese case once you expect to sell it you expect to sell at a lower price 10 or 15 years later. And that’s no way to build an affluent society.
All that said, economists continue to debate whether a house is such a great investment in the U.S. One more burst bubble and maybe we’ll all start thinking about the Japanese model.
(Special thanks to Gavin Hayes and Paul Earle at the U.S. Geological Survey for helping us sort through earthquake data.)
This is a transcript of the Freakonomics Radio podcast “Why Are Japanese Homes Disposable?“
[MUSIC: Collective Acoustics, “Don’t Text Me Bro” (from BC ≥ AD)]
Stephen J. DUBNER: So let’s say you’re an architect. And what you really like to design is single-family houses – houses with flair, with distinctive, maybe even avant-garde features, and you want to design houses that will actually get built. So if that’s who you are, then for you, Utopia might be Japan.
Jiro YOSHIDA: …so they make very, very weird looking or avant-garde looking houses.
Richard KOO: Well, one of…it’s hard to describe, but…
Alastair TOWNSEND: …quite avant-garde, radical design…
YOSHIDA: …strange-looking, weird-looking…
TOWNSEND: Living in the home is like climbing around a jungle gym or a matrix.
KOO: One of them was about four or five stories, but one wall was cut in such a way that the floor space at the fifth level was bigger than the fourth, and the third, and the second. And it looked very unstable. Of course, it’s highly eye-catching.
TOWNSEND: They don’t have handrails on stairways and balconies.
YOSHIDA: A three-story building can be built on, maybe 500 square feet.
TOWNSEND: They have walls that can open entirely exposing the house to the outside.
KOO: The design can be very, very sharp, or really, really unique.
TOWNSEND: Even homes that have no windows at all.
KOO: …and it was covered in this textured material that at least to me was a complete eyesore, but maybe for some modern artist it was something to be proud of.
DUBNER: Okay, so if you are an architect, not only can you go wild with the design of Japanese houses. But even more important, there’s a lot of work.
YOSHIDA: There’s a huge demand for new homes.
DUBNER: Jiro Yoshida specializes in real-estate economics at Penn State University. He used to work on the same issues for the Japanese government.
YOSHIDA: So, on a per capita basis, the number of architects in Japan is 3.8 times greater than in the United States.
DUBNER: There are in fact more registered architects per capita in Japan than any other country. Not so surprisingly, there are a lot of construction jobs too.
YOSHIDA: And, so in Japan, the construction employment as a percentage of the total population is 2.1 times greater than in the United States.
DUBNER: So let’s add this up: a lot of construction jobs, a lot of architects, and a huge demand for creatively designed homes. So that sounds like your pretty typical housing boom, yeah?
TOWNSEND: I think you have to dig deeper than that.
DUBNER: Alastair Townsend is an architect in Japan. And as he’ll tell us today, the story of home-building there has an unusual wrinkle.
TOWNSEND: It’s just such a profound and huge thing. And it doesn’t seem to occur this way in any other country in the world. And so I’m genuinely, even though I know a lot about the topic, I’m still sort of baffled.
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO, the podcast that explores the hidden side of everything. Here’s your host, Stephen Dubner.
[MUSIC: Ruby Velle & The Soulphonics, “Looking For A Better Thing” (from It’s About Time)]
DUBNER: On today’s show, we’re talking about the huge demand for new homes in Japan. Now, when you hear that phrase – “a huge demand for new homes” – you probably think it’s because of either a booming economy or a growing population, maybe both. But in the case of Japan, there is neither. The economy has been famously stagnant for more than two decades, and the Japanese population has been shrinking, dramatically shrinking, and continues to do so: the government says the Japanese population will decrease by an astonishing 30 percent by the year 2060. So what does this mean for housing? Japan has an abnormally high vacancy rate, estimated to be in the mid-to-high teens. So you’d think, with so many vacant homes, there wouldn’t be a lot of new home-building. You’d think that if someone was looking to buy a house, they’d simply buy one, maybe freshen it up, and move in. But that’s not what happens. Here’s Jiro Yoshida again.
YOSHIDA: According to an engineering study, approximately half of houses are demolished before 38 years of building age in Japan…
DUBNER: Okay, did you hear that? Half of all homes are demolished before they’re 38 years old.
YOSHIDA: So basically that is the half-life of housing stock in Japan. So half-life of housing stock in Japan is 38 years. In contrast, the half-life in the United States is approximately 100 years. So that’s a huge difference.
DUBNER: So more than 60 percent of all Japanese homes were built after 1980. Now why would that be? Again, you might think it’s because of a baby boom or a growing economy, but Japan doesn’t have either of those. The reason that so many not-very-old homes in Japan are knocked down seems to be this: they’ve lost their value.
YOSHIDA: And in my estimation, the structure fully depreciates after 30 years for detached houses, and after 40 years for condominiums. So it’s really, really fast.
[MUSIC: Pearl Django, “Spiral Waltz” (from System D)]
DUBNER: That’s right: a home in Japan loses its entire value after just 30 years – or, according to other studies, in as little as 15 years. Now that’s the house itself, not the land, although land values have certainly fallen since their peak. A little quick history here. During the last half of the 1980s, land prices in Japan more than doubled. Richard Koo is chief economist at Nomura Research Institute in Tokyo.
KOO: Land prices were so high that just the Imperial Palace garden in the middle of Tokyo during the bubble was worth the entire state of California back in 1989.
DUBNER: But that bubble burst, and property values have fallen. Jiro Yoshida again.
YOSHIDA: Since then housing prices in Japan have been continually decreasing, except for a few years of small appreciation in 2007 and so on. Compared to 1991 price levels, current housing price levels, will be probably 40 percent of the peak.
DUBNER: Okay, so that is a big fall in property values, 40 percent off the peak prices, but it’s not like they fell to zero. That is, however, essentially what does happen to the value of the physical house in Japan. There is only a tiny resale market in Japan for used houses; in most cases, when a property is sold, the house is demolished and a new one built. This is in direct contrast to most places – the U.S. in particular – where not only do homes keep their value, but older homes, with their Colonial charm or brownstone character, they are particularly cherished:
TOWNSEND: The Japanese are willing to look beyond all of that and just demolish a house, even though it could provide shelter and it could be renovated for a lot less than they would spend building a new house.
DUBNER: Alastair Townsend was born in England, grew up in Iowa, and returned to England to become an architect.
TOWNSEND: Well, I met my wife, who’s Japanese, as a student in London. And we worked for a number of years for architects. But since I decided to study architecture I’ve always been fascinated by the radical homes that I saw in Japanese architectural magazines.
DUBNER: Whey they finished their studies in England, they saw that their opportunities would be limited.
TOWNSEND: We decided to leave London because it’s actually very hard to build new housing there as a young architect. Most of the commissions are renovations and refurbishments of existing old houses because the planning system makes it very hard to build new homes, and people value historic homes more than they do new ones. And we moved to Japan in order to get more experience and hopefully build more.
DUBNER: In Japan, Townsend found a huge appetite for new homes.
TOWNSEND: You see advertisements everywhere on the train and on billboards for new housing, commercials on television, TV programs.
DUBNER: In Townsend’s opinion at least, the fact that Japanese homes don’t hold their value changes what people are looking for when they hire an architect.
TOWNSEND: The economic incentives to build a house that will one day be resold don’t exist in Japan because of housing depreciation. And this means that a client is free to build a house according to their own personal preferences and their own idiosyncrasies.
[MUSIC: Heavy G and the Boogaloo Communicators, “Zumbamala”]
DUBNER: Townsend also thinks that, with so many architects in Japan, they are all fighting to stand out in a crowd. Plus which, local governments typically don’t regulate neighborhood aesthetics like they do in many countries. So that may help explain all the unusual and avant-garde houses in Japan. But we still haven’t answered the more bizarre question: why are Japanese homes essentially disposable?
TOWNSEND: The houses that are built today exceed the quality of just about any other country in the world, at least for timber buildings. And so there’s really no reason that they should drop in value and be demolished.
DUBNER: So why are most houses knocked down when someone buys them? Coming up on Freakonomics Radio, we try to answer that question. Does it have to do with culture or economics or maybe manufactured fear?
TOWNSEND: I really feel that the risk of earthquakes to single family homes is overstated, and it’s a way that house builders market their houses.
ANNOUNCER: From WNYC: This is FREAKONOMICS RADIO. Here’s your host, Stephen Dubner.
[MUSIC: Soulglue, “Broken” (from Arboretum)]
DUBNER: So we’ve been talking about the housing market in Japan. Prices have fallen a lot since their peak, but the land itself continues to be valuable. The houses, on the other hand, lose just about their entire value after two or three decades, because most Japanese home buyers do not want used homes. Why? Here’s Jiro Yoshida again, from Penn State.
YOSHIDA: On this issue, people have many, many casual observations, or causal explanations. For example, many people say that Japanese consumers are just different, Japanese consumers just like new things, okay? For example, the most sacred Shinto shrine is called Ise Jingu…
TOWNSEND: And this shrine is a massive timber structure. But every 20 years it’s torn down and a new identical shrine is built on a plot next to it.
DUBNER: And that is Alastair Townsend, the British-American architect living in Japan.
TOWNSEND And this is something very ingrained within the Japanese psyche, which values newness as something that is spiritually clean and pure.
DUBNER: So maybe the hunger for new homes is a cultural appetite, at least to some degree.
YOSHIDA: For example, if we take a look at the second-hand, or used car market, okay? Even used cars are traded really cheaply in Japan compared to other countries, so there’s something to it, but it’s not the whole thing.
[MUSIC: Crytzer’s Blue Rhythm Band, “Someday Sweetheart” (from Chasin’ the Blues)]
DUBNER: Okay, so what else might explain Japan’s disposable-housing attitude? Let’s go back to World War II. The most famous U.S. attacks on Japan were the atomic bombs dropped on Hiroshima and Nagasaki. Both cities were devastated:
UNIVERSAL NEWSREEL FROM 1945: This is the gallant crew that rolled the big superfort, which carried the first atomic bomb to Japan. Piloted by Col. Paul Tibbets Jr. of Miami, carrying Navy Captain William Parsons of Chicago, who helped design the bomb, as observer, and Major Thomas Ferebee of Mocksville, North Carolina, who pulled the plug on Hiroshima. The B-29 dropped its load of atomic death, which exploded with a force equal to 20,000 tons of TNT. A few days later, the second atomic terror was loosed on Nagasaki.
DUBNER: But the U.S. dropped a lot of non-atomic bombs in Japan, in a lot of other cities. Five months before the atomic bombs, more than 300 American B-29sstarted dropping more than 2,000 tons of incendiary bombs on Tokyo. Most of the city was burned to the ground. 100,000 people were killed and 1 million people were left homeless.
KOO: And after World War II, when everything was flattened by American bombing, they had to rebuild everything very, very quickly.
DUBNER: That’s Richard Koo, from the Nomura Research Institute.
KOO: And at that time they didn’t pay much attention to the quality of houses that they were building.
TOWNSEND: It was certainly the case that after World War II, many of the houses that were built during the boom were shoddily constructed.
DUBNER: Alastair Townsend again.
TOWNSEND: They lack insulation, and are generally very cold, they have heavy tile roofs, which make them a liability in earthquakes. So it’s understandable that those houses are being replaced.
[MUSIC: Izm, “Dundill”]
DUBNER: So you can see why the first round of homes built in Japan after the war were torn down after not too long, especially as the country started to get richer. But there’s another factor that led the Japanese to think of their homes as non-permanent, and that is earthquakes. Twenty percent of the world’s earthquakes of magnitude 6 or greater happen in Japan:
KOO: And because of that history, Japanese have come to view the houses, building structures in general, as kind of perishable, because after each earthquake many of those are destroyed. And so there’s a fundamental feeling within the Japanese scheme of things that nothing is permanent.
DUBNER: So that makes sense, and it might help explain why Japanese homes depreciate so much and so fast. But as Jiro Yoshida tells us, there’s another earthquake-related explanation.
YOSHIDA: So the deep question is why do structures depreciate so fast and why do people have to demolish these old buildings so soon, and actually one very simple answer, and in a sense an uninteresting answer to that is the revisions to the building codes. And revision to the building codes especially with respect to earthquake resistance standards, okay? So in the past, the building codes in Japan have been continually revised after major earthquakes.
DUBNER: It began nearly a century ago with what is known as the Great Kanto earthquake.
YOSHIDA: And that Great Kanto Earthquake destroyed over 500,000 houses in Tokyo. And that was a huge, huge disaster. And after that Great Kanto earthquake, the building code introduced earthquake-resistance standard. And then those earthquake-resistance standards were updated in 1950 after Fukui Earthquake, in 1971 after Tokachi earthquake, in 1981 after Miyagi earthquake, and in 2000, most latest in 2000, after the Hanshin-Awaji earthquake.
DUBNER: So as new earthquake standards were put into place, older buildings were decreed unsafe. When a property was sold, the house would be torn down and a new house put up. But everyone we talked to for this story – Richard Koo, Jiro Yoshida, and Alastair Townsend – they all point out that today, even homes that easily meet earthquake standards, are still demolished when they are sold. Many of these homes, Townsend says
TOWNSEND: …exceed the quality of just about any other country in the world, at least for timber buildings. And so there’s really no reason that they should drop in value and be demolished.
[MUSIC: The Mag Seven, “Jive Turkey” (from Black Feathers)]
DUBNER: So there’s no reason – except, maybe, fear of earthquakes, as rational or otherwise as that fear might be:
TOWNSEND: I really feel that the risk of earthquakes to single family homes is very much overstated, and it’s partly a way that housing companies, house builders, market their houses by instilling, effectively instilling fear within their prospective customers by making so much of seismic technology, most of which redundant. By the time that you have skinned a house with structural plywood, it’s sufficiently cross-braced to sustain an earthquake.
DUBNER: So think about this for a minute. If you buy a house, and you knock it down to build a new one because you think the old one isn’t safe – and if you know that the people who eventually buy that house from you will do the same … how much money and time do you think you’ll invest in taking care of your house? Richard Koo calls this the vicious cycle of the Japanese housing market:
KOO: Maybe they will keep their rooms tidy and clean, but externally, I mean once the house is built it’s never repainted again and a lot of external things are allowed to dilapidate, deteriorate, and then 20 years, 30 years the whole thing is torn down and another one is built in its place. So it’s kind of a vicious cycle, right? If you expect the house to last only 20, 30 years you’re not going to put much into maintenance. And as a result, the house really lasts only 20, 30 years.
DUBNER: Alastair Townsend has seen this same lack of maintenance.
TOWNSEND: That’s nowhere near as developed as in the U.S. where you have massive stores like Home Depot and Lowe’s where people can go and buy every part of the house. And it seems like many people in America are confident to build an extension onto their home, or finish the basement, or remodel a room. In Japan that really just doesn’t happen because part of that is there isn’t an incentive to maintain the house.
DUBNER: All right, so we’ve identified at least what seem to be several legitimate reasons for why Japanese houses don’t hold their value over time. You might just say that – well, things are different in Japan; it’s not necessarily worse. But Richard Koo disagrees. A few years back, he co-authored a paper called “Obstacles to Affluence: Thoughts on Japanese Housing.” The paper argued that the habit of treating homes as disposable is extraordinarily wasteful, and that it has contributed to Japan’s long economic slump.
KOO: So you tear down the building, you build another one, then you tear down the building, and you keep on building another one, you’re not building wealth on top of wealth. It’s a very poor investment. Compared to Americans or Europeans, or even other Asian countries where people are building wealth on top of wealth because your house is a capital good. And if you do a certain amount of maintenance you can expect to sell the house at the higher price. But in the Japanese case once you expect to sell it you expect to sell at a lower price 10 or 15 years later. And that’s no way to build an affluent society.
DUBNER: So we’ve come full circle. At the beginning of this story, when we heard about the huge demand in Japan for new houses, and architects, we might have assumed an economic boom was the cause. But not only isn’t there a boom. The ongoing slump – at least according to Richard Koo – may have been caused in part by Japanese attitudes toward the housing market. Now, if you’re an American or a Brit who suffered during the housing hysteria of the past decade or so, the idea of not locking up all your wealth in a house might be appealing. But the opposite of hysteria is not necessarily Utopia. It may in fact be its own sort of madness – which Alastair Townsend, even after six years in Japan, still can’t comprehend.
TOWNSEND: Ok, it’s one thing if it’s about, I don’t know, buying shampoo—but it’s not. This is like people’s biggest investment in their lives, and the Japanese are basically throwing it all away.
[MUSIC: Josh Bernasconi, “Cops In The Water”]
Abby Haglage reports in The Daily Beast of an apparent uptick in firearm-inspired baby names.
In 2002, only 194 babies were named Colt, while in 2012 there were 955. Just 185 babies were given the name Remington in 2002, but by 2012 the number had jumped to 666. Perhaps the most surprising of all, however, is a jump in the name Ruger (America’s leading firearm manufacturer) from just 23 in 2002 to 118 in 2012. “This name [Ruger] is more evidence of parents’ increasing interest in naming children after firearms,” Wattenberg writes. “Colt, Remington, and Gauge have all soared, and Gunner is much more common than the traditional name Gunnar.”
Okay, that’s all well and good, but if parents really want to show their gun bona fides, how about going all-out and naming your kid Colt .45?
(HT: Marginal Revolution)
Due to popular demand, we are working on a podcast about Bitcoin. Last night, I interviewed Marc Andreessen on the subject. His v.c. firm has invested roughly $50 million in Bitcoin-related companies, including CoinBase, and they are looking for more. It was a fascinating interview, in part because Andreessen has been personally involved in so many major digital events of the past 20 years.
In light of today’s news about the meltdown of Mt. Gox, the most prominent Bitcoin exchange to date, here is a preview of a section of last night’s interview with Andreessen. His view is vigorously contra the notion that the end of Mt. Gox would mean the end of Bitcoin; in fact, he would take that as a sign of progress:
DUBNER: The last few weeks happen to have been particularly volatile for Bitcoin. Real events and the news coverage of those events that again capture a lot of people’s attention — so there’s intense volatility, there are some exchanges that are glitchy or hacked, depending on what you read. There are continuing stories about how this can be fraudulently used and there’s continuing excitement about the speculative nature of the Bitcoin currency. When you see those stories, what do you do? Do you just say this is the noise that inevitably comes with a big new technology and some of these are real problems, some of these are not, and we’ll get through it? Or, do those point to elements of Bitcoin that indeed are weaker than other elements and should be addressed somehow?
ANDREESSEN: So there’s been very little actual substantive news in the last couple weeks. So like, for example, the actual price of Bitcoin has not moved that much. What’s happened is one particular exchange, which is the now the sort-of infamous Mt. Gox exchange, is in some kind of crisis. And specifically, it seems to be in a liquidity crisis that is similar in some ways to the MF Global event from a few years ago, if you remember that, on the commodities market. And so Mt. Gox is in this crisis. And we’ll see what happens with the crisis: they may go bankrupt, they may get sold, they may shut down, they may, by the way, be just fine. We don’t know yet. But they’re just one of many places where Bitcoin is traded. They were at one the point the largest place Bitcoin was traded. Over the last 9-12 months, they have been displaced by a series of others that seem to be much better-run, that people seem to be doing much better on. People point to the price of Bitcoin falling, [but] what they’re really pointing to is the price of Bitcoin in the Mt. Gox exchange falling. But that is basically an artifact of people betting on Mt. Gox itself failing, as compared to Bitcoin itself being lower. If you look at the price of Bitcoin on the other exchanges, it’s been quite stable. And so we think this is an example of exactly what I was talking about, which is, in the early days of a technology like this you’ve got various people doing various things. Some of them are serious and credible, some of them aren’t. In the early days of the Internet, you had various fly-by-night ISPs, some of them went out of business. You had various fly-by-night e-commerce operators, some of them went out of business. … One way to look at it is basically Mt. Gox has to fail in order for Bitcoin to go mainstream because Mt. Gox was never set up to be able to take Bitcoin mainstream, which is basically what’s happening now. The good news is we have many new companies that are much more serious and much better run.
Our last two podcasts, “Why Marry?” (Part 1 and Part 2) explored the broad and deep changes in the institution of marriage. One theme was that the old marriage model of “production complementaries” has shifted to one based on “consumption complementarities.” Here’s Justin Wolfers on the subject:
We have more time, more money, and so you want to spend it with someone that you’ll enjoy. So, similar interests and passions. We call this the model of hedonic marriage. But really it’s a lot more familiar than that. This is just economists giving a jargon name to love. So you want someone who’s actually remarkably similar to you or has similar passions that you do. So it fundamentally changes who marries who.
But is this change also related to income inequality? Wolfers briefly referenced that idea a few years back; in a recent article for Vox, the economics Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos further the argument:
Think about the following simple thought experiment. Suppose that there are only two types of people, equal in numbers, those that went to college and those who did not. Those who went to school earn $30 and those who did not earn $10. If educated men marry uneducated women and uneducated men marry educated women, then every household will earn $40 in total. So, household income is perfectly equalised. Now, imagine a world in which educated people only marry other educated people. Then, a household made up of an educated man and an educated woman will earn $60 versus the $20 earned by a household that consists of only uneducated spouses. The households at the top of the distribution would have three times the income of those at the bottom.
Obviously, the example above is a dramatic simplification of reality, but it does capture an important trend that is actually taking place in the U.S. economy. To study its impact, we track samples of hundreds of thousands of households from the U.S. Census Bureau for the period 1960 to 2005 (see Greenwood, Guner, Kocharkov and Santos 2014). The upshot of the analysis is that rising assortative mating together with increasing labour-force participation by married women are important in order to account for the determinants of growth in household income inequality in the U.S.