Costume Parties as Signaling Devices

When I moved to Tallahassee, I noticed a big difference between Tallahassee parties and those at my small undergraduate institution. The majority of parties I attended in Tallahassee my first year here were themed such that attendees were encouraged, if not required, to dress up. Not that there was an absence of themed parties at the old institution, it's just that there was maybe one costume party to every 15 normal ones. In Tallahassee, there are about 15 themed parties to every non-themed one. Why the difference? If you guessed economics, you must have read the title of this post...

Have you ever been to a normal (non-themed) party when some people who were not invited stopped by and somehow ended up ruining everyone's good time? I can remember a post high-school shindig where everyone was sent home because some unknown guest punched an invited party-goer in the nose. There was a party from which I was fortunate enough to be absent when some kids tried to sell hard drugs then stole some personal property. I think everyone's had the experience of wondering if some of the people at the party are vouched for or if they're just drinking free booze.

Dressing up is a way to let everyone else at the party know that you are on the inside. You got the invite and prepared for the party so you belong there. This mechanism wasn't needed at my small undergrad institution because everyone knew everyone else at a glance. If a stranger was spotted, they were asked who they were with. That's not so easy to do when guests come from a school a couple hundred times as large.

I went to a party in Tallahassee where I knew one of the guys who lived there and some other invitees (who had confirmed that they were coming via Facebook). Well, these other invitees ended up going to a different party and I was there with a ton of people whom I'd never met. Luckily, I was dressed for the occasion and nobody thought that I might not belong.

Signaling is costly. It means that one must dress up for parties in Tallahassee. This act requires forethought, perhaps purchase of new attire or accessories, and time to get dressed up. However, the benefits of keeping strangers away (and having an automatic topic of conversation with fellow party-goers) outweigh the costs in places where this phenomenon exists.

Trade Works Because We're Different

“If all men were equal in interest and endowment, natural or artificial, there would be no organized economic activity to explain. Each man would be a Crusoe. Economic theory thus explains why men cooperate through trade: they do so because they are different."' James Buchannan.

The truth of the above statement was really hammered home for me during my first year PhD macroeconomics course where I was given a problem about trade.  For the purposes of the question, we assumed that only one type of person exists.  That is when I saw mathematically that it is better if people are different.

Variety is the spice of life, but it's also the driving force behind economics.  Odds are, I can understand a firm's pricing strategy or the mechanics behind how the authors of Freakonomics arrive at their conclusions better than you can.  Maybe you can cook or sew better than me or you have interior design talents I lack (the last option is highly probable).  The amazing thing about trade is that we can each do what we are good at and provide those goods and services to other people who are also doing what they are good at.  This is the supply side benefit to trade.

There is also a consumption side benefit to being different.  You may have a stopwatch that you no longer use and it's not worth very much to you.  You would really like a Zippo lighter.  The stop watch would be highly valued by a track coach whose own stop watch just broke.  If he offers to give you his old Zippo (because he quit smoking and it's no longer so valuable to him) in exchange for your stop watch, then both of you can benefit.  Even ignoring production, there can be gains from trade.

Sequester: A Problem of Incentives

With the recent budget sequester, spending has been cut "across the board."  However, pay for congressmen and the President were not affected.  How can these people be expected to take their job seriously if they have nothing at stake?  According to NoLabels, Congress has passed its spending bills on time only four times since 1952. In the last 14 years, annual spending bills have been submitted an average of four months late.

I'm not against the sequester, and if I wouldn't mind taking a 2% pay cut if I end up working for an institution funded by tax dollars...as long as it's helping pay off our debt AND the fat cats play by the same rules.  Warren Buffet has already called for congress to pay into and receive benefits from the same retirement system as the rest of the country.  It's probably not going to happen because the only people who can change it are the people who benefit from it.  I imagine the system was designed this way by those in power to help themselves.

I just got an email today from Rep. Alan Grayson (D, FL) asking for support to eliminate the sequester.  He wants to pass a bill that says "Section 251A of the Balanced Budget and Emergency Deficit Control Act of 1985 is repealed."  This would allow politicians to keep spending unreasonable amounts of money and keep the support of their constituents.  It is politically attractive to spend money now at the expense of reduced consumption in the future.  Young people and unborn people who will be affected in the future do not get to vote, so they cannot oppose the current spending that will hurt them.  There will come a time when that which has been borrowed needs to be repaid, with interest.  Increased consumption in the past will need to be compensated for by reduced consumption in the future.  Nobody likes this sort of thing, but it's hard to get around.  There comes a point when the options are to default on debt or tighten our belt.  Default would have much worse consequences, especially in the global credit markets.