Why Hiring Lags Profits: Humans

Today was another interesting day in my entrepreneurial finance class with Duke Bristow.  I love the format of this class. We begin every session with a ~20 minute discussion of the Wall Street Journal before diving into lecture material.  The professor enjoys provoking feedback, opinions and insight on currents event from students, and then he provides his own commentary on the topic (which usually has a small government and economist spin).

Today we discussed an article in the WSJ titled No Rush to Hire Even as Profits Soar.  The Wall Street Journal offers a graph (see right) of quarterly U.S. employment and profits in support of its point that while profits have rebounded sharply since Q4 ’08, job creation has been meager.  Logically, one might think, “Hey, profits are back, so why the hell aren’t these greedy corporations hiring anyone?!!”  The professor encouraged a little logic test to tease out why job creation may be slow.  I know, logic to news is a terrible habit; you might not believe everything you read, a disaster :). (more…)

Economics: Are People Always Rational?

Am I always rational?  Yes.  At least I would like to think the answer to this question is yes, but in reality, I’m guessing the answer to this question is somewhere closer to usually.  Presumably most people are in the same position (except for those who are irrational — yes Kim Jong-il, I’m looking at you).  I raise the issue of rationality because yesterday in Professor Eastin’s MicroEcon class we touched on a topic I have recently been interested in: behavioral economics.

For the non-econ members of the crowd, let’s quickly review the three tenets of economics: 1) people respond to incentives, 2) optimal decisions are made at the margin (e.g. marginal cost, marginal utility, etc.), and 3) people are rational.  I’m on board with (more…)