Markets in Everything: Trophy Wives

Recently, Larry King divorced for the 8th time. You would think after a few times he would get a hint. On April 14 Larry filed for divorce from his wife Shawn of 13 years. It should be pointed out that he is 26 years older than her. Mr. King has a net worth of around $144 million. He did not have a pre-nuptial agreement with his wife which could cost him big time. Let's examine this from an economic point of view. Larry for over a decade got the company of a much younger and attractive woman. Shawn got to be with a well known TV personality who was worth big bucks. Since they are divorced now they will get zero utility from the other person. Most likely Shawn will get at least half of Larry's estate which would be around $72 million. Remember this was for being with Larry for 13 years. Do you think more women would have done this if they had known the payout? A payout of $72 million would equal $5,538,461 per year, $106,508 per week, $15,215 per day, or around $634 per hour. Clearly, this is a large sum of money. However, it should be pointed out that in a sense Shawn is an outlier because Larry can only pick one woman out of many thousands to be his wife (okay maybe a few thousand - 7). At a rate of $634 this is clearly more than most conventional jobs and is probably more than a prostitute. However, prostitution is illegal and marrying trophy wives isn't. Both groups have incentives to engage in this type of behavior and their function is pretty similar yet one is legal while the other puts people in jail. How can we tell people it’s wrong to buy an hour of "fun" yet it’s okay to marry someone that you will have to provide "fun" for many years?

Michael Lewis

Seems like Michael Lewis is having a very good year… Some stats from Amazon.com

The Big Short- #5 in books as of 4/11/2010 has been on Top 100 for 40 days
The Blind Side (movie) - #3 in movies has been on Top 100 for 49 days
Liar’s Poker- #108 in books was at #65 last week however has first published in the 1989
The Blind Side (book)- #320 in books

I bet someone is seeing the money come on in…

Killer at Large: Obesity

Recently I watched Killer at Large the Obesity Epidemic. The documentary focused on obesity in America particularly looking at kids and their diets. When I was a kid growing up in the early 1990’s I remember we didn’t even have soda or candy machines until we got to high school. For lunch nearly everyone bought their lunch with a few people (including myself bringing their own lunch). This hasn’t seemed to change in today’s society. Kids are able to purchase candy, soda, and other baked goodies. I see no problem with this. People try to blame Coca Cola and Pepsi for being greedy and installing these machines. Don’t parents have a role in raising their children?

The documentary starts out with a 12 year old girl getting liposuction by a plastic surgeon (I really wonder if he is board certified). The girl gets liposuction after years of emotional eating. The girl gets her liposuction but the liposuction is short lived because she puts the weight back on. I see a few problems with this. First, no reputable plastic surgeon would be doing this to a 12 year old girl. Although, I am not a doctor I do know that children by that age have not reached their full potential in terms of growing and development. Also the emotional eating part was interesting. The girl claims that she used to get really stressed when her parents fought and she just began to eat. How do we know that this wasn’t part of some deeper psychological issue? Instead of eating for comfort she could have turned to some other vice such as spending too much, drinking too much, or becoming a drug addict.

Around 15 percent of children ages 6-19 are overweight during the 1999-2000 period. The percent of obese and overweight kids is much greater than this. My question would be why do we as a nation have to care so much about our children’s weight? Just because healthy weight is desired doesn’t mean we all have to achieve it. What if children and adults would like to be obese? We can’t make assumptions on what other people want. For the sake of argument let’s assume we want to solve this problem what needs to change? I would go out on a limb and say that the public school system is partly to blame for this. Since the public school system is virtually a government run monopoly parents and students have little say in what goes on at the schools. If we were able to let the schools compete with one another this would create competition between schools. For example, if the Myers family felt that Johnny was overweight and wanted a school that focused on getting their child fit. By allowing parents and students choices in the school system could to students that were not as obese. Schools could compete on what types of meals they offered students , what type of physical exercise was involved, and what type of curriculum students learned about fitness and health. Yes, school choose could reduce the number of obese and overweight kids by creating competition.
Being overweight sends signals to not only our friends, but the general public. Robin Hansen professor of George Mason University was on EconTalk and discussed signaling. In essence, signaling is economic jargon for how we want to be perceived through the eyes of others. For example Hansen argues that people that show up to the hospital to see an ill or dying relative to signal that they care about that person regardless of whether they actually do. Being overweight is no different. If a person if overweight they are signaling to others that they don’t burn as many calories as they take in. Also people can’t lie about being overweight like they can about their status, power, or money because people can obviously see how big or small they are.

If you read this far you might be wondering what solutions I might have. Since you asked I have a few. First, if the government rewards good behavior in the form of tax credits why not give people tax credits for working out. Especially with Obamacare being passed it the government will have more of a say in what people eat and how they treat their body if the government is paying for it. Next, I would break up the government run monopoly for schools and allow parents and children to choose what they fitness and workout regimen is taught in school. Lastly, I would not place a tax on soda, candy, and other assorted goodies because this would just make people fatter. You might argue, “Well if you tax anything you get less of it!” I understand this principal however a “sin” tax on these goodies would just induce people to create their own sinful goodies. If the taxes were too high it could lead to smuggling and people would just find a way around higher taxes like they do for nearly everything else. We have to remember that we ultimately control our destiny and we can’t blame it on genetics because genetics did not simply overnight make us fat. We might want that extra piece of pie or extra chocolate chip cookie but we have to remember the future might be uncertain.

Bryan Caplan on Healthcare

Bryan Caplan on the healthcare debate.

Debate: Separation of Health & State from GMU Econ Society on Vimeo.

9 Billion Problems?

Houston billionaire Dan Duncan recently passed. Mr. Duncan had a net worth of over $9 billion. His story is pretty interesting. He started his career as a roughneck in the 1950’s. By 1968, Mr. Duncan with only $10,000 and a truck he started Enterprise which is now worth over $21 billion. Truly this a great story in capitalism. Man starts with nothing then turns nothing into a lot of something. Mr. Duncan not only made a lot of money for himself, his family, and shareholders but also has donated a lot to charity. He and his wife gave $100 million (a record level donation) to Baylor College of Medicine. The family also gave $50 million to Texas Children’s Hospital (another record donation). He also gave $35 million to M.D. Anderson Cancer Center. It should be noted that Houston was noted for a world class medical center even before these donations.

Despite all this generous giving I would imagine the there are still billions of dollars in the Duncan estate. The estate tax on the Duncan estate could be enormous. The estate tax is usually 45%. For example if an estate had $10 million the estate tax that the estate would owe the government is $4.5 million. However, the estate tax in 2010 is 0%. Congress could of course make the estate tax retroactive for 2010. I have a feeling the Duncan family is quickly filing paperwork to try to make sure the estate doesn’t owe a dime to Uncle Sam. However, the I.R.S. will flag this down and I could see a Supreme Court case in the works. With an estate of over $9 billion the government would want their 45% or $4 billion. What miracles and wishes could the government grant with this money? A case like this will force Congress to do something about the estate tax.

It will be interesting to see how this case plays out. If the case goes to court it could take years to settle leaving estate planners and attorneys in the dark with regards to the estate tax law. However, one way the Duncan family could avoid paying any estate taxes is to give all the money to charity. Although, one should remember 45% of $9 billion is better than 100% of nothing.