Wednesday, January 21, 2004

Love, marriage, contraception and money

More and more women are deciding to wait - for a Mr Right with a decent income, says Peter Martin.

What do Britney Spears and George Bush have in common? They both believe in the "sanctity of marriage". That's what Spears told MTV after her snap decision to get married and then unmarried in the new year, and that's why in today's State of the Union address President Bush will announce a plan to spend $US1.5 billion ($2 billion) promoting marriage.

It is actually Spears who is in tune with the times. Like Spears in the cold light of day, few American women now believe they are ready for marriage at 22. Most now wait until they are at least 25, and most Australian women wait until they are at least 27. But just a couple of decades ago marriage at Spears's age was typical.

Something has made us much more wary about getting hitched. Economists have come up with at least three explanations, one of which points some of the blame at the President himself...

(If you find the whole idea of economists analysing marriage offensive, I sympathise. My marriage is the result of deep love rather than a calculation of costs and benefits. Nevertheless, economists believe we act as if we perform calculations, and they say the financial ones account for about one third of a typical decision to marry.)

The advent of the contraceptive pill removed one big non-financial cost of not getting married. As the Harvard economist Claudia Goldin puts it, from then on you could "put off marriage while not having to put off sex". The marriage rate began falling and the marriage age began rising from the moment the pill became widely available around the start of the 1970s.

But the pill did more than make it easier to delay marriage. Goldin says it made it realistic suddenly for large numbers of young women to take on major university courses such as business, law, dentistry and medicine. Before the pill they faced a high chance of getting pregnant during a five-year degree and wasting their money.

One decade after the arrival of the pill the proportion of US dental students who were women had climbed from 1 per cent to 19 per cent; the proportion of law students had climbed from 4 per cent to 36 per cent. This pushed out the age at which those women made themselves available for marriage, and also increased the potential pay-off for men who waited. They might snare a doctor.

But something else is needed to explain the continuing slide in the rate of marriage in more recent decades. Since 1980 the marriage rate among Australian women has halved. It might be that Australian women are becoming more acquainted with some of the less publicised facts about marriage.

It is widely believed that people who are married earn more, are happier and live longer than people who are single or merely "living together". But a closer look shows that in most studies the increase in earnings applies only to men and that while marriage makes both sexes happier, men get the bigger benefit. And when it comes to longevity, marriage can actually harm women.

A landmark survey conducted by Warwick University in Britain concluded last year that married men were "a remarkable 10.6 per cent" less likely to die in any given year than men who had never married. Married women received no such protection.

Worse, women who had married and then got divorced were 7.2 per cent more likely to die in any subsequent year; women who were widowed, were 3.8 per cent more likely to die.

For women concerned about a long life the evidence suggests that it is best to either not get married, or if you have done so, stay married.

And here is the economists' third explanation for the continuing slide in marriage rates, the one with direct and uncomfortable implications for the policies of George Bush, and for that matter John Howard: incomes in the US and Australia are becoming less equal.

In the US Bush pushed the process along in 2001 and 2003 with very big tax cuts directed at the already rich.

Increasing inequality means, in the words of Hebrew University economists Eric Gould and Daniele Paserman, "an increase in the dispersion of husband quality". There is now a greater potential pay-off for women in Waiting for Mr Right, to use the title of the paper just published by Gould and Paserman.

They use census data to rank 300 US cities. The most unequal city is Stamford, Connecticut, just north of New York City. It happens to also be the city with the highest proportion of women in their upper 20s who are not yet married (waiting for Mr Right).

Gould and Paserman find that female singleness closely follows male wage inequality, both between different cities and over time. As US male incomes have become more unequal over the past 20 years, females have become commensurately less likely to commit.

They use statistical tools to show that the effect isn't due to men reacting to changes in female incomes, and it isn't due to women throwing themselves into work when and where male incomes diverge widely.

The finding expressed in numbers: "Increased inequality may account for up to 30 per cent of the overall decline in female marriage rates in the last few decades." And Bush has acted to increase that inequality further. In economic terms he has probably been anti-marriage.

A pro-marriage president or prime minister would use economic and taxation policy to make already successful men less financially attractive, rather than more so.

The very clear implication of the economists' work is that women are materialistic in their approach to marriage.

But that doesn't make me feel bad about women. Economists have shown that all sorts of decisions we make are based on prices, everything from wage rates to exchange rates - among those decisions: how long we sleep each night and where we choose to take our holidays. But much of the time we don't consciously think in those terms.

I prefer to think that women considering marriage don't realise what they are doing.

Wednesday, January 14, 2004

Life's cheaper in the faster state

This year's holiday road toll was the worst in eight years. But it's not because we drive badly. When asked, more than three-quarters of us say our driving is better than average.

It is true NSW recorded more deaths than Victoria over Christmas (25 compared with 17), but that needn't mean we are bad drivers, either. In the reassuring words of the pro-free market Centre for Independent Studies: "Victoria has always enjoyed slightly safer roads per kilometre travelled compared with NSW."

Most of us are very easily reassured that the deaths on our roads are not our fault. Six out of 10 of us admit to speeding (which is presumably OK because we are better than average drivers); six out of 10 of us oppose attempts to make the road rules tougher.

Late last year the CIS offered encouragement to speeders. On the front page of its magazine it asked: "Speed Traps: Saving Lives or Raising Revenue?" Inside it argued that speed had little to do with road deaths and that those of us who speed moderately "tend to be the safest drivers".

Since then the CIS appears to have softened its stand. The latest edition of its magazine devotes equal space to both sides of the debate.

So in that spirit I would like to take a look at what is actually happening in Victoria and whether it has any lessons for us here in NSW...

It is beyond doubt that there are far fewer road deaths south of the Murray: 334 last year compared with 553 in NSW. Victoria's population is lower, but not low enough to account for the difference.

It is also beyond doubt that Victoria enforces its speed rules more rigidly. In that state you will be booked if you are caught driving just 3kmh over the speed limit. In NSW we expect to be allowed to drive up to 10 per cent over the limit.

And in Victoria the speed cameras are hidden. Nineteen per cent of Victorian drivers say they have been booked in the last two years. In NSW the proportion is only 12 per cent. (The tough approach has become a political issue in Victoria. The Opposition has promised to reset the cameras to catch fewer speeders.)

The CIS is right to say that these facts do not necessarily mean that Victoria's approach has brought about the lower rate of deaths. There could be something else at work. To conclusively determine whether getting tough on speed saves lives you would need to run a controlled experiment in perhaps as many as 50 states which were free to vary their road rules over a period of years.

Fortunately the United States has conducted just such an experiment.

During the energy crisis of 1974 the Carter administration succeeded in enforcing a low nationwide US speed limit of just 55 miles per hour (88kmh). Road deaths slid 15 per cent.

From 1987 each state again became free to choose to lift the limit on its rural interstate roads. Within a year most states had lifted their limit to 65mph. But seven left the limit unchanged.

In a paper soon to be published in the Journal of Political Economy, the economists Orley Ashenfelter from Princeton University and Michael Greenstone from the University of Chicago examine what happened in those states that lifted their limits. Their findings are surprising.

First, the actual increase in speed in those states was quite low, an average of only 2mph (3.2kmh) on the roads affected. The professors say that is because a lot of drivers on those roads were already speeding.

Second, the small increase appears to have pushed up deaths per mile on those roads by an astounding 36 per cent.

So the professors asked a question only economists would ask: what benefit had the drivers in those states gained in exchange for each of the extra deaths?

The answer was reduced travel time - about 125,000 hours were saved for each extra life lost, which valued at the average wage rate, worked out at a benefit to drivers of about $US1.5 million ($1.9 million) per life lost.

Did the states that pushed up their speed limits value life too cheaply?

Perhaps not. That value of $US1.5 million per life is curiously close to the average $US1.8 million per life which is to be paid out in compensation to families of victims of the September 11 terrorist attacks.

Those US states that chose not to lift their speed limits valued lives more highly.

If speeding rules are indeed linked to deaths in the way that the US data suggests, then right now Victoria is valuing human life more highly than is NSW.

Those of us who enjoy the more relaxed approach to speeding law enforcement in this state are perhaps fortunate that no one has done the calculation for Australia.

Wednesday, January 07, 2004

Why Scrooge wouldn't take the cash

Conventional wisdom says we are self-indulgent but covert stinginess is all around, writes Peter Martin.

If your New Year's resolution was to go to the gym, to give up smoking or to get your finances in order, you are in good company. Most of us make resolutions requiring us to do things we hate. That's why resolutions exist. Or so we thought.

There's now a whole new school of thought among economists about a different type of resolution - one in which we resolve to force ourselves to do things we enjoy. And the implications are immense.

If the idea makes little sense to you, bear in mind that the entire concept of resolutions makes little sense to economists...

They have traditionally assumed that human beings are rational - always in control.

Rational people don't need to make resolutions because they always know what they want to do and then they do it. But many of us are not entirely rational. We fight with ourselves. A shopaholic will hide her credit cards in the freezer; an alcoholic will beg a friend to make sure that he doesn't drink; a friend of mine used to paint her fingernails with a bitter substance to stop herself biting them.

About 20 years ago economists began to develop a way of explaining this sort of behaviour. They said we each had within us two quite different personalities: a long-term strategic thinker, and a short-term hands-on fun-lover. The strategic thinker might want to save or exercise; the fun-lover wants to spend.

Most of the time the fun-lover makes the decisions. But from time to time (especially around the start of each year) the strategic thinker takes charge and tries to tie the fun-lover's hands. Flushing cigarettes down the toilet and hiring a personal trainer are among the preferred methods.

It is an idea that makes some sense to economists because it fits in with one of their core beliefs - that, left to our own devices, we prefer to enjoy ourselves now rather than wait. We are natural spendthrifts. That's why banks need to offer us interest to persuade us to lend them our money.

Or so it was thought. The new findings turn that thinking on its head.

Ran Kivetz and Itamar Simonson are professors at Columbia and Stanford universities. They have published their conclusions in a study entitled Self-Control for the Righteous.

Their belief is that about one in four of us acts quite differently. This "joyless consumer" seriously dislikes spending. Faced with a choice between spending on a luxury or on a necessity this person's instinctive reaction is to go for the necessity. Spending on luxuries appears to cause him or her something close to physical pain.

On a day-to-day basis this behaviour appears to make sense. As the professors note: "Spending on necessities has a distinct advantage over luxuries because one cannot do without necessities whereas spending on luxuries is often seen as wasteful, irresponsible, and even immoral."

But a life lived without ever spending on luxuries isn't responsible, and it certainly isn't enjoyable. The strategic thinker within such a person needs to trick the Scrooge into occasionally lashing out. Kivetz and Simonson set a trap to catch the strategic thinker at it.

They offered 6000 Americans the chance to take part in a lottery. They were given a choice of what to accept as a prize in the unlikely event that they won. They could opt for cash or a luxury prize of lesser value. One lottery offered the choice of either $55 in cash or a premium bottle of red wine (retail value $50). Another offered the choice of either $85 in cash or a one-hour facial (maximum retail value $80).

As financial decisions, they are dead easy to make. It is best to go for the cash. If you really want a bottle of wine or a facial you can buy one with the cash and have some money left over. And yet about a quarter of the Americans tested went for the luxury prize.

Asked why, they said things like: "If I chose the cash, I would probably spend it on something I need rather than something I would really enjoy" and "This way I will have to pamper myself and not spend the money on something like groceries".

The long-term planner within these people is desperate to get out from under the thumb of the short-term Scrooge. It may be one of the reasons why Australia's FlyBuys program is so popular, much more popular than it would be if it merely offered cash as a reward. (Incidentally, the professors have also discovered that one of the best ways to get FlyBuys users to take their rewards as flights rather than cash is to make the points harder to get - it makes the flights more acceptable to the Scrooge within us.)

I believe it is one of the reasons why so many Sydneysiders want to buy a second house down on the coast rather than (more cheaply) rent one when needed. The planner in these people knows it would be hard to convince the Scrooge to part with the rent.

It is also the reason my wife and I bought a season subscription to the Sydney Theatre Company at the start of last year.

We knew we would never lash out and treat ourselves to seeing a play each month if it meant parting with the money each time.

Instinctive Scrooges are all around us. They are doubtless far more common than Kivetz and Simonson's work suggests. Their experiment effectively asked people to admit to stupidity.

Entire national programs are based on the economists' stereotype that left to our own devices we won't save enough for our own good.

What if, instead, as many as half of us are inclined to save too much for our own good?

We would be able to get an idea if only we could find out what each of us promised ourselves on New Year's Eve.