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Anthropometrics: The Intersection of Economics and Human Biology  

John Komlos

Anthropometrics is a research program that explores the extent to which economic processes affect human biological processes using height and weight as markers. This agenda differs from health economics in the sense that instead of studying diseases or longevity, macro manifestations of well-being, it focuses on cellular-level processes that determine the extent to which the organism thrives in its socio-economic and epidemiological environment. Thus, anthropometric indicators are used as a proxy measure for the biological standard of living as complements to conventional measures based on monetary units. Using physical stature as a marker, we enabled the profession to learn about the well-being of children and youth for whom market-generated monetary data are not abundant even in contemporary societies. It is now clear that economic transformations such as the onset of the Industrial Revolution and modern economic growth were accompanied by negative externalities that were hitherto unknown. Moreover, there is plenty of evidence to indicate that the Welfare States of Western and Northern Europe take better care of the biological needs of their citizens than the market-oriented health-care system of the United States. Obesity has reached pandemic proportions in the United States affecting 40% of the population. It is fostered by a sedentary and harried lifestyle, by the diminution in self-control, the spread of labor-saving technologies, and the rise of instant gratification characteristic of post-industrial society. The spread of television and a fast-food culture in the 1950s were watershed developments in this regard that accelerated the process. Obesity poses a serious health risk including heart disease, stroke, diabetes, and some types of cancer and its cost reaches $150 billion per annum in the United States or about $1,400 per capita. We conclude that the economy influences not only mortality and health but reaches bone-deep into the cellular level of the human organism. In other words, the economy is inextricably intertwined with human biological processes.

Article

Leverage Cycle Theory of Economic Crises and Booms  

John Geanakoplos

Traditionally, booms and busts have been attributed to investors’ excessive or insufficient demand, irrational exuberance and panics, or fraud. The leverage cycle begins with the observation that much of demand is facilitated by borrowing and that crashes often occur simultaneously with the withdrawal of lending. Uncertainty scares lenders before investors. Lenders are worried about default and therefore attach credit terms like collateral or minimum credit ratings to their contracts. The credit surface, depicting interest rates as a function of the credit terms, emerges in leverage cycle equilibrium. The leverage cycle is about booms when credit terms, especially collateral, are chosen to be loose, and busts when they suddenly become tight, in contrast to the traditional fixation on the (riskless) interest rate. Leverage cycle crashes are triggered at the top of the cycle by scary bad news, which has three effects. The bad news reduces every agent’s valuation of the asset. The increased uncertainty steepens the credit surface, causing leverage to plummet on new loans, explaining the withdrawal of credit. The high valuation leveraged investors holding the asset lose wealth when the price falls; if their debts are due, they lose liquid wealth and face margin calls. Each effect feeds back and exacerbates the others and increases the uncertainty. The credit surface is steeper for long loans than short loans because uncertainty is higher. Investors respond by borrowing short, creating a maturity mismatch and voluntarily exposing themselves to margin calls. When uncertainty rises, the credit surface steepens more for low credit rating agents than for high rated agents, leading to more inequality.. The leverage cycle also applies to banks, leading to a theory of insolvency runs rather than panic runs. The leverage cycle policy implication for banks is that there should be transparency, which will induce depositors or regulators to hold down bank leverage before insolvency is reached. This is contrary to the view that opaqueness is a virtue of banks because it lessens panic.