Saturday, December 26, 2009
In this video from New York's WCBS-TV, US Representative Charles Rangel (D-NY) defends his occupancy of multiple rent-controlled apartments intended to help the needy.
Friday, December 25, 2009
I am one of the first casualties of Michigan's new minimum wage law.
I am a 21-year-old economics major at Hope College who last year worked part-time at the college's Office of Career Services for $6 an hour. On Oct. 1, however, it will be illegal for the school to pay me an hourly wage less than $6.95 an hour. So my boss called me last week and told me that her budget was tight and, because of the wage increase, my job would be cut.
I would have liked to continue working at $6 per hour, and Hope College was willing to pay me that. But the state of Michigan says I do not have the right to work for that amount of money. Hope College and I are not allowed to negotiate a contract that is satisfactory to both of us.
In my study of minimum wages, I have concluded that minimum wage laws always cause unemployment among the very groups they are supposedly trying to protect.
Our nation’s first federal minimum wage law was passed in 1918 and applied only to women. Employers had to pay women in Washington, D.C., at least $71.50 per month for their labor. What happened next is that many women found themselves out of jobs.
One of the casualties of that minimum wage law was Willie Lyons who, like me, was 21 years old. She worked happily as an elevator operator at the Congress Hall Hotel. She had been paid $35 a month plus two meals a day.
When the minimum wage law passed, however, the Congress Hotel could no longer afford to keep her. She wanted to work at the old wage, just as I do, but the new law made that illegal. Instead, the Congress Hotel hired a man at $35 a day plus meals. Like me, Willie Lyons became unemployed by a "compassionate bill" supposedly designed to protect her.
The good news is that Willie Lyons regained her liberty of contract. She testified before the U.S. Supreme Court in Adkins v. Children’s Hospital (1923) and pointed out that she liked her job, her employers liked her, and she resented being ousted from her job by the new minimum wage law.
The Supreme Court agreed and struck down the federal minimum wage law (although a later court let such laws stand). In writing for the majority in the case, Justice George Sutherland wrote, "freedom of contract is the general rule and restraint the exception, and the exercise of legislative authority to abridge it can be justified only by the existence of exceptional circumstances."
Sutherland graduated from the University of Michigan Law School. I wish our Michigan legislators had studied Justice Sutherland before they passed a law that took my job.
He'd read two passages taken from a book called The New Protectionism by Tim Lang and Colin Hines. Opponents of free trade, Lang and Hines believe that global trade should be restricted in order to encourage greater regional self-sufficiency. Here are the passages:
While Armenia is an emerging former-Soviet republic, its relative poverty does not come close to the levels of extreme poverty one will find in places like sub-Saharan Africa. Yet this bright young man in my office simply could not believe what he was reading! In his eyes, the only hope for poor countries like his was greater openness, greater trade, and better access to markets. And as he had seen for himself already, some of the very best jobs in his growing nation were jobs created by foreign direct investment. He simply could not believe that there were comfortable Western "compassionate" writers out there like Lang and Hines who thought they knew better than he--a hardworking shopkeeper--what would be best for him and others in his emerging economy. How could they possibly know, he thought.
"Trade liberalization hopes to bring more trade, yet more international trade brings more of the problems the world needs less of: threats to the environment, uneven spread of unemployment, and widening gaps between rich and poor, both within societies and between societies" (p. 3).
"Thus, the basic thesis of free trade is that instead of being self-sufficient, each one should specialize and produce what it is best at and can produce most cheaply, i.e., the things in which one has a 'comparative advantage' . . . This theory runs into difficulty where one country can produce products more cheaply than others, and has no incentive to trade, or where a country has little or no comparative advantage in anything" (p. 21).
I was reminded of my conversation with my student Arthur as I watched this segment about sweatshop labor from 20/20. All of us comfortable Westerners need to remember that, no matter how noble our intentions, sometimes our hearts tell us to do something that may actually harm those we yearn most to help.
But even though none of the other diners gets involved, weighing their own personal benefits against costs, it turns out there is a bargain to be struck after all--though some are not happy about how things turn out.
The video raises many of the same questions considered in Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa by Dambisa Moyo. Publisher's Weekly says, "In this important analysis of the past fifty years of international (largely American) aid to Africa, economist and former World Bank consultant Moyo, a native of Zambia, prescribes a tough dose of medicine: stopping the tide of money that, however well-intentioned, only promotes corruption in government and dependence in citizens. With a global perspective and on-the-ground details, Moyo reveals that aid is often diverted to the coffers of cruel despotisms, and occasionally conflicts outright with the interests of citizens-free mosquito nets, for instance, killing the market for the native who sells them. In its place, Moyo advocates a smarter, though admittedly more difficult, policy of investment . . . . "
This is quite a different vision than that of Bono and economist Jeffrey Sachs, who think that we are all now smart enough to avoid our terrible aid mistakes in Africa during the last half-century. In The End of Poverty: Economic Possibilities for Our Time, Sachs argues that what Africa needs now more than ever is even more foreign aid, because we are now wiser than we have been about what to do with it.
The video segment begs to differ, and you will get to see Sachs defend his position in a rather contentious interview.
The video makes the point that undergraduate education is not a guarantee of gainful employment or a wage premium, especially in the short term. So choose your major wisely!
The first dates back to U.S. automakers' lobbying efforts for a bailout--even before the current downturn.
What the segment does best is questions whether government attempts to prop up a sagging (or even dying) part of an economy are in the long-term best interest of all.
Paul Solman reports. And it is littered with puns.
And if the video is slow to load, here is a direct link.
Thursday, December 24, 2009
Not only was the oratorio a savvy business move for him; Handel also enjoyed remarkable financial success as well. This holiday segment from PBS illustrates both.
And if old Ebenezer Scrooge can choose a new path at Christmas, indeed there is hope for us all.
God bless Us, Every One.
'Spirit!' he cried, tight clutching at its robe, 'hear me! I am not the man I was. I will not be the man I must have been . . . . Why show me this, if I am past all hope?'
For the first time the hand appeared to shake.
'Good Spirit,' he pursued, as down upon the ground he fell before it: 'Your nature intercedes for me, and pities me. Assure me that I yet may change these shadows you have shown me, by an altered life?'
The kind hand trembled.
'I will honour Christmas in my heart, and try to keep it all the year. I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach. Oh, tell me I may sponge away the writing on this stone!'
Thursday, December 17, 2009
As many of you know, for several summers I've given a lecture at Acton University with the title, "Why Keynesianism Failed." I'll be giving an updated version of the talk again this summer.
By the way, Acton U is a fantastic program, and I would encourage anyone serious about bringing good intentions together with sound economics to consider attending.
At any rate, each summer that I give the talk it gets more and more interesting, given that Keynesian ideas appear to be winning the fiscal-policy day.
The Keynesian view is simply stated. When an economy is experiencing unemployment, the culprit is insufficient spending by consumers and firms. And because unemployment is real and painful, an appropriate role of government is to step in and start spending the taxpayers' money on goods and services, thereby raising demand. Facing increased orders, firms will begin calling back their laid-off workers.
Critics charge that Keynesian advice is a bad deal in the long run. Merely spending taxpayers' money on "stuff" to prop up a struggling economy will never correct what is fundamentally wrong with the economy. So we settle for short-term unemployment reductions in exchange for inevitable long-term damage. When Keynesian policy is used to stimulate the economy--as it is currently--we trust government to wager taxpayers' money on which industries will be "winners" and "losers" further down the macroeconomic road.
For example, who's to say whether propping up GM today is appropriate; it's possible (perhaps likely) that GM has no chance of long-term self-sufficient vitality. In the long run this really is a bad deal: keeping people busy at jobs that cannot possibly endure, while simultaneously inhibiting the longer-term growth and vitality of the economy by artificially creating demand today where there won't be tomorrow. This strategy also leads to bigger and (usually) badder deficits, as government borrows to finance today's spending plans.
Another danger that Keynesian activities court is the risk of inflationary spirals. Artificial increases in the demand for goods and services inevitably puts upward pressure on prices.
Keynes knew his critics were correct, and he famously confessed as much in his Treatise on Monetary Reform, in which he wrote, "In the long run we are all dead." For Keynes future consequences were irrelevant; we should help people who are hurting today because we have the power to do so, and ignore the future perils today's actions will bring.
Despite the myopia required to be a Keynesian, today we are vigorously pursuing a Keynesian course in both fiscal and monetary policy. And while there is little public debate these days over the merits and shortcomings of the Keynesian view, George Mason University economist Russ Roberts and award-winning director John Papola are producing a rap video in which Keynes and his free-market-minded nemesis Friedrich Hayek throw down. PBS's NewsHour covered Keynes and the video last night. Take a look:
Sunday, December 13, 2009
Wednesday, November 4, 2009
Reminds me of my Hope College math colleague Tim Pennings and his Welsh Corgie, Elvis. Tim examined whether dogs act as though they know calculus when they play fetch along the West Michigan lakeshore. You can read the paper here, or just check out this video:
Friday, October 23, 2009
I'm no Keynesian, but it was a great segment.
Thursday, October 22, 2009
The first week, "More Is Less," covers rising costs.
The second week, "Other People's Money," takes on the insurance industry--in a very entertaining hour. (In fact if you listen to just one, this is the one.)
And they do a nice job of getting at the source in nearly every case: fairly basic micro-decision-making based on the incentives and institutions at work.
So have fun listening as NPR spreads the blame around. Both may be streamed for free by following the links above.
But it may not be that easy to catch the cheats: it requires a full audit, and the IRS has flagged over 100,000 suspicious returns so far.
A key piece of the puzzle: you don't have to prove you actually bought a house to claim the credit.
NPR's Morning Edition has a report:
Friday, October 16, 2009
Thursday, October 15, 2009
Ms. Rehm' guests:
Kelly Brownell, director, Yale University's Rudd Center for Food Policy and Obesity.
J. Justin Wilson, senior research analyst, Center for Consumer Freedom.
David Kessler, former commissioner of the Food and Drug Administration and author of The End of Overeating.
Note, though, that while historical statistics can be suggestive of future events, they are not the odds that some future event will or will not happen.
'Book of Odds' gives eye-opening stats
Want to know what the odds are you'll survive two atomic bombs? How about more specific odds about yourself? The new Web site "Book of Odds" allows you to get up and personal about your own statistics. Bob Moon talks to founder Amram Shapiro.
In most notes she sends along clippings of articles she has run across that she thinks will interest me. She is a voracious reader--of everything. In today's envelope, along with a very nice note and another clipping, I found a letter to the editor she'd snipped from the Star Press of Muncie, Indiana.
Moms know their sons, don't they? If you have any doubt, check out the letter:
No free lunch
JIM ARNOLD • Muncie • October 4, 2009
It was early in my student career at BSU [Ball State] when I enrolled in Econ 101. The first day of class, our long-haired economics professor strolled confidently into the classroom and inscribed TANSTAAFL on the chalk board. TANSTAAFL, he claimed, was the fundamental theory of economics.
Being a little wet behind the ears, I fell for his spiel hook, line and sinker. I pondered the language of origin of this odd sounding word . . . .
(More -- Hat tip: Mom)
Monday, October 12, 2009
Sunday, October 11, 2009
I still don't know why it has that animated eagle, though. Keep an eye out for it:
The economics award is usually the last of the Nobel prizes to be announced. Correctly so, for it was also the last to be created – and strictly speaking is not even a real Nobel prize. The five original awards, first given out in 1901 for literature, peace, medicine/physiology, physics and chemistry, were intended by Alfred Nobel to recognise contributions that enhanced the quality of human life, through scientific advance, literary creativity or efforts at bringing about peace.
The economics prize is not a prize of the Nobel Foundation; rather, it was created in 1968 by the Central Bank of Sweden as a "prize in economic sciences in memory of Alfred Nobel". However, it now has the same procedure of selection by the Swedish Academy, and the same cash award presented at a similar ceremony as the Nobel prizes.
There have been recurrent doubts about whether it conforms to the basic goals of the prizes as envisaged by the founder. Is economics a science, on the same lines as physics or chemistry? Does it unambiguously contribute to human wellbeing, like peace or literature? In any case, should economics be privileged over other branches of learning?
Thursday, October 8, 2009
Wednesday, October 7, 2009
I'm interested to know your reaction. If you read the short piece and have a thought or two, I'd love to know.
Monday, October 5, 2009
Announcement of the 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel--Watch It LIVE
Thomson Reuters forecasts winners each year using citation records of economists' scholarly contributions. (But please, no wagering.)
Tuesday, September 29, 2009
PARIS — A specter is haunting Europe — the specter of Socialism’s slow collapse.
Even in the midst of one of the greatest challenges to capitalism in 75 years, involving a breakdown of the financial system due to “irrational exuberance,” greed and the weakness of regulatory systems, European Socialist parties and their left-wing cousins have not found a compelling response, let alone taken advantage of the right’s failures.German voters clobbered the Social Democratic Party on Sunday, giving it only 23 percent of the vote, its worst performance since World War II. . . .
Saturday, September 26, 2009
Thursday, September 24, 2009
When Pittsburgh's steel industry began to fall apart, steel workers needed to find a new way to survive. Marketplace's Rico Gagliano spoke with former steel workers to see if they had any advice for autoworkers in Detroit.
But Onvia offers its own, perhaps more up-to-date version, at recovery.com.
NPR's Morning Edition handicaps the sites:
As government leaders discuss trade issues, a story in this week's The Wall Street Journal reported on some of the bizarre trade rules that are still on the books. Reporter Matthew Dolan tells Linda Wertheimer about a story he dug up on how Ford Motor Company does some fancy maneuvering to get around an import tax that started in the 1960s with chickens.
ConAgra and General Mills report earnings this week, and things seem to be looking up. Why? The short answer: it costs less to buy what it takes for companies to make the food. Jeremy Hobson reports.
Friday, September 18, 2009
In part, the letter reads:
Paul Krugman cites a concern for mathematical elegance over truth and reliance on efficient market theory as reasons for economists underestimating the instability of markets. But similar arguments could be made about the Keynesianism that Krugman advocates. In its heyday, Keynesianism included elegant mathematical models that demonstrated markets are inherently unstable and had its own version of an efficiency theory, only it was government that was efficient; a wise and good government could fine-tune the economy through appropriate fiscal policy. . . .
I have pulled out the propositions with which at least seven out of every ten economists broadly agree, simplifying the language in some cases. You should check the original for the exact propositions, as well as the proportions agreeing.
Here are propositions, then, with which at least 7 out of every 10 economists broadly agree:
(Hat-tip: Michael Kruse)
- The US should eliminate remaining tariffs and other barriers to trade.
- The US should not ban genetically-modified crops.
- Employers in the US should not be required to provide health insurance to ALL their employees.
- The US should allow payments to organ donors and their families.
- A Wal-Mart store typically generates more benefits to society than costs.
- Economic growth in developed countries like the US leads to greater levels of well-being.
Thursday, September 17, 2009
HOW well off are Americans? Frenchmen? Indians? Ghanaians? An economist’s simplest answer is the gross domestic product, or GDP, per person of each country. To help you compare the figures, he will convert them into dollars, either at market exchange rates or (better) at purchasing-power-parity rates, which allow for the cheapness of, say, haircuts and taxi rides in poorer parts of the world.
To be sure, this will give you a fair guide to material standards of living: the Americans and the French, on average, are much richer than Indians and Ghanaians. But you may suspect, and the economist should know, that this is not the whole truth. America’s GDP per head is higher than France’s, but the French spend less time at work, so are they really worse off? An Indian may be desperately poor and yet say he is happy; an American may be well fed yet fed up. GDP was designed to measure only the value of goods and services produced in a country, and it does not even do that precisely. How well off people feel also depends on things GDP does not capture, such as their health or whether they have a job. Environmentalists have long complained that GDP treats the despoliation of the planet as a plus (via the resulting economic output) rather than a minus (forests destroyed).In recent years economists have therefore been looking at other measures of well-being—even “happiness”, a notion that it once seemed absurd to quantify. . . .
Tuesday, September 15, 2009
Remember, I like Tim Harford's work at the Financial Times. I really do. That's why it didn't feel good earlier this week when I critiqued his caricature of how economists think about economic decision-making.
But looking for something totally unrelated the other day on YouTube, I stumbled on this video of Mr. Harford giving a lecture on price discrimination at the Developments in Economics Education conference in Cambridge. And it's pretty clear from the video evidence that he is more than a bit fuzzy on what constitutes price discrimination.
Take a look at the video. Then check out my response beneath it.
Well, I've watched this video over and over the last couple of days, always trying to give dear Mr. Harford the benefit of the doubt. Nevertheless, if this video were Mr. Harford's response to an exam question like, "Define price discrimination. Give examples.", he would probably not receive a passing grade--at least from me in my principles of microeconomics course. Here's why.
Unfortunately, it is not uncommon to find economists--mistakenly--referring to any pricing scheme as discrimination. But the standard definition of price discrimination in economics is this: Price discrimination is said to occur when a firm, owing to at least some monopoly power, charges different prices to different groups of buyers for an identical good or service. Real examples of price discrimination include student discounts, senior discounts, lower airfares with a Saturday-night stayover than without, and movie matinee prices.
Therefore price discrimination is not what Mr. Harford discusses--at all--in his price discrimination talk. His talk is actually about product differentiation: charging different prices for similar--but not identical--goods.
Whenever one starts talking about price discrimination, the first question should be "Where is the monopoly power?" Now Starbucks may have some, but I doubt it is all that great, and probably relates to the unique experience at Starbucks, rather than the coffee quality alone.
There were a few other points in the video that made me scratch my head. For example, I don't know all of the prices at Starbucks, but the price-volume combinations at most shops like it work out so that the per-ounce price is lowest for the venti (big) size and highest for the tall (small). So your best per-ounce value is actually the biggest drink. Yet the talk made it sound like the opposite is true.
In fairness, though, the "short" he talks about is more difficult to explain. It cannot be explained by people merely wanting a greater variety of sizes, since it is not listed on the menu. It's possible Starbucks keeps it available in order to prevent losing a sale, but keeps it off the menu to discourage many orders of that size. But I question whether that is a sufficiently reasonable explanation.
So if you are looking for a cool video about price discrimination--that also gets the economics exactly right--skip Tim Harford's. Instead, check out this one two of my students at Hope College made last year:
Monday, September 14, 2009
Over the weekend we learned that the United States would impose three years of import tariffs on tires made in China--beginning at an eye-popping 35 percent. In an excellent article this morning, ConsumerAffairs notes that roughly 17 percent of tires sold in the US in 2008 had been made in China.
China is not taking this affront lying down; they are hitting back. Working on Sunday, the Chinese have introduced import tariffs of their own--on US-produced auto parts and chicken products.
Tariffs and other protectionist measures are not good. Yet we fail to learn this lesson. Today it is Chinese tires. In 2002 it was steel made in nations like Ukraine, Russia, Japan, China, and South Korea. You may not remember it, but way back in 1995, then-President Clinton proposed placing a 100-percent import tariff on Japanese luxury automobiles.
Trade wars--just like real ones--hurt people. And the collateral fallout is considerable, and rarely fully accounted for in advance. For example, I'm guessing that the already-staggering US auto parts workers aren't happy to know that (1) tires will cost more the next time they shop for them, and (2) their jobs are now at even greater risk because China slapped a retaliatory tariff on US auto parts.
Read more about the fallout for the US consumer at ConsumerAffairs.
Sunday, September 13, 2009
Now I enjoy Harford's work immensely. Some of you may have even noted that his blog is one that has appeared in my blogroll for some time now. But I have a bit of a bone to pick with the way that Harford frames how economists think on things.
To give a backdrop the nature of my disagreement, here are a few snips from the NPR page. (I'd encourage you to listen to the entire interview, though. It really is good!)
Sorry, but economics is not merely about sorting out the institutional arrangements in play, then pursuing unbridled hedonism with no thought to the social or emotional consequences. (That is, unless some anti-economist--as Harford tells it--should sweep in at the end and nudge us into some relatively moral direction.)
Economists aren't known for their softer side. . . .
They should be the last people you ever ask for relationship advice.
"There is a certain irony in economists who have the least developed emotional register of any social scientist, giving dating advice," says economist Tim Harford, who lives that irony every day. . . .
"There's no consideration of morality," says Harford, who channels his pure inner economist when he writes the advice column.
And he sees that pure inner economist almost as an evil twin who doesn't care how rude he is or how much he cuts through the emotional complexities of a situation.
Our emotions, our feelings, our possible guilt, our concern for the well-being of others, and even a consideration of whether we will look ridiculous or not--all of these factors enter directly into our economic decision-making. They are not some mere final consideration before we plunge headfirst into the most opportunistic pool available. Adam Smith knew this, and said as much in both his Theory of Moral Sentiments and the Wealth of Nations.
And the fact that they are not an afterthought is one of the reasons that the same self-interested models of economic behavior that work well in explaining the life and work of Donald Trump work equally well in explaining the life and work of Mother Teresa. Both have lived their lives in the pursuit of their self-interest--in whatever sense "self-interest" has happened to mean to each of them. And for Mother Teresa, the plight of the world's most downtrodden and helpless was one of the primary influences motivating her life's work. Serving them was what she wanted to do.
Now, to be fair, economists--and Harford--often do not fully incorporate such considerations into their economic modeling because emotional and social consequences prove less tractable than, say, expected alternative monetary payoffs from one course of action versus another.
But just because they are less tractable than other factors that influence the choices we make does not mean that they do not matter, or more to the point, that they do not enter directly into our choice framework.
Saturday, September 12, 2009
This happens because, with trade, each nation is free to produce goods and services in which it enjoys a comparative advantage--an ability to produce a good at a lower opportunity cost than others can.
So, for example, a nation like Canada can grow a lot of wheat, and then use their silos full of it in trade to buy the computers it needs from nations like Japan. That way both nations have computers, they are fed, and--and this is where it gets really exciting--it's possible for both nations to consume more of both goods than would be possible if they were living in isolation with no trade whatsoever, relying only upon their own workers to make all the goods they need.
Which is why it is so troubling that the United States continues to roll out antiquated trade barriers in an effort to "protect" Americans and their jobs. The last presidential administration committed this sin during its first term, imposing hefty tariffs on imported steel. And today we learned that the current administration will impose three years of tariffs on tires imported from China, in an effort to save American tire jobs. The tariff rates will begin at a whopping 35 percent.
But trade barriers such as tariffs make Americans worse off, because they don't let us enjoy the fundamental benefit of free trade in this case: cheaper tires for all. Instead we settle for propping up industries to benefit a few, at the expense of the rest of us, presumably to help our economy. Yet cheap steel and cheap tires are good for our economy, regardless of where they come from.
So that's the economic argument. But I believe there's also a moral dimension here.
In the case of the 2002 steel tariffs, we were deliberately trying to help domestic steel companies by hurting foreign ones. In effect, we were saying that steel jobs for US workers are more important than jobs for foreigners working hard to make life better for themselves and their families. Specifically, in 2002, we were--through our misguided policy actions--saying that human beings here are more valuable than our fellow human beings in China, Japan, South Korea, Ukraine and Russia. And I have a very hard time with that.
And this time it's even more personal, since we are imposing the tire protections against just one country, in an effort to prop up tire-makers in our own who apparently are "better" somehow. Sorry--I just don't buy that.
So let's not permit an "us vs. them," "USA! USA! USA!," mentality to cloud our economic judgment. Free trade makes life better for all, both domestically and globally. And we should tread lightly when our efforts to help a tiny minority cause harm to the rest of us.
Wednesday, September 9, 2009
Couples should consider sleeping apart for the good of their health and relationship, say experts. . . .Then I'm guessing that letting Malcolm our cat in bed is suicidal.
One study found that, on average, couples suffered 50% more sleep disturbances if they shared a bed.
Monday, August 31, 2009
Which means you won't be betting the job anytime soon.
Better practice, though. Try your hand at steering our economy by taking charge of our central bank and playing the Fed Chairman Game at the San Francisco Fed's web site.
Saturday, August 22, 2009
. . . are there really 46 million uninsured? It's the current best guess, but it might be off by several million. . . .
That is, is your doctor more like your mom or an auto mechanic?
“IF FIVE hundred millions of paper had been of such advantage, five hundred millions additional would be of still greater advantage.” So Charles Mackay, author of Extraordinary Popular Delusions and the Madness of Crowds, described the “quantitative easing” tactics of the French regent and his economic adviser, John Law, at the time of the Mississippi bubble in the early 18th century. The Mississippi scheme was a precursor of modern attempts to reflate the economy with unorthodox monetary policies. It is hard not to be struck by parallels with recent events.
Law was a brilliant mathematician who used his understanding of probability to help his gambling habit. Escaping from his native Scotland after killing a rival in a duel, he made friends with the Duke of Orleans, the regent of the young king Louis XV.
The finances of the French government were in a terrible mess. Louis XIV had spent much of his long reign fighting expensive wars. Tax collection was in the hands of various agents, who were more concerned with enriching themselves than the state. Not only was the monarchy struggling to pay the interest on its debt, there was also a credit crunch in the form of a shortage of the gold and silver coins needed to fund economic activity.
Law’s insight was that economic activity could be boosted by the use of paper money that was not backed by gold and silver. He was well ahead of his time. . . . (more)
Wednesday, August 19, 2009
But have you heard of a "wisdom of wombats?"
Just like we use special words we already know to describe groups of species--"gaggle" of geese, "pride" of lions, "herd" of cattle--there are plenty of these you may have never heard of:
a murder of crows, a cackle of hyenas, a wisdom of wombats.
You can read even more, courtesy of the San Diego Zoo.
So when a bunch of wombats get together, make way for the wisdom.
The chart above is based on data in the American Federation of Teachers study "The State of the Higher Education Workforce 1997-2007," released in May 2009, and college enrollment data available here. The report presents a troubling picture of the higher education teaching profession because colleges and universities have been "disinvesting" in full-time tenured and tenure-track faculty while at the same time "investing" in more and more administrators, and hiring more and more part-time faculty.
Monday, August 10, 2009
Thursday, August 6, 2009
(I'd tweet this, but, well, . . . ).
Twitter was inaccessible for at least a half hour on Thursday morning, followed by a period of slowness and sporadic timeouts (and more outright downtime). It's not clear what has caused this. My theory is that it was the volume of millions of people tweeting complaints about why it can't be Friday yet. . . .
Monday, August 3, 2009
Shot last year, the video is designed to describe life in town to anyone thinking about making a move here.
The film includes a segment about our town's intellectual life, found between the 5:00 and 5:30 marks. And if you take a look, you'll see yours truly in action in the classroom.
Friday, July 31, 2009
Cash-for-Clunkers was proposed by Princeton economist Alan S. Blinder.
You can read his initial "humble suggestion," as it appeared in the New York Times almost precisely one year ago.
ECONOMISTS have long recognised the arguments for imposing special taxes on goods and services whose prices do not reflect the true social cost of their consumption. Such taxes are known as “Pigouvian” after Arthur Pigou, a 20th-century English economist. Environmental taxes are an obvious example. There is also a Pigouvian case for duties on cigarettes, alcohol and gambling. Smoking increases the risk of cancer for those in the vicinity of the smoker; alcohol abuse and gambling are strongly associated with violence and family breakdown. Moreover, all three habits lead to higher medical costs. In theory governments can make up these costs, or “externalities”, with a tax that adjusts the prices people pay to puff, booze or punt. Such a tax might also encourage consumers to live healthier lives.
Support for another such tax, on junk food, is now spreading, especially in America. Congress is considering a tax on sugary drinks to help pay for the planned expansion of health-care coverage. Some analysts would like to see broader duties on junk food. On July 27th the Urban Institute, a think-tank in Washington, DC, proposed a 10% tax on “fattening food of little nutritional value” that, it claimed, would raise $500 billion over ten years.
The logic for a tax on fattening food may seem obvious. About one-third of Americans are obese, up from 15% in 1980. Fat people are more prone to heart disease, diabetes, bone disorders and cancer. An obese person’s annual medical costs are more than $700 greater than those of a comparable thin person. The total medical costs of obesity surpass $200 billion a year in America, which is higher than the bill for smoking. These costs are not all borne by the obese. When health-care costs are shared, obesity becomes a burden for everyone. Thanks to government health-care plans such as Medicare half of America’s obesity-related health costs land on taxpayers. In private employer-sponsored health plans the slim pay similar premiums to the overweight.But would a fat tax affect behaviour?
Thursday, July 30, 2009
Though teachers protested the action, the district claims it will be able to save nine teaching positions as a result. The decision to privatize janitorial services is part of an effort to cover a $2.2 million deficit.
. . . Superintendent Tom TenBrink said he sees the move as the only option that does not hurt programs and teachers.
Projections show the district will face another $2.6 million shortfall next year, and savings are quickly being depleted.
"We can no longer afford every employee. It's just not feasible," TenBrink said. "This is a sad day in our history and it's probably the hardest thing I've had to do. I quite honestly don't know where else to go. I don't know where to turn."
. . . the French newspaper La Tribune reported that the Organization for Economic Cooperation and Development had added Switzerland, Luxembourg, Austria, Singapore and Hong Kong to a list of uncooperative tax havens, which already includes the well-established havens of Liechtenstein, Andorra and Monaco. . . .
Banking secrecy was enshrined in law in Switzerland in the 1930s. . . .“Switzerland is the big prize,” Willem Buiter, a professor at the London School of Economics and Political Science, wrote on his blog last year, because “unlike the other tax havens, it is a country rather than a dwarf-state and postage-stamp curiosity, and it is outside the E.U.,” therefore out of reach of European Union enforcers.
Wednesday, July 29, 2009
One of the world's most influential economists warns today that Britain faces the prospect of two recessions in quick succession.
Robert Shiller, Professor of Economics at Yale University, said that the recent stock market bounce should be treated with caution.
He likened the current sense of optimism to a marital row. “You don't know whether the argument with your wife is really over or not. Is the problem something that your spouse will bring up again, and again?”
Tuesday, July 28, 2009
GIVE up lamb roasts and save the planet. Government advisers are developing menus to combat climate change by cutting out “high carbon” food such as meat from sheep, whose burping poses a serious threat to the environment.
Out will go kebabs, greenhouse tomatoes and alcohol. Instead, diners will be encouraged to consume more potatoes and seasonal vegetables, as well as pork and chicken, which generate fewer carbon emissions.
“Changing our lifestyles, including our diets, is going to be one of the crucial elements in cutting carbon emissions,” said David Kennedy, chief executive of the Committee on Climate Change. . . .The problem is because sheep burp so much methane, a potent greenhouse gas. Cows are only slightly better behaved. . . .
Organizers say they were surprised when 3800 attended--nearly one-third more than the usual turnout. Organizers plan to order more beer for next year's festival, the BBC reports.
Sunday, July 26, 2009
States that allow debt collectors to seize consumers' wages have sharply higher bankruptcy rates than neighboring states that prohibit or strictly limit the practice, an Associated Press analysis has found.
This link highlights a dilemma for credit-card companies and other debt chasers: By going after wages — an increasingly popular maneuver since the recession began, lawyers say — they risk pushing consumers into bankruptcy court, where judges can reduce or wipe away all sorts of financial obligations.
The apparent relationship between so-called garnishment laws and states' bankruptcy rates also bolsters the arguments of consumer advocates, who have long said that intercepting someone's wages to pay their debts only increases their financial vulnerability.
After gathering millions of bankruptcy records from 2006 until now, the AP plotted the number of filings for each U.S. county in its Economic Stress Map — a geographic, chronological and visual depiction of economic misery based on unemployment, foreclosure and bankruptcy data.
While bankruptcy rates vary for many reasons, the five states that prohibit or strongly limit wage seizures — North Carolina, Pennsylvania, South Carolina, Florida and Texas — all have drastically lower rates than their neighbors, with particularly striking differences along borders, where economic conditions are similar but bankruptcy rates are not. . . .
Thursday, July 23, 2009
Why do prices end in .99? My father says it started at Bill's Texaco in Waco, Texas during a price war. I say it's a much older management technique to force employees to open cash register drawers for each transaction (making simply pocketing a bill more obvious). Since we're both inveterate bullshitters we've decided to leave it to you.
— Richard H., San Francisco
The topic does lend itself to wielders of the big shovel, no question about it. The most elaborate explanation I've seen is in Scot Morris's Book of Strange Facts & Useless Information (1979):"In 1876, Melville E. Stone decided that what Chicago needed was a penny newspaper to compete with the nickel papers then on the stands. But there was a problem: with no sales tax, and with most goods priced for convenience at even-dollar figures, there weren't many pennies in general circulation. Stone understood the consumer mind, however, and convinced several Chicago merchants to drop their prices--slightly. Impulse buyers, he explained, would more readily purchase a $3.00 item if it cost "only" $2.99. . . .
The public gets a chance next week to comment on a plan to build a futuristic high-speed rail system along Michigan's interstates, allowing people and cars to travel from Grand Rapids to Detroit in less than an hour.
The Michigan-meets-"The Jetsons" concept is being studied by a bipartisan state panel holding meetings around the state in an attempt to gauge public support. . . .
The project was proposed by the privately owned Interstate Traveler Company, located just north of Ann Arbor. Company officials are asking the state to provide free use of the right-of-way along Michigan's interstate freeway system.
The railway's cars would levitate on top of an elevated hydrogen-based track and be propelled by energy from magnets. Cars holding people, freight and vehicles would cycle at high speeds, stopping in Grand Rapids, Lansing, Ann Arbor and Detroit. . . .
It is, however, an expensive proposition.
The project is estimated to cost more than $2 billion, or about $17 million a mile.
. . . the company is not asking for any state, federal or local funding.
Company founder Justin Sutton has told state officials he has secured private investors for the project, but needs lawmakers to agree to give him free use of the interstate right-of-way in exchange for revenues that will be shared with the state and local governments after three years of operation.
Wednesday, July 22, 2009
This week the House Appropriations Committee boosted dramatically the funding President Obama had requested for the high-speed system, raising it from the $1 billion the President had wanted to $4 billion. This money would be above and beyond the $8 billion already included as part of the $787 billion stimulus.
The bill would also contribute an additional $1.5 billion to Amtrak. Though Amtrak has been working toward independent solvency for decades, it has always had to rely upon funding from the federal government to continue operations.
What you may not know, however, is that states often chip in on the subsidies to keep in-state Amtrak lines in operation. Here in Michigan, where our budget woes have corresponded to the poor state economy, we spend $7.3 million of Michiganders' money to keep open our lines that run to Chicago.
And B. Candace Beeke, writing for the Business Review Western Michigan's blog "West Side Story," thinks that's too much money to spend on the few of us (that's right, I do ride the Pere Marquette line from Holland to Chicago) who take the train, especially in these difficult times:
In normal times, one could argue that the $7.3 million the state spends to subsidize two Amtrak rail lines to Chicago is simply the cost of supporting public transportation.
And it just might be a valid argument, if Amtrak could show great value for the money it receives from the taxpayers of Michigan.
We don't argue with the notion that having train service to Chicago is a nice thing. But is it truly a need that requires a public subsidy?
Our issue here is twofold: Is the $7.3 million now spent on Amtrak the best use of dwindling financial resources for a state mired in a persistent fiscal crisis; and who is using the train to Chicago?
Is there a high public good being accomplished through the Amtrak subsidy? Or are we merely providing folks who want to go shopping on the Miracle Mile a taxpayer handout to help pay their way to the Windy City and back?
That's why -- at least from the perspective of triggering a much-needed conversation -- we welcome the efforts of some lawmakers in Lansing who want to trim Amtrak's subsidies. . . .
Here are a few quotes you will hear in the video:
"We used to work two or three shifts and on Saturdays, also. Now we work only two to four days a week. My job pays only half as much as it used to. But when you're older than 50, it's hard to get a new job." - Alexei Koverigina, Russian workerAnd here is the segment:
"That's just an issue of the diversifying the Russian economy, which should not rely only upon the gas, oil and metals. It should be modern type of economy based on the unique human capital which we have in the country." - Anatoly Chubais, CEO, Russian Corporation of Nanotechnologies
"Current government simply thinks that sooner or later those smart guys in U.S. and Western Europe will do something with the whole situation in the world and oil prices will come back on the same levels. And this government will continue to do nothing, not pursuing any single reform." - Mikhail Kasyanov, Former Prime Minister
Tuesday, July 21, 2009
Economists are curious about this real-world phenomenon since the idea that the psychology of a price starting with "3" instead of "4" makes a difference flies in the face of the fairly standard rationality assumptions made on the part of consumers. That is, consumers aren't stupid, so they should recognize immediately that the difference between $3.99 and $4.00 is precisely one cent--the same as the difference between $4.00 and $4.01.
There is a fairly rich, expanding literature on 99-cent pricing. For example, in a 1997 paper appearing in Economics Letters, Kaushik Basu explains the phenomenon without abandoning the assumption of rationality on the part of consumers.
Well, an article in the new issue of the BBC Magazine notes that the UK's top four grocers have been rapidly abandoning prices that end in .99, opting instead to round up to the nearest pound. Its author, Laura Schocker, puts forth three possible explanations.
As a result, many dairy farmers are seeking government relief. Yet America's dairy farmers have been the beneficiaries of the Dairy Price Support Program since 1949. The USDA-administered program has maintained a guaranteed minimum price for milk for dairy farmers by buying up surplus butter, nonfat dry milk, and cheese.
But like any other price floor, dairy price supports have social costs to all of us--in the form of (1) higher prices for milk and milk-related goods, and (2) higher tax bills required to generate the tax revenues required to buy up the surpluses from farmers--that are most likely greater than the benefits that dairy farmers reap as a result. Even the president's own Office of Management & Budget has rated the program as "Not Performing."
In addition, in an effort to help with fluctuations in the market price of milk, the USDA supports the Milk Income Loss Contract (MILC) program. The program makes payments to dairy farmers in times such as these; that is, the programs makes payments to dairy farmers in order to insulate them from fluctuations in the market price of milk. Low milk prices means more money gets paid to farmers.
The two programs are expensive ones. According to the Herkimer Telegram, "The USDA is expected to spend nearly $1 billion in fiscal year 2009 on purchases of dairy products (Dairy Product Price Support Program) and payments to producers (MILC)." And that doesn't even include the higher prices you and I pay as a result of the program.
Nevertheless, facing some of the lowest market prices in three decades, dairy farmers are seeking extended price support benefits. And it should come as no surprise that the lawmakers spearheading the effort hail from key dairy states: In a recent letter to the U.S. Secretary of Agriculture, Wisconsin senators Herb Kohl and Russ Feingold, as well as Patrick Leahy of Vermont, among others, urged temporary increases in the dairy price support program. You can read the full text of the letter here.
Yet according to a spokesman for the International Dairy Foods Association (IDFA), a trade group representing Dean Foods and other producers, the support programs hurt dairy companies over the long term since they reduce incentives for producers to expand and innovate. Paul Kruse, head of Texas-based Blue Bell Creameries and spokesman for IDFA, gave testimony last week before a congressional committee, arguing that such programs distort markets, leaving consumers paying more than they need to for milk and other dairy products.
Here's the NewsHour segment:
Monday, July 20, 2009
Well, they are at it again this week:
IN 1978 Michael Jensen, an American economist, boldly declared that “there is no other proposition in economics which has more solid empirical evidence supporting it than the efficient-markets hypothesis” (EMH). That was quite a claim. The theory’s origins went back to the beginning of the century, but it had come to prominence only a decade or so before. Eugene Fama, of the University of Chicago, defined its essence: that the price of a financial asset reflects all available information that is relevant to its value.
From that idea powerful conclusions were drawn, not least on Wall Street. If the EMH held, then markets would price financial assets broadly correctly. Deviations from equilibrium values could not last for long. If the price of a share, say, was too low, well-informed investors would buy it and make a killing. If it looked too dear, they could sell or short it and make money that way. It also followed that bubbles could not form—or, at any rate, could not last: some wise investor would spot them and pop them. And trying to beat the market was a fool’s errand for almost everyone. If the information was out there, it was already in the price. . . .
That is why many people view the financial crisis that began in 2007 as a devastating blow to the credibility not only of banks but also of the entire academic discipline of financial economics. . . .
Sunday, July 19, 2009
(Hat-tip: Steven Levitt)
Saturday, July 18, 2009
It's an interesting question, especially in light of modern technological advances. For example, one might reasonably wonder why Amazon doesn't simply give away its Kindle or Kindle DX, earning its money through sales of downloadable content.
Similar questions arise in a competitive context. The standard competitive economic model predicts that in the market equilibrium the price of a good will equal the marginal cost of the last unit produced and sold. Yet for goods such as software that has already been written, and is also available for download online, the marginal opportunity cost to the firm of making one more download available is awfully close to zero (especially if server space and bandwidth are sunk costs). Which implies that the market price should also be near zero.
Read the Economist's full review of Chris Anderson's Free. And best of all, you may read Free -- the entire book -- absolutely free (below). Enjoy!
FREE (full book) by Chris Anderson