Spousonomics, are seeking marital advice from economists on their blog. Their “Economists in Love” series asks amusing (yet pragmatic) questions such as “Which is a better way to divide the housework: 50/50 or comparative advantage?” and “Is your marriage a repeated game? And if so, what kinds of things have you learned with each iteration?” First up on the advice roster was our own Dan Hamermesh. Game theorist Jeff Ely has also weighed in.
Wednesday, December 29, 2010
Thursday, October 21, 2010
Wednesday, October 13, 2010
What Are You Reading?
Hubert Lau, 22
Economics in Christian Perspective: Theory, Policy, and Life Choices
By Victor Claar and Robin Klay
Hubert Lau, 22, picked up this economics textbook for a college economics class. The book, said the Lakeland resident, asks straightforward questions about the effectiveness of charitable giving to non-profit and non-governmental organizations, like OxFam and World Vision, that give aid to third-world countries. 'We send money over to those countries, but nothing changes. They are still poor,' he said.
This story appeared in print on page D10.
I'd love hearing from Mr. Lau. (UPDATE: Mr. Lau and I have since connected through facebook. Where else?)
Tuesday, October 12, 2010
Eliminate the Dime, Too: The U.S. Treasury is seeking to save $100 million per year by removing nickel from the nickel; nickel lobbyists are fighting this in Congress. The International Zinc Association is lobbying to maintain the existence of the penny, which is mostly zinc. If the United States, at a time of record mega-deficits, can't even get rid of pennies because members of Congress fear the loss of donations from the zinc lobby, how will fiscal sense ever be established?
The quarter is the smallest unit of currency that bears meaning in modern society: pennies, nickels and dimes merely clog the national pocket, at a cost to taxpayers. Pennies mean so little they possess negative value . . .
(Read more--oh, and you'll need to scroll way down)
Sunday, October 10, 2010
OTTAWA - They’re overwhelmingly male, American, and their work has probably touched your life in some way, though you may not know it.Speaking for myself and what I would like to happen--not what I predict will happen--I would love to see any of Jagdash Bhagwati, Robert Barro, or Paul Romer garner a win.
That’s the way it is with the Nobel Prize in economic sciences, slated to be awarded Monday. Only one woman has ever won the prize since it was first awarded in 1969. And roughly 70 per cent of past laureates are either American, or dual citizens of the U.S. and another country. Three are Canadian-born – William Vickrey, Myron Scholes and Robert Mundell.
The Nobel Foundation’s six-member economic prize committee keeps close guard on its list of candidates for the prize, worth 10 million Swedish kroner (about $1.5-million). But bloggers, odds-makers and pundits eagerly fill the void with their best guesses. A New Zealand-based online futures dealer (www.ipredict.co.nz) rates British-born Harvard economist Oliver Hart, University of Chicago behavioural economist Richard Thaler and Yale real estate guru Robert Shiller among the top favourites.
Here’s a look at several worthy choices, and the work they do . . . . (More)
Saturday, October 9, 2010
(The Huffington Post) - A Census Bureau report recently released found the percentage of Americans now living in poverty rose to 14.3 percent in 2009, the highest in decades.
For many of us, this was a huge shock. News like this sends a shudder through our collective spine. And for every family that finds itself now living in poverty, it isn't a headline at all; it is a personal tragedy.
But as we come to grips with this most recent statistic, we have a dual set of challenges. On one hand, we need to do all in our power to help those struggling here at home. But we also have the challenge of viewing poverty with "global bifocals." With one portion of the lens we see and attack needs close to home. With the other portion of the lens we focus on the realities of global poverty that may seem far away.
Here at home, poverty is a single mom in Detroit trying to keep food on the table. In Africa, poverty is a 14-year-old orphaned head-of-household trying to find fresh water for himself and his siblings. The challenge isn't to choose one over the other. The task is to view two harsh realities through a common lens of compassion and assistance.
In America, poverty is defined as living on less than $26.22 per day. In the rest of the world poverty is defined as living on less than $1.25 per day.
In America, clean water flows from our faucets and we still purchase designer water. In the developing world, clean water is kilometers away and more than 1 billion people lack access to potable water. In fact, 1.4 million children will die this year from waterborne diseases. That's more than 3,800 children every day -- yesterday, today and tomorrow. . . .
Saturday, September 25, 2010
"Greed, for lack of a better word, is good. Greed is right. Greed works."
Gordon Gekko's infamous speech in Oliver Stone's 1987 film "Wall Street" came to embody the excesses of 1980s high finance. Now Gekko, fresh out of prison, is back in Stone's "Wall Street: Money Never Sleeps," which features the financier (played again by Michael Douglas) warning of the impending economic crisis of 2008. Turns out greed caused some trouble while Gekko was locked up.
But is greed capitalism's worst sin? Not so, argues economist Victor Claar. In a speech at the American Enterprise Institute last week, Claar posited that another deadly sin -- envy -- is an inherent part of the free-market system and can prove even more insidious.
Claar, a co-author of Economics in Christian Perspective, relied on Thomas Aquinas's definition of envy: sadness at the good of another. He cited the biblical parable of the prodigal son, in which the older sibling is envious of his dissolute brother, whose return home sparks a big party. "It sounds like blue-collar frustrations that we hear today," Claar said. " 'I did everything the right way, I played by all of the right rules -- and here I am.' "
Whether because of differing intelligence, skill, ambition or luck, free markets produce different outcomes for different people, so envy is inevitable. . . .
Friday, September 17, 2010
Here is one lone consumer's effort to bring peace and common sense to the matter:
Saturday, September 4, 2010
I am frequently asked, "just what does an economist do anyway?" It is a surprising question,
especially to an economist. It is certainly worth answering.
There are about 600 economics Ph.D.s produced annually in the U.S., and about of a third of them are American students. Most work at colleges and universities, though a significant number also go to state and federal government (including the Federal Reserve banks). A smaller number go to work in industries or think tanks. Of course lots of folks actually perform economic work without having a Ph.D. We don't give licenses.
Most economists spend some time teaching, but the vast majority of our time is spent doing research. Most research that economists perform consists of very narrow studies of a particular issue. For example, we might evaluate whether or not tax incentives have altered the rate of purchase of electric cars, or what the effect of a mother's educational achievement is on her children's earnings. The narrow focus of these studies is necessary to isolate and statistically test the relationships of interest. There are obviously lots of things that could cause people to buy electric cars, teasing out the effect of tax rates is the scientific part of the process (and truth be told, pretty darned fun, in a twisted sort of way).
Economists also run forecasting models of economic activity in regions, or for specific industries or occupations. Whatever research we do, the goal is to understand a problem and if possible draw general conclusions from analysis. Most of the rewards to academics (I call them Scooby snacks) come from having your work stand up to lots of external scrutiny. If they help a policymaker -- so much the better.
Despite a lot of jokes, economists are largely in agreement about big economic questions. . . .
Monday, August 23, 2010
Here is an excellent new piece from NPR's always-engaging Planet Money team about the recent upswing in coffee prices. It echoes several themes I articulate in my recent monograph, Fair Trade? Its Prospects as a Poverty Solution, especially the reasons why short-term coffee prices can be quite volatile. They even mention that coffee "demand is inelastic!"
August 23 - The price of coffee beans hit a 12-year high today. I thought there might be some kind of reclusive-hedge-fund-guy-corners-coffee-market story, like we saw with cocoa earlier this summer.
But the main driver of coffee prices right now is more prosaic: Colombia has had a few years of weak coffee harvests because of too much rain, which has reduced the global supply. And coffee drinkers keep buying coffee, even as prices rise (in other words, demand is inelastic). . . .
Sunday, August 22, 2010
Wednesday, August 18, 2010
I spent a week at Princeton Theological Seminary for a summer seminar on the role of Christian thinking on the American Revolution. It was an enriching experience in many ways, not the least of which was the coffee. Because PTS is an institution of the Presbyterian Church (USA), a politically progressive and in some ways trendy denomination, all the coffee was guaranteed righteous. There was social justice in every cup. You see, Presbyterian coffee, of the mainline variety, is fair trade coffee, and so it feels especially good going down.
Fair Trade? Its Prospects as a Poverty Solution, that cuts through self-congratulatory emotions and lays out the economic sources and constraints of their situation. . . .
According to the U.S. Department of Labor's Bureau of Labor Statistics, there are nearly 31 million people currently unemployed -- that's including those involuntarily working parttime and those who want a job, but have given up on trying to find one. In the face of the worst economic upheaval since the Great Depression, millions of Americans are hurting. "The Decline: The Geography of a Recession," as created by labor writer LaToya Egwuekwe, serves as a vivid representation of just how much. Watch the deteriorating transformation of the U.S. economy from January 2007 -- approximately one year before the start of the recession -- to the most recent unemployment data available today.
Higher-definition versions available at YouTube, or view a very big blow up here (incredibly dramatic).
Monday, August 16, 2010
Russ Banham - CFO Magazine
Much of the recent talk about an economic recovery concerns what shape it will take — literally. Will the plunge and rebound conform to the "V" shape that described the 1973–74 recession, be akin to the "U"-shaped recovery seen after the 1981–82 recession, or sputter into the dreaded "W" — twin recessions (the much-discussed "double dip") that keep the economy on the ropes for years?
We asked eight leading economists to get graphical with us and describe what shape they believe will ultimately win out. We present them here in descending order of optimism, if for no other reason than because to do the reverse would guarantee that you don't finish reading the article. And we give the last word to one economist who offers a refreshing dose of humility regarding his profession's ability to predict what lies ahead.
Saturday, July 31, 2010
(July 30) -- The Local Jobs for America Act proposes to spend up to $100 billion to create and save a million public and private jobs in communities this year. While a million jobs sounds like a huge number, let's look at the money spent on that task and analyze the premise.
What does it mean to "create and save"? If a person is laid off after, say, six months on the job, does this job still count as created or saved? Moreover, if you divide $100 billion by a million, you get $100,000. That's a lot of money to spend to "create or save" a single job that may or may not last.
If it goes the least efficient way, the federal government could just pay a local governmental employer the full salary of an employee to guarantee that person a job. According to the U.S. Census Bureau, men's median earnings in 2008 were $46,367 and women's $35,745. So $100,000 will last to pay the full salary and benefits of a median worker for a little over two years. That will guarantee that the job will not disappear at least for this length of time.
The government could do better than that by doing just about anything. . . .
Thursday, July 29, 2010
WASHINGTON—With unemployment at its highest level in decades, the U.S. Department of Labor issued a report Tuesday suggesting the crisis is primarily the result of millions of Americans just completely blowing their job interviews.
According to the findings, seven out of 10 Americans could have landed their dream job last month if they had known where they see themselves in five years, and the number of unemployed could be reduced from 14.6 million to 5 million if everyone simply greeted potential employers with firmer handshakes, maintained eye contact, and stopped fiddling with their hair and face so much.
"This economy will not recover until job candidates learn how to put their best foot forward," said Labor Secretary Hilda Solis, warning that even a small increase in stuttering among applicants who are asked to describe their weaknesses could cause the entire labor market to collapse. "If we're going to dig ourselves out of this mess, Americans need to stop wearing blue jeans to interviews, even if they're nice blue jeans, and even if that particular office happens to have a relaxed dress code."
Tuesday, July 27, 2010
How much do you really know about the history of cold, hard cash?
Tom Denly - CFO Magazine, July 15, 2010
Sure, you could rattle off your company's cash-flow history any day. But how much do you really know about the history of cash (not to mention how to make change for a dollar)?
1) What were the first official coins issued by the United States and what were they made of?
A. "Nickels," made of wood
B. "Two-bit" pieces, made of melted-lead musket balls
C. "Half-dismes," made from Martha Washington's silverware
D. Captured British "crowns," renamed "liberties," made of gold
Saturday, July 24, 2010
Tuesday, July 6, 2010
We are using two books for the course. The first is Economics for Managers (2nd Edition) by Paul Farnham. Farnham's book is unique on the market inasmuch as it considers the joint roles of microeconomics and macroeconomics in aiding the savvy manager in making wise decisions. Though the macro section is written from a distinctly Keynesian slant, that particular emphasis does not undo what Farnham achieves overall with his integration of micro and macro in a textbook for capable students of business. I suggest that any economist teaching an MBA program's sole economics course give Farnham's text a look.
Our other book is the classic Economics in One Lesson by Henry Hazlitt. For those unfamiliar with Hazlitt, he was one of America's finest communicators of economic ideas during his prolific career as a journalist that included writing a regular column for Newsweek, as well as serving as a frequent reviewer for the prestigious New York Times Review of Books. If you have never read Economics in One Lesson, you should. I can think of no other book that communicates the single greatest lesson of economics so succinctly and that also applies that single lesson to such a broad variety of topics so deftly.
Because we will be using Economics in One Lesson to stimulate discussion on a broad variety of both macro- micro-economic topics, I am putting together a collection of discussion questions linked to each of the book's chapters. It turns out that a few other minds have already been at work on this topic, and have made the fruits of their efforts available on the web. This present blog post, then, will serve as a road map for any readers who may be working at a similar task--putting together some discussion questions for Economics in One Lesson. In the remainder of the post I will point to the resources I have already found. If any of you know of others I may have omitted, I hope you will post a link to them in the comments section of this post.
The first find is a list of discussion questions made available by Ari Armstrong, which serves as part of the Liberty In the Books program, a monthly discussion group. Armstrong's list is one of the the most detailed I have found, though it does contain an occasional typo.
A similarly impressive collection of discussion questions comes from Douglas M. Walker at the College of Charleston. The College of Charleston is one of Henderson's sister institutions in the Council of Public Liberal Arts Colleges, whose member schools champion the cause of liberal arts education of superior quality in the public sector. COPLAC institutions strive to provide students of high ability and from all backgrounds access to an outstanding liberal arts education.
Steven Alan Samson has prepared a considerably shorter list of discussion questions for use with just six chapters from Hazlitt's text. Samson provides nice overviews of the book's ideas, as well as some questions and a list of terms for chapters on a smattering of both macro and micro topics.
Finally, in honor of their 2008 publication of a beautiful edition of Hazlitt's work, the Ludwig von Mises Institute has prepared a series of high-quality videos that correspond to several of the book's key chapters. Each video is available in multiple formats, including audio-only versions, and the series currently includes twelve different videos. Each video runs about 15 minutes, and includes an interview on each topic with a notable Austrian economist.
So there you have it: my list of discussion resources for Economics in One Lesson. I hope you will find them useful. I'd love to hear from you regarding your thoughts on any of them, and by all means let me know if you are aware of any notable resources I have neglected to mention.
Monday, July 5, 2010
Friday, June 25, 2010
Poverty, Capital and Economic Freedom
by Victor V. Claar
When poor countries grow rich, it rarely has anything at all to do with how many mouths they have to feed or the abundance of natural resources. Instead, across the globe, poor countries of all sizes, climates, and endowments begin to grow rich as two key factors increase.
First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education—including the knowledge of the English language—of its people.
Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable.
That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of even greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.
If we want to be effective agents in aiding the poor, we should focus our efforts in directions leading to the enhanced value of an hour of labor. That is, we should help poor countries wisely grow their stocks of human and physical capital, all the while bearing in mind that markets and their prices send the best available signals regarding where our efforts can have the greatest impact. The newfound success of innovative micro lending efforts such as Kiva can help show us ways to effectively invest in the accumulation of physical capital by the global poor. Compassion International is a marvelous organization that works to further the education—the human capital—of poor children worldwide, with a financial accountability record above reproach.
Further, markets work best when economic systems maintain the dignity of human beings. First, human beings grow and flourish—and accumulate human and physical capital—in systems that afford them considerable economic freedom. Economic freedom means that people are able to make personal choices, that their property is protected, and that they may voluntarily buy and sell in markets. Yet, economic freedom requires the protection of private property. When property rights are clearly defined and protected, people will work harder to create and to save. When they are confident that the fruits of their labors cannot be taken away arbitrarily or by force, people everywhere have greater assurance that their labors will lead to better lives for themselves and their families. Today’s rich collection of NGOs that work toward basic human rights play a critical role in this regard.
Finally, we should be outraged at the protectionist agricultural policies of already-rich nations such as the United States. When we allow the agricultural lobby to garner sweetheart deals from the U.S. House and Senate, the poor in other nations simply cannot compete with American growers of many crops because the trade rules are so utterly slanted against those in other nations.
For example, it is illegal for sugar buyers in the United States to purchase their sugar from sources outside the United States, even though the world price of sugar lies below the federally mandated price of sugar in the United States. This is wonderful, though, for U.S. sugar beet growers in the United States; it means they have a captive supply of buyers at a price that is being kept artificially high by federal decree. If the United States were to abandon such self-centered policies, sugar growers everywhere would have access to our markets, and the price of sugar would fall for all of us.
Moreover, confectioners and soft-drink makers in the United States would be able to produce their goods at lower costs, thereby adding to their job security. In one well publicized case in 2002, the Life-Savers candy factory in Holland, Michigan, was relocated to Canada, though the Michigan factory had been in operation for over thirty-five years and employed six hundred or so American workers. By moving to the northern side of the U.S.-Canada border, Life Savers slashed its input costs dramatically because, in Canada, Life-Savers was free to buy cane sugar at the world price: sugar grown by those who need the income most.
Sugar is not the only market we currently protect to keep out lower-priced commodities in an effort to help poor farmers in the United States. We have erected similar barriers that turn a blind eye to the plight of the global poor in markets for cotton, peanuts, and several other products that we can grow at home. In fact, by now you can probably see another reason why coffee prices are low. Because coffee cannot be grown in Ohio, or in France, rich northerners have not erected protectionist barriers to keep out the coffee that foreigners make.
If we really care about the global poor, we should work to make trade freer for everyone in our global community: a level playing field for all. That means tearing down all of the barriers we use to keep the global poor from working in the very jobs in which they are perfectly positioned to make the greatest lasting gains.
Saturday, May 22, 2010
Hmmm . . . Should I dress like this for class?
Monday, April 26, 2010
EMERYVILLE, CALIF. (Jan. 13, 1:40 p.m. ET) -- Production of Wham-O Inc.’s iconic Frisbee flying plastic disc is skimming back across the Pacific Ocean.
The Emeryville-based toymaker said Jan. 6 that 50 percent of future Frisbee production would be returned to the United States from China by the end of the month.
In a news release, the company said Manufacturing Marvel America, a division of Manufacturing Marvel Group that has plants in California and Michigan, would injection mold the discs, which are made from a proprietary plastic blend.
Wham-O CEO Kyle Aguilar said in the release that the move was to “stimulate the local job market.” According to the release, Wham-O began producing one of its PoolZone products last August in Michigan. In Jan. 12 e-mail, spokeswoman Jen Derevensky said that Hula Hoop, another Wham-O standby, will be made in the U.S. by March. (more)
This development was also covered by the Daily Show, as only the Daily Show can:
|The Daily Show With Jon Stewart||Mon - Thurs 11p / 10c|
|Wham-O Moves to America|
(Hat tip: Marginal Revolution)
Monday, March 22, 2010
From their web page:
The brokers' beer market is unique in Berlin. Situated in the Schiffbauerdamm 8, a house full of tradition, there are no set prices for most of the 18 German premium draught beers on offer.
Every day at 5 p.m. the regular beer prices are forgotten and new prices are regulated by supply and demand, as on the real stock market.
The rules are easy to understand: your order is placed on the market computer, which permanently updates the price of each individual beer according to demand. This means that you can pay any price from EUR 1.60 upwards and there's no limit! The beers that are not in great demand are more reasonably priced and therefore find favour with our guests.
You can observe how the price of your favourite beer is developing on monitors all over the Berlin Republic, so that you know what you have to pay when ordering.
A good chance for speculators!!
You pay the price which is shown on the monitor when you order. You then receive a coupon showing the price at the moment you placed your order. This is the price you pay when the waiter brings your beer, even if the price has risen in the meantime, partly of course due to the increase in demand your order has caused.
The market crash – good news for speculators!
Now and again, depending on the activities of the beer trade, the market crashes and the prices fall rapidly. So make sure to watch the development of the courses on the monitor and place a quick order.
Tuesday, March 9, 2010
Sunday, February 28, 2010
. . . Historically speaking, capitalism has proven itself time after time to be the most viable system for generating wealth. If you can study 20th century history and not end up a capitalist in some sense, I don’t know what to do with you. Yet because of a few . . . “weirdo” capitalists, the system itself has understandably fallen into question with many. When such skeptics hear “capitalist” they conjure images of men like Ken Lay or Jeff Skilling, former Enron execs who bled their workers dry in order to preserve their own wealth. Or they think of a man like Bernie Madoff, who conned countless people out of millions before finally being caught last year. Thinking more historically, they might imagine the slave holders of the United States and Great Britain or the colonizers of Africa, all groups that used capitalism to justify their horrific actions.
Yet before these men were capitalists, they were something else: greedy, self-absorbed fiends whose sole objective in life was to satisfy every hedonistic whim with no regard for the good of other people. And in a few cases, you can add to that self-centered hedonism a heaping helping of religious arrogance. Such attitudes are, needless to say, a recipe for disaster, which do to capitalism what men like this week’s street preacher and Osama bin Laden do to Christianity and Islam, respectively. Capitalism in conversation with an external moral code regulating it is not an evil system. What is evil is capitalism in a vacuum, devoid of any external guidance. In short, consumerism – the sort of capitalism exemplified by Lay, Skilling and Madoff.
So I call myself a capitalist with a seat belt. . . .
Sunday, February 14, 2010
Back in 1992, a ten year old Bangladeshi girl named Moyna was one of 50,000 children who lost their jobs in the wake of protectionist legislation sponsored by the execrable union-backed Senator Tom Harkin of Iowa. How does Moyna feel about Americans now? “They loathe us, don’t they?”, she says. “We are poor and not well educated, so they simply despise us. That is why they shut the factories down.” (The quote is from this report by the Bangladeshi activist Shahidul Alam.)More (HT: Cafe Hayek)
Probably Moyna’s only half right. Tom Harkin doesn’t loathe her; he just doesn’t give a damn about her. . . .
Monday, February 8, 2010
Even though the Fed makes its interest rate decisions on a discretionary basis, for years the interest rate decisions of the Fed's Open Market Committee have mimicked the Taylor Rule, an invention of John B. Taylor of Stanford. The Taylor Rule says that the Fed could save itself a lot of time in meetings by setting the federal funds rate target using the following formula:
Until recently the decisions of the Fed have tracked the Taylor Rule with amazing accuracy, leading some to wonder whether the Fed was -- whether intentionally or not -- following Taylor's formula. Yet in recent months the federal funds rate suggested by the Taylor Rule and the actual targets set by the Open Market Committee have diverged. This new segment from NewsHour takes a closer look (direct link).
Monday, January 25, 2010
Here's the full-length rap debate between John Maynard Keynes and F.A. Hayek, created by economist Russ Roberts and director John Papola. Billy and Adam play the main characters, respectively.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
The Fatal Conceit
Friday, January 22, 2010
Using annual data for North Carolina counties from 1990 to 2003, they found that significantly more tickets are issued in the year following a decline in revenue. But here's the really interesting part: the issuance of traffic tickets does not decline in years following revenue increases.
So it indeed appears that tickets are used as a revenue‐generation tool, and not just a tool to increase public safety.
Thursday, January 14, 2010
Wednesday, January 13, 2010
I don't think you'll find it more simply explained.
Tuesday, January 12, 2010
A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."
An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed. . . .
. . . AP's analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn't affected local unemployment rates so far.
"There seems to me to be very little evidence that it's making a difference," said Todd Steen, an economics professor at Hope College in Michigan. . . ."
Monday, January 11, 2010
" . . . the powerlessness of the American people to participate in economic decision-making, which affects his [sic] life at every moment. As a consumer, that is, as the person for whom the economy is presumably intended to serve, he has virtually nothing to say about what is produced for him. The corporations make what is profitable; the advertising industry persuades him to buy what corporations produce. He becomes the passive victim of the misallocation of resources, the production of dangerous commodities, the spoiling of his air, water, forests, beaches, and cities."Perhaps Professor Zinn would be encouraged to know about the 25 Biggest Product Flops of All Time. And they don't even have Surge soda on the list!
Hmmm . . . wonder whether Coca-Cola could get a government contract to supply "Surge" to the military in Iraq or Afghanistan . . .
Sunday, January 10, 2010
And the pubs don't mind, because it would mean higher alcohol prices at the supermarkets, thereby raising the price of drinking at home:
“LIGHT, golden and refreshing”, proclaims the label on a plastic bottle of cider in Sainsbury’s supermarket. It is also fantastically cheap. Two litres of the sickly yellow tipple costs just £1.21 ($1.94), equivalent to 34p a pint. A stronger variety farther down the aisle gives customers a discount if they buy in bulk. At these prices, shoppers can buy enough booze to exceed the government’s recommended limits for little more than £3 a week.
A growing temperance movement seeks to end this bonanza. On January 8th the parliamentary health committee was due to publish a report demanding that the government introduce a minimum price for alcohol, to render such bargains illegal. Using research from Sheffield University, the committee argued that a floor of 40p for a 10ml unit of alcohol—enough to push the Sainsbury’s cider up to £3.36—would save 1,100 lives per year. A floor of 50p would save 3,000, it said. Medical associations and the police all want to see drink get more expensive too . . . .
I'm currently reading Tim Harford's excellent The Undercover Economist. I particularly enjoyed the second chapter--the one dealing with price discrimination as well as product differentiation.
He begins the chapter with a wonderful anecdote--one that makes you wonder how much of the premium price you might be paying for a cup of Fair Trade coffee is actually getting to the poor coffee grower you hope you are helping. In one case, Mr. Harford estimates that over 90 percent of the Fair Trade premium was mysteriously being "lost" between the retailer and the grower.
Since Mr. Harford writes regularly for the Financial Times, they printed this excerpt:
On a sunny day in London you can purchase a cappuccino and sip away as the capsules on the Eye, the capital’s landmark Ferris wheel, rotate high above you, occasionally passing between you and the sun... one of life’s simple pleasures. Everywhere you look around the Eye you can see vendors with scarce resources, trying to exploit that scarcity. There is only one coffee bar in the immediate area, for instance. There is also a lone souvenir shop doing brisk business. But the most obvious example is the London Eye itself. It towers over the majority of London’s most famous buildings and is the world’s largest observation wheel. The scarcity power is clearly considerable, but it is not unlimited: the Eye may be unique, but it is also optional. People can always choose not to go on it.
Further along the river, the Millennium Dome is similarly unique, “the largest fabric structure in the world”, boasts the local authority. Yet the Dome has proved a commercial disaster because uniqueness alone wasn’t enough to persuade people to pay enough to cover the vast costs of its construction. Business with scarcity power cannot force us to pay unlimited prices for their products, but they can choose from a variety of strategies to make us pay more. It’s time for the Undercover Economist to get to work and find out more.
The only coffee provider beside the London Eye wields plenty of scarcity power over the customer. It’s not innate, but is reflected glory from the amazing setting. As we know, because customers will pay high prices for coffee in attractive locations, the coffee bar’s rent will be high. Their landlords have rented out some of this scarcity value to a coffee bar, just like the owners of Manhattan’s skyscrapers, or railway stations from Waterloo to Shinjuku. Scarcity is for rent - at the right price.
But how should the bar’s managers exploit the scarcity they are renting from the London Eye? They could simply raise the price of a cappuccino from £1.75 to £3. Some people would pay it, but many would not. Alternatively, they could cut prices and sell much more coffee. They could cover wages and ingredients by charging as little as 60p a cup. But unless they were able to increase their sales dozens of times over, they’d not make enough to cover their rent. That’s the dilemma: higher margins per cup, but fewer cups; or lower margins on more cups.
It would be nice to side-step that dilemma, by charging 60p to people who are not willing to pay more and £3 to people who are willing to pay a lot to enjoy the coffee and the view. That way they would have the high margins whenever they could get them, and still sell coffee at a small profit to the skinflints. How to do it, though? Have a price list saying, “Cappuccino, £3, unless you’re only willing to pay 60p”?
It does have a certain something, but I doubt it would catch on with the coffee-buying public of London’s South Bank. However, for years, the previous incumbent coffee bar, Costa Coffee, appeared to have achieved this. Costa, like most other coffee bars these days, offers “Fair Trade” coffee - theirs comes from a leading fair trade brand called Cafedirect. Cafedirect promises to offer good prices to coffee farmers in poor countries. Fair trade coffee associations make a promise to the producer, not the consumer. If you buy fair trade coffee, you are guaranteed that the producer will receive a good price. But there is no guarantee that you will receive a good price. For several years, customers who wished to support third-world farmers - and such customers are apparently not uncommon in London - were charged an extra 10p. They may have believed that the 10p went to the struggling coffee farmer. Almost none of it did.
Cafedirect paid farmers a premium of between 40p and 55p per pound of coffee, and that premium was reflected in the price they charged to Costa. That relatively small premium can nearly double the income of a farmer in Guatemala, where the average income is less that $2,000 a year. But since the typical cappuccino is made with just a quarter-ounce of coffee beans, the premium paid to the farmer should translate into a cost increase of less than a penny a cup.
Of the extra money that Costa charged, more than 90 per cent did not reach the farmer. Cafedirect did not benefit, so unless using the fair trade coffee somehow increased Costa’s costs hugely, the money was being added to profits. The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino. Because coffee beans make up such a small proportion of that cost customers might have concluded that the extra 10p was to cover the cost of the fair trade coffee, but they would have been wrong. A certain Undercover Economist made some inquiries and found that Costa worked out that the whole business gave the wrong impression, and at the end of 2004 began to offer fair trade coffee on request, without a price premium.
But why had it been profitable to charge a higher mark-up on fair trade coffee than on normal coffee? Because fair trade coffee allowed Costa to find customers who were willing to pay a bit more if given a reason to do so. By ordering a fair trade cappuccino, you sent two messages to Costa. The first was: “I think that fair trade coffee is a product that should be supported.” The second was: “I don’t really mind paying a bit extra.” Socially concerned citizens tend to be less careful with their cash in coffee bars, while unconcerned citizens tend to keep their eyes on the price. Perhaps another price list saying, “Cappuccino for the concerned £1.85. Cappuccino for the unconcerned £1.75”?
Friday, January 8, 2010
But today Megan McArdle, writing for the Atlantic, reports that Gruber has been receiving hundreds of thousands of dollars from the current administration:
MIT economist Jonathan Gruber has become the go-to economist for fans of the health care reform wending its way through congress. He regularly produces analyses showing how great reform is going to be for people buying insurance in the individual market, and has been a vocal advocate for the excise tax. His prominence made him a natural lead-in for Ron Brownstein's recent piece on the health care bill for Atlantic Politics. . . .But he probably wouldn't have been cited with quite the same authority--particularly by mainstream media--if he'd been more upfront about the fact that he's being paid almost $300,000 by the Obama Administration for "special studies and analysis" of the health care bills, as a blogger on Firedoglake revealed last night. . . .
Wednesday, January 6, 2010
Back when I was a boy, I bought a children's book at my town's library book sale called "2010: Living in the Future" by Geoffrey Hoyle. Written in 1972, it had been withdrawn from the library's collection by the mid-80s, when I picked it up. I've somehow managed to hang onto it for 25 years and now, suddenly, here we are: 2010. I'm reproducing this long out-of-print book here to see how we're doing. Are we really living in the future?(Hat tip: Josh Fosburg, who has pronounced his mac a "Vision Desk")
. . . experts, however smart, cannot know . . . all the most important things. They don't know your goals, your ambitions or your priorities. They don't know what your values are; they don't know what opportunities are available to you (and what aren't); they don't know your likes and dislikes. Even if they know a lot about human behavior or human welfare in general, they don't know anything about you. They don't know anything about me either, or about anyone else besides themselves and their closest family and friends.
That means that the best they could do is make guesses. But even that overstates their competence. Think of all the information--explicit and implicit--you marshal all day long every day to make the routine decisions you do. What are you going to do for breakfast today? Will you call your friend this afternoon? Will you finally buy your daughter the cellphone she's been asking for? Or larger questions: Should you buy a new house? Look for a new job? Buy or lease a car--and which one?
(Read the full commentary)