Victor Claar's Economics Blog(and other thoughts)

Drought Causes Peanut Prices to Nearly Triple

2011-11-29T13:44:00.002-06:00

Great example of how a price spike in one good can cause the supply curve of another good to shift left.

Uh-oh

2011-10-15T18:08:00.001-05:00

This does not bode well for the future:

Can America's Jobless Fill American Jobs?

2011-10-03T16:28:00.001-05:00

From the wonderful Paul Solman and PBS's NEWSHOUR, a tour of frictional, structural, and cyclical unemployment in the current economy. And here is a direct link just in case.

Watch the full episode. See more PBS NewsHour.

Q&A in WORLD Magazine

2011-03-26T11:27:00.003-05:00

The April 9 issue of WORLD magazine includes an interview with me:

Q&A

Political clunkers
We should 'treat people as people,' says economist Victor Claar, and U.S. trade restrictions fail that test | Marvin Olasky
Guy Lyons/Genesis
I asked economics professor Victor Claar (Henderson State University) about . . . ways we can help the poor internationally. Claar co-authored Economics in Christian Perspective (IVP, 2007) and wrote Fair Trade? Its Prospects as a Poverty Solution (Acton Institute, 2010). He earned his Ph.D. at West Virginia University and taught for nine years at Hope College in Michigan.

As a Christian economist, what do you like about markets? Markets can do tremendous good—they lift the poor out of poverty in far more effective ways than people can imagine or arrange otherwise. Markets are phenomenal in their ability to take resources and reallocate them from less-valued uses to more-valued uses.

How does the growth of a worldwide market help the poor internationally—and sometimes hurt Americans?

(Continue reading)

Poverty and the Census of Rome

2011-01-24T11:08:00.000-06:00

From Michael Hicks, writing for the Indiana Economic Digest:

There is a certain poignant irony in the U.S. Census release of 2010 poverty statistics this Christmas week. It reminds us that, behind the green eyeshades of professional data collectors, the folks at the Census have an acute marketing sense.

The Gospel of Luke tells us that Mary and Joseph traveled to their familial birthplace as part of a census. The details and timing of the Roman census are hazy, but the intent of these counts was to levy taxes for Rome. This is a rich story and serves as a high point of the New Testament's beautifully subversive backdrop of freedom from tyranny. Unlike the Roman census of Quirinius, the modern U.S. Census affects the distribution, not collection of tax dollars. It is understandably a bit more welcomed.

Among the first of the big Census releases (that will continue for years) are local poverty rates for 2010. These are widely reported, but what do the data tell us? The sad truth is almost nothing of consequence. Here's why: (More)

(Hat-tip: My mom)

Forced sharing leads to disappointment, bad behavior at church picnic

2011-01-22T13:30:00.001-06:00

Cecil Bohanon, writing for the Fort Wayne News-Sentinel:

When I was 12 years old, the Youth of First Christian Church had a picnic at Honor Heights Park in Muskogee, Okla. The good ladies of the church brought loads of potato salad, baked beans and coleslaw, but every child knew the real action was in the sack lunch Mom had packed with their favorite delight. Our mom had fried some chicken.

That was a real treat for us as she opposed fried food on general principle long before such health concerns were fashionable. I had the breast pieces, my younger brother, Robert, got the drumsticks, and sister Susan got the thigh pieces.

Just before the prayer was to be given, the Rev. Wilbanks made an admonition that went something like this: You young folks should not be greedily holding on to your own sack lunches; rather you should empty your sacks and contribute the contents to the common table — after all, sharing was the Christian way.

I was horrified. Nonetheless, along with all the other children, I pliantly obeyed the minister and surrendered my lunch. We then all bowed our heads in prayer and I did something I had never done — I impiously opened my eyes and slowly edged toward the picnic table. . . . (More)

(Hat-tip: My mom)

Economist job more exciting than most think

2011-01-20T16:02:00.000-06:00

Michael Hicks, writing for the Indianapolis Business Journal:

Recently, my wife has stopped calling me an economist. It is too hard to explain what I do, so she calls me a professor (which has far more cool points to Harry Potter or Gilligan’s Island fans).

Her reticence begs the question, “What does an economist do and why would anyone want to be one?” . . . .

(Hat-tip: My mom)

Would You Take Marital Advice From an Economist?

2010-12-29T13:16:00.002-06:00

From the Freakonomics blog:

Paula Szuchman and Jenny Anderson, authors of the new book 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.

The Simpsons Guess Wrong on the Econ Nobel

2010-10-21T10:21:00.002-05:00

A bit before the actual announcement, the Simpsons took a shot at forecasting the Nobel recipient for economics. Watch the first 90 seconds of this episode from the last week of September:

What Are You Reading?: "Economics in Christian Perspective"

2010-10-13T10:22:00.002-05:00

From J.R. Durden, correspondent for the Lakeland Ledger:

Hubert Lau, 22
What Are You Reading?

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?)

The Zinc Lobby and the Penny, the Nickel Lobby and the Nickel

2010-10-12T18:58:00.000-05:00

From a surprising source, espn.com, Gregg Easterbrook discusses efforts by the zinc and nickel lobbies to save the penny and the nickel:

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)

Scouting the Field of Economics-Nobel Candidates

2010-10-10T11:19:00.000-05:00

Writing for the Globe and Mail, Barrie McKenna runs down Nobel hopefuls in economics. The announcement will be made Monday, October 11.

OTTAWA - They’re overwhelmingly male, American, and their work has probably touched your life in some way, though you may not know it.

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)

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.

When It Comes to Poverty, Are You Squinting at Reality?

2010-10-09T13:31:00.000-05:00

Mark Hanlon, Senior Vice President, USA, Compassion International, reflects on our eyesight when we consider the problem of poverty:

(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. . . .

(More)

Carlos Lozada Discusses My 'Envy' Lecture in the Washington Post Sunday 'Outlook'

2010-09-25T21:07:00.001-05:00

In this Sunday's "Outlook" section of the Washington Post, Outlook editor Carlos Lozada reflects on my lecture earlier this week at the American Enterprise Institute:

"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. . . .

(More)

Ten Hot Dogs & Eight Buns? No longer

2010-09-17T11:12:00.000-05:00

Even though hot dogs and hot-dog buns are a classic example of complements in consumption, there is a frustrating mismatch between the number of hot dogs per pack (normally ten) and the number of buns per pack (normally eight).

Here is one lone consumer's effort to bring peace and common sense to the matter:

The Funnies on the Minimum Wage

2010-09-04T16:26:00.005-05:00

Two comic strips on the minimum wage. First, from The Wizard of Id:

And from Frank and Ernest:

Michael Hicks: What do economists do?

2010-09-04T16:20:00.001-05:00

I did some office cleaning during the WVU vs. Coastal Carolina game this afternoon. While I was sorting I discovered an excellent clipping I had saved from the Muncie Star Press by Michael Hicks, who directs the Center for Business and Economic Research at Ball State.

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. . . .

(More)

Remember When a "Double-Dip" Was No Worse than This?

2010-08-23T16:51:00.002-05:00

Remember when a "double-dip" meant nothing more serious than poor food-handling behavior by Jerry Seinfeld's friend George Costanza?

From NPR: Why Coffee Is Getting More Expensive

2010-08-23T16:22:00.004-05:00

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). . . .

(More)

Author Says Life Is Good, Despite Recession

2010-08-22T13:43:00.002-05:00

Author and businessman Matt Ridley argues that life is getting better despite the recession. NewsHour economic correspondent Paul Solman finds a case of optimism with Ridley, built in part upon Ridley's latest book, The Rational Optimist.

Righteous Coffee?

2010-08-18T17:32:00.005-05:00

D.C. Innes, writing for World:

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.

But feelings aren’t everything. Victor Claar has written a helpful little book for the Acton Institute, 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. . . .

(More)

Wendy's Commercial - Soviet Fashion Show

2010-08-18T08:13:00.000-05:00

The Cold War made for some pretty entertaining pop culture. Like this Wendy's Commercial . . .

The Decline: The Geography of a Recession

2010-08-18T00:47:00.001-05:00

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).

The Shape of the Recovery?

2010-08-16T10:27:00.001-05:00

From CFO: Eight economists debate what the recovery will look like.

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.

(More)

Opinion: New Jobs at $100,000 a Pop?

2010-07-31T13:24:00.002-05:00

Short-story writer and novelist Mark Budman does the dollars-per-job math of the Local Jobs for America Act:

(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. . . .

(More)

From the Onion: Unemployment High Because People Keep Blowing Their Job Interviews

2010-07-29T10:12:00.000-05:00

From those silly folks at the Onion:

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."

(More)

Quiz: Do You Know Your Money?

2010-07-27T17:44:00.003-05:00

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

(More)

This Week's Live Debate from the Economist: Gambling

2010-07-24T15:42:00.000-05:00

This week the Economist is hosting another of its marvelous live debates on their web site. This debate's motion:

"There should be no legal restrictions on gambling."

So by all means weigh in. Closing statements will be given on Wednesday, July 28.

Discussion Resources for Henry Hazlitt's Economics in One Lesson

2010-07-06T14:44:00.006-05:00

During the Summer II (July) term I am teaching "Economic Analysis for Business Decisions," Henderson's MBA course in economics. It will be my first time teaching economics to MBA students since my year as a Fulbright Scholar in Armenia, where I taught a two-course MBA economics sequence at the American University of Armenia.

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.

First Chocolate Bond

2010-07-05T13:59:00.000-05:00

Have interest payments ever been so sweet? A UK chocolate company is offering high-interest bonds where coupon payments are paid in chocolate instead of cash.

CNN's Ayesha Durgahee reports.

Acton Commentary: "Poverty, Capital, and Economic Freedom"

2010-06-25T17:35:00.001-05:00

(Note: This post was excerpted from my new Acton Institute monograph, Fair Trade? Its Prospects as a Poverty Solution. The post originally appeared as an Acton Commentary, and has been posted on the IPEA web site, among others.)

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.

Spring commencement 2010

2010-05-22T18:39:00.003-05:00

Spring commencement 2010
Originally uploaded by GetReddie

I delivered this year's traditional faculty charge to the graduating class at the combined commencement exercises for the School of Business and the Teachers College, Henderson. Thanks to Steve Fellers for the nice photo. It was my great pleasure.

Hmmm . . . Should I dress like this for class?

Wham-O "Insourcing" Production from China to US (w/Daily Show video report)

2010-04-26T16:17:00.005-05:00

From PlasticsNews.com:

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

www.thedailyshow.com

Daily Show Full Episodes

Political Humor

Tea Party

(Hat tip: Marginal Revolution)

Berlin Beer Market--Where the Price You Pay Fluctuates with the Demand

2010-03-22T21:06:00.007-05:00

At the Broker's Bier Börse (part of the Berliner Republik) at Schiffbauerdamm, East meets West, supply meets demand, and the customer meets market forces. The more beer people order, the higher the price ... the less they buy, the lower the price.

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.

Water Consumption in Edmonton During the Gold-Medal Hockey Game

2010-03-09T14:06:00.004-06:00

From Chris Blattman's blog:

(Hat-Tip: @hannah_bell)

"'Weirdo Capitalists' Ruin Market for Everybody

2010-02-28T17:58:00.003-06:00

Jake Meador writes in the Daily Nebraskan (citing Claar & Klay along the way):

. . . 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. . . .

(More)

Valentine's Day Card for the Professional Economist in Your Life

2010-02-14T21:32:00.003-06:00

You can download and print this free St. Valentine's Day card (MS Word format) to give to the professional economist in your life. As long as he or she has at least a master's degree in economics -- or is working toward it -- the object of your affection will love you even more when give this one.

(HT: econgifts.com)

Steve Landsburg on Child Labor

2010-02-14T16:11:00.004-06:00

In a recent post, economist Steven Landsburg, author of The Big Questions, gives his take on the cruelty of rich Westerners who take on child labor in poor nations. Here's a bit:

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.)
Probably Moyna’s only half right. Tom Harkin doesn’t loathe her; he just doesn’t give a damn about her. . . .

More (HT: Cafe Hayek)

Did the Fed's Departure from the Taylor Rule Get Us in Trouble?

2010-02-08T17:11:00.008-06:00

At the close of each of its Open Market Committee Meetings, held roughly every six weeks, the Fed announces its target for the federal funds rate, the rate of interest that banks charge each other for overnight loans of reserves. Note that the Fed doesn't force banks to charge that rate. What the Fed does is either speed up or slow down the rate of money growth using open market operations--buying or selling bonds on the bond market--thereby manipulating the federal funds rate in the desired direction. If the Fed wants the federal funds rate to rise, it slows the rate of money growth by selling bonds to banks; if it wants the rate to fall, it buys bonds from banks, thereby giving banks new reserves that they are free to lend.

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:

FFR = 2 + INF + 0.5(INF - 2) + 0.5GAP.

That is the Taylor Rule would set the federal funds rate (FFR) at two percent, plus the current inflation rate (INF), plus one half of the difference between the inflation rate and a target inflation rate of two percent, plus one half of the difference between current output and potential output (GAP).

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).

Marginally Funny: Economists & Humor

2010-02-08T17:01:00.002-06:00

NewsHour's Paul Solman dropped in on the Economics Humor session of this year's meetings of the American Economic Association.

At Last: The Keynes v. Hayek Rap Video

2010-01-25T16:50:00.014-06:00

If you've been waiting for it . . .

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.”

F.A. Hayek
The Fatal Conceit

It's True: There Really Are More Traffic Stops When Local Governments Need Money

2010-01-22T20:22:00.007-06:00

Gary Wagner, one of my grad school friends who works up the road at the University of Arkansas-Little Rock, was on Fox Business today. He published a nice paper in the Journal of Law and Economics last year coauthored with a WVU classmate of ours, Tom Garrett, a research economist at the St. Louis Fed. The paper explores whether law enforcement officers really do hand out more tickets when local government revenues are otherwise low.

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.

Weighing the Costs & Benefits of Buying Hundreds of Full-Body Scanners

2010-01-14T15:53:00.004-06:00

Is it worth it to put hundreds of $150,000 full-body scanners in some airports in the U.S.? This report from NPR's Morning Edition today suggests that it might not be.

The Debt Limit Made Simple: An Animation

2010-01-13T08:58:00.004-06:00

This short video explains how democracies full of people with mostly marvelous intentions can nevertheless let debt overtake them--regardless of whether those democracies are large or small.

I don't think you'll find it more simply explained.

AP's STIMULUS WATCH Says, "Unemployment Unchanged by Projects"

2010-01-12T13:50:00.005-06:00

Todd Steen, a colleague of mine from Hope College, recently did an analysis for the Associated Press that was used in a study they reported on yesterday. The article got picked up by a number of outlets, including ABC News, the Washington Post and the Seattle Post Intelligencer:

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. . . ."

(More)

Howard Zinn, the Powerlessness of the Consumer, and the 25 Biggest Product Flops of All Time

2010-01-11T13:41:00.009-06:00

In an essay titled, "How Democratic Is America?," found in the edited volume, Points of View, historian Howard Zinn writes about

" . . . 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 . . .

UK Government Seeks Price Floors on Booze

2010-01-10T13:08:00.004-06:00

Because drinking is bad for you it needs to cost you more. That's the government's latest push in the UK, the Economist reports.

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 . . . .

Fair Trade Coffee: How Much of the Premium Price Gets to the Growers?

2010-01-10T12:12:00.007-06:00

(UPDATE: I originally wrote this post while I was finishing some research for a short book I was writing that has recently been published by the Acton Institute. You can see more information about Fair Trade? Its Prospects as a Poverty Solution on the Acton web site.)

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”?

(More)

MIT's Jonathan Gruber on Federal Payroll for $300K While Defending Health Care Reform

2010-01-08T14:29:00.006-06:00

MIT economist Jonathan Gruber has frequently been cited as a "go to" academic defender of health care reform.

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. . . .

(More)

"2010: Living in the Future" (the book)

2010-01-06T17:39:00.003-06:00

A project by Daniel Sinker:

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")

Otteson Writing in Forbes: "Get Rid Of Government Experts"

2010-01-06T16:55:00.004-06:00

James R. Otteson, Joint Professor of Philosophy and Economics at Yeshiva University in New York, and the Charles G. Koch Senior Fellow at The Fund for American Studies in Washington, D.C., has a new commentary in Forbes. Its main thesis is that regardless of the benevolent intentions of government experts, they simply do not have the particular knowledge required to get outcomes right in a nation of over 300 million unique individuals.

. . . 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)

Free Sample of Dunkin' Donuts Coffee

2010-01-05T11:07:00.007-06:00

There's no kickback to me from this--trust me. Just passing it along to keep your new year humming.

Hmmm . . . but I guess there's no reason you couldn't read a good book with it!

(Hat Tip: Ruth Arevalo)

Rent-Controlled Apartments: Nice If You Can Get One

2009-12-26T18:00:00.001-06:00

From July 2008:

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.

Minimum Wage Casualties

2009-12-25T20:18:00.003-06:00

When I reviewed this 20/20 segment about the unintended consequences of the minimum wage for this post -- the final post for today -- I was reminded of a marvelous op-ed piece one of my former students at Hope College published in the Detroit News. Here's Adam Folsom's sad August 31, 2006 tale of being a minimum-wage casualty, in its entirety:

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.

Why Do ATMs Work Well While Voting Machines Do Not?

2009-12-25T19:57:00.003-06:00

Why do ATMs and other machines work so well that we seldom worry they won't, while voting machines are far from foolproof? This segment from 20/20 investigates.

Are "Sweatshops" Bad? Maybe It Depends on Where You Are Living

2009-12-25T19:05:00.006-06:00

I remember well the afternoon, during my Fulbright in Armenia, that one of my MBA students from the American University of Armenia came into my office upset and puzzled by something he'd been reading for my class.

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:

"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).

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.

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.

Externalities, Noisy Kids, and the Coase Theorem

2009-12-25T17:42:00.004-06:00

From the way this video from 20/20 begins, you'll think that the Coase Theorem is a Nobel fraud, as you watch no one say anything to the out-of-control kids in a restaurant.

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.

Health-Care Tradeoffs

2009-12-25T17:25:00.001-06:00

This brief 20/20 segment takes a quick peek at the single-payer health care system in Canada. Michael Moore makes an appearance.

How Effective Is Foreign Aid in Ending Extreme Global Poverty?

2009-12-25T16:28:00.004-06:00

This segment from ABC's 20/20 questions the effectiveness of direct aid toward ending global poverty. Many today question the wisdom of continuing to give foreign aid in the same ways that we have in the past, given that strategy's poor performance.

The video raises many of the same questions considered in Dead Aid: Why Aid Is Not Worki ng 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.

Weighing Carefully the Anticipated Benefits and Opportunity Costs of College

2009-12-25T15:47:00.003-06:00

This second segment from 20/20 encourages students and their parents to weigh carefully the anticipated benefits against the opportunity costs of pursuing a college degree.

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!

Creative Destruction

2009-12-25T14:59:00.003-06:00

Today I'm collecting a few video segments that have appeared on ABC's 20/20 over the years. Each link will take you directly to the video on the ABC site.

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.

How to Have Income-Inelastic Demand? Put the Elastic in the Back of the Jeans

2009-12-25T14:18:00.003-06:00

According to this report exclusive to NewsHour, a company called Not Your Daughter's Jeans has hit on a jean design that appears to insulate the demand for its product from fluctuations in consumers' incomes.

Paul Solman reports. And it is littered with puns.

And if the video is slow to load, here is a direct link.

Testing the Fed's Ability to Stimulate the Economy While Keeping Inflation in Check

2009-12-25T13:56:00.003-06:00

In this Paul Solman report for NewsHour back in August, he discusses the inflationary risk courted by the Fed's recent cutting of target interest rates, as well as additional quantitative easing.

George Frideric Handel: Musical and Financial Entrepreneur

2009-12-24T16:52:00.006-06:00

George Frideric Handel (1685-1759), best known for his Messiah, is credited with writing the first English-language oratorio.

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.

"I will honour Christmas in my heart"

2009-12-24T15:29:00.004-06:00

Christmas night is a night of new birth. Significant, unstoppable, world-changing new birth.

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!'

That's a Rap: We're All Keynesians Now

2009-12-17T11:29:00.006-06:00

(UPDATE: The full video has now been released. View it here. -VVC)

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:

Acton University 2010

2009-12-13T19:56:00.003-06:00

Here's a video promoting Acton University 2010:

Monkey Business: Trading among the Other Primates

2009-11-04T19:42:00.004-06:00

This new piece from CNN features the unwritten economic laws of some lower-order primates. Turns out monkeys pretty much behave in the same ways we economists would predict--and they do it based on instinct alone.

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:

A Paul Solman 'Blast from the Past': 'Animal Spirits' and Consumer Confidence

2009-10-23T17:00:00.003-05:00

From way back in the spring of 2001, Paul Solman filed this report for PBS's NewsHour on 'animal spirits' and consumer confidence measures.

I'm no Keynesian, but it was a great segment.

GDP Melee

2009-10-23T13:09:00.003-05:00

From CNN:

Journalists scramble for a first glimpse of China's GDP report, interested in how much growth was from stimulus money.

(If only more students were this interested in learning about GDP.)

'This American Life' Takes on Health Care Costs

2009-10-22T16:16:00.003-05:00

In cooperation with NPR News, This American Life considers the explosion in health care costs in a first-time-ever two-part series.

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.

NPR Reports on the Abuses of the Tax Credit for New Home-Buyers

2009-10-22T16:04:00.004-05:00

Apparently about a half-billion dollars in tax credits for "new" homebuyers are fraudulent, according to the inspector general who oversees the IRS.

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:

Louie CK: Everything's Amazing but Nobody's Happy

2009-10-16T10:04:00.009-05:00

Thanks to Mike and Brad:

Louis CK “Everything’s amazing, nobody’s happy” - Watch more Videos at Vodpod.

Should We Tax Soft Drinks?

2009-10-15T14:17:00.005-05:00

On a remarkable Diane Rehm Show from this morning, three panelists discuss the consequences--intended and otherwise--of a proposed tax on soft drinks. Absolutely worth a listen.

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.

What are the Odds of Success of a New Site about Odds?

2009-10-15T14:01:00.003-05:00

From American Public Media's Marketplace:

'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.

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.

What Do Wise Dairy Farmers Do When Milk Prices Fall? They Find Cheaper Methods

2009-10-15T13:53:00.005-05:00

American Public Media's Marketplace explains how, following the lead of a New Zealand dairy farmer who moved to Missouri because he wanted to let his dairy cattle graze on inexpensive farmland, the Missouri dairy community is changing the way they feed and raise their cows.

"TANSTAAFL" Makes It Into a Letter to the Editor

2009-10-15T12:50:00.008-05:00

A nice note from my mother arrived in the mail today. I'm lucky: I have a mom that still goes to the trouble to write notes to me by hand, rather than email. I treasure each one.

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 l etter 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)

Econ Nobel 2009

2009-10-12T10:23:00.003-05:00

The Prize in Economic Science in memory of A. Nobel has its first female winner this morning. John Lunn has a nice post.

By the way, neither of the co-winners--Ms. Ostrom nor Mr. Williamson--was on anyone's short list.

Video: The Fed Today

2009-10-11T17:18:00.003-05:00

Though it predates the financial crises of 2008-09, this video from the Fed, hosted by Charles Osgood, is still one of the best video summaries available of the tools and responsibilities of the Federal Reserve System.

I still don't know why it has that animated eagle, though. Keep an eye out for it:

Does the Economics Nobel Need a 'Bailout'?

2009-10-11T13:51:00.003-05:00

In a thoughtful piece in the Guardian, Jayati Ghosh ponders the merits of the economics Nobel, as well as the methods used in awarding the prize:

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?
(More)

Efficient Markets Hypothesis Guru Favorite for Nobel

2009-10-08T12:21:00.003-05:00

Despite all kinds of criticism of efficient market theory--in light of recent bubble-pops--Fama is viewed to be the favorite to be awarded the Nobel in economics Monday.

Adam Smith Reflects on Obamanomics

2009-10-07T10:19:00.004-05:00

Would Adam Smith be a fan of President Obama's economic policies? Using block quotes from Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, Salon's Michael Lind "interviews" Adam Smith to find out.

I'm interested to know your reaction. If you read the short piece and have a thought or two, I'd love to know.

Announcement of the 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel--Watch It LIVE

2009-10-05T16:28:00.001-05:00

Watch the live web cast from the Royal Swedish Academy of Sciences, Stockholm, Sweden, on Monday, October 12, 1:00 p.m. CET, 11:00 a.m. GMT at the earliest. Following the announcement, an interview will be held with one of the Committee members about the 2009 Prize in Economic Sciences.

Thomson Reuters forecasts winners each year using citation records of economists' scholarly contributions. (But please, no wagering.)

Asset Liquidity and How It Works

2009-09-29T14:53:00.003-05:00

CNN's Maggie Lake reports on the basics of asset liquidity:

Europe’s Socialists Suffering--Even in Downturn

2009-09-29T14:45:00.006-05:00

From the New York Times:

PARIS — A specter is haunting Europe — the specter of Socialism’s slow collapse.

Kai Pfaffenbach/Reuters

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. . . .

(More)

If You Print It, Is It Money?

2009-09-26T19:35:00.003-05:00

CNN's Charles Hodson examines one local community's effort to get its own currency off the ground:

Survivors of Steel in Pittsburgh Give Advice to Autoworkers in Detroit

2009-09-24T16:47:00.004-05:00

From American Public Media's Marketplace:

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.

Who Do You Trust to Track the Stimulus Spending? A dot-gov? Or a dot-com?

2009-09-24T16:34:00.003-05:00

Our federal government has a highly-promoted web site designed to track spending of the $787 billion stimulus, recovery.gov.

But Onvia offers its own, perhaps more up-to-date version, at recovery.com.

NPR's Morning Edition handicaps the sites:

Creative Ways Around Import Tax Barriers

2009-09-24T16:31:00.002-05:00

From NPR's Morning Edition:

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.

Food Producers Do Well in a Down Economy

2009-09-24T16:28:00.002-05:00

From American Public Media's Marketplace:

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.

Hope College Colleagues' Letter in This Weekend's NYT Magazine

2009-09-18T13:02:00.005-05:00

This weekend's issue of the New York Times Magazine features a letter to the editor by Hope College colleagues Mr. John Lunn and Ms. Marty LaBarge. Their letter is a response to Paul Krugman's "How Did Economists Get It So Wrong?"

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. . . .

(More)

Policy Views of Members of the American Economic Association: Results of a New Survey

2009-09-18T10:50:00.007-05:00

Interesting study from the American Institute for Economic Research: "The Policy Views of American Economic Association Members: The Results of a New Survey," by Wake Forest's Robert Whaples.

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:

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.

(Hat-tip: Michael Kruse)

Stiglitz Helps Sarkozy Figure Out How to Incorporate Happiness in Measuring Our Economic Health

2009-09-17T21:12:00.003-05:00

From the Economist:

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. . . .

(More)

Moral Hazard Explained

2009-09-17T21:03:00.004-05:00

Okay, one final Paul Solman video today. In this piece from NewsHour, Solman covers the problem of moral hazard--specifically as it relates to the colossal failures of lending institutions last year.

Silver Linings on Dark Economic Stormclouds?

2009-09-17T20:01:00.003-05:00

And, completing a trio of Paul Solman NewsHour pieces, Mr. Solman searches for signs of hope and change for the better in a rocky economy.

How Precise Is Our Unemployment Measurement?

2009-09-17T19:59:00.005-05:00

From two months ago, Paul Solman gives a guide to what the unemployment rate captures and what it does not.

If you have trouble viewing the embedded video below, here is a direct link.

Calculating the Consumer Price Index (CPI)

2009-09-17T19:53:00.003-05:00

From February 2008, NewsHour's Paul Solman gives us an in-the-trenches view of CPI measurement.

We're All Keynesians Now . . . Wait, No We're Not . . Just a Minute . . . Um, Guess We Are Again After All

2009-09-17T15:36:00.002-05:00

NPR's Morning Edition lays out the short-term vs. long-term consequences of Keynesian-style stimulus spending.

The 'Undercover Economist' Is a Bit Fuzzy on the Definition of Price Discrimination

2009-09-15T13:53:00.012-05:00

(Note: Many thanks to my friend and expert in industrial organization, John Lunn, for his input in the post below.)

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:

This Means War: China Hits Back over Tire Tariffs

2009-09-14T10:09:00.008-05:00

It's officially a trade war.

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.