Dispatches from District 48
Archive for the ‘Economics’ Category.
Year Food spending as share of disposable income 1929 23.4% 1939 21.3% 1949 22.1% 1959 17.8% 1969 13.7% 1979 13.4% 1989 10.9% 1999 10.2% 2000 9.9% 2001 9.9% 2002 9.8% 2003 9.8% 2004 9.7% 2005 9.8% 2006 9.9%
My sense is the same pattern would emerge for gasoline prices, electricity (if you had it), phone service (if you had it), cross-country transportation, air conditioning, etc.
Wow, I am not sure how I missed this seminal work, but I discovered it today via Steven Levitt. The work is titled "On the Efficiency of AC/DC: Bon Scott versus Brian Johnson" by Robert J. Oxoby of the University of Calgary Economics Department.
Our treatment variable in the experiment was the type of music played while individuals were making their decisions. As demonstrated by Bernardi et al. (2006), different musical styles can have different physiological effects in individuals. These effects, along with emotional responses, may result in different patterns of decision making regarding distributing money between oneself and another. In our Bon Scott treatment, participants listened to "It's a Long Way to the Top" (featuring Bon Scott on vocals) from the album High Voltage. In our Brian Johnson treatment, participants listened to "Shoot to Thrill" (featuring Brian Johnson on vocals) from the album Back in Black....
our analysis suggests that in terms of affecting efficient decision making among listeners, Brian Johnson was a better singer. Our analysis has direct implications for policy and organizational design: when policymakers or employers are engaging in negotiations (or setting up environments in which other parties will negotiate) and are interested in playing the music of AC/DC, they should choose from the band's Brian Johnson era discography.
I have this picture of AC/DC music blasting out on the floor of the Chicago Board of Trade
(the whole story behind this "study" is here)
Inventory theory says that the amount of total inventory that needs to be held to satisfy demand is proportional to the number of inventory stocking points. The most efficient (from purely an inventory size standpoint- there are other efficiency issues that mitigate against this) is one big single shared inventory. The least efficient is every individual holding his/her own inventory. Glen Reynolds points to this effect in food:
I SAW A FEATURE BY TONY CAVUTO last night on food stockpiling, in which
one of his correspondents explained how he'd spent $1500 at Costco
stocking up against shortages. You know, if you have stories like this
on TV regularly, you'll get food shortages at stores even if there's no
actual shortage in supply, because today's just-in-time inventory
practices mean that there's no real slack for sudden increases in
demand. The empty shelves will then promote panic and more stockpiling,
setting the stage for the equivalent of a bank-run on grocery stores
even if there's no actual reason.
The exact same thing happened in the early 1970s with gasoline**. Imagine that there are 100 million cars, and each fills up when the tank is 1/4 full. On average, then, every tank is 5/8 full. If tanks are all 16 gallons, then there are a billion gallons of gas in people's personal gasoline "inventory." Now imagine due to some perceived crisis everyone changes their policy and fills up when the tank is only half empty. Then, on average, every tank is 3/4 full, giving a total inventory of 1.2 billion gallons. If this panic occurs over a period of a few days, suddenly there is an incremental demand, above and beyond normal demand, of 200 million gallons to expand personal inventories. That as much as 30,000 tanker truck loads of extra demand at retail in a few days. When stations run out, and people change their policy to fill up at 3/4 (as many did in those times, in panic) then that causes another 200 million gallons to disappear into personal inventories. Logistics systems are not built to handle these demands.
**Postscript: By the way, don't let the US government off the hook. In the wake of the 1972 oil crisis, the main Congressional "contribution" was to pass a law that mandated oil companies deliver gasoline to each geographic area (probably by county, but I am not sure) in the same proportion as they did in the previous year. A sort of directive 10-289 for gas distribution. Well, we all know that things change, and among the biggest changes was the fact that with uncertain supplies and higher prices, a lot fewer people were driving on highways. Because of Congress's action, rural interstate gas stations were swimming in gas, and the cities were out. In a cruel but totally predictable twist, a number of the Congressmen who voted for this law later demagogued against oil companies for their poor distribution of gasoline that summer.
I am exhausted by people making policy suggestions by looking at small parts of complex inter-related systems in isolation. One such example is the recent response of some ethanol mandate defenders to recent charges that corn-based ethanol is net harmful to the environment and its mandated and subsidized use is driving up world food prices.
The response by some (certainly not in the corn lobby, of course) has been that our problems would all be solved if we switched to cellulosic ethanol, which is generally made from non-food plants. Supporters argue that this eliminated the food for fuel problem.
Huh? Sure, in the narrowest possible sense, I guess, since we are no longer using food crops but rather grasses and such to make ethanol. But at any reasonably holistic level of analysis, this is simply absurd. Food prices rise not because food is converted to ethanol per se, but because the amount of grains going into the food supply decreases. The issue is the use of farmer's time and resources and the use of prime cropland to grow plants for fuel rather than food for consumption. The actual crop used to make the fuel, whether corn or switchgrass, does not matter to food prices -- it is the removal of farmers and cropland from food production that matters. The only way cellulosic ethanol is likely to improve food prices in substitution for corn is by being more efficient per acre in fuel yields than corn (which may turn out to be the case, but has not yet been proven in this country). But even so, incremental improvements in yield don't help much, because we are talking about enormous (40-50% or more) amounts of US cropland that would have to be dedicated to fuel, whatever the plant technology, to meet the current ethanol mandates. And remember, the net effect on fossil fuels may still be zero no matter how much land is dedicated, since no one has demonstrated large scale ethanol operations in the US that don't use more fuel to produce the ethanol than they produce.
Postscript: Related to this topic of thinking about economic systems narrowly, Lubos Motl discusses the supposed positive green impact on the economy in light of the open window fallacy.
Hillary apparently wants to sue OPEC for not producing enough oil. If this idea had come in via the constituent mail, Hillary's staffers would probably have laughed themselves silly, but it is an election year, and no bottom has been found below which candidates are unable to keep a straight face while uttering what they know to be nonsense.
But should Hillary be suing OPEC, or the US? Because if you ranked the world's countries on those that are doing the least to develop the most promising potential oil deposits, the US would be right at the top of that list. By Hillary's logic, Western Europe and Japan should be suing us.
Hillary has jumped on the gas tax holiday along with John McCain. Kevin Drum calls it pure demagoguery (he probably wouldn't have been so blunt about Hillary, but since he already derided McCain for the idea, he has the good grace to apply the same criticisms to Hillary:
I'd say there's approximately a zero percent chance that Hillary
Clinton or John McCain actually believe this is good policy. It would
increase oil company profits, it would make hardly a dent in the price
of gasoline, it would encourage more summertime driving, and it would
deprive states of money for transit projects. Their staff economists
know this perfectly well, and so do they.But they don't care. It's a way to engage in some good, healthy
demagoguery, and if there's anything that the past couple of months
have reinforced, it's the notion that demagoguery sells. Boy does it
sell.
I tend to agree with Drum. The gas tax, at least when applied to its original purpose of funding highways and roads, is one of the better taxes out there, doing a pretty good job of matching the costs of roads to the users of the roads. However, I did make this point in Drum's comment section:
I am glad you see that an 18.4 cent gas price reduction is small compared to the total price and proposing such a reduction by government fiat is pure demagoguery.
I would like to point out that most oil companies have a profit on a wholesale gallon of gas that is also about 18-20 cents. The reason they make so much money is that they sell a lot of gallons of gas (plus many other petroleum products). So is it similarly pure demagoguery to blame oil company profits for the price of gas, or to suggest government schemes (e.g. windfall profits tax) to reduce these profits?
By the way, Hillary is particularly hypocritical on this, because she has adopted the 80 by 50 CO2 target (80% reduction by 2050). To meet this target, which I think would be an economic disaster, is not going to require an 18.4 cent gas tax, but something like a $10 a gallon gas tax, or more. Since she has adopted her 80 by 50 target, her correct answer on gas taxes should not be to propose a holiday, but to say "suck it up, because taxes are going to go a hell of a lot higher." McCain, who has also adopted a CO2 target, though a less stringent one, is in the same boat.
Update: OK, the $10 per gallon tax is probably gross under-estimated. The number is likely to have to be much higher than that, given that Europeans are already paying nearly $10 a gallon and are not even in the ballpark of these CO2 targets.
Cost of gasoline
(U.S. Dollars per Gallon)
Date___ Belgium France Germany Italy Netherlands UK _ US
4/20/98 3.43___ 3.44__ 3.25___ 3.48_ 3.56_______ 4.04 1.21
4/21/08 8.62___ 8.34__ 8.58___ 8.32_ 9.51_______ 8.17 3.73
HT: Hall of Record
Todd Zywicki has a nice post on the The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke by Professor Elizabeth Warren and Amelia Warren Tyagi.
In his writings on the tactics for engineering the communist state, Karl Marx talked a lot about the need to "proletarianize the middle class." This has been a very popular tactic among leftish writers and politicians today, attempting to convince the middle class that they never had it so bad.
I won't repeat Zywicki's whole post, but the books author's argument revolve around examples which purport to show that as families go from one to two earners, their costs (health care, child care, cars, mortgage, etc.) go up by more than the additional income, making them poorer on a discretionary spending basis.
Zywicki first points out the same thing I immediately thought of when I read a summary of the book:
It is not clear what to make of all of this, except that it is hard to
see how this confirms the central hypothesis of "The Two-Income Trap"
that "necessary" expenses such as mortgage, car payments, and health
insurance are the primary draing on the modern family's budget. And
again, this unrealistically assumes that all increased spending on
houses and cars is exogenously determined, ignoring the possibility
that an increase in income leads to an endogenous decision by some
households to increase their expenditures on items such as houses and
cars.
While the assumption seems crazy, it makes sense in the context of leftish ideology, which holds that the middle class have only limited free will and tend to have their decision making corrupted by advertising and other corporate pressures.
But Zywicki goes further, and actually digs into the author's numbers. He finds that the authors are surprisingly coy about addressing changes in taxation in their numbers. Zywicki then uses the authors' own numbers, this time with taxes factored in using the authors' own assumptions, and gets these two charts:
As Zywicki summarizes:
As can readily be seen, expenses for health insurance, mortgage, and automobile, have actually declined
as a percentage of the household budget. Child care is a new expense.
But even this new expenditure is about a quarter less than the increase
in taxes. Moreover, unlike new taxes and the child care expenses
incurred to pay them, increases in the cost of housing and automobiles
are offset by increases in the value of real and personal property as
household assets that are acquired in exchange.Overall, the typical family in the 2000s pays substantially
more in taxes than in their mortgage, automobile expenses, and health
insurance costs combined. And the growth in the tax obligation
between the two periods is substantially greater the growth in
mortgage, automobile expenses, and health insurance costs combined. And
note, this is using the data taken directly from Warren and Tiyagi's
book.
For at least the last thousand years, western society has always had a hard core of doom-sayers who like to climb to the rooftops to shout that the end of the world is close at hand. I am not a good enough student of history to know if this is a predictably human trait, or if it is uniquely tied to western religions like Christianity. Certainly the Medieval millenarian streak was tied closely to the prophesies of Christianity.
Whether initially Christian or not, end-of-the-worldism is now the provenance of many fringe secular groups, not the least of which are the environmentalists. In fact, the current global warming panic fits right into a long history of end-of-the-worldism, though I also think it has strong elements of socialism and youth culture guilt and lacks the optimism of Christian millenarianism.
Today's humorous does of doom comes right here from Arizona, via professor Guy McPherson of the University of Arizona. Incredibly, our local media treats this interview straight up, without even the snark they would bring to, say, the article they wrote about me and other local climate skeptics.
First, let me explain Empire: We exploit humans and resources, often
with extreme violence, to provide Americans with indulgences beyond
belief to most people.Had we started the project of powering down at least 30 years ago,
there might still be time. At this point, I cannot imagine any steps
that could allow us to avoid a meltdown of the economy or a relatively
rapid transition into the post-industrial Stone Age. We depend on
abundant, inexpensive oil for delivery of food, water, shelter, and
health care. The days of abundant, inexpensive oil are behind us. The
American Empire will soon run its course.I am hopeful we can save a few tens of millions of Americans. But
we will need to make massive changes in our entire way of life,
starting immediately. We must abandon the project of globalization and
its attendant indulgences, for example, and focus on saving lives.
Yes, oil production will indeed peak at some point, and may even be peaking now (though I doubt it). But the rest of this is just ignorant.
It may really be a new era, when markets rather than command-and-control government allocations and restrictions are advocated by progressives to allocate scarce resources. In this case, the argument is especially surprising, since it is arguing for more open water markets. For some reason, water is the last place anyone seems to want to apply pricing signals, something I have written on many times.
There are clear gains from having an active market in water rights. It
would help solve the problems posed by current water shortages in the
West, and it would provide the flexibility necessary to confront the
impact of climate change on water supplies in the coming decades. It
would be, in a word, fluid.
I agree with Kevin Drum, this is the dumbest thing I have read today:
There is a solution to the rising cost of oil, but it is a painful
one. Let's say there is a lot of $20-a-barrel oil in the world "”
deep-sea oil, Canadian tar sands. But who would look for $20-a-barrel
oil if someone else (Saudi Arabia) has lots of $5-a-barrel oil? The
answer is: no one.Basically, American taxpayers have to guarantee potential producers
that the price in the future will not fall below $20 a barrel and that
they will not lose their investments.This is easy to do. The U.S. needs to guarantee that it will buy all
of its oil at $20 a barrel before buying anything from OPEC. This
forces the price of oil down to $20 a barrel, but it eliminates the
possibility that it will ever go back to $5 a barrel.
The implication that no one will add capacity if there is anyone at all to the left of them on the supply curve is just silly, and defies history in any number of industries, including oil. By this argument, no one would be building super-deep water oil platforms today. The reason there is not more oil exploration today in certain areas of North America is that there are formal and informal government restrictions that make it hard and/or impossible. And to the extent that oil companies are treating current oil prices as a bubble that will inevitably fall, all I can say is, bring it on.
The Democratic party, which so often accuses others of adopting superstition over science, are themselves pursuing Medieval economics:
The Democratic Party's protectionist make-over was completed yesterday,
when Nancy Pelosi decided to kill the Colombia free trade agreement.
Her objections had nothing to do with the evidence and everything to do
with politics, but this was an act of particular bad faith. It will
damage the economic and security interests of the U.S. while trashing
our best ally in Latin America.The Colombia trade pact was signed in 2006 and renegotiated last year
to accommodate Democratic demands for tougher labor and environmental
standards. Even after more than 250 consultations with Democrats, and
further concessions, including promises to spend more on domestic
unemployment insurance, the deal remained stalled in Congress.
Apparently the problem was that Democrats kept getting their way.
I am sure the Columbians, who for years have been told by the US to export something other than cocaine, are scratching their heads at this rebuff when they actually try to do so. My sense is that the Democrats are reacting to this ugly picture of US manufacturing output post NAFTA:
We can see that since the passage of NAFTA in the mid-1990s that US manufacturing output has, uh, has.... can that be right?
There is very little that can make me go non-linear faster than when someone attributes economic growth to a politician, e.g. Reagan's economy or Clinton's economy. So this post from Kevin Drum on the correlation between economic growth and the flavor of president in the Oval Office is just the kind of thing to make me lose it. And not because I really care whether Team Coke or Team Pepsi looks better.
Larry Bartels says that Democratic presidents produce higher economic
growth than Republican presidents, and that the differences in average
growth rates for middle-class and poor families (but not affluent
families, apparently, who do well under both parties) are statistically
significant by conventional social-scientific standards.
OK, I have seen the analysis done different ways and accept the statistical conclusion. You used to be able to get a really tight correlation between Washington Redskin football team performance and presidential election outcomes (via Snopes):
Sometimes one natural phenomenon supposedly
forecasts another, as in the belief that a groundhog's
seeing his shadow onFebruary 2 portends another six weeks of
winter. In other instances the linkage is between affairs of mankind, as in the
superstition that the winner of football'sSuper augurs that year's stock market performance (or vice-versa).
BowlA recent item of this ilk maintains that the results of the last game
played at home by the NFL's Washington Redskins (a football team based in
the national capital, Washington, D.C.) before theU.S. elections has accurately foretold the winner of the last
presidential
fifteen of those political contests, going back to 1944. If the Redskins win
their last home game before the election, the party that occupies the White
House continues to hold it; if the Redskins lose that last home game, the
challenging party's candidate unseats the incumbent president. While we don't
presume there is anything more than a random correlation between these factors,
it is the case that the pattern held true even longer than claimed, stretching
back over seventeen presidential elections since 1936
What gets me is not the existence of a correlation, but the explanation:
In recent decades taxes and transfers have probably been more
important. Social spending. Business regulation or lack thereof. And
don't forget the minimum wage. Over the past 60 years, the real value
of the minimum wage has increased by 16 cents per year under Democratic
presidents and declined by 6 cents per year under Republican
presidents; that's a 3% difference in average income growth for minimum
wage workers, with ramifications for many more workers higher up the
wage scale. So, while I don't pretend to understand all the ways in
which presidents' policy choices shape the income distribution, I see
little reason to doubt that the effects are real and substantial.
I have three thoughts, of which the third is what really gets me:
To this last point, take just two things on my desk this morning. The first is a pile of tax returns and some licensing paperwork. Last year, our company's total tax bill was not that large. But the problem is that the government takes the taxes in so many bites, and every bite costs time on our part learning the process and filling out paperwork. For example, if I take all the taxes and licensing fees we pay to federal, local, and state governments, and multiply times the number of months or quarters each requires a report, I get a number of over 400. Four hundred individual bites, each with its own paperwork and overhead.
The other problem sitting on my desk is a snack bar I inherited on a lease in California at Lake Piru. The snack bar is a dump. It is designed wrong, it is set up to cook the wrong kinds of foods, and uses space in the building very inefficiently. I want to lay the whole thing out differently, as a win-win for everyone. We could sell more with fewer workers. The customers would get more selection, including much healthier choices. The operation would be safer, because we would eliminate most of the heavy cooking (e.g. deep fat fryers). And it would be cleaner, with less wastewater and cleaner wastewater because there would be less grease and oil.
Unfortunately, it is very clear that Ventura County, California is not going to allow me to make these changes, at least at any cost I can afford. First, apparently I need to build a new wastewater treatment plant for the snack bar! But I am reducing the waste water load, I argue. Does not matter. New code requires a plant. So because of this environmental code, I am pushed to continue the current operation which is environmentally worse than my proposed alternative. We have the exact same problem on fire suppression. But I am removing the ovens and most of the cooking equipment! It's safer! Doesn't matter, if I make any change at all, I have to install a new fire suppression system. And on and on. this is the true face of government regulation. We face this kind of thing ten times a day.
Anyway, I could go on and on about this stuff, but that is what the blog is about, so I will refer you to my past (and future) posts.
I am on the road this week, and still do not have time to write the post I want to write about Obama demagoguing against oil companies. Fortunately, I do not have to, because Q&O has this post.
Here is the short answer: companies like ExxonMobil, even in the best of times (or most rapacious, as your perspective might be), makes 9-10% pre-tax profit on sales. They make something like 5-6% when things are not so good. This means that if gas prices are $3, when you take out the 45 cents or so of tax, Exxon is making between 13 and 25 cents a gallon profit. Call it 20 cents on average. So, wiping out profits completely with various ill-advised taxes or regulations would achieve the substantial goal of ... cutting about twenty cents off the price of gas, or about $2.50 off the price of a fill-up. Of course, that is at the cost of eliminating all investment incentives in the world's most capital intensive resource extraction business. Which in turn will mean that that price cut will last for about 2 years, and then be swamped by price increases from disappearing gas supplies (exactly what happened in the late 1970s).
Part of the problem is that most people do not understand the supply chain in crude oil. It would seem logical that if the price of oil rises form $30 to $100, then all that $70 price increase is pure profit to Exxon. That would have been true in 1905, but is not true today. Exxon, even when it does the exploration and drilling, gets its oil via complicated agreements with state-owned corporations which in the main are structured so that the country in question, and not Exxon, gets windfall. This means that if Obama wants to tax windfall profits, he needs to seek out Venezuela and China and Saudi Arabia.
The article covers all this and more.
Taking the economically illiterate but apparently politically powerful notion that it is important that commerce across arbitrarily selected geographic boundaries be minimized, some Arizona politicians are taking the argument to the next, ridiculous level: Not content to blame perceived problems in the state economy (which has outperformed most other states) on NAFTA, Mexico, or Mexican immigrants, Arizona politicians are now blaming them on New Mexico.
An Arizona energy regulator is frustrated that Arizona Public Service
Co. is passing up in-state wind-energy for power from New Mexico and
Utah....The state's largest utility buys 90 megawatts of energy from the
Aragonne Mesa Wind Project near Santa Rosa, N.M., and officials have
informed Corporation Commissioner Kris Mayes of plans to buy more
renewable energy from out of state, including from a Utah
geothermal-power plant."I am concerned that such out-of-state purchases hinder the development
of renewable energy here in Arizona, and potentially deprive our state
of much needed economic development," Mayes said in a letter to APS,
echoing concerns she raised at a regulatory meeting last week.
Of course, everyone knows that silly government energy mandates have much more growth potential than, say, low electrical rates. So obviously the power company is just being treasonous in buying power from the cheapest sources:
When APS [one of our electric utilities] chose to buy power from the Aragonne project in New Mexico, it
rejected a similar proposal from a company that wanted to build a wind
farm in northern Arizona, which wasn't built because of the decision
from APS, Mayes said.Brandt said the New Mexico project was better for customers.
"We put all these projects out with a competitive bid," Brandt said.
"Then we select the resource that comes out the best. It's not always
the cheapest. It's a combination of price, reliability and do-ability,
all the things a common businessperson would look at."He said APS would rather support Arizona power projects, but so far those that have bid on power have not been competitive.
Of course, all of this, even taking the cheapest source, is more expensive than electricity would be without these mandates:
When the Corporation Commission approved the renewable-energy standard
in 2006, officials estimated it would raise an existing monthly tariff
on customer bills from less than 50 cents to $1.05 to help APS meet the
goal, but those projections have gone up. Regulators are expected to
set a new limit on the tariff in the next month, according to Mayes and
APS officials, with some proposals nearing $2.
The protectionist argument is summed up:
"This is Arizona ratepayer money that is currently going to other
states that ought to stay in Arizona," she said. "We are in an economic
downturn. It's a terrible time to be investing out of state."
Yes, yet another blow is struck against economic literacy and the concept of division of labor. Just how arbitrarily small does a geographic area have to be before protectionists will accept that this area does not need to be self-sufficient of all products and services?
My friend Scott, who actually worked for Bear Stearns years ago, sent me one of the more down to earth explanations of a liquidity trap that I have heard of late. Imagine that you had a mortgage on your house for 50% of its current value. Then suppose that in this alternate mortgage world, you had to renew your mortgage every week. Most of the time, you are fine -- you still have good income and solid underlying asset values, so you get renewed with a rubber stamp. But suppose something happens - say 9/11. What happens if your renewal comes up on 9/12? It is very likely that in the chaos and uncertainty of such a time, you might have trouble getting renewed. Your income is still fine, and your asset values are fine, but you just can't get anyone to renew your loan, because they are not renewing anyone's loan until they figure out what the hell is going on in the world.
Clearly there are some very bad assets lurking on company books, as companies are still coming to terms with just how lax mortgage lending had become. But in this context, one can argue that JP Morgan got a screaming deal, particularly with the US Government bending over and cover most of the riskiest assets. Sigh, yet another government bailout of an institution "too big to fail." Just once I would like to test the "too big to fail" proposition. Why can't all those bankers take 100% losses like Enron investors or Arthur Anderson partners. Are they really too big to fail or too politically connected to fail?
Anyway, Hit and Run has a good roundup of opinion.
Update: I don't want to imply that everyone gets off without cost here. The Bear Stearns investors have taken a nearly total loss - $2 a share represents a price more than 98% below where it was a year or two ago. What I don't understand is that having bought Bear's equity for essentially zero, why an additional $30 billion guarantee was needed from the government.
I'm almost never censored at the Times. However, I was told that I couldn't use the lede I originally wrote for my column
following the 2007 State of the Union address, in which Bush made
ethanol the centerpiece of his energy strategy: "Before the State of
the Union address, there had been hints and hopes that President Bush
would offer a serious plan to reduce our dependence on imported oil.
Instead, however, he took refuge in alcohol."Well, anyway - the news on ethanol just keeps getting worse. Bad for the economy, bad for consumers, bad for the planet - what's not to love?
Well, I have heard that he was a pretty good economist before he became a political hack.
I think it's so cute when my fellow Princeton grads who pull down nearly a half million dollars a year complain about being put down by "the man."
Blaming your student debt on the structure of the economy when you chose to go to the most expensive school in the country is a bit like trying to get sympathy for the size of the note on your Lamborghini.
By the way, lost in all this is the fact that Princeton is one of the two schools in the country that now help students graduate debt-free. In most cases, Princeton has replaced student loans with outright grants. Somehow she kind of forgot to mention that Princeton solved this problem years ago, without even a whiff of government intervention.
Via the Mises Institute, some Austrian and libertarian economics texts are free online:
- Principles of Economics, Menger
- Human Action, Mises
- Man, Economy, State, Rothbard
- Study Guide to MES, Murphy
- Theory and History, Mises
- Epistemological Problems, Mises
- Economic Policy, Mises
- America's Great Depression, Rothbard
- Positive Theory of Capital, Boehm-Bawkerk
- Money, Bank Credit, Economic Cycles, de Soto
For a while, I have been worried that the next decade may well be a return to 1970's economics, with bipartisan commitment to large government, ever-expanding government micro-management of... everything, growth-destroying taxes, and consumer-unfriendly protection of dead US industries.
Now, Megan McArdle points to an article that hints that the stagflation of the 1970's may be back as well.
Inflation and sluggish growth haven't joined in that ugly brew called
stagflation since the 1970s. They may not be ready for a reunion, but
they are making simultaneous threats to the economy and battling one
might only encourage the other.Among a batch of economic readings today, the Labor Department
reported that import prices jumped 1.7% last month. The data included
troubling signs that consumer products, many imported from China, have
caught the inflation bug. The signs pointing to slowing growth included
a sharp deterioration in consumers' mood, as measured by the
Reuters/University of Michigan Surveys of Consumers, and a worsening
outlook for manufacturers, revealed in the Federal Reserve Bank of New
York's Empire State Manufacturing survey for February. The government
also reported that U.S. industrial production only increased slightly
during January, as colder weather elevated utilities output and offset
sharp declines in the auto and housing sectors. If indeed inflation is
teaming up with slower growth, it means big headaches for policy
makers, in particular Ben Bernanke. The Federal Reserve chief in
congressional testimony yesterday suggested that he is willing to keep
lowering interest-rates if the economy stalls. But, naturally, he will
have less room to do so if those lower rates would accelerate inflation
to unacceptable levels.
This week, we in Phoenix are supposedly getting our payoff for subsidizing the hapless Arizona Cardinals with a billion dollar football stadium that is used for its intended purpose (football games) for 33 hours per year (3 hours per game times 11 games: 2 Cardinals pre-season, 8 home regular season, Fiesta Bowl). In exchange we get a nicer stadium (if I were to want to see a Cardinals game live) but worse TV options (because instead of the best game of the week, we have to see our home team).
The big selling point, the cherry on top of the sundae the NFL uses to push new stadiums, is a Superbowl. Which is in town this week. So far, the huge economic stimulus has not really poured into our household, but I guess I need to be patient. Anyway, the timing seems good to link this article, which comes via the Sports Economist:
If you build it, they will come. This is usually the mantra of those in
favor of publicly financed sports stadiums, including the current
proposal for a new soccer stadium in Chester. In this case they
are visitors whose spending would turn devastated cities and
neighborhoods into exciting destination points. Local schools,
merchants, and residents all would benefit as municipal coffers swelled.There's only one problem with this scenario. It's not true. Never has been. They
do come, but cities are not saved. Over the past two decades, academic
research has generated literally hundreds of articles and books
empirically challenging the alleged economic wonders of new stadiums,
even when they're part of larger development schemes. I have been
studying and writing about publicly financed stadiums for more than 10
years and cannot name a single stadium project that has delivered on
its original grandiose economic promises, although they do bring
benefits to team owners, sports leagues and sometimes players....Why, then, given the overwhelming academic research challenging
stadium-centered economic development do political leaders (if not
average citizens) still support such projects? In a just-released
article in the Journal of Sport and Social Issues, my colleagues and I
studied media coverage of 23 publicly financed stadium initiatives in
16 different cities, including Philadelphia. We found that the
mainstream media in most of these cities is noticeably biased toward
supporting publicly financed stadiums, which has a significant impact
on the initiatives' success.This bias usually takes the form of uncritically parroting stadium
proponents' economic and social promises, quoting stadium supporters
far more frequently than stadium opponents, overlooking the numerous
objective academic studies on the topic, and failing to independently
examine the multitude of failed stadium-centered promises throughout
the country, especially those in oft-cited "success cities" such as
Denver and Cleveland.
I can attest to the latter. During the run up to various stadium-related referenda, the media was quite rah-rah for the stadium subsidies. In fact, on radio, several talk show hosts denigrated voters who opposed the stadium subsidies as "stupid old retired people." I remember calling in to a couple of talk shows opposing the stadium bills and being treated like a Luddite.
My article on sports team relocations and stadium subsidies as a prisoners dilemma game is here.
I couldn't have expressed my frustration with the economic illiteracy of the press and the general population better than does TJIC:
Jane Galt has a series of posts
explaining why a competitive free health care market creates new drugs,
and why strict regulation and/or nationalization wouldn't improve
things.Mostly, this series just makes me sad and tired, the same way
I'd be sad and tired if I saw smart verbal well educated people
spending their time explaining that, no, Jews don't have horns, and
it's a bad idea to drown your neighbors to see if they are witches.The sheer wasted effort combating idiocy and ignorance, when
these talented people could be doing so much more, if not for the
resting levels of stupidity and ignorance cloaked with self-righteous
anger that permeate the population.
The only proviso I would add is that for those of our political class, I suspect the ignorance may be more willful than actual, since a clear understanding of economics in the general populace might stand in the way of gaining personal power. I expressed related sentiments here:
Economics is a science. Willful ignorance or emotional
rejection of the well-known precepts of this science is at least as bad
as a fundamentalist Christian's willful ignorance of evolution science
(for which the Left so often criticizes their opposition). In
fact, economic ignorance is much worse, since most people can come to
perfectly valid conclusions about most public policy issues with a
flawed knowledge of the origin of the species but no one can with a
flawed understanding of economics.
The Arizona Republic this morning had some goofy headline in their print edition that said something like "How should you spend your $800 tax rebate?" Far be it for me to presume to tell people how to spend their own money (what do I look like, a Congressman?) but here is a bit of advice: Save it. Because this is not a grant, it is a loan.
All of these rebates will be paid for with additional deficit spending. This means that everyone will eventually pay for their rebate in the form of a) higher future taxes; b) higher future prices due to inflation; or c) increased job insecurity and/or lower future earnings due to reduced output in the economy; or d) all of the above.
It HAS to be this way. Unlike private wealth creation, the government can't get wealth from nowhere.
In a post that is a nice follow-on to this one about wages in trucking, Russel Roberts has a nice post about people making minimum wage:
According to Current Population Survey estimates for 2006, 76.5
million American workers were paid at hourly rates, representing 59.7
percent of all wage and salary workers.1
Of those paid by the hour, 409,000 were reported as earning exactly
$5.15, the prevailing Federal minimum wage. Another 1.3 million were
reported as earning wages below the minimum.2
Together, these 1.7 million workers with wages at or below the minimum
made up 2.2 percent of all hourly-paid workers.
Correcting for higher state minimum wages, but also adjusting for illegal immigrants (who are a special case with super-low bargaining power) and factoring in salaried workers (who by law to be salaried have to be making much more than minimum wage) one still finds that less than 2% or less make minimum wage, about half of whom are under 25. Roberts has a follow-on post with comments from Tim Worstall to say that even this number may be too high:
Unfortunately, on the page he's taken his information from he's missed one thing which makes his case even stronger.
Nearly three in four workers earning $5.15 or less in 2006 were
employed in service occupations, mostly in food preparation and service
jobs.That's your waitron units and barkeeps folks. And what do we know
about people who do these sorts of jobs? Well, perhaps you have to have
actually done them (as I have, everything from the graveyard shift in a
Denny's to tending bar around the corner from this guy's
place): they all make tips. In fact, so much so that there is (or at
least used to be when that BLS report was prepared) a special minimum
wage for those in such jobs, one lower than the official Federal
minimum wage.For example, way back when, the min. wage was $3.35 an hour. Waiters
got $2.01. You didn't really care because even serving pancakes at 5 am
you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps
got $3.35 plus tips.The BLS numbers are reporting what employers paid employees, not
what people are actually earning. So we might in fact say that while
the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.
As an aside, speaking of bargaining power, it strikes me that prostitution is an excellent example of supply and demand in labor markets trumping government mandates. Prostitutes have absolutely no power to run to the government for help over minimum wage or work condition violations. They have only limited power to get government help even when they are the victim of violence from those who pay them. But on an hourly basis, the most succesful make far more than most Americans.
In the absence of government meddling (e.g. price controls) healthy markets seldom create true shortages, meaning situations where one simply cannot obtain a product or service. One might think there was a shortage, for example, of Superbowl tickets, since there are only a few available and tens of thousands, maybe hundreds of thousands, of people who would like to attend. But in fact one can Google "Superbowl tickets" and find hundreds available. You may not like the price ($3500 and up for one ticket), but they are available for sale.
Yesterday, the AZ Republic lamented that there is a shortage of truck drivers nationwide:
Trucking companies across the country are facing a shortage of long-haul drivers....
High driver turnover has traditionally been a problem throughout the
trucking industry. But retirements and growing shipping demand have
made the shortage of long-haul drivers more acute. Fewer drivers means
delayed deliveries and higher delivery costs that could be passed on to
consumers. The
issue is especially crucial for the Phoenix area, which touts itself as
a shipping hub for businesses fed up with the costs and congestion
around Los Angeles-area ports. The Valley also is headquarters to two
of the country's biggest for-hire trucking companies: Swift
Transportation and Knight Transportation....Trucking experts say the problem goes beyond a labor shortage in the industry. They call it a threat to the economy.
"Our country needs to figure out how to fix this," said Ray Kuntz,
chairman and chief executive of Watkins and Shepard Trucking in Montana
and chairman of American Trucking Associations. "Our economy moves on
trucks."
Here is the key fact:
"¢ Long-haul wages vary by company and are typically based on
experience, safety record and commercial-driver's-license endorsements.
Long-haul drivers with two or more years of experience usually earn at
least $50,000 to $60,000 a year."¢ An entry-level driver with no over-the-road experience starts in the high $30,000 range. Team drivers can earn more.
There is no way in a Platonic vacuum to determine if a wage is too high or too low. But the driver "shortage" gives us a really good hint that maybe these salary levels are no longer sufficient to attract people to the rather unique trucking lifestyle. I probably could write a similar article about how there is a shortage of Fortune 500 CEO's or airline pilots who will accept a $30,000 starting salary. The problem then is not shortage, the problem is that wage demands are rising as trucking is out-competed for talent by alternative careers. In fact, there is not shortage, but a reluctance by trucking firms to accept a new pricing reality in the market for drivers.
By the way, to some extent this "shortage" is indeed an artificial creation of the government. Under NAFTA, Mexican truckers were long-ago supposed to have been given access to the US market, but overblown safety concerns have been used as a fig-leaf to block the provision as a protection for US truckers and a subsidy to the Teamsters. If a truck driver "shortage" is really a national economic problem, then let's stop blocking this NAFTA provision. But my sense is that the trucking companies in this article would freak at this, because they are not really concerned about the national economy but, reasonably, with rising wages hurting their bottom line. My guess is this article is the front-end of a PR push to get states like Arizona to subsidize ... something. Maybe truck driver training. Look for such legislative proposals soon.
I am going to post a bit more on this topic later today, but here is one of a number of great old computer ads shown here. Don't miss Elvira shilling for her favorite CASE tools. (HT Maggies Farm)
I just bought 2 TB in four 500 MB drives for less than $430 including shipping (that's an improvement from $150 per MB in 1979 to about $0.22 per MB**). With the great tools now available on most motherboards, I arrayed these in a fast and redundant Raid 0+1 setup with 1TB of storage. (Yes, to the total geeks out there, I would have preferred Raid 1+0 but alas the Nvidia chipset on my board did not support it.)
** By the way, this 700x improvement over 30 years actually has little or nothing to do with Moore's law. While some of the materials sciences are related, this improvement has little to do with silicon and nothing to do with transistor density. This is the result of incredible human creativity in the face of brutal competition, both from other hard drive manufacturers as well as from substitutes like static RAM.
