A while back I recall reading some article (probably the precursor to this 2008 article) about how Kodak was looking to enter the printer market through cheaper ink. People are constantly complaining about the price of ink. A couple months back I looked around at printers and, after hours of browsing, was not able to confidently conclude that Kodak were cheaper on ink. I recall that some consumers on Amazon said the apparently cheap Kodak ink did not last as long. It has been a while since Kodak tried its strategy
I was about to give up on making an informed purchase in frustration when I remembered my Consumer Reports subscription. I logged in and find a neat table with a column called "text cost", which is the estimated ink cost to produce a single page of paper. From the table Kodak does not stand out as having the cheapest printer for ink, with pages generally costing around 3-4 cents - about average. The Lexmark Prospect Pro205 ($200) stood out at about 1 cent a page, but the cheaper Lexmark printers are in the 4-5 cents/page range, with a high of 12.6 cents a page for the $50 Lexmark X267. Lexmark has actually been advertising its new "Vizix" line of printers as the cheapest per page since at least 2009, although some argue it's going to be difficult for them to break into the commercial market over laserjet printers even then. In the meantime, the market is favoring Lexmark quite a bit more than Kodak at P-Es of around 9 and around 5, respectively (trailing twelve months according to Google Finance).
The whole printer and ink question is sort of interesting from the perspective of economics. It's similar to the whole "prisoner's dilemma" game theory applied to oligopolies in economic theory. The situation is theoretically an oligopoly where none of the printer manufacturers is willing to cut prices on the ink. It could be that Kodak cut ink and thereby forced the industry to cut ink prices and innovate. However, the article above on Kodak suggests that it did not really have much of an impact, but even a small impact could change the competitive strategy situation. The industry was happy to cooperate but one player (in this case Kodak, an outsider), disrupted the party and the others cut prices preemptively.
There are similar situations throughout all industries - Skype is disrupting the phone companies, Netflix disrupted Blockbuster and is now disrupting cable companies. Direct insurers disrupt agent-based insurers. Even a direct title insurer has entered the market - Entitle Direct - so use it to save yourself a few hundred. My savings bank account is left neglected ($0) as all my savings is invested directly through a retail brokerage. Disintermediation will continue to rule. Hell, these days when I go to my doctor I'm already more well-informed on my specific condition than they are. This is a good thing for people like me, but the end result of this trend is fewer jobs as unnecessary people and infrastructure are cut out. Slowly but surely, unemployment will continue, as Martin Ford (the author of The Lights in the Tunnel and the econfuture blog) has discussed at length.
Enough rambling. Sign up for a subscription to ConsumerReports.org for $30 and promote efficient products while improving your pocketbook.
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Tuesday, November 23, 2010
Sunday, September 20, 2009
Corporate auto mechanics, or lack thereof
I've been looking into auto mechanics because I'm worried about the clutch in my car. I felt some shuddering the other day. I think I tend to ride the clutch. I'm a bit worried about taking my car to the shop. I'm not rich. The last time it seemed like the small-town mechanics kept my car for a couple weeks and charged me what seemed like a lot for essentially just an inspection.
After doing some research I've learned that I should be looking for ASE (Automotive Service Excellence) certified mechanics. I've been looking for a corporate auto mechanic. People who know me might find that strange, but I've had a favorable view of corporations for a long time. As a gluten-intolerant person, the businesses which have are organized in their response to gluten are usually corporations (PF Changs and Red Robin come to mind). I used to have my oil changed by Jiffy Lube. Corporations have professional managers who are looking at the global scale. The services they provide are fairly predictable from location to location (eg McDonalds food). They often allow the customer to have an account with past history (my Jiffy Lube account) which can be pulled up anywhere.
I found an excellent analysis by Fulcrum Inquiry of the auto repair industry which confirmed my suspicions: the industry is highly fragmented with few to zero corporate giants; The Pep Boys (NSYE:PBY) and Monro Muffler Brake (NASDAQ:MNRO) are the only ones worth mentioning, and they're both basically small caps. I find this surprising. Corporate auto repair shops would have the following advantages:
After doing some research I've learned that I should be looking for ASE (Automotive Service Excellence) certified mechanics. I've been looking for a corporate auto mechanic. People who know me might find that strange, but I've had a favorable view of corporations for a long time. As a gluten-intolerant person, the businesses which have are organized in their response to gluten are usually corporations (PF Changs and Red Robin come to mind). I used to have my oil changed by Jiffy Lube. Corporations have professional managers who are looking at the global scale. The services they provide are fairly predictable from location to location (eg McDonalds food). They often allow the customer to have an account with past history (my Jiffy Lube account) which can be pulled up anywhere.
I found an excellent analysis by Fulcrum Inquiry of the auto repair industry which confirmed my suspicions: the industry is highly fragmented with few to zero corporate giants; The Pep Boys (NSYE:PBY) and Monro Muffler Brake (NASDAQ:MNRO) are the only ones worth mentioning, and they're both basically small caps. I find this surprising. Corporate auto repair shops would have the following advantages:
- More oversight to keep the mechanics "honest".
- Organized customer account records showing the parts repaired, overview of issues, ect. This would be one of the biggest draws for me. The data could later be sold if the ownership changes.
- Market power in buying equipment, which could be passed on to customers.
- Systematic tracking of the reliability of parts, to locate the best deals.
- Prioritization of the training on common auto issues.
Saturday, December 13, 2008
Web of Debt and history
I happen to be browsing through Web of Debt, a recent book on the conspiracy theories involving bankers. Most of it is stuff I've heard before, but I found Chapter 5 interesting. It is on the "historical revisionism" of the Middle Ages. It cites Thorold Rogers and William Cobbett in making the case that the Middle Ages was not as backward as it is typically perceived. They quote Thorold as saying that "a labourer could provide all the necessities for his family for a year by working 14 weeks".
I haven't checked their sources, although I plan to at some point. But I know the same point is also made in reference to Paleolithic societies, see the reference to Sahlins in this part of the Wikipedia hunter-gatherer article.
There's a couple reasons why we might work so much more in modern society. One, there are dwindling natural resources combined with a much larger population. Probably more importantly, however, there is just a greater demand for various material goods.
These reports could be exaggerated. I'm not sure how these reports are compared to modern hunter-gatherer societies, such as those in the Amazons, but such comparisons may not be realistic to other regions, since that is an extremely tough region. I would expect other hunter-gatherer societies to have more leisure than Amazonian tribes.
The book attributes the difference to usury, which seems dubious, although it is perhaps true that our current banking system puts greater emphasis on infrastructure and investment, which requires that we forego present consumption to a greater degree.
I haven't checked their sources, although I plan to at some point. But I know the same point is also made in reference to Paleolithic societies, see the reference to Sahlins in this part of the Wikipedia hunter-gatherer article.
There's a couple reasons why we might work so much more in modern society. One, there are dwindling natural resources combined with a much larger population. Probably more importantly, however, there is just a greater demand for various material goods.
These reports could be exaggerated. I'm not sure how these reports are compared to modern hunter-gatherer societies, such as those in the Amazons, but such comparisons may not be realistic to other regions, since that is an extremely tough region. I would expect other hunter-gatherer societies to have more leisure than Amazonian tribes.
The book attributes the difference to usury, which seems dubious, although it is perhaps true that our current banking system puts greater emphasis on infrastructure and investment, which requires that we forego present consumption to a greater degree.
Tuesday, September 23, 2008
A Proposed Solution to the Housing Crisis
Part of what I seek to do here is to raise things that aren't being heard enough. As Krugman notes, the current bailout plan looks to be throwing money at some US banks without compensating US taxpayers for the risk they're taking.
What's worse is that this fix might not even fix the problem, because it is not only the subprime loans which are the problem -- it is all sorts of loans. Jason Lindt makes this case, and although I can't vouch for his numbers, he makes it convincingly. He says we should go straight to the problem: banks' insolvent balance sheets. While the current bailout plan looks like a sneaky way to throw money at banks, a good plan should specifically offer capital to these banks by purchasing their preferred stock. This gives them some Tier 1 capital as a cushion, and it also makes them pay us dividends in the future.
I still have questions about this. Sometimes the dividends on preferred stock don't get paid, but then they stack up cumulatively. The Tier 1 capital page says these types of preferred stock don't usually apply to Tier 1 capital. We might need a strange kind of which is more geared towards the long-term, and also gives us voting power in these companies. We need to put these banks on long-term payment plans, because it is going to be a while before they'll be able to pay us back for the mess they've caused.
Incidentally, as to the cause of this, Anton Wahlman notes something I haven't heard before: the effect of the Taxpayer Relief Act of 1997, which exempted profits on personal residents from taxation. That law likely contributed more than the Community Reinvestment Act bullshit, which has been refuted.
What's worse is that this fix might not even fix the problem, because it is not only the subprime loans which are the problem -- it is all sorts of loans. Jason Lindt makes this case, and although I can't vouch for his numbers, he makes it convincingly. He says we should go straight to the problem: banks' insolvent balance sheets. While the current bailout plan looks like a sneaky way to throw money at banks, a good plan should specifically offer capital to these banks by purchasing their preferred stock. This gives them some Tier 1 capital as a cushion, and it also makes them pay us dividends in the future.
I still have questions about this. Sometimes the dividends on preferred stock don't get paid, but then they stack up cumulatively. The Tier 1 capital page says these types of preferred stock don't usually apply to Tier 1 capital. We might need a strange kind of which is more geared towards the long-term, and also gives us voting power in these companies. We need to put these banks on long-term payment plans, because it is going to be a while before they'll be able to pay us back for the mess they've caused.
Incidentally, as to the cause of this, Anton Wahlman notes something I haven't heard before: the effect of the Taxpayer Relief Act of 1997, which exempted profits on personal residents from taxation. That law likely contributed more than the Community Reinvestment Act bullshit, which has been refuted.
Monday, September 15, 2008
Review of Kicking Away the Ladder by Ha-Joon Chang
I was pleasantly surprised by this book, which was first assigned to me in a class. I must not have read it then, and now I'm finally working through the books I've piled up over the years. It destroyed the misconceptions which I'd finally come to accept after years of brainwashing (with no evidence).
The first claim is that mainstream economists have ignored history. The "eminent" Nobel (the fake economics one) laureate economic historian, Douglass North, wrote "the standard history of the United States" economy which mentioned tariffs once "in order to dismiss them as an insignificant factor in explaining US industrial development" (2002:24-25). This can only be regarded as intellectually dishonest. Alexander Hamilton first proposed the infant industry argument for US industry, in opposition to Adam Smith's advice that the US focus on agriculture. The US maintained average weighted tariffs of around 40-50% on manufactured goods until 1950. The illustrative table, from Paul Bairoch's book Economics and World History, is available online.[1]
The second chapter focuses on policies which countries used to get an edge in industry. Espionage, tariffs, subsidies for imported raw materials, government-subsidized plants and researchers, and other methods were used to bolster industry.
The next chapter focuses on institutions. It's much looser and weaker, but makes the tentative case that we might be pushing important institutions such as democracy, central banking, various regulations, limited liability corporations, bankruptcy law, property (including intellectual) rights, the judiciary, child labor, social welfare provisions, and information disclosure too fast on developing nations. I'm not sure I'm convinced, but it is interesting. Some of these are important, others are less so, certainly. The most important, in my mind, are stable law, transparency, information disclosure, and property rights for the masses rather than the few. The succinct and scholarly discussion of economic institutions in historical and developmental context alone makes the book worth it.
After reading the book, I'm inclined to agree that activist policies are often necessary. Friedrich List, the major theorist of the infant industry argument, argued that free trade was really only beneficial among equally industrialized countries, and I'm inclined to agree. A country needs to build up its basic industrial institutions. However, tariffs are probably not the way to go today. Export-oriented policies used by the Asian Tigers are preferable. The issue is complex, however, as all the countries are chasing after a limited supply. Economists seem skeptical of the race to the bottom in international trade (in things like environmental standards), but I don't really understand why.
The first claim is that mainstream economists have ignored history. The "eminent" Nobel (the fake economics one) laureate economic historian, Douglass North, wrote "the standard history of the United States" economy which mentioned tariffs once "in order to dismiss them as an insignificant factor in explaining US industrial development" (2002:24-25). This can only be regarded as intellectually dishonest. Alexander Hamilton first proposed the infant industry argument for US industry, in opposition to Adam Smith's advice that the US focus on agriculture. The US maintained average weighted tariffs of around 40-50% on manufactured goods until 1950. The illustrative table, from Paul Bairoch's book Economics and World History, is available online.[1]
The second chapter focuses on policies which countries used to get an edge in industry. Espionage, tariffs, subsidies for imported raw materials, government-subsidized plants and researchers, and other methods were used to bolster industry.
The next chapter focuses on institutions. It's much looser and weaker, but makes the tentative case that we might be pushing important institutions such as democracy, central banking, various regulations, limited liability corporations, bankruptcy law, property (including intellectual) rights, the judiciary, child labor, social welfare provisions, and information disclosure too fast on developing nations. I'm not sure I'm convinced, but it is interesting. Some of these are important, others are less so, certainly. The most important, in my mind, are stable law, transparency, information disclosure, and property rights for the masses rather than the few. The succinct and scholarly discussion of economic institutions in historical and developmental context alone makes the book worth it.
After reading the book, I'm inclined to agree that activist policies are often necessary. Friedrich List, the major theorist of the infant industry argument, argued that free trade was really only beneficial among equally industrialized countries, and I'm inclined to agree. A country needs to build up its basic industrial institutions. However, tariffs are probably not the way to go today. Export-oriented policies used by the Asian Tigers are preferable. The issue is complex, however, as all the countries are chasing after a limited supply. Economists seem skeptical of the race to the bottom in international trade (in things like environmental standards), but I don't really understand why.
Tuesday, September 09, 2008
Should we be trying to support advertising?
There's a bit of a problem with "new media". People aren't willing to pay for it. We may have micropayments on the way, but for now the support is largely advertising. But advertising may not be as lucrative as people think. As web-consumers become smarter and internet search (as well as other internet navigation) becomes more effective, click-through rates plummet to nothing.
The bigger problem will come when companies realize that much of advertising is a waste of money. A recent study found by comparing US and Canadian drug use (where drug advertising illegal) that drug advertising was short-lived and "modest".[1] Media producers, particularly independent ones, will find it more difficult to spend time doing what they're doing.
When I find a good blog, I purposefully click on Google ads to show a little support.
The bigger problem will come when companies realize that much of advertising is a waste of money. A recent study found by comparing US and Canadian drug use (where drug advertising illegal) that drug advertising was short-lived and "modest".[1] Media producers, particularly independent ones, will find it more difficult to spend time doing what they're doing.
When I find a good blog, I purposefully click on Google ads to show a little support.
Sunday, September 07, 2008
Capitalism and Freedom Review
After reading Capitalism and Freedom carefully, my opinion of Milton Friedman has been revised upward. I was assigned this book for class, but I never gave it a thoughtful, careful read till now. The book that I had read carefully from Milton, Free To Choose, left me thinking he was not a great thinker. My recollections were that Free To Choose was surprisingly lacking in nuance. That is probably because it was targeted for a mass audience, but its simplicity still seems like a negative mark for Milton Friedman.
Capitalism and Freedom has very few numbers, and no models, but it is well-argued nonetheless. It is full of rhetoric, but it is the kind of rhetoric that makes sense -- the kind which characterizes government controlling the individual as a violation of human rights. Friedman argues against the central control which was prominent at the time, but is no longer taken seriously. He does not so much engage the other type of socialism -- welfare capitalism, except to perhaps endorse it in his last sections on the distribution of income and social welfare measures.
In Friedman's second chapter, he notes the appropriate functions of government (p. 34) -- functions which I completely agree with, but which neocons, and liberals, tend to forget about. These include setting and enforcing the rules of the "economic game", promoting competition, countering monopolies, overcoming neighborhood effects (also called externalities), and even supplementing charity and the family in protecting the irresponsible. He identifies a number of policies as unequivocally wrong. Generally I don't agree that these are always wrong, but it is hard to see why agriculture price supports would be necessary. Others, such as tariffs, parks, and detailed regulation of banking would seem to have a place dependent upon the situation.
Chapter 3, on money, is probably one of the most important chapters. Friedman opposes the current Federal Reserve system, believing it is too liable to human error, and instead proposes (citing his A Program for Monetary Stability) a consistent rate of growth in the money supply of 3 to 5 percent.
Chapter 4, International Financial and Trade Arrangements, is also enormously important, and unfortunately awfully complex -- more so than money. Friedman endorses the floating exchange rate which Soros finds so troubling -- and the floating rate might be the best of bad options. Unfortunately, it leads to a fair amount of uncertainty, speculation, and sudden catastrophes as currencies change. If only there was a perfect system.
In chapter 5, Friedman critiques the Keynesian use of fiscal policy to alleviate unemployment. He argues that it relies upon untenable assumptions, because the money which the government spends must be borrowed from the public, which will drive up interest rates, and thus reduce the amount of spending and investment. He admits that it is ultimately an empirical question, but says that his recent work (The Relative Stability of the Investment Multiplier and Monetary Velocity in the United States, 1896-1958) suggests that there is no rise in expenditures, as his "quantity theory" suggests.
In Chapter 6, Friedman lays out the case for vouchers in education. I won't spend much time here -- I agree that vouchers are a good thing if strict standards are maintained, but Friedman endorses questionable standards, such as allowing segregated schools. Chapter 7 is on discrimination, a complicated political subject I'd rather not get into.
Chapter 8 is on monopoly. Friedman admits that all the ways of dealing with monopoly are bad, but tentatively concludes that leaving monopolies private may be best, mainly because innovation happens so quickly, and the government is so reluctant to let loose of its hold. I'm not sure I agree, but it is a decent point. He also makes the case here that a corporation should not be socially responsible, and that government needs to be the one holding people responsible. This sort of reminds me of how I used to play MUDs -- exploit the code, and argue that I shouldn't have to maintain reasonable behavior if it is not programmed into the game. It was probably a bad attitude, and a corporation should similarly not follow the letter of the law -- if it does, it will hopefully find itself in trouble, as I did. This argument from Friedman might be taken as an implicit argument that the government must be especially vigilant and free to take action.
He notes an interesting unintended consequence of our current system. Dividends are taxed double, which leads corporations to hold dividends and then invest them in their business, whether it is prudent or not. I fully agree with him here, and wish corporations disbursed more dividends. He wants to abolish the corporate income tax and instead force shareholders to record their profits from the company on their taxes -- meaning that they'd have to pay taxes on them, I'm guessing?
In Chapter 9, Friedman makes the case that the American Medical Association is a lobbying group bent on keeping competitors out. It's amusing. He defends "faith healers" by noting that one of thousands of quacks may produce a valuable breakthrough through their unorthodox experimentation. Those of you who know my Wikipedia efforts will know that I am sympathetic to alternative medicine, and I like this defense -- although I truly dislike things like therapeutic touch and homeopathy. Friedman argues that restricting medicine only to the highly-skilled reduces the total "physician-hours", and reduces total amount of care, thereby reducing the quality. Friedman tentatively notes that government certification may be necessary because certification information is nonexcludable -- one person can pass it on to others.
In Chapter 10, on the distribution of income, Friedman gets again into the tough ethical issues. He admits that the issue is difficult. Somehow he tries to run inequality from personal endowments together with inequality from inherited wealth, because the latter leads to personal endowments. To an extent, this is true, but he emphasizes it too much. He also makes a somewhat bizarre argument that if there were 4 Robinson Crusoes marooned on four islands, and one landed on a fruitful island, that Crusoe would not be required to share his wealth, and the 3 others, who were barely scratching by, would not be morally justified in taking it. He says this is analagous to someone finding $20 on the street, and then 3 people deciding to mug you for not sharing it. Does his analogy make sense? I dunno. I don't get ethical issues, generally, but I think 1) we should encourage a meritocracy, 2) we cannot allow people to starve or live with debilitating illness. Which brings up to the next chapter.
In Chapter 11, Friedman discusses Social Security and other social welfare provisions. He criticizes the idea behind social security -- that people cannot save for themselves -- however, I tend to think that people cannot. He notes this possibility as well, but thinks there are better ways of ensuring that people secure their retirements, so that the government is not left supporting them in their old age. He argues that most people would save for their unemployment, and that social security arose only because many people were unprepared for the Great Depression.
In Chapter 12, Friedman endorses a negative income tax, noting that such a system would target poverty much more specifically than minimum wage laws.
In 13, he sums up his arguments. Nothing too interesting here, and I'm losing steam.
Capitalism and Freedom has very few numbers, and no models, but it is well-argued nonetheless. It is full of rhetoric, but it is the kind of rhetoric that makes sense -- the kind which characterizes government controlling the individual as a violation of human rights. Friedman argues against the central control which was prominent at the time, but is no longer taken seriously. He does not so much engage the other type of socialism -- welfare capitalism, except to perhaps endorse it in his last sections on the distribution of income and social welfare measures.
In Friedman's second chapter, he notes the appropriate functions of government (p. 34) -- functions which I completely agree with, but which neocons, and liberals, tend to forget about. These include setting and enforcing the rules of the "economic game", promoting competition, countering monopolies, overcoming neighborhood effects (also called externalities), and even supplementing charity and the family in protecting the irresponsible. He identifies a number of policies as unequivocally wrong. Generally I don't agree that these are always wrong, but it is hard to see why agriculture price supports would be necessary. Others, such as tariffs, parks, and detailed regulation of banking would seem to have a place dependent upon the situation.
Chapter 3, on money, is probably one of the most important chapters. Friedman opposes the current Federal Reserve system, believing it is too liable to human error, and instead proposes (citing his A Program for Monetary Stability) a consistent rate of growth in the money supply of 3 to 5 percent.
Chapter 4, International Financial and Trade Arrangements, is also enormously important, and unfortunately awfully complex -- more so than money. Friedman endorses the floating exchange rate which Soros finds so troubling -- and the floating rate might be the best of bad options. Unfortunately, it leads to a fair amount of uncertainty, speculation, and sudden catastrophes as currencies change. If only there was a perfect system.
In chapter 5, Friedman critiques the Keynesian use of fiscal policy to alleviate unemployment. He argues that it relies upon untenable assumptions, because the money which the government spends must be borrowed from the public, which will drive up interest rates, and thus reduce the amount of spending and investment. He admits that it is ultimately an empirical question, but says that his recent work (The Relative Stability of the Investment Multiplier and Monetary Velocity in the United States, 1896-1958) suggests that there is no rise in expenditures, as his "quantity theory" suggests.
In Chapter 6, Friedman lays out the case for vouchers in education. I won't spend much time here -- I agree that vouchers are a good thing if strict standards are maintained, but Friedman endorses questionable standards, such as allowing segregated schools. Chapter 7 is on discrimination, a complicated political subject I'd rather not get into.
Chapter 8 is on monopoly. Friedman admits that all the ways of dealing with monopoly are bad, but tentatively concludes that leaving monopolies private may be best, mainly because innovation happens so quickly, and the government is so reluctant to let loose of its hold. I'm not sure I agree, but it is a decent point. He also makes the case here that a corporation should not be socially responsible, and that government needs to be the one holding people responsible. This sort of reminds me of how I used to play MUDs -- exploit the code, and argue that I shouldn't have to maintain reasonable behavior if it is not programmed into the game. It was probably a bad attitude, and a corporation should similarly not follow the letter of the law -- if it does, it will hopefully find itself in trouble, as I did. This argument from Friedman might be taken as an implicit argument that the government must be especially vigilant and free to take action.
He notes an interesting unintended consequence of our current system. Dividends are taxed double, which leads corporations to hold dividends and then invest them in their business, whether it is prudent or not. I fully agree with him here, and wish corporations disbursed more dividends. He wants to abolish the corporate income tax and instead force shareholders to record their profits from the company on their taxes -- meaning that they'd have to pay taxes on them, I'm guessing?
In Chapter 9, Friedman makes the case that the American Medical Association is a lobbying group bent on keeping competitors out. It's amusing. He defends "faith healers" by noting that one of thousands of quacks may produce a valuable breakthrough through their unorthodox experimentation. Those of you who know my Wikipedia efforts will know that I am sympathetic to alternative medicine, and I like this defense -- although I truly dislike things like therapeutic touch and homeopathy. Friedman argues that restricting medicine only to the highly-skilled reduces the total "physician-hours", and reduces total amount of care, thereby reducing the quality. Friedman tentatively notes that government certification may be necessary because certification information is nonexcludable -- one person can pass it on to others.
In Chapter 10, on the distribution of income, Friedman gets again into the tough ethical issues. He admits that the issue is difficult. Somehow he tries to run inequality from personal endowments together with inequality from inherited wealth, because the latter leads to personal endowments. To an extent, this is true, but he emphasizes it too much. He also makes a somewhat bizarre argument that if there were 4 Robinson Crusoes marooned on four islands, and one landed on a fruitful island, that Crusoe would not be required to share his wealth, and the 3 others, who were barely scratching by, would not be morally justified in taking it. He says this is analagous to someone finding $20 on the street, and then 3 people deciding to mug you for not sharing it. Does his analogy make sense? I dunno. I don't get ethical issues, generally, but I think 1) we should encourage a meritocracy, 2) we cannot allow people to starve or live with debilitating illness. Which brings up to the next chapter.
In Chapter 11, Friedman discusses Social Security and other social welfare provisions. He criticizes the idea behind social security -- that people cannot save for themselves -- however, I tend to think that people cannot. He notes this possibility as well, but thinks there are better ways of ensuring that people secure their retirements, so that the government is not left supporting them in their old age. He argues that most people would save for their unemployment, and that social security arose only because many people were unprepared for the Great Depression.
In Chapter 12, Friedman endorses a negative income tax, noting that such a system would target poverty much more specifically than minimum wage laws.
In 13, he sums up his arguments. Nothing too interesting here, and I'm losing steam.
Tuesday, April 29, 2008
Decent Review of the Skeptical Environmental
I've been looking for a nice, concise little review of the notorious book for a while. It's by Frank Ackerman; type hit ctrl-f and then type "Tree-Huggers" and you'll find it.
Thursday, March 27, 2008
Listen To a Ph.D Economist Confuse The Discount and Fed Funds Rate
Somewhat shocking, but typical of an academic: listen to Russ Roberts interview Tyler Cowen.
Some other interesting comments: How much of the current credit crunch is due to lack of transparency? And why have mortgage-backed securities stopped trading, rather than trading at a value with the expected number of defaults worked in? These two seemed to assume that mortgage-backed securities aren't trading at that expected value!
Roberts: "I'm not so sure how much of this trouble is due to a lack of transparency. It seems unlikely..."
Wow.
Some other interesting comments: How much of the current credit crunch is due to lack of transparency? And why have mortgage-backed securities stopped trading, rather than trading at a value with the expected number of defaults worked in? These two seemed to assume that mortgage-backed securities aren't trading at that expected value!
Roberts: "I'm not so sure how much of this trouble is due to a lack of transparency. It seems unlikely..."
Wow.
Thursday, March 20, 2008
Economics Might Be Changing
My previous post reflects a perspective based on a set of information. My information set is rather limited. While economists would like to gloss over the information limitations because they are mathematically annoying, these information problems are the greatest problems which people face when making economic decisions.
Economics is changing. Some of the George Mason economics, at least, are skeptical of the claims that your average mainstream economist will try to make. This probably reflects a growing awareness among the all economists that, say, applying the Coase theorem willy-nilly doesn't really make any sense. While I don't respect the politics of the GMU economists or the way that these political biases manifest themselves in their work, I will admit that they're probably on a better track than many of the prestigious mainstream economists, and some of their offhand blog posts are probably much more insightful and informative than many of the journal articles written today.
Check out "Evolutionary and Institutional Economics as the New Mainstream" by Hodgson, which I found on the Pluralist Economics Review. So far it's an excellent journal. The article is well-worth reading.
Mainstream economics:
As I continually try to point out, the real world is a world of "reasonably bright individuals [maybe that's a little far] in information-poor environments" [with a surplus of distracting noise] rather than "infinitely bright agents in information rich environments" (Hodgson 2007:11).
Economics is changing. Some of the George Mason economics, at least, are skeptical of the claims that your average mainstream economist will try to make. This probably reflects a growing awareness among the all economists that, say, applying the Coase theorem willy-nilly doesn't really make any sense. While I don't respect the politics of the GMU economists or the way that these political biases manifest themselves in their work, I will admit that they're probably on a better track than many of the prestigious mainstream economists, and some of their offhand blog posts are probably much more insightful and informative than many of the journal articles written today.
Check out "Evolutionary and Institutional Economics as the New Mainstream" by Hodgson, which I found on the Pluralist Economics Review. So far it's an excellent journal. The article is well-worth reading.
Mainstream economics:
- Assumes a can-opener. This is not just a cliched joke.
- Looks at the individuals as homogenous rational agents rather instutionally-influenced.
- Has "a preoccupation with technique over substance" (p.18, Blaug).
- Basically ignores the other social sciences.
- Must change in order to make progress.
As I continually try to point out, the real world is a world of "reasonably bright individuals [maybe that's a little far] in information-poor environments" [with a surplus of distracting noise] rather than "infinitely bright agents in information rich environments" (Hodgson 2007:11).
Sunday, March 16, 2008
Do corporations oppose free trade?
Apparently Dr. Don Bourdreaux of Cafe Hayek noticed my comment that he, along with his colleagues, seems like a "shill for industry". His reply is that, if he was a shill for industry, he would fit a large number of conditions. The fallacy here seems to be that all shills for industry must fit all, or least some of these conditions -- it's a form of straw man argument, or perhaps a red herring. If all shills had to fit all those conditions, the word would be useless.
What does shill actually mean? Merriam-Webster defines shill as "a: one who acts as a decoy (as for a pitchman or gambler) b: one who makes a sales pitch or serves as a promoter". Wiktionary defines shill as "a person paid to endorse a product favourably, while pretending to be impartial".
Does Bourdreaux "serve as a promoter" of industry? Certainly. Do I think he's been paid egregiously to do it, as some other scholars of the Cato Institute have? Not really. Can he still be a shill? As I elaborated in my comments, shill may not be the exact word. Rather, they are apologists for the status quo. They don't think there's something wrong with the way we are treating our environment, and believe that the free market (composed of industry) will fix all problems if only it was completely unshackled.
The GMU economists seem to ignore the significant incentives that corporations have to look for short-term profit rather than the long-term, ,and the worrying concentration of power in a few firms, who exert that power both in the market and in politics. Similarly, they don't seem to mind the increasing concentration of wealth. They've expressed doubts on global warming, an area which they are not experts in. Scientists are as certain on global warming as economists are on free trade (which means that it depends on who you talk to) (do any believe in global warming? I'd like to know). They seem bothered that people ignore economists when it comes to free trade, but don't recognize the irony in their global warming skepticism. Further, and most damning in my mind, they never seem to say a peep about the information asymmetries which dominate economic decisions.
Does your typical corporation oppose free trade? Doubtful. If industry didn't benefit from free trade, it's unlikely that it would happen. Economists don't have that much power. Efficient multinational corporations benefit enormously from free trade -- it's the inefficient corporations which oppose free trade, such as the old steel industry (which is quickly being supplanted by mini-mills). Especially in today's globalized world, businesses benefit from free trade -- they can hire cheap labor and export to new emerging markets. It's likely that most businesses realize that it's the 21st century, and there's no going back from globalization (or at least, that's how it appears). Tariffs mean paying more for inputs and closed foreign markets. A glance at The Economist's CEO Briefing 2007 shows that CEOs are (or at least were) extremely bullshit about the global economy and trade, and, while worried about international competition, your average business is not really exerting a lot of political pressure to stop it. This Fortune 500 survey of 1987 found that a third of CEOs declared, without prompting, that they were free traders, and that CEOs want government to promote free trade -- and by that, they mean bipartisan free trade. I wonder what the number would be now.
Ironically, I like quite a few of the posts at Cafe Hayek -- for example, this one (though I think we can get some idea on the effect of NAFTA). But attributing most of our problems to regulation is just ridiculous. Yes, there is far too much government going on, but most of that government is spurred by industry -- the military-industrial complex which elected George W. Bush will continue to funnel most of our tax dollars to corporations. The recent financial crisis is not caused by government. Can we blame the government for our environmental crisis?
What has government done right in the past hundred years? Hmm: Internet, national road network, Clean Air Act, and the SEC., to name a few I'd agree that the government has done quite a few things wrong, but these were more a function of bad leaders than some intrinsic nature of government. It's not so simple as "industry good, government bad".
What does shill actually mean? Merriam-Webster defines shill as "a: one who acts as a decoy (as for a pitchman or gambler) b: one who makes a sales pitch or serves as a promoter". Wiktionary defines shill as "a person paid to endorse a product favourably, while pretending to be impartial".
Does Bourdreaux "serve as a promoter" of industry? Certainly. Do I think he's been paid egregiously to do it, as some other scholars of the Cato Institute have? Not really. Can he still be a shill? As I elaborated in my comments, shill may not be the exact word. Rather, they are apologists for the status quo. They don't think there's something wrong with the way we are treating our environment, and believe that the free market (composed of industry) will fix all problems if only it was completely unshackled.
The GMU economists seem to ignore the significant incentives that corporations have to look for short-term profit rather than the long-term, ,and the worrying concentration of power in a few firms, who exert that power both in the market and in politics. Similarly, they don't seem to mind the increasing concentration of wealth. They've expressed doubts on global warming, an area which they are not experts in. Scientists are as certain on global warming as economists are on free trade (which means that it depends on who you talk to) (do any believe in global warming? I'd like to know). They seem bothered that people ignore economists when it comes to free trade, but don't recognize the irony in their global warming skepticism. Further, and most damning in my mind, they never seem to say a peep about the information asymmetries which dominate economic decisions.
Does your typical corporation oppose free trade? Doubtful. If industry didn't benefit from free trade, it's unlikely that it would happen. Economists don't have that much power. Efficient multinational corporations benefit enormously from free trade -- it's the inefficient corporations which oppose free trade, such as the old steel industry (which is quickly being supplanted by mini-mills). Especially in today's globalized world, businesses benefit from free trade -- they can hire cheap labor and export to new emerging markets. It's likely that most businesses realize that it's the 21st century, and there's no going back from globalization (or at least, that's how it appears). Tariffs mean paying more for inputs and closed foreign markets. A glance at The Economist's CEO Briefing 2007 shows that CEOs are (or at least were) extremely bullshit about the global economy and trade, and, while worried about international competition, your average business is not really exerting a lot of political pressure to stop it. This Fortune 500 survey of 1987 found that a third of CEOs declared, without prompting, that they were free traders, and that CEOs want government to promote free trade -- and by that, they mean bipartisan free trade. I wonder what the number would be now.
Ironically, I like quite a few of the posts at Cafe Hayek -- for example, this one (though I think we can get some idea on the effect of NAFTA). But attributing most of our problems to regulation is just ridiculous. Yes, there is far too much government going on, but most of that government is spurred by industry -- the military-industrial complex which elected George W. Bush will continue to funnel most of our tax dollars to corporations. The recent financial crisis is not caused by government. Can we blame the government for our environmental crisis?
What has government done right in the past hundred years? Hmm: Internet, national road network, Clean Air Act, and the SEC., to name a few I'd agree that the government has done quite a few things wrong, but these were more a function of bad leaders than some intrinsic nature of government. It's not so simple as "industry good, government bad".
Friday, March 07, 2008
Has Economics Changed?
During a class not too long ago I was asked to state my favorite academic. Because I'd read his work not long before, and CEO pay is so out of control, I mentioned Lucian Bebchuck.
I'm also a major fan of David Colander. Pick any one of his diverse set of articles and you'll likely find something thought-provoking. In some ways, however, he seems to be almost like a sociologist or philosopher studying economics. Right now I'm reading The Changing Face of Mainstream Economics, in which he argues that mainstream economics has changed, and that today it is held together by its "modeling approach to economic problems" (p. 2). He believes that it is undergoing a paradigm shift.
Perhaps that's true. He should certainly know better than myself. But most of the papers that I read reflect the same old economics, and most economists do not seem so interested in difficult-to-quantify concepts such as information asymmetries and externalities. It seems as if most economists would rather run simple regressions or input-output analyses. However, Colander believes that minute "stealth changes" (p. 4) are happening, unbeknownst to the agents of change themselves.
If we were to judge by the internet, then the most influential economists in the world are the George Mason economists of Marginal Revolution, Cafe Hayek, and Econlog. These guys seem to be everywhere. I don't like them much -- they seem to be shills for industry, and just plain lazy. (Consider Kling's offhand comment that dogs impose more of a burden on the environment than SUVs, without any research.) They aren't exactly mainstream, either, but their views are fairly stereotypical.
What am I trying to say? I'm not happy with mainstream economists, but I'm fairly happy with economics theory. Information asymmetries, externalities, marginal analysis -- these are helpful for looking at the world. I'm just disappointed that so few economists seem to use these in the way they should: advocating greater transparency, taxes on pollution, subsidies for external benefits, and things like a national, federally-funded Health Savings Account plan. Further, the defense of things like CEO pay by way of pointing out its correlation with market capitalization strikes me as incredibly naive -- as if there was a dearth of "good chief executives".
But perhaps the blame should not be placed on economists in particular, but rather on humans in general. After all, how could people be so stupid as to think that only people who have previously worked as a CEO are good candidates, and worth hundreds of millions of dollars? And have they learned their lessons now, as these high-flying executives run corporate America into the ground?
Is it so hard to understand why executives who have no long-term stake in their companies might do a poor job? Corporate executives should be paid their bonuses in restricted stock grants -- and restricted for the long-term. By long-term I do not mean a year. I mean five years. In the meantime, let them live on a reasonable salary.
EDIT: Here is my response to Professor Bourdreaux.
I'm also a major fan of David Colander. Pick any one of his diverse set of articles and you'll likely find something thought-provoking. In some ways, however, he seems to be almost like a sociologist or philosopher studying economics. Right now I'm reading The Changing Face of Mainstream Economics, in which he argues that mainstream economics has changed, and that today it is held together by its "modeling approach to economic problems" (p. 2). He believes that it is undergoing a paradigm shift.
Perhaps that's true. He should certainly know better than myself. But most of the papers that I read reflect the same old economics, and most economists do not seem so interested in difficult-to-quantify concepts such as information asymmetries and externalities. It seems as if most economists would rather run simple regressions or input-output analyses. However, Colander believes that minute "stealth changes" (p. 4) are happening, unbeknownst to the agents of change themselves.
If we were to judge by the internet, then the most influential economists in the world are the George Mason economists of Marginal Revolution, Cafe Hayek, and Econlog. These guys seem to be everywhere. I don't like them much -- they seem to be shills for industry, and just plain lazy. (Consider Kling's offhand comment that dogs impose more of a burden on the environment than SUVs, without any research.) They aren't exactly mainstream, either, but their views are fairly stereotypical.
What am I trying to say? I'm not happy with mainstream economists, but I'm fairly happy with economics theory. Information asymmetries, externalities, marginal analysis -- these are helpful for looking at the world. I'm just disappointed that so few economists seem to use these in the way they should: advocating greater transparency, taxes on pollution, subsidies for external benefits, and things like a national, federally-funded Health Savings Account plan. Further, the defense of things like CEO pay by way of pointing out its correlation with market capitalization strikes me as incredibly naive -- as if there was a dearth of "good chief executives".
But perhaps the blame should not be placed on economists in particular, but rather on humans in general. After all, how could people be so stupid as to think that only people who have previously worked as a CEO are good candidates, and worth hundreds of millions of dollars? And have they learned their lessons now, as these high-flying executives run corporate America into the ground?
Is it so hard to understand why executives who have no long-term stake in their companies might do a poor job? Corporate executives should be paid their bonuses in restricted stock grants -- and restricted for the long-term. By long-term I do not mean a year. I mean five years. In the meantime, let them live on a reasonable salary.
EDIT: Here is my response to Professor Bourdreaux.
Saturday, December 08, 2007
Traveler's Dilemma
The Traveler's Dilemma, unless I'm missing something, is another example of Ivory Tower logic gone too far in the wrong direction.
UPDATE: Really, the Traveler's Dilemma could be viewed as a good critique of Nash equilibrium, and for that it works well.
UPDATE: Really, the Traveler's Dilemma could be viewed as a good critique of Nash equilibrium, and for that it works well.
Sunday, August 19, 2007
Speculative Bubbles
In a world where many academic (Chicago School) economists believe that markets are "perfectly efficient", (makes you wonder what high-level mathematics does to one's brain), there was at least one voice of "rationality" -- "an obscure economist"...
Saturday, August 04, 2007
The End of the Chinese Miracle?
Good article on the problems facing China as it continues to push for double-digit GDP growth. Environmental costs are not factored into the GDP, just like the external cost which businesses impose upon society is not factored into their costs of producing. While Jagdish Bhagwati would like you to believe that environmental damage is negligible and overblown, the exact opposite is likely more true.
The good news is that concern for the environment rises with GDP per capita - as people have more material wealth, they begin to value their health and environmental beauty, which is relatively scarce, more. Thus, you're seeing a lot more environmental concern in China right now. The Chinese government, paradoxically, seems perhaps more economically aware than the US government, and they are working to slow down environmental damage. With their power they can do a lot. One might think that with China's authoritarian regime, it could stop environmental damage faster than the US -- but that's probably not true. The best policy will always be subsidies for clean energy and energy conservation and taxes on pollution.
For those looking to cash in on the possible clean-energy boom, the solar stocks are definitely worth watching: JASO (a favorite of mine), FSLR, SPWR, STP, and even little DLSL, which does solar water heaters -- possibly the most cost-efficient solar if subsidies are eliminated. These stocks are down on speculation that Germany, the main purchaser of solar power, will cut subsidies. Right now it's risky to hold them, as any day Germany could cut subsidies and you'd see a severe drop in them...that could be buying time. I expect JASO and others to jump on earnings, although it's hard to say.
PUDC washes coking coal and FTEK provides a fuel additive which reduces nitrous oxide pollution (N2Ox) among other things.
Disclosure: Long JASO for a trade.
The good news is that concern for the environment rises with GDP per capita - as people have more material wealth, they begin to value their health and environmental beauty, which is relatively scarce, more. Thus, you're seeing a lot more environmental concern in China right now. The Chinese government, paradoxically, seems perhaps more economically aware than the US government, and they are working to slow down environmental damage. With their power they can do a lot. One might think that with China's authoritarian regime, it could stop environmental damage faster than the US -- but that's probably not true. The best policy will always be subsidies for clean energy and energy conservation and taxes on pollution.
For those looking to cash in on the possible clean-energy boom, the solar stocks are definitely worth watching: JASO (a favorite of mine), FSLR, SPWR, STP, and even little DLSL, which does solar water heaters -- possibly the most cost-efficient solar if subsidies are eliminated. These stocks are down on speculation that Germany, the main purchaser of solar power, will cut subsidies. Right now it's risky to hold them, as any day Germany could cut subsidies and you'd see a severe drop in them...that could be buying time. I expect JASO and others to jump on earnings, although it's hard to say.
PUDC washes coking coal and FTEK provides a fuel additive which reduces nitrous oxide pollution (N2Ox) among other things.
Disclosure: Long JASO for a trade.
Thursday, July 19, 2007
Anecdotes from Moore's Sicko
I just saw these on Wikipedia's entry. For those too lazy to check the link:
1. Rick, who accidentally sawed off the tops of his middle and ring fingers on one hand while working at home. He had no insurance and limited funds at his disposal, so he was asked by the hospital to choose whether to have the end of his middle finger reattached for $60,000 or the end of his ring finger for $12,000. He chose the ring finger.[6]
2. Doug Noe. Noe's insurance provider, Cigna Healthcare, approved a cochlear ear implant for only the left ear of Noe's toddler daughter, Annette, who was born with an acute hearing disability. Cigna argued that a two-ear operation was "experimental." After Noe alerted Cigna that Moore was making a movie about the US Healthcare system, and that Noe's case would be featured in it, Noe was contacted by Cigna, and they agreed to approve the second implant.[7] This occurred before Moore had actually heard of Noe's case, so Noe acted independently of Moore.
Cigna, incidentally, is a publicly traded company (NYSE:CI). Stock is up nearly 60% for the year.
3. A woman gets stuck with the ambulance bill after a car accident because she didn't clear the charge with her insurer before requesting the ambulance; the accident had immediately rendered her unconscious and unable to request approval.[6]
4. Tracy Pierce died from kidney cancer after his insurer denied numerous treatments recommended by his doctor, including a possibly life-saving bone-marrow transplant.[6]
5. One woman's insurance provider denied coverage after an operation, because she didn't mention a minor, previous yeast infection on her application; they retroactively cancelled her coverage on that basis. [6]
6. Accounts of four fully-insured American women being denied crucial specialist referrals, diagnostic and therapeutic procedures. Two of the women died of cancer as a result, and one eventually sued her HMO after the diagnosis of her brain tumour in Japan (her American HMO told her the tumour doesn't exist). A footage of the director of her HMO testifying is shown.
7. Homeless dumping. Homeless patients, still in hospital gowns and some with IV tubes in their arms, were abandoned at homeless shelters by Los Angeles hospitals after they had received incomplete medical treatment.[8][9] Mike Huffman is seen in the film describing the dumping of a woman at the Union Rescue Mission in Los Angeles' Skid Row.
So, for those naive optimists who think that bad things don't happen, especially in America -- there you go. You're full of shit, as usual. It's like the attack on conspiracy theorists: "people are too good for that" or "it's too hard to keep secrets". Yeah, right. Your average American doesn't know the difference between Sunnis and Shiites and thinks microwaves cause cancer. Morons have no sense for what is plausible and what isn't.
1. Rick, who accidentally sawed off the tops of his middle and ring fingers on one hand while working at home. He had no insurance and limited funds at his disposal, so he was asked by the hospital to choose whether to have the end of his middle finger reattached for $60,000 or the end of his ring finger for $12,000. He chose the ring finger.[6]
2. Doug Noe. Noe's insurance provider, Cigna Healthcare, approved a cochlear ear implant for only the left ear of Noe's toddler daughter, Annette, who was born with an acute hearing disability. Cigna argued that a two-ear operation was "experimental." After Noe alerted Cigna that Moore was making a movie about the US Healthcare system, and that Noe's case would be featured in it, Noe was contacted by Cigna, and they agreed to approve the second implant.[7] This occurred before Moore had actually heard of Noe's case, so Noe acted independently of Moore.
Cigna, incidentally, is a publicly traded company (NYSE:CI). Stock is up nearly 60% for the year.
3. A woman gets stuck with the ambulance bill after a car accident because she didn't clear the charge with her insurer before requesting the ambulance; the accident had immediately rendered her unconscious and unable to request approval.[6]
4. Tracy Pierce died from kidney cancer after his insurer denied numerous treatments recommended by his doctor, including a possibly life-saving bone-marrow transplant.[6]
5. One woman's insurance provider denied coverage after an operation, because she didn't mention a minor, previous yeast infection on her application; they retroactively cancelled her coverage on that basis. [6]
6. Accounts of four fully-insured American women being denied crucial specialist referrals, diagnostic and therapeutic procedures. Two of the women died of cancer as a result, and one eventually sued her HMO after the diagnosis of her brain tumour in Japan (her American HMO told her the tumour doesn't exist). A footage of the director of her HMO testifying is shown.
7. Homeless dumping. Homeless patients, still in hospital gowns and some with IV tubes in their arms, were abandoned at homeless shelters by Los Angeles hospitals after they had received incomplete medical treatment.[8][9] Mike Huffman is seen in the film describing the dumping of a woman at the Union Rescue Mission in Los Angeles' Skid Row.
So, for those naive optimists who think that bad things don't happen, especially in America -- there you go. You're full of shit, as usual. It's like the attack on conspiracy theorists: "people are too good for that" or "it's too hard to keep secrets". Yeah, right. Your average American doesn't know the difference between Sunnis and Shiites and thinks microwaves cause cancer. Morons have no sense for what is plausible and what isn't.
Wednesday, July 18, 2007
UnitedHealth tries to rate doctors
When I read the summary of this article I was annoyed, but as I read it I realized that the attorney general made a very good call. UnitedHealth has a conflict of interest rating doctors.
UnitedHealth is No.21 on the Fortune 500. They stand to profit nicely if Hillary Clinton mandates that everyone receive private health insurance -- please God let's hope that doesn't happen.
UnitedHealth is No.21 on the Fortune 500. They stand to profit nicely if Hillary Clinton mandates that everyone receive private health insurance -- please God let's hope that doesn't happen.
Polling Economists
I've read a few of these, but they've been in (closed -- of course) scientific journals, so I couldn't exactly link to them for discussion. This one is pretty basic, with a very small sample size of 81.
Notice that a fairly significant portion (40-45%) is consistently liberal -- that's not uncommon among academic economists. Universal healthcare in the US receives an agreement of 44.7%, with 15.7% neutral. Most of these economists are probably thinking of the conventional single-payer system rather than a government-funded HSA system, as I've discussed here and which Adam Rawlings describeshere, because the idea of a government-funded HSA + a high-deductible health insurance and coverage for the chronically ill hasn't caught fire with too many economists yet. It also gets a bad rap because conservatives are trying to spin it as a solution without government subsidy, which probably won't work.
Things which receive Doomsday attention like the Social Security crisis among the media have a simple solution among economists: 77.2% would simply raise the retirement age.
35.7% of economists also opposed Bush's proposal to partly change Social Security into a mandated retirement account which is invested in the market. Some of that may be attributed to the wording of the statement which says that "the best way to deal with the Social Security long-term funding gap is mandatory personal accounts." There's no way that it is a solution to the funding gap. In the long-run it would be beneficial, but in the short-run it would cause a budget shortfall which would have to covered by the youth. It runs the risk of giving idiots too much freedom, I suppose, and those idiots who lost all their money would have to be covered by the government -- but it could be run like a state pension system, which allows you to invest in certain areas (smallcap, growth, value) but doesn't allow you to pick individual stocks on your own.
Anyway, check it out and check out some of the other Berkeley Electronic press articles as well -- they are fairly open access.
Notice that a fairly significant portion (40-45%) is consistently liberal -- that's not uncommon among academic economists. Universal healthcare in the US receives an agreement of 44.7%, with 15.7% neutral. Most of these economists are probably thinking of the conventional single-payer system rather than a government-funded HSA system, as I've discussed here and which Adam Rawlings describeshere, because the idea of a government-funded HSA + a high-deductible health insurance and coverage for the chronically ill hasn't caught fire with too many economists yet. It also gets a bad rap because conservatives are trying to spin it as a solution without government subsidy, which probably won't work.
Things which receive Doomsday attention like the Social Security crisis among the media have a simple solution among economists: 77.2% would simply raise the retirement age.
35.7% of economists also opposed Bush's proposal to partly change Social Security into a mandated retirement account which is invested in the market. Some of that may be attributed to the wording of the statement which says that "the best way to deal with the Social Security long-term funding gap is mandatory personal accounts." There's no way that it is a solution to the funding gap. In the long-run it would be beneficial, but in the short-run it would cause a budget shortfall which would have to covered by the youth. It runs the risk of giving idiots too much freedom, I suppose, and those idiots who lost all their money would have to be covered by the government -- but it could be run like a state pension system, which allows you to invest in certain areas (smallcap, growth, value) but doesn't allow you to pick individual stocks on your own.
Anyway, check it out and check out some of the other Berkeley Electronic press articles as well -- they are fairly open access.
Saturday, July 07, 2007
Decreasing Marginal Costs Empirically
In my last post I linked to Debunking Economics: The Naked Emperor of the Social Sciences. When I first encountered the book I hadn't taken a class on economics. I glanced through the book, noticed the models, and tossed it aside - I don't like studying models unless I have to. But now I know that I will have to check it out next time I'm at my school's library.
Anyway, the AmazonConnect author's blog is very interesting. His latest post claims that the empirical reality of the firm doesn't match up with the theory. He reports that firms face decreasing marginal costs rather than the standard "always increasing" marginal costs. That hugely invalidates theory, yet, as I commented it makes no sense. A firm producing with fixed capital assets can only produce so much before they are constrained by their limited fixed capital - thus driving the price up. When the fixed costs are increased, the marginal costs fall to a workable level again. Instead I think he may be confusing average and marginal cost. As firms increase production without increasing fixed costs they will spread the fixed costs out. Most people have heard of this: it is called economies of scale and it is a huge force at work in industries today ranging from semiconductors, cars, pharmaceuticals and even software production (wherein the fixed cost is the initial time/money spent on the program and MC is the cost of replicating the software for sale -- essentially just packaging costs). Economics of scale will sometimes produce a natural monopoly.
It wouldn't surprise me if most firms faced fairly constant marginal costs up to a threshold level (that level being the capacity of a plant or the capacity of a firm to provide services without hiring more employees). At a certain point one's employees and one's factory becomes overextended. One has to work people overtime and run the machines overtime. Ultimately marginal cost must increase if fixed costs remain fixed. Correct me if I'm wrong.
However, empirically most businesses will fluidly increase their "fixed" costs as MC begins to increase, so businesses wouldn't notice increasing marginal costs. But they certainly notice decreasing average costs.
Anyway, the AmazonConnect author's blog is very interesting. His latest post claims that the empirical reality of the firm doesn't match up with the theory. He reports that firms face decreasing marginal costs rather than the standard "always increasing" marginal costs. That hugely invalidates theory, yet, as I commented it makes no sense. A firm producing with fixed capital assets can only produce so much before they are constrained by their limited fixed capital - thus driving the price up. When the fixed costs are increased, the marginal costs fall to a workable level again. Instead I think he may be confusing average and marginal cost. As firms increase production without increasing fixed costs they will spread the fixed costs out. Most people have heard of this: it is called economies of scale and it is a huge force at work in industries today ranging from semiconductors, cars, pharmaceuticals and even software production (wherein the fixed cost is the initial time/money spent on the program and MC is the cost of replicating the software for sale -- essentially just packaging costs). Economics of scale will sometimes produce a natural monopoly.
It wouldn't surprise me if most firms faced fairly constant marginal costs up to a threshold level (that level being the capacity of a plant or the capacity of a firm to provide services without hiring more employees). At a certain point one's employees and one's factory becomes overextended. One has to work people overtime and run the machines overtime. Ultimately marginal cost must increase if fixed costs remain fixed. Correct me if I'm wrong.
However, empirically most businesses will fluidly increase their "fixed" costs as MC begins to increase, so businesses wouldn't notice increasing marginal costs. But they certainly notice decreasing average costs.
Friday, July 06, 2007
In Defense Of Globalization
In Defense of Globalization was written by Jagdesh Bhagwati, an acclaimed international trade economist and *cue spooky music* Council On Foreign Relations Fellow. The inside cover even claims that this is a "Council On Foreign Relations" book. It's no surprise that I picked it up, then.
What struck me the most early on in the book was the language barrier: Bhagwati's first language is clearly not English. It is hard to hold that against him, but the crudeness of some of his writing is painfully obvious. The book rambles absentmindedly, touching upon economic issues in one paragraph, moral issues in the next, and rants the next. The disorganized, muddled structure of the writing cannot be blamed on the language barrier. Strangely enough, this strange, circumlocutious writing style is common among economists, who seem uncomfortable when not doing equations.
Chapter 1 - Anti-Globalization: Why?
Bhagwati makes the fair case that most of the anti-globalization movement has not done the research on globalization and does not understand economics. They are often young people who "see capitalism asa system that cannot meaningfully address questions of social justice." He laments that the view of capitalism as a "system that can paradoxically destroy privilege and open up economic opportunity to the many " is still uncommon, and points out that "by replacing markets systemwide with bureaucratically determined rations ... worsened rather than improved unequal access."
Already I am suspicious and irritated - there is no mention of the financial power which can accompany capitalism and has meddled in American government for so many years. Sure, it's easy to make "capitalism" sound good when you compare to "socialism" a la a centrally planned economy. But where is the mention of welfare capitalism? What about the more legitimate argument that the globalization has thus far allowed corporations to consolidate too much centralized power and market share themselves? Nowhere in the entire book do I recall Bhagwati making an informed criticism of multinational corporations and unchecked capitalism despite its many abuses.
Another interesting drive which pushes young people to protest globalization is "the dissonance that now exists between empathy for others elsewhere for their misery and the inadequate intellectual grasp of what can be done to ameloriate that distress." He does not add that few of these empathic young people are willing to sacrifice their dollars to help - that may be an unfair criticism, considering how little dollars most of them have. He references the empirical ethics of Hume and Smith, noting that while humans feel under "Hume's concentric circles of reducing loyalty and empathy ... the Internet and CNN have [taken] Hume's outermost circle and turn it into the innermost." When we see and hear the cries of the poor and weak, they become more real to us. On the other hand TV and the Internet have "[shifted] us steadily out of civic participation, so that the innermost circle has become an outermost one."
This book is rich and full of ideas, even if they are spread fairly haphazardly throughout the book. It would be impossible for me go through all of them.
For all this, the book received high praise; for example:
"This book will make history. It will also be a blockbuster, not only because of the depth of Bhagwati's powerful argument backed by extensive research, but also because it is immensely readable and surely the most humorous piece of economics ever written."
-- Hernando De Soto
Humorous? While I respect De Soto, I wonder whether we both read the same book. Econ humor? Here's a joke:
Hahaha - I see! Free-traders are angels and all of us who see a potential danger of to the environment from free-trade are somehow deceived? Then show us how we are wrong. Bhagwati's environmental chapter seems focused mainly not on environmental harms but rather on the ethical question of how we should value the environment.
Chapter 11 - Environment In Peril?
Of course, increased GDP per capita strongly correlates with reduced outputs of certain pollutants (everything but CO2 and garbage), and that free trade increases GDP growth. But what about corporations outsourcing work to places with lower standards? What about those nations (of which there are plenty) which will increase their pollution with increased production? How bad is the problem, and what can we do to alleviate it? Bhagwati answers none of the questions. Instead, here are his words: "Even God does not know what sustainable development means". He compares it to socialism - as if it was so hard to understand the eminently reasonable and doable concept of Cradle To The Grave.
Chapter 12 - Corporations: Predatory or Beneficial?
Bhagwati spends a fair amount of time claiming that "anti-corporation arguments are not supported by the facts" but not all that much time showing it. He introduces the topic by referring to an old Woody Allen joke:
We don't have the power to tighten the noose on corporations globally - increased regulations in a developing country could discourage corporations from coming to that country. Bhagwati claims that the effect is not significant empirically, but provides no numbers. Instead he references an economist who simply says that "regulations do not matter to site choice." (Should be "for site choice" - the constant little grammatical mistakes of these economists is annoying.) He points out that multiplant firms "invest in different locations, as multinationals often do, they tend to work uniformly witht he most stringent standards they face among these locations ... simply put, it is more cost-effective to run all of their plants with the same basic technology, so we get a race to the top."
Chapter 13 - The Perils of Gung-ho International Capitalism
This is the one area where Bhagwati criticizes the status-quo and ironically enough decries the "Wall Street-Treasury Complex." He says the East Asian Financial Crisis was caused by a lack of controls on the flow of capital. I'm not very well-educated on this stuff and I'm getting very tired of typing so I think I'm about done.
Conclusion
Unfortunately I've tired myself out and can't write a decent conclusion. When I began writing I wanted to end on a very critical note. In large part I was frustrated by Bhagwati's terrible grammatical style, rambling paragraphs, and lack of hard data. He doesn't get in deep and analyze actual policy, nor does he recommend any improvements. He points out flaws in our current system only in very general terms, or with convoluted logic and unexplained acronyms. This book was billed as a masterpiece but it is thoroughly second-rate. If this is the best defense that a star economist can do then perhaps we shouldn't be trusting them on their data. The interesting thing about economic science is that it sometimes seems as if the only people who really understand and follow it are the economists. Sometimes one has to wonder whether the Emperor Really Does Wear No Clothes. Shamefully written; I would give it two out of five stars or so. The ideas and the arguments are OK - good, even, but the presentation and the flippant, casual manner in which the arguments are made pulls the quality down. Concerns and examples which many of us know happened are not mentioned, which leaves me suspicious as to what else is being left out. There is a good review on Amazon expressing the same sentiments.
What struck me the most early on in the book was the language barrier: Bhagwati's first language is clearly not English. It is hard to hold that against him, but the crudeness of some of his writing is painfully obvious. The book rambles absentmindedly, touching upon economic issues in one paragraph, moral issues in the next, and rants the next. The disorganized, muddled structure of the writing cannot be blamed on the language barrier. Strangely enough, this strange, circumlocutious writing style is common among economists, who seem uncomfortable when not doing equations.
Chapter 1 - Anti-Globalization: Why?
Bhagwati makes the fair case that most of the anti-globalization movement has not done the research on globalization and does not understand economics. They are often young people who "see capitalism asa system that cannot meaningfully address questions of social justice." He laments that the view of capitalism as a "system that can paradoxically destroy privilege and open up economic opportunity to the many " is still uncommon, and points out that "by replacing markets systemwide with bureaucratically determined rations ... worsened rather than improved unequal access."
Already I am suspicious and irritated - there is no mention of the financial power which can accompany capitalism and has meddled in American government for so many years. Sure, it's easy to make "capitalism" sound good when you compare to "socialism" a la a centrally planned economy. But where is the mention of welfare capitalism? What about the more legitimate argument that the globalization has thus far allowed corporations to consolidate too much centralized power and market share themselves? Nowhere in the entire book do I recall Bhagwati making an informed criticism of multinational corporations and unchecked capitalism despite its many abuses.
Another interesting drive which pushes young people to protest globalization is "the dissonance that now exists between empathy for others elsewhere for their misery and the inadequate intellectual grasp of what can be done to ameloriate that distress." He does not add that few of these empathic young people are willing to sacrifice their dollars to help - that may be an unfair criticism, considering how little dollars most of them have. He references the empirical ethics of Hume and Smith, noting that while humans feel under "Hume's concentric circles of reducing loyalty and empathy ... the Internet and CNN have [taken] Hume's outermost circle and turn it into the innermost." When we see and hear the cries of the poor and weak, they become more real to us. On the other hand TV and the Internet have "[shifted] us steadily out of civic participation, so that the innermost circle has become an outermost one."
This book is rich and full of ideas, even if they are spread fairly haphazardly throughout the book. It would be impossible for me go through all of them.
For all this, the book received high praise; for example:
"This book will make history. It will also be a blockbuster, not only because of the depth of Bhagwati's powerful argument backed by extensive research, but also because it is immensely readable and surely the most humorous piece of economics ever written."
-- Hernando De Soto
Humorous? While I respect De Soto, I wonder whether we both read the same book. Econ humor? Here's a joke:
I recall particularly the Cambridge Union Debate, where, astonished that free trade being blamed for environmental problems and other ills in the world, I replied to Teddy Goldsmith by recalling Balzac's 1831 novella ... "Mr. Goldsmith", I added, "you seem to have with you a similar monocle, except that when you use it and see us wonderful free-traders, you find us turned into ugly monsters, our halos turning into devil's horns!"
Hahaha - I see! Free-traders are angels and all of us who see a potential danger of to the environment from free-trade are somehow deceived? Then show us how we are wrong. Bhagwati's environmental chapter seems focused mainly not on environmental harms but rather on the ethical question of how we should value the environment.
Chapter 11 - Environment In Peril?
Of course, increased GDP per capita strongly correlates with reduced outputs of certain pollutants (everything but CO2 and garbage), and that free trade increases GDP growth. But what about corporations outsourcing work to places with lower standards? What about those nations (of which there are plenty) which will increase their pollution with increased production? How bad is the problem, and what can we do to alleviate it? Bhagwati answers none of the questions. Instead, here are his words: "Even God does not know what sustainable development means". He compares it to socialism - as if it was so hard to understand the eminently reasonable and doable concept of Cradle To The Grave.
Chapter 12 - Corporations: Predatory or Beneficial?
Bhagwati spends a fair amount of time claiming that "anti-corporation arguments are not supported by the facts" but not all that much time showing it. He introduces the topic by referring to an old Woody Allen joke:
- There's an old joke... two elderly women are at a Catskill mountain resort, and one of 'em says, "Boy, the food at this place is really terrible." The other one says, "Yeah, I know; and such small portions." Well, that's essentially how I feel about life — full of loneliness, and misery, and suffering, and unhappiness — and it's all over much too quickly.
We don't have the power to tighten the noose on corporations globally - increased regulations in a developing country could discourage corporations from coming to that country. Bhagwati claims that the effect is not significant empirically, but provides no numbers. Instead he references an economist who simply says that "regulations do not matter to site choice." (Should be "for site choice" - the constant little grammatical mistakes of these economists is annoying.) He points out that multiplant firms "invest in different locations, as multinationals often do, they tend to work uniformly witht he most stringent standards they face among these locations ... simply put, it is more cost-effective to run all of their plants with the same basic technology, so we get a race to the top."
Chapter 13 - The Perils of Gung-ho International Capitalism
This is the one area where Bhagwati criticizes the status-quo and ironically enough decries the "Wall Street-Treasury Complex." He says the East Asian Financial Crisis was caused by a lack of controls on the flow of capital. I'm not very well-educated on this stuff and I'm getting very tired of typing so I think I'm about done.
Conclusion
Unfortunately I've tired myself out and can't write a decent conclusion. When I began writing I wanted to end on a very critical note. In large part I was frustrated by Bhagwati's terrible grammatical style, rambling paragraphs, and lack of hard data. He doesn't get in deep and analyze actual policy, nor does he recommend any improvements. He points out flaws in our current system only in very general terms, or with convoluted logic and unexplained acronyms. This book was billed as a masterpiece but it is thoroughly second-rate. If this is the best defense that a star economist can do then perhaps we shouldn't be trusting them on their data. The interesting thing about economic science is that it sometimes seems as if the only people who really understand and follow it are the economists. Sometimes one has to wonder whether the Emperor Really Does Wear No Clothes. Shamefully written; I would give it two out of five stars or so. The ideas and the arguments are OK - good, even, but the presentation and the flippant, casual manner in which the arguments are made pulls the quality down. Concerns and examples which many of us know happened are not mentioned, which leaves me suspicious as to what else is being left out. There is a good review on Amazon expressing the same sentiments.
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