Thursday, August 28, 2008
GROWTH!
The economy grew last quarter. A lot. Especially compared to recent quarters. 3.3% Now, we don't know if it will continue to grow at such a pace - apparently there are concerns about some level of worldwide economic draw-down.
Rainy Day Sale
A rainy day here at PHC. While going to lunch I noticed that the bookstore was having a "rainy day sale" on umbrellas.
My economist sense tingled.
Hmmm....
You see where I'm going with this - a store interested in making money should not decrease the price of an item just as the demand increases (as for umbrellas when the sky leaks). The customers demand or desire for an item is at least partially influenced by perceived need. Your perceived need for an umbrella increases when liquid steam is falling from the sky. So, in general, customers will be more willing to purchase umbrellas and the store should increase prices.
But they didn't. They reduced prices.
Why?
I see two options. First - the PHC college bookstore exists not to make money, but to serve the students so they reduced umbrella prices in the students' day of (wet) need. Second - the bookstore does intend to make money, but umbrellas are a poor seller and the bookstore is taking advantage of the rain to get them to move off the shelves.
I'll have to ask the bookstore staff....
My economist sense tingled.
Hmmm....
You see where I'm going with this - a store interested in making money should not decrease the price of an item just as the demand increases (as for umbrellas when the sky leaks). The customers demand or desire for an item is at least partially influenced by perceived need. Your perceived need for an umbrella increases when liquid steam is falling from the sky. So, in general, customers will be more willing to purchase umbrellas and the store should increase prices.
But they didn't. They reduced prices.
Why?
I see two options. First - the PHC college bookstore exists not to make money, but to serve the students so they reduced umbrella prices in the students' day of (wet) need. Second - the bookstore does intend to make money, but umbrellas are a poor seller and the bookstore is taking advantage of the rain to get them to move off the shelves.
I'll have to ask the bookstore staff....
Friday, August 15, 2008
Dollar is up
And my optimism over the last year has made people look at me like I have two heads. Well, the housing market is beginning to turn back around (at least in the DC area) and the dollar is moving back up.
Thursday, August 14, 2008
Olympic Pride - Pride of the Nation or Pride of the State?
Just a quick thought tonight.
Nations around the world sponsor training facilities and camps for their Olympic and potential Olympic athletes. True (well, with a few exceptions, such as Togo). However, there are some nations that certainly seem to pour significantly more resources than others into their national athletes. Not only money, but various nations, through the years and currently, have also sequestered large numbers of young people in athletic training camps.
A tremendous expense, of people and of money. And it pays off - to some extent, and for as long as the money flows. For what? National prestige? Now, I'm glad the U.S.A. wins medals. But I'm also glad that the U.S. gov doesn't take hundreds of children with promising genetic structure and house them in training camps for 15 or more years.
But this is really beside the point. Or, at least, beside the point I was originally thinking of.
My initial thought was this. Most nations draw their athletes from trials, at which the top athletes compete to represent their nation. These athletes could have chosen to follow another path, to do something else (or many somethings) with their 4-8 hours a day that they spent practicing, but instead they practiced. They love their sport.
Other nations - East Germany, Soviet Russia, China today, and others - draw their athletes from state-run training camps. These athletes have much less choice of pursuits.
When an athlete from the first group of nations wins a medal does it better represent the sporting spirit and pride of the national population or of the government? What about those athletes from the second group of nations?
Then ask yourself this. Why do nations feel the need to go to such extremes to clinch victory in sporting events? And, if they are willing to go this far for sports, how far will they go in other situations?
Nations around the world sponsor training facilities and camps for their Olympic and potential Olympic athletes. True (well, with a few exceptions, such as Togo). However, there are some nations that certainly seem to pour significantly more resources than others into their national athletes. Not only money, but various nations, through the years and currently, have also sequestered large numbers of young people in athletic training camps.
A tremendous expense, of people and of money. And it pays off - to some extent, and for as long as the money flows. For what? National prestige? Now, I'm glad the U.S.A. wins medals. But I'm also glad that the U.S. gov doesn't take hundreds of children with promising genetic structure and house them in training camps for 15 or more years.
But this is really beside the point. Or, at least, beside the point I was originally thinking of.
My initial thought was this. Most nations draw their athletes from trials, at which the top athletes compete to represent their nation. These athletes could have chosen to follow another path, to do something else (or many somethings) with their 4-8 hours a day that they spent practicing, but instead they practiced. They love their sport.
Other nations - East Germany, Soviet Russia, China today, and others - draw their athletes from state-run training camps. These athletes have much less choice of pursuits.
When an athlete from the first group of nations wins a medal does it better represent the sporting spirit and pride of the national population or of the government? What about those athletes from the second group of nations?
Then ask yourself this. Why do nations feel the need to go to such extremes to clinch victory in sporting events? And, if they are willing to go this far for sports, how far will they go in other situations?
Wednesday, August 13, 2008
Labor and Capital
Tonight I visited a local fast food establishment to grab something on my way home from the college. In most respects this is a very typical establishment, but it normally stands out in one notable way. Rather than giving your drive-through order to a voice-box, you give your order to a live person standing by the menu board. And this is no temporary situation - there is almost always a person stationed outside by the menu.
Today the order-taker was, as usual, stationed outside. Additionally there was a second employee outside, running up and down the lane, taking money/credit cards, giving the payment to the teller inside, and returning change/cards to each vehicle. I'm not sure why the manager chose to do this (pay a second employee to collect payments), but let's take a brief look at the economics in play.
Any producer must make a wise choice between investing in capital (equipment, machines, etc...), labor (manpower), or some combination of the two. Both are usually necessary for the production of goods or services. At the local fast-food establishment, the manager made a choice between upgrading his order-processing equipment and paying additional people. The producer (the manager in this case) will typically make the choice based on a comparison of cost and productivity for each additional unit of labor or capital.
From what I observed today, I can only conclude that the local manager believes that it is better (leading to greater net profit) to hire two additional people beyond what similar establishments usually employ than to upgrade the capital. In this case "capital" may include capability of the person working the registrar (who usually handles orders and taking payment as well). Therefore, because most fast-food establishments choose the capital route, I must conclude that either the capital improvements are for some reason unavailable or that labor is particularly cheap for this particular manager.
Today the order-taker was, as usual, stationed outside. Additionally there was a second employee outside, running up and down the lane, taking money/credit cards, giving the payment to the teller inside, and returning change/cards to each vehicle. I'm not sure why the manager chose to do this (pay a second employee to collect payments), but let's take a brief look at the economics in play.
Any producer must make a wise choice between investing in capital (equipment, machines, etc...), labor (manpower), or some combination of the two. Both are usually necessary for the production of goods or services. At the local fast-food establishment, the manager made a choice between upgrading his order-processing equipment and paying additional people. The producer (the manager in this case) will typically make the choice based on a comparison of cost and productivity for each additional unit of labor or capital.
From what I observed today, I can only conclude that the local manager believes that it is better (leading to greater net profit) to hire two additional people beyond what similar establishments usually employ than to upgrade the capital. In this case "capital" may include capability of the person working the registrar (who usually handles orders and taking payment as well). Therefore, because most fast-food establishments choose the capital route, I must conclude that either the capital improvements are for some reason unavailable or that labor is particularly cheap for this particular manager.
Tuesday, August 12, 2008
"In a hurry, will pay"
One of the persistent dreams for future transportation is a road/vehicle/transportation network in which personal vehicles (cars) talk to each other. The hoped-for result is to create a smoother traffic flow with fewer (or no) traffic jams or accidents.
If cars are talking to each other, then it should be entirely possible for you to program your vehicle to offer to pay/bribe other vehicles (and their occupying passengers) to move our of your way. Emergency vehicles will already, I expect, have this power - - so why not create a system that allows your car to implement the same "get out of my way" program for a price?
But such a system might not be so simple. In many urban areas (especially DC) everyone will program their cars to scream "I AM IMPORTANT! MOVE!!!" And because everyone has programmed their vehicles to be important, no one will move, and no one will benefit.
To solve this impasse we turn to the economist's favorite tool - pricing. For most economists, the creation and function of prices is the equivalent of duct tape, a good knife, all-purpose oil/grease, and adjustable pliers all rolled into one. Prices hold things together, allowing people within a market to trade with each other and function as one unit. Prices remove and separate unwanted or unproductive portions of the economic structure, resulting in concentration of resources on productive uses. Prices speed and smooth interaction between the various elements of an economy, allowing greatly reduced friction (transaction cost) and less wasted energy. Prices continually adjust to best regulate the good or service being traded, adjusting much faster and more precisely than human-controlled mechanisms ever could.
But how do prices help us solve our priority-auto-driving problem? Well, the simplest way would be to have each driver program a price at which (s)he is willing to move out of the way for other drivers. In this case your vehicle would automatically accept a move request, and payment, from the vehicle of a driver who is willing to pay more than the minimum you have set. You could even allow drivers to change their prices on the fly. Say you have an important meeting to rush to. You set your "priority price" at $0.75 and set off. Many people move out of your way, but as traffic gets heavy and you are forced to slow, you look up from your laptop and instruct your car to offer $0.80. That doesn't free you, so you increase your "bid" to a full $1.00. That does the trick, and you are soon zooming on your way.
You, as the driver, may also opt to allow your car to automatically increase your bid to whatever level is necessary (or some maximum you pre-select) to buy speedy passage.
Both of these methods are, however, potentially subject to what economists call the "holdout problem."
Presumably, drivers of vehicles would be able to set not only their "priority price" - the price they will pay to pass others - but also their "move aside price", the price they expect to receive before they will reduce their own speed or change lanes for someone else.
A holdout would potentially occur if, for example, you are trying to hurry your way through heavy traffic and, instead of allowing you to pay them and move out of your way, the vehicle in front of you sees your hurry and simply increases its prices. Dramatically. Before you know it, you might be asked to pay $50 or more before the person in front of you will move out of the lane.
One potential way of solving this problem would be to program your vehicle to hold a brief, almost instantaneous, auction. By communicating with the vehicles in relevant positions around you, your car could determine whether it would be cheaper/faster to negotiate a path around the recalcitrant vehicle in front of you rather than buy him off. Though you may run into areas (especially around DC) where everyone expects a fair amount to cede right-of-way, peoples' self-interest should give them enough incentive to accept your offer before someone else does.
If cars are talking to each other, then it should be entirely possible for you to program your vehicle to offer to pay/bribe other vehicles (and their occupying passengers) to move our of your way. Emergency vehicles will already, I expect, have this power - - so why not create a system that allows your car to implement the same "get out of my way" program for a price?
But such a system might not be so simple. In many urban areas (especially DC) everyone will program their cars to scream "I AM IMPORTANT! MOVE!!!" And because everyone has programmed their vehicles to be important, no one will move, and no one will benefit.
To solve this impasse we turn to the economist's favorite tool - pricing. For most economists, the creation and function of prices is the equivalent of duct tape, a good knife, all-purpose oil/grease, and adjustable pliers all rolled into one. Prices hold things together, allowing people within a market to trade with each other and function as one unit. Prices remove and separate unwanted or unproductive portions of the economic structure, resulting in concentration of resources on productive uses. Prices speed and smooth interaction between the various elements of an economy, allowing greatly reduced friction (transaction cost) and less wasted energy. Prices continually adjust to best regulate the good or service being traded, adjusting much faster and more precisely than human-controlled mechanisms ever could.
But how do prices help us solve our priority-auto-driving problem? Well, the simplest way would be to have each driver program a price at which (s)he is willing to move out of the way for other drivers. In this case your vehicle would automatically accept a move request, and payment, from the vehicle of a driver who is willing to pay more than the minimum you have set. You could even allow drivers to change their prices on the fly. Say you have an important meeting to rush to. You set your "priority price" at $0.75 and set off. Many people move out of your way, but as traffic gets heavy and you are forced to slow, you look up from your laptop and instruct your car to offer $0.80. That doesn't free you, so you increase your "bid" to a full $1.00. That does the trick, and you are soon zooming on your way.
You, as the driver, may also opt to allow your car to automatically increase your bid to whatever level is necessary (or some maximum you pre-select) to buy speedy passage.
Both of these methods are, however, potentially subject to what economists call the "holdout problem."
Presumably, drivers of vehicles would be able to set not only their "priority price" - the price they will pay to pass others - but also their "move aside price", the price they expect to receive before they will reduce their own speed or change lanes for someone else.
A holdout would potentially occur if, for example, you are trying to hurry your way through heavy traffic and, instead of allowing you to pay them and move out of your way, the vehicle in front of you sees your hurry and simply increases its prices. Dramatically. Before you know it, you might be asked to pay $50 or more before the person in front of you will move out of the lane.
One potential way of solving this problem would be to program your vehicle to hold a brief, almost instantaneous, auction. By communicating with the vehicles in relevant positions around you, your car could determine whether it would be cheaper/faster to negotiate a path around the recalcitrant vehicle in front of you rather than buy him off. Though you may run into areas (especially around DC) where everyone expects a fair amount to cede right-of-way, peoples' self-interest should give them enough incentive to accept your offer before someone else does.
Friday, August 08, 2008
Olympic Thoughts
I wonder if any economist has ever run an analysis of national spending for Olympic games. In particular, watching the opening ceremony for the summer games in Beijing, I was struck by how much of the ceremony was directly focused on the history and glory of China. Now, I know that every host nation does its fair share of strutting, but I wonder if nations with a more command-type central political structure tend to spend more on Olympic opening ceremonies?
Oil Prices
I don't really have anything earth-shaking to say, but I know that oil and gas prices have been large in peoples' minds and pocketbooks.
Oil prices are going down. Despite explosions and further uncertainties of supply. See This, and This. This is a good thing, but I hope it doesn'(though it probably will) take focus and impetus away the various domestic oil production/replacement possibilities. Just to make sure you don't misunderstand, I don't think such schemes are necessary for any nationalistic/environmental/global warming reason, but rather for reasons that there seems to be decent statistical information that links (relatively) cheap energy with greater rates of economic growth around the world. And I like economic growth because nothing else comes close to being as effective at lifting people from poverty and saving lives. Economic growth also gives people more slack in life to pursue political/personal/religious freedoms.
Why are oil prices falling? Probably due to a variety of factors - but all are related to supply and demand. Iraq is restarting exploration, Saudi Arabia is signaling that they may increase supply, the summer driving season is slacking off, world oil/gas consumers have (slightly) decreased consumption,
High oil prices were never the doomsday scenario that many people assumed they were, but I'm comfortable seeing them decrease.
Oil prices are going down. Despite explosions and further uncertainties of supply. See This, and This. This is a good thing, but I hope it doesn'(though it probably will) take focus and impetus away the various domestic oil production/replacement possibilities. Just to make sure you don't misunderstand, I don't think such schemes are necessary for any nationalistic/environmental/global warming reason, but rather for reasons that there seems to be decent statistical information that links (relatively) cheap energy with greater rates of economic growth around the world. And I like economic growth because nothing else comes close to being as effective at lifting people from poverty and saving lives. Economic growth also gives people more slack in life to pursue political/personal/religious freedoms.
Why are oil prices falling? Probably due to a variety of factors - but all are related to supply and demand. Iraq is restarting exploration, Saudi Arabia is signaling that they may increase supply, the summer driving season is slacking off, world oil/gas consumers have (slightly) decreased consumption,
High oil prices were never the doomsday scenario that many people assumed they were, but I'm comfortable seeing them decrease.
Mulligan
Ok, so I didn't really start posting again like I said I was going to. The dissertation topic is still in process also - well, I have a topic, but haven't presented it yet. But now I'm finished with my set-term job at the Charles Koch Foundation and I'm joining the Patrick Henry College faculty full-time.
And I'm moving (again, just moved in June '08).
And I'm getting married! Yeah!
And Nicole and I are trying to buy a house.
Despite all of this I'm trying to get back into the routine of regularly commenting on economic affairs.
Let's see how this goes.
And I'm moving (again, just moved in June '08).
And I'm getting married! Yeah!
And Nicole and I are trying to buy a house.
Despite all of this I'm trying to get back into the routine of regularly commenting on economic affairs.
Let's see how this goes.
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