Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Saturday, October 08, 2005

Increase in Taxes Will Make Housing More Affordable?
How So?

From this morning's Today's Papers by

The Los Angeles Times leads locally, but off-leads the discussions that will begin on Tuesday among policymakers that might reduce several key tax benefits that are now granted to homeowners. Although the mortgage-interest deduction, which saved homeowners $61.5 billion last year, is not expected to go, other benefits could be eliminated, which would mean a significant increase in taxes for many, especially those in high-priced markets. The reduction of incentives might decrease demand and ultimately make housing more affordable.
What am I missing? It looks to me as if a reduction in incentives is a euphemism for a tax increase. And, yes, a tax increase would shift the demand curve facing suppliers to the left. But once the taxes are added to the new lower price that sellers would receive, the total price will be higher (except under the unrealistic assumption that housing supply curves are vertical).

This policy would surely have a dampening effect on housing construction. It would also reduce homeowners' wealth as resale prices fall. Watch out aggregate demand.

"I'm Happy I Found Economics"

A former student writes on his blog:

At 24, I’ve just graduated from University with a magnificent 3 year degree in Economics. Only took me 5 years to obtain it and without honors to boot. My education up to this point in my life has been one disappointment after another. Not a disappointment to myself, since I know my ridiculously unmotivated ways, but to my friends and family who feel that I should have no troubles getting through school.
... Either way, I’m pretty happy that I found economics, and despite underachieving the whole way, I did learn a lot. I feel that it truly refined my thought process about almost everything in life. Despite the inherent uselessness of a 3 year social science degree as far as finding a job related to your “field” goes, I’m happy that this useless degree has at least shaped my thought process to be much more critical, analytical and rational and no matter what, will always affect every decision I make.

Easy Shorts!!
(it's not what you think)

If you can predict which companies will go downhill over the next few years (or months), now is a good time to sell their stock. If you do not own any of their stock, sell the stock short.

That is what Mahalanobis is referring to with "easy shorts."

[If] you are paying over 5 times the market clearing wage [and if] you also suffer absenteeism of about 10% [and if y]ou also have 46 job classifications that make it costly to reallocate labor from one task on the shop floor to another [, it s]ounds like the union negotiated a great deal! Unfortunately, you can bet that a firm in Mexico or Japan, or a non-union shop in Alabama, will have a much lower cost base. Result: you lose money, serially reduce your workforce, and eventually go out of business.

So it's really no surprise that Delphi (symbol: DPH, see graph for price move thru today) is just about to declare bankruptcy before the October 17th deadline (after which, a law change in the US will make bankruptcy a harder on debtors).

As long as people think they are immune to market forces, firms with inferior business models will burn money, and provide me with easy shorts. [emphasis added].

The Treatment of Refugees in the Middle East:
A Stark Dichotomy

Of all the blogs I read, there is only one blog for which I have subscribed to receive e-mail notices about new postings: Melanie Phillips Diary. It is hard-hitting and a necessary counter-balance to the Main Stream Media. In a recent entry, she links to this piece by David Meir-Levi about the history of the creation of modern Israel. Here is a very brief quotation from this 57-page document that is well-worth reading:

A Summary of The Salient Facts

... Sixty years ago there were nearly a million Jews in the Arab states
of the Middle East: honest hard-working citizenry contributing to the
culture and economy of their countries of domicile. Today, there are
almost no Jews in the Arab countries of the Middle East, and racist
apartheid laws prohibit even Jewish tourists from entering some Arab

In Israel, on the other hand, the Arabs who did not flee numbered
about 170,000 in 1949; and now number more than 1,400,000. They
have 12 representatives in the Israeli Parliament, judges sitting on the
Israeli courts and on the Israeli Supreme Court benches, and Ph.D’s
and tenured professors teaching in Israeli colleges and universities.
They are a population that enjoys more freedom, education, and
economic opportunity than do any comparable Arab populations anywhere
in the Arab world.

The Arab rulers caused the Arab refugee problem in 1948 by their
war of aggression against the infant state of Israel, a legal creation of
the United Nations; the Arab rulers have since maintained the Arab
refugee population and denied it any possibility of normal life in Arab
countries in order to use the suffering they themselves have caused, as
a weapon in their unending war against Israel.

As I said, the entire document is fairly long, but it is important reading if you don't have a good idea about the events of 50 - 60 years ago.

Friday, October 07, 2005

A Primer on the Economics of Altruism

From the St. Louis Fed.
  • Middle income people give a smaller portion of their incomes to charities than either the poor or the rich.
  • Women give more than men.
  • Once income is taken into account, there is no difference in charitable giving between races.
  • 75% of charitable giving is from individuals.
  • The motivations for charitable giving are varied and/or unclear.
  • Government programmes do not appear to crowd out private giving on a one-for-one basis.
  • The price of giving is lower for people in a higher marginal tax bracket.

"Although some people may be altruistic when giving, economics tells us that the dominant motivation is the internal satisfaction that individuals derive from the act of giving itself. Individuals derive utility from giving much in the same way they obtain satisfaction from buying a new car or eating at a restaurant; especially when the number of donors is large, the social context of other people’s giving is overshadowed by the satisfaction of one’s own giving when considering how much to give. "

[hat tip to Mahalanobis]

Does anyone have similar data for Canada or other countries?

Incentive-Compatible Compensation Schemes

Craig Newmark linked to this posting about how different compensation schemes affect the incentives facing employees, e.g. those on commission at Best Buy. The nuances are complex, but they appear to have a big impact (at the margin).

The posting suggests a way to get a really low price on a big-ticket item (this is a vague outline summarizing the strategy):
  1. Agree to buy all the high-margin add-ons that sales reps used to get bonuses for pushing.
  2. Negotiate a package price (see the sales manager, if possible, to do this).
  3. Several days later return the high-margin add-ons, which will likely be on the receipt at full price.

Several commenters say the compensation schemes have changed, so this strategy doesn't work any more. It apparently was changed because the original reward system was not incentive-compatible with maximizing profits.

Get past the normatives. When strategies like this are possible, some people will take advantage of them, despite the moral questions. The result is that compensation schemes must take people as they are, not as someone thinks they ought to be.

The BBC and MCB Grapple;
give it to the BBC by a TKO

On August 21st, 2005, the BBC broadcast a programme, "A Question of Leadership," which raised some interesting questions about the intent and the effectiveness of the leadership of the Muslim Council of Britain. This site contains the BBC's response to the MCB, the latest in the war of words between the BBC and MCB. [h/t to BenS]. Here is a portion of the conclusion to the BBC's very detailed response to the MCB:

In concluding, you say the programme was "maliciously motivated... a shoddy and Islamophobic piece of work which will contribute to furthering distrust and divisions in our society." This does not withstand scrutiny. As I have set out, I have found there to be no truth in your claims that this programme was dishonestly presented, maliciously motivated or Islamophobic. These are extremely serious allegations to make in the face of so much evidence to the contrary; they are simply not true.

I ask you and Sir Iqbal Sacranie to withdraw these false and malicious accusations. I would also ask Sir Iqbal to withdraw his statement to the Home Affairs Select Committee on 13 September that Panorama was "... so poorly researched and with so much factually incorrect information." I have copied this letter to them.

Panorama made absolutely clear that its focus was on sectarian statements coming from some Muslim organisations. There was nothing in the film which criticised Muslims as a community or Islam as a religion. In my view the MCB's unfair and unjustified characterisation of the programme as "Islamophobic" is a grotesque distortion of the film.

The programme's purpose was to reflect, inform and generate debate in the Muslim community and the wider population, about the nature and direction of the leadership of British Muslims. In the light of the London bombings this is a debate which many Muslims, to whom we spoke, believe is long overdue. They raised important questions about all the issues to which we drew attention. As this debate goes forward I very much hope that you will desist from unwarranted and wildly inaccurate attacks on the honesty of our journalism and the good faith of the Panorama team.

Yours sincerely
Mike Robinson

Spam Stock Recommendations

I have often wondered whether, the first time I receive some spam recommending a particular stock, I should buy it. The hypothesis would be that probably a few others would do the same thing. Then I should sell it again soon, maybe even the same or the next day.

Alex Tabarrok of Marginal Revolution draws our attention to Spam Stock Tracker which explores this question among others.

I thought that I would realize temporary windfalls on all penny stocks, but then see big losses. Instead almost ALL of those stocks I added went up a few cents max, then dropped like flies the next day. So much for short term gains.
So why do spammers advertise certain stocks? Are these stocks that the spammers bought previously and hope to unload on speculators?

Thursday, October 06, 2005

Gilbert & Sullivan at the White House
"Stick close to your desks and never go to sea"

Stephen Karlson says this song from H.M.S. Pinafore keeps coming to mind when he thinks about George Bush's nomination of Harriet Miers to be a Supreme:

I always voted at my party's call,
And I never thought of thinking for myself at all.
I thought so little, they rewarded me
By making me the Ruler of the Queen's Navee!

It captures the essence of the arguments by Kip Esquire and George Will that she's not qualified for the job. Their arguments remind me of Michael Brown's lack of qualifications to head FEMA.

But be sure to read the comments at Kip's blog.

The NHL is Back

and I actually watched a few minutes of it between innings of baseball playoffs. For all of you who are hockey fans, let me once again highly recommend Off-Wing Opinion by Eric McElain. He is both level-headed and energetic, making his blog an always interesting place to visit.

A number of people that I have read and listened to over the past few weeks have argued that the rule changes in the NHL have the effect of reducing the marginal physical product of size, of goonishness, of clutch and grab, etc. [They didn't actually say "marginal physical product" but that is surely what they meant. ]

The rule changes have altered the production function. Size matters less; speed, puck handling ability, and agility matter more. Here's Rico's take on it:
Slowing down all that hooking and grasping is letting new players into the league, which may explain why the [Toronto Maple] Leafs didn't go after many players....they have two such players: Kyle Welwood and Nicolas Antropov.

Welwood is the best player to never play in the NHL (been in the AHL for years). He is small, fast and extremely talented. In the preseason he has been the player creating the most chances. Antropov has been able to make the NHL in the past...but has not done well because of his size he was extremely easy to slow down using a stick like a grappling hook!

All teams have these players in the minors, and now these guys will get a shot (and will give their teams a huge ROI). I think we will see the average size in the NHL drop slightly and the scoring go way up.
One additional effect might be that if players are hooked, grabbed, and speared less, perhaps some of the fighting and roughing will also drop off.

If the new rules are effective, hockey might once again become fun to watch.

Update: Ms. Eclectic was surprised that I would watch any hockey, but I'd like to see the game become fun to watch again. Also, I'm not a big fan of the shootout, but I suspect I'm in the minority.

Does Diet Affect Cancer Incidence or Severity?
Decision-making under Uncertainty

Maybe. Maybe not. That's the gist of this article in the NYTimes:
The diet messages are everywhere: the National Cancer Institute has an "Eat 5 to 9 a Day for Better Health" program, the numbers referring to servings of fruits and vegetables, and the Prostate Cancer Foundation has a detailed anticancer diet.

Yet despite the often adamant advice, scientists say they really do not know whether dietary changes will make a difference. And there lies a quandary for today's medicine. It is turning out to be much more difficult than anyone expected to discover if diet affects cancer risk. Hypotheses abound, but convincing evidence remains elusive.

... So should people who are worried about cancer be told to follow these guidelines anyway, because they may work and will probably not hurt? Or should the people be told that the evidence just is not there, so they should not deceive themselves?
Speaking for myself, I want to know. I want to know that I'm not increasing the risk of cancer by refusing to eat cauliflower and parsnips and Brussels sprouts. Contrary to the hypothetical assertion in the article, eating those things really does hurt: they taste bad, and they make me feel ill. In econ-speak, they have a large and negative marginal utility, starting at Q = 0.

[h/t to Jack for the pointer; his question: "So, is broccoli a placebo?"]

Wednesday, October 05, 2005

Hockey's (Purportedly) Hard Salary Cap

Tonight, as I was driving home, I was listening to Sportsnet's discussion of the "hard" salary cap. The participants all agreed that the contract has a definite, solid, hard cap. Their reason is that every transaction must be approved by the NHL league office, and the office will not approve any transaction that puts the team over the cap, no matter what!

What if everyone believes the league office really, really, truly will monitor every single contract and not allow teams to exceed the $39m salary cap. How else might teams spend more without exceeding the cap?

This question is no different from any other price-ceiling situation that we talk about in economics all the time: impose a price ceiling on a product, and people who really want to buy that product start figuring out how to get it. E.g., for gasoline price ceilings we have, in the past, seen long lineups, favouritism, hiring drivers to wait in line, and egregious tie-in sales (get an oil change and we'll move you to the head of the line).

How might a team exceed such a hard salary cap? Here is just one possibility that I thought of during the drive:

I might be able to sign the player to several contracts if I have some ancillary operations or arrangements.

  • I could pay him a lot to model for the cover of the programmes.
  • I could give him a huge endorsement contract for some firm (that I own) that may or may not advertise in the arena.
  • I could induce advertisers to offer him large endorsement contracts and in return offer them lower advertising/sponsorship rates for the team's games.
I am sure there are many many other evasions that more creative minds than mine will discover.

No, the cap is NOT hard. People respond to incentives.

More on the Housing Bubble

I do not recall exactly the first time MA argued with me that the US (and much of the rest of the world) was experiencing a housing bubble, but I think it was back in February or March, 2005. At the time, I suggested that if we were in a bubble that was about to burst, he should sell his house, and rent accommodations.

I don't know whether he followed my advice, but he did keep a relentless stream of e-mails coming my way. (for example, this one about Ed Leamer's analysis of the housing markets). Each new item had more evidence and/or arguments that housing markets in many areas have become overheated due to cheap and flimsy mortgages and due to irrational expectations of continued house price inflation.

And now the mainstream media [MSM] is beginning to carry the story of the deflating bubble with more prominence [reg req'd]:
A real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country, including New York.

More sellers are putting their homes on the market, houses are selling less quickly and prices are no longer increasing as rapidly as they were in the spring, according to local data and interviews with brokers.
I still do not think the bubble is going to burst with a bang. I am not even confident that housing prices in most markets will fall by much, if at all. But it certainly does look as if there has been a great slowdown in the growth of demand in many markets.

This view seems similar to that of Bill Gross [thanks to (who else?) MA for the link]:

1) Housing prices will cool/stop going up very much/even go down in some cities, WHEN...

a. Interest rates rise to a high enough level to make the purchase of a new home a burden instead of a boon for first time buyers.
b. Mild regulatory pressure begins to reduce the amount of funny-money lending.
c. Speculators sniff the beginning of the end. [He details at his site why he thinks these conditions are being met.]

2) Home equitization should retreat shortly thereafter.

3) Consumption/the U.S. economy will then weaken when the house ATM starts running out of fresh new $25,000/$50,000/$100,000 home equity loan dollar bills.

4) The Fed will cut interest rates in order to start the game all over again.

If you're just moving to town, this might be a good time to try to rent for a year or two.

Race and I.Q.

A number of years ago (1989), UWO psychologist Phil Rushton caused a stir with his publication of some articles about the average differences in IQ between different races. In response, the university (among many things) brought in noted left-wing geneticist, David Suzuki to debate Rushton. Suzuki emoted tremendously; Suzuki adopted a position of moral superiority; but Suzuki did nothing to counter Rushton's arguments. I was extremely disappointed in Suzuki's performance. But I wasn't ready to buy into Rushton's position.

Over the past 16 years, there have been many attacks and counterattacks on the topic. And to date, Rushton has not been KO'ed. Here is a summary of some of the recent research, from the Ottawa Citizen.

Rushton's research has a direct bearing on the discussion going on the past few days between Tyler Cowen, Jane Galt, and Bryan Caplan.

Tuesday, October 04, 2005

Maybe a Recession Would Help

An accepted principle in economics is that if you want to increase the quantity supplied of something, you must meet or exceed the opportunity costs of using the inputs to produce that something instead of something else. E.g., if you want to attract more workers to a particular occupation, you must attract them from other occupations, and the clearest way to do so is by offering a higher wage.

Does this apply to recruiting military personnel for the U.S. military? Yes, for the most part. Of course the compensating variations are important in this line of work:

• The daily reports of American deaths in Iraq and the uncertain nature of the struggle against the insurgency have put a damper on young people's enthusiasm for joining the military, according to opinion surveys.
• The Army has a smaller-then-usual [sic] reservoir of enlistees as it begins the new recruiting year on Saturday. This pool comes from what the Army calls its delayed-entry program in which recruits commit to join the Army on condition that they ship to boot camp some months later.

Normally that pool is large enough at the start of the recruiting year to fill one-quarter of the Army's full-year need. But it has dwindled so low that the Army is starting its new recruiting year with perhaps only 5 percent "in the bank."

[Update: also see this]
To attract more workers, the Army could raise the wage rate. But they have enormous monopsony power, meaning that raising the wage rate to attract a few more volunteers would entail a very large increase in the wage bill for all the soldiers hired (assuming the Army didn't practice price discrimination in its hiring [but see below]). The supply curve of soldiers to the Army is upward-sloping; hence, so is the marginal factor cost curve, but it has a steeper slope and lies above the supply curve. And so, rather than raise salaries, the Army is trying to shift the supply curve to the right.
The factors working against the Army, [Army spokesman, Lt. Col. Bryan] Hilferty said, are a strong national economy that offers young people other choices, and "continued negative news from the Middle East." To offset that the Army has vastly increased the number of recruiters on the street, offered bigger signup bonuses and boosted advertising.
Offering higher signup bonuses is one way of using two-part pricing to practice price discrimination, actually.

[Update: allowing new recruits to designate that a portion of their time could be spent in the Peace Corps was also a strategy to increase the supply.

In August, the military began promoting a recruitment program that allows
soldiers, after a period of active and reserve duty, to fulfill their commitment
by serving in the Peace Corps. By 2007, about 4,300 recruits will be eligible
for this option.

See this criticism of the strategy.]

Another way to get more recruits might be to reduce the value of their alternatives. Throw the economy into a recession, cut down on job opportunities, raise university tuition for non-ROTC students, etc. It would be Machiavellian, and I am not recommending it, but it would work.

Screenwriter, Robert Averch, Describes Life as a Hollywood Republican

Robert Avrech has won numerous awards for his screenwriting. Here is a brief excerpt from one of his stories about the trials and tribulations he has faced recently in his career:

I was recently hired to write a movie for a cable station about the war on terrorism. I was flown to New York where I had a long meeting with the head of the network about what he wanted. He described it thus: "I want a hard-hitting multi-character story about terrorism, with one storyline that emphasizes how someone can be reached through education."

... After handing in the first draft, I was told that the character of the Islamic suicide bomber was not acceptable. I was told that my portrayal was "insensitive." After the second draft I was ordered to remove the mosque where a dissident group was vying for control from the more moderate Muslims. And now, five drafts later, here's what the screenplay has turned into: The Islamic terrorists who properly dominated the original draft are now minor players.

... This film is no longer about terrorism. It's no longer about.anything. It's a mess. A jumble of conflicting story lines that can never cohere because the network executives, all proud Democrats, refuse to admit that Islamic terror exists. I was actually told in one meeting that "Jewish terrorists" in Israel are just as dangerous as Arab terrorists. I stared at the executives and felt my blood pressure rise. Jewish terrorists? What Jewish terrorists? What universe are these people living in? Are they just making this stuff up as they go along? Are they even aware that they are lying? Do they even care? Or do they truly believe the nonsense they spout? If they do, then I am truly frightened.
Robert J. Avrech's screenwriting credits include "A Stranger Among Us" and the Emmy-winning "The Devil's Arithmetic." His novel "The Hebrew Kid and the Apache Maiden" has garnered rave reviews. He writes about Hollywood, politics and his family on his blog [h/t to BenS]

Does Using Chopsticks Help One Become a Better Golfer?

From the Asiapundit:
Korean female golfers continue to excel in the Lady's Professional Golf Association (LPGA). In fact out of the top 30 female professional golfers, 10 of them are Korean. You may be asking yourself, how is a small country like Korea able to dominate women's professional golfing? What is the secret to their success? Is there some kind of advanced training regimine or some mystic Korean herbal tea that is giving them such an advantage? Well look no further, the Korea Times has leaked the ancient Korean secret to becoming a master golfer; the ability to use chopsticks...
Asiapundit has several interesting quotes from different sources about the correct way to use chopsticks and the importance of Korean culture. But the conclusion is very telling:

For those not familiar with the Korean media, these type of articles are very common to reinforce Korean pride and sense of superiority, especially over the Japanese and the Chinese. Everything seems to revolve around kimchi, chopsticks, and Dokto.

My only question is how did Annika Sorenstam become so dominant without kimchi, chopsticks, and Dokto? [emphasis added]

Monday, October 03, 2005

The CBC:
What'd I say?

A settlement between the CBC and its union seems near. 8-(
The CBC and the union representing locked out workers were hammering out details of a plan Monday to get workers back on the job starting this week, and observers say the looming spectre of Saturday's Hockey Night in Canada broadcast has added increased urgency to the talks.

What'd I say? See here and here

The Drop in Consumer Spending

Consumer spending dropped precipitously in August. Those who use what I term SNKM [the Simple Naive Keynesian Model] with fixed prices and interest rates will see this as a downward shift in planned spending and bad for the economy.

Others take a longer view. The increase in saving should increase the supply of lendable funds, ceteris paribus, thus leading to lower interest rates and stimulating investment spending. The increase in investment spending should just about offset the decrease in consumption spending, leaving not much change in aggregate demand but providing more capital for more future growth.

Jim Hamilton summarizes the situation well:

If over the short run the Fed prevents the fall in real interest rates that would be the natural economic response to the fall in consumption spending, the investment demand won't be there to replace the lost consumption spending.

And he is not all that optimistic:

Is the actual drop in consumption spending of $47 billion enough to qualify as a large, sudden change that's a cause for concern, or is it the small, gradual change that would be a good thing? The answer depends on what happens next. If this turns out to be all the drop in consumption that there is, then things will probably be OK and this would eventually prove to be a favorable development. But Barry Ritholtz sees the August consumption figures as the harbinger of a major shift. If he's right, will businesses and the Fed recognize it in time? Probably not.

NHL after the Strike

Do you remember how attendance at Major League Baseball games dropped off after the 1994 strike? What do you think will happen in the NHL?

My friend, Rico, and I both think things will be different in the NHL, but our reasons are different.

Rico says that with the salary cap, teams in lesser markets will be able to attract better talent and generate more interest in the game.

I don't disagree with him. Rather, I get a feeling (good science, eh?), a sense (sounds like socionomology, perhaps) that most fans are eagerly awaiting the start of the season. They have forgiven everyone involved, if only they will get back to playing again. But maybe that is just a feeling one gets, living in Canada.

I have to wonder, though, whether the lockout at the CBC will affect interest in the game. Of course whether it will depends on the extent to which other networks pick up the games in Canada. The value of the NHL contract could, in fact, be the major reason the CBC labour dispute gets settled soon; or .... losing it to other networks in Canada could be the reason the CBC dies a worthy death.

Kelo Visits Gaza:
the arrogance of central planning

Remember the Kelo case? It's an eminent domain case in which private property is being condemned for commercial development. For intelligent analysis of the case, I recommend these items by Kip Esquire.

The arrogance of central planners, that they think they know best what the value of things is and how best to use society's scarce resources, is appalling. It looks as if this arrogance is being replayed in Gaza, where the land claims of dispossessed residents are being ignored and trampled by the new gubmnt there [thanks to Jack for the pointer]:

When her property was taken, Khalaf was building a house on it. She and her sons want to resume construction, open a seaside restaurant and cultivate the rest of the land.

... But the Palestinian Authority has different plans. It wants to build high-rise apartments, universities and new farms on the ruins of the Israeli settlements and says land expropriated by Israel will not automatically be returned to its owners.
Somebody [Bill Gates? George Soros? (hah!)] should take the leaders of the Palestinian Authority on a tour of all the failed gubmnt projects in the former Soviet Union. Somebody should take these leaders on a tour of the disastrous housing projects in the urban centres of the US. And then somebody should take these leaders on tours of areas where well-defined property rights and economic freedom have led to phenomenal economic growth: Sinapore, Hong-Kong, Houston, Santiago, Tel Aviv, etc. (or the comparative successes in Dubai and the UAE). Even the rapid growth in the former soviet union countries that embraced property rights and economic freedom is instructive (e.g. the Baltic states, Poland, Hungary, Czeck Republic).

"We have a plan: that all the lands (appropriated) in Gaza be used for public good," Palestinian leader Mahmoud Abbas said recently.
How disappointing. I guess he never read (or understood) anything by Adam Smith, eh? Anyone who professes to take control of scarce resources so they can be used for the "public good" is either a knave or a fool. And maybe a bit of both. The arrogance of this sophomoric approach must be deflated if Gaza is to have any hope for economic development.

Even before the Israeli pullout from Gaza earlier this month, he decreed that the government would take control of all lands and assets that Israel left behind.

His decision was meant to dispel concerns that settlement land would be distributed unfairly and that senior government officials would benefit personally.
But surely putting these lands in the hands of bureaucrats will enhance the power of those bureaucrats, personally. Such pronouncements are worse than naive.

If Gaza and the Palestinian Authority wish to promote economic growth, they must develop a sense that property rights are strong, enforceable, and easily traded. Until they do that, they will continue mostly living off handouts and international extortion.

Sunday, October 02, 2005

Unpleasant News

But of course we had to know this was going on (from the Emirates Economist):

Emirates: al-Qaida Threat to Gulf Nations :: ABC

"The report, published by the government-run Emirates Center for Strategic Studies and Research, said Osama bin Laden's terror network is busy recruiting and sinking roots in the region."

Kidsbeer: "Even kids cannot stand life unless they have a drink"

There is a growing market in Japan for Kidsbeer, a no-alcohol, frothy, foaming carbonated beverage sold in brown bottles targeting children. [thanks to MPP for the link].

The drink started out as Guarana, a cola beverage that used to be sold at the Shitamachi-ya restaurant in Fukuoka, run by 39-year-old Yuichi Asaba.

Asaba renamed the sweet carbonated drink Kidsbeer, a move that made it an instant hit.

The Kidsbeer label captures a nostalgic mood as it was modeled after classic beer labels.

"Even kids cannot stand life unless they have a drink," reads the product's advertising slogan.

I don't know whether I'm amused or put off by the product and its marketing.

Photos from Biloxi

We have all seen the photos from Katrina's effect on New Orleans.

Here are some from Biloxi.


Judging from what I hear, see, and read, there will once again be some controversy about who should be selected as the Most Valuable Players [MVPs] in baseball this season. Just to add my eclectic, econoclastic views, let me offer the following observations:

It is not completely clear what the criteria should be for determining the MVP in each league. Last year, when I first started blogging, I suggested that the most valuable player is the player who adds the most revenue to his team. I had in mind an economics concept similar to Marginal Revenue Product [MRP].

I realize that it is difficult to assess how much a particular player has added to a team's total revenue. The relationship between playing ability and wins is complex, and the relationship between wins and revenue is discontinuous, with discrete jumps depending on whether the team makes the playoffs and how far it advances in the playoffs. But, of course, whether the team advances depends not on just the player being considered for the MVP but on others on the team as well.

That's no different, though, from saying the MRP of labour depends on the amount of capital it has to work with. And not surprisingly, the labour that has better and/or more capital to work with gets paid more because it contributes more to the revenue of the firm. Why should it be any different for sports MVPs?

I also recognize that good players probably add more to the total revenues of teams in bigger markets or with national television audiences; I can imagine that this possibility would bias many people against adopting an MRP-based measure, at least explicitly.

Often, it seems to me, sports writers have in mind a concept analogous to Marginal Physical Product [MPP] when they vote for the MVP. When they discuss "who was the best player" or "who did the most to help his team win," they are implicitly asking about the addition to total wins resulting from the use of a specific person's playing ability -- a discrete version of marginal physical product.

But here's another wrinkle: what if the criteria are, "which player added the most to the wealth of his team?" In this case, we would want to know the additions to total revenue minus the additions to total cost (i.e. minus the player's salary above and beyond the salary of a replacement player).
[Cross-posted at The Sports Economist]
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