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 22, 2005

Price Gouging, Rational Expectations, and the Long-Run Supply Curve

What if people anticipate a sudden shortage might occur in a particular area?
In the expectation of earning profits, they will gear up to ship more of the product into that area.
And that is exactly what has happened in most hurricane-threatened areas. From Brian Ferguson at the Canadian Econoview, quoting the Miami Herald re: Wilma (reg req'd):

Local hardware and other stores say they are well stocked with supplies should Wilma come to South Florida. ''We are ready to go,'' said Home Depot spokesman Don Harrison. ``We've reactivated our war room here in Atlanta.''He said stores in this region are well stocked with plywood, generators, chain saws, tarps and other items needed before and after storms.
Brian Ferguson astutely adds about price gouging laws,

...assuming all of the hardware stores in South Florida are bringing in storm supplies, the supply curve has shifted out to the right in anticipation of an increase in demand and competition between local suppliers would keep prices from rising too much. So the price freeze actually might not be that much of a distortion.
Let's hear it for rational expectations models!

More on Personal Planning for Disaster Survival

Planning for survival in case of disaster is costly. Talking and reading about the possibilities takes time. And then acquiring the appropriate materials and supplies will require several days of time, along with several hundred dollars, at a minimum.

Comparing these costs with unexpected and minimally possible catastrophic losses of unknown size from a disaster is difficult at best. Varying amounts of preparation may provide varying amounts of protection; but the preparation might be useless, too, depending on the nature of the disaster.

Despite all these uncertainties, ever since the floods and hurricanes along the US gulf coast in August and September, we have been thinking about disaster preparation and have slowly been acquiring items that will help us survive, should we face problems in our area.

Recently, BenS sent me a link to this site, with information about surviving nuclear fallout. Back in the 50s and 60s, during the height of the cold war, this type of information was readily available. Given the proliferation of nuclear weapons among various countries, it may be worthwhile looking at again. Certainly, the people who maintain the web site think it is (e.g., imagine terrorists bombing a nuclear energy facility).

The site recommends stockpiling water. Lots of water. In addition, the list and suggestions on the last page of the site might be helpful for many different types of potential disaster (I see they forgot to include Scotch). Keep in mind that the list is for people who are rushing out to buy supplies and who expect to be on their own for quite some time:

It’s much better to risk being a little early when securing your family's essential food and supplies, rather than a few hours too late...

  • Canned goods (pasta, soups, chili, vegetables, fruit, tuna, meats, lots of peanut butter, etc.)
  • Ready-to-eat foods (pop-tarts, raisins, cheese, granola/energy/protein bars, snack-paks, etc.)
  • Some perishable foods (breads and fruits like bananas, apples, oranges, grapes, etc.)
  • Assorted drink mix flavorings (with no cold drinks, just plain water, kids will appreciate it!)
  • Plenty of potent Multi-Vitamins, Vit C, etc.
  • Iodine solution, like Betadine (16 ounces)- NOT TO BE INGESTED OR SWALLOWED!
  • Multiple big boxes of dried milk (Could include/use some inside shelter, too.)
  • Multiple big boxes of pancake and biscuit mix & syrup
  • Largest bags of rice
  • Largest bags of beans
  • Largest bags of flour
  • Largest bags of potatoes
  • Largest bags quick oats and other grains
  • Largest bags of macaroni
  • Large bag of sugar
  • Large jar of honey
  • Large 2 gallons or more of cooking oil
  • Baking powder & baking soda & spice assortment pack
  • Bottled water (especially if home supplies not secured yet)
  • Paper or plastic plates/bowls/cups/utensils
  • Quality manual can opener, 2 if you don’t already have one at home
  • Kitchen matches and disposable lighters
  • New garbage cans and lots of liner bags (water storage & waste storage)
  • 5 gallon bucket and smaller garbage bags sized for it (toilet)
  • Toilet seat for the bucket (or use one from inside the house)
  • Toilet paper and, if needed, sanitary napkins, diapers
  • Baby wipes (saves water for personal hygiene use)
  • Flashlights (ideally LED) and more than one portable radio
  • Plenty more batteries, at least three sets, for each of the above
  • Bleach (5.25%, without fragrance or soap additives)
  • Alcohol and Hydrogen Peroxide
  • Aspirin/Tylenol/Motrin, Pepto Bismol, etc.
  • Prescription drugs filled, and as much extra as possible
  • First aid kits
  • Fire extinguishers
  • Plenty of dust mask filter protectors
  • Cheap plastic hooded rain ponchos for everyone
  • Water filters and all other camping type supplies, such as Coleman cook
    stove and fuel, ammo, etc., if any sporting goods stocks still available.
  • And, of course, rolls of plastic sheeting, duct tape, staple guns, staples, etc.

Showing Displeasure with Really Bad Service

Is it possible to leave a negative tip? Here is one way (not that I would recommend it).
From (Thanks to Jack for the link):
Had a party of 7 so i couldn't add gratuity. They had run me all afternoon and towards the end, a lady asked me for my name. I gave it to her, wondering why, and found out when I realized she left me a personal check for $10.00 as my tip, after paying for the bill with a credit card. I was initially pissed because it wasn't even 10% but I figured what the hell? So I deposited it and forgot about it until three weeks later when I received a letter in the mail from my bank letting me know the check had bounced and because of it, my bank charged me a $7.50 fee.

Total bill / Tip amount / Percentage:
$120.00 / $-7.50 / -6%

Friday, October 21, 2005

Macro Forecasting in One Easy Lesson:
a universal technique for hurricanes and macroeconomic variables

Many years ago, a former student became the chief economist for a major firm.

When I asked him how he made his macro forecasts for the firm, he replied,
"It's easy. I subscribe to a lot of forecasting services and take an average."
It is tempting to do the same thing with forecasts for the path of hurricanes.

In fact some of the best forecasters work in both economic and weather forecasting.

Legalized Scalping

In our Radioeconomics discussion about the World Series this morning, King Banaian, Phil Miller, and I discussed ticket scalping at the outset. In an earlier posting, Skip Sauer noted that there have been reports from the Chicago Tribune that Chicago tickets to the World Series with face values roughly between $125 and $200 have been resold for between $515 and $7500, depending on the location of the seats.

After our podcast discussion (but probably unrelated to it), one of Skip's friends sent him this story from the WSJ online. It turns out that reselling tickets is legal in many states, and with varying regulations on the resellers and the prices they are allowed to charge.

One Illinois provision was passed in May when White Sox fans could only dare to dream about a World Series berth for the first time since 1959. It lifted the ban on nonlicensed individuals reselling event tickets online for more than face value.
The effect of this de-regulation of the aftermarket has been to increase the supply of tickets on the legal market, with the expectation that, ceteris paribus, prices would drop somewhat.

The new laws could mean that prices for resold tickets for other events such as concerts and theater performances could fall too as a greater number of sellers post tickets online.
At the same time, knowing that one can buy scalped tickets legally has increased the demand. The net effect on prices is difficult to predict and assess.

But online ticket resellers continue to report frenzied business. StubHub, based in San Francisco, says the number of White Sox tickets sold on its site the day the team clinched the American League championship was 57% higher than the number of Red Sox tickets sold when Boston won a spot in the World Series last year.

Online ticket reseller RazorGator reports a 50% increase in traffic overall. "The change in the law opened up a whole new piece of the market," says David Lord, the Beverly Hills-based company's president and chief executive.
The article makes a concluding point that emphasizes the importance of reputation: counterfeit sales may become an increasing problem, especially with personal sales on-line between people who do not know each other.

A Health Advantage for Buying Used Cars

Jack sent me this piece, which points out that the smell of a new car is possibly harmful to your health.
... that unmistakable new-car smell may soon be heading the way of the rumble seat: Recent research linking it to a toxic cocktail of harmful chemicals is spurring efforts by Japanese automakers to tone down the fumes.
Another good reason to buy used cars.

Jack adds that surely there should be some sharp lawyer out there assembling a class action suit on behalf of new-car sales reps.

Thursday, October 20, 2005

The Economics of Sports, Baseball, and the World Series: a Podcast at Radioeconomics

Phil Miller, King Banaian, and I just completed our discussion on the Economics of Sports, Baseball, and the World Series, and it is now available for downloading from this site. We started out talking about the economics of the World Series, but the discussion broadened considerably as we talked together.

To download the MP3 file, click on the title of the posting at that site or just click here.
James Reese, the producer, wrote about the discussion:
Three noted sports economists discuss the forthcoming 2005 World Series - with predictions on who will win. Topics covered: World Series ticket prices, competitive balance, team salaries, role of randomness, unbalanced schedules, TV revenue sharing, and money ball.
Those guys are very smart and very knowledgeable, which makes it fun to talk with them and interesting to listen to them.

The Economics of the World Series:
Reminder of Thursday's Podcast

On Thursday morning, King Banaian, Phil Miller, and I will be discussing "The Economics of the World Seriers" on Jim Reese's Radioeconomics podcasting service. The discussion will be available for download several hours after it takes place. All three of us have taught sports economics and we are part of the group that blogs at The Sports Economist, where there have been some fairly challenging and interesting postings about baseball lately.

Or you can listen to the discussion live and post questions for us to consider during our discussion. Professor Reese has set up a Breeze Live site for this feature of his podcast productions. To go there, click here. The Breeze site will be available shortly after 8am; just log on as a guest using your name. The discussion will begin shortly after 9am EDT [10:30 in Newfoundland]

The Merchant of Venice and World Series Tickets

The prices for tickets to World Series games in Chicago have once again been set well below the market clearing prices. The nominal prices are between $125 and $185. But scalpers/brokers are charging between $515 and $7500 per ticket, depending on the game and the location of the seat. Skip Sauer has more at The Sports Economist.

There have been some unusual offers. For example, this one in the Chicago Tribune that Skip drew to my attention:

One posting at offered a healthy kidney--you choose left or right--for "two Sox tickets in the outfield!"
I presume the offerer is not serious. But what if s/he were serious? How might one enforce the contract? Surely one could not extract the kidney before the game, since then the offerer would not be able to attend the game -- s/he would still be recovering from the surgery. Do you think perhaps s/he wants to give up a kidney to get a pair of tickets for some friends or relatives? I doubt it.

But if the seller of the ticket waited until after the game to collect the kidney, that would be pretty risky. What if the offerer of the kidney reneged on the promise? How might one enforce such a contract, or, if it were deemed unenforceable, what remedies might one seek?

Enter Shylock.....

Feeling My Age

Today is my birthday. I'm 87 years old today. At least I feel that way sometimes.

I asked my introductory economics students if any of them had heard of Frank Zappa. They developed a puzzled, "Who's that?" look on their collective faces.

Here is (I think) the first album of The Mothers of Invention, Freak Out; I first heard it in 1965. It had such classics as "Wowie Zowie" and "Help! I'm a Rock".

Many afficiandos will disagree, but the other great album by Frank Zappa and the Mothers of Invention was this one:

It had the classics "Dinah - Moe - Hum", "Camarillo Brillo", and probably my all-time favourite, "Montana", which I have often used to illustrate production functions in my microeconomics theory classes: Production of dental floss as a function of beeswax, tweezers, pygmy ponies, white boxes, dental-floss bushes, and labour.

When I sing along with the song nowadays, I substitute "Alberta" for "Montana" to good effect.....

Well I might be movin' to Alberta soon
Just to raise me up a crop of dental floss.

... Raisin' it up, waxin' it down.
In a little white box that I can sell uptown.

By myself, I wouldn't have no boss,
But I'd be raisin' my lonely, dental floss.

Wednesday, October 19, 2005

Wilma! Wow!

Hurricane Wilma has gone from a tropical storm to a category five! hurricane in about seven hours. Cuba, the Yucatan and eventually Florida appear to be in its path (see here for projected path).

Are Real Estate Agents in a Dying Profession?

With computerized MLS listings of real estate and computerized buy-sell offer forms and computerized registries, will real estate agents become a thing of the past? Some apparently are sufficiently concerned that they have lobbied to have feather-bedding type legislation passed to protect their jobs.

Dave Friedman writes about the profession:
I've often wondered why the middleman persists in real estate and I suspect it has something to do with both the complexity of real estate law and its history in English common law. As I understand it from a layman's perspective, real estate law is much more steeped in arcane historical artifice than are other areas of law, and therefore there is an argument to be made that real estate brokers possess a body of knowledge and skill that individual homeowners do not have. (This is a questionable argument to make, if only because it implies that real estate lawyers, not brokers, possess the specialized knowledge required to successfully pass title from one person or entity to another.)

Even if we are to ignore that argument's inherent weakness, it is not a satisfactory explanation for the persistence of non-disintermediation. One would think that the pressures of the free market would be such that real estate transactions would become vastly more simple as technology improved. Witness how much easier it is to sell stock now that internet trading has become commonplace. And, certainly, investment is another highly complex area in which special expertise has proven itself to be very valuable.
Two notes:
  1. Ten years ago I was talking with an agent about how internet MLS listings would be very helpful to consumers. She was aghast. She said, "But I'd be out of a job then." Probably agents with that attitude will struggle; those who succeed will be those who provide services not available over the internet.
  2. When I wrote my intro text, we settled on "intermediary" and "intermediation" as gender neutral terms for "middleman" and the services they provide.

Playing the Short-Run Phillips Curve

So long as people expect the rate of inflation to stay within the limits/targets set by central bankers, policy makers can probably have some (a bit of) success trying to move the economy back and forth, up and down along the inflation/unemployment tradeoff.

The trouble is that keeping the expected rate of inflation in the targeted range is not always easy. And once we experience rates of inflation different from the targeted rates for any length of time, we adjust our expectations.

What I have set out above is the heart of an error-learning/adaptive expectations model. This model is clearly more descriptive of the macroeconomy than any of the rationalized expectorations [or, if you prefer, rational expectations] models that were all the rage in many circles over the past several decades.

For more on expectations and inflation rates, see, for example, this and this by David Altig during the past week.

Is the Dutch Disease Coming to Canada?

From Steve Poloz at Export Development Canada:

In theory, Dutch disease can be contracted by any economy that produces a key resource and has a manufacturing sector, too. Suppose the world price of the resource shoots up, causing the sector to boom. This will generally cause the economy’s currency to appreciate, putting stress on the manufacturing sector. Something like this happened to the Netherlands in the 1970s when energy prices jumped and the Dutch guilder rose – hence the name of the illness.

Obviously, the current situation has the potential to inflict Dutch disease on Canada. Oil prices have ratcheted higher in the past year, boosting the Canadian dollar into the mid-80s against the U.S. dollar. While high oil prices benefit some exporters – producers of petroleum, oil and gas equipment, energy exploration companies and engineering firms – others receive fewer Canadian dollars for each U.S. dollar export sale.
Steve concludes:

Symptoms of Dutch disease are beginning to appear, with profit margins expanding in the energy sector and contracting in a number of manufacturing sub-sectors. What happens next depends on how long the stresses last – and that all depends on energy prices.
As a sinecured consumer, I'm happy to see the Canuck buck appreciate. My friend, Jeff, who exports manufactured goods to the US, does not share my perspective.

Tuesday, October 18, 2005

High Office Heating Bills?
Staff Should Wear Thermal Undies

How many times will we see articles over the next few months about how everyone has to pull together to save energy because of the high prices of heating oil and natural gas? Here is a BBC item from last June sent by Brian Ferguson that foreshadowed things to come:

Staff at the Environment Agency's headquarters are encouraged to wear thermal underwear in the office during winter, it has emerged.

The move is part of a drive to reduce heating costs at the London office of the pollution watchdog, according to its chief executive Baroness Young.

Lady Young said everyone could help to reduce their impact on the planet.
I hope some investigative reporters will be checking Lady Young's drawers this winter.

Canada - U.S. Relations

There has been a shift in Canada-US relations over the past decade or so. More Americans now view Britain (vs. Canada) as their closest ally. This article by Harpriye A. Juneja in Chicago Online, a publication of the University of Chicago's Graduate School of Business, explores why.

The article begins:
For more than twenty years, American tariffs on Canadian soft lumber imports have been a major irritant on U.S. relations with Canada. Perhaps more so than at any time in those previous two decades, Canadian irritation with American tariffs reached a crescendo last week as a NAFTA panel ruled for the fourth consecutive time that U.S. tariffs on Canadian lumber imports were illegal.
It continues,
Unfortunately, once again, the U.S. government ignored both the ruling as well as Prime Minister Martin, preferring instead to capitulate to lobbyists and special interest groups from the American lumber industry and forfeiting an opportunity to simultaneously lower costs for American consumers as well as bolster flagging public relations in Canada. Even more unfortunate is the fact that there was utterly nothing surprising about this response. For years now, through both Republican and Democratic administrations, Washington politicians have found a way to sour relations with Canada, by far America's largest and most important trading partner, driving up the prices Americans pay for assorted Canadian products in order to curry favors from various agricultural and natural resource lobbies.
That is a pretty straight-forward analysis of the situation. But it doesn't cover everything. There has always been an antipathy of sorts from Canadians toward Americans because of American ignorance and arrogance about Canada. Some examples I encountered during the first several years after moving to Canada:
  1. When visiting relatives in the US, someone asked me, "How big a city is Canada?"
  2. When attending a large reception in the US Midwest, I won a prize for having traveled the farthest, even though someone else was there from Hawaii. [The distance from London, Ontario, was less than a thousand miles!]
  3. There are numerous stories about tourists expecting it to be really cold here, when much of the population of Canada lives no farther north than Minneapolis.

So much of the antipathy has been festering for a long time. It does not, however, forgive the recent rudeness of a few Canadian politicians that have played to some anti-US sentiments in Canada. From the article by Juneja:

Still, the United States is not solely responsible for the recent deterioration in relations with Canada. In fact, Canadian special interests - mostly ideologically rather than economically motivated - have also tapped into the deep-seated Canadian need to feel "sovereign" from the United States to exaggerate differences and curtail cooperation. For example, the tensions over the missile defense shield could have (and should have) been easily avoided with America, as the U.S. merely was seeking symbolic Canadian support for the project, which the Canadians refused largely on nationalistic and ideological grounds. Canadian businesses have also sometimes opportunistically raised the specter of American domination of Canadian natural resources as a cheap way of staving off competition from U.S. companies. Additionally, irresponsible comments from certain Canadian politicians, such as the former energy minister who called U.S. President George W. Bush a "moron" or the legislator who told Parliament she hated those "damn Americans," are neither productive nor dignified - even though they may play well with fringes on the Canadian left.
If the US would begin to honour its trade treaty obligations, that would go a long way toward reducing Canadian antipathy toward the U.S. But if they don't, eventually Canadians may have to look for remedies that make exclusive use of the U.S. Courts. Failing that, there is always this option.

The Ugly Iceberg of Bigotry

Most people who harbour prejudicial thoughts know enough not to let such thoughts slip out in their full glory. There are hints, there are euphemisms, and there are tones and nuances.

It is reasonable to expect that bigots would choose such behaviour until they learn more about their audience and about how their views might be received. Amnesty International provides an excellent example:
Consider, for example, a recent report by Amnesty International on violence perpetrated against Palestinian women by Palestinian men in the West Bank and Gaza Strip. The report purported to be “part of the global AI [Amnesty International] campaign to stop violence against women.” Such violence is a serious problem, especially in the Arab and Muslim world, because so few leaders within these groups are prepared to condemn it and so many even justify it as a necessary means of maintaining family honor and male dominance.

The report documents honor killings of women who had been raped. In one such case a 17 year old was murdered by her own mother after she was “repeatedly raped by two of her brothers.” In another case, a 21 year old “was forced to drink poison by her father” when she was found to be pregnant.

The report places substantial blame for these and other killings on – you guessed it – Israel. Here is AI's conclusion, listing the causes of the violence directed against Palestinian women, presumably in the order of their importance: “Palestinian women in the West Bank and Gaza Strip are victims of multiple violations as a result of the escalation of the conflict, Israel's policies and a system of norms, traditions and laws which treat women as unequal members of society.”

The “escalation of the conflict” (which AI blames primarily on Israel) and “Israel's policies” rank higher than the “norms, traditions and laws which treat women as unequal.”
Alan Dershowitz, a professor of law at Harvard, wrote this piece [h/t to BenS]. He added (among other things):

THE AI report was brought to my attention by one of the pioneers of the human rights movement, a founder of Human Rights Watch, who is now somewhat alienated from his own movement. As a result of “their obsessive focus on Israel,” he told me, “these human rights organizations are becoming part of the problem.”
Update: Coincidentally, Rondi Adamson has an item about cultural differences and racism on her blog, too.

Monday, October 17, 2005

Alberta Bound

At the end of this week, I will be in Alberta for a few days.

As of now, there are no meetings planned with Ralph Klein, Premier of Alberta, to discuss management of Albera's oil wealth.

I Do Not Believe in Freedom of Religion

Freedom of Religion should not and cannot be absolute. As I wrote when I first started this blog nearly a year ago, it is unacceptable to allow the promulgation of religions which honour those members who kill non-members to gain admission to heaven, even in a probablistic sense [thanks to Jack for sending this article].

Zurida Shenkao was one of nearly 20 people militants held captive in various buildings during their assault on government and law enforcement offices in Nalchik, a regional capital in Russia's turbulent Caucasus.

Her account, given to The Associated Press by telephone Saturday from her hospital bed, was among the details emerging about the simultaneous attacks, in which at least 128 people were killed, including 92 militants.

At one point, the gunmen explained to Shenkao and four other women in the store the motivation for their bloody assault.

"We are fighting for our motherland. We must kill all those who wear police uniforms and serve the government," said one of the men, both in their 20s, Shenkao recalled. "The more of them we kill, all the more certain we will get to heaven."
Emphasis added.

The Economics of Pharmaceutical Intellectual Property Rights in a Nutshell

Tyler Cowen summarizes the situation here very well:
We should not focus on avian flu to the exclusion of other emergencies, including bioterrorism. Avian flu is just one possible pandemic of many. If we confiscate property rights this time around, there won't be a Tamiflu, or its equivalent, next time.
We must continue to get this message across. When the panic hits, flaming interventionists will argue that the gubmnt should do something. But the time to do something is now, not then. Plans and policies must be formulated that look forward not just to one pandemic but to other possibilities as well.

And de facto confiscation of intellectual property rights will certain deter people from developing and producing vaccines in the future. Even the expectation that the gubmnt might confiscate intellectual property rights leads to a reduced expected pay-off from R&D.

Art, Constipation, and Economics

Brian Ferguson sent me this item from The Australian:
Britt-Maj Wikstroem of the Ersta Skoendal University College in Stockholm had 20 women of around 80 years of age gather once a week for four months to discuss different works of art.

"The result was positive. Their attitudes became more positive, more creative, their blood pressure went in the right direction ... and they used fewer laxatives,"...
I can readily imagine it is cheaper to pay for the laxatives and blood pressure medication than it is to hire someone to host art discussions. In fact, even if the people who host art discussions are volunteers, it might be cheaper if the discussion leaders worked elsewhere for minimum wage and donated less than their entire earnings to the purchase of pharmaceuticals for the test subjects.

Of course that ignores the pleasure these people might get from hosting art discussions rather than working at minimum-wage tasks. And that realization also indicates that people who like to host art discussions have a vested interest in how this research is received.

I'm sure Brian was not thinking of this art when he sent me this story.

Sunday, October 16, 2005

The Economics of the World Series:
Reminder of Thursday's Podcast

This is just a reminder that beginning at 9am EDT (10:30 in Newfoundland) on Thursday, October 20th, Phil Miller, King Banaian, and I will be discussing The Economics of the World Series on Professor James Reese's Radioeconomics Series.

The discussion will be available over the internet live, during which listeners can type in questions that we will try to address during our discussion (the radioeconomics website announcing this discussion has the link to the Breeze Live site if you wish to listen to it live; just log on about 9am on Thursday).

The transcript of the typed material and the actual podcast will be available for downloading a few hours later.

Bachelor Salad: The Greatest Recipe on Earth

I saw this recipe on the internet way back before Al Gore invented it (the internet).

Bachelor Salad
  • one wedge of iceberg lettuce,
  • one bottle of your favourite salad dressing
Hold lettuce wedge over sink.
Pour on desired amount of salad dressing.

An NHL Home Study Course

Thanks to JC for this link to the NHL Academy, which offers to teach you how to play hockey in your own home in your spare time.

Each "study unit" takes awhile to load, so be patient.

Note: JC says the link is via Fark
Who Links Here