Tuesday, July 31, 2007
Sunday, July 29, 2007
Friday, July 27, 2007
Friday, July 20, 2007
According to Newsweek (July 23, 2007), the average income for the top 1% of households has grown steadily while the average household income has remained steady. The implicit intutition is that the gap between the rich and poor is growing (pages 38-40). Along the same line, Newsweek writes, "The very rich in America pay taxes at a lower rate than most working people.." In a related graph, the very rich are those earning $810,700 annually compared to the mean income of $58,700.
Normative economics deals what should be. So should the super rich pay a higher amount in taxes? I think the Newsweek article deals with the super rich who own private equity firms and are taxed at 15% instead of 35%. In this case, will eliminating the tax loophole by increasing the marginal rate of taxation for these 1% discourage investment? Of course it will. In econ 101 terms, there will be less investment opportunities at a higher rate than at a lower rate. Will the curtailed investment hurt the teacher or the cop? I doubt that too. In the words of Arthur Okun, "High tax rates are followed by attempts of ingenious men to beat them as surely as snow is followed by little boys on sleds."
I also believe that a higher tax discourages innovation. In other words, why should I work to improve my product when I'm going to have to give it away? A higher tax destroys incentives. If the super rich are beating the tax system, it's because of their innate abilities that allow profits to accure to a factor of production.
Monday, July 16, 2007
Wednesday, July 11, 2007
Suppose a grocery store has a policy that it'll be the lowest price on groceries. Let's take a hypothetical store the size of Sam's Club. The store might post a sign that reads, "If you find a product anywhere cheaper, bring in the receipt and we'll pay the difference." This sounds like one heck of a good deal. But economics often focuses on those forces that are unobservable. I believe that the promise of the lowest price is a way of tacitly colluding on price.
Tuesday, July 10, 2007
Econ 101 textbooks report that taxes can be progressive, regressive, and proportional. An ariticle shared on my Lystserv site, shows are taxes are regressive to high-income earners. A link can be found at: http://www.ctj.org/html/whopays.htm. The rest of this blog will explain the three types of taxes using as a reference the Paul Krugman-Robin Wells Microeconomics text published by Worth Publishing Company. A proportional tax is a flat tax. A progressive tax tries to capture some of your ability to pay by increasing the amount you pay in tax as your income increases. A regressive tax means that you pay less in taxes as your income increases.
Sunday, July 08, 2007
Thursday, July 05, 2007
Wednesday, July 04, 2007
Tuesday, July 03, 2007
The internet is the disruptive technology that makes entrance easy. Sometimes, musicians will use Audacity and a computer to record their work then upload to Facebook or My Space. This is nearly costless entrance and exit. I believe the existence of long-term contracts by Warner, Sony-BMG, EMI, UMG have made exit from the industry very costly for those firms who act like a monopolist through tacit collusion. The music industry is not contestable since 80% of the industry is dominated by 4 firms acting like a monopolist with no way to dispose of assets.
Monday, July 02, 2007
Suppose Tiger Woods beats Angel Cabrera at the John Deere Classic in Moline, Illinois. Tiger will win significantly more in winnings than Angel in prize money, endorsements, and advertisments. You'll turn on the televison and see Tiger. The front page of USA Today will show Tiger holding a trophy the size of a golf bag. Tiger will be every where. It'll seem like Tiger has taken it all.
In the music industry, small differences in ability leads to big recording contracts with Universal Music Group, EMI, Sony/BMG, and Warner. The oligopoly, acting tacitly, make sure that the artists they sign are promoted in Rolling Stone, iTunes, and their CDs get the most shelf space. It'll seem like everyone wants the best CD and it'll be easy to buy it at Best Buy, Target, or Wal-Mart.
It's virtually costless for the music producers to replicate a CD and place them on the shelves. Almost 80% of the space on shelves is occupied by the oligopoly group because the artists they endorse earn the most money for the retailers. Is it any wonder then, that the music group is resisting downward pressure on their prices since they would make less revenue per CD? So the price of a CD stays rigid at $15.
In Rolling Stone this month, Brian Hiatt and Evan Serpick write that the pricing model of the oligopoly is out-of-date. I concur, as I believe tastes and prferences have changed in favor of MP3 players like the iPod and Zune. Consumers might be better off delaying their purchase of music until the industry updates its pricing model that approaches the competitive ideal.