Saturday, December 29, 2007
I once heard a brilliant speech by Lester Thurow on price-factor equalization. As I interpret Mr. Cowen's blog, factors are free to move and will move until the wages equalize. So if I'm a waitress at Happy Joes and China Garden pays a higher wage for the same job, I'll quit Happy Joes, increase the supply of labor at China Garden and the wages will equate until there's no factor mobility.
Krugman's article can be found here.
I dearly love Krugman's two econ 101 textbooks and plan to use them in my AP classes as soon as I can adopt a new book. It's hard to believe that Mr. Krugman is coming out against trade.
Friday, December 28, 2007
Eventually you will reach a point when you stop lying about your age and start bragging about it.
The older we get, the fewer things seem worth waiting in line for.
Here's a couple of truths about aging.
My mom thinks that long distance phone calls should only be used for something important like a child birth or a death. Old ladies think that gas should still be $.30.
My econ 101 response is that the opportunity cost of waiting in line has increased and older people fail to fully understand the effects of technology on prices.
Yesterday, I bent over to tie my shoes and wondered what else I could do when I was down there. I know I'm getting old. It's hard to keep up with technology. Do you think we'll all get older sooner as technology overleaps technology?
Thursday, December 27, 2007
Wednesday, December 26, 2007
In the graph, Nintendo thinks the market-clearing price is point 1. However, the real demand curve at the price given by the yellow line, is point 2. Since productive resources are fixed, a shortage occurs. Buyers satisfy their demand by using a secondary market and paying point 3.
Monday, December 24, 2007
Sunday, December 23, 2007
Here's Tyler Cowen on Krugman's book. The link also links to David Kennedy's review in the NY Times.
Saturday, December 22, 2007
Friday, December 21, 2007
This is in response to Andrew Korfhage, the editor for Co-op America calling for tough laws on products made in sweatshops. The usual defense is that working wages in these factories are higher than the competing alternatives for the workers. Mr. Korfhage argues that the factories violate human rights and national rights by paying less than the minimum wage in that country and workers often work longer than 14 hours at a time.
Thursday, December 20, 2007
Wednesday, December 19, 2007
Tuesday, December 18, 2007
In 2004, the US market supported 26 billion litres or 1 8 ounce bottle per person per day. Sales are expected to grow by 7% to 10% per day and sales in dollars are estimated between $50 and $100 billion. During the standardized testing time, our administrative team distributed bottled water to improve test results. My thought was, "If bottled water improves learning why not distribute water all of the time?" I also wonder why students can't just drink out of the water fountain and get the same results. Drinking bottled water is dumb, but smart for the Pepsi and Coke. The annual report for Pepsi is found here.
Sunday, December 16, 2007
Consumption makes up about 2/3 of aggregate demand and investment is volitile. The depreciating dollar will help as our goods will cheaper relative to the world. The article hints that consumers might form deflationary expectations. This isn't marginal thinking. Changes in these markets will induce more market participants. I'm predicting that 2008 will be a good year.
Saturday, December 15, 2007
After 40 years of doing business as K & D Clothiers, Dennis Cockshoot is calling it quits. Dennis sells fine mens clothing. Many of my best suits were bought at K & D and tailored to fit. Now, I watch as prices in the store sink downward weekly. Instead of going in the store and buying a new shirt or suit, I think, "Hey! If I wait another week, the prices will go down." If everyone thought like this, then output and prices would go down as well as employment. That's what's wrong with deflationary pressure.
Dennis lives for prom and Christmas. During the most wonderful time of the year with snow falling gently on the street, Dennis will be closing his doors to the cold. I wish you all of the happiness that retirement brings. I will miss you, Dennis.
Friday, December 14, 2007
The Undercover Economist rocked the pop econ world when it was released in 2006. The English author combines wit with intellect to expose why the rich are rich and the poor are poor and why you can never buy a decent car. Tim Harford has a new book, The Logic of Life, that should be of interest to readers of this blog.
Thursday, December 13, 2007
*Neighboring states pay higher wages and attract minority talent away from Iowa
*Many minorities don't want to teach
*Not enough incentives offered---such as offering future teaching employment to minority students if they return to the district , scholarship incentives, bonuses, etc.
*Some candidates are not confident in their English speaking skills
*Iowa has a much lower percentage of minority students than many other states
Katie Brown, our journalism and newspaper teacher, offers that many minorities have to start working right away instead of attending college because their families need the income. Also, Katie adds, many minorities don't see the value of a college education.
Dr. Tom Williams, my superintendent, offers that many minorites want a culture that is more culturally diverse than Iowa. He adds, that a warmer climate draws many qualified applicants away from Iowa.
Wes Fowler, our Human Resource Director, affirms that a low minority base and higher pay in other states draws from our pool of applicants. Iowa currently ranks 25th in pay after a generous increase in teacher pay by Governor Chet Culver.
Please add more reasons to this list.
The artists say, "Blog, blog, blog it all blog it if it's big or small." In the song they ask that I blog this song. Here is the acappella version on the group's homepage.
Wednesday, December 12, 2007
"The current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the U.S. economy, and the world economy more generally, will be able to get back to business. "
The entire article can be found at WSJ.COM for a very short time. Gone is the Greenspeak.
Tuesday, December 11, 2007
Why is the maintenance higher at the Jefferson Memorial? The answer comes in a series of answers to "why?" The Jefferson Memorial is crumbling. Why? Because the JM is washed more. Why? The JM has more bird dung. Why? The JM has more spiders. Why? The JM has more flies. Why does the JM have more flies. Because the lights are turned on earlier. So the maintenace staff started to turn on the lights later and costs went down. This story is just like economics. Economics is what you don't see until you start asking "Why?"
A salute goes to Dan and the Anamosa High School staff for their presentation on collaborative leadership. Dan recommend "Using data to discover Root Cause Analysis" by Paul G. Preuss.
Monday, December 10, 2007
I'm an 8th grade football coach, and I have by defense blitz all of the time because I believe the expected benefits are greater than the expected losses. I am also risk adverse. I love strategic interation. The paper cited about makes those same assumptions, but derives a different conclusion.
Sunday, December 09, 2007
Saturday, December 08, 2007
In the movie, Civil Action, defense attorney, Jerome Facher tells Jan Schlichtmann "...if you are looking for truth in a court room, you won't find it." The legal system sometimes interferes with the price mechanism.
The Raft of Chien-oiserie is an epic still-life fantasay painted by Mariam Graff. The painting is an interpretation of our current global economy as well as a tribute to the history of East-West trade.
The painting depicts a storm tossed raft, perhaps a piece of wreckage from an East India Trading company vessel, upon which various objects are scattered. The origin of the merchandise is as varied as the objects themselves, Chinese, Japanese, Korean, Malaysian, as well as "Chinoiserie", a French term for a style of decoration reflecting Chinese influence. Graff changed the spelling to "Chien" which is French for "dog," to add yet another layer of meaning to the piece as the dogs seen on the raft are breeds who orininated in the Far East that were packed in among the cargo to journey West.
Quantity and variety as well as confusion as to the origin of such goods resonates heavily with today's global trade economy and are part of a current series of paintings by Graff in which she examines the movement of goods from East to West--concentrating heavily on China. 'I am intrigued that the West has imported goods from the East for hundreds of years yet we can remain largely unaffected and uninformed about the cultures we trade with. I also am examining subjects such as Chinoiserie and Orientalism which contain elements of of the romatic 'Imagined East' or the Western mind."
The painting is awe inspiring to me. I reflected on the painting at the holiday stroll for 15 minutes last night. Why do people trade? Because both will be better off. The utility from trading is greater than the utility from not trading.
Tess also has volunteered over 500 hours of her time to help with hunger drives and blood drives. Tess recently played a part in the Calvary production of "Joseph and the Technicolor Dreamcoat". She was Muscatine High School's homecoming queen. She has volunteered countless hours to help elementary students learn to read and works at her church endlessly as a youth leader. Tess doesn't get paid for this so why does she volunteer so much?
An upward sloping supply curve shows that one is willing to supply more labor if the wage increases. I submit that Tess' supply curve has imbedded nonpecuinary aspects such as the benefit of the gain to her reputation. Tim Harford, The Logic of Life, writes in his column about the hidden motivations of volunteering here.
Tyler Cowen will have a blog started in January discussing Tim Harford's new book that will be rich with economic insight.
Sheri has a Biggest Loser contest in which participants pool their money and weigh in every week for 14 weeks. The one who loses the most weight as a percentage of their body weight wins $300. She has a lot in common with Han Xin according to Freakonomics gurus Steven Levitt and Steven Dubner. With Sheri's contest, participants have the monetary incentive not to deviate from their weight-loss goals. I think the contest most closely matches the private goals of the weight watcher with the stated goals and reveals weight preferences. I believe on the whole, that the benefits of this contest outweigh the costs. For example, people who feel good about themselves produce more. However, time will be spent at work aside from producing to participate in the contest, but the long-run benefits will be greater the long-run costs.
Friday, December 07, 2007
My boss believes that you dress for success and that clothes are a signal of a professional. He'd like to see me wearing a tie every day and a $300 suit. I aruge that the clothes don't make the man. If you look at the executives at Enron, those men wore Aramani suits but stole millions for innocent investors. I concede that clothes can be a signal of a professional but the actions of the worker reveal his or her character. I should capitulate and just wear better clothes, but I don't want to incur the transaction costs of dry cleaning. I also believe that the longer you interact with students the less they notice your clothes and the more they notice the man or woman in the clothes.
Tuesday, December 04, 2007
(Click to enlarge.)
Sunday, December 02, 2007
One answer is inventory control. The computers can electronically calcuate when a popular item needs to be reordered. The cash register is handy for calculating sales tax. The customer might now believe that EVERY THING a dollar. Maybe customers are just used to hearing the beep and wouldn't trust a simple count of the items and multiplying by 1.07. Perhaps the cash registers do a lot of the mundane bean counting work that managers used to do so they are free to work with customers. Whatever the reason, cash registers at the dollar store seem redundant.
Today, I was buying an iTunes card and noticed that the lowest gift card I could buy was $15. Econ 101 predicts that the lower the cost, the more will be consumed. I feel like the cost should be as low as $5. At that price, the marginal buyers would be induced into the market. Given the low cost of producing the gift cards, one would expect a spectrum of values to capture the marginal customer and maximize profits. Like saying I Love You, I am unclear why this pricing strategy exists.
If I give a gift card, then the recipient gets the full use of the money plus they get to decide what they want. Last year, TowerGroup, a financial services group, estimates that $80 billion spent on gift cards last year, $8 billion was never redeemed. Almost 20% of those receiving a gift card never use it according to the research. In 2007, Best Buy earned $16 million in gift card “breakage”, which is the accountant’s term for a card that was never redeemed.
About two-thirds of gift givers plan to give a gift card. There’s some chance that the card won’t be used or lost. So is giving a gift card really that good of an idea?
I think it depends. Tess Weaver says, “A gift card might be okay to give to some people, but not those close to you like a boyfriend.” An economist might describe a gift as a signaling mechanism that tells another person that you’re thinking about him or her or care about them. I think most people want to give a gift that has value as well.
Wharton Business School economist, Joel Waldfogel, found that the gift receiver values the gift about 20% less than the gift giver. In other words, if I spend $10 on you, you think the gift is only worth $8. Economics is all about symmetrical information and matching costs with benefits. So a gift card costs me $20 and you only benefit $8. Economists would say this is inefficient.
Personally, I would want a gift card because I think I know more about what I want than others. But, is this always true? Is it true that people will choose what’s best for them? I have seen students skip class, not do assignments, and eat poorly. I myself drink way too much Mt. Dew. So if my mom gives me a hand knit sweater that I put in my drawer and only use once that would be better than a gift card from Blaine’s Farm and Fleet that I never use or cash that I blow on wine and cigarettes. But on the whole, I believe that people are better choosing what they want for Christmas than I am. For example, I would buy Danny Chick a catcher’s mitt, Barry Major a Snoop Dog CD, Chris Rickels a NFL jacket, but I’d probably be way off. I believe that giving a gift card most closely matches the value of the gift I want to give to the value of what the recipient wants and prefers.
Sometimes a person I’m buying a gift for is too frugal to spend money on something outrageous. For example, I know that my brother-in-law wants an Anime DVD, but if I gave in the cash to buy it, he would buy groceries instead. For those people, I will buy a gift that they would not buy themselves. But to maximize the utility of my gift-giving dollar, I’m going to give gift cards. For many people on my Christmas list this year, they will be able to guess what they are receiving because they will pick it out themselves. (I relied on information from The Gift-Card Economy, Stephen Dubner and Steven Levitt, and the "Sovereign vs. the Idiot, by Joel Waldfogel, in preparing this blog.)
Perhaps, mother nature is telling the man and woman that he's too old to raise a child. Whatever the reason, econ 101 perdicts that market participants seek to maximize their utility. I wonder if the decision maker always chooses what's in his best interest when shallowing the pill.