Tuesday, May 27, 2008

Freedom Aloft 2008 pictures

This spent Memorial Day weekend in Simpsonville, SC and enjoyed watching hot air balloons from Freedom Aloft 2008. On Saturday, five balloons landed in my in-laws neighborhood. We had fun helping pack hot air balloons - I am now a near expert in the art.

Here are some pics from the fun on Saturday and the rinky-dink show that provided rides and games at the festival.

Flikr Album

Labels: pictures

A lack of respect?

I have always been impressed with the fact that here in the United States people tend to obey street signs, lane indicators, and traffic lights more than in other countries that I have visited. However, there seems to be more instances in which this "obedience," which is really a Nash equilibrium amongst drivers, is changing.

For instance, this weekend in Simpsonville, SC:



Nice touch.

Labels: you can't park there

Cross-price elasticity: Hotels vs. Gasoline

Driving up from Greenville - pics to come soon - I saw a motor inn (didn't catch the name at 75 mph) that advertised showing a gasoline receipt and receiving a 20% reduction in normal room rates.

The price of reformulated gasoline increased from 378.1 cents per gallon on 5/12/2008 to 385.1 cents per gallon on 5/17/2008, an increase of 1.8%. If the hoteliers feel they have to drop price by 20% in response to this increase in gasoline prices (assuming everything is in equilibrium), this would suggest a very high cross-price elasticity between gasoline and hotels.

The bigger picture is that markets respond to price changes in other markets, just like we teach in principles of economics (yeah!!)

Labels: economics, oil

An interesting first

Modern U.S. society continues to point out the "First _____" especially when the "_____" is a minority or traditionally underrepresented group. I am of two minds when it comes to this type of announcement. On the one hand, I am sure for the "____" group it is an important milestone and deserves to be mentioned and applauded. On the other hand, it sometimes feels like the majority are trying to pat themselves on the back with the "Gee, aren't we swell" type of approach. If these announcements are of the former type, I am all for them. If they are of the latter type, they would seem to demean the accomplishment and they should go away.

Today's Atlanta Journal-Constitution reports an interesting first, one that should be lauded but might not get as much press as other types of "firsts." I think this blurb will let you know why:

Joshua Packwood took the road less traveled when he chose Morehouse College four years ago.

And Sunday morning he made history, becoming the historically black, all-male college's first white valedictorian.

Is the price of crude oil non-stationary?

A non-stationary price would seem incompatible with a stable market. I don't have the time at the moment to test whether the price of crude oil, and thus the price of gasoline, is non-stationary, but this graph would suggest that it is:




What can explain this run-up in price? Look for papers in the American Economic Review in the next two to three years.

Labels: economics, price

We will wake up tomorrow in Utopia!!

The long search for Utopia has now come to an end. Tomorrow, May 16, 2008, will be the first day of a new era for humanity, or at least those with sufficient lobbyists on K-street. What will be the impetus for Humanity 2.0? Evidently it's the 2008 Farm Bill, otherwise known as The Food, Conservation, and Energy Act of 2008.

Now, how do we really know that starting tomorrow we can leave our doors unlocked and go ahead and fire all the policy? Because Congress has discovered the solution to scarcity, which means two things: evidently we can implement pure socialism and us economists are out of a job. For proof we turn to Senator Tom Harkin, who helped fabricate the monstrosity:

"This bill benefits every American, from our smallest towns to our biggest cities, urban and rural residents, farmers and non-farmers."

Well, that about solves it. Whew.

However, we know we won't really wake up in Utopia because the statement of Tom Harkin is missing one important word: "net."

A good politician, which I take for granted Sen. Harkin is, knows that if the quote had read "This bill provides net benefits for every American..." then at least some people would smell a rat. How can a bill provide net benefits for every American, unless we impose net negative benefits on some non-Americans?

While the Farm Bill may well impose negative net benefits on some non-Americans, it is much more likely that the benefits of the bill will be distributed unequally in across the U.S. population. Some Americans will receive large net benefits (mainly the agricultural industry) but a lot of other Americans will suffer small and large net negative benefits. This is the nature of all laws, but I think it is a stretch for the politicians to claim that every person in America stands to benefit from an agriculture bill.

Indeed, there are very few laws that might be characterized as providing net benefits to everyone in America (if not immediately, then certainly over time): perhaps the Bill of Rights, the Fourteenth Amendment, and the Civil Rights Act of 1965 are examples. Somehow I have a feeling that in forty years we as a society won't be looking back on the 2008 Farm Bill in the same way as we do the Civil Rights Act.

more here

Labels: economy, politics

Perception vs. reality

One wonders how much people really know about the economic inter-relationships between France and the United States. My guess is that it is fairly little given the vitriol that was aimed at France back in 2003 - leading to Freedom Fries and symbolic pouring of French wine down the drain.

This CRS Study has the following tidbits:

France is the 9th largest merchandise trading partner for the United States and the United States is France’s largest trading partner outside the European Union. In 2006, 62% or $38 billion of bilateral trade occurred in major industries such as aerospace, pharmaceuticals, medical and scientific equipment, electrical machinery, and plastics where both countries export and import similar products.

International trade is, however, dwarfed by the foreign direct investment the two countries have with each other. I wonder how many Freedom Fries were sold to one of the 473,000 U.S. employees of French-owned companies:

In 2006, France was the eleventh largest host country for U.S. foreign direct investment abroad and the United States with investments valued at $65.9 billion was the number one foreign investor in France. During that same year, French companies had direct investments in the United States totaling $159 billion (historical cost basis), making France the fifth largest investor in the United States. French-owned companies employed some 473,000 workers in the United States in 2005 compared to 619,000 employees of U.S. companies invested in France.

Boycotts tend not to work because it is nearly impossible to hold solidarity unless there are homogeneous preferences and incomes. It turns out that boycotts in 2003 didn't work:

The foreign policy dispute, however, appears not to have had much impact on sales of products such as French wines, perfumes and toiletries, travel goods and handbags, and cheeses that are most prone to being boycotted. While some public opinion polls at the time suggested support for economic boycotts as a way of expressing opposition to France’s position on Iraq, an economic backlash appears not to have materialized.

Labels: economics, international trade, politics

Check your wallet

From this story concerning an extra 0.5 percent income tax on couples making over $1 million per year:

"What we're talking about is a one-half percent income tax surcharge on incomes above $1 million," said Rep. Mike Ross, D-Ark., a leader of the Blue Dog group. "So someone who earns $2 million a year would pay $5,000. ... They're not going to miss it."

The last sentence sums it up. When the politicians justify taking someone else's money (and therefore time) because that person won't miss the money, it won't be long before they are coming after the rest of us.

But it's not a millionaire's tax, really, that's newspeak by the politicians. In actuality the term "millionaire's tax" applies to couples; the tax would kick in at $500,000 for individuals:

The $1 million income level would apply to couples. Individuals would pay the surcharge on income exceeding $500,000.

The funny thing about this type of tax is that it can have dramatic unintended consequences. First, the millionaire tax will not stay at 0.5 percent, it will increase in the near future. When the tax increases, one perverse outcome is that those on whom it binds might actually be paid more so that their after-tax income remains the same. Second, those who seek to avoid the tax might take deferred compensation, in-kind compensation, which will increase enforcement costs (a net negative) and might actually lead to less overall income tax from these individuals (the opposite of what the government intended).

Such bad policy justify with such bad reasoning is not a good sign.

Labels: economics, politics, taxes

The tangled webs we weave

From Stateline.org come two interesting stories:

How awkward. Ohio lawmakers are thinking about impeaching a state official, but to get legal guidance on handling the rare procedure, they had to ask the same attorney general they’re trying to impeach, the Columbus bureau of The Associated Press writes. House Speaker John Usted (R) said Attorney General Marc Dann (D) might consider hiring independent lawyers to research the matter.

and

Miffed at legislation designed to preserve the integrity of marriage by outlawing civil unions or gay marriages, Pennsylvania Sen. Vincent Fumo (D) offered his own addition: outlawing divorce, reports the Pittsburgh Tribune Review. Fumo, himself twice divorced, said, “There's no greater threat to families and to marriage than the high divorce rate.” The Senate tabled his proposal.

Supply side or demand side effect?

Interesting, but unvarified, graphic depicting the rates of virginity amongst various college majors at Wellesely:

Uh oh...

As I was searching the Boston Globe archives (for something completely different) I came across this lead-in for an article from 1987:

SIX SCENARIOS FOR AFGHANISTAN

Boston Globe - November 27, 1987

Length: 670 words (Estimated printed pages: 3)

As diplomats prepare an agenda for President Ronald Reagan and Secretary General Mikhail Gorbachev at their summit, there are once again hints of a Soviet softening on the question of Afghanistan and the withdrawal of 115,000 Russian troops. With a stalemate on the battlefield and disillusioned Soviet veterans, plagued by drug abuse and psychological problems and openly expressing their woes, the parallels with Vietnam grow ever stronger. The Soviets apparently think so, too. Deputy Foreign...

Uh oh...

The left eats its own?

Those of us who have been arguing against the encroaching statism are often patted on the head and told "don't worry." One wonders if the good folks at Harvard, and other elite Massachussets institutions of higher learning, might start to complain now that their ox is being gored (no pun).

A story from today's Boston Globe describes a plan that state lawmakers want to implement that would tax the endowments of schools that have endowments greater than $1 billion - Harvard's stands at $34 billion:

"When is a nonprofit not a nonprofit because of the wealth they are acquiring?" said Representative Paul Kujawski, a Democrat from Webster and chief backer of the legislation.

"It's mind boggling that one entity not paying taxes has $34 billion. How do you justify that?" said Kujawski, who serves on the influential House Ways and Means Committee. "When people can't afford to live. How do you justify not taxing them?"

Karl Marx must be chuckling at this point because this "from each according to his ability, to each according to his need" was exactly what he cited in his Critique of the Gotha Program. And no, Virginia, it's not in the U.S. Constitution; supposedly 50% of some sample of U.S. citizens interviewed in 1987 thought it was.

The argument from Harvard's side? Fairly innocuous:

"You'd be taxing success here," said Kevin Casey, Harvard's associate vice president for government, community, and public affairs. "Over time, this would put us at a real competitive disadvantage, which would drastically hurt the Commonwealth."

Why not stand up and insist that the state has no right to tax simply because it wants to?
Perhaps the reason is that Harvard, and the other institutions, have forgotten history and what happened in Boston about 235 years ago.

A recent "study" found that 86% of Ivy League professors who contributed to presidential candidates contributed to a Democrat candidate. My guess is that the overall percentage of the faculty that leans left at Ivy League schools is somewhere in that neighborhood - when the statist left eats its own, what chance for the rest of us?

In a more rational frame of mind, I wonder if Harvard et al. can lobby successfully to remain tax exempt? One suspects that one or more of the schools have enough connections in the state legislature to avoid the onus of taxation initiated by a single house rep. Moreover, how long would Harvard dispute such a tax scheme in the courts? They would have a steady stream of forthcoming lawyer superstars.

Labels: economics, higher education, politics, taxation

The sad state of economic understanding

I believe in economic man, that individuals do what they perceive is in their best interest given the information at hand, their income, prices, and incentives. However, the media clearly think that the most trivial of economic insights deserves their attention, as if the fact that demand curves are downward sloping is some sort of revelation.

Case in point, three headlines from this morning's Drudge Report:

Oil Jumps Near $124...

Frustrated drivers try to sell their gas-guzzlers...

Motorists Driving Slower To Increase Fuel Efficiency...

This is news?!?!

Political desire meets economic reality, Example #45684

"Unintended consequences" is the benign term economists/political scientists have created to describe the economic realities that run counter to political desires. The term is necessary because while political desire motivates a policy decision, pesky individuals - be they households or firms - consider the incentives created or changed by the policy and respond in their personal best interest. This, in turn, often makes the political desire unattainable and requires even more bad policies.

We have seen this with the oil/gasoline policy in this country for the past thirty years.

We are likely to see this in the home mortgage industry (even more outrageous is that any policy will likely be passed long after the "crisis" has peaked).

We now see it in the student-loan industry. From this op-ed piece in the Detroit News:

In September, Congress reduced by roughly two-thirds of a percentage point the rate lenders could charge and reduced the maximum payment borrowers must make on student loans. And just to make it clear that lenders should not be profiting from student loans, Congress doubled the origination fees lenders must pay to the federal government and reduced federal guarantees against potential defaults. The urpose was to raise revenue to subsidize Pell Grants and other federal loans and grants.

Let's see, if Congress makes it more expensive to initiate a student loan, reduces the return on student loans, and makes it more difficult to collect on delinquent student loans, what will be the response by the private sector? Hmmmm....perhaps fewer student loans will be offered?

Except the law of unintended consequences dictated a different result. Lenders, already pounded by the implosion of the asset-backed securities and credit markets, found profit margins on student loans vaporizing and abandoned the $17 billion student loan market in droves. Nearly 100 of the nation's major lenders, making up nearly 30 percent of the market, have already terminated or announced plans to terminate student loans. So not only may thousands of students be without private loans, the origination fees lost by not making those loans will probably reduce federal revenue and put at risk the increased federal subsidies that were to have been funded by those revenues.

I don't think you need a Ph.D. in economics to figure this out, and the author of the op-ed piece doesn't seem to think so either. Perhaps the requisite characteristic to see how incentives will change behavior is NOT being a politician.

We use the term "unintended consequences" but I wonder if the recurring examples indicates malicious intent on the part of some politicians? As a thought experiment, what if, on the part of some politicians, the consequences are intended?

Could it be that we are in some form of cognitative dissonance in the sense that we (as a citizenry and a profession) refuse to believe that statism is the actual intent of some politicians (or political parties) of the United States?

Labels: culture, economics, politics

Voter #173

At 10:10am I submitted my primary ballot. I was ballot #173. I was a bit disappointed that there was no electioneering at my polling place. There were no Ron Paul supporters, no Obama or Clinton supporters, and definitely no McCain supporters. I was looking forward to actually taking a few minutes to discuss why people support one or the other candidates, but alas it was not to be.

Alan Keyes is on the Republican ballot in North Carolina?

I voted in precinct 02-01. The returns in Cabarrus county are available here.

Interesting site

This site allows you to draw a sketch and then swap it with a perfect stranger. As far as trades go, there's not a lot of buyer or seller surplus here because it is random. However, here's what I gave:



Here's what I received:



I am confident that I received less than I gave, but then I am biased.


It is an interesting thought experiment to consider the implications for a market if trades are randomly assigned. It would seem a market would break down because the expected surplus of a trade would approach zero.

Labels: economics, internet

A disappointing poll

I came across an on-line poll concerning buying and selling exams in college. The poll asked whether doing so was considered cheating. The results were not uplifting:

Labels: culture, education

Anyone notice a problem here?

I hate to pick on Sports Business Journal, but this table was towards the back of their 10th anniversary edition:



If you look closely at the fourth column you might see a problem. How does a stock fall 300% and not turn negative? It's because the wrong base was used. A percentage change is determined as (Y1-Y0)/Y0, where Y1 is the ending value and Y0 is the starting value. Thus, for example, Time Warner's stock has fallen (14-88)/88 = -0.84 or an 84% drop in stock value, not a -512% change. If the stock had started at 14 and risen to 88, that would represent a +512% change. It is important to keep straight the basis for the percentage change as percentage increase and decrease are not just different signs of the same number.

This is a common mistake, but one that shouldn't be considered unimportant.

Labels: culture, sports, statistics

Right answer to the wrong question

[update: link fixed 5/4/08] This story has two interesting points. First, Sen. Clinton doesn't know what a Red Bull energy drink is, which means she hasn't heard of Red Bull's support for soccer, plane racing, and other sports. I am sure she would be willing to comment and pass policy on Red Bull being served in bars around college campuses in the United States, much like the French banned the drink a few years ago:

Red Bull is Britain's best-selling energy drink, with 213 million cans consumed last year. It has been dubbed the 'clubbers' drink', and is often mixed with vodka. The popular adverts claiming that Red Bull 'gives you wings', have led to the brand being described as 'the Porsche of soft drinks'.

Glad to know that she is down with the little guy (she did call Obama an elitist, after all).

But that isn't the most important point in the story. No, that comes when Sen. Clinton pipes off about the FLDS sect in Texas:

Clinton weighs in on the Texas polygamy sect, expressing some sympathy for the women who entered into polygamous marriages.

"Many of these women were raised in the sect, isolated from the outside world from birth," Clinton told People. "It takes an enormous amount of independent thinking to lift yourself out of the circumstance you've been born and raised in to say, 'Wait a minute, this isn't right.' "

This is not unique to a religious sect, but it is the nature of all cultures, including political cultures. For example, my kids won't know life without car seats and seat belts, although I remember riding in cars using neither of them.

She has a good point, but fails to see that the very political agendas pursued by statists (whether left or right) lead to the same problem, but instead of rewarding the individual who questions the status quo, society brands that person a radical, dangerous, off the rails, and so forth. For example, there was considerable consternation about the U.S. Supreme Court hearing a case considering gun ownership in Washington, D.C. I don't remember congratulations for "independent thought" coming from Camp Hillary (or the rest of the left for that matter).

Moreover, any one who blindly follows one candidate or another definitely fails to use "independent thinking," and that would include people cheering for Sen. Clinton.

I wonder if she catches the irony?

A good story about an individual who uses independent thought is Ayn Rand's Anthem.

Labels: culture, politics

NPR story on Antioch College

Last weekend was, perhaps, Antioch College's last commencement ceremony. I have mentioned the pending closing of this college in a previous post.

Here is an NPR story about the college's probably closing.