Month: December 2010

Catch Shares

Catch Shares are expanding in California, Oregon and Washington starting in January.

Under the catch-share system, fishery managers set an overall catch limit at the beginning of the season. Each fisherman will own a percentage of that catch. Just like shares in the stock market, the quotas can be traded or sold. The idea is that a market-based system will give fishermen more flexibility.

Not everyone is happy. Larry Collins, president of the Crab Boat Owners Association in San Francisco, is doubtful.

Collins is concerned that a market-based system will bring market manipulation. Under the rules, you don't have to be a fisherman to buy fish quotas, so it's possible that speculators or even environmental groups could buy into the market.

"You want hedge fund managers deciding when the people catch fish? Is that who you want to own your fish, or do you want to own them?" Collins asks.

Collins is also concerned about fishermen who make smaller catches. In Alaskan fisheries that use catch shares, some smaller boats opted to sell their fish quotas.

"That concentrated the resource in fewer and fewer hands. Now, I tend to think that public trust resources should be used to employ as many people as possible," he says.

Both of these features are benefits not costs. It's true that speculation can create bubbles and other problems but speculators also make the market more future-oriented and this will help to avoid the collapse of fishing stocks by making prices a better early warning system. Moreover, if environmentalists want to buy catch shares to increase the fishing stock then I am all for it.  In Modern Principles, Tyler and I discuss how we bought and retired some SO2 making the air cleaner for everyone (you are welcome! :)). 

Fewer, larger boats is also a benefit not a cost. Under the current system the influx of small boats is simply a form of rent-seeking which raises net social costs–too many fisherman chasing too few fish. Catch shares reduce over-capitilization in the industry raising productivity (see also Modern Principles on this point).

The main problem with catch-shares is setting the size of the catch, which inevitably is a politicized process. Massachussetts congressmen, for example, are trying to withold funds from NOAA until catch shares are increased. Nevertheless with so many fishing stocks nearing collapse it is clear that some limits are needed. Moreover, before catch-shares are put in place few people in the industry appreciate that temporary limits can lead to long-term increases in catch as the fishing stocks recover to sustainable levels. After catch-shares are put in place, however, it is sometimes the fishermen who lobby for greater limits not for monopoly reasons but as they come to recognize that a smaller limit leads to a larger stock and larger profits.

Here is my previous post, Reversing the Decline in Fish Stocks, on catch shares with more links.

Hat tip: Daniel Lippman.

Six euros a day is a lot for an altruist and enough for the selfish

These Indonesian miners,in primitive conditions not seen in most places for more than a century, often wear no protection,carrying up to 100 kilos of sulfur on their shoulders, climbing steep rocky paths and descending the volcano for 3 kilometers, bare foot, twice daily, choking from stinking, toxic fumes.  For this shortened, blinding, gagging life in hell, they are paid 6 Euros a day. These conditions destroy their lungs, eyes and other tissues.  “We work in hell,” said the miners, “our eyes and lungs burn the whole day, but there’s nothing we can do. Otherwise, we’re scared we’ll have nothing to eat.”

Here is a very good photo and I thank Steve D. for the pointer.

Kalamazoo beer exchange

Depending on what customers purchase, the prices will rise or fall.

“It’s an ever-evolving happy hour,” Flora said.

The prices will never go higher than around 10 percent the base cost, but will drop to as much as 50 percent below base cost.

For example, a Bell’s Two-Hearted Ale may be $3 normally.

But, depending on the “market” activity (i.e. patrons buying tendencies) it could be as much as $3.25 or as little as $1.50 (prices fluctuate in increments of 25 cents).

The prices will change every 15 minutes and there will be, at random, a “stock market crash” – signified by air horns – when all 28 beers are sold at a low rate for five minutes.

The full story is here and I thank Dave Kirsammer for the pointer.

Here is a picture of Kalamazoo.

Japanese claims about China

In reality, China’s residential property bubbles are obvious. But the real danger lies elsewhere. So-called “loan platforms” established by local governments pose a much more serious risk. In the 1990s, China centralized its tax system and rendered local governments dependent on Beijing’s coffers. In order to make up the budget shortfall, local governments established these funding vehicles through which they can obtain commercial loans. In 2008, when Beijing mobilized a massive Â¥4 trillion pump priming, it ordered local governments to bear one-third the cost themselves. This triggered a stampede. As of the end of June this year, there are 8,221 platforms and their outstanding loan balance is Â¥7.7 trillion, of which 20 percent to 25 percent are deemed “problematic” by the China Banking Regulatory Commission.

That is from The International Economy, Fall 2010, from a senior and anonymous Japanese official, not on-line.  Bernard Connolly discusses a related scenario and considers whether such defaults might lead to a depreciation (!) of the yuan.  You should consider the claims speculative, though I do not think you should dismiss them.

For the pointer I thank Steve Hanke.

Are unions the enemy of the arts?

At Avery Fisher Hall and Alice Tully Hall in Lincoln Center, the average stagehand salary and benefits package is $290,000 a year.

To repeat, that is the average compensation of all the workers who move musicians' chairs into place and hang lights, not the pay of the top five.

Across the plaza at the Metropolitan Opera, a spokesman said stagehands rarely broke into the top-five category. But a couple of years ago, one did. The props master, James Blumenfeld, got $334,000 at that time, including some vacation back pay.

How to account for all this munificence? The power of a union, Local 1 of the International Alliance of Theatrical Stage Employees. "Power," as in the capacity and willingness to close most Broadway theaters for 19 days two years ago when agreement on a new contract could not be reached.

The full article is here and I thank Victor N. for the pointer.

Books to crave: *A Great Leap Forward: 1930s Depression and U.S. Economic Growth*

From the ever-interesting Alexander Field:

This thoughtful re-examination of the history of U.S. economic growth is built around a novel claim, that potential output grew dramatically across the Depression years (1929-1941) and that this advance provided the foundation for the economic and military success of the United States during the Second World War as well as for the golden age (1948-1973) that followed.  Alexander J. Field takes a fresh look at growth data and concludes that, behind a backdrop of double-digit unemployment, the 1930s actually experienced very high rates of technological and organizational innovation, fueled by the maturing of a privately funded research and development system and the government-funded build-out of the country's surface road infrastructure. This substantive new volume in the Yale Series in Economic and Financial History invites renewed discussions on productivity growth over the last century and a half and on our current prospects.

Due out in April.

China robot hotpot fact of the day what happened to the Ricardo effect?

Service with a smile also comes with an electronic voice at the Dalu Robot restaurant, where the hotpot meals are not as famous yet as the staff who never lose their patience and never take tips.

The restaurant, which opened this month in Jinan in northern Shandong province, is touted as China's first robot hotpot eatery where robots resembling Star Wars droids circle the room carrying trays of food in a conveyor belt-like system.

More than a dozen robots operate in the restaurant as entertainers, servers, greeters and receptionists. Each robot has a motion sensor that tells it to stop when someone is in its path so customers can reach for dishes they want.

The full story is here and for the pointer I thank Daniel Lippman.

Why do so many prices end in .99?

Via Tim Harford, there is a new paper on this topic, by Franz Hackl, Michael E. Kummer, and Rudolf Winter-Ebmer:

Basu (2006) argues that the prevalence of 99 cent prices in shops can be explained with rational consumers who disregard the rightmost digits of the price. This bounded rational behaviour leads to a Bertrand equilibrium with positive markups. We use data from an Austrian price comparison site and  results highly compatible with Basu's theory. We can show that price points – in particular prices ending in 9 – are prevalent and have signicant impact on consumer demand. Moreover, these price points are sticky; neither the price-setter itself wants to change them neither the rivals do underbid these prices, if they represent the cheapest price on the market.

Tim's piece on the same question can be found here.

Nudge, in action

Sometimes, governments do not have to be nudged to institute a nudge:

Buy a scratch lottery ticket in Georgia, and you can win music downloads or a seat at an Atlanta Falcons game. In New York, one of the top sellers is an all-black ticket as sleek as an Armani suit. And in Texas, where they brag that everything is bigger, a single ticket goes for $50.

With state budgets in crisis and lottery-financed programs like prekindergarten being considered for cuts, the pressure is on to make lottery tickets more attractive to casual scratchers and people who may have never dropped a dollar on a chance before.

Even at Christmas, which is the busiest season for scratch tickets, no gimmick – peppermint-scented tickets, anyone? – is too ridiculous.

In Louisiana, frequent gamblers are invited to join Club Lotteaux to receive e-mail updates and other promotions, like a chance to name a reindeer and win a package of holiday tickets and a coffee mug.

In Washington State, holiday tickets come with a chance to win a home-theater system. Georgia lottery officials, who sell a $2 ticket with the unlikely combination of a snowman and Betty Boop in a skimpy Santa outfit, are sponsoring “American Idol”-style singing contests.

Paul Krugman’s predictions from 1998

David Henderson directs us to these.  David is skeptical, and so is this source (and Megan), but I think Krugman was more right than wrong, at least if you allow him some slight rewordings.  Here were his picks, noting that he offers more discussion and context at the first link:

* Productivity will drop sharply this year. Nineteen ninety-seven, which was a very good year for worker productivity, has led many pundits to conclude that the great technology-led boom has begun. They are wrong. Last year will prove to have been a blip, just like 1992.

* Inflation will be back. Wages are rising at almost 5 percent annually, and the underlying growth of productivity is probably only 1.5 percent or less. Sooner or later, companies will have to start raising prices. In 1999 inflation will probably be more than 3 percent; with only moderate bad luck–say, a drop in the dollar–it could easily top 4 percent. Sell bonds!

* Within two or three years, the current mood of American triumphalism–our belief that we have pulled economically and technologically ahead of the rest of the world–will evaporate. All it will take is a few technological setbacks or a mild recession here while Europe or Japan recovers a bit.

* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's.

* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.

* Sometime in the next 20 years, maybe sooner, there will be another '70s-style raw-material crunch: a disruption of oil supplies, a sharp run-up in agricultural prices, or both. And suddenly people will remember that we are still living in the material world and that natural resources matter.

I'll number them 1-6.  On #1, Krugman should not have committed to the time frame of one year, but overall, in my view, productivity hasn't done well since he wrote.  A lot of the measured per worker gains come from firing unproductive people, or overvaluing the contributions of the finance, health care, government consumption, and education sectors, not from much expanding the actual production possibilities frontier.  I'll be writing more on this, and while it involves some complex issues, overall I side with Krugman.

On #2, Krugman was wrong about inflation returning, in part because he was overly optimistic about wage growth.  #3 is debatable, and while one of the modal claims is wrong about Europe and Japan, he was not obviously wrong about the United States. 

On #4, we may soon be reaching "peak internet."  Parts of #4 and #5 may sound ridiculous, and Krugman did underestimate how much people have to say to each other, and the future of the information economy.  Nonetheless, keep in mind the information technology sector has not contributed net job growth over the last decade.  Smart, curious people consistently overestimate the economic impact of information technology, in part because it improves their own lives so much.  #6 turned out to be true.

That's a mixed record, as anyone would have, but more insightful I think than the critics are granting.

Many of Krugman's current false (modal) predictions stem from his claims that if left-wing politicians would "get tough" and take their case directly to the public, good progressive results will follow.  I view that claim as a move into a non-scientific mode of thought.  While it is sometimes true, usually it is not, and there is plenty of political science literature on how hard it is to form a winning political strategy through rhetoric.  

Without such a view, however, Krugman would have to entertain the possibility that moderate outcomes, or sometimes observed outcomes, are more likely second-, third-, or fourth-best efficient than he would like to admit.  If you took away this one rather weak prop of his worldview, he could quite readily turn into a conservative, of course in the literal rather than the right-wing partisan sense.

A note on the Simon-Ehrlich Bet

Yesterday Tyler asked whether "Simon's prediction" of falling resources prices would continue to hold now that an era of catch-up growth is upon us. It's a legitimate question but misleading about what Simon was predicting. Simon's fundamental prediction was about human welfare not prices. Remember that at the time of the famous bet, Paul Ehrlich was predicting increasing resource scarcity, mass starvation, and an end to economic growth. Simon was arguing that human welfare would continue to rise. Resource prices were easy to observe so the famous bet was made in terms of prices. Simon understood, however, that prices are not a measure of welfare or even of scarcity (quantities would have been a better metric but these are much more difficult to observe).

As Tyler notes, catch-up growth may mean that demand will increase faster than supply at least for some periods thereby driving up prices. But here is the key point, increased demand with a non-decreasing supply means an increase in social welfare. If tomorrow we discover that cold fusion actually does work, the price of palladium will increase dramatically, perhaps never to fall again.  Nevertheless, human welfare would dramatically rise not fall.

I don't have strong views on resource prices over the next century (especially when these are framed in terms of specific resources like "oil" rather than with the more fundamental concept of energy) but I would be happy to bet that human welfare will increase dramatically over the next century.