The Economics of Sawdust

by  Alex Tabarrok in

I was in Vermont over the weekend and talking to a dairy farmer about the rising price of milk.  I was surprised when she said that higher sawdust prices was one of the causes.  Sawdust?  Sawdust, it turns out, is used for bedding the cows and the price of dust has doubled in the past year.  I surmise that the downturn in housing construction has meant a reduced demand for lumber and thus less sawdust.

The connection between the housing market and the milk market is an interesting example of the dense connectedness of markets, "general equilibrium" in the language of economics.

The economics of sawdust also reminds us that the capitalist production system minimizes waste – entrepreneurs search out ways to extract the most value from every input and from every output.  Thus even sawdust, as trivial a waste product as one could imagine, is turned into an input into milk production as well as into particle board, fuel nuggets, mulch and other useful products.

Addendum: The WSJ has more on sawdust.

Department of No Clue

by  Alex Tabarrok in

Christopher Hayes writing in The Nation.

The vast majority of interest groups in
Washington, from the Sierra Club to the AFL-CIO to Planned Parenthood,
are pursuing what Edsall calls "substantive reform"–attempting to push
legislation and enact policies that will provide public goods, protect
citizens from harm and redistribute benefits, rights and privileges away
from the powerful and toward middle-class citizens and disenfranchised
minorities.

And if you believe that, might I mention that if you act quickly I have some land in Florida just ripe for development.

The Education Transformation of China

by  Alex Tabarrok in

University education in China is skyrocketing.  In 1996 China had less than 1 million freshmen, in 2006 there were over 5 million freshmen.  The freshman class is continuing to grow and university graduates, of course, are just 4 years behind.  About half of the entering students are in a hard science or engineering program.  As a result, China today produces 3 times more engineers than the United States and will quickly overtake the U.S. in total graduates.
Chinaed

Many people worry about what the Chinese education explosion means for
the United States but I am optimistic.  First, as China and other countries grow wealthy the
incentive to invest in R&D is increasing.  If China and India were as wealthy as the U.S. the market for cancer drugs, for example, would be eight times larger than it is today – and a larger market means more new drugs for everyone.

Second, the growth in Chinese education is
increasing the supply of new ideas and that too is a benefit to people around the world.

Surprisingly, China’s education system is being
transformed to a
considerable degree by private forces.  As late as 1999 the Chinese government
paid for most university education but from 2001 onwards tuition and
fees account for more than half of total educational expenditures.

I have drawn much of the data in this post from a fascinating new paper, The Higher Educational Transformation of China and its Global Implications by Li, Whalley, Zhang and Zhao.  The paper has much else of interest.

I will be traveling to China to give a talk at Yunnan University in late June and will report on the transformation as it looks on the ground.

So You Think You Can be President? Revisited.

by  Alex Tabarrok in

Last year, I argued that instead of debates presidentidal candidates should have to compete in a series of games.  The problem with debates is that most of the time voters don’t know what a good answer is.  Thus…

…what we need is a way of conveying information to uninformed,
unsophisticated voters in a way that is entertaining yet produces
information about politicians that is correlated with real skills.

I suggested a game show, So You Think You Can be President?, which with different segments would test the candidates ability to solve real problems.

The idea seems to be catching on, as this piece in the NYTimes illustrates.  Frankly, the segments I suggested plus the many excellent comments from MR readers were quite a bit better than those in the Times but it’s good to see that the idea is going mainstream.

Electing Judges

by  Alex Tabarrok in

The NYTimes has a good piece today on judicial elections, pointing out how odd American practice is compared to the rest of the world. 

Contrast th[e] distinctively American method of selecting judges
with the path to the bench of Jean-Marc Baissus, a judge on the
Tribunal de Grand Instance, a district court, in Toulouse, France. He
still recalls the four-day written test he had to pass in 1984 to enter
the 27-month training program at the École Nationale de la
Magistrature, the elite academy in Bordeaux that trains judges in
France.

“It gives you nightmares for years afterwards,” Judge
Baissus said of the test, which is open to people who already have a
law degree, and the oral examinations that followed it. In some years,
as few as 5 percent of the applicants survive.

My work on judicial elections shows that elected judges serve their constituents (see also Judge and Jury). In particular, when the defendant is an out-of-state corporation awards are much higher in states that use partisan elections to select their judges than in other states.  As one judge put it bluntly:

As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone’s else money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me."

Richard Neely (1988), West Virginia Supreme Court of Appeals.

Taken to the Cleaners, Again

by  Alex Tabarrok in

A tariff on imports of coat hangers from China is raising dry cleaning costs.  The Aplia Econ blog runs the numbers:

Advocates of trade restrictions often argue that protection will save
jobs. Since we can observe price and cost increases associated with
trade restrictions, we can estimate how much it costs to save each job
in a protected industry. According to the NPR story, there are roughly
30,000 dry cleaners in the U.S., and on average, each pays an
additional $4,000 per year due to the hanger tariff. This indicates an
average annual cost of 30,000 firms x $4,000 per firm = $120 million.
According to the U.S. International Trade Commission’s report,
U.S. employment in wire hanger manufacturing was 564 workers in 2004
and fell to 236 workers by 2006. Let’s assume that employment in this
sector would have fallen to zero in the absence of the tariff, and that
with the tariff, employment will recover to 2004 levels. In other
words, assume the tariff "saves" 564 jobs. Dividing the cost of the
tariff to U.S. dry cleaners ($120 million year) by the number of jobs
saved (564 jobs) indicates that each job saved costs about $212,765 per
year. Keep in mind that the typical full-time worker in this sector
earns about $30,000 per year. Even if we assume that industry
employment doubles, the cost of the tariff is still roughly $120,000
per job.

Economists Know the Price of Everything

by  Alex Tabarrok in

In other disciplines to leave your
university because another offers to pay you more entails personal humiliation
and status degradation to a not inconsiderable degree: you are supposed to value
ideas and colleagues and students, not cash. In economics, however, the thrust
of the discipline makes a failure to respond to market forces a moral fault in
itself.

Brad DeLong explaining why public universities are having an especially difficult time hiring and keeping economists now that the privates are boosting salaries to a tremendous degree.  Experience at GMU is consistent.  See David Warsh (here and here) for the backstory.   

Spot the Contradiction

by  Alex Tabarrok in

Daniel Gross’s review of Sachs’ Common Wealth was bizarre.  Consider this:

Even congenital optimists have good reason to suspect that this time
the prophets of economic doom may be on point, with the advent of
seemingly unstoppable developments like….the explosive growth of China and India.

Huh?  What kind of upside down logic makes high growth rates proof of economic doom?  Proving this was no idle slip Gross goes on to say:

Things are different today, [Sachs] writes, because of four trends: human
pressure on the earth, a dangerous rise in population, extreme poverty
and a political climate characterized by “cynicism, defeatism and
outdated institutions.” These pressures will increase as the developing
world inexorably catches up to the developed world. (emphasis added)

Silly me, I thought rising life expectancy, increasing wealth, and lower world inequality, which is what it means to say that the developing world inexorably catches up to the developed world, was a good thing.  And then there is this:

The combination of climate change and a rapidly growing population
clustering in coastal urban zones will set the stage for many Katrinas,
not to mention “a global epidemic of obesity, cardiovascular disease
and adult-onset diabetes.”

Ok, climate change will create problems but how clueless do you have to be not to understand that a large fraction of the world’s people would love to live long enough to die from obesity and other diseases of wealth?

Don’t misunderstand, I know that growth brings problems.  My dispute with Gross is not that he thinks the glass is half-empty and I think it is half-full; my dispute is that Gross thinks the fuller the glass gets the more empty it becomes.

Addendum: Dan Gross writes to say that he was summarizing Sachs’ argument.  Point noted.

Local Bounties

by  Alex Tabarrok in

One benefit of the economic downturn is that the number of people hoping to earn a reward by calling the police with a tip has increased, especially in regions with a lot of home foreclosures. 

For tips that bring results, programs in most places pay $50 to $1,000,
with some jurisdictions giving bonuses for help solving the most
serious crimes, or an extra “gun bounty” if a weapon is recovered…

“We have people out there that, realistically, this could be their
job,” said Sgt. Zachary Self, who answers Crime Stoppers calls for the
Macon Police Department.

The success of these local programs suggests similar international programs could also work.

Hanson on Bounties

by  Alex Tabarrok in

Robin beats me to a story on bounties in the Washington Post.  I couldn’t have said it better so here is his full post.

A Post article today, Bounties a Bust in Hunt for Al-Qaeda:

Jaber Elbaneh is one of the world’s most-wanted terrorism suspects. In
2003, the U.S. government indicted him, posted a $5 million reward for
his capture and distributed posters bearing photos of him around the
globe.  None of it worked. Elbaneh remains at large, as wanted as ever.
…

Since 1984, the program has handed out $77 million to more than 50
tipsters, according to the State Department.  … In 2004, Rep. Mark
Steven Kirk (R-Ill.) visited Pakistan to assess why Rewards for Justice
had generated so little information regarding al-Qaeda’s leadership. He
discovered that the U.S. Embassy in Islamabad had effectively shut down
the program. There was no radio or television advertising. …

In 2004, Congress passed a law authorizing the State Department to post
rewards as high as $50 million apiece — a provision with bin Laden in
mind. Last fall, Rep. Dan Boren (D-Okla.) went further, introducing a
bill that would raise the cap to $500 million. The State Department has
declined to boost the reward for bin Laden, arguing that more money was
unlikely to do any good and would only add to his notoriety.

Let’s see, billions spent via ordinary means, and millions offered
in bounties, and it is the bounties they blame for Al-Qaeda’s notoriety
and failing to catch leaders?  The billions are spent and gone, while
the millions in bounties we only lose when they actually work.  How
then is this data suggesting we should prefer ordinary means to
bounties?

Here is one of my previous posts on bounties.  The Rewards for Justice program has actually brought in some big catches.