Category: Economics

You could devote an entire blog to this category:

Japanese toy company People has released a new age alarm clock
that supposedly helps kids wake up by turning them into Ultraman. It’s
called the Okiro! Asa Ichiban Taiyou Senshi – Charenjaa Kitto (Wake up!
First Sun Warrior of the Morning
– challenger kit) and was manufactured for the Japanese Ministry of
Education “early to bed early to rise” program. The $38 kit comes with
the extravagant eye shield and helmet; a series of talismans and
message cards (no doubt world-saving secret missions); and a 27-day
program that will involve your child taking orders from "the commander."

The commander wakes the child up at 6 a.m., and prompts players to put
on the helmet and hit a "roger" button to acknowledge their
wakefulness. Then, they are ordered to count to 10 in five different
languages: English, Japanese, German, Swahili and Malagasy. At that
point, the player is "allowed to take off the equipment and start the
day"…

Here is the full story (with illustrations) and thanks to Yana and Caleb for the pointer.  What if you can’t count to ten in Malagasy?  What happens to the rest of your day?  Keep this link in mind or maybe try How to Get a Date in Malagasy.

I have been talking with GMU President Alan Merten, who is also in Kunming via Syria.  In Syria, Alan was surprised when he was asked to meet with President Bashar al-Assad.  Even more surprising, the President wanted to talk about entrepreneurship, GMU, and how Syria can benefit from better economics.

Later, talking with the Finance minister, Merten learned one of the key drivers of this new openness.  The Finance minister explained that he was meeting with a counterpart in the Chinese government.  "What can we do," the Syrian Finance minister asked, "to increase Chinese investment?"  "Well," the Chinese minister replied, "before we invest in Syria you most open your markets, cut your subsidies, and reduce regulation…"   

He says he’s not the first person to put his life on the
block.

Australian philosophy student Nicael Holt, 24, offered his
life to the highest bidder last year to protest mass
consumerism.

American John Freyer started All My Life For Sale
(www.allmylifeforsale.com) in 2001 and sold everything he owned
on eBay, later visiting the people who bought his things.

Adam Burtle, a 20-year-old U.S. university student, offered
his soul for sale on eBay in 2001, with bidding hitting $400
before eBay called it off. Burtle admitted he was a bored geek.

Here is the story.  The current seller is Ian Usher, a lovelorn Australian:

From Sunday, June 22 for one week, Usher’s life is up for
sale on eBay with the package including his $420,000
(US$397,000) three-bedroom house in Perth, Western Australia, a
trial for his job at a rug store, his car, motorbike, clothes
and even friends.

Here is a previous MR post on an Australian life for sale.

Ryan Hahn asks:

In the case of microfinance, however, it seems to me the problem of limited liability is rearing its ugly head. Poor borrowers generally have little or no collateral, so they usually have little reason to avoid a strategic default.

It is a common myth that microfinance loans have no collateral.  I sooner worry that the process of collateralization is too thorough.  Remember that microfinance loans are made to small groups of five to ten people, typically neighbors.  If you don’t pay up, your associate has to.  The reality is that the person left holding the bag — who knows you well — will come seize your TV set or in some cases the process is a bit less pleasant.  Part of the efficiency of microfinance is simply the separation of the lending and the "thug" functions.  Banks can lend to high-risk individual borrowers without themselves resorting to the illegal intimidation practices of the village moneylender.  The dynamics of cooperative behavior in the village are not always pretty but overall it works better than the moneylender; if nothing else the person seizing the collateral knows that next time around he or she may be the non-payer.  For more detail, see my Wilson Quarterly article with Karol Boudreaux.

Guillermo Calvo writes:

Incentives to stockpile commodities stem from the combination of low
central bank interest rates (especially in the US) and the growth in
sovereign wealth funds. The latter, in my view, is the crucial factor.
Sovereign wealth funds have been created partly with the intent of
switching the composition of government wealth from highly liquid but
low-return assets to more risky but much more profitable investment
projects. Thus, their attempt to get rid of excess liquidity resembles
the econ 101 exercise in which the student is asked to trace the
effects of a portfolio switch away from money and into capital.  The answer is – of course – higher prices.

The piece is interesting throughout, hat tip to Mark Thoma.

Here is my piece for Forbes.com on the privatization of residential water supply in the Third World.  Excerpt:

And no, I don’t mean a water
concession with a price regulated by the government, I mean true
laissez faire in water supply. No price regulation, no rate of return
regulation, no government ownership of assets, no political pressure to
keep prices low. Water companies should be allowed to maximize their
profits, and because supplying water is nearly always a monopoly, they
should be allowed to make monopoly profits. I know the idea sounds
crazy–to an economist, water supply is a classic "natural"
monopoly–but on closer inspection the other alternatives might be
worse.

And more:

If complete deregulation
is too radical for you, consider the interesting compromise proposed by
the economist Jeffrey Sachs, currently heading the Earth Institute at Columbia University.
He suggests that the private company be allowed to charge high prices,
but only under the condition that it allocates a minimum amount of
water for everyone, either for free or at a much lower price. Basic
water needs would be met, and the company still might make a profit.

That said, I’m less worried about high prices than Sachs. Let’s say
the new water prices were so high as to capture all the benefits that
buyers would receive from the new supply of water. We can expect much
lower rates of diarrhea and other diseases, if only because the water
supplier can charge more for cleaner and safer water. The resulting
decline in disease means that children will die less frequently and
adults will be healthier and more energetic. Those long-term social
benefits are of enormous help to poor communities, even if high prices
take away many of the initial, upfront benefits of the new water
supply. In other words, we should consider radical privatization
precisely because water is a public good and because clean water is so
important for long-run economic growth.

Read the whole thing.

Remember the question about the environmental impact of flying?  Air Genius Gary Leff puts it nicely:

If you’re pulling inventory out of a low fare bucket, the strong
expectation is that there’s little effect at the margin on your buying
the ticket because the airline expects to operate a flight that doesn’t
come close to filling up.

If you’re pulling inventory out of a high fare bucket, for coach
fares at the extreme end if you’re traveling on a Y fare, you can
pretty much expect that the flight will be close to sold out and that
the airline is willing to risk displacing another passenger in the
short term in exchange for your higher fare… or at least that the
ticket cost is high enough to potentially influence behavior on the
part of the airline…

Reality is even a little bit more complicated than that. Cargo has
to come into play, too. Regardless of what you pay and what fare class
you’re booking in, your travel on United between San Francisco and
Nagoya, Japan is going to have almost no effect whatsoever on United’s
decision-making. They’ve got a very large contract with Toyota and they
fill up their 747 with cargo and the flight goes out with very low load
factors yet is still profitable for them to operate.

Getting a frequent flyer seat also means that your environmental impact is likely very small.  I am pleased, of course, that I often have Gary booking my seats for me, all in the interests of a cleaner Earth.  The bottom line is that if you get a good deal on price, you should feel doubly good about it.

A group of researchers showed photographs, taken from economists’ home pages, to the public and the winner was Edmund Phelps; here is the paper.  Will Wilkinson, source of the tip, summarizes further (with photos) and offers this quotation:

…advice for young academics is: if you seek happiness, become a macro-economist and research happiness; a Nobel Prize does not make you happier; if you want to be popular with the ladies, take lessons from Edmund Phelps, Bruno Frey and Richard Easterlin; if you are looking for the ability to age like a red wine, Joseph Stiglitz and Jean Tirole have the trick, but not Richard Easterlin.

I thought that Milton Friedman usually looked very happy though he was not included in the poll.

Minderbender, a loyal MM reader, asks:

How should we think about the environmental costs of commercial flying?
It seems as though the average cost is high, but the marginal cost is
quite low. When I fly across the country, it doesn’t cause any extra
flights, it just makes the one I’m on slightly heavier. Yes, the
increased revenues might give the airline an incentive to increase the
number of flights, but this effect seems very weak – much lower than
the average cost of my flight (the consumption of fuel divided by the
number of passengers). Maybe I’m just miscalculating?

I think about this every time I fly.  A simple model of route expansion is that higher demand increases the number of total flights by some probability.  For the system as a whole, the decisive flying unit has to come somewhere and there is no reason why, on average, it can’t be you.  In other words, at least in stochastic terms you can’t escape the blame.

A second simple model of route expansion is that gates and other airport facilities are scarce and underpriced relative to demand.  When demand goes up, supply is not very elastic and mostly they raise price rather than increasing output.  Those who feel very guilty should prefer this second model.

The more they cut back on flights, as they have been doing, the more likely the first model is true.  The second model is most likely true if you are flying into regulated foreign markets although I believe the Europeans are now opening up for U.S. carriers.

You might ask comparable questions about eating meat and killing cows.  If you’re worried about your net impact, eat animals from countries with very privileged, monopolized and highly regulated, supply-inelastic livestock sectors.   

Leonardo Monasterio asks:

Which paper/book should we celebrate its 50th year? Obviously, my vote goes to the paper that started the cliometric revolution:
The Economics of Slavery in the Ante Bellum South
Alfred H. Conrad, John R. Meyer
The Journal of Political Economy, Vol. 66, No. 2 (Apr., 1958), pp. 95-130
Is there any other contestant?

The two obvious competitors are Modigliani and Miller on financial irrelevance (AER) and Paul Samuelson on the overlapping generations model (JPE).  I’m inclined to put M-M first and Conrad and Meyer second.  Am I missing anything?  Don’t one or two of Schelling’s famous game theory articles date from this year as well?

Postwar American economics was splendid.  WWII meant that many thinkers (Friedman, Samuelson, Schelling, others) had real world experience with tackling big problems.  At the same time these people were just getting their hands on quantitative thinking and some more technical tools, yet the profession still valued breadth to some degree.

The land of the long white cloud has enjoyed a 10-year economic boom
driven by exports of milk, butter and cheese, a population riding a
housing market boom and tourists eager to sample the landscapes
depicted in Hollywood films such as The Lord of the Rings.

But
New Zealand is on the cusp of a downturn and risks seizing the dubious
honour from the US of becoming the world’s first developed nation to
sink into recession, as measured by two consecutive quarters of
negative gross domestic product growth.

GDP numbers for the January-March quarter due this month are forecast
to show a contraction of at least 0.3 per cent. TD Securities and other
economic forecasters are predicting a 0.2 per cent decline for the
April-June quarter.

Here is more information.  Elsewhere in the Commonwealth, one UK supplier is now charging $14-15 a gallon ($18 for a UK gallon) for gas, he wants to make sure his customers can always get the product.

On the global economy and the recent downturn.  The pointer is to www.bookforum.com.