Quotulatiousness

May 4, 2016

Econ Duel: Is Education Signaling or Skill Building?

Filed under: Economics — Tags: , — Nicholas @ 03:00

Published on 8 Mar 2016

What’s the point of education?

Do you learn about things, because the learning itself matters, or is education all about the signal you — and your degree — send out to the world? Is education really about building skills, or does it serve only to transmit intangible traits, like your level of talent or your persistence?

These are the questions we’ll be tackling in this new Econ Duel debate from Marginal Revolution University.

And since we believe that nothing beats a good friend-vs-friend duel, we’ve picked two friends, whom you’re probably familiar with. For this debate on education as signaling vs. skill building, we’ve got Tyler Cowen and Alex Tabarrok, ready to go head-to-head.

You’ll see them argue about nearly everything—from peacocks, to private markets, to street sweepers, to Scandinavian education laws, and even the real value of Harvard University. In the end, you’ll see them duke things out, in a quest to determine education’s effect on our lives and well-being.

The video also asks:

-Why do students tend to rejoice when their professor cancels class?

-When we’re talking education, what really counts? Is it the soft skills, or the hard facts?

-If evolution still can’t sort out good vs. bad, can we really expect the market to do any better?

-Can the things you learn today still matter 20 years down the line?

-Why do peacocks still sport huge, colorful tails, despite the fact that evolution should’ve come up with a better signaling device by now?

Once you reach the end of the video, we have one specific request. It’s hugely important.

Ask yourself: “Is education only about signaling, or is it really about skill building?”

Think it through and then let us know by voting at the end of the video!

BTW, Alex is right in this debate.

April 23, 2016

The Marginal Product of Labor

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

In this video on the marginal product of labor, we discuss some commons questions such as: How are wages determined? Why do most Americans earn so much by global standards? What exactly is meant by ‘human capital’? Do labor unions help workers, and if so, by how much? How does discrimination affect labor markets? How is the demand for labor different than the demand for a good? We’ll discuss how to derive the demand for labor based on the marginal product of labor, and use real-world examples — such as the demand for janitors in a fast food restaurant — to illustrate this calculation. We’ll also cover an individual’s labor supply curve vs. market supply of labor.

April 14, 2016

Why there’s very little “free trade” involved in the TPP

ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:

Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.

These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?

The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.

The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.

The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.

That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.

April 13, 2016

QotD: Why do gasoline prices rise at the moment crude oil prices rise?

Filed under: Business, Economics, Quotations — Tags: — Nicholas @ 01:00

One part of the explanation is that gasoline refiners are likely now switching to the production of summer-grade mixes, which are more costly to produce than are winter grades. But even if such switching is not taking place, we nevertheless expect prices at the pump to rise the moment crude-oil prices start to rise regardless of the prices that gasoline retailers paid for the fuels that they are currently selling. Furthermore, it’s good that prices at the pump rise as soon as crude-oil prices start to rise.

The reason […] is that markets are forward looking. If crude-oil prices start to rise today, this fact means that crude oil is today more scarce, relative to anticipated demand, than it was yesterday. Given this reality, we want consumers to start immediately to economize further on their use of gasoline, and we want refiners to have adequate incentives to refine enough gasoline to satisfy consumers’ anticipated future demands. Rising prices at the pump today promote both of these desirable responses.

But there’s an even deeper point: the value of something is not what the owner of that something paid for it or what it cost the producer of that something to produce it. Instead, the value of something is what people are willing to pay for it. And there’s nothing at all unfair or economically harmful about an owner of something selling that something for more than he or she paid for it. Suppose that today you buy 10 shares of Apple, Inc., at $100 per share. Further suppose that one year from today the price of Apple stock rises to $150 a share. Would you be wrong or unethical to sell your shares next year at $150 a share (or at any price higher than $100 a share)? After all, you paid only $100 a share to get them.

Of course you would not be wrong to sell your shares at a price higher than what you paid for them. What’s true for you and your Apple shares is true for all economic goods.

Donald J. Boudreaux, “Markets Are Forward Looking (And That’s Good)”, Cafe Hayek, 2016-03-18.

April 11, 2016

QotD: What can a billionaire buy that most people can’t?

Filed under: Economics, Quotations, Technology — Tags: , — Nicholas @ 01:00

In a way most of us don’t really understand how differently we live from even a very short time ago. Read the comments in this excellent piece from Sarah Hoyt.

http://accordingtohoyt.com/2016/01/08/burning-rousseau-in-effigy/#comments

The fact is that right now just about everybody in the Developed nations can afford products that are better and cheaper than anything has ever been made. For instance my car is almost ten years old and has never required major maintenance and the body is as free of exterior rust as when it was new. The computer I’m writing this on is more powerful than ANY computer that you could buy in 1980. The clothes I’m wearing are more durable and sewn better than anything you could buy in 1950. And everything is essentially so cheap that just about everybody can afford it.

The fact is that, because of the constant improvement of manufacturing techniques the difference between the highest quality and lowest quality goods has become essentially nonexistent.

[…]

The great gap in lifestyles due to wealth is by and large gone, which begs the question, what can the wealthy buy with their money? The answer isn’t very pleasant.

What they buy is access and power. You don’t have to look much further than Warren Buffett, George Soros or Tom Steyer to see that. Or the Koch Brothers for that matter. All of these people and other have created large influence building organizations for the sole purpose of influencing the rest of us stupid schmucks to do what they want us to. What they want us to do all too often is to give up the liberties and standard of living that our parents and grandparents worked so hard to build and retreat back to a lifestyle that will not compete with our “betters.” Sorry, but I’m not going for that.

J.C. Carlton, “What Can A Billionaire Buy That Most People Can’t?”, The Arts Mechanical, 2016-03-30.

April 2, 2016

Canada’s new frontier in patriotism: ketchup

Filed under: Business, Cancon, Economics, Politics — Tags: , , , — Nicholas @ 02:00

Colby Cosh gently pokes fun at the latest outbreak of manufactured patriotic fervor:

An enterprising Toronto man wants to sell us all “Ketchup Patriot” T-shirts, so that the virtuous among us might assert the correct position on the hot issue of whether it is right to eat products made with dubious foreign tomatoes.

This presents me with a dilemma: I agree with the many words already written in this space, and in the Financial Post, about the preposterousness of tomato isolationism; on the other hand, I am pretty sure our future as a country has less to do with mid-grade agricultural products destined for pureeing than it does to do with insta-auto-robo-printing of faddish social-signalling paraphernalia. You have to admire the spirit of enterprise wherever it emerges. The best answer ever given to Che Guevara’s philosophy was the Che Guevara T-shirt.

The “Ketchup Patriot” view favours French’s brand ketchup, which is now made from tomatoes grown in the area around Leamington, Ont. Leamington is practically a creation of the H.J. Heinz Co., which was a major employer there for decades, but fled to the United States in 2014. Few Canadians are employed in the growing of tomatoes, mind you: migrant workers flown into local dormitories and paid around $10 an hour seem to do most of the hard work on Leamington-area farms and in greenhouses.

French’s, best known for selling mustard, is owned by the Reckitt Benckiser Group PLC of Slough, Berkshire. This “Ketchup Patriotism,” the closer you look at it, becomes more and more a matter solely of dream terroir. Canadians don’t get the profits, don’t pick the tomatoes and don’t even can the ketchup — that happens in Ohio, although French’s, obviously aware that it has a whole country by the tail, has hinted at plans to open a new cannery somewhere in Ontario. All we do, for the moment, is own the land. This ketchup has a mystical Canadian essence, one I defy anyone to detect in a blind taste test.

One may not detect the “distinctive Canadian ‘terroir'”, but having actually tasted Heinz and French’s products, there’s a reason that Heinz is the default ketchup for most people.

March 30, 2016

Bundling

Filed under: Economics — Tags: , , , — Nicholas @ 03:00

Published on 7 Apr 2015

Bundling refers to when two or more goods are sold together as a package. Microsoft Office, Cable TV, Lexis-Nexis, and Spotify all provide examples of bundling. What if there were no bundling and you had to pay for Cable TV by channel rather than purchasing channels in bundles? Would you end up paying more or less? We explore this question and others in this video.

March 28, 2016

QotD: Black Thursday, 1929

Filed under: Books, Economics, History, Quotations, USA — Tags: , , — Nicholas @ 01:00

One of the most thorough and meticulously documented accounts of the Fed’s inflationary actions prior to 1929 is America’s Great Depression by the late Murray Rothbard. Using a broad measure that includes currency, demand and time deposits, and other ingredients, Rothbard estimated that the Federal Reserve expanded the money supply by more than 60 percent from mid-1921 to mid-1929. The flood of easy money drove interest rates down, pushed the stock market to dizzy heights, and gave birth to the “Roaring Twenties.” Some economists miss this because they look at measures of the “price level,” which didn’t change much. But easy money distorts relative prices, which in turn fosters unsustainable conditions in certain sectors.

By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30 percent. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust.

The “smart” money — the Bernard Baruchs and the Joseph Kennedys who watched things like money supply — saw that the party was coming to an end before most other Americans did. Baruch actually began selling stocks and buying bonds and gold as early as 1928; Kennedy did likewise, commenting, “only a fool holds out for the top dollar.”

When the masses of investors eventually sensed the change in Fed policy, the stampede was underway. The stock market, after nearly two months of moderate decline, plunged on “Black Thursday” — October 24, 1929 — as the pessimistic view of large and knowledgeable investors spread.

The stock market crash was only a symptom — not the cause — of the Great Depression: the market rose and fell in near synchronization with what the Fed was doing. If this crash had been like previous ones, the subsequent hard times might have ended in a year or two. But unprecedented political bungling instead prolonged the misery for twelve long years.

Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.

March 24, 2016

Tying

Filed under: Economics, Technology — Tags: , — Nicholas @ 01:00

Published on 7 Apr 2015

What is tying and how is this a form of price discrimination? An example of a tied good is an HP printer and the HP ink you need for that printer. The printer (the base good) is often relatively cheap whereas the ink (the variable good) has a high markup, and eventually costs you far more than what you paid for the printer. Other examples include cell phones and data plans or the Kindle Fire and the accompanying books or music you purchase from Amazon. The base good is sold close to marginal cost, and the variable good is sold at above marginal cost. Why do companies tie their goods? Tied goods make it easy to price discriminate in a way that increases output and social welfare. Does tying increase or decrease social welfare? What is the difference between bundling and tying? We discuss these questions and others in this video.

March 19, 2016

The Monopoly Markup

Filed under: Economics — Tags: , , , — Nicholas @ 02:00

Published on 18 Mar 2015

Ever wonder why pharmaceuticals are so expensive? In this video, we show how low elasticity of demand results in monopoly markups. This is especially the case with goods that involve the “you can’t take it with you” effect (for example, people with serious medical conditions are relatively insensitive to the price of life-saving drugs) and the “other people’s money” effect (if third parties pay for the medicine, people are less sensitive to price).

March 17, 2016

Coolidge: The Best President You Don’t Know

Filed under: Economics, History, Quotations, USA — Tags: — Nicholas @ 02:00

Published on 4 May 2015

Americans today place enormous pressure on presidents to “do something”…anything, to get the economy going. There was one president, though, Calvin Coolidge, who did “nothing” — other than shrink government. What happened? America’s economy boomed. Is there a lesson to be learned? Award-winning author, historian, and biographer Amity Shlaes thinks so.

March 16, 2016

The Social Welfare of Price Discrimination

Filed under: Economics — Tags: , , — Nicholas @ 03:00

Published on 7 Apr 2015

Now that we’ve learned a little about price discrimination, we can begin to think about whether or not price discrimination is bad for society. How does price discrimination affect output, and what is this effect on social welfare? If price discrimination increases output, it is likely beneficial for society. If output isn’t increased, social welfare is reduced. What are some examples of perfect price discrimination? Universities practice perfect price discrimination all the time. Students pay different amounts for their education based on many different factors surrounding each student’s ability to pay. This practice increases profits and also increases the number of students able to attend college. For this reason, price discrimination by universities likely increases social welfare.

QotD: The Great Depression

Filed under: Economics, Government, History, Quotations, USA — Tags: , — Nicholas @ 01:00

How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines, and utilities fell by more than half. People’s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.

Old myths never die; they just keep showing up in college economics and political science textbooks. Students today are frequently taught that unfettered free enterprise collapsed of its own weight in 1929, paving the way for a decade-long economic depression full of hardship and misery. President Herbert Hoover is presented as an advocate of “hands-off,” or laissez-faire, economic policy, while his successor, Franklin Roosevelt, is the economic savior whose policies brought us recovery. This popular account of the Depression belongs in a book of fairy tales and not in a serious discussion of economic history, as a review of the facts demonstrates.

To properly understand the events of the time, it is appropriate to view the Great Depression as not one, but four consecutive depressions rolled into one. The late economist Hans F. Sennholz labeled these four “phases” as follows: the business cycle; the disintegration of the world economy; the New Deal; and the Wagner Act. The first phase explains why the crash of 1929 happened in the first place; the other three show how government intervention kept the economy in a stupor for over a decade.

The Great Depression was not the country’s first depression, though it proved to be the longest. The common thread woven through the several earlier debacles was disastrous manipulation of the money supply by government. For various reasons, government policies were adopted that ballooned the quantity of money and credit. A boom resulted, followed later by a painful day of reckoning. None of America’s depressions prior to 1929, however, lasted more than four years and most of them were over in two. The Great Depression lasted for a dozen years because the government compounded its monetary errors with a series of harmful interventions.

Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.

March 13, 2016

Are Electric Cars Really Green?

Filed under: Economics, Environment, Technology, USA — Tags: , , , — Nicholas @ 02:00

Published on 8 Feb 2016

Are electric cars greener than conventional gasoline cars? If so, how much greener? What about the CO2 emissions produced during electric cars’ production? And where does the electricity that powers electric cars come from? Environmental economist Bjorn Lomborg, director of the Copenhagen Consensus Center, examines how environmentally friendly electric cars really are.

March 8, 2016

QotD: The Civil Works Administration, the Works Progress Administration and the Wagner Act

Filed under: Bureaucracy, Economics, History, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Roosevelt created the Civil Works Administration in November 1933 and ended it in March 1934, though the unfinished projects were transferred to the Federal Emergency Relief Administration. Roosevelt had assured Congress in his State of the Union message that any new such program would be abolished within a year. “The federal government,” said the President, “must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks.”

But in 1935 the Works Progress Administration came along. It is known today as the very government program that gave rise to the new term, “boondoggle,” because it “produced” a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes.

The American economy was soon relieved of the burden of some of the New Deal’s excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the “nine old men” of the Court also threw out other, more minor acts and programs which hindered recovery.

Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!

The stage was set for the 1937–38 collapse with the passage of the National Labor Relations Act in 1935 — better known as the Wagner Act and organized labor’s “Magna Carta.” To quote Hans Sennholz again:

    This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.

Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants, and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation’s labor unions soared; by 1941 there were two and a half times as many Americans in unions as in 1935.

From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the-rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”

Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration — in both word and deed — against business, property, and free enterprise guaranteed that the capital needed to jumpstart the economy was either taxed away or forced into hiding. When Roosevelt took America to war in 1941, he eased up on his anti-business agenda, but a great deal of the nation’s capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in motion the postwar investment boom that powered the economy’s return to sustained prosperity.”

Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.

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