General Interest

Category: General Interest

Support Your Local Cyclists

Professor Finkler will join Provost Burrows and our new women’s basketball coach Carr to cycle the the Scenic Shore 150  a two-day 150-mile bike ride along the shore of Lake Michigan on July 23-24th.  This year’s goal is to raise $700,000 for the Wisconsin chapter of the Leukemia and Lymphoma Society to support research and to help patients with blood cancers live better, longer lives (http://www.lls.org/).

We invite you  to join our effort  this year. To contribute online, use the cumbersome link below and select any of the Mythical Beasts as the vehicle for your contribution.

(http://wi.llsevent.org/pledge/team_listing.cfm?415F22087C090E0405650147515B357A050A07760D72675E431557555F570D3D0807)  [or use http://wi.llsevent.org and follow DONATE]

If you would prefer to contribute by check, you can send a check, made payable to the Leukemia and Lymphoma Society, to any of the Mythical Beasts team members listed below.

Thanks for your support.

Mythical Beasts – 2011

Andy Boryczka

Dave Burrows

Tara Carr

Marty Finkler

Kathy Greene

Teresa Leopold

Brock Spencer

Pablo Toral

Ruth Vater

Sue Vater Olson

Rabbit Redux

The weekly This is Lawrence segment is up, featuring the Rabbit Pop-Up Gallery.

Our own Ranga Wimalasuriya has a speaking part in the video talking about his role on the financial end of the project, and humbly omitting his own artistic prowess. Of course, Ranga says he doesn’t read this blog, so be sure to tell him congratulations for me.

Check out the video, and the gallery. Both look great.

The True Costs of Electricity

In Econ 100 this week we talked about external costs (and benefits) and the equivalence of carrots (prices) and quantities (sticks) in terms of the possible “optimal” equilibrium outcomes.  The elephant in the room in these types of discussions is the measurement of the so-called external costs.  As if on cue,  environmental economics superstar and sometime Presidential advisor Michael Greenstone and his co-author Michael Looney have upped a paper with their estimates of these costs associated with electricity and energy.

Here’s their money chart.

The glaring purple associated with coal shows that the principal external costs are not from greenhouse gases, but from conventional criteria pollutants (e.g., NOx, PM). The external costs of coal, even new “clean coal,” are estimated to be higher than the actual operating costs.  Yikes.

It’s worth noting that both solar and wind have non-trivial carbon footprints, because the variability of supply requires ample natural gas plants to cover supply on days when the wind doesn’t blow and the sun doesn’t shine.  Certainly, developing battery storage technologies may well turn out to be the biggest environmental challenge of this next half century.

The results are probably worth quoting at length (after the break):    Continue reading The True Costs of Electricity

(Not so) Undercover Economist

The Undercover Economist, Tim Harford, is all over the internets these days.  He has just come out with a new book, Adapt: Why Success Always Starts with Failure — a meme no doubt familiar to the Pursuit of Innovation crowd.  Beginning Monday, you can hear an extended discussion about the book over at our favorite economics podcast,  Econtalk. I have penciled this one in on my summer reading list.

Harford also recently named his top five books that give unexpected lessons in economic principles, a list that included Klein & Bauman’s Cartoon Guide to Economics (my intro textbook!), Charles Perrow’s classic, Normal Accidents, and Cory Doctorow’s For the Win, a book that should “appeal to any enthusiastic player of MMO [Massively Multiplayer Online] games.”  Huh.

Undercover. Unexpected.  Un for the whole family.

Producers Still Hate Competition

Tyler Cowen at Marginal Revolution thinks this story might be a parody.   Here’s the gist:  a Berkeley store has decided to compete with its fellow merchants.

The relationship between the new management and the community seems to have got off on the wrong foot soon after Fujimoto left. Before long, the small local merchants were hearing reports from customers that Monterey Market was selling the same specialty products as they were, but at lower prices.

“We only have a 30% mark-up”, said Ng, adding that she doesn’t understand how Monterey Market can sell the same products so much more cheaply.

So, are they saying that Monterey Market can’t sell the same product?  Not at all.

Asked why Monterey Market should not have the right to pursue a business model that includes selling what it wants, Ng said:  ”Sure, but they don’t have to carry exactly the same products. It’s not that there was no competition before — we carried some of the same items — but we had matching pricing,” Ng said.

And the story doesn’t end there.

The decision by Monterey Market to stay open on Sundays, which it started to do in November last year, has also had a direct impact on sales, according to Ng and Rosales. In the days of Bill Fujimoto, opening hours used to be coordinated among the merchants, according to Ng.

Same products, lower prices, greater convenience.  Sounds like competition to me.  And producers still hate it.

Who is Dominique Strauss-Kahn? Why Should Anyone Care?

Answers to the first question are obvious.  Strauss-Kahn is the Managing Director of the International Monetary Fund.  As undoubtedly you have heard, he was arrested recently for sexually attacking a maid in his luxury suite at a New York Hotel.  He also was expected to be a strong candidate for the Presidency of France.  His exit from the political scene is imminent.

Why should we care?  Martin Wolf in yesterday’s Financial Times answers that question. I encourage you to read the full article but the operative words are as follows:

“Mr. Strauss-Kahn proved to be a bold decision-maker, an effective politician and a competent economist.  This combination is very rare.  None of the candidates under discussion is likely to do the job as well as he did during the worst of the global and then eurozone financial crises.”

Rewarding Our Own

Congratulations to Tu Ngyuen, Syed Abbas, and Anmy Xu for picking up some hardware at tonight’s Honors Dinner.   The McConagha and Bradley Awards are for the junior and senior, respectively, with the highest grade point average.   Anmy takes home the junior award, and Tu is the winner on the senior circuit.  Syed wins the Champion Prize for the outstanding paper.  Congratulations all around.

And the chicken was delicious.

Rethinking US Economic History

Economic historian Alexander Field’s new book, The Great Leap Forward: 1930s Depression and US Economic Growth, is making big waves, and is one I’m considering seriously for the Senior Experience book option for next year.

Here’s Field in the New York Times:

The conventional wisdom is that the war somehow magically transformed the doom and gloom of the Depression into the U.S. standing like a colossus astride the world in 1948. My counterargument is that potential output expanded by leaps and bounds between 1929 and 1941, and it was this expansion in capacity that both helped us win the war and established the foundations for postwar prosperity.

Tyler Cowen discusses it.

Arnold Kling reviews it.

This looks like a winner.   We’ll see where I’m at this fall.

Michael Lewis on Iceland and Ireland and Greece (Oh, my!)

We had a very enthusiastic EconTea today with Bob Atwell and Sarah Bohn, including a cursory discussion of Michael Lewis’ excellent series of pieces over the past two years in Vanity Fair.

Here’s a piece on the rather bizarre Icelandic collapse.

Then another on the Greek disaster.  That doesn’t look good for them.

And, finally, here’s a piece on Ireland that Professor Finkler wrote about a few months back.

Each piece is an interesting mix of sociology, economics, and business, with generally the same result (financial catastrophe), but with different causal factors and different prospects going forward (Iceland still has fish and heat; Ireland will go back to being Ireland; Greece is hosed).  For more on Lewis, check out our previous posts, or simply head over to The Mudd.

Thanks to our guests.  We hope to see you back in Briggs soon.

More ‘Gas’ than You Can Handle

The always-on- the-lookout-for supply & demand examples duo at www.env-econ.com are shaking their heads at the continuing disconnect between how politicians talk about prices and how the price system actually works. Today’s contribution is gasoline prices.

Here’s a taste:

Increasing taxes on oil companies will not lower gas prices, so Democrats are hoping that voters see it as unfair that oil companies are making so much money and receiving tax breaks (economists don’t have much to say about equity arguments — there is no economic theory to explain differences in your “fairness” and my “fairness”).

And this:

Expanding domestic production of oil and gas will not reduce gas prices significantly

“The proposal would end a series of tax advantages for the five companies and produce about $21 billion over 10 years, Democrats say.”

Let’s do the math. Suppose the five major oil companies are able to take the entire $21 billion in higher taxes over 10 years and pass it along to consumers in the form of higher gas prices. U.S. consumption is about 132 billion gallons per year (source: EIA). Dividing $2.1 billion per year by 132 billion gallons gives a price increase of about $0.16 per gallon. A fairly typical driver (12k miles, 20 mpg) would pay about $96 more each year as a result. You can determine for yourself if this is a price increase that politicians should worry about…

Those back-of-the-envelope calculations can be so refreshing!

The Constitution of Liberty — A Panel Discussion

Speaking of Hayek, late last week the libertarian Cato Institute hosted a blockbuster panel on The Constitution of Liberty, which was just re-released.  The curiosity of the day was the appearance of Hungarian financier, George Soros, certainly no libertarian, but someone who was around when Hayek and Popper were mixing it up.   The panel also contained rock star law professor Richard Epstein, and preeminent historian of economic thought,  Bruce Caldwell.

Good review of the panel here, and the video is here.

Keynes v. Hayek, Round 2

It’s here, the second major production from Russ Roberts and John Papola (all new mustaches!). Keep in mind, these guys are sympathetic (clearly) to the Austrian views.

Keynes v. Hayek, Round 2

For more on the Austrians, talk to someone from the Discovering Kirzner reading and discussion group.   And, rumor has it that The Road to Serfdom will be the book choice for the fall term reading group.

Former?

The Chicago Reader has a short piece on my brother, who wrangled the Mayorship from the incumbent in the Champaign election yesterday.  And wrangled is certainly the right word, as he has been campaigning tirelessly for the past six months.

Former Rocker Don Gerard Elected Mayor of Champaign

Don Gerard, a longtime fixture in Champaign-Urbana’s indie-rock scene, was elected mayor of Champaign yesterday. I haven’t seen or spoken to him in many years, but I remember Gerard, who played drums and bass in countless bands beginning in the mid-80s, as enthusiastic, energetic, and expertly sarcastic. His aesthetic sensibilities leaned toward punk and roots music, but his best-known group, the Moon Seven Times, was a 4AD-worshiping, goth-leaning outfit. He also played in the Farmboys, a band fronted by recording engineer Adam Schmitt; the Bowery Boys, fronted by Chicagoan Leroy Bach (Uptighty, Five Style, Wilco); and Steve Pride & His Blood Kin, which also included Jay Bennett. For a time he lived in the Champaign rock palace known as the Ten Shitty Guy House, which at one time or another housed members of the Didjits and Titanic Love Affair.

I must say, this is a bit surreal.

Let’s Declare True Independence

If energy independence really gets your juices going, you have to be inspired by Allen Sanderson’s Declaration of Independence in the Chicago Tribune, March 30th.

My fellow Americans,

For too long, the United States of America has been at the mercy of foreign interests — and nations in faraway lands that are often at odds with our core values — when it comes to the production of perhaps the vital resource that drives our economy. We remain far too dependent on this imported commodity that could, in the time of emergency or international political crisis, be denied to us and thus cripple our productivity and reduce us to quivering masses of migraines in a matter of hours. The time for change is now.

I speak, of course, of our complete dependence on coffee that we are importing mainly from Brazil and Colombia. It’s time to wean ourselves from this harmful addiction. My “Coffee Independence” proposal is the key first step.

We may constitute only 5 percent of the world’s population, but we consume fully a third of the planet’s coffee. This nation runs off coffee, most all of it from a sketchy continent. Should we be cut off by one of these sources, for our caffeine fix we’d be forced to drink Coca-Cola for breakfast as well as 10 other times a day.

Our most recent census figures reveal that Detroit lost 25 percent of its population from 2000 to 2010, including those who moved from the city as a result of continuing dismal performances by the Lions and Pistons. And the great state of Michigan as a whole lost population and faces one of the highest unemployment rates in the country.

Thus my administration will propose that we begin immediately to invest in this city and state and turn them into the coffee capital of North America. It will create jobs, jobs, jobs; stimulate economic development; and put Michigan back on the map. After all, it was a beer that made Milwaukee famous, and cows that turned Wisconsin into America’s Dairyland. Why not think of Michigan when you think of mocha?

Going without our morning venti half-caf latte and afternoon frappuccino grande will take some time to get used to, of course. As will building the hothouse infrastructure, turning seedlings into hearty trees; and fully implementing our “Cash for Coffee” stimulus program. And until those beans can be picked by American workers who are paid a living wage, have great health care benefits, 40l(k)s and union representation, this will call for shared sacrifice.

To complement this initiative, I will also propose to Congress that we invest in Florida orange juice production, Nicorette gum and California wines, all 100 percent American products. (And we can thus reduce Brazil to a nation known only for its Carnival, bikini waxes and getting suckered into hosting the 2016 Olympic Games.)

Once fully implemented, we will then turn our full attention to growing cocoa in New Hampshire, a state that figures prominently in the 2012 primaries, instead of importing our secondary caffeine and fat additions — chocolate — from the Ivory Coast and Ghana. After that we will move on the idiom — “For all the tea in China” — and have farmers in another early primary state, Iowa, convert some of their corn (aka ethanol) acreage to tea, thus stopping the flow of American dollars to China and India.

And then for the final phase, I am fully prepared to give new meaning to the term “Banana Republic.”

Sincerely,

Any president, past, present and future

Allen R. Sanderson teaches economics at the University of Chicago.

The Liberal Arts and Social Change

Grinnell College president Raynard Kington gives a plug for the liberal arts:

The economic conditions of the past two years have fostered the belief that colleges should produce business-ready graduates. That has put liberal arts colleges on the defensive, with many people questioning the practical value of spending four years in an ‘ivory tower’ educational setting.

In response, the leaders of many liberal arts colleges have jumped into the fray to reinforce the core reasons why a liberal arts education is, in fact, right for the times. The essence of the argument is this: with today’s fast-paced, continuously changing marketplace, a narrow, job-specific education ill-prepares graduates for an uncertain future. The liberal arts approach is better, as it helps individuals acquire vital intellectual capacities — such as gathering intelligence, making informed decisions, expressing oneself clearly and innovating continuously — that ultimately enable people to take courageous risks and solve big problems.

This argument indeed provides a sound rationale. However, in my opinion, it stops short and fails to underscore one of the most powerful outcomes of a liberal arts education: its historic and continuing role in advancing positive social change…

A piece worth reading and reflecting upon.   And something for us to strive for here at Lawrence.

Q: Who’s Making Those “Record” Corporate Profits?

Tater Skins

Answer: The financial sector.

Felix Salmon, citing a WSJ piece,   reflects upon the very large taters being made by the financial sector.    Without some frame of reference, it is hard to know what to make of the financial sector banking 35% of all of US profits.   So, for some perspective check out Simon Johnson in his Atlantic Monthly piece:

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007

I was discussing an opportunity to attend a financial markets seminar with one of my colleagues, and he correctly pointed out that financial regulations are something I really don’t think about that much. Yet, as time marches on, this seems like a very interesting place to be looking.  Let’s take a peek.

First, there’s Richard Sylla’s review of Rajan and Zingales Saving Capitalism from the Capitalists.  In his review, Sylla provocatively compares Rajan and Zingales to Joseph Schumpeter in their roles as prognosticators of the future of capitalism.

What is the nature of the threat to capitalism? Rajan and Zingales argue that it arises from within the heart of the system, not from limousine liberals, social critics, reformers, and disadvantaged groups on capitalism’s fringes. Established enterprises, the “incumbents,” constantly seek to co-opt the political system and use it to stifle entry to industry, access to financial services, and competitive markets in order to protect their privileged positions and profits. “Capitalism’s biggest political enemies are not the firebrand trade unionists spewing vitriol against the system but the executives in pin-striped suits extolling the virtues of competitive markets with every breath while attempting to extinguish them with every action.” (Sylla, p. 392 citing Rajan & Zingales, p. 276).

I had seen this type of “regulatory capture” argument before, notably from Simon Johnson’s piece that I assign to my regulation class, but I was surprised to see it from the relatively more pro-market Rajan & Zingales.

But they aren’t the only ones.  In “The Inequality that Matters,” libertarian Tyler Cowen looks at the role of the financial sector in increasing income inequality, and comes to this rather unsettling conclusion:

For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism. It’s no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind. That is why it is so hard to control.

Yikes.

MIT economist Daren Acemoglu has also turned his attention to this matter, with a talk at the annual American Economic Association meetings that he discusses with Russ Roberts on EconTalk.  In it, Acemoglu actually discusses Rajan’s more recent book, Fault Lines (discussed here).

Russ Roberts himself gives a very thoughtful overview of his case for cronyism the capital markets in his piece, Gambling with Other People’s Money, that he discusses in his monologue at EconTalk.

Overall, we’re building up a pretty good reading list here.  We’ll see if we have a seminar on this forthcoming.

Greenspan rejects the Dodd-Frank Law

In today’s Financial Times, former Federal Reserve Bank chair Alan Greenspan pans the Dodd-Frank financial regulatory (2200+ page) reform act passed in July, 2010.  Greenspan points out how complex and non-transparent the world of financial market is.  He cites some negative effects of attempting to write rules for specific segments of the financial industry and for economic behavior.  As you probably know, Greenspan largely argues that “markets will self correct.”  His opinion piece, however, notes that there will be exceptions and that these will be difficult to anticipate.  He does not pose any answers – how typical of Greenspan – nor does he suggest anything to avoid situations such as occurred in 2008.  He does, however, concede that it would be  worthwhile to attempt to understand the relationship between financial innovation and economic growth.

In moving forward with regulatory repair, we may have to address the as yet unproved tie between the degree of financial complexity and higher standards of living.