|Truck and Barter
Where Sympathy and Hedonism Collide
Welcome to this week's edition of the Carnival of the Capitalists, your premier source for economics and business blog posts. Our assortment this week is guaranteed to both intrigue and entertain you, or your money back.
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Rob the Businesspundit uses personal experience to defend the proposition that those who take the risks--shareholders--should earn the profits from a company. He finds that in order to make money, he will not be able to pay recent college grads any more than low 30's. Interesting discussion ensues.
Michael Williams believes that striking labor unions have already lost their battle. He notes the union's real enemy--"an army of lawyers, accountants, scientists, businessmen, and marketeers with one simple unified goal: maximize shareholder value," and that the only way to win for them to become capitalists themselves.
Zack Lynch writes that people almost always overestimate the value of a product, and that satisfying--not just appealing to--emotional needs is the key to profitability.
Todd Bucksten of A Penny For... talks about Game Theoretic implications for creating business strategy. In particular, he concludes, "Game Theory proves something we all know – competing on price is very dangerous."
Barry Ritholtz of The Big Picture has been doing some serious shopping on Long Island (my hometown). He concludes that retailers are just fooling themselves that they can go without discounting this shopping season.
Torsten Jacobi of TJ's Weblog takes a look inside the emerging pricing optimization technologies. These will help replace wild guess pricing with results of equations that examine a store chain's sales history. Is this an improvement? Read and decide.
Jim Berkowitz of CRM Mastery, Inc. believes in the power of trust-based marketing in selling professional services. Basically, you get people to value your expertise, and then get them to buy your stuff. :)
Rorschach on The Window Manager verbally and visually describes the circuitous process of designing the killer product. Bottom line: too hard to summarize, but you should know your target market, and make sure that everybody with specific knowledge and concerns has his say in relevant aspects of design.
Danny Sullivan of Enterblog has an excellent example of the wage gaps that make profitable the transfer of production facilities abroad. Consequences for the future job content of American engineers are forecasted.
Shocked and awed by Marginal Revolution econoblogger Alex Tabarrok's dismissal of the mutual fund scandal as much ado about nothing, Professor Bainbridge administers a gentle but tabular fisking.
The Calico Cat, Michael Kantor, reveals that the ubiquitous 401k plan has a dark side: "401k plans... are investing on autopilot. Almost everyone with a job contributes to them, but they have absolutely no idea what they are doing." Ouch.
On Catallarchy Jonathan Wilde insists that blogs are "the ultimate free-market anarchy." Also, "Readers cannot themselves change the content of a blog. That would be democratic." And, "And like any good entrepreneurs, we will be successful if we understand the nature of the market and the preferences of our customers."
Lee Zanello of See the Donkey writes that when Blogads servers went down, their customer response was impeccable. Still their good has strange characteristics: " how much faith would I have in a system that is, for the most part, centrally operated, but can also be turned off with a simple click of the wrist by the various hosts I'm advertising with?" Much more to be had in this post, especially if you're thinking of buying a blogad.
On the incomparably named Deinonychus antirrhopus, Steve Verdon gives us a primer on the deadweight loss of taxation. He notes that in addition to equity, simplicity and efficiency should be considered when evaluating any tax system. Also, note the spiffy graph.
Robert Prather (of Insults Unpunished) wants to replace the entire U.S. tax code with a single transaction tax. The benefits: smaller government footprint and tinkering, with increased simplicity and fairness.
Joe Kristan (of Roth & Company, PC) notes that the 1996 Defense of Marriage Act makes a single-sex 1040 highly unlikely. The law before that (signed in 1958), deferred to the states definition of marriage, and would have permitted it. He says that most are better off since they won't face the marriage penalty.
Captain Arbyte maintains that capitalism is the solution to the high cost of prescription drugs. Both profits and welfare are maximized by a set of prices above marginal cost but below consumers' marginal utility. Those willing to pay more for the same product should pay more. He calls for the repeal of the 1936 Robinson-Patman act that makes price discrimination illegal.
Gordon Smith (of venturpreneur) writes how viewing market efficiency as a continuum has changed debates about corporate governance. Simply put, "Corporate governance cannot run on the fuel of efficient markets alone."
David Clain (on Swagu) explains Apple's idea of event marketing: "the idea is to make a product launch more than a product -- people don't buy products, they buy promotion." In particular, the Orwellian commercial introducing the Mac in 1984 is singled out for greatness.
Mike Pechar (of Interested-Participant) notes that Columbia University uses a quota system to grant contracts on a race and gender basis. Also, minority groups in New York City demand contract dollar awards equal to population representation of ethnic groups.
Robert Tagorda (of Priorities and Frivoloties) cites new research on the macroeconomic consequences of terrorism, and notes wisely, "These kinds of studies are useful because they help measure our national-security investments, even if they do little to slow down excessive national-security investments."
Lynne Kiesling (of The Knowledge Problem) writes that overfishing can be reduced by switching from a command-and-control regulatory scheme to one based on property rights (which would help align the economic and environmental incentives). In short, "Commons need not lead to tragedies." Her discussion is a hell of a lot more complex than I make it out to be here.
Dean Esmay notes the competition and diversity in the supply of campaign contributions to presidential candidates. In the context of current campaign finance law, much of the money is given under the table... He recognizes favouritism and cronyism is inevitable...
Martin Lindeskog (the egoist) is skeptical of the political wisdom of steel tariffs. He has a fine compendium of links to current analysis and economic classics.
In People Hate Flexible Prices, Tyler Cowen (of Marginal Revolution) notes that a man who raised his prices during an emergency--raises that were cost justified--was removed from elective office because of it.
Andrew Anker of Ventureblog ponders the acceleration of new product adoption, and the possibility of a series of technologies being developed so rapidly that a large class of "never adopters" arises. He also notes that, "you target the early adopters but win on the masses. As acceleration accelerates and the barriers to new product adoption decrease, expect the size of the early adopter class to become interestingly big on its own."
11/23/2003 11:34:41 PM
You May Price-Gouge in Half of the U.S.
Tyler writes about hatred of flexible prices, noting that Virginia is considering regulations to restrict "price gouging," similar to the law in Florida.
But it isn't just Florida. According to Emma Lehner Horton, Assistant Attorney General in the Arizona Antitrust Unit (no link--it was sent to me via email), 25 states and one territory have anti-gouging laws:
In particular, Governor Warner of Virginia wants to imitate the North Carolina law that was passed a month before Hurricane Isabel hit:
Beware of politicians who claim to be able to determine what is "unreasonably excessive."
Two weeks ago I purchased a snow shovel in anticipation of a heavy winter. Now is the time to prepare for future emergencies! If you wait until the last minute for durable goods, you're likely to miss out. How many times will some people be caught unprepared?
UPDATE: Here's the full text of SB 963, North Carolina's Anti-Price Gouging Law:
11/18/2003 12:35:19 PM
Family is visiting... posting has been and will be light for some time...
11/16/2003 01:39:50 PM
"Doesn't Behave Like a Competitive Market"
Tyler Cowen is pondering gas prices:
Let me state my views bluntly: perfect competition is a myth! I would be shocked to find any markets that function like some ridiculously simplistic model. First, no market meets the almost impossible criteria of zero transactions cost, perfect & symmetrical information, homogenous product, non-decreasing marginal cost, zero fixed cost, and indefinite numbers of suppliers and demanders. Competition in the real world is a battle between real producers as they vary prices, quality, service, and the total experience. Tyler knows there's much more to markets than a large numbers of sellers and technical assumptions, and gives this understated summary:
Since perfect competition is a myth, the criticisms of welfare economics, which holds the results of perfect competition as an ideal, should be taken not with a grain of salt, but with a sea of salt. How do you determine whether a segment of the economy is a chronic "market failure" when you're not sure what an efficient market looks like, or whether any of the alternatives to markets proposed by analysts, pundits, and politicians provide more "socially efficient" results?
Anyway, (like other recent inquirers) Tyler wanted to explain why full service gas in New Jersey (where full-service is required by law), is cheaper than self-service in Virginia.
I have two hypotheses. First is that state taxes are much, much lower in New Jersey. However, this is falsified by reference to historical and current data. Currently, state taxes in New Jersey are 10.5 cents (+4 cents for highway use) a gallon, and 17.5 (+2 cents in mass transit areas) cents a gallon in Virginia. (Check out the links for really great information about other states).
My second hypothesis is that the marginal cost of providing gas along the I-95 corridor and other busy areas is significantly affected by the forced full service law, but is about the same as the tax differential. How much would this effect be? Let's say pumpers get $10 an hour, and they pump 100 gallons an hour. This gives about 10 cents per gallon additional cost to the gas, which 5 cents more than Virginia. If prices are cost-based, then I'd say that prices should be 5 cents cheaper in VA.
Now lets look at average prices for gas for the past 72 hours in Virginia and New Jersey on the I-95 corridor. Right now, New Jersey prices are a low of $1.35 and a high of $1.71, while Virginia prices are $1.24 to $1.69, slightly cheaper than New Jersey. This shows the huge variability in prices, but also that gas in Virginia is cheaper by from 2 to 10 cents.
That worked out a lot nicer than I thought it would. (I should also note that it can take a really long time to gas up in New Jersey).
Note:Meant no offense to Tyler with the verbal phrase "confused about", so I've altered it to "pondering."
11/10/2003 05:58:26 PM
Some Personal Bias
I must admit that when I think of newspapers in New York City, I always forget the littly guys--not the Observer or the Press or the Voice, but the four Chinese language daily papers. Comparing these papers with the standard dailys show how different the utility functions of immigrants can be:
"Our headline today is that the Homeland Security Department requires that, starting next spring, all foreign students have to pay $100 to get into this country," said Joe Wei, the national desk editor of The World Journal. "In other newspapers this is going to be on Page 43...."
The Chinese newspapers tell new arrivals about jobs and apartments in Chinese neighborhoods. They specify which schools are high-performing and where to find SAT cram schools.
"You want to buy a Cadillac, instead of going to Potamkin you look through the ads for someplace in Queens run by a Chinese person," said Peter Kwong, professor of Asian-American studies at Hunter College. "They can explain the deal better."
Also, some of them found out the meaning of the phrase "heads should roll":
Could you imagine reading a English paper from top to bottom literally. Well, neither can the Chinese in NYC:
11/10/2003 08:18:04 AM
I wish I had written this (by Cox and Alm):
This was written before today's announcement of a large increase in net jobs. Tangentially, I should mention that I lunched with Cox several years ago; I gather that he didn't like me much, because I didn't get a job offer, so don't accuse me of undisclosed allegiances!
11/7/2003 03:15:39 PM
Greenspan on Productivity and Employment
To formulate an answer, a serious economist would need 1) a model, 2) a theory, or 3) a reputation. I have none of these, but I do have a link to Alan Greenspan's latest speech that zeroes in on the subject:
T&B readers, which explanation/prediction--if any--do you believe? Why?
Let's assume that most businesses predict an increase in mid-term demand for their products. Then one's view of the nature of recent productivity increases can substantially effect your prediction of employment gains. Following Greenspan, recent productivity increases are caused by:
Each of these causes will have a different effect on mid-range employment:  says business prefer to operate at a more sustainable lower productivity level, and will ramp up employment to meet increasing demand,  says businesses are trim and fit to meet current production needs, meaning employment gains are necessary to increase output, and  says productivity-enhancing technology has caused, and is still causing, a tectonic shift in employment patterns, leading to an unpredictable mid-term employment level.
I'm going for a mix of all three, with aggregate employment posting decent gains up until and past the election, but aggregate productivity not taking a substantial hit either.
11/6/2003 05:33:25 PM
Do you hate Wal-Mart? So why do you shop there?
Greg Schneider and Dina ElBoghdady of the Washington Post present no evidence for their assertion that "Untrained people entering today's workforce the way Bukrim did three decades ago have dwindling odds of reaching the middle class."
Still many people believe this, and other bad things supposedly caused by Wal-Mart, but they still support the enemy:
11/6/2003 02:24:31 PM
Fixing a Club Good
Sorry for the light posting, but I've been fixing a broken club good at a fast pace.
A club good is a good that a limited number of people can share in without distracting from others' enjoyment, but one that can cost-effectively be excluded from those not in the club, whether these outsiders actually desire to consume the good. A private golf course is one type of club good; a collection of the views of macroeconomic forecasters on the future economic climate (like the blue chip index), is another.
I think small databases can be considered club goods. One of the Department of Defense personnel data systems I use regularly was giving queer query results. In response, I spent a long time figuring out what was wrong with the system, and notified the gatekeeper. The database administrator corrected the problem.
Correct economic theory would have predicted my behavior. But an application of basic economic theory of club goods says that the marginal social benefit (to other database users) of me correcting the database is greater than my own marginal personal benefit. Ordinarily this would mean that I underproduce database correction.
But this type of analysis ignores the unique character of the DoD database: The DoD database is utterly worthless to me when it gives out bad results. And the only way for me to receive any marginal personal benefit is to correct the database fully. The only possible underproduction of database correction is zero database correction; it's all or nothing, and I choose all. There is no way for me to correct the database any further. Even though my work gave all other users a benefit that I had no way to charge for, my self-interest led me to the socially efficient result.
Shouldn't have there been a market failure? If the database was not corrected, it's unclear to me that an economist could determine whether or not there was a market failure. It might be socially efficient for the database to fall apart even further. (Think of that next time a politican wants to spend public funds revitalizing a "blighted area").
A real market failure requires people to interact inefficiently, to produce and consume less than some theoretical standard says they should. With a continually broken DoD database, an honest economist could conclude "market failure" only if he could prove conclusively that individually nobody found it worthwhile to fix the database, while collectively, we should have found a way to do so. This is a rigorous standard, and I've been told that most economists don't like this conclusion. In fact, most arguments about market failure are theoretical in nature, and do not use empirical evidence to demonstrate that there are more efficient alternatives to market solutions.
Well, I'm fast going nowhere, so I'll stop here...
11/5/2003 03:05:01 PM
AP: Ignore the Details, There's More Food Insecurity!
Throughout the land, the AP is reporting that an Agriculture Department study shows a slight increase (from 2001 to 2002) in the number of adults and kids who went without at least one meal (i.e. they were "food insecure"), because the family was too poor to feed them:
An increase in food insecurity (worrying about providing food) and food insecurity with hunger (decreasing portions, missing meals, or not eating in an entire day) is very bad news.
However, the AP is always highly selective in its reporting--usually pulling right out of the abstract or summary. The AP is trying to imply that there were more long spells of hunger in 2002 than in 2001, but the report aggregates long and short spells in these statistics.
Does the analysis, Household Food Security in the United States, 2002 by Mark Nord, Margaret Andrews, and Steven Carlson of the Economic Research Service of the Agriculture Department, conclude anything positive?
Since data on poverty spells shows them to have lasted an average of four months (figure 6, page 15), and food insecurity is linked to poverty, we should find that food insecurity spells are also short term. Indeed, on page 5 the authors report:
Evidently the AP does not think it important for its readers to keep this in mind when they are to interpret its reports. Furthermore:
11/2/2003 08:14:00 AM