Market Power

Musings by an academic economist on the power of markets and the power over markets.

Wednesday, April 20, 2005

No More Blogging Here

I have finished preparing the new Market Power - ahead of schedule and will cease blogging at this site on Thursday, April 14th. Please update your syndication information and/or your bookmarks to point to the new Market Power.


Tuesday, April 19, 2005

Market Power is Moving

Blogger is a nice service, but I have decided to move up and out of the blogspot world. I have acquired a domain name and will be moving this blog permanently to the following site. Over the next two weeks, I plan to blog at both places while I complete the transfer. By April 19th***, the transfer will be complete. Please update your RSS, XML, etc. feeds to point to the new site.

*** I have prepared the new site so blogging here will cease on Thursday, April 14th. All future blog entires will appear at the new and improved Market Power.


Thursday, April 14, 2005

The Efficient Market Hypothesis

One of the best real-world explanations for the efficient market hypothesis that I've heard came from a young man who took several courses in our department (and who is well on his way to being a big shot in the investment world):

OK. You are sitting at your computer, on Ameritrade, and you want to beat the market. Meanwhile, in New York, there are 30,000 people who have more experience than you in buying and selling investments. They also have access to information quicker than you do. What makes you think you are smarter than them?


Tuesday, April 12, 2005

So What is the Problem?

Skip Sauer, my co-blogger over at The Sports Economist has this take on the business of baseball. One of the biggest problems in baseball is the salaries of baseball, right? Wrong:

The story in the LA Times focuses on the steroid issue, which is understandable - thank your congressman for that. But the steroid issue is likely in the sport's rear view mirror. High salaries for workers and rising prices for the product (they are reportedly up 6.3 per cent) reflect a healthy business, with high and growing demand. They are problems any business would like to have.
The demand for any resource is said to be a "derived demand" - it is derived from the product/service made by the resource. When a product/service is in high demand, the demand for its resource will also be in high demand - leading to higher salaries. According to this article in the Chicago Tribune, this year's average baseball player will earn $2.63 million, an increase of almost 6%. That number is skewed because of a few very lucrative contracts (such as Alex Rodriguez's $25.7 million salary). The median salary (the figure with 50% of salaries above it and 50% of salaries below it) this year in baseball went from $800,000 in 2004 to $850,000, a little over 6% - in 2005.

Is this a sign of a worsening problem in baseball? No - it's just the opposite.


Monday, April 11, 2005

Research Subject

Are you a budding researcher who doesn't have access to excellent resources but who has some interesting ideas you'd like to test? What do you use as a research subject?



Will We Ever Run Out of Oil?

From time to time, I tell my students that as long as market forces are allowed to work, the world will likley never run out of oil. I think it's an intriguing question and it gets them thinking about how market forces work. There are four basic reasons, all based on market forces, for why we won't run out of oil. Each is based on the premise that when the supply of known oil reserves start dwindling, the price of oil will increase.

1. High oil prices provides an incentive to people to reduce their consumption of oil.

2. High oil prices give an incentive for oil companies to start extracting oil from places where oil is known to exist but where extracting it is very costly. As a case in point, some small oil companies are drilling in urban neighborhoods in Houston.

3. High oil prices give an incentive for oil companies to start exploring for new sites to drill for oil. From this morning's Wall Street Journal (paid subscription required):

Few U.S. motorists need give a thought to bomb-wielding terrorists in the Caucasus or the rifle-toting Urhobo tribe in the oil-rich delta of Nigeria.

But to national-security planners, diplomats, oil companies and energy planners, they are becoming critical components in the increasingly difficult and risky game of bringing new oil supplies to market. ...

... The oil supplies expected over the next two decades are coming from or moving through some of the least stable and most corrupt areas in the world.

As a result, long-neglected regions such as West Africa are rising in importance to U.S. policy makers. Emerging countries around the Caspian Sea are attracting new attention, too, as is the tense U.S. relationship with Venezuela's leftist government.

4. High oil prices give an incentive for enterpreneurs to develop alternative forms of energy.

The big kicker revolves around information and impediments to market forces (such as regulation). Do we really know exactly how much oil is in the ground? Maybe not, but incentives and technology are there for firms to know as much as they possibly can. Even if we know how much oil is in the ground, regulations may add so much cost to drilling that it makes no sense to drill for it?

Will we ever run out of oil? Likely, the answer is no. Will we ever stop using oil - quite possibly, yes. Of course, if market forces aren't allowed to work, then all bets are off.


Saturday, April 09, 2005

Caveat Emptor

I took my mountain bike, the Stumpjumper, to the bike shop today. It's rear wheel had a slight wobble that caused the rim to rub slightly against a brake shoe. The manager saw immediately that the wheel needed to be trued.

To true the wheel, he placed it in a truing stand. He spun the wheel and whenever it rubbed against the forceps on the truing stand, he either tightened or loosened a spoke to draw the rim away from the forceps. 5" later, I had true wheels.

He said a friend of his at some other bike shop placed a truing stand near his cash register with spoke wrenches draped all over it. Customers saw how to use the wrenches, and bought bunches of them. Not only did his sales of wrenches take off, but his truing business also went off becuase, inevitably, the customers would end up screwing the wheels up worse than before and would bring them back in to be trued.

Caveat emptor.


It's a Soda, Dadgummit

I grew up in Sioux City, Ia. At age 24, after graduating from Morningside College, I moved to Omaha, Ne to pursue my Masters. 4 years later, I floated further down the Missouri River to Columbia, Mo. to pursue my PhD. I now live in Mankato, Mn. In Sioux City, Omaha, and Mankato, soft drinks are referred to as "pop." But, since high school, I've referred to soft drinks as "soda". I've never liked the sound of the word "pop" and calling 7-up, Welch's grape soda, and similar soft drinks "Coke" is silly.

What are soft drinks referred to in your area? Hat Tip to Marginal Revolution.


Friday, April 08, 2005

Deep Doo Doo

Lawrence Summers is in deep shit at Harvard. He's not the only Harvard economist up to his eyeballs in poo. From the Chronicle of Higher Education (paid subscription required):

Martin L. Weitzman has a Ph.D. in economics, tenure at Harvard University, and an endowed chair, but what he really wanted was a truckload of free manure.

A police officer in Rockport, Mass., said on Wednesday that Mr. Weitzman was arrested and charged with trespassing, larceny under $250, and malicious destruction of property for attempting to steal manure last Friday from a horse farm in Rockport, 30 miles northeast of Boston.

According to the Associated Press, Phillip Casey, the stable manager at the farm of Charles Lane, found the economist on the property on Friday and blocked the professor's pickup truck before telephoning the police.

I have one question. Why would Weitzman go out and find his own shit? Isn't that what graduate assistants are for - going out and finding shit so the faculty member can work with the shit and find other shit for the grad assistant to go out and get?


How to Kill a Conversation in One Easy Lesson

Several months ago, I went to a dinner gathering with my wife. I talked to some of the guests, one of whom was a public school teacher. She asked what I did for a living and I told her that I taught at the local university. She really perked up at that, thinking she had found a kindred spirit.

Then she asked me what I taught. I told her "Economics."

I might as well have told her that I bullied elementary schoolchildren, defecated in public just for fun, and kicked puppies. The look on her face was very similar to that on my late father-in-law's face when I told him I was going to marry his daughter - a look that said "oh $h!t."

Yup. If you want to kill a conversation, tell people you are an economist. What's that, you say? You don't like your blind date? Tell him/her/it that you are an economist. As John Chilton says, "Economics is Potentially Hazardous to Your Social Acceptability."


The Move

The move to the new Market Power Blog is just about complete. Last night I spent time finding my way around Typepad and learned how to manually alter link lists. So I transferred the MOB roll over there, I added a sitemeter, and I added some syndication links (feedburner, xml, rss, myahoo, etc.). I any of you are using syndication links to get the blog, you can point them there now.

I still have a little work to do over there but the lion's share is complete. 11 days from now, this site will simply be for archives and the new site will be the only site that will be updated.


On Tenure

I am an assistant professor of economics and am, therefore, untenured. I go up for tenure after next year. Stephen Karlson at Cold Spring Shops has these thoughts on the tenure system.

Getting the chance at tenure is one of the benefits of the job. Generally speaking, assistant professors are willing to take a lower rate of pay to have the chance at tenure. If tenure were abolished, many would likely move out of academia if they were not compensated with a higher salary. I imagine this is especially true of professors from disciplines that are well-represented in the private sector (economics, finance, engineering, chemistry, medicine, etc.)

But the chance at tenure is not the only reason to work in academia. During the school year, I often do school-related work 7 days during the week. But other than my teaching schedule and my office hours, my work schedule is very flexible.

I also teach 8 months a year and have my summers off from teaching - if I so choose. I have the opportunity to teach summer school, but at this point in my career, I prefer to take the summer off to concentrate on my research. I have about 25 years ahead of me in my career. Research is something that doesn't pay off much in the short run, but, instead, generates long-term benefits. So I view today's research as an investment in my future.

I also teach a 4-4 load which gives me relatively little time to start up new research projects during the semester.