Market Power

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

Saturday, March 19, 2005

How to Piss Off a Communist Dictator

How do you piss off a Communist Dictator? List him as being one of the richest men in the world.

HT to Marginal Revolution.


Friday, March 18, 2005

Finally. Heavy Snow

Finally, after living in Mankato for 2.5 years, we get a decent snowstorm. We've gotten about 9" at my house and it shows no signs of letting up. I like snow although my preferences for it exhibit diminishing marginal utility. Still, this is a cool storm! As long as there's no place to go...


Canadian Health System

If it ain't broken, don't fix it. That saying does not apply to Canada's health system.


Get Well, Teddy Bruschi

Teddy Bruschi of the New England Patriots suffered a mild stroke recently and now faces heart surgery. Here's a story at


Mariner's Accounting Income

From the Seattle Post-Intelligencer:

Despite posting their worst won-loss record since 1983, the Mariners reported net income last season of $8.74 million -- up from $2.85 million in 2003 -- further reducing the ownership's group cumulative losses to $108 million.

It's important to realize that this only reports accounting income, not economic profits. Economic profit is the difference between the total revenues that flow into the firm and the total costs that flow out, including the opportunity costs of the resources owned by the firm. According to the article, the M's made $18.5 million in adjustments to depreciation and amortization of debt. Depreciation does not represent a cash outflow from the firm. Instead, it represents an adjustment to an income statement in which the team writes off the cost of its fixed resources over a period of time.

Why is the accounting income so important?
The 2004 net income figure is significant because in five years of operating at Safeco Field, Mariners owners have seen their previous cumulative losses in the team nearly cut in half. A profit-sharing clause is triggered once those losses are wiped off the books.
Although they sound good, these clauses produce perverse incentives. For example:
Hale said the owners intend to put that money back into payroll this year, with estimates the team will spend more than $90 million this season and possibly operate in the red. The team has seen season attendance at Safeco Field drop more than 600,000 since 2002, with 2.9 million fans last season, down from 3.2 million in 2003.
Without such clauses, a profit-maximizing team will pay a player a salary that is no greater than his expected contribution to revenue. With the clauses, teams have an incentive to pay players salaries above their expected contribution to revenue in order to keep the clauses from going into effect. By "operating in the red", the owners of the Mariners put off the date when they must share their profits.


Thursday, March 17, 2005

Freudian Misspelling

I just received my girl scout cookies. When I wrote the check, I noticed I had written it out to Girl Stout Troop YYZ. I think it's time to put a couple of oatmeal stouts in the fridge and "celebrate" St. Patty's Day while I await the storm of the century.


Die Hippie, Die!

I gotta watch Southpark tonight (it's been a long time!). Cartman is trying to get all the hippies out of town.


Teaching Principles

King at SCSU Scholars has chimed in on the teaching discussion (which he termed "delightful" :-) ) between John Palmer, John Chilton, and myself. King lists 3 items that econ profs would do well to teach to principles students:

Russell Roberts gave a lecture I heard once many years ago in which he summed up economics as three postulates, which he represented as acronyms:

1. SI -- people act as if motivated by their self interest.
2. NFL -- no free lunch, or more often known as TANSTAAFL.
3. MC=MB --marginal benefit = marginal cost, the notion that rational decision occurs at the margin. The corrolary I always teach is sunk costs or "don't cry over spilt milk", which is something Heyne does so well.
I would add one more corrolary: PRTI -- People respond to incentives.


Wednesday, March 16, 2005


When men face different prices than women, it must be discrimination, right?

John Leo says no. So does The Eclectic Econoclast. When it comes right down to it, non-discriminatory rational choices and market forces are the deciding factors.


Stupid License Plates

I can think of some vanity plates that one might want to steer away from:


A fella from Moorhead MN. had TIPSY on his plate. Now he's in trouble for DUI.

Having a vanity plate that reads "TIPSY" may not be such a great idea after all. Josiah Johnson, 23, said his license plate might have tipped off the Clay County sheriff's deputy who pulled him over Friday after he left Coach's Sports Pub in Moorhead.
Hat tip to E. Frank at Division of Labour.


Tuesday, March 15, 2005

This Blows!

A fella from southern Minneapolis wants to get leaf blowers banned. They are noisy and they blast particles into the air that may cause some health hazards. I'll buy that they do generate some external costs, but how bad are their external costs? Does their use really cause a higher indidence of disease?

Given that they do generate some external costs, does that mean that they should be banned? First off, doing so would necessitate enforcement resources to monitor whether or not people are using them. Of course, these resources have alternative uses and the value of the alternative uses are a part of the costs of banning blowers.

Second, banning blowers denies people the ability to obtain the benefits of using blowers to do lawn chores. I use a leaf blower to blow chunks of grass that I've cut. My neighbors use theirs to blow light snow off their driveways and we all use our to tidy up our driveways and sidewalks after we mow. When I lived in Missouri, I used it to "rake" my 1 acre yard. In the latter case, my raking time was cut down by several hours allowing me to further other pursuits (mainly, my graduate degree).

Surely the outright ban of blowers is like calling the fire department to extinguish a match - it's overkill. Moreover, I'm not convinced that the externalities associated with the blowers are all that numerous and nasty in the first place.


Watch Your Step

What are the deepest known canyons in the solar system? The deepest is Verona Rupes on Uranus's moon Miranda. Coming in at an estimated 12 miles, that first step is a doozy. Peru's Colca Canyon is two miles deep. These cliffs on Mars are 2 kilometers deep.


Green Beer

In two days, it will be St. Patrick's Day. Each year at this time at the University of Missouri, engineering students take out the regular floodlights that illuminate the white dome of Jesse Hall and replace them with green floodlights.

Many people throughout the country will also drink light American lagers laced with green food coloring. To those people I say "shame on you." If you want to celebrate St. Patty's Day by having a beer and you want to, somehow, feel a bit Irish, don't have a green American lager (like a McBudweiser or a McMiller Genuine McDraft). Instead, you should have an Irish stout (I like milk stouts and oatmeal stouts myself) or an Irish Ale. Yes, a Guiness Stout is acceptable.

But no green beer!


A Professor's Job

The Eclectic Econoclast has an excellent post on a professor's constituency.

I have always had the impression that a professor's job is to help increase the net present discounted value of the expected future flow of each student's utility.

Consequently, to implement such a job description, different people have come up with other, more intermediate goal and job descriptions, such as

  • student as customer
  • student's parent as customer
  • elected funding legislature as customer
I like the concept of student as customer, except that in a market explicitly based on asymmetric information, it makes sense for students to pay professors to make/encourage/induce the students do something they would not otherwise do. Students are an important constituency, but catering to their current wishes is probably not a very good idea since profs know the subject (and one might hope) more about how to teach it than the students do.
Parents are also important.
Students' parents are an important constituency. We may not see this on a day-to-day basis, but it crops up now and then. Students go home and tell their parents what they have learned, and their parents become outraged: "What are they teaching you at that place?"
Parents are a solution to the asymmetric information problem the Econoclast eludes to above. They've been through the ringer numerous times and have a better idea of what the "real world" is like, so they help their kids along the way. Many also help pay for their kids' tuition. Parents and professors will sometimes be at odds when their solutions to the asymmetric information problem do not coincide with one-another.

He also tackles the thought that professors in the upper division courses are also part of the professor's constituency:

"Students are my raw material. My customers are the teachers who get them later."

For new (untenured) assistant professors that is not bad advice. But for the most part, I prefer the Emirates Economist's perspective.
[F]or my friend's idea to have full impact, he needs to be informed about the courses his courses feed. And the instructor's in the upper level courses need to hold his students accountable for knowing the material in the pre-requisite.

The only reason this advice from his friend has any merit is that if those teaching lower level courses do not keep in mind (or don't find out or don't care about) what is being covered in upper level courses, then the students and/or their parents and/or the funding legislators will be upset. In other words, the advice may be good, but it certainly should not set the framework for our teaching objectives.

I've taught several sections of Econ 207 (Business Statistics). It's not one of the students' favorite subjects, but it's important because they see this material time and again in their business courses. I often run into former students who look like they've seen a ghost. A familiar, albeit paraphrased comment is "You told us we'd see use statistics in our finance and marketing classes, but I thought you were just saying that to get us to study. But you were right! I thought I was done with that stuff"

Business Stats hasnt changed at all since my undergraduate days. Principles of Micro hasn't changed much since the days I took it back in 1985 BC. The biggest difference I see is that production topics have been pared back and students learn about game theory and learn game theoretical models of oligopoly (instead of the kinky demand curve model).

Principles of Macro, on the other hand, has changed quite a bit. When I took Macro, short-run macroeconomic equilibrium and the Keynsian cross were the focal points. Today, authors like Stockman and Frank and Bernanke give most of their attention to long-run economic growth.

What should a young professor do if, for example, he/she is a proponent of the long-run growth material and is decidedly non-Keynsian (as this blogger is) but the upper division macro courses primarily stick to a short-run Keynesian-cross analysis of an economy? Here the untenured professor needs to keep the preferences of students in mind as well as the preferences of those who have his/her job security in their hands. I also think it's important to keep in mind one's own preferences towards the material.

Another potential consituency are the firms that hire our students upon graduation. In any case, it comes back to the student.


Higher Prices for Coffee

Who needs caffeine when the price of coffee is getting higher?

With wholesale coffee prices at a five-year high, some of the nation's best-known brands are raising their prices. Folgers, the nation's top seller, last week raised its price 12 percent, with Maxwell House following suit on Monday. Those increases come on top of a 14 percent increase that Folgers, Maxwell House and other major brands imposed in December.
What's causing this jump in java prices?

Analysts say prices have gone up because wholesale coffee buyers are worried about crop shortages in Brazil and Vietnam, the world's largest coffee growers.

Higher prices are welcome to coffee growers, who have struggled with an extended price slump. For many growers worldwide, the long downward price spiral "was a crisis," said Joseph DeRupo, a spokesman for the National Coffee Association.

At the lower prices of the past few years, "farmers were not able to survive, and they were going out of production," said DeRupo, calling the recent increases "good for the industry and good for sustainability going forward."


Americans are drinking more coffee than they have in a decade. In a survey set for release today by the coffee association, 52 percent of Americans reported drinking coffee every day.

While that's less than generations ago -- in the 1950s, 78 percent of Americans were daily coffee drinkers -- it's up from 49 percent a year ago and marks the highest number in 10 years.

The supply of coffee has fallen as some bean farmers have gone out of business. Couple that with an increase in the demand for coffee, and you have a recipe for higher prices.


Monday, March 14, 2005

Danny Joe Brown Dead at 53

Danny Joe Brown, former lead singer of Molly Hatchet, has died from complications associated with diabetes. He was 53.

I remember his throaty vocals on Molly Hatchet's first two albums, Molly Hatchet and Flirtin' With Disaster. Music from those two albums were a big part of the soundtrack to my high school days.


Sunday, March 13, 2005

Scalped Head (Coach)

Mike Tice has admitted to scalping his complimentary Super Bowl tickets while the head coach of the Minnesota Vikings and to running a ticket scalping organization while he was an assistant coach with the Vikings. Here and here are two links to thoughts on the intelligence of such a decision. Here and here are two links to a similar decision made by Larry Ned (former Viking and Arizona Cardinal running back).


What Would Fred Flintstone Say?

A maker of bowling balls is adding various scents to its balls.

One bowling ball manufacturer — Storm Products Inc. — is putting fruit and other popular scents into its mid- to high-end bowling balls, resulting in a steady increase in sales.

More than half the bowlers on the Professional Bowlers Association tour last year used them, including four-time PBA champion Ryan Shafer.

Shafer, who has a contract with Storm, said he may have won a match two years ago in Kansas City because an opponent was distracted by his black licorice-scented ball.


At Least It's Buried

Officials in Kansas City want NASCAR to build its Hall of Fame in their fair city. Never mind that this would be like putting the NHL Hall of Fame in Miami. Of course, there's the ever-present boost this would give to the local economy:

The group that is spearheading Kansas City's quest — which includes a varied collection of private and governmental groups — estimates that if built here, the hall would attract a million visitors annually and could produce a regional economic impact of between $50 million and $65 million a year.
So, the proposed Hall of Fame will cause one million people to travel to Kansas City, people who otherwise would not have visited KC. I also imagine that this "impact" includes things associated with events, like induction ceremonies, that will bring in large groups of NASCAR fans. Of course these events won't crowd out other events. Lastly, I'm sure that the Hall of Fame won't cause KC residents to alter their consumption patterns away from alternative activities.

"Community pride" is one thing that is often brought up when proponents of such things want governmental support for their project. Here's a piece that I wrote last year on how St. Louis got the Rams that suggests that a more appropriate source of community well-being to tout would be "community official ego."

Well, at least the economic impact statement was buried way down in the article.