Market Power

No More Blogging Here

2005-04-20T14:33:00.000-07:00

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.

Market Power is Moving

2005-04-19T03:01:00.000-07:00

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.

The Efficient Market Hypothesis

2005-04-14T04:48:00.000-07:00

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?

So What is the Problem?

2005-04-12T06:00:00.000-07:00

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.

Research Subject

2005-04-11T11:44:00.000-07:00

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?

Yourself!

Will We Ever Run Out of Oil?

2005-04-11T04:27:00.000-07:00

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.

Caveat Emptor

2005-04-09T06:41:00.000-07:00

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

2005-04-09T06:39:00.000-07:00

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.

Deep Doo Doo

2005-04-08T10:53:00.000-07:00

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

2005-04-08T05:28:00.000-07:00

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

2005-04-08T04:33:00.000-07:00

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

2005-04-08T04:30:00.000-07:00

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.

Smackdown, Russ Roberts Style!

2005-04-07T18:33:00.000-07:00

Russ Roberts had his ire up today at Cafe Hayek. Looks like the Giant grocery store chain and the union(s) that represent some of its worker are trying everything they can to keep the more-efficient Wal-Mart from setting up shop in Maryland.

It's hard to run a grocery store especially when others do it better than you do. So what's an ailing chain to do? There's trying harder, but wouldn't it be nicer not to have to? It's so much easier to try and handicap your competitors—you know, threaten to break their knees with baseball bats, set fire to their stores, intimidate their customers. Alas, these techniques are illegal, so the safest strategy is get politicians to handicap your competitors. This seems to be the strategy being pursued by Giant Foods in Maryland.

Of course, since Wal-Mart is such a nasty business, some politicians are only so happy to oblige. But Professor Roberts lays it down nice and concisely:

C. James Lowthers, president of Local 400, said the debate "is about what's right for the country."
That's a comfort isn't it? Glad to know it's not about self-interest, Mr. Lowthers.

Ironically, if this bill passes it will hurt workers by lowering the demand for their services. It will hurt consumers who will end up paying higher prices for groceries. It will help Giant and its unions.

Maryland Senate President Thomas V. Mike Miller Jr. (D-Calvert) said lobbying on the issue from labor groups was "very light."

Oh, right. They don't really care. It's not that important. Nooooo.

"It's an issue that's been around for a while, and all of us recognize that Wal-Mart doesn't do right by its employees," Miller said.

Great insight, Senate President Miller. Thank you for insulting the employees who choose to work at Wal-Mart for reasons you cannot decipher. Thank you for making it harder to operate a business and hire employees in our state. Thank you for making people's lives harder by making food more expensive. And most of all, thank you for encouraging other businesses to turn to you rather than trying harder as a way of staying in business.

Touche!

Faculty Duties

2005-04-07T04:37:00.000-07:00

The Chronicle of Higher Education reports that in addition to teaching, research, and service, more and more schools are asking their faculty members to be fund raisers (paid subscription required):

The abundant interest in the activities of our former students goes beyond mere curiosity. It reflects the intensified campaign by public universities to cultivate a pool of potential donors. More than ever, faculty members are being recruited for the tasks of development, an endless process of wheedling that has come to consume every sector of the university.

At the University of Oklahoma, my employer, the proportion of the operating budget contributed by the state has declined from 35 percent 10 years ago to about 20 percent this year. During that same time, student tuition has increased dramatically, but not enough to cover the loss in public revenue. ...

State-supported universities like mine are in a bind. While a smaller and smaller proportion of our expenditures are financed by public money, we are simultaneously prohibited from raising tuition beyond certain thresholds set by legislators. To support disciplines where large government grants for research are uncommon, we must rely increasingly on the generosity of alumni donors.

This raises several questions. Which faculty should raise funds and how much time should be devoted to fund raising? Should all faculty be involved or should this activity be delegated to one or two professors? If so, how should they be compensated (bonuses, release time)?

I visited a university awhile back where the chairman of the economics department taught the only upper-level class that every economics major was required to take - econometrics. He wanted to have every major as his student and one of the reasons was to improve his rapport with the alumni-to be. Not coincidentally, he is also the chief fundraiser for the department.

Google Maps

2005-04-06T09:33:00.000-07:00

Google maps has a link to satellite pictures of various locations. Here's an example of the detail provided for some locations. Go to Google maps, find the location you want to view on the map and click "Satellite."

Way cool!

Note to Self - Stop Thinking Like an Economist

2005-04-06T06:45:00.000-07:00

This morning's Wall Street Journal had a letter to the editor from Luis Suarez-Villa, a professor of social ecology at the University of California - Irvine:

Harvard President Larry Summers is now discovering what many economists find out to their dismay when they venture out of the old-boy network that is American economics. Musings that are considered "normal" among economists tend to be regarded as insensitive or even prejudiced in many other disciplines. At the root of his remarks is the fact that Mr. Summers's thinking is grounded in a discipline that has little sense of fairness and moral obligation, where discriminatory situations are often accepted as the result of Darwinian mechanisms that should be left untouched.

It's not that we have little sense of fairness. It's that we realize that we aren't the moral stewards of the world - and we realize that one person's fairness is another person's foul. Why is it fair to raise the minimum wage and thereby throw people out of work? Why is it fair to attack Sam's Club for selling gasoline at a low price just to maintain the profit margins of small gas-station owners? We also realize that by trying to codify notions of fairness, more often than not, inefficiencies creep in that end up doing more harm than good.

Mr. Summers could have blamed his training in economics for his insensitive remarks, based on the discipline's inability to understand fairness and shed its pseudo-scientific ways.

What does it mean to be pseudo-scientific? By using the scientific method, people observe a phenomenon, develop a hypothesis about what was observed, and gather data - experimental or not - to test the hypothesis. It is not necessary for each and every person who examines a subject to utilize each and every step of the scientific method. One researcher may gather data and realize that there is some systematic relationship between two things. Another researcher, may develop a theoretical explanation about what was observed, and another researcher may gather a different set of data to see if the systematic relationship is at play there. What matters in using the scientific method is that all three steps, observation, hypothesis generating, and hypothesis testing, get used. Economics utilizes every single bit of the scientific method, so I don't know what is meant by "pseudo scientific" (other than being an obvious put-down).

Economists are scientists in that we seek explanations for things that we observe and we seek predictions based on our explanations. For example, suppose we observe that a woman is earning less than a man. Economists want to know why. We don't start off by immediately saying "IT MUST BE DISCRIMINATION!" Instead, we try to reason through the various things that could affect what we observe to learn to what extent discrimination and non-discriminatory voluntary choices (among other things) affect what we observe. That way, if policies are necessary to correct something, they can be more efficiently targeted.

Aristotle said "The law is reason without passion." That may be an accurate way to describe the law, but it is just as accurate, if not more-so, to describe economics in the same fashion.

Sports Subsidies

2005-04-06T03:31:00.000-07:00

There are three types of explicit subsidies professional sports teams get.

1. Transfer Payments - a payment from the government to someone in which the government doesn't get anything in return.

2. Infrastructure subsidy - a subsidy to improve things like roads, pipe, highway entrance and exit ramps, street lighting, etc. around a stadium.

3. Construction subsidy - a subsidy to build the stadium.

The owners of the Boston Red Sox have committed to stay in Fenway park. They have received very little public support for construction of a new stadium - even in the wake of their World Series Championship - and are now looking for an infrastructure subsidy.

The announcement marks the beginining of an effort to revitalize the neighborhood that is later expected to include a push for public financing for improved streets and sidewalks, a new MBTA train station at Yawkey Way, and one or more garages, say Red Sox executives. The team also wants to have a say in development decisions around the park that could affect the Fenway experience, the executives said yesterday.

I blogged here about a talk I gave recently about why rational teams seek public construction subsidies even though the receipt of such may put a drag on the appreciation of their franchise values. Basically, the idea is that the present discounted marginal franchise value - the difference between the franchise value of a team playing in its own stadium and the franchise value of a team playing in a public stadium - does not come close to fully covering the cost of building the stadium.

Improving the area around a park would, I imagine, provide a boost to franchise values as well, especially to teams that own their own stadium, because the infrastructure subsidy would boost the value of nearby property. But the big difference is that with construction subsidies, the public can lay a claim on the stadium. With the infrastructure subsidy, it is likely that no such claim on the stadium would exist.

The Average Economist

2005-04-05T09:16:00.000-07:00

According to the November 2003 National, State, and Metropolitan Area Occupational Employment and wage estimates produced by the US Bureau of Labor Statistics, the average economist earned $78,370 annually. The median economist earned $70,520. The average government economist earned $79,424. The average economist working in scientific research and development earned $102,320. The average economist working in management and technical consulting services earned $98,250. These figures do not include academic economists, a different occupational group.

The average post-secondary economics teacher earned $72,300. The median economics teacher earned $66,300. The average econ teacher at a junior college earned $52,160 while the average econ teacher at a college/university earned $76,780. In Minnesota, the average economics teacher earns over $85,000 per year. According to the BLS website, all annual salaries reflect a 12-month full time schedule, even for academic economists.

*** Addendum: here is a link I just ran across for a salary survey from AACSB.

Price Gouging

2005-04-05T05:02:00.000-07:00

In Principles of Micro, my students have just finished covering material related to the efficiency of competitive markets. We examined why laws meant to keep prices artificially low bring inefficiencies into the market place and ensure that shortages will crop up. One can make a similar argument about artificially high prices. I suggested that during this summer's hurricane season, they should look for claims of price gouging after hurricanes come on shore and wonder what good laws against price gouging do.

For those who are impatient, we already have claims of price gouging:

With Pope John Paul II's funeral expected to draw up to 2 million people, at least one consumer group is accusing cafes, restaurants, grocery stores and hotels near St. Peter's Square of boosting prices to gouge tourists and pilgrims.

Keep in mind that this is a tremendously large and sudden change in demand:

In normal times, this would be a lull in tourism, after the rush of Easter and before the summer holidays. But consumer groups estimated Monday that local businesses would earn at least $122.5 million in about two weeks

Consider the market for restaurant meals. In a market system, what happens when there is tremendous and sudden increase in the demand for restaurant meals? Prices rise. Why do prices rise? Because an increase in the demand for restaurant meals increases the demand for the resources that produce them and these resources need to be compensated. In order to serve the influx of customers, restaurants will have to hire additional staff, food, cookware, chairs, tableware, etc. All these resources have alternative uses and to give these resources an incentive to temporarily relocate, restaurants have to give them an incentive to do so.

How do we ensure that adequate resources are there to meet the sudden, unplanned, and tremendous increase in demand?

We could take the bureaucratic route. We could schedule legislative hearings to determine whether or not the extra resources were needed and we could determine what the fair price for said resources would be. How long might this take? What are the opportunity costs of those in the deliberative process? Will the 2,000,000 people be adequately, quickly, and efficiently fed? How can we ensure that the government officials won't behave opportunistically?

A better way is to provide an incentive, via the price system, for people who own the necessary resources to divert them to where they are most wanted. Rising prices send a signal that more resources are needed in a market, resources that have alternative uses and, thus, opportunity costs. That way, we make sure that those who want to eat restaurant meals etc. can get them and get them efficiently.

But what about those renegade restaurants who are out there to screw the customer over? Aren't there going to be places that try to do this? Possibly. How do we ensure that the visitors don't get screwed?

Competition will help limit this. What happens to places that raise their prices "too much?" Restaurants that do so will have some potential customers "diverted" to other areas. Rome is a city of 3,000,000 and visitors have many choices in restaurants, meaning individual restaurants have little market power. I also imagine that these renegade restaurants will also be more likely to treat their customers poorly in other ways. When a business tries to screw over its customers (whether it comes through poor service or prices that don't match the quality that customers expect), markets tend to deal with them harshly.

Labor Market Choices

2005-04-04T14:46:00.000-07:00

Here's the abstract from this new working paper by June O'neill and Dave O'neill at the NBER:

We examine the extent to which non-discriminatory factors can explain observed wage gaps between racial and ethnic minorities and whites, and between women and men. In general we find that differences in productivity-related factors account for most of the between group wage differences in the year 2000. Determinants of wage gaps differ by group. Differences in schooling and in skills developed in the home and in school, as measured by test scores, are of central importance in explaining black/white and Hispanic/white wage gaps among both women and men. Immigrant assimilation is an additional factor for Asians and workers from Central and South America. The sources of the gender gap are quite different, however. Gender differences in schooling and cognitive skills as measured by the AFQT are quite small and explain little of the pay gap. Instead the gender gap largely stems from choices made by women and men concerning the amount of time and energy devoted to a career, as reflected in years of work experience, utilization of part-time work, and other workplace and job characteristics.

Surgical Implants for Deaf Children

2005-04-04T03:51:00.000-07:00

The Wall Street Journal had this article last week on deaf children who, with surgical implants, can hear almost as well as if they weren't deaf.

So-called cochlear implants -- electronic devices surgically placed in the bone behind the ear -- have been around for two decades. But it was only five years ago that the U.S. Food and Drug Administration approved the devices for use in children as young as 12 months. Now a new generation of children is entering deaf schools with the hope that they may someday hear and speak almost as naturally as those without hearing problems.

What is at issue is not these children's ability to hear, but the maintenance of a "deaf culture".

Some steeped in deaf culture don't see themselves as handicapped and view implants as an attempt to "fix" something that isn't broken. They especially oppose hearing parents deciding to get implants for their deaf children, believing kids should make the decision themselves when they get older. "This is a major intervention, and the ethics of operating on a healthy child can be questioned," says Harlan Lane, a psychologist at Northeastern University in Boston who has written many books about the deaf community.

But, according to the article, the implants work best when given to young children. I suppose this is the similar to how children who learn a foreign language when young do better with that foreign language as time goes on.

I can't help but think there is something else going on - the attempt to keep a livelihood that one has spent their entire adult life in and, as a result, know of no other way to make a living. The cochlear implants could eliminate the need for teachers and administrators in schools for the deaf. But the proponents talk about deaf culture as if we are talking about Inuit culture or Ojibwe culture. Perhaps, to them, it is a culture. But what about the kids? Given a choice, which would they prefer? Is it right for someone to deny someone the right to hear just so others can maintain a culture?

Is it Cold Outside?

2005-04-03T15:54:00.000-07:00

Or are you simply frigid?

Thanks to JC for the link.

Those Wacky Canucks!

2005-04-03T15:46:00.000-07:00

I had this post awhile back on things not to have on your vanity plate. John Palmer describes his vanity license plate here.

Nice Game

2005-04-02T04:53:00.000-08:00

This game might do something for the confidence level of the Missouri Tiger baseball program:

Sophomores Max Scherzer and Michael Cole combined for the first no-hitter at Missouri since 1981 as the Tigers defeated Texas Tech 25-0 on Friday night at Taylor Stadium.

Dang, that's impressive. The two Tiger pitchers also recorded 18 K's. Tech is usually a solid program, but they struggled against the Tigers in all facets last night. From the Lubbock Avalanche-Journal:

The Red Raiders set new league marks for most walks, runs and hit batters allowed in an inning as Missouri plated nine runs without ever putting the ball in play during a 17-run second-inning. That led to a 25-0 laugher by the Tigers at Taylor Stadium, tying the mark for the worst loss in the 56-year history of the Tech baseball program. Along the way, the Red Raiders were no-hit for the first time in 26 years as the Tigers captured their fifth win over Tech in the last six meetings between the schools.

Beer Geek

2005-04-02T04:38:00.000-08:00

I'm a geek. Not just any kind of geek. I'm a beer geek.

When I was a little boy, my long-since departed father, Dr. James Merle Miller Jr***. former professor of History at Morningside College, used to give me small sips of his beer - usually a Falstaff or a Grain Belt.

April 1st's Wall Street Journal has an article entitled "Dear Beer" (paid subscription required) on expensive beer - $15 - $20 a bottle, sometimes even higher. Such beer is often aged.

The concept of "aged" beer itself flies in the face of conventional wisdom that beer is meant to be drunk within a few weeks of its production (and almost all beer is). But aged beers -- many of them brewed with lots of hops and high-alcohol levels, both acting as preservatives -- have become a staple of what might be called the high-end beer market.

Even though I'm a beer geek, I have nothing against the mass-produced lagers such as Budweiser, MGD, etc. Their mass production allows them to produce beers at a low cost that competition allows to be passed onto consumers. Besides, after a game of softball, an oatmeal stout is not my beer of choice. A pale ale is good, but a Bud Light will do in a pinch. But Anheuser-Busch's use of the "born-on date" on their bottles is a little bit deceiving.

Beer is a food product and it will deteriorate as it ages. But the combination of alcohol and hops are natural preservatives that allow beer to keep over a period of time. Indeed, the India Pale Ale style, a beer known for its hoppy character, was a beer style originally brewed in England for the British troops stationed in India a long time ago. The brewers added extra hops to the brewing process so that the beer would keep in the long boat ride from England to India.

I've still got some beers in my basement that I had my sister bring me from Colorado last April (regular readers of this blog know I have an affinity for beers from the Flat Branch Pub and Brewery in Columbia, Mo. and from the various breweries in and around Boulder, Co.). The only one I've had trouble with is this one that, when I pour it, is almost all head in the glass. I'm not sure what causes this to happen with this particular beer, but I have had problems like this with beer that I have brewed.

After I my beers had fermented, I add corn sugar to the fermented brew before bottling. The yeast consumes the corn sugar, making the carbonation. Overtime, needless to say, a lot of carbonation would build up. I've heard of some people who have experienced the "bottle bomb", where so much carbonation would build up that the bottle caps would pop off. I've never had that happen, but I have gotten too much carbonation. But other than that, I had some beers that sat around for two years and tasted fine upon drinking.

*** Yes, nearly 30 years after his death, Morningside College honored my dad by naming their Blackboard system "Miller Hall." I guess that makes up for cutting down the tree that was supposedly planted in his honor after his death.

FLASH! Water on Mars!

2005-04-01T17:42:00.000-08:00

The crazy folks at APOD had this on April Fools Day:

Those wacky astronomers!

Attention, New Economics PhD's

2005-04-01T16:36:00.000-08:00

Here is a link to the entire set of Surveys of the Labor Market for New Economics PhD's put out by Jeff Collins' shop at the University of Arkansas.

Trading Spaces

2005-04-01T12:27:00.000-08:00

Peter Drucker has these interesting thoughts in his article "Trading Spaces":

Information as a concept and a distinct category is an invention of the 18th century--of the newspaper in England and the encyclopedia in France. Within a century, information became global with the development of the modern postal system in the 1830s, followed almost immediately by the electric telegraph and the first computer language, the Morse Code. But unlike the newspaper and the encyclopedia, neither the postal service nor the telegraph made information public. On the contrary, they made it "privileged communication." "Public information" by contrast--newspapers, radio, television--ran one way only, from the publisher to the recipient. The editor rather than the reader decided what was "fit to print."
...
Farm subsidies are now the only net income of French farmers, as their crops produce nothing but net losses and are grown only as the entitlement for the subsidies.
...
But mercantilism is increasingly becoming the policy of "blocs" rather than of individual nation-states. These blocs--with the European Union the most structured one, and the U.S.-dominated NAFTA trying to embrace the entire Western Hemisphere (or at least North and Central America)--are becoming the integrating units of the new world economy. Each bloc is trying to establish free trade internally and to abolish within the bloc all hurdles, restrictions and impediments, first to the movement of goods and money and ultimately to the movement of people.
...
At the same time, each bloc is becoming more protectionist against the outside.
...
A mercantilist world economy, however, faces the same problems that led to the ultimate collapse of mercantilist national policies: It is impossible to export unless someone imports.
...
China may similarly attain leadership through its world-class competence in manufacturing management--the legacy of the communist emphasis on output and production.
HT t0 Marginal Revolution for the link.

This is Your Brain on Children

2005-04-01T04:02:00.000-08:00

I've got two sons. I know what it's like to be a dad. Here's something from the mother's perspective. Good stuff.

How Do Employers React to Minimum Wage Increases?

2005-04-01T04:01:00.000-08:00

King at SCSU scholars has this post on the minimum wage. Craig Newmark at Newmark's door posted this excellent column by Steve Chapman on the effects of the minimum wage. For the employer's point of view, here is a beautiful piece on Coyote Blog from a fella who runs campgrounds. The theory espoused by economists and the evidence provided by the campground owner line up very well.

Many of the campground owner's employees are over 60 years old and are paid the minimum wage. Some snippets:

To run our campgrounds, we mainly employ retired people. Of my
500 workers, well over half are over 60 years old, more than 150 are over 70,
some 25 or so are over 80 and a few are even over 90! Most are on social
security and medicaire, and many have pensions and retirement health
plans. A good number are disabled and have some sort of disability
support. While they work slower, they make up for their low productivity
in part by their friendliness with customers and their life experience.
...

I love hiring older workers at $5.15 an hour, and they love the job
and line up for it. But what happens when I have to pay these less
productive workers $6.00 an hour? What about $7.50? What about at
$12.00 an hour?
...

We run a number of campgrounds in Washington under concession contract from
the US Forest Service. Most of these campgrounds are both small and very
isolated, and are therefore labor intensive. Given local market
conditions, it is increasingly difficult to raise fees fast enough to keep up
with rising labor rates (as well as labor-linked costs such as workers comp and
unemployment) since we are competing against larger private campgrounds that are designed more efficiently and may be closer to local labor. We have
effectively given up trying to make money in this area, and will very likely not
rebid the contract when it expires.
...

In a number of locations, we have been forced by rising minimum wages
and associated costs (particulalry workers comp.) to switch some of our cleaning
and landscaping duties from our live on-site employees to local
contractors.
...

Anyway, on this particular concession we have to pay our
living-on-site workers based on the SCA. This means, for example, that
someone who sits in a parking lot booth collecting parking fees must be paid
something like $12.50 an hour, which translates to a bit over $15.60 when you
factor in FICA, SUI and workers comp. Over 2000 hours a year that is
$31,200 a year.

A fully automated fee collection machine (which actually does more than
the attendent, since it takes credit and debit cards as well as makes change for
cash) costs $23,000. Plus, the machine never will sue over wrongful
termination, never will discriminate against or sexually harass a customer,
never will steal, and never will fail to show up for work.
...

Last election, Floridians voted themselves a minimum wage increase of
$1.00, and worse, voted that the wage will increase each year by a cost of
living factor. As a result, on the May 2 effective date, our costs will go
up by about 15% in managing the swim areas and campgrounds in that area.
Since this is well over our profit margin, prices will also go up by the same
amount on the same day.

What does that lost comment say about the elasticity of demand faced by this fella in Florida?

To my principles of micro students: we just finished talking about the perfectly competitive firm. What happens to this firm's marginal cost curve when it employs minimum wage workers and the minimum wage is increased? How does the firm's output decision change? What happens to the supply curve in the market? What happens to the product's price? To my principles students and my collective bargaining students: how does the firm substitute between resources when faced with a higher minimum wage?

Oh, and one other thing... what is the average family income of people in Minnesota who would be helped by an increase in the minimum wage? $15,000? $25,000? See here and look halfway down the tabl(thanks to John Palmer for the link).

Hat tip to Russ Roberts at Cafe Hayek for the Coyote Blog piece.

Are Kids More Violent These Days?

2005-03-31T14:03:00.000-08:00

Mark Thoma posts here that the answer looks to be "no."

Minimum Prices Combat Predatory Pricing?

2005-03-31T08:10:00.000-08:00

I posted this piece and this piece on Minnesota’s minimum gas price law. Walter Williams has some comments on predatory pricing as it pertains to this sort of price regulation. In theory, a price predator is a business with a cost advantage that can price other firms out of business. Once the competition is gone, the predator takes advantage of its new-found market power and jacks its price back up. The key here is that the firm drives out competition and that there is no incentive for anyone to enter the market in the future. This will not happen in the gas price market.

Gasoline sold at Sam’s Club is virtually the same as gas sold at Casey’s, Texaco, Holiday, or Hy-Vee. There is very little (if any) product differentiation. Economists talk about a Bertrand duopoly. In this market structure, two firms producing perfect substitutes compete in price and they will price their product at marginal cost. They have no incentive to lower the price any further and incur marginal losses and they have no incentive to raise the price and thereby lose all their customers to the competitor. In a Bertrand market, all that is needed to have marginal cost-pricing is two firms. Do we really think Wal Mart is going to corner the market in gas and become the only seller?

Alex Tabarrok had this post last May about minimum gas price law law (which is where I found the link to the Walter Williams piece). Apparently, this isn't the only time that a gas station attached to a Wal Mart has been attacked under this law.

The Pie-ing of William Kristol

2005-03-31T07:05:00.000-08:00

On March 29th, conservative commentator William Kristol was giving a speech at Earlham College. About thirty minutes in, somebody served him dessert (from the Chronicle of Higher Education - subscription required):

That's because a student climbed onto the stage in Goddard Auditorium at the college, in Richmond, Ind., and threw an ice-cream pie, topped with a cherry, into the pundit's face.

Nice (he says sarcastically). Chris Hardie, a graduate of Earlham, reflects nicely on this event.

Nice Shot, Man

2005-03-31T06:44:00.000-08:00

You play golf like a blind man!

Blogspot's Problems

2005-03-31T05:21:00.000-08:00

John Chilton has the answer for why Blogspot has been so temperamental lately.

From the Ground Up

2005-03-31T05:13:00.000-08:00

One of the first things I did when I got to Minnesota State was develop my Sports Economics course. My younger colleagues and I are also going to be instrumental in building the future of our department. These sorts of things are common at most institutions, but most of us will not be involved in building a university from scratch. From the Chronicle of Higher Education (subscription req'd):

The faculty members who have already arrived on the new Merced campus of the University of California have not only had to balance research with teaching, but also had to concentrate on curriculum development, community outreach, job searches, and heavy administrative duties. "Everyone is doing multiple tasks and working very long hours," says Maria Pallavicini, dean of the School of Natural Sciences.
...
Someday Merced will boast a faculty of more than 1,200. For now, the university employs fewer than 50 professors; 60 should be in place by the time the campus officially opens, in September.

Recruiting for those positions has proceeded smoothly, by and large, despite the many challenges the new faculty members face, the remoteness of the campus in central California, and Merced's lack of name recognition.
...

But Merced has seen an outpouring of interest in faculty jobs. Carol Tomlinson-Keasey, the chancellor, says the university received 7,000 applications for the first 30 faculty openings. "Many were drawn to the UC name," she says. "Thank God for that."
Indeed, many faculty members mention the university system as a prime reason for their interest in their new jobs. "Being within the UC system guarantees a certain level of support from the state and a certain level of quality," says Kevin A. Mitchell, a physicist who is an assistant professor in the natural-sciences school.

It also means a certain salary level. Merced pays faculty members salaries in the same range as that of professors on the system's other campuses. The lowest-paid assistant professor makes nearly $49,000, and the highest-paid full professor brings home more than $151,000. According to the Greater Merced Chamber of Commerce, the median price of a house in the city in 2004 was $279,000, a far cry from the sky-high prices elsewhere in the state. (The median price in San Francisco was $647,000.)

Minnesota State has about 1300 faculty jobs. If Merced gets up to a similar student-teacher ratio, I suppose it will end up with about 14,000-15,000 students. I wonder how successful the following sort of collaborative stuff will be in the long run, once the bureaucracy gets in place and starts festering:

That freedom has allowed faculty members to be creative. For instance, Mr. Mitchell and a mathematician will team teach a double-credit course in calculus and physics. "These are two very closely related subjects," says the physicist, "so it makes sense to teach them together."

The introductory-biology course will also make more use of mathematics and computer science than traditional biology courses do, says Mr. Colvin, who will teach it. That shift in priorities will lead to less emphasis on memorization, he says. It will also have a practical side benefit: Since teaching-laboratory facilities will not be completed by the time the fall term starts, computer-lab sessions will help make up for lost time.

Faculty members from all three schools constituting the university are working on shaping a yearlong core course that will be required of all freshmen. The class will pay particular attention to noteworthy concerns of California's Central Valley, such as the use of natural resources, particularly water, from the perspective of scientists, engineers, politicians, historians, and anthropologists.

"Departments often create silos and barriers for faculty with different expertise," says Ms. Pallavicini, the natural-sciences dean. "It's often difficult to get a computer scientist and a biologist together if there's different space and different rules in their departments."

Such problems do not exist at Merced, where the faculty members know each other well because of their constant administrative work in the race toward opening day. But other issues have cropped up because of that very lack of departments.

I reiterate... I wonder how long it will be before the bureaucracy festers and the various departments start calling their credit hours home in a game of "that's mine, this is yours?"

Gambling on College Basketball

2005-03-30T14:52:00.000-08:00

I posted thoughts on this subject over at The Sports Economist, but I wanted to go into more detail. From the Washington Post:

Betting on college sports threatens the integrity of the games, in the view of Bill Saum, the NCAA's director of agent, gambling and amateurism activities. At worst, it exposes college athletes to pressure from criminal elements conspiring to fix the outcome of games. At its most benign, it sends mixed signals about the propriety of gambling, whether on sports, slots, poker or pool.

What drives this fear is the lack of salaries paid to players commensurate with the revenues generated by their games. To see how football programs recruit players when they can't compensate them with income, see this post below. Nice digs.

Every player is a candidate to be a point shaver and there are some penalties that hit all players in the same manner (jail time, expulsion from school). The star players on the big-name programs are the least-likely to fix games. These players have relatively good opportunities to play professionally and to earn lucrative salaries. If they get caught fixing games, their professional careers will likely be ruined. So they have to get at least as much to shave points as they expect to lose in their basketball career.

The good players on the not-so-big-name programs and the guys off the bench on both types of programs are more likely to fix games. They don't have professional opportunities and therefore have less to lose. They are also the ones that point shavers are going to go after because they will be the ones who have lowest reservation price of price shaving.

Why is Blogspot Running So Slow?

2005-03-30T11:10:00.000-08:00

It's because of stuff like this.

When you don't charge for your service, people will use it up until the marginal benefits are very nearly equal to zero. Collectively, that puts a huge strain on the infrastructure. Eventually, without improvements to it, the infrastructure collapses. See Tragedy of the Commons.

Teach In

2005-03-30T09:51:00.000-08:00

Where did the term "teach in" come from? Did this come from the same sort of source that the term "sanitation engineer" come from - i.e. some person trying to disguise the true value of stuff. How much teaching actually goes on at these things?

Some faculty and students at Minnesota State had a teach in regarding the "Social Security Myth." Here is the opening paragraph from the local paper's story (subscription required):

It was admittedly one-sided. But for the people who put on Monday's Social
Security teach-in at Minnesota State University, it was seen as a chance to have
their say in a debate they think already has been a one-sided affair.

Translation: we didn't invite an opposite viewpoint because we didn't want to.

Remember AOL?

2005-03-30T09:48:00.000-08:00

It looks like Blogger is running into problems similar to what AOL ran into several years ago. The marginal cost of posting on blogger is very small, so rational people will blog up until their marginal benefits equal zero. Collectively, since the bloggers aren't bearing the costs imposed on the servers, this causes overuse and causes the system to crash.

I don't know for sure, but that's what seems to be going on.

Married Women's Labor Supply

2005-03-29T19:16:00.000-08:00

From an NBER working paper by Francine Blau and Lawrence Kahn:

Using March Current Population Survey (CPS) data, we investigate married women's labor supply behavior from 1980 to 2000. We find that their labor supply function for annual hours shifted sharply to the right in the 1980s, with little shift in the 1990s. In an accounting sense, this is the major reason for the more rapid growth of female labor supply observed in the 1980s, with an additional factor being that husbands' real wages fell slightly in the 1980s but rose in the 1990s. Moreover, a major new development was that, during both decades, there was a dramatic reduction in women's own wage elasticity. And, continuing past trends, women's labor supply also became less responsive to their husbands' wages. Between 1980 and 2000, women's own wage elasticity fell by 50 to 56 percent, while their cross wage elasticity fell by 38 to 47 percent in absolute value. These patterns hold up under virtually all alternative specifications correcting for: selectivity bias in observing wage offers; selection into marriage; income taxes and the earned income tax credit; measurement error in wages and work hours; and omitted variables that affect both wage offers and the propensity to work; as well as when education groups and mothers of small children are analyzed separately.

Predatory Pricing and Small Town Gas Stations

2005-03-29T18:51:00.000-08:00

I blogged here and here about Minnesota's price floor on retail gasoline. A local Sam's Club gas station is being investigated for charging a price below the price floor. Sam's Club competition blew the whistle. I took a closer look at the article that got me thinking about this issue. Here is the article (subscription required). Here is a quote from the article that shows the predatory pricing argument is at work here:

But Cornish said the survival of small stations is at stake if major corporate sellers offer gas at below cost.
"It will be a way of closing down these stations - the little ones," Cornish said.
That could be devastating for smaller towns where there might be just a single option for purchasing gas, Cornish said. And if most competitors are eliminated, the big sellers would ultimately be able to sell at a higher price than they could if nearby rivals still existed.

First, if consumers in the small town have an option to buy low-price gasoline at a "corporate" gas station, why should the government restrict their options and how would this be devastating to the community? It would have just the opposite effect. Sure, the owner of the gas station would feel a negative effect, but the consumers of gas in the small town would gain. Not only could they get gas cheaper, but they can put the savings towards the purchase of other things.

Second, those who use the predatory pricing argument say they fear monopolization. Never mind that the evidence suggests that predatory pricing exists in models but not in practice. If there really is only one gas station in a small town, doesn't that station have market power which it can use to jack up its prices? Won't legislation designed to keep compeitors out enhance its market power and allow it to maintain its high prices? The answer to both questions is yes.

Third, do we really think that the small town gas station would actually go out of business? What if the nearest "corporate" gas station is 30 miles away? How often are residents of the little town going to drive 60 miles (30 miles there and back) just to get a full tank of gas?

The Invisible Hand Fights Back

2005-03-29T16:45:00.000-08:00

From The Eclectic Econoclast:

Over the past couple of weeks, Jack has sent me copies of
several advertisements that have appeared in The National Post in Canada. Here
is the introductory text of one of the ads:
You don't have to wait to have your CT Scan. If you or someone
you know is on a long waiting list for a CT Scan (also known as a CAT
Scan) you have another option. Just across the border in Southfield, Michigan, you can be scheduled immediately on our state-of-the-art GE/Imatron CT scanner.
If a physician in Canada prescribed a CT Scan for a
member of my family, but we were told that there was a 4-month waiting list, you
can bet we'd be traveling to Michigan.

This is a beautiful example of the invisible hand fighting back. Who are going to be the ones who benefit from the massive controls on Canadian medical services? For CAT scan services, it will be those most willing and able to wait (or those most willing and able to get someone to put their names on waiting lists for them) and those most willing and able to travel to other countries to get their health care. Are these the poor? Not necessarily.

House Prices

2005-03-29T04:58:00.000-08:00

What can $479,500 buy in Mankato, Mn? This lovely 5 bed 4 bath house:

What can $329,000 get you in Mankato, Mn? This 5 bedroom, 2 bath acreage with a river view:

What can $329,000 get you in Sioux City, Ia? This nice new home:

What can $309,000 buy in Fresno, Ca? This 3 bed 2 bath house on a really small piece of land:

What can $439,000 buy in Carpinteria, Ca? This trailer home:

Is there a housing bubble in California? To what extent does the price differential between trailer homes in Carpinteria and trailer homes in, say, Missouri reflect the benefits people get from living by the Pacific Ocean in a temperate climate?

Minimum Gas Price Law

2005-03-28T14:53:00.000-08:00

I posted this piece on Minnesota’s minimum gas price law. Who could possibly benefit from such a law? Walter Williams has the answer in a piece on the Maryland gas price law:

... whose interest is served by, and just who lobbied for, Maryland’s gasoline minimum-price law? If you answered that it was probably Maryland’s independent gas-station owners, go to the head of the class.

Williams argues that the legislation basically boils down to helping a well-defined and concentrated special interest (independent gas station owners) while imposing costs on a diffuse interest (consumers). The concentrated interest is more likely to pay lobbyists and give campaign contributions to legislators who vote for this legislation while there is almost no incentive for an individual consumer to organize other consumers, even if the aggregate costs imposed on consumers exceeds the aggregate benefits.

Let's suppose that the gas price law is known to provide $1,000,000 in benefits to a group of 500 people but imposes costs of $2,000,000 to a group of 4,000,000 people. Those who are helped would be willing to pay no more than $2,000 each (on average) to get the law enacted. Those who are hurt would be willing to pay no more than 50 cents each (on average) to get the law repealed. Where will the intense lobbying likely come from? It will probably not come from those who are hurt even though the total losses felt by them exceed the gains to the other group (we call this a deadweight loss). Why? Because their opportunity costs are likely too high while the opposite is true for the group that is helped. Time spent lobbying is time not spent in other activities - working, spending time with family, etc. – and people must be compensated in order to give them incentive to give up these other activities. Those who are helped are well-compensated. Those who are hurt are not.

Even if we believe that legislators are making decisions in the public interest, we cannot assume that they have perfect information. Instead, they gather information from the interested parties - i.e. from lobbyists. If information only comes from one side, we can expect the legislation to be one-sided as well.

A Victory for the NCAA

2005-03-28T10:55:00.000-08:00

My co-blogger over at The Sports Economist, Skip Sauer, posts his thoughts on the conviction of Logan Young, a University of Alabama booster who paid $150,000 to Lynn Lang, a Memphis high school football coach, to steer one of Lang's players, Albert Means, to Alabama. It is well worth reading.

In his post, Skip links to a picture of the University of Texas football locker room. Here's the picture.

Here is another link to other football facilities at UT. You get a feel for just how much money is spent trying to lure recruits to this school or that school, but it shouldn't surprise you. D1 college football teams, especially the Texases and Nebraskas and Michigans of the world, generate tens of millions of dollars in revenue every year, but the players receive next to nothing in compensation. In order to generate those tens of millions of dollars, teams need to recruit the best players and to recruit the best players, they need to give something of value to the players. Since the players can't legally be paid their marginal worth, those things have to take the form of non-price rationing mechanisms. Palatial locker rooms are one of those things, and it is one of things that rent-seeking athletic departments will "employ" to recruit big-time players..

Article About My Talk Last Thursday Night

2005-03-28T04:38:00.000-08:00

Here is the text of the article in the local paper about my talk on sports stadium last night. For the most part, the author of the article got stuff right. But there were a couple of discrepancies.

Public subsidies of professional sports stadiums provide no tangible public good, a fact being recognized by more cities around the country, says an economist who's studied the issue.
"You see a lot more resistance (to taxpayer-funded stadiums) than you did in the past. I think people are seeing the evidence that the benefit isn't there," said Phillip Miller, an economist at Minnesota State University.

Miller said team owners will not invest in privately funded stadiums because the added value it brings to their franchise is negated by the debt. Owners who get stadiums built by taxpayers see their franchise's value jump about $100 million immediately. That, said Miller, easily explains why owners fight so hard for public subsidies. And they are able to apply great pressure to state and local officials because professional teams are in demand and can move to other cities and states.

First, I said that any public benefits from sports teams are going to be very small.

Second, the conclusion about why teams seek public financing is not quite right. Based on a regression model, the average baseball team (playing in a 40 year old public stadium) realizes an estimated increase of about $95 million when it moves into a new stadium. My research suggests that owning the stadium in which it plays enhances the franchise value of the team (relative to playing in a public stadium). But the marginal franchise value - the differenece between the franchise value in a private stadium and that in a public stadium - does not warrant a team privately funding most of the construction of its own stadium. Indeed, depending on the discount rate of team owners, the present value of the marginal franchise value never exceeds $125 million (approximately) and is more likely quite a bit smaller.

But he said his and others' research shows that the public gets no benefit from spending tax dollars on a sports team. That's because the teams do not pull new money into a state.

"Most of the money spent on sports and sports teams (by fans) would have been spent somewhere else," Miller said during a research lecture on campus Thursday night.

He said some new money may be pulled into a city or state by the presence of pro sports, but there is a much larger amount of money that leaves the state in the form of salaries to players and owners. "Most of the owners and most of the players do not maintain long-term homes in the cities they play in."

Some in the audience questioned whether the idea of being a "major league state" and the sense of pride and enjoyment of having pro teams is a pubic benefit worthy of taxpayer funding of stadiums. Miller said that for sports fans like himself, there is some joy in having hometown pro teams, but he sees little true public good. He argued that many other things - such as museums, quality housing and a good economy - are are more important in creating a "major league" city or state.

I didn't claim that these other things were "more important", just that these other things can also be thought of as contributing to a "major league" city.

He noted that even when fans are the happiest over their team winning, they show their happiness by buying more team merchandise - something that further enriches the owners who often are taking their profits out of state.

My point here was that much of what seems to be a public good does get captured by teams. In other words, happiness over a well-performing team is often a private good.

Miller received his Ph.D. in Economics from the University of Missouri - Columbia where he taught and began researching the economics of sports. He came to MSU in 2002 and has done more in-depth study on sports and public subsidies. He was chosen to give this year's Economics Department research lecture.

There is little optimism that this year's legislative session will produce any significant stadium legislation for either the Vikings football team or Twins baseball team, both of whom play in the Metrodome.

There is momentum for a new on-campus stadium for the Minnesota Gophers football stadium. On Thursday, the University of Minnesota announced it had reached a deal with TCF Bank to name a new stadium after the financial institution. TCF would pay $35 million over 25 years for the naming rights.

The university is seeking $94 million in state aid and hopes to raise $141 million privately for a new stadium. Gov. Tim Pawlenty has been generally supportive of the idea. The Gophers currently play in the Metrodome.

Compensating Differentials in Action

2005-03-27T13:56:00.000-08:00

What are the annual incomes of people who build water towers? According to this article in the Columbia Daily Tribune, they average over $79,000 per year in Missouri (not including benefits and overtime pay). This is a very dangerous job:

Any man on the crew will tell you he earns every penny of his paycheck. The job takes them away from their families more than 300 days a year, and it holds undeniable hazards despite regulated safety precautions. Working some 200 feet above ground, crewmembers straddle beams and stand atop scaffolding, guiding each piece of crane-lifted metal into place and meticulously welding together the 500,000-pound structure.

They must rely on harnesses, hardhats and sheer nerve for their sense of security.

Economists talk about "compensating differentials" in labor markets. Consider two jobs, a dangerous one and a safe one. Other than that, the jobs are exactly the same to workers. Workers in the dangerous job will earn a wage differential that compensates them for the risks on the job. This is a compensating differential.

Unions and Discriminatory Practices

2005-03-27T11:25:00.000-08:00

African-Americans have the highest rates of unionization. Part of the reason is because this demographic group is highly-represented in the public sector, the industry with the highest rate of unionization.

Another plausible reason is that unions help fight discriminatory practices by employers. Evidence from New Zealand provides some evidence for this. Here is the link to the paper. Here is the abstract:

This study examines the effects of unions on employer compliance with antidiscrimination legislation in New Zealand, using a sample of 227 employers. The results do indicate that unions do reduce discriminatory practices. More specifically, higher levels of unionization do increase the level of employer compliance. However, other union characteristics, such as union size and strike propensity, appeared to have no influence on employer practice.

Pre Kindergarten

2005-03-27T10:32:00.000-08:00

Tyler Cowen at Marginal Revolution links to a summary of this NBER article on the effect of prekindergarten schooling on youngsters. From the summary:

Further, for most children the positive effects of pre-kindergarten on skills largely dissipate by the spring of first grade, although the negative behavioral effects continue.

The fact that the gains made by prekindergarten kids are dissipated by first grade doesn't surprise me. When I was a child, my mother read books to me and I also spent a lot of time watching Sesame Street. I learned to read before I reached first grade. The officials at my elementary school considered moving me up a grade, but since my math skills were too weak for the second grade, they didn't. Instead, my teacher sent me to the school library until all the other kids could catch up with me. The opportunity cost of trying to work with a kid that was advanced in one area was too high.

Might an advanced child feel frustrated that he is not being intellectually-stimulated enough, thus enhancing the negative behavior?

You Learn Something New Everyday

2005-03-27T07:21:00.000-08:00

I didn't realize this: the state of Minnesota has a price floor on retail gasoline prices. From this story (subscription required) in the local paper:

The Mankato Sam's Club is under investigation by state regulators for allegedly selling gasoline at slightly below the minimum price allowed by law, according to a state lawmaker, but a company spokeswoman predicted the company will be cleared.

How does the law in Minnesota work?

The alleged violation involves a 2001 law that prohibits gas retailers from selling at below cost or below an adjusted wholesale price level as determined by the Commerce Department. Cornish said he has figures for Wednesday that suggest Sam's was selling gas about 2 cents below the minimum allowed by law.

Who complained about it? It wasn't consumers:

Cornish's actions followed complaints by officials with two gas stations in his legislative district, which covers rural Blue Earth County and parts of Waseca and Faribault counties. Cornish didn't identify the stations but said the owners have been watching the posted price at the Mankato Sam's Club, which began selling gas this winter.

This is ridiculous. I don't fault the other gas stations for choosing to turn in Sam's Club rather than competing and lowering their prices (in this particular instance). They know their cost structure and would probably have been in violation of the law if they had done so. But I do fault the law for not allowing the competition to take place, and in that case, I bet these other gas stations (in general if not in particular) had a lot to do with getting the law enacted.

The Battle of Fredericksburg

2005-03-26T06:53:00.000-08:00

Here is an interesting webpage showing an animated map of the action at the Battle of Fredericksburg in the American Civil War. Fredericksburg, a big confederate victory, took place on Dec 13, 1862, fully 102 years and 1 day before your blogger popped into this world. The music is corny, but the map of the field and the red and blue bars that represent the various brigades is real nice. The flash animation that shows the movement of companies etc is also first rate. You get a nice feeling for where the units were in position, where they moved in attack and retreat, and how long the units fought. In this battle, union forces, commanded by General Burnside, attacked an entrenched position just beyond Fredericksburg. The confederates crouched behind a stonewall at Marye's heights, just beyond Fredericksburg, and several union brigades walked up to that position and got blown to bits.

Watch the little blue bars dissipate as they approach Marye's Heights. Keep in mind those little blue bars represent men who bravely obeyed orders and who were blown away. As William Tecumseh Sherman once said, "war is all hell."

Stupid Pet Trick

2005-03-26T06:20:00.000-08:00

Here's one from the "Daddy. How did Rover die?" department. From MSNBC:

According to an Agence France-Presse story from Wavrechain-sous-Denain, France, a 3-year-old mastiff named Pako, once again abusing a lamppost as he lifted his leg and relieved himself, was electrocuted when his stream hit the metal pole, which (following an act by vandals) had a loose lamp wire touching it. [Daily Telegraph (Sydney, Australia)-AFP, 2-22-05]

Carl Edwards, Up and Comer

2005-03-25T17:22:00.000-08:00

My former student at Mizzou, Carl Edwards, pulled off quite the feat last weekend. He won two races, one in the Busch series and one in the Nextel series. They were his first two victories in the top two NASCAR circuits. No-one had ever accomplished that feat before.

As Edwards was getting his start in racing, competing on dirt tracks in the Midwest, his mother persuaded him to print up business cards. He got a deal at a local printer - 2,000 cards for $100, with his picture one side and his résumé on the other.

I met up with Carl at the gym at Mizzou at about this time. He gave me one of these business cards and asked for my car repair business. My wife and I had just purchased two new automobiles and weren't going to need more than oil changes for a few years. So I never took my cars to Carl. But I kept the business card. I dug it out the other day and it's still in good condition. It's now stored away, sealed in a Ziploc bag. Something tells me to hold onto it for awhile.

Stupid Human Trick

2005-03-25T07:57:00.000-08:00

People do stupid things sometimes. From MSNBC:

According to Transportation Security Administration officials, New Jersey psychiatrist Esha Khoshnu, in a stopover in Phoenix en route to a professional meeting in San Diego in February, got "mouthy and snippy" with Mesa Airlines agents who wanted to examine her luggage, reportedly saying, "(Even if) I had a bomb, you wouldn't find it." Agents, following TSA protocol, detained her, causing her to miss her flight, and her luggage, loaded onto another flight, was eventually detonated on the tarmac at Lindbergh Field in San Diego. [Arizona Republic, 2-18-05]

Ain't Trade Great

2005-03-25T07:38:00.000-08:00

I briefly blogged about this really cool slot-car racing set. What got me thinking about slot-car racing tracks was this entry that I posted several weeks ago about how these toys drive cats nuts. Well, I have a cat. I also have two small durables. I am also a big kid at heart. So I decided I had to have one.

I ordered it from Amazon.com and have been tracking its progress to my house. I should be receiving it via Fed Ex later today. Here's what has gone on with it so far:

Date	Time	Location Service Area	Checkpoint Details

Mar 25, 2005	08:26:00 AM	NORTH MANKATO MN US	ON FEDEX VEHICLE FOR DELIVERY
Mar 25, 2005	08:23:00 AM	NORTH MANKATO MN US	ARRIVED AT FEDEX DESTINATION LOCATION
Mar 25, 2005	06:52:00 AM	MINNEAPOLIS MN US	LEFT FEDEX RAMP
Mar 25, 2005	06:01:00 AM	MINNEAPOLIS MN US	ARRIVED AT FEDEX RAMP
Mar 25, 2005	04:14:00 AM	MEMPHIS TN US	LEFT FEDEX SORT FACILITY
Mar 25, 2005	12:22:00 AM	MEMPHIS TN US	ARRIVED AT SORT FACILITY
Mar 24, 2005	09:44:25 PM	Fernley NV USA	SHIPPED
Mar 24, 2005	09:08:00 PM	RENO NV US	LEFT FEDEX RAMP
Mar 24, 2005	05:48:00 PM	RENO NV US	ARRIVED AT FEDEX RAMP
Mar 24, 2005	05:34:00 PM	RENO NV US	LEFT FEDEX ORIGIN LOCATION
Mar 24, 2005	04:01:00 PM	RENO NV US	PICKED UP BY FEDEX

A long time ago, somebody somewhere realized that people might find slot car racing tracks to be a real cool toy, so they developed them. Over time, the products improved. Now, somewhere in this world, some company produced the set that is now en route to my house. Somebody in Reno Nevada, a person whom I will never know, got this package ready for me. Somebody else in Reno picked up the package and started it on its journey to my house. Since then, it has traveled to Tennessee, to Minneapolis, and it is now somewhere in North Mankato, Mn. All the while, people along the way, people doing their jobs, have made sure that this toy was being put on the right plane, being moved to the right shipping area, etc. And by the end of the day, my kids and I will be having fun with a new toy, my cat will be going nuts, and my wife will be getting the rolling pin out.

This is such a mundane transaction. Man wants toy. Man buys toy. Man plays with toy. These are such mundane transactions that we don't even think about all the activities that occurred to make the transaction take place. But these sorts of "mundane" transactions are what drive market economies, and they are the reason why market-based economies work so well in providing what people want. It's too bad that the "invisible hand" is invisible, because I'd like to shake it right now.

Ain't voluntary trade great?

Big Talk

2005-03-24T20:56:00.000-08:00

Tonight was the night. I gave my talk on public subsidization of sports teams and how those subsidies affect team franchise values. The gist: sports teams are not the boons to local economies they are purported to be. Team franchise values will be enhanced if they own stadiums relative to if they play in public stadiums. So why do they seek subsidies? Because the enhancement isn't large enough and because teams possess and use market power to extract subsidies from governments.

A nice complement to my talk was blogged today by John Chilton. It's well worth reading.

Faculty Continuing Education

2005-03-24T12:00:00.000-08:00

Robert Lawson at Division of Labour has this piece on the recent flap at Ohio University between the faculty senate and the president of OU. Here is the story about the flap linked in that piece. At the heart of the matter is a concern over faculty taking classes from other faculty.

The trouble started when Faculty Senate began discussing a controversial new rule that would restrict how faculty members can further their degrees at OU. Faculty Senate has been working for some time on the measure, and the item was scheduled for a vote on Monday.

The reason for the change is that senate members worry it could be a conflict of interest, or at least create the appearance of a conflict, for faculty members to enroll in classes taught by their colleagues.

Supporters of the measure say this could lead to problems for professors teaching other faculty members, who then might at some point serve on their tenure committee. Or, they suggest, faculty members could simply feel uncomfortable teaching their colleagues. They also point out that having a faculty member in a class can change the culture of the classroom, and other students may think it's an unfair situation.

And then there's this from an opponent of the measure:

Cambridge argued that many faculty members come to OU with the intent of furthering their education. He said the new rule would hurt these faculty members and make it harder to recruit new ones. Cambridge added that it is not a conflict of interest for faculty members to further their education at their own institution, and he hoped Faculty Senate would at least allow the issue to be debated for another month before voting on it.

This raised my eyebrows. The PhD is a terminal degree and continuing education is part of the job description of academics - especially non-tenured ones (i.e. publish or perish). Does OU hire a large number of adjunct faculty or instructors, faculty often without the terminal degree? This isn't so in their econ department. Does OU use this as a recruiting tool? Perusing OU's faculty job opening web page, I didn't see much evidence of this. Of course the job announcements don't tell us much about what interviewees hear in the interviews. Is OU heavy on disciplines that require continuing education of its faculty?

When I finished my dissertation defense, the first place I wanted to go was here. The last place I wanted to go was to a classroom to take a class. What's going on at OU?

How Cool is This?

2005-03-23T20:07:00.000-08:00

Toys rock!

Top 20 Monty Python Moments

2005-03-23T19:01:00.000-08:00

From Entertainment Weekly:

20 Argument Clinic (Monty Python's Flying Circus DVD 9, Episode 29)
A troupe hallmark and a paraphrasing of what Python fans are thinking now. ''That's not one of the top 20.'' ''Yes, it is.'' ''No, it isn't.'' ''Is.'' ''Isn't!''

19 Kilimanjaro Expedition (MPFC DVD 3, Ep. 9)
Who did an explorer who sees double hire to find a crew he sent to build a bridge between Kilimanjaro's two peaks? ''The Arthur Brown twins, two botanists called Machin...and a couple of the Ken Spinoza quads. The other two pulled out.''

18 The Restaurant Sketch (MPFC DVD 1, Ep. 3)
A polite complaint about a dirty fork riles a cleaver-swinging cook and suicidal manager. Highlight: John Cleese's gasping moan, ''Oh, it makes me mad.''

17 Mrs. Premise and Mrs. Conclusion Visit Sartre (MPFC DVD 9, Ep. 27)
Who better to debate Jean-Paul Sartre's philosophy and burial methods for live cats than two shrieking housewives? The best of the sketches with the Pythons' drag alter egos, the Pepperpots.

16 The Visitors (MPFC DVD 3, Ep. 9)
The rudest drop-ins ever, including Arthur Name (''What's brown and sounds like a bell? Dung''), Mr. Equator (''[The seat's a] bit lumpy...ah, no wonder, I was sitting on the cat''), and his incontinent, beans-gobbling wife.

15 Every Sperm Is Sacred (Monty Python's The Meaning of Life)
Terry Jones' directorial high, this rousing musical number about the perils of masturbation from the 1983 film is Python irreverence at its most elaborate.

14 Interesting People (Monty Python's Flying Circus DVD 4, Episode 11)
A goofy TV panel features a hypnotist who puts bricks to sleep and a man whose cat flies across the room into a pail of water. (''By herself?'' ''No, I fling her.'')

13 Spam (MPFC DVD 8, Ep. 25)
Thanks to this operatic, Viking-sung ditty, the jellied canned luncheon meat will always be synonymous with classic comedy.

12 Self-Defence (MPFC DVD 2, Ep. 4)
What's a fruit-obsessed instructor's advice for dealing with an assailant attacking with a banana? (1) Shoot him. (2) Eat the banana, thus disarming him.

11 Crunchy Frog (MPFC DVD 2, Ep. 6)
Crunchy Frog, Cockroach Cluster, Ram's Bladder Cup with lark's vomit: This candy selection yields oddly tasty humor.

10 Stoning (Monty Python's Life of Brian)
You may be humming ''(Always Look on the) Bright Side of Life'' after the 1979 film, but the beard-wearing, rock-hurling women make the movie sing.

9 Eric the Half a Bee (Monty Python's Previous Record)
A rousing ode to a bifurcated bug from 1972: ''I love this hive employee/Bisected accidentally/One summer afternoon by me/I love him carnally.''

8 Nudge Nudge (Monty Python's Flying Circus, DVD 1, Episode 3)
''Nudge nudge, know what I mean? Say no more!'' Eric Idle's winking insinuator is the ultimate perv, even if the sketch ends, ''You've slept with a lady.... What's it like?''

7 The Lumberjack Song (MPFC DVD 3, Ep. 9)
A barber longs to be a macho woodsman, because ''I cut down trees, I skip and jump/I like to press wildflowers/I put on women's clothing/And hang around in bars.'' During some live shows, fans Tom Hanks and George Harrison both slipped into lumber gear to sing backup.

6 Fish-Slapping Dance (MPFC DVD 9, Ep. 28)
John Cleese and Michael Palin prance about, slapping each other with fish, naturally. Fifteen seconds of sublime silliness.

5 The Funniest Joke in the World (Monty Python's Flying Circus DVD 1, Episode 1)
A British joke so funny its audiences die laughing becomes a critical weapon against the Nazis during WWII. Not so the Germans' failed retaliation: ''Der ver zwei peanuts, valking down der strasse, and von vas...assaulted! Peanut.''

4 Dead Parrot (MPFC DVD 3, Ep. 8)
''If you hadn't nailed it to the perch, it would be pushing up the daisies.... This is an ex-parrot.'' The legacy of John Cleese's complaint to Michael Palin for selling a stuffed pet is marred only a bit by a listless reprise on a 1997 Saturday Night Live.

3 Guy de Loimbard's Castle (Monty Python and the Holy Grail)
''Your mother was a hamster and your father smelled of elderberries'' from the 1975 film remains the gold standard of verbal abuse.

2 The Ministry of Silly Walks (MPFC DVD 5, Ep. 14)
Cleese's giant steps are equally hilarious on the TV show and in the '82 concert film Live at the Hollywood Bowl.

1 The Spanish Inquisition (Monty Python's Flying Circus DVD 5, Episode 15)
Red-caped crusading cardinals threaten torture with (gasp!) the comfy chair! Unforgettable for one reason: torture by kitchen drying rack, and Michael Palin's inability to count...two! Two reasons!

There are others worth mentioning, many worth including:

The Bishop. Confuse-a-cat. Lemming of the BDA. The Blancmange. The Cheese Shop. Snivelling Little Rat-Faced Git (it's not easy growing up with a surname of Git). St. Looney of the Cream Bun and Jam. Dennis Moore (this redistribution of wealth is trickier than I thought!).

There's Snow Business

2005-03-23T18:15:00.000-08:00

OK. Here's one of the pictures I took of our recent snow storm.

Pretty exciting stuff, eh?

Denied

2005-03-22T20:15:00.000-08:00

From this morning's Mankato Free Press:

Greater Mankato Training Camp, LLC, has the city of North Mankato's best wishes, plus the possible use of police reserve officers and city equipment.
It just can't have any money.

Representatives of the organization, which formed in late 2003 after reports that the Minnesota Vikings might withdraw their training camp from Mankato, asked the North Mankato City Council for $10,000 annually for three years.

The Vikings have held their training camp at the Minnesota State University, Mankato campus for over 40 years. Last year, the Vikings shopped the camp around to prospective cities in an attempt to get public subsidization for the camp - market power at work. Mankato ended up chipping in. But North Mankato didn't. Do North Mankato officials see the light or are they just free riders?

North Mankato has only two hotels. The rest of the hotels in the micropolitan area are in Mankato. Most of the bars and restaurants that would be frequented by camp goers are also in Mankato, so I doubt that North Mankato would feel much of any spillover that might exist (I say "might exist" because I am skeptical that the camp nets $5 million in additional spending in the Mankato region).

Fly and Be Free

2005-03-22T20:02:00.000-08:00

Have you ever wanted to get away?

My Favorite Athletic Nicknames

2005-03-22T19:57:00.000-08:00

I'm procrastinating again. This is a non-exhaustive list and is in no particular order.

Benson (Omaha, Ne) Bunnies
Hickman (Columbia, Mo) Kewpies
UC Santa Cruz Banana Slugs
University of Idaho Vandals
Wabash College Little Giants
Centenary College Gents (Men's)
Centenary College Ladies (Women's)

What's your favorite sports team nickname?

My favorite sports chant: Let's Go Peay!

Beer Snob

2005-03-22T19:11:00.000-08:00

The Econoclast made me do it! I took the liquor test. Here's how I rated:

Vodka
Congratulations! You're 100 proof, with specific scores in beer (140) , wine (66), and liquor (52).

All right...you're getting into the harder stuff. A good martini, a Mai Tai or straight shots of hard liquor is what you're into.

Um, no. Give me me tired, your poor, your pale ales, barleywines, imperial stouts, IPA's, scotch ales, rye ales, licorice stouts, milk stouts, oatmeal stouts, pumpkin ales, Bocks, pilsners, and steam beers. Hell, give me your Grain Belt! I am a beer drinker!

My test tracked 4 variables How you compared to other people your age and gender:

You scored higher than 13% on proof
You scored higher than 98% on beer index
You scored higher than 86% on wine index
You scored higher than 85% on liquor index

I rarely drink liquor. I like a wine now and then. But dadgummit, beer is my adult beverage of choice. Currently, I have this, this, this, this, this, and this in my basement. The best brewpub I've ever been to is this one.

Who Attends Games and Why

2005-03-22T12:11:00.000-08:00

Proponents of public subsidies for professional sports teams often laud the tourist attraction provided by said teams. Two important questions that need to be asked are 1. what proportion of people in attendance are tourists and 2. why are they there?

Skip Sauer, one of my co-bloggers at The Sports Economist, alerted me to this paper by Jahn Hakes and Kyle Hutmaker that examines the effect of travel costs on the demand for season ticket sales for the Atlanta Braves. One of the things they mention is that 92% of the season ticket sales are made by people whose zip code is within 100 miles of the home team's stadium. Granted, this study only examines one team in one year, it only examines season ticket sales, and there may be discrepancies between where a person is travelling from and where his/her home zip code is. Hakes and Hutmaker have attempted to control for these problems as best they can and they provide evidence of who buys tickets to regular season baseball games: locals, largely.

As far as sports as a tourist destination, I just got my registration for this summer's WEA conference in San Francisco (where I'll be presenting an as-yet-to-be-written paper comparing arbitration and free agency in baseball). One of the events listed on the conference brochure (which I would love to take in) is a Reds-Giants game. Most of the conference attendees who go to the game will be considered out-of-towners, but it would be a mistake to include us in an estimate of the tourist impact of the Giants. None of us travelled to San Francisco to see the game and decided to take in an economics conference while we were there. Instead, it is the other way around.

Monopoly Power

2005-03-22T07:00:00.000-08:00

If I want to get my home number unlisted from the local phone directory, the local phone company is going to charge me 75 cents per month to have that done. I think it's safe to say that the marginal cost of the resources required *NOT* to publish my name in the phone book is less than 75 cents.

Ah, monopoly power at work.

Economists as Politicians

2005-03-21T19:05:00.000-08:00

I ran across this at the New Economist.

1. Economics is the study of trade-offs, of costs. ...Politicians, of course, hate the idea of trade-offs and costs.

2. Economists love counter-intuitive ideas. ...This leads to us stressing paradoxical notions – like the notion that outsourcing can be a good thing. Good politicians, by contrast, prefer sound-bites that corroborate the public’s prejudices.

3. Economists are like photographers - we love simple models. In particular ...we’ve loved models that yield bold, controversial but testable predictions.

4. Economists start from assumptions – or better still axioms – and see where they lead. ...Sometimes, though, they can lead to trouble.

5. Economists have a simple, brutal view of human nature – everyone’s rational (though not knowledgeable) and out for themselves. This makes us comfortable with conflict and argument, and uncomfortable about building alliances.

His points are valid. Most economists are by nature spectical, analytical and counter-intuitive. We are much more comfortable being critics than cheerleaders. That makes it difficult to advocate second-best solutions or simple minded policies. But while economists may not be natural politicians (with some notable exceptions), they are a vital part of any team of political advisers.

Larry Summers comes to mind. King at SCSU Scholars has some thoughts on this subject. One economist that did a good job in a political job is Richard Wallace, former Chancellor of Mizzou. While I was there as a graduate student, Dr. Wallace maintained an office in the department of Economics although I never saw him in our building. I did not have many interactions with him and I only went to a few of his speeches. He was always careful with what he said (i.e. meant that his talks weren't exciting). But he seemed to know what to say and how to say it. Mostly, I don't recall any big controversies surrounding him. Like having a football game officiated by the best referees, you know they did a good job because you didn't realize they were there.

Improbable Shot

2005-03-21T11:27:00.000-08:00

In your wildest dreams, did you ever hit a shot like this that sent your team to an overtime in the championship game?

How to Piss Off a Communist Dictator

2005-03-19T06:21:00.000-08:00

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

HT to Marginal Revolution.

Finally. Heavy Snow

2005-03-18T09:21:00.001-08:00

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

2005-03-18T06:50:00.000-08:00

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

Get Well, Teddy Bruschi

2005-03-18T06:35:00.000-08:00

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

Mariner's Accounting Income

2005-03-18T06:26:00.000-08:00

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.

Freudian Misspelling

2005-03-17T15:25:00.000-08:00

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!

2005-03-17T11:25:00.000-08:00

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

Teaching Principles

2005-03-17T10:19:00.000-08:00

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.

Discrimination?

2005-03-16T19:49:00.000-08:00

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

2005-03-16T16:28:00.001-08:00

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

DUI-ME, DRUNK, TOASTED, DRNK2MCH, WASTED, STONED, FKDUP, HIGH

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.

This Blows!

2005-03-15T17:17:00.000-08:00

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

2005-03-15T09:23:00.000-08:00

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

2005-03-15T08:29:00.000-08:00

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

2005-03-15T08:26:00.000-08:00

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

2005-03-15T07:37:00.000-08:00

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.

Danny Joe Brown Dead at 53

2005-03-14T20:21:00.000-08:00

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.

Scalped Head (Coach)

2005-03-13T09:49:00.000-08:00

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?

2005-03-13T07:00:00.000-08:00

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

2005-03-13T06:34:00.000-08:00

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.

That's Opera, Doc!

2005-03-12T21:47:00.000-08:00

First there was Heavy Classix. Now there's a Heavy Metal Opera.

By the way, I think the gal on the front of the Heavy Classix was my first girlfriend. She looks like she's slimmed down a lot. ;-)

Late Flu Season

2005-03-11T08:52:00.000-08:00

It's kinda late for flu season, being that it's "Spring" Break now, but that's what we have around these h'yar parts. My four year-old has been home with a fever for the last two days and several kids in his class at daycare have it. My 3 year-old's lead teacher was down with the flu earlier in the week, and I ran a 102.8 fever Wednesday night. My version is real weird, because I have had no digestive or respiratory problems, but I have been very achy and very weak. Today, while I have energy and while my fever is gone, I still have trouble picking up a TV remote. Very odd, especially considering that I lifted weights at the gym on Tuesday with no problems at all.

World Wind

2005-03-09T08:47:00.000-08:00

Craig Newmark links to the NASA World Wind program, a program that allows you to zero in on places throughout the world via pictures taken from satellites. It's a huge program (half a gig), and some of the photos are outdated (I can zero in on my neighborhood but I can't see my house because, in the picture, my neighborhood is still a farm field). But it looks like a great procrastination tool. I even think my durables will get a kick out of it.

Am I Evil?

2005-03-08T14:56:00.000-08:00

Market Power is only 24% evil, according to the Gematriculator. That means this site is 76% good. The Sports Economist, my other blogging sight, is 50% evil.

I've gotta try harder next time!

Wither the Shut-Down Condition?

2005-03-07T09:28:00.000-08:00

When economists teach the theory of production decisions, we run into the case where a firm may shut down in the short run. In this theory, the firm does not leave the market altogether. Instead, the firm finds that its price is "too low" to allow it to generate enough revenue to cover its variable costs. Since it minimizes losses by shutting down, it decides to not produce. Normally, when I teach the shut down condition, I teach it from the standpoint of a falling price with costs held constant, but it certainly could result from increasing costs at each level of production.

How often does this happen in the business world? Usually when people think of a firm shutting down, they think of the firm completely quitting business. But how often do firms stop production for a short period of time because of short-term price and cost considerations?

Several years ago, aluminum manufacturers shut down their operations because they found that their opportunity cost of using electricity that they had bought under favorable long-term contracts was too high relative to the price of their output. California was in the midst of its electricity crisis, and needed electricity. So, instead of using the electricity to manufacture aluminum, some aluminum companies sold the electricty to California. See here. A quote from the article:

Similarly, aluminum companies are collecting about $1.7 billion this year by not making aluminum. Companies like Alcoa have earned profits that delight Wall Street, while keeping about 10,000 workers on their payroll, by reselling hydropower that they bought in the mid-1990's under a cheap long-term contract.

The shut down condition at work.

Marriages and Approaches to Games

2005-03-06T19:54:00.000-08:00

John Nash developed equilibrium solutions to cooperative games and non-cooperative games. In a cooperative game, negotiators can enforce a binding agreement. In this case, the negotiators can come to a binding agreement that maximizes the joint welfare of the negotiators. In a non-cooperative game, a binding agreement is either not possible to negotiate or enforce. In this case, each person acts in their own self-interests.

Is a couple more likely to divorce if one of them tends to play games cooperatively and the other tends to play them non-cooperatively? I can think of a couple reasons why they might.

1. Strong relationships are built on mutual trust. If we model a marriage as a repeated prisoners' dilemma, then the two people will be best-off jointly if they cooperate with one another each time the game is played. But there is an incentive to deviate from the cooperative solution at each stage. The person who plays games cooperatively, once he/she has observed the others person's playing of a "marriage game", loses trust in the partner and the marriage can dissolve.

2. The person who plays games non-cooperatively would have little trust of the other person, thinking that the other person plays games non-cooperatively when, in fact, the other person plays games cooperatively. The non-cooperative person could be a person who is very jealous or suspicious of the other person when that person goes out or when a person of the opposite sex speaks with him/her. This also can put strains on the marriage.

Sports - Zero Sum Games?

2005-03-06T06:21:00.000-08:00

Are sporting contests zero-sum games? That's a description I find a lot when it comes to talking about the sort of competition that occurs on the playing field. Russell Roberts at Cafe Hayek refers to this sort of competition as such.

I don't think that sporting contests are zero-sum games in many instances. For instance, consider today's Kansas at Missouri men's basketball contest in Columbia.

Missouri needs this one more than Kansas. There should be a difference between playing for your competitive life and playing for a No. 1 NCAA seed, which Kansas might not get even with a victory at MU.

Sports are zero-sum games if we narrowly define the outcome as a win and a loss and assume that the value of a win equals the value of a loss for each team. But that's a big assumption to make in many cases.

What's your Opportunity Cost of Robbery?

2005-03-05T15:25:00.000-08:00

Many years ago, I used to work for Walgreens at the mall in Sioux City, Ia. After work one Friday evening, I walked with my assistant manager down the hall of the mall to put the day's revenue into the bank. Since it was late on Friday, my manager had to put the money in a big metal deposit box. Managers of other stores had done the same thing, and the box had envelopes sticking out of the drawer. My manager said "Look at all that cash. We could take some of it and skip town, but that would be stupid. We'd just get caught and would be in big trouble." In other words, the marginal benefits of stealing the cash were far outweighed by the expected marginal costs.

Apparently Larry Ned, formerly of the Arizona Cardinals, didn't think as my manager did.

Thanks to the Eclectic Econoclast for the pointer.

MOB

2005-03-05T15:13:00.000-08:00

I looked at my extreme tracking and found several MOB members who have linked to me. Thanks to Bogus Gold and MAWB Squad. I shall be updating my blog links to include MOB members.

Economies of Scale and the Law of Supply

2005-03-05T12:32:00.000-08:00

Don Boudreaux has this nice post on the law of supply. Here is a quote:

Teaching the law of supply is a tad bit trickier because of the widespread knowledge of economies of scale. Each semester, several thoughtful students always ask "Doesn’t producing more of something reduce the cost per unit and, hence, enable producers to sell it at a lower price? So don’t lower prices, rather than higher prices, correspond to higher quantities supplied? I don’t understand why price must rise in order to inspire a firm to offer greater quantities for sale." Good point.

I respond first by asking the students to wait a few lectures until we explore the law of diminishing returns; they’ll see then that no firm can expand output indefinitely without eventually seeing its costs of production per-unit rise.

Another thing at play is that the supply curve, technically, refers to a competitive market (although many of its principles are widely applicable to other market structures as well). In a competitive market, each firm is such a miniscule portion of overall market supply, that diminishing returns set in relatively early on for each firm. In other market structures, such as monopoly, firms have economies of scale, and firms can keep competition out because the economies of scale give them a pricing advantage, and thus, market power - at least in the short run.

Don links to an excellent article on oil drilling in urban neighborhoods in Texas. With oil at over $50 a barrel, drillers are going after oil in urban areas.

"This is one of the oddities of $50 oil," Ms. Sage said. "This type of thing doesn't happen with $20 oil."

Some cities, of course, have long coexisted with oil drilling in their midst - the La Brea Tar Pits in Los Angeles, for instance. But most of those fields were explored decades ago and some long forgotten. The emergence of urban oil exploration in Houston illustrates the lengths to which some companies are going in their search for oil in areas long written off.

The low-hanging fruit principle states that rational firms produce the cheapest units first. I explain to my students that, according to the law of supply (and the low-hanging fruit principle), the reason that businesses stop supplying additional units at the market price is because one more unit costs more that it generates in revenue. This principle is alive and well today in the oil industry.

Will we run out of oil? Not if market forces are allowed to work.

Is This Simple Enough?

2005-03-02T17:36:00.000-08:00

In this post below, I made this statement:

I'm a beer snob, not a wine connoisseur. But I do like a bottle now and then (not in one sitting - generally!) when it comes to spending $40 on a bottle of wine. I know what I'm getting when I buy a Cab, or a Merlot, or a Shiraz. But I find the labels of many french wines to be difficult to read, and being a casual wine drinker, I usually buy what I can understand.

OK, Chet, how's this for clarity (seen at the local liquor store as I was shopping for some snobby IPA)?

You've Got Mail, Dr.

2005-03-02T17:08:00.000-08:00

From the New York Times (membership required):

In a move to improve efficiency and control costs, health plans and medical groups around the country are now beginning to pay doctors to reply by e-mail, just as they pay for office visits. While some computer-literate doctors have been using e-mail to communicate informally with patients for years, most have never been paid for that service.
...
Blue Shield of California pays his doctor $25 for each online exchange, the same as it pays for an office visit. Some insurers pay a bit less for e-mailing, and patients in some health plans are charged a $5 or $10 co-payment that is billed to their credit card and relayed to the doctor.

For doctors, the convenience of online exchanges can be considerable. They say they can offer advice about postsurgical care, diet, changing a medication and other topics that can be handled safely and promptly without an office visit or a frustrating round of telephone tag. And surveys have shown that e-mail, by reducing the number of daily office visits, gives physicians more time to spend with patients who need to be seen face to face.

For patients, e-mail allows them to send their medical questions from home in the evening, without missing work and spending time in a doctor's waiting room. In fact, many say exchanges in the more relaxed, conversational realm of e-mail make them feel closer to their doctors.

The patients can also use the e-mail connections, which they reach through secure Web sites, to get X-ray and test results and request prescription renewals. Doctors are not paid for these services, except in time saved in the office.

This shift toward online doctor-patient communication is important for another reason. Physicians and health care technology specialists say they believe that it could help spur the changeover to electronic health care information systems, which government officials and industry leaders say is needed to reduce medical errors and promote better care. Doctors at the clinics of the University of California, Davis, grew accustomed to using e-mail for clinical purposes before the clinics introduced electronic medical records, said Dr. Eric Liederman, medical director of clinical information systems at Davis. The messaging "gave them some comfort and facility with using the computer," he said.

How do medical liability concerns work into this? Emails can be very easy to misunderstand.