Posts Tagged With: News

Bless Them

Republicans, traditionally known for being smarter about the economy than Democrats (and less literate about social issues), battled in an economic debate in Michigan, and some of the quotes that came out were really funny. Lenders would love a John McCain presidency, especially if he keeps talking like this:
"I'm glad whenever they cut interest rates, I wish interest rates were zero."
More from Free Exchange, via Matt Yglesias.

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Free Trade is Bad for the U.S. Economy?

If you think free trade is bad for the economy, you must either think taxes on imports are good for the economy, or taxes on imports are even worse for the economy than having free trade, which is bad. If you take position #1, you either believe that 4000% taxes (in effect, no trade at all) are better than no taxes, or that there is some tax rate on trade, between 0 and 4000, that is "best." Let's examine each of these cases for a simple product, bananas. No bananas are grown in the United States, because the climate isn't right; they are grown in Ecuador and other countries, and then shipped here. Let's say with free trade, everyone has to pay $1 for a banana from Ecuador, and there are 110 bananas sold every year. The government introduces a tax on trade, say 20 cents per banana, which raises the cost of bananas to, say, $1.10 (Half the tax is paid by the customer, and half eats into the banana farmer's profits. In real life, the new price would be anywhere between $1 and $1.20, depending on how much consumers are still willing to buy bananas). In response, customers buy only 100 bananas from Ecuador this year. Wawa and Safeway and Wegman's buy less bananas, because their customers are buying less bananas. This means they can't make as much money, because they make a small margin on every sale. Not to mention, Jamba Juice charges more for smoothies, because bananas are more expensive. Ecuadorean farmers are also worse off - they can only charge 90 cents per banana as opposed to 1 dollar per banana, and in addition they're selling fewer bananas - 100 vs. 110. To summarize, the consumer is worse off - he/she has to pay $1.10 as opposed to $1 for a banana. Grocery stores, food trucks, and smoothie makers are worse off - they don't make as much money from selling bananas as they did before. And Ecuadorean farmers are worse off - they don't sell as many bananas as before and they are forced to sell them for less money. At this point, a Smart Joe decides to grow bananas in Florida. Because he has to pay each of his workers in Tampa more than the farmers in Quito, and because he needs a lot more fertilizer and irrigation to grow his bananas than the Ecuadoreans, the cheapest he can produce bananas for is $2. Seeing as he can only sell them for $1, Smart Joe isn't doing very well; in fact, he'll be out of business by the end of the week. But he gets a great idea. He rounds up three friends who pool their money to pay a lobbyist to turn Congress against Ecuadorean bananas, arguing that the Ecuadorians are getting rich at the expense of Americans who pay exorbitant amounts for their bananas, and that because the Ecuadoreans are doing so well selling bananas, they're taking jobs away from his farm. Smart Joe goes on the floor of Congress, talking about how hard his life is as a farmer and how he'll be out of business by the end of the week. Hillary Clinton, with her eye on the next nomination, gets up and talks about protecting American jobs. Congress passes a law to tax banana imports $400 per banana. Out of desperation, Ecuadorean farmers decide to give away their product for free. Even so, no one in America is willing to pay the $400 tax for bananas, the farmers are forced out of business by the end of the week, and there's a severe shortage of bananas in the U.S. Jamba Juice, realizing bananas are an integral part of its smoothies, and wanting to make its supplies last a while, responds by charging $100 for every smoothie it makes. Let's look at the results - the consumer is worse off, having to pay 100 dollars per banana and eventually not being able to buy bananas. Jamba Juice is worse off - it can only make smoothies if it has bananas, and its sales plummet, which hurts every person who owns shares of Jamba Juice, not to mention people who enjoy its smoothies. And Ecuadorean farmers are worse off - they're all out of business and out of jobs, contributing to unemployment in Ecuador and depriving them of the ability to sell their signature export. The winners are Smart Joe and his three friends, who quickly buy as much land as he can lay hands on and starts planting bananas, and he has enough trees to sell 20 bananas this year, the entire supply for the United States, which allows him to charge $10 per banana, and receive $8 in profit on every banana sale. The American Revolution was originally a revolt against high taxes on imports and exports. I just don't see what people are pointing to when they say free trade is bad for the economy. Maybe they think that we should have no trade, or maybe they think the prices they pay for iPods, or bananas, or gasoline, or sneakers or polo shirts, aren't high enough as they are.

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Correlation Does Not Mean Causation. Correlation Does Not Mean Causation. Correlation Does Not Mean Causation.

Apparently a degree does not bestow logical thought to the people pursuing it, as this article from today's Daily Pennsylvanian shows. This writing is unacceptable, not only because it's biased but because the main argument has no basis. The number of swimming pools people own is also positively correlated with longer life, more community service, more political involvement, and less smoking. We should all build more swimming pools, and wait for the benefits to come in.

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Getting Things Done (Extraterrestrially)

Google just announced a $20 million prize to the first organization that can send a robotic lander to the moon, go for a walk, and beam back photos. I feel the benefit to humankind from such a robotic visit must be larger than $20 million. Prizes are a far more efficient way of getting results than paying one group in advance. It would be great if there was a website where you could donate money to the purse for different prizes, for the first person to cure cystic fibrosis, or the first person to prove an important theorem, or get to the moon. The bigger the prize, the bigger the incentive people have to try and win it - $30 million for a moon robot would get a faster result than $20 million, or maybe NASA offers a $50 million prize for the first person to set up an observation station on the moon, and gets that station built for them, probably better and cheaper than they could too. Prizes in the billions aren't unreasonable either - a cure for cancer could be worth $50 billion.

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Record Numbers of Poppies in Afghanistan

New York Times has an article detailing the record levels of opium being produced in Afghanistan this year. We are spending $600 million on counternarcotics efforts, divided between eradication, interdiction, and "alternative livelihoods." Government officials admit, however, that eradication "drives farmers into the hands of the Taliban." Why not pay the farmers for the opium they produce and then destroy the crop, instead of insisting they grow wheat, which makes a tenth of the profits? A lot of the high cost of heroin in the United States is added at the end, because it costs so much to smuggle it in and refine it for street sale. As the leader of the free world, and with trillions of dollars in tax revenue, we should be able to outbid the Taliban.

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Media Attention, Don Imus & Rutgers

Don Imus has got in a lot of trouble recently for calling the members of the Rutgers women's basketball team "nappy-headed ho's." This is racist and offensive. I only wish he had insulted them before the conclusion of the women's NCAA Tournament. Then they might have drawn decent TV ratings. It is a shame Imus's insults have driven more publicity to the Rutgers basketball team than their on-court actions did.

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EMI & DRM-Free Music Downloads

Apple and EMI today announced the launch of DRM-free downloads from the iTunes Music Store. The DRM-free downloads will have twice the quality of regular store downloads, but will retail for 30 cents more per song. Albums will remain the same cost as before. My guess is that the $1.29 downloads will be more popular than downloads with DRM, but not as popular (or profitable) as cheaper downloads. I think they will find plenty of people willing to pay an extra 30 cents for portability, but they would make up in volume what they're losing in price (I am sure their profit margins for digital sales are very large. Especially when you are not strapping a product with DRM.) I am looking forward to finally cashing in my iTunes Gift Certificates on non-DRM music. I hate having to authorize and re-authorize my computer to play my music. However, EMI is now entering into competition with DRM-free websites such as allofmp3.com, which doesn't pay any royalties to anyone and charges around twenty cents per song. EMI is getting killed right now on price per song, but they have better visibility and press than the Russian site. I will be interested to see if EMI continues to sue illegal sharers and downloaders with the same tenacity they are now. I believe they are still anti-piracy; by selling DRM-free music they're inviting piracy, but not on purpose. The best possible outcome for EMI, I believe, would be to offer music on iTunes for $1.29/song and offer the same music on eMusic for 50 cents/song. This way they capture the naive-user market and can compete on price for the more sophisticated music downloaders.

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Home Ownership & Unemployment

Slate and MR have been talking recently about the fact that unemployment is tied to permanent home ownership: the more mobile your population the lower unemployment will be. This is another reason why the simple economic models I am looking at in my intro classes will never work. Economists for the sake of simplicity will ignore simple things, like that people get attached to their belongings and surroundings. With that said we should not dismiss economics. It is simply unlikely that we will ever get to the equilibriums the models imply.

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