The 'Edible Arrangments Paradox'

A post wishing everyone an early April Fool's day would seem to be a particularly appropriate time to point our readers' attention to a new economic theory from our good friends at The Onion:

'Upending more than two centuries of free-market theory, leading economists across the globe announced Thursday that the fundamental principles of capitalism had been "irrefutably disproved" by the continued existence of the designer fruit-basket company Edible Arrangements.

Currency Issues Back in the Forefront

US Treasury Secretary Tim Geithner put currency issues back in focus at a G20 seminar earlier today. In a not-so-thinly veiled jibe aimed at the Chinese hosts of the event, Geithner suggested that many of the currency problems in the world today could be solved without treaties, negotiations or new institutions. Instead, unilateral state decisions to allow currencies to revaluate alone could go some way toward solving imbalances.

At the core of this long-standing dispute is the American notion that a depressed yuan makes Chinese exports cheaper, causing them to be artificially high and thus leading to the enormous trade imbalances that currently exist.

Perhaps it is not an entirely new carrot to be held out in this ever-developing situation, but one thing that has been discussed more openly recently is the inclusion of the yuan in the IMF's Special Drawing Rights, essentially a reserve currency which is exchangeable for its component currencies. China wants to be in the basket that currently includes the dollar, the yen, the euro and the pound. Among other uses, IMF loans are calculated on the SDR interest rate. Inclusion in the basket would be another signal of China's 'arrival' on the global stage. Here is Geithner on this idea in general terms:

Fixing the Immigration Problem in Three Steps or Less

As is so often the case with great debates of any given age, there are a few points in the immigration battle, which, if conceded by either faction, could go some way toward facilitating an armistice. From such a platform of mutual agreement, common sense could take over, dictating the terms of cessation and reconciliation and thus allowing the nation to just get on with it. In the immigration debate, these incredibly simple, only slightly tongue in cheek points (one for each side to confirm the observations of eagle-eyed readers) are as follow:

1. Illegal immigration is illegal - Illegal immigrants differ from legal immigrants in that they are in the country illegally. There are many good reasons to protect borders, the drug war is just one. Using only the eyes and the years for statistical analysis, one can determine that this problem is closer than ever to home. Therefore allowing unfettered access to American soil is a dangerous game. Drug wars and crime aside, until something changes, illegal breaches of borders are breaches of the law. Therefore those who cross illegally should be punished, just like any other scenario where laws are broken in a society where such things are generally frowned upon.

Why this isn't taken for granted - People's strong belief that the 'bring us your...huddled masses' language on the Statue of Liberty plaque supercedes federal statutory law.

Do the Socialists Have it Right?

Blawgconomics is often critical of 'News Entertainment,' the ceaseless ranting of talk radio show hosts and a political discourse which has been boiled down to the most base form of Us v. Them finger pointing. As this brand of politics of course gets higher ratings than the alternative, it is likely here to stay, at least for the forseeable future. What would the alternative be? Historical study. Thoughtful consideration. Philosophical debate. An eye toward the policies and processes of distant shores. Finally looking at contemporary issues through the lens of these analyses and coming to sensible solutions free from the sheep-like following by voters and their representatives of the loudest and most partisan talking heads.

Thought processes such as these are important. Lessons can be learned from the past, and history oft repeats. Political parties, so often beholden to the flavor of the moment, exhibit stark differences in philosophy from one generation to the next, often even flip-flopping on major positions when being pushed around by the political winds. Sometimes 'liberal' and 'conservative' can mean very, very different things depending on starting point, viewpoint, geography and the particular moment in time. Enemies become allies, friends turn to show their backs. Coalitions form and collapse and reform in both of the main senses of the word.

Sometimes when it comes down to the facts behind the rhetoric, opposites have more in common than they think; sometimes the political spectrum is more circular than linear. Some recent observations provide a stunning example of this, one that would be sure to make both sides smile if they could stop to appreciate the irony.

Professional College Athletes

It seems to arise most often when the subjects are most in the spotlight, however, it is never far from the surface. Whether it comes up in response to calls for the plus-one concept or with regards to endless recruitment, memorabilia and agent scandals, it is all the same year after year. And now, in the midst of a very memorable March Madness, Ralph Nader wants to do something about it. In case the clues were not self-evident, the 'it' here is the growing professionalism of collegiate sports and all of the subsidiary problems that go along with it.

Are student athletes more student than athlete? Does it matter? Should students miss finals to participate in bowl games and tournaments? Should they be paid? Why should they even receive full scholarships? Should 17 and 18 year olds be under so much pressure? Why should colleges be able to sign such lucrative television contracts on the backs of students? All are questions posed by either side of the debate. None of them have easy answers, even for those who have put the most thought into such things.

Mr. Nader is calling for, among other things, the elimination of athletic scholarships. It does not seem very likely that he will succeed; the structure he is railing against is one of the most entrenched in all of American culture. However, as the debate rages on, he could provide some additional data points on the topic, and at least get some more people thinking, whether they agree with him or not. At the very least, the ongoing debate provides an endless source of fodder for legal/economics thought pieces... Whoever said the mind of the economist worked in dismal ways?

If They Think Their Positions are Right...

While we are spending some time on George Soros, one of the organizations he funds has created a bit of a media blitz around itself lately. Media Matters, a non-profit launched in 2004, is 'dedicated to comprehensively monitoring, analyzing, and correcting conservative misinformation in the U.S. media.' Fair enough. There is certainly enough misinformation in the U.S. media, both on the left and the right, that vigilance in monitoring the sides' respective media mouthpieces can be useful for the information thirsty public.

However Ben Smith over at Politico has noted that the group has 'quietly transformed itself in preparation for what its founder, David Brock, described in an interview as an all-out campaign of “guerrilla warfare and sabotage”' against Fox. As noted above, the operative 'quietly' has itself recently transformed to 'not so quietly.'

In other words, rather than simply correct what it feels is misinformation, the group plans to actually try to subvert the conservative organization by influencing advertisers and turning regulators against it. All of which begs the question: if they think that their message is better than Fox's, why doesn't Media Matters spend more time talking about it? Instead of serving a valuable service by monitoring news, slanted though its own analysis might have been, Media Matters is now merely the latest addition to the Media Wars problem, and is no better than the wide-eyed pundits it is trying to topple.

Here he Goes Again?

The conservative blogosphere has recently been abuzz about an 'unreported' event being hosted by the George Soros funded Institute for New Economic Thinking. Presumably the negative buzz can be attributed to the fact that Soros has been a vocal critic of the current free market system, a system which opponents point out has enabled him to become a billionaire. He has also discussed his fondness for the Chinese system of capitalism as well as a shakeup of the current world order which would see China and other rising powers have a larger say in the affairs of the UN and other international organizations such as the IMF. All of this is well documented, making Soros a figure of derision among many. However, and though Blawgconomics is no huge fan of Soros, we believe that the criticisms surrounding 'The New Bretton Woods' are a bit overblown.

While it is true that Soros has some radical ideas regarding international economic organizations and the state of international currencies, he is correct that something needs to change. Additionally, with an obvious lack of policymakers, at least among the list of confirmed speakers, the people who would be required to propagate some of Soros' more novel ideas will be conspicuously absent. Finally, even the most ardent conservatives could hardly call the confirmed speakers from the Financial Times and The Wall St. Journal anything but pro-markets. Indeed, though the speaker list inevitably tilts a little further to the left than, say that of Davos might, it is far from obvious that the bulk of the conference would even be on board with some of Soros' wilder notions. Therefore it seems that much the buzz around the conference can mostly be attributed to the fact that Mr. Soros is so polarizing a figure. Details to follow...

A Taste of Irony for the Tea Party Movement

Anger over government intervention in the markets, bailout plans and spending were the main stimuli behind the rise of the Tea Party movement in the US. However despite clear signs that at least some of the electorate is dissatisfied with the current state of affairs, the current US government remains locked in a Keynesian struggle against a faltering economy, attempting to spend its way out of cavernous holes, continuing the trend promulgated under the previous administration. Regardless of which party banner major politicians march under these days, it would appear that austerity is not among the rallying cries of choice. Those truly interested in change as it pertains to government spending are therefore left with figureheads that typically attract more laughter than support outside the circles of those who have lately embraced if not self-proclaimed the appellation 'Teabaggers.'

However, looking beyond the shores of the US, there is at least one role model the party could embrace as a spiritual figurehead; an individual who has put many of the party's own political aspirations and government downsizing fantasies into practice. Someone who, though he has been at times called extreme by some, has gained respect, even if grudgingly so, from political foes in equal measure to that from his allies. In addition, the irony of his London-stamped birth certificate would be delicious enough for even Tea Party members to slyly enjoy. That individual is George Osborne, the current UK Chancellor of the Exchequer in David Cameron's coalition government. For those interested in Osborne, the Financial Times has much more on the 39-year-old aspirant to 10 Downing Street here.

UPDATE: Then again...

Presenting Economic Analysis to Judges

Some time back, we posted a link to an Organisation for Economic Co-operation and Development piece (via the Federal Trade Commission) on presenting economic analysis to judges. Presumably the working drafts we were able to find were written with the still-developing antitrust system in Europe in mind, as much of the antitrust law in the US is well-established and litigation is generally handled by well-versed practicioners.

Despite its focus on competition law, the advice dispensed throughout the document is helpful in general terms, especially for those interested in situations where law and economics intersect. Among other pointers are these three general tips:

First, economic analysis should be fully integrated into the presentation of the case. It generally is counterproductive to treat economic analysis as a separate and discrete element of proof. Second, economic analysis should be fully and carefully explained in terms that are understandable, or a judge is not likely to rely on it. Third, the opinions of economists should be firmly grounded in the models and methods of economics and, when appropriate, be empirically validated. Economists are most persuasive when they do not stray outside their areas of expertise and do not adopt an advocacy posture in particular litigation.

As there has recently been renewed interest in the aforementioned post from Blawgconomics past, we have decided to repost the link to the whole document here.

Determinism, or: Excusing Tax Cheats but Not Murderers...

John Tierney has written an interesting piece in The New York Times related to a recent Science Magazine article discussing determinism and moral responsibility. From the article:

'Suppose that Mark and Bill live in a deterministic universe. Everything that happens this morning — like Mark’s decision to wear a blue shirt, or Bill’s latest attempt to comb over his bald spot — is completely caused by whatever happened before it.If you recreated this universe starting with the Big Bang and let all events proceed exactly the same way until this same morning, then the blue shirt is as inevitable as the comb-over.

1) In this deterministic universe, is it possible for a person to be fully morally responsible for his actions?

Stress Relief, Ivy-Style

Despite the ability to avoid the horrors of grading curves and having about as close to guaranteed employment at graduation as statistically possible, Yale Law students are apparently stressed out. In fact, so much so that administrators decided that they should have access to a therapy dog to help them relax. As part of a pilot plan, the students can check the dog out for 30 minutes sessions along with the latest supplemental reading from the library if they feel that a furry friend will help them to decompress. Notably, therapy dogs are also utilized in disaster areas and with veterans returning from combat.

It is well that canines have a reputation for exhibiting unconditional (even when unrequited) love, but Yalies shouldn't get too used to it; in this job environment it is highly unlikely that these future professors and Supreme Court clerks are going to get similarly fuzzy feelings from any of their peers outside the hallowed halls of New Haven.

The Current Oil Market: Lessons in Supply and Demand

As frequent readers know, we make a habit of posting the International Energy Agency's monthly snapshot of the oil markets. Though we don't otherwise spend a lot of time on individual commodities or other asset classes, we view oil as a special case because so much of what is happening on the economic front around the world is easily framed in petro-terms. When China is growing and demanding oil, prices go up. When growth in the US slows, or when the population shifts from SUVs to hybrids, prices go down. When oil spills happen and supplies lessen due to obvious short-term reasons compounded by longer-term regulatory effects, prices rise. On and on the examples can go, with the oil markets often serving as the perfect case study on both the supply and demand sides as well as the perfect foundation for many of the economic, international affairs, geopolitical and even war stories pundits try to weave.

A quick look at this month's report, released on the 15th, proves once again why oil is such a good subject for supply and demand discussions. Month over month, global demand was essentially unchanged while supply increased. In the simplest way of thinking about supply and demand curves, one would expect prices to remain flat, or even decline, but not to rise under this particular set of circumstances. However pure realtime supply/demand numbers are unfortunately far from the only data points that flow into the oil pricing equation. During the time in question, for example, real questions about future supply were being asked, but not answered, as revolution swept across the dry sands of northern Africa. Fears over military action (well founded as it turns out) had their impact as well.

Global Alcohol Consumption

The World Health Organization (WHO) recently took a crack at figuring out how much alcohol is consumed per capita in its member states. From its web page:

The Global status report on alcohol and health (2011) presents a comprehensive perspective on the global, regional and country consumption of alcohol, patterns of drinking, health consequences and policy responses in Member States. It represents a continuing effort by the World Health Organization (WHO) to support Member States in collecting information in order to assist them in their efforts to reduce the harmful use of alcohol, and its health and social consequences. The report was launched in Geneva on Friday 11 Februray 2011 during the first meeting of the WHO global counterparts for implementation of the global strategy to reduce the harmful use of alcohol.

Alcohol consumption is an important data point for policymakers because, as the WHO notes, 'Harmful alcohol use is one of four common risk factors, along with tobacco use, poor diet and physical inactivity, for the four main groups of noncommunicable diseases (NCDs) – cardiovascular diseases, cancer, chronic lung diseases and diabetes.' As we discussed in our post yesterday, preventable diseases are a tremendous drain on the economy, making education about contributing factors an important policy goal. For the full WHO report, visit here. For a more colorful way to see if your country is one of the booziest on the planet, visit CNBC here.  

Burying Banknotes...

Even with signs of recovery arising from the current economic mudpit like so many fresh green shoots of spring, government spending continues to constitute a very large part of the American economy. In fact as we noted recently, the government provides 35% of the salary and wage benefits in the whole country. Other government spending is represented by the almost ubiquitous 'Brought to you by the American Recovery and Reinvestment Act' signs along the nation's roadways.

Serious and intelligent minds can disagree about whether stimulus packages have been too big or too small and whether there should be more or less government intervention in the economy. But surely there is some reductio ad absurdum regarding government spending which can show that Keynes on steroids isn't the best answer for all economic ills...or is there? Tim Harford of The Financial Times explores the famous example of the government burying banknotes to stimulate private sector activity in an article which is slightly dated, but no less interesting for it, here.

The Cost of Diabetes

One of this morning's guests on C-SPAN's Washington Journal program (see video below) was Dr. Ann Albright, Director of the Division of Diabetes Translation at the Centers for Disease Control and Prevention (CDC). Dr. Albright was on the program to discuss the CDC's recent research paper titled Geographic Distribution of Diagnosed Diabetes in the U.S. in which CDC researchers described what they have dubbed 'the diabetes belt.' The belt is a string of counties stretching over 15 southeastern states where incidence of diabetes happens to be particulalry strong. From the abstract:

'In 2010, data from the 2007 and 2008 Behavioral Risk Factor Surveillance System were combined with county-level diagnosed diabetes prevalence estimates. Counties in close proximity with an estimated prevalence of diagnosed diabetes ≥11.0% were considered to define the diabetes belt. Prevalence of risk factors in the diabetes belt was compared to that in the rest of the U.S. The fraction of the excess risk associated with living in the diabetes belt associated with selected risk factors, both modifiable (sedentary lifestyle, obesity) and nonmodifiable (age, gender, race/ethnicity, education), was calculated.

Make Them Call it a Tax Increase...

As the national debate regarding state deficits continues to rage, at least one commentator has come up with a novel approach to the situation; union supporters should reframe the debate surrounding public employee benefit clawbacks by describing them as tax hikes. Professor Neil Buchanan suggests that by doing so, union supporters would be able to score some easy rhetorical points in their fight against the mostly Republican legislators who are trying to reduce their benefits. Blawgconomics might not necessarily see eye to eye with the good Professor on every facet of the state budget debate. We nonetheless find his article an interesting read, and would recommend it to anyone with an interest in what is destined to be a long-faught battle.

The budget difficulties currently facing almost every state government in the country have led to calls for cuts in public employees' pay and benefits. While the dramatic political standoffs in Wisconsin and Ohio are ultimately not about budget questions, political leaders who are not trying to use budget crises as pretexts to wage a larger political battle against unions are nonetheless calling for cuts to public employees' compensation. For example, Mayor Bloomberg of New York City recently wrote: "If contract terms or labor laws from years past no longer make sense, we the people should renegotiate — or legislate — changes. Benefits agreed to 35 years ago that now are unaffordable should be reduced."

(continue reading at Dorf on Law here.)

A Creative Approach to Unemployment Problems

We recently came across a very interesting idea for an unemployment insurance scheme advocated for by the Mercatus Center at George Mason. The conclusion below (directly from the article) provides a much more concise explanation of both the problems and the solution than we could hope to. Meanwhile the full piece can be found here.

The current recession reveals the inadequacy of the Unemployment Insurance program. In addition to the negative incentives public unemployment benefits create for productivity, job search, and individual saving, unemployment benefits create an economic hazard for states that must replenish trust funds during economic downturns via increased payroll taxes on businesses—which in turn discourages hiring. A better way to provide income security for workers is to establish private Unemployment Insurance Savings Accounts, whereby workers and their employers contribute to the workers’ savings accounts, which they can draw upon during periods of unemployment. By financing their own unemployment funds, workers have an increased incentive to avoid job loss and increase job search efforts. Reducing the payroll tax on employers would increase wages and encourage hiring. The individual employee contribution not only promote individual saving, but also provides greater certainty and fairness, ensuring that all workers receive their portion of the tax currently levied to provide public unemployment benefits.

BRICs Drive Billionaire Growth

Forbes has come out with the latest edition of its annual rich list. Details on the top ten can be found here, while Reuters provides further details on the increase in billionaires hailing from emerging markets in the video below.

Here We Go Again...

One of the best things about the past two years, at least in the opinion of this humble scribe, has been the respite it has afforded from hearing one of my least favorite questions. The question itself can take various forms, but it typically goes something like one of the following: 'Who are you going to vote for/which candidate do you like?' Why this question is so irksome to me has nothing to do with shyness, need for privacy or lack of a desire to chit chat. Rather it has everything to do with the presumptions people make based on whatever answer is provided. Particularly in America's current state of hyper-polarization, people view candidate support as a signal for support of a set of views. This has led to blindly partisan debates and has contributed mightily to the decline of well-reasoned political debate among the citizenry.

The fact of the matter is that hardly anyone in the nation has a representative in congress who advocates for every single position that they hold important. Nor is every president voted in by people who hold their entire platform dear. Many Bush voters were not fans of the Iraq War. Many Obama supporters are not particularly happy with the tax compromise he just made with Republicans. It is almost impossible to find someone who shares all of your views exactly; politics further exacerbates this as realities on the ground often lead to candidates moving away from original positions and promises.

The Role of the Internet as a Walrasian Auctioneer

Many of the presumed 'known knowns' of economics have their underpinning in work produced by economists from the mid-nineteenth to mid-twentieth centuries. That time period is when many of the models that appear in micro- and macro- 101 classes were first constructed and much of what is now termed mainstream economics was developed. One of the leading lights of this time was Leon Walras, a French economist who is probably best known for his contributions to the theory of general equilibrium.

Without taking the time to pen a separate article on general equilibrium theory, it is probably enough for our purposes today to say that it is an attempt to explain how the supplies and demands for all of the goods and services in an economy interact. In other words, rather than merely discussing the supply and demand for a model of car, it contemplates the reality that the supply and demand curves for that product do not exist in a vacuum, but rather depend on the supply and demand for gasoline and competing models as well as things like taxes, import duties, regulations etc. It is an attempt to build a model for something that is nearly impossible; one that factors in all of the tastes of every consumer and the proclivities of every supplier for every product in an economy at any given time while reflexively and continuously adjusting for the continuously adjusting variables of every other input and product.

Government Transfers Making Up Ever-Growing Piece of the American Wage Pie

Smart and well-intentioned people can endlessly debate how much the government should be involved in ensuring a minimum standard of living for its citizens. Some advocate for a system where the government provides for all who need it, others believe that the government shouldn't be involved at all. As a practical matter however, most governments in developed states fall somewhere in between. Whether through programs or more direct payments, such governments provide some level of unemployment assistance and/or retirement income supplementation for citizens. In America, such government transfers are constituting an ever growing proportion of the overall wages and salaries of citizens; 35% to be exact.

If this number does not seem so significant on its own, it is an increase from 21% just 11 years ago and 10% in 1960. It is clear that in addition to 35% being a high historic number in the US in absolute terms, the rate at which government transfers as an overall piece of the pie is growing as well. Some readers might not be troubled by this; indeed some of our friends over in Europe might find 35% to be on the low side. However, whatever philosophical disagreements might exist, everyone should be able to agree that America has done little to plan for this scenario, and that the problems inherent in it will be exacerbated by the strengthening wave of baby boomers entering their retirement years. Unfortunately, at the current trajectory, this appears to be an unsustainable path.

Managing Supply and Demand for Buses

Though there is no direct legal basis for this posting, it still may be of interest to readers who have an interest in the practical mechanisms by which supply and demand function. We have spent a lot of time on supply and demand in the past. And with good reason. The same forces Adam Smith used to describe how markets work going on 240 years ago can be used to explain everything from how oil prices impact decisions to buy SUVs to what billing rates firms can use without losing business. However, such relationships can sometimes be difficult to understand, and can be even more complicated to model. Therefore anytime a simple example using numbers is available, it can be helpful to walk through it step by step and see what lessons can be gleaned.

Megabus is a low cost, long distance bus transportation company with roots in the UK and routes across the US. It advertises as a low-frills service and competes, depending on the route, with everything from other busing lines to the train system and airlines. And with its recent addition and expansion of a direct line to and from Washington DC, it provides a fine real life case study in modeling supply and demand.