Saturday, November 25, 2006

Price Gouging for Christmas Toys?

From today's WSJ, an article about a new "crisis": toymakers who are wrecking Christmas by "price gouging" for some toys:

"As the holidays approach, a crisis has gripped America. Stores are running out of toys. Shoppers are waiting in lines for hours, sometimes days, to get items like the Play Station 3. Worse, the 10th-anniversary edition of the Tickle Me Elmo doll is almost nowhere to be found. In many communities, this "must buy" Christmas item for toddlers can only be purchased at a high price -- or it cannot be purchased at all. The going rate for Elmo has risen from $39.95 to $100, while PS3s are now selling for up to $3,000 on eBay. Who's to blame for wrecking Christmas?

Columnist Stephen Moore writes, "The price-gougers, that's who. Congress has investigated oil companies for high gas prices and pharmaceutical companies for high drug prices. Why let the toymakers off the hook?"

Stephen Moore then imagines:

"Mr. Dingell says that he will hold hearings early next year and will ask the CEOs of the Big Three toy producers to appear before his committee. A Democratic staffer notes: "Perhaps if these toy executives didn't command $50 million salaries, they wouldn't have to charge middle-class families hundreds of dollars for their toys."

Ms. Pelosi said that the House will consider enacting a windfall-profits tax on toy producers as part of "our first 100 hour agenda." On a trip to New Hampshire, Sen. Hillary Clinton stated that she would go further and form a commission to investigate the feasibility of a government takeover of the toy industry as a way to slow "the stampeding cost of dolls and computer games and to make toys affordable to every family in America regardless of income."

Lou Dobbs devoted all of his CNN show last night to the swirling toy scandal. "It's just another example of corporate America's war against the middle class," he said. "We are quickly turning into a nation of Tickle Me Elmo haves and Tickle Me Elmo have-nots."

MP: Actually Sony Playstation 3s are selling for up to $20,000 on Ebay -
check out this sale on Ebay for $20,000 + $65 shipping!!, here is another Ebay listing that sold for $14,900.

Actually even though he was writing "tongue-in-cheek," I think Steven Moore has it backwards. The real question is NOT "Why is Sony price-gouging?" but "Why is Sony selling a product for only $600 when the true market value is, let's say $10,000?" In other words, it seems like Sony could actually be more accurately accused of "predatory pricing" or "dumping" PS3s, and NOT price-gouging! The $600 price is obviously WAY BELOW the market clearing price, which then creates the secondary market on Ebay for something closer to the real market price. It seems like Sony is engaging in a tremendous act of charity (corporate social responsibility?) by almost giving away its PS3s this holiday season.

From economist
Steven E. Landsburg: "The curse of thinking like an economist is that you're perpetually baffled by things that everyone else finds completely obvious. Why, for example, is it nearly impossible to get tickets for a hit Broadway show like The Producers? Surely the producers of The Producers are not out to avoid making money. If they predictably sell out at $100 a seat, why don't they charge $150 or $200 or whatever it takes to reduce demand down to the theater's capacity?"

Likewise, Sony is not out to avoid making profits, so why not sell PS3s for the market price, instead of below? Maybe it should cut out the stores and go directly to Ebay?

Friday, November 24, 2006

Economic Growth Will Continue in 2007

The Conference Board's index of leading economic indicators headlined a light week of economic news, due to the Thanksgiving holiday. The index inched higher in October, following an upwardly revised increase in September, to post its first consecutive monthly gains this year.

The Conference Board's gauge of how the economy will perform over the next three to six months rose 0.4 percent, more than forecast, following no change in September. Fewer initial jobless claims, improving consumer confidence, rising stock prices and a jump in building permits paced the increase.

Consumers are benefiting from the drop in fuel prices that is making their paychecks stretch further. Average weekly wages adjusted for inflation rose 3.2 percent in the year to October, the biggest gain since February 1998, the Labor Department reported last week.

Economic data showing weak housing and tepid retail sales prompted investors to raise bets late last week that the Federal Reserve will reduce interest rates next year. Interest-rate futures on Nov. 17 suggested traders see a 40 percent chance central bankers will cut their target rate for overnight loans between banks to 5 percent in March from 5.25 percent. The odds were 11 percent on Nov. 16.

Apostrophe Abuse

CD's or LP's from the 1980's? No, CDs or LPs from the 1980s. Pizza at it's best? No, pizza at its best.

What's with the growing misuse of that puny piece of punctuation, the apostrophe? The
Apostrophe Protection Society was established in 2001 in the UK, with the specific aim of preserving the correct use of this currently much abused punctuation mark in all forms of text written in the English language.

The rules concerning the use of the apostrophe in written English are very simple:

1. It is used to denote a missing letter or letters, for example:
I can't, instead of I cannot.

2. It is used to denote possession, for example:
The dog's bone. But the exception is that that the possessive form of it does not take an apostrophe any more than ours, yours or hers do, e.g. "The bone is in ITS mouth."

3. Apostrophes are NEVER, ever used to denote plurals! Common examples of such abuse (all seen in real life!) are:

"Banana's for sale," should be "Bananas for sale."
"Menu's printed to order," should read "Menus printed to order."
"1000's of bargains here!" should read "1000s of bargains here!"
"New CD's just in!" should read "New CDs just in!"
"Buy your Xmas tree's here!" should be "Buy your Xmas trees here!"
"Growth in the 1980's," should be "Growth in the 1980s."

See Arianna Huffington's article "America's apostrophe catastrophe. What's with the growing misuse of that puny piece of punctuation?"

"Think of it as the literary equivalent of the broken-windows theory of crime fighting, which holds that by fighting small quality-of-life crimes like graffiti and vandalism, police send a persuasive message that antisocial behavior, of any scale, will not be tolerated. In this case, putting an end to the chronic misplacement of apostrophes could eventually lead to a better-educated populace, a greater sense of harmony and order, more fuel-efficient cars, a slimmer, trimmer you, cleaner air, an end to the heartbreak of psoriasis, the cancellation of "The Bachelor," and, who knows, maybe even world peace."

More on Corporate Social Responsibility

From today's WSJ, an article by Henry Manne, Dean Emeritus of George Mason University Law School, titled "Friedman Was Right," about CSR (corporate social responsibility):

Milton Friedman famously declared that the sole business of the managers of a publicly held corporation was to maximize the value of its outstanding shares. Any effort to use corporate resources for purely altruistic purposes he equated to socialism. He proposed that corporation law should prevent managers from straying off the reservation to join the altruists, a power now almost universally granted them by state legislation.

Now I realize Friemdan was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property -- in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals' private investments into assets affected with a public interest. And once these corporate behemoths are "affected with a public interest," they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state. This attitude is reflected not merely by corporate activists, but by many "modern" corporate managers.

Like the citizens who were afraid to tell the emperor that he was naked, no responsible business official would dare contradict the notion of CSR publicly for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts. This is especially so in large-scale retail businesses like Wal-Mart or Coca-Cola or BP that are highly vulnerable to organized public criticism. Our laws against extortion do not function effectively when it comes to corporations. And so to some extent these private entities have indeed, via the social responsibility notion, been converted into crypto-public enterprises that are the essence of socialism. Milton Friedman was right again.

Who Gives More: Liberals or Conservatives?

From a new book by Syracuse University professor and behavioral economist Arthur C. Brooks, "Who Really Cares? America's Charity Divide - Who Gives, Who Doesn't and Why it Matters:"

The conventional wisdom runs like this: Liberals are charitable because they advocate government redistribution of money in the name of social justice; conservatives are uncharitable because they oppose these policies. But note the sleight of hand: Government spending, according to this logic, is a form of charity.

Let us be clear: Government spending is not charity, because it is not a voluntary sacrifice by individuals. Because government spending is not charity, sanctimonious yard signs do not prove that the bearers are charitable or that their opponents are selfish.

To evaluate accurately the charity difference between liberals and conservatives, we must consider private, voluntary charity. How do liberals and conservatives compare in their private giving and volunteering? Beyond strident slogans and sarcastic political caricatures, what, exactly, do the data tell us?

An analysis of 15 sets of data tell us that the conventional wisdom is dead wrong. In most ways, political conservatives are not personally less charitable than political liberals—they are more so. Here is what the data show:

1. Conservative households gave, on average, 30 percent more money to charity than liberal households, within every income class, from poor to rich.

2. Conservatives were more likely to donate blood each year, and did so more often, than liberals. If liberals gave blood at the same rate as conservatives, the blood supply in the United States would jump by 45 percent.

3. Compared to liberals, conservatives were more than twice as likely to volunteer to help the poor.

Here a few links to articles about the book:

Religion News Service.

American Enterprise Institute.

Scientific American.

Why Do Movie Theaters Have Uniform Pricing?

Here's a puzzle: Why do movie theaters charge the same $9.50 for "Casino Royale" this Saturday night that they charged for the disappointing remake of "All the King's Men" on a Wednesday night in the middle of September?

Wouldn't they sell more tickets and popcorn, and make more profit, if they increased the price when demand is high, and lowered it when demand is low? (MP: That is, why don't they practice price discrimination instead of uniform pricing.)

After all, hotels and airlines have long varied pricing by day and season. And you'd think it odd if Macy's charged the same for a cashmere sweater as one made from a polyester blend. Yet the movie industry, facing flat or declining revenues, clings to a uniform pricing model that makes no sense.

Business columnist Steven Pearlstein tries to explain the puzzle of uniform pricing of movies in
today's Washington Post.

Thursday, November 23, 2006

Econ Bloggers: Slide-Rule Celebrities

Marginal Revolution mentions an article from today's LA Times Business Section, about how "economists who author blogs are drawing fans who see nothing dismal about the discipline." The article features the blog Marginal Revolution (Tyler Cowen and Alex Tabarrok at George Mason), and blogs by Nobel laureate Gary S. Becker and federal appeals court judge Richard A. Posner, former Harvard President Lawrence H. Summers, Harvard economist Greg Mankiw, and Chicago economist Steven Levitt (co-author of Freakonomics).

From the article:

Econo-fans are responding, Becker figures, because the blogs put important pocketbook issues into understandable language. Whereas former Federal Reserve Chairman Alan Greenspan had "Greenspeak" — the carefully convoluted jargon whose comprehensibility rivaled that of Klingon — the blogs connect economics to daily life.

"Most people are afraid of economics. It seems so technical," Becker said. "But what is surprising is that if you put economics in a simple enough phrase, people are very much interested in it."


Thankful for the Invisible Hand

You probably didn't call your local supermarket ahead of time and order your Thanksgiving turkey this year, did you? Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up "unannounced" at the store to select your turkey.

And the reason your turkey was waiting for you? Because of "spontaneous order," "self-interest," and the "invisible hand" of the free market - "the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many." Even if it is because of the "selfish greed" or "corporate greed" of turkey famers and/or supermarkets, it works for me.

Boston Globe columnist Jeff Jacoby explains below why he is thankful for the miracle of the invisible hand that makes turkeys automatically available so efficiently for consumers at Thanksgiving:

"The activities of countless people over the course of many months had to be intricately choreographed and precisely timed, so that when you showed up to buy a fresh Thanksgiving turkey, there would be one -- or more likely, a few dozen -- waiting. The level of coordination that was required to pull it off is mind-boggling. But what is even more mind-boggling is this: No one coordinated it.

No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn't have to do anything but show up to buy it. If that isn't a miracle, what should we call it?

Adam Smith called it "the invisible hand" -- the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy *is* planned, the more it is plagued by shortages, dislocation, and failure."

Jeff Jacoby's article here.

As economist Steven Landburg wrote in "Armchair Economics" about the invisible hand: "It is something of a miracle that individual selfish decisions lead to a collectively efficient outcomes."

More Competition for Big Three, From India

From the NY Times, an article "Indian S.U.V. Maker Plans to Enter United States Market":

India’s leading sport utility maker plans to sell its S.U.V.s and pickup trucks in the United States, bringing Indian-made vehicles to the United States for the first time. Mahindra plans to initially introduce a sport utility vehicle and a pickup. A diesel-electric hybrid version of the S.U.V. would follow. The hybrid, the first of its kind to be built in India, has just been developed.

Mahindra & Mahindra plans to sell its vehicles through Global Vehicles U.S.A., a distributor based in Alpharetta, Ga. Global would import the first group of the Indian vehicles in about a year and distribute them through a dealer network. The distributor said it had signed on 130 dealers so far and would add another 70 in the coming months.

Wednesday, November 22, 2006

Consumer-Employee Greed, Blue Collar Crime?

We hear a lot about "corporate greed" and "greedy CEOs," but what about "consumer greed" and "worker greed"? Seems like a lot of shoppers and employees just can't keep their hands off the property owned by "greedy" corporations where they shop, or for whom they work.

U.S. retailers lost some $37.4 billion to theft last year (about $100 million per day), and employee theft remained the biggest source of losses for retailers. Overall, theft by employees, shoplifting, vendor fraud and administrative error amounted to 1.6 percent of retailers' sales in 2005, up from 1.54 percent the year before, marking the first time in four years that the rate has increased.

Read more here.

Read my article "What About Consumer Greed?"

Like Unemployment, Being Uninsured is Temporary

From today's Detroit News, an article by economist John Goodman titled "Myths Pump Up Ranks of America's Uninsured," here are some excerpts:

About 47 million Americans lack health insurance, according to the most recent Census Bureau report. But this figure is misleading, because almost every poor person in America is eligible for the federal Medicaid program, and millions of near-poor adults can enroll their children in a state children's health insurance program.

To call such people "uninsured" is a misnomer. We have been assuming the 47 million number is meaningful, but it isn't. Other government reports suggest the true number is as little as half that size. Like unemployment, the condition of uninsurance tends to be temporary. Of those uninsured at any point in time, 75 percent will become insured within 12 months.

Read the entire article here.

Free Trade Works

From today's WSJ:

"Free trade is the most important single way to promote growth," Milton Friedman said in an interview a few weeks before his death. Simply put, markets and free trade work. For example:

A recent Global Insight analysis concludes that Wal-Mart's 1985-2004 expansion of sales resulted in a 9.1% drop in the price of food, a 4.2% drop in the price of other goods and commodities, and a 3.1% decline in consumer prices overall, saving the average working family about $2,329 per year. And with that came a net increase of 210,000 Wal-Mart jobs in 2004 alone.

The North American Free Trade Agreement has expanded total trade between the U.S, Canada, and Mexico by 172%. U.S. exports to Mexico have grown by 189% and to Canada by 111%. U.S. agricultural exports to Canada have doubled, to $10.6 billion from $5.3 billion, and to Mexico even more--to $9.4 billion from $3.6 billion. More than one million jobs were created in America by NAFTA.

Overall, 10.4% of the U.S. GDP in 2005 is the result of U.S. exports of goods and services. The Peterson Institute says that globalization boosts the U.S. economy $1 trillion annually, or about $10,000 per household. There is no question that trade both increases jobs in some areas and decreases them in others, both internationally and domestically. When cars replaced carriages, computers replaced typewriters, and E-ZPass replaced toll-takers in America, some jobs were lost and other were gained.


Tuesday, November 21, 2006

College President Salaries!!

College president salaries approach $1m per year, and $500,000 is now very common, is that excessive CEO pay?

Detroit News article.

Chicago Sun-Times article.

Audrey K. Doberstein, retired president of Wilmington College in Delaware, topped the list with a compensation package totaling $2.7 million; much of it represented one-time payments upon her retirement.

Doberstein was followed by Donald E. Ross, retired president of Lynn University in Boca Raton, Fla., ($1.3 million) and Vanderbilt's E. Gordon Gee ($1.2 million).

David P. Roselle of the University of Delaware is the highest-paid public university president this year, receiving $979,571 in pay and benefits.

He is followed by Purdue University's Martin C. Jischke ($880,950), Mark A. Emmert of the
University of Washington ($752,700), and J. Bernard Machen of the University of Florida ($751,725).

Monday, November 20, 2006

Free Trade = World Peace

From today's Christian Science Monitor, an editorial by economist Don Boudreaux at George Mason:

When commerce reaches across political borders, the peace-promoting effects of economic freedom intensify. Why? It's bad for the bottom line to shoot your customers or your suppliers, so the more you trade with foreigners the less likely you are to seek, or even to tolerate, harm to these foreigners.

Senators-elect Sherrod Brown (D) of Ohio and Jim Webb (D) of Virginia probably don't realize it, but by endorsing trade protection, they actually work against the long-run prospects for peace that they so fervently desire.

Sunday, November 19, 2006

Tax Facts

From the most recent report from the Congressional Budget Office:

1. Corporate income tax revenues almost doubled over the last two years, from $189 billion in 2004 to $354 billion in FY 2006.

2. Corporate income tax receipts rose by 27.2% from FY 2005 to FY 2006.

3. Individual income tax revenues increased by 12.6% in 2006 to more than $1 trillion, the highest level in US history.

4. The budget deficit, as a percent of GDP, fell to 1.9% in FY 2006, the lowest level in 4 years, and well below the average of 2.3% since 1965.

Ethanol Recipe: Mix Corn with Tax Dollars

From an article by Professors David Pimtell (Cornell) and Tad Patzek (UC-Berkeley) in the current issue of BioScience (American Institute of Biological Sciences):

Our up-to-date analysis of the 14 energy inputs that typically go into corn production and the 9 invested in fermentation and distillation operations confirms that 29 percent more energy (derived from fossil fuels) is required to produce a gallon of corn ethanol than is contained in the ethanol. Ethanol is a bad choice from an energy standpoint. (MP: In other words, there is a net energy loss from producing ethanol, and it doesn't make economic or scientific sense to produce it.)

Moreover, the environmental impacts of corn ethanol are enormous. They include severe soil erosion, heavy use of nitrogen fertilizer and pesticides, and a significant contribution to global warming. In addition, each gallon of ethanol requires 1700 gallons of water (mostly to grow the corn) and produces 6 to 12 gallons of noxious organic effluent.

Using food crops, such as corn grain, to produce ethanol also raises major ethical concerns. More than 3.7 billion humans in the world are currently malnourished, so the need for grains and other foods is critical. Growing crops to provide fuel squanders resources; better options to reduce our dependence on oil are available. Energy conservation and development of renewable energy sources, such as solar cells and solar-based methanol synthesis, should be given priority.

Read more here.