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economic theory Archive

Tuesday

21

July 2009

0

COMMENTS

Law Of Unintended Consequences Strikes Again

Written by , Posted in Energy and the Environment

A study by San Francisco group Quality Planning finds that “owners of hybrid vehicles drive as much as 25 percent more miles than owners of non-hybrids.

They also get more tickets (which follows from driving more miles), are more accident prone, and have higher insurance premiums.

It’s not clear from the description whether or not their was an attempt to control for a possible selection bias in the study.  For instance, the demographics of people inclined to buy hybrids might differ in key characteristics related to driving from the population as a whole.

However, it’s highly unlikely that such a bias, if it exists, could explain a 25% increase.  Basic economics offers a better explanation: when something costs less, people will consume more of it.

Hat tip: The Car Connection (via The Locker Room)

Thursday

9

July 2009

0

COMMENTS

Targeting Speculators, Again

Written by , Posted in Energy and the Environment, Free Markets

The democrats are dusting off an old enemy to trot out as part of their perpetual government circus act.  Oil speculators, come on down!

The Obama administration is also proposing an overhaul of financial regulation that would include tougher capital requirements for big banks, tighter regulation of hedge funds and a new consumer protection agency with broad power to regulate credit cards, mortgages and other consumer lending.

In the case of oil and gas trading, regulators made it clear that they were willing to move, without waiting for Congress to act on Mr. Obama’s overhaul, invoking their existing powers.

The Commodity Futures Trading Commission said it would consider imposing volume limits on trading of energy futures by purely financial investors and that it already has adopted tougher information requirements aimed at identifying the role of hedge funds and traders who swap contracts outside of regulated exchanges like the New York Mercantile Exchange.

It’s not just democrats in on the act, this time.  Gordon Brown and Nicolas Sarkozy teamed up on the pages of the WSJ to call for more government when it comes to oil prices. This line of attack is based on pure economic ignorance.  I’ve responded to it in the past, so this time I’ll just point you to some bigger authorities than myself.

Reason Magazine: Rant: Burn the “Speculators”!
Cafe Hayek: A Win-Win and Oily Speculations
Robert P. Murphy: Oil Speculators: Bad or Good

Saturday

23

May 2009

1

COMMENTS

Incentives (Still) Matter

Written by , Posted in Taxes

Tom Galisano, billionaire owner of the Sabres, is fed up and ready to leave New York.  He tells us why:

I love New York. But how much should it cost to call New York home? Decades of out of control budgets, spending increases and relentless borrowing have made New York simply too expensive.

Politicians like to talk about incentives: incentives for businesses to relocate, incentives to buy local and incentives to make smart decisions. After reviewing the 2009 budget I have identified the most compelling incentive of all: a major tax break immediately available to all New Yorkers. To be eligible, you need only do one thing: move out of New York State.

Modern economic thought provides with a very simple explanation: incentives matter. Russel Roberts on incentives:

…Incentives matter. The most famous example in economics is the idea of the demand curve—when something gets more expensive, people buy less of it. When it gets less expensive, people buy more of it.

Some find this bedrock principle of economics hard to accept, based on introspection. “When the price of gas goes up, I still buy gasoline,” says the skeptic. Or in its more extreme form: “You need gasoline, so people will keep buying it even when it gets more expensive.”

You may still buy gasoline when it gets more expensive. But you will try and find ways to buy less. Not necessarily zero, less.

For the wealthy, the price of living in New York has just gone up.  The predictable consequence is that there will be less wealthy people choosing to “purchase” the privilege to live there.

Thursday

14

May 2009

0

COMMENTS

When Empowerment Becomes Racism

Written by , Posted in Economics & the Economy, Identity Politics

First, the story:

It’s been two months since 2-year-old Cori pulled the gold stud from her left earlobe, and the piercing is threatening to close as her mother, Maggie Anderson, hunts for a replacement.

It’s not that the earring was all that rare—but finding the right store has become a quest of Quixotic proportions.

Maggie and John Anderson of Chicago vowed four months ago that for one year, they would try to patronize only black-owned businesses. The “Empowerment Experiment” is the reason John had to suffer for hours with a stomach ache and Maggie no longer gets that brand-name lather when she washes her hair. A grocery trip is a 14-mile odyssey.

…So far, the Andersons have spent hundreds of dollars with black businesses from grocery stores to dry cleaners. But the couple still hasn’t found a mortgage lender, home security system vendor or toy store. Nonetheless, they’re hoping to expand the endeavor beyond their Chicago home. Plans are under way to track spending among supporters nationwide and build a national database of quality black businesses. The first affiliate chapter has been launched in Atlanta, and the couple has established a foundation to raise funds for black businesses and an annual convention.

There are two aspects of this story that are worth discussing.  The first is a question I’ve seen raised about the behavior of this couple.  Specifically, whether or not their plan is racist.  I believe it is.

Discrimination on the basis of race is a definition of racism.   While discrimination is often used synonymously with only its negative forms, its meaning is much broader. Discrimination is a part of every day life. In fact, we could not function without it. When choosing which store to shop at, one is discriminating based on a range of (mostly economic) criteria. How good is their product compared to other stores? How much does it cost? How close is their store to me? But if the answer to the question, “what race is the owner,” is a determinant of your decision, you are now discriminating on the basis of race, which meets the aforementioned criteria for racism.

Whether or not the intention is to do harm to other races is irrelevant in this case; the process itself is racist.  It’s important to keep in mind that not all racism is created equal.  I am in no way making an equivalence between their choosing to patron only stores owned by blacks and other forms of racism seen over the years.  Their racism is not born out of hatred, but misplaced good intention.  This brings me to my second point: parts of their plan are economically foolish and will do little to help blacks, though other parts are much better.

Shopping at only black owned stores does significant economic damage to themselves and no real good for the black community as a whole.  They are helping neither themselves nor their community. Ethnic protectionism makes no more economic sense than national protectionism.

They are willfully lowering their purchasing power and standard of living, and by making decisions based on non-economic criteria, they make it more likely that their local economy, and the larger economy as a whole, will be less productive and/or efficient. If every ethnic group followed this idea, it would have drastic negative economic consequences for themselves and even those outside their group. It makes no sense for small minorities to try and reinvent the wheel in every industry. It makes no sense for any group to do it, but it’s more harmful the smaller a group is, as it means comparatively less for them to make use of.

Choosing to patron only black-owned stores is a bad idea both socially and economically, and it does nothing to address the root problems in the black community.

Sunday

15

March 2009

0

COMMENTS