Friday, July 08, 2016

The unemployment rate rose to 4.9% in June from 4.7% in May (but other stats show no bad news)

See U.S. Job Growth Roars Back in June: The nation adds 287,000 jobs, the strongest month of hiring since last October, after a disappointing May. From the WSJ.

The percentage of 25-54 year olds employed is 77.8% for June. No change from May. It was 79.7% in December 2007 when the recession started. See Employment-Population Ratio - 25-54 yrs. from the BLS.

The percentage of the population (16 and up) employed is 59.6546% in June and was  59.6286% in May. So that was down slightly. See A-1. Employment status of the civilian noninstitutional population 16 years and over, 1981 to date from the BLS

Tuesday, July 05, 2016

Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:
"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:
Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."
 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:
"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"
The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

Tuesday, June 28, 2016

Maybe ‘regime uncertainty’ slowing the recovery

This was my response to an article by columnist Catherine Rampell. It was printed in the San Antonio Express-News. Click here to read it. Or read it below.

Catherine Rampell says the assessment of our economy having the worst recovery after a deep recession since World War II is highly misleading ("Economic recovery better than you think," June 14). But her column itself may also be misleading.

She does acknowledge the slow growth rates in real GDP since the recession ended. Obama may be the first president not to have at least one year with a real GDP increase of at least 3%.

But in one sense, even though the GDP has grown (however slowly), the economy has not recovered. Right now, only 77.8% of 25-54 year olds have a job, still below the 79.7% in December of 2007, when the recession started.

If we give Rampell the benefit of the doubt, and agree that there has been some recovery, we can focus on why she says it has been so slow. It is because the recession was caused by a financial crisis and such recessions usually result in recoveries with less growth than other recessions.

She gets that from a paper by two respected economists, Carmen M. Reinhart and Kenneth S. Rogoff. They "examined the aftermath of 100 financial crises spanning the past century-and-a-half."

But other economists have looked at this issue and are at least somewhat skeptical that recoveries after financially caused recessions are different from others. Christina and David Romer wrote a paper on this in 2015.

They said, of financially caused recessions, "we find that output declines following financial crises in modern advanced countries are highly variable, on average only moderate, and often temporary."

Christina Romer was Obama’s first chief economic advisor and is now back teaching at the University of California (Berkeley). She is also an acknowledged expert on the Great Depression. David, her husband, is a recognized expert on economic growth.

Ms. Rampell has probably heard of them yet she failed to mention their research on this subject. And the Romers are not the only skeptics of this thesis.

Michael Bordo (of Rutgers University) and Joseph Haubrich (of the Federal Reserve) wrote a paper last year on the topic and concluded that "recessions associated with  financial crises are generally followed by rapid  recoveries." Again, this is not mentioned by Rampell.

If it was not the financial crisis, then what might make our current recovery so weak? It could be a result of economic historian Robert Higgs' concept of "regime uncertainty," the idea that with so many new regulations being enacted, businesses may be afraid to invest, not knowing what initiatives they will be allowed to continue with in the future or what their profit rate might be.

Back in 2011, Scott Baker and Nicholas Bloom at Stanford University and Steven Davis at the University of Chicago analyzed "regime uncertainty" and found it to be a valid thesis. They created an index to quantify uncertainty and concluded "When businesses are uncertain about taxes, health-care costs and regulatory initiatives, they adopt a cautious stance."

If business becomes cautious, that means less investment spending. Which, in turn, can reduce the growth of GDP.

None of this conclusively proves that Rampell is wrong. Showing cause and effect in economics is difficult since there are so many uncontrolled variables and each recession can have its own peculiarities.

But I think that Rampell was wrong to base her opinion only on the research of two economists (Reinhart & Rogoff), even though they are well respected. We need to be open to other valid causes of the slow recovery.

Saturday, June 18, 2016

Domino's & T-Mobile discover there is no such thing as free pizza. Too many took advantage of offer. They ran out

See T-Mobile Ends Free Pizza Promotion as Domino’s Runs Out of Dough by Saad Chandna of Bidness Etc. Why the give away in the first place? Competition: "With AT&T having launched a similar thank you service for its customers, T-Mobile needs to keep the ante up as rival carriers initiate methods to keep their own customers hooked."

Here is the definition of a scarce good I use in my classes:

Scarce-A good or resource is scarce when the amount available is less than the amount people would want if it were given away free of charge.

So pizza is scarce!!

Excerpt from article:

"T-Mobile Tuesdays has provided the un-carrier’s customers with a lot of free goods, but free Domino’s Pizza will not be one of those promotional items anymore

Domino's Pizza, Inc. (NYSE:DPZ) has had to back out of a T-Mobile promotion owing to a demand-supply discrepancy. The un-carrier recently launched its T-Mobile Tuesdays app on iOS and Android in a bid to say thank you to its customers for their loyalty. Among other freebies, T-Mobile offered coupons entitling customers to a free Domino’s medium pizza with toppings. The restaurant chain, however, has been unable to handle the surge in demand every Tuesday, and has now discontinued the service.

T-Mobile US Inc. (NYSE:TMUS) promotions tend to create quite a bit of a brouhaha, and T-Mobile Tuesdays was no exception. The app crashed soon after it launched, as customers rushed to get their hands on free goods. Demand has been so high that it put a strain on Domino’s stores, as they tried to cater to the orders. T-Mobile CEO John Legere acknowledged this in an internal Domino’s memo, saying that the promotion would not be renewed unless a viable solution was found.

The T-Mobile CEO noted in his tweet that the promotion will not be valid on the next Tuesday, June 21. Mr. Legere was appreciative of Domino’s efforts to facilitate the extra orders. According to his tweet, Domino’s sales went up by around three to four times the sales accrued on any given Tuesday, as a direct result of the T-Mobile promotion.

According to TechCrunch, Domino’s appreciated the number of T-Mobile customers who are fans of the pizza chain. However, the restaurant giant had already started capping the number of free pizzas per store, while some T-Mobile Tuesdays coupons were not accepted altogether. This understandably left a lot of customers unhappy."

Thursday, June 09, 2016

Criticizing the selling of Ali's memorial service tickets ignores economic reality

I submitted this to the San Antonio Express-News

At first glance, it might seem awful that some people were selling free tickets they had gotten to Muhammad Ali's memorial service Friday (June 10) in Louisville ("Some trying to profit off funeral," sports, June 9).

An Ali family spokesman said he was "personally disgusted" by this and that Ali "wanted this to be a free event, an event that was open to all."

Another person, who wanted to attend the service, said "The Greatest wanted his funeral to be accessible to everyone." Another fan, who was lucky enough to be given a ticket by someone else who had waited in line said "I'm glad that somebody has a heart out there" (as opposed to those who sold their tickets).

But the arena holding the service only seats 15,000. People started lining up the night before tickets were given out and thousands left empty handed.

That also seems heartless, to have people wait so long and come up empty handed. If tickets were sold for money, that would have been avoided.

Luckily the high temperature in Louisville was only 77 that day. But the next day it was supposed to be 85 and the day after 92. Just imagine what might have happened if people had waited hours in the heat and gotten nothing.

Anytime we don't allow a product to be sold (or sold for its market price)  some other mechanism will allocate goods and services. It could be on a first come, first serve basis, like in this case. That is, who waits the longest gets it.

Or, as happened in Rhode Island in 2006, two police officers used their badges to cut in line to buy the Playstation3 video game. The selling price was not high enough on the first day, so, like in the case of Ali's memorial service, people waited in line all night.

We should not be surprised when people sell "free" tickets. This happened in 2009 when comedian Jay Leno gave away free tickets to unemployed workers in Detroit. Some sold them.

Leno was not happy about this. But he required no proof from recipients that they were actually unemployed. And if a truly unemployed worker sold a ticket, maybe they needed the money more than Leno's jokes.

Free items can end in tragedy. This happened in India in 2004 when a stampede occurred while free saris were being given away. Twenty-one women and children (mostly poor) were killed.

Mr. Ali may have had a noble sentiment by insisting that tickets to his memorial service be free. But "free" items cause problems.

Some people were paid to stand in line. Although tickets might not be sold in those cases, it violates the spirit of what Mr. Ali wanted. But detecting such activity might be difficult.

Paying people to stand in line is common. Lobbyists have paid people to wait in line for them to get a good seat at Congressional hearings. Kathleen Elkins of Business Insider reported last year that there are companies that employ professional line sitters.

This happened up in Austin. People got paid to wait in line at Franklin Barbecue.

Calling the profiteering (selling free tickets) despicable, deplorable and heartless just ignores reality. Supply and demand set a price and when that is ignored, strange things happen.

Right now price controls are causing a human tragedy in Venezuela. The government mandates low prices and businesses can't make a profit. So they have shortages of food and medicine and other essentials. If they only allowed some "disgusting" profiteering, things might be better. 

Here are some related links:

People are paying up to $1,500 for someone else to take their place in line
Franklin Barbecue bans professional line-sitters
Cops in Trouble for PS3 Line-Cutting
Stampede for free saris kills 21 in India
Some looking to profit from free tickets to Ali services

Friday, May 06, 2016

Licensing Laws Are Shutting Young People Out Of The Job Market

By Ben Casselman of 538. Excerpt:
"A week ago, however, the Bureau of Labor Statistics released a trove of new data on licenses — who has them, how much they earn and how they compare to other workers. The numbers are based on a new set of questions added to the monthly Current Population Survey in 2015, so there is no historical information available, but the new evidence is broadly consistent with what the White House and other economists have found: Close to a quarter of workers, 22.4 percent, have a government-issued license, and 25.5 percent have either a license or a privately issued certification. Unsurprisingly, licenses were concentrated in the medical field, where mistakes can cost lives, but even in nonmedical occupations, nearly one in five workers had a license in 2015.1

Licensing rules are a particular problem for young workers trying to break into the job market, especially those without a college degree. The unemployment rate for adults ages 18 to 35 with neither a license nor a college degree was 9.9 percent in 2015; for those with a license (but still no degree), it was 5.2 percent.2 Those who do manage to find full-time jobs earn 13 percent less than those with a license. Good jobs that don’t require a license are scarce, particularly for women: Nearly two-thirds of young women without a license or a degree earn less than $540 a week, roughly two-thirds of the median wage for full-time workers. (For women with a license, about half earn at least $540 a week, in part because women dominate many medical occupations.) Licensing rules don’t explain all or even most of that gap — there are likely other differences between people who have licenses and those who don’t — but they probably do play a role. The earnings gap shrinks, but doesn’t disappear, after controlling for education, occupation and other factors.

Young workers aren’t the only ones affected. Among older workers, the earnings disparities between those with licenses and those without aren’t as stark,3 likely because they have had more time to find their way into a career (and perhaps also because occupational licensing wasn’t as widespread when they entered the workforce). But when older workers lose jobs, licensing requirements can make it hard for them to get back to work, especially if they need to change careers. Workers over 45 consistently face longer spells of unemployment when they lose jobs compared with younger workers; unemployment lasts more than 40 percent longer for those without a license.4

One solution, of course, is for workers without licenses to get them. But state licensing programs are often long and expensive, which can deter low-income workers or those who aren’t yet sure what career they want to pursue. And licenses can be barriers in other ways as well, making it hard for people to move to other states, where their license may not be valid, or to pursue entrepreneurial ideas, which may not fit with licensing requirements.

Both Democrats and Republicans have spoken out against excessive licensing in recent years. But the problem is that the winners from licensing laws are clear, as Josh Zumbrun noted this week in The Wall Street Journal. Particularly for workers without a college degree, a license brings higher earnings and a reduced risk of unemployment. The losers, even though there are probably more of them, are harder to identify. Someone who avoids becoming a hairdresser because of the mandated training, for example, may not think of herself as being a victim of licensing, even if she is. As a result, supporters of licensing have a stronger incentive to defend their interests, making it hard to roll back the laws once they’re in place."

Thursday, April 21, 2016

Are Millennials Buying Cars Again?

See Millennials are finally arriving in the car market by DEE-ANN DURBIN of AP. Excerpt:
"DETROIT (AP) — Millennials were once a source of panic in the auto industry. Dubbed the "go nowhere" generation, they weren't getting driver's licenses, never mind buying cars. Headlines declared it was "The End of Car Culture."

New data suggests at least some of that worry was misplaced. Millennials — especially the oldest ones — are these days buying cars in big numbers. They just had a late start.

Now the largest generation in the U.S., millennials bought 4 million cars and trucks in the U.S. last year, second only to the baby boomers, according to J.D. Power's Power Information Network, which defines millennials as those between 21 and 38 in 2015. Millennials' share of the new car market jumped to 28 percent. In the country's biggest car market, California, millennials outpaced boomers for the first time.

Industry watchers say it's been hard to get a read on millennials because the generation is big and diverse, ranging from recent college graduates to settled-down suburbanites. Automakers were also unsure about the impact of new transportation choices, like ZipCar and Uber, which helped millennials delay car buying. But as they got jobs and started families, millennials headed into car dealerships just like previous generations.

"This whole idea that they're not going to need cars is absolutely ridiculous," said Steven Szakaly, the chief economist for the National Automobile Dealers Association. "The new car buyer age is just happening much later."

It's a very different story from 2010, when millennials — who make up around 30 percent of the population — bought just 17 percent of new cars. Auto executives wondered aloud if the trend would be permanent.

In 2011, a University of Michigan study showed a steady decline in the number of young people getting their driver's licenses. In 1983, the survey found, 87 percent of 19-year-olds had a license. By 2010, that had fallen to 69 percent. Millennials told the study's authors that they were too busy to get licenses and were happy to hitch rides from others.

But there was more to the story. The advent of graduated licensing laws — which make teens practice driving in stages before granting a full license — was one reason millennials were getting their licenses later. An even bigger reason? The economy.

For many millennials, the Great Recession hit just as they were getting their first job or graduating from college. By 2010, millennials' unemployment rate reached 13 percent — four percentage points higher than the national average — according to a report by the White House Council of Economic Advisers. For teens, things were even worse. The teen unemployment rate rose from 15 percent to 26 percent between 2006 and 2012.

Millennials' unemployment rate has improved to around 8 percent. Add low interest rates and low gas prices to the mix and the car market suddenly looks more enticing to young buyers."
Another interesting article is The baffling reason many millennials don’t eat cereal by Roberto A. Ferdman of The Washington Post.