Thursday, January 19, 2017

My Spring Semester Has Started

Welcome to any new students. The entries usually have something to do with a basic economic principle that is related to a recent news story. If you want to learn more about me go to Why is college so hard? (you may have to be patient with this site but the article is not long)

If that link is not working try this one

Thursday, January 12, 2017

You Might Have To Swear To Keep That New Job You Just Got

See The Telltale Sign a New Hire Isn’t Fitting In​: Newcomers who stick around and thrive use language styles similar to those of co-workers, researchers say by Joann S. Lublin of the WSJ. Excerpts:
"A team of California researchers" reviewed "10.2 million internal messages" to find this out.

"individuals with low cultural fit had a four-times-higher risk of getting fired after three years.

Researchers scrutinized 64 categories of language style, including curses, expressions of positive emotion and the use of concrete imagery.

Salespeople at the tech firm frequently swore, for instance. New colleagues eager to fit in “had to swear a fair amount in their email,” recalled Sameer B. Srivastava, an assistant management professor at University of California-Berkeley’s Haas School of Business.

By contrast, the study reported, fired recruits “fail to accommodate their colleagues linguistically from the moment they join the organization.’’"

Wednesday, January 11, 2017

How Supply And Demand Have Affected Beef Prices Recently

See Beef prices down — but still lagging cattle price drop. There have been multiple forces over the last couple of years causing supply and demand to shift in both directions at different times. Excerpts:

"With the perfect storm of drought and disease-caused scarcity of not only beef but also chicken and pork now over and foreign demand tempered by the high dollar, U.S. consumers have seen their dollar stretch further at the meat case than two years ago, when beef prices were at record highs."

So with drought and disease over, supply increases pushing price down. The high dollar reduces foreign demand, which also lowers price.

"Although cattle prices may have dropped 40 percent over 2016, consumers haven’t seen that kind of price drop as retailers remain in holdout mode and market forces such as competition with other proteins and global demand remain volatile."

If beef producers are not sure what the competition will look like, they might be betting it is better not to lower prices any more. Same thing with foreign demand. If they think that might come back, then there is no reason to lower prices any more than they have.

"consumers can expect about a 10 percent reduction from 2014 highs of about $6 per pound for beef, but other animal proteins such as chicken or pork still might seem like relative bargains."

"“Pork and chicken kind of ramped up their production very quickly, and then basically we saw a historic downturn in the cattle market,”"

So if supply of pork and chicken go up, then that lowers their prices. Then beef producers have to cut theirs or not raise them.

"“Overall, the retail price of beef in general is currently lower than the price last year at this time,” H-E-B spokeswoman Dya Campos said in an email. “Consumers will see lower prices on beef items, particularly grinds where we have on average 50 cents lower retail prices than last year.”"

"“Although food commodity costs have declined in recent months, certain chain restaurants continue to face a challenging environment, which includes increases in labor costs around the country,” Rob Green, executive director of the National Council of Chain Restaurants, said in an email. “Competitive pressures remain as well, as segments of the industry are facing headwinds resulting from an uneven economic recovery and increasing competition for a consumer’s food dollar.”"

Higher labor costs reduce supply which in turn raises prices. So that might be offsetting some of the price decreases.

"producers,... are ... hoping the new administration will cut trade pacts that are more profitable than the ones Trump criticized on the campaign trail. For example, import tariffs with Japan are now at about 38 percent.

"“As these developing countries, as their economy improves, they all want beef on their plate"

If foreign demand can come back up, that would raise prices

"By way of review, it was weather that caused the 2014 price shock. Prolonged drought had caused pastures to wither across a wide swath of U.S. cattle country, and ranchers were forced to move cattle to whatever green pastures they could find or quickly liquidate their herd."

"The end of the drought led ranchers to start rebuilding. Since it takes roughly two years from pregnant cow to feedlot fattening, no one in the industry was surprised to see supplies rebound by the close of 2016."

So the bad weather reduced supply that caused prices to rise. But then supply increased as the drought ended, helping to lower prices.

"At the same time ranchers were rebuilding, chicken and pork producers were dealing with problems such as porcine epidemic diarrhea and the Midwestern bird flu epidemic that wiped out their stocks."

So if pork and chicken producers saw disease problems, that reduces their supply and raises price. Then beef producers don't have to lower theirs.

"“Pork, once they got all their issues straightened out, they’re able to turn around production in about three months. Chicken can turn their production in around 10, 11 weeks. … All of a sudden we just had these proteins coming in, and I think when you throw that combination together, we just saw prices decline,”"

But then supply increased after the diseases were gone from pork and chicken. So that increases supply and lowers price. Then beef producers have pressure to lower theirs.

"Cattle dropped $34 per hundredweight during 2015, selling for $132 per hundredweight last January. Feedlot operators that were losing $300 to $400 a head on expectations of continued high returns started paying less in 2016, Texas A&M AgriLife Extension Economist Jason Johnson said. That brought 2016’s average down to $124. For 2017, the projections are expected to drop a bit more, to an average of $121."

Tuesday, January 10, 2017

New Book On W. Edwards Deming Mentions My Research

The book is called The Symphony of Profound Knowledge: W. Edwards Deming's Score for Leading, Performing, and Living in Concert by Edward Martin Baker. Deming was a world renown management expert.

It discusses my article "The Calling of the Entrepreneur" on how entrepreneurs are like heroes in mythology. One thing the book says is "Morong's interpretation of the hero myth aligns with Deming's view that joy in work comes from intrinsic motivation, not from the compulsion of extrinsic forces."

A longer version of my article is called The Creative-Destroyers: Are Entrepreneurs Mythological Heroes?

Sunday, January 08, 2017

The Noise-to-signal Ratio as a Metaphor for the Deadweight Loss of Taxes

That is the name of an article of mine that was posted at the "Library of Economics and Liberty" site. Click here to read it. It is an elaboration and expansion on a letter to the editor of the WSJ I had published in 2007. Deadweight loss is a way for economists to show inefficiency of things like taxes and negative externalities. Deadweight loss increases at an increasing rate with taxes, similar to what I said in my letter.

Click here to go to my letter. Or you can read it here.
"Stephen Moore did a great job explaining how complicated our tax code is and how high taxes have gotten relative to what was originally promised in 1913. One other way to see the insidiousness of taxes is to realize that they are just as much the "noise" in the economy as prices are the "signals." The income you get paid is the price for your services and therefore signals the value of those services. But taxes reduce the clarity of that signal (hence, they are noise) by reducing how much of your pay you actually get to keep. As taxes increase, the noise-to-signal ratio in the economy increases even more, meaning distortions, and the misallocation of resources they cause increases disproportionately. For example, if the income tax rate is 10%, you keep 90% of your income. The noise-to-signal ratio is .111 (or .1/.9). But if the tax rate goes up by .10, or to 20%, the noise-to-signal ratio goes up even more, by .15 to .25 since you keep 80% of your income. The .25 comes from .20/.80 equaling .25. Another .10 increase in the tax rate increases the noise-to-signal ratio by .179 from .25 to .429. Then going from a 30% tax rate to a 40% tax rate makes it go up by .238, from .429 to .667. Every tax increase causes increasing damage to the economy's ability to efficiently allocate resources."

Saturday, January 07, 2017

How Parents Might Get Their Kids To Eat Vegetables

Pay them. As economists like to keep saying, incentives matter. See Here’s Why You Should Pay Your Children to Eat Their Vegetables: Study finds short-term cash incentives yield more-healthful eating habits in the long term by Beckie Strum of the WSJ. Excerpt:
"The strategy not only works in the short term, but can create healthful eating habits in children in the long run if the little bribe is carried out consistently for several weeks, according to a study published earlier this year in the Journal of Health Economics.

“As a parent, imagine that there’s something to do that might be worth my effort, and I get the long-term benefit,” says Joseph Price, associate professor of economics at Brigham Young University. He co-wrote the paper with George Loewenstein, professor of economics and psychology at Carnegie Mellon University, and Kevin Volpp, professor of medicine at the University of Pennsylvania.

For a year and a half, the researchers carried out a study of 8,000 children in first through sixth grade at 40 elementary schools to test whether short-run incentives could create better, and lasting, eating habits in children.

At lunchtime, students who ate at least one serving of fruit or vegetable, such as an apple, fresh peaches, pineapple, side salad or a banana, received a 25-cent token that could be redeemed at the school’s store, carnival or book fair.

The researchers saw an immediate spike in consumption, Dr. Price says. “These small incentives produced a dramatic increase in fruit and vegetable consumption during the incentive period,” the researchers wrote. “This change in behavior was sustained.”

Two months after the incentives ended, many more students than before the program started were still eating a fruit or vegetable at lunch. For schools that provided the 25-cent incentive for three weeks, 21% more children were eating at least one serving of fruit or vegetable at lunch than before."

Friday, January 06, 2017

What Brings More Happiness, More Time Or More Money?

Ben Franklin said that time is money, implying that one can be traded for another. You could work a part-time job in addition to your full-time job, for example. You would have more money but less free time.

More money allows you to purchase more goods and services. But if you have to work more, you have less time to enjoy the additional goods you now own. So each of us has to find the mix of free time (leisure time) and goods that makes us happiest.

Anyway, the NY Times had an interesting article on this a few months ago. See What Should You Choose: Time or Money? by HAL E. HERSHFIELD and CASSIE MOGILNER HOLMES. Hal E. Hershfield is an assistant professor and Cassie Mogilner Holmes an associate professor at the Anderson School of Management at the University of California, Los Angeles.

"we found that most people valued money more than time. Sixty-four percent of the 4,415 people we asked in five surveys chose money."

"Is money the right choice? We had also asked our survey respondents to report their level of happiness and life satisfaction. We found that the people who chose time were on average statistically happier and more satisfied with life than the people who chose money.

So money may turn out to be the wrong choice.

But maybe this result simply shows that the people who chose money are more financially constrained and therefore less happy. To check this, we also asked respondents to report their annual household income along with the number of hours they work each week (to measure how much time they have).

We found that even when we held constant the amount of leisure time and money respondents had (as well as their age, gender, marital status, parental status and the extent to which they valued material possessions), the people who chose time over money were still happier. So if we were to take two people who were otherwise the same, the one who chose time over money would be happier than the one who chose money over time."

"more income is positively related to happiness up to a certain point ($75,000, in the United States) and that life satisfaction continues to increase with income beyond that point."

"The people in our studies who chose time over money thought about the resources differently and had different intentions for how they would spend the time or money gained. Unlike those who chose money, who were more likely to be fixated on not having enough, people who chose time focused more on how they would spend it, planning to “spend” on wants rather than needs (e.g., cultivating a hobby versus completing chores at home) and on other people rather than themselves"