Farmers In Argentina Protest In Favor (not against) Free Trade

Argentina is taxing the export of food. That makes it harder for farmers to sell their goods overseas. They will, on net, get less for what they sell. So they are blocking traffic as a protest. Maybe the government wants to keep food in the country to make sure everyone has enough to eat. But if farmers make a lower profit due to the tax, then they will have less incentive to grow food. That is the opposite of what the government probably intended. The article is called Argentine Farmers Restore Roadblocks After Talks With Officials .

Don't Like The Price Tag At The Store? Try Haggling

There was an interesting article on this in The New York Times last Sunday. It was titled Even at Megastores, Hagglers Find No Price Is Set in Stone. Here is the intro:

"Shoppers are discovering an upside to the down economy. They are getting price breaks by reviving an age-old retail strategy: haggling. A bargaining culture once confined largely to car showrooms and jewelry stores is taking root in major stores like Best Buy, Circuit City and Home Depot, as well as mom-and-pop operations. Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing. The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable."

Basketball on Office Monitors Madness for Business

Here was a brief item at the Internet Movie Database. The NCAA basketball tournament will cause lost productivity since people will be watching at work. Also, with so many people watching on their computers at work, servers might crash.

"A leading business consultant has predicted that CBS's online "March Madness On-Demand," in which it is streaming all 63 final college basketball games free, will cost American businesses about $1.7 billion in lost productivity. Rick Cobb, a vice president at business consultants Challenger, Gray & Christmas, told Newsweek magazine that the estimate is based on the number of workers known to participate in office pools and CBS's figures showing that 1.4 million unique online viewers watched on average 1.9 hours of its coverage last year. Predicting that that number will rise substantially this year, Cobb said another source of lost productivity could be office servers unable to deal with demands for the webcasts -- and crashing. "When servers go down, most people want to head home," he observed."

Capitalism Has Entrepreneurs And The Soviet Union Had "Expediters"

In capitalism, alot of market activity is driven by entrepreneurs who start new businesses, create new products and innovative technologies. They see an unmet need and try to fill it. This makes the whole system work better.

But what if you have a planned or command economy? The government decides what needs to be produced and how much. The government also had to make sure the factories got all the resources they needed to produce the quantity of goods they had been told to produce. But having a plan that worked, so that each factory got exactly the resources it needed, no more no less, was practically impossible.

So how would a factory manager get what he needed? He would send an expediter. They would bribe or bargain the producers of needed resources to get what the factory needed. This article has a good description.

"Suppressing a market is a bit like squeezing a balloon—the trade will usually pop up somewhere else. The Soviet Union was full of markets. The factory in north Vladivostok would be allocated too much sheet metal but not enough coal. The factory in south Vladivostok had the reverse problem. Both factory managers would ask for extra resources, but in the command-and-control system the incentive was to ask for more of everything, with little hope of success. So, the managers would quietly, and illegally, do a deal with each other. Professional expediters would be sent out to barter for scarce inputs, and the informal market reached a high level of sophistication."

Economist Robert Heilbroner also has a good explanation of this. It is from his article Socialism.

"Through the sixties the Soviet economy continued to report strong overall growth—roughly twice that of the United States—but observers began to spot signs of impending trouble. One was the difficulty of specifying outputs in terms that would maximize the well-being of everyone in the economy, not merely the bonuses earned by individual factory managers for "overfulfilling" their assigned objectives. The problem was that the plan specified outputs in physical terms. One consequence was that managers maximized yardages or tonnages of output, not its quality. A famous cartoon in the satirical magazine Krokodil showed a factory manager proudly displaying his record output, a single gigantic nail suspended from a crane.

As the economic flow became increasingly clogged and clotted, production took the form of "stormings" at the end of each quarter or year, when every resource was pressed into use to meet preassigned targets. The same rigid system soon produced expediters, or tolkachi, to arrange shipments to harassed managers who needed unplanned—and therefore unobtainable—inputs to achieve their production goals. Worse, in the absence of the right to buy their own supplies or to hire or fire their own workers, factories set up fabricating shops, then commissaries, and finally their own worker housing to maintain control over their own small bailiwicks."

Report Says We Won't Have A Recession This Year

The article is Economy weak but not enough for recession: report. A recession means that we have two straight quarters of falling real GDP (a quarter is 3 months). But this forecast says that real GDP will grow 1.5% this year (even though it is projected to fall for one quarter). Unemployment is projected to be 5.3% this year and 5.6% next year. This not good news, but 5.6% is well below the average unemployment rate of the 1970s as well as the 1980s (6.21% & 7.27%, respectively). But if oil keeps going up (now $108 per barrell), we could have stagflation, meaning rising inflation at the same time we high have unemployment.

Get Around A Ban On Smoking In Bars By Turning Your Patrons Into Actors

Not kidding. This is going on in Minnesota. Read Theater of the absurd: Minnesota bars thwart smoking ban by declaring everyone an actor. Here is an exerpt:

"A new state ban on smoking in restaurants and other nightspots contains an exception for performers in theatrical productions. So some bars are getting around the ban by printing up playbills, encouraging customers to come in costume, and pronouncing them “actors.”"

This reminds me of the law of Unintended Consequences. It says

"The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or "unintended." Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it."

"For instance, the United States has imposed quotas on imports of steel in order to protect steel companies and steelworkers from lower-priced competition. The quotas do help steel companies. But they also make less of the cheap steel available to U.S. automakers. As a result the automakers have to pay more for steel than their foreign competitors do. So policy that protects one industry from foreign competition makes it harder for another industry to compete with imports."

What An Economist Said About The Movie "A Beautiful Mind"

In one of my classes this week we played "The Prisoner's Dilemma" game. The subject of the movie "A Beautiful Mind," the mathemetician John Nash, was an expert in game theory. To see what this game is about click here. It is another blog entry which has links to sites which explain a little about game theory. The economist Steven Landsburg reviewed the movie in the Wall Street Journal. That review was title "Mindless". Landsburg explains that the bar scene really does not disprove Adam Smith's idea of the Invisible Hand.

In Poland, It Is Death OR Taxes

To see the original story, click here. Here is the story from the Washington Post:

"Once you've been declared dead in Poland, it's not easy to convince officials that you're alive and well.

Piotr Kucy, 38, was listed as having drowned last summer. When he learned of the mistake, Kucy notified government officials. But he is still listed as dead in government files, which prevents him from working and having health insurance.

"This citizen does not exist," a Polish official said of Kucy.

On the bright side, he doesn't have to pay taxes."

Is There Economic And Political Meaning In "The Wizard of Oz?"

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor. Below is an exerpt:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."