Wednesday, September 29, 2010

An Idea For A New Kind Of College: Where All The Professors Have Two Master's Degrees Instead of Ph. D.'s To Foster Interdisciplinary Learning

At this new college, professors would not have Ph. D.'s but two master'sdegrees. For example, in the economics department, everyone would, of course, have a Master's degee in that field. But one professor would also have a master's in history, another psychology, another anthropology, another sociology, etc. Then everyone in sociology would have a master's in that field but each professor would also have a master's in another field like in economics. Every academic department at the school would be like this.

Obviously not all schools can be like this. But if we had just a few schools like this, they could attract some unique and curious students. They could be a whole new type of idea incubator. Just imagine if some wealthy person like Bill Gates were to fund a college like this. Then he would announce it would open in a few years. It would give current professors all a chance to get that second master's degree. People still in graduate school could go for that 2nd master's instead of getting a Ph. D.

The new faculty would have an incredible sense of mission. Maybe alot of young graduate students would want to teach at the new school and they would bring enthusiasm and the latest thinking in their fields.

Teachers would teach regular classes but they would would contsantly enrich their lectures with what they know from other fields. Students would get interested in inter-disciplinary research early on and if they wrote a senior thesis, it would be inter-disciplinary. Guest lecturers and public speakers would be experts doing cutting edge inter-disciplinary research. Think of the clubs students could form. It would be a whole new way of learning and a whole new educational experience. It could revolutionize education.

Sunday, September 26, 2010

Cuba to cut 500,000 gov't workers, reform salaries

Click here to read the story. Here is the first paragraph:

"Cuba announced Monday it will cast off at least half a million state workers by early next year and reduce restrictions on private enterprise to help them find new jobs — the most dramatic step yet in President Raul Castro's push to radically remake employment on the communist-run island."

This is about 10% of the labor force and currently, 95% of the labor force works for the government. I had a post about a month ago called Cuba Allows Some Market Reforms. It will be interesting to see how this all works out and how much freedom the government actually allows. Cuba is usually one of the examples I site when I talk about command economies on the first day of the semester.

Friday, September 24, 2010

An Entertaining Economics Music Video

That may sound hard to believe, but it is fun. Go to "Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem. It shows the opposing views of two economists, John Maynard Keynes, who tended to think that the government needed to guide the economy, and FA Hayek, who tended to think that the government should just let markets work. That may be too simplfied, but I just want to give the general idea. (Hat Tip: Ryan Castro).

Here are links to good articles about each economist:



Wednesday, September 22, 2010

NBER Says The Recession Is Over!

It ended in June 2009, according to the National Bureau of Economic Research. See Recession Over in June 2009 from the Wall Street Journal.

Click here to see a video of the announcement that the recession is over. You need to see this to get the full story.

Click here for more important and essential information on this issue. You also need to read this to get the full story.

Sunday, September 19, 2010

Another Cost Of A Cleaner Environment: Dirtier Dishes

Economics tends to stress that life is full of tradeoffs. If you want to go to more Spurs games, you might have to go to fewer movies. If you want to eat more hamburgers, you might have to eat less pizza.

Now, an attempt to clean the water might mean dishes that aren't as clean as we would like. See the New York Times article Cleaner for the Environment, Not for the Dishes. Here is what happened:
"Responding to laws that went into effect in 17 states in July, the nation’s detergent makers reformulated their products to reduce what had been the crucial ingredient, phosphates, to just a trace."

So when people put their dishes in their dishwashers, they don't get as clean as they used to. The phosphates "...have long ended up in lakes and reservoirs, stimulating algae growth that deprives other plants and fish of oxygen." Other problems include "...chemicals and fragrances can pose respiratory and allergy problems as well as pollute waterways."

But consumers are starting to notice dirtier dishes coming out of their dishwashers and one of them remarked:
"“Low-phosphate dish detergents are a waste of my money,” said Thena Reynolds, a 55-year-old homemaker from Van Zandt County, Tex., who said she ran her dishwasher twice a day for a family of five. Now she has to do a quick wash of the dishes before she puts them in the dishwasher to make sure they come out clean, she said. “If I’m using more water and detergent, is that saving anything?” Ms. Reynolds said. “There has to be a happy medium somewhere.”" (See The Law Of Unintended Consequences)

But one expert said that you can get dishes clean with "vinegar, baking soda or the newer cleansers." At a hospital in New York, "Reports of burns, rashes, dizziness and scratchy throats among housekeeping employees have plummeted" as a result of the newer cleaning products.

I will leave the final word to Consumer Reports:
"But in its September issue, Consumer Reports reported that of 24 low- or phosphate-free dishwasher detergents it tested, including those from environmentally friendly product lines that have been on the market for years, none matched the performance of products with phosphates.

The magazine did note that the formulas were improving, and it rated seven detergents “very good,” including two of six Cascade products it tested. Susan Baba, a spokeswoman for Cascade, said that while most Cascade customers had not noticed any change, Procter & Gamble was modifying the formulas of some products in response to complaints."

Friday, September 17, 2010

If You Lower The Excise Tax On A Good By $1.00, Does A Firm Save $1.00 On Each Unit Sold?

Probably not. This issue came up in an article that I linked on Wed. One of the things it said was:

"Crapo's bill would cut the federal excise tax on brewers' first 60,000 barrels of beer in half to $3.50, saving brewers up to $210,000 a year."

One thing we know in economics is that if we enact a tax in the first place, most likely some of the tax is paid by the seller and some is paid by the buyer. We can see this by looking at the following graph. Suppose an excise tax of $1.00 is imposed on this good. The immediate effect is to shift up the supply curve by $1.00. As you can see, the new price is now $6.00 where as before the tax it was $5.50. That means the buyer is paying $0.50 more than before. Then the seller gets $0.50 less.

Before the tax, when a consumer bought the good, they paid $5.50. Now they pay $6.00. But the seller has to give the government $1.00 of that, leaving them with $5.00 or $0.50 less than they got before. Now how this relates to the barley tax is explained below the graph.

Suppose, initially, for the sake of simplicity, that in the market represented by the graph above, the government now eliminates the $1.00 tax on the first 20 units sold. That basically means that we are back to S1 and a price of $5.50. The sellers collectively save $5.00. Why? Because they lost $0.50 per unit before the tax was eliminated and they sold 10 units. Now they sell 11 units and pay no tax. So they are $5.00 better off. But, if we went along with the way the article reads, we would say that the sellers save $10. That is impossible, since they did not lose $10 to begin with. So it would be impossible for the barley growers to save $3.50 per unit sold if that is how much the tax was reduced.

But let's try eliminating the tax on the first 5 units sold, kind of like the proposed change to the barley tax. So there will only be a $1.00 tax on units 6-10. It think that part of the supply curve shifts down by $1.00, but only up to a Q of 5. Then the rest of the supply line is still S2. The graph below shows this. The equilibrium price is still $6.00 and the equilibrium quantity is still 10. Businesses pay $0.50 per unit from the tax on the last 5 units sold so their total cost from the tax is $2.50. So cutting the tax only saves them $2.50 since before this change of not taxing the first 5 units, they paid $5.00. Now they pay $2.50 or $2.50 less than before.

This means that the barley growers cannot save $3.50 per unit over 60,000 units for a total savings of $210,000. It will be less than that.

Wednesday, September 15, 2010

Does Economics Trump Religion?

See Abstinent Mormon farmers grow barley for beer. It seems like maybe some of these farmers care more about economics than their religious beliefs. They don't seem to want to acknowledge any conflict and they will say whatever it takes to justify what they do. Maybe that just shows they are human like everyone else. Here is the intro:
"Idaho Sen. Mike Crapo might seem like an unlikely person to be pushing a bill to cut federal taxes on small beer-makers: A member of The Church of Jesus Christ of Latter-day Saints, he abstains from alcohol.

But Crapo's effort, with senators from Oregon, Massachusetts and Maine, illustrates the deep bond between Idaho Mormons and the beer industry.

Mormon farmers raise barley for Budweiser and Negra Modelo beers, and last year, Mormons in the Idaho Legislature helped kill a plan to raise beer and wine taxes to fund drug treatment, fearing it could hurt farmers."

The article also says:
"Idaho's Mormon barley farmers acknowledge an ambiguity in what they grow.

"I've often wondered about the correctness of doing it," said Scott Brown, president of the Idaho Grain Producers Association and a Mormon who grows barley on 5,000 acres near Soda Springs. "But somebody is going to grow it, whether members of the LDS church do.""

You could say the same thing about selling cocaine. The article also says:

"Coors has bought barley from Idaho's Mormon growers for going on four decades."
"With the brewers offering good prices, the crop just makes sense, said Kelly Olson, Idaho Barley Commission administrator.

"I know of some LDS growers who won't raise malt barley, because they know it's ultimately destined for malt brewers," she said. "But by and large, most farmers make planting decisions based on economics.""

"Clark Hamilton, a Mormon farmer originally from Utah, was harvesting 3,000 acres of barley near Ririe last week. The golden, rice-sized cereal grain was destined for companies that make Natural Light and Corona beers. He's heard the question before.

"People will look at me and say, 'You're a Mormon, why do you grow barley?' " he said. "I just don't have a problem with it. I don't think people who drink beer are bad.""

Sunday, September 12, 2010

Should You Break Up With Your Fiancé If They Have Too Much Debt?

See How Debt Can Destroy a Budding Relationship from the New York Times. Here is an exerpt:

"Nobody likes unpleasant surprises, but when Allison Brooke Eastman's fiancé found out four months ago just how high her student loan debt was, he had a particularly strong reaction: he broke off the engagement within three days.

Ms. Eastman said she had told him early on in their relationship that she had over $100,000 of debt. But, she said, even she didn't know what the true balance was; like a car buyer who focuses on only the monthly payment, she wrote 12 checks a year for about $1,100 each, the minimum possible. She didn't focus on the bottom line, she said, because it was so profoundly depressing.

But as the couple got closer to their wedding day, she took out all the paperwork and it became clear that her total debt was actually about $170,000. "He accused me of lying," said Ms. Eastman, 31, a San Francisco X-ray technician and part-time photographer who had run up much of the balance studying for a bachelor's degree in photography. "But if I was lying, I was lying to myself, not to him. I didn't really want to know the full amount.""

The article then discusses the types of issues couples should discuss before they get married, like pre-nuptial agreements. They may not seem romantic, but it forces people to start thinking about what their future lives might be like and how they both handle money. Money is often one of the biggest problems in marriages.

Friday, September 10, 2010

Austan Goolsbee Once Laughed At Me

Austan Goolsbee was just named the new chairman of the President's Council of Economic Advisers. See Who Is Austan Goolsbee? How many people can say the President's top economic advisor laughed at them?

Here is what happened: I was at a book symposium in 2006. Steven Levitt (who, like Goolsbee, is a University of Chicago economist) was about to autograph my copy of his best selling book Freakonomics when I told him that I had emailed him a few months earlier with some analysis that I did about the viewer ratings for the movie Snakes On A Plane at the Internet Movie Data Base. There seemed to be something funny about the numbers, as if someone was gaming the system to get the movie a higher numerical rating.

When Levitt got my email with my analysis, he asked if he could post it on his blog. I said yes. So he posted it and here is the link: Snakes on the internet, too? So while Levitt is autographing the book, I said I couldn't think of anyone else in the world who would have been interested in what I had to say about Snakes On A Plane accept maybe the Freakonomics guys. That is when Mr. Goolsbee, who was sitting next to Levitt, laughed.

Levitt wrote: "Long live the snakes" in my copy of his book.

Wednesday, September 08, 2010

Can You Beat Unemployment With A College Degree?

People with college degrees or more had a 4.4% unemployment rate as of June 2010. It was 10.8 percent for those with only a high school education. See Want To Avoid Unemployment?: Statistics show a clear link between education level and employment.

Now it may not be that simple. People who graduate from college may be smarter and harder working than others (being smart and hard working helps you get through college). And people who are smart and hard working will probably get better jobs and have lower unemployment rates. That would be true of a world that had no college degrees.

But most likely, ceteris paribus, education helps. The article also mentions some high paying careers.

Monday, September 06, 2010

The Federal Government Favors Some States Over Others

The Federal government spends $10,548 on each person in the United States. See Federal spending up record 16% amid recession. "The biggest chunk of funds went to Medicare, Medicaid and Social Security, entitlement programs that are projected to consume ever larger portions of the federal budget as the population ages."

But the rate per person varies quite a bit across the states. Here are the highest and lowest:

Alaska $20,351
Virginia $19,734
Hawaii $19,001

Nevada $7,148
Utah $7,435
Georgia $8,538

The article did not explain or discuss why there are such big differences. But this other article from the Washington Post does, at least a little. It says:
"Virginia was pushed to the forefront of federal spending by the high number of defense contractors and service members living in the state. It saw $67 billion in military spending, a large chunk of the $155 billion the federal government spent in the state in 2009. Only California, New York and Florida got more money overall.

Much of the federal money went to private contractors. In Fairfax County, for instance, almost $40 billion of the $46 billion the federal government spent in the county went to contractors.

In Maryland, federal spending in fiscal 2009 rose 15 percent, to $92 billion. Maryland's ranking reflects in part a large number of residents who are federal employees. Montgomery County, for example, got $28 billion in federal funds, including $4.6 billion in salaries, almost $3 billion in retirement checks and $17.5 billion in government contracts for various vendors."
But I don't think that explains all of it.

Saturday, September 04, 2010

Would You Go To A College That Gets A Grade Of D+?

And that is a grade that they gave themself! Their new ad has a big "D+" in it. See Great moments in collegiate marketing: Drake University’s ‘D+’ campaign. Here is an exerpt:
"If you were going to spend tens of thousands of dollars on a higher education, would you want the end result to be known as a "D+" education?

Probably not.

And therein lies the problem some have with Drake University's new marketing campaign.

Touting the ways it can help students "be transformed by an experience that puts opportunity into action and gives purpose to your passion," the Des Moines, Iowa-based school has elected to dub its added pedagogic value the "D+ Advantage" campaign. The tagline for the promo campaign: "Your passion + our experience."
The administration tried to justify it by saying:
"...the ad blitz [was] "edgy and intriguing" and the campaign "was designed to catch the attention of high school students who are bombarded with college and university materials to the point that they are often in information overload and unable to differentiate among the many institutions that have contacted them.""
There may be something to that. Information is costly to obtain and maybe many of the brochures and webstites that students look at end up looking pretty much the same. So how does a school get your attention? By having a very different kind of ad. But this might not have been the best way to go about it.

Wednesday, September 01, 2010

Decoding Airline Ticket Costs

Airline prices vary alot. The price if you fly from Boston to Long Beach, California is 6 cents per mile. If you fly from Boston to Philadelphia, it is $1.22 per mile. That seems incredible. But The Wall Street Journal article You Paid What for That Flight? It Can Cost More to Fly to Hartford Than Barcelona. What Airlines Consider in Setting Prices has an explanation. Here are some reasons:
"The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren't there, big airlines behave radically differently when setting prices.

"It's the number of competitors and the quality of the competition," said airfare analyst and consultant Bob Harrell.

The kinds of travelers in a market heavily influence what prices airlines charge as well. If the route has lots of business travelers—like Hartford to Washington—then airlines set prices high knowing customers will be less sensitive to higher prices. If the route is populated by price-sensitive travelers —think Florida cities and Las Vegas—then airlines set prices low in order to fill up planes."

"And when there's not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.

High fixed costs do make short routes more expensive, per mile. But airport costs like terminal rents and landing fees and even the expense of buying or leasing jets, pale in comparison to the two biggest expenses at airlines: labor and fuel. Both go higher as flights get longer."
"High prices do catch the attention of low-priced competitors. In the first quarter this year, the most expensive market in the country, per mile, was Boston to Philadelphia, a US Airways-dominated route, where the average fare was a whopping $684. Southwest began serving that route in June.

And now? US Airways' highest coach fare is $281 round-trip—$400 less than its first-quarter average fare."
I like the part about high fixed costs. Suppose a plane costs $500 million. If it flys a 100 mile route, say 1,000 times, that is $5,000 per mile. If it flies a 1,000 mile route 1,000 times, that is $500 per mile. Of course, that is not the only cost. But it does make a difference.