It's great having a personalized thermos

Student gave me a gift-a thermos with the name of my blog on it ("The Dangerous Economist")

Monte Vista University artist in residence apparently commits suicide-but some say it might have been murder

Don't worry, Nobel Prize winning economics professor Henry Spearman is on the case. The news account says:

"Spearman has accepted an invitation to lecture at Monte Vista University here in San Antonio. He comes in the wake of a puzzling art heist with plans to teach a course on art and economics. Now there is the alleged suicide of womanizing artist-in-residence Tristan Wheeler. But Wheeler had serious enemies.

Henry Spearman has a knack for solving crimes. He is considering the following questions in his investigation.

Was Wheeler killed by a jilted lover, a cuckolded husband, or a beleaguered assistant? Could there have been a connection between Wheeler's marketability and his death? What are the parallels between a firm's capital and an art museum's collection? What does the market say about art's authenticity versus its availability? And what is the mysterious "death effect" that lies at the heart of the case?"

If this sounds like a murder mystery, that's because it is. It is the plot of The Mystery of the Invisible Hand: A Henry Spearman Mystery by Marshall Jevons. It takes place in San Antonio and Monte Vista University bears a striking resemblance to Trinity University.

Marshall Jevons is just the pen name of the two co-authors, William Breit and and Kenneth G. Elzinga. Marshall Jevons is a fictitious crime writer invented and used by William L. Breit and Kenneth G. Elzinga, professors of economics at Trinity University, San Antonio and the University of Virginia, respectively (Wikipedia).

The name combines the names of two actual economists from the 19th century, William Stanley Jevons and Alfred Marshall. They have written three other Henry Spearman novels.

The sad news is that William Breit passed away in 2011. He once attended San Antonio College as a student (in the early 1950s). I think his economics teacher here was Truett Chance, the man for whom the building I teach in is named.

Were The Pilgrims Capitalists Or Socialists?

This was first posted in 2010.

See The Pilgrims Were ... Socialists? from The New York Times. There seems to be some controversy. One story has them owning property in common and not doing well until they went with private property. Not everyone agrees with that version of history. Here is what seems to be the most interesting thing from the report:

"Historians say that the settlers in Plymouth, and their supporters in England, did indeed agree to hold their property in common — William Bradford, the governor, referred to it in his writings as the “common course.” But the plan was in the interest of realizing a profit sooner, and was only intended for the short term; historians say the Pilgrims were more like shareholders in an early corporation than subjects of socialism.

“It was directed ultimately to private profit,” said Richard Pickering, a historian of early America and the deputy director of Plimoth Plantation, a museum devoted to keeping the Pilgrims’ story alive."

So when you eat turkey tomorrow, you might really be celebrating that great American institution...the corporation. Makes me feel real patriotic.

This part was interesting too.

"The competing versions of the story note Bradford’s writings about “confusion and discontent” and accusations of “laziness” among the colonists. But Mr. Pickering said this grumbling had more to do with the fact that the Plymouth colony was bringing together settlers from all over England, at a time when most people never moved more than 10 miles from home. They spoke different dialects and had different methods of farming, and looked upon each other with great wariness."

"“One man’s laziness is another man’s industry, based on the agricultural methods they’ve learned as young people,” he said."
"Bradford did get rid of the common course — but it was in 1623, after the first Thanksgiving, and not because the system wasn’t working. The Pilgrims just didn’t like it. In the accounts of colonists, Mr. Pickering said, “there was griping and groaning.”"

"“Bachelors didn’t want to feed the wives of married men, and women don’t want to do the laundry of the bachelors,” he said.

The real reason agriculture became more profitable over the years, Mr. Pickering said, is that the Pilgrims were getting better at farming crops like corn that had been unknown to them in England."

Tuition Trails Inflation for Many U.S. Colleges

From the WSJ this week. Excerpts:

"More than half of public colleges in the U.S. are failing to bring in enough tuition revenue to keep up with inflation, and nearly as many private schools are facing a similar financial crisis, according to a new report from Moody’s Investors Service.

Universities are forecasting that fiscal 2015 will be their weakest year of net tuition revenue growth in a decade, with 51% of public schools and 41% of private institutions unable to increase revenue at or above Moody’s projected 2% rate of inflation. Last year, an estimated 49% and 39%, respectively, fell short.

Overall, public and private institutions forecast net tuition revenue growth of 1.9% and 2.7%, respectively. Just a decade ago, the majority of schools regularly boosted net tuition revenue by upwards of 5% a year.

The Moody’s report, based on a survey of 290 public and private, nonprofit schools, highlights the tightrope school administrators must walk, using discounts to attract cost-conscious students from a shrinking pool of high school graduates while still generating enough net revenue to stay in business amid higher operational expenses."

"On a per-student basis, public universities forecast net tuition revenue to grow 1.5% in fiscal 2015, while private institutions forecast 2.3% growth. That reflects both an inability by families to pay much more for college, as well as an unwillingness by schools to even try charging higher rates."

"Thirty-seven percent of public institutions, and 45% of private ones, expect enrollment declines this fiscal year."

"While troubling, the enrollment declines weren’t unexpected. The population of high school seniors ballooned a decade ago as children of the baby boom generation came of age, but those figures have since fallen, especially in the Northeast and Midwest regions."

 What is normally called financial aid comes upwhere it says "using discounts to attract cost-conscious students." They never really give you financial aid. There is not some vault of money that they open and take some cash out of to give you. 

They are really engaging in price discrimination. That is when firms charge different prices to different customers and the difference is not based on the cost of producing the good or service.

Different groups of consumers may have different demand curves so firms can make more profit if they charge each group a different price. For example, senior citizens might get a discount for lunch at restaurants. They have more time to shop around than others so price matters more to them. Their demand is more elastic.

Who Is My Favorite Economist?

Click here to see the answer

The secret strategy to buying and selling used textbooks

It seems like it is all in the timing. See Textbook Arbitrage: Making Money Off Used Books by David Kestenbaum of NPR. Click here to see the definition of arbitrage.

 Excerpts from the NPR post: 

"... he guessed that the prices of the textbooks were going up and down with the college calendar. His theory was that prices would fall in summer (no one is looking for a nice textbook in July to curl up with on the beach) but then rise when classes begin and students really need the books."

"Over a year Bob and Kenny gathered data from Amazon on sales of all kinds of used textbooks, and they found the pattern was there for lots of textbooks — prices fell in the summer and jumped back up as classes started at the beginning of a semester. It was as if they'd found a stock that went up and down at very regular times, so that they could know exactly when to buy it, and exactly when to sell it."

Some Good News: Productivity Up, Percent Of Population Employed Up

See US Productivity Suggests Economy Can Grow 'Without The Threat Of Inflation' and Employment status of the civilian noninstitutional population 16 years and over, 1979 to date.

The productivity report said "Productivity, or the U.S. economy’s output per hour of work, increased at a 2.0 percent annual rate during the third quarter as output increased 4.4 percent and hours worked increased 2.3 percent, the U.S. Bureau of Labor Statistics reported Thursday. "

Higher productivity means an increase in supply. When supply shifts to the right, prices fall (or at least it will help keep down price increases caused by demand increasing).

The unemployment rate fell to 5.8% in October from 5.9% in September. But the percent of the population employed jumped from 59.0% to 59.2%. That is important because the unemployment rate can fall if people drop out of the labor force. The labor force participation rate went from 62.7% to 62.8%.

The percent of the population employed was 63.0% in 2007 (the recession started in December 2009). So we are still well below that, although about half the difference is from retired people dropping out of the labor force.

Third-Quarter G.D.P. Rose 3.5% And More On Airline Prices

Click here to read the NY Times story by PATRICIA COHEN. The news, however, is mixed. There are good signs and maybe some signs of concern mentioned in the article. Here is an excerpt:

"Unlike the seventh game of the World Series, the debate over the economy’s strength sometimes seems like a playoff competition that goes on forever between skeptics and believers. But on Thursday, the boosters won at least a temporary victory with a government report that estimated the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter.

After an even faster pace of growth in the spring, the higher-than-expected advance in gross domestic product — a measure of all the goods and services produced in the United States — was driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance.

“This is the strongest six-month interval we’ve had in 10 years,” said Carl R. Tannenbaum, chief economist at the Northern Trust Company. “The pace of the expansion has clearly increased.”

 While the G.D.P. report is mostly a look to the past, markets were generally cheered by the latest economic news, which also included an upswing in consumer confidence and further evidence from weekly unemployment claims that the labor market is on the mend. Bond prices barely moved as the Standard & Poor’s 500-stock index rose 0.6 percent to 1,994.65 and the Dow Jones industrial average increased more than 221 points to close at 17,195.42."

Now for airline prices. Last week I posted about how fuel prices were down yet airlines were not lowering their prices, which might indicate that the industry is an oligopoly. But this week there was a conflicting report. See International Low-Cost Airlines Drive Transatlantic Fares Into The Ground by Grant Martin of Forbes. Excerpts:

"If you’ve been wondering why airfare to Scandinavian countries has been so inexpensive for the past few seasons, you have one particular airline to thank: Norwegian Air. For the last year, the self-described low cost carrier has expanded aggressively across the globe, and as a result of the new low fares they brought into the United States, domestic carriers have lowered their prices to compete. These days, a ticket from San Francisco to Copenhagen with a layover in London can often be cheaper than a sole ticket from San Francisco to London.

Norwegian Air gets away with charging rock-bottom prices by taking advantage of low operating costs and charging passengers via an a là carte model. Passengers who book air passage on the airline get just that; baggage, seats and food all cost extra. Conversely, a legacy airline such as American, Delta or United usually provides all of that bundled together with their international fare."

"Norwegian’s popularity has grown so much that they’re trying to expand into different US markets, but complications with permits and strong resistance from the legacy airlines have caused delays.

While Norwegian continues to address its teething problems, other airlines have grown and replicated their success. Just last week, Wow Air, an Icelandic low cost carrier announced service to the east coast of the US for as little as $99 one-way. Lufthansa, the flag carrier of Germany, is also working on the launch of an international low cost carrier."

Is The Airline Industry An Oligopoly?

See US Airlines Hike Base Fares Despite Falling Fuel Prices; Consumers Unhappy. Excerpt:

"Such fare hikes indicate that airlines don’t plan to pass on the savings on jet fuel from recent oil price drops, Rick Seaney, CEO of travel search site FareCompare.com, wrote. Fuel is the largest expense most airlines face, and oil prices have decreased by as much as 25 percent since early summer."

 As I show below, lower costs for firms but not a lower price for the buyers is a possibility in oligopoly. See also Airlines Profits Soaring.

We recently covered market structure in my microeconomics class. Usually four market structures are covered: perfect competition, monopoly, oligopoly, and monopolistic competition. Oligopoly is an industry with a relatively small number of firms which is not easy to break into. The auto industry is often given as an example.

One theory of oligopoly is that each firm (an oligopolist) might face a "kinked demand" curve. All firms choose Q so that MR = MC. Once Q is found that allows us to get the price. But if MC falls (due to things like lower fuel costs) and we stay in the gap in MR, Q does not change and neither does price.




I show later that even a monopoly will lower their price when costs fall.

It is possible that the airline industry is competitive (it is unconcentrated according to Justice Department merger guidelines as I show below). In that case, we might just be seeing an increase in demand outweigh the increase in supply caused by the lower fuel costs, as in the next graph



The Justice Department takes the market share of all firms in an industry, squares them and then adds them up. Here is the airline industry

Firm	%Share	Squared
American	21	441
Delta	16.6	275.56
Southwest	16.3	265.69
United	15.4	237.16
JetBlue	5.1	26.01
Alaska	4.2	17.64
ExpressJet	2.5	6.25
SkyWest	2.3	5.29
Spirit	2	4
SUM	85.4	1278.6

The 1278.6 is the Herfindahl-Hirschman Index (“HHI”) of market concentration. Now there is still 14.6% of the market going to other firms but they will all be very small. Since HHI is less than 1500, the Justice Department considers the airline industry an "Unconcentrated Market." See Horizontal Merger Guidelines. Mergers are not usually a concern. So maybe it is not an oligopoly. I am not sure.

Here is that monopoly graph mentioned earlier. Price falls with lower costs.

Who are the richest people in the world?

Australians. See Property makes Australians the world’s richest, says Credit Suisse. Excerpts:

"Thanks to their houses, Australians are the richest people in the world, according to the investment bank Credit Suisse.

The fifth annual study by the Swiss bank of global wealth trends found the median Australian adult was worth more than $US225,000 ($258,000) in June, well ahead of the second wealthiest population on this measure, the ­Belgians, at $US173,000.

They were followed by the Italians, French and British, all at around $US110,000.

Only 6 per cent of Australians have wealth below $US10,000, compared with 29 per cent in the United States and 70 per cent for the world as a whole.

Household wealth in Australia is heavily skewed to "real assets" – essentially property – which average $US319,700 per household, or 60 per cent of gross assets."

"Australia is classified a "medium ­inequality" country by the Credit Suisse researchers, a group that includes New Zealand and is defined by the richest 10 per cent controlling between 50 per cent and 60 per cent of the country's net wealth.

Among developed economies, Hong Kong, Switzerland and the United States are deemed to have "very high inequality", where the top 10 per cent control more than 70 per cent of the wealth. 

This is borne out by the average wealth figures of the US. Median adult wealth in the world's largest economy stood at only $US54,000 – well out of the top 10 richest populations.

But when measured on an average – or mean – basis, the US ranked fourth in terms of household wealth at $US348,000."

Mexico's junk food taxes hitting Pepsi, Coke

Click here to read the AP article by CANDICE CHOI.

In a couple of my micro sections we recently read a chapter from The Economics of Public Issues on obesity. Some people think that taxing sugary drinks and snacks will help reduce the problem. Here are excerpts from the article linked above:

"PepsiCo reported a higher quarterly profit Thursday as global sales rose, but one weak spot was Mexico. The company said snacks sales volume declined by 3 percent, hurt by a new tax on junk foods.

Recent declines suffered by Pepsi and Coke in Mexico underscore why the beverage industry is fighting tax proposals on sugary drinks in in San Francisco and nearby Berkeley.

PepsiCo — which makes Frito-Lay chips, Gatorade and Tropicana — reported similar declines in its snacks business for the first half of the year, starting when the tax went into effect.

Coca-Cola, which reports its third quarter results Oct. 21, has also reported beverage volume declines in Mexico for the first half of the year, citing a similar tax on drinks. Mexico has the world's highest per capita consumption of Coca-Cola drinks."

"The taxes in Mexico add one peso, about 7 cents, to the cost of a liter of sugary drinks, and 5 percent of the price to foods with 275 calories or more per 100 grams."

See a post from last year Will A Tax On Junk Food Help Mexico Fight Obesity? Both Mexico and the U. S. have very high obesity rates.

The Unemployment Rate Fell From 6.1% to 5.9% In September. But How Good Actually Is That News?

If we look at the percent of the of civilian noninstitutional population that is employed, it registered only a very small increase. The reason why this might be important is that the unemployment rate can fall if people simply drop out of the labor force. If you are not actively seeking work, you will not be counted as an unemployed person. But dividing the number of people employed by the population avoids this problem.

It was 58.9649% in August. It rose to 59.0068% in September. So basically both months are 59%. You can see the numbers at Labor Force Statistics from the Current Population Survey. That is presented by the U.S. Bureau of Labor Statistics.

The last recession started in December, 2007. In 2007, we had 63% of the population employed. In Sept., we increased about 7 one-hundredths of a percent. In a year, that would be about .5%. If we do that for the next 8 years, we will finally be back to the 63% we had in 2007.

U.S. Economy Grew at 4.6% Rate in Second Quarter

Click here to read the WSJ article. Excerpts:

"The U.S. economy grew in the spring at the fastest pace since late 2011, another sign the recovery is regaining steam after a rough start to the year.

Gross domestic product, the broadest measure of goods and services produced in the U.S., expanded at an annual rate of 4.6% in the second quarter, the Commerce Department said Friday in its third estimate of the gauge. The agency previously pegged April-through-June growth at 4.2%.

The economy last grew at a 4.6% pace in the fourth quarter of 2011 and hasn't exceeded that rate since the first three months of 2006, during the last economic expansion.

The spring's strong showing owed partly to a rebound from a severe winter, when the economy contracted at a 2.1% pace [that is, GDP was down 2.1% in the first quarter at an annual rate]. Combining the two quarters, the economy grew at a pace just above 1% in the first half of 2014."

"Unemployment, at 6.1% in August, remains historically high, though it has come down sharply. And despite stronger job growth this year, workers' wages are barely climbing faster than consumer prices. The housing market is struggling to regain momentum, and weakness in overseas economies is threatening to hurt U.S. exports."

Which metro area has the highest paid workers?

See The biggest paychecks? They're in Midland by L. M Sixel of the Houston Chronicle. Excerpts: 

"Workers in the West Texas city in 2012 earned an average of $91,200, including wages and benefits, new data from the U.S. Bureau of Economic Analysis show.

The U.S. average was $56,900 and the Houston average was $71,600, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston, who recently crunched the bureau's data to come up with the comparisons.

Gilmer noted that the high wages in Midland reflect its relatively small population of at least 114,000, and its remote location.

"It's very difficult to attract labor there," Gilmer said. "When incomes rise in the oil sector, they just pull the entire wage pool up with them.""

"managers of energy companies would come in for lunch and give their business cards to their servers. The next day, the server would report to the oil field instead of the restaurant."

"a real estate developer from El Paso who got the idea of taking a crew to Midland to build houses. The crew members were immediately offered jobs by oil companies scouting workers with construction and other skills."

"Employees in the Houston area who work in the drilling and exploration end of the energy industry earned an average of $302,900 in 2012. (Local wages and benefits still haven't recovered from the 2008 high of $328,500.)"

There Is A Black Market On Capitol Hill

Yes, a black market in snacks. Pretty shocking. See Inside Capitol Hill's black market: Snacks by HELENA BOTTEMILLER EVICH of POLITICO. You can also check out POLITICO's guide for finding popular congressional office snacks. Excerpts:

"Big deals over immigration reform or government spending may not be getting made on Capitol Hill, but political maneuvering can yield a free pack of Skittles for a staffer with a sugar craving.

It just might cost a bag of Fritos.

Home-state snacks are a mainstay in congressional office lobbies, alongside district maps, hometown magazines and displays of local tchotchkes. Walk into Sen. Rand Paul’s office and you’ll find Kellogg’s Pop-Tarts and Nutri-Grain bars in a basket next to the Kentucky almanac. Down the hall, Georgia Sen. Johnny Isakson serves peanuts and Coca-Cola. Head upstairs to New York Sen. Kirsten Gillibrand’s office for Chobani yogurt.

But the treats not only give visiting constituents a taste of home, they also fuel black-market snack trading among House and Senate staffers.

Beyond the official displays of food politicking — like when John Boehner sent Nancy Pelosi Cincinnati’s famous Graeter’s Gelato for her birthday — the little-known snack trade cuts across state, district and party lines.

Dozens of junior staff who spoke with POLITICO described an elaborate barter system based on local products. Pepsi is swapped for M&M’s, and Coca-Cola for Craisins. Unpaid interns are rewarded with treats for fetching lawmaker signatures. Sharing a cellphone charger with another office might net a bag of chips or candy. The most dedicated snackers have compiled comprehensive lists of who has what — a Capitol Hill snack bible of sorts.

Food and beverage companies, or farm cooperatives, donate most of the snacks on the Hill, but some offices do purchase their own reserves. The donations are kosher under ethics rules as long as the products are from the lawmaker’s state and are primarily for “promotional purposes,” as well as available to office visitors and of minimal value to the recipient. Staffers aren’t supposed to directly ask suppliers for their snacks to be replenished, but they tend to not run out for long.

The covert snack economy is not just a way for hungry staffers to seek out chocolate-covered macadamia nuts from Hawaii or Lay’s chips from Texas. It’s a system for aides, especially low on the totem pole, to make friends, forge informal alliances and, ultimately, help keep Capitol Hill functioning.

Between arranging constituent tours and taking calls, staff assistants use a massive email Listserv to arrange snack swaps.

“They’re the ones that work the trades,” explained Adam Russell, a spokesman for Rep. Sam Farr (D-Calif.). Constituents visiting his office are offered walnuts, prunes and pistachios.

Dozens of offices serve treats from large conglomerates like PepsiCo, which has factories or distribution facilities in various lawmakers’ districts. Rep. Mike Pompeo (R-Kan.) serves PepsiCo products because there’s a bottling plant in Wichita, Kan. He’s personally a big fan of Snickers and Diet Pepsi, according to his staff.

Frito-Lay chips and Mars candy are the most common — and perhaps the most commonly traded — snacks on the Hill. Both manufacturers have operations in several states.

Home-state snacks transcend party affiliation. Republican Sen. Marco Rubio and Democrat Rep. Debbie Wasserman Schultz may not find much common ground, but they agree Tropicana orange juice is a delicious treat for guests.

And orange juice, it turns out, is a hot commodity on the Hill, trading at times for as many as five bags of Lay’s chips.

In an Arkansas-shaped basket, Republican Sen. John Boozman’s office serves a variety of Frito-Lay snacks, Little Debbie snack cakes and crisp rice treats made by Riceland, a farmers co-op. In Arkansas Democratic Sen. Mark Pryor’s office, you’ll find the same snacks, plus some Mountain Valley Water from Hot Springs, Ark.

Pop-Tarts may be “very popular” with Paul’s Kentucky visitors and staff popping by for a treat, but the Republican senator, known for being a bit of a health nut, does not eat them, according to his staff.

Not all products on the political circuit are well-known brands. Sen. Richard Blumenthal (D-Conn.) has Ola! all natural granola, Rep. Sam Graves (R-Mo.) has Cherry Mash, a chocolate cherry treat, and Rep. Dave Reichert (R-Wash.) has Aplets & Cotlets, a square fruit puree and nut snack that isn’t all that tradable, according to multiple sources familiar with the delegation.

Some offices on Capitol Hill are not looped in on the snack trade and don’t have their own currency, and there are few staffers in either chamber who don’t know where the goods are and how to get them.

Those in the know target New York Sens. Chuck Schumer’s and Gillibrand’s offices, which actually have Greek yogurt-filled fridges. So do Idaho Sens. Mike Crapo and Jim Risch.

Ask around about who has the best snacks, and you’ll run into some local food folklore. Someone on the Hill has San Pellegrino, aides say, but they’re not sure who, or they won’t divulge their source. POLITICO couldn’t find the sparkling beverage. Another office had heard Rep. Jared Polis (D-Colo.) serves Kombucha, a fermented “foodie” drink, on tap. He doesn’t, according to his office. At least two staffers had heard tales of free Shiner Bock flowing from the Texas delegation, but the search for the beer from the Lone Star State came up dry."

For Some Grads, College Isn't Worth Debt

Wall Street Journal article by Douglas Belkin. Excerpts:

"The median wage of an American with a bachelor's degree was $48,000 last year, far higher than the $25,052 earned by those with only a high-school diploma. But the lowest-earning quarter of college graduates make $27,000 or less."

"huge swaths of recent graduates are taking jobs that don't require a college education. That in turn is boosting recent college graduates' underemployment rate—defined as the share working in jobs in which less than half of the employees believe a college degree is necessary—to 46%."

"More than 70% of college students now graduate with loans, and the average debt is more than $33,000. Two decades ago, less than 50% of students borrowed around an average of about half of that amount."

"student debt now exceeds $1.1 trillion"

"the value for those who study subjects that are aligned with the job market is near an all-time high.

The value of a four-year degree is just shy of $300,000, and it will take someone who earned a bachelor's degree in 2013 10 years to recoup the entire cost, according to the New York Fed. College graduates in 1983 needed 23 years to do so."

"Out of every 100 kids who enter college, 40 don't graduate, and for the 60 who do, 15 are in the bottom quartile and don't make any more money than if they hadn't gone to college"