Friday, September 25, 2015

Gross domestic product grew at a 3.9% annual rate in the second quarter-previous estimate was 3.7%!

See U.S. 2nd Quarter GDP Grows 3.9%: Revised estimate shows economy entered 3rd quarter on strong note, but output could be moderating from the Wall Street Journal. Excerpt:
"The U.S. economy entered the third quarter of the year on a strong note, but recent data suggests output could be moderating over the final six months of 2015.

Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a 3.9% seasonally adjusted annual rate in the second quarter, the Commerce Department said Friday. The agency had previously estimated a 3.7% expansion.

Economists surveyed by The Wall Street Journal had expected a 3.7% rate of growth, unchanged from the earlier estimate.

The Commerce Department has been steadily raising its estimate for the second quarter. The agency first pegged growth at 2.3% in July, before twice revising it upward."
That might not seem like a big deal, just .2% more than before. In my macro courses we read a chapter in the book The Economics of Macro Issues. The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

The table below shows how much per capita income would be at various rates after 100 and 200 years. Assume we start with a per capita income of $1,000. If we grow 2.0% per year, after 100 years it will be $7,245. At 2.1% per year, it would be $7,791 or about $700 more. That is how much that little .1% matters. The difference over 200 years is about $11,000. After 100 years at 2.5% per year, per capita income would be $11,814. That is $4,000 more than the 2.0% rate. Small differences in growth rates add up to big differences over time.

Using the latest GDP figures for another example, if we grow 3.9% a year for the next 30 years, and if per capita GDP now is, say, $50,000, it would reach $157,557. But if it only grows 3.7% for 30 years, per capita GDP would be $148,707. That is about $10,000 less than if we grow 3.9%

Per Capita Income After 100 and 200 Years At Various Annual Growth Rates (Starting With $1,000)

Friday, September 18, 2015

Are These College Students Causing A Negative Externality?

See City of Colleges Takes Heat for Proposed Student Housing Ban by Amy Anthony of the Associated Press. Excerpts:
"Each fall, thousands of students flock to the city's many colleges, filling its large old homes and, sometimes, holding loud parties. Now a proposal to keep too many of those students from living together has drawn the ire of civil liberties advocates.

Providence [Rhode Island] officials are considering a zoning law that would limit the expansion of student housing in the city, the state's capital, including in neighborhoods near Providence College, a private Roman Catholic university, and Rhode Island College, a public institution. Specifically, the proposed law would prohibit more than three college students from living in a single-family home.

Democratic Councilwoman Jo-Ann Ryan, who represents and lives in the Elmhurst neighborhood near Providence College, said she introduced the legislation at the request of neighbors "completely and totally frustrated with the partying."

A wild party Sept. 5, part of an annual tradition at Providence College in which students celebrate the new academic year, resulted in dozens of arrests. The celebration has grown over the years to include students from the city's other schools, which include the Ivy League's Brown University and the prestigious Rhode Island School of Design."

"Besides the partying, Ryan said, residents worry landlords are buying all the single-family homes in her area to rent them to students.

"Those houses are getting snatched up, and they're creating mini-dormitories," she said.

But landlords say they've improved the neighborhood by remodeling once-vacant homes, leading to increased property values.

"Investors who have put over $2 million in rehab in that neighborhood have now been vilified and targeted, along with the students," said attorney Robert D'Amico, who owns several rental properties in Elmhurst.

D'Amico, who primarily rents to students, said the ordinance doesn't make sense.

"There is no direct correlation between the students living in single-family homes and the number of students roaming around the area and having red-cup parties," he said."

"Existing ordinances in Providence and Narragansett, home to a campus of the University of Rhode Island, allow police to put orange stickers on party houses, alerting landlords and tenants they'll be fined if police return because of disturbances."

Friday, September 11, 2015

'Spy car' worries raised by new Allstate patent

Click here to read the article by Becky Yerak of the Chicago Tribune.

The basic idea is that if you drive more safely, you have fewer accidents and insurance companies like that. Some of my students might recall one of the lessons from the supply and demand game. That was that one condition for markets to work optimally is that buyers and sellers have equal access to information. When they don't, markets won't work as well as they should.

For instance, in used car markets, the sellers know alot more about the product than the buyers. Economists have studied the problems this causes in the "market for lemons" research. If you want to sell your used car for $1,000, some people won't believe it is worth it. So they only offer maybe $800. If you believe your car is worth $1,000, you won't sell it. Then there are not enough sales in that market and the quantity is too low or sub-optimal. And many of the cars on the market are lemons.

But in insurance markets, buyers know more than the sellers. You know how risky you are but the insurance companies don't. Insurance companies want your premiums to reflect your risk. The riskier people need to pay higher premiums. If insurance companies can learn more about your driving habits, they can know better what to charge you.

Here is an excerpt from the article linked above:
"A patent issued earlier this month to Allstate mentions using sensors and cameras to record "potential sources of driver distraction within the vehicle (e.g. pets, phone usage, unsecured objects in vehicle)." It also mentions gathering information on the number and types of passengers — whether adults, children or teenagers.

And the Northbrook-based insurer isn't just interested in the motoring habits of its own policyholders.
Underscoring companies' interest in collecting and analyzing information on you, also known as big data, the patent also envisions gathering information on nearby cars so it can compare its policyholder's habits to other motorists in the area. The patent, called "traffic-based driving analysis," is for a server that will receive driving behavior data from sensors, cameras and other devices.

"So my car spies on me and on other drivers near me?" Bob Hunter, insurance director for the Consumer Federation of America and a former Texas insurance commissioner, said after reviewing the patent. "Even if I give permission for this intrusive technology, my car spies on unsuspecting passengers and even on unsuspecting pedestrians or cars passing by?"

Hunter wondered about the "liability for that intrusiveness" as well as the potential to pick up such sensitive data as ATM PINs. It's "the invasion of the spy car," he said.

Allstate said it filed the new patent a few years ago. Company spokeswoman Laura Strykowski said the "technology would provide drivers with broader information about traffic conditions and external factors that could better equip them to drive safe."
See also The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender. Woman are generally safer drivers than men, so insurance companies charge men higher premiums. But the EU said they could no longer do this.

See also

Lose the Fat to Lower Your Insurance Rates
How Did Astronauts Of The 60s "Purchase" Life Insurance?

Friday, September 04, 2015

What happens if you give electricity away for free?

Here is the definition of a scarce good I use:

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.

The car maker Tesla offers a benefit to its customers: "Free charging at company-run stations is one of a handful of unique incentives aimed at Tesla owners."

That is from Tesla Owners Frustrated by Recharge Waits: Complaints about long lines to top-off batteries has sparked warnings to frequent users from the Wall Street Journal this past July.
"AMSTERDAM—Matthijs van Seventer won’t take his Model S electric sedan to the Tesla charging station in the southeast part of the city if he is in a hurry. The chargers are typically loaded with taxicabs serving Schiphol airport.

“It’s barely viable,” he said standing near a row of superchargers, which for Tesla owners are the equivalent of gas pumps to quickly recharge their battery-powered vehicles. “When I arrived there was just one spot left.”

Mr. van Seventer’s frustration reflects a rare rift in what has typically been a cozy relationship between Tesla Motors Inc. and its thousands of owners around the world."

"Even as Tesla has poured millions of dollars in creating a global network of free charges, owners of the $76,200 and up luxury sedans feel there still aren’t enough.

Mimi Kim Jamil recently slipped into the last spot at the San Juan Capistrano (Calif.) Supercharger station where there are eight stalls and plugged in her 85 kilowatt-hour Model S. A moment later, two other Model S drivers pulled in behind.

Superchargers can recharge 80% of an 85 kilowatt-hour battery in about 30 minutes. While that’s much longer than the about five minutes needed to refuel a gasoline-powered car, it is more than 10 times faster than a typical Tesla home charger.

“I felt bad for them,” Ms. Jamil said, noting that the other seven Model S sedans were unattended, a sign that their owners may be picking up items at the nearby shopping center while their cars charged. The two drivers needing to charge “were just waiting, waiting, waiting.”"

"Superchargers are too often being used by people who are driving around town instead of those needing energy for longer road trips, creating lines of people waiting for juice.

“There are a few people who are quite aggressively using it for local supercharging,” he said. “We’ll sort of send them just a reminder note that it’s cool to do this occasionally, but it’s meant to be a long-distance thing.”

That didn’t sit well with some owners, because use of the chargers is included in the price of a Tesla, and advertised as being “free for life.” While many of its rivals spend big money on advertising, Tesla has invested millions of dollars in charging stations meant to be an extra incentive for buyers to consider its pricey electric car."
Here is another article on this topic: Tesla could have a problem with one of the best things about owning its cars by Benjamin Zhang of Business Insider.

In a related story Trees Are Scarce In San Antonio!