Saturday, July 31, 2021

Dilbert explains comparative advantage

 After the comic, I explain a bit about comparative advantage (a post from 2018).


I think it means the not smart ones have a lower opportunity cost of their time, which gives them a comparative advantage.

Now the post from 2018: 

Yesterday I posted a link to the new PBS series "First Civilizations" which had an interesting episode on trade. Last year was the 200th anniversary of David Ricardo's important idea called "comparative advantage." It explains how two nations can benefit from trade even if one country seems to be better at making all products than the other.

The Washington Post even had an article about it last year. It's the 200th anniversary of the most counterintuitive idea in the social sciences by Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.

Trade can benefit both sides. Otherwise, why make the trade? For example, if you have bread and no water and I have water and no bread, if I trade some water to you for some of your bread, we both gain or are better off.

It might seem like if one country is "better" at producing all goods than another, they have no room for trade. But even then, the seemingly more advanced country will still gain from trade.

Here is an example that comes from  David Ricardo himself. Comparative advantage is when you can produce a good at a lower opportunity cost than others face (in a two good example, it is impossible to have the comparative advantage in both goods).

Suppose it takes 40 labor hours to make a barrel of wine in England and 2 hours to make a yard of cloth. In Portugal, those numbers are 10 and 1, respectively. So it looks like Portugal is "better" at producing both goods since it takes them less time to make wine and less time to make cloth.

The labor hours numbers means that if England wants a barrel of wine, it would have to give up 20 yards of cloth (since 40/2 = 20-if you don't produce a barrel of wine, you save 40 hours of labor and you can make 20 yards of cloth in that time).

In Portugal, if you want to trade a barrel of wine, you can get 10 yards of cloth. Not spending 10 hours making wine allows them to make 10 yards of cloth.

So Portugal has the comparative advantage in wine since less cloth is given up there (10 yards) than in England (20 yards) for every one barrel of wine produced. That is a lower opportunity cost.

England would only give 1/20 a barrel of wine to make cloth while Portugal gives up 1/10 a barrel. England has the  comparative advantage in cloth.

How can the two countries gain from trade? What if England trades 15 yards of cloth to Portugal for 1 barrel of wine?

Both countries gain. England is better off since they only give up 15 yards of cloth to get that barrel of wine when normally they have to give up 20.

Portugal gets more cloth (15 yards instead of 10) for that 1 barrel of wine they trade. They are better off, too (even though it takes them less time to make each product than in England).

Friday, July 30, 2021

Do looks matter for an academic career in economics?

From Marginal Revolution.

"It seems they do:

We document appearance effects in the economics profession. Using unique data on PhD graduates from ten of the top economics departments in the United States we test whether more attractive individuals are more likely to succeed. We find robust evidence that appearance has predictive power for job outcomes and research productivity. Attractive individuals are more likely to study at higher ranked PhD institutions and are more likely to be placed at higher-ranking academic institutions not only for their first job, but also for jobs as many as 15 years after their graduation, even when we control for the ranking of PhD institution and first job. Appearance also predicts the success of research output: while it does not predict the number of papers an individual writes, it predicts the number of citations for a given number of papers, again even when we control for the ranking of the PhD institution and first job. All these effects are robust, statistically significant, and substantial in magnitude.

That is from a recent paper by Galina Hale, Tali Regev, and Yona Rubinstein.  Via John Chilton."

Here are some related posts:

Better Looking Real Estate Agents Make More Money
Do looks matter?
Do Good Looking People Get Better Loan Terms?
Do Looks Help In The Job Market? 
From The Life Is Not Fair Category: Better Looking, Tall, Thin People Make More Money  

The Unfairness of Unattractiveness

Higher economic status can offset lower physical attractiveness in men much more easily than in women

Thursday, July 29, 2021

The vaccine lottery is a worthwhile investment

From Marginal Revolution.

"Conditional cash lotteries (CCLs) provide people with opportunities to win monetary prizes only if they make specific behavioral changes. We conduct a case study of Ohio’s Vax-A-Million initiative, the first CCL targeting COVID-19 vaccinations. Forming a synthetic control from other states, we find that Ohio’s incentive scheme increases the vaccinated share of state population by 1.5 percent (0.7 pp), costing sixty-eight dollars per person persuaded to vaccinate. We show this causes significant reductions in COVID-19, preventing at least one infection for every six vaccinations that the lottery had successfully encouraged. These findings are promising for similar CCL public health initiatives.

That is from a new paper by Andrew Barber and Jeremy West."

Related post:

Ohio sees surge in vaccinations after offering $5 million lottery

Florida counties give away vaccine for free and there are long lines

The Best Herd Immunity Money Can Buy

Wednesday, July 28, 2021

Each sex tended to report more demanding preferences for attractiveness and resources where the opposite sex was abundant, compared to where the opposite sex was scarce

See Sex differences in human mate preferences vary across sex ratios from The Proceedings of The Royal Society.


A wide range of literature connects sex ratio and mating behaviours in non-human animals. However, research examining sex ratio and human mating is limited in scope. Prior work has examined the relationship between sex ratio and desire for short-term, uncommitted mating as well as outcomes such as marriage and divorce rates. Less empirical attention has been directed towards the relationship between sex ratio and mate preferences, despite the importance of mate preferences in the human mating literature. To address this gap, we examined sex ratio's relationship to the variation in preferences for attractiveness, resources, kindness, intelligence and health in a long-term mate across 45 countries (n = 14 487). We predicted that mate preferences would vary according to relative power of choice on the mating market, with increased power derived from having relatively few competitors and numerous potential mates. We found that each sex tended to report more demanding preferences for attractiveness and resources where the opposite sex was abundant, compared to where the opposite sex was scarce. This pattern dovetails with those found for mating strategies in humans and mate preferences across species, highlighting the importance of sex ratio for understanding variation in human mate preferences."

Related posts:

Is It Okay To Use An App To Bribe Someone Into Going On A Date?

Who wrote your potential love's online dating profile? (maybe they outsourced it to a professional who specializes in that) 

When Women Earn More Than Men, Is Dating Affected?

Who Pays on the First Date? No One Knows Anymore, and It’s Really Awkward

Can Giving Up Money And Material Things Lead To More Love?

Can You Put A Price Tag On Love?

Do Opposites Attract? Not Usually, Except Maybe When It Comes To Money

eHarmony To Provide Personal Counselors To Help You Find Mr. Or Ms. Right

Do Women Really Value Income over Looks in a Mate? by Marina Adshade 

Arming Women for the Dating Battlefield 

Higher economic status can offset lower physical attractiveness in men much more easily than in women

There really is a marriage market in many countries

Do Monkeys Pay for Sex?

Tuesday, July 27, 2021

Texas power companies seek to shift storm prep costs onto consumers

By Eric Dexheimer of The Houston Chronicle. Excerpts:

"Thanks to skyrocketing energy costs during the February freeze that paralyzed the state and killed hundreds of people, Texans will be paying billions of dollars in higher gas and electric bills for decades.

Now, energy companies are asking to pass on to ratepayers millions, even billions in additional storm-related costs.

Last month, Gov. Greg Abbott signed into law new rules intended to strengthen an energy grid that failed Texans during a week of subfreezing temperatures. “Bottom line is that everything that needed to be done was done to fix the power grid in Texas,” he said at the time.

A major component of Senate Bill 3 was a requirement that electric companies weatherize their facilities to withstand future freezes — something lawmakers failed to do after a 2011 winter storm froze power equipment and caused rolling blackouts.

Yet the new law didn’t say who should pay for the upgrades. In recent filings with the Public Utility Commission of Texas, several large electric generating companies have said residents — not the investor-owned companies themselves — should cover the cost of weatherproofing their equipment.

Because the new requirements “represent a societal judgment that mandates an additional investment in additional extreme weather conditions,” it makes sense for the public to pick up the tab, Houston-based Calpine Corp. said in a filing.

The companies said that if they had to bear the costs of weatherization, it could make the Texas grid less reliable.

Absorbing the costs might cause some companies to become uncompetitive in the cutthroat Texas energy market, which would force them to take generating facilities offline, said Texas Competitive Power Advocates, which represents electric generating companies."

"the new law requires generators and transmission companies to weatherize their equipment enough to withstand a future severe storm. Failure to do so could result in a penalty of $1 million per day."

"the details of what weatherization will look like were left up to the utility commission. The agency has until September to write the necessary regulations"

"Several electric companies warned against a one-size-fits-all rule, noting that a generation facility in Lubbock may require very different cold weather protection from one in Houston. Older plants, too, may have different needs than modern equipment.

The companies also noted the challenge of installing insulation, windbreaks and heaters while having to protect the same generating equipment from intense summer heat several months later. “The commission should balance whether certain requirements for cold weather preparedness have a corresponding reduction in summer output,” wrote Vistra Corp."

"estimates of the costs of mandated weatherization have varied widely"

"An April study by the Federal Reserve Bank of Dallas pegged the cost of winterizing the entire Texas energy system at $430 million a year. The study concluded that was a reasonable expense, compared with the damage February’s storm did to the state economy, estimated at $80 to $130 billion." [Texas has a population of about 29 million so this works about to about $15 a year per person to winterize the energy system]

"Ratepayers probably will end up paying many of the new mandated storm prep costs. Transmission companies can petition the Public Utility Commission for permission to charge higher rates to recover extraordinary costs. Municipal utilities and co-ops can obtain cash through local governments or members to upgrade their equipment."

"companies said having to spend millions of dollars on the new requirements could force them to reduce the size of their generating fleets, which would mean less power when the Electric Reliability Council of Texas, the state’s grid manager, needs it most."

"Whether state leaders intended for the companies or the public to cover the costs is unclear. The power companies say Abbott signaled that he wanted generators to be able to recover their costs when he directed the Legislature to mandate weatherization but also “to ensure the necessary funding.”"

"Consumer advocates respond that lawmakers had ample opportunity to approve public funding for weatherization — one failed bill would have used money from the state’s rainy day fund — but chose not to do so. That suggests they intended that the companies should pay for it, the advocates say."

Related posts:

Some provisions of the new law regulating the Texas power grid

Companies were paid to cut off power during February storm in Texas

Monday, July 26, 2021

Many Jobs Lost During the Coronavirus Pandemic Just Aren’t Coming Back

Companies see automation and other labor-saving steps as a way to emerge from the health crisis with a permanently smaller workforce 

By Lauren Weber of The WSJ

There are different types of unemployment (seasonal, frictional, structural and cyclical).

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs.

One example of this is when you are replaced by a machine. Another example is when there is a fall in demand for your product, so you get laid off, like with typewriters since people now use computers. A third example is geographical, when the jobs are not in your region of the country.

Excerpts from the WSJ article:

"Job openings are at a record high, leaving the impression that employers are hiring like never before. But many businesses that laid off workers during the pandemic are already predicting they will need fewer employees in the future.

As with past economic shocks, the pandemic-induced recession was a catalyst for employers to invest in automation and implement other changes designed to curb hiring. In industries ranging from hotels to aerospace to restaurants, businesses have reviewed their operations and discovered ways to save on labor costs for the long term.

Economic data show that companies have learned to do more with less over the last 16 months or so. Output nearly recovered to pre-pandemic levels in the first quarter of 2021—down just 0.5% from the end of 2019—even though U.S. workers put in 4.3% fewer hours than they did before the health crisis."

"The U.S. tax code encourages investments in automation, particularly after the Trump administration’s tax cuts, said Daron Acemoglu, an economist at the Massachusetts Institute of Technology who studies the impact of automation on workers. Firms pay around 25 cents in taxes for every dollar they pay workers, compared with 5 cents for every dollar spent on machines because companies can write off capital investments, he said.

Given the expense and complexity of large automation projects, they aren’t always the right solution for companies facing worker shortages or wanting to reduce costs, Mr. Acemoglu said. But there are a lot of piecemeal automation steps that companies can take that might be cost-effective, he added: “If you’re going to try to completely revamp your factory, that’s very expensive. But if you’re a retailer, if you introduce 10 checkout kiosks, that’s not very expensive.”"

Related posts:

Can computers write poetry? Could they replace poets?

Will computer programs replace newspaper columnists?  

McDonald’s Tests Robot Fryers and Voice-Activated Drive-Throughs: Burger giant wants to speed service as competition for fast-food diners mounts

Is Walmart adding robots to replace workers or because it is hard to find workers?

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

Are Computer Programs Replacing Journalists?

Automation Can Actually Create More Jobs 

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment 

Broncos to debut beer-pouring robot at upcoming game

Robots Are Ready to Shake (and Stir) Up Bars 

Is Covid causing some structural unemployment?

Is Covid causing some structural unemployment? (Part 2)

Warehouses Look to Robots to Fill Labor Gaps, Speed Deliveries 

Is unemployment still high because of structural unemployment?   

The Pizza Delivery Guy Will Be a Robot at Many Campuses This Fall 

Sunday, July 25, 2021

How to Motivate Your Teen to Be a Safer Driver

Showing teenage drivers how to avoid being distracted behind the wheel works better than nagging them to put their phones away, research finds

By Julie Jargon of The WSJ. Excerpts:

"Through apps from insurers and other providers, parents can track their teens on the road and see how well they’re driving."

"An age-old parenting quandary is whether and when to use positive reinforcement or punishment with children. When it comes to teen driving, the stakes for choosing the right approach are high. Do you take away teens’ driving privileges if the tracking apps show them to be speeding or using their phones too much while driving, or do you focus on what they’re doing right?"

"Summer is the most dangerous time of year for auto accidents, and new teen drivers are three times as likely as adults to be involved in a deadly crash, according to the Automobile Association of America. Distraction plays a role in about 6 out of 10 teen crashes."

One man "had been using State Farm’s Drive Safe & Save app to keep tabs on his young drivers, and to receive insurance discounts if they drove without speeding or braking too hard."

"A State Farm spokesman said the app positively reinforces safe driving behavior by offering insurance-premium discounts up to 30%."

"New research is emerging that shows positive reinforcement works best with drivers, according to a study out of Australia and preliminary findings from University of Pennsylvania researchers, who are still analyzing data collected from more than 2,000 drivers. In their study, one group of drivers received weekly feedback from Progressive Auto Insurance’s Snapshot app on how their hand-held phone use while driving compared with that of others in their age group; another group received up to $50 at the end of a seven-week period if their phone use was among the lowest in their demographic group; and another received both feedback and the monetary incentive."

"Still another group received weekly feedback and weekly incremental incentives that could add up to $50 if the driver had comparatively low phone use all seven weeks. Depending on how their phone use compared with others for the week, they would either earn or forfeit money. They would receive text notifications letting them know how much of their weekly allotment they had received—or sacrificed.

Drivers who were promised money at the end of the study for keeping their phone use comparatively low showed a 17% reduction in phone use, compared with a control group. The drivers whose earnings were meted out week by week did even better, reducing their phone use by 23%. “Showing people how much they were losing each week created regret,” said lead study author Kit Delgado, an emergency room physician and associate director of the Center for Health Incentives and Behavioral Economics at the University of Pennsylvania."

Related posts:

Lose the Fat to Lower Your Insurance Rates  

How Did Astronauts Of The 60s "Purchase" Life Insurance?   

Should Overweight People Pay More For Health Insurance?

Should We Pay People To Adopt A Healthy Lifestyle? 

'Spy car' worries raised by new Allstate patent 

Should your company or insurer reward you for meeting exercise goals?

How insurance companies are using technology to better assess how risky customers might be   

The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender   

Some History of Insurance 

The EU forbids the use of gender to help calculate car insurance premiums, leading women to pay more and men to pay less

Saturday, July 24, 2021

This Summer, Jobs Come With a Hefty Signing Bonus

As companies grow more desperate to fill open roles, some dangle incentives worth $1,000 or more

By Patrick Thomas of The WSJ. Excerpts:

"Signing bonuses are usually reserved for professional athletes and a privileged few white-collar professionals. Not this summer.

As U.S. employers’ search for hires increases in urgency—especially in the manufacturing, logistics, healthcare and food-service industries—truck drivers, hotel cleaners and warehouse workers are being offered signing bonuses of hundreds and even thousands of dollars.

Nearly 20% of all jobs posted on job search site ZipRecruiter in June offer a signing bonus, up from 2% of jobs advertised on the job search site in March. The states with the highest shares of job listings that include a signing bonus are Iowa, Missouri, Vermont, Wyoming and Arkansas, according to ZipRecruiter labor economist Julia Pollak.

Hiring bonus offers start at $500 and quickly rise from there. Job postings across sectors show that a $1,000 hiring bonus is quickly becoming table stakes in recruiting hourly workers who make between $16.50 and $25 an hour. The $1,000 hiring bonus is advertised on jobs listed for apartment-complex groundskeepers in Texas, movers in Florida, cabinet makers in Georgia, housekeepers in Wisconsin, pool cleaners in New Mexico and welders in Ohio, among others."

"Cash signing bonuses are attractive to employers because they are a one-time cost and don’t require raising wages for the long term or paying out greater benefits indefinitely, such as more paid vacation time, said Brad Hershbein, senior economist at the W.E. Upjohn Institute for Employment Research. The bonuses appeal to potential employees, especially new college graduates and lower-wage workers, who may need the cash up front for expenses such as rent payments, he added."

Friday, July 23, 2021

Economic benefits from mega-events like the Olympics are often overstated

See Are the Olympics ever worth it for the host city? by Tim Hyde of the American Economic Association. Excerpts:

"A study appearing in the Spring issue of the Journal of Economic Perspectives breaks down the costs and benefits of hosting the Olympic Games and explains why some of the perceived economic blessings of the Olympics are mostly wishful thinking.
In Going for the Gold: The Economics of the Olympics (PDF), authors Robert Baade and Victor Matheson consult estimates from academic, public, and media sources on the costs and benefits of hosting the Games. As with any mega-event, costs and benefits can be hard to estimate, but the general story is clear: for most modern Olympics, the costs have far outstripped the benefits.
The direct costs of hosting the Games are probably easier to estimate and tabulate. First there is the non-trivial cost of mounting a bid, which can run into the hundreds of millions of dollars for planning, marketing, and architectural renderings."

"often the bids must include plans for new hotel capacity and dormitories."

"The IOC will tend to favor the city that makes the most lavish offer of gleaming new facilities and infrastructure improvements, so the bidding process can give way to a “winner’s curse” effect. The city that wins tends to be the one that overestimated the value of hosting the Olympics the most, and hence the one that went furthest overboard in their bid. 

Once the Olympics have been assigned, the host city must typically spend billions of dollars building transit and airport improvements, reaching the requisite hotel capacity, and constructing specialized athletic facilities like a swimming facility, a velodrome, or a larger stadium that can accommodate an Olympic track. Disentangling these costs from planned infrastructure improvements that would have happened even in the absence of the Olympics can be difficult, but the best estimates put the cost of hosting at between $5 and $15 billion for most recent events."

"The costs are clear, but the benefits of hosting the Olympics can be substantial as well, even if they are usually overstated by overzealous city officials or self-interested boosters. Host cities receive revenue from ticketing and sponsorships, and local organizing committees receive a share of the proceeds from the sale of television broadcast rights. These benefits are easy to quantify, but don’t add up to a significant fraction of the hosting costs in most cases. Vancouver 2010 produced about $1.5 billion in direct revenues and London 2012 about $3.3 billion; in each case, far less than the costs.

The rest of the benefits are more nebulous. Proponents tout supposed benefits ranging from the economic stimulus provided by construction demand, to increased tourism during and after the games thanks to a worldwide advertising campaign, to increased foreign investment and better trade connections, to an improved sports infrastructure for future generations (this last benefit is most easily debunked). The authors argue that most of these benefits tend to be less than hoped, or only appear in specific situations.

Infrastructure improvements can provide a form of fiscal stimulus to a city with a slack labor market, but if the city’s economy is near full employment anyway in the years leading up to the Games, the extra construction jobs are more likely to come at the expense of other sectors. 

Tourism, meanwhile, can be crowded out by the hustle and bustle of the Olympics themselves – Beijing and London both saw fewer international visitors during the months they were hosting the Olympics in 2008 and 2012 compared to the same months in previous years, and Utah ski resorts noticed a dip in traffic during the 2001-02 ski season that coincided with the Salt Lake City games.
A few cities have had success generating future tourism business with the Olympics...But many other host cities ... have seen limited increases in tourism after their games.

One study did find that countries hosting the Olympics see a 20% increase in export trade in the years after hosting, relative to similarly-situated countries, which might go a long way to justifying the economic expense of hosting the event. But the same study found similar gains for countries where cities unsuccessfully bid for the Olympics. The authors suggest that the very act of bidding for the Olympic Games suggests a government is looking to increase international connections and willing to make infrastructure investments, which can attract foreign interest. 

It is also likely that the types of cities that decide to mount bids are on an economic upswing and poised for growth, and actually winning that bid might be more likely to stunt that growth rather than accelerate it.

The balance of evidence is that the economic costs of hosting the Olympics far outpace the benefits, so why do cities bother to bid at all? One possibility is civic pride or the desire to affirm a city’s status as a “world city.” 

These benefits are hard to translate into economic terms, but two careful studies used contingent valuation survey methods (similar to the techniques economists use to see how much people value maintaining the rainforests or keeping a species from extinction) to measure this benefit in the runup to the 2012 Olympics in London. They found that people across the United Kingdom collectively valued the opportunity to host the Olympics at about £2 billion, still well short of the cost of hosting."

Related posts:

Does It Pay to Host the Olympics?

Canada Wins The Olympics! (based on the market value of the medals)

Thursday, July 22, 2021

Montana Boomtown Jumps to No. 1 on WSJ/ Housing Market Index

Rankings show how the housing boom has ignited homebuying in smaller to midsize cities around the U.S

By Nicole Friedman of The WSJ

This is a follow up to yesterday's post about the indifference principle. This shows that people will move to what they think is a better city (which could make costs higher there, and it ends up not being any better). People are moving to Billings, Montana and housing prices are rising much faster there than across the country. It probably won't be long until people will be indifferent to moving there or staying put since it is getting more expensive and that will eat up any extra benefits it might have.


"Billings, Mont., is the new No. 1 on The Wall Street Journal/ Emerging Housing Markets Index, boosted by its affordability and appeal to remote workers.

The index reflects how the housing boom has ignited homebuying activity in smaller to midsize cities around the U.S. The top 20 cities in the ranking have an average population size of just over 300,000."

"The index identifies the top metro areas for home buyers seeking an appreciating housing market and appealing lifestyle amenities. This quarter’s version added the new criteria of real-estate taxes, which caused some areas in the Northeast, Midwest and Texas with higher property taxes to fall in the rankings."

"Billings, the biggest city in Montana, rose from the fourth spot to the first due to its low unemployment, affordability and booming housing market. With a metro-area population of about 184,000, Billings had a 3% unemployment rate in May, or about half the national rate."

"The average single-family home-sale price in Billings and the surrounding area was $376,248 in June, up 32% from a year earlier"

"Home prices in the top 20 markets in the index have risen 13.7% on average in the past year, outpacing an 8% rise for all 300 areas"

Wednesday, July 21, 2021

The Indifference Principle Comes To San Antonio

The economist Steven Landsburg gave this definition for the "Indifference Principle." "Except when people have unusual tastes or unusual talents, all activities must be equally desirable"  (from his book "The Armchair Economist").

Two recent articles touch on this:

12 San Antonio companies that have been named best places to work each of the last 5 years: The San Antonio Business Journal has crowned these local employers multiple times from KSAT.

San Antonio dramatically drops on U.S. News & World Report's best places to live by Sarah Martinez of (We fell to No. 75, a 34-point drop from 2020 when San Antonio ranked No. 41)

For the first one on best places to work, the article says:

"Here are a few characteristics that come across multiple times across many of the repeat best places to work companies:

  • Care for their employees first, which translates to excellent customer service for their respective customers
  • Team engagement through fun family or company-wide outings or even through online platforms throughout the pandemic
  • Employee recognition programs
  • Periodical “State of the Company” addresses by upper-management
  • Employee bonuses
  • Focus on professional development and education initiatives such as tuition reimbursement or attendance to go conferences or workshops
  • Free food or goodies in the office or delivered to their house
  • Health-focused programs and incentives
  • Laying out specific strategic goals and providing consistent yearly reviews for employees"

Having all those benefits and programs certainly makes a business a great place for employees. But if that is so, then more people will start applying for jobs there. The company could then start offering lower salaries and the workers end up paying for it. There would be a cost that offsets those extra benefits. Potential job seekers then would be indifferent between getting a job at one of these "best places" and a job at a company not listed.

Same with the second article ("The publication considered data related to affordability, quality of life, job prospects, and other factors to determine its ranking.")

If a city has a high quality of life, then more people want to move there. But that raises prices (like housing, for instance). Then it costs more to get those extra benefits from the quality of life. As more people come here, prices keep rising and eventually all the extra benefits are completely offset by the higher cost of living). Maybe it is not a surprise that San Antonio fell in the rankings.

Related posts:

San Antonio cracks top 25 on U.S. News and World Report's "Best Places to Live"

What Is Is the Richest City in America?

North Dakota Is Number One! 

Can Some Places Really Be The "Best" Places To Retire To? 

The Top Budget Vacation Spot Is...Austin, Texas!?

There's No Such Thing As A Free Lunch (Or A Free Concert)

America's Most Affordable Places to Retire 

The 10 Most Affordable Housing Markets

Tuesday, July 20, 2021

The Covid recession lasted two months

See Business Cycle Dating Committee Announcement July 19, 2021 from NBER. Excerpts:

"The Business Cycle Dating Committee of the National Bureau of Economic Research maintains a chronology of the peaks and troughs of US business cycles. The committee has determined that a trough in monthly economic activity occurred in the US economy in April 2020. The previous peak in economic activity occurred in February 2020. The recession lasted two months, which makes it the shortest US recession on record.

The NBER chronology does not identify the precise moment that the economy entered a recession or expansion. In the NBER’s convention for measuring the duration of a recession, the first month of the recession is the month following the peak and the last month is the month of the trough. Because the most recent trough was in April 2020, the last month of the recession was April 2020, and May 2020 was the first month of the subsequent expansion.

In determining that a trough occurred in April 2020, the committee did not conclude that the economy has returned to operating at normal capacity. An expansion is a period of rising economic activity spread across the economy, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date."

"The NBER’s traditional definition of a recession involves a decline in economic activity that lasts more than a few months. For example, the previous shortest recession occurred in the first half of 1980 and lasted six months.  However, in deciding whether to identify a recession, the committee weighs the depth of the contraction, its duration, and whether economic activity declined broadly across the economy (the diffusion of the downturn). The recent downturn had different characteristics and dynamics than prior recessions. Nonetheless, the committee concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warranted the designation of this episode as a recession, even though the downturn was briefer than earlier contractions."

Monday, July 19, 2021

When the U.S. Gave Up Gold

Fifty years ago, President Nixon turned the dollar into a fiat currency, overturning the basic monetary arrangements of the postwar era

By Jeffrey E. Garten. Mr. Garten is dean emeritus of the Yale School of Management. He has written a book called “Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy.” Excerpts:

"Fifty years ago next month, at a secret weekend meeting at Camp David, President Richard Nixon and his top economic advisors decided to take the U.S. off the gold standard. The dramatic move, announced by the president upon his return to the White House on August 15, 1971, suspended the most fundamental rules of the international monetary system, affecting the prices of all products, commodities and services in world commerce."

"Nixon’s decision overturned arrangements created by the U.S. and its wartime allies in 1944 at Bretton Woods, New Hampshire, where Washington had agreed to exchange dollars for gold at a rate of $35 per ounce. Making the dollar convertible into gold, and pegging every other currency to dollars at a fixed rate, was meant to inject stability into international commerce. The hope was to avoid the sort of competitive currency depreciations and rampant tariff increases that had worsened the Great Depression in the 1930s and helped to precipitate a world war.

The dollar-gold link was credible because Uncle Sam owned most of the world’s gold after the war—and because American leaders publicly stressed their commitment to the agreement."

"Confidence in its solidity fueled the phenomenal recovery of Japan and Western Europe from wartime devastation and played a big part in the American economic boom of the 1950s and 60s."

"So why did Nixon cast aside this system? In the late 1960s, inflation began to accelerate, and holders of dollars feared the erosion of the currency’s purchasing power. At the same time, U.S. trade balances were deteriorating, thanks to fierce competition in manufactured goods from Japan and West Germany. Protectionist sentiment in the country was growing. The Nixon administration, congressional leaders and many CEOs believed that the link to gold overvalued the dollar, making U.S. imports too cheap and exports too expensive. They thought that severing the gold link would devalue the dollar in relation to other currencies and boost American trade.

Perhaps more important was the fact that the U.S. no longer had the gold supplies to convert all the world’s dollars. In 1955, U.S. gold reserves exceeded dollars held by foreign governments and central banks by 160%; by 1971, those reserves equaled just 25% of dollars held abroad." 

"policy makers were deeply concerned that if too many countries requested gold for dollars, Washington would have to abruptly end its pledge of convertibility. Such a failure, it was feared, would not only undermine U.S. credibility in international finance but raise questions in the minds of allies about the durability of American military commitments under NATO and other treaties."

"The Camp David decisions opened the way for new arrangements, in which exchange rates were not fixed against one another and not backed by gold, but instead allowed to float up and down depending on market forces. Nothing tangible backed currencies—only domestic economic conditions and international trust in a country’s policies and institutions."

"In the years between 1945 and 1971, there were hardly any global banking crises. The era of floating exchange rates, by contrast, has produced many"

"floating exchange rates also had benefits. They could accommodate rapid changes in the global economy, such as gyrating oil prices or new competitive pressures from emerging markets. They allowed trade and capital flows to flourish, which helped to lower prices and expand consumer choices while dramatically reducing global poverty."

Related posts:

Monetary Policy and the Great Crash of 1929: A Bursting Bubble or Collapsing Fundamentals?

Does The Increase In The Price Of Gold Mean More Inflation In The Near Future? 

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

Sunday, July 18, 2021

Inflation Threat May Be Boosted by Changes in Globalization, Demographics and E-Commerce

Economists see shifts in these long-term trends putting upward pressure on prices

By Gwynn Guilford of The WSJ. Excerpts:

"Global trade more than doubled from 27% of world gross domestic product in 1970 to 60% in 2008, buoyed by falling barriers to trade and investment. In the U.S., it soared from 11% of GDP in 1970 to 31% in 2011. Global competition compelled companies to build elaborate international supply chains, sourcing materials and products in the cheapest possible place. They were aided by access to cheap labor, as the fall of the Berlin Wall and China’s shift toward a market economy in the 1980s and 1990s more than doubled the workforce integrated with the global economy."

"U.S. “core” goods prices, which strip out volatile energy and food prices, rose just 18% between 1990 and 2019. Prices for core services, most of which are produced domestically, surged 147%."

"But the benefits of globalization “would appear to have been largely spent in a number of respects, not the least of which is the move toward anti-globalization and increasing protectionism,” said Peter Hooper, chief economist for Deutsche Bank Securities."

"Laundry equipment prices fell 5.8% annually between 2012 and 2017. After then-President Trump announced tariffs on imported washing machines in January 2018, prices for washing machines shot up 12% in the first half of that year. Laundry equipment prices edged lower over the next year or so but are still at 2013 levels."

"A paper by Mikael Juselius, a Bank of Finland economist, and Előd Takáts, of the Bank for International Settlements finds lengthening lifespans initially nudge inflation lower because they spur earners to save even more for their retirement. Eventually, though, a rising ratio of dependents to workers adds to inflationary pressures."

"Nearly 14% of retail sales are now conducted online, more than five times as much as in 2005. The price transparency from having retail prices clearly marked and aggregated online, as well as advances in delivery speeds, forced businesses to compete on price both online and offline, and to face more rivals, a phenomenon sometimes called the “ Amazon effect.”"

"online prices fell an average of 4% a year from 2015 through 2019"

"Online prices have risen 2% since March 2020, according to Adobe data."


Saturday, July 17, 2021

'Too big to fail': San Antonio's fledgling job training program under scrutiny

By Joshua Fechter of The San Antonio Express News. Excerpts:

"As San Antonio’s job training program lags and officials try to suss out the details of its next phase, a key backer worries the initiative is in trouble.

COPS/Metro, a grassroots advocacy group, aggressively lobbied city leaders to create an emergency program to help some of the thousands of people thrown out of work amid the pandemic get the skills they needed to land higher-paying jobs.

The group’s leaders later threw their weight behind Mayor Ron Nirenberg when he asked voters in November to use sales tax dollars to create an expanded program.

But months after the idea proved victorious at the polls, members of COPS/Metro have grown increasingly disillusioned with how the city’s job training efforts have played out. They feel city officials have all but ignored their concerns. The group’s leaders are disappointed in the meager number of participants who have obtained training certificates and landed jobs through the emergency program — dubbed Train for Jobs SA.

Nine months after the $75 million initiative began, 214 people have been placed into jobs.

And COPS/Metro leaders worry the city hasn’t done enough to prepare for the next stage of its training efforts — Ready to Work, the $200 million program backed by a sales tax that will also help residents enroll in college degree programs. Already, the program’s rollout has been pushed back a month from September to October.

City officials drawing up Ready to Work have done so at a breakneck pace, COPS/Metro leaders argue, and focused too much on figuring out bureaucratic procedures rather than what jobs participants will train for — points that officials contest."

"When Train for Jobs began last September, officials said the program would help 10,000 people in some fashion, even if they didn’t complete their training and land jobs."

"The person overseeing the city’s current job training program is Heber Lefgren, who leads the city’s Animal Care Services department."

Friday, July 16, 2021

Hospitals Often Charge Uninsured People the Highest Prices, New Data Show

Cash payers are often charged more than insurance companies for the same service by the same hospital, according to a WSJ analysis of previously confidential data 

By Melanie Evans, Anna Wilde Mathews and Tom McGinty of The WSJ.

There might not be anything wrong here (like something sinister or unethical). The WSJ did not talk to any health care economists. I have no expertise on this but there were a couple of things I noticed.

Excerpts from the article:

"The reasons for high cash prices are complex and, even to many healthcare experts, baffling.

Hospitals typically have a sticker price, often called the “chargemaster” price, that can be the starting point for negotiations with insurers. Discounts off that sticker price tend to be steeper for those that bring large volumes of patients. Insurance plans offered under government programs like Medicare and Medicaid get even lower rates, tied to prices mandated by federal and state agencies.

The cash prices for patients who must pay for their own care can be equal to the sticker prices or sometimes represent a percentage lopped off that top rate. Sometimes, those cash rates are also applied to people who have some form of insurance but get a service that the insurance doesn’t cover.

Will Fox, who advises hospitals on pricing as an actuary with Milliman Inc., says hospitals often keep cash prices above the rates negotiated by big insurers.

“They don’t want to give away too much of a discount because they really want the best discounts to go to these larger volume negotiated insured rates,” he said. “Somebody walking off the street, we’ll give you a 20% discount, but we’re going to give our favorite customer, who sends us millions or even billions of dollars in business, we’re going to give them a much bigger discount.”

Yale New Haven Health offers cash prices that represent a discount off sticker rates, but it keeps them above all of the prices negotiated by insurers, says Pat McCabe, the system’s senior vice president of finance. “We didn’t want there to be that tension, for an insurer to look at that data and say, ‘you’re providing better rates to uninsured patients than you are to our insureds, how do we justify that to our members and/or employer partners?’”"

If insurers bring in a large number of customers, that might help hospitals attain economies of scale which means average cost falls as quantity produced increases. The large cost of the hospital is spread over more patients. So it makes sense that hospitals would give this incentive to insurers.

Then it also says that insurers would worry if people paying cash got the same incentive. This would reduce the incentive for people to buy insurance. The insurers' customers might say "why are we buying these policies if we could get the discount without them?"

Also, the article discusses discounts that some cash patients get based on their income. This means that they are charging people different prices, what economists call price discrimination.

Firms will make more money if they charge different prices to groups of consumers with different elasticities of demand (the related post linked below shows how this works). Customers with higher elasticities will pay lower prices.

Price elasticity of demand just tells us how much quantity demanded will change in response to a change in price. 

There is some information below about how price discrimination work and what determines price elasticity of demand. But it tells us that when people spend more of their budget on something, they have a higher price elasticity of demand. Since the lower income people will spend more of their budget on hospital bills than others, they have a higher elasticity. Firms will charge such people lower prices (and doing so increases their profits-again, see the related post linked below to see how this works). So, as the article discusses, the hospitals offer some discounts based on income.

Necessary Conditions for Price Discrimination

1. The firm must face a downward sloping demand. Monopolies do but firms in perfect competition do not (their demand, also their MR line, is flat).

2. The firm must be able to readily (and cheaply) identify buyers or groups of buyers with predictably different elasticities of demand (senior citizens have a more elastic demand and will shop around more since they have more time so restaurants might give them a discount). The more elastic the demand, the greater the change in quantity demanded for a given change in price.

3. The firm must be able to prevent resale of the product or service. If a student can buy a movie ticket for $6 while everyone else pays $8, the firm will lose money if the students turn around and sell their tickets for $7. So the theater can prevent resale by checking student IDs to make sure people holding the lower price ticket really are students.

Determinants of price elasticity of demand

1. Share of the budget going to a good

If this is low, then price elasticity of demand is low or inelastic. For example, if you only buy one box of cooking salt a year and the price doubles from $1 to $2, you will probably still buy that one box because this spending makes up a very small share of your budget.

If this is high, then price elasticity of demand is high or elastic. But if the price of cars doubles, you will probably buy fewer cars since that takes up a much larger share of your budget.

2. Adjustment time.

In the short-run price elasticity of demand is low or inelastic. For example, if the price of gas doubles, you will probably only reduce your quantity purchased slightly because you still need to get to school and work.

In the long-run price elasticity of demand is high or elastic. In the long-run, when you have more time to adjust to the higher gas prices, you can shop around and buy a car with better mileage, move closer to your job, get into a car pool or find a bus route. So your quantity purchased of gas will decrease more than in the short-run.

3. Number of close substitutes.

If there are few substitutes for a good, then price elasticity of demand is low or inelastic. For example, if there is a drug you need to take (or something like insulin for diabetics), there will be few substitutes. So if the price increases, your quantity purchased will not change much because you must buy this drug.

If there are many substitutes for a good, then price elasticity of demand is high or elastic. For example, if the price of potato chips increases, your decrease in quantity purchased will be great because there are many substitutes for potato chips. You can get nachos, pretzels, corn chips, etc. instead.

Related post

Price discrimination and profit