Sunday, December 31, 2023

Does the difference between a 1.44% and 1.56% annual growth rate matter?

See This Stat Could Transform How You View Economic Growth by Josh Zumbrun of The WSJ.

He talks about GDP per working age person instead of GDP per capita being a better way to view economic growth. He says:

"But when you use GDP per working-age person, the difference all but disappears. Japan grew 1.44% compared with 1.56% for the U.S. over the same period." (from 1990-29)
Yes, that is a small difference. But over 29 years it can add up. I found Real gross domestic product per capita from FRED (Federal Reserve Economic Database from the St. Louis Fed). Not the same thing that Zumbrun is talking about, but similar.

In 2017 dollars, Real GDP per capita was about $40,000 in the USA in 1990 (and per working age person it would be higher so the difference I will highlight below would be even larger).

What if the USA and Japan were both at a GDP per working age person of $40,000 in 1990?

Growing at 1.56% per year, the USA would be at $62,664 in 2019. Japan, growing at 1.44% would be at at $60,552.

The USA is ahead by more than $2,100. That makes a big difference to the average family. So the answer to the question in the title is yes. And again, I used a low starting figure of $40,000. GDP per working age person would have been higher in 1990 in both countries.

If it had started at $50,000 in each country in 1990, the USA would be about $2,600 higher in 2019.

Saturday, December 30, 2023

This post is featured in an economics textbook

The post is below. It is featured in Introduction to Microeconomics by Luís Cabral. He is chair of the economics department at New York University.

Here is an excerpt from the book followed by the post from May 27, 2019:

"Once you get into the mechanics of comparative statics, it should come naturally to interpret real-world events as shocks to demand and supply curves, which in turn lead to adjustments in price and transaction volumes. Consider some recent events in the honey industry, as described in Box 7.1 (source: Cyril Morong). The left column includes a series of quotes from a Wall Street Journal article on the honey industry. The right column, in turn, includes a series of comments on how to interpret these events in terms of the model of supply and demand." (see pages 270-71 of Dr. Cabral's book) 

Why honey prices have climbed about 25% since 2013

See You’ll Need a Lot More Money to Buy That Jar of Honey: Beekeepers are in a sweet spot as consumer trends shift away from cane sugar and high-fructose corn syrup by Lucy Craymer of The WSJ. Excerpts, with my comments in brackets:
"Honey prices are starting to sting.

Global honey prices are at their highest levels in years, due to a new wave of consumer demand for natural sweeteners [demand increases because tastes or preferences increased with the opposite happening for sugar] and declining bee populations that are hampering mass production [supply decreases]."

"In addition, it is being used more as an ingredient in shampoos, moisturizers and other personal-care products that companies market as naturally made [another increase in demand due to tastes]."

"Retail honey prices world-wide recently averaged $4.69 a pound, according to market research firm Euromonitor International. Prices have climbed about 25% since 2013, while the cost of sugar has fallen around 30% over the same time frame."

"U.S. retail prices averaged $7.66 a pound in May, up 9% from a year earlier"

"Those prices have risen by about two-thirds in the last decade"

"Americans consumed 596 million pounds of honey in 2017, or an average of nearly two pounds per person—up 65% since 2009 [if demand shifts right, we expect both price and quantity to increase]."

"It has been touted by celebrities—including tennis star Novak Djokovic—for its health benefits and numerous scientific studies have shown it can help heal wounds, ulcers and burns [maybe this is part of the reason tastes increased]."

"Global honey production has been relatively stable over the past five years [but if supply shifted left that could cancel out the demand increase and leave quantity the same]."

"In the U.S., honey production peaked in 2014 and has fallen 15% since then [if supply shifted more to the left than demand shifted to the right, total Q falls-maybe the increased American quantity means less for consumers elsewhere]."

Friday, December 29, 2023

"Wedding content creators" curate the perfect social-media-ready images of the nuptials and celebration (creative destruction and how the economy just keeps creating new types of occupations & professions)

See Does Your Wedding Need a ‘Social-Media Concierge?’ Conga line of vendors now includes ‘wedding content creator;’ some have their ‘knickers in a twist about it’ by Alexa Corse of The WSJ. Excerpts:

"a “wedding content creator,” who would be on hand with an iPhone to curate the perfect social-media-ready images of the nuptials and celebration."

"wedding content gurus who are also known as “social media wedding concierges,” with prices that can go from just over $1,000 to north of $3,500."

"Popping up across the U.S. and abroad, they cater to the many now used to sharing their life—and all those fabulous, enviable moments—in near-real time on social media."

"“Couples lose control over the narrative,” cautions wedding-industry site Wed Society Pro, touting the reasons why one should consider a “wedding social media assistant.”"

Related posts: 

Who wrote your potential love's online dating profile? (maybe they outsourced it to a professional who specializes in that) (2016)

New Profession Of "Wedding Hashtag Helper" Might Be An Example Of Creative Destruction At Work (2022)

Are dating coaches who help you with texting modern Cyrano de Bergeracs? (2023)

Do You Need a Fixer for Your Disney Vacation? Third-party companies tout advanced knowledge for private tours of complex amusement parks that can cost $1,000 and up (2023)

Parents Hire $4,000 Sorority Consultants to Help Daughters Dress and Impress During Rush (creative destruction and how the economy just keeps creating new types of occupations & professions) (2023)

Creative Destruction

See Creative Destruction by Richard Alm and W. Michael Cox. Excerpt:

"Joseph Schumpeter
(1883–1950) coined the seemingly paradoxical term “creative destruction,” and generations of economists have adopted it as a shorthand description of the free market’s messy way of delivering progress. In Capitalism, Socialism, and Democracy (1942), the Austrian economist wrote:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)

Although Schumpeter devoted a mere six-page chapter to “The Process of Creative Destruction,” in which he described capitalism as “the perennial gale of creative destruction,” it has become the centerpiece for modern thinking on how economies evolve."

But also see this link which suggests that the idea goes back even before Schumpeter to other scholars: Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter by Hugo Reinert and Erik S. Reinert.


This paper argues that the idea of ‘creative destruction’ enters the social sciences by way of Friedrich Nietzsche. The term itself is first used by German economist Werner Sombart, who openly acknowledges the influence of Nietzsche on his own economic theory. The roots of creative destruction are traced back to Indian philosophy, from where the idea entered the German literary and philosophical tradition. Understanding the origins and evolution of this key concept in evolutionary economics helps clarifying the contrasts between today’s standard mainstream economics and the Schumpeterian and evolutionary alternative."

Thursday, December 28, 2023

Are robot vehicles replacing workers in freight yards, warehouses and seaports or are they being used because it is hard to find workers?

This an on going issue. Capital has been replacing labor since the beginning of the industrial revolution. But when companies add more capital (like robots) it does not always mean that they are letting workers go. It might be hard to find to find workers in the first place. In my related posts listed below on robots there are some on this topic.

See Self-Driving Vehicles Are Finding a Home in Industrial Operations: Robotic trucks may face an uphill climb on public roads, but automation is claiming a place in freight yards and warehouses by Paul Berger of The WSJ. Excerpts:

"Kimberly-Clark credits hundreds of autonomous forklifts with helping the consumer-products company keep Kleenex facial tissue, Cottonelle toilet paper and other goods flowing to stores despite labor shortages during the Covid pandemic. Sharpie maker Newell Brands says the vehicles are helping deliver safety improvements and cost savings across the company’s operations.

Logistics executives say autonomous vehicles that lift and move heavy pallets are becoming more common as companies find it harder to hire workers."

"the market for autonomous trucks . . . will grow at a compound annual growth rate of about 53% from 2022 to 2030."

"Autonomous vehicles within industrial operations are more attractive now “just because wages have gone up so much, availability of labor has gotten a lot more limited and [the technology has] become a lot more reliable,” said Kevin Patterson, president of distribution at NFI Industries, a logistics provider"

"Newell Chief Executive Chris Peterson said robotic vehicles have reduced incidents of damage to goods and are delivering “significant cost savings.”"

"At seaports, autonomous guided vehicles are ferrying shipping containers across docks in Southern California, at the ports of Los Angeles and Long Beach. At the most advanced facility, Long Beach Container Terminal, some vehicles drive themselves to a nearby building where automated machinery switches out their battery packs so they can quickly get back to work."

Related posts:
Rent a robot for Christmas? Makes sense if you are a logistics company (2022)

Walgreens Turns to Prescription-Filling Robots to Free Up Pharmacists (2022)

Answering the Call of Automation: How the Labor Market Adjusted to the Mechanization of Telephone Operation (2022)

Many Jobs Lost During the Coronavirus Pandemic Just Aren’t Coming Back (2021)

Can computers write poetry?Could they replace poets? (2020)

Will computer programs replace newspaper columnists?  (2020)

McDonald’s Tests Robot Fryers and Voice-Activated Drive-Throughs: Burger giant wants to speed service as competition for fast-food diners mounts (2019)

Is Walmart adding robots to replace workers or because it is hard to find workers? (2019)

Robot Journalists-A Case Of Structural Unemployment? (2010)

Structural Unemployment In The News-Computers Can Now Tell Jokes  (2013)

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

Answer: a smell Gibson.

Robot jockeys in camel races (2014)

Are Computer Programs Replacing Journalists? (2015)

Automation Can Actually Create More Jobs  (2016)

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment  (2018)

Broncos to debut beer-pouring robot at upcoming game (2018)

Robots Are Ready to Shake (and Stir) Up Bars (2018)

Is Covid causing some structural unemployment? (2020)

Is Covid causing some structural unemployment? (Part 2)

Warehouses Look to Robots to Fill Labor Gaps, Speed Deliveries  (2021)

Is unemployment still high because of structural unemployment?    (2021)

The Pizza Delivery Guy Will Be a Robot at Many Campuses This Fall  (2021)

Tuesday, December 26, 2023

The Startling Economics of the World’s Largest Cruise Ship

With its seven pools, six waterslides and dozens of places to eat, drink and gamble, Royal Caribbean’s Icon of the Seas brings new meaning to the phrase ‘economies of scale’—and it’s better for the environment too.

By Spencer Jakab of The WSJ. Excerpts:

"most cruisers these days are middle-class Americans or Europeans looking to be fed, pampered and entertained on a floating version of home. Many bring their children. The hyper-efficient industry has made that possible by building megaships that resemble floating theme parks, and even its own islands.

Using tax havens and employing thousands of workers from developing countries has helped keep the cost of cruises down. Their real secret formula, though, has been the economies of scale of modern vessels and cruise ports."

"In 1980 . . . there were 1.4 million oceangoing cruise passengers."

"Next year, CLIA expects 36 million passengers and for the industry to surpass 300 oceangoing vessels—more than most navies."

Many cruises aren’t expensive, and sometimes—for example when operators were luring passengers back from the Covid-19 pandemic that shut it down—they have been outright bargains. Mass market operators keep ticket prices low enough to reach full occupancy even during recessions because a substantial part of their cost is the vessels themselves, and their fuel. Once people are on board, more than a third of revenue can come from onboard spending such as drinks, spa treatments, specialty restaurants and gambling.

Next month will see the launch of the world’s largest passenger ship, Royal Caribbean’s Icon of the Seas, with a maximum capacity of 7,600 people, not including 2,350 crew members. Its incredible size is a selling point in and of itself, but it also highlights the pursuit of savings.

“You only have one captain, only one bridge team, only one engineering team. The same thing happens in other parts of the ship,” says Bill Burke, the chief maritime officer of Carnival, the world’s largest cruise company. Carnival launched the first passenger ship exceeding 100,000 gross tons 27 years ago. That was more than twice the size of the Titanic. Icon of the Seas is as big as five Titanics."

"bigger ships have downsides, such as where they can sail. “At some point you begin to limit your ability to get into certain places.”"

"To get around that, and also to save energy and boost revenue, cruise lines have even leased their own private islands a short sail from Florida cruise ports, giving them new names like Castaway Cay and Perfect Day at CocoCay. Often featuring docks that can accommodate megaships, they offer a sanitized version of the tropics where every dollar spent accrues to the cruise line."

Economies of Scale (Increasing Returns to Scale) = A situation in which long-run average total cost declines as the firm increases its level of output. The percentage increase in Q is greater than the percentage increase in TC.

Related post:

Will Economies Of Scale Bring Down The Cost Of Producing Electric Cars? (2010)

Saturday, December 23, 2023

‘Thrifting’ Extends to Holiday Shopping Too

Roughly 17% of gifts this holiday season will be a resold item, according to Salesforce data

By Joshua Kirby of The WSJ. Excerpts:

"A new kind of present is gaining acceptance this holiday season. More consumers are picking secondhand items to gift each other, finding it to be an environmentally and budget-friendly option. 

Thrift stores that sell used clothes and goods are springing up online and on street corners. Goodwill Industries International, the nonprofit behind the familiar chain of thrift stores, is ramping up its online efforts. Fashion brands are developing their own resale offering to keep up with clothing-reseller sites such as Depop and Poshmark. Roughly 17% of gifts this holiday season will be a resold item, according to software firm Salesforce."

"About 85% of American shoppers have bought or sold preowned items over the past year, nearly a third for the first time, according to online marketplace OfferUp’s Recommerce report. In apparel alone, some 10% of the global market will be secondhand by next year."

Related posts:

Thrift Might Be Okay Nowadays (2010)

Frugal Is The New Sexy (2010)

Friday, December 22, 2023

What Anthropologist Melvin Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving

See What Economists Fail to See in the Act of Gift-Giving: New research suggests why holiday gifts—unlike purchases for oneself—have a value far higher than some economists previously thought from the WSJ. Here is a letter I submitted to the WSJ:

"Melvin Konner takes economists to task because they ignore the fact that gifts symbolize your friendship with someone else and instead focus only on their efficiency ("What Economists Fail to See in the Act of Gift-Giving," Dec. 5.) He argued that gifts have sentimental value, too. That may be true, but we could just as easily see gift giving as an example of what economists call signals. If I spend money on a gift for you, that signals that I am willing to incur a cost to show to you that I am truly your friend. You would not spend money on another person if you did not think you were friends. Konner actually hints at this when he says we feel cheated if we give gifts to a friend but they never reciprocate. Their not spending money on us signals their lack of feelings for us."
 To me, just the very fact that we spend money to prove to another person that we are their friend shows that economics is a very significant part of gift giving. Konner did not mention this possibility at all.


Thursday, December 21, 2023

Is Christmas Gift Giving Inefficient?

In 1993, Yale economics professor Joel Waldfogel published an article titled The deadweight loss of Christmas. The idea is that gift recipients often place a lower dollar value on the item than its actual price. Maybe someone buys you a tie for $20 that you would pay no more than $5 for. So the inefficiency or deadweight loss is $15. Waldfogel estimated that in 1992, the inefficiency or deadweight loss in the United States from Christmas was anywhere between $4 billion and $13 billion.

Not everyone agrees with this. The article Christmas gift giving: a deadweight loss? from Business World mentions:
"the process of gift giving adds value to a gift over and above its retail price. Giving a gift instead of cash says the giver bothered to know what the receiver might want. There are times, in fact, when gifts that weren’t wished for turn out to be most valued. A thing one would not have thought of buying himself might end up a pleasant surprise. Or, an item the recipient might have had money to spend on but never bought for frugal reasons could also turn out to be a gift valued more than its price."
An article from the Economist magazine, "Is Santa a deadweight loss?: Are all those Christmas gifts just a waste of resources?, raised the question "So should economists advocate an end to gift-giving?" Here is the answer they provided:
"There are a number of reasons to think not. First, recipients may not know their own preferences very well. Some of the best gifts, after all, are the unexpected items that you would never have thought of buying, but which turn out to be especially well picked. And preferences can change. So by giving a jazz CD, for example, the giver may be encouraging the recipient to enjoy something that was shunned before. This, and a desire to build skills, is presumably the hope held by the many parents who ignore their children's pleas for video games and buy them books instead.

Second, the giver may have access to items—because of travel or an employee discount, for example—that the recipient does not know existed, cannot buy, or can only buy at a higher price. Finally, there are items that a recipient would like to receive but not purchase. If someone else buys them, however, they can be enjoyed guilt-free. This might explain the high volume of chocolate that changes hands over the holidays.

But there is a more powerful argument for gift-giving, deliberately ignored by most surveys. Gift-giving, some economists think, is a process that adds value to an item over and above what it would otherwise be worth to the recipient. Intuition backs this up, of course. A gift's worth is not only a function of its price, but also of the giver and the circumstances in which it is given.

Hence a wedding ring is more valuable to its owner than to a jeweller, and the imprint of a child's hand on dried clay is priceless to a loving grandparent. Moreover, not only can gift-giving add value for the recipient, but it can be fun for the giver too. It is good, in other words, to give as well as to receive."
See also

Are Homemade Gifts Better Or More Special?

What Melvin Anthropologist Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving 

Here is an old Dilbert strip

- Dilbert by Scott Adams

Wednesday, December 20, 2023

How Capitalism Saved Christmas

The commercialization of the holiday, a familiar lament this time of year, helped rescue Christmas from the grip of violent street gangs

By Jason Zweig of The WSJ. Economists talk about how gift giving can be inefficient (see related posts linked below). But if the emphasis on gift giving reduced the chaos caused by the gangs, maybe it it is worth it (or not quite so inefficient). Excerpts:

"Everyone seems to complain about how Christmas has been commercialized. But without the business of gift-giving that sprang up in the 19th century, Christmas might still be what it once was for many people: a riotous bacchanalia in which drunken gangs brawled in the streets and bashed their way into houses demanding money and alcohol.

With the hard work of the harvest behind them, December was downtime for Americans, as it had been for Europeans as far back as the raucous Saturnalias of ancient Rome. The Puritans were so offended by the disorder surrounding Christmas that celebrating the holiday—by feasting, “playing either at cards or at dice,” or even just taking the day off from work—was illegal in Massachusetts from 1659 to 1681. The fine was five shillings, roughly $50 in today’s money."

"In the 1800s, at Christmastime in cities like Boston, New York and Philadelphia, gangs of drunk young men, dressed in outrageous disguises, marauded through the nighttime streets, often setting off firecrackers, lighting fires or shooting guns in the air."

"These gangs were called “mummers” and “fantasticals” for their flamboyant costumes or “callithumpians” for the rough music they banged out on pots, pans and other makeshift instruments. Rampaging from house to house, the mobs might smash windows, tear down fences or wrench the handles off doors if homeowners wouldn’t let them in.

Once inside, they helped themselves to food, commandeered alcohol, spit tobacco on the carpets and wiped their greasy hands on the curtains. Not even the watchmen hired by local residents could deter them."

"“As soon as Santa Claus entered the picture,” says Prof. Nissenbaum, “people had to go shopping.” Santa Claus was part of a broader movement to domesticate the holiday by creating a warm, comforting family event centered around giving gifts to children. Mayors, merchants and the middle class all wanted to get the violent Christmastime gangs off the streets.

“There’s a general taming of the holiday that goes on throughout the 19th century,” says Penne Restad, author of “Christmas in America” and a retired historian at the University of Texas, Austin. The mass marketing of Christmas gifts, she says, was “a way of creating boundaries.”

"As the holiday became about giving gifts to family and friends, rather than about seizing food and drink from strangers, the seasonal street gangs faded away."

Related posts:

Is Christmas Gift Giving Inefficient?

Are Homemade Gifts Better Or More Special?

What Melvin Anthropologist Konner Fails To See When He Criticizes Economists And Their Views On Gift Giving  

Conflicting opinions from economists on the value of giving gifts

Use Data to Buy Gifts

Tuesday, December 19, 2023

Why Did Charles Dickens write A Christmas Carol?

Money might have been a big factor. A Christmas Carol

See The Writer's Almanac with Garrison Keillor. Excerpt:

"It was on this day in 1843 (Dec. 19) that Charles Dickens published A Christmas Carol. Dickens wrote the novel after his first commercial failure. His previous novel, Martin Chuzzlewit (1842) had flopped, and he was suddenly strapped for cash. Martin Chuzzlewit had been satirical and pessimistic, and Dickens thought he might be more successful if he wrote a heartwarming tale with a holiday theme.

He got the idea for the book in late October of 1843, the story of the heartless Ebenezer Scrooge, who has so little Christmas spirit that he wants his assistant Bob Cratchit to work on Christmas Day.

Dickens struggled to finish the book in time for Christmas. He no longer had a publisher so he published the book himself, ordering illustrations, gilt-edged pages and a lavish red bound cover. He priced the book at a mere 5 shillings, in hopes of making it affordable to everyone. It was released within a week of Christmas and was a huge success, selling six thousand copies the first few days, and the demand was so great that it quickly went to second and third editions.

At the time, Christmas was on the decline and not celebrated much. England was in the midst of an Industrial Revolution and most people were incredibly poor, having to work as much as 16 hour days, 6 days a week. Most people couldn't afford to celebrate Christmas, and Puritans believed it was a sin to do so. They felt that celebrating Christmas too extravagantly would be an insult to Christ. The famous American preacher Henry Ward Beecher said that Christmas was a "foreign day" and he wouldn't even recognize it.

When Dickens's novel became a huge bestseller in both the United States and England, A Christmas Carol reminded many people of the old Christmas traditions that had been dying out since the beginning of the Industrial Revolution, of cooking a feast, spending time with family, and spreading warmth and cheer. Dickens helped people return to the old ways of Christmas. He went on to write a Christmas story every year, but none endured as well as A Christmas Carol."

Monday, December 18, 2023

Renters Are Starting to Get Concessions From Landlords Again (article illustrates supply and demand principles)

After years of double-digit rent increases, owners are vying to fill new buildings by offering a month free, gift cards and other perks

By Will Parker of The WSJ

When firms make above normal profits in the short-run (P > ATC), we expect that in the long-run more firms will enter or more capital will be brought in (in the absence of barriers to entry). This means that the supply line or supply curve will shift to the right, bringing prices back down. The reference to new buildings indicates this is going on. More capital is entering the industry, indicating that a long-run change is taking place. So this seems to be an example of supply and demand working according to the textbook theory.

Excerpts from the article:

"After suffering through a three-year period when rents jumped by 30% or more in many U.S. cities, renters are now starting to enjoy small breaks like this. Rents still aren’t falling by much. But thanks largely to an unusual surge in new building supply, more landlords are offering other enticements to fill up their properties, from a month of free rent to a reduction in fees and deposits. 

Some are getting more creative. In suburban Atlanta, landlords renting houses are pledging free lawn care or housekeeping services. Tenants at certain buildings in Chicago can spin a wheel and win gift cards to local businesses.

Concessions have been especially prevalent in the most overbuilt Sunbelt markets, but they are on the rise in the majority of major metro areas. About one-third of apartment and home-rental listings this October included some type of markdown, according to an analysis of rental listings by real-estate firm Zillow. This was the highest rate since February 2021, Zillow said.

Property-data firm CoStar Group, meanwhile, found three times more apartment-rental buildings offered concessions this October than did so during the same month two years ago."

"The effective rents of one-bedroom units in professionally managed, high-rise buildings in Chicago’s West Loop neighborhood were 14% lower at the end of November compared with that month last year due to concessions"

Related posts on supply and demand:

Orange Juice Prices Are at Record Highs—and Could Keep Climbing (2023)

Apartment Rents Fall as Crush of New Supply Hits Market (2023)

Egg Prices Surge to Records as Bird Flu Hits Poultry Flocks (2022)

How Supply And Demand Have Affected Beef Prices Recently (2017)

Cold Snap Sparks Record Rise in Natural Gas Prices in Asia (2021)

Supply Means Producing A Good And Customers Being Able To Purchase It (2018)

Are Expectations Helping To Raise The Price Of Lithium? (2021)

Is there a shortage of homes? (2020)

Farmers might be reducing supply of corn now in expectation of higher prices this fall (2019)

Used vehicle prices up as supply sinks, but relief is coming (2021)

What Chocolate Shortage? Cocoa Prices Steady as Record Output Projected (2019)

Supply & Demand And The Price Of Eggs (2017)

Another Journalist Misunderstands Supply And Demand (2009)

Fastest-Rising Food Prices in Decades Drive Consumers to Hunt for Value (2020)

Supply, Demand and the High Price of Vanilla (2019)

New Zealand sheep farmers turn to cattle as the world price of milk rises (2017)

Why has the price of eggs risen so much? (2023)

When demand for one good falls (gasoline and ethanol) leads to an increase in price for other goods (beer and soda) (2020)

Egg market seems to act just the way supply and demand predict (2019)

Chicken Shortage Sends Prices Soaring, and Restaurants Can’t Keep Up (2021)

India sets a price floor for sugar and gets a surplus (2018)

Drivers Throttle Back as Gasoline Prices Rise (2022)

Saturday, December 16, 2023

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System"

Here is a passage from The Theory of Moral Sentiments by Smith (author of the book The Wealth of Nations in 1776 that started economics) at the Library of Economics and Liberty. Smith emphasizes the arrogance and conceit of those who think they can arrange society any way they want. In a separate passage, Smith writes about how this can be dangerous (that follows this longer excerpt). First, Smith discusses the man of humanity and benevolence, then the man of system for contrast. Then I have some quotes that are similar from Campbell (author of the book on mythology The Hero With a Thousand Faces that was one of George Lucas's inspiration for Star Wars).

"The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
Some general, and even systematical, idea of the perfection of policy and law, may no doubt be necessary for directing the views of the statesman. But to insist upon establishing, and upon establishing all at once, and in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance."
Adam Smith also says in his book The Theory of Moral Sentiments:
"The natural course of things cannot be entirely controlled by the impotent endeavours of man: the current is too rapid and too strong for him to stop it; and though the rules which direct it appear to have been established for the wisest and best purposes, they sometimes produce effects which shock all his natural sentiments."
The "effects which shock all his natural sentiments" are the unintended consequences of man trying to impose his will on society. He can't know all the effects of all the changes he his bringing to a complex system.

Here is what Campbell has to say. This is from the book The Power of Myth (some parts might only be in the video version of the interview Campbell did with Bill Moyers upon which the book was base):

Campbell condemns "the man of system."  He states this clearly while speaking of the character Darth Vader from the Star Wars movie trilogy.  He is critical of him being an "executive of a system" who has no humanity. The man of system is a government planner, a bureaucrat who wishes to impose his own ideals on society.  Campbell mentions what he thinks is a good Oriental idea:  "You don't force your mission down people's throats." (recall that Smith says the man of benevolence respects individuals, and will not attempt to subdue them by force) Also, "Instead of clearing his own heart, the zealot tries to clear the world." (Smith refers to "furious zealots" who have contempt for open minded people)   Both Campbell and Smith fear the planner who will force his system on the rest of us.  Campbell's views on this are best expressed in his comments on Darth Vader, the evil dark lord of the Star Wars movie trilogy.

"Darth Vader has not developed his own humanity.  He's a robot.  He's a bureaucrat living not in terms of himself but in terms of an imposed system.  This is the threat that we all face today.  Is the system going to flatten you out and deny you your humanity, or are you going to be able to make use of the system so that you are not compulsively serving it?  It doesn't help to try to change it to accord with your system of thought.  The momentum of history behind it is too great for anything really significant to evolve from that kind of action" (this is like Smith saying the current is too strong to be stopped by the impotent endeavours of man)

This is all seen much more clearly in an exchange between Campbell and Moyers from the second televised segment of The Power of Myth called "The Message of the Myth": 
Moyers:  Do you see some of the new metaphors emerging in the modern medium for the old universal truths that you've talked about, the old story?
Campbell:  Well, I think that the Star Wars is a valid mythological perspective for the problem of is the machine-and the state is a machine (emphasis added)-is the machine going to crush humanity or serve humanity? 
And humanity comes not from the machine but from the heart. 
[As the unmasking of Darth Vader scene from the movie The Return of the Jedi  is shown, Campbell continues:]
Campbell:  The father (Darth Vader) had been playing one of these machine roles, a state role; he was the uniform, you know?  And the removal of that mask-there was an undeveloped man there.  He was kind of a worm by being the executive of a system.  One is not developing one's humanity.  I think George Lucas did a beautiful thing there.
Moyers:  The idea of machine is the idea that we want the world to be made in our image and what we think the world ought to be.
[Campbell seemed to agree or at least offered no dissent to this statement of Moyers-again, Smith says the man of system wants to impose his own plan on society, very similar to making the world in your own image]
Campbell put this in a slightly different way when he also discussed the movie Star Wars:
"Here the man (George Lucas) understands metaphor.  What I saw was things that had been in my books but rendered in terms of the modern problem, which is man and machine.  Is the machine going to be the servant of human life?  Or is it going to be master and dictate?  And the machine includes the totalitarian state, whether it is Fascist or Communist it's still the same state. And it includes things happening in this country too; the bureaucrat, the machine-man. "What a wonderful power the machine gives you-but is it going to dominate you?  That's the problem of Goethe's Faust.  It's in the last two acts of Faust, Part Two.  His pact is with Mephistopheles, the man who can furnish you the means to do anything you want.  He's the machine manufacturer.  He can manufacture the bombs, but can he give you what the human spirit wants and needs?  He can't.

This statement of what the need and want is must come from you, not from the machine, and not from the government that is teaching you (emphasis added) or not even from the clergy. It has to come from one's own inside, and the minute you let that drop and take what the dictation of the time is instead of your own eternity (recall Smith says "every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it"), you have capitulated to the devil.  And you're in hell.
That's what I think George Lucas brought forward.  I admire what he's done immensely, immensely.  That young man opened a vista and knew how to follow it and it was totally fresh.  It seems to me that he carried that thing through very, very well" (From The Hero's Journey: Joseph Campbell on His Life and Work by Phil Cousineau).
Here is the passage from Adam Smith where he talks about "furious zealots" (also from The Theory of Moral Sentiments):

"The animosity of hostile factions, whether civil or ecclesiastical, is often still more furious than that of hostile nations; and their conduct towards one another is often still more atrocious. What may be called the laws of faction have often been laid down by grave authors with still less regard to the rules of justice than what are called the laws of nations. The most ferocious patriot never stated it as a serious question, Whether faith ought to be kept with public enemies?—Whether faith ought to be kept with rebels? Whether faith ought to be kept with heretics? are questions which have been often furiously agitated by celebrated doctors both civil and ecclesiastical. It is needless to observe, I presume, that both rebels and heretics are those unlucky persons, who, when things have come to a certain degree of violence, have the misfortune to be of the weaker party. In a nation distracted by faction, there are, no doubt, always a few, though commonly but a very few, who preserve their judgment untainted by the general contagion. They seldom amount to more than, here and there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in the society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties. A true party-man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of a party-man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties. To them, it may be said, that such a spectator scarce exists any where in the universe. Even to the great Judge of the universe, they impute all their own prejudices, and often view that Divine Being as animated by all their own vindictive and implacable passions. Of all the corrupters of moral sentiments, therefore, faction and fanaticism have always been by far the greatest."

Friday, December 15, 2023

Immigration & Asylum meet Type I & II Errors

Who do we let into the USA? Should we let in people that are seeking asylum because they are from unsafe countries that may have major human rights violations? Of course. But who actually qualifies?

We could carefully check each person's claims. That takes time and we might reject some who rightfully fear going back to their own countries (Type II error). Or, we could be a little lenient to make sure all the right people are let in but some who really are not in danger might get in as well (Type I error).

This is where Type I error and Type II errors come in.

I used the book The Economics of Public Issues in my micro classes. Chapter 1 is called "Death by Bureaucrat." It discusses how the Food and Drug Administration can make either a Type I error or a Type II error.

Type I error: The FDA approves a drug before enough testing is done and when people take it, there are harmful side effects.

Type II error: The FDA tests a drug longer than necessary to stay on the safe side. But people might suffer because the drug is not yet available. 80,000 people died waiting for Septra to be approved.

The FDA would usually rather make a Type II error because the public can blame the FDA if a Type I error occurs. But in this case, they wanted to get masks to people quickly. Not enough testing was done.

Something similar is happening with immigration.

See Senators’ Top Target in Border Talks: Tighter Asylum Rules for Migrants by Michelle Hackman and Lindsay Wise of The WSJ. Excerpts:

"Tightening the initial standard immigrants must meet when applying for asylum could form the basis of a bipartisan border agreement in the Senate,"

"Senate Republicans have demanded a crackdown on asylum at the U.S.-Mexico border"

"Senate Majority Leader Chuck Schumer (D., N.Y.) said . . . talks continued through the Thanksgiving break, and Democrats “stand ready to work on common-sense solutions” related to the border."

"Overhauling the immigration system has long been one of the thorniest tasks before Congress"

"For several weeks, a bipartisan group of senators has been trading proposals on changes to the asylum system."

"Republican lawmakers and White House officials have separately homed in on the change to the initial asylum screening standard as a key step to quickly weed out strong asylum claims—and deport those who don’t qualify. The current standard for asylum claims is an immigrant’s “credible fear” of persecution in their home country, which is seen roughly as any chance above 10%. Raising that bar and mandating more evidence from migrants would block more people from the asylum path.

White House officials see it as an option that could whittle down the number of migrants claiming asylum without needing to massively expand immigrant detention"

"Other ideas under consideration, according to people familiar with the talks, include expanding mandatory detention for single adults for the duration of their immigration cases"

"The administration has also asked for $14 billion in funding to process migrants at the border, and it is likely that at least some of that money, to pay for additional Border Patrol agents and immigration judges, would be included."

Related posts:

The FDA, Masks and Type I & Type II Errors (2020)

Fraction of Covid-19 Rental Assistance Reaches Tenants and Landlords (follow up to a post on June 11) (2021)

Zombies might return and fighting them is art as well as science (2021)

Accommodations for disabled people and Type I & II Errors (2023)

Thursday, December 14, 2023

Good news on employment and inflation over the last 12 months

Two days ago I posted about the CPI (seasonally adjusted) going up only 0.1% in Nov. (after just 0.04% in Oct). It was up just 3.1% from Nov. 2022-Nov 2023. The previous 12 months it was up 7.1%. So a big drop in the inflation rate

See Consumer Price Index for All Urban Consumers: All Items in U.S. City Average from FRED (Federal Reserve Economic Data) compiled by the Research Division at the Federal Reserve Bank of St. Louis for data on the seasonally adjusted CPI.

The % of 25-54 year olds employed rose to 80.7% in Nov. after it was 80.6% in Oct. It had fallen 2 straight months before that and hit a high of 80.9% this year. It ended 2022 at 80.1%. In the 12 months beginning with Dec. 2022 and ending in Nov. 2023, it averaged 80.65% while in the previous 12 months it was 79.79%.

So the last 12 months were clearly better than the previous 12 months with a much lower inflation rate and a solid gain in the percentage of 25-54 year olds with jobs. More jobs and lower inflation is good. Click here to see the BLS data on employment.

Tuesday, December 12, 2023

The Seasonally Adjusted CPI Was up 0.1% in Nov. & 3.1% over the last 12 months

See Consumer Price Index for All Urban Consumers: All Items in U.S. City Average from FRED (Federal Reserve Economic Data) compiled by the Research Division at the Federal Reserve Bank of St. Louis for data on the seasonally adjusted CPI.

That site shows a graph but if you click on the Download button you will get the actual numbers in Microsoft Excel.

The Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) was 307.917 in Nov. and 307.619 in Oct. Since 307.917/307.619 = 1.001, that means it was up 0.1% in Nov. If we had that every month for 12 months it would be up 1.2%.

It was 298.598 in Nov. 2022. Since 307.917/298.598 = 1.031, that means it was up 3.1% over the last 12 months.

The non-seasonally adjusted CPI was 307.051 in Nov. and 297.711 in Nov. 2022. That was up 3.1% since 307.051/297.711 = 1.031. So pretty close to the seasonally adjusted CPI. This is still above the Fed's target of 2.0% (although they prefer to use the Personal Consumption Expenditures Price Index which is up 3.04% over the last 12 months).

For more information, see Inflation slowed to a 3.1% annual rate in November by Jeff Cox of CNBC. Excerpts:

"Prices across a broad range of goods and services edged higher in November but were mostly in line with expectations, further easing pressure on the Federal Reserve.

The consumer price index, a closely watched inflation gauge, increased 0.1% in November, and was up 3.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been looking for no gain and a yearly rate of 3.1%.

While the monthly rate indicated a pickup from the flat CPI reading in October, the annual rate showed another decline after hitting 3.2% a month earlier.

Excluding volatile food and energy prices, the core CPI increased 0.3% on the month and 4% from a year ago. Both numbers were in line with estimates and little changed from October."

"Worker paychecks increased on an inflation-adjusted basis, with real average hourly earnings rising 0.2% on the month and 0.8% from a year ago, the Labor Department said in a separate release."

The article also discusses what is going up and what is going on. There is a graph of the monthly year-over-year percent change in prices and core prices going back almost 3 years.

Other related links:

Consumer Price Index Data from 1913 to 2023

Personal Consumption Expenditures Price Index 

The Bureau of Labor Statistics makes seasonal adjustments. See Consumer Price Index Summary.

Monday, December 11, 2023

You’re Probably Falling for Fake Product Reviews

Ahead of Cyber Monday, beware sellers who solicit glowing testimonials with cash and free stuff—and fool even seasoned shoppers

By Josh Zumbrun of The WSJ. Excerpts:

"How does one discover fakers? As Hollenbeck found, they’re hiding in plain sight. More precisely, sellers or their intermediaries publicly solicit fake Amazon reviews on Facebook.

They post descriptions of products, which they say consumers can have free of charge in exchange for a glowing review from a verified purchaser with photos.

The reviewer then buys the product so that the review is labeled as coming from a verified purchaser. Once he or she leaves a review, the seller refunds the purchase price and any transaction costs, and sometimes offers a bonus of as much as $15 a review, according to Hollenbeck; Sherry He, a professor at Michigan State University; and Davide Proserpio, a professor at the University of Southern California"

"The team documented about 1,500 such items, including beauty products, humidifiers, teeth whiteners, cellphone accessories, home-improvement tools, bug zappers and electric foot massagers. The products’ average rating jumped from 4.3 stars before solicitation to 4.5 stars after. After the Facebook recruiting ends, the rating gradually falls back to 4.1 stars."

"sites where users can leave reviews without being verified purchasers are thought by some researchers to have an even worse fake-review problem."

"more frequent online shoppers were likelier to be influenced by fake reviews because they’re accustomed to quickly assessing products via things such as rating and number of reviews"

"The U.K.’s Department for Business and Trade estimated earlier this year that 11% to 15% of reviews for major product categories are fake."

"Last year, Amazon filed a lawsuit against 10,000 Facebook group administrators who it said were soliciting fake reviews. But as old groups get closed down, new ones are created. Many of the sellers are overseas, and continually use new aliases and sock-puppet accounts."

"Amazon eventually deleted many of the fake reviews, but often with a lag of 100 days."

"The company said it had taken legal action against 152 bad actors, and blocked over 200 million suspected fake reviews in 2022 alone.

“Facebook periodically deletes the groups and they pop back up again a week later,” said Hollenbeck."

"(Facebook’s policies prohibit buying, selling or trading for fraudulent reviews. The company has filed lawsuits against individuals perpetrating e-commerce abuse on its platform, including a fake review scheme.)"

"Hollenbeck says one surprising red flag is photos. Fake reviews are far more likely to have pictures than genuine ones. After all, who shares a banal photo of some minor consumer good? 

Hollenbeck says he’s always cautious about those products that are one of four or five nearly identical search results. They’re just the sort of product that would benefit from a tiny ratings bump that a fake review can deliver."

Related posts:

The Amazon War and the Evolution of Private Law (2018)

Amazon will ban companies with fake reviews. Sounds like a good idea. But that means your competitors can leave fake reviews saying how great your product is. Then Amazon will ban your company

Fake Reviews and Inflated Ratings Are Still a Problem for Amazon (2021)

Are sellers paying Amazon customers to delete negative reviews? (2021) 

How to Spot Fake Reviews and Shady Ratings on Amazon (2022)

Saturday, December 09, 2023

What is the price elasticity of demand for au pairs in Massachusetts?

See Cost of Hiring Au Pairs Could Double: Under Biden Administration Proposal New formula for foreign nannies would take into account state and local minimum wages by Michelle Hackman of The WSJ. Excerpts:

"A popular child-care option would be put out of reach for some families under a new Biden administration proposal that could double the cost of hiring an au pair.

The proposed policy change, released this fall by the State Department, would require au pairs—foreigners brought to the country to work as nannies—to be paid using a new formula that takes into account state and local minimum wages, in a bid to ensure that they are paid fairly."

"In 2019, a federal appeals court required that au pairs in Massachusetts be paid the state’s minimum wage. In 2020, the required weekly stipend rose from $195.75 to $528.63, a 170% increase. As a result, by 2022, the number of new au pairs heading to Massachusetts fell by 68%, while the program grew in all other unaffected states by 4% in the same time frame, according to a paper published by the Cato Institute, a libertarian think tank that favors increased immigration and reducing other government regulations."

Price elasticity of demand-It tells us how responsive quantity demanded (Qd)is to a change in price. That is, when price changes, will the change in Qd be large or small? The bigger the change in Qd  the greater will be the price elasticity of demand.

We will use Ed to stand for price elasticity of demand. Here is the definition

Ed = %DQd /%DP

where D (the Greek letter delta) means "change in."

Or  Ed = % change in Qd divided by % change in P

If we use this formula then for au pairs it would be 68/170 = 0.40. That means a 10% increase in the price of au pairs would reduce quantity demanded 40%.

But usually in a principles class we use the mid-point formula for elasticity. See Calculating Price Elasticities Using the Midpoint Formula from Lumen Learning for more information on how it works and why it is used.

But the formula simplifies to (Q2 - Q1)/(Q2 + Q1) times (P2 + P1)/(P2 - P1)

We have Q1, Q2, P1, P2 because their is a first quantity, etc.

For the au pairs we don't have a Q1 & Q2 but we know that quantity went down 68%. So I used Q1 = 100 and Q2 = 32. That is a 68% drop.


(32 - 100)/(32 + 100) times (528 + 195)/(528 - 195) 

= -68/132 times 723/333

= -.515 times 2.017

= -1.12

We usually drop the negative sign since we know the relationship along the demand line is negative.

The midpoint elasticity is much higher than the one found earlier (0.40). An elasticity of 1.12 means that if price goes up 10%, then quantity demanded goes down 11.2%. That is a pretty strong response (although 4% is strong as well).

Friday, December 08, 2023

The % of 25-54 year olds employed rose to 80.7% in Nov. after it was 80.6% in Oct. Average hours worked rose slightly

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates many college age people who might not be looking for work).

The percentage of 25-54 year olds employed was 80.7% in Nov. after it was 80.6% in Oct. It was 80.6% in Jan. 2020 just before Covid. The 80.9% in June was the highest since the 80.9% in April, 2001. 80.7% is higher than every month from June 2001 to Feb. 2023. It was 80.1% in Dec. 2022.

It was 80.6% in Jan. 2020 and 69.6% in April 2020.  Click here to see the BLS data. The unemployment rate was 3.7% in Nov. The labor force participation rate was 62.2% for all of 2022 and is now 62.8%.

The unemployment rate was 3.6% for all of  2022.  Click here to go to that data

60.476% of the adult population was employed in Nov. (that is people 16 years old and older). 

60.238% of the adult population was employed in Oct. So we had a slight increase from Oct. to Nov.

Here is the timeline graph of the percentage of 25-54 year olds employed since 2013.

Now since 1948

Now hours worked. This comes from the St. Louis FED. See Average Weekly Hours of All Employees, Total Private. It was 34.4 in Nov. & 34.3 in Oct.