Friday, December 20, 2024

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.
VI.II.42
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.
VI.II.43
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."

Thursday, December 19, 2024

Amazon’s New Robotic Warehouse Will Rely Heavily on Human Workers

The 3 million-square-foot distribution center in Shreveport, La., demonstrates the limits of automation in big logistics operations

By Liz Young of The WSJ

Yes, robots and machines can replace workers. But sometimes robots and machines lead to new types of jobs and also the increase in output they might generate will lead to even more workers being needed. Some of the related posts below are examples of this.

Excerpts from The WSJ article:

"Amazon just opened its most-automated warehouse yet. But underneath the robotics and artificial-intelligence technology at the site, the facility will still rely on thousands of employees.

The e-commerce behemoth said its 3 million-square-foot building in Shreveport, La., is its first warehouse to use automation and artificial intelligence at every step of the fulfillment process."

"Amazon has hired more than 1,400 people at the Shreveport distribution center in recent months and plans to eventually employ 2,500 workers picking orders, loading and unloading trucks and managing the robotics systems."

"The idea is to speed up operations, save on labor costs and make warehouses safer for the workers that remain."

"Some traditional warehouse roles have proved too difficult for Amazon to fully automate, however, partly because the company sells more than 400 million widely varied products that range in size, weight and fragility, from dog toys to toaster ovens"

"If you don’t know what items you’re going to be handling, it makes it very difficult to create an automated system that’s flexible enough to handle the various items"

"Humans can easily look into a storage container packed full of goods, identify a particular item and know how to pick it up and handle it, whether it is a bottle of shampoo or a sweater.  

“The tactile grasp that the human hand has, and the situational awareness and the perception of the human brain, is unmatched,” said Tye Brady, chief technologist at Amazon Robotics."

"robots at the facility carry storage containers full of merchandise to human employees who look inside and pick out the item a customer ordered, then place that item into a tote box that goes onto a conveyor belt and is taken to be packaged.

Human workers also load and unload trucks at the Shreveport facility, and pack orders that are an unusual size or shape.

The company said many of the roles at its new building involve managing and working with robots"

"Amazon warehouses using its latest automation will be able to handle one million orders a day, creating many opportunities for issues that require a human touch"

Related posts:
 
 
"The Battle Over Robots at U.S. Ports Is On: Striking dockworkers are back to work—but disagreement over automation​ stands in the way of lasting peace"

"At a Brooklyn Warehouse, Robots Are Reshaping the Grocery-Delivery Business: A discount grocer’s pilot program is using robots to help complete orders—and keep prices down"
 
 
 
 
 
 
 
 
 
 
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)

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)

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)

Is Covid causing some structural unemployment? (2020)

Is Covid causing some structural unemployment? (Part 2) (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) 

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) 

Automation Can Actually Create More Jobs  (2016)

Are Computer Programs Replacing Journalists? (2015)

Robot jockeys in camel races (2014) 

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 Journalists-A Case Of Structural Unemployment? (2010)

Tuesday, December 17, 2024

Two examples of wages rising for one occupation leading workers to move into it from other occupations

See $500,000 Pay, Predictable Hours: How Dermatology Became the ‘It’ Job in Medicine: Americans’ newfound obsession with skin care has medical students flocking to this specialty by Te-Ping Chen of The WSJ. Excerpts:

"Four-day workweeks, double the salary of some colleagues and no emails at night. If those perks sound like they belong to a few vaunted tech jobs, think again. Dermatologists boast some of medicine’s most enviable work lives, and more aspiring doctors are vying for residency spots in the specialty.  

“It’s ungodly competitive,” says Dr. Lindsey Zubritsky, a dermatologist in Ocean Springs, Miss., who finished her residency in 2018 and now splits her time between clinical work with patients and her social-media feed, where the “dermfluencer” has three million followers on TikTok and Instagram. 

Medical residency applications for dermatology slots are up 50% over the past five years, according to data from the Association of American Medical Colleges, with women flooding the zone. A younger generation of physicians wants better work-life balance than their predecessors and, unlike pressure-cooker medical specialties such as cardiac surgery, dermatology fits the bill."

"Dermatologists earn a median $541,000 a year"

"Pediatricians, by contrast, earn a median $258,000 annually."

"Given the infrequency of skin emergencies, far fewer dermatologists are on call at night and on weekends."

"At Idriss’s clinic [Dr. Shereene Idriss], patients pay out of pocket for $500 microneedling sessions and $4,000 laser and filler treatments to smooth skin tone and texture and reduce lines and wrinkles. The procedures can last from 20 minutes to an hour. Idriss declined to say how much she makes but says that for dermatologists offering cosmetic treatments, “the sky’s the limit, depending on how efficient you are.”"

See The Hot New Job for Men: Nursing: The number of male registered nurses in the U.S. has nearly tripled since the early 2000s by Harriet Torry of The WSJ. Excerpts:

"The number of male registered nurses has increased from about 140,000 in 2000 to about 400,000 in 2023. This means that about 14% of nurses are now men, up from about 9% roughly two decades ago. 

Economists at the Washington Center for Equitable Growth found that men who were becoming registered nurses tended to do so in their late 20s or early 30s rather than as their first job."

"The job of registered nurse—what patients tend to think of when they hear the word “nurse”—usually requires a bachelor’s degree. The average pay is about $95,000 a year, compared with the average nationwide salary of about $65,000."

Related posts:

Inter-industry competition can affect labor markets (2023) (this was about an auto related company in Alabama that was not only competing for workers with other firms in its industry but also with restaurants and retailers)

Come Make $100,000, the Billboard Says: Police Departments Are Hustling For Recruits (especially when wages are rising for other jobs (2024)

This related to something I used to talk about in my micro class.

For the whole market, the wage is simply determined by the supply and demand curves. The demand for the whole market would be found by adding the demand (or MRP) of each individual firm.


It would seem that the supply for the whole market would also be the sum of the supply curve for each individual in the market. But it is not that simple, since the labor supply for each individual likely looks something like the labor supply curve in the graph below.


In this graph, L stands for the number of hours worked. As your wage increases, you are willing to work more hours. But to do so, you have to sacrifice leisure time. The higher wage allows you to buy more goods, but at a cost of less leisure. But at some point, your wage gets so high, that it allows you to buy all the goods you want. So now you want more leisure time, which means you need to work less.

Imagine if your boss offered to double your hourly wage. You might want to put in more hours. So as W increases, so does L. But if your wage was extremely high, say, $1,000 per hour, you might work just a few hours a week, meaning the number of hours worked (L), decreases. So there must be a wage so high that when you reach it, you start to reduce the number of hours that you work.

The typical American worker worked many more hours a week about 100 years ago than today. They may have worked 60 hours or more. Today, we work fewer hours a week (around 40) yet the average income (adjusted for inflation) is much higher. We make enough money so that we can work less and have the goods we want.

So why can we draw the market supply curve upward sloping if it is “backward bending” for individuals? There are two reasons:

1. As W increases, workers from other industries enter the market in question, so L increases. When W increases, we assume it increases in one market only. For example, if the wage paid to janitors increases, convenience store clerks will apply to become janitors.

2. As W increases, nonworkers enter the market in question. Some workers who were not previously working in any market, will start to apply for jobs if the wage rises high enough. Examples might be stay at home spouses and students.

(I think I got this from Bradley R. Schiller's textbook)

In both cases, an increase in W leads to an increase in L. This is required for the supply curve to slope upward for the market. These two forces will outweigh any “backward bending” effect.

So wages are determined by the supply and demand for the job or occupation.

Monday, December 16, 2024

On his 254th birthday, remembering Beethoven the astute businessman

The musical genius also had a flair for commerce, it turns out 

By Luis Dias writing for Scroll.in magazine. Beethoven turned 250 this past December 16. Even Art can never be completely divorced from economics. Excerpts

"Once Beethoven had poured his creative energy to the fullest into a composition, he regarded it as commercial property, deserving the best possible price on the most favourable terms. Of the hundreds of his letters that have survived, a major chunk deals with the mundane business of getting published: pitching a work, complaining about poor terms, bargaining, and correcting proofs. This is hardly surprising; he is perhaps the first composer whose income depended so much on being published, even more so after his crippling deafness gradually put an end to his career as a performer and to some extent as a teacher as well.

But Beethoven rose to the occasion as quite an astute businessman, regarding publishing and all it entailed as par for the course. He wished to excel in it just as much as in his creativity.

Upon completing a work, Beethoven would offer it to one or more publishers. But before that he needed a copyist, someone who could legibly decipher his scrawl across the manuscript pages so that a publisher could make sense of them. One copyist, Wenzel Schlemmer, undertook that unenviable task for some twenty years.

Once a publisher accepted a work, the real pain of proofreading of invariably faulty engravings and endless corrections would ensue. In one instance, Beethoven found eight mistakes in one published work, corrected them and sent them to another publisher under the heading ‘Edition très correcte’. But in a further comedy of errors, that heading itself was misspelt.

Royalties were unheard of then; the publisher bought a work for a flat fee and would then hope to sell as many copies as possible. It was important to sell as quickly as possible because piracy was a very real threat. As there was no copyright, any successful composer’s hit work was highly susceptible to piracy. The pirate could even be the copyist, who could clandestinely make another copy, spirit it out to another publisher, sometimes even before the legitimate one. The threat was so serious that Mozart had his copyists work only in his apartments, under his watchful eye.

Beethoven railed and ranted when he encountered pirated versions of his music. Since he didn’t have the finance for lawsuits, which could end up nowhere – piracy, plagiarism and forgery were regarded as reprehensible, but not against the law – he resorted to sending spluttering, threatening letters to errant publishers and getting public notices published in newspapers. To be pirated was almost a back-handed index of one’s popularity and success.

As payments for compositions were small (for instance, Beethoven settled for 100 florins for his First Symphony, a shockingly low price), a composer had to churn out a lot of music. This gives us a new perspective on the prodigious output of composers of that era: it was driven not just by creative juices but by the need to put food on the table. Ironically, short piano works would fetch a better price than, say, a symphony, concerto or bigger works, for purely commercial reasons.

 One way (that Haydn usedprofitably) of squeezing as much money out of a work was to give it to two or more publishers in different countries, each one having limited but mutually exclusive territory, so that one could be legitimately paid for the same work more than once. Beethoven followed suit, but then found that if he wanted to prevent pirates preying on his music, he would have to get a work published simultaneously in each country, no easy task in his time of snail-mail and travel.

Another ploy Beethoven resorted to was to offer a piece to the person who commissioned it and pocketing the fee. He would then defer publication but give that patron exclusive rights to the work in manuscript for a given time (usually six months, as he did with Prince Lobkowitz for his Third Symphony). Once that period was over, he could plug and sell it afresh."

"On the “tiresome business” of publishing, Beethoven grumbled in a letter to the publisher Hofmeister: “There ought to be in the world a market for art, where the artist would only have to bring his works and take as much money as he needed. But, as it is, an artist has to be to a certain extent a businessman as well.” True then, true today."

Saturday, December 14, 2024

Americans Are Stockpiling to Get Ahead of Tariffs: Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect

By Jasmine Li and Rachel Wolfe of The WSJ.

This is a follow up on yesterday's post. When buyers expect higher prices in the near future their demand today increases.

But I also said that because sellers cannot pass all of the increase in a tax (in this case tariff), it means that once the tax or tariff goes into effect, the seller will be getting less per unit sold. So they might try to sell more today, meaning that the supply line shifts to the right. In red below one executive even says that sellers cannot pass all of the tax increase along to the buyers.

Excerpts from The WSJ article:

"Tariff-conscious consumers are stockpiling goods and rushing to upgrade old cars and appliances to get ahead of potential price increases. 

A quarter of Americans surveyed said it was a good time for major purchases as they expect prices to go up next year, up from 10% a month prior and a record high, according to the University of Michigan’s monthly survey of consumers. And a third of the 2,000 people surveyed recently by CreditCards.com said they were buying more now because they feared tariffs. 

Some economists warn that by spending as though inflation is coming, people could already be pushing it higher. The consumer-price index of goods and services grew 2.7% year over year in November, according to the Labor Department, slightly higher than in the prior month. The boost was driven in part by a surge in durable-goods purchases some shoppers said are related to President-elect Donald Trump’s threats of tariffs on imports from countries including Canada, Mexico and China.

“People can make a judgment that, ‘Well I thought I was going to buy a TV in the next 12 months. Maybe I should buy it in the next 12 weeks,’” said Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University. "

"“If the run is big enough and the shortage is big enough,” a retailer will have to raise prices, said Harrison Hong, a professor of economics at Columbia University.

Hong points to a ban on nonbasmati rice exports from India in 2007, which likely caused price increases for U.S. consumers. Americans hoarded bags of rice, exacerbating shortages. The products and stores with the highest levels of hoarding saw greater price hikes a few months down the line.

Furthermore, inflation expectations matter for future inflation. So it is possible that retailers and manufacturers are preparing for higher tariffs by raising prices now, in expectation of higher import prices, said Paul Ashworth, chief North America economist at Capital Economics.

“The notion that you think prices are on a particular trajectory plays elementally in your decision about how to raise your prices, or what your wage demands are,” said Barbera of Johns Hopkins.

Businesses in the U.S., which imported around $3.2 trillion of goods in 2022, are making plans for the worst-case scenario. Some are stocking up on imports to get ahead. Others are urging shoppers to buy now before prices go up. 

Best Buy Chief Executive Corie Barry said on a November press call that “the vast majority of that tariff will probably be passed onto the consumer as a price increase.”" (notice he does not say all-again, if that is the case, sellers end up getting less per unit)

Friday, December 13, 2024

Buy Now Before Tariffs Hit, Retailers Are Telling Shoppers

Businesses play up fears of a price hit in marketing goods from furniture to fishing rods

By Suzanne Vranica of The WSJ. Excerpts:

"“Pre-Tariff Sale! This is not a drill,” declares a Facebook post from Finally Home Furnishings, urging customers to order now before prices “double.” 

The online furniture retailer is one of many businesses urging customers to buy now before President-elect Donald Trump’s proposed tariffs potentially raise costs—and prices."

"Some influencers on TikTok are feeding into the tariff frenzy, urging people to buy their favorite products in bulk now."

"Tariffs have the potential to cost shoppers up to $78 billion in annual spending power, according to a recent study from the National Retail Federation."

One of the shift factors for demand and supply is expectation of future price. If buyers expect prices to be significantly higher in the near future, the demand for the product will increase today (the demand line will shift to the right).

What about supply? Normally, if sellers expect prices to be significantly higher in the near future, supply to today will decrease (the supply line will shift to the left). This is because they would rather wait to sell the product until the price has gone up.

But in this case, the price is going up because of the tariff, which is a tax. When a tax is enacted, the seller cannot pass all of the tax along to the customers, so, in effect, the seller is getting a lower price. If the tax is $1 per unit the seller might be able to pass only half of that along to the customer. So the price the seller receives in the future would actually fall. Then supply today would increase or shift to the right.

See An example of a product price rising less than an increase in a tax. There I use supply and demand lines to illustrate how this works.

Other posts on supply and demand shifts:

Expectation of future price in the news (2024)

Record Cocoa Prices Are Making Sweet Cravings Expensive (2024)

A New Age of Materials Is Dawning, for Everything From Smartphones to Missiles (2024)

Orange Juice Prices Are at Record Highs—and Could Keep Climbing (article illustrates supply and demand principles) (2023)

Supply, demand and the price of bacon (2023)

New cars, used cars and substitutes (2023)

This post is featured in an economics textbook (2023)

Is the TV show Yellowstone changing consumer's taste in clothing? (2023)

Do Wages Drive Prices, or Vice Versa? The Answer Matters for Interest Rates (2022)

Home sale prices, apartment demand and the price of subsitutes (2022)

How Supply and Demand Explain Higher Wages for Teen Babysitters (2022)

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

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

Grocery stores try to alter the tastes and preferences of men (2018)

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

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

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

Beef Prices Come Down As Supply Increases (2016)

Russians rush to stores to pre-empt price rises (2015)

Wednesday, December 11, 2024

The Seasonally Adjusted CPI Was up 0.313% in November

Here are the changes in the seasonally adjusted CPI each of the last six months:

June  -0.0562%
July  0.1549%
Aug  0.1872%
Sep  0.1799%
Oct  0.2441%
Nov  0.3129%

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 315.454 in Oct. and 316.441 in Nov. Since 316.441/315.454 = 1.00313, that means it was up 0.313%. If we had that every month for 12 months it would be up 3.82%.

It was 308.024 in Nov. 2023. Since 316.441/308.024 = 1.0273, that means it was up 2.73% over the last 12 months.

In the last 6 months it is up just 1.01027%. If we had that for 12 months it would be up 2.0604%.

The non-seasonally adjusted CPI was 315.493 in Nov. and 307.051 in Nov. 2023. That was up 2.75%. 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 was 2.3% higher in Oct. 2024 than Oct. 2023).  

For more information, see Annual inflation rate accelerates to 2.7% in November, as expected by Jeff Cox of CNBC. Excerpts:

"Consumer prices rose at a faster annual pace in November, a reminder that inflation remains an issue both for households and policymakers.

The consumer price index showed a 12-month inflation rate of 2.7% after increasing 0.3% on the month, the Bureau of Labor Statistics reported Wednesday. The annual rate was 0.1 percentage point higher than October.

Excluding food and energy costs, the core CPI was at 3.3% on an annual basis and 0.3% monthly. The 12-month core reading was unchanged from a month ago."

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 for All Urban Consumers: All Items Less Food and Energy in U.S. City Average (CPILFESL) This is also from from FRED (Federal Reserve Economic Data), compiled by the Research Division at the Federal Reserve Bank of St. Louis. It has the seasonally adjusted core CPI.

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.

Tuesday, December 10, 2024

Capitalism, rationality and double-entry bookkeeping

In his book Capitalism, Socialism, and Democracy the economist Joseph A. Schumpeter discussed the deep and widespread rationalizing influence that capitalism had on society, particularly that of double-entry bookkeeping.

Excerpts:

"the rational attitude presumably forced itself on the human mind from economic necessity; it is the everyday economic task to which we owe our elementary training in rational thought and behaviour’— I have no hesitation in saying that all logic is derived from the pattern of the economic decision."

there is "inexorable definiteness and, in most cases, the quantitative character that distinguish the economic from other spheres of human action, perhaps also to the unemotional drabness of the unending rhythm of economic wants and satisfactions. Once hammered in, the rational habit spreads under the pedagogic influence of favorable experiences to the other spheres"

"capitalism develops rationality and adds a new edge to it in two interconnected ways.

First it exalts the monetary unit—not itself a creation of capitalism—into a unit of account. That is to say, capitalist practice turns the unit of money into a tool of rational cost-profit calculations, of which the towering monument is double-entry bookkeeping." 

Without going into this, we will notice that, primarily a product of the evolution of economic rationality, the cost-profit calculus in turn reacts upon that rationality; by crystallizing and defining numerically, it powerfully propels the logic of enterprise. And thus defined and quantified for the economic sector, this type of logic or attitude or method then starts upon its conqueror’s career subjugating— rationalizing—man’s tools and philosophies, his medical practice, his picture of the cosmos, his outlook on life, everything in fact including his concepts of beauty and justice and his spiritual ambitions."

"The rugged individualism of Galileo was the individualism of the rising capitalist class."

"rising capitalism produced not only the mental attitude of modern science, the attitude that consists in asking certain questions and in going about answering them in a certain way, but also the men and the means."

"capitalism—and not merely economic activity in general—has after all been the propelling force of the rationalization of human behavior."

"all the features and achievements of modern civilization are, directly or indirectly, the products of the capitalist process."

"The capitalist process rationalizes behavior and ideas and by so doing chases from our minds, along with metaphysical belief, mystic and romantic ideas of all sorts."

Monday, December 09, 2024

OPEC and how hard it is for cartels to achieve their objectives in the news

There will be some passages from Milton Friedman and the book The Economics of Public Issues on how it is hard in general for cartels.

See Saudi Arabia Is Losing Its Iron Grip on Global Oil Markets: Rising U.S. production and internal OPEC+ pressure limit the kingdom’s sway over prices. Trump is a new wild card by By Summer Said, David Uberti and Benoit Faucon of The WSJ. Excerpts:

"Saudi Arabia’s sway over the Organization of the Petroleum Exporting Countries long meant unquestioned dominance of the global oil market. Those days are over, at least for now. 

The kingdom is struggling to execute its plan to keep prices elevated. Higher prices would help pay for Saudi’s infrastructure-spending spree, including $1 trillion of projects designed to rapidly pivot the economy away from oil. It would also pinch drivers at the pump and contribute to risks that inflation could stage a global comeback.

But the cartel’s increasingly fractious members are pushing to pump more and maximize short-term profits, in part due to the expectation of growing competition from U.S. shale drillers emboldened by former President Donald Trump’s re-election."

"Ahead of Thursday’s scheduled meeting of OPEC+, that creates a dilemma for its de facto leadership in Riyadh: continue defending the price of oil, or fight to take back market share.

It appears the Saudis aren’t inclined to start another price war. 

Saudi officials say the kingdom is likely to keep the spigots tight on its own production, further pushing back plans to loosen them that were already delayed twice."

"Yet another major producer, the United Arab Emirates, has been allowed to add more barrels into the market from January. And Iraq and Kazakhstan are also lobbying the cartel to bring more production of their own, which would boost supplies further and likely depress prices."

"Crude output in the Americas has already helped slash the OPEC+ slice of global supplies to some of its lowest levels since the broader group’s 2016 founding.

OPEC+ production cuts, pushed by Saudi Arabia, have made that even more uncomfortable for other members.

“It’s really easy to be part of a cartel when a market is growing,” said Jorge León, a Rystad Energy analyst who formerly worked for OPEC. “Nobody wants to be in a cartel where they are cutting production.” 

The upshot is that OPEC+ has lost some of its geopolitical heft in Washington. U.S. Assistant Secretary of State for Energy Resources Geoffrey Pyatt said the cartel’s market power these days is “less than you would imagine” as oil producers elsewhere—Brazil, Canada and Guyana—pump gushers of crude."

"OPEC watchers say the shift in power has undermined Saudi Arabia’s ability to corral the cartel’s members or attract new entrants.

That tension spilled into public view last week, when an Iranian OPEC+ delegate published a commentary on the state-run news agency arguing that the cartel’s Saudi-led policy to keep prices elevated has largely been a failure, in part because it motivated the U.S. and other producers to pump more. The delegate noted that Angola already quit the cartel, and speculated that other countries could soon follow as a result of the policy."

"The cartel’s internal analysts, overseen by a Saudi official, have trimmed their estimated demand growth this year and next for four consecutive months. Those dimming expectations have contributed to the group’s loss of credibility—among traders, U.S. officials and even some delegates—to accurately forecast the market. 

The International Energy Agency estimates global supplies will outstrip demand by more than one million barrels a day next year if the group doesn’t cut output."

See OPEC+ Delays Oil Output Hike Once Again: The group led by Saudi Arabia and Russia agreed to extend voluntary production cuts of 2.2 million barrels a day until the end of March by Giulia Petroni of The WSJ. Excerpts:

"The move suggests the alliance is prioritizing price-support efforts over market share, as hiking production would risk tipping global markets into a glut due to plentiful supply from the Americas and faltering demand growth in China, weakening prices."

"The OPEC+ alliance has struggled to keep prices elevated in recent months, caught between its own revenue needs and the risk of losing market share."

"The decision from the alliance to delay output hikes comes despite OPEC’s robust oil-demand growth estimates. The cartel trimmed its forecast for demand growth in November for the fourth consecutive time, but still sees growth of 1.82 million barrels a day this year and 1.54 million barrels a day the next.

OPEC+ faces significant challenges also on the compliance front, as several members including Russia, Iraq and Kazakhstan exceeded their production quotas in the past, giving the group less room to reintroduce barrels into the market. The quotas are designed to restrict global supply and shore up prices."


Now passages from Milton Friedman's book Free to Choose

"Price controls on oil and other forms of energy by the U.S. government in their turn prevented information about the effect of the OPEC cartel from being transmitted accurately to users of petroleum. The result both strengthened the OPEC cartel, by preventing a higher price from leading U.S. consumers to economize on the use of oil, and required the introduction of major command elements in the United States in order to allocate the scarce supply (by a Department of Energy spending in 1979 about $10 billion and employing 20,000 people)." 

"A monopoly can seldom be established within a country without overt and covert government assistance in the form of a tariff or some other device. It is close to im- possible to do so on a world scale. The De Beers diamond monopoly is the only one we know of that appears to have succeeded. We know of no other that has been able to exist for long without the direct assistance of governments—the OPEC cartel and earlier rubber and coffee cartels being perhaps the most prominent exam- ples. 

And most such government-sponsored cartels have not lasted long. They have broken down under the pressure of international competition—a fate that we believe awaits OPEC as well. In a world of free trade, international cartels would disappear even more quickly. Even in a world of trade restrictions, the United States, by free trade, unilateral if necessary, could come close to eliminating any danger of significant internal monopolies."

The book The Economics of Public Issues by Roger LeRoy Miller, Daniel K. Benjamin and Douglass C. North has a chapter on cartels that discuss OPEC and why it cannot always meet its objectives. They point out the conditions necessary for cartels to work:


Now links to related posts: (2017)

OPEC Stumbles in Face of Oil Glut (example of how hard it is for cartels to achieve their objectives) (2017)

OPEC struggles to hold the line in a make-or-break fight to limit oil production (2017)

Sunday, December 08, 2024

Mexican Cartels Lure Chemistry Students to Make Fentanyl

Criminals turn college campuses into recruitment hubs, recruiting chemistry students in Mexico with big paydays.

By Natalie Kitroeff and Paulina Villegas of The NY Times. Excerpts:

"In their quest to build fentanyl empires, Mexican criminal groups are turning to an unusual talent pool: not hit men or corrupt police officers, but chemistry students studying at Mexican universities.

People who make fentanyl in cartel labs, who are called cooks, told The New York Times that they needed workers with advanced knowledge of chemistry to help make the drug stronger and “get more people hooked,” as one cook put it.

The cartels also have a more ambitious goal: to synthesize the chemical compounds, known as precursors, that are essential to making fentanyl, freeing them from having to import those raw materials from China."

"Those affiliated with the cartel put themselves in danger just by talking to The Times, and spoke on the condition of anonymity for fear of retaliation. Their accounts matched those of American Embassy officials who track cartel activities, including the role students are playing in cartel operations and how they are producing fentanyl. Times reporters spoke to a chemistry professor, who said the recruitment of his students was common."

"A 2020 Mexican intelligence assessment, leaked by a hacker group, found that the Sinaloa Cartel appeared to be recruiting chemistry professors to develop fentanyl precursor chemicals after the pandemic slowed supply chains."

"A chemistry professor at a university in Sinaloa State said he knew that some students enrolled in chemistry classes just to become more familiar with skills needed to cook synthetic drugs. The professor, who requested anonymity for fear of reprisals, said he had identified students who fit that profile by their questions and reactions during his lectures."

"Yet the work pays more than many legal jobs in chemistry, and that’s often enough of a sell. The second-year student said the recruiter who visited the campus had offered him $800 up front, plus a monthly salary of $800 — twice as much as the average pay for chemists formally employed in Mexico, according to government data."

"The ideal candidate is someone who has both classroom knowledge and street smarts, a go-getter who won’t blanch at the idea of producing a lethal drug and, above all, someone discreet, said one recruiter in an interview."

"To identify potential candidates, the cartel does a round of outreach with friends, acquaintances and colleagues, the recruiter said, then talks to the targets’ families, their friends, even people they play soccer with — all to learn whether they’d be open to doing this kind of work. If the recruiter finds someone particularly promising, he might offer to cover the student’s tuition cost."


Saturday, December 07, 2024

Some recent antitrust news

Here are excerpts from several articles.

U.K. Competition Regulator to Review Merger Investigations: The regulator said it would set up a new outreach program to hear more feedback from investors and startups on its deal reviews by Edith Hancock of The WSJ. Excerpts:

"The CMA [ U.K.’s Competition and Markets Authority] has faced criticism in recent years over how it handles high-profile merger reviews, with U.K. Prime Minister Keir Starmer saying a month ago that the country’s regulators need to prioritize economic growth.

“We take seriously any concerns that the way in which the regime is applied could chill investment,” Cardell said. [Sarah Cardell, the CMA’s chief executive] “This is a unique moment to deliver a new regime that is targeted on driving benefits for the U.K. economy.”"

"Where it is possible to use remedies to preserve competition while delivering benefits from growth and from investment in infrastructure or technology, the CMA should do that, Cardell said.

“That doesn’t mean we should lower the bar to allow any anti-competitive merger to get through because there’s a sort of half baked remedy in place, but we absolutely should be straining every sinew to test whether there is an effective remedy that can deliver those benefits,” she said."

U.K. Competition Watchdog Recommends Investigating Apple, Google Mobile Ecosystems: The CMA said Apple and Google have an effective duopoly on mobile ecosystems by Edith Hancock of The WSJ. Excerpts:

"The U.K.’s Competition and Markets Authority said Friday that its experts recommended investigating Apple and Google’s dominance in smartphones under the country’s new digital competition rules, alleging the tech giants can manipulate users into choosing their own apps and services over rivals’."

"The CMA can investigate companies it believes have so-called strategic market status through ownership of platforms such as smartphone operating systems and app stores. If it decides they have that status, it can then restrict how they run those platforms by banning them from favoring their own products and services over rivals’."

"Most of the issues the group found relate to how web browsers work on Apple’s iPhones, the CMA said. Apple’s Safari browser is set as a default on iPhone operating systems.

It said Apple’s terms for browser developers prevent them from offering new features, adding that some rivals complained that they can’t offer faster webpage loading on iPhones. According to the CMA, a revenue-sharing agreement between Google and Apple significantly reduced their incentive to compete for mobile browser users on Apple’s smartphones.

Apple said it disagreed with the findings, adding that forcing the company to change to comply with U.K. tech rules would undermine user privacy and security."

EU Drops Probe of Apple’s Treatment of Rival Audiobook, Ebook Developers in App Store: The commission said that closing the probe doesn’t mean Apple hasn’t broken EU rules by Edith Hancock of The WSJ. Excerpts:

"The European Union’s competition watchdog closed an investigation into how Apple treats rival audiobook developers in its App Store."

"The European Commission said on Friday that it dropped a probe that began in 2020 after a rival developer withdrew its own complaint. The regulator examined whether Apple broke EU antitrust laws by forcing developers to use its own in-app purchase software and stopping them from advertising better deals outside of the App Store."

Google’s Government Foes Are Aiming Too High: Proposal to give up search and user data faces long odds but still raises the stakes for the company by Dan Gallagher of The WSJ. Excerpts:

"The Justice Department’s proposed remedies to address anticompetitive behavior by the search giant were unveiled late Wednesday. Google was found to have engaged in such behavior in August by a federal judge, who called the 26-year-old company a “monopolist” that used illegal practices to maintain its dominance of the world’s search market.

Some of the DOJ’s proposals were expected, such as the divestiture of the Chrome browser and a ban on payments to Apple in exchange for default or preferred placement of Google’s search engine on Apple’s devices. But others came as a surprise, including a proposal the government described as “Restoring Competition Through Syndication And Data Access.” This involves Google providing its search index—essentially the massive database it has about all sites on the web—to rivals and potential rivals at a “marginal cost.” Google would also have to give those same parties full access to user data and advertising data at no charge for 10 years."

"the company also didn’t become the dominant name in internet search simply by forking over billions of dollars to Apple, or by pushing its service onto Android phone users. It was already powering more than 90% of the world’s search activity in 2009 just months after the first Android phone was released. And Google was first added to dictionaries as a common shorthand for search in 2006—a year before the first iPhone was launched. 

That required significant investments in its own technology. Google spent an average of 12% of its annual revenue on capital expenditures in the years from 2001 to 2010, well before it had any cloud-computing or artificial-intelligence business to speak of."

Google Proposes Further Changes to Search Results in Europe: The company said it must make substantial changes to comply with EU legislation by Dominic Chopping of The WSJ. Excerpts:

"Under the European Union’s Digital Markets Act, Google said it had to make substantial changes to the services it can provide in the continent, including redesigning certain features and removing others to ensure its own services aren’t favored over competitors.

The company made several changes to Google Search to boost the prominence of comparison sites in categories like flights, hotels and shopping."

"Google said it is proposing further changes that will allow users to choose between results that take them to comparison sites and results that take them directly to supplier websites"

"it will offer new formats that allow comparison sites and suppliers to show more information about what is on their websites"

EU Ends Probes on Amazon, Starbucks, Fiat Tax Deals After Court Defeats: Crackdown on international companies’ tax breaks has been a cornerstone of departing Commissioner Vestager’s enforcement policies by Edith Hancock of The WSJ. Excerpts:

"The European Union’s competition regulator formally closed probes into Amazon, Starbucks  and Fiat’s European tax cases, bringing an end to three of its attempts to crack down on international companies’ tax deals after court defeats.

The regulator’s largely symbolic decision Thursday came after EU courts ruled between 2019 and 2023 that the bloc’s executive was wrong to charge the Netherlands and Luxembourg with giving companies unfair advantages through tax breaks in a string of in-depth state-aid investigations."

"The investigations that EU regulators closed Thursday threatened to derail the commission’s crackdown when they were struck down in court. The effort got a new lease of life in September when judges ordered Apple to pay Ireland 13 billion euros, equivalent to about $13.74 billion, plus interest, in taxes.

EU judges confirmed in the recent Apple ruling that the European Commission was right in challenging certain aggressive tax-ruling practices and set the benchmark to assess tax-planning practices in other judgments, Vestager said." [Competition Commissioner Margrethe Vestager]

Canada Sues Google, Alleging Anticompetitive Online-Ad Practices: Accusations are the latest antitrust headache for the tech giant by Paul Vieira of The WSJ. Excerpts:

"Canada’s antitrust watchdog alleges that Google acted unlawfully in building market share in the online-advertising business, marking the latest regulatory headache for the tech giant."

"The antitrust watchdog [Canada’s Competition Bureau] wants the tribunal to force the company to sell two crucial pieces of advertising-market software and pay a fine of as much as 3% of the company’s global revenue."

"In a written statement, Google’s vice president of global advertising, Dan Taylor, said the complaint filed by Canada’s antitrust watchdog “ignores the intense competition where ad buyers and sellers have plenty of choice.” He added that the company looks forward to making its case in court."

"The antitrust watchdog wants the tribunal to prohibit Google from engaging in anticompetitive behavior and force the company to sell two of its ad-tech tools: its ad exchange, known as AdX; and an ad server, known as DFP. The watchdog is also seeking a fine of as much as 3% of Google’s worldwide revenue.

In its complaint, the watchdog said Google has unlawfully tied together its different ad-tech products, hamstrung rivals’ ability to compete and purposely thwarted new software that threatened its market power."