Tuesday, April 30, 2024

Frank Knight And John Stuart Mill On The Purpose Of Life And Liberty

Frank Knight was an economics professor at The University of Chicago in the first half of the 20th century. John Stuart Mill was a British philosopher and economist in the 19th century.

Here is an interesting quote from Knight followed by a similar one from John Stuart Mill.

"Life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to 'know ourselves,' to find our real wants, more than to get what we want"

Source: Knight, Frank H. 1935. "The Limitations of Scientific Method in Economics," in The Ethics of Competition and other Essays. Harper and Row: New York.

See also Frank Knight’s “Risk, Uncertainty and Profit” 100 Years Later: Without Frank Knight, there would not have been a Chicago School of Economics by John Phelan. 

John Stuart Mill said: “The purpose of liberty is not to give us what we want but to help us grow so that we can best understand our wants.”

See The Forgotten Philosopher by Alan Wolfe in The Chronicle of Higher Education

Related posts:

James Buchanan, Frank Knight and John Stuart Mill on choice and utility functions (2022)

When Self-Interest Isn’t Everything (2008)

Monday, April 29, 2024

Are fewer Democrats buying Teslas because of Elon Musk's political views?

See Elon Musk Lost Democrats on Tesla When He Needed Them Most: Some potential Tesla buyers couldn’t stomach a purchase amid the CEO’s fall outbursts, data suggest by Tim Higgins of The WSJ. Excerpts:

"For years, the biggest cohort of Tesla TSLA 15.35%increase; green up pointing triangle buyers, politically speaking, has been Democrats. But when Elon Musk took a hard turn last fall, they didn’t follow him. 

The proportion of Democrats buying Tesla vehicles fell by more than 60%, according to car buyers surveyed in October and November by researcher Strategic Vision."

"The fall contraction coincided with Musk’s being increasingly vocal about illegal immigration, amplifying a tweet promoting antisemitic vitriol and publicly attacking Disney over his contention that the entertainment company had become too woke. (Musk has called the troublesome tweet foolish, and the Mouse House CEO has defended its positions while saying it needs to stay focused on entertainment.)

In many ways, Musk was sounding a lot like Donald Trump, embracing billionaire populism, and less like the green hero he was once celebrated as."

"U.S. politics has polarized the technology, which some Republicans have denigrated in their campaigns."

"the mix of Democrats, who have been core constituents for the Tesla brand, had remained mostly steady—until last fall.

Among 2022 model-year buyers, Democrats made up 40% of Tesla customers and 39% in 2023, according to Strategic Vision’s surveys. Things began to change in the 2024 model year survey, which began in October. The makeup of Democrats fell to 15% while Republicans jumped to 32% and independents swelled to 44%. 

Those results show Tesla was losing sales among Democrats"

"In California, a solid-blue state, registrations of new Tesla vehicles fell almost 10% in the fourth quarter. That was a stunning reversal from the third quarter when registrations rose 43%, and perhaps a sign of things to come nationally."

"Former President Trump, the presumptive Republican nominee for the White House, has made attacks on electric cars a regular talking point during his campaign"

"Musk has said he is against Biden but has stopped short of saying he will back Trump."

"While Democrats’ ranks fell at the end of the year, some came back in subsequent surveys by Strategic Vision, rising to 35% of the mix of buyers through late February—still not what they traditionally had been, but better than last fall when their share was weakening." 

Related posts: 

People say the president can control gas prices if the president belongs to the other party (2017)

Are some blue jeans really Democratic and others Republican? (2019)

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions)  (2023)

Why Tribalism Took Over Our Politics: Social science gives an uncomfortable explanation: Our brains were made for conflict (2023) 

Democrats and Republicans say economy is improving, but mostly only when someone from their party is president (2024) 

Did Fracking in Pennsylvania Turn Democrats Into Republicans and Republicans Into Democrats? (2024)

See also Americans start caring more about deficits and the national debt when the party they oppose runs them up by John V. Kane of New York University and Ian G. Anson of The University of Maryland. Excerpt:

"In the past two decades, US budget deficits have skyrocketed, and the national debt is now over $22 trillion. But do Americans care about the size of deficits and the national debt? In new research, John V. Kane and Ian G. Anson find that people tend to care more about the deficits and debts when they are increased by presidents from the party that they oppose. Both Republicans and Democrats, they write, become less concerned about governments running deficits when their President is in charge."

Sunday, April 28, 2024

Chipotle Keeps Raising Prices. Gym Rats and Millennials Are Still Buying Burritos.

The burrito chain outperforms restaurant rivals with customers who tend to have higher incomes and be health conscious 

By Heather Haddon of The WSJ.

Below I have some information about price elasticity of demand. One thing that affects it is how much of your budget you spend on a good. If you make more money than most people (which the article says about Chipotle customers), then you spend a smaller share of your income on fast food and this makes your demand inelastic. When price goes up, your quantity demanded does not decrease very much since it does not affect your budget very much because of your high income. So with prices going up, the firms whose customers make more money will keep buying (or at least not cut back very much) while the other restaurants see a larger drop in quantity demanded.

Excerpts from the article:

"Chipotle fans have been tested lately. Chipotle Mexican Grill CMG 2.41%increase; green up pointing triangle has increased prices six times since 2021. It was among the first restaurant companies to say it would boost its menu prices on delivery apps. And its prices are set to rise further in California, where roughly 400 locations are paying higher hourly wages in response to a new state law

Higher costs and inflation-weary consumers are starting to erode sales across much of the U.S. restaurant industry. Traffic last year, while 1% higher than in 2022, remained 8% below prepandemic levels, according to market research firm Circana.

Many Chipotle customers, though, are still willing to pay. The California-based chain’s same-store sales grew 8.4% last quarter, outpacing rivals including McDonald’s and Starbucks’s U.S. operations. Chipotle has reported better-than-expected earnings for four straight quarters, according to FactSet. It is one of the industry’s fastest-growing chains, with plans to build around 300 new locations this year."

"Chipotle is benefiting from a unique base of customers who tend to be more affluent and health-conscious than the average restaurant-goer—and loyal, executives and analysts say. More than half the chain’s customers say they actively manage their health, according to market research firm Numerator, and they tend to eat out several times a week."

"Chipotle’s customers are 20% more likely than the average U.S. consumer to earn more than $125,000 a year, according to Numerator data from its panel of 150,000 U.S. households. Fast-casual chains typically charge more than fast-food and tend to attract higher-income consumers, along with families with children, market research firms said."

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

Determinants of price elasticity of demand

1. Share of the budget going to a good

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

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

2. Adjustment time. 

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

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

3. Number of close substitutes. 

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

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

Friday, April 26, 2024

GDP only rose 1.6% in the first quarter even though it was projected to grow 2.4%

Eight tenths of one percent might not seem like a big difference but it can be over time.

See Mix of Slowing Growth, Firm Inflation Worries Investors: Markets fall as another high inflation reading makes it difficult for the Fed to cut interest rates in the near term by David Uberti of The WSJ. Excerpt:

"Gross domestic product expanded at a 1.6% seasonally- and inflation-adjusted annual rate in the first quarter, the Commerce Department said Thursday, a pullback from last year’s quick pace. That lagged behind the 2.4% projected by economists polled by The Wall Street Journal."

That might not seem like a big deal, just 0.8% less than expected. In my macro courses we read a chapter in the book The Economics of Macro Issues. The chapter discussed how nations with common law systems, where property rights are better protected than in nations with civil law systems, have higher growth rates. I pointed out to my classes that even a small difference in growth rates ends up causing a very big difference in per capita incomes due to the annual compounding effect.

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

Using the latest GDP figures for another example, if we grow 1.6% a year for the next 30 years, and if per capita GDP now is, say, $80,000, it would reach $128,795. But if it only grows 2.4% for 30 years, per capita GDP would be $162,962. That is about $34,000 more than if we grow 1.6%.

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


Thursday, April 25, 2024

The Top Colleges for High-Paying Careers in Finance, Tech and Consulting

The list includes some familiar names—and quite a few surprises among both private and public universities

By Alyssa Lukpat of The WSJ. The article also includes extensive detailed tables on how much the graduates at different colleges earn. One thing to remember about the schools mentioned here is that the students who get accepted to them are already high quality and that also contributes to their later success. Excerpts:

"The colleges putting graduates onto the most lucrative pathways in finance, tech and management consulting include many schools you’d expect—Ivy League schools, for instance, and top public universities."

"Graduates with some of the highest salaries in these fields attended schools like Baruch College, San Jose State University and the U.S. Naval Academy"

"proximity to industry hubs and rigorous curricula are just as important as strong alumni networks and prestigious degrees"

"The rankings—which include the top 20 public and private universities for launching graduates into high-earning jobs—aim to answer: If the chosen career and the number of years in the field are the same, what effect does the undergraduate school somebody went to have on their salary?"

"The effect can be huge. In the first 10 years after graduation, Massachusetts Institute of Technology alumni who go into finance average $73,608 a year in salary more than the median college graduate in the field"

"The average yearly salary for MIT grads in finance in those years is around $175,000."

"The average salary for the median graduate in finance through the first 10 years of their career is just over $100,000" 

"The schools in the rankings have offered graduates an array of resources to enrich their careers"

"Grads from Ivy League and top public schools can tap vast alumni networks. Liberal-arts alumni learned soft skills that can help them ascend corporate ranks. Service-academy graduates acquired potentially lucrative traits like perseverance and diligence. And recruiters flock to schools around Silicon Valley and Wall Street."

"The top five private colleges for high-paying jobs in finance are MIT, Harvard University, Princeton University, the University of Pennsylvania and Dartmouth College. The top five public schools are the University of Michigan; the University of California, Berkeley; the University of Virginia; the U.S. Military Academy, and William & Mary."

"The top private schools for high-paying tech jobs are Harvard, Princeton, Stanford University, the California Institute of Technology and Yale University. The top public colleges are UC Berkeley; the Naval Academy; the University of California, Los Angeles; the University of Washington, and Michigan."

"The top private colleges for high-paying jobs in consulting are Harvard, MIT, Yale, Princeton and Stanford. The top public schools are the U.S. Military Academy, the Georgia Institute of Technology, Michigan, UC Berkeley and Virginia."

Related posts:

Cognitive Endurance as Human Capital  (2022) (Schooling may build human capital not only by teaching academic skills, but by expanding the capacity for cognition itself)

Why do employers pay extra money to people who study a bunch of subjects in college that they don’t actually need you to know? Signaling (2020) (Economist Bryan Caplan therefore reckons that roughly 80% of the education premium comes from signaling (getting a degree signals that you were already smart and hard workingh) and only 20% from marketable skills)

Tuesday, April 23, 2024

Some reasons why car insurance has gone up in Texas

See Texas car insurance premiums are soaring. Here's what's behind the spike — and what you can do by Madison Iszler. Excerpts:

"In Texas, rates climbed an average 25.5% in 2023, according to the Texas Department of Insurance, the biggest annual increase in at least a decade —  more than double average increases nationwide.

Data on average premiums paid by Texas drivers in 2023 was not yet available, the department said. But financial services company Bankrate.com estimated the average annual premium in Texas is $2,620 this year, up from $2,019 in 2023 and $1,868 in 2022. Bankrate put the average annual premium at $2,576 in the San Antonio area and $2,543 nationwide.

Across the U.S., rates jumped 11.2% in 2023 and are expected to surge another 12.6% this year, according to personal finance website ValuePenguin. It predicts a rate increase of at least 5% in every state this year except Colorado, Hawaii, Idaho and North Carolina.

Prices of new and used vehicles have spiked since the pandemic so insurers are having to write checks for larger amounts to replace totaled vehicles, said Stephen Crewdson, senior director of insurance business intelligence at consumer research company J.D. Power.

The costs of labor and parts are rising, too, because of supply chain problems, inflation and more technology being built into cars. Some parts are taking longer than usual to arrive at dealerships and auto shops, which also means insurers are spending more to keep customers in rental cars than they typically would, Crewdson said.

The volume of accidents — and severe collisions — is also increasing, pushing up medical costs. There were 15,299 serious injury crashes in Texas in 2022, up 18.5% from 2019, according to the most recent data available from the Texas Department of Transportation. The number of vehicle traffic fatalities increased 23.6%.

That confluence of factors has caused whiplash among insurers who saw customers staying off the roads during the pandemic and in some cases reduced premiums or even returned portions of them.

“Premiums are still going up rapidly because insurers are trying to play catch-up with what happened during that period,” Crewdson said. “There are emerging data points suggesting that some have caught up with the cost … but there are certainly cases of insurers that have not yet caught up. And they’re going to continue to need to increase premiums until they do.”"

Sunday, April 21, 2024

Drug Shortages in America Reach a Record High

Among the hundreds of medicines now in short supply are popular drugs used for weight loss such as Ozempic

By Liz Essley Whyte and Peter Loftus of The WSJ

I liked that this article mentions that price increases are part of the solution, something that usually does get mentioned. A shortage means that current price is below the equilibrium price so that quantity demanded is greater than quantity supplied. If markets are allowed to work freely, prices will rise.

Excerpts from the article:

"Shortages of drugs in the U.S. have risen to an all-time high.

Supplies are low for everything from lifesaving injections to diabetes medications"

"A total of 323 drugs were in shortage in the first quarter of 2024, up from the previous high of 320 in 2014"

"some patients must visit several pharmacies to find a drug or wait longer to receive a key treatment or get second-choice substitutes or pay more if a generic drug is unavailable but the brand is."

"Lilly said “an unparalleled surge in demand” for Mounjaro and a cousin drug, the anti-obesity treatment Zepbound, have limited their availability. The company also has seen supply disruptions for an older diabetes drug, Trulicity."

"health economists have pinned most shortages on a broken pharmaceutical supply chain that makes it difficult for generic-drug makers to earn a profit and stay in business."

"Many generic-drug makers have left the business or offshored production to countries where labor is cheaper, such as India. Shortages can result, and linger, if a factory pauses production. There are few suppliers to pick up the slack, and it isn’t easy to jump-start manufacturing of a particular drug, especially the sterile injectables that are so tricky to make and that hospitals use so often."

"Continuing shortages reached a similar peak in 2014, then abated for several years. They have been on a mostly steady upswing since 2021."

"Fixing the problem will probably involve changing the business model, including taking steps that would increase the prices of generic medicines so sales can support manufacturers and attract additional companies, according to researchers and policymakers."

Related posts on supply and demand and shortages: 

Record Cocoa Prices Are Making Sweet Cravings Expensive (2024)

Firms (that make EVs) lower prices when demand is less than expected (2024) 

Renters Are Starting to Get Concessions From Landlords Again (article illustrates supply and demand principles) (2023)

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

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

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

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

Is There A Booze Shortage? (2022) 

Drivers Throttle Back as Gasoline Prices Rise (2022)

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

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

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

Car makers face ‘chipageddon’ (2021)  

Does the U.S. have a firefighter shortage (2021) 

There is no truck driver shortage in the US (2021)


Is there a shortage of homes? (2020)

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

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

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

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

Why honey prices have climbed about 25% since 2013 (2019-This post is featured in Introduction to Microeconomics by Luís Cabral. He is chair of the economics department at New York University.)

Introduction to Microeconomics by Luís Cabral

Is there really a shortage of construction workers (2019) 

Was there really a shortage of meatless burgers? (2019)  

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

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

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

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

Supply And Demand Have Affected Beef Prices Recently (2017)

Is There A Christmas Tree Shortage? (2017)  

Will There Be A Pumpkin Shortage This Year? (2011)

Another Journalist Misunderstands Supply And Demand (2009)

Saturday, April 20, 2024

Adam Smith Meets Joseph Campbell

Campbell wrote the book The Hero With a Thousand Faces, which was one of the inspirations for Star Wars. He was interviewed by Bill Moyers in a six hour series in the 1980s on PBS. That series was called The Power of Myth.

Here is one passage:

"“This is the threat to our lives 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 to the attainment of human purposes? How do you relate to 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. The thing to do is learn to live in your period of history as a human being. That's something else, and it can be done.”"
Here is another:
"The world is a wasteland. People have the notion of saving the world by shifting it around and changing the rules and so forth. No, any world is a living world if it’s alive, and the thing is to bring it to life. And the way to bring it to life is to find in your own case where your life is, and be alive yourself, it seems to me."
Adam Smith said something that seemed similar 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."
Smith also seems to be hinting at the law of unintended consequences. Here is a longer excerpt to see the context:
"But though the general rules by which prosperity and adversity are commonly distributed, when considered in this cool and philosophical light, appear to be perfectly suited to the situation of mankind in this life, yet they are by no means suited to some of our natural sentiments. Our natural love and admiration for some virtues is such, that we should wish to bestow on them all sorts of honours and rewards, even those which we must acknowledge to be the proper recompenses of other qualities, with which those virtues are not always accompanied. Our detestation, on the contrary, for some vices is such, that we should desire to heap upon them every sort of disgrace and disaster, those not excepted which are the natural consequences of very different qualities. Magnanimity, generosity, and justice, command so high a degree of admiration, that we desire to see them crowned with wealth, and power, and honours of every kind, the natural consequences of prudence, industry, and application; qualities with which those virtues are not inseparably connected. Fraud, falsehood, brutality, and violence, on the other hand, excite in every human breast such scorn and abhorrence, that our indignation rouses to see them possess those advantages which they may in some sense be said to have merited, by the diligence and industry with which they are sometimes attended. The industrious knave cultivates the soil; the indolent good man leaves it uncultivated. Who ought to reap the harvest? who starve, and who live in plenty? The natural course of things decides it in favour of the knave: the natural sentiments of mankind in favour of the man of virtue. Man judges, that the good qualities of the one are greatly over-recompensed by those advantages which they tend to procure him, and that the omissions of the other are by far too severely punished by the distress which they naturally bring upon him; and human laws, the consequences of human sentiments, forfeit the life and the estate of the industrious and cautious traitor, and reward, by extraordinary recompenses, the fidelity and public spirit of the improvident and careless good citizen. Thus man is by Nature directed to correct, in some measure, that distribution of things which she herself would otherwise have made. The rules which for this purpose she prompts him to follow, are different from those which she herself observes. She bestows upon every virtue, and upon every vice, that precise reward or punishment which is best fitted to encourage the one, or to restrain the other. She is directed by this sole consideration, and pays little regard to the different degrees of merit and demerit, which they may seem to possess in the sentiments and passions of man. Man, on the contrary, pays regard to this only, and would endeavour to render the state of every virtue precisely proportioned to that degree of love and esteem, and of every vice to that degree of contempt and abhorrence, which he himself conceives for it. The rules which she follows are fit for her, those which he follows for him: but both are calculated to promote the same great end, the order of the world, and the perfection and happiness of human nature.

But though man is thus employed to alter that distribution of things which natural events would make, if left to themselves; though, like the gods of the poets, he is perpetually interposing, by extraordinary means, in favour of virtue, and in opposition to vice, and, like them, endeavours to turn away the arrow that is aimed at the head of the righteous, but to accelerate the sword of destruction that is lifted up against the wicked; yet he is by no means able to render the fortune of either quite suitable to his own sentiments and wishes. 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. That a great combination of men should prevail over a small one; that those who engage in an enterprise with forethought and all necessary preparation, should prevail over such as oppose them without any; and that every end should be acquired by those means only which Nature has established for acquiring it, seems to be a rule not only necessary and unavoidable in itself, but even useful and proper for rousing the industry and attention of mankind. Yet, when, in consequence of this rule, violence and artifice prevail over sincerity and justice, what indignation does it not excite in the breast of every human spectator? What sorrow and compassion for the sufferings of the innocent, and what furious resentment against the success of the oppressor? We are equally grieved and enraged at the wrong that is done, but often find it altogether out of our power to redress it. When we thus despair of finding any force upon earth which can check the triumph of injustice, we naturally appeal to heaven, and hope, that the great Author of our nature will himself execute hereafter, what all the principles which he has given us for the direction of our conduct, prompt us to attempt even here; that he will complete the plan which he himself has thus taught us to begin; and will, in a life to come, render to every one according to the works which he has performed in this world. And thus we are led to the belief of a future state, not only by the weaknesses, by the hopes and fears of human nature, but by the noblest and best principles which belong to it, by the love of virtue, and by the abhorrence of vice and injustice."

Related posts:

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of) (2009) 

Adam Smith vs. Ace Ventura (2010)
Adam Smith, Marriage Counselor (2011)

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System" (2017) 

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions) (2021) 

Pride and Profit: The Intersection of Jane Austen and Adam Smith (2023)

Friday, April 19, 2024

Did Fracking in Pennsylvania Turn Democrats Into Republicans and Republicans Into Democrats?

See ‘Now They’re Voting Red’: A Pennsylvania Fracking Boom Weighs on Biden’s Re-Election Chances: Economic churn is pushing voters toward Trump in the Pittsburgh area, potentially overwhelming Democrats’ base of college-educated workers by Aaron Zitner and Kris Maher of The WSJ. Excerpts:

"Pittsburgh is at the center of a class inversion between the two parties that is redefining American politics. Democrats have traded their former blue-collar base for professional-class, metropolitan workers, while Republicans have become overwhelmingly dependent on working-class voters concentrated in far-flung suburbs, small towns and rural areas.

In Pennsylvania, the largest 2024 battleground state, President Biden’s victory four years ago depended in large part on big gains among voters such as [Josh] Thieler, a software company manager and former Republican who is now part of the city’s heavily Democratic professional class. But those gains have been overtaken by opposition from voters like [John] Sabo, who works in the natural-gas industry, a sector that has given a boost to blue-collar workers in rural counties.

These energy-economy voters see Biden as hostile to fracking, which taps natural gas trapped in sedimentary rock deep underground. The sector has drawn billions of dollars in new investment in Pennsylvania, much of it in the state’s southwest corner.

Biden has been particularly hurt by his decision to cancel the Keystone XL oil pipeline, which local companies say cut into demand for their services; and his order this year to pause new permits to export liquefied natural gas, which could deprive drillers of new markets. Many of these voters also believe the president’s push for Americans to adopt electric vehicles will undercut jobs tied to fossil fuels.

The area’s reliance on energy jobs helps explain why Democrats look to be losing more voters than they have gained here despite a Biden agenda that’s pumping billions of dollars into infrastructure and manufacturing."

"There is little sign that Biden can regain substantial support in seven largely working-class and rural counties that surround the city, every one of which produced a larger vote margin for Trump in 2020 than in 2016. The resistance to Biden’s energy policies is making it harder for the incumbent to stop his party’s decline among noncollege voters there, forcing the party to wring more votes out of a Democratic base elsewhere that, so far, seems dispirited."

[there is] "a breed of progressive Democrat new to Pittsburgh, among them Rep. Summer Lee and Sara Innamorato, the top official in Pittsburgh’s county, who oppose fracking. They say the risks to residents’ health and the environment, as well as the effect on climate change, are too great, and that the region should prepare for energy jobs to shift toward renewables."

"In the 2000 presidential election, Democrats carried this part of the state—Pittsburgh’s county and seven neighboring, more working-class counties—by nearly 86,000 votes. By 2020, Biden lost by a net 38,000 votes in those same counties. Allegheny County, which includes Pittsburgh, produced a far bigger margin for Democrats than it had two decades earlier, a 56% gain. But that was more than erased by landslide losses in the lower-income counties nearby."

"Once, Pittsburgh and its surrounding counties were largely unified in a single economic and political ecosystem of industry, unions and Democratic leadership. Steel and manufacturing plants were dotted along the two rivers that converge in the city to form the Ohio River, a transportation gateway to the West and South. Then, steel collapsed, with big job losses coming in the 1980s. The region started shedding population.

At its likely peak in 1952, manufacturing employed about 379,000 people and accounted for 40% of all jobs in the region, according to regional economist Chris Briem of the University of Pittsburgh. Thousands more jobs were indirectly related. Today, only 85,000 work in manufacturing, he said.

The fracking industry hasn’t filled the vacuum, but it has created high-paying, if cyclical, jobs in communities that had little to offer the blue-collar workforce. In Zelienople, a starting laborer can earn $85,000 a year right out of high school at Deep Well Services—“far more than their fathers ever did,” said Sabo, a company vice president.

"Those workers can then climb in responsibility to jobs that top out at $200,000 and even $250,000 in annual wages, a level now hit by about 60 employees, Sabo said. The work is hard, involving 28 days on the job and then 14 days off as part of teams that prepare wells to extract natural gas."

"Many workers in this part of the state say their jobs cement them to Trump and the Republican Party. While they criticize Biden’s stances on immigration, social issues and military funding for Ukraine, they often point to decisions that they believe directly affect their livelihoods in explaining their votes."

"An inflow of new workers, many of them foreign-born, has transformed city neighborhoods. In Lower Lawrenceville, once home to one of the nation’s oldest populations, the number of residents with a bachelor’s degree has more than doubled from a decade earlier, census data show, and the number with a more advanced degree more than tripled. Incomes rose as well, with median household income topping $90,000, more than twice the level of a decade earlier, adjusted for inflation."

"Thieler, the progressive Democrat who lives just north of the neighborhood, recalls a childhood in Uniontown, where his great-grandfather once owned a small coal mine that failed. He grew up listening to conservative talk radio and never questioned the Republican politics of his family. But he said that changed after he moved to Pittsburgh and took his first job at a startup in the city that made software to help hospitals track patients.

He credits his political shift to his exposure to more diverse people and issues in the city, including racial injustice and homelessness."

"The Pittsburgh neighborhood of East Liberty, home to Duolingo [Language app-maker Duolingo], has seen its own transformation as a tech hub. An old Nabisco factory site nearby now houses several artificial-intelligence companies and the Ascender Pittsburgh incubator, which is fostering startups in education, payroll services and other areas. Google’s offices are across the street."

"While many Democrats say they don’t recognize the Republican Party that has been reshaped by Trump, others here say it’s the Democratic Party that has changed most.

“It used to be a conservative, middle-of-the-road Democratic Party,” said Alan Benyak, a Washington County lawyer and member of the Democratic State Committee until 2022. Now, he’s a registered Republican.

“I’d go to a state committee meeting and feel like a dinosaur,” he said. “With this war on the fossil fuel industry, which is still big in Washington County, it was like I was swimming upstream.” 

Benyak marvels at how deep the political divide has become between Allegheny County and those that border it.

“You’d think we’d all think the same way, somewhat,” he said. “We’re all from the same area, generally, within 20 miles of each other.”"

Related posts: 

Are some blue jeans really Democratic and others Republican? (2019)

People say the president can control gas prices if the president belongs to the other party (2017)

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions)  (2023)

Why Tribalism Took Over Our Politics: Social science gives an uncomfortable explanation: Our brains were made for conflict (2023) 

Democrats and Republicans say economy is improving, but mostly only when someone from their party is president (2024)

See also Americans start caring more about deficits and the national debt when the party they oppose runs them up by John V. Kane of New York University and Ian G. Anson of The University of Maryland. Excerpt:

"In the past two decades, US budget deficits have skyrocketed, and the national debt is now over $22 trillion. But do Americans care about the size of deficits and the national debt? In new research, John V. Kane and Ian G. Anson find that people tend to care more about the deficits and debts when they are increased by presidents from the party that they oppose. Both Republicans and Democrats, they write, become less concerned about governments running deficits when their President is in charge."

Thursday, April 18, 2024

Meet the Robots Slicing Your Barbecue Ribs

The meatpacking industry is investing billions of dollars to automate notoriously difficult jobs

By Patrick Thomas of The WSJ

Do businesses replace workers with robots or other capital to cut down on costs? Or do they add robots because there is a labor shortage? Or, as mentioned in some of my related posts, do robots and humans complement each other?

If robots and humans are substitutes, if the price of human labor rises then the demand for robots would increase. The article mentions a labor shortage in the meat industry. If market forces are allowed to work, then a shortage should lead to a price increase which then means an increase in demand for robots. Many articles I read on shortages never mention that price is below equilibrium.

Excerpts from the article:

"In Denison, Iowa, a robot spends eight hours a day slicing apart hog carcasses at a plant owned by Smithfield Foods. It serves a dual purpose: producing more ribs for barbecues and smokers, while helping ease the U.S. meat industry’s long-running labor shortages

Meatpackers are increasingly looking to robots for help. Smithfield, the largest U.S. pork processor, began rolling out automated rib pullers at its pork plants several years ago, which company officials said helps leave less wasted meat on the bone and relieves workers from some of the industry’s most physically demanding jobs—allowing workers to be reassigned from pulling loins or ribs to food-quality inspection jobs."

"Raising wages or offering signing bonuses to attract plant workers eats into processors’ profitability. Meat companies are collectively spending billions of dollars on automating some of the more-difficult plant roles, which they said can improve staffing and safety while cutting costs.

Meat processors said they don’t see automation replacing workers or leading to layoffs, partly because turnover in plants is already high and the goal is to move workers to more skilled, harder-to-fill roles."

"The U.S. meat industry, with more than $200 billion in annual sales, is under pressure to run more efficiently. Profit margins across the three major protein segments—chicken, beef and pork—were strained over the past year as operating costs increased, chicken and pork prices fell and cattle herds dwindled."

"Fully autonomous processing operations are still a long way off and carcass-scanning computers can’t yet match humans’ ability to disassemble and debone larger cattle and hog bodies that slightly differ in shape and size."

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)

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)

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)

Monday, April 15, 2024

Are Americans Worrying Too Much About Inflation? Two opposing views

First, see I’m an Economist. Don’t Worry. Be Happy. by Justin Wolfers, a professor of economics at the University of Michigan. Excerpts:

"The same inflationary forces that pushed these prices higher have also pushed wages to be 22 percent higher than on the eve of the pandemic. Official statistics show that the stuff that a typical American buys now costs 20 percent more over the same period. Some prices rose a little more, some a little less, but they all roughly rose in parallel.

It follows that the typical worker can now afford 2 percent more stuff. That doesn’t sound like a lot, but it’s a faster rate of improvement than the average rate of real wage growth over the past few decades."

"But in reality, higher prices are only the first act of the inflationary play. It’s a play that economists have seen before. In episode after episode, surges in prices have led to — or been preceded by — a proportional surge in wages."

For the other view, see What Economists Miss About Inflation: Prices aren’t rising as fast as they were in 2022, but consumers tend to have a long time horizon by Robert Pozen and S.P. Kothari. Mr. Pozen is a senior lecturer at the MIT Sloan School of Management and a former chairman of MFS Investment Management. Mr. Kothari is a professor of accounting and finance at MIT Sloan.

"Many economists and political commentators wonder why U.S. consumers continue to feel they are suffering from inflation, although the annual rate of inflation dropped sharply during 2023 and is still well below its peak in the summer of 2022.

The answer is that consumers have a broader time horizon. They are looking at the rate of price increases over the past three years. From January 2021 to January 2024, the consumer price index for all items rose by 17.96%.

A concrete example: You paid $10 for a tuna sandwich at a takeout lunch place at the start of 2021. By the start of 2024, the same tuna sandwich cost $11.80. That certainly feels like severe inflation. It wouldn’t be much comfort if an economist told you that you should feel good because the price of the tuna sandwich rose by only 3.11% in the last year, from $11.45 to $11.80.

Moreover, in 2021 no one was asking for a tip. Since the pandemic, it has become common for payment screens at takeout places to prompt customers for a gratuity of as much as 25%. You can say no, but at the risk of a scowl from the cashier.

Economists might argue that consumers should be satisfied because their wages rose over those three years. But the rise in total wages was only 15.3% during this period, so workers are behind in real terms.

Further, at the beginning of the pandemic, many consumers of moderate or lower income received some type of government grant, such as refundable tax credits for children or unemployment checks that exceeded their prior take-home pay. These grants declined in 2022 and ran out after 2023.

In short, prices are up, wages aren’t keeping pace, and the tuna sandwich that used to cost $10 now costs $13 including a small tip. No wonder consumers feel they are still battling price inflation."

Sunday, April 14, 2024

Is Starbucks coffee no longer a Veblen good?

See Heard on the Street: Is That Starbucks Latte Finally Getting Too Expensive? by Spencer Jakab of The WSJ.

"You see an Iced Starbucks Blonde Vanilla Latte that costs $7.25. An economist sees a “Veblen good.”

Part of the secret to the coffee chain’s success and ubiquity has been the fact that it sells coffee not only at a huge markup to the cost of foamy brown water but simply that it costs a lot. Like an expensive handbag, the small luxury of the beverage that could be bought more cheaply elsewhere for the same utility is part of the appeal.

But, with the chain’s share price hitting a one-year low on Wednesday and same-store sales slumping, could it be hitting its limit with some customers? That is one of the interesting conclusions from a proprietary survey by analysts at Deutsche Bank.

“Among the 45% of consumers buying less or no longer buying from Starbucks, the top reason was related to price, with 47% saying ‘it's become too expensive,’ wrote Lauren Silberman’s team. Cost was “well above every other reason indicated.”

A year ago, analysts polled by FactSet saw revenue for the current fiscal year through September of $40.367 billion. That is now down to $38.784 billion. Excluding the year the pandemic hit, the chain is seen having its slowest growth in same-store sales since 2018.

Silberman thinks the slump is temporary and the deflated stock attractive. In addition to price sensitivity, part of the problem might be Starbucks' greater dependence on cold beverages and the fact that those were less desirable during a chilly winter. Spring is here—so it is about time to test that hypothesis."

Also see Veblen Goods by Andrew Loo of CFI (Corporate Finance Institute) . Excerpts:

"Veblen good is a type of luxury good named after American economist Thorstein Veblen. It shows a positive relationship between price and demand [it should say quantity demanded-CM], and thus an upward-sloping demand curve.

The demand [it should say quantity demanded-CM] for a Veblen good rises (drops) when its price increases (decreases). A Veblen good generally is considered a high-quality exclusive product and a status symbol. When the price goes higher, its status symbol makes the Veblen good more desirable to consumers with high social and economic standing. Some common examples of Veblen goods include luxury cars, wines, handbags, fine jewelry and watches and even sneakers."

"Conspicuous consumption is another relevant concept of Veblen goods. It represents the purchase of goods and services to display one’s economic power and social status, motivated by the desire for prestige.

The concept of conspicuous consumption was also identified by Thorstein Veblen in his book The Theory of the Leisure Class (1899). In the practices of conspicuous consumption, a higher price makes a product more desirable for its status symbol, which explains the features of Veblen goods from a sociological perspective."

Adam Smith may have beaten Veblen to the punch. In The Wealth of Nations, he wrote:

"With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common." (the entire book is online)
In Veblen's chapter on "Conspicuous Consumption," there is no mention of Adam Smith. 

There is statistical or empircal evidence that supports Veblen's theory. A Ph. D. student found that rich families do spend more on "Conspicuous Consumption." 

See also Doctoral Thesis Says Rich People Spend More on Conspicuous Things. Excerpts:

"Ori Heffetz, a doctoral student in economics at Princeton University (back in 2005-now he is a professor at Cornell University), has developed the first broad-gauged index of product visibility. Sure enough, he finds in his thesis that conspicuous items make up a greater share of the consumption budget in wealthier families."

"Mr. Heffetz estimated the relationship between the amount spent on each of 29 products and a household's income, using data on 3,924 households from the 1997 Consumer Expenditure Survey, conducted by the Bureau of Labor Statistics. The "income elasticity of demand," defined as the percentage change in consumption for a 1 percent increase in income, summarizes the degree to which a good is a luxury or a necessity. A good is a luxury if a 1 percent increase in income is associated with more than a 1 percent increase in consumption of that good.

Mr. Heffetz's analysis indicates that the higher the visibility of a good, the more likely it is to be a luxury item. For example, spending on cars and jewelry, two highly visible items, rises as a share of a household's budget as its income rises, while spending on home utilities, an inconspicuous category, falls as a share of the budget as income rises."

Related posts:

China's Government Cracks Down On Displays Of Wealth On Social Media (2022)  

(See In China, Bragging About Your Wealth Can Get You Censored: Online posts by users showing off their receipts, over-ordering food or scattering money have been deemed vulgar. Regulators say such content leads young people astray by Vivian Wang and Joy Dong of The New York Times.)

Payless sold its discount shoes for $600 a pair at mock luxury influencer event (2018)

Federal Reserve Economists May Have Discovered Another Cause Of Bankruptcy (if a neighbor wins the lottery people start spending more on consumption to keep up) (2016)

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) (2007)

Saturday, April 13, 2024

Pay For Performance Increases Performance (Water Runs Downhill)

For teachers in Wisconsin.

By Alex Tabarrok.

"In my 2011 book, Launching the Innovation Renaissance, I wrote:

At times, teacher pay in the United States seems more like something from Soviet-era Russia than 21st-century America. Wages for teachers are low, egalitarian and not based on performance. We pay physical education teachers about the same as math teachers despite the fact that math teachers have greater opportunities elsewhere in the economy. As a result, we have lots of excellent physical education teachers but not nearly enough excellent math teachers. The teachers unions oppose even the most modest proposals to add measures of teacher quality to selection and pay decisions.

As I wrote, however, Wisconsin passed Act 10, a bill that discontinued collective bargaining over teachers’ salary schedules. Act 10 took power away from the labor unions and gave districts full autonomy to negotiate salaries with individual teachers. In a paper that just won the Best Paper published in AEJ: Policy in the last three years, Barbara Biasi studies the effect of Act 10 on salaries, effort and student achievement.

Compensation of most US public school teachers is rigid and solely based on seniority. This paper studies the effects of a reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. Following the reform some districts switched to flexible compensation. Using the expiration of preexisting collective bargaining agreements as a source of exogenous variation in the timing of changes in pay, I show that the introduction of flexible pay raised salaries of high-quality teachers, increased teacher quality (due to the arrival of high-quality teachers from other districts and increased effort), and improved student achievement.

We still have a long way to go but COVID, homeschooling and universal voucher programs have put a huge dent in the power of the teacher’s unions. There is now a chance to bring teacher pay into the American model. Moreover, such a model is pro-teacher! Not every district in Wisconsin grasped the opportunity to reform teacher pay but those districts that did raised pay considerably. Appleton district, for example, instituted pay for performance, Oshkosh did not. Prior to the Act salaries were about the same in the two districts:

After the expiration of the CBAs, the same teacher could earn up to $68,000 in Appleton, and only between $39,000 and $43,000 in Oshkosh.

Thus, pay for performance is a win-win policy. Paying the best teachers more is good for teachers and great for students who see increases in achievement which pay off many years later in higher wages."

Thursday, April 11, 2024

Why Economics Is Really Called 'the Dismal Science': The (not-so-dismal) origin myth of a ubiquitous term

By Derek Thompson of The Atlantic Monthly. From 2013.
"The story goes like this: Thomas Carlyle, a Scottish writer and philosopher, called economics "the dismal science" in reference to Thomas Malthus, that lugubrious economist who claimed humanity was trapped in a world where population growth would always strain natural resources and bring widespread misery. Dismal, indeed.
But this origin myth is, well, mythical. Carlyle did coin the phrase "the dismal science." And Malthus was, without question, dismal.

But Carlyle labeled the science "dismal" when writing about slavery in the West Indies. White plantation owners, he said, ought to force black plantation workers to be their servants.

Economics, somewhat inconveniently for Carlyle, didn't offer a hearty defense of slavery. Instead, the rules of supply and demand argued for "letting men alone" rather than thrashing them with whips for not being servile. Carlyle bashed political economy as "a dreary, desolate, and indeed quite abject and distressing [science]; what we might call ... the dismal science.

Today, when we hear the term "the dismal science," it's typically in reference to economics' most depressing outcomes (e.g.: on globalization killing manufacturing jobs: "well, that's why they call it the dismal science," etc). In other words, we've tended to align ourselves with Carlyle to acknowledge that an inescapable element of economics is human misery.

But the right etymology turns that interpretation on its head. In fact, it aligns economics with morality, and against racism, rather than with misery, and against happiness. Carlyle couldn't find a justification for slavery in political economic thought, and he considered this fact to be "dismal." Students of economics should be proud: Their "science" was then (as it can be, today) a force for a more just and, crucially, less dismal world."

Wednesday, April 10, 2024

The Seasonally Adjusted CPI Was up 0.38% in March

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 311.054 in Feb. and 312.230 in March. Since 312.230/311.054 = 1.0038, that means it was up 0.38% in Feb. If we had that every month for 12 months it would be up 4.63%.

It was 301.744 in March 2023. Since 312.230/301.744 = 1.035, that means it was up 3.5% over the last 12 months.

The non-seasonally adjusted CPI was 312.332 in March and 301.836 in March 2023. That was up 3.5%. 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 2.5% higher in Feb. 2024 than Feb. 2023).

For more information, see Consumer prices rose 3.5% from a year ago in March, more than expected by Jeff Cox of CNBC. Excerpts: 

"The consumer price index accelerated at a faster-than-expected pace in March, pushing inflation higher and likely dashing hopes that the Federal Reserve will be able to cut interest rates anytime soon.

The CPI, a broad measure of goods and services costs across the economy, rose 0.4% for the month, putting the 12-month inflation rate at 3.5%, or 0.3 percentage point higher than in February, the Labor Department’s Bureau of Labor Statistics reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.3% gain and a 3.4% year-over-year level.

Excluding volatile food and energy components, the core CPI also accelerated 0.4% on a monthly basis while rising 3.8% from a year ago, compared with respective estimates for 0.3% and 3.7%"

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.