The percentage of 25-54 year-olds employed rose in October

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

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

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

The percentage of 25-54 year olds employed was 80.3% in October. It was 80.1% in Sept. That is the highest since January 2007).  Click here to see the BLS data. The unemployment rate was 3.6% in Oct. Click here to go to that data. The % of those 16 and older employed went from 60.96% 61.00% .

Here is a good graph from the St. Louis Fed. It shows that there are 126,277,000 people in the 25-54 year old group.

Here is the timeline graph of the percentage of 25-54 year olds employed since 2009.





Here it is going all the way back to 1948

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

To get a handle on this, you can read Money and Politics in the Land of Oz By Quentin P. Taylor.  Below is an excerpt from the Taylor paper:

"Dorothy, the protagonist of the story, represents an individualized ideal of the American people. She is each of us at our best-kind but self-respecting, guileless but levelheaded, wholesome but plucky. She is akin to Everyman, or, in modern parlance, “the girl next door.” Dorothy lives in Kansas, where virtually everything-the treeless prairie, the sun-beaten grass, the paint-stripped house, even Aunt Em and Uncle Henry-is a dull, drab, lifeless gray. This grim depiction reflects the forlorn condition of Kansas in the late 1880s and early 1890s, when a combination of scorching droughts, severe winters, and an invasion of grasshoppers reduced the prairie to an uninhabitable wasteland. The result for farmers and all who depended on agriculture for their livelihood was devastating. Many ascribed their misfortune to the natural elements, called it quits, and moved on. Others blamed the hard times on bankers, the railroads, and various middlemen who seemed to profit at the farmers’ expense. Angry victims of the Kansas calamity also took aim at the politicians, who often appeared indifferent to their plight. Around these economic and political grievances, the Populist movement coalesced.

In the late 1880s and early 1890s, Populism spread rapidly throughout the Midwest and into the South, but Kansas was always the site of its most popular and radical elements. In 1890, Populist candidates began winning seats in state legislatures and Congress, and two years later Populists in Kansas gained control of the lower house of the state assembly, elected a Populist governor, and sent a Populist to the U.S. Senate. The twister that carries Dorothy to Oz symbolizes the Populist cyclone that swept across Kansas in the early 1890s. Baum was not the first to use the metaphor. Mary E. Lease, a fire-breathing Populist orator, was often referred to as the “Kansas Cyclone,” and the free-silver movement was often likened to a political whirlwind that had taken the nation by storm. Although Dorothy does not stand for Lease, Baum did give her (in the stage version) the last name “Gale”-a further pun on the cyclone metaphor.

The name of Dorothy’s canine companion, Toto, is also a pun, a play on teetotaler. Prohibitionists were among the Populists’ most faithful allies, and the Populist hope William Jennings Bryan was himself a “dry.” As Dorothy embarks on the Yellow Brick Road, Toto trots “soberly” behind her, just as the Prohibitionists soberly followed the Populists.

When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked Witch of the East, killing her instantly. The startled girl emerges from the abode to find herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins, rejoice at the death of the Witch. The Witch represents eastern financial-industrial interests and their gold-standard political allies, the main targets of Populist venom. Midwestern farmers often blamed their woes on the nefarious practices of Wall Street bankers and the captains of industry, whom they believed were engaged in a conspiracy to “enslave” the “little people,” just as the Witch of the East had enslaved the Munchkins. Populists viewed establishment politicians, including presidents, as helpless pawns or willing accomplices. Had not President Cleveland bowed to eastern bankers by repealing the Silver Purchase Act in 1893, thus further restricting much-needed credit? Had not McKinley (prompted by the wealthy industrialist Mark Hanna) made the gold standard the centerpiece of his campaign against Bryan and free silver?"

Now an excerpt from an economics textbook by Irivin B. Tucker:

"Gold is always a fascinating story: The Wonderful Wizard of Oz was first published in 1900 and this children's tale has been interpreted as an allegory for political and economic events of the 1890s. For example, the Yellow Brick Road represents the gold standard, Oz in the title is an abbreviation for ounce, Dorothy is the naive public, Emerald City symbolizes Washington, D.C., the Tin Woodman represents the industrial worker, the Scarecrow is the farmer, and the Cyclone is a metaphor for a political revolution. In the end, Dorothy discovers magical powers in her silver shoes (changed to ruby in the 1939 film) to find her way home and not the fallacy of the Yellow Brick Road. Although the author of the story, L. Frank Baum, never stated it was his intention, it can be argued that the issue of the story concerns the election of 1896. Democratic presidential nominee William Jennings Bryan (the Cowardly Lion) supported fixing the value of the dollar to both gold and silver (bimetallism), but Republican William McKinley (the Wicked Witch) advocated using only the gold standard. Since McKinley won, the United States remained on the Yellow Brick Road."

But not everyone agrees with this. Economist Bradley Hansen wrote an article titled The Fable of the Allegory: The Wizard of Oz in Economics in the Journal of Economic Education in 2002. Here is his conclusion:

"Rockoff noted that the empirical evidence that Baum wrote The Wonderful Wizard of Oz as an allegory was slim, but he compared an allegorical interpretation to a model and suggested that “economists should not have any difficulty accepting, at least provisionally, an elegant but controversial model” (Rockoff 1990, 757). He was right—we did not have any difficulty accepting it. Despite Rockoff’s warning, we appear to have accepted the story wholeheartedly rather than provisionally, simply because of its elegance. It is as difficult to prove that The Wonderful Wizard of Oz was not a monetary allegory as it is to prove that it was. In the end, we will never know for certain what Baum was thinking when he wrote the book. I suggest that the vast majority of the evidence weighs heavily against the allegorical interpretation. It should be remembered that no record exists that Baum ever acknowledged any political meanings in the story and that no one even suggested such an interpretation until the 1960s. There certainly does not seem to be sufficient evidence to overwhelm Baum’s explicit statement in the introduction of The Wonderful Wizard of Oz that his sole purpose was to entertain children and not to impress upon them some moral. The Wonderful Wizard of Oz is a great story. Telling students that the Populist movement was like The Wonderful Wizard of Oz does seem to catch their attention. It may be a useful pedagogical tool to illuminate the debate on bimetallism, but we should stop telling our students that it was written for that purpose."

I found a review of the book in the NY Times from 1900 and it does not mention anything about OZ having political or economic meaning. The book was also made into a musical a few years later and none of the reviews of the musical mention any political or economic meaning.

How Odysseus Started The Industrial Revolution

Factory work may have been a commitment device to get everyone to work hard. Odysseus tying himself to the mast was also a commitment device. Dean Karlan, Yale economics professor explains how commitment devices work:

"This idea of forcing one’s own future behavior dates back in our culture at least to Odysseus, who had his crew tie him to the ship’s mast so he wouldn’t be tempted by the sirens; and Cortes, who burned his ships to show his army that there would be no going back.

Economists call this method of pushing your future self into some behavior a “commitment device.” [Related: a Freakonomics podcast on the topic is called "Save Me From Myself."] From my WSJ op-ed:

Most of us don’t have crews and soldiers at our disposal, but many people still find ways to influence their future selves. Some compulsive shoppers will freeze their credit cards in blocks of ice to make sure they can’t get at them too readily when tempted. Some who are particularly prone to the siren song of their pillows in the morning place their alarm clock far from their bed, on the other side of the room, forcing their future self out of bed to shut it off. When MIT graduate student Guri Nanda developed an alarm clock, Clocky, that rolls off a night stand and hides when it goes off, the market beat a path to her door."

 See What Can We Learn From Congress and African Farmers About Losing Weight?

Something like this came up recently in the New York Times, in reference to factory work and the Industrial Revolution. See Looking at Productivity as a State of Mind. From the NY Times, 9-27. By SENDHIL MULLAINATHAN, a professor of economics at Harvard. Excerpts:

"Greg Clark, a professor of economics at the University of California, Davis, has gone so far as to argue that the Industrial Revolution was in part a self-control revolution. Many economists, beginning with Adam Smith, have argued that factories — an important innovation of the Industrial Revolution — blossomed because they allowed workers to specialize and be more productive.

Professor Clark argues that work rules truly differentiated the factory. People working at home could start and finish when they wanted, a very appealing sort of flexibility, but it had a major drawback, he said. People ended up doing less work that way.

Factories imposed discipline. They enforced strict work hours. There were rules for when you could go home and for when you had to show up at the beginning of your shift. If you arrived late you could be locked out for the day. For workers being paid piece rates, this certainly got them up and at work on time. You can even see something similar with the assembly line. Those operations dictate a certain pace of work. Like a running partner, an assembly line enforces a certain speed.

As Professor Clark provocatively puts it: “Workers effectively hired capitalists to make them work harder. They lacked the self-control to achieve higher earnings on their own.”

The data entry workers in our study, centuries later, might have agreed with that statement. In fact, 73 percent of them did agree to this statement: “It would be good if there were rules against being absent because it would help me come to work more often.”"

The workers, like Odyssues, tied themselves to the mast to resist the temptation of slacking. This made it possible for factories to generate the large output of the Industrial Revolution.

Using Reggae to Fight Inflation

See ‘Keep de Rates dem Low’—Jamaica Sets Inflation Fight to Reggae Beat: Central bank calls on music stars to record upbeat songs explaining inflation targeting, monetary policy and consistent GDP growth by Robbie Whelan. If you go to the article, you can watch one of the music videos. Excerpt:

"KINGSTON, Jamaica—Call it Reggaenomics.

As a drumbeat eases the listener into a familiar reggae rhythm, the high tenor of Jamaican pop star Tarrus Riley cuts through the groove.

All the high prices that mean me harm  
They can go back where they came from
No inflation monster
Shall prosper!

Mr. Riley looks into the camera and explains in Jamaican patois: “High inflation is a wicked ting, and we must banish it like slavery….Low, stable and predictable inflation is to the economy like what the bass line is to reggae music.”

The Bank of Jamaica has launched what may be the grooviest public-education campaign ever undertaken by a central bank.

Over the past year, the bank called on local pop stars to record upbeat songs in reggae and dancehall styles and to produce YouTube music videos explaining such buzz-killing concepts as inflation targeting, monetary policy and consistent GDP growth.

One video features a woman tooling around the capital in a sports car while a singer sings about how inflation targeting can help boost the economy.

Keep de rates dem low, stable and intact
So de consumers can buy more good wit dem cash!
 
Next up for the central bank: a single and music video inspired by dancehall star Sean Paul’s 2005 hit “Temperature,” featuring what the bank hopes will become a viral craze called the Inflation Dance.

The campaign is the brainchild of Tony Morrison, a former hotel talent booker and television reporter who now serves as the central bank’s head of communications. He says he has wanted for years to marry reggae and monetary policy, and finally got the go ahead from the administration of Andrew Holness, elected prime minister in 2016.

“We wanted to have some songs about changes to our foreign-exchange reserves policy a few years ago, but in the end decided it was too complicated,” Mr. Morrison says. “Things like inflation targeting, however, are the type of things that everyone should know about, and the best way to reach the people of Jamaica is through reggae.”"

"Behind Jamaica’s playful strategy is a serious goal: to build public support for a government policy designed to bring economic stability to a country that has long been a financial basket case."

"Central banks around the world are straining to capture the public’s imagination with rap videos, festivals and cod-themed bank notes."

Do We Have A Zombie Economy?

See When Dead Companies Don’t Die: The policies created to pull the world out of recession are still in place, but now they are strangling the global economy by Ruchir Sharma in The NY Times. He is author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World” and is the chief global strategist at Morgan Stanley Investment Management.

This ties in to some recent posts I did on the recovery and Joseph Schumpeter (links below). Excerpts:

"Since the end of the recession, the economy has grown at about 2 percent a year in the United States and 3 percent worldwide — both nearly a point below the average for postwar recoveries.

What explains the longest, weakest recovery on record? I blame the unintended consequences of huge government rescue programs, which have continued since the recession ended."

"Once the crisis hit, however, governments erected barriers to protect domestic companies. Central banks aggressively printed money to restore high growth. Instead, growth came back in a sluggish new form, as easy money propped up inefficient companies and gave big companies favorable access to cheap credit, encouraging them to grow even bigger."

"Central bankers had hoped that low interest rates would spur investment, increasing productivity and boosting growth. But a recent paper from the National Bureau of Economic Research shows that low rates gave big companies an incentive and means to grow bigger. As their power grows, workers’ share of national income has been shrinking, fueling inequality — and anger.

Four airlines and three rental car companies account for more than 80 percent of the American travel markets."

"Start-ups represent a declining share of all companies in Britain, Italy, Spain, Sweden, the United States and many other industrialized economies. The United States is generating start-ups — and shutting down established companies — at the slowest rates since at least the 1970s."

"Zombies now account for 12 percent of the companies listed on stock exchanges in advanced economies and 16 percent in the United States, up from 2 percent in the 1980s. Companies are surviving in the “zombie state” for longer, depleting the productivity of healthy companies by competing with them for capital, materials and labor."

"The problem, however, is that government stimulus programs were conceived as a way to revive economies in recession, not to keep growth alive indefinitely. A world without recessions may sound like progress, but recessions can be like forest fires, purging the economy of dead brush so that new shoots can grow. Lately, the cycle of regeneration has been suspended, as governments douse the first flicker of a coming recession with buckets of easy money and new spending. Now experiments in permanent stimulus are sapping the process of creative destruction [see link below about Joseph Schumpeter] at the heart of any capitalist system and breeding oversize zombies faster than start-ups.

To assume that central banks can hold the next recession at bay indefinitely represents a dangerous complacency. Corporate debt levels continue to rise; government debts and deficits continue to rise. If there is a sudden break in confidence, the damage will be that much greater and governments may find themselves too broke to stem it."

Related posts:

What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee).

The current expansion is close to a record, so what might be the potential risks of it ending?.

Joseph Schumpeter, Capitalism and Intellectuals

Are business cylcles imbedded in longer cycles called financial cycles?

Wall Street Journal Reports Zombies Chasing Ghosts (and banks are friendly to these zombies)

How the U.S. justifies & enforces sanctions on countries like Iran and how other countries try to get around the sanctions

See The Dollar Underpins American Power. Rivals Are Building Workarounds. Iran sanctions spur Europe and India to devise systems to trade with Tehran without using the U.S. currency by Justin Scheck and Bradley Hope of The WSJ. Excerpts:

"In congressional testimony in March, Treasury Department undersecretary Sigal Mandelker said that “those who engage in activities that run afoul of U.S. sanctions risk severe consequences, including losing access to the U.S. financial system and the ability to do business with the United States.”"

The dollar’s status dates back to the end of World War II, when the U.S. economy was the world’s most robust and dollars were plentiful. The currency’s liquidity, and the efficient U.S. banking system anchored by the Federal Reserve, mean trading in dollars is much less expensive and more convenient than using other currencies, says Craig Pirrong, a University of Houston professor who studies payment systems.

Here’s how it works: A Canadian lumber company sells boards to a French buyer. The buyer’s bank in France and the seller’s bank in Canada settle the payment, in dollars, via “correspondent banks” that have accounts at the Fed. The money is transferred seamlessly between the banks’ Fed accounts because their status as correspondent banks means they are seen as safe counterparties.

The use of these accounts, the U.S. says, means every transaction technically touches U.S. soil, giving it legal jurisdiction. Because using most other currencies is relatively inconvenient and expensive, many countries and companies will do whatever the U.S. requires to maintain access to dollars."

"It is needed because U.S. sanctions bar dollar transactions with Iranian banks, even on deals for unsanctioned goods. Once operational, Instex’s [Europe's workaround] members could expand it to cover any trade with Iran."

"The system aims to bypass the dollar by using the same mechanism underlying the age-old hawala money-transfer system popular in the Middle East and Asia, under which people pay cash in one office and a recipient draws the equivalent funds at a distant locale without money actually moving.

This is how the Instex system would handle the sale of medicine by a German company to an Iranian buyer: The German exporter wouldn’t get paid by the buyer, but by another European company that is separately importing goods from Iran. Similarly, in Iran, the buyer of the medicine would pay the exporter of the other goods. No dollars at all would be involved, which means the U.S. would have no jurisdiction."

"In 2013, less than 7% of trade between China and Russia was in yuan and rubles, the bank ING Groep reported last year. In 2017, it was more than 18%."

"Even if such alternative systems catch on, the dollar is likely to dominate international trade for years to come. In 2016, the most recent year for which data are available, the dollar was involved in 88% of the daily trades in the $5 trillion-per-day foreign-currency market"

"The euro is handicapped by political uncertainty in Europe, and the yuan by Chinese restrictions on currency flows and unease about that nation’s economy. Further bolstering the dollar’s standing is its role as the world’s main reserve currency, held by central banks globally. That creates a strong incentive to keep the currency stable and liquid.

“The rest of the world can’t do without the U.S. dollar,” says Daniel Drezner, a Tufts University professor who used to advise the U.S. Treasury."

Why honey prices have climbed about 25% since 2013

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

"Honey prices are starting to sting.

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

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

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

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

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

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

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

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

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

Why Doing Good Makes It Easier to Be Bad

By Abbas Panjwani. He is a journalist at Full Fact, the UK’s leading fact-checking charity. He has previously written for the Sunday Times.

Adam Smith's "invisible hand" suggests that if you follow your own self interest, you will promote the interests of society. I have had some posts on this issue of being selfish vs. being altruistic and if they can actually be separated before. So those links are at the end.

But this article says that if you work in a "socially responsible company" it makes you think that it is okay to do something immoral, that somehow you have earned that right.

Excerpt:

"Oscar Wilde, the famed Irish essayist and playwright, had a gift, among other things, for counterintuitive aphorisms. In “The Soul of Man Under Socialism,” an 1891 article, he wrote, “Charity creates a multitude of sins.”

So perhaps Wilde wouldn’t have been surprised to hear of a series of recent scandals in the U.K.: The all-male charity, the President’s Club, which raised money for causes including children’s hospitals through high-valued auctions, was forced to close after the Financial Times uncovered sexual assault and misogyny at its annual dinner; executives of Oxfam, a poverty eradication charity, visited prostitutes while delivering aid in earthquake-stricken Haiti, and were allowed to slink off to other charities, rather than being castigated for their actions; and ex-Save the Children executives Brendan Cox and Justin Forsyth stepped down from their roles at other charities, after allegations of sexual harassment and bullying toward junior female colleagues resurfaced.

You might wonder how people who seem so good by occupation could be so bad in private. The theory of moral licensing could help explain why: When humans are good, it says, we give ourselves license to be bad.

In a recent paper, economists at the University of Chicago reported that working for a socially responsible company motivated employees to act immorally. In one experiment, people were hired to transcribe images of short German texts and paid 10 percent upfront, with the remaining payment being delivered if they completed the transcriptions, or if they declared the documents too illegible to transcribe. When they were told that, for every job completed or marked illegible, 5 percent of their wages would be donated to Unicef’s educational programs, the instances of cheating rose by 25 percent, compared to where no charitable donation was offered. Cheating manifested in both workers not completing jobs (taking the 10 percent upfront fee and running) and also workers saying that documents were too illegible to transcribe (and so receiving the full fee).

“The share of cheaters [was] highest when we frame corporate social responsibility as a prosocial act on behalf of workers,” the researchers, John A. List and Fatemeh Momeni, found. When the workers felt a greater sense that their own actions would lead to charitable donations, like Robin Hood, they in turn felt enough license to steal, essentially, from their employer to give to charity. “The ‘doing good’ nature of [corporate social responsibility] induces workers to misbehave on another dimension that hurts the firm,” List and Fatemeh concluded."

Related posts:

Is it a retailer’s job to keep shoppers from their vices? (or Adam Smith vs. CVS pharmacy)

Can You Find Virtue by Investing in Vice?

What if companies pledge to adhere to social and environmental accountability guidelines?

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

Data show that socially responsible investments can outperform the S&P 500 index
 
Is altruism a result of selfishness?

Do you have to be selfish to make more money?

Does collective self-deception mask selfish behavior?

For a humorous view of this issue see

A Snickers a Day Keeps the Doctor Away: Why does CVS want to make my migraine cures hard to find? by Joseph C. Sternberg of the WSJ

How Technology Has Changed The Distribution Of Income Among Musicians

See Music Superstars Are the New One Percenters: Huge stars like Beyoncé and Taylor Swift are dominating the concert-tour business like never before, as music’s top 1% takes home an increasingly large share of the pie by Neil Shah of The WSJ. Excerpts:

"A small number of superstars like Beyoncé and Taylor Swift is gobbling up an increasingly outsize share of concert-tour revenues, as music’s biggest acts dominate the business like never before.

Sixty percent of all concert-ticket revenue world-wide went to the top 1% of performers ranked by revenue in 2017, according to an analysis by Alan Krueger, a Princeton University economist. That’s more than double the 26% that the top acts took home in 1982.

Just 5% of artists took home nearly the entire pie: 85% of all live-music revenue, up from 62% about three decades earlier, according to Mr. Krueger’s research. “The middle has dropped out of music, as more consumers gravitate to a smaller number of superstars,” he writes in a new book, “Rockonomics,” set to come out in June. (Mr. Krueger died in March.)"

"Performers’ royalties—for acts big and small—are generally much smaller on streaming than on records, CDs or download sales, so artists have to turn to concert revenue for more of their income. And it’s only the superstars who have the ability to charge significantly more for tickets than their predecessors did a generation ago. That leaves non-superstar performers competing for a shrinking share of the concert pie.

The average ticket price in the U.S. jumped from $12 in 1981 to $69 in 2017, far outstripping inflation and driven by superstars, Mr. Krueger’s research indicates. Three tours alone—Ed Sheeran, Taylor Swift, and Beyoncé with Jay-Z—hauled in around $1 billion in concert-ticket revenue in 2018, up from the $600 million that 2008’s three highest-grossing tours brought in, according to Billboard Boxscore. Beyoncé and Jay-Z charged $117 a ticket on average, according to Pollstar, the concert publication. Taylor Swift? $119. (Ed Sheeran, by contrast, charged a relatively more modest $89.)

Meanwhile, at the bottom of the industry, the lowest 2,500 acts ranked by revenue grossed an average of about $2,500 in 2017 from concert tickets, out of the 10,808 touring acts that year that Mr. Krueger studied. There were 109 acts in the top 1%."

"Performers today generally generate about three-fourths of their income from concert tours, compared with around 30% in the 1980s and 1990s. While many artists have tried to increase ticket prices to compensate for smaller recorded-music revenues, the biggest stars have the most leverage.

Concerts generated a record-setting $10.4 billion in revenue last year"

"While the share of concert tickets sold by superstars has stayed relatively constant, “the actual ticket prices themselves have risen quite dramatically compared to everyone else,”"

"streaming-music services and social-media marketing have helped small acts, making it easier for emerging artists to find fans. But for performers in the middle market, particularly in genres like rock—which isn’t as popular on streaming as hip-hop—the reduced earnings from recordings and increased need to tour can be tough."

"Music venues often take a cut of 20% or higher of the merchandise, he says. By the end of a tour, merchandise sales can determine whether it was financially successful or not."

"The concert circuit is so jammed with artists competing for tour dollars that there’s even been a shortage of tour buses."

Another Semester Has Started

Welcome to any new students. The entries usually have something to do with a basic economic principle that is related to a recent news story.

Here is something I wrote for The Ranger (the school paper of San Antonio College where I used to teach) back in 2011 titled "Why is college so hard?"

Students might wonder why college, and SAC in particular, is hard. This might sound trite, but I think the faculty at SAC want students to achieve success in life and that means that classes have to be hard if you are going to learn and understand the concepts which provide a foundation for that success.

I think my own experience as a community college student over 30 years ago helps me understand this. My teachers took their subjects seriously and maintained high academic standards. They got me excited because of the expertise they brought to their teaching. Now that I have been a teacher for over 20 years, I can see how important that was.

After finishing my A.S. degree at Moraine Valley Community College (MVCC) in Palos Hills, Ill., I transferred to and graduated from the University of Chicago with a degree in economics. But it was my community college teachers prepared me to handle the rigors of the U. of C.

Later, I got a Ph. D. in economics from Washington State University. But I've accomplished some other things I never could have dreamed of when I began taking classes at MVCC and I think my teachers there paved the way for me.

In 2005, I had a letter to the editor published in The Wall Street Journal (I have now had five published there, three in The New York Times and three op-eds in the Express-News). This one was several paragraphs long, nearly as long as some of their op-ed pieces. It was the first letter in the letters section that day, and I got the top headline. It dealt with NAFTA and trade agreements.

As nice as that was, I got a big shock a few days later when I got a letter in the mail, on official stationery, from Richard Fisher, the president of the Federal Reserve Bank of Dallas. He complimented me on my letter and said it was superb. I had never even met him or ever tried to contact him before.

Wow. I graduated from high school with a 2.7 GPA, and when I started at MVCC, I had no idea what I would do with my life. If you had told me then that someday I would have a letter in the WSJ and get that kind of compliment, I doubt I would have believed you.

Then an adjunct professor at the business school at the University of Chicago contacted me a few years ago and wanted to know if it was OK for her to assign a paper I wrote on entrepreneurs for a class she was teaching on innovation. (Of course, I said yes).

That professor was Nancy Tennant Snyder. She has a Ph. D. from George Washington University and is a vice president at Whirlpool. Business Week magazine has called her one of the leading innovators in the world. She also cited two of my papers in one of her books.

Then I got an email from John Joseph, a professor at the University of Edinburgh. He is an expert on language and politics. He wanted to know if he could include an essay I wrote in a four-volume work he was planning. I again said yes and it was published last year (and it is called Language and Politics).

It is a collection of essays. Mine is titled "The Intersection of Economic Signals and Mythic Symbols." Other contributors include Jeremy Bentham and George Orwell. When I was a community college student, I never imagined being included along with the likes of those great thinkers.

The co-authors of the book The Economics of Public Issues have thanked me in each of the last three editions for my helpful suggestions. Almost all of the people they thank are from big universities. One of the co-authors of this book, Douglass North, is a Nobel Prize winner. Never imagined someone like that would value my input when I started out as a community college student.

Getting such recognition in cases like this gives me a sense of achievement. I know I have made a scholarly contribution to the world. And I want all SAC students to have a chance for this same kind of success (as an academic or any in line of work). I think all SAC faculty do. That is why school is hard, and that is why I'm thankful that my community college teachers were experts who maintained high academic standards.

The benefits of utilizing markets in the U.S.

An article I wrote for the San Antonio Express-News last March.

"I was glad to see that Beto O’Rourke recently said, “I’m a capitalist. I don’t see how we’re able to meet any of the fundamental challenges that we have as a country without, in part, harnessing the power of the market.”

It seems like our country is turning away from markets too much these days. Democrats are proposing massive government interventions like the Green New Deal, along with much higher taxes on wealth and income. President Donald Trump is for tariffs and border walls, and issued an executive order to buy and hire American.

When economists say “markets,” we mean allowing individuals to decide who they will trade (buy and sell) with, free of bureaucratic mandates. This is a very democratic process in which millions of buyers and sellers create the outcomes.

Some of these outcomes have been very beneficial. Look at the millions of people who have been lifted out of poverty in India and China in the past 40 years as those countries instituted market reforms. Countries like Venezuela that have turned away from markets have suffered poor economic outcomes.

Markets bring benefits even in unlikely cases. In their book, “The Inner Lives of Markets,” economist Ray Fisman and novelist Tim Sullivan give some good examples.

In prisoner of war camps during World War II, when the prisoners were allowed to trade (mainly the items they got from Red Cross care packages), survival rates were much higher than in camps where the highest-ranking officers forbade trade and even “doled out food and other supplies.” The top-down approach was inferior to the democratic process of letting people trade freely, even in a highly unfavorable circumstance.

Another case was when economists suggested to food bank operators that they adopt a market-based approach using a point system. Second Harvest, a clearinghouse for food banks across the country, was basically run using central planning, offering donated food to different affiliates.

Food banks were given points that could be used to bid on the available food. This greatly enhanced efficiency, with food banks getting more of the type of food they needed in their area of the country, which cut down on wasted food.

Even North Korea is starting to harness the benefits of markets, as novelist Travis Jeppesen recently explained in the New York Times. Markets have been the main driver of economic development there the past 20 years. They emerged in response to the famine of the 1990s, and they filled in the gaps due to the failure of the central planners. Now government workers can do other jobs as long as they pay something to their supervisors, and businesses are allowed to set their own prices.

Markets can also enhance morality. This is shown in a study done on small societies by Harvard anthropologist Joe Henrich and colleagues.

They found that people became more generous the more integrated they were into the world of commerce. One co-author, economist Herbert Gintis, said, “Societies that use markets extensively develop a culture of cooperation, fairness and respect for the individual.”

One important thing that all proponents of more government intervention should remember is that the more they ask government to do, the less well it will perform its tasks. This was pointed out by philosopher John Stuart Mill in the 19th century.

Mill said, “Every additional function undertaken by the government is a fresh occupation imposed upon a body already overcharged with duties. A natural consequence is that most things are ill done.”

So, if you want government to do things well, don’t ask it to do too much."

New Braunfels businesses fooled into taking movie money

By Bryan Kirk of The San Antonio Express-News. Funny story. It has pictures of the fake money.

"Reports that several New Braunfels businesses have been fooled into accepting money used as props in movies is being investigated by the New Braunfels Police Department.

Officials said Tuesday that a number of people in the area have accepted movie money without realizing it is fake.

According to a New Braunfels police news release, the money looks real enough at first glance, but there are several key features in plain sight that reveal the cash is indeed bogus.

Some of those features of the movie money include:

• Asian markings may be seen on the front or back.
• Bills may have the words: "For Motion Picture Purposes Only" or "In Props We Trust."
• Check for bills marked with the word "Replica" in the fine print.
• The bills may appear to be either larger or smaller than real cash.
• Check the feel of the cash. If it doesn't feel right, then it probably isn't.

Police advise businesses not to accept the money and to call police immediately.

If the sale has already been completed, call New Braunfels police at (830) 221-4100. Police said there is a chance the person paying with the movie money may also be a victim and may not realize the money is fake.

To learn more about how to spot fake currency, click the link."

Can scientific thinking help entrepreneurs?

See A Scientific Approach to Entrepreneurial Decision Making: Evidence from a Randomized Control Trial by Arnaldo Camuffo, Alessandro Cordova, Alfonso Gambardella and Chiara Spina (the first three are with Bocconi University, not sure about Spina).

Maybe science can help, but entrepreneurship always takes place in the face of uncertainty. Maybe science can help but there will never be a sure thing. What if another entrepreneur is doing the same study you are doing right now and you both concluded the new business will be a good idea. You both can't succeed, or at least not as well as if only one of you went forward with your plan.

Abstract

A classical approach to collecting and elaborating information to make entrepreneurial decisions combines search heuristics, such as trial and error, effectuation, and confirmatory search. This paper develops a framework for exploring the implications of a more scientific approach to entrepreneurial decision making. The panel sample of our randomized control trial includes 116 Italian startups and 16 data points over a period of about one year. Both the treatment and control groups receive 10 sessions of general training on how to obtain feedback from the market and gauge the feasibility of their idea. We teach the treated startups to develop frameworks for predicting the performance of their idea and conduct rigorous tests of their hypotheses, very much as scientists do in their research. We let the firms in the control group instead follow their intuitions about how to assess their idea, which has typically produced fairly standard search heuristics. We find that entrepreneurs who behave like scientists perform better, are more likely to pivot to a different idea, and are not more likely to drop out than the control group in the early stages of the startup. These results are consistent with the main prediction of our theory: a scientific approach improves precision—it reduces the odds of pursuing projects with false positive returns and increases the odds of pursuing projects with false negative returns.

College Still Pays Off, but Not for Everyone

By Josh Mitchell of The WSJ. Excerpts:

"Investing in a college degree still pays off for most students with higher salaries and greater wealth, but in recent years it has become riskier, splitting graduates more widely into haves and have-nots.

“It just has not been the blanket guarantee of following the same path to prosperity that the earlier generations followed,” says economist William Emmons of the St. Louis Federal Reserve.

There are three related shifts causing economists to re-examine the returns of college. First, the wages of college graduates have remained mostly flat this century, after inflation. Second, the cost of attending college has soared. Third, even with higher salaries, significant numbers of college graduates in recent years are failing to build the kind of wealth that previous generations did."

"The share of Americans between ages 25 and 29 with a bachelor’s degree rose to 37% last year from 29% in 2000"

"College and graduate-school tuition has risen at triple the rate of inflation this century"

"Americans with a bachelor’s degree—but not a graduate degree—earned an average $77,239, nearly $32,000 more than the average earnings of workers with only a high-school diploma"

"That premium remains near an all-time high, after inflation."

"After the tech bust of the early 2000s, the economy demanded less of the type of cognitive skills that college graduates typically have"

"As a result, college graduates started taking up jobs previously held by those who went only to high school, pushing down wages for high-school graduates. College grads thus maintained an earnings advantage over nongrads, but their real wages didn’t rise."

"roughly four in 10 recent college graduates—those between ages 22 and 27—are in jobs that typically don’t require a degree."

"during the recession, as unemployment soared, employers increasingly required bachelor’s degrees for jobs that previously required only a high-school education."

"Research published in 2014 by the New York Fed shows that among college graduates, the bottom 25% of earners made roughly the same or less than the typical high-school graduate without a degree."

"according to a St. Louis Fed paper released in January . . . “Among families born in the 1980s, the college wealth premium weakens to the point of statistical insignificance with the single exception of white bachelor’s-degree holders, which remains positive but much smaller than that enjoyed by previous cohorts.”"

Here are some earlier posts on related topics:

Many college dropouts are worse off economically than if they hadn’t started college

Maybe That College Degree Is Not As Valuable As You Thought

As college costs rise, sticker shock eased by student aid

Does It Pay To Go To College?

Who Is Most Likely To Default On Their Student Loans?

Student loan delinquency is higher than for other borrowing

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off

The Diminishing Returns of a College Degree

For Some Grads, College Isn't Worth Debt

Is It Getting Too Expensive To Go College?

Is the U.S. student loan system broken?

Is College Still A Good Investment?

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

Why Rate Cuts Don’t Help Much Anymore

By Austan Goolsbee. Excerpt:

"Take spending on consumer durables. A recent study by economists at the Federal Reserve Bank of Minneapolis and the University of California, San Diego, notes that these purchases occur in lumpy spurts. People tend to spend nothing on such items for long periods, then spend a lot all at once, when money is cheap and prices are enticing.

The problem now is that once-in-a-lifetime offers don’t generate the same excitement if they are repeated every week. And, the study suggests, after 10 years of extremely low interest rates, there probably aren’t many consumers with pent-up demand, waiting for rates to fall. Because so many people have already made their big purchases, the economic kick from a rate cut is smaller than it would be at a “normal” time.

Economists at Northwestern, Copenhagen University and the University of Chicago’s Booth School of Business have shown the same thing about mortgages. Because most mortgages have fixed rates, a Fed rate cut will affect these homeowners only if they refinance.

Typically there’s a large group of people with a pent-up demand for a cheaper mortgage, and once they get one, the benefit is roughly equivalent to receiving a big tax cut: They have a lot more money to spend on other things. But if rates have already been low for a long time, most of those people will have already refinanced along the way. A cut in rates will not deliver the same punch it usually would.

A similar dynamic probably helps explain why the 2017 corporate tax cut has had such an underwhelming impact on companies’ capital investment. Fundamentally, there wasn’t much pent-up demand for investment after years of low rates, accelerated depreciation, “temporary” investment expensing and other stimulus. That lack of pent-up demand also means that cutting interest rates now is unlikely to entice businesses to invest much more.

So it’s a twofold problem: The Fed has less room to cut rates, and the benefit from cutting them is smaller than usual. We should be wary of vesting too much importance on Fed moves."

San Antonio, Poverty and Economic Segregation

See Another haunting reminder about economic segregation, San Antonio Express-News editorial. Important issue, but in some ways, San Antonio is similar to the rest of the nation. Excerpt:

"About 20 percent of African American and Hispanic residents live in poverty, compared with 10 percent of Anglos."

But this is very similar to the country as a whole.  The poverty rate for non-Hispanic Whites was 8.7 percent in 2017. For Blacks it was 21.2 percent. For Hispanics was 18.3 percent. So the poverty differences by race in San Antonio are close to those for the whole country. See Income and Poverty in the United States: 2017 from the Census Bureau.

The editorial also says "The median income for African American households is about $36,000, and for Hispanic households it’s about $43,000. By comparison, the median income for Anglo households is more than $64,000, and for Asian households, almost $71,000."

For the whole country, Asian households had the highest median income in 2017 ($81,331). For non-Hispanic Whites it was $68,145. Blacks had $40,258 and Hispanics had $50,486.

So in San Antonio, Whites (Anglos) are $28,000 ahead of Blacks, about the same difference as it is nationally. Whites are $21,000 ahead of Hispanics in San Antonio, while nationally it is an $18,000 difference.

In San Antonio, Asians lead Whites by about $7,000 but nationally that differential is about $13,000.

Texas A & M economists study cheating (and how much might not depend on being rich or poor)

Study: Richer or poorer, cheaters cheat by Lynn Brezosky of The San Antonio Express-News. If people don't cheat as much as they could possibly get away with, does it mean they are not always following their self-interest? Excerpts:

"Are people more likely to cheat when times are tough?

A team of behavioral economists from Texas A&M University and Rensselaer Polytechnic Institute on New York traveled to a remote village in Guatemala to answer that question.

What they found surprised them: while most people cheat a little, people who cheat more do so regardless of whether they're richer or poorer.

In another finding, people gave more to strangers in another village when times were bad for everyone, indicating people are more empathetic in times of scarcity."

"“Economists get really surprised when they find out either that people do not cheat or they do not cheat to the full extent, especially when the potential cost of cheating is very, very low,” RPI behavioral economist Billur Aksoy said. “Because what we say is that if the cost of doing something is less than the benefit of doing it, you should always do it.”"

The lab has technology that analyzes facial expressions, skin responses, heart and respiration rates, eye-tracking and neural signals to help researchers learn how emotional responses drive decision-making. It’s part of a field of research that’s gaining traction as a tool to help guide personnel recruitment, website design and store layout.

In one experiment, researchers used eye-tracking to redesign the menu for Messina Hof ’s wine-tasting room in Bryan. They found that tweaks such as putting prices after the wine description instead of lined up to the right prompted visitors to buy with their palate rather than their wallet. Profitability increased 18.6 percent.

In the Guatemala study, participants were told they’d be paid based on the number they rolled on a die, with a one earning them five quetzales, or about 65 cents, and a five earning them the maximum 25 quetzales, orabout $3.25, which was equivalent to a typical day’s pay. Zeros or sixes earned nothing.

Based on probability, the researchers knew that people cheated 90 percent of the time. But no one pretended to role a five all the time. And the cheating rate was the same both before the harvest and after. The same people cheated the same amount no matter when they rolled the dice."

"David Hoffeld infuses behavioral science in sales, the nation’s second-largest profession, in his book “The Science of Selling.”

“A lot of times products and services get rejected not because of the validity of the product or service but because of how they’re presented,” he said. “And the more we can align selling with buying, the more successful we’ll be and the more we can serve our customers and create deeper levels of loyalty and trust.”

The Guatemala study’s findings on scarcity’s effect on generosity is related to Hoffeld’s discussion of so-called “status quo bias” — an example of which is when organ donation increases when people are asked not to “opt in” but to “opt out.”"

Could we end up with too few robots rather than too many in the future?

See This Economy Is Not Aging Gracefully: The American population is getting older, and that has devastating consequences for the economy. Could robots save us? by Eduardo Porter of The New York Times.

"Consider the bluntest measure of progress: economic growth. Comparing growth across American states that are aging at different speeds, researchers from Harvard’s Medical School and the RAND Corporation concluded that a 10 percent increase in the share of the population over 60 reduced the growth rate of per capita gross domestic product by 5.5 percent. They projected that aging would shave no less than 1.2 percentage points off annual economic growth this decade.

Part of this is because of a shrinking labor supply. As baby boomers move into retirement, leaving the work force to the smaller cohorts behind them, the share of Americans who are working is shrinking, while the share of the elderly who depend on the fruits of their work is rising. By 2030, only 59 percent of adults over 16 will be in the labor force. That’s three percentage points less than in 2015."

"two-thirds of the growth shortfall comes from slowing labor-productivity growth.

It’s not obvious why the change in composition of workers (more workers in their 50s and 60s, fewer in their 20s and 30s) slows down innovation. It may be that older workers have a harder time learning new skills, so businesses with an older work force may be less likely to deploy new tech.

Whatever the precise cause, the slowdown shows up in the data. Mark Zandi and colleagues at Moody’s Analytics concluded that aging over the past 15 years reduced productivity in the United States by 0.25 percent to 0.7 percent per year.

Other researchers suggest that an older, smaller labor force can also account for the sluggish rate of business start-ups. Roughly half of American companies are at least 11 years old, up from less than one-third in the late 1980s. For all the hype about Silicon Valley’s explosive entrepreneurship, there are fewer young companies entering the marketplace now than there were a generation ago. Hugo Hopenhayn of the University of California, Los Angeles, and colleagues argue that this is caused in large part by a declining labor supply."

"In a study of several advanced economies from 1990 to 2015, the economists Daron Acemoglu and Pascual Restrepo found that aging was actually associated with rising living standards. As workers became scarce, businesses invested in automation to replace them, as well as in other new technologies, all of which raised productivity and incomes.

We may end up with too few robots rather than too many. Even the most aggressive projections of future automation, Mr. Acemoglu and Mr. Restrepo estimate, will not fill the hole that retiring Americans are projected to leave in the work force. That may be a problem: For all the misgivings about a world in which machines perform most of the work once done by humans, how else can we afford to get old?"

Immigrants and Western Values

Here is a letter I sent to The WSJ. See Assimilation of the ‘Other’ and Immigration: There may be many in “non-Western” countries who want to come here because they already believe in our values.

"Amy Wax “argued that the U.S. should reduce immigration from non-Western countries because those migrants aren’t likely to assimilate as smoothly into American society as Western immigrants do” (“Where Amy Wax and Her Critics Agree,” op-ed by Mark Bauerlein, July 29).

Given that Asian-Americans have by far the highest median household income, it seems that they are assimilating very well. That takes hard work and a strong commitment to education, values all Americans should honor. Beyond that, how is the federal government going to decide which countries are Western enough? And shouldn’t we judge people as individuals? There may be many in “non-Western” countries who want to come here because they already believe in our values. Should they be penalized because of where they were born? Doing so wouldn’t seem consistent with Western values. Don’t forget that many immigrants send remittances back home. Seems like a great way to spread our values, letting families overseas know that we have a rich and vibrant culture. That might even lead them to emulate us."

Tradeoffs and anti-trust policy

Life is full of tradeoffs. Even in anti-trust policy, which is supposed to make our economy more competitive.

See FTC Antitrust Probe of Facebook Scrutinizes Its Acquisitions: Regulators examining whether social-media giant bought companies to neutralize possible rivals. Excerpts:

"The Federal Trade Commission is examining Facebook Inc. FB -1.92% ’s acquisitions as part of its antitrust investigation into the social-media giant, seeking to determine if they were part of a campaign to snap up potential rivals to head off competitive threats, according to people familiar with the matter."

"FTC investigators are examining whether the company and its CEO, Mark Zuckerberg, purchased technology startups to keep them from challenging Facebook’s empire, the people said, some of whom added that the FTC has begun reaching out to the founders of such companies."

"The tech giant has acquired about 90 companies over roughly the last 15 years"

"Among those companies are the photo-sharing app Instagram and the messaging service WhatsApp, which bolstered Facebook as a dominant force in social media and messaging."

"In congressional testimony last month, Matt Perault, director of public policy at Facebook, told a House antitrust subcommittee that the company’s acquisitions have fueled innovation and brought together firms of complementary strengths."

"Companies purchased by Facebook “have had more opportunity to innovate as part of Facebook than they would have on their own—enhancing users’ experience and resulting in more choice for more people overall, not less,” Mr. Perault said."

"Other tech giants, such as Alphabet Inc. ’s Google, also have been on buying sprees. The top five tech firms have made more than 400 acquisitions over the last decade"

"When the commission formed a task force in February to examine potential antitrust violations in the tech industry, Bruce Hoffman, director of the FTC’s bureau of competition, said the issue was ripe for exploration.

“This is a completely legitimate and real theory of competitive harm,” he said last year, while stressing that the FTC would need “an evidentiary and economic basis” for determining that an acquired startup really could have become a significant competitor.

Mr. Hoffman acknowledged the potential negative consequences of cracking down on such acquisitions: Large tech firms may be able to move startup technologies to market more quickly, and capital markets for startups could shrink if the opportunity to be purchased by a big tech company is constrained, he said."