Chaos ensues when stuffed bears are given away (almost) free of charge

See Build-A-Bear shuts down 'Pay Your Age' deal after huge crowds mob stores. By Kate Taylor of Business Insider. Excerpts:

"On Thursday, Build-A-Bear was set to celebrate "Pay Your Age Day" in the US, Canada, and the UK. Customers had the chance to purchase a stuffed animal and pay only their age for the day. Kids were able to pay just a few dollars for stuffed bears, while adults' fees were capped at $29. The bears usually fall in the $20-$35 range.

However, the event had to be cut short after stores descended into "madness."

"Per local authorities, we cannot accept additional Guests at our locations due to crowds and safety concerns," Build-A-Bear posted on Facebook at 11 a.m. ET. "We have closed lines in our U.S. and Canada stores. We understand some Guests are disappointed and we will reach out directly as soon as possible.""

If a kid who was five years old could by one for $5 that normally costs $35, that is 86% off. Not quite free, but close to it. These bears are scarce. Give them away for (almost) free and you don't have enough to go around.

Update on July 13: Build-A-Bear CEO apologizes after crowds shut down promo event by Susan Heavey of Reuters.

Related posts about problems when thing are given away for free:

Domino's & T-Mobile discover there is no such thing as free pizza. Too many took advantage of offer. They ran out.

What happens if you give electricity away for free? (Tesla post)

Taco Bell Gives Away "Free" Tacos, Problems Arise.

IHOP Gives Away Free Pancakes And Gets Slammed.

There Is No Such Thing As Free Salt (Or Sand) .

Trees Are Scarce In San Antonio!

Free Can Be Deadly.

More Free Give Aways Lead to Trouble.

Josh Hamilton’s grand slam causes a flooring and countertop shortage

Jason Furman on how GDP is estimated

The official top-line figure for the first quarter is 2%. A more accurate measure puts the rate at 2.8%.

See The Economy Is Growing Faster Than the Government Says. He was chair of the Council of Economic Advisors under President Obama. Excerpts:

"GDP is not measured directly. Instead, the BEA sums up economy-wide expenditures from dozens of data sources, covering consumption, investment, government spending, net exports and more.

Last month’s figure was the BEA’s third estimate for the first quarter. Yet at this stage the statisticians have comprehensive data on only 38.5% of GDP. Most of the rest was inferred using direct or indirect indicators, such as by taking the number of housing starts as a proxy for dollars invested in new home construction. For 12% of GDP, the statisticians used “trend-based data,” which essentially amounts to extrapolation and guess work."

"Producing the most accurate statistics can be costly, complicated and fraught with these kinds of measurement problems. Despite the best efforts of the BEA’s excellent civil servants, the underlying data are noisy and incomplete, meaning that revisions to GDP growth estimates can be large and often confusing. The average absolute revision from 1993 through 2016 was 1.3 percentage point."

"the BEA separately gauges the size of the economy by adding up all the different sources of income, such as wages and profits. This figure is called gross domestic income, or GDI, and in the first quarter of 2018 it grew by an estimated 3.6%, annualized.

Ultimately, GDI should be identical to GDP, since all money spent is money earned. But in practice the published estimates differ because the data are subject to different errors and reflect different guesses. Research shows that a simple average of GDP and GDI is a nearly optimal way to combine the two sets of information. For the first quarter it averages to 2.8% growth. That is the best predictor of what the government will eventually estimate for GDP after several years of revisions."

"As the economy entered a tailspin at the end of 2008, the original report for the fourth quarter had GDP growth at minus 3.8%. That was eventually revised to minus 8.2%."

Related posts:

How Long Have Economists Known About The Shortcomings Of GDP?

Okun's Law (on the relationship between GDP and the unemployment rate)

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

By Timothy Cogley. He was then at the Federal Reserve Bank of San Francisco (1999). He is now at New York University.

"In recent years, a number of economists have expressed concern that the stock market is overvalued. Some have compared the situation with the 1920s, warning that the market may be headed for a similar collapse. Indeed, some suggest that lax monetary policy contributed to the Great Crash and have argued that current monetary policy is also dangerously lax. For example, an April 1998 Economist article stated:

In the late 1920s, the Fed was also reluctant to raise interest rates in response to soaring share prices, leaving rampant bank lending to push prices higher still. When the Fed did belatedly act, the bubble burst with a vengeance.

To avoid the same mistake, The Economist suggested that it would be better for the Fed to take deliberate, preemptive steps to deflate the bubble in share prices. It warned that the bubble could harm the economy if it were to burst suddenly, reducing the value of collateral assets and bringing on a recession. The article went on to say that “the longer that asset prices continue to be pumped up by easy money, the more inflated the bubble will become and the more painful the economic after-effects when it bursts,” and it concluded that “the Fed needs to raise interest rates.”

In this Economic Letter, I argue that The Economist has misinterpreted the lessons of the Great Crash. A closer examination of the events of the late 1920s suggests it is mistaken on at least four points. First, stock prices were not obviously overvalued at the end of 1927. Second, starting in 1928 the Fed shifted toward increasingly tight monetary policy, motivated in large part by a concern about speculation in the stock market. Third, tight monetary policy probably did contribute to a fall in share prices in 1929. And fourth, the depth of the contraction in economic activity probably had less to do with the magnitude of the crash and more to do with the fact that the Fed continued a tight money policy after the crash. Hence, rather than illustrating the dangers of standing on the sidelines, the events of 1928-1930 actually provide a case study of the risks associated with a deliberate attempt to puncture a speculative bubble.

Monetary Policy 1927-1930 

In 1927, there was a mild recession in the United States. In addition, Britain was threatened by a balance of payments crisis whose proximate cause was a demand by France to convert a large quantity of sterling reserves into gold. Thus, both domestic and international conditions inclined the Fed to shift toward easing. The resulting fall in interest rates helped damp the decline in domestic economic activity and facilitated an outflow of gold toward Britain and France.

Should the Fed have refrained from easing in 1927 because of concerns that the stock market might be overvalued? Measures of conventional valuation suggest the answer is no, for there was no obvious sign of an emerging bubble at that time. For example, Figure 1 illustrates the price-dividend ratio on the value-weighted New York Stock Exchange (NYSE) portfolio. At the end of 1927, the price-dividend ratio was around 23, which is actually a bit below its long-run average of 25. Although share prices had risen rapidly in the 1920s, so had dividends. Given that the price-dividend ratio was slightly below average, the Fed would have had little reason to refrain from easing in a recession year or to decline assistance to a gold standard partner in maintaining balance of payments equilibrium.

In any case, equity prices began to accelerate in January 1928, and they rose by 39% for the year. Dividend payments also grew rapidly that year, and the price-dividend ratio increased by 27%.
Motivated by a concern about speculation in the stock market, the Fed responded aggressively. Between January and July 1928 the Fed raised the discount rate from 3.5% to 5%. Because nominal prices were falling, the latter translated into a real discount rate of 6%, which is quite high in a year following a recession. At the same time, the Fed engaged in extensive open market operations to drain reserves from the banking system. Hamilton (1987) reports that it sold more than three-quarters of its total stock of government securities: “in terms of the magnitudes consciously controlled by the Federal Reserve, it would have been difficult to design a more contractionary policy.”

Furthermore, as Eichengreen (1992) has emphasized, monetary policy was tight not only in the U.S. but also throughout much of the rest of the world. By that time, roughly three dozen countries had returned to the gold standard, and when the Fed tightened, many countries faced a dilemma: Unless their central banks also tightened, lending from the U.S. would be disrupted and their balance of payments would move toward a deficit. In that case, they would either have to devalue or abandon the gold standard altogether. The former option was unattractive for countries with dollar-denominated debts, and the latter was virtually out of the question at the time, especially for countries where restoration of the gold standard had been painful and difficult.

The alternative was to conform with the Fed. By shifting toward more contractionary monetary policies, other gold standard countries could ensure that domestic interest rates would rise in parallel with those in the U.S. and would be able to maintain balance of payments equilibrium. This explains, for example, why the Bank of England shifted toward tighter policy in 1928, three years after Britain had entered a slump. It also explains why countries still rebuilding from WWI would adopt contractionary policies.

The implication is that monetary policy was far more restrictive than a purely domestic perspective might suggest. In 1928 there was a synchronized, global contraction of monetary policy, which occurred primarily because the Fed was concerned about stock prices. These actions had predictable effects on economic activity. By the second quarter of 1929 it was apparent that economic activity was slowing. The U.S. economy peaked in August and fell into a recession in September.

What were the effects on the stock market? At the beginning of 1929, it seemed that the contractionary measures taken in 1928 were working. The NYSE price-dividend ratio reached a local peak in January and then fell gradually through the first half of the year. Thus, it appeared that stock prices had stabilized. Furthermore, shares still were not obviously overvalued. The local peak was reached at 30.5, which is roughly 20% above the long-term average. Dividends had grown rapidly through 1928, and investors projecting similar growth rates forward may have been willing to settle for dividend yields somewhat below the long-run average.

Monetary policy was on hold during the first half of 1929, and some economists have argued that inaction in this period was responsible for the events that followed. But three observations are relevant here. First, as mentioned above, price-dividend ratios had stabilized and were falling gradually. To a contemporary observer, it would have appeared that the actions of 1928 were having the intended effects. Second, it was becoming increasingly apparent that general economic activity was slowing, and many other countries already had entered recessions. And third, while monetary policy was not becoming tighter, it was still quite tight. Short-term real interest rates were still around 6%, and there was no growth in the monetary base.

Price-dividend ratios continued to fall until July 1929, but then prices began to take off. In August, the Fed raised the discount rate by another percentage point to 6%. The stock market peaked in the first week of September. It is worth noting that at its peak the price-dividend ratio was 32.8, which is well below values reached in the 1960s or 1990s. Share prices declined in a more or less orderly fashion until the end of October, but then the market crashed. From its peak, the price-dividend ratio fell roughly 30%, to a level roughly similar to that prevailing at the beginning of 1928, when the Fed began to tighten.

In the immediate aftermath of the crash, the New York Fed took prompt and decisive action to ease credit conditions. When investors attempted to liquidate their equity holdings, many lenders also called their loans to securities brokers. With the encouragement of officials at the New York Fed, many of these brokers’ loans were taken over by New York banks, who were allowed to borrow freely at the discount window for this purpose. The New York Fed also bought government securities on its own account in order to inject reserves into the banking system. In this way, they were able to contain an incipient liquidity crisis and prevent the crash from spreading to money markets.

But this respite from tight money proved to be temporary. After the liquidity crisis had been contained, monetary policy once again resumed a contractionary stance. Throughout 1930, officials at the New York Fed repeatedly proposed that the System buy government securities on the open market, but they were systematically rebuffed. The reasons other members of the Federal Reserve gave for opposing monetary expansion are instructive. Several felt that much of the investment undertaken in the previous expansion was fundamentally unsound and that the economy could not recover until it was scrapped. Others felt that a monetary expansion would only ignite another round of speculative activity, perhaps even in the stock market. In any event, monetary policy remained contractionary; the monetary aggregates fell by 2% to 4%, and long- term real interest rates increased.

By maintaining a contractionary stance throughout 1930, after a recession had already begun, the Fed contributed to a further decline in economic activity and share prices. By the end of the year, the price-dividend ratio had fallen to 16.6, or roughly 34% below the long-run average. By then, there was a consensus that speculative activity had been eliminated!

Were the Fed’s actions stabilizing or destabilizing?

If one grants that a speculative bubble existed at the beginning of 1928, when the Fed began to tighten, then stocks must have still been overvalued in the aftermath of the crash. After all, price-dividend ratios were about the same in the dark days of November 1929 as at the beginning of 1928, and fundamentals must surely have taken a turn for the worse. If equities were still overvalued, it follows that a further dose of contractionary monetary policy was needed to purge speculative elements from the market. Perhaps this is what motivated the famous advice of Treasury Secretary Andrew Mellon to President Herbert Hoover, to “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” To argue that the actions of 1928-1930 were stabilizing, one must adopt the liquidationist position.

On the other hand, if one interprets the Great Crash as a bursting bubble, so that shares were more or less properly valued in the aftermath, then it follows that they were probably also not far from their fundamental values at the start of 1928, when the Fed began to tighten. Again, prices and price-dividend ratios were about the same after the crash, and fundamentals had surely become less favorable. According to this interpretation, the Fed’s initial actions may have been destabilizing, and the actions of 1930 certainly were.

Conclusion

In retrospect, it seems that the lesson of the Great Crash is more about the difficulty of identifying speculative bubbles and the risks associated with aggressive actions conditioned on noisy observations. In the critical years 1928 to 1930, the Fed did not stand on the sidelines and allow asset prices to soar unabated. On the contrary, its policy represented a striking example of The Economist’s recommendation: a deliberate, preemptive strike against an (apparent) bubble. The Fed succeeded in putting a halt to the rapid increase in share prices, but in doing so it may have contributed one of the main impulses for the Great Depression."

How concentrated are U.S. industries?

See Three Questions for the Antitrust Moment by Tim Taylor. The HHI is something I cover in my micro classes.

We discuss mergers and when the government (Justice Department or Federal Trade Commission) might challenge mergers.

If two firms merge, the new firm, of course, has a bigger share of the market than either of the old firms. When does this gain in market share threaten competition enough to be challenged in court?

Waldoch mentions the Herfindahl–Hirschman Index HHI. The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. There are 3 categories according to Justice:

Unconcentrated Markets: HHI below 1500
Moderately Concentrated Markets: HHI between 1500 and 2500
Highly Concentrated Markets: HHI above 2500

One thing to add is that if a merger increases the HHI by more than 100 points and the new HHI of the industry is Moderately Concentrated, then the merger is likely to be challenged.

Excerpt from Taylor's post:

"For example, here's a figure from an article by  Tim Sablik, "Are Markets Too Concentrated?" published in Econ Focus, from the Federal Reserve Bank of Richmond (First Quarter 2018, pp. 10-13). The HHI is a standard measure of market concentration: it is calculated by taking the market share of each firm in an industry, squaring it, and then summing the result. Thus, a monopoly with 100% of the market would have a HHI measure of  100² , or 1,000. A industry with, say, two leading firms that each have 30% of the market and four other firms with 10% of the market would have an HHI of 2200. The average HHI across industries has indeed risen--back to the level that prevailed in the late 1970s and early 1980s.



A couple of other points are worth noting:

In some of the industries where concentration has risen, recent legislation is clearly one of the important underlying causes. For example, healthcare providers and insurance firms became more concentrated in the aftermath of restrictions and rules imposed by the Patient Protection and Affordable Care act of 2010. The US banking sector became more concentrated in the aftermath of Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank act). In both cases, supporters of the bill saw additional concentration as a useful tool for seeking to achieve the purported benefits of the legislation.

The rise in bigness that seems to bother people the most is the dominance of Apple, Alphabet,  Amazon, Facebook, and Microsoft. The possibility that these firms raise anticompetitive issues seems to me like a very legitimate concern. But it also suggests that the competition issues of most concern apply mostly to a relatively small number of firms in a relatively small number of tech-related industries."

Related posts:

Herfindahl-Hirschman at the Movies

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

Is The Airline Industry An Oligopoly?

How much cash is out there and where is it?

See Cash Flow or Cash Stash? How Money Moves Around: A record amount of dollars are circulating, but much of it may be hoarded, particularly outside the U.S. by Jo Craven McGinty of The WSJ. Excerpts:

"A record level of U.S. cash is circulating, but Americans aren’t spending the bulk of it.
So, where’s the money?

Up to two-thirds—or as much as $1.07 trillion—is held abroad. About $80 billion is held domestically by depository institutions. And the rest—as little as $453 billion—is in the hands of domestic businesses and individuals.

The exact distribution is unknown because once cash is transferred out of the Federal Reserve’s vaults, it’s virtually impossible to track.

Estimates about the holdings are deduced from orders placed by depository institutions, subsequent reports to the Fed’s Board of Governors and what can be discerned based on denominations in circulation.

Although the Treasury prints more than twice as many $1s, $5s, $10s and $20s combined as it does $100s, the vast majority of the value of circulating currency is represented by Benjamins.

Last year, according to figures published by the Fed, $1.6 trillion was in circulation, including $1.3 trillion in $100 bills, or 80% of the total."

"the bulk of U.S. cash sent abroad is in the form of $100 bills.

“We know this because we see what denominations are sent to international depository institutions,"

"The circulating currency held abroad could range from one-half to two-thirds of the total, the Fed estimates, or a range of $800 billion to $1.07 trillion."

"In 2016, cash accounted for 31% of the number of payments made by Americans—more than any other single payment instrument—but only 7.9% of the value,"

"Debit and credit cards together accounted for 45% of the number of payments and 26% of the value. Electronic transfers accounted for 14% of the number of payments and 43% of the value.

The remainder, around 10% of the payments representing 23% of the value, was made with other instruments including checks, money orders and prepaid cards."

"participants used cash for payments of less than $25. Credit and debit cards were used more frequently for payments between $25 and $100, and checks and electronic payments were generally used for transactions of $100 or more.

There is also evidence that Americans, like people abroad, hoard cash."

"Only half the survey participants were willing to reveal how much cash they had stashed"

Related post: Let’s Not Start a War on Cash by James A. Dorn of The Cato Institute

The trend line for the percentage of 25-54 year olds employed

If you look at yesterday's post, you can see that after this percentage fell from about 80 to 75 from Dec. 2007 to Oct. 2009, it stayed there for about two years. So the trend line I have starts in Oct. 2011. Maybe that is when the recovery actually began.

So I start the trend line there. Early on, it looks like about 12 months are above the trend line. Then for awhile there are points both above and below the trend line. But each of the last 10 months is above the trend line. Not sure if this is a good sign or not (is the economy overheating?).

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

It went from 79.2% to 79.3%. See Employment Population Ratio: 25 - 54 years from the St. Louis Fed. Here is a graph they show. If you go to the link and click the "download button" you can get the exact monthly numbers going back to 1948.

In most countries the gender pay gap has decreased in the last couple of decades

See Six key facts about the gender pay gap by Esteban Ortiz-Ospina of Our World in Data. Excerpt:

"How is the gender pay gap changing over time? To answer this question, let's consider the following chart, showing available estimates from the OECD. These estimates include OECD member states, as well as some other non-member countries, and they are the longest available series of cross-country data on the gender pay gap that we are aware of.

Here we see that the gap is large in most OECD countries, but it has been going down in the last couple of decades. In some cases the reduction is remarkable. In the UK, for example, the gap went down from almost 50% in 1970 to about 17% in 2016.

These estimates are not directly comparable to those from the ILO, because the pay gap is measured slightly differently here: The OECD estimates refer to percent differences in median earnings (i.e. the gap here captures differences between men and women in the middle of the earnings distribution); and they cover only full-time employees and self-employed workers (i.e. the gap here excludes disparities that arise from differences in hourly wages for part-time and full-time workers).

However, the ILO data shows similar trends for the period 2000-2015.

The conclusion is that in most countries with available data, the gender pay gap has decreased in the last couple of decades."

A Strange Effect Higher Oil Prices Can Have On The Natural Gas Market

See Side Effect of Rising Oil Drilling: Indigestion for Gas Frackers: As companies step up oil production, the natural gas byproduct is weighing on already low gas prices and on gas producers by Christopher M. Matthews of The WSJ. Excerpts:

"As companies respond to rising oil prices by drilling more for it, they often unearth gas as a byproduct. That has further weighed on already low gas prices, pressuring shale frackers in regions that primarily produce gas.

The average share price for the five top companies focused on the oil-rich Permian Basin in Texas and New Mexico are up more than 16% over the past year. Share prices for the top five producers focused on the Marcellus Shale in Appalachia, the country’s largest deposit of natural gas, are down more than 9%."

"Natural-gas futures for July delivery closed at $2.939 a million British thermal units on Tuesday and have been below $4 since 2014. Prices passed $10 in 2008 and had stayed above the $4 mark before 2012. Many banks and analysts predict average prices will be below $3 for years. Meanwhile, U.S. oil prices have climbed to more than $65 a barrel for the first time since 2014."