You are such a capitalist!

"You are such a capitalist." Depending on emphasis, the phrase can mean:

You are a pig who doesn't care about human beings and only cares about the bottom-dollar and making a profit.

or

I'm pleasently surprised you recognize the fact that, in many cases, capitalism increases efficiency and lowers costs and matches needs/wants to payment. Capitalism insures that businesses stay in business long enough to make many lives better off, as opposed to what would happen if they started giving hand-outs to a select few.

Here's the thing. When used in every-day conversation with friends or loved-ones, "Capitalism" almost ALWAYS means the former - ie, it has a very negative connotation. Why? Because economists have not explained benefits well enough? Or maybe because the negatives of capitalism are more visible?

BUT, economists and people with an econ background may often mean the latter more positive meaning of capitalism.

SO, now imagine you get a gathering of three veterinarian friends (one who may be your significant other) and one economist -- and the vets explain why it annoys them to no end how many clients expect free pet services and actually get upset when the vets don't cut huge deals for them and their sick pet. They exclaim that they charge whatever is necessary to make the pets better off. Now imagine, that the economist responds (because he/she has to relate the situation to what they know), "You are such a capitalist."

... FYI, if you are in a gathering of non-economists, don't use the word "capitalism." No matter your inflection, no matter your tone --- sparks will fly.

Mankiw and comments

I was over at Mankiw's Place today (blog) and realized that he has permanently disabled his comments section for all posts. His reasoning:http://gregmankiw.blogspot.com/2007/10/why-comments-are-gone.html

This is really sad to me. While I certainly understand his reasons, I always found commenting and reading others' comments on his blog to be not only fun, but extremely enlightening. I've learned a lot from his blog. And, as a former active poster and reader of his blog, I found the vast majority of comments to be civil (if a little heated at times). Since the comments are a big draw for me (to get a variety of opinions on Mankiw's topics/take) I doubt that I will continue to visit his blog as often. I also doubt I will learn as much. But given that, I should say thanks to Mankiw for all the fun, while it lasted - and for a while, providing an indirect dialogue with such an intelligent economist. The opportunity is rare, and has just gotten sadly rarer.

Long Lines for Spaghetti

Sorry it's been over a week since my last post....I haven't found any interesting econ news lately. Three Americans won the Econ Nobel on Monday (blah blah blah;) )

Anyway, me and some friends from work heard about Spaghetti factory (whose spaghetti dishes are usually about $7 a pop) was celebrating its 25th anniversary of being in Indianapolis. So, my friends invited me to go out and enjoy the "special price" spaghetti of $2 a plate. That is a significant reduction. I thought there would be a line since I know a thing or two about supply and demand, but I was not expecting a line that was over 2 blocks long to basically pay $5 less for a plate of a food that I can make at home in 10 minutes for about $2.

One of my friends went to the front of the line while the rest of us stayed behind to inquire how long the line was going to take. He talked to some people at the front who had already been there for 40 minutes and were just about to enter the restaurant....to stand in ANOTHER Line (to be seated). So now this got me thinking.... how worthless do these people value their time? Or, is there some added benefit to be gained by the "experience." I'm sure there is something to the latter - and I'd like to think that hundreds of peoples' value of time isn't so cheap.

But I don't know. I know my time ain't THAT cheap. So I convinced my friends to ditch the line after about 15 minutes of barely moving to go eat at a nearby restaurant featuring happy hour prices ----$1.95 for a huge cheeseburger and seasoned fries. I think I made a good choice.

Music Piracy Consequences

Scenario 1. Go to Best Buy. Steal 2 or 3 CD's then go home and copy the songs to your computer to distribute to all your friends and family as Christmas gifts. If Best Buy somehow finds out you have stolen their stuff, you may have to pay them a nominal amount. Stealing a few CDs is typically thought of as a minor offense - many unruly teens do it all the time (not that I have first hand knowledge myself).

OR

Scenario 2. Go on Kazaa or some file-sharing program. Download a couple dozen songs and let the program run so many people can download your illegal copies at will.
And then you pay $222,000.

It seems scenario 2 is a clear violation of fitting the punishment to the crime. It seems obvious the price differential here must be due to the fact that, using a computer program, each illegal transaction is traceable which adds to the "cost" of her illegalities. Whereas, with scenario 1, you just got a slap on the wrist for the initial crime itself and unless a family member(s) complained to RIAA about your gift, that would be it.

In fact, one could argue, in scenario 2, she is actually paying part of the cost for the initial illegal uploader's burden of guilt, in addition to the burden of guilt cost of those who willingly downloaded those songs from her. .... Not that the cost the court imposed was market-determined (it wasn't - point is maybe that's the problem) - but it seems as if the entire burden of guilt was placed on this young lady whose life is now likely really $&%*ed up all for downloading some music.

IE, the judgment fails to take into account the supply chain of illegal activity that led to her illegalities, and it fails to take into account the consumer chain of illegal activities that ensued by other song stealing individuals who subsequently downloaded her acquired songs.

And even IF all the true cost of the illegal transactions were taken into account, I still have a hard time believing that would equate to the sum demanded of this woman.

UPDATE: It would appear I'm not the only one with an econ background to share this view.

Free Trade in Question

Great discussion about free trade at Mankiw's blog. Great comments about how free trade arguments are often one-sided from mainstream economists.

An example from a commenter:

"You can't assume that because the gross amounts of wealth generated by "free trade" are vast that it's improving the lives of ordinary Americans, unless you want to make an elementary logical fallacy on the order of "Because the team is great every member on the team is great." You need to provide *additional evidence* to make that claim, but it's precisely the DETAILS that murder the claims of the free trade proponents and makes them, quite frankly, candidates for remedial classes in critical thinking."

Surtax Now to Support the War to End the War

I am a proponent of the idea of adding a surtax to fund the war in Iraq as proposed recently by House Democrats.

And described by CNN:
"The measure -- sponsored by Obey, Rep. Jack Murtha, D-Pennsylvania, and Jim McGovern, D-Massachusetts -- would require low- and middle-income taxpayers to add 2 percent to their tax bill, while higher-income taxpayers would add 12 to 15 percent, Obey said."

1. It is our generation's responsibility, so our generation should pay for it. Why is it our responsibility? Because the people chose to elect George Bush (collectively) twice (ok, maybe once, but we can hardly tax the Supreme Court or ONLY those that voted for Bush now can we).

2. I like the progressive nature of the bill. The rich should bare the burden of the surtax and the responsibility for the war since they had the biggest voice to try and prevent it, or at least make sure mistakes were minimized in operating it. Instead they blindly followed conventional wisdom at the time. Secondly, the rich still have more sway than the poor, so the tax would act as a huge incentive for the rich to finally speak up.

3. Provided the taxes were collected a year in advance, there should be no timing issue. Further, the tax acts as a 'sensible' (relatively) cap on spending for the war, as any additional funds required above that generated by the tax would have to be taken by reducing spending elsewhere or appropriating other funds to the war - which can be limited by congress.

This seems a better alternative morally, and in some sense economically as it likely would reduce uncertainty in terms of war spending. (Though obviously, as standard econ theory dictates, the net economic effect would be a substantial negative in the short-run). The gains in the long-run are debatable and I obviously side with camp that says this is a beneficial policy for the long-run.

This idea, really, is a logical extension to the idea of Pigovian taxation. The whole point of taxing something is that the tax acts as a disincentive to the thing that is taxed - particularly a thing that has large negative harm that may not be realized or internalized by a large majority of the population. So tax these people to help account for the total costs of the war - costs that are real and likely not fully realized yet - costs that our children will surely bare - costs of ignorance, greed, or short-sightedness. Hopefully the price mechanism would do its job, and people would start to really look at the true costs/benefits of the war.

But then again, like some other taxes (like a carbon tax on gasoline), this is likely just as politically unfeasible.

RSS Feed

Someone asked if I do an RSS feed for this blog. I do (apparently). Scroll all the way to the bottom to get the link to it. Also, there is a link to ATOM feed for those that use that.

FYI, I have no idea what I just said ;O)

UPDATE 5/6/07: I moved the RSS link up to the top on the right-hand side with all the other links.