Mankiw cites the following as why people hate high gas prices, from an econ professor at Duke U:
"if I stood next to the yogurt case in the supermarket for five minutes every week with nothing to do but stare at the price, I would also know how much it has gone up — and I might become outraged when yogurt passed the $2 mark."
I don't quite think that's it. For one, gas has next to zero quality differential. Unlike a yogurt tub from Wal-mart versus a yogurt from Trader Joe's or whatnot which has a huge quality differential in terms of perceived quality/health of the item and in terms of quality of service, a gas station serves a fairly uniform undifferentiated product, as well as a fairly uniform undifferentiated service. As such, all competition, and therefore all cognitive recognition by the consumer, is done at the price level. So, it doesn't matter how long they wait in a line. Further, because gas is a a necessity for most people, people see the price every week regardless of having to wait in line. Because price is so pre-eminent and reported pretty much every day in the media, people know roughly that gas is "high," and are still going to be outraged. Having to wait in line just adds insult to injury.
Thursday, July 31, 2008
Monday, July 28, 2008
What planet is Gary Becker from?
This is from Becker's newest blog post regarding government intervention of trans fat etc.:
"The so-called externality (of transfat and the like) results from the fact that greater obesity raises taxes on others because the medical bills of the obese are partly paid by general taxpayers due to subsidized medical care. As Posner points out, this argument may be weak because obese adults die earlier than others and in this way obesity saves medical costs. However, even if true, I am uneasy about such externality arguments."
..."Yet it is hard to justify the word "duped" (regarding being duped by producers into eating unhealthily) when studies show that much of the growth in obesity has been due to the development of cheap fast foods that consumers find tasty, and also to the growth of television, computer games, the Internet, and other attractive activities that are sedentary."
I'm sorry, but I would expect a slightly more thought out argument from someone who won the Nobel prize. It's not that Becker isn't intelligent, it is just that he, like many, has succumbed to the the narrow box of assumption and 200 year old paradigms that economics as a profession tends to subject people to.
1. He talks like tangible medical costs are the only possible externality from mass obesity and bad health (how about family disruptions due to these early deaths, transference to younger generations of bad health habits, the increase in "demand" of advertising bad eating habits in order to give the consumer what they want (increased portion sizes etc), ... I could go on and on and on.
2. How about the general poor quality of life issues that result from unhealthy eating. It's not technically an 'externality,' but how about (to use behavioral econ speak) economic myopia? The argument for government controlled health insurance etc. is that people often make 'irrationally' myopic decisions about their life/health. The argument is no different here.
His whole argument that prices of bad foods are low so it's only "natural" that people's wellbeing is enhanced by eating bad food is QUINTESSENTIAL NON-SENSICAL CLASSICAL ECONOMICS. It stems from assumptions using static models, and viewing people as drones for consumptions where consumption in one thing is no better or worse for society than consumption in another. The ideas that Becker espouses are ludicrous and frankly, while he's entitled to his opinion, some of his comments are downright offensive (and this is coming from someone who is not overweight).
3. Becker talks about the early deaths of obese people as if it's not a bad thing provided it doesn't infringe on the health or overall well - being of others. Somehow I would think the food addict would beg to differ with him on that - I bet they'd prefer to live, given the chance. Becker talks from a purely homo economicus, evolutionary perspective - to a frightening extent.
Am I really the only one here that finds his comments to be a huge disconnect from reality and compassion?
"The so-called externality (of transfat and the like) results from the fact that greater obesity raises taxes on others because the medical bills of the obese are partly paid by general taxpayers due to subsidized medical care. As Posner points out, this argument may be weak because obese adults die earlier than others and in this way obesity saves medical costs. However, even if true, I am uneasy about such externality arguments."
..."Yet it is hard to justify the word "duped" (regarding being duped by producers into eating unhealthily) when studies show that much of the growth in obesity has been due to the development of cheap fast foods that consumers find tasty, and also to the growth of television, computer games, the Internet, and other attractive activities that are sedentary."
I'm sorry, but I would expect a slightly more thought out argument from someone who won the Nobel prize. It's not that Becker isn't intelligent, it is just that he, like many, has succumbed to the the narrow box of assumption and 200 year old paradigms that economics as a profession tends to subject people to.
1. He talks like tangible medical costs are the only possible externality from mass obesity and bad health (how about family disruptions due to these early deaths, transference to younger generations of bad health habits, the increase in "demand" of advertising bad eating habits in order to give the consumer what they want (increased portion sizes etc), ... I could go on and on and on.
2. How about the general poor quality of life issues that result from unhealthy eating. It's not technically an 'externality,' but how about (to use behavioral econ speak) economic myopia? The argument for government controlled health insurance etc. is that people often make 'irrationally' myopic decisions about their life/health. The argument is no different here.
His whole argument that prices of bad foods are low so it's only "natural" that people's wellbeing is enhanced by eating bad food is QUINTESSENTIAL NON-SENSICAL CLASSICAL ECONOMICS. It stems from assumptions using static models, and viewing people as drones for consumptions where consumption in one thing is no better or worse for society than consumption in another. The ideas that Becker espouses are ludicrous and frankly, while he's entitled to his opinion, some of his comments are downright offensive (and this is coming from someone who is not overweight).
3. Becker talks about the early deaths of obese people as if it's not a bad thing provided it doesn't infringe on the health or overall well - being of others. Somehow I would think the food addict would beg to differ with him on that - I bet they'd prefer to live, given the chance. Becker talks from a purely homo economicus, evolutionary perspective - to a frightening extent.
Am I really the only one here that finds his comments to be a huge disconnect from reality and compassion?
Thursday, July 24, 2008
Ford has largest ever quarterly loss...
And intends to retool its line away from trucks at a quicker pace than previously announced.
From Bloomberg:
``They believe this is a permanent shift in buyer sentiment that they have to adjust to no matter how hard it will be,'' said Maryann Keller, an independent auto analyst and consultant based in Greenwich, Connecticut. `This is going to be expensive.''
I'm not so sure this is a "permanent shift," nor am I convinced this price mechanism by itself (taxes or market) will really make a huge short or long run difference in terms of reducing congestion, oil consumption and dependency....
But I guess it doesn't matter what I think, does it :).
Time will tell.
From Bloomberg:
``They believe this is a permanent shift in buyer sentiment that they have to adjust to no matter how hard it will be,'' said Maryann Keller, an independent auto analyst and consultant based in Greenwich, Connecticut. `This is going to be expensive.''
I'm not so sure this is a "permanent shift," nor am I convinced this price mechanism by itself (taxes or market) will really make a huge short or long run difference in terms of reducing congestion, oil consumption and dependency....
But I guess it doesn't matter what I think, does it :).
Time will tell.
Wednesday, July 23, 2008
Wake Up Indiana - We Need a (Better) Mass-Transit System
The Natural Resource Defense Counsel just released their report:
“Fighting Oil Addiction: Ranking States’ Oil Vulnerability and Solutions for Change”
Indiana is listed as one of the most vulnerable states in terms of oil prices and dependency.
But to me, the most telling statistic was this one:
Transit Spending
Prioritization
(Ranking &
Percentage)*
49 (0.15%)
We are next to last (only Utah is worse) in terms of prioritizing transit. We continue to talk a lot about high speed transit alternatives around the State, but it's been all talk to date. As we grow (and if we hope to grow in the future) we can't rely on bus systems alone anymore.
“Fighting Oil Addiction: Ranking States’ Oil Vulnerability and Solutions for Change”
Indiana is listed as one of the most vulnerable states in terms of oil prices and dependency.
But to me, the most telling statistic was this one:
Transit Spending
Prioritization
(Ranking &
Percentage)*
49 (0.15%)
We are next to last (only Utah is worse) in terms of prioritizing transit. We continue to talk a lot about high speed transit alternatives around the State, but it's been all talk to date. As we grow (and if we hope to grow in the future) we can't rely on bus systems alone anymore.
Tuesday, July 22, 2008
A tax hike I would support as part of potential energy policy
Someone asked me the other day if I would be supportive of any tax measures (as part of public policy other than CAFE standards and investment in alternative fuels and transportation infrastructure which I already conveyed are wise goals imop) with regards to a new energy policy / accounting for negative effects of oil consumption.
Obviously I'm not for a tax hike on gasoline. A year or so ago, Mankiw proposed to increase the gas tax by $1. Well gas has already risen by $1 or more in some places - and even given the recession I think it's irrefutable that overall consumption of gas, and congestion, etc. have not slowed to any real degree. I've mentioned before my general dislike of a gas tax (I won't rehash here) - so that is out for me as a policy option.
I would support a tax hike in general though (esp. a revenue neutral one coinciding with an Iraq draw-down). We don't need a regressive gas tax on a necessity good that would be politically unfeasible and hurt the poor disproportionately. No, what we need is a temporary tax hike on luxury consumption. It, like one of the benefits of a gas tax, is a more efficient tax than say an income tax since it doesn't tax production and incentivizes savings.
Benfits:
It has a first major advantage over the gas tax in that it is progressive (burden falls on mega-rich). It has a second major (moral and economic) advantage over the gas tax in that it doesn't tax necessity items (by definition). It has a third major advantage over the gas tax in that it would be more politically satiable (given today's populist tendencies).
The idea of making such a tax hike temporary would be to use the additional tax revenue for X number of years to help invest (subsidize) in alternative fuels, green transportation infrasctructure, etc. - thus helping to deal with the negative externality of congestion, pollution, etc. Though, to me, the distinction b/w temporary and permanent is misleading - all taxes are temporary as all tax codes can (and often should) be changed as circumstances change. It may also help deal with an often less-talked-about negative social externality: the problem of "keeping up with the Joneses:" the heterodox economic concept that non-necessity consumption fuels itself and amount to a waste of resources - making already rich people ever so slightly more "happy" - but happiness as defined in the short-term because they are keeping up in social status with their neighbors/peers. Such happiness is short-lived and regret theorists have a field day with this kind of stuff.
Of course there are downsides:
First, the revenue generated might not be as fruitful (compared to a gas tax) depending on the elasticity of the tax-hiked items. Nevertheless, to the extent that some goods are Veblen goods (where consumption rises with price/tax) the opposite could be true.
Second, what goods would be hiked? That of course is a tough political call and one reason why many congressmen might initially balk at the idea. One way I can think of that this could be done is to look at the CPI basket - compare the typical basket from the survey to those high-income earners. Items that the high earners buy to some degree of statistical rigor that the average Joe does not could be included in the tax hike. Third, to the degree that a luxury tax could increase the demand for non-luxury items (and thus the price), this could pose a problem - but the problem would likely be slight and indirect compared to the benefits gained.
Luxury taxes aren't used much in the US compared to other nations, but maybe it's time we reconsider - especially given our excesses. But the idea is not exactly new.
Of course, any tax hike runs the risk of the government using the revenue to feed the beast particularly in our time (Iraq, Afghanistan, recession) - but provided the revenue is used the right way, I would support this over a gas tax any day.
Obviously I'm not for a tax hike on gasoline. A year or so ago, Mankiw proposed to increase the gas tax by $1. Well gas has already risen by $1 or more in some places - and even given the recession I think it's irrefutable that overall consumption of gas, and congestion, etc. have not slowed to any real degree. I've mentioned before my general dislike of a gas tax (I won't rehash here) - so that is out for me as a policy option.
I would support a tax hike in general though (esp. a revenue neutral one coinciding with an Iraq draw-down). We don't need a regressive gas tax on a necessity good that would be politically unfeasible and hurt the poor disproportionately. No, what we need is a temporary tax hike on luxury consumption. It, like one of the benefits of a gas tax, is a more efficient tax than say an income tax since it doesn't tax production and incentivizes savings.
Benfits:
It has a first major advantage over the gas tax in that it is progressive (burden falls on mega-rich). It has a second major (moral and economic) advantage over the gas tax in that it doesn't tax necessity items (by definition). It has a third major advantage over the gas tax in that it would be more politically satiable (given today's populist tendencies).
The idea of making such a tax hike temporary would be to use the additional tax revenue for X number of years to help invest (subsidize) in alternative fuels, green transportation infrasctructure, etc. - thus helping to deal with the negative externality of congestion, pollution, etc. Though, to me, the distinction b/w temporary and permanent is misleading - all taxes are temporary as all tax codes can (and often should) be changed as circumstances change. It may also help deal with an often less-talked-about negative social externality: the problem of "keeping up with the Joneses:" the heterodox economic concept that non-necessity consumption fuels itself and amount to a waste of resources - making already rich people ever so slightly more "happy" - but happiness as defined in the short-term because they are keeping up in social status with their neighbors/peers. Such happiness is short-lived and regret theorists have a field day with this kind of stuff.
Of course there are downsides:
First, the revenue generated might not be as fruitful (compared to a gas tax) depending on the elasticity of the tax-hiked items. Nevertheless, to the extent that some goods are Veblen goods (where consumption rises with price/tax) the opposite could be true.
Second, what goods would be hiked? That of course is a tough political call and one reason why many congressmen might initially balk at the idea. One way I can think of that this could be done is to look at the CPI basket - compare the typical basket from the survey to those high-income earners. Items that the high earners buy to some degree of statistical rigor that the average Joe does not could be included in the tax hike. Third, to the degree that a luxury tax could increase the demand for non-luxury items (and thus the price), this could pose a problem - but the problem would likely be slight and indirect compared to the benefits gained.
Luxury taxes aren't used much in the US compared to other nations, but maybe it's time we reconsider - especially given our excesses. But the idea is not exactly new.
Of course, any tax hike runs the risk of the government using the revenue to feed the beast particularly in our time (Iraq, Afghanistan, recession) - but provided the revenue is used the right way, I would support this over a gas tax any day.
Monday, July 21, 2008
China's Priorities
Obviously China "cares" about the environment only insofar as it can benefit how its country is perceived by the West, via the Olympic Games.
Too bad it doesn't come up with real long-term strategies to help solve its environmental and cleanliness (or lack thereof) issues caused by its monumental economic growth over the last couple decades.
Where is the Al Gore of China?
Too bad it doesn't come up with real long-term strategies to help solve its environmental and cleanliness (or lack thereof) issues caused by its monumental economic growth over the last couple decades.
Where is the Al Gore of China?
Thursday, July 17, 2008
Consumer Reports' answer to high food prices - REVISION
UPDATE to BELOW:
I originally read this to mean that Consumer Reports was advocating pesticide consumption, but really what the article meant was "focus on the ones (organic vegetables) that are more likely to contain these chemicals had you decided to buy non-organic." So people aren't as crazy as previously thought (but still crazy).
"If you’re strapped for cash, ... [prioritize] your produce purchases. Skip the fruits and vegetables that tend to have little or no pesticide residue and focus on the ones that are more likely to contain these chemicals (pesticides)."
parenthesis added
I originally read this to mean that Consumer Reports was advocating pesticide consumption, but really what the article meant was "focus on the ones (organic vegetables) that are more likely to contain these chemicals had you decided to buy non-organic." So people aren't as crazy as previously thought (but still crazy).
"If you’re strapped for cash, ... [prioritize] your produce purchases. Skip the fruits and vegetables that tend to have little or no pesticide residue and focus on the ones that are more likely to contain these chemicals (pesticides)."
parenthesis added
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