This morning, the entire city of Indianapolis had its public transporation (bus system) shut down during the morning rush hour due to a dispute the Union has(d) with management.
Was the dispute about low wages, or poor working conditions?
No.
It was about having to wear proper badge identification on the job.
(Granted, management's action was pretty ridiculous as well... maybe I should have 'headed' this post "City Bureacracy at its worst---est")
Give me a frickin' break.
Why did I move back to Indy again???
Friday, August 24, 2007
Tuesday, August 21, 2007
99!
Big hat tip and thanks to Mike Moffatt (whose blog is deservedly in the top 30 of all econ blogs on the net) for mentioning my blog. Subsequently, "Reviving Economics" was included in the rankings and pulls in a respectable #99. Thanks also to economist Aaron Schiff for starting the ranking.
I think 99 is pretty good since this blog has only been in existence for less than a year now. It's good to know also that I'm not just writing this for myself and that at least one person actually reads my blog occasionally ;).
I think 99 is pretty good since this blog has only been in existence for less than a year now. It's good to know also that I'm not just writing this for myself and that at least one person actually reads my blog occasionally ;).
Union Power at its Worst
I just read a news report that Indiana ranks #2 in foreclosure inventory rate. The article makes mention that since Indiana is heavy in manufacturing, and manufacturing jobs have been hit hard the last 5 years, this has added to home losses. I think that’s obvious but it’s not just about that.
Union power in the manufacturing industry in Indiana, especially in the automotive manufacturing sector, is extreme and is beyond what I think even the most liberal economists would say is a ‘good’ kind of union power. Over the last number of decades, UAW and other major unions have pushed up the wages and retirement benefits of workers so high that it was only a matter of time before the sector imploded – and started killing jobs.
Delphi Automotive is a great example of this. In the last 2 years, they have tried to take steps to cut their labor costs from the ridiculous rates of $30 some-odd dollars an hour for an assembly line worker.
For a more concrete example, Bloomberg cites:
"...for example, the $25 hourly rate, plus benefits, paid to union workers who trim grass around its buildings. Delphi's union contract... bars hiring an outside lawn-cutting service. "
I work at a nice desk job and I don’t make near what low/mid skilled union auto labor employees do.
So, the foreclosure rates can be explained more by the fact that these low educated workers were paid a huge premium, and they took that premium to buy big houses, often with no money down and often at a variable interest rate. So, when their employers imploded they were left with this huge house, ballooning interest rates, large monthly payments, and no steady income (anymore).
Union power in the manufacturing industry in Indiana, especially in the automotive manufacturing sector, is extreme and is beyond what I think even the most liberal economists would say is a ‘good’ kind of union power. Over the last number of decades, UAW and other major unions have pushed up the wages and retirement benefits of workers so high that it was only a matter of time before the sector imploded – and started killing jobs.
Delphi Automotive is a great example of this. In the last 2 years, they have tried to take steps to cut their labor costs from the ridiculous rates of $30 some-odd dollars an hour for an assembly line worker.
For a more concrete example, Bloomberg cites:
"...for example, the $25 hourly rate, plus benefits, paid to union workers who trim grass around its buildings. Delphi's union contract... bars hiring an outside lawn-cutting service. "
I work at a nice desk job and I don’t make near what low/mid skilled union auto labor employees do.
So, the foreclosure rates can be explained more by the fact that these low educated workers were paid a huge premium, and they took that premium to buy big houses, often with no money down and often at a variable interest rate. So, when their employers imploded they were left with this huge house, ballooning interest rates, large monthly payments, and no steady income (anymore).
Monday, August 20, 2007
Online Textbook vs. College Bookstore
It's back to school time, which has had me thinking of a puzzle to which I just don't know the answer. In hopes of help, I emailed my blog-friend Mike Fladdigan of "Mikeroeconomics":
"Mike, Hope all is well. I have been wondering about something that i was hoping you could do a post on, or maybe point me to a good paper about.... I don't understand why the price differential is so massive between so many bookstore texts and (those very same) texts that can be bought online on amazon.com or half.com or ebay.com, etc. For example, a coworker of mine saw that her micro econ text bundle (including study guide etc) would have cost $140 if she had bought it at the bookstore. She found the exact same thing (slightly used) for well under $40. New books were also quite affordable. Assuming that students don't really care about the condition of their texts (which I think is a reasonable assumption), the only thing I can think of why the market hasn't tended to draw this gap closer is issues of assymetric information or misunderstanding about the non-pecuniary transaction 'costs' involved with text purchasing online....."
He responded thusly:
"I have concluded that students buy textbooks from the campus store because of1) asymmetrical info 2) they ignore opportunity costs 3) the value the book more now and heavily discount the future 4) instructors change the elasticity of demand by "demanding" that students start reading now 5) students have different values for money at different times depending upon how they "earned" the money 6) think that they can resell the book and actually rent the book at the same price as amazon.com price 7) want to build a professional library and paying so much for a book will make them value the book more...."
The more I think about it, I wonder how much a professor's propensity to bundle his/her text with supplemental items that maybe can not be found easily online is to blame for why still so many students buy their text at the college bookstore - and thus for why the price differential stays so large. But I don't think that is everything.
Thoughts anyone?
"Mike, Hope all is well. I have been wondering about something that i was hoping you could do a post on, or maybe point me to a good paper about.... I don't understand why the price differential is so massive between so many bookstore texts and (those very same) texts that can be bought online on amazon.com or half.com or ebay.com, etc. For example, a coworker of mine saw that her micro econ text bundle (including study guide etc) would have cost $140 if she had bought it at the bookstore. She found the exact same thing (slightly used) for well under $40. New books were also quite affordable. Assuming that students don't really care about the condition of their texts (which I think is a reasonable assumption), the only thing I can think of why the market hasn't tended to draw this gap closer is issues of assymetric information or misunderstanding about the non-pecuniary transaction 'costs' involved with text purchasing online....."
He responded thusly:
"I have concluded that students buy textbooks from the campus store because of1) asymmetrical info 2) they ignore opportunity costs 3) the value the book more now and heavily discount the future 4) instructors change the elasticity of demand by "demanding" that students start reading now 5) students have different values for money at different times depending upon how they "earned" the money 6) think that they can resell the book and actually rent the book at the same price as amazon.com price 7) want to build a professional library and paying so much for a book will make them value the book more...."
The more I think about it, I wonder how much a professor's propensity to bundle his/her text with supplemental items that maybe can not be found easily online is to blame for why still so many students buy their text at the college bookstore - and thus for why the price differential stays so large. But I don't think that is everything.
Thoughts anyone?
Thursday, August 16, 2007
My Thoughts on Peak Oil
Mike Moffatt continues to try and hammer some sense into the doomsayers that are predicting sharp oil production declines in the next couple decades due to limits on resources. His points are excellent:
1.If the peak is just around the corner and exceedingly high prices ($200 dollars a barrel? $300? $400?) are coming our way, then why are the prices for oil futures and oil call options so low?
2. Are you buying oil futures or oil call options? If not, why not?
3. Why did peak oil supporters in the 1970s tell us that the oil supply would run out in the 1980s and 1990s? Why were they wrong then? Why are you right now? What's changed?
Nevertheless, I do think Peak Oilers and economists can find some middle-ground. The general idea of Peak Oil is after all not that controversial (for most people) – at some point oil production must reach a peak and start declining due to limits on how much oil there is left on Earth. Short of technology one day being able to replicate oil and its energy chemically, or of Earth’s population finding oil on Mars etc, peak oil WILL occur.
I also think the Peak Oilers are correct when they say that this, unless anticipated, can cause some catastrophic events. Economists are quick to point out that as resources decline, the price of oil will rise to increase the incentive for alternative energy. The problem is that alternative energy doesn’t just appear at our doorstep, and the change from an oil-driven economy to some other energy-driven economy doesn’t just happen overnight. There could be decades of hardships both for businesses and for consumers who currently rely on oil and its outputs. I wonder if some pro gas-taxers may tend to overlook this point (For the record, I don’t think Mike is one of those) for the same reason they overlook any potential hardships caused by a gas tax. As I’ve said before, oil and gas are not like other commodities such as bubblegum and shrinkwrap: I don’t drive a stick of gum to work….
The point is that it is likely worthwhile to start the transition now, well before the peak happens than to be reactionary to the price mechanism. This is something the pro gas-taxers are right on – they want to deal with this now and they have a plan (which is more than I can say for the doomsayers who just want to spout off about the end of the world as we know it).
I view hardline cornocopian economists, whose only answer is to “let technology solve any perceived ‘constraint’ on resources,” as incredibly naïve. Technology can help ‘extend the date’ for resource depletion, that’s for sure. But the idea that economic growth can create a condition of nearly limitless natural resources is illogical by definition of a limited natural resources (again, barring some Star Trek-like ability to replicate things at will).
Having said all that, I don't think anyone is suggesting that the world will eventually 'run out' of oil. It will approach a limit near zero [as prices keep rising] (I believe that is what the original Hubbert curve looks like). In that sense though, "useable" oil will probably reach zero as the price will eventually reach a point where few if any would either need to buy oil, or could afford to if they did. This will likely take a LOT longer than Peak Oilers might think though, since, as our economy substitutes away from oil to other infrastructures etc, the demand for oil (the curve) will fall, tempering any rise in prices. By that time, oil would likely (hopefully) have little to no use anyway.
This actually illustrates my earlier point - if supply falls exponentially before people's overall demand (curve) falls as well due to changing infrastructure and tastes - hardships will be great, prices will be high, until the transition ends. (There are I think plenty of institutional and political reasons to think that demand would not be able to keep up with supply). If, however, we start slowly reducing our demand on oil NOW we can get ahead of the game BEFORE the supply starts dwindling.
1.If the peak is just around the corner and exceedingly high prices ($200 dollars a barrel? $300? $400?) are coming our way, then why are the prices for oil futures and oil call options so low?
2. Are you buying oil futures or oil call options? If not, why not?
3. Why did peak oil supporters in the 1970s tell us that the oil supply would run out in the 1980s and 1990s? Why were they wrong then? Why are you right now? What's changed?
Nevertheless, I do think Peak Oilers and economists can find some middle-ground. The general idea of Peak Oil is after all not that controversial (for most people) – at some point oil production must reach a peak and start declining due to limits on how much oil there is left on Earth. Short of technology one day being able to replicate oil and its energy chemically, or of Earth’s population finding oil on Mars etc, peak oil WILL occur.
I also think the Peak Oilers are correct when they say that this, unless anticipated, can cause some catastrophic events. Economists are quick to point out that as resources decline, the price of oil will rise to increase the incentive for alternative energy. The problem is that alternative energy doesn’t just appear at our doorstep, and the change from an oil-driven economy to some other energy-driven economy doesn’t just happen overnight. There could be decades of hardships both for businesses and for consumers who currently rely on oil and its outputs. I wonder if some pro gas-taxers may tend to overlook this point (For the record, I don’t think Mike is one of those) for the same reason they overlook any potential hardships caused by a gas tax. As I’ve said before, oil and gas are not like other commodities such as bubblegum and shrinkwrap: I don’t drive a stick of gum to work….
The point is that it is likely worthwhile to start the transition now, well before the peak happens than to be reactionary to the price mechanism. This is something the pro gas-taxers are right on – they want to deal with this now and they have a plan (which is more than I can say for the doomsayers who just want to spout off about the end of the world as we know it).
I view hardline cornocopian economists, whose only answer is to “let technology solve any perceived ‘constraint’ on resources,” as incredibly naïve. Technology can help ‘extend the date’ for resource depletion, that’s for sure. But the idea that economic growth can create a condition of nearly limitless natural resources is illogical by definition of a limited natural resources (again, barring some Star Trek-like ability to replicate things at will).
Having said all that, I don't think anyone is suggesting that the world will eventually 'run out' of oil. It will approach a limit near zero [as prices keep rising] (I believe that is what the original Hubbert curve looks like). In that sense though, "useable" oil will probably reach zero as the price will eventually reach a point where few if any would either need to buy oil, or could afford to if they did. This will likely take a LOT longer than Peak Oilers might think though, since, as our economy substitutes away from oil to other infrastructures etc, the demand for oil (the curve) will fall, tempering any rise in prices. By that time, oil would likely (hopefully) have little to no use anyway.
This actually illustrates my earlier point - if supply falls exponentially before people's overall demand (curve) falls as well due to changing infrastructure and tastes - hardships will be great, prices will be high, until the transition ends. (There are I think plenty of institutional and political reasons to think that demand would not be able to keep up with supply). If, however, we start slowly reducing our demand on oil NOW we can get ahead of the game BEFORE the supply starts dwindling.
Wednesday, August 15, 2007
"Reintroducing Macroeconomics": A Review
As promised, here is my review of Steven Cohn's book: "Reintroducting Macroeconomics, A Critical Approach."
So that you my reader can understand any biases I may have, I offer up a brief background of my thinking as a student of Economics:
As an undergrad, the textbooks for my classes were largely Classical-Keynesian Synthesis in nature, while most of my professors had a very obvious laissez-faire, classical, bent to them. I remember noting to myself early on that there appeared to be a direct correlation to how much math was used in the class to how 'classical' the professor seemed. As it was my game theory professor was the most hardline: every sentence he spoke had the word "rational" in it - and whenever he said the word "irrational" his lips would curl and nostrils would tighten as if he were smelling a skunk.
Here is a quote from my professor, as best as I can recall, from the very first econ class I ever took:
"Economics is about how selfish individuals make decisions under conditions of scarcity. Selfishness is not a bad thing - being selfish makes everyone better off..."
Even in those days I can remember thinking that my professors all had severe bias issues and whenever 'gains from trade' or perfect markets etc. were discussed I remember spending hours and hours later at home trying to rationalize what I had learned with reality. By the time I graduated, I had chosen a personal middle-ground - not quite classical and not quite Keynesian (at the time, those were the only choices I thought I had). When debating with friends though I would always defend the classical position - because it was the one that I knew the best - it was the one I paid to learn - so I felt in defending it, I was defending my decision to learn Economics.
In grad school, most of my macro classes were from a New Classical bent, with real business cycles and dynamic theory based on intergenerational models of perfectly rational agents. Assumptions were just that - and were never discussed. My grad schooling taught me alot about econometrics, simulation economics, and in-depth classical thought, but it also only served to justify my growing opinion that Economics is a growing failure as an authentic science.
Over the last few years I have drifted more and more away from classical ideas taught me throughout my economics education. I still believe much can be learned from neoclassical economics, but ever since that first undergrad class, I've found true scientific rigor to be lacking. Economics classes always seemed like a secret society of conservatives - an indoctrination built on assumptions more than on inquiry and open debate. Certain other fields never seemed any better (the political science department was filled with die-hard liberals that never bothered to see the other side as well), but I had always hoped that Economics would grow to be more holist: to include thoughts of politics, psychology, sociology, etc. But it seems to have grown more and more sheltered since I started my schooling.
As my longing for more holist ideas have grown, so has my thirst to learn more of these ideas. As such, I've been paying closer attention to thoughts espoused by the post-autistics, the post-keynesians, and the behavioral economists.... I purchased Steven Cohn's book so that my students might not have to deal with the same internal struggle I dealt with regarding economic thought. With that, here is my short review:
As an introductory textbook (which is what it espouses to be - either as a supplement to a mainstream book, or as a book for independent study), it fails. First, the book spends too much time denigrating mainstream texts, and not enough time being mainstream's alternative. As such, the text mentions how market failures or group-think can prevent nice long-run market outcomes, or how AD-AS models are often inadequate, but it spends little time presenting a coherant and detailed counterargument. Instead it presents a hodgepodge of arguments from different divisions of heterodox economics: Marxism, feminism, post-keynesian, institutionalist.... Ordinarily that would be good (afterall the whole point of the book is to present economics more holistically), but the problem is, due to space constraints, it makes the book's arguments seem weak, the feeling of being 'all over the place, and more argumentative. Perhaps a more narrow focus on a handful of macrotopics would have been better....
Another dissapointing feature are the endnotes. Chapters end with pages and pages of endnotes(footnotes) - often time more interesting than the text itself. This again is an obvious example of how the author wrote too broadly and felt the need to condense his thought on many topics. I hate endnotes - especially when they belong in the body of the text.
The final reason this fails as a textbook is the lack of visual interest - there are only a couple graphs and they are poor quality. The book is written in book/novel format and would and should be an instant turnoff to most introductory undergrads.
Having said that, some more interested and thoughtful students will find this book insightful. It does a great job of singling out mainstream assumptions and showing how those assumptions can and often fail - and (as mentioned, too briefly) discusses the results of how the macroeconomy differs as those assumptions fail.
Also, the author picks up on what I feel is the major problem with mainstream texts - the tendency to "note but ignore" issues with their assumptions, and markets. In the end, the point of the book works, and that point is that mainstream economics fails to offer a truly holist attitude to economics, and it fails to have an open dialogue with its students, preferring to offer a skewed picture of the world for the sake of simplicity. I view this, however, as a hastily put-together, though useful, working document of heterodoxy. Hopefully one day a more appealing text will arrive on scene.
So that you my reader can understand any biases I may have, I offer up a brief background of my thinking as a student of Economics:
As an undergrad, the textbooks for my classes were largely Classical-Keynesian Synthesis in nature, while most of my professors had a very obvious laissez-faire, classical, bent to them. I remember noting to myself early on that there appeared to be a direct correlation to how much math was used in the class to how 'classical' the professor seemed. As it was my game theory professor was the most hardline: every sentence he spoke had the word "rational" in it - and whenever he said the word "irrational" his lips would curl and nostrils would tighten as if he were smelling a skunk.
Here is a quote from my professor, as best as I can recall, from the very first econ class I ever took:
"Economics is about how selfish individuals make decisions under conditions of scarcity. Selfishness is not a bad thing - being selfish makes everyone better off..."
Even in those days I can remember thinking that my professors all had severe bias issues and whenever 'gains from trade' or perfect markets etc. were discussed I remember spending hours and hours later at home trying to rationalize what I had learned with reality. By the time I graduated, I had chosen a personal middle-ground - not quite classical and not quite Keynesian (at the time, those were the only choices I thought I had). When debating with friends though I would always defend the classical position - because it was the one that I knew the best - it was the one I paid to learn - so I felt in defending it, I was defending my decision to learn Economics.
In grad school, most of my macro classes were from a New Classical bent, with real business cycles and dynamic theory based on intergenerational models of perfectly rational agents. Assumptions were just that - and were never discussed. My grad schooling taught me alot about econometrics, simulation economics, and in-depth classical thought, but it also only served to justify my growing opinion that Economics is a growing failure as an authentic science.
Over the last few years I have drifted more and more away from classical ideas taught me throughout my economics education. I still believe much can be learned from neoclassical economics, but ever since that first undergrad class, I've found true scientific rigor to be lacking. Economics classes always seemed like a secret society of conservatives - an indoctrination built on assumptions more than on inquiry and open debate. Certain other fields never seemed any better (the political science department was filled with die-hard liberals that never bothered to see the other side as well), but I had always hoped that Economics would grow to be more holist: to include thoughts of politics, psychology, sociology, etc. But it seems to have grown more and more sheltered since I started my schooling.
As my longing for more holist ideas have grown, so has my thirst to learn more of these ideas. As such, I've been paying closer attention to thoughts espoused by the post-autistics, the post-keynesians, and the behavioral economists.... I purchased Steven Cohn's book so that my students might not have to deal with the same internal struggle I dealt with regarding economic thought. With that, here is my short review:
As an introductory textbook (which is what it espouses to be - either as a supplement to a mainstream book, or as a book for independent study), it fails. First, the book spends too much time denigrating mainstream texts, and not enough time being mainstream's alternative. As such, the text mentions how market failures or group-think can prevent nice long-run market outcomes, or how AD-AS models are often inadequate, but it spends little time presenting a coherant and detailed counterargument. Instead it presents a hodgepodge of arguments from different divisions of heterodox economics: Marxism, feminism, post-keynesian, institutionalist.... Ordinarily that would be good (afterall the whole point of the book is to present economics more holistically), but the problem is, due to space constraints, it makes the book's arguments seem weak, the feeling of being 'all over the place, and more argumentative. Perhaps a more narrow focus on a handful of macrotopics would have been better....
Another dissapointing feature are the endnotes. Chapters end with pages and pages of endnotes(footnotes) - often time more interesting than the text itself. This again is an obvious example of how the author wrote too broadly and felt the need to condense his thought on many topics. I hate endnotes - especially when they belong in the body of the text.
The final reason this fails as a textbook is the lack of visual interest - there are only a couple graphs and they are poor quality. The book is written in book/novel format and would and should be an instant turnoff to most introductory undergrads.
Having said that, some more interested and thoughtful students will find this book insightful. It does a great job of singling out mainstream assumptions and showing how those assumptions can and often fail - and (as mentioned, too briefly) discusses the results of how the macroeconomy differs as those assumptions fail.
Also, the author picks up on what I feel is the major problem with mainstream texts - the tendency to "note but ignore" issues with their assumptions, and markets. In the end, the point of the book works, and that point is that mainstream economics fails to offer a truly holist attitude to economics, and it fails to have an open dialogue with its students, preferring to offer a skewed picture of the world for the sake of simplicity. I view this, however, as a hastily put-together, though useful, working document of heterodoxy. Hopefully one day a more appealing text will arrive on scene.
Tuesday, August 14, 2007
Stock Market Ups and Downs
Mises Institute has an interesting blog on last week's stock market volatility and dump.
My only concern is that the title of the blog is "The one question you must never ask an economist." However, I don't believe he ever lets the reader in on the question he has in mind.
So I thought I'd offer up my own suggestion:
"How do your assumptions affect the results and forecasts of your model?"
Most economists (IMOP) would likely respond one of two ways:
1. "they wouldn't change a thing - they are just simplifying assumptions."
(if an economist answers thusly you can be sure he/she hasn't given the question much
thought outside of their own box)
2. "What assumptions - this is how things work"
(if an economist answers thusly, you should be scared for your life since the person is obviously posessed by their mathematical formulae and are liable to go all John Nash on you at any moment)
My only concern is that the title of the blog is "The one question you must never ask an economist." However, I don't believe he ever lets the reader in on the question he has in mind.
So I thought I'd offer up my own suggestion:
"How do your assumptions affect the results and forecasts of your model?"
Most economists (IMOP) would likely respond one of two ways:
1. "they wouldn't change a thing - they are just simplifying assumptions."
(if an economist answers thusly you can be sure he/she hasn't given the question much
thought outside of their own box)
2. "What assumptions - this is how things work"
(if an economist answers thusly, you should be scared for your life since the person is obviously posessed by their mathematical formulae and are liable to go all John Nash on you at any moment)
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