Category Archives: Economics

Should Everyone Graduate From Harvard?

The beauty of the internet, aside from bringing volumes and volumes of data to many people who would never have access to such information in the past, is that we get the opportunity to have brushes with greatness on twitter.

I’m not talking about trolling celebrities, getting lewd photos from Anthony Weiner, or even getting a “you’re fired!”  tweet from Donald Trump. I’m talking about the really famous intellectuals. Like Joyce Carol Oates. Thankfully, twitter has a way of telling me somebody is important even if I do not know who they are. It’s called the “verified” button.

And, thanks to the internet, I now know that Joyce Carol Oates is actually famous. (Good job, twitter!) In 2010, she was awarded the National Humanities Medal.

Joyce Carol Oates

I scoured the internet, and I couldn’t find any credible sources for her claim of a 1 percent graduation rate, other than a retweet from a News Corp employee who shared a stat provided by an Occupy Wall Street twitter account.

The Washington Post, my hometown newspaper, owns/owned a competitor to the University of Phoenix — Kaplan. They report that the overall graduation rate for the college is 16 percent. Online-only students have a graduation rate of about 4 percent.

The Chronicle of Higher Education reports that schools like Phoenix and Kaplan “compute and publicize their own alternative graduation or ‘completion rates,'” and that the institutions argue “that these better reflect the nature of their student bodies and their institutional missions.”

Be that as it may, Oates’s claim of a 1 percent graduation rate could be true after statistical manipulation — but I just haven’t seen that it’s true. This comparison is apples to oranges. Harvard isn’t the same as the University of Phoenix. It’s like comparing a privately-run GED equivalency program to a private high school like Sidwell Friends in Washington, or Saint Ignatius in Cleveland.

Some critics contend that Ivy League schools, like Harvard, suffer from grade inflation and bad professors. What does a diploma mean if your professors are bad (like Cornel West) and your grades are inflated? If you graduated from Harvard, it doesn’t matter.

There’s no doubt that Harvard-accepted students are bright people. But, as Oates questions, should “anyone” who gets into an Ivy League school be given a guaranteed diploma?

The obvious answer is no.

Acceptance to a school — whether it’s Harvard, Hagerstown Community College, or Hamilton College — shouldn’t guarantee you a diploma. A school’s exclusivity or selectivity shouldn’t negate the hard work by its students from acceptance to senior year.

Graduation should be earned, not given. Whether you attend the University of Phoenix or Harvard.

While all of my friends who attended Ivy League schools graduated, I highly doubt they’d advocate Oates’s position: “anyone who does [get in] should graduate.”bsig

‘Jackass’ Approved for Ohio Motion Picture Tax Credit

bgThe upcoming film Bad Grandpa, part of the Jackass series, was filmed in Northeast Ohio.

I noticed a frame of the Veteran’s Memorial Bridge, a bridge I crossed frequently during my high school years on Cleveland’s West Side.

In an effort to win filming locations, Ohio offers the “Ohio Motion Picture Tax Credit” as an incentive, though many films use Cleveland as a backdrop for other cities like New York, Chicago, or Washington, rather than a feature. In other words, Ohioans are subsidizing Hollywood firms to turn Cleveland into New York.

So far as these incentives go, Ohio isn’t alone — over 75% of states offer some form of incentive.

According to the website of the Ohio Development Services Agency:

“The Ohio Motion Picture Tax Credit provides a refundable tax credit that equals 25 percent off in-state spend and non-resident wages and 35 percent in Ohio resident wages on eligible productions.”

It also specifies that “[e]ligible productions must spend a minimum of $300,000 in the State of Ohio”.

The Ohio Development Services Agency confirmed to me that, while “the production company has not yet sent in their final audit … the project was approved for a $1.5 million Motion Picture Tax Credit.” The production company projected that “47 percent was to be shot in Ohio.”

Motion Picture Tax Credits and other incentives for filming are popular among state legislators. The Tax Foundation observes:

“Forty-four states [in 2010] offer significant movie production incentives (MPIs), up from five states in 2002, and twenty-eight states offer film tax credits.”

While they are popular, they are not without controversy. The Economist called such incentives a “stupid trend.”

Since 2010, three states have dropped their motion picture incentives. Many others, including New Jersey — the epitome of states with silly policies, have suspended such programs.

The non-partisan Tax Foundation is skeptical of the value of incentives and credits for motion pictures:

“While broad-based tax competition often benefits consumers and spurs economic growth and development, industry-specific tax competition transfers wealth from the many to the few … Movie production incentives are costly and fail to live up to their promises.”

The report continues:

“Based on fanciful estimates of economic activity and tax revenue, states are investing in movie production projects with small returns and taking unnecessary risks with taxpayer dollars. In return, they attract mostly temporary jobs that are often transplanted from other states.”

and:

“Furthermore, the competition among states transfers a large portion of potential gains to the movie industry, not to local businesses or state coffers. It is unlikely that movie production incentives generate wealth in the long run. Most fail even in the short run. Yet they remain popular.”

I’m in agreement. Scrap them.

But if you’re going to keep them, at least require that they say they’re in Cleveland in the film, so that you can pick movies that cast Cleveland in a positive light.bsig

Here’s a screen grab from Google street view of the bridge seen in the movie.

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The next frame cuts immediately to Charlotte, North Carolina. From the trailer, it appears most of the film is depicted in North Carolina. (Also, Cleveland’s tallest building one of Charlotte’s tallest were both designed by Cesar Pelli and look similar.) Other scenes were filmed in North Carolina.

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You can watch the trailer here:

If the Neo-Luddites Got Their Way

The resurgence of luddism is something that, while seemingly innocent, is frankly quite troubling. Neo-luddites take many forms these days — from the buy local crowd, the organic obsessed, make-work Keynesians to actual, straight up luddites. (I guess make-work Keynesians are sort of the same thing…)

As I’ve previously criticized the cult-like behavior of some buy local and organic folks, I’ll issue the standard mea culpa: Buying local or eating organic foods is just peachy in my book. Go for it. Go hog wild, but please don’t proselytize your lifestyle choices with clapatrap.

Go to the farmer’s market and buy “local” food from two states away. I’ll get food from Walmart that is even more local, and because they have economies of scale, it’ll be better for the planet than the F-250 that drove 500 miles with your kale (now with a free side of sanctimonious bullet points for lecturing!).

What bothers me about the neo-luddite cultists, aside from their lecturing, is that they don’t just lecture you about your choices, they often want policies to favor their choices.

Here’s a brief hypothetical look into what America would be like if some of these yahoos got cart blanche.

Garlic. Grown pretty much everywhere but Alaska. The U.S. ranks eighth in the world in garlic production.

Agriculture policies are changed, and no longer can you get garlic from Mega-Garlic, LLC. Your garlic now has to be locally grown, organic, and machine free.

This is what that would look like:

These are women peeling garlic in North Korea.

Throughout the rest of world, we have machines that do this. They’re pretty neat actually. They reduce labor costs and increase efficiency.

Even though I think that buying local for local’s sake is dumb, I realize that most people who love buying locally or people who love organic food (as opposed to that inorganic stuff we all normally eat) don’t espouse making their lifestyle choices mandatory for the rest of us. My example, North Korea, is a pretty extreme example. However, some people do think like that.

Many others propose watered down versions of this extreme, which is still pretty bad.bsig

Could Pop-Up Hotels Solve Disaster Housing Shortages?

I read with interest a recent piece in Businessweek about an innovate company that has managed to make something akin to a hotel food truck:

This year, Snoozebox Holdings is shipping 40 to 400 stackable containers to house guests at events including Le Mans, the Edinburgh Festivals of plays and concerts, and the G8 Summit. The prebooked rooms are equipped with flat-screen TVs, Wi-Fi, and running hot water.

Who would want to stay in one of those, you might ask? The company, Snoozebox, has already found some markets for its product.

snooze

The answer is, mostly, rich people. However, like with most innovations, what starts as a toy or luxury for the rich (telephones, VCRs, televisions, internet) usually becomes pretty affordable and widespread.

Take the devastating tornado that recently ravaged Oklahoma. Or the one in Joplin, Missouri. Housing is one of the most needed commodities in the wake of natural disasters. Could Snoozebox, or its competitors save the day and provide a market-based solution to help people in need?

While the obvious answer is yes, the reality is probably not. Or at least not anytime soon.

Whenever an innovation disrupts the current natural order, vested interests often use the law and politicians in an attempt to stifle competition. Economists call the former “creative destruction” (good) and the latter “rent seeking” (bad).

Creative destruction, in the form of the Uber car service or food trucks, is really great for consumers. Their competition — well established taxi cabals and brick-and-mortar restaurants — don’t see it that way. They get politicians to enforce laws that would inhibit any competitor from setting up shop, and if the laws doesn’t exist for that purpose, those interests usually push politicians to pass them.

Let’s rewind the clock to a day after the tornado hit Oklahoma. You work at Bomblebox, a fictional competitor of Snoozebox. Oklahoma would be an ideal place to offer your services to a populace coping with disaster. Hotels are overbooked, people are cramped in the houses of friends — often far away from the site of their former home. There’s a natural market for the Bomblebox.

Could Bomblebox drive a couple of trucks over and set up shop somewhere? In this hypothetical, it’s unlikely.

Each of the fifty states has their own laws and regulations governing hotels and lodging. And it’s unlikely that a company not already licensed to do business there could get all the t’s crossed and i’s dotted before the window of opportunity closes.snoozebox-exterior-sunshine

Second, local hoteliers, their trade groups, and other interest groups would probably object. There are a ton of ways they could do this:

Would Bomblebox’s products be up to snuff with Chapter 285 — the part of Oklahoma law that regulates lodging establishments?  Is the plumbing consistent with the Oklahoma Plumbing License Act? Is the electricity system consistent with the Oklahoma Electrical Licensing Act? Does each unit “maintain at least one lighting fixture suitable for reading”? Do all the bathroom floors have “impervious floor surfaces?” Is the sewage disposal system consistent with “regulations adopted by the Oklahoma State Board of Health?” I don’t know.

Remember, these laws are for your safety. Created, supposedly, to protect you — but they also often serve to protect the current natural order from competition.

You get the point.

The time and money it would take to ensure compliance would probably guarantee that such a plan wouldn’t get past the research phase. There are a lot of questions to answer just to drive a box that people would pay $400 a night to stay in while watching a race or stay at a festival like Bonnaroo. Put another way, if people are willing to pay that much to stay in a box at a race or a festival, my guess it’s probably good enough for  to stay in after the wake of a disaster.

But that’s not how regulation and the natural order operate. Mutually agreed upon and beneficial transactions, even under extenuating circumstances, are often illegal outright. You’re not necessarily free to transact with others as you see fit. While FEMA does provide disaster assistance — think FEMA trailers —  some people probably would be willing to pay more, and could afford to get something a little nicer than a crappy camper because for their well being they want the comforts of home.

Let’s pretend for a second that Bomblebox is a Missouri company, and has plans to do business all over the southland to help people recover from disasters, and provide housing during political conventions and festivals.

Could Bomblebox then, had it complied with all the varying laws regulating hotels and motels, go into business? Again, the answer is probably not.

Ill-advised price gouging laws in each of the states would likely prohibit Bomblebox from charging the market rates necessary to make it profitable. And thus, local hoteliers and the government — which also hates competition — would likely object and prohibit the “evil” Bomblebox corporation from helping people at a time when they need it most.

What about renting (or selling) house-like version of the Bomblebox? At first glance, that might appear to be a better option.

But, again, the complex web of laws and regulations would make that difficult, and in addition to hoteliers, the competitors of the natural order (RV makers, prefabricated home makers) would likely throw in a monkey wrench to complicate things.

In my lifetime, we’ve seen creative destruction move at an amazingly fast pace. The days of radio-dispatched cabs that come because of a call from your home phone or payphone are over. We’re in the Uber era now, where my smartphone will get me a black sedan in mere minutes. Instead of having to go and wait in a long line to get a Georgetown cupcake, food fad fetishists can be satisfied by a 3 minute walk to Farragut Square where multiple food trucks offer similar (and often better) products with shorter lines and often at lower prices. Or, if you really have your heart set on Georgetown cupcake, Seamless can deliver it for you.

Generally speaking, our regulatory system and laws are outdated. Uber is discovering that first hand across the country, most recently in Los Angeles. The byzantine shackles of a outdated laws and regulations that keep cities (like my hometown of Cleveland) from returning to their former status of greatness exist all across the country in various degrees.

What keeps them there is politicians who cater to the special interests, and who see themselves as wizened sherpas of the regulatory Mt. Kilimanjaro rather than people whose job it is to make their constituents’ lives easier through good policy, not political dependency.

Going forward, the cities and states that recognize the burdensome constraints of outdated regulations and laws are the ones that will prosper. They’ll have the Ubers, the food trucks, and — when times are tough — people willing to provide innovative solutions to help them in their time of need.  Their citizens will lead happier, better lives, and bounce back from adversity faster than their friends in the cities and states whose leaders who let archaic policy and outdated thinking rule the day.

Few people argue for no regulations at all, but the people who think that deregulatory advocates believe this are often the very politicians who say “everything is fine.” Odds are, it’s not. And the joke’s on you if you believe them.

 

 

 

Unintended Consequences of Price Gouging Laws

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From The OK Disaster Scam Prevention Packet, as prepared by OK Attorney General E. Scott Pruitt’s “Public Protection Unit”

Most states have laws that purportedly protect people from evil “price gougers” in the wake of man-made or natural disasters. Some are toothless and silly, affording publicity seeking politicians to give themselves some good press, while others are draconian or invasive.

One point to consider is that price gouging laws do nothing to address or fix the shortage of a certain commodity due to either high demand or diminished supply. They’re not a solution.

These laws impose a “finder’s keepers” marketplace, where those conveniently situated to suppliers can hoard much needed goods at what are effectively below-market rates, rather than a market-based economy where buyers and sellers can decide what prices they’d like to charge or the price they’re willing to pay.

Oklahoma’s law seems especially pernicious because it restricts the ability of prices to rise by 10% not just for the immediate time after the disaster, but for 30 days after – and for “dwelling units, storage space and goods related to home repair and restoration”, 180 days after.

While big-box stores like Home Depot and Lowe’s have the size and scale to absorb potential losses from such a prohibition, it’s doubtful that your local mom-and-pop hardware store will escape as unharmed.

Of course, there are individuals who would try and skirt the law, and that’s not hard to understand because it is a bad law. Jim’s Hardware could mark up all items by 55% immediately before the disaster, and presumably be able to better absorb the price shocks they’d experience afterwards. However, you can bet that your local “consumer reporter” would be all over that in about a New York minute.

Lastly, even if price gouging laws do result in savings before the shortages occur, it’s worth asking whether, on net, the prosecution of violators if price gouging laws ends up costing taxpayers more than the money the few who were lucky enough to stock up on D-Batteries and bottled water saved?

Put another way, can you put a price on feeling good that you weren’t “ripped off” — even if you are living in the dark and thirsty? Will that round out the balance?

Could it be that these laws harm more than they help?

Here’s a good video on the topic:

All hail capitalism.

While I do love cooking actual meals for myself, over the years as an underpaid civil servant, I have taken a liking to frozen meals for lunch or dinner.

Nestle’s Stouffer’s meals — a Shaker Heights restaurant that became famous for pioneering the frozen meal back in the day — as well as the Lean Cuisine line of brands. In particular their lasagna and macaroni and beef are excellent.

Having left government for journalism, I often find myself at Walmart, Safeway, Giant, or Shoppers buying frozen Banquet meals — for a price between $.89 and $1.50. Even if I eat two at lunch, I am spending at most $3.

It got me thinking.

For the low, low price of  about $1, I can have five chicken nuggets, corn, and macaroni and cheese. Of course, I pay for the cooking aspect of this product, which costs me pennies. My electrical bill is usually less than $100 a month, and not much of that is used for the microwave. At work, it doesn’t actually cost me a dime, assuming of course, that the money spent on overhead doesn’t come at the expense a higher paycheck.

Are the nuggets as good as McDonald’s? No. But, even for their affordable price of 4 for $1, I get more from Banquet– even if their product isn’t as good.

The economics of the frozen dinner are, when you think about it, pretty interesting.

This is not a gourmet meal, but, it is not a bad meal, especially given the price. Inputs, marketing, distribution, storage, and sale — comes to me for less than $2 a pop.

From the chicken being birthed and raised, going to ConAgra’s plant, being slaughtered, prepared, cooked, breaded, and frozen… to the corn and wheat being grown, harvested, and transported, the cow’s milk being used for cheese and other inputs, like paper, dye, and plastic — all going into a  product with a plastic dish, covered with cellophane, inspected, boxed, and shipped from the midwest to me in Virginia — it’s a pretty amazing journey.

And it costs me, more or less, $1 a meal.

All hail capitalism.

Addendum: “But, Jim… don’t subsidies distort the price you should really be paying for that delicious frozen meal”? Yes, that they do. Without the subsidies, the meal would be more expensive, and I’d prefer that the subsidies be eliminated. Even in that universe, the marvels of capitalism would bring me this and other products at affordable prices.

Should I Make Breakfast?

Every so often, I go to the local grocer and purchase a dozen or so English muffins, a package of Virginia’s finest breakfast sausage patties, a dozen eggs, and a few slices of American cheese.

Weeks later, half of the eggs are still there and so are about half of the English muffins. I throw them away, and it bothers me because while these items are not terribly expensive, I don’t like waste. Which is probably why I keep them there after they’ve expired. Sort of like a penance for buying improperly, Wilbur — Zuckerman’s Famous (and now dead) Pig — stares at me through his coin-shaped remains under cellophane.

sausage_mcmuffin

Why do I even make breakfast? Sure, I could just toast the English muffins and throw butter on them, or toast some waffles and slather them with fake buttery syrup, but I want meat, egg, cheese and bread. Why? Because I’m an American. I want the whole deal.

The fact of the matter is, I shouldn’t be making breakfast. It’s not worth my time, because at the $30 or so an hour I make, I consider my time somewhat valuable. Sure, sometimes I feel accomplished getting up earlier to make coffee the old-fashioned way via the drip coffee machine I’ve had for 8 years, frying an egg on a skillet the way I learned by observing the cooks at Courtesy Diner in college while drunk, seasoning a sausage patty and putting it all together on a bun.

There’s a value to that, sure. An economic value? Why not? I’d give it the economic value of a dollar. Which is exactly how much it would cost me to buy a similar sandwich from McDonald’s.

I get a dollar’s worth of feel-good value making breakfast, so that means I start off at $1.00. Add in the ingredients, and I’m at $-1.50 or so, add in utilities (gas), I’m about at $-1.52. Add in the fifteen minutes of my time it takes to complete all of these tasks, and I’m at $-9.02.

That’s an expensive sandwich. And I haven’t even eaten it yet. (Don’t forget I have to clean the dishes!)

My calculus won’t work for everyone, some people value their time less, others will give the feel-good value of making breakfast more value. Others will make more efficient breakfasts, and others value a lack of calories more than I do.

For me, though, I’m happy to know that I’m just blocks away from places that can more efficiently and cost-effectively make this food for me, saving me time, money, and affording me more time for things I value more than cooking: work and sleep.

Note to self: don’t buy breakfast foods unless parents are visiting.bsig

Bomblecast #20 — The Minimum Wage

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In this podcast, we talk about the minimum wage and President Obama’s proposal to raise it $9 an hour.

Here’s Episode #20:

Sim City and Markets

SimCity 4 Deluxe Screenshot 2_656x369

This afternoon, I watched a live broadcast celebrating the 10th anniversary of Sim City 4, an excellent and fun game to play. I tweeted that I was watching this broadcast, which in addition to celebrating SC4, promotes the upcoming Sim City title to be released next month.

A few of my friends started g-chatting about how cool the video was. It was well produced, interesting, and revealed a lot about what went into making the new Sim City an improvement over SC4.

While Sim City 4 isn’t perfect, people who play it tend to realize its flaws, but do so anyway because it is fun. I realized that I tend to be friends with these people, because they’re analytical thinkers. After all, doing well at SC is kind of like succeeding at defeating a simulated, changing puzzle. People who hate Sim City and do not think analytically, well, aren’t usually my friends.

One of the developers pointed out how in the new game, people have to get to hospitals instead of being magically beamed health based on their proximity to a facility like in SC4, no matter if they lived on an unconnected island across the way. In short, the new game is a little more realistic.

In talking with a friend, I wondered whether the CVS-like stores in the new SC will have minute clinics — a market reaction to flaws in our current health-care delivery economy. We concluded this is unlikely.

As an advocate of open markets, that bothers me about Sim City — in the game, the only way people receive education, healthcare, garbage removal, protection from fire or crime, is basically through your (the government’s) doing. Of course, that’s not the way the world actually works.

In Sim City 4, for example, one of your earliest perks is that you’re asked whether you’ll grant a denomination lacking “House of worship” the ability to exist. I don’t know anyone who says no to the church, but had I not built a school, how am I to know the church wouldn’t have built one? Or a private-sector actor? If I didn’t build a money-sucking university, how am I to know the Jesuits wouldn’t build one, complete with a hospital? Or that both might exist, along with the University of Phoenix or the University of Southern California.

When I build a residential district in a high-end part of town, how am I to know the residents won’t form their own Home Owners Association — replete with private trash, snow removal and security? You get the point.

In real life situations, the market responds. One of the beauties of unintended consequences is that good things often come from them. (Some also bad.) Of course, nobody who has played the game extensively would argue that SC4 lacks unintended consequences.

What does excite me about the new Sim City is that trade is a much more important part of the game, whereas in SC4, it’s more of a last minute add-on. Trade, of course, is important for any society and economy. The actions that people take in the online version of the game will impact neighboring cities. In the broadcast, we’re told that you can sell water (like in SC4) to your neighbors, but you can essentially make it so that you’re exporting polluted water if you want. This will make the interactivity quite interesting to be sure.

Is Sim City perfect? No, the amount of work that it would take to replicate the market as it exists in real life in a video game would be exceedingly difficult, practically speaking, not possible. (Which might explain why Keynesians have such a difficult lot in life.) Then again, Sim City is just a game. A fun one at that.

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Confusing Argument to Support Minimum Wage Increase

One of my least favorite new proposals from last night’s State of the Union was the proposed increase in the federal minimum wage. Now, I don’t support minimum wages because I don’t think the government should be able to tell individuals what they can ask in recompense for their labor. That’s my underlying reason for opposing them.

But, today, the pundits and advocates are out duking out whether raising the federal minimum wage to $9 is a good thing. I don’t think it is, but regardless that it’s bad policy, people will be out arguing nice-sounding supposed benefits from such a change and others its harrowing unintended consequences.

However, one of the arguments I read was a tad confusing to me. In The Week, Harold Maass writes:

A 2011 Federal Reserve Bank of Chicago study found that minimum-wage workers increase spending by $2,800 a year for every $1 increase in the minimum wage.

The National Employment Law Project’s Christine Owens says this is a good thing. But the math is confusing.

If you work 40 hours a week, every week of the year, a minimum wage increase of $1 an hour will net you an additional $2,080 before taxes.

After taxes, you’d net about an additional $1,913. Yet, increasing the minimum wage by $1 increases people’s spending by $2,800? Huh?

This does not appear to a very beneficial reason to increase the minimum wage.bsig