Les Jones

Economics of Recycling

Kevin at Smallest Minority is blogging about cities facing the economic realities of recycling.

I used to have bins for plastic, glass, newspaper, mixed paper and aluminum. Then I found out the market for everything but aluminum had gone to pot, and most municipalities were paying people to take plastic and glass off their hands. Worse, in some cases it was cheaper to make plastics out of raw materials, so the recyclables were just taking the scenic route to the landfill. At that point I quit recycling everything but aluminum, the one household recyclable that pays for its own recycling.

As Kevin points out, the landfill issue is overblown. As I recall from research done by "garbage anthropologist" William Rathje, things like soda bottles and disposable diapers account for a small part of a landfill. Refuse from building construction and demolition take up most of the space, along with newspapers and magazines.

Ex-Enron CFO, Wife Plead Guilty

Andrew Fastow and his wife are expected to plead guilty. Fastow may get up to 10 years.

Good. Their financial shenanigans put hundreds of employees out of work and defrauded thousands of investors. They also helped undermine confidence in U.S. stocks. More on that next week when I post an article about insider trading.

French Fashion Crimes

Did you know that the French fashion industry is regulated?

The Chambre Syndicale de la Haute Couture, the governing body that oversees the couture business in France, enforces archaic and unyielding regulations�defending tradition and, in the process, driving most practitioners out of business. To receive official designation as haute couture from the Chambre Syndicale, a fashion house must employ 20 or more full-time skilled technicians in France and produce a minimum of 50 new designs for day and evening wear in each of the two fashion seasons, although the conditions are somewhat looser for new houses that wish to start producing couture.

If you don't comply with the law, I guess you get a visit from the Fashion Police.

Former Enron CEO Jeffrey Skilling Indicted

Skilling has been indicted. Good. If we clean up shifty corporate accounting I'll feel better about buying stocks in my 401K. With accounting scandals and a stock market still suffering from irrational exuberance I've been trying to buy everything but.

New Ideas in Outsourcing!

ELNK [EarthLink] can open classes to teach people speak India. ELNK customers need to learn India bofore call SC [Support Center].

ELNK is smart.
1. ELNK saves money by outsource to India.
2. ELNK can make money by teaching people speak India.
3. ELNK can sue to make money.

ELNK is king and will be $1000000000000000

Found here.

Warren Buffett on Clayton Homes

The Berkshire Hathaway 2003 Letter to investors discusses Buffett's decision to buy Knoxville-based Clayton Homes.

Current price for Berkshire Hathaway Class A stock: $93,000 per share. Four years ago it was a bargain at $45,000 per share.

In other Buffett news, he's criticizing mutual funds and CEO pay, and urging higher taxes for corporations and wealthy investors.

Carnival of the Capitalists

TJ has this week's Carnival of the Capitalists.

Found at the Carnival: Zero Boss's discussion of how blog authors might get paid.

Companies Leaving California

Owen blogs about companies leaving California, mostly due to excess regulation and expenses.

That could get nasty with the overheated real estate market in some parts of California. I knew someone who got burned in CA in the late '70s/early '80s. She and her husband divorced just after the market went sour and wound up losing money on their house.

LATER: Tyler Cowen Alex Tabarrok notes the situation in South Africa, which has vowed to keep wages high and to avoid being "the West's sweat shop." Thanks to wages that are five times higher than Indonesia, South Africa may not be a sweat shop, but they now have 40% unemployment.

Gas Prices Not at an All Time High

The headline says "US petrol prices at all-time high," but the article says the opposite:

The AAA, a US motoring organisation, says prices now average almost $1.74 a gallon (or about 25 pence a litre). That, the AAA said, was the result of high crude oil soaring to nearly $40 a barrel and tightening stocks in the US.

From 1974 to 1985, the US price of petrol - in 2002 dollars - never dropped below $1.80, and soared as high as $2.69 in 1981, according to the American Petroleum Institute.

Here's a CATO Institute article on the same topic from last year. This Scott Burgess post likewise explains the difference between nominal and real prices.

Carnival of the Capitalists

CrazyPundit has this week's Carnival of the Capitalists.

The RTB's own Goobage contributes his proposal for OFEC: the Organization of Food-Exporting Countries.

Morality of Selling Organs

Alex Tabarrok discusses the morality of selling organs, and how opera is related.

Progress in China

More progress on economic freedom and political freedom in China.

Not that economic freedom isn't a form of political freedom, of course. It's great and necessary to have political rights, but it's equally great and necessary to have economic rights: the right to keep as much as your money as possible without the government taking it away, the right to run a business without undue government interference, and the right to enter into private contracts.

China has a long way to go on both fronts, but it's amazing that the government there is making the effort. They saw what happened to the USSR, and saw where their path - communism and statism - had taken them, and decided to steer away from it. It's an amazing historical experiment.

Study: Owning A Boat Not Worth It

I've been saying this all along.

YONKERS, NY�According to a study published in the April issue of Boating Magazine, owning a boat is not even close to worth it. "Our study proved conclusively that boat-ownership is primarily an inconvenience and a monetary black hole," editor Roger Bernbaum said. "We found little to no reason to keep that thing sitting in a shed all winter just so you can tow it to the lake and pay outrageous docking fees three weekends a year. It'd be much more cost-efficient to don a yachting cap and hang out at the dockhouse."

OK, so this is a parody from The Onion. I still think it's true. In one of his investing books Andrew Tobias tells you 10 things to do if you win a million dollars. The only one I've committed to memory is "don't buy a boat."

Housing Bubble

More about a possible housing bubble. One concern is that Federal lending agencies are making bad loans to risky buyers.

Then, last summer, came a warning no one should have missed: news of major accounting fraud at Freddie Mac. In stocks, corporate accounting scandals appeared after the market plunged, too late to signal danger. But the fraudulent accounting at Freddie Mac was, or should have been, a wake-up call, though the details of this scandal were distinctly different. Instead of hiding losses, as happened at Worldcom and Enron, the accountants at Freddie Mac had been hiding embarrassingly large profits.

Watch for Falling Permalinks

Always Low Prices is a new blog covering Wal-Mart news (hence the title of this post). It's powered by Blogger (hence the title of this post.)

It seems pretty balanced, too. It's not there to push Wal-Mart, but it isn't a bashing site, either.

Happy Earth Day, Fellow Capitalists

Mark Steyn notes that rich countries with democracies and free market economies have shown the healthiest environments and the best progress in battling economic problems. Hooray for democracy and free markets! I'm sure environmentalists will encourage free markets and democracy now, right?

Carnival of the Capitalists

Venturpreneur has the latest Carnival of the Capitalists.

Carnival of the Capitalists Is Up

Brain Brew Blog is hosting this week.

The Carnival led me to Cold Spring Shops and this post about the price of college tuition:

A wealthy benefactor decides to hand out tuition loans willy-nilly to millions of students that aren�t necessarily up to par for a period of 40 years. Relative to the price of tuition had the benefactor NOT acted, the price of tuition will:

a) increase
b) decrease
c) stay the same
d) none of the above

Likewise, government-subsidized healthcare and prescription drug benefits raises demands, which increases prices (which creates demand for more benefits, and around we go).

Chinese Cars

AlphaPatriot points to new cars imported from China. If history repeats itself, the first cars will be junk bought by suckers, the second wave will be decent cars bought by the value-conscious, and the final wave will be cars that offer superior value and better reliability. That's what happened with Japanese and Korean cars.

BTW, did you know that Hyundai surpassed American and European carmakers in quality for the first time this year? It was less than 20 years ago that Hyundai was an unproven brand for poor college students.

Carnival of the Capitalists

Small Business Trends is hosting the latest carnival. Lots of posts related to Wal-Mart*, and this item on oil prices is interesting.

* I re-wrote that sentence to avoid a sticky grammatical wicket. I originally wrote "Wal-Mart-related posts" but that looked weird, so I invoked the Chicken Shit Rule of Grammar: if it doesn't look right, re-write!

The Future of Europe

Tyler Cowen looks at economic hope and despair in Europe.

3. A recent survey in France suggests that 70 percent of French schoolchildren aspire to become bureaucrats rather than captains of industry. (See the IHT, June 9, "Divided We Graumble," by Roger Cohen, p.2.)

4. The beauty of European cities typically stems from 1920 or earlier, when much of Europe was economically freer than the United States. How would U.S./Europe comparisons feel to us if all of Europe had been built after the second World War? How many people would then think that the "European way of life" is superior.

So we can now prove empirically that communism doesn't work. History gave us controlled experiments. Two countries - Germany and Korea - were divided by war. One side was left communits, one side capitalist.

Forty years later we saw the difference. South Korea produces cars, ships, computers and cell phones. North Korea can't even feed itself. East Germany turned into a poor, polluted nation that could barely crank out Trebants. West Germany became prosperous and produced Volkswagens, BMWs, and Mercedes.

Europe has largely gone socialist - communism lite. It may take another forty years to fully see the results, but things don't look good. Birth rates are below replacement levels. A smaller and smaller population will have to pay for social programs to support an aging population. The militaries are is serious decline, as money is diverted to prop up social programs. Labor unions in some countries can call general strikes that shut down the economy. It's hard to imagine a European Union-era Europe competing with North America and Asia.

More Bush Protectionism

Bush administration entertains protectionism, this time for the sock industry, which is getting creamed by Chinese imports.

Question: can the U.S. sock industry reform itself and compete against lower-cost Chinese imports? Probably not. It's likely China has a comparative advantage in sock-making that the U.S. can't overcome. That's why most clothing and textile production has moved overseas.

The link above explains comparative advantage, but here's an example that's stuck with me. Imagine a lawyer and her assistant. The lawyer knows how to answer the phone and type. In fact, she's better and more efficient at both than her assistant (in other words, she has an absolute advantage in both), but the difference in their typing skills isn't that huge. In contrast, she's much, much better at being a lawyer than her assistant, so her comparative advantage is in her legal skills, not her typing skills. By hiring someone else to answer phones and type she can take advantage of her legal skills to make more money.

The comparative advantage principle argues that an advanced economy like the U.S. should farm out low-skilled jobs to countries with cheap labor and re-direct its labor force to jobs that other countries can't do more efficiently. At some point our labor will be so well-apportioned that it won't make sense to let any more jobs go overseas, but it's doubtful we've reached that point yet.

Tort Reform for Drug Companies

Alex Tabarrok at Marginal Revolutions explains why it's needed:

[FDA] Approval, however, does not end a firm's problems because even then it faces the risk of a debilitating lawsuit. Consider how bizarre this is: A team of statisticians, physicians and medical researchers pours over years of clinical data to pronounce a product safe (always noting that this means safe relative to the product's expected benefits) and then a jury of 12 randomly selected Joes and Janes second guesses them, awards plaintiffs billions of dollars and drives the firm into bankruptcy. This has happened more than once.

FDA approval ought to be a "safe harbor." Many states already have laws along these lines but they have been weakly enforced. The Bush administration's efforts to limit lawsuits against firms that have passed FDA approval is a therefore a necessary and welcome piece of common sense.

Google's Dutch Auction IPO Explained

by Alex Tabarrok using clear language and an excellent graphic.

Virginia Postrel on Tax Re-distribution to Poor Schools in Texas

Virginia Postrel recounts the disaster of the Texas "Robin Hood" system for equalizing funding among school districts.

The gist is that the system destroyed housing values. Affluent homes in high property tax neighborhoods suddenly made no sense: the property taxes were rising to pay for the new system, but the homeowners paying the taxes saw no benefit, which depressed the very home values which were the basis of the system. Average loss in home value was $27,000.

Postrel is quick to note that the problem wasn't redistribution per se, but the particular form of redistribution:

The economists are quick to note that their critique is not a condemnation of redistributing school funds. Rather, it's a brief for bringing well-established principles of efficient taxation to bear on school finance. Transfers, Professor Hoxby argues, should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, says Ms. Kuziemko, the state could take a much smaller percentage of the whole tax base.

"One of the principles of public finance is that having a high tax rate on a small base is very inefficient," she says, "whereas having a lower tax rate on a larger base is less distortionary."

Just as ideological foes of electricity deregulation exploited the California experience to attack deregulation in general, some people opposed to redistribution on principle now point to Robin Hood. But just as California's complex system was not true deregulation, so Robin Hood does not represent the only way to transfer funds to poor school districts.

Orson Scott Card on the US Airways Strike Last Christmas

Unions did a lot of good in the early part of the 20th century, and even today they give employees a way to negotiate contracts from a strong position. Unfortunately unions have gained a reputation for doing dumb, counter-productive things that hurt their industries, their customers, and ultimately the workers they're supposed to help. Orson Scott Card points out the dumb side of unions in the US Airways strikes this past December:

First of all, you have to know when to go on strike. If your employer is making money but labor is not getting its fair share, and you don't have a contract in place, then it makes sense to strike.

If you have a contract, but strike anyway, then why should management ever negotiate with you? You don't keep your word -- or your union doesn't really speak for you. And if your company is going bankrupt -- and has submitted that bankruptcy to the courts, so you know they're not faking -- then what kind of stupid do you have to be to go on strike?

I had a friend who worked for an airline until a few years ago. One year he gave me a free ticket so I could go to Richmond for New Year's, but he warned me that there was talk of a sickout, so I should leave a day early just in case. Fair enough - I was getting a free ticket anyway - but if I had paid for a ticket and my travel plans had been ruined by a sickout, I would never have flown that airline again And knowing what I know now, I doubt I ever will fly them or USAirways. Why take the chance? The unions at those two airlies have proven that they're willing to hold passengers' holidays hostage as a negotiating tactic.

The Cotsworth Calendar for Business

This Slashdot article on a proposed simplifed calendar reminded me of the Cotsworth calendar. Cotsworth's idea was to have 13 months of 28 days each. That's 364 days. The extra day (which he called Silvester) was in December. The extra month (which he called Tricember) was between June and July.

One feature of the calendar is that the same date occurs on the same day of the week every year. And in fact, every month starts on Sunday the 1st and ends on Saturday the 28th. To make this work, Silvester wasn't assigned a day of the week. In other words, the day before Silvester was Saturday, and the day after Silvester was Sunday. Leap years were handled the same way.

The advantages for a business are enormous. Because you have the same number of days in a month:

• Hourly employees make the same amount of money every month.
• Factories have a constant number of production hours.
• Bills for things like electrical usage are more consistent.
• Balances are settled quicker, so there's a quicker turnover of money.
• Consultants, attorneys, and anyone else who bills by the hour has a more predictable number of billed hours and billed services, because the number of work days is consistent (excepting holidays, which could be shuffled around). That solves a huge problem for a company like the one I work for that bills hourly rates for consulting services and contracts that are done during the Monday-Friday work week. Under the modern calendar different months vary in the number of workdays available to bill services, due to the differing number of days in each month and how many weekend days happen to be in the month.

George Eastman adopted the Cotsworth calendar for Kodak's internal calendar system. Chris Range was telling me that some Kodak cameras are marked with dates, and some samples show a date where the month is 13.

Airplane Insurance

Is insurance for a plane like that really necessary? You're rich, so you'll buy the plane outright (no bank loan). If the plane crashes, you'll be dead anyway. If you do survive a crash, you'll probably be motivated to find a new hobby...
- J. Peterson on Phil Greenspun's new airplane

Greenspun gives a couple of good reasons why even rich guys like him should have airplane insurance.

Cost of Developing New Drugs Higher Than Thought

Via Marginal Revolutions:

The research by DiMasi et al. showing that the cost of the average new drug (new chemical entity) is about $802 million dollars is controversial with many people suggesting the results were doctored. A new paper, Estimating the Costs of New Drug Development: Is it really $802m?, by two economists at the Federal Trade Commission, replicates that research using somewhat different data and they indeed find that DiMasi et al. are wrong. The average new drug does not cost $802...it costs between $839 and $868 million.

Colby Cosh on Canadian Unions and Wal-Mart

If this be terrorism, pass me the Semtex:

I don't get it--I really don't. Workers at the Wal-Mart in Jonqui�re, Quebec received union certification in August--the first workers at any Wal-Mart to do so--and now the corporation is shutting the store. Okey-dokey. The NDP, displaying typical respect for niceties of the English language, are calling the shutdown "economic terrorism". But isn't this sort of threat part of the deal between labour and capital even if you believe in labour unions? The whole premise of a union, it seems to me, is that it allows the workers to collectively withdraw their labour and go out on strike if bargaining doesn't go to their liking. The law of Quebec entrenches their right to do so, and union men make a point of not crossing picket lines. So how is Wal-Mart's closure of the Jonqui�re store any different morally? They're withdrawing their capital. It's theirs to withdraw just as the workers' labour is theirs, no? In what sense is closing a store the equivalent of "terrorizing" its employees?

It seems that the citizens of Jonqui�re didn't want to work for a non-unionized Wal-Mart, and now they're getting their wish--an eventuality that was, incidentally, at least as foreseeable as a Ken Griffey hamstring injury. Why aren't the employees thrilled about this? Wouldn't "Don't you dare close your evil, oppressive store, you heartless, convenient bastards!" be a good English translation of all the Gallic gibberish being spouted here? Am I alone in suspecting that this farce is being staged as a satire in honour of Ayn Rand's centenary? Do Quebeckers really think that calling in bomb threats to other Wal-Marts is a good way to keep the retailer in Quebec?

(I excerpted a little more than I normally would have, because Cosh's permalinks don't last forever.) See previous post on unions and US Airways for another example of union tactics gone awry.

Henry Kaufman on the Dollar

In a New York Times interview, Kaufman defends the dollar's current position, while giving the president advice on how not to talk about a weak dollar policy. Via Tom McGuire.

Howard Jay Epstein on the Hollywood Movie Business

The WaPo reviews The Big Picture: The New Logic of Money and Power in Hollywood. Boxoffice receipts are inconsequential. DVD sales are what makes money, with the theatrical release being more of a marketing campaign.

Via Kevin Keith at LeanLeft. I've found a common interest with KTK: movies. Cool.

Gas Taxes Around the World

How far can you go with $20 worth of gas and a car that gets 35 miles per gallon?

Germany: 127 miles
Japan: 147 miles
United States: 342 miles
China: 385 miles
Saudi Arabia: 771 miles
Venezuela: 4,624 miles

Via Marginal Revolutions. In possibly-related news, Germany's unemployment rate hit a new record of 12.6%. More gas prices here.

UPDATE: More bad economic news for Germany.

Steve Verdon vs. Matt Yglesias

Steve Verdon notes some flaws in the recent idea that global poverty could be ended for $150 billion per year. The idea seems to be based on the notion that the difference between rich and poor countries is that the poor ones don't have any money, which confuses the symptom for the problem.

The cure for most ailing countries isn't money or debt relief. The cure is Western free market capitalism and secular, constitutional democracy. A good read on the subject is Spotting the Losers: Seven Signs of Non-Competitive States, identified as:

• Restrictions on the free flow of information.
• The subjugation of women.
• Inability to accept responsibility for individual or collective failure.
• The extended family or clan as the basic unit of social organization.
• Domination by a restrictive religion.
• A low valuation of education.
• Low prestige assigned to work.

In the Middle East, it is possible to identify states where all seven negatives apply; in Africa, many countries score between four and seven. Countries that formerly suffered communist dictatorships vary enormously, from Poland and the Czech Republic, with only a few rough edges, to Turkmenistan, which scores six out of seven. Latin America has always been more various than Norteamericanos realized, from feudal Mexico to dynamic, disciplined Chile.

WorldCom Exec Bernard Ebbers Convicted

Guilty on all counts in accounting fraud scandal. Convicting people like Ebbers is an important step in ensuring the integrity of publicly-traded companies.

Stupid Gas Tax Ideas

Thomas Friedman is floating an idea that seems to be gaining popularity. Namely, that the way to wean us off of petroleum is to enact tax that would keep the price of gas constant even during times of low gas prices. Friedman proposes a total price of $4/gallon.

Imagine that you own a hot dog cart and the government has mandated that hot dogs will cost $4. If they're priced less than that, a tax is added to boost the final price to $4. If you're a hot dog vendor in that situation, why would you sell your hot dogs for less than $4? It doesn't make any difference to the buyer - he'll pay $4 either way - so there's no market pressure to drive down your prices.

So if Friedman's gas tax plan went into effect, the oil-producing countries would price their gas so that it was very near the government-set price of $4/gallon. It would be a massive transfer of wealth from US consumers to foreign oil producers. Come election day voters would lynch any politician who had supported the law.

There's a perfectly good rationale for a reasonable gas tax. Roads, bridges, and traffic lights are enormously expensive. Funding them with a use tax makes perfect sense - as road use increases, more taxes are collected automatically. But punitive gas taxes are deadly for the economy and suicidal for politicians.

How Many Hours of Work to Buy a TV?

From one of the new stats at NationMaster.

1. Belgium 68 hours
2. Australia 50 hours
3. Italy 44 hours
4. Austria 42 hours
5. Germany 32 hours
6. Ireland 32 hours
7. United Kingdom 28 hours
8. Switzerland 22 hours
9. France 22 hours
10. Norway 22 hours
11. New Zealand 20 hours
12. Finland 20 hours
13. United States 15 hours
14. Japan 15 hours
15. Denmark 13 hours

Other new stats:

- Prisoners per capita - US is highest
- Cannabis use - New Zealand is highest
- Teenge pregnancy - US is highest
- Church attendance - Nigeria is highest

And Some People Say Unions are Corrupt

MassBackwards reports from the unfree state of Massachusetts:

Massport's union longshoremen have been placing kids as young as 2 years old on the payroll in a long-running scheme to give them bogus seniority that fattens the wages they fetch as adult dock-workers years later, investigators contend.

Amazingly, the story quotes a dockworked who defends the practice. From one of the commentors:

In Mass. it's not what you know it's who you know. Thank God I live in the U.S. now. I encourage everyone who's functional to move out of Mass and into the US. It kicks ass.

Imagine There's No Benefit Concert / It's Easy if You Try

With Live8 in the news, Colby Cosh points to the John Lennon Playboy interview and Lennon's thoughts on charity benefit concerts.

PLAYBOY: Just to finish your favorite subject, what about the suggestion that the four of you put aside your personal feelings and regroup to give a mammoth concert for charity, some sort of giant benefit?

LENNON: I don't want to have anything to do with benefits. I have been benefited to death.

PLAYBOY: Why?

LENNON: Because they're always rip-offs. I haven't performed for personal gain since 1966, when the Beatles last performed. Every concert since then, Yoko and I did for specific charities, except for a Toronto thing that was a rock-'n'-roll revival. Every one of them was a mess or a rip-off. So now we give money to who we want. You've heard of tithing?

PLAYBOY: That's when you give away a fixed percentage of your income.

LENNON: Right. I am just going to do it privately. I am not going to get locked into that business of saving the world on stage. The show is always a mess and the artist always comes off badly.

PLAYBOY: What about the Bangladesh concert, in which George and other people such as Dylan performed?

LENNON: Bangladesh was caca.

PLAYBOY: You mean because of all the questions that were raised about where the money went?

LENNON: Yeah, right. I can't even talk about it, because it's still a problem. You'll have to check with Mother [Yoko], because she knows the ins and outs of it, I don't. But it's all a rip-off. So forget about it. All of you who are reading this, don't bother sending me all that garbage about, "Just come and save the Indians, come and save the blacks, come and save the war veterans," Anybody I want to save will be helped through our tithing, which is ten percent of whatever we earn.

PLAYBOY: But that doesn't compare with what one promoter, Sid Bernstein, said you could raise by giving a world-wide televised concert -- playing separately, as individuals, or together, as the Beatles. He estimated you could raise over $200,000,000 in one day.

LENNON: That was a commercial for Sid Bernstein written with Jewish schmaltz and showbiz and tears, dropping on one knee. It was Al Jolson. OK. So I don't buy that. OK.

PLAYBOY: But the fact is, $200,000,000 to a poverty-stricken country in South America----

LENNON: Where do people get off saying the Beatles should give $200,000,000 to South America? You know, America has poured billions into places like that. It doesn't mean a damn thing. After they've eaten that meal, then what? It lasts for only a day. After the $200,000,000 is gone, then what?

Lennon isn't the only one who feels that way about the monetary output of benefit concerts. Bob Geldof says that Live8 is to raise awareness, not money, in a concession to the fact that Africa is a bottomless pit for aid money, and the original Live Aid money didn't do what it was supposed to. The only thing likely to help Africa now is radical new ideas like constitutional democracy, accountable government, and free market capitalism. Luckily, Geldof seems to realize that.

Here's the clincher: Geldof wasn't asking for donations. He admits that food aid and even debt cancellation, while helpful, are of limited utility in the long run. Instead, he's asking us to start a converstation about how to stimulate long-term development in Sub-Saharan Africa. "This isn�t Live Aid 2," the website reads, "LIVE 8 is about justice not charity."

And I had to love this:

12:33 - Todd Zwicki wants to know about the concept of "trade justice". Geldof: The EU is a protection racket that Al Capone would love. The trade cartels exist to protect domestic production ...

If first-world countries - the US included - dropped agricultural subsidies for their own farmers, third-world farmers would be able to compete in first-world markets thanks to their lower labor costs. If poor countries can't even make money with agriculture it's hard to imagine how they'll ever bootstrap themselves into prosperity.

Unemployment Figures Improve Again

Owen looks at the steadily-improving unemployment figures, which are now down to five percent. The Democrats will still paint a picture of poor economic performance, but everyone who wants a job has one at this point. LATER: in comments, Chris Wage thinks that's insensitive to people who are unemployed. I think he has a point. My point really is just that 5% unemployment is about as good as it gets.

Bush Beans, RFID Tags, and Wal-Mart

Yesterday in Oak Ridge Todd Schultz of Bush Brothers spoke to Tech 2020 about Bush's efforts to comply with Wal-Mart's requirements for integrating RFID technology. Bush is a privately-owned company located in Chestnut Hill, near Dandridge, TN, and is best known for Bush beans. Wal-Mart is Bush's biggest customer, and provides about 20% of their sales.

From reading news reports and commentary I had the impression that RFID technology was quite advanced, but I got the opposite impression from the presentation.

College and Credit Card Debt

Found via Willisms:

University administrators state that they lose more students to credit card debt than to academic failure. -Utah Mentor, 2003

If that's true, it would certainly justify Tennessee's move to ban credit card solicitation on college campuses at state schools.

"Cocaine turns out to be not nearly as much fun as you thought it was going to be"

From Marginal Revolutions, some economic research into decisions related to drug use:

A chunk of your brain is responsible for anticipating whether something will be fun or not. Apparently, cocaine and other addictive substances (including spouses, according to Tyler) can fool it - cocaine turns out to be not nearly as much fun as you thought it was going to be.

Which made me think of this story:

As far as working on a journal goes, I am reminded of an anecdote involving Paul McCartney visiting John Lennon and friends in LA during Lennon's infamous "lost weekend" of 1974. Harry Nilsson offered Paul some PCP, and Paul said: "What is it?" Harry said, "It's elephant tranquilizer." So Paul said, "Is it fun?" Harry thought about it for a long time, and finally said, "No."

Submitted to the Beltway Traffic Jam.

Thoughts on Fair Wages

Sometimes I collect quotes and links on certain themes, and publish them when I have enough. The theme here is why some jobs pay more than others.

Mickey Kaus:

I didn't think I'd ever again have to discuss "comparable worth," one of the really bad ideas from the comic book era of interest group liberalism in the Carter years. But John Roberts' opposition to the idea ("staggeringly pernicious") is now being filed under a general "Roberts Resisted Women's Rights" headline. ... The truth is that "comparable worth" shouldn't just be opposed by those on the Right who worry (correctly) that it is "anti-capitalist." It should also be opposed by those on the Left who recognize that it's fundamentally inegalitarian and elitist. ...

Put simply, comparable worth would require that judges adjust market wages for jobs that were historically disproportionately male or disproportionately female. So you have toll collector--a historically male job. It's also an excruciatingly boring job. Or garbage collector--a smelly job. To compensate for the boredom, or the smell, you have to pay the toll and garbage collectors a little bit more in the marketplace. With "comparable worth," a judge would review the toll and garbage collectors' jobs and notice that they don't require much "skill" and "education" and actually reduce the wage (or the future increase in the wage).

Clayton Cramer:

One of the greatest economic ignorance errors with respect to pricing is "fair wages." Why should a plumber get paid more than a teacher? The left likes to argue that a teacher's work is more valuable than a plumber's work, and the low pay of teachers is just because women dominate the profession, and women's work is not highly valued by our society.

There are some jobs that are intrinsically nicer than others. Teaching (from my limited experience with it, and from watching my wife do it) is a very satisifying activity. My experience working under houses, putting in sewer pipes (don't ask why--it's a long story involving a rental we lived in), tells me that it is not a very satisifying activity--quite the opposite. If you asked me whether I would rather teach for $30,000 a year, or work under houses with spiders and sewer pipes for $100,000 a year--well, that's easy. I'll teach, thank you.

Megan McArdle, guest-blogging at Instapundit:

There is a tendency among liberal arts types to think that it is grossly unfair that investment bankers make so much money, when said artsy type's clearly more socially valuable work is so pitifully renumerated. Having spent a summer doing it, I personally think that anyone who is willing to spend his Saturday night going over the fine print in an SEC prospectus until 2 am is welcome to all the filthy lucre they will pay him. I chose to become a journalist because I've only got forty or fifty years left on this planet, and if I'm going to spend the majority of my waking hours doing something, I'd rather do something I feel is worthwhile than something that will buy me a cushy place to sleep. It seems downright piggy for those of us with what my mother calls "English Major Jobs" to demand both fulfilling work and lavish renumeration.

And another McArdle post:

I find it odd, too, that so many academics profess to be egalitarians, yet academia as a whole has produced one of the most radically inegalitarian societies to be seen since Louis XVI fled Versailles. Many academics of my acquaintance profess to be aghast at the "status seeking" in which their neighbours engage--and yet I have never met anyone as obsessed with collecting professional merit badges as an academic. Nor have I experienced any other organisational culture, even in hyper-competitive consulting or investment banking, in which professional success is so readily confused with personal worth.

[...]

In other words, as I have always longed to ask John Kenneth Galbraith, "if you think that we should equalise the distribution of income, why do you not think that we should equalise the distribution of PhDs?"

Government Mileage Allowance Increases

Via email from a colleague. IRS Increases Mileage Rate Until Dec. 31, 2005:

IR-2005-99, Sept. 9, 2005

WASHINGTON � The Internal Revenue Service and Treasury Department announced today an increase to the optional standard mileage rates for the final four months of 2005.

The rate will increase to 48.5 cents a mile for all business miles driven between Sept. 1 and Dec. 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the first eight months of 2005, as set forth in Rev. Proc. 2004-64.

Keeping "The Man" Off Your Back

Because LesJones.com is all about speaking truth to power, it's Stick It To The Man Day!

• Greedy NY Times corporation to take away jobs from workers to increase filthy profits
• Powerful union boss rips off organization, employees
• Lazy union members hire temps to do their work at $6 an hour in blazing Nevada sun with no benefits
• Heartless dot com blog baron Joshua Micah Marshall exploits unskilled workers to feather his nest

Fight the power, y'all!

Now There's a Stigma I'm Familiar With

Bryan Kaplan writes about economics and idiot's stigma:

If most people buy insurance and you don't and something bad happens to you, you get a double whammy - the direct loss plus the idiot's stigma. If most people don't buy insurance and you don't and something bad happens to you, you are only out the money. If most people buy it, you want it too; if most people don't, you probably don't want it either.

By way of analogy, consider these two scenarios:

1. You lose $1000 in some unforeseen way.
2. You lose $1000 in a way your spouse specifically warned you might happen.

It seems to me that #2 is MUCH worse for most people than #1. $1000 is no big deal; but $1000 plus the scorn of your spouse is a very big deal. Now think how much worse it would be if everyone took your spouse's side against you. Ouch.

Housing Vouchers vs. Low-income Housing

FEMA's original plan was to house hurricane evacuees in trailer cities. That plan came under immediate criticism. FEMA quickly changed that plan to one based on rental vouchers

Michael Barone notes that the liberal National Low Income Housing Coalition agrees with the revised decision, and supports housing vouchers over public housing (.pdf file) in general. Says Barone:

Two and three generations ago, liberals supported large public housing projects. Most of those turned out to be dismal failures, and very many have been torn down. Now liberals like the NLIHC and conservatives like George W. Bush seem to have ended up in roughly the same place on the issue at hand, housing for hurricane evacuees. Interesting.

Spam Stock Tracker

Spamstocktracker.com follows the securities pimped in spam email. Result? The stocks are down 45% in an up market.

I'm guessing the penis enhancement pills don't work, either, but I don't expect anyone to build a Web site charting their personal trials.

Economic Man vs. Status Man

Arnold Kling:

The drive for economic gain helps the individual, and, as Adam Smith famously showed, helps others. Trade and economic growth are positive-sum games, in which there can be winners without losers. Moreover, when people seek economic gains, this is usually transparent. You usually understand when you and others you transact with are trying to improve your economic well-being.

Status, on the other hand, is typically a zero-sum game, in which one person's gain comes at the expense of others. Adding to the evils of status-seeking is that people often deceive themselves and others into believing that they are doing something for a higher motive when in fact they are seeking status.

Understanding the ill effects of status-seeking could lead us to revise our views on some issues. For example, I believe that colleges and universities would be better off if academicians were more focused on monetary incentives. For the most part, the alternative is not the "higher calling" of science or knowledge for its own sake, but the baser motive of status-seeking.

I think that last statement is maybe a bit harsh, but academia is status-obsessed to a bizarre degree.

There's an old saying that the reason academic battles are so intense is because the stakes are so low. If Kling is right, it's not the size of the stakes but the kind of stakes. If the stakes were money it wouldn't be quite as big a deal, at least in some cases. You can always find money in other places. But status is a precious resource, and you have to shove the other guy out of the way to get yours.

Dave Ramsey

I finally took the plunge and sat down to read a book by personal financial adviser Dave Ramsey. I have a couple of friends who follow Ramsey's advice, I had read his Web site, and without reading his books Melissa and I borrowed his envelope system for our grocery and dining budgets. His profile in the New York Times today finally pushed me over the edge. Like me, he's a native Maryvillian and a UT alum. I had to read him. I browsed three Ramsey books at the store, and came home with one.

Ramsey emphasizes the basics. His clients and listeners are often in debt over their heads. He cautions people not to confuse a platinum credit card with financial success.

Ramsey is a rarity in that he emphasizes character and values over absolute economic success. He argues (correctly, I think) that financial success and values can and should go hand in hand. It's difficult to have success without integrity, and pointless, too. Among those values is peace of mind: if you value stuff over financial security, you'll pursue baubles over healthy finances and ultimately wind up with neither. The Millionaire Next Door spends an entire book making essentially the same point, though wth better research into the habits of high net worth individuals.

Ramsey's books aren't without fault. Some of the facts are unsourced and the vignettes a bit thin. His latest, The Total Money Makeover is a bit better in that regard. It intersperes its advice with accounts of readers, listeners, and clients who followed his advice and reformed their finances.

I've read a number of personal finance and investment books over the years. Even of the worst of them had a few bits of good advice, and some were strong in particular areas, but I always wanted a good general book that I could give to someone who needed financial help. Financial Peace, Revisited is that book. Andrew Tobias's The Only Investment Guide You'll Ever Need is perfect for someone who has money to invest, but for someone who needs a financial life preserver or a crash course in money Ramsey's book is the best I've seen. I read about half of it in the store, and bought it to read the other half and then pass it on to someone who needs it more than I do.

Warren Buffet Loses Billion Dollar Bet Against U.S. Dollar

From Jim Miller.

Warren Buffett's Berkshire Hathaway reduced a bet against the US dollar after losing more than $US900 million ($1.23 billion) from foreign currency investments this year.

Mr Buffett, who has said the US trade deficit would weaken the US dollar, cut his foreign-currency forward contracts to $US16.5 billion in September from $US21.5 billion in June, Berkshire said in a statement. The US dollar in July reached a 13-month high against a basket of six major currencies.

The Euro is currently at a two-year low against the dollar.

Gas Price History

The other night Melissa and I saw a local station selling gas for $2.08 per gallon. We were trying to remember the price of gas over the last few years. Thanks to Google and the Department of Energy Retail Gasoline Historical Price page, here's the answer.

Prices are from August, 1990 to the present and are not corrected for inflation. These are national averages for regular, un-reformulated gasoline. Other grades and regional prices are available at the DOE page above.

About Those Oil Company "Record Profits"

Jeff Jacoby:

"Come on," the enemies of Big Oil will snort. "Gregg's winnings weren't out of line for a lottery winner, and he collected a lot less than some winners do. These oil company profits are unprecedented. ExxonMobil reported $9.9 billion in profits last quarter. That's not just high, that's obscene!"

But profits can't be judged by dollar amounts alone. What counts is the percentage of revenues those profits represent. "Our numbers are huge because the scale of our industry is huge," Exxon CEO Lee Raymond tried, probably in vain, to explain during last week's big Senate hearing on oil company profits. Exxon's profits last quarter amounted to 9.8 cents for every dollar of sales. Is that obscene? Well, it was more profitable than Shell (which netted 7.8 cents of each dollar of revenue) or Chevron (6.6 cents) or BP (4.6 cents). But compared to Coca-Cola (21.2 cents), Bank of America (28.3 cents), or Microsoft (33.2 cents), it was nothing to write home about.

Smacking oil bosses around may be good politics, but the unglamorous fact is that Big Oil's earnings, 7.7 percent of income in the second quarter of 2005, is lower than the overall US corporate average of 7.9 percent. The oil industry is more profitable than some (automobiles, media, utilities), but it can only envy the profits earned by semiconductors (14.6 percent), pharmaceuticals (18.6 percent), or banks (19.6 percent). Exxon is doing all right, but it didn't hit the big jackpot any more than Senator Gregg did.

Minimum Wage and Free Markets

In a discussion of Wal-Mart recentlyadvocating a higher minimum wage, Chris Wage* writes "[the minimum wage] nonetheless has the immediate impact of raising the quality of life for everyone it affects - monopoly or no monopoly."

Except for the people whose skills are marginal enough that it's no longer worth hiring them at the higher minimum wage so they can't get jobs anymore. Or for the people in a marginal industry with lots of foreign competition who suddenly lose their jobs because the higher minimum wage pushes the price of their company's product so high it's no longer competitive.

But, hey, if a Federally-mandated minimum wage is such a good idea, set it to $500/hour. With a 40 hour work week and a 52 week work year everyone will be a millionaire, right? OK, a $500/hour minimum wage is obviously absurd, but it's hard to say whether, say, a $10/hour minimum wage isn't also absurd.

One of the huge and under-appreciated benefits of capitalism is that the market automatically sets prices (including wages, which are just the price of labor). If you have a centrally-planned economy you'll need grey bureaucrats in smoky rooms setting prices, and the prices they set will almost always be wrong. That's what utimately does in command economies, such as the Soviet Union's. In the U.S., the economic quagmire of the Seventies was in large part due to Nixon's disastrous wage and price controls, which were originally intended to curb inflation.

The Cost of Living Council took up the job of running the controls. After the initial ninety days, the controls were gradually relaxed and the system seemed to be working. But unemployment was not declining, and the administration launched a more expansionary policy. Nixon won reelection in 1972. In the months that followed, inflation began to pick up again in response to a variety of forces -- domestic wage-and-price pressures, a synchronized international economic boom, crop failures in the Soviet Union, and increases in the price of oil, even prior to the Arab oil embargo. Nixon, under increasing political pressure from the investigations of the Watergate break-in, reluctantly reimposed a freeze in June 1973. Government officials were now in the business of setting prices and wages. This time, however, it was apparent that the control system was not working. Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.

The system was mostly shut down in 1974, with one exception:

Only one segment of the wage-and-price control system was not abolished -- price controls over oil and natural gas. Owing in part to the deep and dark suspicions about conspiracy and monopoly in the energy sector, they were maintained for another several years. But Washington's effort to run the energy market was a lasting lesson in the perversities that can ensue when government takes over the marketplace. There were at least 32 different prices of natural gas, a rather standard commodity, each of whose molecules is based on one atom of carbon and four atoms of hydrogen. The oil-price-control system established several tiers of oil prices. The prices for domestic production were also held down, in effect forcing domestic producers to subsidize imported oil and providing additional incentives to import oil into the United States. The whole enterprise was an elaborate and confusing system of price controls, entitlements, and allocations. It was estimated that just the standard reporting requirements for what became the Federal Energy Administration involved some 200,000 respondents from industry, committing an estimated five million man-hours annually.

Those cautionary words about price controls are quoted from that bulwark of right-wing free market capitalism, PBS.

* I just know there's a wage/Wage joke in there somewhere.

Word of the Day: Autarky

Autarky:

The idea that a country should be self-sufficient and not take part in international trade. The experience of countries that have pursued this Utopian ideal by substituting domestic production for imports is an unhappy one. No country has been able to produce the full range of goods demanded by its population at competitive prices. Indeed, those that have tried to do so have condemned themselves to inefficiency and comparative poverty, compared with countries that engage in international trade.

Via Jane Galt.

About Gasoline Price Increases During Shortages

Markos discusses gas prices, and why they increase when supply is disrupted even before gas stations get the new, more expensive gas. He links to a discussion on The High Road, where someone put it succinctly:

For simplicity sake, a gas station is selling gas that cost the owner $1 a gallon. He gets the word that next week it will cost him $3 to buy gas. Where does he get the money to buy the $3 gas? Do you think he is going to the bank and borrow the money? No, he is going to raise the sales price of his existing supplies to more than $3 a gallon so he can stay in business. If you insist he keep his prices low and limit his markup, then guess what? There will be no gas at the pumps next week.

In general a buyer's only concern is what the merchandise is worth to them. How much the seller paid for the merchandise is of no consequence.

Imagine that you inherited a coin collection from a relative. It holds no sentimental value and you have bills to pay, so you decide to sell it. An appraisal reveals that the coins are worth $5,000 on the retail market, but your cost was $0. Would it be fair for a buyer to expect you to sell him the coins for $1 since you didn't pay anything for them? Of course not. Likewise, when you sell your house you expect to sell it for the full market value without regard to what you originally paid for it.

Two Views on the Value of a College Education

Jane Galt:

I've long argued that most post-secondary education (possibly most post-primary education), does not confer any useful skills upon students, but rather is a signalling mechanism: the education is a proxy for things like middle-classness, intelligence, and drive. Given that, increasing education will not increase the economic opportunity to teh currently uneducated; it will onl drive the elite to get more education as a way of differentiating themselves from the unwashed masses. (Witness the fact that almost everyone I know has a master's degree, while most of our parents are lowly BAs).

Tyler Cowen

Men are born beasts. But education gives you a peer group, a self-image, and some skills as well. Getting an education is like becoming a Marine. Men need to be made into Marines. By choosing many years of education, you are telling yourself that you stand on one side of the social divide. The education itself drums that truth into you.

Similarly, if you become a Mormon or a Protestant in Central America, your life prospects go up. It is not that Mormons have learned so much more, but rather they have a different sense of self. They have a positive self-image about their destiny in life and choose a different set of peers. They also choose not to drink.

Purchasing Power 1975 vs. 2006

Purchasing power comparison based on a comparison of average hourly wage of production workers in 1975 and 2006, and the cost of items in the Sears catalog for the same years. Via Marginal Revolutions.

Sears’ lowest-priced 10-inch table saw: 52.35 hours of work required in 1975; 7.34 hours of work required in 2006.

Sears’ lowest-priced gasoline-powered lawn mower: 13.14 hours of work required in 1975 (to buy a lawn-mower that cuts a 20-inch swathe); 8.56 hours of work required in 2006 (to buy a lawn-mower that cuts a 22-inch swathe. Sears no longer sells a power mower that cuts a swathe smaller than 22 inches.)

Too Late - I Spent My Six Weeks Blogging

Virginia Postrel asks, What would you do with an additional six weeks leisure time? That's how much extra annual leisure time Americans have today compared to 1965.

See also:
- Purchasing Power 1975 vs. 2006

Chinese Labor Becoming More Expensive

From the NY Times via New Editor:

Experts say the shortages are arising primarily because China's economy is sizzling hot, tax cuts have helped keep people working on farms, and factories are continuing to expand even as the number of young Chinese starts to level off.

Prosperity is also moving inland, and workers who might earlier have migrated elsewhere are staying closer to home.

As the New Editor points out, the Times seems blasé that tax decreases can stimulate other country's economies.

Gas Prices and Bush's Ratings

This is nuts. Bush's approval rating tracks almost perfectly to gas prices.

LATER: I checked Snopes last night and didn't find anything, so if this is a hoax it isn't a known hoax. I'm just sort of dumbfounded that people would be so torqued over gas prices that it would overwhelm every other issue.

Hawaii Abandons Failed Gas Price Controls

Hawaii's attempt to cap wholesale gas prices failed, and led to higher prices as wholesales had no incentive to supply the islands. Hawaii has now removed the cap.

In other areas, where sellers were able to set their own prices, the prices remained stable. It was almost as if some kind of unseen appendage was at work, like some kind of ghostly limb.

WizBang has more, including this: "According to the state's Department of Business, Economic Development and Tourism, Hawaii's motorists spent $54 million more on gas because of the price controls."

Target No Better Than Wal-Mart?

So says Alternet. Wages are similar, and there are no unionized Target stores. Via Katie Allison-Granju.

One beef: the Alternet story says that "In comparison, Wal-Mart, with revenue of $288 billion in 2005, donated $200 million (or 7/100ths of a percent) to charities and organizations in 2005, according to its web site." First of all, the word revenue can mean gross sales, or it can mean gross margin. By looking at Wal-Mart's Yahoo Finance profile, it's obvious they're talking about gross sales, which is the larger of the two numbers.

Second, comparing total numbers is meaningless without considering profit margins. Wal-Mart's profit margin is only 3.6%, according to the information on Yahoo derived from published SEC statements. So of that $288 billion, only $10.4 billion was profit, meaning Wal-Mart gave about 1.9% of its profits to charity. In contrast, Target has a profit margin of 8.22%. It wouldn't suprise me if Target gives more as a percentage of gross sales, but the question is, do they give more as a percentage of their net profit? There's not enough information in the article to answer that question.

See also:
- Bob Krumm on Wal-Mart and TennCare
- What's in Your Wal-Mart?
- Colby Cosh on Canadian Unions and Wal-Mart
- A Reason to Like Wal-Mart
- Watch for Falling Drunks
- Wal-Mart Profile

Wal-Mart's Density Strategy for Logistics

From the Federal Reserve Bank of Minneapolis via Kottke.

Briefly, Wal-Mart has an incentive to keep its stores close to each other so it can economize on shipping. For example, to make this simple, just think about a delivery truck: If Wal-Mart stores are relatively close together, one truck can make numerous shipments; however, if the stores are spread out, you wouldn't have that benefit. So, I think that the main thing Wal-Mart is getting by having a dense network of stores is to facilitate the logistics of deliveries.

There are other benefits, too. Opening new stores near existing stores makes it easier to transfer experienced managers and other personnel to the new stores. The company routinely emphasizes the importance of instilling in its workers the “Wal-Mart culture.” It would be hard to do this from scratch, opening up a new store 500 miles from any existing stores.

For the sake of this discussion, let's say that Wal-Mart's most desirable location, or “sweet spot,” when it was starting its business was a town the size of 20,000. One strategy Wal-Mart could have pursued would have been to go around the country opening stores in its sweet spot locations and then later go back and “fill in” less desirable locations. With this alternate strategy, the first store in Minnesota would have opened a lot sooner than it actually did, as there certainly are locations in Minnesota right in Wal-Mart's sweet spot. But with this strategy, stores would initially have been much more spread out. Wal-Mart would have lost the gains from having a dense network of stores.

Instead, Wal-Mart waited to get to the plum locations until it could build out its store network to reach them. It never gave up on density.

fedgazette: And when you see what it's done, with the benefit of hindsight, it seems like the right thing to do, almost the obvious thing to do. But that would suggest that other retailers would have also recognized the benefits of density and should have engaged in the same behavior. Did Wal-Mart invent, if you will, this retailing idea?

Holmes: It is useful to contrast Wal-Mart with Kmart, as both opened their first stores in 1962. Wal-Mart, from the very beginning, was different from Kmart. Wal-Mart built up its store network gradually from the center out; Kmart (and Target, for that matter) began by scattering stores all over the country. Early on, Wal-Mart focused on logistics, with things like daily deliveries from its distribution centers, early adoption of advanced communication technology and so forth. Kmart did not do these things. A customer going into these two stores might not be able to see much of a difference between the two stores. But underneath, in the way that merchandise was getting on the shelves, these stores were very different.

But to get to your question: I don't think that Wal-Mart's logistics strategy was appreciated at the time. Its model, now being replicated by others, was a new model.

Bonus! - Movie of Wal-Mart's expansion

It's Almost as if Financial Incentives Matter

Via Marginal Revolutiions. 98% of married couples in a Chinese village divorced in a short time. But instead of displaying tension or tears, the couples waiting in line at the local registry to end their marriages were practically jolly. They believed they were taking advantage of a