Tag Archives: Economics

Pondering Wealth

Don Boudreaux ponders the wealth of the richest American, and what would happen if we took it all and gave it to other people.

And this fact does mean, therefore, that taking money from Gates and giving it to other Americans will – if these Americans spend all or most of this transfer on consumption goods – reduce the productivity of the economy.  It will diminish the economy’s capacity to produce material goods and services over time.  Over time, it will make all of us less able to consume.

Read all of it.  And if you have time, read more posts at Cafe Hayek.

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Create Value

From Adam Gurri, via Cafe Hayek.

The point is, our goal should never be to “create jobs”. Our goal should be to enable people to contribute something valued by other people. The value is the point, not the work. If someone finds a way to provide value to hundreds of millions of people and it requires no more effort from them than batting their eyelashes, that would be a win.

It is all about value.  Value is why raising the minimum wage does harm, not good, and why we need to put less power in the hands of the likes of SEIU, not more.

 


Economics of Gas Taxes

Peter Franchot, the MD State Comptroller, has floated the idea of a gas tax holiday over one of the upcoming summer long weekends.

While gas prices have dropped about 10 cents per gallon over the last week, the Maryland average is still about $3.85 a gallon — about a dollar more than the same time last year.

A high-ranking state official who has vowed to fight soaring gas prices is floating the idea of a gas tax holiday, according to 11 News reporter David Collins.

Comptroller Peter Franchot plans to pitch a three-day gas tax holiday to the Maryland General Assembly, Collins reported Thursday.

“We think it would put Maryland on the map, and it would more than pay for itself through increased economic activity,” Franchot said. “Most of all, just give Maryland citizens a break.”

The current state gas tax is 23.4 cents per gallon. At one station Collins visited Thursday, a 15-gallon purchase would cost $56.25. With the gas tax lifted, the bill would have been reduced by $3.50.

I heard Franchot on the radio yesterday, explaining that certainly we can’t do it permanently, because of the revenue loss, but over a weekend the loss of $6 Million in revenue would be offset by increased economic activity, and would be a net gain for state tax revenue, as well as good for residents of the state.

How is it possible he understands eliminating the tax for a short period of time would have a net positive benefit, but doesn’t understand that it would have a positive benefit if it were eliminated permanently?


They will never learn

Mary Pat Clarke thinks that if the city says you must pay a living wage, then it will be so.

Retailers that are part of a chain that grosses more than $10 million annually would be required to pay employees the living wage rate under Clarke’s proposal.

“This would apply to the businesses that can afford to do this, not the mom-and-pop stores on the corner,” Clarke said.

Opponents of a plan to build a Walmart store in Remington, who have formed a group called Bmore Local, have asked that the city require businesses that move into the former site of Anderson Automotive on Howard Street to meet several criteria, including paying workers the state’s designated living wage of $12.25 per hour.

Or, she knows it will keep large retailers (Walmart) from polluting empty car dealerships and providing inexpensive goods to poor people.  Or something.

Mary, you need an Economics lesson.  First, if what you do isn’t worth the “living” wage, you do not make the “living” wage.  You make $0.  Further, the ability of poor people to obtain inexpensive sundries goes away, as companies who sell inexpensive things we all need (the evil Wal Mart) won’t open stores here.

Second, that “they can afford it” isn’t relevant.  I can “afford” a Ferrari (I really could… pay cash for it, too).  But I don’t, because I’d rather retire at 55.  Companies make choices like that all the time about pesky little things like Return on Investment and Profit Margins.  But forcing companies to pay more for labor than the market will bear is exactly like forcing me to buy a Ferrari to keep Italians employed.

I guess it sounds good, so they’ll just ignore the basic Economic facts and keep making it more difficult to do business in Baltimore and more difficult for poor people to get the things they need for low prices.  Or BMore Local has more campaign contribution clout.


8 Macroeconomic fallacies

Economics was my Money and Banking textbook in 1989.  I thought it was all correct until I read Mises and Hayek in grad school.  This essay by Robert Higgs (pdf) highlights 8 key fallacies in Macroeconomic thinking, all of which politicians and pundits continue to repeat.

H/T Cafe Hayek


A short lesson on consumers, producers, and trade

A quick Econ lesson from Don Boudreaux, short enough for an elevator ride

Consider the following example: you fly to New York City.  You get a cab at LaGuardia Airport and ask the driver to take you to Times Square in Manhattan – which is west of LaGuardia.  Soon, though, you notice your cab headed east.

“Where are you going?” you inquire.

“To Times Square, but via Montauk,” the driver responds.

“Montauk!  That’s a hundred miles east of here, and Times Square is west of here!  What the heck are doing?!”

Your driver informs you that the taxicab business isn’t just for riders; its for drivers, too.  Drivers need incomes, and his income of late has been too low to enable him to pay his bills.  “So,” your driver announces, “by first going out to Montauk before heading to Times Square, I’ll make a lot more money off of you than I would if I drove you directly to Times Square.  You’ll get there, but just not as quickly or as inexpensively as you would if I drove you their directly.  Relax and enjoy the view.”

The above little tale sounds nuts.  No taxi driver would do such a thing and justify his actions in that way.

But what the fictional driver in my little story does differs in no fundamental way from what producers everywhere do when they succeed in getting government to protect them from competition – for all such protection involves government preventing consumers from striking the best deals they can find.

Remember the Louisiana Florist license?  Same idea.  Central planners simply can not know enough to make better choices than all individuals.


Economics and Wine Prices

Robin Goldstein (author of The Wine Trials 2010) in the New York Times Opinion section, responds to some criticism regarding his position that high wine prices are often unjustified.

While certainly price and quality are not necessarily related, Mr. Goldstein shows a common ignorance of Economics in his argument for pricing wines based on the cost of production.

One might divide wine pricing theory into two rough schools of thought. There is the camp that believes wine should be priced from a supply-side/cost-plus perspective–you take the cost of production of the wine, you add reasonable costs and a modest profit for the producer, you factor in markups for distribution and retail, and you arrive at more or less what the wine should cost. The other camp believes that wine should be priced from a demand-side perspective–that a wine is worth whatever the market is willing to pay for it.

The reason I’m in the first camp, and not the second, is that I don’t subscribe to the neoclassical model of consumer rationality upon which the demand-side pricing theory is built, a counterfactual universe of stingily hypersensitive, quality-sniffing consumers. My sense is that, especially when it comes to hazy markets like wine, real human beings — within certain constraints — generally anchor themselves to market prices that are imposed upon them, and generally pay for things what they’re told those things are worth.

That there is a ‘first camp’ at all is an indicator to me that too many people don’t get enough (any?) exposure to fundamental Microeconomics. You don’t need to take an advanced price theory course (although that was the most fun I had in a college course, with everything taught in terms of beer and pizza) to understand how prices are set. Continue reading


Stossel has it right

John Stossel’s article today is fantastic, and required reading.  An excerpt:

Of course income is down lately, but it’s up sharply over the long run.  The chart actually understates the gains because it doesn’t count benefits from new technology. A Kindle may replace a hundred books, but such gains aren’t visible in the government’s data.

As economist Don Boudreaux points out: “the government’s data also underestimates the middle-class’s increasing prosperity, for it ignores the shrinking size of households. In 1967, the average household contained 3.14 persons; in 2006 it contained 2.57 persons. This fact means that the real income for each member of the average household grew.”

Read it. Think about all the advances in technology that improve the quality of your life, and how the cost of that technology has dropped in the last 10 years.


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