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Friday, May 25, 2007

Suppliers(retail) want in on the Gas Out now....

The ridiculous just became the absurd:

Noting that the demand-side gas out did not work on May 15, some retailers thought maybe they could 'help' motorists. At least one gas station manager shut off his pumps.

And, as if we needed more evidence that even business owners don't understand supply and demand, one said,
"So I just thought: What can I do to help the consumer?"
Yeah, that's it, I'm sure it had nothing to do with the free national publicity of his station and about how caring he is about the plight of consumers....

Obviously one, or a handful of gas owners doing this would have no overall effect. But even if many retail suppliers started doing this (which for the same reasons the original gas out didn't work, is impossible) --- DEMAND IS NOT SUPPLY --- all that would happen is the supply pipeline to consumers via the retail outlet would be temporarily cut off in many places, leading to INCREASED prices, NOT decreased prices.

So thanks for the help, but then again, no thanks!

Tuesday, May 22, 2007

Mankiw on China Trade

I haven't agreed with Dr. Mankiw in a while - but one of his latest posts on the 'problem' (or lack thereof) of China fixing its nominal exchange rate, is spot on!

Having said that...

mvpy said...

"This is right in theory, but not in practice. Real and nominal exchange rates track each other very closely, even over long periods - since prices are sticky. Slaughters argument is based on PPP holding - but PPP is a notoriously Pretty Poor Predictor. Whether PPP even holds over long periods is a hotly debated topic."

I suppose the overall point to be made is that, with trade, there are other things the US could be worried about rather than on China's exchange rate.

Like our own lack of private Savings in the US......

Monday, May 21, 2007

Great Gas Out Just Farted

You may recall that there was this urban myth that went around that everyone should participate in a "gas out" whereby the 'masses' would not buy gas for a day / seriously cut back consumption in order to stick it to gas companies and drastically reduce prices.

That day was supposed to be May 15.

Did it work?

You be the judge....

Note the spike - upward - round abouts May 15 for Indiana. Also notice the beautiful, almost seemless line trending upward --- the national average.

MYTH BUSTED!!! (PS i love that show)

Sunday, May 13, 2007

Sounds like the Pope could use a few Econ classes....

The Pope today denounced both Marxism and Capitalism......


“I do not mean that nonbelievers cannot live a lofty and exemplary morality; I am only saying that a society in which God is absent will not find the necessary consensus on moral values or the strength to live according to the model of these values.”

Ok, so in my view the Pope doesn't seem to be denouncing either, but rather stating that God should be more prevelant in today's economic and political systems. This to me is actually a much different controversial statement in which the Pope seems to be saying that separation of Church and State is not a good idea to say the least.

His statement strikes me as utopian - he seems to imply that society would be better off if everyone believed in God (presumably the Catholic One) and that then everyone would have the same morals and beliefs and things would run smoother.

That is simply naive.

I know Catholics who have a wide range of belief systems - yet they all believe in the basic idea of God. Some support abortion, some don't. Some support gay marriage, some don't.... So frankly I fail to see how a political economic system where God is at the forefront would change anything other than perhaps by turning our society into an indoctrinated group of individuals ruled by one extremely large special interest group.

I think both Marx and Adam Smith would be appalled at such an idea.

One note about this post: I'm not trying to pull a Sinead O'Conner here. But please keep in mind the Pope is just a man - weather you believe he is influenced by the hand of God or not, and his opinions should be subject to scrutiny just like the rest of us.

Tuesday, May 8, 2007

Becker quote a little off-base

Mankiw cites Becker as saying:
"This brings us to our punch line. Should an increase in earnings inequality due primarily to higher rates of return on education and other skills be considered a favorable rather than an unfavor­able development? We think so. Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applica­ble to human capital as well as to physical capital. The initial impact of higher returns to human cap­ital is wider inequality in earnings (the same as the initial effect of higher returns on physical capital), but that impact becomes more muted and may be reversed over time as young men and women invest more in their human capital....For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same indi­viduals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect."

I agree generally with Becker's placing eduction on such a high pedastal. I don't think redistributing income, however, should be abandoned.

Interestingly, no one else points out the very obvious fact that while the return to education begets income gaps, the reverse is also true: the have-littles don't often have as good of a chance to get the quality education as those that are well off do, for various reasons and variables related to the income gap itself. In other words, a little redistribution may be necessary to provide certain low-bracket individuals the opportunity to receive an education that might otherwise might be outside their grasp.

The only reason I can think that Becker would avoid that simultaneity issue here is perhaps because he has been too far gone up the crickety steps of the Ivory Tower he might not notice those low-income people way down below....

Wanting to devote more resources so more kids pursue higher education is of course great. The thing is, progressive taxation does that at least to some degree. If we get rid of progressive taxation, (or make it much less so) as Becker implies, and supplant it with some education incentive, exactly what would that look like? I don't think specifics were offered, so until they are, I'm sticking with at least some progressive taxation....

Furthermore, if we did use education incentives there would still be a large number of people who can't or just don't want to get a higher education, for various reasons: mentally challenged, socially inept, love doing a specific low-skill job.... Should we eliminate government assistance for them in the form of progressive taxation? If so, does this pose an ethical issue?

Mankiw's Misleading Memo

Part of Mankiw's defense for a gas tax comes from an old CBO report from 2004 which compares the benefits and costs of CAFE to a gas tax. They confirm that a gas tax could cost less than CAFE. ... That conclusion came from the old CAFE model. The model has since been reformed.

I wish Mankiw would stop pushing that out-dated CBO report (from 2004). The entire CAFE model has been revised since then and is in the process (end) of a major overhaul. This overhaual makes that report useless and outdated. I'm waiting for a new CBO report.
Read more here: CLICK ME

Or, for a point by point about what reformed CAFE means for efficiency: CLICK HERE

I'm not saying I think CAFE is THE only way to go, but I am saying that Maniw's use of the old CBO report is misleading. In fact part of the reason for the push of the overhaul was due to this old report. Shame on Mankiw for presenting only partial facts.

Monday, May 7, 2007

Obama on fuel efficiency

From the Chicago Tribune:
Domestic automakers would get health care assistance in exchange for investing 50 percent of the savings into technology to produce more fuel-efficient vehicles. In addition, Obama said he would provide automakers with generous tax incentives for retooling assembly plants.

That's an interesting concept - leveraging the health of a company's workers with a 50% of the savings from the company not having to provide it....

I generally like the idea of promoting alternative fuel. My belief is that the US needs the impetus for substitutes for gas FIRST before taxation can be discussed. A tax hike on gas without substitutes or infrastructure for substitutes really in existence simply is not a very good idea from a consumer/environment point of view.

This though sounds a bit heavy handed.... How are these technologies defined? What form is this "health care assistance" in? Who determines what the "savings" are? Where is government getting the money for all this - fixing health care, the environment, and 'saving' a dying industry all in one swoop? Sounds a bit fanciful to me, not to mention incredibly distortionary!

Reagan was a 'real' conservative? I think not

A political post to start off the week.......... please note that for this I'm not talking as an econ person - just as someone who is interested in our nations politics.............

Last week at the GOP presidential candidate debates Regan's name was uttered some 19 times - it was a big Reagan suck-up fest largely because Republicans adored his charisma and wanted to evoke it (and they recognize that many others did too) .... oh and also because Mrs. Reagan was in the audience.

But a few of them mentioned Reagan as the last true conservative - I find that ironic since, in my view, he was the first real neocon!

The man loved deficits - Goldwater he was not.

But perhaps that is what the candidates meant - that Reagan was the first real 'national' social conservative. That is, he made being socially conservative a key point to winning national elections. Well on that point I tend to agree. But social conservatism as a political movement is dying now in my view - as any extreme ideology would after being taken to its edge. After all the scandals, and the half-truths, and the coverups, I think more moderates are getting fed up with the situation (like me). Republicans will be making a big mistake this election cycle if they continue to pander to their evangelical constinuents (and continue to ignore the middle).

By the way, I think it's pretty clear that Mitt Romney is going to win the Republican primary - McCain has completely lost his edge and that comment he made about following Bin Laden to the gates of hell as he broke into a Grinch-like smile was just creepy. Giulliani I actually like alot but I think the other candiates will end up being successful in painting him and his views as wishy-washy. Also, he supports the "stay the course" mentality and that doesn't help any. Mitt is above the fray at this point and he just "sounds" presidential.

I think Obama will probably win the Democratic nomination. I think people will, in the end, skip Hillary because she is so polarizing. Obama represents youth and the future to alot of Democrats.

So, it is Romney v. Obama. Who wins that? That's a tough one. I would say Obama would easily win (from my first point about social conservatism and the war just not appealing anymore on a grand scale). To the point, Obama is not afraid of loosly talking about his spirituality and thereby cutting off the evangelical rhetoric of his opponent. But there are two things working against Obama - inexperience and race. There will be those that won't vote for him because he lacks political experience, and there will be those that don't because he's black. The latter isn't a big deal since those that wouldn't vote for him cause he's black probably wouldn't have voted Democrat anyway. The former issue of experience is a much larger problem....

Tuesday, May 1, 2007

More fire-side chat with Karl

My response:
Karl,Thanks for the reply. I don't disagree that gas taxes "work" from an efficiency standpoint (disregarding distributional issues - though I would argue distributional issues could also effect long-run efficiency...see previous post on the subject).

I suppose my biggest problem with gas taxes is that elasticities DO matter once you look beyond the simple assumptions and if you understand that your goal is not just efficiency, but to better the environment. You say: "Suppose the elasticity of gas was zero. So that people just had to have it no matter what. Then there would be no change in change in deadweight...optimal."That makes sense to me but I would think we need to look beyond that...for the fact that you have to compare that to what actually would happen.

Gas demand is not perfectly inelastic (though close) and is not a perfect extreme. So, a gas tax WOULD in fact reduce consumption and reduce people's happiness - at minimal effect to the environment and at a cost to both consumers and producers.

The 'cost' would then be collected as government revenue.

Let's assume, oppositely for example, that gas demand were very elastic, then that same gas tax would have a much bigger effect on the environment, though it would raise less revenue for the govnernment.

So you see by those two examples, when gas elasticity is approaching perfect elasticity, for a GIVEN gas tax, the environment is better of. Since some policy maker has to 'fix' the tax hike at some level - that fixed level won't be as effective than if demand were more elastic - though it equally as efficient. So while from an efficiency stanpoint, a gas tax MAY make sense (IF you can determine costs etc - which I have doubts), it doesn't make sense if your policy goal is to better the environment - and that's regardless of distributional issues.

I should mention that the effect of the tax can vary as well not just with the elasticity of private demand, but the relative elasticity of private demand compared to social demand - they may not necessaily be parellell curves (they may have different elasticities )!

Once the government has to decide what to do with the revenue, that opens up a whole 'nother can of worms I would think....

I suppose the overall point is that textbook "efficiency" is based on a whole host of assumptions, not the least of which is a static model. Once dynamics are taken into account (environmental effects on efficiency in the future), that makes such models very limited in determining a policy goal... this is yet another example of econ trying to dominate decision making with its narrow view of things.