Friday, June 10, 2016

Should you follow your career passion?

Mike Rowe thinks not, for the simple reason that you may not be very good at your passion. Another minus is that there may be lots of competition. This means that you will pay a premium (in terms of low wages) for following a popular passion.  For example, school teaching is a popular passion, while truck driving is not.  Guess which one pays better?

HT: Scott

Friday, May 27, 2016

Defeating a progressive candidate helps consumers

As the Presidential election process was underway in Argentina, farmers hoarded their crops waiting for signs that the pro-market candidate would win and follow up on his promise to eliminate the 30% export tax on corn and wheat instituted by his "progressive" rival.

He won, and the $13b hoard of corn is flooding the U.S. market, and Argentine farmers have increased their corn plantings by 40% in the last minutes of the planting season.

Corn prices in the U.S. are likely to fall, as are the proteins that rely on corn feed (poultry, pork and beef).  Consumers benefit.  

HT:  Thomas Landstreet, (Forbes article)

Monday, May 23, 2016

What is the Question?

Our friends at Marginal Revolution make fun of those who are calling for India to produce safer cars.  But if the alternative is riding a motorcycle, even "unsafe" cars can save lives.

This leads to one of my favorite maxims, If you start by looking at the numbers, you will always get confused, e.g., made for the Indian market .., all with no airbags—a rating of zero out of five stars for adult safety…

But if you start with a question, "how do we save lives in India?" you will never get confused.

Saturday, May 21, 2016

Uber's surge pricing is efficient, but deeply unpopular

So much so that places like Dehli has banned the practice.  In response to these political threats Uber has started trying to educate the public about the benefits of surge pricing.  Here is a "natural experiment" in Manhattan.

In the left panel, on New Year's eve 2014, there was no surge pricing (the algorithm broke down), and wait times tripled while the completion rate was cut to 25%.  The right panel shows the same area of Manhattan following a Ariana Grande concert in 2015.  After the concert let out, fares increased, but there was no change in wait times nor completion rates.

BOTTOM LINE:  surge pricing is needed to bring in supply and allocate rides to those who want them the most.  Without it, supply is too small, and rides are not allocated to their highest valued use.
(Economist article)

Monday, May 16, 2016

Relying on self-interest to advertise your product

Economics Blogs
Our blog was recognized in the top 100 economics blogs.  What I like about the list is the clever way that the author uses self-interest to promote his site.  We post a link to show that we have won, which drives traffic to his site.   Nefariously clever.  But what else would you expect from an economist?

I also hereby bestow the author with our coveted first ever best list of top blogs awards, which should be marked with a link to this post.  

Wednesday, April 20, 2016

How is Nashville like SF?

Both have restrictive zoning that drives up prices which leads to calls for more affordable housing, which results in further restrictions on supply, or vouchers that increase demand, both of which further drive up prices.

A surprisingly clear report from California noted much the same:
“Many housing programs — vouchers, rent control and inclusionary housing — attempt to make housing more affordable without increasing the overall supply,” the report said. “This approach does very little to address the underlying cause of California’s high housing costs: a housing shortage.”

So, why does this happen?  Reason blames self interested home owners, renters in rent-controlled apartments, and the politicians who kowtow to them at the expense of largely poor people who cannot get subsidies and would-be homeowners:
Homeowners have a strong economic incentive to restrict supply because it supports price appreciation of their own homes. It’s understandable. Many of them have put the bulk of their net worth into their homes and they don’t want to lose that. So they engage in NIMBYism under the name of preservationism or environmentalism, even though denying in-fill development here creates pressures for sprawl elsewhere. They do this through hundreds of politically powerful neighborhood groups throughout San Francisco like the Telegraph Hill Dwellers. 
Then the rent-controlled tenants care far more about eviction protections than increasing supply. That’s because their most vulnerable constituents are paying rents that are so far below market-rate, that only an ungodly amount of construction could possibly help them. Plus, that construction wouldn’t happen fast enough — especially for elderly tenants.

Why are Chinese bond yields rising?

From Bloomberg:
Spooked by a fresh wave of defaults at state-owned enterprises, investors in China’s yuan-denominated company notes have driven up yields for nine of the past 10 days and triggered the biggest selloff in onshore junk debt since 2014. Local issuers have canceled 61.9 billion yuan ($9.6 billion) of bond sales in April alone, and Standard & Poor’s is cutting its assessment of Chinese firms at a pace unseen since 2003.
Remember that an increasing yield means a declining price, which represents a decrease in demand, as inestors (lenders) demand higher return to compensate them for the higher risk. 

Monday, April 18, 2016

Is Iran free riding on OPEC?

If OPEC and seven other oil-producing nations agree to cut back output to raise price, this will benefit Iran, the big oil-producing nation who refuses to cut back output.  Such ``free riding'' can be modeled as a pricing dilemma.  In fact, Iran's free riding seems to have caused the entire agreement to collapse:

Mr. Novak explained that the 11 OPEC states and seven outsiders present during the meeting had spent two months drafting an agreement that would cap oil production at January levels in an effort to stabilize oil prices, and it was all undone by the fact that Saudi Arabia, Qatar, UAE, and "predominantly other Gulf States" insisted that Iran be included in the deal (Iran did not attend the talks).