Friday, April 20, 2018

Taxes and Light Rail vs. Uber and Express Lanes

Colleague Malcolm Getz posts a critique of Nashville's transit plan, up for a vote on May 1, 2018.  He uses the "indifference principle" from chapter 9 to conclude that neither bigger roads, nor mass transit, will reduce congestion

With wider roads, traffic expands to congest them. This well-established fact is the "iron law of traffic." ...
Similarly, ... when some people shift from cars to transit, other people take their place on the roads. Visit cities with vast transit services—Chicago and Atlanta, for example. Notice that roadways are as congested as those in Nashville, if not more so. Transit may attract riders but does not reduce traffic congestion. The average time to travel to work by car is 24.2 minutes in Davidson County, TN, 27.6 minutes in Fulton County, GA, and 32.6 in Cook County, IL.

So what does Professor Getz recommend?  Car-hailing Services and Express Lanes.

The new services will reduce congestion with the confluence of three factors. A) The car services, including Lyft, are more convenient than owning a car or using conventional transit for many trips. B) The car-service companies are offering increasingly sophisticated shared-ride services. C) Digital systems are managing the flow of traffic in real-time on express lanes to forestall congestion. Taken together, these developments improve mobility, increase the capacity of the road network, and reduce congestion. They are also less expensive than trains.

Perhaps the most intriguing part of the report to students is that Prof. Getz uses the indifference principle to evaluate the fairness of using a broad-based sales tax to finance transportation improvements.  Provided that the transit plans work as intended,
Where better transit improves access to a location, the value of real estate increases. Market rents on housing and commercial space increase. The benefits of the transit improvement, then, go to the landlords, the owners of the real estate with better access, not to the transit riders. 

If readers disagree with Professor Getz's analysis, please comment!

Thursday, April 19, 2018

Wither the Price Tag?

Planet Money ran a story about the price tag a few years ago. The premise of the story is that the price tag emerged in just the 1870s and may be on its way out. So how did you know what to pay previously?
You know, for almost all of the history of human commerce - for thousands of years - you walk into a store, and you point to something. And you say, how much does that cost? The guy at the store is going to say, how much you got? You know, everything was a negotiation.

Price tags saved transactions costs but removed the ability to price discriminate. There is a nice discussion of how price tags lowered the skill level required by clerks, and hence labor costs. But now we are in the era of online 'personalized pricing,' a constant price on a tag seems to be on the way out. But we are still working out the rules.
And there is this broader sense, I think, that right now, you know, we're still trying to figure out the rules of this new pricing universe we're in. There is one thing the people clearly don't like, that clearly at least so far is against the rules. And that is when a company charges different customers different prices at the same moment. 

Perhaps this is a quibble, but the point of price tags was to minimize the costs of haggling. The new pricing mechanisms typically do not invite haggling back.

Wednesday, April 18, 2018

18th Century Pretzel Standardization

Pretzels, or bretzels, were an important part of the cuisine in southern Germany at least since the 12th century. Apparently, shirking on the size of pretzels could be a problem. The photo here is from Heidelberg and represents a solution adopted nearly three centuries ago. The size and shape of a 'standard' pretzel, about 10" in diameter, was engraved onto the stones at the base of the central cathedral. If anyone suspected they were being cheated, they could place their pretzel on top of the engraving to verify if it was, in fact, large enough. This is an early example of the regulation of minimum quality standards.

BTW, pretzels in southern Germany (with a little butter) are delicious and Heidelberg is a lovely town to visit.

Tuesday, April 17, 2018

China's yuan up 11% since President Trump took office

Marginal Revolution reports:

“China’s yuan has appreciated vs. US dollar by +3.7% so far this year, and has risen +10.7% since Trump took office. – US dollar has fallen by about -1% so far this year, on a broad trade-weighted basis.” Link here.




Two ways of explaining this:

  1. China is exporting fewer goods and services [to buy Chinese goods and services, US consumers or the importers that bring the goods to the country need to sell dollars to buy yuan==>demand for yuan increases]
  2. China is investing less in the US, i.e., holding fewer Treasury Bills [to invest in the US, Chinese investors need to sell yuan to buy dollars==> supply of yuan falls]

I suspect both may be going on.

Friday, April 13, 2018

Scaling up Auto Dealership Size

The WSJ reports that the efficient size of an auto dealership in the US is getting larger. They have become 20% larger over the past four years:
The top 50 dealer groups are poised to book more than $175 billion in revenue this year, compared to $144 billion 

There is an consolidation wave going on:
Erin Kerrigan, founder of the Kerrigan advisory, said about 200 dealerships changed hands in 2017, near an all-time high with a similar level of transactions to take place this year.

An economist observer naturally asks why?

1. One explanation suggests that inefficient small firms had been able to survive only because of weak competition. They cannot stay afloat on the smaller margins:
... dealer margins are shrinking amid tough competition and the increased pricing transparency enabled by the Internet. Dealers took home about 2.5% of the selling price of the average new car in 2017, down from about 4.7% in 2009, according to data from the National Automobile Dealers Association; used-car margins slipped to 6.9% from 10.7% in 2009 during that period.

and
 Dealers say they need to as much as triple revenue in the next half-decade to offset shrinking margins and increasing competition from companies that didn't exist a decade ago.

2. Another explanation is that the cost conditions changed so that unit costs are lowest at a larger scale.
"In order to survive and thrive you need scale and scope and access to capital," he [Mr. Rosenberg, chief executive of GPB Capital] said.

Saturday, April 7, 2018

DON'T PANIC: a guide to claims of increasing concentration

New paper by some middling economists:
The Obama Administration’s Council of Economic Advisers (CEA) sounded an alarm in 2016 with an “issue brief” pointing to indications of “a decline of competition.” Principal among them was “increasing industry concentration,” and the key evidence was data from the U.S. Census Bureau. Commentators relied on these data in advocating antitrust reform. But these data do not demonstrate increasing concentration of markets, i.e., ranges of economic activity in which competitive processes determine price and quality, and in which the impact of mergers and trade restraints are evaluated in antitrust law.  
Market concentration is a useful indicator of competition, but Census data relate to aggregations of economic activity much broader than markets. We show that even the least aggregated Census data can be over a hundred times too aggregated, yet the CEA used the most aggregated Census data. It principally cited the change in the 50-firm concentration ratio for 13 broad sectors of the U.S. economy, such as retail trade. We agree with Carl Shapiro, a member of the CEA during the Obama Administration (2011– 12), that these data are “not informative regarding the state of competition.”

These claims have spread rapidly into policy debates without careful review of the claims or the underlying data on which they are based.

Tuesday, March 27, 2018

Hope for would-be home owners and renters from California!

The State of California is consider a measure that would loosen zoning restrictions near "transit rich" areas, like subway stops.
The impact could be huge. A Times analysis found that about 190,000 parcels in L.A. neighborhoods zoned for single-family homes are located in the “transit rich” areas identified in SB 827. Residences in those neighborhoods could eventually be replaced with buildings ranging from 45 to 85 feet, city officials say.
Increasing housing supply would not only reduce price and help would-be home-owners and renters, but it would also reduce our collective carbon footprint because California, with its mild climate, is one of the "greenest" places to live. 

Monday, March 26, 2018

Bundled Ride Shares


Lyft is experimenting with monthly subscriptions for rides. There is a $15 limit on how much each ride is worth, but for high volume users, this is a deal. This might convince some people to forego owning a car.

Even better, Lyft is trying out different plans: 60 rides for $399 per month versus 30 rides for $199 per month. I suspect their data analysts will pore over the data to see how to taylor offerings.

Friday, March 23, 2018

Cheaper Booze

This is the likely result from allowing more efficient retailers into Texas. A Texas law has prohibited publicly traded firms from selling liquor.
Walmart sued to challenge that rule, and on Wednesday a federal district judge sided with the retail giant. 

The law was specifically written as a barrier to entry to protect mom & pop stores.
The law was created in the early 1990s when the Texas Alcoholic Beverage Commission, or TABC, lost a lawsuit from an out-of-state package store liquor license applicant. The rule forbids publicly traded businesses from selling alcohol to protect family-owned companies.

So, since the legislature could not prohibit only out-of-staters, they simply prohibited all publicly held firms. Naked protectionism.

Thursday, March 22, 2018

Half Million Dollar Steel Jobs?

The steel and aluminum tariffs just announced represent a barrier to entry for foreign firms. On the up-side, they are claimed to generate 19,000 steel worker jobs.* On the down-side, steel costs will go up. By how much? A na├»ve estimate would multiply the 25% tariff by $70.6 billion in US steel sales to yield $17.6 billion in additional annual costs. This yields just short of $1 million per steel industry job generated. But steel workers earn about $52,000 per year, not bad but no where near $1 million. A more precise price estimate would take into account the types of steel affected, stimulation of US production, and the reduction in quantity demanded. A more precise estimate could cut this estimate in half or perhaps more, but is still likely to be many multiples of a steel worker's salary. The tariff will move assets from a high valued use to a lower valued use.

*Among the job losses caused by this tariff, it is claimed that there would be 45,000 lost auto jobs and 30,000 lost construction jobs. The costs of these losses should be added to the half million.