Economics of Medical Marijuana

One of the odder experiments in the recent history of American capitalism is unfolding here in the Rockies: the country’s first attempt at fully regulating, licensing and taxing a for-profit marijuana trade.

The New York Times profiles the nascent medical marijuana industry in Colorado

The Cost of Protecting Ironing Board Makers

A Washington Post article yesterday discusses the 200 $15 per hour ironing board manufacturing jobs "saved" in the US from imposing 70%-150% tariffs on Chinese imports "dumped" on the US market. The article did interview someone not quite on-board with the program.

"It doesn't make much sense to force millions of U.S. consumers to pay higher prices for ironing boards to save 200 jobs," said Howard Rosen, an economist at the Peterson Institute who has organized efforts to get retraining programs for workers displaced by the offshoring of jobs. "It would make more sense to help workers move to other jobs."

Just how much do each of these jobs cost us? The company makes 720 per hour which comes to about ~1.5 million per year. It is unclear at what price the tariff is applied. The article claims a unit cost of $7 which is undoubtedly below the wholesale price. A typical board retails at Walmart for $55 which must be above the wholesale price. If one assumed the relevant price is $20 (a stab in the dark on my part) then annual revenue is about $29 million. At a tariff rate of just 70%, this would be about $12 million more than if we bought the "dumped" imports (more if there were an increase in sales). Or the higher prices paid by US consumers would imply that saving these jobs cost about $60,000 annually per job. This is about double the annual earnings of these workers. Amazing.

ADDENDUM

An anonymous commenter correctly noted that I linked to the wrong product. A better example would be this one at Amazon that retails for $25. In this case, my guestimated wholesale price of $20 is too high. If one used a $12 (or $15) wholesale price instead, the cost numbers above would be comparably scaled down by 40% (or 25%). This implies $36,000 (or $45,000) per job saved, still more than these folks earn.

A Return to Airline Regulation?

In response to the proposed merger of United and Continental, two U.S. House members say they will try to restore regulation to the airline industry if the merger is approved.

According to The Associated Press, Representatives James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, and Jerry Costello (D-Ill.), chairman of the panel's aviation subcommittee, said they will attempt to re-establish a government agency responsible for overseeing the airline industry if the merger goes through.

The likely winners? The airlines. The likely losers? Consumers, who have seen a major drop in the cost of air travel in the deregulation era.

What will be the effect of a rising yuan?

A higher yuan could:

... boost commodity prices, encourage U.S. exports, control Chinese inflation, and spark U.S. inflation. 

It will hurt US consumers and help US businesses

Are stock's over-valued?

Shiller's P/E ratio says "yes." 

Note that the P/E ratio can be thought of as a kind of break-even analysis:  how long do I have to hold the investment until the earnings pay for it?

The irony of banning advertising for "light" cigarettes

Tomorrow, cigarette packs no longer can feature names such as "light," "mild," "medium" or "low."  The reason is that smokers respond to the lower (health) costs of smoking light cigarettes by smoking more:

Light cigarette smokers ... are both likely to smoke more light cigarettes or inhale light cigarettes more deeply in comparison to ordinary cigarette smokers.

Most news outlets are reporting that the advertising ban will reduce deception, but it seems the better metaphor is that of moral hazard. This is another in a long line of results, beginning with the observation that seat belts caused more accidents, that people respond to incentives, even when we don't want them to.

Researchers have found that improved parachute rip cords did not reduce the number of sky-diving accidents; overconfident sky divers hit the silk too late. The number of flooding deaths in the United States has hardly changed in 100 years despite the construction of stronger levees in flood plains; people moved onto the flood plains, in part because of subsidized flood insurance and federal disaster relief. Studies suggest that workers who wear back-support belts try to lift heavier loads and that children who wear protective sports equipment engage in rougher play. Forest rangers say wilderness hikers take greater risks if they know that a trained rescue squad is on call. Public health officials cite evidence that enhanced HIV treatment can lead to riskier sexual behavior.

Is this a sign?

Why aren't people buying more fuel efficient cars?

The Cross-elasticity of demand for cars with respect to the price of gasoline is bigger than we thought:

"As the numbers show, vehicles with a rating of 30-plus miles per gallon have suffered a dramatic drop in sales. For the first five months of 2010, sales of vehicles with that 30-plus MPG rating have dropped by 10 percent compared to the same period in 2009," Loveday said.

"Overall, these high-efficiency cars accounted for four percent of the market in 2009, but now only hold a three percent share," Loveday continued.

"A few of these efficient vehicles suffered mightily: sales of the Toyota Camry Hybrid dropped 40 percent, Civic Hybrid sales plummeted by 77 percent and Honda Fit numbers fell off by 19.7 percent. Ward's Auto suggests that low gas prices have led to the decreased interest in fuel-efficient vehicles, which, can lead right into a discussion about the need for a gas tax once again."

Recognizing the Hidden Costs of Decisions

Today's Sally Forth (the best page of he newspaper is still the funnies) has an interesting take on the topic. While the manager might understand the concept, his grasp of the particulars may be lacking.

The Jones Act Keeps Assets in Lower Valued Uses

Speaking about the cleanup from the BP oil spill in the Gulf of Mexico last week, President Obama declared "But make no mistake: we will fight this spill with everything we've got for as long it takes." Then why are why turning away the skimmers offered by foreign countries that the Gulf governors have called for? The Christian Science Monitor reports:

"We are still receiving reports of foreign-flagged vessels being turned away or their offers of assistance hanging in limbo. That should not be the case," Sen. George LeMieux (R) of Florida wrote to President Obama Friday.

The culprit?

... the 1920 Jones Act, a protectionist law that prohibits foreign-flagged boats and crews from doing port-to-port duty within 3 miles of the US coast.

The alternative?

Grasping to boost the spill response as BP tries to contain a runaway wellhead spewing up to 60,000 barrels of oil into the Gulf a day, Adm. Allen announced Friday that Unified Command is outfitting 2,753 locally-owned boats with skimming equipment, a process that could take two months. That, at least, is likely to prove politically popular along the Gulf Coast, where many residents are clamoring for ways to help fight the spill – and to get paid doing it.

Hat tip: Jane Himarios