If you pay people to be unemployed,

... you get more unemployment. Robert Barro estimates that the unemployment rate would now be at 6.8%, instead of 9.5%, if jobless benefits hadn't been extended to 99 weeks.

The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.

Will Demand for Toast and Muffins Increase?

The cost of bagels is going up in New York:

New York State tax officials are enforcing a sales tax for sliced or prepared bagels (with cream cheese or other toppings), along with whole bagels eaten in the store, according to the state Department of Taxation and Finance.

Whole bagels sold for takeout are not subject to sales tax, but "any handling or preparation at the shop turns it into a taxable event," says Brad Maione, a spokesperson for the DTF.

Although Maione says the sales tax is not a new provision and that the stepped up enforcement is due to better technology, bagel-store owners say the tax was news to them.

HT: Mike Piana

Home Sales and Labor Mobility

The inability of people to sell their houses impedes labor mobility

On a national level, this phenomenon is hurting the efficiency of the labor market, says real estate professor Joe Gyourko at the Wharton School at the University of Pennsylvania. With these constraints, employers and employees aren't finding their best match.

"Outside of outright foreclosure itself and the loss of wealth, it's probably the most important impact of overleveraging the housing market that we're going to have in this cycle," Gyourko says.

Some parts of the country — namely the East and West Coast markets — are likely to recover more quickly. But not everyone will be able to wait for home prices to recover and continue to forgo better jobs. In other words: At some point, people will abandon their houses.

Bureaucrats run amock

We need some ideas on how to better align the incentives of the Forest Service with the will of the people.

Over the decades an obvious contradiction has emerged between preservation and access. As the Forest Service, the National Park Service and the Bureau of Land Management — each of which claims jurisdiction over different wilderness areas — adopted stricter interpretations of the act, they forbade signs, baby strollers, certain climbing tools and carts that hunters use to carry game.

As a result, the agencies have made these supposedly open recreational areas inaccessible and even dangerous, putting themselves in opposition to healthy and environmentally sound human-powered activities, the very thing Congress intended the Wilderness Act to promote.

...The agencies have even taken on Capitol Hill: in 1980 Congress authorized bicycling in Montana’s Rattlesnake Wilderness, but the Forest Service refused to allow it.

Why is the government erecting barriers to competition?

Because funeral directors have more political clout than monks:

Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.

After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.

But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.

What do you learn when you sell a painting?

That you didn't charge enough:

In 2008, the estate of a Canadian woman, Lorette Jolles Shefner, filed a lawsuit in U.S. district court in New York against Maurice Tuchman and Esti Dunow, two experts on the French painter Chaim Soutine, and the National Gallery of Art in Washington. The estate claimed the experts had misled Ms. Shefner into selling them a 1923 Soutine painting, titled "Piece of Beef," for $1 million in 2004, and then resold it to the museum a few months later for $2 million. As part of a settlement, the National Gallery sold the painting back to the now-deceased woman's estate, and the two experts paid the estate $210,000 without admitting wrongdoing.

The "Tells" of Deceptive Executives

The Economist reports on a new study by Stanford's David Larcker and Anastasia Zakolyukina, who analysed conference call transcripts of around 30,000 CEOs and CFOs between 2003 and 2007. They investigated the "tells" of executives whose companies had later financial restatements or serious accounting problems.

Deceptive bosses, it transpires, tend to make more references to general knowledge (“as you know…”), and refer less to shareholder value (perhaps to minimise the risk of a lawsuit, the authors hypothesise). They also use fewer “non-extreme positive emotion words”. That is, instead of describing something as “good”, they call it “fantastic”. The aim is to “sound more persuasive” while talking horsefeathers.

When they are lying, bosses avoid the word “I”, opting instead for the third person. They use fewer “hesitation words”, such as “um” and “er”, suggesting that they may have been coached in their deception. As with Mr Skilling’s “asshole”, more frequent use of swear words indicates deception. These results were significant, and arguably would have been even stronger had the authors been able to distinguish between executives who knowingly misled and those who did so unwittingly.

What happens when you destroy 5 million used cars?

This was the supply decrease caused by "cash for clunkers."  Predictably, the supply decrease has pushed prices of used cars higher. 

The used car models jumping the most in price include mid-size SUVs and mini-vans designed to carry around families.

Used Cadillac Escalades are almost 36% more.

Chevy Suburbans jumped 34% in price.

Dodge Grand Caravans are also seeing a 34% increase.

BMW X5 is 33% higher.

An Acura MDX will run you 29% more.

Sunk-cost fallacy in real estate

In the post below this one, we show that the housing market can have excess supply.  This post shows that it is due to the reluctance of homeowners to sell at a loss, a version of the sunk cost fallacy.

Two homeowners, with identical houses, will list the houses at different prices, depending on what they paid for the house because of what psychologists call "loss aversion." Unfortunately for these loss-averse sellers, buyers don't suffer from similar delusions,

Properties listed above the market price just sat there. In the Boston market over all, sellers listed their properties for an average of 35 percent above the expected sale price, and less than 30 percent of the properties sold in fewer than 180 days. In other words, much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay.

Note that this reluctance is similar to the  reluctance of businesses to pull the plug.

Housing market has excess supply

For perishable items, like flowers and hotel rooms, price will adjust so that quantity demanded equals quantity supplied.  Excess supply will lead to lower prices which will reduce the number of sellers and increase the number of buyers.  Price will keep falling until the market "clears," when the number of buyers equals the number of sellers.

For a durable good like housing, sellers have the option of holding onto inventory, in the hope that price will increase.  For this reason, markets need not clear instantaneously, as the above graph demonstrates, taken from Calculated Risk.  The blue line is the excess supply, computed as the number of months (above 12) it will take to sell off the houses currently listed for sale.  The last time it climbed that high, housing prices eventually fell.  Th black line denotes the monthly change in housing prices.