Back in 2009, President Obama’s “Cash for Clunkers” program was supposed to be a boon for the environment and the economy. During a limited time, consumers could trade in an old gas-guzzling used car for up to $4,500 cash back towards the purchase of a fuel-efficient new car. It seemed like a win for everyone: the environment, the gasping auto industry and cash-strapped consumers.
Though almost a million people poured into car dealerships eager to exchange their old jalopies for something shiny and new, recent reports indicate the entire program may have actually hurt theenvironment far more than it helped.
Story here. Well it was probably more about giving back to the UAW than it was about the environment anyways, so it had that going for it. Which is nice.
Gawkers come by the busload to see the Prairie Village house that owner Mike Babick has turned into a Christmas spectacle over the past 47 years.
Children gape at the thousands of twinkling lights. Grownups stare with joy and amazement at the hundreds of holiday figures and the robotic elves toiling away.
“Elves with hammers,” Babick said. “Elves with saws. Elves with candy canes. Elves with...”
Elves aplenty. Reindeer out the wazoo.
Yet Babick’s house at 7611 Falmouth St. may no longer be a must-see stop on the unofficial holiday lighting tour of Kansas City.
This week the Prairie Village City Council passed an ordinance that, Babick says, might make it unaffordable for him to carry on the tradition this Christmas. And he’s mighty bitter about it.
“It stinks,” he said Tuesday. “They’ve killed Christmas for me. Just killed it.”
City officials say that was not their intent in passing regulations Monday night that would require permits for any “special event” lasting five days or more that “is likely to or does in fact generate crowds ... sufficient in size to obstruct, delay or interfere with the safe and orderly movement of ... traffic.”
This is a good example of why externalities are a two-way street. Babick's display is a safety hazard and creates annoyances for neighbors, but clamping down on it keeps him from enjoying Christmas as he sees fit.
Let the monkeys demonstrate (via Greg Mankiw) what happens when one gets unequal pay. Thanks to Dan Marburger for sending me the link to Mankiw's post. I tried to embed the video in this post but had no luck.
Andy Morriss and Don Boudreaux explain the consequences of the fragmented market for gasoline in the United States (gated):
For most of the 20th century, the United States was a single market for gasoline. Today we have a series of fragmentary, regional markets thanks to dozens of regulatory requirements imposed by the federal Environmental Protection Agency (EPA) and state regulators. That's a problem because each separate market is much more vulnerable than a national market to refinery outages, pipeline problems and other disruptions. ...
The role of regulators in fuel formulation has become increasingly complex. The American Petroleum Institute today counts 17 different kinds of gasoline mandated across the country. This mandated fragmentation means that if a pipeline break cuts supplies in Phoenix, fuel from Tucson cannot be used to relieve the supply disruption because the two adjacent cities must use different blends under EPA rules.
To shift fuel supplies between these neighboring cities requires the EPA to waive all the obstructing regulatory requirements. Gaining permission takes precious time and money. Not surprisingly, one result is increased price volatility.
Another result: Since competition is a key source of falling gas prices, restricting competition by fragmenting markets reduces the market's ability to lower prices.
While most of the fuel standards were adopted in the name of the environmental protection, many are actually the result of special interest pleading. Producers of various products, ethanol in particular, sought fuel content mandates or performance requirements that would benefit their particular product. (I detailed part of this history in “Clean Fuels, Dirty Air,” in Environmental Politics: Public Costs, Private Rewards (Greve & Smith eds. 1992).) Worse, some of the content requirements are irrelevant for new cars due to modern pollution control equipment. Federally imposed boutique fuel requirements have outlived whatever usefulness they ever had.
The market for gasoline is often characterized as a Bertrand oligopoly because of the standardized nature of the product. In Bertrand markets, because there is no product differentiation, firms compete in price, driving price down to marginal cost. That's a good approximization when we're talking about local/state gasoline markets, but not when we have a market that's fragmented because of regulatory differences between states that results in product differentiation. Because of the fragmentation, gasoline providers between states are not selling identical products and that reduces the price competition in the market. We would expect to see the biggest difference in prices between gasoline stations near state borders, especially with wildly different regulations that result in a lot of product differentiation.
My family and I travel to northern Iowa a lot, and it is always the case that gasoline prices in stations in Iowa are a dime to fifteen cents cheaper than across the border in Minnesota (I'm going from memory here). Part of that is no doubt due to tax differences, but it could also be due to differences in regulation.
As Fed chairman, every time I expressed a view, I added or subtracted 10 basis points from the credit market. That was not helpful. But I nonetheless had to testify before Congress. On questions that were too market-sensitive to answer, “no comment” was indeed an answer. And so you construct what we used to call Fed-speak. I would hypothetically think of a little plate in front of my eyes, which was the Washington Post, the following morning’s headline, and I would catch myself in the middle of a sentence. Then, instead of just stopping, I would continue on resolving the sentence in some obscure way which made it incomprehensible. But nobody was quite sure I wasn’t saying something profound when I wasn’t. And that became the so-called Fed-speak which I became an expert on over the years. It’s a self-protection mechanism … when you’re in an environment where people are shooting questions at you, and you’ve got to be very careful about the nuances of what you’re going to say and what you don’t say.
That's from this interview of Alan Greenspan (via Newmark's Door). Mike Podgursky, the chair of the Economics Department at Mizzou when I was there, used to say he'd like to hear Greenspan's answers to students asking him what's on the exam.
Update: then there's this on his view about how to get rid of the stagnation in the long-term asset (i.e. real estate) markets.
What do you think of this administration’s policies to address this?
Well, it’s not the present administration, it’s the current view of most policy-oriented economists. And here, regrettably, I am in the minority. The notion that if there is an economic problem, the government is obligated to address it, necessarily creates uncertainty about the future. And there’s hard research that shows such activism is responsible in part for the very heavy discounting of earnings on longer-lived business investments, and by households that had dramatically shifted from owner occupancy to short-lived rentals in the face of the uncertainty of the direction of home prices. We need to replace such activism with a policy that allows the markets to correct their own imbalances. Remember the Resolution Trust Corporation in the early ’90s? I was on the oversight board of the RTC. It got stuck with the job of liquidating more than 700 failed savings and loans. Some of the stuff that the RTC wound up with was perfectly liquid and saleable. But a big chunk was uncompleted eight-hole golf courses, half-built office towers, and vacant malls. Nobody wanted it. We all sat around and said, “This stuff is deteriorating very rapidly, and if we don’t get rid of it, the taxpayers are going to take a huge hit.” I mean, the numbers were very, very large. Somebody suggested, “Let’s package it and sell it.” And we did. Needless to say, the bids were less than 50 percent of the original cost. Congress was outraged. We were giving away taxpayer-owned assets to greedy vulture funds.
They wanted in on that action. Indeed, that’s what happened. Hitting whatever bids were available in this stagnant market defined the low point on prices. Then something happened.
Real estate prices went up again? Yes. Investors cleared out our illiquid inventory in a matter of months. The final cost to the taxpayers for the savings and loan crisis amounted to $87 billion, a fraction of the original estimate. Allowing the markets to liquidate worked.
You didn’t support the stimulus? No, I did not. It was unnecessary. I argue in a book I am writing that the stock market recovery in early 2009 created an equity stimulus that, as best as I can remember, had a far larger impact on economic activity than [the stimulus act] without incurring increased public debt.
Chicago can learn some lessons from London and other Olympic sites. One is what a former pub owner here told me: Greed always kills. Hotels that had jacked up their prices for the Games found themselves with lots of empty rooms. Then they slashed those prices. Too late. Greed had done them in.
I'll take this at face value. Greed didn't do them in. I'm guessing something more powerful did them in: free market competition.
Here's a new paper by Johnson, Whitehead, Mason, and Walker on the willingness to pay for public goods associated with sports-related development in downtown areas. Here is the abstract.
North American cities have long encouraged redevelopment of their downtown cores to counteract the flight of residents and business to the suburbs in the postwar period. Building subsidized arenas and stadiums for professional sports teams downtown became common in the 1990s. In recent years, downtown stadiums and arenas have been proposed as components in larger redevelopment projects containing a number of other amenities, as well, including housing and other entertainment attractions. The justification for such developments rests in part on the public goods generated by vibrant, prosperous downtowns. Yet little is known about the value of such downtown public goods. This paper reports the results of two Contingent Valuation Method surveys to determine willingness to pay for new National Hockey League arenas in downtown Edmonton and Calgary in the Canadian province of Alberta. The hypothetical scenarios in both surveys varied to include affordable housing, a casino, and cultural space in addition to the arena. The surveys provide the first estimates of willingness to pay for downtown public goods for sports arenas, and also provide the first estimates of scope effects, that is, the willingness to pay for expansions of public goods, in the sports economics literature.
I don't have access to the paper via my university, but the highlights section at the link gives a hint at what may be one (or two) of the important findings in the paper.
Based on survey results in Calgary and Edmonton, downtowns produce valuable public goods that suburbs do not. ► Public goods may not justify a downtown arena if costs are 7 or 8 percent higher than suburban costs.
As employment stagnates, manufacturing continues its slump, and overall confidence in the U.S. financial system wavers, the nation's economists have begun abandoning their homes and sending their loved ones overseas. "We've noticed a trend among the leading economic thinkers, be they Keynsians, supply-siders, or students of the Austrian school—they're putting their families on one-way flights out of the country, often leaving half-finished survival bunkers behind them," Paul Klement, an analyst with the Brookings Institute, told reporters Tuesday. "The flights aren't on domestic carriers, either. I think they saw something in that last transportation industry report that really spooked them." At press time, none of the nation's economists could be reached for comment.
.The AEA's evacuation order suggested that we regroup on a secret oyster shell barter island in the south Pacific (and proceed to argue over minutiae whilst getting rich and destroying the simplest of barter economies).
You can tell he's joking. You can tell not because economists argue over minutiae (we do). You can tell he's joking because we don't get rich.