Market Power

Fark Party at Souter's House

For all it's faults, this still ain't a bad country to live in.  Try doing something like this in China.

Link via JC.

Math and Econ

John Palmer has this post on math in economics:

One of the books we all had to read/work our way through as graduate students in most major economics programmes in the 1960s was Paul Samuelson's Foundations of Economic Analysis. I note with some pleasure that none -- not one -- of the economists' book-tag responses that I have read mentions this book [Though I did see that Craig Newmark listed Samuelson's intro text].

There is a reason Samuelson's Foundations isn't listed. As I recently wrote to Walt, who asked me why so many modern grad schools emphasize math instead of economic logic,

I would say the bad aspects of the trend came with Samuelson's Foundations of Economic Analysis. Math was used in economics long before then, but his dissertation/book seemed to set the discipline off in a direction that was not very productive.

Math is good. Math has helped me. Math has helped others straighten me out. I was once a macho-math man. But math isn't worth much without a good appreciation of the Economic Way of Thinking.

I am not a math jock.  In fact, through my undergraduate years, I never took a math class beyond college algebra although I was exposed to some essentials of calculus in a mathematical econ course.  I was also exposed to more calculus in the footnotes of the intermediate micro text that I used. 

I got exposed to more math as a master's student at the University of Nebraska at Omaha, but becuase I worked 44 hours per week as an assistant manager at Walgreens, there wasn't time to take courses other than those required in my major.  I could have taken math courses as electives, but my work schedule did not allow me to take any (I took two history courses that fit into my schedule).  After I graduated from UNO and was applying to graduate school, most places rejected my application because I didn't have the math.

In a stroke of luck, one of my professors (and references) from UNO knew one of the members of the graduate committee at the University of Missouri - they were graduate students together (it is a small world) and respected each other.  My reference wrote that while I didn't have a lot of math, my academic record was not stellar (it was solid, especially in the latter part of my undergraduate career), I thought about problems in the "correct way," i.e. using a comparison of costs and benefits - in other words, I thought like an economist.  It was that letter that got me into Mizzou.

During the winter of 1992-93 and the spring and summer of 1993, the time immediately prior to the beginning of my graduate studies, I spent my time reading a calculus book and a linear algebra book.  My time at UNO told me that to be successful in a graduate program, I needed to know that stuff.  I read and took notes from every section of the calc book that covered material typically covered in calc 1 and 2 and the material on partial differentiation.  I read and took notes from nearly the entire linear algebra text.  I worked through most of the problems in the back of the books and in their accompanying study guides.  In short, I taught myself calc 1, 2, parts of 3, and linear algebra in the space of about 9 months.  In my life, this was one of the best investments I made.

At Mizzou, I chose my dissertation advisor, Dave Mandy, in part because he was very strong in theoretical and mathematical modelling (another good investment).  All of these choices have helped strengthen my ability to do and comprehend mathematical economics.

But still, I think the fact that I knew how to think about things in the "correct way" is what helped me get through graduate school and helped me throughout my career as a professional academic economist.

A Bit Too Close for Comfort

A tornadic storm just skirted my town.  Of course, like the rest of my neighbors, I went outside to gawk and take pictures.  Although it was a bit too close for comfort, it soon became clear that the storm would skirt my neighborhood and that there was no chance of getting hit by lightning.

This view is from my yard looking west directly across the street between my neighbors' houses.

The Opportunity Cost of a Collegiate Nickname

Collegiate athletic programs and pro sports teams have changed their nicknames over the last several years so as not to offend some groups.  At Marquette Univesity, a rejection to turn the nickname back from the Golden Eagles to the Warriors has cost the univeristy (at least) $2,000,000.

After months of controversy over its nickname, Marquette University said Wednesday it would keep its Golden Eagles name.

About 23,000 Marquette students, alumni and staff voted for the Golden Eagles name over the Hilltoppers, an earlier nickname, by a 54 percent to 46 percent margin.

"We did give the people a choice. They want tradition,'' said Marquette's president, the Rev. Robert A. Wild.

Last year, two Marquette trustees offered to give the school $1 million apiece if it returned the nickname to Warriors, which was changed in 1994 because of insensitivity to American Indians.

(The italics are mine.)  Well, they sort of gave the people a choice.  There were two phases of voting.  The first phase had ten choices and eight were knocked out.  The remaining two, the Golden Eagles and the Hilltoppers, were voted on recently.  The Golden Eagles won. But the Warriors was not a choice in any round of voting.

The school rejected the trustees' offer and this spring announced a new name of Gold, which ran into strong opposition from students and alumni because they weren't consulted.

As one might expect, when officials don't give them a choice they want, some make their opinions well-known:  a majority of write-in votes during the first round of balloting went for the Warriors.

People cast nearly 5,600 write-in votes during the first round, including 3,264 for Warriors, even though Marquette officials said they would not consider votes for that nickname valid.

If given the choice of the Warriors among the other listings, I wonder how many would have voted for it.

High Oil

From this morning's Wall Street Journal ($$$ req'd):

At or near $60 a barrel, oil prices are pinching motorists and business, not to mention the Bush Administration's poll numbers. What no one in Washington is likely to admit, however, is that there isn't much that anyone can do in the short term to alter a commodity price dictated by the laws of global supply and demand.

Last April, I had this post on why we won't run out of oil.  The basic premise is based on supply and demand analysis.  High oil prices encourage consumers to search for substitutes, for suppliers to find new oil fields, and for investors to develop substitutes for oil.  I concluded that post with this:

Will we ever run out of oil? Likely, the answer is no. Will we ever stop using oil - quite possibly, yes.  Of course, if market forces aren't allowed to work, then all bets are off.

Unfortunately, oil is such a hot-button political issue that the politics far too often get in the way of market forces.  Political remedies, such as deregulation that rids markets of bad previous policies, can have desriable effects.  But instead, we see policices meant to develop energies that are designed to make special interests happy (which may or may not be demanded by consumers) or price controls (sometimes designed to keep prices of oil products high!) put into place.

And speaking of the 1970s, the most important thing Congress can do is not to use $60 oil as an excuse to repeat the energy policy mistakes of that decade. Ronald Reagan's first Executive Order upon taking office in 1981 was the immediate repeal of all Nixon-Ford-Carter era price controls on oil and natural gas. The windfall profits tax was eliminated on domestic producers. Subsidies for alternative fuel boondoggles, including the infamous Synthetic Fuels Corporation, were ended.

Ethanol mandates anyone?

All of this reflects the return of the 1970s mindset that the world is somehow running out of oil. In fact the world's known oil reserves have doubled since 1980, as technology has improved to discover and extract more of it. Oil prices are high now because of a combination of rising new demand around the world (notably China and India) as well as worries about temporary supply disruptions in the Middle East, Nigeria and Venezuela.

They are not high because of fear that reserves are running out. If prices stay high, new oil sources will become economic, including from Canada's abundant tar sands. Despite temporary price spikes, oil, natural gas, coal and electricity are all cheaper today as a share of our national income than 50 and 100 years ago.

If there is a silver lining to higher oil prices, it is that they will themselves encourage both conservation and alternative energy investments. Uncle Sam doesn't need to command conservation at $60 a barrel. Americans can figure this out themselves. Fuel efficient cars are making a comeback and hybrids are gaining popularity; sales of gas-guzzling SUVs are stalling. Fuel efficiency is a natural consequence of higher prices, which is why the U.S. economy now produces almost twice the level of output per barrel of oil than it did in 1970.

Higher prices have already inspired new oil production that is expected to hit the market in 2006 and 2007. Solar, nuclear, hydrogen, battery operated cars -- all of these technologies become more feasible as the price of oil rises, yet most are still not economically viable without subsidies. There's no reason to suspect that government sages or Members of Congress have the foresight to accurately pick the energy winners and losers in advance. Far wiser to let the price system work, allowing private investors to spend their own money to determine which alternatives to fossil fuels can be made price competitive and which can't.

Agreed.  It's better to let the wisdom of the producers and the consumers sort this thing out rather than let some grand design of the nanny state try and work it out. 

What's Good for the Goose

What's good for the goose...

A private developer contacted the local government in Supreme Court Justice David Souter's hometown in New Hampshire yesterday asking that the property of the judge – who voted in favor of a controversial decision allowing a city to take residents' homes for private development – be seized to make room for a new hotel. ...

According to a statement from Clements, the proposed development, called "The Lost Liberty Hotel" will feature the "Just Desserts Café" and include a museum, open to the public, "featuring a permanent exhibit on the loss of freedom in America." Instead of a Gideon's Bible in each room, guests will receive a free copy of Ayn Rand's novel "Atlas Shrugged," the statement said.

I added the italics. 

Oh my god.  Somebody has a lot of balls!

HT to the Commons Blog.

Hang 'em High!

King at SCSU Scholars merely exclaims "Why, the Cads."  I say, "Get out the tar and feathers, boys.  Put 'em on the rack and then, OFF WITH THEIR HEADS! 

I should not ever pay too little for gas.  There otter be a law!  Some big bad gas station might put a gas station in Le Center out of business.  We don't want that now, do we? 

Unfortunately, there is and big bad Midwest Oil, harrumph, has run afoul of it by not charging at least the mandatory 8 cents per gallon more than its cost for gas.

The state Commerce Department is accusing Midwest Oil of Minnesota of more than 160 violations of a state law that requires stations to charge at least 8 cents more per gallon than they pay. Midwest Oil faces a potential fine of up to $1.6 million.

Midwest Oil, based in Shawano, Wis., owns three gas stations in Minnesota: Oakdale Exxon, Anoka Exxon and Budget-Mart Mobil in Albert Lea, and owns stations in Wisconsin. Company attorney Rebekah Brown did not immediately return a phone message on Tuesday.

The department alleges that its investigators repeatedly bought gasoline below minimum prices at all three stations and that Midwest Oil failed to fully comply with subpoenas requesting documents.

A Minnesota law bars retailers from selling gasoline below cost. That amounts to at least 8 cents above the total of wholesale prices, plus taxes and fees. For instance, Commerce said the minimum price on March 25 was $2.05 per gallon, but Commerce said it paid $1.96 at Midwest Oil's Anoka station. Two days later, with the minimum still at $2.05 a gallon, Commerce said it paid $1.98.

I wish I could enact a law against stupidity.  Those who pushed the minimum gas price law would be near or at the top of my list.

RIP Shelby Foote

Shelby Foote, the author of the classic three-volume Civil War book has died at the age of 88.

Novelist and historian Shelby Foote, whose Southern storyteller's touch inspired millions to reads his multivolume work on the Civil War, has died. He was 88.

Foote died Monday night, his widow, Gwyn, said Tuesday.

Foote, a Mississippi native and longtime Memphis resident, wrote six novels but is best remembered for his three-volume, 3,000-page history of the Civil War and his appearance on the PBS series "The Civil War."

He worked on the book for 20 years, using a flowing, narrative style that enabled readers to enjoy it like a historical novel.

"I can't conceive of writing it any other way," Foote once said. "Narrative history is the kind that comes closest to telling the truth. You can never get to the truth, but that's your goal."

That work landed Foote a leading role on

Ken Burns' 11-hour Civil War documentary, first shown on the Public Broadcasting Service in 1990.

Foote's soft drawl and gentlemanly manner on the Burns film made him an instant celebrity, a role with which he was unaccustomed and, apparently, somewhat uncomfortable.

Burns' documentary was my introduction to Civil War history.  I grew up in the North and never learned much that I remember about southern attitudes in the Civil War.  But watching Burns' masterpiece and reading Foote's narrative, this northerner learned to respect the southern soldier.

Open Source Beer

Budweiser is referred to as the king of beers.  Here is the Linux of beers.

Vores Øl (Our Beer) is the world’s first open source beer. Created by “Vores Øl Group”, a group of students at the IT-University in Copenhagen in collaboration with Superflex, the beer is an experiment in applying modern open source ideas and methods on a traditional real-world product.

The recipe and the whole brand of Our Beer is pub-lished under a Creative Commons license, so anyone can use the recipe to brew the beer or to create a derivative of the recipe. You are free to earn money from Our Beer, but you have to publish the recipe under the same license and credit the original work.

Once you get the hang of it, beer brewing isn't that tough and the recipes are pretty much the same:  malt, specialty malts (like black patent), water, hops, corn sugar (for carbonation), and whatever brewing additives you wish to throw in.  The oddest beer I've made was a licorice stout.  The best beer I made was a rye ale.  Since I moved to Minnesota 3 years ago, my homebrewing equipment has remained unpacked.  I think I should brew something for the fall, say, an Oktoberfest beer.  I think that's an after-conference brew.

HT to Professor Palmer.

More on Eminent Domain

I've been thinking about the SCOTUS Kelo decision this past Thursday regarding the taking of private property to give to private developers.  Though I cannot be sure, I do not believe that my neighborhood is in any kind of jeopardy.  I live in a neighborhood with small business owners and a few executives (along with Glen Taylor's nephew), and I seriously doubt that the local government would even think about taking our property under eminent domain - at least not now.  Still, it's the principle of the thing that keeps me thinking about it.

Co-blogger Skip Sauer has this post over at the Sports Economist where he discusses the relationship between the Kelo decision and stadium subsidies.  Over the past 15 years, scores of independent economists have studied the relationship between local/regional economies and the existence of/building of sports stadiums and have come to a solid conclusion:  they are not the economic catalysts that their proponents make them out to be.  Skip says:

The direct effect of Kelo on stadium finance is minor. Sports stadia have long been recognized as having a public use, along with the transport which enables people to get there. Kelo thus won't lead to an increase in takings for the building of stadia per se. But Kelo does have the potential to expand the scope of these projects. Houston attorney Tom Kirkendall put it this way in an email, "When do you expect the first "Wrigleyville"-type redevelopment project to emerge?" Prior to Kelo, you could condemn land for transport and for the stadium. Now it is clear that neighborhoods adjacent to the stadium are fair game, as long as the case is made that the intended "economic development" is in the public interest.
 

The sad part is that if a neighborhood is seized by eminent domain to provide land for a stadium and a surrounding entertainment district, not only is there something wrong in principle, but the intended benefit hoped-for by urban planners and government officials is not likely to be realized.

Consider the Chicago Cubs.  I wrote this post over at the Sports Economist discussing why Cubs games are more popular than White Sox games.  I performed a few regression analyses (results available here) that show that after controlling for things like team productivity and ticket prices, there is something about the Cubs and something about the White Sox that draws more fans to Cubs games.  The collective opinion of the commenters is that Wrigleyville, the neighborhood surrounding Wrigley Field (of which Wrigley Field is an integral part), is the main feature that draws more people to attend Cubs games than White Sox games.

Constructing a sports stadium and holding events in them have been shown to not be the economic and urban renewal engines that they were intended to be.  Government officals, realizing this, respond not by staying out of the stadium game but by providing more public money to developers in a further attempt to bring about the activity that the original planners foresaw.  For example, when the Target Center was built in Minneapolis, it didn't have the draw many of its proponents thought it would have.  So $40 million in further subsidies were given to develop Block E, the entertainment district around the Target Center.  Some recent stadium projects, such as the new stadium for the St. Louis Cardinals, have included a ballpark village: bars, restaurants, and other attractions built around the stadium as part of the overall development. 

Wrigleyville, on the other hand, is not the realized dream of an urban planner.  Wrigley Field per se was  built with private funding and the bars, restaurants, and shops that, together with the stadium, currently make up Wrigleyville, sprung up over time.  Instead of being developed as some sort of grand design specifically made to generate economic activity, this neighborhood developed, in a sense, spontaneously while keeping within general rules such as zoning laws.

Urban planners, on the other hand, despite best intentions, cannot possibly know all the conditions required to develop Wrigleyville-styled entertainment districts.  There are simply too many variables to be considered.  The individual developers in Wrigleyville did not individually know all these variables either, but over time, individuals put together their personal knowledge together, each acting more or less on their own and, responding to incentives in their own way, developed the Wrigleyville neighborhood.

This is not to say that the dreams of some urban planner can't be realized.  But there are so many things that have to go right for the dream to be realized.  It's like a combination lock.  The urban planner may know 2 of the 3 numbers in the combination, but if she doesn't know the third number or the correct order in which to select them, the lock won't open.