Market Power

Frustratingly Encouraging

So, the Chicago Cubs sweep the St. Louis Cardinals in a 4 game series for the first time at Wrigley since 1972.  The Cubs are currently 10 and 3 against the second-best team in the Majors, 0-7 at Wrigley, making the Cardinals 0 for 10 in that Toddlin' Town of Chicago.  You'd think this Cub fan would be happy.  I am, but I am also frustrated.

Subtract that 10-3 record (0.769 WPCT) against the Cards, and you've got a bustling 33 and 58 (0.363) record against the rest of the schedule.  Why, going back to last season when, like this season, the Cubs were bad and the Cards were solid, are the Cubs dominating?  Perhaps Cubs manager Dusty Baker is able to get his team to play up to the competition, regardless of who it is.  Possibly.  Bernie Miklasz of the St. Louis Post-Dispatch has a different take:

Sure, I understand that the Cubs are pumped up to play the Cardinals. The Cubs are having yet another dreadful season, with no chance at the playoffs, so when the Cardinals come to town, it's the World Series. But what I don't understand is why the Cardinals play so poorly, and have so many knucklehead lapses, when they see the Cubs.

... And then there are the managers. It's become fairly predictable to see Dusty Baker get the best of Tony La Russa. Baker is 34-29 against La Russa since becoming Cubs manager in 2003. Previously, in San Francisco, Baker had a 38-33 edge over La Russa. Baker isn't a good manager except for his ability to get inside La Russa's head. The two of them are so caught up in their personal rivalry, they turn Cubs-Cardinals confrontations into irritating exhibitions of overmanaging.

(italicized emphasis is mine).  So, it's a matching problem between the managers?  Whatever it is, the Cubs play like the Yanks of yore when the Cardinals are the opponent.  Other than that, they play like, well, the Cubs.

 

Things That Made Me Go "Hmmm"

In the insurance biz, when the chance of a payout is higher (all else equal), the insured must pay a higher premium to compensate the insurance company for the added risk.

During the Colonial period, alcohol abstainers had to pay one life insurance company rates 10% higher than that of drinkers. Of course, today we know that abstainers tend not to live as long as moderate drinkers. 9

That interesting tidbit is from this list of alcohol-related early American History items.

HT to the Door.

 

Pushing Wage Increases onto Customers

Big Box retailers are in business to make maximum profits.  They do this by providing value to their customers: giving them what they want at the lowest possible cost.  By forcing them to pay higher wages, the Aldermen of Chicago are not allowing Big Box retailers to provide as much value to their customers and, in so doing, minimum wage increases get passed onto customers in various ways.

In an interview at Wal-Mart's Chicago office last week, Lewis said if the city council approved the bill, Wal-Mart would "put more time and effort in the suburbs," in particular focusing on those close to the city in order to draw shoppers across city lines.

If this comes to fruition, wage increases will get passed on to many consumers in the form of longer commute times.

This is Encouraging?

From SFGate.com comes this note that housing developers are being "encouraged" to offer more "affordable" housing:

Housing developers in San Francisco will be required to sell or rent more new units at below-market rates or pay higher fees to the city to comply with a new law expected to win approval from the Board of Supervisors today. 

The new so-called inclusionary housing rules are meant to generate housing that is within the reach of more San Franciscans and is not segregated into lower-income neighborhoods. 

Though inclusionary housing requirements already on the books account for just a fraction of the below-market units in the city  --  with most existing as a result of local rent-control laws  --  the new measure will ensure more are made available as San Francisco continues to experience a building boom. 

Sarah Karlinsky, policy director at the San Francisco Planning and Urban Research Association, said the proposal strikes a good balance by encouraging private developers to expand market-rate housing while simultaneously tackling the city's affordable housing problem. 

I'd argue that "encouragement" would be more like subsidization.  This is more like a threat.

San Francisco has long suffered from a shortage of affordable housing, and the deficit continues despite the biggest housing construction boom in two decades. A July 2005 Planning Department study showed that the median price paid for a San Francisco single-family home was $800,000, compared with the median Bay Area price of $644,000. Just 22,835 housing units were defined as affordable, putting the city thousands of units short of targets set by state law.

Is it true that there's a shortage - that the quantity offered falls way short of the quantity sought?  Or does "shortage" in this context mean "not enough" from the central planner's point of view?  And what is "affordable" and what is not?

Like most businesspeople out there, housing developers do what they do to earn maximum profits and any economist will tell you that the way to make housing less expensive is to get more units built. When development becomes more profitable*, more units get built.  But requiring developers to sell a proportion of their units at below market rates takes some of the profit out of the business, encouraging less development.

One consequence of the SF planners' actions is that development will be shifted to one of the many other Bay Area cities, such as Oakland, driving up rates in SF in the long term and driving down rates elsewhere in neighboring communities (all else equal).  Perhaps proponents need to read "Roofs or Ceilings" to get a better handle on what happens when planners try to control housing markets.

HT to Fark.

*Not that government officials would be better at directing housing resources than the fluctuation of prices and profits even if they did try "encouragement."

How to Make MU Fans Happy

Joe Posnanski gives a few reason why MU football coach Gary Pinkel might find himself on the hot seat this year.

Maybe. I wish we could see just a little bit of that. Whispers around Missouri these days indicate that this is a make-or-break season for Pinkel; his team needs to do well — bowl game, minimum — or the school will find another coach. That’s a lot of pressure for a man coming off a bowl victory. I think this pressure builds because:

1. Pinkel’s five-year record is 29-30.

2. There’s a gnawing feeling around the Big 12 that Missouri has underachieved.

3. Missouri fans don’t seem to like Pinkel very much.

Joe needs to add that Mizzou needs to beat Kansas this year.  Like it or not, MU fans - some more than others - discount all other games relative to the KU game.  MU has lost 3 in a row to KU.  Never before has MU lost 4 in a row to KU.  Losing to KU is one thing.  Losing 4 straight to KU, with the fourth coming at your place, is quite another.

Misleading Advertising

I have been a DirecTV customer for some time now and have had few problems with my service.  When I visit the PowerGrandma, a cable subscriber, I often see television ads that suggest that DSS customers often lose their satellite signal on cloudy days.  That's true, but I only lose my signal when animals are beginning to pair up and move towards the big boat parked out back in the ravine (i.e. when the clouds are very thick with rain or snow).

As a spontaneous test, I threw 5 hand towels (unfolded) over our satellite dish.  The first towel had no effect on the reception on our telly.  Neither did the second, third, fourth, or fifth.  I never lost the reception. 

Take that, cable monopolists.

Punishing Success: Chicago's Big Box Rate

The Chicago city council has passed an ordinace requiring retailers with $1 billion in annual sales and at least 90,000 square feet to pay a minimum wage of $10 an hour and $3 an hour in benefits:

After months of fevered lobbying and bitter debate, the Chicago City Council passed a ground-breaking ordinance yesterday requiring “big box” stores, like Wal-Mart and Home Depot, to pay a minimum wage of $10 an hour by 2010, along with at least $3 an hour worth of benefits.

The ordinance, imposing the requirement on stores that occupy more than 90,000 square feet and are part of companies grossing more than $1 billion annually, would be the first in the country to single out large retailers for wage rules.

...In arguing that Wal-Mart and other companies can easily afford to meet the new standards, proponents of the measure pointed to Costco, which says it already pays at least $10 an hour plus benefits to starting workers around the country.

It's not about being able to afford to pay the wages.  The question is: "will they pay the wages?"  Wal Mart could easily "afford" to hire me as their CEO.  I have retail management experience, but that ended 13 years ago when I left for graduate school and I have absolutely zero experience in upper management.  Simply put, Wal Mart officials could afford me, but why would they want me?

While the proponents are so certain that Big Box retailers can afford to pay the workers, they should also realize that the retailers are not inanimate objects.  Retailers are people who are in business to do one thing:  to generate maximum profits.  Artificially lifting the wages of workers in a competitive labor market, which Chicago surely is, necessarily translates into some jobs that would go to low-productivity workers being phased out over time.  At the very least, the law will make them explore options other than hiring low-productivity workers.  If maximum profits come by hiring low producitivity workers at, essentially, $13 an hour (plus whatever the cost of living adjustment will be in the future), then the jobs won't be lost.  If maximum profits come by eliminating some of those jobs, then they will be eliminated - somehow, some way.

Some of the other things that might happen if the ordinance does indeed pass mayoral and legal muster:

1. More 89,000 square foot retail stores in Chicago
2. More "check yourself out" counters (which the PowerFamily regularly uses when we shop at the local Big Boxes, if available)
3. More non-management work done by management staff

As I noted in this previous post, a Maryland law similar to the Chicago ordinance in that it targeted big box retailers was recently struck down in court.  And as I also wrote, this law simply punishes success - arbitrarily, I might add.

Update:  The folks at Fark are getting on the discussion.

Addendum: From the Sun Times:

A two-year lobbying campaign waged behind the scenes culminated in more than three hours of debate that aired all of the old arguments -- and some new ones.

They may be old arguments, but they are still valid - no matter how tired reporters and their papers' customers are of hearing them:

1. In a competitive labor market, increases in the minimum wage increase unemployment, especially among the lowest-skilled workers (mostly teens).  Although the proportionate decrease in employment is much smaller than the proportionate increase in the minimum wage (studies I've seen and opinions I've read suggest that a 1% increase in the minimum wage decreases employment among low skilled workers about 0.1%), the effect is there.
2. Increases in the minimum wage drive some low-skilled workers to continue in their current job rather than obtain education/job training... a decision that affects them cumulatively as they age.
3. Big Box retailers will look for ways to substitute capital for low-skilled labor.
4. Big Box retailers will possibly look for ways to reduce the square footage of their stores to stay under 90,000 square feet threshhold.  This can include closing existing stores and not building new stores.  If this becomes part of the game,  future alderman may well look at amending the law to bring down the threshhold, affecting smaller retailers in the process.
5. Big Box retailers will possibly raise some of their prices, passing increased labor costs onto their customers, both "rich" and "poor."

Full Moon

Ah, spontaneous "order."

Improving Competitive Balance

Nihilist in Golf Pants, in a post on appeasement, writes of a way to improve competitive balance in the American League Central this year:

9. Ten wins must be knocked off the Detroit Tiger’s record so as to make the American League Central race interesting.

I'd also propose taking wins, say 5, from the second place team, currently the White Sox, as well.  And to be Robin Hoodish, give those wins to the last and next-to-last place teams (the Royals and the Indians).

The standings before sharing wins (after completion of all play on July 23rd):

                                                           

	W	L	PCT	GB
Detroit	66	32	0.6734694	0
Chicago Sox	59	38	0.6082474	6.5
Minnesota	56	41	0.5773196	9.5
Cleveland	43	54	0.443299	22.5
Kansas City	34	64	0.3469388	32

The standings after sharing wins (a total of 15 wins were redistributed from the Tigers and the Sox.  I arbitrarily gave 8 to the Royals and 7 to the Indians):

                                                           

	W	L	PCT	GB
Minnesota	56	41	0.5773196	0
Detroit	56	42	0.5714286	0.5
Chicago Sox	54	43	0.556701	2
Cleveland	50	47	0.5154639	6
Kansas City	42	56	0.4285714	14.5

The Royals would still stink, but, boy, how the system would change incentives.  Every general manager is going to think twice before signing a player because that player's expected "win shares" are going, in part, to competing teams.  While it would make the league more competitive in a relative sense, imagine the effect on the aboslute level of competition.

Note this win redistribution, in principle, works like a progressive income redistribution system.

More of the Same

More of the same from stumping politicians on energy:

She (Missouri Senate candidate Claire McCaskill) called for federal investigations into possible market manipulation, price gouging, market concentration, and illegal profiteering by oil companies.

As if farmers (and others) aren't already getting enough from the government:

McCaskill also supports investing more in ethanol and developing other alternative fuels from biomass. Saying she believes in local production of feedstock and fuels and farmer ownership of processing plants, McCaskill said she would work to make sure corporations don't end up controlling ethanol production.

I guess that I, as an academic economist, can't own a feedstock and fuel plant.  What if I plant a garden in my backyard.  Would I then qualify?

Moreover, why wouldn't we want a corporation (in other words, a business that has the resources and know-how to produce feedstocks and fuels most-efficiently) getting in on the action?  Aren't low prices one of the goals?