Market Power

Motivation

That'll bring in the majors, eh?

From the Motivator (HT to Fark)

Down the Drain

Joe Waljasper always has a great way with words.  This time he's describing Mizzou's terribly sloppy game against OU where the Tigers lost 26-10:

After being asked about a crucial roughing-the-kicker penalty - the umpteenth question about one knuckleheaded play or another that had hurt his team - Missouri Coach Gary Pinkel had lost the ability to judge which blunder was the most damaging.

"You could look at that and say that was critical, and obviously it was critical, but I could go back and pick out 25 other plays," he said.

Unfortunately for the Tigers, he wasn’t exaggerating. There wasn’t really one turning point in yesterday’s 26-10 loss to Oklahoma, just like there is no turning point in a flushing toilet - just a downward spiral.

Markets In Everything

Irish dirt.

The Grand Design or the Grand Illusion?

Cross posted at The Sports Economist

The Minneapolis Star-Tribune has an article on that reveals an awful lot about the mindset behind stadium and surrounding neighborhood development:

A 10-member volunteer Design Advisory Group appointed by the Hennepin County commissioners held a public hearing this week to review the issues and invite feedback. By Nov. 9, the group is to report back to the commissioners on ways to activate the area around the stadium.

...But the park's sunken site means fans will reach it by elevated walkways -- a broad pedestrian bridge extending from the Target Center, skyways from the nearby parking ramps and platforms from the Hiawatha light-rail and Northstar commuter trains.

"We have several large gulfs that need to be bridged," said Chuck Ballentine, deputy coordinator for the Hennepin County ballpark project.

How these connections work is one of many questions about how the 42,000-seat ballpark will fit into the city.

...rather than letting the neighborhood grow around the ballpark.  Past experience tells us that ballparks do not, by themselves, lead to much "spontaneuous" economic vitality around them.  There are notable exceptions (Wrigley Field, anyone?), but they are the outliers.  Why should folks believe that public officials are any better at designing "ballpark villages" that will attract people than they were at building ballparks? 

For Students Studying Costs

Costs, simply put, are the sacrifices people make to do something.  According to economists, the sacrifices that matter when making a rational decision to do something are those that otherwise would not have been made (the marginal costs).  Sometimes these are measurable costs (like a ticket to a movie).  Sometimes these costs aren't measurable (like the value you place on watching a television show that you forgo watching to go see a movie) to a third party observer.  Not only that, but third parties can't verify such sacrifices.  How do I know if you aren't BS'ing me? 

But to an economist, it doesn't matter if a sacrifice is measurable by a third party.  What matters is how the decision maker internally feels about these sacrifices - the decision-maker's internal value of the thing forgone.

Accountants, on the other hand, prepare documents that describe the financial health of firms for the benefit of owners and for tax reasons.  Costs also represent some sort of sacrifice when viewed by accountants, but accounting costs are costs that must be measurable and they must be verifiable.  The documents that accountants create must satisfy the generally-accepted accounting principles and tax law. 

For example, suppose Jared owns a business and has a son, Alex.  Suppose that on one day, Jared chooses to work rather than to spend time with his son.  Suppose that Jared internally values that time with his son at $25.  To the economist, that sacrifice is an important part of the overall decision to work.  But if Jared tried to deduct that $25 as a business expense, he'd be in trouble with the IRS faster than you could say "snail snot."  Do you have a receipt for that, Jared? 

Because accountants and economists treat some sacrifices differently, they can have differing opinions on the overall health of a business.  Here is a link to an article from 2005 on Major League Baseball team profitability statement as compiled by Forbes magazine, a statement that baseball commissioner Bud Selig took issue with.  It includes a famous quote by Paul Beeston, formerly an executive with the Toronto Blue Jays, that underscores the difference between how economists think of costs and the costs that accountants typically put in their documents.

Ozanian quoted former MLB president and chief operating officer Paul Beeston when he was an executive with the Toronto Blue Jays: "I can turn a $4 million profit into a $2 million loss and I can get every national accounting firm to agree with me."

The tax laws and the generally-accpeted principles exist for a reason, but they can cloud the real issues behind why people do things.

Two Things That Caught My Eye

The Chronicle of Higher Education ($$$) reports:

Today's M.B.A. students are not as ethically challenged as recent reports make them out to be, according to the findings of a study being released today at a global conference of business educators and leaders. In fact, 81 percent of those responding to a recent survey believe businesses should work to improve society, and 78 percent of them want "corporate social responsibility" integrated throughout their core courses.

The survey results will be presented during a three-day conference, "Business as an Agent of World Benefit," at Case Western Reserve University, in Cleveland. The conference, which began on Monday, has drawn 440 management educators and business leaders, as well as about 1,000 online participants.

Milton Friedman, in a classic article, tells us that the social responsibility of business is to generate profit (i.e. to move resources to more valuable uses).

The Chronicle ($$$) also tells us something interesting:

While the proportion of tenure-track faculty job offers Harvard University made to women continued to increase in the 2005-6 academic year, the percentage of offers accepted by women dropped drastically.

The article does not offer a reason why this is so.

Update:  Coyote Blog makes some very good points about the "business ethics" article.

The Blind Side

Dave Berri reviews the new book The Blind Side by Michael Lewis of Moneyball fame:

Lewis focuses on a position often overlooked by football fans, the left offensive tackle. The job of the left offensive tackle is to protect the right-handed quarterback’s blind side. The importance of this job is highlighted by the pay these players receive. As Lewis notes: “By the 2004 NFL season, the average NFL left tackle salary was $5.5 million a year, and the left tackle had become the second highest paid position on the field.”

A Brief Treatise on Markets

I teach Principles of Microeconomics at a public university in Minnesota.  I follow the basic outline:  students study why people trade rather than doing everything themselves.  They study how prices and amounts exchanged are determined by the collective actions of people in a competitive market, not by anyone person.  Students study the overall nature of consumer demand and firm supply and they study how firm officials make decisions when facing differing levels of competition in their industry.

Overall, an underlying theme of my Principles of Microeconomics courses is that markets generally work well in coordinating economic activity – in directing resources to their most-valued use. In recent semesters, I began having students read a short essay written by Leonard Read in the 1940’s called “I, Pencil”. Mr. Read, writing from the point of view of an ordinary wooden pencil, discusses the intricate web of coordination activities that takes place to produce an ordinary pencil. He makes the point that economic activity is so complex that, as a practical matter, government activities meant to promote better coordination in a market often lead to less coordination and worse outcomes. 

In having students read this short essay, I try to help them appreciate that most people have no idea how to make the things they consume, yet they are able to acquire many valuable things in the marketplace, such as lunch or a gallon of milk, with modest effort.  More to the point, they can acquire these things with less effort than if they tried to make them themselves. 

Private markets are ways of coordinating the numerous activities that must be coordinated, ensuring jobs are completed, while not requiring final consumers to actually know how to produce the goods and services they use. People do not need to have to worry about learning how to produce things like the wooden shaft of a pencil, the metal that holds the eraser in place, the graphite with which they write, or the rubber that goes into the eraser. There is no mastermind that directs these activities. 

Instead, there is decentralized coordination of the activities, coordination that takes place in small increments, in which people complete tasks that they are most familiar with, leaving the unfamiliar to others.  The result, more often than not, is a well-ordered economy, higher standards of living, and wealth.

Happy Belated B-day, Doc

Doc's a bit unsure of his age.  Go wish him a happy belated birthday anyhoo.

Best Sports Business Blogs

From Fast Company Magazine:

The Sports Economist

Who writes it: Started by Raymond "Skip" Sauer, an economics professor at Clemson University, it's now home to 10 econ profs who really like sports.

The skinny: In this Freakonomics-mad world, there's no subject better suited to ivory-towered analysis than the statistics-rich field of sports. What, say, is Barry Bonds's marginal revenue product? But unlike too many Bill James disciples, these profs don't bog their blog down with data.

That's a great plug for Skip and crew (including yours truly).  The Sports Law Blog also made the top 3:

Sports Law Blog

Who writes it: Four sports-law professors, plus guest contributors

The skinny: With apologies to Warren Zevon, the common threads through all sport today are lawyers and money (less so guns). While focusing on the legalities--such as the implications of a wrongful-dismissal suit brought by a blind ref--this blog intelligently explains the financial impact of off-the-field goings-on.

Keep up the good work, y'all!

HT to Skip