economics

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Nate Silver has an interesting, if partial, analysis of statistics comparing modes of transportation based on the National Household Travel Survey. He wonders why Americans prefer to drive long distances than fly, and calculates the costs to be generally cheaper if one flies.

Today the Poughkeepsie Journal did the same thing for the costs of commuting by car or rail. (Unfortunately the website doesn’t include the charts.) Rail is cheaper, but the comparison leaves out the cost of time.

Both comparisons depend on a variety of factors, including, among other things, the number of passengers, the length of the trip, whether you’ll need a car to get around at your destination, the bulk and mass of your cargo, and so forth, none of which are really taken into account. For us, trips generally involve six passengers and gear. This rapidly decreases the value proposition of plane or train travel since we’re dividing the total cost by six, making our own personal mass transit more affordable.

It doesn’t help that Amtrak’s prices this year are the same as last year’s, while JetBlue’s have gone down.

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Electronic Medical Records

On Marketplace this morning, they mentioned that Obama wants electronic medical records.

  1. Why is it any of Obama’s damn business?
  2. I haven’t noticed a reduction in paperwork as a result of computing.
  3. There are normal computing issues magnified by the sensitivity of the data.

Earlier some doctor interviewed on another NPR program said he would love medical records, and that they would save him money — and that the government should pay for them because the tools are too expensive.

Excuse me?

If they are too expensive for you to buy in order to reduce your costs then they are not saving you money. The only way the cost-benefit analysis comes out in your favor is if you don’t have to pay for it.

And so I view this, like many other things, as simply yet another power grab.

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What Benefit are Wire Services in a Well-Connected World?

As a former employee of The Associated Press, it’s been somewhat embarrassing to watch their plodding attempts to control data which has already escaped from their control. I recall some discussions with graphics and photo editors in 1996 or so about the feasibility of preventing unauthorized copying of images, while still allowing authorized copies. We were in the business of distributing the news, after all. The discussion eventually shifted to watermarking in order to identify material from the A.P.

(While you can make copies extremely expensive to produce, that itself is expensive — and thus not feasible for most. In case anyone is still wondering, not only is it not feasible to prevent copies, it’s not possible.)

The Associated Press began in the cooperation of several publishers in the task of quickly delivering news dispatches from the Mexican War:

an 1846 arrangement whereby Mexican war reports arriving at Mobile, Ala., by boat were rushed by special pony express to Montgomery, then 700 miles by U.S. mail stagecoach to the southern terminus of the telegraph near Richmond, Va. That express gave the [New York] Sun an edge of 24 hours or more on papers using the regular mail.

But Moses Yale Beach relinquished that advantage by inviting other New York publishers to join the Sun in a cooperative venture. Five papers joined in the agreement: the Sun, the Journal of Commerce, the Courier and Enquirer, the Herald and the Express.

….

Moses Yale Beach’s decision to share news with rivals was “neither altruistic nor cost-driven,” but recognized that “nothing could compete with the telegraph for speed, and all newspapers, rich or poor, would now be on a par,” historian Menahem Blondheim [author of News Over the Wires: the telegraph and the flow of public information in America, 1844-1897] said. [emphasis mine]

There are two aspects to the A.P.: gathering the news, and distributing it. The gathering of news involves the collection and analysis of data as well as the direct observation of events. For example, election returns are publicly available, but broadly distributed, disjointed, and officially slow. After the news is gathered, it is distributed. News gathering can be done by everybody, but there’s some sifting to be done to separate the wheat from the chaff. It is distributing the news that is most disrupted by the Internet.

When you can go directly to the source, what need is there for someone to bring the news to you?

The advantage of wire services has been time. The speedy delivery of information to a third-party, whether television, radio, or print, who can then bring it to you. That advantage is lost when the whole world is connected.

When you can find out now, why wait until tomorrow?

The Internet shortens time and shrinks space. And in that environment, any business that relies on the scarcity of either must find some other means to survive.

It is not that the cooperative did not recognize the threat and the promise of the Internet. Many of us there did. But like many long-lived organizations, there’s an institutional bias in favor of the status quo. How would A.P. serve its member organizations if it adapted to the changed environment?

Now it seems that the Associated Press will fill the role for newspapers that the R.I.A.A. and the M.P.A.A. have for their respective industries. I do not wish them luck.

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Growth

Suppose that I go to Vegas to gamble.

Further suppose that someone gives me $100, which I then increase to $1000 at the slot machines.

Further suppose that I wander over to the roullette wheel, where I proceed to lose $900.

How much money have I lost?

Receipts

Well this is interesting. I was looking at the deficits in this table, and noticed something: the receipts.

That, and the title clearly says from T. Roosevelt, but the data only extends back to C. Coolidge.

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Pretend You’re a Chainsaw

During a depression, wages are sticky downward. That is, they do not drop quickly, though prices do. Instead, jobs are lost.

Fine.

I’m going to pretend I’m John McCain and take a chainsaw to the Arlington budget. In order to see no increase in taxation over the previous fiscal year, the district needs to reduce costs by about $18.4 million. The current instructional expenses — that is, salaries and benefits for teachers — are roughly $125 million, while administrative expenses are about $14.5 million. Take .5 million from the administrative line and 18 million from the instructional line. The choice is to accept lower salaries or a workforce reduction. We’d prefer the former, but the union contract requires the latter.

Sorry.

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Painful Balancing

The Arlington Central School District is treating this budget planning a bit differently than the past few, because of the severe fiscal pressures. This is a good thing, and long overdue. Too bad they didn’t do this during the fat years. One of the improvements has been more and more frequent meetings where the administration presents budget scenarios to the citizens and the school budget, and solicits our opinions. It’s nice to be heard before we decline to approve the budget at the ballot box.

They do appear to making a genuine effort to reduce costs, and I appreciate that too. Unfortunately, most of the costs of the district are in the people. And the time to consider the consequences of those costs is during contract negotiations, when the union can be presented with the choice between lost jobs or lower wages. Instead, the voters are asked how much more we want to pay in taxes.

Well, at least they asked.

My personal preference is that there be no increase in taxes over last year. This does, however, entail a reduction in the overall budget from the current fiscal year’s. The district has provided a nice outline of some proposed cuts, in various tiers, so that we can see what would need to be cut. In order to keep the tax levy the same, approximately $1,840 per student needs to be trimmed. The district is presenting this in terms of “balancing sacrifices.”

I too need to balance my books. For each increase in taxes, by whatever entity, we will need to reduce our costs elsewhere. In anticipation of increases we’ve already taken steps to do so. The high fuel costs last summer helped start the ball rolling. We anticipated high fuel prices this winter, and installed a wood-burning fireplace capable of heating the house. We changed DirecTV packages to the minimal one, and are fully prepared to drop DirecTV entirely. The girls stopped their dance lessons. We eat out less often. When we eat out, we buy pizza — half the price of other options. The kids are starting to dislike pizza. We had leased a van in 2006; when the lease ended, we bought it at a favorable rate, more cheaply than we could have bought a new one, and reduced our monthly expenses by $50. We are refinancing the mortgage on our home, which we anticipate will save another $200 per month. Our total costs are not much lower, we’re not saving more, but we’re spending less on discretionary items.

Instead of working up from no increase, to see what we can afford, the district is working down from the existing budget, to see if we can reduce the increase. That’s backwards. It must be nice to be able to spend as much as you want and just take the money for it.

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Tanzanian Millers

Why aren’t there more local millers in Tanzania?

Or, why is international aid or investment required in order to process cassava, as this story on Marketplace seems to suggest?

Sounds like there’s a missed opportunity there.

Increasing Employment

Do you know what provides lots of jobs? Inefficiency.

While touring China, [a businessman] came upon a team of nearly 100 workers building an earthen dam with shovels. The businessman commented to a local official that, with an earth-moving machine, a single worker could create the dam in an afternoon. The official’s curious response was, “Yes, but think of all the unemployment that would create.” “Oh,” said the businessman, “I thought you were building a dam. If it’s jobs you want to create, then take away their shovels and give them spoons!”

For All Debts, Public and Private

As a young man with few dollars, I used to spend some time admiring the engraving on those few I had. I’ve long been struck by the phrase printed on Federal Reserve Notes: “This note is legal tender for all debts, public and private.”

It is somewhat odd that some think dollars, or other currency, has value in and of itself, when the value the currency has is only in relation to the demand of others for it. By others, we mean primarily the entity printing the currency: They demand it in taxes.

Consider a schoolyard bully who is satisfied with anything I have in my pockets. Any of those things may be used to pay for his protection. But suppose that one day he decides that he will only accept Hershey’s chocolates. This gives Hershey’s chocolates a special value in the schoolyard, and trade of those chocolates between children may result. Further suppose that the bully gives his friends special tokens of affection, and will not pummel those who hold them. These tokens would also have value, and may be exchanged for Hershey’s chocolates, or for other goods. In time, the bully may decide that he no longer likes chocolate, and will only protect those who have his favors.

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Economic Stimulus Package: No Taxes

The bank just sent a summary statement of the escrow account we use to pay the local and school property taxes. One achieves a certain distance from the taxation by letting someone else manage it for you. It was a big number, but not as big as the amounts I’m paying in other taxes.

If the Federal government finds it necessary to spend money to stimulate aggregate demand, and doesn’t want to just hand me the $1 million previously suggested, then I would appreciate a tax holiday. That would increase our available cash by quite a bit.

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Marshalls’ View of Over-Production

The Marshalls department store has a great advertisement playing now, on the subject of over-production, which I would re-post here for your enjoyment, if it were easily found on-line.

They call it a shopportunity.

Designers can’t sell their clothes, and malls are struggling. … The totally crummy economy is your ‘shopportunity’ at Marshalls.

When supply exceeds demand, prices fall.

It All Averages Out in the End, Does It?

The law of large numbers does not invalidate garbage in, garbage out.

Deferred Consumption

I recently subscribed to a number of podcasts in an effort to drown out the unbearable background noise in the Fishkill office: Fox News. One of them was a program from WNYC and Public Radio International, The Takeaway. They’re running a series on debt. On November 17th (podcast, November 21, but hey) they interviewed Ronald Wilcox on the why Americans don’t save, and how we got to this predicament. The general explanation is that we’re optimists, and optimists, because they think tomorrow will be better, tend to live for today.

Savings is a somewhat interesting topic currently because we’re on the downturn of an business cycle because of a collapse in aggregate spending (because the cheap money has become more dear). So there was some discussion in the interview of whether or not saving helps or harms the economy. It was granted that in the short-term saving hurts, while in the long-term saving helps. That is, saving, or deferred consumption, reduces aggregate demand and thus causes an excess of supply, an excess of labor, and contraction in industry as workers are laid-off and factories closed in order to remove the excess, thus causing a decrease in aggregate demand which causes …. and so on.

Today there’s a story on a reduction in the amount of debt we hold: Saving Too Much (for once)?

(The take-away? The Takeaway needs transcripts.)

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Preview

The Poughkeepsie Journal accidentally delivered Sunday’s comics today. B.C. is so appropriate.

Update: included link to the comic.

Pirate Gold

The Somali pirates who have been very active in recent months have been asking for dollars, not gold.

Moneychangers offer wads of new US dollar notes, the only currency that matters in a country that has been in chaos for almost two decades.

The world’s reserve currency indeed.

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Two Sets of Rules

I think my major problem with Mosler’s theories is that there are two sets of rules. The second set only applies to the the issuer of the fiat currency. It is not applicable to, for example, New York State, or Dutchess County, or the Town of Beekman, or the Arlington Central School District. Because money is not really an issue for the owner of the mint, some policy options are available to the Federal government which are not available to more local governments. More power is available to the Federal government which is not available to local governments. This is a problem if you think, as I do, that certain functions are forbidden the Federal government. This is a problem if you think, as I do, that certain functions are best performed locally.

Suppose, for example, that you are in favor of providing a free education to all citizens. If the town pays for it, then the town will need to float a bond issue, or raise taxes, or otherwise find the funds to provide the education. If the Federal government pays for it, then money’s not an issue.

If the Federal government pays for it, then control is not likely to be local.

It’s simpler if there’s just one set of rules.

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It’s Good to Be the King

I’ve been slowly reading Warren Mosler’s theories since Zimran Ahmed pointed them out a few weeks ago. They are, to say the least, non-intuitive.

From what I can discern so far, there are two sets of economic rules: Those for mere mortals, and those for the Royal Mint. The former are constrained by a scarce resource; the latter are not.

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Lemons

Regulation is offered up as a means to prevent a repeat of the present financial situation. From what I have been learning of the instruments of destruction, however, it seems that — aside from the simple fraud of selling things one did not own — the failure was a lack of information. Much like a used car, the risks of these products were unknown.

The Cost of Failure

Over the past month or so I’ve noticed more frequent mention of the cost of failure: what will happen if we don’t do this to save that. Explicit, or more often implicit, in these discussions is that it is right and good to do something, that something must be done. This something usually amounts to providing a social safety net so that the costs are avoided, so that Joe the Auto Worker, for example, does not lose his job, or so that if he does lose his job, he can still get medical care or retire in style.

The costs are terrifying.

Why, just today I learned that because a meat packer closed two plants it is now near impossible to find a kosher brisket!

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