Market Power

Color Test

John Palmer sends along this color test.  I took it twice (we allow mulligans in the Miller house).  I got 63% the first time and 100% the second time.

Demand for Union Services

Michael Barone has a column in a recent Wall Street Journal about Big Labor's problems.

Meanwhile, the capital markets have gone on strike against unions. Capital hasn't been attracted to companies in which unions are entrenched -- the Big Three auto companies, the old-line steel companies, the legacy airlines. No one wants to finance businesses that will be burdened with the inflexibility and the huge health-care and pension costs union contracts impose. New firms have arisen in these industries -- Japanese and other foreign auto manufacturers, minimill steel companies, startup airlines -- which don't have unions. The biggest employer in America used to be unionized General Motors. Now it is determinedly non-unionized Wal-Mart. It would be an exaggeration, but not a great one, to say that no employers except the Las Vegas casinos create new union jobs.

One could argue that the past successes of unions have been one of their greatest enemies today.  They have raised the costs of doing business and have created incentives for competitors to come into the marketplace and offer good products to customers at lower prices and with more flexibility than the union shops.

So are workers left helpless? A clue to the answer to that question is to look at what has happened in the law schools. They still teach the kind of Labor Law I learned years ago, but they also teach Employment Law, which focuses on ERISA and the structure of pension plans, equal opportunity laws and sexual harassment codes, procedures for disciplining and terminating employees, and the like. Company lawyers advise their clients on how to treat their employees in a way that provides a "safe harbor" against lawsuits; plaintiffs' lawyers figure out how to sue companies for violating laws mostly passed long after union membership peaked in 1954.

When faced with the possibility that its workforce may want unionism, many businesses, containing that good old enterpreneurial spirit, found that it was much cheaper to offer the services to their employees that the unions would fight for.  A similar thing happened with regards to handling grievances in the workplace.  So businesses, essentially, offered a substitute product at lower cost to their employees in part to fight off union attempts.

Unions achieved their greatest growth in the 1930s, when employees with jobs had little leverage because there were masses of unemployed workers who wanted their jobs, and during World War II, when government encouraged unions on war contractors. Neither condition exists today. Unemployment is low, and people do not expect to work for one employer during their lifetime anyway. Millions of jobs vanish every year and millions -- almost always more -- are created. In the 1990s wage growth was vigorous even as union membership declined and, though wages rose little when the economy was hit by the tech bust and September 11, they are now increasing robustly.

Simply put, the demand for union jobs, as currently offered, isn't what it has been.

Electricity Prices and Increased Production

Ah, a textbook example of the economics of production in the news.  I'll have to remember this example this fall when I teach Principles of Micro.  From Yahoo:

With the nation's demand for electricity soaring, the cost of staying cool this summer is on the rise.

When the demand for a product increases, all else equal its price increases.  Taking this signal, businesses respond by increasing output.  Why didn't they produce more output at the lower price?  Because the resources they would have had to use cost too much to warrant their use at the lower price.

In a normal summer, electric bills rise as individuals use more air conditioning. But this summer has been so hot that to meet the soaring demand, many utilities have had to turn to more expensive power plants, known as "peak generating plants." Instead of relying on coal or nuclear fuel, many of these power producers use more expensive oil or natural gas to power their turbines.

"Usually, they are the last to run," says George Lewis, a spokesman for PPL in Allentown, Pa., which has turned on its peaking units.

Rising prices signal producers that consumers' valuation for certain goods have risen.  The higher prices provide an incentive to businesses to use the requisite resources to produce the good.  That's exactly what is happening in the electricity market.

Why is this News?

From Yahoo news:

The grounding of the space shuttle program following NASA's problems with insulating foam raised fears of layoffs at the Louisiana plant where the foam is applied. The plant supplies about 2,000 jobs, many of them high-paying, to the economically depressed city of Michoud, on the edge of New Orleans. "It's very depressing. We're concerned about our jobs, our livelihoods," said Mike Berger, an inspector for the foam application process who has worked at the Michoud Assembly Facility since 1980.

I don't blame Mr. Berger for being concerned.  I would be too.  But why is this news?  Furthermore, why am I calling attention to it?

Electricity Prices and High Demand

Yahoo points out the obvious:

With the nation's demand for electricity soaring, the cost of staying cool this summer is on the rise.

But there's the doom and gloom angle.

The higher cost is not a good sign for the economy. Paying for the extra kilowatt hours will hit consumer pocketbooks later this summer or early in the fall - one of the peak retail periods, when many families could be wandering the aisles for back-to-school purchases. And the cost of beating the heat is especially difficult for senior citizens and the poor, prompting calls for federal emergency funds.

Warning - I've got my soapbox mode on:

Aaaarrgggghhhh!  I feel like saying "GET OVER IT."  When demand for something increases, given production decisions, its price increases.  It's a fact of life and it's a necessary fact of life.  It's how stuff gets allocated to its most valued use.  Moreover, choices are being made between goods.  The people who are buying electricity are powering their appliances, keeping their food and their houses cool today, and they are lighting up their houses.   Do these choices not provide benefits?  So what if energy expenditures today reduce consumption on other things tomorrow?  People make choices that involve tradeoffs.  This is also a fact of life.   

And lastly, if consumers are relatively unresponsive to price changes (meaning they don't cut back much on their consumption of a good when its price changes - i.e. demand is "inelastic"), consumers will spend more on that good.   I did a quick google search and found that demand for electricity is indeed inelastic, at least during a short period of time.  This isn't surprising since electricity is used to run appliances and lights and during a short period of time, people don't have much of a choice about how they want to run their refrigerator or their stove or their heating/cooling system.  They do have a choice in how much they want to run these things, but if people want them to be run, they are pretty much resigned to use the power source that comes into their house.  If they have electric stoves and electric water heaters, then they will use electricity.  Decisions to switch from electric to gas appliances is a long-term decision, so during expected short-term spikes in electricity prices, people make do with the appliances they have. 

If you really want people to conserve electricity, let its retail price rise.

Besides, why do we need federal emergency funds in this case? 

Soapbox mode off.  Thank you for letting me rant.

10th Planet Identified?

From Sky and Telescope:

After 75 years of speculation and false leads, it finally seems to have happened. A team of astronomers using the 48-inch Samuel Oschin Telescope at Palomar Observatory and the 8-meter Gemini North telescope on Mauna Kea, Hawaii, has discovered the largest Kuiper Belt object (KBO) ever.

It is bigger than Pluto, the 9th planet.

While the headline I read to this article referred to the object as a planet, the text refers to it as a Kuiper Belt Object partly because intense debate is ongoing regarding what exactly constitutes a planet.  Many astronomers do not consider Pluto a planet. 

At the other end of the size spectrum, tiny Pluto should never have been called a planet in the first place, most mainstream scientists agree.

Pluto is less than half the size of any other planet, and its orbit is at a distinct angle from the plane in which the other planets travel around the Sun. Most significant, Pluto roams so far beyond the orbit of Neptune that researchers say it is part of the Kuiper Belt, a region of distant, frozen rocks only confirmed to exist in 1992.

"If we'd known about the Kuiper Belt when Pluto was discovered [in 1930], it would have been a giant Kuiper Belt Object," said Michael A'Hearn, a University of Maryland astronomer and past president of the IAU's Planetary Systems Sciences division.

So we might have 10 planets or we may only have 8... or maybe 9 (not including Pluto).  Even so, this is a cool find.

Update:  Kindred Spirit William Polley has some more information and some pictures here.

Golf Balls and Property Rights

When your property borders a golf course, you're bound to see IFO's land in your yard:  identified flying objects:

Joyce Amaral knew before buying her home that it was near the ninth hole of a golf course.

But she says wasn’t prepared for the number of errant golf balls that came flying into her yard - more than 1,800 in five years - or the number of golfers who came along to retrieve them.

So she and a neighbor sued the owners of Rehoboth’s Middlebrook Country Club. Yesterday, the state Appeals Court found the wayward balls constitute a "continuing trespass" and ordered a lower court to find a solution.

Economists talk about the Coase theorem, a theory that suggests, among other things, that private negotiations can solve externality problems - situations when a third party is affected by a transaction (such as when a golfer hits a ball into your yard).  The golf course owners tried to be good neighbors.

Michael F. Drywa Jr., who represented golf course owners Peter and Lucretia Cuppels, said they paid for numerous alterations to the golf course to try and alleviate the problem, including relocating the tee, installing signs instructing golfers to "aim left," and planting trees alongside the fairway.

According to the Coase theorem, the ability of negotiations to correct externalities depends on property rights being well-defined and transactions costs being low - we both know what each other owns, we can negotiate freely, and we know the source of the problem.  Both parties recognize that Ms. Amaral owns the right to be in her backyard without having to worry about being bonked on the head with a golfball.  But the owners of the golf course have a right to use their property as they intend. 

Things become even more complicated when there is a third group involved - in this case, the golfers.  The golfers have purchased the right to use the golf course and, after all, it is the errant shots of some of these golfers that is the primary issue here.  The golfers aren't trying to hit Ms. Amaral's property.  They just made bad shots.  How can the owners eliminate the bad shots if they don't know when they are going to come and who is going to hit them?  Moreover, Ms. Amaral knew there were risks.  But how much risk should she bear? 

I'm a very consistent golfer.  My shots rarely go in the desired direction.  I get really nervous when I golf at a course near a busy street or that is surrounded by houses. 

A Return to Action

No vertigo.  No busted elbow.  I returned to action with the mightly Mankato Painting and Decorating softball club, the first-place Mankato Painting and Decorating softball club.  We promptly got our @$$es kicked in playoff action.

The Right Man

As Austin Powers would say: "That's not a woman.  That's a man, man."

"A woman needs a man like a fish needs a bicycle." That feminist slogan was popular 35 years ago, as the women's liberation movement was giving birth to the field of women's studies. But the University of Washington has decided that what its women's-studies department needs is a man.

The university announced this month that, for the first time since the department's creation in 1970, it will be led by a man, David G. Allen. According to the university, the choice is also unique nationwide: Mr. Allen will be the only male heading any of the 10 women's-studies departments in the country that offer a doctoral degree.

Of course, he has some of the requisite credentials. 

Allen also said he’s aware of how being a white male has affected his own career and life paths. “I have felt for a long time that people like me who benefit from sexism and racism have the responsibility to try to support addressing it. For me, it’s really in large part a commitment to say, ‘What can I do to work for social justice myself and to be useful to others who are doing similar work?’

What is "social justice" and whose version do we accept and why?

King Banaian notes that not everyone is happy with the choice of someone from the so-called "privileged class" to lead the department:

Nancy J. Kenney, an associate professor of women's studies at Washington, said that while Mr. Allen is "a wonderful man," she found the decision to name him chairman "somewhat depressing." She said she lamented that "after all of these years, there isn't a different alternative out there."

"There simply aren't enough women of the right type and interest to take over this position," she said.

Mr. Allen, the new chair, suggests that men can work on women's issues as much as whites can work on antiracist issues. I think maybe women are smart enough to know that being department chairperson is a thankless task. My guess is Mr. Allen will find it particularly so.

CAFTA Passes

From John Palmer (and Ben Muse before that)

At bedtime in Juneau (about 11 PM) the Washington Post is reporting that the House approved CAFTA 217 to 215: Trade Pact Approved By House .

Apparently it wasn't pretty:

To win, the White House and GOP congressional leaders had to overcome resistance from dozens of Republican members who were also concerned about the agreement because of issues ranging from the perceived threat to the U.S. sugar industry to more general worries about the impact of global trade on U.S. jobs...

Maybe, just maybe, the sugar lobby will continue to lose some of its power.

Unfortunately, there's no shortage of competition between lobbyists for politicians' ears.  The sugar lobby may lose some power, but someone else will be there to snap it right up.

John also muses:

It is apparently so difficult to win over the vested interests with comparative advantage arguments that voting-rule games must be played to win:...

Unfortunately, the benefits to lowering protectionist barriers are widely spread while the costs will fall on a very concentrated interest.  Unfortunately, it's next-to-impossible to win them over with arguments based on comparative advantage.