Market Power

Virginia Postrel on "Macroegonomics"

From Virginia Postrel of the Atlantic:

Research published in journals like the American Economic Review, dating back to a 2000 article by Margaret McConnell of the New York Fed and Gabriel Perez-Quiros of the European Central Bank, tells a different story. This line of research says that good Fed policy was necessary but not sufficient, that the business cycle never disappeared, and that most of the Great Moderation emerged not from deliberate government policy but from changes in business practices that occurred for competitive reasons having nothing to do with macroeconomic goals.

In the Summer 2008 issue of the Journal of Economic Perspectives, economists Steven J. Davis and James A. Kahn review this research and further dissect the evidence from both aggregate statistics and individual measurements of things like the lead times for ordering production materials and fluctuations in household spending. What they find fits the broad outlines of Romer’s story—but not its congratulatory conclusion. The Great Moderation looks a lot like the staid 1950s, with better inventory management and more-flexible employment contracts.

...When Davis and Kahn broke down the GDP data by sector, they found that from 1970 on, the size of fluctuations in services didn’t change much. Nondurable goods became only modestly less volatile than they had been before 1980. The dramatic smoothing of the jagged line that appears when you graph all of GDP together mirrors what happened in only a single sector: durable goods. So the Great Moderation wasn’t a general phenomenon. It was something that happened in that one particular part of manufacturing. (The economy’s shift to more services and less durable-goods production did calm things down, but not enough to account for the big change.)

Read the whole thing. 

Via the Dynamist and Instapundit.

US Home Prices Become More Affordable to the Average Buyer

Via market transactions (or lack thereof), housing prices fell 19% in January relative to January of 2008, making housing more affordable for the average US resident.  But of course, this is a bad thing as reported by the AP.

Home prices sank by the sharpest annual rate on record were lower in January 2009 relative to January 2008, and the pace continues to accelerate, but there were a handful battered metro areas where price declines slowed, according to data released Tuesday.  While this may not be good news for home sellers, housing prices have become more affordable for the average American.

FTFY (fixed that for you).  My additions are in bold.  All the rest of the text, including the lined-out text, is from the story. 

University of Nebraska-Omaha Economics Department's Spring Banquet

I had a great time at the UNO Econ Department's Spring Banquet this year.  It had been over 16 years since I attended the banquet to receive my induction into ODE and I enjoyed getting back in touch with my professors. 

I can't tell you enough how flattered I was to have been selected as the outstanding alumnus (not "alumni" - that's plural) for this year.  When I have time, I'll post the text of the talk I gave last night.

Art Diamond has posted pictures of the event last night at this site.  The last picture is of he and I.

Obama's Power Grab over Private Markets

From the San Jose Mercury-News:

General Motors Corp. Chairman and Chief Executive Officer Rick Wagoner is stepping down after being asked by the Obama administration to relinquish his position at the helm of the largest American automaker, people familiar with the situation said Sunday.

Wagoner's departure comes on the eve of President Barack Obama's scheduled presentation of his strategy for the U.S. auto industry. The president has said he wants to help the struggling industry and is providing fresh short-term aid but faces mounting opposition to bailouts of businesses and industries.

GM did not confirm the news or comment on who might succeed Wagoner, 56, a GM lifer who became the company's chief executive in 2000 and chairman in 2003.

But Obama told four Michigan members of Congress on a conference call Sunday that GM President and Chief Operating Officer Frederick Henderson would run the company for the time being, according to a source familiar with the situation. Henderson has been carrying out the company's restructuring on a day-to-day basis and knows the task force leaders.

While his cabinet appointments and his Treasury department have been an embarrassment, Obama, who has no experience whatsoever in running a private business, let alone one so large as GM, thinks he can put GM in the black. 

Obama said earlier on Sunday he believed Detroit's automakers could become competitive. "We think we can have a successful U.S. auto industry," he said on CBS's news show "Face the Nation."

"But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean and mean and competitive than it currently is. And that's going to mean a set of sacrifices from all parties —- management, labor, shareholders, creditors, suppliers, dealers," Obama said.

While there may be a public shaming of some high-level officials, such as Wagoner, the two groups most likely to pay in the long run are a. the taxpayers and b. the car-buying public.  On this last group, what incentive does the federal government have to provide the sorts of automobiles that customers want and, moreover, what makes them so smart that they can run the entire American auto assembly industry in an efficient manner (as well as the health care industry, the education industry, etc.)?

Methinks that these smart people need to read I, Pencil.

Jake DeDantis's, Executive President of AIG's Financial Product's Unit, Letter of Resignation

Jake DeSantis of AIG:  I quit!

Read the whole thing. 

People who perform promised legal work deserve to be compensated, despite the political winds.  The fact that Congress has threatened punitive taxes across to satisfy the political winds should scare any fan of liberty.

Protecting One's Property: Mizzou's Logo and Harrisburg, SD

From the KC Star:

The licensing agent for the University of Missouri has contacted the Harrisburg School District, saying the southeastern South Dakota school's tiger logo is "confusingly similar" to the Missouri tiger.

I'd say so based on these two pictures.  The helmet on the left is from the high school.  The one on the right is the official Mizzou logo.
  

(the helmet is from this site). 

Big, bad Mizzou, some say.  It's only a small midwestern high school, so what's the big deal.  Plus, Mizzou should be flattered. 

I agree that it's very flattering for a high school to want to use Mizzou's logo.  It wasn't all that long ago that Mizzou's flagship programs were nothing to be emulated.  But with the football team's resurgence under the tutelage of HC Gary Pinkel (sleeping giant, anyone?) and the overall leadership of AD Mike Alden, everyone wants a piece of the action.

But Mizzou has every right to fight for its property rights.  Having one small SD school use the logo isn't all that big of a deal, some say.  But the slippery slope applies:  you let one school use it, you must let others use it.  It's best to nip it in the bud before it gets out of hand.

International Trade, Comparative Advantage, and the "Condom Conundrum"

From Mike McGraw of the KC Star:

Call it a condom conundrum.

At a time when the federal government is spending billions of stimulus dollars to stem the tide of U.S. layoffs, should that same government put even more Americans out of work by buying cheaper foreign products?

In this case, Chinese condoms.

That's the dilemma for the folks at the U.S. Agency for International Development, which has distributed an estimated 10 billion U.S.-made AIDS-preventing condoms in poor countries around the world.

But not anymore.

In a move expected to cost 300 American jobs, the government is switching to cheaper off-shore condoms, including some made in China.

This is exactly what an economist would advise doing.  Since foreign nations can produce condoms more cheaply than in the United States, buying them "off-shore" frees up domestic resources to do other things.  Moreover, government gets more bang for its buck, freeing up cash for other projects.  In short, international trade, while not always beneficial to everyone, is good for society as a whole and is, thus, stimulating to an economy.

Gary Becker on the Current Economy, the Cause of the Financial Market Meltdown, and the "Stimulus"

Story here.  Becker argues that the current economic mess is largely due to government meddling in private markets.

I thought this was interesting regarding mark-to-market

How about getting rid of the mark-to-market pricing of bank assets [that is, pricing assets at the current market price] that some say has destroyed bank capital? Mr. Becker says he prefers mark-to-market over "pricing by cost because costs are often completely out of whack with what the real prices are." Then he adds this qualifier: "But when you have a very thin market, you have to be very careful about what it means to mark-to-market. . . . It's a big problem if you literally take mark-to-market in terms of prices continuously based on transactions when there are very few transactions in that market. I am a mark-to-market person but I think you have to do it in a sensible way."

I'm not an expert on mark-to-market, but let me guess what he means.  A market price is a measure of the value of an asset to the marginal buyer.  When the market is big (i.e. there's a lot of transactions), we have a lot of information to go by regarding the value of an asset.  But when the market is small (in terms of the number of transactions) then there is little information regarding what the value is.  Basically, it's seemingly a small sample problem. 

Suppose there is one Honus Wagner baseball card in existence and it is traded 3 times.  The first transaction is for $10,000, the second transaction is for $15,000 and the third transaction is for $100,000.  There's quite a spread in these numbers.  What is most representative of the true market value: the average price ($38,333), the last price ($100,000), the median price ($15,000)?

Positive Externalities or Campaign Contributions

JC Bradbury on subsidies for sports stadiums and opportunity costs:

Which has more positive externalities? Red Cross training or a stadium.

I think we all know the answer to this:  which is more likely to result in large campaign contributions?  Red Cross training or a stadium.

Then again, maybe I'm just jaded in my old age.

So, Jocks are Dumb Eh?

Florida Marlins pitcher Burke Badenhop:

A spring training clubhouse might be the unlikeliest setting for an economics forum - until Marlins pitcher Burke Badenhop is asked for his thoughts on the world's financial crisis.

"The housing crisis obviously caused it. You have to fix that. But it's also a case of creating jobs,'' he said. "Just dumping a bunch of money into Ford and GM, I didn't think, made a lot of sense because they're going to keep making the same stuff.''

The right-hander is just getting warmed up.

"I've got no problems giving out tax money,'' he continues, "as long as it's earmarked to the right places. That's what the economy is - allocating proper capital to people who need it, people who are going to make it double, triple ...''

That's beautiful!

What in the name of Alan Greenspan does this 26-year-old pitcher know about capital asset ratio, microfinancing and product differentiation? "Not much,'' he said with a laugh.

But he knows plenty more than most baseball players. Badenhop graduated from Ohio's Bowling Green State University in 2005 with an economics degree and a 3.94 GPA.

"He took four classes from me and got all A's, and some were tough upper-level courses,'' said BGSU economics professor Timothy Fuerst, whom Badenhop credits with sparking his interest in the subject during his freshman year. "One class was on the Great Depression, which is pretty appropriate now.''

Badenhop wrote a term paper on sports economics. "One issue was whether it makes sense to use state money for new stadiums, and I remember Burke was skeptical about using public money,'' Fuerst said with a laugh. "You better not tell that to his employers!''

HT to JC.