Market Power

Craft Brewers Grow While Big Boys Shrink

In the American beer market, the Davids did well while the Goliaths struggled.

Craft brewers such as Schlafly's (which makes a nice Pumpkin beer) and Boulevard (love the Doublewide IPA) have seen their growth in the St. Louis market take off.  Kevin Collison of the Kansas City Star writes about Boulevard's recent success in St. Louis.

Todd Frankel of the St. Louis Post-Dispatch writes that it's not just Schlafly's and Boulevard that are doing well.  Other craft brewers, such as O'Fallon Brewery also saw a sales increase last year.  He also writes that Boston Beer and Yuengling have grown so much that they can't officially be called craft brewers anymore.

What's really interesting is that the so-called macrobrewers, Miller Coors and InBev, saw sales decrease.  Their sheer size and their share of the US beer market ensured that beer sales were down for the year, but some of their customers have obviously moved on to the big boys' little brothers.

On Math in Econ

Stephen Gordon reflects on some esoteric math - asymptotic theory - he's had to teach his econometrics students.

Why do we force our students to learn these things?

Mike Moffat answers:

Although from an empirical perspective it probably doesn't make sense in the slightest to worry about the distinction between the two types of convergence, I am quite certain it makes a difference in theory papers. Unlike most economists, I tend to use 'theory paper' in a pejorative sense, because too many theory papers:

1. Make assumptions that cannot possibly be true and are not reasonable simplifications of the 'real world'.
   
   
2. Are non-falsifiable, do not make predictions, or have so many free parameters they can be used to predict anything.

You need to know this math in order to be able to publish 'theory papers'. The larger question should be, "why does the economics profession put any value on this work?"

Of course a lot of it goes to the recently-late Paul Samuelson who mathematized so much of the discipline.  Part of it, I think, has a practical use.  By developing a rigorous mathematical model, the theorist can make sure that a theory is tight and makes logical sense throughout.  In fact, by working through mathematical theories, the researcher might see a testable hypothesis that was otherwise obscured.  The trick is to put it back into conversational language.

But on the other side of the coin, some mathematical models seems to be there for mathematical masturbatory pleasure. 

And don't forget opportunity costs: time spent learning math - like I did the year before I went to Mizzou for grad school - is time not spent learning qualitative economics.  Dan Marburger commented on Facebook (reproduced with his permission):

I'll do you one better. My (lawyer) brother and I have been doing some interdisciplinary work over the past year. In reading relevant literature in scholarly journals, I've noticed that legal scholars do a far better job of explaining economic concepts than academic economists. Deirdre McCloskey's criticism of how economists write is spot on!

One of the problem with academic economists is that we write for each other in the professional journals.  Up until the blogosphere came around, there weren't too many professional trained economists writing for a general audience.  Hopefully we're effectively filling in the gaps.

The Sex Trade: Is it Demand or Supply Causing a Drop in Prices?

Here's one for the exam files.  From the Toronto Star:

The vices – smoking, drinking, sex – are usually bulletproof during a recession, says economist Perry Sadorsky, who teaches at York University's Schulich School of Business. So if the sex trade is hurting, "we are in the most serious depression since the 1930s. This shows the magnitude of the decline. It is deep and it is problematic."

Sex workers say their incomes began plummeting last fall, with johns pleading poverty and haggling over prices, and prostitutes bidding against each other.

"There are 60 people on the street, but they are all sex workers and there's no money for anybody," says Ray, who, like other prostitutes, did not want his real name used. "This economy is causing a lot of misery."

The following paragraphs suggests that the sex industry may have experienced a double-curve shift.

Sadorsky wonders if the economic crisis is forcing more people into sex work, thereby increasing competition on the street. Toronto police, who use a community complaints system to keep track of prostitution, report no increase in complaints, though they suggest this may mean sex workers are trolling in non-residential areas.

...The recession has seen the street price of oral sex, the most common service, plummet from $60 last fall to $20 today. "Full service" involving intercourse has dropped from $150 to $80.

A decrease in demand decreases price and quantity traded.  An increase in supply decreases price and increases quantity traded.  A simultaneous decrease in demand and increase in supply causes price to fall, but leads to an indeterminate change in quantity.  This article provides anecdotal evidence consistent with this simultaneous change, at least on the street (the article goes on to mention escort services have experienced a decrease in their traffic, suggesting that a demand effect, um, dominates).

Using TARP Moneys to Boost Job Growth - An Impotent Stimulant?

King Banaian on Senator Franken's proposal to use $5 billion of TARP moneys to help boost jobs creation:

It's not completely horrible, though. I did some reading on the research regarding wage subsidies, and at least one recent study seems to find some positive effects of it. Maybe they're not very large. It appears the best results come from Germany. What we don't know is whether the money could be better spent elsewhere, says Paul Walker. Nor do we know why the Congress seems to continue to think TARP repayments are a windfall.

Basic labor theory tells us a profit-maximizing employer will hire a person if the salary he has to pay the person is no more than the person's marginal revenue product.  It could be that businesses in general don't have the funds to take employment risks, in which case a subsidy could work.  But it's also possible that businesses don't see general demand conditions improving in the near future, something that would render subsidies an impotent stimulant.

Names Invoking Economics

So, Google has come out with a tool embedded in their Chrome browser that helps users find the lowest price for things they are shopping for.  It's aptly called the "Invisible Hand."  How great is that?

Cafe Hayek has a Hayeku.

Today, Apple announced the name of their newest gadget:  the unfortunately-named iPad.  I'm sure it's a great gadget, but it sounds like it's a Kimberly-Clark product.

Apple should develop an electronic writing utensil that allows people to write on an electronic notebook and save what's written as a text file.  They could call it the iPencil.

Get it?  iPencil... I, Pencil.  

The Economic Impact of the Increased Minimum Wage?

From Reuters:

Teenagers have found it significantly harder to get a job since the recession began in late 2007, with black youths and young people from low-income families faring the worst, wrote Andrew Sum of Northeastern University in Boston, a employment researcher commissioned by the Chicago Urban League and the Alternative Schools Network.

"Low-income and minority youth, who depended on part-time jobs as a significant stepping stone to future employment, have been forced out of the job market and economically marginalized," Herman Brewer of the Chicago Urban League said in a statement.

...Among the proposals the report supported were government-funded jobs programs directed at the young, additional funding to help re-enroll school dropouts, and government-funded expansions of work internships.

I've got a more radical proposal - one that decreases the scope of government and one that doesn't increase it's size:  lower or eliminate the minimum wage.  Even if someone is willing and able to accept a job for, say, $5.00 an hour, the law says that he can't.  Why should that be illegal?

HT Glenn Reynolds

Update:  Keep in mind that this has been going since before the recession hit.

Hayek vs. Keynes Rap

I love the introduction in the hotel lobby.  It nicely sums up the attention given to both economists in Principles courses.

Update:  Line of pure genius at about 3:46:  "If you're livin' high on that cheap credit hog(?), don't look for the cure from the hair of the dog."

Pork Rinds: Diffuse and Concentrated Interests

Recently I wrote a post on a case in Forest Lake Minnesota where established retail outlets, not consumers, have set out to ban temporary retail kiosks. 

When it comes to pork rinds, U.S. producers have long had the most skin in the game. They produce more of the crispy pigskin snacks than anyone in the world. Now a new federal rule that will loosen import regulations for pork rinds is roiling the industry. The Department of Agriculture, responding to an Ohio company's request, has opened the door to imports of the pig skins used for pork rinds from Brazil and other nations.

Just as in the kiosk case, guess who is fussing about the relaxed import rules?  If you said "consumer groups" then go back to the back of the room.  If you said incumbent business interests or government officials, then you win a seat at the front of the room.

That has stirred an uproar among rivals and many state agriculture officials, who warn that importing pork rinds from areas of the world afflicted with livestock diseases is a threat to food safety.

Aren't consumers perfectly able to determine for themselves what is best for them?  Of course we are, especially in these days of Google searches, blogs, and all kinds of "answers" pages.  We're smart and don't need to be babysat. 

TBut while the overall benefits of relaxing rules to increase competition to consumers is likely to be large, the marginal benefit felt by any one person is small and not worth fighting for.

Now, no-one wants to eat nasty pork rinds.  But one of the things that competition does is that it drives firms to deliver safer products, to put more effort into quality control, knowing that if they put a bad product on the marketplace, their business would suffer and their rivals would gain business.  But of course this added attention to quality control means higher costs   Plus more competition also means lower prices.  So more competition means thinner profit margins for incumbent interests, and they band together and fight rules that would bring them more competitors.

What about state ag officials?  At least their job is to make products safer, right?  Well, if consumers and, via competition, firms can maintain decent levels of safety without government help, then who needs state agricultural officials to look after us?  Despite the veneer of being a government employee, they are as rational and self-interested as the rest of us.

But since the costs of competition are felt by a relatively small number of people, the marginal effect on any one of them is large relative and makes it worthwhile for them to organize and fight against such rulings.

A New Variation on a Couple of Old Economist Jokes

Why are theoretical economists better than econometricians?

Theoretical economists do it with elegant models.  Econometricians do it with dummies.

Beware People Bearing Multipliers

Sports economists have become accustomed to inflated economic impact claims made by stadium/mega event boosters seeking public subsidies.  J.C. Bradbury and Craig Depken each have recent posts on this topic that are worth reading.  I also have a post at The Sports Economist on inflated multipliers as well. 

JC writes about a talk he had with a reporter on claims of a $40 million economic boost to Richmond, Va. claimed by an executive with the Richmond Flying Squirrels.

That figure, he (the reporter - PM) said, is based on a Minor League Baseball formula that takes the amount of revenue generated by the organization and multiplies it by five.

From the comments at TSE on my post:

Reader Jonathan Leib:

"At least the multiplier they used in the Richmond case was 'only' 5. Back in the 1980s, while a grad student, I was involved in an economic impact study for minor league baseball in upstate New York. After collecting studies that other minor league teams had done around the same time, the most common multiplier that was being tossed about was 7...."

Bill Polley:

"It's not just sports. A few years ago there was an article in the local fishwrapper that touted a big economic impact of the airport. They took the payroll of airport employees and multiplied by 4."

So, what is it?  Four? Five? Seven?

At TSE I wrote why these mulitpliers are too high, especially when applied to sports.

The US Bureau of Economic Analysis uses input-output modeling to calculate multipliers for specific products in a whole host of geographic locations. You want the multiplier for butter in Columbia, Mo.? The BEA has one. Are you interested in a multiplier for the state of Minnesota? The BEA has got you covered. From my experience in using these multipliers, most of these BEA multipliers are around 2.

But we must account for the fact that spending on sports largely comes from within the local region. Such spending represents spending redistribution, not creation, and the resulting multiplier is closer to 0.

Multipliers, Keynesian expenditure multipliers to be exact, are to be used to guesstimate the effect that an injection - not just any ol' amount of money spent - has after the money has recirculated throughout the economy.  The basic premise is that a portion of a dollar injected into a local economy becomes someone else's income.  That person spends a proportion in the economy and the process goes on an infinite number of times. 

The other portion, in some sense, leaks out of the economy.  The simplest assumptions commonly made in Macro Principles courses to illustrate the multiplier are 1. the only "leakage" is savings and 2. everybody in the economy saves the same proportion of their income.  If 10% of each dollar of new income is saved, the multiplier is 1/0.1 = 10.

What explains the relatively low BEA multipliers?  In reality, there are other leakages on the money side of the economy: payments for imports, interest rate increases that occur when there is a higher demand for money, and price increases that come from increases in aggregate demand. 

But even if you have the "correct" multiplier, you can also goof by applying them to any type of spending, not just injections.  If sports were to somehow go POOF! and go away, people wouldn't burn the money they had budgeted towards sports.  They would spend some of it on alternative forms of entertainment, at retail stores, at restaurants, etc.  But many a-priori economic impact statements treat all sports spending as an injection.  So, not only do they use inflated multipliers, they are also using inflated injections.  No wonder people don't take these things seriously.