Market Power

Occupy Wall Street Externalities

How can negative externalities be curtailed?  Simple economics tells us that bans, regulations, and taxes are all possible ways to reduce the effects of negative externalities.  To wit, we have the OWS folks.

As the protest has grown, some of the occupiers have spontaneously taken charge on projects large and small. But many of the people in Zuccotti Park aren't taking direction well, leading to a tense Thursday of political disagreements, the occasional shouting match, and at least one fistfight.

It began, as it so often does, with a drum circle. The ten-hour groove marathons weren’t sitting well with the neighborhood’s community board, the ironically situated High School of Economics and Finance that sits on the corner of Zuccotti Park, or many of the sleep-deprived protesters.

“[The high school] couldn’t teach,” explained Josh Nelson, a 27-year-old occupier from Nebraska. “And we’ve had issues with the drummers too. They drum incessantly all day, and really loud.” Facilitators spearheaded a General Assembly proposal to limit the drumming to two hours a day. “The drumming is a major issue which has the potential to get us kicked out," said Lauren Digion, a leader on the sanitation working group.

But the drums were fun. They brought in publicity and money. Many non-facilitators were infuriated by the decision and claimed that it had been forced through the General Assembly.

“They’re imposing a structure on the natural flow of music," said Seth Harper, an 18-year-old from Georgia. “The GA decided to do it ... they suppressed people’s opinions. I wanted to do introduce a different proposal, but a big black organizer chick with an Afro said I couldn’t.”

To Shane Engelerdt, a 19-year-old from Jersey City and self-described former “head drummer,” this amounted to a Jacobinic betrayal. “They are becoming the government we’re trying to protest," he said. "They didn’t even give the drummers a say ... Drumming is the heartbeat of this movement. Look around: This is dead, you need a pulse to keep something alive.”

The drummers claim that the finance working group even levied a percussion tax of sorts, taking up to half of the $150-300 a day that the drum circle was receiving in tips. “Now they have over $500,000 from all sorts of places,” said Engelerdt. “We’re like, what’s going on here? They’re like the banks we’re protesting."

Every society has to deal with third-party effects of individual decisions, and the Ocuppy Location-X societies are not different.  If negative externalities cannot be solved face-to-face, then people will turn to some sort of collective way to deal with them.  So what's happening in the OWS movement  is nothing like the banks they are protesting and everything like the government the Tea Party is trying to limit.  

What is the Ultimate Economic Impact of Sports?

The economic impact of sports is usually framed in terms of how many jobs it generates and how much spending it generates.  But this misses the point.  Here's commenter bobby over at my most recent post (on jobs and income creation with sports!) at The Sports Economist:

i find it mildly distressing that almost all of the discussion about economic impacts of sporting events is about rectangles with rarely if ever a discussion of triangles. i was always trained that welfare was measured by consumer and producer surplus, not expenditures, but then what do i know?

and, to make matters worse, i was always taught that if bundle B was chosen when bundle A was available that it could be concluded that A was better than B. i guess i’ll have to go back and study some more, someday.

i guess the idea that people are happier with a baseball game than a movie doesn’t mean much anymore, and its downright silly to suggest that a baseball game makes a place better off because people could have gone to a movie instead.

i think i’ll go drink a beer, eat a hot dog, and polish it off with some apple pie, now that i realize how silly i was to believe in revealed preference, consumer surplus, and consumer choice. oh well.

He's exactly right.  Any discussion of the ultimate economic impact of sports, government policy, whatever should not be about how many jobs are created, how much people spend, etc.  It should be on the overall well-being that activity generates in terms of producer and consumer surplus.  That is the ultimate economic impact.  Jobs and spending numbers do little more than obscure that fact.

Cross-posted at The Sports Economist

Why are Gas Prices Falling?

From the Onion:

With gasoline prices dropping a full 26 cents from where they were a month ago, a new era of confidence and hope washed over Americans this week, confirming the United States is once again the greatest nation in the world.

Arriving amidst an intractable 10-year military occupation of Afghanistan, the decreasing likelihood that workers will be able to retire at 65, and a wildly fluctuating stock market, today's announcement that the national average price of self-serve regular has fallen to $3.39 verified that the worries of the past are now officially behind us, and that the U.S. stands alone as the world's preeminent superpower.

Prof. Whitehead:

My analysis suggests this was caused by a reduction job-killing regulations from the radical EPA.

Certainly what we have here is price gouging or predatory pricing on the part of consumers.  Or maybe something is going on with that little x-graph-thingy we economists scribble on the white boards.