Market Power

"Conde Nast Ends Internship Program"

"Decision follows pay lawsuit by former magazine interns."  The lawsuit came on the grounds that Conde Nast broke minimum wage laws.

Mr. Leib alleged that the New Yorker paid him well below minimum wage—in stipends of $300 to $500—for each of the two summers he had worked at the prestigious weekly, where he reviewed and proofread articles. Ms. Ballinger alleged in the complaint that she was paid $12 a day for shifts of 12 hours or more at the fashion magazine.

Of course, this means no-one will get the non-pecuniary "payment" of experience at Conde Nast, at least through an unpaid internship program.

Negative Externalities, Weather Radar, and Coase

From Todd Zywicki at the Volokh Conspiracy:

But the amazing thing to me is that despite that, many people still do not appreciate how profound and nuanced his points are.  In particular, the central insight of “The Problem of Social Cost” is that costs are reciprocal–this is what, as Jonathan notes below, fundamentally destroys the idea of externalities as a coherent concept for most applications.  This means that so-called “externalities” really boil down to a question of incompatible uses, which really boils down to a question of property rights and transaction costs in defining and transferring property rights.  The notion of externalities (in my view) rests on a crude reductionist logic that something that looks like physical causation also must be causation in law.  But this isn’t necessarily correct and the important insight here is that cost not only is reciprocal, but that the idea of “cost” in economics is opportunity cost.

Via Craig Newmark. I use Greg Mankiw's Principles of Microeconomics text in my Micro Principles classes and the point Todd makes is not in the chapter (10) that deals with the economics of externalities.  I'm also not aware of any other Principles text that makes this point.  But it is a point I have made in my class lectures.  

To illustrate the point, I show this video from the television show Storm Chasers.  In the video, two storm chasing teams employ mobile radars to examine conditions in the lower atmosphere in and around supercell thunderstorms.  The problem is that both radars radiate and can thus interefere with each other, making this situation an excellent example of the reciprocal nature of negative externalities.

 

The Coase Theorem tells us that private bargaining can solve the problem of external costs if transactions costs are zero and property rights are well-defined.  We see an attempt at "bargaing", if you want to call it that, to resolve the situation.  Transactions costs would seem to be low in this case but, while I am no law expert, my hunch is that property rights are not well-defined by any stretch of the imagination.  Who has the right to use their radar when it would interfere with another radar:  the small, private firm or the government-funded, massive research operation?  

NBA Salary Cap, Minimum Payroll, and Luxury Tax Set for the 2013-14 Season

 The NBA's salary cap for next year has been set at $58,679,000.  The minimum payroll is 90% of the cap, meaning it will be $52,811,000 (rounded).  The luxury tax for next season was also set and will be $71,748,000.  See here and here for details.

The luxury tax this year will be a graduated tax, meaning the penalty for payrolls over the tax level will increases as a payroll increases beyond various step levels.  Previously, a team that exceeded the tax level paid a $1 tax for each $1 payroll exceeded the tax level.  Here are the details (source).

• Portion of team salary $0-$4.99 million over tax level:          $1.50 for $1
• Portion of team salary $5-$9.99 million over tax level:          $1.75 for $1
• Portion of team salary $10-$14.99 million over tax level:      $2.50 for $1
• Portion of team salary $15-$19.99 million over tax level:      $3.25 for $1
• Rates increase by $0.50 for each additional $5 million of team salary above the tax level.

Multiple Choice Question for your next Macro Test

You can thank me later if you put this on the next macro test/quiz you write.

Tide is

a) a laundry detergent

b) expensive

c) a medium of exchange

d) all of the above.

Correct answer: d

Wait.  What?

Authorities in Southern California say they have noticed a bizarre new trend: drug users trading Tide laundry detergent for crack cocaine and marijuana.

Why Opera Subsidies and not Stadium Subsidies?

In this TSE post a commenter asks why there is so much negativity towards sports subsidies and not towards opera subsidies, presumably at TSE.  Victor Matheson responds.

1. Opera companies are usually not for-profit institutions that use public money to enrich billionaires.

2. Opera companies nationwide don’t actively restrict the number of opera companies nationwide in order to create monopoly rent and in order to pit cities against one another. When is the last time the Seattle opera company demanded a new theater or else they were moving to OK City,

3. I am not quite sure if most major opera companies actually receive much in the way of public funding (other than being allowed to claim a non-profit status in order to avoid taxation, a right extended to a very wide array of organizations).

I'm certainly sympathetic to point number 2, but don't know enough about 3 to comment.  

Number 1 seems irrelevant to me, though.  Economically, the question of whether to subsidize depends on the degree to which the product/service generates a public good.  The claims of huge external economic development associated with sports has been pretty-well shot down by researchers.   So to say sports should be subsidized because they add new jobs and income to a local economy is just silly.  

But my take on the research on non-tangible external benefits of sports is that they exist and the question is "how big are they?".  Further, whether the external benefits accrue to billionaires would be relevant when there is insufficient funding to subsidize all the goods with public benefits (not a trivial matter).  

A reason to not subsidize something is because it generates negative externalities.  Even if there is a public goods aspect to sports, if the value of those public goods are offset by external costs (say, the effects of congestion, noise, crime), then there is no reason to subsidize sports.  The same can be said of operas, but my guess is that the negative externalities associated with major sporting events dwarfs that of big time operas.

Cash for Clunkers Hurt the Environment More Than it Helped

Back in 2009, President Obama’s “Cash for Clunkers” program was supposed to be a boon for the environment and the economy. During a limited time, consumers could trade in an old gas-guzzling used car for up to $4,500 cash back towards the purchase of a fuel-efficient new car. It seemed like a win for everyone: the environment, the gasping auto industry and cash-strapped consumers.

Though almost a million people poured into car dealerships eager to exchange their old jalopies for something shiny and new, recent reports indicate the entire program may have actually hurt theenvironment far more than it helped.

Story here.  Well it was probably more about giving back to the UAW than it was about the environment anyways, so it had that going for it.  Which is nice.

And the Lords Said, Thou Shalt Not Price Gouge

Yay.

And the people waited.  

Does time have no value, oh those who think price "gouging" is a bad thing?  Apparently not, especially when it's not your time that's being wasted.  Other people's time/money/stuff, and whatnot.

 

Calling Dr. Coase....

From the KC Star:

Gawkers come by the busload to see the Prairie Village house that owner Mike Babick has turned into a Christmas spectacle over the past 47 years.

Children gape at the thousands of twinkling lights. Grownups stare with joy and amazement at the hundreds of holiday figures and the robotic elves toiling away.

“Elves with hammers,” Babick said. “Elves with saws. Elves with candy canes. Elves with...”

Elves aplenty. Reindeer out the wazoo.

Yet Babick’s house at 7611 Falmouth St. may no longer be a must-see stop on the unofficial holiday lighting tour of Kansas City.

This week the Prairie Village City Council passed an ordinance that, Babick says, might make it unaffordable for him to carry on the tradition this Christmas. And he’s mighty bitter about it.

“It stinks,” he said Tuesday. “They’ve killed Christmas for me. Just killed it.”

City officials say that was not their intent in passing regulations Monday night that would require permits for any “special event” lasting five days or more that “is likely to or does in fact generate crowds ... sufficient in size to obstruct, delay or interfere with the safe and orderly movement of ... traffic.”

This is a good example of why externalities are a two-way street.  Babick's display is a safety hazard and creates annoyances for neighbors, but clamping down on it keeps him from enjoying Christmas as he sees fit.

Price Discrimination at 80 MPH and 1,000 (or so) Feet in the Air

From the Mankato Free Press:

This plane is plodding, noisy and old as great-grandpa.

And the paying customers couldn’t wait to have at it Thursday at Mankato Regional Airport.

“It was a thrill,” said Mankatoan Frank White as he stepped out of the 1929 Ford Tri-Motor following his 15-minute flight.

...The Ford Tri-Motor can be likened to a bus that takes flight. Its three engines produce a din and its cruising speed is about 80 mph.

“It’s ponderously slow, but I was surprised that it was so vibration free,” White said.

Added Rennick admiringly, “She’s a good old bird.”

Flights will be offered 9 a.m. to 5 p.m. today through Sunday at $80 for adults, $40 for children and free for children younger than age 6 if accompanied by a paying guardian. 

OK, so the price discrimination takes place on the ground.  In any case, it's been cool to see this plane puttering around the Kato skies.

 

 

Monkey Rejects Unequal Pay

Let the monkeys demonstrate (via Greg Mankiw) what happens when one gets unequal pay.  Thanks to Dan Marburger for sending me the link to Mankiw's post.  I tried to embed the video in this post but had no luck.