• blueberry pancakes maple syrup

    The Maple Syrup Heist

    Aug 31 • Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Economic Thinkers, Government, International Trade and Finance, Labor, Lifestyle, Thinking Economically • 18 Views

    According to the Daily Show, syrup related crime was exploding across Canada during 2012. Actually it was just one warehouse where, replaced by water, the maple syrup had been siphoned out.

    $18 million dollars of maple syrup.

    Barrels of maple syrup in a reserve warehouse in Quebec:

    Canadian maple syrup market controlled by its strategic reserve

    From: 16×9

    Selling for $1800 a barrel during 2012, maple syrup was (and still is) far more expensive than West Texas Crude. Still though, because no one expected a syrup robbery, there were no alarms, no cameras, flimsy locks. Rather easily, during an entire year or so, more than 20 people trucked the syrup to black market sources in Canada and the U.S. Once the heist was discovered, the gang was apprehended but little money and syrup were recovered.

    Where are we going? To why Canada has a maple syrup reserve.

    The Global Strategic Maple Syrup Reserve

    You might be wondering why there was so much syrup in one place. The reason is Canada’s maple syrup reserve. Created by producers, the goal is stable prices.

    On the supply side, optimal sap requires cold nights and temperate days that no one can guarantee. On the demand side, syrup is a discretionary purchase that fluctuates. The solution is a legal cartel called the Federation of Quebec Maple Syrup Producers–sort of like OPEC only enforceable. The reserve buys the syrup from more than 7,000 producers and then sells it to a small number of bulk buyers. Like Goldilocks, the people who run the reserve make sure there is not too much syrup nor too little but just the right amount that supply and demand require. As a result, what had been described as a whiplash industry became stable.

    Not all though are pleased. Saying they believe in the market, some producers had their syrup seized because they refused to comply with the reserve. The Canadian courts though have confirmed the Federation’s enforcement rights.

    Our Bottom Line: Adam Smith

    Perhaps we have a supply and demand dilemma. If price swings create whiplash for producers, do we want government to facilitate producer cooperation?

    Way back in 1776, in his Wealth of Nations, Adam Smith told us that, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” But, right after he said, “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

    Maybe the heist is about more than one warehouse robbery?

     

     

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    Why a Life Needs a Price Tag

    Aug 30 • Behavioral Economics, Economic Debates, Economic History, Environment, Financial Markets, Government, Health Care, Labor, Regulation, Thinking Economically • 58 Views

    On Friday evening I heard Kenneth Feinberg talk. The administrator of the funds that included the victims of 9/11, the Boston Marathon and the BP oil spill, Feinberg was involved with placing a price on a life. As he explained, the grief, the tragedy, the horror of the catastrophes could not be offset in any way by a payment that was fair or just. Instead, it was about a government or charitable group or a corporate entity displaying mercy.

    How to show mercy? With a check.

    So, if Mother Teresa and Bernie Madoff had each perished from a catastrophe like 9/11, whose family would have received the bigger check?

    Madoff’s.

    Where are we going? To the value of a life.

    9/11 Compensation

    Created by the U.S. Congress, the September 11 Victim Compensation Fund of 2001 provided tax free compensation for those who had been injured and for the families of the deceased. More than $7 billion was divided among 5,562 people. Because the law said that compensation would depend on financial hardship, salaries helped to determine who got what. Or, we could say that different lives got different prices.

    From Kenneth Feinberg’s book, I copied (below) some of the compensation given to survivors of the deceased.

    Value of a life from 9/11 fund

    From: What Is Life Worth?

    Our Bottom Line: Safety Regulation

    Most safety legislation quantifies the value of a life.

    A 13 MPH speed limit would have prevented many of 2013’s 32,850 traffic fatalities. We could say the higher the speed limit the cheaper the life. Below, on a production possibilities graph, you can see a time/life tradeoff. The more time saved from a high speed limit, the fewer lives we save.

    How speed limits relate to the Value of a life

    Similarly, regulators decided against using car seats on planes for babies when they compared the number of lives that would be saved to the amount that would be spent for the car seats and fares if lap babies were not permitted. Saying it would cost $3.25 billion to save one life, they decided against the mandate. In other words, for $3.25 billion they would sacrifice a life.

    And that returns us to Mother Teresa and Bernie Madoff. Selecting our criteria, we do decide what a life is worth.

     

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    Weekly Roundup: From Data Spies to Ivory Trackers

    Aug 29 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Humor, Economic Thinkers, Environment, Financial Markets, Government, Innovation, International Trade and Finance, Regulation, Tech, Thinking Economically • 50 Views

    Posts Roundup

    Economic news summary and soda taxes Sunday 8.23.15

    How soda surprised Berkeley…more

    Economic news summary and status symbols of grass Monday 8.24.15

    The message our grass sends…more

    economic news summary and stock market crashes Tuesday 8.25.15

    Where a stock market crash is a fat tail…more

    economic news summary includes minimum wage Wednesday 8.26.15

    Why a $15 minimum wage is misleading…more

    Economic news summary and why we get delivery attempted slips even when we're home. Thursday 8.27.15

    The data that push us at work…more

     

    ivory trade and the market Friday 8.28.15

    How the ivory market works…more

    Ideas Roundup

    • elasticity
    • incidence
    • taxes
    • conspicuous consumption
    • risk
    • stock markets
    • fat tails
    • minimum wage
    • cost of living
    • tradeoffs
    • income
    • incentives
    • productivity
    • markets
    • conservation

     

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  • ivory trade and the market

    What Fake Tusks Tell Us About Real Ivory

    Aug 28 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Environment, Government, International Trade and Finance, Lifestyle, Regulation, Tech, Thinking Economically • 64 Views

    Years ago, I had the opportunity to ask former Secretary of the Treasury Lawrence Summers a question. As he walked in one direction and I in the other, I waited for our paths to cross and then said that I taught economics and wondered what he thought was the most important idea my students could learn. Barely pausing, he said, “the power of the market,” and continued onward.

    Reading about the ascending price of African ivory as it moved from the bush to its final destination, I thought about how “the power of the market” propelled that ivory across a continent.

    The Path of the Ivory

    In order to learn about the (illegal) ivory trade, National Geographic planted their own fake tusks in the real supply chain. The tusks were made by a taxidermist who copied confiscated tusks from the U.S. Fish and Wildlife Service. Inside the fake tusks, he embedded custom-made GPS devices equipped with satellite tracking.

    Our goal right now is to trace the fake tusks’ path and price as they moved across Africa.

    Step 1 is the bush where real ivory tusks sell for somewhere between $66 and $397 a pound.

    The Beginning of the Ivory Trade Supply Chain

    (Yellow dots indicate payment sites in the bush.)

    Payments sites for ivory trade in the bush

    From: National Geographic

     

    Step 2 takes us to a consolidation hub in the southeastern section of Central African Republic. At a consolidation hub, the ivory would have been sold for somewhere between $220 and $496 a pound.

    The Middle of the Ivory Trade Supply Chain

    (Red dots indicate consolidation hubs and major transit areas. Black lines are trade routes.)

    Ivory trade supply chain

    From: National Geographic

     

    With Step 3, we have the ivory ready to be exported. In the National Geographic article, after 53 days and 592 miles, the fake tusks had not yet reached their final African stop. Here the price again bumps up, this time to as much as $882.

    The African End of the Ivory Trade Supply Chain

    (Red stars and dots indicate export hubs or major markets. Black lines are trade routes.)

    African supply chain for ivory trade

    From: National Geographic

    The real price pop though is in Asia where the tusks could fetch $4630 a pound.

    Our Bottom Line: The Power of the Market

    As the price for illegal ivory increased from $66 to as much as $4630 a pound, the market provided the incentive to keep the ivory moving from the bush to its final destination.

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  • Economic news summary and why we get delivery attempted slips even when we're home.

    The Data That Keep Track of Us at Work

    Aug 27 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic Humor, Economic Thinkers, Innovation, Labor, Macroeconomic Measurement, Tech, Thinking Economically • 85 Views

    Our story starts with a journalist who kept getting delivery-attempted stickers. After she left a note asking that packages be left at the nearby laundromat, still she got the notice. Even when she was in her apartment, the UPS man left an attempted delivery note.

    Where are we going? To see how big data is monitoring work place productivity.

    An $11 billion industry, “workplace management systems” are keeping an eye on many of us at work by monitoring what we do and how long it takes us. Here are some examples:

    Delivery Truck Sensors

    We could say that UPS is data driven.

    In addition to the handheld devices in which our UPS drivers enter delivery information, more than 200 sensors monitor what happens in their trucks. They tell UPS when and where a package is scanned for delivery and when the customer gets it. The firm knows when the driver buckles a seatbelt and when he (she) starts the motor. Drivers have a special key that cuts the time it takes them to get into and start a locked truck.

    Knowing how long each segment of the delivery process takes lets UPS minimize inefficiencies. As a result, while domestic deliveries were up from 2009-2013, the number of drivers was down. Also though some drivers report that performance monitoring has created additional stress and perverse incentives to guarantee speed—like using the delivery attempted sticker.

    Starbucks Flashing Lights

    My Starbucks has a drive-thru. If you look at a high shelf near the window through which the baristas hand the coffee and food to drivers, you see a screen with little cars and numbers. Changing from green to yellow to red, the color of each car indicates the wait time for that driver. Explained by my very knowledgeable barista Josh, I learned that green is excellent, yellow means you are close to the deadline and a red light indicates the car has waited too long. The goal is to serve each customer in no longer than 3 minutes. Drinks they can process quickly but heating food slows them down.

    A Chocolate Factory

    For many smiles, I suggest these two minutes of productivity from a 1950s I Love Lucy show.

     

     

    Our Bottom Line: Productivity

    Almost 50 years ago, economists William J. Baumol and William G. Bowen hypothesized that industries like health care and education and also the performing arts would experience “stable productivity.” Using their now-famous quartet example, they said “The output per man-hour of the violinist playing a Schubert quartet in a standard concert hall is relatively fixed, and it is fairly difficult to reduce the number of actors necessary for a performance of Henry IV, Part II.”

    Now called Baumol’s Disease, the inability to boost human productivity in certain industries might be cured by performance monitoring data. But, I do worry that the cure would “kill the patient” because of perverse incentives.

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