• Everyday economics: A misery index number conveys the potential distress created by unemployment and inflation.

    An Economist’s Definition of Misery

    Oct 26 • Behavioral Economics, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Government, Households, Labor, Macroeconomic Measurement • 119 Views

    Just by looking at inflation and unemployment, an economist can explain misery.

    Created by Arthur Okun, the misery index is a yardstick of economic distress. By adding together the inflation rate and the unemployment rate, we can measure the extent to which prices and unemployment have risen. You can imagine that when purchasing power dips and lots of people are jobless, there are fewer smiles.

    High and Low Misery Indices

    Curious about the world’s misery indices, I went into ieconomics to access my data and calculated an index for 40 randomly selected countries. Using the most recent annual inflation and unemployment rates as of September 2014, I discovered that Venezuela had the highest misery numbers and Switzerland, the lowest.

    While the misery index weights unemployment and inflation equally, scholars have suggested that unemployment has a much greater impact on our happiness–precisely 2.5%. Yes, in a Boston Federal Reserve paper, scholars hypothesized that unemployment causes 2.5 times as much misery as rising prices. (Interesting because inflation could be even more worrisome but, unless out of control, is less noticeable.)

    If the Boston Fed paper is right, then Venezuelans (inflation rate 63.42%; unemployment rate 6.7%) are not as unhappy as their misery index indicates. Meanwhile, eurozone countries have misleadingly low misery indices that, based on unemployment, could be higher.

    Eurozone Unemployment Rates:

    Data From: ieconomics

    Data From: ieconomics

    We should note that using MIT’s billion price project, all misery indices would be higher.

    Our Bottom Line: Eurozone Problems

    With the misery index elevated by different levels of eurozone unemployment, we are returning to questions about the efficacy of a common monetary policy without centralized fiscal (taxing, spending, borrowing) power.

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  • The econlife.com Weekly Roundup

    Our Weekly Roundup: From North Carolina to Norway

    Oct 25 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Economic Thinkers, Gender Issues, Government, International Trade and Finance, Labor, Regulation, Thinking Economically • 132 Views

    McDonald's Delivers in Many Developing Nations. SUNDAY 10.19.2014

    The reason the Russian McDonald’s is shrinking…more

    Ebola's impact on GDP is mostly from our behavior. MONDAY 10.20.2014

    The economic impact of ebola fear…more

    Because of new attitudes and economics, there is less supply of "marriageable" men and more valuable women in marriage markets. TUESDAY 10.21.2014

    How more valuable women lead to less marriage…more

     

    Everyday economics and Norway's EV Subsidies WEDNESDAY 10.22.2014

    Why Norway has so many Teslas…more

     

    Everyday economics and The issue of occupational licenses is really a market or government debate. THURSDAY 10.23.2014

    The damage from occupational licenses…more

    Because of monopolistic competition, gasoline retailers has some control over price. FRIDAY 10.24.2014

    The problem with sticky gas prices…more

     

    Economic Ideas Roundup

    • monopolistic competition
    • sticky prices
    • subsidies
    • regulation
    • supply and demand
    • opportunity cost
    • incentives
    • marginal utility
    • foreign direct investment (FDI)
    • comparative advantage

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  • Because of monopolistic competition, gasoline retailers has some control over price.

    Up Like a Rocket, Down Like a Feather

    Oct 24 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Thinkers, International Trade and Finance, Thinking Economically • 109 Views

    At your local gas station, you might be seeing some sticky prices.

    Although barrels of West Texas Intermediate (WTI) and Brent Crude have steadily gotten cheaper, the price at the pump has had a less steep downward trajectory. One economic study observed that it took four weeks to reflect a crude price increase but eight weeks to respond when price dropped. In other words, many gas stations take twice as long to react to a declining wholesale price.

    Sticky Gasoline Prices

    Below, you can see that retail gasoline had a 13% price drop from $3.53 to $3.07. Meanwhile, for WTI, decreasing from $100.29 to $82.76 a barrel, and for Brent, $104.88 to $84.42, the fall was close to 20%.

    The U.S. national average price per gallon of regular gasoline in dollars from April 7, 2014 to October 20, 2014:

    Monopolistic competition and gas prices

    From: U.S. Energy Information Administration

    Meanwhile, looking at Cushing, OK WTI Spot Price in dollars per barrel from April 3, 2014 to October 20, 2014, you can see a bigger decline:

    Supply and demand for WTI crude

    From: U.S. Energy Information Administration

     

    And, for the Europe Brent Spot Price in dollars per barrel from April 3, 2014 to October 20, 2014, the decrease resembled WTI’s:

    Supply and demand for Brent price decline

    From: U.S. Energy Information Administration

     

    Why is the retail gas price falling so slowly??

    On the demand side, a possibility is reference pricing. When the price of gas is rising, consumers, used to spending less, have a lower “reference price,” like $3.50, and actively try to adhere to it. By contrast, when prices fall, the reference price is higher, maybe $4.00. Consequently, we are delighted that the price is below that level and do less comparison shopping.

    On the supply side, some stations might have relatively small competitive pressure. If no other nearby station is lowering prices, then everyone can delay. And, if that delay is supported by customer loyalty, then the retailer’s market power becomes even stronger. Sometimes, though, it’s not even cost effective to drive onward and search for cheap gas.

    And finally, gas prices are not alone. Looking at 77 consumer items, University of Chicago economist Samuel Peltzman concluded that sticky prices are a common phenomenon.

    Our Bottom Line: Monopolistic Competition

    A market in which there are many firms that sell goods and services that they can distinguish from others, monopolistic competition gives retailers like gasoline stations some price control. The result? Gas prices go up like a rocket but drift down like a feather.

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  • Dynamic Toll Prices

    Dynamic Toll Prices

    Oct 23 • Perspectives • 107 Views

    By Astha Puri with Elaine Schwartz

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  • Everyday economics and The issue of occupational licenses is really a market or government debate.

    You’ll Need a License for That

    Oct 23 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, Innovation, Labor, Regulation, Thinking Economically • 222 Views

    In North Carolina, a licensing board composed mostly of dentists decided that spas, salons, and kiosks in malls could not legally whiten teeth. While the board says it is preserving quality, others say the reason is price. Charging far less, the mall kiosk is taking away business from dentists.

    Here, the story gets complicated because antitrust law kicked in when the Federal Trade Commission took the North Carolina Board of Dental Examiners to Court. The question was whether a group composed of dentists is illegally barring others’ market entry. The Supreme Court just heard the case.

    Rather than antitrust law, though, I wonder whether the real economic issue is occupational licenses.

    Licensed Occupations

    In Texas, becoming a “shampoo specialist” includes 150 hours of classes while to renew your license, Cosmetology to Go will charge a $25 fee and provide four hours of continuing education in sanitation, skin, hair and nails, and OSHA regulations. In Alabama, 140 occupations require licenses. The list includes aircraft pilots, eyebrow threaders, massage therapists, natural hair stylists, medical doctors, shampoo assistants and sign language interpreters and transliterators.

    A type of occupational regulation, licensing impacts the jobs market. Licensed occupations can have greater prestige, protect consumers, pay higher wages (estimated at 18% more) and raise state revenue. On the other hand they charge higher prices, preserve the status quo and discriminate against low income consumers and entrepreneurs.

    You can see below how the number of licensed workers has skyrocketed. During the past 50 years, licensed occupations have multiplied from 5% of U.S. workers to 33 percent in 2014.

    From: "Kleiner and Kreuger

    From: Kleiner and Kreuger

     

    Our Bottom Line: Market vs. Government

    We could say occupational licensing is a market vs. the government issue. Some say less demand from the market will do the job while others depend on government.

    For shampoo specialists, would you choose the market or government?  School bus drivers? Veterinarians? Florists (required in Louisiana)?

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