• Large planetoid in empty space

    Asteroids and the Wild West

    May 3 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Innovation, Macroeconomic Measurement, Uncategorized • 541 Views

    I’ve been wondering who should own an asteroid.

    This takes me back, for a moment, to colonial Massachusetts. When many of the first colonists arrived, they farmed communal fields where some got less and others got more. Soon though, unhappy sharing, those with less moved westward. Their goal? Generate wealth on their own fields, farms, homes.

    As a result, from one new settlement to the next, moving westward, public property became private property.

    Maybe, an asteroid is rather similar.

    A new firm, Planetary Resources, with funding from by Google’s creators and Avatar’s James Cameron, has its eyes on the wealth of the universe. Beginning with robotic earth orbiting observatories for collecting and selling data about asteroids, their ultimate objective is to mine asteroids.  Space based platinum could be worth billions. (A new statistic? GUP–Gross Universe Product)

    One glitch might be the 1967 United Nations Space Treaty. Signed by the US and 99 other nations, the treaty says that, “Outer space, including the Moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.” One researcher called outer space a “celestial commons.”

    Does that include asteroids?

    The Bottom Line: I am concerned about incentive. Everywhere, private property provides the incentive to innovate and develop resources.

    And that returns us to the massive resource wealth of the US that entrepreneurs developed because it could become their private property.

    Reading about Planetary Resources in these articles was such a pleasure, here, here, and here.

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  • For Food Trucks, it’s More Than a Space Race

    May 2 • Uncategorized • 918 Views

    By Mira Korber, guest blogger.

    It all sounded so tidy. I thought operating a food truck was simple. (1) Get up in the morning, (2) secure the best parking space, (3) sell food. I was wrong.

    While the parking space is critical to a food truck’s success, there’s more to the story. 3,000 wheeled watering-holes take to the NYC streets each year, and financial feast or famine for the truck owners depends on a number of factors.  After listening to a Planet Money podcast, I thought wide sidewalks, the sunny side of the street, and someplace with few restaurants and hoards of hungry office employees would guarantee profits. According to interviewee and Rickshaw Dumpling truck driver Kenny Lowe, there exists a “mystical spot in midtown that every truck driver dreams of.”

    But then, Lowe  went on to discuss the government’s rules:  no vending from metered spaces, avoid fire hydrants, remain 20 feet from entrances to public buildings, and 200 feet from any school. By the way, you may have to violate one or more of these rules to get a good spot for the day. If the spot is truly fruitful, parking tickets are a small transaction cost when you can make thousands thanks to the location. And one more thing about location: drivers have to watch out for agile food carts, which, in Lowe’s opinion “always win.”

    Here’s another massive difficulty: securing a permit for the food truck, an issue of occupational licensing. It’s a question of markets vs. government regulation in the form of issuing permits. Food truck operators have to apply for permits validating the safety of their product, and only a limited number of permits are released each year.

    Again, it sounded simple. It’s $200/year for a permit. But then the Wall Street Journal illuminated some complications. The waiting list for a permit is over 2,000 applications long. What happened next? Logically but regrettably, the black market blossomed. An illegally rented permit can fetch over $14,000/year. With protectionism (only 3,000 permits are allowed simultaneously), the black market is unlikely to disappear.

    The Bottom Line: The food truck industry is more complicated than monopolistic competition on wheels.  Before that competition can even occur, drivers must contend with congested streets, parking restraints, government regulations, and acquiring fresh produce, not to mention the expanding black market for permits.

    The greatest challenge may be to determine which regulations are valid regarding how much should these trucks be allowed to compete. Of course health and safety is the number one priority, but should other regulations prevent trucks from entering the business?

    All you want to know about parking spaces and food trucks here, from Planet Money. NYC.gov on applying for a food truck permit. The WSJ on food truck permit black market prices. Thoughts on industry regulations from Slate. And an Econlife post about occupational licensing and markets vs. government.

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  • Dollar Wars

    May 1 • Behavioral Economics, Demand, Supply, and Markets, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 742 Views

    By Mira Korber, guest blogger.

    Do you have a coin jar? I do. It is home to my quarters for NYC parking meters.

    Now, imagine if the dollar bill didn’t exist, but a dollar coin did. Coin jars would probably hold more than just quarters.  Why? The “coin jar effect.” But before we talk about that, let’s look at the background story.

    1. Sens. Tom Harkin (D) 0f Iowa, and John McCain (R) of Arizona are leading the charge to vanquish paper dollar bills from existence. Calling coins the more cost-effective (and vending machine friendly) option, they have proposed a bill eliminating paper bills in the one dollar denomination.

    Worth noting: Harkin and McCain both hail from states that would profit from producing coins instead of bills.

    2. Douglas Crane and “Americans for George” oppose the coin groupies, and say that paper dollars are better.

    Also worth noting: Mr. Crane gives the behemoth paper company “Crane and Co.” its name. Said company produces the paper on which dollar bills are printed.

    Here’s the funny part: both sides point to the same Government Accountability Office report. And within the report, you can see that coins last about 30 years and each costs about 15 cents to make, which is .5 cents/year. Each bank note lasts about 4.5 years and costs about 2.7 cents to make, which is .6 cents/year.

    Enter the “coin jar” effect. People simply don’t like carrying around a pocket of jangling change. So they put it into a jar, where it either sits idly, or perhaps feeds a few meters. For example, in Canada and the UK, the government had to produce 50% more one dollar coins than it did with dollar bills, simply because people stuffed their coins into jars and didn’t use them.

    Paper starts looking more attractive, yes?

    But here’s another twist: the very same GAO report recommends switching to coins, which would yield $4.4 billion net benefit to the government over 30 years, thanks to “seignorage.”

    Seignorage is extra profit the government makes by putting more money into circulation. By buying bonds, the Fed releases its dollars into usage. Then, those bonds accumulate interest, which outweighs the cost of producing the dollars; there’s the seignorage, or extra money turned over to the government. Returning to the “coin jar effect,” more coins mean more interest, which means more seignorage and government profits.

    According to Wake Forest University economist Robert Whaples, “The government can make profits in all sorts of bad ways.” He (and other economists) think seignorage is one of these “bad ways,” because here, an individual’s loss is government’s gain.

    So, according to the economists, it looks like dollar bills “win” the bills/coins war.

    The Bottom Line: Finally, this lobbying war over coins vs. bills points to one question: how should the US government make money? The “coin jar effect” doesn’t seem to hold the answer.

    Most source material for this post can be found on NPR – here and here. The Washington Post pro-coin editorial is here. And the GAO report, here.

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  • Aging Populations

    Apr 30 • Developing Economies, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically, Uncategorized • 803 Views

    Just remember 4-2-1-whenever you think of Chinese demographics.

    4 refers to 2 grandmas and 2 grandpas, 2 is their adult children and 1 is the next generation.

    The social fabric of China is shifting. In rural areas, the elderly population is growing as the young leave their parents and move to the cities. For those in urban areas, families are smaller, many with one child. With families separated, their traditional caring network is uprooted.

    What does all of this mean? A family centered culture will have fewer children with siblings. In the home, a nation with an inadequate old age pension system will have fewer adult children to care for the aged. Meanwhile, at work, there will be relatively fewer people in the labor force supporting a larger old age cohort.

    Our Bottom Line: China is one of many nations that will have to cope with the economic implications of an aging population. As of 2011, neither China nor the U.S. was among the world’s 10 “oldest” countries with relatively large populations of people age 60+. At the top of the list is Japan (31%) and then Italy (27%) and Germany (26%). Greece is #7 (25%), and Portugal #8 (24%).

    However, China is among a list of countries whose over 60 population will increase by the greatest percent. Between 2011 and 2050, Harvard researchers say that China’s aging population will rise 21% and represent 34% of their population by 2050.

    And that returns us to 4-2-1.

    I especially recommend this new World Bank report for up-to-date information on China’s aging population. Also, my facts about Chinese demographics came from a Working Paper from Harvard,  The Economist, here, the New England Journal of Medicine, here, and the Population Reference Bureau (PRB), here.

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    Bank Robbers and Structural Unemployment

    Apr 29 • Businesses, Economic History, Financial Markets, Money and Monetary Policy, Uncategorized • 608 Views

    The number of bank robberies is plunging. Maybe it’s outsourcing…just like manufacturing?

    During 2011, the number of bank robberies declined to a 9-year trough of close to 5000. The reason, according to one analyst, is technology.

    As we spend more online and swipe more at Starbucks and elsewhere, we need less currency. Consequently, bank tellers need less cash. The result? Less to rob. A typical bank robbery now nets $8623. Three to five years ago, the total was between 10 and 15 thousand dollars. Maybe hacking, a more lucrative approach, is taking over the trade.

    Our Bottom Line: Just like manufacturing, the skills needed for a successful bank heist are shifting. Economists might characterize the trend as structural unemployment. With jobs digitizing, the fundamental structure of the U.S. economy is changing. Whether it’s jobless buggy whip makers when the auto took over or unemployed typewriter workers because of computers, structural unemployment demands new skills.

    Similarly, the skills needed by a successful bank robber or lower level assembly line worker have been replaced.

    You can see some interesting data from the FBI on bank robberies here. Looking at the numbers, I wondered why Connecticut and Texas had a disproportionately high number of bank robberies. Also, Monday is the least typical day for a heist. For the analyst who formed the hypothesis about declining bank robberies, here is a Bloomberg interview from their “Weird Wall Street” series. And finally, for an historical summary of the structural changes in manufacturing, this Economist article on “The Third Industrial Revolution” was good.

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