Listening to a wonderful Radio Lab (WNYC 10/09/09) podcast on Numbers, I started to think about a comment about what you can learn from a gas pump. $1.40? Maybe a teenager with little to spend. $10.04? Probably a cash payment but the attendant did not turn off the equipment fast enough. $60.00? A person with a credit card and a large gas tank.
Indeed, prices tell a story, provide information, and serve as incentives and disincentives. When prices are set by government, they lose their ability to convey information and affect behavior.
Maybe we can call prices messengers?
Listening to a wonderful Radio Lab (WNYC 10/09/09) podcast on Numbers, I started to think about a comment about what you can learn from a gas pump. $1.40? Maybe a teenager with little to spend. $10.04? Probably a cash payment but the attendant did not turn off the equipment fast enough. $60.00? A person with a credit card and a large gas tank.Read More
Reading the Concord Colition’s 15 page assessment of health care reform provides a sound sense of the questions I would like to ask. http://www.concordcoalition.org/files/uploaded-pdfs/1223FinalHealthCarebrief.pdfRead More
1. Does it matter that people who fund the program will not benefit? During the 1930s, when Social Security was passed, its originators believed it would achieve success only if those paying for it received its benefits. They did not want a poverty program.
2. Which incentives are being created? I wonder whether, for consumers, there is an incentive to consume more and, for physicians, a disincentive to provide more.
3. Will taxes on the affluent increase revenue and will economic growth be affected? (you might look at: http://seekingalpha.com/article/78256-lying-with-charts-wsj-edition) Certain economists have tried to prove that even when tax rates change, tax revenue remains a relatively consistent proportion of GDP (18%).
4. And finally, as suggested by Arnold Kling during a December 18 Bloomberg/Tom Keene interview, can those with power know enough to design appropriate legislation for so many diverse people?
According to Wharton School economist Joel Waldfogel, we might be better off if we stop gift giving. Dr. Waldfogel says that all too often, the value of the gift to the recipient is less than the price the giver paid. The resulting “deadweight loss” makes him conclude that holiday gift giving is not as beneficial as many assume.
Perhaps this is an ideal example of economists knowing the price of everything but not the value or (opportunity) cost.
Waldfogel discusses his research in a recent Slate article and today’s “Note”, a youtube interview:
Deadweight Loss: Value that “disappears” because a price does not reflect a cost/benefit match. If you are willing to pay $30 for a t-shirt which cost a gift giver $50, then the deadweight loss is $20. If the giver got $10 of pleasure, still the deadweight loss in $10.00. More typically, deadweight loss refers to taxes and monopoly pricing.Read More
During the 1990s, ignoring the protests of horrified Italian cheesemakers, the US placed a tariff on Pecorino cheese. The reason was bananas. Favoring their former colonies, the EU taxed bananas coming from all other Latin American countries that were grown primarily by US firms like Chiquita and Dole. The Pecorino tax was a retaliatory policy.
Finally the (banana) warring countries have agreed on a solution and all bananas will be treated equally. An article about the banana war is at:
David Ricardo, a nineteenth century British economist, was the first to defend free trade through the idea of comparative advantage.Read More
Comparative advantage: When each nation produces goods and services that have a low opportunity cost (less sacrifice) and trade them for what they do not produce, production is more efficient throughout the world.
Some say that it is unethical to pay someone for a kidney while others say it is unethical to use a method (a government list) that makes fewer donor organs available.
As always, choosing is refusing.
The debate continues in a recent NY Times article:
opportunity cost: the alternative that was sacrificed when making a choice; e.g. if pizza is sacrificed when I eat yogurt for lunch then pizza is my opportunity cost.Read More