• 15474_2.14_000007210772XSmall

    Recycling Garbage

    Feb 14 • Thinking Economically • 233 Views

    A recent article in SF Gate focused on Berkeley’s garbage problems. Because of Berkeley’s commitment to recycling, the revenue it receives from garbage collection has dropped precitously. Less garbage means more job and service cuts.
    If people everywhere are recycling and composting, and if cities like Washington, D.C. are charging bag taxes, what is the cost? How are time, money, and jobs affected? Berkeley’s recylers take us to a much larger issue. They return us to opportunity cost and free lunches.

    The Economic Life
    Any decision we make has an opportunity cost. Any time we decide to do one thing, we sacrifice the next desirable alternative.

    No Comments

    Read More
  • The Debate Between Equality and Efficiency

    Feb 13 • Thinking Economically • 192 Views

    Speaking about the current political climate in “The Populism Problem”, James Surowiecki, New Yorker columnist, cites our contradictions:

    • Solve unemployment but cut the deficit
    • Implement health care reform but limit government
    • Help your society but protect yourself

    Surowiecki’s comments reminded me of Arthur Okun’s Equality and Efficiency: The Big Tradeoff (Brookings, 1975). Always, we have demonstrated a tension between our democratic heritage and our economic aspirations. Equality implies a smaller economic pie. With efficiency we get the bigger pie but also greater individual wealth and power.


    The Economic Life
    The Okun tradeoff is reminiscent of the debate between Alexander Hamilton and Thomas Jefferson. Willing to accept the cost, Hamilton’s priority was stimulating business and industry. Indeed, we could call Hamilton the father of our economy. Jefferson, by contrast worried more about democracy and the virtue of the “yeoman” farmer.

    No Comments

    Read More
  • Blanket Competition

    Feb 12 • Thinking Economically • 279 Views

    Hearing that American Airlines was charging eight dollars for a blanket and pillow brought back memories of airline deregulation, Eastern Airlines, and People Express.

    Does anyone remember the Eastern Shuttle? With a government given monopoly on flights between LaGuardia and Washington, D.C., Eastern guaranteed fliers a seat on every flight. You could arrive at the airport with minutes to spare and know that Eastern would roll out a new plane if the scheduled flight was full. Because fares corresponded to costs, Eastern made money.

    In 1978 everything changed. With government no longer mandating interstate routes, competition surfaced and all airlines, including Eastern, had to change their behavior. Suddenly, someone else (New York Air) was charging a lower fare and advertising. They had to respond.
    Charging lower fares meant consumer choice. You could fly more expensively or take the “no frills” airline (People Express) and pay extra for everything, even food.

    Smiling, commentators are predicting what might be next.

    The Economic Life
    The market structure in which a firm competes shapes its behavior. As a monopoly, firms are price makers. They have considerable control over how to generate profits. At the other end of the competition continuum, perfectly competitive firms such as wheat farmers have their prices established through demand and supply in the marketplace. They have little power. With deregulation, the power of firms such as Eastern Airlines changed considerably.

    No Comments

    Read More
  • Random Snow Stories

    Feb 11 • Thinking Economically • 199 Views

    Property rights
    When you shovel a parking space, does it remain yours when you pull out? In Boston, if you shovel out your car during a snow emergency, the space is yours for at least two days. Just “reserve” it with a lawn chair or trash can. 

    Fiscal policy
    -Federal employees will be paid for snow days. The total? Close to $100 million a day.
    -Snow removal costs are exceeding all estimates. Virginia is beyond its $104 allocation. Philadelphia’s Mayor Nutter just said “We’ll figure out budget issues later.” Weeks ago, a Wisconsin town clerk said they would only plow curves, intersections, and hills.

    The headline said, “Robot Snowplow from Japan Eats Up Snow, Poops Out Bricks.” The snow bricks are then deposited in a river

    No Comments

    Read More
  • Not Always Dismal

    Feb 10 • Thinking Economically • 217 Views

    From assorted sources, I share the following:
    1. Poetry on the housing crisis from Karl Case (the Case in Case-Shiller Home Price Index)
    An excerpt:
    Fannie and Fred were always ahead,
    Then Countrywide got in the fray.
    Then Lehman and Merrill and Goldman Sachs
    Couldn’t be kept away.
    You can guess that MBS
    Helped make the trading brisk.
    Investors thought that the paper they bought
    Was traunched with well-measured risk.
    To that, add leverage and default swaps,

    2. From Yoram Bauman (an economist/comedian), some economic humor:
    Knock knock.

    No Comments

    Read More