Sort of, we can “celebrate” a birthday. 5 years ago, the Great Recession began.
And that takes us to Texas where they can celebrate. Among the large metropolitan areas in the US, Austin (#1), Houston (#2), San Antonio (#4) and Dallas (#7) are in the top 10 for employment numbers that have surpassed their 2007 totals.
Why Texas? The Economist suggests it is because of mortgage regulations that precluded a severe housing crisis, population increases, and of course, energy.
Based on BLS (Bureau of Labor Statistics) data, this Economist chart illustrates the employment divide between Texas and California.
Sources and Resources: My facts are from The Economist and business cycle data from the NBER (National Bureau of Economic Research).
The day would begin with a pick-up that you scheduled through your phone app. When your self-driving car arrived at your front door, you would get in, check today’s drive time and start to prepare for your first meeting. On the highway, the vehicle could “chain” to a sister model. At the office, it would drop you off and then return home to take your children to school. Or, it might just travel to the city’s periphery to rest for the day in a driverless car parking lot.
Much more than a gadget, “autonomous vehicles,” could make a huge difference.
Additional productivity in the car.
Extra relaxation time.
More safety. (After 50,000 of test miles that had no human intervention, driverless cars had no accidents.)
Less traffic because of “chaining” vehicles.
Fewer parking lots occupying valuable real estate in major cities.
More mobility for non-drivers.
Diminished carbon emissions from more efficient vehicle use.
This video of a Google car on city streets is great, especially when it stops as a garbage truck cuts in front of it and when a group of children cross the street.
New technology means winners and losers. During the beginning of the 20th century as auto ownership multiplied, buggy whips became obsolete and the US horse and mule population plunged from 26 million in 1915 to 3 million in 1960. Meanwhile, suburbia and McDonald’s became possible and gas stations became a necessity.
I know that the introduction of self-driving cars involves countless complexities. But maybe, like the first autos, they could become a transformative technology. If so, we would again have Joseph Schumpeter’s (1883-1950) creative destruction through which existing industries become obsolete because of innovation.
A final fact: Asked who pays the summons when the car goes through a red light, Google co-founder Sergey Brin said, “Self-driving cars do not run red lights.”
Sources and Resources: For details on driverless cars, I recommend this paper from KPMG and the Center for Automotive Research (CAR) and a briefer but excellent discussion from the Economist. For a reality check, though, here are articles from CNN on tests in Nevada and California whose legislatures have said that Google and other developers could test their driverless vehicles on their roads as long as a person sits behind the wheel. Also, thanks to economist Timothy Taylor’s The Conversable Economist for an introduction to self-driving vehicles.
My source for this chart on the complexities of making driverless cars a reality was the CAR paper.
Behavioral economist Dan Ariely explains that when one of the first sellers of bread machines placed it on the shelf, few people were interested because they could not judge the price. At that point, market researchers suggested selling a much higher priced, larger model nearby. The result? As Ariely said, “Since one was clearly much larger and much more expensive than the other, people didn’t have to make their decision in a vacuum. They could say, ‘Well, I don’t know much about bread makers, but I do know if I were to buy one, I’d rather have the smaller one for less money.’ And that’s when the bread makers flew off the shelves.”
For the price of gas also, relativity matters. Called reference pricing, we judge the price of regular by where it has been. If the price of gas is rising, used to spending less, consumers have a lower reference price, like $3.50, and respond negatively to $3.75. However, when prices descend, the reference price is higher, maybe $4.00 and $3.75 sounds rather good.
Giving his interpretation of relativity, economist James Hamilton believes that most of us ignore rising gas prices until they move beyond their high for the previous 3 years. It appears that, at an average of $4.66 (graph, below), California is there.
Here is where average gas prices have been in California and the US for the past 36 months (from gasbuddy.com):
Sources and Resources: I recommend Predictably Irrational, the source of my Dan Ariely quote (p. 15) and a good read. For more on “framing,” a phenomenon that resembles reference pricing, Daniel Kahneman’s Thinking Fast and Slow is fascinating. And, for the academic perspective on gas and oil James Hamilton’s blog, Econbrowser provides a wealth of information. Finally, econlife tells more about gas prices here.
Sometimes 25 cents at the gas pump can make a huge difference.
Economist James Hamilton explains why with his “rough rule-of thumb” correlation between the price of crude and gas at the pump. When crude increases by $10 a barrel, then the price of gas rises by 25 cents per gallon. As a result, that 25-cent increase per gallon can lead to a ripple of lower spending elsewhere and perhaps, a recession.
From there, Dr. Hamilton reminds us that the oil supply disruptions from the Suez Crisis (1956), the OPEC Embargo (1974), the Iranian Revolution (1978), the Iran/Iraq War (1980), and the first Persian Gulf War (1990) all preceded a recession. And then he hypothesizes that the recent “Great Recession” might indeed relate to the oil price increase of 2007.
At the moment, averaging $3.72 nationally, the price of gas has been rising.
Why? The reasons range from more domestic driving to a refinery fire in California to demand from newly industrialized nations. Also, recalling other crisis supply disruptions, we should keep an eye on the impact of Iranian sanctions. Here though, Dr. Hamilton cites optimism about the US and Chinese economies as the primary cause of rising oil prices.
With gasoline prices having gone up 7.2% during the past 2 months, are we feeling the impact of that extra 25 cents?
Sources: Professor at University of California, San Diego, James Hamilton’s econbrowser blog (which I recommend) was the source here and here of most of my oil ideas and facts as was his recent NBER paper. Also, this WSJ article is a good source of current facts about gas prices as are this and this from econlife.
If you lived in Richmond, California, would you vote yes or no for their proposed soda tax?
The tax is unusual because it does not charge people at the register. Instead, retailers would have to pay a license fee that is based on how many ounces of SSBs (sugar sweetened beverages) customers purchase. The city expects sellers to increase prices because of the fee.
City councilmen who like the proposal remind us that half of the children in Richmond are obese and that they can use the $3 million they project for sports fields, children’s diabetes treatment and nutrition education. An economist might add that the fee is Pigovian named after Arthur Pigou (1877-1959) who supported the concept because it discourages undesirable behavior and raises revenue.
On the other side, City Councilman Corky Boozé said it is unfair that the tax targets the poor. In a more affluent community, residents have the ability to avoid it by traveling elsewhere but not in Richmond where few people can afford cars. ”I eat sweet potato pie and candied yams,” he added, “And what about cupcakes? Are they going to tax them?” Predictably, one store owner worries that his business would suffer if he passes along the entire fee of 68 cents on a 2-liter drink to his customers.
Opponents also point out that the license fee is regressive. With a regressive tax or fee, the poor pay a higher percent of their income than those who earn more. Assume for example that 2 people both buy the same item and pay a $10 sales tax but one earns $100 a year and the other, $1000. The first individual is paying 10% of her income while for the second, it is 1%.
So many issues…
Do you believe the license fee is fair? Do you care if its impact is regressive? Do you like a Pigovian approach? Does it reflect an appropriate role for government?
In November, at the Richmond polls, how would you vote?
To read more about soda taxes, this NY Times updatediscusses New York City’s large size sugary beverage ban and here, here and here econlife looks at soda and fat taxes. For an academic approach, this Chicago Fed paper also focuses on the impact of soda taxes while details about the Richmond proposal are in this PBS interview, this NY Timesarticle and a WSJstory.
