Saturday , January 23 2021
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Articles by [email protected] (Cyril Morong)

Another Semester Has Started

1 day ago

Welcome to any new students. The entries usually have something to do
with a basic economic principle that is related to a recent news story.Here is something I wrote for The Ranger (the school paper of San Antonio College where I used to teach) back in 2011 titled "Why is college so hard?"Students might wonder why college, and SAC in particular, is hard. This
might sound trite, but I think the faculty at SAC want students to
achieve success in life and that means that classes have to be hard if
you are going to learn and understand the concepts which provide a
foundation for that success.I think my own experience as a
community college student over 30 years ago helps me understand this. My
teachers took their subjects seriously and maintained high academic
standards. They got me

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Financial Rewards for College Students Could Help Curb the Pandemic

5 days ago

A new study suggests ways of structuring payments to persuade even impulsive students to behave more cautiously
By Seema Jayachandran She is an economics professor at Northwestern University. Excerpts:"There are several ways such programs might work:A
university might announce that each week that students test negative,
they will be paid $50. Once they tested positive, they would no longer
be eligible for rewards.The
rewards could be structured as a one-time payment of $700 at the end of
a 14-week semester if students test negative every week.In
a blend of these two options, students could receive $350 if they
stayed negative for the first half of the term, then another $350 for
staying negative for the second half.Higher
or lower sums might be preferred. The important thing is

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Zombies might return and fighting them is art as well as science

6 days ago

See Zombies Could Stunt the Bank Recovery: Europe’s lockdown-support programs risk creating the kind of festering bad-debt problems that damaged its economy after the financial crisis by Rochelle Toplensky of The WSJ. Excerpts:"The region’s generous lockdown-support programs and patchwork of
insolvency laws could create so-called zombie firms—inefficient
companies kept alive by cheap debt. Last month, the European Central
Bank said this remains a risk.""Following both the global financial crisis and the eurozone crisis,
nonviable companies in Europe were kept alive by politicians worried
about job losses and lenders hesitant to acknowledge bad debts. The
zombies lowered markups, net investment and productivity in their
markets as well as inflation in the wider economy, according

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The CPI increased 1.4% in 2020

7 days ago

The 1.4% means that the CPI in December 2020 (260.474) was 1.4% higher than what it was in December 2019 (258.811).The 260.474 means that what cost $100 in 1982 cost $260.47 in December 2020.Now the CPI can go up and down during the course of the year and the Bureau of Labor Statistics calculates it for every month. So if it increased every month but then fell quite a bit in December, it might not look like there was much inflation.They also calculate an average CPI over the twelve months and then compare that to the one for the previous year. That inflation rate for 2020 was 1.2%. Those two figures are usually pretty close to each other, but not always.  In 2008, the Dec.-Dec. method gives a 0.1% inflation rate while the monthly averaging method was 3.8%. In 2009, those numbers were 2.7%

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Monkeys seem to be selfish and rational

8 days ago

From Marginal Revolution.
"At the Uluwatu temple in Bali,
monkeys mean business. The long-tailed macaques who roam the ancient
site are infamous for brazenly robbing unsuspecting tourists and
clinging on to their possessions until food is offered as ransom
payment.
Researchers have found they are also skilled at judging which items
their victims value the most and using this information to maximise
their profit.
Shrewd macaques prefer to target items that humans are most likely to
exchange for food, such as electronics, rather than objects that
tourists care less about, such as hairpins or empty camera bags, said Dr
Jean-Baptiste Leca, an associate professor in the psychology department
at the University of Lethbridge in Canada and lead author of the study.
Mobile phones,

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Car makers face ‘chipageddon’

9 days ago

See Ford, Other Auto Makers Cut Output, Idle Workers on Chip Shortage: Sector starts 2021 by idling plants, faces a ‘chipageddon’ with semiconductors in short supply by Ben Foldy of The WSJ. It is interesting that the demand increase for other products has affected the car market (see the passage in red below). Excerpt: "A chip shortage that has disrupted vehicle production in other parts
of the globe is reaching U.S. shores, stifling output for major car
companies and dimming prospects for a smooth recovery from the pandemic.

Ford Motor Co.

is planning to idle a Louisville, Ky., factory for a week starting
Monday, because of parts shortages stemming from limited supplies of
semiconductors now vital to everything from display screens to

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Cold Snap Sparks Record Rise in Natural Gas Prices in Asia

11 days ago

Traders are struggling to secure enough vessels to transport LNG from the U.S. Gulf Coast to Asia in time to meet rampant demand  By Joe Wallace of The WSJ. Good article illustrating supply and demand issues. It seems that an increase in demand and a decrease in supply are raising the price of LNG.Excerpts:"A blast of cold weather in northeast Asia [the demand increase] and a shortage of ships for
transporting gas have sparked a scramble for cargoes of liquefied
natural gas, igniting a steep rise in prices [I don’t think there is a shortage of ships just fewer ships available which has raised their price which gets passed on to the LNG customers-this is the price of a resource increasing (with shipping being a resource in getting LNG to customers) and that reduces supply. Remember that

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There is a positive relationship between prosociality and labor market success

12 days ago

See Prosociality predicts labor market success around the world by Fabian Kosse & Michela M. Tincani. Published in Nature Communications.Adam Smith said when people act selfishly they are led, as if by an invisible hand, to make society better off. For example, if a business wants to make a profit, it is in their interest to make a good product at a reasonable price. But that is good for society.But what if you are, say, altruistic and that makes you better off? Does that violate the invisible and or is it consistent with it?Here is the abstract from the article. The authors say that elements of prosociality include reciprocity, altruism, and trust."AbstractA
large literature points to the importance of prosociality for the
well-being of societies and individuals. However, most of this

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Rampant shoplifting leads to another Walgreens closing in S.F.

13 days ago

In my macro courses we read a chapter in the book The Economics of Macro Issues.
The chapter discussed how nations with common law systems, where
property rights are better protected than in nations with civil law
systems, have higher growth rates.See Rampant shoplifting leads to another Walgreens closing in S.F. By Phil Matier of The San Francisco Chronicle. Excerpts:"After months of seeing its shelves repeatedly cleaned out by brazen
shoplifters, the Walgreens at Van Ness and Eddy in San Francisco is
getting ready to close.“The last day is Nov. 11,” Walgreens spokesman Phil Caruso saidThe drugstore, which serves many older people who live in the Opera
Plaza area, is the seventh Walgreens to close in the city since 2019. “All of us knew it was coming. Whenever we go in there, they

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With No Commute, Americans Simply Worked More During Coronavirus

15 days ago

Employees spent over 22 million extra hours on their primary job each workday By Jo Craven McGinty of The WSJ. Excerpts:"From mid-March to mid-September, Americans spent 60 million fewer hours
commuting to and from work each day, according to one estimate, as
lockdown orders to curb the spread of Covid-19 forced many employees to clock in from home.""Primary jobs absorbed the largest chunk of the extra time—about 35.3%, or more than 22 million hours each workday, according to an analysis of census and survey data published last month.

Another 15.5% (more than nine million hours) was spent on home
improvements and chores; 11.1% (nearly seven million hours) was devoted
to child care; and 8.4% (more than five million hours) went to second
jobs.""Paradoxically,

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Used vehicle prices up as supply sinks, but relief is coming

16 days ago

By TOM KRISHER of AP.This is from last October but it is a good example of how supply and demand work. Excerpts:"It cost a whole lot
more to buy a used SUV, car, truck or van last month than it did before
the coronavirus hit, and that almost singlehandedly caused September’s modest consumer price increase.Blame it on the pandemic, which knocked supply and demand way out of whack, causing prices to spike.The good news is that inventories are being replenished, and prices are beginning to drop. “The
law of supply and demand worked,” said Earl Stewart, owner of a Toyota
dealership in North Palm Beach, Florida. “I think things are coming back
to normal.”When the novel
coronavirus made its way to the industrial Midwest and the South in
March and April, it forced automakers to shutter

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World Bank has lowered its projections for global growth in the 10 years that began in 2020

17 days ago

See Covid-19 Aftermath Could Spell a ‘Lost Decade’ for Global Economy, World Bank Says: Bank lowers growth outlook as pandemic disrupts trade, investment and education by Yuka Hayashi of The WSJ. Excerpt:"Even before Covid-19, the World Bank had lowered its projections for
global growth in the 10 years that began in 2020. The pandemic is
exacerbating that trend, raising the prospect of a “lost decade” ahead,
the World Bank said Tuesday, as it also cut its forecasts for the coming
year.

The bank’s semiannual Global Economic Prospects report
attributes the long-term downgrade to lower trade and investment caused
by uncertainty over the pandemic, along with disruptions in education
that will hamper gains in labor productivity.

“If history is any guide, unless

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Why Are Americans So Distrustful of Each Other?

18 days ago

The U.S. is the only established democracy where the level of social trust is falling instead of rising. Our political leaders can help turn the tide. By Kevin Vallier. He is a professor of philosophy at Bowling Green State University and has written a book called Trust in a Polarized Age. Excerpts:"Strikingly, the U.S. is the only established democracy to see a major
decline in social trust. In other nations the trend was in the opposite
direction. From 1998 to 2014, social trust increased in Sweden from
56.5% to 67%, in Australia from 40% to 54%, and in Germany from 32% to
42%. Meanwhile, the U.S. is becoming more like Brazil, where trust is
around 5%. What makes America unique?Social science research has found that three important factors behind
a country’s level of social trust

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Jeff Bezos vs. Joseph Schumpeter

19 days ago

In his book Capitalism, Socialism, and Democracy the economist Joseph A. Schumpeter discussed whether or not entrepreneurs would be come obsolete because technical progress would be come routine once it was controlled by big business and committees. A little bit like medieval knights or military generals becoming obsolete in times of peace.But it seems like Bezos wants Amazon to act like a new company all the time so it does not atrophy the way Schumpeter says big companies might. After excerpts from this article I will have excerpts from the book to give you an idea of what Schumpeter was saying. See How Amazon Wins: By Steamrolling Rivals and Partners: CEO Jeff Bezos still runs the e-commerce giant with the drive of a startup trying to survive, and that strand of its corporate DNA is

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How Capitalism Saved Christmas

20 days ago

The commercialization of the holiday, a familiar lament this time of year, helped rescue Christmas from the grip of violent street gangs By Jason Zweig of The WSJ. Economists talk about how gift giving can be inefficient (see related posts linked below). But if the emphasis on gift giving reduced the chaos caused by the gangs, maybe it it is worth it (or not quite so inefficient). Excerpts:"Everyone seems to complain about how Christmas has been
commercialized. But without the business of gift-giving that sprang up
in the 19th century, Christmas might still be what it once was for many
people: a riotous bacchanalia in which drunken gangs brawled in the
streets and bashed their way into houses demanding money and alcohol.

With the hard work of the harvest behind
them,

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Capitalism, rationality and double-entry bookkeeping

21 days ago

In his book Capitalism, Socialism, and Democracy the economist Joseph A. Schumpeter discussed the deep and widespread rationalizing influence that capitalism had on society, particularly that of double-entry bookkeeping.Excerpts:"the rational attitude presumably forced itself on the human mind from economic necessity; it is the everyday economic task to which we owe our elementary training in rational thought and behaviour’— I have no hesitation in saying that all logic is derived from the pattern of the economic decision."there is "inexorable definiteness and, in most cases, the quantitative character
that distinguish the economic from other spheres of human action,
perhaps also to the unemotional drabness of the unending rhythm of
economic wants and satisfactions. Once hammered in,

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The Staggers Rail Act of 1980 got American freight transportation back on track

22 days ago

See When Democrats Were Deregulators by Ian Jefferies. Mr. Jefferies is president and CEO of the Association of American Railroads. This is something I usually talk about when I cover regulation. Excerpts:"The bipartisan Staggers Rail Act of 1980, passed by a Democratic
Congress and signed by President

Jimmy Carter,

deregulated the freight railroad industry. When Mr. Carter signed
the law on Oct. 14, he said that “by stripping away needless and costly
regulation in favor of marketplace forces wherever possible, this act
will . . . benefit shippers throughout the country by encouraging
railroads to improve their equipment and better tailor their service to
shipper needs.”""Previously, railroad rates and service were set by government, and
carriers

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Florida counties give away vaccine for free and there are long lines

23 days ago

See Florida’s first-come, first-serve Covid-19 vaccination plan for the elderly leads to scramble by Eric Levenson, Angela Barajas and Ryan Young of CNN. Excerpt:"Florida’s
county-by-county plan to vaccinate its elderly population has created a
mass scramble for a limited number of doses, leading to hourslong lines
at vaccination sites and overwhelmed county hotlines and websites.In southwest Florida, the Lee County Department of Health encouraged anyone 65 and older
and high-risk frontline health care workers to come to one of seven
vaccination sites. Each site had just 300 vaccine doses, and "no
appointment is necessary," the county said. The
first-come, first-serve plan led to huge lines forming overnight
Tuesday as people camped out on lawn chairs and waited for hours." Here

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Milton Friedman vs. John F. Kennedy

24 days ago

This is an old post. But JFK came up in yesterday’s WSJ. See Biden’s Win for the American System by Rahm Emanuel. Mr. Emanuel was a senior adviser to President Clinton and chief of staff to President Obama. He represented Illinois’s Fifth Congressional District, 2003-09, and served as mayor of Chicago, 2011-19. Excerpt:"Everyone has a role to play. So now is a moment to lean into the first Catholic president’s inaugural admonition. As

John F. Kennedy

said in 1961: “Ask not what your country can do for you. Ask what you can do for your country.”" Below are the first three paragraphs from the introduction to Friedman’s 1962 book Capitalism and Freedom. Friedman won the Nobel Prize in Economics in 1976."IN
A MUCH QUOTED PASSAGE in his inaugural address,

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An AI Breaks the Writing Barrier

25 days ago

A new system called GPT-3 is shocking experts with its ability to use and understand language as well as human beings doBy David A. Price of The WSJ.This artificial intelligence "can generate news articles that readers may have trouble
distinguishing from human-written ones."In my macroeconomics class, we talk about the types of unemployment. This AI might be one of them if it replaces human writers.Structural-unemployment
caused by a mismatch between the skills of job seekers and the requirements of
available jobs. One example of this is when you are replaced by a machine. Excerpts from the article: "Word has been making its way out from the technology community: The
world changed this summer with the rollout of an artificial intelligence
system known as GPT-3. Its ability to

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Remembering the Radio Revolution

26 days ago

This year marks the centennial of KDKA, the Pittsburgh station that initiated regular programming and sparked a transformation in how we listen to music
By John Edward Hasse. He is curator emeritus of American music at the Smithsonian.It is interesting how quickly radio became popular and widely adopted. Excerpts:"But it was radio broadcasting, launched in the U.S. 100 years ago,
that made listening easier, more accessible and more inclusive. You
could tune into vast quantities of music without ever leaving your easy
chair. Radio decreased the differences between what different
communities—urban and rural, Black and white—could hear. For decades,
stations were white-owned and mostly barred Black performers, but the
radio airwaves themselves were open to all listeners.

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Physicist suggests that our seemingly ‘irrational’ decisions may be more accurate than previously thought by current economic and behavioral economic theory

27 days ago

See Is Everything We Know About (Behavioral) Economics Wrong? The ergodicity problem—looking at decisions from more than one point of view by Dr. Jeremy Nicholson, a doctor of Social/Personality Psychology. Excerpts: "I like the statement at the end, which is red and bold. It reminds me of one of the ways I have defined rationality. in my class on the first day. That we try to achieve our objectives by the lowest cost possible, based on the information that we have.I tell my students that we are not all Einsteins, that we make mistakes. But we do not knowingly make ourselves worse off. But again, we may not have enough information at the time of a decision to make the optimal choice. We might by a TV at Wal-Mart but find out the next day it was cheaper at Best Buy. That does not mean we

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Biden won 95% of counties with Whole Foods but no Cracker Barrel, and just 18% of counties with a Cracker Barrel but no Whole Foods

28 days ago

From Gabriel T. Rubin of The WSJ."WHOLE FOODS-CRACKER BARREL GAP reached its highest
level in the 2020 election. Biden won 85% of counties that have a Whole
Foods Market and just 32% of counties with a Cracker Barrel, according
to Dave Wasserman of the Cook Political Report.
Whole Foods counties tend to be higher income and located in
metropolitan areas, while Cracker Barrels tend to be in more rural
areas. The smallest gap since Whole Foods emerged as a national chain
was in 1992, when

Bill Clinton

won 60% of Whole Foods counties and 40% of Cracker Barrel
counties. Counties that have both stores are included in both
categories. Biden won 95% of counties with Whole Foods but no Cracker
Barrel, and just 18% of counties with a Cracker Barrel but no

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Use Data to Buy Gifts

December 23, 2020

See You’re Choosing a Gift. Here’s What Not to Do: Many of our natural impulses turn out to be wrong. Psychological research can help us choose wisely. By Daniel T. Willingham, is a psychologist at the University of Virginia. Excerpts:"When researchers asked
people to recall a gift they . . . had received, price
was completely unrelated to enjoyment.""Givers might favor the beautiful and dramatic because they think about
gifts in the abstract: “What’s a good gift?” Recipients, in contrast,
imagine themselves using it, and so focus more on utility.That’s why people buying gift cards for others often prefer luxury
brands over everyday brands, but the preference reverses when they are
buying for themselves. Indeed, a study examined
the prices that resold gift cards commanded on eBay,

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Do artists today respond to financial incentives? The answer, my friend, is blowin’ in the tax code

December 22, 2020

Yesterday’s post about Beethoven ended with a quote from him: "an artist has to be to a certain extent a businessman as well." The author of the article I quoted added "True then, true today."" It seems like some artists are businessmen now.See Bob Dylan’s Catalog Sale Highlights a Tax Advantage for Songwriters: Both the rock icon and the company buying his song rights could enjoy benefits by Richard Rubin and Laura Saunders of The WSJ. Excerpts:"The answer, my friend, is blowin’ in the tax code. The sale of Bob Dylan’s songwriting catalog to Universal Music Publishing Group, announced this week,
likely means he is trading an ongoing income stream for a lump sum now.
The price hasn’t been revealed but is said to be between $300 million
and $400 million.

Mr.

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On his 250th birth anniversary, remembering Beethoven the astute businessman

December 22, 2020

The musical genius also had a flair for commerce, it turns out  By Luis Dias writing for Scroll.in magazine. Beethoven turned 250 this past December 16. Even Art can never be completely divorced from economics. Excerpts"Once Beethoven had poured his creative energy to the fullest into a
composition, he regarded it as commercial property, deserving the best
possible price on the most favourable terms. Of the hundreds of his
letters that have survived, a major chunk deals with the mundane
business of getting published: pitching a work, complaining about poor
terms, bargaining, and correcting proofs. This is hardly surprising; he
is perhaps the first composer whose income depended so much on being
published, even more so after his crippling deafness gradually put an
end to his

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Why being kind to others is good for your health (and that can include donating money)

December 20, 2020

By Marta Zaraska writing for the BBC. She is the author of "Growing Young: How Friendship, Optimism and Kindness Can Help You Live to 100."Adam
Smith said when people act selfishly they are led, as if by an
invisible hand, to make society better off. So what if you try to help
others because you know it will make you better off? Are being kind
(altruistic) or selfish? Excerpts from the article:"Science reveals that altruistic behaviours, from formal
volunteering and monetary donations to random acts of everyday
kindness, promote wellbeing and longevity.
Studies show, for instance, that volunteering correlates with a 24% lower risk of early death – about the same as eating six or more servings of fruits and vegetables each day, according to some studies. What’s more, volunteers have

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The Best Herd Immunity Money Can Buy

December 19, 2020

Paying people to get the Covid-19 shot may be the way to overcome skepticism about the vaccine Jason L. Riley of The WSJ. Excerpts:". . . how do you convince enough people to get inoculated at a time when public trust in government institutions is at historic lows?One way to go is using carrots instead of sticks. Telling people they
can’t fly or send their kids to school may work in some cases, but
there’s evidence that paying people to get vaccinated might be more
effective. In a typical year, less than half of American adults bother
to get flu shots. But a 2015 study conducted by economists at Swarthmore
College found that offering people a $30 reward was enough to increase
vaccination rates by 12 percentage points.

A growing number of high-profile economists have

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The EU forbids the use of gender to help calculate car insurance premiums, leading women to pay more and men to pay less

December 18, 2020

See The elusive equilibrium by Koen Smets. Excerpt:"Insurers only care about the risk, and not about gender. If a particular
category of people poses a higher or lower risk, all else being equal,
than another one, they will seek to reflect that in the premium. When,
as a society, we do not want to have inequity in the premiums, then we
should accept that a unified premium might lead to a different
disequilibrium and new inequities.Motor insurance in Europe forms a very interesting case study.
Traditionally, insurers charged women less, because they tend to be
safer drivers, and hence make fewer and smaller claims. Unlike life
expectancy, the factors determining the risk here are much more linked
to individual choice and behaviour. Since 2012, an EU directive forbids
insurers to

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Lower Costs Draw Tech Firms to Texas

December 17, 2020

See Texas’ Tax Advantage Is All About Individuals, Not Business Taxes: Companies moving from California likely won’t see their own tax bills shrink, but executives and employees could pay less. Excerpts:"Moves by high-profile companies to Texas from California are likely
to improve the personal finances of executives and offer employees more
affordable housing—but make little difference to the firms’ tax bills.

Oracle Corp.

ORCL +1.33%

and

Hewlett-Packard Enterprise Co.

HPE +0.41%

are the latest big corporations to announce moves to the Lone Star State.

Elon Musk,

the chief executive of Tesla Inc., is also moving to Texas, and the electric

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