Friday , July 19 2019
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Articles by [email protected] (Cyril Morong)

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions)

16 days ago

Jonathan Haidt wrote the book The Righteous Mind: Why Good People Are Divided by Politics and Religion.
It is about how polarized and nasty our politics have become, how
everyone loves to demonize and ridicule anyone from a different
political party. But these are things that Adam Smith talked about in
his book The Theory of Moral Sentiments. I will have an excerpt from that at the end of the post.Haidt is also concerned about how politically biased higher education
has become, with the vast majority of professors being liberal,
especially in the social sciences and humanities. So he and some other
professors have founded the Heterodox Academy. Here is what they are about:
"We are a politically diverse group
of social scientists, natural scientists, humanists, and other

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Does socially responsible investing make the world a better place?

16 days ago

See
Even $1 Trillion Can’t Make World Better Place: Norway’s sovereign-wealth fund reversed its ethical ban on owning shares in five companies after they changed their ways, but cause and effect is hard to discern by James Mackintosh of The WSJ. Excerpts:
"Norway’s $1 trillion Government Pension Fund Global invests in line with its ethics, which means blacklisting about 150 stocks from its portfolio, for reasons including human-rights violations, making especially nasty weapons or being involved in tobacco.Last week, the fund’s ethics committee allowed five banned
stocks back into its investment list after the companies mended their
ways. This creates an interesting experiment: Are Norwegian ethics
imposed on the world having an impact?Two of the readmitted companies had merely sold

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Does it help if hospitals post prices?

21 days ago

See One State’s Effort to Publicize Hospital Prices Brings Mixed Results: New Hampshire’s experience suggests what the Trump administration move may—and may not—accomplish by Melanie Evans of The WSJ. Excerpts:
"As the Trump administration moves to make confidential hospital prices public, New Hampshire’s dozen years of experience with price transparency suggests what it may—and may not—accomplish.New Hampshire has one of the most comprehensive and oldest
hospital price-transparency laws in the U.S. It posts prices charged by
individual hospitals for magnetic-resonance imaging, gall bladder
surgery and other services on a state website in an effort to give
patients information they need to shop for more affordable options.The disclosures have helped lower costs—though not by large

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Are CEOs overpaid?

23 days ago

Below is something I submitted to the San Antonio Express-News (it was
printed in the paper on June 22
https://www.mysanantonio.com/opinion/commentary/article/Are-CEOs-really-overpaid-14029195.php)
Chris Tomlinson seems to think
that CEOs are overpaid because of a rigged system where CEOs sit on corporate
boards that determine their pay (“Corporate boards to blame for high CEO pay,”
June 17). Yet he never demonstrates that they are, in fact, overpaid.

Here is what George Mason
University economics professor says on the issue in his latest book Big
Business: A Love Letter to an American Anti-Hero: “CEOs are paid less than
the value they bring to their companies. More concretely, CEOs capture only
about 68–73 percent of the value they bring to their firms.”

University of Chicago

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Is the interest rate the Fed pays banks on reserves now more important than the Federal Funds Rate?

June 18, 2019

The Federal Funds Rate is set (maybe influenced is better) by the Fed. It is what banks pay each other when they borrow to meat their required reserves. But this market is smaller than it used to be. So maybe the Federal Funds Rate is not what matters any more. And maybe the sectors of the economy that are most affected by interest rates make up less of the GDP than they used to.See Has the Federal Reserve Lost Its Mojo? The central bank has less control over market interest rates today than at any time in its history by Phil Gramm and Thomas R. Saving. Excerpt:
"When the Federal Open Market Committee’s meeting concluded last
month, reporters focused on the federal-funds rate, announcing that it
would be held constant at 2.25% to 2.5%. Unnoticed by even the financial
media, and

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What about all this plastic pollution?

June 17, 2019

I use the book The Economics of Public Issues as a supplemental book in my principles classes. It often chapters on trash, recycling and plastic bags.The San Antonio Express-News ran an article by Chris Tomlinson called Solving plastics pollution takes more than just banning bags. Excerpts:
"More than half of all plastic by weight is used only once before going to a landfill or the ocean""Only 7 percent is recycled, but only once, before it goes to a landfill.""Most marine plastic waste comes from Asia, and overwhelmingly from
China, India and Thailand. More than 86 percent of the plastic found in
the ocean was dumped first in either an Asian or African river and
flowed to the sea.""Plastics play an essential role in solving our other global problem:
climate change. Plastics make

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Do We Have A Zombie Economy?

June 16, 2019

See When Dead Companies Don’t Die: The policies created to pull the world out of recession are still in place, but now they are strangling the global economy by Ruchir Sharma in The NY Times. He is author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World” and is the chief global strategist at Morgan Stanley Investment Management.This ties in to some recent posts I did on the recovery and Joseph Schumpeter (links below). Excerpts:
"Since the end of the recession, the
economy has grown at about 2 percent a year in the United States and 3
percent worldwide — both nearly a point below the average for postwar
recoveries.
What explains the longest,
weakest recovery on record? I blame the unintended consequences of huge
government rescue programs, which have

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Over 40 years, 70% of the population made it into the top 20% of earners for at least one year

June 15, 2019

See Earnings in the U.S.: A Game of Chutes and Ladders by Jo Craven McGinty of The WSJ. Excerpts:
"Over roughly 40 years, 70% of the population made it into the top 20%
of earners for at least one year, according to researchers at Cornell
University and Washington University in St. Louis. But only about 21%
remained there for 10 consecutive years, and even fewer clung to the top
rung for a solid decade.“A small group of people persist at the
high and low levels,” said Thomas A. Hirschl, a Cornell sociologist and
one of the researchers who studied the phenomenon. “But a big crowd of
people move in and out.”""by age 60, more than half the population occupied the top 10% for at
least one year, and 11% made it to the top 1% for that length of time.""But only 0.6% remained at the

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Are Farmers Markets An Example Of Perfect Competition?

June 14, 2019

Perfect competition is one of the four market structures (the others being monopoly, oligopoly and monopolistic competition). It has free entry, meaning nothing stops new firms from coming in, there are many competitors and all selling an identical product. This report from Jodi Helmer of NPR seems to show this.See Why Are So Many Farmers Markets Failing? Because The Market Is Saturated. Excerpt:
"When the Nipomo Certified Farmers’ Market started in 2005, shoppers
were eager to purchase fresh fruits and vegetables, as well as pastured
meats and eggs, directly from farmers in central California.

But
the market was small — an average of 16 vendors set up tables every
Sunday — making it harder for farmers to sell enough produce to make
attending worthwhile."The market in Santa Maria

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Joseph Schumpeter, Capitalism and Intellectuals

June 13, 2019

See Socialists, Knowledge of History and Agency. These are letters to the editor of The WSJ in response to an article about socialism by Joseph Epstein. The one below reminded me of a 1992 article by Robert Samuelson in Newsweek.
"Joseph Epstein’s “Socialists Don’t Know History”
(op-ed, May 30) on the abysmal historical knowledge of young people
brings to mind the prophesy of the keenest of economists, Joseph
Schumpeter, in 1942 when he said that capitalism would destroy itself by
breeding a “new class: bureaucrats, intellectuals, professors, lawyers,
journalists, all of them beneficiaries and, in fact, parasitical on
them and yet, all of them opposed to the ethos of wealth production, of
saving and of allocating resources to economic productivity.” The 77
years since then has

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Is there really a shortage of construction workers?

June 12, 2019

See Behind Deadline: Home Projects In Colorado Suffer From Worker Shortage by KAREN SCHWARTZ of the Associated Press.A shortage means that the price is below the intersection of supply and demand and that the quantity demanded is greater than than the quantity supplied. It does not mean we simply have less of something than we used to. If price were too low, we would expect to see it rise until quantity demanded equals quantity supplied again.This article talks about a shortage of construction workers. If there really is a shortage, we would see wages starting to rise. But that is not discussed.Lowe’s offering employees tuition and other incentives might be the equivalent of rising wages since if a worker does not have to pay to learn to be a carpenter, that field becomes more lucrative.

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U.S. Job Openings Outnumber Unemployed by Widest Gap Ever

June 12, 2019

By Sarah Chaney of The WSJ. I’ve done alot of posts on the relationship between inflation and unemployment. So this article shows the job market is doing well and inflation is low. The inflation rate in 2018 was 1.9%. Over the last 12 months it is 2.0%. See Consumer Price Index Data from 1913 to 2019.Excerpts from the article:
"The number of job openings exceeded the number of unemployed
Americans by the largest margin on record in April, signaling difficulty
for employers to find workers in a historically tight market.There were a seasonally adjusted 7.449 million unfilled jobs
at the end of the month, barely budging from March, the Labor
Department said Monday. Meanwhile, the number of Americans seeking work
in April dropped to 5.824 million from 6.211 million a month earlier.""The

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Social media, insurance and asymmetric information

June 10, 2019

Can a Facebook Post Make Your Insurance Cost More? With insurers likely to add social media to the data they review before issuing policies, it might be wise to post pictures from the gym—but not happy hour by Ellen Byron and Leslie Scism of The WSJ.This reminds me of what economists call "asymmetric information." This
is a situation in which the seller knows more about a product than the
buyer (sometimes the buyer knows more about something important like how
healthy or risky they are as it relates to insurance). These markets do
not operate optimally. If insurance companies don’t know how healthy or
risky you are, they can’t be sure of how much your premiums should be.
But with fitness tracking, they learn more about you. My students might
recall I discussed this after we played

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Are business cylcles imbedded in longer cycles called financial cycles?

June 9, 2019

See Investors, Buy the Dips: The Economic Cycle Isn’t What It Used to Be by Jon Sindreu of The WSJ. Excerpts:
"Business cycles have historically happened at intervals of between five
and eight years, so the current expansion is indeed an abnormally long
one.""these business cycles are themselves contained within longer ones, which economists call “financial cycles.”""Economists have long struggled to separate the two types of cycles.
Back in 2003, University of Chicago professor Robert Lucas infamously
said in a speech that the “central problem of depression-prevention” had been “solved for many decades.” The worst crisis since the Great Depression struck a few years after those comments.Yet Mr. Lucas wasn’t totally off the mark. The nature of the business cycle has indeed changed

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Is the U.S. student loan system broken?

June 8, 2019

See The Long Road to the Student Debt Crisis: A series of well-intentioned government decisions since the 1960s has left us with today’s out-of-control higher education market by Josh Mitchell of The WSJ.The program was set up in the 1960s and 1970s to get more people into college, with the aim of increasing productivity and incomes. At first, the federal government guaranteed the loans before eventually lending the money.Excerpts:
"four in 10 recent college graduates are in jobs that don’t require a degree""At more than a third of them [colleges], less than half of the students who enroll earn a credential within eight years, according to the think tank Third Way.""College tuition has soared 1,375% since 1978, more than four times the rate of overall inflation""The U.S. now spends more

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What Chocolate Shortage? Cocoa Prices Steady as Record Output Projected

June 7, 2019

Supply concerns made cocoa the best-performing commodity of 2018 By Kirk Maltais of The WSJ. This is what we predict in economics, that if sellers anticipate higher prices in the future, they will begin taking steps to increase supply when the higher prices are supposed to arrive. If this is a competitive market, supply will keep increasing until price falls enough so that we move back to an average rate of profit. The article indicates that this happened.Excerpts:
"The world appears to have averted a chocolate shortage, upending the
rally that made cocoa the best-performing commodity in 2018.Last year, prices of cocoa futures soared by 28% on repeated
warnings by analysts that chocolate would be in limited supply in 2020
because of a scarcity of cocoa beans.But cocoa prices are

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Companies and governments are paying people to get healthy, and it works

June 6, 2019

By Marc Mitchell. He is an Assistant Professor at Western University. Excerpt: 
"In the past, the prevailing opinion was that health rewards, like paying
people to lose weight, simply do not work. They may stimulate health
behaviours in the short term but once removed, people will go back to
doing what they were doing before, or worse.By introducing extrinsic rewards you can actually damage (or shift
focus from) the important intrinsic motivators that drive long-term
change — for example, walking simply because you like to.
This line of thinking was grounded primarily in research that paid
people to do enjoyable tasks, like completing puzzles. If you pay
someone to do something they like doing, the research went, they are
less likely to continue to do it once the payments

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The current expansion is close to a record, so what might be the potential risks of it ending?

June 5, 2019

See After Record-Long Expansion, Here’s What Could Knock the Economy Off Course: Experts see the U.S. continuing to grow, but looming risks include trade wars, interest-rate mistakes and the ballooning budget deficit by Jon Hilsenrath of The WSJ.This article is similar to a couple of others that I have posted about before. See What ends expansions? (or what causes recessions according to Alan Blinder and Austan Goolsbee).Excerpts from Hilsenrath’s article:
"Economies aren’t like cars. They don’t just wear down and peter out
after running for several years. Something needs to happen to knock them
off course.That’s potentially good news as the U.S. expansion reaches its 10-year mark
this month. By July, it will become the nation’s longest on
record—eclipsing the decadelong expansion of

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Is Walmart adding robots to replace workers or because it is hard to find workers?

June 4, 2019

See Walmart Is Rolling Out the Robots: Retailer to expand use of machines to scan shelves and scrub floors as it seeks to keep labor costs down by Sarah Nassauer and Chip Cutter of The WSJ.In my macroeconomics class, we talk about the types of unemployment. Here is one of them: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.It is not clear if this is the case with Walmart. Here are excerpts from the article:
"Walmart
Inc.

WMT +0.21%

is expanding its use of robots in stores to help monitor
inventory, clean floors and unload trucks, part of the retail giant’s
efforts to control labor costs as it spends more to raise

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Unemployment Isn’t What It Used to Be

June 3, 2019

The low rate doesn’t take account of low labor-force participation. Wages are a better indication of slackBy Neel Kashkari. He is president of the Federal Reserve Bank of Minneapolis. This gets at the relationship between inflation and unemployment. How low can unemployment go before inflation gets too high? Maybe we should look at some other statistic instead of the unemployment rate. Excerpts:
"In 2015 Federal Open Market Committee participants estimated that
unemployment couldn’t go below 5.1% without triggering inflation. The
rate is now 3.6%, which means 2.4 million more Americans have found
work, yet inflation remains low.""the number of Americans of prime working age—25 to 54—who consider
themselves in the labor force is 2.3 million lower than it would be if
participation was

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How elasticities affect Uber passengers and drivers

June 3, 2019

See Passengers May Pay a Lot More. Drivers Won’t Accept Much Less. by Austan Goolsbee. Excerpts:

"Yes, surge pricing — the practice of raising prices when demand is high — makes many people feel irate. But what people actually do is what is important. The most comprehensive study
of rider behavior in the marketplace found that riders didn’t change
their behavior much when prices surged. (Like most major quantitative
studies about Uber, it relied on the company’s data and included the
participation of an Uber employee.)

Passengers
were what economists call “inelastic,” meaning demand for rides fell by
less than prices rose. For every 10 percent increase in price, demand
fell by only about 5 percent.

Drivers,
on the other hand, are quite sensitive to prices — that is, their

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Supply, Demand and the High Price of Vanilla

June 1, 2019

See Vanilla fever by Wendell Steavenson in "The Economist." Excerpts:
"in 2014 the price of vanilla began
to rise. Over the next three years it went from less than $40 per
kilogram to more than $600 per kilogram." "It can be difficult to grow vanilla in
plantations, where it becomes susceptible to disease. But the humid
heights of Madagascar offer the right climate for the plant to thrive.
And the large pool of poor smallholders on the island provides abundant
workers to grow this labour-intensive plant.""Few Malagasys have much confidence in the state. A coup in 2009
scared away foreign investors and tourists. The soaring price of vanilla
has been accompanied by an opportunistic crime wave: raiders rip out
whole vines to transplant them elsewhere and armed robbers hold up

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How Technology Has Changed The Distribution Of Income Among Musicians

May 31, 2019

See Music Superstars Are the New One Percenters: Huge stars like Beyoncé and Taylor Swift are dominating the concert-tour business like never before, as music’s top 1% takes home an increasingly large share of the pie by Neil Shah of The WSJ. Excerpts:
"A small number of superstars like Beyoncé and Taylor Swift is
gobbling up an increasingly outsize share of concert-tour revenues, as
music’s biggest acts dominate the business like never before.Sixty percent of all concert-ticket
revenue world-wide went to the top 1% of performers ranked by revenue in
2017, according to an analysis by Alan Krueger, a Princeton University
economist. That’s more than double the 26% that the top acts took home
in 1982.Just 5% of artists took home nearly the entire pie: 85% of all
live-music revenue,

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How the U.S. justifies & enforces sanctions on countries like Iran and how other countries try to get around the sanctions

May 30, 2019

See The Dollar Underpins American Power. Rivals Are Building Workarounds. Iran sanctions spur Europe and India to devise systems to trade with Tehran without using the U.S. currency by Justin Scheck and Bradley Hope of The WSJ. Excerpts:
"In congressional testimony in March, Treasury Department undersecretary
Sigal Mandelker said that “those who engage in activities that run afoul
of U.S. sanctions risk severe consequences, including losing access to
the U.S. financial system and the ability to do business with the United
States.”"The dollar’s status dates back to the end of World War II, when the
U.S. economy was the world’s most robust and dollars were plentiful. The
currency’s liquidity, and the efficient U.S. banking system anchored by
the Federal Reserve, mean trading in

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Businesses intentionally display their social and environmental performance in addition to their financial performance to stakeholders

May 29, 2019

See It is all about the money when discussing ‘planet, people and profits’ by Prasad Padmanabhan. He is a professor of finance at St. Mary’s University.Adam Smith’s "invisible hand" suggests that if you follow your own self interest, you will promote the interests of society. I have had some posts on this issue of being selfish vs. being altruistic and if they can actually be separated before. So those links are at the end.Adam Smith talked about the invisible hand and how profit seeking firms would provide what the public wanted. But what about trying to make the world a better place?Here is an excerpt from The Wealth of Nations found at The Library of Economics and Liberty.
"But the annual revenue of every society is always precisely equal to the
exchangeable value of the whole annual

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Why Doing Good Makes It Easier to Be Bad

May 28, 2019

By Abbas Panjwani. He is a journalist at Full Fact, the UK’s leading fact-checking charity. He has previously written for the Sunday Times.Adam Smith’s "invisible hand" suggests that if you follow your own self
interest, you will promote the interests of society. I have had some
posts on this issue of being selfish vs. being altruistic and if they
can actually be separated before. So those links are at the end.But this article says that if you work in a "socially responsible
company" it makes you think that it is okay to do something immoral,
that somehow you have earned that right.Excerpt:
"Oscar Wilde, the famed Irish essayist and playwright, had a gift, among
other things, for counterintuitive aphorisms. In “The Soul of Man Under
Socialism,” an 1891 article, he wrote, “Charity

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Why honey prices have climbed about 25% since 2013

May 27, 2019

See You’ll Need a Lot More Money to Buy That Jar of Honey: Beekeepers are in a sweet spot as consumer trends shift away from cane sugar and high-fructose corn syrup by Lucy Craymer of The WSJ. Excerpts, with my comments in brackets:
"Honey prices are starting to sting.Global honey prices are at their highest levels in years, due
to a new wave of consumer demand for natural sweeteners [demand increases because tastes or preferences increased with the opposite happening for sugar] and declining
bee populations that are hampering mass production [supply decreases].""In addition, it is being used more as an ingredient in shampoos,
moisturizers and other personal-care products that companies market as
naturally made [another increase in demand due to tastes].""Retail honey prices

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What happened in some earlier U.S. trade Wars?

May 25, 2019

Want to know how Trump’s trade war ends? Look to the War of 1812 by Shawn Donnan of Bloomberg. 
"President Donald Trump’s escalating trade war against China has drawn
plenty of historical parallels. The Chinese like to invoke the
19th-century Opium Wars and the national humiliation that followed. In
the U.S. the comparison is increasingly to the Cold War against the
Soviet Union, or the 1980s trade wars against Japan.Ask Douglas
Irwin, author of “Clashing Over Commerce: A History of U.S. Trade
Policy,” however, and he argues the most accurate comparison from an
American perspective is the War of 1812.

That conflict was born
out of a trade war (a British embargo of France) and fought at least
partly as a trade war (a British blockade of America). It also yielded
another trade

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Mexicans buy fake cellphones to hand over in muggings

May 22, 2019

By Mark Stevenson of AP. This reminds me of "signaling" in economics. Here is Wikipedia says about it:
"In contract theory, signalling (or signaling; see spelling differences) is the idea that one party (termed the agent) credibly conveys some information about itself to another party (the principal). For example, in Michael Spence’s
job-market signalling model, (potential) employees send a signal about
their ability level to the employer by acquiring education credentials.
The informational value of the credential comes from the fact that the
employer believes the credential is positively correlated with having
greater ability and difficult for low ability employees to obtain. Thus
the credential enables the employer to reliably distinguish low ability
workers from high ability

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The Phillips curve is alive and well (unless it’s dead)

May 21, 2019

See Post from Harvard professor Greg Mankiw. He shows that over the last 30 years, when percentage of 25-54 year olds employed increased (similar to the unemployment rate going down), inflation was higher than when the percentage of 25-54 year olds employed decreased.If the Phillips Curve is right (at least in the short-run), this is what we would expect: inflation to be higher when unemployment is lower.According to today’s WSJ, Fed. Vice Chair said the economy is not beyond full-employment even with unemployment at 3.6%, so high inflation in the near future is not a concern. Inflation does not seem to respond to low unemployment the way it used to.
See also The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed. by Jeanna Smialek of The NY Times. Excerpts:

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