Wednesday, October 31, 2007

Federal Funds Rate Cut to 4.5%

read the CNN story

3rd Quarter GDP Growth: 3.9%

chart from: Carpe Diem

Oil: No Longer a Heavyweight

chart from: Carpe Diem

The days of rising oil prices alone threatening to knock out the economy may be over.

At more than $93 a barrel, oil prices are at or near all-time highs, even when adjusted for inflation.

Yet the economy has so far withstood the impact of rising crude. By contrast, the last time crude prices were this high, in the early 1980s, the economy tanked.

It's not like oil no longer matters, but it's clear the the energy economy has changed dramatically. Efficiency gains, higher prices driven by demand - not supply - a more diverse energy mix and the fact that people simply make more money means that energy no longer pulls the overall economy like it used to.

read the CNN story

Monday, October 29, 2007

Incentives Matter

What is the current length of patents? Why did it change from 17 years?

Include name, class, and answer in the comments

Sunday, October 28, 2007

New York Strip: 1.91 Pounds

More Sub-Prime Housing Crisis

Paul Krugman on the housing crisis

Sub-Prime Housing Crisis

"As for the idiots who lent (often without down payments or documents) to the idiots who bought speculative homes, they deserve to lose. People must understand this simple fact."

from: "Making Sense of the Current Capital Markets Disarray"

"Our pressing danger is not that many folks will go broke, but rather that opportunistic politicians will bail them out and insulate them from past and future folly."

from: "House of Pain: Why Failure is Important"

How Different Investments Did Last Week

Parents: Questions, Comments, and Suggestions

Another week finished.

Students: Questions, Comments, and Suggestions

Another week complete.

Thursday, October 25, 2007

Cartoon: Costs of War

Oil Tops $90 a Barrel

Iran, the world's third-largest oil exporter, figured in yesterday's price action. Analysts said the rise in futures prices stemmed from a blend of geopolitical unease, including a new raft of sharp U.S. economic sanctions on Iran. Markets were also digesting a midweek U.S. government report that pointed to declining crude-oil supplies in the U.S., with particularly strong demand for scarce light, sweet crude, which is easier to refine into fuels like gasoline.

read the article

Cost of the Iraq War

Estimated Costs of U.S. Operations in Iraq and Afghanistan and of Other Activities Related to the War on Terrorism

Wednesday, October 24, 2007

Government Regulation and the Peltzman Effect

Economics is about choices. In a free society, who should make these choices: individuals or governments?

Listen to an interview Sam Peltzman

The Hidden Danger of Seat Belts

What he found was that contrary to conventional wisdom, mandating the use of seat belts in 18 countries resulted in either no change or actually a net increase in road accident deaths.…

Adams' interpretation of the data rests on the notion of risk compensation, the idea that individuals tend to adjust their behavior in response to what they perceive as changes in the level of risk…

this driver will also be adjusting his behavior in response to what he perceives are changes in risks…

In the case of seat belts, instead of a simple, straightforward reduction in deaths, the end result is actually a more complicated redistribution of risk and fatalities. For the sake of argument, offers Adams, imagine how it might affect the behavior of drivers if a sharp stake were mounted in the middle of the steering wheel? Or if the bumper were packed with explosives. Perverse, yes, but it certainly provides a vivid example of how a perception of risk could modify behavior….

read the entire article

The Significance of the "Peltzman Effect"

There's an easier public policy solution if the goal is to reduce deaths from automobile travel: ban cars. But the goal of public policy isn't (and shouldn't be) to minimize the death toll from cars. The goal should be to set the safety level of driving to correctly take into account trade-offs between the risk of travel and the benefits of travel. People want safe cars and they also want to be able to drive quickly in order to see friends and family more often and do whatever else they accomplish and benefit from via car travel.

read the entire post

Personal Health and Safety: Whose Business Is It?

I'm simply asking whose business is it if I don't adequately plan for retirement or save money for my child's education? If I don't wear a seatbelt while driving or a helmet while biking, whose business is it? What if I don't get enough sleep or don't exercise enough for good health -- should government force me to, under the pain of punishment? In other words, should Congress have the power to force people to do what's in their own health, safety and welfare interests?

I'm afraid that most Americans believe that government should be able to force people to do what's in their health, safety and welfare interests. Their reasoning might be that if I don't wear a helmet while biking or a seatbelt while driving, I might have an accident, become a vegetable and become a burden on other Americans as taxpayers….

Should the fact that if I become injured by not wearing a seatbelt or sick from eating and smoking too much, and become a burden on taxpayers, determine whether I'm free to not wear a seatbelt or puff cigarettes and gorge myself? Is there a problem with freedom? I say no, it's a problem of socialism. There is absolutely no moral case for government's taking another American's earnings, through taxes, to care for me for any reason whatsoever. Doing so is simply a slightly less offensive form of slavery. Keep in mind that the essence of slavery is the forceful use of one person to serve the purposes or benefit of another.

read the entire essay

Tuesday, October 23, 2007

Rising College Costs

The results of a new study on paying for college will come as no surprise to students or parents: Tuition and fees continue to outpace inflation, and financial aid is not keeping up.

full story

Monday, October 22, 2007

Incentives Matter

Bonus for the first five responders.

Find and read "I, Pencil".

What is the most important economic principle in that essay?

Georiga's Drought

Georgia's drought causes problems for state's businesses
The Associated Press(ROME)

The current drought has posed problems for Georgia's agricultural and manufacturing centers, prompting losses estimated to be in the billions of dollars...

The state's landscape industry has tallied $1.2 billion in losses...

All Georgians are hoping for rain just to save their lawns, but they may not fully consider that rain may be needed to save their jobs," said Michael Thurmond, Georgia's Labor Commissioner.
"Rain is a necessity in terms of economic growth."…

Georgia's agriculture, mainly in terms of hay and livestock, suffered a $782 million drought-related hit, said state agriculture commissioner Tommy Irvin on Friday.

Nurseries and landscaping companies across the state have lost 13,800 full- and part-time jobs since May, according to an Oct. 11 report by the Urban Agriculture Coalition…

The drought has forced Georgia Power to spend at least $3 million to build 42 cooling towers to lower the river's temperature in order to protect fish from the hot water discharge…The MeadWestvaco paper mill... The cereal box and frozen-food packaging maker may be forced to slice production, and jobs, by 25 percent...

And the drought may give Georgia and other drought-stricken states a disadvantage. "States compete intensely to grow jobs and attract new business and industry," said Matt Murray, an economics professor at the University of Tennessee. "The current drought situation will be used against Georgia, Tennessee and Alabama."

full story

Thursday, October 18, 2007

Oil at All Time High (Nominal Dollars)

Oil prices finished at an all-time high above $89 a barrel Thursday, while the cost of a gallon of gasoline jerked higher.

Light, sweet crude for the November contract jumped $2.07 to settle at $89.47 a barrel on the New York Mercantile Exchange, shattering the previous record of $87.61 a barrel reached two days earlier....

Wednesday's news that Turkey had authorized military action in Northern Iraq also helped prop up crude prices.

Conflict along the Turkey-Iraq border could disrupt oil supplies coming out of the region and drive crude prices even higher.

"It's just a round robin of geopolitical and macroeconomic issues," said Kilduff.

Despite the recent gains in crude prices, when adjusted for inflation, oil is still slightly cheaper than the $95 a barrel or so it would have been in the early 1980s.

full article

Cost of Government

from The Big Picture

Wednesday, October 17, 2007

Tuesday, October 16, 2007

Federal Budget Deficit

from the Skeptical Optimist


Incentives Matter

Yet another bonus question.

Who won the Nobel Prize in Economics this year?

good job, guys

comments closed

Capital Gains Taxes

Taxing capital gains at a lower rate than ordinary income is a long-established policy to encourage risk taking and investment. Since we already tax corporate earnings at 35% through the corporate income tax, taxing those profits again when the stock is sold imposes a double tax on risk capital. That's why 12 industrialized nations, including Hong Kong and Korea, impose a zero capital gains rate.

read the entire article

Republicans: decrease rates to increase revenue
Democrats: increase rates to increase revenue

Me: Why not let people keep their money and have a 0% capital gains tax rate?

Monday, October 15, 2007

Cartoon: Supply and Demand

My Fall Break

When to Refinance Your House?

A great new calculator takes the guess work out of it.

Refinance Calculator

If you have already refinanced, you could plug in the numbers and see if refinanced at the "right" time.

Nobel Prize in Economics

Americans Leonid Hurwicz, Eric Maskin and Roger Myerson won the Nobel Memorial Prize in Economic Sciences on Monday "for having laid the foundations of mechanism design theory".

read more here

Worst Days Ever for the Stock Market

This week is the 20 anniversary of the 1987 stock market crash.

Sunday, October 14, 2007

New York Strip: 1.15 Pounds

The aluminum pan traps heats and helps get the grill hotter for a better sear. This one is a 2 minute sear per side.

How Different Investments Did Last Week

Saturday, October 13, 2007

Who Pays Income Taxes?

The income groups refer to percentiles of tax filers ranked from those with the highest AGI to those with the lowest AGI. The figure shows the highest-income groups on the left and the lowest-income groups on the right.

1990 was before the Clinton tax increases of 1993. 2000 was after the modest tax cuts of 1997, but before the Bush tax cuts of 2001. 2005 was with the Bush tax cuts in place.

read the entire story

S and P 500 Growth

read the article

Friday, October 12, 2007

Students: Questions, Comments, and Suggestions

Well, one-fourth of the way or one-half of the way there.

Parents: Questions, Comments, and Suggestions

Happy Fall Break!!!

50th Anniversary of Atlas Shrugged

This week is the 50th anniversary of the publication of Atlas Shrugged by Ayn Rand.

A survey conducted by the Library of Congress ranked Atlas Shrugged as the second-most influential book in the lives of Americans; the first was the Bible.

Atlas Shrugged and the Corporate State
by Sheldon Richman

Thursday, October 11, 2007

Economic Philosophy quiz

take the quiz

Post results if you want.

Don't worry about it if you do not have an opinion on all of the questions.

#16 deals with the Great Depression.

Wednesday, October 10, 2007

New Deficit Figures

The deficit is shrinking.
Unfortunately the reason is the growth of revenues is outpacing the growth of spending.

Monday, October 8, 2007

$75,000 Playoff Tickets

But back at on the Northside of Chicago at the friendly, but pricey confines of Wrigley Field, a larger fan base and more limited supply of tickets had driven the average resale price up to $334, with some tickets selling for as much as $2,177, and standing room tickets going for $100...

A pair of seats five rows behind the first base dugout at Wrigley for one World Series game have already sold for $6,000 each, already topping the highest price for a ticket sold on StubHub to last year's World Series-- $5,883 each for four seats in row B behind home plate for Game 3 in St. Louis.

And if the Cubs rally and somehow make it to the World Series, we are likely to see even higher prices. One seller is already listing a pair of tickets for $75,000 each...

The laws were among the most worthless on the books. If anything, they drove ticket prices higher by limiting supply as the laws made some potential sellers reluctant to put tickets up for sale. Numerous studies have shown ticket resale prices drop once anti-scalping laws disappear.

So even though few can afford to shell out $75,000 to root, root, root for their home (or road) team in the playoffs, having an open secondary market for ticket sales makes it less likely that anybody will ever have to pay such a high price in the first place.

read the full article

Porterhouse: 3.62 Pounds

Step 1: Get a huge steak (2.5 inches thick)
Step 2: Set out about 1 hour prior to grilling
Step 3: Season to perfection
Step 4: Slather in bacon grease and bake in oven at 275 for 7 minutes per side
(probably on this one about 12 minutes would have been better)
Step 5: Toss on a screaming hot cast iron gill
Step 6: Cook 2 minutes per side
Step 7: Remove from grill, tent with foil, allow it to rest about 10 minutes
Step 8: Devour

Yes, it was raw in the middle 2+ inches.

Sunday, October 7, 2007

Dow Jones and Free Trade

As world trade increases, so does prosperity
As world trade declines, so does prosperity

read the entire report: The Fruits of Trade

Free Trade: Good or Bad

What Free Trade Really Means

Jeffrey Herbener

The Role of Government

All that government need do to foster wealth creation is protect private property and contract. By enforcing a legal code requiring restitution by criminals to property owners for theft, fraud, and other violations, government is using its power to foster trade.

When using its power to violate property and contract, however, government is managing trade. Domestically, such a policy is called regulation; internationally, it is called mercantilism. Or it was, until recently, when apologists have taken to calling it “free trade.” Both NAFTA and the
Uruguay round of GATT were widely but mistakenly called free-trade agreements.

Similarly, the ink was barely dry on the Constitution when the Hamiltonians began to embody their view that centralizing, i.e., monopolizing, power over money and both interstate and international trade in the national government should be the fountainhead of a system of domestic regulation and international mercantilism.

Instead of adopting either a gold or a silver standard as a free market would, Congress opted for the Hamilton-Jefferson bimetallic standard, an unworkable hybrid that vacillates between gold and silver. Worse yet, the legality of banking with fractional reserve notes and the imposition of the Hamiltonian central bank were accepted.

Later, as Civil War emergency measures, the national government issued fiat paper money, forced its acceptance with legal tender laws, and established a federal regulatory system for banks in the National Banking System. This halfway-house to total national government control over money and banking was completed with the Federal Reserve System, which has given us the chronic inflation and business cycles of the twentieth century.

A False Dilemma

Whether or not the full exercise of national power over money in the Fed has been better than the devolution of that power in the states is an open question. But the dilemma the Founders saw is false. The way of escaping the detrimental consequences of power centralized in the national government or decentralized in the states is to choose the free market. To argue that such power cannot be denied to government is to surrender to despotism. The concept of limited government necessarily implies that valuable powers can be denied to government.

In monetary affairs this means government protection of, and absence of intervention into, private property and contract in money production. Entrepreneurs left to their own devices, within a system of private property protection, will best satisfy consumers with a pure gold standard—money as gold coin and notes and deposits 100 percent backed by gold. Such a system provides the benefits of uniform money without the drawbacks of arbitrary inflation…

... The free market, based on protection of private property, will secure the blessings of liberty without government regulation of any kind, from any source.

The lessons from American history for deciding current foreign economic policy are clear. American prosperity depends on enacting a policy of free trade at home and abroad…

If Americans choose a political solution to the current international economic problems, they will face a disastrous dilemma. Maintaining the status quo forces
America into the same role as one of the original 13 states in the late eighteenth century. We will continue to suffer the ills of managed trade: trade wars, balance of payments deficits, currency devaluations, and stagnating standards of living. Accepting the logic of centralizing political power, as with the GATT-created World Trade Organization, will lead to international regulation. Supranational institutions will come to command the economies of different countries in the way that the national government came to command the economies of the various states.

We must heed the lesson that so many Americans have paid so dearly in liberty and prosperity for us to learn.
America must reject the false dilemma of managed versus regulated trade and choose free trade. That means that government at all levels must step aside and allow markets to work.

read the entire article

Saturday, October 6, 2007

Recommended Reading: Walter Williams essay

The Intellectual Defense of Liberty

By Walter E. Williams

All too often defenders of free-market capitalism base their defense on the demonstration that free markets allocate resources more efficiently and hence lead to greater wealth than socialism and other forms of statism. While that is true, as Professor Milton Friedman frequently pointed out, economic efficiency and greater wealth should be seen and praised as simply a side benefit of free markets. The intellectual defense should focus on its moral superiority. Even if free markets were not more efficient and not engines for growth, they are morally superior to other forms of human organization because they are rooted in voluntary peaceable relationships rather than force and coercion. They respect the sanctity of the individual…

Therefore, acts such as murder, rape, and theft, whether done privately or collectively, are unjust because they violate private property. There is broad consensus that collective or government-sponsored murder and rape are unjust; however, government-sponsored theft is another matter. Theft, being defined as forcibly taking the rightful property of one for the benefit of another, has wide support in many societies that make the pretense of valuing personal liberty. That theft, euphemistically called income redistribution or transfers, is often defended by lofty phrases such as: assisting the poor, the elderly, distressed business, college students, and other deserving segments of society. But as F. A. Hayek often admonished, “[F]reedom can be preserved only if it is treated as a supreme principle which must not be sacrificed for any particular advantage. . . .”

…In other words, the rise of capitalism enabled the gradual extension of civilization to greater and greater numbers of people. More of them had more time available to read and become educated in the liberal arts and gain more knowledge about the world around them. The greater wealth allowed them the opportunity to attend to the arts, afford recreation, contemplate more fulfilling and interesting activities, and engage in other cultural enrichment that was formerly within the purview of only the wealthy…

For individual freedom to be viable, it must be a part of the shared values of a society and there must be an institutional framework to preserve it against encroachments by majoritarian or government will...

…As is often the case, political liberty is used to stifle economic liberty, which in turn reduces political liberty.

read the entire essay

Incentives Matter

Boost your grade before midterm.

What is the most useful/important idea or concept you have learned thus far in economics?

I need you name and period/block along with an answer to get the bonus points.

We have our first commenter. Good job, Michelle. I'm going to wait until Wednesday to post the comments so people will not parrot other people's comments.

Woo hoo. 4 people!!! Yeah!!!

Supply and Demand: Gas Prices

Why Do Gasoline Prices React to Things That Have Not Happened?

Although no one likes to pay more for gas, market-determined gasoline prices operate to prevent shortages and maximize economic efficiency.

read the entire essay

Markets in Everything: Cricket Fighting

Cricket fighting video from National Geographic

How Different Investments Did Last Week

Unemployment Rate for September 4.7%

This is considered full employment by most economists. The key idea is that education makes you more employable.

Friday, October 5, 2007

Students: Questions, Comments, and Suggestions

Why is sitting down and paying attention so hard?


Parents: Questions, Comments, and Suggestions

Another week down.

Recycling Myths


In fact, available stocks of most natural resources are growing rather than shrinking, but the reason is not recycling (Foster and Rosenzweig 2003).
Market prices are the best measure of natural resource scarcity. Rising prices imply that a resource is getting more scarce. Falling prices imply that it is becoming more plentiful. Applying this measure to oil, we find that over the past 125 years, oil has become no more scarce, despite our growing use of it. Reserves of other fossil fuels as well as other natural resources are also growing.

Thanks to innovation, we now produce about twice as much output per unit of energy as we did 50 years ago and five times as much as we did 200 years ago. Optical fiber carries 625 times more calls than the copper wire of 20 years ago, bridges are built with less steel, and automobile and truck engines consume less fuel per unit of work performed. The list goes on and on. Human innovation continues to increase the amount of resources at our command.

Recycling is a manufacturing process with environmental impacts. Viewed across a wide spectrum of goods, recycling sometimes cuts pollution, but not always. The EPA has examined both virgin paper processing and recycled paper processing for toxic substances and found that toxins often are more prevalent in the recycling processes…

It is widely claimed that recycling "saves resources." Proponents usually focus on savings of a specific resource, or they single out particularly successful examples such as the recycling of aluminum cans.

But using less of one resource generally means using more of other resources. Franklin Associates, a firm that consults on behalf of the EPA, has compared the costs per ton of handling rubbish through three methods: disposal into landfills (but with a voluntary drop-off or buy-back recycling program), a baseline curbside recycling program, and an extensive curbside recycling program.

On average, extensive recycling is 35 percent more costly than conventional disposal, and basic curbside recycling is 55 percent more costly than conventional disposal. That is, curbside recycling uses far more resources. As one expert puts it, adding curbside recycling is "like moving from once-a-week garbage collection to twice a week" (Bailey 1995, A8).

read the entire article

Thursday, October 4, 2007

Guns and Butter

In fact, the U.S. is spending relatively little on defense by historic wartime standards, and that's including the $192 billion in 2007 to fund the efforts in Iraq and Afghanistan. It's true that overall defense spending, in dollars adjusted for inflation, is higher than it was during the 1990s. And thank heaven for that. Defense spending as a share of the economy in the Clinton years dipped to its lowest level since 1940, as we lived under the illusion of a "peace dividend" while al Qaeda was gaining strength.

read the entire WSJ article

There basic argument is that a war surtax is not needed.