Is Bussiness Pro-Market

Not always.

Anyone that has read Atlas Shrugged or something like it already knew this, but it does seem counter-intuitive. As the short article linked to above (also read the comments) points out, businesses can seek favor from the government just like any other group. Many businesses and business owners support free market principles but some will seek unwarranted benefits from the government. Any special benefits these businesses get distorts the market and usually leads to some inefficiency which taxpayers pay for. Public choice economics tells us that since the benefits of such policies are concentrated in a relatively small group (some business owners vs. everyone else), that group (some business owners) will advocate heavily for such policies while the costs of the policy are spread around to everyone else.

(HT Cafe Hayek)

Do You Live Better Than A King?

This video highlights how far we have advanced as a society and how free exchange has helped to get us where we are today:



(HT to Cafe Hayek)

Role of Government?

The United States government will now protect us from the unsightly menace of.......

Carry-on baggage fees!

Does the government really need to do anything here? If an airline wants to charge a fee for carry-on baggage and you do not want to pay the fee, what is stopping you from going to another airline. Charging for carry-on baggage could also be more efficient. In this case, Spirit Airlines has actually dropped ticket prices more than the new fee costs, so what is the big deal. They wanted to experiment with this new pricing method and I just do not see any reason why the government should punish them for it with taxes. If it does not work, the market will punish them for it and the government can focus on other things.

Also on CNN.

Tyranny of the Minority?

Some of you may need to read the title again. Democracy is often characterized and criticized as being a tyranny of the majority, meaning that any simple majority (> 50%) can impose its will on the rest of the citizens. However, public choice economics teaches us that representative democracy can sometimes be characterized as a tyranny of the minority, where a small group (usually referred to as an interest group) can impose its will on everyone else. How can this happen? Well this essay, titled 'Like Little Puffs of Smoke', gives some great (slightly hyperbolic) insight and explanations for how this happens.

Basically, small groups can sometimes influence poilcymakers in their favor because:

• the benefits of their influence are more concentrated than the costs it imposes on the broader population
• organizing costs are lower
• the small group has greater access to policymakers

These factors help explain why politicians routinely vote for things that make one segment of the population better off while leaving the rest of us worse off. For a more eloquent/better presentation of this point read the essay I linked to above.

(HT Cafe Hayek)

Was Healthcare Reform About Reforming Healthcare

The biggest issue in American politics in recent memory is healthcare and healthcare reform. However, some economists believe that there is more going on in this political fight than healthcare. Dr. Greg Mankiw, the professor that is likely the author of your econ textbook, thinks that the push for healthcare reform is really more about redistributing more income from high income individuals to those with lower incomes. As studies of the bill that passed Congress come out we will learn more and more about what it actually does in addition to "reforming healthcare".

If you are interested in a more in-depth and technical analysis of this redistribution you can see this study from The Tax Foundation.

(HT to Greg Mankiw)

Budget Cutting

Check out this awesome video that helps you visualize some of the astronomical numbers you have to talk about when you debate the US budget:

Budget Cutting

(HT to Cafe Hayek)

3 Reasons for Coffee-holics to Celebrate

Coffee-addicts rejoice! There's a new coffee shop in town!  Its great to see new commerce in the downtown Milledgeville area and the Campus Theatre restored to its former glory.  But us Freakonomics-reading, market-watching, Keynes/Hayek-arguing caffeine junkies are excited about three other things: More coffees being offered, higher quality of coffee, and lower prices.  This isn't a plug for the college's new coffee shop, this is a market effect that should have implications at Blackbird as well.  Easy economics (and awesome graphs!) can explain:

Formerly, there were only two significant coffee shops within walking distance of campus for college students to get their morning cup of Joe: Books and Brew and Blackbird (Einstein's and Seattle's Best in the Bobcat Food Court can be ignored because they have such a small market share).  Remember back to Principles of Micro/Macro that when there are only a few businesses it creates an Oligopoly? This is a perfect oligopoly situation. Because each company had only one competitor, they were able to charge higher prices and offer a smaller selection of coffees and pastries than if they had lots of companies to compete with. Look at the graph below. Remember Price is on the Y-axis, Amount of coffee selections is on the X-Axis. Notice how the oligopoly price is above the socially efficient price (socially efficient is where the price would be if there were an infinite amount of coffee shops in Milledgeville all competing with each other. I would visit each, daily.)  Also see how the Oligopoly amount of coffee provided is lower than the socially demanded.  Shame on you Books and Brew for holding back!

Because there is a new competitor in town, Jittery Joes, the number of coffee shops (expected) to have a large market share will increase 50% to three.  This will greatly increase the amount of coffee for sale.  And remember, when Quantity Supplied increases, Price goes down. The next graph shows this in an Aggregate Supply curve (Aggregate just means it represents the entire industry, its just the supply from all the coffee shops added together).  Aggregate Supply 1 is where the market currently is with the two coffee shops.  Aggregate Supply 2 is the new supply curve which includes Jittery Joes. Notice how the price goes down. Yay for cheaper coffee!

Increases in competition also has an effect on quality.  With this new shop entering the picture, we can expect preexisting coffee shops to step up their quality, use fresher beans, keep the stores cleaner, and even be more friendly when you cheap college students don't tip them.  This is because they will be fighting to keep the customers they have, knowing that one sub-par experience could lead that customer (and revenue source) to another shop that offers an experience slightly better than theirs.

So what we have to look forward to from Jittery Joes coming to Milledgeville:

Lower Prices, Better Quality, and More Menu Items from all the local coffee shops. Thank you Joe!

-Brandon

Internships and Unintended Consequences

Recently state and federal legislators have mentioned investigating the legality of unpaid internships. Legislators and regulators are looking to possibly prosecute companies for having unpaid internships on the basis that they violate federal minimum wage laws. Whether unpaid internships are illegal or not, abolishing these opportunities will lead to some unintended consequences. First, the fact that students willingly pursue these internships and the fact that applying for these opportunities is usually competitive should tell you something. Interns are benefiting in some way in these situations and anyone that considers making these internships illegal assumes that the students are not being rational when they accept one. Many students willingly pursue and accept unpaid internships to gain experience since many employers are less likely to employ those that do not have experience. Making unpaid internships illegal will make many graduating students less likely to get jobs, especially the types of jobs they want, right after graduation. Many of these unpaid internships actually end with a job offer or at least some valuable experience or learning. These investigations may end up harming the students they are meant to protect because of these unintended consequences.

NY Times article

Good, short article on unintended consequences