Thursday, March 31, 2011

Mazi's Link O' the Day

More of a quick lesson than anything else, a common error when thinking about free trade:

Monday, March 28, 2011

Mazi's Link O' the Day

Some notes on how an economist might go about performing research on "social and cultural" topics:

Sunday, March 27, 2011

Proper Pay

Perhaps now would be a good time for me to briefly discuss my views on unions. They have been plastered all over the news again thanks to Wisconsin, and recently, though much less publicized, Illinois passed a prevailing wage act, which I will also comment upon.

Unions are not evil, let me just get that out. However, there are noted negative effects unionization can have on industries. First off, unions are generally a good idea in monopsony situations. A monopsony is when there is only one employer in a given market. As the word suggests, it does, in a way, parallel monopolies. Monopolies are not price-takers, in that they can charge much higher prices for goods or services than a competitive firm can. Monopsonies can offer much lower wages, since obviously, many workers have no other option for employment. Thus, having a union would curb some of the downward pressure on wages in these markets.

On the other hand, unions work the same way strict labor regulation does. In economies with strict labor laws for hiring and firing, we tend to see less risk taking, which isn't necessarily all bad. However, when it becomes difficult to fire employees, firms take large losses in recessions, for example. Also, they will be reluctant to start hiring again immediately. If the possibility of another downturn exists, then firms will tend to wait before committing to hiring again. Also, risk taking isn't all bad. Yes, risks like those taken by some banks in the crisis are, possibly, destructive, but I'm talking about investing in new technology, or exploring new production methods. As this article shows, labor laws have a very large role to play in firms' choices when it comes to investing in risky technology. Unions, by enforcing stricter hiring standards and higher wages on firms, effectively add, at times, unnecessary costs to firms. While fair wages are a must, unions do occasionally push these wages so high that the effects on unemployment offset the higher wages. For example, public schools get there money through the property taxes on the homes in their respective areas. If a school is in a poor neighborhood, then property taxes will not generate as much revenue, and naturally the school has less money to spend. Now, if there is a teachers' union present that demands equally high wages as their counterparts in Greenwhich, what do you think that's going to do to school programs, extracurriculars, etc...? The prevailing wage act passed in Illinois makes union wages requisite for even non-union firms and workers. Not unsurprisingly, the CEO of Caterpillar has announced plans to possibly leave Illinois.

Finally, don't be completely blinded by unions always presenting themselves as the "little guy." The head of the New Jersey teachers' union makes $550,000 a year.

Saturday, March 26, 2011

Mazi's Link O' the Day

TED talks about life as an expatriate (a life I, personally, have considered for the future):

Wednesday, March 23, 2011

Mazi's Link O' the Day

There's a new list that ranks the U.S. at 34 when it comes to the possibility of a "debt meltdown." It is also predicted we will hit our debt ceiling in 16 years:

Monday, March 21, 2011

Mazi's Link O' the Day

This is a pretty good academic economics podcast that's free on iTunes. In this episode, the "crisis of the future" is discussed. Are we ruining tomorrow for consumption and gain today?

Sunday, March 20, 2011

Moving in, Moving out

I just got back to college today along with many, many other students. Just a thought:

Start a transportation company that specializes in moving kids around. Big cars, cheaper than getting a cab, and they even help carry your stuff to your room... Why not?

Mazi's Link O' the Day

Love, crystallization, and Greek gods:

Saturday, March 19, 2011

Mazi's Link O' the Day

Another article about professors. Older professors get payed more than younger ones. There's nothing inherently wrong with this, but if those older professors keep working and working...?

Wednesday, March 16, 2011

Mazi's Link O' the Day

Sadly, it seems Gaddafi is on the verge of retaking Libya, and also in Bahrain protesters suffered something of a setback. Despite all this, it is still worth asking why did these revolts suddenly spring up? This link explores some of the underpinnings, economically and demographically, of the countries in turmoil:

Monday, March 14, 2011

A Sticky Situation

There have been 2 stories in the last month that have really dominated headlines around the world: the revolt in Libya and now the earthquake in Japan. The latter is already a travesty, and, if the rebels fail, the former is likely to turn into one, too. In economics, there is a term "sunk costs." The old adage, "No point in crying over spilled milk," captures the idea of sunken costs fairly well. It's over, it happened, and past, "sunken" costs should not affect your future decision making. Sunk costs abound in political, economic, and natural disasters.

In Libya, we might say that starting a revolt in the first place is a sunk cost. You can't take it back, and even if the backlash from Gaddafi looks like it's going to be brutal, the only option now is to keep moving forward. Perhaps obviously, the rebels cannot abruptly stop their revolt and expect life to go back to pre-fighting levels. As the U.S., unambiguously supporting the rebels is the correct move. You don't scold your friend for getting in a car crash while he's still in the hospital. Gaddafi has shown (if he hadn't already) that he's completely insane. The rebels are that hospitalized friend. Maybe they should have waited for Gaddafi's power to weaken before revolting. Maybe they should have planned their uprising more diligently. U.S. support could make for these mistakes. Economically speaking, ending this war is only going to be good for Americans. The main concern is the effect the war will have on oil prices. This fear is fairly overstated. Libya only accounts for 2.1% of global oil output. Experts pointing to the fall in the consumer confidence index are missing the point. Despite the drop from 77.5 to 68.3, this is an overreaction. Consumers' fears about the rise in oil prices should soon be calmed when they realize the effects will be smaller than expected.

Sunk costs in Japan? Well, perhaps for the first time in a while, I disagree with some of the Epicurean Dealmaker's points. While risk analysis is important, and the failure to be properly prepared for a (somewhat) likely disaster is close to inexcusable, now is not the time to discuss these points. In economic terms, a catastrophe like the recent earthquake holds the keys to two very distinct paths for Japan. The country which just recently lost its position as the second largest economy in the world has been on a slow, painful decline for years now. Not to sound insincere, but this earthquake has given the country something as close to a tabula rasa as possible. The opportunity to rebuild should create jobs, update infrastructure, and hopefully allow the country to rediscover a competitive advantage. The gains are also measurable, post-disaster. While the specter of deflation is vague, the sight of ruined towns is tangible and progress can be observed and applauded. On the other hand, Japan could easily falter. The recovery could drag on painfully, refugee camps could become entrenched, and the already shaky government could end up taking the brunt of this damage. If the Japanese allow natural disaster to evolve, or perhaps devolve into political disaster, economic catastrophe is sure to follow.

Mazi's Link O' the Day

In light of the disaster in Japan, TED discusses risk in life, politics, and economics:

Thursday, March 10, 2011

Mazi's Link O' the Day

There appears to be a correlation between capital inflow and the size of the pre-recession housing boom. Also, perhaps less surprisingly, there is a correlation between the boom and the amount of financial innovation in a country:

Wednesday, March 9, 2011

Not Taxing Enough?

The Wall Street Journal reported today that Senator Kent Conrad of North Dakota is starting a new push for tax hikes for the rich. As the articles presents, there is ample evidence to support Mr. Conrad's pushes. For those of you not familiar with the tax code of the U.S., it is not true that wealthy people pay a nominally lower tax rate, however taking into account deductions and exemptions, their rate is effectively lower. As the WSJ notes, the capital gains taxes are key in this estimation. These taxes are lower than other income taxes under the assumption that they promote investment. Wealthy people, being more plugged into investing, naturally benefit more from this break. For 2008-2012, the short term capital gains tax is 10%.

But is the issue really a poorly constructed tax code for the wealthy? No, it is a poorly constructed tax code FOR ALL. Off the top of my head, the IRS estimate is that over $1 billion in tax revenues are lost each year due misfiled taxes. These losses do not stem from purposeful fraud, but simply because the payers can't understand the code. Although, I would remiss to not mention that our system is far more streamlined than it once was. There are currently 6 income tax brackets for households. From 1971-1981, there were 15. While the issue of an unfairly lenient tax burden on the wealthy may be perceived as an entirely different issue than the obtuse tax code as a whole, I believe tackling the latter problem will make resolving the former much less, say, emotional. A clearer tax code makes identifying loopholes much less difficult. The fact that it takes a tax expert to explain how the wealthy are managing to pay less sums my argument pretty well.

Mazi's Link O' the Day

Given the turmoil in the Middle East, oil prices have been sent spiraling upwards. Here is an interesting analysis of how the Saudis will respond to the chaos:

Tuesday, March 8, 2011

Mazi's Link O' the Day

Depressed housing prices are still causing pain around the nation. Last quarter, the percentage of homeowners with negative equity INCREASED from the quarter before. In real estate terms, equity is defined as the difference between the market value of the home and the amount still owed on the mortgage. In essence, it is how much one would receive after he sold the home and paid of the mortgage. Negative equity is fairly self-explanatory, and it should not e difficult to fathom why being in such a position is bad news. Add on to this that home prices are expected to decline another 5 to 10% this year, and we've got a nasty little stew:

Monday, March 7, 2011

Mazi's Link O' the Day

TED discusses "The Inside Job," traders, and mid-market investment banks:

Tuesday, March 1, 2011

Mazi's Link O' the Day

It is interesting to note that many of my friends are immediately congratulatory of any faculty member they meet who happens to have the "privilege" of chairing a department. Having professors as parents, I can tell you, most faculty to do not share this point of view. Chairing, in so many words, is a chore, and everybody's got to do his part: