Category: Economics

Why New York City Needs Wal-Mart

 

(p. 7)  . . .  an enduring mystery of the retail economic world: why don’t people in New York City want a Wal-Mart in Midtown?

Manhattan is the most underserved market I have ever seen for retail customers. There really is nowhere for bargains on ordinary household goods and groceries in the whole borough. Yes, I know unions hate Wal-Mart. But not every New Yorker is in a union, and every New Yorker needs food and paper towels. (I, by the way, am a member of three unions: the Screen Actors Guild, the American Federation of Television and Radio Artists, and the Writers Guild of America, West. How many unions is Mayor Michael Bloomberg in?)

Don’t the consumers deserve a break, too? I know Wal-Mart is not hip, slick and cool. It’s for people who have to live within a budget, not for people who see movies with subtitles and have houses on Martha’s Vineyard (or would like to). But don’t working-class people deserve bargains on their daily bread?

To keep Wal-Mart out of New York — or my home, Los Angeles — is simply to inflict a snobby class prejudice on working people. Why they and their representatives put up with this classist, ”let them eat Whole Foods” nonsense is yet another mystery, and one that could be solved if politicians really cared about consumers.

 

For the full commentary, see: 

BEN STEIN.  "EVERYBODY’S BUSINESS; Assorted Mysteries of Economic Life."  The New York Times, Section 3  (Sun., May 13, 2007):  7.

(Note: ellipsis added.)

 

Total Retirement Assets Will Increase, Even as Baby Boomers Retire

 

RetirementAssetsGraph.jpg   Source of graph:  online version of the NYT article cited below.

 

WILL stocks suffer a multidecade bear market as the baby-boom generation sells its shares to support its retirement? Some have predicted such an outcome, but a new study — which projects huge growth in 401(k) assets in future decades — paints a far more sanguine picture.

The study, “New Estimates of the Future Path of 401(k) Assets,” has been circulating since earlier this month as a working paper from the National Bureau of Economic Research. Its authors are James M. Poterba, chairman of the economics department at the Massachusetts Institute of Technology; Steven F. Venti, an economics professor at Dartmouth; and David A. Wise, a professor of political economy at Harvard. A version is at www.nber.org/papers/w13083.

Despite the baby boomers’ liquidation of retirement assets in coming decades, the study estimates that the total size of 401(k) plans will nevertheless grow markedly. That forecast may come as a surprise to some people, the professors concede, because 401(k)’s now represent only a modest fraction of a typical retiree’s total wealth. But the professors point out that 401(k) plans have existed only since the early 1980s; by the time that today’s younger workers retire, they will have had many more years to contribute to their 401(k)’s than current retirees have had.

 

For the full commentary, see: 

MARK HULBERT.  "STRATEGIES; Baby Boomers Are Cashing In.  So What?"  The New York Times, Section 3  (Sun., May 27, 2007):  5.

 

“The Engine of Prosperity is Technological Progress”

 

Steve sometimes writes clever, entertaining essays on issues of little policy importance (like whether a rational person should stand still, or move forward, on escalators).  But in the piece excerpted below, he does a great job of discussing the biggest policy issue of them all:  what drives economic progress?

 

Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened. Well, not quite nothing. There were wars, political intrigue, the invention of agriculture — but none of that stuff had much effect on the quality of people’s lives. Almost everyone lived on the modern equivalent of $400 to $600 a year, just above the subsistence level. True, there were always tiny aristocracies who lived far better, but numerically they were quite insignificant.

Then — just a couple of hundred years ago, maybe 10 generations — people started getting richer. And richer and richer still. Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year. A couple of decades later, the same thing was happening around the world.

Then it got even better. By the 20th century, per capita real incomes, that is, incomes adjusted for inflation, were growing at 1.5% per year, on average, and for the past half century they’ve been growing at about 2.3%. If you’re earning a modest middle-class income of $50,000 a year, and if you expect your children, 25 years from now, to occupy that same modest rung on the economic ladder, then with a 2.3% growth rate, they’ll be earning the inflation-adjusted equivalent of $89,000 a year. Their children, another 25 years down the line, will earn $158,000 a year.

Against a backdrop like that, the temporary ups and downs of the business cycle seem fantastically minor. In the 1930s, we had a Great Depression, when income levels fell back to where they had been 20 years earlier. For a few years, people had to live the way their parents had always lived, and they found it almost intolerable. The underlying expectation — that the present is supposed to be better than the past — is a new phenomenon in history. No 18th-century politician would have asked "Are you better off than you were four years ago?" because it never would have occurred to anyone that they ought to be better off than they were four years ago.

. . .

The source of this wealth — the engine of prosperity — is technological progress. And the engine of technological progress is ideas — not just the ideas from engineering laboratories, but also ideas like new methods of crop rotation, or just-in-time inventory management.

 

For the full commentary, see: 

STEVEN LANDSBURG.  "A Brief History of Economic Time."   The Wall Street Journal  (Sat., June 9, 2007):  A8. 

(Note:  ellipsis added.)

 

The Courage of Milton Friedman

 

The following two paragraphs are from a paper I am currently working on.

 

Milton Friedman wrote a Newsweek column many years ago that caused a firestorm of anger among his colleagues in the economics profession. Friedman’s argument was that, in general, the government is not going to do a good job of identifying the best and most productively innovative economists. In particular, he argued that economics funding by the National Science Foundation (NSF) had made the economics profession more mathematical than was appropriate.

Even his ‘Chicago’ colleagues, who were otherwise inclined to be sympathetic to his work, were appalled: Robert Lucas wrote against Friedman in the New York Times, and Zvi Griliches spoke against him before Congress. 

 

Not too long after Friedman’s article came out, I praised it during one of the sessions of a Liberty Fund colloquium held in California.  After the session, a very distinguished economist came up to me, and started talking about the Friedman article in a very irritated and animated manner.  He said that what Friedman wrote in the article, might be true, but he shouldn’t have written it in a public forum.[i]  He said that within the NSF, the physicists have always been opposed to funding economics, and that Friedman’s article gave the physicists just the ammunition they needed.  I remember distinctly that after this conversation, the distinguished economist got into his very large and very expensive car and drove off.  To the cynical, it may also be worth mentioning that this economist had received very substantial funding from the NSF.

I also remember mentioning to George Stigler my disappointment that Lucas had written contra Friedman, and Stigler gave me his cynical smile, and said that I should have expected that Lucas, and the rest of the profession, would defend NSF funding.

[i] Most of the conversation I remember in broad terms, but specifically, I remember he said something very close to:  ‘Friedman shouldn’t air the profession’s dirty laundry in public.’

 

The reference for the Friedman article, is: 

Friedman, Milton.  "An Open Letter on Grants."  Newsweek, May 18 1981, 99.

Private Companies Beat Government in Accessible and Affordable Health Care

 

MinuteClinic.jpg    A CVS pharmacy MinuteClinic.  Source of photo:  online version of the WSJ article cited below. 

 

It’s Friday evening and you suspect that your child might have strep throat or a worsening ear infection. Do you bundle him up and wait half the night in an emergency room? Or do you suffer through the weekend and hope that you can get an appointment with your pediatrician on Monday — taking time off your job to drive across town for another wait in the doctor’s office?

Every parent has faced this dilemma. But now there are new options, courtesy of the competitive marketplace. You might instead be able to take a quick trip on Friday night to a RediClinic in the nearby Wal-Mart or a MinuteClinic at CVS, where you will be seen by a nurse practitioner within 15 minutes, most likely getting a prescription that you can have filled right there. Cost of the visit? Generally between $40 and $60.

These new retail health clinics are opening in big box stores and local pharmacies around the country to treat common maladies at prices lower than a typical doctor’s visit and much lower than the emergency room. No appointment necessary. Open daytime, evenings and weekends. Most take insurance.

Much like the response to Hurricane Katrina, private companies are far ahead of the government in answering Americans’ needs, this time for more accessible and more affordable health care. Political leaders across the country seeking to expand government’s role in health care should take note. 

 

For the full commentary, see:

GRACE-MARIE TURNER.  "Customer Health Care."  The Wall Street Journal  (Mon., May 14, 2007):   A17.

 

Why Coke Cost a Nickel for 60 Years

 

The excerpt below is from a WSJ summary of a May 11, 2007 Slate article.

 

A serving of Coca-Cola cost a nickel for 60 years — an example that illustrates the disadvantages of price stability, Tim Harford writes. 

. . .   Prices won’t accurately reflect a product’s demand and the cost of producing it.  If, for example, the relative price of a car "can’t fall when demand does, sales will collapse."  If wages can’t fall in a recession, unemployment will rise.

The case of Coke, Mr. Harford says, is an example of the main reason companies choose to keep prices constant in the face of dramatic rises and falls in costs: the hassle of changing a product’s price can be very high.  Coke kept its price constant from 1886 through the mid-1940s, even as the price of sugar tripled after World War I and then fell slightly, and after the product went from being taxed as a medicine to taxed as a soft drink.  Part of Coke’s problem was that it sold many of its bottles in vending machines that accepted only nickels.  A price increase would have meant either building new vending machines or doubling the price of Coke, neither of which made financial sense.

 

For the full summary, see: 

"Informed Reader; ECONOMICS; The Cost of Raising Prices Can Prove Too High to Pay."  The Wall Street Journal  (Mon., May 14, 2007):  B7.

 

A Public Choice Theory of “Taxonomic Inflation”

 

The excerpt below is from a WSJ summary of an article that appeared in The Economist on May 19, 2007.

 

Scientists have taken to upgrading animals once thought to be subspecies into full-fledged species, in what the Economist says is an overzealous attempt to boost conservation of seemingly rare animals.

Sometimes, the reclassification of animals into their own species category is warranted, as new research reveals once-obscured markers that differentiate certain beasts. But lately, the weekly says, primatologists have been suffering from "taxonomic inflation."

. . .

. . .   One reason is that by fragmenting animal groups, the number of rare species increases, boosting animal-conservation claims.  At the same time, having a greater number of species boosts the chances that a habitat can pursue a legal designation as a protected area.

 

For the full summary, see: 

"Informed Reader; NATURE; Species Inflation May Infect Over-Eager Conservationists."  The Wall Street Journal  (Sat., May 19, 2007):  A6.

(Note:  ellipsis added.)

 

Incentives Matter in Medicine, But Profit is Not the Problem


AnemiaEPOdoseGraph.gif      Source of graphic:  online version of the NYT article quoted and cited below.

 

In the article excerpted below, the profit motive in medicine is painted as the villain of the piece.  But the problem is not the profit motive.  The problem is that government occupational licensing and regulation in medicine raises barriers to entry for low-cost competitors to enter, innovate, and compete. 

 

(p. A1)  Two of the world’s largest drug companies are paying hundreds of millions of dollars to doctors every year in return for giving their patients anemia medicines, which regulators now say may be unsafe at commonly used doses.

The payments are legal, but very few people outside of the doctors who receive them are aware of their size. Critics, including prominent cancer and kidney doctors, say the payments give physicians an incentive to prescribe the medicines at levels that might increase patients’ risks of heart attacks or strokes.

Industry analysts estimate that such payments — to cancer doctors and the other big users of the drugs, kidney dialysis centers — total hundreds of millions of dollars a year and are an important source of profit for doctors and the centers.

 

For the full story, see: 

ALEX BERENSON and ANDREW POLLACK.  "Doctors Reap Millions for Anemia Drugs."  The New York Times  (Weds., May 9, 2007):  A1 & C4. 

 

   Bernice Wilson’s kidney dialysis treatment includes the anti-anemia drug Epogen.  Source of photo:  online version of the NYT article quoted and cited above.


Sweden’s Welfare State Destroys Work Ethic

 

SicknessBenefitsGraph.gif   Source of graphic:  online version of the WSJ article cited below.

 

(p. A1)  LULEA, Sweden — Lotta Landström is allergic to electricity — so says her doctor. Along with hundreds of other Swedes diagnosed with the condition in recent years, she came to rely on state-funded sick pay.

But last year, Sweden’s famously generous welfare system cut off Ms. Landström, a 35-year-old former teacher. Electro-hypersensitivity isn’t widely recognized elsewhere in the world as a medical diagnosis. The decision to end her two years of benefits was part of a broad effort to crack down on sickness and disability benefits, according to Swedish welfare officials.

Swedes are among the healthiest people in the world according to the World Health Organization. And yet 13% of working-age Swedes live on some type of disability benefit — the highest proportion on the globe. To explain this, many Swedish policy makers, doctors and economists blame a welfare system that is too lax and does little to verify individual claims.

At a time when low-cost competition from Asia is clobbering Europe’s markets and straining its generous welfare states, governments from Finland to Portugal are trying to cut back and get more people to work. Sweden’s bloated sick bay, which includes (p. A15) roughly 744,000 people on extended leave, has caused soul-searching about whether the system coddles Swedes and encourages them to feel sick.

"If we don’t look out, we will end up with only two-thirds [of the labor force] in work, and one-third out, living on different kinds of subsidies," said Sweden’s new prime minister, Fredrik Reinfeldt, in an interview earlier this year.

At a time when low-cost competition from Asia is clobbering Europe’s markets and straining its generous welfare states, governments from Finland to Portugal are trying to cut back and get more people to work. Sweden’s bloated sick bay, which includes roughly 744,000 people on extended leave, has caused soul-searching about whether the system coddles Swedes and encourages them to feel sick.

"If we don’t look out, we will end up with only two-thirds [of the labor force] in work, and one-third out, living on different kinds of subsidies," said Sweden’s new prime minister, Fredrik Reinfeldt, in an interview earlier this year.

. . .

Most of Sweden’s boom in sickness absenteeism since the late 1990s is about more than simple fraud. Sick leave for psychological conditions such as depression, burnout or panic attacks has rocketed. Over 20% of the population complain of anxiety syndromes. "We are actually the safest country in the world," says David Eberhard, chief psychiatrist at St. Göran’s hospital in Stockholm. But "people are feeling psychologically worse and worse."

Assar Lindbeck, one of Sweden’s best-known economists, says the lenient welfare state has changed the country over the past generation. In place of the old Protestant work ethic, it has become acceptable to feel unable to work and to live on benefits, he says. "I would not call it cheating," Prof. Lindbeck says. "I would call it a drift in attitudes and social norms."

By being so accommodating, the Swedish system has encouraged Swedes to treat life’s tribulations as clinical issues requiring sick leave, posits Anna Hedborg, a former Social Democrat cabinet minister: "As time has passed, we have medicalized all sorts of problems."

 

For the full story, see:

MARCUS WALKER.  "Rx FOR CHANGE; Sweden Clamps Down On Sick and Disability Pay; Once Freely Dispensed, Benefits Face Scrutiny; Ms. Lanström Is Cut Off."  The Wall Street Journal  (Weds., May 9, 2007):  A1 & A15.  

(Note:  ellipsis added.)

 

LandstromLottaElectricityAllergy.gif  A former Swedish teacher who had been receiving government disability payments for being allergic to electricity.   Source of photo:  online version of the WSJ article cited above.

 

Kirkcaldy’s Current Native-Son Would Do Well to Remember Kirkcaldy’s 18th Century Native Son

 

In Kirckcaldy, Gordon Brown, the man on the right, tries to persuade the natives to vote for the Labor Party.  Source of the photo:  online version of the NYT article cited below.

 

Many years ago, we took the train from Edinburgh to spend a few hours in Kirkcaldy, the birthplace of Adam Smith.  I was surprised at how little there was to honor Smith in the town where he was born and raised.  There was a small cafe/theatre named after Smith.  A small crystal shop sold some shot glasses with Smith’s image engraved on them.  And there was a small plaque, above a no-parking sign, on the main street, at the spot where Smith’s family home had been. 

I remember asking a very polite young father with two or three small children in tow, why there was so little of Smith in Kirckaldy?  With a twinge of something like regret, he said that everyone in that part of Scotland supported Labor, and they saw Smith as supporting capitalism, and so did not like him much.

It was a crowded Saturday shopping day when Jeanette took my picture in front of the small plaque.  Incredulous passers-by turned and glanced in my direction, probably wondering why the crazy American wanted his picture taken next to a no-parking sign.  

For the sake of Kirkcaldy, and Britain, let us hope that Gordon Brown has read a bit of the work of his fellow Kirkcaldy native son:

 

(p. A10) KIRKCALDY, Scotland, April 30 — Gordon Brown, Britain’s presumed prime minister-to-be, is usually associated with a somewhat dour manner and a mastery of statistics. But here, he displays other skills — a bolt-on smile and a ready handshake to work sparse crowds between the discount stores on the High Street, asking parents with strollers whether their new babies are keeping them awake at night, and inquiring whether the men support the local Raith Rovers soccer team.

. . .

“This is a big choice on Thursday, between those who want to break up Britain and those who want to build up Scotland,” Mr. Brown, currently Britain’s chancellor of the exchequer, told students at Adam Smith College, named for the 18th-century economist who was born here.

. . .

Mr. Brown, who is not standing in these elections, came to town, alongside the choppy waters of the Firth of Forth, to support the Scottish Labor campaign and resist the nationalists.

“I do not think the Scottish people want to see the breakup of the union” that makes up Britain, he said here in Kirkcaldy (pronounced kerr-CUDDY).

But advocates of independence say it would propel Scotland to a bright future, as viable as any other small European state.

 

For the full story, see: 

ALAN COWELL.  "Elections in Britain Reveal a Scottish Line in the Sand."  The New York Times  (Weds., May 2, 2007):  A10.

(Note:  ellipses  added.)

 

 KirkcaldyScotlandMap.jpg   Source of the map:  online version of the NYT article cited above.

 

   Art Diamond in Kirkcaldy in 1994 at location (I think on High Street) where  Adam Smith’s boyhood home used to be.  (Photo by Jeanette Diamond.)

 

Mugabe Prints More Money and Beats Up Shopkeepers, as Inflation Soars: More on Why Africa is Poor

 

     "Inflation made food cost a fortune in Harare this week.  The government imposed controls that required vendors to sell some items below cost."  Source of caption and photo:  online version of the NYT article cited below. 

 

JOHANNESBURG, July 3 — Zimbabwe’s week-old campaign to quell its rampant inflation by forcing merchants to lower prices is edging the nation close to chaos, some economists and merchants say.

As the police and a pro-government youth militia swept into shops and factories, threatening arrest and worse unless prices were rolled back, staple foods vanished from store shelves and some merchants reported huge losses. News reports said that some shopkeepers who had refused to lower prices had been beaten by the youth militia, known as the Green Bombers for the color of their fatigues.

In interviews, merchants said that crowds of people were following the police and militia from shop to shop to buy goods at the government-ordered prices.

“People are losing millions and millions and millions of dollars,” said one merchant in Bulawayo, referring to the Zimbabwean currency, which is becoming worthless given the nation’s inflation, the world’s highest. “Everyone is now running out of stock, and not being able to replace it.”

. . .

Gasoline was reported to be vanishing from stations as the going price, about 180,000 dollars per liter, was slashed by the government to something closer to the officially approved price of 450 dollars per liter. Mr. Mugabe’s government intends to cope with the shortages by subsidizing producers of basic goods. One of the few newspapers not under government control, The Zimbabwe Independent, reported last week that flour, which is controlled entirely by the state, will be sold to bakers for 10 million dollars a ton, half the market price. Similarly, many suppliers of basic goods have been told by the government that they will be allowed to buy gasoline at one tenth the going price, the newspaper reported. The government apparently plans to make up those losses by printing more money. Zimbabwe’s dollar has lost more than half its value in recent weeks because the government has constantly issued new bills to pay its mounting debts.

 

For the full story, see: 

MICHAEL WINES.  "Anti-Inflation Curbs on Prices Create Havoc for Zimbabwe."  The New York Times  (Weds., July 4, 2007):  A8. 

(Note:  ellipsis added.)

 

CNN on 7/10/07 broadcast a great clip from ITN, that had been courageously recorded undercover by Martin Geissler.  See  "Desperation in Zimbabwe":

http://www.cnn.com/video/#/video/offbeat/2007/06/23/vo.mi.ugly.dogs.ap?DPFPR=true

(Note:  ITN is sometimes also called ITV.  "ITN" stands for the International Television Network.)

 

Postscript:  According to an entry on the ITV web site entitled "Mugabe Battles Economic Crises," Mugabe "has warned he will not be restrained by "bookish economics"."  (He makes a great case for cracking open the books, doesn’t he?  Or at least for opening the window and looking at what is happening outside?)

For the Mugabe quote on bookish economics, see:

http://itn.co.uk/news/a1d7763de3c4778b619a72cbeab24d6d.html