Category: Economics

Futures Markets Would Reduce Chinese Volatility

 

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

 

Market participants consider futures the next big thing for China’s financial-sector development. The exchange currently trades contracts in copper, aluminum, natural rubber and fuel oil — commodities that China imports in large quantities.

But trading is largely closed to foreigners. Futures on financial products, such as stock indexes and currencies, don’t yet exist in China, though they are integral to other market economies.

Reviving Case for Futures

China banned exchange-traded financial derivatives in 1995 in response to a meltdown in its bond-futures market. Within minutes, $10 billion in market value was wiped out, in what remains the country’s most damaging market debacle to date. By contrast, last week’s drop in stocks has revived the case for financial futures.

Officials now say share prices probably wouldn’t have fallen so abruptly on Feb. 27 if index futures existed. That’s because shares probably wouldn’t have surged as quickly as they did last year — the Shanghai Composite Index rose 130% — if investors had had the chance to use stock-index futures to bet against the market on its way up.

Futures contracts are thought to build more of a two-way market, because they give investors the right to buy — and sell — based on expectations about how the value of an index, stock, currency or commodity might move within a particular time frame. Without them, the only way for investors to make money is in a rising market, a risky prospect over the long term.

 

For the full story, see:

JAMES T. AREDDY.  "Futures Could Help Cure China’s Boom-Bust Cycles."  The Wall Street Journal  (Thurs., March 8, 2007):  A2.

(Note:  the online version had a slightly different title:  "China Tries Longer-Term Response to Stock Volatility.")

 

Anti-Wal-Mart is Anti-Free-Choice

     Source of logo/header:  http://www.muddycup.com/mudlane/img/header.jpg

 

The article excerpted below reveals the soul of much of the anti-Wal-Mart movement.  It is not anti-big; it is anti-competition and anti-free-choice.

 

How in the world did a guy who started his first coffee shop on Staten Island six years ago and now runs five others in far-flung Hudson Valley towns become the moral equivalent of Wal-Mart and Starbucks? “Well, it’s now official,” he announced last month on the Web site that promotes his Muddy Cup coffeehouses. “I am now head of the evil empire.”

. . .

And now the talk of New Paltz has to do with something far more important than mere marriage — coffee. More specifically it’s whether Mr. Svetz is plotting an act of entrepreneurial imperialism by presuming to open one of his Muddy Cup coffeehouses next door to the ultimate green icon in town, the funky 60 Main coffee shop operated in conjunction with the nonprofit New Paltz Cultural Collective.

. . .

Little did he know. As word filtered out he began receiving a blizzard of e-mail messages from 60 Main proponents, reacting to an urgent appeal from the collective. The messages threatened a boycott and told him to stay home. “If we can stop Wal-Mart we can stop you,” said one.

“We do not want to become yet another small town taken over by huge corporations,” read another.

. . .

Mr. Svetz is still stunned by the whole thing, particularly his sudden status as a giant corporation. He says that just as lots of bars coexist in town, several coffee shops can too. Maybe he’s right. Maybe he’s not. He’s not Wal-Mart, but maybe it’s fair to ask how many artist-friendly coffeehouses the village can support. But it’s hard to argue when he says that even in New Paltz, businesses generally have to compete to survive, not find a way to build a Berlin Wall around town.

“When a community starts building walls and saying you don’t belong here or you don’t think like we do, that can’t be a good thing,” he said.

 

For the full story, see: 

PETER APPLEBOME.  "Coffee Puts Laid-Back Town on Edge."  The New York Times, Section 1  (Sun., March 4, 2007):  21. 

(Note:  ellipses added.)

 

UNO Economics RA Talks Personal Finance

McGrathMollyPersonalFinance.jpg   Molly McGrath.  Soure of photo:  online version of the Omaha World-Herald article cited below.

 

Molly was one of our Research Assistants last year in the UNO economics department: 

 

(p. 1D)  Miss Nebraska Molly McGrath has driven more than 25,000 miles since being crowned in June, mostly to schools as she talks about personal finance issues like avoiding debt and using money as a tool to realize dreams.

"There is a drastic need for economic and financial education with all people, but especially in low-income communities and especially among our youth," McGrath told about a dozen people at a recent meeting of the Rotary Club of Omaha-North.

McGrath knows about making ends meet. Her parents could not help her pay for college, so she has used more than $20,000 in scholarships won through the Miss America program. She also cleaned toilets, dorm rooms and apartments as she earned her undergraduate degree at New York University in New York.

"I was known right away at NYU as the girl from Nebraska," McGrath said. "And after I started this cleaning business I was known as the girl from Nebraska who cleans toilets."

 

For the full story, see: 

JOE RUFF.  "Miss Nebraska teaches dollars and sense."  Omaha World-Herald  (Monday, February 26, 2007):  1D & 2D.

 

Bush Should Take Lab Coat Off

Decisions about which new technologies to develop should be left to the market, not the government.  One reason is that markets generally make the more efficient choice.  Another reason is that when technological risks are taken in the market, they are taken with voluntary private money; when risks are taken by the government, they are taken with your money that has been coerced from you through taxation.

With all due respect, President Bush should take the lab coat off. 

  

(p. A16) FRANKLINTON, N.C., Feb. 22 — President Bush put on a white coat and visited a laboratory here Thursday to promote his goals for making alternative fuels from switch grass, woodchips and other plant waste.

After touring the laboratory, which is developing enzymes to make cellulosic ethanol, fuel distilled from plant byproducts, Mr. Bush spoke buoyantly about new technologies that may reduce the nation’s thirst for foreign oil.

 

For the full story, see: 

EDMUND L. ANDREWS.  "Bush Makes a Pitch for Amber Waves of Homegrown Fuel."  The New York Times  (Fri., February 23, 2007):  A16. 

 

Mugabe Eats Cake As He Ruins Zimbabwe Economy: More on Why Africa is Poor

   Tyrant Mugabe eats cake while his slaves starve.  Source of photo:  online version of the NYT article cited below.

 

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

. . .

On Wednesday, The Herald, the state-managed newspaper, included in 16 pages of tributes to Mr. Mugabe an editorial calling him “an unparalleled visionary” and “an international hero among the oppressed and poor.”

. . .

“The guy is insensitive,” John Shiri, 41, a teacher at a primary school, told a local journalist. “There is no bread as we are talking, but he will be feasting and drinking with his family and hangers-on when there is no wheat in the country.”

. . .

Tawanda Mujuru, who runs a vegetable stall on Samora Machel Avenue in downtown Harare, said that she would be working in a factory if not for the failure of Mr. Mugabe’s economic policies.

“He has the guts to eat and drink when we are suffering like this,” she said. “Let him enjoy. Every dog has his day. We shall have our day.”

 

For the full story, see:

MICHAEL WINES.  "Mugabe Gets Ready to Eat Cake While Fellow Zimbabweans Can’t Find Bread on Shelves."  The New York Times  (Thurs., February 22, 2007):  A6.

(Note:  ellipses added.) 

 

Would Consumers Be Better Off with No Satellite Radio?

   Source of graphic:  online version of the NYT article cited below.

 

It appears as though the market for satellite radio may not be big enough for two firms to profitably survive, although one merged "monopoly" firm might survive.  But the antitrust government authorities appear to seriously be considering to forbid the merger. 

If they do so, they will be presuming to tell the consumer that she is better off with no satellite radio, than with one merged "monopoly" satellite radio.

Note the secondary issue of whether it’s appropriate to call a merged company a "monopoly."  If the "industry" is defined as "satellite radio," then the merged company would be a monopoly.  If the "industry" is more broadly defined as "broadcast radio," which would include AM, FM, and internet stations, then the merged firm would be a long way from a monopoly.

But either way, the government should stay out of it.

 

(NYT, A1)  The nation’s two satellite radio services, Sirius and XM, announced plans yesterday to merge, a move that would end their costly competition for radio personalities and subscribers but that is also sure to raise antitrust issues.

The two companies, which report close to 14 million subscribers, hoped to revolutionize the radio industry with a bevy of niche channels offering everything from fishing tips to salsa music, and media personalities like Howard Stern and Oprah Winfrey, with few commercials. But neither has yet turned an annual profit and both have had billions in losses.

. . .

Questioned last month about a possible Sirius-XM merger, the F.C.C. chairman, Kevin J. Martin, initially appeared to be skeptical, but later said that if such a deal were proposed, the agency would consider it.

In a statement yesterday, Mr. Martin acknowledged that the F.C.C. rule could complicate a merger but said the commission would evaluate the proposal. “The hurdle here, however, would be high,” he said.

The proposed merger, first report-(p. C2)ed yesterday by The New York Post, promises to be a test of whether regulators will see a combination of XM and Sirius as a monopoly of satellite radio communications or whether they will consider other audio entertainment, like iPods, Internet radio and HD radio, to be competitors.

“If the only competition to XM is Sirius, then you don’t let the deal through,” said Blair Levin, managing director of Stifel Nicolaus & Company and a former F.C.C. chief of staff. But Mr. Blair said he expected the F.C.C. to approve the merger.

 

For the full NYT story, see:

RICHARD SIKLOS and ANDREW ROSS SORKIN.  "Merger Would End Satellite Radio’s Rivalry."  The New York Times  (Tues., February 20, 2007):  A1 & C2.

(Note:  ellipsis added.)  

 

(WSJ, p. A1)  But because XM and Sirius are the only two companies licensed by the Federal Communications Commission to offer satellite radio in the (p. A13) U.S., the deal is likely to face significant regulatory obstacles.

Broadcasters said yesterday that they will fight the proposed merger, and FCC Chairman Kevin Martin released an unusually grim statement saying that the two companies will face a "high" hurdle, since the FCC still has a 1997 rule on its books specifically forbidding such a deal which would need to be tossed. The transaction also requires the Justice Department’s blessing.

Indeed, XM and Sirius may be rushing into a deal because they sense the regulatory terrain will only get tougher. People close to the matter said that the two companies acted because the climate is already changing with the election of a Democratic-controlled Congress. Future developments — such as the possibility of a Democratic president — could make it even harder for the proposed merger to pass muster.

In their strategy, the two companies may be subtly acknowledging the risks before them: By conceiving their deal as a merger of equals and declining to say which company name would emerge ascendant, they minimize the business risks should the deal fall through. If, for example, the combined company were to be dubbed Sirius, XM could be vulnerable to a decline in sales during a regulatory review period that could last a year. A person familiar with the negotiations said the two companies have set March 1, 2008, as their "drop-dead date," after which either side can walk away if approval is not granted.

The coming regulatory battle is likely to focus on the definition of satellite radio’s market. The two companies are expected to argue that the rules established a decade ago, which require two satellite rivals to ensure competition, simply don’t apply in today’s entertainment landscape.

Since 1997, a host of new listening options have emerged, making the issue of choice in satellite radio less important for consumers. Executives cite a new digital technology called HD radio, iPod digital music players, Internet radio and music over mobile phones as competitors that didn’t exist when the satellite licenses were first awarded.

 

For the full WSJ story, see:

SARAH MCBRIDE, DENNIS K. BERMAN and AMY SCHATZ.  "Sirius and XM Agree to Merge, Despite Hurdles For Regulators, Deal Pits Competition Concerns Against New Technology."  The Wall Street Journal  (Tues., February 20, 2007):  A1 & A13.

(Note:  ellipsis added.)

 

 SatteliteRadioSubscribersNYT.gif   Source of graphic on left:  online version of the NYT article cited above.  Source of graphic on right:  online version of the WSJ article cited above.

 

“Free” Parking Has Hidden Costs

ParkingMeterRedwood2.jpg ParkingMeterRedwood1.jpg   Two views of the new parking meters in Redwood, California.  Source of photos:  online version of the WSJ article cited below.

 

Economists have long made the case that the solution to the parking crunch many cities face lies not in more free or cheap parking but in higher prices. The idea is that higher prices result in a greater churn — and get more people on buses and subways — which leads to more open spaces. But this notion has often run up against city planners and retailers arguing that cheap and plentiful parking results in more commerce and, thus, higher sales taxes and a vibrant economy.

Now, in places like Redwood City, some officials are finally listening. One reason is that after decades of losing people to the suburbs, many city centers are swelling again. Many of these new residents are bringing cars with them, creating the kind of traffic that makes them yearn for the suburbs again.

One of the most influential of the parking gurus is Donald Shoup, a professor at the University of California, Los Angeles who commutes on a bicycle. Since the publication in 2005 of Mr. Shoup’s "The High Cost of Free Parking," he has become something of a celebrity at academic gatherings and parking-industry meetings. Lines form at his book signings. "He’s a parking rock star," says Paul White, of Transportation Alternatives, a New York group that advocates for pedestrians and bicycles.

. . .  

Dan Zack, downtown development coordinator for Redwood City, has bought in. A few years ago, his boss presented him with a problem. "He said, ‘We’re adding a million visitors every year, but only 600 new parking spots — make it work,’ " Mr. Zack recalls. After visiting neighboring cities and reading books like "The Dimensions of Parking," Mr. Zack was handed an article by Mr. Shoup.

The city recently raised rates to 75 cents for some prime downtown spots that had been free, and ditched its one-hour time limits, so cars can prepay for as long as they’d like. The move has helped steer more cars to underutilized parking garages away from the main drag.

. . .  

San Francisco, perhaps more than any other city, shows how radically some cities are rethinking their parking. The city is one of the toughest places to find a meter spot in all of America, and there have been a spate of attacks by angry drivers, against parking enforcement officers. One block near the popular Fisherman’s Wharf has average stays of four hours — even though there’s a two-hour time limit — and some spots are filled for days at a time.

Recently, the city hired a company to lay hundreds of 4-inch-by-4-inch sensors along the streets in some areas. The sensors, which resemble reflectors, have recorded some 250,000 "parking events" across 200 parking spots. City planners can now tell you which spots are occupied the longest and how traffic flow affects parking supplies.

If the sensors get a wider rollout, the city has floated a number of ideas. When there’s a Giants baseball game at AT&T Park, the city could temporarily charge about the same as private lots near the stadium. The ground sensors are also connected to the Internet wirelessly, which creates the possibility that parking enforcement officers equipped with PDAs could get real-time information on parking violations beamed to them. It also means consumers could get information on which parking spots are open.

 

For the full story, see: 

CONOR DOUGHERTY.  "The Parking Fix; Free-market economists are overhauling a frustration of American life — and erasing what may be one of the last great urban bargains."   The Wall Street Journal  (Sat., February 3, 2007):  P1 & P5.

(Note:  ellipses added.) 

 

 ParkingSensorsSanFancisco.jpg ParkingMeterInternet.jpg  Sensors such as the one embedded in the San Francisco street on the left, could eventually be used to help track parking violators, as imagined in the fictional picture on the right.  Source of photos:  online version of the WSJ article cited above.

 

Mugabe’s Hyperinflation Destroys Zimbabwe Economy: More on Why Africa is Poor

 

The article excerpted below does a good job of sketching some of the effects of  hyperinflation on the people of Zimbabwe.  But it does little to illuminate the cause.  As Milton Friedman definitively demonstrated, inflation is caused by government printing too much money.  Mugabe and other tyrants are motivated to print too much money so they will have more money to spend, without having to raise taxes.  The ploy seems to work for a little while sometimes, but in the end it results in inflation.

Gideon Gono is the governor of Zimbabwe’s central bank.  Note Mr. Gono’s display of chutzpah in his blaming the people for inflation, and note the wonderful just symbolism of the power black out that cut off Mr. Gono’s speech. 

(It almost sounds like an outtake from Atlas Shrugged.)

 

(p. A1)  JOHANNESBURG, Feb. 6 — For close to seven years, Zimbabwe’s economy and quality of life have been in slow, uninterrupted decline. They are still declining this year, people there say, with one notable difference: the pace is no longer so slow.

Indeed, Zimbabwe’s economic descent has picked up so much speed that President Robert G. Mugabe, the nation’s leader for 27 years, is starting to lose support from parts of his own party.

In recent weeks, the national power authority has warned of a collapse of electrical service. A breakdown in water treatment has set off a new outbreak of cholera in the capital, Harare. All public services were cut off in Marondera, a regional capital of 50,000 in eastern Zimbabwe, after the city ran out of money to fix broken equipment. In Chitungwiza, just south of Harare, electricity is supplied only four days a week.

. . .

In the past eight months, “there’s been a huge collapse in living standards,” Iden Wetherell, the editor of the weekly newspaper Zimbabwe Independent said in a telephone interview, “and also a deterioration in the infrastructure — in standards of health care, in education. There’s a sort of sense that things are plunging.”

. . .

(p. A6)  The trigger of this crisis — hyperinflation — reached an annual rate of 1,281 percent this month, and has been near or over 1,000 percent since last April. Hyperinflation has bankrupted the government, left 8 in 10 citizens destitute and decimated the country’s factories and farms.

. . .

The central bank’s latest response to these problems, announced this week, was to declare inflation illegal.  From March 1 to June 30, anyone who raises prices or wages will be arrested and punished.  Only a “firm social contract” to end corruption and restructure the economy will bring an end to the crisis, said the reserve bank governor, Gideon Gono.

The speech by Mr. Gono, a favorite of Mr. Mugabe, was broadcast nationally.  In downtown Harare, the last half was blacked out by a power failure.

 

For the full story, see: 

MICHAEL WINES.  "As Inflation Soars, Zimbabwe Economy Plunges."  The New York Times  (Weds., February 7, 2007):  A1 & A6.

(Note:  ellipses in original.)

 

For a lot of evidence on what causes inflation, see:

Friedman, Milton, and Anna Jacobson Schwartz.  A Monetary History of the United States, 1867-1960. Princeton:  Princeton University Press, 1963.

 

German Brain Drain

   Engineer Benedikt Thoma is moving his family to Canada from Germany for a brighter future.  Source of photo:  online verion of the NYT article cited below.

 

ESCHBORN, Germany, Feb. 3 — Benedikt Thoma recalls the moment he began to think seriously about leaving Germany. It was in 2004, at a New Year’s Day reception in nearby Frankfurt, and the guest speaker, a prominent politician, was lamenting the fact that every year thousands of educated Germans turn their backs on their homeland.

“That struck me like a bolt of lightning,” said Mr. Thoma, 44, an engineer then running his family’s elevator company. “I asked myself, ‘Why should I stay here when the future is brighter someplace else?’ ”

In December, as his work with the company became an intolerable grind because of labor disputes, Mr. Thoma quit and made plans to move to Canada. In its wide-open spaces he hopes to find the future that he says is dwindling at home. As soon as he lands a job, Mr. Thoma, his wife, Petra, and their two teenage sons will join the ranks of Germany’s emigrants.

There has been a steady exodus over the years, but it has recently become Topic A in a land already saddled with one of the most rapidly aging and shrinking populations of any Western nation. With evidence that more professionals are leaving now than in past years, politicians and business executives warn about the loss of their country’s best and brightest.

. . .

. . . , there is plenty of anecdotal evidence that Germany has become less attractive for people in fields like medicine, academic research and engineering. Those who leave cite chronic unemployment, a rigid labor market, stifling bureaucracy, high taxes and the plodding economy — which, though better recently, still lags behind that of the United States.

. . .

In Mr. Thoma’s view, the root of the problem is [that] . . . Germany, . . . , has a “blockage” in its society.

“Germans are so complacent,” he said, sitting at the dining table in his neat-as-a-pin home here. “They don’t want to change anything. Everything is discussed endlessly without ever reaching a solution.”

As an example he cites the stalemate between his family’s firm and its 89 employees. After the firm became unionized, he said, the two sides began bickering over wages and working conditions.

With much of his 80-hour workweeks eaten up by those disputes, Mr. Thoma said he had developed high blood pressure and other ailments. He told his brothers he was burned out and ready to leave. 

 

For the full story, see:

MARK LANDLER.  "Germany Agonizes Over a Brain Drain."  The New York Times  (Tues., February 6, 2007):  A10.

(Note:  ellipses added.)

 

     Source of graphic:  online verion of the NYT article cited above.

 

Guns Deter Crime

 

Knoxville, Tenn.

IT’S a phenomenon that gives the term “gun control” a whole new meaning: community ordinances that encourage citizens to own guns.

Last month, Greenleaf, Idaho, adopted Ordinance 208, calling for its citizens to own guns and keep them ready in their homes in case of emergency. It’s not a response to high crime rates. As The Associated Press reported, “Greenleaf doesn’t really have crime … the most violent offense reported in the past two years was a fist fight.” Rather, it’s a statement about preparedness in the event of an emergency, and an effort to promote a culture of self-reliance.

. . .  

Criminals, unsurprisingly, would rather break into a house where they aren’t at risk of being shot. As David Kopel noted in a 2001 article in The Arizona Law Review, burglars report that they try to avoid homes where armed residents are likely to be present. We see this phenomenon internationally, too, with the United States having a lower proportion of “hot” burglaries — break-ins where the burglars know the home to be occupied — than countries with restrictive gun laws.

Likewise, in the event of disasters that leave law enforcement overwhelmed, armed citizens can play an important role in stanching crime. Armed neighborhood watches deterred looting in parts of Houston and New Orleans in the aftermath of Hurricanes Katrina and Rita.

 

For the full commentary, see:

GLENN REYNOLDS.  "A Rifle in Every Pot."  The New York Times  (Tues., January 16, 2007):  A31.

 

Glenn Reynolds is a professor of law at the University of Tennessee, and is the blogger of Instapundit.com.  In 2006, he published:

Reynolds, Glenn. An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths. Nashville, TN: Nelson Current, 2006.

 

    Source of book image:  http://ec1.images-amazon.com/images/P/1595550542.01._SS500_SCLZZZZZZZ_V1136930360_.jpg

 

Labor is “Responsible for the Consequences of Their Choice”

 

An early free-market economist claims that in a free-market economy, a worker’s happiness depends mainly on her own actions:

 

But whenever property is secure, industry free, and the public burdens moderate, the happiness or misery of the labouring classes depends almost wholly on themselves. Government has there done for them all that it should, and all in truth that it can do. It has given them security and freedom. But the use or abuse of these inestimable advantages is their own affair. They may be either provident or improvident, industrious or idle; and being free to choose, they are alone responsible for the consequences of their choice.

 

The passage was brought to my attention by an HES Posting from Michael Perelman.  The thread was continued by Torsten Schmidt, and the final information on the pages where the passage may be found, was added by Masazumi Wakatabe.

 

The reference for the source of the passage is:

McCulloch, J.R.  A Treatise on the Circumstances which Determine the Rate of Wages and the Condition of the Labouring Classes, second edition, corrected and improved, 1854, 16-17.