Tuesday, January 30, 2007

Comments on Bush's State of the Union Address

I was very disappointed with Bush's talk about energy independence and alternative energy sources. Ethanol costs well over $100 per barrel. Oil costs about $50 per barrel. You are throwing out $50 for each barrel of ethanol you buy (actually it is even more than that since the energy produced by burning a barrel of ethanol is apparently less). Bush’s and the Democrat’s policy on this will just make us much poorer. I know the responses: that the price of ethanol is coming down. But that doesn’t justify a subsidy. Firms can take that into account just as they do with any other product. If they think that cost will come down enough that it will pay for them to produce the product, they will start producing the product.

The other claim involves energy security. This makes little sense to me. If gas is risky because oil might get cut off in a war or if there is a boycott, that causes the current price to rise to reflex that future higher price. That higher price then will be taken into account to see whether because of that risk we should be relying on other energy sources. The only justification that I can make for this last claim is that the threat of price controls prevent gas companies from profiting from those higher future prices and thus eliminate their incentives to do things such as store more gas today. The problem here then is the threat of government intervention in the market that is then used to justify more government intervention. There is no reason to believe that the government is going to get anywhere near to picking the right levels of investments here.


Sunday, January 28, 2007

The economics of baseball and football

Russell Roberts, someone who I have coauthored multiple papers with, has a very interesting interview with Michael Lewis, the author of Moneyball and The Blind Side. I guess that I have a hard time accepting Roberts' claims about the lack of competitive pressures in baseball. To say that these guys are the only baseball team in town so that they don't really have to compete seems wrong to me. There must be more teams than the Oakland A's that care a lot about winning. What about the Yankees for example? On the other hand, there were lots of points that I thought were great about the interview. I really like the NCAA recruiting discussion.


Tuesday, January 23, 2007

Mankiw interview

Here is another interesting post from Econtalk, where Russell Roberts conductes a very interviewing Greg Mankiw. Mankiw is a very interesting and bright guy. However, I did have one serious point to make with Russell. When Greg made the claim about the Coase theorem only applying when transaction costs are zero with the note that when transaction costs are positive it matters who we give the property rights to. That is not quite right. The Coase theorem implies that if the transaction costs are less than the gains from trade it doesn't matter who we assign property rights to. Similarly, I wish that Russell had raised the point that the market will solve externality problems, not just when transaction costs are zero, but when they are less than the gains from trade.


Monday, January 15, 2007

Bizarre Government Accounting Rules

Many have probably heard that Sarbanes-Oxley Act is driving firms to list their shares on foreign stock markets and not on the US stock exchanges.

From an Apple representative on the show floor: so if you have a Core 2 Duo Macintosh, you have a card capable of 802.11b, g, and - surprise, surprise - n. (Well, apparently n draft 2, which may or may not be like the final ratified standard come 2008, but will be supported in multiple Apple products.) And Apple’s going to distribute software to let you unlock the n standard in that card, which offers superior bandwidth for all sorts of data, especially and including high-bitrate video. Great news, right?

I’m not going to claim to understand this next part, which really just makes no sense to me at all, but the claim Apple’s making is that it _can’t_ give you the 802.11n-unlocking software for free. The reason: the Core 2 Duo Macs weren’t advertised as 802.11n-ready, and a little law called the Sarbanes-Oxley Act supposedly prohibits Apple from giving away an unadvertised new feature for one of its products. Hence, said the Apple rep, the company’s not distributing new _features_ in Software Update any more, just _bug fixes._ Because of Sarbanes-Oxley. . . .

it’s about accounting. Because of the Act, the company believes that if it sells a product, then later adds a feature to that product, it can be held liable for improper accounting if it recognizes revenue from the product at the time of sale, given that it hasn’t finished delivering the product at that point. Ridiculous.


Wednesday, January 10, 2007

Economists Opposed to Pharmaceutical Price Controls

If you click on the link, you will see the list of economists who signed this letter. I guess that we will find out if it helps the fight. The surprise to me is that this debate keeps on having to take place. (Ben Zycher at the Manhattan Institute did all the heavy lifting on this.)

We are deeply concerned about proposed legislation that would lead to negotiation of pharmaceutical prices by the federal government for the new Medicare Part D drug benefit.

Under current law, negotiations over prices are conducted between the pharmaceutical producers and private firms administering drug benefit programs for Medicare beneficiaries. With federal spending on pharmaceuticals is projected to grow to about $100 billion in 2007 — over 40 percent of the U.S. total —some policymakers now advocate federal negotiation of prices with the pharmaceutical producers, in order to use the large size and bargaining power of the federal government to achieve sharply lower prices.

Federal price negotiations would represent a policy change carrying significant risks for research and development investment in new and improved medicines. A substantial body of research shows that similar federal drug programs impose prices substantially lower than those negotiated in the private sector, and that such lower prices inevitably will reduce research and investment in new and improved medicines. This slowdown in pharmaceutical innovation will yield highly adverse effects upon future patients in terms of reduced life expectancies.

We urge Congress not to support negotiation of drug prices by the federal government.


Tuesday, January 2, 2007

Eminent Domain Leads to Blackmail

So did the Supreme Court Justices who voted for Kelo forsee this consequence of their decision? Yet, in some sense it is not much of a different outcome than the power to tax.

Bart Didden wanted to put a CVS pharmacy on his property in Port Chester, N.Y. He even obtained approvals from the local planning board.
But because a portion of the CVS site was in a blighted redevelopment zone, Mr. Didden was told that planning board approval wasn't enough. He'd have to reach an understanding with a private company that had been selected by Port Chester officials to control all construction inside the renewal zone.

The developer, Gregg Wasser of G&S Port Chester, told Didden he'd have to pay $800,000 or give G&S a 50 percent stake in the CVS business. If Didden refused, Mr. Wasser said, he would have Port Chester condemn and seize his property and instead of a CVS he'd put a Walgreens drugstore on the site.

Didden refused. The next day, the Village of Port Chester began legal proceedings to seize Didden's land by eminent domain.. . . . .

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