Controversial Foreign Aid

From an economics blog called SmartEconomist.com:

In Kenya, four million people are facing hunger due to severe drought. A New Zealand dog food manufacturer offered to donate 6,000 emergency packs of dog food mixture to help feed Kenyan orphans. A Kenyan government spokesman said: "We appreciate the offer, but we dismiss it as culturally insulting."

Their source is the following BBC article.

I imagine this article will garner some divided views from you guys, so what do you think? Is cultural pride interfering with social welfare or is it worth sacrificing a relatively small amount of food to maintain the dignity of their people?

(Source: Marginal Revolution)

If You are Looking for a Lucrative Summer Job...

...try scavaging for whale vomit, which apparently can net you $20,000 per kilogram due to its use in perfumes.

(Source: Newmark's Door)

Edward Lazear is the new CEA head

Edward Lazear, an economist at Stanford University, will be the new head of President Bush's Council of Economic Advisors.

The part of Lazear's work that I am most familiar with is his research on labor markets. One of his particularly interesting insights is an explanation for why companies are willing to pay ridiculous salaries to their CEOs and pay a lot less (in relative terms) to other VPs and executives that are probably just as important to the company's success. Lazear argues that the million-dollar salaries are not based on the productivity of the CEO, but rather serve as an incentive for all of the executives below the CEO to work harder to try and become the CEO one day. As Lazear himself explains: "The CEO gets to enjoy the money, but it's making everybody else work harder."

This article gives a good summary of his argument about CEO salaries, and Tyler Cowen gives a great overview of Lazear's research with this Marginal Revolution post.

Measuring Economic Growth With Sears

Here is an interesting post by an economist named Don Boudreaux where he gives a sense of how much our standard of living has improved in the past 30 years (since 1975).

He does so by comparing the prices in a 1975 Sears catalogue to current prices listed on the Sears.com website. However, the problem, as you know is that you cannot just compare prices between the two years because of the effect of inflation during that time. So instead, Boudreaux uses the common teachnique of measuring how much each good would have cost in hours of labor in 1975 versus hours of labor in 2006 for the average American. This method allows a simple comparison and he explains in the post where he gets the data and the simple calculation he makes.

The most drastic reduction in real prices that he found was for Sears' cheapest answering machine. It cost 20.43 hours of work in 1975 and 1.1 hours of work in 2006.

Why Are Different Sizes Not Always Different Prices?

(a question posed by Kimberly)

Most goods that come in different sizes have different prices assigned to each size (drinks, boxes of cereal, etc.); most likely in part due to the increased cost of making more of a good. However, this does not apply to clothes or shoes, where the price is the same no matter which size you buy (even though it surely costs more in raw materials to produce the larger sizes).

The question is: Why don't stores charge different prices for different sizes of clothes or shoes? Particularly, why don't they charge more for the larger sizes?

Dear Economist column

(A post from Kroger)
Tim Harford (we are reading a chapter out of his book this week) has a column in Financial Times called "Dear Economist," where people write him about personal problems and he answers with his economic perspective. Here is an example of a question that he recently published:

Dear Economist,

Recently I was waiting, baby in pushchair, for the bus. The driver refused to let me on unless the pushchair was folded up, then sped on leaving me stranded. It would only have taken a moment to fold up the pushchair. Is this efficient?

Mary McLaren, Hackney

What do you guys think? Again, make sure it is from the economic perspective of efficiency. I will post Harford's response soon so you can see how your response compares and whether you agree.

Interesting Facts About Super Bowl Tickets

A report in The Seattle Times relates this tidbit about how much people are willing to pay for a luxury suite to the Super Bowl:

TicketsNow.com, which connects ticket buyers and sellers, advertised Monday a 40-person luxury suite on the 40-yard-line for — are you sitting? — $261,000. Another Web site priced a box at $315,000. The median home price in the Detroit area last year was about $169,000.

I mean, that sum of money is just a drop in the bucket for a reeediculously wealthy teacher like me, but I thought it might amaze you guys...

Also, later in the article, they explain that only 1% of Super Bowl tickets are sold to the public. I knew the percentage was small, but I did not know it was that small.

(Source: Marginal Revolution)

Find the Economic Mistake

This paragraph comes from a Washington Post article on Bush's new health care proposals:

President Bush will propose that Americans be allowed to take tax deductions on more of their out-of pocket medical expenses, as part of an initiative the White House believes will rein in soaring health costs by shifting responsibility toward individuals, according to congressional and other sources familiar with the administration's thinking.

Find the economic mistake in that paragraph or rather find the faulty economic reasoning. Extra credit for the first one to identify it correctly (and state why it is incorrect, of course).

[Students: You get credit for a blog entry even if you just give a good guess; it does not have to be right.]

Making Wal-Mart Pay More Health Benefits

A New York Times article reports on a new Maryland law, called the "Fair Share Health Care Fund Act," aimed at Wal-Mart:

The Maryland legislature passed a law Thursday that would require Wal-Mart Stores to increase spending on employee health insurance, a measure that is expected to be a model for other states.

Under the Maryland law, employers with 10,000 or more workers in the state must spend at least 8 percent of their payrolls on health insurance, or else pay the difference into a state Medicaid fund.

What would you expect to be the result of this law?

What do you think will happen to the wages that Wal-Mart pays its workers?
What do you think will happen to the amount of workers that Wal-Mart hires?
Who gets the benefit from this law?

What information would you need in order to tell if this law is effective (helping low skilled workers) and what is your initial instinct?

It doesn't take much to go from our textbook examples to evaluating this policy.

Protect Big Cities or Small Cities from Terrorists?

An article in the New York Times called "Bad Things Happen in Small Places" criticizes the Department of Homeland Security for directing all of its spending to large, coastal cities and neglecting terrorism defense for smaller cities.

The author was the governor of Oklahoma when Timothy McVeigh's Oklahoma City bombing took place in 1995, which provides the motivation for teh op-ed and part of his argument.

The decision of how to spend Homeland Security funds is definitely a problem of allocating limited resources. What do you guys think of how this decision should be made? What do you think of Keating's criticism of current spending plans? (Make sure you read the article before responding & you frame your answer in terms of costs and benefits).

(Source: Environmental and Urban Economics Blog)

Starbucks' Price Discrimination

This article last week by Tim Harford discusses price discrimination by Starbucks. Apparently, there is a size of cappucino that they do not list on the menu and you have to ask for specially: the "short" cappucino, which is higher quality and cheaper.

Making you ask for it is the way that they differentiate their customers: people who are more price-conscious are more willing to go through specially asking for the size.

This strategy is similar to the strategy of offering coupons. Another example mentioned in the article is a British grocery store, Tesco, that puts its cheaper store-brand of products in notoriously ugly packaging (again, more price-conscious customers will care more about the price than the packaging).

Any other examples of businesses trying to segment their customers this way? Any other explanations for why Starbucks would have that secret menu item?

Livestock ATM

Here are a couple of excerpts from an article from the BBC about Muslims in Indonesia being able to make religious sacrifices through ATMs:

On Tuesday Muslims across the world are celebrating Eid al-Adha, the Islamic day of sacrifice. Every Muslim who is rich enough is supposed to donate an animal to be slaughtered, and the meat is donated to the poor.

Sourcing the ideal beast can be time-consuming, but in Indonesia help is at hand. There is now an easy alternative - you can buy an animal at your nearest ATM machine. A newspaper, TV station and local bank have joined forces to provide the service. Having made their electronic purchase, customers are promised photographs of the slaughtered animal and a letter of thanks from the community which will benefit from the donated meat.

So far almost 4,000 goats have been sold this way at a cost of about $70 (£40) each. A sacrificial cow will set you back more than $500.

(Source: PSD Blog)

Xbox Shortage

For those of you who use 90% of your life to play Xbox, here is an economic question about the recent debut of the Xbox 360:

Why was/is there a shortage of Xbox 360's at many stores?

There is always a shortage of the most popular Christmas gift every year, and this year is no exception. The real question though is:

If Microsoft and retailers that sell the Xbox know that demand is going to very high for the Xbox 360 (which I assume they did), instead of running out of the game consoles, why don't they just raise the price to get rid of the shortage? They would then sell the same amount for a higher price and earn more revenues.

Any thoughts? I will post some articles that discuss this problem, but I want to see what you guys think on your own first.

Regulating Clothes Sizes

Marginal Revolution reports on a new law that has just taken effect in Buenos Aires:

Women in search of fashionable clothes the world over have a similar problem: What do you do if you are not a size 6?

Some government leaders in Argentina have an answer. They have passed a controversial law designed to break what they see as the tyranny of tiny sizes. Starting Dec.21, Buenos Aires province, which includes the capital's glitzy suburbs but not the fashion-forward city itself, will require shops catering to adolescent girls to stock clothing in a minimum range of sizes roughly equivalent to sizes 6 to 16 in the U.S.

Provincial inspectors will scrutinize merchants' clothing racks, "tape measure in hand," says Ana Serrano, the province's director of commerce and designated sizing sheriff. Shops that don't have the prescribed sizes in stock will face fines of up to $170,000. Officials maintain that the small clothes put pressure on young women to take up extreme dieting. That in turn contributes to one of the highest rates of anorexia and bulimia in the world, they say.

In a nation where stylishness is a national religion, the sizes law is triggering a fevered debate...Argentina women who aren't extremely thin have an unusually tough time finding fashionable clothes.

What do you guys think of this law from an economic perspective? Is there a market failure here that the government needs to regulate? Do you think the clothing stores are just providing what the consumers demand and there is no need to intervene?

Hiatus

Walker Economics Blog is currently on hiatus and will return better than ever at the beginning of the year.

Here is a link to where this blog was quoted in a C-Net article (scroll to the bottom of the page).

Also, here is a link to our page on a website called BlogShares that is a "fantasy stock market where weblogs are the companies." Ummmm......wow, that sounds like fun. I am pretty confident that the only thing more dorky that having an economics blog is trading "fantasy shares" in them.

Apparently, the assign a value to a blog and then you can buy shares in it, and it gains or loses value based on how many websites it links to and how many sites link to it. Right now, the Walker Economics Blog is valued at a whopping $1000 blogdollars...

What Affects Tips?

Remember this in case you ever get a job waiting tables (from an article in the Washington Post by Richard Morin):

Scrawling a patriotic message on a restaurant tab is a great way to boost tips -- at least in northern Utah. Communications professors John S. Seiter of Utah State University and and Robert H. Gass of California State University at Fullerton instructed two waitresses to serve up four different types of bills to 100 diners at two local restaurants.

The servers wrote "United We Stand," and "God Bless America" or "Have a nice day" on the bills. A control group received no personal note.

Patrons gave a 20 percent tip on tabs that included "United We Stand" but only 15 percent when they got no message at all. The other two messages garnered slightly more than 15 percent, Seiter and Gass reported in a recent article in the Journal of
Applied Social Psychology.

These conclusions about tipping come from a researcher named Michael Lynn from Cornell:

1. Two studies show little relationship between quality of waiter service and size of tip.

2. Hotel bellboys can double the size of their tips, on average, by showing guests how the TV and air conditioning work.

3. Tipping is less prevalent in countries where unease about inequality is especially
strong.

4. The more a culture values status and prestige, the more likely that culture will use tipping to reward service.

5. Tips are higher in sunny weather.

6. Servers can increase their tips by giving their names to customers, squatting next to tables, touching their customers, and giving their customers after-dinner mints.

7. Drawing a smiley face on the check increases a waitress's tips by 18 percent but decreases a waiter's tips by 9 percent.

8. In one study, waitresses increased their tips by 17 percent by wearing flowers in their hair. In general it pays to look distinctive albeit not freaky.

Here is a full article by Dr. Lynn offering advice on how to increase tips based on his research.

Any thoughts on why these techniques work for increasing tips? Any other things that you think affect the amount that you tip in a restaurant?

(Source: Marginal Revolution)

Hiring Funeral Guests

Here is an article about professional funeral guests in Taiwan. You hire them to create the appropriate level of sorrow at a family member's funeral:

Liu and her five-member Filial Daughters' Band are part of a thriving mourning business in Taiwan. They're professional entertainers paid by grieving families to wail, scream and create the anguished sorrow befitting a proper funeral.

The performances are as much a status symbol for the living as a show of respect for the dead on this island of 23-million people lying 145 km off the Chinese coast.

Weary, grieving relatives hire groups like the Filial Daughters' Band to perform their mournful stuff for $600 for a half day's work.

Maybe for a little more money, you could get Al Pacino to give an impassioned eulogy or bring in a phone booth and have Will Ferrell scream out "I'm in a glass case of emotion!" at your funeral.

(Source: Marginal Revolution)

Social Benefits and Costs of Advertising

This is an extension of our discussion in class on advertising.

What do you think of advertising? In what ways is it good for society as a whole or bad for society as a whole? In what ways is it efficient or inefficient? You should come up with specific examples.

From the individual perspective, advertising is pretty avoidable in a lot of cases if you find it personally annoying (XM radio, HBO, Tivo or other DVRs, popup blockers on web browsers). See this post from economist Bryan Caplan.

Feel free to throw in your own favorite commercial in addition to your comment. One of my favorites was one I saw on a big screen in the middle of the Ginza district in Tokyo: it featured a a big formation of people singing and dancing with a huge smiling, laughing teapot at the front of the formation. I may have found it funny because it was really strange, because it reminded me of the Kool-Aid guy, or because I don't think the commercial was advertising anything to do with tea or teapots, but then again it was mostly in Japanese.

Economics of Torture Policy

A big news item of late is the debate over whether to make torture illegal that has involved Dick Cheney and Congress. Alex Tabarrok posted a very interesting point on how the debate over whether to make it illegal is not a debate over whether to never use torture, but rather on how high to make the price of torture:

President Bush, Dick Cheney and others who support the use of torture by the United States and its agents usually rely on the ticking time bomb argument. Sometimes torture is necessary to prevent a greater evil. I accept this argument. If my kid were kidnapped and the suspect was refusing to talk, I'd want Vic Mackey to do the questioning.

But it does not follow from the "ticking time bomb" argument that torture should be legal. The problem with making torture legal is that the government will abuse its powers. I do not trust the government, any government, to use this power responsibly. Leviathan must be heavily restrained, especially when it comes to torture.

Here is where economics can make a contribution. By making torture illegal we are raising the price of torture but we are not raising the price to infinity. If the President or the head of the CIA thinks that torture is required to stop the ticking time bomb then they ought to approve it knowing full well that they face possible prosecution. Only if the price of torture is very high can we expect that it will be used only in the most absolutely urgent of circumstances.

Again, no need to get political; stick to an economic discusion of incentives and what you expect to happen in various circumstances.

Economics of Thanksgiving

I know it is a little early for Thanksgiving talk since it is still a couple of weeks away, but here is the question anyway:

What do you think are the economic effects of Thanksgiving?

Or you could just discuss the economic effects of the Thanksgiving holiday weekend. Again, the more creative the answers, the better. For example, I thought one of the best answers about the economics of Halloween was from Andrew, who talked about how all of the planning of Halloween parties and leaving work early to get little kids dressed up in their costumes, would probably cause a decrease in productivity that day.