Employment (or the lack thereof)

Gloomy chart for you all to ponder (I feel for my seniors). The shaded areas are the periods of recessions. When will the discouraged workers effect kick in?

(H/T: Bureau of Labor Statistics)

Cigarette Taxes

The smoker tax in the news again. Tax revenue is a function of (in part) the Elasticity of Demand. Who is paying the burden of this tax?

Job Loss Report

This is bad news. The economy is a mess, and monthly economic reports that do not meet economist expectations imply the worse is yet to come.

BTW: Following some Intrade prices will show how the market reacts to this information

Sports Stadium Financing 101

When a sports team wants to get a new stadium they claim this will help the local economy. This gives those teams an economic justification for public subsidies. The Florida Marlins just convinced Miami of that (will they be called the Miami Marlins one day?). Major League Baseball is currently trying to help the Oakland A’s get their hands on some public money (while the A’s are insulting Oakland!). Locally Chester helped finance a soccer stadium. Here is a major problem: Public funds for stadium spending do not create positive economic conditions.

Plenty of economic research points to the fact that stadium spending hurts the local economies. Lots of ways to think of this one… but here are two main ones:

1) The Marginal Propensity to Consume for sports owners are lower than that of the alternative recipient of the funds. This creates a smaller multiplier for stadium financing relative to other public programs. (think opportunity cost)
2) The “it will help stimulate local businesses” argument disappears when you consider the research that shows local businesses are actually a substitute (not a complement) to sporting events. Think of it: you have one day per week to allocate toward leisure. You can either go to the theater or to the game. Not both. Furthermore, local businesses deal with negative externalities such as increased congestion and decreases parking.

The problem (and the power that team’s have over cities) are that they can pick up and move. Maybe cities are stuck in a Prisoner’s Dilemma? If so the solution may be pass a federal law prohibiting such finances (or to threaten to pull the leagues antitrust exemption… which is an entirely different rant). So how do they get the funds? This may help explain things.

More Evidence of Crowding-Out?

Crowding out: Government deficit runs very large, interest rates increase and the market ‘crowds out’ the private investors.

This article talks about how the UK tried to issue bonds, and apparently no one wanted it. Perhaps a surplus in the bonds market? Maybe the UK should increase the interest rates.

How to Turn Toxic Assets into Liquid Assets

For the first time I can remember there are some details disclosing how the government is going to handle the ‘toxic assets’ that are floating around out there.

As a refresher: Housing bubble leads to decreased housing prices. Decreased housing prices leads to increased foreclosures. Increased foreclosures lead to tightening up of the credit industry. Tightening up of the credit industry leads to decrease demand for houses (can’t get the loans). Decreased demand for houses leads to decreased housing prices.

This was the scenario six months ago that sparked this financial mess. Many people believe a ‘bail out’ of the financial industry is different than other industries if only for the fact that the above cycle needs to be stopped (plus there are negative externalities as some people are effected other then the home buyer and seller… think student loans). The original ‘bail out’ (TARP as it is now called) was originally 700 Billion dollars to combat this problem. One annoyance was that there was never any transparency to the program (no one knew what was going on).

Fed and the money supply

An article about the Fed pumping money into the American economy.

The Gold Standard and OZ

An interesting BBC article talking about the gold standard, and The Wizzard of OZ. (via Mankiw)

OPEC and the Prisoner’s Dilemma

OPEC has never been concerned with the “world economic woes” (as this article implies). Many of the nations are however concerned with financing their governments. All things being equal there is a direct correlation between government revenue and the price of oil for these nations. Do they make up the lost revenue by ‘cheating’ on their cartel partners when they need money?

The bottom line: It is not benevolence that drives OPEC, but the incentive to make money.

Academics and Politics

Ever wonder how the political affiliation between academic departments stacks up? Economics is left leaning, but relative to other subjects it leans right.