Happy New Year to all of you, and best wishes for a productive and peaceful 2013.
Happy New Year to all of you, and best wishes for a productive and peaceful 2013.
I ended my semester in “Energy and Environmental Economics” talking about resource optimism and resource pessimism, framed mostly as a big picture debate between Julian Simon and others against Paul Ehrlich and Neo-Malthusians. Simon reports being puzzled at how folks could look at data showing human health and well-being getting better and better and come to the conclusion we were all doomed and it was probably too late to do anything about it.
I’m sure upon reading this New York Times story the pessimists will be as troubled as ever: “Life Expectancy Rises Around the World, Study Finds.”
I appreciate this post from Steve Landsburg on Pigouvian models, Coasian models, and policies addressing external costs (and the comments are valuable too). The foil for his post is an Elizabeth Kolbert New Yorker column, in which she uses two examples to illustrate her argument in favor of a Pigouvian carbon tax — taxpayers foot the bill for the cops’ efforts to fish a drunk guy out of the gutter, and the general public bears the cost of the guy who fills his gas tank to drive his gas guzzler. In both cases, she argues that a tax (on liquor and on gasoline) shifts the burden of the cost in beneficial ways that reduce deadweight loss.
Landsburg’s main point is that we’ve learned more and moved on from Pigou’s original model, notably in the way that Coase characterizes costs from interdependence of individual actions and outcomes as symmetric. Using Pigou’s “polluter pays” logic treats one of the actions as having bad consequences, but as Landsburg notes, “… we now know that Pigou was wrong (although his insights laid the indispensable foundation for later, better insights)”. The most valuable of those later, better insights come from Coase, who builds the reciprocal nature of costs into his model. When individual agents’ actions and outcomes are interdependent, the actions of agent 1 change the outcomes of agent 2 … and vice versa. I also like how Landsburg analogizes Pigou:Coase as Newton:Einstein.
Another notable aspect of this post is the worthwhile link in the comments to a paper from Russ Sobel distinguishing between technological and pecuniary externalities — not all interdependencies lead to situations where there are uncompensated external costs that should be addressed.
For your holiday enjoyment, from John Papola and EconStories, Deck the Halls with Macro Follies!
John’s wry video does a great job of laying out the macroeconomic debate over the drivers of economic well-being — is Malthusian/Keynesian aggregate demand stimulus to overcome a general glut effective, or is saving to invest in capital and innovation to increase productivity the path to prosperity? I’m also amazed and impressed with John’s ability to derive rhyming Christmas carol lyrics from classic economics texts!
Today the Master Resource blog published my list of ten price gouging topics needing economic research.
As I point out in the introduction, many economists think price gouging is too simple to be worth studying. After all, it is just a kind of price cap, and we know how price caps work. My response is that “too simple to be worth studying” is losing the policy battle.
Here is my list of ten topics, see the post at Master Resource for explanations and scattered links to related discussions:
As a bonus for Knowledge Problem readers only, here is a hot, hot, hot behavioral economics research topic as well:
11. Guilt, shame, trust and fairness in pricing after disasters
Economists are increasingly realizing that it takes much more to make markets work than formal rules and freely moving prices. A host of issues sometimes styled as “culture” or “informal institutions” are also critical in getting things to work. (An aside: I’m looking forward to seeing Virgil Storr’s new book, Understanding the Culture of Markets.)
Guilt, shame, and betrayal are joining reputation as social-psychological factors important to economic activity and respectable enough for economists to work on. Does shaming “price gouging” behavior work to stop post-disaster price increases? Does shaming price gougers encourage or discourage pro-social interaction after a disaster? (I.e. do merchants work harder to bring goods to market yet keep prices low, or do merchants allow shelves to go bare and avoid engaging in costly efforts to resupply?)
Related video from Fox news reporter Arnold Diaz: Shame! Shame! Shame! for Price Gougers.
Also, a letter to the editor in New Jersey proposes the Scarlet Letter approach to shaming convicted price gougers (though the writer omits my related suggestion to also shame consumers who choose to participate in price gouging then call in complaints to the attorney general).
Timothy Taylor observes Census Bureau data showing “geographic mobility in 2011 were at their all-time low since the start of the data in 1948, and were only a tad higher in 2012.” Here is the Census Bureau chart illustrating the data:
Taylor considers a number of possible explanations, including many explored in a recent article in the Journal of Economics Perspectives (which Taylor edits), and concludes economic research has not yet explained the trend.
My un-researched, eyeball-based study of the chart suggests that LBJ’s Great Society and War on Poverty kicked off the trend and the only significant bump in the road was the early Reagan years.
Is price gouging like highway robbery? The Journal News, from the suburbs north of New York City, said: “Add shame to penalty for gouging“:
Given the extraordinary cost of just about everything in New York, it is often difficult to distinguish price-gouging, which is both illegal and despicable, from the usual highway robbery, which is just sort of expected. Then there are those merchants, as seen during Superstorm Sandy, who make the distinction so abundantly clear that all doubt is removed. Stiff fines and restitution should await these offenders, should the allegations hold up; a measure of public shaming ought to be part of the menu of sanctions as well.
Attorney General Eric Schneiderman, following up on familiar pre-storm threats and warnings, announced enforcement actions Thursday against a dozen gas station operators who allegedly kicked motorists when they were down — after rampaging Sandy darkened many gasoline stations, disrupted gasoline supplies and caused consumers, many toting gasoline cans, to endure interminable waits outside stations. Long lines and even rationing weren’t all that they faced.
For example, there were Mobil stations in Katonah, at 80 Bedford Road, and in Spring Valley, at 189 Route 59, where gasoline sold for $4.79 and $4.65, respectively, according to the allegations from the AG’s Office. Those prices — like all the charges highlighted by Schneiderman — were for a gallon of regular, and decidedly higher than normal, even in this high-cost region.
There was the BP station in Elmont where the price was an attention-getting $6.99; prices at the Shell in East Elmhurst, according to complaints, ranged from $4.89 to $7.90.
But they had nothing on the purported gouging leader, the Mobil at 3424 East Tremont Avenue in the Bronx, “where a consumer waiting in line for over an hour was just three cars from the pump when she was told that she would be charged $50 for five gallons of gasoline — $10 per gallon.” Stations nearby charged $3.95.
If I may interject, I think it is useful to distinguish between cases of suddenly higher prices and cases in which stations charge higher than the publicly posted price.
The “Stations nearby charged $3.95″ will be an incomplete accounting of the cost, since they must have had lines too. It would be great if the New York Attorney General’s office collected data on time spent in lines, might be useful in helping to calculate the full cost of low station prices.
One idea advanced by proponents of anti-price gouging laws is that after disaster strikes people should put aside their usual self-interests, join in with the community, and share in the burden of recovery. What these proponents often miss is that normal market adjustments will support a sharing in the burden of recovery, even among those lacking much in the way of charitable impulses, when prices are relatively free to adjust.
Prices go up in the disaster zone, supplies are diverted from elsewhere, prices go up elsewhere, people elsewhere cut back a little in response to higher prices, and there we have it: sharing the pain. Adam Smith’s “invisible hand” is a helping hand to those in need.
But the actions of the “invisible hand” were constrained by the very visible hand of the state. In both New York and New Jersey state officials were prominently threatening to slap businesses with thousands of dollars in fines if prices went up too much. Prices did go up a bit in the disaster struck area, but not enough to prompt extraordinary efforts from elsewhere. New York saw none of that normal, voluntary response to changing supply and demand conditions elsewhere, and post-disaster sacrifices remained concentrated mostly in the hardest hit areas.
Consider the price chart below, which shows regular gasoline prices in Albany, Buffalo, and New York City, all in New York State, from June of 2011 through the end of November 2012. Typically these prices move up and down together with just a little localized variation. Beginning at the end of October 2012, during Sandy and its aftermath, prices in the New York City moved sharply higher for nearly two weeks. In New York state outside the disaster-struck area, however, gasoline prices barely slowed their descent from late summer highs.
Elsewhere in the state: business as usual but for the occasional invitation to chip in $10 to the Red Cross.
ROCKETS AND FEATHERS NOTE: Interestingly, Buffalo prices pretty consistently show a slower price descent when prices are falling than either New York City or Albany. I recall that at the end of 2008 a Buffalo-area Congressman was complaining about the same thing. See here and here. The second half of 2008 was a time of fairly consistently falling gasoline prices throughout the U.S., interrupted only by a short lived mid-September price spike due to Hurricane Ike. Gasoline price researchers, start your engines.
The New York Attorney General’s office continues its aggressive pursuit of price gouging violations, announcing another 12 cases last week. From the press release:
“Our office will continue to take enforcement actions against price gougers because ripping off New Yorkers is against the law,” Attorney General Schneiderman said. “We are actively investigating the hundreds of complaints we’ve received from consumers of businesses preying on victims of Hurricane Sandy. There must be no tolerance for unscrupulous individuals who take advantage of New Yorkers trying to rebuild their lives.”
… Among the current batch of 12 enforcement targets is a Mobil station at 3424 East Tremont Avenue in the Bronx where a consumer waiting in line for over an hour was just three cars from the pump when she was told that she would be charged $50 for five gallons of gasoline – $10 per gallon. In contrast, stations nearby were charging $3.95 a gallon.
At a second station, the Coastal station at 1575 Route 112 in Port Jefferson Station, a consumer reported being charged $4.69 per gallon of gasoline while neighboring stations were charging between $3.69 and $4.05. One consumer waited in line for over an hour and did not see a sign detailing prices until after the attendant began pumping gas for the customer.
The 12 stations charged with price gouging are branded: Coastal, BP, Liberty, Ultra, Rio, Getty, Gulf, Shell, Sunoco, Mobil (3). Charged in the earlier 13 price gouging cases were: The 13 gasoline stations are branded: Shell (3), Mobile (4), USA Petroleum (2), Babylon Gas/Express Market, Sonomax, Delta, and Getty.
In New Jersey seven gas stations have been charged with price gouging, with the following brand names: Lukoil (2), Gulf, Delta, Exxon, BP, and Sunoco.
The Eagle Ford shale in South Texas is the most profitable oil field in the world says Michael Yeager of BHP Billiton Petroleum.
“Eagle Ford wells cost $7 million to $10 million, but Yeager said they pay back within half a year.”
More at the link.