To vote or not to vote?

I have always voted myself, but these sorts of “you should vote” arguments always leave me feeling a bit uneasy.

Here are just some of the reasons the president and others give for voting:

(1) It is your civic duty/responsibility to vote. Hmmmm. I have all sorts of responsibilities that I have taken upon myself: to work at the university, to pay my mortgage, to provide for my family, etc., etc. But a “civic” responsibility isn’t something that I choose, rather it is something that is forced upon me by society. I reject that such duties can be legitimately imposed on a free person. I have no duties except those that I voluntarily choose to have.

(2) Voting matters. This is most certainly and obviously true in the aggregate. Who can doubt that the world we live in today is very different with W as president than it would have been had Gore been elected? But voting advocates claim not only that the outcome of the election is important (it clearly is) but that your individual vote is important. It clearly is not. To put it bluntly, your vote will not matter. Here I reasonably define “matter” to mean “affect the outcome of the election.”

Furthermore, this is a good thing! We have a name for places where one person’s vote matters: Dictatorship. The whole idea of liberal democracy is based on the notion that we need to diffuse power among “the people” and not concentrate it in the hands of the monarch or dictator.

(3) Democracy is a good thing. Actually I agree with Michael Munger that democracy is overrated but at the same time I think it is worth something. All things being equal, I’d rather live in a democracy than a dictatorship (unless I’m the dictator that is).

But why is this an argument for you to vote? Surely the democracy can survive without your vote. It already does with only about 50% voter turnout in the U.S.–less in many other countries. At some point, I suppose, if voter turnout gets too low it could call into question the legitimacy of the system, but I don’t think we’re anywhere near this point.

[UPDATE: I thought of one more reason that you sometimes hear but is often not spoken aloud.]

(4) Voting to get goodies for yourself. Very often voting advocates, at least when speaking to a targeted audience like young people, will argue that they need to vote to protect programs that benefit them such as student loan programs, etc. While I admit to liking the honesty of this approach–you should vote in order to steal from everyone else–it is morally repulsive. Voting, if it has any value at all, should be about providing for things of common interest like national defense. If you vote simply to get more stuff for yourself, then you’re just participating in theft pure and simple.

So why do I vote if I reject most of the usual reasons for voting? Simple. It makes for good coversation with other people. Voting is sort of like talking about the weather. Talking about the weather really doesn’t matter–it’ll rain no matter what we say about it–but it’s something we enjoy doing. That’s how I feel about voting. (That and I like the little “I voted today!” stickers they give out.)

Bottom line: Vote or don’t vote. It really doesn’t matter much one way or the other.

Starbucks: Office Space for Pyramid Schemes?

I’ve been working from Starbucks today on the T-Mobile wireless, and I’m now, in less than four hours, sitting next to the second pyramid scheme pitch. The first one was amusing because it was incomprehensible what the product or service even being sold was. The entire discussion was motivational and about how much money could be made building your “team”. The current one at least has an identifiable product, but it makes me wonder just how prevalent this sort of thing is.

Perhaps high school (or at least some college course) should have a segment explaining why pyramid schemes always fail, because it appears they are alive and well in Starbucks, which is providing virtual office space to these hucksters.

Who is more right or less wrong?

This article describes how firms should price their product. In the introduction is this gem:

How much should you charge customers for your product or service? This, of course, depends on the nature of your business. There are no specific formulas. You must do some research to find an appropriate price for your specific product.

Yet, we teach price theory assuming that there are specific formulas, specifically Marginal Revenue should equal Marginal Cost. Always. The trick is accurately measuring marginal revenue and marginal cost.

The article goes on to offer a few other ideas:

“Make a list of similar products or services and how much other companies charge for them.”

This sounds like “know your demand,” which is one component of determining profit maximizing price and quantity. However, simply knowing what other firms are charging, i.e., market price, does not necessarily tell the firm owner what marginal revenue will be, unless the firm’s demand is perfectly elastic.

The next step in determining price:

“Review Your Costs…the cost of goods or raw materials, the amount of staff time (including your time) it will take to produce the product, as well as the amount of administrative time to invoice your customers and collect payments. You also need to include general operating expenses and administrative costs (or G&A) — when calculating the cost of your product or service.”

Hmmm…the first set of costs are part of marginal cost, which we teach should be considered in profit maximizing output and pricing decisions. However, general operating expenses and administrative costs sound like fixed cost. Economists claim that fixed cost have no impact on the profit maximizing quantity-price decisions, and to consider fixed costs will guarantee that the firm owner will not maximize profit.

Finally, the article suggests a rather ad hoc markup over cost:

“Mark up for Profit…The amount of the markup varies by industry, service, potential liability and general overhead. Generally, you should at least double your fixed costs to get a selling price. In retail, this is known as “keystone” pricing. When retailers apply a discount of 10-40 percent for a sale on their products, they still make a profit because they used keystone pricing.”

The optimal markup does vary by industry, according to the Lerner condition, but the “doubling of fixed costs” doesn’t sound like what we teach in firm theory. Once again, the general overhead (fixed cost) is being used to determine price, which is incorrect. The so-called “keystone” pricing may yield positive profit, but would not pass muster in my price theory course.

I wonder who is “more right” and who is “less wrong” – the article’s author or us economists? I will, of course, go with the economic theory, but perhaps the difficulties in accurately measuring demand (and hence marginal revenue) and cost (and hence marginal cost) are so insurmountable that firm owners resort to rules-of-thumb. I fight my brother (who is a small business owner) in this area all the time.

I wonder if the article provides a net positive or not.

Economics: Why crime doesnt pay

Crime doesn’t pay only if you are at the top.
Economists have always held the view that crime happens because on average it does pay. However a study conducted and published by the University of Chicago which studied a gang in a four year period from 1991-1995 have put this view into doubt. What they did was that they tracked the income and the expenditure as well of a particular criminal gang who’s business was in dealing in cocaine. What they found was really quite surprising even though the gang was dealing in huge sums the average gang member received less than the minimum wage at the time. This meant that most gang member’s would have to have part time jobs as well as their gang jobs.

The study was done over a four year period, at the start of the study in 1991 the gangs monthly income stood at $18, 000 this then increase in the four year and at the end of the study it was over $68 000. The cost of the actual drugs to sell took up 15% of the gangs expenditure however other costs such as funeral costs, and “compensation” to killed gang member’s families which was $5000 a death took up a large proportion of the gangs expenses.

Small time dealers in the gang would earn no more than $200 a month. When the gang was in gang disputes and war fare with other rival gangs mercenaries were often hired were given more money because of the increased pay was due to the increased risk of death and were given up to $2000 a month.

The study looked also at the risk gang member’s faced and found that gang member’s in the 4 year study had a one in four chance of being killed the study calculated that the average life a gang member was worth was no more than $7k.

As we can see it doesn’t pay to be a gang member… But it does if you are the top dog. Messrs Levitt and Venkatesh who conducted the study said that it was all based on the winner takes all…  Member would start at the bottom and work their way to the top… It was found that 20% of the revenue the gang made was given to a few top gang members. The leader of the gang was earning $100, 000 a year.

The risk of getting to the top is very risky and staying top dog once you get there is not guaranteed as all the other underdogs fight to take your place.

Brazil World cup good or bad POLL

I thought I would set up a poll to catch peoples views on whether people think that the World cup in Brazil is good or bad for Brazil economically.

What do you think? Vote and comment below to have your say!

The 2014 Brazil World cup.. is it good or bad economically for Brazil?

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Brazil Worldcup

Brazil is currently hosting the FIFA world cup and will be hosting the next Olympics as well… (If for some reason you didn’t know) but despite how much the Brazilians love football and celebrate sport there still is friction and protest going on!

I think that it is good for Brazil but only in the short term as the world cup encourages investment into the country, creates jobs from infrastructure spending and these jobs help to put money directly into the pockets of the poor. An added benefit is that there is a short term tourism boom that brings in a lot of money from wealthy foreigners.

However I am concerned about reports of money being diverted away from the poor to pay for the world cup. In the long term however after the debt fueled spending spree has come to an end. After the wealthy foreign tourists have left and the short term jobs have evaporated. What next? The bust. The poor remain poor, sure they now have nice football stadiums and perhaps improved transport links and hotels but for the average person living in a favela – do they enjoy any benefit from these additional things? What would they prefer the money to be spent on? If you ask them they would prefer long term investment into schools and education providing long term benefits to the economy enabling Brazil to compete in the global marketplace for highly skilled jobs. They would prefer money to be spent improving living conditions for those in the favelas, increasing access to clean water and safe housing.


Eclectecon is back!

You may have noticed that eclectecon has been down for quite some time.. well the blog is back, after my old host messed up (and this new one isn’t much better).

Iv had to re post all the old blog posts that I could find and hopefully if all goes well I should be setting up a economic forum on this domain as well very soon!

*Note to self always keep backups.


Why Price gouging is’nt bad

In January 1998 a storm in Quebec Canada left many millions of people without a source of power or electricity it would take many months to restore energy again to all residents. Nobody could have predicted the full extent of the storm but economists could have easily been able to predict what was to follow. As with many natural disasters price gouging is a common phenomenon. In this case with out electricity prices of candles skyrocketed… before a box of candles would only cost around $1 a box but after the disaster prices were raised to 4 times that at $4 a box due to the increase in demand. Many see price gouging at times of need and disaster as morally wrong as “nobody should profit on the misery of others”. Even Canada’s Industry minister at the time even suggested at a time of need oil companies should not be hiking up the prices but really giving people who need it the gasoline for free as it is the human thing to do. The Qubec Consumer newspaper even wanted to name and shame those businesses trying to profit from the disaster which destroyed many people lives.

However it has got to be said that the sudden increase in prices serve a very real and useful purpose in economics. Yes we could spend all day vilifying those who price gouge until the next disaster and the next one after that but you cannot hide from the fact the price gouging is needed especially in a time of crisis! It is what keeps the economy running. If people started to give away everything that they had for free then the supply would quickly diminish the same goes if they just simply kept the prices the same.

High prices make people think again and use alternatives. The high prices mean that people use what they have and are more resourceful or will look for cheaper alternative further helping the economy. This will also mean that people who desperately need the goods will be able to get them.

Because of the huge profit margins shopkeepers also will get from price gouging will mean that they will be more likely to restock as well further increasing supply and making things get back to normal much quirkier as well as supply increases and stores then begin to compete with one another again and prices then fall back to normal.

If the Canadian government decided upon making it illegal, for example a law was passed to make selling candles for more than $1 a box illegal you would quickly see corruption as shopseekers will with limited supply would only sell candles to those that benefit them the most, for example politicians who could pass new laws and such to benefit their store. If shopkeepers started to do this then they would find that when the crisis settles and things begin to get back to normal they would have its custom from their regular customers after refusing to sell them goods that they needed in a crisis.

Price gouging is important in crisis and can even bring new custom for instance if a shop quickly sells out of much needed goods regular customers of that store may then stray to other stores trying to find the good that they need from places that have not sold out… After the crisis has been resolved they may become the new regulars of the store that helped them out in the crisis.

So as you can see price gouging isnt all that bad!

Stopping peoples benefits is a bad idea

Here is my thought for today…. Stopping peoples benefits really is a stupid idea, but one the UK government is obsessed with! You must remember that people on benefits do not save up their benefits but spend it as soon as they can on life’s essentials. Taking away peoples benefits will leave these folks struggling and without any money at all to spend… this will not only increase crime rates as people become more desperate because they dont have any money at all but will also mean that businesses that rely on selling cheap goods to people on benefits also suffer…. essentially taking away peoples benefits who do not have jobs is like taking away a important backbone in our economy… Some may argue that this balance will reassert itself in the future but what you must consider is the fact that by taking away peoples benefits you could essentially be making more business go under thus increasing competition further for jobs! Oh yeah another thing to mention attacking the weak and vulnerable to help increase the wealth of the richest people in society is corrupt and anti democratic!

UPDATE:(I have just noticed a spelling mistake in this blog title… DOH!

23% of Americans did not read a book last year!

According to a survey by The Atlantic apparently 23% of the adults that took the survey had not read a book in 2013! Some politicians may use this statistic to try point to this statistic to try and illustrate a decline in education and adult literacy skills as it has long been believed that people who appreciate reading and regularly read books are more intelligent but I Have my doubts. Yes, It is kind of a sad statistic but  I am not that surprised and I actually think that the number of people reading books will continue to fall as the technology and the way we consume information and media changes. Do you think reading is dead? Though I dont think that we will ever stop reading as such but the way information is handed to us may change and instead of information being hidden inside large text I believe in the instant world we live in we will soon find that information will be available and found easily in bite size chunks that we can pick and choose to read.  I do think that books as we once new them in the good old days are long gone…we have already have replaced the physical copy of a book with ebooks read on tablets.  Books have been the way in which we document ideas so not to forget them, learn, and even used for recreation in the form of novels for thousands of years. However with new so many ways to do these things it is kinda of making the idea of printing, distributing and reading books a bit obsolete especially now as we have the internet and mobile devices which can store a heck of a lot more than a book and wouldn’t need a warehouse to store the equivalent information in books in.  The television was the first punch in the face for the book as a form of entertainment and since then the book we have seen the book get beaten down as many choose the easier option that didn’t require much thought or imagination….. We are now living in a instant world were everything has to be instant, whether it is what we eat… or how we learn.. reading a book is far to hard for some especially as we now have so many much easier and instant ways to learn and why read the book when their is a movie? It is a shame though because this lazy attitude of not thinking and just getting so to speak is destroying our own creative minds…… that’s what I reckon! Anyway time for me to read a book and use my imagination.