Why everyone hates high gas prices

A hypothesis from Duke econ prof Dan Ariely:

if I stood next to the yogurt case in the supermarket for five minutes every week with nothing to do but stare at the price, I would also know how much it has gone up — and I might become outraged when yogurt passed the $2 mark.

The Biggest Issue

David Brooks channels Goldin, Katz, and Heckman.

LHS, vindicated

Alex Tabarrok is on the case.

What's interesting is not only that Larry was fundamentally right about the facts (no surprise there), but that much of the mainstream media are still reporting otherwise. Here is the one source that got the story right.

The GSE Rescue Bill

Larry Summers and Dick Armey weigh in.

Save My Iced Grande Latte!

News from Scrappleface:

Congress to Halt Closing of Unprofitable Starbucks

Democrats in Congress today plan to introduce a bill to halt the recently-announced closing of some 600 Starbucks coffee stores, noting that the displacement of 12,000 Starbucks baristas would overwhelm government aid offices not prepared to handle so many clients for whom English is a second language....

“These people can’t just walk out of Starbucks and get a job at a grocery store or a factory,” said House Majority Leader Nancy Pelosi, D-CA. “They would need ESL classes and cultural training to learn how to relate to ordinary Americans and function in society.”...

“This is just another one of our heroic Democrat efforts to protect Americans from the impact of the Bush economic policies,” said Rep. Pelosi. “Under this president, America has become a cold and desolate place where corporations cut unprofitable activities to focus on increasing the bottom line, and returning value to shareholders. When Democrats retake the White House next year, we will reverse that trend.”

Resilience

Robert Samuelson writes:

The paradoxical thing about today's economy is its strength. No kidding. Consider all the hand grenades lobbed at it. Higher oil prices. The housing implosion. Large layoffs in affected industries: autos, airlines, construction, mortgage banking. The "credit squeeze" triggered by losses on "subprime" mortgages. Despite all that, the economy hasn't collapsed. It's merely weakened. Output in the first quarter of 2008 was actually 2.5 percent higher than a year earlier.

The View from Chicago

The New Republic looks at what the right-leaning scholars at the University of Chicago think about Barack Obama. Unlike the profs at Chicago, where Obama taught, I have never met the Democratic candidate personally. But this quotation from legal scholar Daniel Fischel captures well my own ambivalence:

"He's much more intellectual, much more thoughtful, much more interested in discussion, debate, and dialogue than the typical politician. And that gives me some confidence about him, even though from my perspective he's much too liberal. I've never voted for a Democrat in my entire life. He's the first one I might vote for."

Cross-Price Elasticity of Demand XII

The next in the series:

demand for new, more fuel-efficient aircraft has never been greater. The latest versions of the Airbus A320 and Boeing 737, the single-aisle workhorses for which demand is strongest, are up to 40% cheaper to run than the vintage planes some American airlines still use.

Thanks, LBJ

The New Yorker looks at the GSEs. One tidbit:

It wasn’t until 1968 that Fannie was privatized....The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used “special-purpose entities” to move liabilities off its balance sheet.

Time to pass out the WIN buttons

From the RTE Blog:

Fight Inflation the Venezuelan Way: Haggle

Venezuelan Agriculture Minister Elias Jaua asked consumers to start bargaining over prices with retailers to try to curb inflation.

“The most important help that people can give us (in fighting inflation) is that they defend their income. We can’t get used to buying everything at any price,” Jaua told reporters . “If we all start haggling over prices, speculators are going to start feeling pressured,” Jaua said....

The country’s annual inflation rate climbed to 32.2% in June....The Venezuelan government commonly blames speculators for the price increases.

For those too young to understand the title of this post, click here.

Cross-Price Elasticity of Demand XI

One more for our continuing series on how people respond to prices:

Golf carts switch course from green to road

Rising fuel costs drive move to economical but unconventional transport

From The Daily Show

A Income Tax Surcharge on Old, Sick People

Tyler Cowen makes the case,

Tyler gives the policy a different description: He calls it means-testing for Medicare. But this reform can also be described as in this post's title.

Click here for more on the topic.

Cross-Price Elasticity of Demand X

The Chicago Tribune reports:

Amtrak rides high as price of fuel soars

Soaring fuel prices are filling seats on Amtrak trains.... In the fiscal year that began Oct. 1, Amtrak ridership nationally has climbed 11 percent, to more than 21 million passengers, through June, and it expects to exceed the record 25.8 million set the previous year. "We believe the largest single reason is that people want to avoid the higher cost of driving their own vehicle," said Amtrak spokesman Marc Magliari.

Click here for a previous installment in this series.

Ed Glaeser on Paul Ehrlich

It's Our Earth, Now What Do We Do With It?

Who needs an inflation-targeting central bank when we have Pick n Pay?

Thanks to the reader who sent this in.

Wisdom

From Brian Hollar:

I am getting a PhD because it’s a barrier to entry into becoming a college professor. While I’ve been enjoying what I’ve been learning, the most important economic concepts that I enjoy the most are what you could learn from reading a basic microeconomics textbook such as Greg Mankiw’s “Principles of Economics”.

Competition is good for consumers

Click on comic to enlarge.

Cross-Price Elasticity of Demand IX

The Wall Street Journal reports:

The appeal of fuel efficiency is moving beyond the new-car market and creating a run on small used cars. Used economy cars that once could be difficult for dealers to move -- the Ford Focus and Chevrolet Aveo, for instance -- are now flying off the lots, and prices are rising.

Click here for a previous installment in this series.

It's worked before

First the dot-com bubble. Then the housing bubble. What's next?

Recession-Plagued Nation Demands New Bubble To Invest In

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.

"Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn't important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct."

"The U.S. economy cannot survive on sound investments alone," Carlisle added.

Continue reading here.

Time to Pay the Menu Cost

Click on the picture to enlarge. Thanks to the reader who sent this in.

Summers on the GSEs

Larry's diagnosis of Fannie and Freddie:

What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were "private companies.” But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.

Meltzer on the Fed as Regulator

Allan Meltzer, the prominent economist and historian of the Federal Reserve System, writes:

In its 95-year history, the Fed has never made a clear statement of its policy for dealing with failures.... So what can taxpayers expect from an increase in the Fed's discretionary authority over investment banks? The likely answer is rescues, delays and lax supervision -- followed by taxpayer-financed bailouts. Throughout its postwar history, the Fed has responded to the interests of large banks and Congress, not the public.

What I am doing this week

Summer Camp for Econonerds

Career Planning

Jonathan Altman and Peg Kaplan suggest a new job for me. (Update: Freakwenter concurs.)

But who would teach ec 10?

A Reading for the Pigou Club

The joy of $8 gas

How to Win the Economist Vote

Click here for my article in tomorrow's NY Times.

On Fannie and Freddie

Told ya so. (Also here and here).

Pessimism abounds

Bloomberg reports:

Optimism about U.S. stocks among newsletter writers slid to the lowest level since July 1994.

Contrarians view this as good news. In this regard, note that 1994 was a pretty good time to buy stocks.

Bimodality

Distributions of economic variables often resemble the conventional bell curve. Here is one that most decidedly does not. It is the distribution of the salaries of newly minted lawyers.

The legal profession, which I almost joined, seems to fall into two very distinct groups. I always knew that law had different career tracks with varying levels of income, but I never realized how striking the pattern was.

Source of the graph: Empirical Legal Studies.

Cross-Price Elasticity of Demand VIII

The Chronicle of Higher Education reports:

Gas Prices Drive Students to Online Courses

For Christy LaBadie, a sophomore at Northampton Community College, the 30-minute drive from her home to the Bethlehem, Pa., campus has become a financial hardship now that gasoline prices have soared to more than $4 a gallon. So this semester she decided to take an online course to save herself the trip­—and the money....

Many institutions say their online summer enrollments have jumped significantly, compared with last summer's, and that fuel prices are a key factor in the increase. The Tennessee Board of Regents, for instance, reports that summer enrollment in online courses is up 29 percent this summer over last year.

Click here for the previous installment in this series.

Orszag on Cap and Trade

In today's Washington Post, CBO director Peter Orszag says that if a cap-and-trade system for carbon is to be maximimally effective, the allowances should be sold rather than handed out, and fluctuations in the price of an allowance over time should be limited. In other words, the cap-and-trade system should be designed to resemble a carbon tax.

Makes sense, but it seems like lawmakers are going through a lot of needless work just to avoid the word "tax."

We're number two!

The most lucrative college majors:

1. Computer Engineering
2. Economics
3. Electrical Engineering
4. Computer Science
5. Mechanical Engineering
6. Finance
7. Mathematics
8. Civil Engineering

Defense of Oil Speculators

Here and here and here and here.

The Snarkiest url of All Time

I recently ran across this:

http://www.safetyschool.org/

Moving down the NX(e) curve

The Boston Globe reminds me that I work in an export industry:

Foreign students flock to the US:
Surge in overseas applicants driven by weak dollar

The Downside of Affluence

According to research by Daniel Kahneman, the Nobel Prize-winning behavioral economist, quoted in an article in the Washington Post, "being wealthy is often a powerful predictor that people spend less time doing pleasurable things and more time doing compulsory things and feeling stressed."

People who make less than $20,000 a year, for instance, spent more than a third of their time in passive leisure, like kicking back and watching TV. By contrast, those making more than $100,000 a year (I would call them affluent, not wealthy), spent less than a fifth of their time in passive leisure.

Source.

Not exactly what they had in mind

A former ec 10 student alerts me to evidence that the stimulus package appears to be working:

An unforeseen and surprising beneficiary of the Economic Stimulus Plan, a plan that George Bush contends will "boost our economy and encourage job creation," has surfaced this week. An independent market-research firm, AIMRCo (Adult Internet Market Research Company), has discovered that many websites focused on adult or erotic material have experienced an upswing in sales in the recent weeks since checks have appeared in millions of Americans' mailboxes across the country.

According to Kirk Mishkin, Head Research Consultant for AIMRCo, "Many of the sites we surveyed have reported 20-30% growth in membership rates since mid-May when the checks were first sent out, and typically the summer is a slow period for this market."

Machiavellian Entrepreneurs

In my idyllic suburban hometown of Wellesley, Massachusetts, the police shut down a brothel a few days ago. According to the Wellesley Townsman, one of those arrested for running the business was a man named William Eastwick.

The paper also notes that six months ago the Wellesley police shut down a similar operation nearby. That police action was based on a tip from the same William Eastwick. Oddly, when referring to the Eastwick tip, the town paper says "it is unclear why he did that."

His motive seems clear to me: Like any businessman, Mr Eastwick prefers to have fewer competitors. Some businessmen lobby Congress for trade restrictions. Others alert the police to the brothel down the block. And when using the power of the state to thwart competition, they can both pretend to be acting in the public interest.

Cross-Price Elasticity of Demand VII

The LA Times reports:

As Gas Prices Climb, So Do Scooter Sales

Scooters...are selling as fast as their little wheels can carry them from showroom floors. Sales have jumped 23.6 percent in the first quarter of 2008 compared with the same period in 2007.

Click here the the previous installment in this series.