you don’t want to faff around with ordering it on the internet and wondering when it might arrive

From Reuters:

"Felix Salmon

not short

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June 13th, 2009

Excising the cheapest options

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Posted by: Felix Salmon

Tags: felix, retail

Alex Tabarrok wonders why no stores stock cheap (as opposed to expensive) HDMI cables, and Kevin Drum — who used to manage a Radio Shack — recounts his own tale of looking for a simple patch cable:

Last year I made the rounds of every retail store in the area after I got annoyed at the price of a simple Cat-5 network cable, and there wasn’t a single place that sold them for a reasonable price. Not one. It was almost like there was a cartel or something. (And the cartel worked! I didn’t feel like waiting the few days it would take to order online, so I went ahead and bought an expensive one. Their fiendish strategy turned out to be remarkably effective.)

I think there are two very simple explanations of what’s going on here. Kevin hints at the first: if you need an HDMI cable or an ethernet cable or a USB cable, you generally want it now, and you don’t want to faff around with ordering it on the internet and wondering when it might arrive. (Note that Alex’s example of HDMI cables being sold for “virtually nothing” turns out to be one of those examples where next-day shipping — still decidedly less convenient than just walking home with the cable in your bag — costs $30.)

But more to the point, your local retail outlet will quite rationally try to maximize the profit it makes on its HDMI cables. Alex I think is wrong here:

Ordinarily, we would expect competition to push prices down but in this case it seem as if the mere existence of Monster is anchoring high prices everywhere but online.

I think what we’re seeing here has almost nothing to do with anchored expectations. Instead, consider this: most remotely educated consumers will simply buy the cheapest cable on sale, and so there’s a very strong incentive to ensure that item is as expensive as possible.

Why would we expect competition to push prices down? Well, let’s say you’re managing a Radio Shack down the street from a Best Buy. You could, if you were so inclined, start selling HDMI cables at a fraction of the cost of the cheapest cables available at Best Buy. Would that be a good idea? Well, it would get you the business of the kind of people who shop around different stores for the cheapest HDMI cable, and it would improve your reputation as a store which doesn’t needlessly rip people off. On the other hand, people would pretty much stop buying expensive cable from you overnight, and all the associated profits would simply evaporate.

I’ve recently been shopping around for a folding bike — one which (fingers crossed) the security guards at 3 Times Square will let me bring in to the office. There’s a sweet little folding-bike shop in my neighborhood, stocking a pretty wide range of different brands, although they do tend to push Bromptons over everything else. And they don’t stock the cheapest brands. Could it be that the cheaper bikes are simply not very good? Maybe. Or maybe it’s just that if their customers have the option of buying a cheap folding bike for a few hundred bucks, they’ll be much less inclined to drop $1,000 on something else, and the store’s total profits will go down.

I suspect you’ll see the same thing at say kitchen stores: while there might be a big range of pots or knives, most shops selling the high-end stuff will be reluctant to stock very cheap stuff alongside it. Doing so just makes it far too easy for the consumer to decide that the extra cost isn’t worth it."

Me:

June 14th, 2009 12:57 am GMT [permalink]

Much better than a folding bike is a unicycle. Here’s a link to a decent one with some helpful books, if you can’t ride one, although incredibly intelligent people seem to be able to ride them almost instinctively: http://www.amazon.com/Torker-Unistar-Uni cycle-Dark-Metallic/dp/B0016MZX6W/ref=sr _1_16?ie=UTF8&s=sporting-goods&qid=12449 40545&sr=8-16 There seldom stolen. For some reason, instead of just carrying them off, most thieves try to escape riding them, find that they can’t, and simply leave the unicycle behind. Also, if you can learn to ride one wearing a bear costume, you’ll find that you can make some extra money on weekends and holidays. You’ll certainly make enough to no longer have to worry about buying a cable. I’m glad that modern economists are so productive, spending as much time on the price of a cable as Ricardo did in explaining rent. That’s progress. - Posted by Don the libertarian Democrat

June 14th, 2009 12:59 am GMT [permalink]

That should say “They’re seldom stolen”, proving that I can’t ride a unicycle, or write well in little boxes. - Posted by Don the libertarian Democrat

announcement by the Obama administration on their proposed new CAFE (Corporate Average Fuel Economy) standards

From The Baseline Scenario:

"Why You Should Read the Text, Not Just the Tables

with 2 comments

Keith Hennessey, the last head of the National Economic Council before Larry Summers, has a blog post out (hat tip Alex Tabarrok) reviewing yesterday’s announcement by the Obama administration on their proposed new CAFE (Corporate Average Fuel Economy) standards. It links to a very informative report that I’m still digesting. (I was planning a post on the economics of CAFE for today, but now I need to read part of that report.)

Update: I found a mistake in the way Hennessey used a table and I posted about it here. Hennessey graciously acknowledged the mistake, fixed it on his post, and left a comment here. So I decided to delete my criticism. I really should have sent him an email first, and I feel bad about that.

By James Kwak"

Me:

In my opinion, what just occurred is what’s good about blogs, and posters should welcome criticism and proofreading from others.

At least Hennessey linked to the information, as many people make assertions that can’t be easily tracked down.

I wish you would have left posted your point about the importance of determining the assumptions and presuppositions that posters base their arguments upon. That’s essential analysis, and I appreciate when posters put them forth themselves.

I believe that bank nationalization is now very likely. It may even be desirable.

From Marginal Revolution:

"Free Market Bank Nationalization

I believe that bank nationalization is now very likely. It may even be desirable. The term nationalization, however, clouds judgment on both sides of the debate. It's better to think of what we want to do as bankruptcy. Many of the major banks are insolvent. When the liabilities of an ordinary firm exceed its assets the firm enters one of a variety of types of bankruptcy procedure during which management is often removed, the firm is sold or reorganized and liability holders take ownership or are paid off at a discount. Notice that we do not call a bankruptcy procedure, nationalization, even though it typically occurs under the auspices of a government employed judge.

When it comes to the banks the issue is more complicated than with an ordinary firm because the major liability holders are depositors whom the government has guaranteed. As a result, the ultimate liability holder is the government. But now, as a thought experiment, imagine that we had private deposit insurance. What would a private insurance firm do in this situation? Would it pander to the current bank management and carry the zombie banks on its books, hoping and waiting for a miracle? Or would it step in, remove current management, pay off the depositors, reorganize and then sell the banks to recoup its losses? I believe a private insurer would follow the second path, the fact that the government is not yet ready to do this indicates how powerful bankers are in Washington. Thus, given deposit insurance the procedure most consistent with free market principles is bankruptcy, preferably a speed bankruptcy procedure under the auspices of the FDIC which has significant expertise in this field.

A speed bankruptcy; 1) punishes current management reducing moral hazard, 2) will be less politicized if done under the auspices of the FDIC than if done piecemeal with congressional involvement and 3) will get the banks working again as soon as possible.

Notice how the term nationalization confuses the issue. First, it suggests government ownership of the banks which would indeed be a disaster. People in favor of free markets will rightly want to avoid any such outcome but ironically it's the current situation of "wait and see," and "protect the banker," which is likely to lead to an anemic recovery and eventual government ownership. Second, it confuses people on the left who think that nationalization is a way to insure that taxpayers get something on the upside. That idea is a joke - there is no upside. Taxpayers are going to have to pay through the nose but the critical point is that the taxpayers must pay the depositors whom they have guaranteed not the banks.

The debate so far has been framed between a "bailout" and "nationalization." But the public rightly sees the bailout as a way to protect bankers and thus we get pressure for government ownership, which has already happened in part through government control over banker wages. Bankruptcy in contrast is a normal free market procedure, it emphasizes that the firm has failed and current management should be removed. Framing the issue in this way, for example, makes it clear that only the depositors should be protected and under reorganization there should be no control over wages on future management (wages are going to have to be high to get anyone to take on the task). Finally the idea of bankruptcy makes it clear that the goal is to get banks solvent, under new management, and back under private control as quickly as possible.

Addendum: Garett Jones nicely lays out the case for doing the normal thing.

Posted by Alex Tabarrok on February 17, 2009 at 07:31 AM in Current Affairs, Economics | Permalink"

Me:

I like calling it nationalization for moral hazard reasons, since the banks began hoarding money and thinking seriously about going it alone when it's mentioned. But, you're correct, a lot of us are just talking about a form of bankruptcy, and getting the monster back in the private market as soon as possible. Quite frankly, that's how I've always seen the Swedish Plan. No one ever said we have to follow their plan exactly. However, the takeover threat needs to be credible.

I also think that we should attack this insurance paid for by lobbying problem, by not allowing the end result to reinforce the conclusion that it worked.

I think that the contagion I really fear is massive unemployment, as a result of being in Debt-Deflation.That's why I wanted a version of the Swedish Plan from the beginning. There's no easy way out, but not facing up to the choice because there are possible drawbacks doesn't seem wise. We have to get this banking crisis under control, otherwise Debt-Deflation will continue to spiral downward. Just my opinion.

Posted by: Don the libertarian Democrat at Feb 17, 2009 10:54:17 AM

it's much harder to stimulate housing than many people think because you have to take into account the rental market

From Alex Tabarrok:

"The difficulties of a housing stimulus

Ed Olsen, one of the nation's foremost housing experts, points out that it's much harder to stimulate housing than many people think because you have to take into account the rental market.

The primary effect of many proposals directed at the housing market would be to decrease the demand for rental units by about the same amount as they would increase the demand for owner-occupied units. This would be the effect of the proposed tax credits or loans at below-market interest rates to new homebuyers.

...The impact of preventing foreclosures on housing prices is overstated for the same reason. The overwhelming majority of families who default on their mortgages move to another unit that they do not share with others. Therefore, preventing foreclosures would have little effect on the total demand for dwelling units and hence little overall effect on market prices.

...Subprime mortgages did induce some people to buy houses beyond their means, and foreclosures would decrease the demand for the types of houses bought by these people. This would decrease the prices of similar houses. However, when they default on their mortgages, the families involved move to more modest houses or apartments, thereby increasing the demand for other types of units in other locations and the prices of units of these types. Preventing foreclosures would lead to higher prices for some properties and lower prices for others.

Read the whole thing (doc).

Posted by Alex Tabarrok on February 4, 2009 at 03:24 PM in Economics | Permalink"

Me:

"...Subprime mortgages did induce some people to buy houses beyond their means, and foreclosures would decrease the demand for the types of houses bought by these people."

This is, in my opinion, the problem in the Central Valley in California where I'm from. Oddly, many of the worst loans were at the height of the bubble. In other words, the buyers, who were going to have a hard time in any case, were buying at the top of the market. I have no idea how low the prices on many of these houses will have to go before people would buy them again.

In the meantime, renting allows you, in a downturn, the possibility of getting a cheaper place a lot easier than having a mortgage. In the Central Valley, we could be talking about a very long time for a housing recovery. Maybe I'm wrong.

Posted by: Don the libertarian Democrat | Feb 04, 2009 at 11:38 AM

So I tried to reproduce the chart and came up with something that looks like this.

From Spencer on Angry Bear:

"Honest Research?

By Spencer

This chart from the Minneapolis Federal Reserve is starting to appear on various web site.

Minneapolis Fed

Among others, Alex Tabarrok of Marginal Revolution published it.

Marginal Revolution


It is an interesting looking chart, very similar to many I do.

But it struck me as odd, there was something wrong with it.

I can not remember a single recession where employment did not fall as this chart shows.

So I tried to reproduce the chart and came up with something that looks like this.

Source: www.bls.gov via Haver Analytics

Note that it shows the 2001 recession as the mildest recession and it did experience falling employment. This line as well my line for the harshest recession in 1957 are very different
than the chart published by the Minneapolis Federal Reserve and referenced by several
libertarian/conservative blogs. Their harshest is about a full percentage point deeper than mine.

But the Minneapolis Fed did publish their original work and I was able to determine that there chart was not of an actual recession. Rather their lines representing the mildest and harshest recessions are completely artificial creations that have little or no relation to any actual historic event.

Rather than show the 2001 recession as the mildest recession, they went through all of the first months of the 10 post WW II recession and found the smallest observation and made that the first observation of their mildest recession line. Next they went through the second month of the ten recession and found the smallest observation in the second month of recessions and made that the second month of their mildest recession. They repeated this process for 18 times, each time making the smallest observation of that particular recession month for their line of the mildest recession. So their line might take observation one from 1957, observation two from 1981, observation three from 1973, etc., etc., . Their so called harshest recession line was created using the same methodology.

Here is exactly how they described the lines in their publication:

This page places the current economic downturn into historical (post-WWII) perspective. It compares output and employment changes during the present recession with the same data for the 10 previous recessions that have occurred since 1946.

This page provides a current assessment of “how bad" the recession is relative to past recessions. It will be updated as new data are released. This page does not provide forecasts, and the information should not be interpreted as such.

The following charts provide information about both the length and depth of recessions.

Minneapolis Fed

This strikes me as a major case of intellectual dishonesty. At no point is the reader shown that their mildest and harshest recessions are completely artificial creations that have no relation to any actual recession.( THIS IS BAD IF TRUE )

The other point that strikes me is how libertarian/conservatives like Alex Tabarrock uncritically accept such biased research from fellow right wing sources without any question. It strikes me that a tenured, PhD, economist should know that there was no post WW II US recession where employment did not fall and should have recognized that there was something wrong with this chart. But more than likely, this chart will now be passed around and used by libertarian/conservatives to demonstrate that there was a post WWII recession where employment did not fall and that will become one of their standard talking points.

Am I being too harsh on the Minneapolis Fed and people who uncritically accept and pass on such biased research?

P.S. This is not the first time I have caught the Minneapolis Fed or Alex Tabarrock misrepresenting data.

Posted by spencer at 2:49 PM "

I don't put too much stock in government statistics. They are of limited use. However, the objections to this research seem to make sense. Also, it fits in with my belief that it is too soon to tell where we are going in this downturn. I, of course, hope for a much easier time this year than others, if the correct policies are put in place.

"We might not like it but recessions are normal."

From Alex Tabarrok on Marginal Revolution, another comparative look at this economic downturn:

"Comparing Recessions

It you look at job losses in this recession compared to previous recessions this recession looks very bad but the labor force is much bigger today than in previous recessions. Thus, if you look at the percentage change in employment you get a different story. The Minneapolis Fed crunches the numbers:

and

Of course, this recession is not yet over but this is useful information. We might not like it but recessions are normal."

I still find it amusing that saying that something unpleasant is normal is supposed to ameliorate people's view of their unpleasant circumstances. They don't have to agree. For one thing, they can blame it on poor governance, or on the economic arrangement that produces the unpleasant circumstances. Throwing up our hands is a good way to get punched in the gut someday.

On the main point, I agree. Things haven't yet become as bad as many previous economic downturns.

"But many of the critics of mass fiscal stimulus have an alternative frame in mind, namely, that "employment increases spending."

Alex Tabarrok on Marginal Revolution makes a good point:

"Macroeconomics without Supply

Alex Tabarrok

Paul Krugman writes:

...if you believe that a surge in private spending would raise employment — and even the critics agree on that — it’s very hard to explain why a surge of public spending wouldn’t have the same effect.

Brad DeLong writes:

But surely we believe that if the U.S. government were to follow the Countrywide plan--to send its representatives out onto the streets to have them walk up to people and say: "Here's $500,000. You can have it if you go buy a house"--then that would drive a recovery, right?

What's interesting about these statements is not so much whether they are right or wrong (let's just say that it depends) but that Krugman and DeLong are so immersed in the Keynesian viewpoint that they cannot even see any other way of looking at the issue. Thus "even the critics" and "but surely we believe," as if no other view were conceivable.

Well if the only frame you can see is the "spending increases employment" frame then whether the spending is private or public may seem like a niggle. But many of the critics of mass fiscal stimulus have an alternative frame in mind, namely, that "employment increases spending."

Frame the issue this way and it becomes clear that the choice between private employment and public employment as a driver of spending is crucial. Moreover, when we remember that employment drives spending we focus attention on the real allocation of labor and capital across sectors of the economy, on internal and external fiscal balance, on investment as well as on consumption and on time paths of development. The "spending drives employment" frame misses all this."

These are good points. The government needs to spend money on:
1) The social safety net
2) Infrastructure
I have no good numbers on these, because, even if I were an expert, I still wouldn't know how much 1 will turn out to cost us, and 2 depends upon how many truly useful and cost efficient infrastructure projects we will be able to develop.

Otherwise, we should focus on the Fear and Aversion To Risk, which is the main problem that we are facing. The way to do that is to try and offer incentives for risk, such as tax reductions. Oddly, greater risk will lead to more jobs as lending and investment unfreeze.

One could also target consumption with a sales tax decrease or payroll tax decrease, which will be for a limited time only. This would offer some disincentive to saving, but not enough to stop all saving, since we need some increase in saving as well. Going forward, we should look into incentives for saving as well. But not right now.

"Selling even some western land could raise hundreds of billions of dollars - perhaps trillions of dollars"

Alex Tabarrok makes a similar suggestion to the one I made on EconLog:

"The Federal Government owns more than half of Oregon, Utah, Nevada, Idaho and Alaska and it owns nearly half of California, Arizona, New Mexico and Wyoming. See the map for more. It is time for a sale. Selling even some western land could raise hundreds of billions of dollars - perhaps trillions of dollars - for the Federal government at a time when the funds are badly needed and no one want to raise taxes. At the same time, a sale of western land would improve the efficiency of land allocation."

Here's my comment:

Don the libertarian Democrat writes:

Doesn't the government have assets it could sell? For example, land.
Posted November 5, 2008 8:37 PM

I actually posted this on EconLog under this Arnold Kling post:

http://econlog.econlib.org/archives/2008/11/why_i_am_parano.html

But he didn't respond. I guess he doesn't like the idea. I do.

Posted by: Don the libertarian Democrat at Nov 13, 2008 11:05:42 AM

Why Libertarians Should Vote For Obama: 2 Excellent Posts

A lot of people, including Ron Chusid, are referencing a post on Marginal Revolution by Alex Tabarrock. It's excellent. Here's the conclusion:

"The libertarian voice has not been listened to in Republican politics for a long time. The Republicans take the libertarian wing of the party for granted and with phony rhetoric and empty phrases have bought our support on the cheap. Thus - since voice has failed - it is time for exit. Remember that if a political party can count on you then you cannot count on it.

Exit is the right strategy because if there is any hope for reform it is by casting the Republicans out of power and into the wilderness where they may relearn virtue. Libertarians understand better than anyone that power corrupts. The Republican party illustrates. Lack of power is no guarantee of virtue but Republicans are a far better - more libertarian - party out-of-power than they are in power. When in the wilderness, Republicans turn naturally to a critique of power and they ratchet up libertarian rhetoric about free trade, free enterprise, abuse of government power and even the defense of civil liberties. We can hope that new leaders will arise in this libertarian milieu."

Here's the end of Chusid's post:

" Barack Obama certainly is not a libertarian but the country would be far more free with a government headed by Obama than one headed by John McCain. I’ve been arguing that for quite a while, and it is even more true with the addition of Sarah Palin to the GOP ticket. The two biggest threats to liberty are the warfare state (and its accompanied restrictions on civil liberties at home) and the agenda of the religious right. The McCain/Palin ticket gives the worst of Republican viewpoints regardless if they repeat empty Republican rhetoric about limited government and freedom."