Economic Confusions: Canned Goods Pricing

Can of PeachesMost people I meet who think they know something about economics are clueless. What I’m thinking about right now are people who think that companies set prices based upon their costs. A standard (incorrect) observation is, “If we raise the minimum wage, the companies will just increase their prices.” Think about how ridiculous that idea is. Imagine that McDonald’s is selling a hamburger for $1.50. They are selling it at that price because it maximizes profits (or at least they think it does). If they could maximize profits at $1.55, they would sell it for that price. But they know that by raising the price by just a nickle, they would lose a certain number of sales and in the end they would make less money. Note that this consideration has nothing to do with the cost of making the burger!

The problem with these would-be economists is that most of them have never run a business. I’ve run several, but by far the most illuminating was running a business at the huge San Jose Flea Market. For various reasons that don’t matter, I was selling make-up there. When we first started, our margins were enormous. Over time they went down, but not because our costs went up. Over time, other vendors offered the same products and we all competed to get customers and so the prices went down. Again: not costs! Every one of us was trying to make as much money as possible. The high prices at first were part of that. But so were the quickly sinking prices at the end.

I thought about this tonight because I got a copy of the Taxing Times, the newsletter of the Howard Jarvis Taxpayers Association. Jarvis was the guy that got Californians to destroy their public infrastructure by voting for Prop 13, which not only lowered property taxes, it made property appraisals lag way behind the times. During the campaign for Prop 13, Howard Jarvis tried to convince renters to vote for the initiative. He told them that with lower property taxes, their rents would go down. Of course, no such thing happened. Why would it? Renters were already paying the going rate. Why would landlords pass on the extra money to them?

That’s what I find so frustrating about this kind of stuff. I think that Jarvis really thought that rents would go down. In general, conservatives think that businesses are some kinds of charity organizations. This is why they believe in the myth of the “job creator.” It is the idea that business owners hire people because they have excess money lying around. People don’t think that way. Consider your own salary: if you got a raise would you (a) improve your standard of living; (b) save it; or (c) hire a kid to do useless work around your yard? That is the decision that rich people have to make when we give them tax cuts. For the record: they choose (b).

This situation comes up every time there is a natural disaster. Someone is caught selling a can of peaches for ten bucks. Then the president or the governor goes on TV and talks about how it is an outrage. I don’t get that. These politicians are much bigger believers in capitalism than I am. And all these canned goods sellers are doing is what every business has done everywhere at every time: maximize profits. The truth is that the can of peaches is worth ten bucks at that time and that place. Now, I’ll admit, that’s a pretty messed up system that allows one person to take advantage of another. But that is the system almost everyone in this country worships. When Walmart illegally (but without fear of prosecution) stops a unionization effort, they aren’t doing it to keep their prices low; they are doing it to maximize their profit margins. Why is the can seller evil if Walmart is good? (I would argue that the can seller is more ethical. Walmart is trying to stop workers from organizing themselves—surely the most basic of human rights. There is no coercion from the can seller.)

Is it so much to ask of the world for those who think capitalism is the greatest system ever, to understand its basics? It is particularly galling to hear conservatives talk about the marvels of the free market when they demonstrate again and again that they don’t know how capitalism, finance, or markets work. It reminds me of religious people who don’t have a clue about basic spiritual issues or even fundamental tenets of their own faith. I think in both cases, these people hold their opinions because it is part of their culture, not because they actually believe. I have had bizarre experiences talking with conservatives only to have them start saying things that are downright socialistic. Based upon this I have concluded that these people really do believe that a company would never price gouge. It’s endearing, but our economic policies should be based upon fact, not quaint notions of the honorable businessman.

The next time you think about business regulation, don’t imagine the friendly pizza parlor owner who feeds the homeless. He may exist, but he’s the exception. Think of the can seller in hurricane ravaged Florida trying to get a twenty spot for a can of beans. That’s who the typical businessman is. And he’s not evil. He’s just doing his job. If you think there ought to be limits on him, then you should be for more general limits on what businesses can do.

Tangled Up in Bob

Bob DylanThe great Italian Mannerist painter Jacopo Carucci (generally know simply as “Pontormo,” I guess because he was from Pontorme) was born on this day in 1494. His religious work generally involved crowed, but beautifully composed scenes. His portraits similarly have an other world quality to them. All of his work, while realistic in its details creates an abstract feeling that is hard to describe. (Click over and look at some of his work.) He was also the teacher of Il Bronzino, who paints just like Pontormo, although (I think) better.

German physicist Daniel Gabriel Fahrenheit was born on this day in 1686. Guess what temperature scale he’s known for. Queen Victoria was born in 1819. She was Queen of England for almost 64 years, which makes her the longest reigning monarch in British history. But Elizabeth II is gaining fast, and in all likelihood will overtake her in two and a half years. The phrase, “We are not amused” is associated with Queen Victoria, but she maintained that she had never said it. People close to her said that she she had a hardy and easy laugh. I’d like to think so. Here’s a song just for her:

Inventor of Reese’s Peanut Butter Cups, H. B. Reese was born on this day back in 1879. He was not, thankfully, responsible for those terrible “You got chocolate in my peanut butter!” commercials in the 1970s. Like people walk around with jars of peanut butter, eating it with their fingers. I think that Reese’s Peanut Butter Cups are the best mass-produced candy in the world. So all we need is a commercial that says, “Remember: Reese’s Peanut Butter Cups are delicious!” It also has the advantage that it is true.

Sylvia Daoust - My HeadAnd finally, relatively minor but incredibly compelling sculptor Sylvia Daoust was born on this day in 1902. She primarily did religious work. But the sculpture on the right My Head from 1930 is typical of the kind of stuff I admire. Her religious sculpture is less artistic, more purely representational, although I’m sure it was good for paying the bills.

The great French actor Michael Lonsdale is 82 today. Comedian Tommy Chong is 75. Liberal linguist George Lakoff is 72. Radar from MASH, Gary Burghoff is 70. Patti LaBelle is 69. Guitarist Waddy Wachtel is 66 and his hair is still perfect. Rosanne Cash is 58. And actor Kristin Scott Thomas is 53.

There are a lot of fine birthdays today, but still, this day was not even close. It belongs to the great Robert Allen Zimmerman, also known as Bob Dylan, who is 72 today. What can I say about Bob Dylan? Do I need to say anything about him? He made, I don’t know, about ten of my very favorite albums. I still listen to him every week. The albums that I never tire of are The Freewheelin’ Bob Dylan, Highway 61 Revisited, Blonde on Blonde, and Blood on the Tracks. Here he is doing “Tangled Up in Blue”:

Happy birthday Bob Dylan!

Afterword

Here is what Loudon Wainwright did for Bob Dylan’s birthday 22 years ago:

Debt Ceiling Still Major Threat

Greg SargentI have a bone to pick with Greg Sargent. I appreciate his effort, but how long can the man go on spouting happy horseshit without realizing that it has become discouraging. At least a few times per week, he writes something along the lines of, “Boehner has already admitted Republicans won’t allow default.” In this he is talking about how the Republicans have signaled (and in some cases came right out and said) that they will not allow the federal government to default because of a refusal to raise the Debt Ceiling. Oh, though it were so!

It is true that Boehner said, “I’m not going to risk the full faith and credit of the federal government.” But one can only read so much into that. To begin with, Boehner is talking about himself, not the party. But far more important, the statement sounds like a hope more than a commitment. If he is signaling, it is to his caucus, not to the rest of the nation. It’s more like, “Please guys, don’t do this!” And since saying it, he’s been pretty quiet.

My take on the situation is far less sanguine. Even when Boehner was doing his reasonableness tour, much of the Republican Party was enamored with the idea of crashing the economy. I know how revolutionaries feel about this kind of stuff. It is an exciting prospect to remake the society without all those compromises that we’ve allowed over the last 225 years. Just like young science fiction fans, they see only the good in a post-apocalyptic world.

Even worse, many conservatives seem to have been emboldened by the Sequester. When it went into effect without a global meltdown, they took it as more evidence that fears of any policy are overblown. (Of course, no one said the Sequester would cause a global meltdown—only that it would harm people and the economic recovery.) I think there are easily 100 Republicans in the House who are chomping at the bit to crash the economy. The fact that John Boehner indicates that he doesn’t want to do that doesn’t mean all that much.

The real question is whether the GOP establishment can figure out a way to raise the Debt Ceiling without it looking like a political defeat. That’s going to be important not just for the more radical members of the party. We all know that most Republicans worry primarily about being challenged from the right in a primary. In general, I think such concerns are overblown. Last year, for example, there was great concern that Orrin Hatch would lose his primary. So Hatch moved even further to the right. But in the end, he got more than twice as many votes as his challenger Dan Liljenquist. Just like Democrats pandering to the middle, Republican concerns about right flank attacks are mostly mythical. But they believe them and that could cause them to allow a default, even when they know it is a bad thing.

Hopefully, they will realize crashing the economy will not just be bad for the country; it will be bad for them. Most of these Republicans would suddenly find they have much more to worry about in the general election. With half the country out of a job, they would have nothing better to do than show up at the polls.

Unfortunately, there are plenty of examples of politicians doing things they knew would hurt them. That’s certainly what the leaders of the South did. They went for it all and lost it all. That’s all good. But it also cost the lives of over 600,000 people. But that’s always the case: powerful men thrive despite their mistakes and weak men (by the millions) suffer. Jefferson Davis not only lived 24 years past the end of the Civil War, but he remained rich and respected. Regardless what happens, Ted Cruz’s good life is assured.

Let the Starving Gays Marry

Gallup PollGallup reported today, Fewer Americans Identify as Economic Conservatives in 2013. I looked at the article because I wanted some good news. But I didn’t really find it.

I’m not sure what people think when asked where they stand on economic issues. Right now, 41% of Americans say that they are economic conservatives. Compare this to 37% who call themselves moderates and only 19% who say liberal. What exactly do people think an economic conservative is? I think this is typical of such polling questions: useless. For example, I suspect that even most Republicans would agree with the statement, “The government should invest in infrastructure to create jobs.” Similarly with, “Because the rich have received the vast majority of productivity gains over the last 35 years, they should pay more in taxes.” And: “Banks should be regulated to reduce the harm done by their excesses.”

It seems that all these polls show is that the word “liberal” has been effectively vilified by the right. That seems to be especially associated with economic issues. After all, it isn’t an “inclusive and accepting liberal” it is a “tax and spend liberal.” As a result of this, those who call themselves “economic liberals” have been stuck in the high teens since 2001. Meanwhile, self-labeled “social liberals” have moved from the low 20s in 2001 to the low 30s now. According to Gallup, we are moving from a country that wants to kill gay people to one where we are just fine with letting them starve to death.

By far the most disturbing aspect of this poll is how many people identified as economic conservatives after the banking crisis. The numbers jumped from 40% in 2008 to 48% in 2009 and 51% in 2010. This goes right along with Thomas Frank’s argument in Pity the Billionaire. The worst financial crisis in generations caused by a housing bubble fueled by banker malfeasance causes people to… demand that the government get off the backs the bankers?! Frank sums it up in his usual wry style:

This book is a chronicle of a confused time, a period when Americans rose up against imaginary threats and rallied to economic theories they understood only in the gauziest terms. It is about a country where the fears of a radical takeover became epidemic even though the radicals themselves had long since ceased to play any role in national life; a land where ideological nightmares conjured by TV entertainers came to seem even more vivid and compelling than the contents of the news pages.

The good news is that the number of those calling themselves “economic conservative” has cratered over the last year. They stayed in the high 40s through last year but are only 41% now. Similarly, there has been a slow but clear trend upward in terms of economic liberals. Almost all of the changes are between how the moderates and the conservatives self-identify. The total of them both is pretty constant at 80%, although it is down just a tad the last few years.

Again, I think these polls are fairly meaningless. But they do show that the American people have a natural disregard for the only form of economic policy that is geared to their direct interests. Pity the billionaire indeed!

Josh Barros’ Journey from the Dark Side

Josh BarroWednesday, Jonathan Chait over at The Atlantic published an article about the problems of Josh Barro of all people. Regular readers will know that I am of two minds about Barro. On the one hand, he is a smart and insightful guy—one of the best conservative observers around. On the other hand, every time I see his face, I want to punch it. But that’s a totally irrational reaction; he just seems like someone who badly needs to be punched. When it comes to policy, I am always interested in what he has to say.

So what problem does The Atlantic think that Barro has? It appears that the Republican Party is unhappy that Barro is attacking it, rather than nibbling around the edges like Ross Douthat. Chait speculates why this is without coming up with anything concrete. Then this morning, Ezra Klein offered, Josh Barro didn’t Leave Conservatism. Conservatism Left Josh Barro.

This is not strictly speaking true. Chait even shows this by having Barro go over his own (with Reihan Salam) glowing assessment of Paul Ryan’s 2010 budget. It isn’t that Barro’s outlook has changed in a major way. Rather, he sees now that before he was assuming the best and pushing problems to the side. In other words, he was engaged in apologetics. And that’s what I find with all the more reasonable conservative pundits and wonks. And that still includes Josh Barro on a number of issues.

Consider how the Republican Party has changed on healthcare reform. In the past, it was for what has become Obamacare. Why did it change? Well, it actually didn’t. Its embrace of the individual mandate was always just a cover against more liberal plans like single-payer and Hillarycare. Once those threats were off the table, there was no need to continue embracing any plan at all. So they stopped embracing any plan. In fact, you may have noticed how the GOP originally called for “repeal and replacement of Obamacare.” But they must have figured out that the new plan was no plan because it quickly became simply “repeal Obamacare.”

I don’t think the Republican Party has really changed. What seems to have happened is that Josh Barro got to see the reality of all the lies that Republicans tell themselves (we really do care about the poor; we want to grow the middle class; we support an culture of life). His change in attitude is very similar to my own change in terms of libertarianism. I still think he’s fooling himself with the thought that he just looks at the data. But there is no doubt that he’s a whole lot closer to that ideal than he was only two years ago.

Afterword

I believe the reason I have such a visceral dislike of Barro is his attitude that somehow he is just coming to objective conclusions based upon the data. I used to be very much like that. It is a very big delusion of libertarians especially. But as Barro now sees when looking at his 2010 Ryan Budget article, it is much less clear. He wanted to believe what Ryan was selling. There was nothing objective in his conclusions, even if every part of the analysis was objective. Over time, I’m sure my impulse to slug Barro will decrease with his smug certainty that he has possession of the Truth.

Prime Numbers and Random Assumptions

Yitang ZhangJordan Ellenberg over at Slate reported on Yitang Zhang and the big goings on in the field of prime number theory. There are two stories. One is that Zhang managed to prove some thousands of year old questions. The other is that he is in his 50s.

As I hope you know, a prime number is any natural number that is divisible only by itself and the number one. So 7 is prime, but 9 is not because it is divisible by 3. The first few prime numbers are: 2, 3, 5, 7, 11, 17, 19, 23, 29. Why are prime numbers interesting? Well, there are many reasons that mathematicians study them. The most fundamental reason, which you may remember from school, is that all natural numbers can be represented by a product of prime numbers. For example, 24 equals 2×2×2×3. But mostly, I think that prime numbers are interesting because they are strange and difficult.

The big news is that Zhang proved that the set of consecutive odd numbers that are prime is unbound. I know what you’re thinking, “Wow! I have no idea what you just said!” Don’t worry, it is very simple. An example of this is 5 and 7: they are consecutive odd numbers and they are prime. On the other hand, 7 and 11 are consecutive prime numbers but they are not consecutive odd numbers; 9 is in the middle.

As you can see in the list of the first 9 prime numbers above, the further you go up, the larger the gap between prime numbers. In general. But its pretty random. The question is whether as the numbers get big whether these consecutive prime numbers stop occurring. They don’t. They get less common, but they never end. Apparently, mathematicians have long assumed that to be true. That amazed me because I always assumed it was not, but then I’m not a mathematician and I’ve never been that interested in number theory.

So the result isn’t amazing. What Yitang Zhang did is prove that this was so. He also proved some other things, but I had enough difficulty getting my head around this one. And of course, Zhang’s age makes for an interesting story in a world that (wrongly it turns out) thinks that only young people are great mathematicians.

The whole subject of prime numbers has always bugged me. From my earliest days I can remember being offended by the fact that the number 2 is prime. I don’t know how common this is, but I have always personalized numbers. One small part of that is a quasi-racist belief that even numbers are just better than odd numbers. The odd numbers are contrary; they offend me. The prime numbers are even worse! So how can a nice little even number be grouped with those thugs the primes? And it’s all because 2 is a Very Small Number. In fact, the number 2 is remarkable: it is divisible by every number equal to or less than itself.

Zhang’s brilliance was to treat prime numbers as random. That may seem obvious, but it’s not. The fact is that prime numbers are not random. But apparently, treating them like random numbers provides great insights. I don’t pretend to understand it. But I feel good that not everyone making important discoveries is younger than I am.

Afterword

Here are two rather large consecutive prime numbers: 104,681 and 104,683.

Medication Rollercoaster

roller-coaster

We’ve been on a medication roller coaster for the last 2 years and still not sure we are on the right track! My son was diagnosed with ADHD, ODD and Dyslexia in March, 2011.

In May, 2011 we started on the traditional, Ritalin, amphetamine based stimulant, resulting in high anxiety, tension and agitation we decided to try non-stimulants. In addition to Ritalin he was put on Prozac for depression and anxiety. Instead of taking care of my son’s depression and anxiety, Prozac did the opposite, made his mood, anxiety and depression worse. His mood swings got so bad we took him off Prozac immediately and put him on a low dosage of Abilify to stabilize his mood.

December, 2011 we started Strattera and Intuniv, non-stimulants, for focus, still resulting in extreme moods and drowsiness, even on Abilify (who wouldn’t be moody when you are tired all the time). In August, 2012 to go off Strattera and Intuniv and try Vyvanse, a dexamphetamine based stimulant instead. It worked well for 9 months (I thought) but he always had a difficult time coming off them in the evening (we called it the bewitching hour), high anxiety and easily irritated.

This April our son’s teacher told us our son is having a hard time focusing in class and not learning, therefore, decided to change medication again. In order to move on to the next choice of medication, we had to go two weeks without anything for focus but remained on Abilify, it was amazing how happy and calm our son became when he was off the stimulants but ‘O MY’ did I have complaints from his teachers. One of his teachers actually asked us to put him back on Vyvanse for focus, and I just learned that her request is against the law since she is not a doctor, imagine that!

After meeting with our pharmacologist/psychiatrist in April we came up with a new strategy. Since the Abilify has stabilized his mood, we can now try Strattera again but starting at a very low dosage and increasing the dosage slowly for four weeks instead of starting at the max dosage from the start. Tonight we will increase the dosage and so far so good at home, in sports, social activities but at school he’s become more defiant with his teachers.

Remember medication does not work alone! My husband and I try very hard to have a nurturing and stress free home environment (not reality though), my son attends a weekly social skills group, sees a child psychotherapist weekly and has tutors to help him with homework and school projects. Open communication with school and teachers are very important too. I touch base with his teachers 2-3 times a week. Our goal is to eventually be free of medication and if not, lower dosage he’s currently on.

Today I received and email from my son’s teacher and he’s staying on task, focusing and not interrupting in class. I am so excited could this be the right medication regimen for him? We could only hope!

This will be an ongoing subject…to be continued…