Thursday, December 18, 2008

On Pianos and Automobiles


Jeffrey Tucker at the Mises Institute has written an interesting article on the U.S. piano industry and its parallels to the current problems facing the U.S.automotive industry. As he points out,
Today the highest-price good that people buy besides their houses is their car, and this reality leads people to believe that we can't possibly let the American car industry die.... What about the time before the car? Look at the years between 1870 and 1930. As surprising as this may sound today, the biggest-ticket item on every household budget besides the house itself was its piano. Everyone had to have one. Those who didn't have one aspired to have one. It was a prize, an essential part of life, and they sold by the millions and millions.


As it turns out, the piano industry followed a pattern similar to that of the automotive industry: At one time U.S. pianos were the best and the economic conditions in the U.S. permitted piano manufacturers to be successful exporters. After 1930, piano sales began a decline lasting until after WW II. In 1960, foreign producers (notably Japanese producers) began competing and by 1980 only Steinway remained as a domestic piano manufacturer.

Was there a bailout of the U.S. piano industry? No. Rather, the market for U.S. made pianos largely collapsed due to economic pressures. Should the U.S. and Canadian governments bailout U.S. car makers (the Canadian government has offered loans to those producing in southern Ontario, contingent on U.S. support)?

In the end you have to ask, is it really worth trillions in subsidies, vast tariffs, impositions all around, just to keep what you declare to be an essential industry alive? Well, eventually, as we have learned in the case of pianos, this is not essential. Things come and things go. Such is the world. Such is the course of events. Such is the forward motion of history in a world of relentless progress generated by the free market. Thank goodness that FDR didn't bother saving the US piano industry! As a result, Americans can get a huge range of instruments from all countries in the world at any price they are willing to pay.



Today government is even more arrogant and absurd, and it actually believes that by passing legislation it can save the US car industry. It can subsidize and pay for uneconomic activities, and pay ever more every year. The government can also pay millions of people to make mud pies because mud pies are deemed to be an essential industry. You can do this, but at what cost and what would possibly be the point? Eventually, even the government will have to accord itself to the reality that economics reminds us of on a daily basis.

Winter Tires

Anyone who has been driving in Calgary over the last week has had their nerves tested. After a storm and high temperatures hovering around -20 C, the roads are covered with ice and packed snow. Perfect conditions for slipping and sliding. If it were a game of bumper cars, it would be perfect.

One problem is that it seems not many people in Calgary have snow tires. Well, maybe its time for a law similar to that passed in Quebec:

Quebec has a new law that makes winter tires mandatory from Nov. 15 to April 15, whether you live in Val-d'Or or downtown Montreal. Austria has a similar law and, in Germany, many insurers will not pay winter weather-induced claims if your vehicle is not properly equipped with winter tires. Ontario is debating a mandatory winter tire law of its own.
While this may impose an additional cost on drivers, when one looks at the current conditions on the roads, its hard to imagine that people aren't incurring similar costs in terms of time lost in traffic, vehicle damages, and tax money spend pulling accidents from the road.

Tuesday, December 16, 2008

Calgary to purchase the Cecil Hotel



Yesterday the City of Calgary approved the purchase of the Cecil Hotel for $10.9 million. The Cecil Hotel, which sits at the entrance of downtown Calgary when entering from the east using Memorial Drive, has developed a notorious reputation, known as a magnet for drug dealing, prostitution, and violence. According to the city of Calgary responded to 1700 police calls at the Cecil last year (as quoted in the December 16, 2008 article entitled "City to pay $10.9 million for Cecil"). In defending the price tag the city will pay for the Cecil, Mayor Dave Bronconnier said "There is no question there was, in fact, a premium put on the acquisition, but I think when you look at long-term, 1700 police calls are not inexpensive either." The city plans to tear down the Cecil Hotel, potentially replacing it with a parkade.

While many people are concerned with a price tag of the purchase (and the use of tax payer money), I think the city needs to also consider the effects of displacing the people who stay and live at the Cecil. This does not appear to be something the city has seriously considered. In fact, in recent months the city has opposed the development of additional space to house the Mustard Seed and Inn From The Cold (both of which assist homeless and low income individuals and families). On the corner where the Cecil sits, the city recently closed the tavern in the Cecil Hotel and Beer Land, a liquor store which was frequented by individuals of low-income. All of this has been part of the city's plan to clean up downtown and attract more commerce and people into the core.

At the same time as these closures have taken place, there has been an increase in crime in the surrounding neighborhoods of Bridgeland, Renfrew, and Inglewood. Recent statistics show that, for example, break-ins in these areas have increased from two per month to seven per month. Moreover, if one takes a drive through the residential areas of Bridgeland (north of the downtown core) one notices many more people hanging out in back alleys and drinking during the day.

While I think it's important that Calgary make an effort to revitalize downtown, it seems the city is only partially addressing the issue with its current policies. This has been the mistake made by other towns (e.g., San Jose ,California) where cleaning up one part of the city (e.g., downtown) necessarily involves moving those problems to another part of the city. This is a shortsighted approach as it doesn't address the fundamental causes (poverty, drug and alcohol addiction) that motivate city Council to clean up the downtown. Personally, I would've liked to see the city take a more proactive approach, perhaps purchasing the Cecil allowing but using it for low income housing while providing counseling and training services to the individuals who frequent the area. It seems to me that this is a more complete approach to "cleaning up downtown.".

Friday, December 12, 2008

More on Music and Economics

I've written on the subject (I guess), but here's a new piece for those building a portfolio of papers on music and economics.


Abstract:
I compare the annual average beat variance of the songs in the US Billboard Top 100 since its inception in 1958 through 2007 to the standard deviation of returns of the S&P 500 for the same year and find that they are significantly negatively correlated. With the recent high stock volatility, people should now prefer less volatile music. Furthermore, the beat variance appears able to predict future market volatility, producing 2.5 volatility points of profit per year on average.

Keywords: music, trading strategy, billboard, variance, volatility