Economics and Inner Peace

My wife is a yoga instructor and has introduced me to a number of books regarding finding inner peace. I've also recently read a number of music books on finding inner peace while performing and through the writing of music. Now, there is a way to find inner peace using the economic way of thinking:

"The optimal number of lifetime speeding tickets is greater than zero."

One of the great things about being an economist is that you get inner peace by using the EWOT in this way.

A shameless plug for economic history...

In a recent post, Rob brought an interview with Paul Samuelson to our attention. Part 2 of the interview is now posted and it ended with an interesting question for students entering graduate study in Economics:

Conor Clarke: "Very last thing. What would you say to someone starting graduate study in economics? ... Where does it go from here and how does the current crisis change it?"

Paul Samuelson: "Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come. "

An Interview With Paul Samuelson

A few days ago I wrote about Paul Samuelson's view about the economic recovery and the strength of the U.S. dollar. Today, a new interview with Professor Samuelson has been published in the Atlancis. Professor Samuleson won the John Bates Clark Award (1947) and the Nobel prize (1970) and made important contributions to the fields of welfare economics, public economics/finance, and consumer/utility theory.

In other news about Nobel laureates, today is George Akerlof's birthday. Professor Akerlof will be in Calgary next week for a meeting of the Canadian Institute for Advanced Research.

Ticket Pricing in the Age of the Internet

Peter Tracey recently directed me to a column by Terrance Corcoran. Apparently, Industry Minister Tony Clement is looking into ways to address ticket retailers who are engaged in uncompetitive practices.

In Ottawa, Industry Minister Tony Clement declared himself to be a "regular concert goer," making him therefore qualified to take action against Ticketmaster and its associated resale arm, TicketsNow. "The government won't stand idly by when there is potential that companies may be engaged in uncompetitive practices that are hurting consumers," he said. Mr. Clement dispatched the Competition Bureau to investigate.

In Ontario, no slouch in maintaining high farm prices, Premier Dalton McGuinty is preparing legislation to protect Britney Spears consumers by going after Ticketmaster and setting up an apparently beefier anti-scalping law than the existing one. Ontario's Attorney General, Chris Bentley, said "What Ontarians want is fair access. This is about consumer protection." Various class-action lawyers and U. S. politicians are also getting into the concert pricing regulation business.

Even the performers are restless, with old boy lefties like Bruce Springsteen reportedly "furious" that tickets for his welfare-state priced concerts -- $90 to $250 -- were being sold at higher prices on the TicketsNow resale site before the regular sales process had run its course.

Corcoran argues that there is no need to regulate this market as the internet has taken over the position once held by scalpers, in doing so imposing some market discipline on ticket pricing.

Almost overnight, the buying and selling of tickets for sports, concerts, theatre and other live events has gone from the moribund paper era to the electronic era. The market took over scalping, bringing market prices to tickets that in the past were sold only once at what the concert promoters thought and hoped would be the right profit-maximizing price. If not, if the price was set too low, too bad. The market died with the first sale, except for a few scalped tickets at the door on the day of the event.

There is no need for politicians to attempt to control this market. In fact, that would be the worst approach. The rise of online market sales makes it possible for performers, promoters, ticket sellers and resellers to capture top market value. The major beneficiaries will be the performers, who for the first time will be able use auctions and other pricing mechanisms to get the most out of their performances.

I wonder if Tony Clement has thought about Trent Reznor's suggestions for stopping scalping.

Paul Samuelson on The U.S. Dollar

I came across this post from Paul Samuelson, a name known to all economist and economics students from his textbook and contributions to economic theory. His view is that, even with the optimism of the Federal Reserve, the current economic crisis may be nothing compared to the what happens when the Asian nations turn pessimistic against the U.S. dollar:

Up until now, China has been willing to hold her recycled resources in the form of lowest-yield U.S. Treasury bills. That's still good news. But almost certainly it cannot and will not last.

Some day -- maybe even soon -- China will turn pessimistic on the U.S. dollar.

That means lethal troubles for the future U.S. economy.

When a disorderly run against the dollar occurs, I believe a truly global financial panic is to be feared. China, Japan and Korea now hold dollars not because they think dollars will stay safe.

Minimum Wage Increases

The U.S.'s federal minimum wage is set to rise in a few days. This is part of a three step increase passed in 2007. A new editorial by David Neumark in the Wall Street Journal provides some analysis of the minimum age with particular attention to raising it at this time:

Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible.

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I've done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.

The Economics of The Big Label Record Deal

I have some friends who recently signed a record deal with a "big player" in music. I was asked a bit about my opinions regarding their advance, their cut on sales (i.e., "points"), etc. Having grown up in the San Francisco music scene, I have had several friends sign these type of deals. As an economist, I've had lots of them ask me these questions. Personally, I find the deals too complicated to give any real advice. However, I always refer people to the famous (or maybe infamous) essay by Steve Albini on the "music industry." In this essay, he comes up with the following rough accounting of a record deal.

Since some of you may not read to the end of the quote from his essay (not quoted below), the last statement in Steve Albini's essay is usually what I tell my friends once they have signed these deals.

These figures are representative of amounts that appear in record contracts daily. There's no need to skew the figures to make the scenario look bad, since real-life examples more than abound. Income is underlined, expenses are not.

Advance:	$ 250,000
Manager's cut:	$ 37,500
Legal fees:	$ 10,000
Recording Budget:	$ 155,500
Producer's advance:	$ 50,000
Studio fee:	$ 52,500
Drum, Amp, Mic and Phase "Doctors":	$ 3,000
Recording tape:	$ 8,000
Equipment rental:	$ 5,000
Cartage and Transportation:	$ 5,000
Lodging while in studio:	$ 10,000
Catering:	$ 3,000
Mastering:	$ 10,000
Tape copies, reference CDs, shipping tapes, misc. expenses:	$ 2,000
Album Artwork:	$ 5,000
Promotional photo shoot and duplication:	$ 2,000
Video budget:	$ 31,000
Cameras:	$ 8,000
Crew:	$ 5,000
Processing and transfers:	$ 3,000
Off-line:	$ 2,000
On-line editing:	$ 3,000
Catering:	$ 1,000
Stage and construction:	$ 3,000
Copies, couriers, transportation:	$ 2,000
Director's fee:	$ 4,000
Band fund:	$ 15,000
New fancy professional drum kit:	$ 5,000
New fancy professional guitars [2]:	$ 3,000
New fancy professional guitar amp rigs [2]:	$ 4,000
New fancy potato-shaped bass guitar:	$ 1,000
New fancy bass amp:	$ 1,000
Rehearsal space rental:	$ 500
Big blowout party for their friends:	$ 500
Tour expense [5 weeks]:	$ 50,875
Bus:	$ 25,000
Crew [3]:	$ 7,500
Food and per diems:	$ 7,875
Fuel:	$ 3,000
Consumable supplies:	$ 3,500
Wardrobe:	$ 1,000
Promotion:	$ 3,000
Tour gross income:	$ 50,000
Booking Agent's cut:	$ 7,500
Manager's cut:	$ 7,500
Merchandising advance:	$ 20,000
Manager's cut:	$ 3,000
Lawyer's fee:	$ 1,000
Publishing advance:	$ 20,000
Manager's cut:	$ 3,000
Lawyer's fee:	$ 1,000
Record sales: 250,000 @ $12:	$ 3,000,000
Gross retail revenue Royalty [13% of 90% of retail]: 250,000 @ $12:	$ 351,000
Less advance:	$ 250,000
Producer's points [3% less $50,000 advance]:	$ 40,000
Promotional budget:	$ 25,000
Recoupable buyout from previous label:	$ 50,000
Net royalty:	$ -14,000

Now, on the other hand, let's look at the Record company income:

Record wholesale price $6.50 x 250,000	$ 1,625,000 gross income
Artist Royalties:	$ 351,000
Deficit from royalties:	$ 14,000
Costs of manufacturing, packaging and distribution @ $2.20 per record:	$ 550,000
Label's gross profit:	$ 7l0,000

The Balance Sheet: This is how much each player got paid at the end of the game:

Record company:	$ 710,000
Producer:	$ 90,000
Manager:	$ 51,000
Studio:	$ 52,500
Previous label:	$ 50,000
Booking Agent:	$ 7,500
Lawyer:	$ 12,000
Band member net income each:	$ 781.25

The band is now 1/4 of the way through its contract, has made the music industry more than 3 million dollars richer, but is in the hole $14,000 on royalties. The band members have each earned about 1/20 as much as they would working at a 7-11, but they got to ride in a tour bus for a month.

The next album will be about the same, except that the record company will insist they spend more time and money on it. Since the previous one never "recouped," the band will have no leverage, and will oblige.

The next tour will be about the same, except the merchandising advance will have already been paid, and the band, strangely enough, won't have earned any royalties from their T-shirts yet. Maybe the T-shirt guys have figured out how to count money like record company guys.

Bank of Canada Statistics

In some work I was doing this morning, I thought the Bank of Canada had some interesting statistics. I'm particularly interested in the numbers regarding expectations:

1. 20% of firms expect price increases of 1-3% over the next six months.
2. 22% of firms expect inflation over the next six months to exceed 2%.

Job Loss in the U.S.: the movie

Here's an interesting animation of job creation and job loss in the U.S. from the period of 2004 to the present. (Sorry, I wasn't able to figure out how to post the item itself in the blog post. Don't email me or comment with the solution.) The animation was created by TIP Strategies. A couple of things to note:

1. Note the effect of Hurricane Katrina in late 2005.
2. Note how quickly the number of lost jobs balloons in late 2008.
3. Note how relatively unaffected the mid-west is by the crisis.
   

The Economics of Bat S*#%

Given the current economic crisis, pundits often turn their attentions to the debts nations carry, the payments on which could be used elsewhere in their struggling economies. In an new article in the Journal of Economic History, former U of C prof Catalina Vizcarra discussed how the use of guano (a.k.a. bird and bat shit) was used to service Peru's debt in the late 1800's. The abstract:

Peru’s experience with sovereign debt during the guano boom is one of the most remarkable in the nineteenth century. Despite the country’s ongoing political instability and poor capital market reputation, the price of Peruvian bonds soared shortly after settlement in 1849, and the country enjoyed relatively low credit risk until the 1870s. This article discusses the incentives Peru and its creditors faced, and explains how Peru’s extraordinary performance in financial markets was founded on its credible commitment to service its debt with the guano proceeds.

Peru was able to service its debt given lucrative trade and its virtual monopoly in guano. As part of this servicing, new institutions and markets (e.g., banks, trade organizations, new financial institutions, investments in new industries) emerged from the trade in guano. In essence, this is a story of how international trade in one sector can transform (even in a relatively short time frame) and entire economy.

Some of the most interesting (to me) parts:

The Peruvian state’s guano monopoly was a revolution for government finance. As is shown in Table 4, guano exceeded customs revenue beginning in the early 1850s, from then until the late 1860s it accounted for two-thirds or more of total government revenue. In the mid-1850s, when guano income exceeded two million pounds sterling per year, Peru reduced import tariffs and abolished the Indian head tax. Tariff revenue still grew because imports were growing rapidly during the period. Government revenues nearly doubled between 1847 and 1852, and doubled again by the early 1860s. (p. 370-71)


At the onset of the guano boom in the early 1850s, Presidents Echenique and Castilla radically reformed the tax system. Some of the key changes included massive reduction in tariffs, commercial treaties with foreign countries, and the abolition of the tribute (Indian head tax). Tariffs and the head tax comprised close to 70 percent of government income in the pre-guano era. Reimposition of the head tax or raising tariffs would have entailed political negotiations that could have been time-consuming and perhaps have unintended political consequences. There is well-documented evidence of major resistance to any tax reforms (reimposition of these measures) in the period. Furthermore, a fall in guano exports would cut into imports, so that even with an increase in tariff rates, positive effects on revenue would be uncertain. This meant that, at least in the short term, there was no alternative to guano. The penalty for default—an interruption of the guano trade—therefore carried with it large financial costs. Historians have typically interpreted Peru’s tax reforms of the 1850s as motivated by domestic political considerations, but the credible commitment problem offers another possible explanation. By increasing dependence on guano, Peru made its commitment to the bondholders more credible because it could not risk interrupting the guano trade. No Peruvian government could take such a risk. Consequently, Peru’s notorious political instability did not weaken the credible commitment to repay its foreign debt. Because of the nature of the guano security, the identity of the government was of secondary concern.

From the conclusion:

The guano windfall ushered in an era of relative prosperity for many in Peru, particularly those among the elite. Those who point to the guano boom’s positive impacts note that access to foreign capital and the flow of guano revenues facilitated the creation of Peru’s first banks, and of investment in cotton, nitrates, and sugar. However, the perception among many Peruvian scholars and citizens alike is that the prosperity of the guano period was ephemeral, and that it did not leave a positive legacy insofar as the Peruvian economy or its political institutions.

Alberta Puts Forth New Rules for Pay Day Loans

I wrote previously about the ways in which pay-day loans result in individuals paying more for financial services. Now Alberta has put forth a new set of rule for pay-day lenders. Some highlights:

Starting in September, businesses will be prohibited from charging more than $23 in fees and interest for each $100 borrowed.

Giving customers a two-day cooling-off period in which they can return the money and cancel the loan without paying any costs.

Ordering companies to use plain language in contracts.

Requiring them to post their costs prominently in outlets.

Rollover loans — where people with more than one loan pay extra charges — will be banned.

The province will also license any companies that wish to operate in Alberta.

Research of Twitter

I was forwarded this post by someone who had read my previous comments on Twitter. Although most social networking sites are dominated by women (i.e., women produce most of the content and are followed by men and women):

Although men and women follow a similar number of Twitter users, men have 15% more followers than women. Men also have more reciprocated relationships, in which two users follow each other. This "follower split" suggests that women are driven less by followers than men, or have more stringent thresholds for reciprocating relationships. This is intriguing, especially given that females hold a slight majority on Twitter: we found that men comprise 45% of Twitter users, while women represent 55%. To get this figure, we cross-referenced users' "real names" against a database of 40,000 strongly gendered names.

Even more interesting is who follows whom. We found that an average man is almost twice more likely to follow another man than a woman. Similarly, an average woman is 25% more likely to follow a man than a woman. Finally, an average man is 40% more likely to be followed by another man than by a woman. These results cannot be explained by different tweeting activity - both men and women tweet at the same rate.

What I found more interesting is the "usage distribution" of Twitter:

Twitter's usage patterns are also very different from a typical on-line social network. A typical Twitter user contributes very rarely. Among Twitter users, the median number of lifetime tweets per user is one. This translates into over half of Twitter users tweeting less than once every 74 days. At the same time there is a small contingent of users who are very active. Specifically, the top 10% of prolific Twitter users accounted for over 90% of tweets. On a typical online social network, the top 10% of users account for 30% of all production.... This implies that Twitter's resembles more of a one-way, one-to-many publishing service more than a two-way, peer-to-peer communication network.

Upcoming Fund Raiser in Calgary

I've been doing some research on charitable giving, not looking at the motives as much as the mechanisms organizations use to raise funds. So its in this respect that I'm posting the following regarding an upcoming event in Calgary to raise funds for Janus Academy, a school specializing in the education of children with autism: