We are number 12

The Legatum Institute in England has a ranking of nations by prosperity. Prosperity is more in their index than simple per-capital income. It includes a variety of other factors such as health, safety, governance, and personal freedom. The U.S. has fallen out of the top ten for the first time that the index has been computed. We are now at 12.

McArdle on price discrimination

Megan McArdle has an interesting piece on Groupon and pricing discrimination:

Coupons basically serve two functions for businesses--advertising, and price discrimination.  Advertising means it brings in new customers by making them aware of your service, or giving them an incentive to try it.  Price discrimination, on the other hand, is what food processors do with grocery store coupons: it lets them sell their products to customers who are very price sensitive, without lowering the price paid by people who are too busy or embarassed to clip coupons.

As far as I can tell, small businesses viewed Groupons largely as the former....

The problem is that for consumers, it seems mostly to have been about price discrimination....

Banking in 1947

I saw this video of banking in 1947 on another economics blog a few days ago. A lot has changed in the 65 years since it was made.

Student debt

From an article at newsandtribune.com:

The average amount of debt for 2011 graduates at Indiana’s public, four-year colleges rose to $27,500.

 If that is the average, there must be some with very big numbers because there are certainly many with no debt at all. The article has no information about debt of graduates from private colleges.

The piece contains this idiotic statement:

“In these tough times, a college degree is still your best bet for getting a job and decent pay,” Asher said.

There is a difference between correlation an causation. Most highly motivated and highly intelligent students go to college, while most students with little motivation and little intellectual ability do not. The differences in outcomes between those with college certification and those without may mostly reflect these a-priori differences, not value added from college.

College is a very good decision for some people but it is a very bad decision for others. If those who will not benefit from college not only go to college but rack up huge debt in the process, college can be something that will ruin their lives. One of the unseemly aspects of college admissions is that in the quest to fill seats, many colleges make little or no effort to separate those who will benefit from those who should be pursuing other options. Rather they spout nonsense like the statement of Mr. Asher. Many faculty are aware of the problem, but because their livlihood depends on admissions, they try their best to ignore it.

One of the benefits of being a retired academic is that I am no longer part of this system.

Public choice theory from 1377

Here.

An effective political ad

Bank failure and the financial crisis

From a book review on the financial crisis:

•When the FDIC took over Washington Mutual, it paid uninsured depositors in full using money that would have gone to bondholders. Writes Mr. Allison: "This was in complete contradiction to past practice. The bondholders suddenly realized that there is no rule of law when government regulators are involved…The decision to treat WaMu bondholders this way closed the capital markets for banks."

Another review here.

Watching light move

http://www.dailymail.co.uk/sciencetech/article-2191451/The-camera-TRILLION-pictures-second--making-fast-watch-beams-light-travelling-slow-motion.html

Thanks, Illinois

Illinois, with its high tax on cigarettes, is helping fund the government of Indiana. The Laffer curve in action.

Addendum: One has to wonder why the Illinois politicians hate poor people so much. The cigarette tax is one of the most regressive taxes we have. Smoking is primarily a vice of the poor.

Does fiscal policy work?

The military buildup or World War II is often cited as a successful prediction of Keynesian economics. Usually forgotten is what happened at the end of the war. David Henderson summarizes:

In a 2010 study for the Mercatus Center at George Mason University, I examined the four years from 1944, the peak of World War II spending, to 1948. Over those years, the U.S. government cut spending from a high of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP. The result was an astonishing boom. The unemployment rate, which was artificially low at the end of the war because many millions of workers had been drafted into the U.S. armed services, did increase. But between 1945 and 1948, it reached its peak at only 3.9 percent in 1946. From September 1945 to December 1948, the average unemployment rate was 3.5 percent.

There was a sharp decline in real GNP at the end of the war, but Henderson says that is an artifact of the ending of price controls. The price controls hid what the actual prices were, so the jump in the price index was not capturing a real rise in prices. But that illusion of a jump resulted in a decline in reported real GNP. (An implication of this is that real GNP was overstated during the war because the price index was not capturing the rise in prices.)

How does Henderson explain the boom?

But why did this postwar boom occur? The answer, in a nutshell, is that the U.S. economy went from being centrally planned, with price controls and government allocation in large sectors of the economy, to being much more free market. During the New Deal, Franklin Roosevelt had many advisors who were hostile to free markets. But during the war, Roosevelt, although he centrally planned the economy for the duration, kicked out most of his anti-market advisors, people like Ben Cohen, William O. Douglas, trust-buster Thurman Arnold, price controller Leon Henderson, and Felix Frankfurter. In 1945 and 1946, Harry Truman got rid of the remaining New Dealers, including two of the most prominent ones: former Vice President Henry Wallace and Harold Ickes.