Economics

The Recording Industry Association of America has a web page arguing that we’re all getting a fantastic deal on compact discs because, if they had gone up in price along with the Consumer Price Index, they’d be over $33 each. As Ben Woods points out, by that same argument Texas Instruments calculators that cost $20 in the mid-1980s should have cost over $300. In fact, the recording labels engaged in price fixing, by setting “minimum advertised pricing” on CD retailers, which caused prices to stop their downward trend in 1996–and causing a decline in sales as prices increased. If you want to sell more CDs, lower the price. (Via Techdirt.) UPDATE (February 9, 2007): This post at kuro5hin from January 2003 on “RIAA vs. MP3 vs. Adam Smith” addresses compact disc pricing and demand. UPDATE (February 10, 2007): And this post at Techdirt reports on a study that shows no measurable effect on CD sales from online downloads (as opposed to, say, CD prices).

Long or Short Capital reports that: [Conceptual] artist Jonathon Keats has digitally generated a span of silence, four minutes and thirty-three seconds in length, portable enough to be carried on a cellphone. His silent ringtone… is expected to bring quiet to the lives of millions of cellphone users, as well as those close to them.Given the duration of the ringtone, Keats should expect to get sued by the estate of John Cage for copyright infringement.

Rather than increase the Earned Income Tax Credit or reduce payroll taxes, Congress is moving forward with an increase in the minimum wage. Gary Becker and Richard Posner have written a Wall Street Journal op-ed titled “How To Make the Poor Poorer” which describes the likely consequences of this feel-good legislation: Although some workers benefit -- those who were paid the old minimum wage but are worth the new one to the employers -- others are pushed into unemployment, the underground economy or crime: The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. Because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment: But a 40 percent increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment, otherwise why don't they propose $10, or $15, or an even higher figure? Good intentions don't make for good legislation. UPDATE (February 9, 2007): Glen Whitman writes about how the minimum wage debate is largely symbolic on both sides, though this time it could be different. UPDATE (September 6, 2007): I just came across this interesting post at the Coyote Blog about how minimum wage changes affect his specific business. UPDATE (October 10, 2007): Here's a nice summary of U.S. minimum wage worker statistics, including: According to the U.S. Department of Labor, the median annual income of a U.S. worker is $32,140. Federal minimum wage is currently $5.85 an hour, or about $11,500 per year — just above the poverty line. Of the 76.5 million people paid by the hour in the United States in 2006, 2.2% make minimum wage or less. Here are some generalizations we can make about minimum wage workers: Most minimum wage earners are young. While 2.2% of all hourly workers earn minimum wage or less, just 1.4% of workers over the age of 25 are paid at or below the Federal minimum wage. More than half (51.2%) of minimum wage workers are between 16 and 24 years old. Another 21.2% are between 25 and 34. Most minimum wage earners work in food service. Nearly two-thirds of those paid minimum wage (or less) are food service workers. Many of these people receive supplemental income in the form of tips, which the government does not track. Most minimum wage earners never attended college. Just 1.2% of college graduates are paid the minimum wage. If you only have a high school degree, you’re more likely (1.9%) to be paid minimum wage. Those without a high school degree are nearly three times as likely (3.7%) to earn minimum wage. 59.8% of all minimum wage workers have no advanced education. Finally, as you might expect, part-time workers are five times more likely to be paid the minimum wage than full-time workers. UPDATE (November 25, 2012): There has been an accumulation of evidence that a moderate minimum wage is a net benefit, improving both wages and employment in some cases (reference to The Economist, Nov. 24, 2012, p. 82, "Free exchange: The argument in the floor"). Historical Comments Einzige (2007-02-03): Economics Professor Russel Roberts, over at Cafe Hayek, recently posted a brief survey of the empirical evidence on the effects of the minimum wage. Like the story of the broken window, it’s a lot easier to point to the benefits of a minimum wage than to the costs, but that doesn’t make the costs any less real. ...

During my long plane flights this week, I used some of my time to catch up on reading back issues of The Economist. Here were a few of the stories I found particularly interesting in the January 6-12, 2007 issue: “Medicine at the Top of the World” (p. 65): LYING in an intensive-care ward is a world away from climbing Everest, but a connection will be drawn this spring when 45 scientists and 208 volunteers tackle the mountain to bring back information about oxygen deprivation. The reason they are going is that hypoxia (a lack of oxygen in cells, which can lead to death) is the one thing that links practically all patients in intensive-care wards—and there is no better place to study it than in the thin air of the world’s highest mountain.The story describes the Xtreme Everest expedition, which will take 250 people up Mount Everest, setting up mobile labs at various elevations to study hypoxia. The volunteers will climb up to 5,300 meters, and 16 climber-scientists will ascend to the summit to become the first to have blood drawn at the top of the world’s tallest mountain. The research will be used to try to identify the genetic basis of people’s ability to handle hypoxia, which couldn’t be easily be conducted on patients in intensive care due to not having enough of them in one place at the right time. “The logic of privacy” (pp. 65-66): ...

The Arizona Republic has just caught on to the fact that there’s a lot of mortgage fraud going on in Phoenix: A wave of mortgage fraud is rippling through pockets of the Valley, inflating home values through scams called cash-back deals. Left unchecked, cash-back deals cost homeowners and lenders millions of dollars and could erode confidence and values in Arizona’s real estate market. The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Neighbors may then discover home values in the area are exaggerated. Homeowners stuck with overpriced mortgages may never recover the difference. And lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy. While the extent of the fraud is unclear, an Arizona Republic investigation into these cash-back deals found organized groups of speculators have bought multiple homes this way, leaving whole neighborhoods with inflated values. Add to these the individual deals done by amateurs who hear others talk about the easy money they made from cash-back sales. State investigators and real estate industry leaders want more enforcement and greater public awareness to stop the spread of cash-back deals before the damage mounts. “Mortgage fraud in the Valley has become so prevalent people think it’s a normal business practice,” said Amy Swaney, a mortgage banker with Premier Financial Services and past president of the Arizona Mortgage Lenders Association. Under federal law it is illegal to misrepresent the value of a home to a lender. Everyone who is a party to the deal is subject to prosecution. Felecia Rotellini is a Notre Dame law school graduate and former assistant attorney general who is now superintendent of the Arizona Department of Financial Institutions. Her agency regulates mortgage lenders, state banks and credit unions in the state. Alarmed by what she was hearing from lenders and real estate agents, she has just pulled together state and federal regulators to form an Arizona mortgage fraud task force. “People need to understand these cash-back deals are illegal and stop,” she said. “We are going after mortgage fraud." I think this is likely to be too little, too late. When I was actively suing telemarketers using illegal prerecorded calls to residences in 2003, the worst offenders were mortgage brokers. In the process of going after some of them, I found signs that some of them were engaged in other illegal activities as well, such as defrauding other lenders, defrauding their customers, defrauding the IRS and Arizona Department of Revenue, and transferring assets between entities prior to filing bankruptcy to evade creditors. I found the Arizona State Department of Banking (now known as the Arizona State Department of Financial Institutions), which regulates mortgage brokers, to be completely uninterested in investigating–though they did send some warning letters after I won judgments against brokers, which prompted some of them to pay their judgments. They said that they did not have resources to investigate my claims of violations, even though I offered up specific areas of the law that they are supposed to enforce (they don’t enforce the Telephone Consumer Protection Act or FCC regulations). There’s more on this subject at Ben Jones’ Housing Bubble Blog. UPDATE (January 22, 2007): Arizona Senator Jay Tibshraeny has introduced a bill making mortgage fraud a felony. But it’s already criminal activity covered under current laws–adding more laws against it doesn’t do anything to cause those laws to be enforced.

Those of you who read this previous blog entry about Gapminder may be interested to see that Google has collaborated with Gapminder to produce this tool. (Hat tip to Radley Balko.)

Glen Whitman at Agoraphilia points out how the common example of cognitive bias that “80% of us believe that our driving skills are better than average” can be a correct description of reality, when the median is greater than the mean. By example, the mean time to conception for women trying to get pregnant is 7 months, but 50% of such women are pregnant within 4 months and 75% pregnant within 6 months, so 75% of such women do “better than average.” ...

Trump Mortgage started business this April, with alleged seasoned pro E.J. Ridings appointed to head the organization. Ridings claimed that honesty was one of the differentiators for Trump Mortgage, but it turns out he’s misrepresented his experience. He claimed to be “a top executive at one of Wall Street’s most prestigious investment banks,” when in fact he was a retail stock broker for Morgan Stanley’s Dean Witter Reynolds subsidiary for less than three months, and was only a registered broker for six days of that period. Ridings said he was an “established leader” at a leading New York mortgage boutique, but was only “a relatively minor player” at GuardHill Financial from June 2003 to April 2005, working as an entry-level mortgage originator. Ridings also claimed 15 years of experience in the financial industry, but all that anyone can dig up besides his Dean Witter time (that began in 1998) and his GuardHill position are in documents from the NY State Banking Commission which say he was also a day trader for two years and worked for a year at subprime lender Equity Funding prior to GuardHill. That’s a total of less than six years of financial experience. Ridings claims he also had financial experience in his earlier jobs–running a company that sold nutritional supplements and health drinks, and a cleaning service. Trump Mortgage has lost six residential mortgage professionals in the last six months, and may not reach $1 billion in residential mortgage originations, despite Ridings predicting that they would hit $3 billion in 2006. The mortgage business is not a business I’d want to be in right now, as the U.S. housing bubble deflates.

Washington Post, Sunday, December 24, 2006; B06 The largest employer in the world announced on Dec. 15 that it lost about $450 billion in fiscal 2006. Its auditor found that its financial statements were unreliable and that its controls were inadequate for the 10th straight year. On top of that, the entity's total liabilities and unfunded commitments rose to about $50 trillion, up from $20 trillion in just six years. ...

Jeffrey Sachs argues that higher taxes and social safety nets produce better results than laissez-faire capitalism. Historical Comments Einzige (2006-12-21): Stefan Karlsson, Swede and undoubtedly one of the horrible "ideologues" that Sachs is attacking, responds here. Einzige (2006-12-21): Another ideologue responds, as well as linking to yet another ideologue's ideological response. Leo (2006-12-21): Oh, my, is Milton Friedman even buried yet? Shouldn't there be a 90 day moratorium on such articles in memory of? Seriously, this is an interesting article. I wonder how the poverty spending numbers are affected by charitable giving, supposing there is some relevancy, that is, between a nations poverty spending and charitable giving. ...