Should local government require licenses for occupations?

Opinion. Wisconsin Moves to Rein in the Licensing Game
by: Luke Hilgemann
Oct 31, 2015
Click here to view the full article on WSJ.com

TOPICS: Labor Economics

SUMMARY: Barring municipalities from passing laws that discourage jobseekers and keep entrepreneurs out. "At first glance, occupational licenses might seem like small potatoes. But these regulations force jobseekers and entrepreneurs to acquire government approval before entering their chosen profession-a process that requires time, training, money or all of the above. Intended to ensure quality, occupational licenses are often little more than a barrier to employment that harms low-income communities the most."

CLASSROOM APPLICATION: Students can evaluate whether occupational licensing create barriers to entry into occupations and result in higher prices of services provided by licensed occupations. They can examine how economists would determine the occupations in which the benefits of licensing do not outweigh the costs.

QUESTIONS: 
1. (Introductory) What are the benefits of occupational licensing?

2. (Advanced) What is the effect of occupational licensing on the prices of services provided in industries with occupational licenses?

3. (Advanced) What is the effect of occupational licensing on the ability of workers to enter occupations?

Reviewed By: James Dearden, Lehigh University

Should the government tax soda to induce me to avoid drinking sugar?

http://www.politico.com/story/2015/11/war-over-soda-taxes-coming-to-a-polling-place-near-you-216216

The debate over minimum wage

Studies and opinions about the minimum wage fall into three broad categories: the effects are hard to estimate, the effects are bad, and the effects are good.

The effects are hard to estimate

1. This is a history of minimum wage in the US.
2. The CBO estimates that the impact of raising the minimum wage to $10.10 on employment ranges from a slight decrease to a loss of 1 million jobs. The best estimate is implementation would reduce employment by 500,000 (and increase the unemployment rate by about 0.3%). It states, "Many more low-wage workers would see an increase in their earnings. ... The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO's estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates."
3. This article reports that President Obama issued an executive order raising the minimum wage for federal contract workers to $10.10. Would this increase tend to increase unemployment in the federal contract worker labor force? Who bears the extra expense of the higher wage? The article is a good introduction to the debate over the minimum wage and the difference in incentives facing government and private business.
4. The debate on minimum wage on Intelligence Squared. 
5. This story from Planet Money is a nice discussion of the disagreement in the estimates over the impact on unemployment of raising the minimum wage.

The effects are good.

1. This paper from the Center for Economic and Policy Research says that the minimum wage has no discernible impact on unemployment. 
2. In this video John Green argues in favor of minimum wage legislation.  A key point is that increasing the minimum wage by 10% reduces the number of people living in poverty by 2.5%. His statement that increasing the minimum wage is the “cheapest lunch available” for reducing poverty without increasing unemployment is probably incorrect; most economists agree that an earned income tax credit is a more effective way to reduce poverty.
3. This slideshow. It has 25 facts about the minimum wage.

The effects are bad.

1. This study says that minimum wage increases unemployment among 16-30 year-olds who did not finish high school. This group is likely to have low job skills.
2. This video is not a fan of minimum wage.
3. David Henderson on the minimum wage. He is not a fan.
4. Thomas Sowell on minimum wage. He is not a fan.
5. This paper reports that the gap between nationwide unemployment rates for whites and blacks began around 1940.
6. Fee does a nice job describing the decision employers face when deciding whether or not to employ someone and asks why not raise the minimum wage to $100 if raising it to $10 is good. 
7. A clip from John Stossel on the minimum wage. He is not a fan.
8. Read this article (1 p.). It reports that unemployment for young workers in New Zealand increased in 2008 following an increase in the minimum wage there.

TPP

Supply and demand in action in the farmland

Farmland Prices Decline Across Parts of Midwest
by: Jesse Newman
Nov 13, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: Farmland values fell in parts of the Midwest in the third quarter, reflecting a downdraft in the agricultural sector driven by three years of lower crop prices, according to Federal Reserve reports.

CLASSROOM APPLICATION: Students can use supply and demand to analyze the reasons for decreases in the prices of farmland in the Midwest.

QUESTIONS: 
1. (Introductory) What factors have caused recent decreases in the prices of farmland in the Midwest?

2. (Advanced) What is the effect of a drought on the demand for farmland? What is the effect of a drought on the supply? Is it possible that droughts result in a decrease in the price of farmland?

3. (Advanced) What is the effect of ethanol regulations (i.e., ethanol requirements in gasoline) on the prices of farmland?

Reviewed By: James Dearden, Lehigh University

One less barrier to entry

Anti-Licensing Movement Scores a Victory
by: Eric Morath
Nov 14, 2015
Click here to view the full article on WSJ.com

TOPICS: International Trade, Regulation

SUMMARY: Fitness trainers in the nation's capital city, led by a push from CrossFit, look set to pull off a feat that has eluded the White House and a number of libertarian groups: stopping the spread of occupational licenses.

CLASSROOM APPLICATION: Students can examine the effect of licensing on barriers to entry and wages in occupations. They can also evaluate the reasons why workers in licensed occupations support licensing and discuss the potential benefits of licensing.

QUESTIONS: 
1. (Introductory) What is the effect of occupational licensing on entry into an occupation?

2. (Advanced) Is occupational licensing equivalent to creating a professional monopoly?

3. (Advanced) What are the advantages and disadvantages of occupational licensing? What criterion and methodology would an economist use to determine whether a profession should be licensed?

Reviewed By: James Dearden, Lehigh University

L24-Public Policies towards Pollution

Here are some optional readings and videos.

1. This article reports that the Pope's encyclical on climate change states, "The strategy of buying and selling emissions credits can give rise to a new form of speculation and would not serve to reduce the global emission of polluting gas. This system seems to be a quick and easy solution with the appearance of a certain commitment to the environment, which however does not imply by any means a radical change in the scale of circumstances. Thus, it may become an expedient that supports continued excessive consumption by certain countries and sectors."
2. Watch MRUniversity A Deeper Look at Tradeable Allowances. It includes a nice comparison of using taxes to reduce pollution with using cap and trade. EcoGeek on cap and trade, carbon. He discusses some of the common arguments against cap and trade.
3. Environmental defense fund on cap and trade, sulfur dioxide. It doesn't describe how the government creates the cap. It does discuss that cap and trade achieves a given reduction in pollution at a lower cost than command and control.
4. This article is a nice summary of carbon taxes around the world.
5. This article is a nice definition of a carbon tax and its effects.
6. Video: Carbon Tax from Australia,
7. Clip on cap and trade. It talks about how the UN distributes permits to emit CO2 to countries who signed the Kyoto Protocol. The US did not sign the Kyoto Protocol.
8. Annie Leonard is not a fan of cap and trade

Older posts on externalities

http://edlikeseconomics.blogspot.com/search/label/Externalities

Examples of negative externalities

A lake that burns
This report from Reuters describes air pollution in Beijing.

This clip describes air pollution in the US and in Los Angeles in particular.

This clip from Erin Brockovich is a good example of externalities.

Barriers to entry in the Internet Economy

Facebook, Amazon and Other Tech Giants Tighten Grip on Internet Economy 
by: Don Clark and Robert McMillan
Nov 06, 2015
Click here to view the full article on WSJ.com

TOPICS: Internet

SUMMARY: Computing hardware has long served as the critical backbone of business operations. Today, the Internet economy is powered by an infrastructure that has become virtual, and is controlled by a small handful of tech giants.

CLASSROOM APPLICATION: Students can evaluate the effect of economies of scale and network externalities (which are not mentioned in the article) on barriers to entry and ultimately the market power of the noted tech companies.

QUESTIONS: 
1. (Introductory) Evaluate this statement in terms of economies of scale and barriers to entry into the relevant industries: "All of these companies are operating in industries where scale is rewarded and where there is a very high level of capital intensity required to even hope to compete," said Karl Keirstead a senior analyst with Deutsche Bank Securities.

2. (Advanced) Evaluate this statement in terms of the market power of tech firms: "These companies are delivering online search, messaging, advertising, applications, computing and storage on demand-which has positioned them not only to empower business but to extract extraordinary value as it grows." Interpret "positioned them" in terms of economies of scale and barriers to entry.

3. (Advanced) Define "natural monopoly" and "network externalities." Do economies of scale and network externalities in the noted tech industries drive barriers to entry and ultimately the market power of the established players in these industries?

Reviewed By: James Dearden, Lehigh University

TPP

Details of Pacific Trade Pact Fuel Debate
by: William Maudlin
Nov 06, 2005
Click here to view the full article on WSJ.com

TOPICS: International Trade

SUMMARY: A public battle brewed over whether to ratify the sweeping Pacific trade agreement that the U.S. concluded with 11 countries, after details of the deal were released. Related article: A currency pact accompanying a Pacific trade agreement unveiled Thursday will give Washington new tools to prevent trading partners from manipulating currencies to gain trade advantage, U.S. Treasury Secretary Jacob Lew said.

CLASSROOM APPLICATION: Students can analyze the potential winners (exporters and labor employed in export industries in member countries, and consumers) and losers (importers in member countries and labor employed in import industries) of the Trans-Pacific Partnership. Students can also examine the effect of the agreement on the environment.

QUESTIONS: 
1. (Introductory) Who are the winners and losers of the TPP identified in the article?

2. (Advanced) What is the concern of U.S. labor unions about the TPP?

3. (Advanced) Why are some Republicans opposed to the TPP?

4. (Advanced) Why are environmental groups opposed to the TPP?

5. (Advanced) What is the issue of "currency abuse" in the context of international trade?

Reviewed By: James Dearden, Lehigh University

A good example of a near monopoly (80% market share)

Luxottica produces about 80% of the frames for sun- and eye glasses. Moreover, it has achieved this dominant position with little help from the government, as far as I can tell. Here is an excellent account of the predictable effects: http://www.forbes.com/sites/anaswanson/2014/09/10/meet-the-four-eyed-eight-tentacled-monopoly-that-is-making-your-glasses-so-expensive/.

The California electricity crisis

Here is a a nice description of the California electricity crisis: https://en.wikipedia.org/wiki/California_electricity_crisis. Here are some money quotes.

"California had a shortage of electricity supply caused by market manipulations, illegal shutdowns of pipelines by the Texas energy consortium Enron, and capped retail electricity prices." (Highlight added from emphasis.)

"the Death Star group of scams played on the market rules which required the state to pay 'congestion fees' to alleviate congestion on major power lines". Who set and enforced the market rules? Answer: a regulatory board in CA.

Cronyism v. Free Markets

This report is an excellent description of the differences between what I mean when I talk about the market system and what most people mean when they talk about crony capitalism. If the market system = capitalism, then crony capitalism not = capitalism.

Rule of law > corruption

http://qz.com/545958/mexico-would-be-an-economic-superstar-without-corruption/

What is the best way to allocate organs for tranplantation?

http://managerialecon.blogspot.com/2015/11/wealthy-buying-kidneys-now-why-not.html

Older posts on oligopoly

http://edlikeseconomics.blogspot.com/search/label/Collusion

Product differentiation

This episode from Planet Money is a good introduction to product differentiation. Is differentiation based merely on brand or perception different than differentiation based on differences in physical characteristics or performance?

Can truth in advertising deceive?

This article reports that the FCC plans to fine ATT for advertising that its data plan was "unlimited" when the plan slowed down data speeds after the customer hit 5GB in the billing cycle.

1. Was the claim that the plan was unlimited true?
2. Was the ad informative?
3. Was the ad deceptive?
4. Did the ad help the consumers make better choices?

A cute example of product differentiation

https://www.youtube.com/watch?v=dD7Eb6u1T9g

Two older posts on monopoly

http://edlikeseconomics.blogspot.com/search/label/Monopoly

Rule of Law

http://www.wsj.com/articles/rule-of-law-is-necessary-for-capitalist-prosperity-1446231687

This letter to the editor of the WSJ does a good job stating that Adam Smith's statement that 'By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it' "really only works in societies that are dominated by a 'rule of law' mindset."

I am not sure if I agree with the writer's statements about the cultural divide between rule of men and rule of law. They are intriguing.

Monopolies and Oligopolies are Bad!

So says Robert Reich: http://www.huffingtonpost.com/robert-reich/the-rigging-of-the-americ_b_8447428.html

A monopoly for pot?

If a market for marijuana is good, why would competition be better than monopoly?
http://www.politico.com/magazine/story/2015/11/marijuana-legalization-monopoloy-213312

Costs of the Chevy Volt

This article in Reuters talks about costs of the Chevy Volt. The clever reader can identify total cost, average total cost, average variable and marginal cost, and the profit contribution

http://www.wsj.com/articles/in-west-texas-oil-drillers-keep-pumping-1446254165

When are the variable costs lower:  when "drillers can use one rig to bore vertically down through as many as four layers of oil-and-gas-rich rock and then horizontally through each layer in succession to stretch out the productive life of a well" or when they need a rig for each layer?

Why does the Permian continue to show strength even though the number of oil rigs drilling in the Permian has plunged by about 60% so far this year. What does this imply about marginal costs, average variable cost, and average total cost?