Week 13: Monday Blog Post

Week 12: Critical Reading

Michael Giberson’s article  "The Problem with Price Gouging Laws" made a couple of interesting points about the policy of price gouging, notably how it runs counter to the basic ideas of supply and demand running a capitalistic market.  I find it interesting that so many politicians are against price-gouging when it can actually be good for their regions.  It seems almost counterproductive to spend so much money on enforcing an economic method that brings less commerce to your region, especially when it could benefit the people that vote for you.  There should at least be a politician with the nerve to tell sellers to price gauge and then ask companies to ship more goods to their region, thereby helping overall commerce far more than by initiating anti-price gauging laws.  Furthermore Giberson’s use of the article as almost a position paper is done quite well, and it is probably my favorite article I have read so far due solely to the amount of information supporting price gauging he is able to cram into 6 pages (every possible counterargument, examples, etc.).

                My first question concerns the legal idea of “price-gouging:” in a capitalist economy, isn’t the practice of price-gouging simply the reaction by producers to economic stimuli, and if so, why is it illegal in so many areas?  In the example given in the first two pages of the article, it seemed like what Weigle had done was perfectly legal and necessary for their economic viability.

My second question is not entirely related to the article but related to the subject: would the government ever limit price gouging –due to consumer complaint - so much that it made a market unviable in normal circumstances?  I am wondering solely because of what I see as questionable economic policy on the parts of most current government officials.

My third question is simply this: what is an example of price gouging that does not involve a national disaster or a state of emergency (or, why aren’t there examples of price gouging based on seasonal goods, such as lobster, apple cider, or strawberries in areas that are in normal economic circumstances?)

The ignorance of those who support price gouging is almost astounding.  I honestly do not comprehend how any professional economist or government official would not want to support price gouging, for it is simply part of the entire structure of the supply and demand market.  As Professor Rizzo outlined in class on Monday, if the supply and demand don’t find an equilibrium price in a market due to a price ceiling, then there will be a massive shortage of the necessary goods. Furthermore, as Giberson outlines on the second and third pages of the article, price gouging creates the incentive for people to bring additional goods to a market, helping to create a lower equilibrium price again, while price gouging doesn’t do nearly as much.  I understand how infuriating it may be to see median prices for everyday goods rise sharply during a state of emergency, but at the same time, I think it is more harmful in the long-run to have price gouging than to have government interference in the markets to avoid price gouging.

PS I would like to note that the Critical Reading based on the letter to the Florida Ways and Means Committee was so appalling that it solidified my desire to move to Israel instead of staying in this horrid borderline-totalitarian society we now live in.

Week 12: EWOT

When Rizzo brought up how prices far below the equilibrium can cause a shortage in goods available to the market due to unequal demand and supply, it immediately reminded me of my brother’s continual quest to find a decent apartment when he lived in New York City.  Due to the artificial price ceiling (as it was called) on New York City apartments, my brother was forced to spend three years living in several inadequate apartments in three of the five boroughs of New York City with several friends, each time moving to a new apartment which was similarly priced but noticeably nicer.  By the time he was twenty-five, he finally found an apartment that could comfortably house him and his roommate, but only after asking many of his former colleagues at Bear Stearns when they were giving up their apartments following the 2008 Wall Street financial disaster.  He had it luckier than a friend of mine, whose family had to move to Westchester because they literally could not find a single apartment big enough to house his family in New York City because of the shortage caused by the low prices.  In a city where over eight million people live and double that number (estimated) work, it is understandable that the prices on housing should not be too high, for fear of driving out those who work in the city, but with the subsidies comes hardship for those who can afford.  I hope Rizzo teaches us an alternative to the artificial price ceiling that has a similar effect, just so I know how to fix the problem the New York City government has caused. (Well, outside of how they are handling the Occupy Movement, that is.)

Week 12: Monday Blog Post

·         Example for supply and demand analysis:

o   Market for Acoustic Guitars

(graph that wasn't able to show up)

o   ^Quantity demanded equals the quantity supplied^

o   Demand curve: plot of people’s marginal values

o   Supply curve: How much is available to the people

o   Rather than ration goods in the ways identified in the previous class, we ration by price

o   At equilibrium, the amount demanders are willing to buy and suppliers are willing to sell is equal

o   Note: Demand is willingness at that price, not how many people actually want the good

o   Price changes:

§  When price increases: Quantity demanded would fall, while quantity supplied would increase because the marginal cost of making more is offset by greater marginal benefit

§  When prices decrease: Quantity demand increase, quantity supplied decreases

·         Surplus

o    “At a particular price, when the quantity supplied exceeds the quantity demanded” (Rizzo made me quote this)

o   Unstable outcome (producers and consumers are not satisfied)

o   In America:

§  Producers who can’t sell their goods at the higher price either increase incentives to buy the goods…or receive a government subsidy in order to keep the prices that high

§  Tariffs on foreign goods are used in good markets in order to decrease the supply of the good in order to artificially change the equilibrium to a higher price

·         Example: The tariff on sugar meant to keep domestic sugar and corn producers selling at higher prices

o   Usually leads to price cuts in order to sell the surplus in guitars

§  As you cut the price, it causes other companies to drop their prices too, getting rid of the surplus in the market as the number of consumers demanding guitars increases (though the demand or supply curve never shifts on the graph)

·         Shortages

o   When the market price falls below equilibrium, the quantity demanded will increase, while quantity supplied will decrease

§  Quantity demand increases due to the greater marginal benefit  for consumer for buying good at lower price

§  Quantity supplied decreases because  producers can’t profit as much from producing so many guitars (i.e. marginal cost does not equal marginal benefit)

o   Examples:

§  Apartments in NYC

Week 12: Wednesday Blog Post

·         With this entire lecture, assume that everyone is trying to do the right thing

·         How Markets Use Knowledge

o   Scenario 1: Market of titanium (without interference)

§  Assume that all titanium in the world is the same

§  Assume that all demand for titanium is equal

o   X-axis: Quantity (in billions of pounds)

o   Y-Axis: Price (per pound)

o   At price = $20, we learn that new demanders, engineers, want 6 billion bounds of titanium

o   Red demand curve: Total demand for titanium

o   Green demand curve: total demand + additional demand brought about by a stimulus

§  Say, a new jet engine made of titanium comes into the market; the demand for titanium would therefore increase

o   This graph has NO central planning

o   Central Planning

§  Central planning in the United States is controlled by “Czars” who control who gets the titanium

·         Over 40 Czars

·         Considered a “high level civil servant”

§  Acquiring information as to which who needs every good most is impossible

§  Information needed to solve a demand problem is also impossible

§  Demand could change instantly with every factor that factors into supply or demand for titanium, making if impossible

§  Titanium companies themselves probably don’t even know how much it costs to find the next ton of titanium, so czars probably know even less

·         Scenario 2 (fictional)

o   Titanium Czar is working for the best of everyone’s interests

o   Buyers and Czar communicate to show how much they need, including with price changes

o   Titanium Czar is able to correctly manipulate the market to limit people to

o   Consumers are attempting to get as much as they possibly need, but are being truthful as to how much they need

o   Demanders change behavior

·         Scenario 3:

o   Imagine a world with a limited supply of titanium

o   Curve where we can trade with other countries

o   Demand is more elastic

o   Suppliers change behavior

Initial Equilibrium: P= $20, Q= 10

Scenario #1	Scenario #2	Scenario #3
New Equilibrium: P=$25                                 Q= 12	New Equilibrium: P = $21                                 Q= 11	New Equilibrium: P = $21                                 Q = 11
Initial Users: Initial Q = 10                        Final Q = 8 Change in Q: 2	Initial Users:  Initial Q =10                         Final Q =6 Change in Q: 4	Initial Users: Initial Q =10                       Final Q=9 Change in Q: 1
Suppliers: Initial Q = 10                    Final Q = 12 Change in Q: 2	Suppliers: Initial Q =10                    Final Q =11 Change in Q: 1	Suppliers:  Initial Q =                     Final Q= Change in Q: 4
New Users:   Want: 6                          Get: 4 Change in Q: 2	New Users: Want: 6                       Get: 5 Change in Q: 1	New Users: Want: 6                        Get: 5 Change in Q: 1

Late Week 10 Critical Reading (which we talked about earlier)

The ideas that Veblen gave on the “leisure class” are incredibly valid, for the luxuries used by the class are bought for the most part in order to make one seem more esteemed.  The one problem I have with the passages, though, was that they never gave specific examples outside of alcohol and narcotics, which are themselves peculiar examples of luxury goods.  Though it is quite likely that alcohol and narcotics were considered rare in 1899, alcoholism was a big enough problem in the time period to drive the temperance movement, and some narcotics, such as opium and cocaine, were plentiful enough, as can be evidenced by the large number of opium addicts in China following the Opium War and the use of cocaine as an ingredient in an inexpensive soft drink.  It seems imprudent not to go into greater detail on matters such as this, for especially in turn-of-the-century Europe, the Industrial Revolution had made the line between luxury and common very fine.  Also, I find that if Veblen had been writing today, he would have probably used more distinct and apparent luxury goods, such as private airplanes and houses in the Hamptons, and would have been able to make his case far easier to the general population.

                My first question is simple: How would the elimination of Veblen Goods (or, as written in his book, goods which increase in desirability as they become more scarce) affect the economy?  On a further note, with so many things being bought only by the rich for the sake of the rich, would the elimination of such goods lead to production of goods that could be bought by a wider variety of people or simply decrease overall production?

                My second question applies to the criticism I made in the opening paragraph: at what point does somebody start to find themselves in the “leisure class,” especially if the goods they are consuming are becoming more purchasable by people with less wealth.  On a similar note, is it possible in Veblen’s world for someone to be wealthy, a member of the leisure class, and not want to consume any of these goods or act the way he states?

                My third question revolves around the idea of “Veblen Goods:”  what is the difference between the goods afforded to the leisure class in The Theory of the Leisure Class, which are economically proven to exist, and a Giffin Good, which Professor Rizzo has argued profusely for the idea that they are not economically viable?  I honestly found quite a few similarities between the two of them.

                In the modern economy, prices remain high for luxury goods because of not just their extreme scarcity, but because of the high quantity that would be demanded if the prices were affordable to the general population.  The idea that certain goods are only bought to increase prestige is believable, but what point do the goods serve as little personal purpose and so much social purpose that they are used purely for esteem purposes.  These goods, if made plentiful, would lose their meaning, regardless of the pleasure they brought to their upper-class consumers.  As I mentioned earlier, you can even argue that Veblen Goods can also function as Giffin Goods in an economy, for the extreme rich may by more if them as prices increase to make them seem wealthier.  Regardless, the most interesting aspect of the passage remains the idea that once we reach the point where social status means more than the use of a good, that the good can actually start going against some of the basic ideas of economics.

Week 11: Critical Reading (or rather, Critical Poster Analysis)

                I look at four World War II-based propaganda posters, and I know they were helpful in waging their campaign to make the American people limit their consumption of goods.  However, I seriously curious to know what more propaganda can do.  If the posters were successful, and were actually able to encourage the American people to consume less despite it being economic law that people will try to meet their own needs however necessary, then what else could propaganda posters do?  Say the first poster, of Hitler, had been released in today’s society to support the idea of saving the atmosphere?  Essentially, I would love to know at what point propaganda goes too far, or if it’s possible to reach that point.  In my own opinion, I think its counterintuitive to depend on propaganda, rather than to actually educate them on why they should believe a certain point.  We may be mindless masses as a whole, but individually it is quite likely we would also listen to reason rather than a poster depicting Adolf Hitler sitting next to a quintessential American in a car.

                My first discussion question revolves around the fourth poster, in which the main idea is to make sure Americans follow the new equal share ration system imposed by the government.  
Why would the government create a poster such as this when it is quite obvious that in an equal share ration system that a black market will develop?  Regardless of what a poster says, the inability of the government to correctly ration the needs of certain people would usually necessitate buying additional goods that the government may or may not know that people need in differing amounts (the first big problem  with the idea of rationing goods).

                My second discussion question revolves around need for the conservation and rationing detailed in the posters when the government could simply send the goods overseas beforehand?  In a capitalistic system, when supply of goods goes down while demand remains the same, the prices of the goods usually go up, leading to a decrease in the quantity bought by the average consumer.  Using this logic, shouldn’t the government have either lowered overall supply or simply instituted a price floor on goods rather than waste time and energy on the rationing system?

                My final discussion question is simply why these posters were needed?  If you think about it, if goods were needed more overseas than in America, wouldn’t the market for them have declined enough that the ideas shared on the posters would have become part of the American lifestyle as necessary changes?

It is understandable why propaganda posters would be used to gain support for a minority opinion or to attack an opposing viewpoint in the harshest way possible (as Fox News demonstrates so well).  Using them as an economic tool, though, is sheer genius.  If an economic goal is to be met, it is more feasible to control what the people want rather than tell them (as a socialistic or rationing economy would).  Supply and demand could be changed in the same way a successful ad campaign can, rather than going through all the messy work the government does of trying to have some control over the American economy.  Propaganda, in a nutshell, is a useful, albeit a humbling, tool to use for economic gain if used the right way.

EWOT: Week 11

                We spent a large amount of time in class this week discussing the aspects of the Health Care Reform Act in its relation to rationing.  Professor Rizzo mentioned how the equal share ration system, which he had already proven to us was inherently flawed, was the basis for the new health care law, and that out of it will come a system that is actually worse than what America currently uses.  This system will essentially ration health care and health care resources and make it harder on people that probably need the health care more to receive it.  Furthermore, he also stated that if health care was based on need, as the law should have made it, the system would still be heavily unfair, for people naturally will lie about their supposed need (as detailed in his stories about his Amherst College roommate).

                Rizzo, though, failed to go into complete detail about the system the Health Care Reform Act is replacing: another type of ration system, but owned by private corporations.  Though the corporations have the ability to insure most people, they choose to limit their customers for monetary purposes, for most HMOs act as for-profit agencies.  Furthermore, the HMO’s use somewhat of a merit- based system, for they reject the applications for health care from anyone with “pre-existing conditions,” essentially taking those who they believe they will have to pay the least for.  In the process of doing so, though, they reject a large number of people who need the health care, regardless of whether they “deserve” to have it from the perspective of the HMOs.  And, like in a queue-based system, a health care system ran by corporations allows a substantial black market to develop for those who are unable to be insured by the health care companies, wasting money that could be going into the American economy.

                So now the question that Rizzo asked in class – should health care be left to the market – has no real right answer.  In both cases, the systems being used are not purely capitalistic, and are therefore disadvantageous to a large population of Americans.

Week 11: Friday Blog Post

·         Rationing by lottery

o   Producer doesn’t gain anything by innovating his industry or producing more apples

o   No financial incentives

§  Price System does

·         Allocation by need

o   Medicare/Medicaid

§  Rizzo’s grandmother had $200,000 in her lifetime and she needed in-home care or a nursing home

§  She did not have Medicare for it

§  Rizzo’s parents spent and hid that $200,000 lavishly

§  Grandma got the Medicaid unfairly

o   Amherst College

§  Rizzo and his dad worked hard through college ($26,000 a year) and got no financial aid

§  His roommate, though, had a rich grandpa and got a full ride to Amherst because they put all their money and assets in other names

§  CHEATED THE SYSTEM!

·         When you ration not by line or lottery, there are some advantages

o   It allows people to decide for themselves how and when they are going to get the good

o   Substantial advantages to relying on  prices though

o   Story

§  Two years ago, Swine Flu hit hard

§  Without enough vaccine for flu season, the CDC had to allocate it via county

§  It was up to the county’s department of health on how to allocate it

§  Monroe County talked to everyone and asked them to rank the people they think should get it the most

§  Email was sent by pediatricians to mention that all the people who were needy should come get it

§  However, this didn’t work at all in other counties

§  Moral of the story: people can not be trusted to state whether they are needy or not

·         The beauty of markets:

o   You don’t need to depend on the honor system

o   Forces prevent you from throwing out a good or giving it to people who don’t need it

·         Prices

o   Forces you to do a value-cost tradeoff with goods

o   Under price system, you are free to buy and use a good however you want

o   When there is a low demand in one location, and high demand somewhere else, there will be incentive for anyone who can transport the good from location to another

o   If you want to help the poor, the price system is far more far than rationing by lottery or need

·         Health Care

o   Should it be left to the market?

o   Should organ sales be allowed?

o   We are arguing about how to do something that is highly efficient, inefficiently.

o   Three questions on Health Care:

§  1) Is it possible in principle to make access to health care independent of wealth, social status, etc.?

§  2) If it was possible to make Health Care independent of the above factors, how can we do it efficiently?

§  3) If it’s neither possible or desirable, why do so many people insist on talking about it?

Week 11: Wednesday Blog Post

·         How to get “fish to the people” (drawn on board as artwork)

o   More people demand than the supply allows to be served

·         Sample rationing criteria (possible way to ration goods)

o   1) Need

§  Too vague, arbitrary on anything bigger than a grand scale

§  Someone has to determine how much people need

·         Also vague, arbitrary

§  Very costly and invasive

§  The people will want it the most probably won’t get it

§  Example: communism

§  5 Fish, 12 people

·         How does one person make it clear that they need the fish?

o   2) Queue

§  First come, first serve

§  Long lines for goods occur when the goods are very cheap or free

§  Much more inconvenient

§  Easy for black market to develop

§  Only certain people are willing to show their need for a good

o   3) Lottery

§  Considered fair

§  Easier to rig than the price system

§  People who value the goods the most may or may not get it

·         Same with people who NEED them

o   4) Equal Shares

§  Pure communism

§  Everyone gets a little bit of everything, but sometimes it is the desired amount

o   5) Might makes right

§  Must fight for right

§ 

§  Can not plan for anything

o   6) Merit

§  Beauty? Smarts?

§  People who “deserve” them the most

§  Social judgment rather than an economic  judgment

§  The term “merit” says nothing about the level of the achievement

§  If you do not produce anything but try hard to do so, a merit-based ration system would not care and award you anything

·         Accidents have no value

·         Large amounts of production would be equal to large amounts of effort

·         Evaluation of Rationing Mechanisms

o   1) Where does competition come from?

§  Competition CAN NOT COME FROM RATIONING SYSTEM, but instead is due to capitalism

o   2) What is the nature of competition?

§  Destructive:

·         Nothing good comes out of it!

·        

·         Muscles

o   Roids in sports

·         Money:

o   People are going to either produce more or steal from those who are producing

·         Need-based admission

o   If you pretend to look poor, you can get more, even if you have money

o   People competing to make yourself look poorer

§  Constructive:

o   3) What are incentives for producers to make/deliver more?

o   Other Considerations: