Because I Can

Ok, so here's what I want to know: how come McDonalds doesn't put those Monopoly pieces on their salads? Seriously they never do it. The fries, the drinks, the coffee, the hash browns, and select sandwiches get the pieces, but the healthiest thing that has it are the grilled chicken premium sandwiches, which cost a bit over $3 apiece by themselves ($4 for the grilled chicken club, my favorite).

Now look, I'm no health nut, but one has to wonder why McDonald's would use the contest this way. Why not put those pieces on their side salad, fruit & walnut salad, or any of their $4-$5 entree salads?

Here's a guess - demand elasticity is higher for the other stuff. Even though there is officially "no purchase necessary," most people don't bother to pay attention to that. If you give a little bit of an incentive, people will go for a little bit of extra stuff (let me make that a large fries, and I'll get your expensive sandwich). They're trying to convince customers who would normally get something off the dollar menu to try the fancier, more expensive stuff on the regular menu. There isn't really a way to upgrade a salad; what would you do, besides add more meat? Super size it? Add fries? Salad meals stand alone.

There's also an adverse selection issue - the type of person who would play a fast food lottery would be more likely to be just as reckless in eating less healthy food. Along the same lines, salad eaters tend to be more disciplined in their eating habits, and part of that involves avoiding McDonalds.

The purpose of the contest is to make money, and this method will likely prove more profitable for McDonalds than promoting its salads. McDonalds does not have a social agenda to consider in pushing healthy foods, only the bottom line. And even then, it's doubtful that would even advance a socil agenda, it would only make some corporate executive and idiotic observers feel better that McDonalds is fighting obesity.

Labels: Department of Big Surprises, Economic Stuff

I work at a truck rental counter, and at the end of the month, or anytime we're really busy, we'll boost our prices up. Part of the reason we do this is that our competitors don't, so they won't have a truck for people who walk in needing one. Worse, some will get stiffed on a reservation, and their only compensation might be $50, and the difference could be a lot more.

Arnold Kling discussed in his commentary on Russell Roberts' forthcoming book that it is particularly frowned on for people in catastrophic situations to find themselves faced with having to pay more for their circumstances. That's the easy way to make the convincing case, but the case is just a lot weaker as a result anyway.

There are a few problems with this. In the first place, those who are in the greatest need by definition have the most inelastic demand, and therefore will most likely have the greatest willingness to pay. If someone is willing to pay, then, it seems as though it should be fair for them to do so. Those who can do without, can wait until the supplies come in, or can make it a few towns over to get the supply should do so - not only will they save money, making them better off, but they free that supply for the more desperate. The one who has whatever is in such great need is really doing quite a favor for those individuals, and it makes sense to reward him accordingly. That's the standard economist response, and it will appease most people who already agree with it.

Another fundamental problem would be one of lying and cheating. Those who are not willing to pay more reveal a preference different from those who are. If everyone who came up with a sad story got a truck for the same normal weekday rate, then everyone would make up such a story for their discount. When you consider this, allowing for need would lead to either:

• Invasion of privacy to ensure stories are true or
• The destruction of the rationing mechanism in the price system

That gets you back to square one where you simply have to make it first and hope that you can get this sacred scarce good.

It also should be acknowledged also that there are planning considerations to be made. A month ahead of time, more of a good can be ordered, etc. In truck rental land, this means that one way trucks leaving busy inbound locations can be practically given away to outbound locations. A week ahead of time, trucks can be picked up from nearby locations that do not need them. Both of these are to some degree costly, and often they will be done in anticipation of future reservations. When someone walks in on the last Saturday of the month and needs a truck with no reservation, more trucks can not simply be picked up - this is where there is rationing. One has to think, though, why would anyone just realize that they have to move and need to get a truck? People generally know when their apartment lease is about to end, and moving is something that should require ample preparation. Reasons for people to move suddenly generally have to do with either suddenly separating/divorcing/breaking up with a wife/girlfriend, going to jail, and eviction, all of which are they types of things that one can avoid. In fact, it seems as though these things make certain events more costly, and given that these are undesirable events, that should be a good thing.

It strikes me, though, that if I'm renting a truck, I don't want the guy at the rental counter to pass judgement over me, I just want him to do his job and get me what I want. Isn't there some information that should be left private, and why not let them charge more for me to not have to divulge too many private details? If you want to divulge that information, that's fine, but should you really expect a business to do you a favor when you are down on your luck? It is a fine and noble thing to give with one's own money, but it is quite damnable to give what is not your own, as that is really stealing.

Labels: Economic Stuff

Two and a half years ago, I pondered the following:

Because the only way to cut consumption significantly, short of a move and/or a lifestyle change, is to drive more efficient vehicles, gasoline demand is said to be “price inelastic”. One of the determinants of price inelasticity is the time it takes to change prices. Numbers never mean anything without a frame of reference, and so our frame of reference would be the time to act on changing consumption of gas. Coming up with a new route, carpooling, spending less time driving around, knowing where we're going in the first place, and never driving at rush hour are ways we can adjust the quantity we demand, but as we see, it takes a little while (a week to a month sometimes) for us to adjust these short term measures, especially when some of them, like carpooling or changing your work hours, are harder to change back if the mere gas spike falls.

What if gas prices never again stabilize below $2.00 a gallon? Suppose the new standard price is $2.09? Well, decisions about which new cars to buy will change a bit; rather than anticipate an average price of $1.20 or whatever it was then, we'll realistically expect gas to stay at $2.09, and thus buy more fuel efficient cars. That's not to say everyone will necessarily get a smaller car, as is the case in Britain. But if fuel prices do not decline, automakers will have greater incentive to redesign models with greater fuel efficiency.

The most hillarious line - what if gas prices never stabilize below $2.00 a gallon? We are now starting $3.50 gas in the face, and it'll go up. Price up equals quantity demanded down! Congress doesn't trust the market, but we're already seeing a response.

"Consumer preference is shifting, and we're shifting with it," said Mark LaNeve, GM's vice president of North American sales. Sales of GM's midsize Chevrolet Malibu shot up 40 percent, but the long popular Chevrolet TrailBlazer SUV saw sales dip 73 percent.

Ford Motor Co. said its SUV sales were down 36 percent in April compared with the same month last year. Car sales were down only 1 percent, buoyed by sales of the Ford Focus small car, which saw a 44 percent jump in sales. The Focus gets 24 miles per gallon in the city and 33 on the highway. By comparison, Ford's largest SUV, the Expedition, gets 12 miles per gallon in the city and 18 on the highway, according to federal statistics.

Well who would have thought. Small car good, big car bad. The Focus gets double the gas milage of an Expedition. And that's Ford's biggest SUV now. Remember the Excursion? The one that was bigger than the Suburban? Well, it's dead. Forever.

Now, the last time gas was less than $1.50 a gallon was before the Iraq War. It's about 5 years after that, and at a point where people are transitioning to replacing their old cars. Over the next year in the US, expect a few changes:

• Demand will drop more substantially for gas in the US as more Americans buy smaller, more fuel efficient cars. Prices will continue to rise, though, because the Chinese and Indians will pay more.
• More states will pass laws that have graduated drivers licenses, so teenagers will not drive until they are 17 or 18. This will reduce the number of cars driven by these kids, also reducing demand for fuel. The great thing about this is that teenagers can't vote until they're 18, and it can be excused as a desire for greater public safety.
• People will make grocery lists and visit the express lanes less frequently. It will be less worthwhile to make a trip to the store just for milk.
• Fewer fatalities on the roads, as more people carpool, people use alternate transportation for vacations, and the most dangerous drivers, teenagers and the elderly (who are often on fixed incomes) drive less.

Now let's set the baseline for gas at $3 per gallon, to be optimistic. If you're driving an SUV that gets 15 MPG overall and you drive 20000 miles per year, replacing it with a Ford Escape Hybrid that gets 30 MPG overall, you will save $2000 a year on fuel, and your savings will be greater as the price of fuel goes up. You will save, then, $10,000 on fuel over a five year period on an Escape Hybrid vs a regular SUV, making it a worthwhile move. When you compare smaller cars, you'll notice that a Ford Focus could go for around $16,000 and gets about 27 MPG, while a Toyota Prius gets around 50 MPG. That will save you about $1000 per year, but that may not make up for the price difference in the Prius. The Corolla is even more fuel efficient, making the Prius less desirable, although still potentially worthwhile.

Labels: Department of Big Surprises, Economic Stuff, Politics

Gold Prices get higher, up to near $1000 an ounce. That of course can only mean one thing: get your metal detectors!

Piles of gold have been pouring into beachside pawn shops in recent weeks, Local 6 has learned. Some residents are selling items they already have for cash. "The jewelry was a luxury to have, but I'm selling it for necessity reasons," resident Marie Savickas said. Experts said the previous high-water mark for gold was $800 an ounce in the 1980s. They said they don't expect prices to drop any time soon.

It's like the law of supply works or something. So it's a good time to sell gold. Great. Glad I get to buy wedding bands soon.

Labels: Economic Stuff

Bryan Caplan posed interesting questions regarding takeout food from restaraunts, namely

Almost every restaurant does take-out these days. Funny thing is, they usually charge as much for take-out as they do for dine-in. How is that possible? Dine-in requires servers and a lot more real estate. Shouldn't it be cheaper? As it stands, the only thing you save by doing take-out is the tip.

The comments section on his and Arnold Kling's reply are good. Kling had this to say:

I'll make my guess. In restaurants, the analogy with "follow the money" is "follow the beverages." For example, if you eliminated sodas at fast food restaurants, my guess is that the profits would disappear.

My guess is that high-end restaurants make most of their money on wine. If they could get you to take out wine at the same price that they charge for dine-in, they would do take-out. In reality, they can't force you to take out wine with your meal, but they can discourage you from bringing your own bottle. So they prefer dine-in to take-out.

Caplan later adds his original hypothesis with Cowen, relating to advertising. I wanted to mention everything, but I need to make my own blog post for that, just to be fair.

First off, I'll remind my reader that I'm a college student, and therefore do not eat out a whole lot, but I did a bit at home. The main reason we would eat out or get takeout would be that we didn't have time to and/or didn't feel like cooking, which seems logical enough. Occasionally, we'd also do this to celebrate something, but mostly it was for convenience. When someone was too tired or we wanted to stay home, we'd just get some takeout, usually Chinese or Vietnamese. Typically, we'd got to the kind of restaraunt where we would get free refills on soft drinks, although if we went for Chinese food, we'd just go with water. The exception of course would be Cracker Barrell, but we'd never get a second pint of Stewart's Root Beer or Orange & Cream with our meal.

Of course, nobody in my immediate family drank anything alcoholic, so that would affect prices quite a bit. Shortly after turning 21 I discovered how pricey some of that stuff was; some places it's $3 for a beer at a restaraunt, and it's $4.50 for a Foster's at Outback. Even the soft drinks add up if you don't get free refills, yet you behave as though you do. Wine certainly seems to be something to lose money on as well. The same could be said for mixed drinks; although there is some cost in holding the liquor, the fact is that they have quite a markup. The realization to make with these drinks, though, is that this is different from normal beverage consumption patterns. Typically, if at home, I would drink water or milk with meals, not sodas, and certainly not 4 rounds of sodas, or anything alcoholic. So that is one cost there.

Another cost is the cost of service. Restaraunts have a low fixed cost here; waitstaff typically make a very small hourly wage and make most of their money off tips. This tip is an additional 15-20% added onto the bill, typically, and can add up to a good bit.

I would hypothesize that there are a couple of social pressures with restaraunts. First, there is the pressure for everyone to order an entree, even though they might be big enough that you would split it if you just ate at home. Additionally, there is a sense that proper table manners, etc, must be employed in a restaraunt, and it is more comfortable and relaxed at home (I will concede weakness in this argument, particularly since people don't really dress up all that much). The biggest performance, if you will, would be if you have children. People with children in restaraunts cannot be left alone. If they are very young other people will want to say hi and wave and smile and in general not leave you alone. If they are poorly behaved, people will talk about you behind your back or perhaps even directly to you. If they are well behaved, then people will come to you in amazement and talk to you if the kids are young. Also, the nicer the restaraunt, generally, the less the kids will like the food.

Why aren't there high-end takeout restaraunts? Well there's not just signaling for the restaraunt, but for the customer too. The customer at the high-end restaraunt has to consider what eating at these high-end restaraunts signals about him. When other people are involved is where this has the greatest signaling power, probably. When it comes to taking someone to a high-end restaraunt, typically this is not done for the food, so it falls under a similar category to giving gifts.

Well, that's some food for thought.

Labels: Economic Stuff

Bryan Caplan writes

Arnold writes:

I carry around an entrepreneurial idea of an American equivalent of the "gap year," which would be a year of education in between high school and college. This year would involve finding a part-time job, living in and
cleaning an apartment, learning to cook one's own meals (and pick out fresh ingredients to go into that cooking), learning personal finance, learning something about household wiring and plumbing, and taking courses in philosophy and mathematics. I have not found a single person who doubts that this would be better for young people than the typical college freshman experience.

Maybe Arnold's "gap year" would be better for the young person's soul. But
would it actually be a prudent unilateral course of action? I very much doubt
it. After your gap year, you'd still have to do a regular four-year degree to
signal that you've got the Right Stuff. Unless the world changes a lot,
employers are going to treat the gap year like a gap in your resume, nothing
more. And are household management skills so difficult that people can't learn
them by doing once they get their first real job and their own apartment?

Point by point, Arnold's gap year.

finding a part-time job,
Many people do this in high school. Some people get summer jobs. Some people do this in college. If it's a way to make money, worthwhile, and accessible, then you'll see it happen.

living in and cleaning an apartment,
Living in an apartment is like living in a house except it's not as big. To clean it, you still use a vacuum cleaner, a toilet brush, a mop, some cleaning chemicals, etc. You should know something about how to clean a house if you ever lived in one, even if you were a kid. Parents who aren't worthless as human beings have their kids do chores at some point. If your parents get a maid when you're young, they're doing you a disservice, and wasting money too.

learning to cook one's own meals (and pick out fresh ingredients to go into that cooking),
You can learn this young too, and it's best with parental supervision anyway. But honestly, give the kid a damn cookbook. It's not that hard, really.

learning personal finance,
Very simple lesson. YOU ARE NOT THE GODDAMN FEDERAL GOVERNMENT. YOU CAN ONLY SPEND MONEY YOU HAVE. This involves such advanced skills as COUNTING YOUR DAMN MONEY and KEEPING TRACK OF HOW MUCH YOU SPEND. Then it gets harder when it gets to PAYING YOUR BILLS ON TIME, which of course involves such skills as WRITING NUMBERS and READING A CALENDAR. But ultimately, YOU ARE NOT THE FEDERAL GOVERNMENT sums the whole thing up. As for investing and that sort of thing, a lot of it is common sense, but you can read up on that on the internet. But nobody does that before graduating college anyway.

learning something about household wiring and plumbing,
Household wiring? I guess you mean how to handle a bad fuse, or as is more often the case, how to flip the switch on a circuit breaker. Or maybe DON'T PLUG IN 80 THINGS IN ONE OUTLET. Every college student should know stereo wiring by buying a stereo. As for plumbing, there's flushing a toilet, jiggling the handle, and knowing the back of the toilet. Stuff to pick up when you live at home in MIDDLE SCHOOL.

and taking courses in philosophy and mathematics.
People need to learn more math. But where do you take courses? Oh, I don't know . . . IN SCHOOL?! Maybe instead of taking a year off, you should try learning math in school. Philosophy, as we all know, is useful in trying to impress people while talking to them, but is ultimately worthelss, particularly as a job skill.

Caplan's desire to be polite is sickening. Maybe it's good for the young person's soul? (Well, what's an atheist gonna know about the soul anyway :-p ) Forget the signaling. How worthless is one if he has to take a year off because he had adolescence and never grew up? That's not good for the soul; it's good for making you pathetic, disgraceful, a loser, and aware of it. It's about as good for the soul as constantly referring to the driver's manual every single time you come to a 4 way stop. The only people who would need this would be the ones who were Billy Madison, in such a case it would be better for their soul than mooching of their parents the rest of their lives. But otherwise, it's pretty damn worthless.

If Kling were genuinely entrepreneural, he'd institutionalize this and create a rigorous program. But as an idea to try on your own, no way.

Addendum: I can understand this if you've had some problems you need to straighten out, or if you're going to do something like pay your own way through college. But for a more typical case, where the student goes to school and is at least partially(and more often fully) supported by parents, my case stands.

Labels: Economic Stuff, Losers

You can get the complete works of Bach at Amazon.com for $108 (HT: Marginalrevolution). This takes up 155 CDs. The product description does not reveal the complete runtime, so I will make some estimates.

Let's assume that each CD is filled to the brim - 80 minutes apiece. In that case, it's about 207 hours, which is over 8.5 days of continuous Bach. Suppose you listen to music only in the car on the way to work, and that you have a 30 minute commute each way. If you buy this set and get it when you return from work on March 2nd, you will not finish until two days after Christmas, December 27th.

It is much more likely that the average length of these CDs is closer to 72 minutes. If that is the case, then the total playing time reduces to 186 hours, and you will be done by November 27th.

Sticking with that 72 minute assumption, suppose then that you encode this into a 192kbps MP3 file (a slightly higher sound quality than the standard 128kbps). In that case, it will take up 16194.55 megabytes. The largest iPod currently available, at $332.49 on Amazon, has a capacity of 80000 megabytes, so it can hold this collection nearly five times over. For $100 less, you can get a 30000 megabyte iPod, but that's only enough for the complete works of Bach twice.

Labels: Economic Stuff, Fantasy

Bryan Caplan is a proud subscriber to satellite radio, and has a few things to say about the merger. My intentions are not to talk about the public choice and benefits for consumers, though; rather I want to talk about why nobody wants to waste their money on that crap.

Caplan states in his post, in the parentheses:

I pre-paid XM for five years, and I get nervous every time I poll my undergrads and find that none of them subscribe.

Now why could this be? Actually, there are about a billion reasons for this, but here are the easiest ones.

1. Undergraduate college students gain more utility from normal radio stations than Caplan. A large part of this has to do with Caplan's taste for classical music, which is not popular among younger people, generally.
   
   
2. Undergraduate college students have lower levels of income, so the trade-off is much higher than it is for Caplan. This kinda goes with #1, but still.
   
   
3. Nobody listens to radio by itself. The radio is something that people listen to while multitasking, rather than just sitting there and listening. It's one thing to listen to the radio at work, but who watches ESPN while they're on the job? People listen to morning radio more than anything, because that's what wakes them up on their clock radios, it's what they listen to in their cars, etc, and a huge part of that is the news and traffic reports.
   
   
4. There is nothing special about listening to the radio at all. Back when the radio aired dramas, etc just like television shows, everyone gathered around and listened. At the time, there were three TV channels. But most of what is on the radio is music or talk shows. Of that music, very little of it is live or exclusive; rather, most of it is readily available for purchase at your local record store, or on iTunes, or you can download it legally, or illegally. Radio is basically what life would be like if all TV channels were like TBS (without the Braves games) and TV-Land. While it provides a variety, this can be overcome by getting an iPod and finding some way to hook it up to your car. Or in your office.
   
   Even the sports content on satellite radio isn't that special. You can sit at your computer and get it just as easily.

But that's my take on the whole thing. Even if I had the money for such a thing, I'd prefer the one-time fixed-cost iPod to the variable cost satellite radio.

Labels: Economic Stuff, Other News Items

Barry Bonds signed a $15.8 million contract with the San Francisco Giants, much to the amusement of anyone that is not a Giants fan. There was some stalling, though, in the gap from when it was agreed on and when it was signed. Bonds has some rather special circumstances, though.

For one thing, he tested positive for amphetamines last year. In the course of that, he blamed a teammate for the substance - a very Bonds-like thing to do but despicable nonetheless.
Bonds is also an admitted steroid user, having claimed before a grand jury he thought he was getting "flaxseed oil" from his trainer. It is very possible, then that he could be indicted not only on some drug charges, but on charges of perjury as well.

We already knew that, but what is particularly interesting is that Bonds' contract contained an escape clause for the Giants in the event that he was indicted. Major League Baseball rejected the contract, apparently to save the Giants. Here is Bonds' agent Jeff Borris.

Borris said that the additional language in Bonds' contract would be unenforceable if the matter ever was litigated because baseball's collective bargaining agreement would take precedence. Because of that, Borris said the inclusion of the added provision is meaningless.

"Although it is not my policy to comment on the specifics of an individual player's contract, the reporting that Barry will allow the Giants to get out of his contract if he is indicted on the federal steroid investigation is inaccurate," he said. "The collective bargaining agreement governs the work relationship between the owners and players, not the Giants' unilateral assertions."

From this we can conclude that Brian Sabean's IQ is a bit short of Bonds' single-season home run record. I mean, seriously, if it turns out that it's no big deal and that part of the contract is invalid, was Sabean tricked into thinking it would hold up? And in such an event, would he think he could get away with such a thing?

One comparison which could potentially be drawn by the MLBPA is Kobe Bryant, and how he played despite the rape trial going on. Of course, there was nothing in Bryant's contract about rape indictments, nor did Bryant have a reputation as a rapist beforehand, so that weakens the analogy. After all, Bonds' head got bigger - literally.

The saving grace for San Francisco is that Bud Selig rejected the deal. The question is whether or not the Giants will continue to cave, or what other concessions will have to be made to get the contract signed, because this is a very stupid deal. I don't know if they're without a choice because they agreed in principle or something, but either way, that's just screwy.

Labels: Economic Stuff, MLB

As we all know, most soft drinks in the US are made with corn syrup and high fructose corn syrup. Corn syrup, though, has negative effects that exceed that even of your basic granulated sugar.

Another major use for corn, of course, is in ethanol fuel. Ethanol, a corn-based alcohol, is such a major component of fuel that we can expect ethanol and grain prices to climb quite a bit as the need for more corn will grow rather quickly.

High fructose corn syrup is used in soft drinks for the same reason that oil-based gasoline is still used in automobiles: it's cheap. Thanks to tariffs imposed to protect the US sugar industry, it is cheaper than sugar in the US. So it seems simple enough: once there is more demand for ethanol, even if we do nothing, it will be more profitable to use sugar more often because the soaring demand for corn will raise its price, making sugar relatively cheaper; even if corn syrup were more still a little cheaper, soft drink makers would be more apt to selling drinks with sugar because they would be a bit healthier for consumers.

The difficulty, of course, lies in the politics of this whole issue. Politicians do not want to disappoint the sugar lobby, and the corn lobby would have it in their interest to make sure that sugar remained expensive enough that people still used high fructose corn syrup. Fortunately for the marginally health conscious (the truly health conscious would drink juice, milk, tea and water), all that needs to be done is to explain to the American public that foreign sugar means cheaper fuel, because Americans love cheaper fuel. This fixation on cheap gas, which led to nostalgia for gas price fixes of the 1970s, can be used to promote freer markets, potentially quite soon.

Labels: Economic Stuff, Politics

A friend of mine commented that he likes to check my blog to see what I have to say, but isn't as interested in a lot of the sports stuff. I have tried to post a lot of non-sports items, but they never come to fruition. The fact is that the other posts take longer to write because they require a whole lot more thought. Additionally, I always like to link to other sites, and this doesn't go over too well because I leave those windows open. Adding that altogether, my computer usually can't handle what I want to do with my web browser, so I generally have to control-alt-delete and close out the whole program, thus causing me to lose the entire post.

The moral of the story is that I need to write my blog posts in Word first before I post them online, because Word won't crash on me like that. I'll work on that one.

Labels: About the Blog, Economic Stuff, MLB

This past Thursday, Milton Friedman died at the age of 94. It is particularly interesting that this story, then, would come up in the AP that Charlie Rangel wants to re-instate the draft.

Asked on CBS' "Face the Nation" if he was still serious about the proposal for a universal draft he raised a couple of years ago, he said, "You bet your life. Underscore serious."

"If we're going to challenge Iran and challenge North Korea and then, as some people have asked, to send more troops to Iraq, we can't do that without a draft," he said.

The article goes on.

Rangel, who opposed the 2003 invasion of Iraq, also said he did not think the United States would have invaded Iraq if the children of members of Congress were sent to fight. He has said the U.S. fighting force is comprised disproportionately of people from low-income families and minorities.

"I don't see how anyone can support the war and not support the draft. I think to do so is hypocritical," he said.

Congressman Rangel, you don't support the war, but you do support the draft. So what does that say about you?

Now economics tell a different tale of how this works.

This is a supply and demand graph for military labor. Economics treat goods as subject to supply and demand, even labor. What this shows is that the military is currently paying W1, and that is why the government is willing to pay for L2 but only getting L1 of labor. This model, of course, applies to the all-volunteer army. A draft army does not work this way, because soliders do not have a choice about joining the military.

So if you ask an economist how to increase troop levels, the answer is to pay the troops more. Let us examine the equilibrium wage of We. At this price, more troops are willing to serve, but the government is not willing to pay as many. This means that not only can troop levels increase voluntarily, but also the government will be more careful in the use of military force.

Rangle, though, makes the argument that Congressmen do not care about the money, only their own children, and that the element of fear is a vital deterrent of war. If that is the case, Rangle should advocate an all-draft army to increase the level of fear involved in the military as well as reduce the wages a little more. There are a few problems with this, not the least of which is that living in fear runs opposite to living in a free society. Not only that, but insisting on such tactics would reduce type I errors of unnecessary war and increase type II errors of unpreparadness and reluctance to fight when it is absolutely necessary.

This does not even go into the fact that his argument is flat out wrong. In the first place, Congressmen whose children go overseas can and likely will get preferential treatment - heck, when Al Gore was in Vietnam, he was a military photographer with a bodyguard - so there goes the congressman's fear. Then there's just the unpopularity of the draft; it is not coincidental that the 18-year-old right to vote was followed shortly thereafter by the all-volunteer army. Studies of the electorate have shown that politicians generally do what voters want, and according to this article in the Washington Post 70% of the public opposes the draft. Further, supply and demand are not complete or perfect models, but they are accurate, at least enough so that one could determine that increasing military salaries by at least 50% will drastically increase numbers in the service.

The relevance to Milton Friedman is extroardinary. In a debate with General William Westmorland (ht: Don Boudreaux) about the draft, Westmorland said to Friedman that he didn't want an army of mercenaries. Friedman had him right where he wanted him.

Mr. Friedman interrupted, "General, would you rather command an army of slaves?"

Mr. Westmoreland replied, "I don't like to hear our patriotic draftees referred to as slaves."

Mr. Friedman then retorted, "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher."

Labels: Economic Stuff, Politics

It turns out that the President may very well be one to blame for recent gas price spikes. Look at this, from the link on Drudge.

As if rising prices weren't enough, the tanks have run dry at some Philadelphia-area service stations in the last few days as the refining industry stumbles through a change in the formulation of gasoline.

Oil refiners are phasing out a petrochemical that makes gasoline burn cleaner but which also has been found to contaminate groundwater. Refiners are switching to corn-based ethanol.

The changeover is creating supply-chain bottlenecks because much work must be done at fuel terminals and service stations to handle ethanol.

Ok, contaminates groundwater. So the oil companies are doing this because they care about us and the environment. Right? Well,

The conversion to ethanol was prompted by the federal Energy Policy Act of 2005, which left refiners vulnerable to groundwater contamination suits and mandated greater use of renewable fuels. The use of ethanol forced gasoline retailers to clean their tanks, remove all water from them and install extremely fine filters on their pumps.

You see, it's all George Bush's fault. If he wasn't such a coward, he would veto something. But seriously, this article is good as it actually explores causes and effects of the rise of gas prices. And who would have though that environmental regulation could be expensive (other than every intellectually honest economist ever)! Here's what has to be done:

Ethanol is a solvent that picks up any gunk in tanks and readily blends with water. Those properties could ruin a 9,000-gallon tank of gasoline at a huge cost to a retailer.

It costs up to $1,500 to clean tanks, said Kevin S. Kan, president and chief executive officer of American Auto Wash Inc. in Malvern, which operates 18 stations in the region, including 13 BPs that have converted to the ethanol blend.

Ethanol is logistically more complicated than the petrochemical it replaced - MTBE, or methyl tertiary butyl ether. Refiners could blend MTBE into gasoline at the refinery and send the finished gasoline through pipelines to terminals.

But ethanol must be blended into gasoline at the terminal because it would mix with water if it were sent through pipelines, ruining the fuel. So, fuel terminals have to go through a similar process of cleaning tanks to store ethanol before it is blended.

They must also install blending equipment.

Yep. People who have had basic econ (Econ 103 at GMU) know that prices are a means of spreading information. There was a sharp decrease in supply, and the rising prices are designed to minimize the effects of that; you'll probably be more careful with your gas at $3 per gallon.

Now that we know the true cause of the rise in gas prices, what does that tell us about Congress when we see this:

During a news conference Tuesday, Schumer said he expects there will be hearings on the matter in Congress and possible sanctions. He believes the four major oil producers, such as Exxon-Mobile, have a monopoly on oil production. Mergers that created just four major oil producers should be broken up, he added.

Now, one can certainly make the argument that MTBE was causing a problem, particularly in the high amounts in which it was used (which was incidentally due to another environmental regulation). But if that's the case, then the cost of higher gas prices is one that must be taken on, as it is a response to a supply shock. Perhaps someone should look into why the government doesn't warn consumers of the costs of regulation, no matter how safe it makes us.

And as some Philadelphia gas tanks run dry, it is obvious that there are multiple gas tanks in Philadelphia, so consumers will just have to go to another one (because E means extra 10 miles). But this is not a shortage; there is still gas to be bought. If it's too expensive, carpool, or use public transport if available. You can even walk or bicycle, which gives you exercise too. If that's not worth it, then you're still as best of as you could driving and paying a lot for gas; your consumer surplus just shrank.

Labels: Economic Stuff, Politics

McDonalds, according to the New York Times (hat tip: Drudge), has started putting drive through orders through call centers. We're not kidding.
Like many American teenagers, Julissa Vargas, 17, has a minimum-wage job in the fast-food industry — but hers has an unusual geographic reach.

"Would you like your Coke and orange juice medium or large?" Ms. Vargas said into her headset to an unseen woman who was ordering breakfast from a drive-through line. She did not neglect the small details —"You Must Ask for Condiments," a sign next to her computer terminal instructs — and wished the woman a wonderful day.

What made the $12.08 transaction remarkable was that the customer was not just outside Ms. Vargas's workplace here on California's central coast. She was at a McDonald's in Honolulu. And within a two-minute span Ms. Vargas had also taken orders from drive-through windows in Gulfport, Miss., and Gillette, Wyo.

Now, some people are complaining about this. I can see how call centers for de-localizing operations, like for the car dealer for my parents getting their oil changed, can be annoying. Relaying enough information can be frustrating. When I suggested to my mom that instead of getting an appointment that she get her oil changed at Jiffy Lube, she rejected the thought, because apparently the dealer does other stuff. I think she didn't want to admit that I had a point. The reason people take their cars to the dealer, though, is that it's a few bucks cheaper.

Do I expect that McDonalds will drop its price as a result of this? No. Do I expect their employees to make more? No. Do I expect the quality of service to increase? Yes, actually.

Anyone who has ever ordered at a fast food drive through has no doubt seen the marvelous pieces of junk that make for the drive-through intercom. Imagine talking on the phone with someone whose voice is muffled. That someone is mumbling. That someone is your dog. That's about what drive through speak is like. The idea that they are sending this out to a call-center suggests that they have actually care about the communications infrastructure of the drive-thru, which will mean better service. As it stands now, the order is just put on a screen for the restaraunt workers to put the order together, so that merits no change. A clearer connection, and someone who was hired because they speak clearly would be a step up. From a labor point of view, it makes individual restaraunt employees more valuable, and the drive-thru workers have a better work environments in a casual office setting.

Now, if they're going to do this, they can also have language specialists, so that customers who want to order in Japanese, Spanish, German, Russian, French, or some other language, they could press the buttons to place their order with someone in a particular language.

But what they should really do is just have a button system for each customer's order. You could even play 20 questions or something to get an order for a customer who doesn't know what they want. You could make the readouts next to the sceen.

Ways this could go wrong:

1) More centralized control over restaraunts so wrong orders cannot be corrected. (doubtful)
2) Call center workers strike. (slightly less doubtful)
3) Call center workers have minimal language proficiency. (slightly more likely)
4) Call center workers are rude to customers and nothing can be done about it. (more likely)
5) Machines are not upkept, and then someone 200 miles away says "mrhmmmh mhrrhmmf mrrhmffmrhmhfr Big Mac mmrfhmhrfm." (most likely)

My reaction:
I always go into the restaraunt. First of all, it's a quality control thing; if it looks dirty or smells dirty, run away, because fast food places just work like that. If they screw up my order, I can say so. I can get condiments and not worry about messing up my car. I don't like to eat and drive. I can get a free refill when I'm done.

Labels: Economic Stuff