A Puzzle: Increasing Education and No Mobility

In recent days some seemingly solid articles/posts have reported the following:

• over the past 40-50 years the average American has gotten more education (i.e., more people graduating high school, more people going to college, more people graduating college, etc.)
• over the past 40-50 years the added income attributable to education, the education "premium", has increased.
• over the past 40-50 years the earnings of the average American is no greater than his/her parents.

My knee-jerk reaction is that if the first two are right, the third can't be right.   There must be something else which I'm missing.

How the Free Market Works

An article on how prices for chicken are set.  Not so much by the free interplay of supply and demand among willing buyers and willing sellers, but by negotiations between big consumers (supermarkets, fast food chains) and big suppliers (Perdue, Tyson), using a reference price supplied by the Georgia Department of Agriculture.

Sort of reminds me of the scandal over LIBOR, where a handful of bankers collaborated to set rates which didn't reflect reality.

Lesson:  just because something is denominated in money, doesn't mean the market economy is operating.

Stone the Rich Economist

N. Gregory Mankiw has a piece here--he paid $2500 apiece for "Hamilton" tickets in NY and is reasonably happy about it.  As a market economist he sees it in terms of supply and demand, mourning only that the creators of the show get only the benefit of the $500 face price.

What's interesting to me is the comments: the most "liked" comments are those trashing the rich plutocrat who can afford such a price.  I'm not sure whether that's coming from the presumably liberal readers of the NYTimes or from those who support Mr. Trump.  Probably the former, that would be more consistent with the liberal ethos.  But it's a little straw in the wind which shows the support Clinton can get for "soaking the rich".

Those Efficient Private Companies

MGM is building a casino in Prince Georges County, the National Harbor project.  Today's printed Post had an article on the opening plans.  What caught my eye was the subheading--a $500 million cost overrun--the whole project cost $1.4 billion, so that's probably a 33 percent overrun

This will go unnoticed, but similar inefficiency in government tends not to.

Trump's Economist

Prof. Don Boudreaux, of George Mason U. blogs at Cafe Hayek. He seems to be a classical economist, i.e., someone with whom I would agree only once in a blue moon.  Frankly, I don't understand the issue with the Trump economic plan, but I find this pussyfooting around without saying what you really think most distressing: (from an "open letter" to Trump's economist):

"Tipped off by Scott Sumner, I read Trump economic advisor Peter Navarro’s analysis of Trump’s economic plan.  Words fail me.  Nearly everything Navarro writes about trade is not only wrong, but foolish.  A good economist setting out to write a spoof of bad trade analysis could not have done a better job of mimicking complete cluelessness about trade."

-

The Future of Jobs? From Linen to Games

We've gotten into Game of Thrones, now on season 2.  Last night the commentary mentioned Banbridge.  Banbridge is a town in County Down, Ulster of about 16,000.  It happens to be near where my great grandfather was born, and has been mentioned by my cousin who has made regular trips back to Ulster.  Turns out the town was into linen;  in the words of Wikipedia: "The town owes its success to flax and the linen industry, becoming the principal linen producing district in Ireland by 1772 with a total of 26 bleachgreens along the[River] Bann. By 1820 the town was the centre of the 'Linen Homelands' and its prominence grew when it became a staging post on the mail coach route between Dublin and Belfast."

But linen has fallen on hard times, and there's just one linen mill left operating.  One of the others failed in 2008, and has since been converted to a production studio.It's this studio which hosts a part of Game of Thrones for some seasons.

When you think about movies, they're made all over.  Vancouver and Montreal, Morocco and Eastern Europe, New York, North Carolina, Louisiana, New Mexico are just a few of the locations I remember being used for the movies and TV shows I've seen recently, not to mention the old standbys of Britain and Italy.

And the remaining linen mill in Banbridge has long specialized on fine linens and bespoke linens.

So what we have is a shift of jobs from making products to making entertainment.  What's notable is these jobs presumably are safe from automation, which is more than we can say for manufacturing or many service jobs.

Gaining and Losing Employment

The Times  reports that there was a decrease in tomato picker/processors in CA from 45,000 to 5,000 handling 5 times the tonnage between 1950 and now.  It also reports that making Greek yogurt, specifically Chobani, has increased employment from 0 to 2,000 over the last 15 years.

And finally, FiveThirty Eight reports an increase in statistical analysts from 44 in 2099 to 156 now.  The number of scouts has also increased from 124 to 153.

I'm not sure whether food processing counts as manufacturing?  Given the proliferation of food products on grocery store shelves, you'd think that area at least would have seen big growth over the last 50 years. 

Trader Joe's Parking Lots

Via Marginal Revolution, a short piece on the economic logic of Trader Joe's tiny parking lots.  (We shop there occasionally.)   Bottom line: almost no one refuses to shop at Trader Joe's because they spend a little time finding a spot, or walking to the store from the adjacent street.

Allocating Goods

There are a number of economic goods (I love to play like I'm an economist) with a price, but a price which is less than the value which an ideal market might place on them.  The goods aren't sold in a free market, but some hybrid of the market and an allocation process. To my eye, these goods usually get allocated on the "who you know" principle.  Examples:

• tickets for playoff games go to relatives of the players, the staff, the owners.  I understand there's a set allocation for teams, but within the allocation getting a ticket is less a question of money than of influence or the strength of the relationship.
• IPO shares go to those connected with the underwriters of the offering.  Again I understand the bank will allocate shares to their best customers.
• many jobs. 

The Economics of Commodities--Almonds

As Yogi said, deja vu all over again.

My mother, a woman of decided opinions, which I'm just now realizing, would rail at the stupidity of the poultry.  Egg prices would go up, people would buy chicks and raise layers, the supply would increase, the prices would go down to the point people were losing money.

The same logic has been followed over and over, with variations, with respect to different commodities.  Most recently it's been oil.  Remember the days of peak oil, of $130 a barrel? 

Now it's almonds, as described in the linked article. 

Gentrification of the Neighborhood

The Post magazine has an article on the proposal for a bridge park in DC, modeled somewhat on the High Line in NYC.  It would cross the Anacostia river on old bridge piers, connecting the poorer Anacostia neighborhood with the richer Capitol Hill neighborhood.  One of the big concerns is the likely gentrification of Anacostia, the driving out of lower-income dwellers and replacement by richer yuppies.

It strikes me that this gentrification is the story of America.  Developers, like the English, see land which isn't being used to its maximum given current economic and technological conditions, acquire the property by hook or crook, and resell it to new people for a profit. 

Our Growing Economy: GDP Per Capita

Calculated Risk often emphasizes the importance of demographic changes: the decline in participation rate due to the aging of the baby boomers, the decline in immigration.

I thought I'd check the the GDP per capita.  This is what I got through a Google search (the image is a bit scrunched here--google it yourself.




What it seems to say is, after the dip of the Great Recession, we're growing the economy on a per person basis quite steadily.   Because the level of activity of the overall economy varies with the change in population, particularly net immigration, we see more variance in the economy than at the person level.

Of course, this says nothing about the distribution of economic benefits among the population.

Good News: Entrepreneurs and Race

From Fortune:

The number of businesses owned by African American women grew 322% since 1997, making black females the fastest growing group of entrepreneurs in the U.S.
Overall, the number of women-owned businesses grew by 74% between 1997 and 2015—a rate that’s 1.5 times the national average, according to the recently published “2015 State of Women-Owned Businesses Report” commissioned by American Express Open. Women now own 30% of all businesses in the U.S., accounting for some 9.4 million firms. And African American women control 14% of these companies, or an estimated 1.3 million businesses. That figure is larger than the total number of firms owned by all minority women in 1997, the report found.

It surprises me, because it's easy to slip into the idea that black people seek secure jobs and aren't risk-takers.  It shouldn't surprise me, because I know several of the black women with whom I've worked have had the ability to be entrepreneurs. I don't know whether in retirement they've taken that direction, or maybe their daughters have. 

The Paradox of Median Income

From the White House Blog, median income for family households rose in 2014, median income for nonfamily households rose in 2014, and median income for all households fell in 2014.

True fact.


How is that possible?  It's the Simpson paradox. 

I wonder how much of the stagnation in median household income over the past years is accounted for by the increase in nonfamily households?

EU Cartels in the Food Chain?

Politico has a piece on the problems which European sanction on Russia are causing for the farmers, particularly French farmers.  (Does anyone here remember the problems Pres. Carter had imposing a grain embargo on the Soviet Union after the invasion of Afghanistan--that and the boycott of the Olympics were the major sanctions we imposed, IIRC?)

It includes this paragraph:

While French industrial purchasers normally agree to absorb a set volume of local production at controlled prices agreed during roundtables, this time some of them balked over the huge difference between the cost of French meat and products from Germany or Spain — around 30 euro cents per kilo.

Some complained that buying French meat at inflated prices would put them at a serious economic disadvantage. The refusal of just two moderately sized groups, Bigard and Cooperl, to buy a certain volume of pork at an agreed price of €1.40 per kilo was enough to upset the tightly-controlled system, shutting down the Brittany pork product exchange for eight days. 

I wonder what "roundtables" means--do the French equivalents of McDonalds, Burger King, KFC, etc. meet together to set volumes and prices of meat they'll buy?  It's what it sounds like.

I sort of assume that the contract growing of livestock in the US extends all the way up.  Jane Doe signs a contract to grow chickens for Tyson, Tyson signs a contract to deliver chicken breasts to KFC.  But how are the prices set--subtle signalling between KFC and McDonalds (like the airlines do)?  When I'm reincarnated I'm going to study economics.

Egg Prices--Back to the Good Old Days

I mentioned this back in April, when I was amused by the euphemism--"depopulation" used to cover killing the infected poultry.

Now the bird flu epidemic has resulted in killing so many birds that there's an "egg crisis".

As is usual these days this reminds me of my youth.  In the 1950's we just beginning the process of switching from small growers to contract growers.  The reason for the change was economics. There were two cyclical processes at work: supply/demand and feed prices.

  Small growers like my parents had no pricing power, meaning that egg prices yo-yoed up and down.  If feed prices were down, you could make money.  But if you were making money you'd increase your flock and your neighbor would blow the dust off her brooder stoves and order some chicks.  The result would be overproduction, and prices would drop.  Meanwhile the prices of feed (corn, wheat, oats) would have their own fluctuations.

My mother would get very indignant at this, blaming the people who weren't true chicken farmers but who simply jumped on the bandwagon of higher egg prices.

The solution, obvious in retrospect, was for consolidation to give big egg producers some pricing power, and the ability to adjust production in line with market conditions.  That meant going to contract farming, where the farmer has the chicken house and associated equipment, and simply contracts with the big outfit to produce x number of eggs from y number of hens. (It's similar to the process for growing chickens for meat.)  This reduced price risk meaning egg prices have been more stable.

Unfortunately, the logic of contract farming meant replacing small flocks with large flocks, taking advantage of labor-saving equipment (I've no fond memories of gathering eggs from under possessive hens who'd bite my hand and twist.)  In effect it's like moving air travel from lots of single engine planes to 747's, meaning safer air travel and fewer accidents, but when there is an accident, it's big.  That's where we are now.

Swoosh Nets Student $35

That's the factoid of the day: the Nike "swoosh" trademark just earned the person $35.

From a Wonkblog post on the evolution of 12 famous trademarks.

Why No Registry of Debts?

"Bad Paper" by Jake Halpern reads quickly, has a number of colorful characters, and tells a depressing story of brokering debts and debt collection in the days before the Consumer Financial Protection Bureau issued new rules.  It's not clear that CFPB will change the situation.  Basically banks and others who make loans to consumers, auto loans, credit card debt, etc. would try to collect delinquent debt.  Very quickly they would sell the obligations for cents on the dollar through brokers to debt collectors. The collectors would collect some of the debt and sell the unpaid obligations down the line.  At each level the collectors operate closer to the legal line, using tougher tactics.  Debt collecting turns out to be a good profession for ex-convicts whose criminal record keeps them out of other jobs.  Halpern devotes little attention to the debtors, just enough to evoke sympathy.

One of the problems in the system is that what's sold seems to be spreadsheets of debtors on flash drives, which can easily be copied/stolen.  The biggest problem is the whole system depends on trust and honesty but the reality is that the weak get the shaft.

Halpern uses the epilogue to argue that the Feds should implement a debt registry, which tracks a debt from issuance through resolution, no matter how many times ownership of the obligation changes hands. Makes sense to me.

Sidenote: I was surprised to learn that in a third of the states people can go to prison for unpaid debts.

The Housing Market Has Recovered?

Back in January 2008 I wrote about the pricing  history of a neighboring townhouse in the context of  the housing bubble.  Early in my blogging days I called the bursting of the bubble in October 2005 based on the prices in my townhouse cluster.  (A pause while I admire my foresight.)

The townhouse is up for sale again.  It went on the market the end of April and is now under contract.  According to Zillow, it's going for $50,000 more than its price in 2009, which in turn was $80,000 above its low in 2008. 

But the bottomline is it's still $50,000 below the peak price.

What Is Productivity in Making Movies?

My wife and I use Netflix a lot.  One of the obvious differences between classic movies and today's movies is the length of the list of credits.  Presumably part of that is giving credit to everyone involved.  But I assume, without any proof, that movies which use computer-generated graphics must employ a lot more people.  And even those which don't use CGI probably have more people per minute of film.

I'm currently drawing a blank on the name of the economist who observed that productivity in the services is much different than in manufacturing or agriculture: an orchestra playing Beethoven's 5th is roughly the same size whether it's 1915 or 2015.  I suppose that modern movies are "better" than the classics, though that's hard to prove.  Certainly they're different, sometimes faster (though watch the Cary Grant/Rosalind Russell "His Girl Friday" and you may doubt that), with different plots and plucking different heart strings.  They're definitely suited to our times and our sensibilities--again see Girl Friday for proof.

I don't know how the economists count the wages paid to the people who make say "A Good Year"--the most recent movie we watched on Netflix. (It's a piece of fluff, but very pleasant fluff set in Provence--obviously the moviemakers should have donated their efforts just to be living in such surroundings.) And how does the revenue from the movie count as well?

In the grand scheme of things, I assume economists used to assume that movies have short lives, with the cost of production and the return at the box office happening in a few months, or maybe a year.  Only the rarity like Gone With the Wind and the Disney flicks could be rereleased in later years.  But the truth now is that movies can live forever.  Maybe the money from their longer lives will diminish to the vanishing point, as piracy and innovation reduces the cost of providing the movie almost to zero, but the gain to the watcher remains significant, although not measured by economists.