"If you get the customer to switch, no one pays the tariff."
This assumes that domestic providers don't raise their prices given their additional advantage. I don't think that's a safe assumption.
It also assumes that there are domestic sources available - which is also not a safe assumption. US manufacturing specializes in finished goods - with the bulk of components getting imported.
The second one seems worth it to me, I had the same reaction and the conclusion isn't self-evident. "Cabron tax" is arguably too funny to fix, though :P.
On the same topic, the thread excerpted in "People Hate Inflation" is in reverse-Chron but as a textual insert I strongly think it should be in forward-Chron.
"Is a 6% growth in real median wages over 5 years as measured (which as I have noted elsewhere I think overstates things in practice even without interest rates) a ‘very good’ economy?"
How does it compare to real median wage growth in the rest of the world over the same period of time? And how does it compare to real median wage growth over a 5 year period in America over the last 30 years?
"Don't reason from a (ceteris paribus) price change" is good real world advice. Like frictionless pool tables, a price change without a cause may be helpful to learn economics, but shouldn't be employed in the real world. Enough people do that poor Scott Sumner keeps pointing that out indefinitely.
I think that when people say "price change ceteris paribus" they implicitly are referring to increases in the price of inputs of a price-elastic good (e.g., oil price goes up because the marginal reserve is more difficult to extract from, or because piracy or international strife makes shipping and insurance riskier). The price-elasticity is loadbearing because it allows for the prospect of the same consumption by quantity at a higher price. This seems like it captures the scenario that people are usually trying to reason from when they invoke the idea of a "price increase ceteris paribus" -- assuming demand is inelastic in the short term such that the initial response to to a price increase (due to increased production input costs) will be to consume the same amount of the good but pay more for it, how do we expect the longer-term state of the world in which demand is more elastic to differ from the pre-price-change equilibrium?
E.g. Oil price goes up due to depletion of reserves / international turmoil / whatever. Over the next week, no one is in a position to change consumption habits and so people just pay more at the pump. Over the next month(s) they start carpooling or taking the bus. Over the next year(s) they buy smaller, more fuel efficient vehicles. You can make reasonable predictions about this without the nature of the increase in input costs being especially important.
Perhaps most importantly, this should *also* tell you a bit about the effect of price increases for their own sake unmoored from input costs (e.g., imposition of a Pigouvian tax), where "price increase ceteris paribus" seems like a pretty reasonable approximation assuming that the tax isn't being used to materially subsidize behaviors correlated with demand.
In the case of meme stocks where the price has decoupled from economic reality, but high borrow costs and uncertainty about how long the bubble will last make it hard to short, seems like selling long dated calls would be the move?
This is a terrible internet story that I probably wouldn't believe if I read it but: had a friend-of-a-friend at said friend's wedding a few years back who does gas station pricing go on a whole schpiel while we were at a Cheesecake Factory about how gas pricing is almost completely arbitrary and unashamedly profit-maximizing, like yeah gas prices go up when oil goes up but when oil drops they never drop to match, only as much as they can get away with to distract anyone paying attention so they can pocket the difference in how far it actually went.
Gas prices are quite competitive because people pay attention to them and it's easy to compare and switch. Gas stations don't make much profit from gas sales themselves. Profit-maxing means everyone has the incentive to slightly price down to beat the local competition (and get people in the door to buy snacks/drinks, where the margin is higher).
I too wouldn't touch grocery """price gouging""" with an eleven-foot pole, especially in litigious How Dare You Raise Egg Prices During Avian Flu California...but it sure would be nice to offer discounts on soon-to-be-unsaleables, scaling or otherwise. Even though there's a small tax break for donating food, and a smaller rebate for tossing stuff (I don't understand the mechanics there), there's a wide range of price points that'd capture meaningful value above those meagre percentages. Add in a final-sale clause to avoid returns and mitigate moral hazard*, and you're off to the races. Win-win for us on the grocer's end too: more leeway to order heavy inventory, less time spent processing intrinsically-annoying spillage. Recent Transparency Good(tm) law changes mean the state's gonna start auditing donation books, so the process has gotten significantly more cumbersome. Lotta things just get tossed in the bin rather than donated, because ain't nobody got thyme for that. Clear case of Beware Trivial Inconveniences in action.
The, uh, fundamental economic attribution error rings true. There was a giant company-wide raise equivalent to about 3 simultaneous normal raises earlier this year, and we're now offering life and disability insurance as well. Yet somehow coworkers don't tie this deserved increase in compensation to inflation, it must be "corporate greed" somehow. Same thing when rising commercial rents and the fast food minimum thing closed local restaurants..."Well Acktually in Europe these franchises pay more *and* their goods aren't that much more expensive, people are just greedy here"...right. I dunno how to convince someone who won't buy the evidence happening right in front of them.
*though again I can imagine unprincipled excepions being made here by consumer rights maximalists..."caveat emptor except where void or prohibited by law"
"[P]ractical considerations of having to ‘disclose and explain’ changes in cost of goods sold" - having worked in management accounting in CPG for a decade and a half, if these companies don't have this data already, they damn well should. The practical considerations will likely amount to fitting it into whatever stupid XML format the SEC would set up, and also figuring out how to obscure as much as possible to give up minimal competitive advantage. Not saying it's a good thing at all (I agree with the "easier to coordinate" analysis), and this extra busywork is just more administrative drag, but that data really should be Business As Usual for consumer goods.
> If you think we have to ‘beat China’ and do not at least want to be in the TPP, I have no words.
The TPP is not a mutual defense pact. The US experience with NATO free riders after the end of the Cold War shows what happens when the US has no formal leverage and can't find a way to use informal leverage.
One alternative would be a mutual defense pact in which tariff reduction/abolition is the incentive for fence-sitting western Pacific TPP members Singapore, Brunei, Malaysia, Vietnam, and NZ to help the US contain China. Tariffs would presumably be reinstated for members who fail to meet China-containment commitments, such as % of GDP spent on defense, official statements on South China Sea island ownership, joining freedom-of-navigation sailings, etc.
Should the rational actor theory of international relations in the above paragraph be set aside on the assumption TPP is the foundation of a mutual defense pact? Institutional momentum or something? If we reason from base rates, probably not. What is the base rate for trade treaties becoming mutual defense pacts? Very low, I think.
In short, why buy the cow when you can get the milk for free?
I want to defend the "Switzerland is bad" take a little. Chase specifically mentions the brain drain to Switzerland, if one country has lower taxes and then all the rich people - who don't need a social safety net - go there, that leaves all the regular people behind without anyone to help them.
Especially if you think of the welfare state as a sort of vail of ignorance like insurance, where it would actually be in your own self interest to sign the social contract before you are born and know how successful you are going to be in life. You agree that, if you turn out intelligent you will support the unintelligent, disabled or schizophrenic.
And if now there is suddenly a loophole where all the productive people can go to their own country and stop supporting the poor then people will defect in this insurance game.
You could also reframe this in terms of functional/algorithmic decision theory, where Switzerland allows people to break their prenatal promise of helping the poor if you turn out successful. And it would be better if people don't have this option of breaking their promise.
This is only if Switzerland is rich because of brain drain, which I don't think is the case.
"If you get the customer to switch, no one pays the tariff."
This assumes that domestic providers don't raise their prices given their additional advantage. I don't think that's a safe assumption.
It also assumes that there are domestic sources available - which is also not a safe assumption. US manufacturing specializes in finished goods - with the bulk of components getting imported.
Podcast episode for this post:
https://open.substack.com/pub/askwhocastsai/p/economics-roundup-2-by-zvi-mowshowitz
"Cabron taxes and unimproved value of land taxes are great where you can get them"
minor typo
ope one more:
"Yes, we could plausibly spend enough more than we could to get into avoidable trouble. Mostly this seems like"
Sentence ends there.
(are these comments helpful or just wasting your time fixing minor issues?)
The second one seems worth it to me, I had the same reaction and the conclusion isn't self-evident. "Cabron tax" is arguably too funny to fix, though :P.
On the same topic, the thread excerpted in "People Hate Inflation" is in reverse-Chron but as a textual insert I strongly think it should be in forward-Chron.
legit lol'd at "Cabron tax"
"Is a 6% growth in real median wages over 5 years as measured (which as I have noted elsewhere I think overstates things in practice even without interest rates) a ‘very good’ economy?"
How does it compare to real median wage growth in the rest of the world over the same period of time? And how does it compare to real median wage growth over a 5 year period in America over the last 30 years?
"Don't reason from a (ceteris paribus) price change" is good real world advice. Like frictionless pool tables, a price change without a cause may be helpful to learn economics, but shouldn't be employed in the real world. Enough people do that poor Scott Sumner keeps pointing that out indefinitely.
I think that when people say "price change ceteris paribus" they implicitly are referring to increases in the price of inputs of a price-elastic good (e.g., oil price goes up because the marginal reserve is more difficult to extract from, or because piracy or international strife makes shipping and insurance riskier). The price-elasticity is loadbearing because it allows for the prospect of the same consumption by quantity at a higher price. This seems like it captures the scenario that people are usually trying to reason from when they invoke the idea of a "price increase ceteris paribus" -- assuming demand is inelastic in the short term such that the initial response to to a price increase (due to increased production input costs) will be to consume the same amount of the good but pay more for it, how do we expect the longer-term state of the world in which demand is more elastic to differ from the pre-price-change equilibrium?
E.g. Oil price goes up due to depletion of reserves / international turmoil / whatever. Over the next week, no one is in a position to change consumption habits and so people just pay more at the pump. Over the next month(s) they start carpooling or taking the bus. Over the next year(s) they buy smaller, more fuel efficient vehicles. You can make reasonable predictions about this without the nature of the increase in input costs being especially important.
Perhaps most importantly, this should *also* tell you a bit about the effect of price increases for their own sake unmoored from input costs (e.g., imposition of a Pigouvian tax), where "price increase ceteris paribus" seems like a pretty reasonable approximation assuming that the tax isn't being used to materially subsidize behaviors correlated with demand.
In the case of meme stocks where the price has decoupled from economic reality, but high borrow costs and uncertainty about how long the bubble will last make it hard to short, seems like selling long dated calls would be the move?
This is a terrible internet story that I probably wouldn't believe if I read it but: had a friend-of-a-friend at said friend's wedding a few years back who does gas station pricing go on a whole schpiel while we were at a Cheesecake Factory about how gas pricing is almost completely arbitrary and unashamedly profit-maximizing, like yeah gas prices go up when oil goes up but when oil drops they never drop to match, only as much as they can get away with to distract anyone paying attention so they can pocket the difference in how far it actually went.
Did you ever go to a gas station during Covid?
Gas prices are quite competitive because people pay attention to them and it's easy to compare and switch. Gas stations don't make much profit from gas sales themselves. Profit-maxing means everyone has the incentive to slightly price down to beat the local competition (and get people in the door to buy snacks/drinks, where the margin is higher).
The TPP is essentially an extralegal export of insanely overzealous IP protectionism. I'm all for actual trade agreements, but that just ain't it.
That's a reason for everyone who isn't the USA to be mad at it, but it's US IP laws that are being exported so that's not a downside *for America*
I too wouldn't touch grocery """price gouging""" with an eleven-foot pole, especially in litigious How Dare You Raise Egg Prices During Avian Flu California...but it sure would be nice to offer discounts on soon-to-be-unsaleables, scaling or otherwise. Even though there's a small tax break for donating food, and a smaller rebate for tossing stuff (I don't understand the mechanics there), there's a wide range of price points that'd capture meaningful value above those meagre percentages. Add in a final-sale clause to avoid returns and mitigate moral hazard*, and you're off to the races. Win-win for us on the grocer's end too: more leeway to order heavy inventory, less time spent processing intrinsically-annoying spillage. Recent Transparency Good(tm) law changes mean the state's gonna start auditing donation books, so the process has gotten significantly more cumbersome. Lotta things just get tossed in the bin rather than donated, because ain't nobody got thyme for that. Clear case of Beware Trivial Inconveniences in action.
The, uh, fundamental economic attribution error rings true. There was a giant company-wide raise equivalent to about 3 simultaneous normal raises earlier this year, and we're now offering life and disability insurance as well. Yet somehow coworkers don't tie this deserved increase in compensation to inflation, it must be "corporate greed" somehow. Same thing when rising commercial rents and the fast food minimum thing closed local restaurants..."Well Acktually in Europe these franchises pay more *and* their goods aren't that much more expensive, people are just greedy here"...right. I dunno how to convince someone who won't buy the evidence happening right in front of them.
*though again I can imagine unprincipled excepions being made here by consumer rights maximalists..."caveat emptor except where void or prohibited by law"
Having fluctuating prices at places like Walmart sounds amazing because it will force Americans to adjust to such things as natural.
If a bunch of retailers/grocers do it then nobody in particular gets hammered for timely, accurate pricing.
"[P]ractical considerations of having to ‘disclose and explain’ changes in cost of goods sold" - having worked in management accounting in CPG for a decade and a half, if these companies don't have this data already, they damn well should. The practical considerations will likely amount to fitting it into whatever stupid XML format the SEC would set up, and also figuring out how to obscure as much as possible to give up minimal competitive advantage. Not saying it's a good thing at all (I agree with the "easier to coordinate" analysis), and this extra busywork is just more administrative drag, but that data really should be Business As Usual for consumer goods.
> If you think we have to ‘beat China’ and do not at least want to be in the TPP, I have no words.
The TPP is not a mutual defense pact. The US experience with NATO free riders after the end of the Cold War shows what happens when the US has no formal leverage and can't find a way to use informal leverage.
One alternative would be a mutual defense pact in which tariff reduction/abolition is the incentive for fence-sitting western Pacific TPP members Singapore, Brunei, Malaysia, Vietnam, and NZ to help the US contain China. Tariffs would presumably be reinstated for members who fail to meet China-containment commitments, such as % of GDP spent on defense, official statements on South China Sea island ownership, joining freedom-of-navigation sailings, etc.
Should the rational actor theory of international relations in the above paragraph be set aside on the assumption TPP is the foundation of a mutual defense pact? Institutional momentum or something? If we reason from base rates, probably not. What is the base rate for trade treaties becoming mutual defense pacts? Very low, I think.
In short, why buy the cow when you can get the milk for free?
I want to defend the "Switzerland is bad" take a little. Chase specifically mentions the brain drain to Switzerland, if one country has lower taxes and then all the rich people - who don't need a social safety net - go there, that leaves all the regular people behind without anyone to help them.
Especially if you think of the welfare state as a sort of vail of ignorance like insurance, where it would actually be in your own self interest to sign the social contract before you are born and know how successful you are going to be in life. You agree that, if you turn out intelligent you will support the unintelligent, disabled or schizophrenic.
And if now there is suddenly a loophole where all the productive people can go to their own country and stop supporting the poor then people will defect in this insurance game.
You could also reframe this in terms of functional/algorithmic decision theory, where Switzerland allows people to break their prenatal promise of helping the poor if you turn out successful. And it would be better if people don't have this option of breaking their promise.
This is only if Switzerland is rich because of brain drain, which I don't think is the case.