A Great Economics Metaphor

The best metaphor regarding pure competition... I thought of this one while driving on a trafficky highway.

Think about when there's a good amount of traffic on the highway, not bumper to bumper, but enough to be stop and go at times. There's always one line moving faster than the other two (on a three lane highway). Whenever one is in this situation, they usually feel compelled to move into the that line. But then what happens? A lot of people move into that lane and then it becomes the slowest lane. 

Think about pure competition. When the firms present are experiencing a short term economic profit, more firms join the industry, lowering the equilibrium demand price for the industry, just like driver move into the fastest lane. Shortly thereafter, the industry's firms experience short term economic losses, just like the lane the drivers move into slows down to an even slower rate. In the long run, of course, the firms and the drivers alike receive a normal profit (travel at an average, standard speed that every car regardless of lane switching will experience).

Thoughts? I liked it. Goes to show how much of an economics nerd I truly am. :)

The Government and the Private Sector... Cooperating?

After the approval of a 90% tax on bonuses, it looked as if the Obama Administration wanted to be a foe to the private sector as opposed to being an effective facilitator. However, it looks like Tim Geithner's plan will involve incentives for the purchase of assets, with the federal government shouldering a portion of the risk. 

Participating firms would be exempt from any pay caps.

Bravo Tim.

Three Cheers for 90% Taxes on Bonuses!

The populists have triumphed. 

Now that "corporate excess" will be eradicated from those companies receiving bailout money, it looks as if some top American talent will leave for Deutsche Bank and Barclays, among other top global banks. 

Will the American financial industry ever be the same?

It's Time to Bash Unions

I vehemently oppose Unions, however, I have yet to fully strike those inefficient bodies. Now I will. 

Recently in my local High School, the teachers of the teacher's Union got together and voted on whether to all take pay cuts and save other spending and keep teaching jobs that could be rid of, or to decline pay cuts. Well that's like asking a little kid if they want their cookie or not, rendering the vote useless, since one would have to be quite vacuous to not know they would turn it down. 

Due to a large deficit, the BOE has been trying to make cuts, firing untenured teachers, and getting rid of miscellaneous other things, including a 20% proposed budget cut off the current arts and music appropriations. Many students passionate about those subjects are outraged, and I have been fervently fighting to keep their beloved classes and programs alive. As they attempt to limit or completely ameliorate any cuts, they often point at the complete lack of cuts from school athletics. Being an athlete, I do not enjoy such comments, especially when the full root of the problem comes from the true "gem" of public schools: the teacher's union.

Allow me to explain further: So these exceedingly special teachers are allowed to have their teacher's union to demand more and more ad infinitum, and they get whatever they wish for, yet this utterly neglects the interests of the students. Think about it: teachers refuse to take pay cuts, and things like arts and music get cut to some extent to make up for the lack of the cut in teacher's compensation. How greedy is that on the part of the teachers? With such attention being put toward outrageous Wall Street bonuses, why doesn't anyone look toward the public sector where the employees are employed with the specific pretense of HELPING the STUDENTS, while simultaneously the students are HURT by the practice of teacher unionization. Such a discovery has led me to tell the "artsy fartsy" kids that they should blame unionization for this one. 

Citi's Chief Economist to the Public Sector

The article is here about how Citi's chief economist, Lewis Alexander, is leaving the company to work for the federal government. 

Looks as if Obama will have his own "Brain Trust" like FDR did...

The "Classic Mistake" of Monopolies

Socially optimal price vs the "Fair Return" price vs. Their regular price

A great video that will stay in your head