I, Pencil

Leonard Read's famous story "I, Pencil" is a short tale that reminds us of the wonders of the market that we observe all around us every day. We may take it for granted, but even a device as simple as a #2 pencil requires a massive effort on the part of economic actors.

The people who make the eventual production of a pencil possible are specialized in their own tasks and may have no idea what the eventual product of their labor will be. No one person plans the production of pencils, yet they sit on shelves around the world, ready for purchase and use. Below is a video version of Read's essay that I think readers might enjoy.

An Interesting Quote on the Problem of Monopoly

Last night I was searching the web for a copy of Harold Demsetz's essay entitled "Two Systems of Belief About Monopoly" and I ran across Pete Boettke's book "The Elgar Companion to Austrian Economics." I thought I'd share a short section of the book with some commentary or clarification for the non-specialist reader in brackets.

2015 Public Choice Society Meetings Recap

Last weekend I attended the Public Choice Society meetings in San Antonio. I thoroughly enjoyed every aspect of the meeting. We stayed in a hotel on the Riverwalk and the papers presented at the meeting were unique and insightful. I thought I'd jot down a few of my thoughts about the meeting in this post.

First, I want to make sure readers know what the conference was about. Public Choice is a field of economics that deals primarily with political issues. The field is often described as "politics without the romance." Typical topics you'd find at the conference or in the society's journal Public Choice, are voting behavior, lobbying, rent seeking, economic freedom, regulation, and other topics at the intersection of economics and politics.

The Continuing Land Price Decline

A recent article on agrimoney.com summarizes a couple of the causes of the continuing slump in land prices. In this post I'll expand a little bit on the article and discuss some possible scenarios going forward.

As the article indicates, the recent strength in the dollar has put downward pressure on crop prices (and, of course, oil). Part of this is due to an expected decline in exports. As the dollar strengthens, foreign buyers of US commodities will have to pay more in terms of their own currencies to purchase US products. If we expect crop prices to be low, we would expect land prices to fall especially if we expect interest rates to rise (For a full discussion of this issue, see this article.)

Over the last week, the financial press has been abuzz with news of the Fed's removal of the term "patient" from its guidance. The question was whether the Fed would remain "patient" and put off raising its federal funds interest rate target. Since asset prices are an inverse function of interest rates, an indication that rates would rise sooner would probably have pushed down the major stock indices.

Price Controls: Uber and Surge Pricing in New York

Uber, the phone-app taxi service has had a rocky relationship with regulators over the last year. This is no surprise, since it provides a convenient, inexpensive alternative to the long-held taxi oligopolies found in major U.S. cities. The latest attempt to slow the growth of this new service comes in the form of anti-price-gouging legislation.

New York Assemblyman Felix Ortiz has proposed a ban on Uber's surge pricing. Mr. Ortiiz has two objections to Uber's surge pricing: 1) it's unfair for them to charge such high multiples of its normal prices and 2) Uber is not transparent in its pricing and doesn't tell the customer up front what price they'll have to pay for a given ride.

The problem with the Mr. Ortiz's first objection is simple. Uber is actually providing peak-load pricing in the taxi market. When demand for rides from Uber drivers increases, prices begin to increase. This is a perfectly rational response to an increase in demand and has the salutary effect of bringing more Uber drivers out to meet this increased demand.

Potpourri

Don Boudreaux discusses the issue of monopsony power and the minimum wage in an interesting fashion.

Prompted by criticism from local food advocates, Jayson Lusk clarifies his position. It continually baffles me that so many people equate opposition to subsidies for or outright government provision of some good or service with opposition to that good or service itself.

Paul Krugman's most recent comments on the minimum wage have sparked several productive discussions in the blogosphere. One post in particular stands out to me. In it, Scott Sumner uses this episode to illustrate the difference between economists who take basic theory seriously when it comes to practical matters of policy and those who don't.

The EPA continues to generate policy uncertainty in the corn markets by failing to set volume obligations. On top of this, repeal of the Renewable Fuels Standard continues to garner support on both sides of the aisle. What exactly this potential repeal would mean for corn producers, I don't know. My initial thought would be that corn prices would fall, causing losses in the short run, but that input prices and planted acres would adjust (over time) and the policy-change-induced losses would cease. Additionally, we could expect lower fuel costs and slightly lower food prices if the RFS were repealed.

Understanding Banking After the Crisis

At his blog Spontaneous Finance, Julien Noizet clarifies some of the basics on banking theory and practice (relevant posts are here, here, here, and here). Since the 2008 financial crisis, the Post-Keynesian and so-called "Modern Monetary Theory" (MMT) camps have gained some traction in debates about how central bank policy affects the banking sector.

Their view is juxtaposed to standard monetary theory, which is based on the money multiplier effect. Though the MMT view is becoming more popular, many of its tenets seem to contradict the basic tenets of smart business. Farmer Hayek readers who are interested in banking theory and practice will likely enjoy Julien's article and the rest of his blog.