Sunday, January 31, 2010

Driving in Dublin

With cities throughout the world making attempts to increase the speed of city centre traffic because of congestion, Dublin City Council have announced plans to slow down traffic in a large area of the city centre.


The map above shows most of the areas that will be subject to the new speed restrictions.  Click the image to enlarge.  The pink shaded areas were the original extent of the 30kph zone.  The yellow areas reflect the new extended 30kph sone from 31st of January.  Is this a worthwhile initiative?

Tuesday, January 26, 2010

Keynes versus Hayek - The Rap

In this short news segment Lord Skidelsky and Russel Roberts discuss the opposing views of John Maynard Keynes and Friederich von Hayek.  We also get a early preview of rap Roberts is writing on the Keynes versus Hayek debate.



The rap is now completed and has been posted to ever reliable Youtube and is available below the fold.

Saturday, January 23, 2010

Tragedy of the Fishes

In 1968 Garret Hardin published a highly influential article in Science called The Tragedy of the Commons.  A PDF reprint of the article is available here.

You can read Chapter Ten from John McMillan's super book on markets, Reinventing the Bazaar, here.  The chapter deals with externalities and considers three examples of externalities
  • Driving and Congestion
  • Overfishing and Decling Fish Stocks
  • Wages in Sport and Competitive Balance
McMillan describes how market forces can be harnessed to correct externalites.  He looks at the congestion pricing cure to traffic jams and looks at the various input and output methods used to try and address overfishing.  Get an understanding of the commons problem by playing The Tragedy of the Bunnies online.

An excellent artice was on conservation methods in fisheries was published in The New York Times Magazine a few years ago.  A Tale of Two Fisheries looks at formal and informal conservation methods.  Some quotes from it are used by John McMillan.  For example:

Intelligent Tolls

When a driver uses a busy road he is imposing a delay cost on all other drivers.  However, as road users we do not take the costs we impose on others into account, thus roads like most common resources are over used and society is worse off.

Road pricing is a method to try and internalise the costs drivers impose on others and to encourage more efficient use of the road network.  London use a congestion charge for cars entering the centre of London, and makes some mild claims about it's effectiveness.  The problem with the London congestion charge is that it is too blunt a tool.  It is a fixed charge that does not respond to demand and increased congestion.  When roads are moving freely the congestion charge should be low, when roads are choked the charge should be high to encourage drivers to find alternatives.  This is the basis of Vickrey congestion pricing.

Singapore is one of the best examples of Vickrey pricing in action.  Here is a recent report from the Financial Times and the video below the fold gives a television news report on the charges.

Friday, January 15, 2010

Say it ain't so, Joe

A recent piece written by Socialist Party Leader, Joe Higgins, states:
"In 2008, the effective rate of tax on profits (including that declared by the self employed) amounted to a miniscule 10.3% (approximately €6 billion tax out of €58 billion profits).  The corresponding figure for wages including PRSI is 28% (€22 billion tax out of €79 billion in PAYE wages). If profits in 2008 were taxed at the same effective rate as wages, a rate that would still be less than the US and the rest of the EU 15, an extra €10 billion would have been available to the exchequer."
This was repeated by Stephen Boyd in another piece and used by Mick Murphy on a recent appearance on Newstalk's The Right Hook.  Listen here (start at 7:30 into the segment to get the relevant piece).

There is much to admire about Joe Higgins.  He is a brilliant orator and is a loss to parliamentary politics in Ireland.  He has great energy and his work and support for the less well off in society is admirable.  Every society needs a Joe Higgins. Unfortunately he tends to talk an awful lot of rubbish, such as the claptrap above.

Thursday, January 14, 2010

Water, water everywhere, but no one stops to think

When the "Big Freeze" peaked about 10 days ago the response of many households was to leave taps running in an effort to prevent pipes freezing and cutting off the water supply to the house. For the individuals in question, this was an entirely rational thing to do. The benefit was continued access to water and no cost to themselves.

However, society incurred a huge cost of this action through what we would call a consumption externality. The cost to society of all the water wasted as thousands of taps were left running. There is no individual incentive to conserve water in Ireland. Remarkably for a country that rarely suffers from a shortage of rain we are in the midst of a water shortage. People leaving taps running during the cold spell now means that we are rationing water.

Tuesday, January 12, 2010

Businesses and profits benefit the consumer - they have to!

In a recent vent, Heather McDonald begins:

If I hear one more Democrat (and occasional Republican) in the House or Senate condescend to business, I am going to throw up. Today it’s insurance and drug companies, tomorrow it’s oil producers, toy companies, banks, chemical manufacturers, or any number of other enterprises that offer necessary or simply life-enhancing products and services. The preening self-righteousness towards for-profit economic activity is not specific to any particular legislative initiative such as “health care reform,” it is part of the psychological make-up of many politicians and huge swathes of educated professionals, including virtually the entire academic world and non-profit sector, the media, and many high-paid lawyers. It is simply unbearable to hear these sheltered senators and congressmen look down upon people who have had the guts to try to create something that other people want to buy; who have had to figure out intricate supply chains and methods of financing; who have had to organize and motivate their employees; and who take financial risks with no guarantee of reward. For the anti-business mindset, the fact that businessmen need to make a profit in order to continue operating renders them prima facie suspect, if it doesn’t outright undercut any claim that they might have to contribute to the public good.
A a film version of the speech from the 1951 film Home Town Story is available below the fold.

The Irish Economy going into 2010

These are the slides from a seminar I gave to the Faculty of Commerce in UCC on Monday 11th of January.

Sunday, January 3, 2010

Deposits and Loans on Banks' Balance Sheets

As well as credit card data the Central Bank's Monthly Statistical release gives information on the balance sheets of financial institutions in Ireland. Here we will use the data from Table C3 from the current release (November 2009) and previous releases to consider the level of customer deposits (liability) and loans extended (asset) of Irish financial institutions from August 2006 to November 2009.

This graph gives the total amounts of deposits and loans of Irish residents in Irish financial institutions.

Credit Card Data

The Central Bank published the most recent release of their Monthly Statistics. This contains a host of data relating to the financial, banking and monetary sectors of the Irish economy. The end of the release gives an insight into aggregate credit card usage in Ireland in Table C14.

The Central Bank do not present the data in a manner that makes it easy to work with but we can extract some information from it. By combining the data in the current release with the numbers presented in a previous release (September 2006) we can present monthly information beginning in June 2003.

First, we can look at the number of credit cards in issue.

Saturday, January 2, 2010

Coffee Consequences for Chaves

This could be classified as a further example people respond to incentives or evidence of the theory of unintended consequences. It is also a classic "supply and demand" example of the effects of price ceilings beloved of microeconomics textbooks.



A BBC News video reports that one time coffee exporter, Venezuela, is now importing coffee. The reason for this is attempts by Hugo Chavez's regime to control the market through price ceilings. A coffee producer in the video states:

"The prices for producers are below the costs of production. Two years ago it cost me just over six dollars to produce a kilo of coffee. Today the state pay a fixed price of four and half dollars per kilo. I was losing money by producing coffee."
Not suprising most producers have responded by cutting production. In the same piece the Venezuelan Agriculture Minister, Elias Jaua, argues that:

"The price controls are a guarantee that the Venezuelan people have the right to food and the government compensates the producers by direct and indirect subsidies. That way, producers have a fair income and people have that sacred right of access to basic foods."
The Finanical Times has a piece that describes another unintended consequence of these price controls.

Price controls have made matters worse. Increasing amounts of coffee – and many other goods – are smuggled abroad to be sold at international prices. “Of course there’s contraband. What does Ch├ívez expect when you can sell coffee in Colombia for double or triple the price?” said one coffee producer, who requested anonymity.

Even with rising domestic demand it is expected that Venezuela's coffee production will be about 38,000 tonnes this year, down 70% from its peak. This compares to a 55,000 tonnes level of demand in the country. More data are available here. The shortfall has to be imported and the Venezuelan government cannot fix the price of imports but that doesn't mean they're not trying.

As the self-prolaimed Indiana Jones of International Finance, Robert P. Smith, says:

"In trying to organize and protect domestic industries with the blunt instrument of state policy, Chavez has once again fallen prey to the law of unintended consequences.

The market is there, globally – but it’s been badly distorted. In trying to fix domestic coffee production, the Venezuelan leader has exacerbated the very problem he set out to cure."

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