The Man Is Me

The government of the United States is paying me (for now) about $28,000 per academic year to go to graduate school. Assuming I work 40 hrs/wk (I don't), over a 9 month period that's about $18/hr. And that is the government's willingness to pay. Take that how you will.

Slices of East Berlin, Really?

The Stranger, not surprisingly, advocates privatization of the liquor retail industry. Here's the Stranger mangling the concept of profit. They butcher a few other things too. I'm glad that the online article also includes the image shown in the print edition as a blown quote: "net profit" of $332.7 for Washington state in 2009.

Net profit. Good. I'm fairly sure that's the same as profit. Or is it?! Stranger:

In 2009, the state made $332.7 million in revenue from liquor sales; some estimates show privatization could increase that by $100 million annually.

So, net profit = revenue? Typo, maybe. But you gotta be kidding me if you write that second sentence and then write this one two paragraphs later:

Another bill (SB 6840), sponsored by Senator Rodney Tom (D-48), follows the full privatization model of California. Tom says he estimates it would bring in "over $100 million in additional retailer revenue" per year.

He estimates that, huh? Mr. Tom is A REAL ESTATE AGENT (he moonlights as a politician). I guess that's probably not Mr. Tom's personal back of the napkin estimate that he whipped up over a discussion of the current economic environment during an open house, though. Also, Mr. Tom says it's retailer revenue. So unless the tax rate is 100%, the increase in state revenues (I'm going to just assume they mean revenue) is a strict fraction of that, probably less than half.

I'm not convinced this a number worth talking about. I can't summon a reason aside from the increased advertising associated with private competition that would raise revenue by any amount. Demand determines supply, not the other way around.

If we're talking introductory micro, we're talking about a price movement along the demand curve. This is a supply change not a fundamental shift in Seattle's demand for liquor. Now, depending on the elasticity of demand, this could raise revenue. But liquor is arguably pretty inelastic so price changes will affect quantity demanded relatively less. If you need a drink, you'll get a drink - as evidenced by the 15 high school seniors who slipped through the cracks and bought liquor for the 60% of seniors in their school who went binge drinking at least one out of four weekends in the past month [15 = (Assuming a quarter of a 2000 pupil high school are seniors)*(60% of them drank in the last month)*(5% of underage youth successfully buy from state liquor employees) That's my back of the envelope number]. And just so everyone's clear, these statistics simply do not imply the conclusion drawn by Mr. Cooper:

Jim Cooper, vice president of the Washington Association for Substance Abuse and Violence Prevention, says that a survey of Washington youth shows 60 percent of 12th graders used alcohol in the last 30 days. "There's a direct correlation between better access to alcohol and youth drinking," he says.

So the revenue stream from privatization is likely smaller than is (mis)represented in the article. I'm also not convinced that a simple supply curve shift and a price decline would be the outcome. During the auction for liquor licenses, what's to stop a venture capitalist from buying up all the rights, maintaining the monopoly power previously held by the government, utilizing that negotiating power to lower their costs, and charging a higher price on an inelastic good to boost revenues?

This article is up in a tussy about the transaction cost of finding one of the 315 liquor stores in Washington. But let's talk opportunity cost, namely that of hacking out this new system that will, with a sizable probability, reduce the states $2.6b budget shortfall by less than 4% while adding a transaction cost of it's own.

Executive Decisions

It's at times hard to deny that there are advantages to political systems other than bi-partisan democracy. I'm pretty sure this isn't the result of a grass-is-greener effect because there seem to be some pretty real benefits to people. Like jobs:

"Speaking at that site last month, President Obama warned that the United States was falling behind Asia and Europe in high-speed rail construction and other clean energy industries. “Other countries aren’t waiting,” he said. “They want those jobs. China wants those jobs. Germany wants those jobs. They are going after them hard, making the investments required.”

Indeed, the web of superfast trains promises to make China even more economically competitive, connecting this vast country — roughly the same size as the United States — as never before, much as the building of the Interstate highway system increased productivity and reduced costs in America a half-century ago."

Chinese stimulus threw and extra $100 billion at the project, so that's on top of whatever the baseline budget was when the it was drawn up in 2004, or 12.5% of our stimulus +/- a bit. (well, +). Sounds like something we could have been doing with our money. (Well this along with lump sum transfers to state and local governments.) Is centralized leadership beneficial? Well, looks like it gives you jobs and fearless monetary policy*:

"The step, announced late Friday, came earlier than most economists had expected and was aimed at forestalling a rekindling of inflation by controlling a rapid expansion in bank loans."

*net effects not yet determined.

UPDATE: HAHA

Thirst for Knowledge

Observation: Google Reader (GR) is a giffen good in some circumstances. If you are a twenty-something Seattleite who pays attention to wonkish/technocrati economics blogs, GR may act as a Giffen good [a good for which demand shares a positive relationship with price]. But what about the price of GR?

The cost of the iphone app 'byline' was $3.99, and necessary to keep the influx of blogosphere commentary as close to the consistency of an IV drip as possible. Consuming GR aside from that is free, and the $3.99 is more like a one-time lump sum use tax; it won't affect my consumption decision at the margin. Its price in real terms is its opportunity cost of time. While a normal good would share an inverse relationship between the number of unread posts and time spent consuming GR, the more bold unread items in my inbox, the more I nom nom nom all over that GR pie.