May 30th, 2005


European Constitution

The French voted this weekend on the new European constitution. Very different document from our own. Of course, it's a very different situation. Anyway, all 25 countries in the E.U. have to ratify the document, because currently any major changes in governance require unanimous consent. That's part of the reasoning for the new constitution. The old system leaves the continent too open to be blocked by one nation. I haven't read all of it yet, but I don't see anything bad about the document itself. It's less a radical change than our Constitution was from the Articles of Confederation. Though according to news outlets, the French have voted against it mostly as a rejection of the main party and person supporting it (Jacques Chirac), not out of instrinsic opposition to the document.


Eco 200: distribution of wealth

The current chapter is about the distribution of wealth in the country. One thing it notes is that wages are about 15 times the amount of corporate profits. Though when I went and looked it up, it's more like 6 times (for 2003). The point is still there, but it irritates me that the book's author consistently slants his mistakes to bolster his extreme libertarian approach.


Eco 200: professors and coaches

(group) Do the relative values of humanities professors and footall coaches at major state universities reflect the relative value of football and humanities? Do they reflect the number of years that professors and coaches must spend acquiring an education? The number of hours they work? The difficulty or unpleasantness of their work? Why do the football coaches usually receive salaries that are so much higher?

Yes. They do. In monetary terms, the value of a single humanities professor is less than the value of a single football coach. The expected marginal revenue from a football coach is much more than the expected marginal revenue from a single humanities professor. However, it's not exclusively governed by the marginal revenue. The supply of college football coaches is much less than the supply of humanities professors. Or at least the supply of good football coaches is.


Eco 200: union wage rates

(group) Do high wage rates in such strongly unionized industries as steel and automobiles pull up the general level of wages in nonunionized, lower-wage industries? If you think they do, what is the process by which this occurs? If contracts that call for high wages reduce employment opportunities in the industries that must pay these wages, where do the excluded workers find employment?

I have no idea. I can only postualte mechanisms where they might or might not.

One way they might is by redistributing wealth from shareholders to employees. There are fewer employees than shareholders and are generally have a greater percentage of their income coming from wages. They might reasonably be expected to be willing to consume more, thus driving up consumer prices and income for those producing consumables.

Another way is by increasing the opportunities for non-union employees. If they have the option of entering a union workforce, non-union employers will either pay them more or lose them to the union employer.


Eco 200: more on unions

(group) If we had no unions with their united strength, we would have unlimited hours of work, low wages, child labor wherever possible, speed-up and unsafe and dangerous working conditions. All these evils of the industrial system ahve been eliminated by workers united into unions and withholding their labor.

  1. Do you agree with that statement from a newspaper letter?
  2. Can you think of a way to test the statement or any part of it?

I do agree that unions have had somewhat of an effect on reducing such evils of the industrial system. Sometimes it's been reduced by public demand for better employer behavior. Sometimes it's been reduced by government action. In some cases it hasn't been reduced much at all. I can't think of any way to test the effect of unions vs. the effect of other forces. All I can think of are problems with various methodologies of any study. For instance, comparing pre-union levels of these problems with post-union levels doesn't take into account the fact that the economy has expanded greatly over the last 100 years. More so than the number of workers has expanded. The demand for workers has thus increased and meaning they have much greater opportunity in industries without those listed evils. Comparing a union employer with a non-union employer doesn't take into account that a non-union employer in the same industry competes for the same general set of workers. So there's no control.


Eco 200: librarians

(group) Should high school math and English teachers be paid as much as science and math teachers?

  1. Suppose that a school district pays all high-school teachers with the same years of experience the same salary, regardless of teaching field, and that this produces a surplus of history and English teachers and a shortage of science and math teachers. Would this create a case for salary differentials?

    Yes. It would.

  2. How could the problem of concurrent surplus and shortage be solved without paying science and math teachers more money than history and English teachers?

    That profession would have to be made more attractive. So non-monetary compensation would need to be increased. Fewer hours or less duties (more teaching assistants!). Lower standards for that employment category. Or conscript math and science teachers.

  3. Why has the policy of identical wages in fact produced shortages of science and math teachers along with surpluses f history and English teachers in many school districts? What factors have contributed on the demand side? On the supply side?

    If I had a choice between two professions offering the same wage, I'd take the one that required the least amount of work to enter. Why work harder for no more money? And my experience in college was that it was much less effort to get good grades in humanities than in math and science. If not for the possibility of greater income, I'd have stuck with the easier professions. On the supply side, I'm not sure.


Eco 200: the rule of law

(group) Discuss Hayek's view of the rule of law and outcomes. If we treat all people the same, if we apply the law uniformly, what are the implications for society and outcomes?

If law is concerned only with outcomes, and is designed to result in equal outcomes, then the implication is that personal choice does not matter at all under the law. No matter my choices as an individual, I end up with the same outcome.


Eco 200: liberty and the rule of law

(group) Summarize and analyze Hamilton's view of equality of outcome and liberty. Why does liberty necessarily guarantee inequality of income and wealth?

The is another view of my response to Hayek's statement. If you have liberty, you have to have consequences for personal choice. Since no law can cover exactly the circumstances of each individual, it cannot mandate the exact outcome for everyone who makes exactly the same choices in exactly the same circumstances. We just don't have enough paper for that law or enough time to write that law. So the outcomes are going to be unequal, based both on choice as well as circumstance. Or you legislate exact outcomes much as communism tried to.


Eco 200: poverty

(group) Consider and evaluate the instructor's assertion that poverty is a function of the choices which individuals make.

All people make constrained choices. Few people have choices so constrained that they cannot rise from poverty, at least given their starting point. The choices a person might have to make may be quite unpalatable (e.g., moving to a foreign country where ones skills are worth more). But those are still choices. One might be forced to choose between family and income, but that is still a choice.

Add in the fact that many people do very poorly at predicting the result of their choices. They don't intend to be poor. They just don't see the result of their choices. For example, one person I know constantly is making poorly thought out plans to get rich quick. He's got a hundred ways to make a million, though none of them will ever work. Meanwhile he's foregoing opportunities to get a better education or into a job that will result in better income over the long term.


Eco 200: college

(individual) By investing $20,000 (income foregone and other expenses) for each of the next 5 years in a college educations, Jack and Jill can reasonably expect to enhance their earning power by $10,000 per year for the following 25 years.

  1. Use Table 11-3 in Chapter 11 to decide whether this would be a good investment for Jill, who discounts at 3 percent.

    Putting the starting point at the end of the 5 years of education (for easy comparison's sake): the present value of a $10,000 annuity discounted at 3% over 25 years is $174,131. The compounded value of $20,000 at 3% in 5 years is $23,060 (which assumes the cost came at the beginning of the education and that bank interest rates would at least keep up with inflation).

  2. Is it a good investment for Jack, who discounts at 9 percent?

    $98,226 vs. a cost to him of $30,772. It's a good investment for him as well. Just not as good as Jill.

  3. How is the wisdom of the investment affected by the fact that both Jack and Jill love learning?

    They'd have to really love learning to give up that much money.


Eco 200: actual, legal, and moral property rights

(individual) A Santa Monica apartment owner decided to tear down his six-unit apartment building rather than operate under rent controls. The city refused him permission to tear down the building, however, claiming that its interest in preserving rental housing took precedence over his right to demolish his property. The California Supreme Court sustained Santa Monica's refusal to allow the demolition. Who owns the building? Sort out the actual, legal, and moral property rights in this case.

The landlord is the legal owners. The actual owner is a combination of the city of Santa Monica and the renters in the building, who have control of 99.9% of the economic choices. The landlord might be considered the actual owner for a small fraction of the property rights, as he retains the ability to set many policies for the building some of which may cut his marginal costs. And he could simply let his building remain empty after after tenants move out. So he has some actual property rights left in the building, though not many. The moral property rights in this case could be considered to be given to all three: landlord, tenants, and the city. That simply depends on the moral authority one looks to. The landlord ought to be able to set rents or prescribe the use of his property. The ciy ought to be able to preserve rental housing. And the renters ought to have stable rents. Depending on the authority one uses.