Climate update

• NPR explains cap-and-trade with a fun story about limiting use of the word "dude".
  
• Alan Durning of Sightline explains why he (mostly) loves Waxman-Markey.
  
• The Breakthrough Institute folks explain why they don't.
  
• The U.S. has restarted a pilot project for CCS (carbon capture and sequestration).
• And House speaker Nancy Pelosi comes back from China with a worrisome thought about a climate change trap:

Ms. Pelosi found herself greatly encouraged by the dialogue but deeply afraid that the two countries would fall into an old trap: hiding behind each other so that neither would have to do anything difficult or expensive.

• Finally, a good reminder from the fisheries world that caps can be changed too.
  

Elasticities and monopoly pricing

David Pogue talks about what he calls the App Store Effect:

The App Store Effect says this: if you cut a software program's price in half, you sell far more than twice as many copies. If you cut it to one-tenth, you sell far more than 10 times as many. And so on.

In other words, buyers are very responsive to price changes, i.e., the price elasticity of demand is less than -1. In these situations cutting prices will increase revenue, and for a product like software that has zero marginal cost, an increase in revenue means an increase in profit.

The question is whether this is really true, or whether it's just Pogue's wishful thinking, as with the Laffer Curve.

Health care update

Big debate about having a "public option", and bad news from a Congressional Budget Office review of health care proposals.

More depressing articles on the budget

The federal government is trying to bring back budget rules that embody some sort of common sense:

Mr. Obama announced he was sending legislation to Congress to restore the 1990s-era “pay as you go” law, known as Paygo. The law, in effect from 1990 to 2002, required that tax cuts or new entitlement spending — like the health care overhaul that Mr. Obama hopes will be a signature domestic achievement — be paid for through budget cuts or tax increases.

But that will only stop the hole from getting bigger... and the hole is already plenty big. No wonder there's talk about legalizing (and then taxing) marijuana.

PS. Supposedly the Democrats are also near consensus on a health care plan.

Wiki editing battles and economics

A funny NYT article on the "long tail" articles on Wikipedia that become the disputed ground in edit battles (hint: think Scientology) has a link to a Wikipedia entry on "lamest edit wars", and guess what's featured?

Nobel Prize in Economics

Should this article (and other articles and templates that mention this award) use the common name of the award, the official name, Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, the even more official name, Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne, or perhaps a compromise name, Nobel Memorial Prize in Economics? The ignoble debate has involved endless discussions, requested moves, revert wars, blocks, and strangely, two (N/n)obel Prizes.

Laughter: 10-16 million years old

According to Wired magazine. (Hat tip to AP.)

Efficient market hypothesis under attack

Note how this article confuses two "definitions" of the efficient market hypothesis:

• You can't beat the market.
• The market is "rational".

I don't even know what the second definition really means, so it's not surprise that I subscribe to the former definition. So does the author of the article:

Unless you’re Warren Buffett, an index fund is where you should put your money. Even people who don’t follow that advice know they should.

Health care v. climate change, continued

Health care is winning, according to the NY Times:

On a flight to Trinidad aboard Air Force One in April, Obama called [Senate Finance Chair Max] Baucus to his cabin — along with Charles Rangel, Baucus’s counterpart in the House — to talk health care for a half-hour or so. “He just turned to me and said, ‘This is my No. 1 issue,’ ” Baucus recalled. “He wants meaningful, comprehensive health care. He doesn’t want to pass something where everybody gets flu shots.”

Climate stand-off: U.S. versus China

The NY Times reports on the heavyweight battle, comparing it to "cold-war arms control negotiations".

As a measure of how far apart the two nations are, China says the United States should reduce its greenhouse gas emissions by 40 percent below 1990 levels by 2020. The bill before Congress, which could be further weakened, now calls for less than a 4 percent reduction over that period.

Highway trust fund in trouble

Sen. George Voinovich, R-Ohio, said it's clear that Congress must raise the federal gas tax, which is now 18.4 cents per gallon.

Citing the lack of inflation indexing for the gas tax and a decline in gas consumption (the EIA says that motor gasoline consumption is down from 61 million gallons per day in March 2003 to 51 million in March 2009), the NY Times reports that the federal Highway Trust Fund will run out of money in August. Not sure that much is going to happen, though:

Two congressionally mandated commissions have called for an immediate increase in the gas tax. The first commission, which issued its report in early 2008, recommended a 40-cent per gallon hike. The second panel, which issued its report earlier this year, recommended the tax be increased 10 cents per gallon for gas and 15 cents per gallon for diesel, and that both be indexed to inflation.

Government revenue stability

The NY Times writes about state budget woes:

Hardest hit on the income tax collection front was New York, where revenues were off 48.9 percent compared with the last fiscal year. Corporate income taxes plummeted most in Oregon, down 44 percent, while sales taxes fell most in Washington, down 14.1 percent.

The Gates Commission says (p. 25) that short-run tax elasticities are as follows:

• Sales and use taxes: 1.4 (i.e., a 1% increase--or decrease---in GDP produces a 1.4% increase---or decrease---in sales taxes revenue)
  
• B&O tax: 1.4
• Property tax: 0.2
• Public utilities tax: -0.2
• All taxes: 1.2
• Income taxes: The appendix estimates an elasticity of 2.0 for flat personal income taxes, and the main report says that "the sales tax, although volatile, is less volatile than a graduated personal income tax. There is no evidence that a flat rate personal income tax in Washington would be less volatile than the sales tax. The B&O tax is not as volatile as a corporate income tax."
  

Interest rates and government debt

Too many government borrowing too much money threaten to compete with private borrows, driving up interest rates and slowing down economic growth, says the NY Times.

Auctions and Medicare

A NY Times op-ed suggests using an auction to save money on Medicare.

The White House budget director, Peter Orszag, has highlighted regional variations as a key source of overspending on health care. Such wasteful spending by Medicare and by private insurance could add up to as much as $700 billion a year — enough to provide insurance for everyone who doesn’t have it now.

To realize some of these savings, Medicare could use an approach called a reverse Dutch auction to set up competition for doctors in oversupplied regions.

Choices are bad

Gail Collins writes about student loan rip-offs:

Hell hath no fury like a middleman scorned. The lenders have been rallying the troops, waving the banner of choice.

Health care is eating up the economy

So says Timothy Noah, citing the Council of Economic Advisors.

The government now owns most of GM

I've got a bad feeling about this.

PS. I have a much better feeling about the United Auto Workers union owning 18% of GM (and 55% of Chrysler). It's what economists call "selling the store": if management and labor have trouble working together, one solution is for the managers to sell the business to the workers. See also this analysis by Daniel Gross.

To provide the retirement and health care benefits its members want, the working man will have to become "the Man." If, indeed, there is an unending war between labor and capital, with one trying continually to screw the other, then it's a Pogo moment for the United Auto Workers. They've met the enemy, and it is them.

Middle East jokes

Thomas Friedman writes about swapping Middle East jokes with President Obama. Friedman's joke is pretty good:

There is this very pious Jew named Goldberg who always dreamed of winning the lottery. Every Sabbath, he’d go to synagogue and pray: “God, I have been such a pious Jew all my life. What would be so bad if I won the lottery?” But the lottery would come and Goldberg wouldn’t win. Week after week, Goldberg would pray to win the lottery, but the lottery would come and Goldberg wouldn’t win. Finally, one Sabbath, Goldberg wails to the heavens and says: “God, I have been so pious for so long, what do I have to do to win the lottery?”

And the heavens parted and the voice of God came down: “Goldberg, give me a chance! Buy a ticket!”

Obama's joke? Not so good:

“We have a joke around the White House,” the president said. “We’re just going to keep on telling the truth until it stops working — and nowhere is truth-telling more important than the Middle East.”

Individual optimization?

Part I: "Man to police: I wasn't masturbating, just carrying weed".

Part II: A crash on southbound I-5, and then another on northbound I-5 as a motorcycle rider "was looking over at the southbound crash before slamming into the ambulance. He was also wearing headphones in both ears attached to an iPod, which is illegal while riding."