Slope and Elasticity

Many textbooks, including Greg Mankiw’s, argue that if a per unit tax is imposed on a good, the portion of the tax eventually borne by sellers and buyers depends on the comparative price elasticities of demand and supply [pp 135-6 of the 4th Cdn edition].

I think that is incorrect.

I think it depends on the comparative slopes, not comparative elasticities. Here is a graph to illustrate this point (which might also appear, I vaguely recall, using calculus in an old edition of Henderson and Quandt [thanks to Brian Ferguson, I see this material on p154 of the 3rd edition]):

Since my drawing skills are not great, please assume that the upward-sloping lines are supply curves, that all four of them are parallel and that each pair shows the effect of levying the same per-unit (or excise) tax on the sellers of the good.

The demand curve (downward-sloping but unlabeled) is a straight line; it has a constant slope, but the price elasticity of demand varies all along it from greater than one (in absolute value) near the vertical axis to less than one near the horizontal axis, and equal to one at its midpoint.

If the “burden of the tax” (which I take to mean the portion of the per unit tax paid by buyers and sellers, respectively, using partial equilibrium analysis) depends on elasticities, it should vary along this linear demand curve, shouldn’t it? But it is easy to see that the portion of the tax paid by consumers and sellers is invariant with the elasticities because the relative slopes are the same for both pairs of supply curves.

Even These Guys Saw It Coming

As the markets threaten to continue their downward trend, I keep wondering what took so long for the threats to emerge, and what is taking so long for the drop to materialize.



As Nouriel Roubini says, quoting himself,

The debate today is not any longer on whether we will experience a soft landing or a hard landing in the US; it is rather on how hard the hard landing will be. … My view is that the recession will be protracted and painful as a shopped-out, saving-less and debt-burdened consumer is on the ropes and now faltering; while the financial system is on the verge of a systemic crisis that will cause a severe credit crunch…



Indeed the delinquencies and losses in the financial system are spreading from subprime to near prime and prime mortgages; to credit cards and auto loans; to commercial real estate loans; to leveraged loans that financed reckless LBOs; to the losses of the monolines that are effectively bankrupt and at risk of spreading further massive losses to money market funds and other financial institutions once they get properly downgraded; and soon enough to corporate defaults and junk bonds that will in turn trigger massive losses on credit default swaps; eventual losses in the financial system may add up to more than $1 trillion…



As for decoupling there is no way that the rest of the world can decouple from a US recession. …



The Fed will ease aggressively but whatever it does now is too little to late; this easing will not prevent a recession as monetary policy can deal with illiquidity problems but it cannot resolve the deep credit and insolvency issues that plague the US economy; also when there is a glut of capital goods – in 2001 tech capital goods, today a glut of housing, consumer durables and autos the demand for these goods becomes relatively interest rate inelastic; it takes years to clean up this glut and monetary easing does not work as it is like pushing on a string…

Horrors! Is Nouriel Roubini asserting that the US economy is caught in a liquidity trap??



Last October these two guys saw things in the same perspective. The clips are quite amusing and roughly 8 minutes each. I recommend viewing them in this order.

Asymmetric Information, Bureaucratic Health Care, and the Principal-Agent Problem

A very touching post by Arnold Kling, describing his frustrations in trying to look after his father.

I am not expecting any miracles. … [W]hat I want for my father is the best possible combination of dignity, lucidity, and absence of pain. The operative word is possible, because what is attainable is limited. Moreover, there are trade-offs among these goals.

… For [this] larger goal of trying to do the best with his remaining life, nobody is in charge and nobody is empowered.

Segregated Schools? That’s What We Fought Against in the 60s

I attended The Chicago Theological Seminary from 1965 – 67. I went there in large part because the school was very active in the civil rights movement in the 1960s. The seminary served as a base for much of Martin Luther King’s work in Chicago; Jesse Jackson was a year ahead of me as a student there. It was an interesting, even exciting, place to be. [see below for digressive comments.]*

Perhaps because of this background, it perplexes me a bit to see this development in Toronto:

In a tight vote, Toronto District School Board trustees Tuesday night approved a contentious proposal for a black-focused school that opponents argued would be the equivalent of segregation.

… Tuesday night’s vote means that an alternative Afro-centric school will open in the city in September, 2009, but its location and grade levels are still to be determined.

… The proposal for the Afrocentric alternative school was in response to a request submitted in July by members of the black community, who were alarmed by the high dropout rate.

…TDSB statistics reveal that many black students are struggling. The dropout rate for students of English-speaking Caribbean descent is highest among all groups at 40 per cent compared with 23 per cent for those with Canadian roots, according to tracking data of a cohort of students between 2000 and 2005.

“Separate, but Equal” was not perceived as a viable solution to these problems back in the 60s and 70s; perhaps with more freedom of choice, as in a voucher system for funding education, the problems will be less serious.

With these thoughts in mind, here are some very cynical thoughts about possible outcomes from this programme. I hope I am wrong, and I hope that the freedom of choice (and competition between schools within the school district) will keep these outcomes from happening:

• This school will have a very high drop-out rate, though it will be masked and covered so as to minimize the numbers.
• This school will have a higher expense per pupil than the average in the area. But the numbers will not be trustworthy because the school board will want to inflate them to make it look as if they are “doing all they can” to help the students there and yet will not want the numbers to look too grotesquely out of line with the other schools.
• Violent crime rates in this school will be greater than in other Toronto schools (unless “misreported”, a euphemism for “covered up”.).
• Graduation rates from this school will be lower than for other Toronto schools, except that…
• grades will be seriously inflated in this school, in part to keep students in school and in part to propel the graduates to colleges and universities.
• Consequently, after a few years, we will hear stories of students’ graduating from this school and being unprepared to transfer schools or to attend post-secondary schools.
• This plan will open the door for many other racial and ethnic groups to ask for funding for special schools. It will be difficult to know where to draw the line.
• and most seriously, achievement scores will be lower in this school than the Toronto average (unless those, too, can be fiddled somehow).

If even a portion of these predictions comes true, in part, I will hold the parents responsible. They will not be forced to send their children to this school; they can send them to some other school in Toronto. I realize these days with teen-agers, parents do not make this choice on their own, though.

The major problem, however, will lie with the “education establishment”, the people who train in Canada’s education schools. Here is why:

Trustees Tuesday night voted on four recommendations that come with an initial price tag of $820,000:

- Open a black-focused alternative school in September, 2009, and set up a team to determine such things as grade level, location and appropriate curriculum.

- Set up a three-year pilot program in three existing schools that will integrate the history, culture and experiences of blacks in society.

- Team up with York University and other postsecondary institutions to establish a centre for staff development, research and innovation to track data and test best practices to help marginalized and vulnerable students.

- Have the director of education look at other proposals and develop an action plan for improving achievement among underperforming students.

Do you see a pattern here? I see a lot of programmes designed to increase the demand for people with master’s degrees in bureaucracy education. For the sake of the students, I hope they receive the attention and the incentives to make the school work.

One good thing is that the school will provide an option, a choice; students (and/or their parents) will not be forced to select this school, and in that way it differs enormously from the segregated schools of the US south in the pre-civil-rights era; in fact, this school will provide something akin to pseudo-vouchers. And if my above predictions are correct, and if the effects cannot easily be disguised or hidden from parents and students, then the school will either wither or become a sinkhole for increasing funding and hand-outs.

My cynical predictions do not have to come true, though. An op-ed in today’s NatPost indicates that there are some positive possibilities in the provision of education for aboriginals in Canada (see here). Perhaps the lessons from those experiences can help inform the policy proposals for this school as well.

But…. in the midst of all this, what happened to the concepts of integration and multi-culturalism?

*I left seminary before finishing my studies there for several reasons. The primary reason was that I felt quite hypocritical, realizing that whatever theology to which I might subscribe (near-atheism?), it was far different from anything that most people in most churches thought I was talking about. A second reason was that I had become increasingly uncomfortable in my evolution away from being an idealistic socialist, filled with hubris, a position held and supported by a large majority of my classmates and professors, toward a libertarian who values the long-term achievements of freedom and markets.

Segregated Schools? That’s What We Fought Against in the 60s

I attended The Chicago Theological Seminary from 1965 – 67. I went there in large part because the school was very active in the civil rights movement in the 1960s. The seminary served as a base for much of Martin Luther King’s work in Chicago; Jesse Jackson was a year ahead of me as a student there. It was an interesting, even exciting, place to be. [see below for digressive comments.]*

Perhaps because of this background, it perplexes me a bit to see this development in Toronto:

In a tight vote, Toronto District School Board trustees Tuesday night approved a contentious proposal for a black-focused school that opponents argued would be the equivalent of segregation.

… Tuesday night’s vote means that an alternative Afro-centric school will open in the city in September, 2009, but its location and grade levels are still to be determined.

… The proposal for the Afrocentric alternative school was in response to a request submitted in July by members of the black community, who were alarmed by the high dropout rate.

…TDSB statistics reveal that many black students are struggling. The dropout rate for students of English-speaking Caribbean descent is highest among all groups at 40 per cent compared with 23 per cent for those with Canadian roots, according to tracking data of a cohort of students between 2000 and 2005.

“Separate, but Equal” was not perceived as a viable solution to these problems back in the 60s and 70s; perhaps with more freedom of choice, as in a voucher system for funding education, the problems will be less serious.

With these thoughts in mind, here are some very cynical thoughts about possible outcomes from this programme. I hope I am wrong, and I hope that the freedom of choice (and competition between schools within the school district) will keep these outcomes from happening:

• This school will have a very high drop-out rate, though it will be masked and covered so as to minimize the numbers.
• This school will have a higher expense per pupil than the average in the area. But the numbers will not be trustworthy because the school board will want to inflate them to make it look as if they are “doing all they can” to help the students there and yet will not want the numbers to look too grotesquely out of line with the other schools.
• Violent crime rates in this school will be greater than in other Toronto schools (unless “misreported”, a euphemism for “covered up”.).
• Graduation rates from this school will be lower than for other Toronto schools, except that…
• grades will be seriously inflated in this school, in part to keep students in school and in part to propel the graduates to colleges and universities.
• Consequently, after a few years, we will hear stories of students’ graduating from this school and being unprepared to transfer schools or to attend post-secondary schools.
• This plan will open the door for many other racial and ethnic groups to ask for funding for special schools. It will be difficult to know where to draw the line.
• and most seriously, achievement scores will be lower in this school than the Toronto average (unless those, too, can be fiddled somehow).

If even a portion of these predictions comes true, in part, I will hold the parents responsible. They will not be forced to send their children to this school; they can send them to some other school in Toronto. I realize these days with teen-agers, parents do not make this choice on their own, though.

The major problem, however, will lie with the “education establishment”, the people who train in Canada’s education schools. Here is why:

Trustees Tuesday night voted on four recommendations that come with an initial price tag of $820,000:

- Open a black-focused alternative school in September, 2009, and set up a team to determine such things as grade level, location and appropriate curriculum.

- Set up a three-year pilot program in three existing schools that will integrate the history, culture and experiences of blacks in society.

- Team up with York University and other postsecondary institutions to establish a centre for staff development, research and innovation to track data and test best practices to help marginalized and vulnerable students.

- Have the director of education look at other proposals and develop an action plan for improving achievement among underperforming students.

Do you see a pattern here? I see a lot of programmes designed to increase the demand for people with master’s degrees in bureaucracy education. For the sake of the students, I hope they receive the attention and the incentives to make the school work.

One good thing is that the school will provide an option, a choice; students (and/or their parents) will not be forced to select this school, and in that way it differs enormously from the segregated schools of the US south in the pre-civil-rights era; in fact, this school will provide something akin to pseudo-vouchers. And if my above predictions are correct, and if the effects cannot easily be disguised or hidden from parents and students, then the school will either wither or become a sinkhole for increasing funding and hand-outs.

My cynical predictions do not have to come true, though. An op-ed in today’s NatPost indicates that there are some positive possibilities in the provision of education for aboriginals in Canada (see here). Perhaps the lessons from those experiences can help inform the policy proposals for this school as well.

But…. in the midst of all this, what happened to the concepts of integration and multi-culturalism?

*I left seminary before finishing my studies there for several reasons. The primary reason was that I felt quite hypocritical, realizing that whatever theology to which I might subscribe (near-atheism?), it was far different from anything that most people in most churches thought I was talking about. A second reason was that I had become increasingly uncomfortable in my evolution away from being an idealistic socialist, filled with hubris, a position held and supported by a large majority of my classmates and professors, toward a libertarian who values the long-term achievements of freedom and markets.

Segregated Schools? That’s What We Fought Against in the 60s

I attended The Chicago Theological Seminary from 1965 – 67. I went there in large part because the school was very active in the civil rights movement in the 1960s. The seminary served as a base for much of Martin Luther King’s work in Chicago; Jesse Jackson was a year ahead of me as a student there. It was an interesting, even exciting, place to be. [see below for digressive comments.]*

Perhaps because of this background, it perplexes me a bit to see this development in Toronto:

In a tight vote, Toronto District School Board trustees Tuesday night approved a contentious proposal for a black-focused school that opponents argued would be the equivalent of segregation.

… Tuesday night’s vote means that an alternative Afro-centric school will open in the city in September, 2009, but its location and grade levels are still to be determined.

… The proposal for the Afrocentric alternative school was in response to a request submitted in July by members of the black community, who were alarmed by the high dropout rate.

…TDSB statistics reveal that many black students are struggling. The dropout rate for students of English-speaking Caribbean descent is highest among all groups at 40 per cent compared with 23 per cent for those with Canadian roots, according to tracking data of a cohort of students between 2000 and 2005.

“Separate, but Equal” was not perceived as a viable solution to these problems back in the 60s and 70s; perhaps with more freedom of choice, as in a voucher system for funding education, the problems will be less serious.

With these thoughts in mind, here are some very cynical thoughts about possible outcomes from this programme. I hope I am wrong, and I hope that the freedom of choice (and competition between schools within the school district) will keep these outcomes from happening:

• This school will have a very high drop-out rate, though it will be masked and covered so as to minimize the numbers.
• This school will have a higher expense per pupil than the average in the area. But the numbers will not be trustworthy because the school board will want to inflate them to make it look as if they are “doing all they can” to help the students there and yet will not want the numbers to look too grotesquely out of line with the other schools.
• Violent crime rates in this school will be greater than in other Toronto schools (unless “misreported”, a euphemism for “covered up”.).
• Graduation rates from this school will be lower than for other Toronto schools, except that…
• grades will be seriously inflated in this school, in part to keep students in school and in part to propel the graduates to colleges and universities.
• Consequently, after a few years, we will hear stories of students’ graduating from this school and being unprepared to transfer schools or to attend post-secondary schools.
• This plan will open the door for many other racial and ethnic groups to ask for funding for special schools. It will be difficult to know where to draw the line.
• and most seriously, achievement scores will be lower in this school than the Toronto average (unless those, too, can be fiddled somehow).

If even a portion of these predictions comes true, in part, I will hold the parents responsible. They will not be forced to send their children to this school; they can send them to some other school in Toronto. I realize these days with teen-agers, parents do not make this choice on their own, though.

The major problem, however, will lie with the “education establishment”, the people who train in Canada’s education schools. Here is why:

Trustees Tuesday night voted on four recommendations that come with an initial price tag of $820,000:

- Open a black-focused alternative school in September, 2009, and set up a team to determine such things as grade level, location and appropriate curriculum.

- Set up a three-year pilot program in three existing schools that will integrate the history, culture and experiences of blacks in society.

- Team up with York University and other postsecondary institutions to establish a centre for staff development, research and innovation to track data and test best practices to help marginalized and vulnerable students.

- Have the director of education look at other proposals and develop an action plan for improving achievement among underperforming students.

Do you see a pattern here? I see a lot of programmes designed to increase the demand for people with master’s degrees in bureaucracy education. For the sake of the students, I hope they receive the attention and the incentives to make the school work.

One good thing is that the school will provide an option, a choice; students (and/or their parents) will not be forced to select this school, and in that way it differs enormously from the segregated schools of the US south in the pre-civil-rights era; in fact, this school will provide something akin to pseudo-vouchers. And if my above predictions are correct, and if the effects cannot easily be disguised or hidden from parents and students, then the school will either wither or become a sinkhole for increasing funding and hand-outs.

My cynical predictions do not have to come true, though. An op-ed in today’s NatPost indicates that there are some positive possibilities in the provision of education for aboriginals in Canada (see here). Perhaps the lessons from those experiences can help inform the policy proposals for this school as well.

But…. in the midst of all this, what happened to the concepts of integration and multi-culturalism?

*I left seminary before finishing my studies there for several reasons. The primary reason was that I felt quite hypocritical, realizing that whatever theology to which I might subscribe (near-atheism?), it was far different from anything that most people in most churches thought I was talking about. A second reason was that I had become increasingly uncomfortable in my evolution away from being an idealistic socialist, filled with hubris, a position held and supported by a large majority of my classmates and professors, toward a libertarian who values the long-term achievements of freedom and markets.

Political Correctness and the Democratic Party

Via Hispanic Pundit, who always has good quotes, comes this by Charles Krauthammer:

Clinton is no doubt shocked that a simple argument about experience versus inspiration becomes the basis for a charge of racial insensitivity. She is surprised that the very use of “fairy tale” in reference to Obama’s position on Iraq is taken as a sign of insensitivity, or that any reference to his self-confessed teenage drug use is immediately given racial overtones.



But where, I ask you, do such studied and/or sincere expressions of racial offense come from? From a decades-long campaign of enforced political correctness by an alliance of white liberals and the black civil rights establishment intended to delegitimize and marginalize as racist any criticism of their post-civil rights-era agenda.



Anyone who has ever made a principled argument against affirmative action only to be accused of racism knows exactly how these tactics work. Or anyone who has merely opposed a more recent agenda item — hate crimes legislation — on the grounds that murder is murder and that the laws against it are both venerable and severe.

Slop-over Effects and the Oil Patch

The increased demand for labour in Alberta’s oil patch has had some interesting effects. Workers commute to Northern Alberta from the Maritime provinces. Others move there from elsewhere, having been offered big pay increases. Fast-food outlets and grocery stores in Alberta have trouble finding enough labour to stay open and have taken to offering bonuses for new employees who stay longer than a few months. Young people estimate the marginal benefits of staying in school against the opportunity costs and quit school to take jobs in the oil patch.



It looks as if some of these effects are stretching as far as Nanaimo, British Columbia. Jack writes me that there are help-wanted ads all over the place; and as in Alberta, they offer bonuses for employees who take jobs and stay with them for some specified time period.



Here is an ad from the Nanaimo paper Jack sent me the other day:







Notice that the job pays $18/hour and requires no experience. Would you want to eat in that restaurant? [as all good economists would answer, "It all depends" - in this case, as in most cases, on the alternatives available].



Jack says it is

Also impossible to hire any trades folks working in the building industry. Flat-out is an understatement!

Slop-over Effects and the Oil Patch

The increased demand for labour in Alberta’s oil patch has had some interesting effects. Workers commute to Northern Alberta from the Maritime provinces. Others move there from elsewhere, having been offered big pay increases. Fast-food outlets and grocery stores in Alberta have trouble finding enough labour to stay open and have taken to offering bonuses for new employees who stay longer than a few months. Young people estimate the marginal benefits of staying in school against the opportunity costs and quit school to take jobs in the oil patch.



It looks as if some of these effects are stretching as far as Nanaimo, British Columbia. Jack writes me that there are help-wanted ads all over the place; and as in Alberta, they offer bonuses for employees who take jobs and stay with them for some specified time period.



Here is an ad from the Nanaimo paper Jack sent me the other day:







Notice that the job pays $18/hour and requires no experience. Would you want to eat in that restaurant? [as all good economists would answer, "It all depends" - in this case, as in most cases, on the alternatives available].



Jack says it is

Also impossible to hire any trades folks working in the building industry. Flat-out is an understatement!

The Gimli Glider – retired

In 1983, an Air Canada 767 airplane with 61 passengers aboard ran out of fuel. The pilot, who had glider experience, safely landed the plane with no power at an abandoned military air strip in Gimli, Manitoba. The plane is now being removed from active service after having had many successful flights following the incident. For more of the story, see this. Fascinating stuff.