Monday, August 28, 2006

Did anyone hear a bubble burst?

Jim Hamilton thinks the housing downturn is here, but David Altig (link from econbrowser) thinks it is too early to freak out.

John Steinbeck, economist

I am reading The Grapes of Wrath for the first time, and am struck by the portrayal of banks and firms generally. It is one of the most eloquent explanations of profit maximization you could imagine:
A man can hold land if he can just eat and pay taxes ; he can do that.
Yes, he can do that until his crops fail one day and he has to borrow money from the bank.
But--you see, a bank or a company can't do that, because those creatures don't breathe air, don't eat side-meat. They breathe profits; they eat the interest on money. If they don't get it, they die the way you die without air, without side-meat. It is a sad thing, but it is so. It is just so.
...
The bank... has to have profits all the time. It can't wait. It'll die. ... When the monster stops growing, it dies. It can't stay one size.

Ignore, for a moment, that Steinbeck calls the bank a "monster". Can you recall such an explanation of the reason firms profit maximize? Without constantly seeking to maximize profit, firms lose their capital and slowly die. Individuals can choose (or be forced to) mere sustenance as a way of life; for firms, profit maximization is mere sustenance. It is, as Steinbeck says, just so.

Friday, August 25, 2006

Substitution is Delicious!

According to NPR:
Because of the ban on liquids aboard planes, Clearwater Seafoods, which sells lobsters in the Nova Scotia airport, had to find a substitute for the ice packs it uses to keep carry-on lobster cold during flights.

And what did Clearwater Seafoods use?

Peas and corn. Yes, that's right. Peas. And corn.

I never knew substitutes could be so... delicious.

Addendum: If you listen to the clip, you hear that the authorities "have absolutely no problem with lobsters." Apparently the TSA has watched too much of this and not enough of this.

Thursday, August 24, 2006

Political power grows out of... low prices?

Wal-Mart joins the Party in China. From the New York Times:
Wal-Mart, capitalist retailer for the masses, now has its own Communist Party branch. Earlier this month, Communist Party and Communist Youth League branches and a trade union were set up at a Wal-Mart outlet in the northeastern industrial city of Shenyang...
This is the second union in a Chinese Wal-Mart. The NYT article suggests that the retailer "respects the right" of the Party to organize their workers. I suggest two alternative explanations. First, the PRC doesn't want to kill the goose that laid the golden egg. From the article:
China does not allow independent labor organizations. Unions usually represent the work force of a single company or outlet, rather than an industry, and they traditionally have been allied with management. [emphasis added]
Here's the second: Wal-Mart recognizes that the cost to opposing the Party exceeds the benefit, at the margin.

Monday, August 21, 2006

Its all in your head

This piece from Businessweek describes an emerging area of economics that may shed some light on interesting puzzles.