Blogwatch: August 2022

Groceries, the New Deal, inflation, and the indefensible

On New Zealand’s “grocery problem”

In what looks like something from the X-Files, Robert Hamlin, Senior Lecturer in Marketing at the  University of Otago, argues that Turning supermarkets into public utilities could be the solution to New Zealand’s grocery problem.

But is there a grocery problem? Unsurprisingly Hamlin’s proposal has not gone down well with economists. At the Offsetting Behaviour blog, Eric Crampton notes that this “solution” amounts to Fixing supermarkets with Gosplan;¹ while Michael Cameron, writing at the Sex, Drugs and Economics blog, correctly notes Supermarkets are not natural monopolies, and should NOT be regulated as public utilities. In short, supermarket costs functions are not subadditive,² and the use of cost-plus regulation in supermarkets is totally impractical because supermarkets sell many products. Added to this is the fact that supermarkets are heterogeneous in their characteristics and thus imposing cost-plus regulation on all supermarkets regardless of size could easily make small supermarkets unviable. Also, cost-plus regulation means there is less incentive for supermarkets to keep costs low.

Finally, as Michael Cameron explains:

… supermarket firms are not just retailers, but wholesalers. By itself, this proposal on retail prices would need to be carefully designed. Otherwise, the supermarkets will simply route around it by separating out their wholesale operations into a different business, which sets the wholesale prices, upon which the retail prices (cost-plus wholesale) will be based. Then the supermarket profits will simply back up one step as wholesale, rather than retail, profits.

Perhaps the takeaway message from this debacle is: don’t take economic advice from marketers.

George Selgin on the New Deal and Recovery

George Selgin continues his, seemingly neverending, series at the Alt-M blog. Parts 12, 13 and 14 are titled Fear Itself. He covers The Keynesian Myth in three parts: 15, 16 and 17. Part 18 discusses The Recovery So Far, and part 19 War, and Peace.

Everybody’s favourite Marxist on inflation

Over at the Stumbling and Mumbling blog, everybody's favourite Marxist Chris Dillow is writing about inflation in Energy bills: Rentiers vs entrepreneurs. He argues that everybody says that we have a problem with inflation, but everybody is wrong. What we really have is a relative price problem. And this is a real problem because it involves a transfer of real resources. He goes on to say the major reason for high inflation is that petrol prices and utility bills are soaring. This means we are transferring a growing portion of our incomes to the owners of utility companies, and of gas and oil reserves. This in turn means that as we are handing all our money over to utility companies, there is nothing left to spend in more dynamic sectors. And so growth slows. This is a version of Baumol’s cost disease.

His answer? First, we need to need to decarbonise more quickly and second, we need to nationalise utilities and oil companies (did I mention he is a Marxist?). But he adds that even this would not fully fix the problem, as the more fundamental problem is a lack of productivity growth. No productivity growth means no real income growth and so any big change in relative prices where demand is inelastic will cut someone’s real income.

Meanwhile, at The Grumpy Economist blog, John Cochrane asks Will inflation persist?. He writes:

Suppose we do, in fact, have a one-time large deficit. How much do sticky prices and policy responses draw a one-time deficit shock out to a long-lasting inflation? The answer is, quite a bit.

Defending the indefensible?

Glenn Loury interviews political scientist Steven Rhoads In Defense of Economists. Loury writes:

Economists get a bad rap. People sometimes think we prize efficiency over all things, including happiness and safety. We’re often caricatured as know-it-alls who think only of the bottom line without any concern for less easily quantifiable human values. But as an economist, I can tell you that isn’t the case (at least not for most of us). In fact, I’d argue that economists are more attuned than most to the potential human costs of well-intentioned but misguided policies. Free healthcare—free anything—sounds great at first, but when you start doing the equations, you might find that you actually end up paying for it anyway, and in ways you might not expect and might not like.

Covid vaccines

In a topical post at VoxEU.org, Niels-Jakob Hansen and Rui C. Mano look at the economic effect of vaccines:

The rollout of COVID-19 vaccines has led some observers to conjecture the return of the Roaring Twenties as consumers go back to the shops and workers to their offices. This column presents evidence of how the COVID-19 vaccine rollout in the US increased consumer spending and reduced initial unemployment claims as a share of the labour force. The effect of vaccinations has been greater in counties in urban settings, with worse initial socioeconomic conditions, and with lower education levels. These results imply that the vaccine rollout added 0.27 percentage points to US GDP growth in 2021 through the direct impact on consumption alone.

Economic sanctions

Also at VoxEU.org, Mark Harrison contemplates Economic warfare and Mançur Olson: Insights for great power conflict. The use of sanctions in a conflict attempts to change the behaviour of an adversary by manipulating its costs. Harrison maintains that the power of the incentives involved are often overstated. The reason, Mancur Olson argued, is that the cost that the adversary pays for losing access to some external resource or facility is not the sudden stop of all the activities related to what has been denied but the cost of adaptation, which will generally be less.

Parents of economic PhDs

As a PhD-holding son of a truck driver, I found Timothy Taylor’s discussion of Parents of Economics PhDs: Their Educational Background interesting. Taylor, blogging at the Conversable Economist, points out that:

It’s not a big shock that those who get a PhD tend to have parents who also had a higher level of education. If your parent have some knowledge about how to navigate the tangled forests of academia, along with the financial resources to help you along, you are more likely to get that advanced degree. But what is surprising, at least to me, is that this connection between parental education and getting a PhD is stronger for economics than for most other fields.

Maybe New Zealand is different.

NZ might be different, but artificial intelligence is not. Here is the output of MidJourney Bot, an AI art generator, given the prompt “a truck driver father with economics PhD son”

1. The State Planning Committee, commonly known as Gosplan, was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of the Soviet Union in 1991, Gosplan had as its main task the creation and administration of a series of five-year plans governing the economy of the USSR. Source: Wikipedia.

2. Subadditivity means that it is cheaper to produce the same production level when only company one is producing, and that the same production level is more expensive when company two joins the market. Source: Policonomics

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