Hey, it’s a little slow for new postings, so I thought I’d recycle an interesting post from last December about the market for used light bulbs in the Soviet Union, especially because: a) I’m taking a group of MBA students to Russia in April 2008, b) Russia’s Putin is Time Magazine’s “Man/Person of the Year,” c) my MBA students in MGT 551 are studying price controls in CH 4 of the Gwartney textbook and d) I didn’t have a lot of regular readers last year at this time. Here it is:
Economists generally oppose price controls because they distort markets, and cause either shortages (e.g. rent control) when there is a price ceiling, or surpluses (e.g. minimum wage) when there is a price floor. Shortages (excess demand) and surpluses (excess supply) represent an inefficient use of scarce resources, and economists support market prices because they eliminate shortages and surpluses, and therefore lead to efficiency.
From the Soviet Union, there are many examples of distortions and inefficiencies from its long history of price controls, but here is a real classic.
Light bulbs, like most other basic goods and staples in the Soviet Union, were often in short supply because the official price was below the market price, resulting in excess demand and prolonged shortages. As a result of the chronic light bulb shortage, an informal, black market developed in the USSR for used, burned-out light bulbs. That is, Soviet citizens would actually pay a positive price for a light bulb that didn’t work.
How would it be possible for a burned-out light bulb to have a positive price, when it would normally just be thrown out? Of what use could anybody have for a used light bulb? Think about it first, and read the answer here.
“The humble improve.”
~Wynton Marsalis, Jazz Musician
“Sell your cleverness and buy bewilderment.”
While there are plenty of bloggers who dish out harsh opinions on Cuba and Castro, most do so from the cozy confines of Miami. 32-year old Yoani Sánchez (pictured above) is one of the few who do so from Havana.
Read about her here in today’s WSJ front page article.
WASHINGTON (AP) — Consumers put aside worries about slumping home sales and soaring gasoline prices and headed to the malls in November, pushing spending up by the largest amount in 3 1/2 years.
The Commerce Department reported Friday that consumer spending shot up 1.1% last month, nearly triple the October gain. It was the biggest one-month jump since a 1.2% rise in May 2004 and was significantly higher than the 0.7% gain analysts had expected.
Bottom Line: Consumer spending increased for the 14th consecutive month (see chart above, shaded area on right), for the first time since 1999 (shaded area on left), providing further evidence that the economy is strong and stable, and not in any imminent danger of falling into a recession.
The BEA reported today that Real Disposable Income grew by 2.1% in November from a year ago, the 23rd consecutive month of positive growth (see chart above).
Bottom Line: This is one of the 5 economic recession-indicating variables watched by the NBER (the others are real GDP, industrial production, trade sales and employment), and suggests that there is still no evidence yet that recessionary conditions are affecting the U.S. economy.
Follow up on yesterday’s post on 2007: a year of global cooling.
The BEA released it final estimate of third quarter (July-September) real GDP growth today, and it remained unchanged from its previous estimate of 4.9%. Third quarter growth in real GDP was more than twice the average growth this decade of 2.2%, and followed second quarter growth of 3.8% (see chart above). Notice also that the strong back-to-back growth in real output during the last two quarters looks nothing like the recessionary period of 2001, or even the pre-recession period of 2000.
The top chart above is from a previous CD post, and the bottom chart above is from Larry Kudlow’s blog, and he featured it last night on Kudlow and Company.
I used a three year lag in my chart, and Larry is using a two-year lag in his graph, which might be a slightly better fit. But the main point is that money supply growth takes between 2-3 years to have its full impact on the price level and inflation.
The significant decline in the growth rate of M1 over the last few years (and the monetary base as well), suggests that inflation could likely decrease in 2008 and 2009 from its current year-end level. M1 growth has actually been negative for the last year, and the M1 money supply today is below its level a year ago, suggesting that inflation won’t continue to be a problem much longer.
See chart above (click to enlarge) for evidence of Walter Williams’ claims that Education majors perform poorly on standarized tests like the LSAT, GMAT and GRE.
(HT: Ironman at Political Calculations)
From todays’ Investor Business Daily:“The world produces about 85 million barrels of oil a day. Global energy demand is expected to rise 55% from 2005-2030. Peak oil theories abound that new discoveries are not keeping up with oil usage. But it’s significant that the new demand also is fostering big new discoveries, largely from the very countries where demand is growing most.”The IBD editorial documents recent discoveries of new oil in Brazil, China, Mexico, India and Russia, and discusses how new oil technologies have also significantly increased the supply of oil.
“The world is not running out of oil,” said Daniel Yergin, head of Cambridge Energy Research Associates and one of the world’s leading oil experts, in a recent interview with Les Echos in Paris.
Go ahead and fill up your SUV, and engage in some guilt-free driving.