I know it is shallow and out of vogue, but sometimes basic economic principles work out---who would have thought?...

"The curious task of economics is to demonstrate to men how little they know about what they imagine they can design"--F.A. Hayek

Within the fist 150 pages, or so, of ANY introductory Economics textbook you will find instruction on the effects of price controls by the government.  The two primary price controls are Price Ceilings and Price Floors.  The two articles below are excellent examples of Price Ceilings and their predictable consequences.  Price ceilings are government set prices of goods/services that are below the current market equilibrium prices of said goods/services, which were presumably determined through the market mechanism of supply and demand.  Price ceilings tend to create shortages in the market place because (1) the price is not high enough for producers to supply the market profitably therefore the quantity supplied to the market decreases or (2) there is ample supply but suppliers with-hold the goods because they can get a higher price on the "black market ", which is a subset of the informal economy as it is referred to in more board terms.  The second reason may be the culprit in the short run as suppliers do their best to keep adequate inventory or meet the market price in the informal economy (be "greedy", if you will).  However, the debilitating effects of a price ceiling in the long run will be to effectively create chronic shortages of a good in the market place.  If the private market price, where supply equals demand, REALLY reflects the cost of producing a good and the government deems that too high and mandates a lower price, then it is a prescription for decreases in the quantity supplied hence shortages of the good. 

Hugo Chavez Spearheads Raids as Food Prices Skyrocket

""Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez's socialist revolution....Much of the wasted food, including powdered milk and meat, was found last month in the buildup to legislative elections in September. The scandal is humiliating for Chavez, who accuses wealthy elites of fueling inflation and causing shortages of products such as meat, sugar and milk by hoarding food...Food prices are up 41 percent in the last 12 months during a deep recession, government figures show, despite the government's growing network of state-run supermarkets that sell at discounts of up to 40 percent and are popular with his poor supporters...."We are bringing order to prices," Trade Minister Richard Canan told Reuters during the Catia raid. "There are traders who are taking these products to the black market ... That is a crime and our government will continue to target these stores."

Philippine Price Controls Hamper Rise of Generics

The Philippines recent embrace of drug-price controls to lower the cost of life-saving medications is creating some unexpected problems—including crimping the supply of inexpensive generic drugs. The country's president, Gloria Macapagal Arroyo, was eager to reduce the cost of pharmaceuticals in a nation where a third of its 95 million citizens live on around $2 a day. Last August, she used new regulations to cut the cost of five widely used medications, including Pfizer Inc.'s Norvasc hypertension drug and GlaxoSmithKline PLC's Augmentin antibiotic.  Facing mandatory price cuts, drug companies in the Philippines cut the prices of an additional 16 drugs, and in February agreed to slash the prices of frequently prescribed medicines
Industry analysts and executives said the price caps have unintentionally knocked the wind out of a nascent generic-drugs industry that had sprung up here. Lower-priced brand- name drugs are pressuring these low-cost producers, and creating a policy challenge for President-elect Benigno Aquino III, who takes over at the end of June.


Edward Isaac, executive director of the Philippine Chamber of the Pharmaceutical Industry, said price controls and the threat of more caps have lowered the cost of some brand-name drugs to near those of generic competitors. Pfizer's Norvasc was cut to about 22 pesos, or 47 cents, for a five milligram tablet, from over 44 pesos.
"What's happening now is that when the price of Norvasc, for example, is cut, the generics have to slash their own prices," Mr. Isaac said.
Declining profits have some drug retailers putting expansion plans on hold. "We've not opened any new stores since the price controls were introduced," said Leonila Ocampo, vice president of Manila-based MedExpress. The drugstore chain has seen sales volumes drop since the price controls were introduced. "Our margins are under pressure, and if there's no profit, I don't know what will happen," said Ms. Ocampo.
Another drug store operator, Florecita Intal of Stardust Drugs & Medical Supplies Corp., said lower revenues from the branded-drug price caps restricts her ability to expand and offer less expensive generics. She fears smaller retailers might not survive.

What do Fathers Day and Watergate have in common? Alot, believe it or not...

Who is Father's Day founding father?

""Father's Day was born in 1910. But not until the 1970s did a US president issue a proclamation declaring the third Sunday in June as an official day to honor fathers...The holiday’s popularity built slowly over the years. In 1957, GOP Sen. Margaret Chase Smith of Maine blasted her congressional colleagues for ignoring Father’s Day, saying that to single out one parent (Mom) while ignoring the other was “the most grievous insult imaginable.” But it was not until 1971 that Congress passed a bill in favor of making Father’s Day a national holiday.  That’s where Dick Nixon comes in. At the time, his reelection campaign was ratcheting up, and we’ll bet this looked like a political no-brainer. In response to Congress, on April 25, 1972, he issued a proclamation that officially made the third Sunday in June “an occasion for renewal of the love and gratitude we bear to our fathers.”  But in the Nixon household, that year’s Father’s Day was not happy. First of all, America’s first dad was familyless. He was in Key Biscayne, Fla. His wife was in Los Angeles. His daughters were elsewhere. (Press accounts of the day note that the girls called.)  This was probably just as well. Sunday, June 18, 1972 – the first government-sanctioned Father’s Day in United States history – was the day news broke about a burglary the previous night at the Democratic National Committee office in the Watergate complex. 
The secrets of Watergate would eventually spill out and doom Nixon’s presidency. Here’s hoping that on that fateful Father’s Day, someone at least gave him a card or a nice tie.

Cute picture of the day---baby owl falls into lions den---this can't be good, can it???

See story here---From BBC

"China exports every six hours what the US exported in ALL of 1978"

A fact from this book. WOW! My, how has trade changed...

AFTERSHOCK

HT: Marginal Revolution

40 Great Inspirational Speeches from movies mashed into one Great Speech

Go HERE to see more mash-ups on a variety of topics...Mucho entertainment and a little education to boot!!

Do you self correct?? If so, then your sign is Microeconomics. If not, then it is Macroeconomics...Here's your sign...

Microeconomic and Macroeconomic Excess Supply

A rather simple (by that I mean in layman's terms) explanation of how markets clear, or don't clear, in a Microeconomic vs Macroeconomic sense from Professor Brad Delong.  The writer is suggesting, in a microeconomics sense, markets clear pretty well on their own as business and workers adjust to changes in market conditions, whether it is from creative destruction, out-sourcing, off-shoring, etc.  Resources (land, labor, capital, entrepreneurship) shift to production more desired by society through the mechanism of supply and demand. 
  

""...Overall unemployment may rise a bit or for a while as this process of adjustment takes place--it depends whether entrepreneurs and producers in the expanding industry where excess demand emerges are more or less on the ball, keen-eyed, and keen-witted than those in the industry where excess supply emerges and where businesses shrink. But the process of adjustment, even with frictional unemployment while it takes place, is a good thing--it makes us all richer. Attempts to stop it in its tracks or short-circuit its mechanisms are counterproductive and harmful. The end of the process comes and excess demand and supply are eliminated when there are more people making the things that are wanted more and fewer people making the things that are wanted less...."""

However, he suggests as you move to the Macroeconomic level this relationship breaks down.

""...But in macroeconomics things are different. The excess supply is economy-wide--throughout all commodity markets, producing supply in excess of demand for goods, services, labor, and capacity. Producers and entrepreneurs respond to an aggregate demand shortfall just as individual producers respond to a particular shortfall of demand for their products: they hold sales to liquidate inventories, they cut prices, they cut wages to try to preserve margins, they fire workers. In the macroeconomic case, the dynamic process that leads to the elimination of excess supply and its counterbalancing excess demand in the microeconomic case gets underway--or, rather, half of it gets underway.
The problem is that the set of industries that are shrinking is made up of pretty-much-everybody. There are no industries that are expanding. The excess demand is not for the products of a goods-and-services producing industry that can rapidly ramp-up production by employing lots more labor. The excess demand is in finance: for means-of-payment, or safe high-quality assets, or for long-duration sales vehicles. There is a rise in unemployment from the flow out of goods-and-services producing industries where the excess supply has appeared. But there is no countervailing flow out of unemployment. How do you put large numbers of people to work making more Federal Reserve notes or increasing the supply of liquid assets that are means-of-payment that are the reserve deposits of banks? How do you shift the flow of production to instantaneously raise the stock of long-duration assets, of claims to wealth that are shares in companies with secure long-run prospects that are vehicles for moving purchasing power across time from the present to the future? You can't...""

In microeconomics, the market "self-corrects" when the economy is expanding and there is room for resources and labor to move to a new level of product/service mix with no net decrease in overall employment.  However in a macroeconomics view when WHOLE industries (vertically and horizontally) experience a slow-down there is no where for productive resources to go---sort of in a holding pattern. and remain idle  He does not come right out and say it, but his premise, I believe, is that the macoeconomy does not "self-correct" and that when the "free-market" (interaction between buyers and sellers) breaks down, then the only other game in town is for government to step in to "prime the pump" with spending, and perhaps an industrial policy (i.e. alternative energy), to get things moving again.

YES!! Coffee reduces heart disease! Up next: Omellettes and Cinnamon Buns and I will be good to go...

Tea and coffee 'protect against heart disease'

Drinking several cups of tea or coffee a day appears to protect against heart disease, a 13-year-long study from the Netherlands has found. It adds to a growing body of evidence suggesting health benefits from the most popular hot drinks. Those who drank more than six cups of tea a day cut their risk of heart disease by a third, the study of 40,000 people found. Consuming between two to four coffees a day was also linked to a reduced risk. While the protective effect ceased with more than four cups of coffee a day, even those who drank this much were no more likely to die of any cause, including stroke and cancer, than those who abstained.

BP CEO is off the hook as most hated man in the US...for a while, anyway...

I made this using BigHugeLabs

Video of the NON-GOAL--start and stop it starting around 35 seconds--Judge for yourself

Sleeping Late? What is the opportunity cost of that decision?

Nice example of opportunity costs---Yes, you can learn economics through comics too!! :) (HT: MV=PQ: A Resource for Economic Educators

Most ridiculous story of the year---8 year old's hat BANNED from school because it had tiny plastic army men attached. What would the Toy Story soldiers say about this?

Toy soldiers run afoul of school's weapons ban

Christan Morales said her son just wanted to honor American troops when he wore a hat to school decorated with an American flag and small plastic Army figures.
But the school banned the hat because it ran afoul of the district's zero-tolerance weapons policy. Why? The toy soldiers were carrying tiny guns.
"His teacher called and said it wasn't appropriate," Morales said.
Morales' 8-year-old son, David, had been assigned to make a hat for the day when his second-grade class would meet their pen pals from another school. She and her son came up with an idea to add patriotic decorations to a camouflage hat.
Earlier this week, after the hat was banned, the principal at the Tiogue School in Coventry told the family that the hat would be fine if David replaced the Army men holding weapons with ones that didn't have any, according to Superintendent Kenneth R. Di Pietro.

Obnoxious Food Item of the Month---Soft Pretzel Stuffed with Philly Cheese Steak---mmmmm....

The Latest From the Gross Foods Arms Race: Philly Pretzel Factory's New Cheesesteak Pretzel

""​Food chains across the country seem to have taken This is Why You're Fat to heart. First there was the Double Down, sandwiching bacon-and-cheese between fried chicken, and then IHOP's Stackers, smooshing together pancakes and cheesecake.
The latest in the greasy fast food arms race is being introduced today at Philly Pretzel Factory--a mash-up of pretzel and cheesesteak.
The cheesesteak pretzel looks like your average over-sized twisty treat, but it's stuffed with ground beef, onions, and cheese. Early adopters seem excited that it's easier to eat than a traditional cheesesteak--an innovation in easy delivery of meat and cheese to mouth, a/k/a the American dream.
The only Philly Pretzel Factory in the five boroughs is on Staten Island (1200 Hylan Boulevard), but there are also branches in Newark and Jersey City. The Staten Island store confirmed that they have the cheesesteak pretzels in stock, and they will give them away for free next Monday the 24th from 11 a.m. to 2 p.m.""

"It's a bird, It's a plane, It's..It's, ballons?"--In South Korea they scramble jets!

South Korea military alert over children's balloons

Balloons released by schoolchildren sparked a major security alert in South Korea, reports say, amid heightened tensions with North Korea.
A resident of Ansan, near Seoul, reported seeing 40-50 objects resembling parachutes falling on a mountainside. The military and police mobilised a special joint task force. Upon investigation, the objects turned out to be helium balloons released by a local school. Tensions between North and South Korea have been running high since the sinking of a South Korean warship earlier this year. Seoul said the ship was torpedoed by Northern forces. In another incident earlier this month, an alert was raised after an explosion was heard on Yeonpyeong island, near the sea border with North Korea, and a diving suit was found on a shoreline, the JoongAng newspaper reported. A joint military and police investigation found that the diving suit was abandoned by a fisherman and that the explosion had been caused by a South Korean mine, the paper said.

How do you say "supply-side economics" in Russian? Don't have to--A 0% Capital Gains Tax Rate is a Universal Language

Russia is ELIMINATING taxes on "capital gains".  Most simply, this means they will not tax the gains/profits from investments made in Russia.  The article does not say how narrowly they define a capital gain in this case. Traditionally, a capital gain is the profit made on a non-inventory investment such as stocks, bonds, etc.  For example if I buy a stock and it appreciates in value from $100 to $150 then my capital gain when I sell is $50 per share  which is taxed at the prevailing capital gain tax rate.  I am assuming the Russians are talking about the gains from physical capital such as land, equipment, buildings, factories, etc. Lowering the capital gains tax will decrease the cost of producing for a business.  This is a significant incentive for a business to move to Russia. However, capital gains tax is only one consideration when deciding to locate a business.  Private property rights, local/national governance and a suitable workforce are some of the other variables.

From BBC: Russia to drop capital gains tax to attract investment

""Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said.
Mr Medvedev said that in terms of improving Russia's investment climate "we, I hope, are moving forward".
He also said the number of "strategic" firms, in which foreign investment is restricted and which cannot be privatised, would fall from 280 to 41. Mr Medvedev has been promoting the idea of "modernisation", including diversifying the Russian economy. Also, many investors have been wary of coming to Russia because of corruption and the dominant role the state plays in Russia's business life. Mr Medvedev told the St Petersburg International Economic Forum that long-term direct investment was "necessary for modernisation". He also said that he would ask the government to create a special investment public-private fund. "Such an idea should be implemented within a year," he said.

The Russian economy, heavily dependent on oil and gas revenues, was enjoying several years of robust growth in the middle of the 2000s. However, it was hit hard by the global economic crisis, and in 2009 the economy shrank by 7.9%. The economy is forecast to return to growth this year, expanding by about 4%. But Russia is also set to run a budget deficit for several years to come. Its oil revenues fund, which has been financing the deficit, is expected to end next year, and the government wants to attract more foreign investment to boost the economy. In an interview with Bloomberg Television earlier this week, Russia's First Deputy Prime Minister Igor Shuvalov said: "While Russian stocks may be undervalued, Russia is not seeking investors interested in quick and easy money." "I would welcome real investors who can build factories, something new in this country."

Which is more risky--flying through volcanic ash or driving to the store?

A very interesting article on risk and are we, as individuals, able to accurately assess risk especially if the consequences are not immediate or we don't associate one danger with another because they appear remotely connected.

From  BBC: Is driving more dangerous than flying through ash?

""The problem is that people are generally terrible at making rational decisions about risk.
To take just one of many examples, many Americans avoided planes after 9/11 and travelled by road instead. As a result, a team of researchers from Cornell University estimated there were at least 1,200 more deaths on America's roads than there would have been...Some 1,200 people died because they were avoiding what they perceived to be a riskier form of transport, 954 more than who died on the planes used for the terrorist attacks. 

An example of government not properly assessing risk...I don't have the source handy, but I understand that when the Federal Aviation Administration (FAA) mandated that people with small children buy an extra seat and use a car seat rather than hold children in their laps, deaths of small children actually increased! They did not increase in planes however (as far as I know, no child has been killed in-flight as a result of turbulence), but on the highways, as parents elected to not pay for the extra seat because of the expense and drove instead.  More families driving than flying, hence the incidents of car accidents increases. (Note: I am not saying it is the SAME kids getting killed in accidents as would be flying)...