Marijuana Legalization and "Big" Beer

Marginal Revolution had a post today about beer companies lobbying AGAINST legal pot. Four important points come to mind.

Would it not be a natural extension of large beer makers that have been losing substantial market share in the US over the last few years (such as Miller, Coors, AB, etc.) to get into selling legalized marijuana?  They already have massive, arguably the best in the country, distribution networks (possibly the topic of a future post), and I would assume that marijuana when legalized nation wide will be vended by similarly licensed and controlled retailers that alcohol is now.  It would not even surprise me if pot ended up being sold by the very same retailers as alcohol. 

Secondly, are alcohol and marijuana really substitute goods? As far as I know most people who consume marijuana for non medical reasons also consume alcohol.

Third,  perhaps the larger American brewing companies should focus their money on developing products to compete with those they are losing market share to.  That is, AB, and other large brew conglomerates should try making good beer instead of spending a ton of money on marketing and advertising to get us to drink their low alcohol product that both looks and smells like urine (enter lite beer of your choice here).  

Finally I think any alcohol producer/retailer in the United States that is worried about legalized marijuana is underestimating just how much drugs, including alcohol,  the American working class is willing and able to consume as our economic and social lives deteriorate and we stay unaware of our exploitation except subconsciously through voices in our heads that need to be silenced with "product".

On the Paradox Between Specialization and Diversification

This  topic is on my mind because of reading a random anthropology based book on early human history in Africa last night.   The author points out a paradox in a young community between specializing in a certain survival strategy (hunting, agriculture, raising animals, etc.) and diversification into many.  The underlying goal of a community is, of course, population growth. and long term (multi-generation) survival. 

The specialized community if successful will become very good at whatever survival strategy they have selected.  They become very good farmers or very good hunters etc.  The diversified community will not gain the same high level of skill in any one area, but are much more likely to be able to survive a disaster that makes one style of gaining food temporarily unavailable.  A specialized agricultural society will be able to grow faster than a diverse society as long as harvests are good, when a drought comes the diverse society will be more likely to survive until the rain comes than a specialized society. 

These ideas are also common in the realms of economics and finance.  Classical economics is filled with ideas of the (forced) division of labor, that is, specialization being what makes capitalism so much more productive than all systems that have come before it.   Finance literature is filled with claims that diversification will mediate risk and make a successful investor. 

What is more important to me today is how this paradox also enters into the realms of personal choice.  I have lived my life along the safe route of diversification chosen by communities that survive but do not grow.  If kicked out of academia (possibly because of mediocre blog posts such as this one), I have many skills to fall back on.  I can bartend (still do), I could get a job in the construction trades (through a little creative padding of my resume), I can manage workers fairly successfully.  The flip side of my attempt at becoming a modern renaissance man is that I have not spent as much time specializing as many of my colleagues.

I am doomed to watch people younger than myself finish their dissertations before I do.  Also doomed (possibly) to not achieve as much success in my chosen profession as quickly as I could have if I had spent more of my time specialized on economics, and less time partaking in a diverse set of activities. 

Have I made a good choice? I guess we will see if the drought comes ever comes. 

Finally, I have used the word paradox without fully explaining it.  The paradox only truly arises when a community's goals are both fast growth and survival during disaster (evolutionary biology tells us that it almost always is.)

A Personal Experience With For Profit Health Care

I have never felt strongly about the health care debate in the United States, that is, beyond the ridiculousness of the media here insisting on calling single payer (government), still for profit health insurance systems socialism. 

I have always considered people that advocate for leftist health plans as allies in the struggle against big capital, but not given the issues much thought beyond that. 

This changed today.  I have a bad cold at the moment, nothing serious, just enough to drive me to visit a primary care doctor for the first time in a couple of years.  Due to an administrative lapse on my part I did not re-enroll for my insurance until the beginning of last week.  My insurance had lapsed at the end of July. Therefore, I am covered, but the pharmacy has no record of that, since I have not yet received my new insurance card.  Attempting to fill the two prescriptions that I was given at the doctor this morning I was presented with a bill of $370.  $320 for the branded drug, and $50 for the generic. 

I understand the theoretical underpinnings of patent protection for drug developers and intellectual property in general, but this does not at all explain a $50 price for the generic drug (and the excessivness of $320 on a patented drug for a drug company making billions is a whole separate issue). 

I don't have the energy for a long theoretic post here, suffice to say that I now understand how serious the American health care debate is.  Sometimes it takes a personal experience to open one's eyes.  It is frankly shameful that a developed, wealthy nation would allow something like this to happen to its citizens every day.  In theory I could afford a one time loss of $400 but that is really not the point.

As it turned out, I was able to solve the issue and gain my prescriptions for a reasonable price (after wasting half of my work day on the phone). The more important issue here is with the people in this country who do not have coverage.  There is no reason why the US should not have universal prescription coverage, especially considering that per capita we take more drugs than any other country in the world.   I worry what would happen to friends of mine who own their own businesses (one especially comes to mind) who chose not to purchase private coverage at a price in excess of $5000 a year if they did become sick. 

How can we expect small businesses to be the engines of economic recovery when one moderate health concern would sink almost all small businesses into bankruptcy? 

I suppose my ignorance and (over)reaction to how serious the failing of the American health system really is can be chalked up to living in Canada until I was 20 years old, and my privilege and luck of having jobs that have provided coverage since becoming an American.  I know their are many problems in the treatment of the American working class in this capitalist system, I just am shocked (and appalled at the risk of sounding overly dramatic) at how serious this one is.  I find it disgusting that in a country that can spend more per capita on health care than any other in the developed world would have hundreds of thousands of people out there who can't afford basic prescription coverage. 

Add one more to the problems of capitalism, but then again, people who are worried about where their next meal will come from are too busy to start a revolution and I guess people who can't afford basic health care are too sick to start a revolution so all of this should not have come as such a surprise to me.

Finally, I realize that I sound ignorant of a major social problem in the country that I live in by posting this, but I think it is important enough to share my experience that my ignorance is worth exposing in this case.

Product Differentiation and Drunken Livestock

Shelves in our stores are filled with examples of commodities that exchange above their value.

Without delving into a long exposition of value theory, it is sufficient for my purposes here to state that a price above value is often the goal of advertising a commodity, and clearly a desirable situation for the producer. Gaining an additional payment on top of the realization of value and surplus value when a commodity is sold, in a nut shell is something every producer wants. That is, more money, what capitalist wouldn't want that?

What is interesting, or at very least fascinating, is the creativity people show in an attempt to command a price in the market over and above the value of their product.

American capitalism has given us 200 brands of toothpaste and enough different breakfast cereals to eat a different one every morning for two months. This is all well and good, but some day we will look back on the dark ages before 2010 and ask: "How did we every survive without wine finished beef?"

I am only being slightly sarcastic in this post. The array of goods available in this society can be as wonderful as it is unnecessary. And wine drinking cows? So much for the argument that feedlots are inhumane.

Taxation and Employment

Two well known economists have written short posts in the past 24 hours commenting on the expiring tax cuts, as well as the Obama administration's tax policy in general.

Greg Mankiw posted a summary of the effective tax rate on the richest Americans, concluding that it will be about 50% by 2013.
This post is presented as a stating of "facts", however Mankiw's use of language such as "stealth provision" suggest that he believes himself to be illuminating some sinister attempt to steal the hard earned, or unfairly appropriated, your choice, surplus of our wealthiest citizens.

Paul Krugman's post "It's Demand Stupid" argues that an effective tax increase on "small business (earning over $250 000 a year) will not not affect firms ability to hire more workers in a meaningful way. Rather, to hire more workers companies need to see an increase in demand for their commodities, regardless of tax rate.

I decided to write on this tonight when Krugman's Keynesian perspective was backed up anecdotaly in conversation with a republican small business owning friend of mine. My friend mentioned that he needed to hire two new helpers because business has been steadily increasing this year. When I asked him if his effective tax rate influenced his decision to hire new workers he looked at me like I was crazy. Justin's* response was "I need to hire more workers because I have more work to do". Makes sense to me, even if Krugman did frame it with a title that makes him seem like a pretentious jackass.

I realize that Mankiw's post was not directly about employment, but my current opinion is that the greatest challenge facing the US economy during this Great Recession is the suffering being heaped on lower income Americans by sustained high unemployment rates.

The important question that I wish to ask and provide a part of an answer for here is, "what is the most effective way to allocate surplus to create the largest amount of (good) jobs?" Should we let the very wealthy in our society (and the not so wealthy small business owners, who are the new "Joe the Plumber" in the republican campaign this fall) keep more of the surplus they have gained through exploitation of their workers in the hope that they will distribute it to expansion, thus bringing more workers into the production process? Or should the government demand a higher share of the surplus from the wealthy so that it can be redistributed in such a way as to increase demand for commodities (transfer payments, reconstruction programs, cash for shitty cars, etc.)?

Neither of these options has been particularly successful in lowering the national unemployment rate over the last couple of years. I believe proponents of both sides would argue that the unemployment rate would be higher without their weapon of choice being in place, tax cuts and "stimulus" respectively. In reality neither strategy has been nearly effective enough, and the pain and suffering of the unemployed continues to be our country's most pressing economic issue. Perhaps neither strategy has worked because of an inability to implement policy to the extent necessary because of pressure from the other perspective? Perhaps because these theories just do not result in effective policy? Perhaps for a large and complex number of reasons not listed here?

The short and long term consequences, economic, social, and otherwise, of massive unemployment are a topic for another time. Suffice to say that more needs to be done soon to get more people into full time jobs. The damage to individuals and to working Americans in general grows more drastic by the day as unemployment stays high and meager benefits begin to run out.

I would like to propose a third alternative. It is time to change things so that instead of extracting surplus from workers, and then distributing more or less of it to the government in the form of taxes, depending on how effective you think the government can be in creating effective demand, and/or how much you believe a business will hire people because of the relative amount of their surplus that they have to distribute to the government via taxes, or not distribute to taxes, we should allow more workers to be the first appropriators and distributors of the surplus that they create in the production process in our economy.

Perhaps the distribution decisions of workers will be more effective at creating jobs for fellow workers than the decisions of a very small number of our wealthy citizens have been. And perhaps the distribution decisions of workers will be more effective than those of committees of professional politicians, who as a general rule are also among our wealthiest citizens. The current system run by and for capitalists is failing the working people of this country in epic proportion in terms of employment.

Is it not time that workers at least consider trying to run things themselves? Even if worker appropriation and distribution does not solve the unemployment problem would we not be better off having tried to help ourselves and failed than waiting for those who exploit us to "fix" the unemployment problem while our lives and families are destroyed by being out of work? Before the US can become the land of the free for the working class we need to be free to distribute the surplus we have created in an attempt to fix our own problems.

Engaging with the Mainstream, but not Engaged to it: A Response to Dan MacDonald.

This post is a response to a recent post on the blog Imagining History by Dan MacDonald.

I need to start by mentioning the title. Engaged AGAINST the Mainstream would be far more impressive. "Engaging with the mainstream" only really refers to those that have it wrong (implicit in Dan's post from my reading). That is, those people who use mainstream methods to ask leftist questions. Those who build alternative frameworks to attack the mainstream are engaged against the mainstream in my opinion. These posts are concerned with both types of people.

Moving on:
I cannot dispute Dan's conclusion that of those around us in the UMass Amherst Economics department, as a general rule the younger the person the more they seem to engage in what I consider to be mainstream methodology AND IDEOLOGY. Certainly mainstream methods have not become more "correct" in the last 40 years, is it fair to imply as Dan does that these methods and ideas have become more hegemonic (even in our department)? Certainly it is well documented that social sciences have become more empirical in methodology over this period. The question then becomes; does the perception of younger heterodox economists engaging with more mainstream methods really hold water, or are they just becoming more cough* "analytically rigorous" than their predecessors?

What is more interesting to me is what actually makes an economist heterodox?
I don't view people using mainstream methodology to answer "leftist" questions as radical economists, just liberal mainstream people and our department is full of them.

Why then do I give primacy to methodology? I view people using non-traditional methods because of a philosophical problem with empirical analysis as far more radical (heterodox) than those using hegemonic methodology to ask socially progressive questions. My reasons for this are too complex to address here and will be addressed further at a later date.

MacDonald's conclusion suggests that thinks along a similar line. The suggestion that people who are not engaged to the mainstream will receive better jobs (historically) than self styled heterodox people who use mainstream methods certainly is true in the history of our department. Does this hold in a wider sample? I think those who are engaged with the mainstream as opposed to against it never were and never will be heterodox and thus we have no evidence of them in heterodox positions.

As soon as they do get a job, these "heterodox economists" will apply their mainstream models to questions that are not the socially progressive ones they pretended to care about in grad school, but rather the traditional questions that are published in mainstream economics journals, that will result in tenure and a meaningless existence as another second rate economist. (Prove me wrong people.)

Should we engage with the mainstream? No. Should we use mainstream methods to engage against the mainstream? Historically people seem to fail at this and end up just as fringe members of said mainstream when they try. Should we bother with the mainstream at all? No? Should we spend our time making what is now radical more widely accepted? I would say yes, it is all we can do.

Thanks Dan, great post.

Random Plug

Next post will have to be about rum I suppose.
I generally hate the "human interest" side of sports but, Tigers fan, Yankee fan, or general baseball fan, Curtis Granderson happens to be the rare combination of professional athlete and decent writer (at least entertaining). Check it out if you have some time.

http://sports.yahoo.com/mlb/blog/big_league_stew?author=Curtis+Granderson

The Political Action of Teaching

As always when starting a semester of teaching "introduction to macroeconomics" I am wondering how much Marx I should include, how critical I should be of the material in the text book that I am using, and how much emphasis to place on the idea that what I am presenting are theories and not "facts".

From the epistemological view that I favor all theories contain their own set of facts and there is no external truth.
The reality of course is that I will not get into this level of subtlety in an introduction to economics course.

The question then is should I be honest in that what I present are only possible theories (which runs the risk of confusing students who are seeing their first ever economics material)? or pertaining to my last post is it the "right" thing to do to present the conclusions of theories that I favor as "economics".

The latter is what the hegemonic neoclassical school has been doing for generations in economics education in this country, but is resorting to their tactics a useful way to combat their ideology?

I have not decided how overtly political my teaching process will be this semester, but anyone who claims they can teach a-politically is either self deluded or a liar.
The very action of presenting some material and skimming over other is a political process and the question that seems important to me is to what level do we owe it to our intro students to make them aware of this process? And how much more success will I have in teaching for example that all profit comes from exploitation rather than the MPK if I present it as fact rather than a competing theory?

Engaging Conservative Economics

The inspiration for this post came from a recent exchange on the list serve of graduate students in the economics department at the University of Massachusetts Amherst (many of whom also blog, a list of these blogs can be found HERE).

I will not summarize the email thread for reasons that should become clear in the following post.

I feel that far to much effort on the part of so called "heterodox economists" is spent criticizing what is often referred to as "mainstream" or "neoclassical" economics.

I do not dispute that critical analysis of the mainstream is an important part of our task as radical economists. The very nature of the terms mainstream and radical (or heterodox) imply that their theories are more commonly accepted than ours, and thus are more widely taught, and unfortunately accepted.

The flip side of this which is commonly ignored by many of my colleagues is that the very process of criticism legitimizes neoclassical economic theories as being worth our time. The process of criticism relies on the implicit assumption that these theories are worth the time to think about.

A person presenting a theory that human civilization started on jupiter and migrated to earth when jupiter was full would find their basic intelligence criticized, not aspects within the theory that they are presenting (such as how people traveled through the solar system). This big picture approach needs to find a larger role withing radical economics. By accepting assumptions of the mainstream economic theories we are wasting valuable resources (time) that could (and I argue should) be spent further developing weak points in our own theories of the workings of the economy instead of implicitly validating equilibrium based nonsense.

Some Silliness on a Spring Afternoon

It is a well known fact that the Bush administration had a hand in the attacks of September 11th 2001. For concrete evidence you need look no further than South Park Episode 1009 "Mystery of the Urinal Deuce", available here.
It goes without saying that a big part of the motivation for these actions by the Republican administration was to be able to funnel American tax payer money to their friends and supporters in the defense industry.

I would argue that Obama's democratic administration has intentionally caused the current oil spill in the golf of Mexico with similar motives. The only difference is this will allow the Obama administration to funnel tax payer money to their friends and supporters in the green jobs sector of the economy.

Disaster politics may be the wave of the future. As for proof...who needs it? I have a website. Thanks for being a good sport about this...
Finally...it is inevitable that some jackass at PBS is going to make a documentary about this...remember you heard it here first!

Low Road Labor Policy in Professional Baseball

Relatively speaking professional baseball players make a lot of money in our society. This is neither profound, new, or interesting to me.
More remarkable is the differences in policies towards paying players between teams.
It is also commonly accepted that "big market" teams like the New York Yankees, Boston Redsox, etc. have much higher payrolls than most other teams.

For example in 2010 the Yankee's first baseman Alex Rodriguez is slated to make 33 million dollars. The entire salary for the 40 man roster of the Pittsburgh Pirates in 2010 is approximately 35 million dollars.

Major league baseball does not impose a salary cap on teams, but rather uses a revenue sharing program to attempt to compensate for differences in markets. Revenue sharing takes a flat percentage of each team's revenue (I think about 30%), pools the money and distributes the total evenly back to the 30 teams that comprise major league baseball. It is essentially a program of tax and transfer intended to get a few extra million dollars into the hands of poorer teams, allowing them to hire one or two extra star players, to attract more fans and thus more revenue themselves.

The major league teams that are losing money in revenue sharing are the financially successful ones. I don't have a problem with this process.

These same teams that are financially successful tend to be the ones who have the highest payrolls, and also are the most successful on the field in terms of winning games.

Taking Marx's simple model of dividing the work day (or baseball season) into
A----B-----C
where A--B represents covering of wages, that is the necessary labor of the players, and B--C representing surplus labor appropriated from the players by the owners.
The obvious goal of any owner is to make the area B--C as big as possible, that is maximize the surplus they extract from their labor.
Almost across the board professional baseball teams take a route commonly known as "high road" labor policy.
That is, they pay as much as possible to attract the best talent available. The logic is that having good players will win games. Winning games sells tickets and merchandise, as well as increases advertising revenue regardless of what market a team is in. Teams generally attempt to maximize revenue by increasing the productivity of their labor.

Pittsburgh is an exception to this. In terms of labor policy the Pittsburgh Pirates are the Wal-Mart of Major League Baseball. The team is attempting to maximize profits not be increasing relative surplus value, but rather by making the necessary labor (A--B) as small as possible.

The Pirates ownership pays as little as possible to maintain a "professional" franchise, and keeps the millions that they receive in revenue sharing each year as profit. As a result the team is terrible, as I write this the pirates have lost 20 - 0 and 17 - 4 in the last couple of days, and honestly it will be a miracle if they can win 60 out of 162 games this year.
For obvious reasons attendance in Pittsburgh is terrible, merchandise and ad revenues are basically non-existent.

The problem spills over as other teams who are trying to provide a high quality entertainment product to their fans when they have to play a team like Pittsburgh. Writers have been calling for various solutions to this for years, including the forced sale and movement out of Pittsburgh of the Pirate's franchise. What drove me to write this was reading about a new idea, suspending the entire franchise for the rest of the year, which I found to be really interesting, if completely impractical.

It is not a new idea that low road policy sucks for labor (imagine being a player on a team that isn't even trying to win, or a cashier at Wal-Mart for that matter), but now it is aiding in the destruction of the great American pass time.

Financial Capital and the Collapse of General Motors

Some lazy and determinist thoughts on the need to file bankruptcy:

I am reading Alfred Sloan's "My Years with General Motors" and I found something that he wrote about the Great Depression very striking. Sloan comments that from 1929 to 1930 GM sales fell by 1/3. He comments that due to some cyclical sales in the 1920's General Motors was equipped to handle this type of thing by layoffs, stop orders, and wage and salary reductions. It is remarkable (but maybe not surprising?) that 80 years later GM was unable to handle a slowing of sales that was far smaller in percentage terms.

I realize that things are vastly different in the American and global auto market than they were in the early 30's. That being said, GM was structurally similar to what it used to be heading into its latest collapse, just on a much larger scale (ok not that similar). Even still by the late 1920's GM was comprised of five major divisions producing a vast array of cars as well as many other divisions making light bulbs, refrigerators, etc. The business was complex then as well.

Sloan devotes almost an entire chapter of his book to Ford's inability to innovate to "close body" designs costing him and his company the position of market dominance that GM took over.
80 years later General Motors fails to innovate on the industrial side? Financial innovation at General Motors was doing just fine. Some of the most "interesting" derivative packages of the last 15 years have come out of GMAC (Ditec). Like many American companies GM became a player of the financial shell game rather than trying to maintain their role as a leader in industrial capital development. You would think someone in the company would have read Sloan's book?

Anyway returning to my point...It was not a collapse in sales that forced GM into bankruptcy, they should have been, (and from what I can tell were?) equipped to handle that in a similar fashion to how it was handled in the late 1920's. What hurt GM was the same thing that had been making it so much money in the last 30 years, involvement in the financial sector. The automobile production divisions of GM had been losing money for years before last year's bankruptcy filing. A slowing of sales at a loss shouldn't impact things strongly and the profitable auto divisions had been dieing long before 2008 (large SUV's). The problem that pushed GM over the edge must have been embedded in finance.
The credit problem was two fold.
1. Sales did fall in the last couple of years because of the recession. The fall in sales slowed cash flow through the enterprise. This slowing of cash made it harder to borrow at the same time that "liquidity was drying up" across the economy.
2. As a lender GM was making a lot of money off of loaning money out (to buy cars and other things). If people were no longer borrowing GM could no longer lend.

The need for General Motors to declare bankruptcy was based on the system that allowed GM to survive for so long and become what it did, that is, a lumbering dinosaur who didn't know what its own ass looked like (how is that for a good dinosaur analogy). This dinosaur was lumbering around lending and borrowing, slowly forgetting that it was supposed to be eating and shitting.
Bad dinosaur! If you don't shit you die. And finance capital profitability does not lend itself to a stable productive enterprise.

A Role for Empirics

I have not written in a while and this will be just a short post on contradiction in my views around empirical analysis.

I ask, is it fair of me to constantly minimize the usefulness of empirical analysis in economics while doting over baseball statistics?

This site is a must see for any fan of baseball or empirical analysis!

http://www.baseball-reference.com/

It looks a little "90's", but search for a favorite player and go from there...this website is truly a triumph of data collection.

Postmodern Bacon

So here is the deal: In the midst of a bacon related conversation last night, discussing everything from delicious factors to environmental damage of meat consumption, my commitment to overdetermination was called into question. So I admit that I question overdetermination as an epistemology at times, but I hate to lose an argument. This is the result of that discussion.

Some would say this has nothing to do with Marxism, in a commitment to the epistomology I have to disagree and say the following has everything to do with Marxism.

The only two foods (groups) in the world that putting two slices of hot bacon on top of does not enhance:
1. Cold, sweet, breakfast cereal, ie. "Lucky Charms"
2. Desserts, epitomized by ice cream, bananas foster, things of that nature.
That is all.

Jesus as a Moral Philosopher and Secular Humanist

I meant to post this closer to the christian holiday but i forgot. This is a link to a fantastic podcast "Philosophy Bites". They recently did a show where their guest Don Cupitt talks about Jesus. Cupitt claims that the "real" Jesus is an overlooked humanist philosopher rather than the son of God. Really interesting work. As for the relevance here?
Well he compares Jesus to Marx at one point. Check it out.
http://cdn4.libsyn.com/philosophybites/CupittJesus.mp3?nvb=20100106014428&nva=20100107015428&t=041ce9c14ba58bf8c50ca