Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.
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Its time once again for Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language.
John Quiggin 
I have a question for the economists that congreagate around here….
Is there a name for the phenomenon where the price of a good or service is always greater than what the purchaser has mentally prepared themself to pay? A friend and I were discussing this phenomenon as it relates to the price of food at the football. The other example we could think of was carnival rides.
yes indeed Michael S,
its called a rip-off
You could also apply that descriptive to housing in Australia.
John, the High Court is hearing Bryan Pape’s constitutional challenge over whether the Commonwealth has exceeded its powers with repect tax bonus and inadvertently stepped onto the States toes/domain. But in the event of any inconsistency between the Commonwealth and State laws, section 109 of the Constitution of Australia provides that the laws of the Commonwealth shall prevail over those of a State to the extent of any inconsistency.
with regard to housing,
i sit like the proverbial chinese by the river, patient,
waiting for the bodies of my enemies to float past,
and when we’ve seen another 30% knocked off perth prices i shall pounce
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises …
http://www.theatlantic.com/doc/200905/imf-advice
Michael S # 1
There is. Its called the price a lawyer charges you. It will always blow you away.
What I find interesting in this financial crisis is that the predominant Asian exporting economies (like China) did not go rushing down the path of these speculative investments in their financial systems, and in China’s case you hear about the bad loans on its books….but in general its financial system built up a tidy holding of foreign reserves..and when it comes to bad loans now…in the western banks (EU and US)…baby you aint seen nothing yet!
Re 1
Michael, I think you’ve stumbled onto monopoly pricing. Most buyers get a large “consumer surplus” if they buy something at the competitive price. They would have paid rathermore. If the seller has market power and know that people would pay more, your consumer surplus is extracted from you and gets turned into monopoly profit. This sounds much more scientific than “rip off”. If you keep on getting surprised by this phenomenon, we economists call this irrationality.
Michael at #1. I call it price-gouging or profiteering.
“Price gouging is a pejorative term for a seller pricing much higher than is considered reasonable or fair.” – Wikipedia.
“Profiteering is a pejorative term for the act of making a profit by methods considered unethical. Business owners may be accused of profiteering when they raise prices during an emergency (especially a war)….” – Wikipedia.
The Wikipedia defintions seem reasonable to me.
Our weak governments have a lot to answer for in this regard. They subsidise sport to an absurd degree, build them stadiums with public money and then grant them monopolies to sell food and drink inside the stadium. I vote with my feet (and my wallet) and always avoid major sports venues.
As an oblique comment on my last post I will say this. The people vote once every three years. The corporate lobbyists put their case every day.
This is not exactly profiteering etc.
In general – if the price is higher than someone is mentally prepared to pay, then there is no sale for this consumer.
This happens in all markets – monopoly, competitive, whatever.
However, if they do purchase, than obviously they were mentally prepared to pay.
Consumers always want to pay less, so always metally prepared to pay less, and mentally prepared no to pay more than they have to.
Michael S. did not say whether he bought food, or went on a carnival ride, but if he did, the question is resolved.
If he did not, the question is also resolved.
The real problem is that he felt confronted by restricted competition, no free market, and as a worse-case scenario, he may have used his credit card to (temporarily) increase his ‘effective demand’.
smiths 6
Great article. That articulates something I have thoguht for a while – that there is a profound shift in power occurring in our society away from most private individuals and even governments towards financial institutions. It is the only explanation for recent trends, because rational economics doesn’t explain why anyone would agree to pay a small group of executives more than 10% of gross profits to achieve average returns on capital.
My take on it is that hayek was only half right – there are two roads to serfdom, one with too powerful a government trampling over individuals rights, and the other with too weak government unable to prevent powerful individuals trampling over weak individuals.
.
obama met with the bankers yesterday,, heres what Goldmans Lloyd Blankfein had to say
“Everybody was on the same page, one of cooperation. What we really wanted the president to understand, which of course he does understand, was that we recognize our interests are aligned, that we only do well if the economy does well.”
i think it would be fair to add, that Lloyds interests and the general publics interests are not aligned
is there any conceivable good reason why you’d take most (the quote from the Boston Globe is “much” of the funds) of the assets of the fund designed to insure pension benefits out of safe investments like bonds and put them into highly speculative investments — hedge fund, equities, etc. — just before the stock market collapsed.
Incompetence doesn’t cut it as an explanation.
http://www.talkingpointsmemo.com/archives/2009/03/big_trouble_2.php
13# Socrates…my views co-incide
“My take on it is that hayek was only half right – there are two roads to serfdom, one with too powerful a government trampling over individuals rights, and the other with too weak government unable to prevent powerful individuals trampling over weak individuals.”
My views co-incide. Isnt equilibrium a state of balance itself? Even in institutional / economic frameworks and in economic discourse?
re Michael at #4, if the Federal Government makes a law outside its powers, such a law will not be a valid law and so can’t have any effect. Prof Pape is saying that the stimulus law is not a valid law because it doesn’t fall under any of the powers granted to the Commonwealth under s51 of the Constitution, etc
John, if I may reply to Joe by saying Chief Justice, Robert French, has suggested that if the bonus did not fall under one of the 39 powers in section 51, then it might be a valid use of executive authority.
The Big Takeover (Matt Taibbi, Rolling Stone)
The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution
May I please go -off-topic just for a moment in order to alert people to the following:
http://tibettruth.wordpress.com/2009/03/30/collaborating-with-propaganda/
Features an interesting piece on Martin Johnson MP
Ah – so the Tibet-nutters are here as well.
Bad Karma for Dali Lama.
Is anyone else getting that deja vu feeling with the various Rudd Government comments about an expected Obama request for more troops to Afghanistan? For me it has its echo in the Rodent’s airplay leading to the WMD’s that Saddam Hussein was hiding in Iraq. The same tease is being played out in the media by Rudd and Stephen Smith speculating on what will happen when Barrack finally pops the question. ‘We haven’t been asked …yet’ sounds like part of the softening up of a public that cynically knows what Rudd’s response will be. It’s all so predictable.
Here’s a great story, which is getting not coverage in the English newsmedia as far as I can tell:
French Caterpillar workers detain management on-site since Tuesday
Instead of lying down and allowing the managers to proceed with their plans to sack 733 out of 2,006 workers, they have occupied the factory and detained their managers.
This is definitely an example that the Australian corporate newsmedia won’t want Australian workers to follow.
Help economists! I need to understand a stance by the Victorian Competition and Efficiency Commission (a mini-Productivity Commission). They state that the policy, regulatory and commercial arms of government must all be separated.
OK I understand why commercial needs to be distinct, but what logic is there to say that policy and regulation are distinct?
I hate to burst people’s bubble but here goes;
Global Economic Slide May Be Easing as G-20 Gathers
http://www.bloomberg.com/apps/news?pid=20601087&sid=aORf.NtpXwvU&refer=home
Stocks, Commodities Gain on Economy; Yen, Treasuries Decline
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6ceRVjVkrPg&refer=home
China Manufacturing Expands First Time in 6 Months
” China’s manufacturing expanded for the first time in six months, spurred by the government’s 4 trillion yuan ($585 billion) stimulus package.
The Purchasing Manager’s Index rose to a seasonally adjusted 52.4 in March from 49 in February, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion. ”
…
Huaneng Power International Inc., China’s biggest electricity generator, plans to boost capital spending by 18 percent this year to expand capacity as the government’s economic stimulus measures spur demand for power, Zhou Hui, the company’s chief accountant, told reporters in Hong Kong today. The generator may post a profit this quarter, after recording its first annual loss last year, the China Securities Journal reported today, citing the company.
Qingdao port, the nation’s third-largest container port, saw throughput jumped 4.5 percent in the first quarter over a year earlier, according to state media report today.
…
Ha Jiming, chief economist at China International Capital Corp. in Hong Kong, today raised his forecast for China’s growth this year to as much as 8 percent from a previous estimate of 7.3 percent, citing strong loan growth that has beaten expectations and recovery in “leading indicators” such as power output, new project investment and car sales.
German auto sales ‘surge 40%’
http://au.biz.yahoo.com/090402/33/25jrw.html
Australia shares gain 2.8 pct; 11-week closing high
http://au.biz.yahoo.com/090402/19/25jl2.html
Aussie jumps to 12-wk peak vs euro ahead ECB meeting
http://au.biz.yahoo.com/090402/19/25jl1.html
I look forward to a series of posts assuring me this is all propaganda from the commie/fascist/neoliberal/socialist/NWO illiuminati and once the world’s stock markets fall another 90-95% as they inevitably will i the next week the oppressed masses will finally awaken and embrace libertarianism/free markets/socialism/communism/deep green economics/breatharianism.
On the other hand, Ian, there’s
US unemployment claims jump unexpectedly
To get to the main point, there’s at least some evidence that the economic meltdown that seemed possible in late 2008 has been averted, and that we can reasonably hope that the outcome will be “merely” a long and deep recession. But of course stopping the meltdown has already required some radical changes in economic policy, and more will be needed.
Anecdotally at least I think that Ian and JQ are both right. In vulnerable sectors of engineering (eg mining and office construction) people are still losing their jobs. However new investment is starting to happen in housing/domestic construction, and basic infrastructure (power, water, roads, public transport) is stable, which is proping up overall employment in the sector.
This assumes the proposed Australai fund investment package happens. The latter is still quite important, especially in NSW/Sydney, as some current work is preparation for when it occurs and would stop otherwise. The Sydney economy in particuar would be vulnerable without it IMO.
Ian
Unlike blogs, you cannot determine economic analysis by anecdotes and cheap jargon.
How old are you?
Ta
Chris I’m 48 and have a degree in economics.
i’m interested in your comment about anecdotes because most of the time these days this blog seems to consist solely of anecdotes followed by histrionics about how we’re all doomed and desperate attempts at blaming the adherents of other political ideologies.
You want analysis: Unemployment is typically a lagging indicator. Stock prices are typically a leading indicator.
If stock prices stabilise and start to move up, which appears to be happening, unemployment will likely peak within 3-6 months.
But that’s just me being immature and spoiling people’s fun.
Let’s let TonyG tell us how it’s all Krudd’s fault and then Alice can blame it all on the capitalsit oppressors. Then Observa can blame it on Keynesians and Jack Strocchi can tell us how the solution lies in restricting immigration from Africa and the middle east.
Ian
That’s better.
Blogs are only ever anecdotes.
However the recent “stabilisation” and “moving-up” could be a typical dead-cat bounce, following the trends in todays Fin Review – page 23 [Chart].
The core fundamentals of capitalist profiteering can be held responsible, particularly through a structural need to increase per-capita debt to maintain effective consumption expenditures.
The problem for anti-capitalists is that they win the argument but not the war, as they have no agreeable alternative – yet.
But one must come eventually, as the bailouts of trillions have doomed the next generation, if the same capitalist fundamentals persist.
29# I wouldnt touch it with a ten foot pole unless I was a gambler (stock market right now). Its on a trajectory and the trajectory is travelling too fast. That, to me, means the hot air is still there.
Ian can tell us all the effect of all those toxic assets has worked its way out and that a 7 trillion bailout will return in a few months as budget surpluses if he likes.
DEAD CAT BOUNCE
On 3 September 1929 the DOW was at 381.17.
It collapsed down to 157.51 on 16 December 1930.
It then rallied for 2 moths to 194.36 by 24 February 1931 – this was a dead cat bounce.
From then on, it fell and fell and fell to bottom out on 13 July 1932 at 44.88.
Poor pussy.
Ian#29 says
“Let’s let TonyG tell us how it’s all Krudd’s fault and then Alice can blame it all on the capitalsit oppressors. Then Observa can blame it on Keynesians and Jack Strocchi can tell us how the solution lies in restricting immigration from Africa and the middle east.”
Then what would Ian say???
“There is no GFC, its just a little market adjustment, the stock market is going up now.. see Guys? I told you all along there is nothing wrong and these CEOs deserve every penny they steal….oops I mean get paid for their brilliant innovations. I, as ever, remain a dutiful supporter of unregulated capitalism….CE0s must run for the seat of the universe! Whats 7 trillion here and there?” Love Ian.
Gouldy! Mate! How’s the Chinese New Year effect going?
I’m struggling to understand how a surging AUD will help the Aussie economy, when our miners are currently negotiating contracts at prices 60% below boom levels, with volumes off another 20%. How, pray tell, will a 15% surge in the AUD since early March help?
For some minerals (e.g. coking coal) we’re looking at a drop in revenue in the order of 80%. That’s a catastrophe.
Clearly a degree in economics does not help in seeing the bleeding obvious, that this is a bear market rally.
The best news all week was Obama getting tough with GM and sacking Wagoner. Hopefully when the Geithner ‘plan’ fails, the big O will get tough with Citi and BofA and do what needs doing: Nationalise them.
# jquiggin Says: April 3rd, 2009 at 5:53 am
Pr Q is correct to say that the global economy is latently depressed and only being propped up into long recession by massive financial and fiscal interventions. Praise be the Lord (Keynes).
Pr Q is also correct to say that a radical re-structuring of the financing of the global politico-economy is required and is underway in the USA and USE (and, by contagion, the PRC). The USA being the villain of the piece owing to the massive prevalence of financial swindlers masquerading as business people.
(And no, not making Jews the scape goat, although anti-semititic stereotypes are not far from the surface of Old Europe. I’m afraid every metro ethnic group – even the old Scottish banking elite – has been in on the racket. The “debtquity and diversity” scam was an equal opportunity employer. All the sharp traders just following the fast money. Although the foul play was mostly from the Master of the Universe lending-class and Greater Fool borrowing-classes.)
But Pr Q has been fairly bearish about both the PRC and AUS over the past few years. These two economies look to have more resilience than he gave them credit. Ans they do not appear to be heading for massive institutional re-structuring.
The PRC will shift resources to the hinterland, let old firms go by the wayside and prop up good long term bets. AUS has pretty much been steady as she goes from Howard-Costello through Rudd-Swan.
The implication is that the politico-economic ministry of the CCP and the L/NP have been satisfactory, solvency is your standard. Long live the accidental economic genius of the Great Helmsman!
In Australia’s case its just a matter of timing. We’re 6-12 months behind the cycle largely because we’re still getting boom prices for our exports. Australia is Wile E. Coyote, hanging in mid-air, looking down, but still not falling.
China seems to have achieved the impossible of collapsing exports and industrial production, a severe housing bust, but still growing at 6% plus. Its almost like the official GDP numbers are made up 🙂
As usual Setser is your man if you want to know what’s happening with China and Asia generally.
# 29 Ian Gould Says: April 3rd, 2009 at 8:42 am
Me too! I guess we just had to have something in common.
More than cohort and cred it turns out. I share Ian Gould’s mildly bullish conclusions about the PRC, for much the same reason, based on fundamental analysis.
Although I think I beat him to the punch in calling the PRC gloom overdone. Back on 04FEB09 I predicted that the PRC will not have a “soft landing” and resume something approaching a healthy growth rate as it switches growth from an external to internal focus. Allow me to quote from this forlorn love letter to Howard-Costello economic ministry:
This expectation seems to be shared by one or two ALP politicians who are positioning themselves to lawfully profit from the PRC’s emerging economic dominance. Expect more of this “cosy capitalism” as the PRC economic juggernaut gains momentum and the ALP political machine tightens its grips around the state apparati.
Ian Gould says:
Gould’s insinuation of bigotry is an easily refutable falsehood. The internets are strewn with my comments supporting a high immigration intake of high IQ NESBs. I have always argued that AUS’s immigrant policy should be “race-neutral” and immigrants “whether black, white or brindle” should be “fit, smart and nice” in character.
I have never advocated “restricting immigration from African”, Asian or Arabian regions on grounds of race or religion. Ethical practice in these cases is to cite instances or retract.
Gould’s general falsehood is specially false in the context of this GFC debate. Since the crisis hit Ive been arguing that high immigration is basically the only thing keeping the AUS residential property market from going into a tailspin. All those industrious NESB students provided the rental income stream to support high property prices. The linked to comment*, and many others like them, contains praise, on economic grounds at least, for Howard-Costello’s high immigration policy:
This inflow of human capital, together with prudential regulations against over-leveraged securitization and derivatisation of assets, has kept our banks relatively solvent and economy relatively buoyant. And our a*ses out of the GFC sling.
I can be fairly be accused of ambivalence about the quantitative effect, rather than qualitative nature, of AUS’s high immigration rates. Is that ok?
High population growth from being an ecological disaster, as shown by the disintegration of our peri-urban fringe into a brown and unpleasant land (drained dams, sprawling fire-hazarded housing estates, wind-blown top soil, clogged rivers, dense clouds of GHG). But Ian Gould, being an “ecological” economist would know all about that.
*Note: that comment contains a typo about property price falls, for 20% read 10%. Corrected later.