Relevant and even prescient commentary on news, politics and the economy.

Preface to a Thought-Experiment on Labor, Capital, and Income Distribution

Mark Thoma goes to something called the Business Ethics Blog for an economics thought-experiment:

A Montreal accessories company has taken its policy of using no animal products beyond the rack and has forbidden its staff from eating meat and fish at work.

A former employee says the policy violated her rights as a non-vegetarian….

It’s an interesting experiment for many reasons, none of which deal directly with economics as it is currently taught.  For one thing, it is a dictated change in a contract with workers.  As a standard microeconomics problem, there is a negotiation, the worker’s preferences are examined, and the student is asked to find an economic balance that will satisfy the worker, with the implication that the employer desiring the change with provide compensation. (Note that the standard intermediate or graduate-level microeconomics problem merely teaches math, with dollars and preferences substituted for widgets and variables.)

For another, there is insufficient information to discuss externalities. (Aside to Brad DeLong: it’s not only, or even most importantly, Irving Fisher who is forgotten; Alfred Marshall appears to have been stripped from the curriculum as it transmogrified into a Libertarian Wet Dream.)  Absent evidence, we cannot know if the company had a legitimate reason for banning meat eating. Perhaps chemicals used in their processes combine with some proteins and produce a marginally higher level of cancer in those exposed for long periods. Perhaps the maintenance crew has discovered multiple rat nests because the workers have not been attentive to clean-up requirements, leaving enough pieces of pork, chicken, beef, and tripe around to make the building a desirable habitat. We do not have sufficient information.

We do, however, know that bars that permit smoking produce lung, throat, and other cancers in even the non-smoking bartenders and wait staff.  It may be unlikely that the aggressive hormone and radiation treatment given to meat these days produces a similar effect—radiation and drug treatment, after all, are both perfectly safe—but it is also possible that the company has seen recent research that indicates otherwise and fears for its future health-care costs.

We also do not know whether the company provides eating areas for its staff, or under what conditions it does.  Is there a company cafeteria (or eating spaces on various floors) that provides napkins and utensils to those who bring their own food? Is eating at one’s desk permitted? (I have worked places where it is not.) In such a case, we cannot even model the type of microeconomics problem referenced above, because we do not know the extent to which the workers are being told to give up something. (Smokers having to leave the building has positive externalities for them, such as work breaks others do not get and social networking opportunities that provide compensation.)  We cannot, in short, know the value of the widgets or the identities of the variables.

The question then becomes whether this is an economics problem at all.  And, if we assume it is, what does that mean for other. more standard, problems?  On the Next Rock: capital, labor, and taxation.

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And Here I Thought Corporations were Rational

Ken Houghton lowers the level of discourse at AB by discussing the career of a porn star other than Adam West.

One of the primary tenets of economic theory is that corporations believe in nothing other than profits. Well, it’s not quite that stark—we use phrases such as “utility maximization,” “cost minimization,” and the like—but the basic idea is that corporations, even more than individuals (silly humans!), have as their sole target maximizing profits.

So I’m a bit confused by the Vancouver Sun’s poorly-edited* obituary for Marilyn Chambers.

Let’s put the timeline together:

  1. Chambers “began her onscreen career as an Ivory Snow detergent model.”
  2. Chambers made Behind the Green Door, released in 1972.
  3. The movie “prompted a run on boxes of Ivory Snow, which featured a photo of Chambers.”

    So far I follow this: actress tries a different role, reaches a whole new audience, and sales of her previous works soar. (Think Kristin Chenoweth going from Broadway to television. Or maybe not.) What I don’t understand is the reaction:

  4. [T]he scandal produced “a Marilyn Chambers clause in all modeling contracts, saying that you can never have posed topless or nude or been in any kind of adult film or Playboy or anything like that.”

Let’s review. MKarilyn Chambers (h/t Tony C.) causes a major spike in sales of Ivory Snow detergent. Better yet, some of those people probably aren’t even going to open the box, so they’re going to have to buy another detergent as well—and, even time they have to go shopping, they’re going to see that Ivory Snow detergent and, if they need detergent, they’ll have an identification with it.

UPDATE: Robert, in comments, notes that this may be a rational act, if we assume normal market segmentation and a lack of loyalty on the part of the spurt of buying.

I believe this is what economists refer to as a “win-win” situation.

So why would the result be a “business decision” specifically banning the possibility of developing such cross-marketing potential in the future?

*I say poorly edited because on things such as that the last sentence of paragraph three is “The L.A. County coroner is examining the cause of death, but a spokesman said foul play is not suspected.” and the closing of paragraph four is “The cause of death is under investigation but foul play was not suspected and an autopsy is pending,” which strikes as the equivalent of giving the reader a sense of deja vu through stereotomy glasses.

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Remember the Vega response? It’s a philosophy problem.

by DolB

After reading Tom Bozzo’s post via Vtcodger, I was inspired by the comments about bad management.

I’m not confident that the issue of the Big 3 management is the result of stupidity as much as it is from philosophy. Part of the bitching of the Big 3 in the first crisis was do to the need to move from focusing on money to focusing on a solution to a need: personal transportation. We got the Vega with unlined aluminum blocks and mickey mouse brakes. Infact, if you ever saw the casting of the engine, it looked like it was 1/2 a casting of the small block V8.

However, Japan’s business approach appears to be an extension of their life philosophy. Thus, Toyota brought out the Prius in Japan in 1997. 4 years after the creation by President Clinton of The Partnership for the Next Generation of Vehicles. This was 1 year after Toyota announces: January 16, 1992 – Toyota Motor Corporation (TMC) announces the Earth Charter, a document outlining goals to develop and market vehicles with the lowest emissions possible.

They set out to solve a need. We instead got a endless talking point that the purpose of a company is to make a profit. Well, the Big 3 made their profit. Now what?

And that PNGV program? “The 1994 PNGV Program Plan calls for a “concept vehicle” to be ready in about six years, and a “production prototype” to be ready in about ten years.”

Just a little late in their time planning, wouldn’t you say? Toyota was out 3 years post this report in their country and world production 2 years before the PNGV program called for a “prototype”! And Toyota didn’t need to be sweet talked into it. But we did spend some money:

“In FY1995, about $308 million was appropriated for ongoing PNGV-related R&D at eight federal agencies. Of this total, 88S went to three agencies: DOE, Department of Commerce (DOC), and National Science Foundation (NSF). Industry is spending about $100 million during this early, high-risk part of the program. For FY1996, the Administration requested $383 million. The House approved $228 million, a cut of $80 million or 26% from the FY1995 level, including zero funding for two agencies. However, the Conference mark is $312 million, which is nearly even with the FY1995 level, but is $71 million or 19%. lower than the Administration request.”

But, let’s speed forward.

By 1997, participants had settled on the specs of the “super car,” as it became known: the sedan would be a lightweight, diesel-electric hybrid. (Diesel engines, because they use a higher compression ratio, consume less fuel per mile than gasoline engines do.) By 2000, the Big Three had all produced concept cars, which were unveiled with much fanfare at the North American Auto Show, in Detroit. G.M.’s car, which was called the Precept, came equipped with two electric motors, one mounted on each axle. Ford’s Prodigy featured an aluminum body and rear-facing cameras in place of side-view mirrors, and the Dodge ESX3 was made in large part out of plastic.
The concept cars were wheeled out, then wheeled away, never to be seen again.

You do know the story of the EV-1?

In January, 2002, just months before the prototypes of the vehicles were supposed to be delivered and after more than a billion dollars of federal money had been spent, Energy Secretary Spencer Abraham announced that the Bush Administration was scrapping the project. When he delivered the announcement, Abraham was flanked by top executives from the Big Three, at least one of whom—G.M.’s chairman, Jack Smith—had stood next to President Clinton when he launched the program, eight years earlier. Abraham explained—and the auto executives seemed to agree—that the program had been based on a fundamentally flawed premise. The future of the car didn’t lie with diesel hybrids or any other technology that would allow vehicles to get eighty miles to the gallon. “We can do better than that,” Abraham declared. The Administration and the automakers, he said, were undertaking a new, even more ambitious venture, called FreedomCAR. The goal of this project was to produce vehicles that would run on pure hydrogen.

And thus was born the fable of hydrogen. Great! But what about the issue coming up like right about now? Toyota saw it. They solved it and I bet they already have something more in the works for the “more ambitious venture”. You know what else Toyota was doing in 2002?

Toyota announced they were now making a profit from the sale of each Prius. The success of hybrids had now become apparent.

How’s that stated purpose of a company working out for ya now? What’s the solution now? Another new purpose for a company? How about: It’s no longer to make money, it’s to not have it taxed away. That’s how the stock holders will get paid.

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