We need to restore economic growth
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We need to restore economic growth

The big macroeconomic debate is over deficit spending. Should the federal government keep borrowing money and spending it to lower unemployment and hasten economic recovery, or should it focus on fixing its balance sheet by cutting spending and possibly raising taxes? Ireland went for the latter approach, and the New York Times reports on the results. Ezra Klein has the Cliffs Notes version. I’ll go even shorter: it’s been a disaster for Ireland.

The externalities of gasoline
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The externalities of gasoline

Ezra Klein’s Washington Post column today is about the externalities of gasoline:

Most of us would call the BP spill a tragedy. Ask an economist what it is, however, and you’ll hear a different word: “externality.” An externality is a cost that’s not paid by the person, or people, using the good that creates the cost. The BP spill is going to cost fishermen, it’s going to cost the gulf’s ecosystem, and it’s going to cost the region’s tourism industry. But that cost won’t be paid by the people who wanted that oil for their cars. It’ll fall on taxpayers, on Gulf Coast residents who need new jobs, on the poisoned wildlife on the seafloor.

That means the gasoline you’re buying at the pump is — stick with me here — too cheap. The price you pay is less than the product’s true cost. A lot less, actually. And it’s not just catastrophic spills and dramatic disruptions in the Middle East that add to the price. Gasoline has so many hidden costs that there’s a cottage industry devoted to tallying them up. At least the ones that can be tallied up.

Behavioral economics and my new laptop
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Behavioral economics and my new laptop

Today, Apple updated the MacBook Pro line. I’ve been using the same laptop for three years, and it is, in my opinion, time to get a new one. Sadly, my determination to get a new laptop has made every symptom of sluggishness on the old computer twice as noticeable. (Eclipse “Open Type” shortcut, I’m looking at you.)

First, an anecdote from the realm of behavioral economics. In January, a five cent tax on plastic grocery bags went into effect in Washington DC. The proceeds go to cleaning up the Anacostia River. Residents of Washington DC used an average of 22 million plastic bags a month in 2009. In 2010, they used 3 million. As it turns out, people are completely willing to bring their own bags to the store if it means not having to pay a small tax. The radical change in behavior that resulted from this small tax made me wonder about the effect slow computers have on developer behavior.

When Joel Spolsky originally wrote the Joel Test ten years ago, he talked about how developers deal with the performance tax:

Writing code in a compiled language is one of the last things that still can’t be done instantly on a garden variety home computer. If your compilation process takes more than a few seconds, getting the latest and greatest computer is going to save you time. If compiling takes even 15 seconds, programmers will get bored while the compiler runs and switch over to reading The Onion, which will suck them in and kill hours of productivity.

Today, you’d substitute “check their Twitter client” for “reading The Onion,” but aside from that, the observation still holds.

My theory though is that slow machines for developers wind up increasing the workload for testers. Most of the time, a slow computer doesn’t make it harder to write code, it makes harder to test code.

I suspect that most developers have a budget in their mind for how long they’re willing to test each bug fix. I don’t know many developers who can force themselves to do a lot of testing for a one line change, even if that one line change was made to a widely used method or function. So the biggest impact of getting a faster computer is that it would enable me to run more tests within my testing budget, and to iterate more rapidly when the fixes don’t work. In the end, it results in higher quality code.

And that’s why I should have a new laptop. The QA department must surely agree. This is also an argument in favor of automated regression testing.

What corporations actually think of capitalism
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What corporations actually think of capitalism

In school we learn that capitalism is the most efficient system known for allocating scarce resources, but real life has taught me that very few corporations agree with economists on this point. Take, for example, how a banking analyst reacts to the news that the credit card legislation that just gone into effect has led to credit card issuers competing more aggressively for customers with high credit scores:

The CARD Act is leading all issuers to the top of the credit food chain, and more competition is never a good thing in any industry, regardless of the product, but particularly in the relatively homogenized card space,

Make no mistake, what “competing more aggressively” means is offering lower interest rates and better benefits to customers. The takeaway here is that this is what corporations are after when they spend money on lobbying — reduced competition, and of course, reduced regulations. So here we have a policy that regulates the worst behavior of corporations and that has led directly to competition that benefits customers. This is exactly the sort of thing Republicans are against.

Tyler Cowen vs libertarian orthodoxy
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Tyler Cowen vs libertarian orthodoxy

One of the key pillars of libertarian orthodoxy is that foreign aid is bad. Tyler Cowen sets his readers straight:

I still believe that foreign aid does not raise economic growth rates, on average. But aid can alleviate human misery, such as when a visiting doctor gives vaccines or hands out medicine. (In fact per capita income may fall, as a result, if some “weaklings” are kept alive.)

I also believe that the U.S. military can make a huge difference in the immediate aftermath of catastrophes.

Imagine U.S. troops liberating Buchenwald. Would any commentators say the following? “Don’t give him that blanket, sell it to him!” “Hey buddy, get a job!” “Moral hazard: they’ll just go get captured again.” etc. I don’t think so.

Revisiting “What would an economist do?”
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Revisiting “What would an economist do?”

Back in March, I asked:

I really want to buy the new Neko Case album, released last week, but I have a suspicion that Amazon.com is going to make it the deal of the day sometime soon. What would an economist tell me?

Today it’s Amazon.com’s MP3 deal of the day and you can get it for $1.99. I purchased it a few months ago when it was on their 50 albums for $5 list, but I wanted to point out that my prediction was correct for some definition of soon.

The unique economics of entertainment
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The unique economics of entertainment

Nicholas Tabarrok points out that the movie business is unique in that the cost of producing movies does not affect the price customers pay to see a movie:

One interesting thing that I’ve always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business. I am an independent film producer and I make films that typically cost somewhere between $5M and $10M. But when I make, say, an $8M film it has to compete at the same price level as the studios’ $80M or $100M film. It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film. There is no price advantage to the consumer for choosing to see a less expensive film. This naturally makes it terribly difficult for smaller films to find an audience. I find this quite fascinating and I can’t readily think of another industry like it.

It’s an interesting observation I’ve never really thought about. The movie business is probably the most extreme example, but as a commenter points out, the music business is similar, and console games aren’t all that different, either. Most cost about the same amount when they are initially released.