Reminds me of the former Michigan governor who was on The Daily Show recently talking about how states are just competing with other states for jobs, but nobody's actually bringing any new jobs to the US, so it's just a downward spiral of worker compensation and rights, chasing the unemployment rabbit around in circles.
The academic term for this is "Chasing Smokestacks". The general consensus, based on studying it on an international level, is that it does not work. You get a quick hit, which diminishes as the negative externalities - pollution, low wages, exploitation, lose of sovereignty to international firms and groups - ripple through your economy.
Obviously, if the entire country had a similar stance on unions, then it would cease to be a competitive advantage. But when your bully pulpit is that we created X number of jobs for the economy with these laws, then it's not really surprising to see politicians leap at it.
Support for the issue is killing the GOP in Ohio. They are a union state, and on the border of the South, so the voters know exactly what "right to work" politicians are peddling and want none of it.
This is despite the dire situation of the economy in Ohio. Voters there are smart enough to know that the solution to their problems is not "be more like Texas, Mississippi and Alabama."
Smart enough to vote in an obvious crook like Kasich. And surprise surprise: unemployment is up, public employees on an already low pay are blamed and "forced" to take large cuts in compensation while our Governor gives himself and his cronies raises and bonuses.
Got to love my state...
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zepherinRussian warship, go fuck yourselfRegistered Userregular
So long as it's easy to ship jobs overseas, and the fact that most over seas employees --whether blue or white collar-- are much much cheaper than American workers, this trend will continue.
This is one of the reasons I support higher fuel costs. If a 5 dollar widget costs 5 dollars to ship overseas then the cost paradigm changes and more jobs are created here. There is some evidence of that in the furniture industry. American made furniture is making a high profit while companies that primarily sell foreign cheap labor products are bleeding red ink on spread sheets. Except Ikea and Walmart still do well, but for higher end stuff the local providers and craftspeople are actually doing well in comparison to their lower quality counterparts and in spite of the economy.
I am continually amazed at how expensive some US colleges are. I didn't go to a super prestigious school or anything, but my B.Eng cost me $15000 total. Net positive with work terms.
Private universities can be really expensive, sure. Sometimes its worth it, though- a Harvard, Stanford or MIT degree opens a lot of doors. But there are plenty of mediocre private colleges that don't make sense from a cost/benefit analysis.
You can still get a reasonably priced high-quality public school education, though. A year's worth of tuition in-state at the University of Michigan is about $13,000.
I'm just glad I'm poor enough to require a full ride at a Harvard or a Columbia.
So long as it's easy to ship jobs overseas, and the fact that most over seas employees --whether blue or white collar-- are much much cheaper than American workers, this trend will continue.
This is one of the reasons I support higher fuel costs. If a 5 dollar widget costs 5 dollars to ship overseas then the cost paradigm changes and more jobs are created here. There is some evidence of that in the furniture industry. American made furniture is making a high profit while companies that primarily sell foreign cheap labor products are bleeding red ink on spread sheets. Except Ikea and Walmart still do well, but for higher end stuff the local providers and craftspeople are actually doing well in comparison to their lower quality counterparts and in spite of the economy.
When you can pack a container full of stuff (or an entire container ship) the monetary cost for shipping is almost zero, even with rising fuel prices.
I think American furniture makes out fairly well is because of raw material costs. We have lots and lots of cheap wood. This is to the point where they make chopsticks in America and ship them to China. Which is fucking baffling.
So long as it's easy to ship jobs overseas, and the fact that most over seas employees --whether blue or white collar-- are much much cheaper than American workers, this trend will continue.
This is one of the reasons I support higher fuel costs. If a 5 dollar widget costs 5 dollars to ship overseas then the cost paradigm changes and more jobs are created here. There is some evidence of that in the furniture industry. American made furniture is making a high profit while companies that primarily sell foreign cheap labor products are bleeding red ink on spread sheets. Except Ikea and Walmart still do well, but for higher end stuff the local providers and craftspeople are actually doing well in comparison to their lower quality counterparts and in spite of the economy.
When you can pack a container full of stuff (or an entire container ship) the monetary cost for shipping is almost zero, even with rising fuel prices.
I think American furniture makes out fairly well is because of raw material costs. We have lots and lots of cheap wood. This is to the point where they make chopsticks in America and ship them to China. Which is fucking baffling.
yeah, it costs more gas per pound of goods to drive it 50 miles to market in a pickup than to fly it from China to the US in a jet and then ship it to a store in a semi - by a huuuge margin. When you get down to shipping by freighter? Whoa boy, it costs like a thousandth of a cent per ton in fuel costs.
So if you go to Wal-Mart and buy a TV and drive it home, you used probably (I really am shooting from the hip here) fifty times the gas to get it home that it took to get from its origin to that store
So in an environment where you have a natural monopoly -- like with power companies getting exclusive rights to an entire state -- you always know you're getting a monopoly price. How can you know what the normal open-market equilibrium price would have been, though?
So in an environment where you have a natural monopoly -- like with power companies getting exclusive rights to an entire state -- you always know you're getting a monopoly price. How can you know what the normal open-market equilibrium price would have been, though?
Welcome to 99% of cases where economic theory is put into practice!
I made a game! Hotline Maui. Requires mouse and keyboard.
So in an environment where you have a natural monopoly -- like with power companies getting exclusive rights to an entire state -- you always know you're getting a monopoly price. How can you know what the normal open-market equilibrium price would have been, though?
power companies getting rights to an entire state isn't a natural monopoly, a natural monopoly is where you have unexhausted economies of scale over an entire region (this could often be said to be true in small regions but that takes the concepts of competitive markets to absurd levels).
Power companies can be natural monopolies, because it makes sense that there are unexhausted economies of scale in these situations
And the answer is that competitive prices will move towards the underlying cost structure of the firms. So if we wanted to find the competitive price we could infer it by the input costs, capital costs, etc.
Hey guys, First off, I lurk a lot here and don't post much because I typically am not as well versed in the subject as most people here. But I stumbled across an article that I found compelling. I wasn't sure if it deserved its own thread since it is mostly about economics, so I am deciding to post it here. I was just wondering what your guys' thoughts on it were.
Auction off the rights to power generation on a periodic basis; then the monopoly rentier is the state fund. The size of the fee that the power generator is willing to pay approaches the size of the monopoly rent (i.e., monopoly revenue less competitive revenue) in the limit of a perfectly competitive bidding process.
Of course, one still has expensive electricity. But now you also have a pile of state funds. Spend it on something else.
And the answer is that competitive prices will move towards the underlying cost structure of the firms. So if we wanted to find the competitive price we could infer it by the input costs, capital costs, etc.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
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zepherinRussian warship, go fuck yourselfRegistered Userregular
When you can pack a container full of stuff (or an entire container ship) the monetary cost for shipping is almost zero, even with rising fuel prices.
I think American furniture makes out fairly well is because of raw material costs. We have lots and lots of cheap wood. This is to the point where they make chopsticks in America and ship them to China. Which is fucking baffling.
yeah, it costs more gas per pound of goods to drive it 50 miles to market in a pickup than to fly it from China to the US in a jet and then ship it to a store in a semi - by a huuuge margin. When you get down to shipping by freighter? Whoa boy, it costs like a thousandth of a cent per ton in fuel costs.
So if you go to Wal-Mart and buy a TV and drive it home, you used probably (I really am shooting from the hip here) fifty times the gas to get it home that it took to get from its origin to that store
That is largely incorrect. I used to do some billing and logistics for a company that had shipments come in internationally and fuel was a huge cost. It used to cost about 6 cents a pound to ship something over the ocean and now costs 10 cents a pound, our freight was time sensitive which required air freight which used to cost 40 cents a pound now cost about $1 a pound. Over the road freight used to be about 10 cents a pound is now roughly 35-40 cents a pound. Also you are responsible for pickup. Keep in mind fuel is the chief cost of this. And with freighters you have to pay shipping to port (Miami or Seattle usually). Pay to truck it to your warehouse and then pay to have it distributed. The owner of the company was a wizard at not paying for shipping and he was getting beat up when fuel was running $5 a gallon Where as with a local dealer you pay them and have them deliver it to your stores. For us whenever fuel costs doubled, our shipping costs increased about %60 overall. Now the downside to this is the competition is limited geographically.
And the answer is that competitive prices will move towards the underlying cost structure of the firms. So if we wanted to find the competitive price we could infer it by the input costs, capital costs, etc.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
Aren't prices for electricity strongly regulated because the power company have a monopoly?
Power companies don't have to have a monopoly - there's a grid and at the margin there is room for competition between sources of power.
But they do have to be heavily regulated anyway because of their importance and how the grid has to be funded and maintained. Plenty of potential for abuse.
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zepherinRussian warship, go fuck yourselfRegistered Userregular
Power companies don't have to have a monopoly - there's a grid and at the margin there is room for competition between sources of power.
But they do have to be heavily regulated anyway because of their importance and how the grid has to be funded and maintained. Plenty of potential for abuse.
In most states power is regulated, because of the abuses that happened during the failed power deregulation.
Power companies don't have to have a monopoly - there's a grid and at the margin there is room for competition between sources of power.
But they do have to be heavily regulated anyway because of their importance and how the grid has to be funded and maintained. Plenty of potential for abuse.
Depends on what we mean by "power company". The grid is almost assuredly a monopoly, though it may be divided among different transmission companies.
Generation need not be, but because of power utilization curves, without regulation, you will get brownouts. This is because the daily power consumption profile of a region spikes during the day and troughs during the night (plus summer/winter cycles) and failure to provide sufficient power at times of peak usage will result in transmission failures, with severity depending on the grid design. However, the last watt of generating capacity is significantly more expensive than the first watt, because it's only used briefly each day.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
You can find profit margins by examining similar companies. (or the general market for goods which have similar capital cost/marginal cost/risk structures). Profit margins as most people consider them are considered costs in terms of economics.
Edit: If you want to make it easier to see how you can measure the profit margin, consider calling it the "cost of capital" instead. Margin on brand name jeans vs walmart jeans vary because of the cost of capital in the price of a good varies based on the relative amount of capital used to produce the good.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
You can find profit margins by examining similar companies. (or the general market for goods which have similar capital cost/marginal cost/risk structures). Profit margins as most people consider them are considered costs in terms of economics.
Edit: If you want to make it easier to see how you can measure the profit margin, consider calling it the "cost of capital" instead. Margin on brand name jeans vs walmart jeans vary because of the cost of capital in the price of a good varies based on the relative amount of capital used to produce the good.
Does marketing count as "cost of capital" in this methodology?
I can't speak to the specifics of shipping costs, but strictly from a fuel perspective a semi gets something on the order of 80 ton/miles per gallon, or ~20 cents a pound to take it from one coast to the other coast if you assume $5 a gallon diesel.
I was waaaaaayyy off with the 50 times, but more accurately it probably takes ten times the fuel per pound for you to go get 50 pounds of goods and bring them home than it does to take those same goods from one coast to the other, unless you're driving something that gets really good MPG. Freight across the ocean is still the cheapest, I really don't feel like doing the math (and yeah I was way off in my previous post now that I look at it). A big ocean vessel gets around 500 ton/miles per gallon if I remember correctly. That's ridiculously more efficient than a person's vehicle and fuel is most certainly not the primary cost there, all the overhead involving a ship is main cost.
I was waaaaaayyy off with the 50 times, but more accurately it probably takes ten times the fuel per pound for you to go get 50 pounds of goods and bring them home than it does to take those same goods from one coast to the other, unless you're driving something that gets really good MPG. Freight across the ocean is still the cheapest, I really don't feel like doing the math (and yeah I was way off in my previous post now that I look at it). A big ocean vessel gets around 500 ton/miles per gallon if I remember correctly. That's ridiculously more efficient than a person's vehicle and fuel is most certainly not the primary cost there, all the overhead involving a ship is main cost.
From a fuel per pound perspective your right that taking goods home is way less efficient than getting the goods to the store. Boats are fairly efficient. Boats are the second most efficient forms of transportation we use (pipelines being the most efficient), but it is still a cost that is effected by fuel costs and the point that I was making is that increasing that cost makes the advantages of doing business overseas for low cost high weight items unfeasible. High margin low weight items (iPhones) will be less effected than low margin high weight items (LCD TVs).
Personally I think we should place a blanket per pound freight tax on anything coming into the country under the guise of an inspection fee. Put people to work and raise the cost of importing goods.
I was waaaaaayyy off with the 50 times, but more accurately it probably takes ten times the fuel per pound for you to go get 50 pounds of goods and bring them home than it does to take those same goods from one coast to the other, unless you're driving something that gets really good MPG. Freight across the ocean is still the cheapest, I really don't feel like doing the math (and yeah I was way off in my previous post now that I look at it). A big ocean vessel gets around 500 ton/miles per gallon if I remember correctly. That's ridiculously more efficient than a person's vehicle and fuel is most certainly not the primary cost there, all the overhead involving a ship is main cost.
From a fuel per pound perspective your right that taking goods home is way less efficient than getting the goods to the store. Boats are fairly efficient. Boats are the second most efficient forms of transportation we use (pipelines being the most efficient), but it is still a cost that is effected by fuel costs and the point that I was making is that increasing that cost makes the advantages of doing business overseas for low cost high weight items unfeasible. High margin low weight items (iPhones) will be less effected than low margin high weight items (LCD TVs).
Personally I think we should place a blanket per pound freight tax on anything coming into the country under the guise of an inspection fee. Put people to work and raise the cost of importing goods.
Do you really think protectionism is the way to go in a modern economy? I ask sincerely.
Does marketing count as "cost of capital" in this methodology?
Why would it? Marketing is a recorded cost that would not likely change in a competitive situation (at least for power companies)
I was thinking more in the jeans example; I'm pretty sure Levi's pays more for marketing than No-Name Chinese/Pakistani/Mexican Walmart Jeans Manufacturer.
I was waaaaaayyy off with the 50 times, but more accurately it probably takes ten times the fuel per pound for you to go get 50 pounds of goods and bring them home than it does to take those same goods from one coast to the other, unless you're driving something that gets really good MPG. Freight across the ocean is still the cheapest, I really don't feel like doing the math (and yeah I was way off in my previous post now that I look at it). A big ocean vessel gets around 500 ton/miles per gallon if I remember correctly. That's ridiculously more efficient than a person's vehicle and fuel is most certainly not the primary cost there, all the overhead involving a ship is main cost.
From a fuel per pound perspective your right that taking goods home is way less efficient than getting the goods to the store. Boats are fairly efficient. Boats are the second most efficient forms of transportation we use (pipelines being the most efficient), but it is still a cost that is effected by fuel costs and the point that I was making is that increasing that cost makes the advantages of doing business overseas for low cost high weight items unfeasible. High margin low weight items (iPhones) will be less effected than low margin high weight items (LCD TVs).
Personally I think we should place a blanket per pound freight tax on anything coming into the country under the guise of an inspection fee. Put people to work and raise the cost of importing goods.
Do you really think protectionism is the way to go in a modern economy? I ask sincerely.
I think there some valid arguments for it in the case of China, because of the Yuan manipulation.
Or the US could devalue rather than wait for the PRC to revalue...
I mean, if you're going to apply political pressure anyway.
ronya on
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mrt144King of the NumbernamesRegistered Userregular
The biggest problem I see with protectionism as a means to restore importing exporting parity is that in a lot of cases, the things we've would have a hard time existing both in practice and in favor in our country now. Most people do not want steel plants, chemical plants, heavy industry and the externalities it causes because we've taken for granted that we don't have to live with them any longer. This idea that we could somehow return low skill, high value labor to America presupposes that we'd tolerate it once it was here.
The biggest problem I see with protectionism as a means to restore importing exporting parity is that in a lot of cases, the things we've would have a hard time existing both in practice and in favor in our country now. Most people do not want steel plants, chemical plants, heavy industry and the externalities it causes because we've taken for granted that we don't have to live with them any longer. This idea that we could somehow return low skill, high value labor to America presupposes that we'd tolerate it once it was here.
Not to mention that we import a lot of stuff and the price of all that would start to go up if we started slapping tariffs and pseudo-tariffs on imports. Sure, we could, as the theory goes, start manufacturing more of that stuff here, but more expensively than otherwise, so the price for all our cool cheap stuff would increase.
And we sort of promised that we wouldn't do that sort of thing (except on food, everyone does that) so the WTO would allow other countries to put counter-tariffs on everything, making our good more expensive overseas as well.
Really, what we're doing is a retaliatory act in response to China's defection in the prisoner's dilemma of international trade.
Except we don't want to open up that can of worms, because as much the US might complain about China's control over their currency, we don't want other countries to retaliate against the US for the fed's manipulation of interest rates.
Really, what we're doing is a retaliatory act in response to China's defection in the prisoner's dilemma of international trade.
Except we don't want to open up that can of worms, because as much the US might complain about China's control over their currency, we don't want other countries to retaliate against the US for the fed's manipulation of interest rates.
They're completely different situations, though.
The Federal Reserve isn't the World Central Bank. As a matter of law, everything the Fed does is directly in the interest of the U.S. economy, and just because the rest of the world chooses to use U.S. bond rates as an international benchmark doesn't mean the Fed suddenly needs to take global currency floes into consideration when choosing which way to go with the target interest rate.
That's a far cry from actively manipulating your currency to keep your exports cheaper than other countries'.
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zepherinRussian warship, go fuck yourselfRegistered Userregular
I think there some valid arguments for it in the case of China, because of the Yuan manipulation.
Honestly the Chinese economic growth is largely built on smoke mirrors and the threat of execution. I think anyway to start disentangling ourselves from their economy should be taken.
And the answer is that competitive prices will move towards the underlying cost structure of the firms. So if we wanted to find the competitive price we could infer it by the input costs, capital costs, etc.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
Did I miss the discussion on energy regulation entirely, or can I still contribute?
Here we’ve basically got the electricity industry split into four components. There’s the generators, who produce electricity at power plants. This market is generally considered competitive, and is energy-only which distinguishes it from a lot of other energy markets around the world where you will find generators paid for both actual energy supplied and capacity to supply. There are probably some issues with the market power of the largest generators in certain regional areas, but of course that depends on who you ask.
Then you get to transmission and distribution as the next two components. They are similar in that they both get the power from the generators to you. Transmission is generally the long, high-voltage lines from regional power stations to demand areas (or energy-intensive businesses like mines or smelters). Distribution is the meshed low- and medium-voltage network that takes power off the transmission lines, steps it down in voltage and delivers it to homes and less-energy intensive businesses. These network businesses tend towards natural monopoly structures. It is more efficient to have one business delivering the entirety of output in a geographic region rather than multiple businesses duplicating the extremely high network costs required by the infrastructure, and splitting the customer base.
The last component is retail, which is the interface between the customer and the other three sectors. The retailers buy energy, pay the network companies their costs, and bill customers. This market is in the process of transitioning to full competition in most states, although it will remain protected in some others.
For political and (in principle) market failure reasons, yes all four sections of the industry are regulated, bound by rules, and overseen by regulators. The price for generation is, however, fairly loosely regulated (there is a price cap and floor, set at $12 500/MW/h and -$1000/MW/h… it’s a bit weird). The regulation of retail price gets looser or tighter depending on which state you’re in and the appetite of its politicians for competition and the depth of the relevant state market. The prices in transmission and distribution are regulated most heavily as the market in those areas is characterised by network monopolies.
In transmission and distribution, the revenue that a business is allowed to recover is determined under a building blocks model. This includes, among other things, a return on capital, depreciation, forecast capital and operating expenditure, and a tax allowance. You can see chapter 6 of the National Electricity Rules if you really want more info. This is how the Governments (referring to State and Federal here, hence the plural) have tried to constrain the monopoly pricing that inevitably goes on. The rules for determining what gets included under these building blocks is complicated and frequently fought over (in the press and the courts, between the regulator and the network businesses). The cost of marketing is not an allowed cost here. It is, however, generally allowed to some level for natural gas distribution networks, because people have a choice of whether they’ll connect to gas or not. This is not so true for electricity.
I don't know where he got the scorpions, or how he got them into my mattress.
Question about The Fed. Am I correct in understanding that The Federal Reserve Bank is basically a quasi private/government entity that holds a large supply of the money; and uses that to manipulate interest rates, the free supply of cash, and to provide emergency "overnight" loans for banks that make mistakes? And am I correct in understanding that RonPaulites dislike The Fed because it basically interferes with "natural" capitalism by preventing banks that make mistakes from collapsing?
No, he dislikes the fed because he believes that it modifies the natural rate of interest which would otherwise be set by the banks deciding their own reserve ratio(but wait, we would regulate that so that you could only have 100% reserve ratios!). This change in the interest rate off of the natural rate causes people to "malinvest".
The problem is that the story is bunk, the idea that the market rate of interest is correct, or that 100% reserve ratios would be the natural state of things absent regulation, or that "malinvestment" makes any sort of sense once you get down to the mechanism that causes it to operate are all bunk.
Can you explain why "Malinvestment" makes no sense?
At a simple, empirical level, the malinvestment theory of the business cycle implies that consumption and investment should have an inverse relation, as (bad) investments are encouraged at the expense of current consumption. We do not tend to see this. Instead investment and consumption and national income are very highly correlated - even the most casual inspection suggests that booms are times of consumer plenty, not consumer privation.
There are a number of Austrian escape routes; Bob Murphy suggests that it is spending on capital maintenance that is inversely related, whereas Tyler Cowen suggests dropping the presumption that the free market tends toward full employment. The more you poke at this latter, the more Keynesian the model behaves, though.
Conceptually there is a basic plausibility problem in asserting that producers make extensive investments toward given goods (that take short vs. long times to produce) based on observing the prevailing rate of interest and thereby deducing future consumer desires to spend now vs. later (!!! - but this is as per Hayek) yet are so goshdarned gullible that they take the Federal Reserve's nominal rate at its word. Remember, the theory only works if investors are persistently fooled into seeing only the nominal rate of interest rather than the real (nominal-inflation) rate of interest.
In practice investors are bad at making careful predictions about future consumers and thus diversify and hedge a lot, whilst also being observably attentive to the expected rate of inflation, so it is hard to make the idea convincing.
Malinvestment probably works best as a microeconomic or long-term-growth phenomenon rather than a short-term business-cycle one - unclear price signals encouraging bad investment - but that would not let Austrians rail against the central bank.
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The academic term for this is "Chasing Smokestacks". The general consensus, based on studying it on an international level, is that it does not work. You get a quick hit, which diminishes as the negative externalities - pollution, low wages, exploitation, lose of sovereignty to international firms and groups - ripple through your economy.
Smart enough to vote in an obvious crook like Kasich. And surprise surprise: unemployment is up, public employees on an already low pay are blamed and "forced" to take large cuts in compensation while our Governor gives himself and his cronies raises and bonuses.
Got to love my state...
I'm just glad I'm poor enough to require a full ride at a Harvard or a Columbia.
Hoo-ray for being poor!
When you can pack a container full of stuff (or an entire container ship) the monetary cost for shipping is almost zero, even with rising fuel prices.
I think American furniture makes out fairly well is because of raw material costs. We have lots and lots of cheap wood. This is to the point where they make chopsticks in America and ship them to China. Which is fucking baffling.
yeah, it costs more gas per pound of goods to drive it 50 miles to market in a pickup than to fly it from China to the US in a jet and then ship it to a store in a semi - by a huuuge margin. When you get down to shipping by freighter? Whoa boy, it costs like a thousandth of a cent per ton in fuel costs.
So if you go to Wal-Mart and buy a TV and drive it home, you used probably (I really am shooting from the hip here) fifty times the gas to get it home that it took to get from its origin to that store
Welcome to 99% of cases where economic theory is put into practice!
power companies getting rights to an entire state isn't a natural monopoly, a natural monopoly is where you have unexhausted economies of scale over an entire region (this could often be said to be true in small regions but that takes the concepts of competitive markets to absurd levels).
Power companies can be natural monopolies, because it makes sense that there are unexhausted economies of scale in these situations
And the answer is that competitive prices will move towards the underlying cost structure of the firms. So if we wanted to find the competitive price we could infer it by the input costs, capital costs, etc.
http://rationalrevolution.net/articles/restore_america.htm
Of course, one still has expensive electricity. But now you also have a pile of state funds. Spend it on something else.
I did think of going for the "market fundamentals" angle in assessing a potential market price, but then you have to tack on a profit margin, which in my experience is pretty subjective and variable (ie. the margin on a pair of $50 brand-name jeans versus a $10 pair from Walmart). I'm pretty sure the states also have the right to look into the power companies' books, so they're probably not swimming in profits in any case.
Aren't prices for electricity strongly regulated because the power company have a monopoly?
But they do have to be heavily regulated anyway because of their importance and how the grid has to be funded and maintained. Plenty of potential for abuse.
Depends on what we mean by "power company". The grid is almost assuredly a monopoly, though it may be divided among different transmission companies.
Generation need not be, but because of power utilization curves, without regulation, you will get brownouts. This is because the daily power consumption profile of a region spikes during the day and troughs during the night (plus summer/winter cycles) and failure to provide sufficient power at times of peak usage will result in transmission failures, with severity depending on the grid design. However, the last watt of generating capacity is significantly more expensive than the first watt, because it's only used briefly each day.
You can find profit margins by examining similar companies. (or the general market for goods which have similar capital cost/marginal cost/risk structures). Profit margins as most people consider them are considered costs in terms of economics.
Edit: If you want to make it easier to see how you can measure the profit margin, consider calling it the "cost of capital" instead. Margin on brand name jeans vs walmart jeans vary because of the cost of capital in the price of a good varies based on the relative amount of capital used to produce the good.
Does marketing count as "cost of capital" in this methodology?
I can't speak to the specifics of shipping costs, but strictly from a fuel perspective a semi gets something on the order of 80 ton/miles per gallon, or ~20 cents a pound to take it from one coast to the other coast if you assume $5 a gallon diesel.
I was waaaaaayyy off with the 50 times, but more accurately it probably takes ten times the fuel per pound for you to go get 50 pounds of goods and bring them home than it does to take those same goods from one coast to the other, unless you're driving something that gets really good MPG. Freight across the ocean is still the cheapest, I really don't feel like doing the math (and yeah I was way off in my previous post now that I look at it). A big ocean vessel gets around 500 ton/miles per gallon if I remember correctly. That's ridiculously more efficient than a person's vehicle and fuel is most certainly not the primary cost there, all the overhead involving a ship is main cost.
Why would it? Marketing is a recorded cost that would not likely change in a competitive situation (at least for power companies)
Unfortunately there is no way to do that if you're attempting to get the true market price for a market that does not exist
Personally I think we should place a blanket per pound freight tax on anything coming into the country under the guise of an inspection fee. Put people to work and raise the cost of importing goods.
Create it!
Everyone missed my earlier post
Do you really think protectionism is the way to go in a modern economy? I ask sincerely.
I was thinking more in the jeans example; I'm pretty sure Levi's pays more for marketing than No-Name Chinese/Pakistani/Mexican Walmart Jeans Manufacturer.
I think there some valid arguments for it in the case of China, because of the Yuan manipulation.
I mean, if you're going to apply political pressure anyway.
Not to mention that we import a lot of stuff and the price of all that would start to go up if we started slapping tariffs and pseudo-tariffs on imports. Sure, we could, as the theory goes, start manufacturing more of that stuff here, but more expensively than otherwise, so the price for all our cool cheap stuff would increase.
And we sort of promised that we wouldn't do that sort of thing (except on food, everyone does that) so the WTO would allow other countries to put counter-tariffs on everything, making our good more expensive overseas as well.
We get stimulus, the currency is devalued so the trade deficit lessens, and we get a gigantic volcano fortress to relocate the executive branch to
Except we don't want to open up that can of worms, because as much the US might complain about China's control over their currency, we don't want other countries to retaliate against the US for the fed's manipulation of interest rates.
They're completely different situations, though.
The Federal Reserve isn't the World Central Bank. As a matter of law, everything the Fed does is directly in the interest of the U.S. economy, and just because the rest of the world chooses to use U.S. bond rates as an international benchmark doesn't mean the Fed suddenly needs to take global currency floes into consideration when choosing which way to go with the target interest rate.
That's a far cry from actively manipulating your currency to keep your exports cheaper than other countries'.
http://www.nytimes.com/2011/10/03/opinion/holding-china-to-account.html?ref=paulkrugman
The gist seems to be "why the fuck not?". There's alot to gain and what there is to lose pales in comparison to the cost of doing nothing.
Did I miss the discussion on energy regulation entirely, or can I still contribute?
Then you get to transmission and distribution as the next two components. They are similar in that they both get the power from the generators to you. Transmission is generally the long, high-voltage lines from regional power stations to demand areas (or energy-intensive businesses like mines or smelters). Distribution is the meshed low- and medium-voltage network that takes power off the transmission lines, steps it down in voltage and delivers it to homes and less-energy intensive businesses. These network businesses tend towards natural monopoly structures. It is more efficient to have one business delivering the entirety of output in a geographic region rather than multiple businesses duplicating the extremely high network costs required by the infrastructure, and splitting the customer base.
The last component is retail, which is the interface between the customer and the other three sectors. The retailers buy energy, pay the network companies their costs, and bill customers. This market is in the process of transitioning to full competition in most states, although it will remain protected in some others.
For political and (in principle) market failure reasons, yes all four sections of the industry are regulated, bound by rules, and overseen by regulators. The price for generation is, however, fairly loosely regulated (there is a price cap and floor, set at $12 500/MW/h and -$1000/MW/h… it’s a bit weird). The regulation of retail price gets looser or tighter depending on which state you’re in and the appetite of its politicians for competition and the depth of the relevant state market. The prices in transmission and distribution are regulated most heavily as the market in those areas is characterised by network monopolies.
In transmission and distribution, the revenue that a business is allowed to recover is determined under a building blocks model. This includes, among other things, a return on capital, depreciation, forecast capital and operating expenditure, and a tax allowance. You can see chapter 6 of the National Electricity Rules if you really want more info. This is how the Governments (referring to State and Federal here, hence the plural) have tried to constrain the monopoly pricing that inevitably goes on. The rules for determining what gets included under these building blocks is complicated and frequently fought over (in the press and the courts, between the regulator and the network businesses). The cost of marketing is not an allowed cost here. It is, however, generally allowed to some level for natural gas distribution networks, because people have a choice of whether they’ll connect to gas or not. This is not so true for electricity.
http://newnations.bandcamp.com
Can you explain why "Malinvestment" makes no sense?
At a simple, empirical level, the malinvestment theory of the business cycle implies that consumption and investment should have an inverse relation, as (bad) investments are encouraged at the expense of current consumption. We do not tend to see this. Instead investment and consumption and national income are very highly correlated - even the most casual inspection suggests that booms are times of consumer plenty, not consumer privation.
There are a number of Austrian escape routes; Bob Murphy suggests that it is spending on capital maintenance that is inversely related, whereas Tyler Cowen suggests dropping the presumption that the free market tends toward full employment. The more you poke at this latter, the more Keynesian the model behaves, though.
Conceptually there is a basic plausibility problem in asserting that producers make extensive investments toward given goods (that take short vs. long times to produce) based on observing the prevailing rate of interest and thereby deducing future consumer desires to spend now vs. later (!!! - but this is as per Hayek) yet are so goshdarned gullible that they take the Federal Reserve's nominal rate at its word. Remember, the theory only works if investors are persistently fooled into seeing only the nominal rate of interest rather than the real (nominal-inflation) rate of interest.
In practice investors are bad at making careful predictions about future consumers and thus diversify and hedge a lot, whilst also being observably attentive to the expected rate of inflation, so it is hard to make the idea convincing.
Malinvestment probably works best as a microeconomic or long-term-growth phenomenon rather than a short-term business-cycle one - unclear price signals encouraging bad investment - but that would not let Austrians rail against the central bank.