Category: Economics

It’s my college degree, so I’m going to talk about it

What’s Your Ecological Footprint?

Ecological Footprint As I stepped outside yesterday into a balmy 59 degrees (one degree shy of a 22 year old record), I couldn’t help but think about the recent barrage of news related to global warming and the ensuing debates. Newsweek, BusinessWeek, the WSJ, etc., have all had feature articles on the subject over the past two weeks.

I believe global warming is real, and have a hard time buying the argument that the recent changes to Earth’s climate are solely due to natural climate shifts that would have happened anyway. Take, for example, the concept of an ecological footprint, a larger form of what is sometimes called a carbon or energy footprint. The best definition, according to Aili McConnon of BusinessWeek is that it’s “how much land and sea we need to generate the resources we consume and to absorb the waste we create.” Using the standard seven compenents – crop land, grazing land, forest, fishing ground, nuclear waste, built-up land, and CO2 emissions – humanity’s global footprint in 1961 was about 4.5 billion global hectares (GH). Latest estimates put that at 14.1 billion GH, and the World Wildlife Fund actually claims it could be more. As you’ll see from the chart in the upper right, almost half of that comes from energy-related activities.

14.1 billion GH may seem like an arbitrary number, but it equates to roughly 2.2 GH, or about four football fields, per person. I’m having a hard time believing I’m using up that much of Earth’s space and resources, but some of the footprint calculators reveal that I may be even fatter than the international average, despite my energy efficient car and relatively small living space.

It is well known that the United States has been slow to move toward alternative fuels due to regulatory, technological, and economic pressures, and even a Democratic Congress may have a hard time accelerating the adoption. So, what can I do about it? As the largest portion of the footprint comes from our daily energy activities, many analysts have advised contributing to energy research in some fashion, whether through buying stock in alternative fuel companies, contributing dollars directly, or buying an alternative fuel vehicle. I wonder what the power of those dollars would be on the aggregate, and if increased cash flow would lead to increased alternative energy options given the other non-cash hurdles (and dis-incentives) in the industry?

Halloween: An Economic Nightmare

Boo! Here are some excerpts from an article published yesterday for Bloomberg by Kevin Hassett, a scholar at the American Enterprise Institute for Public Policy Research:

The National Confectioners Association estimates that 2005 Halloween sales were $2.1 billion, easily making Halloween the biggest candy season. This year, sales will certainly be higher.

What percentage of those sales end up providing candy that individuals don’t really like? If my own careful scientific study of Halloween bags is any guide, perhaps about 75 percent.

It’s not the dead that concern me about Halloween. And it is not the impact of all that sugar on the weight of our kids. No, it’s the dead-weight loss, or pointless lost utility of the entire enterprise. That likely has a dollar value that exceeds $1.5 billion annually. American citizens squander more than a billion and a half dollars a year on an economically inefficient holiday.

So let’s do something to reform Halloween. The first step would be for Halloween donors to give kids money instead of candy. Kids could then go to the supermarket the next day and binge on the candies they really like. That solution would get an A-plus in economics.

So, his argument is that the first law of economics would be that lump-sum transfers are more economically efficient than in-kind transfers. If you are going to give a gift to somebody, you should just give them the money. They will be a better judge of the best way to spend it. I guess the same theory applies for birthdays and religious holidays as well, but money is just so … impersonal.

He continues:

Many schools prohibit children from taking Halloween candy onto the premises. That is exactly the wrong policy. Schools should encourage all children to bring their entire haul to school, and allow them a lengthy period to trade candies among themselves. That way, the Take 5s and the 100 Grand bars will find their way to individuals who cherish them.

Of course, nobody will take the Charleston Chews, so we should also consider a federal block grant to local school districts to support environmentally friendly disposal of the candy.

And Halloween used to be such a simple holiday!

Chairman Nominee Ben Bernanke

Ben Bernanke In my nerdy student-of-Economics way, I’m very excited about today’s appointment of Ben Bernanke, Ph.D., as Fed Chairman Alan Greenspan’s replacement. Beyond his impressive C.V., Bernanke has a solid understanding of the pressures facing U.S. monetary policy, such as the need to be more transparent about setting inflation targets, and the balance between solid GDP growth and tight interest rate policies.

“Economics is a very difficult subject,” Bernanke once said. “I’ve compared it to trying to learn how to repair a car when the engine is running.” He is not alone in that school of thought, as I have had several Economics professors make similar statements to me. As our danger factors like the current account deficit and our core CPI and PPI figures continue to grow disparate of each other, and external pressures like oil prices and off-shore labor movements weigh on our ability to grow nominally as an economy, the need for someone who can add more clarity to our monetary policy is abundantly evident. I really hope Congress approves the appointment.

Big Mac Index

Italians like their coffee strong and their currencies weak. That, at least, is the conclusion one can draw from their latest round of grumbles about Europe’s single currency. But are the Italians right to moan? Is the euro overvalued?

The Economist‘s Big Mac index (see table below) suggests they have a case: the euro is overvalued by 17% against the dollar. How come? The euro is worth about $1.22 on the foreign-exchange markets. A Big Mac costs €2.92, on average, in the euro zone and $3.06 in the United States. The rate needed to equalise the burger’s price in the two regions is just $1.05. To patrons of McDonald’s, at least, the single currency is overpriced.

The Big Mac index, which The Economist has compiled since 1986, is based on the notion that a currency’s price should reflect its purchasing power. According to the late, great economist Rudiger Dornbusch, this idea can be traced back to the Salamanca school in 16th-century Spain. Since then, he wrote, the doctrine of purchasing-power parity (PPP) has been variously seen as a “truism, an empirical regularity or a grossly misleading simplification.”

Big Mac Index

Source: The Economist