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Why a Willingness-to-Pay Premium Cannot be an Opportunity Cost

While responding to comments on my recent post on Opportunity Cost, it eventually became clear that being willing to pay more than an actual ticket price for a second-best choice cannot possibly called an opportunity cost.

I repeat the Marginal Revolution problem statement here: Read more »

Opportunity Cost, Yet Again

While I am temporarily unable to reference my previous posts, there is really no need. The following is from Marginal Revolution -- O C Problem Read more »

Austrian Utility

From Human Action --

"...there is a valuation of the utility dependent upon the
having of the portion, compound, or supply in question.

Encoding Happiness

If you have a general purpose, programmable digital computer, you can encode happiness as the magnitude contained in a particular 1024-bit memory-mapped register. This doesn't represent any real limit on what happiness is or the variety of simulations that can be modeled.

But the mind is much less general purpose, is largely pre-programmed, and is effectively largely a hybrid of an analog computer and a feedback control system.
This can be simulated by a digital computer, but more capability can be simulated than actually exists. Read more »

Why the Poor Are Responsible for Price Inflation

Left to their unrestrained preferences, both the rich and the poor would consume without limit. However, only the poor are limited by running out of money. The rich run out of time and are limited by the opportunity costs of one form of consumption precluding another.

This means that if new money is printed and distributed, it is only the poor who see an easing of limits and bid up the prices of the goods in which they have an interest. The rich will hardly notice. Read more »

Can the Paradox of the Non-Comparability of Interpersonal Utility be Resolved?

It is a cornerstone of the subjective theory of value that utility, in particular the marginal utility that determines what potential exchanges are allowed to come to fruitition, cannot be compared between individuals or between different points in time for a single individual.

I am requesting input, including possible changes in the title, that deals with this issue, as described below. Read more »

A Strange Conclusion

From Financial Sense Online, Martin D. Weiss comments on what he calls

The Most Powerful Force on Earth

The EPI, Still Without a Clue

The Economic Policy Institute, Research and Ideas for Working People, tries to show Walmart how it should run its business.

The Wal-Mart debate
A false choice between prices and wages

By Jared Bernstein and L. Josh Bivens Read more »

Walter Williams On Price Gouging


Economics of Prices by Walter E. Williams
The always-great Walter Williams on price gouging. Read more »

Why CEOs Are Like Art Auction Houses

Imagine that you have inherited the venerable family mansion in upstate New York. Hidden away in the attic is an extensive art collection that hasn't seen the light of day for more than 75 years.

In order to dispose of it and realize its value, you contract with an art auction house. They agree to appraise, repair and restore its pieces as appropriate, and to attempt to sell the pieces off by a combination of private placements and auctions. In return, they will receive a nominal upfront fee, billed expenses, and a 20% commission on all sale proceeds.

In the end, they end up with a commission of $20 million.

When you talk to your friends and/or social rivals afterwards, do you brag about your $80 million sale proceeds, or do you bitch about the $20 million commission?

The CEO of a public company is in a somewhat analogous position. He is compensated from and by a combination of diverse sources. Read more »

Trying to Address Two Questions With One Answer

In today's Slate, Tim Harford attempts to explain the difficulty of measuring inflation.

The official inflation rate tries to compare the price of a typical bundle of goods today with that of a typical bundle of goods in the past. But we do not consume the same goods today as we did in the past. How many Walkmans in an iPod? The question has no sensible answer, but an answer, nevertheless, is codified in the official inflation rate.

You can be forgiven for thinking that this is an irrelevant intellectual game. You will not, of course, be thinking that if your pension or salary is linked to the inflation rate.

In recent years, received wisdom among economists has been that the inflation rate has been overstated because of unmeasured improvements in quality. Home computers have not only become cheaper but dramatically better, and failure to fully adjust for the quality improvements would overestimate the inflation rate and underestimate how much better off we are compared with previous generations.

Fact One :

Any even slightly free market economy will tend to produce and diffuse enormous improvements in living standards over time due to the increases in productivity from the widespread division of labor and the use of money, even if the money were not to evolve beyond goats or seashells.

Fact Two:

For a given money, the trajectory of its unit purchasing power over time depends on the changes in its supply and demand, and on the changes in the supply and demand of and for all the goods that can be purchased with money.

Trying to integrate these two facts by 'calculating' a single rate of inflation is a self-serving, immoral attempt of government to promise to re-imburse you for today's thefts at some later date without allowing you to fully benefit from the inherent and ongoing advances in the standard of living that a free market economy inevitably produces. Read more »

CEO Compensation, a Recycled Comment

From my comment on Becker-Posner

When a board of directors is hiring a new CEO, it is unlikely to have a large number of available, plausible, superior candidates, no matter how much it spends on executive search firms.

If the final choice has been narrowed down to three, the board is still going to be buying a pig in a poke as the future, long term performance of the company under a given CEO is largely unpredictable.

Fun With Marginal Tax Rates

If your income increases by $1000, is that the end of the story? Does it matter where the $1000 comes from? Does it matter who you are and where you live? (No, Yes, Yes)

Everybody(?) knows that your marginal tax rate depends on your income level. Let's see if the same income level produces the same marginal tax rates.

To simplify things, we will ignore things like payroll taxes and itemized deductions, etc. In fact, we will assume a single, retired individual with with $45,000 in pretax ordinary income who lives in Massachusetts. Read more »

Puzzle #3

From Technology Review Magazine and RangeVotingdotorg

Puzzle #3 (interesting – easy once you see it, otherwise hard!):

Three people enter a room and a red or blue mark is made on each person's forehead. The color of each mark is determined by a coin toss, with the outcome of one coin toss having no effect on the others. Each person can see the others' marks but not his own.

Tripped Over in the Image Archives

Misc. history Read more »