Tuesday, March 27, 2007

Selling HOV Lane Access II

Back in February I made note of a story on selling HOV lane access to hybrid drivers in California. Since access was granted based on a sticker that stayed with the vehicle, one would expect that used hybrids with the sticker would sell for more than those without. The price difference tells us what the market thinks HOV lane access is worth. Turns out it's worth $4,000 according to Kelley Blue book.

Californians appear willing to pay $4,000 more for used gasoline-electric hybrid vehicles that have state-issued carpool stickers than for hybrids that don't, according to a sampling of prices by Kelley Blue Book for USA TODAY.

It is interesting to note that when dealers were originally selling the vehicles they marked them up about $4,000. Markets work and car dealers can get the price right.

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Saturday, March 24, 2007

Carl's fried fuel

This speaks for itself.

The oil used to cook fries at Carl's Jr. restaurants in Arizona is getting a second life as fuel for the fast-food chain's vehicles.

The company that franchises most Carl's Jr. outlets in the state plans to convert its fleet, including cars and trucks used by repair technicians and regional vice presidents, to run on waste vegetable oil instead of gas by 2010.

Five of the 20 vehicles in the fleet are already running on used fryer oil from Carl's Jr. restaurants...


Inelastic Supply

When the price of a commodity is volatile, it usually means that the supply is inelastic - a small change in quantity results in a large change in price. One of the things that makes supply more inelastic is the inability to store the commodity. In Arizona, that is exactly what has happened with natural gas.

Arizona is the only state in the Four Corners region with no natural-gas storage, leaving it open to potential shortages. In addition, consumers have no cost protection except the skill of gas traders in hedging the volatile natural-gas spot market.

On top of that, natural gas is increasingly used as a power source for electric generation, especially during the summer months.

With the closest storage facilities 700 miles away in west Texas and California's prohibition on natural-gas storage for out-of-state users...

Attempts to create a storage facility have failed to overcome various obstacles.

A promising salt cavern was discovered a decade ago in Glendale near Luke Air Force Base. El Paso Natural Gas purchased the land, but the state Legislature prohibited development of the site for natural-gas storage.

Likewise, another potential site was found near Kingman and purchased by Aguila Energy Co. five years ago. But that area in northwestern Arizona is too far away to help natural-gas needs in the Valley and was recently purchased by real estate development interests.

Still, local storage would help.

But the main advantage of local storage is having gas at hand when state consumers need it, said Damon Gross, an APS spokesman.

"That will ensure reliability and it can help against price volatility, but there's no guarantee," Gross said.


Friday, March 16, 2007

Supply and Demand in the construction labor market

A look at immigration's impact on construction labor.

The business community and others supporters of a liberal immigration policy say that illegal immigrants are taking jobs that Americans won't do. Without the illegal immigrants, they contend, the United States would be facing chronic labor shortages.

A recent study by the Pew Hispanic Center about Latinos and the construction industry offers an opportunity to put these claims to the test.

According to Pew, 60 percent of new construction jobs between 2004 and 2006 went to foreign-born Latinos. Forty-six percent went to those who have arrived since 2000. Pew estimates that two-thirds of recently arrived Latino immigrant workers are illegal.

That means that, at a minimum, about 30 percent of all new construction jobs went to illegal immigrants.

So what happened to wage rates?

During the decade, the average hourly wage for production workers in all industries went up by 33 percent. For construction production workers, the increase was only 28 percent.

In fact, despite a 30 percent increase in demand, construction wages barely increased faster than inflation during this period, which was 25 percent.

Nowhere has the demand for construction labor increased faster than in Arizona. Yet, most construction jobs in Arizona now pay below the state's median hourly wage, which was not the case in 1990.

Even with increasing contruction labor demand, if you increase supply fast enough, the price (wage rate) doesn't go up as much as it does without the increasing supply.

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Germany Lowers coroprate tax rates

This isn’t local, but for my macro students it would be useful. Chapter 10 is on economic growth and the third assignment deals with the issue.

Germany is lowering its corporate tax rate.

The plan would reduce companies' total tax burden to a little under 30 percent from the current 38.65 percent, a move aimed both at improving German firms' competitiveness and ensuring that they pay their taxes at home.

The current rate in Germany, Europe's biggest economy, is the highest in the 27-nation European Union, Finance Minister Peer Steinbrueck said.

The reform plan is aimed at "making Germany a more attractive site in terms of taxation, encouraging investment, and on the other hand combating an erosion of the tax base," Steinbrueck told reporters after the Cabinet approval.

An analysis at Stratfor looks at what has gotten in the way of Germany's economic growth in the past.

Four items have limited Germany's potential in years past...

Third, Germany sports massively high corporate taxes -- the highest tax rates in the European Union. Such rates have encouraged companies to shuffle their earnings abroad and discouraged long-term investments in the German economy...

The fourth and final item is one the government is only beginning to tackle: Germany's inflexible labor markets. Two generations of socialist protections have made German workers among the most expensive and least competitive...

Useful stuff.


Monday, March 12, 2007

Higher gasoline prices - It's springtime

I get a lot of questions this time of year on why gasoline prices are going up. Lynne Kiesling over at Knowledge Problem in recycling and updating a post of hers from 2004 on just this phenomenon.

It covers all of the normal stuff – higher crude oil prices, more inelastic supply due to environmental regulations, and the effects of the new sulfur regs.

She doesn’t note another yearly phenomenon, the annual turnarounds (major maintenance projects) refineries do at this time. Another reason this year – gasoline demand is up earlier than usual.

Just so you can take note, I think prices will hit $3.50 a gallon this summer in Phoenix. If there is a real supply disruption, the sky's the limit. Check back in the fall to see how my prediction holds up.

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Saturday, March 10, 2007

Household savings - or not

On Thursday, the Federal Reserve released their "Flow of Funds" report for 2006. It includes a section that provides details on household assets and liabilities. During 2006, household assets increased by $4.9 trillion while liabilities increased by $1.1 trillion. That means household net worth increased by $3.8 trillion. To put that in perspective, the annual rate of consumption expenditures in Q4 were $9.4 trillion.

This explains our negative household savings rate in the US. If net assets are increasing at 40% of annual consumption expenditures it doesn't look like most households have much reason to save.


Kling on Energy Subsidies

Last week in Environmental and Natural Resource Economics, we were looking at worldwide effects. That of course included global warming. One of the papers dealt with whether or not buying carbon offsets really decreases greenhouse gases or not.

This week we’re moving on to Energy Production and Use. One question is whether or not we should subsidize renewable energy production.

As luck would have it, Arnold Kling has a new article that looks at both of those topics.

Some snippets:

The public policy goal of those who worry about carbon emissions is for people to consume less bad energy. Whether people consume more good energy is beside the point. Trying to get other people to consume more good energy so that you can consume more bad energy is feeble-minded…

For some people, the notions of good energy and bad energy are based on concerns with terrorism rather than concerns with global warming. Dirty coal would be bad energy for a global warming alarmist, but it would be good energy for someone who hates many of the major oil producers…

Emission entitlements are a tax and subsidy scheme. Once the entitlements have been doled out, in order to emit more pollution than your entitlement, your company will have to buy entitlements from another company. The entitlements will have a market price. That market price will become a tax on firms that exceed their pollution entitlement and a subsidy to firms that decrease theirs.

Once again, the economic logic supports a tax without a subsidy…

Lots of good stuff.


Saturday, March 03, 2007

Cactus League Economic Impact

Arizona's Cactus League has started up its 53rd season.

Arizona's 53rd Cactus League season, which started Wednesday, is expected to attract more than 1 million fans and boost the state's economy by more than $200 million, the president of the Cactus League Association said.

The association has commissioned an economic study this spring to update a 2003 report that estimated spring training's impact at $202 million statewide, including $110 million in spending by out-of-state fans.

"We think those numbers are higher now," J.P. de la Montaigne said Tuesday during a breakfast meeting along the right-field deck at Scottsdale Stadium.

While these studies are always self serving, a significant portion of the spending by out of state fans does represent a net export from the state of Arizona. Hence it's a net addition to our economy. More balanced studies show that the local spending is a shift from other recreational activities and not a net addition to the economy. (There is a link to their 2003 study in Word format at the bottom of their information page.)

So, I'll give them credit for about $100 million in economic impact, but not the whole $200 million.

(If you're wondering about the impact of a sports team, have a look at Tempe with and without the Cardinals. I don't think sales tax revenues or tourism revenues have taken much of a hit sine the Cardinals moved to University of Phoenix Stadium in Glendale.)


Cotton farmer wins national honor

A local Farmer, Bruce Heiden, has won the 2006 Harry S. Baker Distinguished Service Award for Cotton.

The award, named after the late California industry leader, is presented to hard-working leaders in the cotton industry.

"I was pleasantly surprised when they called me to tell me I won," he said. "I'm not the first to get it, and certainly not the last, but it's a nice award to be recognized with."

Now, Heiden continues his family legacy by operating companies - H Four Farms and Heiden Land and Cattle Co. - based near Buckeye and Gild Bend.

Since we've just been covering agricultural price supports in Microeconomics, I thought it might be interesting to look up what Mr. Heiden's farm received.

Turns out H Four Farms III is number four on the top ten list of recepients in Maricopa County. They received $864,420 in 2005 and more than $8.8 million dollars between 1995 and 2005. On the state list they drop down to 8th.

He said his fondest memory involves his tenure as president of the National Cotton Council, when he drafted a 1990 farm law and expanded funding for the trade.

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