Wednesday, May 16, 2007

Measuring Arizona's Economy

Perceptions of an area's economy are often at odds with the facts. A couple of ASU profs gave a pop quiz to business leaders at teh Arizona Economics Club meeting last Wednesday. Some of the facts were quite interesting. My favorites:

5. What is our rank among states in the number of high-tech jobs as a percentage of all jobs? (15)

6. What is our rank among states in export sales per worker? (10)

Note that 1 is high and 50 is low in state rankings.

An Example of Rational Ignorance

Rational ignorance is the rational decision by individuals to remain ignorant of something since the marginal cost of becoming informed is higher than the perceived benefit. I usually use the example of electing constables. Few people know what they do and even fewer care. However, it pays fairly well.

Now someone who cares, a landlord, is pushing a recall effort for a constable that isn't doing her job.

Thomas is on mission to recall the county constable from the East Phoenix No. 2 precinct. Four years ago, a judge stripped Annette Clark of her duties. But under Arizona law she still collects a $56,000 paycheck from Maricopa County. Clark's term is up Dec. 31, 2008; it's unclear whether she will seek re-election.

Constables serve papers for justice courts, including evictions, notices in lawsuits and restraining orders. The county has had to hire temporary help to do Clark's work.

Voters elected Clark, a Democrat, in November 2000. Complaints about her started shortly after, ranging from failure to serve court papers on time to rude behavior and harassment. A state ethics board recommended Clark resign in July 2002, but had no authority to remove or suspend her.

In October 2003, a Maricopa County Superior Court judge stripped Clark of her duties. Clark was not available for an interview, her attorney said, but in previous Republic interviews, she said the allegations were unfounded.

The fact that this constable was re-elected in 2004 after being stripped of her duties in 2003 is an example of voters' rational ignorance.

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Limiting Local Banking

When we study the banking system in Macroeconomics, we tend to ignore certain portions of the industry. These tend to be the places that provide liquidity for people on a very short term basis. Pawn shops have been around for hundreds of years. More recently, pay day loan places have sprung up to satisfy that need.

Now some state legislators want to outlaw the industry since they haven't been able to regulate it to their satisfaction.

The ballooning payday lending industry in Arizona could collapse if a handful of lawmakers can convince voters that short-term, high-interest loans push people into debt they can't climb out of.

Rep. Marian McClure, a Tucson Republican, announced Monday that she is launching an initiative campaign and wants voters in November 2008 to outlaw the businesses.

But erasing the industry altogether eliminates options for consumers who need money right away, said Lee Miller, who represents the payday lending industry. With more than 700 stores in Arizona, consumers have shown there is a market for the cash advances.

It is interesting to note that the oldest continuously operating financial institution in the Americas is a pawn shop in Mexico City.


Tuesday, May 08, 2007

Airfares and Oligopoly

In line with classic oligopoly behavior, the airlines are having trouble making increased air fares stick. The latest attempt appears to have failed when the discount airlines didn't go along.

DALLAS -- Major airlines were in danger Monday of losing ground on fare increases that they attempted over the past week, as the carriers tried to navigate through weakening demand for air travel.

Other airlines also were mostly declining to match the increases, putting pressure on United to retreat.

Continental Airlines Inc. started separate increases of $10 per round trip last week, but by Monday it had pulled back on many routes, especially where it competes with low-cost carriers.

American Airlines, the nation's largest carrier, had matched Continental's increase but also retreated on most routes. US Airways Group Inc. and Northwest Airlines Corp. did the same, and Southwest Airlines Co. never went along to start, said officials who track air fares.

Bainton, the analyst, predicted that the fare increases would all be rolled back by Monday night

Although there are a lot of airlines in the US, on any particular route, most of the passengers are flown by only a couple of carriers. The same is true for most major airports. Hence, oligopoly behavior.