Ask an Economist

Question:
Please advise my going to become an economist. I was an average mathematics major as an undergraduate with a G.P.A. of 3.19 overall with a bachelor's degree in applied mathematics. I have about the average IQ for economists, but I know nothing about economics. Now that I am 41 this year, I am thinking of starting anew in a brand new area of applied mathematics. Is this advisable this late in life to switch careers from mathematics to economics given that the two share a common bond in mathematical economics and are theoretical in microeconomics?

Would the transition be better if I pursued pure mathematics instead, because my experiences has been lately in proof making? What can I look forward to? How and what should I be looking into, to start off, if economics is a good choice? I am a highly curious person. Plus, I have worked hard, I have been doing pure mathematics on my own since 2004 until presently; but, it has been slow going; so, I thought that by going into something that has a better return in investments of my intellectual energy, I should try microeconomics?
Answer:

The prospect of a mid-life career change would be daunting for anyone.  In the end, you’ll have to make that difficult decision on your own.  But I can give you a few tips on how you might begin to explore whether a career in economics...

Question:
A commodity (let's say a vegetable like squash or tomato) that is grown in Mexico and transported to the US and is being sold at 1.29/lb.
After about a month when the commodity has less than 2 weeks of shelf life it may be sold at .69/lb and then discarded after another week.

1) Why would the store not further discount these items at let's say .30/lb to clear the complete stock? ( I understand it is so as not to let the global/US prices of the commodity go down.)
2) Is wasting better for the store than to sell it at a discount?
3) Even if customers stop buying fresh commodity and start to wait until the price goes down to .30/lb. Isn't it economically profitable to the store to actually sell it than waste it ?

Thanks
Answer:

Food waste arises from preferences, incentives, and constraints. Retailers have time and other resource constraints which implies that it simply will not be worth it to sell every last item of food in every instance. It can be said that there is...

Question:
Hi there,

Okay, so this is going to be a really stupid question but I need to know the answer to this. There is a message board about collecting video games and we got into a argument about the definition of the word "rarity." With these games, we all know the exact amount of copies printed for each title. Say Game A has 2000 copies printed and Game B has 5000 copies printed. Assuming that no copies are lost or destroyed, Game A will always be rarer, correct? Someone else is arguing that the availability of copies on the secondary market changes this.

If Game A has 20 copies available on the marketplace right now and Game B only has 2 copies, would Game B be considered to be rarer overall? At that moment in time, sure, but overall, I would say no. Is either of us correct? Would the monetary value of the game on the secondary market change the definition of rarity? Thanks for your time!
Answer:

In the strictest (or standard) sense of the word, you would be correct that game A is “rarer,” given that there are fewer of these in existence than game B. However, the other person is not totally wrong because, in the words of economists, the “...

Question:
Would the implementation of Land Value Tax be reasonable in a small country with a tourism based economy? For example, a country such as The Bahamas has low levels of industrial output and exports. The Bahamas is a country that relies heavily on tourism (specifically the hotel industry), foreign investment and the banking industry to generate revenue. Also, there is a growing sentiment that the low levels of innovation and productivity in the private sector are due to various taxes on imports needed to start and grow a private business. Therefore, would a single tax (the land value tax proposed by Henry George) be beneficial? (Also may the reply possibly contain some details pertaining to an ideal tax rate for the land value tax and may some arguments be included in regards to providing certain methods to properly implement the land value tax in the case of a nation such as The Bahamas?)
Answer:

Economists generally agree with Henry George that land value taxes promote efficient use of land.  A small country with a tourism-based economy seems like an excellent case for the efficiency of a land value tax.  The bigger issues...

Question:
My name is Por Chandara, government officer, responsible for law and policy making. May I seek for your kind support. I want to propose a LAW ON ECONOMIC SYSTEM OF THE KINGDOM OF CAMBODIA but I have no idea where and what I should start with. May you provide me some input and samples for drafting the law.
Answer:

You have asked a very interesting question. Without more specific information, it would take volumes to answer this general question appropriately; however, I can point you to a few resources that may be useful.

     ...

Question:
I'm looking for a quick and dirty way to total up the economic costs of Covid-19. Does it make sense to add (1) expected 2020 GDP losses (about $1.6T) to (2) the total cost of the federal Covid-19 response bills (assume for now that it's about $8T??) to get $9.6T at a minimum? In totaling up the cost of the Federal intervention, should we subtract from $8T the additional GDP losses that would have occurred if the stimulus spending had not been made? Also, why can't I find this kind of analysis online? Where should I be looking?
Answer:

In short, there are probably many ways that you could get a rough estimate of this and they are all likely flawed in some way or another which makes this a really tough question to answer. Also, we probably haven't fully realized the impact of...

Question:
What could cause live cattle prices, that is the price paid for cattle on the hoof, to plummet, suddenly, when numbers have not increased substantially, (we were in a herd building mode following a drought), but boxed prices are at an all time high. Packers are receiving huge net profits, ($1300 per head)while ranchers are losing money. ($350 per head). Cattle-Fax and other statistics gathering reporting and marketing services predicted that cattle prices would remain high throughout the herd rebuilding phase of the cattle cycle, about 3 years. But, suddenly, and without warning, cattle prices crashed, August 2015, There was not a crash in the general economy. Live cattle are traded on the futures market, Chicago Board of Exchange. The U.S. does engage in exporting and importing of beef. Secondly, because of a fire in a processing plant, and the COVID19 pandemic, the problems in the cattle industry have come to the attention of the federal govt. because of food security issues.

What measures can be taken to keep the cattle industry in the U.S. from imploding? What can prevent vertical integration from further occurring? How can the American farmers and ranchers be kept from bankruptcy, (without gov’t subsidies or handouts) making sure that private ownership of land persists? What kind of market manipulation could cause all this?
Answer:

Here are several resources that begin to address many of your questions.

Beef Marketing Margins - http://jaysonlusk.com/blog/2020/5/4/beef-marketing-margins

...

Question:
I here a bit more these days about our being a consumer economy. What other types of economies are there?

Thanks a bunch!
Answer:

Ours is called a consumer economy because consumption is nearly 70% of our GDP. Countries like China, are more investment-driven with investment (often by the public sector) at nearly 50% of GDP. 

Question:
Can an economist call the economy good when there is low unemployment, good profits, but great income disparity? Is it within the realm of the social science of economics to consider social justice?
Answer:

Economists measure the economic health of a country by its G.D.P per capita. They see low unemployment as good because it means labor resources are not sitting idle. They also consider whether income disparities are good or bad. In fact, these...

Question:
In light of the current pandemic, and constant feuding about what it means for our economy, I wanted to ask what the best long term solution is for reopening the United States economy. Is it in the best interest of our economy to reopen soon, losing lives, or is minimizing the death in the long term a better economic strategy?
Answer:

In short, we do not know, especially so because nothing like this has hit the US in modern times. The Great Depression was a massive disrupter and devastator but caused ultimately by economic forces from within. This time around, the fundamentals...

Question:
My name is Tracy Bergmann, I am the Chief Examiner for the Iowa Division of Banking. We supervise Iowa state chartered banks in Iowa. We continue to monitor the impact of COVID-19 on the institutions we regulate, their customers, and the customers they serve. Agriculture has been on our radar for sometime now, but we are trying to get more detailed data on how much agricultural debt is in Iowa, specifically what is the breakdown between Ag Operating, Livestock debt, Term debt, and Real Estate debt.

We traditionally get our data from two sources: 1) call report filed by banks quarterly which does not go into enough detail to get the information that we want; and 2) the banks themselves when we conduct an examination. Banks generally have concentration reports that will break down debt on many different levels; however, this doesn't give us aggregated point in time data.

I have been looking at the ISU, Ohio State University, and USDA websites in an attempt to get the data we are looking for, but cannot find it. I find news reports or research that mentions these sources, but I can't get to the raw data we are looking for. When I do find data that is close to what we want, it is a couple years old.

Do you have any suggestions on where we can find this data? We appreciate any assistance you are able to give, as we monitor the impact of COVID-19, particularly in the ag sector. Thank you!

Tracy Bergmann
Answer:

The most relevant reports to track the evolution of the financial situation of well-managed mid-size commercial farms in Iowa are:

  1. “Financial Performance Measures for Iowa Farms” Dec 2019....
Question:
Of course, as you know, the entire world has been massively affected by the coronavirus, including the world's economies. Recession will be a huge problem for many countries, even the richer countries such as the US and the UK. So my, perhaps ignorant question, as a 15 year old is - since every country will be negatively impacted by the virus, what would happen if the entire world, or close to it were to decide to just lower the price of everything, the price of buying everything, manufacturing everything, and everyone's salaries are lower too in comparison. Would that solve anything? As after all, the world's economic figures are just numbers, but could cause so much harm to everything and everyone in that country.
Answer:

The way in which prices and money enter models of the economy is important and potentially confusing.  So this is a great question. 

In most models, lowering (or raising) all prices, including the price of labor (wages) would...

Question:
Can the federal government reduce its debt by getting the Federal Reserve to write off /forgive government bonds that it buys in conducting quantitative easing?
Answer:

The short answer is, no. By law, the U.S Fed is an independent authority in charge of the monetary affairs of this nation. The White House cannot formally ask or force the Fed to do anything. If the Fed tried such a move, it would send panic...

Question:
Many years ago I remember a quote that said something along the lines of "Every job at Boeing supports 3 jobs in the community" meaning that wage earners spend their wages, which in turns supports other wage earners like grocery clerks, hair stylists, mechanics, doctors, etc. Is there a formula for this? How do I determine in Seattle, for example, how many jobs each $90K job at the City (a large employers) in turn supports in the community?
Answer:

It is common for industries to claim that they create jobs outside the industry, especially when they are seeking government subsidies.  A few years back, a consultant for the Iowa ethanol industry claimed that ethanol was responsible for 90...

Question:
An investment group bought Aramark in 2006. Some of the members- J. P. Morgan, Goldman Sachs, Warburg pincus, etc received bailout money from the government in 2008. Would Aramark have gotten any "benefit" or money from that bailout as a private equity holding?
Answer:

My best understanding is that the acquisition you indicated was completed in 2007, but Aramark retained its identity as a company. TARP was created in 2008, and a comprehensive list of companies that received “bailout” funds can be found at...

Question:
I am 16 years old and I want to start a project that makes yarn whales to give to people in the hospital during this time. If it successful and keeps momentum, I want to continue this even after the COVID-19 has subsided. A problem though, is that I have no idea where to start, what kind of permission I need from who, or anything like that. I would love some pointers and help on what to do. I really thank you for reading and answering my question. Stay strong :)
Answer:

How very thoughtful and considerate a project you have in mind!

You are already exhibiting entrepreneurial behaviors by reaching out for advice. When starting anything new, you need to get questions answered for which you don’t know the...

Question:
What area of economics addresses questions about the price of a one-time consumer equipment purchase vs ongoing monthly service fees? For example, to analyze when it makes sense to purchase an upgraded smartphone for its greater capacity/utility, considering fixed ongoing cellular service costs. Or when it makes sense to upgrade your home wifi system to provide greater coverage and speed, given fixed monthly internet service costs.
Answer:

I am assuming you have to keep the cell or wifi plan and you are just upgrading the fixed cost of a new router or cell phone. Let’s take the smartphone/cellular plan case.

Suppose you currently pay $100 per month for your cellular plan and...

Question:
Hello from New Zealand! I have a dataset of sales of products at auction from 1960-2020 in various countries. I have converted all of the sale prices to NZD but I would also like to adjust for inflation.My question is: since inflation is different in each country, should I adjust for inflation according to each country's inflation data before converting the values to NZD or should I just convert all of the values to NZD and then adjust for inflation based on New Zealand's inflation rates? The latter would be the easiest but would it result in bad data?
Answer:

The most correct way should be adjusting inflation according to each country's inflation data before converting the values to NZD if New Zealand is the baseline to compare with. The latter will not necessarily result in bad data as long as the...

Question:
With this global and U. S. crisis because of the coronavirus what is the possibility of the catastrophic devaluation of the dollar so that my buying power is greatly reduced?
Answer:

1) The coronavirus is everywhere.  It is not obvious it would affect the U.S. dollar differently than the Euro or Yen or Yuan.  All the governments and economies are stressed, and so relative values will be unaffected.

2)...

Question:
What would the impact of a Congressional or Presidential order for a “financial time out” until the virus is brought under control? This would be a closure of the stock market and suspension of all debt and rent. This would be far cheaper than throwing trillions of borrowed dollars at everyone and everything! I believe we are working on the wrong part of the “equation.” People would only have to worry about food, water, and utilities. This is a much smaller problem to solve! When the virus is brought under control, the “time out” can be canceled and the economy can be brought back to life. People will have confidence, in the meantime, that their life savings isn’t going to melt down. It is absurd to allow this virus to destroy our economy! It doesn’t have to!
Answer:

When banks lend out money, they do so expecting repayment.  If banks are not repaid, the value of the loan decreases.  By law, banks are obligated to value their loans at the fair market value.  Mandating that all repayment stop...

Question:
Dear Iowa State economists:

This question is predicated on five assumptions: first, that investors generally now prefer capital gains over dividends, a shift that occurred in the '60s or '70s; second, that this preference for capital gains encourages corporations seeking equity funds to appear to have potential for growth; third, that this appearance causes equity markets to overvalue such firms; fourth, that the second and third factors cause managers to make deceptive decisions, ultimately misallocating capital. This story is based on a couple essays I read defending short selling as a way to devalue overvalued firms.

Whether or not short selling is "encouragable", the story was convincing enough that I came to think it would be a good thing to push investor preferences back towards dividends, so that capital would be at least somewhat more allocated towards sustainable profitability instead of unsustainable growth.The policy that occurred to me to accomplish this was to raise the capital gains tax and lower corporate income tax.

What is your opinion of this story and policy proposal? Are either plausible? Where do these views sit in today's economic rhetoric?
Answer:

Thank you for these interesting questions. As they indicate, you are already well aware of potential distortions associated with tax policies. It is quite possible that your suggested policy proposal would be associated with distortions and...

Question:
I was reading a paper on authoritarianism in Brazil, and was puzzled by some things the authors had to say regarding the country's fiscal/monetary policy. According to the paper, the policies of the ruling PT party were largely neoliberal throughout the growth of the 2000s, and high interest rates were a component of such policies. Generally, the paper describes Brazil's neoliberal policies as "contractionary."

This is very confusing to me, as coming of age in a post-GFC United States I've always associated neoliberalism with things such as low interest rates. Any help on this would be greatly appreciated.
Answer:

Thank you for your question! These ideological "definitions" and distinctions can be quite confusing and arbitrary. In the Latin American context, usually neoliberal is associated with policies that are orthodox, that is, based on notions of free...

Question:
Why would the stock market react negatively to the increased supply and lower price of oil? Isn’t cheaper energy good for all including oil producers who created the supply shift?
Answer:

While it is true that lower prices at the pump benefit consumers, stock markets also infer that low oil prices signal weak demand for oil, in this case from travel-related fears due to the corona virus. And weak demand for oil often indicates...

Question:
When Minimum Wage is increased by more than 5%, studies have shown a negative impact for one to three years - job loss, reduction of hours, and non-hiring to replace workers leaving - causing a reduction of pay of low pay workers, a 1-3% reduction in teenager hired, and failure of many start-up businesses. I have not found longitudinal studies showing where the economy rebounds from these losses and whether there is a long-term benefit at all for the lower or higher wage workers. Has there been studies going longer showing when the (a) teenage hiring returns to previous levels, (b) hours return to normal for the low pay workers, etc... Is Minimum Wage a permanent negative impact or temporary? ... I've seen what happens statistically for things like holidays - where a sick person will power through the holidays, but then die immediately thereafter, creating an average between "less deaths during the holiday" and "more death just following" matching normal death rates. And studies which show that capital punishment creates a permanent troth with an immediate reduction of several months after a criminal has been executed without a rebound increase afterwards ... just a return to normal levels. .... So which is it, a permanent loss to the economy when we have minimum wage raised that never recovers; a temporary loss to the economy which returns to the previous level but no further; a temporary loss to the economy but a rebound that balances and then return to average; OR a temporary loss to the economy but a long-term gain once everything is considered? Everything I have found indicates a permanent loss to the economy with no upside and that just doesn't make sense to me as yet. If there are longer studies, I would appreciate finding out about them. Asking because I would like to support a higher minimum wage, especially for tip-income wages, but based on the evidence I have found I cannot.
Answer:

The adverse effects of the minimum wage depend on how high it is compared to the prevailing wage in the area.  Because wages are higher in San Francisco than Des Moines, a $15 minimum wage in San Francisco, where the median wage is $25.11,...

Question:
Can you tell me, please, what the projections are for the U.S. and State of Iowa work forces? What is the likely composition of those work forces, and where/how would we be smart to recruit in order to build the strongest pool of workers over the coming years?
Answer:

The U.S. Bureau of Labor Statistics has an annual projection of employment and labor force growthThe most recent is Employment Projections: 2018-2028, available...

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