Ask an Economist

Question:
Looking centuries into the future, is it plausible to believe that star NBA players could command and receive salaries at and above $1 billon a year? Could a future economy support such excess?
Answer:

Some of the highest paid pro athletes today are paid $30-40 million per year. For example, Lebron James (NBA) just signed a two-year extension with the Lakers at over $40 million/year. Just based on the 'time value of money' concept alone, if one...

Question:
What accessible extracurricular activities should an aspiring economics student take?
Answer:

There are many reasons a student might choose to study economics, and consequently many different types of extra-curricular activities you might want to pursue. Economics is, at its base, a study of how individuals and societies make choices...

Question:
I have a landscaping company that services large gated communities. We maintain approximately 60 such sites many of which are constantly bombarded by leaves during the fall. I have estimated (very conservatively) that our crews spend at least one hour per site cleaning up this mess for about 10 weeks each year. This scenario is true for 40 of our sites. Thus, we spend approximately 40 hrs/week cleaning up these leaves. At another conservative rate of $20/hr, this mean we are spending $800/week or/ $8000 for the 10 weeks the leaves fall. This cost does not reflect the additional green waste dump fee we pay but for simplicity it can be ignored.

Is this in your opinion a negative externality I could charge the city for at year end? If this was just my home and I had to clean up the city's leaves I would not have a problem. Is there a threshold of a financial burden that may be achieved before a lawsuit can be considered viable?
Answer:

A negative externality often describes a situation where a power plant or a farmer's production led to pollution and lost ecosystem services. In this case, it might be tricky to argue that these leaves are a result of the city's "production" or "...

Question:
We live in Florida and the $15/hr passed. Does everyone else get screwed or is there some built-in scaling involved? For example, my daughter is a nurse's aide in Dayton, Ohio, and makes $12 an hour. With the increase she would be very happy jumping up $3 an hour, but what does that mean for the other nurse's aides who've been working longer than she has, who are making, say, $15.45 an hour right now? Do they get some kind of scaled bump to offset or are they just out of luck? And If they get a bumped scale, how does that impact the next profession one level up from them, which would be LPN, respiratory therapists, RNs and then physician's assistants? It seems to me that $15/hr has some overwhelming and far-reaching implications. It is going to be hard to go to work knowing the guy across from me is making $3/hr less than me and I have a degree and he just walked in off the street with no skills or experience.
Answer:

Increases in the minimum wage tend to cause firms to raise wages for those whose wages were initially above the new minimum in order to maintain the former pay hierarchy. The biggest effect is on workers closest to the minimum wage. There is also...

Question:
We currently have a potentially specious amendment on our ballot to progressively raise the state minimum wage to $15/hour by 2026 (currently at $8.56, proposed increase to $10 in Sept 2021, then $1 increase/year). My understanding is that anything above a 15% increase in minimum wage can have greater negative effects than positive under normal market conditions. The initial increase would fall above this threshold. While I am aware of a study that observed only minor initial increases in the costs of individual goods in relation to increased minimum wages, when all of these minor increases are added together, doesn't it negate the increased spending power for a minimum wage worker?

Yet, we are not currently under normal market conditions. I believe it is unlikely that our economy will be very far along in recovery from the economic fallout of the pandemic as the increases go into effect. Given the additional pressures of increased costs in goods, materials, and additional sanitization practices and equipment, coupled with uncertainty and reduced spending in most categories leading to numerous businesses of all sizes already reducing staff or failing completely, will mandating this at this time lead to even more job losses, business closures, and their related losses to the tax base?

While I recognize how stagnant wages have been and the crunch of the resulting loss in buying power as the costs of goods have increased (made even worse by the pandemic), I am concerned that voting to approve this measure at this moment will lead to cascading failure. Of course, I want to fight for people to make a fair wage. Though, if there aren't going to be enough jobs left from which to earn, it becomes a poisoned chalice. Furthermore, this will have an unbalanced impact in less metropolitan areas with a lower median wage versus areas that already have a higher median wage and can absorb it more easily.
Answer:

Florida is putting a minimum wage to a referendum of voters. The proposed minimum wage policy would raise the minimum wage from its current $8.86 to $10.00 per hour effective September 30th, 2021. Each September 30th thereafter, the minimum wage...

Question:
I am trying to figure how to make profit (for a not-for-profit!) in delivering a Forest School program. I am trying to increase the subscriptions by offering a discount, but I am not sure how to calculate this. At what price point are we maximizing our profit?

**For example, for preschool we have three morning sessions per week. Some children attend on just one or two sessions per week, so there are also these variables which makes it hard to anticipate. That’s partly why I’d thought of reducing fees for the winter, and offer a promotion for signing up for the entire stretch.

Also, how to present it clearly to the board of directors so they understand (maybe a graph/spreadsheet?)
Answer:

Economists are said to know the price of everything and the value of nothing. I actually think that's backward. Figuring out the price is tough. Whenever someone asks me, "What do you think the price for this should be (usually it's a stock)?" I'...

Question:
I'm fairly new at farm accounting and need to better understand how we should be booking our haylage, silage and earlage. We track both weight and cost, we weigh each item that goes into the rations. Should we be booking the haylage weight (as is) and adjust the value down based on the moisture percentage? I think I'm answering my own question. So, how do most people track the quantity and value as it flows in and out of their feed inventory?
Answer:

The easiest way to respond to this question is to answer in the context of custom feedyards that are included in the ISU Beef Feedlot Monitor - ...

Question:
Hello, in the article https://news.cgtn.com/news/2020-08-07/China-confident-of-meeting-2020-fiscal-targets-Finance-Minister-SKUFJsrke4/index.html , it says China has been implementing tax and fee cuts, and "issued 100 billion yuan (about 14.1 billion U.S. dollars) of special government bonds for COVID-19 control measures in a bid to support local infrastructure construction and epidemic prevention and control." In what ways will implementing tax and fee cuts help China's recovery? And if selling government bonds is a contractionary monetary policy, what will this do, other than fund fiscal objectives, to help a recovering economy? Why sell bonds instead of borrow more?
Answer:

China mainly cuts corporate tax and fees (no tax cut for individuals) during the COVID-19 epidemic period so that firms could have incentive to increase the production compared to the scenario without tax and fee cuts.  

...

Question:
Hello!

1) What do economists think of the Lange model: https://blogs.cornell.edu/info2040/2015/10/19/the-lange-model-of-socialism/? Does it adequately address the economic calculation problem? Tying into this question, is it true that Robin Cox is thought to have won the debate around the ECP? Or was it Mises, Hayek, or James Scott?

2) Finally, I would appreciate any insight toward this economic system: Instead of prices, it uses calculation in kind. It accomplishes this by decentralizing economic decision-making, by means of turning firms into self-managed associations joined in horizontal federations, which assess how much is taken at distribution centers by means of book-keeping and assess how many physical quantities of the goods they particularly use are required. I know this is a bit brief, but the part of this comment that explains this further starts with "But now, there is still a question to answer, how could an economy not based in prices make rational decisions" (it's toward the end).": https://www.reddit.com/r/CapitalismVSocialism/comments/4ib76d/automation_capitalism_v_socialism/d2wx6la/?utm_source=share&utm_medium=web2xthat.

Any insight would be greatly appreciated!

Answer:

1.  A mainstream neoclassical synthesis economist would say that this system can be doable but it has what we would call a lot of incentive compatibility problems. It is not only the fact that the government needs to be accurate in...

Question:
At what point does it become profitable for the producer of an agricultural good to begin seeking alternative uses to its main product, similar to the way the corn, soy and cotton industries founded boards to research new uses for their product? If this principle has a name, what is it called for further reading on the subject?
Answer:

If the principle has a name, I suppose it would be DIVERSIFICATION. But, given the inclusion of the words “boards to research new uses for their product,” the questioner may also be asking about how do agricultural industries decide whether to...

Question:
My friend is buying a new cable internet modem so he can quit leasing one from the cable provider. We both currently have DOCSIS 3.0 modems which support speeds up to 400 Mbps. We both currently subscribe to internet service of less than 200 Mbps, so we're not even using the full capability of the modems now.

Currently, DOCSIS 3.1 modems are widely-used as they support speeds up to 2 Gbps (5 times the bandwidth of the 3.0 standard). Of course they cost more. In the real-world situation my friend faces, should he pay $117 for the 3.0 modem or $149 for the 3.1 modem?

My argument for 3.1 is this: Modems last a long time. About 7 years ago, I had subscribed to faster internet service and was only receiving about 1/3 the bandwidth I was paying for. I learned that I needed a modem that supported the faster speed. After research, I learned I needed a 3.0 modem (the current standard at the time). I bought the new modem and instantly experienced the significantly faster internet I was paying for. I've had my current modem for seven years (and I'll upgrade to 3.1 if I ever subscribe to gigabit service). Even at a life expectancy of 7 years the difference is 38 cents per month.

In many regions, gigabit internet is becoming standard. In the next several years, I anticipate that gigabit will be the default service offered by providers. If you have a 3.0 modem, you effectively will only be able to harness up to 40% of the capacity you're subscribed to.

His argument for 3.0 modem is this: He's had 75 Mbps internet service for years now and he's fine. He lives alone (38 year old male). He claims he is certain he won't partner with anyone. He says he will never need more than 400 Mbps anyways. If he ends up with gigabit service and can only use 40% of it, it won't matter.

Answer:

Individual consumers have different preferences and information, which guide those individuals to choose what is best for themselves.  Your friend seems quite determined that he will not use faster internet even if gigabit service were to be...

Question:
With regard to diversification, if two investments are correlated in their response to economic conditions, then they are not providing diversification. So, for diversification purposes, the less correlated two investments are, the better. Is it therefore also the case that anticorrelation is to be avoided to achieve diversification? For example, it seems pointless to invest in both a strengthening dollar fund and a weakening dollar fund. So, for diversification, is it ideal to avoid both correlation and anticorrelation, and to seek zero correlation between two investments? If so, what about owning both equities and bonds? Are they not anticorrelated? I would like to understand diversification better.
Answer:

The idea underlying diversification is to achieve a desired expected rate of return at the smallest possible risk. If there are two investments that are perfectly negatively correlated, then by investing in both you could achieve a rate of return...

Question:
Since the high cost of rent has become a problem, I've been wondering what the outcome(s) would be if the price of rent was determined by a percentage of minimum wage after taxes? What would happen if 30 or 40 percent of someone's take home was the maximum that could be charged as rent?

I've tried to find any information that relates to this question but have been unable to find any due to my limited grasp of complicated economic systems and how they interact with one another. My main hope is that exploring this line of thought might lead to a solution of being able to pay rent and have the ability for upward mobility no matter what your income is.
Answer:

Traditional economics tells us that price ceilings lead to shortages. A lower price encourages sellers to reduce the quantity they supply to the market. A lower price also encourages buyers to increase the quantity they demand. As a result,...

Question:
I saw Joe Biden released a plan to buy American products in order to maintain domestic supply lines and stockpiles of essential commodities. Surely considering the amount of funding the government supplies in farm subsidies indicates an unwillingness to allow agriculture to lose in the marketplace, and would consider agricultural commodities as strategic resources. Hypothetically, if there were a way to nationalize the agriculture sector, would there be benefits to American farmers? The economy? Our ability to adapt rapidly to climate change?
Answer:

I think you are using the term "nationalize" to mean the US government buying US farm products. The US is a major exporter of meat and grains and these products are typically more expensive in other countries than they are in the US. So the US...

Question:
I live in a condominium which, some time ago, changed the rule from permitting dogs to one that forbade them unless grandfathered. I researched the issue a bit and discovered that 39% of households owned one or more dogs. I don't recall the source; don't know the veracity but I wonder how to calculate what impact that would have on the resale value of my condominium if every dog owner refused to purchase any unit prohibiting dogs. (I know that that's not 100% true. Just looking for a starting point.)
Answer:

It seems there are two markets for condominiums: units that allow dogs (Market Dog) and units that do not (Market Sad). My black lab mentioned that the latter group are probably sad folks. OK – my econ jokes in class aren’t any better.

On...

Question:
I have been working for the past two years to break into the IT world, specifically in data analytics. So far, it hasn’t worked—there seem to be very few openings for entry-level employees.

The controversy over President Trump’s suspension of temp worker visas got me wondering if there might be a connection. I have seen both sides argue about the effect of H1B visas on employment and salaries, both in IT and in the nation at large, but I am wondering about the effect on entry into the field.

The reason I wonder is that IT skills are very transferable, and a citizen or green card holder is much more able to take advantage of that ability, while a worker on a temp visa may require a bigger benefit to justify the hassle and risk of leaving. In this hypothesis, corporations choose temp workers instead of potentially training their competition’s talent, and not because of a salary differential. Over time, this degrades the pool of local employees, justifying further temp worker visas.

My two questions are, one, is this economically plausible? And two, is there any evidence of it occurring in the US?
Answer:

I think the basic mechanism you describe could well be part of the complex story of how the H1-B visa affects domestic workers in IT. The H1-B visa program does expand the supply of workers for certain kinds of jobs, potentially reducing the...

Question:
I have been working, earning weekly or bi-weekly paychecks since the late 1980's. Why is it that in 2020 the yearly salaries are the same as they were over 25 years ago? The salary of $40,000 earned in the 1990's also was a higher dollar earning than it is now, it bought more in 1990's. Today, in job postings the numbers are still the same numbers as they were over 25 years ago. Why?
Answer:

I will try to answer the questions as I interpret them, but first, it is important to explain what the facts are.

Annual compensation includes wages and salaries, but also benefits.  Benefits including federal social insurance taxes,...

Question:
I want to compare previous years' numbers since I have inherited a farm in Marshall County.
Answer:

Iowa has updated the soil productivity system from Corn Suitability Rating (CSR) to Corn Suitability Rating 2 (CSR2) in 2013, and the USDA NRCS Web Soil Survey tool allows you to compute the new CSR2 for your farm (Google ISU Extension Ag...

Question:
Hi, I hope to undergo a career change to graphic design. My question is, what are the chances of Artificial Intelligence taking over a design-related job, and how can it affect my employment?
Answer:

Artificial Intelligence is likely to impact all of our jobs, just to varying degrees. Specific tasks that we need to perform in our jobs, skills required, wages, and hours will all likely be adjusted. There will inevitably be winners and losers...

Question:
I apologize, as this will seem to be a very vague question. I don't know that it is so very vague, as it is nuanced and not so easily answered without a tremendous amount of effort and time information gathering.

I'm very curious what an economist thinks about the automotive repair trade. We aren't really a professional industry as there are no requirements or licenses to become a professional repair technician or work in a professional repair facility. Auto repair has become extremely high tech and sophisticated, in many areas, but also retained many of the same procedures from decades and decades ago with maybe a few changes. So, we have the need for two distinct types of individuals. The thinkers and the doers. Thinkers for the analyzing of systems and data for diagnostic decisions and dealing with technology (computers both on the car and to be used in the shop for scan tools, oscilloscopes, programming, coding, etc.). Doers to take it apart and put it back together efficiently and properly.

Most repair facilities are operated by former technicians. They are not businessmen/women. It is often discussed how, with the commoditization of our services, we are in a race to the bottom by greatly undervaluing ourselves and each other. Many are in this race and unwittingly standing on the gas.

This sounds like a rant and perhaps at some level it is. But I'm seriously interested in the opinions of those that are businessmen/women, who understand economics and game theory (most shops seem to operate on a zero-sum game principle, whether they know it or not).

Automobiles are getting more and more complex, the skill set required to service them is growing and becoming much more difficult to find and retain. Many other industries are looking for the skill sets, or a small fraction of the skill sets that many automotive technicians possess, that have far greater means to compensate for those skill than the auto repair trade currently has; a problem they've created for themselves with the constant undervaluing of their skills, knowledge, and services.

I suppose the easy answer is that it is a total "clusterf^&%" but will either solve itself or crumble altogether, I just wanted to hear what someone that knows what they are talking about thinks, and maybe even entice them to look into it and find out more about our trade.

Answer:

Auto repair is an example of a "credence good," which is a type of product or service where an expert knows more about the quality the consumers need than the consumers themselves. These kinds of markets can work poorly if consumers are unable to...

Question:
Would the implementation of a 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 country 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, can the reply possibly contain some details pertaining to an ideal tax rate for the land value tax and can some arguments be included in regard 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 concern equity...

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. 

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