Lumber Prices Slump With Rising Interest Rates

"Prices shed more than 50% since March, when the Fed began raising borrowing costs to slow inflation" (WSJ, May 2022).

Economists call the demand for inputs a derived demand. Carpenters use lumber to build new housing. Therefore, the demand for lumber depends on or is derived from the demand for new housing. As the demand for new housing decreases, so does the demand for lumber.

Why Shale Drillers Are Pumping Out Dividends Instead of More Oil and Gas

"Compensation plans that once paid executives to boost output without regard to energy prices now foster cost cuts and shareholder returns" (WSJ, May 2022). Perhaps the new plan does a better job aligning the interests of executives and owners. "After years of losses, investors demanded changes to how bonuses are formulated, pushing for more emphasis on profitability. Now, executives who were paid to pump are rewarded more for keeping costs down and returning cash to shareholders, securities filings show."

When Product Lines Take a Sharp Turn

"The history of American industry is awash in shining examples of companies that made revolutionary changes, becoming essentially new businesses en route." (WSJ, May 2022)

Good strategy responds to opportunities.

Verizon Reorganizes

This article in the WSJ (Nov. 2018) describes a reorganization of Verizon. It is becoming more M-form and less U-form. Anyone who has ever called Verizon with a question about cell service AND FIOS might appreciate the change.

James Harden contract: 76ers star's messy postseason raises questions about potential long-term deal

"Philadelphia might fall victim to the sunk cost fallacy. They've already invested so much in Harden that they might talk themselves into overpaying him because they can't stomach the alternative of losing all of the assets they paid for him for nothing."

https://www.cbssports.com/nba/news/james-harden-contract-76ers-stars-messy-postseason-raises-questions-about-potential-long-term-deal/ 

Why Mobs Are Torching Sri Lanka Politicians’ Homes

What is the implied price elasticity of demand for rice when "Production of rice, the country’s staple grain, fell by about 14% last year and prices surged by around 43%"?

Here are some needed assumptions to compute the elasticity.

1. Sri Lanka neither imports nor exports rice.
2. Farmers sell all rice grown at whatever price clears the market and never build up or drawn down inventories.
3. The increase in energy prices has not affected the demand for rice.
4. The decrease in income has not affected the demand for rice.
5. The shift to organic rice has not affected the demand for rice.

Here are two questions. How would you adjust the elasticity if

1. The increase in energy prices or decrease in income decreased the demand for rice?
2. The shift to organic rice increased the demand for rice?

Price Rises Top 8% at Consumer Giant Unilever, Hitting Demand

"Unilever, which has been battling surging inflation, on Thursday said it had increased prices by an average of 8.3% in the first three months of the year and is planning further rises. The company said higher prices had resulted in some softening of consumer demand, with overall volumes declining 1% in the quarter, and that it expects shoppers to pull back further as prices climb." (WSJ, April 2022)

1. Did the higher prices hit demand or the quantity demanded?
2. If the quantity demanded decreases by 1% as price increases by 8.3% and all else is constant, is the demand elastic or inelastic?
3. Do revenues increase or decrease when the quantity demanded decreases by 1% as price increases by 8.3%?
4. How does surging inflation affect demand?
5. Is the absolute value of the price elasticity of demand greater than or less than 1/8.3?

Preaching to the Choir

 

"The overwhelming majority of economists agree on a few things: secure, well-defined property rights are a vital ingredient of growth; people respond to incentives; the economy is not zero-sum; sustainable growth comes from innovations that enable us to make more from less; some trade-off between equality and growth is necessary because innovation often makes some people rich, and they must be rewarded for their risk-taking and talents."

Allison Schrager, A review of A Brief History of Equality, by Thomas Piketty
April 29, 2022

How Not to Build Affordable Housing

"The nonprofit Up for Growth concluded that 'rather than increasing the number of affordable units,' the zoning scheme 'appears to be diminishing the supply of housing at nearly all income levels.'" (WSJ, May 2022)

The Minimum Wage, Rent Control, and Vacancies or Who Searches?

This post (Marginal Revolution, May 2022) reports on two studies.

1. One study finds that job vacancies and employment decrease as the minimum wage increases. "The cumulative negative effect of a 10 percent increase in the minimum wage on total vacancies is as large as 4.5 percent a year later." The study also finds that the impact is bigger for jobs that typically employ workers with lower educational attainment (high school or less) and in counties with high rates of poverty, and that employers anticipate the increase in the minimum wage by reducing employment in advance of the increase.
2. The second paper finds that landlords are more selective and charge more extra fees when the government imposes rent controls and that typical ads switch from "Apartments for Rent" to "Apartment Wanted".

Biden Establishes a Ministry of Truth

"People respond to incentives. Therefore experts respond to incentives."

"Put yourself in his shoes. If you predict doom and nothing much happens, it was because of your wise warning. If you don’t predict doom and reality is worse than you predicted, you will be blamed and shamed. The incentives are clear. Truth experts at the DGB will proclaim grave threats around every turn even when any “threats” are minor to nonexistent.

"By creating the DGB, the U.S. government is creating a crisis monitor with the dial permanently set to “existential threat.” No one inside the board will have the incentive—or the courage—to dial it down."

Roger Koppl and 

Abigail Devereaux, WSJ, May 2022