I had been planning to write a post explaining the logic behind a Carbon Tax or an Emissions Trading Scheme. The schemes are almost equivalent, and the way they work to reduce pollution is like this : by making it more expensive to pollute, people pollute less. If you make the cost of pollution equal to the damage pollution causes, then people only pollute when it’s actually worth their while to do so.
Archive for the ‘Economics’ Category
A 90 Percent Tax???
28
Mar
Is it worth saving for the future?
Steve Landsburg, at his blog, tells a little fairy tale about taxes. His conclusion is that because some income gets taxed several times, a dollar earned today might be taxed at a rate of 95% before it gets used. A valid criticism of his parable is that it only applies to the uber-rich in the USA. Well, I decided to see how the fairy story would play out under different circumstances. Specifically,
- Instead of taking place in the USA, the story below happens in Australia.
- Instead of happening to one of the wealthiest of the wealthy, it happens to family on a mid-range income – a typical “Aussie Battler” as one Prime Minister Past was fond of saying.
So….
The Magic of Prices
11
Mar
How can prices help produce things cheaply?
Prices are a lot more than people think. They are not just an amount of money. They are a powerful optimisation tool, designed to get things done as efficiently as possible. Consider this parable I wrote, arguing with someone who was trying to argue that we should do away with markets, trading and prices. I wanted to prove to him that letting people set prices and bargain, aiming to maximise their profits would achieve the same allocation of resources as the best centrally planned solution, but need less information to work.
To give credit where it’s due, this example is strongly inspired by one I found (I think) in this book.
The Price Of Milk
10
Feb
One controversy that hit the news recently is the price of milk.
In short, the major supermarkets each have their own ‘generic’ milk brands. They also stock other milk brands. Recently, the major supermarkets started a price war, dropping milk to $1 per litre (down from $1.22 last year).
Hatten Down The Batches!
03
Feb
On the 2nd of February, 2010, Cyclone Yasi plowed into northern Queensland. It was perhaps the largest and most powerful cyclone in Australia’s history. It cooked up, amongst other things, a social networking storm, with zillions of people around the world posting their opinions on Twitter and Facebook and other social media.
Cyclone Yasi - Satellite Pic by NASA
One of my friends set his facebook status to
I think it’s disgusting that some Queensland stores are charging ten times the usual price for Hatch Batteners. Good luck Queenslanders, our thoughts are with you.
Better Than Interest Rates
08
Jul
In my past two blog posts, I explained how wage-based inflation is caused by a prisoner’s dilemma contest between millions of wage earners, and how the reserve bank uses interest rates to change the contest to force people to cooperate.
Combating Employment
23
May
In my last post, I explained how inflation can be caused by people getting payrises without producing anything extra. If people can do this, it leads to a “prisoner’s dilemma” situation – if both players demand a payrise, both are worse off. If neither do, both are better off. If only one does, the guy who gets a payrise is better off, and the guy who showed restraint is worse off.
If there were only two workers in the economy, they could negotiate and come to some agreement. Unfortunately, in the real economy, there are more than two workers, and the payrise-inflation game becomes a multi-player prisoner’s dilemma.
Inflation and the Prisoner’s Dilemma
01
May
To combat inflation, the reserve bank raises interest rates. Have you ever wondered why? What do interest rates have to do with inflation, after all?
At first glance, you might think raising interest rates should increase inflation. After all, when interest rates go up, zillions of people find their banks charging more interest on their mortgages. So : why do reserve banks raise interest rates to fight inflation?
The answer is surprising.
The Cost Of Our Time
14
Apr
From this website, an interesting quote. The website is about the process of fixing dented car panels. The quote goes :
In a few shops it has been the practice to attempt to salvage certain panels from wrecked cars. Doing this, however, is uneconomical since the double labour involved in taking the panel off the old car and putting it on a service job makes costs excessive.