Cutting edges

Most teachers of introductory economics ("Econ 101") touch on price discrimination practices and also on copyright controversies. But I did not know that in the "real world" these are joined. And the inevitable litigation has implications for eBay, garage sales and your local public library. Today's WSJ includes this column by Eric Felten. Here is the story:

Omega, you see, sells its watches for far less money in some countries than in others, a common enough practice known to economists as "geographical price discrimination." The U.S. market will generally bear more than the market in a Latin American republic, and so Omega offers its goods to distributors in places such as Paraguay for less than it does to American distributors.

Which is where the grey market comes in. Given the difference in prices, there is a tempting arbitrage opportunity in importing Omega watches from Paraguay to the U.S. It is just such watches that Costco bought from a stateside importer, allowing the warehouse store to offer an Omega Seamaster for $1,299 when the brand preferred them sold in the U.S. for $1,999.

Omega eventually sued, after some savvy planning. The company couldn't complain that Costco was peddling fakes—the watches were authentic goods. Nor did U.S. trademark law give the Swiss company the power it needed to block the sales. And so Omega crafted a copyright strategy. They fashioned a small globe logo and copyrighted the device in the U.S. By engraving the tiny logo on the back of the watch, Omega could claim that it created a copyright in the watch as a whole, one that would give the company more control over when and where the watches are sold.

The appeals court ultimately agreed with Omega, and in so doing limited a long-standing principle of U.S. law known as the "first sale doctrine." The doctrine holds that, once a copyright holder sells a copy of his work, he loses any say in what the buyer can do with that particular copy. That doesn't mean making extra copies—by buying a book I don't gain the right to publish a new edition of it. But I can turn around and sell my copy of that book to whomever I choose without having to acquire the permission of the copyright holder.

The appeals judges decided that, since the first sale of the Omega watches in question happened outside of the U.S., America's first-sale doctrine doesn't apply. It is a small technicality that, in a global economy, could have large implications.

Constrain the first-sale doctrine and you throw a wrench into the business of used-book stores, garage sales (including the electronic garage sale that is eBay), and any and every sort of secondhand shop. And yes, even public libraries might find themselves facing the challenge of figuring out which books on the stacks were first sold in the U.S., and which were first sold abroad.

No doubt Omega was smart to turn to copyright law, given what an increasingly powerful tool it is. The number of years copyright lasts has been repeatedly lengthened, and juries have been known to hand down fines in the millions for illegally downloading a few dozen songs.

Fancy wristwatches are peculiar international signals of status. This is increasingly exposed for what it is because wearers of an Omega Seamaster are ever more likely to be carrying a smart phone that tells time (and much more). While there are cutting edge folks designing and building ever finer smart phones, there are also cutting edge lawyers watching out for the brands and the profits of the much more traditional companies.

Awful rules trump great subway

Once people have enough money to buy a car, they will. And when there are enough such people, traffic congestion will be pretty awful -- even when there is substantial public transit. (This is so unless roads are properly priced.) Moscow's pride-of-Stalin subway is only second in the world to Tokyo's in terms of passenger volume. And this was useful in impoverished Soviet days. But a measure of prosperity ended that. Details in this week's New Yorker (abstract here; rest is gated).

But the modern Moscow touch makes a bad situation much worse. The rules of the road are missing. Both law enforcement and driver etiquette leave much to be desired. Awful (or no) rules trump a great subway.

UPDATE

How about Beijing? H/T Craig Newmark

Before Earth Day

David Leonhardt writes about global warming and cap-and-trade politics in the context of the Ehrlich-Simon debate and wager. I always like to see the E-S bet make it to public discussion, but here is Leonhardt's concern that E-S is not relevant when it comes to global warming:

But global warming is different. The fact that carbon emissions are warming the planet doesn’t make it more expensive to produce those emissions. So companies do not have an ever-increasing incentive to emit less — the way they would if the problem were, say, a lack of oil. Global warming doesn’t solve itself the way that resource scarcity does.

But richer is cleaner. The clincher is that richer predicts greater longevity.

Absent unforeseeable calamities, our successors will be richer and they will laugh at the idea that we made long run forecasts that included impossible-to-predict technological change and that we used these to justify policies that could well impede progress. From burning wood to burning coal to oil to gas to who-knows-what, there is a trend. Cars are cleaner than horses. Considering just the air they breathe and the water they drink, most office workers would not trade for the farm or mine or factory work of their grandfathers.

And most of these improvements came before Earth Day and the EPA.

More on rail transit in America

Cato's Randal O'Toole has assembled data for a cross-section of U.S. rail transit lines and cannot find any good news. Here is the abstract of his paper.

Over the past four decades, American cities
have spent close to $100 billion constructing rail
transit systems, and many billions more operating
those systems. The agencies that spend taxpayer
dollars building these lines almost invariably call
them successful even when they go an average of
40 percent over budget and, in many cases, carry an
insignificant number of riders. The people who
rarely or never ride these lines but still have to pay
for them should ask, “How do you define success?”
This Policy Analysis uses the latest government
data on scores of rail transit systems to
evaluate the systems’ value and usefulness to the
public using six different tests:

• Profitability: Do rail fares cover operating
costs?
• Ridership: Do new rail lines significantly
increase transit ridership?
• Cost-Effectiveness: Are new rail lines less
expensive to operate than buses providing
service at similar frequencies and speeds?
• The “Cable Car” Test: Do rail lines perform
as well as or better than cable cars, the oldest
and most expensive form of mechanized
land-based transportation?
•The Economic Development Test: Do new rail
lines truly stimulate economic development?
• The Transportation Network Test: Do rail
lines add to or place stresses upon existing
transportation networks?

No system passes all of these tests, and in fact few
of them pass any of the tests at all.

Paige Elise Kolesar helped me augment Randal's data. In particular, we added auto external cost estimates from a recent American Economic Review paper by Ian Parry and Ken Small. According to these authors, such costs are in the range of 6 cents/mile (off-peak, Washington, DC) to 31 cents/mile (peak, Los Angeles). We also used Tom Rubin's estimate of how many rail riders are new-to-transit (median near 25%) and asked: What if all of them had substituted away from their cars?

The annualized values allowed us to compute costs (losses) per boarding after non-rider benefits as well as fares had been counted on the plus side of the ledger. The results for eight commuter rail lines were $19.50 per boarding (weighted average; almost $40 per round-trip); for six heavy rail projects, the comparable weighted averages were $8 and $16. For 20 light rail projects, $9 and $18.

These numbers speak for themselves and simply update suspicions that anyone who bothers to look at the data has long held. Of course, none of this makes a whit of difference to the many who know that we "need" to build many more such projects.

I am shocked!

Someone will say that you cannot make this stuff up.

Mass. Sen. Kerry docks yacht in RI, saving $500K

(AP) – 1 day ago

BOSTON — Massachusetts Sen. John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to the cash-strapped Bay State.

If the "Isabel" were kept at the 2008 Democratic presidential nominee's summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes.

Rhode Island repealed those taxes in 1993. That has made the state something of a nautical tax haven.

Kerry spokesman David Wade said Friday the boat is being kept at Newport Shipyard not to evade taxes, but "for long-term maintenance, upkeep and charter purposes."

Wade noted the vessel was designed by Rhode Island boat designer Ted Fontaine and purchased in the state. It was built in New Zealand by Friendship Yachts.

A Department of Revenue spokesman said Kerry would be liable for Massachusetts taxes if he berthed the boat in the Bay State within six months of its purchase. If the "Isabel" were brought to Massachusetts after that period, the state would have to decide if it wanted to pursue the taxes.

Massachusetts, like most other states, has been grappling with plunging tax revenues. Last year's budget decifict was $600 million, and officials are bracing for a $1 billion deficit this year.

The 76-foot sloop has two cabins, a pilot house fitted with a wet bar and cold wine storage, according to the Boston Herald, which first reported its Rhode Island berthing. It derives its moniker from the middle name of Kerry's mother and the name his wife, Teresa Heinz, planned to give a daughter.

Instead, she had three sons.

Coast Guard registration records show the vessel is owned by Great Point LLC, a limited liability corporation based in Pittsburgh, Heinz's longtime home. The millionaire heiress to the Heinz ketchup fortune is a philanthropist and environmentalist.

HT: Ross Selvidge, who cites the wisdom of Leona Helmsley.

UPDATE

Bob Higgs explains.

20-year anniversary

Calling attention to the bad fit between rail transit and modern cities gets tiring. But the Los Angeles MTA has now been in the rail transit business for 20 years and has nothing to show in the way of net transit ridership gains. But they can show that they have spent about $8-billion trying. Here is an update.

Note that the only way to add this much rail capacity without any net gain in ridership (while the county grew in population by more than one-million, mostly at the low-income immigrant end) is to reduce bus capacity. But rail offers a higher quality of service. Not exactly. If it were so, there would have been ridership growth.

How deep will the hole be in another ten, twenty years?

"Pricing for the guilt-ridden"?

Pigou Club economists like a carbon tax. Various politicians want cap-and-trade. Public choice economists worry that either one would be politicized and (perhaps) no policy is the best policy. Yesterday's post suggested that the Environmental Kuznets Curve is likely to kick in anyway.

Speaking of the real world, today's WSJ includes "How Green Is My Sneaker?" which mentions an Eco-Index that various manufacturers are developing. Information is always a good thing. But price discrimination is also in play. And why not? I believe that Tim Harford (or someone; apologies if I got it wrong) once described "pricing for the guilt-ridden."

Inconvenient truth?

Wendell Cox links to a European study which reveals that the US leads the world in greenhouse gas emissions reduction.

I imagine that not a single environmentalist would agree that we are doing enough. We are widely believed to be unenlightened laggards. So what is going on? Are we on the right side of the Environmental Kuznets Curve? There are many who would say we are (see here and here and here).

There will, of course, be many to argue that we can do much better. But that's the controversy. What would be the net effect of the various proposals that might make their way through Congress? We got to where we are (the right-hand side of the EKC) not because of inspired environmental policies, but because we found ways to get rich. Richer is apparently cleaner.

Sounds like a very inconvenient truth.

Pirates feeding beasts

Monty Python may have suggested that it it best to "tax all foreigners living abroad," but James S. Henry has has actually come up with the details. Writing in the July 19, 2010, Forbes, he says: "There is at least $15 trillion in private wealth sitting offshore. Let's tax it." (not available at the Forbes site). Here is how Henry would get it done:

"The pile of offshore anonymous loot is now large enough so that even a very modest 0.5% wealth tax would yield at least $75 billion a year. ... The majority of offshore wealth is managed by 50 banks." All of them have known addresses in places like NYC, London, Amsterdam, Zurich, Geneva, Frankfurt, Paris. "These highly visible institutions should be required to withhold a modest 0.5% annual tax, collected quarterly, on the value of their clients' assets. ... Only anonymous wealth should be taxed. If the beneficial owners can show that they're paying taxes on their offshore assets back home, they can claim rebates. Most will just pay up."

Two problems. First, the new taxpayers will not remain sitting ducks for long. They will refine their money laundering. Second, new revenues may just "feed the beast." But that's an old story. I prefer Henry's plan to all the others that I see coming down the pike.

More history lessons

This morning's NY Times includes "Women's Role in Holocaust May Exceed Old Notions .. Research Finds Greater Female Involvement." As if the Holocaust were not awful enough, I suppose one might have hoped that women would not sink as low as men. The new research evokes the argument of Daniel Goldhagen -- that quite ordinary Germans participated in mass murder.

There have been other holocausts and atrocities, but Germany had once been thought to exemplify a higher standard. It is exactly that idea which is examined in an accompanying book review of The German Genius (which goes on the ever growing to-read list). "By 1900, nearly everyone agreed that there was something special about Germans. Their philosophy was more profound -- to a fault. So was their music. Their scientists and engineers were clearly the best. Their soldiers were unmatched." Reviewer Brian Ladd mentions that Nazi propagandists and sympathizers hijacked this view for their own ends. But, "... the educated middle class was too weak to stop Hitler ... it abdicated its responsibility to do so and .. its antipolitical ideals taught a nation to welcome a charlatan's promises of a redemptive community."

As awful as all this is, my impression after several visits to Germany, is that today's Germans have learned from their history.

Why the gab fests?

In an Economist review of John Calvert's Sayyid Qutb and the Origins of Radical Islamism (which I have not read), the reviewer mentions Qutb's two years in the U.S. and notes that many have wondered whether that stay ("the sight of scantily clad women on the dance floors of Greely, Colorado") helped to radicalize him.

Yesterday's WSJ included "Exporting Broadway" which mentioned the popularity of Fiddler on the Roof ("The late Hisaya Morishige played Tevye 900 times over two decades") in Japan and Mary Poppins in the Netherlands (among many others).

Modernity has allure and American culture has been a huge export, probably since jazz and the early movies of the 1920s and 1930s. For some reason, I get "alerts" on the many conferences on "Globalization" around the world. I suppose that international gab fests are a fixture, but globalization will be and will be on its terms, no matter how many conferences or how much hand wringing.

These are worth looking at

On economic development.

On economic thinking.

Medical care.

Baptists and Bootleggers gone wild.

Never so simple.

Very good news.

Deficits.

Not so clean and green

It's a sure bet that federal income tax rates will soon go up. This will incite the usual debates re elasticities: will higher rates mean higher tax revenues?

Elasticities, of course, matter everywhere. This includes whether or not low-carbon ("clean") energy subsidies have the desired effects. This paper (may be gated, but guest access is usually available) by Emma Hutchinson, Peter W. Kennedy and Cristina Martinez suggests that under reasonable assumptions, subsidies of low-carbon emissions can have perverse effects. Here is the abstract,

We show that a production subsidy to low-carbon energy can have a perverse effect on emissions. The subsidy causes a shift in the composition of production towards the cleaner energy, but it also causes an offsetting consumption effect: energy consumption rises because the subsidy causes the equilibrium price of energy to fall. The net effect on emissions can be positive if the low-carbon energy is not significantly cleaner than the high-carbon energy it displaces. We derive
a necessary and sufficient condition for this perverse effect in the context of a competitive energy market. We calibrate an example for an ethanol subsidy in the U.S. and find that this policy is likely to cause an increase in carbon emissions for most plausible parameter values.

Not necessarily clean and green.

Go figure

"Pigou Club" or cap-and-trade? Is it moot because either can easily be politicized? The Obama Administration apparently wants a carbon-dioxide cap-and-trade law, but it's EPA is apparently undermining the existing (and by all accounts somewhat successful) sulfur-dioxide cap-and-trade. Read this.

Coming to a restaurant near you?

Paul, the octopus, is (for all we know) six-for-six in his World Cup picks. This is much better than most of us. The other Paul (Paul Bloom) writes about "essentialism" and all of the episodes that reveal our enjoyment of (and our bids for) artifacts that are "genuine" or that have been touched by the rich and famous. He wonders whether this is adaptive behavior or just a Spandrel. I enjoyed the book, but am not yet convinced of either side of the argument.

But never mind. Octopus appears on the menus of many fine restaurants and I am waiting to hear about the bidding for Paul (the octopus). Paul (the author) mentions that many cannibals are inspired by the idea that they inherit the qualities of the people they partake of.

UPDATE

The New Yorker has this long piece on the challenges of authentication. Score one more for Paul Bloom.

One more sport

I suppose that it's inevitable that discussions of the World Cup and soccer elicit political commentary. Hendrik Hertzberg does this in the July New Yorker. The Bryan Curtis-Eve Fairbanks discussion on bloggingheads.tv also covers this ground.

But the musings can get into the overreach area. For example, what is "socialist" about soccer? Marc Thiessen tries to make that case. I disagree. What the soccer players do on the field (the pitch) is much more improvisation than scripted. It is the opposite for American football, which is very much scripted (check out the quarterback consulting his wristband)-- and gets really interesting and spontaneous when there is a broken play.

Americans are different in that they have many sports and many entertainments to chose from. The commentators are adding their own sport to a crowded plate.

The smart set

On yesterday's Bloggingheads.tv, Brad DeLong argued for more federal stimulus because it is affordable because the long-term budget picture is OK over the next 75 years because of the new health care regime -- if Congress sticks to pay-go for 75 years.

In today's NY Times, Christopher Edley argues for Federal government advances of matching funds to the states when a state runs into fiscal trouble. Here is the punch-line:

What would this cost the federal government? Nothing. There would be zero risk of default, and a guarantee of full repayment plus interest equal to what Treasury pays in the bond markets to borrow. Congress would need only to appropriate the administrative costs of this program, which would be minimal.

Both opinions bank on credible commitments from politicians. If there is an anti-Washington tug among the voters of both parties it is because such credibility is now very low.

I do not believe that either of these gentlemen is a tea party plant. But they do provide fodder for those who wonder about the programs and policies being suggested by the smart set.

UPDATE

It appears that the Massacusetts health care reform is costing much more than proponents had promised.

The New Yorker's view of the world?

Today's WSJ, includes Joel Kotkin's "The Myth of the Back-to-the-City Migration". Many commentators live and/or work in Manhattan and cannot imagine that they are the outliers. Many others have not yet accepted the auto-oriented city -- which is here to stay. Still others cannot imagine that the suburbs offer enough in the way of "density" in various "sub-centers" to fulfill urban areas' role in providing all of the agglomeration benefits and opportunities.

It's akin to high-speed rail, rail transit, downtown convention centers and sports stadia, transit-oriented development, and many variants. One side of the brain (if brains actually have sides) says, "get used to it." The other side says, "this is waste, fraud, and even occasional theft."

I suppose this is why they have Tylenol.

One can never know enough history

I guess there were wheels in the Americas before the Europeans arrived. These people say so and they point to evidence of toys with wheels that archeologists have found in the Americas.

I went searching because there is no mention of wheels in Nathan Nunn and Nancy Qian's "The Columbian Exchange: A History of Disease, Food and Ideas." In any case, their research is fascinating. If you are enjoying globalization via the World Cup (or at your local restaurant), read their paper. Then read Charles Mann's 1491.

The more things change?

Today's auto-oriented cities are very different from pre-automobile cities. The internet has also changed our lives in many ways, but where is the physical evidence in our cities? Perhaps it's too soon to tell or perhaps very old decentralization trends have simply been reinforced. (And on flimsy evidence, some have even suggested that these trends have been weakened and/or reversed. But see here for some perspective.)

The Economist's Economics focus column mentions a recently published paper in the Economic Journal which describes the many survivors of the e-commerce revolution. Harvard Square (among others) is still populated by shops that involve old fashioned physical attendance.

And look at all those people seeking an internet connection at a public place (e.g., Starbucks and many others) when they already have one at home.