Tuesday, November 20, 2007

How much should I pay for a chance at $20 Million?

Millions of Canadians purchase lottery tickets each week hoping to strike it rich. Why do Canadians buy lottery tickets even though the chances of picking the winning numbers are very very slim? Is this irrational? How much should I pay for a shot at a huge chunk of tax-free cash?

Economists tend to value prizes by multiplying the probability of winning and the prize value. Using this approach, I want to estimate the value a Super 7 ticket for Friday's $20 million draw.

To do this, I looked at the Super 7 website for the odds of winning the big prize. Assuming only one person can win the jackpot (for the moment), the probability of winning the $20 million Super 7 is 1 in 20,963,833. The value of my only shot at retiring early (by matching all 7 numbers) is valued at $0.95 (1/20963830 times $20M). However, there are other cash prizes. You can make a profit by matching 4 numbers (or 3 plus the bonus) or better - the odds of winning any cash prize are 1 in 30.72. Adding this, the value of a ticket rises to about $1.35 (given a host of assumptions about the number of winners and ticket sales). Lastly, 1 in 5.887 (about 17%) are the odds of winning a free ticket (which I value at near zero since it is really hard to sell on the street).

So there you have it: Each $2 play is worth about $1.35 (which I call the ticket's ‘investment value’) for this week's draw. Is it irrational to purchase a ticket? Well, at first glance, the answer is yes. However, we know that people don’t just buy it for the investment value, they buy it for fun! Moreover, taking the investment value and the fun factor together, it is easy to see that as the jackpot rises, both the investment value and day dreaming also rise, which leads to more and more people purchasing tickets.

Maybe buying a ticket is not so irrational after all. It is just that, at some jackpot level, people get more utility from buying a ticket than any other $2 investment or marginal consumption (such as a chocolate bar or an 8oz draft of Keith's at the Midtown Bar and Grill).

You may be asking when will the investment value be worth the $2 cost? Answer: When the jackpot reaches $33 million, assuming only one person can win the big prize.

Any other questions?
Appendix
This article makes an interesting comparison between buying a loto ticket and investing in the DotCom stocks in the late 1990s. Irrational or buying hope?

Saturday, November 17, 2007

Economic Theory at Work: when demand exceeds supply in downtown TO

One of the most basic principles of economics is that when demand outstrips supply, the price will rise. You might of heard about a recent real life example of this at the corner of Young and Bloor in downtown Toronto a few days ago.

The Story: Units in what will be the country's first 80 storey condo went on sale with a frenzy. Apparently, people camped on the street and realtors paid university students to stand in line for weeks (three rotating 8 hour shifts) to make sure they could buy their condos (two max per person) (CBC story). If waiting in line for weeks was not crazy enough, what followed was pure economics at work.

Once the doors opened, realtors at the front of the line bought their two condos and then promptly began selling them to likely unsuccessful investors at the end of the line (who where obviously desperate for a piece of Toronto's famous corner). In fact, they started a live-fast-paced-auction on the sidewalk. As I understand it, one realtor made $500,000 in 25 minutes (less the $6k paid to the three university students with camping gear).

If I was the builder, as soon as I realized that there were people waiting in line for weeks before sales started, I think I would of started to ask some questions (perhaps to an economist). Clearly, the selling price was too low and they left a lot of cash on the table. I am sure they realized in retrospect that they should of been the one auctioning off the units, one by one. I heard they raised the price before the sales started, but this method would never capture all the consumer surplus . For this builder, a chalk board, a piece of chalk and an eraser could of made hundreds of thousands of dollars by matching peoples' willingness-to-pay to the sale price.

Thursday, November 15, 2007

Halifax will never be the same ...

You may be interested to know:
(1) There are no longer free peanuts at Maxwell's Plum.

(2) The Mediterraneo (Barrington Street) has closed.

(3)"After four years in the works, a new sewage treatment plant in Halifax is finally running ... Though the project has to pass a 30-day test period, regional council celebrated Tuesday night ... The Harbour Solutions project was implemented to stop more than 180 million litres of untreated sewage and storm wastewater from flowing into Halifax Harbour every day." (credits to the CBC).

I have been told that the harbour will smell better in less than a week and that Councilor Linda Mosher is planning to swim in the harbour next summer. And no I will not be joining her. (Note: The Dartmouth treatment plant begins operating next spring and the plant in Herring Cove is expect to be ready later in 2008).

Appendix

Want more information on the Halifax Habour clean-up? A history lesson, factoids and what "stage 1" really means, you can read The Coast (click here) or something produced by HRM (click here) .

Monday, November 12, 2007

What happends when an economist goes to a bar: Ray Fisman explains

An recent article on Slate.com has sparked a lot of interest. Personally, I love to see other economist getting their hands dirty in the field: collecting data, talking to people, and enjoying the fruits of their labour. And where else better than in a bar to observe economic behaviour? We all love to see the market system at work. Fisman's post is a good read. For the fast and dirty type, a few selections from the posting are below.

The Experiment: "To really understand what people prefer, you need to pair men and women randomly in an experimental dating service and document the decisions they make. And so for a couple of years at a local bar just off the Columbia campus, I ran a speed-dating experiment ... After each "date," participants decide if they'd like to see their partner again. For our study, we also asked them to rate their partners' intelligence, looks, and ambition after each meeting."

The Results: (1) "With the obvious qualification that we're talking here about a four-minute version of love and dating, we found that men did put significantly more weight on their assessment of a partner's beauty, when choosing, than women did." (2) "By contrast, intelligence ratings were more than twice as important in predicting women's choices as men's. It isn't exactly that smarts were a complete turnoff for men: They preferred women whom they rated as smarter—but only up to a point. In a survey we did before the speed dating began, participants rated their own intelligence levels, and it turns out that men avoided women whom they perceived to be smarter than themselves. The same held true for measures of career ambition—a woman could be ambitious, just not more ambitious than the man considering her for a date." (3) "When women were the ones choosing, the more intelligence and ambition the men had, the better. So, yes, the stereotypes appear to be true: We males are a gender of fragile egos in search of a pretty face and are threatened by brains or success that exceeds our own. Women, on the other hand, care more about how men think and perform, and they don't mind being outdone on those scores."

The Twist: "Another clear gender divide, this one less expected, emerged in our findings on racial preferences, reported in a forthcoming article in the Review of Economic Studies. Women of all the races we studied revealed a strong preference for men of their own race: White women were more likely to choose white men; black women preferred black men; East Asian women preferred East Asian men; Hispanic women preferred Hispanic men. But men don't seem to discriminate based on race when it comes to dating. A woman's race had no effect on the men's choices."

In closing:
"Does all of this rational-choice stuff take the romance and mystery out of romance (just as some have accused my fellow economist Joel Waldfogel of taking the Christmas spirit out of Christmas)? I hope not. Our purpose is to understand how life-long relationships are formed. The first step in helping people find love and happiness is to figure out what they're really looking for in the first place."

Scanner Errors: Another reason not to loose your short-term memory

A month ago I declared customer service dead, and now I am starting to see examples at every retailer in Canada in the form of scanner errors! We used to take for granted that the posted price will match the scanner read at the cash - but no more!

This holiday season disgruntled service reps will use scanners to ring you through or I guess you could avoid the 'service part' and use self checkout scanners. For the retailers, scanners are a miracle worker (they never call in sick and they count inventory when they ring through products). But for us customers, it means that when you grab that Christmas gift off the shelf, you need to remember the price until you get to the cash. Yes, scanners can lie. More often then you think. Now, I don't have empirical evidence, but over the last few years, I have found my fair share of scanner errors.

What prompted this rant: Today, I was overcharged at Home Depot. I was rather tired and I made it all the way to the car before I realized. I was pressed for time and I really did not what to go back in the store, re-check the price, stand in line at the customer service desk and explain the story. However, it was the principle (and I was kind of angry).

Although the efficient market theory may keep retailers from trying to tick consumers by posting one price and scanning another, mistakes do happen. And I think there is a link between retailers' search for the most marginal labour market participants to fill part-time holiday jobs and the accuracy of the retail miracle scanner. So, get your memory going and protect yourself with a notepad if needed. At least give it a try, it could be rewarding - Home Depot and most retailers kick you back $10 for spotting the error.

Saturday, November 3, 2007

Beer lovers face higher prices as hops shortage looms

Here are some clips from an CBC.ca article about something that is near and dear to my readers' hearts: how a shift in the supply curve to the left will increase the price (demand held constant). Let the herding begin!

The Story: A worldwide shortage of hops — a key beer-making ingredient — could have a big effect on the taste of specialty brews and force smaller microbreweries to hike the price of their products. Brian Titus, president of Halifax's Garrison Brewing Company, said his brewmaster isn't sure he'll be able to make some of his beers in the new year because he hasn't been able to find some varieties of hops at all. "It's bordering on disastrous actually. If you don't have hops then you don't have beer," said Titus.

The shortage can be blamed on a perfect storm of events — bad weather in hop-growing areas of the United States, Europe and Australia and a depressed U.S. dollar. A worldwide shortage of hops could see some beer prices rise by up to 10 per cent.(CBC) Prices for the remaining supply of hops have doubled in recent weeks. With the low American dollar, European and Asian brewers are snapping up the remaining worldwide supply of hops.

Is there anything we can do? Can we substitute away from hops? (my questions)
The shortage has some breweries rethinking their brews and possibly changing beer recipes to cut down on the use of hops.
"So maybe you find something that smells similar but doesn't have the same taste profile and it doesn't have the same bitterness," said Titus.

Larger breweries are less likely to have to raise prices because they buy in bulk with long-term contracts. Craft brewers don't have the means to hedge against rising prices, like their industrial rivals.

Saturday, October 13, 2007

Customer Service is Dead

My cold fries and wrong change sent me a message: Here comes the end of customer service.

In recent weeks I have come to the realization that the tight labour market has sent employers scrambling to hire anyone with a heartbeat. Because of this, I will never have hot fries, a correct order, or a free smile again! My beer will just sit there empty all night unless I interrupt the waiter and bartender's conversation. Because there are less people willing to flip burgers or the double-double button, it is more difficult to enforce customer service standards through firing and hiring someone new. In fact, they have recently invented a new job category: "Full-time Problem" - reserved for the workers employers wish they could fire but they hang onto them because they are slightly better than no one at all. In the end, you can say good-bye to the time when you could go to McDonald's and have them tell you that you are right.

And NO! Raising wages will not magically bring forth enough people (although maybe some) into the workforce; just ask my friend Neil in Alberta; it might help in the short-run to attract the best, but as time goes on all wages rise. And then, you got it, the end of customer service.

Yes! This is sad. From now on every time I travel I will expect only the worst from that highway A&W. And I am reminded each time I step into a Timmy's by the help wanted sign.

Why does this hit me so hard? For several summers I worked at McDonald's and Eastside Mario's to save money for university. I remember being happy that I had a job and I remember competing for my position and the hours I got. From all the help wanted signs on Spring Garden road, including the $100 signing bonus at Subway, I am sure I would be less concerned about loosing my job if I was 15 yrs old today. It must be nice to not care.

In summary, fast food is no long fast. Expect less. And if you get good service, tip really well in hopes that they will be there next time you visit. Lastly, if you think this just applies to low-end cookin' just wait ...

Wednesday, September 26, 2007

A breif lesson on the exchange rate

Yes! Back to basics. Although I will not try to predict the future, I can share some general comments about how the exchange rate can affect the economy.

Say the exchange rate appreciates from 62 cents to $1US. And, gold is worth $736.20US oz (or so). And, you are a gold miner in Nova Scotia, who sells their gold in New York in US$. How will will the exchange rate appreciation affect how much your cost is worth in Canadian dollars? Well, it depends on the exchange rate. If the Canadian dollar is valued at $0.70US (which is the same as saying one US dollar is worth $1.43CND), you will receive $1051.71CND ($1.43*$736.20=$1051.70) in return for 1oz of gold. At parity you receive only $736.20 ($1*$736.20=$736.20). What if we price is fixed in Canadian dollars? The price will raise from the point of view of our American customers because it will take more US dollars to buy the same amount of Canadian gold. Taking our mining example future, because the exchange rate will affect the price we get for our gold, it will also affect production and employment at the mine, and therefore also the wages and profits, and also future investment plan. Finally, the markets where the workers' wages and owner's profits are spent will also be affected overtime.

On the other hand, the exchange rate will change the price of stuff we buy from other countries as well (books on line, foreign cars, and bananas for example) - these should go down in price (overtime) with the Canadian dollar climbs.
Lastly, because the prices are changing, it might also affect how much we demand these products. For example: If Dell computers fall in price, will Canadians buy more? How about sweaters from China?

Overall, the short-term and long-term impacts of the appreciation can be hard to conceptualize. It will depend on many factors, like how businesses and policy makers respond to the appreciation, but more fundamentally, it will depend on why the exchange rate moved: Was it because the things we produce are worth more (like oil) or was it because people think that Canada is a good place to invest compared to other places around the world? As you can guess, these have very different implications on the Canadian economy and it is often hard to determine what has moved the currency – I will leave this job to our trusted policy makers and market commentators . In short, it is very hard to determine the full set of costs and benefits of a given currency movement – views often differ - and the assumptions about the responses of consumers, businesses, and policy markers, in Canada and other countries, (and the interaction of these behaviours) can drive the results.

Sunday, September 23, 2007

The Canadian Dollar: A Few Quick Facts


At 10:58am (EST) the Canadian dollar traded at parity with the US dollar. Shortly there after: The Globe and Mail reported that "A cheer went up in currency trading rooms across the country".

Yes, parity. This is the first time since November 25, 1976. Back then, as James Powell wrote in A History of the Canadian Dollar, “The strength of the Canadian dollar through this period can largely be attributed to strong global demand, which boosted the prices of raw materials,”. Very similar to what is going on today.

What has drive the value of the Canadian dollar? Historically, the prices of both energy and non-energy commodity prices, CDN/US interest rate differentials, and CND/US inflation differentials have explained the vast majority of CDN/US exchange rate movements. And yes, it is nearly impossible to predict anyone of these factors and there is no telling what the future will bring.

With that being said: my hat goes off to The National Bank of Canada: in April 2006 they predicted parity by the fall of 2007. Nicely done.

For a graphical history of the dollar, there is an interactive chart here (we can't even talk about our currency without talking about hockey!).

Factoid: How high has the Loonie flew? July 11, 1864, the greenback traded at less than $0.36CDN ($1US = $2.78CND). The U.S. dollar recovered by the end of the Civil War in 1865 and the currencies traded at around par until the outbreak of the First World War.

Reference: Thanks to the Globe and Mail for the above picture (can you see where I added something?) and a few of the factoids above.

Tuesday, September 18, 2007

US Housing Market Pain = Better TV

The Primer: Today's News on the US Housing Market:
According to Bloomberg news, " The total number of U.S. foreclosure filings, including defaults, scheduled auctions and bank repossessions, rose 115 percent to a 243,947 in August from a year earlier, the highest ever in the RealtyTrac study that goes back to 2005. " The turmoil in the US housing market was also mentioned by the Federal Reserve as a reason for their 50 basis point cut today: They said that the "tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth.'' Although I would like to discuss the implications of these events on the Canadian economy, I want to boost my ratings by talking about the long list "Flip that House"-type TV show (I think a number of my readers are addicted - they may not like what is coming).

Good grief, I have come to hate those crazy 'Flip this broken house' , 'Turn a dump into fast money', ' Anyone can reno to fast money' type shows. Yes, in hot real estate markets prices do rise and if you go 43 weeks over budget prices might rise, if you might find someone desparate to take on too much debt. But now: the world has changed and this will become the rarity rather than the rule in the US.

O'yes, even I was almost convinced into thinking flipping is for everyone, I even had the a hammer in my hand with a crazed look in my eyes. And then, I woke-up: when you buy a house, you pay the highest price on the market. It reminds me of the commercial when the guy buys a painting at auction and then tries to sell it to the same group of people he out bid for it. So, thinking that you are the only person that can rip out some carpet, slap down some hardwood and think that someone will pay you thousands to do it is madness. When you pour money into a house you will, generally, get you money back (especially for bathroom and kitchen renos) - let me say that again: get your money back - not make $100K in 12 weeks.

The events in the US housing market will lead to changes in lending practices. Risky consumers will have to work harder to borrow money. Prices will come back in line with fundamentals (wages, employment rates, etc.). And, I hope, when these TV shows start showing people loosing money or keeping the house because they can't quickly resell them, we all be reminded that flipping a house is hard work, it is risky, and not forever one. Most importantly, I hope we get some better programing.

Tuesday, September 11, 2007

How can Canada running from its responsibilities in Afghanistan?

As much as this blog is about economics, it is a vehicle for me rant about issues burning so fierce that I feel a need to seek public criticism.

Now: the Federal Liberals and the Conservatives said that they want to pull Canadian troops out of Afghanistan in February 2009. I am both disappointed and baffled by this development. Both parties weighted the costs and benefit of us entering into Afghanistan just a few years ago: our safety was (is) at risk, our values were (are) at stake, and the answer was (is?) clear. And now is the situation so different that it is almost time to go? This, our political debate, has not gone unnoticed in the world.

This week, I read an article in last Friday's Globe and Mail . Give it a read. I was moved by the praise of Canadian history, our values, and our influence on the world stage. As the article continued, however, it pointed to the fact that Canadian troops are doing most of the heavy lifting: working in the most unstable regions of Afghanistan and that other counties would not put their own troops in areas where Canadians are fighting.

After read a bit more, I was overwhelmed by the following thoughts: (1) Yes! It is terrible that we have lost lives in Afghanistan; (2) Yes! We need more help in the south from other countries and we need better equipment. Yes! Some things do need to change; but is having Canadians in Afghanistan is one of them?

With that, a series of questions fly at me: How can we pull-out of a country that we helped dismantle? Whether you supported the mission or not, don't we now have a responsibility to stay? If we underestimated the cost of battle, does it free us from the consequences of our actions? Maybe I have this wrong, but wasn't the reason Afghanistan became a training group for terrorist in the first place was because people came in, dismantled the place, and then just pulled-out?

I find it hard to believe that Canadians want to stand-up on a world stage and set the example by saying: “We are leaving, this situation is going to fix itself and no one needs to worry”.

Wednesday, September 5, 2007

Save your senior from bank fees!

If you have a senior (60 yrs +) in your life, sit them down with a cup of tea and broach the bank fee topic.

Gee I love the CBC radio (I really need to listen more). I was tuned in tonight to hear the story of how Jim Halstrum, 72, received a refund for 12 years of bank fees. As the story goes, Jim's teller told him he should not of been paying back fees since he was 60! And then, Jim was on a mission for all Canadian seniors!

Jim, after refusing to take a mere 3 months refund, called the bank's ombudsman - all banks have one to oversee customer concerns -, and got back $1100. Jim did not stop there: he found out that his wife had paid bank fees from age 60 to 65: Jim got her a refund! Way to go Jim! Did I mention that Jim is from Montague PEI? (we could be related!)

So, if you want to give an early Christmas gift to that special senior in your life: talk to them about Bank fees.

I think that if enough people start calling the Ombudsman's office, they will refund all seniors without them even asking!

A link to the CBC web story: Here .

The Canadian Banker's Association website
on how to deal with your bank:
OR
The TD Canada Trust Ombudsman
The Royal Bank Ombudsman
CIBC "Keep you a Customer Line"
ScotiaBank Complaint Website
BMO's Ombudsmand is a Senior Too!

etc.

Long time no post ...

Forgive me.

I have received several complaints/questions, all largely sounding like: Why no posts?
In short, the summer has been a very busy time (personally and professionally); aka I have no real excuse. I have several topics to blog about, and there is no time like the first week of September to begin learning ...

Canadian Economist

Tuesday, July 10, 2007

Currently spinning: two new discs

Before a long road trip I try to purchase two new CDs for the voyage (usually a 4000km round trip from Halifax to Orillia). Let me be clear: I don't play them non-stop, I still find time to a play the classics (Beastie Boys, Van Morrison, Joni Mitchell, Red Hot Chili Peppers, Dave Matthews, Guns and Roses, Cold Play, Lauren Hill, U2, Pearl Jam, Nirvana). If you are still reading this blog (I think I lost of readers with Lauren Hill), let me tell you about the two great Canadian discs I played more than once over the last two weeks.

Finger Eleven: Them VS You VS Me
I was first exposed to this band when they were the Rainbow Buttmonkeys (back in 199-something). I first heard their hit single "Paralyzer" on the radio, but it did not really spark my interest until the CBC did one of their classic photo montages to the song in the NHL finals. True story (even now: when I hear the song, I get crazy flashes of a very intense Danny Alfredsson). The CD reminds me a little of Moist (mostly the Silver album). I enjoyed the disc, although I am not sure if it will make the high rotation list with Lauren. Finger Eleven are currently touring with Puddle of Mudd and Nickelback. I rate this disc as: enjoyable. You can listen to them here (click AUDIO).


Joel Plaskett Emergency: Ashtray Rock
Before I purchased this CD, I gave it a listen in mall. It took only 30 seconds for me to vote "Yes"! Why? Well ... how I can explain it? This album stirs a Barenaked- Ladies-type-of-excitement in me: but a hipper, cooler, fucky kind of fun. The disc tells a single story: but each song stands alone. The lyrics are unexpected (atypical; surprising), as is the flow of each song. Some of my favorite lines: "I feel foolish. I want to drink too much. Your Polish, with a wicked sense of humour" (song; Fashionable). How could you not love it? Taken from JPE website, here is a clip for the Toronto Star: "As evidence, there’s the narrative that runs through Ashtray Rock, a set of quirky, guitar-driven songs, produced by Toronto roots-rock icon Gordie Johnson, that’s being touted (not by Plaskett, mind you) as a concept, an oeuvre, an opus of import. If you listen with the right pair of ears you can discern a disconnected yarn about a band – maybe Plaskett’s first ensemble, Thrush Hermit? – wrought asunder by lust, betrayal and jealousy. The old love-triangle gambit.

“There is a story in there seen from three different perspectives,” Plaskett said. “But it’s not a detailed narrative, and not all the songs were written to fulfill the concept. Some go back to my teens, to 1992, ‘84, ‘98 … way at the bottom of my old song bag. I was trying to channel the sensation of playing music with my friends when I was young, and how fragile and exciting it was … but I don’t really know if any of that’s apparent to the listener. It doesn’t have to be … the songs stand by themselves."

I see: Joel, your a genius! Enough said. You can listen to a few tracks on the JPE website.

Wednesday, July 4, 2007

The Reverb Syndicate: Friday July 6th in Ottawa


IMPORTANT NOTICE!
According to the latest transmission:
The Reverb Syndicate have been added to this year's legendary Ottawa music festival. Come see The Reverb Syndicate hold their own with international superstars through the power of surf music (and go-go dancers) at 6pm, Friday July 6th on the Rogers Stage.

They perform at the Roger's stage , opening for Béla Fleck and the Flecktones .

Wednesday, June 27, 2007

Signs along the way: coast to coast


On my recent trip to BC, I saw many incredible signs. Sadly, my first spotting of "We accept $US at par" (an ice cream shop in Tofino, BC) and "$8.50 bacon and eggs" (in small Calgary diner) were both so surprising that I did not get a picture. However, other cool (at least cool to me) signs made the list.


For everyone that has driven a K car, O'yeah: this is funny.


I can't believe I saw this, but I did ... gee whiz.

Friday, June 22, 2007

Should mortgage interest costs be tax deductable?

On my first day of vacation, traveling from Halifax to Calgary (on my way to Tofino), I began reading the Friday copy of the Globe and Mail and I found a small (and rather hollow) article, “ Actuaries call for tax breaks on home mortgage interest ”, as a way to increase the net wealth of babyboomers. For fun, let’s walk through the implications of the actuaries’ suggestion.

On a $200,000 home, with a borrowing cost of 6.0%, the interest paid on a 25 year mortgage pays about $183,293; multiply that number by your tax rate (say 35%) and you have a whopping amount of savings (just over $64,000 over 25 years). This type of plan would have several effects (follow the step by step causality): (i) it would lower the cost of purchasing homes because the effective interest paid (and thus the mortgage) is lower; (ii) this would increase the demand for housing (for a given level of income), (iii) which would intern increase the price of the new and existing housing stock; as demand responds to the lower carrying cost of owning a home, higher demand would increase prices. Homeowners, therefore, would win! Not only do they now have a huge tax deduction, but the net worth of their home would rise, increasing their net wealth. How much would housing prices rise by such a policy? Well, I would think it would rise by exactly the amount of the savings from the tax deduction once the change has been fully priced in … which could take anywhere for 2 to 4 years.

Overall, this policy would effectively transfer wealth from the government, or equivocally from every tax payer, to every homeowner. Because this policy would make homes more expensive, it would only benefit existing homeowners over time (and in the very short-term new home owners would get a deal until demand pressures pushed up prices).

Furthermore, it would (over time) increase rental costs. Although the tax deduction is only on primary residence, overtime, the price increases of primary residence would change the opportunity cost of renting units or selling them as primary residences – just think of the transformation of apartments to condos as an example.

In the end, what this looks like is a transfer of wealth from non-homeowners and corporations (or stock-holders) to homeowners. Does this sound like taking from the poor and giving to the rich? Well, I think it does a little. Perhaps think about it this way: instead of giving homeowners a $64K refund on their mortgage costs, we could use that money to pay a nurse's full year’s salary (for ever 25 homes we could employ one RN for 25 years), or even better increase the Old Age Security payments to the poorest elderly? If we are really concerned about helping babyboomers who have not saved enough money for retirement, I think we can think of better policies then this one. Personally, I think that Government programs like the Old Age Security could be broadened or beefed up.

Tuesday, June 12, 2007

Carbon Tax in Quebec: Go Pigou!

As I have said over and over again , I am supportive of putting a tax on fossil fuel consumption to reflect the cost (the public cost) of consuming fossil fuels. I think we need to raise the price of gas, and funnel the funds into public transit, research, and playing around with incentive structures (that would be fun!). Well, Greg Mankiw's Pigou Club got a reason to celebrate (a least a little) last week when Quebec added a tax on gasoline and electricity! Mankiw was impressed ( see here ). As nicely reported on Bloomberg : " Refiners including Valero Energy Corp.'s Ultramar unit and Royal Dutch Shell Plc's Canadian unit will start paying a tax of 0.8 cent a liter on gasoline and 0.9 cent on diesel on Oct. 1. Power producers such as state-owned Hydro- Quebec and gas companies will also be taxed. " (should that say province-owned?) Although this is not a large tax by any means, it is a start that will generate $200 million a year for measures to reduce greenhouse gas emissions.

Although, to be honest, I do not think that 0.8 cents a liter will do very much in the way of reducing consumption, this is the first of its kind in Canada and I hope that Quebec voters are supportive of the idea. As for me, I hope to walk to work tomorrow (if the rain ever stops ... O'Halifax).

Sunday, June 10, 2007

Where to eat in Halifax!

The Canadian Economics Association conference was in Halifax (at Dalhousie) a couple of weeks ago. I send the following email to a few fellow modellers, and I thought I would also share it with you (to get me back on the blogging bandwagon). Please note the Tom's Little Havana did not make the list of places to visit because of limited seating or maybe because I wanted to keep it for myself (unless you know it is there you might never find it).

Here is a short list of my favourite places in Halifax. I hope it is helpful to all future visitors to the city.
Doing something at Dalhousie? Here are two places near campus:
Saege has won The Coast's (the weekly what-where of Halifax) award for the best new restaurant and is labelled "Where to Eat in Canada". I suggest that you book in advance. It is about 10 mins on foot from campus, but worth the hustle (5883 Spring Garden Road , 429-1882). http://www.saege.ca/

A distant second is the Coburg Coffee House: if a hummus and cucumber bagel and a free trade coffee is your taste, this is your best choice for lunch near campus (6085 Coburg Rd, 429-2326).
Every where else on my list is downtown (about a 20 mins walk from Dalhousie Campus). All of these places also serve dinner and lunch.

Three choices in the medium-end price range:
(1) I am a fan of Greek food and, in Halifax, OPA is the place. Reserve in advance; try the lamb and the taramasalata. (1565 Argyle St, 492-7999)
(2) The Wooden Monkey: this restaurant is a local gem. The food is top of the line; all organic; the wooden tables are from fallen trees in Point Pleasant Park <http://www.halifax.ca/parks/PPP.html>; they make a special effort to source locally. Also, it's a little hip. (1685 Argyle St, 444-3844) http://www.thewoodenmonkey.ca/
(3) Sweat Basel is a little more costly; a little fancy; well worth it. It offers some unique dishes in a variety of tastes. If you go here, plan to have dessert (locally made by the people that made my wedding cake). (1866 Upper Water St., 425-2133 ) http://www.scanwaycatering.com/SweetBasil/index.html

A TOPPER
Here are a few places that I have gone for dinner, and stayed all night. All of these places: (i) are located downtown; (ii) serve great beer; (iii) serve good food; and (iv) are my favourite places to go on a Friday or Saturday night. You may want to visit them all, or stay one place for a whole evening discussing price-level targeting.
The Henry House: An old style pub. Go downstairs for even more atmosphere (I love old stone); and yes: order the Ringwood (brewed on location). On a quiet night, I can play darts here: sadly, it is often too full to play. (1222 Barrington Street, 423-5660) http://www.thehenryhouse.ca/
The Old Triangle: my favourite bar in Halifax . Why? The Belfast Burger; it's an Irish pub (they pour a mean Guinness); and it's the best place to hear Nova Scotian music. This place is busy; sometimes standing room only. (5136 Prince St., 492-4900)
The Economy Shoe Shop: the atmosphere is artsy; cool; relaxed. When Sean Penn comes to down, this is where he goes (if you like nachos late on a Saturday night: this is the place). (1661-1663 Argyle St, 423-7463) http://www.economyshoeshop.ca/

I would recommend also consulting the list provided here http://economics.ca/2007/en/eating.php). It provides a nice selection of places.

Sunday, May 20, 2007

In the air (part 2 of 2): Forecasting flight fees? Cool facts and current problems

farecast.com is new. The idea: by understanding the pricing formula airlines use (you may of heard of 'yield management techniques'), farecast.com can tell you if fares will fall, rise, or not change, in price. And, accordingly to reports, they are really good at it! A 75% success rate is something to be proud of.

How does it work? Airlines' change prices based on how fast the flight is filling-up. For example, if the flight is only 50% full a week before departure, one can expect the price to fall because airlines' will try to persuade travelers to fly with them with lower fees. On the other hand, if a flight is 50% full a month before departure, the price might rise because there is strong demand to travel on that day.

An Example - Toronto to New York (JFK Airport)
Just say that that want to go to NY this summer, and you are flexible with departure times and the duration of the trip. Can farecast help us? Let's see. Once you arrive at the farecast website, scroll down to the part that says "Flexible Travel Graph Search: See low airline tickets over the next 30 days". Select your departure city - ok, well it says "Ontario, CA" which means Toronto in farecast talk - and your U.S. destination.

COOL FEATURE 1: The first screen shows the price of a flight over the next thirty days between TO and NY: it shows the lowest fare on each day; they depart at all different times and for different durations. The lowest price over the next 30 days: 9 June, returning 12 June. When I select that flight, it tells you the airline (US Airlines in this case) and the departure dates.

COOL FEATURE 2: For the above-mentioned flight, facecast.com tells me to wait: the price is expected to drop by $31 in the next 7 days, and with a confidence level of 58%.

COOl FEATURE 3: If you want to go to NY in June, and you are willing to wait for a cheaper price, you may consider taking the "Fare Gard" - for $9.95 they will guarantee a price for 7 days.

PROBLEMS: (i) Most importantly, I was unable to find the prices cited farecast.com on the airlines website. (ii) Because farecast.com only gives you the lowest price for one flight at a time, and not the combined departure and return fare, it is not a perfect system - you still need to do a lot of searching. In fact, expedia.ca does a better job at pricing the return trip between TO and NY for the same dates (June 9-12, $460).

Suggestion:
Use both expedia and farecast! Both offer useful services: farecast for the trend in prices and expedia for the total trip pricing. If I was the CEO of expedia.com, I would get the forecasting technology used by facecast.com to enhance my services.

Special Note: For some reason Zoom Airline flights do not appear on either expedia.com or farecast.com.

Wednesday, May 16, 2007

In the air (part 1 of 2): Paris anyone?


WARNING: A sudden longing for French wine, crêpe, 300 different types of cheese may overtake you!

If you left Halifax on September 5th, and returned September 26th, you could go to Paris for just over $600 (in comparison, a trip to Toronto costs just under $500 in September). This is new (and very dangerous to our budget): Zoom Airlines just added a direct flight to Paris. Prices start as low as $199 each way plus surcharges and taxes. This is the first time since I arrived in Halifax that the price of domestic and international fights have been so close.

Two trends have led to this convergence: (i) in the domestic market, Canjet's and Jetsgo's closure have lead to higher prices: fewer suppliers have increased the market power of Air Canada and Westjet; (ii) Zoom, a welcome addition, has been adding flights from Canada to Europe (Tasya and I flew with them in 2005 via Montreal, and it was great!): they want more global market share and lower prices will give them my business.

Most Canadians love Europe (or at least some mystical idea of Europe); cheap and high quality wines, cheeses, museums and architecture. A place that many of us have only encountered through our grade 10 history text or maybe Google Earth. Now: it is cheaper than ever to be snubbed by a French waiter ("I sat there in this little cafe, I tried to speak but nothing came out, then he said: 'What do you want?' - it was cold") The combination of the high Canadian dollar and cheaper flights to Europe mean it's possible to go to Paris for short holiday. Back home, Canadian tourism destinations will have to work harder to keep domestic travelers coming to their coastal B&Bs or to see a Jays' game. Europe is calling.

Appendix:
Iceland Air resumed service to Halifax as of May 17th.
Zoom Airlines also offers flights to Belfast, London and Glasgow out of Halifax for the same rock bottom prices.

Monday, May 7, 2007

Northend of Halifax: Uniacke Squre and the New Halifax

The north-end of Halifax: How is new development changing the city and what does it mean? Like many major Canadian cities, the landscape of Halifax is changing - rising land values and the trend towards condo-living is changing the Halifax landscape. A lack of opportunity in international real estates markets have landed international investors to Halifax. The best example of this is the newly painted Brunswick Towers - now call Ocean Towers .

Over the last couple of months The Coast has written two articles about Halifax's northend. I found both of these articles interesting and educational. First, before talking about the new Halifax, I wanted to share with you this article about the old - or at least the not to so new.

The first is an article by King's College's own Stephen Kimber: "Inside the square" . This article give a short history of the Uniacke Square housing project and aims to present the views of residences. I must admit, I think about the issues surrounding housing development more often then most economists; perhaps because I walk by Uniacke Square each day on my way to work and again on the way home. For anyone that is, or wants to be, a policymaker - or who is a past, present or even future Haligonian - this article provides a difference perspective. A community lives in Uniacke Square.

Take two: New Construction and Middle Class Push ... Lis van Berkel points to 'gentrification' in "Where goes the neighbourhood?" . As referred to in the above article, the new building in the north-end of Halifax is generating a push: tear it down and build a new one: each construction replaces an older one and, over time, will remove affordable housing from the city's core - unless policy steps-in! Although so-called 'gentrification' does price people out a given market, it is not all bad: rising housing prices generate wealth for home owners; new construction changes the stock of housing to meet the needs of todays consumers; construction creates jobs; higher prices generate higher property tax for the city to provide services. I think the answer is in mixed development - the problem is that when we build low-income housing some people win (those who live downtown at a below market price) and some people will loose (via lower land values or otherwise). Mixed development needed; politicians with a backbone wanted.

Give me your thought.

Thursday, April 12, 2007

the electirc car is coming, again


I was happy to read this article on the CBC.ca website.
GM's latest venture: to make another electric car: the VOLT.
As many of my readers know, GM tried to do this before and failed. In the 1990s, GM produced the EV1. The failure of this car sparked the movie: "Who killed the electric car? ". From my limited understanding, this movie claims that oil companies and the car makers conspired to scrap the car. However as the CBC reports: "The theory is discounted by experts who point to the EV1's well-known problems, including limited range, especially if the heat or air conditioning was turned on and its impracticality in power-sapping cold-weather regions." I have not seen this movie (and I welcome comments from those who has), but it never made sense to me to think that a company would scrap an entire fleet of cars unless the car was really, really poor quality. Furthermore, if people wanted to buy the car it seems that a company in need of cash flow would be willing to sell it - unless it was more trouble than it was worth. Even funnier, the idea that they scraped the EV1 and only to go back to the drawing board and produce a much better electric car does not support the whole theory ... Nevertheless, this debate aside, the Volt is on its way! And GM has said they are working on it everyday. The CBC reported that 300,000 people clicked onto a GM website to say they wanted the car to be built. Which I think is great. In addition to the CBC article, I found this website that gives more of the juicy details and shows a video (and who I credit the above photo).

Sunday, April 8, 2007

Lecture's Finished, exam writing begins

Now, 13 weeks later, I feel a huge sense of relief. All 24 lectures and 2 midterns have been delivered. During the last class I gave a (what I thought was) great review of the material - even though no one asked questions and one student fell a sleep ('Sleepy' only awoke after half the class had left and someone was kind enough to push him over in his chair (laughing aloud). He apologized. I also had to laugh; I have done it myself.)

Today, I will put together the final exam. I have a good idea of what content I need to cover, but little idea on how to test it. Like the two midterms, I will wing-it ( ... well, with another professor's exam in hand). Writing, giving, collecting and then marking the final exam is on my taskbar (yes, taskbar).

I am admittedly looking forward to receiving my student evaluations. I expect a few nice ones, but I am sure most of them will be over critical, cold, and harsh reviews - some would say these are the best kind.

The fun is over. I think it has been a successful adventure. I am sure in the weeks following the final exam, I will be longing to once again stand in front of a class where I can be the most me I can be - a crazy, but creditable, economist - making bad jokes and getting a kick out of modelling.

Wednesday, March 28, 2007

Clearing out inventory in the United States: a problem


A friend of mine sent me this news story last week. And I was so shocked; I had to share it with you.

The story reads: "If you own a mom & pop store and can't get rid of some of your inventory, you can always clear out some shelf space by holding a sale. If the Supreme Court sides with business interests in a case they heard today, however, such sales may no longer be possible. Since 1911 it has been illegal for manufacturers to force retailers into setting a price floor for products — individual retailers get to decide how much they sell products for."

The article continues to say "But today the Supreme Court heard oral arguments in a case seeking to overturn this longstanding rule. Should the Court do so, it would drive up consumer prices across the board. This case is particularly salient in the era of Internet shopping: consumers are now easily able to shop around to multiple retailers to find the best price. The Court could wipe out this advantage."

Discussion
What is a 'price floor'? Let me explain. A price floor allows manufacturers to set a price below which a retailer cannot sell their products - like a gun manufacturer telling Wal-Mart to sell their pistol no lower than $29.99 ("stop rollin' back prices on my pistol"). The above graph shows the the implication of this price floor. I don't think this will even get pasted ... but what if it did? Implications? Yes, there are two questions we need to answer: (a) What will be the impact on demand and supply? (b) Which markets could be affected?

(a) On the above graph, the floor price floor is represented by the green line. The quantity demanded at the price floor is given by the interception of the blue line - which is the demand cure - and the green line (the price floor). The quantity supplied at this price is given the interception of the red and green lines. What this tells us is that manufacturers will supply the market more than what the market will demand at the new 'price floor' price; that is, the producer will make more because they can get a better price for it.

(b) What does this mean for the market? Well, it will give manufacturers more power of the final sale price of their market and it could prevent 'clearance sales'. Retailers, therefore, will have less power to move inventory. If retailers misjudge the demand at the new 'price floor' price they will have to carry more inventory. Is this a big concern? No.

Most markets are very competitive. Production in China of everything from TVs to furniture suggests that the manufactures the try to put price floor in place will loose - thus there is little incentive to do so. Unless firms collaborate, prices will not rise. Who might do this? Maybe the makers of seven jeans might be concerned that their customers believe 'price means quality' and they would like to keep prices near $200 a pair (no more buy these at Winners for you). For them, never allowing retailers to sell their jeans for less might be part of their strategy (as a Dollar Store lover, clearly, I am not very concerned).

Here is a link to another version of the story: here

Happiness (and how to measure it)

This title is stolen from the 23/12/06 issue of The Economist. The subtitle reads: "Capitalism can make a society rich and keep it free. Don't ask it to make you happy as well". Are you angry yet? Does a new TV make you happy?

In the 1930s John Maynard Keynes predicted that Capitalism would create richer societies, in which people would work less and have more time to enjoy the pleasures that capitalism brings. From the heart of the Great Depression, this was a dream. Now, almost 70 years from 30% unemployment and falling prices, we enjoy 6% unemployment and low inflation. Incomes are higher, we all live longer. Computing power has fueled development. Everyone can buy a microwave at Wal-Mart for $29.99 and having a dishwasher too – unimaginable to my great grandfather working for a $1 a day in PEI in the 1930s. The problem is: warming up leftovers does not put a smile on my face. However, I think Keynes' conclusion was a reasonable one to make: when people can’t find jobs and are struggling feed their kids, economic growth will clearly make people better-off.

When you are not worrying about where you next meal is going to come from, or if you are going to loose your job tomorrow, you can focus on the future. In this light, we can see how spending money on the environment and our education systems is a luxury of the wealthy. And, by using our wealth to re-green the earth and provide the opportunity to get educated, we will also create a foundation for the future weather and leisure. We, as rich society, are now positioned to focus on the future and begin to enjoy the fruits of capitalism: leisure, health, and education. Will these things make us happy? Maybe they will not make us ‘happy’ but they do make us better-off.

In summary, Canadians are among the wealthiest in the world – generations of economic growth have provided us will millions of ways to spend money. However, asking economic growth to make us happy will only make us disappointed. Don’t get me wrong, without growing the economy unemployment would rise and hardship will ensue, but this is not the answer to everything.

Appendix: what else does Capitalism provide?
I was once told that the promise of Capitalism is that each generation will be better off than the previous one. People gave me examples like the infant mortality rate falling, a longer life span and a better quality of life. Improvements in these areas have occurred over the last 100 years (these are such commonly known facts I feel no pressure to cite references). A quick demographic analysis tells me that, on average, we are gaining about 2.5 years per decade in life span and Canada's infant mortality rate is now less than 8 per 1000. Both great accomplishments (interconnected of course).

Wednesday, March 21, 2007

Bloomberg and me

Mainstream economics news!
I find myself always going to Bloomberg for the latest world news. They provide market analysis and consensus forecasts on just about everything within the global economy and ... oil prices! I (way to many times a day) load this page and review the latest oil price movements. You have to understand: price movements are exciting. So, a price that no one can predict and everyone is affected is super exciting!!

The latest: the U.S. Federal Reserve announced they are holding their policy rate still ... and it seems like Bloomberg and several other analysts have focused in on what they 'didn't say'. Here is the headline: Fed Keeps Rate at 5.25%, Drops Reference to `Firming'".
Here is a link to the article.
Oil prices are currently at $60.07US ($/bbl WTI)

Just thought that I would share this golden nugget with you ... see for yourself.

Monday, March 19, 2007

Federal Budget 2007: Environment Spending?

YES: I have lots to say about the federal budget. Thanks for asking. Let me start with the environment. As I blogged (yes blog is a verb) on January 29th, I was looking for a meaty plan on the environment from our federal government. I don't know how you define 'meaty' but ... let's consider a few facts.

From what I can gather, the big environment announcements were: vehicle incentives and other things I don't understand (see below).

Taxing the heavy and helping the hybrid:
The government announced that they will give discounts on hybrid cars and they will tax energy intensive vehicles (more commonly gas guzzlers). Taxing? I like the idea of taxing gas guzzling SUVs - incorporating the social cost of pollution into the price. But discounts on hybrids? A quick sampling of the most popular hybrids in Canada shows something interesting: O'boy these cars are costly!
All prices are MSRP before taxes and blah, blah, blah ...

Car Name - Price - Government Program
Civic Hybrid - $26,250 - Tory kick-back: $2000
Toyota Prius - $21,175 - Government gives: $2000
Ford Escape Hybrid - $33,799 - $2000 in your pocket
Saturn VUE Green - $28,795 - tax dollars allowed: $1000 to you

In my personal view: I think this discounting of hybrids only kicks back money to people that already have it - new cars are costly and these are really costly for the average Canadian. Secondly, this hardly counts as a plan to save the planet. Marginally, I think this is great to promote hybrids and tax big SUVs, but I don't think this an answer to our problems. It is interesting to note that "The rebate plan will cost the government about $160 million over the next two years, while Ottawa expects to collect $215 million from the levy over those years." (CBC website) Crazy, this program actually generates cash for the government.

Assisted Development:
This budget also plans to phase out the accelerated capital cost allowance for general investment in the oil sands by 2015. According to the CBC, this money will be funneled into other programs ... but the government's website says little on the matter. So I am not sure what to make of this. Although, I have read that (according to Environment Canada), total greenhouse gas emissions in Alberta have jumped from 168.17 megatons in 1990 to 234.51 megatons in 2004 (that is ... hummm carry the 7) 39.4% between 1990 and 2004. This plan does not talk about that stuff.

Finally, we return to the government ecoTrust plan that will cost an estimate $1.5 billion. Which from what I understand is a plan to have a plan. The government press release from last month says: "This [$1.5 billion] funding will be contained in the upcoming budget ... This new funding will be available as soon as Parliament approves that budget." And so, I guess we have to wait.

In the end: I still wonder what has happened, how did we get into this? What about Kyoto? I thought we were doing somethings when the Liberal Government was in power, but we then voted them out and cut the $5.6 billion they wanted to spend (on what I am not sure). So, we have to wait for when the Environment Minister John Baird's climate-change policy paper comes out later this month for more answers. Or let's wait to hear what Rick Mercer has to say ...

Love me or hate me tell me what you think ...


Appendix:
yes, there was other stuff on this issue, here are a few more things ...
As for the other environment plans
Other fuels: "The government has announced $2 billion for renewable fuel production. Again, marginally, a good idea and sounds like a lot of money but "this includes $1.5 billion over seven years ..." - translation: no big spending here - we have to wait.
Clean Water: about $110 million to clean-up Canada's water (I would like a clean Halifax Harbour) and $324 million for six new Coast Guard vessels ... with costs starting in five to seven years.

Friday, March 16, 2007

St. Patrick's Day and You

Every year I do my personal best to celebrate St. Patrick and my Irish roots (mother nee Pierce). Most people, both Irish and Irish-for-a-day, actual know very little about the holiday. My favorite source on the matter is the History Channel! Here is my favorite piece of history: "On St. Patrick's Day, which falls during the Christian season of Lent, Irish families would traditionally attend church in the morning and celebrate in the afternoon." And the best part: "Lenten prohibitions against the consumption of meat were waived and people would dance, drink, and feast—on the traditional meal of Irish bacon and cabbage." Can you believe it: BACON and CABBAGE!! How great.

Have a Irish whiskey or an Irish cream in your coffee!
Here is to Ireland and the Irish economy! The wonders of the Irish economy is no hidden secret - they know how to celebrate.

Monday, March 12, 2007

The Intercolonial Railway: the long trip to Montreal

If you have ever taken the train between Halifax and Montreal, you probably asked: Why so very very long? It takes well over 20 hours! (I can drive it in 12)

The answer is one of my favorite Canadian economic history facts.
The Answer: because we were scared of an American invasion.

In the year of confederation (1867), Sir Standford Flemming was called to designed a rail to connect Halifax with the St. Lawrence at or near Quebec. Looking at a map, you can see that an 'all Canadian route' is a much longer then cutting through the northern U.S. - How much longer? Answer: 400 km (or if you prefer 250 miles). Now, almost 140 years later, we are using the same rail line that cost more to build, run, and use (who ever said political decisions don't matter?).

Why take the long way? Because if we were even attacked by the Americans, we would have an all Canadian route would secure supply lines from Halifax to Central Canada. Back then, there was no such thing as the St. Laurence ice breakers (which is not a hockey team).

Appendix:
Following the construction of the all Canadian route we needed something .... humm, in a very Canadian way, we need an assistance plan!

"... the Intercolonial Railway was designed, among other things, to give Canada in times of national and Imperial need an outlet and inlet on the Atlantic Ocean, and to afford to Maritime merchants, traders, and manufacturers the larger market of the whole Canadian people instead of the restricted market of the Maritimes themselves, also that strategic considerations determined a longer route than was actually necessary, and therefore that to the extent that commercial considerations were subordinated to national, imperial and strategic conditions, the cost of the railway should be borne by the Dominion, and not by the traffic which might pass over the line." Great economic reasoning - everyone is now safer, so everyone helps pay those disadvantaged by the longer route - I love it.

As soon as I said assistance, you know what happened next: this program was reviewed by the Auditor General and terminated in 1995.

Looking Forward
Now that we include the cost to the environment in the cost of transportation, is it time to reinvent of the railway in Canada? Speed trains sound cool.

Related Link
History Buffs may enjoy this book by Jay Underwood:
Built for War: Canada's Intercolonial Railway

Saturday, March 10, 2007

Principles of economics, translated

It seems like everyone I speak to has already seen this and they just had to tell me about it. Well, if I can't laugh at myself, I might be the only one not laughing.

Thursday, March 8, 2007

The Northend Diner is gone


After moving to the northend of Halifax a few years ago, I began to love the Northend Diner. Great food, wonderful service and a great price. It was just down the road, and they just started serving all day breakfast. Sadly, it has burned to the ground. I never knew I was so attached, until it was gone. Blah. Above is a picture I took tonight. From what I understand you can watch a YouTube video of the fire. I will not.

Wednesday, March 7, 2007

Infected by Facebook ...

After refusing several requests, I have now joined the Facebook cult. Rumour has it that these networking sites (and there is many of them) first started in the porn industry to coordinate actors, directors, producers, and otherwise interested insiders. In this light, the terms 'friends' and 'groups' have a whole new meaning (true or not, funny).

For me, each additional request increased the benefit of joining and before too long I was sucked in. Indeed, internet networking is a low cost way to stay in touch. However, now there is another place on the internet where future employers can gather all the dirty secrets on me from both my friends and my family. Gee, I hope those Wardroom Staff party photos never get out.

Sunday, March 4, 2007

15 Lectures: learning-by-doing

take a deep breath. pace yourself. 9 talks to go ....

Now, over halfway through the course, I sense momentum building. As I grip my chalk, I feel more confident. stronger, more articulate. concepts flow; one into the other. my graphs are straighter. what once was difficult and fun, is now much more fun than difficult. I am excited to ring in the aggregate demand- aggregate supply framework this week - we bring together the first nine chapters into conceptual harmony. The widgets (goods market), bonds (financial market) and the sex trade (labour market) together at last.

End teaching update.

Economic factoid
In my title, the term Learning-by-doing is a concept in economics that refers to the capability of workers to improve their productivity by regularly repeating the same type of action. The increased productivity is achieved through practice, self-perfection and minor innovations. The first theoretical model of this kind was constructed by American economist Kenneth Arrow (1921- ), but many empirical studies had been carried out in the early part of the 20th century. Note: Arrow is actually better know for his so called "Arrow's Impossibility Theorem" (- his contribution to learning-by-doing is buried in the above reference).

Thursday, March 1, 2007

"Roll Up The Rim" but will you win?

Do you have an over whelming desire to buy a "double double"? Even the institutionalized know that it is once again time for Canada's most popular contest! We are like bulls running into Tim's big red cup! But what is the odds of winning?

Total number of cups: just over 27 million
Odds of winner:
A car: 1 in 9 million cups
A TV: 1 in 2.7 million kicks
Some Cash: 1 in 0.54 million rolls
An IPOD: 1 in 27,000 jolts
A coffee or donut: 1 in 9 purchases!

Now, Economists tend to value these types of odds in the following way: Value = (the odds of winning) times (Price of the item you can win)

For Example: The IPOD value
Chance of winning: 1 in 27K = less than one per cent (~0.04 %)
Value: (according to Tim's website) $261
Economic theory tells us to price the prize at: about 1 cent off the price of the coffee. Think of it as an discount.

How about for the coffee? Well, you have a 8.3% chance at winner a free coffee, and a 2.7% chance at winner donut (the 1/9 odds is split 75% coffee and 25% donut/muffin/cookie), and a coffee is worth $1.47 in Halifax. The answer: 12.2 cents!

Overall, your desire to play Canada's favorite game is because the price of the coffee, considering the prizes and the odds, is about 16 cents lower. Yes, Tim's is having a sale on 27 million cups of coffee, tea, or other.

Needless to say, I have been buzzing all day.

Wednesday, February 28, 2007

Answers I wish I saw ...


After reviewing my class's mediocre test results, I fell into a deep depression (no blogging since last Thursday). I broke out of my funk when I realized the test was more than fair: most of the questions were word-for-word from the chapter questions I assigned. I provide the answers online and they are taken up in tutorial each week ... o'wait, no one goes to tutorial, right. So, my first midterm fit the desired curve, albeit a little skewed to the bottom.

Here are some creative answers I wish I saw while marking these exams (I so would have awarded marks for funny!).







Thursday, February 22, 2007

Life Lesson 1: buying food

At about 9pm last night, Emily (my sister) and I went learn about unit prices. Trying to teach this concept is easier in Nova Scotia since the price tags include the cost per gram/bl/oz/etc. For this second year fine art student - with a "grab-the-nicest-picture-I-see" method of buying - , I was excited to pass-on my mad shopping tricks.

Apples: buy them individually or in a bag? The cost per apple when bought individually is $1.99bl. Cost per 4 bl bag is $3.99. Assuming these apples are both the same in taste: Unit Price Man say: buying in a bag is half the cost of buying them one by one.

A complication: what if you cannot eat a whole bag, which means some might go bad? Or in other words, how much of the bag would you need to throw away before it was better to only buy a few? Answer: half the bag would have to go rotten to buy them individually. Suggestion: learn to make apple pies!

Another example: fresh chicken - bone in or out, skin on or off, thighs or breast, which brand? Each of these preferences will determine the price. How do I know what is best? Let's take one example: bone in or bone out? Looking at a single brand of chicken (say Maple Leaf), look at the unit price of the boneless/skinless chicken which costs $17.89kg. Then find the price of the skinless bone-in chicken: $11.89kg. Assuming the bone weights nothing (just say), the price you pay for someone else to remove the bone is $6 per kg. So, the question you need to ask yourself is: is the $6kg worth it or should I remove the bone myself? For the starving student: get out the knife and save that cash (Note: even though the bone does weight something it is much less then 1/3 of the weight).

Shopping will never be the same. Feel free share your shopping tips.

Saturday, February 17, 2007

"Trust Me, I'm an Economist"

Economists is rising in popularity! Enrollment numbers in economics have recovered from their early 1990s fall (news story here) and books like "Freakonomics" and (the lesser known) "The Undercover Econmist" are feeding those hungry for economic knowledge that is useful to them.

Freakonomics: it punched hard, hit a soft spot, and make no apoligies: "If morality represents how we would like the world to work, then economics represents how it actually does work". It screamed at real estate agents, explained why drug dealers live with their mom, claimed that public programs had nothing to do with lower crime rates, and even asked you to notice the ritzy headphones on the kid asking for your change. If this is too hardcore for your liking, I have an alternative.

Tim Harford has put three clips from "Trust Me, I'm an Economist" (airing on the BBC in August) on YouTube. Each of these less then 3 minute clips are worth seeing! Here is the link to all three clips: (my labels: Ask an Economist, The Used Car Market, Stock Tips and other Lies".

Another great line from Tim Harford: "If you pay 10 euros a day to protect yourself from a 900 euro excess, then that's fair if you crash into something every 90 days. Of course, if your driving is that bad or the roads are that dangerous, you should probably walk instead."

Questions, please. Trust me. I have no incentives to lie. I am not selling you anything (I don't have ads on my blog).

Wednesday, February 14, 2007

RRSPs: borrowing to invest

Motivated by madjenny's and false phophet's questions/comments, I have decided to do second (shorter) posting on RRSPs.
Two fun questions: bi-weekly payments or borrowing with bi-weekly payments? where should I put my money?

Answer 1: an example ...

Choice One: If you make bi-weekly payments (26 a year) of $38.46 you will have saved $1000 over the year, and (assuming a 7% return) you have made almost $35 in interest. From your 2007 tax return, so you will earn (assuming you live in Ontario, with a $40K income) $310 dollars from CCRA.

Choice Two: If you borrow $1000 today and make your RRSP contribution before March 1st, your contribution is tax deductible. So you will earn $310 dollars on this year's tax refund, and you will gain interest (again assuming 7% return) is $70 over the next 12 months. The only cost to borrowing is the interest charges (at 6% is roughly $33). You can make the same bi-weekly payments as in Choice One plus an extra $1.30 to cover the interest cost. And if you put your $310 tax refund into your RRSP, you can get the tax refund for it in 2007 tax year (another $91 in your pocket or RRSP) and the interest you get on the extra $310 in your RRSP over the next year (about $20 in earnings).

So the difference between bi-weekly contributions and borrowing to invest is not insignificant. Of course, this holds interest rates and returns constant to make life simple, but you get the point.
Here is a Marginal Tax Rate Calculator

As for the second question:
Nothing is more valuable than great broker who spends their whole day doing research on companies that you should invest in. Because a mutual fund is "a basket of assets", the risk is lower than holding an individual stocks, and fund managers probably are the right people to be choosing what stocks to by in a given industry. I think they're great, but a broker is need to help pick the good ones.

I hope that was helpful and interesting!

Monday, February 12, 2007

POLLING ALL READERS!

Test day is Thursday. The first of two midterms. For the first time, I might get to see all 25 students in my class (well, maybe).

HERE IS THE NEWS: so far, now only days before the midterm, NOT ONE student has gone to tutorial. I am totally shocked. No one.

So, let's do an online poll. WHY has not one single student gone to tutorial? (a) I am so good at teaching this subject that my students can answer all the questions in the textbook just from hearing my talk? (b) They are smart enough to learn the material on their own? (c) They are calling me out? Asking to be failed? (d) They are just planning on sending me 5000 emails the night before the test?

Please answer now! Just do it. Humour me.

Sunday, February 11, 2007

Short-term pain for a long-term gain!

How do I save for the future? Here is my two cents on RRSPs.

For many Canadian (especially young Canadians), Registered Retirement Saving Plans (or RRSPs) something of a mystery; however, for the average lumberjack without a pension plan (and even for many with a company plan), RRSPs could help them find have that two scoops of raisins in retirement.

First some basic idea: RRSPs are financial investments (mainly stocks, bond, mutual funds) that you register with the government (most times through a banks, credit union or a broker). In exchange for promising to not withdrawal these investments until retirement, the government will kick you back the tax you paid on the income you invest (one notable exception is that first time home buyers can withdraw money from their RRSPs to purchase a home, as long as you pay it back later (see more here) ).

Here is the real kicker: what if you have no money to invest? Borrowing to invest in an RRSP is not a bad idea for some people. Why? Let's walk through an example: using the calculator . The assumptions given in the calculator are: you are at the 40% marginal tax rate (the percentage of tax on your last dollar earned in 2006), an investment return of expected to 8% (maybe high, but let's go with it), and you want to invest $1000 before MARCH 1st deadline. In addition, (here is really helpful part) it assumes you need to borrow to invest, and that you have to pay 6% interest on the money you borrow, and that you want to repay the money in 2 years or less. Lastly, you have to say when you want to retire: Our example assumes 10 year for now.
THEN: Click on "VIEW REPORT". Given our assumptions, you can pay back the money in 15 months if you use your tax return to pay down the loan, and make payments of $44.31 per month. The interest paid on your loan is $31.34, but after 10 years your RRSP has grown to: $2159. Neat! Now, what if I want to use different assumptions like, assume, I am 30 years from retirement?

Ok, new example, make the following changes: 35% marginal tax rate, 7% cost of borrowing, and 30 years to retirement. Leave everything else the same. How does that change things? We get less of a tax refund (because our tax rate is lower) and we pay about $10 more in interest charges (with higher interest costs), but now that we have 30 years to invest. So, in this example, we turn our $1000 into just over $10,000, assuming an 8% annual return.

Boy, that is fun eh? Give it a try and show your friends! The message: starting young is important, even for lumberjacks like us.

Final note: RRSPs are not for everyone. To know if they are right for you, I know that your financial institution will be happy to give you some professional advice (although I will take questions and do my best to answer them). With that being said, here is some helpful links: Government of Canada RRSP website , how about a self directed RRSP , some definitions to help you.

Thursday, February 8, 2007

six dirty secrets or one naked economist

MadJennyFlint has throwin' down the gauntlet: asking the world of bloggers (or at least her readers) to list the top six weird or otherwise unknown things about themselves. MadJennyFlint, why have you done this to the world? Don't you think that things that happen in private, in the past or in a bar bathroom should stay there? Ok, well I will use my poor sense of discretion ...

In no particular order:
If I was left to my own devices, I might: only wear black t-shirts and jeans, eat mostly meat, never shave. Lucky for for me, peer pressure and being too lazy to cook all my own meals have kept me looking respectable (or at least most of the time). O'ya, the fear of a full fledged Tasya revolt will also keep all three things under raps. I am counting these as "things people did not know" 1 through 3.

4.) Age: 10 - paperboy (with my mom and my brother, if that counts). Age: 11 - dishwasher at a nearby restaurant. My parents could not stop me; I was driven; driven to buy hockey cards and candy.

5.) Hair, really long hair (Age: 15-19).

6.) 8 yrs old. The Beastie Boys: Paul Revere, all three parts. Blue TML jogging suit. On stage in front of 400 elementary school kids. Enough said.
(ok, everyone knows I did that ... right?)

End transmission.

Tuesday, February 6, 2007

Who wants to live to 100?

Maybe the title of this post should be 'I want to live a long life'. Don't worry, I wont spin you an economic tale about the benefits to passing the century mark, but how long we are going to live will affect the choices we make today; consume today or save for tomorrow. But all financial planning aside (even though it is RRSP season ), eating your greens (ho ho Green Giant) could make you more productive and maybe even happier.

After searching the web, here is the best life expectancy calculator I could find. It is not perfect, but it will give you feedback on how to improve your chances. Here is an example: "Increasing your exercise regimen to 4 days a week could add a year and a half, to 5 days a week could add 3 years, to 6 or 7 days a week could add 5 years to your life expectancy".

So, take it for what it is worth - an American doctor's website. Enough said.

Feel free to share your results, impressions or objections.
I got 84 years and Tasya 86 - Gee I hope we can do better than that ... has anyone seen my track pants? Those are back in style, right?

Saturday, February 3, 2007

Music and Me: Currently spinning

Looking at another person's music collection is like going through their closet: the good, bad and the 80s. Here are a few items in my rotation.

Current buzz: on the top left of this page are three music links. Each one is unique and special. City and Colour provides clarity. There is just something about Dallas Green dat I like. You might know their hit "Save your Scissors".

Link #2: Joel Plaskett : locally grown and certified organic. Last summer Joel and the band put on an outdoor show in downtown Halifax. It was me, the big clock tower, and a few thousand people - a great time.

My newest favorite: The Reverb Syndicate's homepage provides everything: solid music, mystery and a great video . Personally, I can't stop watching it. No, really. I have made Tasya watch it 23 time this morning. If that was not enough, one of the band members is an economist. Great eh?

So tell me: what is in your closet? Give me the goods, all the dark secrets. Well the 80s was not that bad, we will always have Paul Revere , right guys?

Friday, February 2, 2007

Dylan v.s. Clapton: A classic example of opportunity cost

At the heart of economics is a behavioural science. From the choices of the individual to the aggregate (everyone and their dog), economists focus on relationship between economic variables in complex abstractions called models. If you want to know something about economics, here is a classic lesson on opportunity cost - an important concept in microeconomics.

"Opportunity cost" represents the next-best value you gave up by making a choice.

The test question you always wanted:
You won a free ticket to see an Eric Clapton concert (which has no resale value and zero value to you). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan (because he is so cool!). Assume there are no other costs of seeing either performer.

Summary: the cost and benefit of seeing Clapton is zero, while the cost of seeing Dylan is $40 but - because he rocks you world - he is worth $50 to see preform.

Based on this information, what is the opportunity cost of seeing Eric Clapton?

A. $0
B. $10
C. $40
D. $50

Think about it; harder; harder still ...

Here is the answer:
When you go to the Clapton concert, you forgo the $50 in benefits (represented by your willingness to pay) you would have received from going to the Dylan concert. You also forgo the $40 (the costs) you would have pay to go the Dylan concert. In other words, an avoided benefit is a cost, and an avoided cost is a benefit. Thus, the opportunity cost of seeing Clapton, the value you forgo by not going to the Dylan concert, is $10 – i.e., the net benefit forgone.


Fun eh? Now tell me, what is the benefit of having an extra pint on Friday night compared to the Northend Diner breakfast on Saturday morning? To drink or eat, that is the question. Ok, well we know that most people don't need to calculate the opportunity cost of beer v.s. bacon, and that is the point: Opportunity costs concept helps us describes a behaviours we do each day, just people being people. Doing people things; like choosing between beer and, ahhhh bacon.

Opportunity cost: yours to use, talk about, and even to impress people at on the street.