All posts by Jim Garven

My name is Jim Garven. I currently hold appointments at Baylor University as the Frank S. Groner Memorial Chair of Finance and Professor of Finance & Insurance. I also currently serve as an associate editor for Geneva Risk and Insurance Review. At Baylor, I teach courses in managerial economics, risk management, and financial engineering, and my research interests are in corporate risk management, insurance economics, and option pricing theory and applications. Please email your comments about this weblog to James_Garven@baylor.edu.
Assorted Links

Assorted Links (4/19/2010)

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Here’s a list of articles that I have been reading lately:

Clunkers for Caulkers – WSJ.com

online.wsj.com

The Wall Street Journal writes that cash for caulkers is another opportunity to game Uncle Sam’s energy subsidies.

 

The Toxic VAT – WSJ.com

online.wsj.com

The Wall Street Journal writes that the Senate votes against the VAT, 85-13.

 

This Is Apple’s Next iPhone – Iphone 4 – Gizmodo

gizmodo.com

You are looking at Apple’s next iPhone. It was found lost in a bar in Redwood City, camouflaged to look like an iPhone 3GS. We got it. We disassembled it. It’s the real thing, and here are all the details.

 

More from Eyjafjallajokull – The Big Picture – Boston.com

www.boston.com

As ash from Iceland’s Eyjafjallajokull volcano continued to keep European airspace shut down over the weekend, affecting millions of travelers around the world, some government agencies and airlines clashed over the flight bans. …

 

Andrew Kohut: Americans Are More Skeptical of Washington Than Ever – WSJ.com

online.wsj.com

In The Wall Street Journal, the Pew Research Center president, Andrew Kohut, notes that significantly more people now favor a smaller government with fewer services since Barack Obama took office.


T.H. Breen: Americans Should Celebrate April 19 as Our Independence Day – WSJ.com

online.wsj.com

In The Wall Street Journal, Northwestern University historian T. H. Breen writes that for ordinary Americans, the battles of Lexington and Concord on April 19, 1775, meant that the rupture with Great Britain was irrevocable.

 

Supply and Demand (in that order): Cartoon About Work Incentives

caseymulligan.blogspot.com

The basic tools of supply and demand help immensely to understand and predict everyday events in our world. These days, many of those events are related to the financial crisis — or the Panic of 2008 as I call it. …

 

On Leadership Panelists: High-risk, low-probability: Why leaders must envision and prepare for futur

views.washingtonpost.com

The art of leadership includes preparing for the unexpected. In an unpredictable world, that’s more valuable than ever.

 

The following study documents, among other things, that the top 1 percent of income earners will pay an additional $50,000 per year in taxes because of this legislation, whereas the average net benefit to income earners in the bottom half of the distribution will be about $1000 per year.

The Tax Foundation – Health Care Reform: How Much Does It Redistribute Income?

www.taxfoundation.org

The health care bill passed by Congress and signed by President Obama is arguably the most significant piece of domestic policy legislation since the 1960s. The law will transform the financing of U.S. …

 

How Is the Stimulus Money Allocated? – Veronique de Rugy – The Corner on National Review Online

corner.nationalreview.com

NRO

 

Will the Icelandic Volcano Cool off the Planet? – Freakonomics Blog – NYTimes.com

freakonomics.blogs.nytimes.com

Probably not – it’s just not that big of an eruption.

 

Spending, Not Tax Cuts, Is the Real Driver of the Fiscal Mess — The American, A Magazine of Ideas

www.american.com

It’s hard to argue that our looming budget problems derive from ‘too little taxes’ when by any historical standard taxes will rise to record levels even before the fiscal gap is addressed.

 

Why do so many Americans pay no income taxes?|KeithHennessey.com

keithhennessey.com

Today many are discussing how many Americans do not owe income taxes. The traditional debate splits along partisan lines. Many Republicans and conservatives argue it is both unfair and politically dangerous …

 

EDITORIAL: Cheaper insurance for celebrities – Washington Times

www.washingtontimes.com

Joe Sixpack shouldn’t have to pay for Rosie O’Donnell’s home insurance. Yet as crazy as it sounds, the House Financial Services Committee next week is expected to consider lending a helping hand to the owners of some of the most exclusive properties in the country. …

 

‘The First White Farmer Had Been Murdered’ — The American, A Magazine of Ideas

www.american.com

An eyewitness account of the Zimbabwean civilization’s collapse.

News: Who Really Failed? – Inside Higher Ed

www.insidehighered.com

Louisiana State U. removes a tough grader from her course mid-semester, and raises the grades of her students. Faculty leaders see a betrayal of values and due process.

 

Defaults Rise in Federal Loan Modification Program – NYTimes.com

www.nytimes.com

Defaults nearly doubled in March, continuing a troubling trend that threatens to undermine the federal program.

 

Grace-Marie Turner: Obamacare will make every day feel like April 15th | Washington Examiner

www.washingtonexaminer.com

New taxes on investments, taxes on medical supplies, taxes on drugs and health insurance, and taxes on you if you are just breathing… the list of taxes Americans will face just got a lot longer thanks to ObamaCare.

Journeys to the International Space Station – The Big Picture – Boston.com

www.boston.com

April 12th marked the 49th anniversary of human spaceflight, when Yuri Gagarin became the first person to orbit the Earth in 1961. At this moment, 13 humans are currently in low-Earth orbit, aboard the International Space Station. …

 

Q&A: Does Gold Belong in My Portfolio? – Fama/French Forum

www.dimensional.com

Based on spot price data from January 1970 through February 2010, the average return on gold bullion was almost exactly the same as the S&P 500 at 88 basis points per month. Volatility was significantly …

 

Taxation: Tax the rich, and the rest | The Economist

www.economist.com

Today’s Parade Magazine (with a circulation of 32 million) includes its “Annual Salary Survey.” What this means is that the magazine presents about a hundred photos of various people with their names, occupations, and annual earnings. …

 

The Upside of an Impenetrable Tax Code – Economix Blog – NYTimes.com

economix.blogs.nytimes.com

It keeps people attuned to and angry about how much money their government is spending, an economist writes.

 

Pension crises: Debt bomb | The Economist

www.economist.com

CALL me a fiscal conservative, but mounting federal and state debt scares the heck out of me. At the Kauffman economics bloggers forum, many participants claimed that they expect a sovereign debt crisis in America in the next few decades. …

Assorted Links

Assorted Links (4/13/2010)

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Here’s a list of articles that I have been reading lately (organized by topic):

Economics

  • How Big Is the Gender Pay Gap? – The Numbers Guy – WSJ

Source: blogs.wsj.com

“The size of the gender pay gap depends on how you calculate it.”

Source: caseymulligan.blogspot.com

“Earlier I displayed some data on output and factor usage in the manufacturing and home construction industries. Those were clearly cases of lack of demand: people wanted to buy less of those items, so suppliers produced less of them and used less capital and labor in the process.”

Financial Crisis

Source: www.campaignforliberty.com

Interesting article about the corrosive effect that the de facto bailout of states through “stimulus” is having upon our country!    

Health Care Reform

Source: www.kaiserhealthnews.org

“Now that the year-long debate in Congress over health care legislation has come to a close, it’s reasonable to ask: What’s next?”

Foreign Policy

  • Bret Stephens: The Fog Over Katyn Forest – WSJ.com

Source: online.wsj.com

“Bret Stephens writes in The Wall Street Journal about denial of the Katyn massacre.”
 

Miscellaneous

Source: www.ted.com

“TED Talks Photographs do more than document history — they make it. At TED University, Jonathan Klein of Getty Images shows some of the most iconic, and talks about what happens when a generation sees an image so powerful it can’t look away — or back.”

Public Policy

Source: caseymulligan.blogspot.com

Casey Mulligan surveys the literature on the effect of extended unemployment benefits on the unemployment rate. The findings are universal – other things equal, extended unemployment benefits result in higher levels of unemployment. As Larry Summers, who is President Obama’s top economic advisor wrote in his chapter on “Unemployment” in the Concise Encyclopedia of Economics several years ago, “The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a ‘reservation wage’—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer.”    

  • Teachers Embrace the Power of Prayer – WSJ.com

Source: online.wsj.com

“Allysia Finley writes in The Wall Street Journal that a New Jersey teacher’s union prays for Chris Christie’s death.”
 

Taxes

Source: online.wsj.com

“In The Wall Street Journal, American Enterprise president Arthur Brooks reports that surveys show Americans think taxes area already too high, even for the rich.”

Source: www.washingtonpost.com

“April is here, which means it’s almost time to pony up and render unto Caesar. We’ve gathered our receipts and other documents, and dragged ourselves to the strip-mall tax preparer or fired up do-it-yourself software to determine how big our refund is — or how much we owe Uncle Sam.”

Assorted Links

Assorted Links (4/9/2010)

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Here’s a list of articles that I have been reading lately (organized by topic):

Economics

Source: online.wsj.com

“Andrew Manshel writes in The Wall Street Journal that elite colleges have an elaborate system for deciding how much money they can squeeze out of desperate parents, and surprising ways of spending it.”

 

Source: caseymulligan.blogspot.com


“Economic theory suggests that marginal product of capital series might help predict economic growth forward one or two years, even under abnormal conditions such as wartime or depression. In some situations, …”
 
 

Foreign Policy

  • Fouad Ajami: Afghanistan and the Decline of American Power – WSJ.com

Source: online.wsj.com


“Fouad Ajami writes in The Wall Street Journal that Afghan President Hamid Karzai’s anti-American shift is a statement about the standing of the Obama administration in the region.”

Source: www.washingtonpost.com

Does anyone really believe that our moral example will move other countries?

  

Financial Crisis and Public Policy

Source: motherjones.com


“How did Texas manage to avoid the housing bubble?” This looks like a good thesis topic to me!

  • Peggy Noonan: After the Crash, a Crashing Bore – WSJ.com

Source: online.wsj.com


“The men behind the TARP bailout talk in impenetrable jargon, writes Peggy Noonan in the Wall Street Journal.”
Art, Music, and Culture, Economics, Financial Crisis, Health Care Reform, Public Policy

Assorted Links (4/8/2010)

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Here’s a list of articles that I have been reading lately (organized by topic):

Economics and Public Policy

  • Leslie Hook and Joseph Sternberg: Confessions of Two Unpaid Interns – WSJ.com

Source: online.wsj.com

“In The Wall Street Journal, Leslie Hook and Joseph Sternberg say that the Obama administration’s latest crusade, to prevent the use of unpaid interns, is a mistake that will harm opportunities for young men and women looking for a leg up in the work force.”

  • Daniel Henninger: Joblessness: The Kids Are Not Alright – WSJ.com

Source: online.wsj.com


“In The Wall Street Journal, Dan Henninger asks if Obama’s economic policies have sent the U.S. toward European levels of youth unemployment.”

Source: caseymulligan.blogspot.com


“Labor unions are among President Obama’s political allies, and were actors in the story of the demise of General Motors. But I do not yet see much evidence that their influence on private-sector outcomes has become more significant.”

Economics and Culture

  • ‘Extreme Makeover’ Show Downsizes Its McMansions – WSJ.com

Source: online.wsj.com

“While it’s unclear just how many Extreme Makeover families have run into financial difficulty, the show’s producers say they are aware of the problem and are making a change appropriate to current economic reality: downsizing.”

  • Extreme Home Foreclosure Trouble – WSJ.com

Source: online.wsj.com


“Some recipients of Extreme Makeover: Home Edition homes end up in trouble once the cameras leave town. Here are five family’s tales.”

Source: www.reuters.com


FORT WASHINGTON, Md (Reuters) – By the time thousands of parishioners stream into the 3,000-seat Ebenezer AME Church on Easter Sunday, church leaders hope to have something else to celebrate: financial revival.

Financial Crisis

Source: jeffreymiron.com

“Lewis’s main message is that Wall Street engaged in reckless and dishonest behavior by leveraging and mispresenting unimaginable amounts of risky, subprime debt.”

Source: www.theatlantic.com

“The Government Accountability Office has a report out today on the unfunded liabilities of the GM and Chrysler pensions.”
 

Health Care Reform

  • Will the Individual Mandate Hold up in Court? — The American, A Magazine of Ideas

Source: www.american.com


“The healthcare insurance mandate is unconstitutional. But don’t expect the Supreme Court to rule it so.”

Economics

The Price Elasticity of Demand for the Apple iPad

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According to an article appearing on Bloomberg.com, the marginal cost of manufacturing the 16-gigabyte Apple iPad is around $260. This includes $95 for the touch-screen display and $26.80 for the device’s processor. Flash memory accounts “… for $29.50 in costs on the 16-gigabyte model, $59 in the 32-gigabyte version and $118 in the 64-gigabyte model. The differences in flash memory costs “…push the cost of manufacturing the 32-gigabyte version of the iPad, which sells for $599, to $289.10. They boost the cost of the 64-gigabyte version, which sells for $699, to $348.10.”

Obviously, Apple has very healthy profit margins on these devices; roughly 48% for the 16-gigabyte iPad, 52% for the 32-gigabyte iPad, and 50% for the 64-gigabyte iPad. From this information, we can also infer the price elasticity of demand for these products. Price elasticity is a measure of the percentage change in quantity demanded associated with a one percent change in price.

From basic price theory, we know that marginal revenue MR = P(1 + 1/, where P is price and corresponds to the price elasticity of demand. We also know that the optimal output decision for a profit maximizing firm involves setting quantity such that marginal revenue is equal to marginal cost; i.e., MR = MC.  Thurs, we can rewrite the marginal revenue equation in the following manner: MC = P(1 + 1/—> MC = P + P(1/ therefore, (MC – P)/P = (1/—> = P/(MC – P) Applying this equation to the various iPad models that are currently for sale, we find that

  1. the price elasticity of demand for the 16-gigabyte iPad is = P/(MC – P)
    = 499/(260-499) = -2.09;
  2. the price elasticity of demand for the 32-gigabyte iPad is = P/(MC – P)
    = 599/(289-599) = -1.93; and
  3. the price elasticity of demand for the 64-gigabyte iPad is = P/(MC – P)
    = 699/(348-699) = -1.99;

Any number less than -1 for indicates that demand is relatively elastic. This implies that if Apple were to change prices from current levels, then the percentage change in quantity demanded would exceed the percentage change in price. In other words, if Apple dropped prices, revenue would increase because of a larger quantity response, and if Apple raised prices from current levels, then revenue would decrease due to a disproportionate decline in quantity demanded.

Putting this into perspective, the price elasticity of demand for the various flavors of the Apple iPad is greater in absolute terms than the price elasticity of demand for the Apple iPhone (see Dartmouth economist Robert Hansen’s blog entry from June 2009 entitled “Apple iPhone Price Elasticity” in which he calculates that the price elasticity of demand for the iPhone 3G S is -1.43). Also see “Apple iPad and the price elasticity equation”.

Assorted Links

Assorted Links (4/6/2010)

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Here’s a list of articles that I have been reading lately (organized by topic):

Economics

Hearing Problems at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with I

Source: www.thebigquestions.com

“During a belated conversation about health care policy, a colleague remarked that “of course, nobody would want to live in a world where rich people and poor people got the same kind of health care”. The economists around the table all nodded in agreement and moved on to matters that were actually controversial. It occurs to me that had there been a few non-economists at the table, someone might have objected to my colleague’s matter-of-fact (and surely accurate) observation. And it occurs to me also that maybe there’s a general lesson here about how economists communicate-or fail to communicate-with the world at large.”    

Health Care Reform

Source: www.theatlantic.com

“The head of the IRS seems to be confirming what we suspected:  the agency is going to enforce the mandate by deducting any penalties from your tax refund, not by using its other enforcement authorities such as the ability to file tax liens.”
  • James A. Klein: The White House and the Writedowns – WSJ.com

Source: online.wsj.com

“In The Wall Street Journal, James A. Klein of the American Benefits Council points out that the White House wants companies to ignore known costs and book speculative future savings. Sounds like Enron accounting.”

Source: online.wsj.com

“The Wall Street Journal describes What happens when all medical decisions are political.”

Politics

  • What 1946 Can Tell Us About 2010 — The American, A Magazine of Ideas

Source: www.american.com


“It is interesting to look back at the biggest Republican victory of the last 80 years, the off-year election of 1946. What’s similar and what’s different today?”

Public Policy

  • The FCC Loses—Again – WSJ.com

Source: online.wsj.com

“The Wall Street Journal writes that a federal appeals court ruled yesterday that the Federal Communications Commission lacks the authority to regulate how Internet service providers manage their networks is a validation of the rule of law.”    

  • Holman Jenkins: End of the Net Neut Fetish? – WSJ.com

Source: online.wsj.com

“Holman Jenkins writes in The Wall Street Journal that a federal court says no to an FCC power-grab.”

  • Peter J. Wallison and David Skeel: The Dodd Bill Means Bailouts Forever – WSJ.com

Source: online.wsj.com

“In The Wall Street Journal, Peter J. Wallison and David Skeel say that the FDIC should not be given a resolution authority to handle failing, large nonbank financial institutions. The Lehman Brothers liquidation shows that bankruptcy works fine.”

Source: online.wsj.com

“The Wall Street Journal writes that the Labor Department is making it illegal to work for free.”

 
 

Assorted Links

Assorted Links (4/5/2010)

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Here’s a list of articles that I have been reading lately (organized by topic):

Economics

Source: hbswk.hbs.edu

“Book publishing is changing before our very eyes, even if the industry itself is fighting the transition with every comma it can muster. Harvard Business School professor Peter Olson, former CEO of Random House, wonders if books themselves may be in jeopardy.”

Source: gregmankiw.blogspot.com

“Here is a good article for class discussion. Apparently, some government regulators think unpaid internships might violate minimum-wage laws. (FYI, the internship at the Council of Economic Advisers is unpaid!)”

Health Care Reform

Source: freakonomics.blogs.nytimes.com

University of Chicago economist Steven Levitt notes that “…the health care bill that passed recently is a disaster for at least two reasons. First, it seems to do little or nothing to deal with the single most important shortcoming of our current system: the fact that people pay very little on the margin for the medical care that they receive. The second huge flaw … is that health care is provided through employers, leading to job lock, lost coverage when people become unemployed, etc. While the bill does have some elements that weaken the link between employers and health care, it also has other features that strengthen it. Ultimately, it is hard to believe that this bill will be a net positive. It remains to be seen whether it will be a wash, or far worse.”    Levitt’s views line up well with my own; see my August 27, 2009 posting entitled “My preferred approach for reforming health care…”.

Miscellaneous

“The Northern Hemisphere once more begins its tilt towards the Sun, awakening flowers, ushering in new life, and coaxing people outdoors once again. The changing of the season is easily observed in gardens, parks, zoos, farms, festivals and more. Collected here are a handful of photographs showing signs of Spring, 2010, as the final remnants of last winter start to melt away. (27 photos total)”

“A five-week-old Chinchilla rabbit nibbles grass at a rabbit farm in Moosburg north of Munich March 22, 2010. The rabbits at the farm are bred to compete in rabbit shows. (REUTERS/Michaela Rehle)”

Politics

  • News: When Professors Get Their Politics – Inside Higher Ed

Source: www.insidehighered.com

“Theories abound about why academics are more liberal than are average citizens. Some blame bias, arguing that conservative scholars are denied positions. Others see self-selection at work, with academe attracting more liberal individuals, while conservatives are more likely to opt for other careers….”

  • Juan Williams: Tea Party Anger Reflects Mainstream Concerns – WSJ.com

Source: online.wsj.com

“In The Wall Street Journal, NPR political analyst Juan Williams says dissatisfaction with the economy and the country’s direction cuts across racial lines.”

Public Policy and the Financial Crisis

Source: www.nber.org

“Federal mortgage modification initiatives, targeting millions of borrowers, are intended to prevent foreclosures of underwater home mortgages. Those initiatives discourage principal reductions in favor of interest reductions, despite the possibility that the former would be a more durable foreclosure prevention tool. The programs also impose marginal income tax rates substantially in excess of 100 percent. Using the framework of optimal income taxation, this paper shows how alternative means-tested modification rules would simultaneously improve collections, efficiency, the number of foreclosures, and their total cost. As a result, lenders have an incentive to foreclose on borrowers deemed modification eligible by the federal programs.”

  • Sheila Bair: The FDIC Resolution Process Is a Model for Financial Regulation Reform – WSJ.com

Source: online.wsj.com

“In The Wall Street Journal, FDIC Chairman Sheila Bair says the agency’s process for resolving failing banks will avoid forcing the taxpayers to bail out large financial firms.”