Income Distribution in Sports

Writing in the Real Clear Markets site, Steven Malanga sheds some light on the disparities in the earnings of NFL players, while alluding to other sports too. one of the points that is made clearly is that the income inequality in the sports industry is akin to that of the national economy. All the attempts to moderate those incomes within the industry seem not to yield much benefit especially as the league owners and unions pursue inconsistent objectives. One clear example is the insistence on a random draft for rookies and salary caps.

Income inequality in sports may mirror that in society but one has to say that sports leagues that insist on caps and other anti-competitive measures are probably not going to fully appreciate that mechanisms for efficient redistribution of income are hard to design. Taking account of the differences between sports teams and a national economy, i read the figures with caution but must state that this article emphasizes that distribution of some talents makes the income distribution to assume a power law.

India a Leader in Trading Medical Services

I encountered the table above while going through this piece on India's Igovernment site.

This blog has mentioned here and here about the ability of dental surgeons and professionals in regulated industries to exercise market power by restricting entry into the profession. As stated, these professional associations extend the training periods and place arbitrary barriers to entry by other professionals in respect to providing less technical procedures such as extractions and basic dental care. Often this is compounded by resorting to scare stories about the mishaps that may occur even where the data shows that the probability of such mishaps is very low or non-existent.

The table illustrates one of the reasons India's success in the area of medical tourism. Comparing the prices for the treatment of various surgical conditions confirms the financial prudence in opting to undergo the medical procedures for patients from the UK and the US. Granted that the cost is not the only consideration but given the material costs advantage for India on most of these four procedures.

For the presidential candidates in the US, the cost of medical care is a primary campaign issue and it may be of assistance for their advisers to review these figures keenly. Knowing the serious impediments that come with providing the level of care that Us citizens demand, India appears to provide an alternative for insurers to consider. Its just a pity that tooth extraction is not easily traded across borders because the savings are not sufficiently large. In the areas of the more delicate and expensive medical procedures, the table tells the story lucidly: outsourcing in medical care is an option. Indeed, this may just provide the market pressure to reduce the high rents that regulated medical professionals extract.

Indonesia Quits the OPEC Club

Trust governments to reconsider their options when confronted with the facts and changing conditions. For a large number of low-income nations, one of the most annoying impediments is the existence of the oil producing and marketing cartel otherwise known as OPEC. This story on the CNN site shows that Indonesia's energy minister has given notice of its withdrawal from the organization by year's end.

This is an interesting phenomenon for the reason that the decision has been made because of the realization that Indonesia's oil supplies are insufficient to meet its internal demand. effectively therefore, it does not make sense for a net consumer of petroleum to be part of an organization that is committed to maintaining prices that allow for the extraction of large rents. To my mind, this reversal proves a couple of points. First, as a long-standing member of OPEC, Indonesia's leaders seem to be convinced that the coordinated action and allocation of supply results in increased prices for petroleum beyond what would be cleared by the market. The second is that it is probably possible to predict the degree of commitment to the organization based on observable factors as the size of reserves versus the domestic demand.

Does Harvard Exercise Scarcity Power?

If asked the question about my views on Harvard university, I would state that it is not only an impressive academy with a strong faculty throughout various disciplines but also that it appears to want to win the race of accumulation. An alumni of Harvard University writes in the NYT and debates with herself about the Alma mater's large and growing endowment fund.

Granted that the university's main administrators have probably considered that keeping the endowment growing is important to ensure that the institution is assured of future survival, I find that the author makes a lot of sense in questioning the policy regarding the endowment in addition to the sustained fund raising effort. While it would be completely absurd to consider the endowment as a slash fund to be spent in its entirety, it is clear that she thinks that there is a serious disconnect between the investment policy and the expenditure of that money. As it currently stands, it appears that the exemptions granted to the endowment funds run by US universities merely ensure that college presidents bear the clout that goes with the size of the fund in addition to providing its fund managers with hefty income. I do not think that the requirement that foundations spend a prescribed proportion of their funds is just and so would argue that they be freed of this requirement as opposed to introducing the same strictures to endowment funds run by colleges.

Carroll Bogert answers herself about the reason that her colleagues continue to send cash gifts to the school. The very rational reason is that they all expect that their offspring would want to study at Harvard and daddy's prior contribution may be a deciding factor in a close decision for a highly desired place. While the author wonders whether the critical thinking taught to her colleagues is suspended in the matter of contributions to the school, it is palpable that they have retained the ability to see a little further into the future and to understand that the university could exercise market power over the admissions. On the whole, it is far better to see its alumni begin to question the logic of accumulation as that is a debate that Harvard's administrators should have with its hyper-literate alumni and benefactors.

Dental Highway to Improved Income

My concern with economic competition in services such as dental care in the United States has been recorded on this blog. Now comes this interesting paper that has featured on a post on the Freakonomics blog that makes the claim that there's an appreciable economic value to having good teeth as it affects income for women especially. Following the brilliant argument that Dubner puts forth and the conclusion that this effect suggests that there's a consistent beauty premium, leads me to wonder how to consider the fact that the dental profession in the US and most probably other parts of the world maintain high barriers to entry.

Taking it as a given that good dental care improves the future income of an individual places dentists in a situation where they are not only able to charge premium prices for the specific dental services that would improve the economic value of teeth but are vicariously responsible for income distribution when they ration dental care. This postulation could be tested by finding out whether areas that have a higher concentration of dental surgeons have higher incomes because of that care or because of the fact that those inhabitants are bound to be significantly wealthier to begin with.

Quote of the Day

"Whether you look closely at individual innovators or step back and survey the broad sweep of economic growth all the way back to the palaeolithic era, you find a common thread; neither progress nor stagnation is an accident." Tim Harford in Logic Of Life p. 216.

Volvo Aiming for Absolute Safety

If the ownership of a car can tell anything about the individual, it appears that buying a Volvo will soon mean more than sleek designs, high degree of safety and high income. In this article appearing in the IHT, Volvo has just announced that it has taken on the daring challenge of ensuring passengers in its cars of zero injury or mortality by 2020. The ambition is impressive but thinking from the perspective of one appraised of principles of economics in addition to an understanding of human behavior, I think that this must be viewed with delightful skepticism.

I question this because to make an absolute safe car may be altogether feasible through cutting-edge engineering but I suspect that it is not possible to make it an affordable and reasonably operable machine. As reported in the story, a Swedish government officer doubts that this can be fully achieved. If this attempt could systematically reduce the levels of mortality worldwide from 1.2 million per annum by a significant factor, then that would be success. Studies have shown that vehicle mortality rates tend to be a higher in countries where affluence is creating a first time cohort of drivers where the infrastructure is insufficiently prepared for those numbers. I expect that injuries from traffic accidents would continue to rise as more people acquire new motor vehicles in lower income countries. Since it is unlikely that they will be buying Volvo's, the car maker will still be producing very safe cars but they will not be what everyone drives.

Yahoo! Shareholders Battle Board of Directors

It is unsurprising that the recriminations against the management and Board of directors of Yahoo! have started. Predictably, they are based on whether the decision to snub Microsoft Corporation's offer of acquisition was commercially prudent. IHT reports here that Mr. Icahn is questioning the prudence of the decision to reject what he considers a decent offer. In seeking to replace the existing Board of directors and interest Microsoft in completing the deal, he is perhaps being too presumptuous. This is because it may not be in Microsoft's interest to acquire a corporation whose major shareholders and board are at serious odds of its prospects.

However, what this situation illustrates is the fact that a proposal for acquisition by a large firm is fraught with risks such as a shareholder's revolt irrespective of the decision to go one way or the other. It is also clearly evident that the substantial holders of Yahoo1 stocks are most interested din an early deal that would be of benefit only in the event of an acquisition by a large corporation such as Microsoft.

Chasing Music Pirates

Without doubt, nothing animates the executives who run the major music labels more that the fact that piracy is common. However, given the levels of reported piracy, I have always wondered whether the strong enforcement approach that holders of digital rights in music adopt is the best way to spend their money. Owen Gibson reports in the Guardian here that piracy in respect of digital piracy is growing. Measured against the aggressive efforts by the top music selling corporations to disrupt peer to peer distribution networks in addition to engaging in legal suits against operators of the networks, the return appears to be extremely modest. I have argued here before that much of the response from the main music majors in respect to piracy appears to be ill-informed.

Since legal downloads exist side by side with illegal downloads, it may be of more benefit to seek an understanding of the considerations informing the decision to purchase legal downloads while retaining an affinity for illegal downloads too. Because their clients are internet savvy and committed to sharing music, it is unlikely that this fight can be won at reasonable cost unless the internet was completely shut down. The paradigm has shifted and good money should not be spent fighting the digital sharers when it could be used to enhance the experience regarding legal downloads.It seems as if the opportunity cost to his single minded approach to stopping all sharing is rather high.

Reading Inflation from the CPI

A popular concern for everyone who makes purchasing decisions is the extent to which the buying power is eroded by inflation. This is in spite of the fact that a clear understanding of the computation of the official inflation figures and the causes is not well understood. In all honesty, not many economists and pundits too understand the limits of the published figures on inflation. Writing in the regular column in the NYT, David Leonhardt explores some of the oddities that emerge from the composition of the CPI basket in addition to the implications that emerge from benchmarking against the official figures.

It draws on the fact that the CPI is an aggregate measure to the extent that it is comprised of goods and services that are weighted in the basket. for individual purchasers though, the real rate of inflation for their income may be different from the average because of the consumption decisions that they make. The most perceptive point in the piece though is the fact that there tends to be a lag in the inclusion of certain goods such as models of automobiles whose costs may drop commensurately with an increase in quality. Nearer the end, he alludes to the earlier finding by professional economists that the index tended to overstate inflation and the revision that occurred. the nice piece is not only a primer on inflation and the difficulty in its delicate calibration, but that economic aggregates must be read carefully.

Polluter Pays

One of the more regular arguments on this blog is the need to apply a Pigouvian Tax to the problem of carbon emissions in order to internalize the costs of the pollution. Earlier today, an acquaintance sent this story to me and it reminded me of the fact that while the problem of global warming is real, the required but absurd responses required for the issue of global warming. The story states that Estonian authorities have responded to methane production by levying a flatulence tax on cattle. If this policy move was not a smart application of first principles regarding externalities, then it would be entirely laughable. In taking account of the fact that in livestock keepers in nations such as New Zealand are responsible for a disproportionate amount of methane emissions every year, I am constrained to keep the laughter aside and say that economics is certainly on the march.

A cursory search on the BBC news site here shows that five years ago, an equivalent flatulence tax measure was vehemently resisted by farmers in New Zealand. nevertheless, that is not to say that it is an altogether bad idea even if it the name makes it sound ludicrous.

Microsoft Fails to Acquire Yahoo!

For a considerable time now, Microsoft has been waiting to conclude an acquisition of Yahoo and the deal seems to have collapsed early this week ostensibly because the latter did not accept the enhanced offer of US$ 33 per share. Considering that the initial offer was made while Yahoo shares traded in the US$ 19-20 range, it appears that Microsoft was prepared to pay a hefty premium to make the acquisition and ensure that it is able to compete with Google.

With the expected acquisition having failed, the combined wisdom from these separate pieces in the Slate Magazine and the Timesonline lead to two main conclusions. Firstly, knowing that acquisitions are fraught with danger of failure, Microsoft was extremely eager to make succeed in this acquisition by offering such a large premium. Secondly given that Yahoo! appears to be struggling in taking market share away from Google in respect to advertisements, its managers should have taken the perceptibly generous enhanced offer. My random conclusion is that either firm requires renewed thinking to determine the line of attack against Google as they are both devoid of ideas. Which implies that there's no guarantee that the acquisition would have worked well for either side. What is regarded as failure today may turn out to be lucky escape for Microsoft.

The Gini Needs a Deviation Measure

No person interested in development economics has not heard of the immensely useful Gini Index and its broad use in telling about the degree of income inequality in a country. I find in readings that several assumptions are made about what it implies in addition to its utility in policy. In the Slate Magazine here, Mark Gimein highlights some of the methodological limitations by comparing the respective Gini measures for the US and India and reaches the conclusion that on its own, the Gini coefficient is not very useful in telling much more than the aggregate. The implication is that many pundits use the Gini Coefficient in a way that leads to the suspicion that it is being incorrectly substituted for poverty figures. Conclusions and proposals for policy leading from these comparisons are therefore understandably error-prone.

I accept that as a broad measure of inequality, the Gini is a fantastic innovation but it is demonstrably incomplete. To my mind, it is comparable to the statistical mean which is not too useful without mention of the standard deviation since the mean on its own tells nothing about the dispersion of the data from which it is derived. Perhaps what needs to be developed for use alongside Gini figures is the equivalent of the standard deviation so that one can make reasonable inferences about multiple countries with similar Gini scores but whose average incomes vary substantially. It cannot be correct to state that the level of inequality is the same in two countries on account of equivalent Gini scores when the respective per capita incomes are US$ 1000 and US$ 20,000.