microeconomics

Economists believe in the power of prices, but sometimes even we have to admit prices can do some strange things.  Take the discount book battle described in last Saturday's New York Times. Wal-Mart and Amazon have battled each other down to $8.99 for advance orders of certain leading best sellers.  Fifty percent discounts by those two are normal.  These represent up to a 74% discount.  Authors, publishers, and independent book sellers are justifiably terrified about being driven out of business by such competition for market share.  It's easy to sit back and say these prices won't last and that the sale of complementary goods at Wal-Mart and Amazon are also at stake, but that's little solace for the authors, publishers, and independent booksellers.  This is a good example of the discontinuities that can drive prices crazy in the short-run in the quest for long-run advantage.

I noticed two things while driving around my local area this holiday weekend.  The first was funny.  The second made me think that economics should never take a holiday.  First, the funny:

From CGG

It's worth noting that the costume (perhaps along with organ donations) would be severely compromised if New Hampshire had a mandatory helmet law.

Second, my otherwise delightfully governed town has this practice of putting bags over the parking meters around the holiday shopping season. I associate it with the downtown merchants, since the meters north of downtown (say, near my office) remain operational.  I can't figure this one out.

Unfortunately, we have the same income and food distribution problems Amartya Sen talks about right here in the U.S. Yesterday's Washington Post documented one woman's struggle to live on Food Stamps, a program which is not indexed to inflation and which has become a political football in this year's farm bill. Congress just enacted that bill, H.R.2419, over President Bush's veto. It arrested the steady decline in Food Stamps, but it didn't restore any of the lost value of Food Stamps since the 1996 and subsequent cuts under Presidents Clinton and Bush 43. The Center for Budget and Policy Priorities documented the decline on May 23rd.

Amartya Sen provides a sobering account of the distributional consequences of the rise in food prices in an op-ed in today's New York Times, "The Rich Get Hungrier."  He describes one of the underlying causes as unequal income growth:

It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world.

This is a site that is long overdue in my profession:

The goal of this site is to encourage instructors to take price into account when shopping for texts.

Like doctors prescribing drugs for their patients, college instructors selecting textbooks for their classes have little incentive to pay attention to prices that they themselves do not pay.

Textbook publishers do not advertise their prices. Often it is even difficult to find prices on their websites. Nowhere have we been able to find current price lists for a full selection of competing texts.