What blogging can get you

Greg Mankiw advises against starting a blog for junior researchers. He thinks it is a big distraction for a fledgling research career. It is rather discouraging to a novice blogger and economist like me. But the reason why I started a blog is still valid and my Cruzangels blog is getting me something I've never thought of. So I will ignore the Harvard economist's good advice for once.

I began to write on the belief that economists live and die on giving advice. On top of good oral communications, writing well is a big part of delivering economists' thoughts. Prof. Walsh encouraged us to write frequently in his advanced macro class. I took the advice by heart and started to write on economics in both Chinese and English. By the latest count, I have 25 pieces published in the leading Taiwanese newspaper Apple Daily. Quite surprsing even to myself.

In addition to the financial rewards I am getting from writing (by the way, if you click the ads on the top of this blog, I get a few cents from the advertisers.), I get something unexpected recently.

(to be continued.)

Equilibrium, what equilibrium?

Economists build models to analyze stylized facts. In the end, we all want to discuss the state of equilibrium. In the case of basic supply and demand analysis, we say the market clears at equilibrium. If the market is in dis-equilibrium, there will be either excess supply or excess demand. Then the system is said to be in transition to a new equilibrium with a new clearing price.

The problem is, how do we know the prices we observe are in equilibrium or in transition? A Saudi Arabic prince once famously denounced the crude oil shortage, "what shortage? Buyers still can buy any oil they want. "(not exact words) That is very true in a way.

In a bazaar, we know supply and demand are in dis-equilibrium if there is a line waiting to get something tasty. Demand exceeds supply. In a more abstract scenario, we also can discern dis-equilibrium. Suppose a bigger kid bullies a smaller kid all the time. The stronger extorts money from the weak. If the extorter continuously increases the level of the bullying, it can't be in equilibrium. No one kid can sustain bullying for a long period of time, especially when he apparently does not have an unlimited credit line. Something terrible is bound to happen if no one intervenes.

Unfortunately, those are exceptions rather than the rule. It is very difficult for us to distinguish equilibrium from transition in economics. Prof. Dooley said it frankly, "we don't know if the system is in equilibrium unless we have the models in mind." It was a hard concept to absorb at first. In fact, I believe all of us were very shocked to learn this in his advanced international finance class. What he said was counter to not only what we have learned but also what we have been teaching! We talk about the equlibrium like it is something we feel and touch easily and frequently. And yet it isn't something you can point it out every time you see it. Think about these: is the Dow Jones approaching 13,000 an equlibrium? is the water level at Lexington Reservoir now an equlibrium? We don't know! By the end of the class, I was totally sold at this idea. I guess I am at a new equilibrium now.

(Picture: University of Texas)

No-hassle cancellation

I recently moved and found a way to tell whether a company is a monopoly or not. The discovery was due to my attempts to change my address with the utilities companies. I called my garbage collector, Waste Management, and cancelled the service without any hassle. The lady over the phone was friendly and didn't even asked why. The conversation with my cable company, Comcast, was totally different. Not that the guy was rude, but that the guy tried extremely hard to keep me as their customer. In the end, I decided to stay with Comcast, but got a call a couple of days later. They wanted me to upgrade to premium lineup with HBO for one dollar more per month! The deal was attractive, maybe too attractive for a graduate student. I didn't upgrade because it is really hard to squeeze HBO into my already tight TV-watching schedule.

So my finding is that if the breakup with your service provider is extremely difficult or sometimes painful, chances are the service provider isn't a monopoly. Well, who doesn't like a no-hassle cancellation? But I would always prefer money saving to a friendly conversation with an old lady. Comcast cut my bill after our hard bargaining. I save $120 over one year!

Public utilities need to be regulated because they are monopolies by nature. Only monopolies can take advantage of network externalities, so says the economics. Regulations can drive utilities companies to do crazy things (or nice things). Except for tobacco companies, utilities companies are probably the only businesses that tell customers to consume less of their products. It never makes sense to me, but that is your tax dollar/politicians at work. Of course, the regulations include a mandate to have a friendly conversation with your customers who are breaking up with you.

That is all good, but I still love the money more. With the technology catching up, more and more former monopolies are now facing fierce competition. Not a very long time ago, Comcast is still one of the highly regulated monopolies. Nothing sounds better than competition to a free-marketer like me. So, if one day we have difficulties to break up with Waste Management or PG&E, we know that technology has helped free market conquer another territory!


(Picture: screwyou.thezeroboss.com)