Economics & Finance

Blogging and Marginal Cost

by

A recent article in the NY Times titled “Blogs Falling In An Empty Forest” described the apparently common phenomenon of people starting blogs, and then abandoning them. Per the article

According to a 2008 survey by Technorati, which runs a search engine for blogs, only 7.4 million out of the 133 million blogs the company tracks had been updated in the past 120 days. That translates to 95 percent of blogs being essentially abandoned

The article went on to describe some common situations; a stay-at-home mom trying to earn some money from her blog, or talking about their personal beliefs and such. The blogs seemed to promise profitability, but didn’t deliver, even if they had a reasonable amount of page views.

The writer of the article was clearly a journalist and not an economist – the economist would have immediately proffered the explanation for why this occurs

The marginal revenue for this product ultimately will be equal to the marginal cost

And what is the marginal cost for setting up a blog? Why it is roughly zero, of course. And with millions setting up blogs and “chasing” (or not, in the case of LITGM and many other blogs we know and like) page views and advertising dollars, the market was instantly overloaded with choices and soon became a mass of abandoned blogs.

Read more

More Micromanagement

by

Investors Business Daily (6/15) has an item on proposed legislation which would force the reduction of the interchange/discount fees which are charged by credit card companies to retailers. The legislation would “let merchants collectively negotiate take-it-or-leave-it fees with issuers”–something that would surely be a violation of the antitrust laws if not specifically enabled by legislation.

The proposal would be harmful to banks which are MasterCard and Visa issuers, but would be particularly harmful to American Express because of the way in which its business is structured. (Disclosure: I’m both an Amex shareholder and an Amex bondholder, although these positions do not represent a very substantial portion of my overall portfolio.)

What this legislation will do, if passed, is to transfer wealth/income from the investors, executives, and employees of American Express to the investors, executives, and employees of retail companies. If passed, if would reinforce again the growing impression that the most important single factor in the success or failure of an American business lies in the strength of its relationship with the politicians.

Read more

Civic Amputations

by

Via Instapundit comes this story on plans to bulldoze large sections of 50 failing cities in Great Lakes states. That alone is enough to make one weep.  A mere 40 years ago, these cities were still the economic titans of all the earth and now they are  imploded  wastelands.  

Even more shocking and frightening is the strange, delusional state that seems to have settled over the political thinking of the majority of the people in the region. They seem to have no conception that their own political choices destroyed their communities. Worse, they’re rationalizing their own self-inflicted failure as a good thing.  

Here’s Dan Kildare, Obama’s point man for the plan:

“The obsession with growth is sadly a very American thing. Across the US, there’s an assumption that all development is good, that if communities are growing they are successful. If they’re shrinking, they’re failing.”

What the HELL is wrong with these people?

Read more

Explaining Oil Prices

by

[update 2009-06-12 10:00am: Please keep in mind that this post is about how people’s economic intuition goes awry when thinking about oil. The features internal to the oil industry are not as important as the differences between the oil industry and all other industries. It is these difference that cause people to misunderstand oil pricing.  ]

Oil prices are headed up even though the world economy is headed down. [h/t Instapundit] What gives? Shouldn’t a declining economy lead to  decreased  demand which keeps down prices?  

Well, yes and no. Oil is a strange commodity. It doesn’t change price and  availability  in the same pattern as other commodities that are based on natural resources. This  strangeness  arises out of the technology of oil production, distribution and refining.  

Several factors give oil an unusual economic profile:

Read more