Friday, April 16, 2010

NBC's "Parenthood," Actual Parenting and Economics

This television season NBC came out with a show called "Parenthood." I have two small children and thought I'd give it a chance. In last week's episode (#7--4/13/2010), two points struck me and the more that I think about them, the more unhappy I am with this show. They are both typical Hollywood mischaracterizations that shouldn't surprise me, but for some reason they struck a nerve.

Both of these points center around one character, Julia Braverman-Graham (played by Erika Christensen). The first incident centers on her niece's career day. The niece (Haddie) is supposed to shadow a family member and observe them at work. Since Julia is a high-powered corporate attorney, the experience has left Haddie infatuated with becoming a lawyer. The problem is that the mother (Kristina) feels diminished because she is only a stay-at-home mom. Mom attempts to impress Haddie by showing her some of the important work she did as a legislative deputy. Needless to say, Haddie is not impressed and Mom is saddened. The Hollywood-style resolution to the problem comes about when Dad takes Haddie for a bike ride and they end up at a park. The father explains that the park's existence is due to her mother's work forcing some company to make this concession during the permitting process.

One might think that I am upset because it is implying that only government is protecting green space and stopping evil corporations. Well, yes I am upset about that, but it's really secondary.

What really is chewing in my gut is that Mom only has worth because earlier in her life she did something outside of the home. In this episode, they could have talked about and highlighted or dare I say celebrated how important a stay-at-home mom is. That raising children and teaching the next generation values and civility are so important that extra income and outward status are foregone. Perhaps the creators, writers and producers of this show forgot that the name of the program is "Parenthood." I would have thought that a show with such a name might think that being a parent might be a good and celebrated vocation. Then again that's Hollywood thinking.

The second point comes from the conversation between the lawyer (Julia) and the niece (Haddie). As they chat at the exclusive restaurant for lunch, they talk about how Julia got interested in the law. Julia admits that it was because of the civil rights controversies. Haddie asks if that is interesting work. Julia says that the work she does centers on corporate mergers and acquisitions and not on civil rights issues.

Later in the episode, Juila talks to her husband about leaving the practice and going into this more worthy, more honorable field of law (civil rights law) and about getting out of the greedy, dirty, and rotten corporate law. (Okay, so that's my interpretation of the conversation, but you get the point.) The husband protests, "You love crushing little companies." Julia replies, "I know, I know, but what kind of person loves that?"

Again what is wrong here is that we only see half the picture. We need to take it the extra step. Suppose that a large company sees potential profit in the product of a smaller company. The larger company wants to acquire the smaller company. Now how does it do it? Let's assume that the small company is privately held. The large corporation negotiates a price, gives the owner a whole bunch of money, and then gains ownership and takes control.

In a market economy, the small company owner has complete freedom to take or reject the offer. The large company wants the owner to sell, so they need to offer a high price, but not too high a price. For every dollar spent on the acquisition, there will be one less dollar available to transform this small company into a large company. There will be one less dollar for new capital equipment, one less for marketing, one less for customer service and quality assurance. The large company needs to offer enough to get the owner to sell, but not so high that the project is no longer profitable. Julia's job is to make sure there is enough capital (money) left over after the acquisition so that it can be transformed into a large, profitable company that can serve ever more customers.

So am I surprised that Hollywood got it wrong again? No. I'm just a little disappointed, but then again, it did provide inspiration for this post.

Thursday, April 15, 2010

Is Cwik Finnished?

Last year I presented a lecture on Freedom Basics at FEE. Here is the video with Finnish Subtitles!

Vapauden perusteet from observant on Vimeo.
I need to thank Petri Kajander for making this possible. Here is the video with the transcript below (in English).

Tuesday, April 13, 2010

Dumbest Use of (Non-)Economic Principles?

Every once in a while I come across something that is so profoundly dumb, that I know that it cannot be true. This was the case when I saw the Headline: "Flush with water, Raleigh could soon raise rates again." I have touched upon this topic before in the post "Circling the Drain." However, this time the problem is exactly the opposite to the previous problem.

The municipal water system for Raleigh and the six neighboring towns says that since the drought of 2007/2008, water consumption is down 7%. This comes as no surprise because many people installed rain barrels and are using other water saving techniques. During that drought, we were not allowed to wash our cars, get a glass of water at a resturant without asking for it, or even allowed to properly water our lawns. Many of these regulations have been lifted, but many people have kept their conservation habits. (At my house, we are switching over to a grass that uses much less water. We have been letting the Fescue grass die while allowing the Bermuda grass to take over.) With this decrease in water usage, our main reservoir, Falls Lake, is actually one foot above full.

Everyone, especially conservationists, should be happy. And everyone is happy. That is everyone except the Public Utilities Department. The P.U. Dept. is funded by water and sewer fees and their revenue is falling with the decrease in consumption. Their problem is to increase water usage and thereby increase their revenues. They should want to sell more water. The answer may seem obvious, and it is, except to the P.U. Dept. What does the P.U. Dept want to do instead? (So here it comes, ready for it?) The P.U. Dept wants to raise the water rates!

Now I may just be an economics professor, but I do know that demand curves slope downward.

This is a demand curve. It shows the relationship between prices and the quantity that consumers want to buy. When the price goes up, people are going to buy fewer goods. When the price of gasoline went up to $4/gallon, people cut back on the amount that they consumed. When we were in the drought, economists argued that raising the water rate would encourage people to use less water.

On the other hand, if the producer wants to increase sales, the producer will cut prices. Let's pretend that inventory has been increasing and it's time to clear some shelf space, what do you do? You have a sale. In other words, a price cut will encourage more people to buy more. Even the word "sale" should make this point fairly obvious.

The same works for water. If we raise the rates (price) for water, we will not be decreasing the surplus of water! If anything, we will be incentivizing people to reduce their water consumption even more!

During the drought, the water authorities said that we couldn't raise the rates to decrease water consumption, because it would unduly burden too many people. Now, because revenues are down, has this concern been thrown out of the window? It shows where the government's priorities lie. They care about their budgets first and the voters second. (I don't know where you fall if you aren't even a voter.)

In my earlier article, I called for a true privatization of the water supply. Only under a market, can we avoid the backward thinking of bureaucracies and get a system that serves the customers.