Monthly Archives: November 2009

Tire tariff costs U.S. $1.35 billion in lost savings

Tire prices are rising and some analysts are pointing fingers at the Obama administrations 35% tire tariff on Chinese imports.  I had previously vocalized why this was a bad idea: that although the current impact would be small, it could lead to a trade war with China.  Of course with any tariff, there will be a dead weight loss, resulting in a decline of consumer surplus.  So, how have consumers been affected by this? Explicit costs include: (From the AP article)

Under the government’s new tariff, which went into effect in September, a set of Chinese tires that would have cost $280 now cost nearly $100 more.

As well as implicit costs:

Jennifer Stockburger, a tire test engineer for Consumer Reports, says six of the top ten all-season tires recently tested by the magazine were made in China by major manufacturers.

More importantly, the price increases for domestic tires is expected to end up offsetting the tariffs.  Some of the price increases have been caused by an upcoming rise in demand due to an economic recovery and maintenance needs as well as increasing material costs for production.

Lets do a cost-benefit analysis.  17% of the tire market is made up of Chinese tires.  Tire sales for 2008 was around $27 billion, which means that about $4.6 billion is Chinese tires. With an average price of $280 for Chinese tires pre-tariff, the total quantity of Chinese tires sold would amount to 16.4 million.  With a $100 price increase, assuming that domestic tire price increases offset the tariff increase, U.S. consumers are expected to lose out on a net savings of over $1.6 billion.  And that of course does not take into account the implicit cost of quality loss.

The tariff was expected to stop the loss of employment in the U.S. tire industry.  By assuming there would be a benefit of saving 5,000 jobs in the tire industry, even at the median U.S.  income, that only amounts to a very large estimate of over $250 million of saved income.

Therefore, Obama’s tire tariff cost the U.S. over $1.35 billion dollars.  Lets not to mention the sour trade relations he has made with China, and considering how his current trip there went; he has made it even worse.    I hope his political support from the unions was worth it when he goes for re-election in 2012.  It is quite an expensive campaign contribution.

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“No Child Left Behind” worked? At least for math

Here is the abstract by Thomas Dee and Brian Jacob via the NBER: (emphasis added)

The No Child Left Behind (NCLB) Act compelled states to design school-accountability systems based on annual student assessments. The effect of this Federal legislation on the distribution of student achievement is a highly controversial but centrally important question. This study presents evidence on whether NCLB has influenced student achievement based on an analysis of state-level panel data on student test scores from the National Assessment of Educational Progress (NAEP). The impact of NCLB is identified using a comparative interrupted time series analysis that relies on comparisons of the test-score changes across states that already had school-accountability policies in place prior to NCLB and those that did not. Our results indicate that NCLB generated statistically significant increases in the average math performance of 4th graders (effect size = 0.22 by 2007) as well as improvements at the lower and top percentiles. There is also evidence of improvements in 8th grade math achievement, particularly among traditionally low-achieving groups and at the lower percentiles. However, we find no evidence that NCLB increased reading achievement in either 4th or 8th grade.

HT to Tyler Cowen at MR who has made an interesting observation from this:

… To my skewed perspective, this is an intuitive result.  Math skills are more the result of drill, whereas you have to learn how to love to read and much of that happens within the family, not at school.  Math is therefore easier to “teach by central planning,” so to speak.

I do have to say though that reading comprehension skills is far different than just loving to read. Sitting down to read Harry Potter is certainly a lot different than having to read The Wealth of Nations.  How does one know that when a child is sitting at home they are practicing the same reading comprehension skills needed in order to disseminate critical reading for productive purposes? I assume that is the aim of NCLB; to create a more productive workforce for the future.

I want to point out that NCLB also has provided some misaligned incentives for students as well as teachers.  It is has forced students to focus on improving standardized test scores rather than actually improve a students productive capability.  Freakonomics certainly had weighed in on this.

Making fast food decisions easier

Via Eating the Road, a diagram that will end the debate: which fast food should I eat? Obviously, you would have to decide that you wanted to eat fast food in the first place which may be moot, but nevertheless valuable when the situation is at hand. HT: Chartporn

Understanding Climategate

I wanted to know what the deal was with this and whether there was any real steam to the issue.  The most criticized line “I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) and from 1961 for Keith’s to hide the decline” may leave some to believe that that the data was fudged.   The issue of the debate has to do with using historical temperature data constructed from tree rings and then matching them with actual temperature data measured recently, which in turn show contradicting trends. To elaborate, from The Island of Doubt:

… a graph that shows how temperatures inferred from tree-ring records since about 1850 (the “proxies”) are a pretty good match for actual temperature records derived from thermometers right up until the 1980s. After that, the tree-ring data begin to show lower temperatures than were actually recorded.

Just why tree rings no longer provide useful proxy data for temperatures is not known. There are several theories, many of which suggest that climate change itself is the problem. Trees no longer grow as they once did before the climate started changing so rapidly. But the point is, there is no question that tree-ring growth rates of the past — before we had thermometers — can serve as useful proxies for historical temperature data. They are much less useful now, but that doesn’t matter so much because we have actual temperature records. All of this was sorted out back in 1998. It’s not new, nor even particularly interesting, to anyone familiar with the science.

Realclimate.org comments that this issue was already dealt with in climate circles and proves how the emails were taken out of context.

Phil Jones in discussing the presentation of temperature reconstructions stated that “I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) and from 1961 for Keith’s to hide the decline.” The paper in question is the Mann, Bradley and Hughes (1998) Nature paper on the original multiproxy temperature reconstruction, and the ‘trick’ is just to plot the instrumental records along with reconstruction so that the context of the recent warming is clear. Scientists often use the term “trick” to refer to a “a good way to deal with a problem”, rather than something that is “secret”, and so there is nothing problematic in this at all. As for the ‘decline’, it is well known that Keith Briffa’s maximum latewood tree ring density proxy diverges from the temperature records after 1960 (this is more commonly known as the “divergence problem”–see e.g. the recent discussion in this paper) and has been discussed in the literature since Briffa et al in Nature in 1998 (Nature, 391, 678-682). Those authors have always recommend not using the post 1960 part of their reconstruction, and so while ‘hiding’ is probably a poor choice of words (since it is ‘hidden’ in plain sight), not using the data in the plot is completely appropriate, as is further research to understand why this happens.

Cynicism in scientific debate, especially as heated as climate change, is always warranted, but such unethical means of obtaining information to try and carryout well-placed press before important political undertakings is not an effective way to prove one’s point. All of which prove how much this really is just bunk.

Commodity Price Inflation

Econbrowser has an interesting analysis on the recent, average commodity appreciation of 34%. This graph, which is from a recent paper by Ke Tang and Wei Xiong, has certainly resonated with me:

Why the correlation between certain commodity prices and oil? It is important to note that the correlation uses a rolling sample beginning one year before indicated date of returns on oil versus commodities. Unlike popular belief that currency devaluation is driving the recent commodity boom, rising oil prices is the major driver for commodity inflation.

The paper also believes that commodity inflation have been caused by commodities becoming a popular investment vehicle. However, I believe that is simply a consequence of rising world demand. If the former is true, then we would have another bubble in store. If the latter is believed, then we would expect worldwide inflation. Depending which comes first, both may be in the same feedback loop, so unfortunately, both would create a vicious cycle where as one increases, the other follows.

One would think that an increase in rates would immediately fix this.  But, that may be premature.  If oil is the big driver, then what is really needed is substitution away from oil.  Could lithium become the next commodity to drive commodity price inflation after a huge electric car boom takes charge during another oil shock? What other alternatives are there? Tax fuel for all non-commercial vehicles (electric or not)?

Enviroment next victim of U.S. Drug War

From the Oregonian:

Police discovered at least 200,000 marijuana plants in raids during the busy Oregon growing and harvest season that just ended.

They also came upon jury-rigged irrigation pools filled with chemical fertilizers, causing worry among officials and environmentalists that already-threatened steelhead runs could be at risk.

In Grant County, for example, dams and chemical-laden pools were discovered along crystal-clear tributaries of the John Day River. Pot-growing operations, most run by Mexican cartels, pour fertilizer into the pools and run irrigation lines to their plants.

“They dump it by the 50-pound sack right into the water supply,” said Grant County Sheriff Glenn Palmer, whose department seized 60,000 pot plants at nine operations this summer in raids with the Oregon State Police, the U.S. Forest Service, the U.S. Bureau of Land Management and other agencies.

“It’s a really concentrated level,” he said. “You know it’s got to be harmful for the environment.”

Interestingly enough, Portland opened its first pot dispensary. The disconnect between marijuana laws, the added confusion of the DEA’s hands off policy and how to handle growers is starting to take its toll.

Women should stay away from sports fanatics

From MR:

Controlling for location and time fixed effects, weather factors, the pre-game point spread, and the size of the local viewing audience, we find that upset losses by the home team (losses in games that the home team was predicted to win by more than 3 points) lead to an 8 percent increase in police reports of at-home male-on-female intimate partner violence.

Here is the source paper and that is from David Card and Gordon Dahl.  In contrast, if you go see a violent movie, for that same length of time you are sequestered and thus less likely to be a danger to others.

When I think about the Phillies losing the world series, and how crazy Philly fans are, I now have a sudden, uncomfortable feeling…