Wednesday, March 25, 2009

Post Office in Trouble

The U.S. Postal Service lost $2.8 billion last year and will be in trouble this year if Congress doesn't step in. How about opening up first class mail to competition? FedEx, DHL, UPS, and however many other package delivery companies there are do a fine job. How about letting them, or anyone else, take a crack at first class mail? The Internet has taken a huge cut out of the Post Office's business and as people become ever more Internet savvy and postage increases, it will continue to decline.

Now granted, other first class mail delivery services wouldn't be as entertaining since I think UPS frowns upon its employees carrying weapons, but I'm sure we can find plenty of entertainment elsewhere.

Monday, March 16, 2009

Externalities in the Air

I was on a flight Saturday. The man in front of me reclined his seat back to an extent that it slightly restricted my leg room. This seemed like an externality. The actions of this man reduced one of the goods, comfort, in my utility function.

It would have been very easy for me to attempt to remedy this situation. I could have politely asked the man to lean his seat forward a bit. If that failed, I could have called the flight attendant over to force him to lean his seat forward. I found that option a bit extravagant given the circumstances so we're left with the two of us bargaining over his optimal seat position should I raise a fuss. This man obviously valued having his seat reclined in order to increase his comfort, or possibly annoy me (probably not the latter, but it is a possibility). I valued having as much leg room as possible, but maximizing that would result in the cost of bargaining with the man. I did not bargain with him, his seat remained reclined for the remainder of the flight, and I continued to work.

Given that my net benefits of increased leg room (additional leg room minus the cost of bargaining) was obviously less than the value this man placed on reclining in his seat, social value was maximized. What appeared to be an externality was willingly accepted by me because the cost of remedying the situation was higher than the additional leg room I would obtain.

Now, the 12 year old boy sitting between myself and the attractive young lady in the next seat was an externality that should have been remedied immediately! I'm sure a meager cash payment would have eliminated that externality and added to both our utilities. However, she might have incurred an externality and then the whole process would start over.

Monday, March 2, 2009

The EU and the Economic Crises

The differing impacts the economic crises is having across the European Union is causing some splits in the EU. Some members of the Central and Eastern bloc are doing well given the circumstances (Poland, the Czech Republic) while others in the bloc are in dire straits (Hungary, Romania). There are differences across the Western countries, with Ireland, Italy, Spain, and Greece being hit harder than the rest. Since these nations are prohibited from taking substantial unilateral action to stimulate their economies, the EU is facing its first major challenge.

A professor of mine about 6 years ago speculated that the euro zone would be fragmented when some of the member countries had especially bad economic circumstances and the EU wouldn't act as aggressively as they hoped. Could they be facing that situation?