A roundup of economic news from around the Web.
- Toxic Asset: NPR’s Planet Money purchased a toxic asset, and now we can all watch it die. “Our toxic asset has 2,000 mortgages, many of them in hard-hit states like California, Arizona and Florida. A lot of the people in our bond are really struggling. Almost half are behind on their mortgage payments, and 15 percent of the homes are already in foreclosure. At some point those homes will be taken over and sold for a loss. Every time that happens, the bond shrinks. Eventually, our part of the bond will disappear entirely. Until then, we get a little money every month from people paying off their mortgages. We just got a check for $141. If it goes to Thanksgiving, we could double our money. By the way, we bought the asset with our own money. Any proceeds will go to charity. If we lose money, we take the loss.”
- Cigarette Taxes: Writing for voxeu Deliana Kostova looks at the correlation between higher cigarette taxes and demand. “Do higher cigarette prices deter smoking? This column finds that policymakers in developing countries could reduce cigarette consumption by youths by raising taxes. A 10% increase in the price will reduce youth cigarette demand by 18.3%.”
- Consumer Satisfaction: Bryan Caplan on EconLog looks at how to measure consumer satisfaction. ” For the past few years, social scientists have been arguing over the One True Measure of consumer welfare. Most economists still cling to the Demonstrated Preference Standard: If A buys X, then X makes A better off by definition. Psychologists and psychologically-minded economists have been pushing the Happiness Standard: If A buy X and feels happier as a result, then and only then is A better off. I think both standards have some merit. But I’d like to suggest a middle way. I call it the Consumer Satisfaction Standard. According to this standard, if A buys X, and would do so if he had the chance to make the decision over again, then X makes A better off. The Consumer Satisfaction Standard is less tautologous than the Demonstrated Preference Standard; it allows for the possibility – which we often observe in real life – that a person will not be a satisfied customer. At the same time, if someone complains about X but keeps buying it, the Consumer Satisfaction Standard treats his grousing as empty verbiage.”
Compiled by Phil Izzo