Why the Bavarian purity law?

There is a law in Germany that dates back from 1516 that restricts beer ingredients to hops, barley and water. Why did the Bavarians enact such a law? After all, isn’t it great to drink wheat beer, nut brown ale or raspberry lager? Is it for food safety reasons? Obviously not. Economists on Wikipedia list the reasons:

• to prevent price competition with bakers for wheat and rye
• to ensure the availability of sufficient amounts of affordable bread (to avoid what happened to Mexican tortillas when corn was used for ethanol)
• to prevent competition from beers brewed elsewhere with a wider range of ingredients (when the law was extended to all Germany, it led to the extinction of many brewing traditions and local beer specialties, such as North German spiced beer and cherry beer, and led to the domination of the German beer market by pilseners).

It is today used as a marketing tool.  

World poverty is disappearing

The World distributions of income in 1970 and 2006, from today's Vox column.

Sales

Some countries such as France and Belgium (and Switzerland?) regulate sales closely. Shops can only have sales twice a year. The periods are defined by the government. What is the rationale? According to socialist governments and unions of independent retailers, these laws are there to protect small independent shops. A French reform allowing shops an extra 2 weeks of sales whenever they want is thus creating quite some fuss. There is no doubt that such price controls generate monopolistic rents and are bad for consumers. But people might value price stability and predictability, as well as streets with independent shops, or not. I guess referendums are a good way to settle such issues.

How to help Haitians

What should rich countries do to help Haitians after such a catastrophe? For now, coordinating emergency relief is the priority. But in the years to come, should they give millions in aid or simply open their borders to Haitians migrants? Senegal is already offering them parcels of land - even an entire region. It all depends on how many Haitians come. Will any go?

Helping Haiti

If you are in Geneva and want to help somehow Haiti, take a look here. Any other suggestions??

Some smart words on the EU: Zapatero revives an old debate

Zapatero who currently heads the council of the EU found some smart words on what the EU is missing. The FT cites him saying that “the EU was at its most effective when all 27 states operated under binding common rules, such as those governing competition policy. “ His conclusion thus is that “we need to equip the European Commission with new powers.”

While I could not agree more, I think that the proposal does not go far enough. I recall writing in the second year of my Bachelor studies, in 2002, an essay on the democracy deficit of the EU, a topic which is not as hot nowadays anymore as it used to be. Then, I argued for the need to give the European Parliament more rights and that a true European Union can only be based on a truly European wide election campaign for the parliament, not a nationalistic campaign.

However, the EU has become out of fashion and the visionaries and EU euphorics have been on retreat. The general discontent is not only a fault of the systemic problems but also reflect the increasingly ridiculeousbehavior of some EU staff. To name but two examples: Some members of parliament complained about the citizens not coming to elections and thus asked for a penalty to be paid by those who do not vote. I propose instead to leave the number of seats empty according to the share of non voters. Then politicians may actually start wondering why people do not vote and receive more incentive to reflect the voters will. A more recent questionable move has been the move by EU parliament members and the Commission to bring a case against the EU member states to the European Court to force them to accept an agreed upon salary increase (current EU MEP salary is roughly 6000 euros after tax and I’d be surprised if there are not some other sweeteners added).

“Staff at the EU institutions were due to receive a 3.7% salary increase according to a formula agreed between the bloc's governments in 2004, but the Council, which represents EU member states, last year decided to reduce the pay rise to 1.85% in view of the economic crisis.“ (see here)

Would they also back a similar move of employees in the private industry? How can you ask flexibility of your citizens and then do not adjust rules to reality of deflation and economic downturn with unemployment figures doubling in some member states.

In this light, more competences for the EU may appear somewhat far fetched. But it is similar to a chicken and egg problem. Unless the EU will receive truly democratic foundations and more power controlled by the European parliament, the EU risks to enlist itself in the row of dead letter organizations. To avoid this, the EU needs also to get its proper taxes. This would allow a serious enforcement mechanism of penalties. Since the EU could just deny to pay to the respective member its share of the tax receipts, it will actually have some leverage on the behavior of the member. Unless the EU will get such a leverage over its member states any new mechanism to make a member comply is doomed to fail just as the stability and growth pact did.

For the German (or Danish) speaking ones: you should definitely have a look at this documentary which documents the days and talks of the then-EU-council president Rasmussen before the EU Enlargement in 2004. It is a lesson in applied politics and bargaining. While the Germans and the French are the bad guys you may guess who comes late to conferences…..

The case for wealth-dependent fines

Tyler Cowen spots a good story from St-Gallen:

A Swiss court has slapped a wealthy speeder with a chalet-sized fine — a full $290,000.

Judges at the cantonal court in St. Gallen, in eastern Switzerland, based the record-breaking fine on the speeder's estimated wealth of over $20 million.
A statement on the court's Web site says the driver — a repeat offender — drove up to 57 kilometers an hour faster than the 80-kilometer-an-hour limit.

Greg Mankiw wonders how optimal it is to base fines on wealth? His first thought is no  (how surprising!) He writes: "We fine activities that have negative externalities, such as putting others at risk. If X is the size of the externality, and p is the probability of being caught, then the optimal fine is X/p. That will give people the right incentive to produce the optimal quantity of the externality. Note that the rich may choose to speed more, but that is optimal. " But then he argues that becuz sometimes tickets are not deserved, there is a theoretical case for wealth dependent fines. Doesn't he miss the point?
If the amount of the fine is supposed to act as a deterrent from speeding, then it should be significant for rich people. For them, feeling the sound of their new Ferrari is well worth the $1000 fine. If fines were $10,000, for everybody, they would deter anyone from speeding. But then when poor people are caught and don't have the money to pay, it becomes very complicated legally, they go to court, they lose their license, the administrative procedure is a nightmare etc... In fact, it would be so complicated that the law makes no sense as it is imnpossible to enforce. Hence, better to have a fine they can pay, and and no enforcement problems.

All in all, I say fines proportional to wealth make a lot of sense. No?

Tiger Woods destroyed $12 billion of stock-market value

No one knew Tiger Woods was a sex machine. Hence, the emergence of his extramatrimonial adventures has caused much damage, and not only to his own personal wealth. A new event study by Christopher R. Knittel and Victor Stango of UC Davis estimates that in the days following Tiger Woods’ car accident, shareholders of companies that Mr. Woods endorses lost as much as $12 billion in wealth. These losts are measured relative to both the entire stock market and a set of competitor firms. His top five sponsors (Accenture, Nike, Gillette, Electronic Arts and Gatorade) lost 2-3% of their aggregate market value after the accident, and his core sports-related sponsors EA, Nike and PepsiCo (Gatorade) lost over 4%.

Now, as celebrity scandals seem to have become the cornerstone of American news as popular figures like Tiger Woods fall from grace amid intense media coverage of their transgressions, DeWitt Stern, a highly renowned risk management and insurance brokerage firm, is launching a new insurance product to stop companies from taking a financial hit if their high-profile spokesperson becomes embroiled in scandal. The Reputation Risk Insurance is likely to be available in the first quarter of 2010.

Are economists cheap or concerned about the loss of efficiency?

"Academic economists gather in Atlanta this weekend for their annual meetings, always held the first weekend after New Year's Day....The economists make cities bid against each other to hold their convention, and don't care so much about beaches, golf courses or other frills."

This is from this nice Wall Street Journal piece that lists a bunch of instances where economists appear to be cheap. But I tend to agree with Betsey Stevenson, who says economists aren't cheap, but they are concerned with a loss of economic efficiency.

For example, Robert Gordon, of Northwestern University, says he drives out of his way to go to a grocery store where prices are cheaper than at the nearby Whole Foods, even though it takes him an extra half hour to save no more than $5. Still, he lives in a 11,000-square-foot, 21-room 1889 mansion on the largest residential lot in Evanston, Illinois. "The house is full, every room is furnished, there are 72 oriental rugs and vast collections of oriental art, 1930s art deco Czech perfume bottles and other nice stuff," he says.

"Some economists may be cheap, at least by the standards of other people, because of [...] a fascination with money and choices"! I agree. It's not how much money you spend that matters, as long as what you get for it is worh it.