Opinion

Edward Hadas

Surge pricing and the just economy

Edward Hadas
Oct 15, 2014 14:58 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Surge pricing is what car service Uber calls its reliance on the market mechanism. The use of price to balance supply and demand is a perfect example of standard economic theory in action. It is also a good example of why market economics can have an anti-social edge.

Uber finds the market-clearing price with an algorithm rather than the auction found in textbooks. But the principle is the same. As the fare goes higher, more drivers decide to stay on the road and fewer would-be passengers decide to use the service. While Uber’s calculation is biased to maximise rides rather than driver revenues – it will choose 10 fares of $10 over one fare of $100 – the balancing price can be as much as seven times normal.

The surge approach is not new, but it has become more common in recent years. Hotels and airlines charge low prices off-season and very high prices during holidays or conventions. Restaurants, utilities and shipping lines try to guide customers with discounts and surcharges. For such enterprises, which have high fixed costs and face quite sharp changes in the natural level of demand, it makes sense to encourage customers to use their facilities when they would not naturally want to.

Still, considering how often the economy is described as a market system, Uber-style variability is surprisingly rare. Both prices for consumers and wages for workers are usually more or less steady through the course of the day and over the seasons. In percentage terms, the deviations created by money-off offers and higher rates for working overtime are generally pretty modest.

Call that money-printing?

Edward Hadas
Oct 8, 2014 14:31 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Finance doesn’t get the disrespect it deserves. Nothing about money and credit is sacred – certainly not quantity of currency outstanding. The political and monetary authorities should feel free to add and subtract money as needed to help the economy function better.

Consider the current oversupply of debt. Loans can be a very helpful financial tool. But right now, the tool is malfunctioning. The vast quantities of debt sloshing around the global financial system have brought much of the developed world into a sort of financial gridlock. Companies and households restrain their hiring and spending because they feel financially insecure. Governments are reluctant to borrow more because their balance sheets are stretched.

In praise of restrained enterprise

Edward Hadas
Oct 2, 2014 09:18 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

British supermarkets are doing something unusual. They are following the rules of textbook economics: responding to competition by cutting prices. Such behaviour is rare. While business bosses often say they admire free enterprise, we actually live in a restrained enterprise economy. Everyone should be grateful.

J Sainsbury, the No. 2 in the British grocery market, is the latest established competitor to suggest that its profit is sliding. Its admission follows grim announcements from market leader Tesco and Wm Morrison. Tesco has already cut its interim dividend by 75 percent, and Sainsbury is likely to follow.

The core of what economics should be

Edward Hadas
Sep 25, 2014 09:36 UTC

Something may finally be changing in the study of economics. A new textbook, half of which has now been published online, is a small step in the right direction.

The book is called the “The Economy,” and it is produced by a group of economists known as Coreecon. They are supported by the Institute for New Economic Thinking, which is largely funded by speculator-turned-philanthropist George Soros. The text is available for free – which itself is a fine example of non-conventional economic thinking.

The voluntary effort is commendable, and the many students who complain that academic economics describes an imaginary world should be grateful. Still, the limits of “The Economy” show just how far the reformers still have to go.

Russia-Ukraine conflict shows money isn’t the root of all war

Edward Hadas
Sep 3, 2014 15:17 UTC

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Many people think politics is really a branch of economics. When the United States invaded Iraq in 1991, the common cry was that it was all about oil. On the same thinking, rich countries were indifferent to the brutal civil war in the Democratic Republic of the Congo – which has cost 5.4 million lives, according to the International Rescue Committee – because the economic stakes were too low to matter. This economic reductionism goes on in developed countries too. Pundits and pollsters argue that elections are won and lost above all else on the economy.

Such ideas can be traced back to the philosopher Karl Marx. He believed that material considerations motivated everything people do, including how they are governed. In modern surveys, people routinely say that the desire for better jobs or higher incomes is not what drives their voting behaviour. On Marx’s view, these respondents are either lying, or in denial. They may not realise that economic discontents and aspirations drive their action – and all of history.

Followers of this dialectic should be disconcerted by current events. Only a die-hard Trotskyite could see economic issues behind the conflicts in Ukraine and Iraq.

Central bankers’ reward for failure

Edward Hadas
Aug 28, 2014 09:12 UTC

Economic systems that work well do not have many heroes. The elevated status of the world’s central bankers – seen in the close attention paid to their annual get-together last weekend in Jackson Hole, Wyoming – is a sign that the financial system works badly.

Most of the modern economy flourishes without much help from professional economists. That would have pleased John Maynard Keynes. The British economist thought his peers should be like dentists – “humble, competent people” who could deal effectively with specialised problems. Such technicians do in fact take care of the production and distribution of goods and services, the allocation of incomes, the protection of the environment and even the development of new products.

These practical, almost anonymous experts have been a huge success. The prosperity of developed economies is fantastic by any historic standard, and many goods and services are available to rich and poor alike. The system deals fairly easily with innovations, changes in taste, natural disasters, military action and pretty much every sort of disruption – except severe financial problems.

Time to retire unemployment

Edward Hadas
Aug 20, 2014 09:25 UTC

Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Give Janet Yellen credit. The chair of the U.S. Federal Reserve is keen to use monetary policy to help get more people into good jobs. Her priority – work is more important than finance – is reflected in the subject of this week’s get-together for the world’s central bankers: “Re-Evaluating Labor Market Dynamics.” One item should be on the agenda of the distinguished guests at Jackson Hole, Wyoming: how to replace the concept of unemployment.

The suggestion may sound frivolous, but the idea of a simple measure of unemployment is tied to a wrong view of how modern economies work. The unemployment rate made sense in developed economies a century ago, when workers were men who wanted full-time jobs as soon as they finished school, and to continue until they died or retired. In that world, unemployment was easy to define – working-age men without a job.

Do autocrats and strong economies go hand in hand?

Edward Hadas
Aug 15, 2014 08:52 UTC

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By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Are authoritarian governments bad for the economy? Turkish voters do not seem to think so. On August 10, Tayyip Erdogan won an absolute majority in the country’s presidential election. Observers say that the country’s increasing prosperity is a big part of his AK Party’s appeal. Erdogan is not the only popular authoritarian around. Viktor Orban, who reportedly endorsed “illiberal” government, wins similar majorities in Hungary. If Russia had an election today, President Vladimir Putin would win big. And Xi Jinping, who seems to be making one-party rule in China more authoritarian, would undoubtedly triumph if the government bothered with elections.

The success of such leaders irritates many Americans and Western Europeans, who believe that genuine multi-party democracy is the natural political arrangement in the modern world. Clearly, though, most voters in some countries want authoritarian leaders who tolerate no effective opposition and who impose their vision on the nation.

Growth in a rich and crowded world

Edward Hadas
Jul 23, 2014 14:23 UTC

Perky, productive robots, or nothing more than a few new smartphone apps? Cascading innovation, or just a few tweaks? Economists and technologists are debating what the future holds.

Pessimists like Robert Gordon of Northwestern University see decades of slow growth ahead, with little scope for big leaps forward. The optimists, among them Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, expect new technological glories. Both sides are more wrong than right.

Everyone is wrong when the wrangling is numerical. Arguments based on GDP and productivity growth are too circular to resolve anything. A main cause of any slowdown in reported productivity numbers is a judgment that innovations are becoming less valuable. So a reported slowdown cannot logically be used to support the argument that technology is advancing more sluggishly.

The stupidity of student debt

Edward Hadas
Jul 2, 2014 14:31 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The fast increase in loans to pay for higher education is a trend that is moving in the wrong direction. The idea that borrowing should play an important role in financing higher education, now standard thinking in the United States and the United Kingdom, is financially dangerous and economically wrongheaded.

Overall, American households are deleveraging. Most notably, U.S. mortgage debt outstanding has fallen to 51 percent from 71 percent of GDP since the end of 2008, according to survey data from the New York Federal Reserve. However, over the same period the ratio of student loans to GDP increased to 5.7 percent from 4.3 percent. The $1 trillion now outstanding is economically significant. In England, the ratio of student loans to GDP is only about half as high as in the United States, but the 80 percent increase over the last five years has been even faster.

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