Cafe Hayek

iPhone pricing

Apple has decided to keep restrict sales of iPhones. The AP reports (HT: Camilo Montenegro and Isaac Crawford):

Apple Inc. no longer accepts cash for iPhone purchases and now limits sales of the cell phone to two per person in a move to stop people from reselling them.

Why would Apple implement this policy? Why don't they just raise the price to prevent reselling and make more money?

Use the comments to discuss and I'll weigh in with an opinion tomorrow.

Renovating the cafe

We've made some changes to Cafe Hayek. Many thanks to Ben Parizek for technical assistance and execution.

We've made Snap optional. Depending on your tastes, Snap is the infuriating or fascinating preview you get when you roll over any link on the page. Some people love it. Some people hate it. So have it your way. If you like it, you can activate it by clicking on the Snap link down near the bottom of the left hand column. If you don't like it, deactivate it.

We've added a drawing of Hayek at the top of the right hand column. Many thanks to reader Ray Gardner for the wonderful illustrations. More coming from time to time. Not sure how we'll use them but I hope you like them as much as we do. Trying to sort out the legal issues but we'd like to offer some Hayek-illustrated mugs and t-shirts if you're interested. Just not sure if we have to get permission from the Hayek estate. Free and accurate legal advice much appreciated.

We've added a "books we like" feature toward the bottom of the right hand column.

At a reader's suggestion, we've allowed "limited HTML mark-up" in the comments. Is that working?

We've added a "Subscribe to EconTalk" option in the left hand column and gotten rid of the little player there.

Let us know what you think of these changes. Other suggestions welcome.

Modernizing the Cafe

Happy 2007, everyone!  You'll see that Russ has modernized the Cafe -- including adding a search engine and a radio player that lets guests listen to EconTalk.

Principles and Pragmatism

In a comment on this recent post, the always-insightful John Dewey says

To the "true libertarians" who would substitute free markets for medical licenses and the FDA:

Why don't you fight battles you have a chance of winning? The problem I have with libertarians and the Libertarian Party is that they take extreme positions on issues based on principle, and ignore political realities. The American public is not going to accept unlicensed medical practice any time soon, if ever. Quite frankly, suggesting that anyone should be allowed to practice medicine makes you guys look a little kooky, and undermines some of your more acceptable argument.

I believe society has a right and an obligation to protect children from truly stupid, life-threatening actions by parents. You libertarians probably disagree. I guess I'm not one of you, though we agree on many issues.

There's more here than I have time now to take on -- but before I get to my main point, let's be clear about one thing: to argue against medical-licensing requirements by the state is not to argue that quacks will or should practice medicine.  It's simply to argue that state licensing is neither the only, nor the best, means of certifying the quality of physicians.

My main point in this post has to do with the important question between pursuing goals that are today perceived as being politically achievable and making a case for an ideal society that is humanly achievable if not politically achievable today or even ever.  My interests largely run along the latter lines.  I am not a member of any political party; I never vote in political elections; and I've long ago lost any and all hope of finding salvation in politics.  Politics, in my view, is almost completely responsive to the prevailing public morality and ideology.  As I wrote here, the American Constitution really isn't written on parchment; it's in Americans' hearts and minds.  My goal is to contribute, in the best way that my modest talents permit, to changing ideas over the long-run.

And we would do well to heed the lesson of this observation from historian Richard Pipes (found on page 10 of his book Property and Freedom [Knopf, 1999]): "But men who take pride in their pragmatism often follow trails cleared by idealists."

Supply and demand and immigration

Do immigrants lower wages of native born Americans? Those who say yes, such as George Borjas in this New York Times Sunday Magazine piece by Roger Lowenstein, say it's just a matter of supply and demand—the supply shifts out and wages have to fall. But of course, that only holds if demand is constant as well as David Card points out:

As Card likes to say, "The demand curve also shifts out." It's jargon, but it's profound. New workers add to the supply of labor, but since they consume products and services, they add to the demand for it as well. "Just because Los Angeles is bigger than Bakersfield doesn't mean L.A. has more unemployed than Bakersfield," Card observes.

In theory, if you added 10 percent to the population — or even doubled it — nothing about the labor market would change. Of course, it would take a little while for the economy to adjust. People would have to invest money and start some new businesses to hire all those newcomers. The point is, they would do it. Somebody would realize that the immigrants needed to eat and would open a restaurant; someone else would think to build them housing. Pretty soon there would be new jobs available in kitchens and on construction sites. And that has been going on since the first boat docked at Ellis Island.

Seems pretty reasonable. But then Lowenstein gives the reader Borjas's retort:

But there's a catch. Individual native workers are less likely to be affected if the immigrants resemble the society they are joining — not physically but in the same mix of skills and educational backgrounds. For instance, if every immigrant were a doctor, the theory is, it would be bad for doctors already here. Or as Borjas asked pointedly of me, what if the U.S. created a special visa just for magazine writers? All those foreign-born writers would eat more meals, sure, but (once they mastered English, anyway), they would be supplying only one type of service — my type. Bye-bye fancy assignments.

Is Borjas right? Should Lowenstein be worried?  Give it a shot in the comments section and I'll weigh in later today or tomorrow.

Buying "American"

The Wall Street Journal reports (in a no-charge article for non-subscribers) that buying American isn't what it's cracked up to be:

Few sports cars have captured the nation's imagination like the sleek Ford Mustang, a 21st-century reincarnation of an American classic. The Toyota Sienna minivan, by contrast, speaks to the utilitarian aesthetics of Japan: refined interiors, arm rests and lots and lots of cup holders.

Yet, by a crucial measure, the Sienna is far more American than the Mustang. Statistics from the National Highway Traffic Safety Administration that were publicized in "Auto Industry Update: 2006," a presentation by Farmington Hills, Mich., research company CSM Worldwide, show only 65% of the content of a Ford Mustang comes from the U.S. or Canada. Ford Motor Co. buys the rest of the Mustang's parts abroad. By contrast, the Sienna, sold by Japan's Toyota Motor Corp., is assembled in Indiana with 90% local components.

Calling a car "American" or "foreign" has no meaning. But that doesn't stop "American" car companies from trying to use emotion to affect buyers:

There's more than a little irony in this, considering Ford has launched a campaign to regain its footing with an appeal to patriotism (catchphrase: "Red, White & Bold"). "Americans really do want to buy American brands," asserted Ford Executive Vice President Mark Fields in a recent speech. "We will compete vigorously to be America's car company."

As the Mustang shows, though, it's no longer easy to define what is American. For 20 years now, the dynamic car makers of Asia -- led by Toyota, Nissan Motor Co. and Honda Motor Co. -- have been pouring money into North America, investing in plants, suppliers and dealerships as well as design, testing and research centers. Their factories used to be derided as "transplants," foreign-owned plants just knocking together imported parts. Today, the Asian car makers are a fully functioning industry, big and powerful enough to challenge Detroit's claim to the heart of U.S. car manufacturing.

So if there's no such thing as an American car company or a foreign one, what's an "American" company to do?

On Thursday, the Level Field Institute, a grass-roots organization founded by U.S. Big Three retirees, is scheduled to hold a news conference in Washington. Among the points the group is expected to make is its belief that comparing relative North American component content is an ineffective way to determine who is "more American" among auto makers. A better way, says Jim Doyle who heads Level Field, is to look at the number of jobs -- from research and development to manufacturing to retailing -- each auto maker creates per car sold in the U.S.

Mr. Doyle says the institute's study shows that Toyota in 2005 employed roughly three times more U.S. workers, on a basis of per car sold in the U.S., than Hyundai Motor Co. Each of the Big Three manufacturers in the same year employed roughly three times as many U.S. workers, on a per-car-sold basis, as Toyota. "What's better for the American economy?" Mr. Doyle asks. A GM car "built in Mexico with 147,000 jobs back here in America or a Honda built in Alabama with 4,000 or 5,000 jobs in America?"

A challenge to our readers: why is this job creation measure irrelevant?

Are Real Estate Agents Overpaid?

Stephen Dubner and Steven Levitt in last week's New York Times Sunday magazine make the case that real estate agents are overpaid:

Since an agent's commission is usually based on a fixed percentage of the sale price — typically 5 or 6 percent, of which about half goes to the listing agent and half to the buyer's agent — agents' fees have climbed along with home prices, even though they probably don't have to work any harder to sell an $800,000 house than they do a $200,000 house.

A listing agent really only performs four main functions: setting the price of your home, finding potential buyers, prepping and showing them the house and handling the negotiations and contracts. Just for fun, let's put a value on each of these functions. Setting a home's asking price requires a few hours of work at most, studying the house and the data on comparable sales. Showing the typical home might take 20 or 30 hours, with negotiations and contracts taking maybe four hours. Attracting potential buyers is of course the trickiest task — which is why, as the Justice Department alleges, Realtors have tried to block access to the for-sale databases. But it's now easy to find independent or discount agents who will list your house on the Multiple Listing Service for a fee of about $750.

So in sum, we are talking about perhaps 40 hours of work. Let's be generous and say that's worth $100 an hour. Add another $750 to list the home. That's a total of $4,750, which makes the 6 percent commission that you would pay on the sale of a $500,000 house — $15,000 each to your agent and the buyer's agent — look pretty steep. It would seem obvious that being an agent during a real-estate boom is a great way to earn a good living.

They then go on to talk about how real estate agents actually don't do very well after all—when commissions are high, more people get into the real estate business, so while the commissions are high, it gets harder to get listings.  They imply this a market failure because more real estate agents should mean lower fees.  And consumers, they claim, would prefer lower fees rather than having more real estate agents in a market?  Do you agree?  Should the commission fall for higher prices houses? When a real estate agent sells a $500,00 house and earn $15,000, is this something that is worth no more $4,750?  Comments are open and I'll weigh in with another post in the next week highlighting the best responses.

Do minimum wages cause unemployment?

We're adding a new category today, Cafe Conversation.  The idea is to present a puzzle, let you, the readers comment on the puzzle, and then later in the week, I'll post the most interesting response or responses and add some comments of my own.

A reader wrote Don and me wondering whether the minimum wage causes unemployment:

I decided to look up some statistics on my own. Here are two sites I found:

http://www.dol.gov/esa/minwage/america.htm
http://money.cnn.com/pf/features/lists/state_unemployment/

Comparing these, I was disappointed to find that many of the states without minimum wage laws have fairly high unemployment, and the state with the lowest unemployment rate, Hawaii, has a minimum wage higher than the federal rate. Obviously I'm not foolish enough to think that the sole factor contributing to unemployment is wage rates, and obviously this doesn't even approach a scientific study, but it was a pattern I didn't expect to find. Any thoughts on the issue?

Have at it, folks.