Comments on economics, mystery fiction, drama, and art.

Friday, June 27, 2014

Why It's Important to Consider Volatility of Prices When Thinking About Measuring the Rate of Inflation--In One Graph

When we teach introductory macroeconomics, we frequently talk about the importance of trying to keep in mind that some prices are (much) more volatile than are others.  Indeed, the Bureau of Labor Statistics publishes what is often called the "core" CPI measure of the rate of inflation, based on the CPI excluding energy and food prices.  But it can be hard for people to "get" why excluding extremely volatile prices can be important.

Here's one graph that, I think, does it.  The black line is the 12-month percentage rate of change in the CPI (all goods, including gasoline) and the 12-month percentage rate of change in the price of gasoline.


(Click to enlarge.)

Keep in mind that the price of gasoline is included in the CPI, so the increases or decreases in gasoline prices are already a part of the rate of inflation as measured by the CPI.  Also, by using 12-month rates of change, rather than monthly rates of change, I have already damped somewhat the volatility of gasoline prices.  (The monthly percentage changes are something to behold...)

And it's true that during the 1967 to 2014 period gasoline prices increased at a faster annual average rate (5.3%) than did prices in general (4.3%), it's also true that the extraordinary volatility of gasoline price changes would give us, by themselves, a misleading idea of that is going on.

(Data from FRED.)

Monday, June 23, 2014

The "De-mall-ification" of America

This article (from Slate) and the accompanying photographs are extremely interesting.  The discussion of the decline of the stand-alone, enclosed shopping mall evokes a number of thoughts.

First, the initial "take" of many urban economists was that such malls were contributing to the decline of older urban shopping districts, either in central business districts or in neighborhoods. 

Second, suburban shopping malls began to die, at least piecemeal, a long time ago.  In Indianapolis, where I live, the first suburban mall--Eastgate, about 7.5 miles east of the city center (it opened in 1957)--was eclipsed by Washington Square (opening in 1974, about 2.5 miles further east) and shuttered by the late 1980s.  Lafayette Square Mall, about 9 miles northwest of the city center, opened in 1968, and is now essentially empty (and has been for more than a decade), a sea of concrete surrounding the few remaining stores.  Glendale, a near-suburban mall, about 8 miles north-northeast of the center, had undergone a number of transformations, from open-air to enclosed to essentially re-built with a free-standing Target, a Macy's, and maybe a half-dozen other stores.  Near its end (in the early 2000s), there were about a dozen remaining businesses.

Third, central cities have been restructured (I'm not sure I want so say revived) by the construction of "vertical" malls (such as Water Tower Place in Chicago) and adaptations of old downtown stores into malls (such as Circle City Center, in Indianapolis).

--- "Birth, Death, and Shopping:  The Rise and Fall of the Shopping Mall," The Economist, December 2007.
Amie Dickinson and Murray D. Rice, "Retail Development and Downtown Change:  Shopping Mall Impacts on Port Huron, Michigan," Applied Research in Economic Development, V. 7, N. 2010, pp. 2-13.
Kenneth T. Jackson, "All the World's a Mall: Reflections on the Social and Economic Consequences of the American Shopping Center," The American Historical Review, Vol. 101, No. 4 (Oct., 1996), pp. 1111-1121.
Michael Fix, "Addressing the Issue of the Economic Impact of Regional Malls in Legal Proceedings," Journal of Urban and Contemporary Lay:  Urban Law Annual, V. 20, 1980, pp. 101-133.
Kent A. Robertson, "Downtown Development Strategies in the United States:  An End-of-the-Century Assessment," Journal of the American Planning Association, V. 61, N. 4, 1995. pp. 429-437.

Thursday, June 19, 2014

I'm a Profit Center!

I'm continuing to teach a little bit in my retirement, and the third iteration of an intro econ class for MBA students starts June 24.  I have 20 students, who each paid something like $4K each in tuition for the course.  I'm being paid $3K to teach it.  So, I am, in fact, a profit center!  (Maybe I should give my lecture on the theory of the optimal bribe and see whether I can extract any additional consumer surplus from them.)  (It'd be better to extract some surplus from the university, but I can't quite figure out how to do that.)