New students of economics commonly think that for an issue to involve economics it has to involve money. Fundamental concepts in economics, however, often pop up in unrelated contexts, many of which have no monetary or financial aspect. Consider the…
Author: Ed Lotterman
Fed’s interest in rates is all about bonds
After the Federal Open Market Committee met Tuesday, it issued this statement: “The Federal Open Market Committee decided today to keep its target for the federal funds rate at 1 percent.” That is a matter-of-fact statement that most people understand.…
Think of the bonds you invest in as IOUs
Many people do not understand bonds. This isn’t a disaster for society, but some households’ finances can suffer if they invest in something they do not fully understand. Furthermore, misunderstandings about the role that bonds and bond markets play in…
Shielding drugs, rock ‘n’ roll
Two unrelated public controversies — drug costs and music copying — highlight an important economic lesson. Society benefits when governments grant property rights in intellectual property through patents and copyrights. But the benefits can be costly. Patents and copyrights help…
Like farmers, small businesses need assistance
The changes last week at Minnesota Technology Inc. highlight an interesting paradox in public policy. Historically, we have devoted substantial resources to technical and management assistance for farmers. But similar help for small businesses continues to get short shrift. Are…
Plumbing depths of user optimality
Examples of economic concepts are all around you, if you just know how to recognize them. Just yesterday I experienced a great example of “Pareto optimality” while installing new copper water pipes in the bathroom of my century-old house. “Pareto…
U.S. bonds in foreign hands don’t pose big threat
One of the knottiest issues surrounding the U.S. national debt is that of growing foreign ownership of our Treasury bonds. Is there any danger in the fact we owe about a third of our national debt to entities outside our…
Debts differ from deficits
An old song urges us to “look for the silver lining” in any cloud. Our nation’s return to large budget deficits under the Bush administration makes things easier for teachers like me. As I teach macroeconomics this fall, I know…
Drug benefit is close to “bilateral monopoly”
The as-yet unfinished legislation establishing a prescription drug benefit as part of Medicare will set an interesting milestone. When enacted, the United States will face a situation of effective “bilateral monopoly” in the production and sale of many pharmaceuticals. It…
A lesson in “rent seeking”
Recent stories in this newspaper describing the financial ties involving Gov. Tim Pawlenty, State Auditor Pat Awada and Metropolitan Airport Commissioner Victoria Grunseth with a telecom firm accused of fraudulent practices in several states illustrate the subtleties of a phenomenon…