New York Times, Meet Economics 101

6 04 2010

This is a nitpick, but this NYT op-ed by Jay Soled and Richard Schmalbeck, on tax deductions granted business for attending sports and other entertainment, has a minor economics error in it, and I feel great need to point it out.  While I generally agree with the analysis and policy recommendation, the following section does not scan:

These deductions have led to higher ticket prices in two ways. On the demand side, they have fueled competition for scarce seats, with business taxpayers bidding in part with dollars they save through the deductions.

On the supply side, the large number of businesses bidding for expensive seats has driven the expansion of luxury skyboxes and a reduction in overall seats in new ballparks.

The authors argue that there are two effects–one each on the supply and demand sides–but there’s actually just one effect, on the demand side. In response to the policy-induced demand increase, quantity supplied has increased, but quantity supplied is not the same things as supply, and supply is not affected by the policy.

If government were to subsidize construction of stadiums with luxury skyboxes (which, of course, they do, but this is not the point the authors are making), then indeed there would be a supply side effect.  Instead the authors are trying to present a demand side effect as both a supply effect and a demand effect, a most nefarious* attempt to strengthen their case.

*: Not actually that nefarious

Anyway, this whole post is a roundabout way of saying this:  It’s time to start blogging again.

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4 responses

6 04 2010
Joe

Our federal government should not be subsidizing local sports teams (demand or supply side) because local sports teams lead to provincialism, tribalism, and other -isms that tear our country apart.

7 04 2010
Ben

Well Joe, when baseball bat-waving Red Sox nation take to the streets to square off against hockey stick-wielding Red Wings fans, you can use this blog comment to claim: “I told you so.”

7 04 2010
Joe

More likely it will be Tiger Woods fans against Yao Ming fans. MLB and NHL fans have more similar politics:

11 04 2010
Co-manager

The wording is rather odd, but I don’t think the authors would disagree with your assessment. They say “supply side” without really stating whether they mean supply or quantity supplied (one guy is in law school, so maybe the wording could be confusing to economists). Also, I’m not quite sure if the usual “supply-demand” analysis applies here. Maybe, the monoplists’ “marginal revenue = marginal prices” scheme fits better? Anyhow, nice to have you back writing!

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