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.