diet coke for breakfast


Tuesday, April 15, 2003

Posted by Tanstaafl
Arbitrage with Public School Teachers

Teachers in Oregon get a little taste of competition. There are two important economic rules at work here. The first is arbitrage, if one market has something cheaper than the other, people will make/save money by transporting the commodity between markets. As this happens repeatedly, the supply and demand balance out, and the prices will once again be the same. In highly liquid markets, like currencies or bonds, these "arbitrage opportunities" are very brief because the markets reequilibrate quickly. People who can spot and take advantage of these opportunities make huge money. In less liquid markets, like the labor market described here, it will take much longer to even out. The other concept is what I like to think of as the "Buggy whip" principle. People (usually labor leaders) scream bloody murder about lay-offs and unemployment. However, the economy needs a certain amount of unemployment in order to have liquidity in labor markets. If no-one was unemployed, there wouldn't be anyone to fill new industries. You don't see many buggy whip manufacturering jobs advertised in the classified ads. Does this mean that there are thousands of out-of-work buggy whip laborers. Of course not, when demand for horse-drawn carriages went out of style, they all lost their jobs, but now, their children or children's children probably have jobs on the line in Detroit. A similar force is at work here. These teachers may not be able to find jobs in Oregon, but it sounds like there is demand for them in other states. And thus, the big wheel keeps on turning.

(Can you tell how board I am today?)


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