Where could I possibly be going with a title like that? Remember yesterday I was astounded that Paul Krugman wrote: “We do know that demand curves generally slope down; it’s a lot harder to give good examples of supply curves that slope up (as a textbook author, believe me, I’ve looked)…”
So today I heard a story on NPR. Here is the article going along with it (which has more information than the NPR radio piece):
The Emmental Show Dairy has cranked out tons of cheese for years. But now it’s in trouble — production is down by a third and the company fears it may be forced to cut back to just a few wheels a day, enough to show tourists.
The dramatic slide in sales of Emmental, popularly known as “Swiss cheese” in North America, is caused by the strength of the Swiss franc, a financial phenomenon that is driving down profits in sectors across all of export-driven Switzerland.
Adrian Zehnder, the dairy’s business manager, says the company is earning 5.49 Swiss francs ($6.92) per kilo, down from 7.80 francs per kilo last year. Most of the cheese is exported to Europe, mainly Italy.
“We are really coming close to our break-even point, which is around 5.30 francs. Then we really have to think about stopping our production,” Zehnder said, on the rolling green hills in central Switzerland where cows graze within view of the snow-flecked Bernese Alps.
Imagine that! When the Swiss franc appreciates against the euro, driving down the effective market price at which the producer can sell Swiss cheese, the seller cuts back on production. Intriguing! Someone should do a dissertation on this odd result.
(Later on in the article–though they didn’t mention this in the radio piece–there is something about producers usually boosting output to deal with a small price drop. But that messes up my blog post, so ignore it.)
I’ve got some other examples. Various outlets often solicit me to write online articles for them. Guess what, Dr. Krugman? If they pay me as much (or more) than my current gigs, I accept. But if they offer me a lot less–or nothing at all–I typically decline, unless it’s a big-exposure website with demographics who would like my worldview. Isn’t that puzzling?
Haven’t you noticed the same thing with your public speaking engagements? If someone offers you $500 to give an after-dinner talk on moronic Chicago School guys, you probably turn them down. Yet if you’re offered $25,000, I bet you strongly consider it. Ishn’t zhat veird?
Or when I was a student manager in the cafeteria in college. It was always a pain to get enough people to sign up for the Sunday brunches. (People were hungover and plus the meal was a lot longer than the other meals.) So I asked the boss if we could give a 10- or 15-cent per hour premium for everybody who volunteered for those shifts, so that I wasn’t having to cajole people with sob stories about how understaffed we were on Sunday. As it turned out, the boss was a cheapskate and didn’t do it. But I have no doubt it would have been easier to get people to work Sunday brunch, for higher pay.
OK I think I’ll stop now. I think this episode should give us pause when Krugman says he looks out at the world today, and sees nothing but evidence that the recession is demand-driven. If Krugman, when writing a textbook, can’t even find a single good example of an upward sloping supply curve, then no wonder he thinks it’s absurd when free-market guys talk about the crippling effects of higher tax rates or the regime uncertainty of ObamaCare.
Last point: Unlike your discussion of the liquidity trap, Dr. Krugman, upward sloping supply curves really are Econ 101.