Journalists: Learn Economics!

One of my favorite news articles from the past year is this:

What an Arrow Shaft Has to Do With a $700 Billion Rescue Plan

It's great for a bunch of reasons.  First, it ties directly in to a big public policy issue.  The big bailout bill had everyone talking, so it was great for getting people interested in economics.

Second, it tied in directly to material I cover in my MBA classes. This is great for motivating why MBA students should try to master economic thinking.  

Third, there's something a little sneaky going on... and everyone likes a good coverup.

The story is this: The bailout bill included a bunch of stuff that was completely unrelated to the bailout.  One was an elimination of the 43-cent excise tax on "natural-wood, unreinforced arrow shaft(s) suitable for use with bows with peak draw weights under 30 pounds."

What was this doing in the bailout bill?  The Senate needed to get House votes, so the bill was stuffed with a bunch of tidbits intended to make House members happy.  Peter DeFazio, an Oregon Democrat, had voted no on the bill --- and Rose City Archery is a big arrow maker, located in DeFazio's district. 

But the really great thing is this quote, from Rose City Archery CEO Jerry Dishion:  "'We don't get a penny,' he said, disputing reports that removing the tax would mean a windfall for Rose City Archery."

Dishion argues that the only beneficiaries of the tax reduction will be "school districts and the Boy Scouts and Girl Scouts organizations that buy his company's arrows."

Whaaaaaaat?

Simple analysis of demand and supply curves is enough to tell us that Rose City Archery will almost surely benefit.  If schools and scouting organizations don't pay this tax, then the price buyers pay will be lower... and they'll demand more arrows.  And this will mean more business for Rose City, and higher profits.  The only exception is if demand for arrows is perfectly inelastic --- this would mean that the quantity of arrows demanded doesn't increase when the tax goes away.  But I doubt this is going on here.  Seems to me that school districts and scouting organizations might have (a) limited budgets, and (b) lots of choices about what sorts of activities to put in front of kids. A reduction in the price of archery would probably mean more of it. 

I wish the reporter had followed up with this question:  "Mr. Dishion, what you said about not getting a penny is true only if demand is perfectly inelastic.  Can you provide us with some evidence on this point?"