12/17/2014

Bureaucratic Moral Preening During a Crisis

Beware. When bureaucrats start taking moral positions about economic situations they don't approve of ... it's time to start running away faster.
My experience is that this is usually a sign that the bureaucrats 1) are worried about getting fired because things aren't going right, and 2) feel that their policy tools are not up to the task.
This tidbit was reported by on The Guardian's live blog of the ongoing Russian currency crisis on the morning of December 17th.
The Kremlin has been blaming yesterday’s currency turmoil on recklessness and manipulation; one adviser said the “bacchanalia” in the foreign exchange markets must end.
What's a bacchanalia? In ancient Rome this was a festival celebrating the god Bacchus. Bacchus was the god of wine.* A bacchanalia was basically an excuse to get drunk and licentious.
There's no tried and true rule on this, but it's been my experience with studying macroeconomic policy (for going on 35 years now) that this is a bad sign.
* Mind that you don't get all preachy about wine either. Before chlorination of water was introduced about a century ago, anyone who didn't drink wine or beer, or live in a specific geographic context ... ended up dead from fecal pollution.†
†As to the specific geographic context, there are zero historical cases where teetotalling was successful for more than a decade or two without 1) water flowing (downhill) at a high rate of speed, and 2) an absence of non-circulating water in ponds, lakes, or protected bays — basically deserts, mountains, or very stormy coastlines.

12/15/2013

The Economics of Amazon

I recently read an article entitled, "Campers help Amazon keep up with holiday rush" on KSL.com.  This article presents the fascinating life of transient workers.  As the holidays approach Amazon requires the additional help of temporary and seasonal labor.  On Black Friday 2012 customers ordered 26.5 million items from Amazon.   Essentially, during the holidays consumers place increased demand on retailers such as Amazon, and Amazon does all they can to supply that demand.  To meet the external demand amazon has a greater demand for labor.

In all, Amazon will hire 70,000 seasonal workers this holiday season.  Temporary laborers are incentivized to fill this demand through decreased costs of living and increased flexibility to move. Furthermore, Amazon even pays for the cost of campsites for employees.

Amazon has warehouses in Kentucky, Kansas and Nevada.  These warehouses are located in smaller towns with lower costs of doing business.  However, these small towns do not have the population to support increased seasonal demand.  These small towns benefit as additional temporary laborers increase the population and demand additional quantities of services such as groceries and entertainment.

Increased holiday commerce has significant effects upon our economy.  As additional goods are purchased and funds spent it seems that nearly all aspects of our interrelated economy are stimulated.

http://www.ksl.com/?sid=28022965&nid=157&title=campers-help-amazon-keep-up-with-holiday-rush&fm=home_page&s_cid=queue-15

12/12/2013

Game Theory and Terrorism

On September 11th, 2001, terrorists attacked the World Trade Center towers, killing thousands of innocent people. Since then, there have been many initiatives taken by countries around the world to counter terrorism. According to CFO Magazine, these initiatives are effective at eliminating organized terror networks but have encourage the growth of smaller terror plots/organizations.

Game theory is all about information, decisions and payoffs. A rational person will choose a choice that provides him/her with the greatest payoff. Each individual's payoff is affected by the decisions of other players in the game. When there are low transactions (communication) costs, the game will likely provide the most efficient outcome.

This theory applies to terrorist cells. Large terrorist cells and terror plots involve many people and require significant coordination. Because of this, the larger terrorist cells have an increased chance of getting caught by western intelligence groups. This means that the payoff is now riskier for large terror networks/plots. This causes terrorist to shrink the size of their terror networks and the size of terror plots. A smaller terror plot will have less of a chance of getting caught because it will not require as much communication, planning or coordination. This decreased risk probably makes the terror plot more valuable to terrorists. In summary, we see that game theory can describe the decisions of terror networks.

PCs Aren't Going Anywhere

In a recent article on the decline of the PC industry, analysts suggest that for the time being, the PC market is not doing as badly as it was predicted to do in 2013. I argue that while there is a significant decline in PC sales, it is only in the consumer market. Sales will remain strong in the business market.

It's really interesting to think that in 2013, phones and PCs can be thought of as substitute goods. Ten years ago, PCs were considered the future and there was no way that a phone could be a viable substitute. Advances in technology have allowed phones and tablets to become 'smart' enough to do most everything that a PC can do.

While its true that the PC market is shrinking, PCs will continue to remain relevant into the future for enterprise purposes. Right now, phones and tablets are selling a lot quicker than PCs are selling. This is happening because the market for private consumers is larger than the business market. Phones and tablets are relatively new, first-time purchases for many consumers and most would rather spend money on a tablet or phone because it meets their needs for internet browsing, gaming, social media, etc. For consumers, phones/tablets are substitutes for PCs. For businesses, phones/tablets are not substitutes for PCs. PCs are simply better suited for things like typing, working with spreadsheets, large amounts of data, and other tasks that are normally done during a workday. Because of this, overall sales of PCs will continue to drop but PC sales in the enterprise market will remain strong.

12/11/2013

American Airlines and US Airways Merger Monopoly?



Today, the merger between American Airlines and US Airways became official.   Once the merger is completed, the newly formed airline will control approximately 20% of the market according to an article on August 7, 2012 in the Los Angeles Times. There has been a lot of controversy about the merger, with some opponents calling the union between the two airlines a monopoly that would reduce competition and raise fares.  We know that a monopoly, according to our textbook, is defined as the “only seller in the market.”  One thing we know for certain, is that even after the merger, the newly-formed American Airlines Group Inc., is not the only seller in the market.  However, if we take a closer look we may see that American Airlines Group, fits the characteristics of a monopoly if we look at market power. Market power exists when a seller can control the market, specifically when it comes to price and quantity demanded.  In more specific markets, where American Airlines dominates, like Reagan National Airport, we can see how American Airline has market power and could potentially have market power.  In anticipation of this, one article describes the details of a settlement where American Airlines will have to give up some of their market power and share some of its flight slots with Southwest and JetBlue. All in all, American Airlines with give up 52 flight slots at Reagan National effectively lowering its market share from 70% to 56%.  56% is still a pretty big chunk of the market in the Washington, D.C. airport but if we examine airports nationally, we can see that each airport has its own market power. We find Delta in Salt Lake City or Continental in Houston, TX as huge market powers of their respective airports.  I think this variance across the nation helps to alleviate the possible repercussions of any monopoly and its effect on price within the industry.

Proposed Federal Minimum Wage Increase


Congress’s proposed changes to the federal minimum wage will effectively raise it $2.82, from its current $7.28 to $10.10, over the period of 2 years.  This article discusses the economical implications of such a proposition.  There is much discussion as to whether or not such an increase will positively impact the economy.  Despite any negative offerings outlined by this article or anyone else, I am in favor for the minimum wage increase.  My reasons are as follows; I do not ever see myself competing for a low-wage job, thus this area is not an area of concern for me, I feel it will only increase opportunity for workers in states whose minimum wages rates are currently low, and it will keep employee turnover relatively low.

Overall, I believe that increasing the federal minimum wage will spur growth in the economy and in overall business activity.

12/10/2013

Winners Curse: Craigslist

I am not ashamed to be one of those "low-ball bidders" who is always scanning Ebay, Craigslist, and KSL classifieds in search of that GOLDEN nugget.  Recently, I read an article about the "winner's curse," which states that many auction items are sold well above their intrinsic value.  This is often due to the fact that information is not equally known by both the buyer and seller.  If I offer a high price, I will win both high and low quality items but pay more -- on average -- than what my items are really worth.  This is known as "information asymmetry."  As a result of this knowledge, we can all constantly low-ball bid items and walk away with the deal of a lifetime on a weekly basis.

As a seller of a collectible item, we now have a problem on our hands.  How do we maximize our final selling price?  It is simple.  There is a reason you get the best deals on ads where no picture is offered, and no detailed description is available.  To get every dime out of your item, make sure to offer ample pictures, descriptions, ownership titles, letters of authenticity, etc.  An article recently published by the American Economic Association about asymmetric information revealed that eBay Motors auctions fetch an extra $80 per photo provided by the seller.  Happy Bidding/Selling!

Black Friday and Cyber Monday: Internet Sales Soar

Cyber Monday is widely regarded as the Super Bowl of online sales. This year's Cyber Monday did not disappoint, as it set record online retail sales and retained its status as the biggest online shopping day of the year. In fact, since the creation of "Cyber Monday" in 2005, each year has topped the year before in online sales, and there aren't signs of slowing the growth either. This year's Cyber Monday sales grew by 18% from last year. Those numbers could be higher, however, if companies were not dragging the sales out over the entire week. Over the last couple years we have seen a shift, as "Black Friday" has become "Black Weekend", and "Cyber Monday" is becoming "Cyber Week". Companies are beginning their sales earlier and keep them going longer. Because of this, we can no longer accurately analyze growth for Black Friday or Cyber Monday by looking at Friday's or Monday's sales figures independently.

In fact, according to an article by CNN Money, Black Friday sales fell 13.2% from last year. However, if you look at "Black Weekend", which spans Thanksgiving Day through Sunday, cumulative sales actually crept up 1% compared to last year. Stores like Toys 'R' Us, WalMart, Target, and Best Buy opened their doors on Thanksgiving Thursday, which significantly cut into the traditional Black Friday sales. But this only partly explains the odd distribution of sales over Black Weekend. The main culprit is online sales channels. Black Friday is no longer a one-day event, nor is it limited to brick and mortar establishments. In fact, we are beginning to see a shift as sales are going cyber. According to IBM's 2013 Black Friday Report, mobile traffic for Black Friday grew to nearly 40% of all online traffic, which is an increase of 34% from last year. Mobile sales reached 22% of total online sales, which is an increase of nearly 43% from last year. Retailers that catered to online customers found much success. Amazon and Ebay were extremely successful this year siphoning customers from brick and mortar stores. While brick and mortar black weekend sales rose just 1% from last year, sales on Amazon's and Ebay's marketplaces rose 30% on the weekend of deals from last year. The future of "Black Weekend" and "Cyber Week" is going cyber.