4/15/2008

News for everyday life

It's hard to feel like this is breaking news anymore. The news that the price of oil hit a new all-time high is almost a daily occurrence anymore. This AP article is filled with all sorts of the economic principles we have discussed throughout the semester; supply and demand, constraints, etc. Relevant to our more recent study is the externalities of the situation. We are all intimately familiar with the effect this has on our personal, everyday lives. Just driving our personal cars is cramping our style and effecting our decisions. I'm not sure where the locus of control falls with this, but we should be aware of the effect these conditions have on all other aspects of life too. As stated in the article, with the rising costs of fuel, especially diesel fuel, the cost of anything transported by truck, rail, or ship is going to have to rise as well. Obviously, this affects everything. How's that for an externality?

Do Girls Cause Divorce?

In this article there were many things discussed about divorce. There is a lot of research and there are a lot of people reading the research to "create" facts. There is a relationship between low income and divorce but it is unclear which comes first. The part of the article I found interesting was that couples were more likely to get divorced if their first born was a girl. The other thing that I found alarming was that non traditional families cost the American people "$112 billion per year, or $1 trillion each decade" in taxes. That is money coming out our pockets. This statistic really surprised me. There are tax benefits to getting married and there aren't benefits to getting divorced. As I continued to read this article I realized that we all need to be careful of the facts we are believing, and the evidence that are supporting the conclusions. This article did a good job of explaining both sides in the end.

4/14/2008

Economic Hypochondriacs Unite

Forget recession, bring on the depression, and make it a great one! I think there is a disconnect between the generation of Americans that made this one of the most influential in modern history and those that drive contemporary, mainstream opinion. Widespread diffusion of responsibly, spill over of the great society, and instant everything have changed the makeup of America’s character and I find it to be tragic. The greatest generation of Americans was born from one of the worst economic periods of our history, considering current sentiment, I welcome the forecasted economic downturn.

Squeezed By The Staples!!!

HELP HELP, the food costs are rising!! It’s ok though, because wages are also rising to offset… no wait, oh crap, only food and fuel costs are rising, everything else is unresponsive! Good thing these facts are kept under control with our exceptional MBA degrees that will undoubtedly land us successful high paying jobs no matter what the economy has to say about it right, right.

This little peach of an informative helps shed some light on our current inflationary saga. Interestingly enough the article begins by stating that the even Wal8Mart’s “Always Low Prices” aren’t so low these days and that around the world we are seeing food-related riots. That’s right, I am not just talking about the common food fight, these bad boys are riots! “Nearly every food staple has seen a double-digit percentage increase over the past year, including a 38% hike for a dozen eggs, to $2.16, and a 19% jump, to $1.78, for a loaf of white bread, according to American Farm Bureau data.” Basically the average American has turned into a coupon hunter. I don’t know about you, but it looks and is starting to feel like we have been thrown into a painful circle of, dare I say it, recession-linked inflation. Unfortunately for the consumer, all of the goods that are seeing price increases are staples, with little if any elasticity and discretionary spending. We need food, we need gas. Apparently we also need a big fat kick in the pants, or at least our pocketbook

Organ market-proof of concept

According to the article Organ Sales and Moral Travails: Lessons from the Living Kidney Vendor Program in Iran Iran has a program that allows donors to recieve compensation for donating a kidney. The government pays donors $1,200 plus some limited health insurance coverage. The program has been successful in eliminating the shortage of kidneys in Iran, proving the concept that if the price of a good is too low there is a shortage and increasing the price can stop the shortage. As we all know from our Aplia assignment "under an existing law passed by Congress in 1984, it is illegal to offer a financial incentive to organ donors." Perhaps it's time to take a look at these laws, make some adjustments, and save some lives.

4/13/2008

The End of Windows XP

Microsoft has announced it will stop selling windows XP for new PC's beginning June 30, 2008. The decision has sparked some controversy, and a petition, among loyal XP users who prefer it over the company's new operating software, Vista. The article states that many chief technology officers and IT managers found "no compelling reason" to switch. Stating that the amount of money this is needed to be spent on new hardware and training to support the new interface is not worth what added features Vista has to offer.

Given Microsoft's market power; it only makes good business sense for the company to make this move. As current user's PC's age and they shop for a new replacement, they will have little choice but to buy a new PC with the more costly Vista OS. Microsoft is only doing what any business with market power would do. I say, let them go for it.

4/11/2008

What's Your MBA Worth?

I enjoyed this analysis of the MBA curriculum and how it has been changing at particular business schools. Apparently, Yale recently shifted the emphasis of its program from functional to thematic--offering coursework covering customer, employee, investor, and so on. In the past several years MBAs have been the focus of much scrutiny, specifically the degree of coursework relevance for real world applicability and resultant unscrupulous activities of MBA grads in the business world (see Jeffrey Skilling of Enron and, depending on your perspective, President G. W. Bush). Many practitioners suggest that most MBA curricula still has some ways to go, in terms of career preparedness, before it gets to where it needs to be. Also, ethics doesn't seem to be so easily taught. Business grad students rank highest amongst other schools with regard to dishonesty with 56% admitting to cheating at sometime during their academic career. The article has a rosier picture to paint though; come graduation, we're not all deceitful first year cub scouts. Maybe I'm naive, but I've enjoyed the MBA curriculum so far and I think SUU offers a unique experience. Surely, there could be improvements here. Is our education meeting our expectations and if so, are our expectations in line with what lies ahead?

4/10/2008

Bush's Economic Perspective of Iraq

President Bush gave a statement today (April 10, 2008) on the state of Iraq's political, economic, and diplomatic state.  The interesting part of the article was that Iraq is currently in a process of rebuilding.  The country is stabilizing, other countries' embassies are reopening, and people are now feeling safe enough to rebuild.  Iraq's proposed budget plans to outspend us ten to one in construction projects.  
With a stabilizing environment and rapid growth, I would not be surprised to see investors begin their search for high returns.  There will continue to be a large element of risk but a definite ability to find projects with higher returns.  Iraq's rebuilding will definitely afford many the opportunity to find high returns on their foreign direct investment.   

4/09/2008

Fight for Old Subway Cars

One of the best ways to make an artifical reef is to push old subway cars into the ocean. Many states are realizing how great the subway cars are for the fish population and want to use them also. However, the problem is that there are not a lot of subway cars to go around. Using subway cars for artificial reefs started in 2001 when Delaware was the first state to receive the old New York subway cars for free. First of all, this was not good for the New York economy because simply giving things away is not always the best way to get rid of old products. There should be a price involved. Secondly, New York needs to open up to other states besides Delaware so that the best market price will be received for the old subway cars. Utilizing the knowledge that the old cars from New York are useful to other states can increase the benefits of getting rid of the cars. The benefits would come in because the subway cars would then have a price on them. Overall, this will actually help New York, as well as the other states that are purchasing the cars. To better the economy, states need to work together, like a business, rather than just simply giving away free hand outs.

Nobody Can Say Indiana Jones Is Inferior

Everywhere I look businesses are worried sick about the thought of a recession. Every industry is looking for ways to either cut costs or increase profit margins. Every industry is panicking except one, movies. The first thought that ran through my head when I saw the title of this article was what a bad time for producers to release such a great movie like Indiana Jones. But upon reading the first sentence of the article, I discovered this is actually the best time for great movies. Dating back to the depression people with lower incomes have skimped and saved to visit the theater just to catch a glimpse of their favorite inspirational heroes and heroines. Movies are an inferior good. When people have less income they see more movies. Who would have thought? When money is tight Indiana Jones will come to an encouraging rescue.

4/08/2008

A Second Stimulus Package?

This article discusses the possibility of a second stimulus package. Up to $1200 per couple is expected to be mailed in May and a talk of another package is swirling in Washington. Democratic lawmakers are trying to pass a second economic aid package that would help homeowners avoid foreclosure and increase spending on bridges and transit systems. Lawmakers believe that bridges and transit systems are deteriorating due to the lack of attention brought on by the Iraq war. The success of the first stimulus package is still unknown; therefore, would it be smart to compose another package? Many believe that infusing the economy with money is not going to help the economic situation. If you believe the economic stimulus plan is going to help, what do you think about a second stimulus plan? I believe that the first stimulus plan will work; on the other hand, it needs to be watched carefully in order to determine whether a second plan should be introduced.

4/07/2008

Where have all the salmon gone?


If you love to eat King Salmon you probably won't be eating it for awhile. King Salmon populations in Oregon and California have dropped from 775,000 in 2002 to 90,000 in 2007 and the number is expected to drop to 59,000 this year. This is prompting fish and wildlife experts to ban the harvesting of King Salmon for an undetermined amount of time starting in May. Fisherman are not opposing this action and generally support it to allow salmon populations to replenish themselves. Scientists do not know exactly why this is happening but believe it has been caused by cyclical changes in the oceans environment. Because of short term temperature changes the food supply for juvenile salmon swimming to the ocean for the first time in 2005 was significantly decreased possibly causing the salmon population to decrease. Salmon disappearing. So what does this have to do with economics? If you like to eat seafood this problem is going to make your meal more expensive even though King Salmon won't be on the menu. Fishermen will need to make up income somewhere and the most likely thing for them to do is raise the price of the other seafood they catch. With the decrease in supply for King Salmon the demand for other types of salmon will increase and make them more expensive. Don't be shocked the next time you head to a seafood restaurant and your bill is more than you expected. The question that will remain unanswered is how long will this ban on King Salmon be in effect and what will this do to seafood restaurants during this ban?

4/06/2008

Legalizing Polygamy

I was watching a special polygamy Oprah a few weeks ago, and as always my full attention was captivated by Oprah as she interviewed a young mother who escaped life in the Fundamentalist Church of Jesus Christ of Latter-day Saints community. Living so close to Colorado City, Arizona I believe the economics of the issue are very pertinent to Utah citizens. The woman being interviewed had many children. Her eldest daughter was turning 14 years old when she decided to leave the fundamentalist community in the middle of the night. She refused to let her daughter be married at such a young age, so she took her many children and started a new life.

In this article another underage girl became pregnant at the age of 15. Police raided a Fundamentalist compound but found no young girl. The Fundamentalists have only begun constructing these compounds to keep away outsiders. The woman interviewed on Oprah supported the legalization of plural marriage in attempts of reducing the religion’s secrecy. Authorities could more easily investigate underage marriage and save more girls like herself because polygamists would be less inclined to secrecy if polygamy was legal.

Would legalizing plural marriage decrease underage marriage in the Fundamentalist community? My answer is no. First of all secrecy is how the community survives. The church members are not allowed to view television, read the paper, and some days leave the “compound.” The religion is all people know and the fear of the unknown keeps people in it. Secondly, reducing the punishment for plural marriage would not reduce the demand for the religion to be secretive because the religion survives on this secrecy. The third reason is police more aggressively prosecute underage marriage rather than plural marriage. This still makes secrecy a priority.

Risk averse or a risk taker?

Men should forget studying economics and finance because psychologists have determined that their decisions come down to how much testosterone is flowing in their blood. A "new but growing field called neuroeconomics attempts to take the hard-wired science of brain biology and mix it with the softer sciences of psychology and economics to figure out why we make the financial decisions we do." Read More. With MIR technology psychologists were able to show that the same part of the brain that makes financial decisions was also active when men were shown erotic pictures. These same men were also more prone to making large financial gambles after being exposed to the erotic images. Is there a lesson to be learned from this study or is it just an article that we can all laugh at? Calculated risk taking is part of business but if certain other activities are going on risk taking can be taken too far. It is obvious that there are multiple factors in determining why people make risky decisions but we have seen recently several wealthy and powerful men pulled down because of their secret lives, such as the Governor of New York. So how can we draw a real life application to this study. If men can't keep their minds on their work, you know what I mean, they will make emotional and uneducated decisions that are too risky. So, I conclude, for men to make the best business and financial decisions they need to focus on their work and keep their minds out of the gutter. If this isn't possible then decision making should to be turned over to women because psychologist's haven't found evidence linking them to this problem.

4/05/2008

Duck and Cover Boise

There are many economic factors in deciding how vulnerable a city might be against a terrorist attack. Boise, the same Boise located in the state of Idaho, was the only western city to be ranked in the top ten most vulnerable cities in the United States. The cities people might perceive as more probable targets like Los Angeles and San Francisco are ranked 41 and 66 respectively. Why so low and why lower that Boise? The research is based on socioeconomics, infrastructure, and geophysical hazards. Boise is a risky city because it is located near the Lucky Peak Reservoir. This creates an opportunity for potentially flooding the city. These issues are weighted to determine how terrorists could potentially hurt the most people with the least amount of action. Essentially the report defines the opportunity costs for terrorists looking to destroy American lives.

Doctor Give Me The News

Dr. Tutfe has explained this week the power of a monopsony or single buyer. One example he cited was teachers of secondary education in the United States. These teachers staunchly advocate for the government but do not realize that the government is the main source of their compensation. Privatizing education would actually help teachers be compensated more fairly because it would reduce the power this single buyer has in the market. Which is why I was surprised to read this article in Business Week, that stated the majority of doctors are now in favor of a single government-sponsored medical insurance. I can see only two logical reasons for their rising support. The first would be the doctor’s ethical responsibility to help low-income people in this country get the proper health care. The second is more self-interested. Many people now just do not visit the doctor because it is too expensive; however, with the government-sponsored insurance more people will be more inclined to see the doctor. With increased patients doctor’s offices are able to earn more despite the projected lower earnings resulting from a national insurance.

4/04/2008

Wireless Price War

Verizon Wireless recently commenced its $99 unlimited calling plan and competitors of course quickly followed suit. Is this really smart? Cell phone companies have typically sold minutes in “buckets” of time, packaging deals to get the most surplus out of customers. By creating plans with unlimited minutes, wireless providers “could lose 25% to 40% of the revenue from some of their most lucrative customers.” I'm not sure how lowering the price like this could be good for the industry, except to get people away from landlines.


MBA Grads in the Recession

This article conveys that MBAs and business undergrads who graduate during an economic downturn have much lower lifetime earnings, sometimes by millions of dollars. A Citigroup spokeswoman said their offers were down 10 to 15%. One study showed that for every percentage-point increase in the unemployment rate at graduation, there was a 7% to 8% initial wage loss. This loss is multiplied when the grad's annual raise comes around and there's not as much to multiply. Different industries are also more apt to hire than others during economic downturns, and so a grad's entire career path may have to be shifted. So how should grads combat the sagging market? The article suggests that students should stay in school until the economy picks up again, arguing that it may hurt in the short run, but it will pay off in the long run. I'm not so sure on that. Although it's always great to be learning, if you aren't going to use additional advanced degrees, it doesn't seem worth it to go in debt for it. I think we'll have to just take the economy as it is and try to make money with a degree instead of slowing down school and continuing a part-time, low-wage college job.

Elephantiasis and Philanthropy

The CEO of GlaxoSmithKline has spent a couple hundred million dollars to fight Elephantiasis in third-world countries. He has also spent countless hours promoting and working on the project. It's great that a person and company are so willing to help mankind. However, is philanthropy smart, economically speaking? There are benefits (good PR and that warm, fuzzy feeling), but there are also costs. I once heard someone say that Bill Gates has done more collectively for the world by creating jobs and personal computers for millions of people than Mother Teresea did for the few thousand lives she individually touched. What do you think?


4/03/2008

Oil Chiefs Shift the Blame

Wow! Does anyone feel trapped by this endless ordeal over soaring gas prices? If you don't, then read the article "Congress Presses Oil Chiefs on Big Profits."

You can look at this conflict from two standpoints: a consumer or a producer. The consumer standpoint, as we all know, is extreme frustration over volatile gas prices and reported "big profits" for the oil industry at our expense. The last thing we want to hear after paying $3.29 per gallon at the pump is anything to do with increasing profits for oil producers.

As consumers, we know the complaints and frustrations of the American people; however, how much have we considered the oil industry as a business rather than the enemy. If you remove yourself from your consumer shoes and put on the hat of an executive in the oil industry, you'd be singing a different tune. Don't get me wrong--I am just as frustrated as the next person over the extremely volatile gas prices; however, as a business student I also recognize the reasoning behind some of the strategies practiced by businesses in order to grow and survive long term.

In the article, J.S. Simon made some "valid" points regarding the high profits of the oil industry. He pointed out that you have to put the profits in perspective relative to the investment requirements for the industry as well as the need for sustainability over down cycles that are likely to follow the market upswings.

As a business owner, what would you do? You are dealing with a potentially limited natural resource requiring a huge capital investment in order to distribute. There has to be some middle ground here: I understand that a business must be profitable in order to justify staying in business; however, does this justify virtual "rape" of the American economy?????

4/02/2008

Cigarettes…… Do we still need more regulation?

I could not believe this article when I read it. It seems that they want to once again put more regulation towards cigarettes. According to the article they hope to, “dramatically reduce tobacco marketing, to ban many flavored cigarettes, and to prohibit the labeling of cigarettes as ‘light’ or ‘low-tar.’”
Is it just me or does it seem like our government focuses way too much on cigarettes. It may be because at one time in history they freely gave them out to all the military or maybe there are stronger groups pretesting against it. I am not quite sure, but it seems to me that there are a lot more harmful things then this that seem to get no regulation.
Economically we have talked about how regulation for anything ends up hurting the economy more. Instead of banning certain cigarettes I think they should allow them and possibly just tax them more heavily and use that money to help our school systems that seem to be lacking funds. I think banning would not solve the problem, in fact I think it could be even worse. Maybe I am just a biased business student, but I don’t think that regulation is the answer in this case.

Monopoly Power

In class we have recently been talking about monopolies. In reading this article about the recent writer’s strike and how now the major TV stations are starting to negotiate with the writer’s unions it seems as though the writer’s have somewhat of a monopolistic control over the TV stations. The TV stations seem to be at some point willing to meet the writer’s demands. I guess it is kind of how Dr. Tufte was saying that movie stars or famous sports players have a monopoly for their name. I think in this case the writers exemplify their monopoly through their special writing styles that no one else can duplicate. With having the monopoly power the TV stations are practically forced to follow their requests. I think over time this power will decrease (the long run effect). If the writers demand is too high then over time they will replace them with other writers that do not demand as much.

Truckers Protest

This article discusses the protest that was staged by some independent truckers on April 1. The truckers are hoping Pres. Bush will use the nation's oil reserves to help combat the rising price of diesel and hopefully influence some companies to pay more per mile. Though it was a small protest, some of the shippers chose not to send goods because they feared truckers who worked would be retaliated against. There are no articles about a continuing strike today or another strike being organized for a future date - yet. One wonders if any changes will come from this strike. Will the government help out the struggling truckers? Should the government step in and use the nation's oil reserves? Will there be more protests? How high will the price of food go as truckers protest more and shipments aren't delivered? Will there be any effect on food from these few hours of strike on April 1?

4/01/2008

New Reform Moving Cuba Towards Capitalism

Raul Castro is furthering policy reform to help Cuba's economy and its citizens. This article reports that he has authorized the release of unused government lands to be transferred to private farmers and cooperatives that may choose which crops they wish to grow and sell. The government hopes that reforms like this will help put more food on Cubans table. One interesting statistic stated in the article was: 35% of arable lands controlled by private cooperatives produce 60% of the islands agricultural output. Numbers like these demonstrate the efficiency and productivity of capitalism over communism.

With this new reform, we can expect to see the supply curve shift to the right, causing prices to decline.

Start Packing Lighter, Folks

According to this article, Northwest is changing its luggage policies. Beginning in May of this year, passengers are only allowed to check one bag for free. The second bag will cost $25. Unless you're first class--in which case the second bag is still free. In addition, charges for overweight bags are getting steeper, too. Obviously, this move is in an attempt to discourage passengers from checking a second bag in order to better manage and cover fuel costs. But what do you think this will do to demand? I doubt people will fly first class instead of coach just to check their second bag for free. No, I think in the short run Northwest will probably suffer from lost ticket sales. But I have a feeling that (as fuel prices keep rising) more and more airlines will move to this kind of policy. So in the long run, it may not make a difference.

3/31/2008

Economic Globalization

As globalization becomes less about the future of business and more about current happenings; America as a whole has some introspective soul searching to do. America has enjoyed so much prosperity that, in general, we assume it is destined to continue without too much effort. Now that we are seeing and feeling the effects of a recession things must change. As stated in this article, America has to start acting. With this being an election year politicians need to take an economic refresher course. We all can agree that when we import illegal immigrants to take US jobs unemployment rises and wages become depressed. The concept we are not grasping as a nation is that importing Chinese garbage, otherwise known as goods, does the same thing. It’s time for politicians and citizens alike to make a global stand for our economy and put principles of sound business into practice.

Protecting our companies or protecting our borders?

The instability of the current economy has left many companies not able to fulfill their demand in hiring employees. Currently the jobs that are most needed (demanded) in our society are not being fulfilled (supplied). Bill Gates found that an estimated 140,000 jobs for Standard & Poor's 500 companies are left vacant. These jobs require high intelligence and the current US population cannot satisfy the demand. Many companies are looking toward the graduates, but many come from other countries and do not have citizenship here. With the lack of visas being given out it makes it difficult for companies to hire employees that are not US born. This lack in being able to fulfill the demand can cause many problems for the economy. Some argue that we should let the demand stay and should not allow the government to give visas to non US citizens. They argue that we must protect the US jobs and must secure our borders. While others argue that since there is a demand we should fulfill it and allow visas to be given out.

The Great Depression

I was initially struck by this article's title and its accompanying photo, but as I began to read the article I became comforted by the Independent's premise for such an alarming claim (that is, our country is now in the grips of a great depression). Apparently, those receiving food stamps has gone up by about 5% since last year. I am not downplaying the the significance of 1.5 million new food stamp users, but certainly this isn't the best barometer of economic stability out there. And in all honesty, these numbers don't seem surprising at all, especially considering the myriad problems our economy is currently facing. This reporter does briefly mention that the food stamp programs have made major efforts in the past 12 months to raise awareness of available food stamp money and their new swipe card, but never mind the impact of that.

This article does raise an important point regarding the rising cost of food particularly. It mentions an increased price of Irish soda bread in New York by 50% over the past year, while forgetting to point out the effects of the weakened dollar relative to the euro. Certainly, there are serious questions concerning the future health of our economy, but our news media does not benefit anyone with knee-jerk responses to matters they seem to know very little about.

Wealth and the Rule of Law

This article discusses findings from a recent study that show a positive correlation between the rule of law and the economy in terms of GDP per person. This should come as no surprise, because investors have more confidence in placing their capital in those countries that are politically stable. Citizens have a respect for the law when it is knowable and predictable. As laws increase in number and complexity, the populace loses this respect, thereby causing peace and order to decline. However, the study mentioned that is was difficult for economists to establish a link between rule of law and growth. Countries like China seem to go against the norm in this area. Why is this case?

Tufte's comment on education

Professor Tufte mentioned today that, after controlling for other factors, teacher salaries are higher when private schools are located close by. It seems that the teacher representation monopoly held by unions may be in danger and the prospect of lower economic profits may be somewhere over the horizon. So let’s all pick up the cause for school choice, considering that teachers benefit from higher wages and smaller bureaucracies, and students are better off by higher levels of completion. After all, Milton Friedman’s Choir already has provided an anthem.

How to Measure Average Income

Countries measure the amount of income of citizens of that country. The IRS keeps tract of this for citizens of the United States. The government gets these numbers from tax information. Is the number for average income of a resident accurate for the actual population? In this article the argument about migration and immigration is discussed. How many illegal aliens are in the United States? How is there income accounted for? The same is true for people that migrate from countries to other countries. There is an amount of poverty that is incorrect because migration. Migration is a way people avoid poverty. People will leave the country they are born into for another in hopes of creating a new life. The article asks how to account for this type of income.

Insurance to the Rescue… Probably Not

Gas prices are up again, but no matter how high the price of gasoline rises, people will still buy. It is estimated that it would take an 81-cent-per-gallon increase in the price of gasoline for consumption to decrease 6.5 percent. One theory circulating to lower gasoline consumption is car insurance. Insurance companies charge flat rates to customers with similar risks. One risk that is not accounted for is miles driven. It makes sense that the more a car is on the road the more likely a car will be in an accident, so people who drive more should have to pay more for their insurance. This benefits the insurance company by earning more premiums from those riskier clients. At the same time gas prices and consumption are kept are kept at a lower level. It could all be made possible with insurance.

It seems like this idea would result in nothing but positives for example: less traffic accidents, less congestion, cleaner air, less global warming, and less dependency on foreign oil; however, in today’s economy oil companies with monopoly power would simply raise their prices despite lower consumption. Monopolies can control price and quantity. Therefore rather than cause a gasoline shortage, monopolies will increase prices to realize more profits. The real result of the car insurance change is higher gas prices and premiums for commuters and logistical companies.

A $4 snack and cheaper airline tickets

In this blog entitled "There's no such thing as a free pretzel" the blogger talks about how airlines are now starting to charge their customers for pretzels, beverages, or pillows. At first many people are put off by the idea, thinking that those darned airlines are just trying to sell to a captive audience-why don't they just take a few dollars out of our wallets when we're going through security? I would guess that most customers don't realize that the real intent is to create some price discrimination. By offering lower airfares, the airline can attract some customers away from competition. These customers may not care much for a snack and are looking for the lowest fair. At the same time the airline can still service the snack-o-file customer who is not as price conscious and can still get their snack at an additional cost. Both the price sensitive and snack loving customers have their needs met while the airline is able to better fill their flights.

Lessons from the Depression

The article, Lessons from the Depression, explores Fed Chief Ben Bernanke’s background as a student of the era and how he aims to not repeat mistakes made in the past. Bernanke concluded that the actions taken by the Fed’s to increase interest rates during the depression actually lengthen it. So as a response to our current financial crisis, he has charted a course of lower interest rates despite concerns of inflation and the weakening dollar.

If the supply of money is held constant, a reduction in interest rates should increase the demand for money –causing a rightward shift of the demand curve. This shift in demand should drive prices higher, or in other words, should encourage inflation (all other factors held constant). Is this the price we have to pay to dampen the blow of an all out recession?

3/29/2008

Practical Opportunity Cost

I can never decide if I am amused or frustrated by the assertions of those who blatantly ignore the principle of opportunity cost. Take this individual, publishing a piece with the Motley Fool online community, who attempts to make the case that she receives an effectively higher dividend rate on her stock holding than is currently indicated because she purchased her position at a significant discount to the contemporary price. I'll admit that it is intuitive to relate our dividends (whatever form they may take) back to our original outlay of capital but this can be fundamentally flawed. In a highly liquid case such as this we have to realize that we are essentially purchasing those dividends each day with the resources we could have gained by terminating our position, that day. Failure to realize this principle obviously leads to an incorrect calculation of return on the investment and will cause us to fail to take advantage of promising opportunities that come our way.

3/27/2008

Gates Foundation Monopolistic?

Some humanitarian workers feel that the Gates Foundation's excessive sway has the best scientists “locked up in a cartel”. There is some concern that research priorities for sma ll organizations are distorted because the foundation does not specify areas it will not invest in.

Critics suggest that the foundation's massive spending on malaria research is a classic case of a near-monopoly leading to market failure: in this case, a market in medical prowess. The Gates Foundation has unforeseen effects: “Gates can solve problems with money—but a lot of money leads to a monopoly, and discourages smaller rivals and intellectual competition.”

Some people at the WHO, a Geneva-based arm of the United Nations, openly worry that the foundation is setting up a new power centre that may rival their organisation's authority. Such conspiracy theorists point to the foundation's recent grant of over $100m to the University of Washington to evaluate health treatments and monitor national health systems—jobs supposed to be done by the UN agency.

3/26/2008

Another Housing Issue

According to this article, the nationwide prices of homes are about 10 percent to high. Why are they so high amid plummeting home sales a falling home values? In Economics we know that if there is a decrease in demand, the demand curve shifts to the left resulting in a lower price supplied. Knowing this, why are housing prices remaining stable? It seems as though people are putting too much value in their home. Overvaluing their home because of the emotional connection they link to their home. This, along with hopeful outcomes that this housing slump will end, could also be contributing to the problem. I believe people need to be realistic to what is happening. Either drop your price and sell or continue to reside in your home.

3/25/2008

Paying Too Much?

The New York Times reports how we are able to negotiate prices at Best Buy, Home Depot, and Circuit City. Sounds like I’m back on the streets of Mexico. The reason the negotiating is happening is attributed to the sluggish economy and the abundant amount of information on the internet. Now the buying experience at these stores can become more efficient but the problem is it will be more time consuming. Of course those that want the item quick could still buy at the price listed but now every time I go to one of these stores I will feel like I’m getting ripped off if I buy the item at the listed price. You expect with the buying power these stores have you would already be getting the lowest price.

3/22/2008

Making the Most Out of a Recession

Recessions hurt. But according to this article, recessions can be a welcome opportunity to make some strategic moves to get more market share. Where most companies try to survive by tightening the reins on costs, the author of this article suggests that cutting the right costs and increasing others can help improve the company’s position when the recession ends. Particularly, he argues that companies should increase advertising expenditures during the recession. If companies continue to develop new products and advertise them heavily, those products will be fresh on consumers’ minds when the economy turns upward again, and demand for those company's products will increase.

3/15/2008

Where's the beef?

The US beef industry is becoming an oligopoly. According to the article "Brazil beef giant buys American" JBS SA, which is a Brazil-based beef producer, has been buying out other beef producers. Recently JBS SA announced it would aquire the 4th and 5th leading US beef producers. If the aquisition is completed, JBS SA will become the #1 US beef producer. The players of this industry are being eaten up by a select few. As these aquisitions occur, the industry becomes closer to an oligopoly. As we know in an oligopoly one firm, dominant in size (JBS SA in the USA possibly), can set the price and others will follow. Will we see beef prices increase soon? Will those delicious Junior Bacon Cheese Burgers sore off the $0.99 menu? It's hard to say, but the it looks like US beef consumers will soon be in the hands of JBS SA.

Hating Free Enterprise

Am I the only one that feels like there is some kind of target on my back just because I am a business student? Luckily, predominate media personalities like John Stossel occasionally take the opportunity to write excellent articles like this one. It makes me start to wonder why mainstream America is so disapproving of those who make it their life’s interest to produce and expect compensation for doing so. Suggested remedy; require everyone to read “Atlas Shrugged”!

Abandon "reform math"

This article (watch the video) discusses the decline in math education, namely within Washington state. Although, I feel that it is easily representative of the broader picture throughout the United States. It makes me wonder if the decline in math skills demonstrated by American college students really is that significant. Does the seemingly low supply of mathematicians among American students indicate low prices for potential services rendered or are foreign workers simply a bargain substitute? Should the Federal Government begin to consider some kind of tariff or quota on foreign students seeking math related degrees? I think this is an important factor impacting the makeup of America’s human capital, and as graduate students preparing for professions in management it is something that we should pay more attention to. I believe that the business that ignores the importance of math also ignores the potential for increased profits.

Gas Trouble in Maui

Gas prices have always been an issue with our economy. Some people complain about the high costs and believe that the government should intervene and set a price limit. Others look at the gas companies and think that is capitalism at its best. Hawaii is the most dependent state of oil and therefore is one of the highest paying states for gas. This is mainly due to the fact that it has to import more than 90% of its oil. Another major factor is that Hawaii is dependent on ships and planes to get most of its goods.

Of the islands in Hawaii, Maui is the most affected, having roughly 50 cents higher prices than the other islands. Maui also lacks a major transit system which makes it harder for the residents to get around. Many businesses such as taxis and limousine services are now having low profits and are close to having to shut down because of the high prices. Many of the locals that have their families routed in Maui are now having trouble to make ends meet. With gas prices going to $4 it is making it very hard to survive.

Should the government help the Maui residents out? Or should we allow the free market to work, which may cause some current residents to have to either go on welfare or relocate to another state?

Cell Phones…… Regulation?

In class we just got done talking about price floors and ceilings. As noted in class when these are applied to the economy they create inefficiencies and the market cannot run to its fullest capabilities. In this article it discusses the possibility of regulation with cell phones. Currently cell phone companies have high costs for customers that do not keep to their contract agreement. Many cell phone companies make their customers sign five to ten year contracts making it hard to switch to other competitors. By having these high switching costs it causes most customers to stay with the company even though they would rather go to another competing one. With government regulation they can create a price floor, and enforce how much the cell phone companies can charge. Also they can limit the amount of “sneakiness” or hidden costs.

In this article it found many advocates for the government to get involved. Christine Mailloux, a telecommunications attorney was noted by saying, “Consumers can't count on competition alone to get wireless companies to become more customer-friendly.” She instead believes this can be solved through stronger regulations. However, we as business students have been taught that regulation creates barriers for effective trading. So which side is right? Should the government intervene and regulate? Or do you think over time the competition will drive down the costs?

Wheat Prices On the Rise

This article addresses the increasing price of wheat and the effect on products in the grocery stores and bakeries. Part of the problem in supply lies in the increased export demand because countries such as Australia failed to produce their normal quantity. Another major problem comes from our federal government giving incentives to the farmers to produce corn for the production of ethanol. This is causing a number of issues. More farmers are replacing their wheat fields with corn fields due to the incentives, causing a reduction in the production of wheat. The supply of corn available to consumers is also lower than usual which is causing the price of items such as feed for animals to increase. The article mentions the desire by some for the government to step in and decrease the amount of wheat available for export, but I believe the government also needs to change their incentives to the farmers to better allow the market to determine production and prices.

3/14/2008

Taxes and the Presidential Election

With the presidential election coming up the debate of taxes and tax breaks will start to heat up. With the fear of a possible recession, inflation, and increasing oil costs the tax issue will be one that is closely listened to. As Americans feel the pinch in their wallets a presidential candidates stance on tax increases and tax reductions may play a factor in who they vote for. Jabs regarding taxes are starting to fly between Barack Obama and John McCain. Reuters Article The stance a presidential candidate takes on taxes affects not only personal income taxes but also the taxes business pay. Barack Obama has been critical of John McCain's flip flopping on tax issues. He opposed President Bush's tax cuts in 2001 but is accused of supporting permanent tax cuts starting in 2006 to get the Republican Presidential nomination. Barack Obama and Hillary Clinton have stated clearly they will raise taxes if they are elected president. I'm not suggesting which presidential candidate a person should vote for but taking into account our countries current economic situation a presidential candidates position on taxes may decide who gets the vote.

Thank You Die-Hard Moviegoer

There are two types of consumers that frequent the movie theater. The first is the casual moviegoer that sees the great movies we all love and remember. The second is the die-hard moviegoer that finds a terrible reviewed movie to watch late Tuesday night with a five dollar tub of popcorn. Die-hards are consumers that are not price sensitive while casuals will opt for bowling if movie prices increase. The movie theater business has a fairly competitive market, nevertheless competition is decreased when the moviegoer enters the theater. Once a movie theater has the hungry consumer inside the door their ability to increase profit margin on concessions has increased. Increasing profits then becomes a matter of getting more people in the door with a lower ticket price followed by an increase on particularly the sale of popcorn. The lower ticket price that the casual moviegoer enjoys is a result of the die-hard attending many movies and purchasing tons popcorn. Therefore the casual moviegoers should refrain from complaining about the price of popcorn when they hold a seven dollar ticket stub at their next movie.

3/13/2008

A Signal of Change for Cuba?

Cuba's new president, Raul Castro, has lifted previous restrictions against the sale of a handful of consumer electronic products, including computers. Is this a signal of what to expect in the future from this new leader? How will this new reform in policy affect the market of consumer electronic goods?

After years of increasing demand and limited supply due to the ban, prices for these items should be expected to be high until these two factors correct themselves. Initially, the wealthy will be the beneficiaries of the new policy until competition between retailers brings the equilibrium of supply and demand down to prices levels where more of the population can afford them.

Perhaps Raul is a little more level-headed and less stubborn than his elder brother Fidel.

A Signal of Change for Cuba?

3/12/2008

It's All Relative

Rising gas prices--they are always on our minds! The article "Record Gas Prices Push Energy Spending to Near 1980's Levels" brings a different perspective to this headlining issue. Adjusting for inflation, higher wages, and better fuel efficiency, some say we have nothing to complain about when it comes to the price of gasoline. Adjusting historical figures to 2008 dollars, we are actually spending less for fuel than we have since the 1980's. However, when we go to the gas station, we aren't thinking about what we paid for gas 15 years ago compared to our wages back then, rather we are thinking about how rapidly and dramatically prices have risen recently. It hasn't been a steady increase similar to the rise in wages. Rather it comes sporadically with prices climbing $0.25 to $0.50 in a matter of weeks. This highly volatile fluctuation seems to be more the cause of complaints than the actual price.

Another point to consider . . . . People will complain all day long about the price of gas, but I don't think the rising cost has really taken a complete toll yet. How many gas-guzzling vehicles do you pass on the highways every day? Stand in one spot on Cedar City's Main Street and take a quick tally of the percentage of vehicles that pass by that are fuel-efficient vs. gas hogs. Despite rampant complaints about inflated gas prices, people are continuing to purchase and drive big trucks and SUV's that average less than 10 miles per gallon. This indicates to me that the high energy costs haven't really hit us in the pocketbook yet. A more substantial change in behavior (i.e. driving more fuel-efficient vehicles) will be a better indicator that we really are suffering from the price increases.

3/11/2008

Jacking Our Info

Throughout the day, we generally feel protected from those trying to get information out of us; however, how safe are we? This article touches on companies which collect information from our fingertips. Every time we use the internet, there are companies who track not only the things we buy but also the things we search. The mundane searches and purchases that you make every day are being watched and recorded. The information then is sold to other companies, such as advertising firms, who need to know exactly what the customers’ interests are. This presents a dilemma of whether or not these practices are ethical. Just because we do not notice them recording our information does not deem it acceptable. Economic profits for those collecting information can be huge but under what cost. One needs to decide if the benefit of having custom advertisement directed to you outweighs the cost of being watched.

Now Hiring

With the economy down it’s expected that the job market would not be a pleasant situation. In fact that is the trend of last month as 63,000 jobs were eliminated. Now this could look like doom for those who are looking for a job or those who feel they have little job security. The good news is that the job market is expected to be hiring in the next couple of months. One report predicts a 26 percent increase in employee hiring within the next three months. This to me seems typical as the next three months is when universities all over the country will be releasing graduates out into the world. Now this percent increase is lower than it was last year at this time but is this due to the state of condition the economy is positioned?

3/10/2008

Oil Prices In Economic Folklore

The two nastiest global recessions of recent decades were preceded by huge and sudden rises in the price of oil, first in 1973 and then in 1979. These twin spikes, both engineered by the Organisation of the Petroleum Exporting Countries limiting its oil shipments, are still the textbook example of an economic “shock”—a sudden change in business conditions. Abrupt increases in the oil price have prompted anxiety about stunted growth ever since. In Shock Treatment the author suggests that due to improvements in energy efficiency our dependence on oil is not what it once was. Prices in real terms have returned to levels last seen in the 1970s, but their impact is not as powerful when set against the diminished economic importance of oil.
Higher oil prices act like a tax increase on users. The result is that consumers have less money to spend on other things. Economists are suggesting that oil shocks do not hurt as much because oil is used less intensively than before, because the economy is more flexible and because central banks are better at controlling inflation.

3/09/2008

$125,000/Year Teaching 5th-8th Graders

Zeke Vanderhoek, a 31 year old Yale graduate, received approval from the New York State Board of Regents to open a new charter middle school in 2009. What makes this school different is the way it pays its teachers. Teachers will receive a base salary of $125,000 plus bonuses based on the students and the schools performance. Mr. Vanderhoek believes that the high salaries will bring in the best teachers and which will directly correlate to better educated and better performing students. This is an experiment that he believes will serve as a model for other schools in the future. To make sure this project has control students will be admitted through a lottery system weighted to under performing children. Article

After reading the article I continued to read the various reader comments and found a large number of people becoming upset and accusing Mr. Vanderhoek of treating education like a business. Several comments claimed equitable funding for all schools is a better option but gave no explanation why they felt that way. According to my logic if we break down all the variables in education we will find it looks like a business with inputs and a system producing outputs. We hope the final product is a well educated student. So why can't business principles be applied to elementary education with the market determining the demand and prices for teachers? Teachers always complain about being underpaid and parents always complain of a lack of quality educators. So let's see if Mr. Vanderhoek has something here. If Mr. Vanderhoek can bring in better talent by increasing demand he will be able to have a more qualified pool of educators with the idea of creating a better output. This would also put greater accountability on the shoulders of Principals and Education Boards if their schools and districts underperformed and extreme praise if it works. I may be naive to how school districts operate now but treating it more like a business sounds like a good idea to me.

3/06/2008

Cuban Embargo Outdated?

This article discusses Cuba's economy. While still suffering from poor conditions for most people, its economy grew at 7.5% in 2007. It has untapped oil reserves, tourism and medical tourism as sources for future growth. Canada, Spain and China are investing in Cuba. Our embargo is a relict. We have found that one of the best ways to "Americanize" a country is to open the country to trade. Our culture is popular, especially with young people. With the embargo in place, businesses miss out financial opportunities, and the country misses an opportunity to turn a local "enemy" into a "friend".

3/04/2008

Sanctions Smanctions

The European Union has recently warned the U.S. that sanctions will be enacted if the WTO rulings aren't followed.  The article brings up the importance of the global debate surrounding tax cuts to American companies operating abroad.  The EU is making threats of the sanctions but have failed to properly assess the economics of such an act.  
As the dollar continues to fall, U.S. goods will become cheaper and cheaper for the Europeans to buy.  The countries in the EU will be able to acquire much more of our cheap goods during this time and benefit from the savings.  These sanctions would hurt the EU just as much as the U.S. From the article it seems France is just very upset and has pushed the sanction proposal because our tax cuts have benefitted Boeing greatly, which hurts its cash cow Airbus.  
The U.S. should be very careful in this situation because of the long-term political effects of sanctions by the EU and WTO, even though the sanctions don't make sense economically.  

3/01/2008

Immigration and Project 28

Much debate has surfaced on the topic of immigration. This article is about the "virtual fence" (radar, infrared cameras, and sensors) that has been proposed to stretch across the U.S.-Mexico border. Project 28, as it has come to be called, will amount to $20 million for completion. According to the article, there are currently 14,900 border patrol agents at work, with 3,000 National Guard members helping.

It seems like all we are doing is putting a band-aid on the problem. If we were to stop focusing on keeping illegals out, and focused on refusing to give illegals (though legal immigrants are fine) a reason to come, maybe things would be better.

Currently, the Bush Administration is starting to enforce “E-Verify,” a system that requires employees to confirm employee work status. Federal fines up to $10,000 will be enforced for employers not willing to comply.

Of course there will be ways around this system as well. However, I feel that if we focused on employers and enforced the “E-Verify” program, illegals would have fewer reasons to come to the U.S. because they wouldn't be able to make money. Of course this would only be one element and one minor aid to a bigger problem, but who knows?

Cornucopia of the Commons

I have always heard of the tragedy of the commons, where people act in their own self-interests with public resources, such as air and water. This article, however, introduces a new concept, the cornucopia of the commons. Many great things were mentioned, such as Wikipedia, shareware, and blog writers, that contribute and help the public, at no cost (currency-wise, not counting for time). It is so cool how people will come together to create information and programs that will help complete strangers for no pay. They get a satisfaction of expressing themselves and a feeling of charity, but other than that, nothing. It's nice to know that there's still a lot of good people out there.

Should We Trade?

This article mentions the polls that show how the majority of Americans feel that free trade helps other countries more than it helps them. While I agree that it helps other countries more, it is still helping us more than if we had not traded at all. A little improvement is better than no improvement, even if other countries improve more. It is interesting how sometimes we don't want any success if it means others are more successful than us. When the division of surplus is uneven, it seems “unfair,” and many times we would rather have nothing than feel that we are treated unfairly. Americans say that they are willing to pay more for products to keep them produced in America, but Wal-Mart and other similar companies are still doing pretty well. I feel that if we impose barriers to imports, those countries will just go elsewhere and it will hurt businesses in America who need those imports to make their products.

Technology of the Future

Remember "Back to the Future," and when Marty goes into the future and orders a drink from a talking T.V.? Well now there's something similar to that at a wine-bar in New York. This article is about the new technology of ordering. Any customer can touch the bar and a screen, similar to an iPod screen, will appear. You select a category with your finger, and the computer segments the different varieties of drinks until the screen delivers you to your narrowed-down drink of choice.

Is this technology “same-old?” Kind of. We've already got touch screens similar to this, like for ATMs, self-check-outs, and computer screens. The restaurant that recently installed this device (for $5,000 to $10,000) wants to seem more “hip” and make wine “more approachable.”

So, will these screens just be a fad? What will be the return on investment as opposed to the typical paper menus? Will consumers find that a "technology menu" adds to their consumer surplus significantly more than a paper menu? I don't think I'd be willing to bet on this investment paying itself off.

2/28/2008

It's Taking Me Moral Courage to Write This Topic

I know that people who after they read this post are totally going to hate me, but I hope you guys would understand. USA give millions of dollars to third-world countries, and what do we get in return? More countries that hate us, more trash-talk about Americans, and more debt in USA. In this website, it gives some of the countries that hate us. For example, there are many people in Pakistan, according to that article, that simply want to attack or even kill Americans. There have been many bomb blasts to hurt Americans.

Some of these countries hate us because America is such a dominant country that people can't stand it. However, some people hate us because they think that USA just can't keep their own business. All USA want to do is interefere with countries and go to war whenever they get a chance. The second statement, I do agree a little myself. Why do we constantly go to war, while other countries (even Europe) just do they own little thing?

By going to wars, it is not making some countries happy. At the same thing, we also lose lots of money. Another question is why after Afghanistan attacked USA, right after that incident we gave millions of dollars to them. We have also given millions of dollars to Iraq/Iran, and just lately in Africa. By giving millions to other countries, no wonder USA is in such a debt. If the government would just spend money on us, instead of in other countries, we would most likely not have seen recession, our exchange rate would have been stronger, and USA would have been stronger.

Man, I am scared that I am doing this post. Bring on the heat!

Castro and the Embargo

At the end of one of history's longest running dictatorial rules, this article gives a fine overview of the current status of communist Cuba. Realistically, we likely won't see too many changes with power officially transferring from Fidel Castro to his brother Raul.

The part I am most interested in has to do with the embargo. The author argues that if the embargo has failed to deter Castro after nearly 50 years, then what's the point to continue it otherwise. Also, most would agree that the embargo has certainly emboldened Castro and helped to glorify his rule from the Cuban perspective. Finally, it is the people of Cuba who ultimately suffer as they are left near destitute. Certainly the communist policies have contributed the most to this state of poverty, but if we re-opened trade after all these years, we would no doubt benefit along with all the Cubans. I wouldn't mind the opportunity to visit the Caribbean island. I wonder what others think about ending the embargo.

2/27/2008

Wal-Mart makes Gains in Troubled Economy

Wal-Mart is posting steady gains while other retailers are struggling as the economy cools off. Wal-Mart is in a favorable position compared to other trendier competitors due to the inelasitic nature of the goods they sell. People always need staple goods to survive whether in a recession or not. As household budgets tighten, buyers that may have once shopped at Target and now opting for Wal-Mart due to their comittment to low prices.

Rising Gas Prices

There is great speculation that rising gasoline prices this spring will lead to a decrease in demand as consumers have to spend more of their budget on filling up their tank. Though gas prices have been high for some time, the article claims that with the threat of a recession, consumers will be more conscious of price. It will be interesting to see if consumers 1) change their driving habits to save on gas, 2) cut back on other products to be able to spend the same on gas, or 3) if we continue to spend on both gas and other products despite the high prices.
Also, even if Americans cut back on consumption and demand stays stagnant in the US, the Middle East and China will continue to drive up demand which means prices are going to rise. With this situation, John B. Hess claims there is "[a]n oil crisis coming in the next ten years" due to both demand and supply.

Starbucks is Shutting Down!

On Tuesday February 26th Starbucks shutdown all of their United States stores for three hours so they could hold a training. For three hours they were going to be obsolete and Dunkin Donuts would have a dominant hold on the market. The Chicago Tribune reports that the 450 Dunkin Donuts in the Chicago area provided small lattes, cappuccinos or espressos for free during these three hours. This was a great move by Dunkin Donuts as it would likely bring in customers that have never set foot into their establishment. In the battle of the caffeine fix provider, if you’re able to get at least one individual to switch from the competitor to your establishment it will make up for the cost of the products you gave away free.

2/26/2008

Increase in India Medical Care Because of Low Cost

Medical care is an important issue in today's world. When it comes to medical care, America is one of the best places to have work done. However, the best does not always mean the least expensive. People are starting to find out that they can get the same medical procedures done in India for a fourth of the price it would be elsewhere. The quality of service is just as good in India as it would be in other more expensive locations. This is causing more people with medical problems that do not have insurance coverage to go to India for their medical procedures. This affects the American economy by taking customers out of the U.S., therefore moving profits to other countries. The demand for good inexpensive medical care is high in today's society and India is now starting to meet that demand. This is creating further competition for America and other medical care facilities around the world. This is great for India's economy but will damage the American economy.

Getting the Scoop on Off-Campus Housing

The Journal printed this article yesterday concerning off-campus housing concerns. SUU is working on a website where students can provide information about their experiences with off-campus apartments and managers. These surveys are meant to help students know which units have good management, and which unit managers are struggling. I think this is a good example of how symmetrical information can help to shift surplus. For example, if students publish in their surveys that the managers of XYZ Apartments are not cooperative, the demand for these apartments will go do down and the managers will have to lower rents to attract renters. This would shift some of the surplus away from the apartment owners (suppliers). Do you agree?

2/25/2008

Economic Stimulus Package

I was taught, and have come to believe there is no "free lunch". Unfortunately many Americans believe there will be a "free lunch" - that they will get a benefit without having to pay for it. Whether it is spending on a credit card beyond their means of repayment, or overextending to purchase a home in an inflated market, Americans seem to be blissfully ignorant of the consequences of their decisions. Now it is time to pay the piper. The housing bubble has burst, the debt burden is catching up to people, consumer confidence and spending drop, and "Presto" we have fears of recession. And in an election year! What is an incumbent to do? Well, pass an economic stimulus package of course. This will provide the "free lunch" that everyone needs to feel like they can go out and spend some more. Knowing Americans they probably will use the money to make additional purchases rather than paying off debt, saving or investing. The effect on the economy will be transitory, but perhaps it will be the right medicine at the right time. And we as taxpayers will be paying for this $168B stimulus package in the long run.

2/23/2008

Best And Worst Cities For Renters

Other factors can affect supply and demand in the rental market like an uncertain housing market. Job growth also affects renters. Salt Lake City has one of the fastest rates of new construction, but it isn't fast enough to keep up with job growth. A 3.1% uptick in jobs is the highest of any city measured, and the result has been a steady stream of new citizens moving to the city. More jobs, more people and higher wages have lifted prices in both the rental market and sales market there. Expected construction also adds a wrinkle to the present rental market. More inventory slows price growth.
The article points out that rental demand can be altered by more than price and quantity. Economic uncertainty and volatility in property values can also change consumer behavior.



2/22/2008

Subsidizing Fat Cats

Malaria is becoming an ever increasing concern. Where, decades ago, viruses like West Nile and Malaria were somewhat contained to Africa, today these diseases are becoming more and more widespread. This article talks about a new treatment for Malaria. Many Africans that are using older remedies to treat Malaria are finding that they are becoming resistant to the effects. A new remedy has come on the market that is less prone to resistance. It is a little too expensive, however, for the average African. A possible plan has been proposed to subsidize the cost to Africans. However, some people are against the plan. They feel that since there are so few suppliers the subsidy will end up going straight to profits.

I tend to side with those against the subsidy. Unless there is some way for the subsidy donors to demand that the suppliers charge a lower price for the treatment, there is no guarantee the treatment will get to Africans at a lower price. Especially where there are so few suppliers, the suppliers have, in essence, a monopoly on the market.

2/20/2008

Rental Price Ceilings: All in Favor Say "I"

What's your position: impose on the free market with price ceilings and floors or let the invisible hand guide the market without governmental impositions? The article "The Housing Bust Shakes up Rentals" from Business Week (02-12-2008) is a good discussion of a rental market without price ceilings.

Those in favor of rental price ceilings claim that rent control keeps housing affordable for lower income individuals. However, the article from Business Week illustrates that the market can and will return to an equilibrium price on its own without the imposition of a price ceiling. The article discussed how the rental market became flooded with properties during the housing boom in 2005 and 2006. By 2007 there was an overabundance of properties without sufficient demand to occupy them. This alone was enough to start driving the market towards an equilibrium without the influence of a price ceiling.

A negative consequence of price ceilings is that property maintenance becomes less of a priority for landlords. With rent control in place, landlords start to realize less profit and start to cut back on expenses that are impacting the bottom line. There are some expenses they have control over (i.e. maintenance, property improvements, etc.) and there are other expenses that are fixed (utilities, property taxes, property management, etc.) When rent controls are imposed, landlords are forced to cut back on those variable expenses, thus properties become neglected and the landlord evolves into a "slumlord."

Some worry that without rent controls, rents will skyrocket beyond anyone's affordability level. Now where is the logic in that? If rents become too high, the number of vacancies will increase. In a free market where there are no rent controls, the landlords will respond to the increase in vacancies by lowering rents and offering incentives to renters. I suggest this is a much better way to run a market than imposing controls that create a false market run by a bunch of "slumlords."

2/13/2008

Tax Cut 2008

Will the government really stimulate the economy by issuing these rebates? The government is going to give an extra rebate of $600 if you are single or $1200 if you are married, plus an extra $300 per child. In this article it says that the rebate is just going to be a 2008 rebate that are received on the 2007 tax return. This seems to me like the government is looking for a quick fix, and if the people who get this extra rebate spend their money the stimulus package will have a postitve effect.

2/09/2008

Should we Offshore Customer Service?

Offshoring is a key nowadays for a business to survive in this very competitive world. Companies that offshore are the ones that can be successful or hold a competitive advantage over others. How come? It is because by offshoring, businesses can pay a fraction of what they would pay over here. They also can get more talented employees overseas.

However, do you guys think offshoring customer service is a good thing? I mean, in this article, it said that offshoring customer service would hurt businesses a lot. It made a point that when a person tries to call to get a question answered, he/she gets a person in another country with a different accent that is hard to understand. I think companies should be really careful offshoring customer service. If a customer gets mad, he or she would hardly come back to shop at that company. Without customers, an organization cannot survive.

1/31/2008

Disney Dream Wedding

Disney's new idea is to create designer wedding gowns designed after princesses like Belle, Cinderella, and Sleeping Beauty. Disney already hosts over 2,000 weddings a year at Disney Land and Disney World. Creating a princess fantasy wedding, complete with a princess wedding dress, a pumpkin carriage, and Cinderella's castle could bring in a lot of revenue. I think the demand would be huge. Some may be surprised that brides-to-be would still like cartoon characters, but I think the result would be that most girls would love to have their childhood dream of marrying their prince in a castle in a beautiful gown come true. I think this is an excellent marketing idea that could bring in a lot of demand and profit for Disney. What do you think? Will this turn out to be a cliché marketing idea with no potential for growth past the wedding gown?

Now Hiring Generation Y

With the baby boomers starting to retire, companies are now seeing the need to compete for the best of Generation Y. This article stated that more than half of Generation Y's graduates move back to their mom and dad's house for the extra support and time to help them find the job they really want. Because Generation Y is being so picky, companies are having to be more creative as they try to woo this generation's different wants and needs. It was found that this generation cares more about work-life balance. Jobs that have good people to work with and support volunteering are important. I think it's interesting to see the difference of generations: our grandparents hated having days off because it meant less money, whereas this generation loves having the occasional day off (after expenses are paid for) because sometimes their enjoyment is more important to them than getting a few extra dollars.

Southwest Goes for Modesty

A woman flying on Southwest Airlines was asked to cover up her immodest clothing on a summer flight. Looking at a picture of what she was wearing that day, I don't think she was dressed that badly, but I can see how it could be a negative externality to others, or at least make family-type people uncomfortable. The media made it seem really bad, but after reading the article, the airline was fine with her putting a blanket over her legs. However, was a little skin worth all the negative publicity?


Going Foreign

This 200 second video interview shares how the dollar is down 12.5% from the Euro in this past year. Because cutting interest rates lowers the value of the dollar, now is probably a good time to invest in foreign companies, foreign currencies, and foreign markets. Because investors see that they will be more likely to get a better return by investing internationally, the demand and price of foreign currencies will increase even more. The video stated that the CurrenyShares Canadian Dollar Trust (NYSE:FXC) was up 22.9% this past year. Companies in the U.S. that have a lot of foreign sales or sell inelastic consumer staples, such as toothpaste and soap, should fair better than other U.S. firms, according to the video.

More People Refinancing

With the Fed's dramatic rate cut of 1.25% in eight days, the demand for mortgage refinancing has increased from 66% last week to 73% this week. I also thought that with these rate cuts, now is a great time to refinance my home.

This article, however, warned me that while the refinancing may be good, I'll need to take care of it fast. It is actually the bond market that determines the mortgage rate, not the Fed. Fixed mortgages are linked to the 10-year Treasury, which is actually rising right now. However, these rates are still below 6%, and Quicken Loans chief economist Robert Walters said, "We don't get many opportunities to take a 30-year fixed below 6%." Adjustable-rate mortgages are pegged to the 1-year Treasury, which is expected to continue to decrease, so refinancing would be a good idea here.

1/30/2008

The Facebook Economy

The popular social networking site, Facebook, has enabled third party developers the chance to get easy advertisement, publicity, and money. Facebook's CEO, Mark Zuckerberg, announced in May of 2007 that third party developers would be allowed to add applications to the site, and that they would be able to keep all the revenue they generated from the affiliated ads. After only eight months, there are already more than 14,000 applications on Facebook. Many third party developers have found that they are generating much more awareness by being on Facebook than on some random site on the web. These developers don't have to spend any money on advertising – they just build “requests” into their application that encourage the Facebook user to invite their friends to use the same application. Social networking is certainly spreading the word fast.

Missing: iPhones

Apple reported that they have sold 3.7 million iPhones, but the mystery is that AT&T, the sole wireless provider for iPhones, has only reported 2 million iPhones activated. Where have the other 1.7 million gone? Industry insiders suspect that the iPhones are being “unlocked” to run on non-approved networks. Apple receives $10 a month for every iPhone on the AT&T network, so they are missing out on a lot of revenue from the “unlocked” phones.

It sounds like there's plenty of demand for the iPhone, but that the problem is the low demand for the AT&T network. There are plenty of substitutes for different networks, but not as many for an iPhone. Maybe Apple could come up with a different strategy that didn't depend so heavily on one network.

Snow in China

Recent weather problems in China have caused over $3 billion in damages in what appears to be the worst winter weather in decades. Many people are trying to get home for the Chinese New Year celebration, and 500,000 people have been left stranded in one train station. The travelers are upset, but who can you blame when it's weather that's the problem? Leaders have been in damage-control mode and are doing their best. Will the Chinese economy fall apart under this crisis, or will it unite the people and create more economic activity?

Forget Drunk Driving, We've Got Cell Phone Driving

A study has shown that driving while talking on a cell phone is similar to driving drunk, even if the phone has a hands-free headset. I at first thought, there are tons of other distractions while driving in a car, like tuning the radio, eating, singing, watching people walk down the sidewalk, or talking to the person next to you. How could a cell phone be any worse? After thinking about it a little, I realized that talking to someone who is not physically there is different. The article mentioned that the worst distraction was texting while driving. I can see how this would be an extreme distraction which could definitely cause accidents. Would I be right in saying that fellow motorists who text while driving is a negative externality to other drivers?

Saving Like It's The Depression

In 2005, the U.S. savings rate hit it's lowest level since 1933. Personal savings dropped to negative 0.5%, which means that Americans spent more than they made and dipped into their savings to make up the difference. The only other time the savings rate has been in negative numbers (according to the article published in 2006) was in 1932 and 1933 – prime years of the Great Depression. Analysts argue that a cause for the increased spending was consumers' confidence in the value of their homes.

I wonder how confident consumers are feeling about their homes in 2008?

Home Owners Beware

When it comes to owning a home, most people think homeowners can do what they want with the property. However, this is far fom the truth. Most subdivisions today belong to homeowner associations. The associations' guidelines or "covenants" are set up by the developers of the subdivisions. The interesting fact is that most developers rely on city laws to help them in regulating what homeowners can build on their property. This can sometimes cause problems. I read an article entitled "'Covenants' can Mediate in Neighborhoods". The article addresses an issue that arose when some homeowners became upset when a particular neighbor of theirs constructed an unfinished plywood shed on his own property. Although it was within the legal code of the city, they claimed that this eyesore would affect the value of their homes. There were no "covenants" within this association that addressed this issue. This is an important issue, however, especially during this time when homes across the nation are losing value from the decline in the economy. In my opinion, the shed either needs to be removed from the property or finished with siding or brick. I think that it would be the courteous thing for the shed owner to do. This eyesore, if not taken care of, will eventually decrease the resale value of homes in this area. The homeowner association should look into setting up "covenants" that cover such issues.

1/28/2008

The Writers' Strike

The lack of agreement concerning the writer's strike at NBC is costing not just the writer's their salaries, but also the network, advertisers, and actors, to name a few. According to this article, at the recent Golden Globes show, “NBC lost millions of dollars in ad revenue, and award winners were deprived of instant publicity that could provide a box-office bump.” Last year's Globes ceremony had 20 million viewers, compared to a mere 5.8 million this year. NBC normally earns over $15 million from advertisements, but they will receive much less this year. The Hollywood Foreign Press Association lost a $6 million license fee from the network.

NBC and the writers have been at a standstill since December 7, 2007. While they continue to argue, more and more dollars will be lost to many. Plus, viewers won't get to watch the shows they enjoy. It seems that everyone is losing out here, but yet, still no agreement.

May Contain Nuts

- “Manufacturers stamp bags of peanuts with warning that they “may contain nuts”

- Parents asked not to bring homemade cakes to school fĂȘtes

- Flowers banned at a hospital in attempt to stop the spread of MRSA

- Hanging baskets banned in case they fall on people

- Children banned from using egg boxes in art class in case they catch salmonella

- Children forced to ride inflatable sheep at a Welsh Donkey Derby”

Ridiculous, isn't it? This article shares some of the things people and organizations in Britain have had to do to protect themselves from lawsuits and penalties. The overly protective rules have caused numerous unnecessary costs, hurting the economy.

Britain's government has set up a national campaign to stress the importance of self-reliance and to inform the public that the government is not responsible for every random accident that may happen.

If you asked someone if they wanted the world to be safer, naturally they would say yes. But we must keep in mind the trade-offs and that there is no such thing as a free lunch. I think it's sad how out of hand some laws have become, but I'm sure those laws were made for protection from lawsuits.

Do they really know what they are doing?

During the last week Washington has rallied to show us that they can “work together” and benevolently hand the common people a few dollars in hopes of stimulating economic activity. We also saw the Federal Reserve cut rates in hopes of swaying the U.S. Economy away from a possible recession. What are the real consequences of these actions taken by our political and financial leaders? Will economic growth be stimulated and move us into prosperous times or will there be unintended consequence that actually move the economy in the opposite direction? The unintentional consequences are what worry me. Dubner and Levitt in a NY Times article discuss unintentional consequences citing three different examples of good intentions causing unintended result. We all know that you don’t get something for nothing and someone will have to repay the Government rebate checks. These rebates are in essence a loan and they will need to be repaid sometime. Will the dollar weaken further and inflation rise because of drastic rate cuts. Some believe that the possible unintended consequences may lead us to repeat the 70’s and 80’s with high inflation followed by high unemployment. We will have to wait and see the consequences, intended and unintentional, as they unfold over time. NY Times Article

1/27/2008

Loss Aversion

Loss aversion is the tendency for people to strongly (usually two times as strong) prefer avoiding losses as opposed to achieving gains. This article demonstrates that a person would rather make $50,000 a year while those around him or her made $25,000, as opposed to making $100,000 a year while others made $250,000. Most people would rather “pay” $50,000 to be the one with the highest salary and not have the feeling of a loss. People would rather receive less money in a winning situation than to receive more money in a losing situation. Rationally, this does not make sense. However, psychological factors definitely come into play with salary, the stock market, and many other things in the business world.