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?

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.

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.

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.

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.

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.

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.

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.

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?

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.

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?

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.

$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.

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".

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.  

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.