Recession's Hidden Virtues

This article explains three of the main driving forces that may lead us into our next recession, the collapse of housing, increase in oil prices, and the credit crunch. I feel that a recession is very hard to predict. It seems that it could happen any time in a number of ways. There are so many different people telling me their opinion regarding recessions, that I am having a hard time deciding for myself what I think will happen. When we look at what has happened to our economy in the past we can analyze what happened and then explain why, but it is impossible to predict the future economy accurately because the variables are constantly changing as the world evolves. I don't think anyone knows what is going to happen; we can only make an educated guess.

Don’t Blame The Burgers

This article talks about the many law suits that overweight kids and adults have brought against fast food chains for being unhealthy. Many of them have stirred a response from the restaurants that now offer healthy choice or low calorie options. It is so ridiculous that obese people even stand a chance of winning a law suit for overeating at a restaurant. I can’t believe that the idea to create such a law suit even exists. It is not fair to blame another for your own stupid mistakes. What’s next, are they going to raise taxes on fatty foods to prevent us from eating them? This is a joke.


Off Shoring and Beyond

This article makes it sound like off shoring is the way to go and I tend to agree. We all hate calling in for assistance with a problem and having to talk to someone from India who is hard to understand, but what is worse, talking to SOMEONE who is hard to understand, or leaving a message with a voice operated recording? At least the person with the accent is there to help you. I feel that is the lesser of two evils. What do you think?

A New and Improved iPhone

This BusinessWeek article claims that the CEO of AT&T mentioned at an event that AT&T will be releasing a new, faster iPhone. This is the number one complaint of iPhone users, and the demand has brought AT&T and Apple to the point of releasing a new 3G version, which will be supposedly much faster than the current iPhone.
It seems like on most iPods that the new release is close to double the size, so my question or thought is why is Apple only increasing the Internet speed from 2.5G to 3G? Wouldn't something like 5G really blow the new sales out of the water. I just think that the new speed won't be fast enough to produce the sales that AT&T and Apple are looking for.

Google Planning Online Storage Service

This article here informs us that Google plans to provide online storage for personal files such as word processing documents, digital music and photos. The service lets users access their files anytime through the Internet regardless of which computer or mobile device they use.

This means that mobility features and applications will progress rapidly to utilize this new potential. Currently, unless you have your files on a server like this, you must bring all of your files with you wherever you go (if you need to access them). Popularity for multi-purpose hand held devices, PDA's, laptops, and cell phones will offer internet connections more abundantly, at greater speeds, and with broader application.

Potentially, productivity will increase as we are more and more connected to and dependent on the internet in our daily lives. Google is smart to be pioneering in this manner such a service as the majority of the market will look to their services for their online data storage solutions. This will prevent competitors from gaining a significant market share while continuing to spread the blanket of Google's breadth and depth in the market.

Google truly has an aggressive strategy to become part of the daily activities of every person on the internet, but I worry that their aggressiveness will someday come under the attack of anti-monopolistic lawsuits and regulation.

Online Holiday Shopping

Blessed be Black Friday, Cyber Monday, and now Green Monday. This article here talks about the phenomenon noticed a few years ago that the Monday after Thanksgiving saw a sharp rise in online sales, presumably because everyone that goes back to work on the Monday after Thanksgiving wishes to buy the items online that they couldn't procure during the Black Friday madness. Ebay is now predicting that another anomaly will occur the Monday of the second week of December as procrastinators for Christmas presents will realize that they need to order their items in time to be shipped and received before Dec 25th.

To retailers, this time of year is like the Super Bowl of shopping. Most of the proceeds made in a calendar year for many retailers will occur during the holidays. As a result, retailers are all pining to collect as much from as many customers as possible, so some strange and otherwise abnormal pricing schemes and strategies take place.

I propose that even though the Black Friday participants feel that they are getting phenomenal deals, that they all suffer from the winner's curse, and that part of the price paid by them for their goods is not easily accounted for like loss of sleep, waiting in large lines, or fighting that cranky fat lady for the last copy of Pirates of the Caribbean on sale for $5.99.

FCC Regulating Cable

I have a hard time with this article here because the government seems way out of line on this one. The article talks about how the Federal Communications Commission is considering regulating the cable television industry by capping cable company coverage to no more than 30% of all U.S. subscribers and reduce prices that cable TV companies charge customers.

Since when did 'We The People' also include 'We The Cable Subscribers?' Cable television is a private good just like anything else in the world, but the government would like to treat it more like a public good. It is not our responsibility to make sure that every American home gets cheap cable TV.

I am also struggling with the implications that some cable providers have too large of a market share. If there was only one way to get TV and there were few providers, I could see a monopolistic accusation having some teeth, but there are so many other options than cable easily available to the public that the TV market is acting more like a perfectly competitive market than a monopolistic one.


Andy Kessler said he went through a semesters worth of classes by watching lectures on YouTube. In the article Kessler claims that lectures are free, as we learned in class lectures or the information given in a lecture is a public good. Colleges take the public good and deliver it to you through lectures. Kessler could go through four years of YouTubeU and get nothing. As we know for all our time sitting through lectures at the end we gain a little piece of paper that says to potential employees, hey hire me.


Sex Shop and Negative Externalities

I bet the title enticed lots of you to read this. Chapter 11 discusses externalities. The Salt Lake Tribune had an article about a proposed store that sells lingerie and sex-toys. Apparently lots of people in the area are upset about the store called Blue Boutique coming to the area. Mayor Rocky Anderson supports it and the developer is not backing down from the opposition. It is apparent that those opposed to the store think that there are to many negative externalities that would come along with it. None of the externalities mentioned are monetary but the type of people that it may bring to the area as well as the curiosity it will raise in nearby children seem to be the big concerns. When retailers look to move into an area, there are many externalities that go along with it. I used to live near a small town that Walmart wanted to come to and there was lots of discussion about the externalities both positive and negative that it would bring. After discussion, the positives seemed to outweigh the negatives and Walmart was allowed in. It will be interesting to follow this story and see where it goes.


And I Thought We Had Problems

In a New York Times article, Airbus is trying to cut more costs as it is feeling a great pinch with the weakening U.S. dollar. Why is their situation any different than anyone else? They build their planes by purchasing with the Euro but sell their planes using the dollar. The Euros value is increasing while the dollar is diminishing meaning there sales are lower and their expenses higher, all because of currency values. This is creating a real problem for Airbus.


Price We Pay For Bottled Water

An article in MSN discussed bottled water and how it is a strong part of the American economy. Bottled water costs three times more than gasoline. During its transportation empty space must be left in the trailer, because water weighs so much. This creates high transportation costs. We are taking this water from countries such as Fuji, who cannot even support its own citizens with clean drinking water.
So why do Americans pay so much for this water? It is convenient, we think it is more healthy for us than the stuff that comes out of a tap, and it is a sign of wealth. Bottled water comes in second behind carbonated soft drinks in consumer spending. For the makers and suppliers of bottled water this is great as it costs about the same to bottle and distribute as soda pop, but the marketing cost is 15% of that for soda.
The author mentioned that bottled water is a sign of the strength of the economy. If America goes into the recession that people are thinking could happen, the bottled water industry is sure to suffer. This could also have an impact on the many jobs that the production, storage, and transportation of water provides to the economy. It will be interesting to see if there is a noticeable difference in the market for bottled water in the coming months.

Alibaba.com - Biggest E-Commerce Debut Ever

This article here talks about how Alibaba.com had a 192% increase on their first day of trading in Hong Kong in an IPO that raised $1.7 billion. This is considered record for a mainland web company.

Isn't this a wonderful age that we live in, where intellectual property with practically no physical presence can make such a dramatic affect on the business world? Traditional 'brick-and-mortar' stores have numerous issues and concerns to overcome and constantly monitor, and much of the revenue is taken to sustain the physical plant, inventory, workforce, warehouse, etc. Now, you can get a group of techs together with a good idea, a domain name, and a server with adequate bandwidth, and make millions or even billions of dollars.

How soon will it be until there are a limited number of traditional 'stores' and e-commerce becomes the major marketing presence?

PetroChina vs. Exxon-Mobil

This article here talks about how PetroChina has overtaken Exxon-mobile as the biggest oil company in the world. China has had incredible market growth and is quickly becoming a force to be reckoned with.

How soon will "Made in China" be considered "Made in Japan" or "Made in America" for that matter? Once upon a time, Japanese manufactured items were cheap and the country to be 'used' by more modern and advanced countries to exploit. We have since moved to China, India, and others for this exploitation since Japan has evolved to be a market competitor (take Toyota for example). How long will it take China to step up just as Japan did, and what country will we exploit next? Eventually, won't we run out of 3rd-world countries to make all of our cheap stuff for nothing?

Is $100 Oil Lethal?

This article here talks about how oil prices are increasing and the dollar is decreasing and the Dow lost 361 points. Many are worried that the signs point to lethal prices for the American economy, but some feel that $100 oil will not be as detrimental to the economy because America isn't as dependent on oil as much as it has been in year's past. However, they do feel that the high oil price when combined with a credit crunch will prove painful.

What do you think? Are we as oil dependent as we have been in the past, or can we overcome prices at the pump amidst credit crunch, stock market, and dropping dollar issues?


Goodbye Economy!

This cartoon depicts the situation of housing market right now and how it is really hurting the value of the United States dollar and the overall economy. It is hard to say how long the economy is going to have to fight to try to come back from this devastating event, but it is definitely going to be an uphill battle for the US economy. Let us just hope that we get someone in the presidency in 2008 that will make this uphill climb fairly easy for all of us.

I Want It Now!

Economists are starting to study the impact that instant gratification plays in peoples’ decision making habits. For example, if you offer someone $100 today or $110 tomorrow, almost everyone would say they would take the higher amount of money tomorrow in order to receive a one day ten percent return. Though when really offered $100 today or $110 tomorrow, it seems that most people take the money that is offered today. Therefore, is there an increased benefit that is derived from having something today that we could just as likely have tomorrow? The answer to this question is starting to be yes. Though it may seem that people are merely stupid and make poor decisions at certain times, maybe these people are not idiots, but rather rational thinkers that put a large value on the amount of benefit they receive from having things immediately. Many people seem to be adopting this I do not care how, I want it now attitude. What are you willing to pay for instant gratification?

How the Web Prevents Rape

This article is looking at the impact that internet pornography is having on the rape rates across the nation, and surprisingly enough, it is finding that the two are inversely related. Therefore, the studying is saying that as the level of internet porn availability increases in a particular area, the level of rapes in that area decrease. The interesting thing about this study is that it has almost 50 independent studies it can survey all at once, because the internet became extremely popular in each of the 50 states at different times. This interesting correlation is not only being studied at universities by economists and psychologists, but it is also being studied by law enforcement around the nation. What exactly should be done about this correlation is still up for debate. Should we expose people to more pornography in order to decrease rape rates? The experts have their opinions, but what do you think?

Looking to Live in a Community with Low Murder Rates? Try Committing a Crime

Many people are concerned about living in some areas of the United States because of the high level of homicide rates that occur in these areas. If you are one of these people, this article offers a really simple solution to this issue, commit a crime and get yourself sent to prison. Yes, that is right prison. Per capita, the levels of homicide rates in the United States’ prisons are much lower than they are in most large cities across the nation. As for me, I will take my chances against the odds in order to not live in prison.

Standardized Tests > Grades

This article addresses the issue that students’ grade point averages are not good predictors of how they will do on standardized test, because teachers give students good grades really easily without ensuring that the students have learned all of the information that the course. Therefore, this author suggests that failure of students should be allowed to happen more regularly in order to allow for a more efficient and competitive market of students.


Free the Bourses!

This article here talks about how there is a Markets in Financial Instruments Directive (MiFID) in Europe that open bourses to cross-border competition and now allow them to sell their products anywhere in the EU.

This means that previously there were regulations and restrictions against free trade in these areas so perfect competition could not effectively alter prices. Now that trade is open, this competition will drive prices down and raise quality levels so consumers and society will be better off.

Chineese Crackdown

This article here talks about how over the past 2 months they have arrested 774 people related to the recent unhealthy and dangerous products including lead-based paint on toys and poisonous dog food.

China has become the Japan of decades ago when all of their products were considered cheap and junk. Since then they have become models of productivity and quality. China is recognizing this implication and wishes to improve their reputation as they are quickly becoming a developed country and a sizable force in the global market. How long until China will rival Japan for productivity and quality?

Troubled Turboprop

This article here talks about how SAS finally had to ground all of its Canadian-built Bombardier Q400 planes after three of them crashed. Even though no body was hurt, and Bombardier claims that there is nothing wrong with the planes, SAS decided to make the move to curb consumer fears.

This will be a tough blow to the plane industry in general, not to mention Bombarier and SAS. It is difficult to regain consumer confidence after one such incident, but three...well, let's just say I am glad that I don't work for the Public Relations department at SAS.

SAS now needs to regroup and come out shining with a new strategy that will encourage customers to try the airline because of specific improvements to their maintenance practices, pilot training, shorter hours and more rest for pilots between flights, etc.

Take that cable guy!

This article here talks about how the FCC is moving to ban contracts that landlords have with cable companies. Before the ban, landlords determined the television entertainment choices you had in your building and how much you were going to pay for it base on their contract with the cable provider. This created a monopoly on cable service in these buildings. When the ban goes into effect, tenants will have the opportunity to select their own provider and be able to shop around for the best price.


The iPhone Invades Europe

The iPhone is finally being released in Europe. There is a bit of scepticism about whether or not it will be as successful in the European market as it has been in the American market. Currently in Europe most phones are sold at a subsidized cost. The Europeans also have a higher expectancy for the data speeds and camera technologies in their cellular phones. However, the iPhone is going to make an attempt in the European market, even with its lower capabilities and much higher price. The hope is that the new touch screen and easy navigation will catch the attention of the people in Europe. The demand in the United States has been very high for the phone, despite the fact that many users have had to terminate their current carrier to sign up with AT&T. It will be interesting to see if the Europeans have the same draw to the iPhone as the Americans.


Oil Likely to Hit $100 Soon

In this article there are a few analysts talking about why oil is increasing in price so fast. They explain how the weakening dollar is making oil more affordable for emerging markets to purchase the commodity. This is causing a worldwide spike in demand that is continuing to drive oil prices up. Many analysts are saying it will shoot past $100 very soon.

I think the price of oil will cause Americans to shift over to very fuel efficient cars like hybrids and small compacts. This has already been happening over the last couple years with the increase in hybrids on the road, and SUV sales dropping. This trend will increase if the price of oil continues to rise.


Cable Monopoly

Although I know cable companies have very little competition, I didn't realize how much power they have. Consumer groups claim that cable companies treat consumers unfairly because of the lack of competition in this industry. In fact, the Telecommunications Act of 1996, which was intended to prevent such monopolistic power, has possibly been an underlying factor in the increase in cable rates. The article states that since the Act was put in place, cable rates have increased 45%. I believe that the act along with other underlying factors has made it more difficult for competitors to enter the cable industry.

In St. George, I think that Baja is the only cable provider and their rates are definitely not cheap. Recently, Baja added the Mtn. television channel, which has resulted in many consumers leaving satellite providers that don't provide the Mtn. channel in St. George. This is because of loyalty to BYU and U of U sports even if the price is more. Therefore, Baja could probably take advantage of those consumers who switch over to their services because of brand loyalty/sports team loyalty, and it will increase Baja's market power. Cable companies are making a lot of money since they are increasing prices a lot and costs are not increasing very much. I believe that cable services are pretty inelastic since the prices have increased drastically, yet the demand doesn't seem to decrease much. As a matter of fact, I would not be surprised if the demand has increased in the past several years. What do you think? It seems like the prices of cable will continue to increase and their monopolistic power will not diminish soon unless more competition can find a way to enter the market; however, it won't be easy to enter this industry and doesn't seem likely.


HD vs BlueRay Price Wars

As if the battle between HD and Blue-ray wasn't ugly enough, Walmart first dropped the price of their Toshiba HD A-2 DVD player to $198.00, then to $98.87 on a one-day sale. One strategy is exclusivity of movie titles offered with the hope that loyal customers will fit the bill, but I fear that this strategy will fail.

The battle being waged is reminiscent of the Beta vs VHS war over video cassette tapes mentioned in our previous class. One has higher quality specifications and the other has a lower price. Unfortunately for Sony, Blue-ray will become this generations Beta, especially with price wars like these. The perceived quality to the average consumer is almost identical, but the cost difference is almost double.

The fact of the matter is that unless there is a significant benefit from the much higher priced item, consumers will choose the cheaper product because they receive more consumer surplus.


The iPhone Legacy: Pricier Smartphones?

This article talks about the fast rate smart phones keep improving with the new iPhone. It explains how the sales growth of smart phones will be reduced because of the increase in cost for the new features. The increased costs will translate into higher priced phones and price out a lot of people. The major cost component talked about was flash memory for the programs and downloads available. If flash memory comes down in price the smart phones will not rise in price as much as anticipated.

I think the features on the smart phones have shifted the demand curve out. Before the iPhone came out, there weren’t too many people waiting in line for days over a $500 phone. It will be interesting to see how technology will change cell phones.


The Best Kind of Sticker Shock

It seems that luxury cars these days no longer have the ability to keep their prices fixed at a high point because of some pretty stiff competition between themselves. This article mentions that Bently, a luxury car manufacturer owned by Volkswagen, can no longer continue to ask the astronomically high prices they used to get before there were other competitors in the arena. It seems that there is quite a list to check up on when looking to buy a luxury car which I believe makes this particular market move from a competitive monopoly to a market that resembles a perfectly competitive market.

This article also mentions that offering a lower priced alternative to their own highest priced luxury car opened up a whole new market of consumers whose reservation price for a luxury car were much lower than the incredible $220,000 version they sold before now...good for their management team on that decision.

As for me, I believe my reservation price for a luxury car will never fit the price tag for one of these cars...and you know what, I quite okay with it.

Bankruptcy Reform Bites Back

In this article here, a tougher bankruptcy law pressures Americans to pay toward consumer debt (like credit cards) than to other debts instead of witting them off. Homeowners are now less able to meet mortgage obligations which increases the likelihood of foreclosures.

The entire credit crunch problem that we are facing is a dirty and ugly situation without a clean and clear resolution. The justice side of me wants to make all consumers suffer and pay for all the debt that they accrued, as well as get after the credit institutions that created and promoted the environment that got us here. But nobody likes to kick families out in the cold dark street, it just seems so inhumane. So what is to be done?

I am a strong believer in the free market and the invisible hand. I think there will be many short-term and some long-term losses, but overall the market and consumers will adapt, and there won't be throngs of homeless scouring the streets of homes they once occupied. Hopefully this is a lesson learned for consumers to not live on the edge of their financial limitations, as well as a lesson to lending institutions to be more selective when handing out money. The truth of the matter is, there is no winner in this type of situation, and we will all suffer or feel the pinch in one way or another.

Japanese Home Loan Broker Flees America

This article here discusses how Nomura Holdings is pulling out of the US home loan business and focusing more on Asian Markets. This move comes after they wrote off $621 million in bad debt with US mortgage losses of $1.2 billion since January 2007. They will also lay off 400 of their New York employees.

This move is indicative of other investors in the home loan industry when the market goes sour. Investors are constantly scanning the environment for the best place to invest their funds for the greatest return. When our housing market was booming, this was a great place to invest, and know it is the opposite.

From an economic standpoint, when the market fluctuates like this, it shifts the supply and demand curves back and forth. This article is an indicator that the demand curve has shifted back for home loans, so the supply curve (mortgage lender) is now shifting back as well to compensate.


Iraq bill would lift contractor immunity

Recently, body guards from the private company Blackwater USA were involved in a gunfight that left 17 Iraqi civilians dead. Whether they were at fault for this is not the point I want to make in this blog. However, I would like to discuss how important immunity to these security contractors is in order to get them to do what they need to do when protecting our diplomats.

If I were a security contractor and had the responsibility of protecting a US diplomat, I would really want the ability to make an informed decision in a split second and then be able to act on that without being blamed for accidental deaths in the line of duty. It seems to me that they have two choices: take action (pull the trigger when instinct suggests that it should be done) or watch as our diplomats and possibly the contractors themselves are killed on their way to important meetings by terrorists who don't necessarily care if they live or die (remember that Islamic terrorists get to have 72 virgins when they take the terrorist plunge).

Now I don't support just shooting people without a good cause, please don't take my argument in the wrong way. However, these contractors are usually ex-soldiers and ex-policemen who are well trained when it comes to this kind of thing and should be able to act when they feel it is appropriate.

I would think that it would really quash the demand for good security contractors in areas like Iraq and Afghanistan if we remove their immunity from prosecution when they act in the line of duty.

Staying High and Dry in a Recession

Robert Kyosaki is one of my favorite writers for the Yahoo! Finance webpage. He is really able to take a difficult concept and explain it so that even the unlearned person can understand it. Here he talks about the fact that we have an over supply of US dollars in the world today and our purchasing power is decreasing because many nations do not want any more of them.

He suggests that a prudent investor would go and buy silver and / or gold in order to have what he terms as international currency that can be traded for nearly anything at anytime because the demand for those items will remain high no matter what the dollar does.

I agree that this would be wise since the value of the dollar has fallen and the value of silver and gold has really escalated in the recent past and if the reverse ever happens, gold and silver are easily traded back to dollars with relatively no problem at all.


Nintendo: No Price Cut for Wii for Now

If you've ever played with the Nintendo Wii, then you would understand why the management of Ninetendo has opted to not cut the price of their Wii gaming console. It is addicting and so entirely different than the alternative, that I feel that they have created their own little monopoly in the gaming market since there are no other alternatives to the unique experience of playing with the Wii out there. Because of this, they are able to keep their prices at the same level that they have had since its inception. Demand continues to soar for this product allowing Nintendo to name their price and causing the other gaming console companies to cut their prices in order to maintain market share in the gaming market.


Is the EU Really a Free Market?

This article details why the European Union is not a truly free market for companies that do business there because it seems that no single country trusts any of the others to not step in and mandate how certain "Key Industries" continue to do business there. So each country continues not to live up to the expected dismanteling of their government's involvement in private corporations in their respective countries.

I found this article interesting because it reminded me of a principle taught to us in Mean Joe Green's Microeconomics class about OPEC and why they truly don't have a monopoly on the oil market that works to fix prices. It seems that no single OPEC nation trusts the others to not cheat and sell more oil, so each country does cheat on the set production numbers, and their production plans continue to fail. Hey, it is good for those living in our country since we won't drill any of our own oil.

I do have to agree somewhat with those countries that do influence the "Key Industries" because there should be strategic moves made by the government to protect the citizens of that country if something in the market is threatening them. For example, having a steady supply of oil and / or coal should be a strategic interest for us in the United States because it is a very vunerable part of our society right now. I just wish we could get politicians and environmentalists to think that way as well.

California rebuilding effect on building supply prices

This article talks about the effect of the rebuilding efforts about to start in California on building supply prices. After Hurricane Katrina we saw an increase of the building supply costs because of the demand in effected region. An increase in price does not come as a surprise as you would expect an increase in demand to cause the price to raise.

In the article Jaren Patterick who is a framing division manager for the Utah division of BMC West which is a Boise-based building materials supplier said "The supply won't go down but prices will go up. They'll ride it for what it's worth. They're just like the oil industry, most producers of lumber and building supplies are looking for opportunities to raise prices."

Jaren seems to be showing a basic lack of understanding of supply and demand principles or else he just misstated what he meant. The price increase will not have anything to do with a change in supply but actually a change in demand. We can assume that the market is supplying lumber at the equilibrium quantity and that the market is currently buying at the equilibrium price. When the demand changes that will cause the price to increase. The market will adjust over time by either supplying more to meet increased demand, or the demand will drop as the rebuilding effort slows.

Jaren may have meant that the increase in demand because of the rebuilding would be so small that it really should not effect prices but that the suppliers will just increase prices because of a perceived increase in demand (or as he states decrease of supply).


Immigration Raids Hurt Farmers

I chose this article because it had several different references to Economics principles that make a good point in the fight against illegal immigration. It describes an 11,000 acre farm that has been raided twice for hiring illegal aliens (termed in this article: undocumented workers); and is now having trouble finding enough help to get the crops picked. This of course is a supply problem caused by those raids.

The next principle it brings up is that fact that this kind of supply shortage will probably not be felt among the consumers of American grown products. This causes me to think that it is really not that big of a shortage and really not that big of a problem.

The article then goes on to say that this will cause us to lose our domestic production of food and shift it to foreign farms who can supply it to us cheaper. I think we call this a competive advantage. If they can do it better and cheaper are we not better off to do what we can do more efficiently and then trade with those countries? Now I understand that we need a food supply for our national security, but come on...we have enough available land to grow food in a time of need.

The article then mentions that it doesn't matter how much farmers pay their workers, because raising the wage doesn't seem to attract enough workers. I disagree. I bet there is a point where workers will begin to shuffle into that kind of work. It is hard work that Americans feel they should be justly compensated for or they can go elsewhere. I don't buy the fact they just won't do the work because we are above it. The fact that Americans or legal immigrants can find a substitute for working on farms will make the farmers need to pay more to get legal help.

This article makes me wonder when we traded national security and a desire to turn a blind eye to the immigration problem for the almighty dollar. I think it is wrong deep down to allow people to come here illegally just so farmers don't have to pay a decent wage to those that pick their crops. I think a good solution is to make it easier for immigrants who want to come here legally to do it much easier and more efficiently than our current system. Then we would at least know who is here and that we are not allowing just anyone to cross our borders to keep our prices low in this post 9/11 world.


China warning signs coming fast and furious

This article is actually a blog I found on BusinessWeek.com discussing the warning signs of a large potential pullback in the Chinese stock market. This Blogger cites 'The Oracle of Omaha', Warren Buffet, who commented today while on a trip to China that investors should be cautious when it comes to increasing prices in stocks that trade on that stock exchange.

I'd like to think of those comments as a shift variable in the demand for Chinese stocks and other emerging markets; because it gives people expectations of future prices there. I think that Warren Buffet has such a good reputation for picking stocks and other good investments (as well as when to get out of them) that many, many people will listen to his advice and pull their investments in China and other emerging markets in regions affected by China's stock market run-up. To be totally honest, I've seriously thought about arranging my own portfolio tomorrow when I get to work to reduce my exposure to this potential retirement landmine.

All these future expectations could then possibly affect the demand of the stocks trading there and a fall in prices could then occur, possibly affecting demand for other stocks on other indexes such as our own. We should not forget the huge drop in stocks earlier this year when China's stock market stumbled and rattled our own Down Jones Industrial Average to the tune of a 416 point fall.

Fires in California = Insurance Cost Increases

This article here talks about how they are predicting that the Southern California fires going on right now are 'on track to become one of the most expensive fire events in U.S. history.' Insured damages are estimated to be at least $500 million. The report goes on to catalog all of the fires that California has had in the past, including 8 of the most expensive fires in the country.

My favorite part of the article states 'this is California. We are not strangers to these kinds of tragedies.' That means that Californians are used to environmental conditions that are dangerous, not only to their physical self but to their pocketbooks.

Insurance companies in California will continue to raise the price of policies issued in that state, especially the areas that have been locally effected since it seems to keep happening in the same place (not if but when).

But there is no way that individual policy holders in these affected areas can compensate the insurance companies monetarily for the insurance claims that are pouring in. Luckily, my insurance company is not listed as having policies with claims in that area. If they did, I would expect an increase in rates for my personal policy to offset the difference, even though I live nowhere near the affected area, nor do I plan to.

My point is this. Why does the collective have to pay for the poor mistakes of the few? If you decide to move to California, and it is a matter of when you will have an insurable claim, why not charge these people out the nose for living in such a hazardous environment? Is it because a private insurance program instituted locally would go bankrupt after the first major incident? This would discourage insurance companies from offering policies in that area and homeowners would go uninsured. Is it important enough to our society that we have people live in known hazard zones that we are all willing to fit part of the bill? Is that economically efficient?

I see that the government has stepped in and declared disaster zones, offered manpower and other aid for this event, which I believe they should. That is what we have a governmental body for, to deal with issues that the private sector cannot, or would not if left alone. In this manner, however, we are again all pitching in toward the cause with our taxes going to provide relief.


Insourcing Piracy

Seizures of counterfeit clothing imports in the US is up 67%. This article here talks about how clothing companies that import these 'knock-off's' have found a way around being caught. They will import them as unbranded apparel, then sew the brands on the clothes here in the states.

This is an example of a few economic principles, but the one I want to focus on is government's role in the free economy. Normally, I like to let the market run on its own without government involvement, but in this case, the free market would behave self-interestedly enough that it would be unfair and government involvement is needed.

Left alone, counterfeits of well branded products would produce and sell as many of a popular product as possible. This would inundate the market and drive the price of the true product down. The true producers would be unmotivated to produce since there is no profit in the business, and society would be at a loss because it is not enhanced by the products and innovations that would have come.

Government is needed to protect property rights, including intellectual property rights like patents and trademarks. This protection gives businesses a safe environment to peddle their wares and make a profit. Now the exclusivity of their product raises the price, but the availability of substitutes helps keep the price at a competitive level.

Sub-Prime Debacle

This article here talks about how Washington Mutual and Merrill Lynch are now feeling the pinch from the sub-prime loans made that are now going bad, and that they are writing off billions of dollars in bad loans. This has caused a 75% drop in profits this quarter.

This sub-prime loan debacle really doesn't help anybody. Consumers suddenly thought 'hey I can get a cheap loan' and instead of just refinancing or getting something affordable, they stretched their credit score to the max to get a bigger house. Well, the honeymoon is over, and the debts are coming due, especially the ARM loans.

So who is to blame, the consumers or the suppliers of these loans? Consumers are going to be naturally selfish and want a bigger house, and suppliers are going to be naturally selfish and want to make more loans (more commissions). Now we have people trading home ownership for bankruptcy and companies trading profits for losses. Where is the winner in this game?

Burgers Beware

This article here states that Cargill is recalling 850,000 pounds of hamburger that may have E. coli contamination. The news of this bacteria possibly being in the market may disrupt hamburger and other meat sales in the short-run. One company, Topps Meat, has completely shut down due to the costs associated with taking back 22 million pounds of ground beef.

The market scare will reduce the demand (shifting it back) and the suppliers will suffer. Strangely enough, the price may actually increase since the supply of uncontaminated meat will be more scarce and hamburger is an inferior good. A main factor that may deter the possible price increase will be the availability of substitutes, but their price may increase because of the sudden increase in demand.

Big Music Smiles

In this article here Big Music is smiling as a Minnesota jury ordered that Jammie Thomas, a 30-year-old single mother is responsible to pay $9,250 X 24 songs ($222,000) that she uploaded to Kazaa (a file-sharing program). There are a reported 26,000 similar trials to take place in the future.

What is the point in requiring an exorbitant amount of money from a single mother, who clearly cannot pay the fine, and force her and her children into bankruptcy and/or welfare? Is it really that important that you make a poster child of a young mother in such a blatant manner? Will this really deter file-sharing on a large scale as Big Music is hoping, or will it actually spurn file-sharing to reorganize and find safer ways to push more stuff? Humans are funny in the way that they love to push the envelope to see how far they can go or what they can get away with.

Big Music is hoping that sanctions on individuals like this will move the supply of illegal music sharing back, but I do not think that it will. As long as there is a demand, there will be a supply.

A-Rod Economics

While I don't follow baseball a lot nor do I particularly care for A-Rod I found this blog covering the economic costs of A-Rod to his team. Scott Boras states that his client is worth $30 million a year for the next ten years. His reasoning is that A-Rod brings more people to the stadium to watch the games, and that he increases the viewers on Yankee's YES network. Boras is stating that A-Rod increases the demand for the Yankee's, overall increasing total revenue.

The blog also calculates the economic cost of A-Rod's salary to the Yankee's revenue. Stating that his economic costs are 2.3% of the value of the team. Compared to Barry Bonds (and does not play everyday) who's economic cost to the Giant's is 3.4% of the teams value. In the end A-Rod's economic cost is lower than other high profile player on other teams, and for the Yankee's the new deal would be a bargain.


Sector Snap: Solar-Power Stocks Drop

After reading this article I was reminded of when fellow classmates would ask our teacher back in middle and high school, "When will we ever use this in real life"? Well, here is a real life case I can now say has helped to save me some money in the stock market.

It turns out that surging demand has bid up the price of polysilicon which is used in the solar wafers, which are in turn used in semiconductors. This in turn has caused the solar panel producing companies (which have been a good investment recently) to report bad quarters and to estimate poor quarters in the future. This in turn has caused the demand of solar stocks to fall, because the stock price has fallen.

It is good to finally be able to find a real life scenario for those topics that I learn in class. It makes me want to listen better so that I don't miss out on other opportunities and/or events that will have an effect not only on my life, but on my wallet as well.


The Economics of Gold-Digging

This is a fun article that presents many economics principles in an extremely entertaining way. It all begins when a New York woman posts a profile on a singles dating website simply stating that she is a beautiful woman and wants to marry any man that makes a large amount of money. A man writes her back and gives her the most interesting response. He points out that this trade of beauty for money is a losing deal for him in a free market, and thus he should be justly compensated if he enters into this deal. This is because while income is, on average, an appreciating asset, beauty is an accelerated depreciating asset. Thus, he would only consider entering this trade if he was able to lease, “date,” not buy, “marry,” this woman. I think that if all relationship could be dealt with in such a logical manner, the dating world would be a lot easier to deal with. Unfortunately though, this is not how it works. Maybe some day!

Random Thought

Illegal immigration is an issue that our government is not quite sure of how to handle. If this is such a serious problem though, you think that our government would stop subsidizing one of the largest industries that harbors and employees these illegal immigrants then. Yes, I am talking about the agricultural industry. I think the government should stop subsidizing agricultural goods. It would not only do a great deal of good for that particular industry, but it would also result in less demand for the labor of illegal immigrants. Therefore, such a policy could end up killing two birds with one stone.

Competition within Europe

Since the creation of the European Union, citizens of this partnership have been allowed to work and live in any country that is a part of the Union. Recently though, countries in the European Union have had to start competing for citizens by lowering their individual countries’ tax rates. This has been a great thing for those countries that have been able to lower their rates enough to compete for citizens. For those countries that are not capable of lowering taxes, this has been a nightmare. I wonder though, are the tax savings that one receives from a country the largest determining factor in what country one chooses to live in, or are there other factors, like freedom, that could change this?

If God Were an Accountant…Whose Life is Worth more, a Drug Dealer of a Prostitute?

What is the value of a human life? Many economists in the past have put a dollar value on a human life based on the amount of lost wages that would arise if one died earlier than expected, but this article disagrees with this type of measurement. Lost wages only shows the value that an employer places upon the life of an individual, but it does not show what the individual personally values his/her life at. Therefore, this article states that the true value of a human life should be measured based upon the amount of risk a person is willing to accept in exchange for a certain amount of money. I think this is a great way to determine the amount of money that an individual life is worth, because it is the best way to measure the exact amount that the person valued his/her life at. Risk versus return, it makes sense to me.

Are Husbands Really Like Potatoes?

Women today are making more of their own money and are relying less on men for financial support than at any other time in history. With this large increase in women’s income, economists are now trying to figure out whether or not the demand has increased or decreased for husbands. Thus, they are trying to figure out whether husbands are normal or inferior goods. Though most women would state that they think that husbands, and men in general, are inferior goods, this article states that they are actually normal goods. Who would have thought?


Next Stop: $100 Oil?

I don't know why I watch the price of oil so closely. Perhaps it is because I'm the owner of a gas guzzling pickup truck and I have become more aware of the rise as the gas pump prices and total price of a tank of gas increase. As I've watched this run up in oil prices, I've wondered if we would ever get there...you know, $100 per barrel oil. In this article, several explanations are provided that show why we will likely get there and why our demand may not really support a price for oil that high.

Some analysts suggest that it is simply a matter of global demand increasing, and supplies throughout the world tightening, but I don't think that is the case because the article states that "the Energy Dept. reported Oct. 17 that inventories of crude and gasoline rose more than analysts had expected."

Some analysts suggest that the price is spiking in anticipation of future events that may disrupt supplies, tightening the supply. Perhaps....

Others feel that hedge funds and other institutional investors are simply chasing profits by buying oil futures in hopes that the price would shoot through the roof.

Whatever the reason, I feel deep down that we will probably see a cutback in the demand for oil and gas in the future and hopefully that will bring our prices back to a more reasonable level.

Whatever happens, Kade is looking a lot smarter driving the moped to school and work as the price looks as if it will increase to new record levels.


The consumer buying binge is over

This article shares the author's view that consumers are out of money, and that creditors are less likely to give them more. He is predicting that consumers will now buy less and that the economy will suffer for it. Although he is not predicting a recession, he states that 'one wouldn't surprise me.'

Are American consumers really out of money? Will the gluttonous spending habits of the recent past subside and 'practical budgeting' among consumers take over?

Personally, I feel that American consumers will justify a short extension to their gluttony through the holidays in order to maintain the perception that they are not in financial trouble. I am reminded of the television commercial where the guy is smiling much bigger than a person normally would, and states under his breath, 'look at my huge house and nice car...I am in debt up to my eyeballs...someone please help me.'

Our ambition to have more than the next guy will push us farther into consumer debt through the holidays. This will make 1st quarter 2008 an even greater dilemma as all of the credit card bills come due and American consumers finally realize that they don't have enough money to pay for it.

So I agree with the author that market indicators point to the consumer being out of money, I just don't think that the consumer is ready to admit it to themselves yet. The demand curve will artificially be maintained close to its current position, at least until 1st quarter 2008. Then I would agree that it will shift backward as consumers will be less willing to pay for the same level of supplied goods/services. Suppliers are forecasting this as well and will produce less since the demand will be for a lower quantity. The price may stay relatively the same; there will just be less available.


Housing decline expected to last to 2009

This article really hit home for me because it directly affects my livelihood because of the slowing of the housing market it discusses. Several factors have contributed to the slowing of the housing market which has created a glut in the supply of homes, moving prices downward. The article suggests that the current trend is expected to continue through 2009 and possibly through 2010.

I see this as a classic example of the effects of supply and demand in our market. Demand was created when the Fed cut interest rates making housing more affordable. People and lenders reacted by buying up the available supply of inventory quickly causing a shortage of homes. Builders (and everyone that owned a truck) responded by bringing huge numbers of homes to the market to satisfy the demand that was created. I actually think a good portion of the demand was artificially created by out of town speculators hoping to flip the homes for a quick profit; and the early movers did make a profit. Soon, supply outpaced demand as the prices increased and the interest rates were raised by the Fed, causing a glut of homes and causing the prices to fall.

I hope that the government lets some of these speculators and sub-prime lenders fall on their financial faces. I feel much the same as the test question on our last iClicker quiz suggested about bankruptcy not being a totally bad thing. It will weed out the weak suppliers and will help our market get back to basics and help turn our market around. It may be painful, but I feel it is a necessary step in the circle of our economic lives.


A Burst of Speed at Lamborghini

This article shows how Lamborghini has created brand loyalty for their cars and increased demand for them. Audi bought them out and poured in money to increase production and reliability on Lamborghini’s line up. This has made a more favorable reputation for the cars. They have also doubled the number of showrooms since 1998. The result is increased demand for their cars that has helped them create a desired shortage. This helps keep the price up on their specialty cars.


What To Do With A Wine Surplus?

These two articles explains that there is a surplus of wine in Europe. Over the past few decades consumers have decreased their drinking habits and new competitors have entered the market from the US and Australia. Currently European governments are subsidizing grape farmers to help them get through a difficult period as wine sales get harder. Now they are suggesting that they distill the wine surplus into an alcohol that can be sold at 1/10 of the normal price, and they want to destroy many of the grape vines to get rid of the future surplus. Why don’t the winemakers just sell the wine surplus for less money? Why do they have to distill it into alcohol in order to get rid of it? It seems to me that in most situations when you have a surplus, you can cut your prices and get rid of it. I am sure that Americans will buy the French wine if it is half the price of the US for the same or better quality. Also, it does not make any sense to me why they would rip out perfectly good grape vines. That is just stupid. Why don’t they either just stop harvesting the grapes, or still harvest them, but not for wine? Why would you waste money and man-power to actually rip out the vines unless you were going to use that soil for something more profitable? I think that it is ridiculous to pay/subsidize farmers to produce something that no one wants just to keep the farmers going. That may help the farmers transition into a different job, but it is only a short term solution. Hello! The world is going through a change. Let nature do its thing. They are just going to have to sell their product for less and get out of the business, or try to find a special niche.


Inflation and the Minimum Wage

This article here states that a new minimum wage has been set and will increase to $7.25/hour by 2009. These articles here and here discuss how, contrary to some opinions, inflation is not affected by minimum wage increases. So how what is the relationship between the two?

"In the past decade, inflation has depleted the value of the minimum wage to the lowest level in more than 50 years," according to the first article. It seems that minimum wage increases are actually symptoms of inflation, not the other way around.

The other two articles discuss how inflation is affected by monetary policy enacted by the FED, and that the real pain of minimum wage increases are the workers that are the least employable. If an employee was barely worth the previous minimum wage, they do not 'magically' produce all of a sudden in a manner worthy to be compensated at the new wage level. Many of that group will loose their jobs if their employer cannot afford to pay the new wage.

Hence, the law that was passed to 'help the poor and less fortunate' may actually be hurting them, especially since the indicated inflation is already devaluing the few dollars they had before they were unemployed.


Universal health care or alternatives

This seems to be a big topic right now, especially in the political ring. The Salt Lake Tribune recently ran an article about an idea along these lines. The article says that the insurance would actually be purchased from the private market but at affordable prices. The idea is to create a "stock exchange" where individuals would use pretax money and employer premiums to purchase their coverage. The exchange would not be a government entity but a non profit entity. The plans would also follow the individual and not change with job changes. The backers of this idea claim that it would increase competition between insurance companies which would drive the cost down. The article goes on to discuss more details and how the plan would be funded.

This was a new idea that I thought was interesting and I am curious to learn more about it. I think that the traditional idea of universal health care in theory is a good idea, but the execution is tough because it decreases the incentive for the actual health care providers. I had a friend who lived in Canada for a few years who had some pretty negative experiences with their health care system. His roommate had his scrotum bitten by a dog (this is a true story) and they had to visit 3 hospitals and wait almost 5 hours for treatment because none of the doctors knew what they were doing.

Our health care system definitely has problems and needs to be fixed. How to fix it is the real question.


Inelasticity of Potatoes

After I reviewed the research conducted by the United States Potato Board, I was surprised by the results. However, after review of the research, I agree with the Board that potatoes can be fairly inelastic. The consumption of potatoes in the United States is very high and substitutes for potatoes may be easy to find, but substitutes like instant potatoes are not good.

Since many consumers of potatoes think they pay more for potatoes than they actually pay, the increase in price of potatoes would not significantly decrease the demand for potatoes to a certain point. According to the research, prices could increase by a significant amount with little decline in demand. Yet, I am not sure if I agree with the article on significant changes in price. Although potatoes may be fairly inelastic with small increases in potato prices, I also believe that if the price is increased significantly that demand will become very elastic. I can also see how significant price changes in potatoes would not decrease demand since most consumers are willing to pay more for potatoes without a decrease in demand. Are potatoes really as inelastic as the article claims? I think that the article is very convincing, but I am not completely convinced.


A recent CNN article discussed the market for pork in China. Declining numbers of pig farmers, higher costs of feed, and a disease that killed thousands of pigs dramatically decreased the supply of pigs in China. The price of pork has risen significantly and is being blamed in a large part for the rising inflation rate. The government has decided to release pigs from its reserves to help combat these high prices and the rapidly increasing inflation.
With these abnormally high prices for pork, you would think that there would be plenty of incentives to being raising pork or importing it from elsewhere. The problem is that the government has frozen prices and is trying to enforce those price ceilings. Essentially they are hurting the market by not allowing it to adjust itself. If they were to allow the price to rise high enough, either demand for pork would decrease because no one would want to pay that high of a price, or the supply will increase as new and existing suppliers raise more pigs to sell as the rewards will be great with the current prices.
The government needs to quit intervening and allow the supply and demand to adjust and fix themselves.


Ticket Scalping Law in Missouri

The state of Missouri is trying to get a bill passed to legalize the scalping of sporting event tickets. Ticket scalping is a type of free market where suppliers, ticket scalpers, that have extra supply, tickets, are trying to sell to buyers who have a demand for the tickets that these suppliers have. The buyer and seller negotiate on the price of each ticket purchased. This results in each transaction that takes place maximizing the amount of buyer and supplier surplus that occurs. Therefore, all that Missouri is really trying to do is to allow the free market to rein without regulation.

There’s No Such Thing as a Free Pretzel

Airlines have recently started to charge for the amenities that they use to offer their passengers for free. These amenities include snacks, drinks, pillows, etc. The company has found that the typical airline traveler would rather have a less expensive ticket price than a twenty cent bag of crackers. There are some airlines though, Continental, that have not followed this industry trend. Therefore, many people think that with flying with a company like Continental that they are getting not only cheap air travel but also a free snack. Is that snack really free though? Most of the airlines that are still offering these complimentary snacks are not making as direct of flights as the companies that are eliminating the snacks. Thus, an airline traveler spends a great deal more time traveling for that twenty cent bag of crackers. Even though people are not paying for the crackers with their ticket prices, they are paying for them with their time. For me, I say keep your crackers, just get me to my destination faster.

On Now We’re just Making Shit Up

Terrorism is a serious threat to the United States and its citizens. In the area of airport security against terrorism though, when is America going to say that enough is enough? Our country has gone from taking necessary precautions, to making airport security check points a circus. The country should start looking at all of the additional costs that we are incurring to have all of this ridiculous security and see if it is really worth the minimal benefits that are derived from this plan. This article also points out that one is more likely to die from crossing the street than from being killed in a terrorist attack. If that is the seriousness of crossing the street, maybe we should start making people take off their shoes before doing that too.

Organs Anyone? The Case for Legalized Organ Sales

Recently, the concept of legalizing the purchase and sale of human organs has been a hot topic issue. I think this practice should be allowed to take place. People are rational thinkers and will naturally make decisions that result in more benefits than costs. Therefore, if people looking to purchase organs are able to pay the reservation prices of those that are looking to sell their organs, I say let the trading begin.


Powerset to Take on Google

There is a new search engine company that is discussed here that is planning to take on Google. They claim that they have a competitive advantage in user interaction for search because it is more user friendly. Their angle is to allow users to type actual sentences about what they are looking for instead of using keywords and boolean operators (like you do now in Google).

I am all for competition in the market, and hope Powerset does well, however, I do not think that they will be able to beat out Google in the search engine market. Google is too big, too powerful, has too many resources, and is too far entrenched in the market to be truly be booted out of the market (as Powerset is claiming they will do).

What is keeping Google from offering the same feature of allowing you to type "How old is Steve Jobs?" instead of "steve jobs age" in the Google search term entry field? With their vast resources, it is entirely possible that if Google felt threatened by this ability that their competitors have, they will offer it themselves.

In order for Powerset or any other potential competitor in this market to overthrow Google, they must have a tremendous branding strategy, marketing campaign, and broad range of phenomenal free services like Google currently does. Otherwise, there will not be a noticeable shift in the market toward Powerset and away from Google because there is not enough marginal benefit for the substitute.


The Price of Low Prices

I like reading about this argument that globalization is bad. It makes me laugh. I personally love reaping the benefits of shopping at Walmart. The jobs being outsourced by factories in China are for unskilled labor. Writers of this argument never talk about foreign companies coming to us for consulting work, which pays big money. Our country, and economy, is advancing past our industrial revolution. Technology is our strength now and outsourcing factory jobs to countries entering their industrial revolutions is part of globalization. Some just need to open their eyes to this reality.


Mattel CEO Pledges to Improve Toy Safety

To be totally honest, I don't ever read the labels on the toys that I buy for my kids, but whenever I hear or read about a toy recall, I find myself going thru my kids toys to see if I've been the victim of a Chinese lead painted toy manufacturing malfunction. However, I wonder if companies like Mattel that voluntarily recall more than 21 million toys over concerns of a danger such as paint with too much lead actually see an increased demand in the long run for their toys? Obviously in the short run, the demand will decrease for toys made in China and sold by Mattel when consumers run out to purchase substitutes to Mattel's toys for the upcoming holiday season. But do you think that the demand for their toys will eventually increase to a point that is higher than the pre-recall levels because consumers will see Mattel as a responsible retailer who is first concerned with the well being of their customers? I think it potentially could unless Mattel is found to have really drug their feet in recalling the toys as if having a hard time making that kind of decision over what costs may be associated with a recall. Consider the Tylenol example of when cyanide was discovered in several locations around the States after it had killed several people. Tylenol made a tough and costly decision to pull all bottles of Tylenol off the shelves at that time. History has proved that to be a good decision and so with Mattel. Of course, only time will tell if parents are willing to put their money where their children's mouth is, literally, when it comes to buying toys made in China and sold by Mattel.


The Way to Prevent the Looming Recession

Recently, the Fed has been in a crises with the current market situation. The Fed is expected to do something about the possible recession as a result of factors such as the housing market. In this article, Robert Reich claims that tax cuts are the answer to the preventing the recession and not the Fed cutting the the federal rate. With major concerns in the economy right now and many homeowners trying to sell their homes without much success, the nation is experiencing rapid loss in jobs in the mortgage, contractor, and many other related industries. Foreclosures are also at an all-time high.

I agree with the article, in that the Fed is not going to be able to turn around the market; however, I don't agree that tax cuts for the middle and lower classes is the answer to avoiding a recession. Doesn't there have to be more than just tax cuts to turn around the economy in a major crises? What else could be done to prevent a recession? With middle-class and lower-class Americans struggling to survive, I don't believe tax cuts will be sufficient because many people in these classes are too high in debt and will not spend the extra money from the tax cuts on other goods to prevent a recession. Also, I believe the article contradicts itself in saying that the middle-class will spend more with a tax cut because it also says that Americans are "so far in debt." With mortgage debt a huge part of the possible recession, payroll tax cuts wouldn't put much of a dent into the outstanding mortgage debt of Americans. Plain and simply put, many Americans purchased homes and expected to be able to get instant equity out of the home and turn it for a profit quickly. As a result, many Americans paid top-dollar for homes and are now stuck with the debt, which they can't afford. Is a recession inevitable?


The Rising Tide of Corn

This article was published in the Washington Post.

The rising cost of oil has increased the cost of gasoline. With that rising cost, consumers have pushed for alternative forms of fuel. Scientists have finally produced a substitute for gasoline known as ethanol, but the unintended consequence has been that the price of food products are rising dramatically. Ethanol is a green, or clean burning, fuel made from corn. With the increase in demand for corn, farmers are having to pay more for the feed used to raise their animals. In turn, the costs of milk, eggs, meat, and cereal are all increasing as a direct result.

This article is a great way to see a very direct and obvious shift in the demand curve. In the beginning corn was seen as a viable option to create a green fuel, since it was a renewable resource. Only after the fact was it made evident that an unusally high demand would be placed on corn and the effects it would have on prices in the food industry. Now we are seeing the dramatic effects.

One other thing I wanted to point out is that the market had a shortage of corn, which increased the prices dramatically. To take advantage of this, farmers have planted millions of acres more to keep up with the demand. The market will reach an equilibrium, and the rising cost of corn will eventually level out.


Baby Boomer Versus Generation X

When I read this article I soon realized that the facts are right, but I am having a hard time deciding if these facts are good or bad. The article points out the main differences between the "Traditional" workplace and the "New Generation" workplace. For instance, in the traditional workplace an employee's promotion is based off of longevity with the company. Whereas, the new generation expects promotion based on performance. I find myself caught in the middle feeling that both are extremely important. You want your employees to perform their best, but you also want them to stick around to avoid high turnover and unnecessary training costs. Is it possible to promote both, and if so, should you? Next, a traditional employee waits to be told what to do and then obeys. Whereas, the new generation has initiative to move forward on their own, but will challenge authority when questioned. Which is worse? That may depend on what type of manager you are. Finally, respect of a traditional employee is based on position/title. Whereas, the new generation does not give respect unless they feel it has been earned. Is one method right or wrong? Maybe as an employee you should work hard to earn respect while at the same time respecting everyone else, especially those who are in positions higher than your own.


Welcome Back!

For Fall 2007 this blog will be displaying the ideas of my MBA managerial economics class from St. George.


I read an article in Business Week about the growth of Google. The article, which you can find HERE, talks about the incredible growth that Google has had and continues to have. They are even outstripping their own projections for growth and are leaving their competition, Yahoo and MSN, far behind. As I read this article I tried to determine which stage of the business cycle Google is in right now. At first glance I had thought that it was in a more mature stage because Google has been around for a long time and has seen tremendous success and should be reaching a point where their growth will start to slow. However, I later decided that it is most definitely in a growth stage. Not just because of the growth they are now seeing, but because they are constantly doing what needs to be done to ensure that their company will not reach a stage of maturity and decline. Specifically, they are outstripping competition because they are being innovative, not because they are just lucky. They are constantly improving their software and adding new features that are appealing to customers. This is very inspiring because when I think of Google, I think of a company that is constantly striving to better meet the needs of its customers. That is a refreshing thing, and definitely a principle that is taking Google to new heights!


Average Americans and Experts Differ

I recently read an article found in Business Week entitled, "The Economy: Why So Gloomy?" The author of the article made the point that many experts of the U.S. economy and the average consumers do not see eye to eye on the current trend. Over the last three months of the year, the market has been a relative rollercoaster, with some very high days and a large amount of extreme low days. People question whether or not we will head into a recession within the next year, and the buzz has touched my interests. I have never lived through a recession that I can remember, but the idea scares me a little. The experts on the market are optimistic in the face of the declining consumer spending that has occured over the past few months. Some people feel that the consumer spending will drop from 3.6% growth from the end of last year to 2.5% growth for the remainder of 2007. This may not sound like much of a decline, but consumer spending accounts for around 70% of total G.D.P. Where is the market going? Are the experts right? Will the economy continue to grow over the next two years or are the scared consumers foretelling the inevitable future? I think that the consumers are trying to see into the future and may be right on this matter. We should probably prepare ourselves for a recession.

Follow-up on Menu Foods

Earlier in the semester I published a post concerning Menu Foods and their recall of approximately 60 million cans of pet food. I was curious what had happened and how the situation was looking for Menu Foods so I decided to follow up on it. They definitely did the right thing on recalling the pet food. Melamine, a fertilizer used in Asia and aminopterin, a rat poison were found in tests done on Menu Food products. As of March 20, 14 pets were declared dead by the FDA because of tainted pet food produced by Menu Foods. The original recall was on March 16. Since then the recall has been expanded twice to cover all of the suspect gluten used in various Menu Foods plants and products. An article in USA Today says that a “clerical error” was to blame for all of the contaminated gluten not being discovered the first time. While Menu Foods appeared to be taking the necessary steps to be socially responsible, they are now facing several law suits because they failed to properly track and record their shipments.


Google buys ad firm DoubleClick for $3.1 billion

I recently read an article about Google acquiring DoubleClick for $3.1 billion in cash. According to the article this purchase is Googles largest purchase yet, which far surpasses its previous largest purchase of the online video company YouTube for $1.65 billion. Googles stock price recently closed at $466.29/share. According to the article Google is planning to pursue acquiring several other companies. My question is; is there any end in sight for Google? They seem to be everywhere and known by everyone. Similar to Wal-Mart, Google has grown so large that I wonder if they will be able to sustain the growth and momentum they have created? What do you think? Do you think that management will be able to create ways of sustaining and maintaining the growth? Do you think that it is possible for a company to become so large that they can no longer sustain or maintain their operations?

Jobs, Not Subprime, Continue To Drive Foreclosure Rates

I recently read an article on Yahoo entitled, “Jobs, Not Subprime, Continue To Drive Foreclosure Rates.” In this article, the author states that California leads the nation in sub-prime loans, yet its foreclosure rate is below the national average. The author of the article suggests that California’s ability to create new jobs is the reason for not having a foreclosure rate similar to or higher than the national average. I find this article very interesting, because there have been many media sources lately that have been blaming home foreclosures on the sub-prime market. In fact, most sub-prime lenders have recently shut their doors because so many of their loans have gone into default. My opinion after reading this article is that sub-prime borrowers are not entirely to blame for loan defaults, but the lack of jobs is the primary reason for foreclosures. Many companies in the United States are moving their operations overseas in an effort to cut costs. In my opinion, I think that this may be the cause of many foreclosures. I think that if we want to keep our economy strong and avoid foreclosures we must continue to create jobs and offer incentives to companies to keep their operations in the United States. What do you think?

Trade Gap Narrows

In the article “Trade gap narrows, but consumers wary” it points out that for the past two months the trade deficit has gone down, but not fast enough for Democrats. Now that Democrats have control of the House and the Senate they plan on increasing tariffs and putting pressure on WTO. I think it is great to try and close the trade gap but I don’t think we should try to limit products that we import, as much as try to increase the amount of valuable products we can produce.


Low saving rate in U.S. seen as danger

A recent article entitled “Low saving rate in U.S. seen as danger” the European Union’s monetary chief said “the United States low savings rate and large budget deficit pose a risk to the global economy”. He went on to say that “the world’s largest economic powers should take advantage of current prosperity to reform their economic policies”. I completely agree with the European Union’s monetary chief’s statement. I think running a deficit should be reserved for recessions. The United States should run a surplus during times of economic growth such as now.

Low U.S. saving rate

A recent article entitled “Low saving rate in U.S. seen as danger” the European Union’s monetary chief said “the United States low savings rate and large budget deficit pose a risk to the global economy”. He went on to say that “the world’s largest economic powers should take advantage of current prosperity to reform their economic policies”. I completely agree with the European Union’s monetary chief’s statement. I think running a deficit should be reserved for recessions. The United States should run a surplus during times of economic growth such as now.


Who is Right: The People or the Professionals?

I just read an article in business week about the economy in the US today. It talked about the direction our economy is moving presently in relation to how it is viewed by the general public. The article stated that most professionals are optimistic about our economic future and feel that the current low unemployment will continue to remain low for a while. The public, however, feel very differently about this. Specifically the lower income segment of the United States, those below $40,000 a year, view our economy much more pessimistically. The article went on to state that often times the public has been right regarding future economic downturns. This makes sense considering that the people who have these feelings about the market are the same people who influence the market through their buying habits. Personally, I agree with the article when it stated that many of these people are pessimistic about the future economy of the US only because it is an uncertainty and they are afraid of that uncertainty. I think that when people don't know the outcome of something they become more afraid in relation to that thing. With this in mind, people are afraid of what the economy might do in the near future because they are not positive of what it will do. I think that if we look at the economy today, it seems to be moving in a very good direction and I, for one, see that as a positive sign that it will continue to be good in the future.

Supreme Court Ruling

As of this month, the Supreme Court has found that the EPA has shirked its responsibility to regulate carbon dioxide emissions from vehicles. The article “Court Turns Up the Heat on Global Warming” states that the Supreme Court has ruled carbon dioxide a pollutant, and as a pollutant, it falls under regulation by the Clean Air Act of 1970. Environmental groups view it as “a crucial step in the path to federal carbon emissions legislation”. It is obvious that consumers that drive vehicles are not paying the full cost of their action, and they are putting a negative externality on society. I argue that this ruling by the Supreme Court could be a step in the right direction.

2008 Fundraising

2008 Fundraising.

A recent article in New York Times dated April 4, 2007, indicated that fundraising was more than four times higher than this same time period in the 2003 political campaigns. “The staggering sums are an indication that the American people want a conversation.” I disagree. Most of the money comes from big businesses who want a politician in their pocket. The majority of the American’s care but not enough to separate cash from their wallets to help the campaign member of their choice. I believe that this is supported by the lack of news the younger generation absorbs (recent reports indicated newspaper sales and T.V. news viewing are down; understandably they may be getting their news from the internet but I could find no statistics to back that claim) and by the numbers at the polls. Also, this same article clearly states that Obama’s money comes from selling a personal story in two best-selling books. This early in the race the different parties just use the amount of money generated to signal to the media that they are more wanted by the American public then the party with lower funds. Which is not necessarily the case, especially this early in the race.

Is Wal-mart a monopsony?

Traditionally a monopsony represents a buyer who buys less in order to force prices lower. Wal-mart uses their huge buying power to force prices lower. On the surface, this appears as a benefit to society and the end user or consumer appears to have an increased surplus – in the short run. I challenge that it in fact is a detriment to society. Wal-mart prides themselves on being the low cost leader and driving prices down. In order for a company to continue to have their product sold through Wal-mart, they must continue to cut their own costs in production. There are only so many cuts that can be made, and still make a profit, before the quality of the product starts to suffer. End user surplus is not increased in the long run due to cheaper products falling apart sooner and increasing the ‘durables’ replacement frequency rate. So the low price, cheap deal is not always the best deal. For an example, if I buy a pair of levi’s (red tag) at Target I will pay $50 and they will last a good six months. If I buy a pair of levi’s (orange tag) at Wal-mart for $30 they will last less than three months. So in one year I can spend $100 or $120 for the same time coverage for a product. Levi started the color tag to differentiate its product because it could not meet Wal-mart’s demands on price and keep its high quality standards, so it created a new lower standard for their product sold only at Wal-mart and continued to keep its high quality product that was sold at other retail outlets. If you go to Levi’s website , they won’t even list Wal-mart as a retailer that sells their merchandise. there is a point where a good name and quality go hand in hand. I hear (from teenagers) the new name is Wal-mart Fall-apart (the same name consumers gave K-mart in the late 80's).

Patents and Trademarks

In Chapter 8 we talked about Intellectual Property and using copyright and patents to protect that knowledge. Patents and copyrights protect an investment and are seen as a barrier to entry. However, at least one company and one industry are proving that the opposite is in fact true. Coca Cola has registered their trademark but has NOT patented their ‘real thing’ recipe. Copyrights only afford protection for 20 years. If Coca Cola had patented their recipe it would now be up for grabs and by not obtaining a patent they have been in business for over 100 years. The fashion industry also has trademarks. However, the clothing design itself is not patented AND there was a Supreme Court Case in 1941 that states that the practices of patenting styles was a violation of antitrust laws. So if you design a new jean and it becomes a new fashion trend, you can expect very quickly for other companies to copy your design and slap their own trademark or logo on it and start competing with you. Normally, this would be seen as an industry that you would not want to enter because it is too easily copied and there is no way to differentiate your product and protect it. However, the fashion industry is decidedly fickle. Cool is only cool until uncool people start to pick up on the trend. Then a new trend has to be designed and marketed, and if successful, then copied. This trend for the fashion industry is successful because clothes are out of style before they are worn out necessitating the need for a high frequency rate of replacement. So in this case, the lack of intellectual property protection actually promotes the fashion industry, challenges them to come up with the next fashion trend, and charges them with continuous business. Quoting from a New York Times article “In some cases, it appears that lack of protection can lead to more vibrant and dynamic industry.”

Higher Wage for Higher Age

In America, it is traditional that the longer you are with a company the higher salary that you will make. Therefore 50 and 60 year olds make more than 20 and 30 year olds. This tradition gives a surplus to society by allowing American salaries to keep pace with increasing living standards and to cover higher mid life expenses such as college tuition for children. There was a recent article in the New York Times about how Circuit City laid off 8% of its workforce because their workers were being paid too much. So they eliminated jobs and will replace the laid off employees with new employees who will accept lower salaries. Obviously, they laid off the older workers rather than the younger workers. This is not an employment law class so I won’t go into detail about age discrimination. Economically, we know that paying workers based on ‘time on the job’ isn’t the most productive way to have a salary base. Paying a salary based on performance or productivity makes more sense. Those with more experience would receive higher pay due to prior knowledge and learning curve that in turn would relate to a higher output. The move by Circuit City however, is a very aggressive move to cut costs. 3,400 people will now no longer be able to afford their product and the PR nightmare that will ensue is going to cost them in advertising and legal fees. So is this a good move? I am sure there are a lot of companies that will be watching Circuit City real close in the upcoming months to observe the fallout of this attack. If Circuit City escapes unscathed then more companies will follow suit and start eliminating higher paying positions and then rehiring those same positions at a lower wage. I seriously doubt that the overall benefit to society is going to be positive. Less pay to Americans leads to a lower living standard. We are so worried as a county about increasing every other country’s standard of living, maybe we need to look in our own backyard first. When did increasing the dollar to the shareholder become more important than the dollar to the worker who produces the product? How is the shareholder going to get that dollar if no one can afford to buy the product?