Is the National Debt that Big of a Problem?

Is the national debt that big of a problem? An article by John T. Harvey explains why it might not be as big as a problem as you think. Let me first start by stating that the current debt to GDP ratio is not the largest that the Unites States has ever experienced. The current debt to GDP ratio has slightly crept over the 100% mark but is still not as high as it was at the end of WWІІ which was around 120%. Having the debt to GDP ratio eclipse 100% is alarming because of how fast the ratio grew over the last decade but will it cause the U.S. government to go bankrupt? The answer is no.

You are probably frequently given the analogy between the government’s debt and a family’s debt to illustrate how bad the growing debt problem is. The problem with that analogy though is that those two things are not analogous. They are not comparable for a few reasons: the government has an infinite lifespan and can print its own money. That is why people and other countries are willing to lend to the U.S. at such low interest rates because they know it is a safe investment. Let me put it this way; if you could continually borrow money at 2% interest for an infinite lifetime and have the ability to print the money due, wouldn’t you run a deficit?

There are a few other fallacies that I would like to point out. Many compare the United States’ situation to Greece’s. This is another comparison that it not analogous for many reasons. One main reason is that Greece owes its money in a currency that it does not control. Once again, the U.S. can print its own money if it chooses.

One last fallacy that I would like to address is that China essentially owns the Unites States because of the huge amount of U.S. debt that China owns. Many Americans don’t know that much of the U.S. debt is actually held by the U.S. government. China owns around 30% of the debt which could be printed and paid if China wanted it. But keep in mind that China’s economy hugely relies on the U.S. to purchase their exports that their economy desperately relies on.

Before losing sleep about the national debt, remember that the United States does not even have close to the largest debt in the world. We do have one of the largest economies though.

Rapid Growth in N.D.

24/7 Wall St. recently ranked North Dakota as the #2 best managed state; this was, in part, due to their fast growing economy and low unemployment rate. Bruce Kennedy wrote an interesting article which highlights some of the growing pains experienced by Minot, a North Dakota city which has a 2.3% unemployment rate. Apparently, one business is so desperate for workers that they are willing to fly employees from Wisconsin and put them up in a motel (a 500 mile commute), just to staff their store. The town is so frantic to house out of state oil workers that some investors have converted a retirement home into a hotel, taking little time for renovation. The town's schools are stretched and construction on hotels, housing, restaurants, etc. have ramped up. However, this boom sounds reminiscent of historical coal towns, many of which have become ghost towns. The challenge then, for Minot, is how to appropriately grow the city without the oil companies there taking on the form of a watered down version of a monopsony. Put another way, how will the town remain viable if the oil wells dry up or a technological innovation causes the demand for oil to fall drastically? The article quotes a Mr. Jerry Chavez (CEO of Minot Area Development Corporation) who is making efforts to carefully plan zoning and establish "proper infrastructure." Mr. Chavez is counting on the arrival of young families and their subsequent demand for professional occupations such as doctors, nurses, teachers, lawyers, etc. to establish a strong foundation which could support their long term growth goals. It will be interesting to see if Minot can succeed where so many towns in West Virginia have failed.

Guns and Ammo

Ever since Obama has been re-elected demand for guns and ammunition has skyrocketed. Consumer fears that Obama will introduce more anti-gun legislation has caused people to start hoarding ammunition and guns. The article points out that when Obama was elected the first time demand for ammunition increased so much that manufacturers could not keep up with demand. This drove ammunition prices up. The same thing has happened again. Ammunition is scarce and gun manufacturer's increases in stock price have been in the double digits. Since November 6 Smith and Wesson's stock price has risen by over 16%. Ruger's has risen by an astonishing 32%!! The market seems to be overreacting to this trend and I expect stock prices to settle in the future.

Is Michigan's DNR Action a Reminder of FDR's AAA?

Michigan's Department of Natural Resources (DNR) recently issued an Invasive Species Order, or ISO. Some believe the ISO to include "heritage or "old world" breeds and open-range pigs" that are found on small farms. This order basically allows the DNR to kill the animals that don't conform to the standards set by Michigan's DNR. Some, who oppose this idea, see the order as a result of the Michigan Pork Producers Association's influence. Those who oppose the order are basically saying that the MPPA sees the small pig farmers as a threat to their business. By allowing the smaller farmers' pigs to be killed, the people, who are buying pig meat of any kind, will be forced to buy the meat produced by the large pig factories. However, if you take a look at this situation, the supply is going to be depleted somewhat if the pigs are killed. This decrease in supply could result in a short-run increase in price, which is what the larger pig farmers would love to see.

This is what happened during Franklin D. Roosevelt's term in office when the Agricultural Adjustment Act was passed. Livestock was killed off (and this was during hard economic times of the United States) to raise the price of livestock for the farmers. The end effect was intended to help the farmers economically, but what it actually did was cause consumers to find it difficult to buy meat for their families. Hopefully, we won't make the same mistake twice. 

Black Friday vs. Cyber Monday

Despite the US economy heading toward what has been labeled a "fiscal cliff" retailers are enjoying the seasonal spending from consumers. Retailers, like little kids, wait almost all year for the Christmas season. However, retailers now face growing competition for the highly valued Christmas season consumer splurging.  Cyber Monday is now gaining ground and market share on the retailer store's Black Friday.
According to PriceGrabber.com, Cyber Monday shoppers are estimated to increase by 4% this year to an overall high of 41%. The other blow to retail stores is that 58% of these consumers plan to shop more on Cyber Monday than on Black Friday. PriceGrabber.com claims that the increase in Cyber Monday shoppers can be attributed to free-shipping, special one-day only offers and other discounts. It also leaves one to wonder if the overall convenience of no lines, no sleepless nights and avoiding the swarms of irrational behaving people also play a role in the increase of Cyber Monday shoppers.
With little to no regulatory, or other type of barriers, in opening a retail store or starting a website to sell to consumers could this serve as an example of the effects of a perfectly competitive market? (With an assumption that the capital required is not a barrier). In order for a market to be in perfect competition five conditions must be met:
1- Homogeneity of Products - A consumer can easily find the same TV, or other item, at Wal-Mart, Best Buy or Amazon.com. Condition met.
2- Many Small Buyers - With the American public not being in the wholesale business and purchasing only enough items to meet their individual or family needs this condition appears to be satisfied.
3- Many Small Sellers -  Although retail giants such as Wal-Mart exist the idea behind this condition is that sellers are competing on a level playing field without the ability to charge higher prices, etc because they have a substantial market share. Keeping this in mind condition #3 also appears to have been met.
4- Free Entry and Exit - The regulations for opening a retail store or starting an online store are within reach of most people. There may be permits and licensing requirements but these are not the same as the regulations for starting a mining operation or utility company. Thus, giving no weight to capital requirements, condition #4 is met.
5- Symmetric Information - In this condition buyer and sellers alike must be privy to the market conditions; prices, substitutes, information, etc. With the internet and other technologies symmetric information also seems to exist.
While the considerations of the five conditions has been cursory it none the less has shown that the retail markets, whether physical or online, appear to be a perfectly competitive market. As far as consumers still spending while the nation appears to be heading off the fiscal deep end, this appears to be a result of carpe diem. People are willing to continue to live their lives until the effects of what ever lies ahead begins to impact them directly.

Black Friday - Positive and Negative Externality

With millions of people throughout the country out shopping on Black Friday, the deals offered by stores like Wal-Mart, Target, and many others is a positive externality to many smaller stores and restaurants.  Black Friday causes a large boost in traffic for restaurants and other stores located near malls and shopping centers.  It has also become a positive externality for UPS and FedEx as a large portion of the Black Friday deals are now offered online and cause an increase in shipments.

Although it is a positive externality for many stores and companies, for me it is more of a negative externality.  I have never been shopping on Black Friday, but every year I hate having to drive anywhere on this day because a 10-minute drive can turn into a 30-minute drive waiting in traffic because of all of the people out shopping. 

Black Friday Price Discrimination

    Black Friday is an exciting time for many shoppers.  For many shoppers, they finally have a chance to buy  items they have wanted all year.  In this Bloomberg article, shoppers had a chance to buy a 50” flat screen for $298.  The question then becomes why any retailer would sell so many items at such rock bottom prices.  As a manager of a retail store I can tell you that it is difficult to make a profit on Black Friday. 

    It all comes down to price discrimination.  Because of the craziness that is Black Friday, not all shoppers will even go out.  In the weeks leading up to Black Friday I often hear customers tell me that they are willing to pay a little bit more now, in order to avoid Black Friday.  This gives retailers an opportunity to price discriminate.  As we know, not all shoppers are willing to pay the same price for an item.  Because of this event, John Doe can have a similar TV as Jane Doe, but at a much different price, and both customers will be happy. 

    I personally would not want to camp out over Thanksgiving dinner just to save a few dollars, but I guess that’s why it’s price discrimination.  

Game Theory and the Fiscal Cliff

In this recent article by the Globe and Mail, writer Andrew Steele analyzes the upcoming Fiscal Cliff through the game theoretic perspective. The game is "chicken". Two players face off, each faces a pay-off matrix such that whoever backs down leads to a negative outcome, and mutual refusal to back down leads to a mutually undesired outcome. The players are the Democratic and the Republican party, and their refusals are over the policies to take to avoid a fiscal cliff.

Fiscal cliff is the popular term describing the budget problems that faces the United States as the year 2012 comes to an end, and the Budget Control Act of 2011 goes into effect. A series of tax cuts from the Bush years will expire, as new taxes for the national healthcare law starts, all the at the same time as the drastic spending cuts proposed by the 2011 Debt Ceiling settlement.

The article basically paints in the Republican into a corner between a rock and a hard place - either raises taxes on a few, or trigger taxes on everyone, a direct conflict with their campaign promise to not raise taxes. At the same time, President Obama has something of a dominant strategy, in this iteration of the game. He can either raise taxes on a few and cut spending, as the Democrats want, or raises taxes on everyone and blame the Republicans for their intransigence.

What's at stake here, is the U.S. economy of the next few years and the potential to dive into yet another recession if both sides refuse to compromise. However, the game, and subsequent strategies assume both players are rational...far from certainty given how dangerously entrenched the sides were in resolving the ceiling.

Bankruptcy Creates Positive and Negative Externalities

The announcement of bankruptcy being approved by the court in New York for the manufacturer of Twinkies, Ding Dongs and Wonder Bread will have both positive and negative externalities for many parties.  A negative externality arises when one party directly imposes a cost on others.  I believe that the 18,500 workers who will be laid off are experiencing a negative externality. However, the bankruptcy of the manufacture here in the United States will also have positive externalities to the sweet treat market.  Some of these externalities are found in the article “Despite US woes, Twinkies reign supremeon the Nile.”  These sweet treats are very popular in other regions of the world, including the region around the Arab Gulf. There are still factories in the Arab region that will continue to make the products.  A Mexican company Grupo Bimbo is looking to purchase the brand name because of its plans to expand into North American.  Both companies will experience increased sales.  These countries will have an advantage in lowering manufacturing costs.  Such as, the cost of sugar will be lower because it will not face tariffs that are in place here in the U.S.  It was a combination of externalities that influenced the closure of the manufacturing plant in the U.S.  

 

    

Game Theory, Hostess vs BCTWGMIU

Of late, it is hard to turn on the TV, Facebook, or participate in just about any other aspect of social communication without hearing about the bankruptcy of Hostess. While it seemed to be a sudden development (at least as far as the media is concerned) it was something that has been going on for years. In fact the recent developments were all being pursued by a new management team that was looking out for the well-being of the company, rather than their own good. 

As part of the deals between the unions and Hostess, the new CEO was offering quite a change. Several items included in the package, as offered by Hostess, included: 1) 25% ownership in Hostess, 2) a package of bonds to go to the employees valued at $100,000,000, 3) two seats on the board of directors. In exchange for these, the union had to agree to several terms, which included 1) cut pay to comparable levels found at other major bakeries, 2) offer new-hires 401(k) instead of pension plans, 3) cover some of their own expenses, i.e. insurance. Hostess made a generous offer, and in return, they get to continue business operations. The Teamsters union looked the deal over and thought it wise, agreeing to it as the best possible choice for its' members.

The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTWGMIU) were advised to carefully consider the deal as offered by Hostess. To which they decided they would strike to prove a point, and remedy past wrongs inflicted by a management team that is no longer at Hostess and one that has been gone for almost a year. As we know from watching the news recently, the decision made by the BCTWGMIU was to take the $0,$0 option, rather than the option that would have meant continuing operations for Hostess and quite a deal for union employees. 

The upside to this story is that the consumer will come out the winner, no matter what happens to Hostess, BCTWGMIU, or anyone else involved with Hostess, because someone will get to purchase the Hostess brand and products to continue to manufacture and sell, since there is still a high demand for these products. And the game continues...

U.S. Is Number 1

China has recently announced that the U.S. is now its biggest export market with the European Union falling to second place. It is no secret that the United States has become heavily reliant on the goods and services that China produces, however, this may be an indication that we are not producing enough domestic goods and our consumption is getting out of control.

So far this year China has exported over $289 billion to the U.S. This number continues to grow every year and the U.S. needs to find other ways to support its insatiable consumption.

Environmental sustainability vs. economic growth

Steven Cohen writes, "One of the more persistent myths in our political dialogue is that we must tradeoff environmental sustainability and economic growth." He points out that U.S. environmental law only works to clean up or reduce pollution. Instead, greater focus is needed on sustainability measures which allow economic growth and resource reuse/conservation to grow hand in hand. Mr. Cohen further argues that this ideal is not impossible because, in reality, economic growth is dependant on high quality natural resources being available for both the short run and the long run.

In 2010, the U.S. Bureau of Labor Statistics began tracking "green jobs" (or jobs engaging in energy efficiency, recycling and reuse, advocating awareness through education or training, etc.), they found 3.1 million related jobs. Researchers from MIT interviewed global executives as part of a three year study on sustainability innovation and found that 68 percent of these companies, "increased their commitment to sustainability." 67 percent of respondents indicated that possessing a strategy for sustainability was, "necessary to be competitive."

I think Mr. Cohen is correct that environmental sustainability should not be political. Sustainability is not about public relations or pretty landscapes; but necessary for a global economy which encompasses seven billion people. I watched The Lorax movie with my kids the other day, I couldn't help but think how absurd it was for a growing small business to literally hack its way through available resources with absolutely no regard, or strategy, for long term growth.

The Most Sensible Tax of All

The authors of the article,  "The Most Sensible Tax of All" written by Yorum Bauman and Shi-Ling Hsu, speak of a tax in British Columbia that could make it more expensive to pollute. This tax is a carbon tax. The carbon tax is being used in British Colombia to lower CO2 emissions. The theory behind this tax is that paying a high price for these emissions will make it more effective to regulate the amount of pollution in the environment.

I acquiesce that a cap on CO2  emissions can be a good thing for the environment.  If the government were to set a cap on CO2 emissions, then the CO2 levels would drop and lessen the effects of global warming. The government would have to set goals that are lower than the previous year.  I also think that they will have to monitor those companies that emit CO2.  The companies that emit CO2  would need to have permits given by the government to release the CO2.  I strongly believe that the problem with these permits is the companies that have these permits could sell them to other companies.  With this cap and trade, the government would not be able to monitor all the companies that have the permits, therefore cheating has and will occur.   

However, politically friendly industries have gotten politicians to give them exceptions or free permits.  Unlike the cap and trade system for the sulfur dioxide emissions that has worked well for the coal-burning utilities where they are few and far between, they are already being monitored by the government.  According to my research, many economists feel that the cap and trade system is not the best way to reduce CO2 emissions.  They believe that a carbon tax on each ton of coal, gallon of gasoline, and barrel of oil, based on how much carbon it contains, is the best way to reduce CO2 emissions. 

In conclusion, I would like to say that I cannot disagree with the authors that it does not matter if you are a Republican, Democrat, conservative or a conservationist, we can make the British Colombian carbon tax into an American made one. 

 http://www.nytimes.com/2012/07/05/opinion/a-carbon-tax-sensible-for-all.html

Price discrimination and textbooks

Supap Kirtsaeng was a graduate student that made around $900,000 in revenue by purchasing textbooks at discounted prices in Thailand and selling them in the United States for a profit.  He was sued and now the Supreme Court is facing the decision whether to allow importation of textbooks from countries where they are sold at significantly lower prices than the United States.  Some might think the price of textbooks would drop if the court rules in favor of Kirtsaeng, but one author describes why textbooks will continue to be expensive regardless of the Supreme Court's decision.  Her argument involves the issue of price discrimination.  In the United States, we are willing to pay a higher price than students in other countries so we get charged a higher amount.  If the prices were lowered here, then they would need to be raised in other countries and sells would drop. 

I have always been frustrated by the amount I spend for textbooks, but prior to this class I never realized that it was due to price discrimination. As students we know that we need to purchase the textbooks in order to perform well in a class so we pay the price no matter how outrageous it may be.  I have usually tried to shop around for the best prices when purchasing textbooks, but this article encouraged me to be even more price-sensitive and do all that I can to find the best possible deal. 

Are Patent Laws Stifling Innovation?

In their articles, Posner and Becker discuss the current patent situation in America.  Patents exist as a way of ensuring that the inventor of a product has sufficient ability to profit from their investment in the product.  Posner makes the argument that as the difference between the cost to invent and the cost to copy becomes greater, patent protection becomes increasingly more necessary.  He uses the example of pharmaceutical drugs.  Due to extreme R&D costs and the relatively low cost of copying a new drug, pharmaceuticals require a greater degree of patent protection.  Patents assist in creating a necessary monopoly power for the inventor.  Without this protection, there would be very little incentive to develop new medications.

Both Becker and Posner agree that the area of patent law that has become excessive is the software industry.  Increasingly, companies have been filing patents for software code in the hopes of coercing other companies into licensing their software.  When licensing offers are rejected, the patent holders then seek damages for patent infringement through expensive legal action.  For example, Microsoft has made more money from licensing deals for Android phones than from their own Windows Phone line.  The difference between the cost of development of software code and the cost to copy it is very low.  This difference signifies that the need for patent protection is very minimal.

Usually, prior art has been a useful tool in invalidating patents that should not have been granted; however, due to the rapid changes in technology and generally uninformed patent officials, many companies have been awarded patents that give them an unnecessary edge over their competitors.  Companies are being awarded patents for rectangles with rounded corners.  Posner argues that when patent protection is excessive, the market prices increase to levels that are inefficient.  This also has the effect of decreasing the efficiency of resource allocation. When taken as a whole, this has the effect of stifling innovation and creating unnecessary barriers to entry.

The "Sharing" Economy

The "sharing" economy is various groups of people that share many resources in exchange for services, ideas, other goods, a place to sleep, money, a parking spot, and so on.  The internet has paved the way for collaborators to connect and share resources.  Why buy something off the runway, when you can rent a Nicole Miller dress for $75?  Realistically speaking how often would one wear a runway dress anyways?  The "sharing" economy has evolved for many different reasons and ideologies such as a need to conserve financial resources, a desire to be more environmentally friendly, an interest in creating more of a sense of community online, and as a means to use an exchange other than currency.

The trend is rising in popularity among the Generation Y demographic.  The linked article attributes this phenomena to the fact that few 18-29 year-olds are married and looking to the prospect of buying a home, having children, and saving for retirement.  Generation Y is immersed in the fast-paced world of technology and wants to be happier now rather than happy later.  Nowadays renting is not perceived the same as it was several years ago like customers at Rent-A-Center.

The "sharing" economy faces several challenges such as a plethora of legal issues, tax consequences, zoning laws, licensing requirements, insurance protection, and other forms of regulation and compliance.  I foresee in the near future passage of more laws specifically prohibiting practices of the "sharing" economy.  I think the "sharing" economy collaborations will make for some interesting tax laws.  I'm sure one could easily trade their tax expertise for, I don't know, miming lessons.  Does the "sharing" economy pose a threat to the traditional business model, and if so how will the traditional businesses respond? 

Is price discrimination as good an idea in practice as it is in theory?

 Let's consider a real-life example of how a business might price discriminate between clients. According to an article in Mother Jones, a real-world example is the 'club cards' that are offered by many of the major grocery chains, and many non-grocery chains. These allow a retailer to track every purchase that is made, targeting coupons and specials to your specific spending habits. According to the article, the author speculates that the data is collected from those who sign up for a card, thus granting them the right to your information, that retailers can then do whatever they would like with. One flaw of this method of price discrimination, at least from a consumer standpoint, is that those items that are less price elastic then have the prices raised to offset the cost of the reductions and discounts offered, thus hurting the elderly, the less informed, and those not willing to sign up for the card and allow access to their information. As the information age continues to advance, and these 'club cards' gain popularity, this ability to price discriminate will expand to include nearly every industry, thus reducing the consumer surplus and increasing the producer surplus.
The targets of this type of price discrimination, at least for now, include the middle-class, educated, and computer-savvy people, who are willing to sign up to save money, share their spending habits, and carry new smartphones with apps that also can track spending habits. As technology advances, this target market will continue to expand until it includes virtually everyone within the modern society. While this is a good thing from a business owners standpoint, it is not all good news. Is it a good thing to allow retailers to have access to such personal information? Who is potentially hurt by this type of marketing? As mentioned earlier, the elderly, the uneducated and the unwilling must pay higher prices for the same items, but those who participate in this type of marketing can also open themselves up to having this information sold to anyone with money, to be used for whatever purposes they see fit, whether you as the consumer agree with them or not.
In the information age in which we live, there are countless ways for the government, corporations, and even your neighbor, to gather information about you. While the benefits and the liabilities are just being discovered, it is the way that the world is going. It is becoming a world in which price discrimination is becoming a way of life, and producers are devising methods to catch as much of the consumer surplus as they can in the form of producer surplus. Welcome to the next generation!

Cloud of fiscal gloom hangs over Wall Street

Since the study of elasticity I have begun to look at things a little bit differently. There are countless times when I wonder whether or not a good or a service is relatively elastic or inelastic in regards to many things. During this semester I have also been taking an investments course and as part of our fundamental analysis we decided that the Presidential election could have a significant influence on the market as a whole and an even greater influence on our energy sector focus. The question being then; are the financial markets relatively elastic or inelastic based on a political election? We said that it had to be quite elastic based simply on the campaigns that were run and the debates that were heard.

Unfortunately, we were contested during the presentation of our beliefs. Many brought up the feeling that an election for political office would have very little, if any, influence on the financial markets. They said that there was far too much weight in other areas to believe the election could make a major play.

I can assure you that we now know that the markets can be extremely elastic to a President’s election. The markets are fully aware of what each individual believes, plans, and understands. They can then drop or climb based on the projections of a President’s role in our economy. 

Legalized Marijuana for Recreational Use          

An interesting result from the recent elections is that, of the 18 states that have legalized the use of pot for certain medical conditions, Washington and Colorado have legalized it for recreational use. If marijuana grown in these states is 'exported' to surrounding states, increasing supply, this could result in the Mexican drug cartel's loss of monopoly, resulting in a serious reduction of sales and revenues.

IMCO (The Mexican Institute for Competitiveness in Mexico City) estimates that, of the $2 billion in current sales, $1.4 billion would be lost to the new competition. This loss would severely hamper their ability to conduct business, (i.e., wages for drug mules, bribes to police and government officials, purchase of US-issue full-auto assault rifles, disposal of the bodies, etc, ad nauseum) so much so that they may not be able  to stay in business due to the high fixed and variable costs incurred under bloated monopolistic pricing where one cartel or gang controls the drug traffic in any given area.

An article in The Economist  estimates that variable costs of 'homegrown bud' will be $4,000 per kilo, with THC levels 4 times that of the Mexican variety. The price of this high quality product would be in effect, half of the Mexican price for equivalent amounts of the active ingredient, THC. With the loss of monopolistic pricing from a supply infusion of less expensive and higher quality goods, the demand curve shifts hard left and the price of dope falls to competitive pricing levels. According to IMCO, 70% of their market share would be lost. The drug cartels may not be able to react quickly enough to reduce long term variable costs to stay viable; officials and police would be sensitive to reductions in fees. It is unlikely that the drug lords would disappear because of the current high margins and piles of cash, but maybe in time their control, influence and strangle hold on Mexican border towns would be substantially reduced.

(It is not the intent of this post to condone or advocate the use of any illegal substances)

Does price discrimination keep the airline industry alive?

Price discrimination happens when a seller is able to charge different prices to different consumer segments for an identical good. With that said, are airlines the kings of price discrimination? I personally believe that they are. If airlines weren't able to price discriminate, they would go out of business. This is due to the fact that the majority of an airline's profits are derived from first class and business passengers. These passengers have historically been known to pay far more than other passengers. The average vacation traveler however, adds very little to an airline's bottom line through ticket sales. So is price discrimination the only sustainable pricing solution that airlines have? In my opinion, a single rate pricing model would be disastrous for the airline industry. If this were to happen, the ultimate loser would be the leisure/vacation traveler. This is due to the fact that their costs would have to rise significantly to offset the lost profits from first class and business travelers.