Arms Deal

After listening to the U.S. ambassador to Beijing speak about the arms deal between the U.S. and Taiwan on world news, I felt kind of disspointed in the U.S. for commetting such an action. Are we that desperate for money that we have to go piss off our friends? In my eyes, it would be like China selling arms to Mexico. Wouldn't it piss off the NSA and other government agencys if a low level country like mexico received new weapons and advanced technology? Shouldn't we have let China determine if Taiwan was going to get new defense weapons and what kind? Why would we want to upset China? And, what are the repercussions we are going to face in the future if any?

Link to Video

Obama eyes spending freeze to tackle deficits

I just read an article on msn.com. I feel this is going to be a heated subject in the White House for months to come. I'm going to have to agree with President Obama on this one. We need to cut reckless governmet spending to reduce the national debt. I know it's only going to be a 5 percent freeze but in times like these every penny counts. We also don't want to scare China off because they are the only ones really investing in our country and if we lose them we are screwed. I also like how Obama does not care about how his decisions are going to effect his chance at re-election. His decisions are based on how they benefit the whole country not just for his political gain.

http://www.msnbc.msn.com/id/33910089

United States Creditors

Reading the article titled Debt Burden Now Rests More on U.S. Shoulders in the Jan. 22 edition of the New York Times, it states that China, while still the States' largest creditor, significantly decreased its investment in the U.S. China held $728 billion of Treasury securities at the end of 2008, and invested $62 billion through Nov. 2009, which accounts for less than five percent of the money borrowed this past year by the U.S. treasury. What is interesting is that in 2008, China bought 20.2 percent of the U.S. debt. However, in 2009, they were projected to invest only 4.6 percent in U.S. treasuries. Why is there such a large change in spending? Has China found an alternative investment option, or are they worried about the massive U.S. spending increases? ITG chief economist Robert Barbera says that China is focused on keeping their currency value low compared to the U.S. dollar, and they needed to buy fewer treasuries to do so. It is possible that is the case, but there could be more appealing options for the Chinese.

China's GDP

A New York Times article offered some bold claims regarding Chinese economic growth. It was entitled China on Path to Become Second-Largest Economy. The main evidence offered was that China reported an increase of 10.7% for its Gross National Product during the 4th quarter of 2009. This figure seems suspicious. In a increasingly interdependent and global economy that level of growth seems unlikely amid worldwide economic downturn. Economic growth and increased GDP are of course possible and China's high level of exports would likely contribute to some level of increase.
However, some things about China and it's government should be kept in mind when dealing with these types of reports. The most important being that China is a totalitarian state. In China the government has complete control over and effectively exclusive access to most of the raw data used to formulate economic benchmarks. The Chinese government is notorious for reporting only good news and wanting to show a strong front to the "enemy" west. Additionally the method used by the Chinese government, purchasing power parity, is regarded sceptically by even kind critics. That method tries to take into account lower cost of living but in doing so departs significantly from nominal exchange rates and relative strength of different currencies. In 2003 the World Bank's purchasing power parity calculations put the parity rate at 1.8 Chinese yuan to 1 US dollar. At the time the nominal exchange rate was 7.6 yuan = 1 dollar.
With the assumption that these GDP figures are inaccurate comes the obvious foll0w up question. What is the actual economic growth of China? This also raises a point about the validity of indicators like GDP in general. How much faith should we place in these numbers? GDP does seem to be the most effective and broadest way to generally measure economic growth and activity but since most of the educated world is at least in part influenced in financial decisions by changes in GDP, i.e. an announcement of recession, then shouldn't more focus be placed on evaluating this number and analyzing the underlying data?

The Markets: What a mess

I do not get it. What is wall street seeing that the rest of Americans are not? In one of the articles Laszlo assumes that the markets are still going to go up because of the large supply of equity that is sitting on the sidelines. I am seeing the exact opposite. Banks are not lending, Americans have lost millions and net worth's have vanished into thin air. Where is all this liquid cash that is waiting on the sidelines to jump into the markets? Donald trump also came out with an article this week that states banks are still not willing to lend and they have held onto the money that was given to them from the US tax payers. Banks usually create a lot of liquidity but they are currently holding back all funds. Like I said in the title it is a big mess out there, but for some reason the Equities continue to rise although volumes are extremely low.
Over the last semester we have studied a lot about supply and demand. I believe supply and demand work great but when it comes to the markets you have to watch out for the manipulation of supply and demand. Our Government is injecting millions into the markets, gold and oil continue to go up because the US dollar is so weak even after what we have went through these past two years the speculators just can't get enough. Based off what we have learned from Supply and Demand is there truly a demand for Gold? Is oil going up because of the limited supply or is it because OPEC wants to get more money? There are just so many factors to consider it today's markets and I would suggest that we stay close to the shore until real growth begins to take place.


http://www.cnbc.com/id/34223013
http://www.cnbc.com/id/34223013

Is MBA worth it?

In these times of financial hardship and economic crisis, the cost of MBA programs have continually increased. In the United States the rising cost of these programs is even more substantial than other countries. This increase of price has led many people to question whether this education is really worth the price they pay to receive it. The economic crisis has encouraged many students to further their education in pursuit of more prestiges degrees and many of the unemployed to return to school. Many question whether it is worth obtaining these degrees or more beneficial to take a lower income job to keep from going debt.
In my opinion education is priceless. Furthering my knowledge for myself and future generations will not only benefit myself, but will also advance society as a whole. Looking into the future it is a smarter investment to continue your education at this time of economic distress because when the economy finally does recover there will be better job opportunities and better pay for the educated. Hyperlink

Reverse Stimulus?

According to an article on yahoo finance the Federal Reserve is working on a strategy that will recoup some of the money that has been injected into the economy during the recession. I feel like this is a great idea and is necessary for markets in general. It is obvious that government intervention is a debatable subject. Liberals and conservatives debate government intervention all the time. Basic economics tell us that when the government intercedes they need to do so briefly so that the market does not become dependent on the government supplement. The Federal Reserve Bank’s actions are brought about by a need to fend off inflation. At some point the Federal Reserve will have to make a bold move to increase interest rates and remove other market supports that are currently in place. If these actions are foregone the Federal Reserve will have major problems trying to remain solvent while keeping up with inflation. The proposed actions include reverse purchase agreements where the Federal Reserve will sell securities with an agreement to buy them back at a later time. The yahoo article says, “The operations will be “extremely small” and won’t affect the Fed’s key interest rate…”. Apparently these “operations” are only test runs that will serve to prepare the Federal Reserve as well as the markets for when they will have to make bigger moves. The Federal Reserve has a significant challenge ahead because removing the market supports prematurely could derail the recovery entirely.

I feel like the market supports should be removed sooner than later. If the markets become reliant on these supports it will lead to more problems for the market as well as the government. I am not suggesting that the markets be left to fend for themselves at this point. I really like that the Federal Reserve is proposing to diminish intervention. It seems like that is the first step in the right direction and it will help markets in the long run.

Reference the article below as well as the textbook for additional information.

Fed moves to drain some money out of economy

Black Friday

Even in a depressed economy black Friday improves sales for retailers across the board. The concept of discounts as a motivation for improving sales proves to be worthwhile. Year after year retailers send out the discount ads and ramp up inventory levels while at the same time limiting the level of other inventories. This method proved to be more difficult and less profitable due to the economy. From the article “Online retailers rev up deals to keep momentum” Mae Anderson says, “The bright spot offers hope after traditional retail sales came in just above flat for Black Friday, with shoppers packing stores but sticking to their lists, going for deep discounts and practical items. The ShopperTrak results contrast with a report Sunday from the National Retail Federation on its poll indicating that more shoppers flocked to stores but each spent less than last year.” This would be concerning that even though there are still many shoppers out in the stores they are sticking to their lists and spending less than last year.

The internet retail market has grown and continues to do so each year. Many retailers now have black Friday deals on days other than Friday. Many shoppers look for deals throughout the week of thanksgiving and especially on the day after. I think that even with the struggles of the economy and the decrease in sales for retailers the discount method of selling products does get many consumers thinking about their products. This helps promote more sales even on product that are not marked down for the black Friday event.

http://finance.yahoo.com/news/Online-retailers-rev-up-deals-apf-166935795.html?x=0

The Power of Monopolies

This article is a little dated but I thought it applied well to monopolies and their power, only on a larger international scale. The article, from Business Week, is entitled, “Gazprom and Ukraine Settle Gas Dispute.” It basically outlined how much power the Russian government had over Ukraine because of their dependence on the gas that was produced by the state-controlled monopoly at Gazprom in Russia. The dispute arose over debt that Ukraine claimed they would be unable to pay so Russia threatened to cut off their gas supply and are requiring Ukraine to pay-up by transferring some of their gas from storage facilities to Gazprom. Not only did this worry Ukraine, but the European Union as well since a quarter of their gas comes from Russia and eighty percent of the gas is transported through Ukraine.
So here we see a monopoly run by a country exercising power over another country to get them to repay debt and act in a way that they desire. While government run enterprises tend to be inefficient, in this case, it gives them greater power on an international level. For further information, click HERE to visit the article.

What If I Don't Want the CD Included?

As we all know by now, the price of our college textbooks is a significant part of our schooling costs and seems to have gotten worse even in the last 5 years. Although I have since resorted to other channels of distribution, I was always completely shocked as a freshman and sophomore when the bookstore cashier announced my total. No offense to textbook authors, but how in the world are the publishers charging me $200 for a book that will be obsolete in one year, or even one semester. Even if production costs have risen significantly, this alone would not account for the astronomical prices publishers are charging.
According to the article in Business Week titled, “Textbooks for Tightwads” the textbook publishing industry is an Oligopoly, with 5 major publishers running the show. There might not be outright collusion between the companies, but their objectives are no mystery. Because there is a defined market that requires a unique product, the publishers can introduce higher prices and have little or no consequences when it comes to market share or revenue.
I’m sure I’m not the only one who gets frustrated when I see brand new textbooks on the shelves wrapped in cellophane with a “CD-ROM” that I know I’ll never use. With a few publishers controlling the market, they also have the ability to offer “bundled” products at higher costs, even if consumers would prefer the products separately.
When an oligopoly controls an industry, the consumers receive less surplus, if any; and the producers are motivated by profit, not by quality. Competition equalizes the market and promotes a free-market economy where producers are motivated to make their products better and where consumers are driven to find the best deal.

Yahoo imporves search engine

An article recently posted in the Economic Times, talks about how Yahoo has recently updated its search engine with better filters that should help users find what they are looking for easier by using advanced filters that weed out unrelated information. The article gave the example of using the word Paris and hotels in a search by saying that the new search engine will assume that the user is looking for hotels in Paris and not the latest gossip on Paris Hilton.

I think that this is a good example to demonstrate externalities. Because anything change that a search engine employs will result in externalities for users and/or the people or business that have websites and information posted on the internet. The new filters that Yahoo is using will result in positive externalities for say, the hotels in Paris and those people who are looking to travel to Paris. It will also have negative externalities for the celebrity gossip sites featuring gossip on Paris Hilton and users that are actually looking for celebrity gossip.

To access the article click here

Taxing the Speculators

Paul Krugman, a Nobel prize winning economist, wrote an interesting commentary that was recently published in the New York Times (access it by clicking here). He suggested that financial speculation on the exchange of currencies creates negative externalities that disrupts the world economy. One way that these externalities can be reduced is by imposing a small tax on the exchange of currencies. He argues that the tax would be easy to impose due to the centralized nature of trading and generate revenue that is much needed by the United States government. While it is not a cure-all, it would help banks and other organizations to become less reliant on "ultra-short-run financing" and may help prevent future crises similar to the one our country is currently experiencing.

I find the idea of taxing negative externalities intriguing. Governments already do this through taxing the creation and disposal of pollution and other destructive elements. Almost all taxes create a degree of deadweight loss, so the benefits may not be worth the costs. I'm not sure if the same concept of taxing these externalities could be applied to financial speculation the way Mr. Krugman is suggesting; nevertheless, it is an interesting thought.

The Role of Price Discrimination in Black Friday

Arnold Kling, a high school economics teacher, justifies Black Friday and many other things through price discrimination. He cites this concept as very prevalent and a concept "deserv[ing] a lot more attention".

Temporary sales are a method of price discrimination to collect sales and profits from buyers that normally wouldn't purchase certain items at higher prices. Black Friday is the most important day of the year for these temporary sales. As with almost everything, there are those people that are willing to buy certain products at a price that most would consider high. There is also at least one group of buyers that will only buy those same products at a bargain price.

Sellers must make trade-offs regarding temporary sales. A temporary sale is great because it allows a seller to collect profits from the group of buyers that are "price-sensitive" and only buy at bargain prices. These sales can also sacrifice profits because the "price-insensitive" group that would have paid more can now purchase products for less, reducing profits from this particular group. Kling points out in his article that the great part of Black Friday is that the crowds generally discourage buyers that are "price-insensitive" from taking advantage of bargain prices. The negative externalities from large crowds maximizes profits from both groups, price-sensitive and price-insensitive buyers, to a greater extent than during other temporary sales. It is a big win for retailers that take advantage of this simple form of price discrimination.

To access the article, click here.

Predictions for Apple

This article is mostly about the inelasticity of Apple products. It's surprising that in rough economic times that people aren't searching for less expensive substitutes from other companies in order to save money. According to the article Apple has adjusted their strategy along with the economy. Rather than allowing another company to take over the cheaper MP3 market Apple has innovated and found ways to provide music players for a decreased cost. Since Apple has created such a brand name for themselves consumers are willing to settle for the inexpensive IPOD shuffle. What Apple has ultimately done is become its own substitute. The shuffle is the substitute for an IPOD, Apple Netbooks are a substitute for the full Notebook etc. The article specifically states that Apple's strategy is to create a large enough umbrella so as to not give any market share to a competitor. It appears that they have done just that.

Batman's Game Theory in The Dark Knight

I found a really cool article that relates Game Theory, in the story line of Charles Roven's Batman, The Dark Knight. The opening scene is a group of thieves robbing a bank. Now game theory is, a set of ideas and principles that guides strategic thinking. (Png, Lahman) -in which success in making strategic choices depends on the choice of others. (Wikipedia) When the bank heist is going on, the goal of each player is to maximize profits. To do this one player eliminates the other in order to increase individual profit margin. Each player has to wait until a specific task is complete before he can eliminate another player. The game theory choice is to eliminate a player first or to be eliminated. The dominant strategy takes place in the elimination of each player until the joker is the only one that makes a profit!

Another game theory in this movie is when 2 separate boats are faced with the choice of blowing up the other boat, getting blown up itself, or waiting and both boats getting blown up. Neither boat choses to ignite the bomb and so both boats end up surviving. Equilibrium is a state of balance, Nash Equilibrium is when 2 players know each others equilibrium strategy, or the point of their maximum potential. The Nash Equilibrium in this case is that each boat knows what its choices are and its strategic strategy the Nash Equilibrium takes place when neither boat can exceed it's potential by changing it's strategy. Of coarse Batman saves the day and the game theory ends successful for both parties.

Batman

Modern Airline Strategies

Scott D. Nason, American Airlines Vice President of Revenue Management, published an interesting article that coincides with some of the principles taught in Chapter 10 of our textbook. The airlines industry always seems to be barely getting by in terms of earnings and cost management, but the recession has introduced further challenges to the industry.

Nason notes in this article that the competitive landscape is changing primarily due to "scale economies". Airlines have very high fixed costs and low marginal costs in terms of the number of passengers. In such an environment, economies of scale are critical. Nason's six C's--competition, coopetition, codesharing, coordination, cooperation, and colusion--reveal how airlines are attempting to survive.

This article discusses an interesting concept of working with competitors to achieve a mutual benefit. These various relationships can be evaluated using game theory. A simple example is the following situation: American and a competing airline can either competitively coordinate, or co-opete, by sharing ground services with each other or completely compete by not sharing any auxiliary services. Cost savings will be the highest if they share auxiliary services and most likely the lowest if they compete on their own (such as zero). A decision to share by one and not the other with result in cost savings for the one not sharing with little or no benefits to the other that is sharing. We can imagine that the strategy of not sharing will easily be dominated by the strategy to share. Thus, our Nash equilibrium tells us that if both rationally choose their decisions, the airlines will share auxiliary services in order to increase cost savings.

This is a real-world example in which a corporation would likely use the principles that are taught in Chapter 10 regarding game theory. For additional reading, please access the cited article by clicking here.

Dilemma....

A Prisoner's dilemma... Suppose two suspects were arrested by the Cedar City Police Department. After the initial interviews and evidence collection, and the police believe that they have insufficient evidence for a conviction.

The next step would be to separate the prisoners, interview them individually and offer each the same deal. The deal is simple enough, one testifies for the prosecution, in exchange for freedom and the other will get the full sentence with conviction of ten years. The catch, however is if neither prisoner takes the deal, then both prisoners would receive a minor six months in jail for a misdemeanor charge. When both suspects decide to take the deal and betray each other, both will receive a conviction with a mandatory five-year sentence. Both of the suspects are offered the deal, and each must decide to betray his 'friend' or remain silent. Officers assure the suspects that the plan for testimony will not be divulged before the trial. What is a suspect to do? Through my employment I have frequent interaction with officers of many jurisdictions and have loved to hear stories of this technique and the outcome. Many choose to betray the 'friend' and ultimately lose the deal... What would you do?

Senior Center vs Green Space

After reading the article which talks about the opportunity cost of building a new senior center on Greene's Field a place where young children or families can play sports and picnic. The argument is that they should not build on this prime piece of property because future generations need to enjoy this green space. They feel that there are many other places to build this senior center which is much needed in this community as well. From an economist's view point I feel that financially this decision is obvious to build on this piece of ground because it would be making money versus just remaining open space requiring upkeep of the grass and landscaping. The community would benefit from the income produced by the senior center and also having a place for community functions. On the other hand there is sentimental value on Greene's Field because many generations have grown up playing sports on this grassy area. Between the two arguments I feel that the opportunity cost is greater to leave the field as is because ultimately the community will benefit from a new senior center and there are always recreational parks and areas for families to get together and play sports.

T-Mobile Introduces New Plans and Phones

There are many new technologies in the cell phone industry. Within the last couple of years, cell phone devices have switched from basic use to full on transportable mini computers. The major cell phone companies struggle to keep up with demand and their products are constantly changing to meet that demand. Just as computers are outdated in almost 6 months, cell phones can become outdated even quicker than that.

Smart-phones are now part of the biggest market trend in the cell phone industry. These phones allow users to check email, update their Facebook status, check out stock prices and even plug into laptop computers to receive internet wherever there is cell phone reception. Although T-Mobile products have struggled to win a portion of the market share because of difficulty in creating a high quality smart phone, it recently came out with the myTouch 3G.

Although this new product is expected to shine in the already crowded market, its greatest competitors are Apple’s iPhone and the many high tech smart-phones made by Blackberry. The myTouch 3G was introduced into the industry in June of 2009 and is a predecessor to the G1 smart phone. T-Mobile’s marketing strategy evolves around this new product for the remainder of the year. The myTouch 3G is targeted toward a much broader audience in anticipation of a much wider use in smart-phones.

I recently switched my cell coverage from Verizon to T-Mobile. In pricing the differences between wireless companies I found that it was almost impossible to escape the temptation of purchasing a smart phone cell plan. T-Mobile now offers a cell phone plan that does not require a contract and is $10-$20 less than any equal plan with a contract that the company offers. This just does not make sense economically! I also discovered that just for the convenience of a smart-phone and an internet data cell phone plan, a customer would be paying a minimum of $40 a month just to receive emails on their phone!

Source

Is the Netbook Cannibalizing Laptops and PCs?

The introduction of the lightweight, convenient and inexpensive netbook has some computer manufacturers worried. Although these manufactures expected and planned for the mini-laptop to be purchased as a complement to consumers’ laptops and PCs, the recent economic downturn has turned the product into a supplement.


Although the mini-laptop lacks the storage and software capabilities of the larger laptops and PCs, the dramatically lower price is convincing the consumer they can manage. The article quotes one consumer who, being concerned about the rough economy purchased the mini because it was less than half the price of a traditional laptop.

Normally the computer manufacturers would be thrilled to see a product’s sales to go from 182,000 to 11 million in one year, but not at the expense of more profitable products (i.e. Laptops and PCs). The mini has not only cannibalized laptop and PC sales, but has put pressure on the prices of these items. The article states that the estimated average selling price of portable computers will drop 8-12% in the next two years, partly because of the netbook.


The text outlines options for mitigating product cannibalization. The computer manufacturers could upgrade the high-profit products and/or degrade the mini-laptops to highlight the differences between them and help the consumer directly discriminate. This strategy might be a short-run solution to cannibalization, but comes with the obvious risk of damaging a product, that could be profitable in a different economy.

http://www.businessweek.com/magazine/content/08_49/b4111064905299.htm