• Super Bowl 50

    Super Bowl 50 Spending

    Feb 5 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Entertainment, Labor, Lifestyle, Macroeconomic Measurement, Sports, Thinking Economically • 15 Views

    Santa Clara’s Super Bowl 50 negotiating position specified that the host committee would have to pay all safety, fire and medical expenses. At $3,597,300, that will be a lot more than nearby San Francisco will get.

    Where are we going? To whether mega games are good business deals.

    Super Bowl Spending

    The official message from San Francisco is that a surge in demand for hotel rooms, restaurant meals, souvenirs, buffalo wings, even the dry cleaners teams use for their uniforms, will exceed the $5 million extra that Super Bowl weekend will cost them.

    Maybe.

    Some sports economists believe spending is just shifting.  In his “reality check” paper on mega sports events spending, economist Victor Matheson concludes that cities hosting World Series games had little or no spending increases from 1972-2000. The reason is shifting and departing dollars. The shifts relate to the normal spending that is replaced by World Series or Super Bowl money. Local citizens avoid areas congested by mega events. People stay home to watch the game. Meanwhile nationally owned hotels receive revenue that travels far from the event’s venue.

    But, on the other hand…

    An economist working for the Super Bowl host committee says the event will turbo charge a mind boggling $350 million for local businesses. Looking back at N.Y.’s Super Bowl XLVIII, officials say the local economy got $600 million.

    Not only does Dr. Matheson disagree but he and economist Robert Baade calculated specific projections. You can see below that they say there is a much greater probability of no economic impact than one in the hundreds of millions:

    Super Bowl 50 economic impact

    From: “Super Bowl to Super (Hyper)Bole: Assessing the Economic Impact of America’s premier Sports Event”

    Our Bottom Line: Crowding Out

    Whether you believe the turbo number or Dr. Matheson depends on crowding out and leakage. Mega events could be crowding out the revenue that might have been there anyhow. When the  2002 Super Bowl was postponed because of 9/11, a New Orleans auto convention was “crowded out” for that week. Similarly, because of demand from the sports event, other tourists were prevented from occupying booked hotel rooms. Then, because hotel and restaurant chains have their HQ elsewhere, there is a leakage of dollars from the event to the big business located elsewhere.

    In addition, sales at other local businesses shrink. Commenting on the 2011 World Series, one movie theater owner said he loves his team but, “The sooner they lose the better.” During the 2004 Republican Convention in NYC, Broadway ticket sales were down by 20% from the previous year.

    A final question: Even if Dr. Matheson is right, is the morale boost priceless?

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  • generating an electrical infrastructure

    The Cost of Free Electricity

    Feb 4 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Government, Regulation, Thinking Economically • 32 Views

    Aguadilla, Puerto Rico, where temperatures average 78° F., has a year-round ice skating rink with laser lights, a disco ball and steady music.

    Used by the Puerto Rico Ice Hockey Association, the Aguadilla ice rink is a chilly (for Puerto Rico) 60° to 65° F.

    Subsidies and Puerto Rico ice skating

    Where are we going? To the impact of a government subsidy.

    Power For the People

    Puerto Rican towns and cities get free electricity. When a city does not have an electric bill, it can afford to own restaurants and hotels, it can light up a waterfront and sports stadium and yes, it can build an ice rink. It can save so much money that the disabled receive free wheel chairs, a city’s debt becomes a surplus and low income housing is renovated.

    There is only one problem.

    Free electricity is expensive. The source of all that power, the Puerto Rican Power Authority (Prepa) owes $9 billion. Only by cutting its debt payments to bondholders–perhaps by half annually during the next five years–can it pay back some of what it owes. In addition, its generating facilities are antiquated and inefficient. So its power costs more than necessary to produce and its revenue is lower than what it should be.

    Our Bottom Line: Unintended Consequences

    Subsidies can have unintended consequences such as the costs the IMF has estimated below.

    Costs of subsidies

    From: IMF

    To the IMF’s list of externalities, we can add a Puerto Rican ice skating rink.

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  • The Shot Clock and Technological Innovation

    Deciding Who Owns LeBron’s Tattoo

    Feb 3 • Businesses, Demand, Supply, and Markets, Economic Debates, Entertainment, Fashion, Government, Innovation, Labor, Lifestyle, Regulation, Sports, Thinking Economically • 32 Views

    The tattoo on LeBron James’s arm might not belong to him.

    Tattoos and intellectual property rights

    From: Kicksonfire.com

    Tattoos that include a 330 area code on LeBron James and “Crown with Butterflies” on Kobe Bryant are the subject of a copyright infringement lawsuit. The firm that purchased the licensing rights from the artists says they control the tattoos while Take Two Interactive Software has been reproducing them in their videos. We could be talking about eight tattoos being worth $819,500.

    Where are we going? To the boundaries of intellectual property rights.

    Protecting Intellectual Property

    Think for a moment about Apple’s logo, the shape of a glass Coca-Cola bottle and McDonald’s Golden Arches. All protected by trademarks, they are a firm’s intellectual property. Similarly copyrights assure authors that they control the books they write and patents convey ownership to inventors.

    Sometimes though intellectual property rights can be tricky. The courts said it was okay for the 2nd Avenue Deli to serve an Instant Heart Attack sandwich even though the Heart Attack Grill of Las Vegas claimed the Heart Attack trademark for its burgers. And while Louboutin could trademark its red soles, it could not claim the exclusive right to produce a red shoe.

    Below you can see that a Tommy Hilfiger Tommy Yacht Jacket and a Pottery Barn Cameron Roll Arm Sofa could not get intellectual property protection.

    Copyright protection for intellectual property

    From: Johanna Blakley TED Talk

    Our Bottom Line: The Individual or Society

    While market economies depend on secure property rights, there are limits to what we can own and how long. Always we have had to balance inspiring innovation through individual intellectual property ownership and the public’s right to share a good idea.

    And now, for a tattoo, a Manhattan judge will again decide that balance.

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  • Thomas Sargent and Cutting the deficit

    The Mystery of the Disappearing Deficit Worries

    Feb 2 • Economic Debates, Economic History, fiscal policy, Government, Macroeconomic Measurement, US Presidential Election • 32 Views

    Averaging two times during each of the first five debates in Iowa, the deficit has barely been mentioned by the presidential hopefuls:

    Deficit worries and the 2016 presidential election

     

    Similarly, the Congress seems to be less concerned.

    Deficit worries and the 2016 presidential election

    Where are we going? To a deficit update.

    Who Cares About the Deficit?

    Concern about the deficit is slipping. In a recent WSJ/NBC poll, only 11% of all participants said the deficit and government spending “should be a top priority” whereas six months before that, 17% said it was a major concern.

    Deficit worried and the 2016 presidential election

    From: WSJ

    Pew tells us though that Democrats worry much less about the deficit than Republicans:

    Deficit worries and the 2016 presidential election

     

    And older people worry more than the young about the deficit. But here we might have a contradiction because, as you can see below, people over 50 are much more concerned with securing Social Security and Medicare, an objective that will add to the deficit as baby boomers age.

    Deficit worries and the 2016 presidential election

     

    So, should we worry?

    Our Bottom Line: The Deficit

    Yes.

    In a 2016 report from the Congressional Budget Office, we are told…

    “In 2016, the federal budget deficit will increase, in relation to the size of the economy, for the first time since 2009… If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years…”

    Deficit worries

     

    Correspondingly, fueling the deficit (the amount by which spending exceeds revenue in one fiscal year), the national debt (total amount owed by the federal government) is projected to equal an increasingly larger percent of the GDP:

    Federal Debt concerns

    Returning to the mystery of the disappearing deficit worries, perhaps you just have to look in the right places.

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  • Everyday economics and the tire tariff had a visible benefit and a much greater invisible cost.

    The Choice Between Free Trade and Tariffs

    Feb 1 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Regulation, Thinking Economically • 38 Views

    After tariffs on Chinese car and light truck tires went up in 2009, so too did rental tire sales. Since the tariffs made tires more expensive, consumers that could no longer afford them needed a cheaper alternative. The problem though was the cheaper choice was really more expensive. Adding together all of the monthly rental payments and the interest that was due, the total was more than four tires would have cost.

    The good news is that the tariff saved 1200 jobs. But, including rental tires (perhaps), each of those jobs cost consumers $926,500 a year. The Peterson Institute did the math:

    Free trade and saving jobs

     

    Fortifying their argument for free trade, Peterson went on to estimate that the extra money spent on tires meant less spending and fewer jobs elsewhere. Consequently, as many as 2,531 retail jobs might have evaporated.

    Similarly, way back in 2002, the Dallas Fed published the following data to prove “the high cost of protection.”

    Free trade and the cost of jobs saved from tariffs

    But a recent study has made all of this more complicated.

    Where are we going? To the cost that some workers pay for freer trade with China.

    The Impact of Freer Trade With China

    Yes, economists agree that free trade is beneficial. However, it is more complex than we think because the cost to the low skilled worker is considerable. Because of Chinese imports, certain U.S. regions have experienced higher unemployment and lower lifetime wages and labor force participation rates. Furthermore, since worker migration to other industries has been less than the experts expected, demand for unemployment, disability and retirement benefits accelerated.

    You can see below that the darkest brown areas had the largest exposure to Chinese imports:

    Free trade and the impact on jobs from China

    From: “The China Shock: Learning From Labor Market Adjustment to Large Changes in Trade”

    Our Bottom Line: Comparative Advantage

    First explained by 19th century economist David Ricardo as the principle of comparative advantage, when nations do what they do best, specialization boosts worldwide productivity. The big picture confirms that comparative advantage makes sense.

    However, as many U.S. apparel and furniture workers would tell us, everyone does not necessarily benefit.

     

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