• Leicester City Football Club

    A Sports Paradox: European Capitalism and U.S. Socialism

    May 29 • Competition, Entertainment, Uncategorized • 3 Views

    For the first time in 20 years, a former editor-in-chief of The Economist  forgot to bet on his home team, the Leicester City Football Club. This year’s 5000 to 1 odds suggested he would again have lost his money. But you know what happened.

    Where are we going? To the economic systems that shape football.

    Football’s Capitalism and Socialism


    The English Premier League has 20 clubs who play 38 matches to select the champion. You get 3 points for a win, 1 for a draw; 0 for a loss. There are no conferences, brackets, playoffs or wildcards. Your points decide your position.

    Resembling capitalism, European football includes minimal revenue sharing among owners, no salary cap constraints, and unfettered player selection. Furthermore, rather than being favored, losing teams receive no player selection priority and can descend to a lower league for minimal point totals. Seven years ago, the system was particularly brutal for Leicester City when they were “relegated” down two levels–the equivalent of a baseball minor league team–because of poor performance.

    But the payoff for winning is staggering:

    leicester City Football Club championship money

    From: totalsportek.com. (The Equal Share and Facility Fee refer to different types of TV revenue.)


    NFL rules have been compared to socialism because their salary caps limit the interaction of supply and demand, teams cannot engage in “free trade” when acquiring players, they pool and divide revenue, and losing teams are awarded higher draft picks.

    Our Bottom Line: Competition

    We could say that we have a sports paradox.

    In countries with a history of national health systems and a commitment to income redistribution and equality, football leagues let teams freely compete. Meanwhile, in the home of capitalism, the NFL and other professional sports leagues limit competition through a safety net for those who achieve less.

    Considering their ruthlessly capitalistic environment, the Leicester City win is even more astonishing.

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  • traffic congestion externalities

    Why It’s Tough to Solve Traffic Congestion

    May 28 • Micro, Regulatory Policy • 19 Views

    First in the nation for gridlock, Washington, D.C. has a #1 award that no one wants. During 2014, D.C.’s average rush hour driver lost 82 hours in congestion. Think 10 years and you’ve used up a month.

    Traffic congestion and wasted time

    From: Richmond Federal Reserve

    While traffic jams create a cost that might include more time at work, a family breakfast, that morning run. and extra emissions, still we resist the best solutions.

    Traffic Congestion Solutions

    On the demand side, a higher price can create diminished use but is costly to implement and initially unpopular. Alternatives include HOV (high occupancy vehicles) lanes and HOT (high-occupancy toll) lanes that are HOV with the tweak of letting us pay for the faster lane if we don’t have the extra passengers. And finally, the ETLs (express toll lanes) use variable pricing sensors that charge drivers for using faster moving lanes.

    Moving to the supply side, some have suggested diminishing congestion with new roads and lanes. Inevitably though, the extra supply attracts more drivers. One study concluded that in 10 years you wind up back where you started. Furthermore, those extra lanes cost dollars that could have been used elsewhere–maybe $10-$15 million a mile.

    Our Bottom Line: Conflicting Incentives

    Solving congestion is tough because of the conflicting incentives we have created.

    We say we want less congestion but our urban areas encourage it. In a recent paper, parking guru Donald Shoup reminds us that, rather like peanut butter and jelly, urban design and cars need each other. Our cities “segregate land uses (housing here, jobs there, shopping somewhere else) to increase travel demand.” They also “limit density at every site to spread the city, further increasing travel demand” and “require ample off-street parking everywhere, making cars the default way to travel.”

    We also have the politics of diminishing congestion. When the choice was between economic efficiency and the public preference, the decision in Virginia was a new $100 million plus Beltway lane that in 10 years will be wasted spending. But that takes us to public choice theory…a topic for another day.

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  • Weekly Roundup The econlife.com economics news summary

    Weekly Roundup: From Achieving Success to Paying for Dates

    May 27 • Behavioral Economics, Businesses, Competition, Demand, Supply, and Markets, fiscal policy, Presidential Economics, trade-offs, Transportation: Canals and Railroads • 36 Views

    Weekly News Roundup

    Weekly roundup and how food labels define healthy Sunday 05.22.16

    How healthy labels help firms compete…more

    weekly roundup and lovebirds, dating markets and the economy Monday 05.23.16

    The economic side of dating…more

    Weekly Roundup and Railroad Transportation Tuesday 05.24.16

    Why sharing train tracks is a problem…more

    Weekly Roundup and the income tax rate history and the Congress Wednesday 05.25.16

    The déjà vu part of the candidates’ tax plans …more

    make-up attractiveness and success Thursday 05.26.16

    How attractiveness relates to success…more

    e-cigarette and cigarette taxes Friday 05.27.16

    E-cigarette tax dilemmas…more

    Ideas Roundup

    • demand and supply,
    • fiscal policy
    • taxes
    • elasticity
    • incentives
    • human capital
    • behavioral economics
    • transportation infrastructure
    • signaling
    • opportunity cost
    • trade-offs
    • oligopoly
    • competitive market structures
    • oligopoly

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  • e-cigarette and cigarette taxes

    The Power of a Tax Incentive

    May 27 • Demand and Supply, fiscal policy, Taxes and Spending • 42 Views

    During January, 2015, when Utah was deciding whether to levy a tax on e-cigarettes, the owner of Vapor Mania said, “I think we’d be out of business, or at least it would make it much harder to do business.”

    As of mid-March 2016, Utah still did not have an e-cigarette tax.

    But these municipalities did:

    cigarette taxes

    From: taxfoundation.org

    Where are we going? To the incentives that taxes create.

    The E-Cigarette Tax Debate

    First, to clarify (as I needed to do), an e-cigarette provides the feel of smoking through a battery powered device that delivers vaporized (hence, the name vaping) nicotine. Flavored by shops like Vapor Mania, that nicotine syrup could even taste like strawberry short cake ice cream.

    When legislators debate e-cigarette taxes, there are so many ideas floating around. They have to think of health and whether e-cigarettes help people stop smoking or act as a teenage gateway drug. They have to consider revenue and whether a high rate will shift some individuals back to tobacco and send others across state lines.

    Our Bottom Line: Tax incentives

    Taxes create incentives.

    Below, we seem to have a correlation between price and the quantity demanded of cigarettes:

    Tobacco taxes

    From: Jason Furman “Six Lessons from the U.S. Experience with Tobacco Taxes”

    Similarly, for pipe tobacco and cigars, when tobacco taxes elevated prices, the quantity demanded went down.

    tobacco taxes

    From: “Six Lessons from the U.S. Experience with Tobacco Taxes”

    So, when the owner of Vapor Mania predicts the impact of an e-cigarette tax, he is just talking about the power of a tax incentive.

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  • make-up attractiveness and success

    Is Beauty or Grooming More Important for Success?

    May 25 • Behavioral Economics, Labor • 41 Views

    The average woman could spend $15,000 on make-up in a lifetime. Yes, the number is debatable but not the connection between attractiveness and success.

    You can see how much mint.com thinks women spend on the make-up part of beauty:

    attractiveness and success

    From: mint.com

    Where are we going? To a closer look at attractiveness.

    Attractiveness and Success

    In a 2016 paper, researchers used data from the National Longitudinal Study of Adolescent to Adult Health to assess:

    • the relationship between income and physical attractiveness
    • the returns to attractiveness for women and men
    • the connection between grooming and attractiveness.

    Income and Physical Attractiveness

    Physical attractiveness will boost your income. Attractive people can expect to earn 20% more than coworkers whose appearance is average. (They also wind up with shorter jail sentences, higher grades and more job offers.)

    Gender and Physical attractiveness

    Contrary to the conventional wisdom, the sociologists who wrote the 2016 paper concluded that attractiveness does not matter more for women than men.

    Gender and Grooming

    Grooming counts more for women than for men. Well-groomed less physically attractive women (hair right, nails okay, make-up good, clothing nice) earned even more than well-groomed attractive women.

    attractiveness and success

    From: Washington Post Wonkblog

    With men though, the grooming mattered much less.

    attractiveness and success

    From: Washington Post Wonkblog

    As one of the paper’s authors, said, “For women, most of the attractiveness advantage comes from being well-groomed. For men, only about half of the effect of attractiveness is due to grooming.”

    Our Bottom Line: Signaling

    How we appear has been called signaling. Defined as a message we hope to convey, signaling through our appearance can say we adhere to social norms, we are consistent, we care what others think. It can express qualities that some employers value.

    So when men and women spend time and money on grooming, they are creating a workplace signal.

    For many smiles, do look at this Legally Blonde trailer to see the gender signals that are inaccurate.


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