• As an oligopoly, Apple has the power to charge higher prices and differentiate its products in order to let consumers signal status through conspicuous consumption.

    Will Conspicuous Consumption Add to iPhone 6 Sales?

    Sep 15 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Entertainment, Innovation, Tech • 72 Views

    Has Apple just given us a Thorstein Veblen moment?

    We remember Thorstein Veblen because he described conspicuous consumption in his book, The Theory of the Leisure Class (1899).

    Thorstein Veblen and Apple

    According to Veblen (1857-1929), affluent consumers try to convey their power and wealth through excessive leisure and shopping. Servants and employees help the affluent do less while their money lets them signal their status by buying more. As expressed by Veblen, “The members of each stratum accept as their ideal of decency the scheme of life in vogue in the next higher stratum, and bend their energies to live up to that ideal.” I suspect Veblen is describing the aspirational shopper.

    Thorstein Veblen originated the idea f conspicuous consumption

    Today, with studies indicating that Type A CEOs, entrepreneurs and the top 1% work 24/7, we can ask whether Veblen’s conclusion about leisure is entirely accurate. Thinking, though, of Hermès Birkin Bags priced from $10,000 to more than $120,000, private planes, Teslas, and the iPhone 6 Plus, conspicuous consumption has hardly disappeared.

    The iPhone 6 Plus?

    Reviewing Apple’s newest launch, one tech site tells us that Apple’s loyalist constituency is composed of “the relatively monied” who believe “that Apple does, indeed, add things to their life…including a…chest-puffing sense of self-worth.” You can see (below), that Apple is the leading provider to the affluent.

    With its more affluent customer, Apple use the allure of conspiicuous consumption in its marketing.

    From: MacDailyNews.com

    Sounds like Veblen’s conspicuous consumption.

    The Bottom Line and Oligopoly Power

    As an oligopoly, Apple has used its pricing power and product differentiation to target the more affluent consumer. Selecting higher prices and emotion stirring launches, Apple might be very aware of conspicuous consumption.

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  • It would be beneficial for households and national economic growth if the U.S. saving rate were raised.

    The Nudge Toward a Goldilocks Savings Rate

    Sep 14 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Financial Markets, Government, Households, Innovation, Macroeconomic Measurement, Regulation • 84 Views

    Today in Econlife’s Sunday Charts: U.S. citizens like lotteries. The U.S. saving rate is plummeting. Combine the two and maybe we can use a lottery to get people to save?

    The basic idea is to give savers lottery tickets. The number of tickets depends on the size of the deposit. If your ticket is drawn, you can win a big cash prize and if you lose, you still have your savings and some interest too. True, current banking regulation prohibits lotteries but several credit unions are experimenting with the concept.

    And, it appears to work.

    The U.S. Saving Rate

    One study indicates a lottery increases savings. People deposit more, play other lotteries less and consume less. George Mason economist Alex Tabarrok calls it a “crafty nudge.”

    With the y-axis indicating the percentage of disposable income that households save (they spend the rest), you can see that the U.S. household projected saving rate for 2014 is low when compared to other countries.

    Compared to OECD countries, U.S. savings rate is low.

    From: OECD

    Also, our saving rate is low when compared to the past.

    Defined as the difference between what we spend and what we set aside for the future, the U.S. personal saving rate (below) has declined.

    The U.S. personal saving rates are declining.

     

    On a personal level and nationally, saving matters. Personally, we need our savings for retirement, for large purchases, and for emergencies, On a national level, businesses borrow savings to invest in the land, labor and capital that fuel economic growth.

    The Bottom Line and Savings Incentives

    A Goldilocks level of saving–not too much, not too little, but just right–would be productive for the U.S. economy and individual households. Perhaps by placing a deposit lottery in our arsenal of incentives, we can move to the Goldilocks level that one economist suggests is between 5% and 8%.

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  • This week's everyday economics included vodka to tax dodgers

    Weekly Roundup: From Vodka to Tax Dodgers

    Sep 13 • Developing Economies, Economic Debates, Economic History, Economic Thinkers, Government, Innovation, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 67 Views

    Everyday Economics — Sunday Chart of the WeekSUNDAY 09.07.14

    The home states of the slimmest Americans…

     

    Although creative destruction has transformed the music industry's technology, still songs are the same length.MONDAY 9.08.14

    How song length has remained 3-4 minutes…

     

    Everyday Economics and The Russian government has taken advantage of Russian alcohol addiction because inelastic demand lets it optimize revenue even when taxes increase price.TUESDAY 9.09.14

    Looking at the Russian government’s Vodka addiction…

     

    Everyday Economics and The difference fiscal policies in the eurozone have meant varying VAT gaps with lotteries in some countries to narrow it.WEDNESDAY 9.10.14

    Catching tax dodgers with a lottery…

     

    Everyday Economics and The price floor that preserves the higher prices from the independent bookstore and its cultural virtues sacrifices market efficiency.THURSDAY 9.11.14

    An independent bookstore dilemma…

     

    By negatively affecting labor markets, the Affordable Care Act will diminish productivity according to economist Casey Mulligan.FRIDAY 9.12.14

    The reason for the “29er” rule…

     

    Economic Ideas Roundup:

    • Creative destruction
    • Fiscal policy
    • VAT
    • Incentives
    • Price floor
    • Labor markets

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  • By negatively affecting labor markets, the Affordable Care Act will diminish productivity according to economist Casey Mulligan.

    Why Would a Firm Not Want 50 Employees?

    Sep 12 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, Health Care, Households, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 91 Views

    I was especially pleased to have read a WSJ column by University of Chicago economist Casey Mulligan about what he believes are the labor market tradeoffs of the Affordable Care Act (ACA). My goal today is just to consider some of the conclusions in his column and in his new Kindle book, Side Effects. 

    The ACA and Labor Markets

    Alluding to the academic and political debate surrounding the Affordable Care Act, Dr. Mulligan tells us that labor markets need more attention. He then starts with the big idea that allocating more resources to healthcare means less land, labor and capital somewhere else unless productivity increases or we get a bigger workforce. Yes, he says that certain populations will get a bigger slice of the economic pie, but then he predicts the pie will shrink because of labor market “taxes”.

    Explaining how the act will transform incentives in labor markets, in one example he details the “29er phenomenon”. The key, he says, is that 50 worker tipping point. Go from 49 to 50 full time workers and your firm’s insurance obligations multiply. However, because full-time is defined as a 30 hour work week, employers might just increase the number of people who come in for 29 hours. Employees, meanwhile, will respond to incentives that affect decisions about where and how much they work.

    Discussing the supply and demand sides of labor markets, Dr. Mulligan concludes that healthcare financial incentives will nudge firms and individuals toward less productivity.

    France’s 50 Employee Rule

    Dr. Mulligan’s predictions reminded me of a recent NY Times description of two French firms.

    In France, hiring worker #50 means your business has to create worker councils, establish profit sharing, and report to employee representatives when firing people for economic reasons. As a result, in 2012, there were 2.4 times as many businesses in France with 49 employees as there were with 50.

    One business owner in Provence explained a somewhat convoluted expansion decision. A former mountaineer, he had created a firm composed of individuals who could paint suspension bridges, scale cooling towers and handle height comfortably. Because the 50th employee would have made his expenses climb by 4%, he decided instead to start a new firm. And then, when he grew even more, he created yet another new business.

    By contrast, a French artisanal chocolatier who chose to hire his 50th employee regretted the decision. He told a reporter that it meant “…50% of my time spent trying to apply rules that don’t advance the business and that distract me from finding new products and markets.” Not only did his operating costs spike by €32,000, but also he had to devote more time to administrative tasks. The government even asked him to project how much chocolate he could produce during wartime rationing.

    Tradeoffs and Our Bottom Line

    With the ACA spawning 14,000 pages of regulations with countless incentives, labor markets will remind us that there is never a free lunch. Summarizing the ACA tradeoff, Dr. Mulligan says at the end of his book, “Time will tell whether the health reform is remembered for its intentions or its economic surprises.”

     

     

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  • Everyday Economics and The price floor that preserves the higher prices from the independent bookstore and its cultural virtues sacrifices market efficiency.

    How Much Do You Care About Your Independent Book Store?

    Sep 11 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Lifestyle, Regulation, Thinking Economically • 77 Views

    On July 10th, France outlawed free book deliveries and placed a floor under discounts. Hoping to protect independent booksellers, the new legislation perpetuates a 1981 law that said no discount could exceed 5% and prices have to be standardized. (In the 2014 law, the details about shipping and discounts are a bit more convoluted but we will not cover them here.)

    Former French culture minister Filippetti said the law demonstrated “the nation’s deep attachment to books” and its quest to preserve “bibliodiversity.” Recognizing the threat, a bookseller called his clientele “l’amant infidel”—an unfaithful lover.

    I am conflicted.

    Yes, France has a special culture of independent bookstores, maybe 3500 in small towns and large cities. They also claim that Amazon is taking advantage of Luxembourg’s lower rates by reporting taxes there, is selling books as loss leaders and planning to raise prices when they outcompete everyone else.

    Equal or Efficient Book Prices?

    Where are we going? The independent bookstore debate is all about equality or efficiency.

    The same debate surfaced in the U.S. with a 2011 Richard Russo NY Times OP-Ed. Citing friends who said, “They don’t win unless they destroy their competition…” Russo lamented Amazon’s impact on the indies. He quoted one author who said “…losing independent bookstores would be ‘akin to editing…a critical part of our culture out of American life.'” Or, as a bookstore owner explained, “If you like seeing the people in your community employed, if you think your city needs a tax base, if you want to buy books from a person who reads, don’t use Amazon.”

    Responding in a Slate column, journalist Farhad Manjoo focused on the benefits of paying less. Authors sell more books, consumers have extra money to spend locally and the economy enjoys more efficiency. Rather than doing harm, Amazon’s e-publishing and e-reader innovations have expanded the publishing world and could even be helping local communities. And yes, on Amazon, you can find comments from people who read.

    You can see below how the price floor eliminates Amazon’s ability to discount and ship for free:

    The AntiAmazon Law price floor

    The Bottom Line, Price Floors and Opportunity Cost

    As always, a tradeoff: we can have a mandate for the equal prices that are created by a price floor, or we can have the efficiency of market competition.

    Our bottom line: Price floors come in handy when you have an economic group to protect. But the opportunity cost is efficiency.

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