• productivity and walking speeds

    What Your Walking Speed Tells Us

    May 15 • Behavioral Economics, Businesses, Developing Economies, Economic Growth, Economic Thinkers, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 98 Views

    There appears to be a link among time, money and walking.

    Different Countries’ Time Urgency

    Wondering about people’s “time urgency” social psychologist Robert Levine looked at people in 31 countries, He observed how fast they walked 60 feet during rush hour on a clear day. Curious about how long it took a clerk to sell a stamp, he timed a post office transaction. Also, he checked to see if their bank clocks said the same time.

    Summarizing, we can say that he looked at people’s walking pace, their work pace, and their time attitude. His results, shown In the table (below) from The Geography of Time display each country’s time urgency rank.

    Externalities of a vital economy

    Externalities from a vital economy

     

    Levine hypothesized that a faster paced environment was the byproduct of a vital economy. Quoting anthropologist Allen Johnson, he said that as we industrialize, we move from “time surplus” to “time affluence” to “time famine”. Once we think we have a time shortage, as with any shortfall, the commodity becomes more valuable and we tolerate less waste. Speaking economically, the opportunity cost of delay—what we sacrifice—has become much more expensive.

    Below “economic vitality,” Levine tells us that population size and temperature correlate with how we value time. Yes, we seem to walk faster when we live near more people and more slowly in cities with hot climates. Culture also counts. Communities that value individualism have a faster pace than those of us who are more communal.

    Our Bottom Line: Externalities

    The world has changed since Levine published his conclusions in 1997. The one constant though is that industrialization has externalities that relate to time.

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  • everyday economics and steak patents

    The Difference Between a Cheese Steak and a Designer Dress

    May 14 • Businesses, Economic Debates, Economic Growth, Economic Humor, Economic Thinkers, Fashion, Government, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Tech, Thinking Economically • 92 Views

    You can patent a new way to make meat but not a new dress design.

    A Steak-umm Patent

    As Gene Gagliardi tells the story, he was in bed one night trying to figure out how a Philly cheesesteak could be made at home. Served at Pat’s or Geno’s, it was a local delicacy. But prepared at home, the meat was too tough to chew. So Gagliardi invented “restructured meat,” protected his innovation with a patent and the rest of the story is Steak-umm history.

    From this (unsettling) description of “restructured meat,” we can see how it might be called an innovation:

    [C]hopped and formed emulsified meat product that is comprised of beef trimmings left over after an animal is slaughtered and all of the primary cuts, such as tenderloin, filet, and rib eye, are removed … The emulsified meat is pressed into a loaf and sliced, frozen and packaged.”

    Clothing

    By contrast, when people design a unique type of dress, a shoe or a piece of furniture, they will have a tough time protecting what they created.

    If Miuccia Prada sees a vintage jacket that she likes, she can copy it. She can even replicate it exactly and call it a Prada. However, her new jacket and most other clothing can then be copied by others because clothing is “utilitarian”. A logo on the jacket can receive intellectual property protection but not the jacket or blouse or coat or shoe.

    Vegas Strip Steak

    While restructured meat is patentable and most clothing is not, we appear to have some blurry territory for a new way to cut up a gristly fatty part of a cow. Calling it Vegas Strip steak, Oklahoma State University has sought a patent for new knife strokes that wind up with a relatively inexpensive and yet tender steak. Assessing whether they will get their patent, one analyst suggests the key issue here is, “… when a naturally occurring material is isolated from its natural source, is it patentable? And how isolated does that material have to be?”

    Our Bottom Line: Intellectual Property

    Having looked at meat and fashion, where are we?

    We can note that George Mason economist Alex Tabarrok believes that  innovation is constrained by patents:

    From: Marginal Revolution.com

     

    But we should also remember that as Secretary of the Treasury, during the 1790s, Alexander Hamilton promoted a patent system because he was convinced it would foster invention, protect infant industries and stimulate economic growth.

     

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  • Everyday economics and the Social Security Disability Insurance trust fund

    Why the Social Security Crisis Has Begun

    May 13 • Behavioral Economics, Economic Debates, Economic Growth, Economic History, Economic Thinkers, fiscal policy, Gender Issues, Government, Health Care, Households, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 148 Views

    Years ago, the Social Security Trustees said their disability trust fund would run dry in 2016. That day is almost here.

    Where are we going? To one example of the explosion in entitlement spending.

    Some Background

    Called pay-as-you-go, Social Security payments come from current workers’ payroll taxes. The revenue travels in 3 directions: To retirees, the biggest segment; to people with disabilities, a growing and massive part of the program; and to survivors of deceased workers. On a pie graph of government expenditures Social Security is the largest slice.

    Right now, it appears that old age insurance can remain solvent until 2033. Even if it pays out more than it receives from current workers, its trust fund makes up the shortfall. But for SSDI– the program that supports people with disabilities–spending exceeds revenue by 26 percent.

    The SSDI Problem

    The Acting Commissioner’s Perspective

    In her February 11, 2015 congressional testimony the Acting Commissioner of Social Security said not to worry. All we need to do is transfer Social Security old age trust fund dollars over to the Federal Disability Insurance Trust Funds. By combining the two, the disability fund will not be depleted next year. Instead both will remain solvent until 2033. She added that more women in the work force and aging baby boomers are the reasons for escalating disability claims.

    An Economics Professor’s Opinion

    At the same time, in his congressional testimony, Stanford economics professor Mark Duggan was much more concerned. Reminding us that the number and proportion of the population receiving SSDI benefits has skyrocketed, he says the reason is about much more than aging baby boomers. From 2.3 percent of all adults aged 25-64 in 1989, the program ballooned to 5 percent of all adults, 25-64, in 2013.

    You can see below that the proportion of the adult population aged 25 to 64 receiving SSDI has more than doubled.

    Entitlement spending increases

    From: Stanford economics Professor Mark Duggan

     

    Reasons For Growth

    Agreeing that the baby boomers and working women play a role, Dr. Duggan adds unskilled workers with disabilities, how the program retains beneficiaries instead of encouraging them to re-enter the labor force, and how the legal system supports applicants. But it does not end there. Presenting an increasingly complex network of causes, he reminds us of the relevance of easier eligibility requirements and the great recession.

    Below, for 1983, 1989, 1999 and 2009, you can see the shifting character of award rates to less quantifiable disorders per 1000 people receiving SSDI. (Musculoskeletal includes back pain.)

    Social security disability insurance spending per diagnosis category

    From: Stanford Economics Professor Mark Duggan

     

    Thinking of the great recession, you can see below that fluctuations in the unemployment rate and SSDI applications correlate.

    Entitlement spending on SSDI and the unemployment rate.

    From: Stanford Economic Professor Mark Duggan

    Our Bottom Line: Entitlement Spending

    Unless we are saved by an increase in economic growth that spikes payroll tax revenue, Social Security funding challenges will involve lowering benefits, raising taxes, increasing the eligibility age and rethinking the current incentives for the disability system.

    The disability program is but one example of how controlling entitlement spending will require some tough tradeoffs.

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  • everyday economics and marijuana taxes

    Marijuana Tax Problems

    May 12 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, fiscal policy, Government, Innovation, Labor, Regulation, Thinking Economically • 111 Views

    Can a cocaine, marijuana and methamphetamine dealer deduct his scale from his federal tax bill?

    Because the IRS said, “No,” from jail the drug dealer took them to court. In a 1981 decision, the tax court agreed with the defendant. Totally ignoring his illegal activities, the court decided that one-third of his rent, the scale, his telephone and auto expenses were legitimate deductions. Other travel and entertainment spending was rejected but only because of insufficient substantiation.

    The Congressional Reaction

    Horrified (I guess) that an existing tax regulation helped drug dealers, the Congress sought to make illegal activity an exception to tax code provisions. Adding Section 280E to the tax code in 1982, they said that any business involved with a controlled substance could not take a tax deduction or credit.

    Classified as a controlled substance, marijuana is covered by Section 280E. Recently, the Supreme Court said so too was medical marijuana.

    Where are we going? To the incentives created by tax policy.

    The Marijuana Response

    When small businesses write off wages, utilities, and rent, the amount on which they pay federal income tax shrinks. As a result, because of 280E, the effective tax rate for a marijuana business can be as high as 93 percent, far exceeding a small business average of 15 to 35 percent. One marijuana entrepreneur said his $275,000 tax bill was “unbelievable.”

    Responding to high tax rates, retailers say said they are tempted to take the deductions and hope the IRS does not notice they sell marijuana. Others are manipulating their expense allocations by deducting a disproportionate segment of costs from non-marijuana parts of their business. A third group has pointed out that excessive taxes have constrained business growth.

    Our Bottom Line: Tax Incentives

    Behavioral economists like to tell us that taxes create incentives. Concerned about tax scofflaws, England’s “nudge squad” sent a letter telling people that everyone else paid taxes and so should they. Displaying they had selected the right incentive, the positive response rate exceeded prior punitive letters.

    As for the taxes themselves, sales taxes could diminish consumption. A high marginal tax rate can discourage work. When regulations and taxes apply to businesses with 50 employees, many stop hiring at 49.

    Similarly, Section 280E creates a host of undesirable incentives for legal marijuana business people.

     

     

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  • Everyday economics and trade barriers like the Russian embargo help domestic producers.

    The Smell Test That Some EU Cheese Makers Failed

    May 11 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 132 Views

    We could say that Parmesan cheese makers didn’t pass the smell test for EU storage aid.

    Where are we going? To how cheese makers responded to the Russian import ban.

    The Italian Response

    After Russia reacted to Western sanctions with a cheese embargo, the EU offered some Private Storage Aid (PSA). Earmarking long lived hard cheeses, the aid targeted dairies that depended on Russia for their livelihood. Close to the top of their list were Finland and the Baltics.

    It did not quite work out that way.

    Explaining, the EU said they received a “disproportionate surge” from cheese makers who traditionally dealt minimally with Russia. They meant the Italians. While 7,202 tonnes of Italian cheese went to Russia in 2013, the Italians requested PSA for 84,120 tonnes. Asked about their participation, an Italian representative said that their hard cheeses were especially suitable for the program.

    With the plan not quite working out as they expected, EU officials closed the storage aid option only three weeks and two days after it started.

    The Russian Response

    Meanwhile, Russian cheese makers have been smiling. When cheaper, higher quality imports were eliminated, local dairies benefited. According to the NY Times, the goat cheese people at a 12-acre farm near Moscow swung from monthly losses of $5,000 to non-stop requests from restaurants and grocery stores. With volume, one dairy was able to specialize just  in mozzarella. Even PepsiCo is somewhat happy because it owns the largest dairy in Russia. (As a U.S. firm though, PepsiCo dairy products have faced negative Russian publicity.)

    Our Bottom Line: Trade Barriers

    In so many ways, trade barriers wreak havoc with supply and demand.

    On the European side, demand evaporated. But then government further distorted the market on the supply side with storage aid.

    Meanwhile, in Russia, before the embargo began, domestic supply was overwhelmed by higher quality European cheeses.

    Trade barriers impact on supply and demand

    Immediately after the embargo, the slightly elastic, domestic Russian supply increased:

    Trade Barriers impact on Russian Cheese

    But within a year Russian cheese production blossomed. With no EU competition, price, quality and quantity all increased.

    Trade barriers and Russian cheese supply and demand

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