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    A Better Ketchup Bottle?

    May 25 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Innovation, Macroeconomic Measurement, Thinking Economically, Uncategorized • 756 Views

    In a 1964 TV commercial, during a pouring contest between 2 young boys, Heinz ketchup was “…too thick and rich to run.” In another ad, Heinz lost an OK Coral duel because it was the “slowest ketchup in the west…east, north and south.”

    Now though, Heinz might have a problem.

    Trying to develop a super slippery coating that would prevent deep sea oil pipes from clogging, scientists in an MIT lab created LiquiGlide. Used on the surface of a Heinz plastic container, LiquiGlide makes ketchup slide right out.

    I suspect Heinz might not want its ketchup to pour more quickly.

    However, even if the private cost to Heinz is considerable, citing the time millions of people would save, an economist would look at how the social benefit–the positive externality–is much greater. And that is why this story is about a lot more than ketchup.

    Here you can see fast flowing Heinz Ketchup and here, a 1964 Heinz Ketchup race. And, if you are interested in reading about super slippery surfaces, this article describes the work of a Harvard lab.

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  • euro zone map

    Exit Plans

    May 24 • Economic Debates, Financial Markets, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Uncategorized • 674 Views

    A British charitable trust has offered a hefty reward for the best eurozone break-up plan. Their goal? Improve and influence policy though a 250,000 pound ($393,430) incentive prize.

    As I read through the finalists’ plans, the unfathomable complexity of unraveling the euro became increasingly apparent because each proposal had a different but crucial focus:

    • One plan emphasized reconfiguration through which stronger and weaker economies formed separate groups.
    • A second said we should “unscramble the euro eggs” by establishing 2 new currencies,  a stronger “new euro white” and a weaker “new euro yolk,” each with predetermined values to avoid currency flight.
    • A third approach was most concerned with legal jurisdiction over assets and obligations. With 17 sovereign nations, who would have the final say?
    • For another proposal, timing and the details that would be implemented after a sudden German/French declaration were described. This plan said secrecy would be paramount, then the announcement, and then a weekly time table.
    • Finally, a fifth finalist said the key was focusing on how the weaker nations should “default” and “devalue.”

    The winner will be announced on July 5.*
    Fascinating but lengthy, the plans can be read from the links in this Guardian article. Also, if you are interested in other incentive prizes, here is a chart from The Economist.

    An update: Here is information about the winning entry:

    Submitted by Capital Economics, the plan focused on the exit of a weaker country. Quoted from the Wolfson website, here are some specifics:

    “The team’s submission, Leaving the euro: A practical guide, centres on the departure of a single weak member such as Greece. It suggests that:-

    • A new currency is introduced at parity with the Euro on day 1 of an exit.
    • All wages, prices, loans and deposits are redenominated into it 1 for 1.
    • Euro notes and coins would remain in use for small transactions for up to six months.
    • The exiting country would immediately announce a regime of inflation targeting, adopt a set of tough fiscal rules, monitored by a body of independent experts, outlaw wage indexation, and announce the issue of inflation-linked government bonds.”

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    Steel Twins

    May 23 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Innovation, International Trade and Finance, Labor, Regulation, Thinking Economically, Uncategorized • 729 Views

    What happens when a parent of twins makes them compete? And what if the better twin is told that he has to remain ahead of his slower sibling? For twin steel factories, one in Burns Harbor, Indiana and the other in Gent, Belgium, the result is more productivity.

    Barely functioning, Burns Harbor was in terrible condition. Meanwhile, the Belgian plant, having replaced many of its people with machinery because of sky high wages and benefits, was a model of productivity. So, when ArcelorMittal, Gent’s owner, bought Burns Harbor, they sent its engineers and managers to Belgium and said, “Do as the Belgians do.” Soon the machines arrived, the layoffs, and Burns Harbor was transformed.

    Named Gent’s “twin,” Burns Harbor was told to equal Gent’s 900 tons of steel per person per year. And Gent knew that it had to stay ahead of Burns Harbor. Now, both are models of productivity.

    Output numbers say it all. The  man hours per ton for Gent is 1.25 and Burns Harbor, 1.32. Meanwhile, the US average is 2.0.

    Looking at Burns Harbor, I keep thinking of the visible cost and the invisible benefit. Yes, it is obvious that many people were laid off and replaced by machines at Burns Harbor. It is tougher to see that more productivity at Burns Harbor fuels economic growth.

    To read the fascinating details of twinning, this WSJ article was excellent. Also, you might want to ponder how steel tariffs, described by Bloomberg here, might impact US productivity.

     

     

     

     

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    Fannie and Freddie, Now Home Improvers

    May 22 • Businesses, Demand, Supply, and Markets, Households, Regulation • 647 Views

    By Mira Korber, guest blogger.

    Last week I asked some house painters how their business was doing and I was a bit surprised to hear their answer. They couldn’t buy brushes and rollers fast enough to keep up with the numbers of jobs on the schedule.

    I hadn’t realized that  house painting could be profitable in a tough economy. If you are painting the right houses, that is. Specifically, foreclosures.

    Let’s go back to September 2008 to begin. On September 7th, the US government took over Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSE’s) that owned most of the bad debt associated with the subprime mortgage housing crisis. As home-owners defaulted on their loans, Fannie and Freddie could no longer afford to pay investors who had purchased the subprime mortgages, and tax payers took over their obligations through the government bailout.

    Since the government takeover of Fannie Mae and Freddie Mac, it became responsible for the ever-growing number of foreclosed homes that accompany them. Because of this, Americans now own 200,000 foreclosures that will cost taxpayers $40 million in upkeep over the next year (Yahoo Finance).

    In order to sell foreclosed homes, it makes sense that their appearances must remain coiffed, but that means taxpayers have a hefty lawn, flower-planting, and painting bill to swallow. A presentable house helps preserve already sinking home values, yet leaves everyone else in the neighborhood with burgeoning expenses.

    Complicating matters, not all foreclosed homes are evenly maintained. A recent study cited in the WSJ  shows that houses in poor or minority are 42% more likely to have inconsistent maintenance than those in wealthier suburbs. (Speaking of which, a foreclosed property on my street — I live in a rural area — has not been touched in months.)

    The Bottom Line: Even in a depressed housing market, some home-improvement businesses can capitalize on increased job opportunities because of the volume of foreclosures. However, as painters, landscapers, and handymen spruce up vacant homes, they aren’t cutting down on taxpayers’ grass maintenance bills.

    Interesting sources on the subject can be found here:

    Econlife, two years ago on foreclosures, Fannie Mae, Freddie Mac, and lawns. How minority communities and maintenance mix, from the WSJ.  NBC San Diego, on banks that aren’t properly maintaining foreclosures. Foreclosure.com, if you’d like some visuals on just how many foreclosures there are. Yahoo Finance article with recent stats. NPR on lawn mowing and foreclosure last summer.

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  • minimum wage rates and Big Macs

    (Mc)Wages Around the World

    May 21 • Businesses, Developing Economies, Labor, Uncategorized • 6542 Views

    It can be tough to compare wages around the world. While lots of people could be called iPhone assemblers or auto workers or t-shirt makers, depending on the country, factory conditions, time off, the work day, all really differ.

    Not for McDonald’s.

    At a Hamburger University campus in Illinois, China, Russia, Tokyo, Munich, London or Brazil, you can get a similar education. And, at your local McDonald’s, no matter where, you follow the same 600 page operations manual.

    McDonald’s consistency made it easy for Princeton professor Orley Ashenfelter to do an international wage comparison. The following chart (p. 36) is from his NBER Working Paper #18006 for an article that appears in the American Economic Review for April 2012. Dr. Ashenfelter used his data from 60 nations for 2007 because it preceded the Great Recession. Exchange rates for the US dollar are also for 2007.

    • The first column lets us compare the hourly wage for a McDonald’s crew member among different countries and regions.
    • The second column tells us each nation’s or region’s multiple of the US wage.
    • The last two columns convey purchasing power. With BMPH equaling McWage divided by the Big Mac price, you can see that an hour of work will buy almost 2 1/2 Big Macs in the US but only close to one third of a burger in India.

    Countries and Economic Regions

    McWage

    McWage Ratio

    Big Mac Price

    BMPH

    U.S.

    7.33

    1.00

    3.04

    2.41

    Canada

    6.80

    0.93

    3.10

    2.19

    Russia

    2.34

    0.32

    1.96

    1.19

    South Africa

    1.69

    0.23

    2.08

    0.81

    China

    0.81

    0.11

    1.42

    0.57

    India

    0.46

    0.06

    1.29

    0.35

    Japan

    7.37

    1.01

    2.39

    3.09

    The rest of Asia

    1.02

    0.14

    1.95

    0.53

    Eastern Europe

    1.81

    0.25

    2.26

    0.80

    Western Europe

    9.44

    1.29

    4.23

    2.23

    Middle East

    0.98

    0.13

    2.49

    0.39

    Latin America

    1.06

    0.14

    3.05

    0.35

    Our Bottom Line: Just for starters, we can see that indeed there are very low wage and high wage countries. We can compare China to the US and, for Western Europe, see the impact of government policy on wages and purchasing power.

    I first read about Dr. Ashenfelter’s study in economist Timothy Taylor’s blog and then in the original NBER working paper. More information about Hamburger University is here, and here.

     

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