• 16044_4.26_000006278830XSmall

    Uncommon Markets

    Dec 3 • Businesses, Demand, Supply, and Markets, Developing Economies • 229 Views

    Bets on the Royal Wedding: Bookmakers are placing wagers on the color of the Queen’s hat, whether Kate will say “obey” in her vows, the length of the bride’s train, and total BBC viewers. People are even starting to bet on the gender of the first child. You can see the whole list here.

    Human Hair: Described by the NY Times, blond women in central Russia sell their hair to itinerant merchants. Valued more highly than darker hair, a woman’s 16 inch blond braid can sell for $50. Through the supply chain, Russian hair reaches companies like Italian based Great Lengths that sell hair to the U.S. for hair extensions.

    Human Bed Warmers: Dressed in an “all-in-one fleece suit,” (with hair covered) a Holiday Inn employee will warm your bed before your arrive at your hotel room. A Holiday Inn employee (really) said this: “The new Holiday Inn bed warmers service is a bit like having a giant hot water bottle in your bed.” The bed warmer does not remain in the room.  (This article was dated January, 2010. I could not discover whether the concept was successful.)

    Manure Markets: It is all about opportunity cost according to this Atlantic article. With chemical fertilizer prices rising, natural fertilizer is becoming more attractive.

    The Economic Lesson

    A market is a process through which demand and supply establish price and quantity for a good or a service.

     

    No Comments

    Read More
  • 16042_8.26_000005651286XSmall

    Innovation and Regulation

    Dec 2 • Demand, Supply, and Markets, Government, Innovation • 240 Views

    Is more innovation the opportunity cost of more regulation? If so, which do you prefer? To see one person’s opinion, I recommend a recent Washington Post op-ed, “Strangling innovation and job creation with red tape.”

    The Washington Post article took me to the “Doing Business” website of the World Bank. Depending on the category, the U.S. ranking for the ease of doing business varies. Out of 183 nations, for paying taxes, the U.S is #62! Our overall rank, though, is #5, we are #9 for starting a business, and #14 for closing one. You might enjoy looking at the site. It is up-to-date, easy to read and will help you decide where innovation could thrive. Some of the facts are surprising.

    The Economic Lesson

    I am reminded of 1986 tax legislation. “Simplify” is the one word associated with it. The Tax Reform Act of 1986 had 2 principle marginal tax rates: 15 percent and 28 percent.

    By contrast, in 1985, depending on your taxable income, you would have paid between 11 and 50 percent of it to the federal government through some or all of 15 marginal tax rates. That wasn’t the whole story, though. There were lots of permissible deductions.

     

     

     

    No Comments

    Read More
  • 16040_12.1_000008888770XSmall

    Virginia and Germany

    Dec 1 • Demand, Supply, and Markets, Economic Debates, Financial Markets, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy • 200 Views

    “Where…is the justice of compelling a State which has taxed her citizens for the sinking of her debt, to pay…the debts of other states, which have made no exertions whatever?”

    This quote, from John Steele Gordon’s, Hamilton’s Blessing (p. 29) reflects the debate between James Madison and Alexander Hamilton about whether the newly formed U.S. federal government should assume all of the states’ Revolutionary War debts. Virginia, having paid back most of her debt said no while Massachusetts, a debtor state, disagreed.

    Caring little about individual states, Alexander Hamilton sought to create a strong central government. He cared more about the “whole” than the “parts.”

    Now, more than 200 years later, euro zone countries are having a similar debate. How should the economically stronger nations respond to those that are weaker? A NY Times article explained the three part split: 1) The stronger nations include Germany and Austria. 2) Heavily indebted, Ireland and Greece are among the weakest. 3) France and Italy represent the third group that did not decline very much from the recession but now is minimally rebounding. 

    The Economic Lesson

    As wonderfully described by Professor Timothy Taylor in Lecture 6 of American and the New Global Economy, there is a fundamental tension between the whole and its parts in the structure of the European Central Bank (ECB). Responsible for overseeing monetary policy, the ECB board is dominated by the central bankers of the countries that compose the euro zone.

    By contrast, the board of the U.S. Federal Reserve is numerically dominated by members nominated by the President and approved by the Senate. They have more loyalty to the “whole” than to any of its parts.

     

     

     

    No Comments

    Read More
  • 16036_6.16_000006078784XSmall

    Maybe Money Makes A Nation

    Nov 30 • Developing Economies, Economic History, Financial Markets • 222 Views

    In “Thinking About Capitalism,” economic historian Jerry Z. Muller tells us that 16th and 17th century wars were “decided by whichever government was the first to run out of money.” Astoundingly, the American colonies did not run out of money.

    George Washington’s military leadership, Thomas Jefferson and the Declaration of Independence, Ben Franklin, and John Adams (and Abigail) all come to mind when we think about winning the American Revolution. But whom are we forgetting?

    Robert Morris.

    We had to pay for the war. A new book, Robert Morris: Financier of the American Revolution by Charles Rappleye has just been published. In the review by John Steele Gordon it sounds wonderful. Robert Morris was the man who “corralled stores of blankets, gunpowder, lead and muskets…” for Washington’s Delaware River crossing. When Washington needed money to pay for spies, he went to Morris.

    To fund the war, Morris primarily depended on loans at home and abroad. By 1790, the U.S owed $50 million. And yet, we were able to fund it all.

    The Economic Lesson

    Following Morris’s advice, George Washington appointed Hamilton as his first Secretary of the Treasury. Hamilton’s proposals for the debt, a banking system, and manufacturing formed the foundation for our economic growth.

    Alexander Hamilton reminds us that debt can be good if paid back promptly. A nation with good credit can repeatedly borrow and then fund necessities with other people’s money.

    Hamilton then and Europe today are interesting contrasts for pondering sovereign debt.

     

     

    No Comments

    Read More
  • 16038_11.29_000006699192XSmall-4

    Giving and Getting Gifts

    Nov 29 • Behavioral Economics, Demand, Supply, and Markets, Economic Thinkers, Households, Thinking Economically • 307 Views

    With the holiday season beginning, we should consider the economics of gift giving. Let’s start with University of Pennsylvania Professor Joel Waldfogel who focused on receiving gifts. Then, through Duke’s Dan Ariely, we can look at how to give the best gifts.

    Dr. Waldfogel’s research could make us decide not to buy any gifts. His basic conclusion was that when people express a value for a gift, the amount is usually less than the actual cost. By contrast, when they buy something for themselves the value soars. Empirically, he says that our own purchases generate on average 18% more value than purchases from others. You might enjoy looking at the survey (p. 17 of his paper) that he gave to 202 students.

    Dan Ariely solves the dilemma by suggesting that we give gifts that people would feel guilty buying for themselves. As economists doing cost benefit analysis, we would say that guilt increases the cost side. By contrast, when the same item comes from someone else, because the recipient’s guilt disappears, cost diminishes. The result? Benefit exceeds cost.

    The Economic Lesson

    The loss in value to the gift giver and getter is called deadweight loss. Economists can draw deadweight loss on a demand and supply graph. For us now, though, just think of a loss in value as a cost.

    Because value decreases for a gift, cost rises and everyone’s “pleasure” diminishes. The amount by which “pleasure” falls is the deadweight loss.

    No Comments

    Read More