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    The Age of Women?

    Jul 3 • Gender gap, Households, Labor • 106 Views

    Told you are about to meet the CEO of a major corporation, do you imagine someone in a skirt? According to a recent Washington Post article, the answer from most people is “No”. To individuals saying we have entered “the age of women,” because of Elena Kagan and more females in the U.S. work force, this journalist instead looked at “the areas where the real money and power reside.” For example, at Google and Amazon, the top paying hedge funds, and the major banks, males dominate top management. Her conclusion? She suggests that for women to claim economic power, they have to focus on amassing their own capital.

    Looking further at gender equality in OECD Nations, 2006 median income statistics indicate that women earn 18% less than men. In Japan and Korea, the gap is close to 30%, in Poland, New Zealand, and Belgium, at 10%, the gap is much less, and for the U.S. the difference is 19%. Correspondingly, women hold only 1/3 of all management positions.

    The Economic Lesson

    In the U.S., to be defined as a part of the labor force, a person has to be 16 or older and employed or unemployed but looking for a job. With 154 million people in the U.S. labor force, women total approximately 72 million.


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    Consumer Choices

    Jul 2 • Households • 135 Views

    If you were asked today to plan next week’s snacks, would you select fruit or chocolate? In a 1998 study, 74% of those surveyed said fruit. However, when the same people had to decide between fruit and chocolate for today’s snack, 70% chose chocolate.

    As explained by behavioral economists, those who chose chocolate for today’s snack were ”overvaluing” current gratification and “undervaluing” the future benefits from fruit. Behavioral economists also believe that people tend to choose the status quo instead of other choices that require active decision-making. 

    This takes me to a question. If we tend to overvalue current gratification and stick with the status quo, then how can we make wise decisions about health care insurance, retirement planning, and mortgages? In a recent column, New Yorker columnist James Surowiecki suggests “choice architecture” through which optimal choices are the default option. For example, a fixed rate, self amortizing 30 year mortgage would be the default rather than a more risky loan. Another possibility is just having a brief explicit disclosure that buyers have to sign. For example, when getting a risky mortgage, they would have to indicate that they knew that, ” You could lose your home.” (Researchers have found that this works.) Surowiecki also recommends that government protect us and that schools mandate financial literacy courses.

    The Economic Lesson

    Behavioral economics offers some insight that legislators should recognize. Still though, we have the convergence of the profit seeking sell side and the buy side with a plethora of exploitable tendencies. Add to that congressmen with reelection concerns and you start to wonder how 2300 pages of financial reform can reflect our collective wisdom.  


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    Common Markets

    Jul 1 • Demand, Supply, and Markets, Developing Economies, Economic History, Economic Thinkers, International Trade and Finance • 135 Views

    Kenyan coffee exporters have a problem at the Tanzanian border. “On the Kenyan side they operate 24 hours a day, but on the Tanzanian side it’s 12 …We have had drivers standing at the border for 4 days. These things make the final price of our coffee up to 3 times that of the local product.” The solution? 5 East African nations are creating a common market. 

    In his America and the New Global Economy Teaching Company course, Professor Timothy Taylor explains why the Europeans wanted a common market. Assume for a moment that you own a factory and start exporting goods to a nearby country. You have to wait at the border and have your trucks approved by customs. You have to be sure that you comply with their product safety laws. You need to use their currency. 

    Dr. Taylor says that with a common market you could enjoy the benefits of the 4 freedoms: 1) People, 2) Goods and services, 3) Labor, 4) Capital. The benefits of a European common market initially included one set of regulations instead of 15, labor that could move more freely, and capital that was more accessible.

    It is amazing that our founding fathers created our “common market” when they replaced the Articles of Confederation with the Constitution. The European process was accelerated with the Single Market Act in 1986. And now, Burundi, Kenya, Rwanda, Tanzania and Uganda are trying to move in a similar economic direction.

    The Economic Lesson

    In an Econtalk lecture, Professor Russ Roberts talks about the connection between Adam Smith, David Ricardo, and trade. Starting with Smith and then moving to Ricardo, he points out that the optimal potential of markets is realized when they grow larger. “The more people we trade with, the greater the opportunity to specialize and innovate…” and grow.

    This returns us to the benefits of the East African Common Market, the EU and the United States. 

    At another time we will look at NAFTA.

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    Making Macroeconomic Decisions

    Jun 30 • Economic Debates, Economic History, Economic Thinkers, Government • 119 Views

    One problem with macroeconomic policy is the inability to confirm that it does or does not work. With variables constantly in motion, an entire economy as your lab, and no way to keep anything constant, how to know if you are doing the right thing? 

    This takes me to a Pew Research Center survey. A Pew questionnaire sent to 1001 adults confirmed that we all agree that state spending is a big problem. It also confirmed that we can solve the problem by cutting spending on highways, health services, public safety, and school funding. Or, we can raise taxes.

    Yes? Not quite. For every solution, more than 50% voted “no”. Furthermore, with the possibility of a double dip, some say now is the worst time to implement “austerity”. Others say “austerity” is the only solution.

    Decisions about state spending parallel federal dilemmas. Do we need more stimulus spending or has government spent too much already? We have no definitive empirical data to provide guidance.

    The Economic Lesson

    Since our nation began, we have disagreed about economic policy. George Washington had to cope with the ongoing feud between Secretary of the Treasury Hamilton and Secretary of State Jefferson. Hamilton was for a more interventionist government to spur economic development. Jefferson, by contrast, wanted less. And yet Hamilton’s goals are the same as today’s non government/market advocates.

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    Baseball Games and Airline Fares

    Jun 29 • Businesses, Demand, Supply, and Markets, Economic Debates • 111 Views

    How much will the San Francisco Giants charge for a baseball ticket? It all depends on, “past ticket sales, the day and time of the game, the teams’ records, the pitching match-up, the weather, the going rate on resale Web sites like StubHub and other data.” So, when 2 star pitchers were named for this year’s Memorial Day game between the Giants and the Colorado Rockies, tickets that had been selling for $17 rose as high as $25.

    Somewhat similarly, during the 1980s, American Airlines was the first to use a flexible pricing system that was called yield management. After airline deregulation, American Airlines had to figure out how to compete against young upstart airlines with lower costs and lower fares. Their response was a computerized booking system that constantly changed fares. Suddenly, their revenue depended on when the flight was booked, whether the flier stayed over a Saturday night (which identified business travelers who would pay more than the discretionary traveler), and other variables. Just like the San Francisco Giants, American was maximizing revenue by pricing customers individually.

    The Economic Lesson

    Whenever they have some monopoly power, business firms act more as price makers than price takers. Price makers have the power to shift their own supply curve to a new position. As a result, they help to decide where supply will cross demand to determine price. By charging different prices for the same product, they can cater to different consumers with different demand curves. Price takers have much less control. Their price is determined by the intersection of a supply curve that many similar firms create and a demand curve shaped by many consumers.

    When the San Francisco Giants realized they could maximize revenue because they had price making power, they implemented their “dynamic pricing” approach.

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