• economic video humor

    Risk and Reward

    Mar 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Labor, Thinking Economically • 760 Views

    By Mira Korber, guest blogger.

    The other night I went to a classical music performance and listened to a talented but rather odd cellist. He appeared to be wearing chef’s pants underneath his concert attire; I noticed white kitchen trousers billowing out underneath suit pants. I surmised he must (like hordes of other musicians) have a day job in a restaurant and night gig performing.

    Adam Davidson, host of NPR’s Planet Money, explains the similar situation of people following other risky career paths.  In his NY Times article, “Why are Harvard Graduates in the Mailroom,” he shows how Hollywood artists and new college graduates often choose careers with transient, low-pay beginnings, but with the slim potential for enormous pay-off.

    Asserting that Hollywood, legal, consulting, accounting, and entrepreneurial pursuits (among other fields) are such “economic lottery systems,” Davidson’s premise is that these industries are truly sink-or-swim for young starters. Compounding the issue, safe, secure “Plan B” jobs, like tax filing or work at the local hardware stores, are not as abundant as they used to be, thanks to technological advancements and inexpensive overseas alternatives.

    For another perspective on the issue: this article suggests Davidson’s example of Hollywood superstars may be a bit simplified, and offers an interesting analysis of his economic-lottery theory.

    To see which careers graduates from Princeton, Yale, and Harvard actually end up choosing, check out the statistics in this post. Actually, most Harvard grads go into finance rather than hitting the mailrooms.

    The Economic Lesson

    Joseph Schumpeter’s theory of creative destruction perfectly exemplifies where the “Plan B” (according to Davidson), jobs have gone:

    “Technology and cheaper goods from overseas have replaced many of the not-especially-creative professions. A tax accountant loses clients to TurboTax; many graphic designers have been replaced by Photoshop; and the small shopkeeper by Home Depot, Walmart or Duane Reade.”

    An Economic Question: How do you see creative destruction taking place in your life?

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    Apple Looks Unappetizing in Argentina

    Feb 29 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance, Regulation • 773 Views

    By Mira Korber, guest blogger.

    While wandering the streets of Buenos Aires, I wondered why the shop windows seemed devoid of any new Apple products. Electronics stores touted the antepenultimate model of the iPod Nano as the new (overpriced) great thing. I was the only person I saw with an iPhone.

    Regarding the iPhone, my Argentine homestay family even told me, “It just isn’t that big here.” Here’s the basic reason why, as illuminated by this fascinating Wall Street Journal article:

    Argentina is currently employing protectionist policies. The “impuestazo,” or “Big tax” set in place by President Cristina Kirchner doubles the value-added tax (VAT) on electronics imported from other countries. The government has also significantly lowered industry taxes in Tierra del Fuego, where the non-Apple electronics are produced, to incentivize more growth.

    The goal is to keep jobs and capital within Argentina, even if it means the price of electronics (domestically and internationally made) will skyrocket for consumers. Jobs in the electronics industry numbered 3,500 before the Big Tax; now the December employment peak clocks in at 13,500.

    High prices for even domestically produced electronics result from inefficient assembly, storage, and transportation methods used in Tierra del Fuego, Ushuaia (the southernmost tip of South America). Component parts travel as follows: Asia –> Buenos Aires –> Ushuaia for assembly –> Buenos Aires for sale.

    It also turns out that iPhones are now not only uncommon in Argentina, but banned from commerce. To get one, citizens have to buy them on their travels outside the country.

    The Economic Lesson

    Protectionism and tariffs (taxes on imported goods) prevent free trade. Read about the tariff of 1828 in the United States and the problems it caused.

    And read here about how Argentine protectionism is affecting American exports.

    An Economic Question: How would a tariff affect the curves on a supply and demand graph? What would happen to prices?


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    Tall Stories

    Feb 28 • Behavioral Economics, Economic History, Labor, Uncategorized • 643 Views

    Explaining why no N.B.A. team drafted Jeremy Lin and the Knicks only picked him as a backup, New Yorker financial writer James Surowiecki focuses on height. But not how you might expect.

    Surowiecki talks about height and good looks to illustrate how stereotypes affect our success. If you are tall or attractive, it is more likely that people will expect you to have more adept social skills, to be smarter and “more effective.” Because Jeremy Lin, an Asian-American, did not fit the point guard stereotype, initially, his talents were ignored.

    Being tall, though, should help him. A 2004 New Yorker article quoted one study that indicated that an average six-footer will earn close to $165,000 more than someone who is 5’5″ during a 30 year period. That six-footer is also more likely to get a promotion, and yes, become a U.S. President. Of the 43 different people who have been President, only 5 were below average in height.

    Here are some height stats:

    • Nicholas Sarkozy (France): 5’5″
    • Barack Obama (U.S.): 6’1 1/2″
    • Michelle Obama (U.S. first lady): 5’11”
    • Angela Merkel (Germany): 5’8″
    • Tony Blair, Gordon Brown, David Cameron (U.K.): approximately 6’0″
    • Stephen Harper (Canada) 6’2″
    • Carla Bruni Sarkozy (French first lady): 5’10″
    • Napoleon Bonaparte: 5’6″


    And, the Republican presidential hopeful, Mitt Romney, is 6’2″.

    The Economic Lesson

    Called anthropometric history, the history of human height has become an economic field of study. Economists use height data to form hypotheses about GDP, national affluence, food consumption, real family income, wages and prices.

    Connecting height and economic growth, this New Yorker article tells us that Americans grew taller more than 50 years ago. Based on military records, a typical male was 67 inches during the mid-1800s, close to 70 inches in 1955, and since then, stayed there. In 1939, an average forward on the University of Wisconsin’s basketball team was 6’1″. In 1999, he was 7 inches taller.

    An Economic Question: Why might height and GDP be related?

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  • Friction Free Clicks

    Feb 26 • Behavioral Economics, Businesses, Economic History, Financial Markets, Innovation, Regulation, Thinking Economically, Uncategorized • 672 Views

    Which friction minimizing invention received a patent in 1999?

    Amazon 1-Click.

    Described by Amazon in their application for patent 5,960,411, the purchaser just hits a button that activates the movement of payment information from “the client system” to the”server system.”

    Because 1-Click glides the customer through the purchasing process, it fits Swarthmore Professor Barry Schwartz’s definition of friction-free finance. In a NY Times opinion column, Dr. Schwartz explains that transactional friction can be good and bad. With Amazon, 1-Click can help us save time and energy that we can use productively elsewhere.

    Sometimes though, as with the subprime mortgage debacle, too much ease can let us forget the reality of the transaction. When mortgage packages and online “paperwork” eliminated time, effort and friction, the number of transactions multiplied. And the rest is history.

    Professor Schwartz concludes by asking us if we would all be better off if we increased financial friction.

    The Economic Lesson

    A synonym for financial friction is transaction cost. When you call a pharmacy and spend 5 minutes moving through a menu before you can place your order, you have incurred a transaction cost. If an unemployed person has to fill out many forms when applying for a job, he or she has experienced a transaction cost. And, in the former Soviet Union, the everyday transaction cost of standing in line for hours to purchase food and clothing might have led to Communism’s demise.

    Much more than friction, 1-Click criticism, expressed in Wired.com, has been about a patent for a payment process.

    An Economic Question: What transaction cost have you recently encountered?

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    Just Like Yap Money

    Feb 25 • Businesses, Economic Debates, Economic History, Financial Markets, Money and Monetary Policy, Thinking Economically, Uncategorized • 864 Views

    To a Yap islander, in 1903, a 12-foot limestone wheel had considerable value. Described by NPR’s Planet Money, the wheels, as small as a foot in diameter and as large as twelve, composed the islanders’ monetary system. With smaller transactions, you just inserted a pole through the wheel’s center hole and took it to whomever you owed money.

    With larger wheels, you did not even need to move them. In a 1991 paper, Nobel Laureate Milton Friedman tells us that when one valuable massive wheel was lost at sea, its owners could still use it. The islanders “…universally conceded…that the mere accident of its loss overboard…ought not to affect its marketable value…The purchasing power of that stone remains, therefore, as valid as if it were leaning visibly against the side of the owner’s house…”

    Fast forward to 2012. Increasingly, transactions have become cashless. A phone swipe can pay for a cup of coffee. We can pay bills online. We’ve got credit and debit cards and PayPal. Currently at Slate.com, one journalist is investigating a cashless life. And, in one 2004 study, researchers concluded that although consumers benefit more than merchants, “the shift to a cashless society will improve economic welfare.”

    Sounds like the Yap’s big wheels.

    The Economic Lesson

    To be called money, a commodity needs 3 characteristics:

    • It should be a medium of exchange. (People willingly use the commodity for exchange.)
    • It should be a store of value. (In the future, it still will have relatively comparable purchasing power.)
    • It should be a measure of value. (When someone says one dollar, you know what that means.)

    Today, in the U.S., the basic money supply includes cash, currency, travelers checks and demand deposits (checks). Thinking of ATM payments and a phone swiper at Starbucks, the traditional examples of the money supply are not quite working anymore.

    An Economic Question: How has the increased use of credit and debit cards since the 1950s affected our purchasing habits?

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