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    Defrosting the Doughnut Hole

    Oct 19 • Businesses, Demand, Supply, and Markets, Developing Economies, Environment, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 511 Views

    A global phenomenon will open up new areas for oil exploration, enable ships to take shortcuts, and provide easier access to world markets for iron ore and other minerals.

    The phenomenon? Global warming.

    Because of global warming, the polar ice sheet is shrinking. With this summer having been one of the warmest on record, ships are traveling from Murmansk, near Finland, across the top of the world to Asia in record time. Scientists predict that by 2050, this Northeast Passage will be ice-free during the summer.

    A navigable Northeast Passage means shorter travel time from Europe to Asia and competition for the Suez Canal. It means previously inaccessible resources can now be drilled and mined and transported.

    That takes us to the Arctic Ocean doughnut hole. A huge fishing area that is beyond any nation’s jurisdiction, as it melts, the doughnut hole will attract fishing vessels from around the world.

    Our bottom line? Global warming could have environmental positives that would include huge energy and mineral discoveries, and emissions reduction and cheaper transport from shorter routes.

    The Economic Lesson

    Perhaps one of the first environmentalists, Reverend Thomas Malthus told us in 1798 that population grows geometrically while resource production expands arithmetically. Consequently, resource prices will rise and supply will become increasingly inadequate.

    You can see though, that environmental predictions are tough to make. This NY Times Magazine article describes the bet between the boomsters who said we would not exhaust our resource supply and the doomsters who said we would.

    An Economic Question: Whenever a transaction between two parties affects a third, uninvolved individual or group, economists see an externality. How does global warming relate to positive and negative externalities?

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    The Blackberry Disruption

    Oct 18 • Behavioral Economics, Government, Innovation, Regulation, Thinking Economically • 450 Views

    Last week’s Blackberry blackout saved lives.

    In Dubai, traffic accidents dipped 20%. For Abu Dhabi, the decrease was 40%. Considering that there is approximately 1 traffic accident every 3 minutes in Dubai and a traffic fatality every 2 days in Abu Dhabi, safety soared.

    A fascinating, unintentional experiment.

    The Economic Lesson

    The implications of the Blackberry outage are multiple. Municipal expense, insurance, regulation and privacy are only several of the issues touched by how we use smartphones.

    All though take us to the economic definition of cost. When we choose to use our smartphones everywhere, what are we sacrificing? 

    An Economic Question: Listing costs and benefits, assess the impact of smartphones on our lives.

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    Another Amazing Entrepreneur

    Oct 17 • Businesses, Demand, Supply, and Markets, Economic Thinkers, Innovation, Labor, Thinking Economically • 570 Views

    From this WSJ description of Jeff Bezos, you can tell he is an amazing entrepreneur. The article is wonderful. Here are some of the facts:

    • Named Cadabra until someone accidentally called it “cadaver,” Amazon was launched in Seattle on July 16, 1995.
    • Founder Jeff Bezos had employees wrapping books on the floor until (he said) an employee had “the most brilliant idea I had ever heard in my life.” Buy tables.
    • Fueled by 10% to 30% discounts, daily volume slowly grew until Yahoo put Amazon on its “What’s Cool” page.
    • Urged to speed through emails when business skyrocketed, the fastest employees could do 12 a minute.
    • Asked about employees sharing ideas, Bezos replied, “No. Communication is terrible.”
    • To minimize “groupthink,” he implemented the “two-pizza team” rule.
    • Bezos recently patented being able to return gifts before receiving them.

    For more about what makes an entrepreneur, you might enjoy reading this Wired, Jonah Lehrer article.

    The Economic Lesson

    Joseph Schumpeter (1883-1950) said that entrepreneurs propelled capitalism through creative destruction. New ideas destroyed the status quo but led to economic growth. The auto killed the buggy whip. The transistor replaced the vacuum tube. And Amazon has eradicated the large booksellers and transformed publishing.

    An Economic Question: Why do you think the large booksellers like Barnes & Noble would have had difficulty copying with Amazon’s innovations?

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    More Sole Rights

    Oct 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Labor, Regulation, Thinking Economically • 533 Views

    Should a musician be happy with file-sharing and piracy? Maybe.

    According to a recent study of counterfeits, certain businesses should welcome “fakes.” The study looked at counterfeit footwear from China. Sold in the U.S., the fakes affected the real thing in 2 ways.

    • For more expensive footwear (knee-high boots were cited), the knock-offs served as advertising.
    • For the least expensive shoes, sales declined because consumers bought the counterfeit instead of the original.

    The connection to music? The author of the footwear study cites the advertising value of piracy and file-sharing in the music industry.

    Here, in “Sole Rights,” and here in “Fashion Rules,” econlife looks at branding.

    The Economic Lesson

    When free trade pact negotiators refer to their TRIPs, they are not talking about traveling. Instead, they are looking at Trade Related Intellectual Property. TRIPs discussions frequently focus on counterfeit products.

    Just like a building–the physical property that a firm owns–so too can businesses claim possession of their brand, their intellectual property. Trade pacts create reciprocal intellectual property rights. They make counterfeit goods illegal for the exporter and the importer. So, TRIPs can diminish the amount of trade-related counterfeit goods.

    An Economic Question: How might 18th century economist David Ricardo (1772-1823) have felt about TRIPs?

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    Will We Have Enough Food in 2050?

    Oct 15 • Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Economic Thinkers, Environment, Households, Innovation, International Trade and Finance, Thinking Economically • 638 Views

    The world is getting richer. And richer people eat more meat. And the animals they eat consume more food. Also, everyday, the world has more people.

    The bottom line? According to a study from Nature, we have to double the world’s food supply by 2050.

    The good news is that the study’s authors have 5 suggestions for increasing the world’s food supply. The bad news is that they appear not to have taken economics.

    First, the suggestions:

    1. Stop the spread of agriculture. For example, we should not replace forests with farms.
    2. Increase the yield of “underperforming” acreage. Comparing Africa to Illinois, the wheat yield is 1 to 6.
    3. Enhance “cropping efficiency.” Fertilizer and water might be used more efficiently.
    4. Change what we eat. If we eat less meat then we have fewer animals to feed.
    5. Diminish waste. Rich countries throw away a lot. In poor countries food spoils.

    According to NPR, at a recent presentation, one of the study’s authors was asked, “What about economics?” If economic incentives created our plight, then don’t we need new incentives? What, for example, will stop newly affluent consumers in China from eating more meat?

    Here is a past econlife post on feeding the world.

    The Economic Lesson
    Perhaps one of the first environmentalists, Reverend Thomas Malthus (1766-1834) told us in 1798 that population grows geometrically while resource production expands arithmetically. Consequently, resource prices will rise and supply will become increasingly inadequate.

    An Economic Question: For each food supply solution listed above, what incentive would you suggest?

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