• US Chicken Paw Exports to China

    Chinese Pork

    Aug 11 • Demand, Supply, and Markets, Developing Economies, Macroeconomic Measurement, Thinking Economically • 703 Views

    The Chinese might be dipping into their Strategic Pork Reserve. Faced with a 57% increase in pork prices, the Financial Times tells us that the Chinese will be “rushing” extra pigs to market to lower the price. Higher feed prices are one source of the spike in the price of pork.

    Meanwhile, in the U.S., chicken processors Tyson Foods and Pilgrim’s Pride are also reacting to higher feed prices. Soaring corn costs have meant the switch to wheat from corn for a part of their chickens’ diet. Traditionally, as people food, wheat has been more expensive. Now though, because of demand from China and ethanol, corn prices touched $6.7525 a bushel while wheat was 19 cents cheaper. Like Tyson and Pilgrim’s Pride, Chinese hog producers are purchasing more wheat.

    The Economic Lesson

    This is classic supply side behavior. As the cost of production rises, producers switch to a cheaper input to lower their expenses.

    An Economic Question: Thinking of corn flakes and Wheaties and demand and supply, how might the corn wheat flip-flop in prices affect popular cereals?

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  • sports stadiums and money

    The Cost of Keeping a Team

    Aug 10 • Businesses, Government, Labor, Regulation • 462 Views

    To keep a team, sometimes the stadium makes the difference. The problem, though, is who is going to pay. For the San Diego Chargers, the price tag would be an $800 million sports facility with the city absorbing 65% of the total. On a November 2012 ballot, the voters will be able to approve or reject the project.

    Meanwhile, hoping to fill the void created by the departure of the Raiders and the Rams, a privately owned sports conglomerate says it will raise $1.2 trillion for a new Los Angeles sports arena.  Then, the Chargers could decide to move to LA.

    Privately financed stadiums. A free lunch for the taxpayer? Not really.

    One Harvard urban planning scholar tells us that even when a stadium is privately paid for like the NJ Meadowlands (where the Jets and the Giants play), Gillette Stadium (home of the New England Patriots) or FEdEx Field (the Washington Redskins), still we pay. Usually, a municipality inexpensively provides the land for as little as $1, develops transportation arteries to the new facility, gives tax breaks, and even agrees to subsidize ticket revenue if it falls beneath a certain total. Adding up all the extras, a “free” stadium might cost us many millions in outlays and forgone taxes.

    In a past post, here, we looked at several unaffordable publicly financed sport facility projects.

    The Economic Lesson

    The tragedy of the commons relates to financing sports facilities. When the project is approved, no one individually bears the cost–except perhaps the politician who might not be re-elected if he/she votes no. So, the pool is abused, overused, and later all of us pay.

    However, will the psychosocial benefit of having a local sports team outweigh all other costs?

    An Economic Question: What are the non-money costs and benefits of a local sports team franchise?

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    An Economic Lesson From Marie Antoinette’s Fashion Designer

    Aug 9 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Thinkers, Financial Markets, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 611 Views

    Rose Bertin was the 18th century Alexander McQueen. As Marie Antoinette’s personal fashion guru, she designed massively skirted ornate gowns and 3-foot high poufy hair styles. More than clothing, though, her designs embodied power, presence and opulence.

    In This Time It’s Different, economists Kenneth Rogoff and Carmen Reinhart quote Rose Bertin’s reminder that, “There is nothing new except what is forgotten.” (p. 275)

    The Economic Lesson

    According to Reinhart and Rogoff, our current financial plight is indeed “nothing new.”

    Categories for financial crises (p. xxvi):

    • Sovereign debt defaults
    • Banking
    • Exchange rate
    • High Inflation

    Typical pre-crisis warning signs (p. 223):

    • “asset price inflation” (U.S./housing)
    • “rising leverage” (U.S./borrowing)
    • “large sustained current account deficits” (U.S/more imports)
    • “a slowing trajectory of economic growth”

    Typical post crisis “aftermath” (p. 224):

    • 6 years for real housing prices to bottom
    • A 3 1/2 year duration for “equity price collapses”
    • Soaring government debt
    • Declining tax revenues
    • Rising sovereign debt interest rates

    An Economic Question: Do you believe that government is the problem or the solution when considering a financial crisis?

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    Take Me Out to the Ball Game?

    Aug 8 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Households, Macroeconomic Measurement, Thinking Economically • 494 Views

    Fewer people are going to baseball games. Even with a new stadium and a winning season, the Yankees are luring fewer fans. According to Forbes, as of the end of June, stadium revenue was sinking for the Chicago Cubs, St Louis Cardinals and Atlanta Braves, and attendance at LA Dodgers games has plunged.

    Responding, owners maintained higher ticket prices but then gave discounts. For a month, the Baltimore Orioles sold $1 tickets for games against all teams except the Yankees and Red Sox. Still, attendance remained low.

    On the other hand, some teams are okay. 12 of 30 MLB teams have not seen their attendance sag. The San Francisco Giants and the Texas Rangers are in good shape. And, Forbes tells us that the Cincinnati Reds are enjoying “a bump.”

    Trying to explain how the economics of baseball is shifting, sports economists John Siegfried and Tim Peterson concluded that more affluent households went to games during the 1980s and 90s but now, not as much. Meanwhile, online resellers like Stubhub have facilitated bargain hunting. People seem to be waiting for a cheap deal before committing.

    The bottom line? It is tougher for teams to earn revenue by filling up a stadium. The Great Recession may be a cause but not the only one.

    To see more about sports economics, you can look here at a previous post on unaffordable stadiums.

    The Economic Lesson

    The Great Recession affected many households’ willingness to spend on discretionary items like baseball tickets. Called the income elasticity of demand, when our income drops by a certain percent, purchases fall even more for certain types of items.

    An Economic Question: When income falls and home values decline, on which items will consumers initially cut back?

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  • Ice cream stores

    Double Dips

    Aug 7 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Households, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 538 Views

    We do not know whether a double dip has begun. Cascading during 2008 and the first half of 2009, the GDP then began to climb. Only if it drops again will we have a double dip. In the NY Times, financial journalist Floyd Norris does a beautiful job of comparing the 1980/82 double dip with now.


    In 1980, inflation was the culprit. But then, attempts to control rising prices by restraining consumer credit so diminished economic activity that policy makers reversed course. Growth resumed but so too did inflation.

    Responding, the new Fed chair, Paul Volcker, tried some politically unattractive economic discipline. Strangling lending, percent by percent, the Fed raised interest rates until the prime touched 21.5%. By 1982, we had a new recession. Still though, with inflation his target, Volker’s interest rate arsenal took aim until he was successful. By 1984, inflation was down to 4.1% from 13.6% and GDP was growing at a 7.2% rate.


    Now, like 1980, government’s initial policies are not curing our economic ailments. We still face a housing problem, we still lack robust expansion, we still have high unemployment. Perhaps, like 1980, government might need to resort to more unattractive economic discipline because it has used up the more appealing weapons in its economic arsenal.

    Maybe, also like 1980, we face the threat of a double dip. Here, you can listen to Merle Hazard sing “Double Dippin.”

    The Economic Lesson

    A recession is the period between a peak in economic production and its trough. Imagining a “u”, it is the left side, the trip downward. In economic terms, as we travel down the left side of the “u”, the GDP is either growing more slowly or actually diminishing. While most of us say that a recession is defined as two consecutive quarters of declining GDP, the NBER tells us that the quarters do not have to be next to each other.

    An Economic Question: Looking at the data in Table B-4, here, in The Economic Report of the President 2011, since 1980, how many recessions has the U.S. experienced?


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