• Twinkie Facts

    Jan 12 • Businesses, Demand, Supply, and Markets, Economic Humor, Financial Markets, Households, Innovation, Labor • 601 Views

    There is more to a Twinkie than sugar, fat, preservatives and artificial flavors. The history of the Twinkie is an economic story.

    Once upon a time, during the depression, a manufacturer can 30 ingredients. Depression: 1930 first sold

    WW II rationing: banana-creme filling 1930-1940s only banana creme

    Bankruptcy: WW II banana shortage–so vanilla filling

    http://www.nytimes.com/2012/01/15/fashion/twinkies-a-history.html

    R & D http://www.npr.org/templates/story/story.php?storyId=4780900

    Leveraged buyout: tweaked Twinkie sales during King Kong movie promotion up 20% so thwy returned fr good 2007 more than 1/2 billion twinkies sold annually

    Interstate Bakeries

    http://www.npr.org/blogs/thetwo-way/2012/01/11/145026733/hostess-maker-of-twinkies-files-for-chapter-11-bankruptcy-protection

    Kansas City

    http://www.goerie.com/apps/pbcs.dll/article?AID=/20070614/BUSINESS05/706140327/-1/RSS03

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    Slippery Subsidies

    Jan 11 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Regulation • 548 Views

    By Mira Korber, guest blogger, Kent Place School alumna, Yale student, and recent traveler to Buenos Aires, Argentina. 

    Venture down any avenue in Buenos Aires and you will certainly see tremendous lines coiling around the sidewalks as daily commuters await the infamous “colectivo,” or Argentine public transport city bus. Wait a while, then a while longer, and perhaps your bus will arrive quickly, perhaps not. But in the end, it’s worth the wait as your ride is so cheap, you can put up with a little unpredictibility. 

    Climb aboard and spend only between 1.10 and 1.25 pesos for a ride anywhere in the city of Buenos Aires. But now, it’s going to cost you a few more “monedas” (coins). 

    To ameliorate their massive national debt, the Argentine government has no choice but to cut back on national spending, some of which is dedicated to subsidizing the “colectivo” system.

    Subway fares have already increased by 127% — to 2.50 pesos (.58 US cents) and colectivos could raise their 2012 rates by as much as 3 pesos. Additionally, the considerable water, gas, and electric subsidies are on their way out; 260,000 Buenos Aires residents living in affluent neighborhoods have lost all government assistance.

    In 2011, the government doled out almost 69 billion pesos (approx. $16.4 billion USD) in subsidies, the largest recipients being energy (60.4%) and transportation (27.9%). A remaining 31.9 billion pesos went towards social welfare programs.  

    Try out these interactive subsidy graphics at LaNación.com, one of Argentina’s most prominent newspapers; you can find month-to-month costs of subsidizing buses. And here, you can find an interactive map of public transport prices around the world as well as an animated representation of the elements fueling each bus, the “colectivo porteño.”  (NB. “recorrido” = route, “usuario” = user, “boleto” = ticket, “subsidio” = subsidy.)

    Read here about why such extensive subsidies were implemented in the first place, and how the proposed 2012 subsidy cuts will only comprise 4.8 billion of privately estimated expenditure of 70 billion. 

    The Economic Lesson

    Government subsidies exist to (1) help boost industries, (2) encourage businesses to hire more employees, and (3) ease living costs for a country’s residents. By keeping prices artificially low, Argentina experienced tremendous growth in the years following economic crisis in 2001-2002. In 2011, the Argentine GDP measured up at 8.3% (see bottom of article).  But now, due to subsidy lifts that will turn up the heat on already-high inflation (privately estimated around 25%), the economy’s 2012 GDP is projected to be only 2-3%. 

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    Forbidden Dollars

    Jan 10 • Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Households, Money and Monetary Policy, Regulation • 739 Views

    By Mira Korber, guest blogger, Kent Place School alumna, Yale student, and recent traveler to Buenos Aires, Argentina. 

    In Argentina, a $100 USD bill is a hot item.

    And though Argentines want US dollars — for traveling, saving, or otherwise — they cannot get them easily. Government imposed restrictions prohibit citizens from withdrawing any currency other than pesos from the bank. 

    Despite this, Argentines are attempting to access their funds in dollars due to mistrust in the global economy. They fear losing their savings as they did in 2001, when the peso was devalued over 300% and unpegged from the US dollar. 

    After Argentina defaulted on its loans from the IMF, it imposed the “corralito;” in other words, savers could only withdraw $250 USD each week from their bank accounts. Argentines began protesting by whacking pots and pans, a phenomenon known as the “cacerolazo” before disintegrating into fully-fledged protests against the economic mismanagement of their country. 

    Read an explanation of how the 2001 crisis unfolded here.

    The Economic Lesson

    An economic definition of money states that it must be a unit of value, medium of exchange, and store of value. The Argentine peso should function in all three arenas, so why are citizens seeking US dollars in the first place? Globally, whenever a country experiences stormy economic conditions, citizens tend to seek refuge in a currency that they know is a legitimate store of value — in the long run. Now, 10 years after the riots of 2001, it appears that Argentines fear their pesos will devalue drastically again if economic disaster strikes for a second time. They turn to dollars as a symbol of security. 

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    Government’s Venture Capital

    Jan 9 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Innovation, Macroeconomic Measurement, Thinking Economically • 644 Views

    The Erie Railway went bankrupt multiple times. Primarily government funded, it originally connected 2 small NY communities and cost 4 times more than initial projections when it was completed in 1851. 

    Citing the financial woes of the Erie Railway, a calamitous 1913 decision to build a steel plate manufacturing plant, and the Solyndra bankruptcy, financial historian John Steele Gordon says government repeatedly is a “bad venture capitalist.”

    By contrast, a recent paper from the Hamilton Project tells us that sometimes, when the private sector has no incentive to innovate, the government has to step in.  Focusing on energy, they suggest that government should fund basic research, development and demonstration.

    The Economic Lesson

    Deciding whether a government investment is successful takes us to private and social benefit. Sometimes a business can be a financial failure but have so much of a social benefit that it might be called worthwhile. One example is the Midwestern U.S. canals that declared bankruptcy during the 19th century. As links in a broader transportation infrastructure, some believe that they should be judged on the basis of the role they played. As a result, the financial cost of these canals is offset by their intangible social benefits.

    An Economic Question: Explain why you support more or less government venture capital activity.

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  • Our Transportation Infrastructure is Crumbling

    Time or Tolls?

    Jan 8 • Behavioral Economics, Economic Debates, Government, Households, Thinking Economically • 679 Views

    The tolls on New Jersey’s major north/south toll road are up 53%. The response? Some drivers took a cheaper route. The catch? Time wise, it was more expensive.

    Confirmed (unscientifically) by 1 reporter who took the turnpike and the other, the free route, the tradeoff during rush hour was 20 minutes 4 seconds or $6.65. On an annual basis for commuters, truck drivers, car services, you can choose either saving more than 160 hours or close to $3,000 for the round trip between East Brunswick NJ and the entrance to the Holland Tunnel (that takes you to NYC).

    Please note that while the numbers depend on so many variables about traffic and commuting time, the basic tradeoff remains.

    The Economic Lesson

    The opportunity cost of a decision is the next best alternative. Choosing is refusing. For drivers, the choice is NJ Turnpike or the free road. The benefit for the toll road is save time; the benefit for the free road is save money. How to decide? It depends on what you value most.

    One toll finance researcher put it this way: “Higher income people have a higher value of their time…if you work at lower end of the wage scale, it may be a significant hit. If it is $3 to $5 a day extra, it’s coming right from your disposable income.”

    An Economic Question: Looking at the toll road fare increase from the government perspective rather than the individual, what are the benefits of the decision and the benefits foregone of the next best alternative?

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