• Ranking Surveys Typically Are Subjective and Have Unintended Consequences.

    Ranking Questions

    Dec 29 • Behavioral Economics, Economic Debates, Households, Macroeconomic Measurement, Thinking Economically • 569 Views

    • Ranking income distribution, the Organization for Economic Cooperation and Development (OECD) says that Denmark is one of the most equal countries the world while Mexico is one of the least.
    • For overall well-being, Gallup selects Virginia, Wisconsin and New Jersey as the top 3 states in the U.S.
    • U.S. News ranks Harvard and Princeton #1 for 2011.

    Yes? Malcolm Gladwell says not necessarily.

    Explaining in the New Yorker why ranking is flawed, Gladwell emphasizes that subjective variables are tough to define.  Yes, you can choose a valid list of categories on which to base a list. Then though, it gets tricky. For the colleges list, how to quantify student engagement? Is faculty quality really about degrees and salaries?

    Our bottom line: Health care, corporate responsibility, national debt, life expectancy…we see ranks everywhere. When should we be skeptical?

    The Economic Lesson

    When economist Robert Whaples discusses income inequality (#7) in an excellent Teaching Company series on contemporary economic issues, he first has to define income. And that, he says, is not easy.

    • Collecting data, the Census Bureau does not necessarily recognize noncash public benefits.
    • Retirement and health insurance packages are excluded.
    • Households tend to “underreport nonwage sources of income.”

    In addition, changing household size is relevant. We could even debate whether we would learn more from money spent than money earned.

    This returns us to the OECD’s income inequality list. Would we agree with their definition of income?

    An economic question: For movies or songs, create a list and define your variables. Are they tough to quantify?

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    The Oreo Centennial

    Dec 28 • Businesses, Demand, Supply, and Markets, Economic History, Economic Thinkers, Financial Markets, Households, Innovation, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 1000 Views

    Next year, we can celebrate Oreo’s 100th birthday.

    First sold in 1912, Oreos have been priced at:

    • 1922: 32 cents/lb.
    • 1934: 27 cents/lb.
    • 1960: 45 cents/lb.
    • 1991: $2.39/lb.
    • 2008: $4.29/18oz.
    • 2011: $4.29/16.6oz.

    Amazingly, according to the Bureau of Labor Statistics inflation calculator, 32 cents in 1922 equals $4.31 today.

    When Oreo celebrated its 75th anniversary, people liked to say that so many billions were produced that you could stack them to the moon and back 4 times. Humorist Calvin Trillin said it was impossible, though, because, “Those Oreos are eaten up.”

    And here, award winning architecture critic Paul Goldberger reviews the Oreo’s design.

    The Economic Lesson

    The first federally mandated minimum wage, in 1938, was 25 cents an hour.  Looking at the 1934 price of Oreos, you can see that 1 hour of work at minimum wage got you close to 1 pound of Oreos. Now a pound of Oreo cookies is approximately $4.29 and the federal minimum wage is $7.25.

    Greater productivity and economic growth enable us to expand our purchasing power.

    An economic question: You might want to check historic prices of other items and then go to the BLS inflation calculator to see if the Oreo numbers are typical.

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    Domestic Work

    Dec 27 • Demand, Supply, and Markets, Developing Economies, Gender Issues, Households, Labor, Macroeconomic Measurement, Thinking Economically • 615 Views

    What do drip dry clothing, take-out food, dog walkers, dishwashers, dry cleaners, and dusty ceilings have in common?

    A servant shortage.

    Currently, Brazil has less household help because of economic growth. Low income women who had worked and lived in the home are responding to more attractive employment opportunities in factories, shops and offices. As a result, affluent upper class households have had to transform their life styles.

    The Economist compares the impact of burgeoning Brazilian affluence to Great Britain a century ago. Then also, women who had been waiting on the upper class left their homes for newly created workplace jobs. Wonderfully portrayed by the PBS Masterpiece Theater series, “Downton Abbey,” life “in-service” quickly became an anachronism.

    The Economic Lesson

    Looking at servants, Thorstein Veblen (1857-1929) cited conspicuous consumption and conspicuous leisure. In his Theory of the Leisure Class, Veblen says that “abstention from productive work” (p. 36, a free Google book) is evidence of affluence.

    Written more recently, this article reminds us that domestic work is a gender concern that relates to the abuse of female migrant workers and the need for household assistance when middle class women enter the work force.

    An economic question: What demand/supply graph would illustrate the change in the domestic worker market that the Economist describes for Brazil?

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    Creative Destruction and the Independent Bookstore

    Dec 26 • Businesses, Demand, Supply, and Markets, Economic Thinkers, Innovation, Macroeconomic Measurement, Thinking Economically • 658 Views

    The buggy whip, the typewriter, and now, maybe the independent bookstore?

    In a NY Times Op-Ed, author Richard Russo criticized Amazon for business tactics that would harm independent bookstores.  He cited friends who said, “They don’t win unless they destroy their competition…” and called their price check app “invasive and unfair.” He quoted one author who said “…losing independent bookstores would be ‘akin to editing…a critical part of our culture out of American life.'” Or, as a bookstore owner explained, “If you like seeing the people in your community employed, if you think your city needs a tax base, if you want to buy books from a person who reads, don’t use Amazon.” And finally Russo said that Amazon had become “too big to care.”

    Responding in a Slate column, journalist Farhad Manjoo focused on the benefits of paying less. Authors sell more books, consumers have extra money to spend locally and the economy enjoys more efficiency. Rather than doing harm, Amazon’s e-publishing and e-reader innovations have expanded the publishing world.

    Does the “inefficient” local bookstore deserve preservation?

    The Economic Lesson

    Joseph Schumpeter (1883-1950) best explained the march of new ideas as creative destruction. Overcoming resistance from the people and firms who become obsolete, economies grow as innovation replaces existing goods and services.

    An economic question: Using the independent bookstore as an example, cite examples of the cost and benefit of “creative destruction.”

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    Plane Colors

    Dec 25 • Businesses, Demand, Supply, and Markets, Labor, Regulation, Thinking Economically • 593 Views

    If you are flying during the holidays, do take a look at the color of your plane.

    Is it rather bland?

    The reason is deregulation. After 1978, when government stopped approving fares, guaranteeing profits, and allocating routes, the world of flying changed.

    Before 1978…

    If you wanted to fly from NYC to Washington, D.C., you could take the Eastern Airlines shuttle. The sole source of the service, Eastern guaranteed a seat to every customer. Arrive late and the plane is full? Eastern said, “Not to worry. We have an extra plane.” Similarly, Braniff Airways commissioned artist Alexander Calder for artwork on the outside of planes and had designer uniforms for its stewardesses. Neither Eastern (1991 bankruptcy) nor Braniff (1982 bankruptcy) survived deregulation.

    After 1978…

    Now, in a deregulated world, competition rather than government determines profits. Because painting planes is expensive, airlines avoid colors that need upkeep. Not only is the plane out of service for more than a week but also, you need a lot of paint–250 gallons for a jumbo jet and 60 for something smaller like a Boeing 737.

    More from econlife on airline deregulation, here and here.

    The Economic Lesson

    Deregulation transformed flying. Pre-1978, airlines enjoyed the benefits of monopoly. Afterwards, when the market changed to oligopoly, airlines had to worry about costs, fares, and responding to competition. Here is an excellent video from Annenberg that includes a segment on the impact of airline deregulation.

    I just heard in a podcast that being a good economist means lifting the veil off of the unseen. Have you ever thought about the impact of deregulation on the color of an airplane?

    An economic question: How were consumers affected by airline deregulation?

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