• 16748_robot.11.15.11_000017936450XSmall

    Sounds Like Bell Labs

    Nov 15 • Businesses, Demand, Supply, and Markets, Government, Innovation, Labor, Thinking Economically • 639 Views

    Google has a “secret” lab. Called Google X by the NY Times, it sounds like the old Bell Labs.

    Before 1984, when AT&T was a monopoly, their research subsidiary Bell Labs employed a battalion of scientists. For some, the assignment was just to “think.” As a result, between 1925 and 1983, Bell Labs created the first fax machine, the original laser, the solar battery cell, light emitting diodes, the UNIX operating system on which the internet is based, digital cell phone technology, and maybe they “heard” the Big Bang.” The transistor, which led to computer microchips, touchtone phones, hi-def TVs and so many other technologies, came from Bell Labs.

    Google X might embody some of the same creativity. The NY Times says that they are developing the technology for a driverless car, artificial intelligence, and contemplating a space elevator. Instead of applied research with specific goals to expand existing technology, it appears that Google X is moving beyond.

    The Economic Lesson

    Research and Development can be divided into 3 categories:

    • Basic research involves no articulated goals. You could throw plates in the air and watch their trajectory.
    • Applied research is more goal oriented. Parameters are constrained by a pre-determined objective.
    • Development, the final stage, involves the practical implementation of the research concept.

    An Economic Question: Some say AT&T could support Bell Labs because it was a monopoly. Today, who do you believe can afford to fund seemingly “unproductive” research?

    No Comments on Sounds Like Bell Labs

    Read More
  • 16746_3.9_000008354384XSmall

    European Ties

    Nov 14 • Businesses, Demand, Supply, and Markets, Financial Markets, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 726 Views

    How to picture the US/European economic partnership?

    You could think of Skippy Peanut Butter. Owned by Unilever, a multinational based in the UK and the Netherlands, Skippy’s peanuts are grown primarily in Georgia and Texas, shelled and sorted here, and then made into peanut butter. As a result, a European firm is providing business to US farms, it is building US factories, and it is creating US jobs.

    For another side of our economic partnership, you might imagine Texas. During 2009, totaling close to $25 billion, exports from Texas, including petroleum, electronics, crops, and transportation equipment, were primarily sold in the Netherlands, the UK, Belgium, France and Germany. Meanwhile, European foreign affiliates were responsible for 212,000 jobs and invested close to $60 billion in Texas.

    Or, we could just think of Bic, Adidas, Ben & Jerry’s Ice Cream, Trader Joe’s, and Sunglass Hut…all European firms.

    In this 169 page report from Johns Hopkins, a detailed description of the transatlantic trade tells us that the US and Europe dominate each other’s trade activities. Ranging from California at the top to Hawaii at the bottom, every US state exports to Europe and receives European goods and services.

    The Economic Lesson

    You can see where this is going. Looking at foreign affiliates, foreign direct investment, jobs, exports, intrafirm trade, shared financial services and R & D, the US and Europe are closely tied. Looking at both directions, what European firms have here and what we have there, we see a massive economic connection. As a result, turmoil in the euro zone means more to us than a continent’s well being. It touches our own economy directly.

    An Economic Question: Referring to transatlantic trade, how might euro zone economic woes specifically affect the US GDP?

    No Comments on European Ties

    Read More
  • 16740_3.29_000011656552XSmall

    Presidential Wagers

    Nov 12 • Behavioral Economics, Demand, Supply, and Markets, Thinking Economically • 631 Views

     Looking at the University of Iowa GOP Iowa Caucus Market, you could create these headlines:

    • “Gingrich gains.”
    • “Cain crashes.”
    • Perry plummets.
    • Romney remains.

    With quotes indicated every 15 minutes, the University of Iowa prediction market for the Republican presidential nomination is a fascinating barometer. Pre-debate gaffe, the price of a Perry contract was 31 cents. After the debate, it nose-dived to 17 cents. For Romney, the average price of a contract remained in the vicinity of 80 cents. Meanwhile Cain moved down, 47 cents to 22 cents, and Gingrich moved up from 8 cents to 36 cents.

    The Iowa Electronic Market indicates the probability that a candidate will finish in the top 2 in the Iowa caucuses. So, a 22-cent contract displays a 22% probability. Like any market, price fluctuates because of supply and demand.

    Explained on the IEM website, “Contracts for the correct outcome pay off at $1, all other contracts pay off at zero. As a result, the price of the contract at any given time is the probability that the traders believe that event will happen.” The maximum investment is $500.

    The Economic Lesson

    Can a crowd be smarter than an individual? In The Wisdom of Crowds, financial writer James Surowiecki, says “Sometimes, yes.” Starting with a crowd betting on the weight of an ox and ending with the crowd and democracy, Surowiecki looks at “collective intelligence.”

    Surowiecki divides “collective intelligence” into 3 categories:

    1. Cooperation problems focus on how people work together. The issues they look at include legislative compromise (or gridlock) and getting a large group together for a dinner.
    2. Coordination problems display how many independent individuals impersonally coordinate their behavior. Examples would take us to rush hour traffic and stock markets.
    3. Cognition problems involve information that makes one answer more accurate than another. Predicting future monetary policy, the future weight of an ox, and who will win the Iowa Caucuses are cognition problems.

    An Economic Question: Thinking of prediction markets, how could a demand/supply graph demonstrate a candidate’s poor performance during a debate?

    No Comments on Presidential Wagers

    Read More
  • 16736_3.24_000012425958XSmall

    Car Rentals and Cuban Houses

    Nov 11 • Demand, Supply, and Markets, Developing Economies, Thinking Economically • 747 Views

    Have you ever washed a rented car? Former Treasury Secretary Lawrence Summers tells us that, “In the history of the world,” no one has.

    For rental cars and Cuban houses, lack of ownership is the common denominator. When Fidel Castro took control of Cuba, he declared that everyone would get a home but no one could buy or sell one. As a result, described by NPR, everywhere, walls are patched with scrap metal, grillwork is rusty, and facades are crumbling.

    Now, with Raul Castro, Fidel’s brother, announcing that Cuban citizens could sell their homes, renovation, painting, maintenance and for sale signs are popping up everywhere.

    The power of the market system?

    Here is an NPR report on Cuban small business start-ups.

    The Economic Lesson

    Cuba imports 80% of its food supply while the price of nickel, its main export, and tourism, its main “import,” have both declined. Raul Castro said, “We have to erase forever the notion that Cuba is the only nation in the world where it is not necessary to work,” The Economist suggests he might be leading his nation toward a Chinese type of mixed economy.

    A mixed economy combines government intervention with a market system. You might want to look at the Index of Economic Freedom to see the extent to which 179 economies are mixed.

    An Economic Question: Moving from a command economy to the market, how might incentives change?

    No Comments on Car Rentals and Cuban Houses

    Read More
  • 16734_oliveoil11.10.11_000017303961XSmall

    Surprising Biofuels

    Nov 10 • Businesses, Demand, Supply, and Markets, Economic Humor, Environment, Financial Markets, Innovation, International Trade and Finance, Thinking Economically • 594 Views

    McDonald’s used fryer grease?

    Alaska Air might want it. On 75 commercial flights, they will partially fill their tanks with biofuels that contain used cooking oil. Selecting algae for its biofuel blend, United flew from Houston to Chicago on its “Eco skies test flight.”

    Commercial aviation is looking at biofuel blends to diminish their carbon footprint. In a WSJ list of 4 airlines, Lufthansa has the greatest commitment with 1200 commercial flights while United, with one, is at the bottom. Next year, the European Union has said it will implement a carbon emissions trading program for airlines. The problem, though, is that biofuels are 6 times as expensive as normal jet fuel.

    The Economic Lesson

    The key is cost. Thinking of the determinants of demand and supply, what might sufficiently shift a curve to lower the equilibrium price of one or several of the types of biofuel?

    An Economic Question: On a demand/supply graph, describe a (hypothetical) reason that the supply curve for cooking oil-based biofuel might shift to the right.

    No Comments on Surprising Biofuels

    Read More