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    Steve Jobs and Joseph Schumpeter

    Aug 27 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Thinkers, Households, Innovation, Thinking Economically • 1034 Views

    Henry Ford once said that consumers would have requested “a better horse” if he had asked them what to produce. Similarly, Steve Jobs told a reporter, “It’s not the consumers’ job to know what they want.”

    The result?

    For Henry Ford it was the Model T, the moving assembly line, and a plethora of products and processes that upset the status quo.

    For Steve Jobs, the computer industry, the music industry, mobile phones, all were revolutionized by Apple. Steve Jobs’ name is on 313 patents ranging from the iPod to Apple’s glass staircase. As Andy Kessler says in WSJ, he did it “by figuring out what he wanted and controlling the process until he got it.” He knew how to “give customers what they want before they knew they wanted it.”

    According to a 2008 Wired article, Steve Jobs’ leadership style has been characterized by autocracy and charisma. He is hard to please, inspirational and usually right. Talking about the iPod, during 2004, he said, “We want it to make toast. We’re toying with refrigeration too.” Actually, and secretly, Apple was developing video.

    The Steve Jobs story is about a lot more than Apple. It is about an American entrepreneur. Very different from other visionaries, he is also similar. They destroyed the past as they moved us onward. They took advantage of an economic system that rewarded their talents.

    Here is a past post about Apple’s patents.

    The Economic Lesson

    In Capitalism, Socialism, and Democracy (1942), Joseph Schumpeter (1883-1950) described what propelled capitalism and what would destroy it. Explaining the march of new ideas as creative destruction, Schumpeter said that entrepreneurs fueled capitalism’s ability to grow.

    (In this Teaching Company/History of Economic Thought course from Dr. Timothy Taylor, Lecture 8 on Schumpeter is excellent.)

    An Economic Question: Thinking specifically of Apple and iTunes, how was the music industry transformed?

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    When Are Potato Chips Good For Us?

    Aug 26 • Businesses, Demand, Supply, and Markets, Households, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 508 Views

    Potato chip manufacture is a technological marvel.

    During one year, in one typical factory, the chips in 80 million bags of Lay’s Potato Chips started as potatoes that were picked and plunked into railroad cars, funneled out for washing and processing at the factory, peeled, sliced, baked and sprinkled with salt as they moved at 15 to 65 mph along an assembly line. After the burnt and malformed chips were identified by a quality control camera and eliminated by a puff of air, the others were bagged, boxed and sent to us.

    According to this wonderful Econtalk podcast, potato chip makers care very much about productivity. They innovate to expedite the assembly line, they trouble shoot for bottlenecks, they care about consistency and quality control. The results are a perfect example of huge economies of scale.

    Lay’s potato chips are good for us because they are good for the GDP

    Here, you can see some of the manufacturing process and here you can read about the division of labor.

    Finally, here, in this very funny I Love Lucy video clip, you can see another kind of assembly line.

    The Economic Lesson

    The private rate of return–the net amount a business gets from an investment–tends to vary considerably and can ultimately be nonexistent because of competition. Moving beyond its origin, as the impact of the innovation ripples through society positively and negatively, it creates a social return. Both are tough to calculate. Edwin Mansfield, a University of Pennsylvania economist (1930-1967) who studied the impact of innovation concluded that smaller innovations such as new industrial thread had a much greater social rate of return than products and processes that sound more dramatic.

    Potato chip technology might have more of an impact than we suspect.

    An Economic Question: Made of potatoes, salt and oil, a potato chip has a supply chain that enables it to reach us at the supermarket. What might that supply chain include?

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    Time Matters

    Aug 25 • Behavioral Economics, Businesses, Developing Economies, Economic Thinkers, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 599 Views

    Faster people tend to live in wealthier nations.

    According to psychologist Robert Levine, cultures with faster walkers probably have more people, a cooler climate, a “vital economy” and they value individualism. Measuring “tempo” in 31 different countries, in A Geography of Time, he explains how time and the fabric of our culture interact.

    To assess your own “time urgency,” Dr. Levine suggests you consider these variables:

    1. Do you care what time it is?
    2. Do you speak quickly? Tolerate interruptions? Look for the point of a statement immediately?
    3. Are you a speedy eater? Walker? Impatient driver?
    4. Do you value punctuality?
    5. Do you depend on lists?
    6. Do wait times annoy you?

    Here, in a past post, we look at more of Dr. Levine’s work.

    The Economic Lesson

    In his NY Times Economic View column, economist Tyler Cowen tells that U.S. productivity numbers are slipping. If a worker has less output per hour, then the impact can be felt far beyond the workplace. Living standards, GDP and wages will be affected.

    And that returns us to time. A society with a faster tempo is likely to be more productive.

    An Economic Question: Specifically, how might “time urgency” and productivity relate? Examples?

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    Made in the USA?

    Aug 24 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, International Trade and Finance, Labor • 639 Views

    One friend recently said to me, “The problem is we don’t make anything anymore!”

    Disagreeing, a San Francisco Fed report says that 88.5% of consumer spending is for goods and services made here. In addition, businesses are buying US made goods that include space related items, gas turbines, and computer chips.

    Maybe though it is not about what we make. Instead, here, one Forbes commentator suggests that we focus on what people learn from manufacturing. Noting that most of the Kindle 2 is made in China, South Korea, and Taiwan, and then assembled in China, he worries that outsourcing provides a springboard for innovation from which we will not benefit.

    The Economic Lesson

    Manufacturing takes us to jobs and innovation. New products and processes fuel economic growth. Yes, we make a lot more than many people realize such as the new products and services described at this WSJ article, “Where the Action Is.”

    An Economic Question: Economists have been debating whether current unemployment is primarily caused by the business cycle or structural changes in the economy that make existing jobs outdated. How might government initiatives attack each type of unemployment?

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    Speedy Airplane Boarding

    Aug 23 • Behavioral Economics, Businesses, Economic Debates, Economic Humor, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 683 Views

    Closely connected to an airline’s bottom line, speedy boarding means more efficiency. Here you can see the following alternative boarding strategies in action.

    Front to back:

    • Least popular.
    • Early boarders block those who follow them.

    Back to Front

    • Very popular.
    • Used by Continental, Alaska Airlines and others.


    • Check-in time is one way to decide boarding sequence.
    • Preferred by academics as one of the fastest approaches.
    • Used by Southwest, American Airlines and others.
    • American Airlines’ flight attendants say it creates confusion.

    Rotating Zone

    • Alternating back and front for contiguous groups of seats.
    • Air Tran uses it.

    Reverse Pyramid

    • Back-to-front with outside-in.
    • Unused.

    Flying Carpet (really?)

    • Unused.
    • Designed by an Australian mechanical engineer.
    • On a carpet with the seats drawn, a passenger stands on his/her own seat. After 20-30 people position themselves on the carpet, that group boards. Because there is no room for seatmates to stand next to each other, boarders automatically are dispersed for optimal boarding.

    According to the LA Times, United Airlines believes in “outside-in” while Continental boards “back to front.” Now that they have merged, will they choose one or compromise with a reverse pyramid?

    The Economic Lesson

    When an airline boards people more rapidly, it is utilizing land, labor and capital more efficiently. Best illustrated by Southwest Airlines, a fast turnaround means fewer airplanes are needed because more flights can be scheduled using the same equipment. Then, the land, labor and capital that might have been used inefficiently can be allocated elsewhere.

    An Economic Question: Referring to cost (defined as sacrifice), explain why faster lines benefit buyers and sellers.


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