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    October Stock Markets

    Oct 11 • Businesses, Economic History, Financial Markets, Macroeconomic Measurement, Money and Monetary Policy, Regulation • 575 Views

    During October 1907, when the stock market crashed and the banking system panicked, we had no central monetary authority. We just had J.P. Morgan.

    • “Why don’t you tell them what to do, Mr. Morgan? (Belle da Costa Greene, J.P. Morgan’s personal librarian)
    • “I don’t know what to do myself, but sometime, someone will come in with a plan that I know will work; and then I will tell them what to do. (J. Pierpont Morgan)

    Here is a description of events that preceded the 1907 panic:

    “A … moralist was in the White House. War was fresh in mind. Immigration was fueling dramatic changes in society. New technologies were changing people’s everyday lives. Business consolidators and their Wall Street advisors were creating large, new combinations…The public’s attitude toward business leaders, fueled by a muckraking press, was largely negative. The government itself was becoming increasingly interventionist in society…Much of this was stimulated by…economic expansion.”

    Sounds familiar.

    (Quotes are from The Panic of 1907, pp. 2-3; 97)

    The Economic Lesson

    On October 1, 2008, the Dow Industrial Average closed at 10,831. Only 10 days later, it was at 7773.71.

    1907, 1929, 1937, 1987 also had October plunges. With 16 stock market crashes during the 20th century, October has had a disproportionate share.

    An Economic Question: During 1907 and 2008, the GDP declined. How might stock market crashes and banking panics relate to a contraction in the economy? 

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    Real Food Commercials

    Oct 10 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Households, Innovation, Labor, Regulation, Thinking Economically • 523 Views

    The place is a Manhattan film studio. The star could be a donut, ice cream, or a chicken nugget. For a spaghetti sauce shoot, the director says, “Lights. Roll. Action. Drip.”

    Described in this NY Times article, tabletop directing is a “micro-niche” segment of the advertising world. With Applebee’s, Papa John’s and McDonald’s the typical clients, the dollars for these TV commercials are massive.

    And so too are the challenges. Ice cream melts under hot lights and spaghetti is slippery. Showing the steam from hot soup can be as tough as differentiating a donut from everyone else’s.

    To create a new reality, the tabletop director replaces the ice cream with lard and glues the spaghetti to the fork. For piping hot soup, he uses steam-making machines while a mechanized food-tosser enables a donut to cascade through a spray of sugar. As a result, the food looks more authentic and appealing.

    The Economic Lesson

     Is tabletop directing a wonderful example of the market’s creativity or a truth-in-advertising issue? Here, again, we have a tension between the freedom of the marketplace and regulation.

    You might enjoy looking at this story about Campbell’s Soup, marbles, and a group of law students that called themselves Students Opposed to Unfair Practices.

    An Economic Question: To make food look real and attractive in commercials, to what extent should ad people be able to modify the product?

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    A Happiness Check

    Oct 9 • Behavioral Economics, Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Thinking Economically • 552 Views

    The jobs, income and wealth scene is a bit bleak. Unemployment has soared, many workers are earning less, the government owes a ton of money, the stock market has been down, up, and down again, housing prices have plummeted and 25% of us have lost more than half of our wealth.

    And yet, we seem to feel okay.

    Looking at close to a million Gallup replies on SWB (Self-reported Well-Being) between January 2008 and December 2010, a Princeton economist concludes that our “life evaluation” has almost returned to pre-Lehman Brothers bankruptcy 2008 levels. Data about each day’s emotions, though, reflect more of our joys, stresses and worries.

    Should President Obama be happy about the Princeton study? Not necessarily. Here, an economist talks about the connection between election results and macroeconomic statistics.

    One footnote: Gallup had to eliminate political questions from its survey because the mere mention of politics made respondents unhappy.

    The Economic Lesson

    Economists disagree about what matters to people when they decide how well off they are. Some say macroeconomic data like unemployment and GDP statistics affect our outlook. Others cite the impact of stock market data, even from people who own no securities. Economists also study the difference between “living life” and “thinking about life.” They point out that you can feel dismal about parts of your daily life and still perceive a bright future.

    An Economic Question: Do you believe that well-being studies should affect economic policy? Explain.

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    The Supreme Court and Picasso

    Oct 8 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Innovation, International Trade and Finance, Labor, Regulation • 528 Views

    This Supreme Court case could affect the music you hear at a concert, the book you can access on Google and the Picasso you might see online. The case is all about copyright protection.

    The question: If a foreign movie, painting, song, or book is already in the public domain, then can it get copyright protection?

    The answer: Hoping to comply with international law, the Congress said foreign work that was unprotected and in the public domain could be copyrighted.

    The Response: Groups that depend on the public domain for their work believe that Congress’s decision is unconstitutional. Orchestra conductors, community theater groups, Google, video distributors, indeed a host of groups said the expense of using a copyrighted piece could prevent them from doing their jobs.

    The Supreme Court just heard the oral arguments.

    Here is a legal analysis of the case.

    The Economic Lesson

    2 parts of the Constitution directly relate:

    • Article 1 Section 8: “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and discoveries.”
    • The First Amendment: Congress shall make no law …abridging the freedom of speech…

    An Economic Question: How might property rights help and hinder innovation?

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    Paying the Simpsons

    Oct 7 • Behavioral Economics, Demand, Supply, and Markets, Households, Labor, Thinking Economically • 610 Views

    Rather than accept a 45% salary cut, the voices of Bart, Homer, Marge and Lisa have said this might be their last season. Reportedly paying close to $8 million a season to each of the major voices, 20th Century Fox Television said the show had become too expensive. NPR also tells us that Fox might make more money by ending the show than continuing it. The syndication rights alone could be worth close to $1.5 million for each episode.

    In a counter offer that Fox rejected, the Simpsons’ actors said they would accept a 30% cut and a share of the profits. Meanwhile, producers for the series have agreed to pay cuts. A final decision might be announced today.

    The Economic Lesson

    The Price of Everything, a very good book, explains high salaries. One possibility is the huge audience that technology facilitates. More people mean more money. Here, a University of Chicago economist discusses the rationale and math behind superstar salaries. He even compares Luciano Pavarotti to Mrs. Billington, an 1801 superstar Italian opera diva.

    An Economic Question: Through a demand and supply graph for a superstar, how might you illustrate a high salary?

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