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    Bendy Buses and Health Care

    Sep 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Government, Regulation, Thinking Economically • 321 Views

    Have you heard of a bendy bus? The bendy bus was supposed to solve Santiago, Chile’s public transit problems. But the story relates to each of us.

    It all began during 2007 when Santiago decided to replace its private bus system with public transit. Previously, with 3,000 different bus companies, the competition had been fierce and problematic. 1) Seeing a crowded bus stop, drivers would rev up their engines and race each other to get there first. Because of the accidents, injuries and conjestion, we could say competition was destructive. 2) Pollution was uncontrolled because buses were not licensed. 3) Although bus fares were quite low, the profitability ($60 million US dollars) made certain people question the ethics of making money by satisfying a basic municipal need.

    To solve the three problems, the city took over the system. Here is where bendy buses enter the picture. Big and attractive, they safely navigated city streets.

    Each of the problems was solved (but not really). 1) Drivers were told that on time service was crucial. Result? Buses were on time but empty as drivers skipped busy stops that might have delayed them. 2) Pollution was no longer a problem with the new buses. 3) Profits were no longer a concern because the system was losing lots of money ($600 million US dollars).

    The Economic Lesson

    In many ways, Santiago’s bus issues are our health issues.

    1) Incentive: Which incentives will optimize service?

    2) Pubic or private: How can we best provide the services we require?

    3) Affordability: How can the cost of necessities be minimized?


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    A Bow Tie Patent

    Sep 5 • Businesses, Innovation, Regulation • 339 Views

    Having said that jackets and dresses cannot be patented or copyrighted, I was fascinated to learn that a bow tie once had one.

    During the 1950s, the clothing retailer Brooks Brothers had patented their bow tie technology. A recent WSJ article referred to the patent because an attorney who saw a Brooks Brothers bow tie with an expired patent number is suing them. It is illegal to display an out-of-date patent on an item.

    You might want to look at patents which attorneys say have expired on Etch-a-sketch, turkey pop-up timers, the original Wooly Willy, and some covers from Solo Cup Co. on Starbucks coffee cups. According to the article, business firms that have forgotten to check when their patent protection has ended and still note it on the product, are breaking the law.

    The Economic Lesson

    This returns us to the general issue of intellectual property rights. A copyright refers to the expression of ideas and lasts for 70 years beyond its creator’s life. By contrast, a patent applies to an invention and can be enforced for 20 years.

    In this interesting econtalk interview, believing they should be longer, author Mark Helprin challenges the duration of literary copyrights.



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  • A Price Ceiling Has Unintended Consequences

    The Minimum Wage Debate

    Sep 4 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Labor, Macroeconomic Measurement • 353 Views

    Should we like a higher minimum wage? With the release of 9.6% as the August, 2010 unemployment number, I thought about the minimum wage debate. The teenage unemployment rate is 26.3%.

    In 2007, Congress increased a $5.15 minimum wage in three stages. On July 24, 2009, the final 11% raise, from $6.55 to $7.25 was implemented in the 31 states with a lower minimum wage.

    If you owned a fast food restaurant and were told that you had to pay workers a higher minimum wage of $7.25 an hour, what would you do? Give everyone raises and pay the increased hourly rate to new hires?  Only give raises to current employees but decide not to do the hiring it had planned? Terminate certain positions? Other alternatives? You might want to look at a good discussion here.

    The Economic Lesson

    Originating in Australia and New Zealand during the 1890s, minimum wage legislation was first passed federally (it had existed in individual states) in the U.S. through the 1938 Fair Labor Standards Act. Believing that employers were paying “substandard wages” and perpetuating sweatshops, Congress sought to ensure a “fair wage”. Their rationale was the need to tilt the balance of power toward workers.

    Graphically, economists illustrate the minimum wage through a “floor”. Please imagine for a moment a supply and demand graph. Price is the y-axis and quantity is the x-axis. Thinking of wages, the supply curve represents labor and the demand curve is the business side of the market. The point at which demand and supply meet, called equilibrium, is the wage (the price of labor) determined by the market.

    Government, however, can say that it believes the market determined wage is too low. It then mandates a higher wage that can be depicted as a horizontal line placed above equilibrium. Economists call this horizontal line a “floor” because it stops wages from moving lower to their natural market price. 

    And therein lies the dilemma. A higher wage or more jobs? Floors create surpluses. At the new, higher wage, the number of jobs laborers want is more than the number of jobs businesses are willing and able to offer. So, we have a higher wage but fewer jobs. Perhaps 26.3% fewer jobs for teenagers and other unskilled workers?


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    Female Earning Power

    Sep 3 • Businesses, Gender Issues, Households, Labor • 464 Views

    Which women earn more than men?

    If you are female, in your 20s, childless, unmarrried, live in a city, and a college graduate, there is a good chance that you earn more than a man in your peer group. You also represent a major change in what women earn. For decades (and before), the average working woman in the U.S. has earned less than the average working man–recently, close to 20% less.

    Now, according the the Census Bureau, young women are pulling ahead because of the structural shift in the economy. A knowledge based economy with less manufacturing fuels female earnings. Also, because female minorities are more likely to attend college than their male counterparts, they earn more.

    20 years from now, what will we see because of this earnings shift? Your comments?

    The Economic Lesson

    According to Harvard economist Claudia Goldin, the gender gap refers to labor market differences between men and women that relate to types of occupations, pay, and participation rates.



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    More Fashion Rules

    Sep 2 • Economic History • 393 Views

    Are fashion copycats good or bad for the industry? N.Y. Senator Charles Schumer says, “Bad” and is proposing legislation that would provide a 3 year period during which, with certain exceptions, knock-offs would represent copyright infringement. Others, though, say that fashion copies are beneficial as a source of trends and innovation.

    The issue of copyright protection for fashion is a part of a much bigger debate. Do you believe, for example, that Amazon should have an exclusive, government protected right to “one-click shopping“?

    The Economic Lesson

    When Alexander Hamilton was concerned with protecting infant industries in a very young United States, he and James Madison supported a patent system that served a specific economic purpose. By contrast, Thomas Jefferson, himself a inventor, said that Congress should not “meddle” with “matters of invention”.


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