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    The Economic Significance of BRIs

    Mar 7 • Thinking Economically • 207 Views

    When slicing a bagel, most people use a knife.  Others prefer the bagel guillotine or the Brooklyn Bagel Slicer.  With annual sales near 80,000, the bagel guillotine has been described as “history’s most successful bagel-controlling device” by its inventor.

    In fact, during 2008, 1,979 bagel-related injuries (BRIs) landed people in the ER according to our government’s National Electronic Injury Surveillance System.  (At 3,464, chicken-related injuries are most common while wedding cake cuts, at less than 100, are rare.) Worried that litigious eaters would slice a finger, Lender’s pre-slices their frozen bagels.

    In so many ways, bagel slicers take us to basic economics. We could begin with incentive propelling invention in a market economy.  We could go to the GDP and see that a bagel slicer adds to the value of goods and services we produce each year.  And, we can look at the federal budget for the cost of running the National Electronic Injury Surveillance System.

    Indeed, all of this relates to Adam Smith and the potential of a market system.

    The Economic Life

    The GDP has four components: Consumption Expenditures, Gross Investment, Government Spending, Exports minus Imports.  When we buy a bagel guillotine, it gets added to the consumption category.  If a bagel store or the government buys one, the cost is added to those components.  And finally, if any are sold beyond U.S. borders, it would appear in exports.

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    The Impact of an Asteroid

    Mar 6 • Thinking Economically • 219 Views

    From our “Economics is Everywhere” file:  Reviewing 20 years of research, a panel of 41 experts concluded that the asteroid that struck Mexico (at Chicxulub–chick-shoo-loob), 65 million years ago, extinguished the dinosaur population.  The impact would have been so colossal that it resulted in a global winter because of the debris catapulted into the atmosphere.
    Not convinced?  You could look at What Bugged the Dinosaurs: Insects, Disease, and Death in the Cretaceous from Princeton University Press for an alternative theory.

    Reading about asteroids soon took me to our the FY2011 federal budget to see what we are doing now.  And sure enough, I discovered that asteroid research funds increased under NASA’s budget.  Among the multiple asteroid programs is one that NASA has established with Saudi Arabia.

    The Economic Life
    Our federal budget is dominated by defense and entitlements which include social security, Medicare, and Medicaid spending.  Receiving $19 billion from a budget totaling close to $4 trillion, NASA spending is relatively small.  Anyone worried about the burgeoning deficit would see that austerity for asteroid research would have little impact as would cuts in most discretionary spending.

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    Liking the Robber Barons

    Mar 5 • Thinking Economically • 236 Views

    A confession:  I have never disliked the “robber barons.”   Written by Matthew Josephson (1899-1978), The Robber Barons told us how the great nineteenth industrial empires were built.  Emphasizing the misdeeds of Rockefeller, Carnegie, Frick, and their contemporaries, the author helped readers to perceive a cast of villains. 

    In an opinion article in yesterday’s Wall Street Journal, Daniel Henninger says we need more “robber barons” to reinvigorate our economy.  He recommends a book by Burton W. Folsom in which the “robber barons” are categorized as market entrepreneurs or political entrepreneurs.  People like Rockefeller (oil), Carnegie (steel) and J.J. Hill (railroads) who build businesses, create jobs, and compete fiercely are market entrepreneurs.  By contrast, Robert Fulton who was given a monopoly on Hudson River steamship traffic for thirty years, was a political entrepreneur.

    You can predict who Henninger prefers.  Saying market entrepreneurs are the most productive, he asks our President and our Congress to ignore conspicuous consumption and instead establish a regulatory environment that nurtures them.  

    The Economic Life

    We could say that the infrastructures that were built during the nineteenth century created a strong foundation from which our economy soared.  Starting with the Erie Canal (1825) and culminating (perhaps) with the transcontinental railroad (1869), we built a transportation infrastructure that let us form a national market and regionally specialize.  A bit later in the century, we built our financial infrastructure.  With money moving across the land as the New York Stock Exchange and an investment banking world emerged, we could finance businesses and support entrepreneurial vigor.  Market entrepreneurs were the people who built our transportation and financial infrastructures.  

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    The Banking Pendulum

    Mar 4 • Thinking Economically • 191 Views

    As George Bailey in “It’s a Wonderful Life,” Jimmy Stewart faces a bank run.  On his wedding day, hoping to save his bank, George first gives out the bank’s cash and then his honeymoon money to a long, agitated line of panicked depositors.

    During the bank run, in two sentences, George Bailey summarizes the basics of banking. “You’re thinking of this place all wrong, as if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house … and a hundred others,” George Bailey is referring to a fractional reserve system in which banks keep part (a fraction) of a deposit in reserve and then loan and invest the balance. 

    Through loans and investments, just as the heart pumps nutrients around the body, banks and other financial institutions pump money around the economy. And, just like we need a healthy heart, we need healthy financial institutions for economic growth.  How to maintain healthy financial institutions is a question our Congress has repeatedly had to ask. 

    I keep thinking of a pendulum swinging back and forth between more and less government regulation.  During the 1930s, government regulation increased.  In 1980, regulation diminished somewhat as banks needed more freedom to compete in a changing financial environment.  In 1999, with the repeal of the Glass-Steagall Act, the pendulum continued its swing toward less government.

    Now, where should it go?

     

    The Economic Life

    Between the Civil War and the First World War, we had banking panics in 1873, 1884, 1890, 1893, 1896, 1907, and 1914.  “It’s a Wonderful Life” looked at the banking panic of the early 1930s. Many banking crises led to reform legislation.  Initially celebrated, the reforms eventually failed. 

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    Tipping Points

    Mar 3 • Thinking Economically • 247 Views

    When tipping, we all have a tipping point.  It might sound reasonable to leave a dollar tip.  But, if a Tall Vanilla Latte costs $3.37, is a thirty percent tip too much?  Yes, says one NY Times blogger. On the other side, Starbucks baristas say that they earn more from tips than hourly pay.  After a California court decided that Starbucks’ shift supervisors could not share the tips pool, an appeals court reversed the decision.

    Another way in which customers are asking themselves, “How much extra?” involves calories.  With New York City the first in 2008, municipalities around the nation are requiring that calorie information be posted.  Has it made a difference?  According to a Stanford Business school study, yes. 

    The Economic Life

    Starbucks’ customers and employees both are wearing their economic lenses. Whenever they consider the cost and benefit of something extra, they are thinking at the margin.  Thinking at the margin is thinking economically.

     

     

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