• Deja Vu Glass-Steagall?

    Jan 22 • Thinking Economically • 236 Views

    Thinking back to Glass Steagall (and related 1930s legislation) which was formally repealed in 1999 (summarized in “It’s Complicated”, my 1/17 blog), there were five problem areas that sound remarkably similar to today’s challenges:
    1. Abuse of diversified investment services. Banks had conflicts of interest when they implemented commercial and investment activities.
    2. Branch banking: There was concern about banks becoming too large.
    3. Interest Rates: Competing for savers through higher interest rates, banks engaged in potentially destructive through high interest rates.
    4. Deposit Insurance: Money was fleeing the banks because of lack of confidence.
    5. The Power of the Federal Reserve: Which banking authority should be strengthen to prevent future banking abuses?

    Today, the White House indicated similar banking industry goals. But Glass-Steagall worked for a 1930s banking environment. Today we have an interconnected world. If US banks are constrained, will businesses easily move to those abroad who are not? As happened during the 1970s here, will disintermediation (my 1/17 blog) resurface?


    The Economic Life:
    The impact of financial legislation can be unpredictable. Hopefully, legislators will consider opportunity cost more so and populist rage less so when deciding what ultimately will benefit the most people.

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  • Responding to the Sound of a Price

    Jan 21 • Thinking Economically • 207 Views

    Does $2.22 sound very different from $2.33? The answer is yes. In a soon-to-be-released study by Keith Coulter of Clark University and Robin Coulter of the University of Connecticut in The Journal of Consumer Research, research indicates that shoppers expect a much better deal when the price is $2.33.
    In one experiment, people were told an original price and a sale price and later asked which sale price represented the bigger discount. Ignoring the math, people instead appeared to go by the sound of the sale price. Because $2.22 sounded

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  • Some Medical History

    Jan 20 • Thinking Economically • 183 Views

    late 1940s:
    Harry Truman proposed (unsuccessfully) what is now called a single -payer plan.
    Congressmen Richard Nixon and Jacob Javits supported (unsuccessfully) a government

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  • A Mozart String Quartet and Health Care

    Jan 19 • Thinking Economically • 210 Views

    A question:
    How does a Mozart String Quartet resemble health care?

    The answer:
    Both have Dr. Baumol’s Cost Disease

    Eighty-eight year old economist William J. Baumol expressed concern in today’s NY Times about health care cost control. Comparing health-care to a Mozart String Quartet from 1787, Dr. Baumol pointed out that both were labor intensive. In 1787 and now, the same musicians and the same time are needed to play the piece. Similarly, in many ways, health care cost reduction is constrained by labor intensity.
    David M. Herszenhorn, “Economic Diagnosis For Health System”, p. A12, NY Times, January 18, 2010.

    Dr. Baumol discusses labor intensive “cost disease” in his 1966 book Performing Arts: The Economic Dilemma (with W.G. Bowen).

    The Economic Life:
    Production requires “factor recipes” composed of the factors of production: land, labor, and capital. When a factor recipe is labor intensive, it requires labor as the dominant factor input. Capital intensive activities typically can create more savings than those that are labor intensive. Historically, the building of railroads was an example of increased capital, capital intensity, and a propellant of economic growth.

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  • The North Face v. The South Butt

    Jan 18 • Thinking Economically • 225 Views

    The North Face is suing The South Butt for trademark infringement. Concerned that there would be

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