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    “Boomerangers,” the Recession and the Family

    Aug 13 • Behavioral Economics, Households, Thinking Economically • 601 Views

    The “boomeranger” has returned. A Pew Research Survey found that 13% of all households are composed of parents with adult children who moved away and then returned home. Pew’s respondents say the economy was the reason these “boomerangers” moved back.

    In addition, there are fewer newlyweds, delayed babies, and for some, a postponed or canceled divorce. Again, the reason appears to be the Great Recession.

    The Economic Lesson

    Nobel prize winning economist Gary Becker tells us that marriage is about a lot more than love. Instead, we can better understand marriage by looking at a utility function, a graph that represents fluctuations in satisfaction.

    People marry because they expect to, “raise their utility level above what it would be were they to remain single.” (The Essence of Becker, p. 273)

    An Economic Question: Thinking of Becker’s reference to utility levels, how might the Great Recession have affected the attractiveness of marriage?

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    Sole Rights?

    Aug 12 • Businesses, Demand, Supply, and Markets, Economic Debates, Innovation, Regulation • 919 Views

    Suddenly, a red sole has become much more than the bottom of a shoe. The trademark of designer Christian Louboutin, his red soles are supposed to represent glamour, luxury and hidden status. Or, as stated by Mr. Louboutin, “A shoe has so much more to offer than just a walk.”   

    Agreeing, fashion house Yves Saint Laurent (YSL), designed its own line of luxury shoes with colored soles and wound up in a Manhattan courthouse. Louboutin claimed trademark infringement. Saying a red shoe sole is “ornamental and functional,” the court supported YSL.

    In a TED talk, Johanna Blakley explains that a jacket and most other clothing cannot receive intellectual property protection because they are “utilitarian”. A logo on the jacket can be protected but not the jacket or shoe. Contrary to what I would have expected, she believes that the industry is helped by the absence of protection. Copying begets trends; copying stimulates innovation. The threat of copying makes people repeatedly move onward to newer, better, and more unique designs.

    Here and here in past econlife posts, you can read more about fashion copycats.

    The Economic Lesson

    Shoe designers compete in monopolistically competitive markets. The characteristics of monopolistic competition include many sellers with a similar product, sellers creating an individual, unique identity, and sellers having some control over price. The competitive behavior of beauty salons, supermarkets, and clothing manufacturers is also shaped by a monopolistically competitive market structure.

    From most competitive to least competitive, the four basic competitive market structures are: perfect competition, monopolistic competition, oligopoly, monopoly.

    An Economic Question: In a monopolistically competitive market, why have Louboutin’s red soles been valuable?

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  • US Chicken Paw Exports to China

    Chinese Pork

    Aug 11 • Demand, Supply, and Markets, Developing Economies, Macroeconomic Measurement, Thinking Economically • 862 Views

    The Chinese might be dipping into their Strategic Pork Reserve. Faced with a 57% increase in pork prices, the Financial Times tells us that the Chinese will be “rushing” extra pigs to market to lower the price. Higher feed prices are one source of the spike in the price of pork.

    Meanwhile, in the U.S., chicken processors Tyson Foods and Pilgrim’s Pride are also reacting to higher feed prices. Soaring corn costs have meant the switch to wheat from corn for a part of their chickens’ diet. Traditionally, as people food, wheat has been more expensive. Now though, because of demand from China and ethanol, corn prices touched $6.7525 a bushel while wheat was 19 cents cheaper. Like Tyson and Pilgrim’s Pride, Chinese hog producers are purchasing more wheat.

    The Economic Lesson

    This is classic supply side behavior. As the cost of production rises, producers switch to a cheaper input to lower their expenses.

    An Economic Question: Thinking of corn flakes and Wheaties and demand and supply, how might the corn wheat flip-flop in prices affect popular cereals?

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  • sports stadiums and money

    The Cost of Keeping a Team

    Aug 10 • Businesses, Government, Labor, Regulation • 604 Views

    To keep a team, sometimes the stadium makes the difference. The problem, though, is who is going to pay. For the San Diego Chargers, the price tag would be an $800 million sports facility with the city absorbing 65% of the total. On a November 2012 ballot, the voters will be able to approve or reject the project.

    Meanwhile, hoping to fill the void created by the departure of the Raiders and the Rams, a privately owned sports conglomerate says it will raise $1.2 trillion for a new Los Angeles sports arena.  Then, the Chargers could decide to move to LA.

    Privately financed stadiums. A free lunch for the taxpayer? Not really.

    One Harvard urban planning scholar tells us that even when a stadium is privately paid for like the NJ Meadowlands (where the Jets and the Giants play), Gillette Stadium (home of the New England Patriots) or FEdEx Field (the Washington Redskins), still we pay. Usually, a municipality inexpensively provides the land for as little as $1, develops transportation arteries to the new facility, gives tax breaks, and even agrees to subsidize ticket revenue if it falls beneath a certain total. Adding up all the extras, a “free” stadium might cost us many millions in outlays and forgone taxes.

    In a past post, here, we looked at several unaffordable publicly financed sport facility projects.

    The Economic Lesson

    The tragedy of the commons relates to financing sports facilities. When the project is approved, no one individually bears the cost–except perhaps the politician who might not be re-elected if he/she votes no. So, the pool is abused, overused, and later all of us pay.

    However, will the psychosocial benefit of having a local sports team outweigh all other costs?

    An Economic Question: What are the non-money costs and benefits of a local sports team franchise?

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    An Economic Lesson From Marie Antoinette’s Fashion Designer

    Aug 9 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Thinkers, Financial Markets, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 691 Views

    Rose Bertin was the 18th century Alexander McQueen. As Marie Antoinette’s personal fashion guru, she designed massively skirted ornate gowns and 3-foot high poufy hair styles. More than clothing, though, her designs embodied power, presence and opulence.

    In This Time It’s Different, economists Kenneth Rogoff and Carmen Reinhart quote Rose Bertin’s reminder that, “There is nothing new except what is forgotten.” (p. 275)

    The Economic Lesson

    According to Reinhart and Rogoff, our current financial plight is indeed “nothing new.”

    Categories for financial crises (p. xxvi):

    • Sovereign debt defaults
    • Banking
    • Exchange rate
    • High Inflation

    Typical pre-crisis warning signs (p. 223):

    • “asset price inflation” (U.S./housing)
    • “rising leverage” (U.S./borrowing)
    • “large sustained current account deficits” (U.S/more imports)
    • “a slowing trajectory of economic growth”

    Typical post crisis “aftermath” (p. 224):

    • 6 years for real housing prices to bottom
    • A 3 1/2 year duration for “equity price collapses”
    • Soaring government debt
    • Declining tax revenues
    • Rising sovereign debt interest rates

    An Economic Question: Do you believe that government is the problem or the solution when considering a financial crisis?

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