• A Mozart String Quartet and Health Care

    Jan 19 • Thinking Economically • 280 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 • 371 Views

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

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  • Nixon’s Pressure Cooker

    Jan 17 • Thinking Economically • 477 Views

    Just an interesting fact:
    Hearing that President Obama was concerned about preempting the sixth season premiere of “Lost”, I remembered that Richard Nixon had a similar situation.
    In 1971, when the inflation rate had reached 5.7%, he decided to impose wage and price controls and scheduled the speech explaining the program for a Sunday evening. Although Nixon and his advisors were worried that they would push “Bonanza” (does anyone remember Hoss and Little Joe?) off the air that evening, they proceeded because he had to announce the decision before the financial markets opened on Monday morning.
    A note:
    The economy had a “pressure cooker” reaction to Nixon’s economic policy. Inflation dropped during the controls and then skyrocketed to 11 percent when the lid was lifted during 1974.

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  • It’s Complicated

    Jan 16 • Thinking Economically • 358 Views

    Oversimplification concerns me.
    Some people are saying we should resuscitate Glass-Steagall. Passed in 1933, the Glass-Steagall Act (Banking Act of 1933) prohibited commercial banks from engaging in investment banking activities and created the FDIC. Also a part of 1933 legislation, Regulation Q established a ceiling on savings account interest rates. Together, Glass-Steagall and Regulation Q created so safe a banking environment that bank failure was virtually impossible. It worked for close to 40 years.

    Then though, during the late 1970s, dollars started fleeing the banks because interest rates were considerably higher elsewhere and FDIC insurance was an insufficient incentive for money to remain. Banks are a financial intermediary. When so much money leaves, the phenomenom is called “disintermediation”. Glass-Steagall and Regulation Q created banking restrictions that prevented commercial banks from vigorously competing against non-regulated financial firms. Glass-Steagall and Regulation Q led to disintermediation. Consequently, 1933 banking regulation was gradually phased out.
    Soon a dilemma emerged.
    With 1930s regulation we had no bank failures. But soon, we would have had few banks because their deposits were diminishing.
    With deregulation, money flowed into banks. However, their risky behavior lead to many bank failures. The probable result? Again, many fewer banks.
    As the heartbeat of our economy, banks pump our money from savers to borrowers. We need banks for our economy to function.
    Figuring out a new regulatory environment is just not going to be simple.

    Economic Ideas:
    Financial Intermediary: An institution that connects savers with borrowers.
    Disintermediation: When a financial institution is unable to connect savers and borrowers.

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  • An Imbalance in the Marriage Market

    Jan 15 • Thinking Economically • 295 Views

    Recent articles about skewed birth rates in China indicate 119 (and more) males are born for every 100 females. Discussing the imbalance, most commentary focused on marriage and how tough finding a wife will become.
    Some thoughts…
    1. On a demand/supply graph, does that mean a shift in the demand curve (of eligible husbands) to the right. But…is the supply curve inelastic which would mean that the number of potential wives remains almost the same? Will the supply curve (of eligible wives) eventually shift rightward?
    2. Moving to other issues, how will consumer spending be affected if there are so many more men? Clothing? Food? Cars?
    3. The job market? Types of jobs that men traditionally perform?
    Your thoughts?

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