• Everyday economics for food research and development is important for the GDP.

    Fries and Chips: Potato Stories

    Dec 7 • Businesses, Economic Growth, Economic History, Economic Thinkers, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Tech • 419 Views

    It’s tough to make a french fry with a consistent crunch.

    A Better French Fry

    When it first started to expand during the 1950s, McDonald’s had a french fry problem. Suppliers were providing the same russet potatoes. They used precisely the same soaking and cooking techniques. But still, some french fries were perfect while others were too soggy.

    Millions of dollars and hundreds of hours later, McDonald’s researchers realized that their potatoes had to be stored for three weeks so that enough sugars could turn to starches. Next, moving closer to a solution, they made sure the raw fries and the oil temperatures were identical from restaurant to restaurant. Finally though, It turned out that the french fries cooked perfectly whenever the oil temperature rose no more than three degrees above its lowest point. With an electrical sensor that maintained the three-degree difference, they were able to make what we now know are McDonald’s fries.

    Later, they applied the same technology to Chicken McNuggets and Filet-O-Fish as well.

    A Better Potato Chip

    Looking for a better potato chip, Wise (maker of chips, cheese doodles, you know) joined with the USDA and Pennsylvania State University to develop a potato that would “chip” perfectly. The result (in 1967) was a hybrid called the Lenape with the right amount of sugars and starches. Unbeknownst to the breeders though, was one detail. The characteristics that created a potato that “chipped golden” also made it high in an alkaloid called solanine–three times higher than the typical russet. Too much solanine made people sick. They become nauseous, get diarrhea, and could die.  Wise never did sell chips made from the Lenape and in 1970, it was withdrawn from the market.

    But, the Lenape potato furthered our knowledge of the toxins that exist naturally in our everyday foods.

    Where are we going? To food R&D.

    Like other R&D, food processing successes and failures are technological springboards. Seemingly trivial compared to computer chips, french fry and potato chip research can have an impact that ripples through the economy.

    The Bottom Line: Research and Development

    Providing a lens for explaining the value of research, Harvard professor Clay Christensen said, “empowering, sustaining and efficiency”. An empowering innovation transforms our landscape like the Ford Model T and cloud computing. When we think of sustaining, new products that replace old ones like the Prius should come to mind. And lastly, efficiency, predictably diminishes production costs.

    Where do new fries fit?

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Pacesetters to Prices

    Dec 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Humor, Environment, Gender Issues, Government, Labor, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 583 Views

    Our Posts Roundup

    Everyday Economics — Oil storiesSunday 11.30.14 Three graphs that tell the cheap oil story…more

     

    Everyday Economics for Amazon and UberMonday 12.01.14 Comparing how Uber and Amazon choose prices…more

     

    Everyday Economics for female and male bossesTuesday 12.02.14 The bosses we prefer…more

     

    Misleading statistics display the high economic cost of gift giving.Wednesday 12.03.14 How statistics can lead to funny conclusions…more

     

    Everyday economics of using cashThursday 12.04.14 The reasons we still use cash…more

     

    google office new york cityFriday 12.05.14 Why Google resembles General Motors…more

     

    Ideas Roundup

    • externalities
    • spillover
    • supply and demand
    • price maker
    • monopolistic competition
    • oligopoly
    • deadweight loss
    • misleading statistics
    • gender issues
    • money supply
    • innovation
    • creative destruction

     

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  • google office new york city

    Is Google the New General Motors?

    Dec 5 • Businesses, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Innovation, Labor, Macroeconomic Measurement, Tech, Thinking Economically • 497 Views

    Described in a recent New Yorker article, Google’s success comes from “breaking the rules.” With a flat rather than vertical corporate structure and an emphasis on autonomy, action and creativity, Google encourages employees to use 20 percent of their work time for personal projects, Their message? “Work is life.”

    Perhaps though, these interview questions best display the Google ethos. (Answers follow Our Bottom Line.)

    • What’s the next number in this sequence: 10, 9, 60, 90, 70, 66 … ?
    • A man pushed his car to a hotel and lost his fortune. What happened?
    • You are shrunk to the height of a nickel and thrown into a blender. Your mass is reduced so that your density is the same as usual. The blades start moving in 60 seconds. What do you do?

    Where are we going? To how General Motors was once Google.

    The Ascent of G.M.

    Right now, comparing Google and G.M. generates a list of opposites.

    • A pace setting leader, Google is successful, Innovative, profitable.
    • A leader of a declining U.S. industry, G.M. has been conservative and financially vulnerable.

    But, rewind to 1910 when the auto was an expensive luxury, and you have Will Durant, a charismatic salesman buying a fledgling auto company called Buick. We’ve called Steve Jobs a “tweaker” and might say the same for Will Durant who had been in the buggy whip business. Defining an industry, he created General Motors by combining auto firms.

    When tough financial times enabled a group of bankers to push him out, he and his friend Louis Chevrolet created a new car (you know the name) and figured out how to buy General Motors back again. By 1920, a loosely knit combination of car companies composed G.M. Bound more by Mr. Durant than any discipline, when the recession of 1920-21 hit, Durant was in trouble and again left, but this time for good.

    With the ascent of Alfred Sloan as G.M.’s CEO, during the 1920s, the modern corporation was born. Selling cheap Chevrolets, expensive Cadillacs and everything in between, he targeted each level of the entire consumer spending spectrum. Meanwhile, Sloan’s hierarchy of subsidiaries and committees optimized economies of scale, fiscal discipline and efficient lines of communication. Within a formal culture, numbers dictated policy.

    Looking back at the original General Motors, we could say we had a Google. Successful, innovative and profitable, it represented the prototype for the 20th century corporation.

    Sound familiar?

    Our Bottom Line: Economic Pacesetter

    Every era has its economic pacesetters. The 19th century had the railroad, the early 20th, G.M and Ford and now, Google and Apple. Also though, every era eventually undergoes its creative destruction.

    Answers to Google interview questions from WSJ:

    1. What’s the next number in this sequence: 10, 9, 60, 90, 70, 66 … ?

    Answer: Spelling the numbers out, you will see, based on the number of letters, an ascending order. The next number needed to have nine letters like 96 or, even better, one googol (a source of Google’s name).

    • Ten
    • Nine
    • Sixty
    • Ninety
    • Seventy
    • Sixty-six

    2.  A man pushed his car to a hotel and lost his fortune. What happened?

    Answer: He was playing Monopoly.

    3. You are shrunk to the height of a nickel and thrown into a blender. Your mass is reduced so that your density is the same as usual. The blades start moving in 60 seconds. What do you do?

    Answer: “…if were you shrunk to 1/10 your present height, your muscles would be only 1/100 as powerful—but you’d weigh a mere 1/1,000 as much. All else being equal, small creatures are “stronger” in lifting their bodies against gravity. Were you shrunk to nickel size, you’d be strong enough to leap like Superman, right out of the blender. Think of the feats performed by fleas in a flea circus.”

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  • Everyday economics of using cash

    Who, How and When We Use Cash

    Dec 4 • Businesses, Demand, Supply, and Markets, Economic Growth, Financial Markets, Government, Money and Monetary Policy, Regulation • 419 Views

    Talking about the cost of pennies, the creator of XKCD tells us that you will have to drive 140,000 miles for the weight of a penny in your ashtray to cost you an extra penny of gas. Or, assume your time is worth $10 an hour. If it takes you any more than 3.6 seconds to look down, decide, and pick up a penny, then it is not worth it.

    Thepennies in our money supply might not be worth retaining.

    From: XKCD “What if?”

    Add to that the calories you burn when you bend over, because they have to be replenished, the penny becomes even more “expensive.”

    The pennies in the money supply might not be worth it.

    From: XKCD “What if?”

     

    Where are we going? To our continuing use of coin and currency.

    Cash Facts

    Although cash can be costly when we think of transporting it, protecting it, making deposits and the time we devote to counting change, we continue using it. According to a recent Federal Reserve study based on 2012 data, cash remains the most popular form of payment. If we assume that the typical consumer averages 59 transactions in one month, then she will use cash to pay for 23 of them. But, as you might expect, because it was for the low value transactions, cash represented only 14 percent of the value of all purchases.

    As you can see below, cash is ubiquitous but primarily for low value transactions.

    Money supply use of coin and currency

    From: FRBSF

     

    Confirming our low value transaction use of cash, for financial and housing purposes, the use of cash decreases.

    Money supply use of cash

    From: FRBSF

    Perhaps predictably, higher net worth households prefer using their credit cards.

    Money Supply preference by income

    Correspondingly, older households prefer credit. In the FRBSF paper, they hypothesized that older households might prefer credit because of habits that predated current financial innovations.

    Money supply use by age

    From: FRBSF

    Our Bottom Line: The Money Supply

    Sort of like Goldilocks and her porridge, the money supply has to be just right. Too much and you have inflation, too little and you constrain production. Composed primarily of coin and currency, demand deposits, savings accounts and short term time deposits, M2 is targeted when the Fed formulates monetary policy. So, thinking like Goldilocks,the Federal Reserve needs to know how consumers and businesses spend cash to determine how much to provide.

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  • Misleading statistics display the high economic cost of gift giving.

    The Funny Side of Misleading Statistics

    Dec 3 • Behavioral Economics, Economic Humor, Economic Thinkers, Innovation, Macroeconomic Measurement, Thinking Economically • 458 Views

    Including researchers in evolutionary biology, genetics and entomology, from Harvard, MIT, Hebrew University…and one attorney, this year’s BAHFest East competition (Festival of Bad Ad-Hoc Hypotheses) at MIT was a forum for presenting bogus theories substantiated by voluminous evidence. An audience of more than 1,000 heard six theories. Using creativity, the quality of the evidence, scientific credibility and an applause meter, a four judge panel selected a winner.

    Where are we going? To a real economic theory that might have entered the competition.

    BAHFest Winners

    Similar to respected economic theorists, this year’s winning researcher had the facts, the math, and a convincing argument as he proved that the middle age male’s donut-shaped midsection was an evolutionary adaptation. Dormant during the hunter-gatherer era, the donut gene facilitated survival in 4,000 BC in alluvial flood plains like the Nile’s. With no time to build boats when the water was rising, the family just ran to dad, as the presenter explained, grabbed his handles and together, they floated. Need more evidence? This probability function proves it all: P0 (T1>T2).

    Below, and equally funny is the 2013 winner with his unbearability theory of crying babies.

    A Potential (Economic) BAHFest Winner

    According to University of Pennsylvania economist Joel Waldfogel, there is an “orgy of value destruction” during the holidays. The price of what we give rarely is worth as much to the recipient. Explaining, he says that if you are willing to pay only $25 for that $50 sweater your Aunt Minnie gave you, then $25 of value is destroyed. Called deadweight loss, Waldfogel estimates that 18 percent of the value of all gifts given during the December holidays disappears. (The American Economic Review published his thesis in December 1993.)

    Here are some of his results:

    From: "

    From: “Why Economics is on the Wrong Track” by Deirdre McCloskey

     

    Our Bottom Line: Misleading Statistics

    Reminding us that convincing statistics can confirm questionable theories, the BAHFest relates to much more than evolutionary biology. As we commented last year when looking at African GDP statistics, numbers can be a respectability guise that obscure a more accurate conclusion. But for Dr. Waldfogel’s gift giving thesis, I suspect we are just supposed to smile and then shop.

    And finally, for many more smiles, you can hear the abdominal bulge hypothesis at the BAHFest starting approximately at 1:50:00 or spend two hours looking at the entire competition.

     

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