• everyday economics survey

    How an Ignorance Survey Will Make Us Smarter

    Mar 13 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Education, Environment, Financial Markets, Gender Issues, Government, Health Care, Labor, Macroeconomic Measurement, Thinking Economically • 104 Views

    Conducted in the U.S., Sweden, Norway and the U.K., the Ignorance Survey is supposed to make us smarter.

    Swedish researcher Hans Rosling’s Gapminder created the test to identify where our knowledge is so inaccurate that it affects our public and private decisions. He focuses on global issues that include world health, population, education, energy use and poverty.

    Sample Questions

    Here are several of his questions (answers are at the bottom of this page):

    1. In the last 20 years the percent of people living in extreme poverty has…

    • a. Almost doubled
    • b. Remained the same
    • c. Almost halved

    (5% of the people who took the survey in the USA got it right.)

    2. Women aged 30 spent how many years in school? (Men of same age spent 8 years)

    • a. 7 years
    • b. 5 years
    • c. 3 years

    (24% of the people who took the survey in the USA got it right.)

    3. What percentage of the world’s one year old children are vaccinated against measles?

    • a. 20 percent
    • b. 50 percent
    • c. 80 percent

    (17% of the people who took the survey in the USA got this one right.)

    Receiving this tweet, Rosling decided to test the media.

    Media knowledge of global issues tweet

    From: Rosling TED talk

    Only 17 percent of the media representatives knew that vaccination programs throughout the world have achieved considerable success.

    Global issues and lack of media knowledge

    From Rosling TED talk

     

    But, as the Roslings explain in their TED talk (below), it is not solely the media’s fault. Also, we have a personal bias that skews our perspective as well as outdated facts that we learn in school. Believing that “we need to know about the present to think about the future,” the Roslings hope to spread the word and offer their test to all of us.

    To those taking the test, they offer three assumptions that will lead to the correct answers.

    1. Over time most things improve.

    2. Countries need not be affluent  to better the health and literacy of their youth. Sometime “social” can precede wealth.

    3. The attention getting answer is usually not the correct one.

    Here is their TED talk on the Ignorance Project:

    Domestic Issues

    Further reflecting our knowledge inadequacies, market research from a private firm (done for the British government) focused on what people knew about domestic issues. Their topics included immigration, pregnancies, crime and life expectancy.

    Domestic issue ignorance

    From: Ipsos MORI

    Our Bottom Line: Making Decisions

    To make successful product development and marketing decisions in the private sector and to debate fiscal and foreign policy wisely, we need to improve our knowledge of key global and domestic issues.

    Answers: cac

     

     

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  • everyday economics and bubbles

    Why We Can’t Avoid Bubbles

    Mar 12 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Economic Humor, Economic Thinkers, Financial Markets, Innovation, Tech • 101 Views

    Whether looking at 1637 or 1997, markets and bubbles always seem to find each other.

    A Tulip Bulb Calamity

    The wealthy merchant had only wanted to say, “Thank you.” He appreciated the information that the seaman had shared and, in return, gave him a juicy red herring to enjoy for breakfast. Thinking that the “onion” bulb resting on the counter would complement the herring perfectly, the seaman popped it into his pocket and left.

    Horror is the only word that comes close to describing the merchant’s response to his missing bulb. Rather than an onion, the seaman had consumed a tulip bulb for which the merchant had paid 3,000 florins–a huge sum of money in seventeenth century Holland. At that time, a suit would have cost 80 florins and one thousand pounds of cheese, 120 florins.

    The tulip had first been introduced to Europe in 1559 or so—approximately when Elizabeth ascended to the British throne. Gathering popularity, especially in Holland, tulips had been displayed for their beauty. Eventually though, the quantity that was demanded exceeded the amount available. Unwilling to wait for a blossom, the rich and the poor started to trade the bulbs in markets that sprouted where buyers and sellers met. With buyers far outnumbering sellers, bulb prices skyrocketed.

    In February 1637, tulip bulb prices plunged. All who had dabbled in the tulip market suffered. Even if the sailor had never appeared, the merchant would have seen his investment evaporate.

    The Beanie Baby Bubble

    Fast forwarding to 1997, we could have read the following CNN reports.

    • “Meet Hippity the Bunny, Inch the Worm and Wrinkles the Dog. These lovable creatures are among the 77 Beanie Babies taking the country by storm. Yet just in time for Easter weekend, the Beanie Babies are disappearing from the stores.”
    • Or, as one woman explained, “I’ve gone to Zany Brainy’s, Hello Kitty, two Hallmarks and Enchanted Treasures. I have like 45 of them. I call every morning at 10 o’clock.”

    Like the price of 17th century tulip bulbs, Beanie Baby prices had reached the stratosphere. Having sold for $5.00 in stores, they were going for an average of $30 on eBay with a select few attracting more than $5,000. At the height of the mania, in 1998, a Beanie Baby sold for $10,000.

    Humphrey the Camel, Patti the Platypus and Spot (below) were among the first and most expensive Beanie Babies:

    Beanie Baby bubble

    From: the fiscaltimes

    Meanwhile, by retiring a Beanie Baby design, by having relatively small runs, by publicizing a production problem as a limited edition, Ty, the manufacturer, fed the frenzy. Through less supply, it buoyed the resale market.

    Add to all of that the Beanie Baby magazines with pages of price lists, the families who were accumulating hundreds to pay for college educations and individuals who were doing arbitrage. It was a classic bubble that burst soon after 1998.

    Our Bottom Line: Bubbles

    Bubbles start with something new that captivates the market. As euphoria builds, so too do demand driven price increases. Then, with speculative purchases escalating, prices move even higher. But always, the euphoria switches to panic, sellers multiply and the market crashes. On the way up, participants like to say “This time it’s different.”

    But, for tulip bulbs and Beanie Babies…and cupcakes…and houses…and tech…it never is.

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  • Everyday Economics and Debating the accuracy of seasonally adjusted jobs numbers.

    The Reason Jobs Numbers Don’t Have to be Real

    Mar 11 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, Labor, Macroeconomic Measurement • 95 Views

    Last Friday we found out that the unemployment rate was 5.5 percent and 295,000 jobs were added to our labor force.

    But they were not.

    Actually the unemployment rate was 5.8 percent and we added 903,000 jobs. The difference is because of seasonal adjustment.

    Where are we going? To how we can better grasp statistical headlines.

    What is Seasonal Adjustment?

    It is easiest to tell the story through department stores. During December 2014, there were 1.5 million department store jobs; in January, the number dropped to 1.36 million . But, was the economy contracting? No. It was all about holiday shopping. So, to avoid a misrepresentation of the state of the jobs market, government statisticians seasonally adjusted the numbers and wound up with almost identical totals. For December and January, department store jobs were close to 1.3428 million.

    In addition to holiday employment pops, we also have the ups and downs of weather and summer lawns, school openings and school closings. As the BLS (Bureau of Labor Statistics) notes, by eliminating those types of blips, we can better see what really is happening to jobs and the economy.

    The Debate

    Not every one agrees that statistics should be seasonally adjusted.

    In a recent WSJ column, a Harvard business professor suggested that the media convey both sets, the adjusted and non-adjusted numbers. Concerned that the economy depends less, for example, on malls because of online shopping, he says adjusted numbers that compensate for bad weather distort reality and policy decisions. For that reason, the unadjusted numbers should be more accessible and the adjusted formulas need to be up-dated.

    Responding, a fivethirtyeight writer said that it is a mistake to focus on the weather. Rather it is recurring patterns that include the need for more tax preparers in March, landscapers during the summer, and fewer autoworkers during the new model prep shut down. Without numbers that recognize those patterns, the data would be misleading and obscure important trends. On the other hand, he concurs that the formulas could be tweaked.

    Our Bottom Line: Do Statistics Lie?

    When they are in spread sheets, employment reports and the GDP, numbers appear very believable. Perhaps we should be asking some questions about the jobs numbers in the headlines.

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  • everyday economics and mail truck productivity

    Surprising Messages From a Mail Truck

    Mar 10 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Households, Innovation, Labor, Regulation, Thinking Economically • 115 Views

    I just called the post office and was told that mail trucks do not have cup holders.

    Because people care a lot about their car’s cup holder, my postman will be especially happy that they will be required in the mail trucks that the U.S. Postal Service will soon order. Crevice elimination is also on the list since letters are getting lost in “hard to access” cracks.

    Where are we going? To how mail trucks provide insight about USPS problems.

    Mail Truck Problems

    The current mail truck fleet lacks air bags, air conditioning, shoulder seat belts, back-up cameras and anti-lock brakes. For gas, trucks average nine miles a gallon. Although some of its pricier vehicles can run on alternative fuels, most do not because of the expense and lack of alternative fuel availability where the trucks are located. Purchased approximately 25 years ago for carrying letters, today’s mail trucks are not set up for the packages that increasingly dominate their business. With inappropriate (if any) shelving and inadequate headroom for postal workers who need to stand as they organize packages, the rear of the truck constrains productivity.

    So, unable to postpone the inevitable and what it cannot afford, the USPS has said it will buy 180,000 vehicles. First though, they have to determine who is qualified to bid. Then those firms will submit design alternatives, prototype contracts will be awarded, and one will be selected. 2018 is the target date for deliveries.

    The new truck could look like this:

    Productivity and new USPS mail trucks

    From: PostalReporter.com

    With these specifications:

    Productivity and new mail truck specs

    From: PostalReporter.com

     

    I wonder whether the truck is our metaphor for the problems that plague the postal service.

    Our Bottom Line: Productivity

    Outdated, old and tired, the mail truck is inappropriate for its current cargo. It reflects a lack of innovation, of money, and the productive techniques employed by firms in the private sector that optimize the number of packages drivers deliver daily. And yet, it will take at least three years to replace it.

    The problems faced by the entire USPS are rather similar.

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  • everyday economics and apple and the Dow

    Why Apple Deserves the AT&T Slot in the Dow

    Mar 9 • Businesses, Economic Growth, Economic History, Economic Thinkers, Government, Innovation, Lifestyle, Macroeconomic Measurement, Regulation, Tech • 130 Views

    Usually when one firm replaces another in the Dow Industrial Average, they have no connection to each other.  But with Apple taking the AT&T slot, there is a bit more to contemplate.

    Where are we going? What AT&T long ago represented is reminiscent of today’s Apple.

    AT&T’s Innovations

    The AT&T story starts in 1876 when Alexander Graham Bell got his patent for the telephone. Claiming that his device would transmit a voice as far as twenty miles, he decided to rent rather than sell equipment. With households paying $20 a year and businesses $40, the Bell System provided two telephones, the line that connected them, and free maintenance.

    It is easy to forget that someone somewhere had to create all we associate with the telephone. Someone at AT&T decided that a phone had to ring. As for phone numbers, a measles outbreak in Lowell, Massachusetts was the beginning. The AT&T Lowell telephone system depended on switchboard operators who knew the names of their 200 customers. Worried that the system would collapse if their four operators got the measles, they changed from names to numbers.

    If we want to see AT&T’s mind-boggling innovations, though, the place was Bell Labs. Between 1925 and 1983, Bell Labs developed the first fax machine, the original laser, the solar battery cell, light emitting diodes, the UNIX operating system, digital cell phone technology and the transistor which led to computer microchips, touchtone phones and hi-def TVs. You get the picture. Their scientists were paid to think.

    Doesn’t the AT&T spirit make you think of Apple?

    Some AT&T telephone history:

    Innovation from AT&T

    From: The American Experience

    Apple’s Innovations

    As you know, in Apple’s long list of innovations, we have the Gui (graphic user interface) and all of the invisible details that compose the iMac, iPod, iPhone, iPad, and (soon-to-be introduced) iWatch.

    Perhaps like the phone ringer was someone’s idea, so too was Apple’s start-up chime. Jim Reekes, an Apple engineer, believed that the start-up sound should be “meditative” because it shaped the experience we had with our computer. Winding up with a C-chord that “fades back and forth,” he felt everyone could connect with C major.

    And here is Steve Jobs introducing the first iPhone in 2007:

     

    The Dow

    On March 19, Apple will enter AT&T’s Dow slot.

    But the story is not quite that simple.

    The AT&T that is leaving the Dow is different from the firm that first was listed in the Dow in 1916. In 1984, the old AT&T was told to split up. With seven Baby Bells operating independently as local providers and a shrunk Ma Bell, the unraveling had begun. Soon a Baby Bell joined the Dow and then that Baby Bell acquired the AT&T name. Not the AT&T we had known for more than a century, the Baby Bell we call AT&T is the firm now exiting the Dow.

    Our Bottom Line: AT&T and Apple

    A spiritual descendant of AT&T, Apple’s Dow entry reminds us of our innovative history. It also suggests the never ending march of creative destruction.

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