• GDP growth Nigeria rebasing

    A New Kind of Map Where Norway is Next to Peru

    Jun 17 • Developing Economies, Economic Thinkers, Macroeconomic Measurement • 117 Views

    We know that U.S. output in 2014 was $17.4 trillion. But how to imagine such monumental productive capacity? We could say that a stack of 100 trillion dollar bills is 67,866 miles high and then multiply that by 17.4.

    But economist Mark Perry took a better route. By giving country names to states with a similar nominal GDP, he lets us see that California’s output is close to the value of Brazil’s and Illinois is comparable to Saudi Arabia. Viewed as 50 states that equal 50 countries…amazing!

    GDP size through country equivalents for states

    In case your geography is rusty, here is a real U.S. map:

    GDP US map

    From: newthinktank.com

    Ranking World GDPs

    We can slightly tweak our perspective by giving the U.S. states a world GDP rank. Into Brazil’s #7 slot we could place California, Texas would move into Canada’s #11 position and New York would replace Spain in #14.

    World GDP ranking by country

    From: Knoema

    Our Bottom Line: The U.S. GDP

    We could debate whether nominal GDP is a good yardstick since it ignores purchasing power. But still, compared to all countries except for China, the U.S. economy is disproportionally huge.

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  • Everyday economics and hyperinflation

    Where to Spend 100 Trillion (Zimbabwe) Dollars

    Jun 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, fiscal policy, Government, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Sports, Thinking Economically • 113 Views

    If you paid for dinner with your hundred trillion dollar note, getting change was a problem.

    Where are we going? To the beginning and end of Zimbabwe’s hyperinflation.

    Zimbabwe’s Hyperinflation

    Zimbabwe had seemingly logical solutions to its fiscal and monetary problems. When tax revenue was inadequate, it printed more money. However, more money made too many Zimbabwe dollars chase too few goods and prices soared. Then, assuming (perhaps) that there would be no more inflation if prices could not rise, they created price ceilings. But because production costs exceeded the mandated store prices, supply evaporated.

    Meanwhile inflation became hyperinflation. One loaf of bread sold for what 12 cars had cost a decade earlier. People were paying their rent with groceries because no one wanted currency. And since what you had today was worthless tomorrow, no one was saving. But yes, everyone was a billionaire.

    For a quick picture of monetary chaos just think of clothes lines. To get just US$1 you needed Z$35 quadrillion. Once you secured some dollars, they might have needed a wash. Worn out, gray and dirty, the small small supply of dollars was in such large demand that people were laundering the bills. On clothes lines you could see them drying.

    Zimbabwe inflation and U.S. dollars

    From: WSJ/Associated Press /Tsvangirayi Mukwazhi

    In November 2008, with Zimbabwe’s inflation rate (below) close to 79 billion percent, it took slightly more than 24.7 hours for prices to double.

    Highest inflations rates

    The Solution

    In 2009, legalizing a multi-currency approach for transactions, the government said taxes had to be paid with foreign exchange. Only now though can we say the end is in sight. Offering to buy back all old Zimbabwe dollars, the government said it would use UN exchange rates but that US$5 was the least that bank accounts could receive.

    Our Bottom Line: Inflation

    Inflation is really a Goldilocks phenomenon. Economists like to have the inflation rate not too much, not too little but just right. In the U.S. Janet Yellen’s goal is 2 percent.

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  • Everyday economics and choice fatigue.

    Less Choice Fatigue at Whole Foods

    Jun 15 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Environment, Lifestyle, Thinking Economically • 138 Views

    Whole Foods tells us that they have 2600 organic and natural food products. For shoppers though, knowing the product is only the beginning. From there we have decisions about whether or not to buy organic, which nutrients, how much sodium. Today it took me more than five minutes to select a multigrain cereal.

    Surely knowing that too much choice wears us out, Whole Foods recently made shopping easier with a rating system for produce.

    Where are we going? To choice fatigue.

    The Whole Foods Rating System

    Called Responsibly Grown, the Whole Foods rating system assesses a long list of variables that are more complex than they first appear. Vastly simplified for shoppers, the system tells us what is good, better and best.

    This is their description:

    Simpler decision making at Whole foods

    You can see how Whole Foods is streamlining what we need to consider. When we have to decide between asparagus and artichokes for dinner, we need think of nothing else except good, better or best.

    Choice Fatigue

    Marketing scholars, behavioral economists and psychologists have concluded that too much choice can impact our subsequent behavior. Called choice fatigue, getting tired out from too many shopping decisions can mean that we buy less or select an easier alternative.

    In one study, shoppers at an upscale supermarket had the opportunity to sample six different jars of jam during a five-hour period. Offered a much bigger selection during another five hours, a second group had 24 flavors from which they could choose.

    The results?

    • Thirty percent of those with the limited sample bought jam.
    • Three percent of the individuals with the 24 jars bought jam.

    The researchers hypothesized that more choice meant less buying motivation.

    Again observing the impact of choice, another group of researchers looked at our car buying behavior. When consumers were asked to choose among “4 styles of gearshift knobs, 13 kinds of wheel rims, 25 configurations of the engine and gearbox and a palette of 56 colors for the interior,” they got too worn out and turned to the (more expensive) default option.

    And finally, President Obama told writer Michael Lewis that he wears only gray or blue suits. Minimizing wardrobe and menu decisions lets him preserve his energy for the important stuff.

    Our Bottom Line: Decision Making

    Several weeks ago, when we looked at the McDonald’s menu, we said that too many decisions can be exhausting. The same bottom line applies to Whole Foods. Since the Whole Foods rating system minimizes our thinking, we can avoid choice fatigue and energetically continue shopping.

    We will save for another day the connection between choice fatigue and financial decision making.

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  • Everyday economics and cost of crime

    The Cost of the Squeegee Men

    Jun 14 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic Thinkers, fiscal policy, Government, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 90 Views

    In NYC on sunny days, drivers used to turn on their wipers at traffic lights. The reason was the squeegee men.

    Expecting several dollars, these squeegee men had their squeegee sponges for wiping car windows. To avoid the wipe (and a dirtier window after they finished), you could give them a dollar or two before they started or you could turn on your wipers.

    Municipal spending on crime control.

    The Squeegee

    Where are we going? To deciding which crimes are worth municipal spending.

    Crime Costs

    Knowing how much crime costs can help us decide how much to spend. We can use three basic approaches to calculate cost.

    • Accounting Valuation: The first is a numbers approach. Quantifying the cost of a crime, the accounting perspective decomposes crime spending and then gives a dollar value to each part like property loss, court costs, medical costs. For homicide that would mean giving a life a price tag, estimating the value of the victim’s and the offender’s productivity, looking at the amount spent on criminal justice, counting the relevant medical and property losses.
    • Contingent Valuation: Much less tangible than accounting, the contingent look at costs takes us to willingness-to-pay. The people in these studies are given survey questions through which they indicate how much, for example, they would be willing to pay in extra taxes for a decrease in a crime rate. Because the contingent approach touches attitudes, scientists believe it can tell more than the accounting method about true cost.
    • Hedonic Valuation: Here we have the spotlight on where we live. Researchers who determine the cost of crime through hedonic valuation look at how crime affects neighborhood characteristics through market transactions. One focus of the hedonic approach is home prices. It has been estimated that prices drop 4 percent in neighborhoods within .1 mile of where a sex offender lives.

    For the following table, the accounting and contingent approaches were used to figure out the cost per crime. The numbers display how much it costs each time the crime is committed.

    Municipal spending costs for crime

    From: Rand Corporation

    To get a better idea of how much spending crime takes from municipal budgets, the following table provides the picture. Rand points out that they think the numbers are low. (GMP is Gross Municipal Output–the city equivalent of the GDP.)

    Municipal spending on crime by selected cities.

    From: Rand Corporation

    Our Bottom Line: Municipal Spending

    The cost of crime takes us to the convergence of two basic economic ideas: scarcity and tradeoffs. To control crime, municipalities have to choose among scarce resources. And every time they choose, their cost requires a sacrificed alternative.

    So when NYC had to decide what to do about the squeegee men, it was really about scarce municipal resources and the cost for government, victims and society.

     

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Greek Games to Tennis Matches

    Jun 13 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic Humor, Economic Thinkers, fiscal policy, Gender Issues, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation • 92 Views

    Our Posts Roundup

    Everyday economics and tennis externaities Sunday 6.07.15

    Why tennis is changing…more

    Everyday economics and the apple's monopolistic competition. Monday 6.08.15

    How apples and horses are similar…more

    Everyday economic and game theory Tuesday 6.09.15

    The games we play during debt talks…more

    everyday economics and tax impact Wednesday 6.10.15

    How scientists respond to taxes…more

    everyday economics and glass ceiling cracks Thursday 6.11.15

    Who looks down through the glass ceiling… more

     

    China's market economy Friday 6.12.15

    Trading dilemmas with China… more

    Ideas Roundup

    • market economy
    • labor
    • externalities
    • salaries
    • branding
    • monopolistic competition
    • perfect competition
    • supply and demand
    • sovereign debt,game theory
    • prisoner’s dilemma
    • elasticity
    • human capital
    • taxation
    • gender issues
    • glass ceiling

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