• economic news summary and aspirational coffee

    Why China Wants More Coffee

    Jan 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic Thinkers, Entertainment, International Trade and Finance, Labor, Lifestyle • 115 Views

    Topped with a cream cheese whipped cream, graham cracker crumbles, and strawberry syrup, Starbucks’s Strawberry Cheesecake Frappucino was a best seller in China during August 2014.

    Where are we going? To the conspicuous consumption of coffee.

    Coffee Consumption

    If you looked at a list of the world’s biggest and smallest coffee drinkers during 2014, the Netherlands was at the top and China, almost at the bottom:


    Actually minuscule coffee consumption could be the reason Starbucks’s CEO Howard Schultz said last October that he has been opening a store a day in China. Within three years he expects to have 3400 stores on the Chinese mainland–up from more than 1700 now.

    I suspect our graph provides the reason. Associated with Western affluence, Starbucks is an aspirational brand that is too expensive for most workers to enjoy. By keeping its drinks expensive, Starbucks attracts an upper and middle class Chinese urban consumer with the affluence to buy a lot of coffee. Although the Chinese have an economic slowdown, their coffee consumption is on the rise.

    Our Bottom Line: Conspicuous Consumption

    Even more than Howard Schultz, economist Thorstein Veblen (1857-1929) could tell us why Starbucks is increasingly popular in China. In his Theory of the Leisure Class (1899) Veblen explained that as individuals become more affluent, they flaunt their wealth and power by doing less rather than more. Called aspirational, the expensive (and sometimes useless) goods and services that the rich accumulate are coveted by the lower classes. In developing nations like China, coffee has become one of those aspirational goods because it is relatively expensive and associated with the affluent Western world.

    So, how can you show your friends (in China) that you have ascended to your country’s middle class?



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  • economic news summary and the gender pay gap

    How to Narrow the Gender Pay Gap

    Jan 18 • Businesses, Demand, Supply, and Markets, Economic Debates, Gender Issues, Government, Labor, Regulation • 102 Views

    Asked what makes something female-friendly, Ellen DeGeneres talks about pink pens:

    Where are we going? To how the workplace can become female-friendly.

    Narrowing the Gender Pay Gap

    Whether it’s children, grandma or another family member, in American culture, the woman has traditionally been the caregiver and needed time flexibility at work. According to Harvard professor Claudia Goldin, that need for a less rigid work schedule explains most of the gender pay gap. Because women have had to be available for caregiving, they have chosen different (lower paying) professions from men and have been paid less in male-dominated occupations.

    However, there is an exception.

    The gender pay gap among pharmacists has almost disappeared. During the 1970s when drug stores were small and owner-operated, men earned more than women. Now though as the industry has consolidated and the job has become standardized, the difference between what a male and a female earn per hour is almost or entirely equal.

    We could say that the reason is substitutability. The proliferation of technology that facilitated standardization and eliminated the need for a personal relationship with customers meant one pharmacist could easily replace another. Unlike the law or medicine or other high paying professions, the job’s requisites enable a substitutability. Consequently being a part-time pharmacist generates no wage penalty.

    Below you can see that the demand for part-time work spikes for women with children when they are close to 32 years old:

    Working part-time can expand the gender pay gap

    From: “A Most Egalitarian Profession: Pharmacy and the Evolution of a Family-Friendly Occupation”

    Our Bottom Line: The Gender Pay Gap

    Saying that women earn $.79 for every dollar earned by men simplifies a more complex dynamic. A closer look at the workplace reveals that the cost to the firm of the time flexibility that many women require results in a lower wage. So, we are not necessarily dealing with discrimination. Instead we are experiencing the cost of temporal flexibility. In professions where that cost does not exist, there is very little if any gender-based wage penalty.

    Asked how more wage equality can evolve in industries without substitutability, Dr. Goldin suggested the focus should be the schools. Rather than have a family- or female-friendly firm mandate from government, she said a longer school day and a longer school year would give women more flexibility at work.

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  • economic news summary o and cheap oil

    What You Might Not Know About Cheap Oil

    Jan 17 • Demand, Supply, and Markets, Developing Economies, Economic History, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 118 Views

    Cheap oil has increased college enrollment in North Dakota. Jobless laborers who were earning as much as $120,000 a year are now going back to school.

    Cable channel Al Jazeera America said it is shutting down in April. Qatar-backed, the station’s funding appears to have evaporated.

    Saudi Arabia has increased its subsidized price of 95 octane gasoline from 0.60 riyals to 0.90 riyals ($.24) per liter. (With one gallon equal to three liters, the U.S. average gasoline price is close to $.59 a liter.)

    Where are we going? To the fluctuations in the price of oil.

    Oil Price History

    With oil at $29.42 on January 15, the following graph shows its precipitous price drop. Until their recent plunge, prices were above the historical norm:

    Inflation Adjusted West Texas Intermediate (gray lines show recessions)

    History of expensive and cheap oil

    From: Macrotrends.net

    Here is the same graph but with nominal, unadjusted prices. In 1946, a barrel of WTI was $1.27.

    History of expensive and cheap oil

    From: Macrotrends.net

    Our Bottom Line: Expensive and Cheap Oil

    On March 7, 2008, the MarketWatch headline said, “New ‘super-spike’ might mean $200 a barrel oil.” Last week, a Telegraph headline told us that, “Oil could crash to $10 a barrel…”

    While we never did have $200 oil, it brings to mind a quote that might have come from John D. Rockefeller. Asked about about Standard Oil stock, he provided wisdom about all markets:

    “I think it will fluctuate.”

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  • The econlife.com economics news summary

    Weekly Roundup: From Chinese Cement to Bowie Bonds

    Jan 16 • Behavioral Economics, Businesses, Developing Economies, Entertainment, Financial Markets, Government, Households, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement • 78 Views

    Posts Roundup

    The Economics of Daylight Savings Sunday 01.10.16

    Deciding if Daylight Saving wastes our time…more

    Economic news summary and China's GDP Monday 01.11.16

    Why Chinese cement is about more than building…more

    David Bpwie bonds Tuesday 01.12.16

    How David Bowie Made Music and Money…more

    economic news summary and agricultural productivity Wednesday 01.13.16

    Bigger Crops From Smaller Farms…more

    economic news summary and cash windfalls Thursday 01.14.16

    When dollars don’t create sense…more

    Everyday economics of inequality Friday 01.15.16

    Why inequality can be okay…more

    Ideas Roundup

    • consumer spending
    • behavioral economics
    • GDP
    • transportation infrastructure
    • cost and benefit
    • bond markets
    • financial innovation
    • productivity
    • behavioral finance
    • saving
    • externalities
    • fiscal policy
    • inequality
    • positional goods
    • redistribution
    • progressive taxation


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  • Everyday economics of inequality

    When Less is More

    Jan 15 • Uncategorized • 108 Views

    If you had a choice, which would you prefer?

    1. Earn $20,000 when the average in society is $25,000.
    2. Earn $18,000 when the average in society is $15,000.

    In one Swedish study, selecting (the equivalent of) #2, more people preferred earning more than others, even if that meant earning less.

    Where are we going? To good and bad inequality.

    Positional Goods

    Economist Tyler Cowen has pointed out that U.S. median income earners have access to some of the best products. Think iPhones, Netflix, Facebook, Google, vaccines, antibiotics, mineral water. And yet FT columnist Martin Sandbu tells us that although median earners have more, they can feel that they have less because of positional goods.

    Certain “positional” goods and services like homes and weddings and cars can generate images of inequality. Through the size of a home, the elaborateness of a wedding and the characteristics of a car, we can place ourselves in an imaginary status line-up. Believing this status line-up is counterproductive, Cornell Professor Robert Frank reminds us that between 1980 and 2007 the size of average new homes ballooned by 50 percent and the price of an inflation adjusted wedding almost tripled.

    You can see why salary also can be a positional good.

    Our Bottom Line: Good and Bad Inequality

    So yes, while we have positional goods and services fueling negative images of inequality and cries for government intervention, I prefer to paraphrase what economist Branko Milanovic said In The Haves and the Have-Nots:

    1. Identify the cause of inequality. For example, determine whether income inequality increases or decreases as the economy grows.
    2. Identify the impact of inequality. For example, does inequality create positive or negative economic incentives?
    3. Identify the ethical implications of inequality. For example, are there good and bad ways to have ascended to affluence?

    Only by looking at the causes, impact and implications of inequality can we decide when it is good or bad.

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