• Everyday economics and human capital formation

    When Does Practice Really Matter?

    Oct 12 • Behavioral Economics, Economic Debates, Economic Growth, Economic Thinkers, Education, Innovation, Labor, Macroeconomic Measurement, Thinking Economically • 148 Views

    It’s been four years since Dan McLaughlin decided to leave his commercial photography job and devote his existence to golf. As of October 4, he had practiced golf for 5,592 hours. With a 10,000 hour goal, he’s got 4,408 to go.

    The Dan Plan as he calls it, is all about the 10,000 hour rule. Known as deliberate practice by psychologists, the basic idea is that practice counts and 10,000 hours really make a difference.

    Where are we going? To how we develop expertise.

    The 10,000 Hour Rule

    Popularized by Malcolm Gladwell, the 10,000 hour theory originated with a psychology professor at Florida State University. Looking at violin students at a West Berlin Music Academy, Dr. K. Anders Ericssen concluded that practice time determined who would excel. While he emphasized that people differed, he said the average time needed to become a “prodigy” was 10,000 hours of disciplined solitary practice before age 20. By contrast, becoming pretty good required 7,500 hours while those with 5,000 hours became teachers.

    Not everyone agrees with Dr. Ericssen’s work. Crucially, they remind us that his data is retrospective. Because it depends on his subjects’ recall, bias and inaccuracy are bigger problems than with data from daily logs.

    One study also pointed out that the “domain” matters. Utilizing meta data from all relevant research, they concluded that practice counts more for athletes than for teachers. One reason was predictability. Your practice makes more of a difference when you know precisely what to expect.

    Below, you can see that the results of the meta-data study indicate the impact of deliberate practice on expertise was not substantial and diminished to almost nothing for educators and professionals.

    Human capital formation and debating the 10,000 hour rule

    From: “Deliberate Practice and Performance in Games, Music, Sports, Education, and Professions: A Meta-Analysis”

    Furthermore, like me, I assume you are also asking, “What about genes?” After all, there were more than 20 musicians in the Bach family. Investigating how expertise develops, researchers have also cited starting age, working memory capacity, intelligence and personality.

    Our Bottom Line: Positive Externalities

    Thinking about the debate surrounding deliberate practice, I kept returning to education. Deliberate practice is all about unbundling the skills that create expertise. Whether we agree with the idea or not, focusing on deliberate practice involves figuring out how best to initiate the ripple of positive externalities that start with human capital formation.

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  • The econlife.com Weekly Roundup

    Our Weekly Roundup: From Cheap Gas to Expensive Soda

    Oct 11 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Government, Health Care, Households, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 107 Views

    everyday economics of college ranking SUNDAY 10.05.14

    The reason there is more to a college rank than a number…more

    Everyday economics, game theory and next day delivery MONDAY 10.06.14

    How next day delivery is about game theory…more

    Because of price controls, Venezuela has perverse incentives that create shortages, inflation and underutilized resources. TUESDAY 10.07.14

    The perverse incentives that price controls create…more

    everyday economic of subsidized gas WEDNESDAY 10.08.14

    Why cheap gas is really expensive…more

    Everyday economics and trademark law THURSDAY 10.09.14

    The word that trademark law might not let us own…more

    Inelastic demand is one reason that sugary drink taxes might not be effective. FRIDAY 10.10.14

    The unexpected consequences of sugary drink taxes…more


    Economic Ideas Roundup

    • human capital
    • prisoner’s dilemma
    • monopolistic competition
    • incentives
    • price controls
    • entitlements
    • subsidies
    • intellectual property rights
    • inelastic demand

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  • Inelastic demand is one reason that sugary drink taxes might not be effective.

    Problems With Sugary Drink Taxes

    Oct 10 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Health Care, Households, Lifestyle, Regulation, Thinking Economically • 158 Views

    A sugary drink tax is on the ballot in Berkeley, CA. Called Measure D, the proposal mandates a one-cent per ounce tax. The goal is to diminish obesity and encourage healthy eating.

    Sadly, it is not quite that simple.

    Municipalities debating a tax on sugary drinks have to decide whether they want to raise revenue or diminish obesity. If the tax is not very high, people will continue buying sugary drinks and generate revenue. On the other hand, if the tax is high enough and people buy fewer sugary drinks, then obesity diminishes.


    But, we also have to think about substitution. If the tax discourages sugary beverages, drinkers might switch to some equally caloric alternative. However, when all junk food is covered, researchers have observed that consumers absorb the higher prices.

    And still it gets more complicated.

    One study indicated that only households in middle income quintiles will respond to a sugary drink tax. For the most affluent, the tax is relatively small and easy to ignore. For the lowest earners, consumption continues while other spending decreases.

    And finally, we might not even know we are being taxed. When a two-liter bottle of Coca-Cola is marked an untaxed $2.50 in the supermarket aisle, most of us do not even recognize the taxes we pay at the register. (Interestingly, the Berkeley tax would be paid by distributors, not consumers.)

    State Sugary Drink Taxes

    According to a 2014 paper looking at a 5.5 percent tax in Maine during the 1990s and a 5 percent tax in Ohio in 2003, the impact was insignificant. Most researchers suspect that municipalities need a much heftier tax to get us to respond.

    Soda tax facts:

    Inelastic demand might make soda taxes ineffective.

    From: Robert Wood Johnson Foundation/Bridging the Gap

    To see your own state, here is a sugary tax list.

    Our Bottom Line: Inelastic Demand

    Price increases can always take us to demand elasticity. As with medication, if price changes a lot and the quantity we buy remains pretty constant, then our demand is inelastic. By contrast, if price swings have a big impact, then our response is elastic. For soda, within a certain price range our demand is inelastic. Maybe a 35% tax (or more) would nudge us into elastic territory.

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  • Everyday economics and trademark law

    How to Own the Word How

    Oct 9 • Businesses, Economic Debates, Economic History, Fashion, Government, Innovation, Regulation • 124 Views

    A war is raging between two culture makers. One side is into yogurt culture and the other’s business is ethical culture.  The war is over a trademark. Each side says it has the right to the word, “how.”

    Chobani, the largest Greek yogurt maker in the U.S., is using “How Matters” in an ad campaign. Chobani wants us to remember that “How We Make Our Yogurt Matters.”

    Chobani’s How Matters was one of the best Super Bowl commercials:

    Meanwhile, a business/life guru, Dov Seidman, claiming he has the exclusive right to use HOW as a trademark, has taken Chobani to court. On his webpage, we see “HOW moments, HOW matters. HOW at work. HOW metrics. The Journey of HOW. The HOW course, Act HOW, Behind HOW” and finally, “Learn HOW.”

    From Dov Seidman’s website:

    Can Dov Seidmark trademar how as intellectual property?


    The Louboutin Decision

    A trademark for a name is all about having an intellectual property monopoly. The problem though is where to draw the line.  And that takes us to a red-soled shoe.

    In a 2012 decision, a federal court of appeals decided that except for a monochromatic red shoe, Louboutin and only Louboutin has the right to a red sole. Saying that, “We hold that the lacquered red outsole, as applied to a shoe with an ‘upper’ of a different color, has ‘come to identify and distinguish’ the Louboutin brand and…qualifies for trademark protection.”

    If you can call the sole your intellectual property, what about the shoe?

    Probably not. Like jackets and pants and shirts, shoes are too utilitarian to be protected by intellectual property laws. We all have the right to copy their design. In fact, for fashion, experts like Johanna Blakley believe a copycat culture is good:

    Our Bottom Line: Intellectual Property

    So yes, just like tangible goods, we can own the right to intellectual property. However, isn’t how sufficiently ubiquitous that no one should own the right to use it exclusively? But then again, what about Apple?



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  • everyday economic of subsidized gas

    The Expensive Side of (Venezuela’s) Cheap Gas

    Oct 8 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Environment, Government, Health Care, Households, International Trade and Finance, Macroeconomic Measurement, Regulation, Thinking Economically • 157 Views

    In Venezuela, you could buy a gallon of gasoline or 12 packs of cigarettes. One half liter bottle of water would get you three tanks of gas. Per gallon, we are talking about less than five cents.

    The problem, though, is that cheap gas is astoundingly expensive.

    On the fiscal side, the subsidy costs the Venezuelan government close to $12 billion annually. And yes, we could say their oil is really cheap so they can afford it. But, think of the tradeoffs. With $12 billion more than three percent of their GDP, that $12 billion might have been allocated to health care or education. Meanwhile, more gas use internally could mean less export revenue.

    The subsidy also has a distributional impact. Cheap gas benefits the wealthy households that use it more. Correspondingly, cities, with more drivers, wind up taking advantage of the subsidy more than rural areas. The main way that the poor benefit is through public transportation.

    Finally, consider what it means to have the incentive to drive more. You create higher CO2 emissions and Venezuela’s are indeed tops in South America. You have more traffic, more noise, and more people who drive gas guzzling vehicles. Consequently, the lines at gas stations tend to be long and, with gas selling at $4.42/gallon in Colombia, you can see why smuggling is a problem.

    So why do it? Sometimes we get used to our entitlements.

    For the economics…

    Below you can see that the subsidy increases supply, shifts the supply curve to the right, and moves equilibrium price down.

    Subsidies lower price.

    Worldwide Gasoline Prices

    As we would expect, for gas prices, Venezuela is the outlier. Even in Saudi Arabia, another gas rich country, the average price of gas is 60 cents a gallon. With Norway at the other end of the scale, the spread in gas prices is more than $9.00 a gallon. On the low side, you have governments providing the subsidies that make it cheap. On the other end, taxes make it expensive. On both sides, we create incentives, tradeoffs and unintended consequences.

    Here are several specific per U.S. gallon and U.S. dollar examples.

    world gas prices

    Below, you can see the differences are somewhat regional:

    Subsidies and taxes affect gas prices.

    From: The Washington Post


    Our Bottom Line: Fiscal Policy

    Whether looking within the U.S. or around the world, subsidies and taxes affect the price of gasoline and the tradeoffs that result.


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