• Everyday economics and ownership in a market system

    Celebrating Alexander Hamilton and Economic Independence

    Jul 5 • Uncategorized • 127 Views

    Our annual post to celebrate yesterday’s Independence Day…

    Yes, the United States declared independence from Great Britain on July 4, 1776 and won the American Revolutionary War. But still, we were not truly independent.

    George Washington’s Secretary of the Treasury Alexander Hamilton knew that true independence required a vibrant economy. He had to diminish our huge debt, create a banking system, and diversify what we produced. To deal with so troubled an economy, Hamilton submitted a development plan to the Congress. In 3 separate reports, he explained how to establish public credit, create a national bank, and encourage manufactures.

    Public Credit

    • Countries need good public credit in order to borrow money at reasonable interest rates. Sort of like you and me, the only way to get good credit is having lenders know you will pay them back. With the US sovereign debt owed partially to Europeans who had funded the Revolutionary War, Hamilton had to reassure them that they would get all of the money that was due them. Domestic creditors also needed to hear that Hamilton had a viable plan. Only then could Hamilton establish the good credit that was necessary for sound finance. Since then, the U.S. has never defaulted on its sovereign debt.


    • Composed of financial intermediaries that connect savers to borrowers, a banking system facilitates economic expansion. Banks loan money to business start-ups and help them finance inventory, banks purchase the bonds that nations sell to raise money, and banks expand the money supply. By establishing the First Bank of the United States, Hamilton generated the beginning of a banking system that continued to grow and support US economic independence.

    Diversified Production

    • Economic diversity was the third leg of Alexander Hamilton’s plan for economic independence. Recognizing that the US in 1790 was a farming economy, he sought to create a complementary manufacturing sector. Correct again, Hamilton knew that the combination of agriculture and manufacturing meant we would not have to rely on others for our necessities. Through tariffs that would protect infant industries in the US and incentives that would encourage their creation, he stimulated business people to diversify.

    Our Bottom Line: Deja Vu

    Isn’t it interesting that Hamilton’s goals–managing sovereign debt wisely, producing a vibrant banking system and encouraging productive diversity–remain leading economic issues?

    And finally a request. Let’s all try to encourage Secretary of the Treasury Lew not to remove Alexander Hamilton from most $10 bills. As the father of our economy and economic independence, Hamilton deserves the remembrance.

    No Comments on Celebrating Alexander Hamilton and Economic Independence

    Read More
  • The econlife.com Weekly Roundup

    Weekly Roundup: From Uber’s Impact to the Cost of Children

    Jul 4 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic Thinkers, Education, Environment, Financial Markets, fiscal policy, Gender Issues, Government, Households, Labor, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 119 Views

    Our Posts Roundup

    Everyday economics and recycling costs Sunday 6.28.15

    The real recycling facts…more

    Everyday economics and Temporarily closing Greek banks means the loss of financial intermediaries that pump money around the economy. Monday 6.29.15

    Why Greek banks are important…more

    Everyday economics and the cost of developing a child's human capital costs families more than money. Tuesday 6.30.15

    The hidden costs of having children…more

    Everyday economics and sovereign debt Wednesday 7.01.15

    Deciding when a country’s debt is excessive…more

    everyday economics and Uber labor law Thursday 7.02.15

    How Uber is making labor law obsolete… more


    In the film industry, expectations bias is a cause and effect of inadequate female representation. Friday 7.03.15

    The movie gender gap… more

    Ideas Roundup

    • social norms
    • opportunity cost
    • financial intermediaries
    • gender issues
    • human capital,
    • sovereign debt
    • default
    • externalities
    • labor markets
    • expectations bias
    • gender gap
    • sharing economy

    No Comments on Weekly Roundup: From Uber’s Impact to the Cost of Children

    Read More
  • In the film industry, expectations bias is a cause and effect of inadequate female representation.

    Hollywood’s Gender Gap

    Jul 3 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Entertainment, Gender Issues, Labor, Lifestyle • 113 Views

    Having just attended a Nantucket Film Festival panel on women, I wanted to share some data that make a huge statement about gender bias in the film industry.

    Where are we going? To a bottom line that says expectations could be the problem.

    Why Behind the Camera Counts

    Relatively few women are directors, writers and producers:

    The gender gap in film

    From: Female Filmmakers Initiative

    But, the person behind the camera decides who will be in front of the camera. And women tend to choose women.

    Based on 208 films at the 2014 Sundance Film Festival, a paltry 19 percent of the male-directed films had female leads. By contrast, 77 percent of the films with female directors had female leads.

    Gender gap in Hollywood

    From: Female Filmmakers Initiative

    The same 2014 Sundance study indicated that among films directed by women, 92.5 percent are comedy, drama or romance.

    Gender gap in Hollywood films

    From: Female Filmmakers Initiative

    Genre matters because film distributors tend to assume that women cater to a slice of the market while the male directors create films with broader appeal. Consequently, the male-directed films are selected by the larger distributors.

    Below, looking at 70 Sundance films from 2002-2014, you can see that distributors controlling more than 250 theaters selected many more male-directed films.

    Distribution gender gap for films

    From: Female Filmmakers Initiative


    Our Bottom Line: Expectations Bias

    When we look at the reasons for women not getting the top grossing films or women not given the mega distribution, a list of reasons emerge that minimally correspond to reality. According to a USC/Annenberg study, responses from 59 buyers and sellers of films say women are insufficiently ambitious or they make niche films or their small numbers provide less choice.

    All seem to take us to the behavioral economic idea of expectations bias. When influential people in the movie industry expect men to make them the most money, they create a self-fulfilling prophecy.

    No Comments on Hollywood’s Gender Gap

    Read More
  • everyday economics and Uber labor law

    Why Government Needs to Catch Up With Uber

    Jul 2 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Government, Regulation, Thinking Economically • 124 Views

    Briefly last July, a hack opened a window into Uber’s passenger ratings that left some people nervous.

    Negative externalities for Uber labor decision

    From: Slate

    Others were just disturbed with a less-than-perfect rating.

    Negative externalities from Uber labor decisions

    From: BusinessInsider


    Equipped with the power to review riders, the new driver is not your typical cabbie. We know she is different, but does government?

    A Government Catch-Up

    Referring to Uber competitor Lyft, one federal judge said labor laws were passed to protect workers who had little bargaining power. Righting that imbalance somewhat, the laws mandate unemployment insurance, a minimum wage, overtime constraints, perhaps payment for employee expenses and Social Security.

    By contrast, when a firm temporarily hires someone for a specific task, that individual has more leverage. Equipped with a skill the firm wants, that person can function successfully as an independent contractor. As a result, government need not intervene.

    And therein lies the dilemma.

    Government says it has to decide whether the sharing economy driver is an employee or an independent contractor. However, I suspect that they are asking the wrong question. Combining employee and independent contractor characteristics, drivers are both and they are neither. Maybe we have a hybrid.

    In a case involving Lyft drivers who claimed they were employees, a California federal judge said he was being asked to fit a square peg into one of two round holes. His problem? “The test the California courts have developed over the 20th century for classifying workers isn’t very helpful in addressing this 21st century problem.”

    Our Bottom Line: Externalities

    When a driver is classified as an employee and the firm’s expenses rise, its incentives change. It could hire fewer drivers, pay employees less per ride, offer less flexibility. On the other hand, as independent contractors, drivers are vulnerable to the requisites of a powerful business.

    Perhaps the answer is a third worker category that generates positive externalities for businesses and drivers, but retains the incentive to evaluate riders.

    No Comments on Why Government Needs to Catch Up With Uber

    Read More
  • Everyday economics and sovereign debt

    When to Worry About Sovereign Debt

    Jul 1 • Developing Economies, Economic Debates, Economic History, Financial Markets, fiscal policy, Government, Macroeconomic Measurement • 132 Views

    Assume that someone has a $10 million mortgage. Then you learn that the net worth of the individual is one of the following:

    • $2 million
    • $20 million
    • $200 million
    • $2 billion

    Net worth can determine how you perceive a loan. The smaller the debt to net worth ratio, the more conservative the financial behavior. Similarly we can look at debt to GDP ratios to judge whether countries and other municipalities have borrowed beyond their means.

    Where are we going? To deciding when a debt is too large.

    Puerto Rico and Greece: Debt to GDP Ratios

    As a U.S. commonwealth, the Puerto Rican debt to GDP ratio of 70% can be compared to U.S. states.

    Sovereign debt is excessive when debt to GDP ratio is high

    From: WSJ

    Meanwhile, at 174%, Greece’s debt to GDP ratio is even more problematic.

    Debt to GDP Ratios for Selected Eurozone Nations

    Sovereign debt eurozone


    Our Bottom Line: Sovereign Debt

    When deciding how much sovereign debt is too much, we should look at debt to GDP ratios. That however is only the beginning. Next we need to ask if the country is developed or developing. Predictably, a developed nation can accommodate a higher ratio. Rather astoundingly though, at 237%, Japan’s debt to GDP ratio is gargantuan and yet our concern for Puerto Rico, at 70% is far greater. Then, we can also check to see if the country has a history of defaulting (like Greece) and whether its political institutions are strong enough to endure austerity.


    No Comments on When to Worry About Sovereign Debt

    Read More