• Everyday Economics — Sunday Chart of the Week

    Where Do the Slimmest Americans Live?

    Sep 7 • Behavioral Economics, Businesses, Economic Debates, Government, Labor, Macroeconomic Measurement, Regulation • 102 Views

    Our Sunday graphics

    2010 legislation that will be implemented during this school year has pretty much eliminated school bake sales. Below, on the left side, you can see the types of snacks kids can’t sell. Everything on the right is okay.

    New school nutrition laws are targeting the obesity that creates more entitlement spending

    From: the USDA

    Where are we going? To obesity in the US.

    Slimmer and Fatter States

    Among the slimmest states in the nation, Colorado ranks first with 21.3% of its population defined as obese. At the other end of the list, Mississippi and West Virginia are the only 2 red states (below).

    The math behind the map involves calculating your BMI (body mass index). A 5’9″ man weighing 203 pounds and a 5’4″ woman who weighed 175 would both have BMIs of 30. With a BMI of 30 the dividing line, anyone there or higher was considered obese. Curious? Here you can calculate your BMI.

    Obesity increases entitlement spending on health care

    From: The Trust for America’s Health and the Robert Wood Johnson Foundation through Philly.com.

    Perhaps, though, thinking of how to target the programs that diminish obesity, it would be more productive to look at race or ethnicity. Then, we have Black obesity rates at the top of the list, next, Latinos, and last, Caucasians.

    Another possibility is an income lens. More than one-third of the adults who earn less than $15,000 a year are obese while for those whose income is above $50,000, the obesity rate drops to 15.4%.

    As for age, baby boomers (born 1946-1964) have the highest obesity rate among different age groups.

    A Dilemma

    Through our taxes and insurance dollars, we all pay for the obesity-related entitlement spending that individuals receive through Medicaid, Medicare, Social Security and provisions in the Affordable Care Act. Maybe sharing the expense gives us the right to mandate healthy body size? (Japan does it.)

    In 2012, Intelligence Squared debated whether so vast a government intrusion would be appropriate. Very briefly summarized, the “yes” side said…

    1. “Obesity is an epidemic.”
    2. Obesity creates increased risk for cancer, heart disease and diabetes.
    3.  Obesity adds substantially to our national health costs.
    4. It is government’s responsibility to fund the fight against obesity.
    5. It is government’s responsibility to diminish the availability of unhealthy foods.
    6. When we diminish the consumption of unhealthy foods with taxes and less advertising, long-term health care costs drop.

    And the opposition replied…

    1. When it tries to regulate private behavior, government is overextending its power.
    2. A more effective incentive, privatized health care would force people to bear the cost of unhealthy behavior.
    3. There is no clear dividing line between healthy and unhealthy food.
    4. We might be demonstrating prejudice about body size. (And I would add prejudice toward groups that tend to be obese.)
    5. Science has not definitively proved the correlation between between obesity and higher mortality rates.

    You can watch the entire debate below.

    The Bottom Line

    Deciding between health incentives and penalties to control obesity, we are also weighing the extent that we want government in our lives.

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  • This week's everyday economics included vodka to tax dodgers

    Weekly Roundup: From Wimbledon to Estonia

    Sep 6 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Sports, Thinking Economically • 103 Views

    Our Econlife Roundup for the Week:

     

    A NASA satellite image of the world's night lights conveys economic information about developed and developing countries.8.31.14 A satellite picture that reflects economic development…more

     

    Everyday Economics The quality of monetary and fiscal policy during a financial crisis does not depend on whether the President is on vacation.9.02.14 Why presidential vacation days might not matter…more

     

    Everyday Economics: When supply and demand in prediction markets create an unlikely price, they can indicate illegal activity like match fixing in tennis.9.03.14 How the price system can even predict a tennis match…more

     

    When one mall is located in 2 cities, each with a different minimum wage, the unique incentives affect employees and consumers through wages and prices.9.04.14 A mall with a big minimum wage problem…more

     

    The internet culture that included online based tax collection and computers as a part of the education system related to the market economy that Estonia developed.9.05.14 Why Skype is From Estonia…more

     

    Economic Ideas Roundup:

    • market system
    • minimum wage
    • price floor
    • price system
    • human capital
    • productivity

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  • The internet culture that included online based tax collection and computers as a part of the education system related to the market economy that Estonia developed.

    From Estonia: Cheap International Calls, Priceless Tweets

    Sep 5 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Education, Government, Innovation, International Trade and Finance, Macroeconomic Measurement • 248 Views

    The President of Estonia said that because of Mrs. Cummings’ 8th grade math class in Leonia, New Jersey, he rejected Finland’s offer to give his country a free analog phone system. Vintage 1970s, the system was far superior to the 1930s technology in Estonia but the President, Toomas Hendrik Ilves, and other officials, said no. Having started programming in his 8th grade math class and then continuing through his undergraduate years at Columbia, Ilves understood that Estonia had to leapfrog old technology and head straight for digital.

    Where are we going with this? To Estonia and their parallels with the U.S.

    Estonia’s Silicon Valley

    During the past 2 centuries, Estonia has had somewhat of a boomerang relationship with Russia. After 200 years of Tsarist Russian rule, as WW I ended they declared independence but reentered the Soviet orbit after WW II. When 1991’s dissolution of the Soviet Union again untethered them, they were mired in 1930s technology.

    I guess the good part, though, was they could piggyback a state-of-the-art infrastructure on top of the 50 years of progress they missed. Rejecting Finland’s outdated technology, they built free nationwide WIFI, established online based finances for the government including tax collection (of a flat tax–really easy compared to Ilves’s experience with the IRS) and instituted a computer-based curriculum in the schools. Such a human capital foundation has meant the emergence of a Silicon Valley culture and the development of Skype by a Swede, a Dane and Estonian engineers. Now owned by Microsoft, Skype still has a main office in Estonia.

    Estonia’s Market Economy

    Meanwhile, Estonia’s market statistics have been pristine to some and controversial to others. With eurozone membership central to their agenda, on January 1, 2011, they needed new wallets because the switch from the kroon to the Euro meant the size of their currency had changed. #11 in the Index of Economic Freedom–the U.S. is #12–and #22 out of 189 countries in the World Bank’s Ease of Doing Business Index, Estonia has embraced the market.

    She also has been a “poster child” for austerity advocates because of her response to a 2009 recession. Rather than borrow more, Estonia froze pensions, lowered government salaries and upped a value-added tax. Growing by 2.3% in 2010, she reversed a 14% GDP dive that soon climbed further.

    Estonia's commitment to a market economy has included disciplined debt policy.

    Commenting, Paul Krugman said austerity had not worked because GDP growth was insufficient. Ilves, whose undergraduate degree is from Columbia, fired off a series snarky retorts aimed at the Princeton professor, including this gem:

    Our Bottom Line

    Because of President Obama’s recent visit and guarantee of U.S. support, I wanted to share the economic philosophy that we share with Estonia.

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  • When one mall is located in 2 cities, each with a different minimum wage, the unique incentives affect employees and consumers through wages and prices.

    A Tale of Two Cities… and One Mall

    Sep 4 • Businesses, Demand, Supply, and Markets, Government, Labor, Thinking Economically • 158 Views

    Half of the Valley Fair Mall is in Santa Clara, CA while the other half is in San Jose. Because San Jose has a minimum wage of $10.15 while Santa Clara’s is $8.00, the stores at the mall have a problem.

    Minimum Wages Issues

    For some stores, the big challenge is competing for quality employees. Knowing the San Jose half paid more, the best workers went there. As a result, one Santa Clara store manager said he winds up with the “sketchy” help. Constrained from raising wages by the owner, he tried offering flexible hours to elevate quality.

    Meanwhile, the Gap had the challenge of spanning both municipalities. Theoretically, that meant they could pay the people who work in Santa Clara less than those in the San Jose part of the store. But how to tell? They were actually told they could figure out how much time a worker spends in each city. Instead, they decided to pay everyone the higher wage.

    Then, you have the owner of Wetsel’s Pretzels in the San Jose section who had to increase everyone’s pay. Expecting lower profits, she said she would have to take home less or lower employee bonuses but could not raise prices because of nearby Santa Clara competition. Further complicating her professional life was her Wetzel’s Pretzels store in the Santa Clara half where her employees earned less. Because she wanted to pay everyone the same hourly wage, she began rotating employees between Santa Clara and San Jose.

    The National Minimum Wage Debate

    On Labor Day, saying that “Obama Renews Call to Increase Pay Floor,” the WSJ  reminded us that the President’s attempt to increase the minimum wage from $7.25 to $10.10 an hour did not make it through the Senate. They also reminded us that the minimum wage is a pay floor because it prevents price from descending to equilibrium.

    Below, you can see the horizontal line is a floor that keeps price above equilibrium and creates a surplus of unemployed workers.

    The excess supply of worker hours reflects the jobs losses that opponents of the minimum wage hike predict.

     

    Further affecting the national debate, individual states (and cities like Santa Clara and San Jose) have different minimum wages.

    Our Bottom Line

    This tale of 2 cities in one mall provides a micro-version of the minimum wage debate in Congress. Expressed in a Boston Fed report, the competing arguments on both sides are persuasive. Proponents emphasize the additional spending that will be created, the minimal, if any, job losses, and their support for low wage workers. Meanwhile, opponents of a higher minimum wage cite jobs lost, higher business costs and price increases. But who is right? Some say that it all depends on which study you cite. We have some links below to both positions.

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  • Everyday Economics: When supply and demand in prediction markets create an unlikely price, they can indicate illegal activity like match fixing in tennis.

    Using Prediction Markets to Catch Match-Fixing at Wimbledon

    Sep 3 • Behavioral Economics, Demand, Supply, and Markets, Economic Thinkers, Sports, Thinking Economically • 140 Views

    Called collective intelligence, sometimes crowds can be smarter than individuals.

    Take jelly beans. When researchers have tried to compare the individual and the crowd, they have used the “guess-how-many-jelly-beans-in-the-jar approach.” For one experiment with 850 jelly beans in the jar, only one person out of 56 came close. The crowd though, when averaged, said 871. Similarly, guessing the weight of an ox that weighed 1,198 pounds after being slaughtered and dressed, the crowd average was 1,197.

    So where are we going? To collective intelligence in tennis prediction markets.

    Prediction Markets

    Beyond jelly beans and oxen, the collective wisdom has been used in prediction markets. Whether looking at elections, the timing of interest rate hikes from the Federal Reserve or sporting events, the price of the bet on a certain outcome can reflect its likelihood.

    During the primaries leading up to the 2012 presidential election, the University of Iowa prediction market for the Republican presidential nomination had a dollar payoff for a correct outcome and zero for all other bets. With the price of a contract representing the probability that market participants believed the event would happen, a 22-cent contract displayed a candidate’s 22% probability of winning.

    Before Rick Perry’s debate gaffe, the price of a Perry contract was 31 cents. After the debate, it nose-dived to 17 cents. For Romney, the average price of a contract remained in the vicinity of 80 cents. With these contracts, we have two variables at work. First we have supply and demand determining price. Also, researchers have concluded that voters’ expectations more accurately indicate an outcome than their intentions. Expecting Romney to win whether they intended to vote for him or not, traders placed their wager in his court.

    And that takes us to tennis.

    Forensic Economics at Wimbledon and The Bottom Line

    Like elections, tennis betting markets indicate who “gamblers” expect to win. But what happens when one market’s expectations contradict the collective wisdom elsewhere? That is where a sports law assistant professor got suspicious. Looking at 6,204 matches from 2011-2013 with a tennis gambler who had an algorithm to predict match outcomes, Florida State’s Ryan Rodenberg identified 23 matches whose betting patterns were 16% to 19% out of synch with expectations. Their conclusion? Tennis authorities should investigate to see if those 23 matches, including 3 first-round matches at Wimbledon in 2011 and 2012, were fixed.

    Our bottom line: For shoes or for a wager on a tennis player, price conveys information when supply and demand interact.

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