• Weekly roundup, nest eggs and baby boomer savers

    The War on Savers

    Mar 31 • Behavioral Economics, Economic History, Financial Markets, fiscal policy, Gender Issues, Government, Households, Labor, Lifestyle, Money and Monetary Policy, Regulation, Thinking Economically • 105 Views

    We could say that the war on baby boomers’ savings comes from two fronts. On one side they have been hit by low interest rates and from the other, it was the Dow.

    Perhaps these graphs say it all:

    War on savers and low interest rates

    Where are we going? To baby boomer nest eggs.

    ZIRP (Zero Interest Rate Policy) and the Dow

    Reflected by the dip in the prime rate (Figure 1), the Fed took interest rates way down when the economy contracted from December 2007 to June 2009. While ZIRP is supposed to make borrowers happy, it really depresses savers. Hit by low rates, those savers have the incentive to look elsewhere for a higher return. The problem though is that the Dow has them nervous. Afraid of a 2008 repeat (Figure 2), savers are minimizing risk by retaining cash.

    Add the war on two fronts to how baby boomers underestimate what they will need and you get an inadequate nest egg:

    War on savers and low interest rates

    Our Bottom Line: Low Interest Rates

    Ranging from our tendency to select short term spending over long term saving, to miscalculation, to living longer, and to modest home value increases, the reasons for the retirement shortfall are varied. Every list though includes low interest rates. With typical Americans saying they have 65 percent of their net worth in cash instruments and the Fed having only begun its rate hikes, we can ask if the war on savers is really ending.

    So, with interest rates our focus, let’s conclude with Merle Hazard’s newest song. Called “How Long (Will Interest Rates Stay Low)?”

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  • Brexit and EU marriage

    Everything You Need to Know About Brexit

    Mar 30 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Financial Markets, Government, International Trade and Finance, Labor, Money and Monetary Policy, Thinking Economically • 99 Views

    Much more than a simple decision about staying or leaving, Brexit is like a divorce in which a network of economic obligations unwinds. Yes, the U.K can decide to exit the European Union (EU). But the terms of their departure and their future relationship would depend on 27 other nations, countless tradeoffs and something called Article 50.

    Here is quick summary of the basics:

    Some EU History

    For starters, when you think of the EU, think friction. In science, friction refers to the resistance created by two surfaces when they move along one another. To diminish friction, you just need lubrication. The goal in Europe was to have people, goods, services and money move without friction. And the solution, the lubrication, was removing tariffs, currency exchange and other barriers that slowed trade down.

    Aiming for that frictionless world, in 1973, the U.K. Denmark and Ireland joined the original six members of the EU (France, Germany, Belgium, Italy, Luxembourg and the Netherlands). By  2016, there were 28 EU nations with 19 of them sharing the euro. On June 23rd, the U.K. will decide if it wants to leave.

    Brexit Pros and Cons

    The big issues for Brexit advocates are sovereignty, border control and over-regulation. They also cite the expense of EU membership and the need to reconsider decades of regulatory statutes.

    On the other side we have the benefits of free trade and the complexities of pondering 12,295 EU regulations that range from food standards to banking rules. Everything from the price of milk to the ease of working in Europe will be affected. Furthermore, we can say that the U.K. would be negotiating with the EU but really it will have the commission, 27 member states, the European Parliament, and 27 national parliaments that have their own constituencies.

    And, there are still more Brexit concerns…

    There is the impact of uncertainty on foreign investment, London’s importance as a financial hub, and currency markets. Some say that Brexit worries have nudged sterling (the pound) lower:

    Brexit pros and cons

    From: Washington Post Wonkblog


    But, there is the Norway alternative.

    The Norway Alternative

    Rather than joining the EU, as part of the European Economic Area (EEA), Norway gets EU free trade benefits but retains authority over segments of its economy. Those who like the Norway arrangement say you get your free trade and your autonomy. Those who do not like it respond, “No say; still pay.” They are referring to the money Norway contributes to the EU for its participation and the rules it still needs to abide by.

    Our Bottom Line: Tradeoffs

    As always there is no free lunch. Much more than an in or out decision, the tradeoffs are countless. Whereas EU entry diminished friction, a Brexit could remind us of sandpaper.

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  • weekly roundup, restroom access, economic power and externalities

    Restroom Access and Power

    Mar 29 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Gender Issues, Government, Labor, Lifestyle, Thinking Economically • 103 Views

    During the past several months, Houston’s voters and the North Carolina legislature have limited ladies restroom access for transgender people.

    While proponents of the new laws cited safety as a rationale, the history of equal restroom access reveals that we are really talking about economics and power.

    Some Restroom History

    Although women had been in the U.S. House of Representatives since 1917, it took 94 years for them to get their first restroom near the House floor. Until then Congresswomen were missing votes because the dash to the bathroom included a five minute run in each direction. Meanwhile, equipped with amenities that included an attendant, a fireplace and televised floor proceedings, the restroom for the men was next to the House floor.

    More evidence of bathroom inequity is apparent at entertainment and sports venues. With women lined up at restrooms but not the men, women are again experiencing more time and inconvenience when they and the children who accompany them use a public restroom.

    Restrooms and Power

    Scholars have pointed out that public restroom access and power are connected.  For female blue collar workers, unequal access to restroom facilities has been cited as a form of discrimination. In a white collar business and political world, the absence of women’s restrooms reinforces female exclusion and male domination. But perhaps most importantly, when restroom facilities are lacking for any group, it is an architectural reflection of the imbalance of power.

    The first state to recognize the problem legislatively was California. In a 1989 “restroom equity act,” California mandated a certain number of toilets for women at all new and remodeled public and private sports facilities.


    Amazon employees have complained to the Washington State Department of Labor & Industries for the lack of restroom facilities.

    But it was the men!

    Responding to complaints, Amazon proved that it was well within the law. In 2013, their Varzea building had 17 toilets and 16 urinals, a total that far exceeded the state’s 24 fixture minimum. The problem was how the facilities were dispersed. On the floors where the men outnumbered the women–60 to 2 on the 9th floor; 100 to 13 on the 10; 77 to 9 for the 11th, the number of male facilities was vastly deficient while some women had the equivalent of one restroom per person.

    Commenting on restroom inadequacies, the men have said they wasted huge time roaming from floor to floor in search of an empty toilet.

    Our Bottom Line: Negative Externalities

    Seemingly insignificant, equal restroom access has concrete and abstract externalities. The practical part involves time and all that individuals sacrifice at work and during leisure when a restroom is not a speedy experience. Then more broadly, thinking about power, I wonder whether restroom inequity can be the source and the reinforcement of a message about economic power.

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  • professional tennis and the equal pay debate

    The Tennis Pay Gap

    Mar 28 • Behavioral Economics, Businesses, Economic Debates, Economic History, Economic Thinkers, Gender Issues, Labor, Lifestyle, Sports • 109 Views

    The equal pay debate just hit the tennis court. It all started with a comment from Raymond Moore who, until several days ago, was the chief executive of Indian Wells Tennis Garden.

    “…If I was a lady player, I’d go down every night on my knees and thank God that Roger Federer and Rafa Nadal were born, because they have carried this sport…I think the WTA {Women’s Tennis Association} have a handful — not just one or two — but they have a handful of very attractive prospects that can assume the mantle…” Moore explained that he meant physically and competitively attractive.

    Echoing Moore’s attitude, Novak Djokovic, tennis’s # 1 male player said that men should be paid more “because the stats are showing that we have much more spectators on the men’s tennis matches…Women should fight for what they think they deserve and we should fight for what we think we deserve.” And then he added: “Their bodies are much different to men’s bodies. They have to go through a lot of different things that we don’t have to go through. You know, the hormones and different stuff, we don’t need to go into details.”

    Where are we going? To the impact of a male lens on the tennis equal pay debate.

    Tennis Prize Money

    For the tennis Grand Slams and several other tournaments all players have equal prize money. But on the tours, the women get less:

    Equal pay debate for tennis

    From: Bloombergview.com


    Our Bottom Line: Feminist Economics

    Let’s just conclude with a tiny taste of feminist economics. Advocating less of a “male lens” for economic analysis, believers in feminist economics suggest adding more of what women do to the economic statistics that convey what we believe is important. Otherwise by implying that “women’s work” is less valuable, you guarantee that it will be worth less.

    Returning to the tennis executive with whom we began, we can ask if the people who diminish the status of female athletes perpetuate the inequity. An economist would then cite a negative externality that ripples beyond professional sports to attitudes about women in our schools and at home.

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  • Trans-Pacific Partnership

    What You Don’t Know About the TPP

    Mar 27 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 128 Views

    Based in Bozeman Montana, Simms Fishing Products makes protective overalls called waders for fishermen.  Although waders occupies just several lines of text in the 5,000+ pages of the Trans-Pacific Partnership (TPP), its business model will be transformed by the trade deal.

    Trans-Pacific Partnership TPP free trade

    From: Simms Fishing Products

    Simms and the TPP

    Most waders have been subject to tariffs levied by a long list of nations. The duty list that I discovered included Japan’s 9% wader import tax and the 40% that Bolivia charges. Comparably, the U.S. has a 37.5% tariff barrier that does a pretty good job of shielding Simms from foreign competition.

    TPP Impact

    If the Congress passes the TPP, some wader tariffs will remain for eight years and then gradually be phased out. Other wader tariffs will immediately be removed. As a result, Simms has bad news and good news. Yes, the elimination of the tariff means the firm will face new domestic competition, But, other markets will open for an export business that it never had before.

    Trans-Pacific Partnership (TPP) countries

    From: The Washington Post

    Our Bottom Line: Competitive Market Structure

    Imagine this mammoth shift in the wader market!

    What had been primarily domestic now will become international. More firms will compete, economies of scale can multiply and prices will change. Larger markets will facilitate the cost savings of Adam Smith’s division of labor while free trade kick starts David Ricardo’s comparative advantage. For thousands of goods and services ranging from Japanese auto parts to Canadian beef to Vietnamese textiles, we will have Adam Smith merging with David Ricardo.

    What to expect? Crumbling tariff walls will lead to new competitive market structures.

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