• The opportunity Cost of Natural Gas

    What is the Real Natural Gas Trade off?

    Jul 2 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Entertainment, Environment, Government, Regulation, Thinking Economically • 178 Views

    Our occasional Wednesday environment focus

    When you discuss natural gas, do you refer to the environment, the economy or the law?

    Just mention natural gas to some of my friends and they focus on the environment. Concerned about the impact of the process used to extract natural gas from shale, they say it should be banned. Otherwise, they expect local water supplies will be contaminated and greenhouse gas emissions will increase. More dependence on fossil fuels is what they want to avoid.

    I also know people who perceive the natural gas boom as an economic boost to an economy that is still emerging from a massive recession. Their focus is the natural gas that we use to heat and cool our homes and the steel, plastics and chemical plants that need natural gas. They see supply soaring, prices sliding, and natural gas tugging the price of all energy sources down. Furthermore, as a growing industry, they point out that natural gas is creating jobs and pockets of prosperity.

    You can see below that almost one-half of all US households use natural gas to heat a home.

    The opportunity cost using natural gas

    A third possible perspective was in the papers last night. Since 2008, New York State has imposed a temporary moratorium on natural gas drilling. Worried that the moratorium will be lifted, 177 municipalities in the state have expressed a NIMBY position while 77 of them enacted a permanent ban.  As a result, 2 of those municipalities landed in court when a driller and a local dairy farmer said the ban was illegal. Proclaiming that home-rule was fine, yesterday, the court disagreed. That means every community in NYS can decide if it will permit natural gas development.

    Our bottom line? Most of the discussion about natural gas extraction has focused on fracking and the  environment. To take the next step, we could use opportunity cost analysis. Using opportunity cost analysis, we would first identify the next best alternative that we sacrificed. Then, to see what would be gained and lost, we list the benefits of the decision and of the alternative.

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  • African Development is complex

    Seeing Why African Development Is So Tough To Get Started

    Jul 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic Thinkers, Education, Government, Health Care, Households, Labor, Lifestyle, Macroeconomic Measurement • 116 Views

    I just finished and do recommend The Idealist: Jeffrey Sachs and the Quest to End Poverty. Written by a Vanity Fair journalist, the book is a good read.

    On one level, The Idealist is about a dynamic economist who raised $120 million (and then more) for his Millennium Villages Project (MVP). His basic premise was that people in extreme poverty just needed a boost to reach the first step of an African development ladder. After reaching that first step they could take over the climb themselves. His $120 million could provide that boost in 12 African villages.

    More than a story, though, the book’s unresolvable dilemmas resounded. Seeing firsthand why it is so tough to eliminate extreme African poverty, you start pondering moral responsibility and methods. I particularly have been thinking about the bottom-up people and the top-downers.

    The bottom-uppers were not in the Sachs story. Instead, I discovered Ernesto Sirolli in a TED Radio Hour podcast during one of my walks. He starts his talk with a Zambian village. As a 21-year old aid worker, he introduced Italian seeds to a community in a fertile Zambian valley that had little agriculture. Teaching the locals how to grow tomatoes and zucchini, he was proud of the initial results. The tomatoes were as big as cantaloupes. But then, one night, 200 hippos came out of the river and ate everything. Hippos, the villagers explained, are why we have no agriculture. He inquired why they did not tell him. “You never asked,” they replied.

    Because of his Zambian experience, Sirolli says he became a listener who helps people find the resources they need. His development projects start in cafes and around kitchen tables. He avoids community meetings because entrepreneurs do not attend. Asking for the help they need, people use him as a “servant to their passions.”

    Sirolli describes his approach in a TED talk:

    The Jeffrey Sachs approach is somewhat different. He says he was aware of what people wanted and needed when he designed his Millennium Villages Project. Citing health care, education, water, power, roads, and market-oriented businesses, he identified an intervention network in which the components feed off each other. With enough money to create a development infrastructure, he believes he can not only jumpstart local wealth but also generate scalable achievements that will ripple across Africa.

    The Jeffrey Sachs approach is controversial.

    In The Idealist, Nina Munk uses 2 African communities to illustrate the foibles and glory of Sachs’s MVP. She documents its auspicious beginnings, the early successes and the subsequent difficulties. She conveys Sachs’s dynamic response to a moral obligation. She implies that everyone meant well but an approach that resembles charity cannot serve as a springboard to self-sufficient growth.

    In one hour-long Econtalk segment, Munk describes her visits to the MVP villages. She tells of villagers who are given high-yield seeds to plant but not the necessary storage facilities nor the roads that would facilitate mass marketing their bumper corn crop. She speaks of donated incubators that sit unused. She tells of pipes that are the wrong size.

    She also tells of the success of malaria fighting mosquito nets. But then she explains that other African communities without the MVP support have an equal or better record of using the nets. Yes, the malaria death rate is down but is the Sachs project the reason?

    And here is where Jeffrey Sachs enters the picture. In an Econtalk response to the Munk interview, he says the data still has to be gathered and reviewed. And, when asked about anti-malaria mosquito nets achieving even more success in non-MVP communities, he attributes the progress to scaling. His intervention spread. He planted seeds that will blossom far from their original roots. Asked if he is top down, he emphatically says no.

    Listening to Sachs, I would say he is bringing to Africa an infrastructure that people seem not to have specifically requested. He seems instead to believe rather convincingly that people need a foundation to lift them from devastating poverty. Never quite saying it, he also implies very persuasively that the world needs passionate people to lead us down the moral path. And he reminds us, accurately, that people’s lives in his MVP villages are better.

    The Munk book is excellent. The Sachs’ response is fascinating. Add to that the Sirolli video and you have a micro debate about solving extreme poverty.

    Our bottom line? Thinking of Sachs and Sirolli, perhaps we have a continuum between the top-downers and the bottom-uppers. But then, at each step along the scale, adding in the relevant cultural, political, social and financial issues, the complexities and dilemmas of sub-Saharan African development become ever more impenetrable.

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  • Economic impact of gender equity for gays and lesbians

    California’s Proposition 8 Was Also About Economics

    Jun 30 • Behavioral Economics, Businesses, Economic Growth, Economic Thinkers, Gender Issues, Government, Households, Labor, Lifestyle, Regulation • 158 Views

    Our (occasional) Monday gender issue focus:

    Yesterday, at the Nantucket Film Festival, I watched the HBO documentary, The Case Against 8. Documenting the court battle against California’s Proposition 8, the film introduced me to a memorable group of people that included 2 same-sex couples who wanted to get married and their attorneys, David Boies and Ted Olson. An auspicious pair, Boies and Olson had opposed each other for Bush v. Gore but now they were fighting the Prop 8 same-sex marriage ban together.

    During the movie, very briefly, they referred to Lee Badgett. As an economist who specializes in gender equity issues that relate to gay and lesbian people, she was called as an expert witness. Yes, so I was curious and checked out her research.

    Her recent research on same-sex marriage looks at the economic boost it gives to states. Through wedding spending and tax revenue, Nevada, for example, from weddings and out-of-town visitors, within 3 years, will generate from $23 million to $52 million in spending and $1.8 million to $4.2 million in tax revenue if, like Massachusetts, 50% of all same-sex couples marry. For Nevada, that would mean 50% of her 7,140 resident same-sex couples will probably marry.

    Here are the figures for Pennsylvania. We should note that while the totals are small compared to Pennsylvania’s GDP, specific in-state businesses and national chains will especially feel the boost.

    Gender Equity has an economic impact.

    Please note that the number in the chart should be 7490, not 7940, according to the paper from which it was excerpted.

    In Utah, the numbers are small:

    Gender Equity has an economic impact.

    From: Williams Institute

    The message of the film was that unequal treatment of any minority has a widespread impact within and beyond that group. That impact would include the job discrimination stats shown below in an infographic from UCLA’s Williams Institute.

    Gender equity has an impact on the workplace.

    From: Williams Institute

    Our bottom line? Economically speaking, gender inequity, is all about underutilizing human capital. Consequently, whether based on gender, race or religion, equity relates to economic growth.

    Our second bottom line: In a Freakonomics podcast, Dr. Badgett says, “The most important thing to know is that it is actually pretty hard to get good data on lesbian, gay, and bisexual people.” As a result, Freakonomics warns us that the economic data on gender equity is, “on some level” suspect.

    Note: This post was slightly edited after it appeared.


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  • For cost and calories, Coca-Cola thinking at the margin

    Why We Should Look More Closely At the Size of Our Soda

    Jun 29 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Innovation, Lifestyle, Thinking Economically • 142 Views

    The 6-ounce bottle of Coke was the king of soda when an upstart company called Pepsi-Cola sold a 12-ounce bottle for the same price. The year was 1934 and the price was 5 cents. Pepsi’s competitive strategy has been called brilliant because its biggest costs were advertising, bottling and distribution. For Pepsi, an extra 6 ounces did little to their cost but must have delighted consumers.

    21 years later, Coca-Cola finally started selling 10- and 12-ounce “King-Size” bottles. McDonald’s though stuck with its 7-ounce Coke during the 1950s, offered a 16-ounce Coke in the 1960s and the 21-ounce size in 1974. Once “normal,” the 8-ounce serving has become a small or “mini” because of what we are used to.

    The place we are going here is “the margin.” Cost and calories are a perfect way to see how firms and consumers think at the margin when they decide whether to add or subtract a little extra.

    Below, you can see how the “margins” for soda size have monumentally changed:

    Thinking at the margin from Coke and Pepsi

    From: Slate

    With M&M’s, we can look at the margin slightly differently. When an NPR Planet Money reporter bought 2 single serving M&M’s packs, one regular and the other peanut butter, he wondered why they were both a dollar but the plain M&M’s weighed less. Assuming they were shaving some content as a cost-savings, he investigated. And yes, like Coke and Pepsi, Mars (M&M’s maker) also was thinking at the margin but here, it was the calories. If the Peanut Butter M&M’s had weighed more, their calorie count would have exceeded 250, a number that they thought was the consumer’s single serve maximum.

    In the Greek yogurt world, the battle at the margin was also about calories. When Chobani’s competitors started selling a 5.3 ounce 100 calorie yogurt, Chobani soon had one too. Although they had gone done from a higher calorie 6-ounce container, they did not lower the price with the smaller alternative.

    Our bottom line? Economists like to point out that decisions usually occur at the margin where, based on cost and benefit, consumers and businesses make decisions about a little more or a little less.

    Finally, I loved this chart of hamburger calories from WSJ. It too is all about thinking at the margin.

    Thinking at the margin, fast food seller give consumers more choices.



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  • World Cup Soccer 2014 with some humor and betting markets

    Monty Python World Cup: German vs. Greek Philosophers

    Jun 28 • Behavioral Economics, Demand, Supply, and Markets, Economic Humor, Economic Thinkers, Entertainment, Financial Markets, Thinking Economically • 200 Views

    Here is the line-up for the Monty Python World Cup soccer match between German and Greek philosophers:

    World Cup Soccer 2014 Greece vs. Germany

    From: Monty Python

    And the actual match:

    With Greece’s odds 125/1 for winning World Cup 2014 and Germany’s 4/1, it is highly unlikely that they will oppose each other this year. Looking at these numbers, economists who have studied World Cup betting markets say they are “efficient” because prices and odds reflect all relevant information known about the teams. As Barron’s explains, we can conclude that World Cup betting markets are efficient because, “…prices and odds in the soccer betting market react ‘swiftly and fully’ to a goal, without the complications from leaked information often seen in financial markets.”

    Our bottom line? Enjoy!

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