• everyday economics and the cost of bubble wrap

    Why Bubble Wrap is Disappearing

    Jul 27 • Businesses, Demand, Supply, and Markets, Economic History, Innovation, Labor • 153 Views

    Sadly, many of us will never be able to pop Bubble Wrap again.

    Where are we going? To the cost of free shipping.

    Bubble Wrap History

    Bubble wrap was not always in a mailing box. First it was textured wallpaper but the idea did not not quite catch on. Then its inventors sold it as insulation but, no success. The third try worked. In 1960, Bubble Wrap’s manufacturer, Sealed Air, convinced IBM that it was ideal packaging material for the computers they were starting to ship. The rest is history.

    The Bubble Wrap Demise

    A $20 billion business in 2013, for almost 50 years, Bubble Wrap was the ideal protective packaging. But then with the advent of free shipping, Bubble Wrap’s volume, always a positive, suddenly became a problem. Because it occupies too much space in delivery trucks and retailers’ warehouses, Bubble Wrap needed a more cost effective compact alternative. Sealed Air’s solution was iBubble Wrap. Shipped in flat rolls to retailers, unlike Bubble Wrap, it can be inflated in the warehouse. Meanwhile, research continues with mushroom roots and other agricultural byproducts that can conform to the shape of a package.

    The following image from WSJ.com says it all. That 47 to 1 ratio will mean a lot of extra space that other items can occupy.

    Bubble Wrap's externalities

    Out Bottom Line: Externalities

    Like a free lunch, there is no such thing as free shipping. For some of us, the cost is the POP we will sacrifice when Bubble Wrap disappears. As economists we could say free shipping’s impact on Bubble Wrap is an externality–a cost experienced by third parties who neither manufacture nor purchase Bubble Wrap.

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  • everyday economics and automation at McDonald's

    Why Ronald McRobot Will Soon Serve Us

    Jul 26 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Government, Labor, Macroeconomic Measurement, Regulation, Tech, Thinking Economically • 150 Views

    This bogus headline from a satirical news site might soon be true:

    New McDonald’s In Phoenix Run Entirely By Robots

    “Visitors to the restaurant will see these new robots working in harmony at a speed of 50 times faster than the average human employee, with no chance of error. If the test launch for the store is a success, people can expect to see robots located in every store all over the country and at restaurants around the world…”

    “…36-year-old Paul Horner, a spokesman for McDonald’s told reporters that because of the demand for a $15/hr minimum wage, the company has been playing with the idea of a restaurant run entirely by robots for years and believes their “McRobots” are the answer.”

    Where are we going? To why minimum wage hikes will speed mechanization.

    Minimum Wage Increases

    Last week, New York State said that it would be following the advice of an investigatory panel and raise fast food workers’ minimum wage to $15 during the next several years.

    Elsewhere also, the minimum wage has been rising:

    Minimum wage and mechanization

    From: Bloomberg

     

    The Impact

    Until now economists have disagreed about the impact of a minimum wage hike. Some say it will barely affect the number of jobs while others have data that prove precisely the opposite. Now, a recent study concludes that both sides are right.

    Let’s start with a production recipe for a fast food restaurant. They have the land where the restaurant is located, capital that includes structures, machinery and inventory and labor that has high and low skill. When a minimum wage goes up, the cost of low skill workers rises. It takes awhile though for production recipes to change.

    The first two years:

    Initially, we have three phenomena at work: small labor intensive establishments leave; chains stay; chains enter. Because firm entry and exit are both up, the number of jobs for low skill employees remains relatively stable. Existing chain stores retain their production recipes while entering chains bring more automation to the market.

    After the first two years:

    Changing the balance between labor and capital, the chain stores that enter the market have a different production recipe. Because they realize that low skill labor will be pricier, they replace people with technology. Over time, the market is increasingly dominated by larger chains with more automation.

    Our Bottom Line: Marginal Analysis

    Economists like to ask us to think at the margin. For the minimum wage, that means comparing the extra (marginal) cost per worker to extra (marginal) revenue generated by each worker. Of course firms want marginal cost to be less than marginal revenue.

    If firms do not raise prices, the new minimum wage will narrow the gap between marginal cost (MC) and marginal revenue (MR). Then, when MC is greater than MR, firms have the incentive to exit that market.

    Changing the relationship between MC and MR, the minimum wage hike (below) diminishes employment after two years as capital intensive chains enter the market and labor intensive restaurants leave.

    Impact of higher minimum wage

    From: “Industry Dynamics and the Minimum Wage: A Putty Clay Approach”

    In those capital intensive restaurants, McDonald”s will have Ronald McRobot serving us.

     

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  • The econlife.com economics news summary

    Weekly Roundup: Matchmaking Mysteries to Garbage Privacy

    Jul 25 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Thinkers, Financial Markets, fiscal policy, Government, Labor, Money and Monetary Policy, Regulation, Thinking Economically • 108 Views

    Our Posts Roundup

    productivity questions Sunday 7.19.15

    Deciding if Facebook adds to productivity…more

    everyday economics and matching markets Monday 7.20.15

    The best matchmaker…more

    Everyday Economics: fixed and variable prices Tuesday 7.21.15

    How airlines resemble Amazon…more

    Everyday economics and causes of famines Wednesday 7.22.15

    Why famines are about more than hunger…more

    garbage recycling regulation Thursday 7.23.15

    The secrets in your garbage… more

     

    Everyday economics and monetary union Friday 7.24.15

    Another Eurozone problem…more

    Ideas Roundup

    • productivity
    • markets
    • supply and demand
    • price system
    • externalities
    • social norms
    • famine,distribution,
    • production
    • scarcity
    • cost and benefit
    • environment
    • regulation
    • monetary union

     

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  • Everyday economics and monetary union

    The Real Eurozone Problem

    Jul 24 • Economic Debates, Economic History, Economic Thinkers, Financial Markets, fiscal policy, Government, International Trade and Finance, Labor, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 108 Views

    Asked how they feel about their monetary union, people in the eurozone separate economics and politics.

    Where are we going? To what might be the biggest eurozone challenge.

    Economics

    You can see below that the majority of people in the eurozone support EMU (European Monetary Union):

    Support for monetary union

    This graph and all that follow are from “The crisis, the public, and the future of European integration” by Jeffrey Frieden (June 2015). Transition refers to economies that have recently evolved to a market.

     

    Even in debtor countries, pro-euro sentiment is mostly above 50 percent:

    Monetary union's divergent opinions

     

    But a closer look at people’s educational status reveals there is a divide:

    Opinions on monetary union

     

    And people’s occupational category conveys a similar message:

    Monetary Union opinions vary

     

    But still, support for EMU is relatively solid.

    Politics

    By contrast, when we look at politics from a trust perspective, we see dips that go below 20 percent.

    During the past decade, trust in EU leadership (the surveys did not cover the eurozone specifically) has plummeted. Explaining in his paper on EU and eurozone sentiment, Harvard scholar Jeffrey Frieden says people do not trust the EU leadership or its institutions.

    Monetary union political distrust

     

    We could say that people in the eurozone like the economic idea of one currency but feel negatively about their politicians.

    Our Bottom Line: Monetary Union

    In a 1997 column, Nobel laureate in economics Milton Friedman (1912-2006) explained the basic contradiction in European monetary union. The union he said was stimulated by the quest for political unity. However, the flaws in their monetary union will increase political tension.

    You can see above through Dr. Frieden’s graphs that indeed political distrust has grown.

    So what might be the real eurozone problem? While millions of people want the euro, their political leaders will experience increasing distrust and disunity because their approach is flawed.

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  • Everyday Economics: and garbage recycling regulation

    Exposing What You Hide in Your Garbage

    Jul 23 • Behavioral Economics, Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Environment, Government, Labor, Regulation, Thinking Economically • 159 Views

    In 1988 the Supreme Court said it was okay that “animals, children, scavengers, snoops…” and the police have access to your garbage.

    Placed outside for pickup, your garbage is not private. The majority opinion indicated garbage was not protected by the Fourth Amendment because most of us do not expect it to be private. Disagreeing, the dissent said the Court should safeguard the private parts of our lives that we discard.

    Where are we going? To the cost and benefit of recycling regulation.

    Trash Regulation

    In the 1988 case, when the police suspected narcotics trafficking, they went to the person’s garbage to prove it. Although they were right, the defendant claimed his right to privacy.

    Fast forward to another garbage bag that is currently the target of a privacy case in Seattle. Seattle has environmental regulation that mandates accurate sorting. With one bin for trash and the other for recyclables, residents are supposed to observe the difference. If more than 10 percent of a bin has the wrong stuff, you first get a red tag and then a fine.

    Imagine the details. Sort of like a trash police, sanitation people have to size up our garbage to decide whether the 10 percent rule has been violated. They might even have to multiply the radius and height of the can by Pi and then divide by 10.

    Protest signs from the new law’s opponents:

    Environmental Regulation

    From: NY Times

     

    Although the 1988 Supreme Court decision seems to support the new regulation, actually the courts do not agree. In 1990, the highest court in the state of Washington decided law enforcement officers did need a warrant to search the garbage.

    The new lawsuit was just filed. So we shall see.

    Our Bottom Line: Cost and Benefit

    With regulation, perhaps we should always ask if we not only feel good but also do good. And that takes us to cost and benefit.

    In dollars, time, privacy, and respect for the law and our environment, the Seattle recycling mandate has a cost and a benefit. Including baffling sorting decisions and, as we noted in an earlier post, a rising recycling dollar cost, recycling policy can involve more time and money than people expect. On the other hand, we should not minimize the environmental benefit and the social norm that accompanies it.

    I guess we wind up with a mixed (garbage) bag of negative and positive externalities.

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