But, is it worth $1 billion a month?

During the first 3 months of 2012, the USPS lost $3.2 billion. First class mail volume is down and their retiree expenses are massive.

Changes have been proposed and opposed in Congress. Close 252 mailprocessing facilities? Lose jobs and still 235 remain. Stop Saturday deliveries? Let’s gradually do it during several years. Close my friend’s post office and hundreds of others in rural communities? Just let them remain open for fewer hours. Change the rules for prepaid pensions and maintain pension benefits? Attrition might work.

My bottom line: I keep returning to the Congressional oversight that makes innovative leadership impossible. Maybe we should just say that the USPS is such a valuable institution that we are willing to accept the huge expense and mediocre business model.

After all, I really would hate to lose the small and friendly post office near my home.

Your opinion?

The Washington Post’s “Federal Insider” is a perfect source of information on the USPS as the issues evolve.

Associated with a more humane form of capitalism, Sweden was the prototype for the welfare state. But then a real estate bubble burst during the early 1990s. Government spending soared as the economy sank.

Sounds familiar.

Sweden’s response included less public sector involvement through deregulation of industries like postal services and electricity. They eliminated a wealth tax, inheritance tax and gift taxes. They cut the size and duration of unemployment benefits. With retirement options at 61, 65 and 67, their political leadership has suggested 75 years old.

Because the Swedish economy has been relatively healthy, it is being cited as a country that coped with contraction by cutting taxes, diminishing spending, and vastly improving its debt to GDP ratio. Economist Ed Yardeni says that Sweden’s story proves that more spending is not necessarily the answer to recession and unemployment.

And that takes us back to Ikea. Sweden’s finance minister says that his goal is to attract people like Ikea’s Ingvar Kamprad to start businesses, grow them, and remain in Sweden because it is business friendly.

Our Bottom Line: Don’t we always seem to return to the Smith/Hayek v. Keynes debate? Do we need more business friendly environments or more government spending?

To read about how Sweden’s economy is changing, you might want to look here in the Globe and Mail while here is what The Economist has to say and here is The Spectator’s discussion.  For a more academic consideration of the changing Swedish economic model, this Harvard paper is a possibility. And, here is the “Ease of Doing Business” rank for Sweden.

Traditionally, marriage has been about specialization. With the husband in the labor force and the wife at home, their division of labor resembled a small factory. He supplied the income and she was the “domestic specialist.” As in the factory, specialization led to a more productive household.

No more.

Marriage has become a different kind of economic unit. In many households, both partners earn income and both (or none) cook. Washing machines, dishwashers and microwave ovens minimize chores. We have day care and take-out.

With the division of labor changing, so too has the institution. Previously marriage was based on shared production. Now, increasingly, marriage is all about shared consumption. Marriage has become what economists Betsey Stevenson and Justin Wolpers call “hedonic.”

As a result, the demand and supply sides of contemporary marriage markets in which people find partners reflect new values. Correspondingly, the contemporary household as a production unit increasingly is designed for companionship and “consumption complementarity.”

And this returns us to North Carolina and same sex marriage. The new economics of marriage has changed the characteristics of the people who enter marriage markets and of the households they form. Inexorably, new incentives are leading to new choices. As more households change, will politics follow?

University of Pennsylvania economists Betsey Stevenson and Justin Wolpers (who live together and have a child but are not married) explain a lot more about the new economics of marriage here and here and here. If you want to continue further, Ezra Klein’s Washington Post Wonkbook  also discusses Stevenson and Wolpers and how their view of marriage relates to the North Carolina vote.

Explaining, Harvard’s Clay Christensen starts his story with the huge integrated steel firms and ends with the mini mill. Relatively cheaply, the mini mills melted scrap in electric furnaces but their steel was inferior. Responding, the big mills said, “Great. We can make the expensive profitable stuff for cars and washing machines. You can have the low end of this business.”

But it did not work out that way.

The mini mills got increasingly better at steel making until they too could make the high quality products. Imagine a stairway to the top that the mini mills were climbing. Step by step they made more of what the bigger guys produced, gradually improving quality for a lower cost.

Dr. Christensen believes the mini mill lesson is universal. The firm at the top wants to continue making distinctive goods. Meanwhile, though, the firms at the bottom with lower costs and lower quality make cheaper products that are easier to use. Because most customers think they are good enough, they gradually engulf market share.

In a recent interview, Dr. Christensen presented example after example. He talked about disk drives moving from 14 inches down to 5 1/2; the bigger ones were better but the smaller ones became more popular. During the 1950s, the first  Sony transistor radios were not as good as RCA or Zenith but, starting with teenagers, they spread. Even phone cameras, at first so bad but still so handy, they improved. You could also add to the list cell phones replacing traditional landlines, discount retailers moving in on department stores, retail medical clinics taking business from traditional doctors’ offices.

You see where this is going. Called disruptive innovation, it all begins at the bottom where, because the product is cheaper, vast numbers of consumers enter a market that had been too expensive for them.  The stories are fascinating and told in much greater detail in an excellent New Yorker article, at Dr. Chistensen’s website, and in books he has written that include The Innovator’s Dilemma.

Dr. Christensen reminds me also of Joseph Schumpeter and creative destruction. Whether moving from the bottom up or from an upstart entrepreneur, new ideas destroy the old and fuel capitalism.

Throughout the college process, you probably think about how disparate institutions are the right fit for you financially. But consider the equation in reverse…

From solely an economic standpoint, three categories of students might comprise the college’s right fit:

(1)  The independently willing and able to pay for education.

(2)  The students who rely on merit scholarships and grants to attend.

(3)  Those who secure long term loans to pay for their degrees.

I wonder if colleges are counting on the coupon effect. People willing to expend the time and energy looking for coupons pay less. But businesses still can take advantage of the group who, ignoring the coupons, are willing to pay more. Again, the business owner can benefit. She does not have to offer lower prices to everyone.

Are colleges dividing their admissions pool the same way by separating those who seek aid and those who do not?

My investigation into costs of college and rising tuition led me to several interesting sources:

NPR Planet Money. Another Econlife post on the subject of college costs and government intervention. NY Times on college costs, here and here. Not entirely related, but interesting nonetheless. Finally, the middle class college “squeeze.”

Here are the facts:

Until now, many of the country’s 256,000 public pools have provided access to portable lifts that help people with disabilities. On May 21, instead, the Americans With Disabilities Act will require permanent lifts or ramps. The new lifts will cost spas, hotels and municipalities with neighborhood pools $3,000 to $10,000 plus installation. An alternative solution, ramps, is more expensive.

As you would expect, no one seems to disagree that it would be good for people with disabilities to use public pools with greater ease. And pool owners have known for years that the mandate would be taking effect. But, citing cost, danger for young children, and a law whose wording is not entirely clear, some are saying, “Not Now.” Others are concerned that the mandate will prevent cash strapped municipalities like Vineland NJ from opening neighborhood pools.

I wonder if we are really talking about more than pools. Deciding whether to support the mandate’s immediate implementation involves the broader issue of the role of government, the extent of entitlements and what should be delayed when the economy is sluggish.

Also, as economists, it takes us to considering the opportunity cost because as always, “choosing is refusing.” If we say install the devices now, we sacrifice the benefits of waiting or canceling the mandate.  By contrast, delay or cancellation mean the benefits of handicap assistance are foregone.

For many more specific facts about the law and the response, here, here and here are articles.

What is your opinion?  

Just the seat.

How much more could he have paid? You might want to try matching each of the following Spirit Airlines fees to one of the items listed below.

The fees:

• 1. $100
• 2. $4
• 3. $28-$38
• 4. $3
• 5. $30-$45
• 6. $5
• 7. $75
• 8. $6
• 9. Free

The items:

• a. check bicycle
• b. buy water
• c. first checked bag
• d. get boarding pass a airport
• e. transport dog
• f. carry-on bag for overhead bin
• g. buy bag of nuts
• h. tuck items under the seat
• i. buy a beer

(Answers at the bottom)

On the surface, it just looks like passengers pay a fee and the airline generates more revenue. But there is more. Because of the carry-on and checked luggage charges, passengers pack less. Less luggage means lighter planes. Lighter planes need less fuel–a huge cost saving for airlines.

Spirit also eliminated reclining seats on their Airbus 320s so that they could fit approximately 40 more fliers onto the plane. Think about it. Whether flights are full or empty, they still need the plane, the fuel, the pilot. And they charge for almost everything else.  An extra passenger costs them very little.

An economist would say that Spirit was really good at thinking at the margin. Defined as the “extras,” the margin is where Spirit adds to revenue and saves on costs.

Thinking at the margin, Spirit probably even made money on the gentleman who paid $77 for his Chicago/Ft. Lauderdale round trip.

While my Spirit facts and the matching idea came from a WSJ.com article, I especially recommend this very clever interactive graphic that displays the shifting position of the major airlines since deregulation in 1978.

1e; 2g; 3c; 4b; 5f; 6d; 7a; 8i; 9h

Paul Revere had been a silversmith, a copper engraver, he could make the buckles on your shoes, your teapot, your false teeth, your church bells. He knew George Washington, John Hancock, John and Sam Adams. During the Revolutionary War, he helped produce gunpowder and cannon, he made that midnight ride, and, protected by a military guard, he printed the money that paid for soldiers and supplies (and his own labor).

With $25,000 of his savings (but not the money he printed), and a $10,000 loan from the federal government with 19,000 pounds of copper, he started his copper foundry. After helping to make the first ships for the U.S. Navy, he had to write a “distressed” note to the US government asking for the $25,000 that was overdue.

Whereas in 1800, the US government helped Revere & Sons grow, now it is helping their descendant survive. Yes, the same firm that Paul Revere started and others like it again need government subsidies. New York State, where Revere Copper Products  now resides, is giving the firm cheap electricity. Governments at every level are providing loans, grants, tax breaks, and other kinds of support to help businesses compete against China’s lower cost producers.

An economist might display the story of Revere’s relationship with the government in 1800 and now through one demand and supply graph. You just need to shift your supply curve to the right to show how subsidies lower cost and thereby increase production.

A classic and the source of my information, Esther Forbes’s 1942 biography of Paul Revere is wonderful . For the current Revere Copper Products story, the NY Times presents a good picture of what small manufacturers say they need from government.

This page was edited after it appeared. I changed Tom Hancock to John Hancock because the latter was well known.

And they did.

Their new product involved selling the risk that a bond might default. For example, if JP Morgan owned an Italian bond, it could pay an investor to take over the risk that Italy would default. No default? Then JP Morgan pays the investor a fee. Default? Then the investor pays JP Morgan. As one journalist said, “…it was a win-win deal: JP Morgan reduced its risk, and the investors could earn nice returns.” They called it a “first to default” swap.

Just like silly putty, the aircast or the Model-T, in finance also, someone has an idea that becomes a product. At one time, the junk bond, the money market fund, checking accounts, futures options, hedge funds and adjustable rate mortgages (ARMs) were all innovations. We could go on and on. Someone invented each new financial product.

And that takes me back to JP Morgan–now JPMorgan Chase. Reporting the bank’s unexpected investment losses, yesterday, the Washington Post indicated heavy investments in an index of credit default swaps (descendants of those “first to default swaps) might have been related.

Our Bottom Line: Especially with the controversy surrounding complex financial products, we should remember that financial innovation can fuel economic growth when it moves money and credit productively.

For more about that JP Morgan Florida weekend, the evolution of credit default swaps and the source of my quote, this FT article by Gillian Tett is excellent. And, for more about financial innovation, you might want to look at this Brookings article.

The year was 1981. No one really knew what a computer should look like and what it should do. Steve Jobs told the team developing the first Macintosh that it had to be “friendly.” One designer said, “To be honest, we didn’t know what it meant for a computer to be ‘friendly’ until Steve told us.”

Friendly meant everything from the shape and size of the computer to rounding the corners on rectangles on the screen. When his programmer said rounded corners were impossible, Jobs said it had to be done. Pointing to billboards, tabletops, car windows, a No Parking sign, he said, ”Rectangles with rounded corners are everywhere.” The next day, Jobs had his rectangles with rounded corners.

It is legend that Jobs was passionate about fonts because of the calligraphy class he audited at Reed after dropping out. But the story about font names is great. When Jobs learned that his designer had named them Merion, Ardmore, Rosemont, the stops on Philadelphia’s suburban commuter rail line, he complained that those places were unknown. “They ought to be world-class cities.” And so, the Mac’s first fonts became Venice, Geneva, New York, Toronto.

The calculator story is also wonderful. Returning day after day, he kept saying, too dark a background, then the lines are too thick, and then the buttons are too big. As a joke, the designer responded with, “The Steve Jobs Roll Your Own Calculator Construction Set.” Jobs played around with it and created the initial standard design for the Mac’s calculator.

Isaacson concludes the Mac story with a signing ceremony. Saying, “Real artists sign their work,” Jobs asked each of the project’s participants, 46 people including himself, to sign a piece of drafting paper so that an engraving of the signatures could be inside every Macintosh.

Perhaps the best commercial ever made, Apple’s 1984 introduced the Macintosh to the world at the Super Bowl. Here is is.

Our Bottom Line: The first Macintosh displays the reality of Joseph Schumpeter’s creative destruction. From one innovation to the next, Steve Jobs replaced existing technology with new devices. Eli Whitney’s cotton gin and interchangeable musket parts Henry Ford’s moving assembly line and Ray Kroc’s vision for McDonald’s, also display the impact of entrepreneurs.

My Steve Jobs stories and quotes are from the Walter Isaacson bio that I am still reading and loving. I also took a look at Insanely Great by Steven Levy. Moving beyond, Malcolm Gladwell explained in The New Yorker that Steve Jobs’s greatness came from being a “tweaker.”