BMW had to apologize for bad weather. It all began when their advertising agency decided to buy naming rights to a high-pressure area. Like hurricanes are named alphabetically in the U.S., high- and low-pressure weather areas that approach Central Europe have human names. Here, though, rather than a meteorologist, you can decide what the weather will be called. You just have to buy a letter from a German weather institute.
It cost BMW $394 to get “C.” Hoping to remind people of their Mini Cooper, they selected Cooper. However, instead of cool, crisp wintry weather, the “Cooper front” was disastrous. With hazardous conditions, extreme cold, and temperatures sinking way below zero, more than 100 people died. BMW even had to issue a statement explaining, “It was not intentional, and you cannot tell in advance what a weather system will do.”
Responsible for naming weather areas since 1954, the Berlin Institute for Meteorology created its “Adopt a Vortex” program in 2002 when it needed funding for a student weather observation program. You can look here to see the letters that are still available for 2012. High-pressure systems cost more than lows because they last longer.
Similarly, U.S. municipalities are using naming opportunities to fund their depleted coffers. In Philadelphia you can board the subway at an AT&T stop and in Brooklyn, NY, Nestle named the Juicy Juice Park.
The Economic Lesson
An economic lens takes us to the opportunity cost for a municipality when evaluating naming rights. The opportunity cost of a decision is the next best alternative. It is the alternative that is sacrificed.
On an opportunity cost chart, the alternative choices for a train stop could be “The Broad Street Stop” or the “Pizza Hut Stop.” The benefit of Broad Street is locational information. The benefit of the Pizza Hut name is municipal revenue. Which are you willing to sacrifice?
An Economic Question: As a municipal official, what naming rights might generate the most revenue?
Would you like a bus stop named after you? In Chicago, you could do it.
The message here is that naming opportunities have been created in order to raise money for municipalities. You could catch a train at an AT&T subway stop in Philadelphia. Or, you might visit the Nestle Juicy Juice State Park in Brooklyn. Near a newly renovated store in Chicago, Apple is negotiating ($3.9 million) for the name of a train stop. More traditionally, parks and schools are possibilities.
Critics perfectly express where a slew of new names could take us. “The whole situation raises the frightening prospect in the near future that, instead of riding the Broad Street Subway to City Hall to Pattison, people will take the Coca-Cola Trolley from Pizza Hut to AT&T.”
The Economic Lesson
An economic lens takes us to opportunity cost when evaluating the proliferation of naming rights. On an opportunity cost chart, the alternative choices are, for example, The Broad Street Stop or the Pizza Hut Stop. The benefit of Broad Street is locational information. The benefit of the Pizza Hut name is municipal revenue. Which are you willing to sacrifice?
I wonder if we should be concerned.
Lecture 32 of “Thinking About Capitalism” from the Teaching Company looks at John Stuart Mill (1806-1873), James M. Buchanan (1919- ), and Mancur Olson (1932-1998). Concerned with the impact of democracy on capitalism, these economic thinkers focused on self-interested voters and politicians. Although their perspectives differed, they shared the view that self-interested politicians could favor voters who contributed little to economic growth. As a result, to perpetuate their power, politicians would support legislation that harmed the economy.
Fast forward to September 15, 2010. A front page Wall Street Journal article, “Obstacle to Deficit Cutting: A Nation on Entitlements,” explains that an estimated 45% of American households will not pay 2010 federal income taxes. Why? Because they do not earn enough or their credits and deductions eliminate their tax liability. Meanwhile though, close to 50% of all American households receive federal benefits. The article concludes that an increasingly smaller proportion of the American population is paying for the entitlements received by an increasingly larger number of Americans.
Will politicans be influenced more by those who pay or those who receive?
The Economic Lesson
Considered a liberal 19th century economist who firmly believed in individual freedom, Mill thought that those who were more educated should have greater voting power than the working classes who might outnumber them.
James M. Buchanan won the 1986 Nobel Prize in Economics for his work on “public choice theory“. Stated very briefly, his focus has been the importance of fixed political rules to thwart politicians’ self-interest.
Mancur Olson, in The Logic of Collective Action, explains that small groups can be more powerful than huge numbers of unorganized individuals who disagree with them.
One problem with macroeconomic policy is the inability to confirm that it does or does not work. With variables constantly in motion, an entire economy as your lab, and no way to keep anything constant, how to know if you are doing the right thing?
This takes me to a Pew Research Center survey. A Pew questionnaire sent to 1001 adults confirmed that we all agree that state spending is a big problem. It also confirmed that we can solve the problem by cutting spending on highways, health services, public safety, and school funding. Or, we can raise taxes.
Yes? Not quite. For every solution, more than 50% voted “no”. Furthermore, with the possibility of a double dip, some say now is the worst time to implement “austerity”. Others say “austerity” is the only solution.
Decisions about state spending parallel federal dilemmas. Do we need more stimulus spending or has government spent too much already? We have no definitive empirical data to provide guidance.
The Economic Lesson
Since our nation began, we have disagreed about economic policy. George Washington had to cope with the ongoing feud between Secretary of the Treasury Hamilton and Secretary of State Jefferson. Hamilton was for a more interventionist government to spur economic development. Jefferson, by contrast, wanted less. And yet Hamilton’s goals are the same as today’s non government/market advocates.
In yesterday’s Washington Post, Robert Samuelson reminded us that most developed nations will have a growing proportion of senior citizens. Comparing 2005 and 2030, for Greece, the 65 and older group will increase from 18% to 25%, for Spain, from 17% to 25%. According to 2000 US census projections, between 2010 and 2030, the 65 and older population will pop from 12.97% to 19.3%.
Calling it a “welfare state death spiral,” Samuelson believes that this simultaneous aging across borders eliminates the chance that one nation can extricate itself from a “bind” through help from a healthier country. Because, he says, of everyone’s unemployment insurance, health insurance, and old age assistance, governments will have excessive expenses that will be difficult to fund.
The Economic Lesson
Also, the causes relate to opportunity cost. Let’s assume that a politician can vote for or against an old age benefit. Therefore, the opportunity cost would be the best alternative that was not selected: choosing means refusing. One benefit of voting “yes” is reelection. Another benefit is giving money to a very needy person. By contrast, the benefits of voting “no” could include creating less debt for grandchildren and slowing economic growth. Each alternative has a high opportunity cost.