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Tag Archives: income inequality

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04.17.2013 | Pizza Economics: The Life of a Pie

Pizza economics could provide good case study potential for looking at income inequality, a creative workplace, and (from Saturday Night Live) starting a small business.

Income Inequality:

  • In Williamsburg Brooklyn, you can buy pizza made by a chef who graduated from the Culinary Institute of America. At $3.25 a slice, it has homemade mozzarella, gourmet dough, and specially imported Sicilian oregano.
  • Also though, the dollar slice is spreading. All in Manhattan, there are nine 99-cent Fresh Pizza stores and eleven 2 Bros. Pizza stores that sell the dollar slice. The dollar pizza reminded me of the Model-T Ford. It uses less expensive ingredients that can be standardized, its price is low, and it requires high volume for its producers to make a profit.

We could say that pizzerias are catering to the hourglass consumer. In a post on Starbucks raising and lowering prices rather than targeting the middle, we suggested imagining an hourglass to describe consumer buying behavior. A bulge at the top, a bulge at the bottom, and a squeezed middle class.

A Creative Workplace:

  • Described in a bio of Amazon founder Jeff Bezos, the “two pizza team” is the biggest size to which any group should expand. If it takes more than 2 pizzas to feed a work group, then it is too large to generate independent ideas.

Starting a Pizza Eater Business:

  • Hilarious, Melissa McCarthy’s proposal for a small business loan for a pizza eating business is from Saturday Night Live. Her philosophy:  ”Do what you love and the money will follow.”

Sources and Resources: This (gated) WSJ article was a good source of information on the growing divide between cheap and expensive pizza while here at econlife, we discussed Manhattan’s pizza price war.

Hat tip to the Slice blog for the McCarthy clip.

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time flows
04.14.2013 | Income Inequality: Starbucks

During June, 2012, 8 pounds of Guatemalan coffee were sold at auction for $4004.00  ($500.50 a pound). Called Finca El Injerto, the bean is unusually small, originally from Yemen and grown at an elite Guatemalan plantation.

At my Florham Park, NJ Starbucks, you can purchase a half pound of Sun-Dried Sumatra for $18. Or, you might be one of the more fortunate people who ordered Costa Rica Finca Palmilera (a Geisha tree heritage varietal) online at $40 a half pound before it ran out. Geisha refers to its Ethiopian origin.

On the other hand, nearby at my local supermarket, on May 10, Starbucks will be reducing the price of their coffee. A $9.99 12 ounce bag of Starbucks will cost $8.99 while their Seattle’s Best prices will be $1 less at $6.99. The first is a 10% drop, the second, 13%.

What is going on?

Perhaps Starbucks’s management knows about the US Gini Index. A quantitative approach to income distribution, the Gini Index ranges from 0 to 1. For income distribution, the higher the number the more the inequality. In the US, a rising Gini Index has implied that more people at the top have a greater proportion of the nation’s total income.

Some say we should picture an hourglass. A bulge at the top, a bulge at the bottom, and a squeezed middle class.

We should note, though, that even here, a seemingly simple number is controversial. There are different ways to calculate income and demographics are also relevant. In a past econlife post we noted, “When economist Robert Whaples discusses income inequality (#7) in an excellent Teaching Company series on contemporary economic issues, he first has to define income. And that, he says, is not easy.

  • Collecting data, the Census Bureau does not necessarily recognize noncash public benefits.
  • Retirement and health insurance packages are excluded.
  • Households tend to ‘underreport nonwage sources of income.’”

In addition, changing household size is relevant as is whether you do or do not use pre-tax income.

Gini Coefficients

Sources and Resources: This fascinating article on Guatemalan coffee provides insight about the coffee auction described here. For Gini Coefficients and Indices, these articles show how some commentators depend on them while others think they are only a beginning of understanding income distribution. This Scientific American article had the best analysis of the pros and cons of Gini Coefficients.

A hat tip to Bloomberg for this article.

 

 

 

 

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For most economists, historians, social scientists, it is tough to avoid research bias
11.13.2012 | Making Presidential History

President Obama has been having dinner with historians.

Described by the NY Times as a “largely left tilting group,” the names I consistently discovered that attended the dinners were: Doris Kearns Goodwin, Michael Beschloss, Robert Caro, Robert Dallek, Douglas Brinkley, H. W. “Billam” Brands, David Kennedy, Kenneth Mack, and Garry Wills.

Politico reports that during the May 2011 dinner, historian Robert Dallek asked the President how they could help him. The President replied, “What you could do for me is to help me find a way to discuss the issue of inequality in our society without being accused of class warfare.”

How to discuss inequality? I hope that people look at comments from Branko Milanovic, a former lead economist at the World Bank. Perhaps a dialogue on inequality should involve the key questions that Milanovic presents in The Haves and the Have-Nots.

  1. What is the cause of inequality? For example, does income inequality increase or decrease as the economy grows. (Called the Kuznets Hypothesis, one theory says inequality is like an inverted “U.” As an economy grows, it moves from equality–lots of poverty–to inequality when some prosper, and then as an advanced economy, to more equality because the state redistributes income.)
  2. What is the impact of inequality? For example, does inequality create positive or negative economic incentives? Does it lead to more foreign investment, education and growth? How is governance affected?
  3. What are the ethical implications of inequality? For example, are there good and bad ways to have ascended to affluence? Are the absolute incomes of the poor increasing? Is inequality because of work more acceptable than inequality because of inheritance?

 

How would you connect public policy and your answers to these questions?

And, finally: When the President told the group he was considering “A New Foundation” as the theme for his administration(s), Doris Kearns Goodwin, author of books on Lyndon Johnson, FDR, Abraham Lincoln, the Kennedys suggested that “A New Foundation” might not be the best choice. “Why not?” the President asked. “It sounds,” said Goodwin, “like a woman’s girdle.”

Other slogans? Woodrow Wilson’s New Freedom, Theodore Roosevelt’s Square Deal, FDR’s New Deal, Harry Truman’s Fair Deal, John F. Kennedy’s New Frontier, Lyndon Johnson’s Great Society.

Sources and Resources: My information about the President’s historian dinners was primarily from the NY Times and Politico. But, what I most recommend is the Branko Milanovic book, The Haves and Have-Nots: A Brief and Idiosyncratic History of Global Inequality. A combination of great vignettes and scholarly ideas, it is a good read.

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Trees Reflect Urban Wealth
10.02.2012 | Trees and Money

In one NPR report on trees and income inequality, a senior online NOVA editor showed his sky shots (below) of Piedmont CA and nearby West Oakland. Piedmont, which he described as a “wealthy enclave” was quite green while West Oakland “known to have been very poor and lower class,” was silvery.

The green appears to represent affluence because richer cities and households can afford trees. Improving air quality and property values, trees also control drainage, reduce noise, and generate biodiversity. Some studies have even indicated that trees reduce stress.

Does that mean we can use trees to measure urban affluence?

I did find one empirical study that relates urban “forests” and income. In cities, as income rises, at first the tree population dips because housing, factories and other structures are replacing natural habitation. However, once income reaches a threshold, (at $39,000 in this 2006 paper), we have a reversal whereby the trees start to return. Why? People want to live in a more pleasant and natural environment. There actually is a curve– an Environmental Kuznets Curve–EKC–that illustrates the initial disappearance and then subsequent proliferation of trees in cities.

Several final facts…

US cities are losing their trees. According to the USDA Forest service, our urban tree canopy is shrinking by about 4 million trees a year. Among the 20 cities studied, tree cover ranged from a high of 53.9% in Atlanta to 9.6% in Denver. However, the loss was greatest in New Orleans, Houston and Albuquerque.

And a quote from the USDA Forest Service…

“…urban trees are the hardest working trees in America.”

Sources and Resources: Thanks to this marketplace.org report for the idea that trees connect to affluence and for the photographs that follow. I did then find some academic confirmation here,  facts from the USDA Forest Service, and NYC’s million trees initiative. Also, you might enjoy this EconLife post on urban affluence and one-way streets.

Piedmont

An Affluent Community, Piedmont California Has Many Trees

 

 

 

 

West Oakland

Less Affluent, West Oakland Has few Trees

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08.28.2012 | Why Are Most of Us Middle Class?

“What then is the American, this new man?…He is an American, who, leaving behind him all his ancient prejudices and manners receives new ones from the new mode of life he has embraced, the new government he obeys, and the new rank he holds…Here individuals of all races are melted into a new race of man, whose labors and posterity will one day cause great changes in the world.”  (J. Hector St. John De Crèvecoeur, U.S. visitor, 1782)

Today, asked “What then is the American?” we would probably answer, “Middle class.”

In an August Pew Research survey of 2508 adults, almost one-half said they were middle class. It seemed not to matter that dividing the number of US households into fifths and then looking at the middle fifth, income ranged from $38,040-$61,720 (2010). Moving beyond any valid income definition, people with more income and less said they were middle class.

Why?

This takes me back to a blog I wrote in 2010:

In a recent NPR interview, a painting contractor, an employee of Healthy Montana Kids, a man who runs a hi-tech robotic firm, and a hospice worker, all earning between $25,000 and $100,000 annually, said they were middle class.

Sort of like “Goldilocks and the Three Bears,” most Americans prefer identifying themselves as the middle class: “They don’t want to seem {too} poor, they don’t want to seem {too} rich-they want to seem like everyone else.” Why? Probably because middle class means more than income. Also, it connects to our values, our aspirations, our education, our jobs.

In a wonderful column, David Brooks identifies “middle class” as the key to our American identity. But then, he asks, as the rest of the world becomes more like us through a gigantic global middle class, how will we perpetuate our leadership and distinct identity? The answer, he says, are our middle class values. Our middle class values fuel our achievement, our innovation, and our sense of community that everyday activities like Little League embody. While Brooks cites Ben Franklin as a model, I like to remember that John Winthrop, governor of Massachusetts Bay Colony said we can be, “A city on a hill.”

Whereas we all agree that people like to identify themselves as middle class, the disagreement starts when we ask what is happening to the middle class. I hope you will take a look at these 2 links. While one focuses on whether middle class income has stagnated and the other looks at the changing size of the middle class, both show that your conclusions depend on how you interpret the statistics. Also, the August Pew Research on the middle class is here, my census statistics come from here, and the Crèvecoeur quote is from here.

Who is middle class?

 

 

 

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