We Suggest…
Silent Night
We are sorry for the lack of posting, with the crazy holiday season in full swing time is a little tight. Dennis and I promise to get back on it in the new year. We want to wish you and yours a happy holiday season and we will see you in the new year!
Krugman’s Lessons from Germany
One of Paul Krugman’s most recent columns discussed what the U.S. could learn from Germany in the area of job creation/ retention. Germany has instituted policies that create incentives for hiring employees/ not firing people. The devil is not in the details here; it is much more superficial. It doesn’t matter whether this German-style policy aim is done through tax breaks or just straight-up cash handouts. All you need to know is that it gives businesses a reason to hire/not fire.
Krugman says that the White House’s economic team doesn’t want to do this because it will artificially inflate employment, that is, incentivizing hiring when there doesn’t need to be any (in short, it drops productivity sharply). Krugman doesn’t really address this poignant criticism. Rather, he would rather people just go to work, even if they are diluting the work of others.
This is where Krugman always loses me. He advocates things based on his politics…which is fine, if you have legitimate reasons to do so. Here, his reason is admittedly Left and government expansionary. But there is no real analysis behind his main point. All he has to say is: We have to look at the costs associated with the unemployment benefits being paid out (American current model) versus the costs associated with employing unnecessary people (Germany model). Do whatever costs less. Period. Here (and everywhere?), the political alignment of the choice shouldn’t matter…but only its substantive effect.
Uber allus?
C’mon…Baby Needs a New Pair of Shoes.
Recently I traveled to Las Vegas for business. I’ve been there about five or six times all for business related reasons and EVERY time I’m amazed at the place. For one…its in the desert. Two, the buildings that exists there are unimaginable; I was standing under the Effie Tower while being in a building. And third…the backbone of Vegas- gambling. I watched a guy lose over $100 at video poker ( in about 5 minutes), and he didn’t even spill his drink. Call me frugal, call me smart – or call me intone with my economic mind. Whatever the reason, I don’t understand why how people can risk their hard earned money on games which clearly have a bias.
Behavioral economics is a tricky subject. In a nutshell, it attempts to rationalize the irrational. Throughout time, humans have subscribed to the “economic man” theory- where humans make rational decisions weighted on cost/benefit. If you’ve been to Vegas however…you know this isn’t true. The guy taking another card on a 19, or someone betting it all on black, the odds are always against you. So how does Vegas survive? Behavioral economics explains that many decisions are made upon risk seeking or risk aversion. Placed in identical situations, even the same person may not choose the same result due to these behaviors. I recently read a study by Ayako Onzo And Ken Mogi from the Tokyo Institute of Technology. They set up an experiment where subjects were given 5 “units”. The subjects could then push one of two buttons – bet or escape. The probability of winning was fixed at 25%, but time limits and phrases were used.
They found that when subjects were shown the “You Win” tag, they were more likely to bet, however less likely when about to lose their units and be out of the game.
This phenomenon can be traced to an experiment by Daniel Kahneman. Kahneman set up a experiment dealing with lotteries. the subjects had to choose between lottery Red and Black. In Red, there is a sure loss of $750. In Black, there is a 75% chance to lose $1000 and a 25% chance to lose nothing. They found that although both lotteries had an identical expected value, a clear majority of respondents preferred Black (13% of the subjects chose Red and 87% chose Black). This result suggests that there is a risk seeking preference on this kind of negative
choice. Relate this to ANY gambling. With the odds, it is more likely for you to lose your money, but who would play a game with flashing lights that says “Lose $50 Here!”
The second part of the Japanese study also shows how attitude can affect decision. Like in a slot machine, when a player wins, they are more likely to bet again, especially if that win “saved” their credits. Now im not saying the machines are rigged, but its pretty interesting that you win when you have one credit left, just enough to entice you to keep betting.
So believe it or not, Vegas certainly have their pulse on behavioral economics – they know how they want you to think, and they know how to get you to think that way. So the next time the dice is calling your name…just buy baby the new shoes.
Looks like is paper bags for baby....
Puff – Puff – Pass…A law?
Marijuana is always a hot topic and everyone has a clear cut opinion…maybe. This week the justice department made a huge announcement giving more power to states in terms of medical marijuana dispensaries. The DOJ stated that as long as these outlets were following state law, they would pretty much stay out.
With that news states like California and Colorado have had a surge in interest in the legalization of the drug. These states already allow marijuana for medical purposes and hundreds of dispensaries are popping up throughout the states. A recent New York Times article detailed how the marijuana movement is starting to gain some clout in the political circles. One group has obtained over 300,000 signatures supporting a bill that would legalize marijuana.
Let’s take a look from an economic perspective. Currently, the United States Federal government classifies marijuana as an illegal drug. As with anything illegal, someone will provide it. Recently Mexican drug cartels have invaded our nations national forecast, setting up huge grows deep in the woods. These is a major problem here in Colorado, and imagine your surprise as on your Sunday hike you run into armed Mexican Mafioso- not good. The government spends and estimated $17 billion annually on fighting the drug trade, with marijuana being one of the more used drugs, one can assume the cost of this “war”
Now I know what you’re thinking – yes its bad for your health, yes- driving under the influence is bad- but so is alcohol and tobacco. Both of these vices provide substantial tax dollars. With a pack of cigarettes pushing $10.00 in NYC, imagine the price people would pay for legal, pre packed marijuana cigarettes! By legalizing the drug that nearly 45% of the population has used at least once, we could eliminate the marijuana drug cartels and their profits would fall out of the market, increase tax revenue, and save billions as the US marijuana drug trade ceases to exist.
Many are worried about the effects, here in Denver, the city is allowing medical marijuana dispensaries. A recent Denver Post article interviewed one owner. When posed with the accusation they would be “bad neighbors” to the business district they stated they were installing all new lights, benches, fixing the sidewalk and most immortally “paying a lot of taxes”
This debate will surely fire many up, and be drawn out, but maybe its time to take a cost benefit analysis, spend our tax dollars on real issues – and hey…maybe even relax a little bit.
Open For Business
The Grim Romer
Just this past Thursday, Christina Romer, a top economic adviser to the President, revealed a gloomy forecast. She is an expert on the Great Depression and an accomplished academic, so naturally you should consider her words prophecy…right? Maybe.
She said that the unemployment rate would rise to 10.1% and then dip back down to around 9.4% at the END of 2010. That’s a loooong time to keep extending those unemployment benefits. I mean, what do you say to the people who are currently unemployed? “Hey, guess what you’re gonna be doin’ next November…Nothin’ sucka! Back on the breadline!” Although, I do think depression counselors and suicide hotlines will experience moderate to high growth in the next few quarters…so not everyone loses.
She also said the stimulus had done most of its stimulating, even though only 15% of it was spent so far. So much for the Keynesian revolution. This is quite strange since the White House has said that the economy would resurrect in “fits and starts.”
All of these scary predictions are totally apropos, as Halloween is just around the corner…
slashing expectations
Strippers and School Buses
I bet I have you attention now. If you’ve been to Las Vegas lately you will see some very creative marketing going on. Every cab has ads…everywhere (many of questionable nature). From the roof, to on the truck, in the passenger seat to my personal favorite – modified spinner hubcaps with ads on them, cabs are moving billboards. From a marketing and economics view, this is genius. Vegas has thousands of cabs, that pick up thousands of people a day, but more importantly they are seen by tens of thousands a day throughout the city. With this much exposure, marketers would be crazy not to capitalize on this format.
So what does this have to do with school buses? With school taxes on the rise, and for most salaries not increasing with cost of living, why not apply the same technique to an even bigger billboard – school buses. Now I’m not suggesting that Percillas Pussycat Lounge be featured next to the blinking lights, but think of the possibilities! Who sees school busses? School Children – advertise toys. Parents- grocery stores, car insurance, cell phones. People stuck behind them on their way to work – satellite radio to sooth the nerves, and I’m SURE Starbucks would love to slap their name on the back to entice frustrated commuters.
With the extra revenue from that ad placements, not only could schools expand their budget with less tax payer money, but also stop cutting valuable programs like art, music and sports that have plagued under funded school districts.
So the next time you’re stuck behind a bus, just think…how much money COULD I be saving with Gieco?
So easy...A school administrator can do it
The Utility and Efficiency of Nothing
Tragically, a major figure in Western Zen Buddhism has lost his battle with cancer. John Daido Loori, a New Jersey native, pioneered bringing Zen to the states. A few months ago (before his death), I read one of his books on meditation and Zen in general. I found it very interesting that he was basically stressing the importance of nothing. I don’t want to delve into the particulars of meditation or Zen, but many proponents of meditation (any form) stress the benefits it yields.
Essentially, doing nothing and clearing one’s mind has value. Reduced stress, increased happiness, and possible physiological benefits are often cited. Moreover, almost nothing needs to be learned to enjoy the utility of nothing. Just sit down, shut up, and start consuming your utils!
Okay, okay, there is an opportunity cost to doing nothing. But it’s probably not too significant, since daily meditation usually only takes about 40 min. to an hour out of hour total day. And…is there something else during that time that would yield such myriad benefits? Turn off the TV and put down the paper before you get a heart attack.
Which brings me to my last point. Meditation (doing nothing) is EXTREMELY efficient. You literally put in only one input (time) and get out some hefty outputs (see above). Not too bad if you ask me…
nothing better to do
Till Debt Do Us Part
Two things happened on my recent trip back to New York. One- I attended a wedding, Two- I got to have a couple beers with Dennis. Result = blog post. (Disclaimer – this post was inspired by Dennis rather than the wedding) Regardless what the Fed, or Greenspan or the Dow says…we’re still in a recession. In this age of skeleton crews and meager plates, the business of love is still booming. According to most resources, the average US couple spends just over $20,000 for their wedding – twenty…THOUSAND…dollars, according to the US department of Health and Services that amount is just under the poverty threshold for a family of four. And this is just the average – of course with anything someone has to go big. With weddings able to skyrocket past the 100k mark one has to wonder…what’s the point?
Perhaps its my rational economic mind speaking here but I don’t see much sense in spending a healthy house down payment, or a decent half years salary on one day to celebrate this event. What really gets me is how commercial the institution of marriage has become. With vows like “…in sickness and in health” (which with health care in America, might be wise to invest in a health fund rather than a wedding) and the ever hypocritical “…for richer or for poorer” (most likely the latter after this party!)
Marriage should be about the love of two people devoting their life to each other, not the matching platinum napkin rings and your choice of chicken, beef or fish.
What to do? Dennis mentioned a great point. We both love the idea of Micro-anything. Tasks put on a small localized scale to achieve efficiency – the micro-wedding was born. In these tough times couples need to take a good hard look at their special day. Does anyone REALLY have 60 cousins that need to come? And I bet you don’t even like your uncle Larry… who isn’t going to give a good gift anyway- so why bother? Bring your wedding down to size. The micro-wedding would not only be cheaper, but also simpler. Locally outsource the tasks, invite local friends and only close family. Make your wedding focus on the real purpose – love. The wedding will never make the marriage, and make it so its death…rather then debt that causes the couple to part.
"I do...have my checkbook"
Dow 10,000….Don’t Bank on it
This past week the Dow hit 10,000, which is seen by many as a milestone. It is good news…right?
Maybe. Big earning reports were due from a few major banks. It was discovered that Goldman Sachs and JPMorgan Chase were doing quite well. But, not by traditional banking ( e.g. like lending to people and businesses), but by taking risks in trading securities and sophisticated market transactions. According to the New York Times, they could take such risks because they had Bailout money buttressing them every step of the way. Banks, like Bank of America, that do more consumer/business lending, reported bad numbers. This is a big uh oh moment for the efficacy of the “Bailout.”
Finance, like any other business, is completely self-interested. Using words like “greedy” are meaningless when describing corporations. Goldman et al. have an incentive to do whatever brings in more profits…and if that’s shunning “good” lending at the expense of society…well…so be it. This is no place to discuss the oxymoronic phrase “business ethics,” but rather a time to remind ourselves what business (and finance) do…maximize profits. period.
It does look pretty evil though...
