Tuesday, June 19, 2018

econlife - All You Need to Know About Doughnuts by Elaine Schwartz


Last Friday you could have gotten a free doughnut at Walmart, Krispy Kreme, and Dunkin’ Donuts. The reason? Since 1938, the first Friday in June has been National Doughnut Day.

At Dunkin’ Donuts you had to buy a beverage to get a “free” donut:

Where_to_get_free_doughnuts_for_National_Doughnut_Day_-_The_Washington_Post

Krispy Kreme gave one per customer:

Where_to_get_free_doughnuts_for_National_Doughnut_Day_-_The_Washington_Post-1

If only I had known.

But there is more to find out about the doughnut.


Donut Economics


We could call the 1920s the era of the consumer. For the first time, people could buy affordable nylon stockings, canned pineapple, and radios. They could also get a mass produced doughnut because of a Bulgarian immigrant.

Adolph Levitt’s story starts with the small batches of doughnuts he was making in his Manhattan bakery shop window on 125th Street. Although the doughnuts were popular, people complained about the fumes. So, with help from an engineer, he devised what he called the Wonderful Almost Human Automatic Doughnut Machine. Pictured below, it formed, plopped, and fried rings of dough that could become 1,000 identical doughnuts in one hour.

This is a 1922 advertisement for Levitt’s Display Doughnut Machine Corporation. (I’ve added the notes in pink.):

Doughnut__A_Global_History__Edible___Heather_Delancey_Hunwick__9781780234984__Amazon_com__Books

Some describe Levitt’s machine as the first while others say there were many when his was created. Whichever story is accurate, our key is that Levitt helped to speed doughnut mass production. Selling the machines and donut mix, he soon had a multi-million dollar business.

In 1934, doughnuts played a role in the Clark Gable/Claudette Colbert classic, “It Happened One Night.” Do take a look at this twenty-eight second clip. You can see why Gable is a legend:





Our Bottom Line: Mass Production


To end with doughnuts, we need to start with Adam Smith. In his Wealth of Nations (1776), Adam Smith described the benefits of mass production. Focusing on one pin factory, he showed how a division of labor saved time, elevated production, and diminished each item’s cost. Smith told us that one worker, alone, might not even produce a single pin. But when 10 workers divide 18 different tasks and each one specializes, output soars to a whopping 48,000 pins a day. Then, once you have all of those pins, trade and regional specialization develop. But we will save that story for another day.

For now, we can return to doughnuts. Krispy Kreme tells us that one of their larger stores can produce 12,000 doughnuts an hour–quite enough for National Doughnut Day.

This is how we mass produce doughnuts today:




My sources and more: Happily, there exists more doughnut research than I ever imagined, but sadly, it was not academically rigorous. Still, if you want some interesting doughnut reading, the best is on the shrinking size of the doughnut hole from Vox.

Have_donut_holes_gotten_smaller__This_compelling_vintage_chart_says_yes__-_Vox

From there, you could continue with this Smithsonian history, this Marketplace podcast, and Adolph Levitt’s granddaughter’s NY Times article. Meanwhile, here is more about one of the first doughnut machines.

Please note that today’s featured image is from urbanmatter.com.


Hazlegrove-6763_6b
Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, June 14, 2018

econlife - Do Mandatory Calorie Labels Matter? by Elaine Schwartz


Through the calorie count labels required by the Affordable Care Act, regulators hope we will consume less fattening food.

But before we consider the impact of the mandate, let’s look at an alternative…

Activity Equivalent Labels

Some say activity equivalent labels are more meaningful then calories.

To burn the calories in five chicken wings, you would need to jog for an hour:



One serving of pasta salad would necessitate 30 minutes of situps:



And, you could offset the calories in three chocolate chip cookies with a long power yoga session:



Instead of exercise, though, larger U.S. restaurant chains are posting their calorie count equivalents.

The Calorie Label Mandate

According to the 2010 Affordable Care Act, 2011 was the year that specified food vendors and restaurant chains with more than 20 locations had to post calorie counts. One reason for the delay was “Big Pizza’s” resistance. Domino’s even said that their custom pizzas could have 34 million calorie permutations. (Is that possible?)

But still, the regulators persisted and yesterday, the mandate began. The FDA summarized what we can expect from them:



However, no one is quite sure about the impact.

Our Bottom Line: Supply and Demand

Supply

On the supply side, we do know how some firms have responded to mandatory calorie labels in the past. Eater tells us that a Johns Hopkins study found more lower calorie food options were offered. Similarly, NPR reported that Starbucks was offering smaller pastries with lower calorie counts.

However, Domino’s cal-o-meter was most interesting. Do note that their serving metric for a meal is a single slice. Consequently, a hand-tossed Ultimate Pepperoni 10″ pizza has just 250 calories…if you eat one-sixth of it.



Demand

As for demand, I wonder if our response to calorie counts echoes how we usually compare short term benefit and long term cost. The pleasure from chicken wings, pasta salad, and chocolate chip cookies makes it easy to ignore future health problems.

So, returning to where we began, perhaps an “activity equivalent” would not meaningfully change our preference for short term pleasure.

Here are more activity equivalents:


My sources and more: Perfect calorie focused overviews, this Vox article and MarketWatch have it all. But if you want to read more, Eater and CNN and the Washington Post each had a different perspective.

Our featured image is from Ed Ou/AP through an NPR story.


Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, June 7, 2018

From the Homeschool Front … How I Spent My Summer Vacation

Seventeen years ago, I left a career as a research analyst at a local public policy think tank to stay home with my first child. Our plan was that I would return to work once our youngest child was in school. When we started homeschooling, this plan fell by the wayside. Since my children are getting more independent in their schooling, I would like to get back into policy research part time from home. However, my time at home with them left me with a tremendous gap in my resume. This summer I had the opportunity to bridge that gap.

I worked as a Research Fellow at the Commonwealth Foundation, Pennsylvania’s free-market think tank. This involved moving across the state for the summer, which I was able to do since my husband works from home and my oldest daughter has her license. It is a very strange experience to go from being a homeschooling mother of four to being single and childless and working full time. As you can imagine, it was a learning experience for us all.

For my part, I had a chance to immerse myself in research and writing, which I love to do. I also learned about various public policies, networking, social media, and more. Most participants in the program were recent graduates, so it was interesting to see their perspective on different topics. Much of what I learned will help my kids, too, as they prepare for college and beyond. In the coming months, I’ll share on this blog some of the resources that I discovered.

My summer away was also a great learning experience for my children, who range in age from 11 – 17. They were responsible for their own laundry and were largely in charge of meals and grocery shopping. They coordinated their own schedules (with approval from my husband or me) and had to stay on top of their activities and outings. While they enjoyed the Independence at first, by the end of the summer they were ready to have me running the show again. (Although I think I’ll let them continue doing their own laundry. I’ve enjoyed laundry for one instead of six this summer!)

While the practical lessons we learned this summer were important, the biggest benefits were perhaps less tangible. I gained a new appreciation for being able to stay home and raise my children. It wasn’t the best financial move, but the time I’ve had with them has been worth the struggles. My Research Fellow participation also set a good example for them. It can be scary to try something new, such as moving away for the summer and being the only “old” person in the program. It was beneficial for my kids to see me overcome my trepidation and successfully complete the program.


A common theme among most homeschoolers is that education isn’t confined to what our society thinks of as “school.” Last summer was certainly evidence of that for my family.   

Colleen Hroncich loves that homeschooling allows her to learn right alongside her children. A published author and former policy analyst, Colleen’s favorite subjects are economics/public policy and history. She has been active in several homeschool co-ops and is a speech and debate coach.

Tuesday, June 5, 2018

econlife - Why We Need Holey Cow and Other Cheesy Names by Elaine Schwartz



More than 30 years ago, an Italian family and two master cheesemakers moved to the United States. Preserving their great grandfather’s legacy in Wisconsin, the family produced traditional Italian cheeses like Parmesan.


The brand was BelGioioso:





But now, they might have to stop calling it Parmesan.


EU Cheese Naming Rights

Our story starts in an EU (European Union) book of regulations. Including Parma ham, Dutch Gouda and Champagne, each product in a 1000+ list has the exclusive right to its name. The privileges are called PDO (Protected Designation of Origin), PGI (Protected Geographical Indication), and TSG (Traditional Specialties Guaranteed). But let’s just call it GIs (Geographical Indications).

The battle over GIs has been raging for decades. In 2005, a fight about feta ended with Greek cheesemakers winning. From then onward, in the EU, no one could place the feta label on an identical cheese that wasn’t Greek. Instead, a Danish dairy cooperative resorted to calling its feta “salad cheese” or “white cheese.”



U.S. Cheese Naming Rights

Of course, a Wisconsin cheesemaker can call its cheese Parmesan in the U.S.


The problem starts when they want to sell it elsewhere. Ranging from Mexico to Japan and South Korea, a host of nations are signing free trade agreements with the EU that exclude the U.S. Because many of those agreements extend the reach of GI restrictions to each signatory, our cheesemakers suffer. A U.S. producer saw sales plunge when he had to call his Asiago cheese, “Sartiago.”


Others though have been a bit more creative. A California cheesemaker called its Emmenthaler-like cheese Holey Cow:




Our Bottom Line: Competitive Market Structures

Looking through an economic lens, we can see the benefit of the GI designation. From monopolistic competition among many small producers, the EU trademark protection moves the product to the right along a competitive market structure continuum.

And, like the monopoly that it is nearing, the firm with name protection has more price making power:




My sources and more: This WSJ article and Modern Farmer reminded me that it was time for an update on cheese names. Meanwhile, the feta story came from Reuters and I learned about BelGioioso from their website. However, if you just visit one mouthwatering link, do go to Cowgirl Creamery for great cheese names and taste. I recommend Mt. Tam and reading the Cowgirl story.



Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, May 24, 2018

econlife - How to Measure Our Misery by Elaine Schwartz


An economist could say that three “lows” and one “high” bring happiness:

Taking the flip side, they also let us identify misery.


The World’s Misery


Economist Arthur Okun (1928-1980), created the first Misery Index. By adding together the inflation rate and the unemployment rate, he had a measure of economic distress. I guess it makes sense that when purchasing power dips and joblessness climbs, there are fewer smiles.

Now though other economists have taken the idea a step further. Johns Hopkins Professor Steve Hanke tells us that we should add interest rates and growth to the equation. More precisely, he totals the unemploymentinflation, and bank lending rates. Then, from that number, he subtracts the percent change in per capita GDP growth. When the first three rise, they are the “bads.” But if the last one goes up, it is a “good.” You can see that high numbers are alarming.

From a list of 98 countries, these are Dr. Hanke’s most miserable five in 2017:

Screenshot_4_12_18__10_15_PM


The States’ Misery


Returning to the Okun approach, we can use data from a 2016 paper to see the most  miserable states during the Great Recession. To get his numbers, an SMU economist added his inflation rate formula to the unemployment rate. (The NBER dates for the recession were December 2007 to June 2009.)

From a list of the 50 states, these were the five most unhappy:

Screenshot_4_12_18__10_58_PM


U.S. Misery


Returning to the Okun approach, for the worst U.S. numbers, we can look back to the stagflation of the early 1980s when we had a stagnant economy and inflation. Now though, combining exceedingly low inflation and unemployment, our March misery index was 6.46:

US_Misery_Index_Chart__Monthly_

However, even with such a low index number, the U.S. is not among the 10 least miserable countries:

These_Are_the_World’s_Most_Miserable_Economies_-_Bloomberg


Our Bottom Line: Misery Index Questions


Like all statistical yardsticks, a misery index can be a handy tool. However, we should also remain aware of its defects:

So, even with the U.S. Misery Index approaching its 60 year low, we might be sadder than we think.

My sources and more: The more you look, the more misery indexes you find and the more interesting it becomes. The Hanke list and some analysis were at Cato while this paper had the U.S. states numbers. Meanwhile, there were many possibilities at Bloomberg.

Please note that several sentences from today’s post were in a previous econlife.

This post was slightly edited after publication.

Hazlegrove-6763_6bIdeal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Tuesday, May 15, 2018

econlife - Those Subscriptions That We Love to Buy (and Barely Use) by Elaine Schwartz


MoviePass subscribers can see up to one movie a day. They just go to a theater and use an app that sets up the ticket payment. While a subscription used to be $50 a month, now you pay a jaw dropping $6.95 for 30 movies. The catch? You have to pay for a whole year upfront and add a $6.55 processing fee.

This is the story and then some economic insight…


The MoviePass Subscription


Soon after you sign up for MoviePass, a debit-like card will arrive in the mail. Then, you use their app to select a film and to check-in. At that point, they transfer the price of the ticket to your card so you can use it to pay as you enter.

This person used his app to see Dunkirk. “Success” meant the money had been transferred to his card:

How_to_use_MoviePass__the__10-a-month_service_that_lets_you_see_one_movie_per_day_in_theaters_-_Business_Insider-1


How_to_use_MoviePass__the__10-a-month_service_that_lets_you_see_one_movie_per_day_in_theaters_-_Business_Insider-2

The Numbers

MoviePass is very aware that the average moviegoer goes to a theater just 4.5 times a year. If their subscribers went daily, the firm would be paying an average of $8.97 a ticket or maybe $270 a month per person (unless it had a special deal with the theater). And if we are in a big city like New York or San Francisco, the ticket price soars to $16.50. But MoviePass does not have that problem. A whopping 88% of its subscribers underuse their MoviePasses.

And that takes us to behavioral economics.


Our Bottom Line: Mental Accounting


Nobel Laureate Richard Thaler explained seemingly irrational consumer behavior through mental accounting.  The following example is somewhat comparable to the MoviePass people who underuse their subscription. It is about Thaler’s friend at a department store quilt sale:

“The spreads came in three sizes: double, queen and king. The usual prices for these quilts were $200, $250 and $300 respectively, but during the sale they were all priced at only $150. My friend bought the king-size quilt and was quite pleased with her purchase, though the quilt did hang a bit over the sides of her double bed.”

As Thaler described, assigned to specific “mental account,” a purchase gets a reference that lets you know if it is cheap or expensive. Not only did the (mental) account for the quilt benefit but also the woman enjoyed an elevated transactional utility from the cheap purchase. Similarly, once MoviePass lowered the monthly subscription rate below $10.00, people’s “mental account” or imaginary bucket for entertainment got a bargain. And like the king-size quilt, the transactional utility of the purchase created a pleasure that far outweighed the reality of using it.

At this point we might even throw in the optimism bias from another economics Nobel Laureate, Daniel Kahneman. Defined as the difference between an expectation and its outcome, I wonder if the optimism bias (typically applied to risk taking), also explains why MoviePass buyers thought they would attend far more performances than they realistically would be able to fit into their lives.

So, returning to where we began, we have a lower MoviePass price that appeals to our mental accounting and takes advantage of our expectations bias.

My sources and more: This NY Times article on MoviePass started me thinking about the concept. From there, my investigation led me to The Hollywood Reporter  and BusinessInsider. and the perfect complement, Richard Thaler’s mental accounting paper.


Hazlegrove-6763_6b
Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.