Thursday, April 18, 2019

econlife - When Awards Give Us More or Less Than We Expect by Elaine Schwartz


An award solved a problem at German Wikipedia. It had been typical for someone to write only one article.

But then they created an award. People who wrote multiple entries got a special badge printed on their profile page. Their names were also listed near the award’s description. While the recognition had a benefit, the cost to Wikipedia was minimal. Before it existed, 35% of their writers submitted another article. Afterwards, 42%.

For Wikipedia, an award did what it was supposed to do. Others have not.


Awards That Backfire

In one study, students who got a “perfect attendance award” subsequently diminished the days they went to school. Researchers have hypothesized that the recipients realized it was okay to do less. They concluded that awards should not honor what you are supposed to do.

At econlife, we’ve written about Olympic medal winners. Of course the gold medal winners are the happiest but so too are the bronze recipients. However, many silver medalists are not quite as ecstatic. The reason? Because the gold was their focus.

Recipients could also be unhappy when too many awards are given. We might call this phenomenon award inflation. Or, you might devalue an award when giving it to people who don’t deserve it. If a recipient is a friend, family, or someone getting unearned adulation, then the award loses some of its credibility.

Funny Awards

Sometimes a “fake” award can make fun of the real thing and still generate admiration for the recipients. Halle Berry received a Worst Actress Golden Raspberry (a Razzie) for her performance in Catwoman (1/4 from Roger Ebert; 3.3/10 from IMDb ). During an acceptance speech that mimicked the Academy Awards, she warmly thanked Warner Brothers and all the people it takes to create so bad a film.

If you are a fan of The Office (as am I), you will enjoy this Dundie award ceremony. For some smiles, do take a look:





Our Bottom Line: Boosting the Market

Awards are a social experience. Group appreciation is supposed to inspire certain behaviors like community service or high grades. At work, management could be saying thank you for many years of service or the armed forces might want to honor bravery. Most Nobel Prizes are for scholarly achievements.

Because awards exist in social territory, they complement the market. The law of supply says we produce more when price climbs higher. But when cash is not enough, awards provide an extra incentive. Sort of like an energy bar, they give a boost to the market (and to German Wikipedia).

My sources and more: Thanks to Hidden Brain for an awards podcast that provided most of my facts.


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.

Tuesday, April 9, 2019

econlife - Why Times Should Change by Elaine Schwartz


Through a very unscientific online survey, I just concluded that Starbucks opens earlier on the U.S. West Coast. In San Francisco and Los Angeles, we can enjoy our grande Caramel Macchiato at either 4:30 or 5:00 a.m. For NYC, it was 5:30 or 6:00.

The difference takes me to a proposal that relates to DST (Daylight Saving Time) and the hour we lost this morning. So let’s start there.

DST History

The DST idea has been around for a long time. In 1784, Benjamin Franklin suggested (somewhat sarcastically) more morning light would let us conserve candles. And, for some reason, DST history commemorates George Vernon Hudson, a New Zealand entomologist who, in 1895, wanted more evening light to study his insects.

In the U.S., we have to look to 1918 when the Congress included a DST clause in time zone legislation. Hoping to move the clocks forward every May 31, instead they created a huge flap. On one side, farmers objected saying their cows could not be milked and their work could not begin in dark wet fields while baseball team owners cheered that later games would boost attendance. Convinced that more women would shop after work, the founder of Filene’s department store was also delighted.

In 1919, the Congress wound up rescinding DST and then went back and forth until the Uniform Time Act of 1966 and the Energy Policy Act of 2005 made it the law for (most of) the land. The problem though is that DST’s rationale relates to energy conservation and current research indicates that DST could even increase energy consumption.


The DST Debate

Last year we looked at one huge reason that daylight saving is good for us. Crime rates diminish when there is more light at night.

Two years ago, we considered how falling back and springing forward affected our health. Our conclusion was definitive for the fall back because more sleep is good for us. However, the health-related harm from spring forward is debatable.

There is more though that muddies our conclusions.

Some say evening rush hour is less dangerous because there is more light with DST. Others though indicate drivers’ DST sleep deprivation leads to more pedestrian deaths during the week after the change over. Furthermore, a recent study from economists at the University of Pittsburgh concludes that late sunset communities experience the sleep deprivation that diminishes health and productivity. Calling it social jet lag, with DST (late sunset), we go to bed later and that is not good for us. Still others point out that we burn more calories at night time activities and that is good for us. And finally, later light appears to spur more commercial activity.

Where does all of this take us? To one time.

Our Bottom Line: One Time

For many of us, the debate is about whether we change times twice a year. However, for me it just comes back to one time. Wherever possible, we should all use the same clock. Yes, November is delicious when we get an extra hour. And today is torture because lost it. However, the real question is what should we all do?

I suspect that the earlier Starbucks opening in California reflects coordination with New York financial markets. Similarly, Quartz told me that the people in Austin, Texas go to work at 8 a.m. rather than 9 a.m. because of NY time.

So, for the sake of the economic coordination that already occurs informally, let us create two time zones. My two zone proposal is a compromise. I actually would have suggested one time zone but hesitate because that would have taken us too far from our circadian clocks.

This division is a possibility:



And because of my night owl bias and the slight tilt of proof toward DST, it could become perpetual.

My sources and more: Quartz had the summary support for DST, the business side of the debate, and also the two time zone proposal. Tim Harford in a Slate article from long ago had the argument for one time zone. But, if you disagree with all I say, this University of Pittsburgh paper on social jet lag convincingly has your side.

Please note that the section on DST history was previously published in a past econlife post.




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, April 4, 2019

econlife - What You Might Not Know About Cardboard Boxes by Elaine Schwartz


In a Prime(d) podcast one woman described the three Amazon deliveries she received on a Sunday. One vehicle delivered her cough syrup, another her panty hose, and a third, some crackers.

I assume that each arrived in a corrugated box.

Making Boxes

The life of a new cardboard box might have begun with an old box in a Wisconsin paper mill. Sprawling across 1.2 million square feet, the mill is a mixture of buildings, tunnels, and railroad tracks. At the plant, those old boxes wind up in a machine called an O.C.C. (old corrugated container).  There, large bales of used cardboard are thrown into vats of swirling warm water where the cardboard becomes dense brown gruel. Next the gruel has to be strained because you and I throw out plastic, staples, and assorted debris with our used boxes.

At this point, the pulpy mixture travels to a paper machine where it is propelled by belts and rollers moving at 25 miles an hour. If all goes well, huge quantities of soupy glop become a massive role of rigid brown paper. Eventually, the paper becomes a corrugated box, is sent to Amazon, and then to us.

Yes, we’ve skipped a lot. Just keep in mind that many old boxes are recycled into new ones in the U.S. through a process that involves making the paper, the corrugation, and then the box. And that takes us to China.

But first, you might want to see this video. An Amazon box supplier. Georgia-Pacific presents the whole process:




Recycling Boxes

We are doing more of our own box recycling because much less of our cardboard waste is going to China. Chinese companies have even bought U.S. paper mills because China no longer has the scrap it needs for its corrugated boxes:



Shipping Boxes

During 2018, Amazon spent more than $27 billion to ship our packages. Trying to cut costs, they delivered 26% of our online package orders themselves:



Our Bottom Line: Derived Demand

Amazon Prime’s five billion shipments during 2017 is one reason we’ve needed so many boxes. You know the incentive. When there is no charge for shipping, our individual orders multiply.

Here, an economist might cite derived demand. Defined as the need for a product because we want something else, corrugated boxes are the perfect example. During 2017, those 5 billion (or so) cardboard boxes we demanded from Amazon was not because we wanted so many boxes. It was because of the items that were shipped in them.

My sources and more: For many more facts about Wisconsin’s resuscitated paper industry, the NY Times told the story. Meanwhile WSJ, here and here. focused on Amazon while Amazon is all that the podcast Prime(d) investigates.


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, March 28, 2019

econlife - What Avocados, Salmon, and Butter Have in Common by Elaine Schwartz


During the past seven years, the price of Italian olive oil has doubled. Almost at the same time, we saw salmon cost us 60% more. Butter too is more expensive. As the world’s largest butter exporter, New Zealand has seen demand rise by 50%. Meanwhile, world butter consumption increased by 13% from 2013 to 2018.

You can see the common denominator.

Fat.

Fat used to be bad. Now, not necessarily.

What We Eat

Between 1970 and 2014, we ate more of most food groups. While the numbers in the following graphic are based on availability, the FDA (Food and Drug Administration) concluded that they reflected consumption:




Looking closely at the food groups reveals that some of our tastes have also changed. Mango and broccoli demand have surged while we seem to prefer less of more traditional fruits like oranges, grapefruits, peaches and plums. The constant? The apples, melons, and bananas that we keep buying.

The most significant difference though is more fat. Accelerating the trend is the new conventional wisdom and perhaps research that certain fats are good for us. The result is more demand for olive oil, salmon, almonds, and yes, avocados.

We seem to have moved from butter to margarine and now back to butter again:




Price

An economist at the OECD tells us that worldwide preference for fattier food has gone up faster than anyone expected. The result is classic supply and demand. Prices increased because supply could not keep up:




Our Bottom Line: Regulatory Policy

Meanwhile the FDA has had to respond to our new eating habits. During the next several years we will have more realistic calorie and nutrient labels. Rather than making us feel good with the calories for one serving, food labels will indicate the “supersize” portions we really consume. By eliminating the line with total calories from fat, they will help us distinguish between good and bad fat. Also, the FDA has been reconsidering what “healthy” means.

Starting with the largest food companies, in 2020 and 2021, the new labels will be required.

My sources and more: WSJ had the good overview for the resurgence of fat. Quartz had more on butter. Completing the picture, Vox looked at how our diets have changed. Then, Popular Science had the last step with the regulatory response.

Our featured image is from Pixabay.


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.

Tuesday, March 19, 2019

econlife - The Value of the Brands We Love the Most by Elaine Schwartz


Below we have a branding “horse race” that starts in 2000 and ends in 2018.

Coca-Cola leads the pack when the “race” begins. But then Apple becomes a threat as it starts to move upward in 2011. It quickly passes Disney, McDonald’s, and starts to threaten the leader. Meanwhile, Marlboro slips out of the top 15 while Amazon enters in 2014, keeps climbing, and soon pushes Microsoft aside. (Amazon’s ascent is amazing.)

Do take a look. The numbers represent the value of the brand in millions.:




But what are we really talking about? Let’s see what it means to have a global brand.

Global Brands

A brand is a personality that distinguishes a good or a service from all others. It can relate to a taste, a texture, a technology. It can shape what a consumer experiences. When a brand is doing its job, it adds to the value of the good or service. And of course, brands help firms compete.

The question though is how a brand can get a dollar value. Some say you can calculate the cost of creating the brand. Others suggest pricing the brand as though you were selling it. A third possibility is the income generated because of the brand.

You can see that none of the brand valuation methods is precise. Perhaps for that reason, one leading group said Apple’s brand was equal to $214 billion in 2018. Also saying Apple was the #1 brand, Forbes arrived at $182 billion.

For us though the key is the impact. Businesses need to know the value of their brand. Employees and stockholders care about the profit from a well-managed brand. Investors want brands to create value. Consumers use brands to judge what they buy.

Demand

As economists, we could also say a successful brand shifts our demand curve to the right. The utility it creates can give us more satisfaction and more pleasure. It can make us believe that the good or service is more useful, healthier, or stylish. The brand increases our demand.

In addition, when brands promote loyalty, our demand becomes inelastic. Defined as a relatively minor response to a price change, inelasticity means that purchases slip only slightly even when price substantially goes up. With the brands we love, we are happy to pay more. For that reason, a similar or identical generic product is usually cheaper.

Below, a somewhat inelastic (more vertical) demand curve shifts to the right because of the extra utility from a compelling brand:




Our Bottom Line: Standardization

Like weights and measures, brand valuation has been standardized. Composed of 120 member nations and 43 others that participate, the International Organization for Standardization (ISO) has published the variables firms can use to calculate their brand’s monetary value. The group that did our YouTube GIF, Interbrand, relates the ISO metric to its ranking.

My sources and more: You might enjoy (as did I) going to Interbrand’s report to see the ranking of the top 100 brands. To take the next step, the Forbes list is a possibility. Finally, getting more technical, I suggest this paper, Interbrand’s explanation for its metric, and this ISO report.



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, March 14, 2019

econlife - A Sad Soybean Saga by Elaine Schwartz


Imagine a play about soybeans.

The stars are the United States and China while Brazil and Argentina play the supporting roles. In the first act we have a ship racing to China. Loaded with U.S. soybeans, after a one-month voyage, the Peak Pegasus is close to beating China’s 25% retaliatory tariffs that start the next day at noon. The world is watching.

This was the location of the Peak Pegasus on July 6, 2018, the day before the deadline:




Sadly, they pulled into port at 5:30 on July 7, 2018.

Next, Act 2…


The Soybean Trade Saga

The leading producers of soybeans are the U.S., then Brazil, with Argentina a distant third. China is the big buyer.

Pigs, chickens, and cows are massive soybean consumers. Much more than the people who enjoy tofu and soy milk, a huge population of animals eats soybean meal. That takes us to China where increasing affluence has led to more meat consumption and therefore, more animals. To feed their livestock, China was buying 60% of all U.S. soybean exports.

After the U.S. tariffs hit their exports, China looked elsewhere. During our second act, U.S soybean prices descend to 10-year lows. The reason? A massive decrease in U.S. soybean exports to China:




We should note that during December, 2018, China resumed some soybean purchases. According to Trade Talks, the buying interest solely came from SOEs (state-owned enterprises) which then received a payback from the Chinese government for the tariff. Offsetting that increase, China’s soybean needs have somewhat diminished because of African swine fever hitting its hogs and a new hog feed formula with less soy protein (not a good idea).

Meanwhile Brazil has seen its soybean exports to China soar by 22% (January to September, 2018 compared to 1017). Summarizing a headline from CNBC,  Act 2 could be called “Gloom in Iowa, Boom in Brazil.”

Now we await Act 3.

Our Bottom Line: Tariff Distortions

We used to have a global market in which soybean farmers in Brazil, Argentina and the U,S. kept an eye on each other. Brazil harvested from February to May; Argentina, between April and June. Because Americans start planting in the spring, they could react to what the South Americans had produced. For example, after the 2018 Argentine drought, American farmers planted more. But then China’s tariffs complicated their plans.

For now, many farmers have some of their soybeans in storage. They are hoping for higher prices.

My sources and more: This Trade Talks podcast from the Peterson Institute had the overview. The perfect complement, Reuters then took me to the Peak Pegasus. In addition, this 2018 FAS report from the U.S. Congressional Research Service had all you could ever want to know about crop production and CNBC had the most recent soybean update. Reading all, as a suburbanite from New Jersey, I got a good picture of the plight facing our farmers.


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.

Tuesday, March 5, 2019

econlife - The Less Obvious Way To Conserve Wildlife by Elaine Schwartz


Last November it again became okay to bring elephant trophies from Zimbabwe and Zambia into the U.S. In March, the U.S. Fish and Wildlife Service extended the decision to other African countries and animals.

Did the U.S. increase the incentive to endanger threatened species?

Not necessarily.

Wildlife Conservation Incentives

To support wildlife conservation, Africa has experimented with different programs,

The CAMPFIRE Program

Zimbabwe figured that local communities had to support wildlife conservation. But the opposite was true because elephants and other animals threatened their crops, their livestock, and their safety. So almost 30 years ago they created CAMPFIRE through which local communities got the use-rights to wildlife. It led to partnerships with hunting groups, much-needed village revenue, and the incentive to increase wildlife populations. With new incentives, in CAMPFIRE areas, the elephant population doubled.

The U.S. Ban

When the Obama administration banned elephant trophies (heads, tusks, other body parts) from Zimbabwe, they reported a 30% decline in safari hunting. But there were reports of a 5-fold increase in poaching activity. With less revenue, the villagers cared less about wildlife preservation. Also, the funding for anti-poaching enforcement dropped.

Our Bottom Line: The Tragedy of the Commons

Whether it’s air pollution, an overgrazed pasture, or poached elephant ivory, we tend to abuse shared resources. People ignore what they destroy because they privately benefit from their behavior. The result is a tragedy of the commons.

CAMPFIRE is an attempt to solve the tragedy of the commons. So too are the community conservancies in Namibia and Mozambique’s privately funded Coutadas. The common thread is the benefit that villagers receive from hunting revenue and shared meat. By shifting wildlife from a public resource to one with private benefit, African countries have created the incentive to conserve.

They’ve also shown how sometimes a market can beat a ban.

My sources and more: I always look forward to Monday for the new Econtalk podcast. Yesterday’s discussion, a good listen, focused on wildlife conservation. It led me to the tension between market-based wildlife hunting and the Zimbabwe ban.

Please note that President Trump’s position on the trophy ban has become unclear.


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.