Thursday, August 16, 2018

econlife - How We Use Our Time by Elaine Schwartz



When we see our lives as a box of jelly beans, 79 years would equal 28,835. So yes, after the first year, we’ve used up 365. Then, setting aside 8,477 jelly beans for sleeping, we still have thousands left for work, preparing our meals, watching TV.

Do take a look at this 2013 jelly bean video to see how we allocate the hours of our lives. It uses data from the annual BLS (Bureau of Labor Statistics) American Time Use Survey (ATUS):




And here is the most recent survey from June 2018:


Where are we going? To a closer look at our leisure time.

Leisure


Since the 2017 ATUS, Americans increased their leisure time by seven minutes. The reason though is that we are older. And as you might expect, employed men had 33 more leisure minutes than women. As for what we did, it was probably watch TV although grandma and grandpa spent the most time in front of the set. Instead, it appears that computers and playing video games occupy close to an hour each day for 15-24-year-olds but only 13 minutes if you are 35-44 years-old. Sadly, reading is attracting less time among the young.

As the age group that works the least, people over 65 had the most leisure time. Meanwhile, their 35 to 44 year-old children had more than three hours less to watch TV, relax, read, and think:


Our Bottom Line: Opportunity Cost


Time use decisions always require a sacrifice. Called opportunity cost, choosing is refusing the next best alternative. When you eat pizza for lunch, you might have refused a salad. Watching a video could mean you did not talk on the phone. And picking up a penny prevents you from using those seconds for something else.


Similarly, whether it involves the work we could have done or exercising rather than reading, leisure always has a tradeoff. And whatever we did not do would have had benefits that we decided to forego.

Thinking of those tradeoffs, you might want to compare your time use to the averages:



My sources and more: For some extra detail, do take a look at this ATUS summary. Then, if you want even more, this is the entire survey and a blog that provides some additional insight. 
Meanwhile, the WSJ report provides some history.

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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, August 9, 2018

Creating Critical Thinkers by Andy Jobson


I always try to make my teaching relevant.  As an English teacher, I want my students to read great works of the past, but I also want to equip them to think (and write) about issues that are happening in their world today. That’s where izzit.org is such a great asset. 

My eighth graders read works like King Arthur and Macbeth.  They wrestle with notions of power and corruption, and I can draw in more modern examples like Too Big to Fail or Unintended Consequences: Eminent Domain to help them think through the nature and challenges of governmental power.  At my school, Riverside Military Academy, we emphasize character education, and my students find programs like Three Keys to Success and In the Classroom with David Robinson interesting and informative as they learn more about making good decisions.  As middle schoolers, they enjoy the title of From Poop to Profits, but I enjoy knowing that they’re being reminded of the power of the human spirit to overcome challenges when given the opportunity and flexibility to experiment.  My upper middle-class kids also gain from seeing the challenges other countries face through videos like Victoria’s Chance, Locked Out, and many others.

One of my favorite aspects of izzit.org is that they understand my needs as a classroom teacher.  I love the fact that I can use one of their videos as a small portion of a lesson.  The viewing takes only a small portion of class time, allowing me to focus on the all-important skills of asking good questions, considering various viewpoints, and articulating arguments.  While my boys would typically say they don’t like writing, they don’t mind nearly so much when the assignment deals with an izzit video.

I could go on about the ways I use izzit with my upperclassmen, but I think you get the idea.  izzit is a great friend for educators who care about helping their students see the world; my hope is that they will also ‘Bee the Change’ our world needs.  I can’t say enough in thanks to the many contributors who make this resource possible.  But, like a good izzit video, I wanted to ‘be brief, be bold, and be done!’  



Tuesday, August 7, 2018

econlife - What Soccer Can Teach Us About Investing by Elaine Schwartz


After France won the World Cup, the world was sadder. No, certainly not because of the French victory. The reason relates to some emotional math from two economists.

Where are we going? From a soccer win to investing and how we respond to loss.

This is the story…


Winning the World Cup


In a recent study economists monitored the happiness of thousands of fans during years of British soccer matches. Controlling for variables like the time of day and location, they observed happiness fluctuations before, after, and during the games. On the scale they used, fans were 3.9 points “happier than usual” with a win for their team and 7.8 points sadder if their team lost.

And it gets worse. Because the losers’ sadness lasts longer than others’ happiness, those down feelings are four times any upside that winning created.

Below, you can see that people felt the pain of loss more acutely than the joy of winning:


British_economists_prove_it__Sports_destroy_happiness_-_The_Washington_Post


Investing


University of Chicago economist John List suggests that investors ignore stock market fluctuations because they too feel loss more intensely than winning. People who are down $1000 experience the drop more so than if they had been up by the same amount. The result? Most of us sell when stock prices plummet…precisely when we should be patient. Or, we hold on too long because we want to avoid the reality of a loss. Either way, the pain of loss makes us sell at the wrong time.


Our Bottom Line: Loss Aversion


Called loss aversion by behavioral economists like Nobel economics laureate Daniel Kahneman, our desire to avoid a loss affects how we feel and act. For many of us, the dismay over losing a $10 bill exceeds the happiness we feel when we find one.

I suspect though that this picture provides the perfect definition:

Edit_Post_‹_Econlife_—_WordPress-4

And returns us to why there was more sadness in the world after the World Cup.

My sources and more: Thanks to the Washington Post Wonkblog for alerting me to the new soccer happiness study. A perfect summary, the Post article then linked to more detail in this paper on “football” happiness. It also took me to the behavioral side of investing in this NY Times column and to this paper. Finally, this New Yorker Magazine discussion even shows us how politicians can benefit from telling voters what they have lost.

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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, July 31, 2018

econlife - Celebrating Alexander Hamilton’s Economic Independence by Elaine Schwartz


The United States declared independence from Great Britain on July 4, 1776 and won the American Revolutionary War. But still, we were not truly independent. Our agrarian economy depended on Great Britain. They had the banking system, they had the factories, they had the knowhow.

But we had Alexander Hamilton.


Alexander Hamilton’s Development Plan


As Secretary of theTreasury, Alexander Hamilton’s goal was to expand the U.S. banking system, our transportation infrastructure, and technological innovation. He wanted factories that would process what our farms and plantations grew. So, he explained to the Congress what they had to do.
1. Establish Public Credit
  • Hamilton said a national debt is a blessing if it’s not too large. Borrowed money had helped the U.S. finance the Revolutionary War. Also, though, those lenders had to know we would pay them back. With European creditors, the U.S. had to pay back the money that was due them while domestic creditors needed to know we had a viable plan. Only then could Hamilton establish the good credit that was necessary for a government to borrow the money it needed.
  • Since then, the U.S. has been borrowing money and paying it back. However, some of us are worried that the debt is becoming too large. Just like your own income determines the wise amount for you to borrow, so too does the GDP for our nation. Below you can see that recently the debt is a bigger proportion of the GDP:

The_2018_Long-Term_Budget_Outlook
 
2. Create a Banking System
  • Composed of financial intermediaries that connect savers to borrowers, a banking system “pumps” money around the economy. Banks loan money to business start-ups and help firms finance inventory. They expand and contract the money supply and purchase the bonds that nations sell to raise money. By establishing the First Bank of the United States, Hamilton generated the beginning of a banking system that pumped money around the U.S. economy.
  • Now, while there are close to 5000 banks in the U.S., the large ones dominate. Below, you can see how the system has consolidated. The four with the most assets are Citi, JP Morgan Chase, BOA and Wells Fargo.

Consolidation of U.S. banks:

How_Banks_Got_Too_Big_to_Fail_–_Mother_Jones

Declining number of U.S. commercial banks:

Commercial_Banks_in_the_U_S____FRED___St__Louis_Fed-1
3. Encourage Economic Diversity
  • Economic growth through diversity was the third leg of Alexander Hamilton’s plan for independence. Recognizing that the U.S. in 1790 was a farming economy, he sought tariffs and subsidies to protect a young manufacturing sector. He supported a system of tariffs to encourage innovation. Correct again, Hamilton knew that the combination of agriculture, manufacturing, and invention could form an economic foundation from which we could build.
  • Looking back, we can say that Hamilton created our springboard. About a different kind of independence, Hamilton’s foundation facilitated the leap beyond our borders to globalization. It let us evolve from an agricultural economy to a productive behemoth that participates in the world markets and global supply chains that feed our growth.

You can see that the U.S. is very much a part of the world economy:

Exporters

Infographic__Visualizing_the_World_s_Biggest_Exporters_in_2017-3

Importers

Visualizing_the_World_s_Biggest_Importers_in_2017-1


Our Bottom Line: Déjà Vu


Hamilton’s goals are timeless. We still need to manage sovereign debt wisely, support a vibrant banking system, and encourage economic growth.

My sources and more: This Fortune article sums up the Hamiltonian legacy ideally.
Please note that this post is an updated version of what we have published on past Independence Days.

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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, July 26, 2018

econlife - Solving McDonald’s Soggy French Fries Problem by Elaine Schwartz


Several months ago, McDonald’s said it had solved its soggy French fry problem. The firm assured a reporter that delivered fries would be crunchy. They just had to depart the restaurant when hot and fresh and arrive at our homes within 30 minutes.

For deliveries though, it might not be so easy.

We’ll start with McDonald’s first French fry problem…


A Consistent Crunch


Ray Kroc

One day in 1954, a curious milk shake maker salesman appeared at the McDonald’s restaurant near Pasadena, California. No one restaurant had ever before ordered ten of his Multi-mixers (simultaneously, each one could make five shakes). He personally wanted to see what hamburger restaurant could possibly require so many milk shakes.

The salesman’s name was Ray Kroc and he was amazed at what he observed. “Like ants at a picnic,” McDonald’s workers began their day carrying the meat and potatoes from a shed to the restaurant in a perfectly regimented fashion. They were dressed meticulously in trousers, white shirts, and hats. Close to opening time, lines of customers formed. When asked, many said they returned daily. Some left with bags full of the fifteen-cent hamburgers.

Immediately Ray Kroc grasped the potential of the McDonald’s operation. He asked the brothers if he could have the exclusive right to develop a national chain of McDonald’s franchises. “Yes,” was the answer (with much more negotiation) and the rest is history.

The French Fries

One of Kroc’s first problems was developing a consistent crunch for his French fries.  Although suppliers were providing the same russet potatoes and using precisely the same soaking and cooking techniques, still the franchises’ fries varied. Some would be perfect while others were too soggy.

After spending millions of dollars and hundreds of hours, McDonald’s researchers concluded that their storage and frying procedures needed tweaking. Storage time had to be three weeks—long enough for the sugars to turn to starches. Frying them, they had to be sure that the oil temperature did not rise more than three degrees above its lowest point. Then, with an electrical sensor maintaining the three-degree difference, they achieved a consistent McDonald’s crunch.


The Current Crunch


Maybe we should say déjà vu.

Now, McDonald’s seems to have an equally tough French fry problem.  Describing his French fries, an eater.com reporter wrote that the delivery had arrived within a half hour. However, only half were crispy and all were lukewarm.

Two days ago, the NY Times explained the solution in a lengthy article. Its focus was Lamb Weston, a McDonald’s French fry supplier. At one of its farms, Lamb Weston has been trying to figure out the kind of potato that would make a less limp fry. Concluding that water is the enemy, they’ve been using minimal irrigation through computers that monitor potatoes’ nutrient levels.

But that was only the beginning.

At the frying stage, they developed a new batter that, when combined with the new potatoes, will remain crunchy for almost an hour. (The current state-of-the-art is 12 minutes.) As you might imagine though, the fries’ journey from the restaurant to our homes could undo all. If that fry is placed next to a milk shake, both will wither. Appropriate ventilation and a moisture free environment are crucial. Ideally, they just need to put the French fries in a lightly folded paper bag.


Our Bottom Line: Monopolistic Competition


Last year, McDonald’s tested its delivery service in Florida. The next step was to offer it at 5,000 U.S. locations. Because they project a $100 billion market, you can see why a crispy French fry is so important.

French fries are their #1 delivery product:

McDonald’s_Says_It’s_Solved_the_Industry’s_Delivery_Problem_of_Keeping_Fries_Hot_-_Bloomberg

As economists we can say that McDonald’s is trying to achieve product differentiation. Especially because they compete in a monopolistically competitive market, they have to make themselves better than other restaurants. As a market structure with many smaller firms that can easily enter and exit, monopolistic competition means that McDonald’s needs to stand out.


Edit_Post_‹_Econlife_—_WordPress

Having crunchy French fry deliveries would help.

My sources and more: Thanks to the NY Times for alerting me to the leap forward in French fry crunch technology. Then, Bloomberg and Eater had the McDonald’s facts as did excerpts from my Econ 101 1/2 about Ray Kroc.

Please note that today’s featured picture is from Eater.com.

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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, July 17, 2018

econlife - Why Superstar Salaries Are So High by Elaine Schwartz


During a Sunday evening, in a brief news release, we learned that LeBron James was going to the LA Lakers. His price was $154 million.

Why so much money?


Superstar Qualities


Two sports economists tell us that NBA (National Basketball Association) superstars have certain characteristics. As a top draft pick, the player needs to have been touted by the league from the beginning. Reflected by countless achievements, the person has to be considered a premier talent. And looking at a career, that excellence should have lasted for many years.

On the table below, you can see the credentials of five NBA superstars. (VORP is Value Over Replacement Player):

SSRN-id3004137_pdf-1


Large Audience


A second ingredient in the recipe for a superstar salary is the size of your audience. To get more of a feel for what that means, let’s start with the nineteenth century diva economists like to cite. As the Luciano Pavarotti of her era, Elizabeth Billington was a superstar. Yes, she earned a whopping £10,000 to £15,000 in 1801. But still, her income was limited by the size of her audience at Covent Garden or Drury Lane.

Not LeBron’s.

Through TV and radio, online and at the stadium, his audience and its positive externalities are almost unlimited. Modern technology has vastly inflated what big stars can earn.


Talent and/or Popularity


Finally, we can contemplate a debate between two academics. One says the key to the superstar salary is talent while the other says it is a combination of talent and popularity. After all, you can have people with equal talent but then popularity kicks in to create the superstar status.

Discussing each side, one paper suggest it depends on the person. Larry Bird, they say, is a superstar because of his talent. But with LeBron, they say his popularity helped to fuel his salary.


Our Bottom Line: Supply and Demand


So, with limited supply and the huge (adulatory) audience that technology facilitates, 21st century markets for superstar basketball players generate salaries as high as a four-year deal for $154 million.

My sources and more: First, thanks to Sophie B. for reminding me that it was time to return to superstar salaries. Naturally, our first stop was the NY Times discussion of James’s salary and his accomplishments. Then, although this paper from the Peterson Institute provides insight, the classic study has been around since 1981. And finally, for the best detail and analysis, I suggest this recent paper on superstars and attendance and an interesting rationale for not calling Charles Barkely, Shaquille O’Neal, Kareem Abdul-Jabbar, or Kobe Bryant superstars.


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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, July 12, 2018

econlife - Who Will Care About the Starbucks Price Hike? by Elaine Schwartz


Starbucks just announced that a cup of brewed coffee will cost 10 to 20 cents more. While the price increase depends on where you live, a “tall” (their smallest size except for the “short”) probably is somewhere between 1.95 and $2.15 before tax.

Starbucks price increase
Who agrees with Leah?

It could relate to Dunkin’ Donuts and McDonald’s, a Frappuccino, and a rubber band.


Substitute Products: Dunkin’ Donuts and McDonald’s


Thinking of the recent price hike, we need to ask if we have substitute products. I suspect the answer depends on the coffee drinker. Some have said that there is a coffee war among Dunkin’ Donuts, McDonald’s and Starbucks. If you agree, then the first battle started in 2002 when Dunkin’ Donuts announced a new line of espressos, cappuccinos, and lattes. As for McDonald’s, it entered the fray with McCafé in 2009. Lower priced than Starbucks, it offered its version of the latte, the cappuccino and the mocha to which it recently added a caramel macchiato, a vanilla cappuccino, and an americano.

If the three brands are interchangeable, then the price increase will make Starbucks less attractive. On a Starbucks graph, an economist would shift the demand curve to the left to display less demand because people were switching to cheaper substitutes.


Reference Points: Frappuccinos


Higher Starbucks prices can also take us to reference points. Tall, grande, and vente cups of coffee have always been the cheapest drinks at Starbucks. Because I buy the coffee that is custom made in their Clover machine, my price is closer to $3.00. As a reference point, that clover makes the price of a basic cup of coffee, even after an increase, look inexpensive. Similarly, compared to a Frappuccino, a higher priced plain coffee is still pretty cheap.


Our Bottom Line: Elasticity


Maybe though it all comes down to your elasticity. And that is where the rubber band enters the picture.

If price changes a lot and the quantity we buy remains almost the same, then our demand is inelastic. By contrast, if price swings have a big impact on buying, then our response is elastic. With elastic demand, like a rubber band, the quantity we demand stretches when price drops and contracts when its rises.

At Starbucks, we see inelastic demand from those consumers who believe Dunkin’ Donuts and McDonald’s are not substitutes. Similarly, pricey Frappuccinos that are reference points only reinforce inelastic demand. No matter what, consumers with inelastic demand buy their Starbucks coffees.

However, there is price point for all of us when our inelasticity becomes elastic. And that returns us to Leah’s Tweet.

My sources and more: After seeing the increase at WSJ, I went to Eater which is always good for food and drink insight. Meanwhile Refinery29 told a bit more and Money looked at the coffee wars. Finally, I even discovered the coffee war academic perspective here.


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.