Tuesday, December 19, 2017

econlife - Where Life Is Better by Elaine Schwartz



When approximately 43,000 people in 38 countries look back to 1967, some say life is better but others do not.

The Pew Research Center gathered their answers last spring. The most positive response came from Vietnam and India. The most negative was expressed by Venezuelans:
Microsoft_Word_-_Pew_Research_Center_Life_Better_or_Worse_Report_FINAL














Pew concluded that people’s view of their economy seems to have been the key variable. You can see below the correlation between “life is better” and “the economic situation in our country is good:”
Microsoft_Word_-_Pew_Research_Center_Life_Better_or_Worse_Report_FINAL-1






















Where are we going? To the GDP.

Our Bottom Line: Well-Being Yardsticks


Knowing that one’s economic situation influences life satisfaction, we can ask what we mean by economic situation. Some people would say we are referring to the GDP.

GDP

The GDP is mostly composed of the value of a country’s consumer, business, and government spending. And yes, if you look at the U.S. a climbing GDP meant better food on the table, more bedrooms in our homes, and the innovative appliances (like a washing machine) that make our lives easier. Correspondingly, at work, fewer hours bought and brought us additional goods and services.

Better Life Index

As a well-being yardstick, though, the GDP can be rather controversial. In the OECD’s Better Life Index, the environment, community and health are included among the criteria that measure national well-being.

This is their full list which they then break down into more specific standards:
OECD_Better_Life_Index















Stiglitz Commission

Nine years ago, France’s former President Sarkozy felt so strongly about GDP inadequacies that he created a commission. Led by Nobel Laureate Joseph Stiglitz, the commission’s report explained “the limits of the GDP.”

In a 12-page overview, they included the following recommendations:

  1. When evaluating material well-being, look at income and consumption rather than production
  2. Emphasise the household perspective
  3. Consider income and consumption jointly with wealth
  4. Give more prominence to the distribution of income, consumption and wealth
  5. Broaden income measures to non-market activities
So, returning to the Pew life satisfaction survey, where does all of this leave us? There probably is no right or wrong yardstick. We just need to remember that, “What we measure affects what we do.”

My sources and more: H/T to Mark Perry at Carpe Diem for alerting me to the Pew Research. Only the beginning, the next logical step was to see the detail at Pew, And then for contrast, the Better Life Index and Stiglitz Report were ideal.

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.

Thursday, December 14, 2017

econlife - A Closer Look at the Digitization in Our Lives by Elaine Schwartz


Recorded music used to start with a label and an artist. The production process was expensive because of the skilled technicians and the sophisticated equipment. Add to that a music video, the physical album, the distribution process, and what do you get? For a new artist, the tab is $1 million and the success, unlikely.

But then came digitization…and The Piano Guys:


 For this one video, so far, there have been 62.5 million views.
And a considerable shift in market behavior.

The Digital Impact


Looking at music, movies and books, we can see a seismic shift because of digitization.

McKinsey concluded that the media were the digitization leaders:

Five_Fifty__The_digital_effect___McKinsey___Company-1











Summarizing a huge body of digitization research, we can say that supply side costs are down–with marginal costs as low as zero. And on the consumer side, we have an increase in welfare as choice and potential quality skyrocket.

Some of the changes relate to sinking production costs. As a musician, an artist or a writer, you once needed an agent just to sign a contract. No more. Now, do-it-yourself lets you bypass the gatekeepers.

We have also seen the distribution revolution as online media supply what we used to buy exclusively from record and book stores, and movie theaters. In 2012, there were 550 films released through movie theaters. By the next year, Netflix alone had 1058.

For the media, you can see the whopping increase:
How_Digitization_Has_Created_a_Golden_Age_of_Music__Movies__Books__and_Television

















Our Bottom Line: Market Structures


Let’s just conclude with a look at our market structure continuum. On the left, we have smaller less powerful firms that can easily enter and exit markets. Meanwhile, moving rightward, pricing power and firm size increase.

Digitization is upsetting our traditional market structure order. In some markets we have more competitors. Because of easy entry and exit, digitization is adding more of the characteristics of monopolistic competition. Also though, thinking of Amazon, some firms have much more pricing power, taking us to the right side of the scale.

Competitive-Market-Structures-Continuum





Maybe though we should remove our economic lenses and simply enjoy the Piano Guys.

My sources and more: Always selecting interesting topics, economist Joel Waldfogel now has a paper on digitization in the Journal of Economic Perspectives. Also, I discovered  this NBER paper that complemented his analysis. Finally, you might enjoy looking at McKinsey (as did I) here and here, with its real life examples.

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.

Thursday, December 7, 2017

izzit, 2081 and the Meaning of Equality from Rachel Colsman


rachel_cOne teacher’s Story of How an izzit.org DVD Changed the Life of a Struggling Student

Irving Kristol once said, “Democracy does not guarantee equality of conditions – it only guarantees equality of opportunity.”

This concept has always been a challenge to teach in my government classes. This past year was no exception. I teach in northwestern New Mexico, in a district that serves the Navajo Reservation. My particular school is over 80 percent Navajo. Their history makes it hard for many students to understand individual rights when, for many years, their rights had been ignored.

My classes had just finished studying the Bill of Rights. We read the document, broke it down into terminology, and looked at Supreme Court cases. They were still struggling with the idea of equality. I had to find a way to teach them that equality does not mean everyone should earn the same amount, or live in the same size house. Enter izzit.org.
prodside_2081
I have used izzit.org for a couple of years for a variety of topics. I just happened to order the video “2081.” It was sitting on my desk waiting to be watched. I took the video home to preview. My first reaction was awe… followed very closely by apprehension. There were guns. The production was dark. It was filled with powerful symbolism. I knew that it would be a major risk to show it, but I felt that the benefits of using it would outweigh the risks.

I went to my principal for guidance. He told me to go for it. So I did. I could not have anticipated the results.

I had one particular student that was struggling to finish his senior year. He rarely came to class. He seemed disconnected. I thought we were going to lose him. But after I got hold of the 2081 DVD, I asked him please to come to class the next day, as I had a great lesson on equality, and would really like him be there. He looked skeptical. But to my surprise, he actually showed up.

I began class by writing “equality” up on the board. I asked each student to write down their definition of the word. We had a brief class discussion and developed a class definition of “equality,” and wrote it on the board. I handed out the video questions and began the movie. The students were giggling and whispering through the introduction, but when the movie started, things got dead silent. 

a31
The students were mesmerized. At the conclusion, you could hear a pin drop. I asked the students to revisit their definition of equality for homework, and to bring it in for class discussion the following day. I could have never predicted the response. Students had been discussing the idea of “equality of outcome,” versus “equality of opportunity” with other teachers, in the lunchroom, and at home. The next day, every student was in their seat ready for discussion before the tardy bell had even rung – including our struggling young man. The classroom was abuzz with ideas and meaningful exchange.

After class, the young man who’d been missing class came up and asked if he could borrow “2081” to show his parents. I allowed him to take it, and the revolving door of checking out the video began. Over 50 students took “2081” home to share. Parent-teacher conferences four weeks later revolved a lot around my lesson on equality.

a4Helping students understand the difference of equality of outcome, versus equality of opportunity has always been a challenge. Many of my students believed that government has a responsibility to ensure that everyone has exactly the same things. But this lesson helped them understand the fundamental principle of a democratic republic: equality before the law.

My young man continued to come to class, rarely missing a day. I asked him what made him want to come. He informed me that the video and the lesson really touched him. He realized that hating the system would do nothing to fix his problems: “Democracy doesn’t mean that everyone ends up the same. It means that everyone can make choices, and whether they succeed or fail is up to them. It might not be fair, but at least we each have ownership of our individual journey in life.”

(Note from izzit.org - Please be advised that 2081 is not streaming on our site but you are able to select it as your free DVD for the year! It's a powerful video, and we highly recommend it for high school students.)

Tuesday, December 5, 2017

econlife - Why the Secret Service Monitors Fake Movie Money by Elaine Schwartz


When Rush Hour 2 needed many millions in 100 dollar bills, Independent Studio Services (ISS) sent them 14 pallet loads of 4′ x 4′ cubes of fake money. During the filming, the Secret Service showed up, issued a cease and desist order, and accused ISS of counterfeiting. It appears that movie extras had been spending the cash nearby.

Although no one wound up in jail, the raid cost ISS a lot of real money. Their digital files were confiscated and billions destined for a slew of movies, destroyed.

Below, the real $100 bill is the top image while the Rush Hour 2 fake is under it. Commenting on the bogus bill (that does look rather real), a Secret Service agent said,”…son of a gun, if it’s green and it says ’20’ on it, somebody will take it.”

The_Business_of_Fake_Hollywood_Money
























In this Rush Hour 2 scene, the fake money flies after an explosion in a casino:



Occasionally a movie maker decides to use actual cash. When The Brinks Job (1978) needed close-ups of U.S. currency, they borrowed the money from a bank. Real guards hovered near huge piles of real cash that, after filming, was counted and returned ASAP.

So, where are we going today? To what makes money real.

But first…


Counterfeiting History


Abraham Lincoln signed the act that created the Secret Service on the day he was assassinated (April 14,1865). Because somewhere between one-half to one-third of U.S. currency was reputedly fake, the Secret Service’s sole purpose was to combat the counterfeiting.

Fast forwarding to 1992, we can look at current counterfeiting criteria. According to the Counterfeit Detection Act of 1992, the fake money has to be clearly bogus in several ways.

It should be…
  • either 75% smaller or 150% larger than real cash.
  • one-sided.
Also, after its final use, the equipment used to make the money has to be destroyed.


Our Bottom Line: What is Money?


The textbooks say that any commodity can be money if it has three basic characteristics:
  1. a medium of exchange
  2. a measure of value
  3. a store of value
It makes sense that money needs to be real for us to believe it is a medium of exchange. Get enough of those fake movie dollars in circulation and we have a problem.

My sources and more: Thanks again to 99% Invisible for another quirky episode. Only the beginning, the fake money story took me to more detail about movie prop money at priceonomics and Mental Floss. From there, it made sense to look at some counterfeit money history.

Please note that sections of Our Bottom Line were in a previous econlife post.

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.

Thursday, November 30, 2017

econlife - Why There Is No Such Thing as a Free Coupon by Elaine Schwartz



Last week, I paid $25 for three hours at an NYC parking garage. Others though paid $50 for the same amount of time.

We could say that it cost me less.

But there is much more to the story.


What the Coupon Cost Me


To get my $25 discount, I had to…
  1. Download the Icon Parking app. (Icon is a parking garage owner in NYC.)
  2. Find the link to the garage I had selected among their hundreds of locations.
  3. Open the link and enter my email.
Then I received an email that said this. (I added the arrow.):

Icon_Parking_Coupon_for_November_15th_-_laineyschwartz_gmail_com_-_Gmail-1


















You can see that I had to remember to download the email at least 30 minutes before getting my car.  It would have been much easier to download when I paid. But Icon did not want to make it easy.


Our Bottom Line: Price Discrimination


An economist would say that Icon Parking was engaging in price discrimination. They were targeting a lower price to a specific segment of their market. That market segment would be willing to trade time and hassle for money. That market segment also was more price sensitive or we could say, elastic. By elastic, an economist means that the quantity demanded goes up or down by a greater proportion than the change in price.

A firm’s price discrimination typically is based on a customer’s willingness to pay. The goal is to maximize the revenue from the group that can pay more and also from those that cannot. Movie theaters have senior citizen discounts because the elderly tend to have less discretionary income while everyone else can theoretically pay full price. Educational institutions have financial aid based on need. Airlines have discovered how to identify the observable traits of a business traveler and then charge more for those characteristics.

And it need not even be entire groups. Once websites know more about online shoppers, they can individualize pricing as well as the entire shopping experience. They can treat the valued customer, the repeat customer, the new customer and the price conscious customer differently.

Returning to Icon, you can see what they had in mind. They created a time sacrifice that would cater to the consumer that was price sensitive. The result was getting my $25 as well as $50 from many other patrons.

My sources and more: Price discrimination is usually related to monopoly power. If you would like to read more on the topic, I recommend the always insightful Conversable Economist.

I did want to note that today’s featured image was from the Icon Parking website.

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.