Monday, September 12, 2011

Remembering 9/11 and the Economic Impact





Ten years after the attacks I can remember vividly that day.  Students and teachers sat in amazement staring at the 27" televisions throughout the school.  Since that day I have had former students serve in Iraq and/or Afghanistan.  My children are only 8 and 4 so only know what we tell them .

The students I have in class now were about the age of my oldest when the World Trade Center and Pentagon were attacked.  Student memories each anniversary are a little bit different.  On the 20th anniversary I will have a group of students that only knows the event from a history book.

All tragedy has social, political, and economic impact.  The image below shows some of the lasting economic destruction from 9/11.



The immediate losses in terms of direct costs exceeded $30 billion.  The airline industry received federal aid of $15 billion.  In the days and weeks that followed the $25 billion a year New York tourist industry decreased to $12 billion for the first year.  The estimates for New Yorkers lost wages was $2.5 billion (Hubbard "The Economic Effects of 9/11").

The long term economic impact is varied and really impacts the country as a tax or extra cot related to regulation. 

New York Times Link

Travel

The effects of the tragedy on travel and tourism continue to be felt today, however, in the form of higher fuel costs, vastly stricter security and safety checks and procedures and the creation of the Transportation Security Administration (TSA).  The resulting wars in Afghanistan and Iraq also fed a lot of new business the airlines’ way, as flights were, and continue to be, chartered to transport troops to and from war zones.

Defense



The U.S. response to 9/11–the Iraq War and War on Terrorism–led to huge increases in military, defense and security spending that drove a projection of U.S. military power that’s only begun to wind down in the past year or two.  While this stimulated the U.S. economy and prevented or deterred subsequent terrorist acts, it has also been a primary contributor to ballooning U.S. government debt and deficits.

Energy


9/11′s lasting economic impact can also be clearly seen and felt across the energy sector, as well as in the heightened attention and sense of urgency attending energy policy formulation and practice across all levels of government and in the private sector.

9/11 drove home a more complete sense of the true, increasingly high and unaccounted for costs of U.S. dependence on oil and fossil fuels.  In addition to fueling interest and investment in renewable energy and clean technology, it has led many to reconsider how we produce electrical power and fuel, how and how much of it we use, how much of it we need and from what sources they are, could and should be produced.

Monetary Policy


Less apparent, 9/11 was a significant stepping stone in the evolution of U.S. monetary policy.  Occurring shortly after the bursting of the stock market “Internet Bubble,” the 9/11 attacks led then Fed chairman Alan Greenspan and colleagues on the Federal Reserve Board to once again drastically lower interest rates and loosen monetary policy.

That loose monetary policy was never curtailed, and that, along with other factors, fueled rapid debt creation and asset inflation, particularly in the housing and real estate markets.  All this came to an abrupt end in late 2007 and 2008 with the deflationary spiral that included the implosion and near collapse of the housing market, banking industry and financial system.
~ Gobankingrates.com

Comment below...What are your thoughts regarding 9/11 as a 7 year old?  How much longer will the economic impact be felt?  Which parts of what you read above surprise you?


  


















Friday, September 9, 2011

Highlights of the President's Economic Plan

Payroll tax cut from 6.2% to 3.1% for workers in 2012, up from a 2% reduction this year.
Cost: $175 billion.

Payroll tax cut from 6.2% to 3.1% for employers and eliminated for qualifying new hires in 2012, plus 100% expensing for new investments.
Cost: $70 billion.
Infrastructure investments, including modernizing schools and rehabbing vacant homes, and funding for states to rehire teachers and first responders.
Cost: $140 billion.
Extending unemployment insurance and new programs for jobless.
Cost: $62 billion.

TOTAL: $447 BILLION



Last night President Obama took to the national and international stage with a $400 billion + jobs bill.  A little bit more than half of the bill included either continuation of reduced taxes or new tax reductions.  

Approximately, $230 billion would be an extension of the payroll tax cut which is a split tax between the employer and the employee.  The standard level of payroll tax is 6.2% of every dollar earned by the employee and 6.2% of every dollar spent on employees.  With this reduction employees will have some extra money to spend (roughly $1,000 for the median income family) and businesses will also have some money to spend.  Since Americans are spending roughly 95% of their income this "can" provide a boost to a scared economy.

The president also looks to increase unemployment benefits to $62 billion through 2012 to alleviate long-term joblessness.  People having more money to spend and maintain their current lifestyle can help the economy as well.

Another piece of the proposal was to spend $140 on infrastructure and aid to the states.  Last months jobs report listed "0" net gains in employment.  The private sector actually added jobs but the government, at all levels, shed as many jobs to create a net effect of zero.

At this point, anything can help.  This is obviously a short term stimulus that some will argue is too small or too large.  Of course the extra spending will create an even larger short term deficit and add to the ballooning debt, but without short term tough choices now we could be headed for the dreaded double-dip...and not chips Seinfeld fans.

The Economist "A Call to Action" 
WSJ "President Unveils Bid to Spur Growth" 

Here is the word cloud from last nights discussion.






 

Friday, April 1, 2011

AT&T + T-Mobile = HIGHER PRICES!

Should the FCC let the two service providers merge? Duffka and The Economist both say NO WAY!




Currently, AT&T has a 27% market share of all cell phone users. If the merger is allowed it would increase over 40% to a whopping 39% market share. That would give AT&T/T-Mobile, Verizon, and Sprint control of over 80% of the cell service market.

Any level of economist, from apathetic seniors dabbling in economic policy to the near perfect Ben Bernanke, would argue that this merger would NOT be good for customers even if you don't have AT&T or T-Mobile.

The FCC and Department of Justice would have oversight on this proposed merger. The main benefit, according to the firms, is the possibility that this would increase the expansion of 4G technology. This would give another 46 million Americans a faster data connection on mobile devices according to The Economist.

AT&T argues that the merger would make better use of the two firms infrastructure could improve the quality of connections (economies of scale argument). AT&T also argues that it would IMPROVE the industry's competitiveness.

The argument for not allowing the merger is simple. AT&T already has poor customer service ratings--a merger would not improve customer services in my opinion. Canada has already suffered from a lack of competition and has some of the highest rates in the world. Duffka assumes that our demand for cell service is highly inelastic and that we would pay more for the service than we are now.

The politics are also an issue. Big business has decried anti-business sentiment from the government over Obama's first two years and he may feel the desire to allow the merger to show that he is "business friendly."

Duffka feels that the politics and economies of scale argument are sound but not enough to allow the merger. Choices are good so reducing choices must be bad. Duffka votes NO...but nobody asked what he thinks.

What do the readers think? Should it be allowed? What are some of the weak/strong arguments?

Monday, March 28, 2011

Portugal + Education=Poor Economy?


Portugal is listed as the poorest country in Western Europe and is also considered the least educated according to the Wall Street Journal. Portugal's plan to reduce their deficit was not approved by parliament. Their credit rating was downgraded (which makes borrowing more difficult). Portugal would be the third country after Greece and Ireland to require EU help.

Does having an unskilled workforce make this situation worse than Ireland and Greece? In order to pay off debt in the future they would need long term economic growth. For most of the 20th century Portugal was a major textile producer. Now that labor has been outsourced to Asia. In the U.S. almost 90% of adults have graduated from high school. In Portugal the number is 28%!

What are some of the issues, economically speaking, of an uneducated citizenry during the highly globalized 21st century? How can Portugal reduce their debt AND improve education?

Friday, February 25, 2011

Do Towns Want Spring Breakers? YES! MB>MC

Duffka is definitely in a different spring break mindset then the "young adults" pictured above.  Spring Break to me is relaxing and may include a trip to Disney to see the attractions.  Duffka has often wondered if places like Daytona Beach and Panama City like the annual party in their towns.  


According to the Wall Street Journal, the oil spill has hurt tourism so apparently spring breakers are better than empty beaches.  All over the Gulf Coast, vacation communities hurt by the oil spill see spring break as critical to reviving their economies and kickstarting tourism before the important summer season . Panama City Beach tourism officials have held promotional events at coffee shops near the campuses of the University of Chicago, the University of Wisconsin at Milwaukee and Ohio State University, offering attendees Panama City Beach-embossed T-shirts, coolers and koozies (those insulated sleeves that keep your soda or beer cold) and raffling off prizes including Southwest Airlines gift cards.

The Wall Street Journal also reported that Spring break is the third biggest tourism month for Panama City Beach, after June and July. The city typically brings in $101 million during March. In recent years, about 300,000 students have descended on its beaches, clubs and bars during spring break.  

Is this gift enough to get college students to go to Panama City?
 Spring Break has always been an interesting event to Duffka.  Viacom, owner of MTV, receives $200,000 from a lucky town each year to host their Spring Break bonanza hosted by societal antagonist Jerry Springer.  

This year Duffka will consider easy Spring Break choices like Chicago, Glenview, and home to celebrate the "readying of the fields."  Which, after all, is why we have a spring break anyways.  Do you see the word "diet" in the picture below?
Pictures courtesy of the Wall Street Journal.
 

Monday, February 7, 2011

Super Bowl or Super Ads?

As a Bears fan Duffka had a tough time deciding who to cheer for.  Typically, I support the team that knocked my team out of the playoffs.  This time I became a Steelers fan.  Both teams have a solid defense, great special teams, and a solid quarterback.  The Bears are very similar--except for Cutler getting hit the most of any NFL quarterback.  

On to the economics of the Super Bowl.  This year, the National Retail Federation, NRF, estimates that $10.1 billion will be spent on the Super Bowl, that’s up from $8.87 billion in 2010, and almost double the $5.8 billion people spent last year on Halloween.  The game was watched by over 130 million people in over 200 countries.  An ad cost $3 million for 30 seconds plus the cost to create the ad.  It would make sense that really only international products from oligopolisitc industries that engage in international trade would pay for the ad time(Coke, Pepsi, VW, Kia, Snickers, Doritos, etc).  If you calculate the cost per minute and divide by the number of viewers it seems even more efficient to advertise during the Super Bowl.  By the way, Dallas thinks that the Super Bowl added $400,000,000 to the local economy.  

Some other interesting information regarding the Super Bowl:

HOW MUCH MONEY MOVES AROUND FOR THE BIG GAME?
$5.6 billion: Amount consumers will spend on Super Bowl related items.
$400 million: Amount of money added to the local economy because of the game.
35%: Ticket holders writing-off the game as a business expense.
$12,500: Price Tiffany charges to produce the Vince Lombardi Trophy.
$2.8 million: Cost for a 30-second advertisment slot during the game.
20.5: Number of minutes worth of ads it would take to pay for a new
Sun Stadium at that rate.
45: Number of minutes worth advertisements during last year's game.
41%: Percent of Super Bowl viewers surveyed who will re-watch this year's ads online.
2.9 million: Number of HD TVs bought for the Super Bowl in 2009.


AND WHAT ABOUT THOSE SUPER BOWL PARTIES? 41: Days in advance, on average, Super Bowl plans are made.
20 million: Number of Americans attending a Super Bowl party.
17: Average number of people attending each party.
5%: Percent of people who watch the big game alone.
40%: Percent of Super Bowl viewers who are not football fans.
25%: Percent of women who watch the game and enjoy it.
10 million: Number of man-hours spent preparing food for the Super
Bowl party.
10 million: Number of man-hours spent making the movie
Avatar.

Duffka asks readers to comment on the economics of the Super Bowl.  Did you watch the commercials?  Which commercials did you like and why?  What about the game?  Why is it more popular than any other single sporting event?



Super Bowl 2011 Ads

Thursday, January 20, 2011

From "Obamacare" to "Obamefficiency"?




President Obama has just committed himself, through an Op-Ed piece in the Wall Street Journal, to an executive order that


"... requires federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It's a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades."


Of course, as an economics instructor, I am always pleased when the government reviews its regulatory watch for the betterment of the economy.  But I do wonder if this "jobless recovery" can just be changed to a recovery with less oversight.  How long would it take to change the regulatory system?  Can it be done quickly and efficiently so we can get 15 million people that are willing and able to work back to work?  The President gave a poignant example of two agencies working somewhat against each other. 


"For instance, the FDA has long considered saccharin, the artificial sweetener, safe for people to consume. Yet for years, the EPA made companies treat saccharin like other dangerous chemicals. Well, if it goes in your coffee, it is not hazardous waste. The EPA wisely eliminated this rule last month.".  


That makes sense...I think.  Is saccharin bad for me?  If it is, maybe they should just ban it.  Luckily, I like my coffee black.  Of course, I wonder, if costs and benefits are being considered and then I read this quote:

"As the executive order I am signing makes clear, we are seeking more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs"

How exciting is that?

President Obama continues to write that the future of regulation will mean more power to the consumer, less paperwork, decreased burdens on small businesses, one standard for car fuel efficiency instead of 50, and FDA rules for medical devices to list a few.  All of this sounds great but I am still wondering will we ever actually do it?

To wrap this long blog up the President continues to talk that loveable econ talk.  

"Yet according to current estimates of their economic impact, the benefits of these regulations exceed their costs by billions of dollars (consumer surplus?)." 

As I read the article I was inspired to cheer for self regulation of big government then I realized--that doesn't make sense!

The President ends the story with this quote "We can make our economy stronger and more competitive, while meeting our fundamental responsibilities to one another."

I sure hope so and SOON!  By the way, the President's move to the center of the political spectrum has moved his approval back into the majority (click here).