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?

  

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.

 

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?

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?

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.

 

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

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). 

        

Has Santa Become a Techie?

 
 Android is outselling the IPhone as a platform, but the IPhone is the single most popular model by a wide margin according to Nielsen Ratings.  Computers were the most purchased tech gift, then tv's, smartphones (non-IPhone), IPad, Blu-Ray players, E-Readers, and Wii's.  That was the top seven.  It was a great holiday shopping season for retailers both online and the traditional "bricks and mortar" stores.  UPS and FedEx were also pleased to see online sales up 13% from last year as well.  

Duffka is interested in the readers gifts?  How did the compare to the list below?  How did the holidays this year compare to the holidays of the last couple of years for you?

Google is a Monopoly--Who Cares?

Times are changing for Google...for the better.  According to their SEC filings, Google employs over 23,000 people.  They have assets valued at over $30 billion.  A gross profit over $14 billion.  Their stock price has increased from $100 per share in 2004 to $600 per share today.  The two founders, Larry Page and Sergey Brin are the same age as Duffka but are worth considerably more.  Larry Page owns 40,000 shares at about $600 a share his holdings in Google are worth about $24 million.  Shriram Ram was the 1st investor in and currently owns 148,000 shares with a value of approximately $90 million.  All of that aside, Google offers many "free" services which are really supported by the massive amounts of revenue generated by the paid ads from the search engine.  The EU announced at the end of November that they are looking into accusations of how the search engine monopoly is being used to influence the search results to negatively impact competitors.  One of the most vocal complaints was from "Ciao" which is owned by Microsoft.  The Economist claims that because Google has turned itself into a verb it has a form of monopoly power.  The Economist asks the question "Can You Dominate and Not Be Evil?"  What do you think of Google's monopoly power?  Do they have it?  Should they be regulated?

  

Deficit vs. Recovery--The Leader is Recovery!

Rule number one in economics is people choose.  The second rule is more painful all choices involve costs.  Now that the leaders in Washington seem poised to increase the speed of the slow recovery, Duffka asks the question--what is the cost and, of course, the benefits.  According to Mark Zandi from Moody's Analytics, "The proposed temporary tax cuts and spending increases will provide a substantial boost to growth in 2011. Instead of another year expanding at no more than the U.S. economy’s potential growth rate — with job gains of 1.2 million and unemployment hovering near 10% — real GDP growth will accelerate to 4%, job gains will pick up to 2.8 million, and the unemployment rate will decline to around 8.5% by year’s end."  Economists know that close to 100% of spending on unemployment (it would be extended 13 weeks)  compensation is spent and that has a large stimulative effect.  Economist Paul Krugman of Princeton University, feels that businesses already have plenty of excess capacity (they are not using their fixed space productively) so they will not expand much this year and he thinks GDP will only be increased by .7%.  The tax plan also includes a temporary payroll tax reduction that will lower many firms marginal cost and average total cost possibly increasing output by firms adding variable inputs (labor) which can lower unemployment if not too many discouraged workers return to the labor force looking for work.  By the way the cost is expected to be over $700,000,000,000 over the next two years.  Economics rule number 6:  The Consequences of Choices Lie in the Future.  No worries--the national debt is still just a tad under $14,000,000,000,000.

                                                  Center for American Progress analysis. 

What do you think of the costs and benefits of this proposal?  Who might you or your family benefit?  What are the costs for you or your family?

 

         

Tracking Your Every Digital Move--Government or Advertisers?

Many people have long complained about the privacy issues regarding the Patriot Act and other government intelligence programs.  Now BlueCava CEO David Norris has found a way to track digital devices, including cell phones and computers, legally.  According to the Wall Street Journal, advertisers are looking for ways to legally track all of our movements in cyberspace.  Every computer user has some unique settings that set their fingerprint apart from other users.  This way, without knowing who the user is, advertisers can see where we click, what we like, and how we interact.  Fingerprinting is almost invisible, difficult to stop and somewhat permanent.  The advertising market is a $23 billion a year industry.  The idea behind BlueCava's information is to allow advertisers build profiles of the people using the devices it has identified.  Click here to see how this is accomplished.  

Duffka's wonders if tomorrow's leaders feel this is an improvement in advertising where the benefit exceeds the cost of privacy?   

 

WiFi at 35,000 feet? Does the Benefit Exceed the Cost

Recently, American Airlines has added WiFi to many of its flights.  According to the New York Times, it costs about $100,000 to ready a plane for wireless internet access.  Many of the initial users are satisfied with the actual access but dissatisfied with the usual airline issue--space for the laptop.  Additionally, American Airlines suggests using a car lighter power adapter to power the computers because outlets are limited.  In-Stat, an Arizona based research firm, reported that fewer than 1 in 50 passengers are paying the average $5 per hour WiFi fees.  At that adoption rate In-Stat notes that revenue stream will be about $95 million which is pennies to an industry that made $14 billion last year charging for food, baggage, and seat upgrades.  Duffka's students are currently learning about profitability based on market structure.  The airlines function in an Oligopoly market structure which is dominated by interdependence and game theory type decision making.  If Wi Fi attracts customers, than game theory suggests that the dominant strategy should be to include Wi Fi on all flights within the next five years.  Kayak.com has evaluated in flight Wi Fi here.  

Black Thanksgiving to Increase Total Revenue or Profit Maximization?

This year MORE retailers like Sears and Old Navy will be open on Thanksgiving.  Traditionally, Thanksgiving Day consumers assume stores are closed then open around 6 AM the next day with large bargains on a few popular items.  According to the National Retail Federation sales are expected to rise 2.3% this year which is a few basis points less than the historical average.  Sears (owned by Kmart) is desperate for a sales increase this year after reporting an even larger loss last quarter.  Duffka is curious...who is going to Sears on Thanksgiving?  Gap, which owns Old Navy and Banana Republic, expects most of their stores to be open.  Last year 18 million people shopped on Thanksgiving.  Most of them were 18-34 years old.  Kohl's has decided to stay closed on Thanksgiving so its customers and associates (employees) "can spend time with family."  I'm willing to bet that Kohl's will have a sale every weekend for the rest of their existence.  Duffka only shops at Kohl's when there are no sales.  Any thoughts on the new Black Thanksgiving?

  

Facebook vs. Gmail: Round 1

Facebook announced this week that they will be extending the sites email function.  They will allow people to send emails to anybody instead of just Facebook members.  Google and Facebook are currently battling for ad revenue and this announcement created more competition.  Duffka loves the competition aspect and is looking for reader input on the Facebook vs. Google showdown.  Facebook has 500 million subscribers so far and growing.  Here is link to the FB announcement.

Who is going to win this battle?  For the readers that have Gmail and Facebook, which do you think you will prefer?

Put Your Money Where the Deficit is!

The New York Times recently challenged readers to fix the US government's $1,000,000,000,000 budget deficit.  Currently, the government borrows $37 for every $100 it spends (this is an improvement).  To balance the budget the government would have to cut many programs and would would have to increase taxes.  Both of these options would most likely make the business cycle (recovery) worse.  People spending less money (due to taxation) and more people lose their jobs (due to government cuts) increases unemployment (9.6% after 5 quarters of recovery).  Try the NYT's challenge here.

Duffka would like to know what you were willing to do to reduce the budget deficit.  Be specific.    

Call of Duty Creating "Sociopaths"?

"Call of Duty: Black Ops" came out this week and broke records.  According to the Wall Street Journal It recorded revenue of $360 million which was $50 million better than the second place initial sales of "Modern Warfare."  CoD's success was a pleasant surprise to Activision considering all the new technology offerings heading into the holiday season.  The anticipation of the game created a 12:13 AM text from a former athlete whom most likely spent the next 48 hours "training" on the game.  Duffka also noticed a number of students mysteriously absent on Wednesday and assumed others were honoring veterans by playing on Thursday.  Not everybody is excited about the new game though.  Fidel Castro and the Cuban government are disturbed by a portion of CoD which includes a scene in Havana, Cuba where the objective is to kill Castro, "What the United States government did not manage to do in 50 years, now it attempts to accomplish by virtual means."  The Cuban state run media also quoted Castro as saying, "sociopathic behavior among American children and adolescents, the main consumers."

Duffka asks readers for feedback regarding the game.  Does it create sociopaths?  If so, the game has a social cost and should be regulated or taxed, correct?  Entering the next unit we will examine market structure and profitability.  Does Activision  have a monopoly?

Private vs. Social Cost of Cigarettes--$150 Per Pack

In this weekend's WSJ Weekend Edition the "Numbers Guy" looked at studies that tried to calculate social costs of crime and drugs. According to a study from Iowa State University, a murder costs society $17.25 million. One of the key researchers of the study said the number could be inflated due to double counting but either way there is a large social cost. In a study that Duffka found more interesting, the social cost of a pack of cigarettes--$150. The Spanish economist used high risk jobs and their pay to equate life expectancy and the social cost per pack. There are definitely arguments regarding this process of research but the main point is the concept of social costs per pack. Obviously second hand smoke is a negative externality, but what about increased healthcare costs, lost productivity, household impact, etc? The article ends with the statement that of all the drugs alcohol has the largest social cost. The original article is here if your interested: WSJ  

Due to this study and others how would young budding economists (like my readers)recommend a reduction in social costs of alcohol and cigarettes?

GOP Takes Many Seats from Dems

Now that the voting is over we will see what the lame duck session of Congress brings forward. I am interested to see how policy will change, if at all, with a more balanced legislative process. People seem to be worried about taxes but at the same time do not like the budget deficit and the current debt of the U.S. government. The nation's debt is approaching $14,000,000,000,000. That is staggering, but as a percentage(85%) of GDP is still less than the post WWII debt of 120%.

Should we ask our representatives to fight the deficit and the debt by increasing taxes and/or reducing spending or should we focus on lower taxes now and a stable size of government(which will increase the debt/deficit)?

Economics of an Election

This mid-term election in Illinois is extremely negative. Ads blaming the incumbents for the economic woes that the public, Illinois and the Federal Government are currently in. Economics can provide each of us with the objective thinking necessary to make sound choices regarding our leaders. The Congressional Budget Office recently reported that stimulus spending through TARP I and II did save some jobs...so that begs the question "do short term plans to help the economy outweigh long term issues like debt?"

What are your thoughts or questions related to economics and the election?