The All Star Break, Summer Vacation, Back to Blogging, and S. American Starbucks

Tomorrow is Major League Baseball’s All Star game. It marks a little over halfway through the season, but also a little over half way through my summer vacation from teaching. You would think with no teaching responsibilities I would have more time to blog, but I have been traveling, moving and researching.

So I’m going to try to get back on the blogging horse. For the first three weeks of June I was in Chile and Argentina. So over the next week I’ll see if I can remember my trip well enough to blog about it.

So to start, both Santiago (Café Haitti) and Buenos Aires (Café Havanna) had cafes that were chains that had several location, just like Starbucks some within a couple of blocks of each other. There is an economic theory behind this, called the ice cream stand at the beach problem. Imagine a long beach with lots of people (evenly distributed) who want ice cream. These people don’t want to leave the beach and they are lazy so they go to the closest ice cream stand. So where is the best place for Chris to put a ice cream stand if he wants to sell as much as possible, in the middle of the beach of course. What about if Pats wants to put in a stand after Chris opens his in the middle of the beach. The answer is right beside Chris so Pat gets ½ of the customers on the other side of the beach.

Now suppose that Chris wants pays to open a second cart, he won’t put it on the end of the beach. He’ll probably put it close to Pats cart. Maybe not next to it (Although theory might say he would), but probably not that far down the beach. Where it will be depends on the assumptions of how far people are willing to travel for ice cream.

This theory also explains why you sometimes see two gas stations owned by the same company on opposite sides of the street.

Another interesting results is if a chain establishes enough stores it may make it difficult for independent places to move in. This would be the case if opening more ice cream stands or cafes lowered your per store cost. If this is the case we might see particular cafes try to expand to gain market share.

Tomorrow, coffee with soda water, cookies, and legs.

Impressions from Chilean Newspapers at Breakfast

I’m in Santiago Chile for the next five days then off to Buenos Aires for ten days. I’m not sure how much I’ll be able to update, but here are some impressions from my first time in Santiago.

First, I have decided that I’m a teen heartthrob in Santiago, after a high school girl on a micro bus called out to me to take my picture. This caused much high school girl snickering. Like the founding father of Chile, I sport some nice sideburns.

Second, you can learn a lot about what is going by reading the newspaper. However, if your Spanish is a little rusty and you have not had coffee yet your interpretation may not be correcting so a random sampling of stories from Chile that sound like the US. There was a story on how girls were much more likely than boys in Chile to read for pleasure. I would guess these figures were very similar in the US, it was something like only 20% of boy teens read for pleasure and nearly 40% of girl teens. This trend is perhaps indicative of females passing males in terms of education in several Latin American Countries. Another story like the US is that

Chilean children are not drinking enough milk, and their consumption of soda is approaching that of milk. As Latin American countries become developed they are starting to have the same types of obesity problems we do. I have heard there is growing research in how Mexico’s welfare program Oportunidades is actually creating obesity.

I also toured the presidential palace today. More thoughts on that manana.

Robert Reich’s Plan for College Debt is Anti-State School

Robert Reich (Bill Clinton’s former labor secretary) gave a commentary on public radio’s Market Place this morning, that presents a solution to the growing amount of debt that students take on.

Here is his proposal:
“Any college student can get full funding from the government, with only one string attached. Once they've graduated and are in the work force, they pay 10 percent of their incomes for the first 10 years of full-time work into the same government fund they drew on to finance their college education.”

He also notes that the average graduate has $22,000 in debt. Interestingly this figures is more than 4 years of tuition and fees at Reich’s own institution (California Berkley) and mine Towson University. Many of my students work part time to pay for school. According to this report the average Towson graduate had $16,000 in debt upon graduation.

Towson students on average could pay back their loans in 10 years by paying under $1,500 a year (I don't have the figure, but I hope our graduates make more than 15k a year). Most state governments already offer an affordable alternative to private schools.

Now Reich’s plan implies it is optional, so what would the effects be? When something is subsidized then its final price tends to rise. The price consumer pay is lower than before, but part of the benefit goes to the seller. In short the plan sends money from the government to private universities.

Perhaps increasing funding for public universities would be a better policy to alleviate student debt.

Congratulations Graduates! Words of Advice from an Economist.

The semester got to me and I lost momentum on blogging, but I’m back. It is summer time and I’m off to see Towson College of Business 2009 Graduates walk the stage along with me in my University of Maryland Librarian Science attire (thanks Jennie for lending me the robe until I can find a used one ).

I’ve been meaning to write this post about my advice to people who are still looking (or just starting to look for jobs). With the recession you are going to find lower paying jobs, when you find them. This Wall Street Journal article discusses how even ten years later, people who graduated during the recession had lower wages.

The secret to beat this problem is to take a job in the field you hope to wind up in. By doing this you lower your future wage gap. So taking a lower paying job in the field you want to work in you get both the benefit of continuing to pursue what you want and possibly a longer higher term payoff. This not to say finding a job in this economy is going to be easy, I know several smart well qualified people still looking after a few close calls to getting a job. As Robert Reich said at my graduation at Grinnell College in 2002:

"Gaining self-knowledge often comes from failing—crashing headlong into the wall of your character. And please have no doubts about it: You will fail, in some way, at some time. In fact, you will keep crashing into that character wall again and again until you finally realize its there, and that you have either got to knock it down or figure out how to get over it."


Welcome to the real world graduates!

(Actually, let me know what it is like in case I ever quit academia)

What is Costs?

What is Costs, the website answers the question in its name. With short articles on the cost of a plethora of things from Fenway Park, to getting a pilot license, to brewing your own beer. The articles are decent and kind of fun.

h/t to metafilter

New Measure Suggests Stock Market May Have Hit Bottom

Jeremy Siegel An Economist at the U Penn has come up with a new way to look at the price to earning ratio (P/E) (see an article here). P/E tells us for a given stock price how much the stock earns [or price divided by earnings]. Typically this ratio is about 15. To find the P/E ratio for the whole market, Standard and Poor's adds up all the prices of every stock in their S&P 500 index, then adds up all the earnings. The total market P/E just take those to sums and divides them.

Siegel points out this means that AIG's losses are just as important as Exxon's gains. However, investors own 20 times as much Exxon Stock as AIG (since AIG is worth a lot less now). Siegel argues that Exxon should be weighted more heavily. In other words we should count Exxons gains 20 times as much.

Siegel claims a weighted P/E ratio is most important when a few companies have giant losses. This means current P/E may be too pesimistic about the outlook of the stock market. Siegel thinks we have already hit the bottom of the market.

I guess the real question is the weighted P/E more predictive of where the stock market is going than the P/E?

h/t to Greg Mankiw

Random Economic Thoughts on Passover

Tonight is the first night of Passover. Traditionally, Jews have a Seder, which is a big meal with a bunch of Matzah. As part of the meal we retell the story of the Jews exodus from Egypt from Let me people go to the plagues to parting the Red Sea.

So 4 economic musings for Passover.

1.In many places people would be happy to see a large population of migrants return to their home country. I wonder if there weren’t some Egyptian at the lower end of the economic spectrum hoping for the Jews to leave to open up jobs building pyramids. However, for the Pharoh more cheap labor was probably better.
2.Not letting the bread rise because of fear of being attacked a great demonstration of opportunity cost.
3.Less developed economies are mainly reliant on agriculture, thus the plague of cattle disease was probably one of the worst economically. Although it is also hard to work if you are covered in boils and it is dark.
4.The last plague was killing of the first born son. According to the Solow model population growth inhibits growth and capital destruction allows for me easy growth. So we would expect strong economic growth from Egypt after the plagues. Someone will have to ask this to Solow at his Sedar.

Also enjoy my previous posts on passover and economics!