Thursday, January 31, 2008

Reporters are clueless about economics

I often tell my classes that reporters usually get the economics wrong in their stories. Here is the latest example.
WASHINGTON (AP) - Consumers, battered by harsh economic crosswinds, spent less in December than at any time in the past 15 months while applications for unemployment benefits soared last week, two more signs the economy is weakening.
Actually, spending increased, it didn’t decrease as the reporter states. He goes on to contradict himself in the next sentence.
The Commerce Department reported Thursday that consumer spending edged up just 0.2 percent in December - the year's peak shopping season - down sharply from a 1 percent gain in November.
It always helps to look at the actual data.


Friday, January 25, 2008

Economic Stimulus - What Economists Think

The congress and the administration are now in agreement that the economy needs a fiscal stimulus. They also have a working agreement on what it will include.

In my classes, we've gone over how this will work, and I've noted that most economists are fairly skeptical about it having any real effect. The concensus view seems to be that it won't help much, but it won't hurt too much either. My personal opinion is that I'll be glad to take the money, but I don't think it will have much impact on the economy as a whole.

For those who would like to see what other economists have to say I offer the following (in no particulat order.)

From Arnold Kling - Stimulus: The Mainstream View

From Megan McArdle - Have I mentioned . . . .

From Alex Tabarrok - Against Fiscal Stimulus and Investment tax credit as fiscal stimulus

From Greg Mankiw - Proposed Fiscal Stimulus: My View also note the Lags in Fiscal Policy

From The Economist - Pointless Stimulation

From Bruce Bartlett - Feel-Good Economics

There are others, but you get the idea.


Can you buy a public Community College?

The first company I worked for right out of college was ARCO. At the time, R. O. Anderson was the chairman. He had an interesting attitude about company assets - for the right price, anything was for sale. For my division, that included ARCO's significant position in Oil Shale on Colorado's west slope.

Although everyone knew about Anderson's attitude about assets, it came as quite a shock when he suddenly sold our oil shale project to Exxon. Naturally everyone worried about what they would do once the division's largest project got sold. As it turned out, ARCO was about the only company to actually make any money on oil shale, and we did it by selling out.

I started thinking about this when I heard that SignificantPartners has offered to buy Rio Salado Community College from the district.

A California investment firm is offering at least $400 million to make Rio Salado College the first public community college in the nation to switch to a private, for-profit business.

The firm, SignificantPartners, wants to buy Rio Salado’s online academic operation. That accounts for roughly half of the college’s 62,000 students.

Michael Clifford, the firm’s chairman, said the transaction would provide the Maricopa County Community College District a huge amount of cash at a time when the state is grappling with a billion-dollar deficit.

SignificantPartners would receive an accredited — and growing — local online college that could soon enroll students around the world.

“I’m just a simple entrepreneur,” Clifford said. “When you have an asset that can attract hundreds and hundreds of millions of dollars in capital, why should the taxpayers have to pay?”

The Chancellor has since turned down the offer.

A California investor behind the purchase of Grand Canyon University has his eyes on Rio Salado College, one of the nation's largest online community colleges and part of Maricopa Community Colleges.

Michael Clifford, who grew up in the Valley, is leading a private investment group that has offered at least $400 million for the college's online operation, although such a transaction is highly unlikely. Maricopa Chancellor Rufus Glasper said late Wednesday that the school is not for sale.

Both Clifford and Glasper said they remain open to possible public-private partnerships.

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Sunday, January 20, 2008

Better customers mean better service

One of the interesting things about a service business is that the customer is usually intimately involved in the service delivery. Hence, both the service provider and the consumer affect the quality of the service.

I remember talking with one of my students that was a flight attendant. Although she worked full time, she had adjusted her schedule so that she only worked on weekends. I asked how that compared with working during the week. Her response was interesting. During the week, the flights were almost always full, but since most of the passengers were business travelers, they didn't require much care and attention. In contrast, weekend flights had fewer passengers, but most were vacation travelers and required a lot more time and attention. Her job would have been a lot easier if the vacation travelers had know as much as her weekday business travelers.

In short, passengers would have had a better flight experience if more of them had been better customers.

It appears that Delta Airlines is attempting to produce a better customer.

ATLANTA - Volumes have been written about how to behave properly at weddings or which fork to use at fancy dinners.

But when it comes to dealing with the neighboring passenger who hogs precious airline arm space, there's precious little out there.

Until now.

Delta Air Lines Inc. is trying to raise awareness of behavior in the air by creating a series of videos showing passengers confronted with delicate social situations.

The videos may be found here.


Services, Services, Services

Every year the East Valley Tribune publishes a list of the 40 largest employers in the east valley. The list is reflective of the US economy as a whole - it is dominated by service providers. Even the few manufacturing companies listed provide a number of services to their customers. Retail, financial and heathcare services are the largest. Additional services include transportation, travel, communications and IT.

1. Intel East Valley employees: 10,100 Local address: 5000 W. Chandler Blvd., Chandler Headquarters: Santa Clara, Calif. What it does: World’s largest semiconductor company operates two major manufacturing and research complexes in Chandler.

2. Wells Fargo East Valley employees: 7,228 Local address: 100 W. Washington St., Phoenix Headquarters: San Francisco What it does: Financial services. East Valley presence includes community banking and Wells Fargo Financial and Wells Fargo Home Mortgage branches. It also has several operations and processing centers in the East Valley.

3. Banner Health East Valley employees: 7,100 Local address: 1441 N. 12th St., Phoenix Headquarters: Phoenix What it does: East Valley operations include Banner Desert Medical Center, Banner Children’s Hospital at Banner Desert, Banner Baywood Medical Center, Banner Baywood Heart Hospital, Banner Home Care and Hospice and Banner Behavioral Health Hospital in Scottsdale. It will close Banner Mesa Medical Center and open Banner Gateway Medical Center at Higley Road and U.S. 60 this year.

4. Wal-Mart East Valley employees: 6,200 Local Address: Multiple locations Headquarters: Bentonville, Ark. What it does: World’s largest discount retailer.

80% of the US economy is services, and it continues to grow.

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Friday, January 04, 2008

Arizona's physical connection to global trade

An interesting article on how tranporting imports affects Arizona's economy.

Imports from China alone have quadrupled in the past decade, with Los Angeles and Long Beach preferred destinations for that commerce. As America's trade expands with China and throughout the Pacific Rim, Arizona's ties to the two Southern California ports have tightened, as well.

"We're a land bridge for a lot of that freight," said Victor Mendez, director of the Arizona Department of Transportation.

In fact, more than two-thirds of the trade through Southern California starts or ends up in states east of here. As the goods unloaded at the ports are dispersed, much of the cargo eventually passes through Arizona en route to points farther east, with some of it stopping in warehouses in the West Valley or elsewhere in the state.

Also, some basic data on the ports.


Thursday, January 03, 2008

Ticket prices and falling demand

One of the problems students have with demand is understanding the difference between a decrease in DEMAND and a decrease in the QUANTITY DEMANDED. Part of the problem is that supply interacts with demand to set a market clearing price. When the supply of a good or service is fixed, it's a bit simpler. That happens to be the case with Fiesta Bowl tickets.

Kim Bianchi came to the Valley for the Insight Bowl. She ended up staying for Wednesday's Fiesta Bowl, thanks to tickets being sold at bargain-basement prices.

Outside the Glendale stadium, the Chicago woman and a friend scored seats just 35 rows from the action for $35 apiece.

The face value was $218.

Here we have a clear indication of a decrease in demand. The total quantity of tickets didn't change, but the price certainly did.

Note that the story lists two possible reasons for the decrease in demand - a possible change in consumers' incomes and a change in preferences.

Some ticket brokers attributed the abundance of tickets still available on game day to a shaky economy, while others said it had more to do with an uninspiring match up between Oklahoma and West Virginia.


Predicting a not so Happy New Year

Part of economics is making predictions of the future. To do this, we use indicators. One such indicator is the Arizona Business Conditions Index, produced by ASU. It's not looking good.

A key barometer of Arizona economic activity fell in December, suggesting that a recession is likely later this year.

The monthly Arizona Business Conditions Index, produced by Arizona State University, fell below the critical 50 mark, to 47.3.

Anything below 50 indicates the economy is slowing and a recession is likely in four to six months, Dawn McLaren, research economist at ASU's W.P. Carey School of Business, said Wednesday.

Go here for the actual press release and data.

The part that concerns me is this.

Of businesses surveyed, 45 percent said they expect to spend less on capital expenditures in 2008 compared with last year, and 33 percent expect to spend more.

Capital spending drives both job creation and productivity which in turn drives our standard of living.