Category Archives: Business and Economy

American life can’t be too bad if people can spend lots of time tracking down a fast food sandwich

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Times are dire, bad, fraught with difficulty. This is now what we have heard, and many have experienced, for months.

But it struck me today that American life is not that terrible if there are some people who are very devoted to tracking down McDonald’s McRib sandwich. It is this sort of quotidian hobby or interest that is only possible in societies where people have extra time and money on their hands.

So what exactly is going on here? Couple this story with the fervor that Chick-fil-A has inspired in the Chicago region with the opening of new stores and it is clear that many Americans love their fast food.

Google measures inflation by looking at web data

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Once again drawing upon its access to  information, Google suggests it developing an alternative measure of inflation:

Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.

The work by Google’s chief economist, Hal Varian, highlights how economic data can be gathered far more rapidly using online sources. The official Consumer Price Index data are collected by hand from shops, and only published monthly with a time lag of several weeks…

The GPI shows a “pretty good correlation” with the CPI for goods such as cameras and watches that are often sold on the web, but less so for others, such as car parts, that are infrequently traded online.

This bears watching as Google can access data and then analyze/summarize it at a much quicker speed than the government. But it will be interesting to see how Google gets around the issue of what is being sold online – the story also notes that Google’s index downplays the role of housing.

This could play out in a number of ways. Could this online index be improved so that markets were responding to Google’s data rather than the government’s data? Let’s say the government decides it likes Google’s approach. Does it develop the same or a similar algorithm within the government? Does it contract the task to Google?

Disagreement about unemployment figures between government and Gallup

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Gallup suggests that the unemployment figures to be released by the federal government at the end of this week are underestimates. While the government figures are expected to be around 9.6-9.8%, Gallup says the unemployment is really closer to 10.1%.

The main issue seems to be that Gallup is measuring through the end of September while the government figures are based on data that ended in mid-September. And Gallup found that unemployment increased quite a bit in the last few weeks of September.

Defining “green” products

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When a consumer goes shopping, there are many products that claim to be “green.” Unfortunately, what exactly this means is unclear and may be just plain wrong. This process, which has come to be known as “greenwashing,” might be limited once the Federal Trade Commission develops new guidelines:

The guides originally were developed in 1992 and last updated in 1998. For the past two years the FTC has worked to revise them to account for consumers’ increased interest in environmentally conscious products and product-makers’ increasingly noisy marketing claims, a practice that’s come to be known as “greenwashing.”…

Some companies have complained in the past that the government did not strictly enforce the existing Green Guides, leading to more consumer confusion. So the more specific rules are welcome.

If these new guidelines are enacted soon, consumers may discover fewer “green” products on the shelves.

While it may not be the most ethical activity, is it a surprise that numerous companies have claimed to have “green” products when these sorts of items draw extra attention from some consumers?

Middle class cuts spending on alcohol, clothes, eating out

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In these troubled economic times, new data suggests the middle-class is cutting back spending in certain areas:

Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households’ after-tax income remained relatively stable over the two years, at an average $45,199.

Middle-class households reined in spending mainly on discretionary items. On average, from 2007 to 2009, they cut spending 20.1% on alcoholic beverages, 15.2% on clothing, and 9.5% on restaurants and other food away from home. They also spent less on some groceries, cutting back on items such as fresh milk and cream, as well as seafood.

Some of the change in spending could reflect a shift to cheaper alternatives, such as picking McDonald’s over sushi.

So when middle-class families need to cut back on spending, this is where they limit their spending: alcohol, clothing, and eating out. Presumably, more positive economic climates lead to more spending in these areas.

This is interesting in that it provides some indication of what the middle class considers “luxury items.” These are not generally big-ticket things but having the ability to drink more alcohol, buy more clothing, and eat out more may be the height of middle-class enjoyment. To reach the middle class may mean that one is able to spend in these areas without worrying too much about the budget.

American sports leagues eye $155 million income for sponsorships on uniforms

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It was recently reported that English Premier League teams earn about $155 million a year from the sponsorships on their uniforms. How much longer before American sports leagues follow suit and try to benefit from such a ready-made revenue stream?

Of “non-genius” and gratitude

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In a previous post, I commented on the surreality of watching The Social Network, the recent movie about the founding of Facebook, at a movie theater just off the Harvard University campus.  Facebook’s founder Mark Zuckerberg is getting a lot of scrutiny in the movie’s wake, including over at the NYTimes where Robert Wright suggests that–contrary to the movie’s portrayal–Zuckerberg may not be a genius.  Wright asks rhetorically:

[C]an you be considered a genius, a visionary, if the globally dominant network you built wasn’t the fruit of far-reaching vision — if, indeed, the network’s internal momentum was such that it was almost destined to build itself, and the question was only which driven and capable entrepreneur would happen to be standing at the right place at the right time when it started to unfold?

I think that Wright’s observations are relevant–if familiar to anyone who’s ever gotten advice about finding a job.  The platitudes about “making your own luck” and “something will turn up eventually if you keep trying” may have played out on a vastly larger scale for Zuckerberg than they do for most of us, but the difference is in degree rather than kind.  Deep down, we all know that the race is not always to the swift (sorry Orkut, Friendster, et al.) and that the real world is less of a meritocracy than we delude ourselves into thinking.

To which I say:  thank goodness.  I think Wright’s right in his observation of the mechanics, but I disagree with his implication.  Zuckerberg may have benefited (unfairly!) from “positive network externalities,” but so have we all.  We all benefit from centuries of mathematical, scientific, and agricultural discoveries that allow us plentiful food and leisure.  Particularly in the U.S., we benefit from a long-running, stable democracy that few of us have made significant sacrifices for–and none of us started.

Thank God for positive network effects.  It doesn’t take a genius to remember that our response to the Zuckerbergs of the world must not be jealousy but gratitude for the unmerited, unearned gifts we ourselves have received.

Symbolic punishment? Fraudulent French trader ordered to pay $6.7 billion

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The economic crisis has raised interesting questions about who is responsible. In the United States, much blame has been placed on the large financial institutions, investment firms and banks, who played a role (though others have also argued that the government and consumers share the blame).

But in the courts, blame could be assigned to any of these parties. In a recent decision in France, a trader who worked for France’s second largest bank was ordered to pay the bank $6.7 billion in damages for fradulent activity linked to the economic crisis. Here is a quick summary of the case’s outcome:

The court rejected defense arguments that the 33-year-old trader was a scapegoat for a financial system gone haywire with greed and the pursuit of profit at any cost — a decision sure to take some pressure off the beleaguered banking system overall.

By ordering a tough sentence for a lone trader, the ruling marked a startling departure from the general atmosphere of hostility and suspicion about big banks in an era of financial turmoil. It was a huge victory for Kerviel’s former employer Societe Generale SA, France’s second-biggest bank, which long had a reputation for cutting-edge financial engineering and has put in place tougher risk controls since the scandal broke in 2008.

Kerviel maintained that the bank and his bosses tolerated his massive risk-taking as long as it made money — a claim the bank strongly denied.

The story goes on to say that both sides, the trader and the bank, admitted to mistakes along the way. But the court ruling suggests that the trader was the culpable party.

The assignment of blame after large traumatic events is a fascinating phenomenon to observe. Who is eventually seen as the responsible party can depend on a number of factors including national culture, time in history, court cases, public opinion, and other particularities. Whoever becomes the scapegoat can often become the symbol of the traumatic incident, forever linking that person or party to phenomenon that are often quite complex.

The noisy biodegradable SunChips bag dies a quiet death

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The biodegradable SunChips bag has been pulled from the market because it is not convenient enough for customers. The issue? It is too noisy:

The noise of the bag — due to an unusual molecular structure that makes the bag more rigid — has been compared to everything from lawnmowers to jet engines. There’s even an active Facebook group with more than 44,000 friends that goes by the name of “Sorry But I Can’t Hear You Over This SunChips Bag.”

“Clearly, we’d received consumer feedback that it was noisy,” says Aurora Gonzalez, a Frito-Lay spokeswoman. “We recognized from the beginning that the bag felt, looked and sounded different.”

The bag illustrates the sometimes unexpected bumps that can trip up companies trying to do the right thing environmentally. SunChips sales have declined more than 11% over the past 52 weeks (excluding Wal-Mart, which doesn’t share its data), reports SymphonyIRI Group, the market research specialist.

A little noise doesn’t seem to be a bad price for having a compostable bag. If products have to be convenient to be successfully green, then one might suggest many consumers aren’t terribly serious about being green.

Also, what is with the journalistic trend of using the size of certain Facebook groups to lend weight to certain “movements”? “Even” 44,000 Facebook users are against the product – is the company reacting to this group or other consumer pressure or data?

The new American normal: pursuing an enriched social life rather than spending

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Sociologist Amitai Etzoni argues that Americans have reached a point where from this point on they may choose to enhance their social lives rather than consume:

The Great Recession provides a golden opportunity to test Maslow’s prescription. As most everybody has read by now, we lived beyond our means for decades, and we borrowed about all we could from overseas and indebted our children. It’s payback time.

There is no way on earth Americans over the next decade will continue to experience the kind of increases in income, and hence standards of living, we have seen since World War II. The question is if they will respond in anger — or benefit, by dedicating themselves, once their basic needs are sated, to spending more time with each other, their children, in social activities and cultural pursuits.

Polls suggest that large numbers are ready.

As Etzioni notes at the end of this piece, the real test of these opinions will come once the economy recovers. If people have more income and disposable income, will they return to their consumerist ways?

But perhaps these attitudes will lead to something different: a society that no longer desires or tries to attain explosive growth periods. Perhaps the true non-consumerist society will be content with slow but consistent growth.