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The economy was tanking. Millions lost their jobs. Stocks were down. And since bankers seemed to be riding out the bad times better than anyone, the government appointed a commission to look into who was to blame for the crash. But this was 1933, and Ferdinand Pecora was chief counsel to the U.S. Senate’s Committee on Banking and Currency.
Assigned to probe the causes of the 1929 crash, he led what became known as the “Pecora commission,” making front-page news when he called Charles Mitchell, the head of the largest bank in America, National City Bank (now Citibank), as his first witness. “Sunshine Charley” strode into the hearings with a good deal of contempt for both Pecora and his commission. Though shareholders had taken staggering losses on bank stocks, Mitchell admitted that he and his top officers had set aside millions of dollars from the bank in interest-free loans to themselves. Mitchell also revealed that despite making more than $1 million in bonuses in 1929, he had paid no taxes due to losses incurred from the sale of diminished National City stock—to his wife. Pecora revealed that National City had hidden bad loans by packaging them into securities and pawning them off to unwitting investors. By the time Mitchell’s testimony made the newspapers, he had been disgraced, his career had been ruined, and he would soon be forced into a million-dollar settlement of civil charges of tax evasion. “Mitchell,” said Senator Carter Glass of Virginia, “more than any 50 men is responsible for this stock crash.”
That was just the beginning. The proceedings became a “circus” and a media sensation. Read about how Pecora unearthed the dirty secrets of the banking industry that led to the Great Depression at Past Imperfect. Link
Lords a leaping, maids a milking and partridges in a pear tree are hardly useful gifts these days, but thanks to the classic song’s popularity, they are now used as a standard measure for inflation. Of course, if you did want to get these gifts for your true love, the inflation measures can tell you just how much debt they will bring you. This year, the total cost for the full list of gifts costs $101,119.84.
The most expensive item on the list? Six swans a swimming that will run you $6,300. While the item measurements make sense, I just can’t fathom how eight maids a milking only costs $58 when nine ladies dancing goes for $6,294.03. I guess that’s why I’m not an economist.
Link Via Consumerist
Image Via cobalt123 [Flickr]
Randall Munroe at xkcd put together a chart about money, so massive that you’ll have to enlarge a few times just to read it. The statistics cover what things cost, what people earn, business profits, taxes, government spending, utilities, war, and more. The amounts of money for each are laid out in blocks for comparison. That’s a lot of blocks. What is shown here, as compressed as it is, is just a portion. Link -via Boing Boing
It seems an odd problem to have, this “too much cash” thing. I don’t know that most of us can relate. But it seems that in times of economic insecurity, those who used to invest in stocks are simply holding their money in banks, and now bankers are inundated with money. So what’s the solution? Charge people to deposit. Or, at least some of the people, at some banks anyway:
Though financial institutions are not yet turning away customers at the door, they are trying to discourage some depositors from parking that cash with them. With fewer attractive lending and investment options for that money, it is harder for the banks to turn it around for a healthy profit.
In August, Bank of New York Mellon warned that it would impose a 0.13 percentage point fee on the deposits of certain clients who were moving huge piles of cash in and out of their accounts.
Others are finding more subtle ways to stem the flow. Besides paying next to nothing on consumer checking accounts and certificates of deposit, some giants — like JPMorgan Chase, U.S. Bancorp and Wells Fargo — are passing along part of the cost of federal deposit insurance to some of their small-business customers.
Even some community banks, vaunted for their little-guy orientation, no longer seem to mind if you take your money somewhere else.
“We just don’t need it anymore,” said Don Sturm, the owner of American National Bank and Premier Bank, community lenders with 43 branches in Colorado and three other states. “If you had more money than you knew what to do with, would you want more?”
Well, Neatoramanauts? What say you? Does charging money to hold your money seem counter-intuitive, or is this a good tactic for discouraging large-sum depositors from parking away their millions in a vault?
Ever since the collapse of the Soviet Union, Cub has been inching towards capitalism -mostly in the form of tourism. Can Havana once again become “the Latin Las Vegas”?
Communist countries aren’t known for being vacation hot spots, and for good reason. To have a thriving tourist sector, you need luxuries to offer and visitors willing to spend money on them. That’s the stuff of capitalism. And yet, Cuba attracts about 2 million sightseers every year, mostly from Europe and Canada. That number is especially remarkable considering that two decades ago, Cuba’s tourism industry was not only nonexistent, it was outlawed.
FROZEN DAIQUIRIS
Cuban tourism was banned in 1960 as part of the Communist Revolution. Shortly after Fidel Castro came to power, his regime closed the island’s internationally renowned hotels. He also cracked down on prostitution, gambling, and illicit drugs -trades that had made the country a den of hedonism. As Castro saw it, tourism was a form of capitalist exploitation in which the rich pleasured themselves on the backs of the poor. He felt that Americans used the island as a playground with little concern for the welfare of those who lived there. In his new country, Cuban citizens would be equal; no one would stay at luxury hotels until everyone could stay at luxury hotels.
(Image credit: Flickr user Tom Graham)
Cuba got by without tourism for nearly 30 years, mostly by exporting sugar to its top trading partner, the Soviet Union. But after the Soviet Union collapsed in 1991, billions of dollars disappeared from Cuba’s coffers overnight. To keep the country from going bankrupt, Castro announced a five-year era of austerity, which he dubbed the “special period.” Never in the history of politics has the word “special” been used more euphemistically. Castro cut mass transit and food rations by 80 percent -moves so drastic that they caused the average Cuban to lose 20 pounds. But cutting costs alone wouldn’t make the country solvent again; Cuba needed new trading partners and new industries. So, very reluctantly, Castro re-opened the tourism sector.
THE TOURISM APARTHEID
more …
Can
you teach a monkey the basics of market economy?
In this article over at our pal mental_floss, Allen St. John wrote about an intriguing research by Laurie Santos and Keith Chen of Yale University to see if they can teach monkeys to spend money:
A video of one of these early experiments shows that when Felix, the group’s alpha male, entered, he received a “wallet” with 12 of those round aluminum tokens. Two student researchers, one wearing a pink T-shirt, the other blue, stood on either side of that 3-foot cubic enclosure, each holding a different tray of food. The premise at this stage was pretty basic: Felix could swap his tokens for food with either of the two researchers. He didn’t seem to care much about the students. But he did care profoundly about what the researchers would sell him in exchange for that little metal token.
Felix and the others were cautious, observant shoppers. As the video shows, Felix would head first to the researcher holding out pieces of orange, examining them carefully; before leaving, he stopped to smell them. He went to the other researcher and did exactly the same thing—looking, sniffing, shopping. He then headed back to the first researcher and handed over a token to complete the transaction. Oranges, please.
“When you watch it, it looks like they’re contemplating, thinking about what they’re going to buy,” says Santos. What separates these capuchins from the scores of animals who have been trained to perform complex behaviors in exchange for food is the option presented by that second researcher.
“The critical aspect of money is that it’s fungible. It represents a choice,” explains Chen. “A coin is fundamentally different than, say, pressing a lever.” Santos and Chen had not only achieved their preliminary goal, they had made history: The monkeys were using cash. The capuchins were now operating in a sphere where humans had been dwelling alone.
Air Force Lt. Col. Dan Ward did a cost/benefit analysis of a fictional project for the Pentagon’s in-house publication Defense AT&L Magazine. It’s a cautionary tale about the Empire’s Death Star.
The Empire’s answer to Ash Carter should have seen it coming. It’s embarrassing enough that the galaxy’s supposedly most fearsome weapon was felled by crappy duct work.
But it was entirely predictable. A project so big and complex, Ward writes, will invariably stretch the oversight capabilities of acquisition staff. In this case, it led to manufacturing delays and prevented the Empire from realizing that one of its thermal-exhaust ports was a de facto self-destruct button.
Moreover, for all the expense poured into it – $15.6 septillion and 94 cents, to be precise — the Death Star is destroyed twice, and in its two iterations only ever manages to get off a few shots.
Ward says that droids are a much better bargain for any military budget. It’s tongue-in-cheek, of course, but can be related to some actual military spending projects. Read more about it at Wired’s Danger Room blog. Link -via TYWKIWDBI
Previously/Related: The Economics of Death Star Planet Destruction
by Yoram Bauman [1]
University of Washington, Seattle, Washington
The cornerstone of Harvard professor N. Gregory Mankiw’s introductory economics textbook, Principles of Economics, is a synthesis of economic thought into Ten Principles of Economics (listed in the first table below). A quick perusal of these will likely affirm the reader’s suspicions that synthesizing economic thought into Ten Principles is no easy task, and may even lead the reader to suspect that the subtlety and concision required are not to be found in the pen of N. Gregory Mankiw.
I have taken it upon myself to remedy this unfortunate situation. The second table below summarizes my attempt to translate Mankiw’s Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.
Mankiw’s Principles
#1. People face tradeoffs.
#2. The cost of something is what you give up to get it.
#3. Rational people think at the margin.
#4. People respond to incentives.
#5. Trade can make everyone better off.
#6. Markets are usually a good way to organize economic activity.
#7. Governments can sometimes improve market outcomes.
#8. A country’s standard of living depends on its ability to produce goods and services.
#9. Prices rise when the government prints too much money.
#10. Society faces a short-run tradeoff between inflation and unemployment.
————————————————————
Yoram’s Translations
#1. Choices are bad.
#2. Choices are really bad.
#3. People are stupid.
#4. People aren’t that stupid.
#5. Trade can make everyone worse off.
#6. Governments are stupid.
#7. Governments aren’t that stupid.
#8. Blah blah blah.
#9. Blah blah blah.
#10. Blah blah blah.
————————————————————
At first glance, the reader cannot but be impressed by the translation’s simplicity and clarity. Accessibility, however, should not be mistaken for shallowness: further study will reveal hidden depths and subtleties that will richly reward the attentive student. Indeed, a moment’s reflection will identify any number of puzzles and mysteries. Chief among them is probably this: Why do Principles #8, #9, and #10 have identical translations?
The immediately obvious explanation is that these are macro-economic principles, and that I, as a micro-economist, am ill equipped to understand them, let alone translate them.[2] As is often the case in this complex world we live in, this immediately obvious explanation is also wrong. The true reason I have provided identical translations of “Blah blah blah” for Principles #8, #9, and #10 is that these principles say exactly the same thing, namely, “Blah blah blah.” Sometime when you’ve got a few hours to spare, go and ask an economist — preferably a macro-economist — what he or she really means by “standard of living” or “goods and services” or “inflation” or “unemployment” or “short-run” or even “too much.” You will soon realize that there is a vast difference between, say, what Principle #10 says — “Society faces a short-run tradeoff between inflation and unemployment” — and what Principle #10 means: “Society faces blah between blah and blah.” My translations are simply concise renderings of these underlying meanings.
Having cleared up that issue, let us go back to Mankiw’s
Questions of logic don’t apply to Hollywood movies, but science fiction fans like their stories to make some kind of sense. So the discussion turned to the logic of using a Death Star to blow up a planet.
What’s the economic calculus behind the Empire’s tactic of A) building a Death Star, B) intimidating planets into submission with the threat of destruction, and C) actually carrying through with said destruction if the planet doesn’t comply?
Doesn’t the Empire take a huge economic loss from the lost productivity of an entire planet? They were presumably paying taxes and providing resources to the rest of the Empire. Presumably the loss of that planet’s output would have to be made up by increased output from other planets that were either slacking in productivity due to rebellion or threatening to rebel and withdraw from the Empire altogether. It doesn’t seem to make good economic sense.
What follows is a cost-benefit analysis from various members of the Think Tank. Read the rest at (where else?) Overthinking It. Link -via Metafilter
An article at the Wall Street Journal says Americans spend $1.2 trillion annually for things we don’t need.
As it turns out, quite a lot. A non-scientific study of Commerce Department data suggests that in February, U.S. consumers spent an annualized $1.2 trillion on non-essential stuff including pleasure boats, jewelry, booze, gambling and candy. That’s 11.2% of total consumer spending, up from 9.3% a decade earlier and only 4% in 1959, adjusted for inflation. In February, spending on non-essential stuff was up an inflation-adjusted 3.3% from a year earlier, compared to 2.4% for essential stuff such as food, housing and medicine.
Minnesotastan wonders how we define essentials and non-essentials. There are a lot of items that can be defined either way. Braces for teeth? Books? College tuition? Lawnmowers? Where do you draw the line? Link
The term “globally” here does not mean worldwide so much as it means seeing the problem as a whole as opposed to its parts. Dr. Eli Goldratt {wiki} explains what happens to the supply chain of consumer goods during a recession, in terms even I can understand. With animation by Aharon Charnov. -Thanks, Joe Brown!
A song lyric says: “When all you’ve got is nothing, there’s a lot to go around.” Researchers from the University of California at Berkeley conducted experiments that show poor people tend to be more generous than rich people.
In one experiment in particular, led by doctoral student, Paul Piff and his researchers, participants completed a questionnaire reporting their socioeconomic status and a few days later were provided with $10 to share anonymously. The findings concluded the more generous of the income brackets were on the lower-income scale. A recent national survey
reiterates the results, revealing lower-income people give more of their hard-earned money to charity than the wealthy.At a time when the richest one percent of Americans own more than the bottom 90 percent combined, Piff and his colleagues’ findings are more than a little timely. “Our data suggests that an ironic and self-perpetuating dynamic may in part explain this trend,” the study researchers write, to be published in the Journal of Personality and Social Psychology. “Whereas lower-class individuals may give more of their resources away, upper-class individuals may tend to preserve and hold onto their wealth. This differential pattern of giving versus saving among upper–and lower– class people could serve to exacerbate economic inequality in society.”
Did anyone else think, “duh!” when they read the last line of that quote? Link -via Digg
(Image credit: Flickr user Kathryn Harper)
Perhaps it has something to do with their field of choice, economics AKA the dismal science, but many of the world’s most famous economists share one extraordinary trait: they’re cheapskates!
Some economists may be cheap, at least by the standards of other people, because of their training or a fascination with money and choices that drives them to the field.
In recent research, University of Washington economists Yoram Bauman and Elaina Rose found that economics majors were less likely to donate money to charity than students who majored in other fields. After majors in other fields took an introductory economics course, their propensity to give also fell.
"The economics students seem to be born guilty, and the other students seem to lose their innocence when they take an economics class," says Mr. Bauman, who has a stand-up comedy act he’ll be doing at the economists’ Atlanta conference Sunday night. Among his one-liners: "You might be an economist if you refuse to sell your children because they might be worth more later."
Economists long have studied "free riders," the sort of people who take more than their fair share of something when circumstances permit. Think of the person who orders the most expensive entr[eacute]e at a restaurant, knowing that the check will be shared equally among companions.
University of Wisconsin sociologists Gerald Marwell and Ruth Ames, in a 1981 paper, found that in experiments, economics students showed a much higher propensity to free ride than other students. In questioning after the experiment, the sociologists found that for many of the economics students, the concept of investing fairly "was somewhat alien."
The U.S. Department of Agriculture, which is apparently concerned with more than raising crops, has announced that the estimated cost of raising a child born in 2008 from birth to age 18 is $221,190. If you adjust for expected inflation before the child reaches adulthood, that figure is $291,570. Your mileage may vary.
The report by USDA’s Center for Nutrition Policy and Promotion notes that family income affects child rearing costs. A family earning less than $56,870 per year can expect to spend a total of $159,870 (in 2008 dollars) on a child from birth through high school. Similarly, parents with an income between $56,870 and $98,470 can expect to spend $221,190; and a family earning more than $98,470 can expect to spend $366,660. In 1960, a middle-income family could have expected to spend $25,230 ($183,509 in 2008 dollars) to raise a child through age seventeen.
When you consider the income levels in these calculations, it doesn’t seem all that bad. Many families spend more than that on a house. Then again, the child’s shelter expense is the biggest item on the total bill, comprising 32% of the total. Link -via J-Walk Blog
(image credit: Flickr user Matt Stratton)
Warp coils and photon torpedoes aside, have you ever thought of the weird fact that there’s no money in Star Trek? Or how people get stuff done in real life when they can just … erhm, enjoy what the holodeck can offer?
Our very own John who blog at The Zeray Gazette has, and he’s given it some serious thoughts:
… my usual interpretation of the economics of Star Trek: they were unrealistic, as they eliminated the first law of economics — scarcity. Thanks to the replicator, there is virtually no need to manufacture anything. Although there were a few objects, such as latinum or yamok sauce, that could not be replicated, there was essentially nothing that your replicator could not provide for you — including more replicators.
Come to think of it – how would a money-less economics of the future a la Star Trek work? Who’ll do the scut work?
