Wednesday, January 30, 2019

There's no such thing as free cheesecake

See Cheesecake Factory's free cheesecake promotion goes awry, one person arrested by Sarah Whitten of CNBC. Excerpts:

  • Cheesecake Factory celebrated its 40th anniversary with a free cheesecake promotion with DoorDash.
  • The promotion brought crowds of delivery drivers to stores.
  • Police were called to one Cheesecake Factory restaurant after a fight broke out while drivers were picking up orders.
  • One person is arrested on disorderly conduct charges.
"A free cheesecake promotion celebrating Cheesecake Factory's 40th anniversary turned ugly as orders and DoorDash delivery drivers flooded restaurants. A brawl broke out at one location, and one person was arrested.

The nationwide promotion, which kicked off at 11:30 a.m. local time Wednesday, offered 40,000 free slices of cheesecake to customers who ordered through the DoorDash app. The promotion comes at a time when more restaurants are adding delivery and digital ordering capabilities to meet growing consumer demand for fast and convenient access to food.

Within two hours, all free slices had been ordered, leading some disappointed respondents to complain on social media that they were not able to get their hands on a piece of cheesecake, or if they did, it arrived hours after it was ordered."

"The promotion brought crowds of DoorDash delivery drivers to restaurants, disrupting business. Some locations saw drivers double parking their vehicles so they could enter the restaurant and pick up their orders.

In one instance, police were called to a Cheesecake Factory in Arlington County, Virginia, after a fight broke out while drivers were picking up orders."
Here is the definition of a scarce good I use in my classes:

Scarce-A good or resource is scarce when the amount available is less than the amount people would want if it were given away free of charge.

Related posts about problems when thing are given away for free:

Chaos ensues when stuffed bears are given away (almost) free of charge.

Domino's & T-Mobile discover there is no such thing as free pizza. Too many took advantage of offer. They ran out.

What happens if you give electricity away for free? (Tesla post)

Taco Bell Gives Away "Free" Tacos, Problems Arise.

IHOP Gives Away Free Pancakes And Gets Slammed.

There Is No Such Thing As Free Salt (Or Sand) .

Trees Are Scarce In San Antonio!

Free Can Be Deadly. (give aways lead to stampedes)

More Free Give Aways Lead to Trouble. (A shopping mall in California gave away free gift certificates)

Josh Hamilton’s grand slam causes a flooring and countertop shortage 

Thursday, January 24, 2019

Another Semester Has Started

Welcome to any new students. The entries usually have something to do with a basic economic principle that is related to a recent news story.

Here is something I wrote for The Ranger (the school paper of San Antonio College where I used to teach) back in 2011 titled "Why is college so hard?"

Students might wonder why college, and SAC in particular, is hard. This might sound trite, but I think the faculty at SAC want students to achieve success in life and that means that classes have to be hard if you are going to learn and understand the concepts which provide a foundation for that success.

I think my own experience as a community college student over 30 years ago helps me understand this. My teachers took their subjects seriously and maintained high academic standards. They got me excited because of the expertise they brought to their teaching. Now that I have been a teacher for over 20 years, I can see how important that was.

After finishing my A.S. degree at Moraine Valley Community College (MVCC) in Palos Hills, Ill., I transferred to and graduated from the University of Chicago with a degree in economics. But it was my community college teachers prepared me to handle the rigors of the U. of C.

Later, I got a Ph. D. in economics from Washington State University. But I've accomplished some other things I never could have dreamed of when I began taking classes at MVCC and I think my teachers there paved the way for me.

In 2005, I had a letter to the editor published in The Wall Street Journal (I have now had five published there, three in The New York Times and three op-eds in the Express-News). This one was several paragraphs long, nearly as long as some of their op-ed pieces. It was the first letter in the letters section that day, and I got the top headline. It dealt with NAFTA and trade agreements.

As nice as that was, I got a big shock a few days later when I got a letter in the mail, on official stationery, from Richard Fisher, the president of the Federal Reserve Bank of Dallas. He complimented me on my letter and said it was superb. I had never even met him or ever tried to contact him before.

Wow. I graduated from high school with a 2.7 GPA, and when I started at MVCC, I had no idea what I would do with my life. If you had told me then that someday I would have a letter in the WSJ and get that kind of compliment, I doubt I would have believed you.

Then an adjunct professor at the business school at the University of Chicago contacted me a few years ago and wanted to know if it was OK for her to assign a paper I wrote on entrepreneurs for a class she was teaching on innovation. (Of course, I said yes).

That professor was Nancy Tennant Snyder. She has a Ph. D. from George Washington University and is a vice president at Whirlpool. Business Week magazine has called her one of the leading innovators in the world. She also cited two of my papers in one of her books.

Then I got an email from John Joseph, a professor at the University of Edinburgh. He is an expert on language and politics. He wanted to know if he could include an essay I wrote in a four-volume work he was planning. I again said yes and it was published last year (and it is called Language and Politics).

It is a collection of essays. Mine is titled "The Intersection of Economic Signals and Mythic Symbols." Other contributors include Jeremy Bentham and George Orwell. When I was a community college student, I never imagined being included along with the likes of those great thinkers.

The co-authors of the book The Economics of Public Issues have thanked me in each of the last three editions for my helpful suggestions. Almost all of the people they thank are from big universities. One of the co-authors of this book, Douglass North, is a Nobel Prize winner. Never imagined someone like that would value my input when I started out as a community college student.

Getting such recognition in cases like this gives me a sense of achievement. I know I have made a scholarly contribution to the world. And I want all SAC students to have a chance for this same kind of success (as an academic or any in line of work). I think all SAC faculty do. That is why school is hard, and that is why I'm thankful that my community college teachers were experts who maintained high academic standards.

Friday, January 11, 2019

TV chefs showcase recipes using mutton, prices jump

By Lucy Craymer of The WSJ. When tastes increase, demand shifts to the right, raising price. That might have happened since chefs have been featuring this meat, increasing consumers' desire for it. Also, farmers have been raising less sheep in order to move into more profitable products. When the price of good A rises, the supply of good B decreases or shifts to the left (if a firm can produce both products)
"Prices of mutton and other sheep meat are hovering near record highs as more people around the world gain a taste for the strong-flavored red meat.

The growing popularity of ethnic cuisine in the U.S. has introduced a new generation to sheep meat through the likes of kebab platters and mutton biryani, an Indian rice dish with meat and spices.

American and British TV chefs in recent years have showcased burger and stew recipes using mutton, which comes from sheep that are more than a year old. Some casual and fine-dining restaurants are also adding mutton dishes to their menus.

The wholesale price of mutton from New Zealand, where a third of the world’s exports come from, averaged 4.17 New Zealand dollars ($2.85) a kilogram for the year through Sept. 30, up 45% from the previous year. Wholesale lamb prices were up 25% to NZ$7.08 a kilogram, according to an industry association, Beef & Lamb New Zealand.

The higher wholesale prices have translated into higher prices in American stores. U.S. retail prices of ground lamb were around $7.67 a pound earlier this month, up by more than half from a year ago, according to U.S. Department of Agriculture data. Lamb fetches a significant premium to ground beef, which sold at $4.98 a pound.

Rising U.S. consumption in recent years has helped push up prices for mutton and lamb at a time when consumers in China, the Middle East and sub-Saharan Africa are also clamoring for more of the meat.

Sheep populations in Australia and New Zealand—the world’s largest producers and exporters of the meat—on the other hand, have fallen to near their lowest levels in a century. Many former sheep farmers over the years shifted into dairy farming or growing wheat and other higher-yielding crops."

Thursday, January 10, 2019

A wave of the tech giants making inroads into the banking business with data tracking algorithms

See A $150,000 Small Business Loan—From an App: Square and other tech firms are jumping into banking, using their vast troves of data to determine creditworthiness by Peter Rudegeair of The WSJ.

Economists say that banks are financial intermediaries. They bring savers and borrowers together. But so are these tech companies that process customer payments. It allows them to learn how good a credit risk the businesses are since they know what there sales are.

"Last week, the San Francisco company took another step towards banking: It filed paperwork to open its own bank in Utah that would make loans to small businesses and offer deposit accounts to both companies and the general public.

Few things terrify today’s bank CEOs more than the specter of a big technology company elbowing them aside. Square’s new push puts it at the forefront of technology firms aiming to challenge banks not just on payments or digital apps but on the banks’ core business of making loans. Tech firms’ vast troves of customer data can give them a built-in advantage. PayPal Holdings Inc. has extended more than $6 billion in small-business loans since 2013, using data it collected by processing payments for Internet retailers. Over the past seven years, independent merchants that sell goods on Amazon have borrowed more than $3 billion from the e-commerce giant, which approves loans based on sellers’ historical volumes, Amazon reviews and other factors.

Older tech companies and financial firms have recently jumped into the fray. Last year, Intuit Inc. started offering loans to businesses that use its Quickbooks software based in part on the data contained in their accounting statements. First Data Corp. now lets businesses that use payments devices from Clover, a Square competitor that it owns, take out loans based on their sales history.

A team of techies at Square dreamed up its lending program, now called Square Capital, in 2013 when Square was around four years old. Their cumulative work experience in the financial industry was little more than a single yearlong stint at Goldman Sachs Group Inc.

Customer feedback drove the idea. Small-business owners that used Square’s payments services complained they couldn’t get bank loans, either because their personal credit scores were too low or their businesses didn’t generate enough revenue. Square Capital has since extended more than $3.5 billion in loans and cash advances to small businesses."

"It extended about 200,000 business loans in the 12 months ending Sept. 30—more than three times the number of loans banks provided through the entire Small Business Administration over the same period. But the average size of its business loans is about $6,500, much smaller than what banks typically offer."

"Square loans are funded by money managers, and if they decide to stop purchasing the credits, Square Capital would have to slow down its lending. To keep those investors happy, Square Capital also has to charge higher interest rates than banks, which are funded by low-cost deposits."

"Square is trying to achieve a delicate balance of offering banking services without triggering bank-level regulations."

"The bank that Square wants to open would be classified as an “industrial loan company,” a niche type of financial institution that can offer banking services without oversight from the Federal Reserve."

"Square makes automated decisions about riskiness by leveraging its data trove of businesses’ credit-card transactions. Square also looks at more detailed information, like whether a business is attracting repeat customers."

"Most customers never have to fill out a formal application, and Square can deduct repayments from a company’s daily take.

To offload risk, Square sells the bulk of its loans to outside investment firms."

Wednesday, January 09, 2019

Toxic Smoke Is Africa’s Quiet Killer. An Entrepreneur Says His Fix Can Make a Fortune

By Peter S. Goodman of The NY Times.

Eric Reynolds decided to give away stoves that burn clean wood pellets which he would sell (much cleaner than what people use now). That reminds me of the razor-razorblade model and "freemiums." He also needs very high sales to take advantage of "economies of scale." More on each of these later.

"Philanthropic efforts were focused on distributing cleaner-burning stoves. For-profit ventures were developing models for sale. But all of these undertakings were bedeviled by the same problem. The high-tech stoves that limited toxic smoke were as much as $150 each — preposterously expensive for African villagers, many of whom lived on less than 50 cents a day. The cheaper models were useless.
Most manufacturers were obsessed with keeping costs low, given that customers were poor. But the stoves still produced smoke, or took too long to cook, or required that the wood be chopped into little pieces — an extra burden. The women doing the cooking (and it was overwhelmingly women) were not inclined to use them. As Mr. Reynolds returned to Rwanda for research, he saw many of these models stuck behind houses or propped up by the cooking fire as stools.

To succeed, a stove had to be so convenient and clean burning that women preferred it over their existing cooking method.

Mr. Reynolds began testing stoves made in Italy, India, the United States and China. He tried making his own."

"He settled on a Dutch-made stove that reduces wood down to clean-burning gases. Using pellets reduced the need for wood by 90 percent compared with charcoal. But those stoves cost more than $75.

Then came the epiphany: Inyenyeri could supply the stoves for free while collecting revenue from subscriptions for pellets. Rwanda was urbanizing rapidly, and city dwellers rely on charcoal. They would be eager to switch to pellets, which were 30 to 50 percent cheaper.

“If you sell fuel every day rather than selling a stove every two years,” Mr. Reynolds says, “that’s a business.”

Customers in rural areas could not afford to buy pellets, but Inyenyeri could serve them with a barter system. People could gather sticks, though less than they needed for cooking, and exchange them for pellets. Inyenyeri would use the sticks to make more pellets.

In this way, Inyenyeri would effectively become a utility providing clean cooking fuel. It would construct a network of factories to produce pellets. The bigger the business grew, the cheaper the cost of making them. As charcoal rose in price — a trend propelled by growing numbers of people flocking to cities and needing the product — the more appealing pellets would look."

But one crucial element is still missing — scale.

In every company projection, a steep increase in customer numbers is required for the business to become profitable. Inyenyeri now needs to persuade investors to deliver the cash to buy hundreds of thousands of stoves and erect new pellet plants."
Economies of scale-That is when average cost falls as quantity increases (think of a factory that produces thousands of cars compared to producing only one car-the average cost is lower the more cars you produce, up to a point, since you spread the fixed cost of the factory over more cars).

Razor-Razorblade Model by Will Kenton of Investopedia. Excerpt:
"The razor-razorblade model is a pricing tactic in which a dependent good is sold at a loss (or at cost) and a paired consumable good generates the profits. Also known as a "razor and blades business model," the pricing and marketing strategy is designed to generate reliable, recurring income by locking a consumer onto a platform or proprietary tool for a long period. It is often employed with consumable goods, such as razors and their proprietary blades. The concept is similar to the "freemium," in which digital products and services (such as email, games or messaging) are given away for free with the expectation of making money later on upgraded services or added features.

If you've ever purchased razors and their matching replacement blades, you know this business method well. The razor handles are practically free, but the replacement blades are expensive. The strategy has been erroneously attributed to King Camp Gillette, who invented the disposable safety razor and founded the company that bears his name. Today, Gillette (and its parent Procter & Gamble) employs the strategy to great profit."

Tuesday, January 08, 2019

Some 43% of College Grads Are Underemployed in First Job

Chances of graduates using some humanities degrees in first job can be better than some vocational degrees like business and fitness studies

By Melissa Korn of The WSJ. Excerpts:
"College graduates who studied homeland security and law enforcement had a 65% probability of being underemployed in their first job out of school, the report found. Those with degrees in psychology and biology stood chances of 54% and 51%, respectively, of working jobs that don’t require college degrees.

Engineers had only a 29% probability of being underemployed, the best outcome for any major."

"While the average starting salary for a bachelor’s degree holder employed in a job that actually requires such a degree is $46,000, underemployed graduates make an average $36,000"

"Graduates of liberal arts areas like philosophy, foreign languages, ethnic and gender studies, history and English all have a better-than-even chance of landing a job that fits their education level.

They may not pay well, with teaching and social services popular destinations, but graduates can expect to fare better in terms of landing credential-appropriate roles than transportation, culinary services, agriculture and public administration majors."

"job prospects and earnings vary widely by college major, with some counterintuitive results. For example, the bottom quartile of architecture and engineering majors earn far less than the top quartile of humanities and social science majors."

Monday, January 07, 2019

The World Is Getting Quietly, Relentlessly Better

By Greg Ip of The WSJ.
"As recently as 1980 nearly half the world lived in “extreme poverty,” that is, consuming less than the basic necessities, which the World Bank values at $1.90 a day in 2011 dollars, adjusted for the differing costs of goods and services between countries. The proportion of people in extreme poverty was projected to fall to an estimated 8.6% last year and, given the correlation between growth and poverty, is almost certain to drop further this year.

Rising incomes alone cannot capture how much better life has gotten. “Nathan Rothschild was surely the richest man in the world when he died in 1836,” economists Max Roser and Esteban Ortiz-Ospina wrote in 2017. “But the cause of his death was an infection—a condition that can now be treated with antibiotics sold for less than a couple of cents. Today, only the very poorest people in the world would die in the way that the richest man of the 19th century died.”

"The world first eradicated a disease, smallpox, in 1980. It could soon eradicate a few more: 2016 saw just 46 new cases of paralytic polio recorded; in 2017, there were just 25 new infections of Guinea worm, a painful and disabling parasitic infection. These victories come not through laboratory breakthroughs but the meticulous application of tried-and-true tools, such as vaccination and improved sanitation."

"As with disease, poverty is being eradicated not through technological miracles but basic rules of growth: Invest more in your human and physical capital, open yourself to markets and trade—that’s right, globalization is good—and incomes will rise."

"As of September, more than half the world—3.8 billion people—are middle-class or rich, Homi Kharas of the Brookings Institution and Kristofer Hamel of World Data Lab found. They define middle class as consuming between $11 and $110 a day, in 2011 dollars adjusted for varying costs between countries."
Related post:

The short history of global living conditions and why it matters that we know it

Saturday, January 05, 2019

Some Companies Offer To Pay All College Expenses For Their Workers

See Now Hiring, With Attractive New Perk: Free College Degree: Companies say benefits of a happy, better-educated staff outweigh the costs of paying for workers’ college education by Kelsey Gee of The WSJ.

Offering a good benefit in a tight labor market that leads to retention of workers reminds me of the "efficiency wage theory" that says that companies pay above market wages to lower worker turnover. This cuts hiring and training costs. Workers might also work harder so that they can keep a job that offers so many benefits.

There also might be economies of scale involved. That is when average cost falls as quantity increases (think of a factory that produces thousands of cars compared to producing only one car-the average cost is lower the more cars you produce, up to a point, since you spread the fixed cost of the factory over more cars).

If the broker firm can deliver thousands of student at once to a school, that lowers their average cost and the college might want to offer a lower tuition to get that many students so easily.

Also, if the broker acts as a single buyer or monopsony, then they can get a lower price. Monopsonies pay less than what would be the price if there was competition or many buyers in the market.

"Some of America’s largest companies are proposing that a good job can lead to a free college education, reversing the norm that requires workers to get the degree before launching a career.

Walt Disney Co. DIS 3.08% , Discover Financial Services DFS 4.93% and Yum Brands Inc.’s YUM 2.60% Taco Bell are among the high-profile employers sending front-line workers back to school, often paying the cost of tuition, fees, books and other expenses upfront and in full. The companies say the benefits of a content and potentially better-trained staff outweigh the costs.

Many large employers have long offered limited tuition-assistance perks to staff, reimbursing up to the federal tax-exempt maximum of $5,250 a year—after the student successfully completes course work. For most people, though, paying out-of-pocket and then waiting for the company benefit to kick in later proved too much of a barrier, said Jon Kaplan, Discover’s vice president of training and development.

Even so, Mr. Kaplan said, with around 80% of Discover’s 7,000 call-center and field staff lacking a college degree, the company saw a good return on every dollar invested in tuition, as participating employees stayed with the firm longer and moved into more senior positions at a higher rate."

"To secure new corporate partners, Brandman pays an undisclosed fee to Guild Education, a Denver startup that brokers deals between companies and colleges."

"The cost of a bachelor’s degree from a four-year U.S. institution averages $33,000 a year, according to the Education Department. Guild said that by providing schools a large number of part-time and full-time students, it can negotiate the total price down to between $6,000 and $10,000 in some cases"

"Some companies, including Walmart, pay 100% of those costs directly to the school, according to Guild, with minimal or no expense for workers."

"Other companies, including Taco Bell, cover up to $5,000 or so a year in costs up front and negotiate deals on textbooks and other student services for employees."

"the company now offers the college benefit to all 210,000 employees, after a pilot version last year boosted retention among participants by one-third to 98%."

"In the tightest labor market in decades, Disney, Discover and other companies say covering the full cost of college can help them hold on to valuable talent that has become more expensive to attract."

Friday, January 04, 2019

Annual percentage of 25-54 year-olds employed 1948-2018

Click here to go to that data. It is from the BLS. Here is a timeline chart and a table of the numbers.