Monday, February 27, 2012

Access Points and Social Costs of Media


I have found myself covering articles dealing with income inequality over the past months, and really recognized that the ability to control wealth brings many perks.  The number of access points to influence is potentially the most powerful source that the wealthy have in America, specifically being through the media. 

Jack Shafer writes an article via Reuters on a recent incident where former governor, former mayor, former district attorney, and former head of the Democratic National Committee Ed Rendell bought the Philadelphia Media Network.  This is a serious purchase, allowing Rendell to control many of the large access points for news in the Philadelphia region.

So what seems to be the biggest problem with this?  Shafer believes that the influence on the news will be skewed, and he continues to provide support to his argument through historical incidents and the statistics of campaign budgets from the past. 

The big point is that these media companies are hurting pretty bad.  In the article, a statistic is provided stating that newspaper advertising revenues have been cut in half since 2005.  The Philadelphia Media Network saw a decrease in net profits from $120 million to $4 million dollars last year, stated by journalist Tom Ferrick.

We have seen our communications grow exponentially over the past decade in a manner.  People are finding ways to access news for cheaper and newspapers are becoming more and more obsolete.  But there is still plenty of reason to worry about biased ownership.  The credibility will be tarnished by Rendell’s likely skewed beliefs towards news, and overall, the ones who are most affected are those who are less educated and still establishing a valid opinion towards situations in America.  This is a harmful social cost that could bite America in the ass, and really further damage the world of journalism in the future.

If people see brokers are untrustworthy, and many even question the ethics and moral consciousness of politicians, what happens if we see numerous media networks becoming overly biased and run by those merely trying to put their own twist on the news?

Fox News shows a prime example of skewed and untrustworthy reports, and while this statement may be controversial, the acts of shady journalism leave people unsure and unwilling to believe the network.  However, there are those who may not know better and, as stated previously, are easily swayed into a mindset that doesn’t receive the entire truth.  And in all honesty, this goes for both sides of the political parties, and for any issue that could lead to biased reporting.  It is not healthy for our society.

This is another case that I feel social costs are higher than the benefits.  I believe it is too early to tell what affect Rendell will have on the Philadelphia Media Network, but the truth is that people are going to have trouble deciphering the biased opinions that may soon creep onto the teleprompter.  I truly hope this doesn’t steer too far from the truth.  Most of us don’t trust half the people in America; let’s not try to avoid more swindlers.

Reference:
  1. Shafer, Jack. “Who Cares if a Politician Buys a Newspaper?” Reuters. http://blogs.reuters.com/jackshafer/2012/02/23/who-cares-if-a-politician-buys-a-newspaper/

The Times Brought Back for Uncle Sam


 The American economy is on the rise, but a question that has loomed is how long can we hold onto this success?  Well, one way we can attempt to find these answers is to look at the damage that has already occurred to our economy (and others).  The Economist reported on data and created the Proust Index, a measurement that factor in real wages and unemployment, financial asset and property prices, and household wealth.  The Proust Index shows how much time has been lost in economic growth, and the results were not good.  America holds the third worst position, facing 10 years of lost time.  In the stock market itself, the S&P 500 hasn’t seen the levels currently since 2008, and the growth on average since the 1990’s is minimal.  The article states that Greek stocks were actually worth more in 1992 than today.  Yikes.

The data provided by the Economist show that the value in people’s houses would be equivalent to those in 2001.  With these numbers, what hope do we have to believe that we are truly climbing out of the Great Recession?

One perk can be seen in the growth rate the stock market has experienced over the past year.  In the past, there have been some devastating hits to American and other stock markets.  The Economist has provided a graph to show the amount of time until recovery for 3 recessions, including our current predicament.     


As one may be able to see, stocks are looking better than previous scenarios; however, this comparison shows that we may not necessarily be out of the woods quite yet.  The market is quite unpredictable, and the trends in the past show that even though there were promising climbs at points in recovery, the effect of the business cycle (or attempts to prevent lowered growth) may push the stock market down into a longer period of recovery.
                                                                                                                                               
I believe that America has a lot of things going for it right now; however, I still find a lack of stability in the long run for our country.  While we may be able to reach the peak from 2007 in the S&P 500, we may find ourselves quickly dip down soon after.  When recessions hit countries, the amount of damage economic growth becomes a number that is nearly impossible to catch up to, and truly paints an image of the economy turning back the clocks to redo the mistakes made along the way.

Reference:
“The Proust Index”. The Economist. http://www.economist.com/node/21548255

Handling Hidden Costs


As we live our lives, there are tendencies to overlook the costs of our actions.  In the blog “Unsettling Economics”, the discussion of hidden costs in society is mentioned, and made me think about the costs we overlook in everyday life.

In the post, the example used was a murder by a war veteran claiming trauma.  The point made is that the costs of war didn’t account for the effects seen in this scenario.

Hidden costs in everyday life I feel many people overlook include grocery shopping.  Suppose you are looking to go to the store, and there are three choices: the local market across the street, the Albertsons 10 minutes away, and the Costco 25 minutes away.  You realize that the prices of goods at the places get cheaper as you go further from your home, but there are actually some hidden costs you and others likely forget to factor into the decision making process.  For the Albertsons and Costco, going to either of the two locations for a discounted gallon of milk and some pasta may not be worth the costs (including gas and valuable time) of getting to the store.  Furthermore, Costco puts a barrier to enter the store, and the costs must be factored in for each time one attends the bulk store.

So what do we do to attempt to counter the hidden costs? We try to buy more to make the trip more valuable.  But in doing so, Albertsons and Costco get what they want from you.  While you may not have fallen for the hidden costs that typically shape the initial journey to the market, you have exceeded to purchase products that may not have been necessary.  Instead of buying the milk and pasta, you purchase Oreos, beer, and some plastic cups.  Hidden costs surround us everywhere we turn, and if one is not careful we will fall into the same trap over and over again.

On the macroeconomic level, a hidden cost that can be pointed out and not necessarily accounted for until it is too late comes when forecasting models.  Because of the art of using ARMA, specifically trying to accurately forecast data via historical figures, the attempts to rely heavily on historical data can be overlooked.  The costs, while in the previous example were merely a few dollars, could result in heavy swings among the economy as a whole.  The recognition of the harm in improper forecasts is important for economists in order to build faith among Americans and to bring stability to the economy.

The article, while short, really opens the mind up to the hidden costs we forget about every day.  So take some time to think of something that you may overlook, and really ask yourself what we could be doing to accurately choose the right decisions, where the costs never exceed the benefits.

References:
  1. “Class, Pschology, and Capitalism”. Unsettling Economics.

Self-Driven Cars, Possible and Wanted?


When one thinks of the thought of self-driven automobiles, the distant future is likely the image.  The state of Nevada says otherwise; last week Nevada established regulations to operate self-driving cars, opening up a boatload of ways to improve the economy of the United States.

Robert Bruegmann reports that these vehicles would have the technology to not only operate themselves, but would be faster, safer, and offer a more comforting ride for consumers.  Bruegmann suggested the two likely outcomes that would result in the technology: more sprawl or higher density cities.

The concept of sprawl in urban economics occurs when people are willing to live further from the city center, likely due to the actual location of their job or the low enough cost of commuting to the city center.  With increased technology from self-driven cars, people would have the capabilities to live further away from the city centers.  This option would grant people the luxury of a suburban lifestyle, one that has been painted as the “American Dream” over the years.

The other result of the cars would be higher density cities.  Bruegmann’s logic is that if technology for self-driven cars improves, so would other transportation devices.  The proposal of combining the private and public transportations in a form of a self-driven taxi would create less demand to drive a personal car into the city center (this assumes the lowered costs of improved technology, and in fact the self-driven taxis would be cheaper than the cost of owning a car).  The land that would typically be used for car spaces would then have the potential for housing or commercial use, increasing the density of the city.

Now, there are problems with both of the results.  The effect that sprawl has on the environment provides high costs in the long run.  Along with this, unless the technology is improved in other variables (gas or electric powered cars?) the costs of sprawl will be far greater than the benefits. 

Ed Glaesar’s Triumph of the City extensively states the problems with sprawl.  In most cases, cities aren’t built to cater for sprawl, and though certain cities such as Houston may prosper from self-driven cars, technology will not benefit sprawl to the necessary extent. (Glaesar)

The difficulties with high density cities are less of an economic cost than a social disruption.  In order to remove the parking lots, people must invest not only the self-driven cars, but the flexible system (self-driven taxis) Bruegmann suggests.  In New York City, taxis are a common form of transportation.  The assumed lower costs of self-driven taxis would surely increase utility of the taxis, but people would need to give up owning their own cars (which would still be more convenient in urgent measures), along with potentially destroying a service that employs numerous Americans around the country.  If people are willing to transfer these lost jobs to other work sectors and take the lowered costs of driving than perhaps the self-driven car may work, but that can’t be easily predicted.

As a whole, Bruegmann brings valid points on why self-driven cars can improve our society, but the biggest question remains whether society will accept the changes.  Increased technology improves productivity, but with the removal of jobs, and the environmental costs that may occur from sprawl, will people truly want these cars?

References:
  1. Bruegmann, Robert. “Driverless Car Could Defy the Rules of Sprawl: Robert Bruegmann”.  Bloomberg. http://www.bloomberg.com/news/2012-02-21/driverless-car-could-defy-rules-of-sprawl-commentary-by-robert-bruegmann.html  
  2. Glaesar, Ed. “Why Has Sprawl Spread?”. Triumph of the City. 2011. Penguin Press.

Monday, February 20, 2012

Social Norms and the Effect on Forecasting


Perception always plays a large part in how people interact with one another.  The damage or gains those perceptions or the norms developed by society play an interesting part in today’s economy.  Understanding Society writes about the layers that people place on society, and how any stereotype will affect the perception (and potentially the outcome) of the act by another person. 

The concept is simple enough.  For my behavioral economics course, I have been reading Predictably Irrational, by Dan Ariely, which discusses the tricky nature of social norms.  People build these standards that would otherwise be unheard of; however, we have programmed ourselves to believe that the certain activities are true. 

An example would be connecting the bail out of Ireland in 2010 to Angela Merkel’s statements prior to the bail out.  Merkel, the Chancellor of Germany, spoke out to the EU and investors that Ireland (who at the time was struggling economically) was going to fail if Germany and the rest of the EU didn’t bail them out.  As predicted, the Irish economy collapsed.  But was the reason because of the actual instability of the economy or the perception of the economy?

Economists post bail-out believe that the perception of a bail out was enough to push investors over the edge.  Calculations made and data show that Ireland was easily self-sustainable for at least 6 months, but was unable to recover when investors wanted out.  Combined with the words from a powerful figure, the situation is merely a reaction from an action.  Is this good for our society?  In this case, it is easy to say no.

But when we look at the situation from the other side, the recent growth in the US economy could be attributed to big talk from large access points.  Certainly hearing Clint Eastwood tell one that the US is fighting back would help convince Americans that the US economy is on the rise, and numerous reports by CNN and Bloomberg supporting job growth and unemployment decrease can convince investors that it is time to invest in the US once again.  I find that the presentation to the public on these matters is really the crux to the short term growth.

Remember that most economists and America were convinced the housing bubble wasn’t a bubble, and the effects of overinvesting in the economy.  One can be certain that the market itself can certainly be disguised by the perception and layers that society presents at a domestic and global level.

References:
  1. Ariely, Dan. “The Costs of Social Norms”. Predictably Irrational. 
  2. “Social Subjectives”. Understanding Society. http://understandingsociety.blogspot.com/2012/02/social-subjectivities.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Understandingsociety+%28UnderstandingSociety%29