When In Rome

Everyone is well aware of the birth, rise, decline and eventual crash of the Roman Empire. The Roman Empire fell for many reasons such as military corruption, a decline in overall morality of the Roman citizens and a government that cannot function properly under the great expansion Rome was undergoing at the time. But, the most curtail reason why the government failed was due to lack of economic knowledge the Romans possessed. (http://www.angelfire.com/darkside/sjhscult/notes/unit1/fall_rome.htm)

Background: Towards the end of the Roman days, the Romans relied more and more on foreign goods and taxes were extremely high for some while some were not even taxed. Finally, one of the biggest things is the way Rome fell was the choice of the people by hording money. Although not mentioned in detail by the article, a look at this hoarding of money can easily destroy an economy based on the principles of the circular flow chart. (http://ancienthistory.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=ancienthistory&cdn=education&tm=11&gps=39_12_1280_705&f=11&tt=2&bt=1&bts=1&zu=http%3A//web.archive.org/web/20040411190830/http%3A//www.acs.ohio-state.edu/history/isthmia/teg/Hist111H/issues/rome1.html) (http://ancienthistory.about.com/cs/romefallarticles/a/fallofrome_3.htm)

So…What’s up?: Yeah, I know, what a great story about the Romans right? But how does that even apply to economics or even the United States today? Well, towards the end of the Roman Empire, Rome was expanding far too fast for the Roman economy to handle, so they began importing many goods. In my opinion, the excessive import of foreign goods can cripple and severely damage an economy. Think about it, the US is possibly the most insufficient country because we rely on food, clothing, housing materials and much more shipped from halfway across the world. At first it seemed like a cheap and easy answer to become the super power of the world, but today and in recent years, it has crippled the economy by sending jobs overseas. In Ancient Rome, I’m sure this is what happened slowly causing Rome to fall.

Another reason of why the Romans fell was the fact that the citizens were hoarding their gold coins in there house instead of spending, investing or paying taxes with them causing a hiccup in the circular flow. The circular flow chart is a chart of economic activity that looks at both houses and firms. (The producing and consuming units.) The circular flow chart can be in many different forms, but this basic structure is the same all around. On one side there are households and on the other there are firms. In between there are foreign markets, the government, and banks. The firms provide the households with wages, and the households many put them in the bank, pay taxes to the government, or buy goods and services from the firms. The flow of money keeps in the economy so it may grow and sustain itself. Any disturbance in this flow can throw this cycle off and cause depressions, recessions, inflation and disequilibrium. It seems almost too easy to keep this flow going. Just put your money in a bank, invest it, spend it or pay taxes with it. The best example to equate with today’s society is the fall of 2008 with all the toxic assets and the increased gas prices. People became scared and stopped spending money. This is also most likely what happened in Rome.

Based on what is known about the American and Roman economy, could America come crashing down just like the Romans did thousands of years ago?

Globalization effect of the Economy

Globalization is a mixture of interactions between people and the exchange of goods or integration of foreign ideas to bring everyone closer together. This is accomplished by people, companies and governments of different nations and is driven by international trade. Globalization affects everything. It affects the environment, different cultures, political agendas or ideas, economics and human rights and development on a global scale. While it seems like a modern idea and brand new phenomenon, globalization has been around for quite a while. While globalization seems like it is great and the solution to making the world run like a well oiled machine, it is extremely controversial. Some advocates of globalization argue that globalization allows underdeveloped countries to begin developing and vastly increase their standard of living and increase the country’s wealth. Opponents of globalization see it as a kind of scam coming out of the western world. They feel as if an international free market only benefits western superpowers and western corporations and exploits other governments, and cultures. Globalization is responsible for major increases in worldwide trade and exchanges. These increases are made possible by ever increasingly open and borderless international economies. There has been tremendous growth in trade and exchanges, not only in international trade in goods and services, but also in exchanges of national currency, in capital movements and investments, in technology transfer, people moving through international travel and migration, and in international flows of information and ideas. The rise of the modern world has probably had the largest impact on globalization. Never before has humanity been able to travel so quickly and freely to other countries. We don’t really even need to do that anymore. It used to be impossible to do business or make trades with other nation’s economies without having to travel there. With advancements in communications and technology, these transactions can take place instantly electronically without both parties even having to leave a building, much less cross international borders. It is for reason such as these that the world economy has expanded and will continue to expand due to globalization. As long as globalization continues with the extremely rapid spread of ideas and technology, national economies will continue to come closer together.

http://www.globalization101.org/What_is_Globalization.html

Studios disarming cable in battle with Netflix

In a world on non stop competition, one industry that is having more and more competition as technology develops is the cable industry. Recently in an article on "Marketwatch" the author explores the competion between two goods, cable companies and online video providers such as Netflix and Hulu. The cable companies and the internet video providers are examples of being substitute goods for one another. The new technologies discovered or thought of by these internet video providers provide more for the common consumer than that of the cable company. The change in technology is a determinent of supply. Therefore the internet video providers can supply more for their customers. This is causing a scare in the cable industry as one ceo of a powerful cable company thinks that the cable companies must adapt to these technologies and drive the new suppliers out of the cable martket.

Netflix, one of these competitors, has 24 million subscribers which is greater than the number of subscribers for any cable company. Netflix doesnt appear to be going anywhere any time soon, the stocks have done up 93%. Even though Netflix and many other internet video providers are on the rise there are some things in society that are restraining their growth. The government has all types of copyright and antitrust laws that these providers must obey and work around.

Cable companies have reason to be scared as they slowly are getting pushed out of their own market by these new providers. One ceo of Time Warner cable told the author that he thinks the Governemnt intervening is the oinly way that this problem can be fixed.



http://www.marketwatch.com/story/studios-disarming-cable-in-battle-with-netflix-2011-06-20?pagenumber=1

Are the Chicago Cubs Cursed?

In the book Scorecasting by Tobias J. Moskowitz and L. Jon Wertheim, they attempt to explain that the Chicago Cubs are not cursed to lose forever, but that they instead have less of a financial incentive to win. To try and explain this Moskowitz and Wertheim look at the elasticity between regular season home attendance percentages to winning percentages (the teams win loss record). Elasticity refers to the responsiveness of one variable to the changes in another. In this case is what how elastic attendance is to winning percentage for the Chicago Cubs. In order to find this the authors of the book calculated the response of home game attendance to season winning percentage for every MLB team over the last century. By doing this calculation they were able to get a measure of the sensitivity of fans to the success of teams.

In economics there are three types of elasticity: elastic (meaning it is highly responsive to changes in the variable and has a value greater than 1), Unit elastic (meaning that a percentage change in one variable yields the exact percentage change in another or it is equal to 1), and inelastic (which means the variable is not responsive to changes in the other variable and has a value less than 1). According to the authors if the number of their calculations was 1 it meant that if the team wins 10 percent more games the attendance will also rise by ten percent. Greater than one means attendance rises by more than 10 percent and less than one means that the fans are not sensitive to wins, creating less of an incentive to win. (Moskowitz & Wertheim, 2011)

The authors found that the MLB average is unit elastic at 1, meaning that a 10 percent increase in winning percentage will cause a 10 attendance increase the next season. The New York Yankees have an elasticity of 0.9 which is to be expected because of the history of the team and success. The Chicago Cubs, however, who have not won a World Series in over 100 years, have an elasticity of 0.6 much less than one, meaning their attendance is largely unaffected by the success of the team. As a comparison the authors compared the elasticity of the Cubs to their cross town rivals the White Sox whose stadium is roughly the same seating capacity and who have also won a World Series recently. They found that the Chicago White Sox had elasticity almost twice as high as the cubs at 1.2. They also found that the attendance for the cubs has wavered at between 82-99 percent every year for the last 11 years where as the White Sox attendance has wavered between 37-90 percent. Their high mark was the season after winning the World Series. The same season after the White sox won the World Series the Cubs finished in last place yet had a 94 percent attendance rate.

Surprisingly what was also found is that the Cubs attendance is much more sensitive to changing beer prices than it is to the team’s success. The authors obtained, adjusted for inflation, general beer prices from 1984-2009 and found that attendance was more than four times more sensitive to beer prices than to winning percentage. What is even more surprising is that the Cubs ownership knows this an despite the cubs posting a 48.6 percent winning percentage over the past two decades the Cubs owners have managed to successfully increase ticket prices by 67 percent during that time but beer prices remained flat. They found that the Cubs have the third highest ticket prices in the league averaging almost $48.00 per seat. However, their beer price is the third lowest in the league at 5 dollars a beer.

Through this evidence the authors have been able to show that the Chicago Cubs are not cursed to lose forever they simply don’t have the same incentives as the rest of the league to win. The Cubs will simply generate revenue regardless of how they perform on the field. The Cubs fans will tolerate losing baseball, high ticket prices and low beer prices to have a memorable day at Wrigley, but they will not tolerate high beer prices.

Moskowitz, T. J., Wertheim, L.J. (2011). Scorecasting: The hidden influences behind how sports are played and games are won. New York: Crown Archetype.

Rise in Gas Prices

In an article by Kris Maher in the Wall Street Journal the rise in gas prices had caused a shift in demand for the natural resource. The gas price average for a gallon is now at $3.67. This rise in gas prices are not only hurting the individuals paying to fill up their personal tanks, it’s also affecting the businesses that rely on gas to power machinery and equipment. This is affecting the prices of the product that these machines are creating, because it’s now more expensive to run the machines with gas. This has forced firms to take cut budgets elsewhere in the company to avoid a price rise in their products. The firms know that the consumers are extremely aware of price changes. Wallace Tyner, an economist at Purdue University said that volatility—and visibility—of gas prices have a great impact on consumer psychology. "Every gas station has the price posted in big numbers that are a constant reminder of the changes," he said. I completely agree with Mr. Tyner’s observation on the consumers. Each consumer is looking to spend the least amount on gas they can, because they already know how the change in gas prices can vary from station to station. Therefore keeping a close lookout for the cheapest gas in town creates an immediate demand from these consumers. In a recent poll by Wall Street Journal 69% of respondents said that they had been affected “a great deal” or “quite a bit” by an increase in gas prices in 2011 compared to 55% hit by a jump in food prices, 28% by an increase in the unemployment rate and 22% by a rise in the number of home foreclosures.

The gases prices are affecting all different products in the market, because gas such a necessary resource in a lot of our lives that it’s inconvenient to substitute it with. Some of these substitutes are seeing an increase in their business such as bus services that are able to raise their prices to still look low compared to the high airfare. So with the rise in prices for gas the consumer is still reliant on business such as gassbuddy.com is finding stations with the lowest gas prices and making it available to everyone. The website has seen a 20% increase in marketing advertisements revenue. The gas prices are a big topic in many homes while discussing the budget. This rise in prices have differed consumers to use substitutes and creating an awareness of the changes in prices. With this decrease in demand for high gas prices business is taking advantage in finding new ways to advertise the cheapest gas. With the importance of the lowest price on everyone’s mind while filling up their tanks creates a large demand for stations with that price. The consumers are taking these prices they find on sites like gasbuddy.com and comparing them whenever they drive by other gas stations and see their prices on the board. Gas prices are going to continue to rise thus creating the demand for a reliable substitute for gas one of the biggest discoveries we could see in our lifetime.

http://online.wsj.com/article/SB10001424052702304453304576391970280109838.html?mod=WSJ_economy_LeftTopHighlights