econlife - What We Might Not Know About Philadelphia’s Soda Tax by Elaine Schwartz

The Philadelphia tax on sugary drinks and diet soda kicked in on January 1, 2017. As a 1.5 cents an ounce tax on distributors, it did not hit consumers directly. But a recent study indicates that it was passed along. Through the list price on the shelf, consumers paid close to 20% more for regular soda, diet soda, and juice drinks. That adds up to $1 extra for a 2-liter bottle and $2.16 for a 12-ounce, 12-pack.

But did it make a difference?

The Impact of the Tax

In a new “before and after” study, economists looked at the Philadelphia tax. The study covered 140 retail stores and more than 1200 sweetened beverages.

In their report, researchers concluded that while the tax was passed through to consumers, the amount varied. It was less in stores located in border communities and more, especially for soda, in high-poverty neighborhoods, independent stores, and for single servings. Also, taxed drinks were relatively less available. Instead, there were more bottled waters on the shelves. Consequently, it was more difficult to obtain a sugary beverage.

To all of this we can add that even without a sugary drink tax, we are drinking more water:

Our Bottom Line: Efficiency or Equality?

The Tax Foundation had an interesting approach that I wanted to share. Their take was the tension between efficiency and equality. On the efficiency side, they cited the health benefits created by the sugary beverage taxes. Shown by decreased sales of sugary beverages and increased availability of non-taxed drinks in Philadelphia, it is possible that obesity trends could be slowed.

However, on the equality side, we have a regressive tax. Defined as a levy that takes a higher percent of income from those who earn less, a sales tax is regressive since we all pay the same amount.

You can see below that Tax Foundation data indicate those earning below $100,000 have the highest percent spent on sugary beverages.

So, when you ponder the impact of a sugar sweetened beverage tax on price and availability, do add efficiency and equality to the mix.

My sources and more: For the latest results on the soda tax, this paper was a good source as was this summary. Meanwhile, the Tax Foundation had the tax rate analysis.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - The Economics of Skiing Across Antarctica by Elaine Schwartz

Across a 921-mile stretch of Antarctica, two men are racing. Unassisted, each is alone. Unsupported, they are not allowed to receive a food or fuel drop or to use a kite for wind power. All each needs is on his pulk. The winner will be the first person to ski across the Antarctic alone with no assistance.

Like climbing Mount Everest, the quest is for extreme athletes. Colin O’Brady and Louis Rudd each had planned to do it alone. But their timing coincided and it became a race. They will be skiing a mile apart.

This is where they are going:

And where are we going? To the economic side of their trek.

But first…

A Typical Day

Together they left from southern Chile. The last leg was a 90-minute flight on a Twin Otter ski plane to the Ronne Ice Shelf. On November 3, the plane dropped off one of them, drove a mile, and then said good bye and good luck (I assume) to the other. At minus 25 degrees Fahrenheit, the weather was called balmy. Fully packed, their pulks weighed 375 pounds.

You can see a pulk and the ice ridges called sastrugi:

In a typical day, O’Brady got up at 6:00 or so and Rudd at 7:00. Each lit a stove. They had to collect snow for the day’s water supply and boil some. Their breakfast could have been freeze-dried oatmeal with extra oil and protein. Then each repacked his pulk, used the GPS attached to his chest, and was on the way. While their routines differed, basically they skied for 70 to 90 minutes and then stopped for a high calorie pick-me-up. O’Brady ate some Ramen for lunch while Rudd dug into his “grazing bag” for some salami and cheese or chocolate and nuts. For the night each had to set up a tent, a stove, lay out clothes to dry. Since they had 24 hours of daylight, solar panels were perfect for a charge.

O’Brady cubed his custom energy bars so they could defrost quickly:

Our Bottom Line: Antarctic Economics

To survive, O’Brady and Rudd had to be very aware of their land, labor, and capital. Defined as all that was natural, the “land” was their adversary. It was their 921-mile/75 day route. It was the crevasses, the ice ridges, and the uphill climb to the South Pole at 9301 feet.

The key then was their labor, their human capital. All they planned, every decision was about staying alive. Ranging from how many calories to consume to daily mileage, each minor decision could become crucial. Even sweating was life threatening because it created hypothermia. Infections healed more slowly because of the cold.

As for their physical capital, it was all they packed. Each had a pulk, food, the tent. They needed their stoves and high calorie snacks that for Rudd included 15 pounds of instant chocolate. O’Brady took toilet paper while Rudd did not. For emergencies, O’Brady had the more elaborate repair kit. Their cross country skis were covered with synthetic skins for traction.

Indeed, these men never had a free lunch. Every land, labor, capital decision involved a tradeoff…

And each one raised close to $200,000 to fund the trek.

My sources and more: Having seen how climbing Mount Everest was the perfect case study for my textbook, I knew the Antarctica trek could also have an economic theme. So, if you want more detail, do go to the NY Times articles, here, here, and here. Then, for up-to-date news, Colin O’Brady’s website and explorersweb.com could come in handy.

This is the day 33 update (Since he left on November 3, I assume Day 33 is today.) He appears to be halfway:

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why Less Land Needs To Make More Food by Elaine Schwartz

By 2050, there might be 10 billion of us, up from 7.2 billion now. With more affluence and more people, we are going to need 56% (or so) more calories than we consumed in 2010.

Let’s start by looking back. In this very clever very fast 200-year history, you can see a convergence of the health and wealth of 200 countries:

The question now is what to do as more health and wealth continue. A new report has some suggestions.

Planning for 2050

Called the three gaps, researchers at the World Resources Institute say we need to produce more food more sustainably by using as little extra land as possible.

• The Food Gap. At 7400 trillion calories, we need a 56% increase.
• The Land Gap. To produce those extra calories, we need extra land equal to double the size of India–even if we increase crop yields.
• The Emissions Gap: But also, sustainability should dictate how we bridge the food and land gap.

Shown below, the keys are less demand and more production:

But How?

The report presents what it calls 22 menu items for managing the three gaps. An example? One menu item tells us to “Shift to Healthier and More Sustainable Diets.” Then, the analysis is clearly a reality check. Projecting an 88% increase, they recognize that a wealthier world eats more meat.

Here is the environmental impact:

Yes, their analysis includes “strategies” that focus on food innovators developing meat substitutes. They realize any dietary shift will need marketing that reshapes social norms. And, it all will require new government policies.

With 22 items that range from decreasing fertility rates to increasing pasture productivity, the report is voluminous and for me, a bit discouraging. As economists, we all know the role of incentives. In their 96 page report, even in the eight times they used the word incentive, they did not convincingly display what would nudge us to do all that they (wisely) suggest.

Our Bottom Line: Remembering Malthus

Perhaps one of the first environmentalists, Reverend Thomas Malthus (1766-1834) told us in 1798 that population grows geometrically while resource production expands arithmetically. Consequently, resource prices will rise and supply will become increasingly inadequate.

We just have to look at the Hans Rosling video to know that Malthus miscalculated. As economists we can ask if the same leaps in technology and the appropriate incentives will resurface during the next 32 years.

My sources and more: Thanks to the NY Times for alerting me to the World Resources Institute study. From there, naturally I thought of Hans Rosling. Finally, you might want to take a brief look at this 2011 study from Nature. Doesn’t it sound a bit too similar to the current research?

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - What a Government Shutdown Does to Each of Us by Elaine Schwartz

A government shutdown is again in the news. The key date is December 21. If federal agencies without funding do not get their money by then, they have to follow their shutdown rules.

I suspect most of us will be affected. These are the facts:

Shutdown Agencies

Five agencies (blue) did get their Fiscal 2019 funding while seven (gray) did not. Those seven received a temporary reprieve from a CR (Continuing Resolution) that expires on December 21. If there is a shutdown, it’s the seven agencies that will be hit. And even then, not everything. It all depends on who is “essential.”

As for the numbers, we are talking about 750,000 government employees. Estimates indicate that 400,000 would work without pay and 350,000 would be furloughed. While the “essential” unpaid employees do get paid retroactively from new funding, those who are furloughed will not necessarily receive their back pay. But in the past, Congress voted to give them the money.

This potential partial shutdown sounds less catastrophic than the actual 16-day shutdown during October, 2013. At that time, suspended services included issuing new Medicare and Social Security cards. The EPA could not inspect 1200 different sites while the FDA postponed close to 900 inspections. The National Parks lost $500 million dollars in visitor fees and the Panda Cam went dark at the National Zoo. The IRS also had to turn away 1.2 million requests related to mortgage and loan approvals.

In the aggregate, economists believe shutdowns cost billions because of lost fees and pay to employees who were sent home. Then, to that government cost we can add the private sector where hotels near national monuments lose business, realtors have transactions cancelled, loggers cannot work in National Forests. Standard & Poor’s estimated a $24 billion hit to the 2013 GDP–a .6% slice of growth that was cut out.

Our Bottom Line: The Cost

The word “shutdown” obscures the massive impact. Summarized in one term, it sounds simple. But it is not.

I am reminded of what we have said before about the British seacoast. Quoting mathematician Benoit Mandelbrot, we pointed out that when you see the shoreline from afar, it looks like a smooth curving line. But look more closely at the coast–and at government shutdowns–and you recognize the details you need to know.

My sources and more: For the current shutdown basics, Bloomberg had a good article, the Committee for a Responsible Federal Budget had some history, and The Washington Post had some interesting detail. You might also want to read more about the three-day shutdown last January.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Throwback Thursday: When McDonald’s Went to Moscow (and Maybe Changed the World) by Elaine Schwartz

#TBT: Today’s Throwback Thursday was inspired by the rumor that McDonald’s could open in Pyongyang. It takes me back to 1990 when the first McDonald’s opened in Moscow.

Our story starts with five years of negotiations between McDonald’s and Soviet bureaucrats. One problem was the French fries. Approximately two inches long, Soviet potatoes were far too short to become a McDonald’s French fry.  The solution was to import the seeds from Holland so they could grow on Russian soil.

But there is much more…

Making the Moscow McDonald’s

Truckloads of potato, lettuce, and cucumber seeds had to be transported to local suppliers who were willing to meet McDonald’s specifications. To process it all, McDonald’s had to build a processing plant that could produce one million buns a week, 127,470 cheese slices, and equally large amounts of its other ingredients. They also needed a quality control laboratory and a distribution unit.

At the restaurant, 27,000 people applied for 630 jobs. Unlike typical Soviet sales personnel, employees were supposed to smile, to work efficiently, and treat customers with respect. The new managers attended Hamburger University in Illinois.

On that first day, January 31, 1990, they served a whopping 30,567 curious and excited people. In two kitchens, they prepared burgers, cheeseburgers, Big Macs, fries, shakes, drinks, and ice cream. A Big Mac cost 3 rubles and 75 kopeks–approximately one third of an average daily Soviet wage.

Do look at this two-minute video of the mind-boggling queue:

Our Bottom Line: A Positive Externality

In 1995, NY Times journalist Tom Friedman expressed his “Golden Arches Theory of Conflict Prevention.” Friedman explained that countries with a McDonald’s are high enough on the development ladder to afford a Big Mac. Because that burger connects them to the world economy, they have more to sacrifice during a conflict. So, they don’t fight wars against each other.

Yes, multiple wars prove Friedman was wrong. Still I would like to believe there is a glimmer of truth in the concept. An economist would call it a positive externality.

Returning to where we began, we can say that it’s not small fries when a McDonald’s opens in a country…And maybe one will open in North Korea.

My sources and more: A good starting point, The Washington Post Wonkblog alerted me to the North Korea McDonald’s rumor and linked to this NBC report. Next, you might enjoy pondering the 1995 Tom Friedman column and the Slate refutation.

Please note that my McDonald’s facts and some text came from my (favorite) textbook, Understanding Our Economy (available through econlife). Our featured image is from Adweek.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Six Facts: What We Need To Know About World Debt by Elaine Schwartz

If you want just one image of world debt, this is it:

But let’s look at some of the details…

Six Facts:

1. The world’s national governments have borrowed an estimated $63 trillion.

Governments usually borrow money by selling bonds to other governments, businesses (including banks), and individuals. Those bonds pay interest to their purchasers. How much interest? It depends on risk. The less likely a payback, the higher the interest rate.

2. Using size as a measure of debt, the U.S is #1.

The U.S. owes 31.8% of the $63 trillion that the world’s national governments have borrowed. Guilty of debt creep, what the U.S. owes has crept up from $6.9 trillion (54% of GDP) in 2001 to $20 trillion in 2017. Yes, we are talking nominal rather than real dollars but still the increase is considerable.

3. Using a debt to GDP ratio to measure world debt,  Japan is #1.

But for Japan, it’s not as worrisome as it sounds. At more than 90%, most of Japan’s debt is owned domestically.

4. The top five holders of the world debt owe 66% of the total

5. The world’s riskiest debt is from Venezuela.

Although this risky debt list used February 2016 data, it still is pretty accurate. You can see that Greece and Portugal had pretty high debt to GDP ratios. So it makes sense that they are in the orange top risk zone. Meanwhile, Japan, in green, is pretty low.

6. Africa’s national debt has also been growing.

This is some country data:

Our Bottom Line: Sovereign Debt

We’ve said that debt to GDP ratios are one way to judge whether a debt is healthy. That however is only the beginning. Next we need to ask if the country is developed or developing. Predictably, a developed nation can accommodate a higher ratio. Rather astoundingly though, at 239%, Japan’s debt to GDP ratio is gargantuan and yet our concern for Puerto Rico, closer to 65.9% (2015) is far greater. Then, we can also check to see if the country has a history of defaulting (like Greece) and whether its political institutions are strong enough to endure austerity.

My sources and more: The World Economic Forum and Visual Capitalist were ideal for the visuals and some analysis. Then for much more insightful analysis, I recommend Brookings for understanding African debt and Puerto Rico. But for a vast array of the most amazing infographics and maps, this Bank of America/Merrill Lynch Report is especially worth your time.

Several sentences in today’s “Bottom Line” were in a previous econlife post.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why the Republicans and Democrats Are Like Coke and Pepsi by Elaine Schwartz

Asked to name two firms that dominate an industry, we could start with Coke and Pepsi.  Next, we could add FedEx and UPS, or Boeing and Airbus, or Visa and MasterCard. There is one pair though that we should have included but did not.

The Republicans and the Democrats.

Two-Firm Power

Harvard’s Michael Porter is famous for using “five forces” to judge businesses’ competitive power. Now he tells us that they also can apply to politics. Just like the firm, we need to assess the power of buyers and suppliers. We should see if new entrants and substitute products are a threat. And lastly, we have to consider the rivalry among competitors.

In politics, Dr. Porter sees the two major parties competing during elections and when they govern. Among their five “buyer” groups are the primary voters, the average voters, and the non-voters. However, the largest blocs of voters aren’t the most important. Instead, it’s the primary voters and then the donors and the special interests.

Similarly, on the supply side, the major participants have considerable money and power. They include TV, cable, newspapers, social media, and the people who directly contact voters. At the federal level, spending on “supply” for the 2016 two-year election cycle was close to $16 billion. It generated approximately 19,000 jobs for lobbyists, campaign workers, consultants, and other staffers. There were close to 1,000 organizations with consulting contracts.

Meanwhile, there is little competition from upstart entrants and substitutes. Since the Republicans in 1854, we’ve had no new major political party. The Progressives (1912) and the Reform Party (1992) came and went. The reason? Size, money, connections with suppliers, and a recognizable “brand” are formidable entry barriers.

The Results

As an industry, politics is big business. But unlike other successful big businesses, they’ve preserved their power by catering to the extremes rather than the vast center:

Consequently, bipartisan cooperation has declined:

Our Bottom Line: Duopoly

An economist would blame it all on duopoly. As a market structure whose two dominant participants have considerable power, duopoly is responsible for how Coke and Pepsi and the Democrats and Republicans behave.


You can see below that duopoly is close to monopoly on a competitive market structure continuum. Located to the far right, duopoly is on the less competitive end of the spectrum where the firm (or the party) takes power away from the market:

My sources and more: Thanks to Freakonomics for a timely alert to the 2017 Michael Porter and Katherine Gehl paper.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.