econlife - How Legos Discovered It’s Not Easy to be Green by Elaine Schwartz

Many of us are happy to use fewer plastic straws. But elsewhere, it’s tougher to cut back.


Bio-Based Plastic Legos

We know what we expect from a Lego. They all match, attach, and detach perfectly. The colors of all the reds, the greens, and the blues are consistent. Falling, they are supposed to remain attached (mine never do) and they should not biodegrade or contain harmful chemicals.

Since plastic makes their precision possible, the goal is a plant-based plastic that creates fewer emissions than petroleum. So far, Lego has successfully made bio-based plastic foliage and dragon wings. However, the corn they tried was too soft for bricks. Wheat had color problems. And they could not achieve the perfect grip.

Below, Lego shows how they could use sugar cane:

Petroleum Products

Right now, petroleum is in an endless list of everyday products. Ranging from aglets to yarn and including tires, mops, aspirin, and crayons, the 6000+ products that contain petroleum are everywhere.

Shoelace aglets are made of petroleum based plastic:

Meanwhile, petroleum based plastics result from natural gas processing and crude oil refining. Then, looking at crude, you can see below how an entire 42 gallon barrel is used:

Our Bottom Line: Tradeoffs

Less petroleum-based plastic could mean a smaller carbon footprint. Although the EIA said it could not calculate how much of the world’s oil is used for plastic, the amount is substantial. But using less is not so easy. As economists, that takes us to tradeoffs.

When more corn is grown for bio-based plastic, we could wind up with more pollution from fertilizers, less to eat, and higher prices. On the production side, we’ve seen from Lego that we await the breakthrough discovery that creates a functional product. And even then, discarding bio-plastic can be tough. Landfill remains a real alternative, it could be recycled, and some might go to an industrial compost site (if we were disciplined enough to set aside our compostable products). One big concern is that like petroleum-based plastic, the plant version also can wind up at sea.

So yes, as Lego has discovered, it’s not so easy to be green.

My sources and more: Like Legos, creative articles, happily, have become more typical at WSJ. From there, this list of petroleum based products was ideal. But to start understanding bio-based plastics, this National Geographic article was helpful as were this Conversation and the EIA.

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 Google Was Just Google by Elaine Schwartz

#TBT: Today’s Google is the result of 270 acquisitions. Let’s look back at what it (and others like it) used to be and then forward to what we have now.


Google’s Growth Spurts

During the past 23 years, Google was first BackRub (very briefly), then Google (for close to 16 years), and now Alphabet. At first it was a unique search engine developed by two Stanford graduate students, Sergey Brin and Larry Page. Created in 1999, AdWords was an early idea that generated some of their first revenue. Five years later, slightly more than 19.6 million shares were sold publicly for $85 apiece through an IPO (Initial Public Offering).

An early homepage:

Since then, they’ve acquired 270 companies. Close to 63% of that total was for potential (and actual) competitors that included companies like Doubleclick (ads), YouTube (you know) and Waze (maps). Meanwhile 20% involved expanding into new areas like AI and robotics. The remainder is varied.

This NY Times graphic shows all of Google’s growth spurts. 2011 and 2014 were the most active acquisition years:

A Superstar Trend

As we look back to when Google was simply for search and now at its multiple identities, we see a trend in which fewer firms have more market power. Like Google, companies are getting larger. Goldman Sachs calls it the emergence of the superstars. According to Goldman Sachs research, the number of firms that trade in stock markets is down while their size is up. In 1996 there were 8000 listed firms; now there are closer to 4,000.

Our Bottom Line: Concentration

When economists talk about market power, they use the word concentration. In concentrated markets, there are fewer firms, they are large, they dominate sales, and they have some price making power. To quantify concentration, we can use a Herfindahl-Hirschman Index (HHI). The higher the HHI number, the greater the concentration. The Index can be based on different scales but typically the closer to 10,000, the greater the concentration.

Below you can see concentration from 20 industry groups for firms that are listed in the S&P. Tobacco is at the top while Interactive Media and Services are a close second:

If 10,000 is at the top of the the Herfindahl-Hirschman Index, then 10,000 equals a monopoly. To calculate the Herfindahl-Hirschman index number, we can square the market share of each firm and then add them together. So, if a company is the only competitor, then its sales are 100% of the industry. The square of 100 is 10,000. However, if you have 100 firms, each with 1% of the shipments in an industry (or the sales, or for banks, perhaps the deposits), the HHI is 100:

1² + 1² + 1² + 1² + 96 other 1² = 100

When the U.S. Department of Justice uses the HHI to evaluate a merger proposal, it considers less than 1500 competitive, 1500-2500 moderately concentrated, and more than 2500, highly concentrated. Thinking of Alphabet (and Facebook), you can see why “interactive Media and Services is so concentrated.

My sources and more: The NY Times column on concentration and a (gated) Goldman Sachs report created the perfect synergy. As a final step, you might want to learn more about the HHI in an article from the St. Louis Fed and from the Department of Justice guidelines.

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 - How To Get Speedier Fast Food by Elaine Schwartz

When you pull up to the  Naperville, Illinois McDonald’s drive thru, a voice says, ” Hey there, Welcome to McDonald’s. What would you like to order?”  Because it’s their voice recognition software, just be sure your daughter doesn’t shout from the back, “I want onion rings, Dad.” (This really is a problem—unless you plan to order them.)

Where are we going? To how McDonald’s competes.

Drive-Thru Speed

In 2012, average drive-thru time at McDonald’s was 188.83 seconds. Since then, adding  several seconds or more each year, the wait has gotten longer and longer. The reasons relate to more complexity, more accuracy, and more cars:

But still, McDonald’s has a problem. They know that compared to nine other fast-food chains, their wait is the longest. At the top for speed, Burger King was almost two minutes faster:

For now though, McDonald’s voice recognition software creates menus that reflect the weather and trendy items. It also encourages the extras like a donut stick with your McCafe. In the future, we can expect that employees will start an order while AI is still talking to the customer. We should eventually have more accuracy as data accumulates and recognition improves. But what really grabbed me was license plate scanning. Sort of like the barista who remembers your name and order, drive-thru technology might soon know what we want from our license plates.

Our Bottom Line: Monopolistic Competition

During the 1950s, a milk shake maker salesman named Ray Kroc realized that two brothers had unusually high milk shake sales. Visiting the McDonald brothers’ California roadside establishment, he saw how they speedily served a huge lunch time crowd with their version of mass production. Kroc bought their name, perfected the concept, and conquered a monopolistically competitive market. Because you just need a grill and hamburger meat, market entry is easy. We could say the same thing for a McDonald’s breakfast menu. But to be successful and have some price making power, you also require something unique—the monopolistic part. And that takes us to McDonald’s quest for the automation that achieves drive-thru speed, customizing, and accuracy as a product differentiator.

Along the following continuum, each McDonald’s restaurant would be close to monopolistic competition:

And speed has been one way that it has always competed.

My sources and more: The WSJ story on McDonald’s robots reminded me it was time to return to the drive thru and to QSR Magazine for the data. Then, if you want more about voice activation implementation and problems, this article had the detail (and was interesting) while Chicago media told about the Naperville restaurant. Finally, Yahoo Finance had the earnings call transcript where McDonald’s expressed its focus on drive-thru speed.

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 the Grocery Store Says About Us by Elaine Schwartz

Boris Yeltsin’s visit to a U.S. supermarket could have changed Russian history. Some say it was really the Jell-O Pudding Pops.

The year was 1989. Soon to be the Soviet President, Yeltsin was here to see the Johnson Space Center. After the tour, with 20 minutes to spare, his group stopped at a Randall’s supermarket in Houston. The man was reputedly flummoxed.

He marveled at the variety of goods that were available:

Yeltsin later said in his autobiography that seeing, “those shelves crammed with hundreds, thousands of cans, cartons and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people.” In the Soviet Union, consumers coped with dour clerks, long lines, and shortages.

Where are we going? To what our grocery stores say about our economy.

The Grocery Store

Store Variety

When you think of the 21st century U.S. grocery store, the big ones could first come to mind. Led by Walmart and Kroger, the top 11 include Amazon’s Whole Foods and Trader Joe’s. Looked at together, we see thousands of stores and huge spending. Alone, each store is a bit different. While Walmart represents bargains, Whole Foods has a pricier organic selection, and Kroger has been called middle market.

In the grocery store list that follows, huge grocery sellers like CVS (drug stores) and Costco (warehouse) were excluded. Out of a list of 50, I copied the top 11 grocers:

Product Variety

As consumers, we support an immense amount of product differentiation. Just choose an aisle. You could see chips that are plain, sea salt, cheese or onion. Who knew there could be so many kinds of yogurt? Even milk now could be almond, 2%, whole, non-fat, supermarket brand.

Our Bottom Line: More than the GDP

In a grocery store, the GDP and subjective well-being reinforce each other. Our GDP reflects the dollar value of the groceries we produce. But our groceries deliver more. Through variety, innovation, and convenience, they boost our subjective well-being.

When we have more to spend, our demand for quality and variety increases. Meanwhile, technological innovation has enabled the retailers to know us better. Keeping track of what we buy, they identify what we want. And here is where time enters the picture, Having access to all we need in one store minimizes the time/food shopping tradeoff. So yes, we  make an average of 1.6 grocery shopping trips a week. But, a working mom and dad can do them quickly in one place, and buy some prepared food as well.

Our visits seem to been diminishing. I wonder if online shopping could be one reason:

Returning to where we began with Boris Yeltsin and ending with 1.6 visits to the 21st century U.S., we can use a grocery store to learn about more than food.

My sources and more: Thanks to Duke professor Mike Munger’s blog for the link to the econlib grocery article. From there, the Washington Post takes an interesting look at Wegman’s while you can get the top fifty list from the Progressive Grocer. After that, for some history, the Houston Chronicle had the story of Yeltsin’s visit. And finally, if you still want more, do read Michael Ruhlman’s Grocery: The Buying and Selling of Food in America.

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 - Who Is Likely to Live Alone? by Elaine Schwartz

Sort of like bookends, we tend to live alone before we are 30 and after we reach 65. However, many of us are “unpartnered.”

Who Lives Alone?

Among those of us who live alone, 58% have never been married, 21% are divorced, and 14% have been widowed. So yes, we are talking about a lot of people. One-tenth of all Americans and slightly more than one-quarter of all households are singles.

An NYU sociologist tells us that living alone is the logical result of four trends:

1. feminism
2. living in cities
3. communications technology
4. longevity

Pew Research meanwhile focuses on marriage, income, and education.

Marriage is one reason that the number of singles is up. In 2018, the average American woman married at 27.8 and her mate was 29.8. She is almost eight years older than her mother and grandmother when they married. Also, there are more people who never marry:

For men, affluence is a singles predictor. Below, $40,000 a year, less than one half of all men are married. Above, the figures climb. And once we get to $75,000-$100,000, two-thirds of all men have tied that knot.

From here, education makes a difference. People with bachelor degrees tend to have partners more than those who do not:

Where Do We Live Alone?

According to the U.S. Census Bureau, singles are concentrated in 21 urban areas where more than 1/3 of every household is occupied by one person. One reason could be that all but one have a lower cost of living. Another relates to the widowed population:

An interesting single household fact: In 2017, Utah (19.6%) had the fewest single person households. At 45.2% Washington D.C had the most.

Our Bottom Line: Consumption Expenditures

Living alone shifts how we spend our money. It changes the consumption components of the GDP.

A BLS study from 2011 concluded that except for healthcare, singles in their 20s (especially late 20s) spend “considerably” more per capita on food and clothing, housing, and education than comparably aged married couples.

A more recent but less academic report looked at the bigger picture. It told us that single people take more vacations, are a “gold mine” for home entertainment equipment, going to the cinema, and dining out. And we should note that in China, Single’s Day has become a massive event.

Where are we? Affecting where we live, what we buy, and how we spend our time, the singles trend is a major economic phenomenon.

My sources and more: The Hill was a good starting point for the big picture on singles. From there, it made sense to find more on how singles spend and where the unpartnered live. Then, for further insight and detail, I suggest this New Yorker article, Pew, here and here, and this BLS study.

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 - A Dilemma: How Much to Pay for Our Privacy Protection by Elaine Schwartz

There is a doll whose name is Cayla. She has a pink skirt, a denim jacket, and a bluetooth connection. Like many toys, she can have a conversation with us.

While these dolls are all Caylas, their manufacturer says you can program in a new name:

But you won’t be the only one who knows her name.

Whatever we say to Cayla can be stored on a central server and then sold to anyone or any intelligence agency. The German government banned her because she violated their privacy laws.

For us also, Cayla is more than a toy. She takes us to the cost of protecting our privacy.

Privacy

Privacy History

We could say that we were concerned about privacy from people during the 19th century, from government in the 20th century, and now, from the corporation. Before the mid-19th century, privacy was not even a concern. The reason could have been that we had limited photography, no telegraph, no telephone.

The following Google Ngram search shows the word was not used very much in books until the 1960s:

Contemporary Privacy

A Google search, Amazon’s Siri, and a Facebook like all add to a data supply chain that lets corporations collect and sell data about our behavior. So too do our Smart phones, Smart cars, Smart dishwashers.

However, when told how much we share, our response to privacy protection is tepid. In a recent survey, 80% of the participants said they would want to protect themselves from their everyday technology but only 26% said they would pay for that protection. Asked if they would pay to see fewer online ads, 50% of the survey’s participants said no.

Our Bottom Line: The Cost of Privacy Protection

To understand why many of us are minimally concerned with privacy protection,  it might help to see its cost (economically defined as sacrifice) from two perspectives.

Collectively, the cost of losing our privacy is immense. Through our elections, our businesses, our personal and professional relationships, we can corrupt our basic institutions.

As individuals though, when we lose our privacy, life becomes easier. Our appliances work better, we remain in touch with our world, and toys are more fun.

So “bad” things happen as a society when we lose privacy but “good” things happen personally. You can see why we won’t pay to preserve our privacy. One by one, we cannot even fix the problem.

And perhaps that is why Germany banned Cayla. The only way we can and will pay for our privacy is together.

My sources and more: Thanks to a Crazy/Genius podcast on privacy for a good walk yesterday morning. Because of Crazy/Genius, I learned about Cayla the talking doll from the NY Times. As for the survey, it was reported by MarketWatch. And finally, you might enjoy (as did I) pondering what Justice Brandeis said about privacy.

Our featured image is from Pixabay.

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 Unintended Consequences of Plastic Bag Bans by Elaine Schwartz

When I walk with my friend Eli and her dog Dosa, we take our plastic bags. Originally from ShopRite or the local farm stand, the bags were filled with groceries. Now, handy for dog poop, they reside in a bin under my sink until I grab one.

In more than 240 U.S. municipalities, California, and soon New York, those bags have disappeared. Because of bag bans or bag fees, many fewer people are re-using them.

And that could be the problem.

Plastic Bag Ban Surprises

Through a DCB (disposable carryout bag) fee or a ban, we shop with many fewer lightweight plastic bags. Because paper bags and fabric totes replace them, our plastic waste plunges by millions of pounds.

But there is a problem.

Those paper bags and fabric bags have a substantial carbon footprint–more than what it took to make the DCBs. Just think of how a tree becomes paper. You are eliminating an environmentally benevolent plant, using toxic chemicals, and then doing some hefty processing and transporting. It gets even worse with a tote bag. To have a smaller global warming impact than a DCB,  your cotton bag has to be reused more than 131 times. Then, if those DCBs had become garbage hags at home, you have to use your tote as much as a whopping 393 times to offset a DCB’s global warming potential.

These are the amount of use numbers from a 2006 U.K. study that compared the global warming potential of DCBs (aka HDPEs) to reusable bags:

Furthermore, when there are no DCBs, we need more plastic garbage bags. Using data from California, one researcher reported a surge in demand for four gallon garbage bags while sales of other sizes also increased. The result was a massive consumption shift as we bought 11.5 million more pounds of garbage bags and used 40 million fewer pounds of DCBs.

You can see the pop in garbage bag sales just after the DCB ban:

At this point you could be thinking there’s got to be more and there is. We just have to look beyond the carbon footprint from greenhouse gases. When we consider all of the waste generated by plastic, we could arrive at a new conclusion. As always in economics, we have tradeoff. A ban creates more emissions but less non-biodegradable litter.

So, if you care about non-biodegradable litter, then the DCB ban is for you.

Our Bottom Line: Pigovian Taxes

A bag ban or fee could be called a Pigovian tax. Arthur Pigou developed the idea to cope with negative externalities. Defined as the harm done to an uninvolved third party when, for example, someone plays loud music in a dormitory or pollutes a stream, a negative externality needs an incentive to discourage its use. Dr. Pigou said the solution was a tax. When something becomes more expensive, people do less of it.

On a graph, the higher cost looks like this:

Bag bans and bag fees create a higher price. That price might not be in dollars but they do necessitate some costly inconvenience.

My sources and more: This Planet Money newsletter had all we need to know about the downside of the plastic bag ban. But for more detail, this paper and this U.K. study look more precisely at ban “leakage.” Lastly, the NY Times showed the regulatory side through New York’s new bag fee.

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.