econlife - How Hershey Kisses and COPEC Are Like Oil and OPEC by Elaine Schwartz

Ghana’s vice president called it COPEC. He was referring to a chocolate version of OPEC.

Although both are cartels, they are not quite the same.

Cocoa Bean Prices

Last summer, West Africa’s Ghana and the Ivory Coast said they would elevate cocoa bean prices. But instead of controlling supply like OPEC, they are going to increase the price. For every metric ton, the benchmark futures price will get an extra $400 added to it.

The Ivory Coast and Ghana produce more than 60 percent of the world’s cocoa. Far behind, at #3, is Ecuador:

A Supply Chain

In a typical cocoa supply chain, the beans go from small farmers who earn less than $3 a day to local middlemen who pool the crop. The next step is the government and then the processors that sell it to the chocolate makers we all know. Since the government sets the price paid to the farmers, it will be able to give them more.

Some worry though that the cocoa bean price hike could have unintended consequences. As economists we know that higher prices hike supply and also shrink demand. Combined, more quantity supplied and less demanded mean unsold surpluses. In addition, traders could look for alternate sources, children could be taken out of school to help their families expand production, and forests could be cleared.

Higher cocoa price futures will create new incentives. You can see that they have sunk since their 2015/2016 highs:

Our Bottom Line: Cartels

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith

A cartel is an association among the providers of a good or service that typically establishes a common price and other forms of cooperation. Contemporary cartels include OPEC’s 14 countries (Organization of Petroleum Exporting Countries) and the Federation of Quebec Maple Syrup Producers. Composed of just two countries, COPEC is a rather tiny cartel.

During the 19th century, rival U.S. railroads with parallel track found that cooperation was the one way to eliminate ruinous competition. We had for example, the Acheson, Topeka and Santa Fe, the Union Pacific, and the Missouri Pacific Railroad all with the same customers. Rather than compete, the better solution (for them) was a cartel that gave them monopoly power.

If the cocoa cartel’s monopoly power works, then we will be paying more for our Hershey Kisses, Mars Snickers Bars, and Mondelez’s Oreos.

My sources and more: In an exceedingly long article, WSJ had the complete story of cocoa beans prices as did Bloomberg and FT. Then, for a slightly different perspective, FT told about typical cocoa farmers. And finally, for some cartel history, you might go to this article from a Stanford historian or this paper.

Most of Our Bottom Line was in a past 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.

Put Away the Tech, Part 2 by Scott Harris

Attend a lecture at a local college or even look around at pictures internet, and you’ll see nearly every student behind their (usually Apple) laptop. They are allegedly taking notes, but research suggests otherwise. 

A 2010 study (Journal of Information Systems Education, v21 n2 p241-251 2010  Examining the Affects of Student Multitasking with Laptops during the Lecture.  Kraushaar, James M.; Novak, David C.) found that students spent 40% of their time on things unrelated to coursework. Ninety percent of students were engaged in unrelated activities for at least five minutes, and 60% were distracted for half of the class.

While colleges can block the internet in lecture halls, few do. This begs the question of why any professor or teacher would allow their students to take notes on computers. Some like Dr. Laurie Santos at Yale, have banned laptops. Yet even she got so tired of students asking for exceptions, that she made an exception. However, they have to apply, and she quarantines them in the cheap seats, where they can’t distract anyone else. (See picture below) 

Dr. Santos teaches “Psychology and the Good Life,” the most popular course at Yale. She knows the research is wildly against taking notes with computers. Taking notes by hand has many benefits. Students can type much faster than they can write, which would seem to be an advantage. Yet when an experimental and control group are set up, the students taking notes by hand did better on conceptual understanding, both an hour later and seven days later.

But the typists did better on detail, surely? No. The hand writers did better on that, too. It seems that you can’t keep up writing by hand is the beneficial part. That you have to evaluate, synthesize and condense what is being said is the very thing that forms memory hooks. Typists can essentially record verbatim what is being said; thus, the integration necessary for memory formation is not occurring. 

Then it occurred to researchers to tell the typists to synthesize and not record verbatim. It had no effect. It seems we just can’t help ourselves. If we can keep up, we will. Typing allows to record without really thinking.

Scott K. Harris teaches The Moral Sciences: A.P. Macroeconomics, A.P. Psychology, and Philosophy. He holds a B.A. in History/Psychology and a M.Ed. in Teacher Leadership. He has also taught U.S. History, World History, International Baccalaureate’s Theory of Knowledge, and coached swimming and water polo. He piloted curriculum for Stossel-in-the-Classroom and is an associate producer for izzit.org.  

econlife - The Two Best Ways to Keep Your New Year’s Resolutions by Elaine Schwartz

For several years, I’ve listened to “page-turner” best-sellers when I do the dinner dishes. As Tom Hanks read Ann Patchett’s The Dutch House, I actually looked for extra plates to wash. Somewhat similarly, I get myself to lift weights regularly by leaving 6- and 10-pounders on my closet shelf.

The page-turners and the closet shelf are commitment devices. Called temptation bundling and piggybacking by behavioral economists, they can help us keep our New Year’s resolutions.

New Year’s Resolutions

Temptation Bundling

With temptation bundling, we combine our “wants” and “shoulds.” Temptation bundling limits the time used for your indulgent wants while encouraging a distasteful activity that will be good for you. You wind up with less of the “wants” and more of the “shoulds.” Done alone, each activity has less utility. Done together they create a value boost.

The Experiment


To see if temptation bundling had academic resilience, researchers divided 151 people who wanted to exercise into two groups. One group received iPods loaded with tempting page-turner novels that could be accessed only at the gym. The second group didn’t have the book incentive.

The results confirmed most of what we would expect. Group 1’s workouts exceeded the control group by 27%. So yes, temptation bundling did increase the frequency of the undesirable activity—the “should.” However, we should note that it didn’t kickstart a permanent workout regiment. After a temporary Thanksgiving break, neither group displayed “staying power.”

Piggybacking

With piggybacking, we “attach” a new task to one that we habitually do. The result is a cue. After accomplishing what we usually do, we have something that is supposed to come next.

The Experiment


In one study, researchers looked at flossing. Wondering what could get us to floss our teeth regularly, they used when as the key variable. The experiment had two groups of flossers. One was supposed to floss before brushing their teeth and the other, after. The power of the piggyback was confirmed by the experiment. The “after” group not only flossed more during the test period but more of them did it in the 8-month follow-up.

Our Bottom Line: Commitment Devices

Temptation bundling and piggybacking are two of many commitment devices. Defined by behavioral economists, commitment devices are incentives that encourage us to stick with an activity.

Other devises?

The New Yorker called it the Ulysses Strategy. When graduate students opted for a monetary punishment if they did not buy healthy food, the incentive had an impact among those who committed:

In addition, smaller plates at a buffet can make us take smaller portions. Another possibility is placing money into a deposit contract that requires forfeiture if you don’t carry out your end of the bargain. Also, those year-long gym memberships are an example (unless you’re one of those typical individuals who still doesn’t go).

For me, temptation bundling (the dishes) and piggybacking (the weights) so far work. I guess we each can choose the commitment device that perpetuates our New Year’s resolutions.

My sources and more: In The Washington Post, Penn Professor Katherine Milkman takes us to several commitment devices. Much drier, the academic formula for health interventions is described in this paper. Then, for a fast read, here is a brief summary of a flossing study. However, the best sources that combined the academics and some fun were Freakonomics and The New Yorker.

Our featured image is from Gerd Altmann at Pixabay.

This was an updated version from last year. I hope you enjoyed it.

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 It’s Tough to Make Stock Market Predictions by Elaine Schwartz

Yogi Berra reputedly said that “It’s tough to make predictions, especially about the future.”

But some believe it’s not difficult to make stock market predictions when the S&P 500 and the Dow continue going up. (I’ve inserted the arrow.):

It is difficult.

Stock Market Predictions

In 1929, two famous economists thought they could predict the direction of the Dow. Basing their expectations on business cycles, each one thought he could figure out when a recession was imminent. During the 1920s, each believed the moment to sell was just before the downturn began.

Irving Fisher:

Irving Fisher (1867-1947) was a Yale professor, a mathematician, an economist, a columnist, an inventor, an investor, and a health zealot who ate salad for breakfast, drank no coffee, no tea, no alcohol. Because he thought (and said) that, “Stock prices have reached what looks like a permanently high plateau, he lost his entire fortune– maybe $10 million–during the October, 1929 crash. After, pursuing an investing strategy that continued to predict the business cycle, he never made it back.

John Maynard Keynes:

John Maynard Keynes

Meanwhile, on the other side of the Atlantic in Great Britain, an equally auspicious economist also expected to outsmart financial markets. John Maynard Keynes (1883-1946) was the offset to Adam Smith. In the midst of the 1930s Great Depression, he explained that laissez-faire was not always best when a bit of government could help to “prime the pump” until all was well again. Since then, we’ve all become Keynesians. However, in 1929, Keynes, like Fisher, misjudged the economy’s trajectory and lost millions. He though changed how he invested, amassed a new fortune, and concluded that forecasting business cycles was impossible.

Keynes was right.

Stock Market Predictions

According to University of Pennsylvania finance Professor Jeremy Siegel, investors who  “switched from stocks to cash four months before the beginning of a recession and back to stocks four months before the end of the recession…” would accelerate their gains considerably. The problem is that no one can time the switch because (like Fisher and Keynes) recession forecasters have a dismal record.

In his book, Stocks for the Long Run, after charting how stock prices echoed the business cycle (below), Dr. Siegel warns us that we won’t beat the stock market by trying to predict the economy:

Our Bottom Line: Business Cycles

As the group that formally identifies business cycles, the NBER (National Bureau of Economic Research) tells us that the length of our current expansion has surpassed the March 1991 to March 2001 120-month record holder. The current expansion began with the June 2009 trough. At the end of the expansion it will peak, contract, trough at the bottom, expand, and go through the cycle again.

Instead of assuming that two successive quarters of a GDP decline identify a recession, the NBER says its criteria are slightly different. Not necessarily during two successive quarters (as most of us assume), the depth of the GDP decline matters as do employment and other data that range from payrolls to income.

It took until September 2010 for the NBER to confirm the Dec. 2007-June 2009 recession. So you can see why, “It’s tough to make predictions, especially about the future.”

My sources and more: First, the Cautionary Tales podcast and then the NY Times and Dr. Siegel (Chapter 15) all looked at forecasting. As for the business cycle, the NBER website is the place to go for all the facts you could possibly need.

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 Baby Boomer Home Sale Surge by Elaine Schwartz

Recently, homes.com identified the cities that were best for each generation.

For the Baby Boomers, they named places with good healthcare and retiree-friendly taxes. The group behind them, the Gen X’ers, cared about management jobs and local schools. And the Millennials tended toward entry-level work and affordable starter homes.

Then, after checking who lived where, researchers created the ranking:

Meanwhile other groups have looked at where the elderly live:

And where they are migrating:

What does it all mean? A huge baby boomer impact.

The Baby Boomer Impact

We should start by identifying the boomers:

Housing Markets

Baby Boomers will have to decide whether to move, stay put, rent, or downsize. Seeing their health decline, some will look for retirement communities. So yes, their decisions will vary but the results will not. They will be selling their houses. Because close to one in every three 60 year olds owns a home, the result could be an avalanche hitting the market. Some estimate it could be 21 million houses for sale by 2037:

These areas could be hit the hardest:

Our Bottom Line:  Supply and Demand

Numbering more than 75 million, Baby Boomers will have a huge impact on housing markets. The good news is that a surge in supply could make homes more affordable. Adding detail from the demand side, a Harvard report projects that Millennials will (finally) have the spouses and children that make them decide to buy a house. And, while not as high as in the past, home ownership rates have been picking up.

But the bad news is the diminished financial security created by the Great Recession, new student debt highs, and, returning to where we began, Millennials and Gen X’ers might not want to live where the homes will be sold.

My sources and more: The NY Times tells us where the boomers will live. From there, the housing facts multiplied. For much more detail, you might want to look at WSJ, BusinessInsider, MarketWatch, and The Washington Post. And finally, the research was at Harvard’s Joint Center for Housing Studies and the Stanford Center on Longevity.

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 Best Way to Reduce Fare Evasion by Elaine Schwartz

It might be the subway emergency exits or perhaps a culture that condones it. But even with more police, fare evasion is up in NYC.

A behavioral scientist says New York needs a different solution.

Fare Evasion

Our story starts in the UK. Home to a Nudge squad, the British government looked to behavioral economics for some policy insight. They believe that the structure within which people make decisions–their choice architecture–shapes how they think.  They tell us that a default for a health plan attracts more people. Car dealerships create option packages because it is easier for people to choose them. And, when the Nudge Squad had too many tax “procrastinators,” they sent a letter that said, “The great majority of people in your local area pay their tax on time…”

And it worked.

Similarly, behavioral scientists suggest that it could be wiser to focus on the good behavior of the fare payers rather than the evaders. At Australia’s Monash University, they asked why people evade fares. The answers took them to:

1. accidental (Never do it. Just happened.)
2. unintentional (Hassled from a situation like no ticket from machine.)
3. deliberate (Does it whenever the tradeoff makes sense.)

Example of #2, Unintentional:

Knowing more about the evaders lets policy makers target each group. So they sought to make ticketing easier and less complex for the first two groups. But also, they wanted less acceptance of the deliberate evaders. That meant replacing an emphasis on punishment with a condemnation of the fare evaders. It required complimenting the payers, emphasizing honesty, and calling farebeaters cheats and freeloaders.

Our Bottom Line: Social Norms

We could say that social norms are our society’s glue. Determining what we expect from ourselves and others, as a common bond, they shape our behavior. With fare evasion, acceptance erodes the social norm of honesty. Calling the evades freeloaders and cheats creates a support for a social norm that will encourage the behavior that preserves it.

Or, as one social scientist said, “if everyone else is doing it, it’s probably okay for me to do it as well.”

My sources and more: Yesterday’s WSJ alerted me to the fare evasion studies. From there, hoping to learn more about the solutions, I went to The Atlantic and Monash University 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 - Why Online Grocery Shopping Is Good for Us by Elaine Schwartz

In many places, at most times, within two hours, an Amazon Prime member can have a Whole Foods grocery order in his fridge.

It sounds good. But not necessarily.

The Stores

The delivery people are changing the shopping experience. Some regular shoppers complain that they are getting elbowed out of where they are going by a harried person filling an order. Deli counter customers report that service is slower because of the larger orders the professional shoppers have to fill. Others say hard-to-get items like wild salmon run out by midmorning because of the online demand.

An Instacart professional shopper:

But most of us still go to the grocery store.

Online Grocery Shopping

What we buy at the store though is different from when we order online. According to a recent study, online, we tend to order healthier foods. We get more dairy, fruits, and vegetables and fewer sweets and snacks. Perhaps because we are distracted less and we get the groceries sooner, we have more self-control. It’s also possible that pictures of snacks are less compelling than the real thing.

In addition, one economist suggests that online ordering could help us lose weight. She observed that households purchase fewer calories when shopping online. At two calories less per ounce, we consume 53 calories fewer calories a day. Just from shopping online, we could lose five pounds a year! (But do we gain the weight from staying at home rather than running around the store?)

Our Bottom Line: Behavioral Economics

Behavioral economists tell us that we tend to make healthy plans for the future rather than for now. The best example is the sports club membership that we never use. It’s the New Year’s diet that we sincerely expect to follow.

When buying our groceries online, we are also contemplating the future.  Online, we activate our long-term selves. In the store, it’s the short term version. Ordering from home, we tend to select the “shoulds.” In the store, we can grab our “wants.”

So maybe it’s okay that those Prime shoppers are destroying our in-store experience. We might be healthier ordering from home.

My sources and more: WSJ started me thinking about the impact of online grocery shopping. Then, for the home side, this paper said all you could want to know about the online grocery shopper.

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.