econlife - The Hidden Side of Amazon Prime by Elaine Schwartz

Last week I realized that I immediately needed a tiny stapler. So, like you probably would have done, at my kitchen table, I spent $5.95. Two days later, Amazon Prime deposited the stapler (with 100 staples) on my doorstep.

My decision involved so much more than instant gratification.

Amazon Prime Problems

With the average Prime member placing two orders a week, Amazon wouldn’t want to curtail our impulsive shopping. Instead, almost 1.25 million U.S, shipments (2017) directed their attention to packaging and transport:

Packaging

Because of multiple Prime orders, Amazon has had to think more about packaging. Recognizing some customers’ “wrap rage,” they are using more bubble envelopes. Aware that the excessive space occupied by smaller inexpensive items increases transport costs, they’ve been developing algorithms that match box size to contents to avoid “over-boxing.” And they want manufacturers to know that online packaging needs to be compact rather than attractive.

Transport

In addition, Amazon reputedly wants us to bundle our items. If we choose one “Amazon (delivery)  Day,” then they can combine what we order. Similarly, those Amazon stores and “lockers” are a single destination for many purchases.

Environment

Then, to all of this, we can add environmental concerns. My new mini-stapler brought a white van with the delivery to my quiet neighborhood. Then, further adding to congestion and pollution, Prime requires a fleet of medium and large trucks. But it’s not that easy. To truly know an environmental impact, we shouldn’t forget how many trips we make to comparison shop before placing an online order, the volume of orders in our area, the parking spaces, whether the trucks are “stuffed.”

This is an Amazon NYC delivery during last February:

Our Bottom Line: Externalities

Defined as the impact on an uninvolved third party, an externality can be a plus or a minus. It can be positive or negative. A vaccine is the perfect example of a positive externality. When someone gets a flu shot, the transaction is between patient and doctor. But many of us benefit because that individual does not get sick. On the negative side, we could cite the loud music in a dormitory that stops a faraway student from studying. The music is the negative externality that leads to a low grade for an unknown individual.

Somewhat similarly, Amazon Prime generates externalities that range from the time we save to the orders we create for corrugated boxes. In ways that are rarely obvious, they affect us, other businesses, and our environment.

My sources and more: These WSJ articles, here, and here, were the perfect complement to Vox, here and here and to a Fast Company look at Amazon Prime. The article that I found most fascinating though was on urban congestion from Wired.

Please note that my externalities definition was in a past econlife.

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 We Buy When We Are Single by Elaine Schwartz

Procter & Gamble is test marketing giant rolls of toilet paper. Called Forever Rolls, they could last as long as two or three months in a one person household. Since singles typically have less storage space, bigger rolls are ideal for people who don’t want to store smaller size backups.

You can see that more of us are living alone:

And living alone will impact what we buy.

What Singles Buy

The Betty Crocker people at General Mills saw cake mix sales drop and single slice deli aisle purchases rise. Projecting that the number of one and two person households will rise by 7 percent by 2024, they created Mug Treats. As they describe them, you just place your batter packet in the microwave and wind up with a single freshly baked slice of cake.

Appliance demand is also changing. Instead of asking about the number of towels that fit, smaller households care about washer size. One appliance maker said that single person households purchase 19 percent of major appliances. Responding, they are making scaled down dishwashers, refrigerators, and cooktops that fit into smaller kitchens.

Our Bottom Line:  More Households

For reasons that range from aging populations to smaller families to divorce, the gap between population and household growth will probably grow. According to the World Economic Forum (WEF), Scotland projects 9 percent population growth by 2037 while the increase in households will be 17 percent. England tells us that by 2041, it expects household growth to exceed a 16 percent rise in population by 7 percent.

You can see below that one person households have increased in developed nations:

Because of the extra homes that will need appliances, roads, sewage hookups, and so much more, the Atlantic’s City Lab said we have a “ticking household bomb.” In 2014, they called it a massive sustainability problem.

While I suspect the economic growth tradeoff could be greener than City Lab expected, we can be sure that smaller households will have a big impact.

My sources and more: WSJ was a handy place to start for living alone facts. From there, WEF, City Lab, Deloitte, and IPS News provided insight.

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 We Waste Healthcare Spending by Elaine Schwartz

The legendary physicist Enrico Fermi once (reputedly) asked, “Where is everybody?” Preserved as the Fermi Paradox, his question referred to extraterrestrial life. If, as he wondered, there are so many possible forms of life beyond the earth, surely some should have paid us a visit.

Somewhat similarly, the Fermi Paradox can relate to healthcare spending. Yes, we all know that healthcare dollars are wasted. So where is everybody?

What We Waste

How Much

According to two recent articles in JAMA (Journal of the American Medical Association), an estimated 20 to 25 percent of our healthcare spending is wasted. The waste could be close to all we spend annually on Medicare and Medicaid. It could be 18 percent of our GDP.

Where

The six areas that boost spending relate to care delivery, care coordination, and over treatment. They are about pricing failure and administrative complexity. And they also involve fraud. We could be doing a better job with preventive care and adverse hospital events. Fragmented care that results in unnecessary admissions and avoidable complications is a problem. Then, compounding it all, we have misguided regulations and fake billing.

Our Bottom Line: Incentive

A third JAMA article tells us that simple solutions don’t exist. And those that were implemented have been too complex and inconsistent. The result? A 2019 Gallup Poll indicated a widespread concern with healthcare costs.

Asked to choose between 10 percent more income and a freeze in healthcare expenses, the majority of survey participants chose the freeze. Correspondingly, the majority said people are paying too much for the healthcare they receive. And finally, between 40 and 50 percent of respondents expressed alarm over the cost of emergency room visits and a major health problem leading to a bankruptcy.

So, “where is everybody?” The answer is, “Everywhere.” We’ve got the patients, the pharmaceutical companies, the providers, the payers, and the politicians. And they all have different healthcare spending incentives that prevent us from finding a solution.

My sources and more: Thanks to Timothy Taylor’s always excellent Conversable Economist, here and here, for alerting me to recent research on healthcare spending. From there, you can find the details in three JAMA articles, here, here, and here. And finally, at econlife, we did write about a solution. Please note that for accuracy I’ve used some of the same terms and phrases from JAMA articles without quotation marks.

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 1 by Scott Harris

While I use technology in my classroom, I pride myself on conducting a fair amount of our learning “old school.” 

We write rough drafts by hand, creating word webs, outlines, and other pre-writing on notebook paper. I can then give feedback in real time, and together, we create a wonderfully organic document, from which something beautiful emerges: a clear, concise thesis. 

An endangered species on many campuses, the clear thesis is often discovered accidentally. One way to discern whether a student really knows how to write a solid thesis is, after having written their first paragraph, ask them to underline their thesis. Many aren’t certain, and point to one thing or another, looking for confirmation. I don’t give it. They need to think more about the topic, about what they want to say. They should be able to tell me what they want to say. 

Many point to something so vague that it does not separate itself from any anti-thesis. Or the student in Gifted/Talented English comes with a complex, multi-faceted first paragraph that could really be an outline for a book. They are so used to being praised for such writing that they are often shocked when I tell them that this paragraph won’t work at all. 

When I ask them to underline their thesis, they’re unsure not because they don’t know, but rather because they have managed to squeeze three viable theses into an opening paragraph! When I tell them to pick one, they really don’t want to, because “issues are more complex,” etc. “Do you know what’s not complex?” I ask. “A thesis.” 

When student finally learn to write a clear, concise thesis – and a methodology for doing so – they find it liberating. Too often they’ve had to stumble across a thesis nearly a page in, or had to respond to writing prompts without developing ideas as much as responding to them. 

Doing all of this by hand is much faster than with technology, allows for arrows and redirects to be made, and is teaching process in a non-linear way. Typing pre-writing on a word processor gives the impression that thought falls forth from one’s head like soldiers marching in columns. 

Once students have written what they want by hand in a solid rough draft, it is time to type it up. One of the benefits of a typed rough draft before the final product is the clarity of thought (or lack thereof) emerges, once messy penmanship is eliminated. Development, connections and refinement are easier to see now. So why not start that way? Because development, connections and refinement are second order concerns. If the ideas and clear thesis are not created first, there is nothing to develop, connect, or refine. First things first.

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 City That Has to Keep Its Garbage by Elaine Schwartz

In a section of Southwest Alaska, as big as the state of Illinois, you can visit Bethel. A city of 6,500 people, it is the area’s metropolis. For medical care, for shopping, Bethel is where you go. Nearby, 56 Alaska Native tribes live in small groups of several hundred or so.

Visiting Bethel is not quite so easy. Because it is located on a subarctic tundra wetland with a network of ponds and streams, it never connected to the state’s road system. Instead, the only way to access the city is by plane or boat and sometimes a truck when the river is frozen.

You can see that Bethel is in the middle of a lot of water:

The necessities do come in. Cargo planes and barges bring their food, medicine, and cars. However, moving anything in the other direction is the problem. Except for people, little leaves Bethel.

Garbage Problems 

It’s too expensive and too inconvenient to ship garbage out of Bethel. So it stays there.

A typical backyard has piles of junk. There are oil drums, wooden pallets, all sorts of items under large tarps. At the landfill, you can find the spare parts you need from the refrigerators, the stoves, and anything else that was abandoned.

To all of this we can add weather conditions that are especially unkind to local roads. The ice that freezes, melts, and then refreezes creates an unimaginable number of potholes and cracks and heaves. The result?  Hundreds of dead cars. Vehicles have been left on roads, in public parking lots, and especially at the airport.

Our Bottom Line: Incentives

So yes, in Bethel the incentives can be unusual. You place your junk in your backyard. You abandon your dead car. And the taxi cab business is thriving. At 59, Bethel has (reputedly) one cab for every 110 people because people prefer not to drive their own cars in bad weather and the city’s visitors need a cab when they arrive by plane or boat.

Some say that our incentives on the earth could be more similar to Bethel than we realize. We just do not see our junk piling up.

My sources and more: Thanks to 99% Invisible for the story of Bethel.

Our featured image is from Travis through Flickr.

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 - One Way That Norway Is Different from Nigeria by Elaine Schwartz

When it comes to New York City parking tickets, Norway and Nigeria are quite different.

As you know, a foreign diplomat need not pay a parking ticket. But many of them do. In  a 2006 parking ticket study, two economists found that diplomats from countries with minimal corruption were most likely to pay. The ones who didn’t came from countries where corruption was the norm and the U.S. was unpopular.

Including Norway, there were 22 countries (out of 146) with no outstanding parking tickets. Israel, Japan, Ecuador, the United Kingdom, Oman, and Greece also had none. Then at the other end, Kuwait topped the scofflaw list with 246 per diplomat. Nigeria was #15 with 58.6 for each consular official:

The cost to NYC was more than $18 million dollars between 1997 and 2002. However, in the home countries of those diplomats, the cost of corruption was much more.

The Cost of Corruption

The World Economic Forum considered the economic impact of public corruption. Looking at highly corrupt resource-rich nations, they suggested that people benefit less from their nation’s wealth. In addition, bribes cut the amount of tax revenue and make tax evasion more acceptable.

Tax Revenue

You can see the difference in tax revenue between more and less corrupt countries:

Education

Furthermore, corruption siphons public revenue away from schools and healthcare. In an IMF paper, researchers report that the share of spending on education and health is lower where corruption is widespread.

Below, where corruption is less controlled (blue bars), there is relatively less education and health spending:

Correspondingly, we wind up with an inverse relationship between corruption and student test scores. (As did I you may wonder if the correlation is misleading. However, the WEF notes that “the correlation remains significant even when controlling for GDP per capita.):

Our Bottom Line: Social Norms

When corruption becomes a social norm, it can be rather “sticky.” Consequently, when diplomats travel to New York City, behavior that is approved at home sticks with them. At the same time, that stickiness prevails at home in private and public commerce as corruption channels money away from a more efficient destination.

Finally, I thought you might want to see which countries are more corrupt so I went to the corruption index at transparency.org (whose criteria have been debated but still, the map conveys a pretty valid picture of corruption.)

Returning to where we began, Norway is #7 while Nigeria is #144 out of 180 countries  that are ranked from least to most corrupt.


My sources and more: I suspect that you will want to read more after this Bloomberg article on parking. So from there, I recommend this 2006 paper on diplomats’ parking tickets. After that, my path took me to The World Economic Forum and this IMF report.

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 Healthcare Is Like Car Repair by Elaine Schwartz

When we think of productivity, Lucy, Ethel, and some smiles could be a good starting point:

Since the Lucy episode in 1952, each worker can make many more chocolates per hour. We have people in charge of machines that can move far faster (and eat much less) than Lucy and Ethel:

Here is where the Baumol’s Cost Disease enters the picture.

Baumol’s Cost Disease

Listening to four musicians play Beethoven’s string quartet #14 for 40 minutes, there is no way to guess the date. The performance could be 1826 or 1926 or 2026. The music, the pace, the instruments are all pretty much the same.

However, since 1826, people are getting paid more. In 1826, the average real wage for a typical worker was $1.14 an hour. Fast forward to 2010 and you have $26.44. Most workers are paid more because they produce more.

But not our string quartet. It still takes 40 minutes to play the same Beethoven piece and probably the same amount of preparation time.

Called Baumol’s cost disease (or the Baumol Effect), we have wage increases for workers without productivity increases. Because their labor depends on a human input that cannot go up, more productivity is impossible. And yet still, their wages rise when everyone else earns more. And, as society’s affluence grows, we could want more Beethoven even though its cost ascends.

Our Bottom Line: Healthcare Costs

According to Baumol’s cost disease, it’s tough to increase productivity when a task depends on a person. You cannot play the Beethoven piece faster. A physician still has to see patients personally, A car repair ship will need technicians to do some of the work and instructors need the same hour to teach a concept. Yes, I know that technology can enter health care and car repair and there is more media in the classroom. But still the role of people remains important.

As the more productive sectors of the economy increase our wealth, we want more of the areas with limited productivity like healthcare, education, and car repair. As Marginal Revolution’s Alex Tabarrok explains, we have more doctors and nurses even though they are paid more. Their higher pay and our increased demand nudge healthcare costs skyward:

And, returning to our title, because healthcare and car repair both have Baumol’s cost disease, they are rather similar.

My sources and more: Thanks to Marginal Revolution for its summary of the Baumol Effect. But then for more, do take a look at, Why Are The Prices So D*mn High?

After publication, this post was slightly edited to improve its clarity.

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.