Simple Lessons in Economics

Last night I ventured out to visit my neighborhood jazz club, the Green Mill.  I was meeting some people to talk about business, etc. I got there earlier than the rest, sat at the bar, and enjoyed a PBR for $2.50. The music did not start for another hour, so there were only a few people hanging out at the bar. About thirty minutes later my group started showing up, so we grabbed a table and ordered another round of drinks. This time my PBR was $3.00. Now, a 20% increase in thirty minutes is a steep cost adjustment. So what happened? Well, music was closer to its start time, yes. Around thirty more people walked through the door, right again. But how does all that justify the cost increase? The product cost did not change. Demand may change over the course of the night, but probably not enough to hurt local supply. So what are the changing factors?

I noticed two changes over the course of the time period. First, they started accepting American Express. They do not allow you to carry a tab, so a 2.5% average merchant charge does affect cost. Since your options are cash or Amex, most people may pay with a card. The other, more dramatic, cost structure change was labor. They went from one lady, to at least four other servers/bar tenders. I suspect this justifies the greatest per unit cost increase. This practice may be more common than I realize. I have just never seen it happen so starkly before my eyes.

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Argentina

Over the past five years, Argentina has blazed its own path to recovery. Counter to many modern economic thoughts, they have walked away from convention and it has paid off so far. By marking an exchange rate with monetary policy and not an interest rate, the country has been able to control some important variables. The country’s ability to refinance debt, control growth, and control their import/export exchange has proven a viable recovery strategy. Argentina’s path encountered some new milestones/huddles this past week with an election, a minor change in export policy, and inflation policy.

In emerging markets, Argentina is in the top of its class. Outpacing growth in more markets than most and having a stability unlike others, Argentina’s trajectory has been one of envy. CEPR has recently published a report outlining a perspective on the country’s recovery cycle and the policies leading the recovery. While a strong recovery cycle has ensued, the questions lie in the future for the country. Analysts have questioned the reliability of the country’s growth due to the inflation rates, which has been questionable due to its measurement protocol. This past week’s announcement of new inflation measurement policies, matching that of the United States, is met with some relief. This in an effort to relax questions about the real rate of of the countries inflation and growth. This will slowly reveal real growth numbers and relax foreign investment concerns, provided the numbers stay within the range of past reports. At this point, that is a rather large question mark. If inflation does appear to be in check, then the flow of foreign investment may increase and further solidify the recovery cycle. The contrary path could lead to a suppression of growth.

The recent election should not change many policies, as the new president is the wife of the current one, but it may allow successful policies to continue. Although the new president faces some immediate head wind, the inflationary policy change announced last week is a step in the right direction. If Argentina’s recovery cycle continues at the same pace, it will prove to be a new model and may provide a new strategy to follow by other countries in Africa and South America.

One CEO, Two CEO, Three CEO, Four…

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It is hard to imagine anyone losing too much sleep over one of these guys losing their job. I mean, their resignation packages are more than most people make in a lifetime. That being said, what is the reality behind these departures?

 

The subprime debacle is just that, but does a new face at the top really change anything? No, it gives the appearance to Wall Street change is happening and happening quickly. The real story is, this was a long time coming and most people that thought about subprime lending knew it was a tight bet. Those same people also knew the odds of these lending practices coming to an ugly demise was more likely than not. But like most things too good to be true, this bubble popped too. Now people lose houses, CEOs lose jobs, and the economy wears out some brake pads.

 

Months, even years, from now there will still be fall out. The least of which will be these CEOs losing their jobs.

New Beginnings

Writing has been a pretty low priority since relocating to Chicago and with getting settled into a new city. I have thought a lot about this space, but have failed to have the time to pull everything together. November first is a great day to start anew with a new outlook and hope for this space. I decided the great sphere of opinion that lives on the web does not need a new voice to pour out great analysis. I can not do that any better than the people listed under the ‘other voices’ list on the right hand toolbar. When thinking about this, I decided to go back to my original thought about starting this space.

I want to share my learning process and curiosities about economics, markets, investing, and financial management. I want to build a community that has similar thoughtful interest. I do not want this to be a top ten blog, or sell for a seven figure pay day. I want build a space that informs other people and its author. With that, I start again. I do not except to post fifty times a week. I am shooting for quality. Sometimes that may be two post a week, others it may be twenty five. Enjoy and comment, as that is the fun for me.

TPP