ABinBEV and the Beer Brewing Industry

Note:  This topic may be more appealing to the Microeconomics Students.  However, since some of the complexities of International Trade are involved, Macroeconomics Students should feel free to add to the blog

What ias ABinBEV?

It was created in 2008 when InBev, the Leuven (Belgium)-based owner of Beck’s and Stella Artois, swallowed Anheuser-Busch, the maker of Budweiser, in a $52 billion hostile takeover. Today, AB InBev is the dominant beer company in the U.S., with 48 percent of the market. It controls 69 percent in Brazil; it’s the second-largest brewer in Russia and the third-largest in China. The company owns more than 200 different beers around the world. It would like to buy more.

Why have they been considered bad for the Beer Industry as a whole?

Consider the experience of Becks Beer fan Brian Rinfret:

Brian Rinfret likes imported beer from Germany. He sometimes buys Spaten. He enjoys an occasional Bitburger. When he was 25 years old, he discovered Beck’s, a pilsner brewed in the city of Bremen in accordance with the Reinheitsgebot, the German Purity Law of 1516. It said so right on the label. After that, Rinfret was hooked.

One Friday night in January, Rinfret, who is now 52, stopped on the way home from work at his local liquor store in Monroe, N.J., and purchased a 12-pack of Beck’s. When he got home, he opened a bottle. “I was like, what the hell?” he recalls. “It tasted light. It tasted weak. Just, you know, night and day. Bubbly, real fizzy. To me, it wasn’t German beer. It tasted like a Budweiser with flavoring.”

He examined the label. It said the beer was no longer brewed in Bremen. He looked more closely at the fine print: “Product of the USA.” This was profoundly unsettling for a guy who had been a Beck’s drinker for more than half his life. He was also miffed to have paid the full import price for the 12-pack.

Rinfret left a telephone message with AB InBev (BUD), the owner of Beck’s and many other beers, including Budweiser. Nobody got back to him. He had better luck with e-mail. An AB InBev employee informed him that Beck’s was now being brewed in St. Louis along with Budweiser. But never fear, the rep told Rinfret: AB InBev was using the same recipe as always.

He wasn’t satisfied. In March, he posted a plea on Beck’s official Facebook (FB) page: “Beck’s made in the U.S. not worth drinking. Bring back German Beck’s. Please.” He had plenty of company. “This is a travesty,” a fellow disgruntled Beck’s drinker raged. “I’m pretty bummed,” wrote another. “I’ve been drinking this beer religiously for over 20 years.” Rinfret kept trashing Beck’s on Facebook. Until, he says, AB InBev unfriended him in May. “They banned me from their site. I can’t post anything on there any longer.”

Rinfret was only temporarily silenced. He now complains on a Facebook page called Import Beck’s from Germany. AB InBev may be paying a price for disappointing Beck’s loyalists like him. According to Bump Williams, a beer industry consultant in Stratford, Conn., sales of Beck’s at U.S. food stores were down 14 percent in the four weeks ending Sept. 9 compared with the same period last year. “They are getting their proverbial asses kicked,” Williams says. “Too many customers were turned off when the switch was made.” Sales of Budweiser in the U.S. have fallen recently, too. And yet AB InBev is extraordinarily profitable.

For Further Details please read the full article "The Plot to Destroy America's Beer" published by BusinessWeek.  

Questions for Discussion:

ECON 2302

1.  In what output market structure is ABinBEV producing in?  Support this with evidence from teh article or other sources that you cite.

2.  What technical elements from Microeconomics has ABinBEV's CEO Carlos Brito managed to do very well in working?  What qualitative elements has Brito and ABinBEV handled poorly?

3.  Who are the Competitors of ABinBEV?  How can they benefit from possible mistakes that Brito is making in how they are brewing beer?

ECON 2301

1.  What economic phenomenon has led to such a company as ABinBEV?  Be specific and explain how it fits that definition.

2.  What are the possible regulatory issues ABinBEV may run into for brewing Becks beer in St. Louis, MO rather than Bremen, Bavaria, Germany?

3.  What other choices do consumers have and how can that influence ABinBEV to change its business practices?  

As always I want to see well thought out comments posted, with your name, class, campus, days and times.  You may earn 1 or 2 extra credit points applied to your Final Exam if the comments are top notch.

Success to you all!

Prof. Hank

Meet a Houston Entrepreneur: Chef Chris Williams of Lucille's in the Museum District

Chef , Caterer, Restaurateur
Chris Williams

Econ Students and Readers:

One of the things that I enjoy about my food-blogging hobby is the opportunity to meet local entrepreneurs who own and operate restaurants (aka "restaurateurs") and ask them for some nuggets of wisdom from their experiences in starting up their businesses.  If there is anything useful to be gained, I like to pass it onto my students (and I tell them as such) because experience is a better professor than I can be.  I've had students tell me they wanted to start up a  restaurant or other such business, so this is something you may find useful or interesting if you are so inclined.

Chef Chris Williams is a native of Southwest Houston who has student at Le Cordon Bleu's Austin school and has traveled the world, working in Canada, the UK and Lithuania, among other places.  In the Houston area, he worked at Max's Wine Dive, ran a catering business for a number of months before establishing Lucille's in the Museum District.  I got to attend a tasting of some of their representative dishes, which you can read about here.  The catering business was used to raise funds to start the brick and mortar restaurant and to survive on until the restaurant was ready to open to the general public.

Entrepreneurship is clearly in Chef Williams's blood.  His Maternal Great Grandmother Lucille Bishop Smith created a hot roll mix that she marketed and sold, and also started one of the first commercial food service and technology programs at Prairie View A&M University here in Texas.  The recipes Chef Williams served, such as the Fish Fry and the grilled Pork Shank and Beans, were inspired by his Great Grandmother's recipes, but were modified by his years of experience cooking different kinds of high end cuisine all over the world.

I asked Chef Williams for some advice he would give a student of mine that wanted to start his or her own restaurant.  Here is a paraphrasing of several key points he made:

• Do your due diligence before you begin.  Research all the legalities you have to work with in order to start up and operate your restaurant or any other business.  Learn about zoning, structure regulations and liquor laws.  Apply for your permits sooner rather than later.  

• Be aware the process is slower than many realize, especially in acquiring building permits from the city.  It took 10 months of paperwork and back and forth action with the city, county and state before I could start building up the property.  

• You need to be aware that you will have to have other income to pay the bills until you get under way. I paid my bills by catering, and you need to plan accordingly.   

• As you are constructing and preparing to open, MAKE FRIENDS WITH THE NEIGHBORHOOD.  Good relations with the neighbors will make the difference in approval or denial, if you are applying for some kind of zoning variance or license.  

• Be conscientious about managing costs.  Shop around for distributors for wine, beer, liquor where you can get a good deal, and always be looking for a better one.  Don't cut corners, but save money where you can and not compromise on quality.  

• Above all else BE DISCIPLINED.  Have a solid business plan, get it vetted by an attorney and an accountant, and stick to it, no matter what. 

I'd be hard pressed to argue with any of these points, students.

Success to you all!

Prof. Lewis

In the News: Greek Yogurt succeeds as Greece Fails Financially

As a bit of a foodie, I have had Greek and Bulgarian style yogurt, as well as the standard North American Style yogurts. Truth to tell, American Style yogurt does not taste like it did 30 years ago. Somehow the slightly sour taste and thickness has given way for a blended smoothie style that is easier for many to eat, but lacks some of the nutritious benefits of traditional style Yogurt. However, thanks to a confluence of conditions, things have taken off in a strong positive direction for Greek style Yogurt. 

This article would be of interest to both Macro and Micro students.




Canada's Metro News Daily gives details of this in this article telling Why Greek Yogurt is flying off the shelves in Canada--similar to what it's doing here in the US, but at an even faster rate!  Several of the non-price determinants of Demand and Supply are at work here, and are worth further investigation.

Per the article:

"Greek yogurt is flying off supermarket shelves in Canada after conquering the U.S. market. The high-protein content, natural ingredients and creamy taste have made it a hit with consumers in a health-conscious culture...

“I can’t remember the last time I’ve seen anything this strong. It’s been explosive in growth, unbelievable,” said Carlo Noce, category manager, dairy and grocery, at Longo’s. Sales have tripled and quadrupled in some locations, he said. Greek yogurt is low in sodium and can be used in cooking and instead of sour cream, said Noce.... Dieters like it because it is natural, nutritious, filling and convenient.

Chobani created the Greek yogurt market in the U.S. The company has gone from boot-strap start-up to $1-billion worth of business since launching out of an old Kraft plant in upstate New York in 2007. The number of employees has increased from five to 1,200. “It’s a real Cinderella story,” said Kyle O’Brien, executive vice-president of sales for Chobani. Chobani founder Hamdi Ulukaya got the idea when his parents visited from Turkey when he was a student in New York and complained the yogurt available in the U.S. wasn’t rich and creamy enough. “It’s not like we invented something. We just brought it to life in the U.S.,” said O’Brien. The timing was right, O’Brien said. Pitched as healthy, natural and nutritious, it hit a sweet spot in the American food market.

It didn’t hurt that Dr. Oz recommended eating Greek yogurt as part of a healthy diet.

A report by UBS Investment Research in the U.S. in 2011 said Greek yogurt brands captured market share more quickly than almost any segment ever in a major food category – at the time 13 points in three years. But it also concluded the growth in Greek yogurt could spell trouble for existing yogurt makers who fail to innovate and capture market share.

Chobani is now third in market share in the U.S., behind Yoplait and Dannon, sold as Danone in Canada. General Mills, which bought Yoplait in 2011 for $1.2-billion U.S., has seen sales decline in the category because it wasn’t ready for the Greek invasion, according to U.S. analysts.

Canadian consumers eat three times as much yogurt as American consumers, a fact O’Brien attributes in part to the popularity of yogurt among Quebecers, who take an artisanal approach to food and prefer natural products. According to Danone’s Canadian website, yogurt was introduced to Montrealers at the turn of the 20th Century.

What we see at work here are several factors involving the non-price determinants of demand and supply shifting in the yogurt market.  The most obvious one is changes in consumers tastes and preferences.

For Your Discussion:

1. What has happened to Demand for Greek Yogurt in North America?  What factors other than tastes and preferences account for it?

2.  What has happened to Supply of Greek Yogurt in North America?  What factors have led to this?

3.  What is the resulting effect on equilibrium price and quantity (P* & Q*)?  

First 5 students to post correct, intelligent comments with correct answers will get a bonus point added to their unit 1 test.

Success to you all!

Prof. Hank Lewis

In the News: Price of Beef and Cattle

As a man who loves a good ol' char-grilled steak, the price of Beef and Cattle are of great interest to me.  As an Economics Professor, I also recognize the work of market economics in driving the price and availability of good steaks and beef.  Cattle are the resource that produces beef.  The cost of cattle drives the cost of beef and ultimately affects the price you pay for a steak in a steakhouse, a pot roast at a local grocery store or a burger at a local burger joint.  Texas is one of the largest producers of cattle and beef, and the markets for both of these have been affected by a number of factors.

In the Houston Chronicle, back in May of this year, it was stated that Cattle prices were rising as ranchers began rebuilding their herds.  2011 was a severe drought in Texas and much of the North American Midwest from Manitoba through the Dakotas, Nebraska, Texas and all the way down to Sonora and Chihuahua.  These are regions where a lot of agricultural products--especially grain and cattle--are produced in North America.  Per the article:

A quality cow that sold last year for no more than $1,800 now fetches about $3,000. The
average price for a bull is up $500. And a cow with a 300-pound to 400-pound calf by her side is selling for about $2,800, sometimes more than $3,000 — almost double the $1,700 they commanded two years ago. 

Last year's historic drought forced ranchers to cut their herds because they had no grass and couldn't afford high hay prices. Hundreds of thousands of cattle were slaughtered or sent out of the state, leaving Texas, the largest livestock producer in the nation, with its smallest herd since the 1950s.

All of these factors are pointing to shifts in Market Supply and/or Market Demand.  

Lets break this down one step at a time:

2011 Market for Beef

In 2011, there was a severe drought.  As a result of this, the cost of maintaining cattle being raised for beef went up since ranchers had to buy hay or grain, and pay more for water in order to raise cattle.  The end result was an increase in the slaughter of cattle, making the supply of beef (meat produced from cattle) increase.   This particular factor (the excessive, unexpected drought of 2011) is called Supply-side Sunspot activity.  The fact that weather is beyond the control of ranchers and that it affected their cost of maintaining cattle led to the thinning of the herd at that point in time.  (Consider: what does thinning of the herd do to the ranchers' operating costs AFTER their herds are thinned?) The Graph to the right shows that the equilibrium price of beef last year dropped due to the extra cattle slaughter, flooding the market with cheap ground beef, steaks and other prime cuts of meat--equilibrium quantity of Beef rose while equilibrium price of Beef dropped.

2012 Market for Live Cattle

Now fast forward one year.  During the past winter, we had plenty of rain, watering ponds on ranches filled up, the grass grew thick, lush and green again and now Ranchers are looking for cattle to restock their herds.      As a result we see the price of cattle increasing due to the Ranchers wanting and being able to buy more cattle to restock their herds.  (Consider:  which curve is moving for cattle?  Why is it making the price of cattle rise?)  Since many ranchers are considering this to be a better year and many are optimistic, they are buying up more cattle.  Ranchers are the buyers in the market for live cattle, and therefore this is a case of a shift in market Demand, caused by a change in consumers' expectations of the future.    The graph on the left illustrates how when market Demand increases with no change in Supply, equilibrium price and quantity increase.

Jason Cleere, a rancher and beef cattle specialist with Texas AgriLife Extension at Texas A&M University, believes that while ranchers are restocking, they remain cautious. The rains have slowed significantly in the past month, and many ranchers are heeding climatologists' warnings that the next decade in Texas will be relatively dry. They're keeping herds small so they're better prepared for the next, inevitable, dry spell. 

"Ranchers in general have been a little bit more conservative on going out and rebuilding because they want to see what happens as we move into the summer," Cleere said. "Ranchers went through a lot of cash reserves last summer, and they can't do that again this year." With cattle prices high, cash reserves low, the weather uncertain and calves taking nine months to be born and several years to be ready for slaughter, many estimate the beef industry may need five years to fully recover. 

It's a layered business. There are those who raise cattle for breeding. They sell to ranchers who raise cattle for beef and breed their herds to restock. Livestock dealers buy cattle from those ranchers and sell the animals to feedlots, where they are fattened up before heading to slaughterhouses.  The drought impacts each layer of the market differently.  

 Of course, what most of us who consume beef want to know is how will this affect the price of our favourite steaks, burgers, ribs and brisket?  And you students need to speculate on how each layer of the market as affected and how it ultimately plays out for the consumer of the final good.

Questions for the Comments Section:


1.  What does the increase in the price of cattle do the the costs of raising them to the ranchers who breed cattle?  The ranchers who raise cattle for beef?  The ranchers who raise cattle to produce milk/dairy products?


2.  How do these events affect Livestock dealers and the price of cattle sold to feedlots?  


3.  How do all of these things ultimately affect the price of a steak or a burger to the consumer?  


Remember:  Although both S & D curves may shift usually one shifts by a greater magnitude than the other, dominating the effect.  


Success to you all!!!

Prof. Hank Lewis

Social Media: Consumer's Revenge or Tool of Extortion?

Students and Readers: As a Foodblogger running HankOnFood.com, I know many restaurants like to get good reviews and some will offer food discounts, free food, etc. if you give them some publicity.  If you read my food blog description, you will note I have a code of ethics I follow based on my Grandma's old adage "If you can't say something nice, then don't say anything at all!".  Even if I'm given a free meal or product, I don't write about it if I don't like it.  This is the only way I feel I can be fair and maintain my lack of bias.

In this day and age where everyone has multiple blogs, many consumers have found they can be great tools in dealing with poor customer service.  United Airlines, as an example, had luggage handlers mishandling guitars which led to musician David Carroll's guitar being broken into pieces.  See the video below as his response:



The fact of the matter is the World Wide Web has become a great sounding board for customers who have not been able to get satisfaction from large corporations wielding the word "policy" and shutting them down when they've been abused and given no end of disservice.  Much like a rumour mill or the town gossip, the Internet has enabled bad word of mouth to spread like wildfire on a global level, way beyond what was possible even 10 or 20 years ago.  This has also led to many libel suits over false claims, a faster spread of Urban Legends to the point that even Snopes can't keep up, and so on down the line.

However, what has become more and more common these days is a sense of entitlement and even arrogance in the use of Blogs, Facebook and other social media, and some individuals have decided to use them as a means to extort free products from companies and notably, free food and drink from restaurants.  One such individual had an issue with Ricky Craig, the owner of The Hubcap Grill  here in Houston and basically said that he'd give them a bad review on Yelp* if he wasn't given free product.  Ricky Craig would have none of it and went into a Twitter Battle with Yelp* and the customer over the issue.  He even took Yelp* to task over several false reviews, but Yelp* basically replied by saying they'd remove the reviews *if* he'd advertise with them.  Craig refused and retaliated in an event called #YuckFelp which I attended in a show of support for this local entrepreneur.  There have been several similar clashes between Craig and disgruntled customers over his not accepting credit cards due to how expensive the fees are and the fact that their kitchen won't cut a burger for the customer, but will give them a plastic knife to do it themselves.  The Anvil Bar and Refuge had a similar such dispute back in 2011 and owner Bobby Heugel took some liberties with a Yelp* sticker to voice his opinion.

And now we have another case of this that was reported on KIAH-39's NewsFix.


At it's best, the Internet and so-called New Media can be a source of income and a wealth of information that helps consumers and businesses alike.  At its worst, it is a source of misinformation that can clearly do serious harm to businesses that employ people who need those incomes and can even lead to scams/extortion such as these three examples here.

So let's hear from you.  Consider the following

1.  How likely are you to consider a review of a restaurant on Yelp*, Urban Spoon or a well known local Food Blogger in choosing a restaurant? 


2.  What would you need to know to consider if the reviews or opinions are valid or are just something petty?  Is there a litmus test we can use?


3.  Would you make use of YouTube, a blog, Twitter, or some other social media to get some sort of satisfaction if a business gave you poor service or if you felt they ripped you off?  How far would you be willing to take it?


4.  How much revenue could a firm lose due to these kinds of actions by customers?  How much would it cost the company to do damage control after the fact?  Would it be cheaper to just give in?  


As always, any well thought out and supported responses are welcome.

Success to you all!

Prof. Hank Lewis

In The News: Apple Tries to protect Trademarked iPad™ from becoming Commonized

This article analysis will be of special Interest to my ECON 2302 Students.  I suggest reading it and posting answers to the questions in the comments as they *may* be worth a few extra credit points. 


Very recently an article in USA Today discussed Apple Computer taking legal action to protect its trademarked iPad™ tablet computer from becoming commonized.  Commonization or genericization refers to the process of how a registered trademark becomes a common noun or verb used for an object, process or service.  For example, in the past Frisbee, Aspirin, Yo-yo, Zipper, Escalator, and Thermos were registered trademarks or brand names that lost their registered trademark status due to commonization.  


Over the years other registered trademarks have taken to marketing and legal action in order to protect the value of their name.  Band-Aid™ brand adhesive bandages modified it's jingle to add the word "brand" to emphasize its status as a registered trademark. Kleenex™ brand tissues did similar actions.  Liquid Paper™ correction fluid, Xerox™ copiers and Rollerblade™ in-line skates posted ads in The Writer magazine in order to remind authors of fiction and news articles that their registered trademarks were not to be used as common nouns or verbs, and that doing so could subject authors and publishers to legal action.  




Per the article:  "It's difficult to quantify how much revenue a company loses when its brand is deemed generic. But companies worry that it breeds confusion among consumers."  I'm sure the Frisbee trademark was worth something to the pie-tin company and later Wham-O toys.  I'm sure Zipper was worth a good deal of money to the BF Goodrich company that patented the fastener.  There was assuredly a lot of time, energy, and money put into developing and marketing those brand names.  And now Apple Computer is worried the same thing will happen with iPad™.

Personally I find it a little silly that Apple would do this, but given Apple's history, its largely a result of a lesson learned back in the 1980s.  The Apple and Apple II personal computers were wildly popular, but were expensive.  Apple did not take proper legal steps in order to license its Operating System, and as a result tons of cheap clones were sold for about half the price (i.e. the Franklin Ace).  When Apple released the Macintosh ™ computer or Mac for short, several companies created clones, but Apple sued the pants off of them and has pretty much been borderline fascist on protecting its trademarks, licenses, operating systems and brand names from clones and commonization by businesses, publishers, or any other entities that could use those items to earn revenue.  While most folks I know don't say iPod™ if it is some other brand of mp3 player or media player, the preparation of Podcasts (audio or video shows for replay on any media player, not just an iPod™) continues and the word has been used, with only some verbal sabre-rattling by Apple Computer.

Star Trek: TNG PADD

Some truth:  IBM, Microsoft and Xerox teamed up around 1999 and developed early Tablet PCs.  They were largely based on the use of the old pen pad hardware attachment that some personal computers used.  Dell and a few others developed some rudimentary Tablet PCs but they were not well received by the market largely due to heat and weight issues, as well as due to the lack of an intuitive user interface. Some of them were laptop computers  with a screen that flipped over and only would operate with a stylus, not the use of a finger.  In 2007, Apple introduced the iPod™ touch. I bought one largely because I liked the touchscreen interface, and because of how intuitive it was to use.  My then 5 year old daughter said "It'd be nice if they made a larger one like it."  It also reminded me of a smaller version of a tech concept from Star Trek: The Next Generation called the PADD (acronym for personal acccess display device).  On all of the Star Trek series that were set in The Next Generation time period, we saw Starfleet personnel using them.  And when the iPad came out in 2010, it reminded me almost exactly of the Star Trek PADD--and yet nobody from Paramount or Gene Roddenberry's estate has sued Apple yet.

Since the iPad™, Android, Samsung, RIMM and Motorola have produced their own Tablet PCs that have worked quite well.  Although they are not iPads, they work in a similar fashion.  Just the same, I personally doubt someone that uses a Galaxy™ or Xoom™ tablet PC will call them iPads.  I also figure anyone that asks "is that an iPad?" would be told by the user "No, it's a Galaxy tablet."

Questions to Consider:


1.  How much money do you think a business puts into creating a brand name?  How much is the brand name worth over time if the product is successful?  


2.  What kind of costs are incurred by creating a brand name?  What kind of costs are incurred in protecting it?


3.  In which market structures would brand names be most common in?  What are brand names an example of?


4.  How much value do you think was lost by Bayer when they lost the trademark to the brand Aspirin?  How much value would Apple lose in the event iPad™ became commonized and they lost the registered trademark? Would it cause Apple to take economic losses?


As always, thoughtful comments and questions are welcomed.

Success to you all!

Prof. Hank Lewis

In the News: Federal Reserve's Top Trader Quits

This article analysis will be of special Interest to my ECON 2301 Students.  I suggest reading it and posting answers to the questions in the comments as they *may* be worth a few extra credit points. 


In an article dated April 7, 2012, it stated that Brian Sack, a key trader with the Federal Reserve Bank of New York, has resigned his post.  Per the article:

Brian Sack

One of the key stewards of the Federal Reserve's unconventional monetary stimulus is parting ways with the central bank, a move that stunned Wall Street and left large shoes to fill in its all-important market trading section. Brian Sack, head of the markets group at the Federal Reserve Bank of New York, has tendered his resignation, according to a release Thursday from the New York Fed. Sack, 41, will stay in his current post until June 29, when the Fed's latest monetary stimulus program, known as Operation Twist, is set to expire. He will then be placed on leave until Sept. 14, during which he will have limited contact with the bank, the release said.

The departure comes as debate grows over the future of the ultra-easy monetary policy pursued by the Fed since the 2008-09 financial crisis. Investors and bond dealers are now intently questioning whether the Fed is prepared to embark on a third bond-buying program to boost the economy or is preparing for an eventual unwinding of those policies to tighten monetary conditions. With the economy improving, the question remains whether growth can remain sufficiently healthy without further monetary support while threats to the economic and investment climate continue from sources such as the euro zone's sovereign debt crisis.

"I'm dumbfounded," said Raymond Stone, co-founder of Stone & McCarthy Research Associates, which closely tracks Fed policy. "He laid the groundwork for a lot of things the Fed has done and communicated clearly to the market. He did an excellent job in a difficult environment." 

Per our reading in Chapters 9, 10 and 11 in the Rittenberg/Tregarthen Macroeconomics Book, The Federal Reserve serves as the US Central Bank and is the main agent of Monetary Policy.  The New York Federal Reserve has a permanent seat on the Federal Reserve Open Market Committee, which is in charge of conducting open market operations.

Questions for Discussion:


1.  What is the goal of Easy Monetary Policy?  Why has the Federal Reserve been enacting it since 2008/2009?  Has it been successful?  Why or Why not?


2.  What are open market operations?  How are they done in easy mode of Monetary Policy?  How to they affect interest rates, total spending the overall economy?


3.  Why does the New York Federal Reserve have a permanent seat on the Open Market Committee?  How does this change in a Key Bond Trader potentially impact Open Market Operations?


As always, thoughtful comments and questions are welcomed.

Success to you all!

Prof. Hank Lewis

Jobloft blows a done deal on Dragon's Den thanks to big mouthed Professor

As many of you know, I enjoy Dragon's Den and Shark Tank as these shows feature successful entrepreneurs as Venture Capitalists helping smaller entrepreneurs with big ideas but need funds to expand or take it to the next level.  Last night on the CBC, they did a reflection of the past several seasons regarding the most memorable moments on the show.  These moments included times when those making their elevator pitch broke down in tears at Kevin O'Leary's caustic response to ridiculous valuations, funny moments when the Dragon's clowned around, times when pitchers used scantily clad men or women to pursuade the Dragons, and even a time when a Food Pitcher served up a dish to the Dragon's that was revealed to be Dog Food!!!

However the most memorable moment came from the first season when the founders of JobLoft.com, an internet job site that would alert job seekers in service businesses such as restaurants, hospitality and retail stores, who was hiring in what areas via Text and enable faster application filing for those in those industries.



Jim Treliving, Franchise Baron of Boston Pizza and Mister Lube  was very interested, as were the other Dragons.  A deal was done--first deal closed of the first season.  However, at the closing, the founders of Jobloft (a group of University students) brought their mentor, a business professor, along for the signing of the deal and the cheque being issues.  However, that business professor (a bigger blowhard than I am) ruined things:


Suffice it to say, the Professor's behavior is very disappointing on many levels.  For one, the student entrepreneurs had made a successful elevator pitch and had a done deal, cheque written etc.  Although I am sure the Professor had good intentions, if he had ANY business sense AT ALL, he would have voiced his feelings about the deal PRIVATELY with those students he was mentoring and not done any grandstanding at the closing.

As someone who would be very pleased to help mentor students that are serious about becoming entrepreneurs or advancing into a career in business, and as someone who spent more than 16 years of his life in the Financial Services realm prior to teaching college & university students, I would consider it my role to advise anyone I was mentoring at appropriate moments and then step back and allow them to do what they felt best, including reject some or all of the advice I provide, and reap the benefits, or suffer the consequences.  That closing was Jobloft's moment to enjoy and their mentor should have just said "Congratulations" and been happy for them, rather than shoot his mouth off.  If I'd been in his shoes, I'd have  kept any ruminations about it to myself during the closing and would have been more jazzed to meet some of the Dragons.

Future participants on Dragon's Den learned a valuable lesson at Jobloft's expense:  BE  VERY CAREFUL who you invite to the closing of the deal.

Until next time,

Professor Hank Lewis

Chat with Entrepreneur Brooksy Smith of Jerry Built Burgers

NOTE TO STUDENTS AND ECON BLOG READERS:


This is a mirror post of my other blog HankOnFood.com.  Since Entrepreneurship is a topic we discuss in ECON 2301 and 2302, I figured this chat with a local partner of Jerry Built Burgers might be interesting, and maybe make you hungry as well!

Affable Restaurateur, Brooksy Smith, One of the
5 Partners that own and operate Jerry Built Burgers 

Recently I was informed by Brooksy Smith of Jerry Built Burgers contacted me to inform me that their Woodland's location located at 1335 Lake Woodlands Dr. would be opening up on March 31st, just 6 weeks after their first location at 3501 Holcombe had opened.  Brooksy invited me to come out to the new location for a preview and to talk a bit about some of what he learned in the first 6 weeks of the Holcombe location being opened.  Since eating there when they first opened, Jerry Built has become part of my regular rotation of burger joints that my son and I enjoy.  And I'm always up to get the inside scoop on the restaurants I love, so I gladly accepted.

When my son Jason and I paid the visit, they were putting the finishing touches on their marquis sign and getting their last round of staff training done.  I was able to see their larger dining room (5500 vs. 4500 at their Holcombe location), and get a feel for some of the knowledge Brooksy Smith, Jerry & Chad Glauser and the rest of the gang had learned over the past 6 weeks.

Every Thursday it Gets Better

Blueberry Skinny Lemonade
A Dr. Oz Inspiration

This is something Brooksy said during our visit that I was very happy to hear.  I have made a few discreet visits to Jerry Built since their grand opening on Feb. 18th.  These have largely been late Friday night, Sunday brunch or weekend afternoons.  Every time I have come in, the Holcombe location has been busy, cranking out home grown burgers, hot dogs, fries and such.

In my experience, what usually gives a good local place like Jerry Built traction is a mixture of Word of Mouth and good press.  Jerry Built has gotten both, but thanks to social media, blogs and Twitter, the word of mouth has been a thousand fold.  There has also been a direct mail campaign where I've seen many a customer coming in with those black Jerry the Bull mailers to try a burger.  Every one of those customers has said they would be coming back.  I've also seen a fair number of Medical Students mixed with Rice University Students and Soccer Moms with full broods from West University Place.

Industrial bins and crinkler
at Jerry Built Burgers'
Woodlands location

Brooksy also dropped some good news about the parking situation at Holcombe:  he's getting ahold of some adjacent property and parking is going to increase TREMENDOUSLY by May.  This will be a relief for those of us that live closer to Holcombe, especially the lunch crowd that has passed the location by due to the full lot.

Brooksy also shared how they'd vastly underestimated the volume they'd be selling on their french fries.  They had to buy industrial-sized bins and an industrial-sized fry cutter.  These aren't the ones they use for restaurants;  they're the ones that Ore-ida and McCain's  potatoes use for making the stuff they freeze and sell to the public!  Brooksy was also good enough to admit that this was a nice problem to have in the restaurant business.

New Products and working up the learning curve


Customers have proven helpful to Brooksy and company on 2 levels:

Jason enjoying a Jerry Built dog
in front of blueberry skinny lemonade
and Ginger Bull Shake

One customer had noticed how the fries, which had been prepared properly, had turned mushy in the bag.  They made a few suggestions to Brooksy and some changes were made.  Specifically, a couple of the corners were cut out of the fry boxes, napkins no longer placed on top of them and bag tops no longer rolled shut.  This has kept the fries crisper and better tasting.

Another customer suggested a way to make sure day old Ginger-Bull cookies weren't wasted:  take yesterday's Ginger Bulls, crumble them up, mix them in a Vanilla shake and you now have their #1 shake at Holcombe:  The Ginger Bull shake.

Fried Egg Tomato Grilled Cheese
note the inverted bun!

Other Customers came up with an Ernie's Style Burger (with grilled onions in Ernie's sauce), a Grilled cheese sandwich with the buns inverted, and also a fried egg and tomato grilled cheese sandwich that my compatriot Michelle had while we sat and talked with Brooksy.

Dr. Oz also served as another inspirational source for a product.  Brooksy indicated that he'd heard Dr. Oz that blueberries are one of the superfoods we should all eat due to its antioxidant properties, and so he crushed them up and mixed them in with his fresh squeezed lemonade (regular or skinny, made with Splenda™).

I was given samples of the Ginger Bull Shake and the Blueberry skinny lemonade to try and I can say they are both very, very good and will probably have one of them the next time I swing by the Holcombe location.

Willing to Consider good ideas from Customers, within Reason


One of the main points I felt Brooksy made to me was that despite the challenges starting up a restaurant like this from scratch has been, he's been willing to listen to good ideas from customers that are within reason.  And if he's not able to go with an idea, request or suggestion, he's not ever going to say "I don't care."  He's going to explain the nature of the restaurant business and the considerations he has to make regarding food, cost and waste issues.  That's not something that a lot of restaurateurs would do, which goes to show as I've said before, Jerry Built Burgers is NOT just another burger joint.

Artwork inside the Woodlands location of Jerry Built

As an Economics Professor in my main life, I very much enjoyed a chance to talk about this business with one of the partners.  There were many insights I gained that I can use in my teaching and I was glad to get more info to share in the blog.

New Location in the Woodlands Opens March 31st


Saturday, March 31st, it opens.  It has the same great features of the Holcombe location:  the windows to watch the process, the in-house ground and crinkled fries, the in-house baked buns, the hand-jacuzzi washing station, but on a slightly larger scale.  I advise all my Northside Friends, Family Colleagues and Coworkers to pay them a visit at:

Same Jerry the Bull,
but Woodlands signage
restrictions make it a tad
smaller sign

1335 Lake Woodlands Dr.
The Woodlands, Texas 77380
281-367-2874

Sunday - Thursday 11:00AM – 9:00PM
Friday - Saturday 11:00AM – 10:00PM

Go there and

EAT HAPPY, Y'ALL!!!

In the News: TV Networks ordering more Comedy Shows

This posting may be of more interest to my ECON 2302 (Microeconomics Students)

A recent article in USA Today stated that Television Networks over the air and cable are ordering more comedy shows than anything else for the Fall 2012 season.  There are a lot of different Microeconomic Modalities to this and it is worthwhile to my Microeconomics students to study this in some detail.

Per the article:

TV networks working on next season's new shows still are prepping plenty of CIA and FBI agents, hospital staffs and supernatural doings. But what they really want is comedy: 46 of them, a recent record, are vying for slots on the four major networks, all of which hope to increase the number of half-hour sitcoms they air next season.

It's no secret why networks are pining for laughs. Though almost every returning drama has lost viewers this season, eight comedies have posted ratings gains, led by CBS' The Big Bang Theory, up 21% in its fifth season, thanks partly to new exposure via syndicated reruns.

While ABC's Modern Family and The Middle are still growing, even long-in-the-tooth series such as CBS' How I Met Your Mother and Fox's American Dad, in their seventh seasons, are up over last year. So is Two and a Half Men, where Ashton Kutcher replaced Charlie Sheen in its ninth season.

CBS' 2 Broke Girls and Fox's New Girl are two of the season's top three newcomers among younger viewers. And most of fall's new comedies at least initially attracted decent ratings, while riskier dramas (The Playboy Club, Pan Am) flopped.

Network executives say the still-fragile economy and a fragmented, multitasking audience make comedies less demanding and more likely to break through, especially among the younger viewers that advertisers seek. "It's uplifting kind of comfort food for people right now," says NBC Entertainment president Jennifer Salke, who has ordered 14 comedy pilots for next season, more than any other network, while reducing new-drama contenders to eight.

It would be a good idea to read through this article thoroughly and consider the following questions as a form of Microeconomic Analysis:

1.  Under what output market structure do television broadcasters fit?  Be specific and go through all the major attributes of this.


2.  What kind of product/service are television shows?  Look at the different types of products addressed in the 4 different output market structures and their definitions and see which do they most fit.


3.  Consider the revenues and costs that TV networks earn and incur.  What is the main source of revenue to TV networks?  What determines the price they are able to charge to earn these revenues.  What are the major kinds of fixed and variable costs to a network?  


4.  Which market curve is shifting for TV comedy shows?  Why is that curve shifting?  (i.e. which non-price determinants are at work.)  

Please feel free to answer questions and post relevant comments in the comments section.

I hope all my students at Lone Star College and Houston Community College have a great Spring Break next week.

All About Convenience Stores--DNTO from Feb 25, 2012

This posting will be of interest to all readers and students

Convenience stores are a particular type of business that all of us have various familiarity with.  They're where we stop for a quick bottle of Dr. Pepper, gas up our cars, grab a quick cup of bad coffee or lottery tickets.  As a kid my local Stop N Go was where all the kids would go after school to get a Slushie, buy a candy bar, play Asteroids or Defender, and it was a neighborhood hub for various casual social activities.

They've played an important role in Generation X Icon Kevin Smith's movies--specifically Clerks.  Where the two local Dope Dealers, Jay and Silent Bob, hang outside causing trouble for long-suffering employee Dante "I WASN'T EVEN SUPPOSED TO BE HERE TODAY!!!" Hicks and his cohort Randall Graves.  Thanks to this movie, the Quick-stop in Red Bank, New Jersey, has become a place visited by fans of Smith for years.

On this past week's DNTO, Guest Host Rosanna Deerchild speaks with several interesting people who offer their own perspectives. One entrepreneur who caught my attention was Howard Mullins, the inventor of a device called The Mosquito.  This device takes advantage of a hearing range that kids and teenagers have, but adults don't, and is used by convenience stores to make rowdy teenagers hanging out in front of conveniences leave if they won't behave live civilized people.  What I found interesting was a lot of teenagers have downloaded its sound as a ringtone so they know if they have a text in class but so teachers won't realize it since Adults can't hear it.  :Shaking My Head:

Another person who's perspective was worth listening to was Ins Choi--a Canadian of Korean Ancestry who wrote the play "Kim's Convenience." It deals with how in Canada (and in the United States for that matter) many immigrant families start convenience stores as a way to make a living, giving them a chance at a slice of the North American Dream. However it also deals with the fact that their US and Canadian born children who are acculturated to their countries of birth, move on to university educations and do other things, many of them not wanting to continue to operate or own the family business. This play is a story of culture, of entrepreneurship and of cultural shifts from immigrants to their native born children. This story would give a unique perspective to those of us who are customers of immigrant-run and owned convenience stores that we don't always know or realize.  And included music that played on the live show, an Indo-British band called Cornershop (how many Brits refer to Convenience stores) singing a song about a Bollywood star and how lovers date in secret violating Caste conventions in "Brimful of Asha"



A Brief History of the Convenience Store (from the NACS website)

Convenience stores evolved from a variety of sources early in the twentieth century. They drew upon characteristics of many types of retail establishments in existence at the time: the "mom-and-pop" neighborhood grocery store, the "ice-house" (from pre-refrigerator days), the dairy store, the supermarket and the delicatessen.

The Southland Ice Company is credited with the birth of the convenience store in May 1927 on the corner of 12th and Edgefield Streets in the Oak Cliff section of Dallas, Texas. "Uncle Johnny" Jefferson Green, who ran the Southland Ice Dock in Oak Cliff, realized that customers sometimes needed to buy things such as bread, milk and eggs after the local grocery stores were closed. Unlike the local grocery stores, his store was already open 16 hours a day, seven days a week; so, he decided to stock a few of those staple items. The idea turned out to be very convenient for customers.

Joseph C. Thompson, one of the founders and later president and chairman of The Southland Corporation, recognized the potential of Uncle Johnny's idea and began selling the product line at the other ice dock locations of The Southland Company. Further, these stores were open from 7 a.m. to 11 p.m., seven days a week.  (Hence the name 7-Eleven)

In addition to convenience store development at The Southland Ice Company, other types of stores were emerging. There were "midget" stores in the 1920s and "motorterias" or mobile convenience stores. "Bantams" and "drive-in" markets were also around in 1929 where motorists never had to get out of their cars. "Delmat" vending machine type of stores were also popular for obtaining milk, eggs, produce and fresh meat. Dairy cooperatives (Such as Lawson's in Ohio,which is now mostly in Asia) often ran "dairy stores" or "jug stores" as outlets for their operations. Sometimes supermarkets had small outlets in rural areas for people who did not travel to the city enough for eggs, milk, etc.

The pattern of the emerging "convenience" types of stores grew modestly until World War II (although they were not yet called "convenience stores"). The big factor in all of these operations was fast service. The stores were most successful in warmer climates where the open front was a big attraction.

The end of the war and the increased ownership of automobiles sparked the rapid growth of the industry in the 1950s. The automobile helped fuel the growth of suburban living--of families wanting the "American Dream." Americans, with bigger cars and better roads, began flocking to the suburbs where they found plenty of space to live and raise children... but too much space between shopping centers.

The industry grew rapidly along with this consumer need for convenient shopping and supplanted the neighborhood grocery stores and became established in new suburbs and areas too small to warrant a supermarket. Once again, convenience store companies were opportunistic and innovative, thriving in market niches too small for others to operate profitably.

Additional forces continued to drive convenience store growth. The growth of the supermarket industry affected convenience stores. As grocery stores became larger and larger, they became less convenient for the customer who was in a hurry. Convenience stores filled in. Suburban families often had two cars and two incomes; both spouses working meant more discretionary income and less time for using a supermarket. Also, the increase in the number of working women reduced the amount of time available for shopping.

Stores were conveniently located. Customers could park in front of stores and could even leave children in the car and keep an eye on them. With the variety of items available, it was virtually one-stop shopping without waiting in line. Stores were easily franchised since it was getting expensive to start up a new store. They entered the northern regions of the country and continued to grow through merger, acquisition and new building.

Convenience stores continued to evolve from characteristics of the competitors: supermarkets, mom-and-pop grocery stores, specialty food shops, drug and variety stores, vending fast food chains, and gasoline service stations.

In the early 1970s, more states began allowing self-service gasoline, so the number of convenience store selling gasoline grew. In 1971, less than 7 percent of all convenience stores sold gasoline. That figure reached 50 percent in 1984, and today stands at around 80 percent.

While gasoline sales make up more than 70 percent of a typical store’s revenues, gasoline is a
very low margin commodity and only accounts for about one-third of a store’s profits. Over the past 15 years, stores have sought to expand their in-store sales by growing their foodservice programs, especially expanding their fresh coffee and sandwich programs. As the economic downturn hit in 2008, many stores found that they were able to maintain – or even grow – their in-store sales, as more customers sought quick take-out meals instead of sit-down meals at restaurants.

Lawson's in Japan 

In 2008, the convenience store industry’s U.S. sales stood at $624.1 billion – accounting for roughly 4.4 percent of the country’s gross domestic product. The industry also sold an estimated 80 percent of the country’s gasoline purchased. The convenience store industry’s scope was largely a result of its enormous number of locations. By the end of 2008, there were 144,875 convenience stores in the United States – more than the stores from all other competing channels (supermarkets, drug stores, mass merchandisers, dollar stores and wholesale clubs) combined. With the U.S. population now at about 305.5 million, there is one convenience store for every 2,100 people in the country

Some other things to think about


In Japan, convenience stores are commonly called “Conbinis” in Japan (sounds like cone-beanie). There are conbinis everywhere in Japan. It’s insane. None sell gasoline like the American version and the staff is very nice (again, unlike the American version). Stores are really clean and they have a ton of items including ready to eat fried chicken and other random fried things that I’ve eaten but can’t tell what they are. They’re often used as landmarks too when you’re trying to navigate through town.

Having visited Japan I can also add that many convenience stores were offering many more goods and services than their American and Canadian counterparts for many, many decades. However in the 1990s, we began to see North American convenience stores start to sell prepaid phone cards and pagers, then cell phones, then prepaid gift cards and other such items once reserved for discount stores or department stores.      Some stores even had services like neck massages, as well as fresh food cooked while you wait.  Many of them are considered hubs for the neighborhood and are often destinations of choice as much as a restaurant or a park.

As a resident of Vancouver, BC two weeks out of the year, I can also say that Canadian convenience stores have been more similar to their Asian counterparts since the late 1980s, but many US conveniences stores (especially those in small towns) have started to catch up as well.


Some examples I can think of are two convenience stores in Columbus, Texas, on State Highway 71 that are well known Kolache Stops for UT students, as well as for Texans on Road Trips.  Plus consider the Bucc-Ee's chain of Convenience Stores and Truck stops, and the institution they are here in Texas.

Questions To Consider:


1.  (2302 students)  Under what output market structure would convenience stores be considered (think by Corporate Owner, as well as by individual franchisee)?

2.  (2301 students)  Would you consider their contribution to US GDP to be significant or insignificant?  Why or why not?

3.  (Any students or readers)  What are some possible explanations as to why a bottle of soda pop. a half gallon of milk or a loaf of bread would be sold at a higher price than at a Supermarket or Discount store?  Is this higher price justified?  What are customers getting from buying at a convenience store instead of buying from a Supermarket or Discount Store?  Is it worth the mark-up to the consumer?

The Venus Project, Jacques Fresco and the Resource Based Economy

This post will be of interest to all of my Economics Students and Readers.

Thanks to Netflix streaming, I recently watched a documentary entitled Future By Design, which largely told the story of Jacques Fresco.  Jacques Fresco is a futurist.  He grew up in New York in the early 20th Century and has studied a large number of subjects, becoming an expert in architecture, sociology, medicine, energy, and even economics.  He is considered a modern-era Leonardo DaVinci.  Like DaVinci or any competent reference librarian, Mr. Fresco is a generalist--someone who has expertise in multiple academic and practical disciplines.  He is also a prolific inventor.  As a teenager he had conversations with Albert Einstein and Buckminster Fuller.

While I do not necessarily agree with all of his philosophy, I find his ideas would give anyone with some intelligence pause for thought.  The economic ideas he has come up with are very radical on some levels.  Yet on other levels, they are somewhat similar to Gene Roddenberry's ideas from Star Trek with regards to the human condition and the economy.

The Resource Based Economy


Not entirely command, not entirely capitalist, nor socialist, but another approach to the economy based upon the views of technology and land resources and our relationsthip to them.  In some ways this system resembles barter, but at the same time is not entirely barter either.

From The Venus Project's Website:

The term and meaning of a Resource Based Economy was originated by Jacque Fresco. It is a holisticsocio-economic system in which all goods and services are available without the use of money, credits, barter or any other system of debt or servitude. All resources become the common heritage of all of the inhabitants, not just a select few. The premise upon which this system is based is that the Earth is abundant with plentiful resource; our practice of rationing resources through monetary methods is irrelevant and counter productive to our survival.

Modern society has access to highly advanced technology and can make available food, clothing, housing and medical care; update our educational system; and develop a limitless supply of renewable, non-contaminating energy. By supplying an efficiently designed economy, everyone can enjoy a very high standard of living with all of the amenities of a high technological society.

A resource-based economy would utilize existing resources from the land and sea, physical equipment, industrial plants, etc. to enhance the lives of the total population. In an economy based on resources rather than money, we could easily produce all of the necessities of life and provide a high standard of living for all.

Consider the following examples: At the beginning of World War II the US had a mere 600 or so first-class fighting aircraft. We rapidly overcame this short supply by turning out more than 90,000 planes a year. The question at the start of World War II was: Do we have enough funds to produce the required implements of war? The answer was no, we did not have enough money, nor did we have enough gold; but we did have more than enough resources. It was the available resources that enabled the US to achieve the high production and efficiency required to win the war. Unfortunately this is only considered in times of war.

In a resource-based economy all of the world's resources are held as the common heritage of all of Earth's people, thus eventually outgrowing the need for the artificial boundaries that separate people. This is the unifying imperative.

We must emphasize that this approach to global governance has nothing whatever in common with the present aims of an elite to form a world government with themselves and large corporations at the helm, and the vast majority of the world's population subservient to them. Our vision of globalization empowers each and every person on the planet to be the best they can be, not to live in abject subjugation to a corporate governing body.

Our proposals would not only add to the well being of people, but they would also provide the necessary information that would enable them to participate in any area of their competence. The measure of success would be based on the fulfilment of one's individual pursuits rather than the acquisition of wealth, property and power.

At present, we have enough material resources to provide a very high standard of living for all of Earth's inhabitants. Only when population exceeds the carrying capacity of the land do many problems such as greed, crime and violence emerge. By overcoming scarcity, most of the crimes and even the prisons of today's society would no longer be necessary.

A resource-based economy would make it possible to use technology to overcome scarce resources by applying renewable sources of energy, computerizing and automating manufacturing and inventory, designing safe energy-efficient cities and advanced transportation systems, providing universal health care and more relevant education, and most of all by generating a new incentive system based on human and environmental concern.

Many people believe that there is too much technology in the world today, and that technology is the major cause of our environmental pollution. This is not the case. It is the abuse and misuse of technology that should be our major concern. In a more humane civilization, instead of machines displacing people they would shorten the workday, increase the availability of goods and services, and lengthen vacation time. If we utilize new technology to raise the standard of living for all people, then the infusion of machine technology would no longer be a threat.

A resource-based world economy would also involve all-out efforts to develop new, clean, and renewable sources of energy: geothermal; controlled fusion; solar; photovoltaic; wind, wave, and tidal power; and even fuel from the oceans. We would eventually be able to have energy in unlimited quantity that could propel civilization for thousands of years. A resource-based economy must also be committed to the redesign of our cities, transportation systems, and industrial plants, allowing them to be energy efficient, clean, and conveniently serve the needs of all people.

What else would a resource-based economy mean? Technology intelligently and efficiently applied, conserves energy, reduces waste, and provides more leisure time. With automated inventory on a global scale, we can maintain a balance between production and distribution. Only nutritious and healthy food would be available and planned obsolescence would be unnecessary and non-existent in a resource-based economy.

Future By Design

 

In my opinion, The Venus Project has noble goals and has great potential.  However, some of it is a bit idealistic in nature.  For example, we are dealing with several realities in place:

1.  Certain non-renewable resources are running out and there is a huge imperative and incentive to replace their use, but alternatives are not being developed quickly.

2.  Human nature tends to be rationally self interested--the desires of the individual outweigh the needs of society for much of us, though many of us make an effort to think beyond our own desires and wants.

3.  Our current markets and systems provide incentives to those who waste, though thanks to the Sustainability movement we are seeing many of these incentives shift to those who conserve, don't pollute and work for the greater good of society.

4.  Our system of money and debt, or barter/trade beyond this is heavily embedded in society and this would require a major paradigm shift that might cause global chaos for a time.   That chaos may be very destructive, and preventing it is of concern.  I ask how can this be done?

5.  The population of homo sapiens has passed 7 billion and is not declining.  In order to manage the scarce and limited resources of the Earth, we must get the birth and mortality rates in balance, and then perhaps we must allow the birth rate to drop below the mortality rate for a number of decades in order to reach a sustainable population for the planet.  How can this be done without violating proper moral codes we all recognize across religious and cultural boundaries?  How can this be accomplished without mass use of birth control on a large scale (as in surgical sterilization of mass numbers of men and women after they have a single child)?  This produces a very difficult moral and ethical quandary, just as having too many children produces a similar quandary as well.

I recommend viewing this movie and reading the information on the website for the sake of stretching your thought and considering several ideas about a Resource Based Economy and what it could accomplish for humanity, as well as how it might be abused.

As always, I welcome thoughtful comments and discussion.

Prof. Hank Lewis

In the news: GM Records Biggest Profit Ever

The following post is more directed to my ECON 2302/Microeconomics Students:

Recently on Yahoo News, the Associated Press reported record profits for General Motors.  This is just 2 years after it nearly fell apart due to financial difficulties.  General Motors went through major downsizing and had shuttered the Oldsmobile, Pontiac and Hummer makes during the past few years, closed plants, and went through a government sponsored bailout.

Per the article:

Strong sales in the U.S. and China helped the 103-year-old carmaker turn a profit of $7.6 billion, beating its old record of $6.7 billion in 1997 during the pickup truck and SUV boom.

GM is a vastly different company than it was back then. It's smaller, has less debt and its contract with the United Auto Workers is less costly. But it took a government bailout and a trip through bankruptcy protection in 2009 to cut its bloated costs. The company made record money last year even though U.S. auto sales were near historic lows at 12.8 million cars and trucks.

But problems surfaced in its 2011 results. GM lost $747 million before taxes in Europe, and its South American operations lost $122 million. Sales growth slowed in the U.S. in the fourth quarter, even as more Americans bought cars and trucks. Also, GM's fourth-quarter profit fell 8 percent and results missed Wall Street expectations.

This year, GM expects to increase its revenue as global auto sales grow and it charges more for models. However, it will make less money per vehicle as the mix of sales continues to shift to cars from trucks, which have bigger sticker prices. It also expects to invest $8 billion on new products and technology, and says pension expenses will rise. The company wants to keep expenses down by freezing its underfunded U.S. pension plan for salaried workers.  

Several Unit 2 concepts in Microeconomics are covered within this particular article and as we go through Unit 2 I would like you to add to the discussion in the comments.

Questions for Discussion:


1.  Under which of the four output market structures is the Automobile Industry?  How well does it fit the descriptions?  Consider all attributes: type of product, size of an individual firm relative to market, ease of entry/exit to the market, degree of price control an individual firm possesses, degree of non-price competition in the market.

2.  What type of costs are detailed in the news article (explicit or implicit, fixed or variable)?  Explain why these costs fit the description.

3.  What economic term could be used in the place of the phrase "money per vehicle"?  Explain why that is the appropriate term.

As always, any articles presented in the blog are NOT AVAILABLE for students to use for their semesterly article reports.

I welcome all thoughtful comments/discussion.

Success to you all!!!

Prof. Hank Lewis

In The News: Retail Sales/Leading Economic Indicators

This blog is more directed at my ECON 2301/Macroeconomics Students.


Just today on Yahoo News, we saw a report about Retail Sales being down.  This then led to a drop in various Stock Indices as well.

The S&P 500 index retreated from near a seven-month high Tuesday after weaker-than-expected January U.S. retail sales data curbed investors' appetite for risky assets. U.S. retail sales rose less than expected in January as consumers cut back on car purchases and shopped less online. The disappointing data added to concerns stemming from Moody's downgrade Monday of ratings on six euro-zone countries.

"The state of the consumer is still pretty mild. We have had some good economic news but still pretty mild trends all around," said Sean Incremona, an economist at 4CAST in New York. The Dow Jones industrial average (DJI) was down 28.01 points, or 0.22 percent, at 12,846.03. The Standard &Poor's 500 Index (SPX) was down 3.97 points, or 0.29 percent, at 1,347.80. The Nasdaq Composite Index (IXIC) was down 10.23 points, or 0.35 percent, at 2,921.16. On Monday, the S&P 500 rose near a seven-month high, up more than 25 percent from a low in early October.

The benchmark index is hitting strong resistance in the 1,355-1,360 area, a possible trigger for a pullback. Pressuring the financial sector, Citigroup downgraded Bank of America Corp (BAC.N) to "neutral" from "buy," saying earnings headwinds would continue at the company even as capital concerns subside. Bank of America shares were down 1.1 percent at $8.16.

Students in Macroeconomics who've read the chapter on business cycles should recognize these stock indices and  retail sales as leading economic indicators.  These are different kinds of time series economic data whose behavior precludes the business cycle by about 6 months.  Granted these are just 2 or 3 of the whole index which includes:

     Average workweek (manufacturing)
     Initial unemployment claims (new unemployment benefits claims)
     New orders for consumer goods (durable goods)
     Vendor performance (retail sales)
     Plant and equipment orders (durable goods)
     Building permits (new housing construction)
     Change in unfilled durable orders
     Sensitive material prices (as in gold, silver and crude oil)
     Stock prices (S&P 500, DJIA, Nasdaq and other stock indices)
     Real M2
     Index of consumer expectations (a/k/a Consumer Confidence Levels)

Question for comments:  What does this news article suggest about the economy for the next few months?  In other words, what are these leading indicators predicting?

As always I welcome your comments and thoughtful discussion.

Success to you all!

Prof. Hank Lewis