Category Archives: Economics for Life

Introduction To Econ010: Economics For Normal People

I am not a very observant person (you need to smack me in the face 4-5 times with a dead mackerel before I realize you have a fish in your hand). I don’t really make a point of watching other people when I go anywhere but lately I’ve been listening to talk around me. The people discussing next week’s election proposals on taxes, millages, proposals, and other conversations on minimum wage and inflation, interest rates and the economy in general has led me to an obvious conclusion: the average [American] knows nothing about economics.

Long, long ago in a galaxy college far, far away, I graduated with a BBA in Accounting. The following year, the dean at the school decided I could help to repair the damage to universal karma by teaching a couple of courses as retribution. I agreed to the sentence and was assigned to teach Basic and Advanced Algebra (not unexpectedly, as I was the only tutor for Calculus in the college and had a couple of students travel 60-90 minutes each way to come to my tutorial sessions, along with the countless others assisted in all math classes locally). Then she announced (with a strange gleam in her eye) I needed another class to fill, and casually announced I would take the 10:00 AM slot in Macroeconomics.

I thought I would choke to death. My protests of inadequacy and that I had only just completed the course the year previously were brushed off without a thought. “You’ll do fine” she announced and it was settled. I would teach mornings Monday through Friday and have office hours from nine to noon on Saturdays. There were over sixty victims in the two algebra courses and only 2 fatalities in grading.

The Econ group consisted of just seven brave souls and a terrified teacher. The principle truth of the education process is that you don’t necessarily need to know MORE than your students, just that you need to learn FASTER than they do. Eventually we finished, all much wiser (and at least fractionally smarter) than when we started. I felt we had accomplished a great task, that there were at least eight people in my local area that understood more about how the world worked that when we started.

Recently I discovered my notes from that class and, with the above mentioned observations, I have decided to write a series of posts to help others get an overview of this topic. I will setup a table of contents page (not sure where it will be or what it will look like, but I’ll get it worked out for you) listing articles as they come out, including a glossary with terms used for review. All relewant postings will start with the title ECON010 (based on the numbering system of schools where 1xx classes are first year, 2xx are second and so forth…while 099 is normally used to do remedial classes like refresher English or Math, I think the current level of general knowledge requires a remedial class to take the remedial class…). The goal is to post an article a week to this topic (a new Category and Tag will be made just for these postings) and there is at least a dozen lessons to cover. I suspect some (many) [most] {all?} will need to take a couple of posts to cover the materials, so eventually it will probably go to several dozen posts altogether.

I expect the first will come next week, the first full week in May. Of course it will depend on the available alternative choices and ultimately where the greatest utility lies (teaser) but I hope to have at least a small input in the lives of several people over the next year. So that (perhaps) the next time I hear a discussion at the mall I might hear something other than pointless drivel spewing from the participants.

Then again, maybe I need to move further away from the cell phone sales area…

Phred

post 56 of n

The Horror Of (Self) Servitude

I am possessing limited mobility. For the most part, I use the electric Amigo style carts when I go shopping. It is really hard for me to enjoy a spending adventure that starts with a ten-minute hobble from the parking lot, especially when I  push a cart the rest of my journey. I don’t do a lot of binge-shopping, preferring rather to go to a mega-store (like WalMart) where I can get everything I need in one trip, and deal with the problems of transferring the junk from my car to the apartment later. But it was not always the case.

Last millennium, shortly after the dinosaurs became extinct there were no 50 acre establishment providing every conceivable product a household might need (these days some stores have banks, restaurants, hair and nail salons, and even tax preparation services under the same roof). If you wanted meat for dinner, you went to the butcher. Fruit and vegetables came from the grocery store. If you needed oil for the car you went to the gas station (which, strangely enough today, only sold automotive things – oil, lamps and fuses, belts – and possibly candy bars, gum, and soda pop). Depending on who owned the store, you might be able to get beer and wine from the grocery, but liquor was definitely out of the question. The liquor store was your only choice there. Shoes from a shoe store, clothes at a clothing store (if you were near a Sears & Roebuck you could get both together but it was dependent on how large a town you were near). Drugs came from the drug store (who would have thought…). Bread, rolls, and cakes from the bakery, and so on.

Then the ice age ended and something called a Supermarket was created. This incorporated a meat counter, produce, vegetables, fruit, and pantry staples like canned goods and baking supplies. Suddenly grocery shopping became a manageable single trip rather than an all afternoon adventure. By going to the bigger store, you gained the ability to gather a larger selection of goods at the cost of a close relationship with the people behind the counter. At the meat market it was likely you knew the name of the person working since his name was on the sign. And quite likely he knew your name and how large a family you had, what your preferences were, and would be willing, nay happy, to provide you with a special cut of meat should you mention such a need. The shoe seller likely sold your parents shoes (and you when you were little) and was likely a cobbler as well, so he could resole your dress shoes to make them last another year or two. For a special occation, the pharmacy was likely the possessor of a soda fountain, so you could go in and get a cherry phosphate or chocolate soda in a paper cone glass. (No soft serve ice cream then, nor fast food anything.)

When you needed to refuel your car, you drove to the gas station and a bell rang as you pulled into the drive. Stopping beside the pump, a man would come up to your car and ask how he could help you. He would pump your fuel, wash your windows, check the oil level in you car (and offer to add a quart if you were low), and would make change for your purchase should you not have the right amount of money (no credit cards, ever…they didn’t exist!). All done with a smile, rain or snow, hot or cold. You never had to leave your car for all this service.

Time passes. I spend a year in California in the mid 1970’s and was exposed to Self-Serve gasoline for the first time. Funny, but the incentive for pumping your own gas was a seven cent per gallon discount (doesn’t sound like much today, but then it was about a twenty percent discount…say 60-70 cents today). It didn’t matter if you went to the cheapest off-brand station or the biggest conglomerate oil company’s brand. Get out of your car and you knocked off that discount. The explanation I heard at the time was the company could offer the reduced price because they didn’t have to pay the wages of an attendant to work the pumps like at a full-serve island. When returning to Michigan, I found there was NO price difference between full and self service stations. Guess who pumped my gas (especially in inclement weather)?

Today? I can only think of one (1) full serve station and that’s nearly 40 miles from here. In theory there are stations that will send an attendant out to assist people with handicaps, but there is a couple of things with these programs that trouble me. First, there is a button on the pump that calls for help. So, you still have to get out of the vehicle and go to the pump to call for someone to come and run the pump you are standing next to. Huh? Secondly (and more ominous) I have been told by clerks in several different stations that the buttons don’t do anything… no bells, whistles, klaxon horns, nothing. So mashing the “Call for Help” button only serves to remove the thin layer of dust from that small part of the pump. (And raises the effective blood pressure, aggravation level, and stress of the person struggling to get in and out of his or her car in the first place.)

But I can live with pumping my own gas. At least (most) stations have roofed over the pump islands so you are (mostly) out of the rain and snow while working on your car. Vastly more irritating are the mega-stores that have chosen to make checkout a do-it-yourself adventure. In the old days a store might have two or three checkout lanes, staffed by cheery clerks and baggers to haul your groceries to your car and to help load them into the trunk. Some of the larger stores I have wandered through might have thirty lanes or more, presumably to allow for efficient processing during holiday rushes. In the last ten years a third of these lanes have been converted to self-service or “fast lane” checkout centers.

The principle reason is cost reduction. A single clerk can stand at a kiosk standing at the end of a dozen of these robot tellers and attend to errors as needed. this results in eleven less clerks working than if a warm-bodied person filled each slot.  And the savings is greater during times of slack, where two or three isles are needed continuously but the other eight might not do enough business to cover a clerk’s expenses for the entire shift. So for the business it makes cents sense.

Not so much for the purchaser. For my part, I refuse to use these abominations for two reasons. The typical store is decidedly not user-friendly for shoppers using these Amigo contraptions supplied. The top two or three shelves are not reachable while seated, and frozen foods, canned beverages, and dairy products stored behind glass-fronted doors are a wistful dream away. Occasionally a kind stranger will fetch a product from the distant lands, but many a traveler has returned sadder and poorer for the lack of a carton of MooseTracks. Once my trip is nearly finished I am confronted by the design failure of these conveyor belt driven product scattering machines. They are too high to use easily (it’s hard enough to just haul a 4 kilo bag of potatoes from over the steering handles at the front of the cart and swinging it onto the standard lane: bend, lift, twist actions of the back are OK in singular, doing all at once is the prescription for serious injury). They are simply not fun to use.

A more important reason for me to decline to use these lanes is the one mentioned above in gas stations: no employee wages being spent. In essence, by using these devices you agree to become an unpaid employee of the store for the ten minutes you are ringing and bagging your own purchases. If you assume a wage of twelve dollars an hour, you have effectively saved the company two dollars they would have had to pay someone (actually, considerably more than $2 when you factor in all the added expenses like payroll taxes and unemployment insurance, probably closer to $3 when it’s all said and done). Most of my working life I feel I’ve been underpaid for the amount of work I’ve done, but to volunteer to be giving my wages directly to my “employer” seems wrong on so many levels.

So I end up waiting in the line that sells cigarettes for 45 minutes to checkout my ten items…

Phred

post 23 of n

Lose A Dime On Each Sale, We’ll Make It Up On The Volume

Suppose I offer to buy dollar bills from you for ninety-four (94) cents. How many would you be willing to sell to me? A couple, few, many? If you thought about it your rational answer would be….NONE! What, are you crazy?

Let me ask you another question. How much you charge to sell a dollar bill if you knew you would only collect the above mentioned ninety-four cents? The reasonable answer is at least a dollar and six cents to cover the expected loss on the next transaction. By doing this you would at least break even.

Now, where does these questions make contact with the real world? Apparently most people in America have no clear idea of what actually occurs when they use a credit card to make a purchase. To persuade a company to advance you a loan for buying the #4 cheeseburger meal with fries and a large coke, the card company agrees to pay the restaurant less than the actual amount charged, at a rate that depends on the companies involved, but somewhere between five and fifteen percent. When you pay the full amount (eventually, the 25% interest charge on late payments is just gravy for the company) allows the company to make enough profit to survive, nay, thrive.

And per the second question above, the fast food joint will charge you more than they need to since they need to recover lost funds for the credit card charge. A vicious circle of eat and be eaten, with the customer at the bottom of the food chain. It is increasingly common for some places to charge more for credit purchases than cash driven ones. Here (in the greater Detroit area where my kid’s live and my current visit is about to end) there is a ten-cent additional charge for purchasing gasoline if you use your credit card. A station that prices gas at $2.389 a gallon for cash will ding your card for $2.489 each for the same gas. They are making sure they don’t eat the service charge from the credit card company. Surprise…you are.

So to encourage you to use your card more, some companies are offering a cash back program. One ad on TV talks about a card that will “…give you 1% back when you purchase and another 1% back when you pay…” for a grand total of 2%. Who do you think is supplying the money that you are being (so generously) given? [WARNING: this may be a trick question]

For the record, I have a BBA degree in Accounting, taught macro-economics in college, have worked as an accounting manager for a number of companies, and have had a small business consulting firm for almost twenty years. I have had a fair amount of experience and feel pretty confident about the answer I am about to reveal below. (Hint: it’s NOT the businesses involved.)

Answer:   You. [Sorry, it was not a trick question after all.] And it’s not just service fees for taking credit cards rather than cash. Every expense incurred in a business will, eventually in the long run, be paid by the customer. Regardless of the title of this blog, you cannot make up a loss by increasing the volume. You recover the cost by increasing the profit (raise prices or reduce costs). No exceptions, no tickie, no shirtie.

Government regulations require a licence to operate? Charge everyone a little more to cover the cost. Minimum wage goes up -> profits go down -> EITHER increase profit [prices go up] OR reduce expenses [number of employees goes down]. Sales Tax increases raises costs of materials purchased making profits go down…so either buy cheaper products or raise prices.

Look, the reason business is out there in the first place is to MAKE MONEY. Short answer. There may be other reasons going along with the profit driver, but ultimately when you sign the checks to pay the bills, you want to make sure there’s enough to pay everything with at least a little leftover for your own use. Even the “not for profit” business HAS to get close to making a profit (or be subsidized by government fiat to continue to take a loss for the team…guess who pays for the subsidy!) Nobody in their right mind will knowingly and willingly continue to throw money into the fire without getting a large enough return to at least break even.

Last question: guess how many credit cards I don’t have in my wallet? (Extra credit if you can identify which company it’s not.)

Phred

post 19 of n