Geopolitics of the Arctic

The geopolitical and economic implications of a receding Arctic icecap are something to keep an eye on. Global warming is old news to most, but I found this specific instance noteworthy.

The time-frame in the summer when the Arctic waters are passable by ship appears to be increasing. This is a big opportunity for shipping companies to cut down on transportation costs. The video below from the Economist touches on shipping, fishing, and the possibility for more offshore drilling. I am somewhat skeptical about the extent that drilling would be cost efficient in these waters given such a small window of time and the high fixed costs for drilling. Also, staunch opposition from environmentalists will make it politically difficult for oil companies to drill in this area. However, assuming that the melting trend continues, this area could become a hotbed for international conflict over the next century as countries and oil companies jockey for position in the region.

When a Weak Dollar Is Good for the US

The NY Times reports that the trade deficit has shrunk. One of the main reasons has to do with the dollar:

In recent months, a weaker dollar has made goods from the United States less expensive overseas, while exports have also climbed in price as demand rose in developing countries.

Economic Reflections by Music Industry Experts

Warner/Chappell Music

Today I had the opportunity to sit in on several panel discussions with people from all walks of the Nashville music industry as a part of my professional development as a teacher. These discussions included experts from songwriters, to publishers, to television show producers, to musicians. The panel members discussed the importance of radio, royalties and copyright issues, advertising, the studio recording process, and the history of Music City among many other things. It was really a unique and intriguing day. There were two quotes from the panel discussions that I wanted to share here because they stuck out in my mind:

Technology has made [entrepreneurship] possible, the economics have made it mandatory.

This quote is from Ron Routson, COO of Film House, about the role entrepreneurship has been playing in the industry. The quote is to the point and captures what has happened in the industry over the last decade.

Some people say owning a studio is like owning a boat... the two happiest days are the day when you buy it and the day when you sell it.

The second quote came from Patrick McMakin Sr. who is the Director of Operations of Belmont University's Ocean way Nashville Recording Studios. I enjoyed the humor here, but it also speaks to just how difficult it is to run a studio profitably. I always had the impression that studios were super profitable, but with high overhead costs and more people recording themselves at home, keeping a studio above breakeven is difficult, according to McMakin.

Looking forward to Day 2 with more music business experts tomorrow.

Tweeting Economists

Via Tim Harford, the Top 10 Economists on Twitter. Who do you follow on Twitter? If you have any suggestions - economics or otherwise - share them in the comments section below.

Book Vote Results

Well, the last week's vote was designed to make my decision easier, and it simply backfired. With a total of three votes, there was a three-way tie among The Return of Depression Economics, The New Paradigm for Financial Markets, and American Economic History. I have decided to read Krugman's Depression Economics book. Thanks for those who voted!

Warren Buffett Cameo on the Office

I love the fact that the Sage of Omaha, Warren Buffett, was nickel-and-diming Jim and the rest of the Search Committee on last week's office episode. If you did not see it, watch it here at the 5:05 mark.

Building Schools and Chartering Jets

I just finished reading Jon Krakauer's recent expose, Three Cups of Deceit, about Greg Mortenson who founded the Central Asia Institute and wrote the NY Times Bestseller Three Cups of Tea. Here are some of the most memorable parts for me:

After Tom Hornbein, Sally Uhlmann, and Gordon Wiltsie resigned from the CAI board of directors, I asked Wiltsie, who had served as the board treasurer, why he left. “Greg,” he replied, “regards CAI as his personal ATM.” Wiltsie described how Mortenson would routinely charge personal expenses to CAI, and seldom provided receipts or other documentation for any of his expenditures, no matter how persistently Wiltsie pleaded with him to do so.

And,

“Greg is of the attitude that CAI exists because of him,” says an ex-staffer who held a senior position in the organization’s Montana office. “Any money he raises for CAI, according to Greg’s logic, is therefore his money, and he can spend it however he wants.”

Here is some commentary regarding the interaction between CAI and Mortenson's book tour:

[...] although CAI receives no royalties from Mortenson’s books, CAI has paid virtually all of the expenses incurred by Mortenson, Relin, and at least some of his uncredited ghostwriters while they were researching, writing, and promoting the books. These expenses have included cameras, computers, writers’ advances, and travel. When Mortenson has traveled domestically to promote his books in recent years, he has usually flown on chartered jets, and CAI has paid millions of dollars for these charters. CAI has also paid millions of dollars to run numerous ads to promote Mortenson’s books in upscale publications such as The New Yorker, The Atlantic, Harper's, and The New York Times.

And,

According to one of Mortenson’s friends, when he learned that Elizabeth Gilbert’s Eat, Pray, Love had bumped Three Cups of Tea from number one down to number two on the New York Times paperback nonfiction list, “Greg was furious. He started buying books like crazy, with the CAI credit card, to try and put Three Cups back on top.” 

Krakauer's piece of investigative journalism uncovers the extensive lies and dishonest habits of a well-respected humanitarian. It's a quick read, and well worth it. You can buy Three Cups of Deceit: How Greg Mortenson, Humanitarian Hero, Lost His Way for $3 on the Kindle.

Here is more from 60 minutes.

Creative Destruction?

One key aspect of capitalism is the concept of creative destruction, coined by Joseph Schumpeter. Old business models and ideas are constantly being replaced by new, more efficient ones. There will always be winners and losers in this process. Capitalistic governments must embrace this process because in the long-run the economic pie will grow if capital is invested productively. A recent article from the WSJ is a case where the US government is doing exactly the opposite of embracing this essential - and sometimes painful - process of capitalism. I call it "impractical stabilization" of an industry that needs to make some big structural changes.

The odds of a multibillion-dollar rescue package went way up this week when Postal Service management reported a $2.2 billion loss for the first quarter, more than 25% higher than last year despite the economic recovery. It now appears that the $15 billion line of credit the feds have offered USPS will be used up by the end of this year, with low odds on ever being paid back.

And more:

If this were a private business, the obvious response to these losses would be urgent cost-cutting to avoid insolvency. Instead, Postal Service management recently concluded negotiations offering the 205,000-member American Postal Workers Union a new four-and-a-half-year contract that will provide a 3.5% pay raise over three years, dole out automatic cost of living wage hikes after 2012, and expand no-layoff protections.

One of the major pitfalls of government is misallocating funds to projects that are unproductive, and USPS is a prime example. Email, online billing, and other essentially zero-cost modes of communication are making traditional mail become obsolete. The federal government is propping up broken model here. This is not the first time we have seen cases like this, nor will it be the last.

*HT The Pretense of Knowledge

Vote on my next book!

This weekend, I stopped by a great used book store here in Nashville and picked up several economics books. Here they are in no particular order:

The Return of Depression Economics and the Crisis of 2008 - I realize I am a bit late getting to this one, but I need to give Krugman, the winner of the Nobel Prize, a chance.

Tweetonomics: Everything You Need to Know About Economics in 140 Characters or Less - The quality here is questionable, but this book caught my eye. If everything that I need to know about economics can be written in 140 character tweets, then why am I going to graduate school?

American Economic History - This book was published in the late 1950's by two University of Illinois professors. I thought this would be a good historical reference book, and I am intrigued to see how economics writing has progressed over the last half century.

The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means - written by George Soros, the investor who made a $10 billion bet in the early 90's that the British pound would fall in value... and he was right.

Over the next week, in the sidebar you can vote on which book I should read first. Next Sunday night, the poll will close, and I will have my next book to read. Thanks for making my decision easy. When I finish reading, I'll post a book review with my thoughts.

What Makes a Terrorist - Book Review

Since the killing of Osama Bin Laden, I have been thinking more about terrorism and a book that I read in 2008 by Alan Krueger, a professor of economics and Princeton. The book is titled What Makes a Terrorist: Economics and the Roots of Terrorism.

This book is based on a series of 3 lectures that take a deep look at the roots and causes of terrorism. The first lecture is a micro-level analysis of individuals, the second lecutre is a macro-analysis of countries and political conditions, and the third lecture describes the economic and other consequences of terrorism.

While Krueger is not able to answer all the questions that we may have about this problem, he does an excellent job of examining and explaining the current research to paint a cohesive picture of the circumstances that terrorism is most likely to thrive in. In fact, he presents compelling evidence that dispels the common notion that terrorism is caused by poverty and a lack of education.

This book helps broaden ones understanding of a current issue that media outlets and politicians tend to misunderstand and misrepresent. I recommend this for anyone interested in learning more about terrorism from an academic standpoint.

Amazon Link