Take It To The Limit

I recently watched a documentary on Netflix called “MaxedOut”. The documentary was about how Americans are in debt and are struggling to pay their bills. The film shows different people from different backgrounds and follows their story of how they got themselves into debt. The documentary also shows debt collectors and I believe tries to label them as the bad guys for harassing people that don’t pay their bills. Let’s remember debt collectors harass people that are not responsible. Elizabeth Warren (then Harvard law professor) and now Chair of the Congressional Oversight Panel talked about the dire situation of how people simply can’t make their ends meet. I think the more important question is what kind of ends are they trying to meet? People don’t have to buy a larger house, nicer car, or a boat they really didn’t need. What happened to people being self-reliant and prudent?

If you tried to explain the concept of a credit card to an alien it could get complicated very fast. A credit card is normally used when people don’t have enough cash on hand to pay for certain items. In the past credit cards where used to purchase big ticket items. However, now people are usually credit cards to pay for a coffee at Starbucks or something on the 99 cent menu at McDonalds. Why don’t more people go on a cash diet? This could be quite simple. Every month you allocate money for certain purchases like transportation, food, clothing, and entertainment and put that money into an envelope. The rule would be you can only use how much is in that envelope and couldn’t use ATM, debit or credit cards. Another caveat would be you couldn’t mix and mingle funds from different envelopes. Whenever you bought something you could physically see and feel that money coming out of your pocket which might encourage savings. However, people don’t think like this. I guess people feel a sense to entitlement or just simply can’t defer gratification. Although, statistics show that in rough economic situations people do in fact become prudent. Data from the Bureau of Economic Analysis shows that savings rates are much lower in boom periods and much higher in recession periods. In the middle of 2005, when the economy was doing quite well the savings rate was around 1.5% of disposable income. Contrast this with the second quarter of 2009 when the savings rate reached 5% of disposable income due to the economic uncertainty. What we don’t know is much people really should be saving. Perhaps even saving 5% of disposable income is too low. Some of the reasons I think people might be “maxed out” is because they really don’t understand the full implications of paying interest if they miss a credit card payment. True, credit cards companies can charge 30% on a balance that isn’t paid but aren’t you the one that took out the credit card?

One criticism I had when watching “MaxedOut” was how the story was one sided. The documentary failed to show the reason people where in debt. The film sort of took the premise “Oh poor us and let’s condemn all these evil credit card companies”. A sad story was told in the film how two mother’s children committed suicide over mounting credit card debt. Clearly, this is tragic but where was the communication process between the parents and children that could possibly have prevented these tragic events. I do not believe credit card companies are evil. Credit card companies are there when people need them to buy things that people can’t afford. The idea that you can stick a little piece of plastic into a wall anywhere in the world and get cash is quite interesting and novel. People should understand that getting a credit card is voluntary. People should be responsible with a credit card just as they are with alcohol, food intake, or anything else that could be harmful. We have to remember there is no such thing as a free lunch.

Becker, Prostitution, and Crime

Recently I have been thinking about how crime and economics are related. Dr. Gary Becker is known for his work within crime and economics. Dr. Becker has also won a Nobel Prize in Economics for using economics to understand how criminals think. Becker argues that criminals like the rest of us are rational. Criminals have to weigh the benefits with the cost of robbing, stealing, or whatever other criminal activity is involved. If you were a criminal you have to divide your time between criminal behavior and legitimate behavior. Also, if crime is profitable criminals will continue to engage in theft, robbery, and other types of deviant activity. However, if a criminal could become harmed or killed in the act of performing a crime then they are less likely to commit a crime. John Lott Jr. has done extensive research in gun right and has shown that more guns do equal less crime. Becker believes that the crime rate can never be 0% however. Clearly, it would be very expensive to have cops and surveillance cameras on every corner.

Although, I would like to point there are some simple things America could do to reduce the crime rate. First, why not get rid of the minimum wage? If the minimum wage was repealed then more people would be working and making money which could impose opportunity costs on criminals since they could have a job (even if it was low paying) as opposed to committing crimes. Secondly, I would decriminalize all drugs (even prescription drugs). Since there is a black market for drugs the prices are artificially pushed up. According to the Druglibrary.org “the costs of marijuana, cocaine and heroin are about 100 times what they would be in a free market”. If these drugs were legalized the price would be pushed down which would decrease the incentive people to steal the drugs since they wouldn’t be worth as much. Prescription drugs should also be legalized. True, we might have more drug users but if these illicit drugs were legal we could study how to cure people that are addicted to these very drugs.

The FDA (Federal Drug Administration) regulates monitors, and controls, what drug and food companies say about their products. However, part of the problem is sometimes the FDA declines a drug due to certain side effects. Some of these drugs can be lifesaving however. Plus, people are not as dumb as the government believes. Legalizing prescription drugs would allow more drug testing and research and development to be performed which would lead to even better drugs. In addition to this, the price of drugs would also decrease because if drugs were sold in stores such as Walgreens or CVS the stores would have to be competitive driving down the price as opposed to insurance companies that decide what they should pay (if they pay at all) for certain types of drugs. Third, I would legalize prostitution. Recent research I have done has shown that the countries that have regulated legalized prostitution all have lower rape rates when compared to the United States. Prostitutes would also be less likely to be harmed since they could have legal protection if they went to the police. Also legalized prostitution would result in lower STD rates along with lower HIV and AIDS rates. Let’s assume prostitutes had to get a blood test ever month it would be widely known who had certain diseases and who didn’t. Right now this doesn’t exist because prostitution like the drug industry is an underground economy. Therefore, there isn’t perfect information. Some of these ideas I believe could work wonders in not only reducing crime but could also raise much needed revenue.

Economics can clearly be used for more than forecasting future GDP or what future interest rates might be. What is interesting is that economics can be used as a framework when dealing with type of issue that involves logic and critical reasoning skills.

McFat?

I first have to apologize for not blogging in quite some time. I have been busy with grad school and with all these ‘little” assignments. In the past few weeks I have thinking about of a lot of different things. One of them is health. It is widely known that Americans are overweight and/or obese. According to the CDC, in 2006 67% of Americans were overweight. What this also would say is that only 33% of Americans are not overweight which seems like a reasonable number but I have a feeling that the percentage of people becoming overweight has been increasing since the 1970’s. I recently watched Supersize Me (for the third time… in college you are pretty much forced to watch it in any type of nutrition class). I thought Morgan Spurlock had an interesting idea of going on a McDonalds diet for 30 days. In the end he gained around 25 pounds and had a total cholesterol level of 230. His cholesterol before he started the McDiet was relatively good. Also his liver was in bad shape toward the end as well. I thought one of the highlights of the movie was Dr.Siegel (the cardiologist) who told Morgan not to eat McDonalds for another year after this experiment. In the movie they said Morgan had consumed as much McDonald’s food as someone should in 8 years. The first point of the story is obviously not to eat fast food every day. Sometimes I wonder though about working professionals who eat out a lot or don’t make their own lunch. Not only all those extra calories will pile on but the cost of all those meals adds up. Making a lunch is not only healthier, but could save you close to $1000 per year ($4 per day in savings x 5 days per week x 50 working weeks per year).

What I find really interesting is that people spend so much on trying to lose weight without wanting to do any work. Liposuction, diet pills, and weight loss books were all created to seduce people into thinking that they could get obtain a healthy body without having to lift a finger. Clearly, losing weight takes hard work, consistently, and dedication. What I find really intriguing is that people make millions of dollars per year selling ideas on weight loss even though the concept of taking less calories than you consume is quite simple. The same principal can be applied to those that want to accumulate wealth. As long as you save more than you spend you will have a surplus and if you do this over many years than you can create wealth.

So what can people do to lose weight? The first thing people can do is stop drinking soda. A recent study showed that drinking soda can lead to an increase in pancreatic cancer. Water seems like a good alternative and doesn’t contain any calories. Also using a bowl to measure out to be able to physically see how much you are eating is important. Working out too is a great too. The American Heart Association recommends working out at least 30 minutes a day to decrease the risk of heart attack, stroke, and other heart related diseases. Hopefully, if we all make little changes in our diet/exercise program we can feel better, live longer, and enjoy all the fruits life has to offer.

Superman Spending

It looks like Shaquille O'Neal is not only a super star basketball player but also a superstar spender. Last year, it was reported that O'Neal spent his money on the following items:

$156,116 in mortgages on three homes
$31,299 in homeowners insurance
$3,345 in phone bills
$1,610 in lawn and pool maintenance
$12,775 in food
$1,495 in cable TV
$24,300 in gas
$6,730 in dry cleaning
$17,220 in clothing
$2,305 for pets
$110,505 in vacations
$26,500 for childcare

-It should be noted that Shaq also has property taxes, state taxes (he pays tax on more than one state because sports stars have to play tax in the state where the game occurs). Shaq’s salary is around $1.8 million per month. Right now he is spending close to $875,000 per month. The good news is that Shaq is probably making $200,000 a month even after spending all this money. Even though he is making over $20 million a year now my question is what will he do after he retires? Clearly, he can't keep up this type of spending. His accountant and financial advisor must be pulling their hair out when they see he is spending this much money.

Source:
http://www.theinsider.com/news/604990_Shaq_s_Personal_Spending_Habits_Obtained_My_Media

Market for Dating?

Recent advances in modern technology has provided us with great wonders. One of these great wonders has been the personal computer and internet. Starting in the early 1990's and growing expotentially since then the internet has made our lives: more fun, easier to live, and allows us to do more in less time. One unintended consequence might be online dating.

You wouldn't know it unless you watched "To Catch a Predator" but the internet has become a valuable tool for the dating world. With popular social networking websites such as Facebook, Twitter, and MySpace people can not only find long lost friends but also make new friends. Although, making friends in the "virtual world" may not seem real or authentic millions of people particpate in online dating. Launched in 2000 eHarmony matches men and women everyday based on questionaires that people fill out. The company has around 20 million users. What I find very interesting is that people will often pay for this service (a monthly user fee). In economics, this would be known as a transactions costs. However, isn't meeting people realtively easy? I guess there might be a burden for individuals who are either too busy, don't want to, or are just too scared to spend time looking for other people. To think that there is a true marketplace for members of the opposite sex is quite interesting. eHarmony reports that they marry around 236 people every day. Simple math tells us that this is over 86,000 couples per year.

The real question though is does eHarmony work better than the convential way of marriage? For instance for many centuries parents often selected possible suitors for their children often leaving little choice for the children. Before the internet people actually had to seek out members of the opposite sex. However, they were only limited to people they knew, friends their friends knew, or other connections. Now people can go online and actually find someone with similar interests. There is no empericial work on whether online dating sites produce "better" marriages than coventential ones. My best guess would be that eHarmony and other dating websites would produce better results because it makes the market more efficent.

Random Thoughts

1. I am glad Texas Tech got a new coach Tommy Tuberville (110-60 record) and has done well against top ranked teams.

2. Rachel Ray could easily fit in on Jersey Shore.

3. TCU will be so motivated they might get to the promised land.

4. Losing weight and saving money are simple ideas yet people make millions of dollars selling books about these topics.

5. Acyline might be the next contraceptive, although more studies need to be done to see if it is safe over the long term.

6. Why are there so many different fillers in the plastic surgery market? Off the top of my head I can name a few (and I am not even in the health profession industry!): Botox, Perlane, Dysport, Restylane, Juvederm

Mike Who?

Many of you have heard of the incident at Texas Tech were Coach Mike Leach "allegedly" placed player Adam James into a dark shed. No one really knows what happen. Although, no one knows all of the details I suspect a scenario like this took place.

Adam James was playing very little playing time and his father (Craig James) believed his son should have received more playing time. Craig James is an analyst for ESPN and is the color commentator for the college games. I believe that James kept putting pressure on Leach to try to help his son get more playing time. Leach most likely responded in his bizarre manor by placing Adam James in a dark shed even though James had recently suffered a concussion. Let's assume that James did every possible thing imaginable to deserve to get placed in the dark shed. Does it still make it right? My answer would be no. What is even more interesting is that Leach in a way took matters into his own hands refusing to listen to the team physician for medical advice.

This news should come as no surprise though. Leach is known as obscure, odd, and even bizarre tendencies. I remember when 60 Minutes interviewed Leach. Leach often did not speak in complete sentences, seemed to get sidetracked easily, and make weird metaphors. Texas Tech fans seem to embrace Leach with open arms. As a coach I must admit he has done some good. It should be noted that Leach’s bowl record was only 5-4. Also his winning percentage against Big 12 teams was barely 60%.

Leach signed an $11 million 4 year contract with Texas Tech right after Leach had a magical season with Michael Crabtree and Graham Harrell. I have a feeling Leach will go elsewhere but will not get as much as he did at Tech. Leach probably cost himself a few million dollars with this whole incident which probably could easily have been avoided. Until then Leach will be sticking with his motto, "If the dark shed fits, you must acquit".

Tiger's Bogey

So everyone has been talking about Tiger Woods this holiday season. One of the most widely known icons in the sports world has had his image severely damaged in such a short period of time. Tiger confessed betraying his wife and family. Hopefully, he will learn from these mistakes and not make the same mistakes again. What is interesting though is that Tiger is still the best golf player despite having numerous women on the side. How does Tiger do this?

Woods holds the record for most career earnings for the PGA. As of December 2009, he has made more than $92 million in earnings. In addition to his earnings Tiger had numerous endorsement deals that were worth around $100 million per year. Around October 2009, Tiger hit the $1 billion mark (not bad for someone who went to Stanford trying to get an economics degree) Not only has he made himself a lot of money he has also increased the wealth of Nike. In particular, Nike Golf which was basically unheard of before Tiger came onto the golfing scene is now a $600 million business. So how could the man that had money, fame, and power succumb to the power of one-night stands?

In a interview from 1998 with Larry King when asked about dating Tiger’s response was something along the lines of “Well I am busy so often playing golf so I really don’t have enough time to get to know someone really well”. If you were an international super athlete how much time would you have available to your family, friends, and loved ones? What seems obvious are trade-offs in life. There are trade-offs to everything in life. In this case, Tiger seemed to value other women more importantly than his family and wife. Now it seems as if Tiger is paying the price for his infidelities. It seems as if Tiger has more than an 18 whole course ahead of him.

Markets in Everything: Hair Loss

Over the past year or I have become interested in the market for hair loss. Looking at old pictures of family members and noticing some slight hair loss I wondered if I would have the hair loss gene as well. Millions of Americans lose their hair every year. Around 40 million men are affected by male pattern baldness. Male pattern baldness is what people typically think of a receding hair line. In addition to this, there can be loss of hair in the crown (also known as the vertex area).
Two people that have really influence my thinking are Dr. Sam Lam and Dr. William Rassman. Both are board certified hair transplant surgeons and take hair transplantation very seriously. Dr. Lam has posted numerous videos on YouTube, educating people on hair loss and hair transplantation, and does an exceptional job at taking complex ideas and turning them into simple understandable videos. From his videos Dr. Lam stresses the importance of education on the patient side. I completely agree with his approach. Why should you pay for anyone’s services unless you truly understand the value they are providing? Remember knowledge is power. Dr. Rassman maintains a daily journal for hair loss (BaldingBlog) with close to 8,000 entries that answer hair loss questions. I commend both gentlemen for educating not only me but thousands of others. What I have learned from my research is that hair loss occurs primarily due to DHT(Dihydrotestosterone). Genetics also plays a factor as well. From what I understand DHT plays a significant role in hair loss. The hair follicles start out as thick terminal hairs and then overtime miniaturize to the point where they can’t be seen anymore. Dr. Rassman stresses mapping out the miniaturization process. Individuals can look at their own individual miniaturization by purchasing a handheld digital microscope. The microscope allows the user to take magnify the hairs and take pictures which can be stored to the computer. This could be helpful in tracking hair loss over time.
Drugs such as Propecia and Rogaine try to slow down or reverse the miniaturization process. I should point out that both drugs were discovered by accident (Rogaine through blood pressure medication and Propecia through prostate medication). Although, there is no cure for hair loss Propecia and Rogaine are the only proven medical treatments to preserve hair. The patent for Propecia expires November 2013 which will help bring down the price. Avodart a drug commonly used for men with an enlarged prostate has seemed to show promise for hair loss in clinical trials. However, it should be pointed out that sterility was an issue in the trials. Avodart is currently not approved for hair loss treatment. What would be interesting though is if Avodart can help with BPH (enlarged prostate), hair loss, and increase sterility (less likely to have kids) wouldn’t it be the blockbuster drug for men over 50? I did a little research and wondered if DHT was a problem why not find a drug that greatly reduces DHT? A drug called acyline strongly reduces DHT to very low levels. Although, this approach might be extreme acyline is currently being studied for prostate cancer and as a contraceptive. Aside from medical intervention hair transplantation is also another way to restore hair. Hairs are transplanted from the back of the head (genetically programmed not to be lost) and individually placed into the balding areas. The process can take hours and is very labor intensive. There is actually a voluntary group of hair transplant surgeons known as the International Society of Hair Restoration Surgery. These surgeons are well trained and knowledgeable in performing hair transplants. I think it’s interesting how there is can be markets many things including hair loss. This industry still is most likely in the growing stage, and has made significant strides in such a short period of time. Perhaps one day hair loss will be a thing of the past.

Below are the links for Dr. Lam and Dr. Rassman
http://www.hairtx.com/
http://www.baldingblog.com/

NCAA: It's In The Game

College football is a big deal. Every Saturday afternoon thousands across the nation flock the stands to see their favorite college team play. While many more watch their favorite team on television it is pretty obvious that college football is a big deal. The NCAA is a voluntary organization that involves over 1,281 institutions. In essence the NCAA sets rules for colleges to follow in regards to sports athletic programs. For instance players that are going to be recruited to play college sports can’t take gifts or money from booster clubs or schools. Two movies that illustrate this are “Blue Chips” and “Johnny Be Good”. College sports are a big business. In 2008, the total revenue generated by the FBS (Division 1 schools for football) was over $41 million. Clearly, this is as much as some publicly traded companies make. Although this seems like a lot on average each school loses around $2.46 million dollars. Right now there are 120 Division 1 schools. No one really talks about this though. In a way it could be seen as the darker side of the NCAA. I wonder why no one talks about this darker side of college sports. It should be pointed out that large schools such as the University of Texas and Ohio State are the only few that produce a large revenue stream for their schools. Most of the revenue comes from licensing and merchandising.

The general viewpoint is this romantic notion that college athletes go to these “football factories” and somehow get an education while at the same time supporting their school on the field with their displayed skills and talents. In addition to this, college players receive very little compensation for their work. Yes, these players get scholarships and maybe room and board but aren’t they providing something of value to consumers. For instance, people pay to see minor league baseball teams and players get part of that in the form of their contract. College players however don’t get paid for their performance even though the minor league players and college players are similar. While the college might provide scholarships and room and board to star players the marginal cost to the school is close to zero. Why not have a market for college players to compete and get paid for their services? Paying players would also reduce the number of scandals in recruiting. If players could sign contract with colleges they would have less incentive to take bribes from booster clubs or school officials. Also many of these players don’t go on to a professional career (even if a player gets drafted a very small minority turn out to be good). Under a contract system players could get paid and save up money to prepare for life after football. The book “Friday Night Lights” shows what happens to student athletes after high school. One of the main characters” Boobie” Miles is one of the most sought after high school players in the country. Unfortunately, Boobie gets injured and tears his ACL and blows his dreams of playing college football. In addition to Boobie, most of the players in the book really didn’t think about life after high school football (Brian Chavez is the expectation who goes to Harvard). These players are only left with the highlights their glorious playing days and really don’t have limited options regarding life after high school. If college contracts were possible it might give these student athletes more of an incentive to go to school.

Although, it would be nice to see the NCAA give high school athletes contracts I doubt it would ever happen given the NCAA would like to believe that their players are on the field to get an education and support their school. If anyone looks at history though clearly this is not true given the scandals in college sports. The biggest example of this was SMU and the payola scandal in the 1980’s which forced the NCAA to give them the death penalty (not allowing SMU to compete for the 1987 football season). I don’t know how many programs engage in this behavior but I believe the NCAA underestimates the amount of side deals that are made because college players aren’t allowed to sign contracts.