Strictly Business

In their book Nudge, Richard Thayler and Cass Sunstien develop a promising foundation for better governance called libertarian paternalism. The concept is based on the notion that public policy can be formulated by government that can help construct an architecture of choice that will cost effectively organize and deploy resources to improve our quality of life without government coercion and constraint. Their behavioral model is particularly applicable in the domain of energy and environmental policy. In other words, in the pursuit of energy independence and environmental protection good choice architecture may help.

Citing instances where good choice architecture has created environmentally beneficial behavior, the authors detail the spectacular successes of the emissions trading system (“cap and trade” program) and the Toxic Release Inventory in which firms must report to the EPA the quantities of hazardous chemicals released into the environment.

Individuals and firms are being offered billions of dollars in grants and tax subsidies to investigate renewable energy sources and develop energy efficient technologies; such as the $62 million of federal stimulus money to build a solar research institute at UT. Thayler and Sunstein’s research suggests that now is the time to “nudge” environmentally responsible behavior to move us in a direction of energy independence, rather than investing billions of dollars in high cost nuclear facilities and giving more tax incentives to increase oil and gas production on public lands.

Posted by Patrick Raines at 03:25 PM | Permalink | Comments (0)

[Authored by Joseph Ormont, MBA Candidate]

Yesterday Congress approved the President’s $3.6 trillion budget, paving the way for a $1.7 trillion deficit (as projected by the Congressional Budget Office) or 11.9% of Gross Domestic Product – the largest deficit as a percentage of GDP since 1945. What’s more is that this figure doesn’t take into account any of the other stimulus/recovery efforts or unfunded liabilities including:

•$787 billion American Recovery and Reinvestment Act passed in February.
•$700 billion Troubled Asset Relief Program (TARP) passed in 2008.
•Potentially billions more that could result from the Treasury’s and Federal Reserve’s plan to ‘clean up’ toxic assets on financial institution’s books through taxpayer-backed loans and private investment.
•Unfunded liabilities in Social Security and Medicare/Medicaid that some sources have quoted as being nearly $56 trillion.

I recently saw an author make the statement “Is it just me, or has a ‘trillion dollars’ lost much of its aura?” Well, definitely not from my perspective. It is very concerning the debt obligations that are being placed on my generation (Gen Y), and without a doubt, my children’s children’s generation.

While it is hard to argue that action needed and still needs to be taken to address the economic downturn, such actions consistently seem short-sighted. "Fixing the economy" won’t come from spending, but rather honestly discussing and addressing key issues and investing for the long term (especially in science and technology, which feeds entrepreneurship and job creation). While, of course, this is oversimplified, the fact remains that I love this country and believe strongly in the American "mind-set" – yet we must re-prioritize as a nation, otherwise we’ll be leaving it to our children and grandchildren to clean up.

Authored by Joseph Ormont, MBA Candidate

Posted by Jocelyn Gutekunst at 03:49 PM | Permalink | Comments (1)

[Authored by Jeremy Smith, MBA Candidate] As consumers, do we really have a choice when it comes to where and what we purchase? While most businesses have many competitors, there are quite a few that don’t. In many different business sectors, competition seems to be shrinking as large players grow and dominate the field.

A good example is the retail marketplace. Competition is high when it comes clothing retailers or restaurants. If you are looking for a place to buy some new shoes or a dinner for the evening, the choices are abundant. There are many cases where this isn’t true. Retailers like Wal-Mart and Target, Kroger and Publix, Lowes and Home Depot, Barnes and Noble and Books-a-Million, and Best Buy and Circuit City may compete with each other, but not usually with anyone else. There are exceptions to this rule as retail giant Wal-Mart carries just about everything. However, they specialize in nothing. In addition, the competing products are usually of a lower quality.

For example, if I need to buy a kitchen sink on a Sunday afternoon, I basically have two options, Lowes or Home Depot. If I need a popular book to read, Books-a-Million or Barnes and Noble are my two choices. Other small local or online retailers are available, but sometimes the consumer needs something right away or it might want “to touch” the product to feel comfortable with it. These companies have essentially created local oligopolies and compete only with each other. As a result, the big-box stores who used to offer big savings are now only marginally cheaper than their local predecessors.

A bigger question might be what happens next? In many of cases, one player within each pair is starting to outshine the other. In the fourth quarter of 2007, Best Buy, the No. 1 consumer electronics retailer, posted an 18.5 percent jump in sales while Circuit City lost money. Lowes is continuing to gain substantial ground on Home Depot, and Barnes and Noble is the only national book retailer doing well financially. Will the market eventually support only a single competitor in each such space?

Wal-Mart has already gained this position in several small geographic areas and they are using this position to increase profits. In my hometown of Fayetteville, TN, Wal-Mart is the only major retailer. Grocery stores like Food Lion and Bi-Lo have left town. The market is too small for the addition of a store like Target and the prices reflect this lack of competition. Every item in the Fayetteville store is more expensive than the same item in the Murfreesboro Wal-Mart. Are the fates of larger markets the same? In retail, the rule is to grow or fail. However, should one company win, it is the consumer who would suffer.

--Jeremy Smith, MBA Candidate

Posted by Joe Alexander at 08:38 PM | Permalink | Comments (1)

If you haven’t read it yet, I encourage you to pick up a copy of Chris Anderson’s The Long Tail. The book discusses the transition from mass to niche markets, facilitated largely by the Internet and contributions of "Generation C."

Anderson writes, “In short, though we still obsess over hits, they are not quiet the economic force they once were. Where are those fickle consumers going instead? No single place. They are scattered to the winds as markets fragment into a thousand niches.”

Consumers have more options (thus more control) today than ever before. It is important to understand your target’s preferences and deliver a customized experience that satisfies expectations to keep them coming back. Opportunities abound when you celebrate the individuality that keeps things personal.

Posted by Jocelyn Gutekunst at 09:17 AM | Permalink | Comments (2)

RealtyTrac, a firm that keeps up with residential property in foreclosure, reported in January that the number of mortgage foreclosures is increasing faster in some states than the number of new homes sold. Reports are that there were 153,745 initial foreclosure notices sent out in the United States, which was almost half the total sales figure of newly built single family homes and existing homes and condominiums over the same time frame.

Of course in some states, California and Nevada, the percentage of homes affected is far worse than others (e.g., Vermont and West Virginia). The map to the left is based on May 2007 numbers. Therein is a major concern; nationwide homeowners should be mindful of the insidious effects that foreclosures and the rising inventories of homes for sale will have on home prices—and household wealth.

Foreclosures not only cause dislocation for the homeowners being forced out of their homes, but also represent an increased supply of homes for buyers and additional competition for other sellers. Homes in foreclosure or those that are about to be foreclosed force sellers to accept lower prices since they are in no position to wait for better offers. Those sales can help to push prices lower for everyone.

The “wealth effect” which has powered consumer spending during the housing boom is likely to further deteriorate as home equity declines as home prices fall. The Federal Reserve reported Thursday that for the first time in record-keeping dating back to 1945, home equity was below 50% for the last nine months of 2007. The newly issued number highlights the problems that millions of Americans are having keeping their homes, as their mortgage rates adjust upward and their property values decline.

Posted by Patrick Raines at 07:39 PM | Permalink | Comments (0)

As someone interested in immigration matters, I have followed with interest the recent announcement by the European Union to introduce the ‘blue card’. The blue card is a program that makes it easier for skilled foreign workers to get jobs in the 27 member states of the European Union. Holders of the card would be allowed to live, work and travel within the European Union

Continue reading "Coming soon.. The Blue Card... (and it's not American Express)" »

Posted by at 05:29 PM | Permalink | Comments (0)