RS9 Have a Coke and a Smile

I hate soda. I think the carbonation in any type of soda is absolutely horrifying when it is guzzled down your throat stinging your stomach when swallowed. But, for a nickel a pop, I think I would've made myself a fan of Coca Cola.

In our economics class, we discuss about how prices go up and down because costs change and because supply and demand changes. But this podcast from Planet Money on National Public Radio fights against this theory of prices getting higher or getting lower, at least for Coca Cola soda products for 70 years.

In 1886, Coca Cola was born. A soda syrup soon became a hit popular beverage and over a century later is still one of the most drank sodas in the world. When the soda was first produced, company executives decided to sell it for only 5 cents a piece. The glass of soda would cost five cents no matter where you bought it, and the company did their best to control that promise. Years after the company began, two lawyers coining a bottle came to the president of Coca Cola begging for him to allow his product to be sold in their bottles. To get them out of his office and away from him with their crazy ideas, the president promised to sell the Coca Cola syrup to them for an extremely low fixed cost, forever! (Man, was he feeling the secondary effects of that decision later...) Once the soda became bottled, people everywhere went wild for the 5 cent soda. It was marketed as the cheapest, but best quality, soda there was, and Coca Cola made sure to control it's serving size at all venues that sold it's product by providing companies with specific sized glasses and bottles. The soda remained at 5 cents for 70 years.

From an economics viewpoint, this seems unreasonable and frankly crazy. The fact that Coca Cola was sold at the same price for 70 years absolutely obliterates the law of demand. The law of demand is concerned with the inverse relationship between price and quantity demanded. If the price of an item never changes, then who cares about the quantity demanded of that item as long as they are breaking even? 

One note in the podcast that absolutely boggled my mind was regarding Coca Cola's "ninth bottle objective."Every ninth bottle of soda in a vending machine was empty, so that the customer would put in another nickel to buy a full bottle...assuming the next bottle would be full! From a marketing perspective, I ask this question. Is it not the duty of a company to satisfy the customer and bring them happiness through their product? If I was EVER a ninth bottle customer, I would be livid and boycott the product immediately...but maybe that's just me! When this objective was put in place, but not for long, the average price of the bottle of Coca Cola rose to 6.25 cents and did gain the company some small revenues. 

Ultimately, I think it was a great marketing scheme for Coca Cola to hold their price at 5 cents per bottle for such a long time. They created a brand and a name for themselves in the years before the gold standard was gone, and their long standing customer basis is what allows them to continuously thrive as a major soda company today. So for consistency and smart marketing, bravo to you Coca Cola. But, for making economists happy, you lose. 

RS8 Manufacturing the Song of the Summer

Global pop star Rihanna has three hit songs from her most recent album, and this month she’s going for her fourth with her latest hit “Man Down.” Zoey Chase, from NPR’s Planet Money, wonders how much it costs to put a song on the pop charts and create a “hit single.”

When we see a song at the top of the iTunes chart, hear it for the first time on the radio, or see the music video for the first time, we generally think that the artist’s “hit” new single is “new” because it’s gaining popularity. Oh, but are we wrong. A hit new single is a hit and is new because of the marketing and PR that the artist’s record label does to brand it that way. Costs to make a hit single (along with a video) can easily rise up to 1 million, 178 thousand dollars.

Here’s the breakdown:

Record writing camp pays $20k - $25k to the best of the best to come and write songs, Rihanna ends up choosing what she likes and each song on the album = $18k

Song writers = $15k

Song producers = $20k

Vocal producers = $10k - $15k

Extra studio fees = $10k

TOTAL COSTS FOR ONE SINGLE: Roughly $78k

A crappy Rihanna song that gets stuck in your head because it’s overplayed: Priceless

Notice the key word, “single.” Rihanna’s song Man Down may have only cost a mere $78,000, chump change obviously, but the costs to make it a HIT single are what sky rocket that $78,000 to over $1.5 million. A million dollars can be attributed to what record producers call the “record rollout”, comprised of marketing, moving artists from place to place, and radio. PR specialists for artists want to make sure that when their single drops, it drops it like it’s HOT. Every radio station, every billboard chart, and every musical television show should be playing their song. Oh, and the music video you ask? Add another $100k to $150k for that as well! The most annoying part about "hit" singles? They aren't popular and on the radio because people like them, they're suddenly popular and suddenly on the radio because their publicists paid for them to be! 

Assuming a hit song by Rihanna costs $1.75 million dollars, I did some research. Savethechildren.org is a website where donors can sponsor a child in a third world country for $28 dollars a month, less than a dollar a day, which provides them with food, clothing, and shelter. With the $1.75 million that it took to create Rihanna’s hit single Man Down, she could be providing for 62,500 children in a underprivileged country for a month. Or, she could be providing for 625 children for 100 months, or almost 8 and a half years each.

To me, this is a huge issue of values in our culture. A bulk of our society would rather spend almost 2 million dollars on a crappy Rihanna song than donate money to try to save the world. The things that people do for pleasure and instant gratification are the things that make them happy, but they are also the things that create a materialistic society. Values are subjective, but the insane amounts of money spent on digitalized, autotuned, songs that sound just like the one before it is absolutely crazy! Sure, the money doesn’t necessarily need to go to savethechildren.org, but isn’t there somewhere else it could be benefitting?

RS7 The Economics of the Music Industry

In their news show on October 16^th, 2012, Zoey Chase and Robert Smith from National Public Radio did a piece on the hit Korean pop song, “Gangnam Style”, and the singer Psy. They did a great job of assessing the video from a business standpoint. She commented on its unbelievably fast success in America and described how Korea plans to utilize their, now viral, song. In Korea, exports range from cars to computers, and “Gangnam Style” is just another export to them. Psy, the singer, has created a song that competes in the charts worldwide, going up against larger pop culture names like Rihanna and becoming most requested songs on popular radio stations like 92.3 NOW in the Tri-State area even though people may not even understand all the words they are singing along to. This song is an export of K-pop, as they call it in Korea, and they continue to grow K-pop worldwide in a few major ways. Korea chooses to industrialize their music, they find the raw singers, bring them to a factory, teach them how they need to sing to be popular, cut the record, and sell it off to other countries. Korea labels are transforming the ways music is released. Instead of utilizing the radio, they are creating viral music videos for YouTube in the United States and airing the music videos on Korean television. NPR representative Zoey Chase even mentioned that people are considering “Gangnam Style” the K-pop version of Thriller.

America still produces one thing best, American pop music. Anywhere in the world, you can hear the essence of America. Taylor Swift is an American product. She is an American export, and just like any export, there are other countries who want our market share. Everybody is fighting to create their own Taylor Swift. That’s exactly what Korea has done with Psy, singer of “Gangnam Style.” They hope that Psy can compete with American artists and take over all the charts.

It isn’t weird in America to drive a foreign car while on a Samsung phone, but it is slightly weird to listen to 92.3 NOW and listed to Psy, a foreign, excuse, of a singer.

How do record labels make money? Robert Smith and Zoey Chase did a piece on Katy Perry a few days later. Did Katy do as well as it seems? Her songs hit the tops of the charts and she came out with a movie that seemed successful. But, did she make any money or even breakeven?  Musc should be about entertaining people, and not about the money! I understand it is an important “product” but the music industry has become was too commercialized for my liking.

Katy Perry had tied record label success with Michael Jackson. Her record label industry spokesperson was hesitant in straight out saying that Katy Perry did well financially this year. Katy Perry sold 2 million albums and 24 million individual songs downloaded on iTunes. That comes out to 44 million dollars. Apple takes a 30% cut of the 99 cent sale of a download. A percentage also goes to the song writers, costume designers, and all sorts of overhead. All in all, when the numbers are crunched, the work and finances that go into Katy Perry’s music do not breakeven with the success they receive.

Five of Katy Perry’s songs were in the top spot last year which means they played 19 times per day on any given radio station.

So what’s the point of pop culture then? Would people know that they like K-Pop if they had never heard it before? Probably not. I would never openly pick out a song called “Gangnam Style” from a list of songs to listen to, and I definitely wouldn’t enjoy the song the first 10 times I heard it. If a song was truthfully a great song that anybody could enjoy, their marketing expenses would be more than unnecessary. The fact that a song or an artist turns into a line of toothbrushes, t-shirts, and perfume is absolutely heinous to me. I’m not a hippie or a music junkie, but I truthfully believe the music industry in America is on a downhill slope. 

RS6 An Economist Gets Stoned

This blog is a reaction to NPR Planet Money’s “An Economist Gets Stoned.”

In 2010, fourteen states legalized marijuana as a medical treatment and by the current year that number has jumped to 17.

On National Public Radio’s broadcast Planet Money, analysists speak with Jeffrey Miron, a Harvard economist and libertarian who believes in the legalization of pot. Miron talks about drugs and smoking on casual terms, and even goes so far to say that he believes marijuana should be legalized. But, he believes marijuana should be readily available because of his libertarian ideals, because he believes everyone should be able to do whatever they want as long as it doesn’t hurt anyone. The economic reasons for legalizing pot don’t phase him and he even gets frustrated at the numbers being thrown around about the matter.

In California, the size of California’s largest cash crop is worth 14 billion dollars. Many pro-legalizationists argue that marijuana could become a huge cash crop nation wide. According to the law of demand, price and quantity have an inverse relationship. When price goes up, quantity demanded goes down, and when price goes down quantity demanded goes up. If the drug becomes available, the price of it would go down by law of demand because the quantity for it would grow. At the same time, the price would lower because it would be easier to manufacture. These people say the government would save money since there would be less regulation and enforcement money needed, and they would gain money from the taxes they could charge on the drug. Yet, just as enforcement is needed to watch out for alcohol abuse and issues, wouldn’t the same need to be done for marijuana as a legal drug? Hiding the sale of a drug is expensive. Drug dealers have to hike up their prices because they have to pay for guns and weapons to protect themselves, transportation for each individual sale as opposed to mass transport, and many more expenses.

I believe that in a competitive market nobody should be making a lot of money, just as Miron stated. I think if marijuana is legalized, quantity demanded will increase substantially but will then sizzle out. Just as any other product has its peak, marijuana will do the same and then continue on as a product like any other substance such as cigarettes or alcohol. From an economic standpoint, costs of marijuana will rise after the peak ends since marijuana is an inelastic good. People will always want to buy it and people always will. Even though prices will go up because manufacturing will be more expensive when quantity demanded goes down, I don’t think revenues will ever break even between the initial and changed prices. Even though the good may be inelastic, it isn’t inelastic to many since smoking isn’t a daily necessity like gas is for driving, but it’s a lifestyle choice. I would bet more people drive a car than smoke weed.

Even as Miron stated, people are overestimating how much marijuana can “save,” financially that is. People are expecting that the government will gain 1.3 billion dollars through the legalization of marijuana, but Miron estimates only 100 million, since he states that the amount of people expected to purchase is overestimated.

Even though marijuana could potentially get 1000 times cheaper if legalized, its economic benefits aren’t really a value to capitalize on when pushing for its freedom.

RS5 Sir Ken Robinson

This blog is a response to a talk by Sir Ken Robinson.

Sir Ken Robinson, an expert on creativity, expresses his feelings about the current school systems in our world. He believes the way our children are being educated don’t properly educate them for the real world they will enter during their collegiate and post-collegiate years. Robinson makes a great case for why he believes in this theory, and utilizes sarcastic remarks and comical comments to persuade his audience, which I believe he does well.

Robinson’s idea about fostering creativity in school systems is an idea I wholeheartedly believe in. Sir Ken states that school systems not only have a lack of imaginative thinking, but then undermine creativity as a whole. Though his idea may seem radical to many, it makes sense. Is a child really going to need to memorize every bone in the body and every war that a random country fought only for them to become artists and paint flowers? Probably not. So what should schools do, let the kid paint flowers? The answer is yes and the answer is no.

I believe to cultivate learning and basic skills is important as well. The obvious subjects that children need to learn are mathematics and arithmetic, English and grammar, some science and history. But why teach student biology and chemistry at advanced levels in high school if they know that those subjects are not their favorite? I think by incorporating Robinson’s radicalism into our school systems is the best opportunity for students. At a young age, students should be exposed to a multitude of classes and options. If a 13 year old would rather take a chemistry class over a music class, that’s great. Values are subjective and people’s incentives matter! But why should “elective classes” like music, computers, business, theater, law, art, etc. be put down? Sure, there are plenty of doctors in our world who took plenty of science classes to get there, but there are also business men and women, artists, singers, and actresses who maybe could have had larger potential if they had the opportunity to learn their skill earlier on. Shakespeare had to have taken a science class once, and what does he care now how he did back then? Pressure on students in our school systems is overwhelming. I do agree with Robinson though, what an annoying kid Shakespeare would have been in an English class.

Our world needs to acknowledge multiple types of intelligence. Robinson even says himself that “creativity is as important as literacy and we should treat it with the same status.” It’s great for a child to be able to read and write and follow directions, but those skills foster his or her ability to grow as a creative person, and as a future leader. Robinson touches on the idea of being wrong. Out of all the clichés of society, I think this is the worst one. People grow and learn from their mistakes, and should never feel scared to be wrong because of penalties or punishment that come along with it. Plus, mistakes help people learn who they are, and allow people to learn what their faults and their talents are.

Robinson explains that once a little girl was in drawing lessons and drew a picture of God. When her teacher saw it, she said “Nobody knows what God looks like.” The girl’s response? “They will in a minute.” That is the kind of attitude our children should have, unafraid to explore, learn, and be creative.

Before the 19^th century, there were no public schools. School systems came into place to meet the growing needs of industrialism. As any reasonable person knows, things change. Society does a great job of adapting to that change in order to benefit its people. I believe in Ken Robinson’s idea that our school systems need to change again to adapt to the growing world and changing students.