keeping the economy honest

Category Archives: Economics

The Oscar goes to…. Inside Job

Watching the Oscars wasn’t a complete waste of time because it finally made me watch the Inside Job.  If you’re not in top 0.1% of the previous post, then you should probably watch it too because you’re getting screwed by them. Like I said in the previous post,  generally people can take a lot of injustice and unfairness before they start doing something about it.  I guess we still haven’t reached that point of outrage.


What percentile are you in?

This chart shows the current income distribution of Americans.  No,  these are not inherited family wealth passed on over many generations or money accumulated over years of smart savings or investment.  These are the income each American family takes in every year based on their jobs.  The poorest 90 percent of Americans make an average of $31,244 a year, while the top 1 percent make over $1.1 million.  So how did we get here? …

Well, for the past 30 years, the income of 99% of the population barely moved, but the top 1% has seen its income nearly quadruple… read more

Charlie Sheen lost his sweet gig

Charlie Sheen just lost his sweet gig because of his recent radio rant, which led the network to cancel the show.  Too bad, Sheen will have to kiss his fat $1.2 million/episode paycheck goodbye.  Now, that’s a sweet gig by anyone’s standard.  I would like the network to replace Sheen with another actor for $200,000/episode (which is still a sweet gig for 99% of the population)  to save the advertisers $1 million/episode.  Sheen is probably the best actor for this role given his mirroring lifestyle and will get the show more ratings and its advertisers more sales.   But we all know in business, what matters is profit not revenue.  The advertisers might have more revenues with Sheen, but they would have to get more than $1 million in sales per episode to get better profit with Sheen.  Finally, it’s not at all certain that this advertising generates a positive return.  If it did, then why would any company ever cut advertising spending?  … read more


Something just shouldn’t be too cheap

I’m not a vegetarian, in fact I like to have meat at almost every meal. But, I think meat should be eaten in a responsible way… read more

Superbowl Advertising

A 30-second spot during this year’s  Super Bowl is around $3 million and they are all sold out!  There’s no doubt it can be a great marketing venue for certain companies.  But I really don’t think all companies are getting their money’s worth here.  I think it’s more useful for small to medium companies that have a strong product and they know if you can get the word out there, they will succeed.  Then the cost to build a brand might be worth it.  Also if a big company is bringing out a new product and wants the public to know it, then i think it might justify the cost.

But I can’t find the value in making very general ad (nothing about a new product)  just about your brand for a large well known company whose brand is already well established.   For MacDonald’s or GM to spend $3 million to make a very smart ad, that’s so entertaining I feel like I should be paying for it or some boring ads should be buying slots during the funny ads, I ask myself is that really going to bring new customers to MacDonalds’s if that person hasn’t walked in after seeing it everyday on every corner.  Likewise, GM ad is not going to make me a buy a GM now.  I might keep GM in mind next time I buy a car, but I was going to consider GM anyway since it’s a major brand.  If I wasn’t going to, I don’t think this ad will make a difference anyway.  I think the real winner here is the Ad agency.  Now go watch these ads and then buy some Doritos.


Food prices at record high

Two interesting pieces of news.  First, food prices reached a record high in January according to UN, which has been a main factor for the latest unrest in Middle East.  Second, countries such as Gulf states, China and South Korea are buying land mostly in Africa to grow crops in search of food securities.  It seems ironic to me that Sudan and Ethiopia are part of these deals to export crops to foreign nations while their own countries have famines.  If foreign investments bring latest farming technologies to allow more efficient farming, then it could be a good deal.  But it’s only good, if what you get out of it is more than what you can produce at your own less efficient methods on the same land.

Outrageous CEO compensation

I don’t understand why shareholders can’t have a say in CEO compensation.  Afterall, they own the company and the CEO works for them.   Having your overpaid CEO friends on the board of directors to decide your salary is like having other convicts to decide another criminal’s sentencing.  It may not be practical to get all shareholders to agree on a compensation package.  But I think we can all propose a better approach for CEO compensation that’s performance based.  One of the top of my head is… if the company averages 100 millions profit per year in the past, then let’s offer the CEO say 0.5% of the profit.   That’s a very good base salary of $500,000/year.  If the company makes more, he makes more.  If the company loses money, then he’ll make less, now that’s real incentive to perform.  There’s a reason why salesman, insurance, and real estate agents all work on commission.  No says they’re overpaid, because there’s tons of competition for those jobs.  Why can’t CEOs?

Probably, at the generous 0.5% of the profit, the CEO is still overpaid.  I would really love to run a social experiment to compare performance of one of the overpaid CEOs against one of those smart, common sense, business savvy contestants from the Apprentice show…I mean one of the good ones…to expose the fact that there are plenty of people capable of doing the same job and willing to work a lot less.  They can even make a reality show out of it.  But the problem is it’s almost impossible to do it, that’s why free market is often not exercised at higher level due to barrier to competition.  But anyone can start a chinese restaurant to compete, if he sees another chinese restaurant that is overpriced and making easy money.  That’s why you don’t see any chinese restaurant that charges $20 for chinese fast food… at least not in Vancouver.

A $45,000 handbag is silly only if you’re poor.

This fabulous Louis Vuitton Tribute Patchwork Bag is priced at $45,000.  For $45,000, it doesn’t organize its content automatically or have a GPS tracking system in case it gets stolen, assuming the thief is discerning enough.  You know you want one too.  If you don’t and think it’s frivolous, it’s only because you’re not rich enough.

Ok, I have no problem with people spending their own money anyway they want.  I couldn’t care less if they want to pay $45,000 for the boulder in my backyard.  However, when people have undeserved wealth, they start to spend it frivolously, which I would do too if I was that rich.  But this is bad for the economy, because they support much unproductive economy such as the $45,000 handbag, the $100,000 birthday parties or the $1000 haircuts.  All the resources behind all these outrageous consumption wouldn’t be in it if it weren’t for the demand of the ultra rich.  If there was no ultra-rich, the people would have to inject their manpower, brainpower, and materials into production for the average people whose income is more sane.