 By Sarah OuyangThere are two meanings to the phrase, “We want the same thing.” The first, that we should work together since we aim to achieve the same goal. The second, that you want what I want. The problem is, only one of us can have it. But which one?
In a field where scarcity is the underlying issue of all discussion, the latter meaning of the phrase is much more prevalent than the diplomatic, politics-heavy former. Economics deals with many factors that come in pairs: production and consumption, private and public, regulation and laissez-faire. One of the dilemmas is that of efficient allocation versus profit maximization. Essentially, the distribution of goods and services among the demand population — or of limited resources among suppliers — poses a question to firms (specifically, various levels of monopolies) who favor producing at a different output level than would be optimal. To be allocatively efficient, a market should ensure that production reaches the output point where the last unit offers the consumer a marginal benefit that equals its marginal cost. In conceptual terms, this means that everyone who values each unit of output as much as it costs to produce that unit should receive their goods and services. When prices are ubiquitous, which is nearer to reality the more competitive an industry is, this point is easy to pinpoint on the graph yet leaves many unhappy because it becomes extremely difficult to provide goods and services to those consumers who value the products less than the equilibrium price. Considering a monopolistically competitive industry, however, the scenario becomes easier to manipulate and hypothesize with one understandably controversial tool: price discrimination. To determine the effectiveness of price discrimination, it is necessary to differentiate between three genres of the practice. Third-degree price discrimination is the most intuitive of the three, the type that everyone would imagine when picturing price discrimination. In simple words, different groups of people are charged different prices. The most common example is the movie theater, where tickets for seniors and children are frequently far lower than those for teenagers and adults. When you cash in a coupon at the local Starbucks that activates a discount as soon as you reach a minimum purchase total, you are experiencing second-degree price discrimination. This type centers around the quantity of goods or services that the customer purchases, which would determine (often rather indirectly) the prices they pay. First-degree price discrimination is the boldest, a clear discrepancy between prices charged to each individual customer. Such distinguishment often removes the greatest amount of consumer surplus and is usually possible when the firm has access to enormous amounts of consumer data. Airlines, for example, practice what has become known as inter-temporal pricing, a feat made possible by their salience in regards to clientele information. They can easily determine the urgency of ticket buyers based on the proximity of their purchase date to the flight date. (In other words, the later you buy the ticket, the more desperate you seem, and thus more willing — in the airline’s eyes — to pay higher prices.) Price discrimination is risky. We have given firms the power to charge different consumers different prices, and exploitation is almost inevitable in a system where consumer surplus has been eradicated — hence the apprehensive reference to first-degree price discrimination. However, according to economist Michael Spence in The American Economic Review, firms’ profits should naturally become synonymous with marginal contribution to overall social welfare. In these cases, where private and public benefits coincide, socially optimal production is far more obtainable because selfish incentives lead to publicly beneficial outcomes. Various factors weigh in on the success of this practice. Problems arise when data on consumer characteristics become unevenly distributed among producers, reducing their ability to make sound economic decisions. Oligopolies are inefficient for this reason; game theory and collusion are damaging for more reasons than one. Barriers to entry and exit of the market are also less sturdy than economic models would theoretically suggest. Regulation from a politically divided government could affect the impacts as well. In theory, economic models are intrinsically inaccurate and difficult to apply to the real economy. If we are content to ponder the surface before diving in, however, price discrimination has great potential in an economy as profit-driven and (currently) allocatively inefficient as the one in this country. All we need to do is look past the apparent immorality of charging different prices and realize that a universal price tag could very well be just as economically unfair as demanding $450 for a plane ticket that was sold for $300 a week ago.
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 By Sarah OuyangChivalry is dead, the old lady in the subway laments when a stout man steals the last seat in the car. Chivalry is dead, the gentleman complains when a woman rushes by, ignoring him as he holds the café door open for her. And as you turn on the news, preparing yourself for another round of grim Election 2020 headlines, you silently agree: Chivalry is dead.
For the weeks following this year’s presidential elections, incumbent President Donald Trump has remained steadfast in his conviction not to concede to President-elect Joe Biden. If the pattern continues, he will not be allowing Biden his inauguration, much less congratulating him for it. This has greater consequences than inconvenience and confusion for the White House staff as they prepare for the transition. A century-old tradition will be placed in peril. In 1896, two days after election results were unveiled, Democratic candidate William Jennings Bryan sent a telegram to Republican victor William McKinley, expressing his congratulations. Thus began the gallant, unspoken convention that has culminated in what is now known as the presidential concession speech. Even before Bryan’s public declaration, the defeated candidate sent private letters to the newly elected president, offering well wishes and congratulations. Just four years ago, Democratic candidate Hillary Clinton delivered her concession speech the day after losing the 2016 presidential election to Trump, exhibiting expected disappointment but courteous congratulations as well. The tradition has not been broken in over a century, but Donald Trump is nothing if not unpredictable. Trump has, instead, decided to throw himself into an onslaught of issues arising from the pandemic, the suffering economy, and the national state of social unrest. He surprised members of both parties on Tuesday, December 22nd, when he delivered a brutal criticism of the newly Senate-approved second stimulus package, which promises direct payments of $600. In his message, Trump called the package a “disgrace” and demanded that each direct payment be raised to $2000. Surprising, of course, but not entirely unwelcome for Democrats, who eagerly and unanimously accepted the proposed amendments. Republicans in the Senate, however, were not pleased with this turn of events. This disagreement has two serious implications for the government: a shutdown may occur if Trump does not sign the bill, and the Senate race in Georgia could be majorly disrupted by the stimulus package battle. What does this mean for Joe Biden? He may very well be handed a government, or even a nation, in chaos and conflict. Even as some rummage for hope in Trump’s new seemingly Democrat-favored policies, it appears his decision could have drastic consequences for what should have been a peaceful transfer of executive power. This conflict will exacerbate the problem that began with the question of a concession speech from Trump — or rather, a lack thereof. A concession speech may be purely allegorical and contain no legal importance, but it has had dramatic impacts on American presidential transitions. Ron Elving, a Senior Editor and Correspondent at NPR News, explains the benefits of a concession speech: “It ends the suspense. It mellows the mood. And it means the country can begin moving on.” The absence of a concession speech could thus be especially detrimental this year. While public focus has been widely drawn to COVID-19 or election news, there can be no surprise in referring to the other, more socially-geared issues of 2020. The frenzy of the Black Lives Matter movement seemed to die down after the summer as people shifted their attention to other current events, but their goals and fighters remain strong and unhappy with the country. During this period of political polarization and social unrest, a stubborn silence from the incumbent president will be widely heard. In the 2020 movie The Trial of the Chicago 7, Abbie Hoffman (played by Sacha Baron Cohen) sits at the stand with a poignant smile on his lips as Richard Schultz (Joseph Gordon-Levitt) asks him: “So how do you overthrow or dismember, as you say, your government peacefully?” Without missing a beat, Hoffman replies, “In this country, we do it every four years.” Let’s hope that is still true.  By Sarah OuyangFaith comes in many forms. For startup businesses planning for long-term growth and in need of sustenance, some cold, hard cash is preferred above all else.
And that’s where venture capitalists swoop in like reverse vultures who, instead of gorging on carcasses, breathe life into struggling newborns. Entrepreneurs might worship these firms for their financial benevolence, but venture capitalists are not exactly altruistic saints — thorough and adroit in calculating potential gains, they take into consideration factors such as the network and experience of the founders. For 2010’s Berlin, this type of scrutiny became the basis of its economy, replacing the more defining business atmospheres of other European cities: chic culture in Paris, for example, or music in London. Three factors directed the V.C.-friendly spotlight shining on Berlin and pulled the city out of its financial mire in the years surrounding 2008. In fact, the global recession itself paved the way for venture capital in Berlin: the crisis left the city poor in capital and rich in opportunity. Office space was rent-free and plentiful for startups who entered the scene early in the game, since the only real competition they faced was the public sector. Another contribution to the city’s venture capital originated from local hipsters. Influential artists, among them David Bowie and Iggy Pop, flocked to Berlin for cheap, trendy respite. This boosted its reputation in the eyes of entrepreneurs and venture capitalists alike. Finally, Germany had become a rival to America in “melting pot” status (perhaps either a cause or effect of the rise in hip culture), a development in which engineers from all over the continent were happy to partake. Such economic and cultural shifts have designated 59% of German national V.C. investments to Berlin, rendering it a hub of possibility for tech companies. In 2019, a data report revealed startling numbers showcasing the progress that Berlin has made: startups manifesting 80,000 jobs; startups receiving 3.7 billion euros in funds; startups placing the city in 2nd place for European tech investment. The second place prize can also be attributed to the number of unicorns, or private startups valued at over 1 billion USD, created within a certain period of time. It is essential to understand how this change has occurred in Berlin. Barely more than a decade ago, Berlin was turning itself inside out in search of industries that could set it apart from the rest of the bleak crowd, envying Paris and London for their glittering cultural je ne sais quoi. The desperate scramble for economic progress led to some “knock-offs” of American e-commerce. One such “shallow tech” company, Rocket Internet, left behind a legacy of unoriginality and misfortune that lasted until Berlin decided to concentrate its efforts on tech startups rather than “consumer clones.” Foreign startups also peak the interest of Berlin’s venture capitalists, who see profits made from companies in faraway lands as an “external validation” of sorts. The richness of the city’s risk capital has diversified the focuses of its V.C. firms, expanding beyond simple, safe ventures to projects that might have universal benefits — a definite step forward in the morality of venture capital. For instance, June Fund partner David Rosskamp proudly describes an increase in funding towards “the agricultural world… [in response to] a large need, and an equally large economic opportunity in digitizing these flows, in providing transparent access to agricultural supplies and in empowering millions of small-scale farmers. So June has invested in agricultural trading networks from Europe to Africa.” Berlin has thus been near-flourishing in V.C. pursuits and tech advancements. And then the coronavirus hit. With the current pandemic exacerbating an economic crisis of our own, the United States is, as General Washington was according to Lin-Manuel Miranda, “in dire need of assistance.” More than anything else, the country needs an understanding of the situation in order to further analyze the best paths to recovery. Whether by following role models or avoiding worst-case scenarios, watching trends in other countries appears to be greatly important for a successful return to normalcy. The problem is, experts are not quite certain whether Berlin is the former or the latter. Speaking from a rather humanitarian perspective, Germany is a clear example to follow for its relatively low percentage of COVID-19 fatalities, courtesy of Chancellor Merkel’s precise and effective handling of the virus. On a fundamentally economic level, however, virus effects in Germany leave observers skeptical. Investment level decreases have been drastic, especially when compared with the fairly more fortunate European cities such as Dublin and Amsterdam. The vast range of different level changes is astonishing: while Zurich has seen a 98% increase in investment levels since the previous year, Madrid’s levels have dropped 69%. Berlin is on the devastating side, with a 51% drop in investment. NGP Capital partner Bo Ilsoe attributes this to Germany being “more conservative and more prudent in reigning back spending” while the pandemic unleashes its claws on German businesses. Others, however, present optimistic outlooks: Berlin is less expensive to operate in compared to other tech hubs, including San Francisco, so many V.C. firms are not too worried for the long term. The impacts of the coronavirus on society have also reshaped the process of venture capitalism. Firms have begun encouraging clients to “focus on extending the runway both by increasing capital efficiency as well as taking on additional funding.” Different industries have been impacted differently as well. With the communications industry consolidating into an “oligopolistic market structure” featuring Zoom and Google Meet as its two lead stars, Berlin V.C. firms are wary about prospects for startups in the technology sector. In any case, the city’s progress of the past decade cannot be ignored. There remains still a considerable amount of hope for startups in the German capital city. And where there is hope, there is venture capitalism. Or is it the other way around?  By: Sarah OuyangThe simplified neoclassical economic theory, originating from John Hicks’ “post-war synthesis” of Keynesianism and classical economics, demands that the government invest in the economy for short term growth. It also assures that in the long term, markets will reach a steady equilibrium of growth by themselves through “boom and bust” cycles, as the classical theory suggests. The key point of this theory — or rather, this synthesis of two theories — is that economies are meant to grow, whether by itself or with government intervention.
Following the recession of 2008, however, dismayed economists watched as the US economy failed to meet their expectations, disappointing “even the most pessimistic early predictions.” A 2016 estimate records a 2.2% annual growth (1.3% lower than the Federal Reserve’s lowest prediction) and a 2% long term growth (0.5% lower). [1] This situation has now been categorized as “secular stagnation,” a term coined by Alvin Hansen and familiarized by Lawrence Summers. [2] The concept describes a sustained and seemingly indelible deceleration of the economy, and it has provoked a new, heatedly debated question: is this lack of growth really that concerning — or should it be embraced? The “degrowth” movement, as it has now been dubbed, supports its argument with three main reasons: the environmental unsustainability of eternal growth, the increase of other significant problems in an industrialized economy, and the suitability of GDP growth as a measurement of prosperity. Environmental activists like Greta Thunberg have condemned corporations and the government for blindly pursuing economic growth, which culminates in resource-intensive activity. Criticizing the ecological impacts of sustained growth, this stance cites climate change as evidence of the planet’s limitations. While advocates of continued growth have argued that it is possible to decouple economic growth and resource consumption, a process known as “green growth,” this has not happened in the least so far, save for relative decoupling, or a “decrease in resource use per unit of GDP.” Paired with the limitations of recycling, the facts show that eternal economic growth is unsustainable and green growth is only “wishful thinking.” [3] Although the EU has made promises to decrease carbon emissions, it is unclear how this can be achieved without tampering with economic growth. Current energy consumption demands fossil fuels, which add greenhouse gases to the air and thus contribute to global warming. Therefore, the only way to reach this goal would be to reduce energy consumption, a process that will likely impede growth. Further, expanding concerns such as income inequality can be partially traced back to economic growth. Technological advancements have induced an increase in supply and demand of high-skilled labor jobs such as “business managers, consultants, and design professionals.” These occupations tend to include a higher salary, widening the gap between real incomes of different classes. [4] Economists have even traced problems like higher mortality rates and extreme political polarization to the unquenchable thirst for economic growth. The latter may occur because, as Nobel Prize winners Abhijit Banerjee and Esther Duflo iterated, social tensions arise when the “benefits of growth are mainly captured by an élite.” If growth must be pursued, then, the government must also address problems with income inequality and wealth distribution, as well as provide relief with “health care, education, and social advancement.” [2] A final issue that the degrowth movement has with the stance of growth advocates is whether or not GDP is an appropriate measure of a country’s prosperity. One of the primary hurdles of GDP is that it represents solely aggregate data and ignores the “nuances” of inequality that can be disguised by an increase in absolute wealth, especially when the increase is enjoyed mostly by an élite class while the poorer divisions of the nation remain desolate. [5] Countries with high GDP’s may show astonishing income inequality. This is often measured by the Gini coefficient, a “statistical measure of distribution intended to represent the income or wealth distribution of a nation.” The Gini coefficient may range from 0%, which represents perfect equality, to 100%, which represents perfect inequality. Using this measurement, the problems with GDP as a measure of prosperity become evident. Take the U.S.: the United States currently has, according to the World Bank, a GDP of about 20.54 trillion USD. [6] Meanwhile, Norway has a GDP of about 434.17 billion USD, approximately one-fiftieth of that of the U.S. [7] However, when examining the Gini coefficient of each country, Norway measures at about 25.8% while the U.S. has one of the highest among developed nations: a whopping 40.8%. [8] Another weakness of GDP is its pure focus on numbers. Physical output alone portrays a rise of GDP, so the current measure of growth neglects the quality of services such as health care and education. Recent dips in GDP should not be cause for concern, as a closer look actually reveals a shift of consumer spending “from tangible goods… to services, such as child care, health care, and spa treatments.” [2] Progress and development in innovation also contributes nothing to GDP. Such oversight refutes GDP as a reliable measure of prosperity, thus encouraging the need for a new and more applicable measurement. Either embrace the benefits of secular stagnation — or redefine economic growth altogether. To combat the potential concerns of stagnation, economists recommend “policies such as work-sharing and universal basic income.” [2] Job sharing allows multiple people to complete, in part-time shifts, a task that would usually be accomplished by one person working full-time. A universal basic income sets a mandatory minimum wage for people everywhere to be guaranteed by the government. Such policies could provide financial security for the people and may assist the fight against inequality. In fact, there have already been examples that this tactic works. For instance, Finland offered 2,000 unemployed citizens 560€ per month in 2017, resulting in “reduced stress” for the participants and “more incentive to find a good job.” [9] While the degrowth movement challenges established economic theories and common sense itself, the evidence points, in reality, to its exigent benefits. Scholars continue to debate whether this is truly the best path and fiddle with the possibility of policy changes, but at the moment degrowth supporters argue that economic growth, at this rate, is simply not sustainable. [1] https://time.com/4269733/secular-stagnation-larry-summers/ [2] https://www.newyorker.com/magazine/2020/02/10/can-we-have-prosperity-without-growth [3] https://theecologist.org/2018/feb/22/why-economic-growth-not-compatible-environmental-sustainability [4] https://courses.lumenlearning.com/wmopen-microeconomics/chapter/causes-of-growing-inequality/ [5] https://time.com/5118026/gdp-metric-success-wealth/ [6] https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:USA:CHN&hl=en&dl=en [7] https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:NOR:SWE:FIN&hl=en&dl=en [8] http://hdr.undp.org/en/content/income-gini-coefficient [9] https://www.thebalance.com/universal-basic-income-4160668 |