Category Archives: Money and the Economy

Piracy Responsible For Lower Quality Music

I am home for Thanksgiving break which means more time around family. My youngest sister tends to camp in front of the computer, all the while playing music to listen to while she chats and surfs various social media sites.

When I am in earshot I hear the various TERRIBLE pop music that she plays. It’s not that she neccessarily has bad taste, it is all Top 40 music, so it is popular nationwide. However, it is quite simply, bad. And I don’t think this is one of those “my generation is better than your generation” things, it is simply bad music.

I have a theory that this is all due to rampant piracy.This is for several reasons:

Because music is not the profitable industry it once was, less money and effort is being put into making good music. If you are truly talented, you want to be compensated for your time. If you can’t get decent money for pop music, while put in the effort? But this alone is too easy.

Music is basically free, despite all legal efforts to the contrary. So, the cost for buying bad music that you regret obtaining is very low. It is not even monetary anymore, but simply a small time wasted cost. (almost immeasurably small now that internet speeds are so fast). In the past, you put up a lot of money, so one would take a lot of time finding something “good” that they could enjoy. Now, you just move on to the next download.

Because of this low cost to acquire and no penalty for bad music obtained, there can be a lot of crap put out that still gets listened to or at least “downloaded”. In an era where we measure success by “views” this means even bad music just listened to can be valuable. The bar for music goes down.

How Businesses Should Ride Out the Recession

Retail and consumer spending in general is down. Some businesses are doing better than others at staying afloat during the downturn.

An article from Time Magazine discusses how bad Abercrombie & Fitch is doing. A&F is commonly described as an “aspirational brand“. So, they charge a bit more for their goods than competitive brands.

However, “In the second quarter of 2009 alone, sales were down an eye-popping 30%”. People aren’t buying their clothing there anymore. Analysts are saying this is because at a time when people are feeling the pinch in their wallets, A&F aren’t lowering prices.

A&F isn’t lowering prices because they know a nasty truth of the retail business. People won’t buy goods at the higher price once they see the lower price. That lower price becomes the normal price, even after the economy recovers.

“According to various research findings, a company will have a tough time increasing prices once they’ve lowered them,” says C.W. Park, a marketing professor at the University of Southern California and editor of the Journal of Consumer Psychology. “Shoppers start to think the discounts are the base prices, and you risk alienating the shoppers if you raise them. Logically, you’d think that consumers would appreciate the lower prices and be understanding when they go back up. It doesn’t always work that way.”

So, what are companies supposed to do? Time’s analysts say smart companies do other measures, such as giveaways. Certain hotel chains are giving away a third night after a customer purchases two. Then, when the economy recovers, people don’t still expect to get a third night free and the previous price point stays the same.

USA Today is also reporting that certain high star hotels are solving the problem in a different way. They are simply shedding a star. Hotels rate service by stars. The higher the stars, the better the service. Keeping up those high quality services is expensive. So, they just lower their stars for now. Again, they keep their prices high, and in most people’s mind – the W hotel is still the W hotel, and carries all the cache of that brand even with one less star.

In my opinion, A&F will rebound. People still like the brand, they just can’t afford the stuff now. By not lowering their prices or having any sales they keep the status of their brand aspirational. Their brand is anchored in exclusivity. If they lower the price point so everyone can afford it, it loses all meaning. As long as they can ride out the economy, when the rebound comes everyone will be rushing back to get back to the comfort of their favorite casual luxury brand.

Tea Parties

I suppose I have to do some kind of post of the teabaggers, er – Defenders of free speech and low taxes(?) putting on the tea parties all across the country today. Instead of taking some partisan stance and digging in, I have found a silver lining.

Admittedly, I still can’t understand a common thread of protest among all the themes of protest out there. It seems like the G20 protests in England just a few weeks ago – groups of people who are mad with those in power, but without one unified argument.

However, one theme I hear over and over is that the teabagged are arguing that they shouldn’t be taxed to pay for the bailouts. Miraculously, I think many on the left would agree with this sentiment. There are serious arguments for propping up these “too big to fail” organizations. Apparently the American economy would be destroyed if some of these institutions were to actually fail. But honestly, if someone screws up, you shouldn’t support them and let them continue on their wayward way. Some other competitor would come in and do it better, and probably in a more risk averse.

Maybe the extreme left and right can actually agree on something!

Simple Cheap Gadgets Gaining Popularity

For years, laptops were super expensive. Hardware companies put out the latest and greatest powerhouse computers. Often this was under the pre-tense that if you wanted to run the latest (increasingly larger and more complex) software, you had to have a more powerful computer.

Just recently, this trend has turned. Since more work is done “in the cloud” – the processing is done over the internet by some other computer. Think Gmail or google Docs, or facebook, or anything you do on your computer really. More and more is done through a browser. So, the need for a super powerful computer is not needed. More important is portability- so you can work on the go. This means, less power, more battery life and a small and light footprint.

Welcome the netbook. These typically tiny laptops have laughably weak processors – by traditional standards – but they do enough to get the job done for the tasks I described above.

This trend is not limited to computers. Camcorders were until very recently super expensive. They would have excessive features that most people never used. Ever look through a camcorder menu? Have you used half those features? Most people just want to capture a quick video and upload it to YouTube to share with their friends. Flip came along and created just that, for a quite affordable price.

This is the new success formula. Create something that is very easy to use for most people, and make it affordable. The current state of the economy has something to do with this trend as well.

Who is suffering during the recession?

Enlightening NY Times article discussing who is truly feeling the impact of the economic recession. Probably not who you think.

Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.

The blue collar workers – those who actually make things – are getting hurt the most. The people who push paper (Admitted, I will soon be one of these people) are not getting hurt as much. This is an interesting twist. If not for what it says about our economy – are we protected by globalization and imports even more during a recession? – than for how it supports even further getting an advanced education. It does kind of make sense. During a downturn, we purchase less “stuff”, we travel less. Those who make, sell, and provide these items are going to be hurt more by this.

The Great Recession of 2008 (and beyond) is hurting men more than women. It is hurting homeowners and investors more than renters or retirees who rely on Social Security checks. It is hurting Latinos more than any other ethnic group. A year ago, a greater share of Latinos held jobs than whites. Today, the two have switched places.

The most interesting theory about this article is who the author think will benefit from the recession.

Hard as it may be to believe, the crash will also help a lot of young families. The stocks that they buy in coming years are likely to appreciate far more than they would have if the Dow were still above 14,000. The same is true of future house purchases for the one in three families still renting a home.

Also, the poor will benefit generally. The writer suggests that those at the top of the socioeconomic ladder will get hurt by their tanking investments. The poor are benefitting from the Obama tax credits, and finally – since these blue collar jobs are getting hurt the most- more will see the value in education. That means that more will seek out education, and thus benefit them and their families incomes long term.

That particular last bit is important.

Of course, these two factors both boil down to redistribution. One group is benefiting at the expense of another. Yes, many of the people on the losing end of that shift have done quite well in recent years, far better than most Americans. Still, the shift isn’t making the economic pie any bigger. It is simply being divided differently.

Which is why the third factor — education — is the most important of all. It can make the pie larger and divide it more evenly.

Oil down, Gas Up?

You might have noticed this the past few weeks as well.  As the price of oil continues to fall to insane lows, especially after how high it was this time last year, the price of gas is going back up. What’s up with that? NPR ran a story on how this happens, and it has almost convinced me it is not a conspiracy…

The price of gas is indeed tied to oil. It’s just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That’s the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

The recession in America has dramatically cut demand for crude oil, and inventories are piling up. So prices for West Texas crude have fallen well below what oil costs from places like the North Sea, Saudi Arabia and South America.

The other problem is that since oil is cheap now, there is a disincentive to produce it. In fact, OPEC has, and is rumored to be again slashing its production. Since the economic downturn, less fuel is being used. So, the price plummeted. Now, they will cut output to lower supply to match demand. The result? The price will go up again.

At the same time, refiners have seen the same headlines as everyone else about job losses and consumer spending. They’ve slashed production just to avoid taking losses on gasoline no one will buy. Result: Higher gas prices.

“Why should a refiner produce more gasoline when the stuff we produce is not being used?” Drevna said.

Of course, complex explanations of the diverging price paths of West Texas crude and gas are unlikely to placate frustrated drivers. Memories of last summer’s $4-plus gas have not receded.

The interesting part will be what happens when the economy recovers, demand increases and the price REALLY skyrockets.