Tag Archives: economics

The Network Effect

Network effect is a concept from economics that explains situations in which something becomes more valuable as more people use it. The classic example is the telephone; as more people and businesses adopted telephones, they became more useful (you could call a larger number of people you might wish to contact). More usage increased the value of the product, both for existing users and potential users. Social media work much the same way — an issue Google has faced as they try to pull enough users into Google+ to make it competitive with Facebook.

Over the weekend Matthew Hurst posted a video at Data Mining that illustrates the network effect…with dancers using an open area at the Sasquatch music festival. The video starts out a little slow; one guy starts dancing in the field, and a second guy joins him. For about a minute, it’s just the two of them. At 0:54, a third dancer appears. Through all of this, the surrounding crowd mostly ignores them, showing no inclination to participate. But at 1:12, a couple more people arrive, following immediately by more, and suddenly we’ve reached a tipping point: that open area is now a highly desirable spot to dance. People start running in from all directions, and many who had been ignoring the dancers suddenly jump up and join. It’s a great illustration of instances in which use drives more and more use:

A Case Against the Penny

CGP Gray is in rare form in this 4 1/2 minute argument in favor of phasing out the penny. He argues, entertainingly, that:

…they cost more to make than they’re worth, they waste peoples’ time, they don’t work as money, and because of inflation they’re less valuable every year making all the other problems worse.

See what you think:

Also from CGP Gray:

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

The Unevenness of McDonald’s Market Dominance

A couple of years ago, Lisa posted about the ubiquity of McDonald’s in the U.S., highlighting a map that showed the distance from the nearest McDonald’s. As a follow-up to that, Data Pointed posted a map that illustrates the unevenness of its market dominance across the country. If we plot the markets dominated by the top 8 hamburger-based chains (in terms of sales), we see that though McDonald’s is the single largest burger chain in most of the U.S. (all the black territory), other chains outsell McDonald’s in many markets, with the Sonic-dominated Southern Plains the most obvious:

In fact, there are relatively few places where McDonald’s has an outright majority of the market share; in most areas, the combined sales of its 7 largest competitors are more than McDonald’s:

This illustrates the importance of the ubiquity shown in the map Lisa originally posted. McDonald’s might like to truly dominate every market; it ideally would probably like to have a monopoly on them. But it doesn’t have to in order to successful and to exert incredible market power. It doesn’t need to control every individual market in order to exert enormous influence on the fast food industry, from setting the standard for labor practices to influencing which varieties of potatoes farmers grow for the french fry market. The “be everywhere” model allows it to win the larger burger chain war, even if it loses some regional market battles.

Holes in the Social Fabric

The foreclosure crisis that emerged in 2006 continues to displace families and change neighborhoods, creating holes in the social fabric of communities. Kathryn Clark, artist and former urban planner, has created a series of “foreclosure quilts” based on maps of urban areas, with holes representing foreclosed houses.  These unique visual representations call our attention to the holes that remain after foreclosure:

Modesto Foreclosure Quilt, 2011. 16″ x 42″ Tea stained voile, linen, cotton and embroidery thread.

Clark writes on her blog:

The quilt is pieced together using patterns of neighborhood blocks taken from RealtyTrac maps.  Within these, foreclosed lots are shown as holes in the quilts.  The lot locations are completely random and they yield an unexpected beauty when laid out on fabric. These torn holes question the protective nature of a quilt. The situation is so dire that even a quilt can’t provide the security one needs.

Albuquerque Foreclosure Quilt, 2011. 35″ x 47″ Linen, wool, yarn and embroidery thread.

Cleveland Foreclosure Quilt, 2011. 25″ x 60″ Cotton, linen, recycled denim and embroidery thread.

Clark’s artistic rendering of these maps points to the size and spread of the foreclosure problem, but also evokes the conflicting experience of home and the reality of the housing market.  Homes, like quilts, promise warmth, comfort and continuity, a connection to family and a sense of protection.  The holes in the quilts powerfully evoke the false promise of security offered by home ownership in the contemporary U.S.

Public policy and real estate market professionals have actively worked to construct home as an owner-occupied, single family house (as opposed to rental, communal space, or other residential option).  The preference for ownership has become so strong that many forgo other forms of investment for a mortgage on a house, and those who rent are told that they are “throwing their money away.”  This normative belief that home ownership is the most desirable option for adults provided justification for consumers to risk their savings, even when offered poor subprime loans, because ownership is symbolically important.

The foreclosure quilts call our attention to the holes that have been produced by the collapse of the housing market.  The focus on neighborhoods and blocks rather than individual houses and families encourages us to think about the impact on communities as well as individuals.  These quilts offer little comfort, and hopefully provoke questions about the sustainability of our singular focus on home ownership.

For more images of Clark’s quilts, check out her blog and website or an article on her work at The Atlantic Cities page.

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Karen McCormack is an assistant professor of sociology at Wheaton College in Norton, Massachusetts.  She is currently studying the strategies that people employ to manage the risk of losing their homes to foreclosure.

Too Big to Fail Has Gotten Bigger

Cross-posted at Reports from the Economic Front.

“Too big to fail” — that was the common explanation voiced at the start of the Great Recession for why the Federal Reserve had no choice but to channel trillions of dollars into the coffers of our leading banks. But, the government also pledged that once the crisis was over it would take steps to make sure we would never face such a situation again.  

The chart below shows the growing concentration of bank assets in the hands of the top 3 U.S. banks. The process really took off starting in the late 1990s and never slowed down right up to the crisis.  It was the reality of the top three banks controlling over 40 percent of total bank assets that gave meaning to the “too big to fail” fears.    

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But what has happened since the crisis?  According to Bloomberg Businessweek, the largest banks have only gotten bigger:

Five banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs — held more than $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve. That’s up from 43 percent five years earlier.

The Big Five today are about twice as large as they were a decade ago relative to the economy, meaning trouble at a major bank would leave the government with the same Hobson’s choice it faced in 2008: let a big bank collapse and perhaps wreck the entire economy or inflame public ire with a costly bailout. “Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” says Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

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Not surprisingly, this kind of economic dominance translates into political power.  For example, the U.S. financial sector is leading the charge for new free trade agreements that promote the deregulation and liberalization of financial sectors throughout the world.  Such agreements will increase their profits but at the cost of economic stability; a trade-off that they apparently find acceptable.

The recently concluded U.S.-Korea Free Trade Agreement is a case in point.  Leading financial firms helped shape the negotiating process.  As a consequence, Citigroup’s Laura Lane, corporate co-chair of the U.S.-Korea FTA Business Coalition, was able to declare that the agreement had “the best financial services chapter negotiated in a free trade agreement to date.”  Among other things, the chapter restricts the ability of governments to limit the size of foreign financial service firms or covered financial activities.  This means that governments would be unable to ensure that financial institutions do not grow “too big to fail” or place limits on speculative activities such as derivative trading.  The chapter also outlaws the use of capital controls.

These same firms are now hard at work shaping the Transpacific Partnership FTA, a new agreement with a similar financial service chapter that includes eight other countries.  Significantly, although the U.S. Trade Representative has refused to share any details on the various chapters being negotiated with either the public or members of Congress, over 600 representatives from U.S. multinational corporations do have access to the texts, allowing them to steer the negotiations in their favor.

The economy may be failing to create jobs but leading financial firms certainly don’t seem to have any reason to complain.

Framing “Pay TV”: Adorable Anti-Cable Ad

This 48-second ad is a fantastic example of framing, as well as a super-ridiculous blast-from-the-past.  Paid for by the movie theater industry, the ad attacks the idea of cable.  Cable, of course, was going to deliver more content to television sets and potentially compete for the business movie theaters enjoyed. So they frame cable as “pay tv” and counterpose it to “free tv.”  They don’t, you might notice, frame cable as “pay tv” and the movie theaters as “pay movies” because that comparison is not as useful for them.  Instead, without drawing attention to the fact that they charge for entertainment, they try to delegitimate the idea of paying for on-screen entertainment at home.

They also try to argue that cable tv will bring scary monsters into your living room.  So cute.  In an era where millions of instances of pornifed violence are just a click away, it is almost incomprehensible to imagine wanting to make sure that scary movies stayed at the theater.

Via BoingBoing.

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.

Robert Reich on Wealth, Taxes, & the Economy

Technically yesterday was tax day, but since it fell on a weekend and today is a holiday in Washington, D.C. (Emancipation Day), Americans actually got two extra days to file. Whether you’re already done or are wildly rushing to finish up, you might enjoy this short video by political economist Robert Reich, explaining how the concentration of wealth, and the ability of the very wealthy to redesign the tax code to their advantage have affected the overall economy:

Via The Sociology Cinema.

From Our Archives: On Taxes

The Numbers

Types of Taxes as a Percent of GDP (1937-2014)
Historical Comparison of Top Tax Brackets (1945-2010)
Tax Receipt for 2009

The Winners and the Losers

Recent Trends in US Income Inequality and the Tax Rate (1990-2010) (pictured)
Social Class and the Tax Burden
Donation and Welfare States
Corporate Tricks of the Trade
Who Benefited from the Bush Tax Cuts

Tax Cultures

Collecting Taxes in Pakistan
Danish vs. American Attitudes Towards Taxes
TurboTax Maps Out a (Conventional) Future

Lisa Wade is a professor of sociology at Occidental College and the co-author of Gender: Ideas, Interactions, Institutions. You can follow her on Twitter and Facebook.