The Economics of Movie Sequels

Sometimes, it seems like movie studios would rather produce sequels than original material. Often, some sequels feel like an afterthought, unlike the planned sequels to the original Star Wars or Lord of the Rings movies. Taken, which has had two subsequent movies released since the original, was surely not meant to have sequels, right? Why would movie studios rather piggyback their previous work instead of making something that’s creatively original? Of course, the obvious answer is that there’s money to be made, but two not-so-obvious trends show us why.

First, the number of weekly movie-goers is shrinking, down from about 80% of households in the 1940s to about 5% of households now. As a result, movie studios have begun catering towards audiences they’ve already captured with an original movie. This is a successful strategy because people are much more likely to return to the box office to view characters and environments they’re already familiar with. In 2011, one fifth of all movie releases were some sort of sequel, prequel, or movie otherwise based off of an original. Likewise, last year, 18 of the top 25 films by box office revenue in North America fell into the same category. While a decreasing box office audience can’t be linked directly to an increase in sequels, it certainly creates a compelling argument for why studios have shifted their focus over time.The second trend, which was revealed by Edward J. Epstein’s The Hollywood Economist, shows that movie revenues have shifted away from the box-office, which now accounts for only 20% of total movie revenues. Instead, revenues are coming from things like DVDs and streaming services, which make up 80% of total movie revenues. Because of this, the possibility of a movie becoming a hit through ticket sales, merchandise, and licensing is decreasing, which also means that the opportunity cost of investing substantial amounts of money into an original movie is increasing. The result is that studios are investing in sequels where the success of a story and its merchandise and licensing is already established. This allows them to minimize the risk associated with the creation of a new movie. In fact, in 2011 The Wall Street Journal estimated that Disney would allocate 80% of its budget towards franchise films, up from 40% a year before. This substantial budget allocation is a testament to the money-making power that sequels hold, and these trends give no surprises as to why we see so many.It’s interesting to note that the idea of piggybacking the success of a previous title also applies to the video game industry, where sequels are perhaps more prevalent than in the movie industry. Some of the most popular gaming titles are long running franchises, like Assassin’s Creed, Grand Theft Auto, Far Cry, and Call of Duty. And the idea of returning to these concepts works, as evidenced by Grand Theft Auto V’s record breaking release. It broke 6 Guinness World Records including best-selling video game in 24 hours, fastest selling entertainment property to gross $1 Billion, and highest grossing video game in 24 hours. Even the Call of Duty series, which is 10 titles deep, continues to see an upward trend in sales for each new title. Few movie series in the long history of cinema have pulled this off, and the ones that do are able to do so in a clever way. The James Bond franchise has seen 24 releases; however, the series can reinvent itself with every new Bond face, which allows it to stave-off franchise fatigue. Likewise, The Avengers is another title that has been extremely successful. Although the series has seen 13 releases, nearly every movie is different from its predecessor because they all follow the life and times of different superheroes, which allows the franchise to feel fresh and unique with every new release.It should be interesting to watch how the movie industry is shaped moving forward, especially by websites that allow people to watch movies for free on the internet. It’s become easier than ever to watch movies online, and even new releases aren’t safe. For example, I found The Martian on the internet not two weeks after its release to theaters. The amount of revenue that these websites deny movie franchises is likely no small amount either. And despite the efforts of law enforcement, movie studios, and movie cinemas to curb this illegal activity, it’s hard to say that they will be able to remove this illegal streaming activity all together. As a result, the success of new and original movies will likely become increasingly rare. If this is true, and current trends continue, perhaps sequels will be the only things that are released in the future. Although I must say, I'm really looking forward to seeing Star Wars: Episode XLIV.This post was written by Steve Leonard.Sources:http://www.moviescopemag.com/market-news/featured-editorial/economics-hollywood-sequels/http://www.theatlantic.com/business/archive/2013/07/the-6-graphs-you-need-to-see-to-understand-the-economics-of-awful-blockbuster-movies/277691/http://www.guinnessworldrecords.com/news/2013/10/confirmed-grand-theft-auto-breaks-six-sales-world-records-51900/http://www.statisticbrain.com/call-of-duty-franchise-game-sales-statistics/http://www.gamesradar.com/30-longest-running-movie-franchises/

The Life Cycle Hypothesis and the Puzzle of the Philadelphia 76ers

By Joe Kearns

It would be a massive understatement to claim that Philadelphia 76ers general manager Sam Hinkie defies the conventional wisdom of the NBA. It is much less recognized that Hinkie defies the conventional wisdom of macroeconomic theory as well.

Hinkie’s amassment of draft picks at the expense of short-term success runs contrary to the Life Cycle Hypothesis developed by economist Franco Modigliani. Modigliani's research suggested that individuals plan their consumption and savings behavior over their lifetimes. Specifically, individuals smooth consumption over the course of their lifetimes, borrowing when their income is low and saving when it is high.

To use this analogy properly, I would say Hinkie’s tendency to trade veteran players for draft picks is analogous to saving, sacrificing short-term utility in an attempt to provide a positive net utility in the long run. In other words, this is the opposite approach the Life Cycle Hypothesis suggests he should take.The best contrast with the Sixers is the Cleveland Cavaliers. The Cavaliers had the first overall pick of the 2014 NBA Draft and selected Andrew Wiggins, only to trade him and Anthony Bennett to the Minnesota Timberwolves for 3-time All Star Kevin Love as part of a 3-team deal (incidentally, the Sixers were the third team and I will delve into that angle soon). It should be noted that the Cavaliers were in an unusual situation, having signed 4-time NBA MVP and Ohio native LeBron James. Still, Cleveland’s resources were heavily allocated towards the short-run, at least relative to the Sixers.

Meanwhile, in the same trade that sent Love to the Cavaliers, the Sixers received a first round pick from Cleveland. Trades like this have been the norm for the Hinkie-era Sixers. For example, in 2013, the Sixers traded All-Star point guard Jrue Holliday and their second round pick for the draft rights to First Team All American center Nerlens Noel and a 2014 first round pick.Hinkie’s second draft actually geared the Sixers further toward the long-run at the expense of the short-run than his first. In 2014, the Sixers selected Big 12 defensive player of the year Joel Embiid with the third overall pick. The remarkable part about Embiid’s selection is that it was known he would likely miss the entire 2014-15 season due to a foot injury. Thus, the Sixers gained no short-run benefit from this selection.

Then, the Sixers traded for the draft rights of Croatian power forward Dario Saric, who is under contract for Andalou Efes S.K. of the Turkish Basketball League. Saric said he would play at least one more season in Turkey before joining the Sixers. The Sixers yet again resist the proverbial marshmallow.The 2014-15 regular season saw the Sixers make the most curious display of delayed gratification yet. They dealt point guard Michael Carter-Williams, the team’s first round draft choice in 2013, for a future first round pick. Carter-Williams earned NBA Rookie of the Year honors, but proceeded to struggle with a low field goal percentage of .380. Still, it is curious that the Sixers essentially gave up on his potential so quickly.

There is value in acquiring future assets to make the team more potent in the future, but risks are immense as well. The biggest risk is that the Sixers have removed themselves almost completely from one avenue of player acquisition by becoming the least attractive destination for free agents. Why would a free agent possibly want to come to a team that is structured to lose often for the foreseeable future? Additionally, the players the Sixers are selecting might decide they want to leave the team when they have the chance as well, unhappy with the track record of losing. Intentionally tanking a season for an early pick one season is an accepted, albeit unspoken, practice in the NBA, but to do so two or more seasons is unprecedented. Uncertainty is rampant.In the two seasons since Hinkie was hired in 2013 along with head coach Brett Brown, the Sixers have earned a record of 37-127. This would normally be perceived as an unequivocal catastrophe for an NBA team. But, in fact, earning such a poor record to this point is precisely the plan Hinkie has prescribed for the team. Hinkie has fully resisted the temptation of eating the marshmallow. The question is this: Will the marshmallow even exist by the time he is ready to eat it?

The NFL Draft's Keynesian Beauty Contest: Enter Marcus Mariota

By Joe Kearns

Trading up in the NFL Draft for a premier player generally comes at a steep price because of the perception of an equally steep opportunity cost. Let’s discuss a few examples:

• In 1999, the New Orleans Saints traded all six of their draft picks to the Washington Redskins. They moved from the 12^th overall pick to the 5^th overall pick, so they could select Heisman Trophy winning running back Ricky Williams.
• In 2011, the Atlanta Falcons traded their first round (27^th overall), second round, and fourth round picks from the 2011 draft, as well as their 2012 first and fourth round picks to take the sixth overall pick from the Cleveland Browns. They selected future Pro Bowl receiver Julio Jones.
• In 2012, the Redskins traded their 2012 first round (sixth overall) and second round picks, along with their 2013 and 2014 first round picks to take the second overall pick from the St. Louis Rams. They selected Heisman Trophy winning quarterback Robert Griffin III.

All of these teams would have preferred to have avoided trading up, and simply taken the player they coveted with their own first round pick. However, high expectations that at least one competitor would use their own earlier pick on a player increased the price the team was willing to pay.Economist John Maynard Keynes described a similar phenomenon in his seminal work, General Theory of Employment, Interest, and Money. He analogized price fluctuations in the stock market to a beauty contest, in which the contestants are judged not on the opinion of each individual judge, but what the judge perceives to be the predominant opinion of his peers: “It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.” (Keynes, General Theory of Employment, Interest and Money, 1936).

The slew of media rumors this offseason point to Oregon quarterback Marcus Mariota as this year’s proverbial beauty pageant contestant. Not only is Mariota the most recent Heisman Trophy winner, but quarterbacks generally get valuated much higher than the average prospect due to the perception of higher value attached to that position.This hypothesis is contingent on the Tampa Bay Buccaneers using the first overall pick on Florida State quarterback and 2013 Heisman winner Jameis Winston. Assuming Tampa Bay selects Winston, the Tennessee Titans (second overall pick) are the team all of the other front offices have their eyes on. But why should we not assume the Titans would just draft Mariota themselves?

First, their poker-playing abilities have been suspect. In February, Titans general manager Ruston Webster downplayed the notion that they would pursue a quarterback with the second overall pick and talked up incumbent starter Zach Mettenberger. Then, Titans head coach Ken Whisenhunt shifted gears in March by heaping praise on Mariota. It made absolutely no sense for the Titans to initially downplay the notion that they might want a quarterback early. Because of that, the perceived value of the second overall pick fell. Whisenhunt might have been trying to undo some of the damage to the value of his team’s asset caused by Webster’s comments.Second, the Titans have the potential to create a deep market among NFL teams interested in acquiring Mariota. The more teams show interest in trading up, the higher the return the Titans can earn. Basic microeconomics dictates that the higher the demand goes, the higher the price will climb.The most visible rumor is that the San Diego Chargers will offer the seventeenth overall pick and top tier veteran quarterback Philip Rivers to the Titans for the second overall pick, which they will use to select Mariota. While this rumor has some credibility with Rivers refusing to sign a contract extension, game theory suggests the Titans have every reason to spread these rumors to artificially inflate the value of their pick.Who might the Titans be trying to draw in? Look first at teams with a steep supply of desirable assets. Perhaps the Cleveland Browns, who have 35 year old Josh McCown and Johnny Manziel—coming off an underwhelming rookie season—as their top two quarterbacks. Not to mention the Browns have two first round picks to offer. Or maybe it’s the New Orleans Saints who have 36 year old Drew Brees and two first round picks of their own.The New York Jets are a strong possibility to select Mariota as well, either by trading up or staying put at the sixth overall pick. Jets owner Woody Johnson has entered the poker game and, in my opinion, made an obvious bluff: “[Incumbent Jets starting quarterback] Geno [Smith] is probably way ahead of him at this point, believe it or not, whether you guys [reporters] have skepticism of that or not. Certainly, [Mariota's] college career was good.” Consider me skeptical when you claim a player who lost his starting job to a 34 year old Michael Vick is superior to the defending Heisman Trophy winner.There are plenty of other teams including the Washington Redskins, Chicago Bears, New York Giants, St. Louis Rams, Houston Texans, and Kansas City Chiefs that could look at Mariota as a valuable asset.But the most interesting wildcard of all in this Keynesian beauty contest is the Philadelphia Eagles. Prior to coming to Philadelphia in 2013, Eagles head coach Chip Kelly was Mariota’s head coach at Oregon. Kelly helped Mariota record impressive statistics as a freshman in 2012 (2677 passing yards, 32 touchdowns, 6 interceptions). Kelly is arguably the biggest reason why Mariota’s expected draft value could inflate.

Despite this personal connection, Kelly has either given up on drafting Mariota or is playing his cards close to the chest. In March, he traded incumbent starting quarterback Nick Foles and a 2016 second round pick to the St. Louis Rams for starting quarterback Sam Bradford. Shortly after the trade, he spoke to the media unannounced at a press conference that was supposed to be for one of his players: “Let's dispel that right now. I think that stuff is crazy. You guys have been going with that stuff all along. I think Marcus is the best quarterback in the draft. We will never mortgage our future to go all the way up to get someone like that because we have too many other holes that we're going to take care of.”Also, at the press conference, he went out of his way to say another team offered him a first round pick for Bradford. Unbelievably, he said the Eagles had not looked into what it would cost to trade up for Mariota, the very quarterback Kelly just called the best in the draft. The same quarterback who executed his offensive scheme masterfully as a freshman in college. It’s perfectly reasonable to think Kelly will not pay a certain price to trade up, but it cannot be ignored that he has every incentive to reduce Mariota’s expected value to an acceptable price.A good maxim to abide by when trying to understand the economic structure of the NFL Draft comes from House’s titular protagonist: “Everybody lies.”

Venezuela Today: A Terrible Situation

By Camille Mendoza

Venezuela's future is still not bright. After President Barack Obama issued economic sanctions against seven Venezuelan individuals for their involvement in several human rights violations, Venezuelan President Nicolas Maduro took the opportunity to express his dismay in the Summit of the Americas held in Panama. President Maduro claimed these policies were "the most aggressive, unjust and poisonous step that the U.S. has ever taken against Venezuela" and pledged a campaign to collect 10 million signatures on a petition he plans deliver to Obama demanding the order be rescinded. While these sanctions were ill-timed (U.S. allies like Columbia have spoken out against the policies), perhaps it is time Venezuela focused on other, more pressing matters.

Instead of criticizing the United States for what he calls an "imperialist threat" to his country, President Maduro should be concentrating on the horrible economic situation his country is currently facing. Despite having the world's largest oil reserves, inflation in the Venezuela is the highest in the world for certain markets. Basic goods like coffee, cooking oil, and flour are almost impossible to get, as shortages increasingly impede even necessary goods from reaching people of almost all economic standings. People wait in mile-long lines for hours and hours simply to find out that the goods have either run out or are unavailable. Worst of all but completely expected, crime has soared. As many as 8 kidnappings per day are the norm in Caracas, the capital. Some last 24 hours, others may go for weeks, many end in death. What they all have in common is that they involve groups of lower-income people seeking large sums of money from the more privileged Venezuelans. The nation's economy--already struggling after years of fiscally irresponsible government spending under Chavez--deteriorated even more after oil prices dropped by half in 2014. Oil exports are 95% of the Venezuelan exchange, and the sudden devaluation has put Venezuela in a position to default on foreign debt, pushing it to the brink of failed-state status.

Even after all of the inner turmoil, Marselha Goncalves Margerin, advocacy director for Amnesty International USA, agrees it may not be in U.S. interest to speak out on Venezuela’s domestic problems. “In this case, it’s probably counterproductive,” Goncalves Margerin says. “Not because there are no [human rights] violations in the United States but because there is lack of trust in both governments and it’s probably better done by governments that trust each other.” In the Summit of the Americas, the Venezuelan economic crisis is a topic that remained untouched once again.

Sources

http://www.usnews.com/news/articles/2015/04/10/venezuela-sanctions-backfire-on-obama

The Quagmire for the Unhired

By Cole Lennon

Even the best economic news can be laden with caveats.  Such was the state of the Labor Department’s April 7th announcement on the estimated number of job openings in the United States, as a positive headline was accompanied by sobering reminders that the recovery is not finished.  The good news is that there are an estimated 5.9 million job openings in the United States, more than at any time since January 2001.  The bad news is that increases in hirings continue to lag these increases in job openings, and the underlying reasons why are even more sobering still.The first explanation is one that appeals to some economists: a skill mismatch.  The theory goes that a deficit of workers who are skilled enough to fill these newly open jobs is the problem, and economics journalist Danielle Kurtzleben speculates that it may hold for some occupations.  The other explanation is the one that she and others are arguably more focused on: hesitancy in hiring.Articles in the Harvard Business Review and the New York Times confirm that an important impact of the Great Recession on the labor market is more cautious hiring, as employers reportedly spend more up-front financially and in hidden costs to attempt to find the perfect candidate.  The companies that have not found the candidate they find to be perfect continue looking, and the general results is that companies miss out on filling their openings for longer periods of time than normal.This article puts that broader trend into focus, as hiring will then lag the amount of openings.  Sometimes the fact that great economic news like this comes with warnings labels is not a bug. This time, given the economic scarring of the Great Recession, it is a feature.Sources:http://www.vox.com/2015/4/7/8363463/job-openings-have-come-back-since-the-recession-why-not-hiringhttps://hbr.org/2013/01/dont-hire-the-perfect-candidat/http://www.nytimes.com/2013/03/07/business/economy/despite-job-vacancies-employers-shy-away-from-hiring.html?pagewanted=all&_r=0

Fame and Fortune: The YouTube Way

By Camille Mendoza

Long live the internet! What began as a hobby for most has become a career for some. By now, it is well known that many of YouTube’s video bloggers (or “vloggers”, as they are known) have become actual celebrities with devoted fan bases, event appearances, book deals, and even TV/movie gigs. YouTube, which has become an online network in which the viewer gets to control what content they’d like to watch, is now a springboard for familiar faces. Justin Bieber, Austin Mahone, and Jimmy Tatro are only a few of those who “made it”, so to speak, and now have successful careers outside of the internet. However, those who chose to remain on Youtube and make their careers from there are the new species of celebrities cropping up, and they are really coming into their own.

While they are making names for themselves, one has to wonder how it is that they are able to sustain themselves financially, i.e. how do you make money off Youtube? CBS reports that as soon as an account has enough views and followers (albeit the exact amount remains undisclosed), the account creators can then become Youtube Partners. What this means is that they can get up to 55% of the ad revenue that comes in from their posts. While, once again, it is difficult to pinpoint how much ads pay from the outside, Business Insider attempted to calculate it, and they came up with some very appealing figures.Michelle Phan, makeup guru turned lifestyle personality, potentially makes over $1 million annually with her videos alone; Smosh, a duo of sketch-comedy geniuses, are estimated to make over $5.7 million; and PewDiePie, the Swedish video gamer with over 33 million subscribers, potentially makes an annual figure of over $8 million.

These salaries are simply astonishing, and while it definitely takes talent and guts to expose oneself the way YouTubers are now famous for, it definitely explains why more and more people are turning to the internet and not casting directors for jobs in the entertainment world. Fame may be fleeting, but the internet is forever.

Sources

http://www.businessinsider.com/richest-youtube-stars-2014-3#4-smosh-17

http://www.cbsnews.com/news/how-web-stars-make-money-lots-of-it/

Patience and the Fed: A Tale of Irrational Panic

By Joe Kearns

It was the best of times. It was the worst of times. Good news was bad news. Bad news was good news. By March 5, the U.S. unemployment rate had fallen to 5.5%. Though workers could rejoice at improved labor market conditions, there was one group of people that panicked upon learning this news: Wall Street. In fact, the Dow decreased by 279 points and the S&P 500 fell by 1.4% when the unemployment data was available to the public.

Surely, this was a mistake! How could improvements in the labor market and other parts of the U.S. economy possibly be bad news? The answer lies in investors’ expectations of changes in monetary policy.

“Given updated labor market conditions, we expect the probability of the Fed lifting policy rates in June is now 55%,” wrote BlackRock portfolio manager Rick Rieder.

Investors feared that good news would eventually bring an end to the Federal Reserve’s accommodative monetary policy that had been boosting the stock market. Since 2008, the Federal Reserve has held the federal funds rate between 0 and 0.25%. According to Investopedia, the federal funds rate is the “interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight.” Keeping the federal funds rate near the zero bound has made it cheap for banks to borrow money from the Fed. In turn, consumers can borrow money from banks at low interest rates, which allows consumers to spend more and the stock market to rally. This is precisely what has happened in the U.S. economy, as the Dow Jones Industrial Average eclipsed 18,000 in December.

One word epitomized the anxiety of investors: patience. Previous FOMC Meeting Statements included a significant sentence: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.” “Patient” came to an end on March 19—at least, in the sense that the FOMC Meeting Statement no longer included the word.

Yet, despite the exclusion of the word “patient,” stock prices surged. Among other comments in the statement, this one suggested the elimination of the word “patience” did not equate to a signal that the Fed would soon increase the federal funds rate target: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” Fed chairwoman Janet Yellen even remarked, “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.”

The moral of the story is this: Don’t read too much into specific words. When it comes to predicting what the Fed will do next, let economic data speak for itself.

Sources

http://www.wsj.com/articles/investors-celebrate-gentler-tone-from-fed-officials-1426720774?mod=WSJ_hp_LEFTWhatsNewsCollectionhttp://money.cnn.com/2015/03/06/investing/stocks-market-jobs-fed-rate-hike/http://www.federalreserve.gov/newsevents/press/monetary/20150318a.htmhttp://www.nytimes.com/2015/03/19/upshot/janet-yellen-isnt-going-to-raise-interest-rates-until-shes-good-and-ready.html?_r=0&abt=0002&abg=1

http://www.federalreserve.gov/newsevents/press/monetary/20150128a.htm

Let's Talk About Sexes

You have probably heard this one before. A man and a woman work the same job. They have the same qualifications, background, age, etcetera. One difference: their gender. The result? About a 20% income difference, at least. Sounds familiar, right?Here is a reminder from Exhibit A: Patricia Arquette. She has won nearly every award within her category for her performance in the film “Boyhood,” but at the biggest awards ceremony of the year, the Oscars, here’s what she has to say in her speech: “To every woman who gave birth, to every taxpayer and citizen of this nation, we have fought for everybody else’s equal rights. It’s our time to have wage equality once and for all and equal rights for women in the United States of America.” It is a heck of a platform to do that, and it goes to show that businesses are not the only guilty ones in this troublesome pattern.Mind you, everyone is different and offers something different, something that can radically impact the difference in salary between one person and another. However, when you start trying to draw the line between dissimilarities in skill set and signs of gender discrimination, things get a bit messy.If anything, we still get this reminder that while we should be aware of it, we never have a complete idea of how widespread it is. On one hand, the gender gap has been narrowing for over the past 100 years and was up to 0.80. On the other hand, this narrowing has stalled in the late 1990s, and not much has changed since. One could argue that employers have to consider that some women tend to go on maternal leave, and that some never come back, but has the income ratio between men and women reached its peak? Should it be a one-to-one ratio? Many activists argue “yes.” The first step of course is consistent awareness.If it keeps coming up, what does that tell us in regards to what is being done?Sourceshttp://www.wsj.com/video/gender-pay-gap-behind-patricia-arquette-oscar-speech/2265AD4E-1889-4EF4-AFBD-9F8E1548AAFD.html?mod=trending_now_video_3http://www.hitfix.com/in-contention/here-is-the-transcript-to-patricia-arquettes-oscars-acceptance-speechhttp://www.econlib.org/library/Enc/GenderGap.html

It's Time to Free Willy

By Camille MendozaA dead whale, animal rights activists protesting outside SeaWorld parks every day, and the CEO stepping down have not deterred SeaWorld yet. But perhaps the 50% fall in stock value will. Following the backlash of a 2013 documentary called "Blackfish," which details the horrific and inhumane treatment that orcas face in the theme parks, SeaWorld's revenue fell to $495.8 million in November 2014 from $538.4 million a year earlier, and profit dropped to $87.2 million from $120.7 million. These are a direct result from the 5% decline in park attendance. While these numbers seem hurtful, a company like SeaWorld thrives off sponsorships and marketing deals, but even these seem to be waning.Corporate sponsors and celebrities are backing out from contracts and endorsements with the marine mammal organization, signaling a deep lack of confidence all across the board. Sponsors such as Hyundai Motor America, Panama Jack, Southwest Airlines, and Virgin America have cut ties with the company, and, perhaps the most shocking organization to end the partnership was the Miami Dolphins, who will not renew its marketing contract with SeaWorld after it expires in March. In today's society, there are few people who have more influence than celebrities, and some, including Olivia Wilde, Matt Damon, and Ewan McGregor, also spoke out against SeaWorld. All of these unfortunate events lead towards an obvious conclusion: SeaWorld needs some serious damage control.Before he stepped down in January 2015 after the negative media attention, former CEO Jim Atchison said in a news release, “Clearly 2014 has been a challenging year, but I am confident we are taking the necessary steps to address our near-term challenges and position the company to deliver value over the long term.” Consequently, the company responded to the backlash by announcing $50 million worth of cost cuts, which include laying off an unspecified number of employees, and a $300 million plan to double the volume of its killer whale habitats in all three parks, which should be completed by April 2018. Even so, these measures cannot undo the impact that the documentary Blackfish had on the world. As the public becomes more knowledgeable, the company becomes less profitable. If this trend continues, perhaps a world without unnecessary captivity is nearer than previously thought. The numbers don't lie, and they are screaming, "It's time to Free Willy."Sourceshttp://www.utsandiego.com/news/2014/dec/11/SeaWorld-CEO-stepping-down/2/?#article-copyhttp://www.utsandiego.com/news/2015/jan/26/seaworld-fourth-quarter-earnings-february/http://www.cbsnews.com/news/seaworld-continues-to-suffer-after-blackfish/

What’s A Graduating Economics Major to Do?

By Cole LennonGraduating from college often begs an important question: “Now what?”  Recently compiled research from the Georgetown Center for Education and the Workforce helps answer that question, particularly as it looks back on economic data on college graduates from 2009-2012.  Even as wages and labor market conditions have improved since 2012, the report still yields interesting information on salaries, returns on graduate education, and more.The most recent data on undergraduate economics majors in 2012 is an ideal place to start.  Recent graduates had an average salary of $47,000, which was also the 9th highest starting salary by major for this cohort.  It was also tied for the highest salary amongst both social science and business disciplines, with recent graduates in finance tying the amount of $47,000.  Adding experience also makes this data even more interesting, as experienced economics graduates made an average salary of $83,000.  This massive boost (something the report counts as 3 or more years in the labor force) is incredibly helpful to note: Experience really does pay off, in a sense.Graduate education is the next category to explore.  Recent graduate degree-holders in economics boasted an average salary of $75,000, making for a $28,000 boost in earnings from undergraduate to graduate (experience not included).  This jump is the 2nd highest amongst all majors, only being exceeded by a $30,000 earnings bump for computer science majors.  Still, experienced economics graduate degree-wielders got an average salary of $113,000.  This is yet another massive leap in terms of how much experience does play a role in how earnings increase.Other interesting factors to consider include age and the unemployment rates for each major, as they add another dimension to the salary data provided.  The questions, overall though, move from qualitative to quantitative.  “Now what?” is the prevailing question immediately after graduation, but “How much?” is sure to follow. – CLSources:https://cew.georgetown.edu/wp-content/uploads/HardTimes2015-Report.pdfhttp://qz.com/347927/graduate-school-salary-increase/

Following the Crowd

By Kevin Grant McClernon

Last summer, I decided that I wanted to invest in the market. I knew the basic principle of ‘buy low, sell high’ and with that in mind, I set off looking for deals. I perused the WSJ and Bloomberg. I wanted to find a so-called ‘value pick’ – one that was fundamentally undervalued and that I could hold for a long time. Eventually, I found a couple good picks. Stocks were pretty jumpy this fall so I figured I could buy one quick after it had a rough day. But, every time I decided to buy, the markets seemed to reverse course and my ‘deal’ had vanished. I couldn’t keep up with the movement of the market. Everything that was hot one was day cold the next, it seemed.Then I found oil. It wasn’t too hard to find – it was a top story line all through the fall. But I figured trading commodities was only for the pros. I looked around and found there were hundreds of individual stocks related to oil and gas companies. And they were all taking a beating. I wondered why. By November, the market price of crude oil had fallen about 25% since its high in the summer. The price of a barrel of American oil as of November 21st was $78. I ran the math – there are 42 gallons of oil in a barrel – and found that it was selling wholesale for $1.78 per gallon. The price of gas at the pump near my house had been falling sluggishly by Thanksgiving to around $3.10. At those prices gas companies were profiting just under 50% per gallon sold. I knew gas margins were normally high, but that seemed almost monopolistic. My economics classes taught me that each of these gas stations could gain a large share of the local business if they cut prices beneath their competitors’.I sat in the car with my mom one day.“I’m gonna pull over and get gas,” she said.I interjected, “but your tank is half-full already.”“The price is too low not to take advantage.”Too low, I questioned.“Hold off on it,” I said. “Prices are gonna be below $3 sooner than you think.”“Whatever you say,” she mocked.We drove on.I had very little data to support my statement. Only articles I’d read about in the WSJ where business columnists worried that the US had out-produced demand and was headed for a big drop. My emotions kicked in. That sounds bad, I thought. And that’s when I decided I should buy.I wanted to invest in distressed, highly leveraged oil companies who would suffer the most from low oil prices. When the depressed prices began to cut into their margins, they’d have less cash with which to pay their debts. Default was a possibility. Or they’d get bought out. Oil companies with stronger balance sheets and strong cash flows could buy them out at bargain prices and pay off their debts.Thank goodness I didn’t. A couple buyouts have occurred (see Repsol S.A. and Talisman Energy), and some analysts have since jumped on my side. But since November 21, 2014 – the day I wanted to pull the trigger – prices have dropped another 33%. I would’ve bought very high.To understand why this happened, and why I couldn’t have foreseen it, I began to ask why exactly prices were falling so significantly. “Oversupply!” market experts cried out, “we’ve produced too much oil!” As the old adage goes, “pigs get fat, hogs get slaughtered.” Energy companies expanded rapidly in the wake of the recession on the basis that oil would remain around $100 per barrel. As of August 2014, energy companies (oil and gas, etc.) had outstanding debts of roughly $350 billion – in the junk category alone. That’s a scary thought.Anyway, US oil production is booming, and global demand is cooling. That’s the story, at least. But when you look at the data – it just doesn’t hold up. Let’s look at a 2014 report from the US Energy Information Administration (EIA) detailing global oil supply and demand and make a judgment for ourselves.In 2013 global oil production was 90.90 million barrels per day. Global consumption was 91.24 million barrels per day. Then, the US surged and global oil production jumped in 2014 to 92.94 million barrels per day. Meanwhile, consumption grew to 92.13 million barrels per day. As of the end of 2014, daily supply exceeded demand by 800,000 barrels per day in a market that consumes more than 92 million every day. The world is producing .85% more oil than we’re consuming. That marginal “oversupply” has resulted in a nearly 60% drop in oil prices.It doesn’t add up. There are other factors influencing prices that don’t show up on a data set. What are they?Fear, anxiety, and uncertainty. As Chud likes to call it, animal spirits. The market reaction has as much – if not more – to do with people’s emotions than it does with fundamental economics. If traditional supply and demand can’t adequately explain the seismic shift in prices, behavioral economics might.Take Goldman Sachs for example. As recently as October 2014, the bank forecasted prices of Brent Crude to be $100/barrel for Q2 2015. Later that month, they changed their mind and lowered their forecasts to $85/barrel. Goldman, an investment bank with what one would believe to be almost ubiquitous fundamental information about oil supplies and demand, couldn’t even see this coming. When Goldman revised their forecast, they issued a statement. In it they said, “WTI could fall as low as $70 in the second quarter and Brent as low as $80, when oversupply would be the most pronounced, before returning to first-quarter levels.” They were dead wrong. They didn’t - they couldn’t - have predicted such a free fall. And they weren’t alone, other major investment banks with divisions devoted entirely to oil price speculation made the same error, though I use that term loosely.Well, what else happened? Why is the market panicking?On November 27th, 2014 the Organization of Petroleum Exporting Countries, known as OPEC, held a meeting in Vienna to discuss the fall in prices. OPEC is headed by Saudi Arabia, the pre-eminent global oil supplier for the past 40 years. OPEC produces anywhere between 30 and 40% of world crude supply annually. The market waited anxiously for a response from the group on how they would react to the fall in prices. There was tension amongst the group members. Venezuela needs oil to trade for about $120/barrel to balance its government budget. They wanted to cut production. Saudi Arabia didn’t care about price. They were concerned with market share. The Americans were impeding on their territory and they were ready to defend it. They had a $750 billion cushion in currency reserves accumulated from godly high margins over the last 30 years. They’d learned their lesson since oil crashed below $10/barrel in the 1980s. They’d prepared for this.The market held its breath. Analysts said they would need to cut 1.5 million barrels/day to keep prices afloat. After six hours of congregation, the Saudis won out and OPEC would continue its current pace of drilling. Oil prices dropped 7% that day. They haven’t looked back since.OPEC’s stance was clear: they want to keep their market share and wipe out American oil producers. Saudi Arabia, the leader of OPEC, is willing to withstand low – even negative – profit margins as a result. Saudi Arabia’s state-owned producers bet they could ride out the storm longer than the private United States producers. In January, Saudi Arabia released a 2015 budget outline. The key statistic – they forecast a $38 billion deficit. In 2014, they ran a $54 billion surplus. A major reason? Total exports are expected to decline by 4.4%. Meanwhile, non-oil exports are expected to increase by 3%. They’re bracing for a significant reduction is oil revenues. Insert the price war.Reports have surfaced that Saudi Arabia is offering drastic price cuts in its exported oil to Europe and Asia. They’re selling oil as low as $4.10 below the benchmark price, nearly 10%.There is no real question that there is a competition – some call it a war – to hold onto market share and outlast competitors in the oil market. Saudi Arabia and OPEC are betting that they can drive out US producers and eventually get supply back to a ‘healthy’ level, where the market price will stay at the elevated levels we’ve been used to. The upstart Americans are a nuisance – and a real threat - to the stronghold OPEC’s had on the market for decades. Neither side is willing to give in. Production in both areas is expected to continue to grow through 2015.So, what is driving the oil prices down? The confusion that arises from all of this hoopla. Investors just want to know. They want to know who’s gonna win. They want to know if the Saudis will stay on top. They want to know if the Americans are for real. They want to know how long this battle will last. Uncertainty in financial markets creates hysteria. It produces emotional responses. It drives people to make judgment calls on the spot that may not be fully informed. And passive investors get caught up in the mix. It’s biology that says we like to follow the crowd.Take, for example, the tulip craze of the 1630s in Holland. Through pure speculation, tulip bulbs became so vastly overpriced that Dutch citizens were trading their properties and life savings for a single bulb. Eventually, the market realized its folly. The price of a tulip reverted back towards its value and subsequently crashed. Some people lost everything. Why would anyone trade a farm for a flower?We humans are not always as rational as we think. We tend to make hasty, uninformed decisions.  As oil continues its slump, some investors are yelling “buy, buy, buy!” Some are fleeing the market with their tails between their legs, selling all they’ve got and living to fight another day.It’s hard to judge how the price will move in the future. It’s very low right now – but we said the same thing $30 ago. Will it continue to fall? I don’t know. But as I wait, I’m observing people’s emotions just as closely as the facts. The headlines and the numbers may tell different tales.Sourceshttp://www.gasbuddy.com/gb_retail_price_chart.aspxhttp://www.bloomberg.com/news/articles/2013-08-26/leveraged-debt-exceeds-2-trillion-in-repression-credit-marketshttp://dealbook.nytimes.com/2015/01/11/as-oil-prices-fall-banks-serving-the-energy-industry-brace-for-a-jolt/https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdfhttp://www.cnbc.com/id/102122961http://money.cnn.com/2014/11/27/news/opec-oil-prices/http://www.forbes.com/sites/nathanvardi/2015/01/05/saudi-arabias-750-billion-bet-drives-brent-oil-below-54/2/https://www.mof.gov.sa/English/DownloadsCenter/Budget/Statement%20Details%20(PDF).pdfhttp://www.bloomberg.com/news/articles/2015-02-10/iran-s-heavy-crude-price-set-at-3-66-bbl-discount-for-march

‘Tis the Season (For Low Quality Films)

By Rob Gelb

Think about your favorite film, or films. Now, look up at what month it came out during the year it came to theaters. Chances are it was not in January.In the film community, the months of January and even February are more often than not recognized as a “dump period.” The films are typically of low quality, and are not expected to succeed nearly as much as films released a few months (if not a few weeks) prior to “Happy New Year!” To quote Dr. Evil, “It's easy to kill a movie. Just move it to January.”So why January and February, of all months?There are a few reasons, and they trace back to both the movie executive and the movie patron.For starters, there is the timing. Oscar season has already begun at this point, and movies that have not premiered or been released until past December are no longer eligible for nomination. Furthermore, films that do get nominated for awards often are re-released in theaters, capitalizing on the buzz that the film is getting. It is easy to say that most moviegoers at that time are more interested in the Oscar nominated films than the films being released for the first time. Studios are aware of this, and so they play it safe.What playing it safe means is releasing movies studios suspect are of low quality. The way it works is this: movies are screened to a test audience prior to setting up a release date. These audience reaction help decide where the film should be placed. In many cases, well received movies are placed between August and December, while poorly received movies end up in January or February. It is a way for them to cut their losses with films they are worried will bomb.Often they are right. Films on average are rated poorly compared to any other months of the year. A quick check on the website Rotten Tomatoes is all you need to get my point.At the same time, and maybe as a consequence, fewer people go to see movies in January. In fact, some years the box office will report that the total gross revenue will be under $1 billion for the entire month. To put that into perspective, some of the highest grossing films of a given year have individually made more money than all of those January films put together.There just is not the market or audience available at this point, and here is why. After Christmas has ended, chances are people have spent their fair share of disposable income on holiday presents. In fact, Consumer Reports indicated that people on average overspend by 16%, especially when it comes to using a credit card. People want to save, and there is invariably a dip in domestic consumption starting at the beginning of the year. The cold weather does not help either, as people are less likely to going to movie theaters, preferring to stay inside and watching Netflix in the comfort of their home. I know I would.Not all of this is set in stone. There are plenty of exceptions to the rule. Many Clint Eastwood films do very well, even when released in January-American Sniper is one of them, taking in over $300 million in gross revenue last month alone. Meanwhile, take a film like Silence of the Lambs. Released in the middle of February, which is still part of the dump period, it was a box office smash, and would go on to win the Academy Award for Best Picture 12 months after it first came to theaters. At the same time though, think long and hard about whether or not the other dozen or so movies that are part of that dump period group every year are worth the money.Personally, I almost never see a movie in theaters between December and March. Thank goodness for Netflix.Sourceshttp://www.zimbio.com/Beyond+the+Box+Office/articles/bggSWsnkxIY/January+Worst+Movie+Monthhttp://www.boxofficemojo.com/news/?id=4015http://www.wisebread.com/dealing-with-post-holiday-credit-card-debthttp://www.statepress.com/2015/01/19/post-oscar-nomination-blues-lead-to-january-movie-season-slump/

Nuclear vs. Solar: Charting the Fight of the Future

By Cole Lennon

Economists have long been bickering over whether nuclear or solar power would win out and become the designated energy of the future.  The fight, apparently, is already being called.  Solar is the declared winner.  The battle for nuclear vs. solar looks set to finish.Solar energy makes much more sense from an economic standpoint because it has a superior estimated return on investment. The estimated return on investment (EROI) for nuclear is hardly agreed upon, but standard estimates range from 5:1 to a 15:1 return.  The mean estimate in recent research is 14:1, providing a huge boost on average to those who opted to invest.  In 2010, this return exceeded shale, ethanol, biodiesel, and solar.  Many issues, however, lurk beneath these numbers that solar will use to its advantage.The first issue concerns both cost and scalability.  Installing one nuclear plant is estimated to cost about $10 billion.  This large cost can only be met by extraordinarily large companies and titanic subsidies for smaller companies.  Solar projects win out in terms of cost and scale.  Standard projects for houses only cost thousands of dollars, not billions.  It is far less costly and more easily scalable to build new sets of solar panels instead of an entire new nuclear plant.A second issue is the amount of growth in each industry.  Nuclear usage has been flat and is set to decline in rich countries. This trend did not start suddenly either.  Nuclear’s operable worldwide capacity has been hovering around 350 GWe (gigawatts of electricity) since 1994.  Costs of actually making nuclear energy today are also extraordinarily variable, as many are unsure of the future of this energy source.Solar energy today is experiencing incredible growth.  Photovoltaic solar—one of two major types, and the kind requiring solar panels—grew 38% last year and is now at worldwide capacity of 138 GWe.  This growth does not show signs of stopping either.  China alone invested to make 13 GWe more of solar in 2013.  Worldwide investment in solar was also over $113 billion in 2013, more than any other power source.  Solar energy, like most energy sources, still takes over a year for production to reach full capacity, but this boom in solar is eclipsing nuclear power’s stagnation.Stop the fight.  This one’s over.  Solar has won this one handily.Sourceshttp://www.economist.com/news/special-report/21639020-renewables-are-no-longer-fad-fact-life-supercharged-advances-power?fsrc=scn/tw_ec/we_make_our_ownhttp://noahpinionblog.blogspot.jp/2015/02/what-is-eroi-of-nuclear-power.htmlhttp://www.roboticscaucus.org/ENERGYPOLICYCMTEMTGS/Nov2012AGENDA/documents/DFID_Report1_2012_11_04-2.pdfhttp://www.economist.com/sites/default/files/20120310_nuclear_power.pdfhttp://www.epia.org/index.php?eID=tx_nawsecuredl&u=0&file=/uploads/tx_epiapublications/44_epia_gmo_report_ver_17_mr.pdf&t=1424029062&hash=2a7909267b259c98ef3f1a4113f94a23487c404ahttp://noahpinionblog.blogspot.jp/2015/01/nuclear-will-die-solar-will-live.html

Lessons from the Marshmallow Experiment

By Joe Kearns

What could a marshmallow possibly suggest about a child’s future? Quite a lot, actually. Psychologist Walter Mischel’s Stanford marshmallow experiment and follow-up experiments demonstrated that the ability to delay gratification at a young age is positively correlated with success in a variety of educational, health, and other measures. This correlation has substantial implications for economists who attempt to understand irrational decision-making.Mischel conducted his experiment at the Bing Nursery School at Stanford University in 1972, where boys and girls ranging from 3 to 5 years old were the subjects. Experimenters instructed the children to sit a table for 15 minutes with a marshmallow in front of them and promised them a second marshmallow if they did not eat the first. When experimenters followed up with the children many years later, the children who had delayed gratification and waited for the second marshmallow generally had higher SAT scores, lower levels of substance abuse, and a lower, healthier body mass index. The implication of this experiment is that the cognitive ability to delay gratification helps individuals accomplish life goals.A new experiment incorporated an additional variable: the child’s perception of adults as reliable. The experiment conducted by University of Rochester researchers conditioned children to trust or distrust them by promising them a new box of art supplies prior to the marshmallow portion of the experiment and they either followed through on the promise or reneged on it. Only one of the children interacting with an “unreliable” adult waited the full fifteen minutes, while nine who interacted with a “reliable” one waited that time. This suggests that the social interaction of children with adults who influence them, particularly parents or teachers, conditions them to decide whether or not delayed gratification is worthwhile. Mischel refutes the notion that self-control is genetically deterministic, arguing that “the genome can be as malleable as we once believed only environments could be.”These experiments together shed light on how individuals make decisions which seem irrational. This is particularly valuable for economists who examine how the average American with a credit card has almost $16,000 in debt or why the majority of American retirees turn down annuity payments in favor of a lump-sum payment that could run out in their life-times. There are countless economic decisions all individuals face when the temptation to eat the marshmallow exists. The ability to resist is sheer rationality, but it is not the whole of what it means to be human.Sourceshttp://www.slate.com/blogs/xx_factor/2012/10/16/the_marshmallow_study_revisited_kids_will_delay_gratifcation_if_they_trust.htmlhttp://www.economist.com/news/books-and-arts/21623573-walter-mischel-test-became-his-lifes-work-desire-delayedhttp://www.nber.org/papers/w18575http://money.cnn.com/magazines/moneymag/money101/lesson9/

Crying for Argentina

Hello everyone and welcome to the first PSUEA blog post of 2015! My name is Mitchell Shuey and I plan on keeping this site chock full of the best information and current events in our economic world. First, I’d like to expand our horizons to the southern hemisphere, where an important country is undergoing a progressively worse and worse bust.

Argentina has had a very volatile financial history, but as I researched further and further back, I discovered that somehow, Thailand can be linked to the start of a domino-chain international economic freak-out. Stay with me here, this is about to get crazy. We’re going back to a simpler time- 1997. Let’s look at some pictures of things that existed back in ’97:Okay, enough reminiscing. Thailiand stopped pegging its currency to the US Dollar in the middle of 1997. Almost immediately after, the value of countries next to it such as the Phillipines, Malaysia, and South Korea were affected. Brazil was hit (being a country with lots of Asian investments), and Argentina soon followed. This is called Financial contagion and it has proved to spread economic crisis across any and all borders. Argentina’s recession was particularly bad because it lasted for years afterward, unlike the other countries affected. Since then, their economy has struggled to stabilize. Inflation has been the biggest struggle recently, increasing as much as 40% according to some opposition statistics.Extreme inflation, or hyperinflation, is a rare occurrence but oddly fascinating due to how chaotic it makes life for people. Take for example the Zimbabwean dollar, which in the late 00’s rose to ludicrous exchange rates:

Month	ZWR per USD
Sept 2008	1 000
Oct 2008	90 000
Nov 2008	1 200 000
Mid Dec 2008	60 000 000
End Dec 2008	2 000 000 000
Mid Jan 2009	1 000 000 000 000
2 February 2009	300 000 000 000 000

How could anyone possibly carry around trillion dollar bills? What led to this? Simply, it’s a matter of poor planning on the government’s part. The government controls the money supply through mints and banks, meaning every country has a monetary policy. A good government policy means they will be careful and print just the right amount to keep cash circulating. A bad government policy is printing out more money to pay debts off. You can guess which one Zimbabwe did.

At the end of 2008, one of these bills was worth 1/40^th of a cent.

It was cheaper to literally use these bills as toilet paper than to buy some.

Despite all of the nonsense, It’s already looking like Argentina is past the worst part of the business cycle, or the cycle of boom and bust seen again and again. Their economy is largely agriculture-based, with a rising portion being service-based like the USA’s, so jobs are safe for the most part. But Venezuela’s in an immense crisis of its own, and the World Cup did no favors to the economy according to most, leaving Latin America still struggling behind its more developed counterparts.Thanks for reading, and be sure to subscribe to the PSUEA’s e-mails for updates and more articles!

By Mitchell Shuey

Unhappiness as a Business Expense

Unhappiness is not just all in one’s head: It shows up right on the balance sheet. New research has found alarming conclusions on just how much being dissatisfied at work affects productivity and how companies operate. The second half of this point concerns what companies are doing to combat the scourges of a dour workplaces across the country.

The entire U.S. economy alone loses an estimated $350 billion annually on account of workers not being happier while working. On a smaller scale, happier workers are measured to be 12% more productive than unhappy ones, so the opportunities can likely be felt from business to business too. The second part of this problem concerns fixing it: Now that many companies also realize it is an issue, what are they doing about it? The first tactic is to give more incentives to stay: Think Google’s new juice bar or Airbnb’s $2000 per employee allotment for them to travel. The second method is to find ways to get rid of unhappy employees. Zappo’s and Amazon are planning on experimenting with a pay-to-leave program; they are thinking of paying new hires to leave as soon as either of these companies detect intractable problems with workplace morale. This is to ensure that they do not go through the expense of training someone who will not make proper inroads with other employees.

Fixing any issues from there is also not cheap; the cost of replacing an employee for a position is 20% of the annual sala-ry for that spot. Along with lost productivity, companies should not have to incur this cost. Forgoing that costly opportunity of hiring a potentially unhappy worker is not just for the sake of fit or peace of mind: The bottom line will also be better for it.

-CL

Sell, Sell, Sell: Market Panic in Nigeria

Nigeria rode the wave of energy exports until it crashed in dramatic fashion. A fall in oil prices has been particularly detrimental to  Nigeria, which depends on oil and natural gas for 96% of its export revenues and 80% of its government revenues. The largest African economy has seen its currency, the Naira, fall to multiple all-time lows against the U.S. dollar in recent weeks. Nigeria’s economic troubles reinforce the value of a diversified economy and caution when investing in emerging market economies. The Nigerian central bank has actively responded to this dismal economic situation, but failed to reverse a weakening of the Naira. This month, it sold dollars and bought the Naira after the dollar was trading above 172 Naira. It also prohibited the import of goods  paid for in dollars and established a ceiling of deposits in its Standing Deposit Facility to 7.5 billion Naira to increase the amount of  Naira in circulation. Despite these moves, the Naira continues to weaken relative to other currencies. The dollar again climbed up to 173 Naira on Nov. 13. In a year-to-date measure, the Naira has lost 8% against the dollar and more than 4% since Nov. 1. Many investors are at risk of a negative return on their assets in Nigeria. The Investment Corporation of Dubai, Dubai’s sovereign wealth fund, bought a minority stake in Nigerian-based Dangote Cement worth $300 million in September. Some companies are not hesitating in trying to get out of the Nigerian economy immediately. Anglo-Dutch oil giant Royal Dutch Shell PLC signed agreements to sell all of the Nigerian oil assets it attempted to sell last year. In July, U.S. company ConocoPhillips sold Nigerian oil assets to Oando PLC, a local firm.

The rise in North American energy production suggests that the global fuel supply is likely to remain high for the foreseeable future. Along with the increase in market players, this means Nigeria should not expect a return to normalcy any time soon. To replicate its recent success, it must make its economy less dependent on oil revenue. Considering the massive extent to which the economy is currently dependent on oil revenue and the expected future decrease in prices, policymakers have an unenviable task ahead of them.

-JK

eBay to PayPal: “It’s not you, it’s me”

Corporate spin offs or split ups hardly signify doom and gloom. PayPal and eBay are plan-ning to split up because they are more profitable as separate entities. In general, splitting a firm can help focus management and maximize shareholder value.

In the case of eBay and PayPal, the costs of maintaining a unified business model dwarfed their benefits. A large por-tion of PayPal's payment volume comes through third parties, which are often merchants that compete with eBay and are reluctant to indirectly benefit a competitor. Additionally, PayPal no longer needs eBay to pay for its accessories. PayPal depended on eBay for 50% of its payments in 2009, but it now obtains just 30% of its payments from eBay. If anything,

eBay is holding PayPal back, considering that PayPal’s revenue figure is growing at 19% com-pared to eBay’s 10%. The breakup will finally happen next year and make both parties better off. In agreeing to the breakup, eBay is telling PayPal, “It’s not you. It’s me.”

- WI