Fat Kow, Monopolistic Competitition, and College Diet

A couple of econ colleagues and I were talking about the Business College's latest squatter, the Fat Kow. A new food cart has showed up in front of Bexell, offering a vegetarian menu at the pleasantly low price of $3.50. I'm planning my first visit tomorrow, where they'll be serving Red Beans and Brown Rice Salad. Maybe I can co-opt this blog into a college food reviewer.

The econ kids were talking about how come we don't see more of these food carts in Corvallis. Econ undergrads are notoriously price sensitive (this is why we meet in a bar during happy hour), but there is also a genuine economic intuition behind our curiosity.

Restaurants generally fall under the microeconomic umbrella of monopolistic competition. Like perfect competition, there are many firms and few barriers to entry. But like monopolies, restaurants have a degree of market power and product differentiation. Still, in the long-run, monopolistic competitors should find themselves producing zero economic profits, as any profit should be eaten away by new firms entering the market.

The introduction of food carts has the potential to upset the status quo, as they are generally regarded to have a lower average cost than restaurants. No wait staff, no building costs, and low maintenance needs all might drive costs down enough to seriously change the food game. Restaurants will still serve a purpose; you could probably never bring a date to a food cart unless you both are exceptionally open-minded. But for those quick and cheap dashes for food in between classes, food carts might finally break Carl's Jr.'s $1 spicy chicken dominance over the market.

But while my econ buddies were optimistic about the future of food carts on campus, I was personally hesitant. Thanks to my rigorous theoretical education from Professor McGough, I am now convinced that there are no more good ideas left in the world. If campus food carts are such a lucrative venture, why haven't more entrepreneurs taken up the gauntlet? There must be a reason, maybe some rule banning food carts that the University heads and the angry Panda Express lady cooked up in a back room a few years back. I'm just too pessimistic to believe that a few tipsy undergrads can come up with an original business plan someone else hasn't already tried and failed.

Then again, if I thought I could make money, I'd probably be inside Bexell rather than outside eating savory tofu and garbanzo beans.

Boom, Bust, Wicka Wicka

As promised:


I'm not a big fan of ironic white hip hop, but this video is too important to ignore. It's only in times like these that macroeconomics gets any love. Still, the video focuses on Keynes and Hayek, but ignores Friedman? I'm guessing they're waiting for a sequel where Milton does a drive-by on these fools. And then maybe Blanchard can do a tender folksy acoustic cover.

Next time I'll have a video of a real hip hop artist giving love for expansionary fiscal policy. Or maybe I'll go back to actually talking about economics. Won't that be a treat!

Broadway does Economics

I'm a fan of Ira Glass's This American Life, especially this week's episode, which focuses on the recent Global Calamitous Money Disappearing Event (thanks to Max Barry for that phrase). Alex Blumberg of Planet Money investigates Magnetar Capital, a hedge fund with dubious investment practices.

The story has a lot of complicated financial gobbledygook, but the intuition is pretty simple. Magnetar bought a bunch of risky housing assets, knowing they were risky. But instead of expecting big returns for big risk, Magnetar had a different plan. They took out insurance on these assets in the form of Credit Default Swaps, hoping that the assets fail and Magnetar can collect massive profits from their insurance payoffs. Well, it worked. The company made record profits buying garbage assets, and thus laid the groundwork for a financial collapse.

It sounds like insurance fraud to me, but Alex made a more comical connection. Ever seen The Producers? In that musical, two Broadway producers realize they can make oodles of money by overselling shares on a play they plan to make terrible. NPR takes the analogy a step further by parodying one of The Producers' song in this humorous and informative number:

'Bet Against The American Dream' from Planet Money on Vimeo.

Pretty good stuff, right? Almost as good as this macroeconomics gangster rap I'll be sharing next time. Stay tuned!

Last on his list, first in his heart.

Today some econ club buddies of mine were talking about our adviser, Patrick Emerson, and his Oregon Economics Blog. Someone mentioned that our own blog was placed last on his list of other econ blogs like that was a deliberate insult or something. Well I'm happy to announce that on Friday, April 16th, Patrick Emerson will be speaking to the econ club at 4pm at McMenamins on Monroe. He'll probably talk about the new changes made to the economics major, the state of department, and beer. Accost him there.

Another Meeting and Some Things I Think About In Class

Big news first, the Econ club is having a meeting tonight, April 8th, at McMenamins on Monroe at 10pm. Come and enjoy happy hour with the company of fellow disaffected Econ majors and watch diminishing marginal returns at work. 21+ only, because we still live in a fascist state that's keeping the free market down.

Speaking of diminishing marginal returns, that has to be one of my favorite concepts in Economics. Econ professors like to joke during a long afternoon class that they can definitely see evidence of downward sloping marginal benefits when their students start napping, getting off-topic, and daydreaming out the window. Of course, professors from other departments must also be aware of the gradual decline in focus over the course of a long lecture, but I wonder if economists take less offense to it. I sure hope so because sleeping in class gives me wicked awesome dreams.

A meeting today!

Just as a reminder, there will be a general Econ Club meeting today at 6pm at Valley Library 1422 (that's the big room in the basement). We also baked brownies, which will be available if Jennifer can smuggle them past the library watchdogs.

Should I split or should I steal?

Aside from always sounding prim and intelligent, the Brits also have a knack with game shows. They invented Who Wants to Be A Millionaire and Deal or No Deal. Right now I'm hooked on one that hasn't made its way across the Pond, called Golden Balls.

The interesting part about Golden Balls is the way every game ends. It starts out with two random players working together to build up a pot of money. It's pretty much a lottery game up until the end, where the add an element of game theory, and my econ senses tingle. Anyone who knows the Prisoner's Dilemma will find it familiar. 

After the jackpot is final, each player gets to choose whether they will split or steal the pot. If both choose split, each one gets 50% of the pot. If one steals while the other splits, the thief gets all. If both try to steal, though, they both walk away with nothing. There is discussion before hand, but both players must announce their decision before hands.

All good economists know the Nash equilibrium. Both should decide to steal, and walk away with nothing. Sometimes this happens, but sometimes not. Sometimes, a little miracle happens and both choose split and both hug each other and even in me, a little part thinks I have it all wrong about how cruel and evil the world is. Sometimes, a good soul chooses split while the partner chooses steal, and I feel the loser will go on to be a cynical economist.

This game does break the standard prisoner's dilemma because the agents can communicate and collude. Real life prisoners have done the same thing by forming criminal organizations that have oaths of silence. Suddenly a little bit more jail time doesn't sound so bad when faced with having your loved ones killed by vengeful gangsters. Morality and social pressure work in similar ways. The crowd cheers when the partners reach a split-split decision, and boo when someone steals. Is that extra cash worth being televised as a jerk?

So what would you do? Split or steal? Personally I would split, but only because I'd be diversifying my risk. If my partner splits, I walk out with money and a sense of human progress. If my partner steals, at least I'll be assured that I did not make a mistake in studying the dismal science of economics.