CRITIQUE: LL Bean offers year round free shipping

For my critique I chose the blog about outdoor merchandise companys, LL Bean, and their decision to offer free shipping on any and every order no matter what the quantity or size of shipment. LL Bean is now joining another online apparel company, Zappos.com, to offer a no strings attached free shipping agreement. Although this tactic may work for a short while, I am skeptical to say that LL Bean can continue to pay for the shipping fees for every order without noticing a decrease in their profit margin. This may give them a brief advantage to other substitute competitors, but how could a company know that the other online, catalog stores will not jump on the bandwagon of free no strings attached shipping. With LL Bean being one of the only companies with this offer of free shipping, it will have an advantage over a substitute company because the customer will more likely take the free shipping offer with LL Bean since they offer the same products. I do agree that customers are more likely to "trash" their shopping cart due to the high expenses of shipping and handling; I am guilty of that myself. Especially during holiday seasons, on top of the great deals from sale prices, many companies offer free shipping to online customers. It could be said that this is an example of expansionary policy for the apparel world. The companies want to help stimulate the sale of goods and by doing this more consumers purchase more because they feel like they are getting more for their money. LL Bean chief marketing officer, Steve Fuller, stated that the company was on the fence about offering this free shipping for a few years and they occasionally offered it to see how the customer base would react. Many customers took advantage of this offer and it allowed the decision of the company to be much easier. The fact that LL Bean listened to its customers may also get a higher loyal customer base even if its competitors decide to jump on the bandwagon of free shipping. With the 5.8% increase in sales already from last year, LL Bean is counting on the free shipping to boost sales even more and plan on the increase in sales to offset the cost of providing free shipping. Overall, I feel that LL Bean is making a smart decision by offering free shipping to customers during this economic downfall.

Critique on Federal Lending Crisis

This article talks about the issue of the Fed loaning out large amounts of money to help keep banks afloat during these rough economic times. Smaller banks would take out loans as low as $1,000 and then you have banks borrowing 6 million and still going bankrupt shortly after. Small and large banks all over the country were having severe issues in 2007-2008.
I do believe people should know how much and how often their banks borrow money. Yes, it may discourage them from using the bank but they should know what kind of organization they are trusting their money with. If they are dealing with a bank who is barely keeping their head above water, they might approach and handle situations differently. I am looking at it more as a civilian and not an economist though. I know if I am working everyday for my money, I want to put some place I know it is safe.
I do think it is important for the Fed to offer loans to the commercial banks; because without that the smaller banks will not be able to borrow money. Even though I said people should know how much and how often their banks borrow money, but everyone goes through rough spots. Borrowing money shouldn't be seen necessarily as a bad thing, because again it is basically unavoidable. But if your bank has to borrow 6 million and still cannot operate, something is wrong.
Overall I thought it was a good blog, it gave a good definition of how the Fed worked. I think anyone who didn't know anything about the Fed would have a much better understanding of it just by reading this blog. I would have liked to known a little bit more about what they personally thought about the situation.

Critique-Why Are Gas Prices Rising?

The two articles used in "Why Are Gas Prices Rising?" discuss and try to pinpoint the issues behind gas prices rising. Analysts estimate prices could rise to $4 a gallon in the near future. Such a dramatic rise could hinder our already slow economic recovery. They attribute the rise in prices to the situation in Libya and surrounding areas. Analysts are very worried about protests beginning in Saudi Arabia because they supply 10% of the world’s daily production of oil. If protests began in Saudi Arabia oil prices would skyrocket. To aid the price raises the United States government contemplated using USA's 727 million-barrel reserve oil to aid in lowering the price of oil. Its estimated that for every $0.10 rise in gas prices it takes $14 billion per year out of the consumer’s wallet.

The original blogger mentioned how technology and taxes could potentially affect prices. These were good points and plausible situations. However, not discussed, were some of the current issues affecting this rise in gas prices. Uncertainties and price expectations are affecting gas prices and the economy’s recovery.

Currently, gas prices are rising largely due to uncertainty and expectations about what could happen in Libya and Saudi Arabia. Price expectations are the first part of the inflation equation. In this situation, this number would be very high because consumers are expecting that if the outbreaks continue in the Middle East, production of oil will cease, supply will decrease, and there will be large jumps in prices. Expectations such as this, could lead to an outward shift of the short-run Phillips Curve, as well as, a possible inward shift of the aggregate supply curve.

This rise in gas prices is only going to slow down the United States road to economic recovery even more. Gasoline is a relatively price-inelastic. Meaning consumers will pay any price because they need the good, gasoline, to function normally in their everyday lives. This is easily seen in the Bureau of Economic Analysis’ most recent report. The changes from quarter to quarter of the consumption of gasoline and other energy goods are minimal, at $285.5 billion in 2009 and $284.5 billion in 2010. These numbers show how inelastic gasoline is because its consumption was barely changed even through a recession. This most recent rise in prices means consumers will be putting more of their disposable income towards gasoline instead of spending it on clothes, cars, food, or investing which would all help the economy.

At this point, we can only hope that this rioting ends soon. Not only for the safety of the Middle East, but also so oil prices can decrease and our economy’s recovery can speed up.

Critique - Japanese Banks: Home and Away

The blog post, “Japanese Banks: Home and Away” touches on several crucial points and thoroughly investigates the way in which the Japanese banks are in trouble and are finding success. The blogger makes good use of economic terms and makes the article easy to read. Additionally, I find the idea of speculation at the end of the article to be a very clever touch and I am inclined to agree with his take on how the crisis would affect the issues facing Japanese banks.
Overall, the issue with the Japanese banks is one that should be enviable by other banks, and the blogger states as much. I think that while this is enviable, the blogger missed a crucial part of the article that stated that past failures in foreign investments and corporations had not gone well for the Japanese in the past. These past failures demonstrate some of the trepidation on the part of investors. With the seeming unwillingness of the Japanese to expand their traditional isolationist policy and incorporate foreigners into the hierarchy of their foreign acquisitions, the issues facing the banks and their stockpiles of money may not be as simple as taking advantage of the tragedy with the tsunami and finding the now needed investors.
Furthermore, while the blogger makes a good point about how there is now greater investment demand (total amount given to the economy by firms and corporations), the source of the loans must be reanalyzed as well. Yes, people will need to rebuild and take out loans in order to survive this tragedy and the banks are very eager to do this; however, the situation has changed drastically for the Japanese. The blogger failed to mention a very important part of investment on the part of the demanders and consumers, confidence. The confidence in the overall structure of Japan is very fragile at the moment and there are great international concerns about the pressures created by the tsunami and its devastation. Consumer confidence is essential to the success of these banks and the loans given out. Without the confidence in the loaners, the loanees might ultimately look in other directions for their loans – directions that have more stability and are less likely to be affected by crises in the near future.
Ultimately, this article and post were very interesting and provide much to the think about. The difference that two weeks makes is quite shocking as pointed out by the blogger. It will be interesting to see if the Japanese banks can capitalize on the increase in demand or if they will ultimately suffer like the rest of the economy as a result of the fear created by the disaster.

http://www.economist.com/node/18233464?story_id=18233464

Critique of GDP Growth

GDP Growth, By Matt Kline
Critique, By Tyler Lackey

Matt discussed in his blog the growth rate of the United States economy in the final quarter of last year. The growth rate for our economy was 3.2 percent and it was only predicated to grow at a rate of 3.0 percent. I agree with Matt that this is great news for our country. Our country is technically out of the recession but it will take a very long time for the economy to reach the level it was at before the economic downturn even with the growth that is taking place. This is a positive start for our country, as our economy continues to grow the American people will become more confident about spending and investing their money instead of saving it worrying about if the economy is going to turn south again.

Matt also mentioned that the government needs to find a balance when it comes to spending and taxes and again I would have to agree with him. I believe the government needs to spend less and lower the tax rate for the American people and businesses. If people owe the government less that is more money in their pockets that they have to spend, if consumers have more money there is more incentive for them to spend it and that will help the economy start moving again. The same is true for businesses; lower taxes and they will have more money to spend. The extra money businesses have on hand can be used to create new jobs and hire new employees. The addition of employees to the labor force results in more people with money to spend and a decrease in the unemployment rate.

The Federal Reserve has also been working to help get the economy rolling again. One thing they can do is reduce the RRR which Matt mentioned. If banks have more money on hand they can lend to more consumers who will turn around and use the money to purchase needed goods or services. This again goes back to finding ways to put the money in the hands of the consumer, the more money they have available the more they are going to spend. Increases in the sale of goods will hopefully mean job security for the workers making those goods. Knowing that their job is safe, those workers will go out and purchase other goods. This is a revolving cycle; if consumer’s faith in the US economy is restored they will start purchasing goods and services more often hopefully leading to economic growth.

Samantha Kessel
Blog Critique of “Why does money have value?”
I chose to critique this blog entry simply because of the article title on which it is based. I have always wondered how money works exactly. It’s simply pieces of paper with various prints on it yet we can use it worldwide to buy various goods or services. In class we discussed money and how it is useful due to the phrase “this note is legal tender for all debts, public and private” meaning that its value is actually backed by the government. This just sounds so crazy to me, the idea of a paper being worth something simply because of the words that are on it; also the fact that the government, which is in more debt than I can even begin to wrap my head around, is the backer of our currency. The author of this blog focused on the primary point I also caught onto in the article which is the idea that money is simply a good just like everything else that is produced. I never thought about the fact that money is simply a good that is produced and that it really can be traced back to the old days of the barter system where we were simply trading one good for another good. The article also relates the idea of money to something that we can all relate to; if someone else has it then it is something that we want also. This idea is seen from childhood on, we always want what other people have and money as a good is no different. The article also makes a good point when it comes to the idea of inflation. For many people in class we learn about inflation yet we do not actually completely understand it because it is not something that we have actually had any experience with in our lives. The author of this article however makes it much more understandable by describing it as a time where we no longer know what our dollars are actually worth. For example we could take an entire barrel of money, as stated in the article, to the store to buy something as basic as a loaf of bread. The article also directly relates inflation to what we have learned in class by describing why inflation or deflation even occurs. It states that inflation is related to the same principle as a supply/demand system. This tells us that the supply or demand for money can be affected not only by money directly but also by the rise or fall in the supply or demand of other goods. This article is a great summary of a product that we take advantage of every day yet many people do not actually stop to consider.

Critique: The United States Housing Bubble and The National Association of Realtors Commerical

A recent commercial aired by the Nation Association of Realtors prompted me to want to explore this article. The original article from the global news source Reuters, which Jack had chosen, provides an update of the current housing situation here in America (which looks pretty grim). Jack’s initial response to the article furthered my interest because he applied some things learned earlier in the semester to explain why the housing market collapsed the way it did.

The recent commercial aired by the Nation Association of Realtors advocates that housing sales creates jobs; for every two houses sold one job is created. Further more on their website, the National Association of Realtors argues that the housing industry is what pulled the United States out from six of the last eight recessions and at the end states “Jobs and homeownership. You can’t have one without the other.”

The housing market went into turmoil because of the faulty mortgages being handed out. The American dream after World War II was to own your own home. Mortgage brokers not only supported the dream to own your own home but helped place people in homes, which were beyond their means. Their crucial error began here when they started providing extremely risky mortgages to people who had little probability of being able to repay the mortgage. As mortgages failed, they were split into packages and derivatives and resold. As money available for investment became scarcer due to minimal returns on investment, investment supply could not satisfy investment demand. The housing market might have helped pull the country out of the recession six of the last eight times, but the housing market this time around helped pushed the country back into a recession.

As found by Okun’s law, as RGDP increases, unemployment decreases, which theoretically does support the idea that housing sales create jobs. The National Association of Realtors’ statement “Jobs and homeownership. You can’t have one without the other” brings fourth an interesting thought. There is by no means a shortage of housing; the issue is the inexistent demand for housing though there has been a significant decrease in price. Such a large decrease in price with minimal affect on demand indicates that people still do not have the money to purchase housing. The statement in discussion is really a two-way equation. The National Association of Realtors I believe implied that by buying housing, jobs will be created. This may not necessarily be false, but it appears as though jobs are first needed before home sales will improve. “I think recovery can be anticipated given affordability, though employment must improve.” –David Carter, Chief Investment Officer of Lenox Advisors. Further more, in theory, if banks were to support the National Associations of Realtors, they would once again be issuing loans to people who may not necessarily have the means of repaying them; exactly what landed the housing market in this mess in the first place.