The Liberal Order

Speaking of Super Bowl ads . . .

. . . here is a funny remake of the old Coke commercial starring Amy Sedaris. Amy is from Raleigh and my wife and I enjoyed her talk at Quail Ridge Books last spring.

 

One More Video Clip

Given the dispute within the economics blogsphere about Alex Tabarrok and Tyler Cowen's graceful criticism of Paul Krugman, I thought that Krugman's response was apropos to this clip from Thank You For Smoking. Krugman has decided that acting like Ann Coulter or Michael Moore within the economics profession is good strategy. Tyler's comments were exactly correct.

 

Ice Cream Politics
Thank You for Smoking — MOVIECLIPS.com

 

 

 

Creative Destruction - Will We Witness the End of Bookstores Soon?

As I shopped at Wal-Mart today, I passed by a display of $5 DVDs. I recalled having paid $89 for the first movie (VHS) I ever bought, one of my all-time favorites. I had no reason to pay even $5 for one of these DVDs given that I already subscribe to streaming Netflix, and if a movie I wish to view is not streaming, I can have it mailed to me as part of my subscription service. 

Book ownership (i.e., purchases) may soon follow the path of the VHS and DVD.

Amazon is considering a Netflix-like service that would let people pay an annual fee to get book "rentals," according to a published report.

Rather than go to either a bricks-and-mortar or online bookstore, or better yet, buy an e-text version online, I can just download a copy as a rental from Amazon.com. This is apparently - and needlessly - scaring publishers.

Quoting "people familiar with the matter," the Journal said some publishers worry that such a service would cut down on the number of people buying books and hurt their relationships with other distributors.

Video rental stores vastly expanded the sales of DVDs following the introction of video rental stores, in large part from sales to rental outlets. Some rental outlets also paid large royalties to movie companies. The same would be true of books from Amazon renting online versions. Taking up Amazon on their offer to rent Kindle versions of their books will a) increase the number of their books read (i.e., demand and quantity demanded); and b) produce royalties for their products at zero marginal cost to the company.

The real question is, will movie companies still be around in ten years?

Outcome of the Debt Ceiling Debate

Obama comes out the winner, if only because the debt ceiling is now off the table until after the next election.

For all the screaming and gnashing of teeth and referring to smaller government types as terrorists, the compromise bill is nothing of the sort - the Republicans caved. There will be NO substantive cuts in either discretionary or entitlement spending over the next ten years.

For anyone who sees it otherwise, I have a simple bet: At the end of 2010, federal debt held by the public was $9,395,411,000,000 and GDP was $14,755,000,000,000. This is a debt-to-gdp ratio of 63.7%. (We'll only consider debt held by the public.) I am willing to wager $100 that the debt held by the public exceeds 60% of gdp at the end of 2020, the particulars to be worked out later.

Like George Kennedy says of Paul Newman in Cool Hand Luke, "Nothin'. He beat you with a hand full of nothin'." The Republicans folded and lost to a hand full of nothin'.

 

Quote of the Day

"One of the things you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o'clock, there are two possibilities. One is that they're looking for a job and have an interview; the other is that they are an a**hole. This was the latter case."

Larry Summers describing his encounter with the Winklevoss twins as they lobbied his help to go after Mark Zuckerberg.

The Glorious Evolution of Computer Animation

Russ Roberts sings praises for Kung Fu Panda 2.

Obviously animated films like this have improved over time. But it isn’t just the animation but the ability to visually tell the story as a director, that makes a film like this so entertaining and beautiful.

I will respond by singing the praises of market competition and decentralized power as major causes of this transformation of computer animation over the last four decades, but not necessarily the only causes.

If you've not read David Price's Pixar Touch: The Making of a Company, I highly recommend it. (Another good shorter read is Ed Catmull's piece in the Harvard Business Review, "How Pixar Fosters Collective Creativity.") Pixar's successful business model is largely based on a more horizontal corporate hierarchy that develops talent from within, allowing for more cooperative learning and benefitting from knoweldge of particular time and place that each individual worker brings with him or her.

Its success also comes from commitment to developing the story as well as the technical craft. This commitment has prevailed since the very beginnings, before it even became known as Pixar. The result is twelve feature films with only one apparent flop and twenty one short animations.

The following is a good discussion of Pixar with Ed Catmul, Brad Bird, Alvy Ray Smith, and Andrew Stanton.

 

The Success of Apple's Retail Stores

More people now visit Apple's 326 stores in a single quarter than the 60 million who visited Walt Disney Co.'s four biggest theme parks last year, according to data from Apple and the Themed Entertainment Association. Apple's annual retail sales per square foot have soared to $4,406—excluding online sales, according to investment bank Needham & Co. Add in online sales, which include iTunes, and the number jumps to $5,914. That's far higher than the sales per square foot and online sales of jeweler Tiffany & Co. ($3,070), luxury retailer Coach Inc. ($1,776), and electronics retailer Best Buy Co. ($880), according to estimates.

Story here.

Further down is this:

Apple's success with its stores stands out at a time when many retailers have struggled. In 2009, when retail sales declined 2.4%—the first down year in several decades, according to retail consultancy Customer Growth Partners—Apple's retail sales rose roughly 7%. In 2010, Apple's retail sales, excluding online, jumped 70% to $11.7 billion, or about 15% of its revenues of $76.3 billion, handily exceeding the overall retail industry's sales growth of 4.5%.

Other retailers have tried to copy everything from Apple's in-house tech support to store layout. Best Buy acquired computer repair service Geek Squad in October 2002, a year after Apple opened its first store, but it has failed to reinvigorate its business. Best Buy's profit margin hovers at about 1% before taxes and excluding online sales, estimates Customer Growth Partners. In comparison, Needham & Co. puts Apple stores' profit margin at 26.9%.

It's all about the experience. Apple's products are the "cool" in products to own. Its competitors are even made fun of in popular television shows. (See the video clip below.)

When you walk into an Apple store you want to play with the products and Apple facilitates that desire. Like going to Las Vegas, you walk into Caesar's Palace and feel the ambiance - the marble and the brass statues, the furniture and window treatments, the vaulted ceilings, the expensive shops - all that luxury just sitting there urging you to splurge. Apple's stores create the same feeling. You walk in with the attitude, "Man I'd like to own an iPad, but I just can't afford one." Sure enough, you're walking out with an iPad and asking yourself, "How did I ever get by without one?"

Compare the experience of shopping at an Apple store with shopping at Best Buy or Wal-Mart. First, you're inundated with too much stuff packed into a far too complex store layout. Second, even if you could play with the merchandise, much of it is somehow inoperable or just not fun, and it's not cool. And in the case of Wal-Mart, too much of the stuff you can't touch and play with, and too much of it is broken.

  

The Story of Economics

A very good video on economics.

HT: Tyler Cowen

The Story of Economics from Kate Burn on Vimeo.

 

Keynes v. Hayek, Round II

Munger is great; John Papola John Papola's father looks eerily like Fed Chairman Ben Bernanke.

 

Our Declining Attention Spans . . . . .

First they took away the epic films like Gone With the Wind, Ben Hur, and The Ten Commandments and replaced them with shorter and shorter films.

Then they gave us Sesame Street, a collection of little snippets of dialogue strung along for one hour to seemingly hold a toddler's attention, which denies teaching them how a story develops and following a narrative that extends beyond a short minute.

Now they're abandoning thirty-second commercials because we don't have the attention spans that last that long. Of course not! What's next?

The number of 15-second television commercials has jumped more than 70% in five years to nearly 5.5 million last year, according to Nielsen. They made up 34% of all national ads on the air last year, up from 29% in 2005.

Commercial-skipping digital video recorders and distractions such as laptops and phones have shortened viewers' attention spans, says Deborah Mitchell, executive director of the Center for Brand and Product Management at the University of Wisconsin. Viewers are also watching TV streamed on sites like Hulu, where advertisers have less of a presence.

So companies figure: "Why spend money on anything longer anyway? Plus, if they're going to skip our ads, at least we have a better chance of them seeing something if it's really short," Mitchell said.