Archive

Author Archive

The Customer is Always Right

March 19, 2013 Leave a comment

urlEvery business is built based on an owner’s incentive to make a profit. However, economic decisions are just one of many obstacles that plague business owners. In After a Blizzard, What’s a Fair Price for a Shovel, Rafi Mohammed explores a topic that affects businesses economically and morally. Here is the scenario he poses:

“Suppose you own a hardware store. There’s been a heavy snowfall throughout the night and you know the moment your store opens at 8 AM, the limited supply of snow shovels will sell out. Should you raise price?” (Harvard Business Review)

In essence, since people must clear the snow from their driveway, demand for shovels after a storm increases. However, since so many people are in need of a shovel at one time, there is a shortage of shovels, meaning there are not enough shovels to sell to all of the people in need of the product.

After presenting the inquiry, Mohammed continues by adding a list of questions to consider:

“If price is held steady, is it fair that those who show up right when the store opens get to purchase at less than the market clearing price? What about those who can’t arrive at 8 AM because they are working or tending to children? Or should the storeowner follow the mantra of economists to raise price until the market clears? In other words, allocate the limited supply of shovels to those who value them the most (i.e., are willing to pay a high price)” (Harvard Business Review).

urlGiven that there are a variety of different options as to how these questions can be answered, business owners choose what they want to do after weighing the opportunity cost of each decision. For example, if a storeowner was to sell the shovels only to the people who will pay the most for them, many shoppers would stop peeping into the store. Some people would rather see prices at a steady rate, so if the owner wants to exhaust his or her customers of all their cash, many shoppers will buy from a nearby competitor. A business owner must realize that his own self-interest lies in the hands of the consumer.

Next, Mohammed moves on to present more issues that plague a storeowner when contemplating raising shovel prices after a storm:

“Is it worth it to potentially alienate customers for a quick profit windfall? Or, to take another view of the situation, if storeowners take the risk of purchasing a large inventory of shovels for the winter season, don’t they deserve to profit? After all, what if they purchase too many shovels and have to liquidate inventory at the end of the season at a money-losing price? If that happens, how many customers will say, “I’ll pay you more than the clearance price because I appreciate that you had shovels ready in case of a blizzard?” Nada. Is it fair to store owners to take all of the risk but not fully profit from their investment?” (Harvard Business Review)

url-1In his array of questions, Mohammed makes some intuitive assertions. He is correct that there is a major possibility the storeowner could end up not profiting from his or her investment in shovels if prices are not raised. However, since “the customer is always right,” storeowners must be prepared to take a hit from a bad investment. The United States operates in a free market economy driven by consumer sovereignty; if the consumer wants to buy a shovel, sell him one. If there are not enough shovels to sell, get more. The benefit of living in such an economy is that there is always ways to modify a product or policy to increase the potential earnings of a business. Whether it’s changing the specialization or fighting off competitors, every business always has ways to improve. However, no business will ever flourish if it does not satisfy its customers.

In conclusion, a storeowner must not raise the price of shovels right after a storm. While the extra cash seems appealing, it is neither fair to the consumers nor beneficial to the business to raise the prices. Satisfying the consumer must be a business’s number one priority in order to earn a hefty profit.

Advertisements

Big Money Harming Elections

February 27, 2013 Leave a comment

In 2010, the Citizens United v. Federal Election Commission went all the way to the Supreme Court. The result of the case was a split 5-4 decision, determining that the First Amendment protects campaigners right to be financed by corporations and unions. Therefore, the government could no longer restrict the economic plans in campaigns. On behalf of the majority, Justice Kennedy stated, “if the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” In essence, this pronouncement changed the election process; outrageous amounts of money are now donated to support campaigns, which directly influences who is put into office.

Recently, the The Center for Responsive Politics has recorded statistics on campaign finances. The amount of cash put into these operations is staggering. Here are some eye opening numbers from recent elections:

url

  • In total, $892,546,249 was spent on the 2012 elections for the US House of Representatives.
  • $579,354,943 was the total amount of money spent in all 2012 elections for the US Senate.
  • The most expensive Senate race in 2012 was the Massachusetts Senate.  Scott Brown (Rep.) spent $29,726,635 and Elizabeth Warren (D) spent $35,694,573.
  • The Democratic party spent $1,112,041,699 in the 2012 Presidential election
  • The Republican party spent $1,246,902,432 in the 2012 Presidential election

One of the ways parties are able to rack up these insane amounts of cash is by bundling contributions. Bundle contributions are large contributions given by a group of people to the same candidate. Wealthy people group together so they do not individually hit the spending limit, but can still donate large amounts to presidential candidates. While all of this money is beneficial for a campaign, it distracts the candidates and altars their priorities.

urlTo explain, candidates focus more on trying to raise money for their campaign than sharing their political views with the voters. In order to win an election, the victorious candidate should be the best person to represent the people he or she is serving based on his or her policies and characteristics, not based on his or her fundraising ability. In More Money, More Problems, Klein interviewed Senator Evan Bayh, a Democrat who freely expresses his opinions on the advantages given in elections from financial aid.  According to Senator Evan Bayh, candidates are “spending 90 percent of their time raising money.” This statistic shows that the focus of candidates is not on the people they are hoping to serve; it is on the people who can serve them. The most disappointing part about this statistic is that the time put into fundraising pays off. In the 2008 Presidential election, Obama raised almost 400 million more dollars than any other candidate. The outcome of this election resulted in an Obama victory, inferring that the fundraising was a major factor in his success. America was founded on the principle that the opinions of the citizens trump all, but since Obama spent so much more time and effort fundraising, the people did not top his priorities. In conclusion, in order to fulfill the ideals of the Declaration of Independence, campaigners should focus on gaining support from the people, not from rich people who offer tons of money in exchange for power.url-1

Continuing on, another reason big money in elections is harmful is because it is too difficult to reform or add restrictions to campaign financing. When Bayh was asked about reforming the policies on raising money in elections, he answered, “asking [government officials] to change the rules from which they’ve benefited is difficult” (Klein). Since the majority of the politicians who are in positions to change the laws regarding fundraising are elected as a result of their success in raising money, it would be foolish for them to support a reform.

To sum up, big money is controlling the government. Despite outbursts from citizens, the laws regarding political financing are stable. Since the people who support these laws are the most powerful people in the country, they are incredibly difficult to overturn. Campaigners will continue to distance the government from the country’s fundamentals by focusing on fundraising over the opinions of the citizens, which proves that cash-based campaigns are corrupting the government.

President Obama on Gun Control in State of the Union

February 25, 2013 Leave a comment

urlRecent massacres such as the Sandy Hook shooting in Newton and the “Dark Knight” shooting in Colorado have raised awareness on gun control in the United States. Liberals feel as if new laws should passed as to which kinds of guns are legal to sell. On the other hand, conservatives see to it that restricting which guns they own affects their Second Amendment right to bear arms. Despite the debate between parties,the country does recognize that something must be done to prevent such shootings in the future. Christina Wilikie’s article in the Huffington Post reports on President Obama’s State of the Union speech in which he addressed the issue of gun control in America.

To begin his assertion, President Obama stated that this is not the first time the United States has labeled gun control as a concern. In spite of this, he declared that the Newtown shooting in which 20 innocent children and 6 adults werekilled demands that subject must finally be dealt with accordingly:

“Overwhelming majorities of Americans -– Americans who believe in the 2nd Amendment — have come together around common-sense reform, like background checks that will make it harder for criminals to get their hands on a gun. Senators of both parties are working together on tough new laws to prevent anyone from buying guns for resale to criminals. Police chiefs are asking our help to get weapons of war and massive ammunition magazines off our streets, because they are tired of being outgunned.”

url-1One of the ways Obama is trying to manipulate gun control is by placing a ban on all military-style weapons, such as automatic weapons that carry extremely large magazines. However, the National Rifle Association feels as if their Second Amendment rights would be violated if such a law were passed. The Amendment clearly states, “the right of the people to keep and bear Arms shall not be infringed.” The text obviously supports that weapons can be possessed, but the argument arises from what the text does not say; there is no indication that all arms are legal, nor any sign that certain weapons are prohibited. The liberal side to this argument is that simple changes are eligible to be added that can simply imply restrictions to which arms can be owned. The flip side of the argument (the conservative side) cherish their right to own any weapon they please. As long as they pass the standard background checks, or even more intense improvements to the background checks, there is no reason they should be stripped of their assault rifles.

President Obama, being a liberal democrat, wishes to restrict the weapons that can be owned. The president’s point of view is clearly controversial, but through one speech, Obama “disarmed the argument… that no law can eliminate all gun violence,” Wilikie wrote. Obama was able to dismantle the opposing opinion and gain significant amounts of supporters by exploiting Neustadt’s theory of a president’s power to persuade. As Neustadt declared in his book “Presidential Power”, a president is able to use his “status and authority to yield bargaining advantages.” Obama, knowing he would have the nation’s full attention, focused the majority of his State of the Union speech on gun control. After addressing the issue at large and his solution, Obama made an emotional appeal about one of the many victims of gun violence:

“One of those we lost was a young girl named Hadiya Pendleton. She was 15 years old. She loved Fig Newtons and lip gloss. She was a majorette. She was so good to her friends, they all thought they were her best friend. Just three weeks ago, she was here, in Washington, with her classmates, performing for her country at my inauguration. And a week later, she was shot and killed in a Chicago park after school, just a mile away from my house.”

U.S. House Speaker Boehner and Vice President Biden stand to applaud as President Obama delivers his State of the Union speech on Capitol Hill in Washington

President Obama receives a standing ovation at the conclusion of his State of the Union Speech

Obama’s telling of Pendleton’s story was an excellent method of executing Neustadt’s theory. He enflamed emotions throughout the audience, which left people yearning for change. The touching anecdote resulted in a standing ovation and overwhelming support for Obama’s gun control bills. Through his words, he was able to convince his people that protecting the children is more important than owning a fancy gun.

While Obama’s State of the Union speech undoubtedly put pressure on Congress to vote on new gun control bills, the debate still fumes as a conclusion has yet to be reached. Meanwhile, the nation impatiently awaits a contentious resolution to the gun control issues that are plaguing many cities in the United States.

%d bloggers like this: