Sales Tax Holiday

Many states are offering a sales tax holiday. This is retail marketing at its finest. Forget Black Friday and Cyber Monday. In Virginia for example, look at how this tax-free weekend fell: First of the month. Not to be judgmental and ugly, but the first of the month for retail is usually a nightmare. Most of those who receive governmental assistance receive funds at the beginning of the month. Virginia had its sales tax holiday the first of the month. Stores marketed the daylights out of this and each tried to beat the other with sales and coupons. Bargain shopper heaven. Heck yeah, I was out there! I saved $54 on a blouse, a dress, and a skort. (For the record, the skort was for my three year old daughter who starts Pre-K this year).  In true diva fashion, I totally spent the savings on earrings. Economic gain!

Consumer confidence is up. The Dow - indicator of all things (note sarcasm)- is up. Business confidence is still struggling, but improving. Sales tax holidays help drive business confidence. It brings consumers out to shop and is viewed as a goodwill gesture from the state. At least, from a small business owner perspective, that is how I view it. The stores were packed with people. Not Black Friday packed (I will never do that again), but very busy. I loved seeing the local economy being stimulated like this. When we shop in our communities, we put money back in our community in the form of wages paid to the workers who in-turn spend that money in our community and the cycle continues. When we put the money into our community, our community grows, people stay, and more opportunities appear.

"I ain't saying she's a Gold Digger..." The fiat system versus gold standard

So, if the US needs cash, why don't we just print more? We have little bureaus that do that, right? 

Well, the US could print more money at one of those cute little bureaus, but that would be a very bad idea. I am talking white shoes after Labor Day bad. Linen slacks at a dirt bike race bad. Red lipstick without lip liner bad. REALLY, really bad. 

The United States uses a monetary system that is very closely aligned with a fiat system. Some will argue that a fiat system is fictional, like perfect competition and complete markets. While the concepts are sound, these theories often do not exist in real world scenarios. Monetary economists will not tell you that the fiat system is fictional. I'll let you make your own judgement. 

A fiat system is a monetary system in which the "money" is not backed by anything. I have run across several sources who claim that the U.S. dollar is backed by the "full faith and credit of the United States." (I giggled. I know what we owe China.) By definition alone fiat money is money that has no intrinsic value and cannot be converted into anything else (Goldberg, 2005). I'm thinking: I can convert that money into a pair of shoes! Watch me!  No one is forced to accept our money. It is used on general good faith that it is valuable and accepted by others. Well, this is where it gets interesting. Yes. Really.  I promise. Get a snack. This is going to be EPIC. (If you believe that I have a ponzi presentation for you...)

Once upon a time money was actually pieces of precious metal. Gold, silver, bronze, etc. As you can imagine, this got rather heavy. Could you image trying to cram pieces of gold into your Prada evening bag instead of just a debit card? This was global. Yes. Really. A long, long time ago a global monetary system did exist.  Oh, yeah, before there was money, there was a bartering system. You could trade extra squirrels for beans and stuff. (Yawn). The appearance of money helped with financial planning. Now, we could use money as storage. Our extra squirrels were given a monetary value by a central bank, converted into a currency,  and we could use that currency to buy more land, shoes, or food without worrying that the seller of those things had enough squirrel. So, our money was backed by squirrel, or gold, or whatever. When our currency was backed by gold, it was called the gold standard. The US dollar is no longer backed by gold.  It's backed by "the full faith and credit of the United States government." (See above). 

Coal companies used a fiat money system. The workers were paid with coal company credits. The workers lived in company owned homes. They paid their rent with the coal company credits. They bought groceries with these credits at the company store. These credits were worthless outside of the coal company, but within those constraints the credits were perfectly acceptable monetary tender. 

Some evidence suggests that a change in the value of gold and the US's use of the gold standard led to the Great Depression. Economic conditions in England (read: fear) led to people trading in their paper money for gold. England was in grave danger of running out of actual, physical gold to give in exchange for its paper currency - which was backed by gold (Gold Standard). This fear spread like a kitten video on Facebook. England broke from the gold standard.  In 1931, roughly $20.67 bought an ounce of gold. This was changed to $35 for an ounce, which decreased the value of a dollar and started inflation. Inflation, in a nutshell, means it takes more dollars to buy the same pair of shoes.  In 1933 Roosevelt made the break from the gold standard. (Roosevelt was a democrat). If your currency system is not backed by gold, you can adjust interest rates and attempt to control inflation.  You can control the amount of money floating in your economy. Now, roughly 90% of economists agree that this decision is what pulled the United States out of the Great Depression. In 1971, Nixon officially ended the gold standard for the United States.  (Nixon was a Republican for those keeping score.) 

So, when the most recent recession hit, why did we not just make more money? Inflation. Yes. If the government prints more money and just hands it out - what would the general public do with it? Some people would save it, or pay off a loan (which decreases interest payments and therefore the money banks have to lend). Me? Even with my understanding of economics, I'm going shoe shopping!  Suppose all my fellow shoe-addicts do the same? It's almost fall...the new Ugg line is out. Heck yeah! I need some new "UGG"ly boots!  So, now there is a rush on Uggs. Our local shoe store has a limited stock. What do they do? Do they leave the price the same and not have enough boots or do they raise the price to control the supply and demand?  I'm betting the prices go up. The supply is limited. The demand is high. Here we go... the demand is up, the boots cost more, the factory workers are working more hours, the company has to pay more wages, etc. Productivity is down. If you suddenly had extra cash, how motivated would you be to work more? Suddenly, prices on everything go up. Inflation. Simplistic, but inflation nonetheless. 



Goldberg, D. (2005). Famous Myths of 'Fiat Money'. Journal Of Money, Credit, And Banking, 37(5), 957-967.

Irrational behavior? Sunk costs? Oh my!

Oh yes. I am going to talk about irrational behavior. Really. Me. The queen of all things irrational. (snort).  Ok, so this is funnier if you've ever received an email from me with the subject of "This is why I am flipping out." Of course, I don't mean that type of irrational behavior. I am not studying to be that kind of doctor.

I hope you remember my post on Scarcity. If not, go read it now. For those too lazy to click twice, scarcity deals with our decisions and how we make the most of our scarce (ha!) resources.  If you were too lazy to click and read you deserved that bad joke.

Human decisions are fallible. We make mistakes. How many times have we looked pack at photos and thought "what was I thinking when I wore that?"  We also make errors in our logic - even if we are fully informed regarding all the options.  Surprisingly, most of us make the same errors. For those who see this as an opportunity to make new errors - challenge extended.

You sunk my battleship! 
Sunk Costs.
Sunk costs are just that...sunk. Think of it as a shoe expo. We pay $10 for admission to the expo to check out new shoe styles. We just paid $10. Now, at what point does what we paid become an issue? Does this impact how long we stay?


From an economic standpoint - we should stay as long as we are happy. It doesn't matter if we stay 10 minutes or four hours, the cost is the same. That means the cost is sunk. It is in the past. It's paid. It is not relevant to the current decision on how long to stay. One the cost is incurred (the admission price) it should not carry weight as to any future decisions. We should, economically speaking, only focus on potential marginal costs, the future and which current option is the most beneficial to us.


While at the shoe expo, a marketing rep comes up to us and offers us $500 and a free handbag to leave the shoe expo and go to the handbag expo across the street. Do we turn down the $500 and free handbag because we don't believe we have gotten our $10 worth from the shoe expo? Ummmm, NEGATIVE.  We book it across the street praying for a Hermes Birkin. This is a rational decision. Seriously. Even from an economic standpoint. We net $490 + a new handbag.


Suppose I bought a pair of adorable kitten heels for $250. The purchase made me happy. The kitten heels made me purr (sorry, couldn't resist). I wear them once.  A friend offers to give me a pair of $500 shoes. These are also adorable. I am getting ready to go out and I have a new dress to wear. The shoes my friend offers me match the dress perfectly, but I think that I need to wear the kitten heels just because I paid $250 for them and do not feel I have gotten my money's worth out of them yet. That is an irrational decision from an economic standpoint. Sunk costs are sunk.



Dollars and percents. Costs and benefits.
$10 and 10% are not the same. This seems pretty simple, right? Many, many, many people will drive an hour or more to save 10%, incurring much more in additional cost than the amount of money they would save. How? I'm glad you asked. :-)

Example: A local store has a Coach handbag for $100. A store an hour away has a 10% off sale on that handbag. The handbag there will cost only $90. Before the hate mail starts, I know a Coach handbag for $100 is crazy, but this is my fantasy, ok?

The same local store has a matching key fob for $20. The competitor an hour away has the key fob for $19.80. Would you even consider the drive to save twenty cents?

You think you are being smart by shopping the sale in the first instance, right? Wrong. This is an economic FAIL.  Umm, I what I mean to say is: The reaction to the two different scenarios is inconsistent - and irrational.

Gas prices right now are $3.50 a gallon and your car only gets 20 miles to a gallon. (I told you to buy that Prius) So, estimating a 120 mile round trip in your car you will use six gallons of gas (120/20=6). This is a cost of $21.00. It will cost you $21.00 to travel to buy that purse at the 10% discount. If the purse is 10% off $100, the price will be $90. This is a $10 savings. After you pay for gas (not to mention mileage, wear and tear...) your will have lost $11.00.  In this instance it is a better deal to buy the handbag locally.  In the second option, well, you just paid double for a key chain. Does that make you feel good?

Let's say that same local store has Jimmy Choo pumps for $650 (it's a heck of a sale). The same store above - an hour away - has the same shoes on sale for 10% off.  We know that gas will cost us $21. 10% of $650 is $65. We will save $44 (net) by making the trip.

This is a good economic decision. While we are there, we might as well pick up the Coach handbag and key fob, too.  This is a $55 savings and a rational decision because we weighed the costs and the benefits of our decision.  Costs and benefits are absolute. A two hour round trip HAS to be thought of in terms of costs and benefits, not percentages.


Average and marginal are not the same. It's like white and winter white. 

This builds more on the cost and benefit theory discussed briefly above. The important thing in this decision is to look at the marginal costs - not the average ones. The average cost is the total cost of making that product divided by the total number produced. A company can make 1000 handbags for $5000. This is a cost of $5 per handbag. Marginal costs are the costs incurred by making one more item. The company wants to make 1001 handbags. This cost will be $5050. The marginal cost is $50. This also makes the average cost increase to $5.04 per handbag. While marginal and average costs are not the same, they are interlinked. Looking at both the average cost and the marginal cost helps make better financial decisions.

Inflation and Magic Beans...

This post comes courtesy of my oldest daughter. We were walking from the car to our house after grocery shopping. We found a sale on my personal weakness - Jelly Belly brand jelly beans - and stocked up. I mentioned to my daughter that I was going to take my bag of magic beans and hide in the garage. She replied "But Jack only got a pocket full of magic beans to grow the beanstalk. Why do you get a bag?" My immediate response was "Inflation." She readily accepted that answer. Why did my ten year old child accept that so easily? We mention inflation as an excuse and just nod and move on. What is inflation? Why is it such an easy answer?

Inflation is thrown around a lot. What exactly is it? More often than not, inflation is used to refer to a rise in prices in general. Not all prices may rise, some prices may even go down, but it refers to the overall trend or average.  As a general rule, things go up a little bit each year - just a slight percentage - we call this "cost of living increases." However, sometimes prices will jump by 30% or more in just a short time. (I'm looking at you OPEC. ) This is hyperinflation and comes along with such fun items as a massive unemployment rate, a substantial interruption in production of goods or in the supply chain, or my personal favorite: economic collapse.  (Note sarcasm).

Inflation happens if money grows too quickly. To stop inflation, we just have to stop, or slow down, the growth of money. Simple, right? Well, enter politics. Sometimes governments want some inflation, so the fact that we know how to stop it won't prevent it from happening. Why? Excellent question. I am so glad you asked.

Now, we know the government prints money. So, when we have a deficit (or not enough money to pay our bills) why doesn't the government just print more? It seems like a simple solution. Trust me, it just seems that way. There are a whole lot of principles which come into play here. Since I am lazy blonde, I will keep it short for this post. Remember when we talked about supply and demand? If we have a lot of money floating around, then it isn't very valuable and it will take more money to buy something. If we don't have a lot of money, then it is valuable and less money will buy more things.  Think about "Jack and the Beanstalk." When the story was written, a cow was an even trade for a pocket of magic beans. Now, since magic beans (except the Dr. Pepper flavor, it seems) are all over the place, the cow is an even trade for a bag of magic beans. The supply of magic beans is greater, therefore the demand for them is lower. This means it takes more magic beans to buy a cow.

We can also stimulate the economy for growth by using inflation. I'll tackle that in another post. I have a bag of magic beans calling my name.

Scarcity, short and sweet...Think "vintage."

Scarcity is what creates the need for economics. How dare scarcity do such a thing! I mean, really. Think of things that are scarce. Diamonds. Vintage Prada.  Shoes in your size. Jeans that fit perfectly.  Of course, there is much more that is scare, but I'm working the "shallow blonde" angle right now. 


If scarcity did not exist, then we would have everything we ever wanted all of the time. Where's the fun in that?   Remember the movie The Incredibles? The nutty villain, Syndrome? He hit the nail on the head when dealing with scarcity when he said "Everyone can be super! And when every one's super, no one will be." Think about it. Syndrome has a point. If everyone had a vintage Prada handbag, would you feel special carrying yours? 


Luckily, scarcity exists. It feels odd to say that, doesn't it? Since we have to deal with scarcity, and subsequently, economics, how do we make the most of it?  We don't have enough time or resources to have everything we want, so we have to decide. We make a trade-off. We make the decision that we believe is best for our current situation at that particular time. We want to maximize our happiness. It IS all about us. :-)  Seriously. The majority of economists operate on the belief that we are motivated JUST by our desire to be happy. Think about it, people sit around and study our shopping habits to decide if the items we buy make us happy. Naturally, EVERYTHING we spend money on makes us happy. I did back flips over that bonus size pack of Charmin double rolls I bought last week. The money I just spent on new brakes had me skipping out of the mechanic's garage. Are you picking up on the sarcasm? Of course, the ability to meet basic needs also makes me happy. The ability to stop my car is a necessity, but not dying makes me happy. These economists just may be right. 


So, how do they know we base our choices on what will make us happy? Let's think about. We have a $400 gift card to Coach. You don't want to spend any of your own money, so your purchase has to be within that $400 limit and we are going to pretend we don't need to worry about sales tax. How do you spend it? What do you choose?  Clearly, not the top of the line, but do you choose a wallet and a belt? A small handbag? How do you decide? You choose what makes you happy.  This is also the basic for the study of consumer choices - and our next topic (maybe). 

Economics and the Tudor Era...

I know you watch it, but I won't make you admit it. :-)  Now, stop thinking about Jonathan Rhys Meyers and all the luxe glam swag in the palace. Think about the servants and the commoners. It was a difficult life. Most only lived to be 35. The commoners worked hard for very little. Meats and the best vegetables were sold to the wealthier classes. Court life was not what everyone experienced. No electricity. Cobbled shoes. Women had a high risk of dying in childbirth. Women were still viewed as "property" and their fathers decided their marriages. Ok, now you are wondering where I am going with this. Me, too. (wink, wink).  Human life is an economic resource:  You are valuable as more than just a person.

Value of human life...as an economic resource

Think of all the battles and attacks launched by Henry VIII. What happened to his royal coffers? Someone had to pay for those battles. Battles often left the coffers empty. In fact, several kings took the throne to empty treasuries from the wars of the previous monarch. All the executions and burnings of heretics - who paid for those? Tax money. His Majesty's Royal Navy was the pride of England. Given the geography of England, water defense was just smart. Money and other resources were allocated to the Navy. During the religious stuggles and threat of attacks from the French, Spain and the Emperor, securing the defenses was a smart choice. Of course, building defenses and raising armies required resources. They needed ships, ammunition, guns, cannons, swords, and, of course, valiant knights to protect the good people of England. The soldiers had to be fed, sheltered and clothed. All of these things are economic resources. When a soldier was killed, who took that person's place? It's not like someone made a quick run to Macy's to pick up a new platoon. The people were a precious resource. Just like today. Our military puts the safety of our soliders into consideration for that very reason. While losing men in battle was the norm in the Tudor era,  armies today try to save lives, not only because we place a higher value on a human life but also because of the pure financial aspect of it. The military puts a lot of money into training our soliders. War and economics, who would have thought? But wait. There's more. (I LIVE for opportunities to say that. I hope you read it in the infomercial host voice.)

Life expectancy, disease and economics. That's not something I would have put together either. Remember the Pilgrims and the Mayflower? (Aside from those drab garments. I mean, who wears rough wool year-round in the Southeastern U.S.? )  The colonies presented a considerable economic advantage for the countries sponsoring the expeditions. Not only did it mean more land for the nations of Europe (who were fighting over territories seemingly every other week in Europe. Remember the battles for Callis with Henry VIII?), but it meant more goods to trade and, for some, a place to send prisoners to work the land.  Most of us only think of the Pilgrims landing on Plymouth Rock and then having a big dinner party with the Native Americans.  

However, this isn't true at all. It wasn't a happy technicolor event. The people on those ships were economic resources. They were on the boat to build a colony and work the land. Without labor, no goods or food could be produced. No buildings built. No money for England (or Spain). When the people died from disease, starvation or cold, resources were lost. At the risk of sounding horrible - more than a human life was lost. Employees are an economic resource. Livestock is an economic resource.  

Globalization in the Tudor Era...

When the 13 colonies in the New World decided to break from England, why did England fight? Wealth. Why are there multiple Macy's? It is an opportunity for Macy's as a whole to earn more money. Why just have a store in New York City when you can have thousands of stores all over the world and earn money from shoppers in other cities as well?  See? England globalized before globalization was cool. Those Tudors, always the trendsetters.

Economics, Cholera and slummy Victorian London...

Let's go to the Victorian Era, and we are pampered ladies at court. Queen Victoria was also a trendsetter - wedding gowns came to be, childbirth was made more acceptable. She rocked. Anyway,  we have a favorite cobbler to make our shoes. We love the way they fit and the styles he creates. This cobbler thinks of us when he makes our shoes. So, he gets sick and dies. We immediately faint at the thought of no more of those wonderful shoes and are caught by this dashing young lord. (It has nothing to do with too-tight corsets, dehydration or malnourishment.) We later find out that he died from cholera.

London was just a little on the slummy side in Victorian times. Raw sewage everywhere. That's why we live at court - and even then our toilets drained into cesspools. If/when these were cleaned, they went into the water source (Hello, Thames River). This water came out of the pumps. People would drink this water and cook with it. Whole communities of people were just dying from cholera. People thought it came from smells and just dirty people. The general thought was that if you died from cholera, it was because you didn't bathe or you were around those who didn't bathe.

We can't imagine that our cobbler was dirty and poor. He seemed so wonderful and clean when we met him. Well, John Snow thinks like us. Enter Snow and his technology (using the term technology loosely).  Snow was a doctor - he entered the medical field at the ripe old age of 14. That is not a typo. Snow goes into the slums and performs some tracking and draws some maps. Long story short- one outbreak lead to a ton of deaths within 24 hours, all isolated to one area. All of those residents are getting their water from the same place. The Broad Street Pump. Snow insisted the handle be taken off the pump. Once this is done no one else gets sick. Snow eventually tracks the outbreak to a sick child whose dirty diaper water is dumped into a cesspool. That cesspool drained into the Broad Street Pump.  So all these people died from drinking poo water. Lesson here? Wash your hands and hug your sanitation worker.

Ok. Ok. There are two more lessons - humans are valuable from an economic standpoint as labor and their thought processes. It wasn't just our favorite shoe maker that died. London lost a significant portion of the labor force both in the current generation and the next generation. Child deaths have a long term impact as well. Technology is also an important economic resource. 

Are things any different now? Of course women are now people in their own right and can vote in the U.S. Some of us are even educated and allowed to write blogs. :-)  The life expectancy is higher. We have electricity and nuclear energy. We have been in space. We are becoming more and more of a global community.  How has this changed how our resources are used? The world hasn't gotten any larger in terms of of available land, water, air, soil, etc, but we have more people that depend on it. The way we use our resources has changed through the higher value placed on human life by most cultures and the advances in technology. We can now do more with the limited resources we have. Think of it as an on-line two-for-one shoe sale with free-shipping. :-) Think of it as storing your Christian Louboutin heels in the dust bag. A significant amount of your available resources went into those shoes and you want to take care of them.  

If you want to read (or listen) to more on John Snow: http://blogs.howstuffworks.com/transcript/john-snows-ghost-map

Want to know more about daily life for the Tudors? This is a great site: http://www.woodlands-junior.kent.sch.uk/Homework/tudors/dailylife.htm

Economics - why should I care? It's a total snoozefest.

Ok, so the snoozefest part I can't argue with.  Grab a skinny non-fat and stick with me.

There is a reason we should care - at least a little bit. That reason is that the behaviors of our culture, other cultures, businesses and organizations can affect how much we pay for those super cute boots. Really. It also affects how much our homes are worth, if that hot tub adds value to our home and our ability to get those tdf jobs to pay for our tdf boots. Oh - and our hair color.

Supply & demand...
Suppose everyone wanted to be the same adorable shade of blonde as you, but only ONE colorist in the whole country could get the right shade. How easy do you think it would be for someone to get an appointment with that colorist? If you're like me, you guard the name and number of your hairdresser with your life! Why? Because if everyone goes there, it will be more difficult for you to get an appointment, right? See? You've used an economic principle right there. Supply and demand.  If the supply is low - one colorist - and the demand is high - everyone wants your hair - then the price for that service will go up. The market (all those people wanting your hair color) will bear (pay) the higher price. This is great news for the colorist, because their resources (money) will increase. This is bad news for you - well, not you specifically because you already have the hair, but you know what I mean - because your ability to get an appointment for a touch-up will decrease.

There are also external factors that can cause differences in price. This high-demand colorist (oh yeah, he's THAT good), uses a specific brand of color. That brand of color just happens to be shipped in from just one location. Well, there's a tornado that hit that location and the delivery trucks can't get out. Yes. The guys in the cute brown shorts are stuck in their trucks with the hair color we need in the back. Short of being mobbed by women in desperate need of a root touch-up, what could happen here? The supply of color has just been dramatically decreased by something that no one could control and the demand has remained the same. The price will go up even more due to the scarcity of the commodity. (There is not enough hair color for everyone who wants it. )

Now, what if that hair color came from another country and that country decides to charge a higher tax on goods being exported (going out of the country to be sold or used in another country)?  That's right! The price will go up. That's another external force.

Ok, let's go for one more. You decide to color your lovely golden locks a stunning auburn color. (It brings out your eyes and you really just needed a change.)  Suddenly, no one wants to be blonde any longer. Everyone wants that exact shade of auburn that you're rocking. What is going to happen to the price of the blonde hair color and the rates that colorist is charging for the blonde do?  They will decrease. Demand has decreased, supply has remained the same. The market (all those wannabe yous) will no longer bear the higher price for the blonde because the wannabes don't wanna be blonde any more.

Now, if the colorist is just as skilled in the red transformation (which, of course is true, because that colorist did your hair and you don't let just anyone mess with your color), the colorist can still charge a higher price for the auburn color service.  This happens a lot. Think iPhones. The iPhone6 is now much less expensive than the iPhone8s, because consumers want the newest features.


Back to those tdf boots. (For the non-blondes: tdf means "to die for").  The boots for the newest season are priced at around $375 - some higher, some lower, depending on the style. The boots from last season are priced at 40% off. Why? Seriously? Are you going to wear last season's boots? Ok, so some people will (I admit that I am one of them) and scoop them up at the discounted price. (We will go back to this later when we discuss consumer behavior and allocation of resources.) This is how the supplier (and the stores that sell the boots) get rid of the boots that didn't sell (Shocking, I know. I mean, who wouldn't want the newest boots?) This allows the seller to still make some money on the boots, although it isn't as much. (Return on investment - we'll talk about that later, too). The demand for the new season boots is high.  We want the newest boots and are willing to pay a higher price to have them. The seller knows this from the study of - gasp - economics and prices the boots based on this.


Let's throw in another factor that can affect price. The colorist hires an apprentice. This person is working under direct supervision of the amazing colorist, but is not that amazing colorist. This is a substitution. A similar product, but not the same, and that apprentice is less expensive than the colorist. Will demand shift or will this increase demand overall for the salon? A less expensive option that is very similar to the awesome colorist could attract a new market - or a group of people that wouldn't pay the awesome colorist's prices, but now that the apprentice is there with a lower price, will seek to copy your hair. This is a job for Super Marketing. We'll talk about that later as well.  This will further drive up the demand for the hair color from the supplier of the chemical and could cause the price to increase more - or the supplier could take a different approach and make more to sell to the colorist at a discount. Economics studies this and makes predictions based on past behaviors.