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pages: 364 words: 102,528

An Economist Gets Lunch: New Rules for Everyday Foodies by Tyler Cowen


agricultural Revolution, big-box store, business climate, carbon footprint, cognitive bias, creative destruction, cross-subsidies, East Village,, food miles, guest worker program, haute cuisine, illegal immigration, informal economy, iterative process, mass immigration, oil shale / tar sands, out of africa, pattern recognition, Peter Singer: altruism, price discrimination, refrigerator car, The Wealth of Nations by Adam Smith, Tyler Cowen: Great Stagnation, Upton Sinclair, winner-take-all economy, women in the workforce

They have to be refrigerated or frozen and they arrive battered and somewhat tasteless, unless you pay to have them flown in and handled by specialists; then we’re back to the expensive restaurants with fine raw ingredients. Raw materials are the most obvious form of capital to an everyday foodie, but the relevance of capital does not stop there. Hospital Food Bad—Casino Food Good? Another way to judge restaurants, or dining locales more generally, is to think about the cross-subsidies they enjoy or, as the case may be, fail to enjoy. “Cross-subsidy” is a technical term in economics, but it is straight- forward enough. Does a commercial establishment receive a positive or negative boost from the surrounding circumstances of its production? Some Las Vegas casinos offer good restaurants and good food to get you to gamble in their establishment; you could say that the gambling is subsidizing the food. The very best Las Vegas restaurants are located well behind the casinos and slot machines, not in front of them.

Vegas attracted Japanese customers in the 1980s with similar initiatives, by catering to what they wanted to eat and also how they wanted to gamble. In essence the overall business plan is subsidizing the chicken with rice. The idea of the cross-subsidy applies in a broad variety of settings. In the old days, Parisian restaurants located themselves near butchers so as to receive choice cuts, entrails, and innards quickly and easily. Mexican food stalls (comedores) draw upon the cooking expertise of grandmas, honed over decades of family cooking, and they do not have to train their chefs or pay them very much. Those are all examples of cross-subsidies—the food provider is getting something important on the cheap and subsequent competition forces them to share some of those gains with happy customers. When prices of air flights were held artificially high by law, before deregulation in the 1970s, airline food was often excellent.

In essence, the wealthy and the myopic are the friend and supporter of the non-drinking gourmand. By paying the markup on the drinks, certain customers make quality food cheaper and more available than it otherwise would be. They are, without really knowing it, helping out the other customers, including yours truly. Looking back in history, formerly you could take advantage of this cross-subsidy far more than is possible today. For instance nineteenth century saloons took the drinks cross-subsidy to an extreme by offering, literally, a free lunch to their customers. Once food supply became liberated from local farmers and hunters, such free lunches became common. The hope, of course, was that they would make the money back on the drinks. An 1899 survey of 634 saloons in Minneapolis found that the free lunches were “elaborate” in 3 saloons, “excellent” in 8, “good” in 50, “fair” in 88, “poor” in 77, and the rest provided no free lunch whatsoever.

pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay


Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

All the trappings of an exceptionally profitable industry are there. Can it really be the case that the industry is not, in fact, exceptionally profitable? Conglomerate banks take the view that their retail operations are relatively unrewarding. But conglomeration permits – even encourages – cross-subsidy between activities. When competing groups are jostling for overall control of the enterprise, such cross-subsidy will tend to favour the group that is, for the moment, in charge. There have been substantial cross-subsidies from the retail division to the trading operations of financial conglomerates – of such magnitude, in fact, that it is difficult for these trading operations to compete effectively without the support of retail banking. That recognition was an important part of the conglomeration that was central to financialisation.

Such an imperfect tax would probably be a new stimulus to regulatory arbitrage, and a further source of profit to traders, earned at the expense of the long-term investors who would actually bear the brunt of the tax. This is the thoroughly unsatisfactory experience of Stamp Duty, the established tax on equity transactions in the UK, which in practice bears only on long-term investors. A preferable strategy is to ‘starve the beast’: to adopt measures of structural reform of the finance industry that will reduce the amount of capital available to support trading activities and eliminate cross-subsidy to these activities. What is proposed here is a radically changed regulatory approach. It is trite but true to say that what we need is not more regulation but better regulation. But this demands a different regulatory philosophy rather than better regulators. It is pointless to suggest that the solution is to appoint regulators with the foresight of Nostradamus, the detective skills of Sherlock Holmes and the political insight of Machiavelli, as well as the patience of Job and the hide of a rhinoceros.

The overriding objectives of structural reform of the finance industry are to reduce complexity, lower costs, enhance stability and facilitate the flow of information between savers and borrowers. These outcomes should be achieved through a mixture of regulatory action and market forces. Regulation should be focused on structural remedies whose implementation requires only limited use of judgement – rules that can be monitored by box-tickers. The elimination of cross-subsidies across activities and of government subsidies and guarantees would allow the market to drive further reform. The financial conglomerates that dominate finance today are, to households and businesses in the real economy, largely indistinguishable from each other. A saver who is looking to place deposits or find a home for long-term investments, a company establishing a corporate banking relationship, a personal or corporate borrower seeking funds, would be hard pressed to identify any differences between J.P.

pages: 364 words: 104,697

Were You Born on the Wrong Continent? by Thomas Geoghegan


Albert Einstein, American Society of Civil Engineers: Report Card, banking crisis, Berlin Wall, Bob Geldof, collective bargaining, corporate governance, cross-subsidies, dark matter, David Brooks, declining real wages, deindustrialization, ending welfare as we know it, facts on the ground, Gini coefficient, haute cuisine, income inequality, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labour market flexibility, laissez-faire capitalism, low skilled workers, Martin Wolf, McJob, minimum wage unemployment, mittelstand, offshore financial centre, Paul Samuelson, payday loans, pensions crisis, Plutocrats, plutocrats, purchasing power parity, Ralph Waldo Emerson, Robert Gordon, Ronald Reagan: Tear down this wall, Saturday Night Live, Silicon Valley, The Wealth of Nations by Adam Smith, Thorstein Veblen, union organizing, Wolfgang Streeck, women in the workforce

Now, of course people in IG Metall also go to the opera, just like some in the elite are into heavy metal or blander forms of rock. But on the whole, everybody gets the kind of social justice they want. Some, like Niall Ferguson, the economic historian, say: Why don’t they just spend their own money, each on what he or she wants, instead of cross-subsidizing each other? In theory, to a Scottish economist, it makes no sense. But all these cross-subsidies ally people to each other in a kind of defense pact. At any rate, over in the U.S., by paying so little in taxes, we starve ourselves of the most creative and rewarding jobs. Yes, we get a lot of support from private money, but at least in Chicago, it’s often a one-shot thing, a new wing for an art museum, but nothing that ever turns into a steady paycheck. While we do have our public universities, we are seeing furloughs of professors even there.

Communism, collapse of author’s planned 1993 trip to Moscow to study post-Wall Berlin commuting and suburban sprawl The Competitive Advantage of Nations (Porter) consumption and consumer choice “hedonistic” ethic and hours worked and leisure “producer” wants and “consumer” wants public goods/private goods public spending/consumer spending levels U.S. Corneo, Giacomo The Corrosion of Character: The Personal Consequences of Work in the New Capitalism (Sennett) Craig, Gordon cross-subsidies currency and the euro Dark Continent: Europe’s Twentieth Century (Mazower) Darwin, John Davies, Norman The Decline and Fall of the Roman Empire (Gibbon) Democrats, U.S. Denmark children in poverty elderly poor GDP per capita hours worked jobs/employment percent of adults holding an associate degree percent of adults self-employed purchasing power ratios/disparities unemployment rates for college graduates Despres, Leon Dewey, John Diamond, Jared Disney The Disposable American (Uchitelle) Le Divorce (Johnson) DIY (Berlin think tank) Dutschke, Rudi Earned Income Tax Credit (EITC) East Asia Economic Policy Institute’s State of Working America[Shouldn’t there be more here?

Army strikes union resorts/ex-spas unionization rates in the manufacturing sector wage-setting and works councils youth membership The Germans (Craig) Gerschenkron, Alexander Ghilarducci, Teresa Gibbon, Edward Gibbons, James Gini coefficient Giscard d’Estaing, Valery Glass-Steagall Act globalization and German capitalism and labor market flexibility “Globalization and Income Inequality” (Harjes) “Glühwein Festival” (Hamburg) Goethe-Institute Goldman Sachs Gordon, Robert Gramm, Phil Grass, Günter Green Party and European social democracies German coalition government and Agenda 2010 German coalition government and wages/unemployment German coalition government and welfare German coalition government and works councils Germany green technology Greenspan, Alan Guardian (UK) gun ownership Guns, Germs, and Steel: The Fates of Human Societies (Diamond) Gutteres, António Habermas, Jürgen Halliburton Hamburg, Germany Harjes, Thomas health care spending Heine, Heinrich Heinz (retired German labor leader) Hemingway, Ernest Herodotus Hesbaugh, Ted Hitler, Adolf Hitler’s Willing Executioners (Goldhagen) Hobsbawm, Eric Holocaust hours worked and GDP leisure time and standard-of-living How to Lie with Statistics (Huff) Huff, Darrell human capital Humboldt University (Berlin) IBZ Guest House (Berlin) IG Metall (German union) and CDU’s 2009 victory over SDP foreign-born members Frankfurt May Day parade (2001) works councils youth membership “Incentive for Working Hard” (Conference Board, May 2001) income equality/inequality An Inconvenient Truth (film) International Labor Organization (ILO) International Monetary Fund Iraq war Jesuits and papal social democracy jobs/employment artists big business employees cross-subsidies European social democracies and German unemployment Germany high-skill jobs and high-end precision goods manufacturing workforce and percent of adults holding an associate degree public employees (public-sector civil service jobs) self-employment skilled-labor shortage small business employees types of jobs available unemployment rates for college graduates U.S. Johnson, Diane Judt, Tony Kafka, Franz Kant, Immanuel Keynes, John Maynard Kiel, Germany Kinsley, Michael Knowledge and the Wealth of Nations (Warsh) “knowledge” economies Kohl, Helmut Krise.

pages: 227 words: 62,177

Numbers Rule Your World: The Hidden Influence of Probability and Statistics on Everything You Do by Kaiser Fung


American Society of Civil Engineers: Report Card, Andrew Wiles, Bernie Madoff, Black Swan, call centre, correlation does not imply causation, cross-subsidies, Daniel Kahneman / Amos Tversky, edge city, Emanuel Derman, facts on the ground, fixed income, Gary Taubes, John Snow's cholera map, moral hazard, p-value, pattern recognition, profit motive, Report Card for America’s Infrastructure, statistical model, the scientific method, traveling salesman

. ~###~ The harrowing hurricane seasons of 2004–2005 awakened the disaster insurance industry to an essential reality: under existing risk pools, customers with low-risk inland properties were sure losers, and those with high-risk coastal properties sure winners. This group difference threatened the viability of the insurance arrangements because the cross-subsidies no longer appeared fair. The big insurers reacted by imposing stunning rate hikes, especially on the high-risk group, in effect shutting them out. When the state regulator objected, they relinquished the entire market. Inevitably, the state of Florida assumed the role of insurer of last resort, which did nothing to relieve the low-risk group from subsidizing the coastal property owners. If the state must play such a role, then it must provide incentives to slow the migration of people and wealth to the vulnerable coastline. If the state cannot or will not stop the unfair cross-subsidies, it must at least respect the low-risk residents by working to ease their burden. When past lessons are not learned, the next disaster is only a matter of time.

The Handbook of Personal Wealth Management by Reuvid, Jonathan.


asset allocation, banking crisis, BRICs, collapse of Lehman Brothers, correlation coefficient, credit crunch, cross-subsidies, diversification, diversified portfolio, estate planning, financial deregulation, fixed income, high net worth, income per capita, index fund, interest rate swap, laissez-faire capitalism, land tenure, market bubble, merger arbitrage, negative equity, new economy, Northern Rock, pattern recognition, Ponzi scheme, prediction markets, Right to Buy, risk tolerance, risk-adjusted returns, risk/return, short selling, side project, sovereign wealth fund, statistical arbitrage, systematic trading, transaction costs, yield curve

In setting the level of income to be offered under an annuity, the provider will take account of the individual’s life expectancy as determined from an appropriate mortality table. The life expectancy will be an ‘average’ term of years based on the individual’s age at the start of the annuity. Some individuals will live longer than anticipated but this potential ‘downside’ is usually offset by those annuitants who die earlier than anticipated. This pooling of mortality risk provides a valuable cross-subsidy to those annuitants who live longer than expected, and the risk of outliving capital is effectively transferred from the individual to the provider of the annuity. The purchase of a standard annuity is therefore still the best way to provide certainty of income. However, those individuals with a substantial accumulated pension fund at retirement are often reluctant to write out the necessary cheque to secure the benefits.

There can be no guarantee that annuity rates will improve in the future. Investment choice will be critical to the success or otherwise of income drawdown in all its forms, and there are conflicting requirements between the need for growth and security. Balancing these requirements is not easy but is essential to the success of the plan. You are on your own in income drawdown. The mortality cross-subsidy available under an annuity does not exist and investment performance must therefore be higher merely to achieve an equivalent income. If this enhanced investment return (sometimes called the ‘critical yield’) is not achieved, the pension pot will be depleted to the point where it can no longer support the required level of income. Great care should be taken if the pension pot provides the only source of income.

pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic


Andrei Shleifer, availability heuristic, bank run, Black Swan, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

., implicit insurance), explicit federal disaster insurance or reinsurance could foster appropriate incentives for loss prevention through the assessment of risk-based premiums. The collection of premiums would also provide an important source of funds for compensating victims in the aftermath of disasters, and truly risk-based and actuarially appropriate premiums would reduce or eliminate existing cross-subsidies. President Franklin Roosevelt introduced federal crop insurance in the late 1930s, and federal lawmakers enacted the National Flood Insurance Program in 1968. For a long time, however, both of these programs remained limited in scope and highly subsidized. Even today, as subsidies for federal flood insurance have been reduced, both programs continue to be dwarfed in magnitude by general disaster relief.

Bush), seemingly inept relief and recovery efforts themselves invite public outrage.22 The point is that, by its very nature, news coverage in cases of natural disaster generally directs public attention toward the need for immediate relief of the victims, and federal lawmakers appear (for the most part) to respond accordingly. CONCLUSION: REFRAMING THE DISCUSSION AS A PREREQUISITE FOR REFORM It is no secret that the current (and long-standing) federal approach to financing disaster losses is far from perfect. Since disaster risk is spread unevenly across the country, financing federal relief out of general revenues involves large cross-subsidies, from low-risk to high-risk areas. Many critics claim, moreover, that generous federal relief creates a large “moral hazard” problem, ensuring greater losses over the long term by encouraging building in hazard-prone areas and generally reducing incentives for investment in preventive measures. Nor is there any lack of good policy alternatives. One reasonable option would be to make private disaster insurance mandatory and to create a federal reinsurance program, allowing private insurers to transfer some portion of the risk to the government reinsurance agency, in return for an appropriate premium.

pages: 791 words: 85,159

Social Life of Information by John Seely Brown, Paul Duguid


AltaVista, business process, Claude Shannon: information theory, computer age, cross-subsidies, disintermediation, double entry bookkeeping, Frank Gehry, frictionless, frictionless market, future of work, George Gilder, George Santayana, global village, Howard Rheingold, informal economy, information retrieval, invisible hand, Isaac Newton, John Markoff, Just-in-time delivery, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, loose coupling, Marshall McLuhan, medical malpractice, moral hazard, Network effects, new economy, Productivity paradox, Robert Metcalfe, rolodex, Ronald Coase, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, Superbowl ad, Ted Nelson, telepresence, the medium is the message, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, Turing test, Vannevar Bush, Y2K

Page 218 Such vetoes will be most difficult to resist when the vote in question no longer concerns a single degree and a single institution, but only a single course from a single provider. The risk of taking an oddball but possibly insightful course as part of a degree is small if the value of the overall degree itself is well supported. The risk is far higher if the value of that course has to stand on its own, and not hide itself in the broader omnibus package. There is, in effect, a warranting cross-subsidy as well as a financial cross-subsidy between courses. For information technology to lead to such micromanaging would be a paradoxical and unfortunate result. An extraordinary amount of the creative outburst that has generated this technology has come from people who used the slack in a university to explore new avenues. These would include computer scientists who sat up all night pushing too much code into too small microcomputers when they should have been working on problem sets for conventional mainframes.

pages: 283 words: 85,824

The People's Platform: Taking Back Power and Culture in the Digital Age by Astra Taylor


A Declaration of the Independence of Cyberspace, American Legislative Exchange Council, Andrew Keen, barriers to entry, Berlin Wall, big-box store, Brewster Kahle, citizen journalism, cloud computing, collateralized debt obligation, Community Supported Agriculture, conceptual framework, corporate social responsibility, creative destruction, cross-subsidies, crowdsourcing, David Brooks, digital Maoism, disintermediation, don't be evil, Donald Trump, Edward Snowden, Fall of the Berlin Wall, Filter Bubble, future of journalism, George Gilder, Google Chrome, Google Glasses, hive mind, income inequality, informal economy, Internet Archive, Internet of things, invisible hand, Jane Jacobs, Jaron Lanier, Jeff Bezos, job automation, John Markoff, Julian Assange, Kevin Kelly, Kickstarter, knowledge worker, Mark Zuckerberg, means of production, Metcalfe’s law, Naomi Klein, Narrative Science, Network effects, new economy, New Journalism, New Urbanism, Nicholas Carr, oil rush, peer-to-peer, Peter Thiel, Plutocrats, plutocrats, pre–internet, profit motive, recommendation engine, Richard Florida, Richard Stallman, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley ideology, slashdot, Slavoj Žižek, Snapchat, social graph, Steve Jobs, Stewart Brand, technoutopianism, trade route, Whole Earth Catalog, WikiLeaks, winner-take-all economy, Works Progress Administration, young professional

But this model is now falling apart. The Internet, by unbundling the different functions of the newspaper and allowing readers to go direct, has certainly made things more efficient—we can now download as many crossword puzzles as we desire, go to Craigslist to find an apartment, and visit the local blog or the foreign news aggregator to read about what’s happening in the world. But it has eliminated the cross-subsidies that kept journalism afloat and, by doing so, exposed a form of market failure. Stephen Janis, a reporter who has made the move from print to the Web, was one of the victims of the newspaper industry’s collapse, losing his job at the Baltimore Examiner when it folded in 2009. While the layoffs have been painful, Janis believes the shakedown of the newspaper industry will be a healthy thing overall, challenging journalists to become more relevant.

This kind of corporate saturation has long been the dream of free market acolytes, including tech commenter George Gilder, whose 1994 book Life After Television featured full-color ads from FedEx every few pages. At the time Gilder’s book seemed like a crass gimmick by a highly ideological eccentric; today it looks prophetic. The challenge of supporting uncompromising work is growing greater, for the unbundling of digital media means the era of cross-subsidies, whereby profits from popular wares are used to support more daring endeavors, is coming to an end. The classic example is newspapers, which people bought for the classifieds or comics—these readers translated into higher advertising revenue, which helped finance foreign desks. The days for those kinds of arrangements are numbered, as Yahoo!’s Marissa Mayer made clear at a Senate hearing on the future of journalism.

pages: 523 words: 159,884

The Great Railroad Revolution by Christian Wolmar


1919 Motor Transport Corps convoy, accounting loophole / creative accounting, banking crisis, Bay Area Rapid Transit, big-box store, collective bargaining, cross-subsidies, intermodal, James Watt: steam engine, Ponzi scheme, quantitative easing, railway mania, Ralph Waldo Emerson, refrigerator car, Silicon Valley, strikebreaker, too big to fail, trade route, transcontinental railway, traveling salesman, union organizing, urban sprawl

Any excess earnings from the most profitable railroads would go into a pool that would be shared between those lines that were not managing to reach the 6 percent threshold. The idea was classic railroad economics: the weak would be supported by the strong, this cross-subsidy ensuring the retention of a much larger network than would be the case if market forces alone were allowed to prevail. Given the near impossibility of trying to allocate costs of running a railroad system accurately in such a complex industry and the desire of railroad managers to retain as large a network as possible, cross-subsidy has become established practice on most railroad networks across the world. The commission, too, set minimum rates in an effort to prevent uncompetitive price reductions, and this would prove to be greatly troublesome to the rail companies, particularly after the Second World War.

pages: 275 words: 77,017

The End of Money: Counterfeiters, Preachers, Techies, Dreamers--And the Coming Cashless Society by David Wolman


Bay Area Rapid Transit, Berlin Wall, Bernie Madoff, bitcoin, Bretton Woods, carbon footprint, cashless society, central bank independence, collateralized debt obligation, corporate social responsibility, credit crunch, cross-subsidies, Diane Coyle, fiat currency, financial innovation, floating exchange rates, German hyperinflation, greed is good, Isaac Newton, M-Pesa, Mahatma Gandhi, mental accounting, mobile money, money: store of value / unit of account / medium of exchange, offshore financial centre, Peter Thiel, place-making, placebo effect, Ponzi scheme, Ronald Reagan, seigniorage, Silicon Valley, special drawing rights, Steven Levy, the payments system, transaction costs

The goal is to reduce the “insidious military consequences of this large-scale reliance on cash,” writes one senior army official, because when you want to buy weapons on the black market, cash is the bomb.61 Birch seems to relish illustrations of cash’s role in crime—validations, really, that cash is a “menace” that often undermines the efforts of the very governments that supply it. While cotton-industry lobbyists wield trite nationalism-tinged defenses for banknotes, and thieves and tax evaders rob the rest of us blind, they do so, says Birch, with cash provided to them by us. “We make their business possible, or at least much, much easier. Cash lets criminals maintain anonymity, store value, make payments—everything,” which means we provide them with “a cross subsidy,” he says. “When you kick down a Mexican drug dealers’ door to find $205 million in cash, which happened a few years ago, you have to wonder whose side the Treasury is on.”62 This is not a fringe opinion. The Wall Street Journal reported in July 2010: “Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone. That is thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills.

pages: 270 words: 79,180

The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky


Affordable Care Act / Obamacare, Airbnb, Al Roth, Black Swan, buy low sell high, Chuck Templeton: OpenTable, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, information asymmetry, Jean Tirole, Kenneth Arrow, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, Metcalfe’s law, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, Robert Metcalfe, Sand Hill Road, sharing economy, Silicon Valley, social graph, supply-chain management, TaskRabbit, The Market for Lemons, too big to fail, trade route, transaction costs, two-sided market, Uber for X, ultimatum game, Y Combinator

The typical way out of this chicken-and-egg problem is for the middleman to subsidize one side, thus getting these initial users to sign up before there’s anything on the other side. Even after a two-sided market takes off, with plenty of users on both sides and therefore the potential to charge both sets of users, middlemen usually continue to offer the service for free to one side while making all their money from charging the other side for access, relying on these cross-subsidies for continued growth and profit. As Chris Anderson put it in Free, “People are making lots of money charging nothing.”38 Some middleman businesses go so far as to pay one set of users to join the network, hoping that a large user base will attract enough paying users on the other side to more than justify the subsidy. Banks that issue credit cards, for example, can charge an annual fee to cardholders and transaction fees to merchants, and some do both.

pages: 270 words: 79,992

The End of Big: How the Internet Makes David the New Goliath by Nicco Mele


3D printing, 4chan, A Declaration of the Independence of Cyberspace, Airbnb, Amazon Web Services, Any sufficiently advanced technology is indistinguishable from magic, Apple's 1984 Super Bowl advert, barriers to entry, Berlin Wall, big-box store, bitcoin, business climate, call centre, Cass Sunstein, centralized clearinghouse, Chelsea Manning, citizen journalism, cloud computing, collaborative consumption, collaborative editing, commoditize, creative destruction, crony capitalism, cross-subsidies, crowdsourcing, David Brooks, death of newspapers, Donald Trump, Douglas Engelbart, Douglas Engelbart,, Exxon Valdez, Fall of the Berlin Wall, Filter Bubble, Firefox, Galaxy Zoo, global supply chain, Google Chrome, Gordon Gekko, Hacker Ethic, Jaron Lanier, Jeff Bezos, jimmy wales, John Markoff, Julian Assange, Kevin Kelly, Khan Academy, Kickstarter, Lean Startup, Mark Zuckerberg, minimum viable product, Mohammed Bouazizi, Mother of all demos, Narrative Science, new economy, Occupy movement, old-boy network, peer-to-peer, period drama, Peter Thiel, pirate software, publication bias, Robert Metcalfe, Ronald Reagan, Ronald Reagan: Tear down this wall, sharing economy, Silicon Valley, Skype, social web, Steve Jobs, Steve Wozniak, Stewart Brand, Stuxnet, Ted Nelson, Telecommunications Act of 1996, telemarketer, The Wisdom of Crowds, transaction costs, uranium enrichment, Whole Earth Catalog, WikiLeaks, Zipcar

Dave Winer calls the proliferation of blogs and other small, grassroots news and opinion Web sites “sources go direct,” the “same idea” as user-generated media “but with more respect and emphasis on quality.”17 “Sources go direct” undercuts the economic model of news properties by fragmenting audiences and, more directly, through “the great unbundling.” In June 2011, an FCC report on the condition of local news described the phenomen this way: During the news media’s most profitable days, in many towns, there was only one newspaper, leaving consumers with limited choice. And, though we may not have thought of it this way, purchasing a paper meant having to buy a bundle of goods, even if readers only wanted certain parts. A cross-subsidy system had developed, in which a consumer who bought the paper for the box scores was helping to pay the salary of the city hall reporter.18 Similarly, William S. Paley (who built CBS) used to tell his reporters that the entertainment division paid for the news. These days, if all you want are the sports scores or the classifieds or the stock prices or even just the horoscope—well, you can get any one of those online without paying for the rest of the newspaper.

pages: 292 words: 85,151

Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It) by Salim Ismail, Yuri van Geest


23andMe, 3D printing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, bioinformatics, bitcoin, Black Swan, blockchain, Burning Man, business intelligence, business process, call centre, chief data officer, Chris Wanstrath, Clayton Christensen, clean water, cloud computing, cognitive bias, collaborative consumption, collaborative economy, commoditize, corporate social responsibility, cross-subsidies, crowdsourcing, cryptocurrency, dark matter, Dean Kamen, dematerialisation, discounted cash flows, distributed ledger, Edward Snowden, Elon Musk,, ethereum blockchain, Galaxy Zoo, game design, Google Glasses, Google Hangouts, Google X / Alphabet X, gravity well, hiring and firing, Hyperloop, industrial robot, Innovator's Dilemma, intangible asset, Internet of things, Iridium satellite, Isaac Newton, Jeff Bezos, Kevin Kelly, Kickstarter, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, Lean Startup, life extension, lifelogging, loose coupling, loss aversion, Lyft, Marc Andreessen, Mark Zuckerberg, market design, means of production, minimum viable product, natural language processing, Netflix Prize, Network effects, new economy, Oculus Rift, offshore financial centre, p-value, PageRank, pattern recognition, Paul Graham, peer-to-peer, peer-to-peer model, Peter H. Diamandis: Planetary Resources, Peter Thiel, prediction markets, profit motive, publish or perish, Ray Kurzweil, recommendation engine, RFID, ride hailing / ride sharing, risk tolerance, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Silicon Valley, skunkworks, Skype, smart contracts, Snapchat, social software, software is eating the world, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, subscription business, supply-chain management, TaskRabbit, telepresence, telepresence robot, Tony Hsieh, transaction costs, Tyler Cowen: Great Stagnation, urban planning, WikiLeaks, winner-take-all economy, X Prize, Y Combinator, zero-sum game

In his 2005 book, Free: The Future of a Radical Price, Chris Anderson built on the lower cost positioning of the disruptor, noting that pretty much all business models, and certainly those that are information-based, will soon be offered to consumers for free. The popular “freemium” model is just such a case: many websites offer a basic level of service at no cost, while also enabling users to pay a fee to upgrade to more storage, statistics or extra features. Advertising, cross-subsidies and subscription business models are other ways of layering profit-generating operations on top of what is essentially free baseline information. Kevin Kelly expanded further on this idea in a seminal post entitled “Better than Free,” which appeared on his Technium blog in 2008. In digital networks anything can be copied and is thus “abundant.” So how do you add or extract value? What is valuable for customers?

pages: 335 words: 104,850

Conscious Capitalism, With a New Preface by the Authors: Liberating the Heroic Spirit of Business by John Mackey, Rajendra Sisodia, Bill George


Berlin Wall, Buckminster Fuller, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, crony capitalism, cross-subsidies,, Everything should be made as simple as possible, Fall of the Berlin Wall, fear of failure, Flynn Effect, income per capita, invisible hand, Jeff Bezos, job satisfaction, lone genius, Mahatma Gandhi, microcredit, Occupy movement, profit maximization, Ralph Waldo Emerson, shareholder value, six sigma, Steve Jobs, Steven Pinker, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, too big to fail, union organizing, wealth creators, women in the workforce, zero-sum game

Companies should work with governments and nonprofits to meet the needs of the poorest people and should invest in innovation specifically aimed at the “base of the pyramid.”6 Creative capitalism applies to products with high fixed costs and low variable costs, such as software and pharmaceuticals. Companies can use variable pricing to make such products affordable to poor people and still make a profit. Additionally, the companies benefit through public recognition and an enhanced reputation, which enables them to hire and retain additional talented team members. Rather than profit maximization, creative capitalism emphasizes impact maximization. It entails a high degree of cross-subsidy between more prosperous and less prosperous customers. The limitation of creative capitalism, like CSR, is that it is largely an add-on to the traditional business model. It simply suggests that companies develop better go-to-market strategies for low-income markets. The concept only applies to a relatively small subset of industries with cost structures that allow for radically variable pricing.

When the Money Runs Out: The End of Western Affluence by Stephen D. King


Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Riskier ventures, meanwhile, had the support of banks’ legions of savers who, for the most part, hoped to earn decent returns safe in the ‘knowledge’ that bank failures were a thing of the past. After all, given that policy-­makers had mastered the economic cycle, what could possibly go wrong? Banks were thus faced with a series of inconsistent objectives and, in the attempt to meet them all, ended up creating a web of cross-­ subsidies that hid the true cost of banking services in some areas thanks to excessive risk-­taking in other areas. 255 4099.indd 255 29/03/13 2:23 PM When the Money Runs Out Untangling this labyrinth won’t be easy. Nor will it be necessarily be popular. But it may be the only way to restore confidence in the financial system. The first step is to prevent banks from pursuing short-­run profit at the expense of long-­run stability.

words: 49,604

The Weightless World: Strategies for Managing the Digital Economy by Diane Coyle


barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, blue-collar work, Bretton Woods, clean water, computer age, Corn Laws, creative destruction, cross-subsidies, David Ricardo: comparative advantage, dematerialisation, Diane Coyle, Edward Glaeser, everywhere but in the productivity statistics, financial deregulation, full employment, George Santayana, global village, hiring and firing, Howard Rheingold, income inequality, informal economy, invisible hand, Jane Jacobs, Joseph Schumpeter, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Marshall McLuhan, mass immigration, McJob, microcredit, moral panic, Network effects, new economy, Nick Leeson, night-watchman state, North Sea oil, offshore financial centre, pension reform, pensions crisis, Ronald Reagan, Silicon Valley, spinning jenny, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tobin tax, two tier labour market, very high income, War on Poverty, winner-take-all economy, working-age population

Besides, a regional structure fosters the subsidy of poor regions by rich ones under the national umbrella. It is the regions in longest receipt of subsidies that trail furthest behind the national average. Italy’s mezzogiorno, despite decades of funding from both the EU and the national government, still has GDP per capita less than three-fifths of the north’s. Extremadura in Spain does little better despite subsidies almost as extensive. The US federal structure involves some cross-subsidy of poor states by rich ones, but not as much. With 3 per cent of the US population willing to move state each year, economic disparities between states persist but are smaller than between European regions. Switch to a pattern of city government rather than regional, and the fruitless subsidies would become a thing of the past. Cities do not need subsidy from the centre, and given responsibility for their own success, they have the potential to regenerate their surrounding regions.

pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

agricultural Revolution, Airbnb, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, distributed ledger, double entry bookkeeping, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, large denomination, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, technoutopianism, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

VAT, for example, could be automatically levied – and reimbursed – in real time on transactions between liable bank accounts. Countries that struggle with tax collection could go a long way towards solving their problems by restricting the use of cash. Greece, in particular, could make lemonade out of lemons, using its current capital controls to push the country’s cash culture into new habits (Financial Times 2015). Not only would electronic money cut my tax bill, it would stop the ridiculous cross-subsidy from the lawful to the lawless that plagues our moral fibre. But my point is that if the black economy were turned white, UK GDP would grow by 20 per cent or so. And if you think I’m joking, let me mention that there is work already underway to look at estimating the illegal drugs trade and prostitution as components of GDP, in compliance with EU rules. Prostitution in Britain is set to be valued at around £3 billion a year, while the drug dealing sector is set to be valued at £7 billion!

pages: 369 words: 128,349

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing by Vijay Singal


3Com Palm IPO, Andrei Shleifer, asset allocation, capital asset pricing model, correlation coefficient, cross-subsidies, Daniel Kahneman / Amos Tversky, diversified portfolio, endowment effect, fixed income, index arbitrage, index fund, information asymmetry, liberal capitalism, locking in a profit, Long Term Capital Management, loss aversion, margin call, market friction, market microstructure, mental accounting, merger arbitrage, Myron Scholes, new economy, prediction markets, price stability, profit motive, random walk, Richard Thaler, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, survivorship bias, transaction costs, Vanguard fund

Parent companies earn abnormal returns of about 15 percent over the three-year period. Trading strategies designed to capture abnormal performance do not always perform satisfactorily. The primary explanation for the overperformance of companies engaged in a spin-off seems to be related to corporate focus. When unrelated businesses are spun off, the focus of the management is sharper and the incidence of cross subsidies to keep poorly performing divisions alive is much reduced. There is an improvement in operating performance, and the empirical evidence suggests that focus-increasing spin-offs are the only ones that outperform their peers. The non-focus-increasing spin-offs do not outperform their peers. Another explanation for the abnormal performance is a reduction in asymmetry of information between the management and investors.

pages: 493 words: 145,326

Fire and Steam: A New History of the Railways in Britain by Christian Wolmar


accounting loophole / creative accounting, Beeching cuts, carbon footprint, collective bargaining, computer age, Corn Laws, creative destruction, cross-subsidies, financial independence, hiring and firing, James Watt: steam engine, joint-stock company, railway mania, rising living standards, Silicon Valley, South Sea Bubble, strikebreaker, union organizing, upwardly mobile, working poor, yield management

See, for example, Simon Garfield, The Last Journey of William Huskisson, Faber, 2002, p. 20. 6 Nicholas Faith, The World the Railways Made, Bodley Head, 1990, p. 15. 7 The three mainland Japanese railways are profitable, though they had huge debt write-offs at privatization in the 1980s, and US freight companies do very well thanks to the sheer distance involved in crossing the country. Freight in India and Russia is profitable too, but otherwise, while individual services may make a profit, the need for cross-subsidy means that throughout the world the vast majority of railway networks are loss-making. 8 Quoted in Ferneyhough, Liverpool & Manchester Railway, p. 93. 9 As the Bodmin & Wadebridge had been built to standard gauge, it was not directly connected to the rest of the network until 1892 when the Great Western’s broad gauge was finally abandoned (as explained in Chapter 9). 10 The Quarterly Review, 1833, quoted in Frank Ferneyhough, The History of Railways in Britain, Osprey Publishing, 1975, p. 73. 11 Many of the arches are now being converted into upmarket restaurants and fashionable nightclubs.

pages: 868 words: 147,152

How Asia Works by Joe Studwell


affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

They account for the bulk of China’s exports – private firms’ net exports (exports minus imports) went from zero in 2000 to USD200 billion in 201046 – but they are not rewarded by the state for this export performance. In most consumer goods businesses private firms are more open to multinational competition than were their Japanese and Korean cousins at a similar stage of development. They do not enjoy cross-subsidies from other protected non-consumer businesses, such as Hyundai Motor Company had from the chaebol’s cash-generative shipbuilding subsidiary; in China such non-consumer businesses are in state hands. Private firms enjoy fewer orders for state procurement than their public sector rivals, a big disadvantage in an era when the state is investing so heavily. And in some cases they butt up against entrenched state enterprise competitors which are extremely difficult to displace.

pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd


accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

The immediate political ramifications of this problem are potentially far-reaching. Take, for example, the relationship between “surplus” and “deficit” nations within the Eurozone. Since the crisis began, this relationship has been framed overwhelmingly in terms of the failure of the latter nations to “live within their means.” Not only have these nations borrowed excessively, but also their continuing membership in the Eurozone presents a danger for surplus nations of cross-subsidy: a “transfer union” in which money flows from strong to weak states, lending moral validity to the deficit nations’ prolonged financial profligacy, their lack of fiscal self-control, and their poor work ethic. “Transfer union” became part of the Eurozone’s lexicon only in the teeth of its crisis.37 Jörg Krämer, chief economist at Commerzbank, claimed that the Eurozone “has moved away from a monetary union and towards a transfer union” (New York Times, May 11, 2010), and Columbia University economics professor Jagdish Bhagwati remarked in an interview that monetary union will turn into a transfer union “if the weak countries have problems.”38 The notion of a transfer union is generally used in such instances to describe redistributive functions that (so critics argue) were never intended for the euro.39 This is the language of restricted economy.

pages: 726 words: 210,048

Hard Landing by Thomas Petzinger, Thomas Petzinger Jr.


airline deregulation, centralized clearinghouse, collective bargaining, cross-subsidies, desegregation, Donald Trump, feminist movement, index card, low cost carrier, low skilled workers, Marshall McLuhan, means of production, mutually assured destruction, Network effects, offshore financial centre, oil shock, Ponzi scheme, postindustrial economy, price stability, profit motive, Ralph Nader, Ronald Reagan, Silicon Valley, strikebreaker, the medium is the message, The Predators' Ball, Thomas L Friedman, union organizing, yield management, zero-sum game

The majors were not, as a matter of fact, using their transcontinental routes to subsidize their short-haul routes—at least not enough to account for their 70 percent discounts. The majors were offering low fares against People Express because they had computers that enabled them to offer rock-bottom prices to discretionary passengers and still keep as many seats as necessary in store for higher-paying passengers. That was the cross-subsidy that was killing People Express. After reaching Denver, Burr approached not only the management of Frontier but the unions as well. Although Burr practically had to hold his nose at the mere mention of the word “union,” he stifled his prejudice and earnestly told the union leaders that the employees of Frontier were much better off casting their lot with him than with his union-busting former partner Frank Lorenzo.