Marketplace: News Archives

Wednesday, October 11, 2000
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It's Wednesday, October 11, 2000. I'm David Brancaccio.

One of the guys who won the Nobel Prize in Economics today is clearly a person at ease with explaining the real world through numbers. Asked if he was surprised by the award, University of California-Berkeley professor Daniel McFadden said, "The economics community is just a few thousand--I guess one always figures you have a one in a thousand chance."

McFadden: "I was very surprised, astounded, it took me a while to get used to the idea. I guess I'm still not used to the idea."

McFadden and his fellow Nobel winner James Heckman of the University of Chicago are both pioneers in the use of economic models to better understand how people will behave, given various possibilities. Just what an individual will do is tough to pin down, but as a group, professor McFadden has our number.

McFadden: "Any given individual, it's rather hard to get what they'll do as an individual, but if you ask: for a collection of individuals, is there a pattern, the answer is often that it's rather strong."

Reporter Bob Moon has of the ways McFadden and Heckman's work plays out in the real world.

Moon: "This is what the economy sounds like. People - lots of people. But how do you make sense of what all those people are saying, desiring, choosing, buying? Get out the scientific calculator and start figuring. Daniel McFadden calls his melding of economics and statistics "blindingly obvious." But for most of us, all these complex formulas are simply blinding. Suffice it to say, you factor in all the variables, and get a what-would-happen-if prediction: How people will decide, when choosing - say - where to live, and what to buy. Using McFadden's methods, for example, you can calculate how probable it is that a person of a certain age, income and education would choose to travel by bus, subway or car. The formula helped San Francisco's commuter rail system put its stations in the best places and plan for enough parking spaces. James Heckman designed methods that can be used to evaluate the effectiveness of affirmative action programs, or figure how the time you stay unemployed can affect your chance of finding a job. At the University of Chicago, Heckman's colleague, former Nobel economics winner Gary Becker, says the method helps filter out other influences, such as whether someone who gets a graduate equivalency degree is already more motivated than the average dropout."

Becker: "Since the people who take that degree are not the same as other high school dropouts, he uses his technique to get a prediction. In this case, he gets a very precise prediction that there doesn't seem to have a big effect on earning power from getting the GED degree. So that has very practical significance with a controversial public policy."

Moon: "For the record, both winners are in the field of microeconometrics, but the description sounds a lot like mind reading. I'm Bob Moon for Marketplace."

McFadden and Heckman get to split the $915,000 Nobel money.

The stock market today is currently a real world example of the choices people make when their once high-flying technology shares go from bad to worse. The Nasdaq Composite today closed at 3168. It got there by falling 72 points or 2.2 percent. If it's any consolation, there was a moment during the mid-Afternoon New York Time when the beleaguered index broke for one vain moment into positive territory. Marketplace's New York editor Michelle Brier has details.

Brier: "It was a day that most traders said they were glad to be done with. The morning began with both blue chips and technology stocks under pressure, as investors took both good news and bad the same way - as a reason to sell. The good news was Yahoo, reporting earnings a bit better than expectations. The bad was Lucent, which warned its fourth quarter profits would be off by as much as 30 percent. Nervous investors dumped stocks fast with the Nasdaq taking the brunt of the fury - at one point at mid-day, the Nasdaq composite was down by as much as four percent. Marshall Acuff, chief equity strategist at Solomon Smith Barney says investors just wanted to get their money to safer havens."

Acuff: "Some of it goes to the bond market, some of it may go into energy stocks since those are having a good day with oil prices again strong, but I suspect some of its going into cash to wait until there are better opportunities once the clouds clear over this market."

Brier: "By afternoon, a recovery was underway but many of the best known stocks were still lagging well behind. Lucent, the former darling of the market lost a third of its value today. Yahoo lost twent percent. Telecom Global Crossings, which announced a new CEO today, was off almost ten percent. The turmoil was just a continuation of weeks of uncertainty that is taking a toll on investors, says Mike Clark, head of global equity trading at Credit Suisse First Boston."

Clark: "Investors are much more conscious of the actual risks they are taking right now. Sometimes that can escape you when you've had years of things working out the right way. It's hard to make mistakes in a trending market, when looking backwards is the same as looking forwards. when the market is more difficult and its harder to make money, you become a little more introspective."

Brier: "Making matters worse, some market watchers say, was a flurry of what's known as margin calls.. forcing investors to sell stocks in a hurry to raise emergency cash and leaving them wondering where the bottom of this market will finally fall. In New York I'm Michelle Brier for Marketplace."

Today the European Commission gave a conditional go-ahead to America Online's 129 billion dollar acquisition of Time Warner-the biggest condition: that the two companies agree to keep their hands-off EMI and Bertlesmann, two of Europe's biggest music publishing companies. According to David Manasian of the Economist Magazine, European approval comes two weeks ahead of schedule.

Manasian: "AOL will be big in Europe and the worry was that it was going to be way too big. AOL has expanded quite aggressively in Europe. Time Warner isn't as big, which is one of the reasons why the commission felt comfortable in allowing the merger to go ahead here, basically because it's not a big cable TV operator, for example, as it is in the United States. If it had been, I think the European authorities would have had a lot of difficulty with the merger, for the same reasons that the U.S. authorities are still examining it and still talking to the companies."

Before the deal wins U.S. approval, officials want assurances that media rivals like Disney will have access to cable and internet services to be provided by the new entity. Despite European approval, shares of AOL closed down just over four percent today, while shares of Time Warner slipped 4.33 percent.

A California judge has become the first judge ever to issue a vehicle recall order…telling Ford Motor Company to fix two million vehicles with a design defect that makes them likely to stall. Alameda Superior Court Judge Michael Ballachey said, in issuing the order, that Ford had misled consumers. Ford says it will appeal the decision, challenging a judge's right to issue the recall order and also challenging the finding that there's a mechanical problem. This is the latest in a series of problems plaguing Ford following the recall of 6.5 million Firestone tires on the Ford Explorer series, which have a tendency to separate and are alleged to have cost more than 100 lives.

And that's the top of our news for Wednesday, October 11, 2000. Today the Dow fell 1.1 percent, 115 points. Details when we do the numbers.