Saturday, December 20, 2014

Sidewalks in Muscatine

The main highway through Muscatine is Cedar Street.  For the past 9 months the street has been under repair.  This street is used by students to enter the high school for the east and west.  The work is outstanding and will provide an easy and scenic route through our town.  Cedar Street is also the street that low-income students use to walk to school.  The school district has a policy that students who live within a half of mile from the school are not bused but have to walk.

The street is under construction to be widened so there's no easy path for these students to take.  The students have to walk through mud or in the middle of a construction zone to walk to school.  Incidentally, the housing addition that is .55 miles way from the high school gets bused.  District policy doesn't allow students living in the low income area to ride the bus with the students who live less than  200 yards away.

Now that the construction is nearly completed, the contractor is putting in sidewalks.  The contractor could start at the bottom of Cedar Street, east, or the top, west.  The students at the bottom of Cedar Street are the low income students who would benefit the most.  But where does the contractor start?  On the west end.  I was wondering if the construction had more to do with ease than inequality.

Let me explain.  By starting at the west end, more work can be completed because the land is flat and will take little work to make the sidewalk up to grade.  By starting at the bottom, the contract will need more equipment, more labor, better weather conditions, and more time.   So they start where they can get the most done.

But when I look at property values on the east side, they are the lowest and have the worst land to develop.  Land is cheap there so they attract landowners who can afford those kinds of properties.  I believe the land is cheap there because the land is hilly, woody, rocky and hard to develop.  I find it interesting then, that the land prices make it attractive to those who can least afford to develop the land.  And these are the kids that have to walk to school.

I think I'm saying is that social forces, marginal cost of construction, and economic incentives keep an equilibrium where the poor stay poor.  It's not wonder why these students often feel like the system is stacked against them.

End of rant.

Friday, December 19, 2014

Fisher Effect

In this video, Jodie Beggs shows how changes in inflation translate to changes in the nominal interest rate in both the short run and the long run.

Thursday, December 18, 2014

What is Scarcity?

AmosWEB.com describes "scarcity":

A pervasive condition of human existence that results because society has unlimited wants and needs, but limited resources used for their satisfaction. This fundamental condition is the common thread that binds all of the topics studied in economics.
The study of scarcity is what economics is all about.  Students learn that "there's no such thing as a free lunch" meaning that every choice as an opportunity cost.  Since the earth is finite and time is limited, it's impossible to satisfy all wants.  This is the standard reasoning in economics.

I want to offer a different view, in my opinion.

I think scarcity refers to the relative cost of choosing one alternative over another.  Since it's impossible to do two things at once, there's a cost.  In economics, this cost is the opportunity cost.  However, I tender that the cost is relative.  So if I choose to run a mile, I give up studying for my calculus exam.  But since the cost of breathing is so low, I don't give up this function.  Yet, I argue that breathing is scarce, it's just relatively abundant so that it appears not to be scarce.  This is why there's little cost to doing homework and listening to music.

I think scarcity is a relative term.  Scarcity doesn't refer to the abundance of a factor of production, but to the relative cost of consumption of the factor.

As a final example of what I mean, consider that there are 24 hours in a day.  For a teenager the 24 hours is relatively different when compared to a 92-year old woman in the final days of her life. They both have 24 hours in a day but the cost of consumption is different.  So it may be true that both you and Albert Einstein both have 24 hours in the day, it's not true that you consume the 24 hours in the same way.  Your cost may be higher so you can't get as much done.



Private Property

In my Record keeping class last week, a student asked to borrow a pencil.  After I gave the pencil to her, I noticed how differently students use pencils.  One student is a fantastic artists who draws in a sketchbook.  Another student doesn't use her pencil and prefers to play with her digital media.  Some will use the pencil awkwardly in trying to solve problems.  The point is, owning a pencil doesn't mean that students will use it to the maximum.  Owning private property doesn't mean that the factor of production will be used to maximize utility.

For example, I have many tools in my garage that are seldom used.  I have kitchen appliances that are never used.  I have bought books that I have never read.  Over my life, I have accumulated many capital goods that have seldom been used.  But, if I ever needed a crock pot, I have it.  I wouldn't have to run to the store and buy one.  If I ever need to change a tire, I have both the tools and the talent to do it.  In short, accumulated wealth insulates me from emergencies or demands that endogenously occur. For this reason, I believe I have a competitive advantage over those families and individuals who have accumulated less wealth.  That is, I'm able to move my factors of production and use them faster to respond to changes in my needs and demand.

I believe that accumulated wealth is why some schools continually win at athletics.  The wealth that these schools have accumulated allows them to sponsor more educational opportunities, respond to changing dynamics, and allow coaches to concentrate on winning games.

As an example, take the hypothetical case where two wrestlers from different schools have a flat tire.  One wrestler who comes from a household where there's accumulated wealth will simply take another car to school.  But the other wrestler will have to change the tire.  The second wrestler who had to change his tire incurred a higher cost of participation.   Although, the second wrestlers cost was relatively minor, the accumulation of these costs significantly reduce the athlete's ability to concentrate and perform at a higher level.

This is only an anecdotal opinion why some schools perform better and it is not comprehensive.  I can see where wealthier schools attract more talent, are safer, have a climate of success, and a higher tax base.  But I think that accumulated wealth is one component of a successful school system.


Sunday, December 14, 2014

Change in Demand -- Clothes Teens Wear

A change in demand happens when one of the determinants of demand change such as income or tastes and preferences. The demand curve can shift to the right or to the left. An article in the Muscatine Journal caught my attention about how tastes and preferences have changed the way teenagers dress.
NEW YORK — Being a teen can be tough, but catering to one is even more difficult. Teen retailers are learning that lesson the hard way this holiday season. The longtime CEO of Abercrombie & Fitch on Tuesday abruptly retired just a week after the retailer posted an 11.5 percent quarterly sales drop and slashed its annual profit forecast. And American Eagle and Aeropostale gave dismal forecasts for the quarter that includes the holiday shopping season after each posted weak sales for the fall. Teen retailers are facing ho-hum results at a time when overall U.S. retail sales are up 5.1 percent over the past 12 months, the Commerce Department said Thursday. It's a major shift for teen retailers. They became popular in the last decade for their logo tees and trendy jeans, which became a high school uniform of sorts. But since the recession, these stores have been losing favor with their core demographic. One reason is technology. Teens are more interested in playing on smartphones than hanging out at the mall where these stores are. They're also more likely to spend on tech gadgets than on clothes. And when they do buy clothes, they do so differently. Today's teens shun the idea of wearing the same outfit as the girl or guy sitting next to them in chemistry class. Case in point: Olivia Nash, a 16-year-old junior from Washington, D.C. Nash used to shop at American Eagle and Abercrombie, but now she pulls together pieces at a variety of other retailers. "When I was younger, everyone wanted what everyone else had," she says. But now, Nash says "everyone is putting their own individual spin" on their look.
Retail sales to teen outfitters like the Gap and Abercombie & Fitch have dropped because of the recession. Teens will substitute less pricier designer and name tag jeans for less pricier. Still, teens like to play with technology more than hanging out at the game. Teens are substituting new smart phones for clothes that homogenize their appearance to look like their peers. As demand for clothing changes, retailers will have to change marketing strategy. In my opinion, the retail industry shows how prices will reduce to their marginal cost and competitors will exit the industry. For example, let's look at some of the brands that are now out of business. Merry-Go-Round, Ruehl's, Demo, and Bugle boy. I can think of more, but the point is that the industry is monopolistically competitive.

Sunday, December 07, 2014

KALDOR-HICKS IMPROVEMENT

In Welfare economics, the KALDOR-HICKS IMPROVEMENT refers to a change in social conditions that enrich some members of society at the expense of others. For efficiency to improve to the socially optimal level, the "winners" compensate the losers. I would reckon this to sharing the wealth after a favorable tax credit. AMOSweb.com defines the condition as:
KALDOR-HICKS EFFICIENCY: A type of efficiency that results if the monetary value of society's resources are maximized. This is achieved if the marginal willingness to pay by those who benefit from an action is equal to the marginal willingness to accept of those harmed. If this condition is not achieved, then a Kaldor-Hicks improvement is possible. Kaldor-Hicks efficiency, named after Nicholas Kaldor and John Hicks, is the theoretical basis of benefit-cost analysis, a technique commonly used to evaluate the desirability of producing public goods (such as parks, highways, or reservoirs). This is one of two noted efficiency criteria used in economics. The other is Pareto efficiency.
How would citizens in Ferguson, Missouri, be compensated for the damages that occurred after Officer Wilson was exonerated by the grand jury? How about the family of Eric Garner? You might argue that these two cases are not relevant, but costs have been exerted on people who were not involved in the arrests.

Monetary Policy, Money Creation, and Bank Deposits

This is a complete presentation for AP Macroeconomics prepared by Dr. Clark Ross of Davidson college.

Friday, December 05, 2014

JLG

Shown is a picture of a JLG. This capital tool allows workers to safely reach high areas of a building to work on. A worker using this technology can safely reach heights of 60' with no fear of falling. About 30 years ago, I began painting as a summer job. We used ladders that were heavy and took great skill to move. Ladders are still used to paint places where a JLG can't reach. For example, owners who are picky about their yards would not want you to use this equipment to paint their house as the JLG would dig up their yard. So there is still a need for a painter who can use ladders. What I'm seeing is that the cost of renting a JLG has fallen so low as more and more of these machines have entered the market, that there is less and less need for craftsmen with my skill. Jobs that used to require a painter are now being completed by the homeowner. The only way to compete against the new technology is for me to lower the price of my services. I could adopt the same technology too. My point is, that machines are replacing the craftsman. Maybe this is structural unemployment or creative destruction. Maybe this keeps prices down and maintains price stability. Maybe this is good. But one idea I have is that the accumulated wealth in the United States is also leading to the adoption of substituting capital for labor. I see YouTube substituting for my teaching. I see tax programs substituting for accountants. I see the end of the worker.

Sunday, November 30, 2014

Inflation?

This is an excellent commentary on today's society.  Under the guise of inflation robbing buyers of real purchasing power, the picture makes a statement about stopping robbers.  How has your behavior changed as a result of increased security?