Monday, March 30, 2009
Sunday, March 29, 2009
In his new book, The Adventures of Johnny Bunko, Dan Pink writes about persistence triumphs over talent. These stones represent marginal thinking and the power thinking at the margin has to bring huge results. A 1% gain every day for a year, is a 360% improvement over a year. Economists always consider the marginal benefit and the marginal cost for each action.
Saturday, March 28, 2009
Thursday, March 26, 2009
Wednesday, March 25, 2009
Sunday, March 22, 2009
This graph (click to enlarge) is from Youtube and is a TED talk. This graph shows that an increase in real GDP contributes little to happiness. An article is here. What makes you or me happy varies. Author Dan Pink, suggests making an imprint with your life in his new book, Johnny Bunko. In other words, be a contribution to society.
As an aside, this graph is used to show why the rich should be taxed more than the poor. Assume that the slope of this curve takes the function y = SQR(x) where y is happiness and x is personal income. This equation infers that you received less and less happiness as you make more and more income. If this is true, then the rich can give up more in taxes without diminishing their happiness.
This is one argument why the rich should get taxed more. I know that if I plan to leave an imprint, I would like to leave some to my family or to a charity. Taxes rob that imprint ability.
As usual, your thoughts are welcome.
Saturday, March 21, 2009
The CPI that is reported to the public excludes food and energy since these items are volatile. The following excerpt was sent to the AP List Serve:
"In 1945, at the end of World War II, the price of gasoline in the United
States averaged 15 cents a gallon and milk, 62 cents a gallon. So gas was
less than a quarter the price of milk. Gas now averages about $1.40, and
milk $2.50, so gas costs more than half as much as milk. Compared to its
1945 price, gas now costs about nine times as much and milk about twice as
much. By way of comparison, the consumer price index (1982-1984 = 100) has
increased tenfold from 18 in 1945 to about 180 today. And the minimum hourly
wage increased thirteen-fold from $0.40 in 1945 to $5.15 today (though it's
higher in some states)."
I post this only to show the difficulty in interpreting the relative effects of inflation as I try to understand how inflation redistributes wealth. Any thoughts?
Friday, March 20, 2009
Thursday, March 19, 2009
When a consumers buys a newspaper from a machine, they take the top one and only one. This is because the utility of a newspaper diminishes quickly. I think the whole act of buying a newspaper involves a utility set such as buying a cup of coffess, tucking the paper under your arm, and getting ready to read it at the kitchen table or at a desk.
Now, consumers can read the headlines on line with the help of Google Reader. I think the whole utility function of buying a paper has changed, which in turn, has changed the marginal utility, which in turn, has fostered a decrease in demand. I forecast that new technology will render print media almost obsolete in five years.
The Economist prints the current account balance weekly on the last page of its magazine in the Economic and financial indicators section. forty-three countries are listed with their current-account balances. I've added them up to see if the balance equals zero. The result was $-128.1 billion.
This is only the current account which must be matched with the capital and financial account. But my simple and incomplete calculation shows that countries featured in the Economist have a current account deficit.
Wednesday, March 18, 2009
Tuesday, March 17, 2009
I have often heard that we are now in an information age. This comment explains why manufacturing is declining all over the world. Information is valuable. Have you noticed that the size of daily newspapers are getting smaller? I think that the delivery mechanism of information is changing. I've seen inventions on TED.COM that allow users to interact with data in real time. As information technology becomes more affordable, watch the decline of print media accelerate.
Monday, March 16, 2009
Using One-Year T-bill rates and the CPI (less food and energy), I plotted the monthly changes in the nominal interest rate and inflation rate. The difference is the real interest rate. One can observe that the real interest rates are high and this could discourage investment. Notice that the two mostly move together. The real interest rate as shown on far right-hand side is .96 = 1.01/1.05 which means that a creditor receives slightly less back than they loaned. I don't think many loans will be made since the lender could spend the dollar now and receive the full benefit. (click to enlarge)
In the flower store, I overheard a father telling his children that the reason he lost his job was because of President Obama. From what context this man was speaking and from what platform of truth, I don't know. I can only say that last year households lost 11 trillion in assets. If President Obama was able to pocket that money, I could see the man's argument. But where did that money go? How would Obama benefit? I don't see how any enlightened man could blame one person for the current state of the economy. I think some of the stimulus money has been spent irresponsibly. Also, the government has always been spending so what makes this time different?
Sunday, March 15, 2009
By the way, our team advances to state, March 25.
Candle light can be shared without diminishing the source. After one candle is lit, hundreds can be lit without diminishing the light of the original candle. If a candle light is a metaphor for technology, does one have the obligation to share ideas? Here is a fantastic link to an blog where MIT students share an idea. Of course, if I have to give my idea away, how much incentive do I have to innovate?
How does the use of money create jobs? Last night my wife and attended a symphony in which a young lady played the violin. This young lady wanted to be a performing arts major in college. Would she be able to pursue this career if she had to barter?
For her to barter would require a double coincidence of wants. She would have to find someone who wanted to exchange food for violin music. That might be hard and time consuming. I argue that if we traded to satisfy our wants and needs, many jobs would not be created. Comedians would not be funny, teachers would almost be nonexistent, and writing would be for the elite.
In a society where money serves as a medium of exchange, that society allows for the creation of opportunity.
Wednesday, March 11, 2009
Monday, March 09, 2009
Haleigh and I worked on our own version of this over winter break, but this is more professional. I believe this video explains why lists order naturally. So when students select where they want to sit in a class, they will sit in an order that aligns with their tastes and preferences.
Sunday, March 08, 2009
Saturday, March 07, 2009
Tuesday, March 03, 2009
Monday, March 02, 2009
I like to argue that we owe the debt to ourselves. This graph shows that approximately 25% of the debt is owed to foreign countries. Much of the debt is owed by the government to the government. As Ronald Reagan said, "Government is not the solution to the problem. The government is the problem." I still argue that when the government spends today, the current generation pays for it tomorrow. Either the current generation repays the loan in higher taxes or they increase savings now. (Source: the Skeptical Optimist)
Sunday, March 01, 2009
If the investment is in capital goods, technology, and education I believe that the inflows will have a positive effect on future growth. In this case, if the government is incurring a deficit, then the future generation will receive benefits greater than the costs of government spending.
Does the Phillips Curve partly explain why Aggregate Demand is downward sloping? I think the data suggests that this relation still holds. With data on the inflation rate and unemployment, I plotted a scatter graph then used a TI-83 graphing calculator to find a linear regression formula. The TI-83 exaggerates the slope but shows that when there is a change in the inflation rate, there is a change in the unemployment rate as well. The change is less than 1, (a = -.397).
For those interested in data, the Phillips Curve combined with Okun's Law and money growth give empirical proof that AD is downward sloping.
 The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in December, before seasonal adjustment. The December CPI-U level of 210.228 was 0.1 percent higher than in December 2007." (January 16, 2009)
 Employment and Unemployment Nonfarm payroll employment decreased by 598,000 in January and the unemployment rate rose from 7.2 to 7.6 percent. (February 6, 2009)
 Real GDP Real gross domestic product decreased at an annual rate of 3.8 percent in the fourth quarter of 2008. In the third quarter, real GDP decreased 0.5 percent. (January 30, 2009)
 Federal Reserve At its January 28, 2009 meeting, the Federal Open Market Committee decided to keep its target range for the federal funds rate at 0 to 1/4 percent.(January 28, 2009)
Aggregate supply relates the price level and the quantity of real GDP. As the price level decreased by 1%, GDP decreased by .5 percent in the third quarter, or annually 3.8 percent. Exogenous to the data is the relationship between employment and GDP. If less is being produced, then there will be less workers needed. The IS-LM model suggests that a lower price level is associated with lower nominal interest rates (the ratio of money to prices).
The data indicates that aggregate supply is upward sloping and to the right.