Tuesday, September 29, 2009

Income Disparity

Assume that the wealth is unevenly distributed in the developing country of Malaria.  Only the top 20% of the households can afford a new techno gizmo that presents a positive network externality.  If the wealthy adopt the technology and innovate to achieve economies of scale so the poor can afford it, how is income disparity bad?

The wealthy can afford costly R & D while beta versions are debugged.  I believe that most social changing innovation occurs this way.  So is redistributing the income a good idea?

Tax Incidence and Elasticity

In this brilliant lecture, the author explains who bears the burden of an excise tax. 

Monday, September 28, 2009

Preparing Students for a Global Economy

What does it mean to "prepare our students for a global economy"?

When I think about a global economy, I think of equal access to economic resources, easy entrance and exit from markets and no pricing power.  As an example, the cotton tshirts industry is approaching perfect competition and zero economic profits.  In a global economy profits are eaten away quickly and prices fall to marginal cost.  In the global economy I envision, there is complete factor mobility.  I see these characteristics in telecommunications and information, but not in sectors where there's exclusive ownership of a resource. 

So when I am preparing my students for the global economy, how should I prepare them?  Many professionals recommend that I teach higher order thinking skills and how to use a computer.  But shouldn't I be teaching how to patent an invention or buy land to extract monopoly rents? 

To be sure, the skills I must teach must complement math and writing. 

Your comments are welcome.

Saturday, September 26, 2009

Total Revenue Test in AP Microeconomics

One of the best memory devices I know for elasticity is this one.  I use a rubberband and a ruler to show how the price is related to elasticity.  If the price increases and total revenue goes down, the good is elastic.  If the price increases and total revenue increases, the good is inelastic. 

When people complain about how much money oil companies make when the price increases, they assume that oil companies control the price since total revenue goes up.  These people don't understand monopolies since a monopoly never sets a price on the inelastic part of the demand curve.  In order for a company to be on the inelastic part of the demand curve, the price must be low.

Thursday, September 24, 2009

Today's Lecture on Cross Elasticity

Average Length of a Recession

The average length of time for a recession since WWII is 9.2 months.  If you'd like to see how the NBER has determined the length of a recession from peak to contraction, click National Bureau of Economic Research.

Tuesday, September 22, 2009

Elasticity Elements

Today's lecture on the three elements of elasticity is here. You will be astounded by my brute passion,exhilarating examples, and intutition of the percentage change in quantity demanded when the price changes.

Sunday, September 20, 2009

Power to the Poor

On an October day, a squirrel watches a woodsman stocking up on wood. The squirrel decides it’s going to be a long winter, so she stocks up on nuts.

The woodsman sees the squirrel burying lots of nuts and decides that it going to be a long winter so he stocks up on wood.

The winter is mild. Both the woodsman and the squirrel end up with excess savings.

The squirrel lets the nuts she planted begin to seed and grow into a tree.

Since he has so much wood, the man loans his wood at a ridiculous low interest rate to a family of migrants living in a cabin along the Mississippi River so their daughter can read in comfort.

The seeds grow into an Oak tree and provide shade and shelter.

The daughter becomes an immigration lawyer. She meets a Civil engineer and they begin a small family.

On a cool autumn day, San Juanita sees a squirrel burying nuts and thinks that it’s going to be a long, cold winter.

She goes in and starts to read, investing for the winter ahead.

The Power of the Poor airs October 8, 10 PM ET (or check your local listings) on PBS. Please consider writing your own post on Power to the Poor. Do a Google search on marginalrevolution.com to find a link to the rules.

My iPod App

This is a dirty video of my app.  You can't read the screen to see the questions or the graphs, but you get the idea.  I hope that the app will be available for sale soon.  Maheep Gupta is the programmer and he can be reached at Integrated Solutions in India.  Jason Wester was technical support here in the states. 

Saturday, September 19, 2009

What's Next for McDonalds?

Driving through a McDonalds, I was struck with the thought that McDonals could outsource the drive through to India.  The composition of national income and the distribution will change when services can be effectively outsouced. 

Power to the Poor

As a child, the irony of his vision would escape a young Rigaberto. He’d stand on the parched, cracked clay in his home wedged between the Sierra Madre Mountains in Northern Mexico and dream of a better life. Standing on a million cracked dreams, his dream of providing for his family would come true because of the power of his mother.

One day in the early 1950s a cousin would give Rigaberto so oranges. Instead of eating the oranges, Rigaberto would divide the orange into quarters and sell the oranges as a complementary good in his shoe shine business. Rigaberto would add value to the orange quarters by sprinkling sugar on each section. Later, Rigaberto would sell salted peanuts too. A natural entrepreneur, he learned to differentiate his product and earn an economic profit. With the money he would earn, Rigaberto would give his coins to his mother to save. He told me with a pastoral smile, “I can tell you how to rise out of poverty. All you have to do is give a woman a cow, and she’ll feed a family forever.”

After a pause, “When men are given money they want to buy a new suit or spend it. A mother will save it to provide for her family.” Statistics back him up. When a man earns money it stays with him. When a woman earns money she spends it on her family.

Rigaberto has learned through experience that micro credit is the gateway to freedom. The ability to turn savings into investment and capital accumulation transformed Rigaberto’s life from a migrant with two cents in his hand to an award winning teacher. In Rigaberto’s case investment was in education.

Alex has been a missionary in Gabon and part of a ISU agricultural team to study soil in Ghana. Alex explained that micro credit only works when the product had value added to it. “In Ghana women make creams from coca leaves that earn an economic profit. They don’t have to sell their products in a perfectly competitive market.” She further explains, “When a micro loan is given to a community, there’s peer pressure to repay the loan. The whole community will suffer if the loan isn’t repaid. So the loan gets repaid.”

She talks without taking a breath and rapidly. “The return on investment is higher when you invest in women. Also when the loans are small, more loans can be made over a longer period of time. The loans are easy to implement and the loans are spent locally.”

Micro credit is the institution that gives the resources to those who know how to best invest for highest return. Whether the loan is made in the dense forests of Africa for coco butter creams or in the cradle of the Sierra Madres, micro credit gives power to the poor.

The title for this blog, is taken from a new DVD with the same name. The Power of the Poor airs October 8, 10 PM ET (or check your local listings) on PBS.

Please consider writing a blog that discusses the video clip embedded in this post. For more information, click here. A military salute goes to Marginal Revolution for the opportunity to enter.

Total Factor Productivity

Total Factor Productivity seems to be stagnant.  This graph was made using the FRED data base hosted by the St. Louis Fed.  I divided GDP by Kapital ^.3*Labor^.7.  It was more work using the new Blogger and making the graph.  The joys of productivity.  I owe a huge thanks to Dr. Andrew Abel for his help.  Dr. Abel showed me the correct data series to use for investment.  I am always surprised by the generosity of others to help. 

Friday, September 18, 2009

Tuesday's Lecture

For those who were absent on Tuesday, the lecture is here.

Thursday, September 17, 2009

What I Have Learned From Social Networking

When adults hear the word “Facebook” they think of hours of wasted time between teens talking instead of studying. To many adults Facebook is a euphemism for time waster.

In a similar way, adults really do not understand Twitter. Twitter is seen as a way for teens to hook up or post a micro diary about their daily life.

As any adult what SMS means and you’ll be answered with a shoulder shrug. Ask most adults if you can call your friend in India on Skype, and they’ll ask how much it costs.

Two years ago I was one of those adults. I didn’t know what an RSS, SMS, or FTP meant. This article is intended to help others like myself to understand some of the new language of technology.

Facebook is a social forum where users can post personal information on a profile and invite friends to events. It’s a place to share photos and catch up with friends or stay in contact with friends. Because users reveal private facts about themselves, a user must be careful about who to allow as a contact. In Florida, teachers are not allowed to have a Facebook account. The greatest benefit I have found using Facebook is that adults will learn how to talk to students and not talk down to them.

Twitter is a micro blogging site that allows “tweets” of 149 characters. I have learned how to make my words do double time. The Japanese concept of “ekiben” forces the speaker to say as much as possible in a few words. Ekiben energizes me as the character limit forces me to be creative with my text and style. The limitations on character have forced me to be more creative with my word choice.

As valedictorian, Frederic Galosco was to address a packed graduation audience. Fifteen minutes before his address, Frederic was managing his online business using Twitter. Frederic taught me the power of using Twitter to network and market my information products around the world. That’s hardly kid’s stuff.

Nobel Laureate, Robert Solow observed that when new technology is introduced to an adult population it is used in old ways. Teenagers, however, tend to use the new technology in ways that it wasn’t intended. This is what MIT professor Eric von Hipple called “end-user innovation.”

It’s been my observation that technological change must come from our youth. Adults are too busy and learning how to use Facebook and Twitter comes at a high opportunity cost.

Knowledge of the new social media is necessary for innovation and growth in the world that changes according to Moore’s Law, every seven days. If the terms SMS, FTP, and RSS are unfamiliar to you, perform a Google search to find out what they mean. Then open a Facebook and Twitter account.

Is Monetary Policy Accomodating?

Sure looks like the Fed is accomodating Fiscal Policy in this FRED graph.  The M2 is a broader money aggregate that includes M1 and short-term savings.

Tuesday, September 15, 2009

Power to the Poor

On the second floor of a ghetto apartment, a Hare Krishna monk has converted a closet into a recording studio. In between recording sessions, he chants to bring out that natural, pure state of mind that is the energy within. The monk meditates for spiritual guidance in his chanting. Often insight accompanies his chanting. “America is great!” he says. “Only in America can you make something from nothing and get paid for it.”

I have followed the monk from his two room apartment across the street from a pawnshop to his new home in the suburb of West Branch, Iowa. His new home is built from the products he sells on the Internet. His office has three computers fanned on his desk where one can follow the cursor across each screen. His business has expanded to the point where he hires workers in the Philippines to achieve economies of scale and mass market information products. His learning comes from a Krugman-Wells textbook given to him by his dad.

Like all Hare Krishnas, the secret of wealth was within him all along. All he needed was access to economic resources and the freedom to sell his products in competitive markets. With an Internet connection, a PayPal account, and mantras to create useful information from thin air, the monk can market his products to the world with a paper wall of protectionism and isolation from government controls. The Internet provided mobility to send ebooks and software without the need for costly logistics.

He is not alone. “BeadforLife eradicates extreme poverty by creating bridges of understanding between impoverished Africans and concerned world citizens. Ugandan women turn colorful recycled paper into beautiful bead jewelry, and people who care open their hearts, homes and communities to buy and sell the beads.” Freedom from government nationalization and access to economic resources has helped Ugandan women achieve prosperity. Using the Internet to market has allowed these entrepreneurs to achieve economies of scale by exporting their goods from a local market to a world-wide market.

For the impoverished to achieve a higher standard of living, they must be given the freedom to compete, access to resources, and the opportunity to conduct business without government interference. All of these freedoms are embodied in the market system.

For the monk, instead of recording music, he now records information for clients in North America. For Jason, that income he now receives is music to his ears. I know, because he is my son.

Please consider writing a blog that discusses the video clip embedded in this post. For more information, click here. A military salute goes to Marginal Revolution for the opportunity to enter.

Sunday, September 13, 2009

The Power of the Poor

Falling off the tip of India like a tear drop, tens of thousands die in civil conflict in Sri Lanka. Against uncertain political stability, a young girl invested in her human capital to insure her future. Maitreyi was told as a young girl that education would ruin her hair and teeth. She was told to enjoy life and become a suitable wife. After conflict destroyed her home, Maitreyi had no choice but to migrate to the United States and seek the economic freedom and stability in the law and legal system. Today, Maitreyi is a doctor and provides urgent medical care in Muscatine, Iowa.

When looking at the role of women as a medium of social change, one must decide what values and principles should guide decision making. When looking at the role of women in the labor force, one must look through the lens of feminism and gender. In other words, what is the role of a woman in escaping poverty? When looking at institutional change, you will find that women have a power all of their own.

According DPE women now make up the majority of of professional and related occupations and service occupations, the occupations expected to grow most rapidly through 2016 in the United States. A country wishing to emerge from poverty should invest in the human capital of its female population and end practices, systems, and structures that oppress and suppress women. Economies that remain agricultural remain poor as output is produced in nearly perfectly competitive markets. Men, who generally prefer work in physically demanding and semi-skilled occupations can specialize in construction trades, logistics, and manufacturing. Emerging economies can benefit by the specialization and trade of complementary production by men and women. The institutional that can enable the world’s poor to realize their power and achieve prosperity is the development of human capital in women.

Long after her white, American classmates have quit working, Rita and Nassi, two refugees from Liberia, continue to study in my recordkeeping class. They speak to me in a heavy accented French and native tongue. We communicate most with nonverbal cues. They are developing their human capital. Rita wants to become a doctor. Nassi does not know what she wants, but she knows that she'll have the opportunity in the United States. Both women will find rewarding work and help relatives to do the same. The process of escaping poverty is the development of women in the labor force.

The title for this blog, is taken from a new DVD with the same name. The Power of the Poor airs October 8, 10 PM ET (or check your local listings) on PBS.

Please consider writing a blog that discusses the video clip embedded in this post. For more information, click here. A military salute goes to Marginal Revolution for the opportunity to enter.

Thursday, September 10, 2009

Demand and Marginal Utility

Today's lesson is on marginal utility. MU is one reason why the demand curve slopes downward and to the right. In this lesson, students learn to make decisions on the margin. The link is here.

Wednesday, September 09, 2009

Guest Editorials

The first article written by Martin Hutchinson titled: "The Two Reasons it's Time to Short U.S. Stocks." http://www.moneymorning.com/2009/09/09/short-u.s.-stocks./. The next, written by Jason Simpkins titled: Gold Aims to Retest Record Highs After Breaking Through the $1,000 Mark and here is the URL for that article too: http://www.moneymorning.com/2009/09/09/gold-prices-6/ .

Monday, September 07, 2009

Tax Collections from Alcoholic Beverages

One has to be careful in making casual conclusions from data, but I found this graph interesting. Looks like consumption of alcohol is just increasing.

Personal Savings

A skinny bank means that personal savings are slim to none. Are they? Check out the BEA website and you'll find that savings after taxes have increased during the recession not decreased.

As consumers worry about the future, the save now. Even on good economic news, consumers aren't sure the news is permanent so they save.

Sunday, September 06, 2009

Gresham's Law in the Labor Market

Does the bad chase away the good? Suppose that I work on the assembly line and one worker can't do their job. Assume that everyone on the line is disciplined for the actions of one. Would the productive workers have the incentive to quit and work for a company that polices the productivity of every worker? I think so. A prospective employee would do good to look at employee turnover before accepting a position.

Podcasts from Atlanta FED

Brilliant podcasts can be found on the Federal Reserve Bank of Atlanta website. Click here.

Friday, September 04, 2009

Three Great Posts

Guest editorials

The first article, written by Investment Director Keith Fitz-Gerlad and that article is titled "The Five Financial Shockwaves to Expect When China's Yuan Swaps Places with the U.S. Dollar." The second article written by Jason Simpkins is titled "Finance Jobs Going Where the Growth Is – Asia." Lastly, an article by Bob Blandeburgo titled: "OECD: Global Economic Recovery to Start Sooner Than Expected, but Caution Remains"


Gary was waiting for me at my desk. The bell was going to ring. As soon as he made eye contact, he said, "What did I miss yesterday?" I was instantly irritated. I had been at work for over an hour, and Gary waited until the bell was going to ring. This would suck time and I would be unable to start class on time. I like the student so I gave him the work. I have played this scenario out hundreds of times in my career.

Twitter would have allowed us to communicate in a mutually efficient manner. Gary knows his schedule and I know mine, but we know little about each other. If Gary could have sent me a SMS, I could have replied when it was convenient for me. Gary could have checked the assignments when the time was right for him. Twitter is more than a social networking tool -- it's also a teaching tool. My Twitter user name is: mfladlien

You can follow me if you like short poems and AP Economic updates.