Saturday, July 31, 2010

Our Constitutional Rights

I'm having a hard time believing that the immigration law in Arizona is constitutional.  Some rights are given to the states by the Tenth Amendment.  In North America we value freedom of choice, speech, and privacy as long as they are legal.  So the Arizona law becomes a matter of ethical choice.  Those who favor the law say that upholding property rights and contract rights outweigh a man illegally entering the USA to provide for his family.  Those who oppose say that a man has the endowed freedom to do what is best for him.  I believe that the Arizona law is unconstitutional on many tenets we hold self evident.

Friday, July 30, 2010

Moral Hazard


Does an advancement in brewing beer actually lead to more drinking?  I think so.  In this cartoon, Marty starts drinking more when there's less calories.  This is a true moral hazard.

Thursday, July 29, 2010

Does Obama Hate Babies?

Does Fiscal Policy raise interest rates and crowd out investment?  I think so.  When the government builds a new library, why should I build a Borders Bookstore when I can get what I want for free.  Spending now infers paying back later and foregoing both consumer and capital goods in the future.  We don't just owe the debt to ourselves anymore.  We've sold off part of America.  Just look at the trade deficit. 

This toon from my sketchbook shows that even children know that the stimulus plan didn't work.

Here's another viewpoint.

Wednesday, July 28, 2010

Sunk Costs, Arguments, and Mel Gibson

When actor, Mel Gibson, lost his cool, he excoriated his wife with a tirade that she recorded.  Mr. Gibson said in one of his outbursts that "I will give you one more chance."  It is my opinion that Mr. Gibson was thinking that he had given up his previous marriage and long time wife for this relationship.  I think Mr. Gibson was basing his decision to work things out with his new wife based sunk costs.

When I hear arguments one of the two parties are bringing up past events.  There's nothing a party can do about what happened in the past, so this is a sunk cost.  I think many arguments could be quickly resolved if the parties could only argue about relevant issues.  However, when emotions are involved, it's easy to throw in everything that has ever happened into the fight. 

On another irrelevant note, I think Mr. Gibson's privacy rights were violated.  I think you'll see the audio tapes excluded as evidence.  I don't doubt the veracity of the tapes, but how they were obtained. You will see Mr. Gibson sue Oksana Grigorieva for many torts. 

Tuesday, July 27, 2010

Slow Recovery

Recovery is going to take a long time. 

This cartoon from my sketchbook just shows that I'm actually bored.

Monday, July 26, 2010

Unemployment Rate in Cartoon


About 450,000 more were added to the unemployment ranks last month as the economy weeds out inefficiencies.  The slack labor market continues to squash economic recovery.

Saturday, July 24, 2010

Long Run Supply for AP Macroeconomics

The worksheets with explanations using the FRED data base are here.  I challenge you to find a better set of problems to teach your AP macroeconomics students about long run supply. 

The Buck Stops Here

Friday, July 23, 2010

Cartoon Recovery

I think the new Blogger rocks.  To push the limits of this web tool, I drew these cartoons.  Recovery will be sick and slow.  I believe, labor has been substituted for with capital and those workers who remain are working harder. 

Global Supply Chain --Our Food System

This shows our supply chain.

I'm lucky to have Chartporn on my reader.  Logistics is on the bottom right hand of the chart.  There's so much to know in order to compete globally.  Economics tries to understand.  Economics conceptualizes these relationships.

Thursday, July 22, 2010

Logistics of Information Products

Hal Varian, the chief economist at Google, explains how an ipod id made here. The point being that all of the parts that make the ipod come from standardized markets where profits are zero. The value comes from the end user in the U. S. So getting the product to the end user requires logistics. The value is added by moving the goods to the users who value the good the most. Other mp3 players compete with Apple. It appears to me that logistics is one source of advantage for Apple.

Jeff Canfield, the manager at our Hy-Vee has stated that the profit margins in his store are so slim that logistics is the only way he can remain profitable. One burp in the supply chain will disrupt his profits for that product. Food is basically a homogeneous good. Non price competition is the key for profits in this industry. In Muscatine, there are many stores selling the same product. In order for Hy-Vee to keep its market share, they have to find cheaper ways of getting the product to the consumer.

In the World is Flat, Thomas Freidman explains how a Dell Computer is made by compiling parts from all around the world. All of the value is added at the end point. Computers are a homogeneous good. The software differentiates the product and most software can be delivered over the Internet. The one way for computer manufacturers to remain competitive is logistics.

Logistics developed from military operations. In fact, our interstate system is owned by the military for mobilization of goods across the country. The reason why the interstate is flat is to accommodate airplane landing. As goods become standardized, logistics will be the only source of competitive advantage left to the retailer.

While working out, I overheard the logistics manager at a Fortune 500 company tell a story of a colleague who was offered a million dollar bonus to find a way to get beef from Brazil to Muscatine faster. I predict logistics will be the next growth industry after information and information technology.

Supply Chain Management



Thanks to Tim Schilling for this video for my Logistics class.

How do you make semiconductors faster? Electricity is already pretty fast so how do companies like Taiwan Semiconductor make their processors faster? They simply reduce the distance electricity has to travel. That's the trick in this video. Kiva Systems simply does not let their labor walk around by reducing the distance to inventory stock keeping. Chips embedded in the packaging make identification and location finding in the warehouse faster.

The location of the warehouse in established distribution channel makes stocking the inventory quicker too. It is my opinion, that all economics will be boiled down to supply chain management and strategic interactions.
Yesterday, my wife made a salad for lunch. The lettuce she used, came from California. The tomatoes came from Canada. The salad dressing came from Maine. Muscatine is a rural town where produce is grown ubiquitously. Why does my wife's salad come from all over the world when it could just as easily have been bought locally?

The global supply chain has distribution channels that capture economies of scale. So even though Kathy's lettuce traveled 1500 miles to Muscatine, Fareway found it cheaper to buy from a California producer than a local market. Local markets can't guarantee produce all year--only seasonally. So during the growing season that lasts all year in California, cozy relationships are developing along the supply chain and efficiency is making for cheaper delivery. Local markets are subject to floods, tornadoes, and weird weather patterns.

So my answer to the question is it's relatively cheaper to buy from established distribution channels that have a stable supply. If gas becomes expensive, local goods will become relatively cheaper and local markets will experience an increase in demand.

Wednesday, July 21, 2010

Aggregate Supply Worksheet

Aggregate Supply worksheet. Here. Pdf. Google Documents. I'm proud of these.

It's the Media, Stupid



Social media and text messages come at such a low marginal cost that relative to studies, reading, and physical activity, that it's always cheaper. It's no wonder why texting is so popular.

Monday, July 19, 2010

Aggregate Demand Problems

Here's my attempt to teach Aggregate Demand to align with the College Board ojectives.

This pdf is stored at Google Documents in an attempt to shift the cost to the student for paper.

Tuesday, July 13, 2010

Basic Concepts for AP Macroeconomics

Here are 10 pages of basic concepts for AP Macroeconomics.

If your students can't change the base in CPI calculations, this is for you. I include CPI calculations that change the quantities, real v. nominal interest rates, and unemployment data. Your students will ace the AP after working through these problems.

Friday, July 09, 2010

Externalities and Market Failure

An arm load of externality and market failure problems. You know the drill. They are here.

As a teacher, you know that the end of the semester comes quickly. Externalities are taught at the end of the semester so there's a tendancy to cram the content in. These worksheets are a self-teaching guide to content acquistion for the AP Microeconomics exam.

Wednesday, July 07, 2010

Perfect Competition Worksheets

Pdf. Google Document. Perfect competition like you've never seen it is here. I explore loss minimizing and shut-down cases. You'll like these.

Tuesday, July 06, 2010

Short-Run Production Costs Problems

These problems on short-run production costs are intended to give instruction on costs, marginal product and marginal cost curve. They can be used as make up or instruction.

The document is pdf and stored on Google Documents.

Monday, July 05, 2010

Ethanol, Inelastic Demand, and Technology



Generally, food is income elastic with low elasticity coefficients. For example, bread might have a coefficient of .1 and milk might have a coefficient of .15. These coefficients mean that percentage changes in consumption of these products goes up by less than percentage changes in income. Biotech giants like Monsanto have increased yield capacity for cash crops like corn. Technology gains have huge impacts on supplies of food commodities. In a given year supplies of commodities increases by more than demand so the price of the good falls.


Farmers will see increases in their output but decreases in the price they receive at the grain mill. What would you do if you couldn't cover your costs? Most would shut down. Shutting down takes jobs and tax revenues with them. But what if the price of corn could be supported by using the excess supply in Ethanol production?

This argument is advanced by Ethanol lobbyists. The gist is that overproduction will drive farmers from the market and no food will be grown. In order to support the price, the Ethanol market is necessary.

Saturday, July 03, 2010

What Does Crystal Meth Use and Loss of the Family Farm Have in Common?

Music often captures the moods that no other medium can. Bluegrass composer, Art Stevenson and Highwater, captured the era of the farm consolidation, with the song, "John Deere."

Currently, the CD is in the top 10 on the Bluegrass charts. The group laments,
Well today dad I sold the old John Deere. The man who bought it is going to fix
it up and put it in an ole museum.
Today, less than 1% of the labor force works on the farm. Prices for commodities such as corn depend on weather, technology, and economies of scale or large scale operation. Cargill-Excel, controls 50% of the grain market in the Midwest and 85% of the meat packing industry. Cargill controls the market both vertically and horizontally. If you live in the Midwest, there's a good chance you know someone who works for the giant. Cargill has retains 50% of the Ethanol market. The barges, railroad, and most of the trucks are owned by Cargill. To maintain a competitive advantage, Cargill leverages their power to buy family farms by consolidation.
Well it rained for weeks and it flooded the creeks and I lost a whole crop of
grain. And the man at the bank wouldn't lend me the money to plant that
crop again.


When you live in a rural area, children are often bussed 50 miles one way to school. Employment options are nonexistent off the farm. A monopsony develops where wages fall below market-clearing price. For example, when Gillette bought Iowa Hog, a slaughterhouse, wages fell from $18 per hour to less than $6. The same monopsony market occurred in West Liberty, Postville, and Ottumwa. When wages fall this low, employees who want to earn the same amount have to work 3 times longer to stay a float.


When the family farm is lost, labor is replaced by capital, tax revenue goes down, the population shrinks, and the supply of the commodity increases. When the supply increases, prices drop and another family farm is sold repeating the cycle of cannibalism. Given all of the factors that tug on rural area, many residents turn to Meth production to earn money from sales and distribution and to work long hours at the meat packing plants. (National Geographic is running a series about the supply chain for meth. Iowa readers might like to know that southern Iowa is a leading exporter of the drug.)


When a corporation buys a family farm, the corporation enjoys huge economies of scale. Those remaining on the farm, accept lower grain and meat prices. Either they sell the farm and work at the local Walmart* or accept a vow of poverty. Despair and depression set in for those unable to sustain their lifestyle. Many move away from their roots in search of employment. Some stay behind. Often, they turn to drug use.


Consolidation does not have to lead to meth use. But it does lead to labor migration from Iowa. With loss of tax revenues, less social programs are funded and schools begin to faulter. Over the last 10 years, Iowa's population has moved to the urban areas. Iowa's population is more urban than rural, with 61 percent living in urban areas in 2000, a trend that began in the early 20th century. Urban counties in Iowa grew 8.5% from 2000 to 2008, while rural counties declined by 4.2%.

Economics rules with an invisible hand of market incentives shaping the Iowa Landscape. As companies like Archer-Daniels and Monsanto acquire a larger share of the farming factors of production, it is likely that crystal meth use will contine despite the best efforts of the DEA.