Thursday, June 30, 2011

A Lot Hanging Over His Head

In between talks about the national debt, President Obama also has John Kerry defending his military stance in Libya.  Our president has a lot of things hanging over his head including a re-election campaign.

Lindsay Lohan Tweet's About Fed

Here's the link.

Financial Cartoons -- The Daily Bail

There are 72 outstanding cartoons here.

A thanks goes to Carl Herman off of the AP Listserve.

Monday, June 27, 2011

Obama on Gay Marriage

I know President Obama is not gay, but I couldn't resist cartooning him addressing a group of citizens after New York passed regulation permitting gay couples to marry. I think he tried hard to give his approval and support for a topic I don't think he's all that interested in.  In fact, because he was undecided, I originally titled this post, "Gray Area Marriage".

My respect for Mr. Obama is huge.  I disagree with fiscal policy spending since it crowds out investment, but he has handled crises after crises better than any other president could have.

Paul Solman Videos

This off the AP listserve.

Paul Solman of the PBS Newshour produced a series (20+) of short videos on a range of economics topics for the McConnell-Brue and other textbooks. In his blog recently he pointed to an ungated page to download these here:

Returns to Education

This NYT post by Economix, is excellent.

Net Present Value, NPV, measures the costs and benefits of an income stream where the costs and benefits arrive at different times.

Sunday, June 26, 2011

Depletable Resource - Oil

Why does the price of a depletable resource like oil rise in price today on expectations of a future increase in price?

My answer for this blog today is that producers have to make decisions that require intertemporal choice and they want to equate prices in two time periods.

Say the price of oil is at point 1 in Figure 1.  Assuming that demand is inelastic at 10 million barrels of oil a day at $5 per barrel, if producers feel that the price will be $6 tomorrow, they can profit by "saving" their production and putting for sale on the market in the future.

For the suppliers to offer their oil today would require that consumers heavily discount the future value of a barrel of oil.  For example, at what interest rate would a $5 barrel be sold for at $6 tomorrow?  The interest rate would have to be 20% or 1/5.  So the future value of a $5 barrel tomorrow would be 5(1.20) = 6.  If producers can't get the future value now, they would be better off saving it.

For a brilliant discussion on the same topic, please read, "Why Do Gasoline Prices React to Things That Have Not Happened?" by William Emmons and Christopher J. Neely, The Regional Economist, July 2007, St. Louis Fed.

Regurgitating Easing

I drew this cartoon after reading a Freakonomics blog.

This summer I wanted to write an eBook on the Loanable Funds Market and so far all I have accomplished is reading about interest rates.  I have read most of Mishkin's textbook on Money and Banking and the Ti-83 technical book on finance calculations.  It's been a wonderful learning experience but I haven't written but 20 pages.  So on to my cartoon.

Bernanke keeps saying the same things.  He has to.

If interest rates increase, perhaps on inflation fears, the economy will be destroyed.  Just think about the national debt repayments.  Bond prices will be sharply lower.  People who have credit card debt , student loans, and mortgages tied to the prime rate will be strapped to make payments.  There is no way interest rates can stay anything but low.  That means negative returns for bondholders and little investment in new growth opportunities.

As the Freakonomics blog and I have written, it's going to be a long time before we recover from this economic downturn.

Tuesday, June 21, 2011

Interactive Immigration Graph NYT

From the NYT is a graph that shows immigration patterns for many ethnic groups.  Click here.

Palin's Email

Here's my finished product.  The original is in watercolor and Copic Marker.  I need to improve my skills as many cartoonists beat me to the punch.

Monday, June 20, 2011

Cell Phones Per 100

This Gapminder graph, shows cellphones per hundred people.

Cellphones represent freedom to me.  During the Iran elections and more recently the violence in Syria, the cellphone has become a way of connecting with the world and eliminating propaganda from the press.

Once again, one of my preconceived ideas was proven incorrect by the use of this graph.  I thought the U. S. and Europe would lead the way, but it looks like India and China dominate.

Sunday, June 19, 2011

Washing Machine, Economic Growth, and Equality

From the brilliant mind of Hans Rosling, comes this embedded TED Talk.  Let me summarize some of the points I think are important: (1) one-half of the energy is used by 1/7th of the population or 1 billion people.  (2) only 2 billion of the world's population has a washing machine.  (3) washing clothes by hand comes at a high opportunity cost in educational and productive activities.

The video takes 9-minutes.

One thought I'm taking away from the video is that those with high incomes are making the economic policy for those with low incomes.  (The high income earners are the 20% in the 5th quintile of income distribution in the Lorenz Curve analysis.)  Policy is made by consumption patterns that influence the allocation of scare resources and directly by lobby.  And all men ARE NOT born with equal income opportunities.  As Georgina Dodge, Chief Diversity Officer at the University of Iowa said, "I'm a runner.  I can tell you that where you start at makes a difference."  I do not favor income redistribution in higher taxes but my perspective is formed from one of advantage.

Last year, I spent three days at the University of Chicago at a capabilities conference and heard Nobel Prize winner, Amartya Sen often speak of income disparity.    It's worth revisiting his work before I form any further opinions.

One thing is for sure, globalization is changing attitudes, morals, beliefs, and behavior.  We live in interesting times.

Saturday, June 18, 2011

Corruption and Economic Development

Would you investment in new technology if you were not afforded property rights?  Say you are an oil company and want to build an oil extracting plant in the Congo, but you are uncertain that you will be able to keep any of your investment or profits.  How willing would you be to invest in that country?  I doubt if you would want to put your money in a place where the government can nationalize your investment or civil war can destroy it.

One reason why countries in Africa are slow to develop is corruption.  The higher the corruption the lower the growth.  Bribing the police is a way of keeping safe and is a fact of life.  In this Gapminder graph, income is compared the the Corruption Perception Index.  (Click on the graph to enlarge.)

My conclusion is that the more property rights are enforced through a functioning legal institution, the more income and growth the country will achieve.  What's interesting to me is India.  I have always been told that it takes something like 99 years to settle a legal dispute.  It's been my experience in working with the men and women from India that they have been some of the finest people I have worked with.  Recently, I worked with Eonsemantics in developing an Android app in which I gave the developers complete trust.  I wasn't disappointed.

 The Gapminder website uses the following definition of the CPI:

For the purpose of the CPI, how is corruption defined?

The CPI focuses on corruption in the public sector. The surveys used in compiling the CPI ask questions relating to the abuse of public power for private benefit. These include questions on: bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts, thereby covering both the administrative and political aspects of corruption.
Why is the CPI based only on perceptions?

It is difficult to assess the overall levels of corruption in different countries/territories based on hard empirical data, e.g. by comparing the amount of bribes or the number of prosecutions or court cases directly related to corruption. In the latter case, for example, such data does not reflect actual levels of corruption; rather it highlights the extent to which prosecutors, courts and/or the media are effectively investigating and exposing corruption. One reliable method of compiling cross-country data is, therefore, to draw on the experience and perceptions of those who see first hand the realities of corruption in a country.

Opinions are normative that are often formed without a fully informed experience.  Often biases are passed down from a dominant figure in our life.   But facts are a positive way of looking at the world and global issues that eliminates bias and incomplete information.  By using Gapminder in your life, you will begin to see the world from a clean lens.

Friday, June 17, 2011

Debunking Myths About Developing Countries

Mr. Rosling shows, in my opinion, Global Price-Factor Equalization using a normal curve about 7 minutes into this lecture.

CO2 Emissions

The population of the world is approximately 7 billion.  The growth follows an exponential growth curve as reported in the National Geographic.  The world growth rate is shown to the left of this text.

What is interesting about the population growth, is that CO2 emissions follow the same path.  In this Gapminder Graph, watch how the United States becomes the leader in CO2 emissions.

In the June, 2011, issue of the Scientific American, Jeffrey Bartholet, on page 67 shows how the global meat consumption has increased since 1980 in slope that is almost a 45 degree line for developing countries.  The inference is that as meat consumption increases, there will be increasing greenhouse gas emissions and environmental consequences.  His podcast is here.

It takes a lot of land to raise beef.  As the demand for beef increases, society must make hard choices about how much land to give up and how much more in CO2 emissions to tolerate.  How does these choices reflect scarcity and opportunity cost?

Wealth, Health, and Income

How has the life expectancy for sub-Sahara changed since the 1800s? As GDP or income has increased, what do you expect to happen to the life expectancy of nations? View this Gapminder graph to answer these questions. The graph takes less than 30 seconds to view. Click here to see a 4-minute video where Hans Rosling discusses the 200 years that changed the world.

I've noticed the following: (1) the lifespan in Africa has improved but still lags behind all other continents. (2) income has increased in almost all countries except the Congo. Income is in Purchasing Parity Power. (3) The ending graph results in a shape that is predicted by Solow Growth Model. (4) If one view's a longer life as a measure of standard of living, then an increase in GDP increases our standard of living.

As the world becomes increasingly interrelated, goods and factors of production can easily cross borders and increase the GDP of participating countries. Of course, there are negative consequences of globalization to the environment and domestic industries that import competing countries who have a comparative advantage, but economics weights the costs and benefits of choice.

Thomas Friedman, The World is Flat, argues that countries that trade with each other will not go to war with each other. As the world becomes more interconnected, will we find global peace?

Thursday, June 16, 2011

Tragedy of the Commons

While listening to a lecture from Dr. Craig Just, University of Iowa, Engineering, he had a fantastic analogy for the Tragedy of the Commons.

To illustrate the economic concept that a common resource will be consumed until its marginal utility is zero, Dr. Just said, "just think of an outhouse at a concert."  I thought this was outstanding.  By the end of the concert no one wants to use the resource for a variety of reasons.

Saturday, June 11, 2011

Palin - ShEMAIL

Here's my favorite politician.  Sarah finds a way to grab media spotlight even when she's not trying.  Now, the NYT is sorting through all of her email looking for anything that they can spin into a negative.  Sarah is bigger than the gossip mongers that's why I call her "shEMAIL".

Reprints of this cartoon will be supplied upon request and duplication is always permitted without the artists consent.


Kids are an Inferior Good

The Freakonomics blog is here.

The famous Slutsky Equation, Gapminder data, and intelligent discussion about consumption behavior are included in this blog.  The conclusion is: as income goes up, people have less children.  As Levitt says, "Children aren't normal."

I think Mr. Levitt's closing statement is brilliant.  This is teaching in my opinion as that statement captures the entire post in a couple of words that readers can remember.  I think students would remember the definition of a normal good to a higher level and recall it more accurately if teachers used summary statements like "Children aren't normal."


Tuesday, June 07, 2011

Deogratias Niyizohkiza

This picture is taken of me and Deo before he spoke to Muscatine students about the vicious civil war in Rwanda.  The inspiring title of his book, "Strength in What Remains" truly epitomizes his character.  As a man who has lost everything, he recovered to become a doctor.  Deo gives back his time to helping those who need medical treatment in Burundi.  I was shocked at how humble and generous he was. 

Debt Ceiling Toon

This was my editorial cartoon for the Debt Ceiling post.  Originally I wanted the cartoon to read, "He haw.  He haw.  He haw's fights back", but it just didn't work.  I thought a lot about, "Watch his upper cut!" thinking that readers would think I was alluding to the upper income earners.  I just meant to infer that cutting from the budget is hard.

This toon pushed me to learn new drawing skills.  Writing an editorial pushes me to rethink everything I write and stretches the limits of my ability.  In the end when it's all said and done, more is said than done. 

Monday, June 06, 2011

Debt Ceiling

About the time school resumes August, the national debt will have reached its 14.3 trillion ceiling. The debt ceiling debate will be in round 10 with Sarah Palin running around like Chicken Little claiming that the sky is falling and campaigning for the Republican nomination for president.

Actually Palin is more realistic than Chicken Little. Palin told Fox News, “I don't believe Tim Geithner as he cries wolf for the fourth time now, telling us that there is a drop-dead date and crisis will ensue, and economic woes will befall us even greater than they already are if we don't increase the debt limit.”

Realistically, Palin knows that the ceiling will have to be raised to meet current obligations to federal retirees and to keep the markets steady. But she would like to see significant spending cuts and fiscal responsibility.

My question is, just where is Congress going to cut spending?

Let’s start with entitlements.

What about interest on the national debt? If the U. S. defaulted on their debt, this would roil the markets. Also mortgage rates and interest rates would increase. The U. S. would find it hard to obtain credit in the future. Economic growth would slow. Is this really an option?

How about cutting food stamps? Nearly 40 million Americans live on food stamps. This is approximately 1 and 8 families. Can the government really cut the welfare of 13% of the US off of aid? The cost of food stamps is 60 billion or ½ of 1% of the debt. Is the benefit greater than the cost for this saving?

Should we curtail humanitarian aid to victims of natural disasters? Can Congress really cut aid to tornado and flood victims? I think our budget should be used to rebuild levees and damaged bridges as well as homes and lives. If I were a member of Congress I could not vote “NO” for disaster relief.

Military spending is about 4.7% of our 14.7 trillion GDP. If we cut military spending then we are sacrificing national security. Would you give up some of your freedoms for security? Ben Franklin said, Ben Franklin once said “If you trade freedom for security you deserve neither.” I think most people would sacrifice their freedom for safety. So are we really going to cut national defense in an era of political instability in the Middle East?

Maybe we can cut health care. The Obama administration reckons that by 2016 health care will be about 30% of the Federal Budget. In any large institution there’s going to be waste and maybe some of that waste could be trimmed. But, can the American public really turn their collective backs on the sick?

What about education? Sen. Herman Quirmbach, D-Ames, said 40 cents of every dollar spent by the state of Iowa is invested in education.[1] Our schools are the building blocks for future economic growth and a higher standard of living. As a teacher who always is asked to do more and more each year with less and less, I can tell you that less isn’t more.

Maybe this Congress can find a way to over haul health, education, welfare, and military spending, but I don’t think so. I think they will have to raise the debt ceiling like they have 74 times since 1962 in order to avoid rattled markets, higher taxes, and higher interest rates. In the end, spending cuts fight back.


Sunday, June 05, 2011

Android App for Macro

If you want to review your macroeconomics, here is an Android App for which I wrote the content. I thank Gagan Bhalla and Josh Wheaton for pushing me to completion. The name of the app is Exam Cram and is found on the Android Market. How can you go wrong for a buck?

Friday, June 03, 2011

Tyler Finchum Amazes Me

In this article, a former student applies what he's learn along with his entrepreneurial ability.

Tyler markets, innovates, uses R and D, and differentiates.  What more could you ask?

Thursday, June 02, 2011

Loanable Funds Lesson Plan--St. Louis Fed

Here is an outstanding lesson from the St. Louis Fed on the Loanable Funds.

I uncovered this plan while researching for my upcoming eBook on the same subject.  The lesson is interactive and makes the students participate which should heighten the achievement in this complex theoretical market.