Wednesday, May 30, 2012

Light Weight Trucks and Auto Sales

The lots that sell both used and new vehicles appear to have full inventory.  I have not seen the lots this full in a long time.  How how autos selling compared to 2008?

Sales appear to picking up.  The St. Louis Fed reported sales of 14.3 million in March.  Many jobs are related to auto sales so this must be a good sign.

The Bureau of Transportation Statistics only reported detailed sales through 2010.
As an indicator of the health of the economy, I think sales of autos and lightweight trucks shows an increased confidence in the economy.

Why Some Countries Are Richer Than Others

The Big Mac Theory of Development, by Charles Kenny, examines the wages earned compared to the price of a Big Mac in the United States and India.  The article concludes that factor mobility is key to raising wages and immigration laws should be loosened.  I believe this article confirms the monopsony model of wage determination and reaffirms how competition equalizes wages across borders.

In Eat The Rich, writer, P. J. O'Rourke, examines countries all over the world to find the answer to the question, "Why are some countries poor?"  This humorous book cites corrupt governments and infrastructure as two culprits that rob poor countries from riches.

How is the Dodd-Frank Act Hurting Emerging Markets?

The Dodd-Frank act is a consumer protection law intended to shield investors from bubbles and speculation.

The accompanying cartoon taken from Bloomsberg BusinessWeek shows an African guerrilla smiling as a village burns.  In the spirit of hip-hop, the guerrilla is wearing a gold ring, gold bling , accented with gold teeth.  The guerrilla is a big oil company who is getting rich from exploiting the resources of developing countries.

The Dodd-Frank Act, Section 1504, makes governments show how they spend their money.  This disclosure shows if a dictator is keeping all of the money or sharing the wealth.  For big oil, the Dodd-Frank Act would give competitors a competitive advantage.    I think this section of the Dodd-Frank Act encourages countries and companies to find ways of breaking the law.  The article mentions the land-locked country of Chad as an example.

Actions have consequences.  If big oil does business with dictatorships, then big oil should be reasonably certain that they are enriching the regime and that will come at a human cost.  Maybe it is time for the United States to pursue alternative energy.  In the movie "Blood Diamond" men, women, and children lost everything because of the riches found in exclusive ownership of a resource.  Oil is no different.

Tuesday, May 29, 2012

The Honest Truth about Dishonesty

Mr. Dan Ariely's new book will be released soon.  You can read the first 10 pages for free by clicking here.

Mr. Ariely's style is witty and intelligent.  After reading his first book, Predictably Irrational, I gave the book to the editor of my local paper so he could use the information to sell more papers.
You can follow the link below to pre-order. I recommend the print version so you can write lots of notes in the margin. You can also check out Mr. Ariely on TED Talks.

Appendix: Mr. Ariely was featured in the WSJ on May 26, 2012. Click here.

Unlimited Demand

Mother Earth should ween free market capitalism off.  The cartoonist suggests that Time's up for capitalistic ideology.  The cartoonist suggests that capitalists have grown fat off of using resources for their own self interests.  If the cartoonist is right, what other ideologies could be substituted in place for western greed?

Socialism, Communism, Democracy, Dictatorship, Monarchy, and many more forms of government have been chosen to rule a country.  All countries have a combination of ideologies which economists call a "Mixed Economy."  In the cartoon, is the artist right?  What is the purpose of government?  Are the people so "fed up" with distributional inequalities that it's time for a change?

Aristotle believed that the government is set up to maximize happiness for the people.  Aristotle favored laws to protect private property and the role of politicians was to ensure that the people came first.  In Aristotle's time, being a politician was a high honor.  I think Aristotle would have believed in a democracy if he were alive.

Immanuel Kant believed in universal truths.  Basically, what was good for one person should be good for all people.  I think Kant would believe in Socialism if he were alive.

Wikipedia has an outstanding compilation of criticisms of capitalism.  Some of the criticisms are: inequality, property rights, exploitation, sustainability, market failures, inefficiencies, monopoly power, and unemployment. This is an impressive list and I agree with all of the criticisms.  However, couldn't these criticisms be levied against all forms of government?  How did this artist's artistic talent develop?  In other words, is artistic talent distributed evenly?  So this artist made income off his/her talents in a free market.  I think the artist would find that he/she only had the freedom to develop his/her talent in a free market society and would choose this type of governance if given the choice.



I love this cartoon for many reasons.  One reason is that the toon shows how anger is a source of humor.  I think this artist would be irate if he/she had to live under any other system of government.  Would he be willing to stand behind a veil of ignorance and redistribute incomes and talents?

Monday, May 28, 2012

Housing Starts and Building Permits

What is the future direction of the economy?  Look at housing starts.

Housing is sensitive to interest rates.  High interest rates discourage investment.  Many trades are needed to build a home such as plumbers, electricians, painters, and the like.  Economists estimate that for every 1,000 single-family homes under construction, about 2,500 full-time jobs and nearly $100 million in wages are generated.[1]  When home building also creates consumer demand for carpet, home electronics, appliances, and art.

According to AmosWEB.com, housing starts are 717,000 Up 2.6% from March. This is a good sign for most people except bond holders.


Bond holders know that a robust economy will put inflationary pressure on their long-term fixed investments eroding the earnings.  


The stock market will respond positively to an increase in housing starts and negatively to a decrease.  A vibrant increase in housing might signal higher rates in the future to curb inflation.  


Higher interest rates might cause the USD to appreciate.  


[1] Baumohl, Bernard, The Secrets of Economic Indicators, page 170.



Paul Krugman Sketch from FT

This brilliant sketch of Paul Krugman was drawn by James Ferguson of the Financial Times.  The article is here.

From what I can see, the sketch was done with mixed media using watercolor and colored pencils on colored paper.

Sunday, May 27, 2012

Market Forces

This cartoon suggests that the market participants aren't free to choose. The cartoon was intended to show that what Americans see as free choice guided by an invisible hand is really the result of resources held captive in some foreign country.

I would like to see higher wages for workers chained to a sewing machine for 12 hours a day.  Many economic authors such as Paul Krugman have written that the workers who work on the sewing machines get paid a higher relative wage than those workers who work in other industries in third worlds.  So even though these workers have to work long hours, they are paid more than their alternative employment opportunities.  Opponents of this viewpoint argue that workers who are often children are paid a wage below that which will allow them to save and move above the sweatshop conditions.  These opponents argue that the workers are exploited and this exploitation is part of the invisible hand of the the market.  From an economic viewpoint, the costs and benefits should be weighed to determine if sweatshops add or subtract from total utility of society.  From a moral viewpoint, sweatshops violate human rights and should be abolished.

I think this cartoon is brilliant.  The cartoon suggests that there are forces at work that are unseen.  Isn't this the premise of I, Pencil, by Milton Friedman?  When producers and consumers are allowed to pursue their own self-interests, they both gain.  Producers will find the cheapest way to produce a good because competition will force them to produce at the lowest average total cost.  Consumers benefit because they get more goods at a cheaper price.

(Economist Yasheng Huang compares China to India, and asks how China's authoritarian rule contributed to its astonishing economic growth -- leading to a big question: Is democracy actually holding India back? Huang's answer may surprise you.

Yasheng Huang asks us to rethink our ideas about China and other large emerging economies. Lately he’s been asking, Does democracy hinder or promote economic growth?)

The market system isn't perfect.  Often the invention of a new good results in waste and products that become obsolete quickly and deplete nonrenewable resources.  The market system isn't perfect, but, in my opinion, the market system results in the greatest good for the greatest number of people.

What is the U6 Unemployment Rate?

The U6 unemployment rate as referenced on Portal Seven is:
The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts "marginally attached workers and those working part-time for economic reasons." Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the "marginally attached workers" include those who have gotten discouraged and stopped looking, but still want to work. The age considered for this calculation is 16 years and over Currently, the U6 unemployment rate is 14.5% which is higher than the official U3 rate of 8.1%. Table A-5 contains the U6 data. Do you think this gives a better picture of the labor force? This table means that workers have to accept half-time jobs because there's not enough full-time work available. An increase in this measure shows a weakening economy. Since January, 2012, the U6 rate has decreased from 15.1 to 14.5. As the economy hires more workers, incomes increase and so does spending. Sales should pick up making stock market investors giddy. The bond market gets nervous when the economy strengthens on news of increased jobs because it signals possible inflationary expectations and selling lowering bond prices. The USD might see an appreciation of the currency because lower prices will drive interest rates higher. In economics there is always a mixed bag of good and bad news. Increasing jobs might mean higher prices later. For bond investors that might means lower income from fixed-income accounts. I like the higher stock prices as stocks make up the bulk of my portfolio. In the case of jobs, I think the benefits of increased employment are greater than the costs.

What's Your Economic Teaching Style?

Gene Hayward passed along this amusing post.
I seriously believe that cartoons are one of the best way to learn economics. I found the cartoon on the invisible hand here. Graphic content is easier to understand and remember. I think students should be given every edge in learning about economics. Using cartoons is that edge. After reading the cartoon, doesn't the joke in day 1, Day 1, "teacher walks in and sits down, points at books. Students figure it out. Some students do not" now make sense?

Nick Hanauer's TED Talk

AP Economics teacher, Carl Herman, forwarded this video to the AP Lystserv:


The talk was not shared on TED because of some of its controversial content. This content included: middle-class consumers, not rich people, are the real job creators – and that because of this rich people should be paying more in taxes and consumer demand drives growth. Read more: http://business.time.com/2012/05/18/was-nick-hanauers-ted-talk-on-income-inequality-too-rich-for-rich-people/#ixzz1w4IM2EyZ

Saturday, May 26, 2012

Austerity in 17 European Countries

From Wayne McCaffery:

I have been saying that austerity would make life very difficult as it might shrink each practicing nation's GDP.  Resulting in higher unemployment.  So,  I have graphed the cumulative change in GDP quarter 1 or 2008 through quarter 4 of 2011, against the cumulative change in government spending over the same time period.
Austerity



The graph plots data points and regresses to the mean.   Unless I'm interpreting it incorrectly, there's a direct relationship between government spending and GDP.  This graph shows that in countries where the government actively spends, GDP is higher.  The implication is clear:  Greece should NOT use austerity measures to pay back their debt.

I think debt forgiveness is the answer for Greece.  If Greece is removed from the EU and creates its own currency, I think Greece will see Zimbabwe like inflation.

A HT to Wayne for his sedulous work on this graph that makes us all better.

Definition of Economics By Cartoon

Economics is defined as a human condition where there are unlimited wants and limited resources.

In this cartoon, the author suggests that population will strain resources.  This is a worry that has been explored many times by Thomas Malthus, Limits to Growth, and in a recent National Geographic on sustainability. Yet, life somehow finds a way.

Dr. Malthus assumed that population would increase exponentially.  He did not foresee a change in society's attitudes toward birth control or the impact of new technological advances in agriculture.

Still, economics tries to predict how people behave in a context of limited resources.  Recently, behavior economics have made new predictions using the pioneering work of Dan Ariely and blogs written by Jodi Beggs, Economists Do It With Models.   Economics is a social science prone to errors, yet as we evolve so does the science.


Facebook

Cagle Toons say it best.  Investors began dumping the stock as soon as it was offered.

Now that the stock as found a bottom, true fundamentals will determine the share price.

Yahoo Finance puts P/E ratios at: 81 for Facebook; 18 for Google; and 674 for Linked In.

I personally blame Facebook for much of poor performance by students.  I would like to see the share price hit 10, as long as I don't own it.

The article notes that economic growth since the recession ended three years ago has averaged 2.5% a year. That is roughly the trend rate of an economy already at full employment. Given that America is still in a deep post-recession hole, such a rate should not be enough to reduce unemployment, and should have left so much spare capacity that inflation ought to have fallen sharply. Instead, unemployment has dropped nearly two percentage points in that time and underlying inflation, after dipping below 1%, is above 2%.   The Economist
 This article shows how difficult it is to determine potential GDP and thus the serverity of the a recession.  The point is that supply depends on demand and efforts to boost consumption should continue because those efforts lead to an increase in capital.  Fox News ran a graphic yesterday that shows that the Obama administration has quit spending since 2008.  Umm.

Bizarre Economic Indicators

Bizarre Economic Indicators
View more presentations from Agora Financial
Leslie Wolfson, an extraordinary AP Economics teacher, has complied an outstanding list of weird indicators that economists can use to determine which part of the business cycle the economy is in or will be in. For example, an increase in prostitution, underwear sales, drinking at home, composition of the waitress industry and more signal the economy's movement from good times to bad. The Motley Fool has four key indicators here. The Durable Goods Orders, is a key indicator of manufacturing activity in the upcoming months. If durable goods orders increases, it's a sign that production will increase so employees will retain their employment. Durable goods last three or more years. For companies like HNI, durable goods such as fireplaces are tied to other durable goods, so an increase in durable goods orders is a sign that there will be employment and productivity growth. For equity investors, this might trigger buying. Bond investors might take the increased activity as a sign of future inflation and pummel the market raising yields. If the economy is indeed strengthening, the USD could appreciate. Predicting the future is impossible, but there are some clues. Aside from durable goods, it could be that there is an increase in the number of good-looking waitresses.

Friday, May 25, 2012

Google Forms for the Busy Teacher

Today, a colleague showed me how to make a test using Google Forms.  I made a sample, one-question test here.

I don't know how to have students put their name on the exam, but I can see this eliminating a lot of paper work and organizing my work.  Since our school is going 1 to 1 laptops next year, I can make hundreds of warm up activities using this site.  Google documents time and date stamps the student's responses too.

I just Googled "How to use Google forms" and found 2.2 million hits.  This one claims 74 ways to use Google forms in the classroom.  This makes my day.  A thanks goes to Anna Payne for the tip.

Definition of Insanity

I've heard that the definition of insanity is doing the same thing over and over again and expecting a different result.  I was wondering if this behavior would yield insight into the human mind.

At an in-service yesterday, six teachers and myself where given a math problem on separate note cards.  We had to put the solution in order and explain each step of the solution.  I had the easy part where all I had to say, "I am the problem" then explain the problem.  The person after me could not explain the next step.  So I explained it to her a bunch of times even yelling to make the solution clearer.  I kept doing the same think over and expecting a different result.

Why didn't I just give her my index card and take hers?

When students are having difficulty with a problem, instead of starting at the beginning and repeating the steps, it may be advantages to switch positions and let the student tell you what to do.  I'll bet there will often times be discovery.


What are TIPS?

A WSJ article on the bond market got me thinking.  What are TIPS?

The Treasury Direct explains TIPS like this:

Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. 
In the WSJ article, the author showed a graph that showed that the difference between 10-year bonds and 10-year TIPS was decreasing.  This is an indicator that consumers don't have inflation fears so the real buying power of their income will stay the same or actually increase.  Inflation hurts savers so decreased inflationary expectations is good for savers.  The FED can also use expansionary monetary policy to help stimulate the economy as buying securities won't put upward pressure on prices.

AP Macro students should also be able to apply the formula: r = i - pi^e to see that the real interest rate is increasing.  This bump in the real rate, r, should mean more credit and add to the FED's stimulus.

Why Marginal Revenue Equals Marginal Cost Maximizes Profit

AP Microeconomics students often cannot explain why and where profit is maximized.  This eight slide presentation is intended to make teaching this concept easy.  You can embed, download, or show your students directly from this site.


Thursday, May 24, 2012

How JPMorgan Really Lost Two Billion

This is from MAD Magazine.

PMorgan Chase, the country's largest bank, just announced they lost $2 billion, primarily in derivatives. Since no one on the face of the earth knows exactly what derivatives are, we suspect the bank is lying. We tasked esteemed New York Times economist Paul Krugman to get to the bottom of this financial debacle. He refused. So we made up this list.

Wednesday, May 23, 2012

Must See Film: Michael Moore Meets Hunter S. Thompson

Must See Film: Michael Moore Meets Hunter S. Thompson

A nod goes to Carl Herman for the pointer.  Carl is always on top of the game.

Cost Curves for Microeconomics

I recently became a big fan of Slideshare.net.  There are hundreds of PowerPoint presentations there on any subject.  I was working on a slide presentation on why marginal revenue equals marginal cost, when I found this presentation on Cost Functions.  You can tell that Dr. Manuel Salas Velasco put a lot of time into this lecture. I gave him kudos.

Pain At The Pump?

A good friend sent this to me. If true, I'll take legal action.

This is true. It happened to them three weeks ago somewhere in Pomona on our way to Pechanga. The pump should have totaled @ $68.00 (and change). When the receipt was printed, and she checked it was $ 77.00 (and change).
 
She got mad, went inside the store, asked for a calculator and let them do the math. They refunded her. she told them that if they cheat, they had better make it right. Normally, her husband would skip printing the receipt. Not her
 
We saw on the news the other night that this is happening everywhere.
 
Brian pumped exactly one gallon of gas. The price did not match the cost of one gallon. It was higher.. He went inside and complained, got a refund.
 
There is also a number on each pump that you can call and complain.
 
This is a true story, so read it carefully.
 
I stopped at a BP gas station in GA. My truck's gas gauge was on 1/4 of a tank. I use the mid-grade, which was priced at $3.71 per gallon. When my tank is at this point, it takes somewhere around 14 gallons to fill it up.
 
When the pump showed 14 gallons had been pumped, I began to slow it down. Then, to my surprise, it went to 15, then 16. I even looked under my truck to see if it was being spilled. It was not.
 
Then it showed 17 gallons on the pump. It stopped at 18 gallons. This was very strange to me, since my truck has only an 18 gallon tank. I went on my way a little confused, then on the evening news I heard a report that 1 out of 4 gas stations had calibrated their pumps to show more gas had been pumped than a person actually got.
 
Here is how to check a pump to see if you are getting the right amount:
 
Whichever grade you are using, Put EXACTLY 10 GALLONS in your tank, then look at the dollar amount. If the dollar amount is not EXACTLY 10 times the price of the fuel you have chosen, then the pumps are rigged.
 
In my case, as I said, the mid-grade was $3.71 9/10 per gallon; my dollar amount for 10 gallons should have been $37.19. I wish I had checked the pump. It doesn't matter where you pump gas please check the 10 gallon price. If you do find a station that is cheating, contact the state Agriculture Department, and direct your comments to the Commissioner the info is on the gas pumps.
 
Please don't delete this until you have sent it to all people in your address book. We need to put a stop to this outrageous cheating of customers. The gas companies are making enough profits at honest rates. This is the same thing as the butcher with his finger on the scale the company has nothing to do with the station owner's practices. Yes the big oil is making big bucks but the dishonest guy will still be dishonest.

Social Loafing

In economics, Game Theory suggests that a free rider will share in the benefits of a group project.  This morning I was researching social interaction and attachment to a group, when I saw the term, "social loafing" used to mean the same thing. From the Wikipedia page,  "In the social psychology of groups, social loafing is the phenomenon of people exerting less effort to achieve a goal when they work in a group than when they work alone."

 How far away in conclusions are psychology and economics?

I think economics attempts to measure well-defined tastes and preferences whereas psychology tries to measure the holistic mind including perceptions.  I think economics comes to a clearer prediction of human behavior when it comes to rational decision making.  I am content to leave abnormal behavior to psychology.

In this cartoon, the artist infers that Germany and Holland have been a free rider on the back of Greece and have ridden it to death.  Germany is the horse that is still galloping and Greece is the free rider in my opinion.  I think you can now add France too.

Tuesday, May 22, 2012

What Money Can't Buy

Michael Sandel is a great writer and a deeper thinker than Aristotle in my opinion.  His new book, What Money Can't Buy: The Moral Limits Of Markets,  will be on my summer reading list.  Mr. Jeffery Abelson has a review of the book on Huffington Post.





More Unemployment

Currently, there are 5.1 million workers who have been unemployed for 27 weeks or longer.  These workers lose valuable skills during this time and it becomes harder for them to find work.  At the present time, these workers account for 41.3% of the unemployed.  By the way, the number of unemployed has fallen since 2008 by 1.4 million.

There are 7.9 million who are employed part-time because their hours have been cut back or they have been unable to find a full-time job.  The number working less than 40 hours a week has increased by .2 million since April.  This means that employers are working their best workers harder in what economist Oliver Blanchard calls, "labor hording." 

The WSJ reports that the number of discouraged workers is 968,000.  These workers have given up looking for a job.  There are 2.4 million workers actively looking for work but can't find any. 


Graphic Example of Technology

One definition I give my AP economics class is that a technological improvement happens when you can make more than before with the same resources.  Another definition is when you can make more faster.  The May 21, 2012, WSJ, provided an excellent example showing how the number of man-hours needed to make a ton of steel has fallen. 

In addition, the steel industry has seen a fall of employment from approximately 500,000 in 1970 to 150,000 in 2012. 

Less man hours and less time to make a ton translates into a technological improvement that should make sense to all AP students.

Other AP lessons that can be learned from the article include: 1) imports from foreign countries have forced US firms to become more efficient. 2) Competition between firms leads to best practices and a lower average total cost of production.  The article called this twinning. 3)  A shift to skilled labor in a traditionally unskilled market.  The article cited a source as saying, "Steel working used to be 80% back and 20% brain.  Now it's the reverse." 

This last quote just shows that eduction leads to efficiency and improvement.

How Open Are Our Borders?

Ahead of the World Economic Forum, this report shows that trade is getting easier.  "Ahead of tomorrow’s release of the Global Enabling Trade Report 2012 the report authors investigate why crossing borders in some countries is now easier but a closed route in others."  The article cites Black Swan author, Nicholas Nassim Taleb.









Monday, May 21, 2012

Student Debt

From the LA Times:

About two-thirds of college graduates have some student loans to pay off, and their average debt is about $25,000 to $28,700, according to estimates by education experts and organizations. (About 10% of those with loans owe more than $50,000 or so.)
 Some of the debt is acquired by students unsure of their major or switching majors.  Economic models could be developed to help students find their major as a freshman in college.  College should not be a place to find out what you want to do.  If a student is uncertain about their major, they should attend a community college and satisfy all of their core requirements. 

I'll bet that the bulk of student debt falls unequally on the ones who have the least resources to repay the loans.  I would favor a debt forgiveness program for those graduates who come from families earning less than $50,000 per year.  Also, debt forgiveness for those entering education and social work.

Yesterday, I read an article about a student who paid back all of his student loans in a year.  A Wikipedia article explains how to manage your debt here. But the fact remains that college is a profit-maximizing firm.  The colleges raise tuition because the demand is inelastic, textbooks are bundled with software to extract all consumers surplus, and many college offer online classes with no content.  On top of that, there's no guarantee that a college degree will get you a job.  Today's graduates would be better off starting a local community college and working a part-time job to pay for tuition.

Of course, the armed services is always an option as is the Peace Corps and missionary work.  I'm glad I'm not a high school senior, but just a senior citizen.

Demand for Redhead Sperm Donors

The world's largest sperm bank, Cryos International, reacts to supply and demand fundamentals according to this article.  It seems that few people, outside of Ireland, demand sperm that produces redhead offspring.  Is the shift in demand a change in preferences?


Can America Have a Debt Crisis?

"S&P warns that the US could be downgraded again if it fails to create a "credible" fiscal plan" from this site.

It is clear that nervous investors will shift their investments into safe havens in the face of uncertainty.

It is true that most modern economies carry a huge amount of debt to equity.

Currently, the US has a debt to equity ratio of 1.  How long can the US sustain this ratio if GDP is growing at a rate of 2.4%?  I believe a debt crisis can and will affect the United States.  I predict that it'll be the middle east oil countries that help us out.

Jobs and Immigration

The labor force equals the sum of unemployed plus employed.  The unemployment rate equals the unemployed divided by the labor force.  If the labor force is increasing rapidly at the same jobs that workers aren't finding work, the unemployment rate will increase.  Does immigration add more to population than to employment?

Mr. Joe Guzzardi, has written an excellent blog post,
about how American Workers are displaced and advocates immigration reform.

Among other policy idea, he recommends suspending the open-door immigration policy by eliminating temporary visas to workers who will work in the ag area as a virtually free way of increasing domestic employment.  Mr. Guzzardi blogs here
 
I'm a big believer in Global-Price Factor Equalization. That is, if factors (land, labor, and capital) are free to move across borders, then prices and wages will be equal across borders.  In my view, immigration represents G-PF Equalization working.

In behavior economics, there's something called the endowment effect.  I think immigration issues heighten this effect.  Citizens born in the US think that they were endowed with ownership and want to protect their stake in the country.  Can a person really choose where they will be born?

Immigration brings all of the stereotypes to the surface.  In the end, I think, wages and prices will stabilize and immigration will dramatically decrease as their will be no incentive for factors to move.  How long this will take remains to be seen.

Gas Prices

This beautiful cartoon intends to explain that we can only hope for $3.83 gas prices.  But, expect gas prices to increase especially as the summer approaches. 

The cartoon is spot on for gas prices in Chicago.  Gas Buddy shows you the price of gas where you live. 

Iowa continues to be well below the national average.  In Muscatine, the price was $3.25 this morning.

Owning a car gives the owner the freedom to pursue personal endeavors.  America values freedom.  One price that society pays for this freedom is a cost for the resources that society uses.  A higher price reflects the value that society gives to gas.  Of course, a higher price has distributive disparity.  The higher cost exerts more pressure on low income earners than high.  Higher gas prices also ensure that the people who value the gas the most will be able to buy it when they want to. 

In the fantastic book, The Price of Everything, Russ Roberts, explains the price mechanism.

2012 AP Macro FRQ Answers

The answers are saved as a Google Document here.  Here is a scoring guide.  The questions are here.

Sunday, May 20, 2012

Miscellaneous Links.

This graph is from the LA Times.

Retail sales increased .8% in March. The WSJ has a column, Vital Signs, that explains that consumers are paying more for foods and online buying.

Mad Magazine has a Facebook Stock Certificate here.  And Facebook, the musical is hysterical is here.

Finally, if you're in the mood to buy a funny t-shirt, there are several on this site.

Greece

This cartoon is one of most brilliant ones I have seen in the last two weeks.  The Olympics began in Greece where the discus was one of the events.  Isn't it fitting that in an Olympic year the disc that is being hurled is the Euro?  Greece is hurting the European Community.  The discus thrower is naked too.  Has the athlete lost his shirt?

I think there are people who react to visual data such as this one and those who react to text content.  At the G8 summit, world leaders are vowing to keep Greece in the EU.

Is Greece a sunk cost?

Which generation is responsible for the Greek debt?  For a primer on this question, click here.

I think the G8 will treat Greece like a student with special needs.  All of the countries will come together and care for the country to reduce the cost of keeping the country alive.  Eventually, the EU and US will divide the country up like a piece of pie and Greece will no longer exist.  This dire prediction makes sense to me as it would be cheaper than throwing money down a hole with no return.  But, buying the country is another alternative.


Saturday, May 19, 2012

Reading the Signs

Reading the Signs
Reading market signs is very difficult.  Mr. Obama has to put a positive spin on the economic data where as the Republicans have to put a negative spin.  

I don't see how the government can make jobs in the private sector.  Even if they could, isn't that extending the scope of the Public sector too far?

Economic Sanctions Iran

A recent poll found that there is broad European and Middle East support for stricter economic sanctions against Iran.  I'm not sure I agree.

Social Cycle Theory as theorized by Prabhat Ranjan Sarkar, predicts that the ruling Iranian cleric will not be in power forever.  To enforce harsher sanctions on Iran would be to wound millions of innocent people.

Economic sanctions work to reduce global trade with countries in goods that are legally traded.  I'm not sure that the uranium needed to make nuclear weapon is legally traded.  Does stopping trade in corn and wheat really stop the trade in illegal goods needed to make nuclear weapons?  I don't think so.

If harsh economic sanctions are severe enough, they could motivate change from within Iran.  This change might resemble the change that is happening right now in Syria.  Is that what we want?

The use of economic sanctions could act like a signal to the rest of the world that the US thinks the actions in Iran violate human rights and principles.  Since the region wants the sanctions, the sanctions could be interpreted as Iran's actions are an act of war and should be halted for the common good.  For a logical proof that the use of economic sanctions against Iran are moral, click here.

The simple premise of economics is that choices have consequences.  If the US continues to act as the world's police, there will be costs and benefits.  Sanctions will most likely increase the price of gas.  Enforcement of the sanctions will be costly possibly increasing the debt.  Iran might retaliate.

All of these thoughts were motivated from one comic by Jimmy Marguiles.  Comics awaken feelings in me that standard text cannot.  More comics should be used in classrooms to spur debate and develop writing skills?

Friday, May 18, 2012

Great Wall of China

The idea in the cartoon is to show that goods made in China are so cheap that the price acts like a wall, or barrier, to trade.  The barrier hurts US jobs, especially in manufacturing.  Besides the usual barriers to trade that we study in economics, are there others so subtle that consumers would be unaware?

Many countries require documentation so voluminous that country's refuse to trade with them.  In some countries there is as much as 100 pages of documents that need to be in the correct font and size or the imported merchandise will be confiscated.  With that much documentation, it would not be hard for imports to be delayed or discouraged.  Some of the documentation is: certificate of origin, invoice, shipper's export declaration, shipper's letter of instruction, and Incoterms.  How many firms want to complete that much documentation?

Another barrier that is often overlooked are the cozy relationships between buyers and sellers.  After establishing a relationship it's hard to switch suppliers.  I think this is like switching to an Apple computer from A Windows-based computer. 

For the sedulous reader, it should be noted that China requires the least documentation. (Contemporary Logistics, Murphy and Wood, 10th ed., 2011, page269.)

Imports and Financial Inflows

When American imports goods from China, there's a demand for Yuans and a supply of USD.  What is someone in China supposed to do with a USD?  They have two options.  1) They can buy a US export.  2) They can buy US stocks and bonds. 

If the Chinese buy US stocks and bonds, the transaction acts as a loan that finances US consumption with the promise to pay back at a future date.  This cartoon suggests that the debt is never repaid. 

As long as the US is able to make for GDP than it owes, this behavior will likely continue.  As a cautionary note, however, each import is a claim on US assets. 

Excess Reserves

Are banks going broke?  There have been 25 banks that have failed since 2008.  The Wikipedia list is here.

The St. Louis FED has a link to Commercial Bank Reserves.  You will see that reserves have increased exponentially.  This leads me to the motivation for this post.

How easily are people persuaded by the media, their sensory perception, and even their own thinking?  I think most would look at this cartoon and believe that it must be true or the cartoonist would not have spent so much time on it.  In fact, it's been shown that as much as 20% of eye witness reports in a court of law are inaccurate.  Also, interrogators can easily influence the testimony of a witness by using techniques like asking leading questions.  Most people don't have the time to investigate everything they see and observe on a daily basis.  That's how Bernie Madoff was able to con so many investors.  And as P. T. Barnum said so many times, "There's a sucker born every minute." 

Economics is about how people go about satisfying their wants and needs as economist Alfred Marshall wrote so long ago. Economics assumes that people act rationally when making decisions.  But if their actions are based on false impressions, incomplete data, and a flawed empiricism, is economics anything more than voodoo

FCAT and Friday Rant

Fox and Friends ran a story this morning about the Florida Comprehensive Assessment Test this morning.  This is from the link on this blog:

Only 27% of 4th graders, 33% of 8th graders, and 38% of 10th graders earned a 4 on the FCAT in 2012.  In 2011, the percents were 81%, 82%, and 75 respectively.  The dramatic decline in scores represents a change in the scoring metrics.
Why the dramatic change?  I blame the current educational reform on social collaboration.  Students are encouraged to work in groups and share.  The result of this new pedagogy is that no one is held responsible for learning and the benefits of group work are not shared equally.  Game theory suggests that when actors bear all of the costs and only a fraction of the benefits, they will produce a less than optimal amount of effort.  When students work in groups, this is exactly what happens.  I used to hear that a meeting was a dog with four hind legs.  Working together on group projects is the same dog. When will schools take the blame for learning and require students to do their own work, read from a textbook, complete problems from the back of the book, stand and deliver.

Is The Government Too Big?



According to this website, government jobs makes up about 10% of the labor force. I thought it was bigger.

Government spending is about 12% of GDP.  

Here's a blog post loaded with facts about government tax revenue fromt he Washington Post.

The government has become big in other ways such as regulation and intrusive laws.



Visa and Avengers

This link was forwarded to me by Mr. Troy White, FBLA.  Not only does it teach financial literacy skills, but it just became my lesson plan in record keeping today.


Thursday, May 17, 2012

Balance of Payments and Exchange Rates

This is a slideware presentation I made for my Macro class. This presentation shows how the balance of payments relates to the exchange rate. I stopped short of showing how the balance of payments relates to the loanable funds market. I used Slideware.net to upload. I wanted something other than YouTube that teachers could instantly use. I hope this works.

What the Duck

Whenever a photographer takes a breathtaking picture, someone will say, "I could do that too if I had his camera."  The comment is intended to show that the equipment is responsible for the art. 

I think many teachers think that just giving a computer to a student will boost student achievement.  I don't this is any more true than giving a camera makes someone a photographer.  I believe it's the way the tool, or computer, and the student interact that results in learning.  As an example of what I mean is the woodworking tools my father gave me.  I could not even make a box.  These tools enabled my dad to make book cases that still are beautiful 50 years later. 

As the school year ends, I see more and more students using dis-associative behavior.  Yesterday, I saw girl playing a game where she acted like a dentist cleaning teeth.  The game was an advertisement, but she played the game for the whole period (her last day of school).  In one survey, 99% of boys play video games and 94% of girls.  This shows me that computers are used more for entertainment than education.  I know that many of these students who play games also write beautiful essays, make gorgeous PowerPoint presentations, and invent on their computers too. 

Robert Solow depicted the aggregate production function as a function of capital to labor.  Simply, his formula shows that the square root of labor times capital shows growth.  Increasing capital while leaving labor constant gives diminishing marginal returns.  How can giving students laptops be any different?

Credit Cards For Everyone

I've read that there are enough credit cards for every man, woman, and child to have eight.  Usually, this is seen as evidence that US consumers are profligate, hedonistic, and heavily discount the future.  The fact that every consumer has so many cards could be a result of monopoly power more than social commentary.  

When I checkout on Amazon.com I can use my own bank credit card or I can apply for the store's credit card with rewards.  Like many, I choose to use Amazon's.  I also use JC Penny, and Best Buy for the same reason.  Many times, I want to pay cash or send a check.  These are not options on the websites when checking out.  The checkout is intended to profit on high interest rates for cards used for a specific purpose.  I believe that these cards use their monopoly power to extract high interest rates from their users whose demand is relatively inelastic.

Online commerce now makes up about 33% of transactions.  I believe that businesses use the checkout process to get you to pay a little bit more with the use of their credit card.  Since many more consumers are buying online, it makes sense to me that the number of credit cards per person and debt on these cards are so high.

This site, has some outstanding statistics.

Debt as pct. of income
  • The average credit card-indebted family in 2004 allocated 21 percent of its income to servicing monthly debt compared to the 13 percent dedicated to debt payments among all households. (Source: Demos.org, "Borrowing To Make Ends Meet," November 2007)
  • In 2007, the average balance for those carrying a balance rose 30.4 percent, to $7,300. Meanwhile, the median balance -- meaning half owe more and half owe less -- for those carrying a balance rose 25.0 percent, to $3,000. These increases followed slower changes over the preceding three years, when the median increased 9.1 percent and the average climbed 16.7 percent. (Source: Federal Reserve Survey of Consumer Finances, February 2009)

Read more: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#ixzz1v8BqIwB6
Compare credit cards here - CreditCards.com


Wednesday, May 16, 2012

Job Market for College Grads

This is an outstanding cartoon that infers that the current job market is really a battle.  But is it?

The table below is taken from the Bureau of Labor Statistics. (Table A-4)

The table shows that the unemployment rate for college grads with a B. A. is 4%.  The unemployment rate for high school dropouts is 12.5%, high school grads, 7.9%, and college students earning an A. A. is 7.6%.  The unemployment rate for the economy is 8.1%.  It appears that getting a job with a college degree is an advantage.  Unfortunately, the BLS stats don't tell you what kind of jobs the grads are getting upon graduation.  Now that might be scary.





It's The Economy Stupid

Bill Clinton used the slogan in the title, so now Mr. Obama is trying to capture the popular vote by using it.  On Fox News today, the newscasters reported that more Americans favor Mr. Romney than the president when it comes to the economy.  So Mr. Obama will continue to espouse gay rights and other issues.

I think there's little a president can do to improve the economy.  If there was, I'm sure Mr. Obama would have done something by now to help the millions of Americans on unemployment.  To think that he would wait until now, right before the election, to begin to improve the economy doesn't give Mr. Obama the humanitarian credit he deserves.  We'll see how his new strategy works in November.  I predict he'll be reelected. 

Economic Data Website

Mr. Troy White passed this website on to me.  Knoema is an outstanding source of graphs and data.  There is so much data that I'm sure I'll use it daily.  I thought you might find it easier than using the Bureau of Labor Statistics, Bureau of Economic Analysis, or the FRED data base.

Tuesday, May 15, 2012

Children's Books that Teach Financial Literacy

I haven't read these children's books, but the reviews are outstanding.  The first book is A Strange Gift (Enchanted Collar, No. 1). 


The book is written by Robin Yang and is intended to teach children complex concepts.  I believe that telling a story is the most effective way to learn.  This book and all of her others appear to go a long way to that end.

Daily Review -- USD Appreciation

An appreciation of the United States Dollar on the foreign exchange market could be
caused by a decrease in which of the following?

A. United States interest rates
B. The United States consumer price index
C. Demand for the dollar by U.S. residents
D. Exports from the U.S.
E. The tariff on goods imported into the U.S.

When the price level of a country is lower than that of its trading partners, the country with a lower price sees their currency appreciate.  Why?  It's cheaper to buy there.  On the AP, there are three reasons for international trade.  Relative interest rates, and Income differences are the other two.

Obama's Debt

The Business Insider has 34 facts about the debt.

Yahoo Finance has 12 scary facts.

A friend of mine likens the debt to having a broken sewer pipe in the basement.  His analogy goes something like this.

Say your sewer pipe breaks in the basement and your house fills up with waste.  You have two options:  You can raise the roof or you can fix the pipes.  Which would you do?

I think some opponents of the debt measures think that the national debt was incurred because of wasteful government spending.  I don't think all government spending is wasteful.  Senator Tom Colburn, has a list of 100 wasteful government projects.  This excerpt is from the Chicago Tribune.
Senator Tom Coburn (R-OK) compiled a list of what he deemed as the biggest wastes of taxpayer money in 2010. The list includes nearly a million dollars for poetry readings at zoos, $1.5 million for a museum in North Carolina honoring banjo picker Earl Suggs, and $442,340 to study male prostitutes in Vietnam.
I believe that government spending is subject to crowding out and fiscal policy really doesn't work. But I also believe that as a whole, the United States is a benevolent country who cares about all people.  So the United States intervenes on behalf of rights around the world, comes the rescue in natural disasters, and has entitlement programs.  Maybe the United States is like Thidwick, the Big Hearted Moose.  We just have to get rid of some of the free riders.

Monday, May 14, 2012

Macro Review

The dedicated minds at Reffonomics.com have written another interactive lesson.  The lesson, All of the formulas you need to know for macro is interactive so it can be completed by sleep deprived AP students.

I also recommend ACDC Leadership videos by Jacob Clifford.

Sunday, May 13, 2012

Austerity

KAL's cartoon.  Just what is austerity?

Here's the Wikipedia definition.  What austerity amounts to is tightening the belt.  After years of living beyond the means of the tax revenue, governments raise taxes and cut spending to pay back the debt that they have accumulated.  The problem is, the government typically has to make these changes to taxes and spending during a recession.  The measures aren't anti-cyclical but pro-cyclical.

At some time a country has to pay for its borrowing.  This is one of the debates about how bears the burden of the debt: future or current generation.  In the case of Greece, I believe both will unless the debt is forgiven or Greece defaults.

Recently, Spain has announced austerity programs amid protests.  In Spain the unemployment is somewhere are 22%.  If the labor force can't generate enough tax revenue to support the government, what is the government supposed to do? Here's one answer.  I think another answer is to elect a socialist government like France.




Are They Worth It? CEO Pay

Here's what the Economist writes.  Make sure to read the comments.  Here a paper written by the Economic Policy Institute.  This is what I think.

Some CEOs are worth their salary and some are not.  One could make the argument on utilitarian grounds.  Most people think that an action is good if it brings the most good to the most people.  But this doesn't correctly calculate costs and benefits.  Let's say Baxter Bear has a CEO salary of $200 while Barney Beagle and his fellow workers have a salary of $1.

Who is to say that both get the same benefit from their pay?  Baxter might get a small amount of benefit while Barney and his co workers get a huge benefit.  Adding up the workers' benefit might be greater than Baxter's.

If Barney Beagle is worth more pay, why doesn't Barney quit and find a higher paying job?  One possible reason is that Barney is being paid his marginal product.

I believe that when you go to work for a company, you either explicitly or implicitly sign a contract that is voluntary.  No where does this contract say that consideration has to be equal.  Since you voluntarily sign the contract, you agree to the wage disparity.  If you don't like the salary structure, don't work there.

Do CEOs owe something to the society that they draw their pay from?  Probably.  I don't know how much is given back by high paid CEOs.  I know where I live, it is huge.

The CEO argument goes back to philosophy.  People think a just society is one that is equal.  But as Nobel Economist, Amartya Sen what said, "Equality of what?"  To have income equality means that their will be inequality of something else, perhaps human rights.  And this is why I say you have the freedom to choose where you work.