Thursday, February 28, 2013

Population Growth and Technology Growth

I was reading my Krugman-Wells textbook this morning about GDP and left with some insights.  Krugman maintains that the population growth and technology growth aren't equal.  Technology is increasing faster so output per worker is increasing.  As Q/L increases, GDP per capita increases.  Krugman's approximation is that GDP has increased 7 times since 1900. 

After a Google search, I found the following cool discussion:

In the absence of market frictions, the maximum attainable economic growth rate is (1+P)*(1+T)-1 where P is the population growth rate and T is the productivity growth rate.

If market frictions exist and then decrease, the realized growth rate will exceed (1+P)*(1+T)-1. If frictions increase, then the realized growth will be less than (1+P)*(1+T)-1.
 The market frictions are such things are workers in between jobs and workers inability to find a job that suits their endowments.  Structural unemployment results from changes in the industry that make the workers skills obsolete. shows real GDP growth at -.1% and the population rate increasing.  This means less pie for everyone as measured by the GDP per capita.

Have we reached the point where technology can no longer elevate the standard of living?  Have we reached the point where less workers are needed per unit of capital?  Krugman makes the point that many of the technological improvements that boosted the economy were the result of industry finding ways to make use of new technology.  Also, Krugman mentions that not all technology was a new whiz-bang computer.  Improvements like the sticky note and flat bottom paper bags significantly boosted output. 

Yet, I see the post office losing workers to technology.  I see teachers being replaced by online classes where enrollment can reach 500 students in a class.  I see significant changes in the structure of the economy and the economy's ability to produce goods and services.  Has the US reached a steady state?

Wednesday, February 27, 2013


Students of microeconomics will find this ebook to be an outstanding supplement to any instruction. The topics are broken down into small 4 minute videos that rapidly teach complex topics.

Tuesday, February 26, 2013

Sustainable Energy

Experts on the World Economic Forum’s Council on Biotechnology have selected 10 developments which they believe could help not only meet the rapidly growing demand for energy, food and healthcare, but also increase productivity and create new jobs, should issues such as regulatory certainty, public perception and investment be tackled successfully. In this blog post, the council members make their case for each of these technologies and highlight their potential benefits:
The link is here.

An absolutely cool picture from the blog is to the left.

I keep thinking how I'm asked to do more and more with less and less.  Economics concerns itself with satisfying unlimited wants with limited resources. One way Economists define technology is to produce the same amount with the less resources.  So biosynthesis attacks the fundamental economic problem with technology.  If the answer to energy is biosynthesis, what changes will society make?  Economics also defines efficiency as the condition where to in order to get more of one good one must give up some of another.

Sunday, February 24, 2013

Sequester Facts

I really didn't know what was meant by "Sequester".  Since I'm in mock trial right now, I thought the term had something to do with hiding or removing something so that it would be protected.  But the term is loosely used to show the cuts to programs that will begin on March 1.

I found this article to be an outstanding list and explanation of all of the cuts and their impact.

I think this cartoon sums up the concept.  Less spending means that growth will choked off.  

Saturday, February 23, 2013

Spending or Tax Cartoon

This is just nonsense I drew so I could practice my drawing.  How does a government balance taxes with spending so that there's no income inequality, social programs are maintained, a national defense is in place, and incentives to work are not destroyed?  It's a balancing act to say the least.

Thursday, February 21, 2013

Gas Prices

This cartoon is brilliant.  We have to find alternative energy.

Wednesday, February 20, 2013

Calculation of GDP is Bogus

Econ Girl, Jodi Beggs, has a nice post about the spending multiplier on her site.  We teach that someones spending is someone else's income.  The income stream takes the form of the sum of an infinite series where the MPC is less than 1.  So the change in income from the spending of a dollar is S= 1 + MPC^1 + MPC ^2 + MPC^3 ....The cartoon on Jodi's page makes light of this sequence.

Sunday, February 17, 2013

Wrestling Dropped From Olympics

The Economist has an article here.

For 50 years, wrestling has been my life or part of it.  Wrestling afforded me the ability to stand up to bullies, open doors of opportunities, systematically develop my innate physical abilities, shape my mental attitude toward adversity, and meet tremendous people.  I have often wondered how my life would have turned out if I had devoted my life to playing the violin, which was a choice I considered.  Wrestling for gold in the Olympics was a  dream for me.  I watched the Munich Olympics in awe and attended the Montreal Olympics to watch in person.  The ideals that I learned from the pursuit of a dream have "stuck" with me forever.

When I saw some of the Olympic wrestling on television last summer, I was disappointed.  I didn't recognize the sport that I knew.  The rules had changed so much that I actually turned off the sport that shaped my life in favor of something on the History Channel.  It was my thought that the governing body of Olympic wrestling had changed the rules so much that they had ruined it.  Removing it from the Olympics all together was the next step.

Saturday, February 16, 2013

Paradox of Thrift

This is to starve off Alzheimer's.

I just don't buy the paradox of thrift argument.  In a nutshell, the argument asserts that when everyone saves the economy shrinks.  I believe the underlying assumption is that everyone in the economy is pessimistic about the future so they save for the bad times ahead.  As less is spent, investment shrinks and there is less GDP being produced.

In the notes to the left, I show that the Aggregate Expenditures drop which leads to less being saved.

What I think will happen is that my savings will be used by a forward thinking entrepreneur who will seize the opportunity to capture the market when others are reluctant.  In other words, this thinking will maintain GDP.  For a recession to occur, something else has to happen.

For an outstanding discussion of this topic, click here.

Thursday, February 14, 2013

Gasoline Prices Lesson Plan

Here is an outstanding lesson on gas prices and future expectations.

Here are just some goofy thoughts that are irrelevant to the gas prices.

Last weekend out boys swim team won the state swim title for the third consecutive year.  Right before the school assemble to honor these athletes, I heard a girl say, "I'm not going to the assembly.  How preppy is that?"  My thought processes went like this.  1.  Education plays a role in future earnings.  2) Winners in athletics often are winners in life.  3) The establishment favors the "preppy". 4) Why would anyone play a dominated strategy?  Are they setting themselves up for a lifetime of failure?

I was reading Krugman-Wells about income and expenditure.  The MPC has to be less than 1 in order for their to be a multiplier effect.  What happens if capital markets are broken and there's no saving or borrowing.  For example, if I expect my income to be higher next year, I might borrow today.  Or if I think I'll lose my job, then I will save.  but if capital markets are broken, then I would have to consume all of my income today so the MPC would be 1.  I never really understood the effects of future expectations on GDP. 

Wednesday, February 13, 2013

FRED Unemployment Lesson

The St. Louis FED has a FRED data base lesson here.  It is my humble opinion, that the St. Louis FED will eventually replace teachers in the classroom with their interactive lessons.

Sunday, February 10, 2013

Alzheimer's Problem of the Day

A firm has a cost curve described by: TC= 10140+0.00001q^3-0.02q^2+16.3q

What is the average cost function?  Find an equation for marginal cost.  Graph.

AC = 10140/q + 0.0000q^2-0.02 +16.3

MC = .00003q^2-.04q +16.3

Button Industry in Muscatine

On Saturday, I visited the Muscatine History and Industry Center.  This museum not only housed history but intelligently produced a timeline of the development of button production along the shores of the Mississippi in Muscatine, Iowa.  I thought I would list a few of the economic concepts that I saw:

1.  Given the free entry into the business, Muscatine's population doubled.  Eventually, the profits in the industry were driven to zero just like the perfect competition model predicts.
2.  Clamming was a common resource.  Therefore, the marginal benefit of clamming would be driven to zero as fisherman preferred to deplete existing stocks of clams now instead of saving some for later.
3.  Free choice, in my opinion, did more for civil rights and women's equality than any legislation.  When families incomes were soaring race and gender didn't matter.  Money is a great equalizer.
4.  In my opinion, technology will always replace repetitive, manual labor, and require the use of skilled labor.  If the economy doesn't keep reinventing itself, there will be no labor market for those workers who prefer to be less educated.
5.  The cottage industry only lasted about 50 years, but in that time there was significant product differentiation to grab market share.  Eventually, many of the companies merged to moved into another product line.  Soon, synthetic buttons replaced pearl buttons.
6.  One thing that really bothered me was how few buttons could be extracted from a clam.  Usually five or six and then the shell was thrown away.

I loved my visit and want to return.  My visit to this museum was a lesson in economics, anthropology, marketing, and culture.

Friday, February 08, 2013

Change in Preferences

The demand curve will shift to the left when consumers tastes and preferences change.  People prefer email for many of their correspondence now.  The supply curve will shift to the right when technology improves.  With cell phones that are computers, the price of mail delivery falls.  The post office is battling a change in demand and supply.  It's funny, not ha ha, that the monopoly power came from a change in preferences.

Wednesday, February 06, 2013

Big Mac Index

The Economist publishes their version on Purchasing Power Parity here.

The index is interesting because the Big Mac is sold in over 129 countries.  Usually, there is criticism of the index after it is published so the Economist offers this solution to it's data acquisition:

his adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower. PPP signals where exchange rates should be heading in the long run, as a country like China gets richer, but it says little about today's equilibrium rate. The relationship between prices and GDP per person may be a better guide to the current fair value of a currency. The adjusted index uses the “line of best fit” between Big Mac prices and GDP per person for 48 countries (plus the euro area). The difference between the price predicted by the red line for each country, given its income per person, and its actual price gives a supersized measure of currency under- and over-valuation.

I think a better measure would be digital downloads since digital downloads have factor mobility and are homogeneous.

Every Tuesday, I thank my luck stars that I can afford this magazine.  

Tuesday, February 05, 2013


George Bush, Queen Elizabeth, and Vladimir Putin all die and go to hell. While there, they spy a red phone and ask what the phone is for.

The devil tells them it is for calling back to Earth.

Putin asks to call Russia and talks for 5 minutes. When he is finished the devil informs him that the cost is a million dollars, so Putin writes him a check.

Next Queen Elizabeth calls England and talks for 30 minutes. When she is finished the devil informs her that the cost is 6 million dollars, so she writes him a check.

Finally George Bush gets his turn and talks for 4 hours. When he is finished the devil informs him that the cost is $5.00.

When Putin hears this he goes ballistic and asks the devil why Bush got to call the USA so cheaply.

The devil smiles and replies, " Since Obama took over , the country has gone to hell, so it's a local call."

Why Don't Dentists Work on Saturday?

Most dentists only work four days a week.  Couldn't a dentist earn more income if she worked additional days such as Friday and Saturday?

For the longest time, I have wondered why it's impossible to get a dental appointment on a weekend.  My only answer is that if all dentists worked on the weekends, it would increase the supply and lower the price they can charge. 

I thought dentists took an oath to serve the public.  It seems to me that a dentist who really cared about the dental hygiene of a community would try to serve as many wants and needs as possible.

Here's a Yahoo! answer:

A lot of dentists work 10-12 hours per day. The office I'm at is open from 6:45 AM - 5 PM Monday through Thursday. That is over 10 hours per day. While there is no law about how much a dentist can work, or what days the office can be open, working 12 hours a day can tend to be rough. Most metropolitan areas have emergency dental clinics that are open 7 days a week. Try looking for one of them.

It also isn't about money and not having to work because you make so much of it. It's about busting your hump and allowing your staff to have a break.

Monday, February 04, 2013


From the Economist:

Anheuser-Busch InBev, the world’s biggest beer maker, announced it would take full control of Mexico’s Grupo Modelo for more than $20 billion.
What does the DOJ consider when blocking a merger like this?

One measure is the Herfindahl Index. defines the index as:

A measure of concentration of the production in an industry calculated as the sum of the squares of market shares for each firm. This is one method of summarizing the degree to which an industry is oligopolistic and the concentration of market control held by the largest firms in the industry. Two other measures of industry concentration are the four-firm concentration ratio and the eight-firm concentration ratio.

There's more to blocking a merger than just numbers, of course.  The DOJ should consider the elasticity of demand for the product and whether the firms are upstream and downstream monopolies.  I don't know the answer, but I wonder why there is a tendency for firms to concentrate my merging.  Is every market a "winner take all" market?

Sunday, February 03, 2013


Alzheimer's problem of the day.  Suppose Co=160, I = 150, G=160, and Yd = Y-100.  What is equilibrium, Disposable Income, and Consumption spending?

Although my graph doesn't look right, I confirmed it on a ti-83.  I have equilbrium at 1000, disposable income at 900, and consumption equal to 700.

I will be teaching macro soon so I'm boning up on the theory.

Friday, February 01, 2013

Double Counting

When finding the total value of GDP, you don't want to count intermediate goods:

Goods (and services) that are used as inputs or components in the production of other goods. Intermediate goods are combined into the production of finished products, or what are termed final goods. Unlike final goods, intermediate goods will be further processed before sold as final goods. Because gross domestic product seeks to measure the market value of final goods, and because the value of intermediate goods are included in the value of final goods, market transactions that capture the value of intermediate goods are not included separately in gross domestic product. To do so creates the problem of double counting.
As the Alzheimer's question of the day, what are the three methods that can be used to find the total value of all goods and services produced in a year?

(Answers:  sum of all factor payments, sum of value added, or sum of final prices paid.)