Saturday, November 27, 2010

"I am an economist and I am here to classify your unemployment status...Oh, you already are getting re-training on your own? I am going to have to go back and research this to see if in theory you are making the right decision!"

     There is lots of discussion in the economic blogoshpere about the nature of unemployment in the US.  Are workers skills still relevant and all is needed is an increase in demand for what they do/did to get them back to work in the same or similar jobs (Demand-side argument). Or has the nature of today's jobs, and the skills needed to do them, changed such that worker skills are obsolete and not applicable to the current and future work force (Supply-side argument)?
     As the ivory tower academics and Washington policy makers talk amongst themselves, this article suggests people are are not waiting around for someone to tell them what classification of unemployment they fit into.  Enrollment in community colleges is up sharply as people upgrade skills or, more likely, re-train for a career that is  altogether different from what they were doing.

Washington Post: Workers seek new skills at community colleges, but classes are full

In one small anatomy lab, there's a craps dealer training to become an anesthetist, a cocktail waitress who wants to be a dental hygienist, and a former stripper seeking to become a nurse.

"People are always going to be going to the dentist," explained Misty Stevenson, 36, the aspiring hygienist, a mother of three and a cocktail waitress for 16 years, explaining her career choice after her income plunged during the downturn.

The trouble is getting a seat in class.
All over the United States, community college enrollments have surged with unemployed and underemployed people seeking new skills.

Thursday, November 25, 2010

Need money for College? The Dallas Federal Reserve Bank Essay contest may be for you!

This is a great opportunity for you if you like to write and are at least a little bit interested in economics. You don't need alot of economic knowledge for this contest, but it helps! Check out the topic.  It is an easy one this year...From what I gather, they don't get alot of entries so you have a better than average chance of winning...Go to the essay contest webpage HERE for more details...I will be happy to assist you in getting started with your essay...

21st Annual Essay Contest 2011

Topic: Consume or Conserve?

Essay contest deadline: March 11, 2011

One of the basic questions of economics is the choice between consumption and saving. When scarce resources are used today, what is the impact? Will future generations lack important resources because they have been depleted? Can the use of some types of resources cause irreparable harm to the environment?

A variety of public and private initiatives seek to encourage consumers to conserve natural resources in order to slow resource depletion or minimize environmental impact.

Curbside recycling in a city

Land that is set aside through private or public initiatives

Mandatory fuel standards or tax credits for hybrid vehicles

Carbon taxes or cap and trade systems

Green building codes

The 2011 Economic Essay Contest, Consume or Conserve?, asks you to judge one of these conservation initiatives or one of your own choosing. Use basic economic concepts, such as scarcity and opportunity costs, and fundamental economic models, like supply and demand, to analyze the merits and effectiveness of a specific conservation plan or environmental regulation. The initiative that you analyze might be local, national or global in scope. In your essay, describe the plan and its benefits, evaluate the costs of the plan and draw a conclusion about the effort.

Contest Details

The contest is open to 11th and 12th grade students attending schools in the Eleventh Federal Reserve District, which covers Texas, northern Louisiana and southern New Mexico. Participants submit essays to the appropriate office of the Dallas Fed, as determined by the location of their school. See the list of Eleventh District counties to determine the appropriate office.

Tuesday, November 23, 2010

Disney raises admission prices to DisneyWorld...How do they know what my elasticity is?? Oh, I forgot, Disney knows everything!!

The economists on staff at Disney have been busy. The debates about the Elasticity of Demand for DisneyWorld Tickets must have been very heated!

Disney parks hike admission fees

Admission at Disney's theme parks is going up effective Thursday.
Walt Disney World has hiked its admission price to a whopping $82 for adults, up from $79. And since childhood ends at age 10 in the Magic Kingdom, the increase could be significant for families. Children's prices will jump to $74, up $6 at the Orlando park.

     Adult ticket prices increased by 3.8% ($3.00 divided by $79.00 times 100) and children's prices increased by 8.82% ($6.00 divided by $68.00 times 100). For the example I use below, let's round these percentages to 4% and 9%, respectively, for simplicity  The Law of Demand states that at a higher price the quantity demanded of a good or service will decrease.  To find out how this impacts them, Disney must determine how sensitive customers will be to this price change.  They need to estimate what their Elasticity of Demand is for their admissions tickets.  Elasticity of Demand measures changes in quantity demanded relative to changes in prices.  Let's do a simple example with simple math.
    Assume the quantity demanded for park tickets BEFORE the price change was 1,000 adult tickets purchased and each adult brought 3 kids with them, so the number of kids tickets purchased was 3,000. Before the change in price, the total revenue in ticket sales was $283,000 (1,000  adults X $79 = $79,000 PLUS 3,000 kids X $68 = $204,000)
    Let's assume Disney believes that the quantity demanded for adult tickets will decrease by 6% (now only 940 adults buy tickets) as a result of the 4% price increase. Now the total revenue from adult ticket sales with 6% fewer adults will be $77,080. Yikes, they lost money on the adult ticket sales! This can't be good...
    We cannot forget the kids.  If 60 fewer parents go then a total of 180 fewer kids will not go as well.  Now instead of 3,000 tickets sold, there will be 2,820 sold, a percentage decrease of 2%  Total revenue from the sale of kids tickets will now be $208,680. With fewer tickets sold to kids, Disney INCREASED total revenue from selling kids tickets.
     What is the overall effect on revenues from the increase in ticket prices for both adults and children?  Disney went from revenues of $283,000 to 285,760, or an increase of $2,760 in revenues.
     What we have just illustrated is the Total Revenue Test for Elasticity of Demand. For adults there was a larger decrease in quantity demanded for tickets relative to the change in price so total revenues decreased. For kids there was a smaller decrease in quantity demanded for tickets relative to the change in price so total revenues increased.  When taken together, we find the combined elasticity of demand for Disney admissions tickets is relatively INELASTIC. In other words, in terms of change in quantity demanded, families are not sufficiently sensitive to the price increase to the detriment of Disney's total revenues.
     What is the "magic" here (sorry, could not resist) from raising the admissions price?  Disney calculates that the decrease in quantity demanded by adults will not be MORE than 4% and the decrease in quantity demanded for kids tickets will not be MORE than 9%.  Who am I to judge? I don't even ask how much it costs when I go there...

Google, Yahoo don't just hire tech geeks---they also hire economics geeks, err, I mean majors...

For those of you thinking about majoring in Economics and wondering what you can do with it, this article may inspire you. I took a few excerpts but you may want to read the whole thing.  As I have said in class often, all sorts of organizations (business, government, NGO's, etc) are looking for people who can look at processes and resources in new and creative ways.  I believe "the economic way of thinking" does just that.

Google, Yahoo, other Silicon Valley tech giants add economists to arsenal
In addition to software engineers, computer scientists and Web designers, Silicon Valley giants ranging from Yahoo to Google to eBay are scrambling to hire economists, little-known and increasingly valuable weapons as these companies create new businesses and fine-tune existing ones...

"Other companies have recognized that economists really have a lot to contribute," said Varian, who joined Mountain View-based Google full time in 2007 after having worked as a consultant for the search giant since 2002. Google has 10 economists, statisticians and other quantitative analysts on Varian's staff, and is looking to hire more.

Internet companies see the economists as critical in their efforts to fine-tune advertising networks that serve millions of online ad impressions a day, and to better understand e-commerce platforms with tens of millions of buyers and sellers. Economists can also help determine whether new businesses or approaches will be effective.

"Gooble, Gooble" that is not a turkey talking. That is the sound of the cash register taking your money when you buy a turkey...

""35%: The increase in the price of whole turkeys, from their pre-recession level
Consumer prices in the U.S. are broadly stable. But for people prone to worry about inflation, this could be a harrowing Thanksgiving.

Thanks to rising feed costs, falling stockpiles and developing-world consumers’ growing demand for meat, the price of a whole turkey has taken flight. The U.S. city average stood at $1.68 per pound in October, according to the Labor Department. That’s up 13.3% from a year earlier, and 35.1% from three years earlier, before the recession hit.""
Number of the Week: Talking Turkey on Inflation

Need an excellent, concise explanation of why we have such a large trade imbalance with China? No, I did not write it, that is why it is excellent and concise...

Here is an excellent, concise explanation on one of the principle reasons we have such a large trade imbalance with China--a fixed versus flexible exchange rate regime.  It will go a long way in helping you understand the issues surrounding this hot political and economic issue...I particularly like the last paragraph---it says alot in just a few words:

""...Put more simply, China has exported goods and services to America, while America has exported ownership of its real and financial assets to China. This is a major area of concern for US policy makers, who would like to see a more balanced current account between the two countries, since it is the export of goods and services that creates jobs for American workers, not the sale of bonds, stocks and real estate."" ---Welkerswikinomics
I recommend you read the whole blog entry. It will be well worth your time!

Monday, November 22, 2010

A common tragedy has been avoided in Mexico---they CAN see the forest for the trees!! And that is a good thing...

Granting ownership of a resource to the people most vested in seeing it used efficiently will enhance the sustainability of that resource for years/generations to come. When a community sees the government does not care about the sustainability of a resource, then they tend to join in the pillaging of that resource to get what they can out of it as well.  There is no incentive to preserve and conserve. Secure individual or local community rights changes that dynamic.  While this may not work in all circumstances, the world could use a little more of it to avoid the tragedy created by The Tragedy of the Commons.  This is a nice article about the success of transferring private property rights from "the people" to actual people...

NYTIMES: Growing a Forest, and Harvesting Jobs, in Mexico

“We’re the owners of this land and we have tried to conserve this forest for our children, for our descendants,” Alejandro Vargas said, leaning on his machete as he took a break. “Because we have lived from this for many years.”

Three decades ago the Zapotec Indians here in the state of Oaxaca in southern Mexico fought for and won the right to communally manage the forest. Before that, state-owned companies had exploited it as they pleased under federal government concessions.

They slowly built their own lumber business and, at the same time, began studying how to protect the forest. Now, the town’s enterprises employ 300 people who harvest timber, produce wooden furniture and care for the woodlands, and Ixtlán has grown to become the gold standard of community forest ownership and management, international forestry experts say....

The US is under attack!! Please stay away from Walmart or any other place that sells stuff we really like to buy! That is where the enemy is hiding... See video here!

Source: Cafe Hayek

A World Map if size of population corresponded with the size (land mass) of a county...

From: BIG THINK: ""What if the world were rearranged so that the inhabitants of the country with the largest population would move to the country with the largest area? And the second-largest population would migrate to the second-largest country, and so on?..."HT: Marginal Revolution

Al Gore is my NEW HERO! He expresses regret for his support for ethanol/corn subsidies... Brrr...It is cold here in Hades!

U.S. corn ethanol "was not a good policy"-Gore From Reuters:
Former U.S. vice-president Al Gore said support for corn-based ethanol in the United States was "not a good policy", weeks before tax credits are up for renewal...

"It is not a good policy to have these massive subsidies for (U.S.) first generation ethanol," said Gore, speaking at a green energy business conference in Athens sponsored by Marfin Popular Bank....

"First generation ethanol I think was a mistake. The energy conversion ratios are at best very small....

"It's hard once such a programme is put in place to deal with the lobbies that keep it going."...

He explained his own support for the original programme on his presidential ambitions.

"One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president."...

A food-versus-fuel debate erupted in 2008, in the wake of record food prices, where the biofuel industry was criticised for helping stoke food prices....

Gore said a range of factors had contributed to that food price crisis, including drought in Australia, but said there was no doubt biofuels have an effect....

"The size, the percentage of corn particularly, which is now being (used for) first generation ethanol definitely has an impact on food prices....

"The competition with food prices is real."

Reason 4,923 people hate economists: TSA's policy on "pat-downs" will kill people on the highway this holiday season--Huh??

We cannot escape the glory and/or the madness of "opportunity costs"!

Analyst: TSA methods 'will kill more Americans on highway'
""The recent public ire toward the TSA’s new pat-down and body imaging screening methods is likely to cause more people to drive automobiles and forego airline travel, say two transportation economists who have studied the issue.
“Driving is much more dangerous than flying, as you are far more likely to be killed in an automobile accident mile-for-mile than you are in an airplane,” said Horwitz. “The result will be that the new TSA procedures will kill more Americans on the highway.”

Sunday, November 21, 2010

A letter to the President concerning airport security/screening....

Mr President,
     Your ARE the head of the executive branch.  The Department of Homeland Security (DOHS??) is an agency within your cabinet.  Please instruct your Department of Homeland Security (DOHS??) Secretary to get control of the airport screening situation.  I request this not so much on behalf of travelers, but for the screening agents who are responsible for carrying out DOHS?? policies.  Yes, I would like to defend them.
     I served in the military and know what it is like to faithfully carry out orders that make no sense to me (or my fellow Marines) and made me/us look petty and incompetent in the eyes of the people we were attempting to serve.  Heck, I am now a teacher and can say the same thing about education policies.  Ask me about grading policies or texting in school policies that I am compelled to execute if you want to see frustration to the boiling point. 
     If nothing changes soon, anyone entering an airport will experience an increasing level of contempt for the screeners, justified or not.  There will be an in-kind response from TSA agents to the traveling public.  This is a toxic mix that will detract from ensuring the safety of said traveling public.  A seige mentality between people on the SAME side is not in the interest of public safety.
     Morale must be very low among TSA agents.  Put yourself in the shoes of one of the agents who is only doing his/her job---it must be very humiliating to be looked upon with such scorn and suspicion.  They are not bad people, but they are stuck interpreting and enforcing  vague policies that I assume were formulated at highest level by people you apppointed to the DOHS??  Please put a stop to these policies that make these screeners seem less than human in the eyes of the public.  Thank you for your time and attention.


Gene Hayward, American...

I am not really sending this...Because of my sense of humor, I could not resist the "DOHS!" or the shot at school district policies---This whole situation is very much like Homer working at the nuclear power plant.... :)

Why is paying for college a little (alot?) like buying a car? It is discrimination, I tell ya', discrimination in the first degree!

     Tis the season for high school seniors to apply and get accepted to the college of their dreams.  Once accepted, then the reality of paying for it starts to set in.  I am always curious when financial aid offers start to roll in, even before students file the FAFSA form that tells students, parents and colleges what the student is expected to contribute towards tuition. No one seems to get the same offer, from the same school, with roughly the same qualifications.  My question is, does anyone REALLY know what the tuition rate is for ANY given college.  I know, they publish rates on websites and in brochures, but what do students actually end up paying?  Seems to me paying for college is like buying a car: there is a suggested price, but we all know no one pays the same price for the SAME car.  I believe colleges, like car dealers, use information to differentiate buyers (students) and extract as much money from each student as possible.
     Let's use the example of Big Shot U ("BSU"--get it,  B.S. You).  BSU knows that their profit maximizing tuition rate is $30,000 per year, Point "A",  on the graph below. Assume you and every other student knows this for sure. You have what is called "complete information" about the cost of attending BSU.
      However, the demand curve ("Demand*") for BSU shows that many students (2,999) would actually pay something more than $30,000 but less than $60,000 per year to attend BSU. But because of "complete information" about the price of BSU, they know that they don't have to pay more than $30,000.  Since they were willing and able to do so, then this group of 2,999 students reap what is called "Consumer Surplus". The area of Consumer Surplus is shown in blue in the graph below:

    If it were only this easy.  Because the actual tuition price is not widely known, the college can attempt to capture some of this Consumer Surplus by gathering information about you and your ability to pay. Then, they can offer you a "scholarship" package to see how much surplus, if any,  they can transfer from you to themselves.  They do this through a variety of means--information on your application, demographics, your zip code, and most importantly, your FAFSA. Colleges do their best to "segregate" as many of those 2,999 students based on ability to pay and extract as much from each of them as possible. 
  Assume BSU calculates the first 1,000 applicants (horizontal axis is in thousands) will pay less than $60,000 but as much as $50,000. Of the 3,000 students they need to fill seats, they got 1,000 of them to pay much more than $30,000.  BSU has captured some of that consumer surplus, illustrated below:
Now BSU goes to work on the next 1,000 (between 1,000 and 2,000) students and captures more surplus:

Now, to squeeze the Consumer Surplus out of the last 1,000 (between 2,000 and 3,000):
This sounds terrible, doesn't it? It is not uncommon. Businesses that are able to post vague prices can use information to segregate buyers and "price discriminate (car dealers, airlines, etc). Colleges would fall under the category of a First Degree Price Discriminator.
     Why is this a smart idea?  If everyone paid $30,000 in tuition then BSU's total revenues would be 3,000 X $30,000 = $90,000,000.  I will use imperfect calculations to show the change in revenues if they price discriminate---1,000 x $50,000 = $50,000,000, 1,000 x $40,000 = $40,000,000, and 1,000 x $3,000 = 30,000,000. Total revenues in this case would be at the minimun $120,000,000.  A $30 million difference!!
     Am I too cynical? I believe too much of the "scholarship" offers students recieve from colleges like BSU are a form of gamemanship to find out what your "reservation price" is.  I am not implying students don't deserve those scholarships but I believe the scholarships and their particular amounts serve a dual purpose.  I welcome respectful responses to back me up or tell me where I am going wrong... :)

Some jobs are saved, some may be created, and some are lost. So what is the net effect of protectionism? Yeah, I don't know either

If a country gets into a trade spat/war with another country, it is important to remember it is a two way street.  As with any fight, the other guy has weapons at his disposal too.  Frederic Bastiat reminds us from the grave, what is "seen" with protectionism are the jobs saved when the government intervenes (because the politicians make sure they tell us) to protect certain industries, but what is "unseen" (or at least murky) are the jobs that are lost or NEVER created by protectionist measures.  Some jobs are saved, some may be created, and some are lost.  So what is the net effect of protectionism? Yeah, I don't know either...Below is a list of states that will likely have causalities in the event of a tit-for-tat trade spat with China...

10 US States That Will Get Murdered If China Slows Its Imports(click on link to see the rest of the states)

#1 California

$9.7 billion of exports to China last year
175% growth over decade
--computers and electronics worth $2.9 billion

--waste and scrap worth $2.1 billion

--machinery (except electrical) worth $925 million

--transportation equipment worth $824 million

--chemicals worth $758 million

#2 Washington

$9.1 billion of exports to China last year

379% growth over decade

--transportation equipment worth $4.1 billion

--crop production worth $3.3 billion

--waste and scrap worth $423 million

--computers and electronics worth $265 million

--minerals and ores worth $134 million

#3 Texas

$8.9 billion of exports to China last year
513% growth over decade
--chemicals worth $3.6 billion

--computers and electronics worth $1.5 billion

--machinery (except electrical) worth $916 million

--crop production worth $703 million

--waste and scrap worth $565 million
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