Is re-paving a road "stimulative" to the economy? Compare these two photos. Are we using 1930's policies to solve 2011 problems?

Are "infrastructure projects" stimulating to the economy like they were during the Depression?  Are we using 1930's policies to solve 2011 problems? If the goal is to implement the use of machines/capital then we are doing the right thing. Road projects are a necessity, that is clear. But to justify them on the basis that they are, in large part, going to get our economy back on track and significantly lower unemployment seems a bit of a stretch to me.  If the goal of stimulus is to employ the masses, then, well, perhaps we should ask if "shovel-ready" is a literal or figurative term. More focus should be on the jobs of the future, not of the past...Just sayin'.

Repaving a road in Louisiana in the 1930's with a mix of labor and technology/capital...count the workers relative to capital...

Source HERE


Repaving a road today in Louisiana with today's mix of labor and technology...count the workers relative to capital

Source HERE

I assume the road in the bottom picture was done in a day or so and the road in the first picture took, well, I don't know how many days (weeks?)...

This "Summer" we need to "Fall" for the Arab "Spring" or it will be a dark "Winter" for seasons to come for us. The issue in one chart here...

Further evidence (for me) that the underlying reason for the "Arab Spring" movement in the Middle East can be explained in economic terms.  The chart below shows the rate of unemployment for young(er) people in select Middle Eastern countries relative to other parts of the world.  Below that are snapshots of most of the countries represented in the chart.  Focus just on the population pyramids in each one.

There is a toxic mix of a lack of economic opportunity AND a demographic balance tilted toward the very young.  Also, as noted here, "In contrast to most of the world, joblessness in many Middle Eastern countries tends to increase with schooling: the unemployment rate among those with college degrees exceeds 15 percent in Egypt, Jordan, and Tunisia."

Hmmm...lots of young, educated people with access to technology, diffuse knowledge of the "outside" world and a lack of opportunity domestically---Change in the region is inevitable--regardless of the despots actions today...   

Source: The Conversable Economist

 



More evidence that you need to obtain Higher Education---see graph and explanation here

This graph shows the change in income over time between someone with a college degree vs a high school diploma. Notice on the tail end to the right that the lines start to move in opposite directions.  Before this time period they pretty much moved together (exception is between 1980 and 1985).  I want to emphasize that this does NOT mean that someone with solely a HS diploma will not succeed financially. These are moving averages. However, you will notice the decline in income for those with HS degree only. Also, This graph is not counting people with associate degrees or some other type of technical skills based education/training.  I would assume if you graphed the incomes of this class of people, the line would fall somewhere in between these two. 

Source: Business Insider

From all that I read in the business/economic literature, I believe this trend will continue. We are in the midst of a higher skills based economy, not only domestically but globally.  Like it or not, for most of us, it is a necessity to obtain, whether through college or other advanced educational institutions, and maintain the highest skill set we possibly can.  We may not like it, but that is simply the way it is.  We (maining you) gotta get on board with it...

Gas prices are too low and need to be higher! Our kids, grand-kids and great-grand kids will THANK US!

I am convinced the only way get off our dependence on oil (domestic and foreign) is to ensure the price of gasoline stays elevated.  A gas tax or a tax on a barrel of oil seems to be the preference of many/most economists.  $4.00 per gallon seems to be the generally accepted price that moves Americans to change their consumption behavior. It is a short term pain we must go through to obtain the long-term benefits.  Please read this short piece below.  I added emphasis on the parts I think are important.  You will see when the prices are high people start to make alternative choices in the types of vehicles they purchase.  The process works, it just has to be allowed to work itself through to the end.  The current policy to use the Strategic Oil Reserve only serves to slow down the process and sends mixed signals to the people. I am not insensitive to the hardships the high price of gas puts on people. I am MORE sensitive, however, to the hardships the will be visited upon the next generation if we don't take REAL action today. Is that so wrong? 

This is also a great read for AP Microeconomic teachers and students. Data is provided to calculate various elasticities...
Via Mark Thoma

From MIT Sloan Experts: My latest research* looks at how consumers adjust to high gas prices by changing the kinds of car they buy, and the prices they pay. What launched this research was the debate around the effectiveness of a gas tax to reduce climate change; the goal was to determine whether consumers undervalue fuel economy. If consumers do undervalue fuel economy, then such a tax would not shift enough consumers to buy smaller, more fuel-efficient automobiles.

I try to do my research with an eye toward showing policymakers what will happen if they adopt Policy X over Policy Y. I am not a granola environmentalist, but I do see a lot of inefficient policies out there, and as an economist that’s frustrating.

And here’s the thing…

At the moment, the US relies on a variety of subsidies and “performance standards” to reduce greenhouse gas emissions from the transportation sector. On the fuel side, we have ethanol subsidies and the Renewable Fuel Standard, which is an implicit subsidy program. On the vehicle side, we have Corporate Average Fuel Economy Standards, or CAFE standards, which dictate the average fuel economy of an automaker’s annual fleet. The current standard for passenger cars is 30.2 mpg. The standard for light-trucks — a classification that also includes SUVs under 8,500 pounds — is 24.1.

On the electricity side, lawmakers also use the Energy Star program, which was created in the early 1990s, to force appliance makers to create more efficient products. Policymakers seem to believe that consumers are not going to buy the correct dishwasher, or the correct air-conditioner. So instead, they regulate the manufacturer of these appliances to comply with certain efficiency requirements, rather than let the price of electricity reflect the social cost of that dishwasher or air-conditioner.

My research shows that performance standards – such as CAFE standards – may be more inefficient than previously thought, and that pricing instruments, such as a gas tax, would likely have a bigger impact on reducing greenhouse gas emissions.

My colleagues and I found that a jump in the price of gas causes a significant change in the kinds of cars that consumers buy and the price they pay for them. A $1 increase in the gasoline price changes the market shares of the most and least fuel-efficient new cars by +20% and -24%, respectively. Changes in gasoline prices also change the relative prices of the most fuel-efficient cars and the least fuel-efficient cars. For new cars, the relative price increase for fuel-efficient cars is $363 for a $1 increase in gas prices; for used cars it is $2839. (For comparison: a $1 increase in gas prices alters the budget of the average household by about $50 a month.)

I am not naïve, and I realize that no politician has ever been elected on a platform of: ‘I’m going to raise your gas prices,’ but by advocating alternatives, they’re promoting inefficient policies that simply hide these inflated costs. There’s a lot of resistance from consumers about the prospect of a gas or carbon tax, but I believe this is mainly because consumers are misled to believe that performance standards are cheaper.

The run-up in the price of gas in recent years has been substantial enough to make top auto executives give up their historic opposition to gasoline price taxes: some have even suggested that Congress should consider a variable gasoline tax that would create a $4 floor for retail gasoline prices.

Mike Jackson, CEO of AutoNation, the largest U.S. dealership chain, told the Wall Street Journal: “We need more expensive gasoline to change consumer behavior. Otherwise, Americans will continue to favor big vehicles, no matter what kind of fuel-economy standards the government imposes on automakers.”

Four dollars a gallon, he added, ‘is a good start.’ Hear, hear.

SHOW ME THE MONEY! Or at least where it is going. A nice interactive on Remittances world-wide from the Financial Times.

The Financial Times has a terrific interactive that show the changes in inflows and outflows of "remittances".  Remittances are the flows of currencies in and out of a country. They are a part of the Balance of Payments calculation maintained by the government (go HERE for the latest report). The Balance of Payments has two main accounts: The Current Account and The Capital Account. Remittances are part of the Current Account, specifically in the category "Unilateral Net Transfers".    

Source: The Finacial Times

 Example: If a "foreigner" living/working in the US sends (remits) dollars to their home country (presumably exchanged for the local currency) that is recorded as a DEBIT (subtraction) in the Current Account.  If an American living/working in a foreign country sends the local country back to the US (presumably exchanged for dollars) that transaction is recorded as a CREDIT (addition) in the Current Account. As you might expect, the net balance of remittances for the US is negative (more dollars leaving to go to the Foreign Exchange Market (FOREX) than there are returning from the FOREX)...

Ahhh...the Good Ol' Days! When the boys played games and the girls washed dishes...



Source: Coyote Blog

 Notice to the upper right the "girls" washing dishes while the "boys" play a game...When we harken for the "good ol' days" we better becareful what we harken for.  But it is ok. I am pretty sure the Dad was paying a 90% Marginal Tax Rate so all is well... :)

State of Texas (and other States) has a wealth-redistribution scheme I 100% approve of...I think "UWILL2"...

I did not know Texas was doing this, but what a great idea---auctioning off vanity plates to the highest bidder:

What Drives People to Take a Creative License?

""To boost state coffers, Texas sold a Dallas doctor a "PORSCHE" for $7,500.  Then it sold him "AMERICA" for $3,000.

Both were license plates, sold at auction. "I will get my American citizenship next month, so it means a lot to me," says Salman Waheed, an intensive-care physician. He also wanted "FERRARI," but dropped out when bidding for that one went too high—eventually netting $15,000, the top price paid.

After years of selling vanity plates as a modest sideline—charging as little as $5—states think there's more money to be made in whatever drives people to buy them. Facing budget crunches, states are raising surcharges or proposing annual fee hikes for custom plates.
Texas has gone a step further. It hired a private company to raise $25 million over the next five years by auctioning off vanity plates. "People like to express themselves, especially in Texas," says a spokesperson for the Texas Department of Motor Vehicles. This year, at the nation's first such auction, Texas sold 33 plates for $139,400...""

Nobody gets hurt and people pay what they believe the plate is worth to them. Vanity plates are a "want" and not a "need".

This illustrates the microeconomic concept of Consumer Surplus and how a business, or government, can increase its revenues by segregating its customers by their willingness to pay.

Below is a demand curve for the market for vanity plates. I am keeping it very simple with the numbers just to illustrate the concept.  Assume that the state does not charge much more for a vanity plate relative to a "regular" license plate.  Assume the price charged by the state is $100 and they sell 3 license plates total (vanity and non-vanity). 

The total revenue from the sale of license plates is $300.  But we know from our market demand curve that someone was "willing and able" to pay $300 and someone else was "willing and able" to pay $200 for vanity plate. The 3rd buyer did not want a vanity plate, just a regular one so she paid $100.  See graph below. However, buyers 1 and 2 did not have to pay a higher price because the price set by the government was $100 and they could get the plate cheaper than what they were willing to pay.  They retain significant Consumer Surplus.  NICE DEAL FOR THEM!!

Would it not be great to extract some money from these vain people?  In this particular market, according to the article, it is easy to segment customers. Texas is doing this through an auction system.  The state can still sell 3 license plates, but they can transfer that Consumer Surplus from the buyers to the state.  See the graph below for the math in how revenues to the state are affected.

This is a "wealth-redistribution" scheme that I approve of 100%. 

I bet I could get "HAYWARDECON" very cheap!! What do you think?? :)

My conspiracy theory---Pres Obama will be in NY to interview a NEW VP candidate for 2012...AND they won't have to change the monograms on the White House towels...

Justin Bieber---Joe Biden...Coincidence? I think the President really needs the Middle School vote this time around.... :)


Source: Fox NY

 Full Article HERE:

""President Barack Obama and international teen sensation Justin Bieber are expected in New York City on Thursday. Expect 'Obama-Bieber' gridlock throughout the day especially in Midtown Manhattan and the West Side of Manhattan as the two very popular and heavily protected figures travel around town.""

Here is an Economics version of "That 70's Show"--This episode is about the divergence of the actual rate of unemployment from the Natural Rate of Umemployment. See Donna's analysis here!

Well, not Donna, but...Jared Bernstein, former Economic Advisor to President Obama, has a nice analysis on why middle class wages have stagnated over time.  It is useful to the study of AP Macroeconomics in that it uses the concepts of Productivity, Unemployment and the NAIRU ("Non-Accelerating Inflation Rate of Unemployment"). In class, I use a simplified version of this---just the NRU ("Natural Rate of Unemployment").

The NRU or NAIRU is, given current conditions, the lowest unemployment rate an economy can reach WITHOUT triggering inflation. If the actual unemployment rate observed in the economy equals the NRU, then the economy is said to be at full-employment.  You can see from the first graph below (the BLUE line) that the NRU has hovered consistently between 5% and 6% since 1949. The RED line represents the actual unemployment rate at a given time. 

When the actual unemployment rate goes below the NRU, this means there is a relative scarcity of labor (skilled and unskilled, but skilled is probably more relevant) in the marketplace. Wages tend to increase during this period of time. When the actual unemployment rate goes above the NRU wages tend to stagnate because there is a relative surplus of labor available in the marketplace.  What do you notice about the trend between the NRU and the actual unemployment rate over time? 


Source: Jared Bernstein

This was pretty amazing to me.  In the above graph, examine the two lines before 1979 and after. Look at the chart below. Prior to 1979 the economy spent more time at or below the NRU and after 1979 more time at or ABOVE the NRU.    

Source: Jared Bernstein

Wage and employment gains primarily come through gains in productivity. Productivity is defined as the amount of output a worker produces in an hour of work.  If a worker produces more output in a labor hour it is generally due to  (1) enhanced skills (education and/or training), (2) production efficiencies through improved processes, or (3) using new/improved tools/capital equipment. 

Two things SHOULD happen as a result--1. Workers produce more, the business makes more money, the workers get paid more (2) Workers produce more, the business makes more money and they hire more workers.

As you look at the graph below, remember--productivity gains should translate into income gains for workers....

Source: Jared Bernstein

Pretty shocking, isn't it? Prior to 1979 wage growth keep up with worker productivity.  After 1979 wage growth was stagnant relative to gains in productivity.   

What went on in the mid-1970's to change this?  If my friend over at The New Arthurian Economics is reading this, I THINK he has the answer.. Try HERE and HERE to get started...

Are you an introvert? Read these Top 10 Myths/Stereotypes people have about you...

Source: Jerry Bito
Myth #1 – Introverts don’t like to talk.

This is not true. Introverts just don’t talk unless they have something to say. They hate small talk. Get an introvert talking about something they are interested in, and they won’t shut up for days.

Myth #2 – Introverts are shy.

Shyness has nothing to do with being an Introvert. Introverts are not necessarily afraid of people. What they need is a reason to interact. They don’t interact for the sake of interacting. If you want to talk to an Introvert, just start talking. Don’t worry about being polite.

Myth #3 – Introverts are rude.

Introverts often don’t see a reason for beating around the bush with social pleasantries. They want everyone to just be real and honest. Unfortunately, this is not acceptable in most settings, so Introverts can feel a lot of pressure to fit in, which they find exhausting.

A very nice interactive map showing immigration patterns across/around the US from as far back as 1890...

HT: Microeconomics...The NYTIMES has a very nice interactive--Immigration Explorer. Select a particular country and see how this nationalities migration pattern has moved around/across the US. It goes as far back as 1890!  Very informative and may be helpful for a research project.

Foreign Direct Investment is good for US. The Trade Deficit is bad for the US. How did my two-sided coin just become one-sided?

Foreign Investment in U.S. Jumped 49% in 2010 From 2009

Despite a world struggling through an economic crisis, direct foreign investment in the U.S. jumped $75 billion in 2010, the White House said Monday.

“The United States remains the No. 1 destination for foreign investment in the entire world,” said the chairman of U.S. President Barack Obama‘s Council of Economic Advisers, Austan Goolsbee. In times of crisis, he said, the U.S. is the “safest harbor.”

Direct foreign investment in the U.S. jumped 49% to $228 billion from $153 billion in 2009. Goolsbee said these investments support 5.7 million workers in the U.S.

President Obama, in a statement, hailed the important role of foreign investments in the U.S. He said the country’s openness to foreign investors helps explain the boost. He said the U.S. has the “world’s most productive workforce,” a culture of innovation, remarkable colleges, and a business environment marked by transparency and the rule of law.

If this is good news, then why is this NOT:

Source: Calculated Risk

The BLUE line represents the US trade deficit with the rest of the world.  It is negative because on a consistent basis we buy more stuff from the rest of the world than they buy from us.  On net, after imports are subtracted from exports, we get "stuff" and they get dollars. What do they do with those dollars? They can buy some of our goods/services. They can buy US financial assets (stocks, corporate bonds, government debt/bonds, mortgages, etc). They can buy US physical assets (buildings and such) or invest in building new physical assets in the US (Honda or Mercedes building a auto manufacturing plant). 

A dollar spent on imported goods/services does not disappear.  Unless lost or hoarded, those dollars we exchange with foreigners MUST make their way back to the US at SOME TIME in the future, right?  Otherwise, they are relatively worthless to the holder. 

So, I guess as the Administration (Dem or Rep) is touting the good news of increased Foreign Direct Investment in the US, it SHOULD show as much enthusiasm for the trade deficit. But it does not seem to work that way.  I guess if you believe there is such a thing as a one-sided coin, then I suppose it is possible.

To learn more about this concept of the "Balance of Payments", I encourage you to go to Welkerswikinomics. A much more detailed explanation from a REAL economics teacher...

See video demonstration of a Table Saw safety device in action---Will the inventor get his finger cut-off? You gotta see this!

Numerically the injuries that result from table saw accidents may be small, the "hebbie-jebbie" factor is quite high. The Comsumer Product Safety Commission (CPSC) is proposing that table saws come equipped with the safety device demonstrated in this video. Yikes! Get ready to wince!

HT: Freakonomics...

"...At the same time, the Consumer Product Safety Commission (CPSC) has directed its staff to draft regulations governing the safety of table saws. An estimated 40,000 people are injured every year when hands, fingers or other body parts find their way into the path of a table saw blade. Inventor Stephen Gass has come up with a technology he calls SawStop, which senses if the spinning blade is starting to contact human skin and slams the blade to a halt within a few thousandths of a second. Gass even puts his finger into the path of the blade to demonstrate. See the video here.

The CPSC is apparently considering requiring that all new table saws come equipped with the SawStop technology, thus increasing the price of the product...""

Would you like a Dental Implant to go with your trip to The Galapagos Islands? Medical Tourism is on the rise. The difference in cost is HUGE!

 More and more Americans are seeking healthcare from foreign sources, especially high dollar procedures.  Below is a sample list of procedures and their costs in the US and other countries.  What is the deal with Turkey?


Source: The Milliken Foundation 

  HT: The Conversable Economist

How many people go abroad for medical procedures?

 "In 2009, Deloitte revised its estimates down to 648,000 travelers annually, but forecast 35 percent increases in each of the threesucceeding years. It predicts that more than1.6 million Americans will travel abroad for health care in 2012."


What is the assurance of quality?

 "Accreditation from the Joint Commission International (JCI) is recognized worldwide as the gold standard for hospitals. JCI screens facilities for the condition of their physical plants, their management of medications, the quality of their surgical care, their commitment to continuous improvement, and their responsiveness to feedback from patients. In the United States, the organization accredits more than 17,000 facilities, from hospitals to laboratories to long-term-care centers. JCI began accrediting hospitals outside the country in 1999. Today, the organization vouches for the quality of care at some 400 institutions in 45 countries from Austria to Yemen."

Is there a gender gap in PHD's? Yes, depending on the major field of study. See how your major fares in gender equality...



Source HERE



Texas IS just like China---well, in this one regard anyway...

Texas one of the fastest growing states in the last ten years in terms of Gross State Product (GSP)---the dollar value of the production of goods and/or services. We are number 2 behind California, but are likely to surpass them in the near future.

For those of you who have lived in Texas a relatively long time, how many people do you know that recently came here from one of the states shown below as a "loser". As a teacher this subject comes up frequently.  When I ask students if they moved to Texas sometime during their lifetime to raise their hands, I usually get a 30% to 40% affirmative response. The reason?---business relocation and jobs. 

Texas produces $1 Trillion in GSP--that is roughly 1/14th of the total US Gross Domestic Product (GDP).  That is a lot of "stuff"....

Texas wins in U.S. economy shift

""Texas became the USA's second-largest economy during the past decade — displacing New York and perhaps heading one day toward challenging California — in one of the biggest economic shifts in the past half-century...."
 
"...Texas notched one of the biggest increases in size in a half-century, surpassing $1 trillion in annual economic output. The state gained nearly a full percentage point in its share of the U.S. economy during the decade, reaching 8.3% in 2010. This growth in economic clout has been matched only twice in the past 50 years — by California in the 1980s and Texas itself during the 1970s oil boom.""'

What does Texas produce? 

Nice Interactive so you can solve the Social Security problem...Try it out and compare to what I did.

Using the parameters in this interactive provided by the Wall Street Journal, this is how I would go about solving the Social Security problem that looms on the horizon.  The selections I made create a bit of a surplus (the triangle shape to the right of the "0.0"-- +.33%).  After each   ection, I offer explanations and rationales. This is not a prefect simulation, but it is a start.

Seems to me that the problem can only be solved by a mix of tax increases and benefit decreases, that will be progressive in some situations and regressive in others. I tried to do this as sensibly as possible and with some thought...




Source: WSJ



 First, Social Security has to move to a "means tested" entitlement program (the first box checked above).  This means that a retiree's OTHER income (savings, investments, 401K's, physical assets, etc) would be taken into consideration in determining how much in Social Security they would receive. The more you have in other independent assets, the less you get in Social Security you would be entitled to receive.  The problem comes in as you move down the income scales where the government determines the cut-off points for the level of benefit received. Formulas will have to be created and there are lots of pitfalls there.  EVERYONE should receive something (yes, even the rich guys/gals) because if someone contributes all their lives and gets nothing in return, then the program is not an entitlement but a welfare-type program.  This IS an important distinction.

Second, the retirement age has to increase from 67 to 68 (the next box checked above). This is not a huge jump, given the increased life expectancy of the average American.  This is a regressive policy, however.  Statistically, lower income/poor people have shorter life expectancies relative to high income/rich people---wait longer and receive less benefits is regressive in nature.  I soften the impact of this in my last point a little bit down the page.

Third, a payroll tax increase over an extended period of time, from a total of 12.4% to 14.4%. This is a 16% increase in payroll taxes over 20 years.  Currently, workers pay 6.2% of their gross earnings in Social Security and the employer pays 6.2% on your behalf as well, for a total of 14.2%.  This is regressive in that lower income people pay a higher percentage of their total income in payroll taxes than do higher income people.  Currently, the maximum income that is subject to the 6.2% Social Security tax is $106,000.  Any income OVER that amount is not subject to SS Tax.  The interactive does  not give an option for a moderate increase over the $106,000, but I would be in favor of increasing it, but not to the $200,000 level suggested in the interactive. 

Lastly, as mentioned above I would make provision for the "very poor" elderly population amongst us (box checked above).  This is a progressive policy.  Do I really need to explain/justify that one?  Pretty self-explanatory, in my opinion.

I believe my choices reflect a political "Moderates" approach to solving the Social Security problem.  Liberals will not like that I don't put more of the burden on the "rich" and Conservatives won't like that I means tested the program AND raised taxes.  However, I do not know of a better way out of our predicament.  Do you? 

Please try the interactive yourself but really think about what (1) you would do and (2) what could actually be implemented. Two very different things...

Nice Graphic: What happens on the internet in a minute...

 HT: Carpe Diem

Source:MSNBC

""Let's say that it takes you exactly one minute to read through this post. In that time, over 6,600 photos will be uploaded to Flickr, about 70 new domains will be registered, over 1,200 new ads will be created on Craigslist, and more. Here's what happens on the Internet every 60 seconds.


Now keep in mind that the data below and the infographic above come from the Shanghai Web Designers team. We have done our best to confirm that the statistics provided line up with known data, but you should still take everything with a hefty serving of salt.


That disclaimer aside and without further ado, here's what's happening each minute:


•Search engine Google serves more that 694,445 queries


•6,600+ pictures are uploaded to Flickr


•600 videos are uploaded to YouTube, amounting to 25+ hours of content


•695,000 status updates, 79,364 wall posts and 510,040 comments are published on social networking site Facebook


•70 new domains are registered


•168,000,000+ emails are sent


•320 new accounts and 98,000 tweets are generated on social networking site Twitter


•iPhone applications are downloaded more than 13,000 times


•20,000 new posts are published on micro-blogging platform Tumblr


•Popular web browser FireFox is downloaded more than 1,700 times


•Popular blogging platform WordPress is downloaded more than 50 times


•WordPress Plugins are downloaded more than 125 times


•100 accounts are created on professional networking site LinkedIn


•40 new questions are asked on YahooAnswers.com


•100+ questions are asked on Answers.com


•1 new article is published on Associated Content, the world’s largest source of community-created content


•1 new definition is added on UrbanDictionary.com


•1,200+ new ads are created on Craigslist


•370,000+ minutes of voice calls done by Skype users


•13,000+ hours of music streaming is done by personalized Internet radio provider Pandora


•1,600+ reads are made on Scribd, the largest social reading publishing company


Impressive? Scary? Overwhelming? We're not sure. But we do know that a lot happened in the few moments it took to look at this blog post — so you better rush to catch up.