Saturday, August 27, 2011

Hurricane Economics 101: Quantity Demanded is Greater than Quantity Supplied. If the price is not permitted to rise, the outcome IS predictable...

Quantity Demanded is greater than Quantity Supplied...The price is "too dang low!"...
Source: Drudge Report

Most businesses do not have "back rooms" anymore that hold excess inventory. They place and recieve the orders "just in time" as they sell existing stock.  This efficiently reduces the carrying costs of inventory. It just makes sense for 99.99% of the time businesses are open.

The store suppliers hold as little inventory in warehouses for the same reason. So and so forth down the rest of the supply chain.

As a result, excess capacity in ANY supply chain is very minimal.  In the event of a natural disaster, it is very difficult (impossible?) to ramp up production and deliver goods fast enough to cover an unexpected and immediate increase in demand. 

Given this situation, there are only 3 things that can happen at the point-of-sale pre and post-disaster: Stores can employ the non-price stategy of rationing by limiting quantities people can buy, (2) do nothing-- keep the price the same and sell out quickly (see picture above), (3) allow the price to rise and let the price mechanism serve as the rationing method.

Oh, I forgot one---rely on the good nature of people to not panic and to take only what is necessary.

I will leave it up to you which of the above would be the most effective method for rationing a limited quantity of goods people need in an emergency. I know what economic theory would suggest...

ATTN Musicians: You MIGHT have an illegal instrument and the US Fish and Wildlife Service may be looking for you...

If you are a muscian this article will be of interest to you, especially if you use an instrument that MAY contain content that comes from endangered species of trees or animals (ivory, for example). I have not heard of this before, but Federal officials are apparently very aggressive in pursuing current producers of instruments (story below) containing banned content BUT also if you own a previously made instrument (even if it is an antique) it could be subject to confiscation. 

Guitar Frets: Environmental Enforcement Leaves Musicians in Fear

""Federal agents swooped in on Gibson Guitar Wednesday, raiding factories and offices in Memphis and Nashville, seizing several pallets of wood, electronic files and guitars. The Feds are keeping mum, but in a statement yesterday Gibson's chairman and CEO, Henry Juszkiewicz, defended his company's manufacturing policies, accusing the Justice Department of bullying the company. "The wood the government seized Wednesday is from a Forest Stewardship Council certified supplier," he said, suggesting the Feds are using the aggressive enforcement of overly broad laws to make the company cry uncle....""

Who would you rather see after a natural disaster---A FEMA official or a Walmart Associate?

I have seen many stories on TV this morning about communities preparing for potential disaster on the East coast.  Much of the focus is on how local, State and Federal governments are responding, as it should be at this point.

The story below from NPR is a reminder of how businesses (Walmart, Home Depot) are also busy preparing for post-hurricane scenarios to ensure that basic needs are met and there are minimal shortages of staple goods. Good logistics (HT: Mikeroeconomics) and coordination between the public and private sectors will hopefully create an outcome that limits human suffering and property damage. (HT: Carpe Diem)

Big-Box Stores' Hurricane Prep Starts Early

""Forecasters don't expect Hurricane Irene to make landfall until Saturday. But for nearly a week now, big-box retailers like Walmart and Home Depot have been getting ready.

They've deployed hundreds of trucks carrying everything from plywood to Pop-Tarts to stores in the storm's path. It's all possible because these retailers have turned hurricane preparation into a science — one that government emergency agencies have begun to embrace.""

Wednesday, August 24, 2011

Cartoon: Meeting of the Economics Optimist Club is now in session. Anyone? Anyone? Anyone?

Source: Christian Science Monitor

Timely validation of my lecture yesteday on Lefties teaming with Righties on the issue of Ethanol...Not so much patting myself on the back as affirming I am not crazy... :)

This is the second time in two days I get validation of my rants against ethanol subsidies.  This is one issue that elements on the Left AND Right can come together to lobby against a Federal policy.  They are doing it for different reasons, but the goal is common none-the-less.

A Budget Plan That Treehuggers and Tea Partiers Can Love

""There's not much that Friends of the Earth and The Heartland Institute agree on. Friends of the Earth is among the most liberal of the environmental groups in the US. Heartland thinks that climate change isn't a crisis at all—actually, it might even be a good thing—and is the host of an annual Green Scissors Report, which looks at environmentally problematic government spending.  It's heartening to know that while two groups might not be able to agree on the question of whether or not climate change is real, they can agree that subsidies for corn ethanol are dumb.""

Ethanol is not the only subsidy they are teaming up to lobby against. Here is a list:

$4 billion in "royalty relief" for oil and gas drilling
$6.7 billion in a manufacturing tax break for domestic oil and gas companies
$22 billion for nuclear and uranium enrichment loan guarantees
$56 billion in tax credits and market support for ethanol
$1.3 billion in support for the FutureGen "clean coal" project
$18 billion in subsidies for commodity crops like corn, wheat and soybeans
$30 billion for crop insurance
$2.2 billion in tax breaks for timber companies
$20.8 billion in funds for road and bridge projects that they deem unnecessary
$5.6 billion in Army Corps of Engineers projects that "serve little to no national interest."

Tuesday, August 23, 2011

Graphic showing the world largest employers...I think you will be as surprised by the names on this list as I was...

Walmart by far is the world's largest employer with a little over 2 million employees.  Look at the names and country of origin for the rest of the top countries...Are you as surprised as I was?

Source: The Economist
Note: TESCO is a British Grocery chain...

The cost of the Ethanol Mandate is not chicken feed....The Federal Government is bailing out chicken producers because the price of chicken feed is increasing---because of the Federal Ethanol Mandate. Does anyone else think this is kind of crazy???

How timely. Today in class I used the ethanol mandate as a way to illustrate Frederic Bastiat's "Seen and the Unseen" and the damaging effects of a policy gone awry, but not gone away.  While the article below is not about ethanol, there is a connection. See if you can find it...

""The United States is stepping in to help bail out another American industry -- chicken farmers and meat processors.

The nation's chicken industry is having a difficult year. Chicken producers are struggling with higher costs of running their business at the same time that consumers are buying less meat.
This has created a glut of chicken products in the market.

The Department of Agriculture, keenly aware of these issues, announced Monday that it will make a special purchase of up to $40 million of chicken products, which the government will then donate to federal food assistance programs such as soup kitchens and its national Feeding America programs.

"At a time when the industry is under great stress due to the high cost of feed ingredients and the general economic slowdown, we appreciate USDA's willingness to step forward," the group said in a statement...."

Keeping in mind the focus of my lecture today I have to ask: WHY is chicken feed increasing in price? Anyone? Anyone? Anyone?

Sunday, August 21, 2011

Here are 5 Money Tips for College Freshman---so simple, yet so difficult to achieve--BUT TRY!!

Five Money Tips for Every College Freshman (Wall Street Journal)

Freshman year of college can mean countless adjustments -- from sharing a room to hours of free time between classes. It's also some young adults' first taste of relative financial independence.

With that in mind, we've asked financial advisers to give freshmen five money rules to remember:

1. Live like a student.

Not like a rock star. Before heading off to school, create a budget for the semester using a free online personal-finance site such as or start tracking your cash flow using software such as Quicken, says Jeremy Portnoff, a certified financial planner at Portnoff Financial in Westfield, N.J.

 Mr. Portnoff says setting a budget for both big-ticket items such as books and incidentals such as Friday night pizza will help ensure that you don't run out of money by Thanksgiving. Also, consider switching to a bank with an ATM on or near campus to avoid unnecessary fees, he says.

Mark Kantrowitz, publisher of financial-aid site, says your total debt at graduation should be less than your expected starting salary. "If you borrow more, you may still be repaying student loans when your children enroll in college," he says.

2. Show your ID.

You can get discounts with your school ID on everything from Broadway tickets to off-campus restaurants. If you don't already own a computer, you might find a cheaper deal by checking the discounts your school offers, says Matt Dobbie, a MassMutual financial adviser in Camp Hill, Pa.

You also can save with the $20 Student Advantage card, which provides 20% off standard Greyhound fares, 15% off Amtrak and discounts at online retailers such as and Taking advantage of student discounts with friends can help avoid some of the peer pressure to spend above your means, says Mr. Dobbie.

3. Get a job.

The tab for spring break and dinners out with friends can add up quickly. Getting a job can help fill in a budgeting shortfall or, ideally, reduce how much you need to borrow, says June Walbert, a San Antonio-based certified financial planner at USAA, a financial-services company for people with military ties.

Look for work on-campus or at local restaurants or clothing stores. Even baby-sitting, house sitting or starting up a business -- provided it doesn't become all consuming -- shouldn't be ruled out.

4. Protect yourself.

Even with no or little assets, identity theft can be an expensive and nasty headache. "Guard your Social Security number with your life," says Steve Curley, an Orlando-based certified financial planner at Water Oak Advisors. Be especially wary of signing up for multiple "free" credit cards since infrequent use can increase the likelihood of identity theft going undetected. Shred old credit-card statements and bills, avoid using shared campus computers to conduct online banking, and take caution when using mobile devices to access bank records, Mr. Curley says. Also, get in the habit of checking your monthly bank and credit card statements for suspicious activity and reviewing your credit report annually. You can get a free report each year at

5. Start saving.

It's never too soon to start saving, says Bruce Barton, a San Jose, Calif.-based certified financial planner at Parkworth Wealth Management. "Even saving a modest amount like $25 a month helps you learn good saving and investing habits," he says. Mr. Barton recommends students open a Roth individual retirement account with extra cash from their summer job, tax refund or birthday money they may receive from family.

And when he gives financial-literacy workshops to clients' college-bound children, Mr. Barton is sure to point out the "magic of compounding," which shows students how saving a seemingly small amount today can add up years down the road.
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