Saturday, February 25, 2012

Abbott and Costello explain how we calculate the unemployment rate...

The following is from the blog of Greg Mankiw. The humor that is calculating the unemployment rate in the US.

Abbott and Costello explain unemployment

Thanks to U Chicago's Allen Sanderson for sending this along:

COSTELLO: I want to talk about the unemployment rate in America.

ABBOTT: Good "subject". Terrible "times". It's about 9%.

COSTELLO: That many people are out of work?

ABBOTT: No, that's 16%.

COSTELLO: You just said 9%.

ABBOTT: 9% Unemployed.

COSTELLO: Right 9% out of work.

ABBOTT: No, that's 16%.

COSTELLO: Okay, so it's 16% unemployed.

ABBOTT: No, that's 9%...

COSTELLO: WAIT A MINUTE. Is it 9% or 16%?

ABBOTT: 9% are unemployed. 16% are out of work.

COSTELLO: If you are out of work you are unemployed.

ABBOTT: No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.

COSTELLO: But ... they are out of work!

ABBOTT: No, you miss my point.

COSTELLO: What point?

ABBOTT: Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.


ABBOTT: The unemployed.

COSTELLO: But they are ALL out of work.

ABBOTT: No, the unemployed are actively looking for work...Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.

COSTELLO: So if you're off the unemployment roles, that would count as less unemployment?

ABBOTT: Unemployment would go down. Absolutely!

COSTELLO: The unemployment just goes down because you don't look for work?

ABBOTT: Absolutely it goes down. That's how you get to 9%. Otherwise it would be 16%. You don't want to read about 16% unemployment do ya?

COSTELLO: That would be frightening.

ABBOTT: Absolutely.

COSTELLO: Wait, I got a question for you. That means they're two ways to bring down the unemployment number?

ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?

ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?

ABBOTT: Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.

ABBOTT: Now you're thinking like an economist.

COSTELLO: I don't even know what the hell I just said!

A couple of sobering charts showing the change in world oil consumption since 1980. Not a "barrel" of laughs...

A couple of sobering charts showing the change in world oil consumption since 1980. 

The rise of Asia accounts for much of the overall net increase in consumption.  The total consumption (demand) of oil worldwide has increased approx 37% (85 minus 62 divided by 62) in 30 years.

Source: EIA

Source: EIA

Nice graph showing gas prices from 1918 (yes, that's right) in nominal terms and adjusted for inflation. Quite interesting!!

Here are 2 measures of gasoline prices dating from 1918. The black line is in nominal prices--just the price of a gallon of gas in a given years price (not adjusted for inflation).

The red line is adjusted for inflation over time.  It is measured in 2011 prices. The year 1981 is noted on the graph. The nominal price in that year was $1.35/gal. In 2011 dollars that would be equivalent to $3.31/gal.  In other words, what cost you $1.35 in 1981 would have cost you $3.31 in 2011. 
Source: Inflationdata

Sunday, February 19, 2012

Law just passed by Congress taxes at 100% Unemployment Benefits collected by people with incomes over $750,000 ($1.5M for a couple). Read that again. Yes, millionaires collecting unemployment benefits IS a problem! See the data here...

The following two graphics (source HERE) show the amount of Unemployment compensation collected by millionaires from 2005 to 2009.  Really? I mean REALLY?  I would love to know who those 18 with OVER $10 million in income for ONE YEAR are.  Gee Whiz...

Source: Senator Tom Coburn

Nice graph showing on a historical basis where tax dollars from all levels of government tend to flow. Guess first, then look at the graph...

This graph from the NYTIMES shows, on a per person basis, where tax dollars at all levels of government have flowed since 1960.  Government is pretty much in the Public Transfer Payment business today.   Everything else is just commentary.   

Nice chart showing the effective tax rates of the Top 400 Taxpayers and a very brief explanation of how this came to be...

From this chart, you can see the 400 taxpayers in the US (data from 2008) earn most of their income in what are called "Capital Gains" (56.8% --center chart) and a bulk of them pay an effective tax rate of between 10% and 20% (left chart).  Below the chart I give a brief (albeit not comprehensive)  explanation on how this works.

A Capital Gain (or loss--I am going to focus on Gain) is the difference between the buying price of a qualified investment (i.e. a stock) and the selling price. Really as simple as that.  Here is the important point: The time span between the buying and selling is going to determine how much tax you pay on that gain.

If you buy it and sell it within the same year (365 days) you have to included it as regular income and the gain is taxed at the marginal tax rate (assume you are one of 400 above) of 35%.

If you sell it anytime after one year (365 days) the Capital Gain in not considered regular income and is taxed at 15%. What a difference a day makes!

Over time, as the richest 400 (and ones above that threshold) moved from being income earners to financial and physical asset holders their overall effective tax rate decreased as well. Look at the list of them HERE. You can see that many/most of them were prime earners/entrepreneurs in the 80's and 90's and built very valuable physical and financial assets. Mostly financial assets, though, in terms of the value of the stock in the companies they created.
Not saying I agree or disagree---it is just the way it has panned out...What do you think???
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