Thursday, August 9, 2012

Food prices increasing? It is that #%*^&^& Ethanol policy! See chart here for the damage. Paging Frederic Bastiat!!

Congress has mandated (not asked, not requested) that the nation produce 13.3 Billion gallons of ethanol to be an additive to fuel.  Big Picture Agriculture estimates it takes 4.7 Billion bushels of corn to produce that much ethanol.
This number of bushels of corn WILL BE taken out of the market for ethanol production, regardless of the total number of bushels of corn harvested.  Read that again.

If the drought reduces the total harvest below expectations, then there will be less corn for the food/feed market. This will put upward pressure on the price  of everything else that requires corn as an input.

A consequence "unseen" to policymakers, but very "seen" to the "good economist" (go HERE for a short explanation. If you were a student of mine, you already know)...

What Percent of this Year’s U.S. Corn Crop Will be Required to Fulfill the Ethanol Mandate?
Source: Big Picture Agriculture
From HERE: 

''I’ve simplified the answer to the question by ignoring RINS credits and ethanol in storage, cutting to the crux of the issue. And of course, final corn crop production numbers are premature.

To do my calculation, I used the following:
  • To produce the 13.2 billion gallons of ethanol mandated this year requires 4.7 billion bushels of corn.
  • U.S. corn yields may average 117.6 bushels an acre this year, according to the results of a survey of 1,900 growers by Farm Futures magazine. This would amount to 9.86 billion bushels.
In 2013 the ethanol mandate will rise to 13.8 billion gallons, an increase of 4.5 percent over this year.

Three over-arching reasons why US students perform below other countries on academic assessment tests. Do you agree or disagree? Does it matter?

Below are three conclusions from Martin West, a professor at the Harvard Graduate School of Education, regarding the 2009 Program for International Student Assessment (PISA) exam that was given to a sample of students around the world. As always, be aware of an authors biases when interpreting data. HERE are the results of the test. (HT: Conversable Economist for this blog subject)

The over-arching themes for each one are interesting to me.  The first two certainly go against much of the conventional wisdom as practiced in the US. Specifically, we place too much emphasis on testing and the tension we have in the Public vs Private (or, in the middle, Charter) debate.  He hurt my feelings with the 3rd one, so I won't address that one---LOL!

What do you think? Is he on or off the mark? 

What are some common factors across the other countries where the education systems seem to be outperforming the U.S. education system? (The question is posed by Tim Taylor)
1. Exit exams. Perhaps the best-documented factor is that students perform at higher levels in countries (and in regions within countries) with externally administered, curriculum-based exams at the completion of secondary schooling that carry significant consequences for students of all ability levels. Although many states in the United States now require students to pass an exam in order to receive a high-school diploma, these tests are typically designed to assess minimum competency in math and reading and are all but irrelevant to students elsewhere in the performance distribution. In contrast, exit exams in many European and Asian countries cover a broader swath of the curriculum, play a central role in determining students’ post secondary options, and carry significant weight in the labor market. As a result, these systems provide strong incentives for student effort and valuable information to parents and other stakeholders about the relative performance of secondary schools. The most rigorous available evidence indicates that math and science achievement is a full grade-level equivalent higher in countries with such an exam system in the relevant subject.

2. Private-school competition. Countries vary widely in the extent to which they make use of the private sector to provide public education. In countries such as Belgium, the Netherlands, and (more recently) Sweden, for example, private schools receive government subsidies for each student enrolled equivalent to the level of funding received by state-run schools. Because private schools in these countries are more heavily regulated than those in the United States, they more closely resemble U.S. charter schools, although they typically have a distinctive religious character. In theory, government funding for private schools can provide families of all income levels with a broader range of options and subject the state-run school system to increased competition from alternative providers. Rigorous studies confirm that students in countries that for historical reasons have a larger share of students in private schools perform at higher levels on international assessments while spending less on primary and secondary education. Such evidence suggests that competition can spur school productivity. In addition, the achievement gap between socioeconomically disadvantaged and advantaged students is reduced in countries in which private schools receive more government funds.

3. High-ability teachers. Much attention has recently been devoted to the fact that several of the highest-performing countries internationally draw their teachers disproportionately from the top third of all students completing college degrees. This contrasts sharply with recruitment patterns in the United States. Given the strong evidence that teacher effectiveness is the most important school-based determinant of student achievement, this factor probably plays a decisive role in the success of the highest-performing countries. Unfortunately, as education economist Dan Goldhaber of the University of Washington has pointed out, the differences in teacher policies across countries that have been documented to date “do not point toward a consensus about the types of policies—or even sets of policies—that might ensure a high-quality teacher workforce.”

Wednesday, August 8, 2012

The psychology of Economics---Consumer confidence is down and it serves as a drag on the economy. Simple, but powerful...

Economics is part social science and part psychology.  What people think "en masse" matters.  Consumer expectations are one of the factors affecting Aggregate Demand.

This short posting below from the WSJ suggests that expectations for the near term are not positive for a good percentage of people.  Consumers tend to hold back spending when they are unsure about their immediate situations. When consumers hold back then businesses cut back---the cycle continues.

More Than 50% of Poll Respondents Expect Economy to Get Worse
Consumer spending in the U.S. continued to decline during July as consumer sentiment about the economy waned and expectations about personal finances were unchanged, according to Discover Financial Services’ U.S. Spending Monitor.
The poll index, which tracks economic confidence and spending intentions of about 8,200 consumers a month, declined 1.4 points to 89.3 points last month.
The poll found 28% of respondents view the U.S. economy as improving, down from 29% in June and 33% in May. Roughly 53% of respondents now rate the U.S. economy as poor, unchanged from June.
However the portion of consumers that expect the economy will get worse rose to more than half for the first time this year–up 4 percentage points at 53%–as sentiment among men worsened. The portion of men who indicated expectations the economy will worsen was up 9 percentage points at 57%, while the amount of women who felt that way was unchanged at 50%.
The number of people who said their personal finances were improving was unchanged at 23% in July from June, but was down from 25% during May. Respondents who see their personal finances getting worse was up 2 percentage points to 49%.
While 28% of respondents planned to spend more next month, the increase was driven mostly by an increase in anticipated spending on nondiscretionary items. About 38% of respondents expect to spend more on household expenses.

Sunday, August 5, 2012

Nice Cartoon: Gucci bag vs Grocery bag---Econ Concepts galore, if you just look for them...

This cartoon (HT: Mike Fladlein) is making a comparison between a Gucci handbag and a bag of groceries. The headline from the newspaper shown in the right panel is "Record Drought".  What is the cartoonist suggesting is the relationship between the drought and the two distinctly different bags?  What economic concepts have you learned about in class can you see in this cartoon?
Source: Mike Fladlein at Mikeroconomics
Also, what can you say about the price elasticity of demand (PED) for each of these "goods"?  Relatively elastic? Inelastic? Unit elastic?

Would it be valid to compare the cross price elasticity of demand (percentage change in Quantity Demand for one of the goods divided by the percentage change in the price of the other good) for these two items to determine if they are substitutes (+) or complements (-)?

These are the things I ponder on a Sunday morning...
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