Friday, May 30, 2014

Why we can't have nice things---"Disaster Assistance to New England fisherman edition"

Why we can't have nice things---"Disaster Assistance Edition".

Below are two articles on the same topic---Federal disaster assistance for fisherman in New England.  

What is/was the "disaster"?   Federal regulations restricting the catch of certain types of fish due to, well, over fishing.  Yup, that's it. 

What gets me is the disaster aid morphs into something more, or maybe the right word is less---notice in SOME of the compensation goes to the fisherman, but most (a majority) goes to other entities for other things that don't directly aid the fisherman in need.

Cash starts to drift into less disaster affected related areas. 

NH fishing industry receives $2M in federal fundsHalf of the aid will go to groundfishermen

Kendall said according to the formula, those who qualify may receive about $32,800 each from the disaster relief fund. At this point, it’s still unclear how many will qualify, although Kendall expects everyone may. 
At the meeting on Tuesday, the industry will learn how the remainder of the money will be spent. The agreement outlines how the disaster relief funds will be distributed to support New Hampshire’s fishing industry. The money will come down from the federal agency and go to New Hampshire Fish and Game for distribution, Kendall said. 
Some of the remaining million dollars could go to help with (commercial fishing) infrastructure, like the Cooperative,” Kendall said. “And some may go to recreational charter fishing boat captains, who are also affected. We should find that out on Tuesday.

RI fishermen to receive nearly $2 million in disaster aid

Under the plan, one-third will provide direct assistance to fishermen, one-third will go toward states to support their commercial fishing industry and the final third will be held by the National Marine Fisheries Service for a possible program to pay fishermen to leave the industry.
“This is an important step to get money directly to fishermen and provide Rhode Island and other states with additional resources to respond to the unique needs of their fishing communities,” U.S. Sen. Jack Reed, D-RI, said in a statement.
This last paragraph REALLY bugs me.  Everything after "This is an important step to get money directly to the fisherman..." needs to go away.  This is Cronyism , pork, whatever you want to call it.

Federal Disaster Aid to fix the broken window is fine with me.  But not if all the window needs is a cleaning.

I found a Microeconomics Unicorn! See the chart here.

A rare treat for an economics teacher.  A chart that quantifies (not completely but enough) the difference between "Economic Costs" which include opportunity costs (implicit costs) as well as money costs (explicit costs), and "Accounting Costs" which include ONLY money costs. 

Source: USDA ERS

Costs of production for U.S. milk decline as the size of the dairy operation (measured by the number of cows) increases.  Based on 2013 data, average total economic costs of milk production—a measure that includes the opportunity costs of land, labor, and other owned resources—fell by nearly 60 percent, from an average of about $50 per hundredweight (cwt) for producers with fewer than 50 cows to about $20 per cwt for those with 1,000 cows or more. Average costs are lower on larger farms because fixed cost items, such as management, land, and other resource costs, are spread across a larger number of cows, and because average output per cow increases along with farm size. Mean output per cow was just over 15,000 pounds among operations with less than 50 cows, while operations with 1,000 or more head averaged more than 23,000 pounds per cow. Higher milk yields on larger farms stem from factors such as better breeding, nutrition, and health management, as well as the ability to access competitively priced supplies of high quality feed inputs.  This chart is based on data found in Milk Cost of Production Estimates.

This is a key concept in AP Microeconomics that is somewhat difficult to convey to high school aged students.

The vertical difference between the RED and BLUE lines represents the Opportunity Costs to the producer for staying in business.

The price or Marginal Revenue (MR) or Average Revenue (AR), a producer receives must at least equal the RED line for her to "Break Even".  

However, she could still make an Accounting Profit at that price.  Is she?

According to the USDA ERS (HERE) the average price for "all classes of milk" was $20.05 per CWT) in 2013.  Now look back at the graph and draw a straight line across the $20.00 mark denoted on the vertical axis.  Compare that to the RED and BLUE lines.

At that price ONLY the large producers (1000 or more milk cows) are Breaking Even in "Economic" terms BUT making profit in "Accounting" terms.

Notice at about 300 cows the average costs start to drop at a relatively steep rate and production increases quickly.  I assume that is the inflection point where economies of scale really kick in.

Hope this helps with teaching and/or learning about this important concept when the topic of a firm that operates in a "Perfectly Competitive" market.

Thursday, May 29, 2014

Chart showing why AT THE MINIMUM you should go to (and finish) a Community College.

The Upshot at the NY Times has a terrific analysis (and the bar chart below) of how important the Community College systems is in the US.  Personally, I don't think it gets enough attention and should be much more high profile.  It needs to be a integral part of preparing the workforce for the present and future.

Note how close the unemployment rate is to those with a bachelors degree.  A "2-year degree, occupational" trains you to do a specific job.  This statistic should be one that schools, teachers and counselors shout from the rooftops!!

I went to a C.C. to get, quite frankly, some confidence that I could do college.  I was not a good student in high school.  I went into the Marine Corps for 4 years.  After I got out I knew I wanted to go to college but thought for a variety of reasons I could not cut it.  We can get caught up in our insecurities to our detriment.

Turns out to succeed in college all you need is some self-discipline, perseverance, a willingness to ask questions and a desire to find the answers.  Who would have thunk'?

Anyway, props to the C.C. system and I hope you get the attention you deserve.

Source: The Upshot at NYTIMES

Wednesday, May 28, 2014

Here is some great info on the high Australian Minimum Wage. This is not to change minds but to add to your knowledge base. Both sides will find some supporting evidence.

When we compare minimum wages across borders it can get dicey because we have to interject currency exchange rates. We can use actual market exchanges rates or we can use the Purchasing Power Parity (PPP) exchange rate.  Depending on the currency you are comparing those two rates can be vastly different.

This is the case with the US dollar relative the Australian dollar.

The actual exchange rate (05/28/2014) is $1.00US = $1.0849A or $1.00A = $.92168US (these numbers are reciprocals of each other).

The current Australian minimum wage is $16.37 Australian Dollars (with some important caveats. See below).  If we convert that to dollars it would be $15.08 US dollars ($16.37A times $.92168US).  NICE!

However, if we use PPP the exchange rate (for 2013 the latest I could find at OECD) would be $1.00US= $1.4728A or $1.00A = $.6789US.

Now, the Australian minimum wage of $16.37A would be $11.12 US.  Still better than our $7.25 in the US, BUT not as high as $15.08 using current market exchange rates.

PPP theory suggests that the Australian dollar is OVERVALUED in the market place by as much as 35%. Looking at current data from  the OECD, it is more like 42% or so.

I do all this beforehand so I can introduce this chart I found. It is from MyWage Australia.

I modified it a bit to add some info (in black boxes).

In Australia there are some significant exceptions/exemptions from the minimum wage that are RARELY, if at all, discussed along with the issue.  I was not aware of them either!

For the different age groups I calculated what the minimum wage was in current market exchange rates and in Purchasing Power Parity.

According to PPP, if you are under 16, 16 or 17 the minimum wage in Australia is significantly lower than in the US.  Only after reaching 18 does it improve above the US minimum.

I did not calculate the rates for Apprenticeships, but if you take the number you see there and multiply by $.6789 US you will get the PPP in US dollars.

MyWage site from Australia
I hope this gives you more perspective and depth to your knowledge base on this issue.

The next time someone throws out the high US dollar figure when discussing the Australian min wage, you can legitimately ask:  "Is that in market exchange rates or at PPP?".  Watch the look you get... :)

Tuesday, May 27, 2014

Nice cost data for a broad array of agricultural commodities. For use in teaching Perfect Competition.

Given my limited editing skills in Excel, I condensed some cost data on various agricultural commodities. All costs are projected costs for the 2014 planting season.

All this and MORE can be found at the terrific US Dept of Agriculture Economic Research center.

It is conveniently organized by cost category:  Variable Costs and Fixed Costs.

What is even more EXTRAORDINARY and helpful when teaching the cost structure of a firm is the fixed costs includes "implicit costs", or Opportunity Costs.

The implicit costs are (1) unpaid labor---the farmers opportunity cost of farming and not doing something else. (2) Capital Recovery (depreciation AND "the rental rate of Capital").  (3) Land---the opportunity cost of using the land for farming the particular commodity as opposed to using it for something else.

Students can quantify and graph the respective cost curves (AVC, AFC, ATC, MC), then find the current market price for a commodity and observe if the "firm/farmer" is making economic profit, loss or "normal profits".  These are all important terms in AP Microeconomics.

Hope this helps in your teaching/learning.
These are the COSTS PER ACRE PLANTED for each commodity.

Nice graphic showing "what is" in terms of electricity generation as opposed to "what should be".

Just a reminder of "what is" in terms of electricity generation in the US (a positive statement), as opposed to "what should be" (a normative statement).  The graphic is from The Wall Street Journal.

"What is" is electricity from fossil fuels totaling 67%, nuclear 19% and all other classes of renewables 13%.

Efficient and effective policies to minimize the first and maximize the third are certainly welcome and needed.

Electricity produced from coal looms large and short of a miraculous technological advancement it will continue to be the dominant source for our immense electricity needs.

It is what keeps the lights on....

Source: The Wall Street Journal

Nice graph(s) putting Student Debt levels since 2005 in perspective

From the St Louis Federal Reserve ("The Share of Borrowers with High Student Loan Balances is Rising")

The top graph shows the ratio of outstanding student debt in a particular year to the debt level in 2005. For example, take the time period of between 2011 and 2012 (I inserted an RED vertical line).

Total Student Debt (top green line) was 2 times what it was in 2005.

The number of debtors is about 1.58 times more than in 2005.

The average balances held by debtors was about 1.3 times as much as those in 2005.

The bottom bar chart shows, in percent form, the change in debt levels from students in 2005 and 2012.

In 2005 about 56% of student loan balances were $10,000 or less (darker bar). In 2012--40% (lighter bar)---PROGRESS, right!! Not so fast.

The difference essentially moved to the higher average debt levels.  Notice the light bars get significantly higher than the dark bars as average debt levels increase, showing a larger (1) nominal change and more importantly (2) a significant percentage change from one time period to another.

For instance, the change in average balances in the $25K-$50K went from 11% to 18% (eye-balling).  That is a 7% percentage point increase, but NOT a 7% increase in average loan balance. The percentage increase would be (18% - 11% = 7% and 7%/11% X 100) +64%.

If you are already in college you are well aware of this.

If you are thinking of going to college you should be aware of this.

If you are a teacher of High School students you should be aware of this AND make your students aware of it also.

Hope this helps.

Monday, May 26, 2014

Increasing Opportunity Costs and the Farm Bill. Come visit my "Farm" to see what it is about.

Here is a very basic presentation to illustrate the concept of "Increasing Opportunity Costs".  This can be a difficult concept for the average high school student to intuitively understand (at least from my experience it is).

What prompted me to create this was an article I read recently (and cannot find now) about an "unintended consequence" of a Farm Bill provision regarding the subsidies paid to corn growers.

The subsidy was paid on a "per acre planted" basis with no regard as to HOW MUCH corn was harvested on that acre.

The article quoted a farmer as saying this policy encouraged the planting of corn on land "not necessarily suitable" for the growing of corn.  It took multiple acres planted to yield the same amount of corn from land that was more suitable for growing corn.

So, land that might have been more suitable (and efficient) for growing something else (potatoes? rice? grazing?) was put into use for growing corn instead.

Economists would say this policy leads to a less than optimal and inefficient allocation of societal resources.

Politicians would say this policy leads to an optimal allocation of special interest satisfaction.

Guess which of the two is in charge of things.

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