## Saturday, May 12, 2018

### Quick Personal Finance Lesson: What these 4 things are costing you each week/month.

I like the focus of this blog post here: Beware the Four Horseman of Personal Finance.

It cites 4 basic things to AVOID in order to vastly improve your personal financial situation: Cigarettes, Alcohol, the Lottery, and Dining Out.

Using average weekly spending on these items, I will show you how much these things cost you in time relative to some an hourly wage.

Depending on individual purchasing behaviors, the following numbers could be just right, too high or too low. You can adjust the numbers for your or your families situation.

1.  Cigarettes: Average price is \$5.45. If you smoke a 4 packs a week it will cost you \$21.80

2. Alcohol: A 24-pack of beer costs approximately \$15.23. Assume only one per week.

3. Lottery: It is difficult to find accurate averages, so I am going to use \$25 per week as a relatively low estimate (remember, these are averages).

4.  Dining Out: \$50 per week. This number might be too low but I am going to use it to represent the difference between the cost to you of a meal out as opposed to one you would make at home.  Of all the things listed above, eating food is a requirement!

So, our total for the 4 categories is \$112.03 per week.  If we divide this number by an hourly wage you can calculate how many hours you have to work in order to earn enough money to buy all these items each week.

If you earn the minimum wage of \$7.25 per hour you would have to work 15 1/2 hours (nearly 2 days!) to make enough to purchase this items.

\$9.00 per hour = 12 1/2 hours (a day and a half)

\$10.00 per hour = 11 1/4 hours

\$15 per hour = 7 1/2 hours (almost one day).

Keep in mind the wage is NOT taking into account a subtraction for taxes or other deductions, so effectively the hourly wage would be lower and the hours worked would be HIGHER.

If we were to extrapolate the spending out to a months worth (4.3 weeks in the average month), the \$112 per week would be \$481.60.  One year: \$5,779.

\$481.60 PER MONTH in spending the YOU CAN CONTROL.

Mic Drop!

## Monday, April 2, 2018

### Tariffs and Marginal Analysis--what economists care about.

A big issue this week is the Trump administrations levying of tariffs on imported steel and aluminum.  Just yesterday China announced that it would levy counter-tariffs on a whole host of US goods it imports.  Blah! A potential trade war coming down the road?
I am not sure, but I wanted to show you all how economists, for the most part, view policy changes like this. This applies not only to tariffs but to all other policies, from taxes, regulations to the minimum wage.  I see two aspects:
(1) The "Big Picture" is what economist call "Thinking at the Margins" (you learned this in Chapter 1). They are not so concerned about how the stronger participants in a market behave in reaction to changes in policy, but how it affects the smaller, less obvious participants.
The "marginal players", if you will.  Perhaps unseen, but not unaffected.  This is where the action lies for economists. It has the potential for making the most impact on buyers and sellers, therefore employment and production.
(2) Relative Elasticity (learned in an earlier lesson!). Elasticity is an underappreciated concept and is rarely discussed as a larger part of any policy debate. It underlies any/all decisions made by producers and/or consumers. When government imposes a policy that changes prices it will affect participants buying and selling behavior---some more than others but affect it indeed.
I quickly put together a couple of slides to give you a visual.  Going forward, always try to think "at the margins"  and relative elasticity as to how policy (any policy, not just tariffs) affects people. I think it puts issues more in focus and helps to narrow the debate.

## Wednesday, January 31, 2018

### I updated my 2007 in-class Stock Market Activity. I did pretty well in the over the last 10 years.

I recently found the companies I used for a stock market activity for class in 2007 and updated the value with current prices. The number of shares I purchased is in the second column.

I fictitiously invested \$25,000 in each of these companies. You can see the results below.

Inflation was roughly 18% over that time span, so my overall rate of return is pretty darn good!

Wish I had the money at the time!  :)

## Thursday, January 18, 2018

### When is the value of an export not the value of the export?

Here is a graphic I found on Twitter (lost the source).  It is a vivid example of how the trade numbers are a bit of an illusion.

The graphic on the right is the one I am interested in. It shows the dollar cost to produce an iPhone to be \$600.00. This is the total value as it leaves its final assembly point in China.

When it is shipped from China to the US, China is credited with \$600 in exports and the US is debited \$600 for importing the phone.  It appears the US has a trade deficit with China at this point---which is the case with the conventional way export and imports are accounted for.  The final producer gets the spoils of being the full value exporter of the good. However....(see you below the graphic)

 Source HERE

The graphic on the right tells a more complicated story.  The inputs that go into making the output (finished i-phone) come from a vast network of the supply chain. The pie chart shows China adds only \$6.50 of the \$600 total cost of the i-phone (caveat: there could be other Chinese suppliers that supply inputs in some of the other categories in the pie chart).

\$6.50!  But they get credit for a \$600 export and we get dinged for the same amount as an import.

Keep in mind what is good for the goose is good for the gander---the same logic applies to goods we make in the US with imported inputs (intermediate goods).

Bottom line: We have to be careful when we hear reported in the media about the "trade deficit" we have with China (or Mexico or...).  The number is not what it appears to be.

## Wednesday, January 3, 2018

### Another reminder of the importance of the supply chain for a good.

Here is a graphic from a French publication that nicely illustrates the importance of the regional and global supply chain for inputs that go into making an output, in this case the Honda Civic assembled in the UK/EU region.

These supply chains are very tight and help contribute to efficiencies that keep prices low(er).

It is also a nice lesson in Comparative Advantage.

 Source HERE

## Wednesday, December 20, 2017

### "The Sisterhood of the Traveling Pants" is not just a movie title---it is a story of International Trade. Those pants REALLY DO travel

Saw this graphic on Twitter HERE. It nicely illustrates the complexity of international trade. Trade is the sum of the supply chain that is necessary for the production of any good, from the simple to the complex. Regardless of the complexity of the good being produced, the supply chain is itself an eco-system that must be nurtured and respected.

Also, it serves as a reminder to me as to how deceptive trade numbers can be---not intentionally, mind you. However, they way exports and imports, hence the trade balance, are calculated and accounted for does not present the whole story.  Trade is a story of the travels of inputs that go into the making of outputs---the final good that will be purchased by the end-user.

Example: If we ship \$80 in inputs to Mexico (not counted as US Exports!). Those inputs are assembled with \$20 in Mexican labor (now value is \$100) and exported to the US, then Mex is credited with \$100 in exports and the US with \$100 in imports. See the distortion?

 Source: HERE

### Do we buy stuff from Countries OR do we buy stuff from people? Here is a different look at US trade numbers.

Trade numbers are published on a national level---comparing country to country. No problem with that, but here is another way to frame the numbers.

We trade with the actual, real live citizens of the respective country. They buy our stuff and we buy theirs.

So, how do the national trade numbers look when we quantify them on a per person basis?

Below is a graphic I created to show the US trade balance with the Top 10 (plus the EU Area) trade partners as a balance nationally (yellow) and on a per person (capita) basis.

I took the value of US exports to the respective country and divided it by the population of that country. This gives the dollar value of US goods on per person basis the person bought. I then took the value of imports from a country and divided it by the US population. This gives the dollar value of the foreign goods US citizens bought. The difference between the two numbers gives a per person SURPLUS of DEFICIT in trade between the countries.

Notice nationally the US has trade DEFICITS with all trading partners, except the UK.  But if we look at it on a per person basis, we have trade deficits with only 3 countries (the EU as a whole, China, and India).

In other words, for the most part, in trade the US citizens buy less from foreigners than they buy from us---we run person to person trade SURPLUSES.  Only with the relatively poor countries of China and India do we buy more from them then they buy from us.

## Wednesday, November 22, 2017

### Thanksgiving Day meal adjusted for historical minimum and average wage. Are we better off?

The American Farm Bureau does an annual pricing of a Thanksgiving Day meal to illustrate the changes in prices over time. They use the following methodology:
""A total of 141 volunteer shoppers checked prices at grocery stores in 39 states for this year’s survey. Farm Bureau volunteer shoppers are asked to look for the best possible prices, without taking advantage of special promotional coupons or purchase deals, such as spending \$50 and receiving a free turkey"" (American Farm Bureau)
Here is the graphic they post to show the nominal price of the meal and the inflation adjusted "real" price of the meal.  As you can see, the nominal price (current dollars spent) rises consistently while the "real" price (inflation adjusted) has been relatively flat for the given time span (1986-2017).

People buy stuff with the money they earn from wages--hourly wages, for the most part. While the Farm Bureau measures this market basket of food using current and adjusted prices, I would like to quickly show how the value of two measures of wages have retained their purchasing power over time: The minimum wage and the "average hourly salary of non-supervisory and production workers", which gives an idea of how much the typical worker earned per hour.

In 1986 (November) the average hourly pay for non-supervisory and production workers (source) was \$9.00 per hour and the cost of the meal in nominal 1986 dollars was \$28.74 (source).

So in 1986, it took a worker earning this wage 3 hours and 11 minutes (\$28.74/\$9.00 then converted the remainder to minutes) to make enough to pay for the meal.

In 2017. the hourly wage for the same category of worker was \$22.22 (for October, the latest info available) and meal cost \$49.12. It took this worker 2 hours and 13 minutes (\$49.12/\$22.22) to make enough for the meal, or one hour LESS in labor.

Now lets look at the other end of the labor/earnings market---minimum wage workers.

In 1986 the minimum wage was \$3.35 (source) and the meal cost \$22.74. It took this worker 6 hours and 47 minutes (\$22.74/\$3.35) to earn enough for the meal.

In 2017 the minimum wage is \$7.25 and the meal cost \$49.12.  It took this worker 6 hours and 46 minutes (\$49.12/\$7.25) to earn enough for the meal---virtually the SAME 30 years apart!

Bottom line. Using this VERY rough measure of purchasing power of a specific wage, the "average hourly earning" worker today is much better off, by 1/3, than his/her counterpart 30 years ago and the minimum wage worker has stayed the same with their counterpart.

## Wednesday, August 30, 2017

### Continuum of Economic Systems

Labeling and characterizing particular countries economic systems based on how they are organized to allocate societies scarce resources can be a tricky proposition.  People tend to insert their own biases in assessing the label.

Here is a simple presentation of the "facts".  We can debate/argue the specifics of where a particular country falls on the continuum (I inserted select countries on where I think they fall), but the over-arching considerations should be what I outlined in the textbook:

1.  The level of government ownership/control of societal resources.
2.  The level of regulation and taxation over economic activity within the country.

These are broad, for certain, but I believe serve as a jumping off point for discussion.

For instance, take the US.

The Private Sector holds a vast majority of overall societal resources, but not all.  National Parks are one significant "land" resource that I can think of that the Federal Government owns outright.  Is this "socialism" in the context of all societal resources combined?  I think not so that is why I put it closer to Free Market than Socialism. Does the US regulate/tax economic activity?  Yes, to some degree so we cannot give it the full label "Free Market". With this one you have to consider "relative to what/who?"

In this case I choose the UK. In the UK the healthcare system is owned/operated by the government and they have a higher level of taxation compared to the US (this is a generalized statement on my part).

After understanding where you fall on this line, the debate becomes which way is "best" for your country to move---towards Free Markets to the left or Socialism/Communism to the right.  This is political tension that is derived from the economics.

## Saturday, August 26, 2017

### Dwayne "The Rock " Johnson understands TANSTAAFL. Video proof!

This from his Facebook page.  He is acknowledging a young mans heroics (rightly so!) but at the end of this video (about the 50 second mark) he makes a remark that stunned me.

A pretty solid reference to a basic economic concept we learn the fist day in economics! While he does not identify it directly, "TANSTAAFL", the intent is clear.

Made me smile.  Only a minute long. Worth it!

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