Noticed the price of tires increasing lately? Wonder why? Prepare to burn some mental rubber after you read this...

Tariffs are taxes too!  It is probably THE most regressive tax as well (disproportionately hurt lower income people).  Because they are embedded in the price of a good we don't see them.

 Tariffs are generally imposed to keep the price of a good higher than it normally would be in order to "protect" a domestic producer from lower priced foreign goods. But what if there is no, or very little, domestic production of the good in the first place? Why tax something that is purchased by a wide majority of lower income people to benefit a relatively small number of producers? 

In 2009 a hefty 35% tariff was levied on low-priced tires imported from China, at the request of the US Steel Workers Union. At that time I blogged the possible effects this would have on the industry and consumers (HERE).  Looky here at what has happened to imports of tires from various location.

Source : Wall Street Journal

Since the imposition of the tariff, imports of tires from China have decreased significantly (SUCCESS!!), but other countries not subject to the tariff have picked up the slack (OPPS!).  Net effect: No change in imports BUT higher prices.  Nice---Predictable--Econ 101.  From the excerpts below you will see the tariff has had the effect of raising the price of tires and no appreciable effect on domestic production, hence jobs.

As I have noted with low-priced shoes, tariffs imposed on goods that have little domestic production and support relatively few jobs, are bad for the poor.  Want to help the poor? Review and repeal unnecessary tariffs. 

Get-Tough Policy on Chinese Tires Falls Flat

"The tariffs didn't have any material impact on our North American business," says Keith Price, a spokesman for Goodyear Tire & Rubber Co., echoing a sentiment expressed by some other manufacturers. "The stuff coming in from China is primarily low end. We got out of that market years go."

After the tariff was enacted in 2009—35% in the first year—imports from China did in fact drop sharply. But that business quickly shifted to Thailand, Indonesia, Mexico and elsewhere. Tire imports to the U.S. from these countries rocketed, proving once again that the world has become one big fungible production platform: If it doesn't get built in China and it's too expensive to make in the U.S., it will get made in a cheap locale somewhere else. 

"So far as saving American jobs, it just isn't working," says Roy Littlefield of the Tire Industry Association, which has 6,000 members. "And it really hurt a lot of people in the industry—smaller businesses that geared up to bring these tires in from China."

"This is a China tire, it costs me $69 today," says the owner of Cybert Tire & Car Care in New York City. "Before it cost $39." A big part of that increase: The fat tariff the U.S. has placed on Chinese tires.

"It all gets passed to the customer," says Mr. Everett.

Mr. Everett, the tire shop owner, says prices jumped not just for China-made tires but for tires made in the U.S., too. Wholesalers, he said, used the cover of the tariff to raise prices across the board. Bob Ulrich, editor of Modern Tire Dealer, a trade publication, says prices are up 29% in the replacement market since 2009...

Great Cartoon: Hostess HAS to be the WORST Corporation ever if they can't stay in business selling junk food to Americans...

Source: The Big Picture

Nice Info-Graphic showing key Economic and Demographic characteristics between the US and China...Important stuff!!!

Click HERE to go to the site to view this info-graphic in better detail.  Nice summary of key economic and demographic details between the US and China.  HT: David Mayer

Source: The Mint via David Mayer

Healthcare costs have been the enemy of the "Middle Class" for the last decade. Nice explanation and chart here...

A workers income comes in two forms: Wage and Non-Wage compensation. "Wage compensation" is what you are paid per hour or in salary (before any deductions). "Non-wage compensation" is what your employer might pay on your behalf in addition to what they pay you, such their half of the Social Security and Medicare tax, unemployment tax, retirment plans, etc.

Healthcare premiums/costs is another one and one that is rising much more than any other cost of employing a worker.  The employer share of your healthcare costs ARE a cost of employing you.  The more they have to pay for healthcare coverage (Non-Wage compensation) , the less available to pay you (Wage compensation). 

While income for the median wage earner has risen very modestly, it COULD have risen more if in the last decade healthcare costs had risen at only the rate of everything else in the Consumer Price Index. 

A significant source of Middle Class income stagnation, would you say? Healthcare costs are the (or one of) enemy of the middle class. Seems quite clear to me...The following is from economist Tim Taylor...

'''To paint an accurate picture of how health care cost growth is affecting the finances of a typical American family, RAND Health researchers combined data from multiple sources to depict the effects of rising health care costs on a median income married couple with two children covered by employer-sponsored insurance. The analysis compared the family’s health care cost burden in 1999 with that incurred in 2009. The take-away message: Although family income grew throughout the decade, the financial benefits that the family might have realized were largely consumed by health care cost growth, leaving them with only $95 more per month than in 1999. Had health care costs tracked the rise in the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month—more than $5,000 per year—to spend on other priorities."
Here are the calculations for that median family. The row showing "Taxes devoted to health care" is the cost of Medicare, Medicaid, and other public health programs.''

Note: These are MONTHLY COSTS!

Source: Tim Taylor

What should you major in to have the BEST chance of getting into the 1% of income earners? This list really surprised me. Worth a look!

This is an interesting list. I am VERY surprised by some of the results and how relatively diverse it is in terms of undergraduate majors. However, it is weighted  heavily on the side of the Math and Sciences. You English and Lit majors have hope!!! :)  Source: Economix for more discusson...

Source: Economix

Just found THE BEST interactive website where you can see who in the House and/or Senate is likely to support/oppose SOPA/PIPA. Sort by Party affiliation, state, CAMPAIGN CONTRIBUTIONS, etc. MOST EXCELLENT!! Click HERE to link to it...

The link is HERE.  Be advised---the site is explicit when it says these are representative/senators that have either signed on as sponsors of the bill(s) or based on previous statements or voting records are likely to vote for or against these bills.  It DOES NOT show all the members of the House and Senate, but it is reveals the inertia of the direction voting might go.  The Senate seems to be the real problem for the opponents of the bills...

Also, PC WORLD has an excellent primer that is pretty impartial on the issues that surround these two bills. Very short and covers the high and low points..

YIKES! Google is using a Supply-Side economics (Point #2) argument to get people to sign their petition. You Keynesians out there DON'T fall for it, it is a trap!!

Below is point #2 from GOOGLE's message to the world.  It quite nicely summarizes a "supply-side" argument for a source of economic growth.  Google is suggesting Federal Regulations create uncertainty, hurt competitives, costs jobs, stiffles R&D, and discourages investment/entrepreneurship...ALL the things we have heard lately that are NOT problems in our economy.  Why is this all of a sudden unique to the internet and not many other industries?

In tough economic times in the 70's, Pres Nixon is famous for saying "We are all Keynesians now".  Is Google suggesting "We are all Supply-siders now."?

GOOGLE: 2. SOPA and PIPA would be job-killers because they would create a new era of uncertainty for American business.''

Law-abiding U.S. internet companies would have to monitor everything users link to or upload or face the risk of time-consuming litigation. That’s why AOL, EBay, Facebook, Google, LinkedIn, Mozilla, Twitter, Yahoo and Zynga wrote a letter to Congress saying these bills “pose a serious risk to our industry’s continued track record of innovation and job-creation.” It’s also why 55 of America’s most successful venture capitalists expressed concern that PIPA “would stifle investment in Internet services, throttle innovation, and hurt American competitiveness”. More than 204 entrepreneurs told Congress that PIPA and SOPA would “hurt economic growth and chill innovation”.

Terrific Info-graphic: Everything you wanted to know about Gold but were afraid to ask (no, this has NOTHING to do with Ron Paul)...

Add caption

From: Number Sleuth

A nice interactive: Enter your household income and see how you rank in terms of the 1% or 99% in different parts of the country...

I took a screen shot of a household (all the wage earners under one roof , technically) income of $70,000 (assuming this is Pre-Tax income, but not sure).  This could be the rough income of two young, married teachers.

The green boxes show the percent ranking of this household in terms of income "class", in that geographic area. In the D/FW area you would be in the Top 41% of wage earners.  In

Go HERE and to enter YOUR household income and see where you rank

NYTIMES

T

The Urban Dictionary definition of an Economist...Love the way they use it in a sentence...So true!

The following is from Urban Dictionary...I love the way it is used in a sentence. I think i am going to use this from now on... :)

economist

:

one who, starting from a position of over-educated and under-informed logical supposition, commences making erroneous and devastating judgements about the functioning of the world, and then formally codifies their misunderstanding in dogmatic and arrogant absurdity   Used in a sentence:   "man, that guy is such an *economist*, i wish he'd just listen to people once in a while!"   HT: Chris Blattman

Nice chart showing gas taxes in various "rich" countries and an excellent graph showing the effect of these taxes on the quantity demanded for gasoline. Bet you can guess what the answer is.

One of the primary reasons for the differences in the retail price of gasoline in the "rich world" is the differences in the gas/fuel tax levied on each gallon of gasoline.

This first graph shows, in US dollars, the amount of tax various countries levy on gasoline and diesel fuels.  Quite a difference!

Source: Econbrowser

Here is a chart from a different source showing the pre and post tax price of gas and diesel in the coutries listed above and some others.  The blue line is pre-tax. You can see the price of fuel is basically the same in all areas

Source: HERE

The post-tax retail price of gasoline is going to be higher when the above taxes are added to the pre-tax price of gasoline, to state the obvious.

The Law of Demand in economics states that the price and quantity demanded of a good are INVERSELY related---price increases the quantity demanded decreases---price decreases the quantity demanded increases.  Makes sense, right?

The next graph illustrates this point explicitly.  Note the price on this graph is along the horizontal axis and the quantity demanded of fuel is on the vertical. This is the OPPOSITE of what is traditionally done in economics textbooks.  The inverse relationship between price and quantity demanded holds up rather well.

Source: Econbrowser

What are the implications?  If you want to seriously decrease the consumption of carbon-based fuels, the most effective way is through an increase in gas prices at the retail level.  Is this politically possible? Absolutely not.

To read more about this important topic go HERE for the source for this posting and/or go HERE for the original research paper that has more in detail. Worth a look if you are at all interested.