It seems this should be something Wal-Mart fears long-term.
Technological change advancement, peoples willingness to use that technology, and new patterns of buying behavior will serve to accelerate "creative destruction" in the retail sector.
Saturday, December 1, 2012
See the pictures here of how Amazon.com is going to cause a long and painful death for Walmart and other Brick and Mortar businesses.
I have not seen these pictures before of an Amazons.com's "Product Fulfillment Center". Fancy name for gigantic warehouses around the country that serve a particular geographic area.
It seems this should be something Wal-Mart fears long-term.
Technological change advancement, peoples willingness to use that technology, and new patterns of buying behavior will serve to accelerate "creative destruction" in the retail sector.
It seems this should be something Wal-Mart fears long-term.
Technological change advancement, peoples willingness to use that technology, and new patterns of buying behavior will serve to accelerate "creative destruction" in the retail sector.
A Tax To Die For...Here I briefly explain another "Fiscal Cliff" tax issue: The Estate ("Death") Tax...
One of the least talked about aspects of the "fiscal cliff" is the Estate Tax, sometimes referred to as the "Death Tax". It is the Federal Tax owed on the value of a what someone leaves behind to their heirs. Here is how it works, in its simplest terms.
See the graphic below (the left hand potion of the graphic) for the tax rate as it is now, as it might be if the "Bush Tax Cuts" expire and what the President would like it to be.
You can see the tax rates expressed as a percentage and the amount that is EXEMPT from the tax in BOLD. Any estate with an assessed value UNDER these threshold amounts would not be subject to the estate tax at all.
Example: at the "Current Policy" if an estate is valued at $6.12 million the first $5.12 million is exempt from taxation, but the Estate Tax would claim 35% of the remaining $1 million---$350,000 tax due.
Under Obama's Policy $2.62M ($6.12M - $3.5M) would be subjected to a 45% tax = $1.18M tax due.
If Bush Taxes Expire $5.12M ($6.12 - $1M) would be subjected to a 55% tax = $2.82M tax due.
The circles on the right show how much in potential revenue each of these policies my bring into the Federal coffers (color coded to the info on the left) over a 10 year period (divide by 10 to get yearly tax revenue).
One of the difficulties with this tax is that it can place the heirs of the deceased in a awkward and potentially damaging financial situation.
Refer to the example I used above. Assume this was your grandparents situation but ALL of the estates value was tied up in land and a nice house that sits on that land. Assume in their last will and testament they bequeathed it to you because they wanted it to stay in the family.
Because all of the value is in a "non-cash" asset, YOU would have to come up with the $350,000 (OR the tax under the other alternative measures) to pay the Estate tax. OUCH! If you could not pay the tax, then you would be forced to sell the property to pay the tax (or borrow it, I suppose)
I tend to think most estates in the US are this way---values are tied up in non-cash physical assets like houses and land and heirs struggle to maintain what they have been bequeathed.
Whether that is right or wrong, well, I don't know and never will. I don't have any rich people in my family so this is an issue I can only write about and not actually experience. :)
See the graphic below (the left hand potion of the graphic) for the tax rate as it is now, as it might be if the "Bush Tax Cuts" expire and what the President would like it to be.
You can see the tax rates expressed as a percentage and the amount that is EXEMPT from the tax in BOLD. Any estate with an assessed value UNDER these threshold amounts would not be subject to the estate tax at all.
Example: at the "Current Policy" if an estate is valued at $6.12 million the first $5.12 million is exempt from taxation, but the Estate Tax would claim 35% of the remaining $1 million---$350,000 tax due.
Under Obama's Policy $2.62M ($6.12M - $3.5M) would be subjected to a 45% tax = $1.18M tax due.
If Bush Taxes Expire $5.12M ($6.12 - $1M) would be subjected to a 55% tax = $2.82M tax due.
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| Source: Wall Street Journal |
One of the difficulties with this tax is that it can place the heirs of the deceased in a awkward and potentially damaging financial situation.
Refer to the example I used above. Assume this was your grandparents situation but ALL of the estates value was tied up in land and a nice house that sits on that land. Assume in their last will and testament they bequeathed it to you because they wanted it to stay in the family.
Because all of the value is in a "non-cash" asset, YOU would have to come up with the $350,000 (OR the tax under the other alternative measures) to pay the Estate tax. OUCH! If you could not pay the tax, then you would be forced to sell the property to pay the tax (or borrow it, I suppose)
I tend to think most estates in the US are this way---values are tied up in non-cash physical assets like houses and land and heirs struggle to maintain what they have been bequeathed.
Whether that is right or wrong, well, I don't know and never will. I don't have any rich people in my family so this is an issue I can only write about and not actually experience. :)
Friday, November 30, 2012
Thursday, November 29, 2012
One element of the Fiscal Cliff explained here. This one LIKELY will affect your paycheck in January. Ouch!
One element of the "fiscal cliff" that just about all wage earners, regardless of income, are affected by is the 2 percentage point DECREASE in the Social Security tax that workers have enjoyed since 2010. (You didn't know you had a tax cut??) . It is currently at 4.2% from its "normal" longstanding 6.2%. The tax is applied on your gross pay (wage X hours worked. Or from your salary if you are a salaried worker).
This temporary reduction was implemented as part of a "fiscal stimulus" bill/law. It served as a quick and easy way to get money into the hands of people, and the assumption was that it would likely be spent in the economy and provide a needed jolt for the demand for goods and services.
This reduction seems small for each person, and it is, but in the aggregate it is roughly about $120 billion on an annual basis injected into the economy.
Because it amounts to so little per person the economic thinking is people wont notice it, hence will be more likely to spend it than to give it much thought about saving it. This is not entirely true for all people, but it does seem a very likely outcome.
The trade-off from this particular tax cut is that the $120 billion is supposed to pay Social Security benefits for current recipients. Those benefits are going to be paid regardless. This will necessitate borrowing to compensate for the tax cut.
There is no such thing as a free lunch.
The consensus right now seems to be this tax cut will expire and go back to 6.2%. But, as with all things political, we will have to wait and see.
This temporary reduction was implemented as part of a "fiscal stimulus" bill/law. It served as a quick and easy way to get money into the hands of people, and the assumption was that it would likely be spent in the economy and provide a needed jolt for the demand for goods and services.
This reduction seems small for each person, and it is, but in the aggregate it is roughly about $120 billion on an annual basis injected into the economy.
Because it amounts to so little per person the economic thinking is people wont notice it, hence will be more likely to spend it than to give it much thought about saving it. This is not entirely true for all people, but it does seem a very likely outcome.
The trade-off from this particular tax cut is that the $120 billion is supposed to pay Social Security benefits for current recipients. Those benefits are going to be paid regardless. This will necessitate borrowing to compensate for the tax cut.
There is no such thing as a free lunch.
The consensus right now seems to be this tax cut will expire and go back to 6.2%. But, as with all things political, we will have to wait and see.
Yesterday I showed you how someone with an income of $45,000 can pay NO Federal income tax (47%-er) . Today I use the same household and show you how they are a major tax PAYER. These things are never as easy as they appear...
Yesterday I wrote a blog entry on how a person or household with an income of $45,000 can end up paying no Federal Income tax on that income and can actually be a net recipient of tax dollars (. See that HERE.
Today, I want to show that this same household DOES pay federal taxes, but not necessarily the Income Tax. The taxes they cannot escape paying are Payroll Taxes,---Social Security and Medicare taxes. These taxes are dedicated to paying benefits for retirees and other eligible recipients.
The Social Security tax is 6.2% of income and it is applied to income earned up to $110,100. Any income OVER this amount is NOT subject to the Social Security tax. So the MAXIMUM that can deducted from someones paycheck is $6,826.20 ($110,100 X 6.2%). For our sample household, they would pay $2,790 ($45,000 X 6.2%) in Social Security taxes.
The Medicare tax is 1.45% of income and it has NO INCOME LIMIT! As with tax policy, it depends of the what the definition of "income" is. Capital gains and dividends are excluded from the Medicare tax (Social Security tax too), which are generally the province of "the wealthy". So, our household pays $652.50 ($45,000 X 1.45%) in Medicare taxes.
Remember, these are MANDATORY TAXES.
The total payroll taxes paid by our sample household is ($6,826.20 + $652.50) $7,478.70.
Federal Income taxes AND payroll taxes both go to the same place---the Federal Governments General Budget--the Big Pot o' Money that is spent on all things federally budgeted for. Social Security and Medicare taxes make a stop through their respective Trust Funds, but only for accounting purposes.
If we add this amount to the "negative" income tax of $637(refunded) mentioned at the top, then our sample household effectively has a tax rate of 15.2% ($7,478.70 minus $637.00 then divided by $45,000 X 100).
In this light, our household is certainly not a "47%-er" and net recipient/taker of tax dollars, but percent-wise, they are a major contributor.
These federal taxes are not the only federal taxes paid by our household. There is the Federal gas tax, other excise taxes levied on a variety of goods we consume, and tariffs on imported goods. These other taxes are more difficult to see, but they should be considered in the over all discussion of tax policy, in my opinion.
Today, I want to show that this same household DOES pay federal taxes, but not necessarily the Income Tax. The taxes they cannot escape paying are Payroll Taxes,---Social Security and Medicare taxes. These taxes are dedicated to paying benefits for retirees and other eligible recipients.
The Social Security tax is 6.2% of income and it is applied to income earned up to $110,100. Any income OVER this amount is NOT subject to the Social Security tax. So the MAXIMUM that can deducted from someones paycheck is $6,826.20 ($110,100 X 6.2%). For our sample household, they would pay $2,790 ($45,000 X 6.2%) in Social Security taxes.
The Medicare tax is 1.45% of income and it has NO INCOME LIMIT! As with tax policy, it depends of the what the definition of "income" is. Capital gains and dividends are excluded from the Medicare tax (Social Security tax too), which are generally the province of "the wealthy". So, our household pays $652.50 ($45,000 X 1.45%) in Medicare taxes.
Remember, these are MANDATORY TAXES.
The total payroll taxes paid by our sample household is ($6,826.20 + $652.50) $7,478.70.
Federal Income taxes AND payroll taxes both go to the same place---the Federal Governments General Budget--the Big Pot o' Money that is spent on all things federally budgeted for. Social Security and Medicare taxes make a stop through their respective Trust Funds, but only for accounting purposes.
If we add this amount to the "negative" income tax of $637(refunded) mentioned at the top, then our sample household effectively has a tax rate of 15.2% ($7,478.70 minus $637.00 then divided by $45,000 X 100).
In this light, our household is certainly not a "47%-er" and net recipient/taker of tax dollars, but percent-wise, they are a major contributor.
These federal taxes are not the only federal taxes paid by our household. There is the Federal gas tax, other excise taxes levied on a variety of goods we consume, and tariffs on imported goods. These other taxes are more difficult to see, but they should be considered in the over all discussion of tax policy, in my opinion.
Wednesday, November 28, 2012
See here how easy it is too have a pretty good paying job (teacher?) and be a member of the "47%" at the same time. Nice graphic and my explanation of why it is so...
It is rather easy, actually, given the aggregated tax policies enacted over time.
There are some basic deductions that you are allowed to subtract from your total income. These deductions effectively reduce the amount of income that is actually subject to the income tax. Deductions reduce your income subject to tax dollar for dollar.
Also...
There are some basic tax credits that you are allowed to subtract from your total tax bill. Tax credits reduce your taxes owed dollar for dollar. Notice the difference between a deduction and a tax credit. This is important when discussing tax policy.
Both of these are dependent on whether you qualify for them. Some everybody is entitled to and some you get only if you meet certain criteria.
Deductions and tax credits are enacted to further some social, economic, or political goal. Individually, they are supposed to serve as an incentive to bring about a desired outcome that benefits society. Collectively, they could serve that purpose OR collectively create problems and/or inefficiencies.
The following graphic illustrates how a person (or household in this case--a family of 4) earning $45,000 per year in income can owe no Federal Income Tax on that income by using the available income deductions and tax credits.
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| Source: The Economix |
This assumes the families total income from all sources (wages, interest earned on savings accounts, and "other") is $45,000.
This couples filing status is "Married, filing jointly" (I assume) and includes both of their incomes combined OR it could be just one of them is the sole income earner. It does not matter.
Right off the top, they are entitled to take a deduction of $11,900 for just being married. I will keep it at that and do another posting on how your tax bill will be affected by other potential filing statuses. This deduction ("subsidy") serves to help reduce taxable income in an effort to help defray the cost of running a household with the goal of keeping families together and encourageing couples to stay married. That is/was the intent of the tax policy.
Next, the taxpayer can deduct from taxable income, $3,800 for each person in the household who is legally dependent on the taxpayer. Generally this means children, but it could be a parent, grandparent, or other dependent. You also INCLUDE yourself AND your spouse in the calculation. This equals ($3,800 X 4) $15,200. See how you and your spouse were "double counted" in the calculation, first for being married then as a member of the household. Assuming no other deductions you are allowed to take, the your income that is ACTUALLY subject to taxation is now ($45,000 - $11,900 - 15,200) $17,900. This amount is called your "Taxable Income". It is derived after taking all of your legally available income deductions.
The Federal Income tax owed on $17,900 is $1,813. If we stopped right there this is how much the taxpayer would write a check to the IRS for ASSUMING they did NOT have any "Federal Withholding" from their paychecks throughout the year. We will assume that for this exercise, but is likely they would have had some withheld. Any withholding would off-set the amount of tax owed, either partially or totally.
This taxpayer now finds they are entitled to a Child Tax Credit of $2,000 ($1,000 for each child). Taxpayers with an adjusted gross incomes of $110,000 or less are eligible for this credit, so this is not necessarily a "gift" to lower income people, however it benefits them a great deal. Remember, tax credits reduce your taxes owed dollar for dollar.
Now, we subtract that $2,000 from our taxes owed of $1,813 and we now owe -$187.00 in taxes. Sweet!! The Child Tax Credit is considered a "refundable tax credit" which means if the credit results in a negative number, the taxpayer owes $0.00 in taxes but they are entitled to the $187.00 too!
We are not done with our tax credits yet. The next one is called the "EITC", which stands for Earned Income Tax Credit. This credit is targeted towards low income people--single, married, with or without children. It is considered a significant anti-poverty policy and enjoys significant bi-partisan support in Congress and the Presidency. The EITC is WAY TOO COMPLICATED to explain in a few sentences. Wikipedia has a pretty good summary of it here.
This family qualifies for this tax credit too, to the tune of $450. Because this credit is 'refundable" as well, we subtract it from our tax bill, which currently is a negative $187.00. So if you add this credit to the the total, this family will receive a tax REFUND check of $637.000.
This family effectively pays no federal income tax on their $45,000 AND they get an extra $637 to consume or save.
This is certainly a form of income re-distribution BUT as I mentioned earlier, both of these tax credits in particular enjoy bi-partisan support, historically.
So, now you know how someone earning $45,000 per year can have no tax liability and receive a refund check as well.
This is a working person (could be a teacher with THAT salary) who would be considered a member of the 47%. Working and has a good job, but the net recipient of tax dollars.
Hope this helps with your understanding of the issue.
Saturday, November 24, 2012
The baby needs new shoes! Do you want to pay 40% of the purchase price in taxes to do so? Probably not, but you DO. See here why...
Going to buy the baby some new shoes!!
Got this idea from Mark Perry. Go HERE for more on the subject of Tariffs on imported shoes, which is the crux of this posting.
How much in taxes, that we can actually figure out, goes to purchase a $10.00 pair of basic rubber sole canvas sneakers for a child. We HAVE to assume these are imported from China because there is NO domestic producer of this type of shoe.
Well, I have to earn the money first. So the first taxes I encounter of payroll taxes--Social Security, 6.2% of what I make and Medicare, 1.45% of what I make. So a total of 7.65% of my income.
I calculate I would (roughly) have to earn $10.85 before taxes.
Minus Payroll Taxes (Social Security (6.2%) and Medicare (1.45%) --Total = $.85 cents
I now have my $10.00 to purchase my babies shoes, right? Sort of. I assume I am driving to the store. Assume I am going to need gas. Gotta pay gas taxes, State and Federal on each gallon of gas I buy.
In Texas the State Gas Tax assessed PER gallon (Texas it is $.20)
Federal Gas Tax assessed PER gallon (18.4 cents---round down to $.18)
Assume I need half a gallon of gas--Total Gas taxes would be = $.19
Texas State Sales Tax---8% (give or take depending on your locality) = $.80
Not done yet...Gotta back track a bit.
The shoe was imported. Imported shoes of the type (cheap!) I want to purchase have a Tariff of 48% (unless it came from Mexico or Canada---NAFTA). I am going to round to 50% to make the math a little easier.
Assume the shoe had an assessed value of $4.00 at the point of import at Customs. The Federal Tariff would be $2.00 (50% of $4.00). The importer of the shoe would now have that shoe for a total cost of $6.00. They might add a dollar for good measure and sell it to the retailer you are purchasing it from for $7.00. They in turn sell it to you for $10.00.
So, how much in various taxes have you paid on your way to purchasing a $10.00 pair of shoes.
Tariff----$2.00
Payroll taxes--$.85
Gas Taxes--$.19
Sales Tax---$.80
Total: $3.84 in taxes that I had to encounter in order to get the shoes. That is an effective tax rate of 38.4% on the $10.00 purchase. I did not include any Federal Income Tax on the income. The purchaser could subject to no income tax or a high tax. I just let that go. I also am missing other taxes embedded in the price of the good, other than the tariff, that the retailer pays too. Never ends, it seems. The effective rate is probably higher.
I am not a math person. Tell me where I am going wrong. I am a willing learner. Thanks!
The point of this posting is this tariff of nearly 50% is regressive and hurts the poor. There is no domestic industry to protect from foreign competition. Those are LONG gone, but the tariff remains. If Congress and the President wanted to help the poor, this is easy pickings for repeal.
Why don't they do it???
Got this idea from Mark Perry. Go HERE for more on the subject of Tariffs on imported shoes, which is the crux of this posting.
How much in taxes, that we can actually figure out, goes to purchase a $10.00 pair of basic rubber sole canvas sneakers for a child. We HAVE to assume these are imported from China because there is NO domestic producer of this type of shoe.
Well, I have to earn the money first. So the first taxes I encounter of payroll taxes--Social Security, 6.2% of what I make and Medicare, 1.45% of what I make. So a total of 7.65% of my income.
I calculate I would (roughly) have to earn $10.85 before taxes.
Minus Payroll Taxes (Social Security (6.2%) and Medicare (1.45%) --Total = $.85 cents
I now have my $10.00 to purchase my babies shoes, right? Sort of. I assume I am driving to the store. Assume I am going to need gas. Gotta pay gas taxes, State and Federal on each gallon of gas I buy.
In Texas the State Gas Tax assessed PER gallon (Texas it is $.20)
Federal Gas Tax assessed PER gallon (18.4 cents---round down to $.18)
Assume I need half a gallon of gas--Total Gas taxes would be = $.19
Texas State Sales Tax---8% (give or take depending on your locality) = $.80
Not done yet...Gotta back track a bit.
The shoe was imported. Imported shoes of the type (cheap!) I want to purchase have a Tariff of 48% (unless it came from Mexico or Canada---NAFTA). I am going to round to 50% to make the math a little easier.
Assume the shoe had an assessed value of $4.00 at the point of import at Customs. The Federal Tariff would be $2.00 (50% of $4.00). The importer of the shoe would now have that shoe for a total cost of $6.00. They might add a dollar for good measure and sell it to the retailer you are purchasing it from for $7.00. They in turn sell it to you for $10.00.
So, how much in various taxes have you paid on your way to purchasing a $10.00 pair of shoes.
Tariff----$2.00
Payroll taxes--$.85
Gas Taxes--$.19
Sales Tax---$.80
Total: $3.84 in taxes that I had to encounter in order to get the shoes. That is an effective tax rate of 38.4% on the $10.00 purchase. I did not include any Federal Income Tax on the income. The purchaser could subject to no income tax or a high tax. I just let that go. I also am missing other taxes embedded in the price of the good, other than the tariff, that the retailer pays too. Never ends, it seems. The effective rate is probably higher.
I am not a math person. Tell me where I am going wrong. I am a willing learner. Thanks!
The point of this posting is this tariff of nearly 50% is regressive and hurts the poor. There is no domestic industry to protect from foreign competition. Those are LONG gone, but the tariff remains. If Congress and the President wanted to help the poor, this is easy pickings for repeal.
Why don't they do it???
Average hourly wages for large retailers. How accurate are they??
I have not worked retail in quite some time. I would appreciate anyone seeing this and have worked for any of these companies (or in similar one) confirming these numbers are about right or if they are high or low. From the source, it seems these are "average hourly wages", so new-hires to experienced workers wages are included. Just curious as to how accurate these are. Thanks!
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| Source: Quartz |
Wednesday, November 21, 2012
My Black Friday piece of Advice, Dos Equis-Style...
I've got too much free time on my hands...
A Thanksgiving Day meal costs 71% more compared to 1986 but it takes the average worker TODAY 45 minutes less to earn the money for that meal. This must mean we are better off, right?
Have to give an economics twist on the holiday. A requirement for an Econ teacher.
Here are a couple of graphics from The Conversable Economist.
The first shows, in inflation adjusted dollars, the change in cost of a shopping basket (literally) of some typical food items needed to prepare a Thanksgiving meal. Not inclusive of everything, but a representation.
Look at the blue line. Pretty flat over time, with a pretty big dip on the left and an up turn on the right. This means, after adjusting for inflation, the cost of this basket of goods has remained fairly consistent. Ok, that is good news, I suppose.
But what about the average consumers ABILITY to purchase these goods in any given year?
One measure is to look at how many hours of work, given a persons wage, does it take to purchase this market basket of goodies.
In 1986 the nominal average hourly wage was $8.94 (average for the year--Data HERE--BEFORE TAXES). So in 1986 a worker had to work ($28.74 / $8.94) 3 hours and 15 minutes to pay for the market basket.(the prices for each years market basket are below)
In 2011 the nominal average hourly wage was $19.46 (before taxes). In 2011 a worker had to work ($49.20 / $19.46) 2 hours and 32 minutes to pay for the same market basket.
The average worker today worked 45 minutes less to earn the money for Thanksgiving dinner than he/she did in 1986.
Variables to consider: If taxes and/or other deductions are higher today than the nominal wage would certainly be lower, hence take more time to purchase the market basket. Are the quality of the goods in the basket better, worse, the same? What else am I missing? Start a list...
Here are a couple of graphics from The Conversable Economist.
The first shows, in inflation adjusted dollars, the change in cost of a shopping basket (literally) of some typical food items needed to prepare a Thanksgiving meal. Not inclusive of everything, but a representation.
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| Source: The Farm Bureau Federation via The Conversable Economist |
But what about the average consumers ABILITY to purchase these goods in any given year?
One measure is to look at how many hours of work, given a persons wage, does it take to purchase this market basket of goodies.
In 1986 the nominal average hourly wage was $8.94 (average for the year--Data HERE--BEFORE TAXES). So in 1986 a worker had to work ($28.74 / $8.94) 3 hours and 15 minutes to pay for the market basket.(the prices for each years market basket are below)
In 2011 the nominal average hourly wage was $19.46 (before taxes). In 2011 a worker had to work ($49.20 / $19.46) 2 hours and 32 minutes to pay for the same market basket.
The average worker today worked 45 minutes less to earn the money for Thanksgiving dinner than he/she did in 1986.
Variables to consider: If taxes and/or other deductions are higher today than the nominal wage would certainly be lower, hence take more time to purchase the market basket. Are the quality of the goods in the basket better, worse, the same? What else am I missing? Start a list...
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| Source: Farm Bureau Federation |
Monday, November 19, 2012
"Manufacturing Is ALIVE and Manufacturing jobs are DEAD!!" Not a winning campaign slogan, but it is the truth...
Well, mostly true. A new report Manufacturing the future: The next era of global growth and innovation is circulating on the econ blogoshere and it speaks of the divergence in manufacturing output relative to manufacturing employment.
IMPORTANT NOTE: This report is on GLOBAL manufacturing, NOT just the US!
Note 3 things in the graphic below. Employment in manufacturing in 2006 was only 14% of jobs in the private sector. Private Sector R&D in manufacturing is very high relative to other sectors, but I assume these would not be blue collar "on the assembly line" jobs. Employment in manufacturing from 1996-2006 shows a net loss relative to other sectors.
The "old" manufacturing model was how does/do management and white collar workers assist the line worker in producing the best product.
Going forward the new mantra will be how does/do management and white collar workers assist the machines/robots/ technologically advanced production lines in producing the best product.
Notice the line workers job missing in the second part?
The future....
IMPORTANT NOTE: This report is on GLOBAL manufacturing, NOT just the US!
Note 3 things in the graphic below. Employment in manufacturing in 2006 was only 14% of jobs in the private sector. Private Sector R&D in manufacturing is very high relative to other sectors, but I assume these would not be blue collar "on the assembly line" jobs. Employment in manufacturing from 1996-2006 shows a net loss relative to other sectors.
The "old" manufacturing model was how does/do management and white collar workers assist the line worker in producing the best product.
Going forward the new mantra will be how does/do management and white collar workers assist the machines/robots/ technologically advanced production lines in producing the best product.
Notice the line workers job missing in the second part?
The future....
Read here how Seattle re-invented itself as the high tech hub it is famous for. Oh, wait, what? It did not do ANYTHING? Ok, then they should AT LEAST reimburse Bill Gates for the U-haul rental that made it possible...
Decaying cities looking to revitalize often make pilmages to successful cities to learn how "they did it" and to see if they can copy that success at home.
Often there is no "they did it" at all. It was luck and spontanaiety.
Seattle is a nice example. Seattle was not always the clean, high tech, progressive, shining city on the hill that we all know and love today:
Adam Smith put it this way (emphasis on the last sentence):
Note: I heard this story from a podcast at EconTalk. If you need something to listen to on long walks or a jog/run I recommend there podcasts. Each last about an hour. The Host, Russ Roberts, comes from the Libertarian-leaning point of view but he often has guests on the "other side".
Often there is no "they did it" at all. It was luck and spontanaiety.
Seattle is a nice example. Seattle was not always the clean, high tech, progressive, shining city on the hill that we all know and love today:
"...But in the late 1970s, Seattle was in very different conditions. Seattle as an economy was heavily focused on traditional manufacturing, and services for lumbers and [?] industries. As you can imagine, in the 1970s, these were not great industries to have. The only innovative part of their economy was Boeing. But Boeing was struggling in the late 1970s, laying off people by the thousands. So the economy was in really poor shape, and people were leaving the city by the thousands..." (Source: EconTalk)So, what did the governing Fathers (and Mothers) of the city do to re-rev its engines? Well, nothing, to be exact:
"...But there's something that happened that changed the history of the city forever, and it has to do with Microsoft. Microsoft was not founded in Seattle. At the time it was in Albuquerque, New Mexico. Albuquerque at the time was more high tech than Seattle. And in fact the main reason Microsoft was there was that their first client was there. Microsoft stayed there for four years and was doing fine, was prospering. But in 1979, Bill Gates and Paul Allen, the founders, decided that they wanted to be close to their families--who were in Seattle. So they relocated the company back to Seattle. Now, at the time this was a small company, 15 employees. And nobody really paid attention to this move. But in retrospect, that was the seed that was responsible for the growth of the high tech sector in Seattle and the complete reshaping of the local economy, and the rebirth of the city both economically, culturally, and in terms of amenities...."(Source: EconTalk)So, a fateful decision by 2 young entrepreneurs who had an idea, ambition and just wanted to be closer to home, saved a city and revitalized a region.
Adam Smith put it this way (emphasis on the last sentence):
“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention” ― Adam Smith, An Inquiry into the Nature & Causes of the Wealth of Nations, Vol 1Or dumb luck. Either one. :)
Note: I heard this story from a podcast at EconTalk. If you need something to listen to on long walks or a jog/run I recommend there podcasts. Each last about an hour. The Host, Russ Roberts, comes from the Libertarian-leaning point of view but he often has guests on the "other side".
Great links to Vintage online catalogs from yesteryear. How much fun is this!!!
Mark Perry at Carpe Diem has the following links to vintage catalogs that are online and you can view them by flipping pages just like the old days.
Great resource for teachers and students as a primary source for fashion, culture and technology.
How much fun it is to look through these and see how much has changed. I had fogotten some of the products and fashions!
1. Wishbook Web, the “vintage Christmas catalog archive project,” with online versions of old Christmas catalogs (Sears, Wards, J.C. Penny, FAO Schwarz, etc.) from 1933 to through 1988.
2. Online Radio Shack Catalog Archive, back to 1939.
3. Online Radio Shack Computer Catalogs, back to 1977.
Great resource for teachers and students as a primary source for fashion, culture and technology.
How much fun it is to look through these and see how much has changed. I had fogotten some of the products and fashions!
1. Wishbook Web, the “vintage Christmas catalog archive project,” with online versions of old Christmas catalogs (Sears, Wards, J.C. Penny, FAO Schwarz, etc.) from 1933 to through 1988.
2. Online Radio Shack Catalog Archive, back to 1939.
3. Online Radio Shack Computer Catalogs, back to 1977.
Why we can't have nice things. One graphic that will show you why Government "Investment" in infrastructure is almost impossible to come by these days.
The spending side of the Federal Budget is the sum of two major categories that spending can be slotted into: Mandatory Spending ("Non-Discretionary"--must happen under the law per previous legislation) and Non-Mandatory ("Discretionary"---can happen, or not happen, with active legislation).
Mandatory spending occurs on things that are required when: (1) recipients meet eligibility requirements, such as Social Security, Medicare, Medicaid, and/or (2) "automatic stabilizers" like employment compensation, food and housing kick in as the state of the economy changes (i.e. recession).
Non-Mandatory ("Discretionary") spending is spending on "everything else". You could term it government "investment"---roads, bridges, infrastructure, science, space exploration, education, Big Bird, on and on...You know, the fun stuff and stuff that complements and enhances private investment. What economists call "Public Goods".
Using historical tables from the Office of Management and Budget (OMB), I cropped the most significant mandatory spending budget items for the years 1967 and 2012 and calculated the percent each budget category was/is relative to the total budget of the respective year. I use 1967 because it is the first year of the Medicare program (federal payments for the health care of retirees).
Keep in mind, the numbers you see below are in "millions". So for instance, in 1967 the total spending on Mandatory and Non-Mandatory budget items was $157,467 millions (see number at the bottom), or a little over $157 Billion dollars. In 2012 the total is 3,595,422 million or almost $3.6 Trillion.
In 1967, 32% of the Federal spending was on Mandatory items in the budget. That means 68% could be spent on the "Public Goods" mentioned above.
Fast forward...In 2012, 63% of the Federal spending is on Mandatory items. That means only 37% left to spend on Public Goods/Government Investment in stuff.
That is quite a reversal of fortunes in the last 45 years.
Can you see now why it is difficult to have any new "public goods" toys?
Mandatory spending occurs on things that are required when: (1) recipients meet eligibility requirements, such as Social Security, Medicare, Medicaid, and/or (2) "automatic stabilizers" like employment compensation, food and housing kick in as the state of the economy changes (i.e. recession).
Non-Mandatory ("Discretionary") spending is spending on "everything else". You could term it government "investment"---roads, bridges, infrastructure, science, space exploration, education, Big Bird, on and on...You know, the fun stuff and stuff that complements and enhances private investment. What economists call "Public Goods".
Using historical tables from the Office of Management and Budget (OMB), I cropped the most significant mandatory spending budget items for the years 1967 and 2012 and calculated the percent each budget category was/is relative to the total budget of the respective year. I use 1967 because it is the first year of the Medicare program (federal payments for the health care of retirees).
Keep in mind, the numbers you see below are in "millions". So for instance, in 1967 the total spending on Mandatory and Non-Mandatory budget items was $157,467 millions (see number at the bottom), or a little over $157 Billion dollars. In 2012 the total is 3,595,422 million or almost $3.6 Trillion.
In 1967, 32% of the Federal spending was on Mandatory items in the budget. That means 68% could be spent on the "Public Goods" mentioned above.
Fast forward...In 2012, 63% of the Federal spending is on Mandatory items. That means only 37% left to spend on Public Goods/Government Investment in stuff.
That is quite a reversal of fortunes in the last 45 years.
Can you see now why it is difficult to have any new "public goods" toys?
Note: Numbers may not add up because I rounded AND I cut lots of categories to include only the essential budget items.
Saturday, November 17, 2012
Is our emphasis on "manufacturing" as industrial policy in 2012 really folly and based on political pandering? Does it miss the point regarding the changing nature of the modern economy? Yes, I think so. Find out why here...
Is our emphasis on "manufacturing" as industrial policy in 2012 really folly and based on political pandering? Does it miss the point regarding the changing nature of the modern economy?
I think in many ways we are chasing ghosts from the past and not looking to the future.
The value in manufacturing increasingly takes place in the intellect and creative crevices of the mind, not in the calluses on the hands or sweat of the brow of the laborer.
Here is an excerpt from a commentary on the topic from The Financial Times (the whole article is below).
I think in many ways we are chasing ghosts from the past and not looking to the future.
The value in manufacturing increasingly takes place in the intellect and creative crevices of the mind, not in the calluses on the hands or sweat of the brow of the laborer.
Here is an excerpt from a commentary on the topic from The Financial Times (the whole article is below).
When you look at the value chain of manufactured goods we consume today, you quickly appreciate how small a proportion of the value of output is represented by the processes of manufacturing and assembly. Most of what you pay reflects the style of the suit, the design of the iPhone, the precision of the assembly of the aircraft engine, the painstaking pharmaceutical research, the quality assurance that tells you products really are what they claim to be.
Physical labour incorporated in manufactured goods is a cheap commodity in a globalised world. But the skills and capabilities that turn that labour into products of extraordinary complexity and sophistication are not. The iPhone is a manufactured product, but its value to the user is as a crystallisation of services.
Many of those who talk about the central economic importance of manufactured goods do so from an understandable concern for employment and the trade balance. Where will the jobs come from in a service-based economy, manufacturing fetishists ask? From doing here the things that cannot be done better elsewhere, either because of the particularity of the skills they require, or because these activities can only be performed close to home. Manufacturing was once a principal source of low-skilled employment but this can no longer be true in advanced economies.
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