Let the Budget Cutting Begin!! And quickly end....

The President is proposing cutting Discretionary Federal spending by $250 billion over 10 years, or more simply, $25 billion per year for 10 years. Entitlements like Social Security and Medicare will not  be affected, as well as defense spending, homeland security, veterans, and international affairs.  I would like to help him out with a suggestion.   An area ripe for cutting is subsidies.  However, cutting these are going to be the MOST difficult because they are closely tied to powerful interest groups who are usually strongly defended by the Senator/Congressperson who requested the subsidy.  Watch for ALL the interest groups and their lobbyists to pounce on this one...Below is a graph of the number of subsidies granted over time. The graph below this one shows in what Federal agency is responsible for the subsidy....

Cutting subsidies from Health and Human Services is going  to be especially problematic...

iWANT one!!

What will Apple call its brand-new gizmo?

APPLE will unveil a new gadget to the press on Wednesday January 27th. Although the company has remained tight-lipped about what its “latest creation” might be, the smart money is on its much-anticipated tablet computer. Mystery surrounds exactly what this new device will do, though it seems certain that it will combine an e-reader, to take on Kindle and the like, internet connectivity and a touchscreen like the iPhone. But what will Apple call the device that could change the way that newspapers, books, television and computer games are enjoyed? Paddy Power, an Irish bookmaker, is offering odds on the likely contenders with iSlate and iPad the favourites.

Cotton and Corn---A relationship based on price...Can it last??

"Demand Gives Cotton a Lining"---WSJ

This article offers an excellent lesson in supply and demand in a real world scenario...The focus is the cotton market but it mentions corn as well. 
This graph shows the market for corn and cotton at a starting equilibrium point...

What is the connection between cotton and corn?  Both are grown on land that is suitable for growing either, for the most part.  Farmers are relatively indifferent as to which one to grow, but they are motivated by price.

Since 2006, cotton acreage has declined year-over-year as farmers reacted to higher corn and soybean prices that were driven up in part by biofuel demand. In 2009, U.S. cotton plantings totaled only 9.15 million acres, a 26-year low....

The DEMAND for Corn INCREASED because of the Ethanol mandate of 2006 requiring ethanol to be added to the fuel supply.  This dramatically INCREASED the DEMAND for corn by ethanol producers.   This is shown in "Graph #1.

The demand curve shifts to the right ("D1") indicating and increase in demand. The price of corn INCREASES ("B"). Cotton farmers, attracted by the increase market price for corn PLUS the Federal subsidies, quickly started to produce corn instead of cotton. This led to the DECREASE in SUPPLY of cotton on the market.  This is indicated in "Graph #2" with a leftward shift of the supply curve ("S1"). The market price of cotton ("B") is now higher too!

The world will need all the extra cotton acreage it can get this year, given that demand is expected to rebound. Ron Lawson, managing director at Logic Investment Services in Napa Valley, Calif., pointed to U.S. Department of Agriculture data that peg world cotton consumption at 114.36 million bales in the current 2009-10 marketing year that ends July 31. That figure is 10% higher than production estimates in the same time frame.

 The anticipated INCREASE in demand will, potentially, further increase the upward pressure on the price of cotton.  The increase in demand is shown in this graph...

The demand curve shifts to the right ("D1") indicating an increase in demand in the market for cotton. The price increases to "C", higher still!

Questions:

1. What signal is the elevated price of cotton going to send farmers of corn, wheat, soybeans?

2. What may happen to the price of clothing?

3. What may happen to the price of corn as a result of the increase in the price of cotton?

4. In response to question #3, what may happen to the price of gasoline?

No one said this was going to be easy...:)

Stupid Politician

Stupid Politician...

List of LARGEST Political Donors to candidates/ parties...Who stands to benefit from recent Supreme Court Decision??

I was surprised by this list. What do you think??? (Click on image to make larger--From ChartPorn)...
Clich HERE for a better look at the whole chart...

Short Documentary on Indegoafrica.org...Helping people the RIGHT WAY!!

Thomas Friedman Shifts the PPF in his latest column---I provide the Graphs!!

The problem confronting the economy is how to create jobs and increase future opportunities for students in school today.  First, we need to work to put people to work within the under-utilized production capacity the US economy currently has.  Right now we have lots of unemployed and under-employed resources (people, equipment, office buildings, factories, and other infrastructure) that are not at their optimal productive capacities.  Friedman is looking past this and into the future---how are we going to INCREASE our productive capacity to absorb all the new entrants (YOU!!) into the economy when you are prepared, after your education, to enter it. 

"What the country needs most now is not more government stimulus, but more stimulation. We need to get millions of American kids, not just the geniuses, excited about innovation and entrepreneurship again. We need to make 2010 what Obama should have made 2009: the year of innovation, the year of making our pie bigger, the year of “Start-Up America.”..."Obama should bring together the country’s leading innovators and ask them: “What legislation, what tax incentives, do we need right now to replicate you all a million times over” — and make that his No. 1 priority. Inspiring, reviving and empowering Start-up America is his moon shot..."

To illustrate, we use the Production Possiblities Frontier.  This model represents the productive capacity of an economy IF it is fully-employing all of its productive resouces--land, labor, capital, entrepreneurship in the LEAST costly way.  In other words, how much can we produce as efficiently as possible given our societal resources. Refer to the graph below:

An economy can produce two broad categories of goods---(1) Capital Goods, which are goods designed to add to productivity, such as education, skilled labor, machinery, computers, factories, etc.  Essentially the things we invest in today so that it enhances our ability produce in the future.  The amount of Capital an economy has is part of its "CAPITAL STOCK"--or Stock of Capital to produce goods.  The quality and quantity of Capital Stock is VITAL to an economy's current and future standard of living. (2) Consumer Goods are goods produced for present consumption and don't significantly add to future production ( food items basic to survival, fast food, consumer electronics, clothes, appliances and other "consume now" goods.

 Assume our economy is producing at Point "A" on our graph.  Because we are ON the PPF it means we are utilizing all of our productive resouces in the least costly way.  We are said to be "PRODUCTIVELY EFFICIENT" at this point, fully employing all our productive resources at the lowest cost in terms of societial resouces.   Now, do we HAVE to produce at Point "A"? NO! We COULD produce ANYWHERE on the PPF, but this economy finds itself producing "X* Capital Goods and  "Y* Consumer Goods" .  This seems to be this economy's preferred  bundle of Capital and Consumer Goods.  WHERE a society decides to produce on the PPF is called an "ALLOCATIVE EFFICIENCY"  decision.  So, this economy is productively efficient at point "A" and it has reached and allocative efficiency at point "A" as well...

I believe Friedman is suggesting (in this article and MANY others) that what we should do is shift resources towards "activities" that promote furture economic opportunities, ergo economic growth.  This would entail "giving up" some current consumption and investing in education, entrepreneurship, and "capital" so we can create the jobs of the future. This would nessecitate a movement along our PPF to a new point, Point "B".  (See Graph below) Remember, we MUST give up something in order to have more of something else (OPPORTUNITY COST!)

At Point "B" we are producing MORE Capital Goods relative to Consumer Goods compared to our previous Point "A".  We have ADDED to our CAPITAL STOCK and subtracted from our Consumer Good production. 

With this INCREASE in Capital Stock the economy now has the ability to produce MORE Goods (we have better education, more innovation, more entrepreneuship) that will lead to MORE productivity gains.  Our PPF will INCREASE, or shift to the right reresenting the economy's ability to produce MORE CAPITAL AND CONSUMER GOODS. See Graph below...

At Point "C" the economy can now produce Y2 number of consumer goods AND... (see graph below).

...we can now produce "X2" number of Capital Goods...Essentially, we can now produce MORE of BOTH Capital and Consumer Goods...Think about it this way---we gave up present consumption in order to invest in the future. With the subsequent increase in Capital Stock we can now produce more goods. The economy is going  need MORE workers to produce those goods.  Workers will have more income (and the nation as a whole will also) and they will want to buy MORE consumer goods and that will stimulate production of consumer goods (which the economy can NOW accommodate )...As a result, the WHOLE PPF will shift to the RIGHT representing an INCREASE in Productive Capacity. The economy can produce any bundle of Captial and Consumer Goods that is GREATER than it could at the  previous PPF. More "stuff" means a higher  standard of living!! ..This is what ECONOMIC GROWTH REALLY is!! (for better or worse)...

Obama should bring together the country’s leading innovators and ask them: “What legislation, what tax incentives, do we need right now to replicate you all a million times over” — and make that his No. 1 priority. Inspiring, reviving and empowering Start-up America is his moon shot....You want more good jobs, spawn more Steve Jobs. Obama should have focused on that from Day 1. He must focus on that for Year 2.

Can you see the PPF shift before your eyes???

Questions to ask

1. Is Friedman right about what we should do to promote economic growth?

2. Are there other things we can do to promote economic growth?

3. Are the policies that Congress is pursuing now (Healthcare, Banking reform, Cap and Trade, etc) going to hurt or enhance future economic growth? Find the postitve and negatives!!!

Football is a Game of Action?? I think not!!!

Click on the Graph to enlarge:  There are 100 squares in the graph. Each square represents 1% of the total time for an entire football game (100% excluding commercials).  Looking across the top, we see 9.4% of the squares, or 9.4% of the game is spent in ACTUAL playing time...you can interpret the rest...Football is a game of action??? I would like to see this analysis of a hockey game... 

Source: Chartporn

"McMeanie" Part II---McDonalds is a champion of Private Property Rights!! Super-Size Me!!

After a comment from a trademark law professor, I have thought about the previous "McMeanie" posting I made. I did not keep with my "economic way of thinking" and let "emotion" get in the way of the larger concept (I am not emotionless/non-emphathetic. Just trying to be consistent) of private property rights, which in my opinion, is the fuel for our economic engine.  That is what trademarks/patents do and MUST continue to do. Professor Randazza makes an excellent point in his blog response to McDonalds action:

This isn’t heavy-handed, it is smart business. McDonalds has a strong brand in its “Mc” prefix, and stopping someone from securing a trademark registration inside that turf is not the same thing as stopping them from using the name. If you don’t protect your trademark turf from minor incursions, after a while, the mark can die the death of a thousand paper cuts. McDonalds has some pretty well-established trademark turf, with registrations for McPen, McBurger, McBuddy, McWatch, McDouble, McJobs, McShirt, McPool, McProduct, McShades, McFree, McRuler, McLight, etc. Allowing a McFest to enter the field would cause some ever-so-slight erosion of their McHegemony in that area, and make their trademark worth just a bit less.
Look at it this way, if Ms. McClusky got her registration for McFest, then she could potentially license that trademark to Burger King for a concert festival. Yeah, really. Either that, or she could expand her tiny McFiefdom, and eventually cause some real branding problems for Grimace and the gang. Sure, the likelihood is low, but McDonalds didn’t get where it is by being lackadaisical about its trademark rights.

Yes, this case is VERY small potatos (fries?) but if McDonalds allowed  a precedent of trademark registration for a name/logo so closely related to its brand, it does open the door to the erosion of Private Property Rights...So, McDonalds takes a hit in the PR department but preserves private property rights and avoids a "Commons Problem"...Super-size my combo and pass the ketchup…

The best book I have read on the sanctity of private property rights is "The Mystery of Capital" by Hernando De Soto...I highly recommend it...

Help me!! I am in Debt up to my eyeballs!!

Consumer Debt (Credit Cards) vs Change in the money supply...Notice how the two correspond  over time rather  consistently.  The slopes are similiar with a slight lag as the increase in debt catches up with the increase in money supply.  What if a graph of new housing construction since 1995 were inserted here? How about a graph of used housing sales? How about a graph of changes in housing prices since 1995?  Do some research and tell ME!!

Souce: Daily Kos                                      Source: Mises Institute

Statistics of a recent Consumer Reports survey:

• One-third of Americans do not own a credit card.
• 54% pay their balance in full each month
• 33% carry balances up to $10,000 (median balance: $2,254)
• 13% carry balances over $10,000 (median balance: $17,366)
• 21% of consumers said they were treated unfairly by card companies and 32% have paid off and closed a card since January 2008. Half of those that canceled did so in direct response to the actions of credit-card issuers, such as cutting limits, hiking rates, or imposing fees.
• 45% of survey respondents say they are charging less
• 11% are charging more than they did a year ago
(source: Consumer Reports Magazine, November 2009)

McMeanies!!!

LINK:

Three years ago, teenager Lauren McClusky thought she'd help raise money for the Special Olympics in Chicago by staging concerts with local bands. Lauren raised more than $30,000 to help people with conditions like Down syndrome or autism take part in sports competitions.Because her last name is McClusky, Lauren called the concert series "McFest." After 3 years of success, she applied to trademark the McFest name. Silly -- Didn't she know that might make McDonald's unhappy? McDonald's sees that as an infringement on its trademarks, something the McDonaldland lawyers refer to as "the McFamily of brands."  These include (deep breath): McPen, McBurger, McBuddy, McWatch, McDouble, McJobs, McShirt, McPool, McProduct, McShades, McFree, McRuler, McLight -- and even the prefix "Mc" itself.

And even "McFest" apparently, which has nothing to do with dried-out burgers.Ronald McDonald may clown around but his lawyers are serious. A McDonald's spokeswoman spelled it out:

"(T)he law requires us to guard against third parties that infringe our trademarks and to take the necessary action to stop those infringements"...

McDonald's filed an opposition. So instead of donating funds from her 2009 concert to Special Olympics, McClusky's had to hire lawyers to answer a series of administrative proceedings McDonald's filed with the U.S. Patent and Trademark Office. To date, it's cost her roughly $5,000 -- money she wishes had gone to Special Olympics kids instead of attorneys.
No good deed goes unpunished. Lauren McClusky has learned the new Golden Rule: He who has enough gold to hire lawyers makes the rules. If you have the legal firepower, you can claim ownership of something as basic as the prefix "Mc," even though Lauren and millions of others use it as part of their names. Give me a break.

Tragedy of the Commons Part II---Tigers are NOT so lucky...

From Carpe Diem:  Tigers could use some help to escape "The Commons"...

"The Telegraph reports that there are now fewer than 50 wild tigers left in China. The selling of tiger parts has been banned for many decades, yet tiger numbers continue to fall. The policy fails yet many persist in defending it.

There is a market solution: the commercial farming of tigers."

~JP Floru on the Adam Smith blog

"Tragedy of the Commons"---See You Later Alligator....

For AP Micro and Macro students:  NICE example of the significance of Private Property Rights when it comes to preserving endangered speices.  Economics really does help solve some problems...

From Carpe Diem: 

Case Study: In 1967, the American alligator was listed as an endangered species (under a law that preceded the Endangered Species Act of 1973), meaning it was considered in danger of extinction throughout all or a significant portion of its range. American alligators were depleted from many parts of their range as a result of hunting and loss of habitat, and 30 years ago many people believed this unique reptile would never recover.

However, the creation of large, commercial alligator farms contributed significantly to saving alligators in the U.S.. Alligator farming is a big and growing industry in Georgia, Florida, Texas and Louisiana, and these states produce a combined annual total of some 45,000 alligator hides. Alligator hides sell for about $300 each, though the price can fluctuate considerably from year to year. The market for alligator meat is growing and approximately 300,000 pounds of meat is produced annually.
Today, in just the state of Louisiana, there are 723,000 alligators on alligator farms, and biologists estimate Florida has 2 million wild alligators. In fact, there are so many wild alligators in Florida that state officials have lifted the ban on alligator hunting, and they now have an 11-week hunting season each year. The American alligator was removed from the endangered species list in 1987 after the U.S. Fish and Wildlife Service pronounced a complete recovery of the species.
Bottom Line: Private property rights, commercial farming, and the commercial sale of alligator meat and hides was largely responsible for the full recovery of the American alligator and helped save it from extinction. The same approach could help save tigers (see recent CD post), elephants and rhinos, or any other endangered species.

China picks up a Silver Medal in the GDP race...

It looks like I may have to change my lesson on relative GDP's....China may have just surpassed Japan to become the SECOND largest economy in the world...

BBC::China says its economy expanded by 8.7% in 2009, likely leap-frogging Japan to become the world's second largest economy behind only the US.

However, caution is advised..

But analysts say currency fluctuations make it difficult to compare China and Japan, and some experts question the accuracy of China's figures.

It is inevitable that they will move into 2nd place by the end of the year.  Is this something we should  worry about? Should we perceive this as a problem or as an opportunity?

How much time do YOU spend online??? Could it REALLY be this MUCH!!

Interestingly enough, I had this conversation with one of my classes today...

NYTIMES: "The average young American now spends practically every waking minute — except for the time in school — using a smart phone, computer, television or other electronic device, according to a new study from the Kaiser Family Foundation... Those ages 8 to 18 spend more than seven and a half hours a day with such devices, compared with less than six and a half hours five years ago, when the study was last conducted. And that does not count the hour and a half that youths spend texting, or the half-hour they talk on their cellphones...And because so many of them are multitasking — say, surfing the Internet while listening to music — they pack on average nearly 11 hours of media content into that seven and a half hours."

I am truely amazed when I step back and think about all the changes in technology in last 20 years.  I say often that is has become part of kids DNA today.  A professional agrees with me:

Dr. Michael Rich, a pediatrician at Children’s Hospital Boston who directs the Center on Media and Child Health, said that with media use so ubiquitous, it was time to stop arguing over whether it was good or bad and accept it as part of children’s environment, “like the air they breathe, the water they drink and the food they eat.”

In your experience, do the numbers in the graphic match your media consumption habits?  I am just curious...

Question is : How do teachers deal with this?  Is there a way for us to make this work in our favor rather  than fight it or spend time lamenting it??? Inquiring minds want to know!!!