A Lack of Private Property Rights and Haiti---An impediment to real progress post-earthquake...

This article from WSJ: Six Months On, Haiti Aid Push Falters:  Post-Earthquake Refugee Camps and Rubble Remain, as Promised Funds Are Slow to Arrive; Hold-Ups Over Land Rights is very important for many reasons, but it mentions one that I harp on alot in class--the significance of private property rights.  The article also mentions economist Hernando de Soto, who I think should win a Nobel Prize in multiple categories.  His research on the lack of private property rights (and, more importantly, the mechanisms necessary for securing those rights) in the developing world and how it impedes economic progress in those countries is truly under-appreciated.
    This except sums up a significant and overlooked part of the development. Subsitute any under-developed countries name where Haiti appears below a you get the same result.

""One reason the government has had a difficult time dealing with basic issues such as resettlement: It is often impossible to determine who owns homes and land. A decade ago, 97% of rural residents in Haiti and 68% of city residents lacked clear title to their housing, according to a study by Peruvian economist Hernando de Soto.  Eighty-two percent of real estate and 68% of businesses in Haiti are in the extralegal economy," says Mr. de Soto, who has offered the information to a U.N. commission on legal empowerment of the poor. He estimates the value of the assets to which no one can claim title at about $5.2 billion, roughly the same amount that has been pledged for the first two years of Haiti's reconstruction. The loss of documents in the earthquake makes that situation worse. Most Haitians seeking to start over can't access bank credit because they have no collateral to offer up. The failure to demonstrate clear title acts as a brake to development, affecting small investors and multinational lenders alike.

I recommend "The Mystery of Capital" by  Hernando de Soto for anyone interested in one of the root causes of poverty in the world (not the ONLY cause, but one that must be addressed if significant progress is to be made).

The Senate believes we need MORE beer and LESS soft drinks...Discuss...

     In Microeconomics we look at the effect of taxation on the demand and supply of goods and/or services.  In general, if you want MORE of something you reduce the taxes on that product/service because it decreases the cost of producing or it decreases the purchase price for the consumer. You would do this if you thought there was underproduction of this good and more of it would be desirable for society.  The good in this case creates a positive externality. If you want LESS of something you would increase the tax, thereby increasing the cost of producing or increasing the purchasing price for the consumer. You would do this if you thought there was overproduction of this good and less of it would be desirable for society. The good in this case creates a negative externality.  With this in mind, the following two articles present an interesting case study in taxation of a specific good. 

     The first one "Can Beer Stimulus Hop Up the Economy?" discusses a bill, submitted in the Senate, to decrease the tax per barrel of beer, from $7.00 per barrel to $3.50 per barrel. This decrease in tax applies specifically to small mico-brewers of beer.  The article describes (as the sponsoring Senators desire), textbook perfect, how this decrease in tax will reduce the cost of producing, increase the production of micro-beer, and stimulate the hiring of workers for the micro-brewing businesses.  By our definition above, it would appear that the Senate believes there is under-production of beer and more of it would be beneficial to society.  

     The second article "Senate Considers Federal Tax On Soda" discusses a bill, ALSO submitted in the Senate that proposes a 3 cent tax per 12 ounces on soft drinks (soda, Gatorade, energy drinks, etc). The implication is that these are not a desirable good and consumption of less of it is good for society.  This tax would serve to increase the cost/price of these categories of drinks, decreasing the demand hence the quantity supplied of the good. If producers/suppliers are supplying less, then they are going to need to hire fewer workers and most likely have to lay-off workers.  By our definition above, it would appear that the Senate believes there is over-production of soft drinks and less of it would be beneficial to society. (The graph looks like this)

    Three things come to mind here for me. First, in terms of positive and negative effects on society (mostly health related), is there a significant difference between beer and soft drinks when you add up all the costs and benefits and compare across the two goods? Second, the effect on employment in these two industries. Employment  in micro-brewing increases but employment in the soft drink market decreases. What is the overall net effect in terms of jobs? Third, the Senate is taking up BOTH of these propositions.  Are there contradictions?  Are there synergies? Are individual Senators trying to pick winners and losers in the economy using tax policy?  What do you think???

Did Lebron James make his decision based on Supply-Side Economics? Taxes matter...

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

From Carpe Diem

Who gets "burned" by the 10% Tan Tax that just kicked in? The Owner? The Tanner? The workers who lose their jobs?

     A 10%  "Tan Tax" took effect on July 1st. The tax was part of the health-care reform package that was recently passed into law and was meant to pay for some part of the new health-care mandates.  I wrote about this at the time (click HERE for that blog entry) because Congress WAS deciding whether to tax tans OR elective cosmetic surgery.  Because of interest group pressure from doctors the tax was levied on tanning salons instead. 
     I wrote about the Tan Tax in terms of elasticity, or what would be the change in quantity demanded of tans be in response to the increase in price of tans due to the tax.  Elasticity of Demand is determined by taking the percentage change in Quantity Demanded and DIVIDING by the percentage change in Price (including the tax).  If the result is greater than 1 then the good is considered Price Elastic.  This means consumers/purchasers ARE sensitive to changes in price of the good. 
     The comment below is only an empirical observation by an interested party, but if we take it at face value then we can assume demand for tans is quite elastic (2) to very elastic (3). 

Tanning salons feel burned by 10 percent 'tan tax'

"In 26 years of business this is the worst I've seen it," said Scott Shortnacy, owner of the Arlington Solar Planet as well as six other branches in the Washington area. "Normally for people who tan, it's a part of their lifestyle. They keep doing it even in a recession. But everybody has been looking for ways to cut back on those areas. ... Our sales are down 20 to 30 percent."

If, in fact, tans are Price Elastic, the burden of paying the tax will fall on the business mostly and on the consumer to a lesser extent. This will increase the cost of doing business and "at the margins" some/many operators will reduce/layoff staff (the largest cost of doing business) or close altogether.  Jobs for lower skilled/lower educated workers will become more scarce...Something to think about...

What do a Vegemite Sandwich and "Kookaburra Sits in the Old Gum Tree" have in common? Apparently a flute solo...

Men at Work must pay royalties for copied riff in 'Down Under'

"A judge ordered Australian band Men at Work on Tuesday to hand over a portion of the royalties from their 1980s hit "Down Under," after previously ruling its distinctive flute riff was copied from a children's campfire song....But the penalty — 5 percent of the song's royalties — was far less than the 60 percent sought by publishing company Larrikin Music, which holds the copyright for the song "Kookaburra Sits in the Old Gum Tree."  "Kookaburra" was written more than 70 years ago by Australian teacher Marion Sinclair for a Girl Guides competition, and the song about the native Australian bird has been a favorite around campfires from New Zealand to Canada.Sinclair died in 1988, but Larrikin filed a copyright lawsuit last year. In February, Federal Court Justice Peter Jacobson ruled Men at Work had copied their song's signature flute melody from "Kookaburra."

More support for "The more you learn, the more you earn"---BUT is it a good thing??

The graph below shows the differences in pay, in terms of educational attainment, someone in 1979 earned with someone in 2009.  There are lots of inferences you can draw from this data (if you read the accompanying link you will see some).  Can everyone go to college? If not, what should they do?  What can the nation do to make sure the income gap created by an education gap not increase more than it has? Should we even do THAT?   What do you think!!

Do You Earn More Than Your Parents Did?

4th of July Poll "What country did America gain its Independence from?" umm...Social Studies epic fail...

"The fourth of July is Independence Day in the US. 1,004 US residents were asked who independence was declared from. The results? A little concerning, shall we say."--Data Driven

Click HERE to go to website and change the demographics---Interesting results..

Source: Chartporn

I-Phone4 and the cost of its component parts---Very nice breakdown!!

A very nice, if incomplete, breakdown of the component costs for the I-Phone4, and where those parts come from.  It is quite amazing how the parts make their way around the world and into a finished product.  It is hard to say how much Apple makes in profit from each phone because many other costs (fixed and variable), in addition to the ones shown here, are not included.  However, it is instructive to look at the various component costs because those do include fixed and variable costs (accounting costs which are JUST explicit costs of production).  The article contains many fascinating Microeconomics concepts, but the main point is that labor, which is the largest variable cost of producing MOST goods, is increasing at the assembly point of the world-wide production chain. This visual will be helpful in AP Microeconomics when we discuss cost of producing/normal vs. economic profit, international trade, etc. 

From NYTIMES: Supply Chain for iPhone Highlight Costs in China

A breakdown of the same numbers and a different take on the topic are contained in this pie chart from Carpe Diem 

Food Prices at Historical LOWS...Stop complaining and eat your Veggies!

All societies, one way or the other and to differing degrees, pursue the social goal of meeting peoples "needs and wants".  Needs are things that have no viable substitute and are universal in nature regardless of where you live on the planet, such as food, water, air, shelter. Everything after that is up for debate and enters the realm of "wants".  Even within a need, like food, there are embedded "wants".  We need food to live BUT the kind of food we eat is a want.  I can subsist on a cup or two of rice a day (millions do) and live, BUT I "want" pizza, burgers, pasta, etc.  

     There is a strange paradox afoot when we look at needs relative to wants.  The things we identify as needs are life-giving/sustaining, BUT we (by "we" I mean Americans, and perhaps citizens of other developed countries) feel entitled to pay the LEAST for them and demand the best quality.  Seems as though the market has responded over time in delivering better food (certainly room for debate there) in much greater quantities through mechanization of farming equipment, technological advancement in food engineering/fertilization, transportation, food packaging to avoid spoilage, domestic competition, and free (freer) trade with the rest of the world.  If we pay less for a pesky need like food, then we have more income left over to purchase "wants", which after all, make life worth living, right?  The graphs below help illustrate these historical developments. 

      The first one shows food (as a broad category) as a share of one's disposable income (income leftover after paying taxes).  You can see there is a steady decrease over time.  The second graph shows the vital commodity milk, as a direct consumption good or input into making a myriad of other goods, and its price change over time. 

Via Carpe Diem...

 Looking at these two graphs, primarily the first one, you could deduce that:
(1) Food prices are not cheaper, but that income has dramatically increased (many do not believe this) so food expense has become smaller relative to incomes.
(2) Food has indeed become cheaper, in real terms, even though incomes have not increased
(3) A combination of both

What do you think?  Am I missing something? Fill me in, please!

Factory Jobs Return, but Employers Find Skills Shortage

NY TIMES: Factory Jobs Return, but Employers Find Skills Shortage

This article is more confirmation (to me) that employment recovery will be a very slow process NOT because jobs will be scarce, but because there will be a major mis-match of skills-to-jobs available (see previous blog entry HERE).  Workers laid off 1 to 2 years ago will find most big and many small companies have changed because of the adoption of emerging technologies.  These longer-term unemployed, who are the fastest growing part of the unemployed, will find that their skills are obsolete or they have been replaced by technology.

""Factory owners have been adding jobs slowly but steadily since the beginning of the year, giving a lift to the fragile economic recovery. And because they laid off so many workers — more than two million since the end of 2007 — manufacturers now have a vast pool of people to choose from. Yet some of these employers complain that they cannot fill their opening.  Plenty of people are applying for the jobs. The problem, the companies say, is a mismatch between the kind of skilled workers needed and the ranks of the unemployed. ""

""Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker. Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills. “That’s where you’re seeing the pain point,” said Baiju R. Shah, chief executive of BioEnterprise, a nonprofit group in Cleveland trying to turn the region into a center for medical innovation. “The people that are out of work just don’t match the types of jobs that are here, open and growing.” The increasing emphasis on more advanced skills raises policy questions about how to help low-skilled job seekers who are being turned away at the factory door and increasingly becoming the long-term unemployed.""

I hear almost NO talk from policy makers about addressing this problem (or am I just not listening?).  The only immediate policy is extending unemployment benefits well beyond the normal time (27 weeks up to 99 weeks).  More money for trade schools, community colleges, tax credits for individuals and businesses to get/give training, etc?  People must update skills or risk falling further behind.  What can we do to solve this? Any suggestions?

Addendum: I found this graph HERE and re-inforces the notion that long-term unemployment is more serious than in the past (track the RED line)...It would be interesting to explore how technology plays into this as a substitute for labor.

In honor of the 4th--A couple of graphics on How Fireworks and Firework shows, well, work...

Chartporn

More people are losing jobs but the unemployment rate is DECREASING? Must be a mistake...or is it??

LATIMES: Unemployment rate dips as more workers leave labor force


Bloomburg: June Job Losses at 125,000, But Jobless Rate Falls to 9.5%

HUH? How can that be? Lose jobs and unemployment rate decreases? Must be a mistake, right?

    Here is a simplified explanation of why the unemployment rate DECREASED in June even though there were significant job LOSSES.  It is a function of how the unemployment rate is calculated and the presence of what the Bureau of Labor Statistics calls "discouraged workers".
      Let's use a simple example.  First we need to calculate our labor force, which is the number of EMployed people PLUS our number of UNemployed people.  The govt considers you unemployed if you are 16 years of age and ACTIVELY(very subjective word) seeking employment. If you cannot find a job after 27 weeks (6 months) to a year, and this is VERY important, the BLS does NOT count you anymore as unemployed.  You are considered a "discouraged worker" and you are NOT included in the ranks of the unemployed when the unemployment rate is calculated.  You still exist, but are not counted. 
     Assume our labor force is 100 people. Of those 100, 90 are employed and 10 are unemployed.  Our unemployment rate therefore is 10% ( the number of unemployed divided by the labor force times 100). Let's say that in June, 5 of the employed people lose their jobs.  We would expect the unemployment rate to INCREASE, right? Now we have 15 unemployed and 85 employed so that makes the unemployment rate 15%% (15 divided by 100 times 100)!!  Not so fast. 
    What if in June, all 10 of our people already unemployed prior to June believe there is no job for them and they give up looking. They become classified as a "discouraged worker"?  NOW our labor force is only 90 people (the 5 who had jobs prior to June lost their jobs and are officially unemployed are counted BUT 10 moved OUT of the labor force completely.
      When we calculate our new unemployment rate we have a labor force of 90 (85 still with jobs, 5 without jobs) divided into our currently classified as unemployed (5) times 100 and we have a rate of 5.55%!!! THAT DOES NOT SEEM RIGHT, does it?
    Key point:  If the number of people leaving the labor force because they believe their is no job available to them ("discouraged") EXCEEDS the number of people LOSING their jobs, then the unemployment rate actually goes DOWN!  This creates a misleading picture of the employment situation.
   This also works in reverse---if and when the economy recovers and people believe there are jobs available, they will re-enter the job market.  In this case if previously classified discouraged worker re-enter the workforce in EXCESS of the number of people actually getting jobs, then the unemployment rate will actually INCREASE!! Again, giving a misleading read on the employment picture.
    This is why economics is frustrating to people and why I love it!!! :)

For a professional point of view on the current unemployment report click HERE(Ezra Klein)

"Sit UP straight, young man!!"--turns our this was really bad advice from your teachers...

From BBC: Sitting straight 'bad for backs'

""Sitting up straight is not the best position for office workers, a study has suggested.
Scottish and Canadian researchers used a new form of magnetic resonance imaging (MRI) to show it places an unnecessary strain on your back. They told the Radiological Society of North America that the best position in which to sit at your desk is leaning back, at about 135 degrees. Experts said sitting was known to contribute to lower back pain. Data from the British Chiropractic Association says 32% of the population spends more than 10 hours a day seated....""

The Onion News Flash!! Terrorist attack averted because the Author of "Twilight" was in Washington...See video! :)

Al-Qaeda Calls Off Attack On Nation's Capitol To Spare Life Of 'Twilight' Author

How GOOGLE works--Nice Graphic, but I understand very little of it...

CLICK HERE to go to site to view whole graphic (Via Chartporn)