ATTN: High School Seniors and College Freshman!! PLEASE, PLEASE, PLEASE READ THIS ENTRY!!!

This is some of the BEST, basic advice I have seen for graduating high school seniors, college freshman and/or sophomores. Those of you that know me know I have been suggesting some of these things for a while now...In some combination, you MUST do all of these and do them to the best of your ability!! Please read the whole article, but I have pasted the 5 must do's below---learn them, live them...

The Current Recession Is Apparently Scaring Millennials

1.Do at least one internship during your college career, two if possible. First, it signals to future employers your passion and career objectives, not that you just wasted four years seeking any higher paying job. Second, it allows you to build a network that you can rely on later while job searching.


2.Network. Make connections throughout your college career, on and offline, including students, faculty, and work-related colleagues and bosses, and keep them active.

3.Participate in extra-curricular activities (and network).

4.It's your education, which means you should be an active participant in your education. Your education does not take place in the classroom; it takes place outside the classroom when you spend time reading and discussing with your classmates and friends the ideas discussed in the classroom. My job as a professor is to pique your interest in the material, but it's your job to follow through and pursue the learning and teaching of yourselves. I employ provocative examples in the classroom as a means of piquing your interest.

5.Don't forget opportunity costs. Life is balance and too much time spent doing one activity means giving up time doing others. Those others might be beneficial also. Too much partying means you're giving up valuable learning in the classroom. On the other hand, valued and marketable skills can be learned through athletics and competition, which means some sacrifice of your school work to participate may pay higher returns than just focusing on schoolwork. Give it your best shot for both, but understand the balance.

"We need Inflation like we need a hole in the head!!" Don't think of it as a hole, think of it as AC for the mind---It could be a good thing! (inflation, not the hole)

   I am covering the basics of supply and demand right now in my AP and "regular" economics classes.  One of the determinants of demand is "consumer expectations".  A common example is to suggest today that we have complete knowledge that the price of a good is going to increase in the near future.  How do consumers respond to this information? Well, even high school students know you go out and buy the good TODAY!  That increases the demand for the good (shifts the demand curve to the right).  Ceterus Paribus (holding all other variables constant), this will cause the market quantity to increase, as well as the price. See graph below:

    Economic logic/theory suggests that the more a producer produces, the more workers they will need to produce the good. So far so good, but this is only ONE industry/business that hired some workers because the price of the good they produce increased.  So, what is good for one industry (in a Micro sense) MIGHT be good for all industries (in a Macro sense), right? How do we get ALL prices to rise simultaneously so the above process can play out and we have LESS UNemployment nationwide but at the cost of some inflation? Gahh! There is that "inflation" word! BUT is it really a bad word given our present circumstances?
   Currently there is a clog in the process. Business and banks are sitting on piles of money right now and are not spending or lending, repectively. Consumers are hesitant to spend because of an uncertain economy and, to a lesser extent, deflation (one puts off buying today in anticipation of lower prices in the future). All these things contribute to a stagnant economy. 
    The worry that DEFLATION is the problem of the day. We need to induce a little inflation (by increasing the money supply) AND have the Federal Reserve publicly TELEGRAPH that they are pursuing a moderate (3%?) inflationary policy. The thinking is this will prompt consumers to do just what I illustrated at the beginning of this post, but on an economy-wide basis.  Anticipation of higher prices of homes, cars, other consumer goods will incentivize people to go buy today.  Consumers and businesses will want to spend dollars that are worth more TODAY than they will be worth in the future.The result will be an increase in the aggregate level of demand for goods/services, a movement to Full-Employment ("FE RGDP") and an increase in the price level, as one would expect. See graph below.

   There is lots of controversy about this in the economic blogosphere, and since I am just a simple-minded  high school teacher, this is as easy an explanation as I can make.  Hey, it gets me through the day...What do you think---Inflation, deflation, leave alone?? Would love to hear from you...

Stop watching movies on your computer or phone---Don't you care about the employees at Blockbuster? You are SOOO uncaring!!!

This article (NYTIMES: Why Bricks and Clicks Don’t Always Mix) offers an excellent illustration of Creative Destruction.

""NOT so long ago, in 2005, Blockbuster seemed invincible. However you preferred to rent movies — in stores or online — the company was ready to accommodate you. At the time, Netflix could offer only one way of obtaining a movie (the mail) and one way of returning it (the mail). It was clicks, with no bricks.
Of course, we now know that Netflix has done just fine. In January 2005, its shares traded in the $11 range. On Friday, they closed at $140.46, giving the company a market capitalization of $7.35 billion.
As for Blockbuster, which was spun off from Viacom in 2004, it’s now a penny stock, and its woes are as visible as the “Closing” banner in the window of a store in your neighborhood. The company recently warned that it might file for Chapter 11 bankruptcy protection..."

 Creative Destruction is an important process in a market economy that allows societal resources to move from one use to another, with relative ease, based on changing market conditions. It is how we get new and improved goods and services.  But there is a price to be paid for it. Two things come to mind.
   One: With the free movement of physical and financial capital we get alot of things produced that perhaps should not be produced.  I always ask for examples in my economics class and the number 1 item mentioned by students is the Snuggie! We all have wandered around a store and thought "who buys this stuff?".  Do you have any good examples from your own experience? Let me know.
   Two: This is more serious.  When an industry goes away so does the financial and physical plant investment from the entrepreneur AND the jobs that existed in that industry.  Harm is inevitably imposed on some as resources morph to an alternative use.  If workers skills are not fungible then they will become structurally unemployed.  If, due to rapid technological change and implementation, this process is accelerated, then numerically more people are affected.  Some suggest this is a part of our unemployment problem right now. 
    I am guessing while the stories of negatively affected workers touch our hearts we are not willing to give up, say our cell phones, for to help them...Take out your phone, look at it, and think of the number of workers who lost their jobs due to the massive consolidation of industries compacted into your phone.  You watch T.V. on it? Does that hurt TV manufacturing/support/repair? Do you listen to music? Does that hurt stores that sell music /CD's and the devices to play music on? Do you use the GPS? How does that affect mapmakers and sellers?  Do you make calls? Does that hurt telephone makers, installers and operators and....The list goes on.  Your phone is a Creative Destruction machine!!!
  The bright side is we get improved "stuff" and new jobs in new industries created by the "destruction".  Yes, jobs are lost but new ones come along to replace them. 
   Creative Destruction has its benefits, which we should maximize, but it does have its costs. How do we minimize the costs, if we should even do so...What do you think?  Any ideas....

This is determination personified for me...Would YOU do this for the privilege to vote?

Wow! I wonder if this will survive a constitional challenge...The word Self-Determination** has a couple of different meanings when I look at this photo...



Election workers carry voting material to remote mountainous villages in Shotol, Afghanistan.
NYTIMES



**Self-Determination:

1.the act or power of making up one's own mind about what to think or do, without outside influence or compulsion

2.the right of a people to decide upon its own political status or form of government, without outside   influence
Source HERE

What is the difference between a politician in Afganistan today and George Washington? Turns out they are very similar when it comes to getting elected.

An article today in the NYTIMES on blatant vote buying in today's elections in Afghanistan...

"...How much does it cost to buy an Afghan vote?...Nonetheless, prices are low. In northern Kunduz Province, Afghan votes cost $15 each; in eastern Ghazni Province, a vote can be bought for $18. In Kandahar, they sell their rights for as little as $1 a ballot. More commonly, the price seems to hover in the $5 to $6 range, as quoted to New York Times reporters in places like Helmand and Khost Provinces...."

In the West vote buying is more subtle and mostly manifests itself  as a "quid pro quo"---vote for me and I will favor, with money or regulations, your union,  business, corporate, environmental concern, etc.  But direct vote buying NEVER happens or happened in the US, right? Even George Washinton was not immune to political realities:

"...But for all of Washington's commendable belief in moderate alcohol use, he very much appreciated its utility. Esther White, a Mount Vernon archaeologist, told me Washington once lost a 1755 campaign for the Virginia House of Delegates because he didn't treat prospective supporters to a drink. Two years later, he rolled out 144 gallons of refreshment. He won with 307 votes, a return on his investment of better than two votes per gallon. He never lost another campaign...." (Source HERE)

How College Students spend their time---Do you REALLY only study this amount of time?

""Being in, or at, a college doesn’t seem to be a terribly bad life.
That’s one of the many implications from a new report by Bureau of Labor Statistics, titled “Back to College.” Here, for example, is the lifestyle of the typical full-time college student:""

Economix

Don't whine about the price of wine---It's China's fault---is this becoming a familiar refrain?

More evidence of the increasing purchasing power of the Chinese...For better or worse, this luxury good is in big demand, hence the world price will increase as well...

New Whine: China Pushes Bordeaux Prices Higher

""...But wine makers and merchants also credit booming demand from emerging economies, especially that of China, where labels like Lafite and Margaux have joined Prada and Hermés as badges of wealth. Last year, China passed the U.S. to become Bordeaux's biggest export market by volume outside Europe..."The pricing of the 2009 wines is way, way above what's been seen before for any previous vintage," Mr. Gearing says.  A big factor is China. The volume of Bordeaux bottled wine exported to the country last year was 39 times the volume in 2000, according to the Council of Bordeaux Wine. Exports of 2009 Bordeaux to China increased 97% by volume and 40% by value from 2008.  "China is now our most important market, even before France," says Paul Pontallier, general director of Château Margaux, which recently opened an office in Hong Kong. "It's really taken off over the past six to twelve months."

 

This Restaurant in Roanoke "gets" a fundamental economic concept--TANSTAAFL!

Housing Bubble and a dishonest political class---birds of a feather or not connected at all---You decide, I am too tired...

    Homeownership and the Housing Bubble---Is there a correlation?...The graph below shows the Consumer Price Index (Dark Red Line, right scale), the housing price index (pulled from within the CPI--Bright Red Line, right scale) and the Homeownership Rate in the US since 1990 (Blue Line, left scale). For the purposes of this graph, the author (Carpe Diem) used 1990 as the base year (CPI and Housing Index =100).  A housing index high of approx. 225 in 2007 means that housing prices increased 125% over 20 years (225 minus 100= 125).  Over the SAME period prices in general, as measured by the CPI, increased 50% (approx 150 minus 100= 50).  

Source: Carpe Diem


    The layman's definition for inflation is "too much money chasing too few goods".  The demand for housing outpaced the available stock of new and used houses fueled by "easy money" from the Federal Reserve and multiplied by the creative financial instruments developed by Wall Street firms.  All designed to get more money into the hands of more people to buy more housing.
    Three simple observations can be made about the data: (1) homeownership rates increased dramatically since 1995 (a VERY steep increase year over year after 1995), (2) lagging behind, yet increasing at an increasing rate and keeping pace with homeownership rates, is the price of housing in general and (3) while prices as measure by the whole CPI have increased, they have increased at a modest rate over time.
    There have been a myriad of reasons hypothesized for the "bubble" in the housing market which contributed to the meltdown in the banking/financial markets. I believe history will be a much better judge as time passes and more objectivity is inserted into the analysis than there is presently.   However, the President AND Congress are responsible for over-sight in these matters. One cannot underestimate the power these two entities exert over the process. This letter sent to Pres. Bush in 2004 by members of Congress provides some insight into the thinking at the time. There seems to be a suggestion that there is a favorable trade-off between "safety and soundness" of the financial system and "affordable housing".  Please read the whole letter but here is the operable paragraph: (note: GSE are "Government Sponsored Entities" such as "Fannie Mae" and "Freddie Mac".  They hold a majority of mortgages in the US and are implicitly guaranteed by the Federal Govt.--this is a whole other blog entry).

"...We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing. Until recently, we have been disappointed that the Administration has not been more supportive of our efforts to press the GSEs to do more. We have been concerned that the Administration's legislative proposal regarding the GSEs would weaken affordable housing perfonnance by the GSEs, by emphasizing only safety and soundness. While the GSEs' affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing....""

There are many parties to blame in the meltdown and I don't blame politicians exclusively, but for the political class to deny any culpability, as some of the signatories have claimed in public forums, is less than disingenuous and borders on dishonesty...I will let you make the call there...

White House to NOT install Solar Panels---My opinion--INSTALL THEM and ignore the critics!!

     I believe solar energy is going to be a vital component to servicing our current and future energy needs and will contribute significantly to a much needed positive Aggregate Supply shock.   By  a positive Aggregate Supply shock, I mean the advancements in solar will be so significant that widespread adoption will across the board decrease the cost of producing for producers--decreasing the cost of producing provides an incentive to produce more.  Produce more goods and more workers will be needed for the production of those goods (so says the economic logic).  Producing more goods then promotes spinoff subsitute and complementary goods--so on and so forth--we are off to the production races...That is REAL economic growth! The tangible and intangible residual benefits are a cleaner environment (a nod to the Lefties) AND less dependence on countries that rely on oil as its primary export (a nod to the Righties).  BOTH ideologies have a stake in this fight and and I don't understand (well actually I do understand) why the resistance from the Right and the timidity from the Left. 
   I don't get the Administrations decision to not install solar panels at/on the White House (Click HERE for article).  Seems a fear of not wanting to invite comparisons to the Carter Administrations has driven the decision, if not in its totality then at least partially.  Are we NOT past that yet? Considering that $80 billion , yes $80 billion, has been allocated in various forms of economic stimulus to renewable energy research, development and actual installation, seems it would be EXCELLENT leadership to outfit the White House with solar technology.  Most Americans are committed to the notion of developing alternative energy sources.  The use of the technology is widespread enough that I don't believe the average American would look askance at it.  I say install them!! What do you think?  Install the solar panels or not?  You have heard my spiel, let me hear your thoughts...

Is healtcare expensive because YOU don't pay enough of the price? I am just the messanger...

If someone else (lets call them a "third party") is paying a portion of the purchase price for something you need/want do you care about how much the total purchase price is? Do you care even less if this third party pays a continually larger portion and you pay a continually smaller portion?  The graph below shows overtime the relationship between what individuals pay at the point of service for health care  relative to what third parties pay for the service.  Prices convey a lot of information but when they become obfuscated by time and distance between the contracting parties, then price distortions tend to set in.   

Source: Carpe Diem

 I can use myself as an example. I have had a series of steroid injections in my lower back for pain.  It required outpatient services, anaesthesia, etc.  I paid my minimal co-pay and the insurance company was billed for the rest. Although I teach economics and know better, I had no incentive to find out how much the total bill came to.  Didn't need to.  The hospital and I were the original contracting parties and I paid the required "price".  Now the bill becomes separated from me by time and distance and the "third parties" now negotiate the price.  Local knowledge starts to dissipate, except for the  hospital that is now contracting with far-off (in time and distance) insurance companies. If I had been a medicare patient, then the third party would have been the Federal Government.  I am not suggesting this is the whole problem with health care costs, but it is a rather large slice.  It is not talked about much in the media, so I hope this helps you to understand another piece of the puzzle in the debate a little more...

"Buy one, Get One Free" Or "Half-Off"--I can't decide which is better!!

It is difficult to not be manipulated by clever marketing, or unclever marketing for that matter (You believe when an item is advertised as "half-off" that it was ACTUALLY sold at the original price at one time, don't you??).  I can explain this to students all day long, but I am sure when they go to the store they are lured by the "sale".  Sellers engage in a concept called relative pricing.  If I have an item I want to sell for $50 and advertise it at that price I will NOT get the same response if I instead put a "manufacturers suggested retail price" of $100.00 and offered it for sale at $50.00, half-off.   Same price outcome but not the same sales response.  the first instance I did not give you are basis for comparison, the second I did...

""Behaviorial economist Richard Thaler has noted that consumers are really bad at making decisions about value and constantly need "reference prices" for comparison. A dress costs $80. Is that too much? Not if it's marked down 50 percent from $160. The trick is, that artificial $160 reference price may not really exist.""How Apple plays the pricing game

 I can cleverly do this with multiple items that are similar but steer you to the one I really want you to buy. Apple (and others) do this very well, but Apple may be the best at this "relative pricing" game...

""...Decoys explain why Apple often sells each gadget in a pricing series, such as the new iPod Touch's $229, $299, and $399 price points for different storage capacities. You may gladly spend $229 to get a hot media player, thinking it's a deal compared with the highest-priced version and not blink that you could instead buy an iPhone 4 at the lower price of $199 with more features.
The $399 "decoy" has clouded your judgment. Apple wins the best of both worlds - stoking demand for products that look like bargains and for all the decoys it sells at much higher prices. Yes, some people will spend $399 for a music player with slightly better technology - and Apple makes even fatter margins...."

If after reading this you still get fooled, well, at LEAST you are an educated fool...Ummm, that did not come our right, did it??? :)

How compromise choices can make you money

Need a current event article for Economics? This one is short and discusses more concepts than any other article I have seen recently...it a carpet bombing of econ concepts!!

Short article chocked full of supply and demand problems thoughout a supply chain, illustrates structural unemployment, changes in the labor force for trucking, the pitfalls of extending unemployment benefits...seems unending...if you need a source for AP Economics or a college economics class, this is one stop shopping...
Shortages of trucks and truck drivers stall product deliveries

Nice graph showing the Natural Rate of Unemployment vs Actual Unemployment overtime...Yes, it IS important!!

Below you will find a graph showing the Natural Rate of Unemployment vs the Actual Rate of Unemployment over time.  The Natural Rate of Unemployment (aka NRU) is the sum or Frictional Unemployment and Structural Unemployment the economy.  These two categories of unemployment are always present and the goal is to minimize them, especially Structural.  Structural unemployment is serious and poses many problems. Workers are unemployed because their skills have been rendered obsolete, primarily through advancements in technology and production process.  These workers tend to be unemployed for longer periods of time and need to undergo re-training to acquire relevant skills.  It is feared that the Natural Rate of Unemployment is going to increase because of an increase in the number of workers who fall into the Structurally unemployed category.  This could describe between 2 and 3 million people!! How do we solve THAT problem?? Ideas?

Cleveland Federal Reserve

Are Americans selfish and not charitable? Nice graphic enclosed that shows who is naughty and who is nice

A bit of good news, but I did not have to be told this...Americans ARE generous...(Click on image to make bigger OR click on link to go to source).
Americans Are More Caring Than 99% Of The World

Here's a rare bit of information to make Americans feel good about themselves.
A UK-based think tank rated Americans fifth in the world in a composite index of charitable activity, including giving money, volunteering, and helping a stranger. Only Canada, Ireland, Australia, and New Zealand ranked higher.  Charity-wise, Americans do better than the British, French, Chinese, and the rest of the world.