I may get burned for saying this, but I REALLY like Solar Power! Nice job, White House!

I don't know why I am such a sucker for solar power, but it seems like tapping into this infinite (infinite in terms of as long as humans exist)  resource is a no-brainer.  I certainly understand the technology is not there yet for widespead adoption to run our economy, but it seems like the most promising frontier.  I am not a "green" person by any stretch of the imagination, but we have to get off of fossil fuels everntually, so I think it is good forward thinking policy (nationally and internationally) to move on it as quickly as possible...Where am I going wrong? Go ahead, pop my dream bubble! Extra credit for good counter-examples. 

USA Today: White House to get solar power

""The Obama administration announced Tuesday that the White House will have solar panels to generate electricity and a solar water heater atop the living quarters by spring 2011...""

Actual Real GDP vs Potential Real GDP...VERY nice interactive graph for this IMPORTANT concept

     These graphs below are part of an interactive available HERE on the relationship between ACTUAL RGDP and POTENTIAL RGDP.  In addressing the problems in our economy, it is critical to understand the difference between the two.  I can see the Production Possibilities Frontier, Short-Run Aggregate Supply and Long Run Aggregate Supply implicitly and explicitly through-out.  I have copied and pasted the two most important parts below, but if you go to the link you can build the models yourself step by step. 
     In the first graph, the ideal situation is for the lines to run parallel to each other with no gap. This means that our actual GDP production is equal to our potential to produce GDP given our resources and full-employment of those resources (people first and foremost).  When you see blue, we are actually producing beyond our potential. Unemployment is very low, which can be a good or bad thing  (more on that in class). Where you see pink, it means actual GDP is below potential GDP---we are in a recession and unemployment is high. This is where we currently find ourselves.

Graph copied from Ezra Klein

     This second graph below shows the data from the graph above PLUS how unemployment would be affected given different GDP growth rates.  If our GDP increased at an annual rate of 6% we would reach the Natural Rate of Unemployment("NRU") of 5% rather quickly (2012). The NRU is considered the lowest unemployment rate we should reach if we are fully employing all our resources.  It is impossible to reach an actual unemployment rate of 0%. There is always some frictional and structural unemployment no matter how good the economy might be performing.  However, NO reputable economist is predicting that high a growth rate anytime soon.  It seems more likely we will be in between 2%-3% average growth rate for the foreseeable future and we won't reach full-employment until the mid to late 20-teens.  Hmm...about the time the class of 2011 graduates from college...that is the good news...

Graph copied from Ezra Klein

""Compared with a healthy economy, about 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could. The economy is growing again, but at a rate — less than 2 percent in recent months — that’s too slow to keep up with a population that keeps increasing and workers who keep getting more efficient.
This is the output gap, the divide between the amount the United States can produce and what it is actually producing. The gap, currently $900 billion, explains why we feel so miserable more than a year into what is technically classified as an economic recovery.""

Nom Nom Nom, Crinkle Crinkle Crinkle...Sunchips is taking the crinkle out of the crinkle...

NomNomNomNom, Crinkle Crinkle Crinkle...Oh, here I am...The makers of Sunchips are changing the chip bags to less noisy ones.  It is no big irritant to me, but apparently to sound sensitive people it is a real problem.  A nice example of a business responding to customer complaints/dissatisfaction in "their own self-interest".  . 

""Roughly 18 months after Frito-Lay, with great fanfare, launched a biodegradable SunChips bag made from plant material that was billed as 100% compostable, the company is yanking the noisy material from the packages of five of six SunChips flavors immediately.

The company is returning them to their former bags that can't be recycled — but won't wake the neighbors — while it works frantically to come up with a new, quieter eco-friendly bag.
The noise of the bag — due to an unusual molecular structure that makes the bag more rigid — has been compared to everything from lawnmowers to jet engines. There's even an active Facebook group with more than 44,000 friends that goes by the name of "Sorry But I Can't Hear You Over This SunChips Bag."
"Clearly, we'd received consumer feedback that it was noisy," says Aurora Gonzalez, a Frito-Lay spokeswoman. "We recognized from the beginning that the bag felt, looked and sounded different..."(Source HERE)

Manufacturing UP! GOOD! Manufacturing employment DOWN! Not so good...Will it ever recover?



A machine shakes almond trees in an orchard in Buttonwillow, Calif. (Al Seib, Los Angeles Times / October 4, 2010)

 The graph below shows manufacturing output (right axis) relative to employment in the manufacturing sector (left axis) in the US from 2006 to the present.  The decoupling of these two variables starting in early 2009 is quite dramatic.  Manufacturing output is increasing at an increasing rate which is GREAT, but it was starting out from a pretty low base at the beginning of 2009.  The big question from this is: Is manufacturing employment going to recover and get back to what it was, even in 2006 or are those jobs, relevant just 3 years ago, lost forever?  Please see the excerpt from the LA Times below the graph for a real life look at one industry in California....Take note of the quote in red--this will be well discussed in AP Microeconomics in the Spring...(HT: Carpe Diem)   

Source: Carpe Diem (where else??)


The following comes directly from HERE:

From today's LA Times: Automation is increasingly reducing U.S. workforces


"Forced to cut costs during the recession, employers across the country are looking at ways to avoid hiring. They've accelerated use of computers and technology, replacing administrative assistants with software, cashiers with self-service kiosks and laborers with machines.

These structural changes mean some jobs that disappeared during the recession may never come back. Productivity gains are good for company profits and help the economy grow over the long run. But in the short term, the shift is exacerbating America's jobless recovery.

"Recessions tend to act as ratchets; they'll often speed the pace of fundamental changes that were going on in the economy anyway," said Erica Groshen, vice president and director of regional affairs at the Federal Reserve Bank of New York.

Ditching workers is an appealing prospect to many California farmers. Few states have minimum wages higher than California's $8 an hour. The heightened focus on workers' immigration status has increased farmers' administrative burden.

With the help of machines, though, growers can continue to boost output while reducing headcount. Farm labor in California has fallen 11% over the last decade, yet cultivation of heavily automated crops soared over the same period: almond production has more than doubled, to 1.6 billion pounds.

"If cheap technology is available, you substitute technology for people," said Allen Sinai, chief global economist at Decision Economics in Boston.

Automation has been a steady progression since the Industrial Revolution. Still, laying off workers is never easy. Recessions give companies a motive to move more swiftly than they otherwise might have to cut staff, outsource work to cheaper locations and implement labor-saving technology, Sinai said. When sales pick up, companies can help profits rise quickly by keeping a lid on hiring.

That's part of the reason that earnings at some large companies have soared over the last year while job creation has lagged behind. In August, U.S. private sector employers added 67,000 jobs, far fewer than the 100,000 needed to keep pace with population growth."

The world "appreciates" the Brazilian currency (the "Real") but Brazilians are NOT appreciative! Are they ingrates? Maybe not...

     In the midst of a national election, the Brazilian government is worried that its currency has appreciated too much in the Foreign Exchange Market. WSJ: "Brazil's Surging Currency Figures in Election"

 

""Election time in Brazil once meant wondering whether the nation's historically skittish currency would crash. This time around, policy makers are wrestling with a different problem: Money so strong they fear it may hinder the country's export-driven economic.."

     When a countries currency appreciates relative to other currencies, its goods and services become more expensive for foreigners to purchase.  Note: nothing about the good or service has changed, only the value of the currencies used to purchase those goods or services has changed.

     In class, we learned that the prime mover of currency values are relative interest rates.  Interest rates in Brazil have been significantly higher than interest rates in many other stable, developed countries.  Brazil's "financial assets" are desirable, hence so is its currency to purchase those financial assets.  This has been one of the primary reasons for rapid appreciation of the Brazilian Real (the name of the Brazilian currency).

"For example, Brazil's 10.75% overnight interest rate is among the highest in the world. That encourages speculators to borrow in the U.S. and Japan where money is cheap, deposit it in Brazil, and pocket the difference. This so-called carry trade pumps up the real by attracting a flood of dollars."

The first graph below shows the Market for the Brazilian Real ("BRL") at equilibrium.  I will use the US Dollar as the other currency, but it could be any other currency.  Notice in the Market for BRL we price it in dollars ("USD/R$*).  You should literally read this as "the dollar price per BRL" or more simply "How many dollars does it take to BUY ONE BRL".  To keep it simple, let's assume the exchange rate is $1.00USD can buy R$1.00 and vice versa.  In other words the currencies trade at parity. 

As already established,  Brazilian financial assets have become more desirable because of the higher interest that can be earned on financial capital.  There is now going to be movement in the Foreign Exchange Market (FOREX) between the USD and the BRL.  Holders of dollars will want to take advantage of higher interest rates in Brazil. They will take their USD to the FOREX and exchange them for BRL's.  This will INCREASE the supply of USD in the FOREX and INCREASE the demand for the Brazilian Real. See graph below.

The new equilibrium price is now at "USD/R$1" We established that at equilibrium we could buy R$1.00 with $1.00. Just looking at the graph we can see that it now takes something more than $1.00 to buy R$1.00, say, $1.69 (the actual exchange rate as of 10/03/10). 

    When holders of dollars exchange for BRL's they have to pay $1.69 instead of the previous $1.00.  Consistent with the Law of Demand, as the price of BRL increases the quantity demanded of BRL decreases which means (1) holders of dollars will purchase fewer BRL's and in turn purchase fewer Brazilian goods or services and/or (2) the goods or services they continue to buy in Brazil will effectively be more expensive and the quantity demanded of those goods and services will decrease.  Either way, exports of finished goods or services from Brazil will be negatively impacted. 

     Can you think of any good news Brazil can wring out of an Appreciating currency?  There are some positives...Extra credit for responding and giving me one...or ten... :)

"Baseball been berry berry good to me"---especially batting .300 instead of .299

Motivation is everything! Baseball players entering the final at bat of the season with a .299 batting average demonstrate the power of incentives...NYTIMES

NYTIMES

""Two economists at the Wharton School of the University of Pennsylvania, while investigating how round numbers influence goals, examined the behavior of major league hitters from 1975 to 2008 who entered what became their final plate appearance of the season with a batting average of .299 or .300 (in at least 200 at-bats).
They found that the 127 hitters at .299 or .300 batted a whopping .463 in that final at-bat, demonstrating a motivation to succeed well beyond normal (and in what was usually an otherwise meaningless game).
Most deliciously, not one of the 61 hitters who entered at .299 drew a walk — which would have fired those ugly 9s into permanence because batting average considers bases on balls neither hit nor at-bat.""

Tips for improving your chances of admittance to an "Elite" college---Take them for what they are worth...

Tips for High School students wanting to increase your chances of admittance to an "Elite" school (you define that as you wish).  Worth a look and it might help you in general in preparing for that next step... Here is the LINK and below is my personal favorite:

"If you've taken nine or more Advanced Placement tests, you're more than twice as likely to be admitted into an elite school as applicants who have taken no AP tests.

With nine or more AP tests, your chances are 36.2 percent. With three AP tests, they're 20.9 percent. With none, they're 15 percent. Number of AP tests taken "is a proxy for 'rich white kids,'" says O'Shaughnessy. "If you're a rich white kid, you have more access to APs. You're going to attend a high school where people live and breathe APs. You've got an advantage.”"

Nice graphic showing Federal Taxes paid and how much YOU pay for various budget items...Need to know information to be an informed citizen.

A graphic from THIS report (HT: Carpe Diem) showing an example of a taxpayer adjusted gross income (income AFTER various legal deductions) of $34,140 (median US Income) and how much of that income goes to pay Federal taxes and how much is allocated to a variety of budget items.  Note: these are not all the Federal taxes we pay. For instance, we pay lots of "unseen" Federal taxes by way of import tariffs on many/most imported goods.  Money well spent? Depends on what YOUR priorities are, right???


Source: Carpe Diem



World Population Graph---Amazes me everytime I look at one.

Source: EconomicsHelp

Watch one of the worlds only professional economist-comedian (no, that is not redundant)

HT: Greg Mankiw

Frederic Bastiat violation!! Attention Broken Window Fallacy fans!!

Destroying perfectly good signs for no good reason. Ok, they cite a reason, but really, is it a good one??...I guess it will "stimulate" the economy by providing jobs for the sign makers, and the crews who will take down and then install the new signs...

""NY Daily News -- New York City will change the lettering on every single street sign - at an estimated cost of about $27.5 million - because the feds don't like the font. Street names will change from all capital letters to a combination of upper and lower case on roads across the country thanks to the pricey federal regulation (see photo above).  By 2018, MADISON AVE. will become Madison Ave. and will be printed in a font called Clearview, the city Department of Transportation says. The Federal Highway Administration says the switch will improve safety because drivers identify the words more quickly when they're displayed that way - and can sooner return their eyes to the road." (Source Carpe Diem)

Perhaps the authorities should  read a little ditty called "The Broken Window" by Frederic Bastiat...

""Now, if James Goodfellow is part of society, we must conclude that society, considering its labors and its enjoyments, has lost the value of the broken window. From which, by generalizing, we arrive at this unexpected conclusion: "Society loses the value of objects unnecessarily destroyed," and at this aphorism, which will make the hair of the protectionists stand on end: "To break, to destroy, to dissipate is not to encourage national employment," or more briefly: "Destruction is not profitable."""

A short lesson on how US Treasury's work---It is very "interest"ing...

     The US government (all governments for that matter) finance spending through (1) tax receipts and/or (2) issuing promissory notes, called bonds, securities, Treasury notes, Treasury Bills ("T-Bills"), or some combination thereof.  All these names have significance but for this blog entry I will refer to Treasury Bills (T-Bills) or more simply as "Treasury's". 
     Treasury's are "marketable securities" and are very short-term in length (4weeks, 90 days, 180 days, 365 days).  They are considered debt instruments and are traded in secondary markets world-wide.  As such, they are subjected to the laws of supply and demand and each Treasury has a price attached to it. How is that price determined? Glad you asked. 
     Let's assume the government wants to raise some money from the market-place instead of printing it.  To do this they issue a Treasury Bill (or Note) with a face value of $100.  No one is going to pay $100 for a $100 dollar Treasury so the government has to sell it for something less than $100.  Assume the marketplace has determined the current market price for a $100 face value US Treasury is $90.  See the graph below:

     If I purchase this Treasury for $90 and can redeem it sometime in the future for $100 then I have made $10 on the transaction.  If you convert this gain into a rate of return, or interest rate, we have a percentage gain of 11.11%! ($10 gain divided by my investment of $90 times 100 equals 11.11%).  So my Treasury is priced at $90 and has a potential gain of 11.11%.  Good enough...But we are not done.
     Because Treasury's are traded in secondary markets world-wide, the price of the Treasury is subject to change. Assume there is economic uncertainty in other developed countries and their markets are in turmoil.  Investors look not only for high rates of return, but stability and some level security for there money. THE safest investment is US government debt, i.e. Treasury's and is considered a safe-haven to park financial capital.  The turmoil in foreign markets creates an increase in demand for Treasury's.  See graph below to see the effect on the market for US Treasury's:

     Notice the Price of Treasury's has increased to $95 (I made the new price up) relative to the previous price of $90.  NOW the $100 face-value Treasury is priced at $95.  So now the owner of this Treasury can redeem it for  $100.  His profit would be $5.00.  Converting this into an interest rate, or rate of return, we can see the effective interest rate is now 5.26% ($5.00 divided by $95 times 100 = 5.26%). This is considerably less than the previous effective interest rate of 11.11%. 
     IMPORTANT observation:  As the price of the Treasury INCREASED the Interest Rate earned from it DECREASED!  There is an inverse relationship between the price of a Treasury and the Interest Rate it earns.  Repeat that to yourself---it is important. 
    Currently there is significant demand for US Treasury's because they are seen as a safe-haven investment, and it is driving the price of them up and decreasing the yields (rate of return).  The Federal Government can borrow money at a VERY low interest rate (click HERE for latest rates).
   IF investor confidence improves and stocks and/or other investments become more attractive then the demand for Treasury's will decrease, the price will decrease and the interest rate will increase.  This is a negative for the Federal Government because they will have to offer higher interest rates to attract money to finance deficit spending. This will increase the interest payment outlays in the federal budget.
    Hopefully you learned a little bit of how Federal debt instruments work.  If is understood by the few, but it affects the many...

Employing you costs much more than the wage you are paid---find out what the TRUE cost of hiring you is

How Much Does It Cost to Employ You?
I can't import this calculator into the blog, so you will have to visit the site. Insert your wage and other compensation you may receive and get the total price to hire you.  A great way to see how much it ACTUALLY costs an employer to employ you.  Their cost is NOT just the wage they pay you. There are many other costs/taxes associated with hiring you.  Go to the link and you can see them! Very enlightening...

Employer Cost Calculator

Segway company owner dies---after driving a Segway over a cliff---you can make this stuff up and it is NOT an onion creation

This is soooo Paul Blart, Mall Cop sounding and I can't get the visual I have created for myself  out of my mind...

Tycoon who took over Segway firm dies in freak accident after riding one of the machines off hillside and into a river

""The multi-millionaire owner of the Segway company died in a freak accident yesterday when he rode one of the high-tech two-wheel machines off a cliff and into a river.



Former miner Jimi Heselden, 62, plunged into the River Wharfe while riding around his West Yorkshire estate in Boston Spa on a rugged country version of the Segway.


He bought the firm last December and was using one of the machines - which use gyroscopes to remain upright and are controlled by the direction in which the rider leans - to inspect the grounds of his property.""

Here is the deal--I will borrow a dollar from you and pay you interest. I will then give you the dollar back and borrow it again from you and pay you interest..AGAIN...I am such a dealmaker!!!

    If we ran our households like this a bankruptcy judge or a personal finance counselor would shake their head and we would feel shame...We actually give foreign aid to China! It is only $68 million dollars but...REALLY??  $68 million dollars would give 6,800 students $10,000 each for college scholarships.

""It's almost as if Japan (Or the U.S.) gives aid money to China, but then finances this charity by taking a loan from China, then paying interest to China on the charity it provided... to China. Yes the world is a complex place, but it's just an extremely peculiar arrangement here.""

    If I thought for ONE MINUTE that raising taxes at this time would actually improve our federal budget situation, I would support it...But can anyone who is reflectively in favor of increasing taxes, honestly say with a staight face they believe the extra revenues will be spent in a responsible manner by members of EITHER party?  We cannot operate in a vacuum and only think about increasing revenues. There are two sides to the equation and I don't believe the spending and/or debt side is being addressed in any serious way.  Please read the above excerpt again before answering...I am not anti-government or pro-government--I just want fiscally responsible government that follows basic accounting rules and is transparent.  I am certain we are getting neither...Tell me where I am wrong--I am open to ideas...Extra credit for students for helping me out...