The angst over shopping for Christmas is not a new thing...The more things change, the more they stay the same...

In what year do you think this quote from the NYTIMES was made? (Click HERE to see the answer)

 ""It is astonishing to see what lengths some people will go to in giving presents at Christmas. I am told they will borrow, go in debt, or even steal to gratify their desires. The ladies get the worst of it, of course. It requires great skill to manage the whole business successfully and economically. I was told by a lady friend not long ago that in her exchanges last Christmas one of her friends returned, through a mistake, the gift she had sent to her the year before."" (HT: Division of Labour)

My letter to the NYTIMES regarding an Op-Ed piece by Larry David---Just like George, he presents only half the story

A letter I sent to the NY TIMES regarding an opinion piece (see below) by Larry David (co-creator of "Seinfeld:")

""I assume Larry David is a high-income earner as a result of his God-given talent and entrepreneurial skills, and not as a result of an inheritance or a trust-fund.   I am a bit perplexed as to why he chose to focus only on his demand-side participation in the economy and not on his immense ability to affect the supply-side.   After all, it was his “supply-side self” that produced his wealth and, on net, improved the entertainment value of television, wasn’t it?  Yes, he could use his money to purchase all those luxury items but he could also pool it with other like-minded entertainer’s or entrepreneurs who feel they have somehow received ill-gotten gains from this “tax-cut”, and create a new show or fund ANY other type of business that would actually create and maintain new jobs in the economy.  Make lemonade out of lemons, Mr.  David. Now THAT would be a show about something!""

Thanks for the Tax Cut!By LARRY DAVID
 

Published: December 20, 2010

THERE is a God! It passed! The Bush tax cuts have been extended two years for the upper bracketeers, of which I am a proud member, thank you very much. I’m the last person in the world I’d want to be beside, but I am beside myself! This is a life changer, I tell you. A life changer!

 
To begin with, I was planning a trip to Cabo with my kids for Christmas vacation. We were going to fly coach, but now with the money I’m saving in taxes, I’m going to splurge and bump myself up to first class. First class! Somebody told me they serve warm nuts up there, and call you “mister.” I might not get off the plane!


I’m also going to call the hotel and get another room so I don’t have to sleep on a cot in the kids’ room. Don’t get me wrong — I love a good cot. The problem is they tend to take up a lot of room, and it’s getting a little tougher in my advancing years to fold it up and drag it to the closet. I mean, I’d do it if I had to, but guess what? I don’t! Not with this windfall coming my way. Now I get to have my own room with a king-sized bed. And who knows, maybe I’ll even get some fancy bottled water from the minibar. This is shaping up to be the best vacation I’ve had in years.


When I get home, thanks to the great compromise, the first thing I’m going to do is get a flat-screen TV. Finally I can throw out the 20-inch Zenith with the rabbit ears, the one I inherited from my parents when they died. The reception is terrible and I’m getting tired of going out to bars every time I want to watch a game. Last month, the antenna broke and I tried to improvise one with a metal hanger and wound up cutting myself. Every time I see that scab, I say to myself, “If, God willing, those Bush tax cuts are restored, I’m going to buy a new TV.” Well, guess what? They have been!


It’s also going to be a boon for my health. After years of coveting them, I’ll finally be able to afford blueberries. Did you know they have a lot of antioxidants, which prevent cancer? Cancer! This tax cut just might save my life. Who said Republicans don’t support health care? I’m going to have the blueberries with my cereal, and I’m not talking Special K. Those days are over. It’s nothing but real granola from now on. The kind you get in the plastic bins in health food stores. Did someone say “organic”?
The only problem is if, God forbid, the tax cuts are repealed in two years, how will I ever go back to Special K and bananas? Well, I did quit smoking, so I’m sure if push came to shove I could summon up the willpower to get off granola and blueberries. Of course, I suppose with the money I managed to save from the “Seinfeld” syndication, I probably could continue to eat granola with blueberries, but let’s hope it doesn’t come to that.


Life was good, and now it’s even better. Thank you, Republicans. And a special thank you to President Obama and the Democrats. I didn’t know you cared.


Larry David appears in the HBO series “Curb Your Enthusiasm.”

Did you get a Flu Shot this year? If you did not, then you really messed up the market for flu vaccine. See the supply and demand analysis within! No, it is not as bad as having the flu, I promise...

WSJ: Flu-Shot Demand Droops; Prices Fall

""Drugstores, supermarkets and some doctors' offices are slashing prices or offering other kinds of deals on flu vaccine this year amid weaker-than-expected demand.


Last fall, hordes of worried parents, pregnant women and others drove demand for a limited supply of H1N1 flu vaccine as the swine-flu pandemic spread across the country, eventually infecting an estimated 61 million people in the U.S. and killing more than 12,000.


Demand for the separate, seasonal flu shot also was strong, largely because of the hysteria surrounding H1N1. Most venues ran out of seasonal flu vaccine by early November.


This year, supplies of the seasonal flu shots are bigger than ever: Manufacturers produced and distributed 163 million doses of the vaccine, compared with the 110 million doses distributed last year. Retailers and doctors' offices stocked up, pushing inoculations earlier and harder in the belief that heightened awareness of flu and a new government recommendation that all Americans over six months of age should get inoculated would drive strong demand....""

A couple of things are going on here that affected the market for flu shots.  There was an anticipation that the demand for flu shots would be greater than last year because of the swine flu epidemic and an increased awareness of the dangers of not being inoculated. In response to this anticipated demand, manufacturers increased the supply of vaccine, relative to the quantity produced last year. This is ripe for a basic supply and demand analysis...with graphs!!! 

The first graph shows the market in equilibrium BEFORE the market shift in demand and supply. Using the numbers in the article, the market price is $25 and the market quantity is 110 million, point "A". Assume the market "clears" at this price and quantity. 

The next graph shows the INCREASE in Supply of Flu Vaccine.  The Supply curve shifts to the RIGHT (S* to S1) to show that at every price, the quantity supplied of vaccine is 53 million units GREATER, relative to S* (163 million vs 110 million).

Simultaneously, we will assume the presumed anticipated increase in demand occurs. In the next graph, the demand curve shifts to the right (D* to D1), indicating that at every price, the quantity demanded of vaccine is 53 million units GREATER, relative to D* (163 vs 110). 

Our market is back at the same equilibrium price ($25) BUT at at higher market quantity (163 million), point "B".  It all works out, right???

The article suggests that Demand did not respond as anticipated for a variety of reasons.  Lets assume that Demand did NOT shift all BUT retailers and doctors did not recognize this immediately and the try to maintain the $25 price for the vaccine.  How does this affect the market?

Our market is out of equilibrium. Let's clear the clutter of this graph and look at simplified one below. At $25 the quantity demanded is 110 million units (point "A"), but the quantity supplied is 163 million units (point "B")--Quantity Demanded does not equal Quantity Supplied! In fact the Quantity Supplied EXCEEDS the Quantity Demanded by  53 million units, which means we have a SURPLUS of vaccine.

How does a market "clear" this surplus?  Shown below, by decreasing the price and moving ALONG the DEMAND curve (point "A" to Point "C") increasing the quantity demanded at the lower price. Moving ALONG the SUPPLY curve (Point "B" to "C"), decreasing the quantity supplied at the lower price. A new market clearing price ($15) and market quantity (140) are established. 

Full Disclosure: I am 50 years old and have never had a flu shot. I am playing with fire, I know.  Hmmm....what is the unseen consequence of this?.....Oh, right,....DEATH! Guess I should go get one...

A Primer on the role of Payroll Taxes in the latest Tax Bill set to become law and how it relates to Demand-Side and/or Supply-Side Economics...

Many students work part-time jobs but most don't understand their paychecks, or more specifically, the two primary tax deductions that come out of their paychecks.  It is important to understand these two taxes because the latest tax bill compromise between the President and Congress to stimulate the economy is going to affect YOUR paycheck very soon.

Almost all private sector workers pay TWO mandatory payroll taxes: Social Security and Medicare.  Both of these taxes are targeted to paying benefits to retirees and other designated beneficiaries for living expenses (Social Security) and medical expenses (Medicare). 

The Social Security Tax is 6.2% and the Medicare Tax is 1.45% of your gross pay.  So, for example, if you earn $10 per hour and you work 10 hours a week your gross pay is $100. On this amount you would pay $6.20 in Social Security taxes and $1.45 in Medicare taxes.  Bottom line: you pay $6.20 (Social Security) and $1.45 (Medicare) , or a total of $7.65, for every $100 you earn.

This is not the whole story on these two taxes:

Both the Social Security tax and the Medicare tax must be matched by the employer. This means the employer must remit to the federal government 12.4% of each employee’s first $106,800 of taxable earnings plus 2.9% of each employee’s earnings regardless of amount. (Source)

That is right---your employer matches the amounts that are sent to their respective trust funds in Washington, DC. The Social Security portion has a cap on the amount that is subject to the tax--$106,800. The maximum amount someone would pay into Social Security in any given year is $6,621.06. However, there is NO cap on the earned income that is subjected to the Medicare tax. Keep in mind, the portion your employer pays for these two taxes does not come out of your paycheck BUT is a cost to them to employ you. While you are paid a set wage ($10 per hour) it actually costs more than that to employ you--at this point that would be $10.76 ($10 times 7.65%, the employers portion of the taxes).

Congress and/or the President had two choices: reduce the Social Security tax on workers, a Demand-Side stimulus OR on employers, a Supply-Side stimulus.

The current tax bill will reduce the Social Security tax from 6.20% to 4.20% for 2011.  This is on YOUR portion of the Social Security tax, NOT the employers. The Medicare tax will stay the same. What this means for you, using our example above, is you are going to have an additional $2.00 per $100 you earn in your paycheck.  So, for a worker who earns $500 per week, they will have $10 extra dollars in each paycheck.

Congress and the President opted for a Demand-Side stimulus for the economy.

Here is the reasoning: workers have more money in their paychecks; they will buy more goods and/or services; businesses will sell/produce more goods/services to meet this increased demand; businesses will hire more workers to sell/produce these additional goods/services; newly employed people are now income earners; they will, in turn, buy more goods/services from other businesses that are responding in kind; the economic "pump" has been "primed"...DEMAND CREATES SUPPLY!

Here is the alternative, Supply-Side argument they could have chosen instead: reduce the Social Security portion employers pay for each worker; this reduces the cost of employing labor (which is the largest cost for most businesses); employers "at the margin" of deciding to hire workers will employ more labor; these workers produce goods/services at a lower marginal cost than before; businesses produce more goods/services; the newly employed people are now income earners; they will, in turn, buy more goods/services from other businesses that are responding in kind; the economic "pump" has been "primed"... SUPPLY CREATES DEMAND!

What BOTH ultimately come down to in the current economic climate is this: WHICH path would encourage the hiring of workers by businesses. The lynch-pin is business behavior: Will the Demand-Side policy increase demand enough that businesses collectively hire more workers, or will they see this bump in demand as temporary and make do with existing workers.  Would the Supply-Side policy produce the same result--employers collectively not hiring regardless of the reduction in the cost of hiring workers, because they know the tax relief is temporary and they don't want to take on new employees if they are uncertain about future economic conditions. 

Yikes!! What would you do? Given the current economic conditions, GDP is increasing but hiring is not at a significant level ("a jobless recovery"), which policy option would you choose? Extra credit on the final is at hand!!

Getting medical care for peanuts. No, really, getting medical care for peanuts..It is a sign of the times...

This is what happens in the extreme when people and institutions lose faith in the currency.  Zimbabweans have essentially abandoned their currency and are using various commodities for exchange purposes.  Local heathcare providers have established a price list  that gives a commodity-to-US Dollar "exchange rate"...See photo below...

NYTIMES: Zimbabwe Health Care, Paid With Peanuts

""People lined up on the veranda of the American mission hospital here from miles around to barter for doctor visits and medicines, clutching scrawny chickens, squirming goats and buckets of maize. But mostly, they arrived with sacks of peanuts on their heads....""



NYTIMES

Which is better for the environment, fake Christmas trees or real ones? The answer may surprise you...

Which is better for the environment, fake Christmas trees or real?  If you are trying to conserve trees, then fake is the way to go. But if you are trying to conserve resources overall and minimize your "carbon footprint", then the choice is not so clear...

NYTIMES:  How Green Is Your Artificial Christmas Tree? You Might Be Surprised

""Kim Jones, who was shopping for a tree at a Target store in Brooklyn this week, was convinced that she was doing the planet a favor by buying a $200 fake balsam fir made in China instead of buying a carbon-sipping pine that had been cut down for one season’s revelry.


“I’m very environmentally conscious,” Ms. Jones said. “I’ll keep it for 10 years, and that’s 10 trees that won’t be cut down.”


But Ms. Jones and the millions of others buying fake trees might not be doing the environment any favors.


In the most definitive study of the perennial real vs. fake question, an environmental consulting firm in Montreal found that an artificial tree would have to be reused for more than 20 years to be greener than buying a fresh-cut tree annually. The calculations included greenhouse gas emissions, use of resources and human health impacts.


“The natural tree is a better option,” said Jean-Sebastien Trudel, founder of the firm, Ellipsos, that released the independent study last year""

“You’re not doing any harm by cutting down a Christmas tree,” said Clint Springer, a botanist and professor of biology at Saint Joseph’s University in Philadelphia. “A lot of people think artificial is better because you’re preserving the life of a tree. But in this case, you’ve got a crop that’s being raised for that purpose.”

We don't have a trade deficit with China anymore!! So why all the protectionist talk?

Well, it has not been entirely eliminated, but is it nearly as bad as it is portrayed? As with many (most?) economic statistics, Gross Domestic Product (GDP) accounting is very imperfect and often misleading measure of a country production of goods and services.  Finished goods are called "outputs" and all the components that go into making the finished good are called "inputs". GDP does not count the market value of inputs because they are not in their "final end-use condition"--they are just on their way into making a final good.  This is not really a problem if all the inputs are produced in the same country they are assembled.  The problem arises when the supply chain becomes globalized and the component parts come from multiple countries. Under traditional GDP measure, the country at the end of the production chain gets full "credit" for the market value of the good, even if they contribute very little to the overall value of the good.  The point of the article below is that this distorts the trade situation with China, which in large part is the final assembly point for lots of high-value inputs produced elsewhere.  The i-Phone is used as an example of how GDP accounting affects the trade balance with China.  The inputs are high-value production and the assembly is low-value.  However, the countries that produced the high value items get no GDP accounting credit for what they produce, ONLY the GDP debit for importing it and consuming it...Perhaps a new measure of GDP is in order to keep up with globalization???

WSJ: Not Really 'Made in China'

Trade statistics in both countries consider the iPhone a Chinese export to the U.S., even though it is entirely designed and owned by a U.S. company, and is made largely of parts produced in several Asian and European countries. China's contribution is the last step—assembling and shipping the phones.


So the entire $178.96 estimated wholesale cost of the shipped phone is credited to China, even though the value of the work performed by the Chinese workers at Hon Hai Precision Industry Co. accounts for just 3.6%, or $6.50, of the total, the researchers calculated in a report published this month.



Nice graphic on how some things have changed since the year 2000...

Technology use by the masses has really taken off in 10 years...Quite incredible if you stop to think about it...The price of gas intrigued me.  From 2000 until today (roughly $2.89) the price has increased 95%. Taking into account inflation, $1.48 in 2000 is the equivalent to $1.88 today (inflation calculator HERE).  In other words, if gas prices had simply increased in price along with the prices of everything else, as measured by the Consumer Price Index (CPI), we should be able to buy gas for $1.88 a gallon (a 27% increase).

Source HERE

Marine Corps promotional video for Marines who guard US Embassies---I served at US Embassies in Kingston, Jamaica and Bamako, Mali...

Me--1982. Bamako Mali (2nd from the Right)

Most popular Gawker Passwords that were hacked...Even I am not this bad...

Source HERE

Nice graphic on how colors affect our purchasing decisions...I hate that I am so gullible!!!



Go HERE for a larger version

Source HERE

Go HERE for a larger version

All I want for Christmas is for students to properly label their graphs...Really, that is all I want...




Chartporn

  All I want for Christmas is for students to properly label their graphs...Really, that is all I want...

News Headlines: "US imposes tariffs on Chinese tires"..."Traffic fatalities increase at an alarming rate"---How are these two stories related?

From WSJ: WTO Backs US in Tire Dispute with China

 The World Trade Organization Monday sided with the U.S. over tariffs the Obama administration imposed last year on Chinese tires, in a high-profile case likely to stoke tensions in coming U.S.-China trade talks.

The WTO dispute-settlement panel ruled in favor of President Barack Obama's decision from September 2009 to levy tariffs of as much as 35% on Chinese tires under a rarely used safeguard provision to protect against import surges, provoking one of the biggest trade spats between the two countries in recent years. In addition to taking the case to the WTO, China retaliated by announcing a series of duties on U.S. chicken, nylon and other exports.

U.S. Trade Representative Ron Kirk called the decision a "major victory" that demonstrates the solid legal underpinnings of U.S. trade remedy laws.

"This outcome demonstrates that the Obama administration is strongly committed to using and defending our trade remedy laws to address harm to our workers and industries," Mr. Kirk said in his statement.""

No "harm to workers and industries" in the protected industries, but what about the harm to consumers who have to pay more for not only Chinese tires, but American tires as well...Oh, wait, you did not think American tire producers would keep their prices the same now that they got the tariff imposed...did you?

The Chinese tires are of the lower end of the market type tires that, in general, lower income people purchase.  So the effect WILL BE (I don't mince words here) delayed purchase/replacement of tires by this group, which in turn means more unsafe tires on the road, which in turn means more traffic accidents, which in turn means more injuries/fatalities "at the margin". 

The lesson here is one of "rent-seeking"---the use of government to confer benefits on the few (the tire industry and their workers/Unions) at the expense of the many (everyone else who buys tires).  The benefits are concentrated while the costs are diffuse.  Mr Kirk's statement could be worded like this too and not lose its meaning:  

"This outcome demonstrates that the Obama administration is strongly committed to using and defending our trade remedy laws to address impose harm to on our workers consumers and industries their families ," Mr. Kirk said in his statement.""

Is this too harsh? Tell me where I am going wrong...

John Boehner needs a little TLC? I can refer him to my favorite therapist...

John Boehner Couldn't Stop Crying On '60 Minutes'

""Last night 60 Minutes interviewed incoming Speaker John Boehner who got very emotional (we're talking tears and sniffling and a sob or two ) when Lesley Stahl pressed him to talk about...kids in school..."

Perhaps he could use some therapy from my favorite psychiatrist...

Ok, rationality has left the building--to pass a tax bill that increases the deficit, Senate leadership offers incentives to reluctant Senators that will, well, increase the deficit...Will it ever end?

Why, oh, why does it have to be ethanol.  It is the one subsidy that has widespread support from the left and right to get rid of.  If they can't eliminate this one bad policy, I have little faith they can cut any spending on anything significant in the federal budget...Business as usual??

Reid Sweetens Tax Deal With Ethanol, Green Subsidies  

Senate Majority Leader Harry Reid, D-Nev., late Thursday unveiled a new version of the tax cut deal President Obama hammered out with Republicans. The package keeps the basic framework but adds several provisions clearly aimed at winning over wavering Democrats. Chief among them is an expansion of ethanol subsidies. The bill would extend existing tax credits on the additive as well as a tariff on imported ethanol.

What does ethanol have to do with expiring tax cuts? Well, Sen. Tom Harkin, D-Iowa., has slammed the deal but is also eager to preserve ethanol subsidies, a big deal in his corn-producing state.

The bill also extends tax credits for biodiesel and renewable fuels, energy-efficient homes, alternative fuels, manufacture of energy-efficient appliances, and investing in “alternative vehicle refueling property.” The provisions have been endorsed by the clean energy lobby and may help win over reluctant Democrats.

Additional article: Add-ons turn tax cut bill into 'Christmas tree'

For urban lawmakers, there's a continuation of about-to-expire tax breaks that could save commuters who use mass transit about $1,000 a year. Other popular tax provisions aimed at increasing production of hybrid automobiles, biodiesel fuel, coal and energy-efficient household appliances would be extended through the end of 2011 under the new add-ons.
The package also includes an extension of two Gulf Coast tax incentive programs enacted after Hurricane Katrina to spur economic development in Mississippi, Louisiana and Alabama.