My two cent, two sentence analysis of Republicans and Democrats in regards to the latest jobs bill...

Republicans are NOT supporting job creating proposals they normally would support because they come from a Democrat (if the Pres was a Republican they would be elated with this proposal). 

Democrats ARE supporting job creating proposals they normally would not support because they come from a Democrat, but mostly because they are not supported by Republicans (if the Pres was a Republican they would be aghast at this proposal).

This jobs bill is in for a rough ride, I believe...

Yes, kids, we are in trouble...

Show me the Spending! Nice graphic showing where the President proposes to spend money to create jobs. I would add one more to the list...

The Presidents job initiative in graphic form.  A little demand-side, a little supply-side.  I do like the school modernization part. This would be MUCH more labor intensive relative too other infrastructure improvements like roads/bridges, which are much more capital intensive. 

What is missing is an intiative to utilize the nations extensive network of community colleges that are vital to re-training workers who have been without work for an extended period of time. It is great (I suppose) to offer companies tax credits for hiring workers out of work for more than 6 months, but if they don't bring skills with them, then it makes it that much harder for companies to hire them---gonna cost more then the $4,000 credit for advanced training...

Source: Washington Post

One of the Presidents proposals: Continue the Payroll Tax Cut---nice graphic here showing what that might mean to YOU!

Go here for my explanation of the payroll taxes (Social Security and Medicare) YOU pay on your wages. Currently you enjoy a 2-percentage point temporary cut in the Social Security tax, normally 6.2%.  The President has proposed this cut continue for at least another year. As a result, you get an additional $2.00 for every $100.00 you earn.

The graphic below shows how much in additional taxes wage earners would pay if the tax cut is not extended. This appears to be a dubious tax cut. If you divide the number to the right by 12 months, then by 4.3 weeks in a month, the amount is relatively small.

 At most this acts as a stabilizer ("saves/maintains jobs") and is not stimulative.  We shall see.

Source: Jared Bernstein

Nice example of Complementary Goods---HD TV and Make-up Artists..

Today in class we started our unit on the basics of demand and supply.  I always do demand first because intuitively it is easier for students to understand---they are mainly consumers at this point in life. 

We covered briefly the definition of Complements---two goods that are separate and distinct but are most often used in conjunction with each other.  In general, there is as inverse relationship between the price of one good and the demand for the complementary good.  Below, from the Freakonomics Blog, is a timely reference to complementary goods that is a bit unusual---HD TV and Make-up artists.
Because of the high resolution of HD, every imperfection in skin and hair is magnified.  It has created a surge in the demand for make-up artists.

The price of HD TV (both to broadcast and the price of the TV's) has decreased as it saturates the marketplace. As more broadcast outlets adopt the format more of the goods and services, like make-up artists, that complement it will be in greater demand...

Does HDTV Increase Demand for Make-up Artists?

"A major technical change in TV has been the introduction of HD broadcasting and receivers. For the same price you get higher quality, so this can be viewed as a rightward change in supply. This change has affected a surprisingly related market—that for make-up artists.

Now if you’re on television, as I discovered, every single “flyaway hair” is visible. Most of my hair flew away many years ago, but what’s left might still stick out and need careful laying down by a specialist. A make-up artist tells me that demand for her services has been helped tremendously by the introduction of digital broadcasting and HD receivers."

Cartoon about Ethanol and link to excellent article...



Source: HERE via Carpe Diem

From HERE""As befits the chairman of the world’s largest food-production company, Peter Brabeck-Letmathe is counting calories. But it’s not his diet that the chairman and former CEO of Nestlé is worried about. It’s all the food that the U.S. and Europe are converting into fuel while the world’s poor get hungrier.
“Politicians,” Mr. Brabeck-Letmathe says, “do not understand that between the food market and the energy market, there is a close link.” That link is the calorie.
The energy stored in a bushel of corn can fuel a car or feed a person. And increasingly, thanks to ethanol mandates and subsidies in the U.S. and biofuel incentives in Europe, crops formerly grown for food or livestock feed are being grown for fuel. The U.S. Department of Agriculture’s most recent estimate predicts that this year, for the first time, American farmers will harvest more corn for ethanol than for feed. In Europe some 50% of the rapeseed crop is going into biofuel production, according to Mr. Brabeck-Letmathe, while “world-wide about 18% of sugar is being used for biofuel today.""

Nice Labor Day analysis of the state of manufacturing in the US (GOOD!) and the state of manufacturing jobs in the US (NOT GOOD)...How can this be possible? Short video says it all...

Look at the red line in the first graph---it shows the change in US manufacturing jobs since 1939. It does not seem dramatic, because the time frame is extended. The high appears to be in 1980 at about 20 million jobs and the low currently of about 11.5 million jobs---roughly a 43% decrease!

Note the rate of increase in "service" jobs (blue line) starting in about 1983---the slope increases significantly.  That is a point of divergence for manufacturing vs service jobs.

Does this mean at this time we started to lose manufacturing capability/productivity?

Source: BusinessInsider

The graph below seems to tell a different story.  While EMPLOYMENT in manufacturing has declined (red line), manufacturing OUTPUT (dollar value of finished goods in this case) increased rather dramatically (blue line).  As we moved from the mid-1980's into the 1990's the change in employment vs output changes dramatically from a direct relationship into an indirect relationship.  How/Why did this happen?

Source: Carpe Diem

For a hint, watch this short video of a BMW facility. Tells you all you need to know...

The problem with Social Security in one easy chart---too few "youngs" working for too many "olds"....

With all the political talk surrounding much needed reform of entitlement programs, mainly Social and Medicare, the graph below illustrates the heart of the problem.  These two programs are funded directly by payroll taxes levied on current workers wages (go HERE for a primer on these two taxes). Over the last 80 years, because of demographic changes in our population, there are fewer and fewer wage earners supporting an ever increasing number of retirees and other eligible recipients.

Strip away all the high flautin' political rhetoric on the issue you are left with this simple math---Workers must pay more in payroll taxes and/or we cut benefits to the "olds". 

Another option is we "grow" out of the problem---the economy recovers, we get back to full-employment and payroll tax revenues increase---that helps, but it does not reverse the numbers below.

Source: Carpe Diem

Nice graphic orgainizer showing the evolution of all the big Tech Companies we know and love. Amazing how small the neighborhood is...

Click on image to make larger OR go HERE to see it in its oginal size..

Source: Mashable.com

Nice graphic showing the emergence of middle classes thoughout the world. Can we give just a little shout out and/or credit to free markets, free trade and globalization?

The spread of market activity, free(er) trade and globalization have lifted 100's of millions of people out of poverty around the world and has made the world a better and more peaceful place (yes, it IS more peaceful).  I don't think anti-capitalists in rich countries (think about those words for just a minute) understand this and only expound on the doom and gloom.  Does globalization have it costs? Absolutely, but when you tally up the costs you must off-set it with the benefits.  How about some acknowledgement of this tremendous achievement in such a short period of time.

The Economist

""THE past four years have seen a sharp contrast between recession-hit rich countries and buoyant emerging giants. Estimates from the Asian and African Development Banks, using a rather broad definition of middle class as living on $2-20 a day, confirm the picture. On this measurement, which includes many people who are only just above the poverty line, a third of Africans and three-quarters of Latin Americans were middle class in 2008. Meanwhile, the evidence that this progress will bring political demands that will reshape the develping world is mounting. ""

Economists have a sense of humor---even if they have little sense for anything else...

 Via: Greg Mankiw

International survey results on the pressure parents put on their children to succeed---Who do you think is first and who is last? Results here....

Interesting international survey results on perceptions of how much pressure parents put on students to succeed in class. Look at the first one (US) and the last one (China)...Polar opposites.

Source: Economix

""The survey, conducted March 18 to May 15 by the Pew Research Center’s Global Attitudes Project, found that China was the only one of 21 countries or territories where a majority believes parents put too much pressure on students to do well in school. In China, 68 percent of adults think parents pressure students too much, and just 11 percent think they don’t push them hard enough.

On the other side of the spectrum is the United States, where more than 6 in 10 Americans say parents do not put enough pressure on their children.

It’s hard to know what to make of these attitudes. The countries where people are most likely to say students are pressured too much do have reputations for being pressure-cookers for students (China, Pakistan, India). And the United States has repeatedly disappointed on international testing.

Does that mean surveyed attitudes are correct? If they are, why aren’t they affecting behavior?

US Labor Secretary buys a car she THINKS is made with American workers and parts. AWKWARD!

The US Labor Secretary buys General Motors car, made in Canada by Canadian workers, in order to support American workers. You read that right.  A cabinet official did not know, or ask, or care if the car she purchased was AT LEAST assembled in the US by actual US workers that her Department is supposed to represent.

 

See the chart below to see a list of cars she could have bought that, while they have a foreign nameplate, were assembled AND made with American labor and a high content of American-made parts.  Full disclosure: I own a Toyota Camry (No 1 on the list)---I support American workers!!!

  

Source: Carpe Diem: "What better example could I set if I encouraged my staff to go and purchase and seek how we could acquire a vehicle that would for me would send a signal that we're for supporting our American workers, American-made products, fuel efficient as well."

One problem: The Chevy Equinox is not built by American workers, because it's not American-made. It's built by foreign workers, in a foreign country: Canada. If Secretary Solis wanted to buy the "most American-made possible" to show her support of American workers, she should have considered the two most "American-made cars" available in America today: the Toyota Camry or the Honda Accord (according to Cars.com).

The Labor Secretary could have also considered one of the other top 10 "American-made" cars like the Honda Odyssey, Toyota Sienna, or the Toyota Tundra. But we all know why that won't ever happen - those cars are mostly built in "right-to-work" states by non-union American workers. And so for political purposes to maintain union support, it's more important for the U.S. Labor Secretary to support union workers in a foreign country than to support non-union workers in America. That just politics as usual in Washington. Better to support Canadian Auto Workers north of the border than support non-union workers in Texas or Alabama.

I hope the President and Congress FINALLY focus on the actual job creators that have historically lead the way out of recessions. See who they are here...

Here is an important graphic to consider when you hear talk of the new "Jobs Plan" the President is going to propose "soon". Historically, the job creators coming out of recessions have been small to medium size businesses.  They are the most nimble, because of a lack of bureaucracy, and can ramp up production when the dark clouds of recession start to part. They can seize on opportunities as they present themselves and risk-taking is morecalculated and tolerable.

However, it requires a reasonable confidence that economic conditions will improve.  This confidence seems to be lacking, for a variety of reasons---Gridlock and poor policymaking in Washington seem to be at the fore-front. Read the blog entry that goes with this graphic HERE

Source: Wall Street Journal

"There is no profit in Destruction"---See how my beach house in North Carolina was affected by the Hurricane...

"There is no profit in destruction"

No, I don't have a beach house in North Carolina.  BUT in my dreams this is what would have happened as a result of hurricane Irene...

Assume in January of this year I built a beach house on the coast of North Carolina at a cost of $200,000.  Gross Domestic Product (GDP) would increase (assuming ALL the construction material came from the US) by $200,000. 

The hurricane comes through and destroys my house.  I receive my insurance settlement and rebuild my house, BUT now the cost of rebuilding the same house costs $210,000 (inflation, scarcity of building materials, increase in insurance, etc). 

GDP increases by $210,000.  So far I have contributed a total of $410,000 to GDP for the year 2011.  This unfortunate event seems to have a silver lining, doesn't it? 

The first week of school you were introduced to the the philosophy of Frederic Bastiat and the important concept of opportunity cost.

Using this new-found knowledge, list/discuss some of the problems or logical fallacies related to Bastiats way of thinking and/or opportunity costs of the above scenario.

Hint: there are LOTS of opportunity costs incurred in this situation, some obvious and not so obvious.  Go crazy and find as many as you can...

Hurricane Economics 101: Quantity Demanded is Greater than Quantity Supplied. If the price is not permitted to rise, the outcome IS predictable...

Quantity Demanded is greater than Quantity Supplied...The price is "too dang low!"...

Source: Drudge Report

Most businesses do not have "back rooms" anymore that hold excess inventory. They place and recieve the orders "just in time" as they sell existing stock.  This efficiently reduces the carrying costs of inventory. It just makes sense for 99.99% of the time businesses are open.

The store suppliers hold as little inventory in warehouses for the same reason. So and so forth down the rest of the supply chain.

As a result, excess capacity in ANY supply chain is very minimal.  In the event of a natural disaster, it is very difficult (impossible?) to ramp up production and deliver goods fast enough to cover an unexpected and immediate increase in demand. 

Given this situation, there are only 3 things that can happen at the point-of-sale pre and post-disaster: Stores can employ the non-price stategy of rationing by limiting quantities people can buy, (2) do nothing-- keep the price the same and sell out quickly (see picture above), (3) allow the price to rise and let the price mechanism serve as the rationing method.

Oh, I forgot one---rely on the good nature of people to not panic and to take only what is necessary.

I will leave it up to you which of the above would be the most effective method for rationing a limited quantity of goods people need in an emergency. I know what economic theory would suggest...