If you buy roses to give tomorrow don't talk to them. They won't understand a word you say anyway...See here why...



If you receive roses for Valentines Day and believe talking to them will extend their shelf life then you will have to learn Spanish.

Ninety percent (yes 90%) of the roses sold by Tuesday are imported and approx 82% of those imports come from Columbia primarily and Ecuador secondarily.  Why so many imports? California normally supplies a perponderance ofdomestically grown roses, but it is out of season for roses now.  February is simply the wrong time of year for domestic producers to significantly benefit from the "holiday".  

Need a graphic for a Valentines Day sentiment for that person who just LOVES economics? Check out these graphs---Love is in the air (and in equilibrium too!)

Nice graph showing the historical relationship between wages and productivity and 3 reasons why wages are/may be stagnating

Historically, worker wages have been closely tied to worker productivity--the more you (on average) produce, the more you earn (on average).  This direct relationship is represented in the graph below.

Source: Tim Taylor at The Conversable Economist

However, the tight relationship starts to sever around 1980 and productivity begins to increase faster than wages .  Professor Taylor at The Conversable Economist narrows the culprits down to 3 factors (he reverses the order from a source he cites at the link above):

1.  Technological change connected with improvements in information and communication technologies, which has raised the marginal productivity and return to capital relative to labor.

2. Increased globalization and trade openness, with the resulting migration of relatively more labor-intensive sectors from advanced economies to emerging economies. As a consequence, the sectors remaining in the advanced economies are relatively less labor-intensive, and the average share of labor income is lower.

3. Decrease in the bargaining power of labor, due to changing labor market policies and a decline of the more unionized sectors.

Numbers 2 and 3 have lots of politics mixed in with them.  If you think about the news you watch or read these ARE the major focus in some form and are easily exploited by politicians.

Number 1 not so much, if any, politics. 

Output is derived from a combination of Labor and Capital (machines, tools, processes, infrastructure, etc)--People using the latest available technology to make "stuff".  The value of that output over time is increasingly coming from the Captial side of the equation and is eroding the overall contribution that Labor adds to the good/service. 

Three things seem to result from this:

1. Workers at the margin are squeezed out of an industry altogether because they are adding little to overall productivity that the employment of capital and technology creates.  Not saying this is right or wrong, just the way it is...

2.  A subset of semi-skilled/low(er) educated workers that are still employed in the industry are not seeing wage gains, perhaps because they are more remote from the gains created through the use of capital/technology.

3.  A subset of skilled/high(er) educated workers who are directly involved in the gains created through the use of capital/technology are going to benefit the most from the gains in productivity.

Not a perfect list but I think it is a good outline...Any comments?

Nice Infographic an how promotions in corporations are REALLY earned. Cognitive Dissonance rules the day...

These are the results of a survey of executives who inevitably make promotion decisions within a corporation.  While favoritism does not necessarily trump competency (or does it?), I think they go hand in hand. Complements as opposed to substitutes, to put an economics spin on it.

I am fascinated by the section below "What Role Does Favoritism Play?"...A vast majority conceded favoritism in promotions exists all around them BUTat the same time they deny it is a  factor in their own promotion decisions.  Curious...

Source: Business Insider

Greece seems to have a negative Keynesian Multiplier...This will not end well for them...See chart here

Source: Spegiel via Chartporn

Greece has borrowed a considerable sum of money (relative to their National Income (GDP)) but their output (GDP) has suffered a significant decline.  If you borrow money and your GDP remains stable or increases marginally, then you can/could claim that the borrowing helped.

But if you (Greece) borrow and your GDP continues a steep decline, then you are in trouble...

Map of Meth Labs in the US. Before looking, which State do you think has the MOST meth labs (by a BIG margin)?

Dept of Justice via Megan McCardle

That would be Missouri by quite a margin...

Go HERE to see a series of maps just like these dating back to 2004. See how the numbers dramatically decreased but are starting to creep back up. 

Anthropologists usually study great societies from the past. Isn't this ironic?

This morning there is an article in the NYTIMES about the recruitment of International students to the University of Washington (the State of Washingtion), mainly from Asian countries and specifically China. International students pay up to 3 times as much in tuition than resident students. 
Critics suggest the University is stepping up the admissions of international students at the expense of in-state students solely for budgetary reasons.

Most of these international students are majoring in STEM (Science, Technology, Engineering, Math) subjects and will take that expertise home with them.

I wondered what major was popular at the U. of Washington:

""Undoubtedly all of you have heard about the significant cuts facing higher education in Washington State. The squeeze is particularly tight for our deparment, since anthropology remains the fastest growing major in our college, with nearly 6oo undergraduate majors."" (Source HERE)

Nothing wrong with Anthropology! (Really, I think it is awesome).  However, in a context of a global economy undergoing massive transition deep into this century, do we need....Ok, I am going to stop there.

On the page I found the above quote, I also found this record achievement they were touting on the homepage:

Source: University of Washington Anthropology Dept

Well, I suppose the last one has some relevance in this case...Just sayin'...

A short lesson on where our oil comes from to meet our domestic needs. You will be surprised by these numbers!! Take a look...

This chart shows total crude oil imports to the US from the Top 20 source countries in the year 2010. From these 20 courtries, we imported a total of  3,259,534,000 Billion barrels of oil to help meet our domestic energy needs (the unit of measure for oil is in barrels. One barrel equals 42 US gallons of oil),  From Canada and Mexico alone we get 22% and 13%, respectively, for a total of 35% of imports from the Top 20.

 

There is a common misperception that we get "all our oil" from the Middle East.  If you look at the countries in the Top 20 that are Middle Eastern countries (Persian Gulf area) you will find only Saudi Arabia, Iraq and Kuwait.

Combined, these three countries supplied the US with 617,831,000 million barrels of oil, or 19% of the total from the Top 20.

Of this amount imported from the region, Saudi Arabia represents 64% of the total.  Saudi Arabia's imports to the US represent only 12% of the total from the Top 20. 

Since total oil imports are approx 50% (a little less in actuality) of our overall domestic oil use, you can cut all those percentages in half to get a rough estimate of how dependent we are on these foreign sources of oil.

Note: the TOTAL amount of crude oil (JUST crude oil) imported to the US from ALL sources in 2010 was 3,362,856.  The Top 20 countries above provided 97% the total amount imported.  While my calculations are not exact, you can see they will be in pretty close proximity. 

Very cool "Facebook at Night" map they included in their filing to sell their stock to the public. Worth a look!!

Below is a map similar to my favorite map---"The Map of the World at Night" (shown below too). This one was provided by Facebook in their legal filing to go public with their stock (HT: MoneyBox).  It shows the flow of interaction between users around the world.  Look at the dearth of "light" (hence, Facebook penetration) on the Eurasian continent.  Compare the two maps. Amazingly consistent.  BUT I do see a couple of areas in the world where the maps are at odds with each other. Can you see them???

Source: Mattew Yglesias at MoneyBox

Nice chart showing where the projected jobs in the next 10 years will be...Are you prepared?

Healthcare is the place to be for short to medium range employment prospects by a substantial margin.  The waves of late baby-boomers (early to mid 50's) are going to require more care.  Read more HERE.

Source: Economix

Google is known for its tough interview questions/scenarios---I think IKEA has them beat. How would YOU do with this one?

(HT: Mike Fladlein) I would not fair well in this interview. Having just relocated from the Dallas/Ft Worth area to the Chicago area, I have purchased and assembled furniture from IKEA in the past month.

Source: Mike Fladlien

Observations: the quality of "assemble yourself" furniture has improved tremendously in the last 10-15 years or so.  Gone are the days of putting in a screw and it coming out the side if you did not put it in perfectly straight.  The engineering has rendered this almost impossible to do. 

Second, with all the advancements it STILL takes me 2 to 3 times longer to put a piece together.  I underestimate my opportunity costs everytime! 

We had to hire a handyman for a couple of jobs as well.  He told me a good part of his business is FINISHING the assembly of  IKEA furniture that people started and could not finish.  Opportunity Costs...

Point to ponder next time you fill up: How much do we spend on National Defense for each gallon of gas you pump? Yes, I figured that out...See HERE the result.

I read today (I forget where it was, I was reading on my phone waiting for an appointment) that between 11% and 13% (or approx $80 Billion) of the yearly US Defense budget goes, in some form or fashion, to protect the flow of oil from the Middle East.  This is ONLY the "on- budget" items. Much of the war spending is "off-budget", but that is another story.

In the US we consume approximately 138,000,000,000 billion (378 million per day X 365 days, then rounded up) gallons of gas PER YEAR. 

If you divide $80 billion by 138 Billion gallons you get $.58 cents of defense spending per gallon of gasoline consumed in the US. 

Something to think about the next time you are standing at the pump.  That reminds me--I have to go fill up now...

Nice graphic showing the change in manufacturing jobs relative to service jobs since 1960, the year of my birth. How things have changed in my lifetime.

The shift from employment in the manufacturing sector to the service sector has been in the works for a long time. It might be hard to see the small graph in the upper right hand corner, but it starts in 1960. 

The drop in manufacturing employment (distinct from manufacturing output) has been due in large part to globalization and the adoption of advanced technology to the manufacturing process. 

I was born in 1960. In my lifetime, only Sears (for now) and General Electric are left on this list. Amazing to me..

Source: NYTIMES

This post is for those of you who don't quite understand (but want to!) the main technical issue surrounding compensation of Hedge Fund managers (related to Romney's "Tax Problem")...Objective analysis then my opinion on it...

Let me use as simple an example as possible to illustrate the point, because I am a simple man.

I am going to start my own Hedge Fund (or Private Equity Fund). I am going to be the lead investor of funds for 100 people who each have $1,000,000 to invest with me.  Because I am a GREAT investor with a GREAT track record, all these investors are confident of my ability to get them GREAT returns on their investment. 

I am going to tell these 100 investors that they don't have to pay me ANYTHING until I make them money.  Because I am shouldering quite a bit of risk in doing this, I am going to charge them 20% on whatever I earn them OVER their original investment of $1M. 

On day one of the opening of my Hedge Fund I have $100M to invest. I do.

I go play lots of golf in the meantime.  In exactly one year (365 days) I go and check the fund balance and I see the total value of the fund is now $120 million!  I have made a "Capital Gain" (the money over and above the original investment) or $20M. Converted into an interest rate that would be 20%. That is pretty darn good!

I quickly call my investors and tell them the good news. Assume all of them say "SELL!".  I tell them their CRAZY to sell today and they should wait until TOMORROW!!  Here is why...

If I sell a "qualified investment" in less than one years time any interest earned is taxed at a marginal tax rate of 35% (the highest tax bracket for any income earned over approx $365,000). Any interest earned from an investment that is cashed in AFTER one year is taxed at 15%. This 15% is what is termed the "Long Term Capital Gains Tax Rate". 

After the investors pay me my 20% fee (20% of the $20 million in Capital Gain is $4 million) they divide the remaining $16 million between them. Each of the 100 will get $160,000.  If they sell now, they will each pay $56,000 in taxes (35% of $160,000) or if they wait one more day they will pay $24,000 in taxes (15% of $160,000). Which would YOU choose to do?

All this is background to get down to how this affects ME.  Most people would think the $4 million I received from operating my Hedge Fund would be classified as "income" paid to me by my investors for doing a good (no, great!) job for them.  Call it income, a commission, whatever, but when I do my tax return I have to claim it as income, therefore putting me in the highest tax bracket of 35%, right? I should write a check to the IRS for about $1.4 million, right??  Hold your horses, Al Capone!

Remember the source of my $4 million was from the original $20 million in interest, or Capital Gain.  For my investors after waiting more than one year to cash in were eligible for a the lower tax of 15%.  Guess what? I AM TOO!! My portion is called, under interpretation of the tax code,"carried interest" Defined here:

""Carried interest is not interest in the sense of an interest-bearing savings account. It is a share in a fund. The person claiming that interest is the general manager of a private equity firm or hedge fund, and the carried interest is calculated as a percentage of the profits generated by the fund he manages. When the fund has a capital gain, the manager's percentage is treated as a gain to him, taxed like an ordinary capital gain on the sale of real estate or stock. Critics say this particular income source does not fit the correct definition of capital gain and should be taxed as wages.""

So, on my $4 million I pay $600,000 in taxes as opposed to $1.4 million.  Good deal for me, right?!?!

I don't won't to question the efficacy of capital gains OR the taxing of them.  I think it is clear the value these gains on the economy AND we can have an honest debate as to how much we should tax them. I get that and you should too.

However, I do think it is relatively clear the way these gains are treated for the purposes of compensating Hedge Fund managers is not in accordance with reasonable tax policy and interpretation.  In other words, it is not "fair" in any sense of the word...

How does this relate to Mitt Romney? Throughout is career he has been on BOTH sides of the illustration above.  Money he earned from the Hedge Fund/Private Equity Fund he operated (Bain Capital) was taxed at the lower rate and the money he himself save from his earnings that he invested is/was taxed at the lower rate as well. A double capital gains dipper, if you will...

What do you think? Tell me where I am right or am wrong. 

After all, I am just a squirrel trying to understand the nuts...