A humorous look at the various economic systems and corporate models in existence. Economics CAN BE funny, once in a while...

A humorous, yet insightful, look at the various economic and corporate models that can be observed in the world.  Surrealism is my favorite. Which one is yours?
21 Economic Models Explained (Source: Organizations and Markets)

SOCIALISMYou have 2 cows.
You give one to your neighbour.

COMMUNISMYou have 2 cows.
The State takes both and gives you some milk.

FASCISMYou have 2 cows.
The State takes both and sells you some milk.

NAZISMYou have 2 cows.
The State takes both and shoots you.

BUREAUCRATISMYou have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away.

On an hourly basis, which College Major Pays the BEST? See the list here. Guess which is Number 1 before looking.

I see alot of these salary surveys, but this one comes from the latest Census data so it promotes no particular agenda.  The math and sciences always show near the top, but economics also is constantly present at the top of the wage scale.  Click on the link and you can sort through the categories and get different perspectives....

Which College Majors Pay Best?

Source: Wall Street Journal

Are we in the midst of an overt Positive Aggregate Supply Shock in Manufacturing? A rare sighting indeed.

We can have all the demand for goods and services in the aggregate in the short run but occassionally, or in tandem, we need an increase in our ability to produce goods and services to feed that demand.

This is known as a Positive Supply Shock, which can be temporary or permanent. Trends are emerging that suggest we might be in the midst of a short run postive supply shock. If the short run increase in the economys potential to supply "stuff" leads to a permanent ability to produce goods and services, then we will have economic growth in the true sense of the term.

Two of the three points excerpted below address specific supply-side requirements---lower wages and lower energy costs. These are two important inputs that go into making finished goods/services.  The second point, depreciating of the dollar will help on the demand side for finished goods, but can hurt on the supply side for inputs/raw materials that are imported.

""Three trends suggest America's "manufacturing renaissance" is just getting started, says Neil Dutta, U.S. economist at Bank of America Merrill Lynch. First, the cost advantages of outsourcing factory work are narrowing. Emerging market wages, while still much lower than U.S. wages, are rising, and high oil prices have made shipping more expensive. That is expanding the range of goods U.S. factories can produce at competitive prices (think sophisticated machines, not toys).

Second, a weakening dollar makes U.S. goods more attractive to foreign buyers. The dollar has fallen by nearly one-third over the past decade against a basket of currencies including the euro, British pound and yen.

Third, energy production is booming in the U.S., and domestic natural-gas prices have recently plunged. That gives an edge to U.S. producers of fabricated steel, transportation equipment, machinery and chemicals, which use natural gas extensively, according to a recent report from Citigroup (Source of article: The Great Reversal: Playing the U.S. Manufacturing Boom)

Extra Credit: Draw an AD/AS Model of the economy showing it in recession.  Show and explain (using the context of this article) in the absence of government policy how the economy can return to full employment ON ITS OWN (Self-Correcting).

There IS a bright-side to high gas prices. (I am just the messenger, but I understand if you want to shoot me)...Read why here...

The fuel efficiency of vehicles SOLD in the US has increased in the last few years (Chart below).  However, the change in the last couple of months has been rather dramatic. 

This is a nice illustration of how the marketplace responds to changes in prices without a law or regulation.  As people purchase new vehicles, they are taking into consideration the high price of gasoline and buying more fuel efficient cars and trucks:

""Replacing a used vehicle getting 20 mpg with a new vehicle getting 24 mpg would completely offset an increase in the price of gas going from $3.33 per gallon to $4 per gallon, on an annual basis.""---Mark Perry at Carpe Diem

 

As the price of gas increases consumers are substituting low gas mileage vehicles for high gas mileage vehicles.  The market works---if given time.  This helps reduce the demand for oil and at the margins helps to clean the air. Win-Win----WINNNING!!

 March U.S. Light Vehicles Raise Fuel-Efficiency Bar

Source: WardsAuto

Tide Detergent as a Currency. Sounds good but I think getting change back could be a little messy. Read about it here...

I posted about this a couple of weeks ago---Tide Detergent has become a currency within the drug trade in many parts of the country.  Below is a much better, extended analysis of Tide-as-a-Currency and how it has become a de facto currency--perhaps a lesson for policy-makers.  It represents everything a fiat currency represents: A medium of exchange, A unit of account, and A store of value. Worth a read to make you think about the value of our own currency. 

Tidequistadors In Search of Sound Money: A laundry soap has developed as much legitimacy as the dollar to serve as currency. What's going on? (Source: Reason Online)

Over the past few months, the police force in Prince George’s County, Maryland has been dealing with a strange rash of robberies. Thieves have been going into grocery stores and drug stores, loading their carts up with stacks of money, and then rushing out the door where they have a get-away car waiting. A sane man may ask why CVS and Wal-Mart are stocking piles of cash where the peanuts and greeting cards should be. But these thieves are not taking U.S. legal tender—they’re stealing Tide laundry soap.

It turns out that the detergent is not just good for making your clothes brighter than the imitation brand. It’s also street currency for buying pot and cocaine. Briefcases full of cash are being cast aside in favor of blaze-orange containers of laundry soap. Yes, there’s liquid gold in dem dar bottles

There is some debate over whether this is a new trend, and perhaps our more nefarious readers might enlighten us to the commonality of this practice. But reports suggest the Tide thefts are a nationwide phenomenon. And a former FBI agent explained to ABC why it might make a good commodity for barter: "Tide is highly recognizable," said Brad Garrett. "It's very difficult to trace and it's easily resold."

Tide, as the money gods would have it, carries nearly all thecharacteristics of sound money.
To start, it is widely used. Tide detergent is sold in every major city and most places in between. It can be found in the laundry room of both Upper East Side penthouses (the ones where residents don’t just throw away their dirty clothes to buy new ones) and “quaint” fixer-uppers of the South Bronx.

I found a bit of interesting news in today's job report that illustrates a continuing trend in inequality---however, it is something you can do something about.

I clipped this from todays jobs report because I thought it noteworthy for students.

The numbers in the Blue Box show the number of new private sector (not counting govt jobs) SERVICE jobs created last month (March). I see continuing "inequality" in the addition of new jobs. By that, I mean by education AND skill level. 

In general, there are large positive numbers in "Business/Professional, Education/Health Services, and Financial Activities".  Some of these jobs may NOT require advanced education but most will.  The exception to this is in "Leisure and Hospitality" but these presumably low wage/skill jogs are off-set by a large decline in "Retail" jobs.  This has been the trend and I don't see it reversing any time soon.

Service jobs in many sectors of  economy are the main destination for those without advanced education/skills. Those jobs are slowly(?) tapering off due to technology adoption and other efficiencies in business. 

Please stay in school and/or seek ways to upgrade your skills at all times. Your standard of living depends on it.

Here is concise explanation how the unemployment rate is calculated and some of its pitfalls. Also links to todays report and analysis.

Below is an easy to read summary from the WSJ of how the unemployment rate is calculated and some of the "myths" associated with its calculation. Here is a link to the report released today.  HERE is a link to a website that gives nice, short, objective summary of various economic reports and releases.
All the statistics the government collects on macroeconmic activity (i.e. GDP, Inflation, Unemployment, etc) are subject to constant revision and interpretation. In laymens terms, they have literal and figurative holes in them big enough to drive  Mac Trucks through.
To get a better understanding of the economic situation you MUST go beyond the "headline" number touted by the media and look closer at the compostion of the actual published reports.  There IS gold in them thar' reports. 

FourCommon Unemployment Myths

Economists and non-experts alike pore over the government’s jobs numbers each month for hints about where the economy is headed. But confusion about how the statistics are calculated has led to some myths about the report and what it shows.

 

First, the basics: Every month, the government conducts surveys of households and employers, which form the basis of the main employment statistics. Under government definitions, which date back to the Great Depression, people count as employed if they’re doing any work for pay at all, and as unemployed if they aren’t working but are trying to find a job. People who aren’t working but also aren’t trying to find work aren’t considered part of the labor force at all.

Four common unemployment myths:

I don’t receive unemployment benefits, so the government doesn’t count me as “unemployed.” The official unemployment rate is based on a survey of about 60,000 households, not on unemployment benefits, which are administered by the states. The unemployment rate includes people who aren’t eligible for benefits, such as people who quit their jobs voluntarily, people who are entering or re-entering the work force (after graduating from high school or college, for example, or after taking time off to raise a child), and people whose benefits have expired. But it also might not include some people who do qualify for benefits: Someone doing odd jobs while collecting unemployment benefits will qualify as “employed” in government statistics.

More comfort for those of you pursuing Non-Technical degrees...YOU are in BIG Demand!! Learn here how to take advantage of it.

I encourage you to read the whole article below.  Not everyone can be (or wants to be) an engineer, scientist, or mathetician OR business major.  Commerce is increasingly becoming competitive and global.  Businesses need people who can look at scarce resources in new and innovative ways.  They need people who can connect with people across borders, cultures, religions, etc.  I think a well rounded education in Economics does this best but there are many other Social Science and/or Liberal Arts majors that can do the same thing. 

Pursue your degree agressively but keep your head up and look for opportunities.  Do not say NO to any opportunity to network or to learn something new.  You never know how that contact or new knowledge might help you down the road in the near or far future.

Wealth or Waste? Rethinking the Value of a Business Major

"...Companies say they need flexible thinkers with innovative ideas and a broad knowledge base derived from exposure to multiple disciplines. And while most recruiters don't outright avoid business majors, companies in consulting, technology and even finance say they're looking for candidates with a broader academic background....

...Such changes should appease recruiters, who have been seeking well-rounded candidates from other disciplines, such as English, economics and engineering. Even financial companies say those students often have sharp critical-thinking skills and problem-solving techniques that business majors sometimes lack...."

Nice Graphic showing the Continent of Europe at night in 1992 and 2010. People see lights. Economics students see Opportunity Costs!

A map of the continent of Europe at Night (HT: Carpe Diem).  Watch carefully. The image transitions from 1992 to 2010. It is interesting to note the areas that have much more light (by light I mean produced by electricity). The spead to the former Soviet Block countries after the fall of the Berlin Wall is pretty obvious.  Also, if you look at some of the central cities like Paris and Madrid.  There is definitely a pattern of "Urban-to Suburban Sprawl".

This suggests two things---(1) Europe got much richer over  the last 20 years in order for infrastructure to be built (and paid for) to support new economic activity. (2) They consume much more energy, in total, from fossil fuels (and Nuclear) which contributes to environmental problems that concern most Europeans...Can anyone say Opportunity Costs?  Hate those opportunity costs--they always get in the way and make you think!

Nice article illustrating Opportunity Costs, the PPF and Supply and Demand in Agricultural Markets...

Farmers’ corn push to hit soyabeans (The Financial Times)

Food commodity prices rose after US farmers signalled plans to sow the most corn in 75 years, taking away land from soyabeans, which are facing a fall in supplies due to droughts in South America.
A US government survey of 84,500 farm operators indicated they would plant 95.9m acres (38.4m hectares) with corn this spring, 4 per cent more than last year, the most since 1937 and above expectations. Plantings of soyabeans, often rotated with corn, would fall 1 per cent from last year to 73.9m acres (29.6m hectares), with declines in such fertile states as Iowa, Missouri and Nebraska.

The US is the world’s leading exporter of corn and vies with Brazil in soyabean exports, so decisions made there are vital to global food markets. A growing world population and rising incomes in emerging economies have driven greater appetites for the crops, used in products from pig feed to vegetable oil.

Oilseed traders are increasingly on edge after a severe drought hurt the current soyabean crop in South America. The US Department of Agriculture’s annual Prospective Plantings report sent related canola and rapeseed futures markets higher in Canada and Europe. China buys three of every five bushels of the world’s soyabean imports.

“This is the annus horribilis for South American grain production. La Niña hit all the wrong places. For soyabeans, it makes the US all the more important,” said Nick Higgins, commodity analyst at Rabobank, the Dutch bank that is one of the biggest lenders to the agribusiness industry.

The US also said stocks of domestic corn left over from last year’s harvest totalled 6bn bushels on March 1, down 8 per cent from a year ago. The number was slightly lower than anticipated and suggested very low inventories before this year’s harvest begins.

CBOT May corn, which reflects the old crop, rose 6.6 per cent to $6.44 a bushel in Chicago. December corn gained just 3.1 per cent.

CBOT May soyabeans added 3.5 per cent to reach $14.03 a bushel, while soyabeans for November delivery rose 4.1 per cent. ICE May canola rose 3.2 per cent to C$622.50 a tonne in Winnipeg, touching the highest price since the global food crisis of 2007-08.

Corn peaked at a record of almost $8 a bushel last June as growers sought to meet demand from livestock producers and the US ethanol industry. If farmers follow through with planting intentions and yields are good, this year’s crop could break records, helping ease concerns about food prices.
The USDA also said that farmers intended to plant 13.2m acres of cotton, 11 per cent below last year.
Wheat acres are growing 3 per cent from a year ago to 55.9m acres.

Excellent article on the "Pizza by the Slice" price war in NYC. Illustrates perfect competition, Substitution Effect on Demand, and Elasticity of Demand. A gold mine for a basic Economics class...

Nice article on the "Pizza by-the-slice price War" taking place in a NY City neighborhood.  Competition is good for the consumer. It forces the producer to offer the best product for the lowest price. It also requires the producers of subsitutes to look at their pricing. 

Sandwich shops, and other nearby establishments offering quick meals,  may have to lower their prices to keep relative prices (Substitution Effect) between their product and pizza more competitive so customer are less likely to move to the less expensive alternative.  Of course they have to consider the Elasticity of Demand for their food as well...


In Manhattan Pizza War, Price of Slice Keeps Dropping

In the amped-up war of commerce and 75-cent pizza on the Avenue of the Americas in Midtown, a perilous moment is approaching. Circumstances suggest that ravenous New Yorkers might soon witness 50-cent pizza, 25-cent pizza or, yes, free pizza.

It is that caustic. Neither side is willing to yield an inch — or a cent. Escalation seems imminent.

As so often happens in twisty New York stories involving wallets and food choices, who is being picked on and who is attacking vary in the telling. Convenient facts get omitted from the narrative.

It’s best to start at $1.50 a slice.

That is what pizza was selling for about a year ago at a family business that is a combination vegetarian Indian restaurant, candy store and pizza parlor on Avenue of the Americas (also known as Sixth Avenue), between 37th and 38th Streets. It is called Bombay Fast Food/6 Ave. Pizza.

Then a Joey Pepperoni’s Pizza opened near the corner of 39th and Avenue of the Americas, offering pizza for $1, a price that has in recent years been favored by a number of New York pizza establishments.

So Bombay/6 Ave. Pizza shrank its price to $1 too.

All was good until last October, when a third player entered the drama.

A 2 Bros. Pizza, part of an enlarging New York chain of 11 shops that sell slices for a dollar, opened virtually next door to Bombay/6 Ave. Pizza. The only separation is a stairwell that leads up to a barbershop and hair salon.

Price stability at a buck all around persisted until eight days ago, when both 2 Bros. and Bombay/6 Ave. Pizza began selling pizza for the eye-catching price of 75 cents a slice, tax included — three slender quarters.

Nice graph showing dollar amount of currencies traded in the Foreign Exchange Market---Impress your econ teacher or your Professor!!

I knew lots of currencies are traded in the Foreign Exchange Market on a daily basis, but I did not know how much in dollar terms. This graph (HT: The Conversable Economist) gives a pretty good idea--in the $4 Trillion dollar range.  Nice for teachers to show students and great for students who want to impress their economics teacher!! :

Source: The Conversable Economist

China is now our 3rd largest EXPORT market. Nice interactive graphic showing each US States share of those exports. This is a growing market for US goods and services. We can either fight it or benefit from it.

If economic expansion does not cause China's political system to implode, the opportunities to do business there are in their infant stages. US companies and entrepreneurs must get on board with looking to "The East" for opportunities. Students should also be aware of this and figure out how to take advantage of it as well. It is a growth area where there seem to be few.

Go HERE to the US China Business Council website and you will see the interactive graphic below.  Click on your state and see an overview of exports to China from that state.

 Keep in mind the percentage change will be dramatic because exports to China started at a low base number---exports to China on a larger scale are a relativly new thing.  None the less, China is now are 3rd largest export market, behind Canada and Mexico. 

Source: USCHINA Business Council

HT: Carpe Diem for link

The "Opportunity Cost" of getting rid of "Pink Slime"---No one seems to be defending this product. Guess I will give it a shot...

On employment and environmental grounds, it may be worth re-considering our aversion to this product.

One persons gross Pink Slime is another persons paycheck...It is worth noting that at least 650 jobs have been lost in the near term and I am sure more will happen down the supply chain.  Not sure where those people will end up, other than the unemployment line. That is one big negative created by this issue.

It is also interesting to note another side effect.  The filler will presumably have to be replaced by "real meat". The article notes that an additional 1.5 million head of cattle PER YEAR will be needed fill the gap that Pink Slime filled.  That is quite a short term increase in demand that cannot be filled in the near term---the cows gotta be born and grow up!!.

This will create conditions for higher beef prices, higher cattle feed prices, more food commodities diverted to beef production resulting in higher prices for OTHER foods, environmental problems (more water and other resources consumed) with that much increase in beef production, etc, etc, etc.  I am SURE I am missing some other "unintended consequences". Are we ready for higher prices in the food supply?

Weighing the costs (there are no known health problems associated with "Pink Slime"--other than the "gives me the willies" feeling) and benefits of Pink Slime, it is worth it to get this product off the market?  What do you think? 

Below is the article I base the above comments on.  Worth a read...

Pink Slime Production is Suspended at Plants

A major producer of a ground-beef additive said it is closing three plants after a growing number of supermarkets dropped the product in recent weeks. 

Beef Products Inc. said Monday its decision to suspend production of a ground-beef filler at plants in Amarillo, Texas; Garden City, Kan.; and Waterloo, Iowa, would affect more than 650 employees. Its plant in Dakota Dunes, S.D., where the filler is also produced, will continue operating.

The decision came as social networks teemed with concerns about the product, nicknamed "pink slime" because of its appearance.

"The derogatory term has trumped all science, all facts, all history," said Rich Jochum, corporate administrator for Beef Products, which took out a full-page advertisement last week in The Wall Street Journal defending its product. The company didn't indicate for how long production of the filler would be suspended.

When oil prices rise the first cry from politicians and other scoundrels is "IT'S THE SPECULATORS!!". But is it TRUE?

This research paper surveys  published papers on the topic of speculation in the oil trading commodity markets. Speculation is the "knee-jerk" response of politicians when it comes to increases in oil prices. (Is it not funny that speculation does not get blamed for LOWER oil prices??) Here is the Abstract from the paper:

"A popular view is that the surge in the price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to regulate oil futures markets. This survey reviews the evidence supporting this view. We identify six strands in the literature corresponding to different empirical methodologies and discuss to what extent each approach sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets."

 Find paper HERE.  (HT: Econobrowser for link)

http://www-personal.umich.edu/~lkilian/milan030612.pdf