The psychology of Economics---Consumer confidence is down and it serves as a drag on the economy. Simple, but powerful...

Economics is part social science and part psychology.  What people think "en masse" matters.  Consumer expectations are one of the factors affecting Aggregate Demand.

This short posting below from the WSJ suggests that expectations for the near term are not positive for a good percentage of people.  Consumers tend to hold back spending when they are unsure about their immediate situations. When consumers hold back then businesses cut back---the cycle continues.

More Than 50% of Poll Respondents Expect Economy to Get Worse

Consumer spending in the U.S. continued to decline during July as consumer sentiment about the economy waned and expectations about personal finances were unchanged, according to Discover Financial Services’ U.S. Spending Monitor.

The poll index, which tracks economic confidence and spending intentions of about 8,200 consumers a month, declined 1.4 points to 89.3 points last month.

The poll found 28% of respondents view the U.S. economy as improving, down from 29% in June and 33% in May. Roughly 53% of respondents now rate the U.S. economy as poor, unchanged from June.

However the portion of consumers that expect the economy will get worse rose to more than half for the first time this year–up 4 percentage points at 53%–as sentiment among men worsened. The portion of men who indicated expectations the economy will worsen was up 9 percentage points at 57%, while the amount of women who felt that way was unchanged at 50%.

The number of people who said their personal finances were improving was unchanged at 23% in July from June, but was down from 25% during May. Respondents who see their personal finances getting worse was up 2 percentage points to 49%.

While 28% of respondents planned to spend more next month, the increase was driven mostly by an increase in anticipated spending on nondiscretionary items. About 38% of respondents expect to spend more on household expenses.

LARGE infographic showing the scale and scope of the US economy. Some interesting facts and figures...

[Source: U.S. Census Bureau]

Nice Cartoon: Gucci bag vs Grocery bag---Econ Concepts galore, if you just look for them...

This cartoon (HT: Mike Fladlein) is making a comparison between a Gucci handbag and a bag of groceries. The headline from the newspaper shown in the right panel is "Record Drought".  What is the cartoonist suggesting is the relationship between the drought and the two distinctly different bags?  What economic concepts have you learned about in class can you see in this cartoon?

Source: Mike Fladlein at Mikeroconomics

Also, what can you say about the price elasticity of demand (PED) for each of these "goods"?  Relatively elastic? Inelastic? Unit elastic?

Would it be valid to compare the cross price elasticity of demand (percentage change in Quantity Demand for one of the goods divided by the percentage change in the price of the other good) for these two items to determine if they are substitutes (+) or complements (-)?

These are the things I ponder on a Sunday morning...

Keynesian Economics vs Classical Economics summed up in two easy memes...

Keynesian vs Classical---in a nutshell...

Source: The Big Picture Blog

  

Source: Haywardeconblog ---I changed the captions. Did not create the picture

Cartoon " Desert Island Recession"---See if you agree with the premise and conclusion...

The genesis of a recession.  I have a problem beginning with the frame "The Next Day".  How about you?

From Gocomics  Via Mike Norman

I think the President SHOULD have said "The Federal employment sector is doing just fine". Here is the proof in one easy graph...

Planet Money at NPR has been following the change in government jobs at the Federal, State and Local level since the beginning of the recession. 

Due to the first large stimulus package in 2008 that aided states in budget crisis, employment actually increased for State and local governments during the downturn.

As you can see from the graph below since the exhaustion of Federal stimulus local government employment has taken the biggest hit, losing over 400,000 jobs, followed by State level jobs at loss of about 100,000.

Federal employment has remained elevated ABOVE pre-recession levels.

You could say "Federal employment is doing fine". State and local not so much.

How does this compare to private sector jobs?

Looking this next graph you can see the magnitude of government job loss, in relative terms, pales in comparison to private sector job loss.  We still have a long way to go....

Entitlement Spending and Public Investment in 3 easy graphs. Hey, this is not a flashy subject but none more important...

The following sets of graphs illustrate the "Emperor has no clothes" in terms of the Federal Budget. Everyone knows the problem but no one does much about it.
Mandatory, or non-discretionary, Federal spending is concentrated in 3 major areas--Social Security, Medicare and Medicaid (and its subprograms). As illustrated in the first graph, these programs over time have steadily consumed a larger part of the Federal budget---approx. 47%!

Other parts of the budget consist of non-mandatory, or discretionary, spending.  Within this category you have "Investment Spending" by the Federal government. The following is a definition of Federal Investment from HERE:

"Federal investment is the portion of Federal spending intended to yield long-term benefits for the economy and the country. It promotes improved efficiency within Federal agencies, as well as growth in the national economy by increasing the overall stock of capital. Investment spending can take the form of direct Federal spending or of grants to State and local governments. It can be designated for physical capital, which creates a tangible asset that yields a stream of services over a period of years. It also can be for research and development, education, or training, all of which are intangible but still increase income in the future or provide other long-term benefits."

The graph below shows the decline over time of Federal Investment as a percentage of the Federal budget.  The implication is that there is significantly less funding for public works projects that confer benefits on everyone that the private market does not supply.

The last graph puts these two areas of the Federal budget together.  Budget dollars are not unlimited.  Over time, mandatory transfer payments to senior citizens and the poor have significantly surpassed non-mandatory public expenditures/investment in infrastructure. 

The Federal government does not do much of anything anymore in terms of physical public goods. They pretty much just write checks.  Think about that.

How do we address this issue? I dunno, I am just a high school economics teacher.  You will have to ask the Emperor and the Court Jesters we call the Executive and Legislative branches.

A 1980's-ish rap/dance video by a group of middle class suburban 6th graders. For entertainment value it does not get any bettter...

A fun video to watch for new students to the subject of economics. A 1980's-ish rap/dance video by a bunch of 6th or 7th graders. Warning: The song WILL be stuck in your head for the day! Worth a watch all the way to the end.

Unintended but predictable consequence of the Ethanol Mandate...

Source: Carpe Diem

The NY Times is catching on---Nice article on the impending Physician shortage in the US. Oh, you did not know that was going to happen? Econ 101...

The Affordable Care Act largely forgot about the "Supply-side" of "Demand and Supply".  Here is an article in today's NYTIMES regarding the inevitable doctor shortage that will result.  I included a couple of graphs I have used previously to show how this would be a predictable outcome.

The question we have to ask (looking at the first graph) is why has the number of graduates from US medical schools been constant since 1980? 

Econ 101 question: If you increase demand without an increase in supply, what happens to price (absent price controls)?

Doctor Shortage Likely to Worsen With Health Law (NY TIMES)

""Health experts, including many who support the law, say there is little that the government or the medical profession will be able to do to close the gap by 2014, when the law begins extending coverage to about 30 million Americans. It typically takes a decade to train a doctor....       

“We have a shortage of every kind of doctor, except for plastic surgeons and dermatologists,” said Dr. G. Richard Olds, the dean of the new medical school at the University of California, Riverside, founded in part to address the region’s doctor shortage. “We’ll have a 5,000-physician shortage in 10 years, no matter what anybody does...       

The pool of doctors has not kept pace, and will not, health experts said. Medical school enrollment is increasing, but not as fast as the population. The number of training positions for medical school graduates is lagging. Younger doctors are on average working fewer hours than their predecessors. And about a third of the country’s doctors are 55 or older, and nearing retirement...""

 Here is what this situation looks like graphically. 

Source: Carpe Diem

Source: Carpe Diem

Nice graph showing the change in how we communicate and get information since 1900. We REALLY don't talk to each other anymore...

Technology is rapidly changing the way we spend time communicating with each other and how we connect to the outside world.

It shows time in hours per day Americans, since 1900, have spent engaging in the above two activities. The various categories of activities are stacked on the right side.  Notice the bottom 5 activities (from E-mail down to Social Networks) were virtually non-existent in the year 2000---only 12 years ago!

Source: McKinsey and Company

Notice how flat (and even descending) the lines are from 1980 to 2000---pretty stagnant, then BOOM! Those technologies take-off and rapidly start to consume our time. 

What happened during this time-span to make this all possible? What are some of the economic, social and political costs and benefites to society? 

Extra credit for good answers with details.

Side by side comparison of drought conditions---today and 1934, a Dust Bowl year....

Here are side by side comparisons of drought conditions today and 1934, a Dust Bowl year.

A stark reminder of how bad the conditions really were back then.  Keep in mind how much MORE the average person depended on agriculture (directly or indirectly) as compared to today.  I look at this and can feel their fear!!

Source: USA Today

Infographic comparing The Great Depression with The Great Recession. Our grandparents were right.

The Great Depression vs. The Great Recession by Payday Loan.co.uk

Nice infographic on the state of "Piracy" in the entertainment production business.

This is what I thought about on my commute last week on public transit to downtown Chicago ...

Last week I rode the train from the Northwest Suburbs of Chicago to downtown Chicago to attend the AP US Govt and Politics College Board Summer Institute (AP Econ is next week). It takes about 45-60 minutes. After arriving at the train station I walked 2.25 miles to Northwestern U.

Along the way I see lots of large, abandoned manufacturing facilities and other buildings that were built sometime at the beginning-to-middle of the last century.

I have read lately that this represents under-utilized infrastructure/capital and is indicative of the decline in the US manufacturing base.  "They say" if we could just revive the manufacturing sector we could put these idle resources back to work.

I don't see it.  I see these buildings as "spent" capital/infrastructure.  They served the old way of production---lots of labor relative to capital and technology.  The capital/machines used were large and bulky and required large spaces.  Most of those factories produced many of the inputs that went into a final good.  Today, firms specialize and "out-source" the production of inputs.  Capital/machines are much smaller and more productive.  These buildings will never serve current or future manufacturing of any kind.

It is not under-utilized infrastructure--it is dead infrastructure.

When something dies, it should be buried or otherwise disposed of properly. 

Why not spend "stimulus" funds to eliminate this dead infrastructure to make way for new uses for the land---whether it is for new construction or green areas. It would improve property values and have many other positives consequences for the blighted areas.

I think this is a relatively rare case where you can have addition though subtraction.

Any thoughts?

Note: I am a devotee of Basitiat.  I don't think I am violating the principles of "The Broken Window"--the buildings are not "bringing enjoyment" to anyone, as far as I can tell.  Could be wrong.

Also, I do acknowledge the  "opportunity costs" of using resources for this purpose as opposed to something else.  From a policy making position, I think it can legitimately be on the "to do" list.