Bacon will not be a part of your 4 "Coase" meal in San Francisco. See here why.

Bacon, the perfect food in my opinion, is not beloved everywhere.

Bacon restaurant shut down for smelling like bacon

It turns out that not everyone loves the smell of bacon.

A San Francisco bacon restaurant, fittingly called "Bacon Bacon,” was forced to shut its door on Friday after neighbors complained that the "porcine aroma" wafting from the establishment was too strong.

There is an alternative way for this problem to be resolved without government interference.  It is applying what is called the "Coase Theorem": (here is a VERY simplistic definition---go HERE for more detailed explanation)

The Coase theorem states that where there is a conflict of property rights, the involved parties can bargain or negotiate terms that are more beneficial to both parties than the outcome of any assigned property rights. (from Investopedia)

The sweet smell of bacon waffling throughout the neighborhood imposes costs AND benefits on third parties (neighbors) not directly involved in the transaction (restaurant and its customers). 

Some people (by some people I mean me)  might LOVE the smell of bacon in the morning.  The closing of the restaurant is harming them/me at the cost of reducing harm to others, the bacon-haters.

An example of an outcome loosely consistent with the Coase Theorem would be for me, or the restaurant owner, or its customers to compensate the bacon aroma hater in the amount they feel like they have been harmed.  Compensation in dollars or tofu, maybe?

Is society better off with "Bacon Bacon" closed?  NOT in my humble cholesterol filled world.

How about you??

Nice graph showing college degrees granted by gender. You are (and earn) what you study.

Degrees by gender.  Note the 50/50 line ("Social Studies and History" is as close to a 50/50 split as can be) .  This means any bar that extends to the right of the split women earn a perponderance of the degrees in that dicsipline, for example women earn 87.7% of the degrees in "Family and Consumer Sciences".  On the other extreme, women earn only 17.2% of the degrees in Engineering.

Lots of economic, social and political implications here. Discuss.

Source: AEI--Carpe Diem

TENTATIVE answers to the 2013 AP Macroeconomics Exam FRQ's

HERE is the link to my preliminary interpretation of the 2013 AP Macroeconomics FRQ's.

I am open to correction and or suggestions for refinement.  Also, the points I assigned are tentative and I might be wrong as to which parts are or are not assigned points.

Here is the link to the College Board wesite with the actual questions.

For my students:  I can see 2 (maybe 3) points that would have been a challenge.  I think you are going to do VERY WELL!! :)

Nice Economics related cartoon to illustrate "structural unemployment". There will be rage against the machine, but only AFTER it serves you lunch...

Nice economics related cartoon in the NYTIMES today (HT: Jared Bernstein).

A good illustration of "stuctural" unemployment in a lesson on employment in a basic economics class.

NYTIMES

Nice graphic on the change in Skill Levels for jobs in the US since 1983. Where do YOU plan to be on this chart??

US population today is approximately 315 million. In 1983 it was 234 million.  That is a 35% increase.

Low Skill Occupations increased by 20%
Middle Skill Occupations decreased by 24%
High Skill Occupations increased by 42%

High skill occupations have increased faster than the population (YAY!). Low skilled occupations have increased much slower than the population (YAY! Again!).  Middle skill occupations, well, I am not sure where they went, maybe on Disability. 

Sensible policies that foster a postivie business climate, a renewed reverence for entrepreneurship, and a REAL emphasis on vocational skills acquisition would be helpful.

An Ode to a Grecian Spurn ...of reality

Greece, arguably the most economically troubled country in Europe, has a rather high opinion of itself relative to its Euro-area neighbors. Voted THEMSELVES Most Trustworthy in spite of every other country naming Germany. 

To be fair, there is quite a bit of Self Love to go around.  Each believes they are the Most Compassionate.  Nationalism is a hard thing to overcome, even in light of massive contradictionary evidence.

If you are going to have a Socialist Revolution you better have some toilet paper. Oh, and take a basic Econ class too

Venezuelans are learning a hard lesson that could have been avoided if their leader took a basic economics class.  The lesson is on the price paid, literally and figuratively, when price controls are imposed on a market in the name of serving a "social good".

Venezuela hopes to wipe out toilet paper shortage by importing 50m rolls

First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities – toilet paper.

Blaming political opponents for the shortfall, as it does for other shortages, the government says it will import 50m rolls to boost supplies.

Economists say Venezuela's shortages stem from price controls meant to make basic goods available to the poorest parts of society and the government's controls on foreign currency.

"State-controlled prices – prices that are set below market-clearing price – always result in shortages. The shortage problem will only get worse, as it did over the years in the Soviet Union," said Steve Hanke, professor of economics at Johns Hopkins University. 

 If you don't believe in downward sloping Demand Curves and/or upward sloping Supply Curves, then, well, you might be a beloved Populist Leader of a people who don't access to toilet paper. 

It might be just me, but I prefer to love my leaders a bit less and have a bit more toilet paper. But then again, I am a simple man...

Graphically, here is how a specific price control---a Price Ceiling works. 

Here is our Market for Toilet Paper in "free" market equilibrium.  At price "Pe" the Quantity Supplied of TP is equal to Quantity Demanded for TP at Point "A".

Fearless Populist Leader believes that the market price is too high.  Fearless Leader imposes a price on the market that is BELOW the established market price.  This price is called a Price Ceiling---by law the good cannot be priced ABOVE this government set price.

In the next graph, at "P Ceiling" the quantity supplied by domestic producers is now "Q supplied"(Point "B:")  and the quantity demanded is "Q demanded" (Point "C"). 

At the lower price producers will supply SOME toilet paper, but not as much as before because the lower price (assuming production costs stay the same) makes it less profitable.  There is movement ALONG the Supply Curve from Point "A" to Point "B".

At the lower price consumers will increase their quantity demanded from Point "A" to Point "C"---there is movement ALONG the Demand Curve as the price decreases.

You can easily see what is happening on the ground in Venezuela.  At the lower price consumers are "stocking up" on toliet paper at the same time producers are cutting back on production.  With no corresponding change in price allowed, we quickly move into a situation where Quantity Demanded is greater than Quantity Supplied and a SHORTAGE emerges.

Fealess Leader for some reason does not anticipate this and is quite shocked by the outcome.  Now he/she has to pivot and go buy 50 million rolls from SOME OTHER COUNTRY in order to make up for the shortfall.

The result of the Price Control?  Domestic producers/suppliers and their employees are hurt (presumably they use toilet paper too), some consumers have pantry's full of toilet paper but most go without (can you say emergence of "Black Market" trade in TP?), and the government has to use money to buy toilet paper instead of, well, fill in the blank.

Dear Fearless Leader it is called "Econ" usually with a number, like, "101" following it.  It might cost you some money to enroll, but it will be much less than the cost of 50 million roles of TP. 

Just sayin'...

How much does Prom cost and who pays? A nice graphic and some interesting observations from a survey by VISA.

 

 

Here is a short summation of the findings from a VISA survey where this graphic came from (found HERE).

 

Spending on the annual high school ritual of the prom continues to outpace inflation and grew for

the second straight year, hitting an average of $1,139 per family in 2013, results from a new

survey released today by Visa Inc. show. That represents an increase of 5% from the $1,078 that

American families who have a teenager attending a prom spent on all aspects of the dance in

2012.

Visa’s prom survey also revealed some interesting regional and economic disparities. For the

second year in a row, the Northeast led the nation in spending, with the Midwest spending the

least. Regionally, the survey found:

Northeastern families will spend an average of $1,528;•

Southern families will spend an average of $1,203;•

Western families will spend an average of $1,079; and•

Midwestern families will spend an average of $722.

 

One troubling statistic is that parents surveyed who fell in the lower income brackets (less than

$50,000 a year) plan to spend more than the national average, $1,245, while parents who make

over $50,000 will spend an average of $1,129. Additionally, single parents plan to spend $1,563,

almost double the amount that married parents plan to spend at $770.

Travels of a bloody shirt. Which one would YOU buy???

This is from CNN and produced in light of the recent tragedy in a textile factory in Bangladesh.

It shows the cost to produce the same shirt in the USA vs Bangladesh.  The largest differential is in Labor Cost.

Hypothetical:  If both these shirts were in a store hanging next to each other and one was priced at $14.00 and the other at $4.00, which one would YOU buy?  Which one would MOST people buy?

Happy Kentucky Derby Day...I think. Had to throw in an Opportunity Cost lesson...

Jobs report just out. Look at this nugget I observed in the report that you won't hear/read about in the analysis by "Real" Economists/Pundits today. And I think it is the underlying problem with tepid job creation.

The Jobs Report for April is JUST out.  With this months report AND upward revisions for the last 2 months, we are chugging along. The job situation IS improving! Not fast enough, but better than a sharp stick in the eye.

I want to make a longer term observation and pose the question: Are things REALLY getting better? And if so, for WHOM?

I am very interested in the relationship between education, employment and its impact on inequality.

Below I pasted the relevant part of today's job report that shows the relationship between educational attainment and employment.  I highlighted the relevant numbers (in the "Seasonably Adjusted" boxes) to show the change in employment in the PAST YEAR among the different educational attainment levels. (Click image to make larger)


Source: BLS

The change in the number of jobs in each category is off to the left (decreases in Red, increases in Black).

The combined loss in jobs in the Less Than High School AND High School Graduate categories is just about EQUAL to the increase in employment in the "Some College/Associate Degree".

Job creation in the last year has been carried by those with College Degrees and to a lesser extent those some advanced education beyond high school.

Job destruction has fallen on those with lower levels of education.

This long(er) term trend is what SHOULD concern people more.

A piece of the Income Inequality puzzle is right here.  Pretty sure you won't see THIS analysis today!

Your welcome.  :)

The Federal Budget in several easy to read graphs/charts as prepared by the Congressional Budget Office. I report, you decide...

The US Federal Budget in  current, easy to read graphs/charts.  If you are an econ teacher this presentation would be a nice addition to your Fiscal Policy Unit. If you are a student or just trying to learn more from a reasonably objective source, well, here you go.

I report, you decide.  :)

A Tour of the Federal Budget and Possible Change in Budget Policy from Congressional Budget Office

Ladies and Gentleman---Here is the most environmentally friendly product of the Century---Get your phone out now to take a picture!!

I was just admiring my Smartphone this morning (Samsung Galaxy 3). 

It reminds me that it is not only a labor saving device for me but an EXTREMELY environmentally friendly one as well.

With just a cursory look I found pictures of the various separate and distinct devices, products and services that are on the phone that I hold in the palm of my hand.  This is only a start.  With a little more thought and exploration of the phone I am sure I can add many more.  And I consider myself a light user of all its capabilities.

I am sure you have MANY more uses/applications on your phone.  Think of all the physical resources that are NOT being employed to make this short list of devices and products.

Yes, other resources are being used to produce the things/apps that go into your phone.  But I would have to say that the net benefits to reduces resource use have to be postive.  Right???

Look at you! You, You, You accidental environmentalist, You.  Now, good make the world a better place---send a text instead of a letter---without the paper, a pen, a stamp, planes, trains and automobiles to get it to its destination.  How wasteful is that!!

Nice (but HORRIBLE) graphic showing the trade-off that results from using food-for-fuel. 440 million MORE people (primarily the most vulnerable around the world) could be fed if we stopped this insane policy.

As seen at The Big Picture Agriculture....Here are a couple of graphics from THIS report by a private food id organization in Great Britain. I am sure they are biased BUT if even if these numbers 50% of the real impact, it is significant.

Using food for fuel is harmful in many ways, but the most harmful impact is no the food supply for the least of us in the world.  Support for corn-based bio-fuels is support for starvation at the margin (a quite a bit inside that margin).

See here how Mark Cuban's brillant play in the Foreign Exchange currency market is going to make the Mavericks a better team. The rich get richer, but this guy is CLEVER!!

Billionaire Mark Cuban is doing something interesting that makes a nice lesson in the Foreign Exchange Market.  See article HERE. He is converting his US debt held in US dollars to debt held in Japanese Yen:

""...in early December, I went and took every penny of debt that I had – with the Mavericks, and personal debt, and everything – and converted it to a yen loan, when I think [the yen] was in the mid 80s [against the dollar]. So, I've been really happy with it.""

WHY would he do this??  Here is as easy an explanation as I can give...

Let's say I have $1 million US dollars of credit card debt.  That is a lot of debt, but assume my credit is excellent.

Today the Exchange Rate between the US Dollar and Japanese Yen is $1= 100. ($1.00 "buy" 100 Yen).  The reciprocal of this is the 1 Yen = $.01 (one cent).  In other words, 1 Yen "buys" one US Cent.

I go to my favorite Japanese bank and borrow the Yen equivalent of $1M US dollars. That would be 100,000,000 (100 million) Yen. 

I take that 100M Yen and exchange it for $1M US dollars (remember the exchange rate I put above)and pay off my loan. 

So far so good. I now have no debt in dollars BUT I have a big debt in Yen...

Assume that because of other things going on in the Japanese economy the exchange rate changes to $1.00 = 125 Yen overnight.  The reciprocal is 1 Yen "buys" $.008 cents (fraction of a penny).

This means the Yen has DEPRECIATED relative to the US Dollar.  It now takes FEWER dollars to buy Yen. More Yen to buy a US dollar.

Assume also the Japanese bank I borrowed the 100M Yen from wants me to pay it back NOW!

At the new exchange rate of $1.00 US dollar exchanging for 125 Yen, I have to come up with "only" $800,000 US dollars to pay back the loan I took out in Yen. ($800,000 X 125 Yen = 100M Yen)

While I put $800,000 back on my "credit card" notice it is $200,000 LESS than it was before. I hve no more debt in Yen and considerably less in US dollars.

Mark Cuban is betting that the Yen is going to DEPRECIATE relative to the US dollar and is using it as an opportunity to reduce his outstanding debt.

This may translate into more financial capital to improve the  Dallas Mavericks, the team he owns.

The rich get richer...