Dorothy may not be in Kansas anymore, but our wheat supply is... and it is threatened. See here why..

Here are 2 maps showing where wheat is grown (on left) and where drought is occurring in the US (on right).  I got both of these from The Big Picture Agriculture blog and put the side by side with some minor editing.

Kansas grows 22% of the US wheat crop AND it is experiencing "extreme" to "exceptional" drought conditions.  Both of these are within the yellow circles.

Depending of how much of the harvest is salvaged plus harvests in wheat growing locales throughout the world, the price of wheat may increase.  As it moves through the supply chain as an input the price of finished goods made from wheat might increase in price as well.

Dorothy, please tap your heels together not so you can return to Kansas, but so it can rain.  That is needed much more...

Is there a strong case for raising the minimum wage because of lost purchasing power due to inflation? Maybe...but maybe not. I report, you decide...

There is much ado in political circles about the purchasing power of today's minimum wage compared to some point in the past.  The case is made that the minimum wage has not kept up with inflation and workers earning that wage today have lost ground relative to those who came before. As with many things in economics, the answer seems to be "it depends".

Here is a graph from Mark Perry that I tricked up a little. The RED line tracks the minimum wage in actual dollars terms from 1938 to the present. In 1938 it was $.25 cents and today it is $7.25. All the increases are shown between those two points.

The BLUE line is a little tricky to understand. It represents, in inflation adjusted terms, what a minimum wage  worker would have to earn TODAY to have the SAME purchasing power as a minimum wage worker at some time in the past.

Example:  See the $10.66 per hour at the high point of the BLUE line? This means that a worker today would have to earn a minimum wage of $10.66 to have the same purchasing power as a worker in 1968 at that years actual minimum wage.  That's not good, is it?

Source: Carpe Diem

Look at the gold horizontal dotted line and read it from right to left starting at the green dot. As you move from right to left and encounter a RED DOT this means  today's minimum wage has the same purchasing power as the actual minimum wage at that time.  In other words, all else is equal in terms of the purchasing power of the minimum wage today relative to the past.

If the BLUE line falls below the Gold line then today's minimum wage, in inflation adjusted terms, is HIGHER than than the purchasing power of that years actual minimum wage.  If the BLUE line is above the Gold line then today's minimum wage has LESS  purchasing power than that years actual minimum wage.

In terms of purchasing power the current minimum wage of $7.25, it has been relatively stable over time. The obvious exception is a relatively short time span between the mid-1960's and the late 1970's.

This was a freakish period of high, abnormal inflation. If I was going to pick a time period to make a historical case that the minimum wage is too low, then this small window is what I would choose.

But would it be accurate?

I report, you decide...

Having said that, I personally believe it should be raised but in small-ish increments to make it more seamless and less disruptive for businesses.  I don't think that is unreasonable.

Why you should not be hopeful for a clean energy future in one easy US Dept of Energy Graphic...

This is from an April 2013 report from the US Dept of Energy (HT: Carpe Diem).  The report is full of projections (always a dicey proposition) on energy production and consumption.

This one caught my eye and I have posted on this topic recently (here).  It shows energy consumption by source from 1980 to 2011 (black line in center) then projects out to the year 2040.

Look closely at 2011 levels of consumption and 2040's.  Natural gas on net replaces 2 percentage points of petroleum and coal essentially stays flat.

Renewables (Green section) and Biofuels (sliver of yellow) grows by 3 percentage points. As a percentage change that is pretty good (+38%) but for a time span of 27 years I am not sure that is impressive.

Even by the current Administrations reckoning we are going to be dependent on fossil fuels for our enormous  energy requirements for some time into the future.

When making energy policy seems like we should consider "what is" along with "what might be".  That would be sensible, right???

Source: Dept of Energy

Here is a different breakdown emphasizing the role coal, the dirtiest of the dirty energy source, will continue to play in the near and far term in keeping the lights on and powering our i-pads and other electricity dependent doo-dads.   Kinda depressing, isn't it???

Nice chart showing where the jobs were lost during the recession and where they have been regained. Thank God for Fast Food, Bars and an aging population...

This chart is from the terrific blog EMSI. It shows the change in the number of jobs during the official time span of the recession (light blue bar) and the change in the number of jobs after the official end of the recession (dark blue bar).

If a bar swings to the left of the center line it shows the number of jobs lost in that time period. If it swings right the number of jobs gained.

"Information" and "Government" are the only two sectors that lost jobs during the recession AND continued to do so AFTER the recession.

Interestingly enough, "Healthcare and Social Services", "Educational Services (Private)" and "Utilities" are sectors that added jobs during AND after the recession.

The glaring sore spots are Manufacturing and Construction (mostly residential construction).  In nominal terms, those sectors lost the most jobs and have not come close to making them up.

Those sectors are not likely to regain there lofty status anytime soon.  Construction is more likely to recover to at least parity, but manufacturing will continue to transition from a labor intensive industry to a capital/technology intensive one.

Interesting data point from the Unemployment Report put today--Multiple Job Holders I salute you. However, I think you might be distorting the economic picture. Maybe you should back off. :)

I am always on the look out for new twists on the employment report that comes out monthly.  Here is one I have never looked at and thought interesting. This data comes from the latest Employment Report from the BLS.

The highlighted portions show the number of Multiple Job Holders and the change from June 2012 to June 2013. There are 283,000 more people doing this today than 1 year ago.  That works out to a monthly average of 23,538.

In the last year the average number of jobs created each month was approx 170,000 (data here).

This means that people with jobs ALREADY account for taking 14% of the additional jobs created each month. Perhaps not the full 14% because some of the those jobs may have already existed.

Seems like a lot. What do you think...

Buying a "Foreign" Car or Truck likely means you are "Buying American". My economics lesson for the Fourth of July!!

Here are the top selling vehicles for the month of May (2013).  As has been for quite some time the sale of pick-up trucks has outpaced the sale of other vehicles. But that is not what I find fascinating about this list.

Notice the presence of so many "foreign" producers of vehicles in this Top 15 (7 out of the 15).  I put foreign in quotes because a cursory Google search of assembly plants of those foreign name plates I found all of them have plants in the US dedicated to producing these particular vehicles.

So, many/most of these manufacturers use US labor and/or US sourced parts to produce their vehicles to sell to Americans.

For the most part, buying "foreign" means buying American.  Below this list is another list compiled by cars.com that shows vehicle content, US and Foreign, by the percentage of US sourced labor and parts.

Happy Fourth of July!!!

Source: Cars.com

How much will it cost you going forward to take out a SUBSIDIZED Stafford Loan to pay for college? I do the numbers for you here.

Here is a side by side comparison of the difference in the monthly payment a SUBSIDIZED Federal Stafford Loan will be on July 1st, 2013 when the current law regulating the rates expires. The interest rate on this type of loan is schedule to double from 3.4% to 6.8%.This is on loans going forward NOT retroactive on previous loans you may have taken out. I chose a 10 year payback----could be longer BUT DON'T!!  Lots of consternation about this change.  Thought I would bring a little perspective to the discussion.

The maximum a student can borrow in subsidized Stafford loans is $23,000 (for an undergraduate).  This will represent only a portion of total college costs.  My understanding is the average college student does not borrow up to the limit on this type of loan, so the amount is likely to be less.  The rest will be in grants, scholarships, own money AND NON-subsidized Stafford/"other" loans.  The rate on non-subsidized Stafford loans is already 6.4% and is NOT scheduled to change.

How you will be affected in the future depends on how deep into the subsidized loans you are in.  However, the financial impact will not be devastating, as reported in the media, and will be a negligible blow to your future standard of living.

You may feel different. I am open to be convinced otherwise.

(Calculator I used HERE)

What do Volkswagen Beetles and how much earth has to be moved to mine the gold and diamond for a 1 carat engagement ring have in common? You may never buy a ring again after seeing this...

I clipped this from a larger info-graphic on the economics of Gold Mining.

The amount of earth that had to be moved to mine a gram of gold kinda startled me.  Got me to thinking, How much earth, in terms of Volkswagen Beetles, has to be moved to produce a 1 carat diamond engagement ring?

To mine a 1 carat diamond requires the moving of 250 tons of earth (best estimate I could find Googling--could be more...or less). Using the numbers in the infographic, that is the equivalent of 218 Beetles (500,000lbs/2,295lbs per Beetle)

The gold portion of ring will only set you back a fraction of the Beetle (a fender?).

Next time you drive by a Volkswagen dealership think about this---all the cars in the lot represent the amount of earth that had to be displaced to produce the diamond ring on your finger.  Is it worth it?

Source: Business Insid

The discussion on levying a "Carbon Tax" to reduce green house gases is gaining momentum. I created a presentation on the issue just for you!!

The most effective why to reduce the consumption and/or production of a good  is by way of the price mechanism.  If you want to reduce the consumption of a good raise the price. If you want to reduce the production of a good then increase the cost of producing it.

Why would we want to do that?

If the production and/or consumption of  a good results in uncompensated costs on others who are not producers or consumers of the good, it is is termed an "external cost".  It is a not absorbed into the price consumers pay for the good or that producers incur by producing the good.

Goods consumed and produced with heavy doses of fossil fuels as an input are nice examples goods that impose significant external costs on society and are not reflected in the market price.

A "Carbon Tax" is one way to "internalize" the external, uncompensated costs that arise out of the use of fossil fuels in the production and/or consumption of goods.

Below I excerpted key paragraphs on a discussion of a carbon tax that puts in simple language the goal of the tax.

The Myriad Benefits of a Carbon Tax

The beauty of a carbon tax is its market-based simplicity. Economists since Adam Smith have insisted that prices are by far the most efficient way to guide the decisions of producers and consumers. Carbon emissions have an “unpriced” societal cost in terms of their deleterious effects on the earth’s climate. A tax on carbon would reflect these costs and send a powerful price signal that would discourage carbon emissions. 

Producers and consumers would adjust their behavior in response to this signal in ways that are most efficient for them. And these efficient micro decisions would support efficient societal outcomes. 

There’s much debate about what the proper “social cost of carbon” might be, but there is no debate that carbon emissions are seriously underpriced. Any tax on carbon would be an important step in the right direction, and it could be gradually increased to give consumers and producers time to modify their decisions.

Here is my abbreviated PPT presentation I use for my AP Microeconomics class to illustrate graphically how the presence of a negative externality in the market place affects social welfare when the full costs of consuming and producing a good are not factored into the market price.  I hope it is helpful in understanding the issue.

I recently created this. Any constructive comments are welcome regarding content and editing are welcome. Thank you.

Negative Externalities--Short Version

Uploaded by Gene on WizIQ Tutorials

The Demise of the Horse and Mule Era and the Rise of the Automobile and Tractor Era---Part 2. I think history and econ buffs will enjoy this.

Between 1915 and 1960 the horse and mule population in the US decreased by 22,404,000 (yes, millions). Notice it increased prior to 1915.

The decrease over this time span was primarily due to the advent of the automobile for personal and commercial use (urban) and tractors for agricultural use on the farm (rural).

This period is also known as a golden age for agriculture and productivity down on the farm.

I would like to put a little different spin on this productivity miracle.

Source: Humane Society

 The passage below is from a Census Report from 1934. It gives an estimate as to how much acreage is needed to grow a variety of food commodities to feed a horse or mule for one year.  Remember, at this time this was the "fuel" source for agriculture.  Part of the yield from growing food HAD to be diverted to feed the livestock help produce the rest of the harvest.

Source: Fifteenth US Census

The amount of acreage needed varies depending on the combination of commodities used. Let's just informally use a ratio of 5 arable acres to grow food for one horse or mule.

This means from 1915 to 1960, 112,020,00 (that is 112 Million!) FEWER acres of land were required to be used for horse and mule fuel (22.404 million fewer horses and mule X 5 acres).

Put in perspective, this is equivalent to the combined TOTAL acreage of the agricultural States of Nebraska, Iowa and Indiana, that did not go to the feeding of horses and mules but to people.

Note: I am assuming no change in technology and the horse and mule population would have stayed pre-1915 constant.  Maybe, maybe not.

Physical land resources, especially in urban areas, were freed up for alternative uses and allowed those areas to progress at a different pace and on a different trajectory.

The untold story of advancement in technology is also reflected in the demise of the horse and mule powered economy.

Just thought that was interesting.  Hope you do too.

Interest rates on loans are increasing. Here I show you how even a small change in interest rates will cost you money. You WILL be shocked!!

The buying and selling of a house for most people is the biggest personal financial transaction they will undertake in a lifetime.  Because most people have to borrow the money it takes to buy one, the interest rate paid on that borrowed money is of utmost importance.

In the last few weeks interest rates on loans to buy house have spiked upward.  Only a couple of months ago someone with excellent credit could borrow money to purchase a house at close to 3.5% interest rate on a 30 year loan.  Today, that rate is around 4.6%.  I know this because we are in the process of selling a house and buying a new one and I was quoted 4.67% for a new loan.

That may not seem like much of a change, but it is deceiving and an easy trap to fall into when you are quoted an interest rate. Small differences matter!!

Below I used an online loan calculator to give you some examples of how changes in interest rates affect how much you pay back to the lender. For each scenario I assumed a loan for $200,000 for 30 years, a 2% total property tax rate (could be higher or lower depending on where you live) and home insurance of $1,000 (again, could be higher or lower).

The only thing I change is the interest rate for each loan.  I use 3.5%, 4.5% and 5.5% respectively.  I highlighted the change in the monthly payment and the TOTAL in interest payments you would make over the 30 year life of the loan.

See the difference every 1% change in the interest rate makes?  Pardon the pun, but it is in your interest to seek the lowest interest rate you can on a loan of any sort.  Higher interest rates means more money transferred to the lender and less for you to use for savings or present consumption.

Would you like that in Paper or Electronic form? Paper industry getting beaten to a "pulp" by the digital bullies...

While we will likely always have a want for paper, it is an industry on the decline because of the rise of a suitable substitute---digital technology in every form.

For the paper manufacturing/producing sector this decline has been gradual but inevitable.  My father worked in paper mills in the Northeast all his life and growing up I saw first hand its demise.

Creative Destruction is a cold, cruel process for those on the declining end of an industry but exciting, vibrant and forward looking for those in the emergent industries.  Those who focus on maintaining the status quo for the former group only impede the inevitable progress made by the latter group.

Should grandma still get her checks in the mail? The paper lobby thinks so.

"...It’s easy to understand why the companies might be upping their presence in Washington: The Internet age has devastated traditional paper products, with newspapers, magazines and print advertising at historic lows. At the same time, e-commerce has boosted demand for packaging, so they’ve pressed for things like reform of the United States Postal Service, to keep it as cheap as possible for vendors like L.L. Bean and Pottery Barn to send large volumes of glossy mailers. Paper manufacturers were even active on the Farm Bill, asking for wood pulp to be included in the bill’s priority purchasing programs for bio-based products..."

President Obama wants to turn out the lights on the coal industry. The problem is the coal industry GIVES us that light in the first place. See the facts here...

President Obama in a speech today pretty much threw down the gauntlet in the direction of the US coal industry.  Rightly or wrongly, we ARE dependent on the stuff.

Here are the facts---you decide for yourself the proper course of action.

This graphic is from 2009 so it may be a little dated as far as the numbers.  But if I had to make an un-educated guess (all I have) I would say the percentages are still in the ballpark.

I modified it to isolate coal, which supplies 20% of our overall energy needs (gray box on left).  BUT it powers 48% (18.30/38.19 X 100) of our electricity needs/wants (box in upper middle).  Read that again.

Nothing else (based in reality) comes close to meeting that power need/want.

Rational debate and policies based on what "is" (positive) and not what "ought to be" (normative) will be more helpful in getting to where we need to be.  Coal is not the fuel of the future but it is of the here and now and many tomorrows.

UPDATE:  Just found this at the Energy Information Agency:

In 2012, the United States generated about 4,054 billion kilowatthours of electricity.  About 68% of the electricity generated was from fossil fuel (coal, natural gas, and petroleum), with 37% attributed from coal.

Energy sources and percent share of  total electricity generation in 2012 were:

• Coal 37%
• Natural Gas 30%
• Nuclear 19%
• Hydropower 7%
• Other Renewable 5%
  • Biomass 1.42%
  • Geothermal 0.41%
  • Solar 0.11%
  • Wind 3.46%
• Petroleum 1%

This gets interesting now.  Natural Gas met 18% of our electricity needs/wants in 2009 and now it is 30%.  Coal has decreased from 48% to 37%.

In 3 years we already have transitioned from coal to a much cleaner (and abundant) burning fossil fuel natural gas.

Environmental goals being met without any additional policies.  Go figure...

Year over Year spending per worker in direct travel and tourism sector is down but up in the indirect, support sector. Is this a good sign or bad?

Just how important is the economic impact of  tourism in the US(from BLS current release)?

In the first quarter of 2013, total current-dollar tourism-related spending was $1.5 trillion and consisted of $888.5 billion (59 percent) of direct tourism spending — goods and services sold directly to visitors — and $606.2 billion (41 percent) of indirect tourism-related spending — goods and services used to produce what visitors purchase.

Total Tourism-Related Employment  was 7.9 million jobs in the first quarter of 2013 and consisted of 5.7 million (71 percent) direct tourism jobs — jobs where workers produce goods and services sold directly to visitors — and 2.2 million (29 percent) indirect tourism-related jobs — jobs where workers produce goods and services used to produce what visitors purchase.

Total direct and indirect spending on and tourism for the months of January, February and April of 2013 was $1.5 Trillion dollars and it help sustained 7.9 million jobs (both in RED). If you divide $1.5T by 7.9M each job was supported by $189,873 in average spending on tourism/travel for the 3 months. 

If you just look at direct spending and direct jobs, if you divide $888.5B by 5.7M each job was supported by $155,877 in average spending on tourism/travel for the 3 months.  

Just to give some perspective and consistency, lets look at the First Quarter period from 2012.  It is common to compare year-over-year changes to see what the seasonal trend might be.

In the first quarter of 2012, total current-dollar tourism-related spending was $1.4 trillion and consisted of $848.6 billion (59 percent) of direct tourism spending — goods and services sold directly to visitors — and $577.9 billion (41 percent) of indirect tourism-related spending — goods and services used to produce what visitors buy.

Total Tourism-Related Employment was 7.6 million in the first quarter of 2012 and consisted of 5.4 million (71 percent) direct tourism jobs — jobs where workers produce goods and services sold directly to visitors — and 2.2 million (29 percent) indirect tourism-related jobs — jobs where workers produce goods and services used to produce what visitors buy.

If we do the same calculations using the numbers in RED and BLUE we see that an average total spending (direct + indirect) worked out to $184,210 ($189,873 in 2013) per worker and the average total direct spending was $157,148 ($155,877 in 2013) per worker.

Total (direct + indirect) average spending per worker increased by 3.07% from 1st Quarter 2012 to 1st Quarter 2013.

However, factoring out the indirect sector we find that total (direct) average spending per worker DECREASED by 0.80% from the same time period.

Seems like a vote of confidence if employers directly serving tourism are willing to hire more workers at a lower customer spending per worker threshold.  However, the flip side is in the indirect support supply side they seem less willing to hire as increased spending per worker flows to them.

Any other thoughts??

Here is my short admonishment against smoking. I put it in simple dollar terms. How many hours do you have to work to earn the money for those cigs? I do the calculation for you HERE

Data from CDC HERE

An estimated 44 million Americans smoke. Of that 44 million an estimated 30%, or 13.2 million live at or below the poverty line.

The price of cigarettes varies significantly around the US.  A low of $4.84 in West Virginia to a high of $12.50 in  New York.  Prices include a significant tax.  The median price is about $7.00.

If a person smokes 3 packs a week at the median price of that is $21.00 per week spent on cigarettes.  At a minimum wage of $7.25 per hour (MINUS payroll taxes of 7.65% that would be $6.73 per hour) it takes just a little MORE than 3 hours to earn the money to buy cigarettes PER WEEK.  3 HOURS!

There are 4.3 weeks in an average month.  A 3 pack a week smoker working at minimum wage will work 13 hours a month in order to spend $90 on a cigarette habit.

Opportunity Cost.  What ELSE could a minimum wage worker spend their money on instead of cigarettes? Yes, I know, it could be on worse things. But it could be on better things as well.

Notice I am not taking the nanny state approach and telling you what you should or should not do.

I am doing what economists do: Putting a cost to an action then letting people decide.

However, on  personal note, students: DON"T SMOKE!! It is harmful to you and to society (what good could you do with that $90 extra PER MONTH!!).  I watched my father die a terrible death as a result of a lifetime of smoking.

Thanks!