Minimum Wage in historical terms. Has it or has it not kept up with inflation? I show you the numbers. You decide...

It is always a dicey proposition to use the Bureau of Labor Statistics inflation calculator.  One can question its accuracy and value as a tool in comparing one time period to another. I get that. But it seems it is the best we have AND it is used to provide justification for an increase in the minimum wage.

The issue centers around the lost purchasing power of the minimum wage as inflation erodes its value over time.

Using the BLS inflation calculator, I entered the actual nominal dollar value of the minimum wage in the year it was changed, going back to 1981, and showed what the purchasing power of that wage is in today's dollars (I duplicated 1981 and 1989 because of the long time span in between changes and to illustrate the drastic reduction in headline inflation had on the purchasing power of the MW).

Example: in 1981 (slide "1") the MW was $3.35. In today's dollars that would be equivalent to $8.61.  So, in order to have the same purchasing power as a MW worker in 1981 a MW worker today would have to earn $8.61 (highlighted in yellow).  The actual MW today is $7.25.  This suggests that the MW today is too LOW by 19%!

But wait a minute.  If we choose to look at 1989 the minimum wage (slide "2") is still $3.35 but that is equivalent to $6.31 in today's dollars. This suggests the MW should be 13% LESS than $7.25!!

Inflation in 1980 was about 14%. In 1989 it was about 4%. Big difference!

See how deceptive this can be? Depending on which year you choose to be your base year can  distort the overall picture and present support or non-support for your position.

The long term average of ALL the adjusted numbers highlighted in yellow is $7.26. The MW is $7.25.

For the long(er) term that is about right.

Having said all that, the minimum wage probably needs to be raised. By how much I don't know.  But using more realistic data and analysis would be a start.

Do hospitals take the weekend off? If you have a newborn it might be true. See here why...

Saw this HERE (read the whole article for more detail than I am providing).

This study looks at what happens to newborns admitted to a hospital under the non-emergency "failure to thrive" category.  The baby experienced a rapid weight loss prior to admission and the parents brought them to the hospital.  Not an emergency, but certainly understandable from the parents perspective.

The graph below shows the cost (left axis) and the length of stay (right axis)

It appears the hospital essentially warehouses the infants until the weekend is over and regular staff takes over.  This is costly and does not lead to improved health comes, but longer stays and higher costs.

Try telling that to parents! Seems like more rigorous pre-screening could eliminate this but I am just guessing the hospital accommodates and charges (1) the insurance company or (2) the government for the space.

Part of the problem in controlling medical care costs right there...

Source: The Incidental Economist

Why "Price Gouging" is desirable and should be re-branded "Sustainable Pricing". A name is everything!

Here is a very nice summation of why "price gouging" should not be discouraged by the government imposed price ceilings (a price, by law, is not allowed to go above a certain level).  Businesses, for the most part, are not going to raise prices in normal times above the market price because competition will restrain them.

 However, if people expect those prices to go up considerably in the event of a disaster created shortage then the anticipation of "gouging" can actually have a positive affect.

From: ANTI-DISMAL

1. Without price increases, many people buy extra supplies “just in case”, regardless of what they have tucked away at home already. If too many people do this, supplies run out and people who need them much more urgently miss out. With price increases, people who don’t really need supplies will leave them on the shelf, not out of the goodness of their heart, but out of concern for their wallet.
2. Price increases encourage conservation of resources people already have. Those who can most easily adjust their consumption will do so, leaving resources free for those who can’t. People might, for example, use their cars more sparingly to avoid having to fill up while prices are inflated.
3. The ability to raise prices encourages businesses to stock excess reserves. Space in stores and warehouses is limited and products (even water) go off over time. If they’re not allowed to raise prices on those items, they’ll use that limited space for other products that have higher profit margins the rest of the time.
4. Allowing price gouging actually encourages citizens to be more prepared for disasters. Do you have enough food and water and other essentials stored at home for you and your family if disaster strikes your town? Or do you just assume you’ll be able to go to the store and buy what you need when something goes wrong? Knowing that prices might double, triple, or more during a disaster is a pretty big incentive to go and stock up now instead of waiting — even for that person who lives right next door to the store!
5. Finally, rising prices attract more resources from outside of the disaster area, where prices are lower. Nearby businesses, small or large, can easily profit by shipping essential supplies in and selling them at a premium. Without the ability to charge that premium, they would actually end up losing money through shipping costs, overtime wages, and inherent risks of operating is a disaster area. Without the profit motive, many don’t take the risk.

I also find the new name branding he gives "Price Gouging"---he calls it "Sustainable Pricing", a more accurate description:

“Price gouging” is a derogatory term meant to belittle. A more accurate description would be “sustainable pricing” — pricing that ensures supplies are sustainable to meet the demand of future customers.

Hope it catches on!

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..."