Wanna know the problem with our Federal Budget? Here is it as plain as I can make it plus my take on the solutions. Your welcome...

The Christian Science Monitor has a terrific set of Budget and Debt graphs on its site today.

Below is one I copied and modified to show you the predicament our National Budget is in and why fixing it is going to be difficult.

Total Federal Revenues (Fiscal Year 2012) are on the LEFT along with the sources of those revenues.

Total Federal Spending (Fiscal Year 2012) are in the RIGHT along with the major budget categories that spending occurs.

The YELLOW arrows on the RIGHT show the budget spending that is considered "Mandatory" or "Non-Discretionary  Spending".  The major entitlement programs (Social Security, Medicare, Medicaid, Unemployment Compensation (with some other programs as well), and Interest owed on the National Debt).

The YELLOW arrow on the LEFT shows how much of the revenues it takes to pay for the Mandatory budget items....YIKES! Mandatory spending takes up virtually ALL of the revenues.  See the little GREEN arrow on the LEFT? That is what is left over to spend on everything else with a green arrow on the right.

But is really gets WORSE.  Much, or all depending on your point of view,  of what is termed "Discretionary Defense" is really mandatory.  If you take that whole block of spending and over to the revenue side, well, you can see that we are in a financial hole already and that is not taking into account of ANYTHING else the Federal govt spends money on.

Solutions:
1. Cut/Slow spending on Entitlement programs--also known as "reform". Whatever THAT means. Political death.
2. Raise taxes.  Not political death, but life support required.  Dr Kevorkian on stand-by.
3. Do a little of 1 and 2.  Politically possible. This is called COMPROMISE!  Oh, wait, never mind.
4. Grow the dickens out of the economy so tax revenues will increase, au naturel, without having to raise taxes. Most desirable!  But alas, does not seem on the horizon anytime soon.

If you have any other ideas let me know. I am fresh out.  :)

Are Multiple Job Holders "Crowding Out" new entrants or re-entrants into the job market? See the data for yourself and you tell me...

The Bureau of Labor Statistics (BLS) keeps track of all kinds of employment data from the surveys they do to determine employment/unemployment.  With the release of today's employment report I went looking for some off the beaten track data to see if I could come up with my own take or observation in the report. Found this.

Data on Multiple Job Holders. I clipped the relevant historical data on the different categories of Multiple Job Holders and calculate the change from August to September 2013 (Highlighted in Yellow below)

1. Multiple Job Holders who had a Primary Full Time Job AND a Secondary Part Time Job increased by 69,000 (3,774,000-3,705,000).

2. Multiple Job Holders whose Primary AND Secondary Jobs were Part Time increased by 118,000 (1,889,000-1,871,000).

3. Multiple Job Holders whose Primary AND Secondary Jobs were BOTH Full Time (Yikes!) increased by 25,000 (214,000-189,000).

 Between August and September the number of Multiple Job Holders increased by 212,000.

Were are creating jobs but it appears we are creating them for people who ALREADY have jobs, for the most part.

Are multiple job holders "crowding out" new entrants or re-entrants into the job market?

Not sure of the answer myself. What do you think???

Update to the map comparing US Gross State Product (GSP) to Gross Domestic Product's (GDP) for select countries. Nice reference tool!!

Here is an update to an interesting way to look at the Gross Domestic Product (GDP)  for the US.  (HT: student Gabe Salmon)

It takes each of the States "Gross State Product"--GSP (dollar value of goods and services produced in that State) and compares it to the GDP of an entire country. Click on the image to make it larger OR go HERE for a much larger version.

For instance, the Gross State Product of California is roughly equal to the Gross Domestic Product of Russia.  For further analysis, they provide a population figure for the State and Country.  So, California has a per person ("per capita") GSP of $54,677 and Russia $14,306.  BIG difference on a per person basis.

For a full comparison of world GDP go HERE.

Mexican Government implements a Junk Food Tax. Oh happy day! I get to do a lesson on Elasticity and Incidence of Taxation.

Here is a nice current article that helps teach the microeconomics concepts of Elasticity and Tax Incidence.
Mexico Tries Taxes to Combat Obesity(Wall Street Journal)

• Congress's lower house of Congress passed late Thursday a special tax on junk food that is seen as potentially the broadest of its kind, part of an ambitious Mexican government effort to contain runaway rates of obesity and diabetes.
• The House passed the proposed measure to charge a 5% tax on packaged food that contains 275 calories or more per 100 grams, on grounds that such high-calorie items typically contain large amounts of salt and sugar and few essential nutrients.

The success of this policy will hinge on how sensitive consumers are to increases in the price of their favorite junk food. If they are sensitive to price changes then the the quantity demanded will decrease significantly ("Demand is relatively ELASTIC").  If they are insensitive to the price change then quantity demanded will decrease, but by a smaller amount ("Demand is relatively INELASTIC").

The success of the policy and who will bear the burden of the tax is dependent on the Elasticity of Demand for junk food.

Here are my graphs showing both states of elasticity and how it affects consumer and producers.

Comments from the article suggest that demand is relatively INELASTIC:

Héctor Ortega, a 45-year-old operator of a street stand in downtown Mexico City, predicted that consumers may pull back briefly when prices rise, but then return to their old habits. 

"Just like the cigarettes, people will go back to their old habits," said Mr. Ortega. He said junk food was obviously unhealthy, but it was often the only thing that poorly paid office workers and students can afford. "This is a restaurant zone and the food here is expensive. For some people, these products are the only food available." 

Fernando González, 24, an office worker who frequents Mr. Ortega's stand, is a big fan of sodas and gum, in particular. When the new prices kick in, he said, he won't give up on his favorites, but will probably buy less chips and candy.
"It's a craving, it's an addiction, it's something people enjoy," he said of Mexicans and their treats.

While the Quantity Demanded will decrease the question is will it decrease enough to achieve the policy objective?

Consumers will pay a higher price for a smaller quantity. Producers will receive a lower price for a smaller quantity supplied.

The winner in all this?  The government will gain tax revenue for certain. Are the revenues going for specific public health program(s) to counter obesity?

The snack food levy is part of a bigger tax proposal from President Enrique Peña Nieto which aims to raise the government's non-oil tax collections.

Not....

What do Humvees in Afghanistan today have in common with trains in Mali in 1982? More than you think.

"In Afghanistan, army struggles to wage war with damaged equipment, poor logistics" 

Their fighting season nearly over, members of an embattled Afghan army unit recently inspected their equipment, most of which was in two heaps on their base. There were Humvees shredded by roadside bombs, armored trucks damaged by rocket-propelled grenades and other vehicles in need of repair after hard use in one of the country’s most volatile areas. 

The Afghan soldiers could not fix any of them, and replacements hadn’t come. Seventy-five percent of the battalion’s armored vehicles were out of commission. There were so few Humvees that some soldiers walked for 20 hours to get from base to base.

This article reminded me of my days in the early 1980's when I served  as a Marine Security Guard at the US Embassy in Bamako, Mali (Northwest Africa) and a conversation I had with some consultants for a major train engine manufacturer (I forget which).

The US government purchased (at least one maybe more) a bright shiny new train engine and these consultants were their to train Malians on how to operate it.  They expressed dismay because they new there were no serious plans to train mechanics on how to repair the trains when they needed service and no provisions for spare parts.  The photo op at the commissioning of the train was nice, but they knew the train would run until it ran no more and then pushed to the scrap yard.

Nice to know things have not change much in 30 years or so....

See a couple of useful graphics here on the tragic issue of Human Enslavement around the world. The results might surprise you.

The enslavement of people around the world has been a problem throughout history and no less so today.

The first graphic shows, in nominal terms, the worst offenders by country and some additional numbers for places you would think would not have this issue. Make no mistake---it IS a social problem in EVERY country on earth.  (Click on image to make larger).

Source: The Global Slavery Index 2013

While looking at the nominal numbers above is useful at getting the big picture of enslavement, I wondered if those numbers expressed as a percent of the population would yield any empirical value.

In the chart below the countries are ordered from highest percent of the population to lowest.

When we look at it this way, the top 10 STILL remains the same for the most part (nominal AND in percentage terms) with a couple of exceptions.  Hungary and Poland move in the top 11 (or 11 tied with Russia).  Vietnam, Bangladesh and China move down the list a bit.

Pakistan and India are prominent at the top. There is a large drop off after that.

The US and Saudi Arabia have roughly the same number of people considered enslaved but in percentage terms of the population the problem is 20 times worse in Saudi Arabia.

In nominal terms Peru and Venezuela have fewer enslaved people than Saudi Arabia, but have a significantly higher percentage of their population considered to be enslaved.  That was surprising to me, given the attention Saudi Arabia gets in the general media (deservedly so).

Do you notice any patterns that stick out that I don't see?  Feel free to add in the comments below.

If you want to learn more or need an excellent research resource, go HERE for the full report from The Global Slavery Index 2013

If you believe this has any value feel free to pass this on to your friends and others who are interested in this tragic issue.

Robots, Baristas and Economics Teachers...One of these is not like the others...

I used to worry about robots taking away economics teaching jobs.  Turns out even robots have a limit as to how much boredom they can stand... :)

An army of robot baristas could mean the end of Starbucks as we know it

Starbucks’ 95,000 baristas have a competitor. It doesn’t need sleep. It’s precise in a way that a human could never be. It requires no training. It can’t quit. It has memorized every one of its customers’ orders. There’s never a line for its perfectly turned-out drinks.
It doesn’t require health insurance.
Don’t think of it as the enemy of baristas, insists Kevin Nater, CEO of the company that has produced this technological marvel. Think of it as an instrument people can use to create their ideal coffee experience. Think of it as a cure for “out-of-home coffee drinkers”—Nater’s phrase—sick of an “inconsistent experience.”
Think of it as the future. Think of it as empowerment. Your coffee, your way, flawlessly, every time, no judgements. Four pumps of sugar-free vanilla syrup in a 16 oz. half-caff soy latte? Here it is, delivered to you precisely when your smartphone app said it would arrive, hot and fresh and indistinguishable from the last one you ordered.

Only one thought, host hoc, on the end of the Federal Government shutdown

I wish the politicians in Washington, and the talking heads that support them, would fight just as hard for private sector jobs as they did for public sector jobs.  There were really no caveats regarding the value of former while numerous conditions are placed on the latter.  Why is that?  Suppose that is a rhetorical question...

Is it time to eliminate "Bridges" from the call to spend more money on "Roads, Bridges and Other Infrastructure"? I report, you decide. Numbers you will only see here...

I read a short article (HERE) regarding the "crumbling infrastructure" in the US.  It pointed out that while 1 in 9 bridges in the US are considered "Structurally Deficient" today, that just 20 years ago that ratio was 1 to 5. He suggested that this was a vast improvement and that the emphasis on spending more money on it is perhaps overblown.

The writer linked to the Federal Highway Administration data on bridges so I was curious and decided to dig a little deeper.

The formatting of the data below is poor (my mistake) because of my lame excel skills but the numbers are correct (calculated by my daughter Cara).

Listed are the 50 States plus D.C. and Puerto Rico. Shown are the number of bridges and the number considered "structurally deficient ("#SD")  in 1992 and 2012.  In the second to last column is the percentage increase or decrease in the total number of bridges in each State.  In the last column is the increase or decrease in the number of bridges considered "structurally deficient" (#SD)

If you cannot read the numbers HERE is the link to the Google Doc of same.

Couple of observations.

The number of new bridges since 1992 has increased by a modest 6.07%  but the number considered "structurally deficient" has DECREASED by 46.2% (totals along the bottom).

A few States have FEWER bridges in 2012 than in 1992 (Arkansas, Iowa, Kansas, Louisiana, North Dakota, Ohio, South Dakota)

A few States have MORE bridges considered structurally deficient in 2012 than in 1992 (Alaska, California, Iowa, New Mexico, Rhode Island, South Carolina, Wyoming).

Curiously, Iowa is the only State to appear twice on the above two lists.

California's whooping 91.76% INCREASE in the number of deficient bridges really stands out.  They built only a modest number of new bridges (10% increase) but appears to have not attended to existing bridges on any scale.  Maybe it is the fault of faults---meaning earthquake fault lines.  That can shake things up a bit.

In 20 years we have 34,751 new bridges and a decline of 57,323 bridges that are considered structurally deficient.

Can we do more or is the pace of improvement over time adequate and it is not necessary to spend more than we already do in upkeep and maintenance?

Nice market example of an Inferior and Normal Good. Only this one involves the SAME product...

A basic concept when leaning about Demand is to differentiate between a good that is termed a Normal Good and/or an Inferior Good.  Both are related to changes in Income.

If income increases (or decreases) and the Quantity Demanded of a good decreases (Increases) then the good is an Inferior good. If income increases (or decreases) and the Quantity Demanded of a good increases (decreases) then the good is a normal good.

If there is a direct relationship between changes in income and changes in Quantity Demanded then the good is a normal good. If there is an inverse relationship the good is an inferior good.

Here is a real life example of this in action. They don't explicitly use  "normal" and "inferior" but they are there.

As income rises people don't want the "inferior" Nano, they want one that is a little more tricked-up and has some extras. Seems the Nano is transforming itself into a Normal good.

Why the World's Cheapest Car Flopped

No-Frills Minicar Gets Chrome, Sound System, Higher Price to Boost Appeal

When the Tata Nano, a stripped-down minicar priced at around $2,000, was introduced in 2009, it was marketed as a car that would transform the way aspiring consumers in India and other developing countries got around.

But the low-cost automotive revolution fizzled. Selling poorly at home and with exports drying up, the Nano has become a cautionary tale of misplaced ambitions and a drag on sales and profit at Tata Motors Ltd. , India's fourth-largest auto maker and the owner of Jaguar and Land Rover luxury vehicles.

It turns out that those climbing into India's middle class want cheap cars, but they don't want cars that seem cheap—and are willing to pay more than Tata reckoned for a vehicle that has a more upmarket image.

Now, Nano is trying remake the "people's car," into the "cool people's car." It has given the car itself a face-lift, adding a stereo, hubcaps and chrome trim, raised the price and started a new marketing campaign to give it more cachet.

Where I am today mentally...

We just moved from Illinois to Ohio. Have been without TV for about 7 weeks. We just got it hooked up.  I am a confirmed cable news junkie (with a dose of CSPAN), but watching it the last couple of days has dispirited me.  The analysis by the taking heads with obvious biases makes it more painful to listen to.  I think I will stick to reading blogs where reason and intellect, for the most part, prevails.

The last few days  I have settled for watching The Waltons and Columbo on Netflix. If you don't know either of those old shows you don't know what you are missing. :)

Anyway, made this meme to reflect my mood...

Nice graphic showing where the major parts of the 787 Dreamliner passenger plane come from. Nice lesson in market coordination.

Here is a nice example of the global supply chain in action.

This shows major parts of the Boeing 787 Dreamliner passenger plane and from where they are sourced..

"It takes the world to raise an airplane".

It is amazing to think of all the steps, processes and coordination that must be completed in order for this plane to exist. We don't appreciate near enough how any product, even ones more simple than a large plane, comes into existence that mere mortals like us can use for a fair price.

Nice graphic showing the various sources the US borrows money from.

Here is a nice and concise graphic showing the who and how much we owe as a country to different entities.  A majority of our debt is owed to ourselves through government borrowing from Federal Trust Funds (i.e. Social Security), our own Federal Reserve Bank or from the domestic private sector. We do owe foreign entities about $5 Trillion, however.

Graphic from Planet Money

Top 10 Ranking of Car/Truck Sales for September. One country produces Trucks. One country produces Cars. Comparative Advantage in one easy lesson...

The US makes and sells Trucks best. The Japanese make and sell cars best.  Comparative Advantage...Any questions??

#10 Nissan Altima

AP

September sales: 21,221

Percent change from a year ago: -13.2%

Sticker Price: $21,860

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDRi76f

#9 Honda CR-V

Honda

September sales: 21,439

Percent change from a year ago: -3.7%

Sticker Price: $22,945

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDawZX0

#8 Ford Escape

AP

September sales: 22,607

Percent change from a year ago: -2.3%

Sticker Price: $22,700

Source: Ford

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDeu08I

#7 Honda Civic

Honda

September sales: 22,983

Percent change from a year ago: 6.7%

Sticker Price: $18,165

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDi8nJt

#6 Toyota Corolla

Toyota

September sales: 23,251

Percent change from a year ago: 1%

Sticker Price: $16,800

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDlolYV

#5 Honda Accord

REUTERS/Paul Vernon

September sales: 25,176

Percent change from a year ago: -13.7%

Sticker Price: $21,955

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDqJsrt

#4 Dodge Ram

AP

September sales: 28,145

Percent change from a year ago: 8%

Sticker Price: $23,600

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWDtCKDp

#3 Toyota Camry

Toyota

September sales: 31,871

Percent change from a year ago: -7%

Sticker Price: $22,235

Source: Toyota

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWE12OcR

#2 Chevy Silverado

Chevrolet

September sales: 32,506

Percent change from a year ago: -10.8%

Sticker Price: $23,590 (2014 Silverado 1500)

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWE4NVlU

#1 Ford F-Series

Ford

September sales: 60,456

Percent change from a year ago: 9.8%

Sticker Price: $24,070 (2013 F-150)

Read more: http://www.businessinsider.com/best-selling-cars-in-september-2013-10?op=1#ixzz2gWE7P5Ee

Some Chinese are willing and able to pay $485,000 for a Land Rover SUV. I gotta see how this graphs!!! So can you here... :)

Demand For Luxury SUVs Is Too High For Land Rover To Keep Up

The new Land Rover Ranger Rover and Range Rover Sport SUVs are lighter, higher-tech, and more luxurious than ever--and they're in massive demand. So much so, that even with production running full-blast around the clock, Land Rover simply can't keep up with demand, which is about 40 percent higher than the company predicted. 

 What does that mean for buyers? Right now, there's a six-month wait on new orders of the Range Rover, and a nine-month wait for the Range Rover Sport, reportsAutomotive News Europe (subscription required). 

China is the main driver behind this demand, according to the report, and buyers are willing to pay premiums of up to $80,000--on top of sticker prices that range as high as $458,000 in the Chinese market.

Considering that in the U.S., the Range Rover Sport starts from just $64,495, and the Range Rover starts from $83,545, it seems that high demand in China is a very good problem for Land Rover to have.

The Quantity Demanded for Land Rover SUV's is greater than the Quantity Supplied at Equilibrium, Point "B" in the graph below.  The market has not cleared to the point where Quantity Supplied equals Quantity Demanded at some equilibrium price, Point "A". We have a shortage of SUVS's (the difference between "Qd" and"Qs") in the worldwide market for them.

Now that we have established one point ("B") that lies to the RIGHT of "Demand*" we can assume that every other price quantity demanded combination will lie to the right of "Demand*" as well.  The market Demand for Land Rover's has shifted to the RIGHT, denoting and INCREASE in Demand:

Assuming the market responds accordingly, the price of Land Rovers will increase as a result of the shortage.  When the Price increases we now move ALONG our respective new demand curve ("Demand 1")  up and to the LEFT and ALONG our existing supply curve ("Supply*) up and to the RIGHT until we reach a new market equilibrium Price and Quantity at Point "C":

BUT where are those additional Land Rover's coming from to sell at the higher price? It was stated in article that Land Rover was at full production and working around the clock and still not meeting demand.  Any additional SUV's they produce are going to cost more than the previous ones. The cost of purchasing additional inputs and labor (overtime, extra crew) are going increase the Marginal Cost of producing those SUV's, hence they will require a higher price in return.

I contend that some of the SUV's bought at the "Pe" and the original market quantity will be resold in China either in the formal legal resale market OR in an informal (Black Market) setting. In other words, the additional Land Rovers supplied to the market between Point "A" and Point "C" on Supply* will be resales at the higher price in conjunction with any additional production Land Rover might be able to squeeze out.

One last point---$485,000 for this vehicle in China! Really?

Too much money chasing too little common sense, to coin a phrase...