"Remittances" to Latin America are 8 times more than foreign aid to that region. That has to be good, right? But what the heck is a Remittance?

An important topic we cover in AP Macroeconomics is "Balance of Payments". This is an accounting of the flow in the trade of goods and services, factor payments on interest or dividends paid or received, certain transactions involving the buying and selling of physical and/or financial assets, and subsets of other transactions that occur across borders.

According to Pew Research:

""Remittances are a larger source of money to Latin America than official foreign aid. In 2011, when foreign aid to Spanish-speaking Latin America nations totaled $6.2 billion, formal remittances were more than eight times that—$53.1 billion. 

Wow! That is amazing? Oh, wait, you don't know what a "Remittance" is? That's ok. I will help you out.

Remittances are cash transfers (or it could be non-cash assets) that migrants to a country send back to their home country.  For example, a Mexican migrant in the US works, earns money, then sends a portion of it back to Mexico to his or her family.  It also works in reverse. An American migrant in Mexico sends money back home to the US.  Hence, a "Net value" is obtained---The amount leaving the country versus how much is coming back.

In the US Balance of Payments in 2012 net remittances from all countries were -$79,913,000,000 (negative $79.913 billion).  This means there was a net OUTFLOW of dollars from the US to foreign countries.

By comparison, TOTAL foreign aid by the US to the rest of the world was approx $54 billion in 2012. Remittances earned in the private sector play a larger role than foreign aid financed by tax dollars.

Pew Research has a new study out showing the effect of remittances to Latin America.  The study can be found HERE but I am posting a couple of interesting graphs for your viewing pleasure.

As you might expected due to geographic proximity, most of the remittances are earned in the US.


Mexico is by far the country that receives the most remittances.  A little over $20 billion whereas the rest of Latin America/South America takes in a little over $30 billion.



However, the total effect on the recipients economy, as measured by the impact the remittance has on the nations GDP, is not equal. El Salvador, Honduras, and Guatemala (as percent of their GDP) are highly dependent on this source of income.



Remittances and Foreign Aid are just two sources of US dollars to Latin America. For example, this does not count charitable donations, religious or non-religious.

Even the SNAP ("Food Stamp") Program has a Wall Street Connection. Mind Blown...

This from the Wall Street Journal Today:  

"Wal-Mart estimates it rakes in about 18% of total U.S. outlays on food stamps, or about $14 billion of the $80 billion the U.S. Department of Agriculture says was appropriated for food stamps in the year ended in September 2012."

Food Stamp (now called SNAP, are not actual paper stamps anymore  but a Debit Card) benefits were recently "cut" by approx. 5.5%.  This means Walmart, ceterus paribus, will potentially lose about $770 million in sales.

This led me to wonder how other companies might be adversely affected by the cut in the program. Found this from HERE (list not exhaustive):

All of them made sense to me. They are in the wholesale/retail food or drink business.  BUT, what does JP Morgan have to do with the SNAP program?

Led me to this graphic of the SNAP hierarchy and how the program is administered (found HERE).

I learned that JP Morgan (a big financial institution) is a major "middleman" in the program and they contract with 24 States to administer the program. I did not know this and assumed it was directly administered by the Federal Govt (Ag Dept).

 It pays handsomely to be one of these contractors.  JP Morgan earns a monthly fee for EACH SNAP recipient is anywhere from $.65 to $1.45 (it depends on the State they contract with).  They earn additional revenues on the rental of the machines retailers use to process SNAP cards, as much as $14.95 per month,per point of sale machine.

I am not making a judgement about this relationship.

I just did not know about it before.  If you didn't, well, now you do.  Hope it helps. :)

Half of the Trade Deficit in September was from Oil Imports. Is this good thing? Bad thing? Or is just "a thing"?

Below is a graph (which I modified for instructional purposes) from Calculated Risk.

It shows the MONTHLY status (deficit or surplus) in the trade of goods and services that the US has with the rest of the world. It does not include ALL items accounted for in the Current Account of the Balance of Payments, but most of it.  We would call this "Net Exports" in our GDP equation (C + I + G + N(x)).

The gap between the RED line and the Blue line represents the value of imported oil in a particular month (not inflation adjusted as far as I know).

This graph is useful in showing the significance of oil in international trade.  As you can see, in September the dollar value of oil imported into the US was approx $20 billion.  That accounts for about 50% of the trade deficit in September.  Yes, just one commodity albeit an important one.

This graph also gives a nice perspective as to how dependent we are on "foreign oil" at any particular time. For the most part that means Canada and Mexico where we get a majority of our imported oil.

Oil imports usually increase during good economic times and decrease during bad. The BLACK line generally shows this---trends up during recessions, down during non-recessionary period(s).

However, in the last couple of years it has trended up DURING the economic recovery from the Great Recession.  How can that be?

That is the question for you.  There could be multiple reasons. Any guesses??

The phrase "Do you want fries with that?" will not be uttered by a human being in 10 years. It will just be a button on an order pad.

When Businesses allocate their investment dollars (presumably from profits) one of the major things they look at is the price of labor relative to the price of physical capital they can deploy in their operations. Both can be assigned a dollar value on an hourly basis---how much it costs to hire, train, and offer benefits to a worker versus the use a machine/technology in a 60 minute time span.

There are lots of explicit costs (money costs) and implicit costs (how employees/customers are affected) that go into this consideration. The cost of technology to do "routine jobs"  has fallen tremendously just in the past 10 years and the closer it gets to the cost of employing a unit of human labor the more likely it is to be used as a substitute for labor.

Here is an example of "technology creep" into lower skill level of the work force.  What has happened to mid-wage manufacturing is coming to the retail/service sector.

Do we still think it is a good idea to raise the minimum wage and make it competitive with technology? The issue is more complex then is promoted in populist circles. More thought and consideration is needed on this issue than I see taking place.

Bolt Burgers: the most high-tech burger you’ll ever order, coming soon

No restaurant in D.C. has been better outfitted for the iPhone generation than the forthcoming Bolt Burgers. It is a restaurant full of screens -- touchscreen systems for ordering your food and making your drinks, tablets at every table, and a 16-foot-wide projected TV screen to watch while you wait for your order.

You can order food without having a single interaction with another human being, which, for millennials who prefer texting and online ordering through Seamless to picking up the phone, is a major plus.

How many foreign students study in the US? Where do they study? What do they study? All these questions I KNOW you have wondered about are answered HERE!!

It is well known that the US offers some of the best higher education opportunities in the world. The latest report from the Institute of International Education has a great deal of profile data on foreign students studying in the US (and US students studying abroad).

Below is some of that data I thought interesting and that most people would not know.  Now you will!

In raw numbers, China sends the most students to US colleges and universities.  They represent 29% of the total.  You can see the drop off after that.

Here are the colleges/universities that are the most receptive to the inflow of foreign students. Northern and Midwestern institutions are favored by foreign students, for the most part.

What do they study?  I was actually surprised that "Business and Management" was first on the list. However, if you combine Engineering and Math/Computer Science, and Physical/Life Sciences, then the "STEM" majors dominate.

Finally, how do foreign students pay for their US education?  Like most students in the US, parents/family are the primary source by far.  

Check out the "Fast Facts" from the study. Lots more information on this interesting topic.

Jobs report out today!! Still creating too many lower wage, lower benefit jobs relative to the whole. However, I DID find a bright spot...

The latest jobs report is out (October 2103).  About 204,000 jobs added in October (2013). It surpassed expectations. In the first graphic below are the major categories jobs are slotted into.  I highlighted categories where the job gains were the largest.

One encouraging sign is under "Professional and Business Services" is only 3,300 of the 44,000 jobs created were of the Temporary type. The ratio of  number of "Temporary Help Services" jobs to the total is much lower compared to the previous reporting periods you see listed. It was 17% a year ago (9,000/53,000) and 7.5% (3,300/44,000) in October 2013.  It certainly nets out much better compared to August and Sept of 2013.  Hey, I am trying real hard here to find a green shoot.

Fewer Temporary workers, more Full-time employees.  That is a signal of SOME confidence in the economy on the part of businesses in a category that employs people in higher wage jobs, for the most part. See the image below the jobs number for the major categories of jobs that fall under "Professional and Business Services".

The number of Retail and Leisure/Hospitality jobs created at this time does not really impress me THAT much.  They are generally lower wage, lower benefit jobs.  While it is nice to have them, when one looks at the overall employment picture you want to look not only at the quantity of jobs but the quality of them as well.

Nice graphs showing trends in GDP and the Labor Markets...

Here some valuable metrics that give some perspective on the state of the economy and its short and long(er) term prospects.  These are unusual in that they give a band (shaded BLUE) for margin of error. Having just studied GDP and Unemployment in class, the top right and bottom right graphs are very helpful.

Source:  Wonkblog

Micheal Bloomberg has a soul mate in North Dakota in his fight to rid the world of fat kids.

I see NY Mayor Michael Bloomberg has a soul mate to help him rid the world of rotund people.

A woman in Fargo, North Dakota, said in a radio interview Tuesday morning that she plans on handing out fat letters to kids she considers “moderately obese” instead of candy this Halloween 

“I just want to send a message to the parents of kids that are really overweight,” she told Y-94. “I think it’s just really irresponsible of parents to send them out looking for free candy just ‘cause all the other kids are doing it.” 

In the letter, the woman, identified only as Cheryl, tells parents that it takes a village to raise a child. 

“I’m contributing to their health problems and really, their kids are everybody’s kids. It’s a whole village,” she told Y-94.

From The Washington Times. 

If you like old pictures and ones that tell an economic story, then check this out!

I love old pictures like this one (found HERE with others of early American time periods) for a lot of reasons, but since I am an economics teacher I found the prices of Lemonade (10 cents), Peanuts and Oranges (5 cents) the most interesting.  (Photo is of Las Vegas, Nevada in 1905)

I wondered what those prices would be in current dollars (or cents).  While not a perfect measurement, I used  inflation calculator from HERE and  determined that peanuts and oranges that cost $.05 in 1905 would cost $1.26 in 2012 and a cup of $.10 lemonade would cost $2.54 as measured in current dollars!  Seems kind of expensive and I believe would be considered "luxury goods" in 1905.  

The average wage in 1905 was $.22 per hour.  It would take 23% of hourly income to buy and orange ($.05/$.22 X 100).  Today the average wage is about $20.00 per hour. An orange costs about $.20. A worker today would spend 1% of hourly income to buy an orange ($.20/$2.00 X 100).  Perspective.  Not a perfect measure of standard of living but a reference point.

Interesting to note these items look like they are being sold by the bank itself. Makes sense. That is where the money is, literally and figuratively.

Who owns the Federal Reserve Bank of the United States? Good question that is sort of answered here...

Here is a nice primer from an independent source as to who (or what) "owns" the Federal Reserve Bank of the US ("The Fed" for short).  It is considered a "quasi-governmental" institution---a hybrid privately owned bank with heavy government oversight.  However, the lines are not really all that clear as to where one stops and the other starts.

"...But the Fed is a weird entity when it comes to “ownership”.  It exists due to an act of Congress.  But it is also considered an independent entity because it is not part of the Executive or Legislative branches of government.   The Fed exists because Congress created it, but it doesn’t enact policy measures with any Congressional or Presidential approval.  Politically, this makes it a very independent entity..."

An excellent supplement to the AP Macroeconomics unit on Monetary Policy.

Go HERE to read the whole thing...

Nice graphic on the rise of bottled water and the demise of soft drinks. However, one question remains unanswered...

The NYTIMES has a nice article on the rise of bottled water use and the demise of soft drinks in the US.

"...But bottled water is washing away the palate trained to drain a bubbly soda. By the end of this decade, if not sooner, sales of bottled water are expected to surpass those of carbonated soft drinks, according to Michael C. Bellas, chief executive of the Beverage Marketing Corporation.
“I’ve never seen anything like it,” said Mr. Bellas, who has watched water’s rise in the industry since the 1980s..."

It is a useful example to teach supply and demand, specifically two determinants of demand---a change in consumer preferences and the availability of substitutes.  At a given price the quantity demanded for bottled water is more than is was before and for soft drinks it is less than what it was before. The demand curve for bottled water shifts to the right and to the left for soft drinks as consumers change their preferences for a drink with less sugar, and water is a viable substitute to quench a thirst.

Here is a graphic that accompanied the article showing the movement in the market for the two categories of drink.

I think it is interesting to note that while the consumption of bottled water has leveled off since 2007-08, the consumption of soft drinks has continued to decline, even post-recession.  What are people drinking? The population has increased over this time period.  Are people wising up and just drinking what comes out of the facet for pennies on the dollar? What do you think?

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....