Chart showing why AT THE MINIMUM you should go to (and finish) a Community College.

The Upshot at the NY Times has a terrific analysis (and the bar chart below) of how important the Community College systems is in the US.  Personally, I don't think it gets enough attention and should be much more high profile.  It needs to be a integral part of preparing the workforce for the present and future.

Note how close the unemployment rate is to those with a bachelors degree.  A "2-year degree, occupational" trains you to do a specific job.  This statistic should be one that schools, teachers and counselors shout from the rooftops!!

I went to a C.C. to get, quite frankly, some confidence that I could do college.  I was not a good student in high school.  I went into the Marine Corps for 4 years.  After I got out I knew I wanted to go to college but thought for a variety of reasons I could not cut it.  We can get caught up in our insecurities to our detriment.

Turns out to succeed in college all you need is some self-discipline, perseverance, a willingness to ask questions and a desire to find the answers.  Who would have thunk'?

Anyway, props to the C.C. system and I hope you get the attention you deserve.

Source: The Upshot at NYTIMES

Here is some great info on the high Australian Minimum Wage. This is not to change minds but to add to your knowledge base. Both sides will find some supporting evidence.

When we compare minimum wages across borders it can get dicey because we have to interject currency exchange rates. We can use actual market exchanges rates or we can use the Purchasing Power Parity (PPP) exchange rate.  Depending on the currency you are comparing those two rates can be vastly different.

This is the case with the US dollar relative the Australian dollar.

The actual exchange rate (05/28/2014) is $1.00US = $1.0849A or $1.00A = $.92168US (these numbers are reciprocals of each other).

The current Australian minimum wage is $16.37 Australian Dollars (with some important caveats. See below).  If we convert that to dollars it would be $15.08 US dollars ($16.37A times $.92168US).  NICE!

However, if we use PPP the exchange rate (for 2013 the latest I could find at OECD) would be $1.00US= $1.4728A or $1.00A = $.6789US.

Now, the Australian minimum wage of $16.37A would be $11.12 US.  Still better than our $7.25 in the US, BUT not as high as $15.08 using current market exchange rates.

PPP theory suggests that the Australian dollar is OVERVALUED in the market place by as much as 35%. Looking at current data from  the OECD, it is more like 42% or so.

I do all this beforehand so I can introduce this chart I found. It is from MyWage Australia.

I modified it a bit to add some info (in black boxes).

In Australia there are some significant exceptions/exemptions from the minimum wage that are RARELY, if at all, discussed along with the issue.  I was not aware of them either!

For the different age groups I calculated what the minimum wage was in current market exchange rates and in Purchasing Power Parity.

According to PPP, if you are under 16, 16 or 17 the minimum wage in Australia is significantly lower than in the US.  Only after reaching 18 does it improve above the US minimum.

I did not calculate the rates for Apprenticeships, but if you take the number you see there and multiply by $.6789 US you will get the PPP in US dollars.

MyWage site from Australia

I hope this gives you more perspective and depth to your knowledge base on this issue.

The next time someone throws out the high US dollar figure when discussing the Australian min wage, you can legitimately ask:  "Is that in market exchange rates or at PPP?".  Watch the look you get... :)

Nice cost data for a broad array of agricultural commodities. For use in teaching Perfect Competition.

Given my limited editing skills in Excel, I condensed some cost data on various agricultural commodities. All costs are projected costs for the 2014 planting season.

All this and MORE can be found at the terrific US Dept of Agriculture Economic Research center.

It is conveniently organized by cost category:  Variable Costs and Fixed Costs.

What is even more EXTRAORDINARY and helpful when teaching the cost structure of a firm is the fixed costs includes "implicit costs", or Opportunity Costs.

The implicit costs are (1) unpaid labor---the farmers opportunity cost of farming and not doing something else. (2) Capital Recovery (depreciation AND "the rental rate of Capital").  (3) Land---the opportunity cost of using the land for farming the particular commodity as opposed to using it for something else.

Students can quantify and graph the respective cost curves (AVC, AFC, ATC, MC), then find the current market price for a commodity and observe if the "firm/farmer" is making economic profit, loss or "normal profits".  These are all important terms in AP Microeconomics.

Hope this helps in your teaching/learning.

These are the COSTS PER ACRE PLANTED for each commodity.

Nice graphic showing "what is" in terms of electricity generation as opposed to "what should be".

Just a reminder of "what is" in terms of electricity generation in the US (a positive statement), as opposed to "what should be" (a normative statement).  The graphic is from The Wall Street Journal.

"What is" is electricity from fossil fuels totaling 67%, nuclear 19% and all other classes of renewables 13%.

Efficient and effective policies to minimize the first and maximize the third are certainly welcome and needed.

Electricity produced from coal looms large and short of a miraculous technological advancement it will continue to be the dominant source for our immense electricity needs.

It is what keeps the lights on....

Source: The Wall Street Journal

Nice graph(s) putting Student Debt levels since 2005 in perspective

From the St Louis Federal Reserve ("The Share of Borrowers with High Student Loan Balances is Rising")

The top graph shows the ratio of outstanding student debt in a particular year to the debt level in 2005. For example, take the time period of between 2011 and 2012 (I inserted an RED vertical line).

Total Student Debt (top green line) was 2 times what it was in 2005.

The number of debtors is about 1.58 times more than in 2005.

The average balances held by debtors was about 1.3 times as much as those in 2005.

The bottom bar chart shows, in percent form, the change in debt levels from students in 2005 and 2012.

In 2005 about 56% of student loan balances were $10,000 or less (darker bar). In 2012--40% (lighter bar)---PROGRESS, right!! Not so fast.

The difference essentially moved to the higher average debt levels.  Notice the light bars get significantly higher than the dark bars as average debt levels increase, showing a larger (1) nominal change and more importantly (2) a significant percentage change from one time period to another.

For instance, the change in average balances in the $25K-$50K went from 11% to 18% (eye-balling).  That is a 7% percentage point increase, but NOT a 7% increase in average loan balance. The percentage increase would be (18% - 11% = 7% and 7%/11% X 100) +64%.

If you are already in college you are well aware of this.

If you are thinking of going to college you should be aware of this.

If you are a teacher of High School students you should be aware of this AND make your students aware of it also.

Hope this helps.

Increasing Opportunity Costs and the Farm Bill. Come visit my "Farm" to see what it is about.

Here is a very basic presentation to illustrate the concept of "Increasing Opportunity Costs".  This can be a difficult concept for the average high school student to intuitively understand (at least from my experience it is).

What prompted me to create this was an article I read recently (and cannot find now) about an "unintended consequence" of a Farm Bill provision regarding the subsidies paid to corn growers.

The subsidy was paid on a "per acre planted" basis with no regard as to HOW MUCH corn was harvested on that acre.

The article quoted a farmer as saying this policy encouraged the planting of corn on land "not necessarily suitable" for the growing of corn.  It took multiple acres planted to yield the same amount of corn from land that was more suitable for growing corn.

So, land that might have been more suitable (and efficient) for growing something else (potatoes? rice? grazing?) was put into use for growing corn instead.

Economists would say this policy leads to a less than optimal and inefficient allocation of societal resources.

Politicians would say this policy leads to an optimal allocation of special interest satisfaction.

Guess which of the two is in charge of things.

Ppf corn and rice from Gene Hayward

Nice graphs of traffic fatalities, miles driven and recessions since the early 70's.

Saw this graphic in an article on why Southern cities have more pedestrian fatalities than other regions of the country.  It includes pedestrian and regular ol' traffic accidents that result in the death of someone.

Go HERE for the full analysis, but I was intrigued by the year 1974. Why the big drop-off from 1973? (I marked 1973 with the RED arrow as the high watermark for traffic fatalities).

Source: Washington Post

Here is a graph from Calculated Risk that shows miles driven over time (1971-Present). In addition it shows all the recessions, mild and severe, during that time span.

If you look at the periods of recession in this graph and line them up with the graph of fatalities above you will notice there is is dip in miles driven and traffic fatalities. The only exception is the recession in 2001-02.  Miles driven did not skip a beat.

The one I marked with arrow is the result of the Arab oil embargo that increased gas prices significantly and price controls made scarcity a problem (I remember those days as a teenager).  People were very careful in their consumption of fuel and (1) made fewer trips and (2) voluntarily slowed down on the highways to conserve even more.



I don't think this explains all of  the long term trend in decreased traffic fatalities.  There has to be more, right?

What do you think could be a contributing factor?

In terms of recent times, what correlation can you make with the leveling off of miles driven during and post-Great recession and the rapid decrease in traffic fatalities?  The recession is over so it should be trending up, right?

So many questions!  Do you have answers?

"Purchasing Power Parity for Dummies"---like me!

Purchasing Power Parity is somewhat of a difficult concept to grasp for the average high school student. Heck, I struggle with it.

I will try to make it as easy as possible with my explanation here. Sort of my personal "Purchasing Power Parity for Dummies".

Let's say we have a shopping list of various goods and services that are available in the US and in the European Union and these goods and/or services are identical in every way.  People in the US and the EU buy these items on a regular basis so they are important for daily/weekly/monthly consumption.

We have two baskets. One basket, "Basket 1", is labeled purchased in the USA and the other basket, "Basket 2", is labeled purchased in the European Union.   Let's go shopping!

The items in Basket 1 (USA) total $150.00 and are purchased using US dollars.  The items in Basket 2 (EU) total 100 Euros and are purchased using Euros.

What if me and my European friend wanted to change places--- I buy my stuff in Europe and he buys his in the US.  The first thing I would have to do is exchange my US Dollars into Euros and he would have to exchange his Euros into Dollars.  What would be the exchange rate so that we could buy the SAME goods and services as we did before?

Ratios, man, Ratios.

If you divide the value of Basket 2 (100 Euros) by the value of Basket 1 ($150)---100 Euros/$150--- we get an exchange rate .67 Euros cents PER dollar exchanged.  Meaning, for every dollar I exchange for Euros I get .67 Euro cents.  So in order for me to get the requisite 100 Euros to buy my basket of goods in Europe I will need to exchange $150 US dollars to do so ($150 X .67 Euros = 100 Euros).

The reciprocal is going to be true for my European friend.

If you divide the value of Basket 1 ($150) by the value of Basket 2 (100 Euros)---$150/100 Euros---we get and exchange rate of $1.50 PER Euro exchanged.  Meaning, for every Euro my friend exchanges for Dollars, he will get $150.  So in order to get the requisite $150 to buy his basket of goods in the US he will need to exchange 100 Euros to do so (100 Euros X $1.50 = $150 US dollars).

Purchasing Power Parity (PPP) is defined as:

Purchasing-power parity theory. A theory which states that the exchange rate between one currencyand another is in equilibrium when their domestic purchasing powers at that rate of exchange are equivalent.

In short, what this means is that a bundle of goods should cost the same in Canada and the United States once you take the exchange rate into account. 

The exchange rate I calculated above would be the Purchasing Power Parity Exchange Rate.

Again, that is: $1.00 US = .67 Euros and/or 1.00 Euro = $1.50.  At this exchange rate, me and my friend can buy our basket of stuff in each others country and our currency will have the SAME purchasing power regardless if it is in Dollars or Euros.

Purchasing Power Parity is basically a reference point as to where exchanges rate SHOULD BE in the Long Run.  For the most part, the ACTUAL exchange rate between to currencies varies from the PPP exchange rate.

Today the exchange rate between the Dollar and the Euro is ACTUALLY:

$1.00 = .73 Euro cents and 1.00 Euro = $1.37 

 Compared to the PPP exchange Rate we calculated above:

$1.00 =.67 Euros cents and 1.00 Euro = $1.50

At today's exchange rate I can get .73 Euro cents per dollar exchanged which is $.06 cents more than PPP suggests.  So, for a holder of US dollars that basket of stuff is LESS EXPENSIVE to buy (I get MORE Euro cents than at PPP so the Euro basket costs me less).

For my European friend at today's exchange rate he can get only $1.37 per Euro exchanged which is .13 cents less than PPP suggests. So, for a holder of Euros that basket of stuff is MORE EXPENSIVE to buy (he gets FEWER cents than at PPP so the US basket costs him more).

This suggests, with my example, that the US dollar is OVER-VALUED compared to the Euro and the Euro is UNDER-VALUED compared to the US dollar, relative to the PPP exchange rate.

In the long run, according to PPP theory, the Dollar should depreciate in value and the Euro should appreciate in value so that the currencies used to purchase the stuff in the respective market baskets will have the same purchasing power.

Hope this helps somewhat.  Let me know if I went wrong anywhere---remember I am one of the Dummies myself.  :)

The Swiss proposed a minimum wage of $25 per hour...or is it $16? Depends on your definition of exchange rate

The Swiss held a nationwide vote to raise the minimum wage and it was soundly defeated.  In the US, the media reported that it would have been about $25.00 US Dollars had it passed.  Seems like a lot!  But is it REALLY that much?  It depends on what your definition of "exchange rate is".

For the Swiss the number they saw on their ballot was "22 Francs per hour".

The current official exchange rate(05/19/2104)  is $1.00 US will exchange for .89 Swiss Francs and 1.00 Swiss Franc will exchange for $1.12. The exchange rates are reciprocals of each other.

So, if we take 22 SF and multiply by $1.12 that equals $24.64.  Close enough for the mainstream media to round up to $25.00.

However, economists are hesitant to use current exchange rates because they are so volatile and can change for transient reasons on short notice. These fluctuations can distort the real economic picture within a domestic economy. They prefer to use an exchange rate based on "Purchasing Power Parity" (PPP).

PPP compares the actual price of a market basket of identical goods/services in Switzerland and the US. The idea is to establish a more realistic exchange rate that shows the purchasing power of one currency relative to other in terms of what it can buy in either country.

Purchasing Power Parity (PPP): $1.00 US will exchange for 1.37 Swiss Francs and 1 Swiss Franc will exchange for $.73 in 2013 according to official OECD data for 2013.

At this exchange rate, 22 Swiss Francs at $.73 equals $16.06. (Many media outlets are reporting it as about $14.00 PPP---I do not know how they arrive at that number)  I WELCOME ANY HELP ON MY MATH!!

So, at the market exchange rate the Swiss minimum wage would be $24.64 but at the PPP exchange rate it would be a $16.06.

That is still a very high minimum wage at $16.00 per hour, but I think it is important to put it in its proper purchasing power context.  Hope it helps...

REVISION:  There are 3 sets of PPP numbers available on the OECD website HERE.  You can see the categories on the LEFT side of page.  I used "PPP and Exchange Rates" to do the above calculation.  However, if you click on either of the other two links (PPP for Private Consumption or PPP for individual consumption) you will find HIGHER PPP numbers for Switzerland.   Using these numbers you get closer to $14.00 in US dollars.

Nice graphic showing "breakdown costs" for the physical/material inputs for Google Glass.

The Wall Street Journal has an article today regarding IHS's "break-down cost" of the much talked about wearable technology Google Glass.

Here is a chart showing the money cost of the tangible physical inputs---the stuff you actually see and touch.

The total material costs are roughly $152.47 (Google disputes this) and the suggested selling price is about $1,500. That is quite a profit, right? Not so fast..

Source: WSJ

Here is an excerpt from the press release from IHS (underline and emphasis mine):

“As in any new product—especially a device that breaks new technological ground—the bill of materials (BOM) cost of Glass represent only a portion of the actual value of the system,” said Andrew Rassweiler, senior director, cost benchmarking services for IHS. “IHS has noted this before in other electronic devices, but this is most dramatically illustrated in Google Glass, where the vast majority of its cost is tied up in non-material costs that include non-recurring engineering (NRE) expenses, extensive software and platform development, as well as tooling costs and other upfront outlays. When you buy Google Glass for $1,500, you are getting far, far more than just $152.47 in parts and manufacturing.”  

The portion I highlighted and underlined is a fancy way of saying these are Google's "Fixed Costs" for the anticipated production of glasses. The fixed costs cited above are costs incurred by Google before they produce even one unit of the wearable technology.

When we include all these up-front fixed costs and produce one set of glasses, well, that first set will be VERY expensive---we allocate the millions spent on research and development to that one set of glasses!

However, because those costs won't change as we produce the second, third...10,000th set of glasses then you can see the "Average Fixed Cost" of producing each additional unit is going to rapidly decrease.  More of that fixed cost is going to be spread out over a larger range of production.

Eventually the fixed costs will be an insignificant portion of the total cost of producing the glasses. The only remaining cost will the the firms "Variable Costs"---materials, labor, advertising, and all other overhead. 

If we add up Google's Total Fixed Costs and Total Variable Costs of producing the Glasses and divide by number they produce we will get the "Average Total Cost" of producing them. 

Compare that number to the number over all ranges of production and subtract it from $1,500 for each unit sold to get their "accounting profit".  

The future looks bright they gotta wear....Does Google Glass come in sunglasses too?

Regardless of your political persuasion..

I suppose it is inevitable that it plays out this way.  The Constitution is sort of like a book.  It provides a table of contents and the 3 branches of government write the chapters.  I guess the only discussion is do we want a War and Peace tome or an abbreviated e-book.

As always, at least for me, the answer lies somewhere in between--- a novel and preferably a non-fiction.  I think we are getting too much fictional government right now, don't you think?  :)

Source: Via AEI

Since 1994 we receive 150 more TV channels and but only watch an additional 7. Progress?

The number of TV channels the average person can receive in their homes has increased 375% (189.1-40.4= 148.7/40.4 X 100)

The number the average person actually watches has increased by 72% (17.5-10.2 = 7.3/10.2 X 100).

To put in in simpler terms, we get about 150 more channels but only watch an additional 7, since 1994.

Where's the Beef? No, seriously, where is the beef!!

Here is a look at the past, present and future of the Supply Side of the meat industry. This data is from the USDA ERS for the years 2013, 2014 and 2015. Part of 2014 and all of 2015 are predictions based on known numbers in the herds, flocks, whatever. Numbers are in "millions".

Here are the percentage changes, from 2012 to 2015 in the potential "Quantity Supplied" (in millions of pounds of meat) of meat for consumption:

Beef:  -6.2%
Pork: +4.5%
Lamb/Mutton: -5.8%
Broilers (chickens): +6%
Turkeys: -.7%

Beef production has experienced a steady decline since 2012.  Pork is still below 2012 production levels but expected to rebound in 2015.  Chicken is a bright spot in that it has increased at a fairly steady rate.

While the supplies of chicken and pork will increase, prices will not likely decrease as you might expect.  As the price of beef is most assuredly going to be higher, the demand for chicken and pork as viable substitutes will increase and put upward pressure on the price of  both of those meats.

TANSTAAFL---Now I am hungry for lunch.  Will it be Chicken or Pork Fried Rice?

My response to a Social Media posting regarding a restaurant owner who pays his workers $21.00 per hour.

There is a posting going around on Social Media (I have seen it on Facebook) about a restaurant owner and how much he pays his staff/waitstaff. It is a place called "Zingerman's Roadhouse" located in Ann Arbor, Michigan.

He is an advocate of increasing the minimum wage. His workers make about $21.00 in wages and tips and they get other benefits as well.  He calls this a "thrivable-wage" as opposed to a "livable wage".  I assume he believes all businesses in the food service industry should do the same.

I am not opposed to increasing the minimum wage.  What I do oppose are demagogues who think their opinion of how someone else runs should run their business is morally superior.  Especially when they don't walk in the same shoes.

Curious about his establishment, I went and looked at his menu.  It can be found HERE.

Below I clipped and pasted what a BBQ sandwich and an order of fries would cost me.

$18.50.  Guess I will have a glass of water with that---I am tapped out. Look at the menu.  That is one of the better deals.

Oh, and the Social Media posting does not mention this is an UPSCALE establishment nor does it mention the prices. And you have to make a reservation.

Show me a restaurant owner who sells me a sandwich and fries for half (or more) than what Zingerman's does and I will listen to him and his argument for raising the minimum wage. Zinger-meister is NOT in the same business as the former one is.

Why don't people get that?

Source: Zingerman's Menu Board

GUESS FIRST! Which State produces almost half of all rice grown in the US?? Ok, now you can read on...

After attending my daughters graduation from Texas A&M (economics!!) we drove from College Station to our home in the Columbus, Ohio area.

As much as time allows, I like to stay off the Interstate highways and drive the "country roads" to see places I have never been before.  This is where "America" happens.  Love to have those forehead thumping moments when I learn something I did not know before.

Rice.is.grown.in.Arkansas!  (Head Thump!) Hate to admit it but I did not know that.  I assumed Louisiana and Mississippi had the comparative advantage of the proper land resource needed to grow it on a mass scale.

Much to may amazement, I saw unfamiliar field after field like this:

Source: HERE (for some reason I did not bother to stop and take my own picture!!

I have been to Arkansas but never East of Little Rock.  The map below highlights in GREEN the areas of heavy concentration of rice production.  You can see lots of dark green that lies just to the West of the Mississippi River into Arkansas.

Source: Wikipedia

Below is data on rice production in the US by State from 2007 to 2013.

On average over that time span, Arkansas alone produced 46% of the US Rice crop.

Source: USDA ERS

It was not inevitable that Arkansas would become the rice capital of the US.

Here is the story of how it happened (from Arkansas Rice Facts):

Growers in the prairie lands of Arkansas were in need of a crop that could be grown dependably and profitably. Almost by accident, rice became a contender when in 1896, W.H. Fuller ventured southwest to Louisiana on a hunting trip. It was there that he first saw rice growing, which ultimately led to the development of a leading agricultural industry for the state. Fuller, along with his brother-in-law John Morris and John’s wife Emma, are generally credited with founding the Arkansas rice industry. By 1910, rice production, research and milling were established in the state. Today, the Museum of the Arkansas Grand Prairie in Stuttgart, Arkansas, showcases the history of this major center for U.S. rice production.

Now you know it too.

Guess it will be chicken fried rice for lunch today...