Updated map showing US Gross State Product (GSP) vs the Rest of the World. Students love this!

Mark Perry over at AEI has quickly put together the latest (2013) "Gross STATE Product (GSP)" data onto a map that students find interesting every time I have shown it in the past. It gives a great perspective as to just how large the US economy is and will continue to be (hopefully!).

In place of the name of the US State it puts a country whose dollar value of Gross DOMESTIC Product (GDP) is equal/similar to the dollar value of output of that State.

For instance, Australia's GDP is roughly the same of that of Texas's GSP. Brazil similar to California, so on and so forth.

Source: Carpe Diem at AEI

Here is the accompanying data in Excel form that show the numbers used for each State.

The total acreage of which US State is used for fuel instead of food?

In the US in 2013 we planted 97.2 million acres of Corn. Of that, 37.78 million acres were used to produce ethanol (39%). (Source HERE--I did the calculations for acres based on data given for bushels per acre)

In the US in 2013 we planted 77.2 million acres of Soybeans.  Of that, 10.9 million acres were used for Bio-diesel (14%). (Source HERE--I did the calculations for acres based on data given for bushels per acre. Data on Soybean for bio-diesel HERE)

The total number of acres used to grow "food for fuel" was 48.68 million acres. That is 28% of the total planted Corn and Soybean crop.

How much is 48.68 million acres?

The State of Nebraska is a little over 49 million acres. In other words, we have an energy and agricultural policy that diverts the whole State of Nebraska to producing fuel instead of food.

Perspective.

Source of map HERE

Where the jobs are and wage range. A two for one graphic!

I saw these two informative graphics from two different sources and put them on one slide.

They tell a good story about the employment recovery in the US and the distribution of jobs among wage rates.

Here is the gist of it:

We lost a total of 6,819.000 higher and mid-wage jobs (maroon bars) and then gained back +4,885,000 (gold bars), for a net LOSS -1,933,000 jobs.

We lost a total of 1,973 low wage jobs but gained back 3,824,000 for a net GAIN of +1,891,000.

Subtract those two and you get a total jobs deficit of -82,000 jobs. (Note:Data for bar chart on RIGHT only goes to Feb of this year. Does not count March, April, May).

According the the Bureau of Labor Statistics, 417,000 of those 2.15 million "Health care and Social Assistance" jobs were in "Social Assistance" (19.4%).  Also, according to the BLS those jobs have a median income of $13.87 (just barely into the mid-wage category) so the bottom half for the most part fall into the low wage category.

Source: Wall Street Journal AND AEI

General Motors CEO asks workers to "Call Me". Is this unprecedented in the Corporate Boardroom?

Mary Barra, the recently appointed CEO of General Motors, has been criticized for her response to the ignition switch malfunction" that resulted in deaths of drivers of GM vehicles.  It is something that occurred before she became the CEO so I willing to cut her some slack.

According to an internal investigation this problem was an accident waiting to happen (forgive the pun) and completely avoidable. Bureaucratic inertia and territory protection (i.e. CYA) seem to have been at the forefront.

In her message to employees (FOUND HERE) about the results of an internal report she said the following:

"So if you are aware of a potential problem affecting safety or quality and you don't speak up, you are a part of the problem. And that is not acceptable. If you see a problem that you don't believe is being handled properly, bring it to the attention of your supervisor. If you still don't believe it's being handled properly, contact me directly."

 Odd a CEO telling rank and file employees to contact them directly with an issue.  Unprecedented, right?

No.  In a terrific book I read a year or two ago "The Power of Habit: Why We Do What We Do in Life and Business" by Charles Durhigg tells the story of former US Treasury Security Paul O'neil who became an unlikely CEO of the steel conglomerate ALCOA.

For instance, consider one event about six months into O'Neill's tenure, when he got a telephone call in the middle of the night. A plant manager in Arizona was on the line, panicked, talking about how a piece of machinery had stopped operating and one of the workers -- a young man who had joined the company a few weeks earlier, eager for the job because it offered health care for his pregnant wife -- had tried a repair. He had jumped over a yellow safety wall surrounding the press and walked across the pit. There was a piece of aluminum jammed into the hinge on a swinging six-foot arm. The young man pulled on the aluminum scrap, removing it. The machine was fixed. Behind him, the arm restarted its arc, swinging toward his head. When it hit, the arm crushed his skull. He was killed instantly. 

Fourteen hours later, O'Neill ordered all the plant's executives into an emergency meeting. For much of the day, they painstakingly re-created the accident with diagrams and by watching videotapes again and again. They identified dozens of errors that had contributed to the death, including two managers who had seen the man jump over the barrier but failed to stop him, a training program that hadn't emphasized to the man that he wouldn't be blamed for a breakdown, lack of instructions that he should find a manager before attempting a repair, and the absence of sensors to automatically shut down the machine when someone stepped into the pit. 

"We killed this man," a grim-faced O'Neill told the group. "It's my failure of leadership. I caused his death. And it's the failure of all of you in the chain of command." 

The executives in the room were taken aback. Sure, a tragic accident had occurred, but tragic accidents were part of life at Alcoa. 

Within a week of that meeting, however, all the safety railings at Alcoa's plants were repainted bright yellow, and new policies were written up. Employees were told not to be afraid to suggest proactive maintenance. And O'Neill sent a note to every worker telling them call him at home if managers didn't follow up on their safety suggestions.

Wish we had more CEO "brass" like this today.  Maybe we would not be in such a mess.

Read more about this particular incident and how workers calling him personally made a huge difference in the company turnaround---HERE from the author.

The whole book is worth a read too.  It covers a broad range of topics and is NOT a business book. More psychology I would say.  

Nice map illustrating the minimum wage and number of workers affected.

Here is a handy-dandy easy visual from The Brookings Institute to show students what the minimum wage is in each US State and an estimate as to much of the labor force earns up to 150% of that wage.

States without a number in them have utilized the Federal minimum wage of $7.25 as their floor wage

Each State CAN impose a minimum wage ABOVE the federal level (see those numbers in each State) but cannot set it below it.

The color coding shows, as a percent of that States labor force, the number of workers who earns LESS than 150% of that States required minimum wage.

For instance, in Texas 150% of the minimum wage is $10.86 ($7.25 X 150%) and between 27.1%-32% of the labor force earns that amount OR LESS (blue-ish area)

In California 150% of $8.00 is $12.00 and 32.1% or more earn that amount or less (purple area).

The authors of the study wanted to show how an increase in the minimum wage would impact many more workers than those just earning at or below the mandated wage (Federal or State).

The implication is those who now earn more than the minimum wage (up to at least 150% of it) will get a "bump" in pay as those at the lower end of the pay spectrum see a higher mandatory hourly wage.

They estimate about 16 million workers would be affected (in a positive way) by an increase in the minimum wage.

The authors are careful to explicitly mention they are not taking into account ANY employment OR dis-employment affects of a high minimum wage.  That is a BIG caveat!

Source: The Brookings Institute

Number of hours worked has returned to pre-recession levels. Must be good news, right?

Here is a graphic showing the number of hours worked by different sectors of the economy classified by how they have fared since 2007 (just prior to the recession---Dark GRAY area).  Go HERE for the short and informative article on the topic.

I inserted a RED line to show the point of the official end of the recession (late 2009) where hours worked SHOULD start increasing for all sectors, presumably, as the recovery got underway.

Total hours worked has returned to pre-recession levels (mentioned in the article). But there has been a reshuffling of those work hours from higher paying construction and manufacturing jobs to lower paying leisure and hospitality.  A significant part of healthcare job growth is in lower paying home health aides.

Construction jobs suffered the biggest drop as a result of the recession and has held pretty steady at its low point with only a tiny increase in hours worked in the past 4 years.

I believe construction will eventually pick up, but unless manufacturing is defined in a new way I do not believe employment in that sector will increase dramatically.  Technology is the pinch there.

Construction workers might experience a boom building manufacturing plants and infrastructure but they will be staffed by machines and robotics.

Source: St Louis Federal Reserve

Purchasing Power Parity (PPP)---as simple as I can make it for the novice (me!)

I have blogged several short mini-lessons on the concept of "Purchasing Power Parity (PPP)" but I am never satisfied that I explained it properly.  Heck, not even sure I explained it enough for ME to get it!

Here is another attempt.

Assumption #1: Today the actual market currency exchange rate in the Foreign Exchange Market is $1.00US will exchange for $1.00A ("A" is the Australian Dollar).   So, the reciprocal is $1.00A will exchange for $1.00US. The currencies are at "parity" with one another--there is an even one to one trade off between the two currencies.

Assumption #2:  An American decides to go on vacation to Australia to visit The Great Barrier Reef.  It costs $15,000 Australian dollars to do so.  An Australian decides to go on vacation to the US to visit Disney World.  It costs $10,000 US dollars to do so.  Everything about each vacation is the same except the experience, which we will assume yields the EXACT same satisfaction (or "utility") for the American and the Australian. They are equally happy, only in different ways.

Even though the vacations are priced differently in their respective currencies, Purchasing Power Parity suggests that buying power of one currency should be EQUAL to the buying power of the other currency when purchasing identical/similar goods and/or services. Whether that is in Australia or the US---does not matter.

Given the relative nominal prices of the vacations above, the PPP exchange rate would be $1.00 US = $1.50A and $1.00A = $.67 US.

In other words, when an America exchanges $10,000 they will receive $15,000 Australian dollars ($10,000US X $1.50A) and when an Australian exchanges $15,000A they will receive $10,000 US dollars ($15,000A X $.67US).

This is what the exchange rate SHOULD be but remember from assumption #1 the ACTUAL exchange rate is:  $1.00US = $1.00A, and vice versa.

Give the actual exchange rate, the American would have to give up $15,000 US in order to get the necessary $15,000 Australian dollars for the vacation.  That is $5,000 ,or 50%, MORE than at PPP!

The Australian would have to give up $10,000A to get $10,000 US.  That is $5,000, or 33%, LESS than at PPP!

Because the Australian has to give up FEWER Australian dollars to buy US dollars relative to PPP, the Australian dollar is said to be OVERVALUED relative to the dollar.

Because the American has to give up MORE US dollars to buy Australian dollars relative to PPP, the US dollar is said to be UNDERVALUED relative to the Australian Dollar.

What will happen in the "Long Run" according to PPP theory?

Because American vacations are cheaper for Australians they will take more of them. This will serve increase the Supply of Australian dollar in the FOREX and depreciate the Australian dollar.  The corresponding increase in Demand for Dollars will appreciate the US dollar in the FOREX.

Because Australian vacations are more expensive for Americans they will take fewer of them. This will serve to decrease the Supply of US dollars in the FOREX and appreciate the US dollar.  The corresponding decrease in Demand for the Australian dollar and will depreciate the Australian dollar in the FOREX.

The exchange rates will adjust so that, all else equal, the buying power of one currency will have the same buying power of the other currency, regardless of which of the two countries a purchase is made.

That's Purchasing Power Parity (PPP) as simple as I can make it.

Hope it  helps A LITTLE! :)

Nice data on food waste in the US. You won't believe how much of it YOU are responsible for!

Reference the data below.  According to the always informative USDA Economic Research Service, in 2010 the estimated amount of food available at the retail level was about 430 Billion pounds.  

Of that, 133 Billion pounds were wasted (not used, thrown away, rotted, etc).  Read that again.

That is 31% of the food supply.  Read that again.

The number circled in RED, 1,249 represents the per person (US) caloric loss from that 133 Billion pounds in lost food (based on population of 313 million).

That could supplement the diets of hundreds of millions people in the developing world and bring them up to developed world levels.

Sadly, this analysis is only a parlor game. Logistics, Logistics, Logistics.  It is a rubrics cube of coordination and will.

It is a nice reminder of the importance of reducing the consumption of perishable food items to what you, well, actually can consume, and to "reuse" the leftovers to avoid throwing away.

"Food Inflation" is on its way in 2014. But the reason for it is not what you may think it is.

"Food inflation" is likely on its way to the US, and the world for that matter.

When we here the word "inflation" the first thought is usually "too much money chasing too few goods (services)" and look to Monetary policy as the culprit. Maybe...but maybe not.  Sometimes the fundamentals of Supply and Demand in various markets are at play.

Here are data from the USDA ERS site that show the change in prices of the basic food groups for the past couple of years and projections for the remainder of this year.  Does not look encouraging at the checkout line.

If you go to the site they give a nice overview of the why prices in select categories are increasing.

The short story version is there seems to be a perfect storm of variables coming together to conspire to raise prices---weather and disease (plant and animal) working to limit or decrease supply on the Supply-Side. Demand from recovering developed economies (US, Europe) and emerging developing countries (China, India, etc) is putting upward pressure on the constrained food supply chain.

Source: USDA ERS

Here is one interesting point made in the USDA ERS analysis I think is important to understand as well.

Additionally, it appears as if supermarkets are maintaining minimal price inflation on packaged food products, possibly in an effort to keep prices competitive in light of rising cost pressures for most perishable items. Therefore, ERS has revised the forecast for sugar and sweets downward to 1 to 2 percent and for nonalcoholic beverages downward to 1.5 to 2.5 percent for 2014.

Competition serves to minimize, or at least soften, the REAL changes in prices of many goods at the actual point of purchase.

Grocery stores have to consider YOUR whole grocery basket of stuff you purchase when pricing their products AND what other stores are doing at the same time.  They may play a little "rob Peter to pay Paul" with the inventory.  In order to minimize the price increases of the perishable goods you see above, they will likely decrease prices of other non-perishable goods where they may have more pricing discretion.

So, market fundamentals are increasing the prices of many diverse individual food items at the same time, and competition between stores is working to minimize (albeit not stop) those price increases.

That is what I call a reasonable explanation.  Maybe not one that makes us happy, but more reasonable than the one I started out with.

It only took a little more work.   :)

Why we can't have nice things---"Disaster Assistance to New England fisherman edition"

Why we can't have nice things---"Disaster Assistance Edition".

Below are two articles on the same topic---Federal disaster assistance for fisherman in New England.  

What is/was the "disaster"?   Federal regulations restricting the catch of certain types of fish due to, well, over fishing.  Yup, that's it. 

What gets me is the disaster aid morphs into something more, or maybe the right word is less---notice in SOME of the compensation goes to the fisherman, but most (a majority) goes to other entities for other things that don't directly aid the fisherman in need.

Cash starts to drift into less disaster affected related areas. 

NH fishing industry receives $2M in federal funds: Half of the aid will go to groundfishermen

Kendall said according to the formula, those who qualify may receive about $32,800 each from the disaster relief fund. At this point, it’s still unclear how many will qualify, although Kendall expects everyone may. 

At the meeting on Tuesday, the industry will learn how the remainder of the money will be spent. The agreement outlines how the disaster relief funds will be distributed to support New Hampshire’s fishing industry. The money will come down from the federal agency and go to New Hampshire Fish and Game for distribution, Kendall said. 

“Some of the remaining million dollars could go to help with (commercial fishing) infrastructure, like the Cooperative,” Kendall said. “And some may go to recreational charter fishing boat captains, who are also affected. We should find that out on Tuesday.”

RI fishermen to receive nearly $2 million in disaster aid

Under the plan, one-third will provide direct assistance to fishermen, one-third will go toward states to support their commercial fishing industry and the final third will be held by the National Marine Fisheries Service for a possible program to pay fishermen to leave the industry.

“This is an important step to get money directly to fishermen and provide Rhode Island and other states with additional resources to respond to the unique needs of their fishing communities,” U.S. Sen. Jack Reed, D-RI, said in a statement.

This last paragraph REALLY bugs me.  Everything after "This is an important step to get money directly to the fisherman..." needs to go away.  This is Cronyism , pork, whatever you want to call it.

Federal Disaster Aid to fix the broken window is fine with me.  But not if all the window needs is a cleaning.

I found a Microeconomics Unicorn! See the chart here.

A rare treat for an economics teacher.  A chart that quantifies (not completely but enough) the difference between "Economic Costs" which include opportunity costs (implicit costs) as well as money costs (explicit costs), and "Accounting Costs" which include ONLY money costs. 

Source: USDA ERS

Costs of production for U.S. milk decline as the size of the dairy operation (measured by the number of cows) increases.  Based on 2013 data, average total economic costs of milk production—a measure that includes the opportunity costs of land, labor, and other owned resources—fell by nearly 60 percent, from an average of about $50 per hundredweight (cwt) for producers with fewer than 50 cows to about $20 per cwt for those with 1,000 cows or more. Average costs are lower on larger farms because fixed cost items, such as management, land, and other resource costs, are spread across a larger number of cows, and because average output per cow increases along with farm size. Mean output per cow was just over 15,000 pounds among operations with less than 50 cows, while operations with 1,000 or more head averaged more than 23,000 pounds per cow. Higher milk yields on larger farms stem from factors such as better breeding, nutrition, and health management, as well as the ability to access competitively priced supplies of high quality feed inputs.  This chart is based on data found in Milk Cost of Production Estimates. 

This is a key concept in AP Microeconomics that is somewhat difficult to convey to high school aged students.

The vertical difference between the RED and BLUE lines represents the Opportunity Costs to the producer for staying in business.

The price or Marginal Revenue (MR) or Average Revenue (AR), a producer receives must at least equal the RED line for her to "Break Even".  

However, she could still make an Accounting Profit at that price.  Is she?

According to the USDA ERS (HERE) the average price for "all classes of milk" was $20.05 per CWT) in 2013.  Now look back at the graph and draw a straight line across the $20.00 mark denoted on the vertical axis.  Compare that to the RED and BLUE lines.

At that price ONLY the large producers (1000 or more milk cows) are Breaking Even in "Economic" terms BUT making profit in "Accounting" terms.

Notice at about 300 cows the average costs start to drop at a relatively steep rate and production increases quickly.  I assume that is the inflection point where economies of scale really kick in.

Hope this helps with teaching and/or learning about this important concept when the topic of a firm that operates in a "Perfectly Competitive" market.

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