Population Pyramids for Israel and Palestine. Whoa to the policy-maker who ignores this!

Demographics is seldom talked about when it comes to geopolitical issues but it is an important explicit and implicit variable that underlies many conflicts.

Here is what Israel and Palestine look like projected to 2015.

All is not equal in terms the age group 19 and under, especially.

Source: HERE

It takes a nation to stockpile this much ethanol. No lie. It literally takes a nation. Find out which one here.

US ethanol stocks soar to 16-month high: EIA

US ethanol stocks rose 647,000 barrels to a 16-month high of 18.587 million barrels in the week that ended July 25 despite a slight decline in US ethanol production, which dipped 5,000 b/d to 954,000 b/d, US Energy Information Administration data showed Wednesday.

 As I like to do, I will put this into some perspective.

18.587 million barrels of ethanol equals 780,654,000 gallons of ethanol (42 gallons in a barrel).

One bushel of corn (56 pounds) produces 2.8 gallons of ethanol.

So, it took 278,805,000 bushels of corn (780,654,000/2.8) to produce the 18.587 million barrels of ethanol the US has in stock.

The stock of ethanol was produced from multiple corn plantings over time, so in many cases the same acreage was used to produce multiple harvests of corn.

In 2013, the average yield of corn per acre was 158 bushels.

This means, in the aggregate, the number of acres of corn needed to produce the current stock of ethanol was 1,764,588 (278,805,000/158).

How much is that? The total acreage of the US is 1,875,714. Virtually the whole US minus a couple of counties.

How many people could that feed?  Just askin'...

Note: Please remember my caveat---the same land would have to be used multiple times to get this amount of ethanol over time. I am not saying it literally takes the whole country.  Thanks!

Corn killed Bubba Gump Shrimp. "That's all I have to say about that". See how here.

Source: Big Picture Agriculture

Kay MacDonald over at Big Picture Agriculture has this graphic showing the "Dead Zone" in the Gulf of Mexico just off the coasts of Texas and Louisiana and the following comment:

"This year’s Deadzone in our Gulf of Mexico waters will be about the size of Connecticut. It is estimated that the Dead Zone causes losses of $82 million per year to the seafood and tourism industries. 

Much of it is caused by corn cropland fertilizer runoff that ends up going down the Mississippi River. Corn used to fuel cars – cropland used to feed cars, not people. In contrast, a healthy Gulf of Mexico sans Dead Zone would be capable of growing more shrimp, crabs, clams, and fish which humans love to eat."

This clearly illustrates an important concept in AP Microeconomics: Negative Externality.

Negative externalities occur when the production of a good imposes a cost (or costs) on third parties not involved in producing or consuming the good.

Farmers grow corn. The fertilizer used in the process becomes part of the run-off from irrigation and/or rains that make their way to streams and rivers then eventually the Gulf of Mexico in this instance.  The chemicals in the fertilizer destroy/damage the aquatic ecosystem that allow shrimp and other sea creatures to thrive.

Each farmers contribution to the problem is small but in the aggregate all farmers along the waterways that feed the Gulf of Mexico cause approximately $82 million dollars in lost revenues to fisherman of all types along the Gulf Coast.

This loss in revenue (a cost) is borne by the fisherman ("Third Parties") and not by the farmers and/or consumers of corn.

There are potentially 3 solutions to this problem:

(1) tax the producers and/or consumers of corn up to at least the amount of the damage--$82 million.
(2) impose a regulation forcing farmers to prevent the run-off hence the damage to the Gulf
(3) Farmers collectively agree to pay the fisherman $82 million for the damage they cause ("Coase" solution).

All 3 of these "internalize" the monetary value of externality and require the parties to the actual transaction to bear the full cost of the damage they impose.

Seems fair, doesn't it?

World-wide Car sales from 1990 to Present. You are not going to believe these numbers.

This chart amazed me. Note the years along the horizontal axis. The first two bars represent two DECADES worth of car sales worldwide.  The other four represent single year sales (the last bar for 2014 is a projection).

The total number of cars sold in 2011 and half of 2012 EQUALED the total amount sold in the 20 year time span from 1990 to 2010.

Ponder that for a moment when it comes to energy and environmental  issues.

Find more statistics at Statista

Something's fishy in Alaska in the canned salmon market. Let's go to the graphs.

Another day, another easy pickin' economics lesson pulled from the headlines.

"Alaska Governor asks the Federal Government to buy Surplus Canned Salmon"

Gov. Sean Parnell has asked a federal agency to buy about 1 million cases of canned pink salmon to ease a glut that has weighed down prices for Alaska fishermen this year. 

Parnell made the request in a letter to U.S. Agriculture Secretary Tom Vilsack this week. He wants the USDA to purchase $37 million worth of canned pink salmon under a federal law that allows for buying surplus food from farmers and donating it to food banks or other programs. 

USDA purchased $20 million worth of salmon earlier this year, which Parnell called an important first step in reducing inventories to help slow a price decline that he said threatened the 2014 fishing season. 

He said remaining unsold inventories are driving prices to levels that threaten harvest activity this year and next, with the price of canned pink salmon 23 percent lower than a year ago and the advance price paid to fishermen down about 33 percent.

By purchasing the surplus canned salmon from Alaskan fish processors, the Governor is essentially asking for a de facto PRICE FLOOR be imposed on the market for Canned Salmon.

The thinking is this: Buy the surplus so the processors (1) don't have to unload it at lower prices (this is not mentioned in the article) and (2) the price the processors pay fisherman for their catch for the upcoming season will not decrease.  Easy, right?

Let's go to the graphs to see how this plays out.  Hope it helps you in understanding your lesson on this topic.

"I, Chocolate". Why is chocolate so cheap when SO MANY people have to get paid to get it to us?

I cannot answer that question. No one can (we can only suppose).  It is part of the miracle that is markets operating in as free an environment as possible.

The World Cocoa Foundation has this terrific report on the state of the Cocoa/Chocolate market.

One section of the report serves as a reminder of just how difficult and complex it is to bring a seemingly simple product to market for the masses to enjoy at a relatively low price.  If you start to list out ALL the steps and cooperation that is necessary to complete production it is mind boggling.

Read all the steps involved...and these are just an overview and only scratch the surface.  Many other steps and processes are not accounted for.

(Go here for an explanation of "I, Pencil" and "I, Smartphone")

Meanwhile after you read this think about it the next time you consume a good (durable or non-durable) and make a mental list of the processes involved in getting it to you.  You will run out of mental capacity before you run out of supply chain steps.  :)

Cocoa Value Chain

Growing: Cocoa trees grow on small farms in tropical environments,
within 15-20 degrees of latitude from the equator. Cocoa is a delicate
and sensitive crop, and farmers must protect trees from wind, sun,
pests, and disease. With proper care, cocoa trees begin to yield pods
at peak production levels by the fifth year, and they can continue at
this level for ten years.

Harvesting: Ripe pods may be found throughout the continuous
growing season; however, most countries have two peak production
harvests per year. Changes in weather patterns can dramatically affect
harvest times and yields, causing fluctuations from year to year.
Farmers remove pods from the trees using long-handled steel tools.
Pods are collected and split open with a sturdy stick or machete, and
the beans inside are removed. A farmer can expect 20 to 50 beans per
pod, depending on the variety of cocoa. Approximately 400 beans are
required to make one pound of chocolate.

Fermenting and Drying: Farmers pack the fresh beans into boxes or
heap them into piles covered with mats or banana leaves. The layer of
pulp that naturally surrounds the beans heats up and ferments the
beans. Fermentation lasts three to seven days, and it is the critical
step that produces the familiar chocolate flavor. The beans then dry
for several days in the sun or under solar dryers.

Marketing: After the dried beans are packed into sacks, the farmer
sells them to a buying station or local agent, who transports the bags
to an exporting company. The exporter inspects the cocoa and
transports it to a warehouse near a port.

Packing and Transporting: The exporter ships the beans to the
processing location, where the cocoa is moved to a pier warehouse
until needed. Details of export process vary by country. The buyer
conducts a quality check to accept delivery and the cocoa is stored
until requested by the processor or manufacturer. Trucks or trains
carry the cocoa in large tote bags or loose in the trailer to the
manufacturer’s facility, on a “just-in-time” basis.

Roasting and Grinding: Before processing, the beans are thoroughly
inspected and cleaned. The inside of the cocoa bean is called the nib.
Depending on the manufacturer’s preferences, beans can be roasted
whole, or the nib can be roasted alone. Once the beans have been
shelled and roasted (or roasted and shelled), the nib is ground into a
paste. The heat generated by this process causes the cocoa butter in
the nib to melt, creating “cocoa liquor.”
Cocoa liquor does not contain alcohol and is solid at room
temperature. It can be further refined, sold as unsweetened baking
chocolate, or used in chocolate manufacturing.

Pressing: The cocoa liquor is fed into hydraulic presses that divide
liquor into cocoa butter and cocoa cakes. The cocoa cake can be sold
into the generic cocoa cake market, or ground into a fine powder.
The processor may pre-treat the cocoa liquor with an alkali solution
(alkalizing), which reduces acidity. This treatment is known as
“dutching” and produces Dutch processed cocoa when pressed.
Alkalized liquor becomes darker, develops a more robust chocolate
flavor, and stays in suspension longer in liquids such as milk.

Chocolate Making: To make chocolate, cocoa liquor is mixed with
cocoa butter, sugar, and sometimes milk. The mixture is poured into
conches—large agitators that stir and smooth the mixture under heat.
Generally, the longer chocolate is conched, the smoother it will be.
Conching can last from a few hours to three full days. After conching,
the liquid chocolate may be shipped in tanks or tempered and poured
into block molds for sale to confectioners, dairies, or bakers.

Substitute versus Substitution Effect. Only one word difference but the difference is BIG.

One of the more difficult things to teach to students is the difference between a Substitute (good or service) and the Substitution Effect that the Substitute good or service has on demand for the good that is subject to substitution.  Got that?  

Here is a terrific article on the rise in beef prices and its impact on the market for chicken.  Below I created some slides that hopefully will make the distinction between the two key micro-economic concepts more clear.  Use as you like!  Let me know if you see any errors or how I can refine any aspect.  Thanks.

Beef prices hit wallets, boost poultry's appeal (HT: Big Picture Agriculture)

There's no beef about it, prices for red meat are surging and demand for chicken is benefiting. 

Chicken's versatile appeal and its perception as a good source of protein that's better for you than red meat are also driving sales, RBC Capital Markets' David Palmer said in a phone interview. 

"Chicken is really hot right now, and poultry is viewed as a source of protein that's relatively less inflationary," Palmer said.

Nice article: A simple technology allows farmers to become Price Makers, not Price Takers

In AP Microeconomics we have a unit on the market structure "Perfect Competition".  One of the main characteristics of a firm that operates in this market is the firm is a "Price Taker"---they are too small to demand a particular price in the market and by themselves their quantity supplied is not enough to influence the price either.  They must take the market price offered to them and reconcile it their cost of production.

In an effort to try to get a higher price OR to wait and see if a higher price is in the offering at a later date, some farmers store their grains in giant silos.  If you travel the back roads of the mid-West this is a pretty common sight.

These large, physical structures are limited in their capacity and expensive to build and maintain on the supply side, and expensive to rent on the demand side.

A new-ish advancement in portable storage is about to become more popular and noticeable in rural areas. It is a much less expensive way to store harvested grains AND if enough additional farmers employ this technique it may allow farmers to gain pricing power and become a "Price Maker" instead of a "Price Taker".

Creative Destruction---it is a wonderful thing!

U.S. grain farmers resort to giant storage bags to avoid cheap sales (HT: Big Picture Agriculture)

As U.S. farmers turn in record grain crops this autumn, many will have a powerful new tool - giant sausage-shaped storage bags - to help them avoid the lowest prices in years and gain more control over trade with giants such as Cargill Inc.
Demand has surged this summer for the white polyethylene bags the length of a football field and the equipment required to fill them, according to manufacturers and wholesalers. 

They allow farmers to store millions of bushels of corn and soybeans at a fraction the cost of conventional silos and far more efficiently than leaving grain in the open air. 

The bags, which are about 300-foot (91-m) long and 10 feet in diameter, are common on the Argentine Pampas but until recently a rare sight in the U.S. Midwest, where the expansion of big elevators and 50-foot high silos has generally kept pace with ever-expanding crops. 

But with many bins still overflowing with last year's crop in the world's top grain grower, farmers are snapping up these systems as a practical necessity ahead of bumper harvests, and as a safeguard against another winter of railroad delays.
They may also be a sign that farmers will not be rushed into dumping their harvests quickly. Prices for corn to be harvested in autumn have tumbled as much as 18 percent so far this year, leaving growers hoping for a rebound.  (Click HERE to read more)

I visited the "Shawshank Redemption" Prison this week and came away with this observation (why, yes, of course it involves economics)

I visited the prison that was used as the backdrop for the GREAT movie "Shawshank Redemption".  It is located in Mansfield, Ohio and is open to the public.  It is an unbelievable facility and if you are a fan or the movie (or prisons) it is a must see!

I am always looking for an economics lesson and by luck they had this pay stub for a prison guard from 1962.

His pay was $315.00 per month ($2,481.00 in 2014 dollars) or $157.50 every two weeks ($1,240.50 in 2014).

I assume he worked a 40 hour week which means he earned $1.97 per hour over 80 hours in the two week pay period.  As a comparison, in 2014 dollars that would be $15.52 per hour.

There is a new correctional facility right next to the old prison.  According to Salary.com the median salary of a correctional officer at that facility is about $38,000. Using 2,000 as the number of hours worked in a given year (with 2 weeks vacation unpaid vacation--not likely) that works out to $19.00 per hour (this is wage and NOT other non-cash benefits which I am guessing are much better today than in 1962).

The salary of a prison guard today in Mansfield, Ohio has at least kept up with inflation ($19.00 versus the $15.52).

Not sure if Andy Dufrane or Old Red would appreciate that or not.

LeBron, Johnny and the Republican nominee walk into a bar in Cleveland....

After the Republican Convention in 2015, the Republican nominee, Johnny Manzeil and Lebron James walk into a bar in Cleveland.

Johnny gives the bartender his "money" sign with his hands.  He gets a beer.

LeBron tilts his head back and says "Sup".  He gets 5 beers.

The Republican nominee tells the bartender "I am going to cut your taxes and the taxes of all your customers. They will have more money to spend and you will have more to invest. You will sell more beer and have to open another bar or two.  Tax revenues to the Government will increase!"

The bartender looks at him and says "Dude, you have had enough. I will call you a cab".

Nice map showing the uneven job recovery in the US.

The New York Times has a lengthy article on the economic recovery from 2007 to 2013 with a focus on the post-recession state of the economy.

They had this map below showing the percentage change in jobs since 2007. High growth areas are in dark(er) GREEN.

This is a "flyover" economic recovery centered in the mid-section of the country (I inserted the rectangle to highlight the area).

I think the major media on both "coasts" miss the story.  They see overall employment numbers improving but don't see it in their own backyards so there must be something wrong.

Perhaps.  The recovery in jobs is definitely uneven.  What can we do, if anything?

Source: New York Times

Hammer and nails. Cheese and Beer. Regulatory over-reach or Public Safety?

Recently in a speech at West Point President Obama used this phrase in referencing Iraq/US foreign policy:

"Just because we have the best hammer does not mean that every problem is a nail." 

It is a variation of the original version by Abraham Maslow:

"I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail."

 And this from Abraham Kaplan who formally classified the phrase as "The Law of the Instrument":

 "Give a small boy a hammer, and he will find that everything he encounters needs pounding."

Now that is out of the way, what does it have to do with this posting?

In the last couple of weeks I have read the following articles:

1.  Has The FDA Brought On A Cheese Apocalypse? Probably Not (NPR: The Salt).  The FDA proposed a rule to regulate the ageing of high quality cheese on wood boards, a process that has been used for 100's of years, because of a fear of listeria.  

"As for the cheese aging boards, "There's no question there's a risk," Acheson says, but the question is, how much. "I'm not aware of any evidence that the wooden boards on which cheese is aged led to listeria outbreaks," he says.

(Emphasis mine)---Is this a hammer in search of a nail?

2.  New FDA Regulation Could Cripple Ranchers, Beer Brewers (HuffPo). Beer Brewers, large and small, for 100's of years have been either giving away or selling cheap the spent beer grains to farmers to use as high quality animal feed. 

"Since the grains are used to brew beer, they have already been deemed safe for human consumption. But the FDA fears the lack of oversight from the time of brewing to the time the grains are fed to the animals could lead to contamination. 

The FDA did not comment on a request from The Huffington Post for reports of any illnesses related to the consumption of spent grains."

(emphasis mine)---Is this a hammer in search of a nail?

Read both articles and ask yourself:  Regulatory over-reach or pro-active governing in the name of public safety?

Are there any nails here that need hammering?

Chased something down a rabbit hole today.

Chased something down a rabbit hole today.

I tried to examine the budget of the Federal Highway Trust Fund and the Federal Highway Administration in general that uses the Federal gas tax money (primarily) and Income taxes to pay for the construction and/or repairs of Highways, By-ways, Roads and Bridges and on and on and on.  I came across this link that showed grants to a myriad of projects in every State.  You can look at the list yourself and ask if these are good uses of Federal tax dollars.

After spending a few minutes scrolling through the list examining the projects and looking at the various dollar amounts this came to mind:

If you watch your pennies today, you will have dollars tomorrow. If you squander your dollars today, you will have pennies tomorrow.

Not an original thought.  But one I used as I looked through the list.

What do you see?

Ever wonder how farmers get paid for not planting crops? Here is my explanation as it pertains to the new farm bill. Enlightening...

I have been semi-immersing myself in learning about the new Farm Bill that was recently passed and signed into law that will dictate US farm policy for the next 5 years.

I even attended an online seminar sponsored by the US Dept of Agriculture whose target audience was farmers who wanted to learn more about the changes in the law.  It is complex and if you want to learn more yourself, please go HERE for all you can consume.

Here is an interesting tidbit I learned I cannot get my mind wrapped around.  Very strange, in my opinion.

Say I am a farmer and have 1000 acres of land suitable for growing Wheat or Soybeans.  Assume my planting history shows I use 500 acres for wheat and 500 acres for soybeans.

For the purposes of satisfying the requirements of the Farm Bill, this 50/50 allocation of acres is what I declare as my "Base Acres" for claiming subsidies or any other government program for which I may be entitled.  So far so good.

Now, suppose next year I KNOW the price of soybean per bushel is going to be high and the price of wheat per bushel is going to be low---very low.  So low, in fact, it will be lower than the legal PRICE FLOOR that was set in the Farm Bill.  According to the Farm Bill, if the market price is below the Price Floor set in by the Farm Bill I am entitled to a payment (or subsidy) equal to the difference between the two prices PER BUSHEL of the crop---in this case wheat.

Here is what I am going to do:  Not plant ANY wheat and plant 1,000 acres of soybeans. Yes, can do that even though I have declared a 50/50 split based on historical plantings

I am going to sell my 1,000 acre harvest of soybeans for the high market price.  GOOD FOR ME, RIGHT?

It gets better.

Subsidies are paid on declared BASE ACRES, not actual harvest of a crop.  Since 500 of my 1,000 acres are declared for wheat I can receive the subsidy for WHEAT on those 500 acres even though I grew NO WHEAT AT ALL.

So, based on average historical bushels of wheat per acre harvested, I will receive that number times the subsidy (the difference between the Price Floor and the actual market price for wheat at the time) times the number of acres.

If the subsidy is $1.00 and the average yield is 47 bushels per acre then that = $47.00 per acre. I have 500 base acres in wheat so $47.00 X 500 =  $23,500.  For growing no wheat.

I told you. Strange, right.

This is the way it was explained to me.  If I have any details wrong or there is more to the story let me know. Always open to revisions.

Note:  The average farm is much less than 1,000 acres and the subsidy payout is likely much LESS than $1.00 ( could be just pennies).  So both those numbers I used are, in most cases, over-stated.

How many football fields worth of corn did we use everyday last week to produce the surge in ethanol production? We're gonna need a bigger stadium...

Saw this and of course had to do some calculating.  You know how much hatin' I do on ethanol.

U.S. ethanol output surges to record high as gasoline costs rise (HT: Big Picture Agriculture)

U.S. ethanol production increased for the sixth week in a row to a record high, government data showed on Wednesday, as rising gasoline prices helped boost demand for the grain-based biofuel. 

Ethanol production surged 28,000 barrels per day, or about 3 percent, to an average of 972,000 bpd in the week ending June 13, according to the U.S. Energy Information Administration. Production surpassed the previous record of 963,000 bpd reached in the last week of 2011.

A "barrel" as a measure is 42 gallons. If production increased by 28,000 barrels that is 1,176,00 gallons of ethanol.

One bushel of corn (about 56 pounds) makes approx 2.8 gallons of ethanol.  It we divide 2.8 into 1,176,000 we get 420,000 bushels of corn needed for the extra DAILY production.

In 2013 the average yield on an acre of land used for growing corn was 158 bushels.

If we divide 420,000 by 158 we get 2,658 additional acres needed every day to support that "surge" in demand. Not the SAME 2,658 acres but additional 2,658 acres.

A football field is 1.33 acres.  Divide 2,658 by 1.33.

Last week we used the equivalent of 1,998 football fields for the extra 28,000 barrels of ethanol--EVERY.DAY.