US government pays-off Brazilian Cotton Farmers so they don't complain about subsidies the US govt pays to wealthy US farmers. Got that? See here how much...

Your government at work.  This is how easy it is to spend other peoples money.

In order to keep Brazil from retaliating with trade sanctions over subsidies to US cotton farmers,  the US Dept of Agriculture paid them $174 million dollars to, well, not do that.

From NPR:

Why U.S. Taxpayers Started — And Stopped — Paying Brazilian Cotton Farmers

When he says "the rules," he means the rules of the World Trade Organization, which govern global trade. Back in 2002, Camargo went to the WTO with his complaint, arguing that the U.S. was illegally subsidizing its cotton farmers. He won. The U.S. appealed the decision, and lost again.

As the fight went on, Brazil threatened to retaliate with trade sanctions if the U.S. didn't stop subsidizing cotton.

And finally, in 2010, U.S. representatives made Brazil an unusual offer. They said: The subsidies to U.S. cotton farmers are part of U.S. law, and will continue for as long as the current Farm Bill is in place. So, the negotiators said, until the next Farm Bill passes, the U.S. will pay Brazilian cotton farmers $147 million a year.

"For Brazilian farmers, it's a lot of money," Camargo says. The Brazilians took the deal. And, every month, the U.S. sent over $12 million to Haroldo Cunha, president of the Brazilian Cotton Institute.

See video of a skateboarder stealing a 32" flat screen from Target. I found a picture of the one his Dad stole 20 years ago. Kids have is SOOO much easier today...

Here is a video of a young man stealing a 32" flat screen t.v. from Target and making his getaway via skateboard.  You see a crime, well I do too, but I also see the marvel of technological advancement that made this crime likely unsolvable.

He could easily tuck that television under his arm.

My question is, could his Dad have done the same thing 20 years ago around the time his son was born?
(yes, I am casting an aspersion).

Here is a 32" Sony Trinitron from 1994.  I had one of these.  Must have weighed 50-60 pounds, at least. Maybe more.  One most certainly could not ride a skate board with it in your arms.

Today's Big Screen TV:  Better quality, less expensive, fewer resources needed to build it, more efficient...oh, and MUCH easier to steal on your own...

Nice graph showing how college students get poorer and colleges get richer through subsidies.

Everyone knows the cost of college has increased dramatically in the last 30 years. But by how much?

The graph below is from a study at the Mercatus Center at George Washington University.  It show the difference in the publicly posted LIST TUITION PRICE that colleges charge and the NET TUITION PRICE that students actually pay after grants (Federal and/or State), scholarships, and other aid provided to students by various entities.

I doctored the original graph and put some numbers to it.  The BLACK line to the left indicates the year 1993/94 and the RED lines to the right indicated 2012/13.  I wanted to show a 20 year change.

All prices you see below are in 2012 dollars.

In 1993/94 the average list price for in-State tuition for a US Public college was $4,000 but students only ended up paying $2,000.  That is a subsidy of $2,000 or 50% of the list price.

In 2012/13 the average list price for in-State tuition was approx  $8,800 but students only paid $3,000. That is a subsidy of $5,800 or 66% of the list price.

The list price of tuition increase by 120% in 20 years but the net price paid by students increased by only 50% (from $2,000 to $3,000).

While students are paying more, the subsidies they receive (or I should say received by the colleges on the students behalf), is increasing at a faster rate.

Sacrifice: Americans decreased the number of meals eaten out in order to buy pet food for their pets during the recession. OR DID THEY? The Gumment' says yes, but I am not so sure. Tell me where I am going wrong...

Here is a quick lesson on elasticity AND how deceptive data can be.

From 2007 to 2011, spending on pets stayed close to 1 percent of total expenditures per household, despite the recession that occurred during this time. Spending on pet food stayed constant or increased during the recession, even while spending at restaurants fell.

OR DID IT??

The chart below (from BLS) the average yearly spending on Pet Food (Left Axis) and "food away from home"(Right Axis).  The yellow area represents the time span of the recession (Dec 2007 to June 2009)

It appears spending on our pets dietary needs stayed relatively constant throughout the recession, whereas spending on meals away from home took a nosedive.  One could conclude that the income elasticity of demand for pet food is relatively INELASTIC (quantity demanded did not change much relative to the decrease in income during the recession) and the income elasticity of demand for meals away from home is relatively ELASTIC (quantity demanded changed A LOT  relative to the decrease in income during the recession).  In other words, people did not buy less pet food but bought fewer meals out of the house.

But is this TRUE??

Source: Bureau of Labor Statistics

Look at this chart  below from economist Justin Wolfers via Twitter.  It shows how much the price of Pet Food as a category in the Consumer Price Index (CPI) changed over time.  Notice the even during the recession the price of pet food increased dramatically.

The chart above does not say it adjusts for inflation.  So, it is possible (likely) that the quantity of pet food purchased DID actually decrease but the higher price for the smaller quantity makes it appear that the same amount of pet food was sold.  The numbers in the chart are nominal. To adjust for inflation to find the real value we would have to know the quantity of pet food.

I think it is safe to say that Americans bought less of BOTH goods during the recession.

Do I have it right???

Nice graphic showing all the items in the Consumer Price Index. Lots of numbers but I see something else...

Here is a graphic (Business Insider) that presents the latest Consumer Price Index (CPI) for November (2013) in a very helpful way. It orders the change in prices of the items in the "market basket" of goods and services the Bureau of Labor Statics tracks on a monthly basis from high to low.  There are 175 items listed below.  The numbers are small because they represent the percentage change from a year earlier (November 2012).

If you were to add up all the positive numbers that extend to the right and subtract all the negative numbers that extend to the left  you would come up with a year over year percentage change of 1.2%.

Relatively low inflation, indeed.

Observation:  What you see is a bunch of numbers.  What I see is globalization.  Compare the change in prices of the top and bottom 10 items. The goods and services at the top of the list are considered "Non-Tradable" items. They are produced domestically and are virtually impossible to "off- shore". They are not so much subject to global competitive price pressure. These prices tend to increase consistently.

The goods at the bottom are "Tradable" and subject to the competitive price pressure of being produced off-shore.  These prices tend to decrease, or at least remain stable, over time.

Source Business Insider (go here for larger image)

A scene from "Wolf of Wall Street" plays out in real life (sort of). See the daily chart of the penny stock that went through the roof because of mistaken identity.

Opps! Here is a nice example of "Animal Spirits" on steroids.

Google recently announced it was going to purchase a company called Nest,  that makes high tech thermostats and fire equipment, for $3.2 billion dollars

However, it looks like the biggest (in the short term anyway) beneficiary is a company called NESTOR that is traded in the stock market under the tracking name "NEST".  See the confusion?  However, Nestor makes and sells traffic control equipment to cities.

Prior to Google's purchase NEST was traded on the stock market for, get this, $.0020 cents PER SHARE. Yes you read that right.

Below is a screen shot of the stock from Yahoo Finance I took a few minutes ago.  You can see the price is invisible until yesterday afternoon.  It had a meteoric ride up to $.10 cents.

So, if you bought $1,000 dollars of NEST at $.0020 per share you would own 500,000 shares.  If you were able to sell at the high point you would have ($.10 X 500,000 shares) $50,000.

That is quite a rate of return.

Note: you can see the price I snapped on is $.0021 (in blue near the time and date).  I could not get the cursor to settle on the low point of $.0020)

How to smartly use the Community College system to reduce the cost of getting a 4 year degree. It is important to choose your classes wisely

Unless you are rich, a star athlete, or your parents were able to fund a 529 educational savings plan, then you are going to be concerned about paying for college.  There are several well established ways to help reduce the cost of going to college, but I would like to discuss one, Community College, that is often recommended but the improper use of them could pose problems for students as they move to their chosen university.

All classes are not created equal.  While there are absolutely some exceptions, core subject classes at 4 year universities are more rigorous than the equivalent class at a Community College.  I know, that is not polite to say, but it is important to acknowledge so correct decisions can be made.

Here is what I suggest to students to economize on the cost of college by taking advantage of the Community College system.  Take the core classes at a local Community College that DO NOT directly pertain to your prospective major. For instance, if you are going to be a math major do not take math classes at a Community College.  Instead take the English, Social Studies or Theater classes that are required of you even if you are a math major.  Take ALL your math classes when you get to your chosen university because, for the most part, they are going to be classes that build upon themselves as you move through the universities math department.  I believe this will ease the transition to the upper level junior and senior level classes.  Not having establishing that solid base by taking the introductory core classes within your major’s department will put you at a disadvantage.

Bottom-line:  Save money by taking classes at a Community College that are not within your chosen major.  Resist the temptation to do otherwise.  I hope you will be thankful for this advice because (1) you reduced the cost of college for yourself and (2) you excelled in your major because you took the right classes at the right time.

Having fun with the Consumer Price Index. Can you spot the goods produced domestically? Internationally? Good times!

Economist Tim Taylor posted this chart on his blog.  It shows how prices, as calculated by the Bureau of Labor Statistics (BLS) through the compilation of the Consumer Price Index (CPI), have changed over time

The BLS calculates the CPI by surveying a "basket of goods and services" that a typical consumer might purchase on a daily, weekly, monthly or yearly basis.  They then determine a Price Index that results in number in base 100 form. The base year CPI is always 100. If in a subsequent period the Index is different from the base year Index then we can say the price level has increased or decreased.  This gives us some measure of inflation or deflation in the economy.

Currently the BLS uses the time period of 1982 to 1984 as the base year for the index for most of the goods and services in "the basket".

So, using 100 as our base we can see how the prices of various goods and services have change over time.

For instance, the category of "College Tuition and Fees"  has a current price index of 706.  This means that it is 606 index points higher than it was in its base year of 100.  We can infer from this that the price of college and it various fees has increased by 606% since the 1982-84 time period.


Every Index number you see that is OVER 100 means the prices of those things have increased over time. Every one under 100 means the prices of those things have DECREASED over time.  To find the percentage change just take the Index number you see in the chart and subtract 100.

Observation:  There are many things going on here and Professor Taylor writes of several.  I would like to add one more that he did not.  Look at the items at the bottom of the list.  Notice Toys and Televisions have actually DECREASED in price A LOT.  Durable Goods (cars, wash machines, etc) and Apparel have increase only marginally since 1982-84.  I see the effect of globalization on the bottom few categories. Production of those items have increasingly moved to low(er) cost production countries.  The categories as you move to the top are goods or services that are not easily, if at all, mobile in terms of where they can be produced.

Here is the link to the most current Consumer Price Index.  Go to it and see if there are other goods or services that conform to my observation (or not).  Really, go do it. IT IS FUN!!

Understanding the difference between credit and debt. One makes us happy and the other doesn't, right? Why are we so dumb when it comes to this distinction? Find out here!

My cyber friend over at The New Arthurian has a posting (HERE) I think is very important for students and young adults. It will make your financial life much better if you understand the distinction between "Credit" and "Debt".

No debt produces anything. New uses of credit can sometimes be for productive purposes. But after that money is spent, nothing remains but the evidence that it was credit we were spending: Nothing remains but the debt.  

Debt is evidence of credit use. Debt is the cost associated with credit use. 

Borrow a dollar today, spend it today, and boost the economy today. Tomorrow, nothing remains but a dollar of debt, the cost of interest on that debt, and the cost of repayment. These costs do not boost the economy. Just the opposite, in fact. This is true no matter who borrowed the money. It is true, no matter what the money was used for. 

In the short term your income is fixed.  After you pay taxes what you have left over is termed your "disposable income".  All of that disposable income will go towards meeting "needs" and "wants".

Going outside of our disposable income to buy something with credit to meet a need and/or want leads to a debt that requires us to pay, not only the amount we borrowed, but the interest for the privilege of having that credit extended to us. That principal and interest did not exist to us before.

It WILL exist going forward and BOTH will have to be paid for out of your fixed disposable income.

When you pay interest on a debt it means an amount of money comes out of your disposable income that you COULD HAVE used to buy something else.  But you can't. Probably not for a long time. You committed future earnings to pay for this past purchase when you accepted the credit. I repeat: a part of every paycheck going forward is committed to a past purchase.

The original amount you borrowed PLUS the interest payment is the present opportunity cost of using credit.  It prevents you from new consumption this month, next month, next year...

Better be happy with what you bought on credit.

Here is the litmus test:  Does what you bought in the past on credit bring you the same satisfaction TODAY as what you could purchase with that principal and interest tomorrow?

Perhaps that is a false choice.  However, when I think about it in these terms AT LEAST it makes me pause and consider if that purchase is something I want to serve as a drag on my future consumption.

Hope this helps you make better financial decisions!

NOW I know why trucks and SUV's are Top Sellers in the US. It is tax rather than a "Bubba" factor. And Bubba knows taxes...

Once in a while I will post the monthly and/or yearly car and truck sales data as a point of interest in an economic activity, auto manufacturing that is important industry in the US. (See HERE and HERE)

Without fail trucks and SUV's have been the top sellers for quite sometime.  I think it you asked most people they would say passenger-type cars (2 door and/or 4 door) were by far the best-sellers.

We underestimate the value of trucks/SUV's as a family vehicle AND one used for business purposes. From personal observation, I believe the two are mixed quite often and the US government through the tax code is very helpful in this regard.

I came across this link from an accountant informing clients of the advantageous tax benefit from the purchase of an truck/SUV for businesses purposes (link courtesy of Economix).  The accountant gives a nice example of how this works to the vehicle owners advantage:

"...For example, if you bought a new SUV over the 6,000 pound limit for $70,000 and use it 100% for business, you would be able to expense the $25,000 immediately under “section 179” and $22,500 immediately under the 50% bonus depreciation rules. The remaining adjusted basis of $22,500 is then eligible in 2013 for a depreciation deduction of $4,500. This brings your total 2013 deduction on a $70,000 purchase to $52,000..."

So, the owner the vehicle will be able to reduce their taxable income by $52,000 in the year they purchase the vehicle.  If they were in the 25% tax bracket (could be a lower or higher bracket) that means their income tax bill will be reduced by $13,000.  

This particular tax "break", created by the political system and administered through the tax code, has two goals.  One, it lowers the cost of purchasing a work vehicle that allows a business to presumably be more productive.  Two, it helps the auto manufacturers (and dealers) to produced and sell more trucks and SUV's.

This is a tax break that has been subject to lots of abuse.  A person who buys a truck/SUV and uses it for at least 50% of the time for business purposes is eligible for a tax deduction as well (around $11,500).  Go HERE for a simple explanation of how this works.

That would amount to several thousand dollars in income tax savings for someone who can justify using the vehicle 51% of the time for a business purpose.  The other 49% can be for personal use.

Remember that the next time you see a work truck/SUV (blue collar OR white collar) parked at the ball field or some place other than a work site and used for personal reasons.  

I am not judging this (or am I?). Only suggesting this COULD BE a contributing reason trucks and SUV's are top sellers.

Made you look. Made another chart showing the change in the number of people claiming disability benefits. Now, this one REALLY perplexes me...

This is a follow up to my last post showing the change in Social Security claims by "Retired Persons" from 2005 to 2013 and how it impacts the labor force participation.  See that HERE.

Another variable that affect the participation rate is the number of people that exit the labor force via disability. Using the data base from the Social Security Administration (HERE) I charted the quarterly claims for disability benefits from January 2005 to December 2013.

The RED BARS represent the 1st quarter of each year. The YELLOW area represents the official time span of "The Great Recession".

Observations:

(1)  The large spike in disability claims in the midst of the recession was not unusual.  You can see similar one time increases took place in prior years when the economy was doing well.

(2) Post official recession (after June 2009) there was a consistent average quarterly increase up to the 1st quarter of 2012.

(3) After the 1st quarter of 2012 up to December 2013 the average decrease significantly.

(4) If you look at the averages pre-recession and post official recession you will see they are similar, 74,020 versus 74,020.  There was approx a 12% increase in average quarterly claims during the official recession.

There are STILL more people exiting the labor force than we can account for with disability claims and workers retiring.

The puzzle remains.  Where are those 100's of thousand ADDITIONAL people?

Looky here at the chart I made. Might help in understanding the role of retirements in the changing nature of the US labor force. Must know the problem before we can address it...

One of the major contributors to the declining labor force participation rate in the US is the aging of the Baby Boom Generation.

Using the database from the Social Security Administration I put together this chart which shows, by quarter from 2005 to 2013, the number of people claiming Social Benefits for retirement.  There are several categories for which people can claim SS benefits but I just used "Retired Workers" for this chart.  The assumption is these are people exiting the labor force, whether they were employed or not.

A couple of observations.

(1) the RED bars are all the first quarter of the respective year (January to March).  Notice the surge EVERY 1st quarter of the year to claim benefits. In general the low quarter is the 4th quarter (October to December) of the year.

(2) The 1st quarter of 2009 seems to be a major inflection point (the HIGHEST bar).  Retirements surged that quarter and stayed elevated on average thereafter. I inserted a horizontal GREEN bar to show the quarterly average BEFORE 2009 (145,000) and AFTER (280,294).  That is a significant difference of 135,294 per quarter in new retirements (a 93% increase!).

This is not the whole story of the decrease in the Labor Force Participation, but as you can see it is not small part.

I hope this helps you in visualizing this important issue. If we don't know the facts, then we cannot address the issue with good policy.

Are people exiting the Labor Force because they are giving up looking for work or because they are retiring?

One of the variables cited as the reason participation in the labor force has been contracting is "Demographic".  Specifically, baby boomers are retiring and exiting the labor force. No doubt this is happening.

With the latest report (Dec 2013) the Labor Force Participation Rate (LFPR) did take a significant plunge.  This helps to artificially decrease the Official Unemployment Rate.  Even though an inadequate number of new jobs were created, the unemployment rate decreased, mostly because of the decline in the LFPR.

Ok, fine.  I get it.  I am sure we will hear in the coming days one of the major reasons is as I stated above.

The Social Security Administration keeps VERY current data on claims for benefits. So, I went there.

Below is a snapshot, by month for 2013, of the number of people classified as "Retired Worker" who claimed benefits.  In YELLOW I highlighted the last few months.  In RED I calculated the change in claimants from month to month.

Notice the numbers actually DECREASE starting in August 2013.  Surprised?  I am, quite frankly.

Not sure how this contributes to the debate BUT, well, it somewhat calls into question the emphasis the exiting of "the olds" have on the Labor Force Participation Rate.

What do you think???

Your first look at the latest JOBS REPORT and where the jobs were created (or not). This was NOT a good month for employment!

The latest jobs report for December 2013 is out and it is not good by any measure.  My very informal survey of various economics blogs (Left and Right) had guesstimates of between 175,000 to 235,000 new jobs projected. The official measure from the Bureau of Labor Statistics as a net 74,000.

Here is the section of the report that shows the major sectors of the economy and the number of jobs businesses have reported to have created in December. There is also the prior two months AND the jobs created one year prior.  This helps give perspective to the current number.

I highlighted in RED the areas where there was significant job LOSS(!) and in YELLOW the areas of significant job gains. In BLUE is "Health care and social services". This one is unusual because in prior periods this category of employment has been most always positive. For it to turn negative is unusual.

The increase in Retail jobs is not unexpected. What is worrying is that the 55,000 new jobs in this sector are relatively low-paying jobs.  The same can be said, for the most part, of the 40,000 in "Temporary Helps Services".

These jobs are certainly good for the people who got them.  However, no one can claim the quality of these jobs are ones that are going to significantly boost the economy.  Certainly they are not going to address the issue of inequality.

 Significant shrinkages in Construction, Information and Government were a drag on employment market.

One notable area was the very small decrease in "Healthcare and social services" (In BLUE).  This area of employment has been the workhorse for job creation for many years.  Seldom does it go negative!

January has to be better...RIGHT???

What motivates you more to do something that produces a predetermined desired outcome---The threat of losing $10 or the enjoyment of gaining $10? See here why the answer is not so easy...

IF the private or public sector is going to design policies that will elicit a specific response from consumers (or citizens) then sometimes they have to go against conventional thinking.

One such example comes from a new study (GO HERE FOR THE STUDY) on consumer behavior in regards to the use of plastic or reusable bags for buying groceries.  Stores are trying to GO GREEN and reduce the use of plastic bags for environmental reasons.

There are 2 real life options the study looked at from grocery stores in the Washington D.C and Montgomery County (VA) area: (1) a 5 cent TAX on the use of each plastic bag OR a (2) a 5 cent CREDIT (or Bonus) from the store for each reusable bag the shopper brings and uses for their groceries.

Keep this in mind when you read the following from the WSJ: With the per bag TAX the consumer is GIVING UP 5 cents when they use a plastic bag.  With the CREDIT/BONUS they are GETTING 5 cents (or reducing the total of the grocery bill) when they bring their own reusable bag.  In other words, in one instance you PAY the tax and the other they pay YOU to bring a reusable bag.

"...Observing 16,251 shoppers at 16 grocery stores in Washington, D.C., neighboring Montgomery County, Md., and northern Virginia and data from grocery store scanners, she found that a 5-cent tax on disposable bags substantially decreased disposable bag use while a 5-cent bonus for using a reusable bag did not. 

Before the tax, several stores offered a 5-cent bonus to shoppers who brought their own bags. In stores that offered no incentive, 84% of shoppers took at least one throwaway bag per shopping trip; in stores that offered the nickel lure, 82% did. 

In contrast, some 82% of Montgomery County shoppers used at least one disposable bag per shopping trip before the bag tax was imposed; 40% did afterward...."

So, the possibility of losing 5 cents with a tax had a stronger effect on consumer behavior than the prospect of gaining 5 cents with the credit/bonus.  So much for the "a little sugar goes a long way" method of persuasion.

The study notes that this is an established and observe behavior called "Loss Aversion".  

"In economics and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains." 

The study includes this bit of advice for private and public policy makers by using a couple of examples where they can "motivate" consumers to produce the desired outcome:

"These findings suggests the importance of accounting for behavioral insights when designing a wide variety of environmental incentives. 

For example, Starbucks Coffee rewards customers who bring their own coffee mugs with a ten-cent discount. My results suggest that this policy might be more effective if Starbucks instead reduced the price of coffee by ten cents, but charged for using a paper cup. 

Similarly, the federal government awards a tax credit to customers who purchase environmentally-friendly Energy Star products. This policy might increase consumption of these products if they were taxed for purchasing energy-inefficient products."

Sometimes the counter-intuitive is the most effective, but hardest to implement because, well, it is counter-intuitive.  

Guess that is why I LOVE reading stuff like this! :)