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...

Purchasing power of money and McDonalds. Let's go back to the Disco Era

This menu board I posted yesterday gives me food for thought (pardon the pun).  It makes it easy to compare the purchasing power of wages in different time periods if you have actual prices people paid for things at the time.

Using these prices I can quickly show the purchasing power of the dollars in (1) the prevailing minimum wage and the average wage paid to workers (that data can be found HERE at the St Louis Fed Reserve)

In 1974 the minimum wage was $1.60 per hour (from HERE).  The cost in nominal (current) dollars to purchase a Big Mac, Large Fry and a Large Soft Drink in 1974 was $1.31 ($.65+$.46+$.20 from prices below).

It would take a minimum wage worker earning $1.60 per hour (NOT subtracting payroll taxes) 49 minutes to earn enough to purchase the meal.

Today a Big Mac Combo Meal costs $5.69 (Price HERE). At worker earning $7.25 would have to work 47 minutes to get the meal deal.

The average wage for a "production worker and non-supervisory" job in 1974 was $4.45. It would have taken this person 17 minutes to purchase the $1.31 meal.

In 2014 the average wage for the same class of worker was $20.49. It would have taken this person 17 minutes (16.8 actually) to purchase the combo at $5.69.

By EITHER measure the purchasing power of the minimum wage AND the average worker wage are about the same, 40 years apart.

So, the conclusion? No great shakes, but by this measure the purchasing power of wages, minimum and average, have not lost ground BUT it have not gained either.

What is that saying about Kissing Your Sister?

McDonalds menu board from 1974. Nice lesson on prices and selection change over time.

I saw this photo of an aged McDonald's menu on Twitter.  I spent about 2 minutes trying to confirm and the best I can find it is from 1974.

According the Bureau of Labors Statistics inflation calculator, $1.00 in 1974 is equivalent to $4.79 in today's dollars.  So, multiply the numbers you see below by 4.79 and you will get those prices in today's money.

For instance, a $.65 Big Mac would be $3.11 today.

Using pricing information HERE, a Big Mac today is priced at $3.99 (not as part of a combo meal). This means the price of the Big Mac has increased 28% over the general rate of inflation for the past 40 years.

A fun-ish class excercise could be to do like I just did above and look at how, after adjusting for inflation, prices have changed over time.

Questions to ask would be how has portion size changed?  Quality and composition of the food? Competition in the marketplace?




Here is a recent one. Big difference, eh?  The simple life no more.

Short currency exchange rate lesson: Kia Motors and the Won

The trading of  goods and/or services internationally requires the exchanging of currencies to facilitate those transactions.  Consumers and producers are at the mercy of the prevailing exchange rates their currency has relative to another currency.

Any change in that exchange rate can have an impact on trade and the profits realized from that trade:

Kia Motor Profit Rises on High-End Sales Despite Challenge of Strong Won

Exports of Kia's key models, including the Sportage sport-utility vehicle and the Soul wagon, rose 13% in the first quarter from a year earlier, contributing to a 7% increase in average export prices for the period, the company said. 

Still, the company warned that the appreciating won could hurt earnings in the coming quarters. 

"The won is maintaining its upward trend, while competition is intensifying with aggressive marketing activities by rival auto makers and a series of new launches," said Kia Chief Financial Officer Park Han-woo. 

The won in 2013 reversed several years of weakness and has been on a steady rise against major currencies. It gained 1.5% against the U.S. dollar in the first quarter from a year earlier, and recently traded near a six-year high.

Korean Won is trading at 1030.14 Won (W) per US Dollar today.  This means the holder of $1.00 US who wishes to exchange it into Korean Won would receive 1030.14(W) for it.

If tomorrow $1.00 purchases 1020.14(W) then the purchasing power of the dollar has decreased ( I can buy 10 FEWER Won today than I could yesterday). This means that items in Korea price in Won will become MORE expensive for me to purchase--I have to now give up more than $1.00 to buy the same amount of Won as I purchased yesterday. With rounding that would be $1.01 US. It is only a penny but with BIG money a 1% difference adds up.

It can be said the Dollar has DEPRECIATED in value and the Won has APPRECIATED in value.

Kia can be hurt in 2 ways with an Appreciating currency.

(1) it makes a Kia produced in Korea MORE expensive for holders of dollars to purchase, as in the example above.  NOTHING regarding the vehicle made it more expensive ONLY the change in exchange rates between the two currencies did so.

Using the 1% example above, a Kia priced at $30,000 US would now cost $30,300 US ($30,000 X $1.01).

(2) any profits Kia earns in US dollars will now buy FEWER Won than it did before the Depreciation of the US dollar, so in profits in Won will be less than they other would have been.

Using the 1% again, profits of, say, $500 million dollars would be effectively reduced to $490.128 million ($1.00/1020.14 X $500M).

Bottom line: Exchange rates are another thing businesses have to account for in the course of doing trade across borders.

PPF illustration with maps of Corn and Soybean acreage. Nice real life example.

In the first week of an introductory Economics students encounter the Production Possibilities Frontier (PPF) as the first formal model used in both Micro and Macroeconomics.

The PPF illustrates the productive capacity of an economy if it were fully-employing all of its useful resources (Land, Labor, Capital, Entrepreneurship). The model is flexible and can be used in a Macro sense comparing the production of the broad categories of Capital and Consumer Goods or in a Micro sense comparing the production of two specific goods such as Corn and Soybeans.

If the economy is producing ON (does not matter where) the PPF it is achieving "Productive Efficiency". This means it is fully utilizing its productive resources in the the most efficient and lowest cost way.

WHERE on the PPF, or the particular bundle of the two goods, the economy produces is called "Allocative Efficiency".  That bundle a society produces and consumes is determined by the economic system (market vs socialist vs command) or some combination thereof.  In the US, the price mechanism and/or government policy determines the Allocatively Efficient bundle of goods in the market place.

Nowhere is this more evident than in Agriculture.

Let's look at the two-good model---Corn and Soybeans.

Both require roughly the same climate, terrain and soil to grow.  The Opportunity Cost of switching from growing one to the other is minimal--an acre of land for growing corn will produce a maximum yield in either corn or soybeans.

So, our PFF for Corn and Soybeans, shown below, illustrating the trade-off between growing one or the other would be a straight line representing "constant opportunity costs".  Assume our initial equilibrium point in the year 2001 was at combination of Corn and Soybean planted and harvested acreage---Point "A".

However, in the mid-2000's due to a policy change we had a relatively massive "Allocative Efficiency" change and a re-allocation of land resource from the production of Soybeans to Corn--Point "A" to Point "B".  How do I know this?

See the map below.  The RED areas on the map on the left show the DECREASE in acreage planted for Soybeans and the BLUE areas on the right map show the INCREASE in acreage planted to Corn.

Matches up pretty well, wouldn't you say?

Source:  From USDA Atlas Maps

What was the major the policy change that prompted this reallocation?  I will just leave you with a picture to ponder that one...

My Informal Lime Report Update: A price increase!! According to reports, this should NOT be happening...

I have been chronicling the price of Limes at my neighborhood Kroger (Northern Burbs of Columbus OH) for the past month or so. 

Today (May 3rd) they are $1.59 each.  Just last week they were $1.49.  This article HERE suggests that the price is about to pop and decrease in time for Cinco de Mayo.  Apparently the supply chain has been replenished enough for supply to align more closely with demand.

""This week's sharp move lower comes amid increased supply from Mexico, where the majority of fruit consumed in the U.S. originates, experts said. Falling demand has also contributed to the recent easing.""

This may be a nice illustration of prices being flexible upward but "sticky"on the way down.  Retailers may be capturing some lost profit as they lagged in raising prices in fear of alienating customers.

The supply certainly was adequate at this store on a Saturday afternoon.   :)

Nice graph showing Median Age of workers and an aging population. Is there something to see here?

Via Twitter and Micheal McDonough.

"Median" age means half of workers are older than 42.40 years of age and half are under (read that on the RIGHT SCALE).

The percent of the population that is over 65 is 14.2% (LEFT SCALE).

Both these numbers are all time highs, as you can see.

During the late 50's and part of the 60's we had a high in median age just a year or so below the current one but the percent of the population over 65 was significantly less (assumption--the graph does not show it).

So, we have an increasingly aging workforce taking care (in terms of entitlements) of an increasingly aging population.

Not sure my back can take it and my feet really hurt.  Hope we start trending young again sometime soon.

Source: Twitter via Michael McDonough