Friday, September 26, 2014

See the amount of Federal Tax Refunds issued for the day and tell me this is not inefficient

Below is a small section of the US Treasury's daily report on various metrics.  It is a short document and has some pretty interesting numbers as they pertain to the operations of the Federal Government.  I urge you to check it out.

I was lead to it from this Wall Street Journal blog entry.

This section made me pause.  It shows on a daily, monthly and yearly basis the amount of refunds the Federal Govt sends back to businesses and individuals. Presumably this is because after filing tax forms these entities proved to the government they over-paid throughout the year in tax withholding.

You can see the numbers below.

Tax refunds issued for the day were $397 million; for the month-to-date is $5.474 billion; and for the year-to-date is $361.193 billion.

It is nice to get these checks, but wouldn't it be more efficient to not go in such a roundabout way to keep the money flowing in the first place?  Seems like a significant amount of Dead Weight Loss is created--all it is doing is moving money in a circle and creating significant transaction costs, i.e. time, tax preparation, bureaucracy to handle it, etc, ad nauseam.

A Consumption tax? A Flat Tax?  A Something Else Tax?  Just explicitly pay what you owe, no more and no less.

Maybe I am just having a bad day... :)

From US Teasury Daily Report.

Thursday, September 25, 2014

Price of iPhones, in select countries, converted into US dollars. Is arbitrage the reason for long lines?

I found the prices of the new iPhone6 in various countries at this link HERE.  They have the prices for the "regular" one and the "Plus".

The conversion I do below is just for the "regular" iPhone With NO CONTRACT.

In the first column are the prices in local currency for the respective country.

The second column I calculated how much the holders of those currencies would have to exchange in order to buy the iPhone in the US instead.

The third column shows the difference in local currency between what it would cost residents to buy an iPhone in their own country at the local price vs how much they would have to convert to buy it in the US in US dollars.

For example, in the UK a 16GB phone is  £539.  In the US it is $649.  At today's exchange rate of 1 pound sterling exchanges for $1.633384 dollars, a Brit would need exactly £397.22 to buy the phone in the US.  That is a SAVINGS of £141.78 for them over the UK retail price!

In US dollars that is $231.58 ( £141.78 X $1.633384). A lot, isn't it?  Seems like a GREAT opportunity for "Arbitrage".  Buy low at retail in the US and still sell below the retail price in the UK and make some money, right?


Included in the price quoted above for the UK (and I believe for the other countries listed) is a thing called the Value Added Tax or "VAT.

Here is the breakdown for the UK (found HERE)

16GB - £539 (£449.17 ex VAT)
64GB - £619 (£515.83 ex VAT)
128GB - £699 (£582.50 ex VAT)

So the ACTUAL prices of the phones, minus the VAT, are in parenthesis.  If you take these numbers and subtract  the 2nd column numbers it will show a much lower difference, hence a smaller arbitrage opportunity. It almost disappears if you were to add on the Sales Tax to the US prices listed.

It seems to only way to make money buying in the US and selling in the UK (and the other countries listed EXCEPT Japan) is to trade on the Black Market to avoid the steep VAT taxes.

I am sure that is not the reason for the long lines in the US and people buying multiple phones....RIGHT?

Corn prices down. My graphs showing how this affects the farmer (AP Micro)

A current event gives me an opportunity to create a series of graphs to illustrate what happens to "Economic Profits"in a market that is considered "Perfectly Competitive" when there is a price decrease AND the cost structure remains relatively constant.
Ohio corn farmers might be producing more crops, but the boom in supply and higher expenses are driving down profits this year. 
Most farmers are reporting they are producing more bushels this year, but the price they're able to get for the commodity has been roughly cut in half compared to last year. 
Western Ohio farmer Tom Tullis said he regularly saw corn prices as high as $6.50 or $7 per bushel as late as last year. But prices this year have been closer to $3. At the same time, operating costs such as machinery and fertilizer have remained high. (Note: I read that "constant")
"It's about half price or below what it was last year," Tullis told the Dayton Daily News (http://bit.ly/1uwu8jN ). "And our inputs are staying pretty much in the same place as far as fertilizer, chemicals and everything else. It's going to be a tough one." 
Most farmers will have enough assets to withstand a tough year or two, said Matt Roberts, an agricultural economist for Ohio State University Extension. The majority of farmers across the state will likely break even this year, Roberts said, although there will be some who lose money."
In the graphs below, I use $7.00 as last years price and $3.50 as this years price.  I use $3.50 as the Average Total Cost (ATC) of producing because it is suggested in the article that farmers are either making a small profit at that level or might even be losing money at that cost. In other words, it is the rough "break-even" point.











Wednesday, September 17, 2014

How much is "50 Cent" the rapper worth in Foreign Currencies? Economics is FUN!

On David Wessel's Twitter feed he retweeted this:


I thought it funny as well.

Using my meager Excel skills, I cobbled together the latest exchange rates from the Wall Street Journal (Sept 17th, 2014).

In order to give it a little more perspective, I determined what it would take in US currency for 50 Cent the rapper to be the equivalent of 50% (half) of the foreign currency.  Sometimes he needs to be a little more but for the most part he can be a less than himself.

Example: Look at the BLUE column for and the first entry for the Kuwaiti Dinar.



It shows that 50 Cent would actually have to be "174 Cent" ($1.74) in order to exchange for half a Kuwaiti Dinar.  I got $1.74 by dividing the "US Dollar per Foreign Currency" (3rd column--the actual exchange rate) by $.50 cents.  In other words "If it takes $3.49 to "buy" one Kuwaiti Dinar then it will take $1.74 (rounded) to buy half a Kuwaiti Dinar".

From the Kuwaiti Dinar on down the list, 50 Cent would have to be MORE than himself to be the equivalent in the particular foreign currency...until you get to Ecuador.  Ecuador uses the dollar so 50 Cent would be $.50 in Ecuador.

In any country below Ecuador, 50 Cent can be LESS than himself and still have some left over!

For example, in Canada he would only have to be 46 Cent (rounded) and enjoy a 4 Cent surplus. :)

NOTE: To find the calculation consistent with what is highlighted in the newspaper clipping, take the RECIPROCAL of the numbers you see in the RIGHT hand column below.

Basic Supply and Demand illustration. Hope it helps.

The corn crop for this year (2014) is scheduled to be the most productive ever, with per acre yields in the 162 bushel range (a bushel is 70 pounds for Corn).

For farmers this is a blessing and a curse at the same time. For the individual farmer a bumper crop is good--more corn to sell at the anticipated market price.  However, if ALL farmers experience a bumper crop then that will increase the supply of corn and lower the expect price of corn (per bushel).  It is a catch 22 situation:

Farmers worry good corn crop could mean low prices

"Agricultural officials are projecting an 11 percent increase in the size of Wisconsin's corn harvest this year, a prediction that has farmers worried prices will drop too low for them to make a profit.
State projections call for corn yields of 162 bushels per acre, an increase of 16 bushels per acre from last year....
Richard Halopka, an agriculture agent in Clark County, noted that if prices are too low, farmers don't have to sell right away.
"One unique thing in this county is that we do have a fair amount of storage locally, which could get stretched if we have a bumper crop," he said....
I put together some slides to illustrate this excerpt from the article.  

If you are teaching or learning the basics of Supply and Demand you may find it useful. 

Distinguishing the difference between a change is Supply vs a change in Quantity Supplied (the same for Demand) is one of the most diffcult things to intuitively understand in an economics principles class. I hope it helps.










Monday, September 15, 2014

Literally and figuratively the butter spread is getting wider. See how that affects trade flows.

The price of butter has surged in recent days as well as recent months. Here is a graph I created showing the price of butter in the US and in world markets.  The prices are per pound based on a  metric ton (2204.62 lbs) so this is the price at production for wholesale sale, NOT RETAIL (the price you see at the store).

The world prices since 2/19/2013 are in RED and the US price is in BLUE.

Notice, of the most part, world prices are consisently above the US price but a crossover occurs between March 19th and April 19 of 2014.  Then there is a significant diverence where the US price quickly outpaces the world price.

As of today (9/15/2015) the US price is at $3.00 lbs and the world price is about $1.25 (Source) so on the graph the RED world price line end point is the same but the US red line extends up to the $3.00 mark.  The spread is even wider than what appears on the graph!

Source: Haywardeconblog. Using historical data from HERE and HERE
This gives me an opportunity to do a lesson on international trade to show what happens in markets when the world price of a good is differnt from the domestic price and how trade flows might be affected.








"Mainstream media" article that extensively uses elasticity to describe a market. What a pleasant surprise!

A terrific article that explains the current market for corn using many micro and a few macroeconomic concepts.

Bumper crop is bummer for some (Edward Lotterman)


The main ones are  Elasticity of Demand and of Supply. Rare it is to find an article in mainstream media that uses correct terminology to describe economic events.  Warms my heart!

Check it out.  Offers MANY opportunities to practice drawing and analyzing basic supple and demand graphs.

Here is a quick "sketch" of what it looks like after all is said and done:


Saturday, September 13, 2014

"5 Tips for Investing" and a piece of advice on one of them from someone who has been there.

USA Today has very short article "5 Tips for College Students Interested in Investing".  They may seem superficial but there are heavy truths between the lines of all the suggestions.

The one I had the most trouble with when I was much younger was the dreaded Credit Card. They are SOOO seductive!
(1) The principal (what you actually paid for an item) and interest you pay on a credit card purchase, for something you probably do not have anymore, is a thief that steals (or limits) your present and future consumption possibilities. 
(2) Unless the benefit (objectively defined!) you receive on an on-going basis from the principal and interest you pay on a prior purchase MEETS OR EXCEEEDS the cost of that principal and interest, you should not buy that item today.
Number 1 is pretty close to an absolute truth, in my opinion. Number 2 is a more subjective and I am a little more queasy about because it does offer you some wriggle room for justifying a credit card purchase.

But I am not your mother!

If you can at least give your self pause and consider the above two pieces of advice when you are pulling out that card from your wallet, it might be just enough time to reconsider what you are about to do.

Wish someone had done this for me a long time ago!  :)

Thursday, September 11, 2014

How to read a "Cross Currency Rate" chart for the lesson on Foreign Exchange Rates.

One way students might encounter an exchange rate chart is in the from of "Cross Currency Rates"

It is in table form and can be tricky to read if you are not careful.  I know I have made errors in trying to read one.

I put together a very short presentation that makes it clear.  Hope it helps.

Wednesday, September 10, 2014

The wage you are paid is not the total cost to employ you. See the numbers here.

One of the many reports the Department of Labor's Bureau of Labor Statistics (BLS) puts out is "Employer Costs for Employee Compensation". It offers a pretty detailed dollar and cents look at how much it costs to employ a worker.

Here is one part of the report for June 2014. I highlighted the "Service" sector because the pay range is where most young people will fall.  You can compare it to the other two broad sectors to see the differences.

The first number in  YELLOW is total compensation which is comprised of "Wage" and "Non-Wage" compensation--$16.70.  The Non-Wage money outlay for a business is the addtional costs (some elective and some mandatory) they incur to employ you--$4.82.  This is in GOLD along with the hourly wage you actually receive after the employer pays these to (1) you indirectly or (2) other entities (insurance companies, State and Local governments, etc).

After you recieve your $11.88 per hour worked you will be responsible for additional deductions from your wage, such as Social Security, Medicare and Federal Income Tax Witholding and any other benefits you may elect to take.  Take note that the employer ALSO matches the amount you pay into SS and Medicare!

This kinda gets lost in the debate over raising the minimum wage.  Many of these additional costs are percents of wages paid so an increase in the MW is not only going to affect the actual wage paid but the TOTAL cost of employing a worker.

Useful information, don't you think? :)



Need a primer on "Tax Inversions"? Link to a nice one here.

Confused by the issue of "Tax Inversions" as brought to prominence by the Burger King/Tim Horton's merger?

This document HERE from the Congressional Research Service (HT: The Conversable Economist) is the best explanation, without the politics/inflammatory language, as I have seen.  I thought I understood the issue but this relatively short read pointed out MANY things I did not know.  Worth a read if you are interested in the topic.

Here is an excerpt:
The United States uses a system that taxes both the worldwide income of U.S. corporations and the income of foreign firms earned within U.S. borders. All income earned within U.S. borders is taxed the same—in the year earned and at statutory tax rates up to 35%.  
U.S. corporate income earned outside the United States is also subject to U.S. taxation, though not necessarily in the year earned. This occurs because U.S. corporations can defer U.S. tax on active income earned abroad in foreign subsidiaries until it is paid, or repatriated, to the U.S. parent company as a dividend. To mitigate double taxation, tax due on repatriated income is reduced by the amount of foreign taxes already paid. 
The second paragraph is the important one to get a grasp of the issue.  The US (apparently) is the only country that taxes a company on its foreign profits in addition to the domestic profits.

Because BK is based in the US, profits from its restaurants in Boise AND Beijing (Paris, London, Mexico City, on and on...) are subject to the US Federal income tax.

Now that the corporate headquarters is officially in Canada, BK will only have to pay US Federal taxes on profits in Boise (meaning all its US operations).

Do you see the incentive?

Tuesday, September 9, 2014

Education Spending in the OECD countries. How does the US stack up against the rest?

This terrific interactive is from the OECD website, the statistic gathering arm of the European Union.

See how various countries stack up in terms of spending on the various levels of education--from Pre-K through College ("Tertiary").

The BLUE line is the OECD average among the countries you see listed below.

The other tabs along the top offer interesting information regarding educational attainment.  This resource can be used for all kinds of analysis students could do in small discusssion groups.



Monday, September 8, 2014

Reason Number Infinity as to why Walmart and Costco are NOT in the same business--New Tire Edition.

I need some new tires for my 2010 Toyota Camry.  Thought I would check Walmart and Costco websites to price compare. I kinda  knew what the result would be before I checked.

I clipped the first 3 tires offered by Costco and Walmart on their websites.

(1)  If I am upper income I have a choice as to where I go for my tires.

(2) If I am lower income I effectively do not have a choice--gotta go to Walmart (for the most part).

We can slice and dice the quality and warranty offerings among the selections but we cannot argue the affordability for this immediate consumer "need".

Four lowest priced tires at Costco sets me back $440.00.  At Walmart I dole out $332.00.

The difference is $108.00.  If I earn $9.00 per hour I have to work an ADDITIONAL 12 hours (more if I factored in taxes/deductions) to get the cash for 4 new tires at Costco.

See, not the same business---if you are relatively low income wage earner.

Wednesday, September 3, 2014

San Francisco, Urban Farming and Housing Costs---a lesson in Opportunity Costs.

Another adventure in Opportunity Costs.

How Urban Farming Is Making San Francisco's Housing Crisis Worse (The Atlantic)


The City of San Francisco just passed a law giving property owners a subsidy for the operation of an "urban farm".  It is an incentive based on a recently passed State law giving more secure property rights to folks starting an urban farm.

I have no problem with that.

However, in a city where there is much debate and near rioting over "affordable housing" (whatever that means in high rent San Francisco) that is located in a State where 80% of the countrys fruits and vegetables come from (HERE) it seems like the LEAST likely place to promote urban farming.

Read the article and pick out the many other Opportunity Costs that arise from this policy. Fun times!

Saturday, August 30, 2014

Discrimination is alive and well against fruits and veggies in the EU.

The European Union (EU) has strict standards (see HERE) when it comes to the sale of certain fruits and vegetables.

In order to be sold in markets they must meet not only quality specifications but "appearance" standards as well.  This results in LOTS of food waste because the "Ugly Fruit and Veggies" never make it to the selves.

This article is about a woman in Portugal who is taking on the problem of "Lookism" in produce section.

Portuguese Food Co-op Fights Back Against EU-Mandated Waste

Baylen Linnekin speaks with Maria Canelhas from Fruta Feia, which has saved literally tons of great food from the garbage.


Seems like this is a way to keep prices high as well.  There is plenty of ugly produce that is perfectly edible and meets all the standards for consumption.

Ugly Produce is a suitable substitute for "Beautiful Produce".  A face palm to the concept of Substitution Bias.

Guess this guy below would not be welcome at a super marche' in Paris.  Looks like he could whoop up on the other veggies in the bins.

I have had this for awhile. I lost track of the source
NOTE: I corrected several spelling errors. Note to self: Press.Spell.Check.  :)