Friday, August 22, 2014

The rise of the robots! In the movies the heroes usually win that battle. How will the Labor Markets fair?

A nice graphic from MIT Technology Review on the rise in the use of robotics in manufacturing versus the change in manufacturing employment.  It certainly is a mixed bag in terms of the relationship (as they note in the graphic).

There is no question that the two will be co-joined in the short and long(er) term as the workplace changes and labor adapts to new technology, and vice versa.

Thursday, August 21, 2014

Primer on how the Unemployment Rate is Calculated..

If you are a student or teacher of economics here is a terrific primer on how the Dept of Labor's Bureau of Labor Statistics collects information and calculates the Unemployment/Employment rate.

A great resource for your class.

HT: The Conversable Economist.

Economic vs Accounting Profit: Corn or Soybean? That is the question--answered here.

Using data from the US Dept of Agriculture Economic Research Service (USDA-ERS) I made the following two charts (I am in the infant stages of learning Excel, excuse the poor formatting!).

They show the "Accounting Profit"(RED) and "Economic Profit" (BLUE) for Corn and Soybeans in 2013. The distinction between the two is important in AP Microeconomics.

When tallying costs, accountants only care about explicit money costs paid for resources.  When calculating economic costs, economists include implicit Opportunity Costs in addition to money costs.

Economic costs are ALWAYS going to be more than accounting costs, hence economic profits are ALWAYS going to be less than accounting profits. Repeat that until it clicks!

As a recent transplant to the mid-West (Illinois, now Ohio) I have quickly learned that Corn and Soybean require very similar resources to grow---the Opportunity Cost of switching from one to the other is apparently quite low.

Simple observation:  Growing Corn in the "Northern Great Plains" does not seem like a good idea. Soybean returns a higher accounting and economic profit.  Growing Soybean in the "Heartland" seems like a GREAT idea--accounting AND economic profits are high.

Note this data are for 2013.  I drive around Central Ohio quite a bit.  I notice many more fields that had corn last year are now teeming with soybean. Why?

Economic theory (and apparently practice if I can believe my lying eyes!) suggests in a "perfectly competitive" market, the presence of economic profit(s) induces producers to enter that market.

Use these graphs as you wish.  Hope it helps with the concept.

Here are the agricultural regions (SOURCE USDA-ERS):

Wednesday, August 20, 2014

One Million Deaths caused by these 3 things we take for granted everyday.

Saw this link by way of Hans Rosling and this passage made me pause:

Burden of disease from inadequate water, sanitation and hygiene in low- and middle-income settings: a retrospective analysis of data from 145 countries

In 2012, 502 000 diarrhoea deaths were estimated to be caused by inadequate drinking water and 280 000 deaths by inadequate sanitation. The most likely estimate of disease burden from inadequate hand hygiene amounts to 297 000 deaths. In total, 842 000 diarrhoea deaths are estimated to be caused by this cluster of risk factors, which amounts to 1.5% of the total disease burden and 58% of diarrhoeal diseases. In children under 5 years old, 361 000 deaths could be prevented, representing 5.5% of deaths in that age group.
Those of us who live in developed countries do not give these things a second thought when we use them--except when they do not work on immediate demand.

Clean water, functioning indoor toilets and proper hand hygiene. Ordinary for us, extraordinary for many others.

Drink some water, flush your toilet and wash your hands---next time stop and celebrate it.  Pass it on! :)

Monday, August 18, 2014

Here is the BEST answer to every job interview question---Economist-style.

What happens when you ask someone with an excellent grasp of economics to be honest in a job interview (SMBC).  

Made me laugh.  Thought of something like this a couple of weeks ago in a job interview when asked "Why do you want to work for _____School District?"....Ummm, you have an opening and I need a job.  :)


Teaching (or learning) Interest Group Politics? You need this App!

Ran into this site, SpendConsciously ,while trolling the Internet.  If you are teaching (or learning) about interest group politics this site has a REALLY fun and interesting App. It is called "BuyPartisan".  I downloaded on my Smartphone for "free".

Using your phone you can scan the bar code on a product, and if they have the company in their database, it will return to you the proportion of dollars this company donates to the major political parties (and "others").

Spent some time doing this to items in my pantry.

I think it might slow down my shopping trips as I use this in stores. Knowledge is power, or so I have heard.

Saturday, August 16, 2014

Back to the Future: Russia threatens price controls in the face of Economic Sanctions. We know how this will work out.

Predictable consequences are playing out in the economic sanctions world---with more to come:.

Russians already hurt by Western food import ban

Russians are already paying a price — literally — for the ban on food imports from Europe and the United States that Russia imposed last week to retaliate for American and European economic sanctions.
Suppliers and consumers are facing shortages and price hikes on staples such as fish and fruit, as well as gourmet items such as Italian Parmesan and French Brie cheese.
Suppliers have raised prices for some fish by 20-36%, one of Russia's biggest retailers, X5 Retail Group, complained to Russia's government, the Kommersantbusiness daily reported on Wednesday. Suppliers reported shortages and higher prices for fruit, retailers braced for milk prices to go up, and some meat suppliers were engaging in price speculation, Kommersant reported.
Russia's Central Bank warned last week that the sanctions are likely to increase an already rising inflation rate. Even so, Russia's government has pledged that prices will not go up as a result of the import ban, promising that the Federal Anti-Monopoly Service will check reports of suppliers raising prices.
In the worst case, the government could resort to price controls, Kommersantreported.
Should Russia enforce price controls one unintended BUT predictable consequence would be the rise of Black Market activity.  Russians are used to this--they just need to brush off the rust from the old Communist days.

Below I explain the economic theory/rationale behind the rise of Black Market activity in face of Government policy to control prices.  Let me know what you think. Thanks.

Friday, August 15, 2014

George Soros is "short selling" the US market. A quick Lesson on "Short Selling"

There is an article in Business Insider today on Billionaire George Soros and how he is "short selling" a collection of stocks in the US market.

Most people buy stock in a company with the expectation the price will increase, or appreciate, in value. This is called "going long" on a stock.  Buy Low, Sell High.

However, there is a stock trading technique call "going SHORT" on a stock. Also known as "Short Selling". This means you anticipate the price of the stock will go DOWN.  Buy High, Sell Low. The defintion of "Buy" in short selling is misleading at best.  But it is a way of making money when the price of a stock goes down.

Go here for a more technical explanation of Short Selling.  Below I give a most elementary, non-technical explanation of how this works.  If you are not familar with the trading technique it might help you when you start looking into the complexities of short selling.  Gotta walk before you can run!

Short Selling a stock:
I borrow 100 shares of stock you own in "XYZ Inc". Right now those shares are worth $10.00 each.  Let's say I pay you $50.00 up front as a fee to do so AND I PROMISE to return those shares to you whenever you want them back. 
I take those shares and immediately turn around and sell them. I now have $1,000 in my bank account. 
Let's say the stock price goes down to $5.00. You freak out and want your shares back so you can sell them and take your losses. You come to me and demand your 100 shares back. 
Well, I do not have them anymore!  So, I have to go out and buy 100 shares at $5.00 per share. I am sure there will be plenty of sellers as the stock price decreases.  I need $500.00 to do so. Remember, I have $1,000 in my account for the original sale at $10.00 per share. 
I write a check out of this account for $500.00 to buy 100 shares. I still have $500.00 remaining in my account.  MAGIC!!! (minus the $50 I paid you up front I "clear" $450.00 in the end and adding the $50 fee I paid you, you lose a total of $450.00).
Not bad, eh?

You might be wondering: "What if the price did not go down but went up instead?"

Then I am in a bit of trouble.  My prediction that the price would decrease did not pan out.

If the price went up to $15.00 per share then the total value of the 100 shares is $1,500. You want your 100 shares back so you can take the profit!

I now MUST go out and purchase those 100 shares for $15.00 each.  I only have $1,000 in my account from the original transaction so I have to deposit another $500.00 in order for my check to you to clear.

I lose $500.00  (plus the $50 fee) and you gain $500.00 (plus the $50 dollar fee) on the investment.

Crazy system, right?

Tuesday, August 12, 2014

Shark Week and the Market for Shark Tacos. Let's go to the graphs.

Shark Week on T.V. has appartently increased the demand for Shark Meat in a variety of forms.

NPR has a story on this:
Discovery Channel set viewership records in 2013 as millions of people tuned in to watch sharks feed, sharks attack, extinct giant sharks and researchers catch and tag sharks. Discovery's "Shark Week" returned on Sunday, and this year, to the dismay of conservationists, restaurants and markets nationwide are feeding the frenzy with a slew of shark meat promotions.
This gives me an opportuntity to "go to the graphs" and analyze this development from a basic supply and demand perspective as to what SHOULD happen using the "Market for Shark (Meat) Tacos".

I think I have this right, but let me know where I might have gone wrong. If you can use this in your class(es) feel free to do so. There is no tragedy in this common(s).  :)

It is time for lunch where I am but I am pretty sure a Shark Taco is not on the menu for me. Yuck!

Saturday, August 2, 2014

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

Friday, August 1, 2014

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?

Thursday, July 31, 2014

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.

Statistic: Number of cars sold worldwide from 1990 to 2014 (in million units) | Statista
Find more statistics at Statista

Friday, July 25, 2014

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.