Saturday, June 1, 2013

The use of credit gives us a sugar high. The following funk is the debt we pay for that high. How come we understand that with our physical health, but not our financial health?

My cyber friend over at The New Arthurian Economics has a blog posting that is deceptively short and may seem obvious, but I don't think people in general have a real appreciation for the distinction between "Credit" and "Debt" as it applies to their lives.
Debt is not good for growth. Credit use is good for growth. Debt is what remains after the benefit of credit use has passed.
Debt is bad for growth. Credit use is good for growth, and debt is bad. Yin and yang, shadow and light.
You go to the bank, borrow some money, and buy yourself something nice. That's credit use. It's good for you, and it's good for the economy.
A few weeks later, your first payment comes due. That's debt. It's bad for you, and bad for the economy.

I want to discuss this in class.  Read it again.  Then read the second sentence again and think hard about it, especially the significance of the words "benefit of credit use" in context of the sentence and the paragraph.

Let me give one example of what this means to me.  I would like you to come up with an example or two of your own and share.

I have $5.00 cash in my pocket and I am hungry.  I  can buy a hamburger, fries and a drink at McDonalds for that $5.00.  I pay cash, I eat, I am done.  Or, I could go to Chillis and buy a hamburger, fries and a drink but it will cost me $10.00 (gotta leave a tip).

Assume I pay $5.00 cash that I have in my pocket and put the remaining $5.00 on my credit card. My belly is full either way but in one case I have derived the short term benefit of eating at Chillis ("Nice Atmosphere AND the waiter was SOOOO funny!!")

Four weeks later I get the bill from my credit card company for the $5.00.  I have $5.00 (maybe) to pay the bill, but that means I can't spend $5.00 on something else at this time.  And I am hungry again to boot!!

If I had paid cash in the first instance (foregone the Chillis experience) I would be fed and have no credit card payment in 4 weeks.  I would likely have another $5.00 at that time and I could buy another meal.

In which case am I better off? The economy as a whole?

I think this is what Art is referring to.

If I ever meet Art I will buy him lunch---probably at McDonalds.  I don't like debt.   :)

Friday, May 31, 2013

Why there is a future for manufacturing but not manufacturing jobs. Nice video of a BMW factory makes the point for us all.

If you need a simple illustration as to why there is a future for manufacturing, but not a future for manufacturing jobs (to assemble mainly), then take some time to watch this video. 

How BMW's are made.

In addtion to the technology, I was amazed at how quiet the manufacturing floor was.

The writing is on the wall, but it is being written by a robo-pen.  HT: Cafe Hayek.

1 Billion fewer people living in Extreme Poverty in the world just since 2000. Who (or what) is responsible for this miracle? Nice graphic here.

Here is a graph from The Economist showing the dramatic decline in the number of people in the world living on $1.25 per day (or less).  This is the formal UN definition of "Extreme Poverty". 

Focus on the span between 2000 and 2013 (guesstimate). The slope gets steep--approx 1 Billion people have climb above the $1.25 mark in 13 years.  Keep in mind, since 2000 the world population has GROWN by about 800 million as well

While this is good news, the drop was not evenly distributed.  China alone is responsible for about 75% of the decrease.  Of course, this is mostly due to the rapid industrialization and globalization China set in motion with more market orientated (very loose and generous definition) policies in the 80's and 90's.

Source: The Economist

The High School Yearbook industry is being challenged. I say "AMEN TO THAT". Bet you do too. See here why...

 Creative Destruction is a term credited to economist Joseph Schumpter that describes the process by which market activity evolves to change or challenge existing market structures. In other words, new ideas, technology, innovation or processes emerge to replace current ways of providing goods and/or services (that is my simplistic explanation---go to the link above for much more detail).

One area ripe for this to take place is the stodgy business of High School Yearbooks.  For A LONG TIME the business has run on the same inefficient model.  Here is an article highlighting a young entrepreneur who saw an opportunity to challenge this traditional model:

Most Likely to Succeed  The school yearbook business is a scandal. Here’s how to fix it 

When Aaron Greco, a young tech entrepreneur, started sniffing around the yearbook business a few years ago, he was surprised by these shenanigans. The fundamental problem with the yearbook business, he realized, was that big yearbook providers were producing their books using offset printing—an expensive printing system that’s great for books with large print runs but that leads to high costs and little flexibility for yearbooks, whose print runs number in the hundreds or low thousands. Over the past decade, we’ve seen the rise of digital on-demand printing, which is now commonly used for photo books (the sort you order from Shutterfly or Blurb) and self-publishing. Greco had a brilliant idea: Why not use the same printing process for yearbooks?
This is a good example of the power of a free people operating in an open marketplace coming up with a better way of doing something and with hard work and perseverance challenge an existing market structure.

I highlighted "open" because if existing yearbook providers don't want to (or can't) compete then they may try to limit challengers by using the political process to put up barriers. That is called Crony-Capitalism. 

I hope this does not happen in this case, but it would not surprise me. 

We need more Creative Destruction, not less.  It makes the world a better place.

Thursday, May 30, 2013

Interested in a FREE crash course in the Basics of Supply and Demand??

NOTE: Due to an OVERWHELMING response for this class, I have had to cut off enrollment.

However, I WILL offer the class again the Week of June 17th if you are still interested. PLEASE check back here for more details on how to sign up for that class.

I apologize for the inconvenience.  Who knew Supply and Demand would be so popular!! :)

I am offering a FREE 5 day course on the basics of Supply and Demand.  It is designed for high school students but enrollment is open if parents would like to join in as well.  While there is no obligation at all with this offering, I am recruiting for my Fall 2013 Online AP Macroeconomics class (please go HERE to find out more about that).

Class will be held Monday through Friday the week of June 10th.  Time will be 10:00am Central Time.  Classes will last at least 1 hour and 15 minutes each.

If you are interested please click on the link below and sign up.

Once the class fills up, I will e-mail you with more information

HERE is a listing of the Demand and Supply objectives we will cover. Or go HERE to Mr Welkers Website where the objectives are nicely explained.

May you always be in equilibrium.  Thank you!

Monday, May 27, 2013

Infographic showing Return on Investment per Corporate lobbying dollar spent. Crony-Capitialism at its finest. Get ready to be angry!

Does lobbying our elected officials pay-off?  I think so, based on these numbers.  Shows what the return to various industries is on the investment of each lobbying dollar spent to protect their interests. 

Go HERE for a larger image. (HT: Marginal Revolution)

E-waste, recycling and "good intentions". What happens when you hurt the people you are supposedly trying to help?

When viewpoints based on prior information (faulty or not) have been rendered obsolete why are we slow to change those views?

Is it because we have established a reputation based on those assumptions and to question would be to question our purpose?  I think this is more common than we think.

This opinion piece from Bloomberg suggests this is what it going on in the Electronic Waste (so called "E-Waste") industry and the negative environmental impact of E-waste is way overstated. 

I am not smart enough to know if this big picture story is true. But I am aware enough to know as a byproduct of sweeping policies to address a problem more often than not results in negative un-intended consequences.  Usually they are predictable but are not taken into consideration in the implementation of the policy.
"...This misunderstanding has led to several efforts at erecting partial export bans on U.S. electronics to developing countries, which -- other studies demonstrate -- import them as cheap and sustainable alternatives to new equipment. As a result, perfectly usable electronics are diverted into a recycling stream, where they are turned into raw materials, rather than into markets where they can be reused for years..." (Bloomberg) 
A conflict between "Reuse, Recycle" in triad of "Reduce, Recycle, Reuse" seems to have emerged. 

Interest groups have taken the "Seen" negative consequences of E-waste imposed on the few and put it above the "Unseen" positive effects that it may confer on the many.

Additional information tends to get in the way of our firmly held beliefs, doesn't it??

Sunday, May 26, 2013

Soft drinks and Federal Food Assistance ("Food Stamps"). See here why Coca Cola is so interested in this relationship...

Just doing some reading and came across an article on Coca-Cola's lobbying effort to make sure soft drinks are not excluded from purchase under the SNAP program (formerly known as "food stamps).  SNAP stands for Supplemental Nutrition Assistance Program. 

I wondered why they would be so interested.

The lobbying group Science in the Public Interest estimates that $4 Billion of the $80 Billion allocated to the SNAP program (that's 5%)  is spent on carbonated soft drinks by recipients. This total does NOT include non-carbonated drinks like Monsters, Gatorade, etc, so the total on high sugar content drinks is likely significantly higher.

I was curious about how much this $4 Billion in transfer payments was as a percent of total soft drink sales.

In 2012 total soft drink sales were about $60 Billion, however that includes all outlets where soft drinks can be purchased such as restaurants, vending machines, sporting venues, grocery and convenience stores.

SNAP benefits cannot be used at all these locations. They can only be used at grocery and convenience stores primarily.  According to a WSJ article total sales in grocery stores and convenience stores are about $28.7 Billion of the $60 Billion.

$4 Billion as a percent of $28.7 Billion is 14% of total soft drink sales that are derived from the SNAP program.

NOW I know why they are so interested---that is substantial for the industry...and Coke.

Let the special interest money flow...
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