Saturday, September 21, 2013

Terrific document showing the changes in the components of "The Dow" over time. Makes me feel old...

The companies that comprise the "Dow Jones Industrial Average" (DJIA), or "The Dow", changes over time to reflect the changing nature of the US economy.

This is a neat lesson in "Creative Destruction" that takes place over time and how the rise of one industry can precipitate the fall of another (and vice versa, I suppose).  What is important in one era is a footnote in another.  BUT without the former it is not likely the latter would exist.  It is an interesting discussion to have.

If you are an old-time like me it is amazing to see some of the names that were eminent in my day are either gone of much less significant.

HT: The Big Picture

Friday, September 20, 2013

Textile manufacturing returns to the US! Good for workers, right? The "Rise of the Machine" begs to differ...

This graphic is included in a NYTIMES article on the nascent revival of textile manufacturing in the US, an industry decimated in the 1990's from factories moving to low wage countries.

The article is mostly about the increase in manufacturing facilities BUT not so much the increase in manufacturing JOBS.  Technology and automation are the culprits in the movement back to the US from the likes of Mexico and China.

The largest cost differential you see below is relative wages paid to Asian based workers and US workers.

However, the difference is tempered when you replace Capital (machines) for Labor in the US.
"Where Mr. Winthrop relies on labor — the cutting and sewing of the sweatshirts, which he does in five factories in California and North Carolina — is where the costs jump up. That costs his company around $17 for a given sweatshirt; overseas, he says, it would cost $5.50. 
But truth be told, labor is not a big ingredient in the manufacturing uptick in the United States, textiles or otherwise. Indeed, the absence of high-paid American workers in the new factories has made the revival possible. 
“Most of our costs are power-related,” said Dan Nation, a senior Parkdale executive."


Nice set of maps (and article) illustrating where job growth in the US has occurred and the shifting of the Economic Center of Gravity

Here are 3 maps that show Job-Growth Change from 2009 to present (HT: EMSI).

They are from a TERRIFIC article you will find HERE by economist Richard Florida.  I highly recommend reading this to deepen your knowledge/awareness of the national employment situation.

It is non-political and shows how the economic center of gravity is moving from production of physical goods to the production of energy (an input) and knowledge/ideas.

The crux of the article states that this has been an Energy and Knowledge/Idea based economic recovery. It suggest these separate and distinct industries are more complementary to each other rather than substitutes and that there is a multiplier effect on job creation (my words, not his) in some areas where these two converge.

\High wage jobs are considered any wage over $21.00 per hour.

 Low wage jobs are ones that pay below $14.00 per hour.

Wednesday, September 18, 2013

In Egypt bread is cheap but there is none to buy. See here how subsidies without resources created this situation that has the potential for creating civil unrest.

What Egypt Wants: Cheaper Bread  Demand for Subsidized Food Vexed Ousted President and Pressures Interim Government

"...Egypt's Islamist government, during its brief reign, couldn't satisfy public demand for subsidized food and fuel—spurring discontent that helped the military drive it from power. 
The military-backed leadership that took over this summer is now wrestling with the same challenge, trying to make sure there is enough cheap bread for the country's poor..."
The purpose of a subsidy is to lower the price of a good so people can buy more of it AND to give producers an incentive to produce more.  The implication is the market place is under-producing the good and charging too high a price for the intended consumer.  However, to make it work, the resources needed to produce the extra units of the good need to be available for conversion.

In Egypt the subsidy along with the lack of available resources, in this case wheat, are wreaking havoc on the domestic economy.

Let's look at it in graphs!

Here is the Market for Bread in Egypt at some equilibrium "A" with a Price of $1.00.  Any number you see I made up for simplicity.  Insert the equivalent in Egyptian currency and it still works the same way.  
If a subsidy is offered to consumers to buy bread at a lower price than the current market price, then consumers will want to buy more bread.  The Demand for Bread will increase and the Demand Curve will shift to the Right:
Notice that the Price increased to $1.50 (Point "B"). Producers responded to the increase in demand by increasing the QUANTITY SUPPLIED (movement ALONG "S*), assuming the availability of wheat, because of  the change in price driven by the demand side.

But hold on! Remember Demand only increased because of the presence of a subsidy.  Assume that subsidy is $1.00.  So, we have to subtract $1.00 from our market price (Point "B" to Point "C"):
The Price of Bread to the consumer is now $.50, $.50 LESS than before the subsidy (HAPPY CONSUMER!). The producer receives $1.50, $.50 MORE than before the subsidy (Happy Producer!).  While the TOTAL subsidy is $1.00, because of relative elasticities (another lesson) the subsidy is split between the consumer and the producer.

The end result is the consumer gets bread for less than what they know is the true market price, thanks to the government.

However...All is not well with this arrangement. Remember I said this hinged on resources being available to increase the market quantity supplied? This is the problem in Egypt:
Since the military-backed interim government took over, it has focused on maintaining supplies of wheat. Egypt's own farms can't meet demand; governments have imported wheat for years, and the country remains the world's No. 1 importer, according to the U.S. Department of Agriculture. 
Egypt's government says it has enough wheat to last until the end of the year. Yet each month, frustrated families who rely on subsidized goods say the state-owned shops that provide basic items for cheap prices often run out of food.
So, local producers do not have the resource/input, wheat, most needed for making bread. This messes up the "increase in Quantity Supplied in response to a higher  price" formula.

Instead of moving up and to the right on "S*" producers are moving down and to the left!  See point "D" in this graph:
At Point "D" at $.50 the Quantity Supplied is "Q supplied" BUT at $.50 the Quantity Demanded is "Qdemanded".  We have a shortage of bread.
Over the past four months, when Mrs. Ibrahim's state-run bakery runs out of bread—which happens often, she said—her only choices are to buy bread at a private bakery where each loaf costs three times as much, at 0.75 piasters (11 cents), or not to buy at all.
 Private bakeries are adequately stocked—but increasingly unaffordable. 
That last sentence is an interesting one. How do private bakeries have bread (unsubsidized and more expensive) and the State owned bakeries have none (subsidized and less expensive)?

Extra credit for giving the right answer.

I hope this helped you understand, using a real life example, how subsidies without adequate resources can distort the marketplace in very harmful ways.

The NFL is doubling ticket prices for some seats to Super Bowl 2014. Economists would say yes. Public Relations experts would say no. What do you think?

The National Football League (NFL) has announced the ticket prices for seats to the 2014 Super Bowl taking place in New Jersey:
Super Bowl fans can prepare to pay double for the best seats. The NFL expects the most expensive tickets for its championship game will be about $2,600 each for 9,000 premium seats for the Feb. 2 game at MetLife Stadium in East Rutherford, N.J.  
That's more than twice the $1,250 cost for similar tickets at last season's Super Bowl in New Orleans. 
According to the BLS the "Admission price to Sporting Events" increased by only 2.6% in the last year. The NFL is more than doubling the price to its marquee game for these premium seats. What is going on?
"We are looking to close the gap between the face value of the ticket and its true value as reflected on the secondary market," NFL spokesman Brian McCarthy said Tuesday.
Now it makes sense. The NFL is incensed that "secondary sellers" like StubHub or individuals on E-Bay are buying tickets AT THE PRICE the NFL offered for sale ("Face Value") to the public and then reselling them at a higher price to someone "willing and able" to purchase them at a higher price ("Secondary Market").

Using a basic Supply and Demand graphs, we can easily illustrate what is going on:
There are only 9,000 premium seats available in the stadium. This number is fixed regardless of the price of the ticket.  The market supply curve will be vertical ("Inelastic") at 9,000.

We can insert a market demand curve to establish an equilibrium price for the tickets and the price the NFL is expected to charge for the premium seats.
How did they arrive at this price?  They learned from last years Super Bowl in New Orleans.  The price of a premium ticket on the Secondary Market last year ended up around $2,600 (could have been less, or more).  The NFL representative suggests that THIS was should have been the actual price of the ticket.

The NFL offered those tickets for sale at a Face Value of $1,250.  In the graph below, you can see $1,250 is much less than the scalped price.  This suggests that at $1,250 the "Quantity Demanded" (12,000) for the tickets was greater than the "Quantity Supplied" (9,000).  I just made up the number (12,000) to use as a reference.
So, 9,000 people were able to get tickets for $1,250 and 3,000 fans were left without.  Because the market did not "clear" at 9,000 there will be some fans, not all, willing and able to purchase tickets at a higher price. This is where the Stub Hub's of the world take over.
Recognizing there is a shortage of tickets to meet demand an exchange is set up to entice at least 3,000 of the people that bought tickets at $1,250 to resell them.  Let the bidding begin.
The the scalped price, and ultimately the "true value as reflected in the secondary market", emerges from the scrum.

The NFL's pricing strategy is to side-swipe the secondary market and reap windfall from what they project will be the true price for a premium ticket to the Super Bowl.

When this becomes more widely publicized, the NFL will come under lots of criticism for charging such a high price.

According to Economics 101 they are doing the right thing. According to Public Relations 101 they are probably doing the wrong thing.

What do you think???

Tuesday, September 17, 2013

"Men are from Hard Sciences, Women are from Soft Sciences". How the differences show up in level of compensation...

There is a lot of interesting data on the demographics of college degree holders in this study found HERE.

There is much discussion on wage inequality between men and women.  While this does not settle the issue of the source any inequality, it does help point us in the right direction.  See the graphic below.

Choice of college major and its earning power in the marketplace are linked.  I say its "earning power" and not real or perceived "social value".  Two different things for the most part.

Correlate the data on the left with the data on the right.

The marketplace values "hard sciences", i.e. engineers and math degree holders much more than the "softer science" degree holders.  That is not controversial.  What actually surprised me (a bit) was the imbalance between men and women who hold those respective degrees.  I really had no idea it was that vast.

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