Friday, October 18, 2013

Mexican Government implements a Junk Food Tax. Oh happy day! I get to do a lesson on Elasticity and Incidence of Taxation.

Here is a nice current article that helps teach the microeconomics concepts of Elasticity and Tax Incidence.
Mexico Tries Taxes to Combat Obesity(Wall Street Journal)
  • Congress's lower house of Congress passed late Thursday a special tax on junk food that is seen as potentially the broadest of its kind, part of an ambitious Mexican government effort to contain runaway rates of obesity and diabetes.
  • The House passed the proposed measure to charge a 5% tax on packaged food that contains 275 calories or more per 100 grams, on grounds that such high-calorie items typically contain large amounts of salt and sugar and few essential nutrients.

The success of this policy will hinge on how sensitive consumers are to increases in the price of their favorite junk food. If they are sensitive to price changes then the the quantity demanded will decrease significantly ("Demand is relatively ELASTIC").  If they are insensitive to the price change then quantity demanded will decrease, but by a smaller amount ("Demand is relatively INELASTIC").
The success of the policy and who will bear the burden of the tax is dependent on the Elasticity of Demand for junk food.
Here are my graphs showing both states of elasticity and how it affects consumer and producers.

Comments from the article suggest that demand is relatively INELASTIC:
Héctor Ortega, a 45-year-old operator of a street stand in downtown Mexico City, predicted that consumers may pull back briefly when prices rise, but then return to their old habits. 
"Just like the cigarettes, people will go back to their old habits," said Mr. Ortega. He said junk food was obviously unhealthy, but it was often the only thing that poorly paid office workers and students can afford. "This is a restaurant zone and the food here is expensive. For some people, these products are the only food available." 
Fernando González, 24, an office worker who frequents Mr. Ortega's stand, is a big fan of sodas and gum, in particular. When the new prices kick in, he said, he won't give up on his favorites, but will probably buy less chips and candy.
"It's a craving, it's an addiction, it's something people enjoy," he said of Mexicans and their treats.
While the Quantity Demanded will decrease the question is will it decrease enough to achieve the policy objective?

Consumers will pay a higher price for a smaller quantity. Producers will receive a lower price for a smaller quantity supplied.

The winner in all this?  The government will gain tax revenue for certain. Are the revenues going for specific public health program(s) to counter obesity?
The snack food levy is part of a bigger tax proposal from President Enrique Peña Nieto which aims to raise the government's non-oil tax collections.

What do Humvees in Afghanistan today have in common with trains in Mali in 1982? More than you think.

"In Afghanistan, army struggles to wage war with damaged equipment, poor logistics" 
Their fighting season nearly over, members of an embattled Afghan army unit recently inspected their equipment, most of which was in two heaps on their base. There were Humvees shredded by roadside bombs, armored trucks damaged by rocket-propelled grenades and other vehicles in need of repair after hard use in one of the country’s most volatile areas. 
The Afghan soldiers could not fix any of them, and replacements hadn’t come. Seventy-five percent of the battalion’s armored vehicles were out of commission. There were so few Humvees that some soldiers walked for 20 hours to get from base to base.
This article reminded me of my days in the early 1980's when I served  as a Marine Security Guard at the US Embassy in Bamako, Mali (Northwest Africa) and a conversation I had with some consultants for a major train engine manufacturer (I forget which).

The US government purchased (at least one maybe more) a bright shiny new train engine and these consultants were their to train Malians on how to operate it.  They expressed dismay because they new there were no serious plans to train mechanics on how to repair the trains when they needed service and no provisions for spare parts.  The photo op at the commissioning of the train was nice, but they knew the train would run until it ran no more and then pushed to the scrap yard.

Nice to know things have not change much in 30 years or so....

See a couple of useful graphics here on the tragic issue of Human Enslavement around the world. The results might surprise you.

The enslavement of people around the world has been a problem throughout history and no less so today.

The first graphic shows, in nominal terms, the worst offenders by country and some additional numbers for places you would think would not have this issue. Make no mistake---it IS a social problem in EVERY country on earth.  (Click on image to make larger).

Source: The Global Slavery Index 2013
While looking at the nominal numbers above is useful at getting the big picture of enslavement, I wondered if those numbers expressed as a percent of the population would yield any empirical value.

In the chart below the countries are ordered from highest percent of the population to lowest.

When we look at it this way, the top 10 STILL remains the same for the most part (nominal AND in percentage terms) with a couple of exceptions.  Hungary and Poland move in the top 11 (or 11 tied with Russia).  Vietnam, Bangladesh and China move down the list a bit.

Pakistan and India are prominent at the top. There is a large drop off after that.

The US and Saudi Arabia have roughly the same number of people considered enslaved but in percentage terms of the population the problem is 20 times worse in Saudi Arabia.

In nominal terms Peru and Venezuela have fewer enslaved people than Saudi Arabia, but have a significantly higher percentage of their population considered to be enslaved.  That was surprising to me, given the attention Saudi Arabia gets in the general media (deservedly so).

Do you notice any patterns that stick out that I don't see?  Feel free to add in the comments below.

If you want to learn more or need an excellent research resource, go HERE for the full report from The Global Slavery Index 2013

If you believe this has any value feel free to pass this on to your friends and others who are interested in this tragic issue.

Thursday, October 17, 2013

Robots, Baristas and Economics Teachers...One of these is not like the others...

I used to worry about robots taking away economics teaching jobs.  Turns out even robots have a limit as to how much boredom they can stand... :)

An army of robot baristas could mean the end of Starbucks as we know it

Starbucks’ 95,000 baristas have a competitor. It doesn’t need sleep. It’s precise in a way that a human could never be. It requires no training. It can’t quit. It has memorized every one of its customers’ orders. There’s never a line for its perfectly turned-out drinks.
It doesn’t require health insurance.
Don’t think of it as the enemy of baristas, insists Kevin Nater, CEO of the company that has produced this technological marvel. Think of it as an instrument people can use to create their ideal coffee experience. Think of it as a cure for “out-of-home coffee drinkers”—Nater’s phrase—sick of an “inconsistent experience.”
Think of it as the future. Think of it as empowerment. Your coffee, your way, flawlessly, every time, no judgements. Four pumps of sugar-free vanilla syrup in a 16 oz. half-caff soy latte? Here it is, delivered to you precisely when your smartphone app said it would arrive, hot and fresh and indistinguishable from the last one you ordered.

Only one thought, host hoc, on the end of the Federal Government shutdown

I wish the politicians in Washington, and the talking heads that support them, would fight just as hard for private sector jobs as they did for public sector jobs.  There were really no caveats regarding the value of former while numerous conditions are placed on the latter.  Why is that?  Suppose that is a rhetorical question...

Wednesday, October 16, 2013

Is it time to eliminate "Bridges" from the call to spend more money on "Roads, Bridges and Other Infrastructure"? I report, you decide. Numbers you will only see here...

I read a short article (HERE) regarding the "crumbling infrastructure" in the US.  It pointed out that while 1 in 9 bridges in the US are considered "Structurally Deficient" today, that just 20 years ago that ratio was 1 to 5. He suggested that this was a vast improvement and that the emphasis on spending more money on it is perhaps overblown.

The writer linked to the Federal Highway Administration data on bridges so I was curious and decided to dig a little deeper.

The formatting of the data below is poor (my mistake) because of my lame excel skills but the numbers are correct (calculated by my daughter Cara).

Listed are the 50 States plus D.C. and Puerto Rico. Shown are the number of bridges and the number considered "structurally deficient ("#SD")  in 1992 and 2012.  In the second to last column is the percentage increase or decrease in the total number of bridges in each State.  In the last column is the increase or decrease in the number of bridges considered "structurally deficient" (#SD)

If you cannot read the numbers HERE is the link to the Google Doc of same.

Couple of observations.

The number of new bridges since 1992 has increased by a modest 6.07%  but the number considered "structurally deficient" has DECREASED by 46.2% (totals along the bottom).

A few States have FEWER bridges in 2012 than in 1992 (Arkansas, Iowa, Kansas, Louisiana, North Dakota, Ohio, South Dakota)

A few States have MORE bridges considered structurally deficient in 2012 than in 1992 (Alaska, California, Iowa, New Mexico, Rhode Island, South Carolina, Wyoming).

Curiously, Iowa is the only State to appear twice on the above two lists.

California's whooping 91.76% INCREASE in the number of deficient bridges really stands out.  They built only a modest number of new bridges (10% increase) but appears to have not attended to existing bridges on any scale.  Maybe it is the fault of faults---meaning earthquake fault lines.  That can shake things up a bit.

In 20 years we have 34,751 new bridges and a decline of 57,323 bridges that are considered structurally deficient.

Can we do more or is the pace of improvement over time adequate and it is not necessary to spend more than we already do in upkeep and maintenance?

Tuesday, October 15, 2013

Nice market example of an Inferior and Normal Good. Only this one involves the SAME product...

A basic concept when leaning about Demand is to differentiate between a good that is termed a Normal Good and/or an Inferior Good.  Both are related to changes in Income.

If income increases (or decreases) and the Quantity Demanded of a good decreases (Increases) then the good is an Inferior good. If income increases (or decreases) and the Quantity Demanded of a good increases (decreases) then the good is a normal good.

If there is a direct relationship between changes in income and changes in Quantity Demanded then the good is a normal good. If there is an inverse relationship the good is an inferior good.

Here is a real life example of this in action. They don't explicitly use  "normal" and "inferior" but they are there.

As income rises people don't want the "inferior" Nano, they want one that is a little more tricked-up and has some extras. Seems the Nano is transforming itself into a Normal good.

Why the World's Cheapest Car Flopped

No-Frills Minicar Gets Chrome, Sound System, Higher Price to Boost Appeal

When the Tata Nano, a stripped-down minicar priced at around $2,000, was introduced in 2009, it was marketed as a car that would transform the way aspiring consumers in India and other developing countries got around.

But the low-cost automotive revolution fizzled. Selling poorly at home and with exports drying up, the Nano has become a cautionary tale of misplaced ambitions and a drag on sales and profit at Tata Motors Ltd. , India's fourth-largest auto maker and the owner of Jaguar and Land Rover luxury vehicles.
It turns out that those climbing into India's middle class want cheap cars, but they don't want cars that seem cheap—and are willing to pay more than Tata reckoned for a vehicle that has a more upmarket image.
Now, Nano is trying remake the "people's car," into the "cool people's car." It has given the car itself a face-lift, adding a stereo, hubcaps and chrome trim, raised the price and started a new marketing campaign to give it more cachet.
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