Saturday, March 1, 2014

Interesting data on New Home sales in the past 2 years. Evidence of economic recovery or income inequality? I report, you decide...

Below is some new housing data I took from the US Census report on New Housing in the US(January 2013).

It shows the number of New Houses sold and a price range for those houses in the years 2012 and 2013. The numbers are in "thousands" so add 3 zeroes to the end of the numbers you see below.

In nominal numbers, the lions share of new houses are in the $200-$300,000 dollar range (141,000 built and sold in 2013).

I calculated the year over year percentage change in the number of houses in each price band.

The lower end of the market, the under $150,000 up to $200,000, had a net decline of 5%. 

The upper end of the market, $500,000 and over, had a net increase of 56.25%.

Evidence of an income inequality gap? I report, you decide.

Not sure how this compares to prior years and if this is an anomaly. Guess that is for another blog posting.

Friday, February 28, 2014

Population trends and the Federal Budget. One captures the other by the tail.

Demographics---I harp on this a lot, I know.  My prior posting HERE you can see a graph that gives me hope regarding the economic future. Started me thinking about the present and the bind our politicians have put us in, in terms of how we view the Federal budget and entitlements.  I think it is important to consider when we talk about Federal Budget priorities and resource allocation in the US.

The first graph shows in index form, the change in the general population in the US  (RED LINE) and the percentage change in a subset of the whole population---the 25 to 55 age group (BLUE LINE). This age group is considered to be the heart of the labor force in terms of productivity and consumption of consumer goods.  (To calculate the percent take whatever the current Index is at any point on a line and subtract 100. That will give you the percentage change from 1990).

You can see in about the middle of 2003 we had a break in terms of this age group trending with the rest of the population.   The divergence is remarkable.  The general population continued to grow at a steady rate but the 25 to 55 age group pretty much stagnated and even declined.

Where did the other folks go?

Oh, I found them! The got older.  A few years prior to 2003 you can see (GREEN LINE) the percentage of people 55 and older increased at a rate higher than the the general population and the subgroup of 25 to 55 year old's.

In terms of the changing mix of spending the Federal Government does can you see how we moved from "doing things" to a system that predominately is a "check writer" for transfer payments?

Not that there is anything wrong with that but it does create, on a large scale, a different allocation of societal resources.  This is assuming a relatively fixed amount of government spending relative to national income. Spend more on one, spend less on the other (less "physical infrastructure" and more health spending on Medicare, for instance). In terms of the way politicians and policymakers perceive money and the budget this is not going to change any time soon.

Nice graph showing the saviors of the US economy are those of you in High School and College right now. We just have to wait for you to get into your 30's!!

Saw this graph at Motley Fools and felt more hopeful about our economic future. The age group 30-44 is an important one because it represents the heart of the working age population on the supply side AND the driver of consumption on the demand side (housing, cars, kids and all that entails in needing goods and services).

In 2010 we reached a low point in that age group in the US.  Just eyeballing it, there were about 5 million FEWER people 30 to 44 than in the late 90's and early 2000's.  Between that time and 2010 observe the large drop off in this age group.  BUT you see a recovery to a possible new peak in 2025 at about 69 million.

Is this dearth of 30 to 44 years old's the (or a) reason we plodding along economically? Surely cannot help, right?

Human capital is important for economic growth.  Is the stock of it we are building now (that is YOU high school and college students!) going to be the REAL bailout our stagnant economy needs.

I like the story this graph contributes to the debate.  As I said...hope.

Here are some important points made in the article HERE:
That's important for economic growth, because we know a few things about Americans aged 30 to 44. 
For one, they start a lot of businesses. According to the Kaufman Foundation, the median age of a company founder when beginning his or her current business is 40. This should make sense -- old enough to be experienced; young enough to be ambitious. And it bodes well for jobs growth. Despite what you might hear, most jobs growth doesn't come from small businesses, per se. Instead, new businesses are the key driver to new jobs. A separate study by the Kaufman Foundation found that from 1980 to 2005, "nearly all net job creation in the United States occurred in firms less than five years old." 
The group of 30- to 44-year-olds also buys a lot of homes. The median age of a homebuyer is 39, according to the National Association of Realtors. The median age of a first-time buyer -- the group expanding homeownership rather than merely shuffling it around -- is 30. This will create more natural demand for housing over the next decade than there was in the last one. Still trying to recover from the housing bust, new-home construction is already far below average. It will need to rebound sharply just to keep up with normal population growth. Add in this demographic tailwind, and it could be a remarkable decade for the housing industry. 
The group also buys a lot of cars. A decade ago, 28% of new-car purchases were by those aged 35 to 44 -- the highest of any age group, and more than the cohort's 22% share of the overall population. The recession pushed the average age of a new car buyer from 48 in 2007 to 51, according to industry analysis group Polk. But the 30-to-44 cohort may take the reins again, because their average income has rebounded from the recession faster than any other group in the working-age population. Factor in used-car sales, and those aged 35 to 44 on average spend more for vehicles than any other age group. Investors bullish on the U.S. auto industry tend to cite an aging fleet of vehicles that needs to be replaced. But there's another boost many are ignoring: growing ranks of prime-age car buyers. 
Go down the Census Bureau's list of spending by age group, and our rising cohort leads in several categories. Per person, they spend the most on food. The most on housing services. The most on furniture, apparel, footwear, and entertainment. In many ways they are the driver of U.S. economic growth. And they're about to begin growing again for the first time in a decade.

Wednesday, February 26, 2014

Energy use as a Variable Cost. Nice analysis that gives me a chance to GO TO THE GRAPHS! :)

Consumer good manufacturing is a highly competitive industry. There is constant pressure to reduce costs.  Most of the costs producers face are Variable Costs. Variable Costs are costs that vary with production--they tend to increase as more is produced and decrease as less is produced. Bottom line: Variable Costs, well, vary with production (ceterus paribus).

Here is an analysis that centers of energy use in the production process. They suggest that it is an overlooked cost, even though it represents a significant portion of unit costs of producing a good.  With careful analysis and remediation firms in manufacturing could save lots of cost by reducing the use of energy, hence lowering their Variable Costs.

Read the selection (or go read the whole analysis--it is worth the time). The highlights are mine.  Below it I inserted the graph of the firm that operates in a perfectly competitive market and illustrated how the firms cost curves are affected and in turn how production and profitability change.

A nice primer for an AP Microeconomics FRQ!

Bringing lean thinking to energy

Beset by rising costs, resource-intensive manufacturers are applying lean-management thinking in new ways to reduce the amount of energy used in production, to increase resource productivity—or both.

Over the years, many global manufacturers have secured big gains in labor and capital productivity by applying the principles of lean manufacturing. Fewer companies, however, have applied lean know-how to energy productivity. Line workers and even senior managers often consider energy a given when they consider it at all. The waste of energy and resources is typically overlooked or excluded from lean problem solving on the grounds that it is too complex for the front line to address, cuts across too many functions, or both. 
That’s a mistake, given the importance of energy and raw materials as cost drivers. Indeed, for one LCD-television manufacturer we studied, energy represented 45 percent of total production costs. Meanwhile, for many “upstream” manufacturers (such as steel and chemical makers) energy typically accounts for up to 15 percent or more of overall production costs—the largest share after raw materials, which often account for at least 50 percent of the cost base. Our experience suggests that many of these manufacturers could reduce the amount of energy they use in production by as much as 30 percent (with similarly reduced resource losses), in part by applying lean principles and by shifting mind-sets to focus the organization on eliminating anything that doesn’t add value for customers.

Common question from students: Do I need to file a tax return or what? Well...yes, no, maybe. See here for the basics...

This time of year I often get inquiries from students about filing tax returns.  Mostly whether if they need to or not because of the limited amount of income they earn.

Below is a snapshot of the relevant section from the IRS website showing your options.

The first big qualifier is your "dependency" status. IF your parents are claiming you as a "qualified" dependent on THEIR tax return this information will be relevant to you.  IF you are "independent" and are NOT being claimed by someone else then this DOES NOT apply to you.

If you have more than $1,000 in "unearned income" then you must file a tax return. Unearned income would be interest on savings, Capital Gains on stocks, bonds or some other qualified investment.  In short, it is money you get that is NOT from salary, wages, bonuses, tips, etc. If you are not sure about this part, check with a professional tax professional.

MOST young people fall into the second point below.  The cut-off is $6,100. If you make even $1.00 over this you must file a tax return! Remember, the IRS already has copies of all your W-2 forms in their possession.  They are just waiting for you to report what they already know.

If your Gross Income (total wages, salary, tips) is LESS than this amount then you are not required to file a tax return. HOWEVER (and this is a BIG however) if you had ANY Federal With-holding from your check(s) throughout the year you must file a return in order to receive a refund of the with-holding.  The IRS WILL NOT hunt you down and remind you the US Treasury has some extra money for you!

Caveat:  Regardless of how much you earn, especially if you are a college student receiving financial aid, it is good policy to file a return even if you don't have to.  It helps to have that paper trail for filling out the FAFSA and other requests for aid.

If you know during the year that you will not earn at least $6,100 in GROSS earnings, you can amend your W-4 form that you fill out at work that tells your employer how much to take out of your paycheck for Federal With-holding.  You can request to be EXEMPT from with-holding and no money will be with-held from your check because you do not believe you will owe any income tax.  BE CAREFUL about this.  Don't flirt with that $6,100 mark.

Here is a W-4 form with the line to do this highlighted in YELLOW.  Go HERE to print your own out.

NOTE:  I am not a tax attorney or qualified tax preparer.  I just play one as a high school economics teacher.  :)

Tuesday, February 25, 2014

The Federal Budget over time has become one that does less and transfers more. Is this a good thing, bad thing, or just a thing? See graphic here...

Here is a graphic from NPR that shows the ebbs and flows of  US Federal Budget SPENDING as a percent of Gross Domestic Product.

I doctored it a bit to show the change in the composition of Federal spending in the categories of  Non-Mandatory ("Discretionary") and Mandatory (Non-Discretionary") from the 1970's to 2013.

We used to be able to "do things" with Federal dollars.  Now we transfer Federal dollars from one person to the other.  If the budget is relatively fixed (in terms of a percentage of the economy) and you are forced (by demographics) to re-allocate that fixed budget in different ways then something has to give...Right??

Just throwin' it out there...

AP Microeconomics lesson on Negative Externalities. Nice real life example!

A report by the US Dept of Agriculture suggests LOTS of food in the US goes to waste. They estimate that 31% of food produced and sold to consumers in 2010 was not consumed and disposed of in a variety of ways.  The report is interesting and has some nice pie chart graphics that are suitable for showing in class for  a variety of academic disciplines. The food chain affects many segments of the society. The link is HERE

What caught my eye in the report was the passage below.  It speaks directly to an important concept in AP Microeconomics that we study in the unit on Social Cost and Social Benefits of production and consumption.

It gives an EXCELLENT definition of Negative Externalities and some appropriate examples:

Perfect opportunity to show with Supply and Demand graphs how this plays out in terms of Price and Market Quantity as we search for the "Socially Optimal level of production" at a "Socially Optimal Price".

The point of this analysis is to illustrate the Dead Weight Loss that occurs to society from the uncompensated costs/damage that is done to parties OTHER than the ones directly involved in the production or consumption of a good. It in some measure represents the explicit Opportunity Costs of the good in question.

The good I am going to use in the slides below is "Hamburger Meat".  Beef production is pointed out in the Dept of Labor report as a pretty large offender in creating Negative Externalities.

Slides have the relevant explanation on them.  Hope this helps you understand this concept better.

Look at this last slide. Place your cursor at any point between "Q1S.O. and Qe".  Move up thought the blue Dead Weight Loss triangle until you get to the "S1=MSC" curve.  At that point the Marginal SOCIAL Cost of producing that Quantity is GREATER than (now go DOWN to the "D=MPB" curve) Marginal PRIVATE Benefit of producing that Quantity.

We will want to move DOWN and to the LEFT on the MSC curve and UP and to the RIGHT on the MPB curve until we reach Point "C" where Marginal Social Cost = Marginal Private Benefit.

Anywhere in the BLUE triangle represents production costs that are not being covered by the paying consumer.

Monday, February 24, 2014

Disney has raised its theme park prices AGAIN! See here by how much and how it compares to inflation. Pricing Power, indeed!

Disney has increased the price of admissions to its Theme Parks (Orlando Fla and in California) effective, well, immediately.

The old prices (since last June when they were raised then) are on the LEFT and the new prices are on the RIGHT (See their website HERE for all the changes)

I calculated the percentage change in prices. You can see those in black (ages 10 and above) and red (ages 3 to 9) on the right side.

The Bureaus of Labor Statistics reports in the Price index for the sub category of "Amusement and Theme Parks" that the admissions prices to Amusement and Theme parks in general rose 1.2% since last June.  (see the Price Indexes below for where I got the data)

Disney has increase its admission price to The Magic Kingdom 3.6 times the rate of inflation in that sector in the past year  (4.3%/1.2%).  A 4 Day ticket is 4.5 times inflation.

As we discuss in Microeconomics the Pricing Power that Monopolies (or near Monopolies)  keep this in mind!

My explain-er on the Demand for Labor in a Perfectly Competitive Labor Market. Might be useful for AP teachers and students alike.

Can you tell we are getting closer to the AP Micro test in May?  Here is a PPT on one part of the Labor Market---Perfectly Competitive Labor Market where a wage is established and the Firms are "Wage Takers"---they can hire as many workers as fits their "Marginal  Revenue Product" (defined within).

Excuse some of the bad formatting that you will see.

As always, let me know of any mistakes in content. I can always be better and make the presentation better.

Hope it helps.

My explain-er on the the Monopolists Demand Curve, Total Revenue Curve, Elasticity and Marginal Revenue. Whew!!!

It any teacher or student of AP Microeconomics needs an explain-er on:

1. A Monopolists Demand Curve and the Total Revenue Curve
2. The Demand Curve and the Total Revenue Test for Elasticity
3. How Elasticity is represented along the Total Revenue Curve.
4. How the Marginal Revenue Curve is derived with emphasis on the importance of locating the REVENUE MAXIMIZING QUANTITY where MR = 0.

Probably some other stuff I forgot about. :)

If you review it PLEASE let me know of any errors.  I am my own worst proof reader. Also, any constructive criticism of the content is welcome as well.

Sunday, February 23, 2014

Interesting back story behind the infamous "Mission Accomplished" banner. Things are not always as they appear.

Learned something new today from David Henderson at Econlog that is not about economics.

He relayed a first person account of the back story of the infamous "Mission Accomplished" banner that formed the back drop to Pres Bush's speech aboard the aircraft carrier he landed on.

Turns out the message was not so much about Iraq as a whole but more about the specific sentiments of the crew of the ship. Context is everything:
The banner saying "Mission Accomplished" on the deck of the carrier USS Abraham Lincoln when George W. Bush landed there. Almost everyone likes to make fun of Bush for that. But there's a back story that I learned from one of my students who happened to be an officer on that ship at the time. The White House had contacted the ship's captain and asked what message they wanted on a banner. The captain opened the decision up to the officers in the ward room and they, wanting to celebrate finally getting back to home port, chose "Mission Accomplished." ---Econlog
This will not change anyone's mind about the incident or circumstances, nor should it, but it is kinda nice to know the details of significant events and how small seemingly insignificant decisions can haunt forever.

Only one passenger car on the market lasts, on average, more than 200,000 miles in this Top 10 list. Guess before you look.

Only one car makes the list, Honda's Accord. The rest are pickups and SUVs (click on link to see the rest): 

"If you want to own a vehicle that you can drive into the ground -- and then wonder why it refuses to die -- then maybe you should be driving a big truck or SUV. 
That seems to be the conclusion of a study from a website that aggregates millions of used-car sales listings around the country. went looking for listings of vehicles with at least 200,000 miles on the odometer. It says it analyzed 30 million listings from 1981 to 2010. 
Conclusion: In the search for the top 12 vehicles that have clocked at least 200,000 miles, only one was a car. In last place, in a three-way tie, came the Honda Accord. The rest of the list has nothing but trucks -- pickups or SUVs."---From USA Today.
Thee vehicles and the percentage of them showing at least 200,000 miles
1. Ford F-250 Super Duty, 4.3%
2. Chevrolet Silverado 2500HD, 3.6%
3. Chevrolet Suburban, 3.6%
4. Toyota 4Runner, 3.5%
5. Ford Expedition, 3%
6. GMC Sierra 2500HD, 2.7%
7. Chevrolet Tahoe, 2.1%
8. GMC Yukon XL, 1.9%
9. Toyota Sequoia. 1.7%
10. GMC Sierra 1500, 1.6%
11. GMC Yukon, 1.6%
12. Honda Accord, 1.6%

Economists who write the most about income inequality and stagnant mobility work at some of the most unequal universities in the US.

I saw this graphic HERE and I think of the MANY academic bloggers I read everyday who write about the issue of inequality.

Many/Most of them are employed at the Ivy League schools or upper tier private colleges/universities.

They work at schools that are EXTREMELY unequal (bars over "Most Competitive" and "Competitive") in terms of the rich/poor divide among the student body.

Wonder if they see the irony.

Heard a saying before:  "Think Globally, Act Locally".  Should be more than a bumper sticker on a BMW....

Just an observation.

Note: "Less and None Competitive" schools would be the typical State school or university.  Pretty equal, those are...

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