No Free Lunch

Fifteenth Anniversary of Opening of First McDonald's in St. Petersburg, Russia

2011-09-14T05:48:00.056-07:00

An article from Russia in today’s St. Petersburg Times reminds us that Russia’s second largest city, St. Petersburg, formerly known as Leningrad during the Soviet Era, got its first McDonald’s restaurant fifteen years ago this month.

While common in the United States and much of the rest of the world, the opening of a McDonald’s was a big thing in Russia.

In the eyes of their former Soviet masters, McDonald’s was a sign American decadence and excessive consumerism.

However, following the fall of communism in Russia, the newly freed people flocked to places like McDonald’s to spend their rubles.

The first McDonald’s in Russia opened 20 years ago in Russia and served 35,000 customers THE DAY THEY FIRST OPENED THEIR DOORS! Talk about pent up demand, this type of opening is a capitalist’s dream.

2002 Photo of McDonald's Restaurant in St. Petersburg, Russia
Photo Copyright 2002 by Charles Nugent
When I visited Russia in 2002, six years after the first McDonald’s opened in St. Petersburg, not only did I treat my then fiancee to dinner at one of the local McDonald’s but saw numerous entrepreneurs on the streets selling red tee shirts with McDonald’s famous golden arches superimposed over a bust of Vladimir Lenin and under the words McLenin’s.

McLenin's tee shirt
Flicker Photo by Sjors Provoost
Creative Commons Use Rights
Vladimir Lenin once boasted that the supposed greed of capitalists was such that he would be able to sell capitalists the rope to hang them with.

Instead, following the inevitable fall of communism budding capitalists in Russia mad money selling tee shirts mocking Lenin and applauding the new freedom to eat at the local franchise of the American McDonald's chain.

Labor Day 2011

2011-09-05T11:53:00.000-07:00

Today is Labor Day in the United States. While for the many who remain unemployed in this, the longest recession since the Great Depression of the 1930s, it is another year without work, there is hope that next year's election will provide new leadership that will return the nation around by replacing the present Administration's statist policies with economic policies that promote economic growth and job creation.

Despite the hardships being suffered by unemployed workers, this is the day that not only has come to mark the end of the traditional summer vacation season, but is also a day to honor the American worker. This is what those who in the late nineteenth century lobbied for in both the United States and Canada.

Economic growth has resulted in work weeks being reduced to below what these early crusaders envisioned and wages for average workers rising beyond anything the nineteenth century advocates could have imagined.

While this increase in leisure time and disposable income has tended to eclipse the original focus of the day away from the nation's workers and their contribution to our economy and, instead, allow workers and their families to use the increased leisure time and disposable income to relax and enjoy themselves on this day.

So, to everyone who works for a living I say RELAX AND ENJOY THIS DAY. You have earned it!!

Here are links to my other Labor Day articles:

Labor Day and the North American Labor Movement

What is Labor Day?

Labor Day in America

Labor Day Food Ideas

Labor Day 2010 Bad News for American Workers

Advice From Former President Calvin Coolidge onTaxes, Spending and the National Debt

2011-07-01T09:21:00.013-07:00

Our nation is currently embroiled in a major debate over the increasing the national debt limit.

Congress at the moment remains deadlocked with Republicans insisting that we reduce the need for debt with major cuts in spending while Democrats insist that we continue spending and finance it with increases in taxes.

At its heart, the debate is really about big government vs small government.

In the video below, we see then President Calvin Coolidge, in 1924 speaking from the White House lawn, on the need for the government to be small and frugal and limit its extractions of money from the labors of its citizens to what is needed for the necessary functions of a small government.

The above video is in the public domain with a Creative Commons License. It is being provided here courtesy of Internet Archive

The Choice is Welfare or Wealth

2011-06-15T12:47:00.006-07:00

Economist Allan H. Meltzer has an excellent article in today's (June 16, 2011) Wall Street Journal opinion pages entitled A Welfare State or a Start-Up Nation? (article also available on the Web) in which he clearly lays out the economic and policy choice the United States is faced with.

We can either continue on with the tax, borrow and spend polices favored by the Obama Administration and its supporters or return to policies that encourage economic growth.

Meltzer makes the point that, while the redistributionist policies favored by the Obama Administration and the left are backed by good intentions to help the poor and less fortunate in society, these policies have never worked. It has been the free market growth policies which have lifted millions of people out of poverty in recent decades and in times before that in the places, like the United States where free markets were allowed to flourish.

The United States, Great Britain and Japan all grew and their people prospered when their governments followed free market policies.

Following World Wars I and II Great Britain opted for statist, sosocialist style policies and by the 1970s had an that was approaching that of a poor, underdeveloped Third World nation. However, the economy of Great Britain quickly turned around when Lady Margaret Thatcher became Prime Minister and immediately began instituting free market policies.

In the United States, President Franklin Roosevelt managed to turn the 1929 economic downturn into a quarter century long depression, with near zero economic growth and 25% of the workforce unemployed, by replacing the free market with his socialist style central planning.

In the immediate post World War II era Sir John Cowperthwaite spent his career as the British Royal Governor of Britain's former island colony of Hong Kong fighting off attempts by his superiors in London to impose their failed socialist policies on the colony. Cowperthwaite succeeded in protecting Hong Kong's free market economy from Britain's left leaning government with the result that, in the years between the end of the war and the election of Margaret Thatcher, the Gross Domestic Product (GDP) of tiny Hong Kong was greater than that of the mother country Great Britain.

Then there is the rapid transformation of formerly dirt poor nations in Asia, Latin America and even parts of Africa which in the course of a couple of decades in the last part of the 20th Century whose economies were transformed from poverty to plenty thanks to government reforms that allowed the free market to operate within their borders.

Finally, there are the nations of the former Soviet Union which threw off the shackles of communism in the 1990s and today are prospering.

As a nation, America faces a choice of following the current Administration and its dream of a socialist utopia which has always resulted in an economic nightmare or a free market policy which has always resulted in a better life for everyone.

Socialist policies promise economic equality and sharing of the wealth. But what people end up sharing is not prosperity and wealth but hardship and poverty.

The free market, on the other hand, doesn't promise economic equality and, in practice doesn't end up distributing the wealth equally. What it does do is create wealth in quantities which make everyone better off economically.

Supply & Demand

2011-06-13T06:05:00.004-07:00

A question on a recent exam in my online Introduction to Micro Economics course asked:

If the price of a product increases, we would expect

A. the level of demand to decrease.

B. quantity supplied to increase.

C. the level of supply to increase.

D. an increase in quantity demanded.

The correct answer here was B. quantity supplied to increase. However, one of my students chose option A. the level of demand to decrease and then sent me an email asking why here answer was incorrect.

Here is what I replied:

An increase in price, other things being equal, will cause suppliers to increase the amount they are producing and selling. The idea here is that existing producers can make more profit by producing and selling more while other, less efficient, producers who could not make the product profitably at the current price will be able to make a profit at the new, higher price.

You confused "level of demand" or "demand" with "quantity demanded". "Demand" refers to the entire demand curve and this only changes when the entire curve shifts.

"Quantity demanded" refers to a movement along an existing demand curve.

The same is true of supply. "Supply" or "level of supply" which refers to the entire curve while "Quantity supplied" refers to movements along the curve.

In this question all we know for sure is that the price has changed and there is no indication that the curves have shifted so the answers referring to "Level" of demand or supply don't apply. Of course, since the price has risen the answer "an increase in quantity demanded" is wrong which leaves "quantity supplied to increase" as the only possible answer.

What has happened here could be a government imposed price floor in which a law is passed making it illegal to sell below a certain price and that price has been set above equilibrium. Or it could be a cartel (a group of suppliers coming together to agree not to sell below a certain price - this is illegal in the U.S.) like OPEC and the new agreed upon price is above equilibrium.

Finally, it could be a shift in the supply and/or demand curve which results in a new, higher equilibrium price. Any one of these will result in an increase in the quantity supplied as explained in the first paragraph. However, there is nothing in the question that indicates this, so all we have to go on in selecting an answer is the fact that the price has risen.

Deleveraging Defined

2011-06-08T06:26:00.036-07:00

Deleveraging or de-leveraging is a financial term that has become increasingly common since the start of the current recession.

In finance we use the term leverage or financial leverage to describe the process of borrowing and using debt to help finance the purchase or acquisition of assets. It is no secret that borrowing is a way for a business or a person to acquire more money for a purchase and the more money one has the more they can buy.

Deleveraging refers to paying down and reducing debt. In business this usually involves the selling of assets and using the proceeds to repay debt. In many cases the assets being sold are ones that the business took on debt by borrowing money to purchase the assets they are now selling.

Deleveraging is a term that is also applied to individuals. Since the start of the current recession the term has frequently been used to describe reduction of debt by individuals.

While many individuals have done this by selling assets - homes, cars, etc. - the more common way is to accelerate the repayment of outstanding debts by devoting more of their disposable income to debt reduction rather than to other things. This has frustrated some economists and policy makers, especially those of the Keynesian persuasion, who have been counting on households to maintain their spending levels on consumer goods rather than on paying down debts.

Debt can be a useful tool for business, households and even governments when used wisely. However, after splurging on debt for the past couple of decades or so, the current spate of deleveraging is a healthy trend.

http://hubpages.com/_shamrocks/hub/Financial_Leverage

Why Congress Shouldn't Raise the Deficit Ceiling

2011-06-06T06:47:00.001-07:00

Listening to the Democrats in Washington and their allies in the liberal media one would think that the United States is similar to Greece and on the brink of financial collapse.

However, looking at the financial markets, especially the bond market, one sees business as usual with no concern.

The markets are only concerned with default if the default, which is failing to pay or being unable to pay a debt on time, affects the government's ability to pay the interest due bond holders when due. What the markets are concerned with is not whether the U.S. Government will be pay all its bills on time, but whether or not the U.S. Government will be able to make the full interest payment that is due holders of U.S. Government bonds later this summer.

In the case of the U.S. Government, even skipping the interest payment would not put the U.S. on par with Greece. Instead, it would be more like and individual being late with a mortgage payment. The bank would become concerned, slap a late charge on the account and lower the individual's credit score. However, so long as the borrower has the potential to continue to make payments, the bank is not going to foreclose just because a payment is a few days late.

The United States remains a very wealthy nation and has the capacity to honor all of the government's debts.

The U.S. Government is basically having a cash flow problem in which its revenues (tax receipts and other sources of revenue) are not quite sufficient to meet its expenses as they come due. This revenue shortage is due partly to the recession which has resulted in an economic slowdown and mostly due to the out of control spending by the mostly Democratic Congress and Obama Administration.

This irresponsible spending binge has now caught up with them and their solution is to ask Congress to be allowed to borrow more and to also raise taxes so that the Administration's spending binge can continue. This is like an individual maxing out his credit cards in Vegas and, rather than coming home, calls his credit card issuers and asks to have his credit limit raised on the cards and then calling his employer requesting a raise supposedly to pay down the debt.

However, if he gets the credit card limits increased and pay raise he will simply continue his Las Vegas vacation and run his debts up to the new credit card limits.

If the employer and credit card issuers refuse to grant the vacationer's requests, he will be forced to cut his vacation short, return home and start making some serious changes in his spending habits.

The same is true of the Administration and Democratic controlled Senate. This is why the Republican controlled House of Representatives should hold the line and demand major spending cuts, and no tax increases, before agreeing to raise the debt limit which will allow the Government to continue to pay all of its bills - bond interest and other bills - on time as they come due.

Since the U.S. Constitution stipulates that all revenue bills (i.e., bills dealing with taxes, spending and borrowing authority) must originate in the House of Representatives, responsibility for halting the insane spending and borrowing by the government lies with the House of Representatives. With their control of the House of Representatives, the Republicans are in a position to force the rest of the government to get its fiscal house in order so that U.S. does not end up facing bankruptcy like Greece.

Fear of Future Oil Shortages are Causing Gas Prices to Rise

2011-06-03T20:35:00.001-07:00

In addition to the stagnant economy and continued high unemployment, the American economy is also being hit by rising gas prices.

People are paying as much as $100 or more every time they fill their tank.

According to the Administration, Congressional Democrats and their supporters in the mainstream media the problem is a combination of a shortage of oil and and the OPEC cartel conspiring to raise oil prices.

The fact is that the so called oil shortage or energy crisis is a myth. The problem is the misguided policies of the Federal Government and not a lack of oil or conspiring by Middle Eastern oil producing nations.

The oil shale lands in the Rocky Mountain area of the United States and the oil sands area in western Canada EACH have potential oil reserves greater than the proven reserves in the Middle East.

These shale oil deposits are in ADDITION to other oil producing areas in Texas, California, Pennsylvania, Alaska and other parts of the U.S. which are currently producing oil.

Then there are the proven reserves, most of which are currently off limits to drilling, off our Pacific, Gulf and Atlantic coasts as well as the, also off limits, Alaskan National Wildlife Refuge (ANWR).

Oil and gasoline prices are being driven up not so much by rising current demand and limited Middle Eastern supplies of oil but by fears of future shortages when the Middle Eastern supplies run out.

It is true that oil produced from the shale fields and offshore fields will be more expensive than current Middle Eastern oil and. It is also true that it will take a number of years to get production in these areas in the United States up to speed (actually Canada is already producing from its oil sands fields, but environmentalists in the U.S. are blocking a proposed pipeline that would bring it to the U.S.).

However, simply removing U.S. Government restrictions preventing the drilling of the shale oil and in off shore areas would be a signal to users that future supplies will be available. This act alone will cause prices in oil futures markets to fall and when they fall current prices will also fall.

Proof of this can be found in 2008 rapid rise in oil prices which promptly fell when then President George Bush removed restrictions on offshore drilling causing current prices to drop almost immediately. Click on the link below for my article on this.

Politics and Falling Oil Prices

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A Plan to Keep Medicare From Going Broke

2011-06-01T07:25:00.002-07:00

It is no secret that Medicare is going broke. Costs are rising faster than revenue from Medicare taxes paid by existing workers. Each time a member of the Boomer generation retires and becomes covered by Medicare, the system's costs increase due to increase in the number of people covered while its revenues decrease as fewer people are working and paying Medicare taxes.

Left unchecked, the system will soon go broke. To prevent this Wisconsin Congressman Paul Ryan and his fellow House Republicans in their budget proposal, known as A Road Map for America's Future, have included a section with a very good proposal to solve the Medicare problem and keep it from financial collapse.

Congressman Ryan explains the plan for Medicare in the video above.

Big Victory for Stephen Harper and Conservative Party in May 2nd Canadian Elections

2011-05-09T07:29:00.011-07:00

While the United States was celebrating our Navy SEALs successful attacking of the Al Qaeda compound and the killing of its leader, Osama Bin Laden, in Abbottabad, Pakistan last Sunday (May 1, 2011) another historic event took place to our North the next day.

On Monday, May 2, 2011 Canadians went to the polls to elect a new Parliament which resulted in Prime Minister Stephen Harper and his Conservative Party winning a majority of the 308 seats in Parliament.

Stephen Harper first became Prime Minister following the 2006 elections in which he led the Conservative Party to victory by winning 124 of the 308 seats in Parliament. While not a majority, the inability of the opposition Liberals (103 seats), Bloc Québécois (51 seats) and New Democratic Party (29 seats) to come together in a coalition resulted in the Governor General of Canada calling upon Stephen Harper to form a minority government.

Harper’s first government lasted until 2008 when he was forced to call for new elections. While the Conservatives succeeded in increasing the number of seats they held by winning 143 out of the 308 total seats they were still a minority in Parliament. However, both the Liberals (77 seats) and Bloc Québécois (47) lost seats while the more radical New Democratic Party or NDP (36 seats) gained seats.

Much like the United States, Conservatives were gaining among the people while the left was losing but becoming more radical.

Even in traditional liberal bastions, like the City of Toronto, capital of the liberal province of Ontario, voters are becoming more conservative as evidenced by last October’s local election in which Rob Ford, the conservative candidate (small c for conservative here as local elections in Canada are technically non-partisan but Ford was known for his conservative philosophy and his campaign platform was conservative) was elected Mayor while running on a fiscally conservative platform.

Again Stephen Harper was called upon to lead a minority government which he did until March of 2011 when he was forced to call for new elections.

Running on his record of holding taxes down and refusing to follow his counterpart to the south, U.S. President Barack Obama, with huge stimulus spending to fight the world wide economic downturn. While the United States has suffered high unemployment and the longest period of recession since the Roosevelt led Great Depression of the 1930s, Canada has done very well economically during this period.

Not only has Canada done well with its economy growing, unemployment kept in check and the Canadian dollar, which for decades has been valued well below the U.S. dollar, has steadily risen to where it is now on par and, frequently worth slightly more than the U.S. dollar.

In last week’s election, Stephen Harper and his Conservatives won 167 of the 308 seats giving them a solid 54.2% majority in Parliament.

Having won on a platform calling for:

Creating jobs through training, trade and low taxes.
Supporting families through our Family Tax Cut and more support for seniors and caregivers.
Eliminating the deficit by 2014-2015 by controlling spending and cutting waste.
Making our streets safe through new laws to protect children and the elderly.
Standing on guard for Canada by investing in the development of Canada’s North, cracking down on human smuggling and strengthening the Canadian Armed Forces.

and with his newly elected majority in Parliament, Canada can look forward to more growth and a even more prosperous economic future under Prime Minister Stephen Harper.

The one cautionary note here is that, while the majority of the voters are moving to the right, the remaining voters and their leaders on the left are not shifting rightward to the new center as voters in the United Kingdom and the United States did during the Margaret Thatcher and Ronald Reagan years, but, instead are moving toward the far left New Democratic Party (NDP).

While the NDP ended up in a strong second place with 102 seats in the new Parliament, the Liberals came in with only 34 seats and the Bloc Québécois with a mere 4 seats.

This leaves Canada with a right of center Conservative government facing a far left loyal opposition in Parliament.

For Additional Reading on Canada:

Toronto's New Mayor Rob Ford Calls for Privatization of Toronto Community Housing Corporation
A Very Civil War in the Arctic - an article about a dispute between Canada and Denmark over an island in the Arctic that may be sitting on a sea of oil.

Mothers Day 2011

2011-05-06T06:19:00.073-07:00

This Sunday (May 8, 2011), the second Sunday in May, is Mother’s Day in the United States.

In addition to honoring their mothers on this Mother’s Day with a at least a visit or phone call, most of us will also be spending some money on them with a card and gifts. Popular Mothers Day gifts include flowers, candy, taking them out to dinner, etc.

In fact, according to Ellen Davis of the National Retail Federation, as quoted on the Voice of America News website, the average person is expected to spend about $140 on Mothers Day presents this year.

This translates to some $16 Billion dollars in total retail sales for Mother’s Day 2011.

While candy, especially chocolate candy, is a popular gift for Mother’s Day it is not the most popular gift. Things like cards, flowers, being taken to a restaurant, etc. all seem to overshadow candy sales.

According to industry statistics, the big holidays for candy, especially chocolate candy, sales are Halloween, followed by Easter, Christmas and Valentine’s Day in that order although Easter sales are just slightly less than those of Halloween.

Mother’s Day is good for sales of chocolate but the boost in sales of this product is not enough to put sales of chocolate candy in league with the other holidays. However, sales of chocolate candy are a part of the $16 Billion sales figure retailers are expecting to reap this Mother’s Day.

So, HAPPY MOTHERS DAY to all the Mothers, Step-Mothers, Grandmothers, wives, grown daughters, aunts and others who will be honored with gifts this Sunday.

Links for Further Reading:

For a History of Mothers Day in the U.S. see this article about Anna Marie Jarvis the Woman Behind Mothers Day

For more data on holiday sales of chocolate see this article on Origins of Chocolate Easter Eggs

Voice of America News article on 2011 Mothers Day sales expectations

Nielson article on holiday chocolate sales data

Wading Into Publishing

2010-10-25T21:21:00.000-07:00

Publishing is one of those industries that increases in size, and opportunity, with the introduction of every new innovation.

Stone age cavemen used the walls of their caves to record, with pictures, the stories of their exploits. This was good but limited by the number of caves available and blank wall space on their caves.

The Babylonians developed both an alphabet and new medium, soft clay, for recording their stories. Not only were the clay tablets transportable but with clay being less expensive and more readily available than caves there was more opportunity for writers as the medium was less expensive and in greater supply which made the output more affordable for consumers thereby increasing demand for content.

The invention of paper broadened the market even further increasing both demand and supply for content. And some of the content from the ancient world has continued to sell down to the present - think of the Judeo-Christian Bible, the writings of Socrates, Plato, Aristotle, the Odyssey of Homer, etc.

With the Gutenberg's invention of movable type the cost of books was reduced further which, again, increased opportunities for writers - a profession whose ranks grew exponentially.

Then came the Internet. The cost of adding content dropped to near zero which made entry into the market affordable for everyone. The cost of access to content by consumers also dropped drastically with the result that demand for content is going through the roof.

The Internet Has Opened the Doors for Many Aspiring Writers

A good example of this is HubPages.com in which its huge number of writers have published a total of 1 million Hubs (articles) in the little over four years of its existence. And much of this is very good content as seen by the three and four figure monthly incomes many of the writers are earning with their part-time writing. Just take a look at their new Success Stories page.

Not to brag, but my story is one of those that appear on the Success Stories page and I can personally attest that I have done well both financially and professionally with HubPages. Because of this success, my son and I have decided to expand our publishing efforts by joining the publishing site Lulu.com and moving into writing books along with our HubPage writing.

Our first foray into publishing is our just released 2011 calendar titled Chika's Dog Trivia for 2011. While we have more ambitious book plans, this was a relatively simple project we have been considering for some time and figured it would be a good way to get some hands on practice using the tools on the Lulu site.

We have now completed the project and have set up our store on the site where it is displayed for sale.


		Calendar Cover

Please click here to visit our new store on Lulu.com http://www.lulu.com/spotlight/airnavigator

In Elections Free Speech is Not Without Cost

2010-10-18T06:30:00.019-07:00

Everybody knows that the First Amendment to the Constitution, which reads:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Freedom here refers to Congress putting restrictions on what people can say or, as some recent court rulings have decided, how they can express themselves. Of course, Congress can put some limits on what people can say, or at least pass laws punishing people who violate these restrictions. National Security is one area where speech can be restricted and libelous comments or harming someone's reputation with false and slanderous comments about them.

However, having the right to say what one wants is not the same as having free access to the means to communicating one's political opinions.

Ask any politician. They are perfectly free to talk about their ideas and describe what they will do if elected. However, in order to spread their words far and wide they need money. Money to travel and meet the voters, money to rent halls to speak in, money to pay for radio and TV time, etc.

Simply having one's name on the ballot generally won't result in people voting for that person. One has to get out to meet and talk to voters so that the voters get to know them and want to vote for the candidate.

We are now about two weeks from Election Day and candidates are scrambling to get the word about their candidacy and convince as many potential voters as possible to vote for them. However, in this election as in many past ones, significant trends are emerging that indicate that Republicans have the momentum and appear set for a big win.

In addition to polling data and the general mood of the voters - this year Republican voters and others favoring Republican candidates seem excited and eager to get out and vote for their candidate while Democrats and others not wanting a Republican victory seem increasingly resigned to defeat.

In addition to polling data, candidate fund raising can also be an indicator to predict an election outcome. As I stated above, candidates need money to get the word out about themselves in order to win. However, there is an opportunity cost to donating money to campaigns. Large donors often expect to get access to the candidate once he or she is elected while small donors are generally satisfied with the opportunity to help the person who shares their views win.

Obviously a large donor won't get any access to an office holder for his or her money if the candidate loses and small donors won't enjoy the satisfaction of having helped the person they believed was best suited for the job win if the candidate loses. So while supporters may still voice support for a candidate that is losing most will be reluctant to throw money away on a losing candidate.

So, the ease or difficulty with which a candidate can raise money as an election season draws to a close is another indicator of an election outcome.

Click Here for My WebPage

Columbus Day

2010-10-10T21:24:00.000-07:00

Tomorrow, Monday October 11, 2010 is Columbus Day, the holiday that honors the Italian navigator Christopher Columbus and his discovery of the New World.

While Columbus's nationality is still subject to debate in some quarters, it is generally agreed that was born in what is now Italy. As I pointed out in my article on Columbus Day on HubPages, Columbus Day began as an Italian-American holiday.

Of course Christopher Columbus' fame rests on his discovery on the New World while in the service of Spain. Although technically, Columbus was employed, not by the Spanish government, but rather in the employ of Queen Isabella of Castile. Castile had been combined with the Kingdom of Aragon by Isabella's marriage to Aragon's King Ferdinand and the the combination of these two kingdoms, both located on the Iberian Peninsula, formed the basis for the modern nation of Spain. In addition to being King of Aragon, King Ferdinand was also the ruler of the Kingdom of Naples on the Italian peninsula.

In addition to being privately financed by Queen Isabella (unlike today, the finances of monarchs were closely linked with that of their kingdoms), it should be remembered that the real purpose of Columbus' voyages was more for the purpose of discovering a new, and more direct, trade rout to Asia rather than exploration per se.

Europe, at the time of Columbus was entering a period of economic growth that was driven in part by both population growth and by a period of global warming. A desire to expand trade was a part of this economic growth and, while the New World proved to be a big barrier to a western sea route to Asia, the the New World itself became a major trading partner for Europe.

Links for Further Reading:

The Origins of Columbus Day - my article on how the Columbus Day Holiday came about.

Lief Erikson Day October 9th - Some five centuries before Columbus Lief Erikson and his fellow Vikings attempted discovered the New World and attempted to establish a colony in North America. Lief Erikson is recognized with a holiday in October but it is observed mainly in Wisconsin, Minnesota and the Dakotas.

Global Warming and the Discovery of America - a major reason for the failure of the Viking settlements in North America and for the economic decline of the Viking colony in Greenland was a period of global cooling. The warming period that followed this cooling period resulted in those who followed Columbus being able to successfully colonize the New World.

Profits and the Poor

2010-09-15T21:48:00.000-07:00

Many people are uncomfortable with the concept of profit. For them there is an underlying belief or feeling that profits made by entrepreneurs and their businesses are made at the expense of the rest of society.

However, profit is defined as the excess of the total revenues of a business over its total costs. Profit is the surplus left over from the revenues after paying for the raw materials needed for production, paying the workers, paying the lenders and investors and, of course paying all of the various taxes due to all government entities having jurisdiction over the enterprise.

For the business there are two ways of increasing profit.

The first is to increase sales and revenue while holding costs constant. This can be done by expanding and finding new customers, improving the quality and desirability of the product to attract new customers, better marketing of the product, etc.

The second is to keep revenue constant while reducing costs. This involves finding less expensive ways of doing things without reducing the quality of the product.

Costs can be reduced in many ways. A business can invest in more efficient equipment which enables its workers to produce more in the same amount of time with the same or less effort. This saves on labor costs because it allows a business to expand its output without hiring more, or as many more workers, as would be needed in the absence of the labor saving machinery.

Costs can be reduced by eliminating waste. In the era before digital photography when photographers had to use film when taking pictures the giant film producer and developer, Eastman Kodak, was a big consumer of silver which, in the form of silver nitrate, was used in the making of photographic film. The amount of silver used to make each roll of film was small but, when multiplied by the number of rolls of film produced each year it added up to a very large amount.

After taking pictures with the film, photographers would send the film back to Kodak to be developed and developing film made up another large portion of Kodak's business. In the developing process the silver nitrate used in making the film was literally washed down the drain as it was no longer needed once the picture had been taken. Again, the amount of silver nitrate was minute. However, when multiplied by the hundreds of thousands of rolls of film developed by Kodak each year a lot of silver was going down the drain. Because of this Kodak invested in equipment to recapture this used silver nitrate and recycled it for use on new film thereby reducing the cost of purchasing silver for film making considerably.

Another example of cost saving by recycling was described in a 2008 entry on this blog entitled Saving Money and the Environment by Recycling old Roadbeds. In this case, companies that tear up and remove the old, broken asphalt from roads that are being enlarged or replaced no longer send the truckloads of asphalt they remove to landfills, instead, they use a recycling process that extracts up to 80% of the bitumen, the basic ingredient in asphalt, from the chunks of old road and use that in the building of the new road thereby reducing the cost of building the new road.

The point of this is is that while the hard life of the poor is mitigated somewhat by government programs and private charities, the real force that alleviates poverty is the pursuit of profit by driving down the cost of production which, in turn drives down the price of goods brought by consumers both rich and poor.

It is this lowering the cost of living that has been and still is, the main force improving the lot of the poor.

Links to Related Articles:

Prices, Profits and Low Income Consumers

Going Green Is Not Cheap

Solar Energy and Economic Efficiency

Deflation and Wage Stickiness

2010-09-03T21:06:00.002-07:00

In a recent article on HubPages, I described what deflation is and the two types of deflation which are generally referred to as good deflation and bad deflation. While I go into more detail in the HubPages article, basically the term good deflation refers to falling prices resulting from increases in worker productivity while so called bad deflation is the result of falling aggregate demand.

A major obstacle to combating a major deflation resulting from a fall in aggregate demand is the so called stickiness of wages. Minimum wage laws, union contracts, government mandates and regulations, etc. all combine to prevent wages from falling.

Unlike other prices which fall when aggregate demand declines, wages tend to remain the same. Of course, while individual wages tend to remain unchanged, employers’ wage costs do adjust as workers are laid off and employers are freed from having to pay those laid off employees.

While no one, including me, likes the idea of having their wages fall, market forces will force a new equilibrium some way and the most common way is layoffs (I didn’t like that either when it happened to me during the major downturn in the late 1980s).

Here is a simple example showing how reducing wages or laying workers off each achieve the same result.. A company employs ten people, with each one earning $10 per hour. The total hourly wage bill for the company is $100 (ten employees times $10 pay per hour = $100 per hour wage bill). Now, if business is such that the employer can only afford a total wage bill of $90 per hour they have two choices.

The first choice is to reduce everyone’s pay by $1 which makes the wage $9 per hour. Since $9 per hour times ten people equals $90 the employees’ wages have been reduced to what the employer can afford to pay. This is the free market response and is one of the assumptions behind Say’s Law (which states supply creates its own demand and was named after the nineteenth century French economist Jean Baptiste Say).

The second choice is the Keynesian solution (after the mid-twentieth century British economist John Maynard Keynes) which is to keep the wages at $10 per hour but lay off one worker thereby leaving nine workers each earning $10 which results in the same $90 per hour wage bill that the employer can afford to pay.

While the initial result for the employer is the same under each option, namely that the total wages paid fall to what employer can afford to pay, the second choice, keeping individual wages unchanged causes a couple of problems.

First of all, unemployed people lose their wages and are now forced to cut back even more on their consumption which further reduces aggregate demand. At the same time, workers who are still employed remain fearful of losing their jobs so they also choose to hold money rather than spending it which reduces aggregate demand some more.

Unemployed workers frequently cannot afford to make the payments on their mortgages, car loans, etc. and the defaults on these loans, coupled with the decline in values of the assets securing these loans cause problems for banks as the value of their assets decline leading them to pull back on making more loans.

Second, even though the laying off of workers reduces payrolls to the amount that employers can afford in the new declining business environment, keeping wages at current levels makes it too costly for employers to rehire the laid off workers or for new businesses to hire new workers.

This fear or reluctance on the part of employers towards expanding and hiring new workers becomes a vicious circle in which aggregate demand falls because unemployed workers can’t afford to buy things which, in turn, causes employers to decide not to expand and increase output by hiring more workers.

The solution to this problem is to try to reverse the decline in aggregate demand with so called stimulus spending in which the government pumps millions of dollars into the economy in an attempt to artificially stimulate aggregate demand. This was the policy, that was prescribed by John Maynard Keynes during the Great Depression of the 1930s and followed, without success, by President Franklin D. Roosevelt and his New Deal Administration.

Instead, the solution, which President Ronald Reagan employed in fighting the stagflation of the 1970s and early 1980s, is to concentrate on calming fears and enacting policies designed to stimulate aggregate supply. This policy has been successful in the past while the Keynesian policies have never worked.

Links to My Other Articles on This Topic:

The Real Cost of Paying Employees

Deflation - What It is and Why We are Worried About It

Combating Deflation - Option I The Keynesian Prescription

Labor Day 2010 - Bad News for American Workers

2010-08-30T07:16:00.091-07:00

Next Monday, September 6, 2010, is Labor Day in the United States and Canada. This is a holiday that was originally created in June of 1894 by the U.S. Congress to honor American workers (less than a month after this Act of Congress, the Canadian Parliament followed suit and declared the same day -first Monday in September - as a national holiday in Canada honoring its workers).

Unfortunately, for many American workers, this will be the second Labor Day holiday in a row in which over 14.5 million American workers (9+% of the American labor force) find themselves listed as being officially unemployed.

Official unemployment refers to civilian workers who are both unemployed AND actively looking for work. In addition to the over 14.5 million officially unemployed workers there are an additional 1.2 million so called discouraged workers or workers who have seen unemployed so long that they have given up looking for work.

Since the discouraged workers are no longer looking for work they are not included in the official unemployed category - however, they still have no job.

While the official unemployment rate is about 9.6% overall (and this does NOT include the 1.2+ million discouraged workers) it is not distributed evenly throughout the workforce. Some regions with in the U.S. have rates higher than the national average while others have a lower rate. Similarly, the rate for college graduates is a little lower than than for non-college graduates.

The worst hit are teenagers. According to a recent report from the U.S. Bureau of Labor Statistics (BLS) a full 26.3% of teen workers are unemployed. Again, these appear to be those who have been laid off and are looking for work. Many more are no longer looking for work.

For the past two years the current Administration and Democratic controlled Congress have been trying to pull us out of the current recession and reduce unemployment with failed Keynesian policies. It is time to accept the fact that the theories and policy prescriptions of the late John Maynard Keynes are useless and replace them with new pro-growth policies.

Links to My other Labor Day Articles:

Labor Day and the North American Labor Movement

What is Labor Day?

Labor Day in America

Selling Last Semester's Textbooks Online

2010-08-30T06:42:00.004-07:00

In a previous posting four years ago I discussed how the Internet was changing the college textbook market.

At the time I published that post my daughter had recently graduated from college and I estimated that I had I had paid about two-thirds less for her books by buying them online than if she had purchased them used from the bookstore.

I haven't had as much luck with my son saving on textbook costs. First of all, he hasn't been as good as my daughter was at getting the ISBN numbers for me. A big part of his problem is that the college bookstores have been using various tactics that make it difficult or impossible to obtain the ISBN numbers needed to get the exact textbook each course requires. Tactics like shrink wrapping the book with the ISBN number covered up or having students hand a list of the needed textbooks to a clerk who then retrieves them rather than allowing students access to the shelves with the books are two such tactics that make it impossible to to get the ISBN.

However, despite the problems with obtaining the information needed to accurately order books online, the cheap used textbook market on the Internet is not only still going strong but is also continuing to provide strong competition to college bookstores and textbook publishers. The competition has been so great that bookstores and publishers are being forced to discount their prices.

While I am finding it more difficult and time consuming to save money buying my son's college textbooks online, I am offsetting some of my costs by selling his textbooks from last semester online. Amazon.com, eBay and eBay's Half.com division are among the many sites that make buying and selling of used textbooks and other books easy.

The main key to successful selling is to have your books listed on a site before the start of a new semester. I put my son's most recent collection of textbooks from last semester on Half.com (a site I have been using for years to buy and sell books)a couple of days ago and have already earned $60 from the sale of three books. Prices, of course, vary greatly depending upon supply and demand but, in today's economy every little bit helps.

Half.com and similar sites are also great places to sell books other than textbooks as well as other media such as DVDs and games.

Serving a Few Cookies Can Accomplish a Lot

2010-02-16T22:15:00.001-07:00

Serving a Few Cookies Can Accomplish a Lot

Honoring Dogs During Chinese New Year Festival

2010-02-11T22:05:00.006-07:00

After thinking her challenge over for a few hours, I decided to accept the challenge and start right away as I had just published the Hub article linked below.

The Hub, Honoring Dogs During Chinese New Year is about the second day of the Chinese New Year Festival in which, among other things, is considered to be the birthday of all dogs. I developed that idea into a short Hub article and had our little Chihuahua, Chika pose for a series of birthday party pictures to illustrate the article.

Below is a link to the first of thirty Hubs I intend to write as a part of a challenge from a fellow HubPages writer Darlene Sabella. Click on the link below to read that Hub.

Honoring Dogs During Chinese New Year Festival

Hub 1 of 30 Hubs in 30 Days

Click here to view my colleague Darlene Sabella's current Hubs for the challenge.

Chika

2010-02-10T19:31:00.002-07:00

Google Docs - A Free and Versitile Office Suite Program

2009-09-07T19:52:00.003-07:00

With the start of another school year and the growing role that computers play in education with both teachers and students finding computers indispensible, I have published a new article on HubPages explaining how Google Docs can be a great tool for school work.

Both teachers and students can benefit from not having to carry laptop computers, thumb drives or other media, including paper, around with them. Best of all, accounts with Google Docs and other online office software services that I mention in the article are free for individual users.

The article starts below and you can continue on and read the entire thing by clicking the link at the end of the text below.

Cloud computing is a new trend in computing which being embraced by both businesses and individuals. Cloud Computing refers to accessing application programs, such as word processing, spreadsheets, etc., on the Internet and the creating, storing and editing of files on the Internet.

Essentially, cloud computing utilizes third party servers on the Internet rather than your computer's hard drive for this purpose. The term cloud computing...(click here to read the rest of this article)

Blame Washington Not Wall Street for the Sub-Prime Crisis

2008-10-05T16:49:00.002-07:00

The collapse of many financial institutions and the implications of this for the economy is the major economic concern in the United States and around the world as we head into the last quarter of 2008. The immediate cause of the crisis is the drastic reductions in the value of the assets of financial companies due to the large number of sub-prime (low credit quality) mortgages in their portfolios. However, the sub-prime mortgage problem is a sub-set of the collapsing of the housing market bubble. Basically, rising demand for housing and the profits to be made in meeting this demand led to increasing numbers of people moving into the housing market and seeing it as a means of getting rich. As prices continued to rise and thousands of people became wealthy as a result, more and more people jumped into the market. In times of frenzied activity in the market for a particular good, housing in this case, the mania takes on a life of its own as increasing numbers of people rush into the market hoping to get rich while knowing nothing about the mechanics of investing. At some point prices peak and those who entered last panic when they suddenly realize that rather than making large amounts of money they are about to lose everything. Their reaction is to cut their losses and sell, an act that begins to drive prices down causing others to begin frantically selling in their haste to exit.

Click Here to read full article:

Blame Washington - Not Wall Street for the Current Financial Crisis

Making a Fortune with Make-up

2008-08-29T14:05:00.000-07:00

Following the end of the Cold War in the early 1990s the administration of President George H. W. Bush (father of the current President, George W. Bush) opened the Internet to the public. Previously the Internet had been reserved exclusively for use by the Armed Forces, military contractors and academics involved in defense related research. A few years later in 1994 an Englishman named Tim Berners-Lee (now Sir Tim Berners-Lee, having recieved a knighthood from Queen Elizabeth II for his scientific contributions) working at the European Organization for Nuclear Research (CERN) in Geneva, Switzerland published the computer code for the World Wide Web which both greatly expanded what could be created on the Internet as well as making it relatively easy for people to create and use content on the Internet.

Use of the World Wide Web increase at such a fast pace that a mere four or five years later, as the 21st century was about to dawn, a full one-third of the U.S. economy was centered around the web. Today, almost every sector of the economy is in some way or another tied to the web.

The ease of use of the web and its vast spread is creating opportunities for people right and left and is changing the way business is done. In this new world of the Internet, one no longer has to have access to large amounts of capital, live in a big city or be a scientific genius in order to be a successful entrepreneur on the Internet. Thanks to outfits like eBay, Amazon, Google and numerous others, people can start and build successful businesses with nothing more than a computer, internet connection and possibly a digital camera.

A couple of years ago, after giving a report on the latest employment figures, which had hit an all time high, the anchor commented "and these figures don't include all the people who work from home producing content for their websites and blogs and living off the Google ad revenue their work generates". CNBC ran a story a while ago on people all over the nation, many in small towns whose economy collapsed following the closing of the local manufacturing plant, who learned to sell on eBay and built business that generated as much or more income than the manufacturing job which they had lost.

Then there is Lauren Luke. Lauren is a 26 year old single mother living in South Shields, a town of about 90,000 located at the mouth of the River Tyne in northeast England. Once a major shipbuilding center, the town's economy has been hard hit in recent years by the loss of that industry. A self-described loaner who lacks both self confidence and the stunning looks of a model, Lauren does not exactly fit the stereotype of a successful media personality or global entrepreneur. In adition to her other deficiencies (this is the way she describes herself) Lauren also lacks both the technical skills required for good video production and the presentation skills needed to perform well before a camera. Also lacking is formal training in the application of make-up even though her business is built around tips on how to apply make-up to achieve a desired look.

Operating from her bedroom in her home in South Shields, Lauren has built a world wide following and is generating thousands of dollars a month in revenue. What is the source of Lauren Luke's success? Self produced YouTube videos showing how to apply make-up. Thanks to Google's video ad sharing program, she has a stream of income from the ads that appear in the box around her videos. After pushing a button on the video camera attached to her computer, Lauren launches into her demonstration showing and describing how to apply make-up for the look in question. This is a one person production with Lauren demonstrating an narrating as she goes along. When she finishes, she signs off for her audience, stops the camera and uploads the video - there is no editing of the video since, again in her words, she doesn't know how to edit video. Google, in this case, has provided Lauren and millions like her the opportunity to make money by producing content designed to attract an ad clicking audience. Google also provides the easy to use technology needed to upload videos while advances in hardware and software have made it possible to purchase the needed equipment for a very low fee (compared to the cost of similar equipment in the pre-PC era).

This is the economic revolution that is shaking up and transforming the economic world around us.

Success is a State of Mind

2008-07-17T12:36:00.003-07:00

Many people assume that success is a matter of luck. However, while luck,which usually involves being in the right place at the right time, may play a part in success, those who are successful are generally those who are on the lookout for opportunity.

A good example of this is the story about the clergyman and the flood which goes like this:

There was once a very devout clergyman who spent hours in prayer each day and whose response to the fears and those of others was to say "Don't worry. The Lord will provide".

One day it began to rain very hard and the public was warned to leave town and flee to higher ground away from the storm. As the clergyman sat in his home praying one of the families in his congregation came by in their car and offered to take him with them. But he declined saying "Don't worry, the Lord will provide for me".

The family left him in his house and soon the water level began rising, flooding the street and forcing the clergyman to move upstairs to escape the rising water. A couple fleeing in a boat saw him sitting in his window and rowed over and encouraged him to get in their boat but he declined saying "Don't worry, the Lord will provide for me". So they rowed on leaving him sitting in his window.

The water continued to rise and he was forced to climb onto his roof to avoid being swept away by the water. The crew of a rescue helicopter saw him and dropped a rope ladder down encouraging him to climb aboard. But he waved them away saying "Don't worry, the Lord will provide for me".

Soon the water rose to the point where its waves rolled over the roof of the house, sweeping the clergyman away where he drowned.

Upon arriving in Heaven, the clergyman angrily confronted God demanding to know why God had ignored his pleas for help after he had been such a loyal and trusting servant of God all his life. To which God replied "How can you accuse me of ignoring you? Didn't I send a car, a boat and a helicopter to take you to safety? And you declined all of these offers of help."

The moral is that opportunity doesn't grab you and make you a success - you have to recognize and grab it if you want to be successful.

Bartering Pepsi Cola for Vodka and Tanker Ships

2008-07-10T11:16:00.001-07:00

Barter is defined as the act of purchasing a good by trading another good rather than using cash. Barter is usually viewed as an economic activity found in simpler, more primitive economies rather than in our complex modern economy. And, this is generally true as barter is an inefficient means of obtaining goods since considerable search time is involved in seeking out another person who both has what you want and wants to trade it for what you are offering. In a small Stone Age village this is not much of a problem because villagers tend to know one another and there are only a few economic goods available.

Despite the fact that barter is inefficient and associated with small villages in primitive economies, it remains alive and well as a niche market today where both small local businesses and large corporations operating globally still find uses for it.

One of the best publicized instances of barter in the modern world occurred in 1972 when, during a temporary thaw in the Cold War between the U.S. led West and the Soviet led East, Donald Kendall, CEO (Chief Executive Officer) of the Pepsi Cola Corporation (the name was later changed to Pepsico when Kendall initiated a merger between Pepsi Cola and snack food giant Frito Lay Corp.) negotiated a deal with the Soviet government that allowed Pepsi Cola to be bottled and marketed in the then Soviet Union in exchange for Pepsi importing and marketing vodka and other hard liquors produced in the Soviet Union. This deal gave Pepsi Cola, then the number two cola and soft drink company, a leg up on it arch rival, the much older Coca-Cola, Corporation had established a world-wide presence prior to World War II, years before Pepsi Cola even existed. However, with the Soviet deal, Pepsi Cola Corp. was able to enter the areas of the Soviet Union and Eastern Europe which, as communist societies, had been closed to private corporations. This gave the Pepsi brand a virtual monopoly in a sizable chunk of the world and which, following the fall of communism in Europe and Soviet Asia, placed it well ahead of the pack when these markets opened to other foreign companies.

But why did Pepsi elect to trade Pepsi Cola for vodka rather than simply build bottling plants and establish market share then pocket the profits in cash? The fact is, Pepsi did not establish a corporate presence in the Soviet Union. Instead it helped establish bottling plants (upgrading some existing Soviet plants and helping to build others), supplied the syrup necessary for producing Pepsi Cola and had the final product sold as Pepsi Cola. However, the bottling plants, distribution chain and sale of the Pepsi Cola produced was all done by the Soviet government the same as all other productive enterprises behind the old Iron Curtain. Much as the old Soviet Union wanted western consumer products for their citizens they were not about to allow privately owned companies to be established in their Marxist-Leninist society. There was a more practical economic reason as well and that was the fact that they did not want their scarce foreign currency reserves being sent abroad to purchase Western consumer goods. With the Pepsi Cola for vodka deal the Soviets were able obtain Pepsi Cola without bending their communist principles and without having to spend their foreign currency.

In a cash deal, Soviet consumers would have purchased their Pepsi Cola with their local currency (rubles) which the Pepsi Cola Corporation would have then converted to dollars with the rubles ultimately being presented to the Soviet Central Bank for dollars. However, in order to obtain dollars or other western currency the Soviets needed to increase their foreign exports but, due to the gross inefficiencies in their state controlled economy, they had little to trade and what few dollars and other western currencies they did obtain they used to buy capital goods needed to upgrade their factories and military complex.

For Pepsi Cola Corporation, the benefit was a major presence in a new area of the world and a supply of vodka and other liquors which they could sell in the U.S. for dollars. The vodka and other liquors also increased the offerings of Pepsi's hard beverage division, Monsieur Henri Wines Ltd., which not only gave that division additional product to sell but also made them the exclusive sellers of Russian vodka in the U.S.

In the late 1980s and early 1990s with the Soviet Union crumbling and still suffering from a lack of export goods, Pepsico made additional barter deals which increased their sales and presence in the area in exchange for vodka plus tanker ships, submarines and other similar hardware which the company had cut up and sold to scrap metal dealers for the dollars it desired.

Links for additional reading:

The Pepski Generation (Time Magazine - Monday Nov 27, 1972)

Communicating in Global Business Negotiations (Google Books)

Barter: An Alternative Currency ("The Guardian" Feb 27, 2003)

Pepsi Will be Bartered in a Deal With Soviets (New York Times - April 19, 1990)

Ukraine Tankers Hope Things Go Better With Pepsi (International Herald Tribune - October 23, 1992)

Behind the Barter Boom (All Business - Wed September 1, 1993)

Touting Barter, Russia Continues its Economic Regression (Asia Times - July 30, 1999)

Business Notes: Trade (Time Magazine - April 23, 1990)

Cold Cash, Not Cold War (Newsweek Aug 21, 2008)

Moscow's Favorite Capitalists (New York Times - July 17, 1983)

Pepsi's Pitch to Quench Chinese Thirst (Fortune Magazine - March 17, 1986)

Saving Money & the Environment by Recycling Old Roadbeds

2008-06-11T07:04:00.002-07:00

While skimming through the Denver Post newspaper at the airport while waiting to board my plane to take me home from a business trip, I ran across a small article stating that the rising price of oil is not only driving up the price of fuel needed to operate gas powered cars, trucks, airplanes, etc. but also the cost of building and repairing roads as the asphalt used in the roadbed. However, I reminded of the article a couple of days later when, while driving through a construction zone on my way to work, I observed a large machine, the rear end of which was biting off huge chunks of the old roadbed and conveyor on the front end was steadily pouring the finely ground roadbed material out the front and into a waiting truck. Obviously that old roadbed was being recycled and would find its way back into either the new roadbed they were laying down or another one.

Asphalt is basically crushed stone mixed with bitumen, a heavy tar substance which is what remains after a barrel of crude oil has been refined into gasoline and other usable products.

However, as the price of a barrel of oil rises so to does the price of the bitumen. Being basically a useful waste byproduct, bitumen has never been a high priced product. However, there is demand for it (for things like tar paper, asphalt shingles for roofs, etc. as well as for road building) and, as the price of a barrel of oil rises so too does the price of the bitumen left in the barrel after refining and this is driving up the cost of road building.

Waste is a relative concept that is closely related to scarcity. A scuba diver relying on the limited amount of compressed air in his tank for survival, is careful in his use of that air while, surrounded by a seemingly unlimited amount of air, those of us on the surface barely give a thought to our use of air. We tend to use and discard with ease things which are free or inexpensive while caring and conserving those things that are expensive. That is how the free market efficiently manages resources.

Road building material costs are going up today partly because the rising price of oil is pulling up the cost of bitumen. I say partly because, in addition to the rising cost of the barrel of oil which contains the bitumen, the supply of bitumen itself is shrinking due to the fact that, at $100 plus cost of a purchasing a barrel of oil, refiners have a strong incentive to invest in expensive technologies that allow them to produce more high end products, like gasoline, from the oil thereby leaving less waste in the form of bitumen as, at $4 per gallon, they will make more money selling the gasoline than by selling the bitumen.

In Western United States, state and local governments generally contract out road construction to private companies which bid on the projects (in the East and Midwest, the governments themselves frequently have their own crews for road construction and maintenance). Contracts, of course, are awarded to the lowest bidder which means that, to make a decent profit, the construction company must keep their costs low. Hence, the investment in asphalt recycling equipment to reduce the cost of the major ingredient in the road construction process.

While campaigns and slogans urging people to voluntarily recycle only about 30% of most solid wastes are recycled. With the price mechanism of the free market, rather than government PR people and their slogans, pushing asphalt recycling, we find that 80% of asphalt is recycled rather than being dumped in landfills and newly pumped bitumen used for road construction.

Contrary to popular environmental myths, the free market is not only Eco-friendly, it also works better than environmentalist nagging.

Links:

http://www.arra.org/ Asphalt Recycling and Reclaiming Association

http://www.hotmix.org/recycling.php asphalt pavement is the surprise leader in recycling of materials with about 80% recycled vs about 33% or less for other solid waste

http://www.stakerparson.com/news/news.cfm?id=94 Salt Lake Tribune -Pricey oil paves way for asphalt to skyrocket

Demand vs Quantity Demanded

2008-06-01T06:18:00.004-07:00

When talking about Demand and Supply it is important to differentiate between the terms Demand (or Supply) and Quantity Demanded (or Quantity Supplied). While they sound the same, they are not interchangeable.

When we use the term Demand we are referring to changes in the entire demand curve. While when we refer to Quantity Demanded we are referring to a movement along the demand curve.

Remember the Law of Demand states that certis pariubs (economic speak for other things being equal) a change in price will result in quantity demanded changing in the opposite direction. Or as your book (Economics Today, The Micro View, and the Macro View, 14th Edition, by Roger LeRoy Miller, 2008, Pearson Education, Inc) in Chapter 3, page 52 states:

When the price of a good goes up, people buy less of it, other things being equal. When the price of a good goes down people buy more of it, other things being equal.

The Law of Demand deals exclusively with changes in price and quantity and, because of this, when we are describing changes under the Law of Demand we have to prefix the word Demand with the word Quantity. Thus, we refer to a change in Quantity Demanded rather than a change in Demand which refers to some other factor (income, tastes, changes in compliments and substitutes, etc.) changing.

While some will dismiss this as merely an exercise in semantics, it is important and will lead to problems in both understanding what is going on with demand and supply as well as lead to wrong answers on tests.

The Pros and Cons of the Bush Tax Cuts. Do they really favor the wealthy or is that a myth? What will help the...

2008-05-12T12:29:00.001-07:00

Click below to read my May 11, 2008 article for HubPages on tax cuts. This article was written in response to a request for more information on tax cuts and how they work.

The Pros and Cons of the Bush Tax Cuts. Do they really favor the wealthy or is that a myth? What will help the...

Pending Financial Problems Depend upon How YOU Define Retirement

2008-03-26T06:03:00.002-07:00

Read the current financial news today and much of it a abuzz with articles warning about how most of us nearing retirement are seriously unprepared financially to retire. The studies these articles are based upon take current life expectancy, which is increasing, rising medical costs including the expected increase in use of medical services by seniors, and the cost of maintaining some stereotypical retirement lifestyle. When these expenses are then compared to the published information about the status of this group's retirement accounts they come up seriously short. Of course, most of the people touting this line are financial and investment adviser's whose livelihood depends upon selling the very financial products which are deemed needed to solve this pending problem. Don't get me wrong, most of these financial and investment advisers know their business, are intelligent and are professionals with high integrity. But, like all successful sales people, they not only believe in their product and are also armed with stories, which they believe, of problems people have encountered because they failed to plan properly. The stories they don't tell are the ones about the numerous people who didn't follow the financial plans and advice that these advisers tout and end up living very well.

Mention retirement and the image that immediately comes to mind is that of a person reaching 65 and exiting the labor force entirely. The person and spouse then buy an RV and hit the road or move to beautiful community for seniors where they divide their time between golf, swimming and cookouts with fellow seniors. Following the active retirement lifestyle comes the medical problems that result in the retirees spending their remaining days in care homes and spending thousands of dollars per month for medical and other care. These are the people who the media and experts have in mind when they write the scare stories about a pending crisis in retirement funding.

However, individuals are unique and the fact is that individual people are different and have different desires and expectations. Not everyone retires at sixty-five. As I mentioned in a previous post entitled What Will Happen When the Boomer Generation Retires, increasing numbers are voluntarily electing to continue working full or part-time. Some, who failed to make adequate provision for retirement, do it out of necessity, some do it for the money alone, but others, their financial security taken care of by savings and generous pensions, are working by choice. In addition to the increasing numbers who are electing to continue to work and earn some income, others see their expenses decrease substantially in retirement. Many people enter retirement with the car, mortgage and other bills paid off, the children educated and on their own and no more commuting and other work related expenses to be concerned about. For many of these people a happy retirement is spending time with the grandchildren, friends, their gardens, church and other charitable activities. For both of these groups their incomes will easily carry them through retirement.

As to high medical expenses, again people are different and those with the huge medical and care bills are probably not representative of the majority of retirees. Health and medical expenses are just starting to be given serious attention by retirement planners. Instead of merely assuming that medical expenses will be high, some planners are now beginning to recommend that people begin including healthy life style choices in their lives now so as to try to avoid high medical expenses later. The high cost of health care and pending collapse of Medicare will probably provide a bigger incentive for people to take care of themselves that all the lecturing by politicians and media public service announcements combined.

Yes, people should make plans now for their future retirement and should not hesitate to consult and use various financial experts. However, the plan, and the funding of it, should be for the individual's (and spouse) vision of what they want for retirement and not based on some, one size fits all, formula.

The Priest and the Orangeman

2008-03-21T05:30:00.005-07:00

St. Patrick's Church in Landsdowne, Ontario Canada is a beautiful, old stone church that sits in the meadows along a well traveled dirt road a short distance from the village itself. From its founding in 1860, it has been ministering to the area farmers and townspeople continuously for the past century and a half.

This part of eastern Ontario, situated along the banks of the St. Lawrence River, was originally settled mainly by immigrants from Ireland. The population of Landsdowne and the surrounding area in the mid-1800s consisted of mostly Irish Catholics. As the community grew and prospered, there was a need for a new church. Funds were collected, land purchased and the solid stone church built. A few years and a pastor or two later, the parishioners decided that it was time for a new rectory. The pastor convinced the finance committee that the new rectory should be built of stone just like the church. The parishioners, being both prosperous with their farms and generous with their contributions, donated the money and plans were drawn up. But a problem soon arose in that there was no one in the congregation who was a stone mason. "No problem" said the pastor, "find one from a neighboring parish". After searching far and wide, the committee appointed to find the stonemason, reported back that their search had been fruitless. Now this was a growing area and stone buildings were being built in many places so the pastor found this news hard to believe. Refusing to accept the fact that there was no stonemason in the area, he continued to grill the committee on their findings. Finally, with a slightly trembling voice, the chairman spoke. "Father, there is one stonemason in a nearby township. However, he and his sons are not only very busy with other work, but he is also a Protestant and an Orangeman* to boot!" Instead of the expected "well, thanks for trying" reply, the pastor slammed his fist on the table and roared "I don't care if the only stonemason is the Devil himself! This rectory is going to be built of stone. Now, go hire this man and his sons and build my rectory."

And that, according to local tradition as related to me by one of the area's amateur historians, is how St. Patrick's Church in Landsdowne came to have a matching stone rectory.

In addition to being a good story (and, despite my literary license in fashioning the dialog), this is also a good example of how people, when left to themselves, will put aside ancient hatreds and prejudices to cooperate with those they dislike to the mutual benefit of both. It was probably fairly easy to find the Protestant stonemason who, more than likely, had many Catholics as clients. Both the stonemason and his Catholic customers probably continued to believe that the other was ignorant and dammed to Hell as a result of that ignorance. While neither would ever consider a social relationship or, God forbid, their children marrying those of the other, the stonemason could easily suspend these beliefs in the interest of more business while his Catholic counterparts did the same in the in order to get the building they wanted.

In a free market, people's actions are guided by self-interest. Having the opportunity to advance and make a better life, individuals first find it beneficial to leave other people alone and devote their energies toward building a better material life for themselves and their families. They still hold strong beliefs, both positive ones such as their religious faith, and negative ones like their prejudices. However, in exchange for being left alone and to believe as they wish, they reciprocate and allow their neighbors to continue to believe differently. This is called tolerance. Tolerance is not accepting the beliefs and opinions of others as being equal to ones own. A person practicing tolerance knows their beliefs are correct and those of their neighbor are incorrect so there is no equivalency here. However, rather than wasting time and resources fighting over these differing beliefs, each tacitly agrees to not only allow the other to continue to hold on to their incorrect beliefs but will actually defend the other's right to do so. This is not because they agree with the other. They don't. Rather, it is because each
knows that if they attempt deny their neighbor the right to hold incorrect beliefs, they risk losing the right to hold their own beliefs. Tolerance not only encourages a live and let live attitude it also enables us to interact with each other to our mutual benefit in areas, like commerce, which do not require that we compromise our beliefs in the process.

Tolerance thus becomes the basis for a peaceful and prosperous society. However, tolerance is not for all. A tolerant society, in which people work together as needed to solve mutual problems, has little need for a strong body of permanent leaders. As problems and needs arise, leaders emerge to manage the project and then return to their business. But this attitude of everyone doing their own thing does not sit well for those who have grand visions of what the society should become. In order to stay in power as a leader it is important for the leader to create a situation where the he or she is needed, and what better way to do this than by the classic method of divide and conquer. By dividing people into groups and stirring up fear and hatred among the groups, a person can emerge and remain the one leader who keeps everyone from killing each other.

England's treatment of Ireland is a classic example. About a thousand years ago the English King Henry II decided that Ireland should be a part of England. The Irish, of course, didn't quite agree and thus began a long struggle to keep the Irish in line. Following King William III's victory in the so called Willamite War of the 1690s, a decision was made to both confiscate the lands of the Irish nobility (a common practice) in the North of Ireland, which had long been a source of rebellion, as well as evict the peasants living on the lands. Title to the lands was then given to nobles loyal to William and the lands themselves repopulated with peasants from the Protestant Scottish lowlands. Being a minority living in a Protestant enclave on a Catholic island, it was no problem keeping the new population of the north of Ireland loyal as their very lives depended upon the protection of the English Crown. Discriminatory laws for the native Irish and preferential treatment for the Protestants in the north resulted in the desired hatred between the two groups. Refusing to work with each other, both groups stayed poor while the King continued to rule. But, in time some from both groups began to seek a new life in Canada. At that time, occupied with other parts of the empire, London had little time for Canada and people there were more or less left to themselves. With no one to fan the flames of hatred and division, the Irish of both religions grudgingly began to develop a working relationship so that the Irish community in Canada prospered while Ireland itself languished in hatred and poverty.

The Protestant stonemason and his sons were hired to cut the stones needed for the rectory at St. Patrick's Church in Landsdowne Township. While the pastor paid the stonemason for his work, more than likely he did not invite the stonemason to take a break and have a beer with him. But, then again, taking a break from his own work and observing the stonemason and his sons laboring in the hot summer sun, the pastor may have seen the stonemason, for a moment, not as a Protestant and Orangeman, but as a neighbor doing a job. Remembering the admonition from Jesus to love thy neighbor, the pastor just might have invited the stonemason and his sons to take a break and join him for a beer. The stonemason, visualizing the satisfaction of a cool drink on a hot day, probably accepted. Thus, the two men (and the sons), again could have set aside their differences to enjoy the common pleasure of a cool drink on a hot day. One will never know which scenario actually played out during that long ago summer. However, one thing we know for certain - the conversation during that break was NOT about religion or politics!

*NOTE: The term Orangeman refers to a Protestant of Scots descent living in what is now known as Northern Ireland or Ulster. The ancestors of these people were moved from Scotland to Ireland by the British King, William of Orange (Orange was a duchy in Holland where William came from). The term Orangemen has been applied to the Protestants in the north of Ireland whose loyalty is to the British Crown.

Grocery Stores Cut Costs to Keep Profits

2008-03-19T05:30:00.001-07:00

Supermarkets have come to dominate the grocery business. The large variety of food and competitive prices provide consumers convenience and good food on a budget.

But, not all supermarkets are equal. Less efficient chains are forced to charge higher prices to survive and consumers will notice a difference in prices between competing supermarket chains. Comparison shopping can save the consumer money. Different stores and chains also differ in the variety and quality of the products they sell and consumers may find that they can get more variety and better quality with little or no change in what they pay by switching stores.

Despite the low profit margins, there is no shortage of new entrants into the market. K-Mart and Wal-Mart have added groceries to their existing lines and large volume operations, like Costco, keep expanding their food lines. Specialty food stores and organic food stores have recently been aggressively expanding and drawing more customers into their niches.

How do these grocery operations manage to survive and keep expanding? The answer is mainly by continually cutting costs. Aggressive use of technology and better use of labor help to cut costs directly as well as provide information needed to further reduce costs. When the clerk scans an item at the checkout more than the price is recorded. Information is immediately sent to a central computer database at the warehouse indicating a reduction in stock for that item. When sufficient quantities of the item has been sold, a report is automatically generated informing the warehouse to ship more to that store - this insures that the store will neither run out of fast moving items nor end up storing large quantities of slow moving items. This data, coupled with data gleaned from frequent shopper cards, is also studied to determine the best mix of foods for particular stores in the chain. That is why there is some variation in what is offered by different stores in the same chain.

Not only are the big supermarkets utilizing these lean operation techniques but newer competitors are also using them and expanding. I was recently surprised to discover an organic food market that offers a large variety of produce at very competitive prices. I am personally indifferent as to whether a product is organically grown or not. But I do like fresh fruits and vegetables and this store, in a addition to organic and other specialty packaged foods, has a large variety of high quality produce at prices that meet or beat those of other supermarkets in the area. Proving once again that the consumer is the beneficiary of all of this frenzied competition in the grocery business.

St. Patrick's Day

2008-03-17T06:23:00.010-07:00

March 17th is St. Patrick's Day, a holiday honoring St. Patrick, the patron saint of Ireland who died on March 17th (the exact year is unknown but is believed to be around 460 A.D.). Click here to read the rest of the article St Patricks Day

Here are some other articles by me about St. Patrick and Ireland:

Eamon de Valera the first President of Ireland

Dual Irish and American Citizenship

Charles Carroll of Carrollton - Longest Living Signer of the Declaration of Independence

Edward O'Hare the Name Behind Chicago's Famous Airport

Hugo O'Connor the Founder of Tucson, Arizona

Wrong Way Corrigan - New York to Los Angeles via Dublin

How Price Steers Producers Toward Products Consumers Want

2008-03-14T22:19:00.000-07:00

In a market economy prices are the mechanism by which consumers indicate their preference for various goods. When consumers buy goods they desire, they bid up the price, which alerts producers to what to produce. Similarly, when consumers ignore and don’t buy certain goods they don’t want, they also signal the producers which products not to produce.

On the demand side, prices also serve to ration goods that are scarce. When a good is in short supply, for whatever reason, the demand by a large number of consumers wanting to purchase the good will drive the price up as they outbid each other to get the good. As the price rises some consumers will drop out of the bidding because they cannot afford the product and others will drop out because the number of other goods they will have to forgo (opportunity cost) if they spend all their money on this good becomes unacceptable.

On the supply side, prices act as an incentive for producers to produce a product. As the price of a product rises, other things being equal, more producers are induced to produce that product. There are two reasons for this. The first is the fact that costs of production vary among producers. A farmer whose farm contains rich soil with all the nutrients for growing good crops, is located along a river that provides a continuous supply of water and is located in an area where the climate is ideal for growing will be able to produce bountiful harvests at a low cost. Contrast this farmer with one trying to grow the same crops in Arizona. The soil is poor, so our farmer has to buy fertilizer. We are in a desert, so our farmer has to pay for the installation and maintenance of an irrigation system plus pay for the water that the system delivers. Finally, with the harsh climate the yield per acre is not as great. Obviously, the Arizona farmer with a lower output per acre and the extra costs for fertilizer and irrigation is going to incur a much higher cost to produce a bushel of crop than the farmer with the ideal land. If it costs the farmer with the good land $1 per bushel to produce, say, corn, and the Arizona farmer $1.50 then the farmer with the good land can afford to produce and sell corn any time the market price is greater than $1 while the Arizona farmer has to wait until the market price rises above $1.50 before he can afford to produce and sell corn.

Because the farmer has with the ideal land has lower costs and higher output per acre, he can afford to sell his crop at a lower price than the Arizona farmer and still make a profit. Therefore, the Arizona farmer will not go to the effort and expense to grow food unless the price is high enough to cover his costs and yield a profit. Thus, as the price of a good increases, more producers can afford to enter the market and the supply of the good available for sale increases. At $1.55 per bushel both the farmer with ideal land and the Arizona farmer can both afford to profitably grow and sell corn. Obviously the profit of the farmer with ideal land will be much greater, but the Arizona farmer will still make a profit and thus have an incentive to produce and sell corn.

A second thing that prices do is attract new sellers into the market. Assume that the machinery owned by a cereal company can produce either corn flakes or wheat flakes (Wheaties) depending upon whether corn or wheat is fed into it. Also assume that both corn flakes and wheat flakes sell for $2 per box and the cereal company spends half the day producing corn flakes and half the day producing wheat flakes. A scientific study is then released showing that eating a bowl of corn flakes every day reduces the risk of getting cancer by 75%, causing millions of consumers to start eating corn flakes. This drives the price of corn flakes up to $4 per box. Since it can make twice as much selling corn flakes as wheat flakes, the cereal company decides to devote all of its production to corn flakes, thereby increasing the supply of corn flakes.

Let's look at another example. A student enters college having both enjoyed math in high school and received very good grades in math. Once in college the student decides to major in math. Since the only profession this student has seen that uses math is teaching, she decides to become a teacher. However, in talking to fellow math majors the student learns that engineering is another profession that requires an extensive math background. Both professions sound equally attractive to the student. Then she then learns that salaries for teachers start at $30,000 per year while engineering salaries start at $55,000 per year. The higher salary in engineering is too good to resist and our student is "pulled" into the engineering profession by the prospect of the higher salary.

Thus, as the demand by consumers for a product increases, the price is driven up. This higher price attracts more sellers by first, making it possible for higher cost sellers to enter the market and still make a profit and then by attracting new producers to the market who are lured by the promise of high returns (which can be high salaries, high rents or high profits - all result from the high prices resulting from increased consumer demand and all work to attract more productive resources to the production of the product the consumers want.)

Income vs Wealth

2008-03-12T23:41:00.000-07:00

Many people tend to confuse income and wealth. We automatically assume that rich people have high incomes or, more frequently, that people with high incomes are rich. This may be true but, while working as a mortgage loan underwriter in a savings and loan years ago I frequently reviewed loan applications from people with rather high incomes but little or nothing in the way of net assets. Oh, they often had a number of items listed in the asset column of their loan application – expensive cars, boats, etc. however, in the liability column to the right of the asset column were debts that more than equaled the stated value of the assets. While the incomes of many of these people enabled most of them to obtain the mortgage they were applying for to purchase their dream home, they could hardly be considered rich or wealthy.

Income is the money one receives from their work (this is the most common source of income) or from owning a business, property one can rent or from other income producing investments. Wealth, on the other hand, is the ownership of income producing assets. All wealth originates as saved income – a person either saves and invests a part of their income or they inherit assets from someone who saved and invested their income. Most truly wealthy people will use the income produced by their assets but generally will not sell their assets and spend the proceeds on consumption as this will reduce their wealth and the income it can produce.

I mentioned above that a high income does not necessarily mean that a person is wealthy. Ironically, a large number of the self-made millionaires do not have high incomes. Instead they accumulate their wealth over time by regular savings (and prudent investment of that savings) or by starting a business and plowing much of the profit back into the business each year to grow the business. While some people with high incomes do save and invest regularly and build that savings into true wealth, many people with very high incomes – sports figures, movie stars, some entrepreneurs whose businesses take off and makes them a millionaire over night as well as most people who hit it big by winning a lottery frequently end up spending their money as fast as they acquire it and end up broke when they lose the job that is producing the income for them.

Just as in the old fable about the hare and the tortoise, it is usually the person who steadily saves and invests money over time who retires wealthy while the person who begins the race by being first out of the gate with a high paying job, ends up with little or nothing to show for their efforts in the future.

Economizing on Groceries

2008-03-10T05:36:00.001-07:00

One of the ways to measure a society's economic progress is by comparing the percent of income spent on food now with that spent by our ancestors. Our prehistoric ancestors devoted most of their waking hours to seeking food. As society has advanced the time and money spent acquiring food has steadily decreased. When I was in college the it the average household spent about 25% of their income on food. Today that average has decreased considerably.

Despite the fact that the portion of income spent on food is decreasing, most of us spend considerably more for food than is necessary to sustain life. But then most of us seek more from life than just keeping ourselves alive. The fact that we do have the luxury of choosing food on the basis of what we enjoy eating rather than struggling to get what we can in order to keep ourselves going is a tribute to the economic progress which has allowed us to fewer and fewer personal resources to the acquisition to this basic ingredient of life. I can still remember my macro economics professor in graduate school who cited a study which claimed the average person in the 1970s could live on $75 worth of food per year. As we looked on in astonishment, he made a face and said "Of course the diet consists of mostly sauerkraut and beans!"

Given that the portion of our income spent on food is decreasing (and this is especially true for people whose incomes are rising) and that much of what we spend on food is discretionary, the household grocery budget is a place where cuts can often be made when money is tight or we just want more funds for other things. climate

The obvious first place to start is to look at food consumption in the household seeking to first identify and eliminate waste. Next, check for substitutes. If you can't tell the difference between the brand name soda, cereal, etc. and the generic equivalent then buy the generic. However, despite the fact that the taste may be the same, if you get more pleasure from drinking soda from a red Coca Cola can than the brown store brand can then, by all means, continue to purchase the Coca Cola. The goal here is to improve your life style by spending more wisely not build cash by sacrificing and lowering your standard of living. Similarly, if you shop at the local Mom and Pop grocery store but can purchase the same products at a lower cost at the Wal Mart down the street go to the Wal Mart. Again, only make this change if your level of satisfaction remains the same. If you enjoy shopping at the Mom and Pop store then continue shopping there.

However, what if you cannot find waste or substitutes? Savings are still possible by managing your spending on groceries. By making some alterations in the way you shop, you can reduce spending on groceries without changing what you buy or where you buy. The suggestions below apply to both those who are unable to find savings through elimination of waste or by making substitutions as well to to those who have achieved savings through one or both of the above.

Below are six suggestions for achieving savings simply by altering your shopping habits:

1 Make a list before going to the store. This can be very elaborate or very simple. At a minimum you should have a general idea as to what you will be eating during the next week and then check the pantry and refrigerator to see how much you already have. Your list will then contain the items that you need but don't have. The more elaborate method would be to plan each meal and then list what you need to purchase to serve those meals. Once in the store stick to your list and limit or, better still, avoid impulse buying.

2 Don't shop when you are hungry. When you are hungry you have a tendency to purchase what looks good. The end result is you use a good portion of your budget for the week's food on a couple of days worth of meals. In conjunction with this try to do all of your grocery shopping in one trip as this will give you both better control over the amount you spend and limit the number of times you are in a store and subject to the temptation of impulse buying.

3 Set a spending target, then keep track of the price of each item you place in your cart and try to keep the final total close to your target. Again, if you do all of your shopping once a week it will be relatively easy to determine how much spend in an average week on groceries. Once you determine a realistic average try to make that your spending target so as to maintain the average.

4 Take advantage of sales. Most cities have multiple stores and they are very competitive. Check the flyer's you receive in your newspaper or in the mail from each store to see who has the best deals. The time to review these flyer's is when you are making up your shopping list. If practical, divide your shopping between a couple of stores, buying the items on your list from the store with the best price. But, be realistic and don't chase all over town buying an item here and and item there just to save five or ten cents. What you spend on time and gas will be more than what you will save on food.

5 Buy frequently used, non-perishable items in bulk or on sale. Things like paper towels, toilet paper, flour, sugar, etc. often offer significant savings per unit when purchased in larger sizes. So long as you use these items regularly and have room to store them, it makes sense to take advantage of the savings. These items are also often either on sale or have coupons which further reduce your final cost. Warehouse stores, like Costco and Sam's Club, often carry these items in bulk at significant price reductions.

6 Sign up for and use a grocery store savers card. Many stores have done away with paper coupons and offer the same sale discounts when the shopping card is presented. Sure, the store will be tracking what you purchase. But, what is so secret about what you are buying? The store's purpose in collecting this information is to enable them to determine what items their customers prefer the most and stock their shelves accordingly. In some places stores also use the information to send targeted coupon mailings to customers. This not only saves the store money on marketing but saves you, the customer, from having to leaf through a 20-page newspaper insert trying to find the two or three coupons for items that you want.

Convenience of Online Banking

2008-03-07T05:33:00.001-07:00

The term "bankers hours" is seldom heard these days, and with good reason. Gone are the days when banks were open from 9 - 3 Monday through Thursday and 9 - 6 on Fridays. Thanks to online banking, banking services are available 24/7. Today practically every banking transaction except making a cash deposit or accessing your safe deposit box can be done online. But with ATM machines even cash (other than coins) and check deposits can be made 24/7 via an ATM machine.

The name of the game here is service and security. We want to be able to access bank services quickly and easily and make sure that our money is safe. Ironically, despite all the Internet scams we read about where people lose money, studies have shown that people who use online banking regularly have fewer losses than those who do their banking the traditional way. The reason is that people who use online banking generally access their accounts online many times a month and can quickly spot when something is wrong. While those who engage in traditional banking have to wait until they receive their statement at the end of the month to see if anything is amiss.

Like services from traditional brick and mortar banks, the services from online banking operations vary in price and quality. However, with online banking you literally have every bank in the nation competing for your business, so you can shop around to find the bank that offers the types of services you want and the quality of service you want either for free or a low price. For instance, my main bank is a totally online and mail operation. They offer excellent service and most of their services are free (free interest bearing checking accounts, free bill pay, free savings accounts, etc.). I can not only move money between accounts at that bank but can move it between other banks that I do business with. To handle things like checks I receive in the mail and my wife's pay check, which is still hand written by her employer, I maintain an account with a neighborhood credit union. Checks are deposited into the credit union ATM and the funds are then moved, via the Internet, to my main bank. We also have the children's accounts at the credit union and have received some good deals on loans from them as well.

Being online, I can access my accounts from anywhere. I also have my paycheck automatically deposited to my checking account. Even when I am traveling out of state or out of the country on pay day, I still have immediate access to my pay check from wherever I am and, using the bank's bill pay service, I can sit down in my hotel room and pay my bills on the spot rather than waiting until I get home and risk a late fee.

However, I have discovered that "online" means different things to different banks. A couple of months ago my wife and I stopped by a couple of car dealerships on a Saturday morning window shopping for a car for our daughter. We found a nice one but did not want to do the financing through the dealer. I drove home, went online with my main bank, filled out an application and received an approval all within about 30 minutes. I printed the approval which stated that I had the loan contingent upon my actually purchasing the car and confirming to the dealership that a check would be FedExed to them on Monday. I picked up my daughter on her lunch break and she had her car before she returned to work. Then a couple of weeks ago I went online with my credit union on a Sunday evening, filled out an application for a Visa card for my wife and I, and submitted it. On Monday evening there was a message on my phone to call the credit union, which I did on Tuesday and was informed that the card had been approved but that my wife and I would have to come in and sign the application. When we arrived we discovered that "signing" the application meant giving a loan officer all the information I had previously submitted on line. He dutifully typed it into the computer, printed it out and we signed it. An hour and a half later we left with the assurance that the cards would be mailed to us shortly. Obviously, some banks have put more thought into their systems than others.

Profit – Its Definition and Use

2008-01-29T23:09:00.000-07:00

Profit is the term used to describe the revenue produced by a corporation that is in excess of its expenses. Profits are necessary for a firm to grow and expand. Without profits a firm would be unable to purchase the additional resources necessary to expand the firm's productive capacity and increase output.

The accounting formula for the calculation of profit is:

Profit = Total Revenue – Total Cost

If total revenue exceeds total costs the resulting surplus is called profit. However, if total revenue is less than total cost, we have a loss and the firm is forced to borrow, dip into reserves or sell assets in order to make up the difference.

Legally, profits belong to the owners of the business and in the case of a singular undertaking such as the construction and sale of a single home or group of homes, the owners dissolve the business once the objective has been met, the profit is divided among them and each goes their own way. In the case of an on going business such as an oil company or TV network, the firm calculates its profit and divides it up periodically. In this case the owners usually take part of the profit in cash for use elsewhere and reinvest the remainder in the business in order to expand the business and increase future profits.

Internet Country Codes

2007-07-16T05:58:00.000-07:00

In addition to the more common internet extensions such as .COM, .ORG, there are a whole series of other codes that represent each country or territory in the world. Some of these, such as .US for United States, can only be used by sites that have a presence in that country (del.icio.us the social networking site uses the .us creatively make its spelling the same as the word delicious other country codes can be used by anyone . Some of the more popular ones, because the extension implies something other than the country are:

.pw for Palu but implies Personal Website

.tv for Tuvalu but implies Television

.ws for Western Samoa but implies Web Site

Each of the above is a sovereign nation but their country codes are becoming more common as the code represents something else in most people's minds.

Below is a list of country codes in alphabetical order by country or territory. For a more complete explanation of country codes and their history and use please see my article on this entitled Cyber Geography - Internet Country Codes Explained

Country or Territory

Afghanistan
Aland Islands
Albania
Algeria
American Samoa
Andorra
Angola
Anguilla
Antarctica
Antigua and Barbuda
Argentina
Armenia
Aruba
Ascension Island
Australia
Austria
Azerbaijan
Bahamas
Bahrain
Bangladesh
Barbados
Belarus
Belgium
Belize
Benin
Bermuda
Bhutan
Bolivia
Bosnia and Herzegovina
Botswana
Bouvet Island
Brazil
British Indian Ocean Territory
Brunei Darussalam
Bulgaria
Burkina Faso
Burundi
Cambodia
Cameroon
Canada
Cape Verde
Cayman Islands
Central African Republic
Chad
Chile
China
Christmas Island
Cocos (Keeling) Islands
Colombia
Comoros
Congo, Republic of
Congo, The Democratic Republic of the
Cook Islands
Costa Rica
Cote d'Ivoire
Croatia/Hrvatska
Cuba
Cyprus
Czech Republic
Denmark
Djibouti
Dominica
Dominican Republic
East Timor
Ecuador
Egypt
El Salvador
Equatorial Guinea
Eritrea
Estonia
Ethiopia
European Union
Falkland Islands (Malvinas)
Faroe Islands
Fiji
Finland
France
French Guiana
French Polynesia
French Southern Territories
Gabon
Gambia
Georgia
Germany
Ghana
Gibraltar
Greece
Greenland
Grenada
Guadeloupe
Guam
Guatemala
Guernsey
Guinea
Guinea-Bissau
Guyana
Haiti
Heard and McDonald Islands
Holy See (Vatican City State)
Honduras
Hong Kong
Hungary
Iceland
India
Indonesia
Iran, Islamic Republic of
Iraq
Ireland
Isle of Man
Israel
Italy
Jamaica
Japan
Jersey
Jordan
Kazakhstan
Kenya
Kiribati
Korea, Democratic People's Republic
Korea, Republic of
Kuwait
Kyrgyzstan
Laos
Latvia
Lebanon
Lesotho
Liberia
Libya
Liechtenstein
Lithuania
Luxembourg
Macao
Macedonia, The Former Yugoslav Republic of .
Madagascar
Malawi
Malaysia
Maldives
Mali
Malta
Marshall Islands
Martinique
Mauritania
Mauritius
Mayotte
Mexico
Micronesia, Federated States of
Moldova, Republic of
Monaco
Mongolia
Montenegro
Montserrat
Morocco
Mozambique
Myanmar
Namibia
Netherlands
Netherlands Antilles
New Caledonia
New Zealand
Nicaragua
Niger
Nigeria
Norfolk Island
Northern Mariana Islands
Norway
Oman
Pakistan
Palau
Palestinian Territory, Occupied
Panama
Papua New Guinea
Paraguay
Peru
Philippines
Pitcairn Island
Poland
Portugal
Puerto Rico
Qatar
Reunion Island
Romania
Russian Federation
Rwanda
Saint Helena
Saint Kitts and Nevis
Saint Lucia
Saint Pierre and Miquelon
Saint Vincent and the Grenadines
Samoa
San Marino
Sao Tome and Principe
Saudi Arabia
Senegal
Serbia
Seychelles
Sierra Leone
Singapore
Slovak Republic
Slovenia
Solomon Islands
Somalia
South Africa
South Georgia and the South Sandwich Islands
Soviet Union (being phased out)
Spain
Sri Lanka
Sudan
Suriname
Svalbard and Jan Mayen Islands
Swaziland
Sweden
Switzerland
Syrian Arab Republic
Taiwan
Tajikistan
Tanzania
Thailand
Timor-Leste
Togo
Tokelau
Tonga
Trinidad and Tobago
Tunisia
Turkey
Turkmenistan
Turks and Caicos Islands
Tuvalu
Uganda
Ukraine
United Arab Emirates
United Kingdom
United Kingdom
United States
United States Minor Outlying Islands
Uruguay
Uzbekistan
Vanuatu
Venezuela
Vietnam
Virgin Islands, British
Virgin Islands, U.S.
Wallis and Futuna Islands
Western Sahara
Yemen
Yugoslavia
Zambia
Zimbabwe

Country Code

.af
.ax
.al
.dz
.as
.ad
.ao
.ai
.aq
.ag
.ar
.am
.aw
.ac
.au
.at
.az
.bs
.bh
.bd
.bb
.by
.be
.bz
.bj
.bm
.bt
.bo
.ba
.bw
.bv
.br
.io
.bn
.bg
.bf
.bi
.kh
.cm
.ca
.cv
.ky
.cf
.td
.cl
.cn
.cx
.cc
.co
.km
.cg
.cd
.ck
.cr
.ci
.hr
.cu
.cy
.cz
.dk
.dj
.dm
.do
.tp
.ec
.eg
.sv
.gq
.er
.ee
.et
.eu
.fk
.fo
.fj
.fi
.fr
.gf
.pf
.tf
.ga
.gm
.ge
.de
.gh
.gi
.gr
gl –
.gd
.gp
.gu
.gt
.gg
.gn
.gw
.gy
.ht
.hm
.va
.hn
.hk
.hu
.is
.in
.id
.ir
.iq
.ie
.im
.il
.it
.jm
.jp
.je
.jo
.kz
.ke
.ki
.kp
.kr
.kw
.kg
.la
.lv
.lb
.ls
.lr
.ly
.li
.lt
.lu
.mo
.mk
.mg
.mw
.my
.mv
.ml
.mt
.mh
.mq
.mr
.mu
.yt
.mx
.fm
.md
.mc
.mn
.me
.ms
.ma
.mz
.mm
.na
.nl
.an
.nc
.nz
.ni
.ne
.ng
.nf
.mp
.no
.om
.pk
.pw
.ps
.pa
.pg
.py
.pe
.ph
.pn
.pl
.pt
.pr
.qa
.re
.ro
.ru
.rw
.sh
.kn
.lc
.pm
.vc
.ws
.sm
.st
.sa
.sn
.rs
.sc
.sl
.sg
.sk
.si
.sb
.so
.za
.gs
.su
.es
.lk
.sd
.sr
.sj
.sz
.se
.ch
.sy
.tw
.tj
.tz
.th
.tl
.tg
.tk
.to
.tt
.tn
.tr
.tm
.tc
.tv
.ug
.ua
.ae
.gb
.uk
.us
.um
.uy
.uz
.vu
.ve
.vn
.vg
.vi
.wf
.eh
.ye
.yu
.zm
.zw

Money, Banking and the Federal Reserve

2007-05-10T00:48:00.001-07:00

The attached video is a lecture from the Mises Institute (http://mises.org) explaining the differences between a monetary system based upon a 100% gold standard banking system and a fractional reserve banking system. The concepts discussed in the video are based upon the writings of the late econmist Murray Rothbard one of the outstanding economists of the Austrian School of Economics during the last half of the 20th century.

I Do Not Give A’s in My Courses

2007-01-25T19:49:00.000-07:00

Students who are enrolled in my ECN 200, ECN 201 and ECN 202 this semester, you did read the title correctly. To repeat, I Do Not Give A’s in My Courses. HOWEVER, before you rush to drop or add my courses, I do want to state that I Do RECORD and REPORT Grades for Students in My Courses and will record and report a grade of A for every student who earns one.

Before you dismiss this as an exercise in semantics, let me explain that, at the end of every semester, I receive requests from students asking me to give them an A for the course. A few years ago people would email or call me a week or less before the end of the semester asking for an extra project so they could bring their grade up. I always refused to give them an extra assignment feeling that this would be unfair to other students who would not have same opportunity as the student requesting the assignment to bring their grade up. Changing or modifying the rules in the waning hours of the semester is not only, not fair, but also trivializes the grading process. If I let anyone who comes to me at the last minute re-do work until they get their grade up to an A why bother reading and correcting tests and assignments all semester? Why not just give everyone a ‘A’ the first day of class and be done with it?

Apparently some students have come to believe that my job is to simply hand out A grades for the asking. In recent semesters I have been receiving emails the last 2 -3 days of the semester from a few students either informing me of their desperate need for an A and asking that I give them one, or, as one student boldly sent me an email a year or so ago which went something like this:

Mr Nugent,

This is (student's name).
(Name of second student) and I are in your ECN 20X class and I am writing to you to let you know that both (name of second student) and I will need an 'A' for this course.

This is important and I appreciate your taking care of this.

(Student's Name)

I am not Santa Claus. Since all three courses I teach are basically self-study, I prepare and make available all tests and assignments at the beginning of the course. My syllabus for each course is published on-line 2 – 4 weeks or more before the start of the semester and the syllabus contains a clear rubric explaining the grading process. I never use a curve for grading. Instead, I use a 1,000 point scale for grading as follows:

920 – 1000 points A
820 – 919 points B
740 – 819 points C
650 – 739 points D
Below 650 points F

Each test and assignment has a point value and the point values of all the tests and assignments add up to 1,000 points. Since I don’t use a curve in calculating the grades every student has an equal chance to get an ‘A’ and if everyone in the class EARNS 920 or more points I will gladly give everyone an 'A'.

In addition to having access to all the work at or near the start of the course (the mid-term and final exams are exceptions as they are closed book and not available until taken in the proctored test center), I include comments on all work I return in order to help the students better understand the material as well as being available on Monday evenings from 6 – 9 to meet with students.

Anyone who wants an ‘A’ can get one with some effort. The secret to getting an ‘A’ is to start now, at the beginning of the semester, complete the assignments and tests and submit them in a timely manner which will allow me to correct them, add comments and return then to you in time for you to take advantage of the comments as you work on the next assignments and tests. If you don’t understand something or are having problems with some concepts send me an email or come in to the NELC between 6 and 8 on a Monday evening and we will discuss it. This course is not that difficult if you do it a section at a time and seek help when you have problems. However, the content is too large and too complicated for the average student to read the book, do the assigned readings and, in the case of my telecourse students, watch all the videos and then complete all the assignments in a week or less and expect to pass, let alone earn an ‘A’.

Index of Articles for My Economics Classes

2006-12-01T08:52:00.001-07:00

UPDATED FOR SPRING 2007

Below is a list of articles, by others and me, which students may find helpful while taking my Economics 200, 201 and 202 courses. These are NOT REQUIRED readings, but, rather, SUGGESTED readings for increased understanding. This list is not static and will be updated periodically throughout the semester as well as being updated for each new semester. Interested persons should check back regularly for updates.

Democrat vs Republican Tax Cuts - both parties use tax cuts but the theories and objectives behind each party's tax cutting strategies are different.

How a Progressive Income Tax Works - An explanation about how a progressive income tax (i.e., an income tax that tax different levels of a persons income at ever higher rates.

How Tax Cuts Work
Political Rent Seeking

Price Discrimination2/22/06

Voluntary Transactions in a Free Market 3/3/06

Why Do Prices of Bonds Fluctuate?

How Banks Create Money Explanation as to how the banking system increases the supply of money (creates money) through its operations.

Root Cause Analysis

2006-09-21T08:32:00.001-07:00

I have received some questions from students about the concept of efficiency. Efficiency involves finding alternative ways to produce a good that result in using fewer resources to produce the same or greater quantity of a good without reducing quality.

A couple of days ago I attended the bi-monthly meeting of a group of local quality managers. The members of the group are quality auditors and engineers who work in manufacturing. Interestingly, I find that with my economics background I easily fit in with this group despite the fact that my career has been entirely in banking and education. This is not really surprising considering that Adam Smith, who is often referred to as the Father of Modern Economics, and was a college professor himself (his subject was moral philosophy), devoted a whole section of his book, The Wealth of Nations, to a discussion of the steps involved in the manufacture of pins. It was Smith who pointed out that by dividing the job of making a pin among a very large number of people, each specializing in one tiny part of the process, the total number of pins produced was many times greater than if each of the workers had spent their work day making complete pins.

One of the discussions at the workshop involved describing a problem solving process called Root Cause Analysis. When a production problem arises or when management feels that costs are too high or quality too low, it is important to investigate to find the real reason why the problem exists instead of blaming it on worker incompetence, laziness, etc. Ninety percent or more of the time, workers are dedicated and trying to do their jobs well. The problem is generally not the worker but it is the process or system used in production that is the source of the problem. After the facilitator gave a textbook example of root cause analysis one of the participants, who was the President and owner of a small, 25 employee, manufacturing company in Tucson, gave a real life example of the process.

This company manufactures parts which are then sold to other companies who use the parts in other products that they sell to consumers. This is much like the way Firestone Tire Co. manufactures tires which it sells to Ford and GM who, in turn, add the tires to the cars which they then sell to consumers. As part of the quality system used by both this company and the companies that it sells the parts it produces to, a work order is drawn up which describes what is to be produced and the specifications to which it is to be built. At each step of the production process the worker responsible for that part of the production is required to sign off on the work order when the worker finishes her part of the process and moves it down the line to the next worker. This provides both accountability for the work and provides a history of how it was built which can be used later to trace the source of quality problems with the product. When the product reached the end of the line and the work completed, it was sent to shipping where the part and its work order were packaged and shipped to the buyer.

The problem this company experiencing was that the completed product and work order were arriving in shipping with signatures missing from the work order. Since the process required a signature on the work order for each step of the production process, the shipping people had to constantly stop their work and run around the factory floor getting signatures on the work orders. This, of course, delayed shipping, wasted the time of the shipping people and made customers - who were waiting impatiently for their product - upset.

The problem obviously lay with the assembly line workers who were neglecting to sign the work orders. So, management took time away from their work, shut down the assembly line for a half hour or so, and lectured the workers on the need to sign the work orders. Simple solution, except that work orders continued to arrive unsigned in shipping. More time was diverted from productive work as managers called the workers together again, and again, and again..., to lecture them on the proper procedures.

The problem was not only NOT being solved, but the company was paying management to spend time lecturing workers and paying workers to listen to the lectures all the while that product was not being produced during these lecture sessions. This was not an efficient use of resources (time is a resource and, since workers and management are paid for their time, it is an expensive resource).

At this point one of the members of the management team decided to find out WHY the workers were not signing the work orders despite having been clearly and frequently told to do this and why it had to be done. So, at the next session with workers, instead of lecturing on the need to have work orders signed, the workers were asked "Why don't you sign the work orders?" And the answer was, "We do sign them when they accompany the product, but most of the time the product comes without the work order attached". The problem (root cause) was not the workers ignoring the command to sign the work order but rather the lack of a work order to sign. This was a problem with the document control process and NOT a problem with the production process. Attempts to fix the production process were futile because that was not the process that was broken. Once the document flow process was fixed things ran smoothly.

Modern American manufacturing has become obsessed with continually studying work processes and continually seeking the root cause of problems. As a result of this continual tweaking of processes and fixing of minor problems is that literally millions of hours of work time have been freed up for workers to produce what they are paid to produce rather than wasting time fixing problems and struggling with inefficient processes. Thus, while American manufacturing workers are the highest paid in the world, their superior productivity is such that when you divide the output of an American worker per hour by what they are paid per hour the labor cost per unit is among the lowest in the world.

Labor Market Issues - Outsourcing

2006-09-19T06:40:00.000-07:00

Click Here for Today's Course Update Information

Today I am starting the posting of information relevant to one or all of the courses. These postings are an attempt to help you better understand the course and serve in place of the lecture I would give if this were a class that met in a classroom at a specific time every week. For today's update on the three classes click on the link above.

Outsourcing refers to paying someone else to do what you are currently doing. The term applies to businesses or other organizations (including government) that take work being done by their employees and contract with an outside firm to do the work instead. The current debate over outsourcing involves U.S. businesses closing down a division and contracting with a foreign firm in a foreign nation to do the work.

Domestic outsourcing (i.e., hiring a local firm to do the work) is commonly accepted today but was a hot topic a few years ago – Unions hurt when say, maintenance workers at XYZ corp are covered by the contract with the company and then the company outsources to a low bid company and lets its own maintenance workers go – Union now has to negotiate contracts with numerous small companies rather than one big one.

Domestic outsourcing benefits company by reducing costs (is also good bargaining chip when negotiating labor contracts), it is also more efficient for economy as a whole and can be beneficial to individual workers. Peter Drucker in 1970s Op Ed piece in The Wall Street Journal described hospital maintenance workers as having limited advancement potential since hospitals are geared toward doctors and nurses. Job advancement for maintenance people in a such a situation is limited to supervisory positions - middle and top management positions are beyond their reach. But when the work is outsourced, a worker, doing the same job in the same hospital, but as an employee of the maintenance company, now has potential to advance as company focused on just maintenance people.

Foreign outsourcing is criticized because of belief that jobs "lost" to foreigners. But companies outsource when demand for labor by other companies in other industries make wages too expensive in their industry. A couple of years or so ago, AOL in Tucson planned to outsource one of its tele-services lines and lay off a number of workers. There was big outrage in the local computer community in the weeks leadingup to the cut. However, when AOL went through with the plan and closed the line, only one or two people were laid off – the rest were assigned to other AOL divisions that were short of people. Also, creating jobs overseas means jobs and incomes for those people which translates into demand for more goods many of which come from the U.S. A recent entry in a tech blog illustrated this phenomonma of outsourcing creating more jobs in the U.S. A consultant was visiting a tele-services center in India and commented to his host that the operation was very good for India but had cost the U.S. jobs. The Indian manager immediately objected and began to point out that practically everything in this state of the art operation came from the U.S. The computers were made in the U.S., the design of the building was done by U.S. consultants, the phone lines and networking had been done by U.S. firms and even the bottled water was purchased from Coca Cola. The U.S. had "lost" the teleservices jobs but the need to build and support the operation in India had created more jobs in other U.S. industries. So foreign outsourcing is like domestic outsourcing in that it really results in new jobs being created in U.S. (i.e., more jobs than before) but not necessarily in the same companies, lines of work or geographic areas.

For More information on outsourcing and jobs in the U.S. see More Jobs Despite Outsourcing.

Economics Classes - Today's Update

2006-09-15T08:39:00.000-07:00

Here is today’s update:

ECN 200 - A suggested assignment and test submission schedule has been posted. It can be found by clicking here. A link to this schedule will be posted on my course home page http://nofreelunch.bravehost.com/ later today or this weekend. I will also be posting this same schedule, with extra credit points next to each date, later today or over the weekend. Click on the ECN 200 Extra Credit link on the course web page for this. Also, I plan to start posting grades in the gradebook in WebCT. I will begin this weekend by posting 5 extra credit points for each student from whom I have received the syllabus acknowledgment form and 7 points for those who BOTH submitted the syllabus acknowledgment AND responded to the email I sent them in WebCT (NOTE: you have to go into WebCT to get this email). THIS OFFER OF EXTRA CREDIT WILL EXTEND ONLY UNTIL MIDNIGHT ON MONDAY SEMPTEMBER 25TH – after this date there will be NO extra credit as well as no assignments being graded or returned until I receive the syllabus acknowledgment)

ECN 201 – A suggested assignment and test submission schedule has been posted. It can be found by clicking here. A link to this schedule will be posted on my course home page http://nofreelunch.bravehost.com/ later today or this weekend. I will also be posting this same schedule, with extra credit points next to each date, later today or over the weekend. Click on the ECN 201 Extra Credit link on the course web page for this.

ECN 202 – A suggested assignment and test submission schedule has been posted. It can be found by clicking here. A link to this schedule will be posted on my course home page http://nofreelunch.bravehost.com/ later today or this weekend. I will also be posting this same schedule, with extra credit points next to each date, later today or over the weekend. Click on the ECN 202 Extra Credit link on the course web page for this.

ALL STUDENTS – please check this blog daily for announcements. Until I receive all of the Syllabus Acknowledgment forms with email addresses on them, I cannot communicate with the classes by email and this is my only forum to reach everyone. Individuals can obviously reach me via email at: nugentwork@yahoo.com. All students can leave messages for me at my message phone 24/7 me by dialing 206-6464 and asking for extension 76115. Since all 3 classes can call me on this line, PLEASE indicate in your message WHICH class you are enrolled in. ECN 200 students can also reach me via WebCT internal email.

Email is checked before 6:30 a.m. M – F so anything sent after that time will wait until the next day.

Treasury Bonds, Notes and Bills Explained

2006-08-21T05:53:00.000-07:00

Bonds, in general, are nothing more than a means by which businesses and governments borrow large sums of money. Since the sums desired are usually more than a single bank or large investor is willing to loan, the company or government issuing the bond divides the total they need into $1,000 units and sells the units individually. This allows a large number of investors and banks to participate in the loan without assuming the risk of taking the entire loan. Purchasers of the bonds can further limit their risk and commitment by reselling some or all of the bonds they purchased to others without having to wait until the bond reaches maturity.

Like any loan, the principal or amount borrowed is the face (also called "par") value of the bond. Since bonds are usually issued in units of $1,000, the par value of most bonds is $1,000 and this is the amount the issuer must repay to the bond holder (the purchaser of the bond) at maturity. Bonds pay interest and the interest rate the issuer pays is the agreed upon interest rate times the par value. The maturity date is the date on which the issuer must repay the bond holder the face value of the bond and thereby cancel the debt. Some bonds have a "call" feature which allows the issuer, at their option, to repay the bonds early. The issuer is not required to repay early but can repay early if they so desire. If there is no call feature then the issuer cannot force the bondholders to accept early repayment. The existence or non-existence of a call feature can be an important consideration in some cases when deciding to purchase a bond. Assume an investor has a need for a fixed stream of income for a period of, say 15 years, and purchases bonds with a maturity date of 15 years in the future and paying an interest rate that will generate the desired income stream. If the bonds have a call feature and the issuer exercises their right to call the bonds after 5 years, the investor's plan for fifteen years of income will fail and the investor will be forced to devise another means of generating the needed income stream.

In the United States a "Treasury Bond" is a debt instrument which is sold to investors by the U.S. Treasury. The main difference between a Treasury Bond, a Treasury Note and a Treasury Bill (T-Bill) is mainly the length of the term. "Treasury Bonds" have maturity dates greater than ten years, while "Treasury Notes" have maturity dates ranging from two to ten years and "Treasury Bills" have maturity dates ranging from a few days up to 26 weeks. All three of these are issued in $1,000 units and all three can be purchased by individuals as well as banks and other institutional investors. Bonds and Notes are issued by the U.S. Treasury to finance its long term debt and these are what make up the "national debt". Treasury Bills, on the other hand, are what the Treasury uses to manage its day to day cash flow and the sum of these T-Bills is what makes up the "deficit" that politicians and pundits always claim to be concerned about. Government revenues, like individuals' incomes, do not always match their bills and the Treasury is often forced to borrow when expenses exceed revenue the same as an individual pulls out their Visa when the car breaks down and the repair cost is more than they have in their checking account. And, just as individuals whose credit card debt gets too large, either consolidates it into a more manageable payment with an intermediate term consolidation loan or longer term loan by refinancing their home, the Treasury does the same when the T-Bills pile up and it consolidates them with intermediate term notes or long term bonds.

The other nice feature about any bond (and this includes Treasury Notes and T-Bills as well as Treasury Bonds) is that individual purchasers do not have to keep the bond to maturity to get their money back. Holders of bonds can sell them to others who can either hold them to maturity or sell them again before maturity. The $1,000 units makes this easy. However, when bondholders sell bonds before maturity they usually will not receive the $1,000 face value of the bonds. This is because, for most bonds, the interest rate is fixed at the time the bond was issued. A $1,000 bond with a rate of 10% will pay $100 per year in interest ($1,000 x 10%) until maturity. However, if market interest rates fall to 5%, the price of the bond being re-sold will rise to $2,000 so that the $100 per year that the issuer will continue to pay is now equal to 5% (5% x $2,000 = $100) of the price the new purchaser paid for the bond. Of course, if the new owner holds the bond to maturity they will only receive the $1,000 face value of the bond. Bonds that sell for more than their face, or par, are said to be selling "above par". On the other hand, if interest rates rise to 20%, the price of the bond will fall so that the $100 annual interest on the bond calculates to 20% of what the new buyer paid. In this case the bond will sell for $500 (20% x $500 = $100). If the new buyer holds the bond to maturity that holder will receive the $1,000 face value of the bond. Bonds selling for less than their face, or par, value are said to be selling "below par".

Investing in bonds, whether Treasury Bonds or bonds of corporations or other nations can be more complex than I have explained here. Here I have tried to explain the basic terms and concepts which you can then build upon depending upon your investment needs and objectives.

Videos for Course

2006-05-31T07:04:00.000-07:00

Watching the videos and reading the texts and outside readings are the major requirments for this course (assignments and tests also have to be submitted in a timely manner as well). For the videos, I have found the following four sources:

1 Watch or record and watch them from your cable TV. The schedule was sent to you with your packets (or can be picked up from the Community Campus LRC). The weekly program schedule was posted yesterday and is the next entry below this on the blog.

2 You can also check out the 3 video set, containing all of the broadcasts, from the Community Campus LRC. You must return these in the same condition or pay for them (no PCC grades will be given until videos are returned or damages are paid).

3 You can visit any PCC Library and check out the videos TO VIEW AT THE LIBRARY.

4 Go to www.learner.org on the internet and view the videos on your PC over the Internet. See below for more on viewing the videos over the Internet.

A student in last Fall's class discovered the Learner.Org site which contains numerous resources for students and teachers. The best way to access the videos used for the ECN 200 course is to click on the blue Telecourses button along the top of the page and then scroll down to the Economics U$A link. Each of the videos is listed and can be viewed by clicking the video button next to the one you wish to view.

This site does require you to register in order to view a video. But it is a one time free registration. I did a quick check of it and they are the same videos that are broadcast for the class. The only limitation is that, being video, you need broadband access for good viewing. If you have a dial-up connection, as I have, it is slow and difficult. If you do not have broadband at home I suggest that you go to any PCC computer lab or library to view them or visit a Tucson Pima Public library and use their computers (U of A students can also use U of A facilities).

No Free Lunch at Microsoft

2006-05-24T23:00:00.001-07:00

Yesterday as I was coming out of the local branch of the Tucson Public Library I was approached by a person gathering signatures for petitions and asked if I would sign them. All of them dealt with issues that various special interest groups want to have included on the November ballot. Since none of them were issues that I am in favor of seeing enacted into law, I declined to sign them.

One caught my eye and that dealt with an issue that certain groups in Tucson have been pushing unsuccessfully for quite a while and that is raising the minimum wage in Tucson. From a strictly selfish point of view, I probably should have signed that petition. Like anyone with any knowledge at all of economics and how an economy works, I know that raising the minimum wage has the effect of reducing the labor force as employers layoff marginal workers whose output is less than the new wage. To replace the lost output, these employers have to turn to more automation and this increases the demand for people, like me, with the skills needed to design and run these new systems.

However, in addition to not feeling right about advancing on the misfortune of others, I am the father of four children, three of whom are just entering the labor force. My oldest, started part-time work at minimum wage when he turned 16. In the six years that followed, and with no more than a high school education (his choice, not mine), he has advanced to over $13.00 per hour – almost twice what those in favor of increasing the minimum wage are proposing.

Just as the Ritenour article which was the reading assigned with Assignment 1 for my ECN 202 class this spring) described, when my oldest son was earning minimum wage he lived at home with all of his basic living expenses (including medical insurance) taken care of by me. His income went toward his car, electronic gadgets and partying. After completing high school and working his way up to $13+ per hour he elected to move out and began supporting himself.

My three younger ones, who are still in high school and college, are working part-time at minimum wage jobs. However, their food, shelter, medical expenses (including insurance) and education expenses are covered by my wife and I. In an effort to induce a little reality I have started charging them $30 each (when they are working), but, instead of using it to defray the expense of supporting them, I have opened IRAs (Individual Retirement Accounts) for each of them and deposit their $30 into these accounts.

While my children tend to be the norm for people earning minimum wage, I realize that there are some people who have to support themselves and, in some cases a family, on minimum wage. However, I have yet to see how they are helped by a law that results in the loss of their job. I don’t see how a person struggling to support themselves on a minimum wage are made any better off by reducing that wage to zero.

The expression there is no such thing as a free lunch is more than just a quaint saying. It contains a profound economic truth and that is that nothing is free. If the college decides to provide free meals in the cafeteria as a benefit to instructors the meals would cost the instructors nothing and, from their point of view, would be free. But someone would have to pay and the net result would be that either the taxpayers would have to pay through higher taxes, or the students would have to pay through either higher tuition and/or higher prices for meals in the cafeteria.

Today’s issue of Redmondmag.com provided a very clear example of the no free lunch concept. It seems that two years ago financial and competitive pressures forced Microsoft to eliminate free sodas, free massages at work and other employee perks common in high tech companies during the dot com era. Now, in order to keep the highly skilled workforce needed to compete against the likes of Google, Microsoft is being forced to reinstate many of these perks. This move is an investment by Microsoft which they hope will pay off with higher sales in the future. But, like all investment, the money has to come from current consumption which means that some group has to receive less in order for the Microsoft employees to receive more. For the current fiscal year (which, for Microsoft, ends on June 30th) the new perks just given to Microsoft’s full-time, regular employees will be paid for by Microsoft’s large body of contract or temporary workers in the form of an involuntary and unpaid seven day leave of absence (i.e., a seven day layoff). Microsoft apparently chose to place the burden on this group rather than making its stockholders (a group that includes multi-billionaire Bill Gates as well as mutual fund companies managing retirement accounts for minimum wage workers like my three youngest children).

While idealists can argue forever about how best to distribute the burden of a transfer of income or wealth from one person or group to another, the fact remains that, except for increases in productivity (which actually increase the size of the economic pie thereby making more available for everyone), there is no way to make one person or group better off economically without making some other person or group worse off. As Milton Friedman kept emphasizing to his students and TV audience
THERE IS NO SUCH THING AS A FREE LUNCH!

Voluntary Transactions in a Free Market

2006-03-03T07:38:00.000-07:00

When we speak of market transactions as being voluntary in a free market we are saying that the use, or threatened use, of physical force is not being applied to either of the two participants in the transaction in order to make them enter into that transaction. Unfortunate or unpleasant circumstances may leave a person with little or no choice as to whether or not to enter into the transaction but this is not the same as one of the participants or his/her agents threatening force to complete the transaction.

For instance, going to the dentist to have a cavity in one of my teeth filled is not something that I look forward to having done and it is certainly not something for which I enjoy spending my money. In fact I take steps to try to prevent cavities so as not to have to enter into such transactions. When I do get a cavity I have the choice of either paying to have it treated or living with the pain and knowledge that I will eventually lose the tooth or worse. So I go to the dentist and part with my money knowing that paying for the treatment is the better of two unpleasant and unwanted choices. Even though I view my choice as being the lesser of two evils I still freely choose to pay to have the cavity filled.

This is different from the dentist deciding that, because cavities are not healthy, people must be made to have them filled. To do this the dentist forces his/her patients at gunpoint to come in and pay to have their cavities treated. Whether the dentist personally confronts the patients or has an agent do the threatening, the use, or threat, of force by the other party to the transaction means that this is no longer a voluntary decision on the part of the other party to the transaction. The same would be true if the dentist, rather than personally threatening the patients or hiring others to do the threatening got the government to make it illegal for people not to have their cavities treated and used the police to force people obtain treatment. (While it may seem like a no brainer to have one's cavities treated, a person could choose to live with the discomfort of a bad tooth if treating the tooth meant using money that was needed for something more important to them such as to purchase life saving medication for a loved one.)

The above example would be the same if it was the patient that threatened or used force against the dentist to fill a cavity at a price lower than what the dentist wanted to charge. Getting laws passed to limit what a dentist could charge to fill a cavity (and enforcing it with fines or prison if they insisted on charging a higher fee) would also be an example of force to make one party in the transaction participate unwillingly.

Circumstances are not always good and many economic decisions are made on the basis of choosing the lesser of two undesirable choices. But so long as we are free of man-made force and allowed to make the choice on the basis of the environmental obstacles alone, the choice is voluntary.

What Will Happen when the Boomer Generation Retires?

2006-03-02T22:44:00.001-07:00

After doing the assignment and take home test for section two of the telecourse, which dealt with the Philips Curve and Inflation, a student asked if the coming retirement of the Boomer generation (of which I am a member) would be inflationary.

The simple answer to this is yes, as the removal of such a large section of the population from the workforce would result in a noticeable reduction in the labor force and decline in production of goods and services. Further, with their income from Social Security, pensions, 401(k) plans and IRAs, this large group, who would not be producing, would still be exerting significant demand for goods and services. The same amount of money chasing a reduced amount of goods and services would be inflationary as prices rose in response to people bidding up the prices of the shrinking supply of goods and services.

Having said that, do I think that this will happen? My answer to this is no. There are four reasons why I don't think that, other things being equal, the pending retirement of the Boomer generation will be inflationary.

The first reason is the fact that, based upon both the past actions of this generation and present indications, a large number of these people will not be retiring. Many of the members of the Boomer generation do not have sufficient savings to be able to afford retirement. A number of these absolutely cannot afford to retire and others cannot afford to retire and maintain the life styles they are accustomed to living. Many others, including me, have indicated that they have no interest in stopping working. These people do not want to leave an active life of productive work and spend the rest of their days in idle leisure. Not only is the prospect of doing noting not attractive to these people, but both scientific studies and our own observations of our parents' and grandparents' as they aged have shown that people who remain active and productive tend to be healthier and live longer than those who simply stop working all together. Anyone who doubts this should take a trip down to Green Valley during the winter to visit the Green Valley Computer Club. This is a large active group of older people who volunteer as much as 40 or more hours per week running a computer training operation that rivals anything that Pima Community College offers in this area. I was invited to address this group a few years ago and was impressed by what this group, most of whom appeared to be in their late sixties or early seventies was doing. I was dumbfounded when I learned that most of the leaders who were showing me around were really in their late eighties and early nineties!

The second reason I feel that the pending retirement of the Boomer generation will not be inflationary is the global economy. While nations with advanced (in terms of economic development) economies - the U.S., Canada, Australia, Western Europe and Japan - have aging populations, the populations of the emerging economies of Asia, Latin America, the Middle East and Africa are disproportionately young.

Outsourcing, or the shifting of work from one nation to another, is already an established practice for other reasons. The gaps in the workforce caused by the retirement of large numbers of people in countries like the U.S. can be offset by shifting the work to places like Asia or Latin America who have the population to do the work. Americans have the money to purchase the goods and these countries have the workers to produce the goods.

The third reason for being confident that the possible exit of large numbers of workers from income producing work in the U.S. due to retirement will not be inflationary is immigration. Again, aging populations in the U.S. and other economically advanced nations is offset by disproportionate numbers of younger workers in the developing nations. Immigrants are not just poor peasants from Mexico or Central America coming here to take low wage jobs that require few skills. Instead, they include people at all levels. Rupert Murdoch, the owner of the Fox media empire is an immigrant. Last week's Wall Street Journal had an article about how as President Bush was finding an ally in the new Prime Minister of India, a leading critic of the President was the daughter of that same Prime Minister. However, she was not a foreign critic of the President but rather the leader of an American Civil Liberties Union (ACLU) team fighting the Bush Administration in court over their handling of prisoners in Guantanamo. Her father may be the Prime Minister of India, but she is a Yale educated lawyer, member of the American Bar, living and working in the U.S. and married to an American citizen (the article did not indicate whether she was a citizen or simply a legal resident). The fact is, the U.S. is a relatively open nation which offers great opportunity and this attracts people from all over the world. The U.S. has always been a nation with a shortage of labor and from the early days when we were still just a string of British colonies along the Atlantic coast we have relied on immigration to provide the labor need to build the country.

Finally, we have capital and technology. Capital is expensive and, other things being equal, it is less expensive to use labor rather than capital. But when labor is in short supply (as it has been throughout most of America's history) business is forced to invest in capital. Critics constantly bemoan the decline of the manufacturing sector in the U.S. But we are still a major producer of manufactured goods and our output of these goods is increasing rather than decreasing. Manufacturing is as large as ever in the U.S., it is just that: 1) other sectors are growing as well so the proportion of the economy devoted to manufacturing is declining; and, 2) due to automation, the number of jobs in manufacturing are declining. Today, production processes that used to employ dozens now employ a half a dozen or less aided by robots and other automated equipment. The exit of the Boomers, if it occurs, will be further incentive to invest more in capital and technology to make up for their loss.

Contrary to Luddite mythology, automation and advancing technology creates rather than destroys jobs. Ceteris paribus, automation enables business to continue to expand without having to increase labor proportionately. The main reason why business invests in more capital rather than labor is that the needed labor is not available. When the labor needed is already fully employed the only way for one company to expand is to bid workers away from another company – this results in an upward spiral in labor costs, which is inflationary, without a corresponding increase in output. Increased capital investment solves this problem in two ways: 1) it makes each existing worker more productive by allowing them to produce more in the same amount of time with the same or less effort; and, 2) it increases the pool of labor by enabling people who lack the physical and/or intellectual capabilities to do the job under the previous conditions to now do the job. For example, think of physical labor such as road building. If done with a pick and shovel the work is not only slow but the jobs can only be done by people who are physically strong. Bring in motorized earth moving equipment and not only can one worker now move as much dirt as a dozen or more using picks and shovels, but the person driving a piece of heavy equipment does not have to meet the same demanding physical standards, thus allowing employers a larger pool from which to hire. Early in my banking career I designed an automated system for doing the paperwork needed to process mortgage loans. Prior to the computer system this job required excellent typing skills as well as years of experience in order to know which documents to prepare for a given loan and how to prepare them. Increasing demands for home mortgage loans and increased complexity due to new government regulations put great pressure on the industry to expand but the cost of recruiting experienced labor from our competitors was prohibitive. With the system I designed it took about the same amount of time to produce a loan package. However, instead of 40 to 60 words per minute typing skills I could use people who typed at 18 to20 wpm. Instead of some post secondary education and ten years or so of experience, the new system allowed us to hire people right out of high school, train and have them producing mortgage loan packages within two weeks. We were thus able to increase our loans without driving up our wage costs.

It should be noted that most Boomers put off having children until they were in their late thirties or early forties. By deferring the start of their families for about twenty years we, in effect skipped a generation (it takes about 20 years for a new generation to reach adulthood). The so called baby bust refers to the roughly twenty year period when most of the boomer generation were not having children which resulted in the generation that immediately followed us being very small. Our own children are now reaching adulthood just as we are getting ready to retire. This generation is as large as the Boomer generation but, since it is just coming of age and beginning to enter the labor market, it has not had time to acquire the skills and experience needed to enable it to replace us in the workforce. However, technology could make up for much of the experience and skills that our children lack thereby enabling them to replace, to some extent, the retiring Boomers.

All of the above factors will come into play as individuals and individual businesses adjust to changing conditions. I am confident that, if left to itself, the market will adjust and the transition will be relatively smooth. The chattering classes, of course, will be devoting ever increasing amounts of time to worrying about this perceived problem over the coming years. However, anyone who feels the temptation to succumb to their doom and gloom predictions, should go to their local library or the internet and search out magazine and newspaper articles from the 1930s dealing with the perceived demographic crises of those years. Due to the Depression and other factors, the birthrate had dropped noticeably giving rise to fears that there would be too few people in coming years to do the work necessary to keep society going. That generation went on to push the economy to new highs and, at the same time, produce the Boomer generation.

Price Discrimination

2006-02-22T23:07:00.000-07:00

In yesterday's blog entry I stated that the hotels and museums in Russia were practicing price discrimination when they charged foreign tourists different rates than local Russian tourists. This is not the same as racial or other types of discrimination whereby people are denied rights due to their race or some other identifying characteristic. Instead, it describes a situation where seller's can take advantage of the fact that not only are certain groups of consumers willing to pay more for a good or service than another but it is possible to charge each group what it is willing to pay AND prevent the higher paying group from paying the lower prices offered to the other group.

All of you should understand that the price of a good or service in the market by the intersection of the demand and supply curves. However, there are some people who fall along the portion of the demand curve that is above the equilibrium point. These people are willing and able to pay a higher price for the good or service but, seeing they can get it for the lower market equilibrium price, end up paying the equilibrium price. The difference between the price an individual is willing to pay and the equilibrium price that that individual actually pays is known as consumer surplus. Now, if I, as a consumer, drive into a gas station with my tank on empty and am willing and able to pay $2.90 per gallon but see that the gas is offered for $2.30 I am not going to insist that the attendant accept $2.90 per gallon for the gas I purchase. In fact, I will be angry if the attendant, somehow knowing that I am willing to pay $2.90, attempts to charge me that price after charging the customer ahead of me $2.30 for the same grade of gasoline. Given the opportunity, the consumer will always elect to pay a lower rather than a higher price, ceteris paribus, even though he is willing and able to pay the higher price.

The opportunity for price discrimination arises when a seller is able to first identify two or more different segments of consumers with each segment having a different price they are willing to pay. Second, the seller must have some control over price. Monopoly, monopolist competition and oligopoly all allow sellers to exercise some control over the price they charge as the products these sellers offer are to some degree unique. Price discrimination is not possible under pure competition since the good or service offered by each seller is identical to that of all other sellers of the good or service enabling consumers to get the lower price simply by going to a competing seller. Finally, and most importantly, it must be impossible or too costly for a buyer to purchase the good or service at the lower price and resell it to buyers in the higher price category at a price between what she paid and what the seller is charging that group. If such arbitrage opportunities exist any price discrimination will soon disappear.

The conditions described above existed in the hotel and museum industry in Russia and that is how they were able to practice price discrimination. Another example of price discrimination closer to home is the sale of seats on airplanes. Think of two passengers sitting next to each other in tourist class on a flight from Tucson to Chicago. One passenger paid $1,200 and the other paid $300 for the same service. How is the airline able to get away with this? Well, the first passenger is a businesswoman whose employer paid the $1,200 to get her to Chicago to close a multi-million dollar deal while the second passenger is a retired grandfather on a budget who had to purchase his own ticket. Being retired, the grandfather's time is flexible so he was able to purchase a ticket twenty-one or more days before and able to schedule his departure and return such that he will be spending a Saturday night in Chicago. The businesswoman's employer would have liked to pay $300 for her ticket but when the client called the day before and said they were ready to sign they had to send her immediately – they were not about to lose a multi-million dollar deal by trying to save $900. Further, they are probably paying this woman a high salary and cannot afford to have her sitting around Chicago after the deal waiting until Sunday morning in order to qualify for the $900 savings. Business needs to respond quickly and usually does not have the luxury of 21 day advance reservations. Also, it is usually less expensive to pay the extra cost of the tickets than lose the employee's services for a few days (to say nothing of the fact that the employees prefer to be home with their families on weekends rather than sitting alone in a hotel room in a distant city). Tourists have the luxury of planning ahead and don't mind spending Saturday at their destination but they are also more price sensitive to price. The 21 day advance reservation and Saturday night layover requirements are effective ways to segregate the two groups of consumers. There is also no easy or inexpensive way for tourists to purchase extra tickets and make a profit selling them to business so the price discrimination works in this case.

The Anderson book also gives the example of monopolies charging more for the first unit of the good or service than for succeeding units. This works when the majority of the consumers have a compelling need for first unit of the good or service but not for additional units. Electricity is a good example here. It is almost impossible for a modern home to be without electricity. A certain minimal amount is needed each month for lights, alarm clocks, cooking, heating (or starting the heating unit if it is not electric) and, in Arizona in the summer, cooling. But after the basic electrical needs are met other uses are nice but not a necessary. It is necessary to use the air conditioner in summer to cool the house down while we are in it. It is nice, but not as necessary, to keep the house cool all day so you can walk into a cool home after work and not have to wait for it to cool down. Similarly, a twenty minute hot shower on a cold winter morning is great but two are three minutes are all that is necessary to clean yourself. Thus, people will purchase the first necessary units but are reluctant to spend the same amount for additional units. Recognizing this, the monopolist offers the additional units at lower prices to induce individuals to keep consuming past the first required purchase. (NOTE: this second example is also a good example of diminishing marginal utility where the satisfaction gained from consumption of the good or service declines with each additional unit consumed. In this case in order to keep the cost of the satisfaction or utility the same for each unit purchased, the price paid for each additional unit must be reduced proportionally.)

How a Free Market Works

2006-02-20T20:36:00.000-07:00

In both the ECN 201 Microeconomics class and the ECN 200 Basic Economic Principles courses I assigned the same article by Murray Rothbard entitled What is the Free Market? and one of the questions asked in both courses was:

Explain why the socialist planners in the former Soviet Union were unable to take a bumper (i.e., very large) harvest of wheat and convert it to bread and other baked goods for consumption by consumers in cities throughout the former Soviet Union.

To date the few assignments I have received have all paraphrased Rothbard to the effect that the Soviet planners lacked a free market and prices to guide them. Some have also added that the absence of prices and profits also resulted in a lack of incentives to produce. While I have accepted these answers so far, it is clear that those answering the question didn’t really grasp why the free market and price system is important and how they work.

A real life story from my wife’s experience may help clarify the problem. My new wife is from Ryazan, a city in western Russia with about the same size population as Tucson. Ryazan is located about three hours by train or car south of Moscow. According to my wife, there were no stores with food for sale in the city in the period prior to the fall of communism in the early 1990s. Despite the fact that among the city’s industries was a large meat processing plant (the total output of which was sent to Moscow for sale) people had to travel by car (if they had one) or by train to Moscow to do their grocery shopping. My wife and her former husband had to travel by car with his parents (who owned the car) once a month to do their grocery shopping. The trip took three hours each way to get to Moscow and back and the rest of the day was spent in lines in stores trying to get food. Back in Ryazan they had a small apartment (for themselves and their two children) with a small kitchen and a refrigerator about half the size of contemporary American refrigerators.

I had previously visited Moscow and St. Petersburg (then known as Leningrad) in my senior year of college 1969 as a part of a Russian history course that included a 2 week field trip to the Soviet Union. I observed that life was drab but the people I saw and met had sufficient food, clothing and shelter. There was not much variety in the food – mostly fresh potatoes and vegetables. Meat was very scarce and people’s main source of animal fat for energy was the lard that food was frequently used for cooking. Obtaining food required going from store to store and standing in long lines hoping they still had food in stock when you reached the counter. The clothing was dull and ill fitting. The colors were mostly dark blues, grays, browns and blacks and even these dark colors were dull compared to the same colors in clothes manufactured in the west. The quality of western clothing was so superior that a westerner could not walk down a street without having a dozen or more people approach them with offers to purchase the extra clothes they had back at the hotel. The ruble prices offered for the used clothing were usually in excess of the original price paid in the west. This despite the fact that the buying or selling of items outside regular stores was illegal. The housing was mostly small apartments.
This was the situation in Russia for most of its citizens under communist rule. Practically everyone was poor by western standards but it was not the absolute poverty of the third world. Things were bad but not desperate.

In a market economy prices for food in a city, like Ryazan, would be high. This would signal producers that there was an opportunity for profit and they would begin moving food to Ryazan to sell. But, without a market driven price system, this signal did not exist so the city’s plight did not come to the attention of the planners in Moscow. The other, non-market, signal that would have alerted the planners would have been large numbers of people dieing of starvation or masses of hungry people taking to the streets and rioting. But, there was no shortage of food in the sense that people were going hungry. Food was not plentiful and it was inconvenient to obtain it but, with effort, sufficient food could be obtained. Like a person with a long illness who has learned to live with his or her pain, the people of the former Soviet Union endured. Thus, in the absence of signals, the planners, occupied with trying to make all the economic decisions for a nation that stretched from the Baltic to the Pacific, easily overlooked Ryazan.

As my first described it to me when I first visited her in Ryazan in 2002, “…there was a fellow named Gorbachev in charge and things got really bad. Then one day things suddenly changed. Gorbachev was gone and food appeared in the stores in Ryazan”. The change was literally overnight as Russia went from communist central planning to a free market. The first thing that changed was money became important. Under the communists prices were set by the planners with some attempt to ration scarce goods. But, both the lack of good information and political meddling made most prices meaningless and rationing was done by having people wait in long lines or use political influence to obtain needed goods. Further, incomes did not vary much so everyone tended to suffer equally. Acquiring money through saving was not allowed. The government owned all the businesses so there was no place to invest one’s money. Starting one’s own business was illegal. Finally, it was illegal to take money abroad, but that didn’t matter because, the currency was basically worthless outside of the Soviet Union.

With the communists no longer in control entrepreneurs were free to begin making money by providing products to consumers. Farmers dug into their limited supplies of food that they had hidden for emergencies and began selling it in the cities. Making a profit, they returned home and began growing and scrounging anything edible to take to the cites to sell. Others, not in farming began noticing arbitrage opportunities where food in large cities, like Moscow, was more plentiful and therefore less expensive while in places like Ryazan it was scarce and expensive. They went to the places with less expensive food, purchased it and returned home to sell it at a profit. (The fall of communism meant that people were no longer paid when they took off from work, it also meant that gasoline prices were allowed to rise and trains, which were still run by the state but needed money to keep operating, were now making everyone pay the regular fare. In the past paying was more of an honor system which most people chose not to honor.) It was thus profitable for people out of work to specialize in traveling long distances to obtain food and other goods for re-sale in their home cities but costly for people with jobs. In a market system goods that are in great demand and short supply command high prices while those which are in large supply and/or not in great demand have lower prices. While planners had to try to figure everything out in order to make the economy run (and when they did not know everything, which was all the time, goods became scarce), entrepreneurs in a market economy don’t have to know everything. They just have to be able to identify which goods command a high price and can be produced or obtained at a lower price somewhere else.

The Russia I visited in 2002 was vastly different from the Soviet Union of 1969. Food was plentiful and in greater variety. Clothing was also plentiful and of comparable quality to western clothing. In 1969 you could literally spot a foreign tourist a mile away by their clothing. In 2002 the only way to identify a western tourist was if they spoke in a language other than Russian or, in the case of Americans, if they wore a wedding band on their left hand (Europeans generally wear wedding bands on their right hands). I even took a three day bus tour with my then fiancée using a Russian name and not speaking (I don’t speak Russian) and easily passed myself off as one of the locals.

Prior to the fall of communism people, including economists, were wondering if it was possible to convert from the communist economic model to a market economy peacefully given the huge distortions created by the communist central planning. In the 1999 book The Commanding Heights. The Battle Between Government and the Marketplace that is Remaking the Modern World. authors Daniel Yergin and. Joseph Stanislaw describe the situation in Poland when the communist economy collapsed. The communist generals who had staged a coup earlier and replaced the civilian communist rulers in a last ditch attempt to save the system gave up and turned the government over to Solidarity. American economists, trained in free market economics under the tutelage of Milton Friedman and the University of Chicago, and fresh from their success in turning the Chilean economy around after its short bout of communism under Salvador Allende were called in to perform the same miracle in Poland. But Poland was a complete disaster. With food supplies expected to run out in the cities in a matter of days and mass starvation imminent, the American advisors advised going cold turkey by instantly abolishing all forms of government control over the economy and letting it move to a free market instantly rather than the gradual transition the many were urging. The government declared that effective at midnight a couple of days later the transition would occur. The American economists crossed their fingers and made reservations to leave on the first plan out after midnight just in case the experiment didn’t work and chaos ensued. The transition to a market economy took place at midnight as planned and by 5 a.m. there were lines of farmers making their way to the cities with food. Within days the food shortage had ended.

Seeing Ryazan in 2002 I could easily believe my then fiancée when she described the change as no food one day and food suddenly appearing within days of the unreported (in Russia) coup that moved the country from communist central planning to a market economy literally over night.

Brown Lung DiseaseDiscussed in Lesson 1 of ECN 200

2006-02-13T05:52:00.000-07:00

Brown Lung Disease, also called Byssinosis, is a lung disease that results from prolonged (often ten years or more) exposure to breathing of cotton fibers present in the air during the production of cloth from raw cotton (in the U.S. most textile mills process cotton fiber so the most common cause of Byssinosis in the U.S. is cotton fiber, in other countries it is caused by flax, hemp or other material fibers as well as cotton).

It is believed that byssinosis is the result of constant irritation and/or release of toxic substances by the fiber on the lungs over a long period of time. Byssinosis is characterized by shortness of breath, feelings of tightness in the chest and constant coughing. Continued exposure after onset of disease results in a reduced ability to breathe, especially exhale, which is very similar to the symptoms experienced by people with chronic bronchitis. There is some indication that smoking or occurrence of other lung ailments aggravates byssinosis. While "brown lung" is the term used to describe the condition, patients' lungs do not turn brown as a result of the disease.

According to the video and statistics cited by OSHA at the time of the implementation of safety standards to prevent the disease in 1978, about 100,000 or about 20% of the workers in textile mills in the U.S. were AT RISK of contracting the disease. After implementation of the new rules, OSHA statistics showed that between 1979 and 1996 an estimated 35,000 current and former textile workers (due to long period needed to develop the disease, most of these probably contracted the disease in the years prior to the implementation of the safety standards) actually had the disease and, of these, between 120 and 188 died from it in the period 1979-1996.

While it was unfortunate that some workers contracted the disease and a few died of byssinosis, the cost of the cure according to your book was the loss of 300,000 jobs in the textile industry in the U.S. Additional jobs were probably lost in service industries that provided goods and services to the workers (stores, restaurants, bars, banks, etc. all of which would have seen business decline and would have laid off workers due to loss of business from the unemployed textile workers) and services to the companies themselves (delivery people, suppliers of raw materials, machinery, etc.). In many cases the impact of the closing of textile factories could be tremendous in cases where the textile company was the major employer in the area. Also, for many of the workers jobs in the textile mills were probably both one of the few jobs for which they had skills and the textile jobs probably paid more than the few other low skill jobs.

Why was the actual rate of disease and death so low? There are a number of possible reasons. First, the disease generally occurs only after long exposure to breathing the cotton fibers. Many people got a start in the textile mills and then moved on to work in another industry. Second, many of those who spent their careers in the textile mills only spent part of their career or part of their working time in those parts of the factory floor where the fibers were concentrated. Finally, contracting the disease and the severity of it once contracted can be related to one's overall health. People with weak lungs are probably at greater risk than those with healthy lungs. Secondly, smoking and other activities that harm or weaken the lungs will increase the risk of byssinosis and this risk will be even greater in people whose lungs are weak to begin with.

While we cannot dismiss the deaths of 188 or so workers or the debilitating illness of 35,000 workers as an acceptable cost for the saving of over 300,000 jobs. But, at the same time, it is difficult to justify drastic actions that severely harm many to save a few especially when there are other alternatives. As your text and video pointed out, in the case of byssinosis, a mask that cost $1.49 per worker would have been a low cost interim solution. True, the masks were uncomfortable but that was better than losing one's job in a job market with few other possibilities. As companies renovated factories and built new ones they would have installed the new equipment in an effort to keep their existing labor force and attract new workers from the firms that had older factories. But incorporating new technology into the building of a new factory is considerably less expensive than attempting to retrofit new equipment into an existing structure.

The study of economics should show you that there is no such thing as a free lunch. Everything has costs and all economic activity involves tradeoffs between costs and benefits. The goal should be to find production processes that yield the most benefits with the least cost. But more importantly, activists and policy makers should consider the implications of the policies they are pushing. The workers in the textile mills were free to choose between keeping their jobs and risking the possibility of contracting byssinosis or seeking a different job. While their options may have been limited, they were still in the best position to analyze their personal situation and make a decision. Instead, union officials, Congressmen, bureaucrats, Supreme Court Justices, etc. in Washington and other places far from the textile mills and with jobs that would be unaffected by their decisions, made the decisions that cost over 300,000 textile workers their jobs.

For more information on lung diseases and occupational dangers affecting lung health see the
American Lung Association web page.

A Tribute to Sir John Cowperthwaite

2006-02-10T06:34:00.000-07:00

On Saturday, January 21st of this year, one of the great figures of the twentieth century, Sir John Cowperthwaite, died in St. Andrews, Scotland at age 90.

John James Cowperthwaite was born on April 25, 1915 in Scotland. He studied economics at St. Andrew's University and then continued his studies at Christ's College, Cambridge. Upon graduation he joined the British Colonial Service and sent to Hong Kong. He, along with other members of the government were evacuated from Hong Kong as Japanese forces advanced on it during World War II. Cowperthwaite spent World War II as a British colonial administrator in Britain's African colony of Sierra Leone.

In 1945, following the end of World War II in the Pacific, Cowperthwaite was reposted to Hong Kong with orders to implement policies that would revive the war torn economy of the colony. Upon his arrival in the colony he noticed that, in the interim between the exit of the Japanese and the re-entry of the British – a period of minimal government – economic reconstruction had already begun through the efforts of individual citizens as they went about their daily business.

Observing that the process of reconstruction had begun in the absence of government and was proceeding without any government guidance, Cowperthwaite decided to follow a a laissez-faire policy of non-interference in the economy. There is a story told that at a nineteenth century meeting of businessmen and politicians in France, a member of the French government asked the businessmen what the French government could do to help the economy. The bureaucrat's question was answered with a resounding Laissez-faire, si vous plait! which roughly translates as Please leave us alone! The businessmen's plea was ignored in France but, a century later, Cowperthwaite successfully implemented a policy of strict laissez-faire that resulted in Hong Kong, over the course of a couple of decades, vaulting from a poor Asian trading port into a major manufacturing and world financial center with a standard of living that exceeded that of both its Asian neighbors and the mother country of England. In fact the GDP (Gross Domestic Product or value of the annual output of the economy) of this tiny Asian enclave exceeded that of both Britain and Israel combined.

While the rest of the world attempted to grow their economies through varying degrees of bureaucratic management with little or no success, the economy of Hong Kong skyrocketed. Countries like the U.S. which retained considerable economic freedom had good, but not spectacular, growth rates while countries like the Soviet Union and Communist China saw their economies stagnate and die under the dead hand of bureaucratic management.

In the early second half of the twentieth century Hong Kong was considered a miracle. But Hong Kong's success was due to neither luck nor divine intervention. Instead it was the result of Cowperthwaite's unwavering policy of laissez-faire. This is not to say that Cowperthwaite was a do-nothing bureaucrat. He worked hard and diligently to prevent Queen's ministers and bureaucrats from London and special interests in Hong Kong from forcing the government to intervene in the economy of Hong Kong. And, Hong Kong's success was no exception to the laws of economics. Other than a good harbor, Hong Kong had no natural resources and, at the end of World War II was as poor as the rest of Asia. The fact that it was small with a relatively homogenous population also offered no special advantages. Despite its small size, during the period of its rapid growth the colony was flooded with refuges from neighboring Communist China – causing its population to increase ten-fold. Still it grew, real income increased by 50%, the number of people in absolute poverty decreased steadily and disease and mortality rates declined to Western European levels. All of this was accomplished with low tax rates and minimal government social service programs.

While Cowperthwaite's achievement in Hong Kong was considered miraculous at the time, subsequent history has shown it to be simply sensible policy. Close upon the heals of Cowperthwaite's success in the then British Crown Colony of Hong Kong, Margaret Thatcher was elected Prime Minister of the mother country, Great Britain and, following policies similar to those of John Cowperthwaite, she soon transformed the British economy from stagnation to a major force in the world economy. Neighboring Ireland, long the poorest nation in Western Europe with a population steadily declining as its youth left for other nations turned itself into one of the richest nations in Western Europe within the span of a decade after abandoning the stifling regulations that were choking the economy and allowing the people the freedom to determine their own economic destiny. Former Soviet client states like Estonia, threw off the shackles of state planning and quickly made up for a half a century of economic decline with rapid growth.

Thanks in part to the changing political climate, John Cowperthwaite not only lived to see the success of his policies in Hong Kong but was rewarded with honors and a knighthood in recognition of his achievement.

Videos for ECN 200 Telecourse

2006-02-09T06:11:00.000-07:00

All students in the ECN 200 Telecourse should have received a Telecourse broadcast scheedule with the syllabus that was mailed to you by the Community Campus. In there it shows the ECN 200 course videos being broadcast on Comcast Channel 96 on Wednesdays from 6 - 8 pm and on Cox Channel 96 at the same time (Wednesdays from 6 - 8). It is very important that you make a point to watch these broadcasts as these constitute the lectures that you would be attending if this were a regular classroom class. If you schedule does not permit viewing at this time here are your additional options:

1 Set the timmer on your VCR and record the program for later viewing.

2 Go to the LRC desk at the Community Campus (located at 401 N. Bonita Ave.) and check out the three tapes that contain the entire series. This will require a Pima Community College ID card (which can be purchased at this or any PCC campus for about $2 upon showing proof of registration). You will be required to return the tapes at the end of the semester in the same condition as when checked out or a fine will be levied and a hold placed upon your records.

3 You can go to the Library at any PCC campus and check out a video FOR VIEWING AT THE LIBRARY.

4 Go to www.learner.org on the internet and view the videos on your PC over the Internet. See below for more on viewing the videos over the Internet.

A student in last Fall's class discovered the Learner.Org site which contains numerous resources for students and teachers. The best way to access the videos used for the ECN 200 course is to click on the blue Telecourses button along the top of the page and then scroll down to the Economics U$A link. Each of the videos is listed and can be viewed by clicking the video button next to the one you wish to view.

This site does require you to register in order to view a video. But it is a one time free registration. I did a quick check of it and they are the same videos that are broadcast for the class. The only limitation is that, being video, you need broadband access for good viewing. If you have a dial-up connection, as I have, it is slow and difficult. If you do not have broadband at home I suggest that you go to any PCC computer lab or library to view them or visit a Tucson Pima Public library and use their computers (U of A students can also use U of A facilities).

Those of you in my ECN 201 and ECN 202 independent study courses may also want to check out this site as the videos are an excellent resource and do a very good job of presenting the material in an interesting and understandable manner.

Opportunity Cost Explained

2006-02-08T06:28:00.000-07:00

Usually when we think about the term costs we think of money. However, in economics we use the word opportunity costs to consider costs in a larger sense.

Normally when we purchase something we give up money in exchange for a good or service we want. But the true cost, or opportunity cost, is usually more than this. If my wife and I decide to go to a movie and pay $20 for tickets we are giving up not only something else that we could purchase with the $20 but also something else that we could have done with the time spent in the theater viewing the movie. It is the other thing that we could have brought with the money as well as the other thing that we could have done with the time that is the true, or opportunity cost. Everything we do involves a choice and when we make a choice the cost of that choice is the other things we could have had or done if we had not made this particular choice.

Now, as rational economic beings we choose that which will give us the greatest satisfaction at that particular moment. The opportunity cost of a particular choice is the next best alternative that you would have chosen. This is the thing you give up in order to obtain the thing you choose.

I may not agree with your choice and, later today or tomorrow you may regret having chosen option 'A' over option 'B'. But this does not invalidate the concept of opportunity cost. You choose what was most important to you at the time based upon the best information available and your desires at that moment. Part of growing up and acquiring knowledge is to enable us to make better decisions and look at choices from a broader perspective.

Advances in technology have done much to reduce opportunity costs but, in a world of unlimited wants and limited resources, opportunity cost still exists. As recently as two hundred years ago shoes (actually boots) were so expensive that most people, if they could afford boots at all, could afford no more than one pair and that pair had to last for years. In England at that time stealing a man's boots was such a serious crime that the penalty was death (since walking was the main mode of transportation and most work was done outdoors, stealing a man's boots was the equivalent of taking away his ability to support himself and his family). Thanks to advances in technology, shoes today are so inexpensive that even the poorest people can usually afford more than one pair. But while an average person may be able to afford as many pairs of shoes as they want and still have plenty of money left over for other things, opportunity cost is still present. While money may not be the major constraint, space is. Where do you store the shoes? Despite the relative affluence of the average contemporary American, most of us can't afford mansions with unlimited rooms. So the more shoes one acquires and stores by stacking them from floor to ceiling in the closet the less space there is for clothes. With closet space as the scarce resource the opportunity cost of more shoes would be fewer clothes.

Supply and Demand

2006-02-07T07:26:00.001-07:00

Demand Curve – shows quantities of a good demanded (that will be sold) at various prices. The higher the price the lower the quantity demanded and vice versa.

Think of it this way, if you have $10 in your pocket and an item costs $10 you can afford to purchase one unit of the item. But if the price is $5 you can afford to buy 2, and if price is $2.50 you can purchase 4, etc.

Further, since there are more middle and lower income people than rich people, the lower the price the greater the number of people who will be able to afford to buy the product and the more people able to afford the product the greater the quantity that will be demanded.

Supply Curve – shows quantities of a good supplied at various prices. The higher the price the greater the quantity supplied.

No business (supplier of a product or service) can afford to sell at a price lower than cost and remain in business. BUT all suppliers of a good do not face the same set of costs. A farmer with fertile soil, a good climate and sufficient rain can produce a larger crop, at a lower cost than a farmer growing the same crop in poor soil in the desert. The desert farmer incurs the same costs for seed, labor, etc. as the other farmer. But the desert farmer must also purchase fertilizer, install irrigation and pay for water. As a result, the desert farmer will have higher costs per bushel of product than the farmer in the ideal location. In order to make a profit on his crop, the desert farmer has to receive a higher price per bushel than the other farmer. The point is that producers of a good or service face different circumstances and some are able to produce at a lower cost (require fewer resources) than others. As the price of a good rises more producers are able to offer the good or service.

As a second example, consider yourself and the sale of your labor services. If you had tickets to a concert for tonight and your supervisor asked for a volunteer to work overtime at the regular hourly rate you probably would not volunteer. If double time was offered, you might be tempted but the desire to see the concert would probably be greater. But, if your supervisor offered a $1,000 bonus to put in an additional four hours this evening, doing your regular work, you would probably take the offer. As the price goes up you, as the seller of your labor services, are more inclined to increase the quantity of labor you are willing to provide. In this example the cost is your opportunity cost. If you earn $10 per hour and your concert ticket cost $50 the decision to volunteer or not is a no brainer since you will lose the $50 spent on the ticket and only gain $40 from working the four hours. If your supervisor offered you double time (i.e., $20 per hour) for the extra four hours you would earn $80 and lose $50 for a net gain of $30. More than likely the desire to see the concert would be greater than the $30 of additional net income so you would probably still turn down the extra work. But $1,000 or $250 per hour, for four hours of work would probably change the equation as the opportunity cost of giving up the extra pay ($1,000) dwarfs the $50 plus satisfaction of attending the concert.

In summary, the demand curve shows the various quantities of a good that will be demanded (i.e., consumers are willing and able to buy) at various prices, while the supply curve shows the various quantities of a good that will be supplied (offered for sale by producers) at various prices. The point where the two intersect is the point where the quantity demanded equals the quantity supplied and this is the equilibrium or market price.

Chinese New Year - Year of the Dog 4704

2006-01-29T15:05:00.000-07:00

Today is the first day of the Chinese New Year's celebrations for the Chinese lunar new year 4704. Since it is a lunar (moon), rather than a solar (sun) year New Year's Day varies from year to year depending upon the cycle of the moon. In the Chinese calendar the lunar New Year begins on the first day of the new moon (i.e., when the dark side of the moon is facing earth and thus is not visible from earth).

Being a lunar rather than a solar calendar makes it somewhat difficult to convert between the modern Gregorian calendar (which was an updating by Pope Gregory XIII in 1582 of the Julian calendar created at the direction of the Roman Emperor Julius Caesar in 46 B.C.). The Chinese lunar calendar consists of a cycle of twelve alternating years named after animals - Rat, Ox, Tiger, Hare (rabbit), Dragon, Snake, Horse, Sheep (or goat), Monkey, Rooster, Dog, Pig (boar) – within a larger sixty year cycle. Where as the modern Western calendar uses the birth of Christ as its starting reference point and numbers years prior to the birth of Christ in ascending order backwards from his birth with the suffix B.C. for Before Christ and for years since his birth in ascending order with the suffix A.D. or Ano Domine(which is Latin for After Christ), the Chinese calendar used to number years for reference purposes according to the number of years since the start of the reign of the current emperor (this practice is followed in most countries down to the present – official government proclamations usually reference the current calendar year and the year of the reign of the current monarch – or, like the U.S. which is a republic the years elapsed since the founding of the republic – the ratification of the Constitution in the case of the U.S.) Following the 1911 eleven revolution in China which ended the rule of the emperors, Sun Yat-sen abolished the link between years and reigns of emperors and changed the calendar to start counting years from the origin of the Chinese calendar which occurred about 2698 B.C. in the western calendar thus making the western year 2006 the year 4704 (2698 + 2006 = 4704).

The same historical forces which have made Christmas, a western holiday, known around the world are also responsible for the dispersal of the Chinese New Year celebration around the world. The fourteenth century publication of Marco Polo's account of his travels in China is generally credited with the western world's renewed interest in China and the Orient. Rising wealth in Europe brought about increased trade with the East. However, the fall of Constantinople to the Turks in 1453 cut off the main trade route to China from Europe forcing Europeans to seek a sea route to the Orient. Christopher Columbus stumbled into the New World in 1492 while trying to reach China and India by sea and Vasco de Gama successfully navigated to India in 1497 by sailing east around the tip of Africa.

The discovery of sea routes to Asia and of the New World brought about both a vast increase in trade as well as huge shifts in population. It is common knowledge that there was mass migration from Europe to the New World as well as to Australia, New Zealand and South Africa. Somewhere in the neighborhood of 50 million people left Europe to seek a better life economically and politically in the new lands. Most of these chose to make the move but some, such as petty criminals, were transported to these lands in lieu of imprisonment at home. Large numbers were also transported, involuntarily, from Africa to the New World as the rising demand for cheap labor and new trading arrangements transformed the regional African slave trade into a global trade. In addition to the movement of Europeans and Africans, another 50 million from China and India migrated to the New World as well as to European colonies in the Pacific, other parts of Asia and Africa. Like the Europeans, the Chinese and Indians were motivated by the desire to better themselves economically as well as by the desire for more freedom. While the Chinese and Indians were often mistreated and exploited in the new lands, sufficient numbers found life in the new lands better than back home and elected to stay, giving rise to large Chinese and Indian communities throughout the world.

Today, economic prosperity has resulted not only in economic growth in China and India but also in a large and prosperous overseas Chinese community. Chinese New Year celebrations are taking place world-wide today and the press is full of stories and reports of celebrations in practically every major city in the world.

Like Christmas, there is some variation in the New Year's traditions and customs practiced by Chinese in various parts of the world. Like traditions and customs in other areas, they evolve and change with time which does not make some people happy. An article in this morning's Reuters UK quotes a Professor Gao Youpeng of Henan University saying:

Indeed, some worry that New Year traditions are being lost in the country's headlong rush to develop economically.
"It is being attacked by Western culture," Henan University Professor Gao Youpeng wrote this week in the official Guangming Daily, issuing what he called a "declaration to protect Spring Festival".
"More and more people, especially the young, have no time to consider the true meaning of the festival and prefer to celebrate the game-like revelry of Western holidays like Christmas and Valentine's Day," he wrote.

Substitute Christmas for New Year and Spring Festival in the article and it reads like similar articles last month quoting disgruntled western traditionalists. The world is changing and evolving. Economic growth and rising incomes do result in new ways to celebrate holidays. But people still have the option to not adopt new traditions. Just because my neighbor prefers Jingle Bell Rock to Silent Night doesn't mean that I have to give up Silent Night for Jingle Bell Rock. The beauty of the free market means that I can not only control what is done in my home (my private property) but also if I and others want to listen to Silent Night some enterprising merchant will see to it that we can buy it. So, if professor Youpeng wants to keep the traditions that he knew as a boy (and which may have been too modern and different compared to what his grandparents grew up with) more power to him! He is free to express his ideas and even go into business to promote and sell his traditional way of celebrating – he just can't use force to make others follow him.

ECN 201 - Microeconomics EXTRA CREDIT ASSIGNMENTS

2006-01-23T21:42:00.000-07:00

This page contains the current extra credit assignment for my Economics 201 (Microeconomics) students. All extra credit assignments will have a deadline and not only will extra credit assignments NOT be accepted after that date, the assignments themselves will be erased from this page. If no assignment appears it means that an extra credit assignment is not currently available. To save you having to scroll down the blog to this page I will be posting a link to this page from my No Free Lunch webpage. Simply click on the ECN 201 Extra Credit link on the left side of the page. I will also try to make paper copies of the assignment available at the NELC.

Economics 201 - Spring 2007

Benjamin Franklin's 300th Birthday

2006-01-17T06:23:00.000-07:00

Today is the 300th anniversary of the birth of Benjamin Franklin. The tenth son of a Boston soap and candle maker, Franklin was apprenticed, at age 12, to his brother James' newspaper, the New England Courant, where he learned the printing trade. At seventeen, following a dispute with his brother, Franklin ran away and fled to Philadelphia. It was in Philadelphia where he rose to fame and dazzled the world with his wit, inventions, scientific discoveries and public service. The list of Franklin's accomplishments in the eighty-four years between his birth in 1706 and death in 1790 and is too huge to enumerate here.

Rather that list the details of Franklin's life or his numerous accomplishments, let's take a look at Franklin through the eyes of Franklin's fictional Poor Richard the namesake of Franklin's famous Poor Richard's Almanac. In the Almanac, which was written and published annually by Franklin from 1732 to 1757, Franklin dispenses numerous one and two line tips for better living. The almanacs contained other information, but are best remembered for these short one or two line bits of wisdom. Poor Richard's Almanac was an immediate success and made Franklin known throughout British North America.

Most, if not all, of these sayings were not original but copied from others going all the way back to the Book of Proverbs in the Old Testament. On the one hand they are common sense guidelines for good living that should be obvious and known by everyone. On the other hand, they are so basic and obvious that most people don't think about them which is why the majority of the human race, since the time of Adam and Eve, continues to make the same stupid choices and mistakes generation after generation.

Because of these sayings and Franklin's own long and successful life, he is often held up as an example of the wisdom of living by these guidelines. Franklin did probably try, and try is the operative word, to live by them. More than likely, Franklin used them as a daily reminder in his life-long struggle to do the right thing. Like the rest of us, Franklin's actions did not always live up to these ideals. There were periods in his life when he squandered his money, over indulged in food and drink and enjoyed the favors of other women (his eldest son, William was the product of a illicit union before his marriage). But struggled on and kept trying to follow these bits of wisdom and, looking at his life as a whole, we see that he succeeded more than he failed. So, armed with the knowledge that the advice from Franklin's Poor Richard is not only good but also helped Franklin in his struggle to do what was right, we will proceed.

Since it is the New Year and the number one resolution for most people these days is stick to a diet and lose weight we will take a look at Poor Richard's advice in this area first. You will note in these instructions, as in his instructions in other areas, Franklin stresses moderation rather than denial. Eating is for pleasure as well as nourishment but, done in excess, the pleasure is not only diminished but other problems result as well. The goal here is balance in daily activities.

Eat to live, and not live to eat.

To lengthen thy Life, lessen thy Meals.

A fat kitchen, a lean Will.

I saw few die of Hunger, of Eating 100000 .

Eat few Suppers, and you'll need few Medicines.

Excess in all other Things whatever, as well as in Meat and Drink, is also to be avoided.

Wouldst thou enjoy a long Life, a healthy Body, and a vigorous Mind, and be acquainted also with the wonderful Works of God? labour in the first place to bring thy Appetite into Subjection to Reason.

If thou art dull and heavy after Meat, it's a sign thou hast exceeded the due Measure; for Meat and Drink ought to refresh the Body, and make it cheerful, and not to dull and oppress it.

Money is the next category and one, A penny saved is a penny earned, that many associate with Franklin. Franklin followed many of these precepts and became wealthy. But he also went against the wisdom presented here at times in his life and lost (for example, on an early trip to London to gain further training in the printing trade he squandered his funds and was forced to return home broke). Here, Franklin is not only passing on the wisdom of the ages, but also has personally experienced both the benefits of following this advice (as evidenced by his success and fortune) and the consequences of ignoring it (as evidenced by some notable failures in his life). In an era where use of credit is widespread, savings small and people are stressed out by people trying to satisfy unlimited wants, it pays to pause and reflect on these sayings.

Buy what thou hast no need of and ere long thou shalt sell thy necessities.

If you know how to spend less than you get, you have the philosopher's stone.

If you would know the value of money, go and try to borrow some.

So much for industry, my friends, and attention to one's own business; but to these we must add frugality if we would make our industry more certainly successful. A man may, if he knows not how to save as he gets, keep his nose all his life to the grindstone, and die not worth a grout at last.

The use of money is all the advantage there is in having it.

There are three faithful friends - an old wife, an old dog, and ready money.

Time is money.

Wealth is not his that has it, but his that enjoys it.

Ne'er take a wife till thou hast a house (& a fire) to put her in. (In other words, don't get married until you can afford it. (NOTE: the (& a fire) refers to the ability to furnish the house with heat and light – and much more by today's standards. Franklin is obviously not suggesting that the wife be thrown into a fire).

He that buys by the penny, maintains not only himself, but other people.

Again, He that sells upon Credit, asks a Price for what he sells, equivalent to the Principal and Interest of his Money for the Time he is like to be kept out of it: therefore

- He that buys upon Credit, pays Interest for what he buys.

- And he that pays ready Money, might let that Money out to Use: so that

- He that possesses any Thing he has bought, pays Interest for the Use of it.

- Consider then, when you are tempted to buy any unnecessary Household stuff, or any superfluous thing, whether you will be willing to pay Interest , and Interest upon Interest for it as long as you live; and more if it grows worse by using.

Yet, in buying Goods, 'tis best to pay ready Money, because,

- He that sells upon Credit, expects to lose 5 per Cent by bad Debts; therefore he charges, on all he sells upon Credit, an Advance that shall make up that Deficiency.

- Those who pay for what they buy upon Credit, pay their Share of this Advance.

- He that pays ready Money, escapes or may escape that Charge.

If you would be wealthy think of saving as well as getting:
The Indies have not made Spain rich because her outgoes are
greater than her incomes. (Here Franklin is referring to the vast wealth of gold and silver the Spanish government received from the Aztec and Inca treasures. However, their spending increased by more than the huge inflow of gold and silver causing the government to be in deficit.)

You may think, perhaps, that a little tea, or a little punch
now and then, diet a little more costly, clothes a little
finer, and a little more entertainment now and then can be no
great matter but remember what Poor Richard says "Many a little
makes a mickle; beware of little expense for a small leak will
sink a great ship." (Note: mickle is an old English word meaning great or greatly)

A child and a fool imagine twenty shillings and twenty years can never be spent.

These last few relate to the proper attitude toward money and wealth. These are a variation on St. Paul's observation that the love of money is the root of all evil (note that St. Paul said that the love of money and not simply money is the root of all evil). Again, the emphasis is on balance in one's life.

He does not possess wealth; it possesses him.

He that is of the opinion money will do everything may well be suspected of doing everything for money.

Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.

How to Buy and Sell Textbooks Online

2006-01-11T06:29:00.001-07:00

In yesterday's article I mentioned that students could purchase textbooks online from both the Pima College Bookstore at www.Pima.bkstr.com or use another online vendor such as eBay's Half.com, Amazon.com, etc.

In recent years hundreds of sites have sprung up on the Internet offering individuals and businesses the opportunity to buy and sell both textbooks and other books. While the largest volume on these sites is used books they also sell new books at a substantial discount as well.

While I have been aware of these sites for a long time, I never bothered to check them out or use them until a student in one of my spring 2004 classes suggested to the class that they check online for the text. The book retailed at the bookstore new for $135 and used for $95. She purchased it new on Half.com and, with shipping, the total price was $55 . I have since used Half.com and Amazon.com to purchase and resell my daughter's text books. By my rough calculations I figure that I pay a little over a third of what I would pay to get the same books at the bookstore. Part of this savings is the fact that I have more access to used books online than in the bookstore but, like the bookstore, I sometimes have to buy new online. I then recover part of what I pay for the books from the proceeds of the sale of the books at the start of the next semester.

To find and purchase textbooks online, first obtain the ISBN number for the book. Like some other instructors, I have begun including the ISBN number on my syllabi or posting them online (see yesterday's article for the ISBN numbers for the books I am using this semester). If the instructor does not provide these you will probably have to make a trip to the bookstore and obtain the ISBN numbers from the books on the shelf by your classes. This number is usually found on the back cover of the book as well as on the title page. An alternative is to obtain the title, publisher and edition and go to the publisher's web page (use a Google search to find the publisher's web page or obtain it from the book). If you do this make sure you have the correct version and edition as each one has a unique ISBN number.

Go online to your favorite site selling the books (I prefer Half.com and Amazon.com because I know them and have accounts with them). If you don't have a favorite site, go to Google, type textbooks and hit the search button. You will usually come up with thousands of places to find the books. Not all sites will carry the book you want and many sites found this way will be ones trying to generate ad revenues by listing links to sites actually selling the books. When you find the book you want and at the price you want, order it with your credit card. Many also accept PayPal payments or checks.

To sell your books go to the site that allows individuals to post books for sale, read the Terms page carefully and set up an account to sell books. I prefer Half.com, first because I already have an account there (most places let you use the same account to both buy and sell) and because they do not charge a fee until you actually sell a book. There is a lot of competition for textbooks online and I have had books sit on Half.com for over a year before selling. With Half.com, which is a part of eBay.com (and lets you use you eBay account for Half.com buying and selling) you also have the option of moving the book from Half.com to eBay and back to Half.com if it doesn't sell. When you do this you are charged eBay listing fees and are subject to eBay time limits. Depending upon the book, you can sometimes sell it faster and at a slightly higher price than on Half.com.

To list a book on most sites you simply enter the ISBN number, a description and price you are asking. With Half.com and many others they will automatically pull up a picture of that edition of the book and give you a suggested price based upon other sales of the book. Once you sell a book ship it using the U.S. Post Office or other shipping service.

Books for My Courses

2006-01-10T06:47:00.000-07:00

Here are the books that are required for each of the Economics classes that I am teaching this semester. The book for the Community Campus Economics 200 Telecourse is available at the West Campus Bookstore and the books for the Economics 201 and 202 being taught at the Northeast Learning Center are available at the East Campus Bookstore.

The bookstores are stocking both the textbook for each course as well as various workbooks and study guides provided by the publisher. I am only requiring that students purchase the TEXTBOOK. Study guides and workbooks are OPTIONAL.

Economics 200 Telecourse (Community Campus - CRN 28101)
Economics U$A (7th Edition) by Mansfield and Behravesh, W.W. Norton & Co., ISBN 0-393-92605-2. This book is available at the West Campus Bookstore.

Economics 201 (Northeast Learning Center - CRN 26575)
Microeconomics (7th Edition) by Roger A. Arnold. ISBN 0-324-23670-0. This Book is available at the East Campus Bookstore for $103 new - used copies may also be available.

Economics 202 (Northeast Learning Center - CRN 26576)
Macroeconomics (7th Edition) by Roger A. Arnold. ISBN 0-324-23667-0. This Book is available at the East Campus Bookstore for $106 new - used copies may also be available.

NOTE FOR Economics 201 and 202 ONLY:
Both of these textbooks are paperback. On the same shelf is a larger, hardcover book titled Economics (7th Edition) by Roger A. Arnold. ISBN 0-324-23662-x which sells for $141.50. This is for an Economics 200 course and contains the same content as the Economics 201 and 202 course texts. DO NOT PURCHASE THIS BOOK UNLESS YOU INTEND TO TAKE BOTH ECONOMICS 201 AND 202. If you are taking BOTH ECN 201 AND ECN 202 it is a good deal as the price is about $50 less than purchasing the texts for both courses. BUT if you are only taking one of the courses you will end up paying more and only using half of the book. E-mail me at nugentwork@yahoo.com if you have any questions on this.

These and other textbooks can be obtained by visiting the appropriate campus bookstore OR you can go online to https://www.efollett.com/
where you can order and pay for your books on line AND have them sent to ANY Pima Community College Campus Bookstore for pick up by you. If you are taking classes from more than one campus this could save you some trips to various bookstores - simply go to this site, enter the CRN for each class, select the books, pay then go and pick up.

You can also go online to Amazon.Com, eBay's Half.com or any one of hundreds of other online textbook sites and purchase the books, new or used, at a substantial discount from what the colleg bookstore is charging. I buy and sell my daughter's textbooks from half.com and end up paying about 1/3 what she would have to pay at the bookstore and then reduce this further by re-selling them at half.com at the end of the semester.

The Tucson Home Show

2006-01-09T06:35:00.000-07:00

Yesterday morning my wife and I attended the Tucson Home Show at the Convention Center in Tucson. I normally don't go to these shows, but my son, Victor, had volunteered to run the booth for the Ki Center Martial Arts school He has attended this school for many years and has worked his way up to provisional black belt.

Victor got us a couple of free passes, so we got up early and drove him down in time to set up for the 9:30 opening. I was quite surprised at the large crowd that was already there when we arrived.

The show was quite interesting with a large number of vendors present. Given the current housing boom in Tucson, I was surprised to find only one realty company and no home builders other than a couple of small custom ones. There were also only a few mortgage lenders present.

Being Tucson, pool and spa vendors were well represented. Another big group were various home improvement companies, interior design companies and sellers of things like tile, doors and windows, roofing, etc. There were a couple of water softener companies but not the big numbers you would have expected a few years ago – that market must be saturated by now.

There was the usual collection of small home based businesses - people selling their crafts, people who have invested in little home based franchises or multi-level marketing operations, etc. - offering a variety of wares. This segment of the market seems to have matured and established itself because the people in these booths seemed very professional and their businesses seemed to be established and sound. All of them appeared to be serious businesses and not a hobby that pays for itself as many appeared to be in the past.

Among the small, home-based businesses were a number selling skin lotions. The dry climate in Tucson adds to the demand for products like these especially during the winter months when the air is both cooler and dryer. All of them were billed as containing only natural ingredients meaning that that the chemical compounds in them were created by Mother Nature rather than by humans in a lab. In addition to dry skin the products were billed as being helpful in curing psoriases, eczema, acne, burns, skin allergies and a long list of other skin ailments. Two that intrigued me were selling skin products containing emu oil as the main ingredient. Emus are a wingless bird found in Australia. The raising of emus was a hot business in the 1980s. Emu and ostrich enjoyed a wave of popularity at this time mainly as a beef substitute. As I recall, they were economical to raise as they had more meat per pound than cattle and the meat was leaner and lower in cholesterol than beef. Then the importation of ostrich was banned due to a disease which gave the emu an edge. For a while people were making good money by purchasing a couple of hundred dollars or so in a couple of emu eggs which they hatched and raised. They made money by selling the eggs laid by their emu and selling the meat and oils. Emu are supposed to be easy to raise as you just let them run loose in a fenced in area and provide some food. There was some medical research that showed that emu oil showed promise in treating arthritis.

It was interesting to see that emu and ostrich raising had moved from the get rich quick promotion phase in the 1980s to a serious and established industry. I was doing some business counseling at the Small Business Development Center in the early 1990s and had the opportunity once to review a business plan for a person who planned to raise emu. I also used to drive past a home in NW Tucson which had a few emu on an empty lot next to the home. Also, anyone who heads north from Tucson in Interstate 10 will notice the large Rooster Cogburn Ostrich Ranch on the west side of road by exit 219. According to the web site for Laid in Montana Emu Oil Products, the emu oil products vendor whose booth I visited at the Tucson Home Show, emu farms are now well established throughout the nation from the east to the west coast and from the Canadian to the Mexican border.

We had intended to just take a quick look around and leave. However, we ended up spending almost four hours at the show which occupied both the ground floor exhibition hall and a large upstairs ballroom. All in all it was quite interesting and profitable as I came away with reservations to visit four timeshare sales presentations in the next month. Even though I told them that I had just purchased a one week timeshare last month and was not in the market for more at the moment they insisted and dangled sufficient monetary and other vacation packages to make it worthwhile. Not counting a 5 day and 4 night stay in Hawaii, a weekend in Scottsdale, dining certificates and other assorted goodies, I also have been promised a total of $300 in cash and gasoline gift cards.

More Jobs Despite Outsourcing

2006-01-05T08:19:00.000-07:00

While the politicians and mainstream media run around, like Chicken Little, worrying that the sky is falling due to the outflow of jobs and dollars to places like China and India the facts give a different story.

My regular job is managing IT Training and, as a result, I keep an eye on the IT job market in order to know the type of training needed in the market. For the past two or three years I have been flooded with news stories and reports about all the good IT jobs being exported to China and India.

As an economics instructor, I also try to keep up on other economics news and that has been full of tales about how manufacturing jobs, especially in the textile industry, are being lost to China.

It is a fact that thousands of good paying high tech jobs in the IT Industry, formerly done by Americans are now being done by people in China, India and other third world countries. Also, there has been a continuing decline in jobs in old line manufacturing industries as these companies are either moving their operations abroad to countries with lower labor costs or are losing their market share to competition from competitors operating in lower wage foreign countries. But two articles this week shed a different light on this.

First, a blog entry at Mises.org by Mike Shedlock noted
that China, of all places, is LOSING manufacturing jobs. Where are the Chinese jobs being exported to? Nowhere. That's right, job growth in China's manufacturing sector is slowing and, in some cases, actually declining but the jobs lost are not being outsourced to lower wage countries. As China's economy grows, companies in China are starting to face the same pressures that companies in America and other industrialized countries have faced and are still facing. On the one hand competitors in other parts of the global economy are finding ways to manufacture certain products, like textiles, at lower cost than China and this lower cost is passed on to consumers in the form of lower prices. On the other hand, as the Chinese economy grows more jobs are created and companies in China are beginning to encounter labor shortages. When labor, like any resource, is scarce, those that need it begin to bid up the price – in this case wages.

In order to remain competitive, Chinese manufacturers must adapt new technologies and techniques that allow them to maintain or increase production at a lower cost. Like American and other advanced economies, the Chinese are beginning to produce more with less and this translates into lower prices and more goods for all the people. This is the driving force behind the ever rising standard of living that Americans have long enjoyed and the rest of the world is now beginning to enjoy.

The other piece of news comes from a recent survey conducted by Computerworld Magazine about jobs in the IT Industry. According to the survey, less than 5% of the 10 million jobs in the U.S. IT Industry have been outsourced to companies overseas. True, some of these were high paying programming and other technical positions. But, all of these programming jobs and other positions, such as call center personnel, were low end, repetitive type positions. The rapid growth of computers in the past three decades resulted in high demand for programmers which in turn translated into high pay for these positions. The high pay attracted new people into the field and now there are numerous people in foreign countries that can do this work at a fraction of the wage U.S. programmers are being paid.

Does this mean that programmers have no future in the U.S. No! There is a rising demand for programmers with the higher level skills and flexibility needed by U.S. companies. People whose skills are limited to simply writing code probably have very little future, career wise, in the U.S. However, programmers who know how to write in a number of different computer languages and have business knowledge and skills are in high demand as are computer security experts and project managers. In these areas wages are rising and labor is in short supply. In addition to having a broader range of skills, the other critical factor is a willingness to relocate as the jobs and people with the required skill sets are not always located in the same geographic area of the country.

The reality is that the U.S. still faces a labor shortage but it is a shortage of skilled people. The future is great but only for those with the ambition to continue learning new skills and upgrading their existing skills.

The Birth of Jesus According to St. Luke

2005-12-25T01:28:00.000-07:00

Christmas E-Cards

The following is the account of the birth of Jesus as recorded in Chapter 2, versus 1 - 20 of the Gospel of St. Luke. (Source: "The New American Bible, Thomas Nelson Publishers, 1983, pages 1109-1110)

Birth of Jesus. In those days Caesar Augustus published a decree ordering a census of the whole world. This first census took place while Quirinius was governor of Syria. Everyone went to register, each to his own town. And so Joseph went from the town of Nazareth in Galilee to Judea, to David's town of Bethlehm – because he was of the house and lineage of David – to register with Mary, his espoused wife, who was with child.

While they were there the days of her confinement were completed. She gave birth to her first-born son and wrapped him in swaddling clothes and laid him in a manger, because there was no room for them in the place travelers lodged.

The Shepherds. There were shepherds in that region, living in the fields and keeping night watch by turns over their flocks. The angel of the Lord appeared to them as the glory of the Lord shone around them, and they were very much afraid. The angel said to them: "You have nothing to fear! I come to proclaim good news to your – tidings of great joy to be shared by the whole people. This day in David's city a savior has been born to you. The Messiah and Lord. Let this be a sign to you: in a manger you will find an infant wrapped in swaddling clothes." Suddenly, there was with the angel a multitude of the heavenly host, praising God and saying,

"Glory to God in high heaven,
peace on earth to those on whom
his favor rests."

When the angels had returned to heaven, the shepherds said to one another, "Let us go over to Bethlehem and see this event which the Lord has made known to us." They went in haste and found Mary and Joseph, and the baby lying in the manger; once they saw, they understood what had been told them concerning this child. All who heard of it were astonished at the report given them by the shepherds.

Mary treasured all these things and reflected on them in her heart. The shepherds returned, glorifying and praising God for a ll they had heard and seen, in accord with what had been told them.

T'Was The Night Before Christmas

2005-12-24T23:08:00.000-07:00

by Clement Clarke Moore

'Twas the night before Christmas, when all through the house

Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care,

In hopes that St. Nicholas soon would be there;

The children were nestled all snug in their beds,

While visions of sugar-plums danced in their heads;

And mamma in her 'kerchief, and I in my cap,

Had just settled down for a long winter's nap,

When out on the lawn there arose such a clatter,

I sprang from the bed to see what was the matter.

Away to the window I flew like a flash,

Tore open the shutters and threw up the sash.

The moon on the breast of the new-fallen snow

Gave the lustre of mid-day to objects below,

When, what to my wondering eyes should appear,

But a miniature sleigh, and eight tiny reindeer,

With a little old driver, so lively and quick,

I knew in a moment it must be St. Nick.

More rapid than eagles his coursers they came,

And he whistled, and shouted, and called them by name;

"Now, Dasher! now, Dancer! now, Prancer and Vixen!

On, Comet! on Cupid! on, Donder and Blitzen!

To the top of the porch! to the top of the wall!

Now dash away! dash away! dash away all!"

As dry leaves that before the wild hurricane fly,

When they meet with an obstacle, mount to the sky,

So up to the house-top the coursers they flew,

With the sleigh full of toys, and St. Nicholas too.

And then, in a twinkling, I heard on the roof

The prancing and pawing of each little hoof.

As I drew in my hand, and was turning around,

Down the chimney St. Nicholas came with a bound.

He was dressed all in fur, from his head to his foot,

And his clothes were all tarnished with ashes and soot;

A bundle of toys he had flung on his back,

And he looked like a peddler just opening his pack.

His eyes -- how they twinkled! his dimples how merry!

His cheeks were like roses, his nose like a cherry!

His droll little mouth was drawn up like a bow,

And the beard of his chin was as white as the snow;

The stump of a pipe he held tight in his teeth,

And the smoke it encircled his head like a wreath;

He had a broad face and a little round belly,

That shook, when he laughed like a bowlful of jelly.

He was chubby and plump, a right jolly old elf,

And I laughed when I saw him, in spite of myself;

A wink of his eye and a twist of his head,

Soon gave me to know I had nothing to dread;

He spoke not a word, but went straight to his work,

And filled all the stockings; then turned with a jerk,

And laying his finger aside of his nose,

And giving a nod, up the chimney he rose;

He sprang to his sleigh, to his team gave a whistle,

And away they all flew like the down of a thistle.

But I heard him exclaim, ere he drove out of sight,

"Happy Christmas to all, and to all a good-night."

369th Birthday of the National Guard

2005-12-13T22:11:00.001-07:00

Upon signing on to my account at USAA.Com this morning, I was greeted with an announcement that today, December 13th, is the 369th anniversary of the founding of the National Guard.

KC-97 Tanker at Pima Air Museum in Tucson Arizona - This is the type of plane that I flew

With a quick Google search I was able to learn that on December 13, 1636, the Massachusetts Bay Colony organized three regiments of militia to defend the colony against the growing attacks by the neighboring Pequot Indians. The order by the government of the colony required that all males between 16 and 60 years of age own a gun and be ready to defend the community against attacks.

The Pequot War that followed had its origins in the tensions that arose between the Pequots and the colonists as the Pequots found themselves increasingly squeezed as the English colonists of Massachusetts to the east expanded west and the Dutch colonists in New York on their west expanded east. A minor incident between a white trader and a small band of Pequots flared into a major territorial war. Failing to get other tribes to join them, the vastly outnumbered Pequots were soon vanquished and the tribe as an entity disappeared.

Thus began the American tradition of local militia. Nearly a century and a half later, our Founding Fathers maintained the tradition of a dual state and federal military for defense by making provision in the Constitution for the states to continue to maintain their militias. Up until the American Revolution, it was the local militias that defended the frontier against attack and it was the local militia that fought alongside the British army against the French during the French and Indian Wars. George Washington gained fame as a military leader while commanding the Virginia militia in the battle against Ft. Duquesne (site of modern Pittsburgh, Pennsylvania). During the American Revolution it was the militia of the various colonies that provided the bulk of the troops that fought with the Congressionally created Continental Army commanded by George Washington in our fight for Independence from Great Britain. Following the American Revolution the armed forces of the U.S. were small most of the time and on state militia or, nowadays National Guard whenever we were forced to defend our freedom.

So, why did this notice interest me? Well, the reason USAA had the notice of the 369th anniversary of the birth of the National Guard on its website is its members are all current or former military personnel or their families. I joined USAA thirty some years ago when I was a newly minted second lieutenant attending the USAF Institute of Air Navigation at Mather, AFB in Sacramento, California. I had both a federal commission in the Air Force Reserve from Congress and a state commission from the state of Wisconsin in the Wisconsin Air National Guard.

I had been a cadet in the AFROTC during my senior year of college and was supposed to complete my ROTC training in graduate school. But when I accepted a teaching assistantship at the University of Wisconsin in Milwaukee which had Army but not Air Force ROTC I was forced to leave the ROTC program which immediately exposed me to the draft (the Vietnam War was in full force when I graduated in 1969).

I had been in the pilot training program in ROTC and when a fellow graduate student, who had recently left active duty as a navigator with the rank of captain and was then flying with the Air National Guard in Milwaukee, told me that, while they had a waiting list of people for enlisted, officer and pilot positions, the Air National Guard in Milwaukee short on navigators.

Pilots were the elite in the Air Force and they looked down upon navigators as mere map readers (we, of course, considered navigators to be the brains of the crew and the pilots mere monkeys who steered the plan in the direction we told them – but it was all in fun as we worked as a team in the air). Not being interested in a career in either aviation or the military and considering that my alternatives consisted of either spending the next couple of years navigating part time for the Air National Guard or finding myself ankle deep in mud as an infantryman in Vietnam, I chose to become a navigator.

I did my required military service with the 128th Air Refueling Group of the Wisconsin Air National Guard based at Mitchell Field (the Milwaukee Airport) in Milwaukee, Wisconsin. I had a good time and made a number of training flights to Florida and Germany navigating a Korean War vintage KC-97 tanker doing air refueling for fighter jets. I was fortunate to serve stateside and in Europe and my only encounter with the "enemy" occurred over international waters enroute to Iceland from Germany when we came out of a cloud bank at 30,000 feet flying in a northwest direction toward Keflavik AFB in Iceland. At the same time two Russian bear class bombers, enroute from Havana to Murmansk, came out of the same cloud bank heading northeast toward their base in Murmansk. Fortunately, they were about 500 feet below us so we avoided a collision. This was during the Cold War so neither of us bothered to tell the other where we planned to fly in international airspace. I am sure they were as surprised as we were but probably not as mad as we were. We were both being tracked by the nearby ground control at Keflavik which did not bother to alert us to the presence of the Russian bombers. After berating the person manning the tracking radar at Keflavik, from both the air and later on the ground, with language I will not print here, our pilot was given the lame excuse that the controller knew we were on a horizontal collision course but assumed we were separated vertically by a few thousand rather than a few hundred feet.

That is my link to the tradition and organization (like the Air Force which evolved out of the Army, the Air National Guard evolved from the Army National Guard) that is celebrating its 369th birthday today. My nephew, Sergeant James Nugent,who returned from a year's tour of duty in Iraq with the Wisconsin Army National Guard last month, is also a part of this tradition going back to 1636.

Links for Further Reading:

Founding of the National Guard

How to Become a Fighter Pilot With The Air National Guard

Happy Thanksgiving!

2005-11-24T08:25:00.000-07:00

Thought for Today:

Thanksgiving is a typically American holiday. In spite of its religious form (giving thanks to God for a good harvest), its essential, secular meaning is a celebration of successful production. It is a producers' holiday. The lavish meal is a symbol of the fact that abundant consumption is the result and reward of production. Abundance is (or was and ought to be) America's pride ...

Original Source: The Ayn Rand Letter, Vol. III, No. 23, "Cashing in on Hunger"
Web Source: Charlotte Capitalist Blog

Econ 200 Telecourse - Term Paper Instructions

2005-11-16T06:18:00.000-07:00

ECONOMICS 200
Fall 2005

TERM PAPER INSTRUCTIONS

As indicated in the syllabus, there is an optional term paper for this course. The paper will be worth 150 points, the same as the mid-term and final exams. The paper is optional and may be submitted in lieu of the mid-term or final exam. You may also elect to take both the mid-term and final exams AND submit a paper - in this case the two highest grades of the three will be recorded and the lowest discarded.

The paper, for those who elect to do one, will be due no later than noon on Wednesday December 7, 2005. Papers may be handed in prior to this date.

The topic of the paper must be chosen from one of those listed below:

- PRIVATIZATION OF SOCIAL SECURITY. For this you can either examine the present system and present ECONOMIC arguments in favor of keeping it as is or abolishing it outright, or you can analyze one of the current plans for reform and give arguments for accepting or rejecting it.

- PRIVATIZATION OF GOVERNMENT ACTIVITIES. Pick one of the following economic activities (all of which are provided mainly by government but do have some private sector counterparts) and explain how it could be privatized (i.e., sold to investors, sold/given to employees of the entity, given to taxpayers, etc.), the economic effects of the choice of privatization and the economic benefits/losses of having the free market provide the goods/services rather than the government. The activities are:

U.S. Postal Service
Air Traffic Control System
Tucson Water
SunTran
Public School System (K-12)
Pima College
University of Arizona
National Parks, Forests and other lands managed by the U.S. Bureau of Land Management

- HIGH OIL PRICES AND OIL COMPANY PROFITS – What is causing the high prices; should oil companies be criticized or penalized for their current high profits; how will the market solve the problem of high energy costs; what is the difference between government and market approaches to high energy costs; which approach to the current "crisis of high prices & energy shortages – the market approach or the government approach is best and WHY?

After choosing a topic from above and researching it, take a stand, on one side or the other, and present economic arguments for or against the position you have chosen.

While political, sociological, philosophical, etc. views/ideas/effects can be included in the paper the main thrust MUST be on economic factors and effects. THIS IS TO BE AN ECONOMIC ANALYSIS OF THE PROBLEM FIRST AND FOREMOST. You are to choose an area within the scope of the assignment, define the problem, as you see it, and, using Economic Reasoning, provide a clear cut solution to the problem.

Minimum formatting requirements are as follows:

• The paper must be typed on 8 1/2" X 11" paper.

• Material drawn from outside sources must be cited using a recognized footnote format.

• Each paper must contain a bibliography showing all sources from which information was obtained.

• Pages are to be numbered and stapled (unless submitted electronically) together in proper order.

• Paper must contain a cover page showing title of paper, student's full name and date submitted.

• Points will be deducted for errors in spelling and grammar.

Students' must do their own research and writing (typing can be done by another). No credit will be given for plagiarized papers.

Minimum research requirements:

• The bibliography must contain AT LEAST ten (10) books, articles, internet sites or video/audio tape sources.

• Non-print media sources (i.e., video, audio, radio, TV or other electronic media - other than computer databases and the World Wide Web) may be used for research but these may not exceed one third of the total research sources used.

Peter Drucker – 1909 – 2005

2005-11-14T22:10:00.000-07:00

Peter Drucker, world renowned management guru, died this past Friday, November 11th, at the age of 95.

Born in Vienna in 1909, he received his doctorate in public and international law from Frankfurt University in 1931. In Frankfurt he worked as a financial reporter for the Frankfurter General Anzeiger newspaper. In 1933 he fled Hitler's Germany and moved to England where he worked as a securities analyst for an insurance company. In 1937 he came to the United States and accepted a teaching position at Sarah Lawrence University.

Drucker is best known for his books and articles on modern management. His writings were not only ahead of their time when published but remain relevant classics to this day.

I remember reading a piece by him in the Wall Street Journal in the 1970s in which he pointed out that Karl Marx's dream of worker ownership of the means of production had been realized in the United States of all places. This was achieved not through the nationalization of industry as in the then Soviet Union and other communist countries nor through utopian communities where all productive resources were owned in common with "each taking according to his needs, and each contributing according to his ability" as envisioned by Marx. Rather it was businesses competing for workers with a combination of pay and retirement pensions and funding the pensions with investments in corporate stocks. In this way the majority of stock, which represents ownership in corporations, in American corporations came to be owned by workers indirectly through their pension funds. Today, thanks to IRA's, 401(k)'s, 403(b)s and other worker directed retirement accounts the percent of corporations owned by the workers of America is probably greater than when Drucker described this in his article.

Drucker was also ahead of his time in stressing the importance of worker's training and knowledge in modern production. "Human capital" as we now describe it. Drucker himself was a part of the great wave of human capital that fled Nazi dominated Euope and flowed into America in the 1930s and 1940s. Hundreds of scientists, academics, artists, filmmakers, etc. fled to the U.S. to escape Hitler's wrath and the U.S. economy benefited greatly from this in migration of foreign knowledge and talent.

Drucker has left behind a couple of generations of managers trained in his innovative ideas and, through books and articles he has left behind, he will continue to influence future generations of managers. Despite his passing, the American economy will continue to employ his insights and ideas to continue its remarkable growth.

Why Gasoline Prices are Falling - Somewhat

2005-06-06T15:21:00.000-07:00

You may have noticed that gasoline prices have been falling noticeably in recent days. The reason for this drop is due to the change in seasons. During the warm summer months people tend to drive and travel more than during the winter. Also, during the warm summer months there is very little demand for heating oil. Thus, at this time of year, oil refineries reduce production of heating oil and increase the production of gasoline. This increase in the supply of gasoline, ceteris paribus, leads to a drop in its price.

Oil, like any other raw material that is extracted from the ground, is of no use to consumers. Only after the crude oil has been transformed (through the refining process) does it become a good that consumers can use. Oil refineries can convert crude oil into a number of different petroleum products but, for our purposes here, we will discuss just two – gasoline and heating oil. These are the two products that consumers directly consume most frequently.

During the winter months the demand for heating oil increases sharply as consumers in cold northern climates use it to heat their homes. At the same time, the cold, ice and snow make driving more difficult so people tend to travel less which leads to a reduction in the demand for gasoline. Therefore, during the winter oil refineries devote more capacity to the production of heating oil and less to gasoline. This can be illustrated by the production possibilities curve depicted below.

An oil refinery is limited by its size, number of workers, etc. as to how much crude oil it can refine per day/week/month. Given that the refinery is physically capable of refining only so much crude oil in a given period the owners of the refinery are forced to choose between producing gasoline or heating oil. They can produce both but to increase the production of heating oil in the period they must reduce the amount of gasoline produced and vice versa. This illustrates the concept behind the production possibilities curve perfectly.

How do owners of refineries decide how much of each product to produce? The answer is simple – their customers, the consumers tell them. As winter approaches people drive less – the roads are not as good due to winter conditions and, with children in school, people with children tend to reduce their leisure travel. The result is a reduction in the demand for gasoline which, ceteris paribus, leads to a fall in price. At the same time, the cold weather forces people to turn up the heat in their homes which results in an increase in demand for heating oil and a corresponding increase in the price of heating oil. Owners and managers of oil refineries respond by producing less of the lower priced gasoline and more of the higher priced heating oil.

The Candle in the Window

2005-05-30T12:36:00.000-07:00

Memorial Day 2005

Nestled among the rolling hills of Western New York State lie a series of shimmering lakes known as the Finger Lakes, so named because they look like the five fingers of a had laying on the landscape.

Of the five, Canandaigua, a long, slender lake with rolling hills rising from either side, is the one nearest to my heart. My great-aunt Helen and her husband, my great-uncle Walt had a summer cottage along the eastern shore of the lake and I have many fond memories of the Saturdays we spent visiting my Aunt Helen and Uncle Walt during the summers of my childhood.

The city of Canandaigua lies about 35 miles southeast of Rochester. Today the trip between Canandaigua can be made in thirty minutes or less. However, when I was a child, the trip took considerably longer due to the lack of freeways.

The return trip on Saturday evening also had a treat for us. Although fatigued from a day of swimming, climbing the apple tree behind the cottage and hiking up the narrow dirt road, lined with wild blackberry and raspberry bushes, that led up the hill above the lake, we always managed to stay awake as the car made its way back home. When we reached the residential part of Canandaigua's Main St. we eagerly looked out the windows on the right side of the car seeking a glimpse of the house with the candle in the window.

The story of the house with the candle in the window was well known throughout the area in those days. My parents and Aunt and Uncle told us the story but it was also written up in the paper periodically as it made a great human interest piece.

Decades earlier, among the thousands of young men from our part of the Empire state who set out for France shouting the slogan Lafayette here we come!, was the young man who had grown up in that house. Along with prayers for his safe return, his parents lit candle and placed it in their front window each evening – a symbolic beacon to help him find his way home even in the dark of night. Nearly a half a century later, as we drove home from our Saturday outings, the candle still glowed brightly in the window of that home as that young man's aging parents continued the vigil that began with their son's departure.

By then the candle had ceased to be a beacon lighting the way for the son's return and had instead become a symbol of a parents' love for a son who had given his life for his country.

Of all the monuments and memorials that I have seen, this is the one that has left the biggest impression. With that single candle glowing in the window, night after night, year after year, decade after decade, the family kept alive the memory of their beloved son. Over the years thousands passed that solitary candle glowing in the window and, if only for a moment, shared with the family the human cost of keeping our nation free.

Click Here for Poem "In Flanders Fields"

Are Child Labor Laws Still Needed?

2005-05-27T20:33:00.000-07:00

Periodically I include a question on an assignment or test that asks the student to state an opinion on some economic issue and back it up with facts. I don't care which side of the issue they take so long as they defend their position with facts.

For one of my classes last semester I followed a question about the Factory Acts passed by the British Parliament in the mid-19th century with this question:

In the nineteenth century the U.S. passed laws designed to protect women and children in the workplace by placing numerous restrictions on the types of work they could engage in, hours, etc. Like the Factory Acts in England the real motivation behind these laws was to increase the wages of men (on whom there were no work restrictions) by reducing the overall supply of labor. A century later the Woman's Movement in the U.S. succeeded in getting the laws restricting female labor repealed. But laws regulating child labor are still in effect. In your opinion, are the child labor laws necessary or could they be abolished as well? Why or Why not?

The answers I got were rather surprising.

This blunt statement was typical:

... I do not think that child labor should even be taking place at all, I think it is cruel and inhumanitary. If the Factory Acts decrease the labor of children, then I say that we should keep the Act for children.

A theme in almost all of the answers was the need for children to get an education and, in the minds of my students, education and child labor appear to be mutually exclusive in that if we allow children to work they won' be able to go to school.

... Plus a child should be getting a good education to develop skills needed to go out and be successful in a good job field.

... Children are our country's future, and getting the best education possible is the only thing they should be doing.

... If we didn't have these laws, young kids would be working,missing out on a decent education.

... Children should be allowed to go to school without the pressure to start working.

Safety was another major concern. I never realized that there was such a high demand for workers in dangerous jobs and that parents were so eager to capitalize on this by having their children work in these areas:

... If laws weren't in effect, children would work long hours, and might even be working around hazardous materials not suitable to protect child users.

... Lastly, it could be dangerous to child's health if he works strenuous hours, which could stunt growth or be dangerous to the child's health.

... A child is unable to rationalize the danger and will likely be taken advantage of.

And where are the parents in this?

... It also prevents families from taking advantage of their children by making them work for parents' income.

... With out these laws in effect parents would let their children be taken advantage of.

There was also some refreshingly honest, if somewhat reactionary, reasons which show that the desire of 19th century male workers to raise their wages by reducing the supply of labor through laws prohibiting child labor is alive and well among 21st century male and female students.

... By allowing younger children to work, there would be more demand for jobs, which would drive down the wages for the other general workers.

... Also, if children are part of the work force it would eliminate jobs for adults that need work.

Video Game Humor

2005-03-05T19:20:00.000-07:00

The Internet and Blogs Won't Destroy Print Publishing

2005-02-28T20:38:00.003-07:00

As a subscriber to About.com's freelance writing email newsletter I receive information every week on various aspects of writing. The February 15th email included an article by Clay Shirky, which was originally published on his site on October 3, 2002, entitled Weblogs and the Mass Amateurization of Publishing. A Google search to find the site where the article was first published came up with several hundred results. The article was obviously widely circulated and discussed on the web. A related article by Tom Coates, which cited the Shirky article and was published a year later on September 3, 2003 on Coates' PLASTICBAG.ORG blog also showed up frequently in the results. Coates' article was entitled (Weblogs and) The Mass Amateurisation of (Nearly) Everything... (September 03, 2003) said essentially the same thing as Shirky's article but included a long list of links on the topic at the end.

The Austrian economist Joseph Schumpeter coined the term creative destruction to describe the tendency of a market economy to eliminate old, inefficient industries in order to make way for newer and more efficient ones. In this way resources are continuously redirected to their most efficient uses. Both Shirky and Coates describe the havoc in the publishing industry as a result of blogs and the internet. Shirky tends to take the position that since blogs give free access to publishing they have opened publishing to the masses and, with everyone a publisher, there will no longer be a market for the sale of published works. He does admit that print books have advantages over screen text and will survive for the near future but he sees no financial future for web publishing. Coates is a little more cautious in that he admits that it is difficult to predict just where electronic publishing will lead but he also concludes that for the vast majority of web publishers the joy of seeing their work in print will be their only reward.

While I agree with Shirky and Coates that the internet and blogs have both opened up publishing to amateurs on a massive scale and that most of these people will not make any money with their publishing, I disagree with Shirky's when he states By removing both costs and the barriers, weblogs have drained publishing of its financial value.... True, my out of pocket monetary expenses for publishing this blog are zero as Blogger.Com provides the site and publishing tools I need at no cost to me and the Google Ad-Sense program offers the opportunity for me to possibly make a few cents off the ads they run at the top of the screen. But production of the content takes considerable time, effort and thought on my part. I justify this because part of the time I spend is what I would spend anyway on preparing for the classes for which I am being compensated. The extra time, over and above what is absolutely required for class preparation, I justify by the fact that it is a learning experience in a new technology which may provide future employment opportunities.

Blogs will not destroy the value of the written word. I also doubt that anyone will ever be able to make a living, let alone get rich, from publishing their thoughts on a blog. This is due to the fact that I, like Shirky, do not see anyway to charge a fee to readers of a blog's content. But I do believe that blogs will be a vehicle for people to make money (and some to even get rich) and that blogs will also increase the demand for quality writers.

Thomas Edison's invention of the phonograph and later the invention of motion pictures did not result in the destruction of the markets for live concerts and live theatrical productions. Not only did people continue to attend concerts and theatrical performances but the demand for musicians, composers, actors and playwrights increased as these new technologies reduced costs and increased demand for more content. Furthermore, the advent of radio and television, both of which provided music and entertainment to the public for free, did not, as was widely feared in the 1950s, lead to the demise of theaters and reduction in record sales. In fact radio and TV INCREASED demand for records and in theater movies as people heard the music on the radio and ran out to buy the record or, after becoming accustomed to TV entertainment wanted to see pictures on the big screen as well.

When Xerox introduced plain paper photocopiers in the 1960s it was widely feared that the magazine industry would be destroyed as people photocopied and distributed articles rather than purchasing individual copies of the magazine. Critics at the time pointed out that the same fears had been voiced about the introduction of public libraries which would lend books for free and the introduction of paperback books which cost a fraction of what the hardcover originals cost. In all these cases the falling prices led to a greater demand for content rather than the disappearance of the industry. An example may put this in perspective. In George Washington's day it was possible for a wealthy person to purchase AND READ in one year every book printed in the English language. Recently I ran across a news article on the internet that mentioned that provide reviews of books have to rely on freelance reviewers for much of the work because their full time reviewers can only read about 10,000 books per year. Large companies with large staffs of full time readers cannot keep up with the volume of books published but have to hire additional part-time help to get the job done.

Here is my take on this. The vast majority of blogs will not make money and their content will remain amateurish and read by very few people. Blogs will, however, make money by offering free content that induces readers to pay for additional fee based content whether this be internet content with sites restricted to paying customers, electronic media such as downloadable e-books, video, music, etc., or traditional print books, CDs or DVDs. Here I am not referring to the practice, criticized by purists as being unethical, of disguising a product promotion as an impartial news item. Rather, it is the bundling of different media to cross sell the products. CDs create name recognition for recording stars. This, in turn, generates demand for live performances which are then used to further boost CD sales. Book signings by authors have long been a part of the marketing plans of publishers. But with the new technologies that are driving physical production costs ever lower anyone can get into the act. EXCEPT they have to have content for which people are willing to pay.

At St. Baisal's Cathedral (now a museum) on Red Square in Moscow a couple of years ago I listened to a group performing traditional Russian religious music in one of the rooms. They may have been hired by the museum to help entertain the visitors or may have just been given free exposure. In addition to their performance they were also selling CDs with their music. Today they would probably have a web site to further promote themselves. In the U.S. many churches host struggling performers of religious music. Concerts are often free (sometimes an offering is taken) but CDs and audio cassettes are available for sale on the way out along with paper on which to sign up for email newsletters about the group. While it is doubtful that any of these groups will achieve super star status, many are able to make a decent living this way.

It is the same with books. There will always be a market for printed books, magazines and newspapers with mass appeal. People will pay for these. But there will also be new niche markets for all sorts of special interests for which it was not financially possible to satisfy before. The internet has been a godsend to genealogy enthusiasts. In the past many people spent hours researching their ancestors as a hobby. They then typed up their notes, made copies for a few family members and donated a copy to the local library or historical society which placed it on the shelf to be forgotten. Almost all of these books are of limited interest and most badly written. But some are well written and of interest to others. But those interested are scattered and mostly unidentifiable. But these people can be reached via webpages and blogs. Once the author has their attention the book can be pitched. The free content on the blog can be used to not only entice distant relations and other interested parties to visit and thus see the book advertised, but the content can also be used to demonstrate the author's credibility in the field and writing skills. Electronic delivery (an e-book) in this case is not only inexpensive but not as likely to be illegally copied and distributed to friends since the audience is widely scattered and not know many others interested in the topic

Are Teachers' Salaries Too Low?

2005-02-22T10:28:00.000-07:00

In my ten plus years of teaching economics I have come to expect that certain public policy topics, notably the environment, education and health care, will be approached by students more as articles of faith than topics to be discussed and analyzed. Essay question 3 of Exam 1 (which reads: Suppose local educators argue that teachers' salaries are too low. At the same time it is said that the school district received 750 applications for 5 new openings. Are salaries too low?) is a good example of this. The majority of the answers I have received so far automatically assume that teachers' salaries are exempt from the normal laws of economics and that they are underpaid.

Many tried to justify their position that teachers are underpaid by reversing the suppliers and consumers of teaching services. These students argued that the 750 applicants for 5 positions did not represent a surplus supply of teachers but, rather, a high demand for teaching positions. In this view school districts, rather than being buyers of teaching services are really providers of jobs for teachers. Of course, if this was the case, teachers would have to buy their jobs.*

Jobs are NOT an entitlement. Jobs exist solely because a producer reaches a point where he/she is unable to increase by their own efforts. At this point the producer hires others to provide the help needed to produce the additional output.

Parents want their children educated so an individual with the skills and knowledge to teach offers her teaching services for a fee. This person is successful but discovers that there are both more children to be taught and that the parents want, and are willing to pay for, more in depth teaching of various subjects. Rather than continuing to spend all day teaching a broad range of subjects to one group of thirty students, this entrepreneur hires additional teachers to specialize in various subjects. She is now able to rotate the students among different teachers for more in depth education in specific subjects and handle more than thirty students per day. She is meeting the needs of more consumers and making more money as a result of hiring the additional teachers. But note that she hired the additional teachers not because they needed a job or wanted to teach but because she needed their labor services to expand her business. Large businesses, including public school districts, differ from the entrepreneur/teacher above only in size.

Wages for teachers, or anyone else, are determined by market forces of supply and demand. Schools need teachers and a demand curve can be constructed showing what quantity of teaching services (or number of teachers) they are willing and able to hire at various prices (wage rates). Similarly, there is a pool of people with the skills and desire to teach. Like all workers, teachers, with their skills, have other job opportunities besides teaching so a supply curve can be constructed showing the various wages (prices paid for teaching services) and the corresponding number of teachers available at these various prices. The actual wage for any worker in competitive market is determined by the intersection of supply and demand.

Market Supply and Demand for Teachers (equilibrium wage and equilibrium number of teaching positions)

When wages are set at a rate above the intersection of supply and demand there will be a surplus of people seeking positions. In the graph below note that at the current wage rate, which is above the equilibrium wage, the demand for new teachers is 5 while the supply of those available at that wage is 750. Note also that the 5 positions at the present wage rate is considerably LESS than the number of positions available at the market wage rate.

Situation where wage set above equilibrium wage level.

Proponents of increased spending on education argue that it is needed in part to enable schools to hire more teachers thereby decreasing the pupil to teacher ratio (i.e., smaller class sizes) and improving the quality of education. However, as shown in the graph above, the same could be accomplished by allowing teachers' wages to fall to market equilibrium levels. Allowing teachers' wages to fall to equilibrium levels would also result in an increase in the number of teaching jobs and this would eliminate part of the surplus of unemployed teachers. The remainder of the teacher surplus would disappear as those at the margin (i.e., those attracted to the profession because of the above market wage) saw teaching wages drop below the wages in alternative professions these people are equipped to enter. In this sense, the current above market wages are unfair to college students because they are encouraging these students to invest time and money in preparing for a profession that already has more trained professionals than it has jobs available. The losers in this situation, where we let market forces determine teacher wages, would be those currently working in the profession who would see their incomes decline.**

Today there exists both a SHORTAGE and a SURPLUS of K-12 teachers. Both are the result of K-12 education being provided primarily by the government rather than the private market and pay scales determined by political rather than market forces. The teacher SHORTAGE in general is limited to the areas of science and math while the SURPLUS is in the other subject areas. People trained in science or math are in HIGH demand by industry while people trained in areas like history face a much LOWER demand. If teacher salaries were set solely by market forces, science and math teachers would receive higher wages than teachers in areas like history.

Under the present teacher compensation system, all teachers within a district are paid according to the same scale regardless of subject. The scale is usually a compromise between the HIGHER wage needed to attract science and math teachers and the LOWER wage needed to attract teachers in other areas. This compromise results in a wage that is BELOW equilibrium for science and math teachers and ABOVE equilibrium for teachers of other subjects. Thus, those with a degree in science or math who want to teach have no problem finding a job right out of college while those with degrees in other subjects are often forced to accept jobs as substitute teachers, lower paying jobs in schools run by churches and other non-profits, part-time tutors or similar work for long periods as they continue to try to land one of the coveted positions, with above market pay, in their subject area.

*NOTE: This is not quite as far fetched as it sounds. In the eighteenth and early nineteenth centuries officer positions in England's army and the Royal Navy were sold to the highest bidder. Aristocratic parents (as well as wealthy merchants who sought to advance their sons socially) would purchase an appropriate military rank for their younger sons (the family titles and lands went, by law, to the oldest son). This gave the son both the status of the rank and the income (from the government) associated with the rank. When the holder of the commission was ready to either purchase a higher rank or retire he would sell the current commission to another.

**NOTE: Existing contracts and a need to maintain both morale and prevent the chaos resulting from the mass resignation of existing teachers would temporarily shelter existing teachers from direct cuts in pay. More than likely such a change would follow a path used by airlines and other industries needing to make substantial cuts in wages. In the case of airlines existing pilots maintained their present wages and many, but not all of their benefits and perks, while new pilots were hired at much lower wages and far fewer benefits and perks. In addition to the dual wage structure, the airlines severely restricted increases in wages and benefits for the existing pilots and, in some cases began to reduce benefits.

School Vouchers - A Step Toward Privatization of Education?

2005-02-16T08:42:00.000-07:00

Your textbook has a brief discussion about school vouchers and, on Assignment 1 for the ECN 201 class and Homework 3 for the ECN 200 class, I have asked a question concerning school vouchers. I used this question in another class in a previous semester and many people had trouble with it either because they did not understand what a voucher was or, they were aware of school vouchers and were opposed to them. In both cases students focused on perceived negative effects of the vouchers on children's education and and answered accordingly. Their answers were wrong because they failed to read the question and answer what was being asked. The question is not about the educational effects of a voucher program (which is how most people answered it) but, rather, it is about who wins and who loses FINANCIALLY (hint, it isn't the students).

A voucher is a financial instrument, like a check, which can be exchanged by the recipient for a good or a service. Unlike a check which can be exchanged for cash and the cash used to purchase anything, a voucher can only be exchanged for a good or service stipulated by the issuer of the voucher. For instance, when an airline has to cancel a flight due to weather it will often direct stranded passengers to a nearby hotel and give them vouchers to pay for their rooms and meals at that hotel while waiting for the weather to clear and flights to resume.

The concept of school vouchers for K-12 education was first proposed by economist Milton Friedman about 30 years ago. As he explained in his popular TV series, declining educational achievement was due to the fact that schools, being public monopolies, had no incentive to use resources efficiently or to provide quality service. Public schools are supported by tax dollars which means that their funding is based upon political considerations and not by consumers. Further, the law not only requires that parents send their children to school but dictates which school to send them. With funds and students guaranteed, there is no incentive for schools to complete for students like private businesses compete for customers. Friedman's solution was to propose that instead of the government paying schools directly according to the number of students enrolled in the district, they instead divide the amount they would pay a district by the number of students to calculate the amount per student and give parents a voucher for that amount for each of their school-age children. Parents could then enroll their children in any school and pay for it with the voucher.

Contrary to what some critics of vouchers portray, vouchers can be used at any school, public or private. If parents do not like the school their child is assigned to under the present system, they can, under a voucher system, move the child to another school. This might be another public school in the same district, it might be another public school in another district or it might be a private school. Under this system, schools that are underperforming lose students and funding while schools that are providing a good education gain students and funding. Poorly run schools, both public and private, would go broke and cease to exist. Schools and their staffs (teachers, administrators, etc.) would be accountable to parents for their performance and would see their funding and jobs disappear if the quality of education delivered did not meet the expectations of parents (consumers). Special interest groups would also lose as projects and programs they wanted taught would disappear if parents were not interested in these programs (for example if parents felt phonics was the best way to teach children to read then schools that used phonics to teach reading would gain students (and the money they bring to the school) while schools that used other methods to teach reading would lose students and this would result in a sharp decline in the use of other methods.

School vouchers are one proposal to reform education in the U.S. They are not the answer to the problems of education in the U.S. but are merely one approach toward reform. (NOTE: Arizona is one of many states that does not have a voucher system). There are many critics of vouchers both from a free market perspective and from the perspective of defending the status quo. But what vouchers have accomplished is to move the debate over education from one of how much should we increase funding for public education and what reforms can we make to improve public education? to is public education the answer?. A half a century ago public education was a political sacred cow whose position in society was guaranteed. Today it is still the major provider of K-12 education but it is losing market share and is being hurt by competition on many sides for students and funding. This competition includes the growing use of unsubsidized (i.e., parents pay the full cost of private education with no help from the government) private schools (secular, religious and home schooling); programs that subsidize private schooling such as vouchers (when they can and are used to pay for private schools); tax programs like Arizona's tuition tax credit program (where taxpayers can contribute to scholarship programs that pay tuition for children (not their own) at private schools and receive a credit for this on their Arizona state income tax – i.e., if they donate $100 and their tax due is $900 they can subtract the $100 donation from the tax due and pay only $800 in state income tax – the state makes up for the loss of $100 in taxes by reducing spending for public education by $100); charter schools (Arizona is a leader in this area) which are publicly funded schools that can be operated by for profit, non-profit or public entities, have greater flexibility (i.e., fewer regulations) in designing and delivering education and are funded out of the same pool of funds as public schools; new accountability standards such as the federal No Child Left Behind Law and the state's AIMS testing program which are putting pressure on pubic schools to improve results noticeably or face additional sanctions and scrutiny by federal and state officials who control funding; finally, there is the growing reluctance by taxpayers to keep increasing funding for public schools as evidenced by school bond elections in which the proposed bonds are usually voted down and increasing voter support for legislative candidates who are beginning to challenge proposed increases in school funding.

Milton Friedman's voucher proposal, while bitterly opposed by many and not widely used, has succeeded in igniting a debate and unleashing forces which are transforming the K-12 education system in the U.S. At this point it is hard to predict what the end result will be. However, one can safely say that the free market dream of a totally private system in which parents have full control over their child's education and pay the full cost (possibly with private help) and no government funding or control of any kind will probably not be realized. However, it is also safe to say that when this process has played out, whatever role government will play in the new system will be greatly reduced (in terms of both funding and regulations) and the resulting public school part of the system will not be anything like the public education system your parents knew.