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    Presidential Pay and the GDP

    Mar 17 • Government, Households, Macroeconomic Measurement, Thinking Economically • 303 Views

     The Economist decided it would be interesting to know how a political leader’s pay compares to what a typical citizen from that country earns. Here are some of the numbers with salary first and then the multiple of per capita GDP next. I’ve approximated because the numbers are from a bar graph:

    Kenya: $486,000 (proposed), 240x

    Singapore: $2,183,516, 42x

    Indonesia: $124,171, 28x

    U.S. $400,000, 8x

    Israel $120,814, 4x

    China: $10,633, 2x

    You might want to look at this per capita GDP list to see worldwide poverty and affluence firsthand. Qatar is #1 ($145,300) while Burundi and Democratic Republic of Congo are last at #’s 228 and 229 ($300). The dollars are 2010 estimates.

    As a second step, you might check income distribution. In a list of 136 countries, Sweden is ranked as having the most income equality. Sweden ($39,000) is #23 on the per capita GDP list.

    The Economic Lesson

    GDP indicates the total value of goods and services produced in one nation during one year. Per capita GDP is GDP divided by population. Because these GDP figures are averages, it is helpful also to look at data that relates to inequality.

     

     

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    Selling Karma (With a Solar Roof)

    Mar 16 • Environment, Government, Innovation • 268 Views

    The Fisker Karma car has 2 electric motors, 1 Lithium-ion battery, and 1 internal combustion engine. Depending on the model, you can have a solar panel roof, do 0-60 mph in less than 6 seconds and reach a top speed beyond 125 mph.

    How?

    “…a small gasoline engine … turns the generator, which charges the lithium ion battery pack, powering the electric motor and turning the rear wheels.” The solar roof will help charge the car. 

    Soon, you can buy the Ecochic, Ecosport, or Ecostandard model. Here is the brochure.  Prices start at $95,900. Estimated annual cost saving (on gas) is $1500.00. The car looks amazing.

    In 2009, Fisker Automotive received a half-billion dollar loan from the U.S. Department of Energy to develop an affordable hybrid plug-in. The goal was a car that would sell for less than $40,000 that, Fisker says, will be available during 2012 or 2013.

    The Karma is the first step. 

    The Economic Lesson

    So, again we have the question. Through loans and outright spending, what should the federal government fund? Should Fisker Automotive have received a federal loan?

    This returns us to opportunity cost and how the money otherwise might have been spent or not spent. The most desirable alternative that was not selected is the opportunity cost of a decision. Choosing is refusing.

    We also should think about what you believe the federal government should and should not do. Should the federal government only fund necessities that the private sector would not support such as a transportation network? Or, should government pay for goods and services that a society wants? 

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    Now It’s Chocolate

    Mar 15 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance • 336 Views

    According to one recent news article, a Cadbury chocolate bar is missing 2 chunks but the price is the same.

    First we had a hedge fund trying to corner the cocoa bean market. Then came political turmoil in the world’s leading cocoa producer, the Ivory Coast. The result was the price of cocoa beans touching a 32-year high. Combine that with the rising price of sugar and you get either a smaller chocolate bar or one that is more expensive.

    With chocolate added to our list of soaring commodity prices, we can see that on the supply side, the reasons for soaring prices have varied. But, on the demand side, the response has been similar.

    The Economic Lesson

    For certain items, we buy much less when price rises and much more when it falls. At other times, our quantity demanded remains relatively stable, no matter where price goes.

    How we respond to a price change is called our price elasticity of demand. More technically, demand elasticity compares the proportional change in quantity demanded to the proportional change in price. We tend to display much greater demand elasticity for luxury goods than for necessities.

    Is chocolate a necessity?

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    A Budget Question

    Mar 14 • Economic Debates, Government, International Trade and Finance, Thinking Economically • 320 Views

    Thought to have saved many lives, a Japanese early warning system sent a media alert seconds before the earthquake struck.  The system took 12 years to implement and cost close to $500 million.

    A similar warning system for the U.S. west coast is being developed. A multi second or minute warning may seem miniscule. However, it is long enough for speeding trains to decelerate, for elevators to reach the next floor, and for technology to go into a safe mode. Meanwhile, people can “duck, cover, and hold on.”

    This takes us to a question. We know that California has been on the brink of what would be bankruptcy if a state could declare it. We know that the U.S. budget is undergoing vast cuts. Would you vote to continue work on the multi-million dollar California Integrated Seismic Network Shakealert system?

    The Economic Lesson

    The opportunity cost of a decision is the next best alternative. It is the sacrificed alternative. In other words, when you decide to do one thing, you will not do something else. Or…”Choosing is refusing.”

    The opportunity cost of an early warning system could be more spending on Medicaid or Social Security or early childhood education. The opportunity cost could also be less spending.

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    Japan’s Sovereign Debt

    Mar 13 • Economic History, International Trade and Finance, Money and Monetary Policy • 307 Views

    Hoping to sell more Japanese government bonds (JGBs), in a rather novel advertising campaign last June, the Japanese finance ministry said that, “Women have a thing for men who own JGBs.” Their message suggests that women prefer men who are “serious about money” and value “stability.”

    Then, last January, Standard & Poor’s downgraded Japanese bonds to its fourth highest credit rating, AA-minus. With debt that has soared to close to 204% of its GDP, Japan owes a lot of money. By contrast, considered high, the outstanding debt of the U.S. is 70% of its GDP.

    Seeing Japan’s debt ads and its debt size, this takes us to a concern. Now that they will surely need to borrow more for disaster expenses and reconstruction, will they increase their debt? The implications?

    The Economic Lesson

    Why compare GDP and sovereign debt? You can think of borrowing money to buy a million dollar house. For billionaire Bill Gates, it is a small obligation. For a typical wage earner it is a huge debt.

    Similarly, a rich nation with a high GDP can borrow more because it has the affluence to pay it all back. But, how much is too much, even for affluent nations like the U.S. and Japan?

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