• The Per Capital Dog Population Is An Economic Indicator

    Pooches and Prosperity

    Sep 18 • Demand, Supply, and Markets, Developing Economies, Households, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 449 Views

    In Latin America, with Brazil #1, being middle class means owning a dog.

    According to the Economist, more dogs mean more pet food, “knick-knacks,” and veterinary care. Based on pet food sales, the Latin American dog to cat ratio is 6 to 1. (In Europe, cats and dogs are equally popular.) Called a “star market,” Latin American spending represents 10.2% of global pet care sales.

    Broader implications? Perhaps this is not a dog story at all. Instead, we are considering the impact of higher income, increasing world trade, and economic growth on what we consume.

    Thinking of past econlife posts, we can add dogs to beer, Coach purses, and pecans as economic indicators of ascending affluence.

    The Economic Lesson

    After we subtract taxes from personal income, the result is our disposable income. Disposable income can either be spent or saved.

    In the U.S., per capita personal income in 2010 ranged from a high of $56,001 for Connecticut to the country’s low of $31,186 in Mississippi. 30.1% of all Brazilian households and 44.8% of Argentina’s households have the U.S spending power of $25,000.

    An Economic Question: Using this Bureau of Economic Analysis map, explain how personal income varies in the U.S.

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    “Deficit Bias”

    Sep 17 • Behavioral Economics, Economic Debates, Economic History, Government, Households, International Trade and Finance, Thinking Economically • 610 Views

    If anyone asks you about the “fiscal woes” facing the U.S., Japan and the EU, just say, “deficit bias.”

    The 13th Geneva Report on the World Economy explains “deficit bias.” In the U.S., think about voting constituencies and how the political system has been unable to deal with an inefficient health care system and inadequate revenue. In Japan, an aging, less affluent, rural segment of the population has a disproportionate amount of voting power. And, as for Europe, you have a tradition of government spending and of bailouts that created moral hazard.

    You can see where this is going. There is a tension between democracy and financial discipline. Although the political dynamic is varied, still, the results have been similar.

    Here is the full report or you might want to read a summary in this article. In addition to “deficit bias,” the report extensively discusses solutions that they believe have to be nation-specific.

    The Economic Lesson

    Thinking economically about “fiscal woes” takes us to the margin. The problem is that one group enjoys the marginal benefit of spending while another experiences its cost. In the long run, though, all lose as society pays the cost through less growth and more unemployment.

    An Economic Question: Select a specific group and then, using cost/benefit analysis, explain the impact of more government spending.

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    More Health Care Jobs

    Sep 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Government, Labor, Macroeconomic Measurement, Thinking Economically • 405 Views

    The health care industry has added 300,000 jobs to the U.S. economy during the past 12 months. New jobs, new construction, new technology, more care. Should we be pleased?

    This Dr. Seuss-like animated short from marketplace.org presents the downside of health care job growth. Discussing the issue further in a report on suburban Detroit, they explain that a new medical center can indeed help one community. However, a proliferation of medical facilities means higher health insurance premiums and soaring Medicare and Medicaid expenses. Consequently, although one community might benefit, overexpansion means the entire nation will suffer.

    Here are additional statistics on the health care jobs boom. And here is another perspective in a previous econlife post.

    The Economic Lesson

    Sometimes what is good for one person becomes bad when everyone does it. If there is a fire at a public event, one person can rush to the exit but everyone simultaneously cannot. Enjoying higher prices, one farmer can decide to plant more and earn more. However, when all farmers together produce a bumper crop, price dips. Called the fallacy of composition, sometimes what is good for the individual is bad when everyone does the same thing.

    An Economic Question: How does building too many medical centers result in the fallacy of composition?

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    Placing the Poverty Line

    Sep 15 • Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Thinking Economically • 442 Views

    Any family that earns less than 3 times the annual cost of a nutritionally adequate diet is below the poverty line.

    But should we agree with the placement of the line?

    If we say that poverty is “relative deprivation, ” then a definition could take us to those who have less than the average household. In 2010, the U.S. average household had 2.3 cell phone subscriptions and 2.9 TVs.

    Other considerations could raise or lower household income totals. Maybe we should include in the annual income total such lower income entitlements as housing subsidies, tax credits, and food stamps. Or, we could subtract childcare. In addition, how do we recognize income mobility and the temporary character of poverty for most households? According to a measure from the late 1990s, 2% of the population was poor for 2 years or more.

    The Economic Lesson

    The highest since the early 1990s, according to the US Census Bureau, during 2010, 46.2 million people lived in poverty. A family of 4 earning less than $22,314 was below the poverty line while for a family with 3 children under 18, the number was $26,023. Looking at someone over 65 living alone in 2010, the poverty line was $10,458.

    Slicing the US income pie, the bottom 40% earned 11.8% of all pretax income. By contrast, the top 20% had a 50.2% share of the nation’s pretax income. Is income inequality good or bad? You might look at this article.

    An Economic Question: Why is it important for the United States to identify a poverty line?

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    A Tale of Two Euro Zone Countries

    Sep 14 • Economic Debates, Economic History, International Trade and Finance, Money and Monetary Policy, Thinking Economically • 504 Views

    Saying, “It is a small step for the euro zone and a big step for Estonia…” the Estonian prime minister celebrated his country’s formal entry into the Western economic world. On January 1, 2011, Estonia switched from the kroon to the euro (and many bought new wallets because the size of their currency had changed). Looking forward to more trade and greater national security, Estonia very much wanted euro zone membership.

    The lowest in the euro zone, Estonia’s debt to GDP ratio during 2010 was 6.6%–far below the euro zone rule that national debt could not exceed 60% of GDP. According to this NPR Planet Money podcast, when Estonia experienced a severe recession during 2009, even the president, who grew up in New Jersey, took a 10% salary cut.

    And then we have Greece. Switching from the drachma to the euro in 2001, Greece knew, according to this BBC article, that she would have to display more fiscal discipline as a euro zone member. You know what happened. Her 2010 debt to GDP ratio was 142.8%. The story of Greece’s response since 2009 is here.

    The Economic Lesson

    Monetary policy involves the supply of money and credit. A country’s fiscal policy relates to taxes, spending and borrowing. Estonia and Greece share the same monetary policy while each has its own fiscal policy. And therein lies the problem.

    When countries borrow, they are implementing fiscal policy. But who buys their debt? Banks–the same banks that participate in monetary policy. So, because banks link fiscal and monetary policy, if one goes awry, the other is affected.

    An Economic Question: How might Estonia experience the impact of Greece’s fiscal policy?

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