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    The Good Life…For Cows

    Dec 31 • Businesses, Demand, Supply, and Markets, Developing Economies, Environment, Households, International Trade and Finance, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 655 Views

    I suspect that the life of a cow producing organic milk got better last June. For their owners, though, business surely became more complicated.

    According to a new USDA rule, any milk labeled organic now has to come from a cow that spends much more time in the pasture. Their diet also has to have a pasture related minimum and, as always, no hormones, no synthetic pesticides, no genetically modified seeds. Described by the LA Times, these cows’ lives will be “au natural.”

    Organic dairy farmers, though, are not as happy.

    • Demand: It sounds like a roller coaster. When the 2008 recession hit, organic milk sales plunged and the industry had to cut back. Now, during the first 3 quarters of 2011, sales rose 17% compared to the same period a year ago.
    • Supply: In addition to complying with the new USDA rules, farmers have faced soaring feed costs. In the U.S., ethanol production, and in China, a middle class eating more meat, helped push corn prices upward. Pricy corn became the incentive for using other grains whose prices then increased also.

    With demand surging and supply more costly, price goes up. However, there is one more variable. Farmers claim that the cooperatives where they sell their milk are not paying them more. As a result, some organic farmers are switching back to conventional farming. So, in addition to the price rise, we have quantity descending and supermarket shortages.

    The Economic Lesson

    The history of organic farming is a classic cost/benefit story. Especially considering how antibiotics and pesticides spiked productivity and led to a cheaper and varied food supply, the costs and benefits of organic production are fascinating.

    An Economic Question: What demand/supply graph might you draw to illustrate the current plight of the organic dairy farmer?

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    Are X-Men Human?

    Dec 30 • Demand, Supply, and Markets • 675 Views

    The U.S. government had to decide whether X-Men are human.

    Our story starts with the U.S. Customs office. Included in a very long list of items that enter the U.S. are “dolls” and “toys.” According to Customs officials, any figure that clearly represents a human being is a doll; if not, then it is a toy. Importers care about the difference because the tariff on dolls (12%) is much higher than toys (6.8%).

    And that takes us to Marvel Comics. While we all can agree that Barbie is a doll, what about action figures? The U.S. Customs office said action figures are dolls; Marvel disagreed. This Radio Lab podcast wonderfully describes the issues.

    Marvel won its case in court. Similarly, because Luke Skywalker could resist the force and was captured by a Wampa, a court also said he was a toy. By contrast, G.I. Joe was declared a doll. 

    The Economic Lesson

    When looking at tariffs, as economists, we should check the cost of the jobs that were saved. This 2002 Dallas Fed report concluded that each year, a tariff on sugar costs consumers $1,868 million in higher prices. More specifically, each one of the 2261 jobs that was saved costs $826,104 annually.

    An economic question: Explain why tariffs generate considerable support even when their cost is high.

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  • Ranking Surveys Typically Are Subjective and Have Unintended Consequences.

    Ranking Questions

    Dec 29 • Behavioral Economics, Economic Debates, Households, Macroeconomic Measurement, Thinking Economically • 566 Views

    • Ranking income distribution, the Organization for Economic Cooperation and Development (OECD) says that Denmark is one of the most equal countries the world while Mexico is one of the least.
    • For overall well-being, Gallup selects Virginia, Wisconsin and New Jersey as the top 3 states in the U.S.
    • U.S. News ranks Harvard and Princeton #1 for 2011.

    Yes? Malcolm Gladwell says not necessarily.

    Explaining in the New Yorker why ranking is flawed, Gladwell emphasizes that subjective variables are tough to define.  Yes, you can choose a valid list of categories on which to base a list. Then though, it gets tricky. For the colleges list, how to quantify student engagement? Is faculty quality really about degrees and salaries?

    Our bottom line: Health care, corporate responsibility, national debt, life expectancy…we see ranks everywhere. When should we be skeptical?

    The Economic Lesson

    When economist Robert Whaples discusses income inequality (#7) in an excellent Teaching Company series on contemporary economic issues, he first has to define income. And that, he says, is not easy.

    • Collecting data, the Census Bureau does not necessarily recognize noncash public benefits.
    • Retirement and health insurance packages are excluded.
    • Households tend to “underreport nonwage sources of income.”

    In addition, changing household size is relevant. We could even debate whether we would learn more from money spent than money earned.

    This returns us to the OECD’s income inequality list. Would we agree with their definition of income?

    An economic question: For movies or songs, create a list and define your variables. Are they tough to quantify?

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    The Oreo Centennial

    Dec 28 • Businesses, Demand, Supply, and Markets, Economic History, Economic Thinkers, Financial Markets, Households, Innovation, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 996 Views

    Next year, we can celebrate Oreo’s 100th birthday.

    First sold in 1912, Oreos have been priced at:

    • 1922: 32 cents/lb.
    • 1934: 27 cents/lb.
    • 1960: 45 cents/lb.
    • 1991: $2.39/lb.
    • 2008: $4.29/18oz.
    • 2011: $4.29/16.6oz.

    Amazingly, according to the Bureau of Labor Statistics inflation calculator, 32 cents in 1922 equals $4.31 today.

    When Oreo celebrated its 75th anniversary, people liked to say that so many billions were produced that you could stack them to the moon and back 4 times. Humorist Calvin Trillin said it was impossible, though, because, “Those Oreos are eaten up.”

    And here, award winning architecture critic Paul Goldberger reviews the Oreo’s design.

    The Economic Lesson

    The first federally mandated minimum wage, in 1938, was 25 cents an hour.  Looking at the 1934 price of Oreos, you can see that 1 hour of work at minimum wage got you close to 1 pound of Oreos. Now a pound of Oreo cookies is approximately $4.29 and the federal minimum wage is $7.25.

    Greater productivity and economic growth enable us to expand our purchasing power.

    An economic question: You might want to check historic prices of other items and then go to the BLS inflation calculator to see if the Oreo numbers are typical.

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    Domestic Work

    Dec 27 • Demand, Supply, and Markets, Developing Economies, Gender Issues, Households, Labor, Macroeconomic Measurement, Thinking Economically • 613 Views

    What do drip dry clothing, take-out food, dog walkers, dishwashers, dry cleaners, and dusty ceilings have in common?

    A servant shortage.

    Currently, Brazil has less household help because of economic growth. Low income women who had worked and lived in the home are responding to more attractive employment opportunities in factories, shops and offices. As a result, affluent upper class households have had to transform their life styles.

    The Economist compares the impact of burgeoning Brazilian affluence to Great Britain a century ago. Then also, women who had been waiting on the upper class left their homes for newly created workplace jobs. Wonderfully portrayed by the PBS Masterpiece Theater series, “Downton Abbey,” life “in-service” quickly became an anachronism.

    The Economic Lesson

    Looking at servants, Thorstein Veblen (1857-1929) cited conspicuous consumption and conspicuous leisure. In his Theory of the Leisure Class, Veblen says that “abstention from productive work” (p. 36, a free Google book) is evidence of affluence.

    Written more recently, this article reminds us that domestic work is a gender concern that relates to the abuse of female migrant workers and the need for household assistance when middle class women enter the work force.

    An economic question: What demand/supply graph would illustrate the change in the domestic worker market that the Economist describes for Brazil?

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