• The econlife.com economics news summary

    Weekly Roundup: From Fed Dots to Income Traps

    Sep 19 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Thinkers, Environment, fiscal policy, Government, Labor, Money and Monetary Policy, Thinking Economically • 118 Views

    Posts Roundup

    middle income trap Sunday 9.13.15

    The problem with becoming a middle income country…more

    middle income trap Monday 9.14.15

    The trap that might have snagged China…more

    economic news summary and recycling costs Tuesday 9.15.15

    Why it can be tough to do good…more

    economic news summary and innovation Wednesday 9.16.15

    India’s connection to The Martian…more

    economic news summary and demand supply of a grapefruit Thursday 9.17.15

    How a popular fruit loses it reputation…more


    economic news summary and rate hike Friday 9.18.15

    Rate insight from the Fed’s dot plots…more

    Ideas Roundup

    • developing nations
    • middle income trap
    • economic growth
    • Gini coefficient
    • inequality
    • externalities
    • opportunity cost
    • tradeoffs
    • innovation
    • markets
    • incentives
    • consumer spending
    • structural change
    • monetary policy
    • interest rates
    • zirp

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  • economic news summary and rate hike

    Connecting the (Interest Rate) Dots

    Sep 18 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Financial Markets, Government, Labor, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 157 Views

    Everyone is talking about the Fed’s dots.

    Where are we going? To how dot plots can help you.

    But before we get to the dots, just a little rate history…

    The Fed Funds Rate

    Until 2 pm yesterday, the bank-to-bank lending rate—the fed funds rate—was creating some hoopla. Then the Fed said, “No rate hike yet.”

    Actually they said, “…the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.”

    The Fed used the word “target” because they cannot force banks to charge the fed funds rate. Instead, by injecting more or less money into the economy, they try to incentivize banks to lower or raise their lending rates.

    You can see below that the fed funds rate has been close to zero for a long time.

    Fed rate hike and fed funds

    From: NY Federal Reserve

    The Dots

    If we want to predict what the Fed will do next, we can use their dot plot.

    Dots plots are graphs from the FOMC (Federal Open Market Committee) that show what individual FOMC members believe. Each dot represents one person’s policy preference for the future.

    You can see below that only one person wanted a rate hike in 2014. Otherwise, everyone agreed.

    A 2014 Dot Plot

    Fed rate hike policy preferences of FOMC members in dot plot

    From: NY Federal Reserve

    But opinions have changed. Whereas in 2014, six FOMC members supported 2015 rates at or beyond 1.5 percent, now no one wants this year’s fed funds rate to rise above 1 percent. And between June and September, more people seemed to like lower rates.

    FOMC opinions of Fed rate hike in dot plot

    Our Bottom Line: Why the Fed Matters

    From government bonds to auto loans to mortgages, every interest rate we pay relates to the Federal Reserve. And yet, all the Fed is really trying to do is minimize unemployment and inflation.

    So, knowing those dots affect our own lives, maybe we can use them to decide whether it makes sense to borrow now or wait.


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  • economic news summary and demand supply of a grapefruit

    A Lesson From a Grapefruit

    Sep 17 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Labor, Lifestyle, Thinking Economically • 191 Views

    The grapefruit has a problem.

    Where are we going? To how the plight of the grapefruit is about much more than one fruit.

    The Demand Side

    The grapefruit used to be one of the most popular citrus fruits. Traditionally favored by older consumers, now grapefruits are stigmatized by the medical community. Told they cannot eat them because of an adverse interaction with statins lowering cholesterol and blood pressure drugs, the older than 50 grapefruit market has dwindled. Add to that the allure of other fruits and even the difficulty of eating a grapefruit and you have a market with less demand.

    You can see that grapefruit consumption is way down:

    Florida Citrus industry problems

    Instead we are eating apples and bananas, grapes and berries:

    Declining Florida citrus industry and structural change

    From: USDA

    The Supply Side

    On the supply side, the grapefruit has problems also. The big one is a tiny bug that attacks a tree’s vascular system. Called citrus greening, the disease has helped to halve the grapefruit harvest from 36 million boxes to 18 million boxes between 2003 and 2013. It also has tripled the cost of fertilizer and nutrients.

    And the supply side impact only gets worse. Comparing the 2012-2013 season to 2007-2008, the industry needed 18 percent fewer people to fertilize trees while demand for pickers declined as did the need for packers and processing plants.

    The slide in production is quite evident below:

    Structural change in Florida citrus industry

    And we have not mentioned the normal stuff like hurricanes, freezes and canker.


    The market has some good news. Growers have switched to strawberries and blueberries and olives are even a possibility. Attracted by new opportunities, developers are constructing vacation homes, hotels, an airport and an industrial complex where abandoned groves had once thrived.

    Our Bottom Line: Structural Change

    I suspect that we have the beginning of structural change where dying traditional economic activity is being replaced by more viable businesses. As the number of Florida’s citrus groves plummets, the amount of strawberry and blueberry production is on the rise as is local development.

    The lesson from the grapefruit? Markets create incentives. When demand and supply devastate one good or service, others have the incentive to evolve.

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  • economic news summary and innovation

    Bringing The Martian Down to Earth

    Sep 16 • Behavioral Economics, Developing Economies, Economic Growth, Economic History, fiscal policy, Government, Innovation, Macroeconomic Measurement, Tech, Thinking Economically • 148 Views

    If you start The Martian, you will not be able to stop. A book and soon to be released movie, the story is about what XKCD says (below) and lots more.

    innovation and space travel

    From: xkcd

    During a Mars mission, astronaut Mark Watney is assumed dead when his crew mates evacuate during a catastrophic storm. Soon after, Watney awakens alone. He has two months of rations that need to sustain him until the next Mars crew arrives in four years. But Watney is a botanist who can figure out how to stretch his food supply by growing potatoes. He is an engineer who can reconfigure NASA technology to keep him warm and breathing and connect malfunctioning communications with earth. Also, he is very funny.

    Where are we going? To how space travel helps the earth economy.


    On September 24, 2014, India’s Mangalyaan (Mars craft in Hindu) satellite entered its Mars orbit, ready to accumulate scientific data. Forced to economize, they spent only $74 million (probably less than it cost to film The Martian) by using domestically made equipment and, as the BBC explained, doing things simply. Criticized that the opportunity cost is too great, the Indian government can point out that they did not sacrifice irretrievable health care or sanitation spending. Instead, what they learn from a Mars probe can be used tangibly to build an exportable space industry and intangibly to inspire their population.


    Years of space travel have brought NASA technology back to earth. Think Tempur-Pedic mattress or Dr, Scholl’s gel inserts and you start with a NASA innovation. Or, police and military body armor that is based on the liquid crystal polyester fiber that needed to withstand Mars’s rocks and bounces and possible punctures. Or camera lenses, 3D technology, and even an environmentally safe pesticide called Flycracker that stops larvae from becoming adults. Including a Space Food Stick (the grandma of the energy bar), air purifiers and non-lab bacteria identification, the list is long.

    M&Ms have been a space staple since 1981 because of their ability to withstand extreme conditions. They were not developed by NASA.

    food for space travel

    From: NASA.gov on board the International Space Station.

    Our Bottom Line: Externalities

    When the technological and inspirational benefits of travel to Mars and other inter-planetary related innovation are enjoyed by millions of people, the ripple is a positive externality that can boost economic development in developing countries like India.

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  • economic news summary and recycling costs

    Why Doing Good is Not Always Easy

    Sep 15 • Behavioral Economics, Developing Economies, Economic Debates, Economic History, Environment, fiscal policy, Government, Health Care, Labor, Lifestyle, Macroeconomic Measurement, Regulation, Thinking Economically • 413 Views

    Two days ago, encouraged to become a better world citizen, I was given a list of suggestions that included recycling, Several months ago, after Cecil the lion was killed by a dentist, I was told to oppose trophy hunting.

    Where are we going? To how we could do better at doing good.


    In 2011, Washington D.C. received $389,000 for its recyclables. Now it is paying $1.2 million to have them removed.  Waste Management (a large recycler) tells us that 2000 municipalities are in the same predicament.

    One problem is sorting. Hoping to encourage recycling, municipalities like Washington D.C. have minimized sorting rules. The downside is more residue that has to be removed before recycled materials are sold. But because soda cans are thinner, plastic is lighter, and glass shatters more easily, the sorting facilities make more mistakes and send more garbage to landfills.

    Then, compounding our recycling woes, China is no longer a dependable destination. Demanding less and being pickier, China is spending relatively less on our recyclables.

    Trophy Hunting

    Most of us responded with sadness to Cecil’s death. Killed in Zimbabwe, the lion generated an uproar against trophy hunting.

    But not everywhere.

    Because of a trophy hunting ban in Botswana, wild animals are terrifying villagers. The people who live in Sankuyo tell how lions are killing goats and donkeys, devouring maize and beans, and making evening travel dangerous,

    Further harming the local economy, the trophy hunting proceeds have evaporated. No longer can villagers use the money for water pipes and toilets, houses and scholarships.

    And, because the trophy hunting ban made lions and leopards less valuable, villagers are killing more of them.

    Our Bottom Line: Doing Good Tradeoffs

    I know people have said that when you ask an economist, nothing gets done. However, to help the environment and save endangered species, I wish policy advocates would recognize the tradeoffs.

    In class we say that choosing is refusing. So, choose recycling in Washington D.C. but that means refusing to use that money on education (or some other municipal need). Or, oppose trophy hunting but know that you have decided not to help the local villagers.

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