• Weekly Roundup The econlife.com economics news summary

    Weekly Roundup: From Russian Vodka to Venezuelan Beer

    Apr 23 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Entertainment, Financial Markets, fiscal policy, Gender Issues, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 111 Views

    Weekly News Roundup

    New 10 dollar bill Sunday 04.17.16

    Why we needed “Hamilton”…more

    Cigarette taxes and impact of sin taxes Monday 04.18.16

    The basics of cigarette taxes…more

    Weekly oundup and Interstate Migration Tuesday 04.19.16

    How moving matters…more

    Weekly roundup and Russian alcohol consumption Wednesday 04.20.16

    Russian vodka economics…more

    Weekly roundup and designing currency Thursday 04.21.16

    Dollar design decisions…more

    Weekly roundup and Foreign exchange and Venezuela's beer shortage Friday 04.22.16

    Why oil caused Venezuela’s beer shortage…more

    Ideas Roundup

    • externality
    • money supply
    • sin taxes
    • demand elasticity
    • tradeoffs
    • comparative advantage
    • national market
    • transportation infrastructure
    • price ceiling
    • incentives
    • foreign exchange
    • subsidy

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  • Weekly roundup and Foreign exchange and Venezuela's beer shortage

    Venezuela’s Beer Problem

    Apr 22 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Financial Markets, Government, Regulation, Thinking Economically • 137 Views

    We can add beer to our list of Venezuela’s economic casualties. One reason is the plunging price of oil.

    This is the story…

    On a macro level, the statistics are dismal. Inflation is projected at 500% this year while GDP will probably shrink by 8% after a 5.7% decline last year. The subsidies for gas, housing, medical care that an oil rich economy had supported are no longer affordable.

    On a micro basis, attempts by the government to control inflation with price cap ceilings have resulted in shortages of most everyday items ranging from toilet paper and rice to pharmaceutical necessities and water. In addition, businesses, malls, and households have had to cope with regularly occurring electrical outages.

    And now beer.

    Venezuelans are big beer drinkers–#1 in a list of South American countries. The problem is they were using foreign exchange from oil sales to support their beer habit. When oil revenue plunged, the foreign exchange supply shrunk. Still all was okay because Venezuela’s big beer firm, Empresas Polar, said it would manufacture more beer at home. Now though they have announced they don’t even have enough dollars to pay for the malted barley imports they need. On April 29th, with foreign exchange having dried up, so too will their beer supply.

    Our Bottom Line: Foreign Exchange

    Venezuela has an official exchange rate, two that apply to individuals and businesses, and one for its black market. So, one dollar can equal 200 bolivars. But if the government wants to import food and medicine, the rate instead is approximately 6.3 and 13.5 bolivars to the dollar. Meanwhile the black market dollar rate is now close to 1000 bolivars.

    The result? Creating perverse incentives, government currency control has totally distorted market signals.

    No wonder it is impossible to get malt.

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  • Weekly roundup and designing currency

    Random Currency Notes

    Apr 21 • Economic History, Gender Issues, Government, Money and Monetary Policy, Regulation • 126 Views

    With Hamilton staying on the $10 bill and Jackson leaving the $20, I thought we could just look back at some related currency design decisions.

    Women on Coin and Currency

    Having women on our currency is not unusual. They just weren’t real women. Idealized as Greek goddesses, milkmaids or wearing American Indian attire, one scholar said they were “figments of the male imagination.”

    Below we have Hebe, goddess of youth (with George Washington).

    money as art and the new 10 dollar bill

    From: Princeton University

    A woman with “flowing hair” is on the first coin from the U.S. mint. Supposedly an image of what liberty is supposed to look like, here she is (below) as the “flowing hair cent.” The penny (left) was delivered in 1793 and the dime, just before. Her hair was considered rather wild.

    $20 bill and women's images of first coins

    From: U.S. Mint

    Martha Washington was the only real woman to make it to paper currency. As her husband’s facilitator, as a sidekick, as an indirect political participant, she has been described as the prototype of the 19th century power woman.

    This is Martha on an 1891 silver certificate:

    $20 bill, Martha Washington and the new 10 dollar bill

     

    The Backs of Bills

    With the back of the new Hamilton getting a makeover with eminent women, it will look very different from the 1928-1996 version of the rear with the treasury and a car. The car presented a problem. Concerned that the image could represent some free advertising for one brand, the artist at the Bureau of Engraving had to create his own generic design.

    currency redesign

    From: Wikipedia

    The 1928 series of $100 notes depicted Independence Hall in Philadelphia with a clock set at 4:10. No one knows why they selected that hour. (Even when holding the actual bill, to see the time you do need magnification.)

    Currency redesign

    From: Panix.com

    Size

    In 1929, I suspect that people started carrying smaller wallets when a new dollar bill was issued. The same size as contemporary currency, the 1928 series dollar was supposed to save money on paper.

    U.S. currency redesign

    From: uspapermoney.info

    Our Bottom Line: Characteristics of Money

    A dollar bill is just a rectangle made of cotton (3/4) and linen (1/4). However, we call it money because it has three basic characteristics. 1) It is a medium of exchange. 2) It is a unit of value. 3) It provides a store of value.

     

     

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  • Weekly roundup and Russian alcohol consumption

    The Economic Side of Russian Vodka Consumption

    Apr 20 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Government, Health Care, Lifestyle, Regulation, Thinking Economically • 134 Views

    How we spend our money conveys a message.

    You can see below that for South Korea, spending on education is relatively high, Australians appear to allocate a large proportion of their money to recreation and in the U.S., it is healthcare. But today, we will take a closer look at that big dot next to Russian alcohol consumption:

    Consumer spending and Russian vodka consumption

    Where are we going? To the economic incentives that affect Russian vodka consumption.

    Vodka Taxes and Prices

    The Russian government and the Russian male have had a long relationship with vodka. To see the beginning, we can go back to Ivan IV and a government tavern monopoly that generated big tax money. During the 18th century, we had Peter the Great proclaiming that a wife should be whipped if she took her husband home from a tavern prematurely. Fast forwarding almost 200 years, first Vladimir Lenin prohibited vodka and then Stalin reversed the policy because he needed the money for industrialization.

    The following joke displays the opposition faced by Mikhail Gorbachev for his 1985 anti-drinking campaign:

    “There was this long line for vodka, and one poor guy couldn’t stand it any longer: ‘I’m going to the Kremlin, to kill Gorbachev,’ he said. An hour later, he came back. The line was still there, and everyone asked him, ‘Did you kill him?’ ‘Kill him?!’ he responded. ‘The line for that’s even longer than this one!’”

    The reason for an anti-drinking campaign? In 2012, the average Russian male had a life expectancy of 65 years–11 fewer than in the U.S. Including cirrhosis, alcohol poisoning, accidents and suicides, the following graph displays deaths attributable to alcohol for selected countries in 2012. At 30.5%, Russia tops the list:

    Russian vodka consumption

    From: qz.com

    Our Bottom Line: Ceilings, Floors and Fiscal Policy

    Vastly oversimplifying a complex history, we could look to ceilings, floors and fiscal policy for economic incentives that influenced Russian alcohol consumption. During the 1990s, hoping to calm civil unrest from the economic chaos that had begun to unfold, the government initiated a ceiling on vodka prices that resulted in more vodka consumption among middle-aged men. Then during 2009, it established a minimum price–a floor– that it hiked twice in 2014 when it sought to diminish consumption.

    Located below where quantity supplied meets quantity demanded, a ceiling stops price from rising to a market determined level. A floor, on the other hand, keeps a price higher than it would be if the market were the boss.

    Ceilings, floors and Russian vodka consumption

    And always we can return to the revenue issue. Now, with oil prices plunging, again the government needs more vodka tax revenue.

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  • Weekly oundup and Interstate Migration

    Where and Why We Move

    Apr 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Financial Markets, fiscal policy, Government, Households, Labor, Lifestyle, Money and Monetary Policy, Thinking Economically • 143 Views

    New York, Ohio and New Jersey are the top three in a competition they might have wanted to lose.

    Interstate migration data

    Where are we going? To the importance of being able to move.

    Where Do We Move?

    Using data from 77,705 interstate and cross border moves, the Atlas Group tells us that we can associate inbound migration with Texas and North Carolina while we are leaving NY, Ohio, NJ and Indiana:

    Interstate Migration

    From: www.atlasvanlines.com/atlas/infographics/2015-migration-patterns/

    New Jersey:

    Curious since NJ is my home state, I checked to see where my neighbors were going. The Florida “stream” seems to be growing.

    In the following NY Times graphics, geographic areas are color-coded: Interstate migration

    Interstate migration from New Jersey

    Texas:

    Meanwhile, as a destination, Texas draws people from the South and Midwest.

    Interstate migration

    Interstate migration and Texas

    This is the big picture:

    Interstate migration patterns

    From: atlasvanlines.com/migration-patterns/

    Why Do We Move?

    The US Census tells us that interstate moves primarily have a jobs-related reason. A closer to home move is more typically caused by a change in housing. Below, displaying the dominance of local moves, housing was the main reason people relocated:

    Interstate migration

    Our Bottom Line: One Market

    Yes, states vary but still, as a “dollar zone,” the U.S. makes moving easy. So too does a single fiscal policy that provides the same Medicare and Social Security dollars, no matter where we live.

    To see how we got here, we can start with the 19th century and a transportation infrastructure of roads, canals and then railroads that moved people and goods. With midwestern farming, southern cotton and northeastern manufacturing, each of us could do what we did best and then trade. Because each section of the country was producing what it was most suited to, we enjoyed the benefits of comparative advantage.

    Now again we continue to enjoy the positive externalities of state-to-state migration. Being able to move freely across the vast expanse of the U.S. means households and businesses make production and distribution decisions that can allocate land, labor and capital most efficiently.

    Perhaps people are leaving NY and NJ for the economic efficiency they can enjoy elsewhere?

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