Wednesday, July 29, 2015

When will the Federal Reserve raise interest rates?

Short-term interest rates have been hovering around zero for nearly 7 years. Many believe they will raise rates toward the end of the summer. How does this rate impact the average college student? Could mean slight higher rates on student loans but also on checking/saving accounts.

Thursday, July 16, 2015

Manufacturing and Duration of Unemployment

In a comment on an earlier post, John had pointed out that the duration of unemployment had increased. There are a lot of theories behind why and when it started. My view, is that unemployment spells are increasing due to structural factors. If we look at data starting in 1990 (when manufacturing employment start to decline) we see a pretty strong correlation between the duration of unemployment and jobloss in manufacturing:

Efficiency Wages

Over the last few years (especially in the Seattle area) the discussion on minimum wages has been rather heated. I've always argued that Wal-Mart holds the answers to this debate. Wal-Mart has observed the impact of different minimum wages and changes to minimum wages across a range of states. Recently, the company has endorsed increasing the minimum wage and is paying workers slightly higher wages. Why? Well one of the arguments in favor of increasing the minimum wage is a reduction in worker turnover. If you pay workers a wage above what they could get someplace else, they are going to work harder, knowing they can easily be replaced. Wal-Mart won't release their numbers but it looks like paying workers a higher wages could actually be saving the company some money. Is it enough to offset the wage increase? Hard to say. 

Wednesday, July 15, 2015

Current Labor Market

Talk about perfect timing. As you are working on the material in the labor market, the current unemployment numbers were released. Interestingly, the unemployment rate increased to 5.5% (from 5.4%) but the economy added 280,000 jobs. That's strange. What could explain that?

Here is the current labor market in 12 graphs... Thoughts? Glad you are going to college?

Tuesday, July 14, 2015

Equality of Opportunity

A group of economists headed by Raj Chetty and Emmanual Saez (two of the biggest names in the field) have undertaken the "Equality of Opportunity" project. Their work is pretty impressive and has been featured in a number of public forums. Be sure to play around with some of the interactive webpages.

Here is the webpage: Equality of Opportunity

And some of their work on economic mobility:
1) An Atlas of Upward Mobility Shows Paths out of Poverty
2) The Best and Worst Places to Grow Up
3) In Climbing the Income Ladder Location Matters

5 things about the economy that will shock you

Dean Baker explains

WE THE ECONOMY | Top 5 things about the Economy that would shock most people - Dean Baker from We The Economy on Vimeo.

Bees, Natural Resources, and Economic Value

So how much value do bees provide to our economic system? What is the economic value of the natural resources around us? This video does a great job explaining externalities.

Ep. 5: A BEE'S INVOICE | Adrian Grenier from We The Economy on Vimeo.

5 Things Everyone Should now About the Economy

Here is a short video... What you should and need to know

WE THE ECONOMY | Top 5 things everyone should know about China's economic boom? - Annalyn Kurtz from We The Economy on Vimeo.

Monday, July 6, 2015

Deflation... It really is bad

Imagine you have just finished college and landed a new job that pays you $48,000 per year. This is very exciting. Unfortunately you also had to take out a couple student loans to pay for your education, the monthly payment for your loan is $200. Well, the first thing most college students purchase is a new car. With the new car you have an additional $400 monthly payment. Don't forget housing. You are able to share an apartment with a college buddy but it still costs you $800/month. Rent in Seattle is not cheap. Don't forget all of the other fun things you'll have to purchase like car insurance, health insurance, cell phone, cable/TV, and utilities. This will probably vary person to person but lets just assume these additional costs total $600/month.

So now you have monthly payments that total $2000. But that's okay your gross monthly income is $4,000. So you still have half of your income left for fun.  Well... don't forget taxes will probably take away 15-20% of your paycheck and you should contribute another 10% to your retirement account. So that leaves you with about $2800 per month. Sounds pretty good.

Now suppose you hear reports that inflation starts to decrease, in fact prices are actually decreasing (deflation was approximately 30% during the Great Depression). This is good... right? Look at your expenses, what is going to decrease? You signed a long-term lease, you already purchased your car, and took out your student loan years ago. Most everything you spend you money on is fixed... But what about your income? If prices start to fall, employers are going to cut your wage. Employers announce a 5% wage cut.  So now you have even less money to spend on things you enjoy. Now put yourself in the shoes of someone only making $30,000 per year...So yes deflation really is bad see here and here.

(I did my best to estimate the expensive but have probably over estimated them slight... this is all for affect).

Inflation and You

When someone talks to me about inflation the conversations varies based on that person's experience. For example, my grandmother is likely to comment on high food prices and the rising costs. My father notices the rise in gasoline prices. Most college students notice the rising tuition costs of the price increases in the coffee shops. For most, our inflationary measures are very narrow. My grandmother is older and lives on a fixed income, my father drives his RV, and most college students have a second home in the nearby coffee shop. When I mention that inflation is actually really low and not so far in the recent past we were worried about deflation I get the very puzzled looks.

The Federal Reserve Bank of Atlanta has now created a calculator that shows inflation according to household income. Instead of measuring a common household basket they have created a market basket that varies by income. Try it here.

Sunday, July 5, 2015

A Humorous Take on Supply and Demand

Supply and Dance, Man

Ep. 2: SUPPLY & DANCE, MAN! | Jon M. Chu from We The Economy on Vimeo.

The GDP Smackdown

Here is a fun video showing a smackdown showing what is and is not included in GDP.

Ep. 3: GDP SMACKDOWN | Chris Henchy from We The Economy on Vimeo.

The Puzzle of Weak First-Quarter GDP Growth

The Federal Reserve Bank of San Francisco (in a recent letter by Rudebusch, Wilson, and Mahedy) shows that after correcting for seasonal factors (i.e. bad weather) the first quarter grew at an annual rate closer to 1.8% (opposed to the official 0.2%). This is good, but given how difficult estimating GDP has become, how reliable of a measure is it really? Can anyone think of something better to measure the state of the economy?

An Update on GDP

So... how's the economy doing? There is a lot of debate over the current state of the U.S. economy. Here are a couple of articles discussing first quarter GDP...

1. Why You Can't Put Faith in Reports of First Quarter Economic Slumps by Justin Wolfers
2. Ouch! US Trade Deficit Means US GDP Probably Contracted In First Quarter