Wednesday, September 29, 2010


Do you know what the abbreviation in the title means? If you don't, it's because the rules have changed. The initials stand for, "Information Communications Technology." I believe ICT has leveled the playing field so that income inequality can be competed away.

Here is a list of millionaires under the age of 30. Not included in the list is Jack Dorsey founder of Twitter, age 22. I once overheard a millionaire say, "I love America. Where else can you make something out of nothing?" Today's raw materials are not owned by monopolies or bequested in a will. Today's raw materials come from air or more appropriately, cyberspace.

No longer do you work for a firm for 40 years making marginal wage increases and receiving capricious promotions. You can be rich now. Now, the road to success begins with a mouse.

Microeconomics predicts that profits will be competed away. As barriers to entry are broken down, a new entrepreneur will emerge and she will be under the age of 30.

Monday, September 27, 2010

Tuesday's Lecture on Unemployment Rate

Manufacturing and Jobs Data From Class

Here's the link to Scott Mcleod's website that I talked about in class.

Mr. Mcleod is an advocate of school reform that specifically incorporates Information Communications Technology in the curriculum.  I am a follower. 

Sunday, September 26, 2010


I think you can plan too much.  In logistics many opportunities to respond to discrepancies and exongenous events occur daily.  I think there should be some room for creativity and problem solving. 

 A local grocery store in town doesn't use the fastest route to deliver staples to the store.  If it did, the store would be closed and the trucker would have to wait.  Instead, the trucker drives farther but is able to assist in unloading the semi instead of waiting.  Look at incentives and you'll find logistics.


Technology helps me to keep organized and replicate data effortlessly.  When a package moves from India to the US, bar codes scanners, GPS, RFID, order picking and management software, and many more applications are involved.  Without the deft use of hand-held devices, the Internet, and RFID signals, the visibility along the supply chain would be opaque.  Logistics is today's approach to marketing and management that uses microeconomics and contract law to provide goods and services to consumers.  If you are building a business in cyberspace or with brick and mortar, you'll need logistics.  You will find the difference in profit and loss to be in the intermediaries that deliver and the the manufacturer who competes in competitive markets.


Logistics is about more than moving goods from A to B.  JIT logistics maintains zero inventory so there's little warehousing costs or inventory carrying costs.  Managers makes marginal decisions, forecast demand, mine data, simulate outcomes, and look to improve processes.  When a good is made in China, can you begin to think of all of the interactive non conforming discrepancies in order fulfillment there might be?  How many human activities must be managed?  How many problems must be solved?  Logistics combines microeconomics with law, management, and marketing.  Business is logistics.

Saturday, September 25, 2010

Executioner's Song

In Normam Mailer's Executioner's Song, Gary Gilman constantly seeks to satisfy his wants by stealing, bumming bucks, and illegal behavior. Economics is the science of scarcity that observes how people behave when resources are scare. Why do some people seek to satisfy their unlimited wants by turning to crime and other satisfy their wants by delaying gratification and accumulating savings? I was wondering if laws seek to conform behavior while economic behavior seeks to differentiate and individualize.

A friend brought up the point that in a group, individuals seek to be individual while being autonomous with a group. I was wondering when those behaviors conflict is when individuals begin to break the law. Good day!

Thursday, September 23, 2010

GDP Price Deflator

GDP Deflator
brought to you by Livescribe

Microeconomics is different than macroeconomics. Here I show how the GDP deflator is built.

Wednesday, September 22, 2010

CPI Part III for Microeconomics and Macroeconomics

brought to you by Livescribe

Just kidding about the microeconomics in the title. I'm just trying to see if Google Alerts will pick up my blog. In this lecture I change the base and change the expenditure weights. Not bad for an old guy.

Tuesday, September 21, 2010

Axe v. Irish Spring

Does advertising work? I think if advertising gives me information that I did not have previously, then it's effective. But if advertising is seeking an advantage through persuasion, then any advantage will be competed away.

In the Axe deorderant commericals, guys are swamped by women. The ad is effective. But what if Irish Spring copies the same appeal? Now, the two goods are homogenious and the value of the ads are zero.

As long as the ads can differentiate their product and provide information they are effective.

How to Construct the CPI

This is the follow up lecture to Monday, September 20, lecture on the CPI. I intelligently discuss substitution bias and hedonistic pricing. This is not microeconomics.

Monday, September 20, 2010

How to Construct the CPI

Although you might be reading this blog for microeconomics, here's part of my lecture on how to construct the consumer price index for AP Macroeconomics. I will finish this lecture after the quiz tomorrow.

Sunday, September 19, 2010


Jobs will return to the economy when logistical inefficiencies are weeded out. When I look at all of the connections along the global supply chain, there exists hundreds of opportunities for intermediaries to improve delivery of a good. For example, a friend of mine moved toilet paper closer to the warehouse door to eliminate the repeated movements of the forklift. That saved Dollar General almost a million dollars. Now, the workers can be relocated or investment can be made in their human capital. I think the next job surge will be in logistic functions. These can be in packaging, visability along the supply chain, marketing, procurement, management, and transportation.

I know these careers are not taught in AP microeconomics, but I believe that microeconomics is relevant.

Saturday, September 18, 2010

Imports and Exports

Let's begin by looking at imports and exports for the United States, Mexico, Canada,China, France, Germany, Vietnam, and Hondurus. You begin to see that everyone is trading more and becoming more interdependent. You see how goods and services are now freely moving between countries. It is very difficult to know where a product is actually made because of the interdependency of countries. But what you are really looking at is the global supply chain. The global supply chain is logistics in action.

Part of Logistics Speech for IBEA

The idea for a Barbie Doll begins in Los Angelos, California.  Using workflow software, Skype, Im, or Google apps, the idea is communicated to all of the raw goods suppliers, manufacturers, and processors around the world and the factors of production begin to move across international borders.  Ideas move, oil moves, nylon moves, and cardboard boxes move through a labyrinth of tariffs, quotas, ad valorum taxes, and duty checks.  The toy is assembled in China and exported to the United States.  China's profit is 35 cents since most of the toy is assembled in perfectly competitive markets.  In the states, the doll sells for $9.99 where most of the value is added by consumers.  The value added by the US is added to our GDP while the value of the import is subtracted from our GDP.  The idea is created in the US and most of the value is added there.

And where are ideas found on Bloom's Taxonomy?  Where is creativity in the Rigor and Relevance Framework?  Creativity is found is Quadrant D.  The idea for the doll can't be found on Google.  It is a process of value creation.  Thinking in Quad D will be necessary for survival in the 21st Century as technology is making the flow of capital and goods across borders easier.  Logistics deals with the movement of goods and ideas across international borders.

On Bloom's Taxonomy creativity is found at the top of the pyramid.  So why teach logistics?  Because it's a 21st Century skill and will preserve US assets and identity.  Logistics gives our children a competitive advantage that will be needed to compete against international capital flows and globalization.  Suddenly, 21st Century skills cease to be meaningless rhetoric.  Logistics will be needed to become and stay relevant.

How Much is a Trillion?

How much is a trillion dollars?  Click here for an excellent visual.  Now the world today has approximately 7 trillion people.  Assuming that the economies of the world are information and service orientated and that factors of production are free to move across borders, how safe is your job from competition?

You will be surprised to learn that you probably will not be able to do the job your father did.  Mine was a pattern maker.  Every day, I have to learn more and more just to keep up.  That means to me that students have to learn more and more to catch up with the generation ahead of them.  What kind of competition for scare resources will emerge? 

I think you'll see huge groups banding together to collaborate on goods production, procurement, and distribution.  The global supply chain will extend around the world so many times to exploit every mutually beneficial trade that goods will approach perfect competition prices.  How will you compete?  Will you use Facebook to make these connections?  What will you give up to compete?  These tough questions continue to plague me.  Humans can only do so much and learn so fast. 

Thursday, September 16, 2010

How I used to buy fiction

Last summer I wanted to read the Lisabeth Salander trilogy. The long books about the girl who kicked a hornet's nest, played with fire, and has a dragon tattoo. So, I would drive 30 miles to Davenport to buy the books. A normal round trip to Davenport takes me four hours because of traffic and the location of Border's Books. I also visit my mom while I'm there. Now I buy my fiction with a Kindle. The download takes .5 seconds with my Internet connection. Instead of spending hours in a car, I can work around the house, read, or watch television. At least two things have happened now that I use the Kindle. My demand for oil has decreased. I now don't drive as much, my car doesn't depreciate, I don't demand book shelves, and many complementary goods also are not demanded. In addition, my real income has increased.

My real income measures how many goods and services I can buy. I can now buy more. This is great for me, but not so great for those who do not adopt the new technology. The non adopters will continue to drive to the bookstore and spend time in opportunity cost waiting and looking for books. I will be able to enjoy a richer lifestyle and the gap between us will widen.

Technology will widen the gap between the haves and have nots in ways that will not be easily observed. For example, I will stay at home and not have to socially interact while shopping. Since my real income will increase, I can afford to move to a nicer neighborhood. The effects are interesting to me because those who adapt will have a stronger voice in democracy and form social law.

Technology is changing the way we live. Are schools changing with technology?  I still observe most of my colleagues still teaching with worksheets, coloring, lecture, and teaching techniques used in the one room school house at Pine Creek.  Schools need to prepare our students for a changing landscape where technology shapes learning. 

Suppose that you went to the doctor because your arm hurt.  The doctor only cared about solving your immediate pain so he gave you a shot, charged you a couple hundred dollars, and sent you home.  Three days later while at work your arm hurts so bad that you can't work.  Would you be mad at your doctor for not healing you so that you could earn a living?  Would you be mad at your doctor for only helping you temporarily?  In my opinion that's what out of date teaching does to our children.  Out of date teaching satisfies today's wants and needs but doesn't prepare them for the workplace of tomorrow.  It's no wonder students and parents often hate schools for miseducation.

Schools must adopt changing technology and instructional methods today or they will feel the pain tomorrow.  That's one reason why economists call new technology a disruptive force.

Sunday, September 12, 2010

Google Motion Graph

Still working on this gorgeous software...

Global Price Factor Equalization--Part VI

Friday was not a good day. I completely overheated. There were constant interruptions from outside forces that I could not control. One of the well meaning students told me that I must learn how to slow down and learn how to stop and smell the roses. Let's see if she's right.

Every Saturday, I stop and buy Roses from Flowers on the Avenue. I'm always happy to shop there considering I only pay $.75 per rose. I usually buy a dozen and get a huge income effect. About two weeks ago, I asked the owner where they get their roses from. She told me Holland. She described the how the global supply chain supplys flowers cheaper to her than the local markets. Local markets are inefficient, unreliable, and the quality is less.

So, I'll stop and smell the roses as long as someone here is planting them.

Saturday, September 11, 2010

First Attempt at a Motion Gadget

This graph was supposed to show the changes in unemployment data since 2008. It only shows the change in one of the variables. I just want to see how it looks.

Friday, September 10, 2010

A Fable

In a race between the tortoise and the hare, the tortoise wins.  The United States is like the hare with a huge lead in standard of living with superior capital goods and technology.  We are resting while the rest of the world slowly builds infrastructure equal to ours.  On the information highway, it's like we are parked at a rest stop while semis carrying technology cargo zooms on by.  This is a simplification of course.  But the global GDP pie is being divided among more and more nations who can complete with the United States.  Robert Frank wrote about winner take all markets.  Those countries or individuals with superior technology will be the winners. 

Monday, September 06, 2010

St. Louis Fed | Education Resources | Classroom Resources | Online Learning

St. Louis Fed Education Resources Classroom Resources Online Learning

These online classes are rich in content and really teach. Last year, I used GDP and Pizza.

This lesson is on the time value of money. HT to Scott Wolla.

Yesterday, I visited a one-room school house at Pine Creek near Muscatine. With the exception of computers, the room looked like many of my colleagues here. Educational pedagogy is slow to change because it is costly. Every day, I use an iPod, Blackberry phone, a Kindle, and several computers. My sixth hour computer applications class is entirely on computers. My seventh hour Logistics class is 50% online. My law class is about 40%. If you want your students to enter the work force prepared, you must use the online tools.

Sunday, September 05, 2010

Brain Drain in Microeconomics

Microeconomics predicts that a country will specialize in the production of a good in which it has a comparative advantage and import the goods that come at a high opportunity cost. 

In his book, The World is Flat, Thomas Friedman tells a story of how a Chinese company was able to take x-rays of a car and make the the blue print from the x-ray.  There was no R and D and no investment. By exporting the car, this company could copy the work and enter the market with a similar if not exact car.  This company will be a competitor of GM.  I'm willing to argue that all physical goods will be replicated and mass produced.  One of the differentiating features for factors of production will be creativity, design, adaptability to changing consumer tastes, and mind skills that integrate both right and left brain thinking.

American has a huge comparative advantage over China is the production of wheat.  I think US factors are some 395 times for productive than their counterpart (2005).  So the US should export wheat.  It's hard to copy the rich soil necessary to grow wheat yields of 185 bushels per acre.  China is also building roads into Russia and Africa and changing this advantage.  Soon, our advantage in ag products will equalize. 

Schools need to teach design concepts to keep our competitiveness in factor markets.  Every day I see teachers pulling out their old lessons.  By using the old lessons these teachers are preparing today's students for tomorrow's harvest. 

Supply Chain Management

I treat information as a normal good.  As competition for homogenious commodities increases, the value is going to come from logistics along the supply chain.  The product differentiation will be on serving customer demands with time and place utility.  Businesses that want to compete will have to adopt a lean supply chain. 

This Economist article about Fed Ex, mentions MIT Logistics expert, Yossi Sheffi, on the advantages of building a supply chain.

Microeconomics predicts that when the demand for a good increases there will be an increase in the demand for the factors that produce the good.  I think you'll find income in logistics careers skyrocket in the near future as competition for resources along the supply chain becomes fierce. 

Marginal Analysis Criticism in Microeconomics

Economists consider the next unit when making decisions. For example, suppose I want to eat another bite of spaghetti. I would think, is the benefit greater than the cost? If it benefit is greater, I would take another bite of the Italian pasta.

What if I'm a Logistics manager and I want to start my own distribution center. Let's assume that the costs for delivering the inventory to the retail outlet are 5% higher for me than if I would use the local intermediary. Let's also assume that my total costs would be lower because I would have more efficient delivery, higher visibility over stock, less damage to my inventory, quicker reorder time, and a better handle of changing consumer tastes. So my total costs decrease.

This is what Walmart* found when they centralized their distribution center. They relied on total cost where economics would have told them that the marginal cost was greater than the marginal benefit.

I am going to end now as the sum of the costs of my marginal thoughts outweigh the sum of the marginal benefits.

Friday, September 03, 2010

Global Price-Factor Equilization--Part IV

Juan sits with his eyes wide open, paralyzed at the rapid delivery of digital content he is expected to understand. He doesn't move while I open several windows, cutting and pasting content between them, cropping, resizing, and inserting hyperlinks. Juan is truly left a student left behind. His family doesn't own a computer or use 3G phone service. As Moore's Law leaps over Juan and millions like him, Juan's education is becoming dangerously irrelevant. Juan has become a digital prisoner imprisoned by an exponentially expanding word of technology. And each day, technology imprisons more and more students like Juan.

Welcome to a world in which technology doesn't sleep.

Those factors who can capture technology rich markets by being the early adopter or first movers will see their share of the global GDP increase relative to those who cannot. This is a deeper intuition than the age old battle between the haves and the have nots. This is a division of society in which those with the technology can afford to separate themselves from culture similar to the urban sprawl and white flight to the suburbs.

Scaffolding and Recursion

When athletic teams advance to post season play, their skills continue to deepen and evolve while those who do not advance sit by and watch as a winner take all market develops. Those winners who can adopt technology will take the market and the rest will lose. Technology skills seem to build on themselves like scaffolding when acquisition of skills becomes easier. With the adoption of more and more skills, the competitive advantage is easier to maintain and new skills easily formed. Entry barriers will be erected and intellectual property will be monopolized. It's no wonder that Juan sits there scared to death.

Thursday, September 02, 2010

Global Price-Factor Equilization--Part III

Begin at point A in autarky.  As the domestic country moves toward open trade, she move to point B increasing output from a capital intensive output of 8 units to 9 units.  Trading with a foreign country, she exports 9-2 capital intensive products and increase consumption of labor intensive goods to point C, 400 units.  Now, given their endowments, the domestic country is consuming above it's production possibilities curve. 

Owners of the capital intensive goods receive a larger share of the income and labor intensive factors lose from the globalization and trade.  This makes perfect sense that I'll trade for the good that comes at the highest opportunity cost.  Since I was at point A now I'm at point B, I have exported part of my comparative advantage.  There are 120 countries open to trade all making the same decision to trade the factor that is in abundance.  The knowledge will diffuse until the comparative advantage disappear and the price of factors in all countries will equalize.  As more countries open up to trade, pace of this global price factor equalization will accelerate.

More and more occupations are being decomposed into components that can be managed at a cheaper opportunity cost.  Today, TJ Husar found that in a box of crayons the box was made in China while the Crayolas were made in North America.  That's how the supply chain is producing products.  So where does your supper come from?

As factors converge in relative price, there will be winners and losers.  To be a winner, you must be connected along the supply chain in a way that is not standardized.  How is education preparing students for those careers?

When I teach logistics, I teach law, finance, and economics.  What other class offers so many disciplines?  Now if I just figure out to make the relationships meaningful.

Wednesday, September 01, 2010

Global-Price Factor Equilization--Part II

When I was a ninth grader I asked my friend, Juan, what he wanted to be when he grew up.  He said he didn't know, but his dad wanted him to be a butcher because people always needed to eat.  His dad said Juan would always have a job even if the economy went into the deep freeze.

When I was in my ninth grade Biology class in 1972 red meat was grown, processed, and sold locally.  Ben Frost sold me my first slice of head cheese from his meat market near 8th Street.  Ben would butcher meat in hamburger, chops, t-bones, and roasts at his shop.  Now, Frost meats which was the neighborhood output for meat sits derelict.   So does R and H meat market near Park Avenue.  River's Edge replaced the meat market on Second Street that no one can seem to remember the name of.  Richardson's meat processing plant is now Keller and Keller Landscaping and the Pearl Plaza sits on Richardson's meat market. 

Meat arrives in refrigerated trucks from Brazil, Australia, and Texas already processed into various cuts ready for immediate sale.  Large scale meat processors in foreign countries employ low skilled labor and invest heavily into capital goods to mass produce meat and meat by-products and spread fixed costs over a large quantity of output.  They collaborate with a diverse supply chain on intermediaries to penetrate American markets at a cheaper cost that what can be produced locally.

Foreign competition has also penetrated local florist markets where roses are flown in from Holland.  At the Y, I learned how pharmaceuticals are made cheaper in Singapore than in nearby Puerto Rico because of quality control.  I also learned that cable television mighty grip on local programming is being loosened as Internet television makes digital content available for free.

Microeconomics predicts that profits will be competed away.  Many of you have seen the cut-throat price cutting when the airline industry was deregulated.  As competition from abroad stiffens, many industries will find their monopoly power erode.  Authors such as Dan Pink believe that students today should develop their creative talents to differentiate their talents.  Creativity is difficult to digitize and thus hard to copy and outsource.  Education reformer Bill Daggett stress the importance of using analytical, synthesis, and problem-solving skills to maintain competitive advantage in global markets.  These skills are being taught in our schools today by many fantastic teachers.  But the data shows that the skills are not being taught enough.

Studies show that 45% of instructional time is spent competing worksheets and coloring.  Many classrooms today resemble the classrooms in 1972 when I asked Juan what he wanted to be.  Being a butcher was a smart choice then, but I'm not so sure it is now.  Like the old R and H meat market and Ben Frost meats, global competition will force them out of the market.

So when your child comes home from school today, ask to see the work she completed.  If the work looks like you did you can be assured that your school is preparing your child for the slaughter of global competition.