Recently in Economics Category

Americans aren't good at saving money. The average amount of disposable income — income less taxes, not to be confused with discretionary income — saved has dropped from 11% in the 1980s to 1% before the start of the current recession. A graph is appropriate here:

I'm not some anti-materialist nazi, but that downward march is the increased confusion that Americans have between "wants" and "needs". Sure, real wages have decreased over this time period, but not nearly at the rate that savings has slumped.

The uptick for 2009? That's the just-released data for January of this year which pegs the rate at 5%, up from 1.8% in 2008 and 0.5% the previous year. August of 2005 even featured a rate of negative 2.7%, a feat matched only by the -0.2% rate in 2001. Though I would generally argue that people thinking about their future rather than instant gratification is a wonderful change, increased saving isn't what an economy needs to break out of a recession.

Sources:

• Personal Saving Rate, January 1959 through January 2009 from the St. Louis fed
• The same data as a Numbers spreadsheet (zip) and Excel spreadsheet, with annual averages

Harley Shaiken had a piece on Marketplace yesterday arguing that high labor costs, the sticking point for Senate Republicans concerning last week's bailout, are not a prime reason for the US auto maker's downfall. I don't feel the need to break apart Shaiken's short argument, because he sums it up well in the final sentence, "A superior product, high productivity and high wages pave the road to a healthy economy and a decent society." We can all agree that workers in Detroit have high wages and the indigenous car manufacturers even have good productivity; but a superior product? Not a chance.

The prime reason that Asian cars sell so well in the United States is because they have a superior product at nearly every price point when compared to the US companies. Often features are not what makes domestic cars pale compared to their Korean & Japanese counterparts; usually a general air of cheapness, from bad switchgear and low-grade plastic to unsorted suspension American cars are made to a much tighter budget. The reason? High labor costs at the plants of domestic auto makers, an average of $78 vs. $45 for non-union plants, force those car makers to make up for these costs elsewhere. The only way to compensate for such a large disparity in costs is for the US manufacturers to cut back on the amount of money put into their product, hence the low-quality cars.

Anyone who pays attention to the car world from an efficiency perspective has no doubt heard of the popularity that diesel engines have in Europe, but lack in the United States. Diesels post significantly better distance per volume of fuel (miles per gallon, furlongs per peck) than their gasoline counterparts. I've always wondered how much of this disparity can be accounted for by diesel fuel's higher energy content. A quick search turned up some statistics (See table B-4) produced by Oak Ridge National Laboratory's Center for Transportation Analysis which lists a gallon of diesel as containing 38.6 MJ per liter and gasoline as posesing 34.8 MJ/L. Not that big of a difference; gasoline has 90% the energy content of diesel.

How is this reflected in the mileage of a real car? Well, let's look at a Volkswagen Jetta which, until recently in the US, could be had with a 1.8 liter gasoline engine or a 1.9 liter diesel. The gas engine gives 19 MPG city, 27 MPG highway for an EPA combined cycle of 22 MPG (VW Jetta 1.8L gas). The diesel gets 28 MPG city, 39 MPG highway and 32 MPG combined (VW Jetta 1.9L diesel). Working from the combined numbers, the diesel powerplant achieves 45% better mileage with fuel that contains just over 11% more energy content. Not a bad deal at all.

The next question is how this all works out for the environment. Historically, diesels have produced much more environmentally destructive exhaust containing more NOx and particulates. Recently, however, diesel fuel in the United States has been switched to an ultra-low sulfur variety which, in turn, allows for particulate emission control technologies to be employed, reducing the airborne matter released by diesel engines. Do the changes mean significantly cleaner emissions? I'm not sure, because the stats are difficult to find. Perhaps I'll find them later.

[caption id="attachment_326" align="alignleft" width="300" caption="Wiper blades from Amazon"][/caption] My roommate ordered some wiper blades that Amazon had on sale. He did a single order and yet the blades came in two boxes, each easily large enough to fit both blades, even though the boxes shipped from the same warehouse.

John McCain's economic advisor, Douglas Holtz-Eakin, was on Wednesday's Marketplace discussing the senator's economic strategy for the country. In the interview, Holtz-Eakin said this of McCain:

He is a foot soldier in the Reagan Revolution. He saw President Reagan cut taxes within the context of budget discipline and controls on spending.

He went on to say that McCain had seen the positive effects of Reagan's policies of lower taxes on the economy and that the senator supported such actions.

Excuse me? Are we really still bringing up Reagonomics? The trickle-down economics championed by the Reagan administration is a contentious issue and its effects on the general populace, like that of all economic matters, is debatable. One thing that isn't debatable, however, is the size of the federal debt. To put it quite frankly: Republicans want to cut taxes and spend like there's no tomorrow. Ideally such a policy should be a boon to the economy and yet there's no clear evidence for that being the case. What such strategies do affect are programs like Social Security; the money for tax cuts has to come from somewhere and more often than not it is by marginalizing other Federal programs. Don't get me wrong, I don't particularly care for Social Security but the fact of the matter is I pay into it and I want to get my money's worth. As it stands, I may never see the 6% of my pay that goes toward the troubled fund.

It's not every day that you hear about a bank failure. Prior to NetBank's failure on Friday, the last was in February and that was the first in two and a half years. Thanks to the Federal Deposit Insurance Corporation (not to be confused with The Fed), the impact of a bank's dissolution doesn't have much effect on its customers. As detailed in the above-linked FDIC page on the NetBank failure, ING Direct will take over the accounts of NetBank and anyone with deposits less than the FDIC insurance limit won't suffer any loss at all. Those with uninsured deposits (the amount exceeding $100,000) can only expect to see half of that amount:

Due to the projected sale of assets of the former bank, the FDIC is in the position to provide each uninsured depositor with an dividend equal to 50% of your uninsured amount. These funds will be deposited directly into your account net of your uninsured portion.

The lesson? This isn't the depression, but bank failures still happen. If you keep your deposits under the FDIC limit then it's very much a non-issue; if you exceed those limits, you could sustain significant losses. When Metrobank failed last February those with more than $100k at the bank got lucky because the FDIC was able to cover the relatively small amount of exceeding assets fully. In the case of NetBank, the amount of uninsured assets are great enough that the FDIC isn't doing that again.

Amongst all of the recent news about climate change, I started hearing about large corporations, even oil and car companies, who were backing legislation such as carbon caps. The most notable of these groups is the US Climate Action Partnership which includes companies like BP America and PG&E that are throughly tied to fossil fuels. Why are these companies supportive of legislation that will create wholesale changes in the manner in which their industries operate?

First and foremost, these companies aren't stupid and realize that, given the current political climate where human-induced global warming has become accepted as truth, their best move is to mitigate the effects of legislation that changes the way their businesses operate. The best way to run any business is to simply keep on trucking; if you can sell the same product or service without having to change what you deliver or the manner in which you create it, your operating costs will be very low. A cap-and-trade system would certainly change the way any carbon-producing industry must operate, but it probably wouldn't require as much change in facilities and production methods as more specifically defined legislation. Cap-and-trade simply states, "Either release less carbon or buy the right to pollute more from someone else." This gives companies a lot of options.

The more sinister reason that carbon producers support cap-and-trade legislation is that they know the world is changing. Alternative fuels are gaining momentum as gas prices soar and hatred of pollution and high prices adds to the animosity towards carbon-based fuels. Tempering this hatred with pseudo-green initiatives like supporting carbon-control legislation may help fossil-fuel dependent companies stand up to other energy sources. This also has the side effect of possibly convincing some rainy-day environmentalists that oil companies aren't so bad after all.

This week and last, news outlets have mentioned the rising price of tortillas in Mexico. It seems humorous on the surface but tortillas are the staple food of Mexico's poor and the 14% increase in prices for the commodity in the past year, as compared to the country's 4% inflation, is significant for many. Tortillas have increased in price because the white corn from which they are made has similarly increased in value due in part to the increased demand for yellow corn that is used to make ethanol.

One of the authors of Freaknomics, Stephen Dubner, recently mentioned in his blog that these increase in corn prices stem from the high price of oil, which bolsters demand for ethanol. Anyone who has read The Omnivore's Dillema knows that corn is the basis for nearly all industrially produced food in the United States. Could Dubner be right that this oil prices could lead to less obese Americans through a convoluted chain of corn?