Friday, July 31, 2009

Need For Education Into Subsidies

A new survey indicates that a majority of people believe that subsidizing farmers is important to ensure a safe food supply. The results could have been affected by the wording of the question, as all survey results are, but let us suppose the finding is correct.

If the result is correct, we have a lot of educating to do. In a free capitalistic market, buyers and sellers are free to strike deals whenever the exchange benefits both parties. That is the beauty of a capitalistic system: all market transactions benefit both the buyer and the seller, and free markets allow buyers and the sellers to make as many of these mutually beneficial transactions as physically possible.

Subsidies essentially trick consumers into buying products they do not want. Suppose you purchase five bananas per week at the price of $0.50 per banana. You do not purchase six bananas, because you value the banana less than $0.50. Now the government subsidizes bananas, lowering the price to $0.40. You now consume six bananas per week, but you are still paying $0.50 per banana because the government subisides are paid for by tax dollars. You pay $0.40 per banana at the grocery store and an extra $0.10 in taxes.

Hence, subsidies make us pay for things we do not want. This is not an intuitive notion, why is why economics education is so important. After seeing this study, I have incorporated the need for education on subsidies into my course objectives for the next semester.

Tuesday, July 7, 2009

Grades in OK State Ag Econ

Below are the grades in OK State AG Econ Classes.

AGEC 1114, Peel - 2.85
AGEC 1114, Tilley - 2.60
AGEC 3103, Schatzer - 3.88
AGEC 3213, Schatzer - 2.73
AGEC 3323, Anderson - 3.33
AGEC 3333, Adam - 3.09
AGEC 3333, Norwood - 2.92
AGEC 3423, Vitale - 3.23
AGEC 3463, Kenkel - 3.76
AGEC 3503, Boyer - 3:00
AGEC 3603, Briggeman - 2.7
AGEC 3603, Starks - 2.65
AGEC 3703, Sanders - 2.98
AGEC 3713, Ferrell - 3.44
AGEC 4213, Norwood - 3.19
AGEC 4333, Brorsen - 2.97
AGEC 4343, Henneberry - 3.34
AGEC 4403, Dicks - 2.99
AGEC 4423, Tilley - 3.23
AGEC 4703, Dicks - 2.54
AGEC 4723, Woods - 3.46

AG 1011, Devuyst - 3.69
ANSI 1124, Damron - 2.71
ANSI 1124, Johnson - 2.85
NREM 1114, Kuzmic - 3.06
HORT 1013, Kahn - 1.95
SOIL 2124, Hattey - 2.62
STAT 2023, Masters - 2.25
ECON 2103 - all, 2.49

Saturday, July 4, 2009

if they could only be more cynical

pride and respect for government and law enforcement is admirable, in would be a glorious achievement if our students could me slightly cynical regarding everything in government, even the beloved law enforcement...

examples to make one doubt the infallibility of police can always be found at Reason Brickbats

and it grows...and it grows

an example why the rate of government spending never stops rising

Thursday, July 2, 2009

How the Average American Spends Their Money

For a project this year, my students need to develop a financial plan for their working years and retirement. This includes a projected household budget during their working and retired years, and requires them to predict what percent of their income they will spend on food, transportation, and the like. I did not know these things myself.

To calculate these numbers, I went to the Bureau of Labor Statistics and found their consumer expenditure surveys, which describe the income and how much money was spent in various categories for a large number of Americans. The raw numbers are biased because the respondents obviously did not understand how much they paid in taxes (they reported a much lower number than is possible). Consequently, I calculated the relative amount consumers spent within each category without accounting for taxes, and used these percentages to describe spending patters as a percentage of disposable income. The results are below.

These numbers are a good starting point, from which students can set values more consistent with their preferences.  Students will certainly want to change these values for retirement years.  By the time you retire your home mortgage should be paid, leaving your housing expenses only including utilities and taxes, implying the percent of income spent on housing should decline considerably.  There should be no life insurance in retirement, because that insurance protects your family against an early death.  And of course, in retirement, there should be zero dollars set aside for retirement, and I would suspect your out-of-pocket health expenses to be higher.

How Disposable Income Is Spent
Food at home 7.00%
Food away from home 5.70%
Housing 33.00%
Clothing 5.00%
Transportation 18.00%
Health Care (out of pocket) 5.70%
Entertainment 5.00%
Life Insurance 2.00%
Retirement 1.00%
Other Savings (e.g. children) 2.00%
Charity / Church 0.50%
Other 15.10%