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30 January 2009

Carnival Midway from The Jerk Welcome to this Friday, January 30, 2009 edition of On the Moneyed Midways, where we've once again reviewed all the business and money-related blog carnivals on the web so that you have more time to focus on the Superbowl this weekend!

Speaking of which, several of this week's money and business blog carnivals featured a Superbowl theme. Bad mistake. There's a yellow flag down on the play. The ref says: "Roughing the reader. Ten yard penalty. Fourth down."

And so, in one short paragraph, we've hopefully demonstrated why Superbowl-themed blog carnivals are a bad thing, because that's the kind of commentary we had to weed through to find the best money and business-related blog posts of the week.

Those posts are awaiting you in the locker room below (no delay of game penalties here!...)

On the Moneyed Midways for January 16, 2008
Carnival Post Blog Comments
Carnival of Debt Reduction Keeping Up with the Joneses Video ChristianPF Sometimes, it takes a South Park-style cartoon to explain why conspicous consumption ain't all it's cracked up to be.
Carnival of Personal Finance Ten Ways for Teens to Make Money Personal Finance Analyst Since we've shown here at Political Calculations that increases in the federal minimum wage are directly responsible for making hundreds of thousands of jobs for teens disappear, we really appreciate David Lampsen's list of under the table jobs that teens can do to earn pocket money! The Best Post of the Week, Anywhere!
Carnival of Real Estate One Thing Is Clear, Change Is Coming Reveal Real Estate Claudia Gonella is pleased that greater transparency in Central America's real estate markets seems to be in the cards for 2009.
Cavalcade of Risk Mouthwash Boost Oral Cancer Risk by 900% Study Finds Raw Chef Dan Is increased risk of oral cancers the price for fresh breath? Raw Chef Dan surveys an Australian Dental Association study that suggests that the ethanol in mouthwash makes it an astonishingly effective vehicle for the product's apparent carcinogens.
Festival of Frugality Go On, Cut That Cable! Websites for Watching Free TV Full Episodes, Movies and News Online Pecuniarities Penelope Pince reviews the shows and online outlets where you can watch today's newest shows through the Internet for free (or rather, for the cost of your broadband service!)
Festival of Stocks Stock Analysis: Cullen/Frost Bankers, Inc. (CFR) Dividends Value Dividends4Live highlights key investment factors from a more detailed analysis of a bank that "just said no" to the government's TARP money.
Money Hacks Carnival The Really Obvious Thing We All Forget When Borrowing Money Monevator The Investor explains just who it is you're really borrowing from and why your lender is the one who's really paying the price in the arrangement.

Previous Editions

Our running index for 2009 is in the works! In the meantime though, here's all the good old stuff!

  • On the Moneyed Midways - December 19, 2008


  • 29 January 2009

    Could the minimum wage hike of 2007 have pushed the U.S. economy into recession?

    Let's begin by saying that we believe that Jim Hamilton is right in that the fallout in the housing and financial sectors alone weren't enough to produce the current recession and that it took the fallout from the oil shock to really sink the economy.

    We also think that's true if the negative effects of the distress in the housing and financial sectors are combined with the negative outcomes of the most recent minimum wage hikes. You still wouldn't get to today's recession without the spike in oil prices and the corresponding change in the aggregate demand for oil or the industries it directly impacts.

    But we do think that adding those negative effects of the 2007 minimum wage increase into the mix changes the timing of when the recession would have otherwise begun.

    Change in Age 16-19 Number of Unemployed and Unemployment Rate, November 2006 through December 2008Here's the logic behind that thinking. Without the minimum wage hike of 2007, the peak of the previous business cycle, or rather, the point from which the NBER would declare a recession to have begun, would much more likely be placed in April 2008, as job losses attributable to the oil spike really took off beginning in May 2008. This impact may be seen in the chart to the left showing the change in the number of individuals counted as being unemployed for the Age 16-19 workforce from November 2006 through December 2008.

    That's important because the NBER places a great deal of emphasis upon the level of payroll employment, both in dating the peak of the expansion phase of a business cycle and in dating the trough when economic contraction ends.

    It may well be that the minimum wage hike of 2007, with its corresponding job losses and employer cutbacks in hours worked, was sufficient to cause the level of payroll employment to erode enough so that the start date of recession was pushed up to November-December 2007, some four to five months sooner than it might have done otherwise as the outcome of the oil shock.

    And should that be the case, the increase of the federal minimum wage in 2007 would join with the bursting of the housing bubble and the fallout from the oil shock as the third leg forming the current recession.


    28 January 2009

    Eskimo Hat Galaxy (Strange Attractor model) In our fourth anniversary post, we demonstrated that for much of the current century, changes in the growth rate of stock prices have closely anticipated changes in the growth rate of their underlying dividends per share.

    In doing that, we showed that given the circumstances that have prevailed in the stock market since 2001, if one were equipped with a reliable picture of the future of stock dividends per share, one could work out how much stock prices would change. That turns out to be driven by a very simple mathematical relationship, very similar to Newton's Second Law: F = ma. For our case, F would be replaced by the change in the growth rate of stock prices (Ap), m (for our purposes, an amplification factor) would appear to be a constant and the variable a would be replaced by the change in the growth rate of dividends per share, or perhaps more appropriately, the acceleration of dividends per share (Ad):

    Ap = m * Ad

    Accelerations of S&P 500 Average Monthly Index Value with Trailing Year Dividends per Share, SF=9, TS=3, Spanning January 2001 Into Mid-2010 with Futures Data But it's not quite that easy. While we can use this method to determine how much stock prices will change, what we can't do is tell when stock prices will undergo this change. We observed that the timing of when the growth rate of stock prices changed in anticipation of changes in the actual growth rate of dividends per share was not consistent. We saw that stock prices seemed to anticipate subsequent actual changes in dividends by anywhere from 1 to 7 months. (The chart to the left shows the change in the dividend growth rate shifted 3 months earlier in time.)

    What's more, when we looked at other periods of stock market history, the apparently constant amplification factor was itself not constant. For example, in looking at the period of the 1980s and early 1990s, we found a value of 18 better correlated dividend changes with stock prices, in contrast to the lower value of approximately 9 that we found for the period since 2001.

    So, it would appear that where the stock market is concerned, we have a system that operates in a pretty chaotic fashion, with stock prices following the signal sent by changes in the expected future growth rate of dividends per share. Fortunately, we have a name for that: Chaos! In the words of Wikipedia:

    Chaotic systems are systems that look random but aren't. They are actually deterministic systems (predictable if you have enough information) governed by physical laws, that are very difficult to predict accurately (a commonly used example is weather forecasting).

    More specifically, we call the kind of behavior that we've now observed in the stock market deterministic chaos.

    But it's not quite that simple either. The stock market is the venue through which millions and millions of participants interact with one another as billions upon billions of transactions are conducted. Consequently, the stock market can be a pretty noisy place and in fact, noise is always present.

    If we consider the change in the expected growth rate of dividends in the future to be the signal driving changes in the price of stocks, noise would consist of any transaction resulting from an investment decision not tied to that signal. For example, various investors might follow a calendar-based investment strategy, or they conduct trades to minimize their tax exposure, to settle the requirements of property division in a divorce, etc.

    From time to time, the level of noise in the market can even overwhelm the dividend signal as market participants disregard it altogether: the Dot-Com Bubble of April 1997 through June 2003 perhaps being a classic example.

    So how much of the change in stock prices is driven by signal and how much by noise?

    Writing in A Random-Walk or Color-Chaos on the Stock Market? Time Frequency Analysis of S&P Indexes in 1996, Ping Chen found in looking at the S&P 500 monthly index (FSPCOM) from 1947 to 1992 that (emphasis ours):

    The reconstructed HPCg time series reveals the degree of deterministic approximation of business fluctuations: The correlation coefficient between the filtered and original series is 0.85.

    Their ratio of standard deviation, h, is 85.8% for FSPCOM. In other words, about 73.7% of variance can be explained by a deterministic cycle with a well-defined characteristic frequency, even though its amplitude is irregular. This is a typical feature of chaotic oscillation in continuous-time nonlinear dynamical models.

    Elsewhere in the paper, Chen observes the approximate average period of oscillation to be approximately 3.6 years, coinciding with the average duration of business cycles.

    Chen's work is really remarkable when you consider that he performed his time frequency analysis without knowing what the signal driving those changes in stock prices really looks like, using the phrase "color chaos" to contrast the changes in stock prices driven by apparently deterministic forces with a harmonic period against those driven by "random-walk," or rather, "white noise" factors. What's really cool is that we found what those determistic forces would appear to be and how they would appear to operate.

    We'll conclude by sharing Chen's phase space portraits of the historic monthly S&P 500 index value, which reveal his discovery of both the chaotic strange attractors (underlying order with a cyclic pattern) and the type of noise apparent in the S&P 500's stock prices:

    Chen, 5a - unfiltered phase portrait S&P 500 Monthly Index Values, 1947-1992 Chen, 5b - filtered phase portrait S&P 500 Monthly Index Values, 1947-1992 Chen, 5c - high frequency noise in S&P 500 Monthly Index Values, 1947-1992
    (5a). FSPCOMln HPc unfiltered series. T=60. Some pattern is emerged behind a noisy background. (5b). FSPCOMln HPc filtered series. T=60. Clear pattern of strange attractor can be observed. (5c). FSPCOMln FD series. T=40. The cloud-like pattern indicates the dominance of high frequency noise.

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    27 January 2009

    Cap and Diploma Imagine that you are the proud parent of a child who will soon graduate from high school and will be bound for college. As their parent, you've been there for every phase of their life, from birth, through their toddler years, through their childhood and into this point of their teens. What's more, you've fed them, clothed them and housed them all their lives, working and sacrificing to make sure that they could reach this point where they'll make the full transition to adulthood.

    In return, they've given you aggravation beyond end and greater joy than you could ever have imagined. In choosing their university, they've finally recognized your good parenting and that you're not, in fact, made of money, so they've opted for a good school near where you live, which means that they'll be able to continue living at home while getting their higher education. But now, you're faced with two crucial questions:

    How much will you charge them for rent? And how much will you make them pay to eat meals at your house?

    At least, those are the kind of questions that the financial aid literature from one particular state university, which will remain anonymous, would seem to believe that parents whose children live at home while attending college full-time think about. Seriously.

    Better still, you don't need to take our word for it. We've excerpted the school's annual college cost information from its financial aid literature so you can see the side-by-side comparison of the costs they assign to students living at home, on campus and off-campus, which we provide below for both qualified state residents:

    Expense Undergraduate
    Living with Parent
    Living on Campus
    Living Off Campus
    Books/Supplies 1,130 1,130 1,130
    Room 1,350 5,240 4,710
    Board 1,160 3,550 2,880
    Transportation 1,650 1,440 1,650
    Personal 2,110 1,750 1,870
    Fees* 252 252 252
    Resident Tuition* 5,410 5,410 5,410
    Resident Total* 13,062 18,772 17,902

    * Totals above reflect estimated numbers for full-time students starting Fall 2008. Tuition and fees vary based on new or continuing student status and by program, campus or residence hall.

    Obviously, the costs of books and supplies, tuition and fees should be the same for each of these hypothetical students across the board. That makes sense. We can even understand some of the higher expenses of living at home. Living away from campus, for example, we would anticipate that transportation costs would indeed be higher.

    But then there's the parts we don't understand. Let's do some math here, shall we? At $1,350 per year and 12 months per year, that's roughly $112.50 per month the university's financial aid people seem to think we should be charging our child to live at home. Likewise, our hypothetical child's monthly grocery bill works out to be $96.67. And why exactly would our living-at-home child's personal annual expenses be $360 more than a student's cost of living on campus?

    Now, let's compare those costs to the monthly cost of living on campus. Here, room works out to be $544.72 per month for the nine months college is in session, which assumes that we're still charging our collegiate pride and joy that $112.50 per month for the three months that they come home for the summer. Doing similar math for board expenses, and we see that the university food plan runs $336.22 per month.

    But look at those bottom lines - they're not that much different from one another at just around $5,000 to $6,000 more per year than the cost of living on campus! Just think about how much financial aid we could get to pay all those expenses - especially if we boot the kid from the house and make them live on campus!

    That's the college's math. For the math that parents with a clue would do, continue reading....

    In this situation, where your child has been living with you for all their lives, the only thing you need to be concerned with is the change in your costs from where they are today. You're already housing your child. You're already feeding and clothing them. The real comparison is between how your costs of supporting them today are compared to the alternatives of living on campus or off-campus (but not with you.)

    We redid the table from above to take these considerations into account, and what the heck, we'll give the college those higher personal costs for living at home. Here's our better estimate of the bottom line:

    More Realistic Higher Education Costs
    Expense Undergraduate
    Living with Parent
    Living on Campus
    Living Off Campus
    Books/Supplies 1,130 1,130 1,130
    Room 0 5,240 4,710
    Board 0 3,550 2,880
    Transportation 1,650 1,440 1,650
    Personal 2,110 1,750 1,870
    Fees* 252 252 252
    Resident Tuition* 5,410 5,410 5,410
    Resident Total* 10,552 18,772 17,902

    Pretty amazing, right? That's means that living at home cuts your annual college cost by $8,220. Over four years, that's $32,880 less than the cost of living on campus and should your child end up on the five-year plan, that's $41,000 that your child won't have to take out loans to pay that amount and fifteen years worth of interest back upon.

    Gosh, if that math is right, we guess the school's financial aid people won't be making as much money as they thought they would from you and your child. But at least we can see now why they'd rather every parent charge their school-going children room and board.


    26 January 2009

    Since we routinely monitor the growth rates of U.S.-China international trade, we were among the very first to see China's economy begin decelerating. We've charted it, and we've observed China's heavily trade-dependent economy's accelerating decline over the last two years.

    Today, we believe China's economy fully entered into recession in December 2008. We base that assessment upon the steepening descent of China's importation of U.S. goods through November 2008, which suggests that China's economy would cross into recession territory as early as December 2008 and if not, by this month:

    U.S.-China Compound Annualized Growth Rate of Trade, January 1985 through November 2008

    Here, the key evidence is the growth rate of U.S. exports to China, represented by the blue curve in the chart above. Given the steep rate of descent evident in the chart, we would project that the volume of goods China imports from the U.S. will have moved into negative territory sometime either in either December 2008 or January 2009.

    Since China's demand for U.S. goods was largely driven by its surging economy of recent years, the accelerating decline of the growth rate for this trade is direct evidence that China's economy is not just perking along at single-digit growth rates as its official statistics might indicate, but rather is now fully in a phase of contraction.

    Edward Hugh has quite a bit more, plus lots of other trend charts and commentary, at A Fistful of Euros!


    23 January 2009

    Carnival Midway from The Jerk Welcome to the January 23, 2009 edition of On the Moneyed Midways, where the cream of the business and money-related blogosphere has been skimmed from the top poured for you essential weekend reading!

    We were startled this week to find that the Carnival of the Capitalists is back with a new edition. We had previously all but concluded that carnival host Jay Solo had folded the CotC, but instead it appears he's relaunched it anew - this time, in a more twitter friendly style.

    The upside: Jay is a good editor who takes care in selecting the posts he presents. The downside: You won't find much other than the title to indicate whether clicking through is something you might want to do. But then, that creates opportunity for us....

    Speaking of which, let's get to business. The best posts of the week that was await!...

    On the Moneyed Midways for January 23, 2008
    Carnival Post Blog Comments
    Carnival of Debt Reduction Family Budget For Frugal Living: Living Cheap Can Be Fun, Too! The Smarter Wallet Jacques Sprenger starts with negotiating what's in your family budget to prioritize your expenses, then whips out fun ideas for how to trim your nonessential costs.
    Carnival of HR Help Wanted: Great Leader. No Technical Experience Needed? Great Leadership Dan McCarthy asks whether leadership or technical skills are more important for management positions and finds the answer to the question changes the higher up the ladder you go.
    Carnival of Personal Finance That Makes Me Stabby: Do We Have an Obligation to Spend? Sound Money Matters Aryn just about went over the edge when some pundit on CNN suggested that people who aren't suffering in the current recession have a "moral obligation to spend their money to save the economy." Oh, really? The Best Post of the Week, Anywhere!
    Carnival of Taxes Are Prizes and Awards Taxable? ebiz Tax Tips What does winning the grand prize really mean if it's not paid in cash? Kristine McKinley finds that it most likely means a huge tax headache, as you may very well have to sell what you just won to cover your tax bill!
    Carnival of the Capitalists Falling Prices Are Not Deflation But the Antidote to Deflation George Reisman What is deflation, really? George Reisman explains why falling prices in a recession are a good thing. Really! (Also a nice companion piece to The Best Post of the Week, Anywhere!)
    Festival of Frugality 11 Weird Ways to Use Coca-Cola and Save Money Destroy Debt Debbie suggests the carbonated, sugary beverage might the solution to some unexpected problems. Interestingly, two of her suggestions involve bugs….
    Money Hacks Carnival Circuit City Could Provide Some Resale Opportunities Mighty Bargain Hunter Could Circuit City's final liquidation sale create opportunity for entrepreneurs willing to take what they've got left and sell it on their own? MBH explores a unique aspect of the idea of creative destruction.

    Previous Editions

  • On the Moneyed Midways - December 19, 2008


  • 22 January 2009

    In case you were wondering just what Obama memorabilia you should consider collecting (HT: Core77)....

    Obama Action Figure vs Darth Vader

    But wait, that's not all. There are accessories!:

    Obama Action Figure and Accessories

    You gotta love the interchangeable hands. And ties. Get them now at Gamu Toys!


    21 January 2009

    Where the immediate direction of the U.S. stock market is concerned, a man named Howard Silverblatt may very well be the most powerful man in the world.

    That's not because he magically manipulates the market like a marionette, but rather, because he produces one of the leading forecasts for the S&P 500 stock market index' dividends per share. That forecast, among others, can directly drive stock prices through a process that we observe to be the result of a combination of deterministic chaos and noise.

    And right now, the world is waiting for Howard Silverblatt, who himself is waiting:

    "I've been chicken to put out the 2009 dividend forecast. I usually do it in December, but I'm waiting to see what happens in Washington," said Howard Silverblatt, senior index analyst at Standard & Poor's.

    If it helps overcome Howard's fears, rather than the whole year, we would find it most useful if he would simply nail down a value for the S&P 500's dividends per share for the current first quarter of 2009. We have additional sources that we can use to project data for future quarters beyond that, but alas, are not able to capture the current one.

    And speaking of anticipating stock prices, well, let's just hope you're ready for the ride. Your nervous nirvana awaits....

    Update 4 March 2009: Howard Silverblatt has manned up!

    We should have updated this on 12 February 2009!


    20 January 2009

    The Economic Detective Cracks the Case! "Your whole case against the Public Policy Gang on the teen job disappearances is going to fall apart," the voice on the other end of the line said. "How soon can you come to my office?"

    "As soon as you want," the Economic Detective replied. It was, after all, the Paymaster. The man behind the money. All of it. Some say he's more powerful than the President. And now he had the Economic Detective's full attention.

    "Good. I'll expect you shortly."

    That's something that doesn't happen every day. If the man responsible for keeping the cash flowing through the economy is paying attention, the stakes must be pretty big.

    Federal Reserve The Paymaster's office resembles a bank. Classic architecture, complete with massive columns, elegant appointments, solid construction and armed guards. Everything is aimed at projecting an air of confidence, stability and control. The Paymaster fits his office, or rather, tries to fit. It doesn't always work.

    "I've been following your case with interest," the Paymaster said. "There's a pretty big hole in your analysis that the Policy Gang could use to avoid responsibility."

    "How do you mean?" the Economic Detective asked. "We've got their motive, we know how they pulled it off and the timing all fits. Hell, they even brag about what they did in jacking up the federal minimum wage. They're definitely the ones behind all those teen jobs going missing."

    "Perhaps they are," the Paymaster evaluated. "The problem you face is showing that what they did, did in fact cause those jobs to vanish. Right now, all your case shows is that those job losses are correlated with the gang's activities. And we all know that correlation does not imply causation. Even freaks know that.

    Number, Average Number of Employed Individuals Age 16-19 Between 2006 and 2007 "Right now, you've shown that those Age 16 to 19 have had hundreds of thousands of job opportunities disappear, but that could be any job, paying anywhere from minimum wage on up to whatever Hannah Montana might be making these days.

    "To really prove your case, you'll need to demonstrate that the jobs most affected by the change in the minimum wage are in fact the ones being lost. You need to show that it is the minimum wage jobs held by teens that are disappearing to prove causation. You have a lot of work left to do. "

    And with that, the Economic Detective was back to work. But where to start?

    Gold Nugget Economic investigations are a lot like mining for gold. You have to sift through tons of crushed rocks in hopes of finding a single gold nugget. But if you can find that one, you might be able to find the vein of ore it came from and mine for more. The first nugget found in this case lay in a bed of revised data from the Bureau of Labor Statistics. Could the vein be nearby?

    The Economic Detective hit pay dirt. The Data Jocks at the BLS put together a study every year on the characteristics of minimum wage workers. In it, they break out who makes the federal minimum wage or less each year. 2006 and 2007 were no different. We pulled the appropriate numbers from the reports:

    Characteristics of Minimum Wage Workers
    Year Age 16-19 Age 20+ Total
    2006 436,000 (25.77%) 1,256,000 (74.23%) 1,692,000 (100.00%)
    2007 373,000 (21.57%) 1,356,000 (78.43%) 1,729,000 (100.00%)
    Change -63,000 100,000 37,000

    From these numbers, it seemed that just 63,000 of the 245,500 jobs we knew had been lost for teen between 2006 and 2007 were minimum wage earning jobs. But something about these numbers didn't sit right. The Economic Detective kept digging, when suddenly he had a flash of insight.

    Comparing Apples and Oranges - Image Source: Diditwith.net The reports put together by the BLS' Data Jocks skimmed over the change in the minimum wage between 2006 and 2007. The report states that it's counting the number of people earning the minimum wage or less. It doesn't clearly identify what that minimum wage is, except in footnotes. But if the minimum wage changes from one year to the next, that invalidates comparisons between those years. In effect, the Economic Detective had only compared is the number of people making $5.15 per hour or less in 2006 with the number of people making $5.85 per hour or less in 2007.

    And that's what didn't sit right in the numbers. Out of a population of over 300 million, with around 145 million people working, did it really make sense that the total number of people counted as earning the minimum wage would only go up by 37,000 people, from 1,692,000 in 2006 to 1,729,000 in 2007?

    The right comparison would be between the number of people making $5.85 or less in 2006 and the number of people making $5.85 or less in 2007. But how many people were making $5.85 or less in 2006?

    To find out, we turned to an old case, where we had worked out how many people there were earning any given hourly wage in the U.S. Although built using data from 2005, that same tool should provide a fairly accurate estimate of how many people there were making $5.85 or less in 2006.

    U.S. Wage Data
    Input Data Values
    First Hourly Wage ($USD/hour)
    Second Hourly Wage ($USD/hour)

    Estimated Hourly Wage Earner Data
    Calculated Results Values
    Percentage of Hourly Wage Earners in Selected Range
    Number of Hourly Wage Earners in Selected Range

    Using the tool, we first used the data we had for the level of the federal minimum wage of $5.15 per hour in 2006 to see what kind of error there might be, before estimating the number of people making $5.85 per hour. The table below shows our results:

    Estimated vs Actual Number of Hourly Wage Earners in 2006
    Hourly Wage Estimated Value Actual Value Error (Percentage of Actual)
    $5.15 or Less 1,698,106 1,692,000 +6,106 (0.36%)
    $5.85 or Less 2,681,439 Not Available Unknown

    Given what we know of the distribution of hourly wages in the U.S., that figure of 2,681,439 makes a lot more sense. To get to the number of teens earning $5.85 or less in 2006, we'll need to multiply this figure by their percentage representation in the workforce. Here, we'll split the difference between the percentages we found for minimum wage earning teens in 2006 (25.77%) and 2007 (21.57%) and use 23.67%, since we don't know the exact proportion of teens earning $5.85 or less in 2006. Using this approximation should put us fairly close to the actual number.

    Estimated Number of Teens Earning $5.85 per Hour or Less in 2006 and 2007 Doing that math, we would predict that there were roughly 634,717 individuals Age 16-19 earning $5.85 per hour or less in 2006. If we subtract the number of teens actually counted as earning the minimum wage or less in 2007 (373,000) from that figure, we obtain a value of 261,717, which would be the estimated number of teen jobs that disappeared for this age group between 2006 and 2007.

    That would more than account for the 245,500 figure that we had found previously. We therefore find that *all* of the jobs for teens that disappeared between 2006 and 2007 were, in fact, minimum wage earning jobs. More specifically, they were positions whose hourly wage was $5.85 or less - the exact jobs directly affected by the Public Policy Gang's increase in the federal minimum wage.

    And that's when the Economic Detective was startled by a final gruesome discovery. Having focused so much on the mysterious disappearance of jobs for teens in an otherwise good year for the U.S. economy, he hadn't looked beyond those numbers except in passing, but here they were now staring him right in the face. Looking at the estimated data again for 2006, there should be around 2,681,439 individuals earning an hourly wage of $5.85 or less. But in 2007, there were just 1,729,000 individuals counted as doing so.

    That would put the Public Policy Gang's total job kill for their first minimum wage hiking spree in 2007 at least at 952,439, almost within spitting distance of 1 million jobs. That becomes well within spitting distance if you factor in population growth. No wonder the Paymaster was so concerned.

    But for teens, the mystery had been solved. Now there was only one thing left to do in that case, so the Economic Detective did it. He closed the file.

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    16 January 2009

    Carnival Midway from The Jerk Welcome to the first 2009 edition of On the Moneyed Midways, the one place you can count on to sort the wheat from the chaff in finding the cream of the business and money-related blogosphere!

    Each week, we review all the good money and business-related blog carnivals we can find, read hundreds of posts, and then choose the best from each before declaring one to be The Best Post of the Week, Anywhere! Near contenders for that title are identified as being Absolutely essential reading!

    And what a great year it's starting out to be! The best posts we've found since our final edition of 2008 are ready for your review....

    On the Moneyed Midways for January 16, 2008
    Carnival Post Blog Comments
    Carnival of Debt Reduction Where, Oh Where, Does Our $exy Money Go?! Budgets Are Sexy We selected Budgets Are Sexy as one of the best blogs we discovered in 2008, and j. money doesn't disappoint with a look at where all his family's money goes!
    Carnival of HR How About a "Market" for Employee Benefits? Mumblr Abhishek Mittal imagines an employee-driven market in which employees have "benefit credits" to spend or save in creating their own benefits package. Absolutely essential reading!
    Carnival of Personal Finance Prison Taught Me Everything I Need to Know About Personal Finance Money Grubbing Lawyer Roger is an ex-con (and client of MGL) who spent 10 of the last 16 years in prison. He connects valuable lessons in personal finance to what he absorbed while behind bars in The Best Post of the Week, Anywhere!
    Carnival of Real Estate Why Can't Real Estate Be Like Gasoline? Asheville Mountain Real Estate Black Bear Realty wishes that the laws of supply and demand in real estate would act a lot more like they do for gasoline.
    Carnival of Trust Should You Trust Your Customers? My Wife Quit Her Job Steve wonders when bending company policy to accommodate customers might be appropriate.
    Cavalcade of Risk New to Prosper? How to Manage Your Risk as a Peer to Peer Lender Digerati Life The Silicon Valley Blogger considers what a new lender needs to know to reduce their risk in the peer-to-peer world of lending.
    Cavalcade of Risk Seven Reasons Why You Shouldn't Start Your Own Business Monevator The Investor spells out seven reasons why being your own boss may not be all you think it could be.
    Festival of Frugality Meat Money: Grocery Saving Tips for Carnivores Wise Bread Myscha Theriault reveals her "meat money management strategies" for making a little bit of meat go a lot further!
    Festival of Strocks From the Mailbag: New York Times Barel Karsan Saj Karsan argues that the stock of the New York Times (NYSE: NYT), while 90% off its high and down 60% in the last year, isn't a buying opportunity so much as it's a classic example of a "value trap."
    Leadership Development Carnival Excecutive Education Boondoggles Three Star Leadership Are executive training programs all their cracked up to be? Wally Bock finds that the participants claim they are, and why wouldn't they if they're packaged with international travel, but wonders where the real business benefits are.
    Money Hacks Carnival MacBook vs PC: Why I Chose PC Cash Money Life Patrick takes sides in the heated debate between Mac enthusiasts and buyers of PCs.
    Carnival of Money Stories Which Pays Better, Popular Investing or Staying in Front of the Crowd? PennyJobs Curtis Ophoven says his answer is "staying ahead of the crowd" and reviews where it's worked, where it hasn't and how he's considering directing his investments now.

    Previous Editions

    Our running index for 2009 will be up soon, but for now, here's where you'll find all our previous editions!

  • On the Moneyed Midways - December 19, 2008


  • 15 January 2009

    The Economic Detective: Working Hard! Having ruled out "Dr. Doom" and The Demographic Kid from culpability for the massive reduction in the number of teen workers between 2006 and 2007, we had the Public Policy Gang rounded up for questioning. These gang members are about as two-faced and crooked as they come - talking fast to keep you distracted all while taking you for all you've got.

    While waiting, the Economic Detective reviewed the case file, trying to work out how the gang might have pulled the caper off. From the victim autopsy, he recalled that teens weren't really the target of the hit - they were just in the way and took the blow. The real target was the source of the supply of jobs available for teens to fill, and that was the hard-working, honest and mostly mom-and-pop small business owners and operators who employ teens.

    Percentage of Individuals Earning Federal Minimum Wage (or Less) by Age Group in 2007Then he came across a bit of information from The Demographic Kid that we had passed over previously. The Kid had said that employed teens were, compared to their older counterparts, inexperienced, unskilled and uneducated. That combination makes them pretty unattractive as employees, but the Kid said the teens made up for it by working cheap. So cheap, in fact, that teens made up 373,000 (21.6%) of the 1,729,000 U.S. hourly wage earners who made the minimum wage or less in 2007, as the chart on the left shows.

    So there it is. The Public Policy Gang controls the minimum wage in the U.S. By raising the minimum wage, they could get good marks by appearing to care about low income earning people, with the most greedy and gullible mindlessly giving them their support in return for crumbs from the table, while taking massive "contributions" for themselves and their "pet" front organizations from big business and big unions, who can't stand the competition. And what better way to go after the competition than by making it too costly for them to compete?

    It all fit - they had the motive and the opportunity. But the method was missing - how did they do it?

    The interrogators slowly pieced together a coherent timeline from the various gang members we had rounded up. The timeline is given in the chart below, which shows the relative size of the Age 16-19, Age 20+ and the Combined number of employed individuals has changed as a percentage of their respective values from November 2006:

    Percentage of Number Employed for Age 16-19 and Age 20+ from Levels Recorded in November 2006, with GDP and Minimum Wage Timeline

    The Public Policy Gang had new leadership take over in November 2006. They made it clear in January 2007 that they were going to jack up the minimum wage to what they called a "living wage" level, and put enough pressure on the White House that they got them to go along with the scheme in May 2007. Employers with substantial numbers of employees who would see the mandated wage increase, knowing their costs were going to go up and not able to increase their prices to compensate because of competition, began cutting back on the number of jobs they created in step with the gang's progress toward their "living wage" goal. The employers had to if they were going to stay in business.

    Teens, being disproportionately more likely to earn the minimum wage, were simply in the wrong place at the wrong time.

    After May 2007, teens got a bit of a breather, but many got a nasty shock when the first increase in the mandated minimum wage took effect in the last week in July 2007. They over-reacted, letting lots of teens go in August, then brought a good number back the following month before continuing to reduce the number of employed teens at a more measured pace. By December 2007, at the peak of the expansion phase of the business cycle, the teen employment level was just 93.7% of its November 2006 value.

    Teens got another break from the downward trajectory in April 2008, as the economy briefly picked up steam, but with another minimum wage hike scheduled for July 2008, it didn't last long. It wasn't until October 2008 that Dr. Doom's recession finally saw older workers take a larger share of job losses, as economic contraction took hold in the U.S. By the end of 2008, the teen employment level had dropped to 83.6% of its November 2006 value.

    The Economic Detective was all set to wrap up the case, when a surprise call came in. It would seem that those 245,500 fewer employed teens in 2007, the difference between the average monthly number of those Age 16-19 counted as being employed in 2006 and 2007 during a time when the economy was still growing, were just a drop in the bucket as a gruesome discovery was made....


    14 January 2009

    The Economic Detective is on the case! Who, or what, could have inflicted the blunt force trauma visited upon America's teenagers that resulted in so many fewer teens with jobs?

    That's the question the Economic Detective is left with after first establishing that the act was not the result of natural causes and that the first blow was struck on the victim sometime from November 2006 through January 2007. Meanwhile, the victim's autopsy revealed that the blunt force trauma wasn't aimed at teens so much as it was aimed at their employers. The teens, it would seem, were just the sorry saps who were in the wrong place at the wrong time.

    Let's identify the likely suspects, or rather, those whose rap sheets show that they could pull off this kind of caper:

    1. The Demographic Kid
    2. "Dr. Doom"
    3. The Public Policy Gang

    Now, let's interrogate them in order to see what they'll tell us.

    The Demographic Kid

    This whole investigation got started because teens were going disappearing from the U.S. job market in numbers that were way out of sync with their representation within the workforce. We wanted to first find out if demographics were behind the change in employment figures. After all, if the proportion of teens in the working population at large took a dive, so would their percentage representation in the employment pool.

    Age 16-19 and Employed Age 16-19 Population as Percentage of Total Age 16+ Population, January 2005 through December 2008 The chart to the right summarizes what we found when we dug into the numbers. From January 2005 through December 2008, the percentage of individuals Age 16-19 with respect to the working age (Age 16+) population of the U.S. stayed nearly constant, ranging within six hundredths of a percent of an average 7.29% throughout the period. Meanwhile, the percentage of employeed Age 16-19 year olds went from averaging 4.24% during 2005 and 2006, beginning their roller-coaster ride descent below that level in January 2007.

    So, demographics didn't do it, but could The Demographic Kid explain why teens were so affected? We applied our unorthodox methods to get an answer.

    Change in Number of Employed Individuals, Age 16-19 and Age 20+, Since November 2006 *** The chart to the left confirms that the employment picture for everyone older than 19 throughout 2007 was pretty good. By the peak of the business cycle in December 2007, preceeding the current recession, the total Age 20+ workforce had grown by nearly 1.1 million. Meanwhile, the job market for those between the ages of 16 and 19 had turned south, with the U.S. economy shedding some 389,000 jobs over the same time, pulling the total change in total employment from November 2006 down to 707,000.

    So, what makes the Age 16-19 workforce so different from their older counterparts in the job market? The Demographic Kid 'volunteered' that compared to the Age 20+ workforce, teen workers are inexperienced, unskilled and uneducated. Plus, the Kid thinks a lot of them smell really bad.

    It was pretty clear that we weren't going to get any more useful information from The Demographic Kid, so we turned our attention to Dr. Doom....

    "Dr. Doom"

    Despite his resemblance to Nouriel Roubini, "Dr. Doom" turns out to be more of a what than a who. "What" would be negative economic forces that lead to recession, or more simply, a worsening economy.

    Our first question: Could a worsening economy throughout 2007 have caused teen job losses? After all, history has shown that when an economy goes into recession and contracts, people lose their jobs all over.

    Change in Number Employed for Age 16-19 and Age 20+ from Levels Recorded in November 2006, with GDP We started in with the big picture. The chart to the right modifies our earlier chart showing the change in the number of Age 16-19, Age 20+ and Combined total employment levels by adding the inflation-adjusted GDP growth rate measured by the Bureau of Economic Analysis for each quarter covering the period from November 2006 through December 2008.

    Here, we see that total employment levels tend to grow when the real GDP growth rate is flat-to-positive, while employment levels tend to fall when the economic growth rate turns decidedly negative, which we confirm by noting that economic expansion peaked in December 2007, and fell thereafter. We see the combined total employment level generally rise and fall in step with the growth recorded in the U.S. economy.

    We also see that the teen employment levels throughout 2007 would appear to defy the economic growth trend. For example, with the real GDP growth rate clocking in at a high 4.8%, we would expect that teen employment levels would rise in response. Instead, we see a general decline in these levels throughout 2007, with an unexpected and unusually large step downward in August 2007, some five months into the period with the highest rate of economic growth during the year.

    But, Dr. Doom makes a good point: not every part of the economy was growing in 2007. Some were, in fact, contracting pretty severely. One case in point: the U.S. housing sector. Here, after booming for several years, the U.S. housing market had begun slowing in mid-2005 and by mid-2006, sales of new and existing homes were slowing dramatically and the housing sector was, in Nouriel Roubini's words, "in free fall."

    So, we would therefore expect employment levels to be falling in the residential construction industry and other economic sectors closely tied to U.S. housing markets, such as mortgage lenders, home furnishings, etc. during this period. The question for us is: "how many teen jobs are in these sectors?"

    Employment Distribution of Persons Aged 16 to 19 by Occupation, July 2002 The answer is not many. In 2006, the average number of individuals Age 16-19 working in construction and extraction related fields was 296,000. That number dropped by 13,000 in 2007 to 283,000, a year in which the total number of jobs in all construction and extraction occupations increased by 28,000 from 9,507,000 to 9,535,000. That decline accounts for just 5.3% of an average decline of 245,500 jobs for teens between 2006 and 2007.

    There's little doubt that the housing sector was declining in 2007, however that decline accounts for very little of the decline in the teen employment situation. No, far more teens are employed in other sectors of the economy, as the chart to the left demonstrates, and with just 5.3% of the average decrease in the number of teen jobs from 2006 to 2007, that percentage is pretty much in line with the percentage share of teens in the construction sector.

    So we find that there's nothing really disproportionate happening here - Dr. Doom is off the hook.

    That leaves just the Public Policy gang as the most likely culprit behind teen job losses. We'll put them under the hot lights of economic interrogation in short order....


    13 January 2009

    The Economic Detective Strikes Again! Our economic detective work continues today, after having determined that where teenagers are concerned, something "broke" in the U.S. economy sometime between November 2006 and January 2007. Whatever it was that broke led to hundreds of thousands of teenagers leaving the ranks of employed individuals in the U.S.

    Since we've already shown that the number of employed teens as a percentage of the total number of individuals counted as being employed in the U.S. has declined since that time, today we'll take a closer look at the victim, performing an economic autopsy so to speak, to consider what that decline in the percentage representation of teens in the U.S. means in terms of actual numbers.

     Number of Age 16-19 Population, January 2005 through December 2008 We'll first consider the overall trend in the size of the U.S. Age 16-19 population. The chart to the left indicates that the number of working-age teens in the U.S. has increased steadily over the period from January 2005 through December 2008, although the BLS' measure of the population isn't so steady. Here, we see that the BLS apparently adjusts its data each year in January, evident in the shifts upward and downward in the number of teens the government agency records as existing in each year.

    Number of Age 16-19 Civilian Labor Force Members, January 2005 through December 2008 As you might expect, with a steadily increasing population over time, would tend to lead to an increasing number of Age 16-19 year olds becoming members of the U.S. workforce. In fact, in the chart to the right, that's exactly what we see for both 2005 and 2006. But then we see an unexpected break in this expected pattern, beginning roughly around November 2006, when the number of members of the Age 16-19 workforce abruptly begins to decline.

    Here, we see that decline accelerate beginning in January 2007, before adjusting to a slower rate of decline after August 2007. Remarkably, that sharp decline occurred well before the expansion of the business cycle peaked, as recently determined by the National Bureau of Economic Research when they pegged December 2007 as the beginning of the current recession.

    In effect, this decline might be considered evidence of a blunt force trauma acting upon the employment status of U.S. teens!

    Number of Employed Age 16-19 Individuals, January 2005 through December 2008 Since the Age 16-19 Civilian Labor Force includes the number of teens both counted as being employed and those counted as being unemployed, we'll next look at just those teens counted as being employed. The chart to the left confirms the observation of a "blunt force trauma" occurring around November 2006 to January 2007, after which, the number of employed teens bled out of the U.S. workforce.

    Decrease in Number of Working Teens, November 2006 through December 2008 The chart to the left gives the number of teens who have "bled" out of the U.S. economy since the proximate November 2006 "break" point. Here, we see that after the initial break, 567,000 fewer teens were counted as being employed in August 2007. After this low point however, the number of working teens rebounded back up to where only 294,000 fewer than November 2006 were employed in October 2007. The overall decline then resumed, ending 2007 at a level 389,000 below the November 2006 level. All this decline in the number of working teens occurred when the U.S. economy was still expanding, which according to the NBER, it did all through 2007.

    As we can see, some 1.02 million fewer teens are employed as of December 2008 compared to November 2006.

    But are these individuals counted as being unemployed? We noted earlier that the size of the Age 16-19 Civilian Labor Force includes both the number of employed and unemployed members of this group. We wondered how the unemployment rate might reflect the changes we observe since November 2006. The chart below gives both the change in the number of 16 to 19 year olds counted as being unemployed since November 2008 (on the left scale) and the recorded Age 16-19 unemployment rate (right scale). The total number of Age 16-19 members of the Civilian Labor Force counted as being unemployed in November 2006, which provides the base against which the change in number of unemployed is measured in the chart below, is 1,089,000:

    Change in Age 16-19 Number of Unemployed and Unemployment Rate, November 2006 through December 2008

    Since the BLS' unemployment data only counts those who were dismissed from their jobs by their employers, such as through layoffs, the data in this chart combined with the observed decline in the number of working teens in the period from November 2006 onward tells us something very important about the nature of the "blunt force trauma" that affected working teens in the U.S. What it tells is is that the decline in teen employment levels is largely the result of a disappearance of jobs for teens.

    We can confirm this in the chart above by observing that even when the number of employed teens began decreasing sharply after November 2006, the change in the number of teens counted as being unemployed actually dropped for several months and didn't begin growing in earnest until May 2008, after the economy had entered into recession.

    What this tells us is that whatever it was that caused the job market for teens to break down between November 2006 and January 2007, the blunt force trauma applied was directed at the supply of jobs created or available for teens to fill, rather than jobs that already existed.

    And just who, or what, could do that? We'll soon have to line up the potential suspects....


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