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Bernard's Top 10 at 10: Why the Fed wants more wage inflation; Paparazzi drones?; Thundermaps for dairy farmers; The Freakonometrics of coffee and productivity; Dilbert

Bernard's Top 10 at 10: Why the Fed wants more wage inflation; Paparazzi drones?; Thundermaps for dairy farmers; The Freakonometrics of coffee and productivity; Dilbert

Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz

See all previous Top 10s here.

My must read is number 7 on whether low interest rates are fuelling asset bubbles, or whether they are just a leading indicator of secular stagnation.

1, The problem in America with jobs - This week we'll hear more on the state of America's jobs market.

On the face of it (see the first chart below), jobs growth is picking up and long term unemployment is falling.

But the chart below that shows most of the jobs are in low paid fast food and health care industries.

That's important because the doves in the US Federal Reserve are apparently linking any decision about tightening monetary policy to a pickup in wage growth as well as jobs growth.

A delayed or tepid pickup in wage growth could delay any tightening until well into next year, rather than the first quarter that some of the hawks suggest.

That in turn gives little relief for our currency.

Here's Rabobank's view of the Fed's decision on Thursday morning our time. It sees rates on hold until late 2015.

The doves in the FOMC want to make sure that there are no remaining weaknesses in the economy before the central bank unleashes its hiking cycle. However, they may be asking a little too much from this recovery. The economy came out of recession in the summer of 2009, but the recovery has been uneven and disappointing on average. Therefore, we remain skeptical of the linear recovery that is implicit in the FOMC’s projections.

What’s more, the Committee also wants 200Kplus nonfarm payroll growth, falling wider measures of unemployment (such as U6 which includes marginally attached and involuntary part-time workers), stronger wage growth, and a sustained housing market recovery. Most likely, not all of the Committee’s projections and criteria will be met by mid-2015, so for now we stick to our forecast of a 2015Q4 start of the hiking cycle. Keep in mind that the Fed has been too optimistic about the recovery and premature in signaling its next policy steps several times before.

But not in the higher wage jobs.

2. Cool -  I want one. The US army is developing pocket-sized camera drones for its troops.

Just imagine the applications in all sorts of industries and activities, including farming, retailing and the media.

Paparazzi drones are just a matter of time.

3. Higher wages cost jobs? - Really? This is an eternal debate, but particularly relevant now Labour and the Greens are proposing quite big increases in the minimum wage if elected. Labour has promised to increase it by 14% to NZ$16.25 an hour by April next year, which National said would cost 6,000 jobs, according to MBIE research.

However, the jury is still very much out on this subject in America.

Here's Planet Money with a look at the research, which was ambivalent at best.

Figuring out the effect of raising the minimum wage is tough. Ideally you'd like to compare one universe where the minimum was raised against an alternate universe where it remained fixed.

Economist David Card found the next best thing. In 1992, New Jersey was about to raise its minimum wage. Right next door, there was a parallel universe: Pennsylvania, which was not raising its minimum wage.

Card and a colleague decided to study what had happened to jobs at fast-food restaurants in both states. They surveyed restaurants and found that the number of jobs actually went up in New Jersey, which increased its minimum wage, compared to the number of jobs in Pennsylvania, which didn't.

4. Thundermaps for dairy farmers - Thundermaps CEO Clint Van Marrewijk has written a piece at Gareth Morgan's site about how farmers and others can use his Thundermaps service to track pollution reports.

It is in the interest of any farmer to know if an environmental report has been made that affects their business:

If cattle break through a fence into a nearby creek, the faster the farmer or their neighbor hears about it, the better. The incident can now be resolved more quickly, with less resulting environmental damage. A report of major slip damage for example, is something a nearby farmer could give a hand to clear as well.

There are significant advantages to more open and transparent communication of environmental incident reports.

The public (but moderated) nature of the My River pollution alerts gives an additional incentive for any incidents to be resolved quickly and efficiently.

5. Here's a cartoon below that touches on this issue of water quality and the stoush this week between Nick Smith and a couple of environmental groups.

6. The real story behind House of Cards - This Vox piece has 40 charts explaining how lobbyists and big money runs US politics. I'm really enjoying House of Cards, as much for the minutiae on how American politics seems to work.

7.Maybe there is no bubble - The FT's Robin Harding has an interesting piece suggesting the very low interest rates in the developed world are actually not building up asset bubbles because they simply reflect a secular stagnation.

Those who think there is a bubble believe that central banks have kept interest rates unjustifiably low. By buying bonds in the name of quantitative easing, they have created a false boom in asset prices. Rising inflation will soon expose this miscalculation, and rates will rise.

But that is actually the cheery scenario. It suggests that generating enough demand to keep economic resources fully employed will not be as hard as central banks expect – and thus they have already gone a bit too far with their stimulus.

In that case, we can expect interest rates to rise and asset prices to fall. The economy would suffer in the short term, and it would be painful for investors. But, since the private sector is no longer burdened with unmanageable quantities of debt, the fallout should look more like the bursting of the internet bubble in 2000 than the financial crisis of 2008.

The gloomier alternative is that interest rates are low for good reason, and likely to stay that way. In that case, high asset prices make sense, because demand for new investment is miserable and unlikely to accelerate. Investors will not suffer upfront losses on their portfolios, but returns will stay low for a long time. If this is what is going on, mistaking the situation for a bubble would lead to bad policy.

8. Luckily productivity growth was so weak - Really? Economists and central bankers usually love lots of productivity growth, but in Britain it has helped unemployment a lot that productivity growth there has been so weak.

Here's Simon Wren Lewis with a blog post and a juicy chart. It's too early to know if this is one of the reasons jobs growth in New Zealand has been relatively strong.

 Imagine that productivity (defined as GDP divided by total employment) since the general election had grown by 2.3% per year - its average from 1977 to 2007 - and that output had followed the course it actually has*. If this had happened, employment would now be 2.48 million lower. If half of this number were counted as officially unemployed, there'd be over 3.4 million registered as unemployed. And unemployment would have topped 3.5 million last year. That would be a post-war record.

9. Productivity and coffee - Maybe New Zealanders need to drink more coffee. Or less tea. Or maybe more Red Bull. This chart below courtesy of Freakonometrics (HT Eric Crampton) shows the connection between coffee consumption and GDP per hour worked.

But there does seem to be a law of diminishing returns at work. The Finns apparently drink 12 cups a day and their GDP/hour worked is lower. They must all be so shaky they don't get any work done, or maybe they're all slacking around in cafes.

10. Totally John Oliver on Russia's spacecraft full of geckos. I kid you not. Look out below for another space-related item.

 

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29 Comments

#4  Even though this is much more a reactive than a proactive way of dealing with incidents, it is starting to dawn on the world that Big Ag Data is in fact just around the corner.  As I noted yesterday (but with the inevitable digressions), 

"Big Data and many. many sensors, is how much of the current blather about Who's doing What to Which environment, will be resolved.  And like the basis of those unintuitive Cat correlations, there will be Real Data to work with, and there will, I expect, be some similarly surprising conclusions once it's analysed."

Some sources for just how widespread Ag Data is already:

Feeding 9 Billion humans

Precision Agriculture

Open Ag Data

Trillion Sensors movement

JD Ag Management

 

The point being that, as sensors capable of measuring point emissions become cheap, ubiquitous and networked, the dynamic will switch from the sort of earnest reactivity being seen here and from Regional Councils constantly playing catch-up, to a producer-driven pro-activity which both feeds the regulators with decent data (instead of the monthly trip around the manor by a minion with a test-tube), and gives the producer actionable data for on-farm decision-making.  

 

Apply well-established Big Data mining and analysis techniques, and we will see real data, in near real time, and will be able to make data-based decisions.

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Complexity...

https://www.youtube.com/watch?v=G0R09YzyuCI

So to feed this many ppl it is expected that much of the present 3rd world agricultural system will move to a fossil fuel and technology intensive system? Lokss like it.  If nothing else where does the water come from? let alone the fossil fuels?

and when fossil fuel is gone by 2050 at the latest, what then?

and we are at peak now?

oh boy there are some heads in sand.

regards

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Waymad

Just wanted to say thanks for your comments. They always make me think and provide useful information that informs and enriches the debate.

cheers

Bernard

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Thx for your kind words, BH.

 

Another nice link from the Scourge of Density:  Joel Kotkin...the money shot:

"

This has touched off a “density craze,” in which developers and regulators work overtime to create a future dramatically different from the region’s past. This kind of social engineering appeals to many pundits, planners and developers, but may scare the dickens out of many residents. "

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#3

That's some pretty shoddy selective quoting, BH.

 

Later in the very same article we see...

Neumark and a colleague got actual payroll data from fast-food restaurants in New Jersey and Pennsylvania. They came to the opposite conclusion: Raising the minimum wage slightly reduced the number of jobs.

But this was not the end of things. The authors of the original paper then went back and redid the experiment using government data. And they came to the same conclusion as from the first study: Raising the minimum wage did not cost jobs.

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Heh, Phil.  Fast food is hard to robotise, whereas textile, dairy, pallet-stacking......

 

Key economic decision is simple:  what's the cost of a robot versus a human?  Selecting fast food, ffs, is a cop-out with a very shaky claim for universality.....

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Well maybe right wingers such as yourself can point at actual job losses from raising the min wage? and I mean proper peer reviewed studies using real data....

Because this is the claim and its looking like many right wing claims, un-substantiated.

regards

 

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www.forbes.com/sites/realspin/2013/04/17/the-record-is-clear-minimum-wage-hikes-destroy-jobs/

includes references to various academic studies.  Notably Neumark and Wascher (2006)

www.nber.org/papers/w12663.pdf

who state in their abstract that  "A sizable majority of the studies surveyed in this monograph give a relatively consistent ... indication of negative employment effects of minimum wages.   In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries"

 

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Trouble is forbes piece and its comments looks dodgy to say the least.

"realspin" yes indeed.

nber is interesting, so we see some contradictory papers, so school is still out on if there is an impact and which way. 

Balanced by the guardian pieces saying min wage increases is possibly positive.

So its not a safe claim that there are losses...

regards

 

 

 

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Indeed not.  But it's not a safe claim that there's no evidence either.

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Considering it is the right have claimed its costs jobs, there seems to be little proof of this.

What is possible/probable is either, at worst its neutral or more likely o be job positive in the economy overall.

regards

 

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I greatly relish the day when the IT gurus renounce their drive for automation, and let hordes of minimum-wage personages fulfil database requests by riffling through dog-eared stacks of 5x3 cards.

 

Think of the effect on Employment Stats!

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Finland has a different coffee culture to NZ, they make many flasks of robusta bean coffee which has been roasted very differently to our arabica bean flat white coffee culture.

Because in NZ coffee is made to order there is less wastage which is affecting the stats.

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#4 One of the terms and conditions of using the pollution report function refers to invading privacy.  One wonders how that would stand up in law when not only do they put address and location on a map they allow photos of the cattle grazing etc to be posted, it appears, without verification if the person posting had legal access to said land.  Not a problem on public land but I wonder where MyRiver stands with it on private land.  

 

 

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CO:  there's a thoughtful paper here on this very topic...

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Thanks waymad. My concern with Morgans site is the way they identify publically the property the owners are being accused of engaging in illegal pollution . The implication by way of comments attached to some of there's reports is that the landowner is guilty. MyRivers website do not appear to report back its findings, nor does it state whether or not the reportee is wrong in their understanding of what constitutes illegal pollution.

I would strongly urge any landowner being accused wrongly of pollution on MyRiver to seek legal advice.

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Using legal ways of protecting your property and the copyright will become more and more important........For example a simple Company structure seperate from the trading should suffice with its sole purpose as owning any copyright on any document, photo etc......and any data that they want could be supplied with a fee and everytime they use your data they should have to pay another small fee?....if they wish to post photos online etc then they will be breaching copyright if they haven't paid to use the information........

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Let's have a quick look at some basic minimum wages if they are raised $2.00 as proposed by Labour and the Greens.

 

$14.25 per hour x 40 hrs pw = $570.00 gross pw.

M tax rate is $90.59......nett pay = $479.41

ME tax rate is $80.59...nett pay = $489.41

 

$16.25 per hour x 40 hrs pw = $650.00

M tax rate (at current levels) = $105.95....nett pay = $544.05

ME tax rate (at current levels) = $95.95..nett pay = $554.05

 

The Nett take home pay difference excluding all other costs like kiwisaver etc $64.64 in both scenarios!!!

The Government would gain approx  $15.00 more in income tax per week per person which is $780 Per annum per employee on the minimum wage.

 

All the employees who are currently above the current minimum wage if they don't get a pay rise at the same time (and it could be highly like they want) could well end up on minimum wages themselves!!!

So what happens is that more and more people can end up in the minimum wage pay scale arena........so the gap between rich and poor widens......why would anyone especially a Politician advocate for the widening of this gap when they say the whole purpose of raising minimum wage is to close the gap!!!

Placing more and more people in a situation where they need Government hand-outs should be a punishable offence with prison time.......

 

Labour and the Greens know how the labour market works......and every Government likes to have a certain percentage of people unemployed as this keeps wages lower.......if NZ had full employment then wages would naturally increase as employers had to fight over labour....the current trend to import labour has ensured that NZ unemployment and low wage regime is kept in place........and the only people who can stop this circus is the voters themselves who allow this crap to happen by voting for short-term rewards that have long term consquences.

If NZ keeps pushing up the minimum wage it is distorting the true costs of labour and pushing more and more people into the lower income brackets.  Poverty is a trap created by Government for Government.......no-one would expect Richie McCaw or Dan Carter etc to hand the opposition the ball because they have no score on the board.

 

And for those commentators who think there is no inflation.....that minimum wage barrista who's wage would go from $14.25 to $16.25 has an inflationary effect.....of between .50c to a $1.00from my quick calculations that i have done......it is not just the one employees wages going up.....it is how all the costs across the board go up and how much is balanced in the equation with the income group above minimum wage....so the person who is roasting the beans, stocking the pantry, completing the ordering which can be either internal or external of the cafe all affect the price of one morning coffee.......so think about the supermarkets and will that $64.64 per week cover all the costs that are going to increase for the minimum wage earner!!!!!

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"and every Government likes to have a certain percentage of people unemployed as this keeps wages lower.."

really?

Yeah right, yeah on the right, maybe and that may not be logical. On the left no, I dont think so.

If on the other hand you have full employment, then that would seem to make the economy larger and more vibrant and hence more profitable.

I mean if you have 1,000,000 ppl and only 950000 (5% un-employed) of them can buy goods, what is the effect if 970000 (3% unemployed) , ie 20,000 ppl are not spending?  Or what can a pollie do with the extra PAYE of those 20000 ppl, plus no WINZ payouts? 

Let alone the misery inflicted on that 5% who are not allowed to have jobs due to Govn policy....

That seems very immoral to me.

regards

 

 

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Um,

Quick calculation?

How many coffees per hour?

Say 20? The barrista makes 1 per 3mins?

The difference is $16.25 - 14.25 = $2.00

/20

or 10 cents per cup extra

Per coffee is $5, so a coffee goes up to $5.10....

What you seem to be saying is the barrista is making 2 to 4 coffees per hour, hardly economic, let alone making sense.

$14.25/20= 71 cents in labour per coffee

On your calc $14.25/4= $3.56 in labour per coffee.

Interestingly, if you do a lattel bowl btw, that is 3 per 1litre of soy  milk at $3.30 per litre....so soy milk is $1.10 per cup.

regards

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It is very common for people to make the mistake that you have made above!!!.....

Why are you only looking at the cost of the Barrista????? no wonder you are not in business...what about all the supplies that come into the cafe before the coffee is even made?.......everything across the board has to increase in price where the pay-rate has been altered....

......you obviously have no clues as to how pricing works......and I would suggest you actually start learning the fundamentals before posting........perhaps if you spent half as much time on interest.co.nz and started learning business basics.....well then you might stop misadvising other people who read your posts who are perhaps equally in the dark/ignorant  on this topic....

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Looking at your name I can understand how you would miss such a silly - yet obvious issue.

You are assuming that they (the workers) are all paid minimum wage along that supply chain.

The long to short point of it all is his calculations are more accurate/valuable than your condescending comments.

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TfT....I beg your pardon!!

Did you even read what I said?  "where the pay rate has been altered!!!!  It is not just inside the cafe (my example) that will be affected and I never assumed that all workers are paid minimum wage along the supply chain !

 

Condescending......me....lets see I'm an extreme, right wing, clueless, libertarian who has cranial issues etc etc.......oh and that was just last weeks barage......tapped off Steven's keyboard........got to watch coming into the game at half time........it is easy to miss the first toss !!

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Did I say you had cranial issues? dont recall that one.

Libertarians are by defination, with 1000 votes in the last election an extremely small proportion of voters with far out there views in the extremeextreme, I fail to see how that isnt pretty close to factual. I mean the next jump over on the minimal Govn stance is anarchy.

right wing? so you think you are left wing? hence me calling you right wing seems reasonably factual.

Im not sure I used clueless, "politically blinkered" now yes certianly, I'll pleed guilty.

Like I said show us you calculations so we can challange  and prove you are indeed not clueless.

regards

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oh and I also spent over a decade involved with time and motion....so actually I have quite a reasonable idea on how to build labour costs.

regards

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The overhead costs and profit are in the coffee, so the addon of the direct labour is marginal and around 10cents extra. 

Lets see, the manager is I assume already on a higher wage, hence his overhead is already allowed for.

So we can look at the price of milk and how that goes up? sure lets see a cost impact of making it and delivering it. 

Now if its soy its made in OZ so the transportation costs in NZ are going up a wee bit. Actually making it, not.

Show us how you have calculated the additional labour cost on 0.3litre of soy milk.

So sure show us the "quick calc" you have done that gets the cost from my 10cents etc to 50 to 100cents. because based on your normal maths and political bias its dubious to say the least.

I think we'll find that the direct barrista cost because due to the time v quantity is by far the biggest cost.

regards

 

 

 

 

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.

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The argument about wages is crouched in term of supporting or undemining the private sector.

camboiain workers on $2 a day making clothes that are shipped tax free by americian multi nationals to New Zealander, how much will the NZ minium wage affect this?

Yet the problem is we support the private sector with safety net benefits, they can cheery pick without consequence. we need to reverse the thinking. We need to compete with the Global private sector not subsidise it. Equality can be as simple as acceptance. we need to compete in the bottom of the market, not subsidise it. mobile prepay rate, payday lending, essential insurance, Accomodation. The poorest in NZ pay the highest rates, paid for by middle class tax. the move from benefits to work gap  is too high to return bottom rung and a return normal life , acentuated by non aceptance by private companies eg banks ,power, phone,rentals.

If your on a benefit and trying to work out paying 61% tax and paying high prepay rates on everything a rise in the minium wage is just a sick joke.

 

 

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Re : Item 6.

Democracy is Bunkum, not Fair Dinkum

The US is the beacon of Democracy...No way. Democracy died in the US decades ago.

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