Archive for November 2006

Another Ethanol Challenge

November 30, 2006
ear-of-corn.jpg The University of Illinois Extension Office’s Blog has an interesting article posted on Wednesday highlighting Dr. Michael B. McElroy.  This Harvard University Professor is the latest in a line of “experts” who say that ethanol is not the answer to U.S. energy demands.  I wonder, has he been outside the ivory tower enough to even know what an ear of corn looks like?  The article can be found here.

Because my line of work involves the agricultural industry, I must keep up with the pros and cons of big Ag issues.  One of these is ethanol.  What I notice most about those who oppose the continued expansion of ethanol is that they do not present the entire picture.
They talk about rising food and fuel prices as the demand for corn heightens.  They paint doomsday pictures of a world without enough food or fuel.  They throw out statistics regarding fuel economy and the total cost of ethanol production.

Here’s what they don’t mention:  Corn hybrids continuing to become higher yielding, and being grown in areas previously not suitable for corn production.  Experimental ethanol plants using corn residue (instead of the grain itself) to supplement those that process the grain.  The gluten byproduct produced by ethanol that can be fed to cattle instead of corn.  Engine technologies that are striving to make ethanol more efficient in miles per gallon.  And, of course, my favorite reason for using ethanol:  to send less money to middle eastern governments.

Is ethanol the entire solution to America’s thirst for energy?  No.  Should it be part of the solution?  Absolutely.

Pelosi Makes a Good Decision

November 29, 2006
nancy-pelosi-2.jpg In a brief moment of lucidity, future Speaker of the House Nancy Pelosi has decided to reject the bid of Deomocrat Representative Alcee Hastings of Florida to Chair the House Intelligence Committee.  Hastings was impeached as a federal judge in 1989 after being brought up on corruption charges.  He learned about the decision during a meeting with Pelosi on Tuesday.

I’m honestly surprised by this.  Hastings had the backing of the Congressional Black Caucus, a group which Pelosi will need in order to push through most of her 100 hours agenda.  I doubted that she would reject Hastings in fear of upsetting them.  My article on the Democrat Culture of Coruption all ready to go had Pelosi given the nod of approval to Hastings.  It started by stating, after running on a Republican Culture of Corruption campaign in the 2006 election, Democrats have decided to appoint a former federal judge, who was impeached after being brought up on corrutption charges, to chair the House Intelligence Committee.  After the Murtha for majority leader debacle, I suspect Pelosi is trying very hard not to step into anything too sticky until January.

We must, however, give Pelosi some credit here.  After all, it takes guts to stand up to the Congressional Black Caucus, even when their candidate is an impeached federal judge.  Credit Pelosi for a good decision on this one, by keeping those who have been formally impeached from attaining House Committee Leadership Positions.  Of course, if the people of Florida were smart enough to keep the formally impeached from being elected to the House of Representatives, Pelosi wouldn’t have to watch out for this kind of trap.

The Secret Tax Increase (Part I)

November 27, 2006

The Minimum Wage Cycle 

Minimum Wage Goes Up, Prices Go Up, Cost of Living Goes Up…
Repeat As Necessary

 Part of the first 100 hours plan given by the Democrat Congress includes a raise in the national minimum wage.  A minimum wage increase is always one of the most popular bills passed through any Congress; it is not likely to be blocked by the executive branch.  In this multi-part series we will examine the true effects of a hike in the minimum wage.

The plan calls for wages to be raised from the current $5.15 per hour to a staggering $7.25 per hour.  One plan calls for this increase to happen immediately, the other calls for it to happen over the course of the next two years. In order to understand how this effects the economy, let’s look at it on a small scale and then expand. 

Examples given below are simplified for the sake of brevity and better understanding.  There are portions of business expenditures that will not be addressed until Part II of this series.  Other portions, such as an overtime option for some workers after layoffs as a savings of overall employment costs were not addressed for the sake of simplicity and brevity.  As I’ve said in previous posts, I’m not an economist, but this is how I see it.

 Let’s say a company employs 100 workers at a minimum hourly wage of $5.15 per hour.  Assuming that the employee works 40 hours a week, that means that the company pays each of these 100 employees $10,712 per year (Math:  $5.15*40 hours*52 weeks).  If the company is now required to pay the same employee $7.25 per hour, each employee is now paid $15,080 per year (Math: $7.25 per hour*40 hours*52 weeks).  On a yearly basis, this company’s costs have just increased $436,800 [Math: ($15,080 – $10,712)*100 employees].

Let’s say this company makes widgets.  At $5.15 per hour, each employee can produce 5 widgets per hour.  At $7.25 per hour, each employee can produce 5 widgets per hour.  In other words, none of the 100 employees are any more productive at $7.25 per hour than they were when they were making $5.15 per hour.  We’ll assume that it cost the company a total of $10.00 to produce every widget when each employee was making $5.15 per hour.  That means the cost of labor for each widget was $1.03 (Math: $5.15 per hour / 5 widgets per hour).  After the increase to $7.25, the cost of labor for each widget is now $1.45 (Math $7.25 per hour / 5 widgets per hour).  This means that it costs the company $10.42 to produce each widget (Math: $10.00 total widget production cost – $1.03 old labor cost + $1.45 new labor cost) .

We will assume that this particular manufacturer operates on a 10% margin basis.  The company has four choices at this point:  Cut Margin, Layoff Workers, Raise Prices, or a combination of the three.  For simplicity, we will assume that the company will choose between one of the first three strategies. 

Cut Margin:  The retail price of a widget before the minimum wage increase was $11.00 (Math: $10.00 old production cost * 10% margin).  Thus, the company’s profit from each widget was $1.00 (Math: $11.00 retail price – $10.00 total cost).  The company’s total annual profit from widgets at the old minimum wage would be $1.04 million (Math: 100 employees * 40 hours per week * 52 weeks per year * 5 widgets per hour * $1.00 profit per widget).  If the company was to leave prices at the current level, the minimum wage increase would reduce margin to $0.58 per widget (Math: $11.00 – $10.42)  This would take the companies annual profits down to $603,200 (Math: 100 employees * 40 hours per week * 52 weeks per year * 5 widgets per hour * $0.58 profit per widget).  Rarely would a company choose this option, especially if it is publicly held.  The only time this option maycome into play is if competitive market forces do not allow for a price increase.

Layoff Workers: If a companycannot raise prices due to competitive market forces, it may also choose to conduct a layoff.  Knowing from the previous example that the company stands to lose $436,800 annually due to the minimum wage increase, this would mean that the company would have to layoff 29 minimum wage workers in order to offset the loss (Math: 436,800 annual profit loss / $15,080 new minimum yearly wage).  This, of course, does nothing to bring sales margin per widget back to what it was, and the decreased sales volume from the decreased number of widgets produced would not make this an appetising option.

Raise Prices:  This would be the most likely result from a minimum wage increase.  Any competitive forces in the marketplace would be facing the same challenges, and would likely raise prices as well.  Additionally, it is the only option that keeps production and sales levels at current standards while keeping company profit margin per widget the same.  Assuming that this is the choice made be the company, the new retail price of the widget is $11.46 (Math:  $10.42 new widget production cost * 10% margin).  This means that the total price you pay for a widget just increased by $0.46 per widget (Math: 11.46 new retail price – 11.00 old retail price).

We’ve previously calculated that the manufacturer produces 1.04 million widgets per year (Math: 100 workers * 40 hours per week * 52 weeks per year * 5 widgets per hour).  The minimum wage increase has forced Americans to pay an additional $478,400 for their widgets (Math: 1.04 million widgets * $0.46 per widget price increase). 

Where does the government come in?  Let’s assume that state and local sales tax combine to equal about 10% of the purchase price.  State and local tax revenues have just increased by $47,840 from the annual sale of only this particular company’s widgets (Math: $478,400 additional purchase price * 10% tax).  Please note that in this example the customer is paying more for the widget, but the manufacturer is not making any more money.  The only entities benefiting from the price of widgets going up due to the minimum wage increase is the state and local government.  Expand this across the multitude of industries, companies, and products that would be effected by the minimum wage increase.

 Part I of this discussion did not cover the national tax revenues that would be increased by a Congressional Bill raising the minimum wage.  National revenues will be addressed in Part II.  Additionally, the current job market in the United States rarely allows an employer to pay it’s workers minimum wage.  However, this example can be construed to those making hourly wages above the minimum as well.  The minimum is a set standard, and many times employees making above the minimum will demand hourly wage increases based on the same percentage as the minimum wage increase.

Giving Thanks

November 23, 2006

This year, my family has a lot to be Thankful for.

Because of this, I will be taking the next four days off… to eat much, drink more, and watch football:  I love this holiday.

Please come back Monday Nov. 27th for new content.

A Scholarship For Me!

November 22, 2006

As a young, white, male in high school, I quickly discovered that my opportunities to get financial assistance for college were few and far between.  That is,  for any assistance that was not entirely based on merit.  There were scholarships for need based students, some that required you to be part African American or other minority group, and some that were only for girls.  I looked high and low for the “white male” scholarship, but never found one.

Of course, I was lucky enough not to have been eligible for a need based scholarship.  However, I never could understand how ethnicity or chromosomes played a part in whether I would graduate from college with a great start, or drowning in debt.  The affirmative action argument has never made much sense to me in a free market economy, where (in theory) the best person for the position gets the position.  It never made sense that a merit scholarship would also have an ethnicity or gender requirement attached to it.

I don’t have to fret anymore….white males can now breathe a sigh of relief as Boston University’s College Republicans have created the answer.  The group will be offering a scholarship that requires the applicant to be at least 1/4 white in order to apply.  They are, of course, doing this to bring attention to the bigotry that exists in the current college financial aid system.  Whereas I would be much more agreeable to a system that did not judge anyone based on race or gender, we have to play within the rules we are given.  So, until the rules are changed, I’m glad to see someone finally offering a scholarship just for whites…now, where is that male only application?

Promises, Promises

November 20, 2006
Voting Machine Exit polling displayd by CNN for the November Congressional elections shows that one of the primary reasons the nation elected Democratic majorities to the U.S. House of Representatives and the Senate was for a change in Iraq.  Democrats in many House and Senate races ran on a platform that included changing direction in the Iraq conflict.  Now that they’ve been voted into power in the U.S. House and Senate, what will they do?  Whereas the Congress has no real control over troop placement, they can do one thing…cut funding. 

But should the U.S. Congress decide to cut funding, there is only one outcome that can result…troop withdrawal.  The New York Times now reports that the same experts who criticized Rumsfeld’s management of the war are now saying that “Phased Redeployment” or Immediate Withdrawl would spell disaster for Iraq.  With this information in hand, will Democrats continue to push for troop withdrawal?

The Democrats are currently talking about “phased redeployment” plans, but it is just that, talk.  Unless the Bush administration chooses to decrease troop levels, (which is not likely in the next year) the only course change that Democrats could bring is the one that experts say will do the most damage.  Should the Bush administration choose to ignore Democrat threats, we could be looking at a standoff between the administration and Congress.  The question is, would the Democrat Congressional Leadership actually be dumb enough to back up the threat and cut funding for our troops? 

I give the Democrats more credit than that.  A small minority of left wing liberals in the Democrat party might argue that cutting funding for our troops serves the greater good, (Click here for an example of this kind of thinking) but a majority of them would not want to deal with the consequences in the next electoral cycle.  The Dems have backed themselves into a corner on this one.  They will have to choose which is worse:  Not keeping their election promises of changing Iraq policy, or cutting funding for our troops and facing the voters as the party who does not support the military in 2008.

This assumes, however, that the Bush administration will have some backbone over the course of the next two years and not cave in to Democrat demands of phased redeployment.  Should the Bush Administration choose to ignore the Democrats ideas for a new strategy in Iraq, Democrats will most likely back down before they pull funding; and will realize the small amount of power they hold in military matters when compared to the Commander-In-Chief.  Should the Democrats choose to cut funding, they will be crushed for it in 2008.

The War on Terror…Next Stop, Climate Change

November 17, 2006

Wednesday, U.N. cheif Kofi Annan demanded that world leaders give the same priority to Climate Change that they have given to the spread of WMD’s in the past.  In reaction to Annan’s comments, the Bush administration has been working around the clock to come up with a strategy for tackling the problem.  The Report Card has obtained exclusive, never before seen, details on the emerging plan.

Although specifics are unclear, sources that have heard rumors from staffers, that claim to be close to top officials, who claim to have seen a draft memo issued by the undersecretary to the secretary of the President leaked the following plan to The Report Card.  Please be aware that this plan is top secret, so don’t tell anyone.  If you are Climate Change, please stop reading now.  We would not want you to know what the plan for attacking you is.

The Bush administration first plans to provide the U.S. population with information linking Climate Change to terrorist organizations.  This, among other things, will provoke an already aggressive news media to begin discrediting the information.  After the news media misrepresents the information given by the administration, and twists the story into one of how there is no link between Climate Change and the 9/11 terror attacks, President Bush will schedule a time to address Congress.

 In his Congressional address, the President will add Climate Change to his list of members included in the axis of evil.  He will then justify this addition by telling Congress that there is substantial evidence from reliable intelligence sources showing that Climate Change exists.  He will underscore the point by assuring Congress that their is as much evidence present for Climate Change being a real threat as there was for Saddam Hussein possessing weapons of mass destruction in Iraq. 

President Bush will then call on Democrats to refrain from repealing the Patriot act, explaining that the continuance of the legislation would allow the government to hold Climate Change as an enemy combatant (should it be captured) for an undetermined amount of time in an undetermined location.  Additionally, the government can then begin wire taps on all those assisting Climate Change.  He will conclude his speech by urging the U.N. Security Council to expedite a meeting, for discussion on a resolution that would demand Climate Change to reveal it’s harmful effects.

The next phase of the plan involves waiting on the U.N. Security Council to draft 17 non-binding resolutions insisting that Climate Change stop it’s harmful effects…or else.  Climate Change will ignore all of these resolutions.  This will, of course, prompt a circus of investigations conducted by Hans Blix.  Each time Blix will come back and report that there is no clear evidence that Climate Change has harmful effects, and that he needs more time to conduct further investigations.  After the 17th resolution is drafted, President Bush will grow tired of waiting on the U.N. Security Council and begin assembling a coalition of the willing to remove Climate Change from power and seize it’s harmful effects.  France and Russia will object to this.

Once the coalition has militarily removed Climate Change as a threat, U.S. teams of scientists will go searching for it’s harmful effects.  After months of searching, the scientists will find that Climate Change actually had no harmful effects.  The Bush administration will then claim that the war was still justified because the U.S. took power away from an entity that was threatening the world in order to make it a safer place.

This time, military strategists will expect an insurgency.  It will most likely be launched by supporters of Climate Change (those living in colder than average climates), and will eventually be reinforced by environmental fundamentalists who insist that Climate Change sill exists.  Their leader will be Al Gore…

That’s the plan given to The Report Card by White House insiders.  Being the responsible news outlet that we are, The Report Card has verified all information stated above with no less than two White House parking attendants and the head of security at the White House Visitors Center.  It should be noted that no exit strategy was given to us by our sources…We’re sure they have one, our sources probably just didn’t know what it was.