Economics 101: The $200,000-a-Year Mine Worker

How would you like to earn $200,000 a year to extract gold and other minerals from the ground?

Three important concepts in economics 101: supply, demand and price.  With all else being equal, these three functions all work together in equilibrium.  If the price of something gets too high, the demand goes down.  If there is an excess of a good or commodity, then the price will go down.  Whether you’ve formally studied economics or not, our everyday experiences have codified these working relationships in our minds. It’s intuitive to us.

I’ve found no clearer example of this than a Wall Street Journal headline I stumbled across earlier today.  It read: “The $200,000-a-Year Mine Worker”.  Can this be true?  As it turns out, it is.  The article, which you can read in its entirety here, describes James Dinnison, a 25 year-old high school dropout in Australia.  He makes $200,000 a year running drills in underground mines to extract gold and other minerals.

He’s been mining for seven years now.  In that time period he’s doubled his salary.  He is in himself a precious commodity.  In Western Australia, mining companies are investing heavily to develop and expand iron-ore mines. Demand is significant for those willing to work 12-hour days in sometimes dangerous conditions, while living for weeks in dusty small towns. 

According to Sigurd Mareels, director of the global mining for research firm McKinsey & Co, the worldwide mining industry expects a shortfall of 60,000 to 90,000 workers by 2017. Peru alone must find 40,000 new miners by the end of the decade.

I suppose this is one of the effects of the “flattening of the world”.  See this for an explanation. When countries like China, India and Brazil – once thought of as “emerging” markets – are the drivers of a significant portion of global economic grown, there is a huge demand for infrastructure and resource-driven industries.   We should also keep in mind that the costs of these economic expansions are not without concern.  Many of the Earth’s resources are finite and most estimates show that if countries like those listed above want to “live like Americans” in terms of energy and resource use, we are headed down an unsustainable path. 

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The Takeaway:  As emerging markets continue to grow there will be a great demand for specific industries, like infrastructure-building and mining.  Though bad for the Earth, they do provide access to high-dollar jobs for those who previously did not have it.

Not a Smoking Ban, but a Cigarette Ban?

Could nicotine regulation be the silver bullet that  advocates of banning cigarettes have been searching for?

First, some stats about cigarettes:

1.   Although smoking has fallen sharply in the U.S., from about 40% of the population in 1970 to only 20% today, the proportion of smokers stopped dropping around 2004.
 
2.   There are still 46 million American adult smokers, and smoking kills about 443,000 Americans each year. Worldwide, the number of cigarettes sold – six trillion a year, enough to reach the sun and back – is at an all-time high.

3.   Six million people die each year from smoking – more than from AIDS, malaria, and traffic accidents combined.
 
4.   Of the 1.3 billion Chinese, more than one in ten will die from smoking.
 

Recently, the FDA announced that it would spend about $600 million over the next five years to educate the public about the dangers of tobacco use.  Most would agree that this is a necessary step to reduce the number of the people who smoke cigarettes and ultimately die from them.  However, Robert Proctor, a historian of science at Stanford University, believes that educating the public isn’t enough.

“Tobacco control policy,” Proctor says, “too often centers on educating the public, when it should be focused on fixing or eliminating the product.”  In other words, Proctor believes that cigarettes should be banned!  Though this seems extreme to most, he argues that we don’t just educate parents to keep toys painted with lead-based paints away from their children’s mouths; we ban the use of lead-based paint. Similarly, when thalidomide was found to cause major birth defects, we did not just educate women to avoid using the drug when pregnant.

Rather than completely banning cigarettes, Proctor believes that the FDE could regulate the contents of cigarettes.  Here is his main proposal:

Because cigarettes are designed to create and maintain addiction, the FDA should limit the amount of nicotine that they contain to a level at which they would cease to be addictive. Smokers who want to quit would then find it easier to do so.

What are the chances of this happening?  They’re probably not great.  Tobacco lobbies are still very strong and public opinion on banning cigarettes isn’t overwhelmingly high.  However, public support of reducing the amount of nicotine in cigarettes could be significant.  Personally, I had never considered this opinion, but it would prove effective.  There are numerous cigarette smokers who wouldn’t still be smoking if they had been able to quit.  Perhaps when Proctor’s newest book, Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition, comes out in January there will be more momentum for nicotine regulation.

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The Takeaway: Regulating the amount of nicotine in cigarettes is a sensible step in weaning Americans off of the deadliest drug in their history.

The Best Eyebrows in the Biz

Today we lost a wonderful American, a straight talker and the best set of eyebrows seen on t.v. since WWII.  

Andy Rooney passed away this morning.  The Longtime CBS News commentator was 92.   I can personally comment that I enjoyed seeing him read his essays on 60 Minutes.  He would read them at the very end of the show so it was always what I would remember most about 60 Minutes.  In fact, it's one of my first memories of seeing news.

One reason his reporting stuck in my head was the way that he looked.  For my entire life he always looked very old.  In particular, Rooney was always known for his eyebrows, which seemed almost cartoonish. When asked about his bushy white eyebrows he once said, "I try to look nice. I comb my hair, I tie my tie, I put on a jacket, but I draw the line when it comes to trimming my eyebrows. You work with what you got."   I love it.  It's that kind of attitude that made Rooney so endearing. 

As I mentioned earlier, at the end of 60 Minutes he would read an essay. These essays ranged from looking for a job ("We need people who can actually do things. We have too many bosses and too few workers. More college graduates ought to become plumbers or electricians, then go home at night and read Shakespeare.") to the "shock and awe" campaign that started the Iraq War in 2003 (the phrase "makes us look like foolish braggarts.")

His comment that America needs more people to go to college, become plumbers and electricians and be able to read Shakespeare hearkens back to a time when Americans could earn a decent living by actually making things or fixing things.  That's not necessarily the case anymore.  Doing something useful like plumbing or bringing electricity to homes, businesses and factories is clearly good for the nation.  Throughout the last two decades too many of America's brightest have gone into the financial services industry...

Also, he was spot on in claiming that America's "shock and awe" campaign "makes us look like foolish braggarts".  If we read in a history book about a country that invaded another country - whether if history justified it or not - and called that invasion a "shock and awe campaign" we'd laugh.  How pompous, we'd say. 

In all, Andy Rooney wrote 1,097 essays for 60 Minutes and we were luck for every one of them.

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 The Takeaway: We were lucky to have a straight talker like Andy Rooney.  He did his best, but he wasn't perfect. That seems like an admirable goal for America. 

Forbes List of Most Overpaid Actors

Is everything an investment?

Forbes recently released the results of a study aimed at figuring out who are the most overpaid actors.  Read the story here.  In light of the America's terrible economy, this story caught my eye.  Everyone, even Hollywood is looking for ways to maximize profit.  They calculated this by a simple ratio:  The amount the actor was paid for his or her last three films, and the amount his or her films returned.  Drew Barrymore came in as the most overpaid actor, with her films returning only an average of 40 cents for every $1 Barrymore is paid.  She was the only actor on the list whose films return less money than she is paid.  Next up is Eddie Murphy.  For every $1 he is paid his films return an average of $2.70.  Here are the rest:

3.  Will Ferrell:  For every $1 Ferrell is paid, his films return an average $3.50.

4.  Reese Witherspoon:  For every $1 Witherspoon is paid, her films return an average $3.55.

5.  Denzel Washington:  For every $1 Washington is paid, his films return an average $4.25.

6.  Nicolas Cage:  For every $1 Cage is paid, his films return an average $4.40.

7.  Adam Sandler:  For every $1 Sandler is paid, his films return an average $5.20.

8.  Vince Vaughn:  For every $1 Vaughn is paid, his films return an average $5.20.

9.  Tom Cruise:  For every $1 Cruise is paid, his films return an average $6.35.

10.  Nicole Kidman: For every $1 Kidman is paid, her films return an average $6.70.

I suppose it's important to keep in mind that for mega-stars who are paid huge amounts of money for each movie, it will obviously be relatively easy to make this list. As Forbes states, "Their films have to earn several times their production budgets in order for the star to offer a good return on investment".  For some of these actors, using only their last three films might be too small a sample size.  Notwithstanding this, the entertainment industry is very much a "what have you done for me lately" business...

For me, there aren't many surprises on this list. Perhaps Ferrell?  Had someone asked me to dream up this list on my own, Murphy and Sandler would have definitely come out of my mouth.  Not that they aren't talented, but with the amount of money that they're paid...  

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My question:  Do you think production studios look at studies like this get a better idea of how to maximize their returns on investment?