Category Archives: MBA

How has the US minimum wage changed, in comparison to the GDP?

Lately, there has been a lot of talk about changing the federal minimum wage in America. I wanted to take a quick look at how it has changed, over time. The minimum wage was instituted in 1938, so I looked at it from it’s inception to 2012. I wanted to compare it to the size of the economy, so I compared it to the US gross domestic product.


In order to best visualize the change, over time, I calculated the percent change in each value since 1938.  It looks like the two values increased by roughly the same amount until 1950 and then dramatically diverged.  I am not sure what value can be taken from this comparison, but it is interesting.

Raw data used for the analysis

What is the gold standard and what is fiat money?

History of Money

As early as 12,000 BC, Anatolian obsidian was distributed as a raw material for stone-age tools.  In the 9th millennium, organized trading appeared.  Items like this could be considered the earliest instances of money.  In 350 BC, Aristotle wrote:

When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use. For the various necessaries of life are not easily carried about, and hence men agreed to employ in their dealings with each other something which was intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like. Of this the value was at first measured simply by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value.

These early monies were in themselves useful, valuable things.  You do not need to trust that your copper coin or piece of obsidian had value because it was made of a valuable material.  You just needed to make sure that it was indeed made of that material.

If we fast forward to the birth of the United States, in 1690, the Massachusetts Bay Colony issued the first paper money in the colonies.  On April 2, 1792, the United State Congress passed The Coinage Act Of 1792.  This act created eagles (worth 10 dollars), dollars, dismes (now known as dimes), and cents.  The values of the coins were based upon the value of the materials they were made of.  An eagle, for instance, was to “contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold.”

On July 17, 1861, the congress passed an act permitting the Treasury Department to print and circulate paper money.  These “demand notes” were commonly referred to as “greenbacks”.  Greenbacks were replaced by United States notes in 1862.  Beginning in 1865, gold Certificates were issued by the Department of Treasury against gold coin and bullion deposits.  They circulated until 1933.  Under Congressional Acts of 1878 and 1886, the Treasury produced silver certificates until 1923, as an alternative to silver coins.

On December 23, 1913, Congress passed the Federal Reserve Act.  It created the Federal Reserve System and authorized it to issue Federal Reserve Bank notes.  These notes are what you carry in your pocket today.

Gold Standard

On March 14, 1900, President McKinley signed the Gold Standard Act.  The act valued the dollar at 25.8 grains of gold.  This was the Gold Standard.  The value of the dollar was pegged to the value of that amount of gold.  Unfortunately, it didn’t last long.  On January 30, 1934, the Gold Reserve Act nationalized gold and prohibited private gold ownership except under license.  It also empowered the president to devalue the gold dollar by up to 40%.  The price of gold was set to $35 per ounce and the federal government began selling confiscated gold on the international market.  US citizens would not be allowed to posses gold legally until 1974.

Even though US citizens could not exchange the dollar for gold, foreign governments still could until August 15, 1971.  On that day, Richard Nixon eliminated the dollar’s convertibility into gold.

Fiat Money

After Richard Nixon’s 1971 elimination of the dollar’s convertibility, it was no longer backed by any sort of government reserves.  Fiat money is a currency that has been declared to be legal tender but does not have any intrinsic value.  It only has value because people have faith that it has value.  All modern paper currencies are fiat money (as are most coins).  Instead of a currency’s value being pegged to the value of an asset, it is essentially pegged to the strength of the issuing nation’s economy.


I skipped over the Bretton Woods system for the sake of brevity.  If you want to dig further into the history of post-WWII monetary policy, I would recommend checking it out.  The gold standard still technically existed until 1971 but in my eyes, it died at the hands of FDR in 1934.

What is the historic CPI and PPI for the United States?

I found myself curious to see what recent trends in inflation are within the United States.  I used the consumer price index and producer price index as two indicators of inflation.  The consumer price index (CPI) is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance.  The producer price index (PPI) measures the average change over time in the selling prices received by domestic producers for their output.  The two sets of numbers should give a good representation of inflation in the US economy.

My data came from the US Bureau of Labor Statistics.  I might need to try to do a trend analysis on the data some time soon.  I would be curious to see what the result would be.

What are the 2011 corporate tax rates?

This is an interesting (and timely) question.  Corporations don’t pay just one tax rate.  It depends on the level of taxable income.  In order to find the answer, I looked at the instructions for Form 1120, on the IRS website.  Under schedule J, line 2, it lists the tax rate schedule.

Over But not over Tax is Of the amount over
$0 $50,000 15% $0
$50,000 $75,000 $7,500 + 25% $50,000
$75,000 $100,000 $13,750 + 34% $75,000
$100,000 $335,000 $22,250 + 39% $100,000
$335,000 $10,000,000 $113,900 + 34% $335,000
$10,000,000 $15,000,000 $3,400,000 + 35% $10,000,000
$15,000,000 $18,333,333 $5,150,000 + 38% $15,000,000
$18,333,333 35% $0

So, those are the federal income tax rates.  What about the state corporate income tax rate?  According to Tax Foundation, the rate in Wisconsin for 2011 is 7.9%.

There might need to be a second post sometime soon to look further into these numbers.

Limited liability companies and their formation

A limited liability company (LLC) is a form of business structure that is very popular.  A limited liability company allows the owners to have limited liability for the debts and actions of the company.  Additionally, the company itself does not pay taxes.  The tax liability is upon the owners.  Within the state of Wisconsin, you can register for a LLC online with a cost of $130.  The Articles of Organization are two page long and ask for a name of the company, the person who will act its “registered agent”, the person (or people) who is organizing the company, the name of the person completing filing, and the business contact.  My guess is that in many cases, these roles will be filled by the same person.

So, what are the tax implications?  According to the IRS, “The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return.”  This means that, more likely than not, you will be filing your tax return the same way you would for sole proprietorship.

What is a “doing business as” name and how do you register one?

A “doing business as” or DBA name is an alias for a company.  Within the state of Wisconsin, sole proprietors and general partners can do business under their own name but if you want to do business under another name, you must file a Registration of Firm Names with the county Register of Deeds.

Need an illustration of what I am talking about?  Let us say that I want to operate a business as a sole proprietorship.  Within the state of Wisconsin, “no legal formalities are required to bring this form of business structure into being, and there are no particular formalities necessary for operation” (source).  I am Joe Steinbring, doing business as myself.  I own everything, have liability for everything, and am treated that way by the law.  Let us say that I want to start calling my business “Steinbring Engineering”.  Within the state of Wisconsin, the government wants to know who is behind that.  The above mentioned submission is the way of telling the state that you want to do that.  You can browse the state’s Corporate Registration Information System, to see names that people have already been granted.

What is net working capital?

Put simply, net working capital is your current assets minus your current liabilities.  So, what are current assets and what are current liabilities?  Your current assets are anything that you would expect to be convertible into cash within one operating cycle.  This means that they are cash, inventory, securities, prepaid expenses (like insurance or rent), accounts receivable, etc.  Your current liabilities are your debts and obligations that are due within one operating cycle.  This could be short-term notes, part of long-term notes, income tax, accounts payable, etc.

This means that your net working capital is what money you have left after you pay your bills.

What is Dollar-Cost Averaging?

Dollar-Cost Averaging is an investment method that is meant to eliminate the risk of investing at the wrong time.  The idea is that you buy shares of stock on a regular schedule, regardless of what the price is.  You buy more shares when the price is low and fewer shares when the price is higher.  You might have bought some shares at $10 per share and $20 per share but the fact that most of the purchases were below $10 per share would push down the average cost per share.  This strategy means that you don’t need to worry about trying to time the market.

Would I recommend it?  Sure.  I would just be shy about how much I buy at the top of the graph.  While it is nearly impossible to figure out where the floor is, it is much easier to find the ceiling.

What is an odd lot?

An odd lot is a securities trade made for less than the normal trading unit.  If you are talking about stocks, an odd lot would generally be a trade of less than 100 shares.  The number differs for other types of securities, though.  In some cases, because of the size of the order, odd lot orders can have a higher commission.  These are also occasionally called a broken lot or an uneven lot.  If a trader is buying or selling an odd lot, it probably means that they have limited funds to invest.

What is a bond spread?

A bond spread is the difference between the yields of two bonds with different credit ratings.  The differing ratings are usually because of different levels of risk involved with the bonds.  Mathematically, you can calculate the spread by subtracting the interest rate of one bond from the interest rate of the other.  For example, if the current yield on a bond that Microsoft is offering is 6.1% and a federal bond has a current yield of 5.9%, the two bonds would have a .2% spread.

So, how can you use this information as an investor?  If you look at the spread over time, you should be able to find abnormalities in the spread.  These abnormalities could be buying or selling opportunities.