Thursday, September 30, 2010

Economic Liberty... too old fashioned?!



"A point that a lot of liberals tend to ignore... is that the people who need constitutional protection for economic liberty the most are the poor and members of minority groups. It's not rich white guys who are driving taxi cabs. Unfortunately just about all the Supreme Court Justices are hostile to the idea of economic liberty,with the possible exception of Clarence Thomas."

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On another note...

I was just talking to John and found myself smiling at the thought of going into restaurants with my kids sans the old fashioned cloud of smoke hanging in the air. (Michigan just instituted a smoking ban in bars and restaurants last spring)

Apparently I am a very wish-washy Libertarian, because I do not think it is good idea to burn tires or cigarettes inside. Even if there were no health implications, both smell like sh*t.

I find it strange that it ever became socially acceptable to smoke indoors. Could you imagine being allowed to bring small tire shavings, or even incense, into a restaurant and set it on fire? ...even if it was in a nice little bowl? I am sure the owner would come over and put a stop to it promptly!... but that would be the owner of the property, not the government, setting the standard.

Restaurant owners were coming around and becoming smoke-free voluntarily, but the law definitely sped things up. Both the free market trend of smoke-free restaurants and the no-smoking law were responses to the opinion of the public at large. It often takes a movement among the people to create free-market or government responses.


Republicans deregulate?! ...Really?!

Graph from kick butt Reason article

And we wonder why the Bush tax cuts did not result in more job creation?! It was counter-acted by a regulatory spree!!! Sure, you can keep your money... but you can't do anything with it! ...Would you like some chains with your tax cut? That on top of huge spending that will result in the necessity of huge tax burdens in the future.


Wednesday, September 29, 2010

It pays to be a lobbyist!!

(one of the strongest unintentional arguments for term limits)

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Article

The Market for ‘Pull’ on Capitol Hill

Economists can actually measure the value of insider connections:

[L]obbyists connected to US Senators suffer an average 24% drop in generated revenue when their previous employer leaves the Senate. The decrease in revenue is out of line with pre-existing trends, it is discontinuous around the period in which the connected Senator exits Congress and it persists in the long-term. … Measured in terms of median revenues per ex-staffer turned lobbyist, this estimate indicates that the exit of a Senator leads to approximately a $177,000 per year fall in revenues for each affiliated lobbyist.

The fall is steeper, the researchers find, when the departing member of Congress sat on a powerful committee such as Appropriations, Senate Finance, or (on the House side) Ways and Means. Lobbyists who are ex-staffers are also more likely to quit the lobbying business once “their” member departs office. Incidentally, actual per-lobbyist revenue is lower than you might assume from the above figures, because many lobbying contracts are shared out among several participants with each individual getting only a portion of the proceeds. (Jordi Blanes i Vidal, Mirko Draca, and Christian Fons-Rosen, “Revolving Door Lobbyists,” via Alex Tabarrok).

If you needed another reason to vote against that unsatisfactory incumbent this fall, reflect that by doing so you’ll also be dimming the stars of his or her unsatisfactory ex-staffers.

481 degrees in Escanaba?!

What's up with that?!... That's funny! I don't remember it being 481 degrees this fourth of July!!!

The web pages at the center of this latest climate storm were created by NOAA in partnership with Michigan State University.
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Articles

Official records have been confirmed as evidence that a handful of temperature records for the Great Lakes region have been hiked up by literally hundreds of degrees to substantially inflate the average temperature range for the northeastern United States.

The tax-payer funded National Oceanic and Atmospheric Administration (NOAA) has become mired in fresh global warming data scandal involving numbers for the Great Lakes region that substantially ramp up averages.

Massive New Global Warming Scandal NOAA
A beleaguered federal agency appears to be implicated in the most blatant and extreme case of climate data fraud yet seen. Official records have been confirmed as evidence that a handful of temperature records for the Great Lakes region have been hiked up by literally hundreds of degrees to substantially inflate the average temperature range for the northeastern United States.

Tuesday, September 28, 2010

Consumer Reports vs the FDA

If Consumer Reports (a free market watchdog for product safety and quality) had the track record of the FDA, they would have been out of business a long time ago!!!!

The FDA is not subject to the market forces of public opinion because it is a government instituted monopoly. If it were a private free-market venture, it's terrible reputation and track record on public safety would have destroyed it a long time ago.

Many cases of corruption have been documented, and their inspectors proven less than competent (recent egg recall). Special interests hired and put on the payroll, creating a conflict of interests that endanger the health of every American. Non-fermented Soy and Canola oil are only two examples of failures of the FDA, causing the safety of our food supply and pharmaceutical products to fall well behind that of other nations.

Also, the FDA is becoming known for restricting products from the market for reasons far removed from product safety, but rather special interest pandering or consistently
enforcing the government agenda of the day .

By contrast, Consumer Reports protects its reputation by strict adherence to truth in product testing and is largely immune from special interests and corruption because they rely on the purity of their reputation for their entire existence. If it had the reputation of the FDA, it would not exist.

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Articles

Consumer Reports Slams FDA
Consumer Reports today slammed the FDA's decision to allow the risky diabetes drug Avandia to remain on the market.

The agency "falls short of its counterpart across the ocean, the European Medicines Agency, which decided Avandia was too risky" to remain available, a Consumer Reports editor wrote in a blog post.


Breaking the FDA Monopoly

Many readers might consider my proposal to be quite radical, but it simply returns us to the FDA’s role prior to 1962: certifying that a drug is safe.

Best catch phrase ever!!!

"Tu Ne Cede Malis"
(Do not give in to evil)

I have been researching Austrian Economics lately, which I happened upon after wanting to know more about F.A.Hayek, author of Road to Serfdom and subject of EconStory's awesome rap battle video between Hayek and J.M. Keynes.. who is a discredited jerk.

Ludwig von Mises was Hayek's teacher and is the gentleman on the coin above with the kick-a** catch phrase "Do not give in to evil".

The most well-known Austrian Economist today is Ron Paul, a US Congressman from Texas.


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I follow the blog of Greg Mankiw, an Economics professor at Harvard, and wondered what he thought of Austrian Economics, being a respected scholar in the field. I emailed him yesterday with that simple question and he wrote me back within five minutes and directed me to his 2006 blog post on the topic.

In short, he read Road to Serfdom and liked it,and to his credit, assigned it to his students to read, but otherwise does not know anything about it. ("First, most economists at research universities focus their attention on recent work. Things written more than twenty or thirty years ago are usually assumed to be irrelevant, out-dated, or incorporated into more recent work... for the same reason that physicists don't read Newton in the original.")

I would really hope that both economists and physicists would read the original historical texts, if for no other reason than to know why the texts are so respected. Newton, for example wrote most of his works over 300 years ago and they are still largely relevant today! By contrast, the textbooks and studies of today's scholars will largely be irrelevant, admittedly, within 20-30 years. I would hope that professors and textbook authors would be educated in the timeless truths of original sources, in addition to the constantly shifting truths of today.

Now, Mankiw writes textbooks. I would like to think that if one considers themselves literate in their field to the extent that they feel compelled to write a textbook, they would have read and comprehended all the theories within their field and the works of historical and timeless authorities, to merit their ability and authority to speak of it. But, Mankiw admits that he is only knowledgeable of current economic works, and discards anything older than 30 years old. This causes his thinking to be mere echoes of others around him, rather than rooted in economic history, theory and timeless truths. When you only concentrate on the narrow window of the present, you ignore all of history and are doomed to repeat it. You become a mere pawn of those who do know history and use their knowledge to achieve their desired future results.

I argue that Mankiw's academic method places too much faith in the current experts of our time and assumes them to be far more literate in their field than reality merits. To be a true authority I would expect a good knowledge of all theories within the field and their historical results. I am extremely disappointed that he saw and acknowledged this weakness in 2006, and when asked again in 2010 he has not yet amended it.

That said, his blog is pretty interesting, well stated and over-all, fairly sensible... though it is reflecting current popular economic thought, rightly or wrongly, which I guess should be of no surprise.

$100,000,000,000,000

An amazing example of the dangers of inflation. You know how pennies aren't worth anything anymore?... Yeah, they used to be!!! In Zimbabwe they leave hundred dollar bills laying on the ground!

I do not think we are headed for a Zimbabwe-type situation, but is an interesting historical example none-the-less.

1,000 Trillion Dollars (Zimbabwe)

10 uncirculated 100Trillion dollar Zimbabwe notes. Show an authentic example of a failed Central Bank to your family and friends!

Monday, September 27, 2010

The Racist History of the Minimum Wage

Did you know that the minimum wage laws were originally instituted to protect the job of high wage whites and crowd out the market for "negro labor"? ...Yeah, it was new to me too.


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Articles

Ok, which is more "humane", "fair", and "just"? Hiring four people for $25.00 an hour to complete a job? Or hiring five people for $20.00 an hour? Hiring 10 people for $10.00 an hour? Or if you really want to help the little guy, why not hire 20 people at $5.00 an hour?

The rational response to that question is.... All of the above. It depends on the situation. But if you mandate that the starting wage must be $25.00 an hour???? Who is going to get hired first? The homeless guy, who would ordinarily be willing to work for $5.00 ? Or the already privileged white guy with the college degree?

If you need a lot of low-skilled work done, and you're in a high wage area? Tough luck. Send it to China.

The Davis-Bacon Act:
Let's Bring Jim Crow to an End

The Davis-Bacon Act, which requires that federal construction contractors pay their workers "prevailing wages," was passed by Congress in 1931 with the intent of favoring white workers who belonged to white-only unions over non-unionized black workers. The act continues to have discriminatory effects today by favoring disproportionately white, skilled and unionized construction workers over disproportionately black, unskilled and non-unionized construction workers. Because Davis-Bacon was passed with discriminatory intent and continues to have discriminatory effects, its enforcement violates the Constitution's guarantee of equal protection of the law.

Saturday, September 25, 2010

News Alert: We have finished the chicken coop !!!


Picture update!!! This is our coop!
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We have finally finished the chicken coop!!! After many trips to the store and using our few available weekends, the chickens are now in their new home. This is not our personal picture, but it's pretty spot on. (We followed this building plan) It is too dark to take a good pic right now, maybe tomorrow!

I really thought it would be done sooner and I would have completely fenced the yard by now, but both money and time are far scarcer than I care to acknowledge. I am often an unrealistic optimist when it comes to projects. I think I forget that my days are usually pretty full and my time accounted for sans projects. I am sure I will forget this lesson by next spring!

Friday, September 24, 2010

Greed is good: Money Never Sleeps



"Exploitation is not exclusively capitalist, but wealth creation is." -Joyce Appleby

Thursday, September 23, 2010

Inflation, Deflation and Hyperinflation....

Articles about this great economic debate from people who are actually smart...

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Rothbard's argument for Deflation
William Anderson


Rothbard nerd apparel available here

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© Jeff Harding, The Daily Capitalist.
www.dailycapitalist.com
June 24, 2010

Wednesday, September 22, 2010

Crucial Error... Correction

In the last post I said, "Stimulus was our attempt to try to dig ourselves out of this debt hole by transferring the debt from the private sector to the public sector" and that the interests rates were "set low, ironically to encourage lending, debt, leveraging".


Stimulus was not an attempt to "dig ourselves out of this debt" nor "transferring the debt from the private sector to the public sector". Stimulus is our government's best attempt to keep this unstable bubble of an economy from popping. They do not want public sector debt to decrease, it would counteract their actions. They want banks to lend... for us to borrow more!.. but that is how we got into the mess we are in today!! It is not "ironic" that the government is setting interest rates historically low... they want us to keep that bubble inflated!!

So, we used the analogy before that "we are living in the equivalent of a $450,000 house with $100,000 ability to pay"... this is true. Our American lifestyles are fueled by debt, and thus are an illusion. Our debt is unsustainable and our economy shaky at best. The bubble wants to pop. People have seen the instability of debt personally and are unloading debt like the plague. Responsibility, frugality and savings are seeing a resurgence, and healthily deflating the bubble, but through stimulus and increasing the money supply the feds trying to reinflate it.

The stimulus and the TARP bailouts were our best attempt to keep he bubble inflated, keep our economy inflated, keep our currency inflated. In the last post we evaluated why we hear so much about gold and it's benefits, hopefully the gold investors are wrong. The only way inflation happens is if we incur more debt/ create more money than we are paying down. That is not healthy and will lead to another crash. If we want to recover and have a stable economy, we must let the economy reset itself. Deleverage. Otherwise this crap is going to keep on happening.

The government hopes that the debt bubble will suddenly become stable and then inflate it more!! More false growth!

So, how did this happen?

We have all heard of the "community reinvestment act" and the ways the government encouraged the banks to make "sub-prime loans". That is part of the picture, and definitely the main trigger that started the recession, but it is only a small part of the whole. Many cite "deregulation" of the financial sector or untethering the dollar from the gold standard (which both coincided with the rise of the financial sector as we see it today... causing income inequalities and overleveraging. )

There are many reasons and policies that led to irresponsible financial practices, the primary one being arrogance and taking affluence for granted. As Americans we often take for granted that everything is going to be great, without knowing what made us and keeps us great in the first place. We have been living off of our former glory and cashing in its good credit for all the debt it could leverage...(thanks John Maynard Keynes... that guy is such a jerk!) well we have finally reached the end of our credit line. Our cards are all maxed out. It is time to build up that credit again, one step at a time.

I know that economies and economics can be intimidating, but it works just like your household economy does. When you overspend at home do you cure it with more spending? Do you transfer it to another card? .. or do you stop going to the mall and stick to the essentials for a while?


I think this calls for a music video... our current status is the "hang over" part.


(BTW.. I am a super nerd and happen to love this video and think it rocks! ) If you felt like watching the video and memorizing the words I wouldn't not recommend it. It's actually very educational.

We have a long way to go if we are going to create a more stable economy, but if you just want to keep that bubble afloat, I don' t know what to tell ya.. but so far it's not working so well.

This all has to do with "Inflation vs. Deflation" argument among economists...

In economics there is a huge debate between inflation and deflation, and why printing money currently is not causing more inflation. Well... leveraging, printing money out of thin air through the financial sector, has the same effects as printing money. Illusionary dollars created by debt act the same as real printed dollars by the fed. Our "bunkering down" during the recession by increased savings rates and paying down our private debt (deleveraging) is countering the inflationary forces of money printing (monetization).

If we were to stop printing money at the same time as deleveraging and increasing our savings rate, we would be reducing the amount of dollars in circulation by taking from society the illusion of dollars created by debt... this would result in deflation. Deflation strengthens the purchasing power of each dollar, which is good for you... but if it happens too quickly your wage would may be reduced so your boss could still afford to pay you, since his products would be sold at a reduced price. Now all that would even out if you did not have any debt. The worst part about deflation is that your debt burden (mortgage) would become heavier. You would be paying the same bills with less dollars.

Inflation vs. Deflation is a very controversial economic topic, and for the last 100 years the inflationary side has been winning, but inflationary economics creates the bubbles that we see today.

Deflation is not a fun process, but it may be the price that we must pay to recover from our lavish years of debt. When people tell you to get out of the stock market and pay down you debts, this is what they are not saying. They feel that deflation may be on its way. If we are to have a real and permanent economic recovery, your debt may prove to be a vulnerability. Those without debt will be much more likely to ride the wave.

If you want to hear the pro-deflationary argument, here is an informative audio book on the subject...

Why Gold? ... Econ 101

We hear a lot of talk about gold and gold investment... why? What's so great about gold?

Well, as we have evaluated in previous posts, our economy is over-leveraged, in other words... our wealth and our assets are an illusion. Between our private and our public debt we are living in the equivalent of a $450,000 house with $100,000 ability to pay. That is a debt bubble. Is a person rich because they live in a big house or does a man become any richer by moving into a bigger house? The answer is no. The best example of this is a commercial from a few years back...



As we have experienced recently, stimulus is having lack luster results and we are running out of options. Stimulus was our attempt to try to dig ourselves out of this debt hole by transferring the debt from the private sector to the public sector because we thought the government was big enough to handle the burden... but it is stretched to its limits.

People are not willing to lend us any more money, the feds cannot set the interests rates any lower (set low, ironically to encourage lending/ debt/ leveraging.. hello!!! Can any one say future problems?), our national credit rating is at risk, and we are being forced into
buying our own debt to continue this method.

Why does the government not go bankrupt like we do when we cannot pay for our own debt? They can print their own money they will never go bankrupt (but they can become weakened and collapse... like the Soviet Union).

How do we buy our own debt? ...We have to print new money to buy it.

What happens when we print money? ...The supply of dollars goes up and each individual dollar is worth less in relation to actual value and purchasing power.

So, we are in a recession because we could no longer handle our debt burden... we were over-leveraged. How do we get rid of our debt? We could let the irresponsible default on their debt and live frugally and pay down our own debt to get back on stable economic feet, or we could transfer our debt to the federal level and inflate our way out.

Inflate our way out?... What the hell is that? Well, if you print more dollars each dollar is worth less than it used to be, dollars of debt as well as dollars in hand. So, if you want to lessen the debt burden and do not like living frugally...print money!! (Which is what they began doing this summer)

But doesn't this effectively lower our actual wealth? Our salaries? Our housing values? ...Yes!!! Every dollar you earn will be worth less. Your wages and housing prices reflect their "bubble" values, so we will devalue them to their natural levels through inflation. (Do not expect wage levels to rise the next few years)

So, what does this have to do with gold? The value of gold, not paper gold but actual physical gold, is not tied to the value of dollars. It will hold a steady value no matter the value of currencies. So, the intention of gold investors today is to to buy gold with today's relatively 'valuable' dollars so they can retain their wealth and cash it in for many more of tomorrow's dollars at a later date. Their wealth and asset values will not be inflated away because gold holds it's value. The gold investors are betting on inflation, which historically is a pretty good bet.

You know how we hear stories about how cheap everything used to be? Candy was a penny, and a penny used to actually be worth something! Well, it takes the same amount of gold to buy candy whether it is 100 years ago or today. Well, maybe not candy, because we have gotten a lot more efficient at making candy... but you get my point, right? Gold 100 years ago has the same value today. A dollar 100 years ago, worth a lot less. I do not know if I explained it very well, but that is my crash course on gold.

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On this note, what we are actually doing is not only transferring the private debt to the federal level, but also creating new debt through new programs and spending unrelated to lessening the private debt burdens.

We would be much better to just let the bubble pop and and recover on solid footing. Let the irresponsible and debt-laden reap the harvest of their own irresponsibility, rather than spread it out among all of us and then we can grow from there.


One of the unintended consequences of bailouts and stimulus is the masking of irresponsibility. It leaves the irresponsible unpunished and in place to run us into the same ditch again in the future, in fact it incentivizes them to do so. They know they can just get bailed out again.


Just know that the value of every government dollar spent irresponsibly is going to take away from the value of your dollars, because we will have to print more cash to pay for the government debt, which devalues your earnings and your assets.

Rather than debt, real economic fuel is made of savings, investment, productivity and optimism. Optimism to strive to the best of our abilities and increase our productivity, all while saving, investing and spending responsibly.

Thomas Sowell on health care reform


In an interview Thomas Sowell was asked to name one 'piece of nonsense' that he did not cover in his book 'Economic Facts and Fallacies', his response... "The notion that what we cannot afford in terms of medical care as 300 million Americans paying directly, we can somehow afford sending the same money through the government and paying for a government bureaucracy on top of all other costs of medical care."

Tuesday, September 21, 2010

Creating Uncertainty... Great Depression Parallels


"Instead of creating this uncertainty, which all this intervention does... it created tremendous certainty... When you intervene, it' s not just the question of the merit of the particular intervention, it's that nobody knows when you're going to intervene again.... nobody knows what gonna happen next" -Thomas Sowell

People are freaked out right now and do not know what to do with their money, where to put it, where to invest. In 2009 the personal savings rate shot up due to people deleveraging (paying off debt) and stashing away cash for the rainy day that was upon them. With the "transformation of America" well under way and thousands of pages of "emergency" legislation, people do not know what to do, so they are bunkering down. Not necessarily what you want for short-term immediate recovery, but might be healthy for the long haul.
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Articles

Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s
In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production—never mind that it was just a lot of guns and ammunition—dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators.

When the controls began to come off and the war ended more quickly than anticipated in 1945, consumers and producers launched eagerly into carrying out plans based on rosy forecasts and, by so doing, made their expectations a reality. Of course, the ability to draw on the accumulations of financial assets built up by “forced saving” (notice the spike in the graph) during the war was important, especially in conjunction with the Federal Reserve's continued support of bond prices. But the liquidation of those assets alone could not have turned the trick—if such tricks were possible, a government could produce prosperity simply by cranking the money presses.


...certain events of the war years—the buildup of financial wealth and especially the transformation of expectations—justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.

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Where are the New Jobs?
John Stossel

The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts.

It's all related...

Below are graphs showing a strong correlation between financial deregulation, the increase of the credit market, lowered savings rates, income inequality and increasing wages.

Graph of Income Inequality


Graph of American Savings Rate

Graph of Financial Deregulation correlating with Wages in the US

debtgdp.png
Graph showing rates of Debt relative to GDP

These correlations make a strong argument for good regulation of the financial sector, if only our leaders had the sense to weed out the bad. We must regulate with our eyes open, because not only was there and is there a bubble of housing market and financial sector, but as seen above.. wages. There will be pain as we deleverage to a more stable normalcy, but we have been in a bubble for too long. I am usually not a huge fan of regulation, because usually they are very poorly conceived and sloppily executed... but the financial sector is unique in that, it creates money out of thin air!!!

My current thoughts... stop spending beyond your means, citizen and government!!! In the words of Rick Santelli... "Stop spending! Stop spending! Stop spending!"

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Articles

De-leveraging...It's All About the Debt

How bad is it going to be? Well, just keep your eye on that total debt versus GDP number. It usually runs around 150%, and at present it's at 350%. The fact is, most of the assets which secure that debt are themselves inflated by the bubble, to the extent that nobody knows what they're really worth. But if you imagine the debt bubble deflating to its historical value, then you're looking at a fall of more than 50% in asset values blown up in the bubble... And because the market for debt-based securities is global, the excesses of the U.S. credit market will afflict financial institutions worldwide.

At the root of every financial bubble is leverage: ...debt.


United States of Inequality

Article 8: The Stinking Rich and the Great Divergence

Who are the Stinking Rich? Their average annual income is about $7 million. Most of them likely work in finance, a sector of the U.S. economy that saw its share of corporate profits rise from less than 10 percent in 1979 to more than 40 percent in the aughts... An explanation of how finance came to take over the U.S. economy would require its own Slate series. But Saez, Hacker, and Pierson argue plausibly that the industry's deregulation (and the protection it received from a few well-placed Democrats like Sen. Chuck Schumer of New York) played a large role.


Two Very important articles in one PDF

This post began as an evaluation of the importance of uncertainty in the marketplace... to touch on this subject (which will probably be taken up in a future blog post) is the article, "Uncertainty bedevils the best system". That is the article that led me to this PDF.

...but the article above it better relates to today's topic and is a great evaluation of the issues. "Cutting back financial capitalism is America's big test". (A common qualm of mine, I hate the title... I think it is abuse of the word "capitalism"... but maybe not. This may have been an irresponsible practice of capitalism.)

Monday, September 20, 2010

Wiki-Education: Poverty and Consumption

"In 2008, the “poorest” one fifth of Americans households spent on average $12,955 per person for goods and services (other than taxes), the second quintile spent $14,168, the third $16,255, the fourth $19,695, while the “richest” fifth spent $26,644."

I often feel that I waste money on unnecessary luxuries and am always seeking to use our funds more efficiently and would like to give a larger portion away. I just read the book "Radical" and a book on Mother Teresa. (Both really great books!!! ) They both emphasize efficient use of money, and moderate living. (Why when I concentrate on doing something my behavior often is contradictory?... I went to TJ Maxx this weekend and got a pair of leather boots, and in Barnes and Noble I succumbed to their buy 2 get 1 classic books... they are so cool!! ) That said, after tax we do not even take in $12,955 per person per year, and I am a bit surprised about the above statistics.

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A measure of absolute poverty quantifies the number of people below an income level necessary to afford minimal standards of food, clothing, health care and shelter.

A measure of relative poverty defines poverty as being below some relative poverty threshold. For example, if everyone's real income in an economy increases, but the income distribution stays the same, then the rate of relative poverty will also stay the same. Measures of relative poverty are almost the same as measuring income inequality: If a society gets a more equal income distribution, relative poverty will fall. Relative poverty describes how income relates to the median income, and does not imply that the person is lacking anything.

"In developed economies, poverty is more likely to be relative than absolute, in that basic needs are met even for the poor. In less developed countries, poverty is also likely to be absolute. Lack of adequate nutrition, housing, and health care are primary concerns, especially lack of food. Adequate food, health, and basic education have all been consistently demonstrated to be important foundations for economic development."

Sunday, September 19, 2010

"United States of Inequality".. continued

That dude over at Slate keeps cranking these articles out, and I just keep reading them. He has 10 articles out in this series (United States of Inequality) so far, and frankly I hope it is complete, because each of these articles are monsters... but I can't stop reading them. They have an obvious political slant that is contrary to my own, which, for some self-torturing reason is why I can't stop reading.

In the 7th article, he hit upon what I wanted to know... "Income inequality did increase through the aughts (2000-10), but that was because incomes soared at the tippy top of the income-distribution scale. It didn't increase because less-skilled workers got squeezed—or rather, it didn't increase because less-skilled workers got squeezed any more than they did during the previous two decades. At the very bottom, incomes actually edged up slightly."

Shoot, if the poor are not getting poorer, it seems to me that it is more an academic curiosity than an actual problem. Of course, it is always worthwhile to strive for greater wealth for all, and seek to institute policies to encourage this.

I still want to know what happens to the incomes during the "Great Compression" and other times of greater income equality. If the times of income equality coincide with overall increased incomes, then I am all for it... but if those times only show less wealth for the upper tiers, then I think striving for them is a waste of time. We have been studying the time of inequality, but I think a look at the times of equality would be equally useful. Pushing the high end down for equality's sake is a poor and dishonest replacement for pushing the lower incomes up for equality's sake... which is a much more difficult task.

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The 9th article has a statement at the end that will be the fuel for a future blog post..."In a broad sense, then, we all created the Great Divergence, because in a democracy, the government is us."

I could not agree less with this statement. There are so many wrongs in this statement that are so common that it needs to be addressed. I have seen this statement circulated a lot lately the last couple of months....Firstly, we are not a freaking democracy!!! We are a representative republic. It is so important that we all understand the difference... and the government is not us, especially when they vote for crap that a large majority of the people disapprove of!! Did you send $800,000 to teach Africans how to wash their genitals? I know I didn't!! That was the government, not me. I did not vote for that. There is a difference!!

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Pol 242

Also, I found a syllabus online for a political science course that looks really interesting. I do not know how I happened upon it, but most of the the readings and videos are available online, so I am following this course from home, minus the exams. So far it is pretty fun and interesting. Just finished week one...

9/2: What is science? What is political science?
READING: Bearak, “Why People Still Starve,” New York Times Magazine.
READING: Haber, North, and Weingast. 2002. “The Poverty Trap.”

FILM: “The Mind’s Big Bang

I do not really know why the video is included in the curriculum and seems a bit unrelated, but is very good. It is very much like a NOVA episode, if you like crap like that... which we do. I found out last night that the syllabus is from Hope College, which is not all that far away. I thought that kinda funny! If it is particularly good, maybe I can drive over and meet the professor.Also, found a very interesting BBC documentary in the YouTube sidebar while watching "The Mind's Big Bang", it is called "Dangerous Knowledge". It is about four genius mathematicians that drove themselves insane. (Should be very uplifting) So far it's pretty sweet, I am learning about Georg Cantor and his search for Infinity.

Saturday, September 18, 2010

"Let My People Go!!"

We have left an important part of this sentence out... "Let my people go, that they may serve me" (Exodus 9:1).

We have conveniently left out the part demanding work from us!! We like the freedom part, the work.. well, let's leave that part out, that's not bumper-sticker friendly.

From several things I have come to understand lately, I think I have underestimated God's proclamation that, "I, the LORD your God, am a jealous God" (Exodus 20:5). The first four commandments He has given us concentrate on giving God His proper reverence in our lives.

This is a challenging idea. I do not quite know what properly serving God would look like. I know we are given a mission for this life... spreading the good news of Jesus and serving others around us... the poor, orphans, widows. I find myself falling far short, and find it far easier to spread human reasoning rather than the truth and love of Jesus... even really boring nerdy stuff. I acknowledge that is really lame of me and I am still working on how to do the word of God more help than harm.

Even this guy.. he is at least trying his best. I am not even doing that! Gotta give him credit, that takes guts!!!

"If you believe that there's a heaven and hell and people could be going to hell--or not getting eternal life or whatever--and you think that, well, it's not really worth telling them this because it would make it socially awkward...How much do you have to hate somebody not to proselytize? How much do you have to hate somebody to believe that everlasting life is possible and not tell them that?" -Penn Jillete, from Penn and Teller (atheist)

Friday, September 17, 2010

Economic Illiteracy

I found this website, Whatwilltheylearn.com, that rates colleges based on their academic requirements. They choose seven topics that they think are important for students to learn and grade colleges according to how many they require... Composition, Literature, Foreign Language, US History, Economics, Mathematics and Science.

Out of the 719 schools that they rated, only 25 required their students to learn economics!!!! To keep this in perspective, the next most neglected topics were U.S. History with 140 schools, and Literature with 159 schools.


Now, I am not saying that it isn't useful to be able to quote a Robert Frost poem once in a while or be able to pick out Shakespeare quotes from our favorite movies, but really?! Isn't economics slightly more useful in everyday life than literature?!


People often do not realize just how important economic literacy is. Perhaps if we had higher levels of economic literacy, this whole economic crash could have been avoided!!! Dare I say that having high levels of economic literacy is slightly more important for society than a good knowledge of Shakespeare... nothing against Shakespeare, but he has a very limited sphere of influence over the daily on-goings of our lives and the mechanics of our society.

John Maynard Keynes, the economist behind most of our politics for the last century, wrote, "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist."

Disclaimer... please do not take my quoting John Maynard Keynes as an endorsement of his economic theories, because in truth, I think he's an asshole.

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Here is an article I came across while researching for this blog post, from my good friend John Stossel. I have seen him on TV, like, ten times. We're real tight....

The most interesting college by far I found on WhatWillTheyLearn.com is Thomas Aquinas College in Santa Paula, California. They do not use textbooks, but rather "Great Books". They do not lecture, but rather discuss. I want to go there!!! They require all seven subjects and are one of the few schools that received an 'A' rating.

We are all Keynesians Now
A look at the membership of the 111th Congress shows that out of 435 representatives and 100 senators, not one of them is an economist. None… but you have plenty of lawyers (168 in the House and 57 in the Senate.) That should give you an idea of their expertise on economic issues.

Thursday, September 16, 2010

Bigger goverment = Less Morality?!

Here is an interesting perspective from Dennis Prager. Around the 1:40 min mark, he hits on an interesting idea... as the size of government increases, morality in society declines.

Policy makers often under-predict the elasticity of human behavior (sorry, econo-nerd terminology- behavioral elasticity: the tendency for people to change behavior in reaction to an incentive, whether it be intended or unintended). Government assumes that their assistance programs will be added on top of the existing levels of generosity in society, but usually fails to live up to expectations because of the elasticity of human behavior (and unexpected costs of bureaucracy)... hypothetical example, I no longer have to worry about feeding my neighbor because I can just sign him up for food stamps. (As programs increase, natural generosity goes down, resulting in less than predicted success of assistance programs.)



Anyways...Who is this Prager guy? He is all over the interweb today!
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Ok, I just checked out this guys YouTube channel and found another shortie that hits upon, what I think, is a whole lotta truth... Gratefulness is the key to happiness. This is accepted as being truthful, if not thought of and stated often enough, but what I had not heard before is the flip-side... Ungratefulness is the key to unhappiness... it is a bit overgeneralized, but interesting none-the-less.

Wednesday, September 15, 2010

Economic Inequality: Scandinavia vs. the United States


Here is and interesting snippet from "What can the United States learn from the Nordic Model", relating to my question about economic inequality. Since the United States is criticized for high levels of economic inequality, I was curious how our poverty stacks up against that of other nations? Here is an interesting insight:

"...defenders of the Nordic Model argue that the United States suffers from greater levels of income inequality... the poorest 10 percent of Americans have about the same level of income as the poorest 10% of Finns, Swedes, and Danes. Only in the oil-rich Norway is there a noticeable gap (data for Iceland not available). What differentiates America from the Nordic nations is the income of everyone else. The rich, the middle class, and the working class in the United States enjoy higher levels of income than their Nordic counterparts. "

This also raises a few questions relating to relative costs of living, taxes and social programs...
  • Is this adjusted for the lower costs of living in the US, giving people of equal incomes a higher standard of living in the United States?
  • Are the income levels adjusted to reflect tax burdens? Are these after/before tax incomes?.. as the article states, "Scandinavians are the poorest people in Western Europe once incomes are adjusted for taxes and the cost of living."
  • What about the welfare provisions of the Nordic nations? Would they give the poor of Scandinavia a higher standard of living than those in the US, or do they recieve relatively equal benefits as the poor here? (ex// medicaid, medicare, food stamps, bridge cards, wic, welfare checks, etc.)

...anyways, I thought that was interesting and helped to answer some of the questions I had, so I thought I would share. ~Dani

Tuesday, September 14, 2010

Our Economy has historically performed better under Democrat presidents...

In the recent series of articles I have been reading, The United States of Inequality, the author, Tim Noah, pointed out that greater wealth creation of all economic classes has been achieved under Democratic administrations than those of Republicans. It was a bit counter-intuitive to everything I expected, so it started a bit of an exploration on my part.

I wondered what policies affected wealth creation, what was going on between 1948 and 2005?


This has resulted in econ-nerd central in my kitchen and self-laminated charts pasted all over my counter tops. Red and blue, and line graphs galore, really.. you should be ashamed you even know me. Seriously.

I charted Senate, House and Presidential party control from 1945 to 2010. Did you know that the democrats had control of the house from 1949 all the way to 1994? ( So that was why 1994 was such a big deal!) Up until 1994, both house and senate were largely controlled by Democrats, except for a blip from 1947 to 1948 under Truman and the senate in 1953-54 and 1981-86.


I think I assumed that the party platforms have always been similar to those of todays ruling parties, but apparently things have changed a bit over time. I assumed that Dems have always been huge spenders, and Reps tax cutting free-market types they claim to be today, but this was and is not true! As I should have known, it's not about the party, its about the policy!!!

A few surprises I have found so far in this far-from-complete search for the truth:

  • Truman (D)- In the 1940s, a young Senator Harry Truman toured the nation looking for wasteful and fraudulent spending - powered by the tips and leads from patriotic citizens who wanted to do the right thing. Together, Senator Truman and the American public shined a spotlight on waste and brought an unprecedented level of accountability to federal spending.
  • JFK (D)- was a tax cutter!!! “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now… The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy (italics mine) which can bring a budget surplus.” Kennedy understood how an expanding economy benefits everyone, poor and rich, stating, “A rising tide lifts all boats.”
  • Ronald Reagan (R)- big spender!!! "Republican President Ronald Reagan grew federal government spending to the highest level it had reached since World War II. He also 'saved Social Security' by raising payroll taxes.
  • Nixon (R)- wage and price controls!! "In 1971, Republican President Richard Nixon instituted wage and price controls. That made a group of free-market supporters so angry that they decided to form the Libertarian Party"
  • George H.W. Bush (R)- raised taxes!! (I knew about that one!)
  • Bob Dole (R)- Subsidies!!! "Republican presidential candidate Bob Dole was a huge supporter of taxpayer subsidies for corn and ethanol."
  • Ron Paul is probably the only Republican congressman willing to point out the huge cost of America's foreign wars and empire building. Other Republicans pretend that spending trillions on the military just doesn't count as big government. "With Social Security, Medicare, and military spending making up the vast majority of federal spending, you can't cut significantly without cutting those. But Republicans refuse to touch them. (hat tip link- The Whited Sepulchre)

So, what policies have resulted in the most wealth creation? I am sure I will never know the full truth, due to rooms and rooms full of regulatory paper work passed over the years, on top of the thousands of pages of legislation, but to the best of my ability I am working toward a general understanding.

So far, the free market is the best contender for success, but with a high possibility of over-leveraging as people begin to take good-times for granted (resulting in the crashes of 1929 and 2008!!) So, how do we reign in over leveraging? Moves have recently been taken to raise the cash reserve requirements of banks (necessarily resulting in less credit-availability), which is a move in the right direction, and a return to 20% down payment requirements for mortgages. A few smart regulations like these can go a long way toward protecting our society from over-leveraging (.. but the thousands of pages of regulations packed into today's bills do more harm than good!!!) Lessez-faire combined with intelligent regulation. That is my verdict so far... more to come!

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Articles

In recent American history three presidents, Republicans Ronald Reagan and George W. Bush—and Democrat icon John Fitzgerald Kennedy—all lowered taxes in response to economic recessions. In all three cases, more money flowed into federal coffers than expected, and all three recessions ended.

The High-Income Rate Reductions
The neglected Stepchild of the Bush Tax Cuts

Due to past mistakes, the outlook for the high-income rate reductions is bleak. If any of the reductions are to be salvaged, it is necessary to begin making the economic-growth case and abandon the misdirected arguments previously offered.

NYT: Defying Others, Germany Finds Economic Success

Germany has sparred with its European partners over how to respond to the financial crisis, argued with the United States over the benefits of stimulus versus austerity, and defiantly pursued its own vision of how to keep its economy strong.
Statistics released Friday buttress Germany’s view that it had the formula right all along.

The Parent Model

During the first half of this year, German and American political leaders engaged in an epic debate. American leaders argued that the economic crisis was so bad, governments should borrow billions to stimulate growth. German leaders argued that a little short-term stimulus was sensible, but anything more was near-sighted. What was needed was not more debt, but measures to balance budgets and restore confidence.

Monday, September 13, 2010

The Nordic Model


The much admired economies and lifestyles of Scandinavia, as liberal economists and politicians often tell us, can teach much to the United States... but they often forget to mention the laissez-faire policies that drive the engine of their economies. For example....
  • Scandinavia has lower corporate tax rates than the US
  • Scandinavia has low-rate flat tax on capital income
  • some Scandinavian nations have privatized retirement systems
  • some Scandinavian nations have flat-rate income tax
The Nordic nations do not have the economic growth of the US, due to the large burden of their welfare states, but their citizens are provided with benefits that the citizens of the United States are not. Their public sector costs are over 48% GDP, as compared to under 37% in the US. For a mere 11% additional GDP they manage to provide health care and a bunch of other benefits to their citizens. To be fair to the US we must add the fact into the figures that if Scandinavia did not live under the military umbrella of the world's defender, the United States, their government costs would be much higher, so we do subsidize a portion of their economies. To learn more on this topic... the next paper I am reading is "What can the United States Learn from the Nordic Model?" Should be interesting.

Another interesting article:

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The last paper I read was "Thinking Clearly about Economic Inequality", and was very interesting. I am still researching the effects of political policy and cultural changes on economic inequality, which Scandinavia has less of, but there are some interesting questions about how much it matters. I am more interested in learning what policies create the most wealth for the most people, which is kinda the same.. but not necessarily. While seeking economic equality for all, it is much easier to become equally poor rather than equally rich. For instance, does economic inequality matter if the policies that create wealth for the rich also create wealth for the poor, but unequal portions of it? I am interested in finding policies that make us all better off.

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One more shortie, an interesting article from South Africa: Biblical Principles for Government. A look at why many of the world's governments, including our own, are structured the way they are, and the Biblical principles behind them.