Our best thinkers are thinking us into a pit of despair. (Please see Cap and Trade debate for additional The Princess Bride references.) So I must make a simple point. If you don't understand the argument of an economist it is because the argument is nonsensical. Remember that. It will spare you feelings of inadequacy, disorientation, and remorse.
David Baumann of the American Institute for Economic Research is a prime example. In his recent commentary available at www.aier.org/research/commentaries/1608-cap-and-trade-will-cost-consumers he estimates the costs of cap and trade. Let me translate his comments. If companies are charged for producing CO2, the cost of producing CO2 will be more. (That's why we pay him the big bucks.) Towards the end of the commentary, he also throws in a quick jab about renewable sources of energy being free so if they are that, there shouldn't be a need for legislation like cap and trade, conveniently forgetting the definition of a public good (www.econlib.org/library/ENC/PublicGoods.html).
Why did he write this? Because conservatives are clamoring since the House effectively passed a bill in support of cap and trade (www.nytimes.com/2009/06/27/us/politics/27climate.html). Apparently, "if you don't make your voice heard, you will be paying higher energy bills in the near future" (http://thevirtuousrepublic.com/?p=3835). And if you don't, you will anyway because oil just hit $73 a barrel (again). "(T)he main reason that Congress might choose (cap and trade) ... over a carbon tax is ... it does not impose costs on consumers", argue the best and brightest (http://gregmankiw.blogspot.com/2007/04/case-against-cap-and-trade.html). But it does and we are aware. So economist present us with a false choice, to choose higher energy prices now or higher energy prices without the incentive to decrease emissions. For those without fore thought, the choice is ceteris paribus.
Fortunately, the current administration has fore thought. Because the cap and trade system has something that economists supposedly love, trade, there are winners and losers in such a market. Poor americans who consume much less energy because their house is under thousands and thousands of square feet, and they only have one of them, and they don't fly to Buenos Aries but instead go for hikes in the Appalachian Mountains on weekends will be paid for their conservation. Businesses that produce reusable energy or consume less than average amounts will get paid for doing so and will grow. (Yay, business growth!) Who woulda thunk? So be sure to call your representative in support of cap and trade if you like money ...
Tuesday, June 30, 2009
Cap-and-Trade Debate
Environmentalist: All right: where is the poison? The battle of wits has begun. It ends when you decide and we both drink, and find out who is right and who is dead.
Economist: But it's so simple. All I have to do is divine from what I know of you: are you the sort of man who would put the poison into his own goblet or his enemy's? Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.
Environmentalist: Truly, you have a dazzling intellect! You've made your decision, then?
Economist: Not remotely! Because Iocaine comes from Australia, as everyone knows, and Australia is entirely peopled by criminals, and criminals are used to having people not trust them as you are not trusted by me, so I can clearly not choose the wine in front of you.
Environmentalist: You're just stalling now.
Economist: You'd like to think that wouldn't you! You've bested my giant which means you are exceptionally strong and you might be relying on your strength to save you, in which case you put the poison into your own goblet. But you've also bested my Spaniard, which means you have studied and in studying you learned that man is mortal in which case you put the poison as far from yourself as possible ... But, ah my! What in the world can that be?
Environmentalist: What, where?
Economist: Oh, ha ha. I could have sworn I saw something. No mater, ha ha ha. Let's drink! Me from my glass, you from yours.
(They drink.)
Environmentalist: You guess wrong. What's so funny?
Economist: You only think I guessed wrong! Ha ha ha. I switched glasses while your back was turned! You've fallen victim to one of the classic blunders!!! The first is never to get involved in a land war in Asia! The second, and only slightly less well known, is never go in against a Sicilian when death is on the line!!! Ha ha ha Ha ha, Aaackk!
(He dies from the poison in his cup. Both cups were poisoned)
Economist: But it's so simple. All I have to do is divine from what I know of you: are you the sort of man who would put the poison into his own goblet or his enemy's? Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.
Environmentalist: Truly, you have a dazzling intellect! You've made your decision, then?
Economist: Not remotely! Because Iocaine comes from Australia, as everyone knows, and Australia is entirely peopled by criminals, and criminals are used to having people not trust them as you are not trusted by me, so I can clearly not choose the wine in front of you.
Environmentalist: You're just stalling now.
Economist: You'd like to think that wouldn't you! You've bested my giant which means you are exceptionally strong and you might be relying on your strength to save you, in which case you put the poison into your own goblet. But you've also bested my Spaniard, which means you have studied and in studying you learned that man is mortal in which case you put the poison as far from yourself as possible ... But, ah my! What in the world can that be?
Environmentalist: What, where?
Economist: Oh, ha ha. I could have sworn I saw something. No mater, ha ha ha. Let's drink! Me from my glass, you from yours.
(They drink.)
Environmentalist: You guess wrong. What's so funny?
Economist: You only think I guessed wrong! Ha ha ha. I switched glasses while your back was turned! You've fallen victim to one of the classic blunders!!! The first is never to get involved in a land war in Asia! The second, and only slightly less well known, is never go in against a Sicilian when death is on the line!!! Ha ha ha Ha ha, Aaackk!
(He dies from the poison in his cup. Both cups were poisoned)
Tuesday, September 30, 2008
Freedom to Succeed and Fail
So the bail out plan didn't get passed. You know what? It's a good thing, and I support the legislation. So what if a few more banks fail before a rescue plan is secured. Obviously, American people aren't losing jobs yet (in large numbers) or out of house and home, or they would think something should be done. The majority of Americans are working hard and don't want to save financial markets used by rich people.
When the effects of the crisis hit home, they will. And, at that point will it be too late? No. A $700 billion bail out will affect the financial markets a year from now in the same way, greasen'em. It's just going to be more Wall Street turmoil, and a longer recession until then.
Over the past 10 years Americans haven't seen the benefits of economic growth (the economy has grown but wages have remained flat), so economic growth isn't important to them. Economist's are saying how bad it is, but if people call their representatives (and it's great when people call their representatives) to tell them they don't need it, maybe it's not as bad as the omniscients think. Economists like you to think that they are all knowing and all powerful, but they're not.
Yesterday the stock market dropped more in a single day than it had in recorded history, and today companies in the Boston region are still announcing growth. The Boston Globe reported "Despite turmoil in financial markets, venture capital hasn't completely dried up for the region's promising technology and biotechnology companies. Link Medicine Corp., a Cambridge biotech company, plans to say today that it raised $40 million in additional venture funding to help launch clinical trials for its lead drug". Economically speaking, this is a source of job growth and the source of economic growth in the long run, innovation.
So a few more bankers lose their shirts. That's what the American people want, and the government should realize that the constituents have a collective intelligence. On occasion it is far superior to their own. The U.S. government might be in a much better state of affairs if it listened to the will of the people more often.
When the effects of the crisis hit home, they will. And, at that point will it be too late? No. A $700 billion bail out will affect the financial markets a year from now in the same way, greasen'em. It's just going to be more Wall Street turmoil, and a longer recession until then.
Over the past 10 years Americans haven't seen the benefits of economic growth (the economy has grown but wages have remained flat), so economic growth isn't important to them. Economist's are saying how bad it is, but if people call their representatives (and it's great when people call their representatives) to tell them they don't need it, maybe it's not as bad as the omniscients think. Economists like you to think that they are all knowing and all powerful, but they're not.
Yesterday the stock market dropped more in a single day than it had in recorded history, and today companies in the Boston region are still announcing growth. The Boston Globe reported "Despite turmoil in financial markets, venture capital hasn't completely dried up for the region's promising technology and biotechnology companies. Link Medicine Corp., a Cambridge biotech company, plans to say today that it raised $40 million in additional venture funding to help launch clinical trials for its lead drug". Economically speaking, this is a source of job growth and the source of economic growth in the long run, innovation.
So a few more bankers lose their shirts. That's what the American people want, and the government should realize that the constituents have a collective intelligence. On occasion it is far superior to their own. The U.S. government might be in a much better state of affairs if it listened to the will of the people more often.
Friday, September 26, 2008
For the people, By the people
Friends, Family, (Fellow Countrymen),
This fall we are going to move further into economic practice and theory. We might start with the federal $700 billion bail out.
So, what are the tax payers buying? Their own mortgages and repackaged securities holding these mortgages. Why? Because investment firms don't have enough cash. They were expecting monthly paychecks from these mortgages in the form of interest and instead ended up owning foreclosed houses no body wants to buy. The risk taking investors don't have any free cash to lend to people who want to buy those houses. Which means that the financial markets can't sell them to raise cash ... to lend. You get the picture.
Until the big bad federal government steps in and buys these mortgages and mortgage backed securities for a lot less than they're worth (supposedly) and dumps $700 billion into the financial markets, things will be bad. The bankers will go wild though because they have cash and can make loans which lead to interest payments on good loans that are being repaid ... to enable more (hopefully, good) loans. That's the monthly paycheck, and investors can go back to their New York apartments, drinking, sniffing, and smoking parties, with expensive call girls (and all will be right in the world).
In the long run (economists love saying that), there is more money circulating in the economy. The treasury can put $700 billion into the financial industry by just printing more. (The government doesn't have $700 billion laying around. They owe $9 trillion, remember?) Though printing more money is unfortunately the source of inflation. So the average american is going to pay $20,000 for a car rather than $15,000 because the dollar isn't worth as much, in the future, and middle income americans just won't be able to buy the same stuff with their $50,000 a year salary.
That's the long and short of it. Good plan, bad plan. You decide. This is of course a nation 'by the people', so we all should have a say.
Love,
C
This fall we are going to move further into economic practice and theory. We might start with the federal $700 billion bail out.
So, what are the tax payers buying? Their own mortgages and repackaged securities holding these mortgages. Why? Because investment firms don't have enough cash. They were expecting monthly paychecks from these mortgages in the form of interest and instead ended up owning foreclosed houses no body wants to buy. The risk taking investors don't have any free cash to lend to people who want to buy those houses. Which means that the financial markets can't sell them to raise cash ... to lend. You get the picture.
Until the big bad federal government steps in and buys these mortgages and mortgage backed securities for a lot less than they're worth (supposedly) and dumps $700 billion into the financial markets, things will be bad. The bankers will go wild though because they have cash and can make loans which lead to interest payments on good loans that are being repaid ... to enable more (hopefully, good) loans. That's the monthly paycheck, and investors can go back to their New York apartments, drinking, sniffing, and smoking parties, with expensive call girls (and all will be right in the world).
In the long run (economists love saying that), there is more money circulating in the economy. The treasury can put $700 billion into the financial industry by just printing more. (The government doesn't have $700 billion laying around. They owe $9 trillion, remember?) Though printing more money is unfortunately the source of inflation. So the average american is going to pay $20,000 for a car rather than $15,000 because the dollar isn't worth as much, in the future, and middle income americans just won't be able to buy the same stuff with their $50,000 a year salary.
That's the long and short of it. Good plan, bad plan. You decide. This is of course a nation 'by the people', so we all should have a say.
Love,
C
Tuesday, September 23, 2008
An Ugly Old Icon
Last night Michael Flaherty of Boston City Council held a public hearing where, for the first time, the Boston Redevelopment Authority (BRA) was forced to hear public opinion. The deaf ears of Director John Palmieri and Director of planning Kairos Shen, on some level, finally heard the public. They realized the needs of the people should have been taken into consideration before planning the move of City Hall.
The BRA was tasked with studying the benefits and costs of moving Boston City Hall from it's current location to the South Boston waterfront in December 2006. Although Director Palmieri admits that he does not know how much has been spent studying the move, $800,000 has been set aside this year to study it further.
Overwhelmingly the public showed up last night, during early evening work hours and into the night, to speak against it. The BRA directors, arguing they were only in the preliminary phases of planning the move, might have realized it shouldn't be moved.
Though, Mayor Menino is the one truly responsible for the communication breakdown. Years ago the mayor unilaterally commissioned a study on moving City Hall. The tasking was executively decided without public consent or warning. Instead, the eight priorities Menino promised for his fourth term administration included: closing the achievement gap, reducing violent crime, increasing workforce housing, ensuring excellent customer service, creating new jobs, narrowing health disparities, increasing diversity in government, and growing revenue. It did not included the relocation of City Hall, while the BRA undertook the project as directed.
Councilman Flaherty was concerned during the hearing that the lack of public involvement during the BRA's initial study enabled the unwarranted and wasteful use of resources. The BRA never surveyed the constituency regarding their needs from City Hall including the importance of it's location. Then Director Shen admitted that no consideration was made in relocating City Hall to area's other than the South Boston Waterfront.
These planning errors were illuminated during the hearing, thanks to members of the Boston City Council. The authority was advised that public involvement needs to be required in the planning processes, and was reminded that ownership of the City Hall building is held by the public.
The people who showed up to this hearing took time out of their busy schedules to participate in the democratic process and deserve thanks too. This time it made a difference.
The BRA was tasked with studying the benefits and costs of moving Boston City Hall from it's current location to the South Boston waterfront in December 2006. Although Director Palmieri admits that he does not know how much has been spent studying the move, $800,000 has been set aside this year to study it further.
Overwhelmingly the public showed up last night, during early evening work hours and into the night, to speak against it. The BRA directors, arguing they were only in the preliminary phases of planning the move, might have realized it shouldn't be moved.
Though, Mayor Menino is the one truly responsible for the communication breakdown. Years ago the mayor unilaterally commissioned a study on moving City Hall. The tasking was executively decided without public consent or warning. Instead, the eight priorities Menino promised for his fourth term administration included: closing the achievement gap, reducing violent crime, increasing workforce housing, ensuring excellent customer service, creating new jobs, narrowing health disparities, increasing diversity in government, and growing revenue. It did not included the relocation of City Hall, while the BRA undertook the project as directed.
Councilman Flaherty was concerned during the hearing that the lack of public involvement during the BRA's initial study enabled the unwarranted and wasteful use of resources. The BRA never surveyed the constituency regarding their needs from City Hall including the importance of it's location. Then Director Shen admitted that no consideration was made in relocating City Hall to area's other than the South Boston Waterfront.
These planning errors were illuminated during the hearing, thanks to members of the Boston City Council. The authority was advised that public involvement needs to be required in the planning processes, and was reminded that ownership of the City Hall building is held by the public.
The people who showed up to this hearing took time out of their busy schedules to participate in the democratic process and deserve thanks too. This time it made a difference.
Thursday, September 11, 2008
Exports and Unions
The United Steel Workers union rejected a three year contract with Boeing and on Saturday, September 20th shut down lucrative assembly plants. Boeing reported a $4.1 billion profit last year and the people who worked to create that profit want a piece of it.
Opposition of union authority cite the drag that higher wages, pensions, and health care benefits force upon corporate competitiveness. Peter Morici, an international business professor at Robert H. Smith School of Business at the University of Maryland, says "This is a good example of why manufacturing is leaving the country". But is this true?
Boeing makes 30 percent of their plane's parts but buys the remaining 70 percent from outside suppliers around the globe, from Japan to the U.S. According to the company it was closer to 50-50 earlier this decade.
Between March 2001 and December 2007, average import airfreight prices increased just 1.7 percent; less than the cost of inflation. In certain years the cost of airfreight imports even decreased 5.1 percent. This made it extremely cheap for Boeing to import outsourced parts for their planes. Never minding the breach of quality impacts outsourcing allows, if union workers took no raises over the six year span, Boeing could still have outsourced work since supply chain costs were rock bottom.
In that time, 20,000 aircraft workers could have been added to the growing list of America's working poor. They would bog down the emergency health care system, apply for assistance, and stop spending, all while the private company recorded billions in profits. Economists should be careful when assigning "why" to causations of outsourcing. Implying workers should give up necessary benefits for the idea of saving a job is not so simple.
Today, the Bureau of Labor Statistics reported import air freight prices rose 21.5 percent over the past 12 months driven by petroleum prices. Boeing is now going to have to pay more for the parts imported from Japan, or pay workers here to make them. Note to the union: the ball is in your court.
September 27-28, 2008 (The Wall Street Journal) - Many of the defense industry's most important programs will start the new fiscal year next week with higher budgets, thanks to a quickly hashed-out bundle of bills expected to be sent to President George W. Bush for approval just before lawmakers return home to campaign ... Future Combat Systems, the Army's long term program to overhaul its fighting forces, received $26 million above the administration's $3.6 billion request, giving lead contractor Boeing Co. a boost.
Opposition of union authority cite the drag that higher wages, pensions, and health care benefits force upon corporate competitiveness. Peter Morici, an international business professor at Robert H. Smith School of Business at the University of Maryland, says "This is a good example of why manufacturing is leaving the country". But is this true?
Boeing makes 30 percent of their plane's parts but buys the remaining 70 percent from outside suppliers around the globe, from Japan to the U.S. According to the company it was closer to 50-50 earlier this decade.
Between March 2001 and December 2007, average import airfreight prices increased just 1.7 percent; less than the cost of inflation. In certain years the cost of airfreight imports even decreased 5.1 percent. This made it extremely cheap for Boeing to import outsourced parts for their planes. Never minding the breach of quality impacts outsourcing allows, if union workers took no raises over the six year span, Boeing could still have outsourced work since supply chain costs were rock bottom.
In that time, 20,000 aircraft workers could have been added to the growing list of America's working poor. They would bog down the emergency health care system, apply for assistance, and stop spending, all while the private company recorded billions in profits. Economists should be careful when assigning "why" to causations of outsourcing. Implying workers should give up necessary benefits for the idea of saving a job is not so simple.
Today, the Bureau of Labor Statistics reported import air freight prices rose 21.5 percent over the past 12 months driven by petroleum prices. Boeing is now going to have to pay more for the parts imported from Japan, or pay workers here to make them. Note to the union: the ball is in your court.
September 27-28, 2008 (The Wall Street Journal) - Many of the defense industry's most important programs will start the new fiscal year next week with higher budgets, thanks to a quickly hashed-out bundle of bills expected to be sent to President George W. Bush for approval just before lawmakers return home to campaign ... Future Combat Systems, the Army's long term program to overhaul its fighting forces, received $26 million above the administration's $3.6 billion request, giving lead contractor Boeing Co. a boost.
Tuesday, May 13, 2008
Gender Based Tax: She works hard
Recently Alberto Alesina and Loukas Karabarbounis of Harvard University presented their paper “Gender Based Taxation and the Division of Family Chores” to an audience of 17 men and 8 women, one of whom left early. The paper models the increase in home chores related to an increase in disutility at work, something women have never needed an economic model to explain. Still, the academic undertaking of spousal bargaining over the “allocation of home duties” is a step in the right direction.
The paper focuses on the idea of “labor supply elasticity” which is just a fancy way of saying, do women and men work more if they get paid more? The application of the Ramsey “inverse elasticity” rule in a model of labor supply implies that males should be taxed at a higher rate than females because they have a less elastic labor supply function. This means that when men make more money they spend more time working, but women don’t. To counteract this imbalance women should be taxed less then men, thereby increasing their real income per hour worked. It’s an incentive to draw women into the workforce and it holds weight.
Unfortunately political support for Gender Based Taxation (GBT) is not on the table, let alone tabled. Conservatives would undoubtedly argue that public policy should not stick its nose into the organization of a family. A hypocritical argument, but it enjoys support in the current political atmosphere. Legislation on heterosexual marriage by the federal government is a greater priority, and republicans would possibly vote in tax cuts for wealthy women holding dividends and capital gains income, but working women would never receive a break.
Women’s rights are simply no longer a popular topic. Women in the workforce have been overpowered by desperate housewives.
Still, some change is necessary. In 2006 women workers made 81 percent of what their male counterparts received. (Source: Bureau of Labor Statistics) The system is measurably off balance. Currently it favors male workers but if the right economic adjustments are made, everyone can profit.
The paper focuses on the idea of “labor supply elasticity” which is just a fancy way of saying, do women and men work more if they get paid more? The application of the Ramsey “inverse elasticity” rule in a model of labor supply implies that males should be taxed at a higher rate than females because they have a less elastic labor supply function. This means that when men make more money they spend more time working, but women don’t. To counteract this imbalance women should be taxed less then men, thereby increasing their real income per hour worked. It’s an incentive to draw women into the workforce and it holds weight.
Unfortunately political support for Gender Based Taxation (GBT) is not on the table, let alone tabled. Conservatives would undoubtedly argue that public policy should not stick its nose into the organization of a family. A hypocritical argument, but it enjoys support in the current political atmosphere. Legislation on heterosexual marriage by the federal government is a greater priority, and republicans would possibly vote in tax cuts for wealthy women holding dividends and capital gains income, but working women would never receive a break.
Women’s rights are simply no longer a popular topic. Women in the workforce have been overpowered by desperate housewives.
Still, some change is necessary. In 2006 women workers made 81 percent of what their male counterparts received. (Source: Bureau of Labor Statistics) The system is measurably off balance. Currently it favors male workers but if the right economic adjustments are made, everyone can profit.
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