Good News. Cold pizza for breakfast.

Waxman-Markey

2009-06-30T12:38:00.000-07:00

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 ...

Cap-and-Trade Debate

2009-06-30T12:00:00.000-07:00

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)

Freedom to Succeed and Fail

2008-09-30T11:37:00.000-07:00

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.

For the people, By the people

2008-09-26T11:48:00.000-07:00

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

An Ugly Old Icon

2008-09-23T05:34:00.000-07:00

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.

Exports and Unions

2008-09-11T07:27:00.000-07:00

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.

Gender Based Tax: She works hard

2008-05-13T08:52:00.000-07:00

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.

Half-a-Candidate

2008-05-01T09:49:00.000-07:00

The Wall Street Journal reported today that “support for the Republican Party is falling sharply, but John McCain remains competitive with both Democratic presidential candidates.” Upon completion of the democratic primary though, where all states held vibrant and publicized elections, unified Democratic support will be sharp. The race to the presidency has not even started, but still McCain only ties against an empty ballot slot.

If the democratic primary has taught us anything, real candidates win when the race is between a name on the ticket vs. blank.

The Wall Street Journal might just want to report that there is a three way tie. One third of America is for Obama, and the other two thirds are divided between Clinton and McCain. That is the same thing as remaining “competitive with both Democratic presidential candidates.”

Healthcare Costs

2008-04-30T07:30:00.000-07:00

If Democratic candidates nationalize health care it will cost Americans tax dollars. Just how much, despite many educated guesses by respected economists, is still somewhat of a financial mystery. However, there is plenty of information on how expensive care is now.

Recent numbers by the Bureau of Labor Statistics reveal that health care costs account for 5.2 percent of annual expenditures in the Boston metropolitan area, significantly less than the average 5.7 percent paid across the nation. It is one of the most costly expenditures paid by consumers following housing, transportation, food, and personal insurance expenditures. The 5.2 percent paid accounts for the cost of health insurance as well as out-of-pocket expenses such as, co-pays, drugs (prescription and nonprescription),and medical supplies like cough medicine and band-aids.

In dollar figures 5.2 percent of annual expenditures translates into $2,791.93 paid annually in the Boston area. Average annual expenditures are higher here than they are in less affluent areas so despite being a smaller portion of expenditures, the dollar value turns out to be fairly large. As data becomes available, the Boston metro area may become even more of an anomaly as 2007 insurance legislation is implemented. The actual cost of health care is currently understated. Average consumer unit expenditures are described in per capita terms meaning that if one citizen pays $3,000 annually for health care and another pays nothing, average expenditures are $1,500 per consumer unit. When costs are accounted for every Massachusetts citizen paying toward insurance, measurements of average health care costs will bump up. The expenditure share for health care will be much higher per consumer unit and actually more accurate.

But health care is expensive, that is not news. What is news is that it would be cheaper if health care costs were supervised and regulated by the government.

Nancy Turnbull of Harvard School of Public Health attributes exorbitant costs for health care to rapidly increasing administrative costs. In other words, bureaucracy. The administrations of hospitals, doctor’s offices, and insurance companies in the health care industry are inefficient, while the federal government has been able to manage these drivers. Turnbull asserts that if administrative costs could be contained consumers would see savings of $200 to $300 annually, as a conservative estimate. Meanwhile, the federal government is already handling administrative costs more efficiently than their corporate counterparts. Of every dollar spent on health care just 2 percent received goes toward administrative costs while the private health care sector needs five times that. If administrative costs were controlled the average American consumer would take advantage of the savings already employed under Medicare and Medicaid. Which is more money back in the pocket, and more money stimulating our economy.

Meanwhile, tax increases proposed by Democrats might be contained to reasonable amounts and health care benefit provisions could be shifted to the government. In such a scenario consumers would see even larger increase in expendable income and a decrease in average annual health care expenditures. In the Boston metro area the average consumer earns $76,273 and as we figured pays on average $2,791.93 a year for health care. That is roughly 3.7 percent of their taxable income. To pay for universal health care at the federal level, Democrats could raise taxes by just less than 3.7 percent and consumers would see savings. In addition, constituents would enjoy simple administrative cost deflation in the following year just because the government can keep track of paperwork cheaper.

The current proposals for health care reform do not address these issues of administrative inflation. Republicans have not found the middle ground on this issue and instead, in entirety, have ignored health care. Democrats have proposed policies that will increase the health care coverage levels by providing coverage to qualifying citizens, but unfortunately it is a middle of the road policy and does not serve the people who already have health insurance but find it expensive. The Dems proposal should reduce costs over time, although in a manner somewhat akin to building new homes in the flood plane of a rapid river. Soon newly covered insurance beneficiaries will be paying into an inefficient system too.

Costs are increasing for health care at exorbitant rates that far outpace inflation. In 2007 costs for medical care services increased 5.3 percent compared to a 2.6 percent increase in average consumer prices. The industry is also extremely profitable. In the United States the average consumer unit that enjoys a before tax income of $59,628, paid $2,703 a year for health care. With annual average employment in the U.S. at 133,833,834 more than $361billion a year is paid to health care just by private citizens, if every employee paid average costs. Plus, employers pay huge premiums to provide health care to employees which probably triples income. Efficiencies that are not employed in our current system should in fact be easy to sniff out in the profit ridden industry of health care, but not if we ignore them.

In the big picture, health care is currently too expensive but is necessary for everyone. Of course disabled and elderly citizens get care for free. This is America, and it is a responsibility. But tax paying citizens deserve affordable health care too and at a price private industry is not able to provide. Too many things depend upon a reliable system of health care to have it left up to market inefficiencies and shifts of corporate competition. America deserves better and right now government regulation provides a solution.

It is not such a drastic idea. Health care costs already have an effect upon consumers similar to taxes. Health care costs reduce expendable income, narrowing the ability of consumers to choose between available goods and services. They force consumers to pay into a system over which they have little control. (Even in an open market system consumers have the choice between a company provided health insurance and, well, that’s all.) Meanwhile, other sectors of the economy suffer as the health care system drains expendable income.

So, how much will health care cost this year? The public can decide or once again it can leave the decision to a corporate health care executive. While vacationing in Figi, he will definitely make a decision with your best interests at heart.

For more info: The New England Journal of Medicine, Sherry A. Glied, Ph.D. (http://content.nejm.org/cgi/content/full/358/15/1540)

Gluttony

2008-04-24T08:53:00.000-07:00

Lately our pilfered federal government is spending like they can have it all. They have cut taxes and spent billions of dollars over seas. No money is coming in but don’t let that stop you from spending like you won’t see tomorrow. The era of savings, conservation, and frugality is over. We don’t do that. We have credit cards.

What is wrong with debt anyway? Living in the seemingly unbounded era of the 21st century is sometimes exciting. Prior to the recent melt down most economists attributed the avoidance of recessions solely to the undaunteable consumer spending of the American public. Frugality is unattractive and a thing of the past. (Just don’t think the markets haven’t noticed.) Savings is ever a hard sell in a consumer based society.

ING might be able to change that perception. Apparently it is way cooler to save your money on-line than it is to buy a miniature designer bag. But it will prove to be an even harder sell if interest rates stick around three percent. The Federal Reserve seems hell bent on keeping money cheap. It has held inflation somewhere around 2.1 percent for the past decade. So the $100 dollars you save will be worth $97.90 next year and the year after that it will be worth $95.84. In truth, no one wants Americans to be smart with their money.

Consumption is the name of the game in the 21st century. Brought to you by, debt. Buy it now. Pay it back later. Broken now, fix it later. Eat anything you want and burn it off later. In the fine print it says that it will cost you. So honestly put on your reading glasses.

Look at our waistlines. Overweight Americans are not only a reality but a symptom of the gluttony. Overeating has effects similar to over spending. That is probably why they are both forms of consumption. And in excess, they both seem to have serious health effects. Debt burdens can increase levels of stress if they get out of control. Overwhelming debt strains relationships, limits daily freedom, and can lead to feelings of depression. Similarly, overeating is paid for it in a number of ways, a larger waist line, maybe diabetes, or a higher risk of heart disease. It is not altogether surprising that Americans suffer from gluttonous illnesses. Consumption was supposed to make us happy. But something just seems to have gone wrong.

And the largest debt we currently hold might be the debt we hold with the environment. Use it now, fix it later. Now that CO² has been released into the atmosphere the debt is sky high. The effects of gluttonous use of resources have been largely invisible save an academy award for the former vice president and disaster in Louisiana. The polar icecaps are tinsy now but that seems to be the polar bear’s problem. The enormity is almost too much to think about along with being fairly invisible. Even if we stopped emitting CO² gases into the atmosphere today, it would take 15,000 years to remove 90 percent of what’s already there. In some ways, the CO² loan amiturized over 15,000 years is an event larger than the national debt.

When did everything get so large that no one understands it? At 9 trillion dollars or so the national debt could be paid off if every American citizen alive today put in about 30 thousand dollars. Unfortunately most of us have our own debt to worry about. Meanwhile, it’s increasing, at an increasing rate. It’s about 75 percent of the U.S. Gross Domestic Product. So if it really had to be paid back we could just take 75 percent of everything produced in the U.S. in one year and pay it to the National Treasury. That would shut down the American machine, if the home mortgage crises does not get to do it first.

The truth is there just has to be some better form of consumerism. It is not likely that Americans will start to starve themselves today by saving every penny. But perhaps we can create ourselves anew. A motto that includes innovation and progression, the declaration of a new model is truly American. Something that American’s have misplaced in the 21st century is revolutionary change. Fast food, credit card debt, and the missing environment have sneakily stolen away what makes us great. If I ride my bike I declare my independence from transnational billion dollar gasoline tycoons. If I listen to the radio and save myself a cable bill and the distraction of commercials, I save my liberty. If I compost some coffee grounds and grow earth from waste, some tasty food or happy flowers, that is a bit of property. We could purchase solar panels; invest in technology, renewable sources of electricity, and a future that we’re not afraid to see.

Americans are the best situated people in the world to invoke a change. Lord knows we need it. It’s just up to what we buy into.