Marijuana taxes may lead to legalization

I know this doesn't have a lot to do with macro but I thought many of you may find it interesting based on the post about legalizing marijuana earlier this month. This post at http://vicesquad.blogspot.com/ discusses the fact that many US states officially tax marijuana and explains how this is the first step to legalization. The author points out that taxation of illegal activities has led to the legalization of prostitution in Nevada and to the repeal of prohibition laws in Mississippi (the last state to give up its statewide alcohol prohibition).


Why has the US been the richest country since 1880?

If you go to this blog site I think you'll find a very interesting article about why the US is so far ahead of other countries in terms of GDP, employment, wealth and productivity.  Many people that commented on this site have different opinions on why we're the richest, but the article I saw and liked said that we're richer for mainly three reasons.
"1.  Institutional structures: political, administrative, legal-and-regulatory, financial, corporate governance, and educational;
2.  Policy differences, especially in the degree of openness to foreign trade and investment, regulations that further or block market competition at home, vividly different levels of taxation and welfare transfers, and social expenditures in general;
3.  Cultural attitudes toward two related things: 1) toward risk-taking and entrepreneurship; and 2) toward radical economic and social change that, if adapted to quickly, allows the Schumpeterian forces of creative destruction to operate freely, for all the dislocations such change entails to the status quo. "

To me this seems like the most logical argument toward the reasons about why the US has been the richest country since 1880.  

Trade and Globalization

I read a really short post on another blog about a recent West Wing episode dealing with trade and globalization.  The author of the blog said the show was trying to make a point that "globalization was good in the long run, but in the short run it is going to hurt people.  Those people will be Americans losing their jobs to cheaper labor in different countries."  One of my co-workers tried to explain to me once that it is actually good for people in America when lower paying, production jobs are moved to differenct countries because this creates opportunities for those people to get higher paying, white-collar jobs here.  And it allows more people in the U.S. to be creative, pursue education, and come up with technological advances.  I guess these would be the long-run benefits to our economy in addition to the long-run benefits to the global economy of globalization.

Alternative Minimum Tax

When the Alternative Minimum Tax (AMT) was implemented in 1969, it was created so that the wealthy people in the United States couldn’t write off their deductions and pay nothing in taxes.  This solution worked in the late sixties through the mid to late seventies, but it doesn’t work today.  The reason why is because it wasn’t adjusted according to inflation.  People are making more money today than they did in the seventies but a lot of it has to do with inflation.  The dollar just isn’t worth as much.  The lack of inflation adjustment and the growth of the economy has resulted in many more people paying the Alternative Minimum Tax that are not considered to be wealthy.  In 2001, about 2,100,000 people had to pay the Alternative Minimum Tax.  By 2010, about 16% or 40 million people will have to pay the tax.  The tax rate increases to 28% for higher incomes. (For married taxpayers that file a separate return, the cutoff amount of income between the tax rates is $87,500.)  If this tax (which I think is important) is not altered so that it adjusts to inflation, we will see considerable increases in our taxes which will slow down our economy.  (If each of the 40million people made $87,500, they would end up paying $980 billion by themselves!)

College Students - Credit Card Debt

“From credit cards to predatory lending to pay-day loans, Manning takes a thoughtful and comprehensive look at life on the financial edge; where credit comes at too high a price for those who can least afford it.”—U.S. Representative John J. LaFalce (D-NY), Ranking Member, Committee on Banking and Financial Services.  The unprecedented escalating credit card debt by college students, new entrepreneurs, the elderly, minorities, women, and the middle class as well as the working poor exposes one of the most severe social and economic crises of our time.  Everyone is turning to Allan Greenspan to see how we can fix the recent economy slow down, when in reality, the Bull Market has masked the economic fragility of overextended households.  This problem is only going to get worse.  Credit card companies are continuing to double and triple the dollars that they spend to advertise their “easy money.”  “Over the next five years, banks will pay the largest 250 universities nearly $1 billion annually for exclusive marketing rights on campus.”  “Between 1994 and 1998, the credit card industry’s advertising budget doubled from $425 million to $870 million.”  If we don’t get our credit card spending under control, we may end up spending the rest of our lives paying for a few stupid mistakes that we made in our youth.

Tuition increases are leaving students in a financial strain

Students are forced to get student loans and grants from the federal government and get personal loans and/or credit cards to cover living expenses and books.  According to Nellie Mae's 2002 national student loan survey, those who used credit cards to pay for part of their education reported a median credit card balance of $3,400, but the average undergraduate debt is $21,200 after all four years.  Students attending graduate school borrow, on average, an additional $31,700 beyond their undergraduate borrowing.  Law and medical student borrowers report an average accumulated debt from all years (undergraduate and graduate study) of $91,700.  Graduates with a median credit card balance of $1,600 at an interest rate of 15 percent -- not unheard-of for young people with a limited credit history -- would have to pay $78 every month for two years in order to retire the balance.  If the $78 monthly payments were instead invested in a money market account yielding 2 percent, a savings cushion of $1,900 would result after two years.


English - Official Language?

       I was interested awhile back when we talked briefly about the effect that language barriers can have on the economy.  I found this web site (http://www.us-english.org/inc/) whose purpose is to promote english as the official language of the United States.  I think that english should be the official language of the U.S., and that every U.S. citizen should be required to learn english. 

      Language barriers can be an extreme problem in the workplace.  My boss hired an employee over a month ago who could barely speak any english.  After a few weeks of struggling with language barriers, the man was laid off.  The result of the language barriers was decreased productivity in the workplace.  That's only one example.  Imagine what effect language barriers are having now on productivity all over the U.S.

      There are some interesting statistics on the website previously mentioned.  Of those statistics, I found it amazing how many millions of dollars is spent each year on translators, interpreters, and overall catering to the language needs of those who aren't willing to learn english.  On the other hand, it could have a positive effect on the economy by creating more jobs (translators, etc.).  Go to the website and check out the statistics and let me know what you think.


The Fed

After our discussion about the Fed in class today, I decided to see what they were up to lately. Turns out that they just reported to congress on July 20th. Their report states that the board feels that the economy is in a very positive position right now.

"Although some of the recent data have been on the soft side, the available information on the outlook for the U.S. economy is, on balance, positive. Households are enjoying a generally improving job market, rising real incomes, and greater wealth, all of which are providing them with the confidence and wherewithal to spend."

This statement, along with all the stats they've collected, helps to explain the decision to increase interest rates. Anyway, I thought the report was interesting and worthwhile to read.

The Fed also may have helped create a few new jobs with their report. I hear John Kerry is looking for someone to help with his economic platforms...


There is always work to be done

I just found this post and was impressed with its simple message: what we should be saying, is that we want more “opportunities for earning large and growing purchasing power.”  Like was pointed out, there are plenty of jobs to do, it is just a matter of what we are willing to do for a specific price. 


As I browsed the internet looking for something to blog about I kept coming across sites that claim that while new jobs are being created, they are low-paying jobs that really won’t help the economy.  However, several of my friends have graduated from college within the last year or so and been looking for jobs.  Contrary to these disturbing claims, the friends who graduated in 2003 had a very difficult time finding jobs, while my friends who recently graduated in 2004 found it to be noticeably easier. So my question is this…are my friends the exception to the rule or are there really more jobs out there?


The Economics of Obesity

Dr. T’s….. oh wait, I guess I should say Dr Tufte’s blog website (since the other Dr.T site is not Dr. Tufte) has a new blogger link called Common Knowledge I thought I would check it out. I found an article on The Economics of Obesityinteresting. I would like to add some information missing from Common Knowledge so that it will be common knowledge to the class. In April 2002 the IRS began allowing write off’s for obesity treatments. That’s right a tax break for being overweight.
This month the flood gates were finally fully opened when an article in the New York Times Medicare policy might spur obesity research stated
Health and Human Services Secretary Tommy Thompson announced Thursday that Medicare was abandoning a long-held policy that said obesity was not a disease, opening the way for the government to pay for a whole range of possible treatments, from surgery and diets to psychotherapy.
The article also states, “With weight-loss surgery costing $30,000 to $40,000 if there are no complications, the cost to Medicare of obesity treatments could be astronomical”, and concludes with Medicare is convening an advisory committee this fall “to help us think through these issues”.
Maybe the government should have thought through the issues first before making the announcement and what it will end up costing the normal weight people.
Where’s the tax breaks for being healthy?


An Increase in the Gas Tax!?

Some members of congress want to add an additional 5.45 cents a gallon to our already soaring gas prices for the first year, and then adjust the price according to inflation each year.  This will be an additional tax imposed on gasoline…on top of the current one.  They say they want to do this to finance more highway and transportation projects, which will benefit the economy.  The Center for Data Analysis at the Heritage Foundation says that increasing the gasoline tax would “depress economic activity and the incomes of millions of Americans. 
President Bush is standing firm against any increases in taxes including this one because he knows that the best way to boost the economy is not to tax more so that you can create more jobs for the short-term, he knows that if you tax less, people have more money to spend, which will buy more goods and services from producers, which will hire more people to keep up with the demand, which will create more jobs for the long-run without governmental interference.
If this gas tax were to be imposed, “personal savings would average $8 billion less per year from 2005 to 2014. $82 billion of the $131 billion increase in federal revenues over 10 years would be financed out of foregone or lower personal savings.  Gross Domestic Product would decline by $6.5 billion per year, in real terms, from 2005 to 2014. In other words, this $131 billion in government revenues would shrink the economy by $65.5 billion.  There would be, on average, 37,000 fewer job opportunities each year. That works out to one lost job for every $351,000 in new taxes, which is equal to 11 years of work at average yearly wages.  Total federal revenues would fall short of gas tax proponent’s projections by $3.7 billion.
Family disposable income would be, on average, $2.5 billion less per year, in real terms. That’s equivalent to the cost of sending 532,600 students to college each year.”
It seems to me that we need to put in a little more research into the people we are electing into our government.  These guys obviously don’t know anything about economics and don’t seem to care about what their decisions will do.  All I can see is that all this will do is give them more of our money to line their pockets with so that they can waste it on unnecessary projects.  I think that if we keep their budgets smaller, then they will decide where the money would be best spent instead of throwing money at every idea that comes to mind.
This is what happened in Flint Michigan after GM moved their plants overseas along with the jobs.  The city dried up because there were no jobs.  The local government decided that it could do a better job and ended up spending billions of dollars on a museum, hotel, and other projects hoping to boost the economy, which backfired on them because they didn’t put any thought into the projects to see if they would actually receive enough revenue to keep the facilities open so that the jobs created would still be there today.

Deficit Spending by the American People

I read and commented on a blog recently that was talking about the quality of life in the United States and how it seems to be getting better.  I do agree that it has been getting better, but we have been seeing side effects also.  One of these side effects is skyrocketing bankruptcies.  It is getting incredibly easy to get credit cards, secured and unsecured loans, lines of credit, and other forms or credit.  People are take advantage of these and learning the hard way that it is way too easy to get carried away.
In 2003, bankruptcies “rose from 1,611,268 in the 12-month period ending March 2003 to 1,654,847 in the same 12-month time period in 2004.  The number of filings was down slightly from the record 1,661,966 bankruptcy cases filed during fiscal year 2003.  Business filings in March 2004 totaled 36,785, down 2.0 percent from the 37,548, business filings in the 12-month period ending March 31, 2003.  2,144,000 people filed bankruptcy in the year ended December 31, 2003.  There were 1,625,208 personal bankruptcies filed in the year ended December 31, 2003. With this information, we can conclude that 1,625,208 people filed bankruptcy in 2003…except one little fact, the fact that t he statistics include joint filings, which means that two people filed for bankruptcy as one.  31.9 % of the filings for the year ended June 30, 2001 were joint filings of husband and wife.  With this in mind, there were actually 2,144,000 people who filed bankruptcy in the year ended December 31, 2003.
Some might say that that isn’t that many people declaring bankruptcy, but when we take into consideration that in the 1980’s, bankruptcy filings were about 300,000, we must be doing something wrong.  This nation is truly a nation of debt.  The average person has 2.5 credit cards in his or her wallet. The average credit card debt has increased thirty-five percent from last year to three thousand two hundred and fifty dollars per person. If there is two hundred and fifty million people in the United States, that is eight hundred twelve billion five hundred million dollars in deficit spending by Americans per year.
I strongly believe that Americans spend way too much money that they don’t really have.  The main problem with credit is that people end up becoming slaves to the interest owed on the money they spend on credit.  I know a lot of people my grandfather’s age that not only own everything they have, but have plenty of money in the bank for whatever happens.  I only know a few people my father’s age that own everything they own, and when something happens, it goes straight to the credit card.  I think that my generation and those after us will not only work their whole lives to keep what they have, but they will die broke and lose everything because we are doing all we can just to keep up with the minimum payments on our debt.


Underground economies

In the article "Marijunana Law" we are informed that nine states: Alaska, California, Colorado, Hawaii, Maine, Nevada, Oregon, Vermont, and Washington have all passed laws that allow patients to use marijuana for medical reasons.
What does this have to do with economics? Let me tell you. It has to do with the underground economy. There are two aspects to this: 1. the production and distribution of illegal goods and services; and 2. the nonreporting of legal economic activity. Drug sales generate huge amounts of money and this is the one I’d like to focus on. Since drug dealers could never explain where their money came from, to the IRS, they launder it. Laundering the money makes it appear legal. By legalizing marijuana it helps decrease some of the underground economy that is going on in the US.
As a whole, would legalizing all drugs (not just marijuana) help increase GPD? One way it could do this is by making drug dealing a legitimate business. The business would now have to pay taxes on the merchandise. The taxes then are spent by the Government which strengthens the economy.   
By legitimizing drug dealing it would decrease the amount of money spent on housing drug dealers in jails and prisons. Not to mention the several other costs the Government incurs because of illegal drug sales. The money gained from the now legalized business of drug dealing, and the money that use to be spent on stopping drug sales could be put back into the economy. This act alone would increase GDP by a minimum of 10%.
The really question is would legalizing drugs such as marijuana be worth the increase in GDP? That question is the topic of a whole other blog!

The Glass is Still half Full

While searching the net for blog subjects I found a site called Dr. T’s EconLinks.com
I have to admit I was a little disappointed not to find Dr. Tufte’s smiling face and perfect hair. The are some great links however most of which are available at the class blog site. The Capital Spectator has a vast amount of writings dealing with the current topics we are discussing in class. I’d like to weigh in on GEORGE IS FALLING, AND HE CAN'T GET UP With the interest rate hike the author has a somewhat gloomy attitude for the future of the U.S. economy. The value of the dollar is slipping which in turn will mean higher prices are on the way for the consumer. Translation, inflation. The author sites “The mounting federal budget deficit combined with the sharp increase in consumer debt implies burdensome days ahead for the greenback. Servicing the growing pile of American red ink will only become more difficult as interest rates rise”.
I have been around through numerous hikes and drops in the federal deficit and my view is that nothing as far as inflation or recession really changes because of it. Debt is never good. At times it is necessary to bridge cycles of prosperity and leanness. I believe we are in leaner times than normal despite the growth we have seen. Americans are still a little leery about engaging in an all out spending binge since the U.S. economy has yet to really be soundly strong on its feet.
There’s also another note from the author “The U.S. trade deficit has hit record highs in each of the first 4 months of the year while net foreign inflows have persistently slowed during the same period." With U.S. manufacturing churning out less and consumers buying more foreign goods isn’t this a given?
After what we’ve discussed and studied these last few days I’ve come to the conclusion that this cycle, like the cycles of the past will be but a memory. I’ll choose to view the glass as half full.


Laying on the Tracks

“What’s that Sound?” is a pretty good article written by Thomas L. Friedman about the Mexican economy.
It’s becoming a more and more apparent problem according to Friedman, that Mexico is losing it’s small corner of the American and world markets. “Will Rogers said it a long time ago: "Even if you're on the right track, you'll get run over if you just sit there." Mexico has put itself on the right track. But for the moment, it's just sitting there. If it doesn't start moving again, it's going to get run over by China, India, America — or all of the above.”

It seems Mexico hasn’t made the necessary upgrades to its country to be a formidable competitor in the world market. The Mexican Government has laid out a plan of action including five main “micro reforms” that will grease up the squeaky hinges of this country. In no particular order; Fix the Labor Markets, Tax Collection, the Judiciary System, the Constitution & Electoral System, and open the Energy & Electricity Markets to foreign markets. Sounds like the micro reforms aren’t so micro after all and what happened to education? Shouldn’t that be up there somewhere? I’ve talked to many friends that have lived in Mexico for years and according to them the education system is all but “Up-to-Par”.

The main reason that countries like China and India are working over Mexico is because of the highly educated human capital these countries are producing. Mexico has been trying however but not doing good enough to make the needed reforms. “While Mexico has upgraded its competitiveness, notes the analyst Daniel Rosen in the journal The International Economy, China upgraded worker education, infrastructure, management skills, technology and quality controls even faster.”

It sounds like Mexico needs to stop sitting on the track and start running full steam ahead or get run over!

Pride is Causing a Fall

A country’s resources can do it a great deal of economic good providing politics don’t get in the way. This is the case with Bolivia the poorest country in South America. Thanks to foreign investment in exploration, Bolivia has the opportunity to capitalize on having the continent's second-largest gas reserves outside Venezuela. Politics unfortunately is ruining Bolivia’s chances of continued foreign investment and free-market policies espoused by the country since the mid-1980s which delivered steady economic growth—but not enough to dent poverty.
Counter-reform—or muddle along? highlights some of the political battles that are having a certain impact on foreign investment and growth. The battle is certain to include an increase in taxes on multinationals with fields in Bolivia, who include Spain's Repsol-YPF, Brazil's Petrobras and Britain's BP and BG Group. The industry has invested some $3.5 billion since 1997. Oil and gas producers say that the government already takes 69% of their pre-tax profits; in 2003 these totaled $122m on revenues of $806m. The government also wants to increase its say over the destination and price of exports of oil and gas. And it wants to revive the state oil company, giving it a stake in all future projects.
Pride will cause economic growth to come to a standstill in Bolivia and no doubt will have a negative long term affect on future.

Interest Rates

In a recent interview, Susan Schmidt Bies (Federal Reserve Board Governor) spoke about the recent elevation in interest rates. She discussed the need for an increase in interest rates which would help the economy reach its full growth potential. She stated,"You cannot keep short-term interest rates below the rate of inflation -- it's too accommodative. We've got to get to what we call a neutral level."
Currently, the inflation rate is a few points higher than the interest rate. The government has plans to continue to raise interest rates slowly over time in order to balance out the economy. I would like to hear some opinions on this topic. I think everyone agrees that it's about time to start raising interest rates, but how high should they go? Who will initially be affected by the changes? What kind of an impact will this have on our current economy?


Welfare and Spending

Last year when I was in a class with Professor Baker.  He showed us, prior to class, a graph that I thought was very interesting.
He told us, that the best way money is spent is person 1 buys something for person 1.
The 2nd best way was when Person 2 buys something for person 1, (like a present).  The welfare decreases, because the person may or may not want this present.
The worst way money is spent is by Person 1 giving money (to an unknowing third party) Person 3 to spend on Person 2.  The chances that Person 2 will receive what he/she wants decreases the welfare even further.
This analogy helped me understand the disincentives of higher taxes.  It seems logical to me, but or there any other thoughts on this analogy?


Are the Poor Really Poorer?

I know we talked about this in class already but I just read an article about it today by Arnold Kling.  In this article Kling describes how much better off the lower class is now than in 1970 by comparing what percentage of households in 1970 did not have "certain basic middle-class necessities" (like a telephone or refrigerator) to the percentage of households currently without these items.  He also compares the percentage of households then and now that own(ed) items considered to be luxury items in 1970 (a dishwasher, clothes washer, clothes dryer).  Kling's examples demonstrate that the quality of life of the poor is substantially better now than in 1970.  While I agree with Kling's main point, that the lower class is better off now than in 1970 I don't agree that this point can be illustrated by the ownership of these items.  Many of the luxury items listed are considered necessities by our current culture and all of the middle class necessities are considered to be necessities for anyone except the extremely poor, by our standards.  (How appalled would we be to discover that one of our friends does not have complete plumbing?)  But how much debt has our lower class created in acquiring these items?  In 1970 households didn't have most of these items because they chose to spend their money on basic necessities.  Now people see these items as basic necessities and pay for them on credit so they can have them.  I know many people who qualify for subsidized housing and/or Medicaid who can still afford cell phones, satellite t.v. and newer cars than what I drive.  This article asks "Are many of the families you know worse off (than in 1970)?"  Many of the families I know have more stuff than in the 1970s but less money for basic needs like food and health care, possibly because they can get assistance for food and health care. 


How the Professor Runs This Blog

I've had a bunch of questions about how I am able to successfully run this blog. Since this one is for the students, I'm going to post some pointers over at my main blog voluntaryXchange.


Growth predictions changed

I found a link on the Heavy Lifting site that took me to a yahoo site which had an article addressing the issue of retail sales going down and therefore causing the economists to lower their predictions for growth during the second quarter. This closely relates to the topic of discussion in which shift variables are causing the curves on the AS-AD method graph to shift. For example, these shifts affected the Treasury bond prices, which had initially increased and then decreased. One economist points his finger at the gas prices and the idea that the “bulk of tax refunds may have already been spent.” Does this mean consumers are not spending as much money? Should we be worried?

The War in Iraq…Is It Worth It?

The nonpartisan Congressional Budget Office estimated that the war in Iraq is currently costing Americans nine billion dollars a month on top of the thirteen billion dollars it costs to deploy our troops about a year and a half ago. On top of that, it is going to cost five to seven billion dollars just to come home. A lot of people all over the world say we have no right or reason to be in Iraq because we can’t link Saddam Hussein to nine-eleven and we haven’t found any weapons of mass destruction. The world is looking at us like we are the biggest and meanest bully of all! Is this really worth it?
Have we forgotten what Saddam Hussein has done to us? What he has done to his neighboring countries? What he has done to his own people? (The rape rooms, tortures, massacres, and massive shallow graves.)
Our media and the other medias around the globe are constantly telling us that we are not doing any good over there and that the people in Iraq don’t even want us there. I am so tired of the liberal news we are getting because it is only telling us one side of the story and that is even skewed! They refuse to tell us about anything positive going on over there.
Since we went into Iraq, we not only removed the murdering dictator and cohorts, we have also:

Increased school attendance as much as 80% from pre war levels, some of which are girls, who are not allowed to receive an education before.

The media claimed we bombed or sabotaged power plants, but refuses to tell us that Iraq now has more electrical power than it did before the war.

Textbooks that don't mention Saddam are in the schools for the first time in 30 years.

Over 400,000 kids have up-to-date immunizations.

Over 1,500 schools have been renovated and rid of the weapons stored there so education can occur.

The port of Uhm Qasar was renovated so grain can be off-loaded from ships faster.

The country had its first 2 billion barrel export of oil in August.

Over 4.5 million people have clean drinking water for the first time ever in Iraq.

100% of the hospitals are open and fully staffed, compared to 35% before the war.

Elections are taking place in every major city, and city councils are in place.

Sewer and water lines are installed in every major city.

Over 60,000 police are patrolling the streets.

Over 100,000 Iraqi civil defense police are securing the country.

Over 80,000 Iraqi soldiers are patrolling the streets side by side with US soldiers.

Over 400,000 people have telephones for the first time ever.

Students are taught field sanitation and hand washing techniques to prevent the spread of germs.

An interim constitution has been signed

Saddam Hussein could have done all of these things and more, had he not been too busy building his palaces, murdering thousands of people, and communicating with leaders of Al-Qaeda. We are in Iraq for a reason and that reason is so that we can give Iraq back to the people and allow them to enjoy the economic prosperity that we enjoy here in the United States. If we have to fork out a few billion dollars causing us to pay more in taxes, I say it is well worth the money. We are not only helping those who are less fortunate than us, we are making the world a safer place for everyone and greatly reducing our chances of another attack on our homeland.


Tax Cuts...Good or Bad?

George Bush Junior’s tax cuts made a lot of Americans very happy because Bush promised them more money in their pockets which would bring them out of the recession. Most Americans knew that this would obviously decrease the amount of money that the government would take in, which would create a deficit. What they didn’t know, was that this deficit would be over $300 billion in the fiscal year ending Sept. 30. To counter this, the Bush administration came up with a $550 billion cut in government spending spread out over 10 years, which was eventually passed by the senate as $350 billion over a decade. Because of this, Congress plans to request for a $984 billion increase in the nation's $6.4 trillion debt limit to make room for further deficits. The International Monetary Fund says that the tax cuts couldn’t have come at a worse time because of the soaring costs we will face for Medicare and Social Security after the baby boomers retire. The Joint Committee on Taxation says that the tax cut will probably create a short-term boost to the economy, but will eventually slow the economy in the long run because of deficit spending. I support my Uncle George completely…in my opinion, there isn’t another that has stepped up that can do a better job. However, when President Bush was faced with the situation he was faced with, he should have told the American people the possible solutions. We could either wait it out like his father and point out the fact that our economy did recover and is in good shape, or we could have the tax cuts, but explain the negative effects that it would have in a few years and tell the voters that you aren’t just ignoring the situation, that you are going to just sit on your hands and let the invisible hand take care of us, just like it did before. He should have explained that he wants what is best for the country he loves, so he will not impose tax cuts that would help right now, but hurt us more in the long run.

Economics and Human Development

I recently read an article at the following URL: http://www.freetheworld.com/press070803.html
I was very curious as to how much correlation there was between economic freedom, GDP and human development. In this article it reads: "The more economically free a country, the greater the level of human development enjoyed by its citizens." It also quotes Laureate Milton Friedman who said, "Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth."

It does seem only natural to me, that allowing people to pursure their dreams through creative thinking and entrepreneurship could only increase economic growth. So, the question is, why don't all countries pursure this idea? Would their desire for control and power override a countries well-being? or is it just ignorance?

Also, as I thought about this article, I wondered if you could look in history and correlate any improvements in the economy with the invention of economists, because these people, especially at first, would seem to be very influential. Just a thought.


Who’s really going to pay?

There seems to be a never-ending attack on any company that is classified as being ‘big”. Big in the monetary attack refers to the big pockets these companies are perceived to have. Therefore attacking “big” can usually turn into “big” payouts. Take the tobacco industry for example; on top of the $246 billion they have already agreed to pay the states, the government is now trying to pick another $280 billion out of “Big Tobacco’s” pockets. A recent article on the website Economist.com addresses the issue.
For those that don’t smoke this type of action doesn’t mean much and the consensus runs against those that do. Why shouldn’t tobacco companies pay higher amounts to states that have to offset medical costs paid out for smoker health care? The truth unfortunately is that more than just smokers are paying these costs. As the number of smokers in this country dwindles due to all the pressure and regulation, tax revenues that were assumed guaranteed to the states are dwindling. Programs that have been initiated with this money now are trying to have these funds guaranteed by the rest of the tax paying public. The other side of the coin doesn’t look any brighter. For the most part those that smoke are usually in the lower wage earning bracket and raising the price to cover the government suits takes more of their disposable income. The government might think that they are doing the ethical thing by trying to reform smokers, but one is led to question if this attack is working? According to the article, Big Tobacco’s new strategy: to spend less time trying to flog cigarettes in rich countries and instead seek consumers in the developing world, and especially in the young and fast growing markets of Asia.
There seems to be no winners here (except trial lawyers), only losers.

Iraqi Central Bank

Iraq is starting not only a new government but also a new system for banking in their country. In the blog The Iraqi Central Bank Law covers the topic of what new banking laws will bring to the long-term growth of the country, along with stability. By creating strict guidelines the government is hoping to maintain domestic price stability along with a stable and competitive market-based financial system.

The Law has 74 articles and 42 pages covering every topic one can think of. It very carefully defines the roles the government will play in the new system, monetary policy and open market operations. In creating such defined rules and regulations it appears to be the making of an honest government which would lead to growth.

One of the Authors points in the article was that the new laws failed to define “domestic price stability. That leaves “domestic price stability” to be defined by the “international standards” which is “slow and steady inflation.” Inflation won’t cause the country to be any poorer, in fact inflation would do the exact opposite, and it would help redistribute income. Inflation will also help the wages of the people go up, making growth the end result. Isn’t growth what really matters

East Meets West

This article in Newsweek has a very good relation to current topics in our macroeconomics class. China is currently experiencing a capitalism boom driven in part by foreign investment. There are however pitfalls for some investors who are having trouble investing in an economy that has a completely different culture than ours. China is also experiencing some of the same type of social complaints that we see here in the United States. The income gap between the wealthier Chinese, who tend to live in urban areas, and the poor, who tend to live in rural areas, is growing ever wider. This fact does not however negate the fact that Chinese people have on the whole become richer. Personally I believe that even though there will always be a debate over who is really gaining the most from this growth the Chinese are realizing the benefits of allowing a capitalistic society.


Raise Minimum Wage?

John Kerry recently proposed that he would raise minimum wage from $5.15 and hour to $7.00 and hour if elected. This would be the first minimum wage increase in America since 1997. Kerry, speaking of President Bush, stated, "If a president can go out and fight for four years to provide over a trillion in tax cuts to the wealthiest people in America, we can fight for a few months to raise the minimum wage for the poorest people in America." I would like to hear some opinions on this proposal.

My personal feeling on the issue is that raising minimum wage won't solve too many problems. Even though the wage increase would increase my current paycheck, I don't feel that it would be a long term benefit to me or America. With a wage increase, inflation is sure to follow. Eventually, costs to employers will go up, prices will climb, and things will balance out. We'll be right back where we started.

I do think the a wage increase would benefit minimum wage workers for a short time, but how long would it be before current $7.00 and hour wage earners would demand that their wage's be increased as well? As I stated before, I think the whole proposal would just start a balancing act that would eventually land us back where we started.


New Class!

Everything that my first class of blogging Principles of Microeconomics students wrote is below here. We start with a mostly new group in Principles of Macroeconomics above here.


CD Pricing Retreat

I found this article interesting because it helped to show the consequences of not accounting for externalities. Universal Music Group, one of Big Fives recording firms, decided to change their minds about permanently lowering the price of CDs. UMG attempted to increase sales and discourage music piracy by lowering their prices, but found their actions did not have the desired effect. Their inability to obtain their desired outcome was a result of a few contributing factors:

1. When UMG lowered prices for Retailers, Retailers continued to sell their CDs as high prices. Therefore customers were not persuaded to purchase UMG CDs over others because they were marked at the same price. Retailers were pocketing the extra cash instead of passing on the savings to their customers. This can be compared to when taxes are levied on one party, and then passed on to another party. The person intended to receive the cost or benefit is not necessarily the one that receives it.

2. Many of the Retailers could not afford to lower the prices and suffer even lower profit margins. The CD business has become highly competitive with smaller firms barely scraping by whereas large corporations like Walmart could afford to mark down prices to basically nothing and making the small business owners suffer. If small stores lowered their prices, like Walmart, they would go out of business.

3. The amount of piracy going on was not being decreased by their lowering of prices. Perhaps piracy would have decreased if lower prices had been implemented for a longer period of time, and if people preferred UMG’s music to other companies, but since these factors were not met piracy did not decrease.

4. Other recording firms did not lower their prices with Universal, but instead decided to step up their advertising “which curried favor with retailers just as Universal was alienating them.” Universal was forced to lower advertising prices because of their shortage of cash from the decrease of revenue from sales. In fact, “Universal stopped paying promotional fees, which helped prop up the teetering chains.”

UMG did not account for the prospect that retailers might decide against lowering their prices on CDs even though they were receiving them at discounted prices. UMGs attempted to increase output by decreasing price, but their objective was not obtained.

Rich get richer - financial literacy

I've recently been reading a series of bookd written by Robert Kiyosaki, his Rich Dad, Poor Dad, books, where he talks about 2 "fathers" he had growing up, and about their different teaching techniques. One of his main points is that schools do not teach financial literacy, so the only way for kids to get it is from parents. If your parents are rich, they likely know what to teach, and if they're poor, they have no idea. So the richer keep getting richer and the poor keep getting poorer. Stop to think for a second that much of our society participates in buying stocks, bonds, futures, and all kinds of things, let alone the routine tasks of managing their own income, assets and liabilities. I can't think of a single class in high school that taught me how to do any of these things. (math taught me how to count i guess). No wonder the poor class of society doesn't know where to go. Check out the book sometime. It's given me a new perspective on financial education.

How much is enough?

Bush has been giving out a tax cuts, and while most tax cuts would never see my doorstep I did get almost 1000 dollars extra back on my tax return labeled "tax cut". This is great. He is doing a great service to America. And while some might not exact consider him a genius, I believe when it comes to economics he listens to his advisers very well.
john Kerry on the other hand likes to raise taxes on the "elate high class" but the fact is the "elate high class" just seems to be getting bigger and bigger. Suddenly dual income families are considered "rich". And average middleclass hard working Americans also.
I don't consider me or my family rich. But as it stands now, if Kerry were to be elected we would get to work for "free" (when taxes where taken out) for 8 months out of a year. That's 2/3rds of our income going to the government because we are so "filthy rich". Yeah right.

The Bad Economist

At the beginning of the semester I thought economists were people who used only factual information to construct charts and graphs, in order to help organizations make wise economical decisions. The thought never really occurred to me that some of these economists were giving us false information, and skewing the results of the subject matter, with the purpose of causing us to take their side on a given issue. Bad economists don’t always lie, but they are very skilled at giving us partial truths. In other words, they may give us information that is entirely correct, but it only focuses on one minute detail of the bigger picture. This forces us to draw false conclusions and panic over what we believe to be immediate threats, instead of seeing the whole picture and realizing what they are leading us to believe is not true. These unbridled extrapolations are used all the time by people who want to persuade us.

Bad economists (many of whom work for the government in my opinion) would have us believe that when the government spends money on something, we are all enriched by the purchase. They would have us believe that spending $15 million on a new building would make us that much wealthier. Could this be true? When the government spends money on something that costs $15 million, it means that we just went in debt $15 million. The government doesn’t want us to consider the fact that maybe we would have rather spent that money on something else. Every time they spend money, it is taken right out of our pockets, and most of the time it is spent on things we do not want. Even though they may try to convince us that it’s free because the government paid for it, the fact is, you can never get something for nothing. The government should spend money on important and necessary things like a public education and a national defense. All those things are important for us to prosper as a nation, but I believe that the government is often very careless and overspends our money.


Pre Paid Nothing!

I while ago I had the unfortunate experience of dealing with people associated with the Pre-Paid Legal market. It was a miserable, long run experience.

I was at my house one day hanging out with my roommate when he gets a call from an acquaintance. The person on the calling end of the line invites him and all his friends to a barbeque at their place. Who’s going to pass up a free barbeque?

We showed up at the house as planned and we all just talked and mingled for a while waiting for the food to start cooking. By the time people stopped showing up there were about 20 of us gathered in this little house waiting for our food. It was a good time though. We played video games and watched T.V. on one of the many TV’s in the room.

After about a half an hour, the host comes in and asks if all want to watch a movie. We said sure and he proceeded to put in the DVD. The opening title comes on with the sound of triumphant music and then came the title, “Prepaid Legal”. We thought it was a joke but the host just said, “Watch it for a few…it’s good.” Sooooo, we watched it for a few, 30 few minutes to be exact. Over the course of this entire movie clip were several people giving testimonials about how rich they are and how rich we can be too if we join the prepaid legal team. It was ridiculous! Not once in this entire presentation did it explain what pre-paid legal is, how it works, and what it takes for us to get involved. It just wanted to make the point that we were all going to be millionaires by joining and paying an enrollment fee of $300. I don’t know about you but I don’t normally have to pay my employers to get a job.

The host walked into the room and started passing out information papers that we needed to fill out to become a part of his “Legal Team”. He started getting angry with those that weren’t interested in the program saying we were stupid and that we were missing out on a chance of a lifetime. After about ten minutes, most of us had gotten up and left the house with the host screaming behind us “how am I going to pay for all this food I got for you guys?!” I didn’t remember anything in the invite that said “come over and buy my barbeque food from me.”

Two days later, the harassment phone calls begin. Somehow this guy had gotten my phone number and most of the other people present that day. He continues his bully tactics and says sometime I’m going to need prepaid legal and that I’m going to regret it.

In reading an article “Is prepaid legal a good idea?” my assumptions about the prepaid way are seconded by the author. Throughout the ‘recruiting’ process, the guy kept telling me that there’s no way to make it in this world without legal advice from a lawyer. I’m twenty three years old and have had to consult a lawyer once.

My one experience cost my about 100 dollars. Pre-paid Legal usually costs anywhere between 18 – 25 bucks a month……let’s do the math. By not going with pre-paid legal, I’ve saved myself nearly 5,000 dollars.

Dave, the author of the comment on “Is prepaid legal a good idea?” says that it costs nearly “$25 a month is $300 per year. Over ten years, that's $3,000. My contention is that the typical Joe and Suzy American will not have $3,000 worth of legal needs or average expenses in a given ten-year period. If they did prepaid legal would be losing money, there would be no profit in it. And I don't think they are in the business of losing money.”

My need for such an expense just isn’t there. And, as I found out later, the guy would have gotten a pretty nice amount of money for signing my friends and I with the company. No wonder he was so persistent and nasty.

As a final note to this over-lengthy blog, I saw this guy last week. It’s the first time I’ve seen him in 2 years. When I saw him, he was handing me my hamburger through the drive up window. I guess the prepaid legal idea wasn’t such a lucrative idea after all!

The Cost of Stress

I was reading this article about the cost of a college education and had just a few comments to make about it. It talks briefly about the raising costs of tuition and the raising amount grants given out.

The article “The Price of a College Education” highlights the fact that the cost of public college tuition has dropped 32% in the last five years (considering inflation and all other factors I’m sure). That’s not too bad considering all the headlines lately about the rising costs of education.

The article also states that there’s also been a “$22 billion annual increase in grants and tax breaks since 1998.” This excess of money more than offsets in general, the rising costs of schooling these days. As for myself I’m grateful for the grant system.

Here’s how the schools are able to help kids with their tuition woes. The university or institution raises its “official” tuition price. Because of the higher listed price, the state qualifies more people to receive federal Pell grants and other scholarships. The university receives the money from the grants and scholarships on behalf of the students, and they pay the associated expenses of giving the students and education. Because the state grants usually cover a good portion of the tuition and fees, it leaves little for the students and student families to pay out of pocket. In essence, the students are paying less in the end because of the tuition increase.

Of course these statistics are probably an average and the grants will still be denied to those students coming from upper class families, but in general, tuition has gone down.

How to Price a Baseball Player

Do you guys know how to price a baseball player? This article, written by James Surowiecki, is deeply fascinating to me. If you want to know how to price a baseball player, you can go to "http://slate.msn.com/id/1001883/" and check it out.

In New York City, many people were curious about whether the Yankees would sign Bernie Williams. Also, there was a catcher, Mike Piazza, who had recently been signed by the New York Mets. In the article, Williams is being compared with Piazza, and the writer concludes, "He would not be worth as much as Piazza." Interestingly, he analyzed why based on interaction of supply and demand.

At that time, there were more people playing as centerfielders than as catchers, so the supply of catchers was more inelastic than the supply of centerfielders. Although the quantity demanded for these positions is the same, the quantity supplied was different. That means the quantity supplied for catchers was less than for centerfielders, so the price of catchers is higher, and so some catchers got paid very well even if they did not play well.

In relation to that, the writer says that if the Yankees do not sign Bernie Williams again, they can still easily find another outfielder. Although, he may produce only 70 percent or 80 percent of Williams' output, they can pay him for less money than Williams was going to get $2,000,000 as opposed to $13,000,000. The difference can be used in other ways. On the other hand, the writer says that if the Mets did not sign Piazza, all they could do was find a catcher who produced 30 percent or 40 percent of Piazza's output at almost the same price as they would pay for Piazza.

When pricing a baseball player, the interaction of supply and demand really makes sense to me. If anyone finds another similar example, please post a comment.

Social Change VS Economics In a Workshop

This article really made me interested because it is good stuff to know in order to understand what is going on in the world. This is an artical from The Institute for Humane Studies, "http://www.theihs.org/subcategory.php/38.html?menuid=5". It describes a workshop at the University of Virginia, Charlottesville, VA that has many perspectives, such as the relationship between social, political, and economic institutions.

As I learned in class, "economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society." Economics is strongly related to many aspects of life, so from a different point of view, like social institutions, we might be able to discover new applications for economics. In this workshop, they are focusing on social change because the invitation says, "what we severely lack is a theory of social change. Our inability to understand the basic mechanisms of social change is evident in practical application." We really do not pay attention to how changes in society happen. So, we do not understand how social change applies to economics. However, we need to know how social change and economics apply to our lives in order to live comfortabl

A Tax Cut

I found an article which talks about tax burden. The author is really knowledgeable and I learned a lot from it. The article is at, "http://slate.msn.com/id/19280/".

The republicans suggest they should use the federal budget surplus for a tax cut. They are concerned about the increased tax burden borne by the average American. This aricle says, "A typical mother and father who both work paid nearly 40 percent of their income in taxes". To be accurate, "'typical' families pay 36.7 percent of their income in total taxes." this is very high. The goverment taxes in 40 percent of their total income. Also, although most people do not get any capital gains, they pay capital gains taxes. Moreover, it seems that the average taxpayer pays an average share of estate. However, it says, "the estate tax only affects inheritances of at least $625,000".

What most people pay capital gains taxes made me so surprised because this situation does not apply to the benefit principle of taxation. They do not have any capital gains, which means they do not receive the benefit of capital gains, so they do not have to pay the tax. On the other hand, in some situations, we need to pay taxes. Some examples of the benefit of taxation, as we learned in class, are "provide a stable set of institutions and rules", "promote effective and workable competition". Those really make sense to me. Many people do not hesitate to pay taxes if their taxes promote their society. The goverment needs to show its budget. So far I agree with a tax cut. It is too unfair for the average people. As republican said, they should use the federal buget surplus for a tax cut.