New Class!

This blog will feature my ECON 3010 Managerial Economics class for the fall semester.

Just about everything between now and the end of the year will be written by them. Everything prior to this is from my two principles classes from this past summer.

Am I thinking about a degree in economics?…NO!

As we near the end of the summer semester, it’s time to reflect back on what I’ve learned. Dr Tufte’s website asks the question Are you thinking about a degree in economics? Maybe at the beginning of class you are, but by the end the answer might have changed, here’s why.

In the beginning things make sense, you’ve got your short run and your long run and growth etc. pretty straight forward. Then everything changes. It goes kind of like this.

When you’re in a recession you actually might be coming out but don’t know it and by the time you’re coming out you might be going back into one somewhere in there there’s a trough but you can only figure out when that came later when you realized expansion was taking place and let me show you how this works by this graph see that curve it’s not really a curve because it’s a straight line but then in can bow in or out and this can make it move this way but if that happens it can move that way but it will always return to an equilibrium but by then it has already moved because we forgot to factor in this and contraction is actually expansion and even though people have more money they’re poorer and that Keynes guy had it all figured out until some other guy figured out he didn’t then there’s the multiplier effect………….oh wait… I understood that and velocity isn’t constant but really close is that E=MC^2 too late write down these three sentences and then cross them out because that’s not the way it is because a surplus isn’t good and a deficit isn’t bad.

So I’ve given it some thought, and I’ve decided economics is not for me!

And besides, I can’t afford the expensive haircut!

Thanks Dr. Tufte it’s been a great summer.

Technology - Can we keep up?

I was talking with a friend the other day about how fast technology is advancing and how hard it is to keep up with it all. It seems like today everyone is expected to have a car, an up-to-date computer with internet access and e-mail, a cell-phone, etc. Everything that we could have only dreamed of 10-20 years ago we're expected to have now.

Applying this to businesses today, I found an article from USA Today that is entitled "Technology: Keeping up with Changing Times." It discusses the rapid growth in technology in the business world, and how companies are having a hard time keeping up with the latest innovations. With the internet now a major part of the business world, it is expected for businesses to have a web page that they can use to do business over the internet. Also, we have become such a "Now" society, that if a business can't provide a good or service anytime and do it quickly, then they go out of business. As a result, it has become more and more difficult to start a small business and have it survive amidst the high competition in fighting the larger corporations. Is the advancing technology all a good thing, or are we going to become so competetive that we burn ourselves out?

Barter System

The Barter System was around for a long time and to be honest I believe it still exists today, only not in such a high volume form. Let me explain. Early in the morning as I am walking in and out of stores delivering newspapers, I can smell the fresh aroma of hot donuts. I use to trade a copy of my morning paper for a dozen of the donut-man's donuts. I got what I wanted, and the donut-man got a free paper from the trade. One may look at the trade and believe that perhaps I got the better end of the bargain, or just the other way around. That is why the barter system is not in pratice today. Because one may believe their product is worth more than another's. Bartering could also change based on the supply of a product one may have. The more you have of something the easier it is to give it away for a lower trade; like in my case for example. If I only had one newspaper then perhaps I would insist on getting more than one dozen donuts. Or the donut-man might not trade a dozen donuts for only one paper if he only had one dozen.

There had to be away that people agreed on that counted the same all of the time. So, coins were invented first. After people got tired of carrying around tons of coins where ever they went, paper money was invented. I am sure everyone agrees that this is a far better medium of exchange. With that said, I also believe that the Barter System will be in effect in small ways for years to come.

Is the Deficit something to be scared about.

Today, our economy will go through several deficits and surpluses in each ficial year. Then at the end of the ficial year we can determine as a country weather we had a deficit or a surplus. The interesting fact is that the government is continually paying off and borrowing money all the time, through buying and selling bonds. The government is always paying off its deficit through rolling over our tax money. The only problem is too high of a deficit can effect inflation and the GDP level.

If the government could reduce its spending with the economy still booming, then we would be in favor of surpluses. Some of the ways the government could reduce it spending is by health care costs, Social Security, and even Medicare costs. However, the only problem is we as a nation are getting ready to have one of the largest retirements periods coming up; the baby boomers.

Inflation has been at a very steady rate for a long period of time, there is really only one way for it to go; up. With inflation up and the government spending more money on health care costs for the future baby boomers, our deficit will go even higher than what I believe most people are expecting it to.

Weekend at Fidel’s

Cuba’s economy is continuing down the cliff as it strives to reach bottom. Cuba has reluctantly allowed some capitalism into its economy by way of foreign investment. Then the government makes it difficult to truly allow it to work. The disaster is now “irrevocable” is a piece on the Economist.com website detailing the current woes of the Cuban economy. The article states that, “The Cuban ministry for foreign investment has held a series of meetings with European businessmen to try to iron things out. But the minister, Marta Lomas, made it clear that Cuba was not about to change its spots. “You know the rules when you get here,” she told her audience. President Fidel Castro, too, has always made it clear that he will not let such paltry matters as economic growth dilute the purity of his revolution. Makes one wonder if Fidel is really still alive or Cuban’s are re-living the Weekend at Bernie’s movie and driving around with him propped up in the back of their car until they can figure out how to come up with a way to revive the economy.

Bloggers get Blogged

Although this post doesn’t qualify for the macro requirements, I think the class might find this one interesting. Cybertourists in Boston takes a look and critiques the bloggers who were given credentials to attend the Democrat National Convention. Unfortunately for those that attended they came up a little short in their writings. A case that I think members of the class including myself would admit to during the short time we’ve had to shine this semester. Just like anything that is still in the developing stages there’s always room for improvement. Hopefully with time the bloggers will show their true ability and gain respect deserving of their capabilities. They’ll get another chance at the Republican National Convention in a month.

Trading with Mexico

I just read an article about Senater Mike Crapo, and Mexicos President Vincent Fox at www.americanpatrol.com . In this short artical they were talking about more farm trade with Mexico, and looser migration laws. The artical dident go into much detail about eney ideas of what they want to do, but it said that the President of Mexico is a strong supporter of a free trade market and he thinks it would create more trade in the long run.

If I was to have read this artical before I took this class, I would have thought it was a dumb idea, not for eney paticular reason, I just thought it would be a dumb idea. But now I can see that this would effect a lot of things, like produce prices in the U.S., and also make Mexicos econimy richer, making them trade more with us. I can now look at this as being a positve action that would help the us econimy.

But I would like to know what the class thinks about this, do you see it as being positve, or create more problims then its worth?

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. 

Confusion

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.