Posted by Margaret on 11th December 2013 (All posts by Margaret)
AN IMPERIAL RESCRIPT
Now this is the tale of the Council the German Kaiser decreed,
To ease the strong of their burden, to help the weak in their need…
And the young King said: — “I have found it, the road to the rest ye seek:
The strong shall wait for the weary, the hale shall halt for the weak:
With the even tramp of an army where no man breaks from the line,
Ye shall march to peace and plenty in the bond of brotherhood — sign!”
And the men drew back from the paper, as a Yankee delegate spoke: –
“There’s a girl in Jersey City who works on the telephone;
We’re going to hitch our horses and dig for a house of our own,
With gas and water connections, and steam-heat through to the top;
And, W. Hohenzollern, I guess I shall work till I drop.”
And an English delegate thundered: — “The weak an’ the lame be blowed!
I’ve a berth in the Sou’-West workshops, a home in the Wandsworth Road;
And till the ‘sociation has footed my buryin’ bill,
I work for the kids an’ the missus. Pull up? I be damned if I will!”
And over the German benches the bearded whisper ran: –
“Lager, der girls und der dollars, dey makes or dey breaks a man.
If Schmitt haf collared der dollars, he collars der girl deremit;
But if Schmitt bust in der pizness, we collars der girl from Schmitt.”
Posted in Arts & Letters, Diversions, Economics & Finance | 3 Comments »
Posted by Jonathan on 9th December 2013 (All posts by Jonathan)
New from Kevin Villani: Occupy Pennsylvania Avenue: How Politicians Caused the Financial Crisis and Why their Reforms Failed, and the Kindle version: Occupy Pennsylvania Avenue
(Kevin has shared on this blog a couple of prior works on the same subject. You can find those essays, and reader comments in response, here.)
Posted in Big Government, Book Notes, Economics & Finance, Public Finance, Urban Issues | No Comments »
Posted by TM Lutas on 29th November 2013 (All posts by TM Lutas)
Today, right this minute, we have a massive natural experiment in deflation going on. The demand for Bitcoin (BTC) is far outstripping any increase in supply. If this were a national currency, the central bankers would have been institutionalized for their nervous breakdowns quite some time ago. It would be front page news every day and panic would rule the airwaves.
None of this is happening with Bitcoin. BTC insiders, movers and shakers seem pleased with the increase in value for their currency and the worry is the appreciation of the currency will go away, not that it will continue. Bitcoin pessimists like Paul Krugman, not surprisingly, believe that deflation will lead to transaction collapse and hoarding. Reality, so far, disagrees with them.
I think that the problem is that nobody among the pessimists understands what BTC is for. It’s never going to be the legally mandated monopoly currency in any significant economic zone. The ethic of the BTC community works against that. This means that BTC is not competing against the US dollar, the euro, or even the renminbi.
What bitcoin does very well is create a space for moving currency without the ability for it to be stopped. That challenges national currencies in crisis that want to impose currency controls to stop money leaving their borders. You can’t stop BTC transactions without draconian controls on communications.
As a practical matter, you can’t stop a coin key from crossing borders. It also creates an incredibly small unit of currency. The smallest unit in the BTC world is the satoshi, or 0.00000001BTC. Is there any currency in the world that equals one satoshi? Until bitcoin reaches the point where its smallest transactions (looking at ads and other microtransactions) can no longer be done with single satoshis, BTC will not suffer transaction reduction to to value increase.
Current pricing would seem to imply something of a damper on BTC transaction flow when BTC rises above $100,000 USD per coin. In other words, the cheapest, cheapskate ads are offering a hundred satoshis for a second of your attention in a world where 1BTC is approximately 1,000USD. We have a long way to go before those transactions cease to be denominated in BTC. And even then, there will be prestige associated with working in BTC which will keep interest in the currency relatively high and larger transactions flowing around the $100k level. Any reduction will bring back a number of the bottom feeders from other currencies.
There are several wannabe BTC competitors waiting in the wings for the day that people want to conduct microtransactions smaller than 1 satoshi. They have established exchanges with national currencies and with BTC itself. when BTC grows in value sufficiently to give up the low end of its microtransaction market, the marketers will move on to alternatives until one of them gains enough advantage to be the next BTC.
Ultimately, BTC is about mad money for a lot of people. As an experiment, I’ve mined BTC overnight and done micro-tasks using the thing in my spare time. Since April of this year, without any impact on my productivity, I’ve gotten the price of a fairly nice night out with my wife in BTC right now. It’s a piece, but only a piece, of an emerging 21st century wallet which diversifies currency use and manages transactions both online and offline. That wallet probably won’t fully emerge for a decade at the very least and more likely will take two to really standardize but it will be the death of the ability of national currencies to live on their past reputations. People will gain the ability to react to currency foolishness much more quickly. BTC will be an important part of that technology suite.
cross posted: Flit-TM
Posted in Economics & Finance | 9 Comments »
Posted by T. Greer on 24th November 2013 (All posts by T. Greer)
Originally published at The Scholar’s Stage on 20 November 2013.
Why the West? I do not think there is any other historical controversy that has so enthralled the public intellectuals of our age. The popularity of the question can probably be traced to Western unease with a rising China and the ease with which the issue can be used as proxy war for the much larger contest between Western liberals who embrace multiculturalism and conservatives who champion the West’s ‘unique’ heritage.
A few months ago I suggested that many of these debates that surround the “Great Divergence” are based on a flawed premise–or rather, a flawed question. As I wrote:
“Rather than focus on why Europe diverged from the rest in 1800 we should be asking why the North Sea diverged from the rest in 1000.” 
I made this judgement based off of data from Angus Maddison‘s Contours of the World Economy, 1-2030 AD and the subsequent updates to Mr. Maddison’s data set by the scholars who contribute to the Maddison Project.
As far as 1,000 year economic projections go this data was pretty good. But it was not perfect. In many cases–especially with the Chinese data–it was simply based on estimates and extrapolations from other eras. A more accurate view of the past would require further research.
That research has now been done. The economic historian Stephen Broadberry explains:
As it turns out, medieval and early modern European and Asian nations were much more literate and numerate than is often thought. They left behind a wealth of data in documents such as government accounts, customs accounts, poll tax returns, Parish registers, city records, trading company records, hospital and educational establishment records, manorial accounts, probate inventories, farm accounts, tithe files. With a national accounting framework and careful cross-checking, it is possible to reconstruct population and GDP back to the medieval period. The picture that emerges is of reversals of fortune within both Europe and Asia, as well as between the two continents. 
Drawing on a multiple specialized studies, Mr. Broadberry is able to create a table that is more accurate than the one I used earlier:
There are a few things here worth commenting on.
Read the rest of this entry »
Posted in Economics & Finance, History | 10 Comments »
Posted by Carl from Chicago on 23rd November 2013 (All posts by Carl from Chicago)
Recently I was riding on the Metra, the commuter rail system that connects the suburbs to downtown Chicago. I picked up “On the Bi-Level”, the flyer that Metra management makes available to riders and was browsing through it when I came upon this innocuous sounding statement:
I certainly will not argue that Metra is without challenges. Perhaps the biggest challenge, and one that will impact many of our plans, is our needs for more capital money to invest in our system. We estimate Metra will need about $9.7 billion over the next decade to achieve a state of good repair on the system, and we expect to receive about a fourth of that amount from traditional federal and state sources. Riders need to understand that fares help us cover our operating costs but have never been a significant source for capital expenses – we must rely on Washington and Springfield for that funding.
Within the utility community there is a concept called “generation equity”. This implies that you need to spread the burden of replacement and renovation across the life cycle of users, rather than hitting them all on the first riders, such as in the case of a train line. On the other hand, you cannot just ignore ongoing capital costs and let the system run into ruin by paying the minimal upkeep costs every year.
In this article, Metra lays bare the facts that:
- Fare costs (riders) only “help” them cover their operating costs
- Funding from other sources (and debt) helps them cover the rest of their operating costs
- Then they rely on largess from the state or Federal governments for about a fourth of their capital costs
- And who knows where they are going to get the rest of the funds for capital replacement
In fact, it would be impossible for Metra to re-build the train lines that they have today in the current regulatory and legal environment. Permits, lawyers, litigation, politically favored contractors, and a welter of archaic tools and practices would make the costs impossibly high and the deadlines incredibly long. By “capital” costs, they are generally talking about replacing bridges, stations and sections of existing track rather than “true” expansion, although they do occasionally add some incremental lines or stations.
It is important to understand that things have gotten more EXPENSIVE but they haven’t gotten BETTER. The infrastructure that we take for granted might as well have been built by the ancient Egyptians given how herculean the task would be to replace them. Americans will never see another major dam built in the USA and likely few to no additional incremental nuclear or coal plants in the next 25 years. Even major transmission lines are going to be few and far between, which will only be built because it is absolutely necessary to get electricity to new population centers. This is all due to the layers of process and regulations and lawyers that we have overlaid atop the simplest tasks, and you can see the contrast when you go to China and see cities being built overnight.
At some point we are either going to need to radically re-structure how we build and pay for things or go to a completely private system where you pay for what you receive in terms of capacity, reliability and performance. States and cities that make it impossibly expensive to build and expand will inevitably suffer relative to other locations that are freer in terms of rules and regulations, unless (as is likely) the entire US is burdened with Federal regulations that make it impossible to escape this yoke.
Posted in Big Government, Chicagoania, Economics & Finance | 9 Comments »
Posted by Jonathan on 22nd November 2013 (All posts by Jonathan)
It has taken a long time, but the price of hearing aids is in the process of falling dramatically. How has this happened? Technological innovation, of course, but there is more. There’s no shortage of technological innovation in U.S. health care. However, because third-party payers, that is, health insurers and governments, determine prices, there is no mechanism for customers to signal value to providers.
This is not the case for hearing aids: Although some states have mandated insurance coverage for hearing aids, this is usually limited to disabled children. The big market for hearing aids is seniors, and Medicare does not cover hearing aids.
This is another case of a phenomenon observed elsewhere by NCPA Senior Fellow Devon Herrick: Where patients pay directly for medical care, prices fall like they do in every other market.
(Via Leif Smith on Twitter.)
Posted in Business, Economics & Finance, Health Care, Medicine | No Comments »
Posted by David Foster on 18th November 2013 (All posts by David Foster)
Tyler Cowen, in his recent book Average Is Over, argues that computer technology is creating a sharp economic and class distinction between people who know how to effectively use these “genius machines” (a term he uses over and over) and those who don’t, and is also increasing inequality in other ways. Isegoria recently excerpted some of his Tyler’s comments on this thesis from a recent New Yorker article.
I read the book a couple of months ago, and although it’s worth reading and is occasionally thought-provoking, I think much of what Tyler has to say is wrong-headed. In the New Yorker article, for example, he says:
The first (reason why increased inequality is here to stay) is just measurement of worker value. We’re doing a lot to measure what workers are contributing to businesses, and, when you do that, very often you end up paying some people less and other people more.
The second is automation — especially in terms of smart software. Today’s workplaces are often more complicated than, say, a factory for General Motors was in 1962. They require higher skills. People who have those skills are very often doing extremely well, but a lot of people don’t have them, and that increases inequality.
And the third point is globalization. There’s a lot more unskilled labor in the world, and that creates downward pressure on unskilled labor in the United States. On the global level, inequality is down dramatically — we shouldn’t forget that. But within each country, or almost every country, inequality is up.
Taking the first point: Businesses and other organizations have been measuring “what workers are contributing” for a long, long time. Consider piecework. Sales commissions. Criteria-based bonuses for regional and division executives. All of these things are very old hat. Indeed, quite a few manufacturers have decided that it is unwise to take the quantitative measurement of performance down to an individual level, in cases where the work is being done by a closely-coupled team.
It is true that advancing computer technology makes it feasible to measure more dimensions of an individual’s work, but so what? Does the fact that I can measure (say) a call-center operator on 33 different criteria really tell me anything about what he is contributing the the business?
Anyone with real-life business experience will tell you that it is very, very difficult to create measurement and incentive plans that actually work in ways that are truly beneficial to the business. This is true in sales commission plans, it is true in manufacturing (I talked with one factory manager who said he dropped piecework because it was encouraging workers to risk injury in order to maximize their payoffs), and it is true in executive compensation. Our blogfriend Bill Waddell has frequently written about the ways in which accounting systems can distort decision-making in ultimately unprofitable ways. The design of worthwhile measurement and incentive plans has very little to do with the understanding of computer technology; it has a great deal to do with understanding of human nature and of the deep economic structure of the business.
Read the rest of this entry »
Posted in Book Notes, Business, Economics & Finance, Management, Systems Analysis | 14 Comments »
Posted by Michael Kennedy on 13th November 2013 (All posts by Michael Kennedy)
I don’t want to wear out my welcome with posts but this is a topic that has interested me for many years. When I retired from practice, I spent a year at Dartmouth trying to learn how we can improve health care delivery and reduce cost without reducing quality.
The Obamacare web site now has lost its happy photo of the Obamacare girl. The fact that she is a non-citizen seems appropriate. The web site is supposed to be fixed by November 30. Will that happen ? Well, maybe not.
On Friday, the man tasked with the digital fixes said the site “remains a long way from where it needs to be” as more and more problems emerge.
“As we put new fixes in, volume is increasing, exposing new storage capacity and software application issues,” Jeff Zients told reporters on a conference call.
And at Tuesday’s White House Press Briefing, Press Secretary Jay Carney again said there was “more work to be done” on repairing HealthCare.gov.
Carney, along with Zients and other administration officials, have repeatedly said the November 30 deadline is to get the health care website working for a “vast majority” of Americans looking to enroll in the Obamacare exchanges.
So, what happens December 2, the Monday after the “glitches” are fixed ? First, they won’t be fixed. The contractor that designed the program, not just the web site, has a terrible record.
Read the rest of this entry »
Posted in Advertising, Big Government, Civil Society, Economics & Finance, Health Care, Leftism, Medicine, Obama, Politics | 11 Comments »
Posted by Jonathan on 12th November 2013 (All posts by Jonathan)
Listening to Rush today. He is brilliant on politics but not as good on economics.
He was advocating self-insurance for small businesses and individuals, in response to the Obamacare fiasco. He mentioned as an example that he had decided to self-insure a building (I think his home near a Florida beach) in response to his property insurer’s insistence on an extremely high deductible. He also said that he self-insures for medical costs.
Two problems with his analysis. One, property insurance covers buildings and building contents, so liability is easily estimated and is capped at replacement cost. Unlike with medical care there is no possibility of very large, unplanned expenses. Two, Rush is personally wealthy and can afford to pay any medical expenses out of pocket. For these reasons his argument has limited applicability for most people, who buy health insurance precisely because they would be unable to pay an outlier medical bill without experiencing significant hardship. The same point applies to many small businesses as well. These groups thus need real insurance to cover outlier medical expenses. A self-insurance quick-fix would be inadequate.
Posted in Business, Economics & Finance, Health Care, Obama | 6 Comments »
Posted by Jonathan on 6th November 2013 (All posts by Jonathan)
After a long absence from his blog, the always-thoughtful Corbusier posts some ruminations about his profession during the current period of economic recession and structural change in many industries. Long but worth reading.
Posted in Architecture, Business, Economics & Finance, Society | 8 Comments »
Posted by Lexington Green on 24th October 2013 (All posts by Lexington Green)
[C]ontrary to what liberals are saying, these technical problems [with Obamacare] are actually a sign of deep problems with the law itself. And I would go further: I think it is the sign of a deeper problem with government intervention in general. This is yet another piece of evidence that no matter how good lawmakers’ intentions are, no matter how much money government spends, government solutions are very likely to fall short of solving most of our problems, and often turn into massive disasters. Government fails to address most problems it tackles because the incentives are arranged in such a way that it favors interest groups and doesn’t reward success or punish failures in the same way as the market does.
Veronique de Rugy
Posted in Economics & Finance, USA | 15 Comments »
Posted by Michael Kennedy on 23rd October 2013 (All posts by Michael Kennedy)
UPDATE: I posted this as much for myself as for others to read. Today, Peggy Noonan weighs in. In case this is behind the paywall, here is her conclusion.
Even though it’s huge, and those who are reporting the story every day are, by and large, seasoned and have seen a few things, no one seems to know how it will end. Because it’s new territory. Does anyone believe the whole technological side can be fixed quickly? No. The president may eventually accept a brief delay in implementation—it is almost unbelievable that he will not—but does anyone think that the economics of the ACA, the content as set out and expressed on the sites, will flow smoothly, coherently, and fully satisfy the objectives of expanding health-insurance coverage while lowering its cost? You might believe that, but early reports of sticker shock, high deductibles and cancelled coverage are not promising. Does anyone think the president will back off and delay the program for enough time not only to get the technological side going but seriously improve the economics? No. So we’re not only in the middle of a political disaster, we’re in the middle of a mystery. What happens if this whole thing continues not to work? What do we do then?
This is the Titanic, folks.
I have watched the failed rollout of Obamacare this past three weeks and wondered where it was going. I have some suspicions. There is a lot of talk about delaying the individual mandate, as Obama did with the employer mandate. Megan McArdle has a post on this today. I think it is too late to fix or delay Obamacare.
With Nov. 1 storming toward us and the health insurance exchanges still not working, we face the daunting possibility that people may not be able to sign up for January, or maybe even for 2014. The possibility of a total breakdown — the dreaded insurance death spiral — is heading straight for us. The “wait and see if they can’t get it together” option no longer seems viable; we have to acknowledge that these problems are much more than little glitches, and figure out what to do about them.
She has already described the insurance death spiral. I think it is here.
Am I exaggerating? I know it sounds apocalyptic, but really, I’m not. As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?
Very sick people.
People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.
Levin points out: It is now increasingly obvious to them that this is simply not how things work, that building a website like this is a matter of exceedingly complex programming and not “design,” and that the problems that plague the federal exchanges (and some state exchanges) are much more severe and fundamental than anything they imagined possible. That doesn’t mean they can’t be fixed, of course, and perhaps even fixed relatively quickly, but it means that at the very least the opening weeks (and quite possibly months) of the Obamacare exchanges will be very different from what either the administration or its critics expected.
The insurance industry is already reacting to Obamacare and this will quickly become irreversible. This article is from September.
IBM, Time Warner, and now Walgreens have made headlines over the past two weeks by announcing that they plan to move retirees (IBM, Time Warner) and current employees (Walgreens) into private health insurance exchanges with defined contributions from employers.
The article calls it “maybe a good thing” but that supposes the exchanges will function. What if they don’t for a year or more ? What will health care look like in November 2014 ?
What happens next — as we’ve seen in states such as New York that have guaranteed issue, no ability to price to the customer’s health, and a generous mandated-benefits package — is that when the price increases hit, some of those who did buy insurance the first year reluctantly decide to drop it. Usually, those are the healthiest people. Which means that the average cost of treatment for the people remaining in the pool rises, because the average person in that pool is now sicker. So premiums go up again . . . until it’s so expensive to buy insurance that almost no one does.
Will that be apparent a year from now ? I’m sure the administration, and the Democrats, will do almost anything to avoid that. What can they do ? They’ve already ignored the law to delay the employer mandates. It’s too late to delay the individual mandate because individual policies are being cancelled right now.
Read the rest of this entry »
Posted in Big Government, Economics & Finance, Health Care, Leftism, Medicine, Politics, Predictions | 7 Comments »
Posted by Lexington Green on 15th October 2013 (All posts by Lexington Green)
With the recent Nobel award to UChicago economists, it is good to be reminded of spirit of Chicago economics, and why it keeps producing Nobel Prize winners.
A friend who is a UChicago economics professor, who was a PhD student at the time, witnessed the following episode.
Gary Becker ran the Applications of Economics workshop in the Department of Economics for decades. This workshop was legendary as Ground Zero for tough microeconomics workshops. Frequent attendees included George Stigler, Ted Schultz, Sherwin Rosen, Kevin Murphy, Eddie Lazear, Bob Lucas & more. In addition, many PhD students (including myself) attended. That’s where we learned how to do research & think critically.
In the late 1980s (probably 1988), Asser Lindbeck came to present a paper he was working on. At the time Lindbeck chaired the Nobel Prize selection committee, & Gary was the #1 choice in the betting pools to receive the Nobel next. He did in fact win in 1992.
Lindbeck sent paper #1 ahead of coming to Chicago. As was the culture of the workshop, attendees had read it & were prepared to discuss the paper. As always, Gary showed up with a couple of questions scribbled on the front of his copy of Lindbeck paper #1.
Unfortunately, Lindbeck had sent the wrong paper. He arrived prepared to present paper #2. At the start of the workshop, he announced that he would not take any questions for the first 20 minutes, while he presented paper #2, & then he would open it up for discussion.
Gary immediately replied, “No, we prepared the paper that you sent, & that’s what we will discuss.” Lindbeck had a stubborn personality & replied, “No, I will present #2 & that’s what we will discuss,” & proceeded.
Gary immediately interrupted him with a question about paper #1. Lindbeck interrupted him with a blunt admonishment that he was going to present #2, & started again.
Gary interrupted again with another question about #1. Lindbeck tried to stop him. This continued for a couple of minutes until Lindbeck relented & we discussed paper #1. A vigorous & constructive discussion then followed (since the audience was prepared).
Watching this as a PhD student was frightening & inspiring. Gary was fearless. He clearly was not interested in playing Nobel politics, but only in running his workshop with the highest of standards. His expectation was that we all read the paper & arrived prepared, that the presenter had high standards, & that the discussion was vigorous, rigorous & thoughtful.
I never forgot this lesson from Gary Becker in what is most important at Chicago: Economics.
May it always be so.
Gary Becker, Nobel 1992, above.
Posted in Chicagoania, Economics & Finance | 9 Comments »
Posted by TM Lutas on 14th October 2013 (All posts by TM Lutas)
From a system perspective, not a human perspective, compensation for work in capitalism is the system’s way of communicating to people that the system needs more or fewer people in a job. Not enough bricklayers means rising salaries and too many means lower salaries. The trend continues until the number of people doing the work roughly matches what is needed at the market clearing price and the people are generally satisfied with the compensation.
So what does that tell us about the US distribution of population in the labor market? The distribution of compensation is highly skewed and madly demanding more people get into the job of running companies. It’s highly lucrative work that on balance tends to create labor demand. Our lack of labor demand and the resulting salary stagnation are not a harmless consequence.
But people aren’t rushing into the CEO business anywhere near the numbers necessary to drive compensation down. It’s not like the current crop of CEOs is uniformly magnificent and we simply cannot do better. The wrecked companies littering the corporate landscape around the country are a testament to that. And failure at being a CEO would seem not to carry the same penalties as a spectacularly public malpractice for a doctor or lawyer.
So why has CEO production not drawn attention of the same people addressing the “IT shortage”? Why doesn’t the CEO grooming process create more candidates that drive costs down? Why is shareholder value being squandered in so many cases in highly compensating a stream of short lived, not very good chief executives, who drive the company into disaster time and again?
There’s something wrong with our CEO system.
Cross posted Flit-TM
Posted in Deep Thoughts, Economics & Finance, Politics, Society | 18 Comments »
Posted by Lexington Green on 14th October 2013 (All posts by Lexington Green)
Congratulations to Eugene Fama (top) and Lars Peter Hansen.
Some details about the men and their work can be found here.
See also, this piece from economist John Cochrane, Gene Fama’s Nobel:
“Efficiency” is not a pleasant adjective or a buzzword. Gene gave it a precise, testable meaning. Gene realized that financial markets are, at heart, markets for information. Markets are “informationally efficient” if market prices today summarize all available information about future values. Informational efficiency is a natural consequence of competition, relatively free entry, and low costs of information in financial markets. If there is a signal, not now incorporated in market prices, that future values will be high, competitive traders will buy on that signal. In doing so, they bid the price up, until the price fully reflects the available information.
Like all good theories, this idea sounds simple in such an overly simplified form. The greatness of Fama’s contribution does not lie in a complex “theory” (though the theory is, in fact, quite subtle and in itself a remarkable achievement.) Rather “efficient markets” became the organizing principle for 30 years of empirical work in financial economics. That empirical work taught us much about the world, and in turn affected the world deeply.
Alex Tabarrok at Marginal Revolution on Hansen.
Tyler Cowen on Fama.
Posted in Chicagoania, Economics & Finance | 4 Comments »
Posted by Carl from Chicago on 28th September 2013 (All posts by Carl from Chicago)
I saw the movie “Inequality for All” starring Robert Reich, the former labor secretary for Bill Clinton and a very short guy (he’s 4′ 11″) who is pretty personable and funny. Reich uses his day job as a university professor while teaching a class to illustrate his thoughts on inequality from the movie.
In the movie he attempts to link:
- decline in average wages, in “real” terms (adjusted for inflation)
- growth in the highest wages (the top 1%)
- with various factors, including globalization, automation, declines in unions, and the financial bubble
- income inequality with lower marginal tax rates on the rich
There are certainly some concepts in here than anyone can agree with. It would be good if more people in the USA earned a higher salary, had better educations, and were more productive.
In the movie he mentions Warren Buffett, who famously pays a lower marginal tax rate than everyone else in his office, which is due to the fact that he receives long term capital gains and dividend income which are taxed at a lower rate. This is grist for the “raise taxes on the wealthy” discussion, as Buffett plays the likable old man. However, what he fails to mention is that Warren Buffett is the very candidate that the ESTATE TAX is designed to catch… rather than nickel and dime him every year on his assets as they rise in value (and cause friction and force him to sell them off to meet the tax bill), the estate tax would be levied on the super rich and it would effectively make up for the lower marginal rate during his lifetime by taxing increases on his wealth at a rate of 40%, for all amounts greater than about $5M. However, Warren Buffett is choosing to “evade” these taxes by setting up trusts and / or giving it away to his favorite causes; if Warren couldn’t avoid his estate tax through these loopholes (the same way you or I can’t avoid the payroll or sales taxes) then 40% of his $60B estate ($24B) would go to the Federal government, to fund the “investments in people” that Robert Reich is so passionate about. Funny that Reich didn’t call that out (didn’t follow his narrative, apparently).
Another element he fails to mention is the growth in illegal immigration in the USA, and the havoc that this causes with unskilled labor (as they are willing to work for far less). It is funny because two professions he specifically mentions, meat packing and short order cooks, are magnets for immigrants and their arrival is a direct cause for falling wages in these fields. Not surprisingly, Reich didn’t want to alienate a core Democratic group.
There is a rich “pillow manufacturer” who makes $10M+ / year who also describes how ridiculous it is in his opinion that his marginal rate isn’t higher. That same entrepreneur says that he invests in “funds of funds” and due to this he makes money without creating any jobs. That is quite a statement – what do you think those hedge funds invest in? They invest in commodities, stocks, real estate and debt (I’m assuming). When you are an investor and you provide money for stock and debt you are supporting companies that, in turn, hire staff. I can’t believe that Reich let this comment slide, but since it was what Reich wanted to hear, why interject?
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Posted in Academia, Big Government, Economics & Finance, Taxes | 27 Comments »
Posted by Carl from Chicago on 22nd September 2013 (All posts by Carl from Chicago)
Historically art in the West exists and has monetary value because our country has wealth and buyers who want to collect it. Recently buyers in China have been on the rise, along with a corresponding value on what “they” would perceive as art (i.e., Ming vases, and a lot of modern Chinese artists, as well). This article describes their growth:
Chinese spending on art remains robust in 2013. That’s despite a dip in the market last fall and an economic slowdown that recently knocked the Asian nation off its perch as the art world’s biggest spender and back behind the former perennial leader, the United States.
In a broader sense, there is a question of what drives art, and why some situations with incredible pathos don’t receive the attention they deserve (or much attention at all). For instance there are 1 million children who have been displaced or made into refugees in Syria due to their ongoing civil war. Can you imagine the stories, paintings, movies and television that this story would drive in the West? While we watch “reality” shows about dancing and singing and our “serious” fare covers meth dealers in New Mexico, why aren’t the amazing stories of war (and sometimes redemption, or bitter relapse) grist for “art”?
As I follow the Congo wars and civil wars, I am also amazed by the dearth of real or fictionalized accounts of either the war itself or its impact on civilians. There is little even though the scale of suffering and conflict is so wide, and the participants so varied.
For instance, imagine yourself as a writer in Syria or in the Congo. You have all the grist for art all around you. And yet… no one cares, because it doesn’t matter (much) to those that buy and produce art of all types, since they are in the West or part of the growing contingent in Asia.
It is interesting to me because artists and liberal arts types often view commerce with distaste, and act as if the world would somehow be better if we all dropped our focus on money and attended a play or modern dance or something like that. They believe that there is a “choice” and they can pursue their dreams, even though their dreams are subsidized and provided for by the wealth that is generated by the world of business, and protected by our force of arms, which they also despise.
Without wealth and military power (or the cover of someone else’s military power, as much of Europe and Asia shield under the US umbrella), art itself is a tiny, meaningless cry in the night. There is no intrinsic “value” in art unless the culture can support and (often) export it. Countries can support their own culture, as France and Italy work hard to do, but this is also tied to their value in the tourism trade and linked to their economic value as “open air museums” since little is actually manufactured or driven from these countries anymore. French literature, which made large impressions in the past (Sartre, etc…) is effectively invisible in the US today, although we’d gladly go visit and tour and drink wine and partake in the fabulous views.
Another facet of this phenomenon is the growth in “blockbuster” films that are populated with aliens, comic book figures, or supernatural events. These movies sell around the world, while indie-type movies (or even movies with relationships) are relegated to third class citizenship. If it can’t be explained or viewed in a generic manner understandable across cultures, then it isn’t wanted by our major studios. Certainly the Oscars don’t agree with this model, as they continue to hand out awards to movies that 99.999% of the world wide movie population doesn’t see, while ignoring the giant comic-book based movies taking over the screens. The “artists” there are being subsidized by the money-making tent-pole films, although the studios are extremely profit focused and at some point they won’t be be throwing those artists crumbs anymore (after all, they have to pay for expensive mansions and lavish lifestyles and the “cloak” of artistic merit is only worth so much).
Cross posted at LITGM
Posted in Arts & Letters, Business, China, Economics & Finance | 7 Comments »
Posted by Jonathan on 6th September 2013 (All posts by Jonathan)
From a 1997 interview with the late Ronald Coase in Reason:
Reason: Some people would say that it’s just paper transactions, that all the efforts of the lawyers are a waste, a mess, a scourge on society. You have a slightly different view.
Coase: Lawyers do a lot of harm, but they also do an immense amount of good. And the good is that they are expert negotiators, and they know what is necessary in the law to enable deals to be made. Their activities are designed, in fact, to lower transaction costs. Some of them, we know, raise transaction costs. But by and large, they are engaged in lowering transaction costs. People talk about the information age and how large numbers of people are engaged in information activities. Well, gathering information is one of the difficulties when you’re in a market. What is being produced, what are the prices of what is being offered? You’ve got to learn all these things. You can learn them now a good deal more easily than you could have done before; you don’t have to search. If you’ve ever tried to buy anything, you know how much time goes into finding out what’s available and all the alternatives.
Posted in Economics & Finance, Law, Quotations | 3 Comments »
Posted by Lexington Green on 3rd September 2013 (All posts by Lexington Green)
This blog is, after all, called “Chicago Boyz.” One of the greatest and most influential economists of all time, Prof. Coase was for many years a Chicago Boy. A career spanning eight decades has now come to an end.
The official University of Chicago obituary is here.
Read the rest of this entry »
Posted in America 3.0, Biography, Book Notes, Chicagoania, Economics & Finance, Obits, Quotations | 5 Comments »
Posted by Jonathan on 19th August 2013 (All posts by Jonathan)
House Republicans have to learn and proclaim the basics of money and taxes because balancing the budget could be a disaster for the economy as even more money is pulled out of the productive economy to pay for their past sins. The best example of how to get out of debt remains what England did after Waterloo and the massive debt of the Napoleonic War. Parliament dumped the income tax immediately, returned to sound money in 1821 and went to free trade later. The economy exploded and led to a century of prosperity like none seen before. They didn’t pay off their wartime debts, a huge sum for the time, they froze it and paid interest. As time went by, that once inconceivable mountain of debt shrank to insignificance in the shadow of the world’s most powerful economy.
He gets it. Economic growth is the solution to most of our problems. Growth requires investment capital. The less investment capital that gets diverted from the private sector into unproductive govt spending and misguided debt paydowns, the more growth there will be.
Read the whole thing.
Posted in America 3.0, Economics & Finance, Public Finance | 20 Comments »
Posted by Lexington Green on 30th July 2013 (All posts by Lexington Green)
Detroit was once the greatest city of the modern world. Automobiles were the cutting edge of technology in the first half of the twentieth century. Talent and genius flocked to Detroit. Innovators in engineering, technology, design, finance, marketing, and management created a concentration of economic dynamism and creativity unlike anything the world had yet seen. Detroit was the Silicon Valley of its day, except its products were made of tangible metal, rubber, and glass. The auto industry transformed America into a land of mobility and personal freedom beyond the dreams of earlier generations. Henry Ford said, “History is bunk.” He meant the old limits could be blown away, and ordinary people could have a better life than they had ever dreamed of before.
(The rest is here.)
Posted in America 3.0, Big Government, Conservatism, Economics & Finance, History, Illinois Politics, Leftism, Political Philosophy, Politics, Society, Taxes, Transportation, Unions, Urban Issues, USA | 22 Comments »
Posted by Michael Kennedy on 26th July 2013 (All posts by Michael Kennedy)
As Obamacare looks more and more as though it will collapse, there are some alternatives beginning to appear. Several years ago, I suggested using the French system as a model. At the time, the French system was funded by payroll deduction, a source affected by high unemployment, and used a national negotiated fee schedule which was optional for doctors and patients. The charges had to be disclosed prior to treatment and the patient had the option of paying more for his/her choice of physician. Privately owned hospitals competed with government hospitals and patient satisfaction was the highest in Europe.
Recently the French system has run into trouble.
French taxpayers fund a state health insurer, “Assurance Maladie,” proportionally to their income, and patients get treatment even if they can’t pay for it. France spends 11% of national output on health services, compared with 17% in the U.S., and routinely outranks the U.S. in infant mortality and some other health measures.
The problem is that Assurance Maladie has been in the red since 1989. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget.
This may be due to several factors. The French economy is in terrible shape with high unemployment. More of the funding for the health plan is coming from general revenues. This was not how it was supposed to work. It was payroll funded, much as the German system is, with a wider source than individual employers. This allows mobility for employees and allows employers to distribute risk among a larger pool. Germany allows other funding sources such as towns and states. I think it is still a good model for us but, with the passage of Obamacare, it will take a generation before another large reform would be viable. Obamacare must stand or fall first and I think it will fall but, as in most government programs, it takes years before the sponsors will admit defeat.
Another proposal has been made by a serious study group.
1. The government should offer every individual the same, uniform, fixed-dollar subsidy, whether used for employer-provided or individual insurance. For everyone with private health insurance, the subsidy would be realized in the form of lower taxes by way of a tax credit. The credit would be refundable, so that it would be available to individuals with no tax liability.
2. Where would the federal government get the money to fund this proposal?
We could begin with the $300 billion in tax subsidies the government already “spends” to subsidize private insurance. Add to that the money federal, state and local governments are spending on indigent care. For the remainder, the federal government could make certain tax benefits conditional on proof of insurance. For example, the $1,000 child tax credit could be made conditional on proof of insurance for a child.10 For middle-income families, a portion of the standard deduction could be made conditional on proof of insurance for adults. For lower-income families, part of the Earned Income Tax Credit could be conditioned on obtaining health coverage.
3. If the individual chose to be uninsured, the unclaimed tax relief would be sent to a safety net agency providing health care to the indigent in the community where the person lives, so that it would be available there in case he generates medical bills he cannot pay from his own resources. The result would be a system under which the uninsured as a group effectively pay for their own care, without any individual or employer mandate. By the very act of turning down the tax credit for health insurance in choosing not to insure, uninsured individuals would pay extra taxes equal to the average amount of the free care given annually to the uninsured. The subsidies for the insurance purchased by the insured would then effectively be funded by the reduction in expected free care the insured would have consumed if uninsured. [See Figures II and III.]
The paper goes on to explain the proposal The trouble is that this is another major reform and I see no chance for it in the foreseeable future.
What then is the most likely development ?
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Posted in Big Government, Economics & Finance, Health Care, Medicine, Politics | 20 Comments »
Posted by David Foster on 20th July 2013 (All posts by David Foster)
Fund manager John Hussman applies this lullaby to the current state of the stock market.
Be careful out there.
Posted in Economics & Finance | 8 Comments »
Posted by Carl from Chicago on 15th July 2013 (All posts by Carl from Chicago)
I recently watched the excellent “Frontline” documentary “Two American Families” which followed two families from 1992 onward in Milwaukee as they struggled to stay middle class. The movie started with the main breadwinners in each family losing solid middle class union jobs and then starting an odyssey of lower wage jobs with no benefits, often during non-standard hours (the night shift).
While the families struggled, I actually was more interested in their children than the parents who were ostensibly the “stars” of the film. As the parents worked (both parents had to join the work force to make up for the lost wages) the children (three from one family, five from the second family) had to look after themselves since they were often left home alone after school.
While in New York City on the subway I came across these billboards which warned (potential?) single mothers very directly that if they had a child out of wedlock they faced a high chance of being a single mother and in poverty. The sign I saw had the quote:
If you finish high school, get a job, and get married before having children, you have a 98 percent chance of not being in poverty
From the results of the documentary, one of the children finished a four year college, and he appeared to be the most successful of the 8 kids they followed up on. Earlier in the documentary they showed him (his name was Keith) in college, struggling to get by and pay tuition bills on a credit card. Keith was not married and did not have children and in interviews stated pretty flatly that he didn’t want to get married and have a child until he was ready to support them. A second child went into the navy and was there for many years, before leaving and then re-enlisting as a private contractor in Afghanistan since he couldn’t find work in Milwaukee. A third kid (a woman) got an associates degree and (miraculously) did not get pregnant, and she was doing OK as a medical biller at a hospital in Milwaukee.
The other children didn’t seem to graduate high school or did and then didn’t go to college. Many of them had multiple children themselves (without getting married) from a variety of different partners. One of them was married (the girl who got an associates’ degree) but she was married to a guy who was out of work.
Each of these children, who were the real legacy of the troubles cited in the documentary, fell right into that concept that if you finish high school, get a job, and get married, you won’t live in poverty. One slight “tweak” to this rule might be to marry a spouse who works themselves or has some capacity to be a positive parent; some of the partners were obviously sulking or already disgruntled at an early age. Nowhere in the documentary did they directly point this out, although it was the central lesson from the film.
Cross posted at LITGM
Posted in Economics & Finance, Education, Morality and Philosphy, The Press | 9 Comments »
Posted by TM Lutas on 9th July 2013 (All posts by TM Lutas)
During the process of putting together Citizen Intelligence, I sometimes run into some things that are quite simple, but are worth remarking on. I’ve decided to put them up here as an irregular series.
Out of the ~89,000 governments in the United States, ~55,000 of them bond, or borrow money, about 61% of the total. That means 34,000 do not. Which of your governments live within their means and spend all their tax money on providing services and which of them have an invisible drain installed siphoning off unnecessary interest payments to Wall Street? How many of them could, with minimal inconvenience, add a few more percent in services or cut a few percent off their tax bills simply by not bonding or reducing their bonding to large capital items instead of borrowing for operations?
Note: Updated to make it clear that this is not about the classic large capital expenditure items that most would agree are legitimate projects for bond financing but rather borrowing that could be foregone and where, in some jurisdictions, they manage their cash flow well enough to do without the borrowing.
Posted in Big Government, Economics & Finance, Public Finance | 3 Comments »