Reviving Economics

Part Time for Economics Reasons: Hardly Obamacare

noreply@blogger.com (Garth A Brazelton) — Fri, 03 May 2013 22:10:00 +0000

The quacks are out in force suggesting that our economy is undergoing a transformation whereby we have less full-time workers and more people forced to work part-time. That part is true. The part that isn't true is the reason often given as the main cause: Obamacare and the uncertainty of regulations.

The truth is something different. As you can see, the issue of part-time employment taking the place of full-time employment became an issue well before the health care legislation ever even become a law.

In fact, since Obamacare was signed into law the overall number of part-time employed for economic reasons has fallen a bit, just as our unemployment rate overall has been slowly falling.

Despite the obvious evidence that the phenomenon is almost solely attributable to the financial crisis and resulting recession, it hasn't stopped some economists and conservatives from blaming Obamacare (which by the way I don't disagree that Obamacare is being rolled out poorly, but to blame the entire employment situation on it is counter to the evidence):
here and here, for example.

Never-mind the fact that employment numbers have been revised upward and the unemployment rate continues to drop at a steady, albeit slow pace. Consumer confidence continues to rise along with the stock markets. The naysayers still insist that Obamacare is dragging everything down.

And it may yet be true that it might....but the data presently shows that it is the continuing effects of the crisis that are dragging us down. Anyone who suggests otherwise is likely talking more out of politics than economics. Yes, U-6 did tick up ever so slightly (unemployment rate including part-timers that would rather work full-time and discouraged workers) but as I've said before on this blog, you should never take one month's report and assume it is a new trend. It is likely Obamacare will cause a slightly further shift to part time employment but only marginally, and for my money, we should be concerned about the mountain, not the mole hill.

Continuing Evidence: Mainstream Economists are Just Politicians in Disguise

noreply@blogger.com (Garth A Brazelton) — Wed, 01 May 2013 16:02:00 +0000

On the right

and

On the left

The point of disagreement is disguised as being a disagreement over the Keynesian multiplier: is it 1, is it less than 1, is it greater than 1 (recall the multiplier is simply the effect of a $1 cut or increase in spending on GDP)....

But really, economists' views on the multiplier have almost nothing to do with scientific inquiry and have almost everything to do with where they lie on the political spectrum. Mankiw, being a Republican thinks the multiplier is small (big surprise) and that therefore the cuts won't hurt GDP or employment much. Goolsbee (for example) being a Democrat thinks the multiplier is bigger - and that the cuts may in fact take a noticeable chunk out of GDP and employment.

The point is, all these economists pretend their differences are a matter of math and science, when they really are almost soley a difference of politics.

[Not to mention that both sides are ignoring that the Keynesian multiplier says nothing about employment - it only says what the effect of spending cuts on GDP is. To the degree that GDP and employment are not 100% correlated (which of course they aren't), the multiplier itself says very little about employment.]

From Keynes' General Theory, Chapter 20:

"It follows from this that the assumption upon which we have worked hitherto, that changes in employment depend solely on changes in aggregate effective demand ... is no better than a first approximation, if we admit that there is more than one way in which an increase of income can be spent."

Dear NRA....

noreply@blogger.com (Garth A Brazelton) — Sat, 23 Feb 2013 16:07:00 +0000

Economics Not the Problem in Egypt, Freedom Maybe

noreply@blogger.com (Garth A Brazelton) — Wed, 30 Jan 2013 17:50:00 +0000

Many in the media make the claim that Egypt's original uprising and continued discontent has more to do with economics than anything else (poverty, income inequality, etc).

However, something I stress in my macro class, is that statistics don't seem to bare a lot of that out - particularly when you compare Egypt to the Untied States (where there is no US Spring).

Egypt has less income inequality as measured by GINI (the data is a decade or two old but I don't think that affects the analysis much):

The Egyptian economy, additionally, has grown by 25% as measured by GDP per capita from 2000-2008 - before the Arab Spring. During this same time, the US has grown by a measly 9%.

The unemployment rate in Egypt in 2009 leading up to the Arab Spring was 9%, which was actually less than the unemployment rate in the United States during the same time-frame. Even looking at just youth unemployment - the rates in Egypt are not really that out of line compared to its neighbors or even the United States.

So, I for one simply don't buy into the fact that the Egypt uprising is economic. It is far more likely that it is more about political freedoms than anything else. I think that that is supported by the new uprisings taking place - which are stemming from the government failing to create legitimacy among the people.

Either that or this begs the question - why aren't WE in uprising?

Average Joe Doesn't Understand Economics

noreply@blogger.com (Garth A Brazelton) — Wed, 09 Jan 2013 14:21:00 +0000

The press flowing (and comments made from that press) from the 'new' idea of the US Treasury minting a new $1 Trillion coin has made me come to the unfortunate conclusion that the press and the average Joe commenter doesn't really understand economics. This is despite the fact that I'm sure many of them took macroeconomics in school. Actually, it's probably because of it.

Things that people don't understand:

First, in neoclassical macro texts, teachers tell students how there is a limited supply of funds and that if the government spends it must be taking real resources out of the private economy. This ignores the fact of course that our 'funds' (ie. money) can be created at will by the US. government as the sovereign controller of its own fiat money. Fiat meaning that the money is backed by faith, not by any commodity like gold, silver or platinum. In the real world, the only reason the government borrows money at all is purely due to institutional constraints to the treasury and Fed. Presently, when the government spends money, it needs to issue bonds. So the treasury issues bonds, floats them on the private market, and 'borrows' from private citizens or other governments etc. The US then has an obligation to pay interest on those bonds, but it can always do so, because again, the money can simply be created by the government But the system need not be set up in such a confusing way. Were it not for this constraint, there would be no reason the treasury can't just make the funds appear out of thin air, walk over to the Fed, and use that coin to pay for it's spending. Public 'debt' can be wiped out with a click of a keyboard - no bonds needed.

Enter the $1 Trillion coin!

There is a loophole that says the treasury can mint and use platinum coinage at its discretion and there is no limit to the amount of dollars that coin can represent. This is a kind of power that the treasury doesn't typically have. Here comes thing #2 that people don't get about economics. We are not on the gold standard anymore. Our money doesn't have to be or be backed by equal value of a commodity. One platinum trillion dollar coin does not have to be made by or backed by $1 trillion worth of platinum. It can be a simple small coin the size of a dime, with $1 trillion etched on it - for the very same reason that our $100 bill is not made out of $100 worth of paper and ink. So, shame on NBC. And the sheep. But particularly, all real blame goes to the economics profession for failing these people!

But won't that cause inflation?

Here is thing #3 people don't understand: money doesn't cause inflation. Demand (spending) pressure exceeding supply pressure (production / productive capacity) causes inflation. When demand exceeds supply, people start circulating more and more money around the system, but for a given level of real output, all that does is raise prices. The misunderstanding here is that most neoclassical mainstream economic textbooks assume that the more money the government makes, the more borrowing and spending that happens. But that is ridiculous. One need only see the massive amount of money the government has put into the banks to see that banks don't loan more money just because it's there. This is classic chicken / egg problem. Textbooks say more money means more spending. Reality says more spending means more money. Spending over our means is a problem - but not one in our present depressed economic environment.

In any case, the $1 trillion coin could not possibly create inflation anyway, even under the textbooks' models, because it will never even reach the private banking industry. The treasury would use it to pay it's debt, accounts would be credited and debited, and the coin could be melted down. The coin is just a legal means to get the Fed to allow the treasury to pay down a portion of it's debt. The actual end result is simply someone at a computer changing two sides of a ledger.

Why do we get taxed at all then if in reality the government can just make 'funds' out of nothing?

Because in a modern market driven largely by complex financial business, market functionality is inherently unstable and prone to speculative bubbles and bursts. One way these bubbles form is when people have access to too much liquidity via credit and go on a spending spree with their credit cards that they can't really afford. This kind of thing often results in certain markets being significantly over-priced (like housing in the early 2000s) and then when a crash happens it can obviously wreak havoc on everything and everyone, around the globe, much as it did in 2008-2010.

Taxes, aren't really sources of 'revenue' for the federal government. The only real purpose they serve is to regulate demand (spending pressure). Higher taxes reduces spending pressure (particularly on investment) and reduces potential bubble creation. This is thing #4 that people don't understand and it's probably the most counter-intuitive. In most neoclassical macro texts, taxes are treated as a part of national savings - part of a pool of limited funds from which to draw from for spending. But it really isn't. Taxes aren't needed to fund federal spending, and therefore taxes are not revenue, and therefore taxes are not a 'pool of funds' used to pay for anything. Their sole purpose is to regulate the economy and redistribute income - to keep it from getting too hot or too cold - and to ensure that the inequality wealth gap does not get out of hand.

The real culprits....

...are the mainstream economists who continue to tell outdated or just flatly wrong tales about how our economy actually functions. In the sense that many politicians take their cue from these economists, it's actually economists that are then to blame for our political problems. The $1 trillion platinum coin can solve our economic problem, but it can't solve the political problem that has been created. That takes something more than money.

Government Should Borrow More, Not Tax More

noreply@blogger.com (Garth A Brazelton) — Fri, 04 Jan 2013 18:25:00 +0000

Fiscal Cliff has been averted, at least for two more months where we will have an even bigger cliff to hurdle. Of course, I never liked the term 'fiscal cliff' since it implied there's some sort of inherent government insolvency issue even though that was never the issue. It has been and will continue to be a political cliff - caused and created solely by inept politicians (congress).

Our present national public debt stands at around $12 trillion (76% of GDP roughly). That number sounds big, but since the debt essentially represents money we owe ourselves, the number itself is relatively meaningless unless compared to other things. This point is something radical (read: mainstream) Republicans don't seem to grasp. The bill to avert the fiscal cliff for now passed but no thanks to 100+ of these mainstream radicals that are more concerned about this meaningless number than the ability of our fragile economy to continue to grow.

So, what should the number be compared to? Well, if the government is racking up 'too much debt', interest rates will tend to rise and inflation will spiral out of control. Interest rates, however, today, maintain themselves at all-time lows and inflation is tame and stable. And, interestingly, if any real person in the market thought inflation posed a problem in the future, we'd see interest rates start to rise accordingly, but they aren't so that is why we know that neither are problems at all. What about all that money the Fed pumped into the economy - won't that add to inflation? No. That money has been largely doing what it has been doing for the better part of 4 years - sitting there not being lent or borrowed as 'excess' bank reserves. Surely as the economy picks up, more of this money will be floated into the broader economy, but that's ok - because along with this money increase will be an increase in production and economic output - which will act to tame any inflation.

So, Republicans continue their airless rhetoric about 'imposing costs on future generations' and all that nonsense which has absolutely nothing to do with reality.

Democrats aren't much better - allowing significant back-breaking tax increases not just on the rich but on the average Joe. We could have avoided not just the taxes on those making >$400K, but also the 2% social security payroll tax increase that hit most Americans' paychecks this week. Both of these tax increases, it is estimated, may reduce the output of our fragile economy by nearly a whole 1% point of GDP in the coming year.

The better alternative would just have been to continue to do what America does best: borrow. There's never been a better time to do so in a market with record low interest rates after all! Everyone wants our bonds as it is what with China continuing to be shaky and Europe still very much in a crisis. Borrowing, at the end of the day is simply issuing US-denominated bonds for US currency, both of which can be converted into each other - hence the reason why government borrowing is like borrowing from oneself - the US controls its own currency after all. There are certain technical political restrictions which make the intersection of our fiscal and monetary policy a bit convoluted at present, but there are those in congress and in academia advocating for a most realistic change to our system to accommodate the simple fact that 'debt' by the federal government is not really 'debt' at all.

Policy Thought for Veterans Day

noreply@blogger.com (Garth A Brazelton) — Sat, 10 Nov 2012 14:49:00 +0000

The present unemployment rate is 7.9%. But as Iraq War veterans have been flooding back home and Afghanistan War veterans are expected to be coming home in droves over the next 2 years, some are having a tough time adjusting to the cruel ways of market capitalism - the onus is on them to find a job in this tough economy. There are institutions out there that try to make it easier for vets to transition. But these aren't widely marketed and don't guarantee anything other than an increased access to a chance to be hired. That's not the same thing as a job.

Meanwhile, the unemployment rate of recent US veterans is 2% higher than the national average. And for some categories of recent vets (women, 2001-present), it's almost 2X higher: 15.5% and this is projected to rise rapidly as the surge of vets finally come home.

What is our country to do to support these men and women? We could continue our current track of offering lip service, or we could work to enact a real policy change that could have a real positive effect. The only way to directly solve this problem is to enact a thoroughly non-mainstream economic policy (albeit on a smaller scale): jobs guarantee specific to our returning vets.

A jobs guarantee program is exactly what it sounds like. Instead of trying to indirectly get people back to work by stimulating demand/spending, or by providing more opportunities for interviews etc, the government literally guarantees a public job potentially offering a laundry list of positions including: beautification, public works, counseling service to fellow vets, etc. In the past I've expressed concern about enacting a nationwide jobs guarantee program, and I still have those concerns: creating another unproven permanent government bureaucracy with the potential to increase beyond its initial scope, promoting potentially nontransferable job skills, disrupting the private labor market, creating a moral hazard of labor, etc. But, when we are talking about creating this on a much smaller scale, and for a specific segment: for recent veterans, most of those concerns become minuscule compared to the potential benefit - the necessary sacrifice we owe our returning soldiers. The least we can do is guarantee them a minimum wage paying job while they are undergoing private sector job-search. This point of this program would not be to give a solider a permanent job - but to give them temporary work, to more fully employ their expertise and resource, until they can find a better higher paying private sector job.

It's time to do this. Stop wasting money on all these government services that don't get vets jobs - they maybe just get them in the door. That's not good enough. In the meantime, we waste precious expertise, talent and labor resource that could be adding to our GDP, and our tax revenue. The other added benefit of this program is that it can act as a small-scale trial / test for a more broadened nationwide program. Maybe it will prove the skeptics, like me, wrong. And if it doesn't, if it does have unintended consequences, the scale of it means the costs are small relative to the potential debt we owe our soldiers.

Capital Gains Vs. Net Wealth

noreply@blogger.com (Garth A Brazelton) — Thu, 08 Nov 2012 16:51:00 +0000

Yesterday stocks plummeted by the biggest % all year. No one knows exactly why, but most think it's from a combination of things including the fact that Wall Street doesn't like our status quo politics, and they particularly don't like the looming fiscal cliff: the series of tax hikes and government spending cuts scheduled to kick in in a couple months.

It may be that investors are worried about what Obama might make them pay as he continually hammered during the election that people like Mitt Romney and Warren Buffet actually pay less in taxes relative to their income compared to a typical worker because their incomes are largely earned by capital gains. Are capital gains tax increases destined to be part of any cliff negotiations ?

Classical economists (conservatives) generally don't like taxes on capital gains because it essentially acts as a negative incentive to save money. Keynesians don't fret as much about that since in their view investment often leads the savings and wealth creation and investment decisions by firms are partially benefited by furthering demand (consumption). Say's Law is rather outdated!

I'm against capital gains hikes personally much as I also dislike income tax hikes (or income taxes in general). For one thing they are taxes on flows not stocks. That is, you are taxed based on an annual increase or decrease in wealth via capital gains (or income). Well I could be a billionaire but have one bad year in terms of my income and thus owe nothing to the government despite my wealth. In fact, that was the case for many firms during the recession. They had net operating losses and owed $0 to Uncle Sam. Or, you could be a recent college grad making mad bank and therefore paying big taxes even though you are still young, have no wealth to speak of, have $0 in your 401K and have $100K in student loans. Income taxes are stupid.

Similarly regarding capital gains, if the stock market takes a dive and they make no capital gains, then they don't pay the taxes. If we care about distribution of wealth (and most conservatives don't, but I do) then we should care about this inherent loophole. Another reason I don't like capital gains tax is that it creates a perverse incentive: it makes people want to save less for their futures. If we want a populace that cares about its future and how it's going to pay for their golden years, then we should care about not promoting the next car purchase over the next Roth IRA purchase. Notice this is not the same argument classical economists make. Classical economists are pathological, and don't give a shit about you personally.

Some European countries use a net wealth tax, which to me is much more preferable (though perhaps not at the exorbitant rates as some of those countries) - it compares your assets minus your liabilities (stock variables) and the more you have, the more you are taxed. Simple, efficient, dynamic. So if I'm an average Joe, I won't feel queasy about saving for my future. I might feel a little queasy if I'm a billionaire in terms of net wealth: if I have a McMansion on the hill, 10 porches, and private jet... but frankly, if you are a billionaire and you are queasy about giving back to society that has helped you so much to get where you are, then you are an asshole and I don't particularly care.

Get Out the Vote: A Scourge of Modern Politics

noreply@blogger.com (Garth A Brazelton) — Tue, 23 Oct 2012 17:22:00 +0000

Many polls are open early across this country. And everyone from celebrities, to Super PACs to special interest groups to politicians are pleading with the American people to get out and vote. It's every American's civic duty, they say.

Even though most don't know what galaxy you are living in, Americans are told to vote on matters of domestic policy you likely know or care little about.

Even though a third don't know who the current Supreme Court Justice is, Americans are asked to decide the fate of judicial branch with your vote.

Even though half don't care to follow whether Obamacare was ruled constitutional or not, Americans are asked to decide the fate of it.

Even when one in ten think our sitting president is Muslim, they are asked to decide on the role of religion in our discourse.

Even though nearly half think that China is a greater economic power than the US, Americans are asked to decide the outcome of our foreign and economic policies.

Even though that scientists say that all the stupid Americans are dooming us with voting, many will listen, and will cast uninformed biased votes based on what your friends, celebrities tell you, or what your gut feelings say to you, or the fact that your skin color matches the candidate.... These are not reasons to vote. These are reasons to do your real civic duty and abstain from your vote.

The saving grace for our country is that due to the corrupt nature of our modern political process, most votes likely will not count anyway. Unless you live in Ohio or Florida or one of the few 'battleground' states, one should have no incentive to vote other than as a symbol. Most of you that vote anyway, whether you are stupid or not, will use your vote to symbolize your belonging to either the Democrats or Republicans. The rest will be disenfranchised - locked out from the process. We will continue to have 2 overly-powerful parties beholden to their Super PACs and special interest deciding the fate of the future with little to no hope for process changes to how congress or our electoral system could operate more effectively.

My friends may not agree with me now on this broader point, but in time I hope they do. The only solution is to demand real change from outside the system. So I urge every American not to get out and vote, but to boycott our political system - shock it into changing. Only when we eliminate the legitimacy of the system can we fix it. We must sacrifice any individual gains via party-support for true long-run gains for our country.

Keen Connects to MMT

noreply@blogger.com (Garth A Brazelton) — Thu, 04 Oct 2012 15:55:00 +0000

Continues to interest me:

or for a more encompassing version of lesser quality (sound):

Keen has a unique definition of Aggregate expenditure (closed economy):
=C + I + NetAssets + (G-T)

....he didn't explain that enough for me to fully understand what he's saying here. But here is my take (updated since I previously mentioned I too was confused) since many bloggers are just outright calling Keen's work nonsense. This is partly Keen's fault for not clearly defining things.

He goes on to say that:
Income + Change in Debt = Output + Net Asset Turnover

...which suggests to me he thinks that changes in assets (prices bubbles)are a result of changes in debt (a la Minsky, which makes sense).

From what I understand, what Keen means by Net asset turnover is speculative and ponzi financing. That is, financing of financial instruments that do NOT have a backing of a physical good or service and therefore are not expected to fully repay the principal and interest of the financing absent bubble formation.

In this way, Keen income and debt partially financing real goods and services, but also partially financing speculative and ponzi investments (the value of which is not based in real output).

In this view, neoclassical economics ignores this new class in the usual Y = C + I + G formation. The real question to me is then, why does he include G-T instead of just G in his above formula. That is still unclear to me.

UPDATE: had a brief back and forth with Prof. Keen about why he nets out taxes in his effective demand function. Not very insightful. He just said it's "cash flow."....hope he describes his re-formulation of the usual demand function in a more user-friendly way in the future.... Maybe he's too in-the-weeds.

Indiana Gov Race: Pence v. Gregg

noreply@blogger.com (Garth A Brazelton) — Sat, 15 Sep 2012 13:51:00 +0000

Having recently attended the Fall 2012 session of the Indiana Economic Development Conference, I had the chance to hear Sue Ellspermann (Mike Pence's (R) running mate) and John Gregg (D) give their thoughts regarding how to improve Indiana's economy. Below I will outline what I heard, and give my opinion on who has the better direction:

Highlights from Sue Ellspermann for Mike Pence:

In regards to labor force and education, Ellspermann indicated that the Pence campaign wants to strengthen vocational and technical schools by working with high school and employers throughout the State. They want to eliminate the stigma of these schools and slowly get people to realize that 4-year colleges aren't for everyone and not necessary for many high-paying careers. While I don't think this focus would work for every State, I do think it's the right one for Indiana given the kind of labor pool and demand we have. This is in some sense an extension of the what the Daniel's administration has already started, so no marks for originality. Unlike the Gregg campaign, the Pence campaign wants to reduce education costs mostly by incentivizing students to graduate early or at least on-time by basically paying them to do so. I don't know how I feel about that. To me, there's usually a good reason students don't graduate on time. I'd rather see some of that money being spent on high schools to do a better job of helping students figure out their likes, dislikes, strengths etc.... Grade: B-

In regards to government operations, the campaign wants to have a "moratorium on regulations." Sue (I'm tired of typing her complicated last name) didn't give any specifics on this, and I consider this to be a throw away item that every politician says.... Grade: F

And of course the Pence campaign wants to support Veterans. Sue mentioned that the existing unemployment rate is about 15% for Veterans (twice the national average nearly). She gave no specifics other than wanting to put a Veteran on the IEDC Board. All in all, I don't see the point of that and consider this to be another throw-away political stance:... Grade: F

Of course, Sue wouldn't be a Republican if the main part of the platform weren't about cutting taxes. So, the Pence group wants to cut income taxes over 2 years by 10%. And again, like most Republicans, there was no mention of how this would be paid for (see regulations above). So, Grade: D

Sue talked about the need to increase exports, particularly with ag. She went on to talk entrepreneurship and partnering with universities, creating an Indiana jobs cabinet that can be movers and shakers that can spread the word about Indiana's strong business climate, and also talked about hosting a national site selector conference. Some of this seems like it might be beneficial, but she was a bit vague on specifics, so I'll go with a B-

Regarding energy, the Pence campaign supports an all-the-above strategy - which is the best any politician can do in coal country....no grade on this.

Overall, I was impressed with Sue Ellspermann's presentation (if not a majority of the content) and it is refreshing that she actually has an econ dev background (which I'm sure is why Pence sent her) but it's also disheartening that Pence didn't show up himself - just further exemplifies the fact that he is all social-issues, which is concerning to me. I think there were a couple good ideas, a lot of old ideas, and some throw-away vagueness. So, overall grade is a C-

Highlights from John Gregg:

John Gregg showed up on Friday to speak and I was struck my many similarities to the Pence campaign's ideas. First, some democrats don't realize, but John Gregg is just as (if not more so) conservative when it comes to social issues (which is part of the reason why he chose Vi Simpson as his running mate - to mask that). But also, on econ dev, there are more similarities than differences with Pence.

The first point he made was about energy - Gregg wants to eliminate the sales tax (not the use tax) on gasoline. He tried to persuade the audience that the amount of money saved per family is significant, but that is laughable for all but the poorest of families. Also, while I don't support tax increases on gas like many economists do, I certainly don't support eliminating taxes on them. This seemed more to me to be a political populist ploy more than anything else, though perhaps he has his heart in the right place, we are never going to close the gap on the clean/coal cost differential if we cut the cost of gas. Like Pence he claims to have an all-the-above strategy and mentioned something about making more wind turbines here....Grade: D-

Like the Pence camp, he wants to have an 'efficiency audit' which just means he wants to spend a lot of time looking at the regs to see if we can save money. Given that the Daniel's administration spent 8 years doing that, I don't see the value. Also, he gave the same talk about Veterans although he didn't mention anything about putting one on the IEDC board. I'll give this the same grade I gave Sue: F

Regarding specific econ dev stuff, Gregg wants to cut the corporate income tax (with a credit) particularly on HQ relocation to Indiana. I see two difficulties: one is that we just don't see that many HQs relocating anywhere except for Indianapolis metro or Fort Wayne (so it's hardly a big benefit Statewide), and two is we already have tax credits to do this! He went on to talk about how he wants to target specific industries like life science and advanced mfg. but again, these are targets the State already has. He mentioned a tax credit also for companies that relocate jobs from overseas (I think Obama had a similar idea?) Again, while the IEDC doesn't have a credit specific to that, we already have credits we can give companies to relocate back home. It's REDUNDANT. My biggest disappointment is he made no mention of his recently announced idea to create a midwest econ dev cooperative (which I love) - so I can't factor that into his grade. Grade: F

Regarding international trade, again like Pence, he wants to increase exports. Gregg says he'll accomplish this by creating a new office at IEDC devoted to international strategic exports. He was very vague on this, but I imagine this might involve expanding our already-existing international office. He also wants to fight unfair trade practices abroad. While I applaud that sentiment, that seems like a federal issue. The US can't get China to change, how in the world is Indiana? Finally, he wants to create a 'heritage to home' program essentially turning foreign students into ambassadors for the state. I suppose the idea being he wants all this foreign talent to earn degrees here, then leave, and spread the word about Indiana in India, China....I would rather the focus be on keeping them HERE. Grade: D-

Unlike Sue's speech (actually the two were very different deliveries, Sue's was polished and professional and Gregg's was very off the cuff and folksy to the point of being obnoxious), Gregg kept preaching to the crowd (of mostly local econ dev officials) that he wants the State to better engage the localities on how to do econ dev. He gave no specifics and I mostly thought he was just trying to push his populist preaching, but I DO wish the State were more collaborative with local officials. So, I'll grade that a C.

He ended on education. His plan to cut costs is to look at our schools and ask the question, 'is that building needed?' 'Is that program redundant with this program?' Again...fluff. He wants to give a tax credit or other incentive to keep kids in Indiana after graduation (which to me seems counter to his plan for a foreign ambassador program). Perhaps his biggest difference with Pence is that he seemed largely resigned to the fact that kids take more than 4 years to graduate these days - it's the new normal. As such, he has no plans to incentivize on-time graduation. Grade: C-

Overall, while funny, his speech was a lot like his campaign: lacking a clear direction or focus and overly folksy. He actually made a point of not asking for anyone's vote, which I found odd to say the least. Another oddity was that (and yes, I was keeping track), he not only said "IEDC operates good (folksy grammar)" but he also credited Mitch Daniels with 4 things: Indiana Buy-IN program, BMV makeover, strategic overseas focus, and community college focus. Gregg kept his best econ dev idea off the table for this group and largely either has a copy of the Pence campaign or imop has some really uninformed ideas. So, his grade is a D.

So, it's Pence/Sue by a nose - but certainly nothing to write home about.

Dangerous Precedent: Patenting Cool

noreply@blogger.com (Garth A Brazelton) — Sat, 25 Aug 2012 15:08:00 +0000

Apple vs. Samsung proves that we don't have anywhere close to a free market economy. We have an economy that has a lot of the negative elements of one: greed and corruption, and an economy that has taken away the ability to have the positive elements: namely, competition.

When you can patent a look, a feel, a size dimension... it erodes competition. You are eliminating the rights of companies to learn and imitate, which in reality is a much more powerful force than to innovate. Innovations are a once in a generation find most of the time. And the catalyst for them are usually not monetary gain - but passion. Jobs and Wozniak innovated because they were passionate. Imitation allows companies to learn from each other, and to pass that learning on the customers in the form of lower prices. Imitation is not just a sufficient condition for competition, it is a necessary one. When the system takes even the most basic form of imitation away from companies, it takes away the positive power of markets.

If you own Apple stock, you should be happy, but if you own stock in the American dream, you should be very afraid.

Reason over Vitriol

noreply@blogger.com (Garth A Brazelton) — Thu, 02 Aug 2012 12:35:00 +0000

http://www.dailyrepublic.com/opinion/localopinioncolumnists/cant-get-worked-up-over-chick-fil-a/

http://www.chow.com/food-news/121994/chick-fil-a-is-conservative-so-are-a-lot-of-other-restaurants/

http://money.msn.com/politics/post.aspx?post=5546973f-da8f-41e5-b87d-d35257efa6ea

If we truly believe that business institutions are not 'people', then we shouldn't be attacking them for their leader's beliefs. And if you do believe businesses should be treated like coherent organisms, why stab the heart if it's the head that hurts.

If they break the law or there is evidence of systematic actual job discrimination or customer discrimination / abuse, then that's a different story. But what we have here is a misdirected attack on an independently operated chain.

And as for the whole Chick-fil-a supports killings gays argument, which seems to be the strongest argument for all the hateful words on this issue, it again is misdirected and has so many degrees of separation that it's nonsensical.

Chick-fil-a leaders decide to provide some profit to a separate non-profit arm WinShape. WinShape then takes some of its money and donates to the Family Research Council. FRC then takes some of its money and lobbies the US congress not to denounce Uganda's 'kill the gay' bill - no money is actually directly supporting Uganda's bill - it's being used to not support US denouncement of the bill. If you even believe that's what the FRC's goal was in the first place....

That is a lot farther and a lot different than "Chick-fil-a supports killing gays."

Privatizing Profits and Socializing Losses

noreply@blogger.com (Garth A Brazelton) — Fri, 20 Jul 2012 19:57:00 +0000

This phrase has become all-to-familiar post-financial crisis with bankers receiving government bailouts and allowed to continue their abhorrent bonus structures and other practices unchecked.

But, if you think about it, this problem is pervasive in our modern economy, even absent government intervention.

Textbook economics assumes perfect competition. Students are often told, "well, nothing is ever truly perfectly competitive, but capitalism tends towards that." It's often stated as a truism, even though evidence suggests that our real-life capitalism whether due to some combination of economics of scale, cronyism, information and power asymmetries, etc actually tends toward oligopoly. Oligopolies have some significant degree of price manipulating power and can actually take losses for years and still not be forced to exit a market. In oligopolistic economies, price is usually not the factor that businesses in an industry compete on. Rather, they usually compete over product differentiation and advertising in general. (A nice example here)

The point is, if an industry or even just an individual firm in that industry is hit by a significant loss (negative profit, say due to a financial crisis, or whatever), oligopolistic firms need not cut their prices in the face of low demand - they can simply cheapen their product, or tack on hidden fees, etc (all the while marketing the fact that their products are new and improved and inexpensive). The result is that the losses that should at least partially be born by the industry, are actually largely passed on to the masses (the consumers) who are duped (via asymmetric information). IE, losses are socialized. In the opposite case, due to their market power inherent in their structure, during 'good times', oligopolies can reap huge private profits.

A more obvious way in which losses are socialized is that poor decisions (and by poor, I mean fraudulent in most cases) by the institutional management in a firm creates costs, but those costs are often passed on not via punishments to the bad decision maker but to the employees in the form of pink slips. Employment in financial and insurance services has fallen 7% from its peak in 2006 - about 400,000 employees.

Bernanke: Misguided, Egomaniac or Weakling?

noreply@blogger.com (Garth A Brazelton) — Tue, 17 Jul 2012 15:04:00 +0000

He's definitely got to be one of the three.

Bernanke the misguided:
Maybe he truly believes the words that come out of his mouth in these hearing - that the Fed is 'ready to act' as if it has anything it can do at all. What we've learned is that interest rates matter very little in these kinds of deep financial recessions, and even if they did, the Fed has already pushed even certain mid/long-term rates to record lows. Is it possible that Bernanke wants to believe that he can help and truly is just misguided. Perhaps, but I think the probability that he could be duped this easily is low.

Bernanke with the big ego:
Maybe he's fully aware that the Fed's actions are likely to do little to stimulate the economy but he wants to come off to Congress and the American people as someone with a lot of power. He wants to continue living in a fantasy where everyone hangs on the Fed chair's every word as if at this point it really means anything. I don't know the man personally, but again, I have a hard time seeing Bernanke being Mankiw-like in this way.

Bernanke the weakling:
At this stage in the history of economic policy, Bernanke has had opportunities to really take it congress, to really express what I must imagine is his and certainly the average Joe's frustration with the deadlock, vitriol, and general dysfunction that defines our legislative branch. He could talk about how the fiscal dangers are not of 'running out of money' but of failure of the public sector to invest in our future or to help the private sector rebound - leaving employment and with it tax revenues fairly stagnant. But instead he talks in low tones about 'fiscal cliffs' - he suggests no innovative legislative actions beyond maintaining the status quo (not letting tax cuts expire, and not reducing government-driven demand beyond current levels). In other words, Bernanke the weakling knows the only potential solution, if there is one, lies with the legislative and executive branches, but he is too scared to push the point. This sounds like an academic economist - someone who is good at numbers but not good at message. Could this be the real Bernanke legacy?

Bernanke's response:

I've been assigned to focus on maximum employment and price stability, not to hold threats over Congress’ head. Congress is in charge here, not the Federal Reserve.

I don't know if it's his 'job', but it seems like the right thing to do for the country.

Our Legal System Supports our Crony Capitalism

noreply@blogger.com (Garth A Brazelton) — Thu, 12 Jul 2012 17:48:00 +0000

What's wrong with this picture:

One the one hand we have individual citizens who steal things or money from other individual citizens. Laws vary from state to state, but here in Indiana for example, theft can get you anywhere between 6 months to 8 years in prison depending on what was stolen and how much of it was stolen etc. The average American will earn about $1.6 million over their lifetime, and so an individual thief may essentially lose up to 10% of their total lifetime earnings due to loss of income in jail (assuming the average person lives to be about 78 years old).

Now take not a person, but a large bank. A bank that has 'stolen' millions of dollars through fraudulent and just outright deceitful practices. This action just isn't one theft like someone stealing a painting or a car: it literally ruins entire families: hundreds or thousands of families across the nation. Yet, this bank, because of the power granted to them in our supposedly capitalist system, means they get a slap on the wrist of $175M. A bank like Wells Fargo has aprox. $80 Billion in gross income in one year. Therefore, Wells Fargo's slap on the wrist equates to about 0.2% of it's annual income. But wait, that not a good comparison to what Wells Fargo can earn and finance over its life. If we assumed Wells Fargo's 'life' was 78 years (just like a typical American), Wells Fargo's lifetime earnings would be over $6 Trillion, which makes $175M look like toilet paper. And Wells can earn exactly the same amount of money at age 78 as at age 20, because unlike individual people, banks never age and never have to worry about things like healthcare, social security, etc.

Let's recap. One person loses years of their livelihood and a signification chunk of lifetime earnings and all the family support that could have been provided during that time, all for stealing something as mundane as a car.

One bank, loses less than 1/5 of 1% of it's annual earnings for destroying hundreds or thousands of families across the nation.

Think about that.

Mike Norman on the Fed's Uselessness

noreply@blogger.com (Garth A Brazelton) — Fri, 06 Jul 2012 21:32:00 +0000

I agree.

Hat tip to Mike Valotta.

Affordable Care Act Decision - My Opinion

noreply@blogger.com (Garth A Brazelton) — Thu, 28 Jun 2012 16:50:00 +0000

The Supreme Court this morning published its final opinion on the matter of the Affordable Healthcare Act (ObamaCare) and the decision effectively finds the individual mandate is upheld, while the ability to withhold Medicare funds from States based on their unwillingness to accept the federal government's broadening of Medicare is unconstitutional. So this is a win-lose for Obama by the numbers, but a win-win in terms of the most important thing (individual mandate) being upheld, and that the Court did not find the entire Act unconstitutional just because part of it was ruled so.

I spent some time today reading both the majority opinion (written by Chief Justice Roberts) and the dissent (from the usual conservative Justices).

Recall the individual mandate says basically you either buy healthcare or you pay a 'penalty'. This will be enforced beginning in 2014.

The main argument with respect to the individual mandate from the majority opinion is that the Act is unconstitutional from the argument of commerce clause of the Constitution. Basically, the argument is that a lack of behavior (failure to buy health insurance) or the potentiality of eventual behavior does not constitute 'commerce' and therefore may not be relegated to the federal government.

However, they find the individual mandate is, overall constitutional because the federal government had argued that the mandate is, in essence, a kind of tax, and therefore is within the feds purview. In his argument, Chief Justice Roberts points out that the mandate, even though the President and Democrats in congress went to great length to not call it as such, is still a tax in practice as it is a revenue generating scheme that will be administered by the IRS should certain individuals choose not to buy health insurance.

The dissent argues that the majority is wrong in calling the mandate a tax, because Congress and the President clearly intended it to be a penalty, and in their view, never before has the court ruled something simultaneously both a "penalty" and a "tax."

“‘[A] tax is an enforced contribution to provide forthe support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.’”

But, the Act itself never makes not buying healthcare 'illegal' so it doesn't fit the dissenter's position well. From the majority:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to doso is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.

I would slightly modify the definition of 'penalty' (to give the dissenters the benefit of the doubt) to suggest that rather than 'punishment for an unlawful act' it is really just an attempt, in aggregate, to 'modify behavior in some manner.' But even given this, in my view, the dissent's position is weak. Per the definition there is nothing to say that a tax cannot be both a revenue generator and a device used to change behavior. From an economist's perspective, these kinds of 'taxes' abound: taxes on cigarettes, taxes on CO2 emissions, etc.... are all money that is taken from the private sector, added to the public sector as 'revenue' and with the additional goal of changing behavior (using a stick to do so). And this is an argument that the majority makes persuasively. From the majority:

None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry.

In any case, this case seems to point out the very sketchy legal line between what is a "tax" and what is a "penalty." From the dissenters:

In a few cases, this Court has held that a “tax” imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax.

To me, it is interesting that Obama and the Democrats could have avoided this whole problem had they been straight with the American people and called this what it is: a tax. And to most laymen, a tax is always a penalty. It's a penalty for the aggregate private populace not voluntarily contributing to the public welfare. In some economic circles, all taxes could be considered nothing but a kind of penalty (ie., their purpose is only as a penalty or something to modify behavior such as saving and spending decisions, not to raise revenue). This can be true because the government need not tax to spend so long as it, in a broad way, has it's finger on the trigger of the printing press. In this sense, the distinction between a 'penalty' and a 'tax' is somewhat nonsensical.

Patent Laws Are Destroying Competition

noreply@blogger.com (Garth A Brazelton) — Wed, 27 Jun 2012 18:45:00 +0000

In economics textbooks, students are usually taught by assuming a particular good sold at market is identical in all respects to its competitors. Of course in the real world, that is not the case - hence why there is no such thing as perfect competition. Goods are sold in different ways, in different locations, under different brands, with different materials and qualities, etc.

Patent law, which was created to protect intellectual property seems to have morphed over the decades as our society seems to have become more corporatist than capitalist to be less about protecting true intellectual property and more about stifling competition.

Take this recent Apple lawsuit against Samsung for allegedly violating some IPad patents. Now I'll admit they look the same on the outside - they are both black and rectangular with a glass front. Last I checked black was not a patentable color, nor was the shape of a rectangle nor was the fact that the front needs to be glass to see the screen. Having seen both products, while they cursorily look similar, they have different OS's, different feels, different button locations, etc. It's not as if Samsung took the exact IPad mold and stamped "Samsung" on it instead of "Apple."

But this kind of litigation happens all the time, and happens more and more. It stifles competition, erodes product-brand diversity in the market, and keeps prices higher than they otherwise should be for consumers - all to protect the corporate interest of a company like Apple which is flush with cash and simply does not need such protection.

If we want to get back to being a society with an economic system based on competition rather than corporate power, we need to revise our archaic patent laws to defer towards competition, not protectionism.

Intersection of computer gaming and economics

noreply@blogger.com (Garth A Brazelton) — Tue, 19 Jun 2012 11:20:00 +0000

fascinating read:
http://blogs.valvesoftware.com/economics/it-all-began-with-a-strange-email/

Federal Reserve: Powerless

noreply@blogger.com (Garth A Brazelton) — Thu, 07 Jun 2012 17:08:00 +0000

Bernanke spoke to congress today and said more of the same thing he's been saying for years: "we'll be ready to act...." my question is, "doing what exactly?"

Interest rates are already at record lows and there is growing skepticism that, particularly in economic environments like we are in today, that lower interest rates really do much stimulating. There certainly are winners and losers though. From a macro perspective it seems that interest rate policies are a wash.

So there's nothing the Fed can do, and there is nothing congress can do because of our broken politics. So, let's all cross our fingers that Europe stops digging the ditch of economic destruction any further....

Becker on Grexit

noreply@blogger.com (Garth A Brazelton) — Tue, 22 May 2012 17:19:00 +0000

" Nevertheless, I believe Greece in the long run would be better off through having the additional flexibility from controlling its own currency."

Duh.

It's shocking to me that all the analysts are dreading Grexit like it's a bad thing. It's not a bad thing relative to alternatives. Staying with the Euro and at the mercy of Germany and the European Bank is a much less tenable long-term solution that just draws the painful process out, puts the Greeks through an incredible pinch, and shows Europe's dysfunction.

Monetary System: A Great Explanation

noreply@blogger.com (Garth A Brazelton) — Fri, 11 May 2012 15:51:00 +0000

Let's All Talk Past Each Other

noreply@blogger.com (Garth A Brazelton) — Thu, 03 May 2012 15:02:00 +0000

Cullen Roche:

The govt CAN set the price of anything it wants. It can also put us all in jail, murder everyone, give everyone a job, tax us all 100%, etc etc. But none of this means they SHOULD. MMT takes the monopolist argument to this extreme claiming that the govt SHOULD hire everyone just because it can – based on the idea that this is just what monopolists do – they set prices, etc. It’s just wrong because the idea of the money monopolist is wrong. And instead of building a persuasive moral argument here they build a faulty economic argument based on a misleading perception of the way the monetary system works. Wray says it’s all just based on an understanding of modern money. Except the MMT idea of the way the money system works is wrong! Which is why they make these faulty conclusions like the JG. Personally, I think they’d have more luck selling the JG as a moral policy because the economic argument is very weak in my opinion. (http://monetaryrealism.com/)

L. Randall Wray:

Here’s the rub. Bank money is privately created when a bank buys an asset—which could be your mortgage IOU backed by your home, or a firm’s IOU backed by commercial real estate, or a local government’s IOU backed by prospective tax revenues. But it can also buy one of those complex sliced and diced and securitized toxic waste assets that created all the trouble since 2007. A clever and ethically challenged banker will buy completely fictitious “assets” and pay himself huge bonuses for nonexistent profits while making uncollectible “loans” to all of his deadbeat relatives.

The bank money he creates while running the bank into the ground is as good as the government money the Treasury creates serving the public interest. And that crooked banker will happily pay outrageous prices for assets, or lend to his family, friends, and fellow frauds so that they can pay outrageous prices, fueling asset price inflation. This generates nice virtuous cycles in the form of bubbles that attract more money until the inevitable bust. I won’t go into output price inflation except to note that asset price bubbles can fuel spending on consumption and investment goods, spilling-over into commodities prices, so on some conditions there can be a link between asset and output price inflations.

...

Since government is the only source of the currency required to pay taxes, and since at least some people do have to pay taxes, government has pricing power—that is, can set the conditions according to which it will supply the currency.

Just as a water monopolist does not let the market determine an equilibrium price for water, the money monopolist should not let the market determine the conditions on which money is supplied. Rather, the best way to operate a money monopoly is to set the “price” and let the “quantity” float—just like the water monopolist does.

My favorite example is Minsky’s universal employer of last resort (ELR) program in which the federal government offers to pay a basic wage and benefit package (say $12 per hour plus usual benefits), and then hires all who are ready and willing to work for that compensation (Wray 1998). The “price” (labor compensation) is fixed, and the “quantity” (number employed) floats in a countercyclical manner. With ELR, we achieve full employment (as normally defined) with greater stability of wages, and as government spending on the program moves countercyclically, we also get greater stability of income (and thus of consumption and production). ("Keynes after 75 Years...")

Cullen obviously completely misinterprets(and misunderstands) Wray. Yes, the federal government is the monopoly issuer of our currency, but that doesn't mean they have 100% control over what happens with that currency (anymore than a monopolist of water has control over how their water is consumed or used at the end of the day). Further, I would presume the MMT folk would agree that the private demand for credit can have a feedback (circuit / horizontal) effect on the issuance of more and more currency.

The other annoying thing about Cullen's analysis is he seems to think he's (and Steve Waldman) come up with a fresh new paradigm he calls "diaganolism." I don't know if he's aware, but the concept of an upward sloping credit money curve goes back to the 80s and 90s and the horizontalist v. structuralist debates which Wray is perfectly aware of. Wray: "There are structural and horizontal aspects of the money supply process."

Wray equates MMT understanding of money monopoly with Minsky's jobs guarantee (employer or last resort) idea. Though, to my knowledge, he never ties the two together. IE, how is the government the monopoly issuer (demander) of labor jobs? I don't get that. I don't see the relationship. It's made up. It's not at all the same. That neither suggests JG is a good idea or a bad idea (I've expressed skepticism but that's just me) but it also doesn't at all mean: "because government is the monopoly issuer of the dollar therefore they should become an employer or last resort." I don't see this connection. Feel free to enlighten me but it's almost like he's taking a positive statement about how money operates to conclude a normative statement about how labor should operate.

May Day May Day, our Movement is Dying

noreply@blogger.com (Garth A Brazelton) — Tue, 01 May 2012 16:54:00 +0000

So today is May Day, which means supporters of the Occupy movement were to, in essence, disengage from our capitalist overlords (ie., skip work, skip shopping, etc.).

Sigh

Hopefully I'm preaching to the choir at this point, but for those of you who still may be holding out hope that this movement goes anywhere, you need only consider what they are asking for to see how completely hopeless a cause it is.

So far, in New York, the origin of the major part of the movement there has been sparse activity. Yeah, go ahead and blame in on the rain, but just remember Milli Vanilli faked it too.

And let's discuss what OWS thinks this strike of workers will do vs. what it actually will do. OWS, first of all, doesn't think anything since it is anarchist by nature with no leadership or spokesperson (indeed if the media is to believed, there is fear that the Democratic Party will step into that vacuum). What actually will happen is people will not want to risk getting fired or reprimanded (which incidentally would only hurt the 99% in the long-run) so that this "mass" strike will not be of any significance. As for putting an end to shopping for a day, well the same concept was tried with gasoline - people protested gas prices and there was a call for a national 'don't buy gas' day. I bet you can guess how that turned out. Yeah, people still bought gas.

At the end of the day, OWS has all these ways of demonstrating, all these instruments, that they try to inflict on the system, but they don't know what they want the end result to be. So it all comes off as half-assed and half-thought-through. So, OWS supporters, go ahead and tie yourself to a bank blocking other 99%ers entry, or pretend to stop shopping only to go back and buy double tomorrow, or call off work putting you and your family at risk.

Until you grow up and grow a head, all of your methods will be for naught and to the detriment of real change. Because the one thing OWS is really good at is annoying the hell out of or confusing the hell out of the 99% of the 99% that think OWS is nonsense.

So you say, but Garth, what would you have done differently.
Well that's another topic but I'll summarize with two points:

1. Shrug off the anarchist roots and embrace capitalism - but a reformed capitalism (that isn't corporatism)
2. Focus your message with a leadership team that is less about income distribution and more at the core of changing our system - our screwed up politics. So, rather than 99% vs. 1%, the message should be about the hazards of our existing two party system and how it interacts with the 1%. After all, you can't affect tax policy and redistribution issues easily until you correct the political machine that sets those policies. And, I think one would find much broader consensus on the nature of our politics than on the nature of our income distribution.