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Blog Topics 2017
January Trumponomics Part 2 February The Keystone Pipeline Revisited March Border Adjustment Tax April Are Liberal Prof's..... May Moral Hazard Through a Libertarian's Lens (guest blog from a student) July What's causing the Opioid Crisis September The minimum Wage re-visited November Everything You Want to Know about 401K December How The New Tax Bill Affects you (spoiler alert: the middle class makes out great)
Blog Topics 2016
January Should Insider Trading be Legalized: Part 2 February The Presidential Election & the Economy March Does Narcan Increase Heroin Use April Is NOAA destroying the American Fisherman June Will California Style Power Outages Happen in New England July Textbooks, Inflation & the FTC Sept Economic strangulation by Regulation Oct Is this the Best we have? Nov The High Cost of Prescription Drugs Dec Trump, the Economy & Animal Spirits
Blog Topics 2015
January Does Implementation of the Death Penalty lead to higher costs February Less Competition and Higher Hospital Costs March Millionaires Who Get Subsidies from the Affordable Care Act April The Unintended Obama Legacy May The NY Times and $15 Minimum Wage June Are Disability Payments Bankrupting Social Security August Seattle's $15 minimum wage and it's Surprising Consequence October The Great Stagnation: The Obama Legacy November Poverty in the United States December Should Insider Trading be Legalized: Part one by Olivia Marchioni
Blog Topics 2014 blog topics for 2013 are at page bottom
January Will Lake Meade become another Aral Sea February Does Taxing the rich hurt the economy March The Cause of the Great Depression April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices May The Presidents Stance on Gun Control leads to Increased Gun Ownership June Is there really a Gender Pay Gap July Did the Supreme Court decision in Roe v. Wade lower the crime rate August Department of Education and wasted Money October The Financial Follies of the EPA November Social Security and Portfolio Diversification December The White House and Terrorism
January Jobs Report
JANUARY JOBS REPORT
The economy created 200,000 jobs in January when 180,000 was expected and the unemployment remained at 4.1%. The real unemployment rate (which includes marginally attached workers and part-time workers as unemployed). Wage growth was the best since 2009 as it increased at an annual rate of 2.9%. The payroll figures are not surprising given the Atlanta FED's prediction of 1st quarter GDP of over 5%, a rate not seen since the Reagan era. The log term unemployment rate remains stubbornly high (comparable to the double dip recession of the early 80's) at 1.4 million in January and accounted for 21.5 percent of the unemployed. Among the major worker groups, the unemployment rate for Blacks increased to 7.7 percent in January, and the rate for Whites edged down to 3.5 percent. The jobless rates for adult men (3.9 percent), adult women (3.6 percent), teenagers (13.9 percent), Asians (3.0 percent), and Hispanics (5.0 percent) showed little change. The average workweek for all employees on private nonfarm payrolls declined by 0.2 hour to 34.3 hours in January. In manufacturing, the workweek declined by 0.2 hour to 40.6 hours, while overtime remained at 3.5 hours (BLS).
GOLD 1 YEAR CHART
On Friday, the Dow finished it's 6th day in the green, advancing 20 points to finish the week at 25,219. For the week, it was up over 1000 points, retracing much of the previous weeks loss and having its biggest weekly gain since 2013. The markets were all higher but in the last 5 minutes of the trading day, there was some concern (the Dow dropped 50 points) caused by special counsel Robert Mueller handing on 16 indictments to Russians for interfering with the 2016 presidential election. None of the indictments implicated anyone in the Trump administration and the Dow is just 5% off its previous highs. The market has done this despite the yield on the 10 year rising to 2.88%, which was the reason initially for the sell-off. Volatility is still the rule of the day with the S&P 500 having moves of greater than 1% 8 days in the past 2 weeks. In economic news, housing starts rose 9.7 percent in January, easily surpassing analyst expectations. Import prices, meanwhile, gained 1 percent, while export prices advanced 0.8 percent. Consumer sentiment rose more than expected, according to a preliminary reading from the University of Michigan (CNBC). The dollar weakened to $1.24/Euro, gold was up to $1352/oz (back to 1 year highs), bitcoin was up over $10,000, oil is back above $60 at $62.21/barrel, and the price of a gallon of regular gas nationwide is up to $2.533.
The Dow was up 130 points in the pre-market until inflation figures were announced at 8:30 AM. The CPI (Consumer Price Index) rose .5% in January when only .3% was expected. As a result, the market did a 180 reversal and about an hour into the trading day, the Dow is down 93 points at 24,540. Year-over Year inflation is at 2.1%, and the core CPI (which includes volatile energy and fuel prices) remains well under 2%. As a result, the yield on the 10 year spiked to 2.88% which means that the price declined. Since bonds pay a fixed coupon, inflation erodes it's purchasing power. Federal Reserve policymakers have a goal of 2 percent inflation, which they believe is a sign that the economy is strong but not moving too quickly. The gauge is not the central bank's most closely watched measure — that would be the personal consumption expenditures index — but still could figure into decisions on interest rates (CNBC). There are now concerns of 4 rate hikes in 2018, as opposed to the previously expected 3. Helping to ease inflation fears is the price of oil which has dropped to $58.38/barrel, and the average price of a gallon of regular gas nationwide is following as it dropped to $2.56. The dollar is constant at $1.23/Euro, gold is also stable at $1337/oz and bitcoin is up to $9,200. In other news, the Trump administration stated it is not adverse to an increase in the federal gasoline tax. I couldn't be more against it for the following reason: in Ma, the combine state and federal tax is about 46 cents/gallon. If you subtract this from the average price of gas in Ma of $2.6, you get $2.14. .46/2.14 = 21.5% of the price of a gallon of gas goes towards tax. Addendum: The Dow has reversed and is up 30 points shortly before 11.
A market correction occurs when an index drops by at least 10% from a previous high. On the average, it takes 64 days for a correction to occur and this correction happened in 13 days. This is a good indication that it was unwarranted and a function of panic selling. To reinforce this conclusion, after rising 330 points on Friday, the Dow is currently up over 500 points, at 24,690 with about 2 hours left in the trading day and the Dow has retraced about 1/2 of its losses. However, the market is still volatile, and when you have a snap back like we've had during the pass 2 days, it wouldn't surprise me if you saw a retesting of the lows. I would have preferred to have seen smaller gains over a period of days. Shares of Amazon, Bank of America and Apple — which fell sharply last week — all rose by at least 3 percent. However, the main reason for the selloff has been rising yields on the 10 year which is up to 2.86% today. Also helping the market is Trump's infrastructure stimulus agenda and a rebound in oil prices which is up to $60/barrel. There are no major data releases until Wednesday morning at 8:30 AM when the Consumer Price index (CPI) is released. This index measures inflation at the retail level. The dollar weakened slightly to $1.23/Euro, gold is up to $1325/oz, and the average price of a gallon of regular gas nationwide is $2.58.
OIL 1 YEAR CHART
It was another roller coaster ride on Wall street with the Dow finishing the Day up 330 points at 24,191, but not before it had a 937 point swing between its highest and lowest for the day. But even tho it was up for the day, it was the worst week for the Dow in 2 years. The usual suspects were the reasons for the continued volatility: the yield on the 10 year was as high as 2.885% (as a result of inflation fears) before it settled back to 2.83%, investors being fearful and locking in profits and panic selling followed by some semblance of sanity as the Dow recovered. Inflation is disliked by bond investors because rising prices mean that a bond’s fixed payments are eroded in the future. After being overbought at 26,000+, it is definitely currently oversold. Almost all sectors were up with technology being the best performing with Microsoft Corp, Alphabet Inc and Facebook Inc giving the biggest individual boosts to the S&P 500. Energy was the lone major S&P sector to end negative as oil prices tumbled to under $60 at $59.2/barrel which was off its low at $58.07. The culprit appeared to be the rig count which increased by 26 last week to 791. With American output on the rise, concerns are creeping into the market that OPEC's deal with Russia and other major producers to limit supply could come under pressure. This was also the worst weekly decline for oil in 2 years. Ninety-six S&P 500 stocks are down 20 percent or more from their own one-year highs, according to Thomson Reuters data. In the latest day of strong trading volume, about 12 billion shares changed hands in U.S. exchanges on Friday, well above the 8.5 billion daily average over the last 20 sessions. It was the first time weekly volume eclipsed 50 billion since August 2015. Advancing issues outnumbered declining ones on the NYSE by a 1.43-to-1 ratio (market watch). The dollar was constant at $1.22/Euro, bitcoin was down slightly to $8000, gold is constant also at $1315/oz and the price of a gallon of regular gas nationwide is down to $2.583.
Despite a strong earnings season, about 80% of businesses have exceeded estimates, and strong economic news, the Dow dropped 1032 points to close at 23,860. The market is looking at rising interest rates, the yield on the 10 year was up to 2.85%, but as I've stated numerous times before, everyone knew this was coming, and it was an excuse to lock in profits and that turned into panic selling (the Dow dropped 400 points in the last 20 minutes of trading). Stop checking your 401K. It mimics the economy and the economy, over time, goes no where but up (charts below). The Dow is now in correction territory (10% off it's highs), and this was also something everyone was predicting. I will now predict that i believe that the Dow will stabilize at approximately 23,250 (chart above), stabilize, trade sideways, and then continue its upward trend at a slower place. Once again, stop checking your 401K, your biggest asset is your house and you don't go out and have that appraised every week. Jack Ablin, chief investment officer at Cresset Wealth Advisors, characterized this pullback as "merely technical," further stating, "While it's impossible to predict where the markets will meander on a day-to-day basis, we are confident that any pullback that plays out over the next few weeks represents a better opportunity to buy for the long run rather than a reason to sell." (CNBC) The dollar is stronger at $1.22/Euro, gold is stable at $11321/oz, oil is down for the 5th day in a row at $60.43/barrel, and gas is down very slightly at $2.602
The DOW is giving roller coaster new meaning given the 1120 point swing from it's low to it's high yesterday. When the dust finally settled, the Dow finished up 567 points to close at 24,913 and recouped about half of the previous days losses. Yesterdays swings (see chart) were a function of risk adversiveness, bargain hunting, fear over interest rate hikes (overblown) and computer driven trading. Asian markets followed the Dow overnight and were generally positive as are European markets. However, shortly before the open, Dow futures age down 130 points and the market volatility is expected to continue. A number of FED officials are speaking today (presidents of regional banks including the NY FED president) and their statements will be followed closely to see what directions interest rates, and the economy may take. A short term spending bill was passed by the house to avoid another government shutdown and investors will be looking for indications on how the Senate may vote. On the earnings front, SNAPchat reported yesterday and beat earnings estimates, 21st Century Fox, Tesla Motors, IAC/InterActive, Yum China and Yelp will be reporting after the bell. The 10 year yield is constant at 2.79%, the dollar is stronger at $1.23/Euro, gold is down to $1324/oz, bitcoin is up to over $8000 on the heals of one analyst predicting it will hit $50,000 this year (don't count on it), oil is down to $53.25/barrel and the price of a gallon of regular gas nationwide is still at $2.605. ADDENDUM Shortly after the markets open, the Dow is up 15 points.
RELAX. Quite simply, what you saw yesterday was panic selling. The Dow dropped a record 1175 points on Tuesday to finish at 24,346. However, it is still up 20% from this time last year. Even tho this was the largest one day point loss (the previous was 766 in October of 2008), it is not the largest percentage drop; that occurred in October of 2008, when the Dow dropped 23% (508 points). To put that in perspective, the Dow would have had to experience a 5,870 point drop. The last time we had a %drop of this magnitude was in 2011. If you look at the attached chart, one support line has been broken, but the Dow should stabilize around 23,500-24,000. Analysts are blaming the loss on rising interest rates which was expected by everyone. However, this was used as an excuse to lock in profits which would be the case given the Dow's 30% increase since Trump's election. The yield on the 10 year is currently down to 2.79% but there is still panic selling as the Dow is down over 300 points 2 hours before the market open. Literally, all analysts on CNBC are stating that this will be short lived and the markets will stabilize. The basics are still in place, 80% of companies have beat earnings for the 4t quarter, GDP for the last quarter was 2.6% and is predicted to be over 5% for the 1st quarter in 2018 (from the Atlanta FED), unemployment is 4.1% and even tho inflation is under 2%, there are expectations of higher inflation which is the principle driver for the panic selling, which, once again, I believe is oversold. The dollar is stable at $1.24/Euro, gold is up slightly to $1344/oz , bitcoin is down again to $6,500, Oil is down slightly to $63.46/barrel and the average price of a gallon of regular gas nationwide is constant at $2.605. As an addendum, I believe that proof of an oversold and panicked market is the price of gold. It has not moved significantly which it generally does in periods of economic uncertainty which tells me that most analysts/investors believe that this correction is short lived. The Dow is off 8.5% from its highs and when it decreases 10% it is considered a correction and 20% is a bear market (chart below).
After being down over 300 points in the pre-market, and opening down 352 points, the Dow then recovered to close to even and with 2 hours left in the trading day, it is down 350 points at 25,173, and it is off its lows of -450. The Dow has already broken thru 1 support line, see chart 2-4-2018, and it would not surprise me if it finds support at 25,000 and then trades sideways to consolidate, which from a technical point, would be good for the market. Keep in mind there are 2 emotions in the market, fear and greed and fear is the stronger of the two, particularly when it comes to locking in profits since most investors are risk adverse. The Dow was down 5% of its highs and it is considered a minor correction. A bear market occurs when an index drops 20 points off its highs. I feel strongly that this won't be the case since the fundamentals are still positive. For instance the ISM service index came in at 59.5. Any reading above 50 represents an expansion and any reading above 57 indicates a very healthy economy. Again, from the previous day's post, the Atlanta FED is predicting GDP for the 1st quarter of 5.6%. The Dow fell 665.75 points on Friday — or 2.5 percent — notching its biggest one-day sell-off since June 2016. Investors are worried about interest rates and the yield on the 10 year (which is tied to mortgage rates) which after spiking to 2.88% overnight, is now down for the day at 2.82%. The dollar is up at $1.24/Euro, as is gold at $1338/oz, bitcoin is plummeting and is currently at 6,865, a 66% drop from its high, oil is down to $63.95/barrel and the price of a gallon of regular gas nationwide is constant at $2.605.
The Dow was up 73 points yesterday to finish at 26,149, but it was off it's highs (plus 250 points) compliments of the FED. As expected the FED didn't raise rates, but in it's statement , released at 2 PM, it signaled that there may be 4 rate hikes in 2018 as opposed to the expected 3. arnings helped stabilize U.S. stocks with Boeing (BA) climbing 4.93% on the day after the company announced, before the market open, that it had beat Wall Street estimates. However, after the closing bell, Facebook (FB) reported very mildly disappointing user growth to 1.40 billion active users instead of the forecast 1.41 billion. The shares fell 4.49% in after-hours trading (Jubak). The Dow was up 5.6%, for the month of January. Oil production in the United States reached a milestone that it has not seen since 1970, the production of over 10 million barrel/day, as a result of increased fracking due to the higher cost of the commodity. Oil is up, currently trading at $65.17/barrel. As a general rule of thumb, every dollar change in the price of oil, translates to about 2.5 cents at the pump. To put it in perspective, world wide oil use is close to 100 million barrels/day of which the US uses about 1/5 of that amount. So even tho we are at record levels of production, we still import about 1/2 of our needs with most of that coming from Canada and Mexico, and not OPEC as most people believe (Saudi Arabia is in the top 5 countries tho). Today is the busiest day of the quarter for earnings with Alibaba, Time Warner, Nokia and Blackstone are set to report before the bell. Amazon, Alphabet, Apple and Visa are due to release figures after the bell. The yield on the 10 year is down slightly to 2.72%, the dollar is stable at $1.24/Euro, gold is up slightly to $1343/oz, bitcoin is down to $9,335 (look for it to stabilize between $1000-$3000), and the price of a gallon of regular gas nationwide is up slightly to $2.595.
In Other News: Elon Musk recently stated that the worlds population is accelerating towards collapse. Hmmmm; let's look at some facts and figures and then do some math. The earth reach a population of 1 billion in 1900 (that took about 1/2 million years), but by 1967, it was 3 billion, 6 billion in 2000 and currently, it's 7.5 billion. Let's look at the US with a population of 321 million, and ask yourself, is it overpopulated. If you look at NY City, a resounding yes comes to mind. However, in the US, about 50% of the population lives within 50 miles of a shore (this includes the Atlantic, Pacific, Gulf of Mexico, Great Lakes and Mississippi). Let me try and put this into perspective: the average household has 2.6 people and given a population of 321 million, that yields 123,461,538 households. The size of Texas is 172,000,00 acres. Assuming you put 1 household on an acre lot, the Entire population of the US can fit into Texas with room to spare, leaving the rest of the US barron of people. How about Russia with a population of 144 million? Russia is 1.8 times the size of the US with a smaller population, so they have even more empty space and if you look at Canada, which is larger than the US, with a population of 31 million, there is even more empty space (I know bring your winter clothes. So while I will agree that there is definitely some localized overpopulation, I don't see doom and gloom.
FICO SCORES Fair Isaac Company reports that it's FICO scores (FICO being an acronym for Fair Isaac Co) reports that the average FICO score in the US has reached an all time high of 700 nationwide amongst adults. The share of consumers who are viewed as the riskiest from a credit perspective (these are sub-prime and have a score lower than 640) reached a new low of about 40 million — or 20 percent of adults in the U.S. that have FICO scores. according to the Wall St Journal. A lot of you may be asking what is a FICO score, how is it calculated and how it affects me. Fair Isaac uses use information provided by one of the three major credit reporting agencies – Equifax, Experian or Trans-Union. From this, they have a formula to get a credit score which can be as high as 850. The biggest part is your payment history, followed by how much you owe, credit history, credit mix and new credit (see chart). Next, how do you interpret your FICO Score: anything > 800 is excellent (and gets you low interest rates on loans and credit cards), 740-799 is very good, 670-739 is good, and anything less than 670 is considered not good and sub-prime (chart). Lastly, as no surprise, the older you are, the better your score (chart)
What do Rising Rates mean to you and the Economy As interest rates rise as a result of FED policy, there are both good and bad effects. Firstly, the Fed's move affects all short term rates. It has no direct effect on mortgage rates which is a function of the yield on the 10 year US Treasury bond, however, they are highly correlated (above chart). What affects the yield is the price of the bond (yield and bond prices are inversely related). As bond prices decrease, the yield increases and why would bond prices decrease? Bonds tend to be a defensive play when the economy is doing poorly; hence, investors only have so much money and they will buy bonds instead of stocks. Conversely, when the economy is doing well, investors will buy stocks and sell bonds which depresses the bond price but raises the yield. The rate on the 30 year fixed mortgage is generally 1.25% to 2.75% higher than the yield on the 10 year(Chart). Who Benefits As rates increase, banks generally benefit. The demand for money is inelastic and when banks loan money, they will make more on those loans. Conversely, borrowers suffer from the higher cost of money, but since the economy is doing well, more people are working, real wages tend to increase and the blow of the higher cost of money is mitigated. Savers who have minimal debt also benefit, as the FED raises interest rates, rates on Savings, CD's and money markets generally increase which helps this particular segment. Who is Hurt Generally, borrowers are hurt. Generally, the payments on all short term loans increase. If you take a college loan, a personal loan or a boat loan, rates will increase. The Prime Rate increases, it is generally 3% above the Federal Funds Rate and it is the rate the biggest banks charge their best customers on short term loans. If you have a HELOC (Home Equity Line of Credit), this will increase also and it is generally the same rate as the prime rate. However, the short term loan that is not affected is the car loan. Generally there is so much competition in this area, that a loan on a new car can range from 0%(not all the time) to a little over 4%.
Strangulation by Regulation: The tax code is 77,000 pages, under Obama there were 4000 new EPA regulations (info from CBS) Dodd-Frank imposed somewhere between 310-500 new requirements on banks(various analysts CNBC) and Obamacare has over 20,000 pages of regulations (Washington Post); and people are complaining because Trump is trying to streamline government. He has signed the "2 for" executive order that mandates all agencies to do away with 2 regulations for every one they pass. I can run my life and spend my money, much better than the government and I applaud Trump's efforts in doing away with economically ruinous legislation.
In one of the presidential debates, Hillary Clinton stated that supply side economics of lower taxes and regulation doesn't work. She needs better economic advisers. If you look at the attached chart, GDP soared after the Reagan stimulus and the average GDP post stimulus was 4.83 (a 40 year average is about 3.2); whereas post Obama stimulus, increased taxes and regulation, was a meager 2.23%. We have not been above 3% during his entire presidency and this has been the slowest recovery since the great depression.
UNH Study Results 5-31-2016
In other News: First, a little history. In 1800, 90% of the adult population were farmers (lots of factory child labor), by 1900, 25% of the population and currently, about 2% as a result of technology garnering greater yield/acre. As a result much farmland from the 19th century is no longer. In a recent study out of UNH, it was found that 75% of the farmland from the mid 19th century is now covered by trees and this is contributing to warmer winters. Trees causing higher temperatures you say; how is this possible? It is very simple physics. In the winter in NH (and most other states), farm pastures are covered with snow, and this reflects sunlight, and heat, into space. Now that 75% of these pastures are covered with trees, the dark trees absorb the heat and it permeates into the atmosphere causing a general warming and milder winters. If you've ever wondered what a stone wall was doing in the middle of the woods, those woods were once pastures and delineated borders that contained live stock.
A number of people have asked me about Bernie Sanders tax plan and he is in the same fantasy land as Obama. First, it would never pass a republican Congress and early indications are that the Republicans will definitely maintain control of the house. He wants to make all state university's free; let's just look at NH. At UNH there are 14,500 students of which 45% are out of state. Just tuition, not including room and board for out of state students is $30,000 and in-state $17,000. If you do the math that's a total of $331,325,000, and that doesn't even include Plymouth, Keene and Granite state which are also part of the state University system. Do that for every state and it is an astronomical cost that his proposal doesn't even begin to cover. I hesitate to do the cost for California that has 38 million people as opposed to NH's 1.6 million. What I find particularly disconcerting, is all the people who are buying this.
Just as a reminder from my blog of October 2013, Carbon dioxide composes only .0387% of our atmosphere (in decimal form that’s .000387), and of all the CO2 currently being produced on the earth, man only accounts for 3.4% (.034 in decimals). Therefore, if you want to calculate the amount of CO2 in the atmosphere caused by man, you would multiply .034 x .000387 to get .0000131 or .00131%.
The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consulafft, at Bergen, Norway.
Reports from fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far north as 81 degrees 29 minutes. Soundings to a depth of 3,100 meters showed the gulf stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.
Very few seals and no white fish are found in the eastern Arctic, while vast shoals of herring and smelts which have never before ventured so far north, are being encountered in the old seal fishing grounds.
I apologize, I neglected to mention that this report was from November 2, 1922. As reported by the AP and published in The Washington Post — 88 years ago! The text in the above example is a genuine transcription of a 1922 newspaper article, an Associated Press account which appeared on page 2 of the Washington Post on 2 November of that year
California Drought of 2015 California is in the middle of a drought; it must be global warming or now the more politically correct term, climate change. In case you haven't noticed, the climate is always changing. It is in a constant state of flux. If you notice the chart below right, California has had a number of mega-droughts during the medieval ages and this was considerably worse than it is now; and as far as climate change, it's obviously not an exact science(click on pictures below).
For a good laugh on Obamacare, go to this web site and watch this video; http://www.youtube.com/watch?v=qpa-5JdCnmo. It shows the president on 36 different occasions stating that if you like your healthcare plan you can keep it. Obviously there are 1 of two explanations for this misunderstanding. He was ill advised on the 2700 page, 4500 provision Affordable Care Act, or he knew about it and lied. According to a study by Forbes magazine, the ACA will increase premiums to men under 27 by 77%, 40 year olds, 37% and 64 year olds by 37%.
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 10 years. At the time, I made a prediction to my students that I estimate the final cost would be closer to $3 trillion. Three years later, the CBO has raised it's estimate to $1.6 trillion. At this rate, we are on pace to reach the $3 trillion mark. www.healthcare.gov, the official website to sign up for Obamacare had an original cost of $100 million. That cost is now up to $2.6 Trillion and rising. If the government can't manage the costs on a web site, and these costs have trippled since it opened on October 1, how can it possible manage a 2700 page, 4500 provision bill. The words of Nancy Pelosi (see above) are acting as a harbinger of doom: "We have to pass the bill, so we can find out what's in it."
Commentary on Minimum Wage
The main argument concerning minimum wage is that it will help to alleviate poverty. That is clearly not the case. As you can see from the chart at the left, the poverty rate dropped dramatically in the 1960's. This was a function of great society legislation; specifically, increase in Social Security benefits in addition to the inception and implementation of Medicare and Medicaid. Since then, the poverty rate has fluctuated between 9-15% and is highly correlated with the unemployment rate. The vertical grey area's in the graph represent periods of recessions in the US. As can be expected, unemployment rises during recessions and peaks at the end (unemployment is said to be a lagging indicator). As you can also see from the chart, so too does the poverty rate. There is no indication whatsoever that the poverty rate is affected by increases in the minimum wage. Generally, this is quite the contrary. As can be evidenced from the below left chart, increases in minimum wage can contribute to unemployment and as we can infer from the above chart, as unemployment increases so to does poverty. If you look at NH, they have the lowest state poverty rate in the nation and it generally parallels the national unemployment rate. By raising the minimum wage, you increase business costs. As a result; businesses either pass these costs onto the consumer (in which case inflation nullifies any wage increase), substitute capital for labor, or simply go out of business. If you look at the chart below right, UAW (United Auto Workers) membership has decreased in the late 1970's from 1.5 million to 350,000 in 2009. The reason for this is simple. Detroit isn't making fewer cars, they are making more, but they have made their assembly lines more robotic and have substituted capital for labor, which became cheaper in the long run. This can also happen to those fast food workers who want a $15 minimum wage. There is currently a machine on the market that can make 300 burgers/hour. In other words, capital can be substituted for labor. Someone please e-mail me and explain how someone is better off unemployed at $10-15/hour as opposed to being gainfully employed at $7.25/hour
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks February Prohibition: Profits to Cartels & Increased Violence for Americans March Increased Minimum Wage & Extended benefits lead to Higher Unemployment April Ethanol from corn & Agflation May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars June The Affordable Care Act; Anything but Affordable Part 1 July The Affordable Care Act; The poster Child for False Advertising August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy September No Keystone Pipeline leads to more pollution October Global Warming! Or is it Global Cooling! November Poverty & Benefits December Does Affirmative Action lead to Reverse Discrimination?
The United States has amongst the lowest savings rate for all technological nations. The iOMe challenge is a nationwide competition between Colleges where teams submit a 10,000 page essay on how Americans can improve their savings rates. In addition, teams must produce an approximate 60 second video which complements the essay. If you click on the iOMe logo above, it will take you to Bentley University's 2012 video submission. The faculty adviser for the challenge is John Tommasi and is offered during his Fall EC 351 course, Contemporary Issues in Economics. I'm pleased to announce that on February 15, Bentley was declared the winner of the iOMe video portion of the contest. Congrats to the team members and great job!
EC 3900 Energy Economics
EC 3900, Energy Economics and International Markets, is a 3 credit, Short Term Program, that is offered during Spring semester. After 7 weeks of lecture, the class takes a 10 day educational/cultural tour to France where 80% of their electricity is produced by nuclear power. During the 10 day trip, students travel to, and tour various nuclear facilities Last year's class visited; Marsailles, Aix en Provance, Lyons, Brest and 4 days in Paris.
If there were ever words that can strike fear into the hearts of any man women or child, it's: "I'm from the Government and I'm here to help". On a monthly basis my blog, from an economic standpoint, will explore government laws, decisions and actions, which while well intentioned, had inadvertent results that were either disastrous, or made a bad situation worse. It wouldn't surprise me if you reached the conclusion that congress does two things well, nothing and overreact; and you may ask yourself, do Congressional members vote for what is best for the economy, or what will get them re-elected.