"Where economics isn't just a job, but an adventure"
I'll be on vacation the next 2 weeks and posts will be intermittent
Quote of the Week
Click on the pictures to enlarge
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
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
July Jobs Report
The job market is on a tear as 209,000 jobs were created when 183,000 were expected. n addition, the unemployment rate dropped to 4.3%, the lowest since 2001. there are currently 7 million people in the labor who are unemployed. The teenage unemployment rate is down to 13.2%, Whites (3.8 percent), Blacks (7.4 percent), Asians (3.8 percent), and Hispanics (5.1 percent) showed little or no change in July. The difference in unemployment rates in the demographics is a function of education with Asians having the highest rate and blacks and Hispanics the lowest. The labor force participation rate, at 62.9 percent, changed little in July and has shown little movement on net over the past year. The number of part-time workers in the labor force who are looking for full time employment (but they are counted as full time) is down to 5.3 million, and marginally attached workers (who are not considered part of the work force), is down to 1.6 million. A marginally attached worker is someone who will take a job, but hasn't looked for one in at least 4 weeks. Discouraged workers, a subset of marginally attached workers, is down to 536,000; these are workers who have totally given up looking for a job. In July, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $26.36. Over the year, average hourly earnings have risen by 65 cents, or 2.5%. In manufacturing, the workweek was also unchanged at 40.9 hours, and overtime remained at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was 33.7 hours (figures from BLS).
To calculate this percentage (labor force participation rate) simply divide the total civilian labor force into the total number in the civilian non-institutionalized population, multiply by 100 and express as a percentage.
With 2 hours left in the trading day, the Dow is up 42 points at 22041. Outside of the uproar on Capitol Hill concerning Trumps statements concerning the unrest in Charleston Va. What is on the slate is the release of the minutes from the previous FED meetings. In these meetings, investors will be looking for any indication as to when the FED will be raising interest rates. Currently, the odds on bet is in December since inflation has been very low coming in at .1% in July. In addition, the FED is looking to decrease its $4.5 trillion balance. It does this by selling government bonds which is a contractionary monetary policy. Dudley, the New York Fed president, said last week the central bank expects inflation to rise over the next several months. Inflation data has been sluggish recently, dampening the market's outlook for tighter monetary policy (CNBC). In economic news, a number of economists are raising their GDP estimates given the surprising strong retail numbers in July. Their estimates for 3rd quarter GDP are currently ranging from 2.6%-2.8%. Over the past year, retail sales have been boosted most by auto-related sales as well as sales of furniture, nonstore retailers and building materials, but there have also been solid increases in food and beverage sales, health and personal care, products and gasoline station sales (CNBC). With no threatening news from North Korea, the yield on the 10 year is down slightly at 2.25%, oil is down to $47.34/barrel, gold is stable at $1278/oz and the price of a gallon of regular gas nationwide is down slightly to $2.347.
After advancing 133 points yesterday to finish at 21,994, the Dow is up over 50 points in the pre-market on reduced tensions from North Korea. Specifically, No Korea's leader, Kin Jong Um backed off on his threat of firing missiles at Guam and it appears that diplomacy is running its course. As a result, besides the market being up, safe haven plays, gold and treasuries are both declining. Gold is currently trading at $1278/oz, and the yield on the 10 year is up to 2.27%. On the pre-market economic data front, the drop in mortgage rates (which is a function of the yield on the 10 year treasury) boosted weekly mortgage applications by 3%, Us retail sales rose .6% last month (.4% was expected), the largest rise in 7 months and U.S. import prices increased in July after two straight monthly declines, driven by rising costs for petroleum products and food, but underlying imported inflation remained muted. The year-on-year increase in import prices has slowed sharply since hitting 4.7 percent in February, which was the biggest advance in five years. Imported inflation has been dampened by a strong dollar. With the greenback falling 6.6 percent against the currencies of the United States' main trading partners this year, price pressures are expected to start creeping up. Prices for imported petroleum increased 0.7 percent in July after decreasing 2.9 percent in June (Reuters). On the earnings front, Home Depot is up slightly after posting better than expected results and Dick's Sporting Goods is down after a revenue and earnings miss. The dollar is slightly stronger at $1.17/Euro and the average price of a gallon of regular gas nationwide is down slightly to $2.35.
One hour into the trading day and the Dow is up 143 points and back above 22,000 at 22,002 as tensions with North Korea eased over the weekend and it appears that diplomacy is being given a chance. Secretary of State Rex Tillerson and U.S. Secretary of Defense James Mattis stated that the current U.S. administration would continue to pursue diplomatic resolutions with Pyongyang. On Sunday, the two U.S. officials wrote in a commentary piece published in the Wall Street Journal that "the U.S. has no interest in regime change or accelerated reunification of Korea." (CNBC). The market is also being helped by an apparent increase in global growth as 2nd quarter GDP for Japan cam in at an annualized rate of 4%, something that has been rare for Japan in the past 10 years. As a result of decreased tensions, gold is down to $1283/oz after hitting a 2 month high on Friday. In other news, Aswath Damadaran, an expert in stock evaluation, sees Tesla stock as being way overvalued and gives it a fair market evaluation of under $200/share. Short interest in the stock is 21%, reasonably high, however, anyone who has shorted this stock has generally lost money. The stock is currently trading at $366/share, close to it's all time high of $383. Oil is up slightly to $48.97/barrel, the dollar is stable at $1.18/euro, the yield on the 10 year is up to 2.21% (as stocks gain bonds usually sell off increasing the yield) and the price of a gallon of regular gas nationwide is stable at $2.353.
OIL 1 YEAR CHART
The Dow, Friday, had it's 1st day in the green, up 14 at 21,858, after 3 days of losses which was a function of geopolitical uncertainty with North Korea. This past week was the 2nd worst week for the Dow this year. Testy exchanges between US and No Korea drove investors towards the sidelines, and a rise in the VIX (a fear level indicator that generally causes a market decline), represents its highest level since Nov. 8 and its sharpest single-session climb, also since May 17, when it jumped 46%, according to FactSet data.In addition, the market was also hurt by disappointing earnings and outlooks from Kohl's, Macy's and JC Penny as brick and mortar retailers continue to get pummled. However, the rhetoric declined on Friday with calmer voices which gave the hope of a diplomatic solution. As a result of the tension, gold has had a banner week closing at $1294/oz. also helping the market was the release of the CPI for January which advanced only .1% when .2 was expected. With the low CPI number. it gave investors more hope that the government won't raise interest rates during it's September meeting. Just 38 percent of investors expected the central bank to rates again at the end of the year, down from about 45 percent, according to the CME Group's FedWatch tool. On tap for this weeks is Trump's team will begin talks to re-negotiate NAFTA (North Atlantic Free Trade Agreement). The administration wants a deal that will lower the U.S trade deficit with Mexico, tighten labor laws and raise the value-added tax threshold for e-commerce purchases made in Mexico. About 14 million U.S. jobs depend on trade with Canada and Mexico, and over $1 billion of commerce crosses the northern and southern U.S. borders each day. All studies that I have seen has shown that NAFTA has had a slight positive effect on the US economy. With geopolitical fears subsiding slightly, oil has dropped to $48.79/barrel, the yield on the 10 year decreased to 2.19%, the dollar closed the week trading at $1.18/euro and the price of a gallon of regular gas nationwide is $2.354.
After reaching another intraday high, the Dow went into negative territory and finished at 22,085, down 34 points.In the pre-market, the Dow is down about 30 points after Trump stated that North Korea will be met with "fire and fury" if they continue on their current path.This came in response to North Korea inferring that they are planning an attack on US held territory Guam. The president's language seemed disconcerting to a number of analysts on CNBC since it is more on par with that of a 3rd world dictator as opposed to the leader of the free world. To some, there appears to be an inevitability to some form of conflict. To no surprise, defense stocks such as Raytheon are doing well in the pre-market. On the data front, productivity and costs data are due out at 8:30 a.m. ET, followed by wholesale trade at 10 a.m. ET. Mortgage applications rose by 3 percent last week, boosted by a drop in rates. The yield on the 10 year is currently at 2.28%. As is common, given geopolitical tension, oil is up to $49.42/barrel as is gold at $1272/oz. The dollar strengthened to $1.17/Euro and the price of a gallon of regular gas nationwide is up to $2.359. In other news: Disney is pulling their films from Netflix and will be starting their own platform on 2019, which will be a stand alone Disney app. The JOLT (Job Openings & Labor Turnover survey) report (from the BLS) showed a record number of job openings at 6.2 million. Gains were most prominent, however, among lower-paying sectors like leisure/hospitality and accommodation/food services – both of which saw their vacancies rise to all-time highs of 847,000 and 775,000, respectively (US News).
With the less than an hour left in the trading day, the Dow is up 13 points at 22,109, and on its way to its 10th straight up day and 9th record in a row. Second quarter earnings have been up over 10% when only 6% was expected. So there are a number of analysts saying that the market rise is justified, particularly with the hope of both corporate and personal tax cuts from the Trump administration; and whereas the republicans couldn't get a consensus on healthcare, many believe they can on tax deductions. The record winning streak for the Dow (see attached) is 13 consecutive days in January of 1987, yes the same year as "Black Tuesday " in October of 1987. This week will be filled with retail companies releasing quarterly results, including Michael Kors, Macy's and Nordstrom. Media giants Disney and News Corp are also slated to report this week. Equities have had a stellar year. In 2017, the S&P and the Nasdaq have climbed 10.6 percent and 17.9 percent, respectively. The Dow has also advanced 11.8 percent entering Monday's session (CNBC). Also helping the Market is St Louis FED president James Bullard who stated that he doesn't believe the FED needs to raise rates in the near term. Oil is down to $49.32/barrel and is dragging the energy sector with it. (-.54%). Oil prices fell as much as 2 percent on Monday on selling triggered by a rebound in production from Libya's largest oil field along.. Output was returning to normal after a brief disruption by armed protesters The field has boosted Libya's oil production, which climbed to more than 1 million bpd in late June. This combined with concerns over cheating on OPEC production cuts is having a negative effect on the overall energy market. The yield on the 10 year is stable at 2.26%, as is the dollar at $1.18/euro and gold at $1263/oz. However, gas is up once again, this time to $2.347 for a gallon of regular gas nationwide.
Thanks to a better than expected jobs report, the Dow advanced 67 points to establish it's 8th record close in a row at 22,093 (see above). Investors paid close attention to the report as they looked for clues about the Federal Reserve's plans for future monetary policy changes. Market expectations for a December rate hike are approximately 50 percent, according to the CME Group's FedWatch tool. The dollar soared soon after President Donald Trump was elected, but has dropped more than 8 percent this year. Trump's administration has been mired by multiple failed attempts at repealing and replacing Obamacare, as well as an ongoing investigation into Russia's involvement in the U.S. election. (CNBC). GS, Goldman Sachs), contributed to half the Dow's gain as it beat earnings and had favorable guidance. Berkshire Hathaway also reported a better than expected quarterly profit of $4.3 billion. Berkshire shares have climbed 11 percent since the beginning of the year. The direction of the market is anyone's guess. For every analyst that says the market is oversold and a correction is coming, there's one who will say there's more room to run. Since the election, the Dow is up more than 20% and has established 4 1000 point milestones (see above). However there may be some storm clouds. There's always the FED and interest rate hikes, but after the last meeting, the Fed appears to be somewhat Doveish. I believe the biggest risks to the market are geopolitical; specifically, North Korea and the spectre of a shooting war, which in the short term would hurt the market and give investors an excuse to take profits off the table. I don't think The Russian investigation of the Trump administration will amount to anything, but there is always that uncertainty. However, as Jim Cramer says there is always a bull market somewhere and there are always good buys. If Goldman Sachs breaks out of it's trading range, traders should jump on it and I still like last weeks stock picks of Amazon and Altria.
After rising 70 points in the past 2 days and establishing another record high, the Dow is up 20 points (off its highs), at 22,046, shortly after the market open compliments of an excellent jobs report. The US economy surpassed expectations and created 209,000 jobs in July, when only 183,000 were expected (see above). What is also helping the market is the weak dollar that has lost about 9% this year. A weaker dollar makes American goods cheaper overseas, and as a result, investors appear to be buying more of the multinational firms as opposed to smaller domestic corporations. The dollar is currently trading at $1.18/euro. "This is the second month in a row where we came in above 200,000 and above expectations," said JJ Kinahan, chief market strategist at TD Ameritrade. "I think the reason the market isn't going gangbusters here is because [the Dow] has gone up for eight days in a row. It's hard to justify buying heading into the weekend when you've had this rally." (CNBC). The banking and finance sector is the best today, partially as a result of comments from former FED chair, Alan Greenspan, who says there is somewhat of a bubble in the bond market. If this is the case, the price of bonds will drop, which increases the yield. Interest rates generally follow the yield on bonds, and banks tend to do better in a rising interest environment. With the favorable jobs report, there is some belief that the FED may raise interest rates prior to its December meeting. The current yield on the 10 year is 2.27%. Gold is down slightly at $1267/oz and the price of a gallon of regular gas nationwide is up again, to $2.344.
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)
CURRENT TAX RATES
Trump Tax Plan I The tax plan has a long way to go and there are still a lot of ifs. It reduces the tax brackets to 3, 15%, 25% and 35% but doesn't state what dollar amounts put you in each bracket. It eliminates virtually all deductions except for mortgage interest and charity (state and property taxes are no longer deductible), retirement plans still appear to be tax deferred (401, 403, 457, IRA etc.), and it abolishes the AMT(Alternative Minimum Tax) which was instituted about 50 years ago but was not indexed to inflation. On the plus side for the market, there was a proposal to reduce the corporate tax rate to 15% from 39.6%, the highest in the world. The White House added there will be a "one-time tax" on the trillions of dollars held by corporations overseas. However, Treasury Secretary Steven Mnuchin said the rate for that tax has yet to be determined. The Administration is that the plan is supposed to be revenue neutral and will not add to the deficit. There's still a long way to go and I will be mildly surprised if its complete by August which is the president's time table.
The Trump Tax Plan II In addition to lowering personal income taxes, possibly to a maximum marginal rate to 28-35% from the current 39% The big driver is a corporate tax cut from the highest in the world, 39.6%, to his opening gambit of 15%. A number of analysts on CNBC have said that this would probably double profits since it would stimulate businesses to invest more in capital goods which will most likely increase the top and bottom lines. A good example of this would be the Reagan tax cuts of the 1980's where the top marginal rate went from 70 to 50 to 28%. As a result, your wealthy businessmen invested more (have you ever seen a poor man/woman hire someone), and the amount of taxes the top 1% paid has gone from 17% to 24%, of all personal income taxes collected, at the end of the Reagan presidency to 35-40% now. (chart). Earnings season carried on, with PepsiCo, United Technologies, Procter & Gamble and Twitter all posted a better-than-expected profit. Twitter's stock popped about 12 percent after reporting. There were no major economic data reports released Wednesday, but Wall Street looked ahead to Friday's first-quarter GDP report. (CNBC).
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.