" Where economics isn't just a job, but an adventure"
This month's blog is out and to know surprise it is on the wasted money going towards agricultural subsidies.
Quote of the Week
There is nothing more permanent then a temporary government aid program
The 1934 Farm Bill was suppose to be a temporary aid to farmers program designed to get them through the depression and dust bowl. It is now 2014 (do the math) and current farm subsidies are $ 20 billion dollars; 83% of these subsidies go to the largest 20% of farms that are all highly profitable. Why is this still the case? Simple, there are 34 farm states which account for 78 votes in the Senate. -Tommasi
Click on the pictures to enlarge
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks February Prohibition: Profits to Cartels & Increased Violence 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?
After opening up 30, and being down 25, the Dow finished the day unchanged at 16,501. From CNN; "After the market closed, Microsoft (MSFT, Fortune 500) reported earnings that topped analysts' expectations, another victory in the tech sector that sent the stock up over 2% after hours. Amazon's (AMZN, Fortune 500) earnings were in line with what analysts had predicted, though revenue was slightly better than expected. It popped up over 5% after the news. Starbucks (SBUX, Fortune 500) reported results that met expectations, although its outlook for the rest of the year is lower than anticipated. The popular coffee maker's stock rose in after hours trading."
In my December blog, I asked the question "Does affirmative Action lead to reverse discrimination." Yesterday by a 6-2 ruling, the US Supreme Court upheld Michigan's decision to end affirmative action at its public Universities. The ruling sustains a 2006 ballot initiative where race-based admissions were a consideration. Michigan is one of eight states, including liberal California, that have ended their affirmative action programs at state universities (California was the home of the landmark 1978 Bakke decision. There is also a case from Texas that is waiting to be heard before the court. The Plurality opinion written by Justice Kennedy stated, " ... because the voters deemed a preference system to be unwise,on account of what voters may deem its potential to become a source of the very resentment and hostility based on race that this nation is seeking to put behind it." I sure the justices will sleep soundly tonight knowing that I agree with their decision.
The Dow spent the entire day within 25 points of break even finishing the day at 16,501, down 12 points. There was no earth shaking news and Thursday is a big day for earnings report. Speaking of earnings, Apple,aapl, is up 45 points in pre-market trading after exceeding expectations and then announcing a greater than expected stock buy back and 7 for 1 stock split. For Investors, it doesn't get much better. GM is also up after blowing away earnings, but it is just a modest 2% increase since they missed on revenue and they are currently out of favor (think ignition recall). Currently, the Dow is up 60 points in pre-market trading.
It's that time of year, gas prices are rising in spite of the largest inventory of crude oil in 83 years. That's correct, not counting the Strategic Oil Reserve (a 3 month supply of oil in government storage tanks), the 400 million barrels of oil in inventory is the largest amount we have had since 1931. Fracking technology is certainly asserting itself and it is estimated that by 2020, the US will be the number 1 producer of oil in the world. Gas prices are rising because it is a global market for oil. The price of oil is not set by OPEC or the big oil companies, but by an auction market at a number of exchanges around the world such as NYMEX, the New York Mercantile Exchange. The world uses about 90 million barrels of oil per day (42 gallons in a barrel of oil) and currently, supply and demand are well balanced. Oil is still trading in the $100/barrel range and gas is going up because of increased demand and the slightly reduced supply in the US since refineries are changing from a winter to summer blend. The cost is further exacerbated by EPA rules that many say are too restrictive and archaic.
The Dow was up by triple figures briefly, but finished the day off its highs, up 65 points, to finish the day at 16,514. It is within 52 points of an all time high. Earnings, particularly tech is what drove the Dow today. NFLIX soared after the company reported earnings late Tuesday that beat expectations and showed strong subscription growth. It also said it would increase its monthly fee for new customers in some countries later this quarter. Harley Davidson, ticker (what else) HOG, was up 19% after they easily beat 1st quarter expectations. Tesla (TSLA) spiked after a report by the Wall Street Journal cited CEO Elon Musk talking about his company's plan to build a support network in China. Musk also said that Panasonic would be Tesla's partner in a planned battery gigafactory in the United States. They finished the day up 14 points to finish the day at 218. Even though it's off its high of $296, it's still up over 300% during the past year. If yoy look at the Dow chart above, it has very much been a traders market since December.
Food for thought/OBAMACARE If Obamacare is the success story the president said it was last Thursday, how come democrats who voted for the bill are still distancing themselves?
The Dow meandered back and forth and finally finished the day up 41 points finishing at 16,449. Analysts expect overall earnings for the S&P 500 to have declined the first quarter, but results so far have been better than forecast. Of the 82 companies that have reported earnings as of last week, 66% have topped forecasts, according to Fact Set Research. Ford (F, Fortune 500) shares were down slightly following a report that chief financial officer Mark Fields will replace chief executive Alan Mulally before the end of this year. " From CNBC "Since late February, the Health Care Select Sector SPDR Fund has dropped around 2.5 percent, compared to a nearly 2 percent climb for the S&P 500 Index. Biotech stocks have been hit particularly hard, with the Nasdaq Biotech Index dropping 15 percent in that time frame. According to JPMorgan's senior medical technology analyst Mike Weinstein, the pullback presents a perfect buying opportunity for select names in the space. On CNBC's "Fast Money" on Monday, Weinstein gave his top picks in healthcare that investors should be buying right now. For his first pick, Weinstein looked towards the diversified medical devices, supplies and pharmaceuticals company Covidien. "I think that Covidien has a lot going for it," he said. "It's a company that has some best in class assets … this should be a pretty classic growth acceleration, beat and raise story." Weinstein's second pick was Spectranetics, a smaller-cap medical device maker which had fallen roughly 18 percent in the past month, but which jumped as much as 8 percent in after-hours trading following Weinstein's recommendation."
As I stated previously, here is the entire list of 23 new taxes/fees from the Affordable Care Act. To my knowledge, no other law has had as many taxes.• 2.3% Tax on Medical Device Manufacturers 2014 • 10% Tax on Indoor Tanning Services 2014 • Blue Cross/Blue Shield Tax Hike • Excise Tax on Charitable Hospitals which fail to comply with the requirements of ObamaCare
• Tax on Brand Name Drugs • Tax on Health Insurers • $500,000 Annual Executive Compensation Limit for Health Insurance Executives • Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D • Employer Mandate on business with over 50 full-time equivalent employees to provide health insurance to full-time employees. $2000 per employee $3000 if employee uses tax credits to buy insurance on the exchange (marketplace). (pushed back to 2015) • Medicare Tax on Investment Income 3.8% over $200k/$250k if married filing jointly. • Medicare Part A Tax increase of .9% over $200k/$250k • Employer Reporting of Insurance on W-2 (not a tax) • Corporate 1099-MISC Information Reporting (repealed) • Codification of the "economic substance doctrine" (not a tax) • 40% Excise Tax "Cadillac" on high-end Premium Health Insurance Plans 2018 • An annual $63 fee levied by ObamaCare on all plans (decreased each year until 2017 when pre-existing conditions are eliminated) to help pay for insurance companies covering the costs of high-risk pools. • Medicine Cabinet Tax Over the counter medicines no longer qualified as medical expenses for flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), health savings accounts (HSAs), and Archer Medical Saving accounts (MSAs). • Additional Tax on HSA/MSA Distributions Health savings account or an Archer medical savings account, penalties for spending money on non-qualified medical expenses. 10% to 20% in the case of a HSA and from 15% to 20% in the case of a MSA. • Flexible Spending Account Cap 2013 Contributions to FSAs are reduced to $2,500 from $5,000. • Medical Deduction Threshold tax increase 2013 Threshold to deduct medical expenses as an itemized deduction increases to 10% from 7.5%. • Individual Mandate (the tax for not purchasing insurance if you can afford it) 2014 Starting in 2014, anyone not buying "qualifying" health insurance must pay an income tax surtax at a rate of 1% or $95 in 2014 to 2.5% in 2016 on profitable income above the tax threshold. The total penalty amount cannot exceed the national average of the annual premiums of a "bronze level" health insurance plan on ObamaCare exchanges. • Premium Tax Credits for Small Businesses 2014 (not a tax) • Advanced Premium Tax Credits for Individuals and Families 2014 (not a tax) • Medical Loss Ratio (MRL): Premium rebates (not a tax)
In his speech on Thursday the President touted on how healthcare costs decreased in 2013. However, he was very selective. Healthcare premiums (insurance costs) did in fact increase by only 4% as compared to 7$ in 2012. However, what he did not mention is that out of pocket costs, such as co-payments, coinsurance and deductibles, increased 12.8 percent ($2,239) in 2013, compared to just 6.2 percent in 2012 ($1,984) and as a result of the ACA, healthcare costs are expected to increase by 7% in 2014 compared to an inflation rate of under 2%. What the president also did not mention was that the decreased costs in premiums in 2013, according to research firm Aon Hewitt, were a result of "the lagged effect from the economic recession on health care spending and continued adjustments as employers and insurers phase out the conservatism that was reflected in earlier premiums due to uncertainty around economic conditions and health care reform" and NOT the Affordable Care Act.
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%. Once again the president is a master at politics and selectively skewing the facts.
JOBS #'s JUST IN! It's 8:30, jobs Friday and unemployment numbers are in and the market likes it; the Dow jumped in pre-market trading from plus 10 to plus 60. The economy added 192,000 jobs (all in the private sector) in March and the unemployment rate remained unchanged at 6.7%. How could the economy add jobs and have an unchanged unemployment rate? Simple, as I predicted in January, the labor force participation rate increased to 63.2%, up for the 3rd month in a row and the number of long term unemployed (those unemployed for longer than 26 weeks) has dropped 837,000 since January. Why is the labor force participation rate increasing and long term unemployed decreasing? Again simple, Long Term Unemployment Benefits ended January 1st and people are now forced to look for work instead of living off the government and the taxpayer.
As an additional note, the teenage unemployment rate decreased to 21.4%. Please note, 50% of all minimum wage workers are under 25, if minimum wage is hiked to $10.10/hour, teenage unemployment will once again move towards 25% (to put in in perspective, you're not going to pay someone $10.10/hour if they are only making you $7.25/hour). Looking at the chart below, the teenage unemployment rate went up for two reasons, the recession and increases in minimum wage.
Commentary on Minimum Wage
There is currently a debate in the state of NH on whether to increase the minimum wage to 8.25 from 7.25. The main argument 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 $8.25/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 level education is available to all.
The Congressional Budget Office predicted this week that more than 2 million people will leave the labor force because of Obamacare. Specifically, more people will leave the labor force or reduce their hours, to stay under the cap for federal subsidies. If you are a family of 4, and household income is under, WAIT FOR IT, $94,000, you are eligible for a federal subsidy. The number of part time/temporary workers has already increased by 35% since Obamacare was passed in 2010; and yes it will get worse, wait until 2015 when it becomes mandatory for businesses.
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.
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 3 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 $292 million dollars 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."
Please excuse my John McEnroe moment; but "You can't be serious!" Go to www.healthcare.gov. the website for the Affordable Care Act (Obamacare). Now scroll down and look at the number, get out your phone and look at the alphanumeric pad. the number is 1-800-3182596 What's that spell. f-uckyo Has anyone else noticed this?
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.