" Where economics isn't just a job, but an adventure"
February's Blog is out. Does taxing the rich hurt the economy?
Quote of the Week
"In this world nothing can be said to be certain, except death and taxes." Ben Franklin
“Taxes are the price we pay for a civilized society.”
Chief Justice Oliver Wendell Holmes
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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?
Hi all, I'm off to France with my Energy Economics Class. We'll be touring Nuclear Power and Alternative Energy plants and then spending the last 4 days in Paris after a whirlwind tour of Marseilles, Aix en Provance and Lyons. See you in 10 days and check facebook for updates.
The Dow was up 62 points today to close at 16,421. This Sunday marks the 5th year of the Dow's lowest point during the financial crisis affectionately known as the Haines bottom at CNBC since it was predicted by former CNBC newscaster Mark Haines. That year, 2009, the Dow gained 65% after it had its 3rd worse year ever in 2008. Many analysts are questioning how much higher can this go? But previous bull markets, which are broadly defined as a period where the market gains 20% or more without a decline of 20% in between, have gone on longer than the current one (most notably 1987-2000), so it may still have legs. What will drive the markets tomorrow is unemployment and job creation figures for February. More on Obamacare I reported earlier this week that only 4 million people have signed for Obamacare. After a little more research, I found a study by McKinsey & Co that states only 27% of those applicants who have signed for Obamacare have not previously had insurance. Not quite the number the Whitehouse was hoping to get. Economists are expecting that 155,000 jobs were created in February.
Addendum: Employment figures for February were just released. The economy created 175,000 jobs in February, higher than expected, and the unemployment rate increased slightly to 6.7%. The labor force participation rate remained unchanged at 63% (the elimination of long term unemployment benefits can be a factor in any further declines), marginally attached workers have declined by 285,000 since January to 2.3 million currently (also a result of no more long term benefits) and the DOW is up 90 points in pre-market trading as a result of theses favorable numbers. Some of you may be asking, how did the economy create jobs yet the unemployment rate increased by .1 to 6.7. Simply, more people entered the work force. Why? No more long term unemployment benefits.
After the Dow lost 154 points on Monday as a result of tensions in Ukraine, it gained back all those points and then some on the easing of those tensions. The Dow finished Tuesday at 16,395, up 228 points. As a result of easing tensions, oil dropped by $2/barrel and goal about $15/oz. Many analysts felt that the market was overbought yesterday but in pre-market trading, the Dow is up by 20.
MORE ON OBAMACARE: Yet another delay in the nationwide implementation of the Affordable Care Act. As a result of increasing premiums and poor enrollment figures (currently 4 million of the 32 million uninsured), the Daily News web site and FOX news is reporting that the White house will allow insurers to continue to offer healthcare that doesn't meet minimum coverage requirements, quite possibly until the end of Obama's 2nd term. That should ease some of the upward tension on premiums, however, the ACA does nothing to reduce healthcare costs. I will once again re-iterate, the Affordable Care Act is the Poster Child for false advertising. The Kaiser foundation is also reporting that as a result of Obamacare, employees covered by a grandfathered healthcare plan(graph) is also decreasing and the trend will continue.
The Dow dropped 154 points, to finish the day at 16,168; however, it was off it's lows of over 200 points. Tensions in the Ukraine dominated trading today as Russia moved 16,000 troops into the Crimea to "protect Russian citizens" located in that region. A particularly sharp exchange of words between the US and Russian Ambassadors at the UN did little to ease tensions. The markets feared and economic sanctions against Russia, particularly since Russia supplies as much oil, over 10 million barrels/day, as Saudi Arabia. The price of oil has increased to $104 over the past week because of increased concern/tensions. Gold has also soared in the past week to $1350/ounce. There is usually a flight to safety (gold and other precious commodities) in time of economic/geopolitical unrest.Though global markets were getting knocked down, Nigel Green, founder and CEO of deVere Group, said he doesn't expect the sell-off to last long. "There has been some volatility in the capital markets as a result of the political and military uncertainty in Ukraine, which have naturally exacerbated concerns about the country's fundamental economic weaknesses," he said. "However, I fully expect this to be a short-term phenomenon. "
After a seesaw day, the Dow finished at 16,321, up 49 points for the day. US GDP was revised downwards from 3.2 to 2.4% in the 4th quarter of last year and the ISM manufacturing index came in stronger than expected which helped the market recover some of its midday losses. Tesla gave back some of its gains falling back 8 points to 245 in spite of CEO Elon Musk saying that he felt the stock was slightly overvalued. 3D printers gained after reporting strong quarterly earnings and finished the day at $75, up nearly 2%. United Airlines stock dipped 3.5% after it announced that it cancelled 22,000 flights in the 1st two months of the year because of the weather (think frozenomics). The other airlines, except Air Alaska where they are having a mild winter, should follow. Keep an eye on marijuana stocks; banks are starting to loan them money and with a number of new states, including New Hampshire, considering legalization, this could be a new gold rush. One stock in particular is FSPM, Fusion Pharm that manufactures and sells a patent pending commercial hydroponic cultivation system capable of growing almost any herb, vegetable, flower, fruit or terrestrial plant better and faster than traditional farming methods. The Company is the creator and manufacturer of the PharmPods hydroponic cultivation container system. It is a very risky investment, but it has acceptable Balance sheet and it 's a budding (pun intended) industry. . One last afterthought, Synta Pharm's 50 day moving average just crossed above its 200 day moving average. This is known as a Golden Cross and is a very bullish sign from a technical analysis standpoint
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.