" Where economics isn't just a job, but an adventure"
Quote of the Week
Rules of Life for High School Students Bill Gates
Rule No. 1: Life is not fair. Get used to it. Rule No. 2: The real world won’t care as much about your self-esteem as much as your school does. It’ll expect you to accomplish something before you feel good about yourself. Rule No. 3: Sorry, you won’t make $60,000 a year right out of high school. And you won’t be a vice president or have a car phone either. You may even have to wear a uniform that doesn’t have a Gap label Rule No. 4: If you think your teacher is tough, wait ’til you get a boss. He doesn’t have tenure, so he tends to be a bit edgier. When you screw up, he’s not going to ask you how you feel about it. Rule No. 5: Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flipping. They called it opportunity. Rule No. 6: It’s not your parents’ fault. If you screw up, you are responsible. This is the flip side of “It’s my life,” and “You’re not the boss of me.” Rule No. 7: Before you were born your parents weren’t as boring as they are now. They got that way paying your bills, cleaning up your room and listening to you tell them how idealistic you are. And by the way, before you save the rain forest from the blood-sucking parasites of your parents’ generation, try delousing the closet in your bedroom. Rule No. 8: Your school may have done away with winners and losers. Life hasn’t. You don’t get a participation award. Rule No. 9: Life is not divided into semesters, and you don’t get summers off. Not even Easter break. They expect you to show up every day. For eight plus hours. Rule No. 10: Be nice to nerds. You may end up working for them.
Click on the pictures to enlarge
Blog Topics 2017
January Trumponomics Part 2 February The Keystone Pipeline Revisited March Border Adjustment Tax
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
March Jobs Report
Nonfarm payrolls increased by 98,000 when 180,000 were expected and the unemployment rate dropped to 4.5%, the lowest since 2007. The real unemployment rate that includes marginally attached workers as part of the labor force and hence unemployed and part-time workers also decreased to 8.9%. The real unemployment rate (U-6) is typically double that of the published rate (U-3). Weather contributed significantly to the downturn since the March weather across most of the country was worse in March than January and February. The retail sector may be i indicative of this since it was down 30,000 jobs. The labor force participation rate remained constant at 63%. Wage growth kept pace, with average hourly earnings up by 2.7%. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.3 hours in March. In manufacturing, the workweek edged down by 0.2 hour to 40.6 hours, and overtime edged down by 0.1 hour to 3.2 hours (BLS). Breaking down unemployment by demographics, the unemployment rates for adult women (4.0 percent), Whites (3.9 percent), and Hispanics (5.1 percent) declined in March. The jobless rates for adult men (4.3 percent), teenagers (13.7 percent), Blacks (8.0 percent), and Asians (3.3 percent) showed little or no change.
CURRENT TAX RATES
After being up 75 points, the DOW gave up all its gains in the last 30 minutes as investors were not sure on how to react to the Administrations Tax Plan. The Dow closed Down 21 points at 20,975 after being above 21,000 for most of the day. 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 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. Today, about an hour before the market's open, the Dow is up 27 points as the pundits are still evaluating the tax plan. Earnings continue to be a plus as Bristol Meyers beat on both the top and bottom lines and exceeded profit expectations by 10 cents/share. Other companies on the earnings calendar before the bell include AbbVie, Union Pacific, UPS, American Airlines Group, Amazon, Intel, Microsoft and Under Armour. In economic news, preliminary data for 1st quarter GDP is due out this Friday and it is being watched closely by analysts to see if we will reach 3% which will be a start along the road to be above 3% for the year, for the 1st time in 10 years. In other news, it appears that healthcare reform is back on the table as the Republican right wing freedom caucus has agreed to a number of amendments. Oil is down to $48.64/barrel, The dollar is stable at $1.09/Euro as is gold at $1265/oz, the yield on the 10 year Treasury is down to 2.31% and the price of a gallon of gas nationwide is down slightly to $2.403.
After advancing 233 points yesterday, the Dow had it's first two back to back days in the green since March 10th, and with it up 49 points today at 21044 (with 3 hours left in the trading day) it looks like it may be 3 days in a row. The drivers have been good earnings, more than 75% of companies reporting have beat earnings, geo-political concerns have diminished and anticipation of Trumps tax plan. 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). Oil prices turned positive today as the weekly inventory report showed a decrease of 3.6 million barrels when an increase was expected as refineries have hiked output. Oil is currently trading at $49.71/barrel. With the possibility of France leaving the Eurozone is diminished, the Euro has gained strength and is trading at $1.09/Euro, the 10 year yield is up to 2.33% as there is a slight selloff in bonds, gold is down to $1265/oz, and the price of a gallon of regular gas nationwide is down slightly to $2.408.
Bank stocks are soaring worldwide and bringing the rest of the markets, most notably the Dow, along with it. With 2 hours left in the trading day, the Dow is up 224 points at 20,771. The impetus was the preliminary French elections and the real possibility, that even though extreme right candidate Marine Le Pen advanced in the French election to take on centrist Emmanuel Macron, Macron appears to be the odds on favorite with the polls showing him garnering 2/3's of the vote.This was the scenario nervous traders going into the weekend wanted most, and it removed a heavy uncertainty overhanging global markets and the euro since the start of the year. Macron he is a 39-year-old newcomer and former investment banker. He’s even married to his former high school teacher 25 years his senior (who also has seven grandchildren). That would disqualify him instantly in the U.S., but in France—well, vive la différence! (marketwatch.com) If France was to abandon the European Union similar to England, it would have a cascade effect that could spell the demise of the Euro. The financial sector is leading all other sectors with a gain for the day closing in on 2.5% As a result, the Euro rose significantly against the dollar trading at $109/Euro, a 5 month high. With investors buying stocks, there was a selloff in bonds with the yield on the 10 year rising to 2.31% and gold dropped to $1275/oz as the fear trade eased. However, there are some storm clouds on the horizon. If Congress doesn't expand the debt limit by Friday, the government can experience a partial shutdown which leads to uncertainty and usually a downturn for the markets. In addition, it is earnings season, and while earnings have been relatively good so far, there are close to 200 companies from the S&P reporting this week which can add to volatility. So far, over 75% of the companies reporting have exceeded earnings. In the near term, Trump's tax plan is due out Wednesday which investors are eagerly waiting. Oil is down slightly on oversupply fears trading at $49.6/barrel, and the price of a gallon of regular gas nationwide is down slightly to $2.418.
After the Dow advanced 175 points on Thursday, it gave back 31 on Friday to finish the week at 20,548, and still has not had 2 days in the green since March 10. On Thursday The Dow was propelled by good news on both the earnings and economic fronts. American Express Co. was the best performer among blue-chips, jumping 5.9% following an earnings report that beat estimates on both the top and bottom lines. Also, Treasury Secretary Mnuchin said tax relief is likely to be unveiled in the near future, alleviating fears that the tax cuts promised by the president may have been put on the back burner after the Republicans failed to vote on the American Health Care Act last month. For economic news, the number of people collecting unemployment fell to a 17 year low. Of the 95 companies in the S&P 500 that have reported earnings through Friday morning, about 75 percent have topped expectations, according to Thomson Reuters data, above the 71 percent average for the past four quarters. On Friday, geo-political fears dominated the market as the French elections loomed. Most polls see centrist Emmanuel Macron and far-right leader Marine Le Pen qualifying on Sunday for a May 7 runoff, but conservative Francois Fillon and leftist Jean-Luc Melenchon are still in the running and within the margin of error. If Marine should get in, there is a fear that France will do its version of England's Brexit (Frexit?). What did stem the bleeding was Trump announcing that he would announce the beginnings of a tax plan sometime next week. In addition, the FED, which has taken a back seat lately, is still on track for 2 more rate hikes this year according to Vice Chair Stanley Fischer in a CNBC interview. What may be a barrier to the market next week would be the failure/concern that Congress won't raise the debt ceiling which could temporarily close non-critical sections of the Federal Government. This is being complicated by the Trump administrations demands to include billions in new spending to fund the initial stages of The Wall, a $30 billion increase in military spending. Oil dropped over $2 to $49.62/barrel on concerns that increasing U.S. production and high inventories will thwart OPEC's attempts to reduce the global crude glut. This was the largest one day drop in more than a month. On May 25 OPEC and non-OPEC members will decide whether to extend cuts of almost 1.8 million barrels per day (bpd) (CNBC). The dollar was constant at $1.07/Euro as was the 10 year treasury yield at 2.24%. Gold had a slight gain to $1286/oz and the price of a gallon of regular gas nationwide was up to $2.421.
The Trump trade is on the back burner. After dropping 113 points yesterday, the Dow is down another 49 points today, at 20,475, with 3 hours left in the trading day. The culprit today is IBM as it disappointed on earnings and is virtually accounting for all the Dow's loss so far, as a result of worse than expected decline in revenue; it is done 5% to $161/share. There is an ongoing battle of geo-political news and earning news that is dragging the Dow down. Mounting tension between North Korea and the United States and political uncertainty in Europe ahead of the French presidential elections have kept safe-havens such as gold and U.S. Treasuries in demand in the past weeks. Gold is steady at $1283/oz (but is up for the month) and the US yield on the 10 year is down to 2.21%. There is some good earnings news as Morgan Stanley posted a strong first-quarter as its fixed-income trading revenue doubled year over year which is counteracting some of the downward pressure by IBM. MS is up 2.3% at over $42/share. Tomorrows earnings will feature American Express, , eBay CSX, Canadian Pacific Railway, Qualcomm and Abbott Labs. To add to the malaise, in a recent monthly BofA poll, over 80% of investors feel that stocks are currently over valued. Continuing a trend this year, portfolio managers are moving overseas, with allocations to emerging markets hitting a five-year high and Europe seeing the most in 15 months. U.S. levels are at their lowest since January 2008 (CNBC). The dollar is steardy at $1.07/Euro and the price of a gallon of regular gas nationwide is $2.409.
In other news: The number of Americans renouncing their citizenship rose to a new record of 5,411 last year, up 26 percent from 2015 (chart). The reason is the Foreign Account Tax Compliance Act which mandates that foreign banks holding assets for U.S. citizens had to report the accounts or withhold a 30 percent tax on them if the information wasn't provided. As a result, banks stopped holding assets of these Americans. In order to avoid the excessive taxes, a number, of mainly rich, Americans are going abroad to countries who don't have that requirement.
After advancing 183 points on Monday, and breaking a 3 day losing streak, the Dow is down 85 points mid-morning at 20,644. The Dow has not had 2 days in the green since March 10th and it appears that it won't happen today. Today's Dow demise is a function of mixed results in the financial sector. Whereas Bank of America beat earnings and revenue, and has good guidance, Goldman Sacs had a rare earnings miss and is down 9 points, 4%. Johnson and Johnson is also down 4% as it missed on its top line (revenue). Geo-political concerns have not gone away as markets are still wary as U.S.-North Korea tensions lingered. Vice President Mike Pence reassured Japan of American commitment to reining in North Korea's on Tuesday, after statingt U.S. strikes in Syria and Afghanistan showed the administration's resolve. There are also geo-economic concerns. British Prime Minister, Theresa May, suddenly called for elections. Investors see this as a vote of confidence for May and her intentions to go thru with Brexit (Britain leaving the European Union). After her announcement, the British pound dropped to close to record lows at $1.272/pound. In addition, France's right wing candidate for president, Marine Le Pen, wants to ditch the Euro and therefore leave the Euro zone (the European Union is 28 countries that have free trade and open borders, and the Eurozone is 19 of those countries that have adopted the Euro). The flite to safe havens continues as the ten year notes yield continues to decrease, currently trading at 2.2%, and gold is stable at $1288/oz. In economic news, housing starts fell 6.8 percent last month, more than the expected 3.9 percent decline. Industrial production rose 0.5 percent last month, in line with expectations. Oil is up slightly to $52.62/barrel and the price of a gallon of regular gas nationwide is constant at $2.406.
With about 2 hours left in the trading day, the Dow is up 130 points at 20,584. With what appears to be Chines intervention with Korea, and Trump softening his rhetoric towards China being a currency manipulator (possibly a quid pro quo?). Over the weekend, North Korea put on a massive military parade, followed by a failed missile launch. In an unannounced visit to the Korean Peninsula’s demilitarized zone, U.S. Vice President Mike Pence on Monday warned North Korea “not to test” the resolve of President Donald Trump or the military strength of the U.S. Given the aforementioned, it's not surprising that investors wanted to lock in profits (or minimize losses) before the long weekend after the US dropped a 21,000 pound bomb on ISIS positions in Afghanistan. Meanwhile, earnings season was set to kick into full gear this week, with Goldman Sachs, Bank of America and eBay, among others, set to report this week. Netflix was also set to report Monday after the close. Investors have high hopes for first-quarter earnings, with Wall Street expecting the best season since 2011 (CNBC). However, what will be more important will be guidance into the 2nd quarter and rest of the year. The Dow is still surging despite a spate of less than stellar economic news: A reading on home-builder sentiment slipped in April, falling modestly from an 11-year high, though it remains in notably positive territory, and March retail sales data, released Friday, posted their worst two-month stretch in two years, while March consumer prices fell for the first time in over a year. Oil slipped slightly down to $52.73/barrel on concerns that an increase in US oil production will nullify OPEC's production cuts, there is still a flight to safe havens with gold up to $1291/oz and the yield on the 10 year being relatively stable at 2.24%, The dollar slipped somewhat to $1.07/Euro and the price of a gallon of regular gas nationwide is up to 2.407, the highest in the past year.
The FED has been relegated to the back seat and geopolitical fears are dominating the landscape. The markets were closed in observance of the Good Friday holiday but tanked 138 points Thursday to finish the day and week at 20,453; and you can take your pick, is it Russian relations being at an all time low, the US attack on a Syrian airbase, The dropping of a 21,000 pound bound in Afghanistan, or will it be a North Korean underground nuclear test scheduled for this weekend. Whichever one it is, or all the above, it is producing uncertainty in the market, and the markets hate uncertainty, hence, Thursday's loss. What is also disconcerting, Pentagon officials have alluded that if they believe a test is inevitable, they may launch a pre-emptive strike to halt it using conventional weapons. The US currently has a carrier battle group 300 miles off the North Korean coast with destroyers capable of firing Tomahawk cruise missiles in addition to carrier based bombers at Guam. The danger, and understandable market unrest, is that this would violate the North/South Korea armistice and start a shooting war, with China as the wildcard as to whether it would get involved or not. However, China is acting as the mediator as it proposed that the United States and South Korea suspend the exercises in exchange for North Korea's suspension of missile launches, however, to my knowledge, there has been no dialog on what I consider to be an acceptable middle ground. As a result, defense stocks, Raytheon, Boeing, Lockheed Martin, and defensive stocks, such as gold corporations, are doing well. Gold is up to $1288/oz. There ha been a flight to safety also in the form of US government bonds with the yield on the 10 year treasury dropping to 2.23%. Oil has also been increasing in price as it generally does with geopolitical unrest currently trading at $52.91/barrel. Monday, should be an interesting trading day. In business news: JPMorgan Chase, Citigroup and Wells Fargo all reported quarterly results on Thursday. JPMorgan easily topped expectations, while Citigroup also posted better-than-expected results. Wells Fargo posted mixed results. On Wednesday, Delta soared as it beat on both the top and bottom lines. In economic news, jobless claims came in at 234,000, below expectations, while March PPI declined 0.1 percent. Consumer sentiment came in at 98, beating expectations (CNBC). In other news: Premier Trudeau odf Canada, introduced a bill to the Canadian parliament on Thursday to legalize recreational marijuana. While the federal government will license and regulate growers, each of Canada’s provinces will need to decide exactly how the drug will be distributed and sold within its boundaries. As of now, there are 28 state in the US that have legalized either medical or recreational marijuana.
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.
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).
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.
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."
More on Obamacare In a recent survey by the New York FED on businesses, the median increase in healthcare premiums is expected to be 10%. More than a quarter of the manufacturing and service firms surveyed said they either have or will boost prices for goods and services "because of the effects that the ACA is having on your business." About 20 percent of respondents said they were reducing their number of workers and/or raising the share of part-time workers as a result of the ACA. His is in stark contrast to the presidents remarks earlier this year that healthcare costs are decreasing. Maybe CEO's were right when they said the president "Just doesn't get 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.