Tag: economics

Politics vs Economics

Warning: Undefined array key "adf" in /home4/hpvcxhmy/public_html/wp-content/plugins/similarity/similarity.php on line 69

Warning: Undefined array key "sim_pages" in /home4/hpvcxhmy/public_html/wp-content/plugins/similarity/similarity.php on line 70

I was interested in the idea of six economic policies that economists across the spectrum support and politicians across the spectrum oppose. It’s not that I am surprised that there are big ideas that make perfect sense from an economic perspective which are politically unpopular – after all, doing what has been deemed to be politically possible has led us to a dire economic position. Once I read the six policies I found my reactions to be interesting.

Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. I have to admit that is one deduction that I have always wanted to keep but the fact is that it is not economically beneficial overall. The people who benefit the most are those who least need the deduction.
End the tax deduction companies get for providing health-care to employees. This is one that I have long felt should be enacted. Many people are unaware of this deduction but I think if they understood how it works and what effect it has on our health care costs they could realize that it should be eliminated.
Eliminate the corporate income tax. Completely. I can easily see why this one is politically unpopular but, like the deduction for providing health care for employees the net effect is to remove capital that would otherwise be used to create jobs or increase wages.
Eliminate all income and payroll taxes. All of them. For everyone. I can easily see why this is politically unpopular but the logic is the same as eliminating corporate taxes. I especially liked their explanation on this one: “Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs.” For those who are squeamish about this they go on to encourage the creation of a progressive consumption tax to replace it – this isn’t simply a starve the government proposal.
Tax carbon emissions. This is the first of their proposals that I am not sure I support. I recognize their justification for the policy but I’m not sold yet. This is really just a new version of a tobacco tax and I’m not sure that taxing tobacco has really accomplished what proponents might have hoped. Also, I consider that such a tax might distort the market in adverse ways that we have not yet considered.
Legalize marijuana. I’m not a fan of the war on drugs but like the carbon tax I am not prepared to jump on board with this idea yet. I have heard the arguments and I recognize a certain amount of logic behind it but I am dragging my feet for now. I figure that to be intellectually consistent anyone pushing such a proposal should at least include taxing marijuana like we tax tobacco and like they are proposing to tax carbon.

So there they are. Six proposals and I really like at least four of them. The other two would take some convincing.

Tags economics, government, policy, taxes

State

Taxes: Supply vs Demand

The bulk of the discussion at the legislative town hall meeting last week was focused on fiscal issues of one kind or another. One thing that was briefly touched on was the potential return of sales tax on unprepared food. I have always been a fan of not having that tax, because of its supposedly regressive nature and because unprepared food is generally what I spend my money on, and I see no reason to volunteer for higher taxes on it. A couple of statements in that brief discussion got my brain thinking about some different aspects of tax policy.

One statement that someone made was that when the tax on unprepared food was eliminated the stores simply raised their prices accordingly so that the savings went into their pockets rather than taxpayers. That didn’t strike me as accurate, but even if it was accurate it is no excuse to reinstate the tax – the stores would let consumers absorb the taxes on the now higher prices rather than lower the price to accommodate the tax.

Sen. Liljenquist mentioned that people don’t tend to buy luxury items in down economies. When combined with the fact that our expectations fo government tend to increase in down economies I saw why governments tend to grow endlessly – there is generally an inverse relationship between our demand for government services and our ability to pay for them. When times are tough we demand more and politicians do their best to oblige us. When times are good we tend to expand government in areas that were not previously considered crucial by eating into any taxes that exceed our recession-limited budgets. When times become lean again the once-discretionary programs are viewed as essential and demand greater sacrifice from citizens to maintain the programs that would have been considered outrageous in the previous downturn.

From this perspective it makes more sense to favor regressive or at least “fair” tax schemes where those with the least ability to pay also have a vested interest in the tax rates so that they are less likely to get extravagant when times are generally better and so that the tax revenue is generally more stable. It is simply foolish to base our most essential services on revenue sources that are unavailable when the services are crucial.

I’m not trying to argue that luxury goods should be tax-exempt, but if they form the basis of our tax revenue for essential services we will always be in for gut-wrenching decisions whenever their is a dip in our economic outlook.

Tags Dan Liljenquist, economics, House 20, Senate 23, taxes, thoughts, town hall

culture State

Defined Benefit Pensions: A Failed Experiment

Post author By David
Post date January 22, 2010
11 Comments on Defined Benefit Pensions: A Failed Experiment

photo credit: inspecie.co.uk

After the town hall meeting I attended on Wednesday I have been thinking about pension plans generally. The state of Utah is looking at changing their pension offerings for new employees to save the state from future financial ruin. I have seen other companies go through that process already. As a nation we have seen the cost of defined benefit pensions contribute mightily to the downfall of GM and Chrysler as well as having a hand in the struggles throughout the airline industry not so many years ago.

As I thought about all these examples I realized that even a fully funded defined benefit pension program is a gamble for any organization. Employees like the security, but it is an inherently risky proposition to offer such a plan.

Tags bailout, economics, Elevated, health care, money, Utah

culture

Roll Your Own . . .

photo credit: She Who Shall Not Be Named

When I wrote about the importance of investing in yourself I was having trouble trying to find the words to convey what I meant. I finally found a way to explain what I mean so that nobody should be confused (I hope).

Virtually every book on financial planning or wealth building I have ever encountered says something to the effect that there are two ways to have more money. The most obvious being to make more money and the too-often overlooked being to spend less money. When I wrote about investing in yourself my expectation was that readers would assume I was talking about the things that amount to making more money – increasing your education being frequently cited. That kind of self investment is focused on being better able to produce more goods, or more valuable goods for others to purchase in an economic marketplace.

What I was trying to advocate before was to not forget about self investments that amount to spending less. I would generalize those kinds of self investment as focusing on being able to produce for yourself those things which you have become accustomed to purchasing in the economic marketplace. That may be producing the same thing, or it may be producing a substitute.

Tags economics, Elevated, liberty

General

Invest in Yourself

photo credit: Cambodia Trust

I drove in to work later than usual today and caught a bit of Glenn Beck. Like many conservative talk radio hosts I have heard he was promoting the value of gold as an investment. What caught my attention was the way he started out. I’m going to paraphrase here but essentially he started out by saying:

I don’t know what the future holds for this nation, nobody does. I don’t know what you should be investing in right now.

My immediate reaction was to say to myself that I know exactly what the vast majority of people should be investing in right now – they should each invest in themselves. To his credit Glenn said that gold was not the right investment for everyone and suggested that before investing in gold people should invest in food storage, paying down debt, and having some cash reserves. I think that’s a great start but investing in yourself is more than that.

Tags economics, Elevated, KVNU FTP, liberty

General

Public to Private is a One Way Economic Street

Post author By David
Post date December 31, 2009
1 Comment on Public to Private is a One Way Economic Street

photo credit: taberandrew

A post entitled The New Robber Barons got me thinking about what happens when public and private enterprises compete in a marketplace. Thinking about that led to some interesting observations. The first of which is that progressives are right in their assertion that public and private enterprises can compete without eradicating each other. The problem is that the progressives don’t seem to recognize that this only works in limited cases. They like to point to the post office as an example – let’s go explore that.

Tags connections, economics, Elevated, free markets, government, KVNU FTP, questions, thoughts

General

Your Employer: Competitor or Collaborator?

Post author By David
Post date December 15, 2009
3 Comments on Your Employer: Competitor or Collaborator?

photo credit: Trypode

This question is framed in terms of employer sponsored health care benefits, but it really applies to any employer/employee interaction. Are you working with your employer, or are you competing with your employer? To put it another way, is your employer working with you, or simply working you?

I ask this because in the health care debate there are two groups of people who have opposing views on this. One group argues that employer sponsored health care as the dominant source of health insurance coverage is destructive because it distorts the health insurance market by locking people into few if any options for insurance and locks them out of the economic decisions about what plans they want. They also argue that everything your employer spends sponsoring health care coverage is money out of the employees paycheck. The other group argues that employer sponsored health care is a good thing because that is the only way most people can afford coverage and if the employer were to drop coverage the money they save would not go back into paychecks, but would simply pad their bottom line.

The second group obviously views the employer and employee as competitors. These are the people who favor unions because the employee’s need to band together in order to stand up to their employers. This adversarial relationship dampens production and hampers progress. Before anyone gets too upset with this analysis let me just say that there have been situations where unions were necessary but they are no panacea.

Let me explain why I think the first perspective is more accurate based on my own experience.

Tags economics, Elevated, health care, KVNU FTP, thoughts, work

General

Too Rich to Go Bankrupt

photo credit: Stowe Boyd

By “too rich to go bankrupt” I don’t mean someone so rich that they never will go bankrupt. What I mean by that is someone so rich that them going bankrupt would destabilize our economy and thus they deserve a bailout if bankruptcy ever threatens them. (Think Bill Gates plus Warren Buffett plus everyone who gets a paycheck from Google.) More on that later . . .

In discussing the role of the federal government in an economic recovery Ronald Hunt and Charles D. brought up the issue of the role of corporations. Charles was good enough to provide links to a 2-part article by Richard Grossman from 1998 (Part 1, Part 2) that did a good job of discussing how corporations have turned into very unwieldy masters over “we the people.” I was amazed when I first realized that these articles, which are so pertinent to our situation of bailing out “too big to fail” institutions was written more than a decade before our massive Bush bailouts.

I especially enjoyed a couple of quotes from the second part of the article:

the Supreme Court of Georgia, in Railroad Co. v. Collins, wrote: “All experience has shown that large accumulations of property in hands likely to keep it intact for a long period are dangerous to the public weal. Having perpetual succession, any kind of corporation has peculiar facilities for such accumulations . . .” (emphasis mine)

And from the end of the first part:

In Richardson v. Buhl, the Nebraska Supreme Court in the late 19th century declared: “Indeed, it is doubtful if free government can long exist in a country where such enormous amounts of money are… accumulated in the vaults of corporations, to be used at discretion in controlling the property and business of the country against the interest of the public and that of the people, for the personal gain and aggrandizement of a few individuals.” (emphasis mine)

Tags bailout, economics, Elevated, government, KVNU FTP

National

A New Federal Role in Economic Recovery

Post author By David
Post date December 4, 2009
15 Comments on A New Federal Role in Economic Recovery

My post on fundamental assumptions generated some good discussion which began waxing economic in flavor. As part of that discussion I had a new idea about a more reasonable approach the federal government could take to soften economic hard times without outright manipulating our expectations of reality as they do now.

I should start by clarifying my perspective on what the federal government does and what is economically realistic. Economic realism insists that we recognize the inevitability of economic downturns. They are going to happen. Unfortunately the assumption at the federal level seems to be that we must strive for perpetual economic growth – we might tolerate one or two quarters of a mild contraction but anything beyond that is unacceptable. As proven by our significant and now two year old recession sometimes the economy needs to undergo a much harsher adjustment – especially after the government has been pumping the supposedly healthy market with perpetual stimulus for years. (I know, they have not called anything they did stimulus until the stimulus bill in early 2008.)

Personally I think a better approach to the federal government smoothing the rough spots out would be to establish a baseline – let’s say 5% unemployment – where any state meeting that baseline would not receive any federal economic assistance to combat unemployment. Then they would look a the spread between the unemployment rate of various states and be allowed to give economic aid to any state with at least 5% higher unemployment than the state with the lowest unemployment. The upper limit of that aid would be equal to 1/3 of the difference in unemployment between the higher of 5% and the unemployment rate of the state with the lowest unemployment with the limitation that government aid cannot help one state leapfrog another. Let’s show what that would mean with current (October 2009) numbers.

The state with the lowest unemployment is North Dakota at 4.2% so any state with more than 9.2% unemployment could get aid from the federal government to help lower their unemployment. For the October 2009 numbers that would mean that only 21 states could get any federal assistance rather than having the federal government trying to jump start the economies of all 50 states. Of those 21 states Arizona, Missouri, and Washington (at 9.3% unemployment) could receive aid equal to 0.3% of their respective economies (they would not be allowed to leapfrog Idaho and new York which have 9% unemployment and cannot receive this federal aid because they are within 5% unemployment of North Dakota’s unemployment rate). In fact, 12 of the 21 states would receive enough aid to bring them equal to the 9% unemployment rate of Idaho and New York because that would be less than 1/3 of the difference between their actual unemployment rates and the magical 5% unemployment. At the other end of the scale Michigan, with the highest unemployment would have their rate cut below 12% from their current 15.1%.

If every state had unemployment rates over 5% the new benchmark would be the lowest unemployment rate of any state. If we imagine that lowest unemployment rate was 6.5% (adjusting all states up to 6.5% and leaving states with higher unemployment where they are) only states with unemployment over 11.5% would receive aid, six states in all, and only Michigan would get the full 1/3 of the difference between their rate and the base rate of 6.5% (leaving them with 12.2% unemployment).

If all states were below 5% unemployment or if they were all clustered between 3.5% and 8.5% unemployment then the federal government would not give unemployment assistance to any of the states. If anyone is curious to see them, I have all my numbers in a spreadsheet that you can download.

The fact is that of the economy of the entire nation is slumping then no government program can provide a solid foundation to real economic growth – all it can do is produce the illusion of economic stability. Real economic growth can only be build on fundamental economic change, not on the illusion of stability provided by printing money and manipulating interest rates. While committed free marketers would likely hate my proposal just like they hate the current government intrusions in the economy and while those who don’t object to socialism will find my suggestions very harsh on downtrodden regions of the nation, I think that my idea is much better at providing a cushion for the hardest hit areas while allowing the economy to shrink or grow towards whatever the realities of our national economy are which the government tries so hard to mask right now as if our perceptions were the only economic reality worth considering.

Tags bailout, economics, government, KVNU FTP, money

National

Budget Hero Revisited

A post from last year that came up in my daily archive caught my attention with its title, A Budgetary Hat-Trick, I had a look to remind myself and rediscovered Budget Hero. When I played last year the budget was projected to go bust in 2033 barring any changes and I managed to balance the budget, increase security, achieve energy independence, and eliminate government waste at the same time so that the budget bust date was pushed back to sometime after 2070. When I looked this year I saw that the game had been updated after the stimulus and bailouts of the past year. The budget is now scheduled to go bust in 2028 without changes. That made me curious about whether I could still balance the budget. Remembering that all of this is completely dependent on the assumptions built into the game, here are the results I got.

I was able to balance the budget and run huge surpluses within 9 years by cutting virtually everything I could think of and jacking up the taxes on everything under the sun. Being a bit more reasonable I was able, like last year, to push the budget bust date into the indefinite future and achieve the goals of increasing national security, cutting government waste, and becoming energy independent.

Besides changing the starting numbers for the federal government fiscal situation the game was also updated to include new priorities to pursue (at least my memory tells me that “Health and Wellness” and “Economic Stimulus” are new since last year). I decided to see if it was even possible to increase national security, reduce government waste, and promote health and wellness simultaneously. It took more work than achieving energy independence and it was absolutely necessary to pass the Cap and Tax to get it done, but I was able achieve these goals.

It should be noted that I only achieved a very modest reduction in the deficit with these goals and I barely managed to earn the “Efficient Government” badge when trying to also get “Health and Wellness” but I did figure it out. I am absolutely confident that if the game were to allow players to choose 4 goals rather than 3 it would be impossible to get “Health and Wellness” and “Energy Independence” while still increasing national security and making government more efficient – something would have to give. (There are other sets of four badges that could probably be accomplished simultaneously.)

Tags archives, economics, fiscal restraint, government