Tag Archives: Economics

Four Economic Mandates Examined: Oil Speculation

This is a continuation of Four Economic Mandates Examined:  Mortgage Modification.  This series focuces on four economic mandates proposed by Robert Reich.

Mr. Reich has recommended to the President, as his second of four mandates that he should

“…condemn oil speculators for keeping gas prices high – demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.”

What the hell is a speculator and why are they keeping gas prices high?

An oil speculator is someone who purchases oil today at today’s prices, stores the oil in hopes that the future price of oil will be higher and then sells the oil at some future date in hopes of making a profit.  This is simplified but the principles are the same.  The speculator may pay someone else to store the oil or the speculator may buy a futures contract.  For more details on how speculation works, see “The Social Function of Futures Markets” and “The Social Function of Call and Put Options”. Read the rest of this entry »

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Posted by on May 16, 2012 in Uncategorized


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Four Economic Mandates Examined: Mortgage Modification

I caught a small portion of the Daily Show with Jon Stewart.  He had Robert Reich as a guest.  Robert Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley and was the Secretary of Labor in the Clinton Administration.  On the Daily Show, Mr. Reich proclaims that “investments” need to be made in infrastructure (even creating an “infrastructure bank”), education, research and development in the sciences, and “job creation”.  And, says Mr. Reich, government is the only entity to do these things.

To set the baseline of discussion and skew the issue in the “big spending” camp’s favor, Mr. Reich calls Congressman Paul Ryan’s budget proposal “wildly regressive”.  In truth, the Ryan plan is moderate at best.  According to the Ryan Plan’s own numbers, the federal government will run a fiscal deficit until 2038.  So even taking the estimates at face value, the Ryan Plan will not actually balance the budget for almost 30 years.  I am not sure, exactly, what “wildly regressive” means at Berkeley, but if we are in a debt crisis and facing a second downgrade, does it seem like we have 30 years to get to a point when we can start PAYING off our debt – ever increasing for the next 30 years?  I do not have a degree from Berkeley, but “wildly regressive” seems misleading at best.  But hey, I am not the Chancellor’s Professor of Public Policy either. Read the rest of this entry »

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Posted by on May 10, 2012 in Uncategorized


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The Economics of Taking and Giving

I often hear, when talking to people about government debt and deficits, that social programs are vital to our society and provide great benefits.  This always gives me pause as I try to break this down in my mind of how exactly government social programs benefit society and what are the costs and benefits.  First, and the most easily recognizable benefit, is that some people receive assistance – food subsidies, healthcare subsidies, housing subsidies, and direct money transfers.  It is good that people who need help can get help, but then I start to brood over how exactly this is accomplished and if they are truly beneficial.

The government can only give what it first must take.  This is the side of social programs people rarely examine in any great detail because the surface level observation is that people are getting help and this makes people feel good.  If the government is to deliver one dollar of assistance, it must first extract that dollar out of the economy.  So how does the government extract money out of the economy and what effects does this have?

Most often, people assume that a dollar can be taken from one person and given to another with a costless mechanism.  That is, there are no costs associated with the gathering, accounting, and delivery of the dollar to be transferred.  According to James R. Edwards, in his essay “The Costs of Public Income Redistribution and Private Charity”…

…public income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar. Using government data, Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split. Read the rest of this entry »

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Posted by on January 14, 2012 in Uncategorized


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Red Ink Rising, December 14, 2009

Below is a summary of The Peterson-Pew Commission on Budget Reform report titled “Red Ink Rising:  A Call to Action to Stem the Mounting Federal Debt” released in December 2009.  The debt is now close to 100% of GDP and the debt continues to worsen.  I have posted this two year old material to illustrate that the situation is very serious and politicians in Washington are not serious about solving the debt problem. 

According to the Executive Summary, the public debt of the United States rose from 41% to 53% of Gross Domestic Product (GDP) in 2009.  Considering the current spending and revenue projections, the Peterson-Pew Commission expects this debt to continue to grow faster than the economy, eventually leaving a debt greater than the GDP.  The Commission calls on Congress and the Whitehouse to make serious changes to fiscal and monetary policy that will include specific policies to stabilize debt and set annual debt targets.  Without major changes in US fiscal policy, the debt will continue to grow to unprecedented levels and this will lead to a debt crisis that will have serious effects for all Americans.  In order to stabilize the debt, the Commission recommends six steps.  First, commit to stabilize the debt at 60% of GDP by 2018.  Second, develop a specific and credible debt stabilization package in 2010.  Third, begin to phase in policy changes in 2012.  Fourth, review annual progress and implement an enforcement plan.  Fifth, stabilize the debt by 2018 and lastly, continue to reduce the debt as a share of the economy over the long run.

A major contributor to the debt problem was the government’s response to the economic downturn and the decreased revenue from a shrinking GDP.  The economy will recover, but the effects on the budget may continue to be felt for the next 30 years or longer.  The government’s current high borrowing habits are not sustainable and will create a number of problems.  The interest alone from such high borrowing will continue to grow and become a larger portion of our over all debt which will lead to the crowding out of other important spending.  “An ever growing debt would likely hurt the American standard of living by fueling inflation, forcing up interest rates, dampening wages, slowing economic growth and job creation…” (p7) The greatest contributor to the ever widening gap between spending and revenue is the ever increasing government spending.  Much of this spending is due to the demographic shift toward an older population, which will call for increases in Medicare, Medicaid, and Social Security.  According to the Commission, these areas of spending will be where government can have the best chance for savings and provide opportunities to stabilize the debt.

Something must be done now because the risks of inaction are too great.  Without action, living standards could fall, interest payments will continue to grow, future investment in America will decline, the dollar could lose value, and future generations will pay for today’s spending.  The future viability of the United States and future generations of Americans depend on debt stabilization and it is the federal government’s responsibility to begin solving this problem now.

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Posted by on December 30, 2011 in Uncategorized


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Consumption, Production, Capital, and Wealth Redistribution

This article developed during a discussion with Rainbow Camouflage and his post.  It was his post and the ensuing discussion that spurred my research and inspired the below post. I hope it is cogent and that my many references are integrated in an understandable fashion considering this post was by no means a linear creation.  Thank you.

I recently read an article titled “Raise Taxes on Rich to Reward True Job Creators”, by Nick Hanauer.  In his piece he makes the argument that rich people do not create jobs but it is the middle class that creates jobs.  What he is claiming is that the demand the middle class has for consumer goods is what creates jobs and that the top 1% of income earners should pay more in taxes in order to help the middle class spend more on pants, shirts, shoes, TVs, and all manner of disposable consumer goods.  While I agree that in a free market the consumer is boss I think it is short-sighted to focus only on the middle class consumers when in it comes to the overall economy.  If you want jobs and the middle class to have more disposable income, the only long-term solution is to grow the economy. 

I think the author has missed a key ingredient that has got our economy to where it is today – Capital accumulation.  There is no doubt that in a free market economy, the consumer is boss. That is a great thing and something we should all be protecting.  That is also what is plainly obvious.  There’s more to the story. Read the rest of this entry »

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Posted by on December 20, 2011 in Uncategorized


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Clearing Up Some Misinformation, Part 2

In Part 1 of my commentary, called Clearing Up Some Misinformation, Part 1 ,I wrote about some of the incorrect characterization’s in President Obama’s speech about free markets and the policies of the 1920s as he addressed Osawatomie High School on December 6, 2011.  I focused on some general terms, such as ‘markets’ and ‘economy’ and I also focused heavily on the government policies of the 1920s and how they were not laissez –faire.  In part two, I will focus on the 1950s and 1960s and see how the President’s characterization stacks up to historical accuracy.  The President said in his speech: 

Now, it’s a simple theory [free market economics]. And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government. That’s in America’s DNA. And that theory fits well on a bumper sticker.  But here’s the problem: It doesn’t work. It has never worked.  It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade.  I mean, understand, it’s not as if we haven’t tried this theory. Read the rest of this entry »

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Posted by on December 13, 2011 in Uncategorized


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Clearing Up Some Misinformation, Part 1

President Obama gave a speech at Osawatomie High School on December 6th, 2011 where he declared freedom and free markets a dead idea and that they have never worked before and will not work in the future.  He claims this “theory” of free markets has been tried before and that it has failed.  The President claims that free people making decisions about how to allocate their labor and resources (the free market) is a simple theory that appeals to our rugged individualism, but that it does not work and has never worked. 

… there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes — especially for the wealthy — our economy will grow stronger. Sure, they say, there will be winners and losers. But if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And, they argue, even if prosperity doesn’t trickle down, well, that’s the price of liberty. Read the rest of this entry »

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Posted by on December 8, 2011 in Uncategorized


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