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Didn’t some of these guys go to Wharton and HBS?

September 11, 2011 Leave a comment

Something they teach you in business school: When a project’s returns are in excess of its financing costs, invest in that project.

The republicans think they are the party with business sense… how the heck does it make sense to turn down 2% financing? That’s exactly what the country has access to right now, and we could be doing what any business would do if it had access to funds at 2%: investing in anything with returns over the hurdle rate. 2% is a low hurdle. Off the top of my head, additional spending in physical infrastructure and education both would easily return more than 2%, and that return is not currently constrained by low consumer demand: regardless of how sour the economy becomes, people still need to get educated and use our roads, bridges, and ports, and these are the types of public investments that are the most likely to facilitate additional private investment.

Instead we are having a silly debate about the national debt in the context of the century’s worst economic conditions. Primarily, the problem right now is a lack of investment that stems from low confidence and a high perception of risk. There is strong evidence that investment is being hampered by market uncertainty, and a strong case to be made for government directed investment to bolster consumer confidence and kick start the economy.

Our physical infrastructure is aged and our education system and immigration policies (our human capital infrastructure) are not world leading or cutting edge (stagnant is perhaps the best description). We don’t necessarily need to be leading the world, but soon both types of our infrastructure will no longer even be considered “world class”.

Categories: Business, Economics, Politics

Kids Smoke Marijuana, White House Drug Czar Shocked and Outraged, Blames Medical Marijuana

September 9, 2011 Leave a comment

“Alarming” increases in marijuana use upon teenagers according to the latest National Survey on Drug Use and Health. Reporting that they’ve smoked pot in the last month: 6.6% of teenagers in 2009 increased to 6.9% in 2010 (I can hear society crumbling around me as I write this).

I can’t find a video of Gil Kerlikowske’s press conference (the drug czar aka head of the Office of National Drug Control Policy) talking about the results of the survey, but supposedly he said this:

“Emerging research reveals potential links between state laws permitting access to smoked medical marijuana and higher rates of marijuana use,” Gil Kerlikowske, director of National Drug Control Policy, said in a written statement. ” I urge every family – but particularly those in states targeted by pro-drug political campaigns – to redouble their efforts to shield young people from serious harm by educating them about the real health and safety consequences caused by illegal drug use.”

Here is my added emphasis in bold: “Emerging research reveals potential (what does that mean? I am potentially a millionaire if I buy a  lotto ticket) links between state laws permitting access to smoked medical marijuana and higher rates of marijuana use, (ah duh… giving people the right to do something usually leads to some people exercising that right). I urge every family – but particularly those in states targeted by pro-drug (I could get all syntactical but what’s the point) political campaigns – to redouble their efforts to shield young people from serious harm by educating them about the real health and safety consequences caused by illegal (but not legal) drug use.”

Couldn’t agree more that we should shield young people from the serious and real health and safety consequences, of which with marijuana there is very few. Despite the commercials, there has never been a reported case of any kid smoking weed and blowing his brains out on accident with his dad’s gun, or running over a little girl as you exit the drive thru (I could be wrong, if so, please link me to a story, I would like to know). I can’t find any news stories or anecdotes that are of concern when I search for “marijuana related deaths” except for stories about law enforcement killing Mexican Mafia members. “Marijuana related injuries” returns similar stories of people being hurt while being arrested by police.

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Immigration: It’s Good For Everybody

September 9, 2011 Leave a comment

Looks like someone recently had some of the same ideas as I have.

Let’s open the borders. People want to come to this country to add value to the economy. If they can come into this country and live here legally, we can make them pay taxes. We don’t even necessarily need to immediately extend to them all of the rights and entitlements of citizenship.

“Won’t this be a drag on social services and public capital?” No, not if the immigration is increasing the tax base.

“Won’t they take our jobs?” They already are taking your jobs. Bringing people into this country will boost entrepreneurship and lead to net job creation. Look at Texas: the Texas job miracle is as much a story of immigration and population growth as it is about the business-friendly political environment. Remove obstacles towards creating enterprise and people will create jobs for themselves.

The problem today is that it is so hard to migrate to this country (and many other countries) legally. There is an incentive to come here illegally, and once an immigrant arrives here illegally, they usually are able to use social services and social capital, without paying taxes (why would they pay taxes if they are already here illegally?). Unlike rich people, immigrants aren’t intrinsically tax dodgers.

I think that nations don’t want free migration because they don’t want to compete with each other. If people got to vote with their feet, and models of governance were forced to compete with each other, it would be a win-win situation for the people and big loss for the corrupt practices of government.

They need to manufacture memes like terrorism and racism and “They took our jeooobs!” to get us to believe that immigration is bad for us, but it’s all bullshit.

This is What Plutarchy Looks Like:

September 8, 2011 Leave a comment

This is What An Oligopoly Looks Like:

This is What A Plutocracy Looks Like:

 

 

EDIT: According to this, the four big banks only have 34% of the market as measured by total deposits.

How many of you were pissed off at the bailouts and still keep your money with one of these banks? Going down to your local credit union and opening an account is a better form of social protest than doing nothing.

 

 

Is the rise of technology and the obsolescence of labor a case for public ownership of capital?

September 7, 2011 Leave a comment

Just read this piece about the USPS and it got me thinking. It fits into the bigger narrative that I’ve been assembling about prolonged chronic unemployment; essentially, most of the jobs that have been shed in the last 3 years are never coming back. Now that firms have scaled back their labor forces, they are realizing a number of efficiency gains through the use of technological capital, and they aren’t going to need those old workers ever again.

When automation was first introduced into manufacturing, labor unions had to organize politically in order to maintain “fair” wages for employees who would have otherwise been displaced by the automation. On the margins, firms still benefited from automation, but part of the gains were shared with labor. Today, with the unions eviscerated, and the internet bringing about a new era of labor saving/capital intensive innovation, labor will not receive any of the gains from automation. They will be chronically unemployed and the all of the profits will go to the owners and management.

In the long run, this will decrease demand as wages fall, and should lead to falling prices… “should” being the operative word there. Market inefficiencies will slow price signals and allow the firms to capture extra consumer surplus as real price levels rise due to falling real incomes. How long it will take to reach this new equilibrium is uncertain, and in the meantime, we have a chronically unemployed underclass.

I think of Jonas Salk, who invented a Polio vaccine and gave it to the world for free, rather than make a billion dollars from it. This doesn’t happen anymore. The gains from technology are not shared by society. Capital enjoys the lion’s share, while labor and consumers receive a modest marginal benefit: the option to purchase said technology.

The utopia I imagine is a world where people don’t have to work; robots and artificial intelligence can do it all for us, and society can share in the benefit presented by this automation. The problem is that the emergence of that level of automation will only happen if and when capital invests in it (and the “if” is resoundingly a “yes” because it will reduce variable costs so greatly), and capital will only invest in it because of their profit motive.

“Isn’t it bad for producers when real incomes (and demand) fall? Isn’t it in the economic interests of firms to support a strong middle class consumption base?” Yes, in the long run it is bad for firms, and it is in firms interest to support a strong consumer base; to share the pie. The problem is that “firms” are abstract. Management and ownership is making the decisions, and these decisions are biased towards short term revenue and profit projections. The problems of an eroding consumer base are on the far horizon, and in the meantime, capital can use its political power to make stop-gap solutions to prop up demand, such as expanding the government’s balance sheet, the monetary supply, and/or the lower and middle class’s tax burdens (this is already happening, and has been happening for 30 years [with brief respites here and there in the 90’s], to give you an idea of the time span that it takes for these real income shocks to have an effect). By the time that stagnated or falling real incomes come to have an impact on the firms’ income statements, the current ownership and management is going to be long retired.

The only way to avoid this is for labor and the unemployed to reorganize politically, or for some radical cultural realignment that replaces the motivation from profit with the motivation from compassion (Bill Gates and Warren Buffet are setting an example, but in the grand scheme of things we will need millionaires, as well as billionaires, to change what motivates them).

Categories: Business, Economics, Socialism

How To Get A Job After College

September 6, 2011 Leave a comment

First of all, you have to pick an employable major. The sad truth is that essentially none of what I am going to write will have any practical application if you do not major in a hard science or business, and it will probably apply more to business majors or would-be corporate scientists and engineers than the future Noble Prize winners of the world (who are already at MIT anyway, so I am not sure why they are consulting information about how to find a job).

Read more…

Categories: Business, Education

Crisis of Confidence

September 4, 2011 Leave a comment

John Lanchester:

Quarterly GDP data don’t, on the whole, tend to make the person studying them laugh out loud. The most recent set, however, are an exception, despite the fact that the general picture is of unrelieved and spreading economic gloom. Instead of the surge of rebounding growth which historically accompanies successful exit from a recession, we have the UK’s disappointing 0.2 per cent growth, the US’s anaemic 0.3 per cent and the glum eurozone average figure of 0.2 per cent. That number includes the surprising and alarming German 0.1 per cent, the desperately poor French 0 per cent and then, wait for it, the agreeably frisky Belgian 0.7 per cent. Why is that, if you’ve been following the story, laugh-aloud funny? Because Belgium doesn’t have a government. Thanks to political stalemate in Brussels, it hasn’t had one for 15 months. No government means none of the stuff all the other governments are doing: no cuts and no ‘austerity’ packages. In the absence of anyone with a mandate to slash and burn, Belgian public sector spending is puttering along much as it always was; hence the continuing growth of their economy. It turns out that from the economic point of view, in the current crisis, no government is better than any government – any existing government.

Three reasons why this might be the case:

1) Belgium is special: somehow, someway, their economy is just generally more robust, regardless of government. (I don’t buy this)

2) Austerity is a bad idea: lack of austerity in Belgian has kept the economy chugging along, thanks to spending in the public sector.

3) Psychological effects and expectations: with no government, the Belgian private sector economy has clearer expectations about the short-to-medium term future, and feels more confident in its ability to make investment decisions.

Probably it is a combination of 2) and 3), although I give more credence to the psychological effects that result from incompetent governance.

After this summer’s debt ceiling fiasco, and the subsequent S&P rating downgrade, it has become clear that most of what is wrong with today’s economy is a lack of confidence. In an economy without bureaucratic badgering or government intervention, it is relatively easy to make investment decisions based upon the data provided by markets. In today’s political climate, however, business owners, households, and investors are not sure what the future will bring. The Tea Party is responsible for a great deal of this disruptive atmosphere, but I think the current administration is equally culpable. There is no leadership coming from either side of the aisle, no one with convictions AND smarts to stand up and lay out the grand narrative of what is happening, and what needs to happen for the economy to recover. Obama’s strategy has seemed more aligned with placation than innovation, and it is innovation that drives economic growth. Despite what the Tea Party says they want (smaller government), what would really make them shut up is an economic recovery. The problem with Obama listening to them, taking their outrage at face value, and attempting to appease them through compromise, is that their narrative of the economic situation is misinformed, and their prescription to heal our economic maladies is not the right one. All too often within the realm of economics, it is a confusion between the short and long term that creates misunderstanding, and I think the Tea Party’s ideas fall into this. Austerity is a fix for long-term problems, but we have a short-term problem of a completely different nature that requires a different strategy so that we arrive at the long-term on decent footing; we need more spending and direction from the public sector.