Friday, April 18, 2014

The underlying difference between spending in the United States and Germany

I wish to address the idea that Germany is a socialist state and the United States is not.

This is a cross-sectional study comparing the difference in the finances of Germany and the United States today. I look at the list of countries by government expenditure as percent of GDP (which excludes transfer payments, such as social security) and Germany comes in at 19% and the US comes in at 16%. The largest countries in the world by government expenditure as percent of GDP are Lesotho at 38%, the Netherlands and Denmark both come in at 28%, and South Sudan, Sweden and Zimbabwe at 27%.

The gist of the story is, when you exclude transfer payments from government spending from GDP (and you should because including transfer payments makes absolutely no sense when you get down to the nitty gritty parts of what you are actually calculating) you find that the so called "socialist states" of Europe actually don't spend that much more than the United States. We just spend it on our military and things that don't help people. World Bank In terms of actual numbers there is very little difference in terms of actual spending by the government. Simply, if the government gives cash to someone it is a transfer payment, and if it gives a service it is part of GDP. Most of their budget is just moving money from person a to person b, which is a transfer payment, because those are not transfer payments and are calculated as part of GDP.

So, if Germany is a socialist state, so is the United States. The difference is not in the amount of spending, but who gets it, which doesn't matter at all when it comes to what the word socialist actually means. The best part of this is most of the increases in spending are mostly military and belong to the Republican party who have been increasing our military spending whenever they get the chance, or the incredible amount in our spy complex which is mostly privatized, or other programs which do not help most Americans.

Myth busted.

Tuesday, April 1, 2014

The largest problems with people who are against NAFTA

The TPP is not free trade, it is managed trade that is only designed to expand copyright law until nothing is in the public domain. I do not support the TPP and this post should not be construed as that I support that incredibly destructive economic plan that is being proposed currently because it will damage our economy by restricting copyright and restricting creativity.

The biggest problem with people who are opposed to Free Trade is the arguments they make. First of all they don't see free trade as an opportunity to subsidize goods made in nations that respect people and want to close our borders completely. In Europe we see the consequence of lack of free trade with the US in their dependency on Russian natural gas and oil, which is causing major international relations problems currently in that they have no reaction to Putin's latest actions in Ukraine. The lack of free trade in oil and natural gas in a US/Canada/EU trade bloc hurts average Europeans and the economy of the EU every single day.
Second, their arguments tend to be fallacious. One argument I have honestly read in my international relations textbook from the anti-globalization people is how opening free trade with Mexico caused an increase in direct imports from China. This is ridiculous because it didn't change our relationship with China. We still pay the tariff for all of the Chinese goods, but these two events happened simutaneously and opening our border with Mexico had no effect on the taxes on Chinese imports.
Third, they support dictatorships by not opening the borders for people from those countries to visit the US, Canada, Australia, Japan, and EU. We do have more freedoms than Middle Eastern nations, China, and Russia. If we open the borders to allow more tourists and students to visit us from these countries they will choose our liberties over their regimes and it will help overthrow these entrenched dictatorships and move them towards a more stable democracy. By keeping high barriers to tourism from these countries it further alienates them and increases the power of their internet censorship complexes. In short, visas for people from unfree nations support the dictatorships.
Fourth, when I read arguments from prominent tariff supporters they tend to get their basic facts wrong, which makes me discount most of their arguments through lack of trust and makes me a centrist on this issue. I am still waiting after doing a lot of reading on this issue for a well-researched argument based on data that convinces me that tariffs are good for the global economy and freedom. I have never found one.

For this reason I am in favor of free trade between nations of good human rights values to start because there is absolutely no reason to not have those rights. The US and EU represent over 30% of global economic output together, which means we have an incredible amount of economic power over poorer nations to encourage them to develop their human rights. Free trade should be seen as a way to increase freedom because there is no evidence that it hurts the average person in general, and in fact there is plentiful evidence that average people benefit when foreign firms come in on the average, which means you must remember that there will be in large samples a bell shaped curve with the anecdotes on the left and right giving the nuggets that extremists will latch on to.

Monday, March 10, 2014

We've seen these Russian elections before

Putin is going to say that he will leave it to the people of Crimea to decide whether they want to join Russia. There are two problems with this:
  1. Putin has used this strategy before in Abkhazia and South Ossetia, and he did this after deporting all of the ethnic Georgians in these areas. If he does the same thing as Crimea there is no question how they will vote.
  2. Russia has a reputation of getting very results on their elections, by having ballot stuffing, harassment, and other issues which are widely reported on. I see no reason to believe this will be any different.
The  election will be a sham and everyone knows it, it is an old Communist tradition of having "elections" where you always know who will win. China and North Korea use these and the USSR did, and the elections in Russia look more like the old Soviet elections every year. Since there will almost certainly be no EU or UN observers (except of course the Russian observers) there can be no doubt who will win the election, regardless of what the people in Crimea want.

Thursday, March 6, 2014

Remove Jackson from the $20 bill

There has been talk about removing Andrew Jackson from the $20 bill. There are two very good reasons for this, the first of all is how he committed genocide against Native Americans and the second is how he vehemently opposed the Second National Bank and closed it, ushering in an era of economic instability. All in all, his economic and social policies were terrible, and he shouldn't be commended for it.

Then the question becomes, who should be on our $20 bill? Here are some ideas,

  • Martin Luther King Jr. Dr. King was critical in getting two civil rights bills passed, and made an amazing difference... he would probably get the most support for replacing Jackson.
  • Lyndon B. Johnson. President Johnson passed more civil rights legislation than any other President in history despite half the country opposing it. He continued the economic policies under Kennedy that saw the 60s be a decade of immense growth in America. Out of all the Presidents not currently on our money, he is the obvious choice.
  • Susan B. Anthony. Leading the suffragist movement, she made an incredible difference for our country and it would be right to honor her to be on our money.
These are the three Americans currently not on our money who I believe made enough of a difference to be fit to be on our money. there can only be one, so I would make a proposition.

I would say President Johnson would be the most appropriate to be on the bill however. While I have endless respect for Dr. King and Susan B. Anthony the back of the $20 bill is the White House which is an appropriate national landmark to be on our money. What would be even more appropriate to put the other two great Americans on our money would be to have the White House surrounded by Dr. King on one side and Susan B. Anthony on another... who could be watermarks. That would keep the security feature of Jackson's watermark (which would of course be replaced) and surround the President who did the most good for our civil rights in our history with the two most influential civil rights leaders this country has ever seen, which would show people who don't value human rights here and abroad that this is a free land.

Wednesday, February 12, 2014

Working with high schools

On Saturday at my school we had an event to help women get involved in politics. At the end the people who attended pretended to run for different positions and I pretended to run as legislative liaison, to represent my school at the state capital and push for funding for education to make my state even more amazing. Since I was pretending to run, I needed to have ideas! Some people attending thought running as a minority candidate would be enough, but actually no, Michelle Bachmann and Herman Cain both ran for President, and Geraldine Ferraro ran for Vice President in 1984 so just being a woman, an African American, or an African American woman isn't enough to win an election. Obama won the 2008 election not because he is African American but because when it come to policy positions he was 1. Made fewer mistakes than Hillary Clinton in the primary (with her claims about when she went to Kosovo and was being "shot at" which turned out to be not true) and John McCain who selected Sarah Palin as Vice President, 2. his book Audacity of Hope clearly laid out what he wanted to do as President, and 3. he had absolutely no scandals or mistakes in the primary. The same lesson is apparent in the 2012 election in both the Republican primary election and general election. Ideas and the ability to articulate them are clearly the major currency of politics.

Enough of philosophy, here are the two ideas I thought of while running as legislative liaison:

Idea number one: hire college students at local schools to be tutors. It solves two problems, schools need tutors to help students, who may need help routinely or only occasionally, and college students need work. This will help students get the help they need when they are struggling and by having a younger role model to help struggling students understand concepts will hopefully make it so that more students can go to college and get skilled occupations.

Idea number two: There should be more communication between colleges and high schools to make certain that students who are advanced can take the classes they are ready for at the college, and provide opportunities for students who are advanced beyond their peers to take classes at local colleges more than we already do. This should be done on a nationwide basis because it makes sure that students can get as far as they can in knowledge, and there is nothing wrong with being smart. People should be able to be as smart as they can be because it furthers human knowledge and grows our economy, by opening up doors for everyone.

The third idea was simply increasing funding for higher education, which is an old but effective idea.

Thursday, February 6, 2014

4 things that mystify me about laissez-faire economists

I was watching a few videos on youtube, which had Paul Krugman in "debates" with people who oppose Keynesianism. The first video is a meeting where someone asked Krugman a question, and the second video is a discussion on a British TV show. There are some problems that they doesn't quite understand:
  1. Inflation as theft is inaccurate, it is a redistribution of income between debtors and lenders. When interest rates are higher lenders are better off and borrowers can't borrow as much, when interest rates are lower the opposite happens. It isn't so much theft as a redistribution of wealth which are different things.
  2. The real key point which Krugman got close to is that yes, inflation is important and extremely high inflation can destroy economies, but the big question is how high is our Real GDP per capita growth rate*, meaning is our economy growing after inflation and population growth? In this sense, the US and Canada are doing better than most of Europe. Canada's stayed the same, and the US declined by only -0.3% last year. This is compared to Greece which has seen its inflation collapse and go into negative territory to correct the immense collapse in demand (demand has collapsed forcing prices to drop which is negative inflation) which is the invisible hand at work correcting the collapse in the demand curve, but it has taken the invisible hand 5 years to correct the implementation of austerity. Looking at Real GDP per Capita is a much more accurate measure to determine whether the economy is growing because it corrects for population growth and inflation which are important points. Any one of the three inputs, GDP, inflation, and population growth give us only part of the picture. Because it is Real GDP per Capita that is important at the end of the day it tells us one very important lesson on inflation which is that if you increase inflation by 1% but your GDP growth rate rises by 2% your economy is better off at the end of the year with the higher inflation and higher growth than having a stagnant economy. This is one reason why government spending to counter a collapse in consumer demand works, along with my next point.
  3. Government spending to offset consumer spending and private investment is important because of how GDP is calculated. GDP is calculated by multiple methods, but the expenditure approach is the sum of consumer spending, private investment, net exports, and government expenditure. This fixes many problems that one has when looking at an economy. Even if you are an economy that imports a lot (like most developed countries) if your GDP growth is positive that is not such a large issue because your economy is producing more than it is purchasing from abroad. It teaches us that if the consumer spending collapses (like happened when almost 5% of Americans lost their jobs between 2008 and 2009) the government needs to rebuild that loss in the economy and it can because the government is part of the economy too.
  4. The last and most important thing people frequently don't understand is there is the multiplier effect of employment, similar to how there is a multiplier effect for money printed. The classic economic example is how the Federal Reserve (or really any central bank) creates money is that it will lend out to a bank which will lend to other banks and because our money supply is only 1/3 dollars for every dollar the Federal Reserve prints it injects more than $1 into the economy through lending and IOUs. A similar thing happens with businesses. One thing that the people from the second video surprisingly don't understand is that businesses need to make a profit, or at least have enough capital saved to survive if they don't make enough money to cover expenses. Even the most caring employer cannot stay in business if he/she has no customers to provide revenue, and investments from investors have to be paid back so are a very different to a businessman from actual hard income. When the government hires people into the public sector they will spend most of their income in the private sector generating demand for goods and services. When businesses and entrepreneurs find that there is demand for a good and a profit to be made someone will identify the market, hire employees, and provide the service. No entrepreneur on Earth can run a business without demand, and merely having a great product isn't enough if people don't want it, because demand is both ability and desire. With the increase in demand from public employees for private sector goods businesses will have more income and a similar multiplier effect will happen in the economy as happens in the federal reserve. The government may only spend a billion dollars to hire the workforce needed to get a project done, but those billion dollars (minus taxes which are usually minimal) will then be spent in the private sector increasing private sector revenue, and the multiplier effect will come into play. I honestly don't know how people who deny Keynesian policies think private businesses will be able to afford to hire employees when there is no one to purchase their product.
*The only drawback to using Real GDP per Capita growth rate is that it doesn't take into account income distribution which is an important part of having a stable economy where people have purchasing power, but its the best one I have seen to date.


Tuesday, February 4, 2014

CBO budget analysis, Appendix B, Affordable Care Act

I was reading a report today from the Congressional Budget Office which talked about the impacts of Obamacare after reading about how the Republicans cheered for a part in it on how it will supposedly "kill jobs", and I found the following interesting:
  • The ACA's coverage provisions in 2014 will cost the Federal government $41 billion. While this seems like a lot, it is only $132.25 per capita, which can be as much as a family of four will spend on groceries in a week. This is one point I always make to people when it comes to government spending. The US is huge, and numbers in the millions, billions, and trillions seem really large. If we calculate the per capita cost by dividing those numbers by 310 million we get a number we can understand on how much it costs per individual which makes them seem more relevant.
  • The Congressional Budget Office argues that because people are going to see slightly higher taxes. While I understand this logic, and that if you increase the cost of doing something less people will do it, I'm not sure if labor is flexible enough for it to happen. The reason I doubt this is first of all, economists know wages are sticky. Most prices will fluctuate given supply and demand more or less freely, as consumers know when they see the prices of different fruit or gasoline go up and down over time as the market shifts. Despite the changes in the market, wages don't go up and down nearly as much as other goods because they are sticky. Employees see this stickiness firsthand because they have their wages stay the same for an extended period of time through a contract between their employer and either themselves or their union. Even if the market fluctuates and unemployment goes up and down wages will stay more or less constant in nominal terms over the medium-term. On top of this, it is always better to work than not to work which is why we see people look for higher pay because even if it is taxed at a higher rate you are still better off. When they increase the taxes on employment by the very small tax the ACA added (about 1%) and required full-time employees to have health insurance employees are still better off working than not working, so I don't expect workers to significantly change their habits. Similarly for employers, even if employees are each being taxed at a low rate they are better off hiring employees to cover demand than have insufficient employees to cover the demand for their product opening up a door for a competitor to come into the industry and steal business. We observe wages work more like gasoline than apples, because if the price of apples goes up you can purchase oranges, but if the price of gasoline goes up and you have to travel you are better off paying more to go to work than not going to work everyday, and wages work the same way. That is why I am skeptical about seeing a significant change in employment with the new ACA taxes.