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.

An open letter to the President about the Economy

Dear Mr. President,
When you gave your state of the union address last month you talked about taking initiative in making executive orders to increase pay of Federal contractors and other actions to improve our economy. It's been two weeks now and I haven't seen that the orders have been passed. I want to tell you how your proposals effect me in two ways.

I am currently a Junior in college studying economics and political science and am fortunate that my family has been able to make sure I can go to school without going into serious debt, but many Americans are not so lucky. Other students' parents have been fired, and they don't have the access to scholarships, grants, and loans public or private to continue going to school. The total number of scholarships and grants available to students is never enough, and this means that people frequently have to postpone their education or don't go to school at all. When millions of Americans who are capable of getting a high-quality job paying $80,000 a year or more but instead work retail at $30,000 a year or less for a decade it makes a huge dent in their ability to save for retirement, shrinks our GDP, shrinks demand for goods and services, and makes it so America under performs year after year. This is unacceptable. More can and should be done to increase the skill of America's labor force by increasing access to college. If the government set aside only another $20 billion to give grants to students who are attending school full-time, which is not even 1% of the total Federal budget, it could help more than a million students get through college in four years and even go to college at all, and give economic benefits to the students and their surrounding communities and country for literally the rest of their lives. Paying for people to get the skills they need today to do high-quality work makes it so they can be financially independent and will never need to go to the government for assistance for food or housing, increasing GDP and decreasing government expenditures in the long-run as a percent of GDP because the private sector will grow.

I am not only a student but have a small private investigation agency, mostly on-line research. I have spent a lot on marketing on-line, and every few months someone will ask me to do a job. I tell them the price (which is of course market rate) and people will frequently not respond. I think a large part of this has to do with how prices over the past 30 years have risen, but wages have not, partly due to the large decline in union membership. While I do think that people who work hard should be paid justly we should also make certain that people who get work are working a job that pays them enough so they don't have to borrow for small things or be dependent on government aid such as food stamps when they work 40 hours a week. It is not just an economic crisis but also a moral crisis. How could anyone work for 2000 hours a year and not even be generating enough to afford food and housing? A big step towards increasing the circulation of money and helping small businesses find customers to increase opportunity will be to pursue economic policies that make it so people can be paid enough to live. For me personally, the American Dream is being able to be self-sufficient, to live in a country where with hard work and dedication anyone can be middle class and everyone can be the best they can be. In order for me to be able to do that with millions of other entrepreneurs we need to have our neighbors be paid enough so they can purchase our services and we can have strong local economies everywhere in this country. Paul Krugman estimates in his book End This Depression Now that full recovery for the recession will finish in around 2019 to 2021. Americans can't wait that long, and the decrease in incomes and investments will effect people for the rest of their lives. For young Americans like myself it is very scary that when I graduate from college with my Bachelor's next year or my Doctorate in 4 years we will probably still be in recession, all else being equal, when I see my friends who graduate with college degrees working in retail. Its a disgusting waste of skill and talent. I hope that you can pass the executive orders to increase federal compensation so that no one working for the federal government will need to be on food stamps, which will help our economy. We need you now Mr. President.

Please do the right thing and invest in America as much as you can today. Its not just an economic but also a moral issue. The Republicans don't have the votes to stop you from issuing the executive orders you can, and if you work really hard this year showing that you will fight for the American economy the American people will back you up on election day.

Monday, February 3, 2014

Why American politics is confusing

Working within the assumption that Republicans are more socially conservative, anti-federalist (opposing the movement of services to the Federak level), and economically liberal (favoring less government intervention in the economy) and that Democrats are more socially liberal, federalist, and economically democratic socialist (favoring a free market with regulation, democratic socialist is a more accurate term) what party president would you think would sign the following laws? All of the following are real laws, if you really think you know our legislative history, try to guess which President signed the law. Click on the link bill to see which bill and President signed the law.

  1. Requiring Americans to buy insurance without a public option.
  2. Outlawing gay marriage. bill
  3. Rescuing America's passenger rail at the national and local level with a brand new government agency to provide mass transit between cities. national bill and local bill
  4. Tied American foreign assistance to human rights and established separate funds for developmental assistance to countries. bill
  5. Increased support for helping people with HIV and AIDS in Africa.
  6. Which President started sales of weapons to Israel? bill
  7. Mandated certain safety requirements for the workplace. bill
  8. Mandated equal employment for men and women and outlawed gender discrimination in the workplace. bill
  9. Mandated certain levels for privacy. bill
  10. The first President to start to move America towards the metric system? bill
  11. Implemented Keynesian policies in response to stagflation. president
  12. Vetoed a bill to impose sanctions on South Africa's Apartheid government. bill
  13. Who did the first veto on a civil rights bill since Andrew Jackson? bill
  14. The only President in the last 30 years to balance the budget. bill
  15. Devolved welfare to the state level. bill
  16. Largest increase in the US National Deficit in history (unadjusted) bill
  17. Increased the cost of travelling to the United States? bill and bill
  18. Which President doubled the interest rate on student loans? bill
If people ever  feel confused about American politics, these 18 examples would explain why our politics seems completely bewildering.