Sunday, August 17, 2014

Median Household Consumption

In economics when we are trying to describe the various quality of life of different countries we use different types of metrics. Each of these metrics has their own benefits and their own flaws. The following are the ones that I think are the most important:
  1. GDP per capita PPP. The advantage is it is super easy to calculate. The flaw however is it doesn't take into account income distribution so the number could be very different from what the average household actually feels like.
  2. GNI per capita PPP. The same as GDP except it includes income earned by expatriates of that country and excludes income of expatriates within that country. Same advantages and disadvantages.
  3. Real Median Household Income PPP. The advantage to this over GDP per Capita is that it takes into account income inequality, and excludes non-workers. If we had two nations with 100,000 households and a GDP PPP of $1,000,000,000 but in one of them one person had an income of $900,000,000 we would have a very skewed society, and Real Median Household Income will show that this nation is really quite poor at a Income of around $1,000 versus a Household Income approaching $10,000 in a more equal society. This is important because it gives a more accurate picture than using GDP per Capita relative to the average family.
  4. Average Wage. This is the same as the last metric except that it subtracts taxes. This is the most accurate we currently have except it has one problem. Let's say we have two nations like the last example with 100,000 households and a GDP PPP of $1,000,000, but in this case they have perfect income equality meaning that each household earns $10,000, and both of these countries tax their residents at at an effective rate of 20% of their income, leaving disposable income of $8,000. But the issue with this comes into play where lets say in nation 1 the person in the middle gets back 75% of their taxes in the form of services from the government meaning their actual consumption is $9,500 while in the second country only 10% of their taxes go back to the citizen in the middle in the form of services from the government meaning their actual consumption is $8,200. This has a large effect on true consumption when we talk about corrupt nations, and why I think we should include this in a further analysis.
I call this metric Median Household Consumption because it is measuring not the disposable income of residents but their actual average consumption. This would be calculated by taking the Average Wage and then adding in the value of government spending that is seen by the average family.

This would significantly clarify the picture when comparing the United States to countries such as Sweden when it comes to issues like education as I explain in my critique of Average Wage. The median person could see a massive increase in their total consumption if there is an extremely progressive tax structure and strong welfare state versus what average wage will state.

We would then to calculate the median household consumption only need to look at how many government services the average person consumes over the course of a year and add that to average wage. It should also calculate the multiplier effect of spending (such as military) which effects the income of all people which is data we have and does impact everyone else in the economy to a certain degree because people working for the military (for example) spend their money stimulating demand in other sectors which effects wages. This will give us a more reliable estimate for the actual consumption of people in different countries than any other metric used to date, because for most economists the question is about how to improve the quality of life for all people at the end of the day, and we need the tools to tell us which country's government policies are working correctly.

We need this to be able to better evaluate policies so we can improve our world and have more fair and accurate comparisons between countries.

Sunday, August 3, 2014

Book Review: "Does North America Exist?"

I checked a book out from my school's library by a Canadian economist Stephen Clarkson "Does North America Exist?" which analyzed the impacts of NAFTA up to 2008 when the book was written and various impacts seen by the three nations involved.

I read this in what has become my usual way where I don't read every word but do more of a Cosby Method type of reading which allows me to read the book much faster while still learning what the book has to say. I find this easiest with physical books which is why I still read physical books along with the electronic copies which I find to be harder to read quickly than a paper copy. I highly recommend the Cosby Method.

The first big compliment I have for the author is he did a superb way of academically laying out his book so that people can easily answer any question they have within his topic. The other glowing point is the 80 pages of references he uses which is very professional.

One main argument is how NAFTA has a power imbalance given how the United States has the 1/4 of the population and over 80% of the economy in the agreement. This means that there is a reduction in the decisions Mexico and Canada can make unilaterally when it comes to decisions effecting all the involved nations. There are solutions for this, with a court system with NAFTA and other actions which would balance out the power dynamics of the free trade area.

The book discusses how NAFTA effects agriculture and textiles which are the two most controversial industries effected by NAFTA. It lays out the statistics on the arguments downplaying most misconceptions on both sides of the aisle. It really makes it clear that NAFTA was neither an absolute bust to the economy or a cure-all for all the economies woes.

Banks are a non-issue more or less in NAFTA since there is no real central organization dealing with transborder banking, and the book lays out details. Other issues include capital markets and copyright law. I highly recommend the detailed descriptions on these issues.

In general, those are the basic arguments the book makes, and the data behind it makes them more or less irrefutable. I have learned a good bit from this book.

ISBN: 978-0-8020-9653-1

Saturday, August 2, 2014

Education, Unions, Politics, and Eating your Own

I recently came across a collection of Harper's Weekly from 1872 in the house that I live in. In it on the front page of the August 3rd issue it talks about President Grant and Education regarding the ongoing election of that year where President Grant was running against Horace S. Greeley. The issue was that President Grant (while he wasn't a perfect president) had expanded education access in the South to all people. The South had been until President Grant's term the most culturally backwards place in the Western world (to compare apples to apples) with the lowest literacy rate and the slavery being the worst in the entire world. The article talks about how Horace Greeley would reverse the policies, but looking at more detail it turns out that this was not true how Horace Greeley would change such policies and he had been campaigning for years for progressive policies. This is a classic case of media twisting the words of a politician in a way that is dishonest and misleading.

Besides the deliberate misrepresentation of Greeley the article does have some really good points. Democrats had historically been the party of racists, and the period of 1865-1909 was the period when they moved from their racist roots that extended back to 1825 when Andres Jackson became President, so it is natural to not expect a party with such deep roots in fascism to change overnight. There were also a lot of Democrats in the South who had maintained their earlier convictions all the way up until Richard Nixon courted them in 1968 in his Southern Strategy which made them realize that the Republican Party post-1968 had the policies that they have agreed with since before the founding of our nation. The opposition to that great progressive American ideal of equality of opportunity has always been a deeply held Southern tradition.

This movement in the North to expand public education by using the resources of the Federal government has been one of the great accomplishments of American Democracy. The Southern Economy is much more diverse today than it was in 1965 and the gap between Whites and African Americans is smaller today than it used to be. It is still too large, but the campaigns of Lincoln, Grant, Roosevelt, Kennedy, and LBJ have made immense progress. This is a major threat against the traditions of the South of subjugation and their goal of slavery because it proves that the federal government can be immensely successful when used appropriately at making sure everyone has the opportunities they need and when these programs are done the leaders of freedom gain more power which means that those who would turn the South back 200 years to a nation of slavery if they could is more difficult.

In response to this by 2001 the Old Southerners needed a new strategy so they proposed the No Child Left Behind Act. This misallocation and destruction of the American education system was never designed to improve education and everything in it has been disproven by professional studies of what works and what doesn't. It gives money to massive testing companies who have a stake in politics which is the short-term benefit in higher campaign funding for them but the larger long-term benefit is it helps turn teachers off of looking for a more egalitarian system where people can get a high-quality education through the state because the state's system has been severely damaged. This is working to undo almost 150 years of American policy to ensure that every American child has the ability to get as far as possible and how it shouldn't matter how much your community has you can still get a high-quality education with the latest technology, and it doesn't mater how much your family or local community has. This was what President Grant begun and has continued, which ended up with high schools and public education extending all the way through college. The highlight of the time was when in the 1950s and 1960s college was extremely affordable and it didn't matter how much your family had you could still go get yourself an education. The result was a growing middle class and a booming economy.

The issue for these people who oppose public education is that in their misguided view on the economy they think there must be someone who has to be subjugated in order for themselves to get rich. Only recently are we finally seeing them listen to the reason of economists and the voice of reality that you can be wealthy and treat your employees extremely well. With this misguided viewpoint they (the business owners and the politicians they pay) have tried to destroy our public education system. The beginning of this resurgence against education was under Ronald Reagan when we saw massive increases in tuition for college which effectively priced a large number of working poor out of the system. The latest action in this success for the Republicans at elimintating opposition to their destruction is opposition to common core without any real proposal to make certain students aren't learning creationism in science classrooms and other fairy tales. This is a direct response of the No Child Left Behind Act, which I believe was calculated, and has succeeded remarkably well at giving local school districts the ability to destroy their education systems which has resulted in a remarkable amount of doublespeak and killing of opportunities. With teacher's unions moving away from the common core which is the way to end this destruction of our education system it is a victory to people who would move our country away from science. This removal of the best advocates for our schools from the public debate and their attacking politicians who want to ensure no student leaves high school without ever touching a real science book harms everything that makes this country great. This is the classic eating of your own which I have observed the left to be so fond of doing. Teachers should be collaborating with the government to construct a common core that has the pieces that are essential and gives teachers time to work with their students without being rushed. They should advocate for policies based on research as opposed to running away from the issue and demonizing those who are proposing to end the destruction that has been done to our education system particularly by Reagan and Bush either directly or indirectly.

The next step for the Confederates is the privatization of schools which if the public schools degrade far enough should get teachers moving to private schools which will price even more students out of getting even a basic education. The ideal of education as a human right, while not codified in law, has become an important part of American politics and is being constantly targeted by these Southerners which will destroy our economy.

This will lead to a less educated work force which will push our country back in time to a place more similar to what President Grant was fighting in his advocacy of public education which did make an impact in the South (since the vast majority of African Americans can now read) and decrease our competitive advantage which is the engine of American economic growth. The decrease in civic knowledge as well will hurt our democracy.

For the racists of the South (such as Bush and Perry) they cannot speak out today in racist terms so instead they use more nuanced terms this is a great threat to the deeply held Southern Traditions of slavery and segregation. This is why they talk about privatization and other Trojan Horses, but in the end they have always been looking for the same thing for over 200 years. Nothing about these people's goals have ever changed in the history of this country.

Fortunately, not all is lost. There are still some people who are trying to ensure that students do not leave high school without a science education with President Obama and Arne Duncan pushing to make it be required that students learn science in the schools among other important topics which are frequently omitted by the truly crazy inheritors of the Stars and Bars. Hopefully in the future we will see a further resurgence of Progressivism in American with Elizabeth Warren speaking her mind and being able to make sure that the American people hear the truth and hopefully not try to whittle it all away with Compromise. President Grant's second term was marked with great compromises which destroyed many of his accomplishments and gave more power to the Confederate Democrats who wanted a return to slavery. Fortunately the first term made immense progress that not even compromise could undo, it only slowed the march to freedom for all people in this country.

Note: I unfortunately cannot get an online copy of the article that prompted this besides going past a pay wall.

Friday, August 1, 2014

United States Farm Job Corps

The Department of Agriculture is a large government agency. They do everything from crop insurance to farm loans and assistance to rural housing which directly benefits over 2% of Americans (the percent of our labor force in agriculture) across the country. These are important and most should be continued because the free market will not insure farms because of the high risk which would cause premiums to be too expensive for most farmers.

I've done farm work and I know it is neither glorious or well-paying. But it is a job and an important part of the global economy. Because most Americans are very well educated the United States is full of workers who are severely overqualified for such work, since most Americans make more in a year than one can make on a farm (which is minimum wage). The current system means finding enough domestic labor to fill our surplus of jobs is impossible.

The current immigration system requires farmers to make an effort to fill positions before they hire foreigners in this country which given the number of people looking for such work is extremely difficult. For people who want such work they merely have to sign up at to get a job as a farmworker immediately. They were interviewed also on the Colbert Report which demonstrated how they are having a really hard time getting Americans to work to work on the farms. It is laborious, time consuming, and expensive for farmers to get the labor they need so many decide to forego the legal requirements and hire foreigners without the paperwork because they can't afford to wait 45 days because their crops need to grow.

Instead of putting burdensome regulations on our farmers across America we should change the system to make it easier for farmers to get the labor they need to stay in business. Instead of making it hard to get workers ICE and The Department of Agriculture could make a program where farmers can choose to post their jobs and are open first to Americans for the first week and then after that period the remainder will turn into visas for those jobs in particular open to foreigners. We might limit these workers to Mexico, Central America and the Caribbean, which will be politically feasible. The foreigners would apply through the American embassy in their country after which they would go through a background check from the embassy to ensure they are not dangerous at which point they would receive the visa valid for the extent of the position plus one month when they can freely work in the United States. Along with this any dependents under the age of 18 will automatically receive visas so they can attend school and their spouses will also receive a spouse visa. Employers will be required to pay for the transportation of their employees. I propose calling this program the United States Farm Job Corps which will help both small and large farms in our country.

Canada already has system like this called the Seasonal Agricultural Worker Program which is a well-run program that protects workers and gives farmers the labor they require, which is something we should work on. This program is not identical however because it will also work for people within the United States and give Americans the first choice at farm jobs which will be politically feasible.

This will fix illegal immigration and create a solution so all farmers can get the labor they need, and illegal immigration will stop being such a major political issue. We should implement this policy soon to protect people and keep our agriculture running efficiently and ensure farmers treat their workers ethically. The current farm worker program


I don't go to the White House website as often as I probably should, but seeing the front page today (30 July 2014) showed me exactly why I voted for President Obama. The front page talks about eliminating loopholes in our tax code that makes it so large corporations are able to avoid paying taxes. This is one major step to fixing our tax code in the short-run which will help balance the budget (which we will need to do when our economy recovers). This is as the President said, a fairness issue because the loopholes that wealthy corporations use are not available to new businesses who are the major source of new jobs in the economy. NBER This is frequently interpreted as being small companies because when companies start out they are naturally quite small, but new corporations naturally tend to be smaller than established companies because they haven't had the time to grow.

This is, of course, only a first step. Our income tax code has far too many loopholes, the vast majority go to those who already make millions of dollars. They love to claim how the home mortgage interest deduction goes to the middle class while the benefits go to those who are able to buy the biggest houses, as in those who already have a lot, meaning that it is an extremely regressive tax cut. Giving capital gains a flat rate increases taxes on seniors who have invested beyond a specified retirement plan (unless if you withdraw over $230,000 from your stock fund) and decreases taxes owed by those who have millions of dollars in income per year. A flat tax is by definition a regressive tax and since people with lower incomes spend a larger percent of their income they are bad for the economy.

Hopefully with a President pushing for such actions there can be real change which will balance the budget which will increase funding for education and health care without cutting necessary services.