Category Archives: Economics

Oh Noes, Sequestration!

It’s Sequestration Day in Washington D.C. and it’s much ado about nothing.  $1.2 trillion dollars over 10 years, half cuts to defense and half to discretionary spending.  The big secret is neither party really cares.  Everything you’re reading trying to blame the other side is just posturing.  Both parties want much more discretionary spending cuts and there are enough Republicans that want defense spending cuts to make this a pretty good deal.  So really, if you don’t work in the areas affected by the sequestration, you won’t even know it has happened.

There is some talk of cutting military salary, but I have to assume that’s just an empty threat.  If it is an empty threat, shame on the Obama administration for making it.  There are so many more ways to cut defense spending like the F-35 Joint Suffocation Fighter.  That doesn’t mean that they will, of course.

The big challenge is the looming governmental shutdown that will occur near the end of March if Congress doesn’t bother passing a budget.  If that happens, we’re likely in for another recession.  The biggest roadblock there is Republicans.  Basically, Obama is willing to give Republicans everything they want and is only asking to return tax rates to Clinton era levels.  You know, when the economy was in the crapper.  Oh, wait, no, that’s not right.

This Is Not The Budget Deficit You Are Looking For

The United States has a long term budget problem.  That problem has nothing to do with too much spending on defense or building bridges to nowhere.  That problem is almost entirely a healthcare problem.  Medicare and Medicaid are, by far, the largest drivers of our deficits.  If anyone tells you otherwise, they either don’t understand large numbers or they are deliberately trying to mislead you.

As the Baby Boomers get older, the costs of Medicare and Medicaid will increase dramatically.  Or will they?  Yes, yes they will.  But!  But, it’s looking likelier that things are not nearly as bad as everybody predicted they would be.

You see, the problem has been that, for decades now, the cost of healthcare has been growing much faster than everything else in the economy.  So, predictions of future costs has always assumed that Medicare and Medicaid would continue to grow much faster than the economy.  For the last few years, that hasn’t been true. Healthcare appears to have started growing apace with the economy.  This changes everything.  Those massive predicted deficits almost disappear.

Of course, the $500 billion question is if healthcare costs growing apace with the economy is a new normal or a temporary adjustment.  I believe that it is a new normal.  It seems economically dubious that healthcare spending would continue to grow faster than the broader economy forever.  I can’t think of another industry that has had this long of a run rising costs for customers.  Healthcare isn’t like other industries, though, so maybe that thinking is flawed.  With Obamacare and the level of governmental oversight that it brings, I’m guessing that healthcare spending will slow down as a greater emphasis is placed on bring costs down.

A Very Good Question

This is what Senatorial grandstanding should look like:

 

You go, girl!  We have an incredibly perverse system where companies can rake in tens of billions of dollars in profit while breaking the law and then pay a few billion in a settlement.  There is zero incentive for a company that has already proven that they will break the law to stop breaking the law.  It’s like telling a kid to go to their room when their room contains a full entertainment center and they spend most of their time there anyway.

Elizabeth Warren is quickly becoming one of the people I would want in my neighborhood.  A list that is sadly bereft of women at the moment.  Shame on me.

More Stuff, Less Time

One of the major complaints that come from people who are in favor of cutting welfare is that the poor have too much stuff.  After all, almost 100% of really poor people have a refrigerator.

It’s easy to make fun of idiotic attacks like that.  Really easy.  But, like all effective attacks, there is a sliver of truth to it.  Poor people do have more stuff.  Mostly, this is because the middle class has more stuff.  And the middle class has more stuff because the cost of stuff really hasn’t gone up much even as the purchasing power of the middle class has stagnated.  The middle class gets a new refrigerator and the poor get a still functioning old refrigerator for dirt cheap.

What is hidden in all of this is the one thing that we haven’t figured out how to recycle.  Time.  Specifically, family time.  The total hours of time worked per family has increased steadily in the United States.  As Paul Krugman points out, you may be tempted to say that is to be expected with more women joining the work force.  Europe has pretty much the same employment rates as the U.S., though, and their total hours worked has dropped steadily.

So we now have a middle class that has slightly more stuff than they used to be able to have but at the expense of much less family time.  You would think that the party that attempts to claim a monopoly on “family values” would want to address an issue as important as this.

Government Spending Is Down Under Obama

Quick, name the presidents who have presided over the lowering of total government spending in the last two decades.  Hint: There’s only one.  Second Hint: His name is in the title of this post.  If you’re Republican, you probably still guessed Ronald Regan.  You would be wrong.  Boy, would you be wrong.  The answer is Barack Obama.

It’s not much.  A measly $80 billion dollar.  But remember, Obama has proposed hundreds of billions of other cuts that Congress (read Republicans) has rejected because he wanted to include tax increases as well.  More proof that Republicans only care about deficit reduction when they’re trying to get people to vote for them.

Is There Really A Nursing Shortage?

I have always thought yes.  This article claims that the nursing shortage is actually just a myth.  There are a lot of things in the article that just don’t jibe, though.

One thing that is interesting is that 43% of newly licensed RNs haven’t found a job 18 months after graduating.  This is interesting because it follows the same paradigm that is being reported in almost every other sector in America.  Companies are looking for employees, but they’re not looking for employees without experience even though what they are looking for are entry level positions.  This is likely just a short term correction due to the economy and I wouldn’t worry about this nearly as much as the author of the article seems to be.

The author then makes a claim that, even in the long run, there is not nursing shortage and that projections assume that nurses will perform the same functions that they do now.  He believes that nurses will be replaced by robots.  I have made the same argument when talking about replacing specialists like neurosurgeons, but I find it a bit unbelievable that the same can be said about nurses.  Nursing is mainly about interaction.  A lot can be inferred of a patient’s condition simply by observing and talking to the person.  I believe that, one day, robots will be able to perform such functions as well, but that day is far into the future.

I think, if anything, the nursing shortage is going to be greater than expected for the same reason they author claims there will be no nursing shortage.  The trend is certainly towards giving nurses more responsibilities, not less.  Therefore, the projections, if anything, underestimate the amount of nurses that will be needed in the future.

It is possible, of course, that there is a bit of Dust Bowl economics going on here.  Come to California!  Jobs for all!  Great wages!  Then people go only to find that everyone else had the same idea and the wages are barely livable if you can even find a job.  We certainly recently saw that with law school.  The difference here is that law schools almost certainly knew about the poor job market yet were continuing to inform law students that things were just dandy and the evidence was there if law students did some research.  The evidence seems to suggest that nurses will be in demand for quite some time and, thus, is a safe bet for now.  Chances are that it too will eventually suffer from Dust Bowl economics in the future.  That’s how job booms always seem to end up.

The Platinum Coin Vortex Continues

As I spend the day reading about all the foofaraw surrounding the possibility of minting a $1 trillion platinum coin, there are certain things that I don’t expect to see.  High atop that list would be a limerick homage to the platinum coin.  That is just one of many poems on a blog that is dedicated to mixing the dismal art of economics with poetry.  Limericks Économiques, making economics just a little more tolerable.

I Love The Whole Platinum Coin Debate

We are, once again, quickly running up to the debt ceiling.  And Republicans are, once again, holding the economy hostage by demanding draconian economic cuts in order to raise the debt ceiling.  It’s like deja vu all over again.

An interesting, though inelegant, solution to this problem is for President Obama to authorize the minting of a $1 trillion platinum coin and have the Federal Reserve buy it.  This is because there is a law that authorizes the President to mint only platinum coins in any denomination he so desires.

The debate for and against it is absolutely fascinating.  Some say that it is illegal.  They are clearly wrong.  Some say that it’s immoral.  They have a better argument, but it’s certainly less immoral than defaulting on the debt in an attempt to score political points.  Some say it’s a bad idea, which it is, but see the prior sentence for why it’s less bad than the alternative.  Some say that it goes against the spirit of the law.  They are almost certainly right.  The platinum coin law was almost assuredly meant for seigniorage and not for increasing the debt limit.

Which brings us to the fascinating topic of seigniorage.  Take a look at that $1 bill in your pocket.  How much is it worth?  Most people will say $10.  They are only partially correct.  It’s actually worth about 3 cents in materials and labor.  The Federal Government just makes a promise that that 3 cent item will always be worth $1.  Coins work the same way.  The Federal Government will mint a $1 coin commemorative coin that costs them pennies and sell it for $1.  They then pocket the difference since the coin will, in all likelihood stay out of circulation.  The Federal Government makes around $25 billion a year this way.  So if Obama goes the $1 trillion commemorative coin route, it will probably show on the books as a $1 trillion seigniorage profit.  Strange days indeed.

The Federal Reserve Made A Record Profit in 2012

The Federal Reserve is an incredibly complicated pseudo-business/pseudo-governmental entity.  Whenever you have a complicated entity that very few people can understand, you have simplistic views of the entity that dominate.  Many Republicans and Libertarians will have you believe that the Federal Reserve is the epitome of all that is evil about the Federal Government.  They would like governmental economics to behave exactly like familial economics does.  They would like money to be backed by something tangible like gold.  This is magical thinking.  Gold backed securities may work fine in normal economic conditions, but they also hamstring efforts to fix economic issues in non-normal economic conditions.  And we are almost always in non-normal economic conditions.

Take, for instance, the tripling of the monetary base that has occurred in the last decade.  Under normal economic conditions, this would prove disastrous to the economy.  Under current economic conditions, when we are in a liquidity trap, inflation barely rears its head at all.  Another benefit to the printing of all that money?  The Federal Reserve made a record profit in 2012!  They made over $91 billion.  Even better, most of that profit,  $89 billion, went right back to the Federal Government!  All that money that is being printed is being put to use and making us a giant profit.

Given, that $89 billion only represents one month of money that will be printed in the coming year, but it is things like this that often go over the heads of anti-Fed agitators.  That money that is being printed will continue to be put to use and will continue to make us money as long as the Fed continues to buy the debt.

Don’t worry if this doesn’t make sense to you.  I only marginally understand all the intricacies of how this works.  Maybe this will help.  Say the Federal Government pays you $100,000 to perform work.  You may think that the Federal Government would then be out $100,000.  You would be wrong.  You are taxed on that $100,000.  Let’s say your tax rate is 20%.  That means that you’re really only getting $80,000.  So the Federal Government gives you money and almost immediately takes some of it back it back.  That is the gist of the relationship between the Federal Reserve and the Federal Government right now.

This is also why infrastructure spending is such a no-brainer.  It requires hiring a lot of workers and a good percentage of that money the Federal Government gives to those workers comes right back to the government!  All that and it improves conditions to grow the economy!

How Not To Get Out Of Debt

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The above graphic is from the facebook page of some “financial guru” named Dave Ramsey.  If anyone ever gives you financial advice like this, you should back away from him as quickly as possible and never take advice from him again.

Getting out of debt IS about math.  It’s about learning the math and recognizing how much you’re saving by paying off your debts the right way.  If you know the math, you will feel good about what you’re doing no matter how long it takes you to pay off an individual debt.  Dave Ramsey is basically telling you that you’re too stupid to learn the math so you might as well feel good about yourself even though you’re likely throwing away money by doing so.

What’s the right way to pay off your debts?  It’s simple.  Which of your debts has the largest interest rate?  Pay that one off first.  Which of your debts has the second largest interest rate?  Pay that one off next.  And so on.  With very few exceptions, this is the fastest way to pay off your debts while making sure as much of your money stays yours.

Why do it this way?  Because it’s the interest that kills you.  If you buy a house for $250,000 with a 30 year mortgage at 5%, you will be paying close to $500,000 for that house if you pay off the minimum amount every year.  Yes, you pay double for the house because of interest costs.  If your loan was at 7%, you’d be paying nearly $600,000 for the house.  Interest adds up quickly.

That is an extreme example, though.  Most people who are trying to get out of debt aren’t terribly worried about their mortgage and it is likely that the interest rate on the mortgage is the lowest of their debts if they have one.  When we’re talking about debts, we’re almost assuredly talking about credit cards.  Credit cards commonly have interest rates as high as 30%.

Let’s take a simple example.  Say you have two debts.  One, a credit card with a $10,000 balance and a 30% interest rate and the other a credit card with a $5,000 balance and a 15% interest rate.  Say the minimum payment for each is $50 to avoid paying penalties.  Also say that you have $500 a month dedicated to paying off your debts.

Dave Ramsey’s advice is to pay off the $5,000 one first.  Let’s see how that goes.  We always want to avoid paying penalties (Something Dave Ramsey completely glosses over with his graphic) so we will be paying $450 a month to the 15% card and $50 a month to the 30% card.  It will take you 13 months to pay off the 15% card.  At that time, the balance on the 30% card will then be $12,200.  It will then take another 39 months to pay that off.  That’s a total of 52 months.

Now, let’s do things the correct way and pay off the 30% one first.  Again, we always want to avoid paying penalties so we will be paying $450 a month to the 30% card and $50 a month to the 15% card.  It will take you 33 months to pay off the 30% card.  At that time, the balance on the 15% card will be $5,400.  It will then take another 13 months to pay that off.  That’s a total of 46 months.  6 months sooner than Dave Ramsey’s way.  Congratulations!  You just saved $3,000 by paying off your debts the right way!