Food Regulations

A close relative works with a major national food brand/manufacturer.  He was just telling me about how US government regulations prohibit food manufacturers from using specific strengths and types of flavors.  Food companies are prohibited from using strong peppermint, straight natural vanilla, and certain almond flavors.  But not for the reasons you might think. 

See, these prohibitions are in place not for consumers (who want the flavors), but for manufacturing.  The flashpoint of the flavorings are too low - they burn at too low of a temperature.  As a result, manufacturers that wish to meet consumer desires are forced to import the food from other countries.  I don't mind imports (another topic), but when companies would prefer to make something here, but import because they are not allowed to make here, that just hurts everybody. 

Some safety standards make sense.  If workers regularly are injured and maimed, maybe something needs to be done.  How many Canadian workers are dying in food factory fires?  Because that is where we are importing food from made with the prohibited flavors.  If the standards were necessary, a country without the standards would expect to see people being injured and killed. 

Inflation and the CPI

Just a quick note springing from a discussion with elder relatives over Christmas.

CPI includes.... average basket of consumer goods, established and tracked by....

There is a valid instrument called "Core Inflation", this is essentially the CPI stripped of food and energy costs.  There are valid reasons for doing this, namely that energy and food prices may be wildly influenced by factors other than MS/inflation, and if you are looking for inflation, you don't want to be distracted by irrelevant factors.

However, lately "core inflation" has been used as if that is actually the price increase faced by the common Joe.  Not so.  See, not only does the average Joe buy food and energy (gasoline, electricity, propane, etc...), so Core Inflation doesn't show the whole picture, but also the CPI itself assumes you buy average goods.  So if you buy the average amount of a new house, the average amount of vacation, the average amount of a new car, the fact that prices in those three areas have continued to be remarkably low will hold down the average increase of prices you face.  But, if you do not buy a house, do not buy a new car, and have to reduce or eliminate your vacation, you only get to enjoy the increasing prices of food, energy, clothing, entertainment, etc....

So, in summary, the CPI is pretty good at measuring inflation (a topic for a different day), but not especially good at revealing "sticker shock" faced by the the consumer that doesn't buy certain large, key, goods in a particular year.  "Core Inflation" is a real tool, and very valid, but absolutely misleading and even harmful when looking at whether prices faced day-to-day by the average Joe.

How would I change this?  I would have a third way of looking at the CPI.  In addition to having the whole CPI and Core Inflation, we should also be able to split the CPI into three parts (looking at price change across the entire CPI, or each individually) of Essential Goods (food, energy, clothing, entertainment), Luxury Goods (furs, vacations, jewelry), and Durable Goods (investment goods, housing, transportation).

Merger Prevention

One function of anti-trust law in this country is to prevent the merger of companies when the DOJ feels that such a merger would create an "uncompetitive" environment. 

They decide and define an uncompetitive environment by using the HHI - an index that essentially sums the squared market share of each competitor in a particular market.  Mergers that increase the HHI beyond an acceptable limit or too quickly are deemed anti-competitive and blocked. 

And here lies the problem.  The DOJ gets to define the scope of the market and which companies are viewed as participants. 

I have done absolutely zero research on the topic, but I heard today that AT&T dropped its bid to merge with T-Mobile in light of opposition to the merger by the DOJ.  Now, this may or may not be a problem in this case, but mergers can be useful tools for companies to pool research resources, reduce costs so as to avoid bankruptcy, and allow companies to expand their market penetration without incurring the full expenses.

How might mergers be bad?  Generally, mergers are seen as bad if you do not trust the market to control the size and dominance of an unprotected monopolistic company.  Even if market power increases, competition, and potential competition, still exist to keep the company efficient and focused on serving customers.  Where do problems come in?  If the company is in some way subsidized/protected/funded by the government, that is when you have to worry about how big it gets.  But why fix that worry by limiting all mergers?  Why not just remove the government protection of the few?  

Fear of Government

64% of Americans believe that big government is the biggest threat to this country in the future.  
Yaaaaay Government.

Economic History

Really interesting article on economic history. 

Regulations

From many sources it seems that federal regulations have increased substantially faster under the current administration than under previous administrations.  Businesses are saying that cost of compliance has increased substantially.  The Federal Registrar has exploded in size.  Federal agencies are issuing more and bigger rulings than ever before, interfering with ever-increasing portions of the economy. 

Despite the above, the White House denies it all.  They desperately want the current lack of business hiring and growth to be "not their fault". 

The Wall Street Journal does a very good job looking at what the record has actually been. 

In short:  The reality is that the current administration has more average "economically significant" rules per year than either of the previous two administrations.  The WH has been shopping numbers that only look at a portion of the regulations issued, only those going through the WH, not those from the various agencies. 

Conservatives and Poverty

It is a fairly popular meme among statists that conservatives are heartless and hate poor people, and that the conservative "solutions" to ending poverty will actually create more harm.  Here's the interesting thing. To a certain extent, they're right.  Many conservatives are in favor of poverty policies that would not in fact solve poverty because most conservatives basically want to continue government solutions for poverty, just perhaps with more restrictions on who gets money, how much they get, or how Christian the organization is that gives the money. 

THAT WILL NOT WORK.  At least, not any better than any of the governmental poverty reduction policies that have flat-lined previously falling poverty rates and ruined the family structure in the demographics that typically have higher poverty. 

But, most conservatives really aren't.  At least not to an economist.  That still doesn't explain the flood of lies, misrepresentations, and distortions in this article.  Which deserves a full fisking on its own.

So. Many. Things. Wrong.

Robert Reich and Paul Krugman have been parading around with their schtick of half-truths and distortions again.  The particular one this time is that increasing tax rates to pre-Bush-tax-cut levels and increasing federal government spending will boost the economy.  Oh, and extending unemployment benefits yet again (despite the fact that over and over again people have shown that extending benefits increases the average length of time a particular person remains unemployed).  This is the basic tone of the article:

Krugman starts from the premise that, “The top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars.” Without ever so much as a nod toward evidence or logical rigor, he jumps to the conclusion: “That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.”

 ...“Put more money into the pockets of average Americans [by] extending unemployment benefits. Don’t stop there. Create a WPA to get the long-term unemployed back to work. And a Civilian Conservation Corp to create jobs for young people. Hire teachers for classrooms now overcrowded, and pay them enough to attract people who are talented as well as dedicated. Rebuild our pot-holed highways. Create a world-class infrastructure. Pay for this by hiking taxes on millionaires.”

 But wait, let's think about this. 

Federal income tax data from 2010 reveals that if the government had confiscated all the remaining income ($1.293 trillion) of the top one percent on top of their 2010 tax payments, it still would not have been enough to eliminate the deficit ($1.294 trillion). And, how much of those people’s income would exist to be confiscated in year two?

 See - there is this thing called the Laffer Curve.  And it makes logical sense.  And has been shown in history time and time again.  It is simply the reality that people change their behavior in response to a change in taxes.  The Laffer Curve is the spectrum of possible revenues for a taxing entity, ranging from zero revenue at a zero tax rate to a theoretical maximum revenue at some unknown tax rate.  But it doesn't stop there.  The curve continues, decreasing from the theoretical maximum to reach zero revenue again, at a 100% tax rate.  Basically just the idea that yes, as tax rates increase, the government claims a larger share of your productivity, but..., how productive will you be if the government claims ALL of your productivity?  Even the strongest advocates for statism acknowledge this by supporting sin taxes.  It is foolish to assume that if taxes are increased the most productive, innovative, individuals will continue to be jut as productive. 

Oh, and there is that whole pesky truth about Keynesian policies not exactly working out over the past four years. 

Cost per "Stimulus Job"

I, like many economists, have a hard time believing that the stimulus really did much good.  The staunchest defenders of the stimulus would seem to be found within the administration itself.  Yet, back in July (I know, old news, but how many of you knew about this back then), the administration itself released figures.  These figures say that, even if the stimulus created/saved as many jobs as the (I think overly) optimistic official White House estimate, it was only accomplished at a cost of $278,000 PER JOB.  So it would have been, even assuming the stimulus actually created/saved 2.4M jobs, merely 1/6 as expensive to simply PAY those 2.4M workers the median household income and call it a day. 

Auto Bailout Losses

So the current estimate of losses from the auto bailout a while back is about $23.6B.  These are losses of about 28% of the initial investment, and we aren't out of the woods yet.

Historical Effect of Tax Increases/Decreases

And now...we are seeing another round of various pundits and politicians claiming that tax increases during the Clinton years did not hamper growth and that tax cuts during the Bush years did not encourage growth.  You can make statistics say anything, and even if the statistics do not agree with your ideology, you can claim they do and most of the public will be none the wiser. 

The story is:

Even though common sense would dictate not raising taxes in the face of a badly weakened economy and almost non-existent job growth, the President and his supporters argue that tax hikes will not imperil the still-nascent recovery because the economy grew during the 1990s after President Bill Clinton raised taxes. The inference being that today’s economy could also absorb the blow of tax hikes and grow despite them. They also argue the converse: that the tax cuts passed during President George W. Bush’s tenure slowed growth and cost jobs.

But...the truth is:

The economic defense of the Clinton tax hikes does not hold up against the historical facts. The economy did exhibit strong economic growth during the 1990s, but rapid growth did not occur soon after the tax hike—it came much later in the decade, when Congress cut taxes. After the 1993 tax hike, the economy actually slowed to a point below what one would expect, considering the once-in-a-generation favorable economic climate that existed at the time.

and

It was at this point [when the 2003 tax cuts took full effect] that economic growth took off. From May 2003 until December 2007 (when the recession caused by the global financial meltdown occurred) the economy created 8.1 million jobs, or 145,000 a month. By comparison, after the beginning of the 2001 recession and before the 2003 tax cuts, the economy was losing 103,000 jobs a month.[7]

Lost Tourism

The travel industry is claiming that the difficulty of obtaining a US visa is reducing the number of foreign tourists visiting our fair land. 

Two grim facts: More Chinese now visit France than the United States, in part because it's hard to get a U.S. visitors visa. And while the U.S. used to be the destination for 17 percent of the world's tourists in 2000, that's dropped to 12.4 percent and shows no sign of changing.

Driving Businesses Away

An article with good examples and stats about how tax and regulatory burdens influence business decisions.  Set in California, but with strong implications for elsewhere and the country as a whole.  Short story, despite historically strong advantages that have been very attractive for business location and growth, the tax and regulatory climate that has been created is now driving businesses (at least on the margin) out of the state. 

Is Fatherhood Irresponsible?

As this article questions, has fatherhood become an irresponsible action?  In other words, has the social/legal game become so stacked against men that a responsible man will choose not to have kids?  Thought provoking, but I think it lacks something - specifically that it sets up an interesting dichotomy:  If you father children, you are either an irresponsible idiot or you are a hero taking risks and accepting a less materially wealthy life in the hope of benefiting your society in the future (and if you are the second, you might merely be arrogant). 

Faux Market in China

If the students of a particular course of study are consistently unable to find employment in their line of work, the Chinese government reduces the funding for academic efforts in that discipline.  This is a market solution, sort of.  Market in the sense that the Chinese gov relies on the signal of available employment for people with particular skills.  Not market in the sense that the government determines when/how much to cut the funding.  In a full market, people would study, struggle finding jobs, new students would see/hear that students with certain skills were struggling to find jobs and avoid those disciplines so as to avoid the hardship, the dearth of students would directly reduce the funding for those academic topics. 

Now, in the US, we have many areas of study with little discernible market value, yet with many students.  You have seen this particularly highlighted by various OWS protestors saying that society owes them a job in their area of study/"skill".  The US is (mostly) a market economy.  Yet we do not see the market correction mechanism I outline above.  Why? 

I think it is because our society goes to great lengths to not only facilitate education, but also to reduce the pain if the topic of that education is chosen unwisely.  My question:  We are told that public support for higher education is important for the general social value of everyone.  But is that social value still net positive if some amount of the educations we support commence people who then do not give/add to society, but take? 

Which college career to get a job?

Your chances of getting a job, and the pay you will probably earn upon getting a job in your major field, vary greatly with the major you choose.  Go here.  Feast your eyes and soul.

Majors with the highest unemployment rates?  Architecture, clinical psychology, educational psychology, library science, linguistics and literature, are all among the least likely to have a job.

Government unemployment

A table from the BLS, showing the unemployment rate for various types of workers.  Government workers have the lowest unemployment, in fact, about half the average overall unemployment.  Remember that the next time you here the "increased unemployment of government workers" used as justification for why the government should spend money to reemploy various government employees.  Table attached.

Table A-14. Unemployed persons by industry and class of worker, not seasonally adjusted

HOUSEHOLD DATA
Table A-14. Unemployed persons by industry and class of worker, not seasonally adjusted

Industry and class of worker	Number of unemployed persons (in thousands)		Unemployment rates
	Oct. 2010	Oct. 2011	Oct. 2010	Oct. 2011
Total, 16 years and over(1)	13,903	13,102	9.0	8.5
Nonagricultural private wage and salary workers	10,990	10,126	9.3	8.5
Mining, quarrying, and oil and gas extraction	89	69	10.4	7.8
Construction	1,445	1,129	17.3	13.7
Manufacturing	1,474	1,200	9.5	7.7
Durable goods	937	759	9.8	8.0
Nondurable goods	537	441	9.0	7.3
Wholesale and retail trade	1,888	1,764	9.2	8.6
Transportation and utilities	404	462	6.9	7.8
Information	300	195	9.8	6.6
Financial activities	590	524	6.7	5.8
Professional and business services	1,525	1,495	10.6	10.1
Education and health services	1,263	1,221	5.8	5.6
Leisure and hospitality	1,458	1,448	11.1	10.8
Other services	554	618	8.8	9.6
Agriculture and related private wage and salary workers	176	198	11.0	13.4
Government workers	950	924	4.3	4.3
Self-employed workers, unincorporated, and unpaid family workers	557	612	5.4	6.1
Footnotes (1) Persons with no previous work experience and persons whose last job was in the U.S. Armed Forces are included in the unemployed total.
NOTE: Updated population controls are introduced annually with the release of January data.

Unemployment

Recently the idea was promulgated that the economy lost "8 million" jobs during the Bush presidency.  Actually the economy on net added over 1 million jobs from start to finish of the Bush presidency, and that is accounting for the lost jobs from the market crash to the end of Bush's term. 

But let's look at losses.

According to numbers published by the BLS, the peak of jobs in this country (thus far) occurred in January 2008.  The low point (of the recession/recovery thus far) occurred in February 2010.  About 8.75M jobs were lost during this period of time.  A period of time that includes one year each of the Bush and the Obama presidency.  Info from HERE. 

Federal Registrar

Mentioned THIS in class yesterday.  New Federal regulations are expected and on pace to total over 80,000 pages this year alone. 

Small Businesses and Government Regulations

According to THIS, complying with government regulations is the most pressing concerns on the minds of small business owners. 

Why the Drachma Cannot Return (also, Death of the Welfare State)

Typically in economics it is said that "bad money drives out good," meaning that that a government issuing a money will slide toward fiat and/or inflationary currency methods.  However, in THIS ARTICLE, Brian Wesbury turns the conventional saying on its head.  Saying that "a weak currency cannot replace a strong one", Brian argues that Greece cannot go back to the Drachma.  In fact, he argues that no country in the Euro-zone could in fact leave the Euro except Germany.  Why?  Well because no country has the ability to institute a money of equal strength to the Euro except Germany.  Investors, businesses, speculators, even citizens themselves, will flee a weak money. 

The difference?  The typical saying is from the perspective of the issuing government and which money they will choose.  Wesbury's phrase is from the perspective of those who would actually USE the currency. 

I of course, love these concluding sentences:

As a result, Greek fiscal problems must be solved by a shift away from the welfare state. This is true for Italy, Spain, Portugal, and for every other nation in Europe which will eventually face the reality that the experiment with the welfare state has failed.
This is the real lesson of European budget problems. Government spending does not create wealth. It never has, it never will, and monetary shenanigans cannot change that fact. Free markets are the only way to create wealth.

Mundell vs Friedman on the Euro

From HERE, a neat look at the debate between Milton Friedman and Robert Mundell.  Two winners of the Nobel Prize in Economics.  Two opposing views on the creation of the European monetary union, the Euro.  Friedman was against the formation of the Euro, basically saying that it was driven by politics and therefore would be administered politically and that European countries at different stages of growth required different monetary policy to be successful in the long term.  Mundell liked the Euro because it would end destabilizing monetary speculation between European country and push them along the path of political integration.

Could they both be right?  I think so, to a certain extent.  Who is ultimately correct about the Euro being a good idea or not?  We will find out.  Possibly very soon.  

Do Marriages Create Inequality?

Income inequality, that is.  Maybe.  Think about this:

A similar analysis found that income inequality has fallen among individuals since the early 1990s, but risen among households due to factors such as more marriages of people with similar education levels and earnings potential.

Very interesting.  Shows the difference between looking at individual people and households.  Makes sense though.

The article also talks about when income inequality peaked (hint, a while ago) and a couple other interesting tidbits. 

Roman Monetary System

Interesting perspective on Euro, the Roman coinage system, and international monetary systems.  I found this particularly interesting:

As such, the cities and regions, notably in the Greek or Syriac-speaking East, struck their own lower-value bronze coins as a complement to the usually higher-value imperial coins, leading to specific monetary zones.

From HERE .

Being a Millionaire

Turns out that many of the people who have incomes greater than $1,000,000 don't have those incomes for very long.  From HERE.