When Working Hurts

We know that people appreciate the things they work for.  That people tend to care for and maintain those things that have taken effort to acquire.  So for no other reason (though there are many others) the balance would seem to stand in favor of making sure that people have the incentive to continue working, or to start working.  Oh, and working adults, if they are employed through mutual voluntary exchange, create this thing for society called wealth.

But...a couple of years ago a study was conducted about the implicit marginal tax rate faced by people on the low skill / low income side of the equation.  What is "implicit marginal tax?"  Simply the percentage amount by which the paycheck of a worker is reduced as they earn more money.  This takes into account not only the increasing types and rates of taxes they must pay, but also their advancing ineligibility for federal and state hardship aid of various kinds.  For example, if I make an additional $10,000 and am taxed 10%, it looks like my marginal tax rate for that $10K is 10%.  However, if by making that $10K I am now too "rich" for $5K of housing assistance, my implicit marginal tax rate is now 60%!  So by working hard and earning $10K, I have only made myself $4K better off!

And it gets worse.  These charts are from this column.




And...



Essentially, if you earn between $25,000 and $50,000/year, each additional dollar of income you earn results in the LOSS of MORE than a dollar of buying power.

Remind me, what is the message we want to send to the younger generation, those getting in on the ground floor of their working lives? 

Wouldn't/Doesn't Surprise Me

Maybe not real, but the fact that if real, I wouldn't be surprised in the least speaks volumes about bureaucrats and government rules. 

Apollo 11 astronauts had to go through customs upon returning from the moon.

Awesome Essay on the Cost of Business

Read this.  Seriously, you won't thank me, but you need to know.  The author is an experienced accountant, speaking about his experiences with the cost of doing business in this country. 

Wow. I wonder what value I could’ve been adding to my company during that instead of creating multiple phone book sized reconcilliations that no government employee will actually ever read. However, if I’d failed to spend hundreds of hours producing these useless documents, we’d have gotten fined and put out of business.

 And...

 You want employees? Get ready for the DoL. Better get your EEOC reports done on time (one of the only places left where anyone actually gives a damn what color you are). When I opened my first business, I was rather surprised to discover that I had to contact 5 different state and federal entities before I could hire my first employee. You want to actually build something? Get ready for OHSA and the EPA. The approvals alone will eat up an eternity of time you could be productive. And you’d darn well better make sure you do your quarterly filings with the IRS and your state tax commission, or they will eat you.

Finally...

 Ken Salazar put thousands of men out of work in eastern Utah with the stroke of a pen. Then they did the same thing in the gulf. Now Canadians are having to hire Americans to fill all their many job openings. Think about that… Canada. Friggin’ Canada is kicking our asses! They were all like, “Hey, we’re all out of jobs, eh? But under our feet is stuff worth money. Maybe we should dig it up and sell it, eh?”

Abdicating Responsibility

When people choose to let others make their decisions for them, they have to live by the decisions of others.  Reflect on this: People told government to "do something" about kids eating unhealthy food.  Government decides that the best way to help kids eat healthy is to prohibit food manufacturers from advertising unhealthy foods to kids. 

As a result, among other things, you will no longer see Ballpark Franks advertised at sporting events.  

Presentation to Titan Society

Tonight I am presenting to the Titan Society.  Among other topics, we will be discussing the contents of this column.   From Alhambra Associates, a financial consulting firm, the column details all actions by the BHO administration in a one week period of time that would give pause to business. 

Research by Crowd (of gamers)

The "Wisdom of Crowds" is an economic idea that has been around for a while.  Basically the idea that a large group of people will possess many little bits of information that, if properly assembled, can solve even very complex and difficult problems.  The trick is getting the holders of the information to assemble it.  You can have a contest (guess the weight of a steer at the fair), allow people to "invest" their knowledge (political betting markets), or you can CREATE A GAME. 

Pretty cool.  The potential of using the creative and problem solving skills of diverse people, especially if they don't know they are solving problems is fairly incredible. 

What other problems could we solve? 

White House vs. Reality

Will companies keep their employer-provided health care as the health care reform act take full effect? Will your employer?  A new survey suggests that many businesses will drop their coverage - a suggestion strenuously denied by the WH.  Look though at the sources of the WH's denial; each one is a fairly partisan politically inclined think-tank, whereas the original study comes from a professional HR support services company.  The profitability of a HR service company depends on its ability to predict such things accurately. 

http://market-ticker.denninger.net/archives/1039-Thuggery-And-Mob-Action,-Government-Style.html

"Batch" vs "Real Time"

http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell?currentPage=all

Great article on Uncertainty

HERE you find a great article on why the US government should pick its poison and stop mucking about, hemming and hawing, regarding how they will deal with the "financial crisis."

Lions, Tigers, and Bears - Oh My!

First, the $2 Trillion in federal bailout loans that the Federal Reserve is refusing to identify the recipients of. The only justified reason I can think of, off the top of my head, that they would have for not releasing the data is that the recipients are businesses that investors would be shocked and disturbed to learn were in need of a bailout. Butttttt..... It seems that if it is illegal for a company to misrepresent its earnings, it is at least shady for the purchasing of that companies stock by the government in a bailout fashion - or even emergency loans from the FED. Also, shouldn't the very fact that the FED isn't being transparent in their actions make investors less secure?

Second - Obama has appointed Michigan governor Jennifer Granholm to his council of economic advisers. Yes, that's right, the same Granholm who has demolished the Michigan economy in six years. She thought it was smart to "close" a state budget shortfall by raising the tax on gas this summer, raising the taxes on small businesses, and expanding the scope of the sales tax.

No wonder it costs 300% as much to hire a moving service to move you out of Michigan as to move you in. Supply and demand and all that.

More later. Sure is a lot of stupidness going on right now.

Median Voter Theory

So, one of the primary theories in Public Choice Economics is the Median Voter Theory. Basically, this says that politicians will move toward the center in an attempt to garner votes. In the past this has typically meant that hard-left politicians moved away from socialist ideas. However, this entire election cycle I have been struck with the realization and fact that this has not in fact happened. Sure, the candidates have moved toward the center on certain, key, issues, but overall they have taken great pains to be very far apart. In fact, the Democrat as even taken great pains to proclaim his allegiance to socialist ideals on many occasions.

This doesn't mean that MVT is dead, but rather I think it means that the American electorate is deeply divided. Yeah, I know, big surprise. But it also means problems for stability and business climate. See, businesses and investors like stability. They like knowing what to expect. But having such a close election and two candidates saying and planning such very different things is the antithesis of stability.

Interesting.

Just a little bit scary Part 2

Here's something interesting. Just a look at the crazy bills that have been stopped in the senate b/c the Republicans currently have enough votes to filibuster (or threaten to do so). If the Dems win big this fall, several or all of these bills may be re-introduced - and, regardless of your personal proclivities, this slate of bills is objectively bad for the nation. Unless, of course, your goal is to remove the necessity and even the ability for individuals to take care of themselves and run their businesses.

Here's a snippet, but read the article yourself.

Just a little bit scary

So we now know that the federal government - and the treasury department in particular - has "essentially forced" nine major US banks to accept the government bailout. To accept partial government ownership of their company. From today Wall Street Journal:

While the program is voluntary, Treasury essentially forced nine major U.S. banks to agree to take $125 billion from the federal government. Treasury will buy $25 billion in preferred stock from Bank of America -- including soon-to-be acquired Merrill Lynch -- as well as from J.P. Morgan and Citigroup; $25 billion from Wells Fargo & Co.; $10 billion from Goldman Sachs Group Inc. and Morgan Stanley; $3 billion from Bank of New York Mellon; and about $2 billion from State Street. The remainder will be available to small and medium-size institutions that apply for an investment.

So, we have government requiring that private business sell a portion of their business to the government for the supposed good of the nation.

Are you comfortable with that? I, certainly, am not.

B HO 's tax plan and economist angst

Many economists (including several Nobel Prize winners) have signed a letter opposing Obama's tax plan.

I whole heartedly agree. This is the Link, and the key paragraph.

We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.

Krugman and the Nobel Prize

I'm not going to beat a horse that's already moving, so rather than re-analyze the awarding of the Nobel Prize to Paul Krugman, I'll let economic minds with more institutional knowledge than mine have their say.

http://www.marginalrevolution.com/marginalrevolution/2008/10/what-is-new-tra.html

http://www.marginalrevolution.com/marginalrevolution/2008/10/paul-krugman-wi.html

http://www.marginalrevolution.com/marginalrevolution/2004/07/paul_krugman_gu.html


Well, I might say a few words.

Krugman can easily and truly be said to be the best-known and most popular left-wing economist in the United States, if not the world. Interestingly, though he is in favor of several government interventions that I'm uncomfortable with, Krugman's economic ideals are much, much closer to mine than are those of most politicians from either party.

His Nobel was technically awarded for his work on trade theory (much of which I was actually unaware of), but many economists feel that this award also signals the importance of social and policy relevance to the work of an economist. I agree. There is no point to theory if that theory cannot be used to better society in some fashion.

However, despite the undeniable successes that Krugman has achieved in issues of trade, he has also unquestionably fallen flat on his face regarding basic economic thinking. Please read this article!

Wow - what a ride.

So it's been a while, but times have been crazy. I've been spending more than 2 hours every day just trying to stay up on the current issues in the economy so I can answer the questions from my students and colleagues.

And there's a lot I could say.

But I won't, at least not right now.

Well, perhaps I'll say something.

In economics there is this concept called "regime uncertainty". Basically, the idea is that investors and businessmen will be less willing to take an active role in the economy if they have uncertainty about the future "regime". In the US this translates into "wow, the .gov just passed a $700B spending bill that tremendously expands federal power. I wonder how this will effect the future of business in the United States?"

GROWTH!

The economy grew last quarter. A lot. Especially compared to recent quarters. 3.3% Now, we don't know if it will continue to grow at such a pace - apparently there are concerns about some level of worldwide economic draw-down.

Rainy Day Sale

A rainy day here at PHC. While going to lunch I noticed that the bookstore was having a "rainy day sale" on umbrellas.

My economist sense tingled.

Hmmm....

You see where I'm going with this - a store interested in making money should not decrease the price of an item just as the demand increases (as for umbrellas when the sky leaks). The customers demand or desire for an item is at least partially influenced by perceived need. Your perceived need for an umbrella increases when liquid steam is falling from the sky. So, in general, customers will be more willing to purchase umbrellas and the store should increase prices.

But they didn't. They reduced prices.

Why?

I see two options. First - the PHC college bookstore exists not to make money, but to serve the students so they reduced umbrella prices in the students' day of (wet) need. Second - the bookstore does intend to make money, but umbrellas are a poor seller and the bookstore is taking advantage of the rain to get them to move off the shelves.

I'll have to ask the bookstore staff....

Dollar is up

And my optimism over the last year has made people look at me like I have two heads. Well, the housing market is beginning to turn back around (at least in the DC area) and the dollar is moving back up.