Archive for the ‘What the Heconomics?’ Category
There may be a false ceiling in the US Treasury – and not just any ceiling.
THE ceiling – the one that has been so vigorously debated in Washington for the last few months.
That’s right, the debt ceiling might be completely irrelevant.
The United States has racked up $14 trillion in debt, around 97% of its GDP and alarmingly close to the statutory limit of $14.3 trillion established by Congress last year.
Fears that the government will not be able to issue debt to fund its programs have led to cantankerous shouting matches in Washington.
But all this shouting might be for nothing.
The answer can be found in Section 4 of the Fourteenth Amendment to the US Constitution, (which is mostly known for defining citizenship of the United States after the Civil War).
Section 4 of this amendment validates all US public debt, stating that it “…shall not be questioned”, in order to ensure that the US did not default.
In a Civil War context, this was meant to ensure faith in the US government after a crisis, and also to invalidate any debts taken by the Confederacy during the war.
Today however, it means that any debt issued by the Treasury must be considered valid under the Constitution, regardless of debt ceilings established by Congress.
There is no doubt that the United States must find a way to cut spending – but if push comes to shove and Republicans refuse to yield on debt reduction plans, it might not matter.
Thanks to Economix
Bought gas lately? Not a pleasant experiece for the wallet.
Gas and other energy aren’t as cheap as they used to be.
As power prices go up, our spending power goes down.
Check out the chart above… Motoko Rich of Economix noted that
with real incomes falling and the prices of basic goods rising, this might not bode well for consumer spending and in turn, the fragile recovery.
What’s so bad about people buying less TVs, toys, and food? Well, if nothing else this stuff fuels our economy which is now expected to grow at a slower rate.
To make matters worse wages are hitting record lows, ZERO to be exact.
Katherine Reynolds Lewis notes that working for free, although not ideal, gives the worker valuable experience and a chance to prove themselves. With a hat tip to R.A. at Free Exhange who explains the trend by noting that
If it’s worth taking on someone to do a job, it’s probably worth paying them something. The problem is that there’s a discontinuity in the wage spectrum. Pay above the minimum wage is legal, and no wage at all is (probably) legal, but a positive wage less than the minimum is not. Market clearing job matches at wages between zero and the legal minimum can’t take place.
Unpaid labor is a sad truth for bloggers (hint hint) but would you our readers take a wage-less position over joblessness? Also, even if you are being paid is the price of things pinching your pocket?
Thanks to Wikicommons
Japan is still recovering from the worst natural disaster in its history. While still digging through the rubble of demolished coastal towns the nation has also had to face a nuclear catastrophe. As the bad news continues to roll in it seems that their is no hope for Japan’s future.
Of course that isn’t true. In fact it is because of the bad news that, as Binyamin Appelbaum notes, that
People often overestimate the impact of a disaster because of our tendency to generalize from devastating images and anecdotes. In fact, most disasters are extremely local events that leave the bulk of a nation’s economy untouched.
This isn’t to say that Japan as a nation is not facing a terrible strategy. Rather, despite of the terrible events human ingenuity will overcome, at least economically.
In fact, as James Surowiecki for the New Yorker describes, some economists have found that tragic events can have benefits as
disaster-stricken economies don’t simply replace broken windows, as it were; they upgrade infrastructure and technology, and shift investment away from older, less productive industries.
…homeowners rebuilding after a disaster take the opportunity to upgrade, a phenomenon known as “the Jacuzzi effect.” In ordinary times, inertia keeps old technologies in place; it may be easier to make dramatic changes when you have to start from scratch.
With a hat tip to Democracy in America, the author of one of the papers, Ilan Noy, has added the following comment about his research that
We still do not know what will be the impact of the enfolding crisis in the various nuclear reactors that have been affected. The analysis above ignored this danger, though the still present devastation in Chernobyl attests to its potentially destructive powers.
Despite possible benefits of disasters we should not forget that, as Democracy in America’s W.W. notes,
the return to trend economic growth does not compensate for the direct human and economic loss created by the disaster. In the case of Japan, the final toll will be immense.
Thanks to Wikicommons.
It seems we humans are doomed.
Movies and TV would have you believe that robots will destroy us in a reign of destruction.
We’ve already seen this recently in the computer Watson’s victory on Jeopardy against human champions.Computer brains are better than our brains.
Computers and robots are also regarded as the enemy of the blue collar worker. Why have humans build cars when robots do it faster? Right?
Well, Paul Krugman notes that computers threaten more jobs as
any routine task — a category that includes many white-collar, non-manual jobs — is in the firing line.
What makes this news so bad as Krugman notes is that
It’s no longer true that having a college degree guarantees that you’ll get a good job, and it’s becoming less true with each passing decade.
Over at Free Exchange, R.A., questions the gloom and doom noting that
As far as I know, people currently represent 100% of final demand; machines aren’t yet out there purchasing goods for their own consumption. Without people there is no economy
Of course, being a good dismal scientist, the post goes on to note that unemployment is still an issue but it may be the governments, rather than the robots, fault.
So the good news, robots may not be the enemy (until they start to eat us). The bad news, unemployment is still a real issue no matter its cause.
Thanks to Wikicommons
Some of our readers may recall we recently suffered from a minor inconvenience called “the World Financial Meltdown”.
If you are still asking yourself, How the @#$%&!! did that disaster happen?…we have good news!
The US Government has the answers in the Financial Crisis Inquiry Commission Final Report.
It is a beast of a report so rather than have you wade through hundreds of pages of financial analysis, we’ll let the Internet do the mining for you.
The wonderful financial blog Calculated Risk highlights the reports BIG conclusion that the
financial crisis was avoidable. …
Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. … Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.
Expanding on the points produced in the report Calculated Risk describes
the keys to the crisis are 1) the willful lack of regulators to do their jobs, combined with 2) the rapid “innovation” in the mortgage market
For a deeper look at who’s to blame check out Frum Forum’s collection of posts on the report.
The system may have failed in the past but this new information should let us prevent future meltdowns right?
Don’t count on it. As Sewell Chan, of Economix, notes:
The Wall Street overhaul enacted last year hopes to blunt the impact of such boom-and-bust cycles — by reining in the use of exotic financial instruments, better supervising big banks and limiting the damage if one of them fails.
But the first two efforts are under attack by the new Republican majority in the House, and the new process for containing the fallout from a giant bank’s collapse is untested. Meanwhile, the financial sector’s outsize role in the economy hasn’t changed; the giant banks that were considered “too big to fail” have only gotten bigger.
Not very comforting is it?
Thanks to Wikicommons.
You may not know this… but we at US Democrazy are doing pretty well for ourselves.
In a couple years we’ll have finished paying off the loan on our office/van. PLUS we have all of the potatoes we could ever want for dinner (as long as that number is one).
Apparently though there are some in America who are doing even better. In fact, the wealthy are doing so well that Paul Krugman, after watching James Bond, remarked
(incomes) that were once viewed as impressive numbers, the kind of thing only arch-villains might demand, now look trivial. Or maybe the other way to look at it is that we have a lot more arch-villains around than we used to.
Is it true are the wealthy doing so well that they’ve become arch-villains in their own right? Analyzing modern American income distributions in a NY Times Op-Ed Nicholas Kristof notes
The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976.
and angrily states that
we’ve reached a banana republic point where our inequality has become both economically unhealthy and morally repugnant.
Some though are questioning whether inequality is actually an economic problem. Over at Economix, Edward Glaeser comments that he doesn’t
like inequality any more than the next person, but that doesn’t mean that inequality is responsible for every bad thing that has happened to America.
Whether good or bad, income inequality is probably here to stay. Tyler Cohen analyzing inequality and its causes notes that many “cultural critics” think Americans
should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life.
…those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.
Which got us wondering, do we really want more than our blog, our van, and our potatoes? What are your thoughts on happiness, money, and the ultra rich? Would this blog be any better if read on a solid gold computer?
If you have ever played the game MONOPOLY you know the phrase GO TO JAIL!!!
Seems pretty harmless part of the popular game.
But in the real world, jail is anything but harmless. In fact, jail-time is causing billions of dollars of damages to the country!
It works like this…The United States has the highest prison population in the world (see chart below).
1 in every 31 adults facing probation (in prison or outside of prison) or on parole.
Courtesty Wikipedia
The problem is… prisons aren’t working well. These “correctional” institutions are not correcting the inmates as many return to crime upon release.
Writer Adam Serwer found the large prison population is costing the economy big time.
“US economy los[t] the equivalent of 1.5 to 1.7 million workers…but there was also a national $57 billion to $65 billion loss in productivity and output”
Clearly, the answer isn’t to just “let criminals go,” but there is some validity to rethinking our prison system as a whole.
Non-violent offenders, including “financial fraudsters” (as Andrew Sullivan puts it), could serve an alternative sentence of sorts, giving up their assets, doing community service, and operating under a curfew. This way, these non-violent criminals would not need to be a burden on the state.
Maybe this is something we should stop to think about. What do you think? Are there better alternatives for these non-violent offenders or the prison system as a whole?
Thanks to Wikicommons.
The present economy can be harrowing let alone worrying about the future. Luckily at The World in 2011 Festival there were economists willing to do the worrying for us.
Alex Pollock, a fellow of the American Enterprise Institute for Public Policy Research, thinks we are living in the wake of three collapsed financial bubbles:
- Real Estate
- European Dept
- Central Bank Confidence
The last broken bubble in confidence is due to a growing concern that the Federal Reserve and other central banks globally are not as omnipotent as everyone believed. Basically, Wall Street just found out that the Easter Bunny isn’t real.
Due to this Pollock predicts a “bull market in bureaucracy” as governments scramble to regulate problems they perceive in the economy.
Furthermore he doesn’t think these regulations will have much luck at reducing systematic risk in the banking system as
We can’t define it AND we don’t know it when we see it.
But hey the futures not all bad. Pollock did emphasize that the financial crisis is just waves on the ocean hiding the current of progress underneath.
Thanks to Wikimedia
Everybody can remember a bully in the playground from their youth. This big nasty character would take candy or money from innocent little ones.
You better watch out! Today some of these bullies have grown up and may be after your house!
There has been a crisis in the housing market where big banks (who own the loans on homes around the country) have been falsely repossessing houses.
Here’s what’s been happening:
Banks make loans to individuals and resell the ownership of the loans to investors. To do this Stephen Ganel, of Time, notes
the banks had to file and retain paperwork that transferred the ownership of the mortgages from the original lenders to the new investors. Well, it appears the banks bungled that process, or at the very least in a number of case, in potentially many cases, they lost the paperwork.… (then)the banks tried to cover it up.
To deal with the missing paperwork, Calculated Risk notes, banks used
“Robo-signers” [, who] are individuals who signed affidavits stating that they had “personal knowledge” of the facts in a foreclosure case, when in fact they did not.
Was this just a mistake or was it something more sinister? …read more.
Thanks to icanhazcheezburger.com
We at USDemocrazy have been told it can be tough being wealthy. You know…there’s a world wide shortage of good butlers these days and solid gold yachts are a PILL to maintain.
And no one, NO ONE has symapthy for these poor rich people.
Why? Because the gap between the rich and the rest of us is growing!
In a passionate look at income inequality for Slate Magazine Timothy Noah states that:
surely the growing income chasm between the poor and middle class and the rich, between the Sort of Rich and the Rich, and even between the Rich and the Stinking Rich, make it especially difficult to reestablish any spirit of e pluribus unum.
Luckily average folks may have more in common with the wealthy as the recession is helping to close the gap. Democracy in America notes that
From 2007 to 2008, the richest 1% of Americans lost 8.4% of their income, compared with a 2.6% drop in earnings for the average America. The very richest, the top .01% of Americans, saw their income drop even further, by 12.7%.
It is often said the only thing everyone cannot avoid is Death and Taxes…. and Congress will tax you to death.
Well, right now there is an important battle to the death going on in Congress about an ENORMOUSLY GIGANTIC tax bill.
Here’s the deal:
Way back in June of 2001 George Bush introduced a 10 Year tax cut law. Among other things, this law lowered taxes for the richest Americans.
The 10 year lifespan of the Tax Cut is nearly over and now Congress is in a mud wrestling match to see if the “Bush Tax Cut” will be renewed or die.
Republicans and some moderate Democrats want the tax cuts kept ; other Democrats, lead by the President, want a more limited version to remain.
Thanks to Wikicommons.
We’ve all tried to join exclusive clubs (and if you’re like US Democrazy you’ve been kicked out of most of them).
Last week South Africa’s President Jacob Zuma stated his countries goal of joining one of the newest (and hippest) clubs on the global stage, BRIC.
Not to be confused with the construction material BRIC is creatively named for its members, Brazil, Russia, India, and China. This group informally has friendly relations (and has pot luck dinners once a month).
Why is BRIC such a hip group? Well for one thing it’s members are using tons of bricks to grow their economies at impressive rates, especially China which recently became the world’s second largest economy.
The question that’s being asked is South Africa economically strong enough to join? …read more.
What do our economy and a really fat man have in common? Quite a lot according to Michael Pento (with a hat tip to Zero Hedge).
Even if that is just a bunch of Austrian assumptions (for a better explanation check out the video above) our economy is definitely not in the pink just yet.
With that comes pain and sacrifice for consumers (unless your Snooki who is the center of an insane reverse advertising war).
Economists see more than just sacrifice they see a Petri dish to be studied. One aspect that is being analyzed is what things are considered “necessities”.
Thanks to Free exchange
As pointed out by the Economist’s Free exchange:
I would not have imagined that the downturn would lead to decline of 20 percentage points in the share of those labeling a clothes dryer a necessity. It suggests that the psychological impact of recession extends well beyond those who remain unemployed.
It also seems that houses may be becoming a luxury:
Thanks to Yglesias
Houses may become a luxury but an economic downturn doesn’t have to stop you from living in a mansion for free.
Speaking from experience an abandoned mansion is a great place to blog from. Don’t take our word on it: find a mansion, fire up you laptop and drop us a comment. Writing comments is a penny pinching way to have fun.
Thanks to Wikicommons
Are You about to become EXTINCT?!? If you are a member of the Middle Class, we are talking to YOU!
That’s right there are some pretty smart people out there saying the American middle may go the way of the DoDo bird and be found only in museums.
The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.
This is the dark projection Michael Snyder provides via Yahoo! Finance. The article provides a number of shocking statistics to support this view.
Thanks to Wikicommons.
There are many folks out there asking the big question… (editor: when does the pizza arrive?)
No… the question about the sluggish US economy : When will the country get back to normal?
Well the good news is the US economy has been recovering over the last year… but that recovery may slow in the near future.
Economic indicators seem to show that we’re not fully out of the woods. In an Editorial the San Francisco Chronicle points out that more than just the unemployment rate has shown problems:
Home sales and new construction both declined precipitously in May. The service sector contracted. Manufacturing declined by 3.5 points in June. On Wall Street, Treasury notes keep rising, which suggests that investors are preparing themselves for a period of slow growth.
Feeling this vibe the White House does not want to declare “Mission Accomplished” just yet. …read more.
