Sunday, September 30, 2007
For those of you who don’t know what Google offers its employees, here is a website that explains it all: http://money.cnn.com/magazines/fortune/bestcompanies/2007/snapshots/1.html
Google offers its employees free: gourmet food, multiple snack bars, rock walls, swimming pools, salon services, massage chairs and a massage service, foreign language lessons, exercise classes (subsidized), personal concierge service, use of laundry machines (with free detergent), beach volleyball, work-out gyms, child care, on-site doctor visits, TGIF parties, and “pajama days.” Employees also get $5,000 if they buy a hybrid car, $2,000 if someone they recommend gets hired, and $500 toward take-out food during the month after having a baby. Also Google employees can bring their dogs to work, and 20% of engineers’ time can be spent on personal projects. Google also has various award/reward and bonus programs that can pay out over a million dollars each.
Google’s employee’s benefits are so good, that the website above asks, “Is Google's culture the cause of its success or merely a result? Put another way: Is Google a great place to work because its stock is at $483, or is its stock at $483 because it's a great place to work?” I would like to find this out too. It seems like a “chicken or the egg” question to me.
I understand that offering benefits to employees helps to reduce turnover and the high costs associated with it, but it seems to me that Google is offering so many benefits, that the money the company puts into the benefits would cut very deeply into its profits. Where do you draw the line? For example, does allowing engineers to spend 20% of their time, or over 1.5 hours out of every 8-hour workday, on personal projects actually “pay for itself” with increased productivity and work quality over the other 6.5 hours? 1.5 hours worth of work seems like too much to make up in 6.5 hours. And how significant is this benefit to reducing turnover?
Do the benefits help to pay for themselves by increasing competition for jobs? How about by increasing the potential for an employee to come up with a multi-billion-dollar business idea for Google? That single business idea could pay for all of the employee benefits for the year (Although it would require hiring new employees, who would also require benefits, but who would also have the potential to come up with a new multi-billion-dollar business idea, etc...)
So, I guess I have answered my own question, although it would be very difficult to prove myself right, since every business is different, which makes making exact comparisons almost impossible.
Taxes and Congressional Salaries (Expansion of Other Post)
Now, I realize that Beckham is paid by the revenues earned by the L.A. Galaxy, not by the money taken from taxpayers, but consider how much we actually pay toward Congressional salaries. In 2004, 68% of the total number of taxpayers, 42.5 million people, paid a positive net value in taxes. This means that (.68)(42.5 million) = 28.9 million people paid money toward Congressional salaries.
$85.7 million paid / 28.9 million payers = $2.97 per taxpayer for the entire Congress
or, look at it another way:
$85.7 million paid / 300 million Americans = $0.29 per person for the entire Congress
The cheapest ticket to an L.A. Galaxy game is $18.00.
Including players, coaches, directors, trainers, and managers, the L.A. Galaxy has 31 people.
31 people / $18 per ticket = $0.58 per ticket for each member of the L.A. Galaxy.
L.A. Galaxy fans pay David Beckham more than our Congress. (Yes, I understand that not all ticket revenues go toward salaries, but you get my point.)
I think that if we want to cut wasteful spending, we shouldn’t worry about nickels and dimes until we take care of the dollars. For example, we have spent over $450 billion (yes, with a “b”) on the War in Iraq since 2003.
$450 billion / 4 years = $112.5 billion per year
$112.5 billion / 28.9 million payers = $3,900 per taxpayer!
$112.5 billion / 300 million Americans = $375 per person!
For my money, I’d rather get season tickets for the L.A. Galaxy ($250), a David Beckham home jersey ($65) and away jersey ($30), and get food and beer at the game!
http://www.nationalpriorities.org/Cost-of-War/Cost-of-War-3.html (This website has a “real-time” clock of the money being spent.)
I believe that health care should be universal, and that all individuals, no matter your income, should have the same opportunities as the next person. The health care industry, which can be seen as a market where doctors exchange services with patients, is subject to the same scrutiny as other economic markets. The government is obligated to step in when markets have failed. Their sole mission is to promote efficiency. The question is how. If by infringing on the benefits of some they are better able to help others they have messed up. Only when all parties in question are equally benefited from these actions can their interference be considered a success. So a tax on smokers to benefit children, though morally doesn’t sound that bad, economically is inefficient. If the government could come together and devise a plan that would be helpful to all parties involved, it would be headed in the right direction. Yet, even if it could and not all children where benefited, it would still be seen as a failure economically. The health care market is not one that I believe can be left to it on devises like the Coase Theorem suggested. Health care needs to be regulated by some out side force. But that outside force needs to get it together.
This is an email that was sent to me by a friend earlier this year who, rightfully so, wishes to remain anonymous. I let her know immediately what a stupid idea it was and that I would not forward it to anyone. First of all, I was a consumer of gas in April of 1997 and I don't remember any 30 cent drop in gas prices overnight and whatever these idiots might think....... this definitely is not going to make anyone in the middle east take not. It would take a serious switch in consumer patterns to make any dent in their income...... whatever losses gas stations here in America might actually feel that day, would be made up for by the sales from the day before or the day after........and lastly, the OPEC nations know that western consumers are weak and will pay whatever we have to drive our cars, look at Europe, they pay like $5-$6 a gallon ---- well, not gallons, but liters (you know, the metric system) but the equivalent of that in liters.
All of that is interesting, and all of our legislators know it, so they simply give us lip service when we complain about gas prices and nothing happens to the large percentage of tax that we pay for every gallon of gas. There is an even more important and ironic fact arises from this email though.
The girls that sent it to me lives in Oregon. And Oregon, and I believe there a couple of others, has a very interesting law. It has state mandated full service gas stations. You cannot pump you own gas in Oregon. This was quite a shock to me when I visited and was in the process of pumping my gas and some guy snatched the nozzle out of my hand. So, any citizen of a state that is complaining about the price of gas while allowing that same state to mandate extraneous employment levels at every gas station in said state, I have no sympathy for. And while I was there, I asked many of the people of Oregon why this practice continued and I didn't get a satisfactory or consensus answer. So, my immediate response to her was to start a drive to change public policy on the matter. This could lead to an immediate slashing of labor costs by 1/2 (if we take as a given that most convenient stores and gas stations could drop from 2 employees at any given time down to only 1). And thus, with market competition, a drop in the price of gas, without ridiculous emails circulating all about clogging up my inbox!!!!!!!!!!!!!!!!
Clinton to raise taxes
This article discussed Hilary Clinton's proposal to raise taxes on higher income Americans as well as eliminate some of the other tax breaks used by corporations if she is elected. She believes that government should have a bigger role in the lives of Americans then it does today. This expanded role of government is meant to aid in the idea of having "shared prosperity" among society. Clinton assesses that there needs to be a change from the way wealthy corporations benefit at the cost of the middle class. Clinton says that she prefers a "we're all in it together" society. The way she plans to accomplish this is by cutting subsidies for oil and gas companies, as well as making them invest in alternative energy or pay into a national research fund. Among other things Clinton would subject the salaries of chief executives to greater scrutiny. This would be her fix to what she called president bush's "irresponsible tax cuts". Hilary Clinton's proposed policies were of course immediately scrutinized by some of the leading republican presidential candidates. Some Republican spokesman believe that under these types of changes the economy would slow, job growth would be halted, and American business would become less competitive. Clinton says that she does understand the the economy has grown under president Bush but it is not the kind of growth that makes a difference in households and with families. Clinton states "Its like trickle-down economics, but without the trickle". As she puts it there is a widening of the gap in income between the lowest and the highest earners. Her policies are intended to spread the wealth among all socioeconomic classes.
I do not believe that the pursuit of a"shared prosperity" society and an expanded role of government is the way to go. Competition is what drives an economy to grow and prosper. What would drive competitiveness if there is no reward? Why work hard and produce a lot when you could sit back and let someone else do the work for you and "share" their wealth?
The United States’ current federal income tax system is extremely complicated. The tax code contains thousands of pages of rules that govern how income tax is collected. It is full of loopholes, exemptions, and inefficiencies. A flat tax system would, indeed, simplify the tax code.
In my opinion, a flat tax system it would not make the income tax system any more efficient than it already is. In fact, it would leave most people worse off. If a flat tax system is adopted, the rich and poor would reap its benefits, while the middle class would be “left out to dry.”
Steve Forbes is indeed a very rich man. When reading about his flat tax proposal you would see that he wants everyone that makes more than $36,000 per year to be taxed 17% of their income. If you make any less than that you will not be taxed. However, when thinking about this logically one can only reach one conclusion. Currently, the people in the highest tax brackets pay 35% of their income in taxes, while people in the lowest tax bracket pay 10%. According to the current tax brackets people that make $36,000 per year pay 25% of the income to taxes. What this basically means is that it is technically impossible for the government to collect as much revenue as it did under the progressive system.
If the government experiences major losses in revenue what will become of the economy? Where will the budget cuts be felt the hardest? Will the quality of roads and highways suffer? Will programs such as social security and medicare suffer? Who knows just what would happen if the government were to experience such a major loss of revenue… This is just a straight-up bad idea.
This is A textbook example of what John Maynard Keynes said about the great depression here. He said that an increase GDP in a nation is attributable to how much demand is in an economy. He said to cause growth, there must be spending, and from this spending, there must be some of the revenue saved and invested into infrastructure, factories, plants, technology, etc. to devise new and more efficient to create the same amount of goods as before, with time money and manpower left for more growth and consumption. This SHOULD be the continual cycle creating more and more wealth.
The problem with both China's poverty and America's poverty during the depression, (and why this is so analogous) is that the average citizens did not have the money to imput into the system. Yes, demand needed to be raised, but this raise could not come from consumer demand. Keynes remedy to this, which China is following better now than the U.S. did in the depresion, is that the excess, stimulating demand must come from government.
In one of China's fastest growing coastal provinces, the Shandong Provence, the provincial government spent the Chinese equivalent to $33 million in U.S. dollars to fund multiple infrastructure improvement programs.
Keynes argument was that the proper role of government (from a CORRECTIVE STATE standpoint) is to do the investing to raise demand if and only if the private sector fails to. It is amazing that this still holds true.
International market failure with China?
Looking at the lead paint example, there are no clear third parties, so it's hard to call it an externality. Public goods are obviously not involved, as the toys are both excludable and rival.
Neither of our class models fit at all, so maybe we should think about the incentives and ask if there truly seems to be a market failure. Is there an incentive to use lead paint for either the American toy company or the Chinese toy factory? The toy company almost certainly wouldn't be that stupid, and as for the factory, any temptation for using cheaper supplies and keeping the profits hidden is gone now. What about the Chinese government? They have a huge incentive to look clean for PR purposes. The last thing Beijing needs is the American people panicking. Considering this, I don't think there's a market failure.
Let's suppose that I have no idea what I'm talking about and there is a failure. What is the best way to fix it? I really don't know, but I do have an idea about the worst way. In the recent Democratic debate Senator Dodd was asked if he would halt all toy imports from China with Christmas coming:
"We would shut down a company in this country in 20 minutes if they were using excessive lead paint... so I would certainly do that." Would we shut down the entire auto industry or just mandate a simple recall?
I think this example shows that the market is functioning efficiently. The incentive for quality assurance is internalized in the market, so the problem will be corrected. Christmas is saved!
This article asserts that the recent reduction in interest rates hurts individuals who have been cautious with their money and not overextended themselves financially. The Fed claims that its action was aimed at keeping the economy out of recession but the real reason behind the change is likely that the markets have been unstable since August.
An analysis beyond stock market changes indicates that those individuals who did not need to be financially bailed out by interest rate cuts are now worse off. This cut in the interest rate has adversely affected the currency markets as it caused the value of the dollar to drop. Furthermore, when the Fed cut short term interest rates it also affected the long term interest rates as they rose in reaction to the change. The benefits that might be brought on by the lower short term rates will surely be undermined to some extent by the higher long term rates. Another adverse affect of the mortgage bailout cut is that the interest rates of large fixed-rate mortgages, connected to long term rates, will now be higher than they would have been prior to the cut.
In this way the costs of the sub-prime mortgage dilemma is being passed on to those investors who wouldn’t have gone for a sub-prime mortgage. The individuals who were smart with their money are now paying for the problems caused by those who were not. In a sense the taxpayers are indirectly responsible for bailing out the poor investment decisions made by companies like Countrywide Financial who operate in the sub-prime mortgage market.
It seems as if the Fed has not acted in a way that is beneficial to the financially conservative but has catered to companies who have created their own problems with overreaching their investment ability. Taking these elements into consideration it can hardly be said that Bernanke’s actions were pareto optimal. I would say quite the contrary.
Yet, there are many things that are funded by the Colorado sales tax revenue. “State income and sales tax make up 90 percent of the General Fund. The General Fund is the state’s primary operating account used to support general functions of state government, such as K-12 and higher education...” (“Glossary”). In many cities and counties this tax makes up a large percentage of revenue that is then used for many different purposes. Some examples include schools’ operating budgets, police protection, fire departments, street repairs, and park maintenance (August 2007 Sales & Use Tax Collections). While this holiday would be limited to four days, many people might take advantage of this time to buy items that would have benefited these programs. Since it is known that sales taxes take a larger share of income for low and middle income families than for high income (“Overview”), it would appear these representatives are attempting to redistribute the wealth though a “tax holiday”.
Would this really have the desired outcome? Wouldn’t the outcome still be the same except the state funding would lose revenue during those four days that would help fund other programs, including schools, and the lower and middle classes would not be better off as a whole but only individually if they could take advantage of the holiday? This might be the case because in an economic view point the demand for these back to school items will increase because everyone will get the advantage of the “cheaper” prices due to no sales tax. These individuals might include parents, students, businesses, and other individuals, even from neighboring states, since the retailers will not be able to tell who is not buying items so their children or the purchaser could go back to school as the plan describes. This increase in demand would shift the demand curve to the right but leave the supply curve in the same location. This movement will cause a shortage in supply leaving fewer items available during the four day period. Since everyone cannot buy the supplies at the same time, some will have an advantage, but others will lose out on this sales tax break, perhaps even those for whom it was intended to help the most. This plan for redistribution through a “tax holiday” would be inefficient in the outcome and would not better the state, cities, counties, or people of Colorado and the programs they support with the loss of revenue.
An Externality and Ethanol
The most highly touted solution, as of late, is the alternative fuel ethanol. Not surprisingly the government plays at least two major roles in the availability of this product.
First, and perhaps most notably, ethanol is the beneficiary of major government subsidies in order to drive it's naturally high price down to the levels of gasoline. One may view this as a corrective subsidy but the idea seems somewhat specious to me. It should be noted, ethanol is still a producer of pollution, and thus exhibits a negative externality as well, just less of one then gas. As economists we don't subsidize negative externalities even if they're less negative then the alternatives, we apply corrective taxes in search of efficiency.
Second, the United States has restricted itself to corn ethanol, rather then the sugar alternative. Disallowing a product rather than allowing the market to act is never in the best interests of efficiency, and it's perhaps more demonstratibly so with ethanol because by all accounts the sugar version is the better of the two, requiring less input for the same output.
So has the negative externality associated with gasoline's air pollution been dealt with by government intervention? It certainly wouldn't appear so, instead we must now contend with the original market failure and the inclusion of a government failure.
Lets hope that this does not become a Reality!
I just visited the Hillary Clinton website and found something that caught my eye.
This is Hillary Clintons’ Stand on fixing global warming give the oil companies a choice that will hurt their business either way. They can choose from a fund to help research, deployment of renewable energy, energy efficiency, clean coal technology, ethanol and other homegrown biofuels, and more.” The other choice is to invest in renewable energy them selves. This will not go over well with the oil companies because this will hurt their profits of developing something that will cause them to loose business later on. More oil and higher oil prices are good signs for oil companies. Who will have to pick up the extra funds that go to research? How about the average American? Will the oil companies have to pay for the development or will we have to through higher gas prices? Also the homegrown biofuels cause the price of corn to rise and it makes it so the lower income family will have a harder time getting the food they need to survive.
Hillary Clinton will also eliminate tax breaks for oil companies that are drilling on public land. This will scare the development of finding new oil sources in America and that will cause the United States to be Dependant on foreign oil. This idea will also scare any current oil companies that are drilling today in the United States to move elsewhere where it is cheaper to drill. For the companies that stay they will be forced to charge more for their oil and the consumer will have to pay more at the pump. This is all so that the oil companies will have to pay more just because they are drilling on public land and the oil they drill is a good for the general public. Nuts!
China: The adoption of
China has maintained a government system decidedly anti market and free trade for centuries; however, within the last ten years they have slowly integrated market economy principles in certain zones, and they have flourished. According to Allen Greenspan, China has grown 11.5% for the first part of 2005, bolstering them to the fourth largest economy in the world. China has been increasing by double digit percentages for five years now. Greenspan indicates that China’s growth will completely determine how our world economy looks in twenty years. He also states that China’s growth along with much of Europe, India and Russia could send us towards a globalization economy. So why is China growing so dramatically?
China has been oppressed by dictators who believed that controlling production and agriculture was the best economy. The former dictator Mao Tse-Tung heavily restricted what people produced and through his redistribution and controlled method of economy he would take most of the products his country was producing in an attempt to reallocate them to other people. However this promotes inefficiency in that people stopped producing, knowing full well that most of what they produced would be taken. Therefore no one in the country produced more than they had to, even when threatened with death. This began to change when the new leader of China began moving them towards a free market economy; allowing trade areas throughout the country. Clearly, when people are allowed to keep most of what they work to produce they will produce to full capacity, and that is exactly what china is doing. They are a huge country with motivated people that have been suppressed and are now given some freedom.
According to Allen Greenspan, “The success of every nation -- big or small -- will depend on the extent to which it allows free trade and open markets.’’ If China continues to move towards a free market economy, and allows open trade with other countries it has the potential to become one of the largest economies in the world. They are slowly recognizing the governmental inefficiencies they were practicing and are slowly becoming more efficient in their countries production and workforce.
Saturday, September 29, 2007
Michigan is in a pinch
I came across this very interesting article about a big pinch that the state of Michigan is currently in. As of October 1, 2007 35,000 state workers are being laid off due to a 1.75 billion budget deficit. Only one-third of the states employees, about 17,000 will remain to work in the constitutionally responsible jobs. The main areas that will still be running are the prison system and state patrol but only 200 officers. The Michigan state police stations however will all be closed. Most of the public health programs will still be in effect but on limited staffing. The courts will still be running but again on limited staff. The state lottery will close and the casinos will also have to be shut down do to having no gaming regulators on site to monitor operations. All agriculture departments will be shut down; this means that there is no one to monitor the transportation of livestock and dry grain out of the state and therefore no exportation. Every state run department is ether going to be closed or on minimal staffing. Of the departments being closed or minimally staffed only the very necessary departments will have the minimal staffing. State run departments such as national defense and in state defense such as cops will still be in place but minimally staffed. Security of water sources and emergency health and care of the needy will be also be minimally staffed.
It seems as though the state is going to be reverted back to a libertarian minimalist governed state. Back to where only the necessary protection of the population will be in power. The “nanny” state that has been in place looks to have failed and is coming to a crashing halt over budgeting issues. The budgeting issue is also a simple one; they don’t have the revenue to support all the departments they want to run. This huge crisis as the media is calling it is no different than a business that is not selling enough products to support all the employees it has. When a company cannot afford its employees, it fires a few of them. I don’t think this would have been a huge problem if the departments were not so centrally run. The budget of the state is being debated on and has till Sunday the thirtieth at midnight to come up with a new budget. This budget encompasses all aspects of all state run programs. It feels the same as a centrally planned government from the cold war era; where market forces are not getting the vital information to companies so they can better manage their business. Now that the budget is in huge turmoil and down to the wire everyone is panicking and has a huge discussion to make in a relatively short amount of time. If the departments were not so centrally planned, I think it would have been easier to have managed the turndown in the state revenue. Even privatizing departments could have lessened the blow of laying off 35,000 people all at once. In the article it states that the department of labor & economic growth will be mostly shut down however unemployment claims can still be made over the internet and that unemployment checks will still be processed. I do not envy the few people there that get to come to work on Monday when 35,000 people are axed from their jobs. I think this is a good wakeup call for what the future could hold If the government were to get to large to be able to effectively see the market forces at work. The moral of the story, don’t put all your eggs in one basket because if you were to trip over a rock you didn’t see, you could end up with only a scrambled mess.
Candidate Position on a National Health Care Sytem
First what kind of good is health care (or sick care)? Well the good is Rival, if I am being seen by the doctor you can’t be seen by the doctor. Next the good is excludable; the doctor can refuse to see any person he doesn’t want to. The only good that is Rival in consumption and excludable in consumption is a private good.
Does the government then have a right to provide a private good? According to the normative frame work of economic efficiency, the market will get the society to the efficient output of health care. Therefore from an efficiency point of view government control would not bring efficiency and people would be worse off because the Marginal Social Cost of the system would most likely be either over or under the Marginal Social Benefit (a really good chance of being over the MSB). If the government provides to much health care for the people the people could use that money spent in different areas to make themselves better off. However, even with health care being a private good there still may be a role for government.
Government should have one role in economic issues, fix market failure (again according to the normative framework of Economic Efficiency). Markets fail are to due to three main issues: Market Power, Externalities, Public Goods. For limited understanding of the markets internal issues I will not be discussing Market Power; if market power exists in the health care industry government would have a right to break the market power. With that exclusion and public goods covered this leaves Externalities. Does the health care industry have either negative or positive externalities? One agreed externality provided by the health care industry is vaccination, why? If a room of twenty people are vaccinated and another person not vaccinated enters that person is being protected by the other persons’ vaccinations and is therefore better off by other peoples decisions. This would be a classic condition of a positive externality, but does the rest of the market show this kind of externality?
I’m not sure. Does a heart transplant benefit a third party outside the market? Does mending a broken arm help others? Does therapy effect others outside the market? If certain procedures produce positive or negative externalities then I believe they may have a role for government, but I don’t see every procedure as a externality, and would therefore have to reject the National Health Care system based on economic efficient grounds, but not on possible other normative grounds.
Tuesday, September 25, 2007
Blogging Assignment Illustrated
Tuesday, September 04, 2007
I hope that what I am writing makes sense to you. With that in mind I would like to frame my discussion about the political economy of America with this quote.
"Democracy is the best form of the worst type of government"
- Winston Churchill
Political economy implies that there is a relationship between politics and the economy and it is an especially strong in a democracy with rule of law. A strong government has a strong economy. A poor government has a weak economy. There are many examples of these countries throughout the world. However, none of them have made the perfect form of government for their economy.
Our government prides itself on the division of power but I believe there is one more power that needs to be separate from it and that is the paychecks of the legislators. Borrowing a page from Corporate America, there is a very good model of accountability. Shareholders (voters) elect the board members (legislature and judicial branch) who hire the executives (executive and judicial branches) who employed the workers (bureaucrats) who make the revenue. The boards of many companies has the power to determine the salary of executive via their charter. However, the problem with the legislature of today is that they control their own pay raise, salary, benefits and lack the incentives to make the United States as a whole a better country.
This seems to cause inefficiency because there does not appear to be any financial incentives for legislators to do their job well if they can get their money whenever they want. What I propose is letting the voters approve any raises or benefits for the legislators . That way there is a financial incentive for them to do their job well and get rid of redundancies within the government. Perhaps wasteful spending might be reduced if a senator that represent Colorado is paid by a state such as Wyoming, that way the good of the country will not be focus on in pork projects in a senators home state. Another addendum to prevent senators from catering to their state(Colorado) voters and to their paycheck (Wyoming) state would be to not allow them to appropriate monies for pork projects in those two states that they have an interest in. In theory this seems like a good idea if it could get approved, let me know what you think.