Economics and Government

After a very scary month for stocks, where is the economy headed. Stocks took a large hit this month, and made a bit of a comeback towards the end. Thursday and Friday were the only two consecutive days that stocks were up this month, with only seven all together. This drop hurt more people than many drops in the past since more people are investing nowadays than before, and 401ks are connected to the stock market. However, this all has people wondering where the end is and how long till it is here. Some economists say that we are in a recession, but none of what is happening now even compares to the economic disaster of the Great Depression, and hopefully we will not end up in a similar situation down the road. During the Great Depression, unemployment rates were as high as 25% and right now we are only at 6%. This current economic downfall is not over yet, and no one can say for certain how bad it will be; so only time will tell how bad it gets. All of this happened despite the government's bailout plan.

Many aspects have weighed in to the diminishing stock market such as falling house prices, reduced consumer spending, and the credit crisis.

The Dow ended up down 14.1%, or 1526 points during this month. In the week of October 10th, the Dow fell 2400 points. However, this month the Dow also had two of its best days ever with a rise of 936 points and 889 points.

The Nasdaq fell 361 points, or 17.4%, in October.

After closing today for the end of the month the S&P fell 16.9%, or 198 points.

Beware, I am not a good at editorials.
It seems disturbing to listen to Mccain and Palin, and Obama. I really didn't know who to vote for ( can't we write in a name for the president & vice?) I haven't really kept up with the candidates speeches, instead I have only fragments of information from only a couple of speeches and the presidential debates. Obama seems to have this smooth hero effect on his followers about saving the world by bringing the 70's back without biases and predjudices. He hopes to bring back the small town feeling of responsibility and strangely accountability to the economy as he paternally advocates change for more government and government intervention ( through socialized healthcare, tax cuts, more taxes for social security). And to top it off his last speech identifying that the crisis we are in is market related rather than govt related ( simmilar to Barney Frank's opinion).

Mccain, a prince of POW, is no better than Obama in his idea to intervene in the markets. Besides building the US up by a large ammount of military interference in places such as Iraq, Mccain wants to create a mortgage and Financial Insitutions Trust (MFI) to work with the private sector and regulators to identify institutions that are weak and fix them before they become insolvent. The MFI is an early intervention program to help financial institutions avoid bankruptcy, expensive bailouts and damage to their customers". What is McCain telling us, that we are going to prevent this institutions from collapsing? - Why if new firms can enter? ( sounds like govt failure).

The recent fad of last few years is to "go green" and many cars now offer the driver the ability to use ethanol blended gasoline. This is cheaper than regular gas and better for the envoirnment. But this comes at a cost...your engine. Mechanics across America have been dealing with engine problems due to the ethanol blend.

“When you mix ethanol with your fuel, you’ve now put a chemical substance in there that’s going to attract moisture, which is going to promote a quicker deterioration of the fuel that you have,” said Bob Magnotti, owner of Magnotti’s Small Engine Service in Roanoke, Va.

This then leaves your car with a sludge or "gummy build up." This can be very harmful to your car and wallet. This has been seen in small engines, such as lawnmowers, trimmers and even boats. The same effect can happen in car engines.

So next time you fill up your green car, remember that it may be good for the envoirnment and your wallet for now, but in the future it just might hurt you!

So Prices are coming down from a Colorado Springs Average High of 4.3699 (Unleaded)

Why have they been able to come down to this mornings average of 2.3299, at such a rapid rate?

Answer # 1... $ Changes in crude oil prices have dropped because the global demand has plumited.

Answer # 2 $ Seasonality in the gasoline supply/demand balance, on average, demand for gasoline increases by about 22% during the U.S. summer months.

Answer # 3 The U.s. dollar is becoming more competitive on the global market and has more purchasing parity value.

Answer # 4 China, India and the U.K. and the U.s have all been bidding for crude oil. Now with the demand going down mainly in China, there is a surplus in the market equilibrium.

In conclusion, prices are falling, but as we smarty-pants in economics know, it won't last. firms will adjust prices, more firms will enter, firms might quit producing, economies will pick back up and increase demand and prices, the surplus will end.... So don't get too comfortable!

As we have talked about recently in class healthacre is a big issue with the upcoming election. As we have stated there should be a free market without regulations to be able to provide the optimal amount of helathcare and have an environment that is competeive. This is obviously not the case. If we are able to see this as undergraduate students how come top ranking government officials are not able to see it. Is there already too many regualations that would be nearly impossible to reverse? Do these officials think that regulating the market is really the best way to go? We need somebody who has enough knowledge of free markets to be able to help us with this situation and begin deregulating the mess that we have created.

The election season will be over in just a few days. For most, this statement brings joy and relief. So in a few days"change" is coming, either from senator Obama, or senator McCain. One of the major issues that we as Americans are legitimately concerned about, is the changing policies concerning health care.

Simply put, as far as I understand it, McCain plans to subsidize health care by giving a tax credit of $2,500 for individuals and $5,000. And Obama, instead of dealing directly with the American citizen, plans on requiring buisnesses to provide health insurance, or be taxed if they do not. As discussed in class, Obama's plan will change the incentives for businesses and could cause them to cut employees and lower wages. And this would also raise the prices of those who are not under the government indused health insurance program with their employers. This plan may be targeted towards helping those who cannot afford good health care, which is a great and noble target, but when I set it next to the alternative plan from McCain, I think that McCains plan makes more sense and has less inherent negative consequences involved. For if everybody gets the same tax credit towards health care, then those who cannot afford health care are now more able, and everybody gets more choice as to what and where they want to get their health care. McCain's plan in not perfect, but it makes more sense to me than Obama's.

There are about 40% of small business owner don’t have health insurance in the U.S, even though government expenditures on healthcare have been rising rapidly. The cost for healthcare is just too expensive for them. As for elderly and also with the low wage earners often turn up here because under the law hospitals must provide emergency room services for all patients.

The two presidential candidates have radically different approaches to the health insurance crisis. According to The Wall Street Journal, John McCain plan was to:
Tax workers on health benefits they get from their employers.
Created high-risk insurance pools to cover people with pre-existing conditions.
Allow insurers to sell health plans across state lines.
Give people tax credit of $2500 per person, or $5000 per family, to defray the cost of insurance.
Many people believe that Sen. John McCain tax plan would actually hurt people who have health conditions and people who are older, because they would not fair as well obtaining health insurance coverage away from their employers.
As for Sen. Barak Obama, his health plan would be:
Require large and medium size employers to provide a health benefit or pay a fee.
Offer new options for the uninsured, including subsidies to buy coverage and a new federal plan.
Expand existing government programs that provide coverage to low-income people.
Require insurers to sell policies to anyone who can pay.
Obama wants to build on the current employer-based system, subsidizing small business that can’t afford insurance. His plan is going to cost taxpayers so much money.

Many hospitals are keeps trying to provide the best treatment possible even though the funds are harder to find. But that rose to a question what if we reach to the breaking point? Well as for that maybe or hopefully that one of these candidates will become president and able to help with this. Well, how can we as an American people let people walk away or die because they can’t afford health insurance?

The LA Times wrote an article about McCain losing votes, and even states about mid-October, and it is interesting to listen to some of the reason. One thing that I have personally noticed (in my few conscious elections) is that the American voters tend to care less about what the policy is, but more who stands firm in their policy. Uh oh. What this says to me is that the American voters are willing to take a bad policy over one that changes a little bit from time to time. Yes we want our president to be sure of what he is doing, but I'd rather have someone who needed to ask for help (from an economist preferably) than someone who just had a poor plan. Apparently, many Republicans grew upset over McCain suspending his campaign to works on the economic crisis, which doesn't make any sense. He felt confident enough in his Republican voters that he suspended his campaign to help the economy out, which is the big issue right now, so you're going to vote for the other guy? From my perspective, Obama is saying what the people want to hear, and McCain is trying to not talk about it because he can maybe fix the country a little bit but nobody wants to hear how he is going to do it. McCain ended the suspension of his campaign early because of Obama going into Republican states and claiming votes, and now the crisis isn't fixed, and people are upset again. Granted McCain probably wouldn't have fixed anything but really? Now Americans are just confused on what they want. MSNBC had an article back in September about the bailout and how McCain and Obama were doing such a good job of backing the bailout, but they had both admitted that their parties played a part in causing the crash so neither deserved a pat on the back. Luckily the article said that both candidates were grinding their teeth and supporting the bailout because it was better than the alternative of doing nothing. Maybe. I would have hoped that either one could have come up with a better idea than the bailout, and gotten it off the ground, however, disappointment again. It will be another sad four years. My poli sci major boyfriend says that we should be 30 before we are aloud to vote, I tell him people should be able to pass economic and poli sci classes before they can vote, unfortunately neither is the case, so another sad four years awaits us.

This race to the white house, seems to add a lot of influence and changes to the government. Some changes are needed specially with foreign policy, but here in America how much do you really need to change. Gun control is always a big topic, this is a right given to the American people in the constitution and it seems from one of the possible presidents that there should be more loop holes, and taxes added to this right. Seems to me that people like to defend themselves and they should have an opportunity to, but making it way hard for some one to obtain a gun seems unreasonable. It would seem that the more you make something unreachable the more wanting that object becomes. The more of a illegal market is possible for the people that one to get one. I believe that there should be better incentives for sellers to sell guns legally instead of just raising taxes so that they people that do get guns, are qualified people. I believe that these policies should be better researched and given more than"hey let's tax it and they wont buy it". People like their guns and should be able to obtain it and if the government sees a need to control that, they should find a way to be more affective with it than just a plain tax and loop holes.

Barack Obama’s proposed economic platform is built upon the belief that we can make America great once again by redistributing the income of the wealthiest Americans to the poor. He hopes to replace the outdated “trickle down” ideology with a new and improved “bottom-up” economic growth philosophy. Is it possible that giving more money to the poor could save our economy and be the key to greater wealth and economic prosperity?

To answer this question, I think we must first have a deeper understanding of money and how it obtains its value. I know of no other piece of literature that so compellingly and succinctly offers an explanation of the value of money than Ayn Rand’s Atlas Shrugged:

Money is a tool of exchange, which can’t exist unless there are goods produced
and men able to produce them. Money is the material shape of the principle
that men who wish to deal with one another must deal by trade and give value for
value. Money is not the tool of the moochers, who claim your product by
tears, or of the looters, who take it from you by force. Money is made
possible only by the men who produce. http://www.capmag.com/article.asp?ID=1826

Income is simply the measure of a man’s ability to produce. So, obviously in a free society those with the greatest ability to produce will have higher incomes than those who produce little. The intrinsic value of that thin piece of paper called the United States dollar rests entirely on the shoulders of those men who have conceived and created, constructed and fabricated, designed and invented, or sowed and reaped the fruits of their labor.

Barack Obama believes that these men, the ones who give value and meaning to our money, need to “share the wealth” by bestowing an even larger portion of their income to those who have the greatest “needs”. His Ivy League educated economic advisors have convinced him that confiscating the wealth of the richest Americans and redistributing it to the poor will spur the economy forward.

As students of economics, we all understand the initial reaction the market will make if the “bottom-up” economic growth policy is put into play. When determining the amount of goods to produce, business owners must now take into consideration the added cost to their marginal production as corporate income taxes are substantially increased. Our economic models show that the government’s intervention will greatly alter the producer’s behavior and result in businesses lowering their production to the point where the new, higher marginal costs are equal to their marginal benefits. Businesses with higher production costs may find the new tax on production to be overly burdensome and chose instead to quit producing altogether to pursue other activities that have lower opportunity costs (like escaping to a country with freer economic policies, entering retirement or becoming one of the recipients of the income redistribution).

The massive transfer of wealth will cause a sudden increase in demand for goods and services by the recipients of the income redistribution, which will inevitably cause an increase in the price of these goods. Of course, this is where Obama’s economic advisors will tell you the “economic growth” comes into play as producers will rush to fill the growing demands of consumers that suddenly have cash to spend. Of course, many producers will ramp up production to capture additional profits and meet the rapidly growing demand, yet I can hardly believe that the increase in production will be equivalent to the pre-redistribution tax levels as we must now take into account that a substantial portion of these profits must be distributed to the government bureaucracy that oversees these new tax programs.

I suspect that the end result will be fewer goods produced at a higher cost to consumers, which means there will be less of everything to go around. I must admit, I am having a hard time figuring out how having LESS is truly the kind of “change” that we all were hoping for, since professor Eubanks always says that in the world of economics, more is always better. Of course, maybe the more sophisticated, enlightened form of economics they teach at Harvard and Oxford somehow illuminates how less really IS more.

In addition to producing fewer goods, I also surmise that the value of the almighty dollar will take a severe beating when one’s purchasing power is no longer linked to their ability to give back to the economic system, but rather their “need” to consume. How do you trade “value for value,” and maintain a stable currency when on the one hand you have an individual who has struggled to obtain his wealth through his blood, sweat and tears, and on the other, a man who easily fell upon his money by virtue of his overwhelming neediness? I agree with Ayn Rand, it is not possible for the “moochers” and the “looters” of the world to “give value to money. Not an ocean of tears, not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow.”

The Gazette has published a number of articles in the last month about El Paso County Question 1A. The ballot measure proposes a one percent increase to the city sales tax. One of the articles gave a list of jobs that would be eliminated if voters did not approve this increase. A co-worked pointed this article out me and mentioned how this made her think about changing her vote to yes, after reading about all the people that would lose their jobs if we voted no. As I read down the list, I was struck by how extensive the list was and by the fact that not one of the items listed was a response to a market failure.

Cutting funding to things such as the park and recreation budget sound like a good idea to me. Do we really need to use tax money to pay for score keepers at city parks? A friend’s daughter worked for the city of Colorado Springs doing just that. Where is the market failure? You cannot say it is a public good for a person to keep score for a group of guys or girls playing a game of softball. The point is, if the city only concerned itself with providing public goods and correcting externalities, we could be voting for a sale tax decrease.

Don't say the global economic slowdown is bad for everybody. Marxists love it. Sales of Karl Marx's book Das kapital and The Communist Manifesto are up 300% in Germany. Could this economic slowdown mean the end of Capitalism? A lot of people are certainly considering that as they are anxious to get back to the basics of socialism.

If socialism were to prevail, deciding what government's role should be would be easy. Government would be the only polluters so they wouldn't need to tax themselves; everything would become a public good because there would be no market; Government wouldn't need to provide policies to help the poor because there would be no poor, rather EVERYBODY would be treated as poor because of systems like rent-control, socialized medicine, and welfare.

Yup, it makes sense to me. The economy had a hiccup and as a result worldwide sales of Marx have risen. Put these two factors together and how you think anything but that we're headed for socialism? On a side note, I find it ironic that books on communism are sold at market price don't you?

Inflation is one aspect of the Economy that is always a concern. In the beginning stages of our latest recission inflation became our saving grace. As the value of the dollar (relative to other currencies) fell, U.S goods and other goods priced in U.S Dollars became cheaper to those using different currencies. As the dollar fell, U.S exports did increase by a a couple percentage points. Now the dollar is gaining ground while the Euro is falling. This means that U.S goods are becoming more expensive while goods priced in Euro's are becoming cheaper.
As U.S goods become more expensive exports are going to fall while exports increase for the countires using the Euro.
The mystery that is left to be seen is how much the falling euro will increase exports. At the time of the Dollar's decline, the rest of the world's economy had not yet gone into recession and people were more willing to buy. Now that the U.S recession has spread to the rest of the world, economic activity everywhere as slowed which will make the European countreis econoic recovery a much slower process then if the U.S were not in a recession.
One last implication of the Dollars value lies in gas prices. Oil is priced in U.S Dolalrs world wide and when the value of the Dollar increases so does the relative price of oil to users of other countries. In europe specifically, the decline in the euro vs. the dollar will result in higher gas prices. Higher prices translate into less demand. However, as demand drops, the price can be expected to fall. I noticed recently that gas prices in Colorado Springs have begun to fall well below the 3 dollar mark.

Next week we take up the chapter "Government and Health Care." This seems timely vis a vis the presidential campaign. I think we should apply what we learn to the question: Which presidential candidate has the better health plan?

GREG MANKIW SAYS he thinks the McCain plan is better.

I wonder, could we not use the word "plan?" How about: Which candidate has the better health policy?

Labels: market failure

I was listening to my boss talk to one of the other managers at work the other day.  His cohort is a millionaire with intelligent and productive children with good jobs and a pretty good grasp on how to manage their money.  His son, who is 27, decided to purchase a 1200 television.  He wanted to pay half in cash and put half on a store account.  He has good credit and an income somewhere in the 75000 a year range.  Despite these facts, the store account was not approved.  I asked his dad if he had a lot of other debt, but as that isn't the case, it would seem simply that no one is extending credit right now, and this young man's story is apparently not the only one like it.