Economics and Government

Blogging, one of the least time consuming and most fulfilling assignments of any economics class i have ever taken. Although I generally tend to wait to the last minute to complete this task, it is in those few crucial minutes before midnight that i come across the best news articles to blog about. CNN. com posted a commentary by Ruben Navarrette out of San Diego titled "Obama is flunking economics", after reading the article and having been an economic major, I noticed there were little to no direct referecnes about principles of economics. This brought me back to the rational irrational voter we talked about so many times in class. Someone who wants to be informed will find fullfillment in their efforts to peruse the archives on cnn, come acrosss this article and feel justified in regurgitating the title to collegers and friends the next time a political dissicussion arises. They, not knowing the fundamentals of economics, although having "researched" the topic, have thus become the rational irrational individual. The pursuit of political understanding is commendable one, however, without a sound educated background.. it is futile.

I came across this comic strip last Sunday, and I thought that it was a sadly accurate depiction of the current bailout situation. It just seems so backwards that the mistakes of the big players are rewarded while the hard work of the small is ignored. While I recognize proponents argument that those who have been bailed out have such a wide influence that it would be traumatic for them to fall. I am far from being an expert of the issue but it just seems to me that there could have been a better way to go about it all. And it makes me question what the government's view of economics really is. It just seems to be inconsistent and changes so often. 

Not too long ago, I wrote a column explaining why the Obama administration's desire to implement salary caps for executives effectively amounts to a form of government extortion. What is basically happening is that the government is dangling carrots in front of these companies--which they are almost obligated by their stockholders to take--and then forcing them to work contracts a certain way. I argued that this was wrong on the grounds that government's job is not to influence companies to behave certain ways in return for piles of cash. It's job is merely to lay the rules and enforce them, no strings attached.

But this business with AIG bonus payments far surpasses any disturbances I previously felt with the Obama adminstration's tactics and apparent goals. Obama's team, supported by Congress, is now forcing AIG to withhold bonus pamyents it had contracted to pay years ago. I don't know which news agency broke the story; in fact, it is my belief the Obama adminstration itself broke the story to cause further distractions, which I'll explain in a bit.

But it doesn't matter: The government is using the "crisis" argument to ignore its constitutional obligation to uphold contracts. I had enough trouble accepting that Obama was writing contracts for companies at all. But this...simply breaching them, because a bunch of angry voters want him to?

Speaking of angry voters, there couldn't be a more perfect example of Bryan Caplan's rational irrationality at work. Obama is riding popular opinion here: He knows the people are behind him. And he needs to cater to them to win again in four years.

But talk to most people, and you'll find that they are perfectly aware that these 150 million or so dollars of bonus money are a tiny fraction of what Obama is spending right now anyway. They simply don't care for such "numerical" arguments. Then explain to them how Obama is reneging on his biggest campaign promise--middle class tax cuts--because he suddenly and, quite surprisingly, needs that money to finance all the other things he promised. Ask them if he is not using this AIG "scandal" as a ploy to focus the public's mind on something other than their fast disappearing tax cut hopes.

Prepare for anger and passionate defense. Obama is doing the right thing, you'll be told, with a capital sniff. It may be small money, but he's doing it for us. Becuase that's what's fair. Oh, Obama.

Fair? Really? I want to know how much of this money is coming to my bank account. Because if none is--and trust me, Obama is not re-distributing this wealth--then I have no reason to care whether these payments happen. If contracts were made, money should be paid, plain and simple. Public support or no, Obama has no right to ignore or confiscate the obligations of a contract. In this case, Obama should do his job. And that doesn't include changing course every other week according to the whims of a fallacious populace.

The more I watch what's happening, the more I am depressed, because it continues to affirm the point of Caplan's book: That voters are rationally irrational. In fact, given the continual support I see for Obama's stunts, I won't be at all surprised if he is reelected in 4 years, despite the flagrant consitutitonal violations he is making and in spite of the fact that he has done nothing during this crisis but cater to corporate interests.

Correction: Nobody is forcing AIG to do anything. But the Congress did, with Obama's full support, pass a new tax law that applies only to these AIG employees and will confiscate 90% of these earnings. So there you have it.

Local ballot issue 1A has generated a lot of heat in recent weeks. And when I say "heat", I mean as much heat as a couple developers, a few local politicians and one inconspicuous university chancellor can muster on the side of their very busy lives. Given its relevance to public sector economics, I figure it would be interesting to look at it from a Wagnerian Perspective.

Richard Wagner suggested that the typical view of the relationship between government and local enterprises is a top-down relationship: In other words, government is at the top, and it sets the rules for private enterprises, on the bottom, to follow. In this view, government comprises an organization, meaning everything is organized nicely; private enterprise comprises more of an order, with rules set in place by government, but in which businesses are otherwise free to act as they choose.

Wagner thought this view was wrong, and when I look at the interaction of different businesses and individuals in government regarding 1A, I can't help but agree. In Wagner's view, private individuals--maybe, say, a developer named Steve Schuck, or a university chancellor named Slammin' Pam--work alongside different government entities--let's say, in this case, "business development agency of colorado springs", or some such nonsense--to pass "rules" governing the order in which these businesses or individuals must live. Generally, they will work together for rules favorable to said individuals or businesses.

This policy is no exception. What 1A does is secure funding for a section of the Colorado Springs government which, among other things, offers tax incentives to attract business and, therefore, jobs--or so they say. This means business for rich-dude developers like Steve Schuck. It also means business down on Nevada--which happens to be the exact spot towards which UCCS plans to expand in the future.

If we put this in Wagner's framework, the Chancellor and Steve Schuck are some of the private entities working nearly hand in hand with a local government agency to secure a policy which favors his/her interests--future career prospects, more lucrative salaries, or, more optimistically, expansion for the University.

Should the Chancellor or Schuck support such a policy, as she (and I think he, more tacitly though) obviously has? I'm not passing judgment--when government offers a handout, most people take it and I don't blame them. But government should consider its role in passing such a policy. I understand that other towns do the same thing, and that it seems we need to keep up. I'm just concerned these taxes don't do what they're supposed to do.

In order to finance these tax cuts, they must tax us, the people, reducing our income and hampering what would otherwise likely be more economic development. And it's not clear that the policy actually creates jobs for residents anyway--most of the new hires come from out of town in situations like this. Remember when they attempted a CO Silicon Valley? Maybe you don't, because those businesses are gone. So are the employees they brought here from out of state.

Clearly, such a policy distorts the local signals of Colorado Springs markets, diverting capital towards businesses that otherwise would not exist in this particular climate. The result, I fear, is failure--markets inevitably work themselves out even in the presence of the most extreme government interference. The cost is distorted signals, resulting in different and more costly paths toward what would have been the same goals in a pure market.

These miniscule tax cuts will attract businesses for now, if big enough--but the future consequences might not be so bright. Just think about CO Silicon. Empty buildings. Wasted space. Taxpayer money that could have gone somewhere else, perhaps even stayed in your pocket.

Not a pretty legacy.

ADDITION: WATCH. Has nothing to do with above post..

As a voter (and) a rational individual it appears that Ballot Issue 1A is an open pocket-book for the City of Colorado Springs government. The ballot issue proposes that tax monies be put aside for Economic Development. My first concern is that proponents of this issue state it will not be an increase to taxpayer, rather a "continuation" of an existing tax used on the development of Powers Boulevard in eastern Colorado Springs. I would think that the "conservative" City Government would look to providing a tax break during a mild State recession. I guess the local government and groups supporting this issue do not realize that a smaller local economy must result in a smaller local government.

My biggest concern is how will the city council earmark these funds. It is not the role of government to provide incentives to businesses looking to relocate to Colorado Springs. For local government to allocate taxpayer money as an incentive to "winning" business who chooses Colorado Springs is a "market failure". It is also unfair to exisiting business as they are not on a level playing field. The need is for businesses that want to be in Colorado Springs not ones that are bribed to make a decision. A free market will bring the jobs that people want and need.

The Colorado Springs market has alot more to offer than say - Detroit or Buffalo. We offer great weather, low property tax, outdoor activities and an educated workforce. An alternative would be to offer tax breaks for new business that build, renovate properties, or purchase new equipment or machinery. This does not come directly from the taxpayer and is a little less "transparent" to voters. My problem is this is also market failure. I hope that the Colorado Springs community desire that new "primary jobs" in our economy be provided by businesses that wants to be here - not paid to come into town.

Vote - NO on Colorado Springs Ballot Issue- 1A.

During the race for president last fall McCain said, “The fundamentals of our economy are strong.” Obama blasted McCain by telling the people the McCain did not get it. That he was out of touch with the typical American. Obama is a master at saying what the people what to hear without really saying anything. Two week ago, Obama’s people went on Sunday morning shows and said “The fundamentals of our economy are strong.” Media from the right and the left pointed out that when McCain said this he was ridiculed by Obama. How can this statement be true now when it was not true six months ago when the unemployment was lower and the stock market higher? But it just doesn’t seem to matter to the majority of Americans. The vast majority of them have very short memories. As long as they are hearing what they want to hear, they are happy. If President Obama and his people say the fundaments are strong now, it must be true now. It’s gotta be rational irrationality. Average Americans either do not listen or only hear what they want to hear. Rational ignorance and rational irrationality run amok in this country.

Often in our class discussions, we discuss how politicians often change what they say in order to appeal to their audiences. We have discussed how candidates often target the median voter. In the democratic primaries, a candidate would target the medium left voter. In the national election, the candidate would target the medium voter, trying to encompass right and left side voters. Since we, and the politicians, know that people are generally rationally ignorant or irrational, emotions must be appealed to. Not only do politicians appeal to emotions, but the news stations of the right and left appeal to viewers emotions for their own benefits. We have often discussed how emotional this last election was, and that it felt very “Hollywood”. Now the election is over but the emotions and the distractions they cause are as high as ever.
When looking for something to write about in this blog I figured I would see what Obama was up to. Unfortunately, I have not been up to date with the whole stimulus package as I would like to be. I figured this would be a good time to research it. While searching for Obama, using various methods, I kept coming across the same handful of articles.
My favorite article was one in the LA times. This article discussed whether Michelle Obama’s arms were too muscular. The article discussed whether the arms were sexy, or manly; whether they should be shown off or hidden. Needless to say, I sighed, and asked my self, “why is this news”. I kept searching for some actual news about Obama when I came across another article about how Obama liked to wear “aloha” shirts in college, he apparently liked to dress “Hawaiian casual”. Mmm, well he did go to college in Hawaii. As I continued my hunt for information I came across several other article titles like, “Obama’s inaugural dress may set tone for white house”, “Michelle Obama: Politics of fashion” and “Obama is in the gym almost everyday”. I also saw many advertisements for commemorative plates for Obama, I could even buy some Hawaiian shirts, just like the ones Obama used to wear.
Perhaps this information I’m coming across is just capitalism at its finest; News companies appealing to their audience, acting in their own best interests or entrepreneurs trying to make a buck by selling a product that someone may want. However, I’m starting to suspect that the people I have deemed to be rationally ignorant, the people who choose not to educate them selves in politics, may be the smartest one percent of our population. Rather than just being ignorant, they may be the first people to realize that Us weekly and people magazine have infiltrated the news networks and changed what the masses would believe to be “important” information.

My daughter started kindergarten this year and as I wanted the best option for her, I spent a lot of time visiting schools and classrooms last spring. I finally settled on a charter school for her and went about the enrollment process. In order for her to attend, I would need to pay tuition for her first year and since I didn't have the money, I went in search of a scholarship for her (yes, there are scholarships for kindergarten). I found a private program and went through the qualification process and my daughter got the scholarship. I needed to take some paperwork to their office the other day and wound up getting into a discussion with the program director about the stimulus package and the fine job our current president is doing. While she agreed that she didn't like the stimulus package, she found it acceptable because at least he is doing something. It wasn't the first time I had heard this or something similar to it regarding the exorbitant spending packages the current administration is approving. It made me wonder what people think government has been doing up till now.

I was further disturbed by this conversation because the whole purpose of this scholarship program is to further the interests of b etter education, but on the whole, the people running the show didn't seem to know much about the way that markets, capitalism, or economics function. If the people promoting better education don't consider economics to be important, then who is going to champion this cause, besides economists, who no one listens to anyway. This made me wonder if Caplan is really correct about education increasing good choices on the part of voters. I'm beginning to think that they are all irrational and that the only way that education will help is if it is specifically directed at the problem, because obviously general higher education is not going to be enough.

There seems to be this mindset that government needs to fix this problem, but no one seems to be looking at the fact that our economy probably wouldn't be in this mess if not for the fact that government has been "doing something". I wonder what people would think if government stopped "doing something" about interfering in markets and started doing nothing instead. Maybe good old fashioned free market capitalism could then "do something" to correct all the mistakes that our policymakers have been enacting.

Is accountability the right word in describing those that make decisions? Does it really matter if values aren't really the main focus? Kaplan, to me, has described an emotional basis for people's reasoning behind their beliefs. It seems this author has described American citizens as either rationally irrational or rationally ignorant voters because of their convictions-- convictions of what they should value vs. their values based on self interest.
Typically, if you make an expectation, you hope to see the expectation come to fruition. In an economy that only sees what the media gives it, media seems to take the "low road"when getting expectations done almost like a honey- do list. So, where do these expectations come from?
The media seems to take the simple expectations that a citizen would apparently accept i.e. jobs and fair distribution of income and amplify these ideas that these expectations should exist and considered necessary for each citizen. Don't you want the American Dream? Shouldn't the government give you the lifestyle you deserve?Essentially, there is no problem with believing in expectations unless those that expect something without the use of their own action(s), surrender their choices, and in this case to government is where there is a problem. Now, this blog is not placing the blame on media, but it's the curiosity of media's incentives that is valuable since there are still many citizens that follow the media. In an article by Daniel Sutter titled "News Media Incentive and Growth in Government", states how direct biases affect their business; how the government is portrayed in the news; and the pressure to keep their jobs. News media like political authorities have some things in common: keeping their jobs; expanding their income for their department; and keeping up with the demand for news. In Sutter's article it is no surprise that he discusses how the media complements the government for its own survival. But why did the two ever meet? - Direct & indirect Biases. It seems to me that in order to stay afloat amongst those that read and buy their papers they must become influential and to do that they need to get a grasp on what their readers want to hear. By writing stories about people's lives it seems easy to not just publicize news in the towns, but what effects these towns. Sutter comes in to discuss that direct biases in the media strikes the wrong notes to the readers, so the media gives in to being less rebellious with their motivation of survival. It seemed easier also for the reporters to discuss the government as the hero, so that they aren't prosecuted by officials and conform to a neutral state of expectations about the government thereby encouraging more news stories when there aren't enough crises in the towns. But in the 1990's the news has reduced its consumption on government stories to tell. The author points this reason towards the shift in people's interest about the government. Such statements from others like "Washington is a joke". Perhaps the joke is on the readers or those that want an interesting story with their expectation ( coffee and a bagel). Perhaps the desensitization comes in effect even though the author makes no such claim. Like switching to hot and cold water repetitively- it gets annoying. For readers going through the stories 24-7 it gets even more annoying to hear different takes on a story and different coverage when flipping through news channels especially stories that are highly embellished. What does this decline in news stories about the government mean for the readers?- Trend toward letting government actions exist without the people? It is not the separation of the media and political authorities from the citizen that is the trouble it is the expectations that every person has no matter their position (i.e. blue collar, politician, reporter). And it's not the charge of deceiving others to survive, it is surviving in a market place with the effects of rational ignorance and rational irrationality as a vice. Link- http://www.independent.org/publications/tir/article.asp?a=39

In every newspaper today, I noticed it cover housing market stabilize or how our economy will be. The Federal Reserve predicted that on last November the unemployment rate for jobless would rise to between 7.1 and 7.6 percent. But now the Fed’s estimates that ‘unemployment rate will climb to between 8.5 and 8.8 percent,’ Even though The President have signed the $787 billion stimulus package. I just realize that in our own city Colorado Springs many small businesses was thriving a year ago but began to lost money last summer before sales plunged this fall. Businesses in a right or better locations are able to stay alive but many have been closing down during this year, while closing many people is losing their job. The reason for this happen is that people are afraid to spend money on accessories for their home or even on themselves. I used to live in Vietnam when I was young, people lives are so much poorer then in the US, as reported their unemployment rate were 4.9% but I am so sure it was so much higher than that. People don’t have a lot of voice in government policy, not like over US. I experienced free speech. As for their democracy are so what zero not like in the US we at least have a lot of rights and freedom. I understand why many people from others country are trying to get in the US for work because its also involved in their freedom. I believed that whoever live in the US consider very lucky person in the world, but of course you have to work hard to get to that point.

Since the government isn't under the restraint of a business( i.e. risks, demand/ supply), it's hard to imagine how resources are used and what output is produced.
The NY Times article, "Liberal Groups Are Flexing New Muscle in Lobby Wars", writes about the collaborative teamwork of liberal lobbyists,Giant,and Exelon power company.
Deluded as this sounds, a large, mid- atlantic, supermarket chain and power company form an alliance with Liberal lobbyists who support the goal of big corporation reduction.If the reasons for political parties is to have sides perhaps political parties have more in common than voters or citizens expect when they vote by party.
Voters seem to believe that there are little to no risks associated with the support of public avenues( i.e. education and health care) that can harm the quantity supplied or the price through government control. These voters may not see the real risks or costs of the government. Benefits of these public avenues according to voters outweigh the costs of taxes and cohersion, but what about the costs of large ammounts of income and authority in one top heavy system? These risks that government deal with are authority rights ( i.e. voter confidence/electibility) instead of the market system's demand and supply that businesses would otherwise face. Parties shouldn't matter because, in insignifigant terms, those that are elected into the platform only act in the platform's interest until they are in the postion of power that they wanted. The more important reason why parties shouldn't matter is that the elected leader for the platform are the ones already have their own ideas from the platform, that change more so through the persuasion of lobbyists.
If cuts and spending occur there should be speculation about who recieves these cuts and spending when a government has different types of incentives ( printing money, taxes)that businesses cannot nor should possess. Also how much control can a president have with the approval of congress?