In Spain, if an employer fires a worker that worker is entitled to 45 days' severance pay per year of service. So if a worker has worked at a company for 8 years, that worker receives a severance payment equal to almost a full year salary. Do you think U.S. workers would benefit from having that kind of right? You'd better ask "what would that cost, and who would bear that cost?" How do you think such a policy would affect your ability to get a job, and the unemployment rate? Consider the following:
"Massive joblessness could further slow Spain's climb out of debt. Even in good times, unemployment never got below about 8%. Now the rate is nudging 20% overall and close to 45% among young people—statistics that reveal to economists a deeply flawed employment market.
"Wages are set through a complicated system of bargaining with trade unions that imposes wage increases on firms even if their business can't afford it. Because wages are inflexible, Spanish companies can cut labor costs only by firing workers. Yet some workers, hired on so-called indefinite contracts, are deeply entrenched, not least because they are entitled to 45 days' severance pay per year of service."
Thursday, February 25, 2010
What does Washington have in common with Star Trek conventions? - Don Boudreaux
From Cafe Hayek:
"This morning I heard on a local DC radio station an interview with a tourist who complained that Washington’s “scripted” inhabitants “have no real understanding” of the economic situation of ordinary Americans.
"I agree with the tourist’s assessment, but unlike her I’m not disappointed. You see, to visit DC expecting to find people engaged in serious discussions of economics is like visiting a Star Trek convention expecting to find people engaged in serious discussions of astrophysics. Perhaps a handful of the celebrities and costumed performers are familiar with real science, but their overwhelming object is not to help their public deal with reality but, rather, to escape it.
"This morning I heard on a local DC radio station an interview with a tourist who complained that Washington’s “scripted” inhabitants “have no real understanding” of the economic situation of ordinary Americans.
"I agree with the tourist’s assessment, but unlike her I’m not disappointed. You see, to visit DC expecting to find people engaged in serious discussions of economics is like visiting a Star Trek convention expecting to find people engaged in serious discussions of astrophysics. Perhaps a handful of the celebrities and costumed performers are familiar with real science, but their overwhelming object is not to help their public deal with reality but, rather, to escape it.
The supply of nonrenewable energy resources is increasing? - Donald J. Boudreaux
EXCERPT:
"Economically, the Earth's supply of nonrenewable energy resources [available to our ancestors] was, back then, much smaller than it is today." In other words, our supply of nonrenewable energy resources is increasing!? How could that be true? Read the article.
"Economically, the Earth's supply of nonrenewable energy resources [available to our ancestors] was, back then, much smaller than it is today." In other words, our supply of nonrenewable energy resources is increasing!? How could that be true? Read the article.
Monday, February 22, 2010
Overview of the President's Proposal | The White House
According to the Whitehouse website, the President's new healthcare proposal, announced today, includes a number of changes, such as:
"Improving insurance protections for consumers and creating a new Health Insurance Rate Authority to provide Federal assistance and oversight to States in conducting reviews of unreasonable rate increases and other unfair practices of insurance plans."
Think back to chapter 3, supply and demand. When the government keeps the price of a product below its equilibrium level, what does that lead to? Shortages.
But what if we think the original price is "unreasonable" and that the government-mandated price is "reasonable?" Does that change the consequences that will follow? No.
There is a bright side, though. Ten years from now economics teachers will have more good examples of the unintended consequences that result from government interference with the price mechanism.
"Improving insurance protections for consumers and creating a new Health Insurance Rate Authority to provide Federal assistance and oversight to States in conducting reviews of unreasonable rate increases and other unfair practices of insurance plans."
Think back to chapter 3, supply and demand. When the government keeps the price of a product below its equilibrium level, what does that lead to? Shortages.
But what if we think the original price is "unreasonable" and that the government-mandated price is "reasonable?" Does that change the consequences that will follow? No.
There is a bright side, though. Ten years from now economics teachers will have more good examples of the unintended consequences that result from government interference with the price mechanism.
Saturday, February 20, 2010
Interesting summary of the housing crisis - WSJ.com
EXCERPT:
"During the housing boom bankers made a raft of extraordinarily foolish loans. Some were the result of lenders defrauding borrowers; probably at least as many were the product of borrowers defrauding lenders. But there is no evidence ... that lender fraud was the overriding cause of the crisis.
The bank loans were not foolish because borrowers didn't realize what they were doing. They were foolish because of the incentives they created for borrowers, especially when housing prices turned south.
There were three distinct stages of the housing crisis. In the first, the Federal Reserve's extremely low interest rates from 2001-2004 induced consumers to switch from fixed to adjustable rate mortgages and drew short-term speculators and house-flippers into the market in certain cities. The Fed's increase in short-term interest rates over the next two years increased homeowner payments and precipitated a round of defaults.
My own research confirms the analysis provided by University of Texas economist Stan Leibowitz on these pages last July: The initial onset of the foreclosure crisis was a problem of adjustable-rate mortgages, whether prime or subprime. It was not initially a subprime problem.
In the second phase, falling home prices provided incentives for owners whose mortgages were under water to walk away from their houses. And in the third phase, which we are now experiencing, traditional macroeconomic factors like unemployment led to more foreclosures—especially where homeowners' mortgages are already underwater. Reflecting this situation, the Mortgage Bankers Association reports that the fastest-rising segment of foreclosures in recent months has been traditional prime, fixed-rate mortgages.
None of this analysis has anything to do with fraud or consumer protection problems. "
"During the housing boom bankers made a raft of extraordinarily foolish loans. Some were the result of lenders defrauding borrowers; probably at least as many were the product of borrowers defrauding lenders. But there is no evidence ... that lender fraud was the overriding cause of the crisis.
The bank loans were not foolish because borrowers didn't realize what they were doing. They were foolish because of the incentives they created for borrowers, especially when housing prices turned south.
There were three distinct stages of the housing crisis. In the first, the Federal Reserve's extremely low interest rates from 2001-2004 induced consumers to switch from fixed to adjustable rate mortgages and drew short-term speculators and house-flippers into the market in certain cities. The Fed's increase in short-term interest rates over the next two years increased homeowner payments and precipitated a round of defaults.
My own research confirms the analysis provided by University of Texas economist Stan Leibowitz on these pages last July: The initial onset of the foreclosure crisis was a problem of adjustable-rate mortgages, whether prime or subprime. It was not initially a subprime problem.
In the second phase, falling home prices provided incentives for owners whose mortgages were under water to walk away from their houses. And in the third phase, which we are now experiencing, traditional macroeconomic factors like unemployment led to more foreclosures—especially where homeowners' mortgages are already underwater. Reflecting this situation, the Mortgage Bankers Association reports that the fastest-rising segment of foreclosures in recent months has been traditional prime, fixed-rate mortgages.
None of this analysis has anything to do with fraud or consumer protection problems. "
Mugabe Pushes Zimbabwe's Black-Empowerment Law - WSJ.com
In class we talked about the importance of political stability to a country's economic growth.
Read the following and think about how you would feel if you had invested in a Zimbabwe company. Would you be interested in investing in Zimbabwe now? Do you think the government's actions are going to lead to an increase, or decrease, in the standard of living experienced by its citizens?
EXCERPT:
"In meetings this week, Zimbabwe's government failed to agree on whether to implement a controversial black-empowerment law. Under the law announced last month, foreign-owned firms have 45 days from March 1 to inform the government how they will achieve majority black shareholding within five years. Top executives at companies that refuse to cede majority shareholdingto locals could face jail.
Prime Minister Morgan Tsvangirai, until February 2009 an opposition leader, has ordered the law withdrawn, saying it will heighten Zimbabwe's reputation as a risky investment destination. He and his partners have said the law was published without their consent.
Mr. Mugabe, 85 years old, and key ministers have dug in their heels. Speaking to reporters at an investment conference earlier this week, Mr. Mugabe, 85 years old, said foreign companies should be content with holdings of up to 49%. "It's only foolish ones who will say no," he told reporters. "Wise ones would take it up."
Read the following and think about how you would feel if you had invested in a Zimbabwe company. Would you be interested in investing in Zimbabwe now? Do you think the government's actions are going to lead to an increase, or decrease, in the standard of living experienced by its citizens?
EXCERPT:
"In meetings this week, Zimbabwe's government failed to agree on whether to implement a controversial black-empowerment law. Under the law announced last month, foreign-owned firms have 45 days from March 1 to inform the government how they will achieve majority black shareholding within five years. Top executives at companies that refuse to cede majority shareholdingto locals could face jail.
Prime Minister Morgan Tsvangirai, until February 2009 an opposition leader, has ordered the law withdrawn, saying it will heighten Zimbabwe's reputation as a risky investment destination. He and his partners have said the law was published without their consent.
Mr. Mugabe, 85 years old, and key ministers have dug in their heels. Speaking to reporters at an investment conference earlier this week, Mr. Mugabe, 85 years old, said foreign companies should be content with holdings of up to 49%. "It's only foolish ones who will say no," he told reporters. "Wise ones would take it up."
Fed begins process of unwinding emergency measures - WSJ
This article provides a good summary of how the Fed used its ability to lend to commercial banks as a tool for addressing the financial crisis that began in August 2007.
EXCERPT:
"Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.
Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.
EXCERPT:
"Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.
Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.
Friday, February 19, 2010
When will the Fed begin raising interest rates? - WSJ.com
EXCERPT:
"Officials have said three conditions warrant keeping the 'extended period' language in place: The economy is burdened by slack; market expectations for future inflation are stable; and current inflation is subdued. The minutes point to disagreement over two of those conditions—inflation expectations and the amount of slack in the economy.
"While surveys of household inflation expectations were stable, the Fed noted, some market-based measures of inflation expectations 'suggested continuing concern among market participants about the risk of higher medium-term inflation,' the minutes noted."
"Officials have said three conditions warrant keeping the 'extended period' language in place: The economy is burdened by slack; market expectations for future inflation are stable; and current inflation is subdued. The minutes point to disagreement over two of those conditions—inflation expectations and the amount of slack in the economy.
"While surveys of household inflation expectations were stable, the Fed noted, some market-based measures of inflation expectations 'suggested continuing concern among market participants about the risk of higher medium-term inflation,' the minutes noted."
Wednesday, February 17, 2010
EU Tells Athens to Fix its Budget as Strikes Begin - WSJ.com
EXCERPTS:
"BRUSSELS—European finance ministers Tuesday stood firm in their position that Greece must work to narrow its budget gap before they would discuss aid to the country, while Greek workers launched strikes and protests against government austerity plans.
"The ministers endorsed a decision Monday by members of the euro zone that Greece be given until March 16 to show progress toward a goal of slicing the equivalent of four percentage points of gross domestic product from its budget deficit this year. Last year's budget shortfall was around 13% of GDP. The EU limit, which Greece has observed just once in the past decade, is 3%.
If Athens doesn't show enough progress by March 16, the EU will demand specific changes, such as new taxes on luxury products, such as expensive cars. The new deadline is tight. Greece must go to international markets for fresh borrowing in April."
"BRUSSELS—European finance ministers Tuesday stood firm in their position that Greece must work to narrow its budget gap before they would discuss aid to the country, while Greek workers launched strikes and protests against government austerity plans.
"The ministers endorsed a decision Monday by members of the euro zone that Greece be given until March 16 to show progress toward a goal of slicing the equivalent of four percentage points of gross domestic product from its budget deficit this year. Last year's budget shortfall was around 13% of GDP. The EU limit, which Greece has observed just once in the past decade, is 3%.
If Athens doesn't show enough progress by March 16, the EU will demand specific changes, such as new taxes on luxury products, such as expensive cars. The new deadline is tight. Greece must go to international markets for fresh borrowing in April."
[After one year] Bulk of Stimulus Spending Still to Come - WSJ.com
EXCERPTS:
"The Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change."
"Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.
"An additional $700 million was spent on administration, and about $47 billion has left Washington in transfer payments, such as $250 checks for Social Security recipients. Social spending totaling $70 billion is also in the pipeline already.
"The Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change."
"Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.
"An additional $700 million was spent on administration, and about $47 billion has left Washington in transfer payments, such as $250 checks for Social Security recipients. Social spending totaling $70 billion is also in the pipeline already.
Lone voice warns of debt threat to Fed
EXCERPTS:
"The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said."
"...he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.
"If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.
NOTE: "When Thomas Hoenig became president of the Kansas City Fed in 1991, he received a 500,000 German mark note from an 85-year-old neighbor—reminding him of his duty "to protect the value of the currency." The neighbor told him the note would have bought a house in 1921. By 1923, it wouldn't buy a loaf of bread. Hoenig, lone dissenter at the last FOMC meeting, said Tuesday: "That note is framed and hanging in my office."
"The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said."
"...he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.
"If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.
NOTE: "When Thomas Hoenig became president of the Kansas City Fed in 1991, he received a 500,000 German mark note from an 85-year-old neighbor—reminding him of his duty "to protect the value of the currency." The neighbor told him the note would have bought a house in 1921. By 1923, it wouldn't buy a loaf of bread. Hoenig, lone dissenter at the last FOMC meeting, said Tuesday: "That note is framed and hanging in my office."
Saturday, February 13, 2010
When Deficits Become Dangerous - Michael J. Boskin: WSJ.com
EXCERPT:
"On average, in the first three years of the 10-year budget plan, federal spending rises by 4.4% of GDP. That's more than during President Lyndon Johnson's Great Society and Vietnam War buildup and President Ronald Reagan's defense buildup combined. In those same three years, spending on average hits the highest level in American history (25.1% of GDP), save the peak of World War II. The average deficit of $1.4 trillion (9.6% of GDP) is over three times the previous 2008 record."
"The Obama 10-year budget—unprecedented in its spending, taxes, deficits and accumulation of debt—is by a large margin the most risky fiscal strategy in American history. In his Feb. 1 budget message, Mr. Obama said, "We cannot continue to borrow against our children's future." But that is exactly what he proposes to do."
"On average, in the first three years of the 10-year budget plan, federal spending rises by 4.4% of GDP. That's more than during President Lyndon Johnson's Great Society and Vietnam War buildup and President Ronald Reagan's defense buildup combined. In those same three years, spending on average hits the highest level in American history (25.1% of GDP), save the peak of World War II. The average deficit of $1.4 trillion (9.6% of GDP) is over three times the previous 2008 record."
"The Obama 10-year budget—unprecedented in its spending, taxes, deficits and accumulation of debt—is by a large margin the most risky fiscal strategy in American history. In his Feb. 1 budget message, Mr. Obama said, "We cannot continue to borrow against our children's future." But that is exactly what he proposes to do."
Friday, February 12, 2010
Video: "Fear the Boom and the Bust: A Hayek vs. Keynes Rap Anthem"
This video is an interesting introduction to issues we will begin getting into in chapter 5.
Should we bury bottles of money so we'll be more wealthy?
You may have heard of "Keynesian" economics. The following excerpt from The General Theory by John Maynard Keynes will give you a sense of the general idea behind it.
"When involuntary unemployment exists .... Pyramid-building, earthquakes, even wars may serve to increase wealth.... If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again ... there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."
How could burying bottles filled with money increase the wealth of a community? In chapter 9 we'll see why Keynes, and Keynesian economists of today, hold these views. We'll see that if you accept their assumptions, their conclusions make sense.
"When involuntary unemployment exists .... Pyramid-building, earthquakes, even wars may serve to increase wealth.... If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again ... there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."
How could burying bottles filled with money increase the wealth of a community? In chapter 9 we'll see why Keynes, and Keynesian economists of today, hold these views. We'll see that if you accept their assumptions, their conclusions make sense.
Tuesday, February 9, 2010
The Fallacy of "Fairness" - Thomas Sowell
"If there is ever a contest to pick which word has done the most damage to people's thinking, and to actions to carry out that thinking, my nomination would be the word 'fair.' It is a word thrown around by far more people than have ever bothered to even try to define it."
Thursday, February 4, 2010
Warning: You need to be aware of this
I want you to be aware that one of the classes you're taking this semester could endanger some of your social relationships. This three minute video will make you aware of the danger to which you're being exposed.
Moody’s warns US of credit rating fears
EXCERPT:
"Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit.
In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”.
Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.
“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.
This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.
While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending.
Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.
Moody’s, however, says this understates the overall US debt level.
“Using the general government measure, including state and local governments as well as the federal government, which is used internationally, this ratio would be well over 100 per cent in 2020.”
"Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit.
In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”.
Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product.
“Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note.
This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.
While the budget gap is forecast to fall to about 4 per cent by 2013, it is based in part on economic growth not falling below government expectations, Congress agreeing to tax rises and a spending freeze on non-security discretionary spending.
Crucially, projections of the overall debt-to-GDP ratio for the US are seen rising from 53 per cent in 2009 to 73 per cent in 2015 and 77 per cent by 2020.
Moody’s, however, says this understates the overall US debt level.
“Using the general government measure, including state and local governments as well as the federal government, which is used internationally, this ratio would be well over 100 per cent in 2020.”
Tuesday, February 2, 2010
How to Make a Bad Economy Worse - Amity Shlaes: WSJ.com
"You get the feeling President Obama is girding for battle with the financial sector. In last week's State of the Union address, he promised to regulate the industry. On Jan. 21, he was blunter, warning that he would not let companies that enjoyed 'soaring profits and obscene bonuses' block his financial reforms. 'If these folks want a fight,' he said, 'it's a fight I'm ready to have.'
This declaration of war echoes that of Franklin Delano Roosevelt. In 1936, late in his campaign for a second presidential term, FDR spoke of the challenges of 'business and financial monopoly, speculation, reckless banking.' Wall Streeters and businessmen hated him, he said, adding that 'I welcome their hatred.'"
***
"The result of it all was the Depression within the Depression of 1937 and 1938, when industrial production plummeted and unemployment climbed back into the higher teens. Even John Maynard Keynes chided FDR for his attitude about businessmen: "It is a mistake to think they are more immoral than politicians."
Among themselves, the New Dealers acknowledged failure. FDR's second Treasury Secretary, Henry Morgenthau, eventually determined that the problem was lack of what he labeled "business confidence." Late in the decade, Morgenthau dared to call for tax cuts. He even placed a sign on his desk asking, "Does it contribute to recovery?" Roosevelt told him the sign was "very stupid."
This declaration of war echoes that of Franklin Delano Roosevelt. In 1936, late in his campaign for a second presidential term, FDR spoke of the challenges of 'business and financial monopoly, speculation, reckless banking.' Wall Streeters and businessmen hated him, he said, adding that 'I welcome their hatred.'"
***
"The result of it all was the Depression within the Depression of 1937 and 1938, when industrial production plummeted and unemployment climbed back into the higher teens. Even John Maynard Keynes chided FDR for his attitude about businessmen: "It is a mistake to think they are more immoral than politicians."
Among themselves, the New Dealers acknowledged failure. FDR's second Treasury Secretary, Henry Morgenthau, eventually determined that the problem was lack of what he labeled "business confidence." Late in the decade, Morgenthau dared to call for tax cuts. He even placed a sign on his desk asking, "Does it contribute to recovery?" Roosevelt told him the sign was "very stupid."
Politicians in Wonderland - Thomas Sowell
EXCERPT:
"The young have less experience to offer and are therefore less in demand. Before politicians stepped in, that just meant that younger workers were paid less. But this is not a permanent situation because youth itself is not permanent, and pay rises with experience.
Enter politicians. By mandating a minimum wage that sounds reasonable for most workers, they put a price on inexperienced and unskilled labor that often exceeds what it is worth.
Mandated pay rates, like mandated insurance coverage, impose on buyers and sellers alike things that they would not choose to do otherwise.
Workers of course prefer higher wage rates. But the very fact that the government has to impose those wage rates means that workers were unwilling to risk not having a job by refusing to work for less than the wage rate that has been mandated. Now that choice has been taken out of their hands, with the hidden cost in this case being higher unemployment rates.
It is of course no secret that there is no free lunch. It is just an inconvenient distraction that gets left out of political rhetoric."
"The young have less experience to offer and are therefore less in demand. Before politicians stepped in, that just meant that younger workers were paid less. But this is not a permanent situation because youth itself is not permanent, and pay rises with experience.
Enter politicians. By mandating a minimum wage that sounds reasonable for most workers, they put a price on inexperienced and unskilled labor that often exceeds what it is worth.
Mandated pay rates, like mandated insurance coverage, impose on buyers and sellers alike things that they would not choose to do otherwise.
Workers of course prefer higher wage rates. But the very fact that the government has to impose those wage rates means that workers were unwilling to risk not having a job by refusing to work for less than the wage rate that has been mandated. Now that choice has been taken out of their hands, with the hidden cost in this case being higher unemployment rates.
It is of course no secret that there is no free lunch. It is just an inconvenient distraction that gets left out of political rhetoric."
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