Monday, December 6, 2010

Good and Bad News

Okay so the good news we heard last week mas muffled by the disappointing but expected jobless report. Unemployment remains high at 9.8% and probably won't get down to 5 or 6% for anoter 3 - 5 years and that might be if we're lucky.

Today, however, the Dems and GOP compromised on a tax cut policy that continues the Bush tax cuts as well as the jobless benefits. Both are huge in repairing the economy and stimulating demand. Social Security taxes were also reduced for a year. The bad of this, in my opinion is the lack of progressivity, but that was unlikely to change due to the Republicans hard stance on that issue. So income inequality will probably continue to worsen in the coming years. But overall it is good to see the government is still on board with stimulating the economy. Large deficits really aren't something to worry about at the moment.

The best news out of this agreement is the extension of the jobless benefits. The worst is the tax break for the super-rich who certainly don't need it.

Thursday, December 2, 2010

Good News?

It is good to see indications that the economy is picking up some steam. Tomorrow will give us a better indication of improving conditions as the Bureau of Labor Statistics releases the November unemployment rate.

Optimism and confidence are starting to pick up which is a good sign, but it still looks pretty bleak for unemployed workers who are seeing their benefits expire. The longer they are out of work, the less attractive they are to a future employer. They also have to deal with physical and psychological health problems that are exacerbated by longer stretches of unemployment. Please keep these people in your prayers!

So despite better news about the health of the economy, good news is still around the distant corner.


Pope John Paul II on work:

"Man is made to be in the visible universe an image and likeness of God himself, and he is placed in it in order to subdue the earth. From the beginning therefore he is called to work. Work is one of the characteristics that distinguish man from the rest of creatures, whose activity for sustaining their lives cannot be called work. Only man is capable of work, and only man works, at the same time by work occupying his existence on earth."

and on unemployment:

"The opposite of a just and right situation in this field is unemployment, that is to say the lack of work for those who are capable of it. It can be a question of general unemployment or of unemployment in certain sectors of work. The role of the agents included under the title of indirect employer is to act against unemployment, which in all cases is an evil, and which, when it reaches a certain level, can become a real social disaster."

"The obligation to provide unemployment benefits, that is to say, the duty to make suitable grants indispensable for the subsistence of unemployed workers and their families, is a duty springing from the fundamental principle of the moral order in this sphere, namely the principle of the common use of goods or, to put it in another and still simpler way, the right to life and subsistence."

[from Laborem Exercens]

Wednesday, December 1, 2010

Saturday, November 20, 2010

Myths about the Deficit, Part 2

Part 1 can be found here.

Myth #2) Government deficits leave a debt burden to our children, or put in another way, deficits today mean higher taxes tomorrow.

In reality, debt or no debt, our children get to consume whatever they produce.

This is difficult to explain in terms understandable to a non-economist, but I'll try anyway. No matter what our government's debt is, our children get to use what they produce. When the government spends, it just adjusts the numbers in bank (checking) accounts. When it taxes, it does the same. When it sells bonds or Treasury securities it does the same except that bonds or securities earn interest, just like a savings account. When the security comes due, it 'transfers' the funds from the savings account to the checking account.

So our $13 trillion debt is nothing more than our savings account at the Fed, whether its owned by us, or banks, or the Chinese, or whoever. Government spending and taxation does influence distribution, but deficits will not cause us to go bankrupt and will not leave a burden to our children.

If deficits cause inflation and currency depreciation, then our children's dollars will have less purchasing power, but they still get to consume whatever they produce. They won't be any poorer or have to pay $40,000 to pay off their portion of the debt.

On the other hand, unemployment and underused factory equipment are detrimental to our children. We are losing output that could benefit us and future generations because of too little spending.

It is important to remember that all debt is someone's liability and another person's asset. When the government takes on liabilities, then that means someone else has an asset. As individuals or businesses we can't take on liabilities without limit, but the government can because it has power over its own currency. This can lead to inflation, but again, inflation is NOT a concern right now. We just set a record for the lowest core inflation measurement since it began in 1958.

The burden we are putting on our children's generation is not the debt, but the lack of employment, output, and the increasing income inequality gap.

Source:
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

Against Vested Interests

Catholic social teaching should counter powerful vested interests, Pope says

The Pope is calling for us to take action in public life against the prevailing vested interests of big business and corrupt politicians to advance the vision of justice especially in defense of the dignity of the human person. We may soon see more institutions created for research and education of the laity. This would be a great step for the promotion and practice of Catholic Social Teaching!

Thursday, November 18, 2010

Immigration

The U.S. Bishops on immigration, including illegal immigration, from 10 years ago:

Welcoming the Stranger Among Us


A few highlights I would like to point out:

The ultimate resolution of the problems associated with forced migration and illegal immigration lies in changing the conditions that drive persons from their countries of origin. Accordingly, we urge the governments of the world, particularly our own government, to promote a just peace in those countries that are at war, to protect human rights in those countries that deny them, and to foster the economic development of those countries that are unable to provide for their own peoples. We also urge the governments of the "receiving" countries to welcome these immigrants, to provide for their immediate needs, and to enable them to come to self-sufficiency as quickly as possible.

We must never forget that many immigrants come to this country in desperate circumstances.

As Pope John Paul II has noted, "In many regions of the world today people live in tragic situations of instability and uncertainty. It does not come as a surprise that in such contexts the poor and the destitute make plans to escape, to seek a new land that can offer them bread, dignity and peace. This is the migration of the desperate. . . . Unfortunately, the reality they find in host nations is frequently a source of further disappointment

One reality remains constant in the American experience of immigration: the demand of the U.S. economy for unskilled labor—and the corresponding entrance of immigrants seeking work—in labor-intensive industries such as agriculture, construction, food processing, and services. Undocumented immigrants face special hardships in such areas. The Immigration and Naturalization Service estimates that three to four million undocumented workers hold jobs in this country, many of which are poorly paid, insecure, and dangerous.

They face discrimination in the workplace and on the streets, the constant threat of arrest and deportation, and the fear that they or their children will be denied medical care, education, or job opportunities. Many have lived in the United States for years, establishing roots in their communities, building their families, paying taxes, and contributing to the economy. If arrested and deported, they leave behind children and sometimes spouses who are American citizens.

While the changes in the law over the last several years have enabled many in this situation to adjust their status to that of permanent resident, the 1996 immigration legislation made this option more difficult for the vast majority. Without condoning undocumented migration, the Church supports the human rights of all people and offers them pastoral care, education, and social services, no matter what the circumstances of entry into this country, and it works for the respect of the human dignity of all—especially those who find themselves in desperate circumstances. We recognize that nations have the right to control their borders. We also recognize and strongly assert that all human persons, created as they are in the image of God, possess a fundamental dignity that gives rise to a more compelling claim to the conditions worthy of human life.

Accordingly, the Church also advocates legalization opportunities for the maximum number of undocumented persons, particularly those who have built equities and otherwise contributed to their communities.


My commentary:

It often irks me that so many well meaning conservatives, including good Catholics, are very against illegal immigration, thinking of them as job-stealers and welfare usurpers as well as believing they should be forced to assimilate and "learn our language" if they want to live here. These views often contrast starkly with upholding the dignity of the person, especially when they are referred to as "aliens." It is clear our immigration policy needs to be fixed, and no we can't just open up our borders to all who want to live here. For safety and stability it is necessary to have a well organized and documented process, but to think of our fellow men as "aliens" and treat them as such is not christian. The U.S. Bishops are clear on this in their letter from 10 years ago. Upholding the dignity and welfare of persons should be our aim with any policy, something we have not done so well on with our own citizens, let alone illegal immigrants.

Two posts from Paul Krugman

On why inflation is NOT a problem at the moment and on the core of our economic downturn:

Disinflation

The root of the problem

Wednesday, November 17, 2010

11/17 Excerpt from CST

From Caritas in Veritate:

Today the picture of development has many overlapping layers. The actors and the causes in both underdevelopment and development are manifold, the faults and the merits are differentiated. This fact should prompt us to liberate ourselves from ideologies, which often oversimplify reality in artificial ways, and it should lead us to examine objectively the full human dimension of the problems.

As John Paul II has already observed, the demarcation line between rich and poor countries is no longer as clear as it was at the time of Populorum Progressio. The world's wealth is growing in absolute terms, but inequalities are on the increase. In rich countries, new sectors of society are succumbing to poverty and new forms of poverty are emerging. In poorer areas some groups enjoy a sort of “superdevelopment” of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation. “The scandal of glaring inequalities” continues.

Corruption and illegality are unfortunately evident in the conduct of the economic and political class in rich countries, both old and new, as well as in poor ones. Among those who sometimes fail to respect the human rights of workers are large multinational companies as well as local producers.

International aid has often been diverted from its proper ends, through irresponsible actions both within the chain of donors and within that of the beneficiaries. Similarly, in the context of immaterial or cultural causes of development and underdevelopment, we find these same patterns of responsibility reproduced. On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care. At the same time, in some poor countries, cultural models and social norms of behaviour persist which hinder the process of development.

Pope Benedict XVI, 2009

Tuesday, November 16, 2010

Myths about the Deficit, Part 1

The hot topic in economics at the moment is certainly the enormous size of the deficit. Unfortunately, many of our politicians and even major economists are mistaken or are intentionally misleading the public about government deficits. This is mostly because of their ideologies or from being stuck in the past when we were on the gold standard. It is important, then, to understand how government spending works so that you can be an informed voter and engage in helpful dialogue with others who are misinformed.

So I will embark on a multi-part series on myths about the deficit (based on Warren Mosler's book the 7 Deadly Innocent Frauds of Economic Policy). Please comment or ask questions if you have them! This has very important implications for our political economy and is something that is vastly misunderstood!

Myth #1) The government must tax or raise funds through borrowing in order to spend.

The government can spend as much as it wants. It can print the money, or more accurately, change the numbers in bank accounts to meet its obligations. If it owes China $50 billion dollars for whatever reason, it can give China $50 billion dollars, without taxing the public or financing it through bonds. All it does is give China $50 billion U.S. dollars worth of credit to either spend in the U.S. or convert it to another currency.

This doesn't mean the government can spend what it wants without consequence. Over-spending can cause inflation or depreciate the currency, but it WILL NOT GO BANKRUPT!


So why tax us if the government doesn’t need it to spend?

Taxes create an on-going need to get dollars in order to pay them. They are what give our currency value. Our currency is no longer backed, partially or fully, with gold. It is a purely fiat money system and the way it maintains value is by the government demanding it to meet tax liabilities. If you don’t pay the government your U.S. dollars, then you will be thrown into jail.

Taxes also reduce our aggregate demand, or reduce our ability to spend. This allows the government to spend without causing inflation. Think of the economy as a big department store full of all the goods and services we produce and offer for sale every year. All together we earn enough wages and income to buy all of what we produce. But the government wants to spend money, too, in order to provide defense, infrastructure, etc. If it does not tax us then there is more money to buy than there are goods to be bought, this excess demand pushes prices up so that spending equals income, a necessary accounting identity.

If the government taxes us and does not spend, the output will not all get sold and prices will drop due to a lack of demand. But along with prices, businesses will cut costs by cutting employment because they didn’t make as much as they expected.

So the government taxes us in order to maintain currency value and allow it to buy the goods and services the people want it to buy.

Put simply, the federal government doesn't ever have or not have any dollars; it just changes the numbers in the bank accounts. It is more of a scorekeeper than a vault of money.

So how does that apply to today? The government wants to cut deficits amidst an underemployed economy on the verge of deflation. In order to boost spending, the government should increase the deficit to make up for our lack of spending.

Now this is where ideology and preferences come in. If you prefer smaller government, then you should demand lower taxes to improve private sector spending. If, however, we save the tax cuts and do not spend them, then they are no good. If you prefer a bigger government, then you should demand more spending.

Again, inflation and currency depreciation are our only concerns with high government deficits! But at the moment inflation is not a threat and unemployment is still terribly high. If the currency depreciates we should see a rise in exports and a fall in imports, another boost to our aggregate demand.

To be sure, this is not my own “opinion” or anyone else's “opinion,” but how it actually works. Opinions and ideologies can get in the way or be used within this framework, but do not change how the system works.

For more on this topic see:

http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
http://neweconomicperspectives.blogspot.com/2010/11/keep-deficit-ditch-doves.html
http://tomgreenthumb.tumblr.com/

Monday, November 15, 2010

Little Things

A great deal of carrying out Catholic Social Teaching is in the little things. Not many of us are in a position to set wages or prices; we don't have much control over laws and regulations, though thankfully we live in a democratic nation that does give us some say; and a lot of us don't have enough wealth to develop an impoverished neighborhood, or to feed, clothe, and shelter all the hungry, naked, and homeless.

But we do have the power to love. As Mother Teresa, a great example of living out the social teaching of the Church, said, "We cannot all do great things, but we can do small things with great love.” All of our Christian everyday life can be summed up in the 1st and 2nd great commandments: 'Love the Lord your God with all your heart and with all your soul and with all your mind.' This is the first and greatest commandment. And the second is like it: 'Love your neighbor as yourself.' -- Matthew 26:36-37

This can easily be carried out everyday by a simple smile or hell, an extra out-of-your way thank you or compliment, a recognition of someone else's good work or unselfishness. These things spread Christian love much more quickly and effectively than donating a large sum to a good cause.

Indeed, the best way to convert the hearts of others is to love others. Our joy and unselfishness will attract others to live the same way. No one wants to join a group who uses guilt and fear as their motivation.

Yet, these small things can be very difficult, as the desire to serve oneself is great and hard to overcome. Overcoming our tiredness or grumpiness, frustrations with circumstances out of our control, and other selfish desires are very difficult tasks indeed, but as Mother Teresa also said, "Unless a life is lived for others, it is not worthwhile."

Pope Leo XIII wrote: "The happy results we all long for must be chiefly brought about by the plenteous outpuring of charity; of that true Christian charity which is the fulfilling of the whole Gospel law, which is always ready to sacrifice itself for other's sake...which was outlined by St. Paul in these words: 'Love is patient, love is kind...it does not seek its own interests...it suffers all things...and endures all things'"

Today's Excerpt from CST

From Rerum Novarum on riches and poverty:

"As for riches and the other things which men call good and desirable, whether we have them in abundance, or are lacking in them-so far as eternal happiness is concerned, it makes no difference; the only important thing is to use them aright."

“Therefore, those whom fortune favors are warned that riches do no bring freedom from sorrow and are of no avail for eternal happiness, but rather are obstacles. It is one thing to have a right to the possession of money and another to have a right to use money as one wills. Priavte ownership, as we have seen is the natural right of man, and to exercise that right, especially as members of society, is not only lawful, but absolutely necessary. 'It is lawful,' says St. Thomas Aquinas, 'for a man to hold priavte property; and it is also necessary for the carrying on of human existence, but Man should not consider his material possessions as his own, but as common to all, so as to share them without hesitation when others are in need."

"Whoever has received from the divine bounty a large share of temporal blessings, whether they be external and material, or gifts of the mind, has received them for the purpose of using them for the perfecting of his own nature, and, at the same time, that he may employ them, as the steward of God's providence, for the benefit of others."

“As for those who posses not the gifts of fortune, they are taught by the Church that in God’s sight poverty is no disgrace, and that there is nothing to be ashamed of in earning their bread by labor. It is more easy to understand that the true worth of nobility of man lie in his moral qualities, that is, in virtue; that virtue is, moreover, the common inheritance of men, equally within the reach of high and low, rich and poor; and that virtue, and virtue alone, wherever found will be followed by the rewards of everlasting happiness."

--Pope Leo XII, pp. 21-24

Friday, November 12, 2010

Today's excerpt from CST

From Laborem Exercens:

THROUGH WORK man must earn his daily bread and contribute to the continual advance of science and technology and, above all, to elevating unceasingly the cultural and moral level of the society within which he lives in community with those who belong to the same family. And work means any activity by man, whether manual or intellectual, whatever its nature or circumstances; it means any human activity that can and must be recognized as work, in the midst of all the many activities of which man is capable and to which he is predisposed by his very nature, by virtue of humanity itself. Man is made to be in the visible universe an image and likeness of God himself, and he is placed in it in order to subdue the earth. From the beginning therefore he is called to work. Work is one of the characteristics that distinguish man from the rest of creatures, whose activity for sustaining their lives cannot be called work. Only man is capable of work, and only man works, at the same time by work occupying his existence on earth. Thus work bears a particular mark of man and of humanity, the mark of a person operating within a community of persons. And this mark decides its interior characteristics; in a sense it constitutes its very nature.


--John Paul II, 1981

Thursday, November 11, 2010

Today's Excerpt from CST

In defense of private property from Rerum Novarum:

"The fact that God has given the earth for the use and enjoyment of the whole human race can in no way be a bar to the owning of private property. For God has granted the earth to mankind in general, not in the sense that all without distinction can deal with it as they like, but rather that no part of it was assigned to any one in particular, and that the limits of private possession have been left to be fixed by man's own industry, and by the laws of individual races."

"That right to property, therefore, which has been proved to belong naturally to individual persons, must in like wise belong to a man in his capacity of head of a family; nay, that right is all the stronger in proportion as the human person receives a wider extension in the family group. It is a most sacred law of nature that a father should provide food and all necessaries for those whom he has begotten; and, similarly, it is natural that he should wish that his children, who carry on, so to speak, and continue his personality, should be by him provided with all that is needful to enable them to keep themselves decently from want and misery amid the uncertainties of this mortal life. Now, in no other way can a father effect this except by the ownership of productive property, which he can transmit to his children by inheritance. A family, no less than a State, is, as We have said, a true society, governed by an authority peculiar to itself, that is to say, by the authority of the father. Provided, therefore, the limits which are prescribed by the very purposes for which it exists be not transgressed, the family has at least equal rights with the State in the choice and pursuit of the things needful to its preservation and its just liberty."

--Pope Leo XIII, 1891

Veterans Day

Today is Veterans Day, a day in which we honor and express our sincere gratitude for those who fought and those who continue to fight for our freedom and the freedom of others. We especially remember those who died in the field of battle.

The courage our Veterans displayed in battle serves as a great example for us who do not engage in combat, but who fight for the rights and freedom of those who have none in our own society. The unborn and elderly, the homeless and jobless members of our society who need us to fight for their right to life, liberty, and justice that for some reason or another are not being given to them. We must take the example of our Veterans and have the courage to vote for those who protect these rights, convert those who take them away, and always and everywhere promote their freedom through our example of faith, hope, and love. If we do not take care of the least of our own no one will be influenced to do the same.

Our battle should be one of pleading and defending, loving and serving, not attacking and dividing. Just as the defenseless need our love and protection, so too, do those who attack them need it.

We should do as Jesus taught us in Luke 6:27-36 and Matthew 25:31-46.

It is a great travesty to take away the rights of our own, when so many great men and women of courage fought and continue fighting for that very freedom we take away. Great abundance of material goods and comfort of living should not be our primary goal. Loving and serving each other should alawys come first.

Thank you to all the men and women who fought and fight for us in battle and especially those who died. May God bless you for your sacrifice and service!

Wednesday, November 10, 2010

Balancing the Budget

It looks as though our move toward austerity (balanced federal budget) will be in the form of massive spending cuts and tax cuts. The early proposal from the bipartisan committee comissioned to balance the deficit by 2015 calls for cuts in Social Security, income taxes, and corporate taxes. The tax cuts would also greatly reduce the progression of the tax code (from 8% to 23% down from 10% to 38% on income taxes) furthering our growing income inequality.

The Bowles-Simpson plan

It's not likely this early proposal will pass, but some components of it might. The reduced progression of income taxes is worrysome as income inequality is a growing problem magnified by the current recession.

I don't think balancing the budget should be a priority at the moment. Government spending and taxation don't work like many think they do (see here and here for more), and this misperception could lead to disastrous results. I think our best bet is a payroll-tax holiday. This is the flat 15% (7.5% employee, 7.5% employer obligation) tax on all payrolls that goes toward Social Security and Medicare. Government need not get involved in messy and inefficient spending, tax cuts would boost aggregate demand, and when we start to see the reapplication of our unused capital and labor, then we can worry about balancing the budget and cutting wasteful spending.

UPDATE: Full Proposal can be found here.

Today's Excerpt from CST

From "Caritas in Veritate":

Charity is at the heart of the Church's social doctrine. Every responsibility and every commitment spelt out by that doctrine is derived from charity which, according to the teaching of Jesus, is the synthesis of the entire Law (cf. Mt 22:36- 40). It gives real substance to the personal relationship with God and with neighbour; it is the principle not only of micro-relationships (with friends, with family members or within small groups) but also of macro-relationships (social, economic and political ones). For the Church, instructed by the Gospel, charity is everything because, as Saint John teaches (cf. 1 Jn 4:8, 16) and as I recalled in my first Encyclical Letter, “God is love” (Deus Caritas Est): everything has its origin in God's love, everything is shaped by it, everything is directed towards it. Love is God's greatest gift to humanity, it is his promise and our hope.

Capitalism

Ok, sorry for the long delay between posts. I am working on some things for my classes that I hope to be able to post in snippets in the coming weeks.

It may appear from previous posts that I am not much of a fan of Capitalism, but while I am critical of it, I do believe it to be the most efficient and productive economic system in terms of wealth and standards of living. The evidence is very clearly in favor of this, I would have no way of arguing against it if I tried.

Most of my criticism is directed toward materialism and individualism, the "structures of sin" which are by-products of Capitalism and very prevalent in our society. The problem with Capitalism is that it creates a guise for these structures of sin. It convinces people that if they act in their self-interest, they will bring about the greatest societal good. This theory is only good in practice when there is a great number of competitors to hold each individual in check, keep him on his toes so to speak. Contrary to common belief, competition isn't the norm in our current capitalism. Big business and banks rule the show. They not only control credit, pricing, and output, but they also use their profits to lobby and persuade politicians. This is not a conspiracy theory, but the reality of our situation.

Even the people who run these businesses and banks, who want the good of all, and subscribe to the notion of acting in self-interest for the common good are not getting it because their self-interest directs them to exploit workers, keep costs (their wages) as low as possible, take care of their own, and maximize profits so that they get a nice bonus check for what? a bigger mansion? more cars? They don't do it to hire more people and increase the welfare of their employees.

The greatest evil in our current system of Capitalism, is not the free market or the government, but individuals acting only for themselves out of love for wealth and power. The free market and the government provide the arenas in which they act.

If the "invisible hand" of the market really worked, wouldn't there be less poverty and inequality? Milton Friedman, perhaps the biggest advocate of a free market, thought this would happen. Yet, we are in a very bad recession caused by greed and self-interested individuals who bear none of the punishment. This is passed on to the losers of the market, the lower class.

There is no question that authentic freedom is a good thing, including freedom in economics, but the power to do what one wants whenever he wants it is not authentic freedom. True freedom is the ability to do the right thing for the good of all. Our current notion of freedom limits our true freedom. Individuals who act for themselves only, inhibit the power of others to act for the good of all.

But this begs the questions: What, if not capitalism, is our alternative? Socialism? Something in between?

I believe that a capitalistic system full of virtuous individuals is our best alternative. Socialism takes away our right to private property along with many other freedoms. Extreme liberalism or individualism denies our social nature and dependency on each other. No economic system is good without upholding our natural rights that stem from our dignity as persons created in the image and likeness of God, pervaded by charity and justice, a constant pursuit of the common good, and the solidarity of all nations. This sort of economic system will have the freedoms of capitalism, but will look more like socialism because those who win in the free market will use it for the benefit of all.

Is such a system possible? That's like asking if removing all sin is possible. We are incapable, but God enables us for by Him we can do all things, without Him we are nothing. True reform lies not in creating or repealing public policy, but in the conversion of hearts. We must continue to strive for our own virtue and that of others by turning to God in prayer and leading by example.

Monday, November 1, 2010

Material Mortality

With today being All Saints Day and tomorrow All Souls Day, we remember, honor, and ask for prayers from the many holy men and women who have gone before us as disciples of Christ. We are also reminded of our mortality and the ever-present potentiality of death.

It is also a reminder to not spend our time striving after or worrying about the accumulation of material goods. Our material goods do not pass with us into eternal life when we die, they are but means to help us live a life worthy of Christ on earth. If we do not use our computers, cars, etc. for the good of all, for the building up of charity and all virtue, then they are obstructing us from our true purpose. Attachment to earthly goods is idolatry and a very common one in our society. If we do not exercise our control over them, then they exercise control over us.

It is good to reflect often on how we use our material goods and whether or not we are too attached to them, but especially on this day of remembrance of those who built their store in heavenly goods.

As St. Benedict advises us, keep death before your eyes daily. It is good to be grateful for the many material blessings that God has given us, and recognize that it could be otherwise, but that either way, we are still able to live as Christ taught us, living as though today is our last. For we put our hope in a life full of happiness that no amount of material goods will ever give us. One in which we can share with the holy men and women whom we remember this day.

Wednesday, October 27, 2010

Income Inequality

More data on income inequality. Make sure you look at the .pdf files.

Income Inequality

Tuesday, October 19, 2010

Political Upheaval

Those of you who know me know that I am not a fan of politics. This is mainly because of two reasons: 1) Politics is full of bitter arguing and personal, ad hominem attacks. 2) Our largely bipartisan system does not adequately represent my opinions or values. I cannot vote for a candidate who does because in order to be elected he must receive funding from the Party who must first be assured of his Partisan support and neither major party fully represents my values.

However, it is our duty to be active in politics and exercise our right to vote to bring about the common good not just for our nation or state, but for all people around the world. So, in spirit of the coming elections (just 2 weeks away), I thought I would write a post on economic issues, which are the focus of these midterm elections.

It is well known that Democrats favor government intervention and Republicans don't. Catholic Social Teaching tells us to adhere to the principle of subsidiarity, which says that larger institutions should only operate in the areas where smaller institutions are unable or unwilling. (The federal government should only take care of what states can't, which should only take care of what counties, cities, and families cannot).

Democrats generally feel that lower institutions don't do their job, the federal government can, and so the federal government should. Republicans feel that the federal government is very inefficient at best and only messes things up for the more efficient individuals and smaller governments. Neither view here is necessarily inconsistent with the principle of subsidiarity.

In the economy, Democrats see the probability of widespread market failure or the failure of capitalism to bring about the optimal social good because markets are imperfect and externalities are more pervasive. They believe unemployment and income inequality to be the worst economic evils. They see the possibility of improvement using government policy to cure these problems. They also see taxes as having smaller deadweight losses.

Republicans believe the government only makes things worse. Markets, in general, work well at allocating efficiently, and governments only distort the process. They see minor externalities and market failures that some government may help, but not cure. Republicans generally believe that unemployment isn't good, but is a part of capitalism. If the government stays out, the economy will soon get back to full employment. Income inequality is more a result of hard work and ingenuity and is a necessary part of capitalism, not an evil. They are more concerned with the ill effects of taxes, government deficits, and inflation.

In economics theories, Democrats are more in-line with Keynes, and Republicans are more in-line with New-Classical approaches. Though, there is a lot of wiggle room here.

For more on how the Left and Right differ in economics

Recently, Republicans and Democrats together attempted to save the economy in Bush's Stimulus Bill of 2008. Obama and the Democrats then furthered this stimulus with a much larger one in 2009 which the Republicans ferociously opposed. Republicans continuously state that the stimulus was unsuccessful and are very concerned with the growing deficit. Left economists argue it wasn't nearly enough and that government stimulus wasn't even really tried. Republicans, in general, weren't concerned with growing spending and deficits while Bush was in office, but are now that Obama and the Democrats are running the show.

Evidence has shown that spending didn't increase at a greater rate than it was already increasing before the recession. The increase in deficits is due mainly to a drop in tax revenue because of lower output and incomes. Monetary policy hasn't been able to do much because the interest rate is as low as it can go.

Looking ahead, we are facing growing and historically large deficits in the midst of high unemployment, threatening deflation, and extremely limited monetary policy effectiveness.

Republicans will almost certainly regain control of Congress and will move toward austerity by decreasing spending. This will certainly retract the economy and could cause higher unemployment, but their hope is that by reducing the deficit, businesses will re-enter the market by increasing their spending again. If they don't, then incomes will decline again, causing government revenues to decline which perpetuates the problem of the deficits, and this process will continue for a long time unless businesses pick up spending. If they also lower taxes and businesses and/or households don't spend it, then this will only exacerbate the problem.

Democrats have mostly conceded that their stimulus failed and see the need to decrease the deficits, but have not really offered an alternative to the Republicans. They are more likely to raise taxes in order to achieve lower deficits than they are to decrease spending.

So who do you vote for? That is not an easy answer. For one, you cannot consider economic policies alone, the common good must be considered as a whole. For two, it may not matter in the realm of economics, because it appears that we are headed for austerity either way. It will be interesting to see the outcome.

In the meantime, it is very important to continue to strive for the common good by first and foremost preaching the Gospel at all times. St. Luke reminds us that our material goods are merely means to a greater end and are potentially a great distraction from this end. No matter our income or material condition, we can always live as faithful disciples. We can and must strive for the material welfare of the common good through charity and political participation, but our priority and focus must always be on the spiritual welfare of the common good.

Income Inequality

To bolster my argument that income inequality is an economic problem even outside of any discussion on justice:

Confronting Income Inequality

Sunday, October 17, 2010

Why so much disagreement about economics?

I've been thinking about posting on this topic for some time now, but this article from the New York Times is probably better than I could have done:

The X Factor of Economics

Wednesday, October 13, 2010

Money

Long ago, in the development of the economy, money emerged as a medium of exchange to facilitate the trading process. Many different currencies were used, but some were more attractive than others. Precious metals were popular currenices because of their properties. They were easily divisible and shaped, could be transported without much hassle, they didn't deteriorate, and were relatively cheap to store. When a central government develops and taxes the people, they demand their taxes to be paid in a particular currency, say gold, and so gold becomes the most widely if not only used good as currency. All other goods' value become expressed in terms of gold. (Today, we use fiat or paper currency because that is what the government demands for taxes).

Still, at that time, money was mostly used as a medium of exchange, or put in another way, as a means to an end. The ends were consumption goods. People and eventually businesses produced goods in order to obtain other goods. The purpose of producing shoes, was to obtain food and other necessities. Once necessities were met, production could go towards obtaining luxury items. This is where the problem of distirbution really becomes perplexing as I noted in a previous post.

Once people and businesses were no longer concerned about obtaining necessity goods, they could focus on accumulation, but what good to accumulate? Accumulating the good of their production would be real wealth for they could be traded for other goods, but holding goods as wealth is a risky prospect. Eventually they'll have to pay taxes, and will need to acquire the mandated currency. This currency is also the most liquid good to hold, that is, it can most easily be traded for any other good on the market. So people and businesses desire to accumulate the mandated currency. Now, money is no longer sought as a means to an end, but as an end in itself.

In the field of economics we describe this as the M-C-M' process. The original process was C-M-C', or produce a commodity (C) and sell it for money (M) in order to buy another commodity (C'). As money became sought as an end, the process became inverted. Money (M) was used to invest in producing a commodity (C) in order to obtain more money (M').

This distorted desire for money as an end, I argue, is not only a moral problem (the worship of a false god), but an economic one. Production is now an incentive of obtaining more money and not of meeting man's needs. Work is no longer providing for one's family, but for the obtaining of wealth. Some of the purchasing power is taken out of the economic system and not put back in because of this sordid love of money. It is used for dangerous speculative gain of more money, rather than for the obtaining of food for the hungry or shelter for the homeless. Overproduction occurs chasing after this wealth, and unemployment occurs because businesses are afraid to part with their wealth. They are no longer concerned and perhaps were never concerned with the good of the people and providing for their needs, but rather they are concerned with procuring more money and this distortion is partly a result of the competitive capitalistic process. Because in this process one either makes a profit or goes out of business, grows or dies, eats or gets eaten.

Our final end is to be face to face with God in heaven, and all ends sought for on earth should help us to obtain this end. Money is not one of these ends; it does not satisfy our hunger, or provide us with shelter, it does not exercise our intellect or help build relationships, and it does not bring us closer to God. It is only good as a means for obtaining those things that do.

Further commentary from the Michael Journal

Tuesday, October 5, 2010

Monday, October 4, 2010

Cause of the Recession?

Income inequality growth is a controversial economic indicator and one that I think is overlooked too frequently. The gini coefficient which measures income inequality has reached its highest point since the measurement began in 1967.

The following graph shows how incomes in the bottom percentiles have stagnated, while the incomes at the top continue to grow. GDP growth without income growth in the bottom precentiles means that the top are getting all the gains and the bottom are getting none. The bottom percentiles make up the majority of consumer spending which is the largest component of GDP.




Without income growth, increases in spending had to be paid for by decreasing savings and increasing debt. Now, in response to the recession, consumers are borrowing much less and saving more, which further decreases spending, which further hurts the economy and prolongs the recession. As seen on this pdf on pages 1 and 3:

Household Debt and Savings Rate

Consumers shouldn't continue their spending increases by decreasing their savings and increasing their debt when their incomes don't increase. These practices help cause bubbles because the increases aren't based on real income growth, but on temporary movements of portfolios. Consumers did this banking on income growth that never came and the bubble popped causing our current recession.


And I argue that these same factors were a probable cause of the Great Depression. Household debt roughly doubled from 1920 to 1930 and savings rate was low throughout the decade. Yet, growth in income inequality due to a flat tax rate and booming growth in the 1920s may have been the biggest contributing factor:





People with lower incomes have a higher marginal propensity to consume, that is, with every dollar they earn, they are more likely to spend a higher portion of it (as you can see by the savings rate, generally over 90 cents on the dollar). Wealthier people, on the other hand, usually save more of it in a form that earns interest. They also invest a large portion of their money to make more money, but investment responds to consumer spending, which can't increase if the top has all the income growth and a large share of the total income. So wealthier people stop investing their money when spending stops. Consumers can't spend without the income, and businesses, owned by the top quintile who have the money, won't spend. Businesses are currently having no trouble obtaining really cheap loans to invest, they are simply choosing not to because they are waiting for consumers to start spending again.

This is also why I think tax breaks to small business owners won't jumpstart the economy. They won't hire and invest without assurance that consumers will increase spending again.

Increasing incomes of the bottom percentiles must occur if we want spending to increase. Higher marginal tax rates would redistribute the income, and this is the current debate between Democrats and Republicans that has been postponed due to the November elections. It would be better if the government didn't have to intervene, but if the market fails and inequality continues to grow then there will be greater problems than simple income inequality.

For example, a big problem with growing income inequality and stagnant income growth is the increase in the poverty rate and all that comes with it. The increases in revolts (as seen in Europe) may also lead to a revolution if it gets bad enough. Those at the top can easily survive a recession, those on the bottom have much fewer options.

Friday, October 1, 2010

Who gets the surplus?

A question that all societies face is: who gets the output of our production?

In ancient times, societies started out as small communal hunter-gatherer tribes that were mainly only able to produce their subsistence. They could only kill enough and gather enough to maintain their existence and keep the human race from going extinct. They most likely distributed their product to everyone evenly, maybe giving extra to those who needed more food such as growing children or the men who hunted. Advances in technology helped hunter-gatherer tribes to settle down into agricultural-nomadic pastoral civilizations. These societies were in most cases able to produce a surplus or some amount of output above their basic subsistence.

Here I must define subsistence. There is material subsistence which would most closely be defined as bodily nourishment, shelter, and clothing; and there is also social subsistence, which has a rather large range of possibilities. (In the United States today, this might mean owning a car, computer, cell phone, etc. Note: material subsistence is necessary to all societies; social subsistence is arbitrary and differs across societies)

These civilizations faced a perplexing problem of how to divide the surplus. By definition, this is the job of the economic system, allocating the limited output of the labor to the members of society.

The surplus could be distributed evenly with no private property--communism, mostly evenly with maybe some or no private property--socialism, to one or a small group of individuals--feudalism or monarchism, or roughly to the contribution of the individual with private property capitalism. (These options are not the only possibilities).

Those in power, get to decide. Early on, this power may have simply been by brute force or coercion, but later history gives control to those with political power or those who already have the surplus--the wealthy. In democratic societies, power is distributed more evenly across the population, but the coercive power of the wealthy remains a significant factor. This decision isn't always a conscious decision; it may develop out of specific circumstances.

The decision is completely arbitrary, but may have very adverse consequences. No controlling elite can suppress the poor for very long without attempts at a revolution. The elite also face the decision of serving self or serving the community. Most likely the decision will fall somewhere in between, but history has shown that there is a tendency toward serving self (which the Church recognizes as the doctrine of original sin). The elite, in most cases, attempts to extract as much surplus from the output of the society as they can without disrupting the societal balance or their control over society.

Those with little surplus act in much the same way often battling the elite for a larger piece of the surplus pie.

So the question is: In an ideal world, who gets the surplus? Justice would say that it goes to those who produce it. Unfortunately, this is hard to determine with certainty in more advanced civilizations because of the division of labor. The Catholic Social Teaching principle "universal destination of goods" says that God gave "the earth and its resources to the common stewardship of mankind to take care of them, master them by labor, and enjoy their fruits."

However, the Church also says the ownership of private property is "legitimate for guaranteeing the freedom and dignity of persons and for helping each of them to meet his basic needs and the needs of those in his charge."

So should everyone enjoy the fruits of everyone's labor? or should they enjoy only the fruit that they produce? This question is far less difficult or troubling when everyone is able to meet their material subsistence or perhaps even their social subsistence (which is often or always above the material subsistence). But in a world where some are enjoying much fruit, while there are others who aren't meeting their material subsistence, how can we say that our economic system is working?

If we choose capitalism, which, from experience, best allocates the value of the product to those who produce it, then we have to address why there are people in the world without food, clothing, and shelter who want to work and produce enough to share in those fruits but are unable to because the system is broken or incomplete.

Capitalism doesn't allocate surplus according to who works the hardest, or the longest, or who wants it the most, but allocates to those who produce the most value as the society defines (or demands in an economic sense) it. This is helped by many deep rooted circumstances that are inherent in any society, not just capitalism. Those who start poor are very unlikely to leave that situation, while those who start wealthy are very likely to stay in that position. Is that just? Is that fair? Is it okay to enjoy surplus beyond surplus while there are others dying from lack of material subsistence?

"In his use of things man should regard the external goods he legitimately owns not merely as exclusive to himself but common to others also, in the sense that they can benefit others as well as himself."

"Goods of production - material or immaterial - such as land, factories, practical or artistic skills, oblige their possessors to employ them in ways that will benefit the greatest number. Those who hold goods for use and consumption should use them with moderation, reserving the better part for guests, for the sick and the poor."

Ideally, everyone would be able to work and would work for the common good, sharing the output of his labor for the good of first, his family and those nearest him, and ending with those furthest away with the preferential option always going to those in greatest need. The surplus would go to the person who earned it, and that person would share it willingly. The receiver would humbly accept, and do what he could to produce so as not to be a burden on his fellow men.

Capitalism doesn't do this. It falls short. It fails. This is what many economists and politicians are trying to fix and there is much disagreement over what the solution is, but the solution seems simple to me: charity, justice, temperance, and a commitment to the common good. The hard part is carrying it out.

Quotes taken from the Catechism of the Catholic Church found here.

Wednesday, September 29, 2010

Troubling

I saw this story yesterday while searching different blogs:

U.S. religious knowledge survey

Especially troubling is this bit about half way down:

More than four-in-ten Catholics in the United States (45%) do not know that their church teaches that the bread and wine used in Communion do not merely symbolize but actually become the body and blood of Christ.


There could be many reasons for this, none of which I'm going to speculate on in this post. We must continue to push for better religious education and take it upon ourselves to continue our own education. To know God is to love God.

Saturday, September 25, 2010

Example of "Poor" Attitude

Pun Intended.


Here is great example of the general attitude of the "upper middle" class in America:

"We are the Super Rich" by Todd Henderson

Here is some wisdom for those who think this way:

"Advice for the 'Poor Rich'" by Brett Arends


I really don't have sympathy for Mr. Henderson's "inability" to get by. I, too, am not a fan of raising taxes, but part of the reason the government raises taxes to fund its programs is because people like Mr. Henderson are more concerned with themselves and their lifestyles than they are with the common good. The government has programs like unemployment insurance, social security, and food stamps because the upper middle class won't and don't do it themselves. The poor then demand it from politicians and a political party then gains support from those voters for promoting these policies. These programs and taxation then further the incentive to focus only on oneself because "the government is taking my money to take care of the poor."

I think the world would be better off if people like Mr. Henderson took care of their neighbors through charity and service rather than through taxation and governmental programs, but inevitably they don't. If the government dropped the taxes and the programs, they would use their wealth to support their private school, two car, nice house, 'spend whenever you feel the need' lifestyle rather than suffer a little self-sacrifice for the common good. They don't want lower taxes because they don't like government spending, they want lower taxes because they want to be able to spend the money that they make in they way they want to spend it.

Mr. Henderson should take the advice given by Mr. Arends, but what he really needs is a change in attitude. He should take a genuine inventory into what it is he really needs to support himself and his family and reconsider his position as a member of the "poor rich."

Most, if not all, of us are guilty of this attitude at some point in our life. Let us focus not on how "poor" we are in material goods, but rather how much we can help each other in obtaining heavenly goods (such as the virtues). It is up to each of us to change this attitude and encourage others to do the same.

Wednesday, September 22, 2010

Why Africa?

I have recently begun reading the book Heart of Darkness by Josef Conrad. It is a book about colonialism in Africa during the 19th and 20th centuries. I also recommend the book Things Fall Apart by Chinua Achebe, another great book on a similar topic.

So why is Africa so poor?

Well, there are many reasons and I certainly do not know them all, but here is a simple and general economic and historical explanation:

Africa was once the heart of civilization. The empires of Egypt, Greece, and Rome all contributed to a wealthy North Africa. Egypt was a bread-basket in particular and the Mediterranean Sea was the heart of the trade between the East and the West. However, after the fall of the Roman empire things began to get worse, but the economic problem Africa faced was already deeply rooted.

A very large percentage of Africans worked in the agricultural sector in order to feed its people, as did much of civilization at the time. However, Africa in general is not very crop friendly. Aside from the fertile Nile River valley, Africa is covered by two large deserts one in the north and one in the south, has a massive jungle in the middle, and rocky highlands scattered about. In other words, it wasn't very conducive to increased agricultural production as Europe was or even America was.

This contributed to Africa's tribal makeup. Large cities and countries couldn't be developed because the tribes could not grow enough food to sustain a large population. Tribes were small and dedicated mostly to feeding its people. Having most of its people locked into doing agriculture, African tribes were unable to develop any kind of industrial occupations or even merchant occupations.

None of this mattered so much until the Enlightenment and the growth of European power. Europe suddenly became obsessed with wealth and power. It's agriculture production allowed workers to develop other trades and eventually the Feudal system that was somewhat similar to the African tribal system gave way to capitalism and huge urban centers. Nations scrambled for economic and military power and eventually took their battles to America and Africa.

The era of colonization began and exacerbated the situation in Africa. Both America and Africa were colonized, but their situations were completely different. In America, things ended so much better (although it is easy to forget how the natives were enslaved, killed, and driven out of their lands just as the Africans were). So what happened?

America was populated with Europeans looking for religious freedom and for economic opportunity. Africa was depopulated by the slave tribe and increased warfare. America was a land of huge potential growth because of its wealth of natural resources but also because of its more arable land. It drew in more resources, including African slaves and investment capital from Europeans, and was able to spur growth that eventually enabled its independence, with a lot of help from France of course.

Africa remained hopeless. Europeans killed, enslaved, and tortured the Africans. Their military technology was far superior and in order to increase the number of slaves without the casualties of warfare and disease they traded weapons to African tribes to kill and enslave each other. Now Africa was being depopulated by the slave trade, disease from Europeans, warfare with Europeans, and warfare with itself. Europeans took whatever Africa had of value…the gold from west Africa, the rubber from central Africa, and the ivory from east and south Africa. The most arable land in Africa (in the south and in Egypt) was taken first by the Dutch and then the British. Africans didn’t own anything.

And despite the end of colonization things haven’t changed much. A still very large proportion of Africans work for their subsistence in agriculture(If you go here you will see each country’s labor force makeup and you can see for yourself the strong tie between % of labor force in agriculture and poverty levels). There is little industry to speak of. Those of European descent still own most of the wealth. Much of Africa’s economy is shipping its valuable natural resources to industrialized nations to be made into household products that we buy. Africans still fight themselves with weapons supplied by us, the developed nations, in trade for their valuable resources.

There is also the factor that wealth leads to wealth, that is, the more money I have, the more I can create with it. Initial growth led to even more growth which led to even more growth and you get the picture. This sort of path dependence is mostly historical accident and did not necessarily need to be so. All the wealth of Africa was and is taken away by us.

This is also a black mark for capitalism and is why unbridled capitalism can be and is almost always evil. Exploitation occurs whenever possible, because agents act in their self-interest and are justified in doing so because of Adam Smith’s ‘invisible hand’ excuse. The invisible hand may be efficient with lots of competition, but Africa was never even given a chance to compete. It got none of the pie. It lost before the game began all because its people relied heavily on subsistence agriculture and Europeans couldn’t get enough and now its people suffer because of it.

The truth is, capitalism is useless if its people aren’t virtuous. Social Justice requires that we act always for the common good. Capitalism can be the system to get us there, but not if you don’t do your part. Don’t think “I gotta get mine.” Instead look at your neighbor and think, “how can I help him?”

Africa really needs it.

Friday, September 17, 2010

Questions

Some questions I think worth reflecting on every day:

Am I okay with the society in which I live? If so, why is it okay? If not, why is it not okay? What can be better? How can I make it better? What have I done to make it better?

It's much easier to sit back and criticize politicians, or the media, or opposing political parties than it is to do something about what you believe in. It's easier to put the blame on someone else, than to look inward and crticize yourself. It's much easier to attempt to justify your actions than it is to admit fault.

It happens quite frequently when engaging in debates with opponents that we turn to ad hominem attacks rather than a dialogue of reason and faith. It is much easier to get defensive than it is to see another's point of view from their perspective. I am as guilty as anyone.

So if the world isn't as it should be, then why sit back and blame politicians? Why attack and demonize others? Why not instead of saying "you're an idiot," say 'I understand your point of view, here is mine...?" Bickering, arguing, imposing your beliefs on another, none of these effectively accomplish anything except division and alienation. No man can convert another convicted in his beliefs by being louder than him, or attacking his intelligence and no amount of policy will ever eradicate all that is wrong in a society.

Appealing to human hearts is our only option. We must love our enemies to win them over.


Gospel of Luke 6:27-36

[27] "But I tell you who hear me: Love your enemies, do good to those who hate you, [28] bless those who curse you, pray for those who mistreat you. [29] If someone strikes you on one cheek, turn to him the other also. If someone takes your cloak, do not stop him from taking your tunic. [30] Give to everyone who asks you, and if anyone takes what belongs to you, do not demand it back. [31] Do to others as you would have them do to you.


So instead of arguing, blaming, name-calling, etc., why not do something about the things you think are wrong in our society. The corporal and spiritual works of mercy are a great start.

Saturday, September 11, 2010

Do deficits matter?

Well, that depends on who you ask.

So, why all the hubbub about deficits?

A government who has its own currency can never go bankrupt. Why?, because they can print money and print money and print money and never run out of their own currency to pay back their lenders (bond holders) even if these bond holders are foreigners (such as the Chinese). So no matter how much the government spends it will always be solvent. So why are deficits bad? Printing money that isn't based on any real value is inflationary. If the government prints a lot of money and puts it into circulation by spending it or even by dumping it out of helicopters then the inflation rate will most certainly rise and potentially go crazy.

A government who doesn't control its own currency and can't print their own money, can go bankrupt and therefore can't run up large deficits as is the case with the individual nations belonging to the European Union.

So the United States is in no danger of going bankrupt. It is in danger of run-away inflation by continuing to run up large deficits and increasing the public debt. At the moment there is no threat of inflation, deflation is much more of a concern. So fiscal austerity isn't a pressing need, in fact it may contribute to deflation, but in the long term, deficits aren't a good idea because of their inflationary consequences.

In my opinion, the government should run deficits during a recession but should run a surplus in a growing economy. Unfortunately, experience has been large deficits during both. The only surpluses the U.S. has run in the past 50 years have been in the late 90s during the Clinton administration.


Here is a graph of the last 50 years:





I imposed my own green line of what I think would be more ideal:





Eventually, we will have to cut down our deficits by increasing taxes or decreasing spending, or both. Is now the time? That's tough to say in the face of high unemployment and threats of deflation, but the current deficits certainly aren't feasible in the long haul.

Monday, September 6, 2010

Bubbles

To those of you who are curious as I was...here is what the housing bubble looked like:




It is interesting and disappointing how our best economists and advisers failed to see this massive rise in housing prices. At any rate, the bubble occurred and popped quite violently just a little under 2 years ago.

Bubbles have long been a phenomenon of capitalism and have been the focus of fiscal and monetary policy for decades. The government's (treasury, fed, congress) goal is to smooth the business cycle and prevent bubbles or at least hamper them from getting too big before popping so as to prevent a total collapse of the economy. Sometimes, however, policy can do the opposite. Low interest rates and increased incentives to lend helped spur the taking on of debt in the form of mortgages on the consumption side and loans to build houses on the investment side. Businesses kept building houses, and people kept taking on debt to pay for them. Banks continued to allow these risky lending practices and no one stepped in to stop it.

Bubbles can't be prevented as long as there are risk-taking entrepreneurs and people or banks willing to fund their risks. Policy can help deter these bubbles through careful discretion and the tightening of credit, but even the best of intentions can have unintended consequences, i.e., it may deter the current bubble but unintentionally and unknowingly fuel another one.

Housing prices have fallen substantially since the peak of the bubble, but because we are in a jobless recovery, they will probably fall further until Americans can return to work and catch up with their debt.


Ben Bernanke's testimony on the crisis and housing bubble can be found here


Picture from http://mysite.verizon.net/vzeqrguz/housingbubble/

Friday, September 3, 2010

Health Care

Government-owned or subsidized health care is a hotly debated topic and one that sparks much fury from both sides of American politics. Here are some quotes from Bishop Nickless of Iowa that serve as a good reference point for both Catholics and non-Catholics on how to think about the situation:

"First and most important, the Church will not accept any legislation that mandates coverage, public or private, for abortion, euthanasia, or embryonic stem-cell research. As a corollary of this, we insist equally on adequate protection of individual rights of conscience for patients and health care providers not to be made complicit in these evils. A so-called reform that imposes these evils on us would be far worse than keeping the health care system we now have."

“Second, the Catholic Church does not teach that “health care” as such, without distinction, is a natural right. The 'natural right' of health care is the divine bounty of food, water, and air without which all of us quickly die. This bounty comes from God directly. None of us own it, and none of us can morally withhold it from others. The remainder of health care is a political, not a natural, right, because it comes from our human efforts, creativity, and compassion. As a political right, health care should be apportioned according to need, not ability to pay or to benefit from the care. We reject the rationing of care. Those who are sickest should get the most care, regardless of age, status, or wealth. But how to do this is not self-evident. The decisions that we must collectively make about how to administer health care therefore fall under 'prudential judgment.'”

“Fourth, preventative care is a moral obligation of the individual to God and to his or her family and loved ones, not a right to be demanded from society. The gift of life comes only from God; to spurn that gift by seriously mistreating our own health is morally wrong. The most effective preventative care for most people is essentially free – good diet, moderate exercise, and sufficient sleep. But pre-natal and neo-natal care are examples of preventative care requiring medical expertise, and therefore cost; and this sort of care should be made available to all as far as possible."


So, in summary, healthcare is not a natural right but a right that comes from our human efforts and innovation. It should be rationed according to need, not according to wealth, status, or age. This requires the use of our prudential judgment. Any health care that violates the gift of life is not true health care. Preventative care is a moral responsiblity of the individual out of respect and care for the gift of life and health given to us by God.

You can find the rest of the article here:
http://www.catholic.org/politics/story.php?id=34287&page=2

Unemployment

Unemployment



The Bureau of Labor Statistics released the employment data for the month of August today. The unemployment rate went up slightly to 9.6% despite the economy gaining 67,000 jobs in the private sector. More disparaging numbers are the unemployment rates of select populations. The unemployment rate for blacks is 16.3%, Hispanics 12.0%, while whites are at 8.7%.

These numbers are still really high and no true recovery can take place when a large portion of workers are without a job. The goal of most economies is to maintain a low and stable unemployment rate somewhere around 4-5%. As you can see, we still have a long way to go.

http://www.bls.gov/news.release/empsit.nr0.htm

Wednesday, September 1, 2010

Lego of my money!

Here is a classic example of a major change in tastes/preferences a component of the demand curve. Lego's profits have soared since David Beckham admitted that he was building Lego's Taj Mahal. Free celebrity endorsement=huge jump in demand (shifting the curve up and to the right) increasing sales 663% and profits 63%. That's good news for Lego. Do you have your Taj Mahal Lego set?

http://finance.yahoo.com/career-work/article/110447/6-companies-thriving-in-the-recession

Tuesday, August 31, 2010

Wealthy, to be or not to be?

Is wealth really all that desirable?

Adam Smith weighs in:

“The poor man’s son…when he begins to look around him, admires the condition of the rich. [he is displeased with his home and with being obliged to walk on foot, he feels himself naturally indolent, and]* he thinks if he had attained all [their comforts] he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquility of his situation.

“To obtain these conveniences, he submits in the first year, nay the first month of his application to more fatigue of body and uneasiness of mind than he could have suffered through the whole of his life from the want of them. Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquility that is at all times in his power; and which if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it…he begins at last to find that wealth and greatness are mere trinkets of frivolous utility.”

“There is no real difference between [the rich and the poor], except that the conveniences of the one are somewhat more observable than those of the other.”

“Power and riches appear then to be enormous and operose machines contrived to produce a few trifling conveniences to the body.” – All from Theory of Moral Sentiments, part 4, Ch. 1



Jesus also warned of possessing great wealth and riches in the Gospel of Matthew:

“Amen, I say to you, it will be hard for one who is rich to enter the kingdom of heaven. Again, I say to you, it is easier for a camel to pass through the eye of a needle than for one who is rich to enter the kingdom of God” – Mt 19:23-24

Wealth and riches are not means to a happier or more tranquil life. They offer us but a few more means to frivolous and trifling goods and services of utility. The poor man on the street can be and often is just as happy as the man in the mansion seemingly living contentedly, but without all the distractions from our true path to happiness. They are both subject to the same terrors—“to anxiety, fear, sorrow, diseases, danger, and death.” (also from Smith)

The challenge, then, is to abandon our attachment to our wealth and, ultimately, to give it all away for the betterment of our brothers, our fellow men who are created in the image of God. For they only offer us a few frivolous trinkets of utility and a society of charity is much closer to true happiness than one of wealth and riches.



* - brackets indicate paraphrasing for the sake of shortening Smith’s long-winded writing

Tuesday, August 24, 2010

Dignity of all Work

My job at a local restaurant this summer served as a great reminder to me that dignity can be found in all* vocations, including something seemingly as insignificant as a dishwasher or cook at a small restaurant in western Kansas. Many of my co-workers were there simply for a paycheck, but they also made it possible for many weary travelers to take a break from their long journeys or for families to share time together and enjoy a nice meal.

Even the seemingly most insignificant occupations that many believe make little to no contribution to the overall welfare of the society do indeed have dignity and value. The people who occupy these positions were also created with the same dignity as doctors, civil servants, missionaries, and priests and should therefore not be looked down upon as something less than important.

So, the next time you eat at a restaurant, or observe another "lowly" vocation, consider passing on your gratitude for the work that they do with a simple thank you and a smile. A little gesture might go a long way!




*=I had to qualify "all" vocations as not including unauthentic "work" such as selling drugs, distributing pornography, etc. These occupations do not have dignity and are not considered true work in the Christian sense of the word. However, the people within these occupations still very much have dignity and should be thought of as no less than those serving within authentic vocations. The need for their conversion is just ever more pressing as their "work" takes them farther from God.

Sunday, August 22, 2010

Yikes! Where did the summer go?

Okay. Sorry for the long hiatus. I had a great opportunity to learn about the economics of food service this summer, which in addition to farming and preparing for grad school, kept me too busy to post any entries. I begin classes tomorrow and look forward to relaunching this blog. I hope to post my next entry tomorrow or Tuesday and hopefully I'll also start to attract more followers. Please send me your comments, questions, or requests for future posts!

Thursday, May 20, 2010

Greece and the Euro

Some or many of you may have heard about the problems the European Union and Greece are facing. Here is my attempt to briefly summarize it to non-economic students:

Greece is facing an economic crisis because it defaulted on its debt run up by large deficit spending in recent years. The financial crisis in the United States exacerbated the situation and now Greece is unable to pay its 300+ billion Euro debt. The International Monetary Fund and the European Union have agreed on a bailout package that would pay Greece 110 billion Euros over three years if they achieve and maintain fiscal austerity. In other words, if Greece stops spending more than it brings in, the EU and the IMF will help them pay their debt.

Much of the help is coming from the German treasury who has one of the strongest economies in the EU. German bankers also hold a large portion of Greece's debt, so the help from the EU and the IMF is essentially a bailout of the German banks and all the banks holding Greece's debt just as the U.S. "TARP" was a bailout of US banks.

So what are the results of this bailout? For one, the bailout is meant to prevent another crisis or worse, a chain of crises that would start in the other EU nations of Ireland, Portugal, Italy, and Spain who are also in debt trouble. This chain of crises could likely result in the dissolving of the European Union because of a lack of confidence in the Euro and "destroyed" European economies. However, this result seems unlikely because of the commitment to the monetary union and the passage of the bailout plan.

Another problem is the painful process of fiscal austerity. This is often one of the conditions to receive monetary help from the IMF but is one that will result is years of contraction and high unemployment for the people of Greece. The middle and lower classes of Greece will be hit the hardest because they will experience the greatest levels of unemployment, they will see increases in taxes, and less government spending on programs (healthcare, unemployment insurance, etc.) designed to help them.

Greece's options are limited because it gave up its monetary independence by joining the European Union. All of the nations within the EU who adopted the Euro as its currency gave up their ability to do what the US's Federal Reserve did in 2008 to prevent an even greater crisis (provide funding to banks and lower key interest rates to prevent further fallout in the financial sector).

The people of Greece have some tough years ahead of them and the Euro may face a drop in value which could hurt US exports to Europe and thus the overall US economy, but the bailout likely saved a disbanding of the EU experiment.

It is important in tough economic times to remember where our true happiness lies and to rely on each other for material support when it is needed. Don't let failing economies, heated political debates, or bailouts of the "bad guys" get you down. It is better to respond with love for neighbor including political enemies. The only "fixes" to these problems are virtuous people who act for each other and not simply for oneself. This is a big chore, but one that can be done with hope, prayer, and love. If we take up the task as individuals, our politicians will follow suit and good policies will be made as a result.

For further reading about Greece and the Euro:
Greece's economic woes
Euro-Bankers to Greece: The Wealthy Won’t Pay their Taxes, So Labor Must Do So
Repeat After Me: The USA Does NOT Have a ‘Greece Problem’

Wednesday, May 19, 2010

Happiness

Ben Bernanke, the current Chairman of the Federal Reserve, gave an excellent commencement speech at the University of South Carolina over a week ago. His main topic was happiness.

Bernanke's Speech

A study done by Richard Easterlin that Bernanke referenced in his speech found that income does have an impact on happiness, but that countries don't get any happier after going beyond the level of meeting basic needs. Americans were no happier than Costa Ricans despite the large differences in incomes, but "rich" Americans were happier than "poor" Americans.

He also found that Americans today are no happier than they were 40 years ago and incomes have certainly risen since then. Easterlin believed that total wealth was not the factor at work here, but rather relative wealth. Happiness appears to be based largely on comparing oneself to one's neighbors. This would explain the difference in happiness between poor and rich people within a country as well as the lack of difference in happiness between people in rich nations compared to people in poor nations.

It also speaks to the adaptability of people to their situations. Humans have an incredible drive to be happy and will force themselves to be happy in order to get through each day. Indeed, we often diagnose those who do not adjust to their situation as "depressed." It certainly is much more difficult to be happy when your neighbors are enjoying pleasures, comforts, and conveniences that you cannot afford.

I propose, then, that we should not look to our neighbors and base our happiness off of enjoying pleasures that they do not. The material possessions and comforts that we enjoy are for most of us in a precarious situation. There is no guarantee that they will be there tomorrow. Instead we should consider if the comforts we enjoy are enough for us though they may be less than what our neighbor enjoys and be grateful that we do not endure the hardships that many in our world endure.

If we base our happiness on the love that we give and receive to and from God and our neighbors then our material possessions will not own us and control our level of happiness. Instead we will find happiness in hardships even though it may take longer and require a degree of pain or foregone immediate pleasure to reach that longer lasting happiness.

Tuesday, May 18, 2010

Lottery of Life

Archbishop Naumann reminded us recent graduates at Benedictine College's Baccalaureate mass this past Friday that we have won the lottery of life. We have been given the great opportunity to attend a wonderful institution and graduate with a college degree. To get there, many of us had to be given much more than that...a great family, education, never having to worry about food, clothing, shelter, etc. We have won the lottery of life because it could be otherwise. We very well could have been born in a poverty stricken family with very little opportunities and even less security.

Much of our socioeconomic status is merely a consequence of circumstance. A certain set of circumstances resulting from decisions made by your ancestors, politicians, etc. have put you in the situation in which you find yourself. Yes, your decisions and actions can change your circumstances and that is a great part of our free society, but for many this is very difficult if not impossible. Some believe that they have earned all that they have received due to their hard work and own ingenuity, but in all cases none of it would be possible without a favorable set of circumstances.

So whether we've "earned" all of our material comforts or inherited them through favorable circumstance, we have won the lottery of life and I, too, would like to ask the question: How will you spend it? Remember, it could be otherwise.

Tuesday, May 11, 2010

Economics is...

the study of choices. This is an oversimplified definition, but is essentially the heart of the study of economics. Every decision we make is directed towards an end or goal. We analyze the costs and benefits of our options with the given information we have and choose the option that we think will best attain our end. Because we are of a social nature, our decisions impact our neighbors both near and far and so are not to be taken lightly.

The great economic problem and the goal of economics is meeting our material needs through the "allocation of a limited number of resources." Many great philosophers and economists have offered solutions to this problem, but I believe it to be rooted in our vocation to "love one another"--John 13:34--as well as to "have dominion over the [goods of the earth]"--Genesis 1:28. For, ultimately, our problem is one of great spiritual need. No degree of material fulfillment and satisfaction will ever attain for us true or complete fulfillment. Our want is insatiable and only an infinite and eternal Good is capable of fulfilling our insatiability.

I believe that the solution to our problem, then, lies in our quest for authentic human development, i.e. our quest for something greater: full and everlasting communion with our God in heaven.

I hope to shed light on basic, contemporary, and controversial economic issues for those who desire a greater understanding of the study of choices and seek a solution to the economic problem but haven't had an economics class or did and had trouble understanding it. I also hope to provide a Christian perspective to my fellow economists who desire peace and justice for humanity. I welcome any and all comments and suggestions that will help me in my quest.

May God be in your hearts and minds.