Economics Is Super Hard, Y’all (Part III)


 

I’ll wager my assertion that recessions affect teenage employment over your assertions that $.50 MW increases any day of the week, and twice on Sundays.

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Because you’re making the numbers say what you want them to say. Tell me, if the recessions caused teenage employment to drop, then why didn’t employment return to previous levels after the recessions ended? If recession were the cause, it would mean that in the absence of said recession, such unemployment would no longer exist; but employment didn’t return anywhere near previous levels, and why is that? Because the recessions ended but the MW raise didn’t. After every drop there is a new period of relative stability as equilibrium is reached, then it’s offset again by the next raise. Also, you’re forgetting that all of those drops except one happened BEFORE each respective recession, not during. The only reason employment stayed stable during the 90s was that the economy was booming. Let me provide the link yet again and maybe this time you’ll open your eyes. (https://fbcdn-sphotos-g-a.akamaihd.net/hphotos-ak-frc3/t1/q71/1655999_215486371970699_1105483499_n.jpg)

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That’s okay, I never cited the Economic Policy Institute. I cited the Center for Economic and Policy Research (founded by economists Dean Baker and Mark Weisbot both PhD’s from University of Michigan). I can see the confusion though. The names are awfully close.

Speaking of which, I see you’re still quoting from the EPI—Employment Policy’s Institute. Interesting. (please see previous comments on discredited organizations)

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How does being biased make their info wrong? If you wish to explain to me why the info I provided is inaccurate, I’d love to hear it; otherwise you’re utilizing a red herring fallacy known as “guilt by association.”

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Waiting until some overpaid executive runs his company in the ground is no way to evaluate their performance and no way to run an economy, ie see 2008 crash.

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Says who? You think that one crash involving one industry can be applied to every industry?

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My point was that all the money from the ultra-rich goes to a very niche, very small section of the economy, as opposed to the 16 million Americans who would be affected by general wages going up. Even food stamps and welfare affect more of the population and a much larger section of the economy, then some trickle down scheme. And these also are much more effective in boosting the economy then voodoo economics.

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Prove it. Once again, I’m not interested in your opinion. I’m not trying on a hat and asking you how it looks–I’m talking about economics. Please provide concrete data proving your argument.

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Um, are you completely ignoring the studies I’ve already provided that make these direct comparisons (state minimum wage hikes across state borders). And it is because we DO have those studies, we can extrapolate that national raises in the minimum have negligible ill effects. A shame indeed that you seem willfully ignoring data provided to you.

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I’m not ignoring it. Every state has its MW either at or above the federal MW due to federal supremacy. There are no states that have a $2.50 MW or a $0 MW. To compare the piddly difference between $7.25 and $7.50 is akin to comparing the damage from crashing at 70 mph vs. 80 mph. What I meant was, if states could decide to have their MW BELOW the market equilibrium wage, then we could see pronounced differences. For example, Singapore has a $0 MW– and 2% unemployment, near-0% poverty, and a GDP per capita of over $40,000. Wow, who would have guessed that giving people the freedom to earn money would make them wealthy? You criticize Neumark and Wascher for employing data taken from other countries, but never say why that ought to discredit their work. That is fallacious, sir.

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{“You’re forgetting the other source of income for the downtrodden—charity. If Americans didn’t have to relinquish 28% of their income to the IRS, imagine how much more we would have left over to give to those struggling workers. Also, “bad” free market economy? What’s that?” John, I grant that you have a very uplifting and altruistic view of the world…that some vast organization of charities and charitable people will come forward (if government wasn’t inhibiting them) to pull the rest of people out of poverty, but it is an unfortunately naïve and misguided view. While I fully support local charity and give to such charities, those charities have never been directed effectively at the working poor to the extent that government provisions in safety nets (http://economix.blogs.nytimes.com/…/which-americans…/…).}

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On average, private charities are far more efficient than government programs (http://www.softwaremetrics.com/Economics/Private%20Charity%20versus%20Government%20Entitlements.pdf). But what about those charities that aren’t? Well, the great thing about charity is that it’s voluntary. If a charity is wasting money, then don’t donate to that one; but if a government agency is wasting money, can you choose not to pay taxes to it? Which is the better situation here: To face the possibility of getting screwed by a charity or the guarantee of getting screwed by the government? Also, yes, charities will step up if people are giving. The US is the most charitable nation in the world (https://scontent-a-sjc.xx.fbcdn.net/hphotos-frc1/t1.0-9/1920486_760326704001754_1992763871_n.png).

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Most of them are to personal religious organization, university alma maters, or health organizations abroad—you’ll notice only 4 to 12% goes to organizations meant for meeting basic needs. We’ve been cutting back in food stamps, and welfare for the last 5 years…are Food Banks and Churches coming to fill the gap? No, they are not. http://usatoday30.usatoday.com/news/nation/story/2012-09-09/food-back-shortage/57698834/1.

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Wow, I can practically smell the desperation. The number of food stamps is at an all-time high of 46 Million and has risen every year since 2007 (http://www.thegatewaypundit.com/wp-content/uploads/2013/07/ibd-obama-food-stamps.jpg).

Just because the FDA isn’t giving as much surplus food to shelters doesn’t mean that food stamps and welfare are decreasing. You’re really stretching to pull that claim out of thin air. Also, who says that religious organizations don’t use donations to provide other products such as food and blankets?

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Look at all that food! Donated by companies (voluntarily),

then given away by a Lutheran church. But… but… mah welfare!

Americans donate to churches because they’re an easy target and are usually involved in their community (e.g. rescue mission). A dollar given to a church doesn’t necessarily mean a dollar not given to the homeless. Also, charity has been steadily on the rise for the past several decades (http://cdn.theatlantic.com/static/mt/assets/business/charitable%20giving%202010%20Giving%20USA.png)

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And this has been while the glorious Bush tax cuts have been in effect for over 10 years.

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Bush didn’t cut taxes, he shifted taxes. “Including the estimates for the 2007 budget, in the first six years of Bush’s term in office, federal income tax revenues have increased 18% and payroll tax revenues have increased 26%, the money supply, defined as M3, increased 41% in just the first five years since Bush took office, and the federal debt has increased 52%, and is approaching $9 trillion, since the beginning of fiscal year 2002.” (https://mises.org/daily/2559)

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In my opinion, you can never effectively tie in disparate and disorganized charities to make up for the unified approach of government support. And to think that they will, is frankly deluded. A beautiful concept, but completely devoid of reality. Sorry.

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No, what’s deluded is believing that giving money to the poor will make them any less poor. Over the past five decades welfare has increased to a trillion dollars and it hasn’t made a lick of difference (rather, a positive difference, I should say). 

I don’t know what “support” you believe the government gives to the poor, but obviously it doesn’t help. I don’t think that charities can realistically raise a trillion dollars every year, but nor do I believe they ought to. If the government didn’t make us poor, we wouldn’t need charity in the first place.

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By the way, how much do you give to your local working poorr? Hmmm?

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I wasn’t going to bring it up, but since you asked, last year I donated approximately 200 hours of my time to helping the poor. I also spent quite a bit of time helping immigrants write letters and documents in English. I didn’t keep track of my monetary donations, but I know they weren’t very sizable since I don’t earn much income. I would estimate $100-$200 worth of donations last year. So far this year I’m up to 20 hours, which includes giving free violin lessons to an underprivileged little girl every week. I’m not sure why you asked, but there it is.

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And there she is!

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{“England similarly turned Hong Kong into an economic miracle simply by doing nothing.” So, China and India pulled people out of dirt poor conditions and now their only really poor. Yay! What an accomplishment. But at the same time their income inequality has also jumped up incredibly in the last 20 years http://www.china-mike.com/…/china_inequality-gini-rural…, http://www.aljazeera.com/…/12/2012122311167503363.html}

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First of all, yes it is quite an accomplishment. Nearly 3 Billion people can afford food now when they couldn’t twenty years ago and aren’t going to go to bed hungry tonight, which means that capitalism has done far more good for the poor than every form of welfare combined. Second, I’ll reiterate that there is a parabolic relationship between becoming richer and becoming more or less equal in terms of income. Because China and India are rapidly industrializing and moving out of poverty, some of the population will feel the effects more than others, until eventually it will even out and become more equitable. But even if that’s not the case, so what? I’m not mad that someone in China can afford a car but someone else can only afford a bicycle– neither one has to walk anymore.

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Besides that observation, you’re effectively dodging my original statement. It doesn’t matter that there has always been an imbalance in ownership and wealth in world history. This is America. Having that imbalance just fuels civil strife.

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Compared to what?

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And for you to justify that imbalance by saying, yeah well royalty and conquerors did it, so it’s still okay now, is really not in line with the American way of life.

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I grow tired of you twisting my words. I never said that slavery was OK. I said that capitalism makes everyone better off, not just the 1%. Instead of one party gaining at the expense of another via extortion, colonialism, etc., we can gain while other parties gain as well. Taco Bell profits off its Doritos Locos taco, but so do the 15,000 employees they hired to make them (https://fbcdn-sphotos-c-a.akamaihd.net/hphotos-ak-frc1/t1.0-9/1011606_10153985456365515_1038967282_n.png).

Thanks to the miracle of capitalism, a taco has created more wealth than you or I likely ever will. Think about that.

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We believe in fairness in this country, and rigging the system so the top 5% get all the spoils is pretty un-American.

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I don’t recall the Declaration of Independence including the word “fair.” It does include the word “liberty,” though. I don’t have a million dollars, nor do I have the swimming ability of Michael Phelps–that’s not fair, but I am not injured by it. As long as I have freedom, I can try my best and get closer to being a millionaire or closer to whatever other goal I have. Also, who defines fair?

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We formed this country to get away from all that (feudalism and royalty).

By the way, IMF has had reports on how high income inequality hurts overall growth and gives rise to instability around the world. http://www.imf.org/external/pubs/ft/fandd/2011/09/Berg.htm

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http://upload.wikimedia.org/wikipedia/en/a/a7/Economic_Freedom_Charts.pngThis report is fallacious. Its entire argument hinges on the assumption that income inequality is the underlying cause of economic gloom rather than both those things being side effects of reduced freedom. Not only is inequality higher in less free countries, but so are adult literacy, infant mortality, and life expectancy. (http://upload.wikimedia.org/wikipedia/en/a/a7/Economic_Freedom_Charts.png) But you wouldn’t say that a shorter lifespan is the cause of a bad economy, would you? After all, the elderly cost a lot of money to take care of.

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{“Didn’t Americans rebel against England because they hated having their freedoms taken away? I don’t recall “I hate the rich” being shouted by the founding fathers.” Yeah but the French revolution really influenced the early fathers, and Thomas Jefferson, in particular, was actually a big fan of that revolution, which was all about hating the rich, and the lack of social mobility. So don’t discount that motivation in America.}

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The French revolution didn’t begin until May of 1789, two months after the US Constitution went into effect. It’s really not fair to me that you can’t even be bothered to look up a date. I have better things to do with my time than to teach you history. Anyway, the French revolution was caused by depressions, taxes, large expenditures on wars, and friction between the monarchy and parliament, as well as other forms of tyranny like limiting freedom of religion and mobility. It was against the established order of the cronyist aristocracy that the people revolted. The so-called Marxist interpretation of the revolution has been widely discredited.

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{“The golden age of Greece only lasted a few decades for a reason.” Please don’t quibble technicalities with me. America is a democracy (not a direct democracy like Greece, but a democracy)–the mechanism by which America instituted democracy was through a constitutional republic, but a democracy it remains—ruled by the people through their representative who they control through voting (mostly, when not corrupted by the influence of money).}

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In democracy the majority of people are either allowed or consider themselves entitled to write laws abridging the rights of others. Democracy, in its truest form, is tyranny by the majority.The chief and only difference between a republic and democracy is that in the former, lawmaking is constrained by the equal rights of others. What the ante-bellum US south had was democracy, with five million white persons voting three million black persons into slavery. If we are to call the US a constitutional democracy or a representative democracy, we are using those adjectives to qualify that democracy, to say that it is not democracy in its pure form. I do not wish either to quibble over technicalities so I shall say that referring to the US as a democracy is admissible insofar that it is ruled by the people.

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Your graphs show near 50% so I stand by my statements—taxes were pretty high and still we prospered.

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The federal income tax specifically was, but that doesn’t mean all taxes put together were. State income taxes used to be lower (http://www.usgovernmentrevenue.com/compare_state_revenue_1957pF0c) in 1957 compared to 2010 (http://www.usgovernmentrevenue.com/compare_state_revenue_1957pF0c). The inheritance tax was raised from 3% in 1976 to 18% in 1977 (http://www.irs.gov/pub/irs-soi/ninetyestate.pdf) and so on. When you total them all up you see a rise over the decades. (http://www.nowandfutures.com/images/total_us_taxes.png)

Also, what about all the taxes that didn’t used to exist at all?

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{“After those banks did what the government told them to and collapsed the economy, they promptly received government bailouts courtesy of taxpayers. If the government hadn’t tried to legislate wealth, this wouldn’t have happened.” This is a major fallacy that has been promoted by mostly conservative commentators for some time now. So let me try to clear the air a little. The “relaxing of standards” was never actually pushed onto the true house lending entities who actually contributed most to home defaults—those were the sub-prime industry lenders, which were not regulated or affected by these government acts quoted by your sources—the FED actually did some studies to verify this conclusion. (http://www.federalreserve.gov/pubs/feds/2011/201136/, http://www.federalreserve.gov/faqs/banking_12625.htm)}

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 These papers rely on the assumption that because poor consumers are targeted by CRA, that they will be the ones to take advantage of it. What happened was that the CRA had the opposite effect of that which was intended, and middle-class consumers were affected by it. This is a very minor point, though, so I’ll move on. Fannie Mae and Freddie Mac were the ones who got the ball rolling on the securitization industry and they did so at the behest of Congress. Sorry if this is confusing, but I do believe that those two ought to have been regulated. The other lenders ought to have been regulated only by the free market, but because Fannie and Freddie were the lapdogs of Congress those two ought to have been subject to government regulation. But they weren’t and that’s where a lot of the problems came from. (https://www.youtube.com/watch?feature=player_detailpage&v=EgMclXX5msc#t=2032)(mirror) I didn’t plainly state that last time so it’s my bad.

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I’m not going to put a lot of references here, because there is one very comprehensive source that explains quite in depth all of the main causes of the 2008 crash and recession. Tabling our ideological and political differences for a minute, I would honestly and truthfully say the book you need to read on the subject that gives a thorough, balanced and measured accounting for the causes of the crash, is called “All the Devils are here” – http://www.amazon.com/All-Devils-Are-Here…/dp/1591843634.

It is by far the most unbiased and unvarnished coverage I’ve seen of the events leading up to the crash. No one is spared: From Fannie Mae/Freddie Mac, to Wall Street firms, to politicians on either side of the divide. All had a hand in the crash.

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I must say it was a great book; I thank you for recommending it. Upon re-reading what I wrote to you last time, I realized that I poorly chose the wording of my argument and made it sound as if the government was only to blame for the bubble and the banks were perfect angels. I am sorry for the resulting confusion. In truth, no one forced Bank of America or Chase to participate in the bubble, although Freddie and Fannie did encourage them to compete.  But what must be made clear is that the government laid the framework for the bubble which private lenders took and ran with. Roger Garrison quantifies well what the difference is: “Without the Fed, the impact of the distortions in the housing market would still have been significant, but they would also have been much more limited. The fact that the Greenspan Fed adopted a loose monetary stance in the wake of the dot.com bust and well into the century’s first decade was a game changer. The accommodation freed the jousting sector from having to draw investment funds from other sectors. It fueled an economywide boom—the housing bubble leveraged by practitioners of Modern Finance being the most dramatic aspect of it.” He concludes, “The fact that the bubble was doubly artificial provided a strong hint about the difficulties inherent in the subsequent recovery.” (bastiat.mises.org/2013/08/no-fed-no-destructive-housing-bubble)

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But from my reading, the history suggests that more responsibility is borne by the sub-prime housing market, and Wall Street which heavily promoted this sub-prime market as a way to compete with Fannie Mae/Freddie Mac in the housing industry (since Fannie Mae/Freddie Mac loans had implicit govt backing and wall street loans did not).

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But that just means that the government encouraged these lenders to take risky actions because they needed to compete; whereas if Fannie and Freddie were taken out of the picture these lenders would only have been competing with each other and not the government, so the securitization problem would either have been smaller or nonexistent. I say that based on the observation that there was never a housing bubble in America up until the last ten-twenty years.

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It was through Wall Street’s attempt to market these subprime mortgage loans using securitizations, by which they traunched and resold loans that spread the harm to the rest of the economy, that we finally had the crash. A lot of these bad mortgages were actually second mortgages that people initiated mostly to achieve the lifestyles that were in decline because of decades of declining incomes.

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Actually, incomes weren’t declining. (https://fbcdn-sphotos-d-a.akamaihd.net/hphotos-ak-frc3/t1.0-9/1975007_762401500460941_655979613_n.png)

It seems that way because income only rose 77% compared to productivity, but wages aren’t the only cost of employment. You also have benefits, insurance, worker-related taxes, etc. Every dollar that you pay into insurance or taxes is a dollar being taken out of your paycheck.

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Now many politicians did in fact push this unrealistic expectations of home ownership. But another major contributor to this housing bubble was rampant predatory housing practices by private sub-prime companies in the 80’s and 90’s. Practices that were completely overlooked by a laissez faire FED under the mismanagement of Alan Greenspan.

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Greenspan was about as laissez-faire as Herbert Hoover, which is to say not at all. Greenspan lowered the interest rate from 6.5% to 1% and flooded the market with cheap money (http://images.mises.org/3130/Figure1.png).

This caused mortgage rates to fall to an all-time low (http://images.mises.org/3130/Figure2.png)

 and with low interest rates came a surge in lending (http://images.mises.org/3130/Figure3.png).

This is exactly what Keynesians wanted. Paul Krugman urged the Fed to create a housing bubble. He said that we should have “soaring household spending to offset moribund business investment.” (http://www.huffingtonpost.com/2013/04/19/paul-krugman_0_n_3118069.html) To his credit, in 2005 he said that the housing bubble was “dangerous,” but based on the graphs above, by then it was too late. The Fed wanted to “boost asset prices in order to stimulate demand,” based on the false Keynesian belief that demand drives the economy.

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It was the FED and regulators watered down regulations and ignored enforcement that truly facilitated the core principles of the crash. Not some government act in 1992 trying to assist low income home owners

Again, I say this completely non –politically or ideologically—read the book! It’s a good read and very informative.

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Very true, it was a great read! Again, I was not clear in my argument and implied that the Housing Act of 1992 was the sole cause of the housing bubble. I was wrong in implying as such and apologize, although I must say the Act certainly didn’t help matters. It was more Fed policy in reaction to the Act. What happens when interest rates are low is that lenders will consider loans less risky and will be more willing to invest in something that would seem risky at a higher interest rate. Thus the Fed encouraged malinvestment in housing, just as it encouraged malinvestment leading to prior depressions. In Alchemy Leveraged: The Federal Reserve and Modern Finance (pp. 445-446) Roger Garrison writes, “Unsound as these policies were, they were not the principal cause of the financial crisis. Again, Dowd and Hutchinson are right in identifying the expansion-prone Federal Reserve as the principal institutional cause. Had the Fed provided no fuel for the boom, federal housing policy, though perverse, would not have been unsustainable. The mortgage market would have had to compete with all other markets for the funds that savers provided. There would have been a continuing bias in favor of the mortgage market, and the ongoing rate of foreclosures would have been higher. House prices would have been higher (because houses and mortgage loans are complements), but they would not have been high and rising. Practitioners of modern finance would have paid due attention to the higher VaR, which would have reflected the expectation of an ongoing higher foreclosure rate.” I’m just going to provide a link to an article utilizing this quote so that I don’t end up writing a 10-page essay on it (mises.org/2012/12/abct-and-the-community-reinvestment-act-revisited/)

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Next page: Liberty and conclusion for all

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