Economics

Economics isn't just about theoretical impacts to money, though many get caught up in that. It's about social engineering or understanding. You can't argue a policy change (or any change) intelligently if you don't think about the consequences of your actions -- and not just to the people you care about, but all people and the system as a whole. How will people react, how can the solution be gamed, sure you helped a few -- but what happened to the rest (and does the help outweigh the costs). Micro-economics is looking at one system, Macro-economics is looking at how that system impacts all the others.

Allegories

The Broken Window Fallacy The Broken Window Fallacy is a fundamental concept of economics (and logic) about seen advantages versus unseen costs. Henry Hazlitt summed up the art of economics as not merely looking at the immediate consequences but the longer effects of any act or policy, and tracing those consequences not merely for one group but for all groups Main article: The Broken Window Fallacy Milton Friedman goes to China There’s a famous economics fable of Milton Friedman going to China or India, and what happens is another way to explain The Broken Window Fallacy, in a more Socratic way. Some refer to this as Shovels vs. Spoons. The story predates Milton, but he did tell variants of it and popularized it. Main article: Milton Friedman goes to China

Minimum Wage

Minimum Wage Minimum wage is the delusion that bureaucrats and politicos know more about what's fair than the laborer and the employer, and that there's a magic round number that fair for everyone, everywhere, at the same time. We know that it hurts employment, increases automation and offshoring, and hurts the people it's supposed to help. Either these consequences are unintentional, or the politicians want to make the problem worse while pretending to help, so they have something to campaign on. Main article: Minimum Wage Goldilocks and the 3 wages Minimum wage is like Goldilocks, there are three ways you can set minimum wage: too low, too high, and just right. Too low, means it's doing nothing of value. Too high means it's hurting employment and growth. And since just right can never apply to two different people, places or moments in time, there's really only one way to set minimum wage: and that's at the wrong level. Main article: Goldilocks and the 3 wages Does minimum wage impact employment? This is of course hotly contested, but it breaks down into two camps: (1) "No" (2) Those who have a clue as to what they're talking about. The problem is (of course) that it doesn't always, and doesn't always immediately impact it. So there's some plausible deniability for the economics deniers out there to find edge cases and say, "see". But as soon as you look deeper than the surface, you find that it does suppress growth, or increase a decline, sometimes ahead of the law and sometimes well behind it but it happens, and it especially hits certain segments and groups of people harder than others (like teens, starting out, part time work, and so on). Let's dive into the evidence. Main article: Does minimum wage impact employment? Minimum Wage: Poverty Poverty (and who makes minimum wage) gets even more complex: 75% of it is due to underemployment (which is more insidious than unemployment) Most poverty is short term (short term unemployment that effects people in one year). Most of the rest is due to under-education, immigration, fatherless families, and finally bad social program programs (which holds more people down than they helps people up). Explain to me how raising minimum wage helps with any of those things? I can explain how fewer teenage jobs means more teenagers doing other things, like getting pregnant. Fewer opportunities for the less educated and immigrants doesn't help them out. And so on. So target the right people, instead of offering blanket subsidies to the wrong ones. Instead of raising the minimum wage, Congress should look at other ways to aid the working poor that actually focus on providing help to those who need it. And that' the first rule of economics: do no harm. If you can't show how you're making something better, and the other side can show how you're not, then you're wrong. Or don't knock down fences without understanding why they're there. Main article: Minimum Wage: Poverty Minimum Wage: Cost basis I hear all the time, that McDonald’s can afford to pay a “livable wage” without raising costs, or "it’s just a few cents a burger", by people that don’t understand basic economics, or business. Here’s some notables taken from the average McDonald's balance sheet: The average McDonald's generate about $2.5 million in gross revenue, but then they have a lot of expenses like rent/mortgage, taxes, utilities, food, taxes, and labor (and their taxes). The average McD's Employs 61 people in operations and restaurant management positions, and spend nearly $507,595 on wages (about $800K or 32% of gross revenue, when you factor in benefits, tax liability, and other costs around employment). A McDonald's ends up with an average net profit after those expenses of 6%. Or about $150K/year in net revenue (for about $2M in initial investment/risk). A jump from $7.25->$15/hour means $264K in increase wage costs, on profits of about $150K…. so they’re now losing $114,000.00 on each store per year. How many new McDonald’s will open with that as their forecast, how many will close because of it? The store (and chain) must respond, or the average store will go out of business. They must: raise prices, trim staff, automate (or some balance of these), or shut down. Main article: Minimum Wage: Cost basis Livable Wage Ignoring the stupidity that there's one magic "livable wage" that would be equally fair on both sides of the same city, let alone country, the left tries to sell the gullible that setting a salary minimum will set a salary minimum, but it doesn’t. Progressives often see the choice as: (a) A livable minimum wage (b) A lower minimum wage. But that's a fantasy. The real choice is: (a) What the market will bear (b) Unemployment ($0/hour). The choice isn't pulling people out of poverty or not, it's about what value an opportunity is worth to an employer, before they skip the job, automate, outsource, or just give up. Main article: Livable Wage Minimum Wage and Automation Value (Money) is derived from the product of work (productivity/results), not based on what you paid for it. Thus the less you pay, the better off you are. The more you pay, the worse. This is why despite the doomsayers automation is good, and despite what the Social Justice Warriors (also known as economically illiterates) will tell you, minimum wage is not good. Despite the B.S. they're selling, you can't lose more money on every transaction and make it up in volume. Main article: Minimum Wage and Automation

Basics

Bay Bridge Boondoggle The bay bridge is a metaphor for San Francisco. The Golden Gate was built privately and under budget for $35M ($1.2B in today's dollars), one span of the Bay Bridge needed a retrofit, that was run by the city and came in late, and over budget at $6.4B, and has withmetallurgy issues (per the spec). For that cost we could have built 4 other bridges. But it looks nice, so everyone wins.... except the taxpayers Main article: Bay Bridge Boondoggle Suffocating Liberty - the cost of red tape Each new tax, law or regulation, comes with costs (compliance, non-compliance, enforcement and punishment). We 174,545 pages of regulations with over 1,040,940 restrictions. Our tax code has over 73,954 pages. Our federal legal code has over 23,000 pages and over 4,450 federal crimes (in 2008). Double that for statutes, case law, and regulatory provisions. Then there’s another 300,000 criminal punishments within the discretion of administrative agencies. Then you have to add in the state and local laws, regulations and taxes on top. Main article: Suffocating Liberty - the cost of red tape Dispersed Knowledge There was an economics battle between Keynes and Hayek fought generations ago. But History proved Hayek the winner: things he predicted came true. Keynes scored a few microeconomic points, but history broke his macroeconomics models: the boom economy after WWI, stagflation in the 1970's, Japan's lost decades and the failure of Abenomics, China and Russia's growth after abandoning command economies, all proved Keynes wrong. And Hayek won the noble prize for explaining why: Dispersed Knowledge. If the leaders don't know more than everyone else combined, then the more decisions you make from the top, the less efficient those decisions will be, and planned economics will underperform ones where the decisions can be made closer to the problem. Main article: Dispersed Knowledge Costs of Defensive Medicine There are many unexpected consequences for everything we do. I had a minor epiphany for improving a medical device/process, that the heads of the company I worked for (Baxter) agreed would save lives, but they could never use because of medical liability. They had to practice defensive medicine, which is about protecting the company from lawsuits. For every action, there is an opposite reaction.... but in life (unlike physics), it isn't always an equal and opposite reaction. Main article: Costs of Defensive Medicine Economics of lies, and fidelity Increase the economic value of a cheat or lie, and you'll use them less often. Thus permission to do something once (or infrequently) will reduce the likelihood of you doing it, more than the impossible standard of pure abstinence. Main article: Economics of lies, and fidelity Gini Coefficient The Gini Coefficient (or Gini Index) came about when Corrado Gini (and Italian Sociologist) wrote the book: The Scientific Basic of Fascism. His idea was that you could make systems stronger than the individuals, if you just weeded out the threats to the collective and accepted fascism (democratic socialism combined with crony capitalism). His book, and the infamous “Gini Coefficient” he created, said that income should be evenly distributed, and if it wasn’t, then government should use that imbalance as an excuse to seize wealth and liberty, and redistribute it (fascism) to make things “more fair”. His coefficient is basically just that: a measure of how economically fascists (socialist) your country is. Main article: Gini Coefficient Income inequality and the middle class There’s a bunch of meme’s and soundbites going around where politicians love to point out the disappearing middle class (income inequality), and how we need them to fix it. There’s only a few problems with that: It’s a lie that plays to people’s ignorance and greed History always looks better from a distance (and if you don’t look too closely) It’s prestidigitation to distract you while they pick your pockets This article details why this is a fraud, and how they give ammo to the frauds and flimflam the gullible. Main article: Income inequality, vanishing middle class, and other scams Gender Wage Gap This one is many myths (lies) in one: (a) Women get $.77-.82 cents on the dollar compared to what men make (this injustice is called the "Gender wage/pay gap" or GWG) (b) We need big government (politicians) and new laws/regulations/taxes to fix it (c) Democrat politicians motives are all sincere, anyone that opposes is a sexist/misogynistic/bigot. All false, and debunked here. Main article: Gender Wage Gap

Keynesianism

Keynesianism Keynes microeconomics was brilliant, his macroeconomics have never worked in the real world. Examples where it failed include: Japan, Venezuela, China, Russia, North Korea, U.S. in every administration since WWII Keynes idea that government can borrow and spend to stimulate growth relies on the ignorance of the people to recognize that increased spending will cost them in taxes/inflation, that government will trim back as the economy gets better (which never happens), and assumes that jobs are highly mutable (they’re not any more). Not all government spending is bad, it’s just usually worse than the alternatives: and the few successes are the broken window fallacy (looking at seen benefits, while ignoring larger unseen consequences) Main article: Keynesianism Keynesian failures It would be great if Keynesianism worked, governments could manipulate economies, and our lives would be better. But history shows us the opposite: it has failed every time it has been tried. Examples: the new deal, the new new deal, after WWII (Keynesians predicted a depression cutting all those military jobs, instead we had huge growth), 1970's Stagflation broke their models completely, Japan's lost decades (Abenomics) all went the opposite of Keynes predictions. Every country that converted from centralized planning and communism to free'er economies (Russia, China, Vietnam, East Germany, etc), should have had a depression, instead of massive growth. The history of central planned economies like North Korea, Venezuela, Cuba, should have all outgrown places like South Korea, Brazil or Hong Kong: but the opposite happened. Heck, if it would have worked, then Obamanomics would have given us the highest labor participation rates in our history, instead of the lowest since the Great Depression. So what did we learn? Keynesians learned nothing because reality doesn't fit their desires. But the rest of us learned that Keynes was wrong. Main article: Keynesian failures Treasury View The general definition is "government spending crowds out private investment". It is widely accepted as at least partly true. The Keynesian version is that in recessions/depressions everything has to be perfectly efficient and instantaneous. Since it isn't, they see any lags, overreactions and inefficiencies as opportunities for government to step in and spend (stimulate) to where "things should have been", to smooth out the downturns. Nice theory. FDR tried it in the great depression (believing in his "brain trust"), and the results were extending the depression by a decade, and we have many more examples of the failures of planners to be more effective than the free market. So while it's a great theory, it has never actually worked in the real world. Keynes was a brilliant micro-economist, with delusions of being a macroeconomist, but his religion of collectivism (authoritarianism) got in the way of understanding human nature (how people and thus economies would react) or the nature of governments. Main article: Treasury View Why can't Keynesianism work? Keynesianism is the idea that during recessions/depressions markets can react to fear and over-correct. Government can make up for the fearful private sector over-cutting (and being less than efficient), by spending up to where levels should have been, and smoothing the reset. However, for Keynesianism to work you need 4 things to happen: (1) an information vacuum (2) you have to cut spending/programs as the economy gets better (3) you need to be replacing like jobs (4) you have to have near equal efficiency between government and private sector. Since none of those things happens in the real world, the Keynesian promises have never, ever, been realized. Main article: Why can't Keynesianism work?

Obamanomics

Numbers Covered by Obamacare Those claiming 20 million more people are insured because of Obamacare (ACA) either don’t know what they’re talking about, or are bald-faced liars. We're around 29 million people short of the campaign promise for universal coverage. And it's well below the 20 million new people covered that the fools and frauds like to claim. The facts: about 2.8M were covered because of Obamacare, and another 4-6M because of medicaid expansion, at a cost of about $20K per new person covered. Main article: Numbers Covered by Obamacare Economics of Community Organizing From Gun Sales to Mass Shootings, how the unintended consequences of community organizing are often detrimental to the stated goal. How divisive rhetoric and drawing attention to your cause can often get the opposite outcome of intent. Of course if your intent is to pose for the selfie-stick and drive up gun ownership and mass shootings then maybe it isn't the opposite of intent. Main article: Economics of Community Organizing and Divisiveness

Financial crisis

Financial crisis of 2007-2008 What caused the financial crisis of 2007-2008? This is a comparison of the two (or three) most popular theories: whether Glass-Steagall, CRA and FannieMae/FreddieMac, or the Big Fraud caused the meltdown. Along with a full explanation of the strengths and weaknesses of them (which holds up to scrutiny). Links and resources provided. Main article: Financial crisis of 2007-2008 Financial Terms These are a bunch of financial terms (concepts really), that you can scan to get familiar with the jargon and ideas. Especially before reading the Financial crisis of 2007-2008, but they're good jargon to know when watching financial shows or reading financial press. Main article: Financial Terms Glass-Steagall Glass-Steagall was the 1930's new deal regulation that said Commercial and Investment banks had to be separated. There would be no "universal" banks (that did both). In theory, by separating sides there would be more transparency, and people might behave less risky. In truth, there's just more inefficiency and the same risk. Think of these: We know transparency wasn't the problem, as everything they did was known by all. (A few were able to anticipate things by reading the info that had been out there all along). Adding/removing steps didn't change anything material -- and regulation increased after the repeal by over 17%, with thousands of pages of new regulations. Banks were less leveraged after the repeal than before -- so Glass-Steagall had done nothing to reduce leverage (risk) If Glass-Steagall prevented catastrophe, why didn't Asia and Europe have financial meltdowns first: they never had Glass_Steagall? Most of all, if G-S was the problem, then during the collapse it would have been the unified banks that had the biggest problems (over-leveraged/under-capitalized). It wasn’t. The Unified banks outperformed the Commercial banks (Countrywide) and the Investment Banks went out of business (Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns). The Unified banks bailed out the others; JP Morgan Chase (Unified) bailed out Bear Stearns (Investment), while B of A (Unified) helped by taking over Merrill Lynch (Investment) and Countrtywide (Commercial). This is backwards from what GST says should have happened! Main article: Glass-Steagall CRA, Fannie/Freddie Theory The idea of the CRA->Fannie/Freddie theory (CRAFFT) is as follows: Fanny/Freddie (F&F) was created (and created MBS's) to help the poor get subprime loans. The CRA punished banks that didn't do enough of them. Since F&F would buy as many loans as the banks underwrote (to F&F standards), they wrote a lot of them. Banks didn't know how much risk was in the system (since it was F&F that was bundling the MBS's). Eventually the high risk and low oversight meant at a downturn all those people with nothing down (or upside down), just walked and left the banks holding the bag. That meant Bank regulations (loan to equity ratios and mark-to-market) meant the banks couldn't loan, and the credit markets froze until the Govt. loaned them enough money to unfreeze things. Main article: CRA, Fannie/Freddie Theory Big Fraud Theory There are a few books or movies like "The Big Short", Liar's Poker, or William Black who float this Big-Fraud theory (BFT), It is loved by Hollywood, the Media, Progressives (Elizabeth Warren, Bernie Sanders), and those who know better but want to distract and enrage the gullible. Basically, "Massive greed encouraged massive over-leverage, and while everyone (or a few) knew better, they did it because they were dumb, greedy and corrupt." While it's becoming the most widely spread theory (because hate and ignorance spreads faster than information, complexity, common sense and introspection) it doesn't hold up to scrutiny or history. This article offers those. Main article: Big Fraud Theory