We hear in the news about the pending economic collapse that will occur if the US government does not raise the debt ceiling. This is absolute nonsense.
If the debt ceiling is not raised by Tuesday and the government can no longer borrow to pay the interest it owes to its creditors, the government need not default. But even if it did, there is no reason to think chaos would rain.
Think about what goes on in you daily life that requires daily supervision by big brother. How would you life be impacted if the government defaulted? Any assets you had in government bonds would lose their value, sure, but that is no worse then if you lost money on any other investment. Those at or near retirement would be most effected especially if they have much of their assets in government bonds But for the majority of people, the pain would be small and a default does not mean all debt is tossed.
But even default need not happen. The government would just have to prioritize payments so that default does not occur. Pay first on interest then to those on social security. After that, pay government workers. Things to not pay may include corporate welfare and other unnecessary expenditures.
The paranoia surrounding the current carnival act in Washington in unfounded. The level of discourse in Washington has dropped below its already low level. People of principle are unwilling to compromise the people's future and for that they are the targets of mud slinging.
For once, I agree with the Tea Party. There should be no raising of the debt ceiling unless true meaningful cuts are enacted including entitlement reforms.
Sunday, July 31, 2011
Saturday, July 23, 2011
Missing Dad
I recently had an emotional experience. My daughter and I went to visit my father's grave. I gave little Amy flowers to put next to the headstone. My father is gone, lost to the void and it hurt to think about. Amy will never get to meet her grandpa Humpherys.
Was this a religious experience? Was it spiritual (and there is a difference)? Or was it just an emotional experience?
Does missing my father and visiting his grave mean that I believe in a god? Do I have to believe in an afterlife in order to miss my father?
Even if you believe that physical beings can transcend their own demise, of what benefit is visiting their grave. Does going to a grave benefit the deceased?
Whether or not you believe in the magical sky fairy, and even if you believe that the essence of a person that is contained within the physical brain can be magically transformed into something nonphysical, visiting a grave is only a benefit to the living.
Was this a religious experience? Was it spiritual (and there is a difference)? Or was it just an emotional experience?
Does missing my father and visiting his grave mean that I believe in a god? Do I have to believe in an afterlife in order to miss my father?
Even if you believe that physical beings can transcend their own demise, of what benefit is visiting their grave. Does going to a grave benefit the deceased?
Whether or not you believe in the magical sky fairy, and even if you believe that the essence of a person that is contained within the physical brain can be magically transformed into something nonphysical, visiting a grave is only a benefit to the living.
Friday, July 8, 2011
Behavioral Economics
The reigning orthodoxy in economics holds several assumptions. These assumptions include that humans act rationally, meaning they attempt to maximize utility, meaning satisfaction, through consumption. It is assumed that people have sufficient knowledge to know exactly what to consume to maximize utility as well as the going market rates.
On the other side of the equation, firms are also assumed to act rationally, that is they attempt to maximize profit. In order to do this, firms must have perfect knowledge about their own cost structure and know the demand curve that they face. Firms must also know about the cost structure for their competitors if they are not a monopoly. Any firm in an at least semi competitive market, not a monopoly or oligopoly, must know the market price at any given time. On top of this, firms my have perfect knowledge of the tax and regulatory structure.
While these assumptions are obviously not true, they are good first order approximations and are only strictly applied in introductory courses. To some degree, more advanced courses will attempt to relax these assumptions to get the model to fit reality better.
Behavioral economics, on the other hand, rejects these assumptions. The Austrian school of economics starts with the axiom that humans act and specifically they act purposefully. While they Austrian school attempts to approach the question of human action from a serious of deductions based on their primary axiom, Behavioral economics set out to find out why people act and how do they act from an empirical stand point.
While we can certainly know through none empirical methods, it is the empirical testing that allows us to confirm what we derive. If people do not act rationally with perfect knowledge, how do they act? Do they gain utility solely through consumption or can giving up consumption for some other purpose actually increase a person's utility? These and more are the question posed by Behavioral economists.
There are many interesting potential areas of study within the field of Behavioral economics.
On the other side of the equation, firms are also assumed to act rationally, that is they attempt to maximize profit. In order to do this, firms must have perfect knowledge about their own cost structure and know the demand curve that they face. Firms must also know about the cost structure for their competitors if they are not a monopoly. Any firm in an at least semi competitive market, not a monopoly or oligopoly, must know the market price at any given time. On top of this, firms my have perfect knowledge of the tax and regulatory structure.
While these assumptions are obviously not true, they are good first order approximations and are only strictly applied in introductory courses. To some degree, more advanced courses will attempt to relax these assumptions to get the model to fit reality better.
Behavioral economics, on the other hand, rejects these assumptions. The Austrian school of economics starts with the axiom that humans act and specifically they act purposefully. While they Austrian school attempts to approach the question of human action from a serious of deductions based on their primary axiom, Behavioral economics set out to find out why people act and how do they act from an empirical stand point.
While we can certainly know through none empirical methods, it is the empirical testing that allows us to confirm what we derive. If people do not act rationally with perfect knowledge, how do they act? Do they gain utility solely through consumption or can giving up consumption for some other purpose actually increase a person's utility? These and more are the question posed by Behavioral economists.
There are many interesting potential areas of study within the field of Behavioral economics.
Wednesday, July 6, 2011
Abortion and crime.
In 1966, Romanian communist ruler Nicolae Ceauşescu made abortion illegal in Romania. Due to lack of adequate contraception, abortion was the main form of birth control used up until that time. The main objective of Ceauşescu was to increase the birth rate to boost the population and it worked.
Romania faced starvation and poverty because of the communist dictator. It should come as no surprise that the communist country face rampant poverty. Mixing poverty with unwanted child birth has disastrous consequences. As the population grew, Ceauşescu faced the ultimate consequence of his foolish policy. His people rebelled, most of whom would never have been born if not for the ban on abortion.
We may be happy to see a communist dictator fall under the pressure of a dissatisfied population he help to create, what kind of situation would we expect to find in a capitalist country like America.
An unfortunate rise in crime was seen in the US fueled in part by the crack epidemic. Due to the crime wave, crime rates were expected to sore during the 1990s. However, crime rates dropped.
The 1973 case Roe v. Wade affirmed a woman's right to an abortion. States with the highest abortion rates experienced the greatest declines in crime during the 1990s. You might ask, what is the connection?
Legalize abortion granted access to abortion services to the poorest of women. Often the woman was unmarried or in her teens or poor, and sometimes all three. These are the same women whose children are at highest risk of committing serious crimes. With access to abortions for these women, the children who would have been born to continue the increase in crime rates were never born.
Some may say that this does not justify abortion because it is the killing of an innocent life. But if abortion were made illegal again, we threaten everyone's welfare. They see the millions of pregnancies ended on the same level as crime. However, none of ours welfare is effected by abortion but an increase in homicides and other violent crimes threatens everyone.
The anti-abortion crusade never talks about preventing unwanted pregnancies, there is only a fight to prevent access to abortion. The Catholic church is an even worse offender fighting against even the use of contraceptives.
If anti-abortion groups want to be taken seriously, they need to come up with better alternatives. The only options they offer are 1) keep the baby even if you are not ready and it places a serious burden on your life or 2) give the baby up for adoption.
Making abortion illegal again would only be a losing proposition for everyone. 16 to 18 years after, we would see a rise in crime rates. Unwed, young and poor mothers would be faced with giving up their lives to raise a child in poverty or going through the dramatic experience of child birth only to give up the baby.
If you are anti-abortion, you have to come up with a new alternative.
Romania faced starvation and poverty because of the communist dictator. It should come as no surprise that the communist country face rampant poverty. Mixing poverty with unwanted child birth has disastrous consequences. As the population grew, Ceauşescu faced the ultimate consequence of his foolish policy. His people rebelled, most of whom would never have been born if not for the ban on abortion.
We may be happy to see a communist dictator fall under the pressure of a dissatisfied population he help to create, what kind of situation would we expect to find in a capitalist country like America.
An unfortunate rise in crime was seen in the US fueled in part by the crack epidemic. Due to the crime wave, crime rates were expected to sore during the 1990s. However, crime rates dropped.
The 1973 case Roe v. Wade affirmed a woman's right to an abortion. States with the highest abortion rates experienced the greatest declines in crime during the 1990s. You might ask, what is the connection?
Legalize abortion granted access to abortion services to the poorest of women. Often the woman was unmarried or in her teens or poor, and sometimes all three. These are the same women whose children are at highest risk of committing serious crimes. With access to abortions for these women, the children who would have been born to continue the increase in crime rates were never born.
Some may say that this does not justify abortion because it is the killing of an innocent life. But if abortion were made illegal again, we threaten everyone's welfare. They see the millions of pregnancies ended on the same level as crime. However, none of ours welfare is effected by abortion but an increase in homicides and other violent crimes threatens everyone.
The anti-abortion crusade never talks about preventing unwanted pregnancies, there is only a fight to prevent access to abortion. The Catholic church is an even worse offender fighting against even the use of contraceptives.
If anti-abortion groups want to be taken seriously, they need to come up with better alternatives. The only options they offer are 1) keep the baby even if you are not ready and it places a serious burden on your life or 2) give the baby up for adoption.
Making abortion illegal again would only be a losing proposition for everyone. 16 to 18 years after, we would see a rise in crime rates. Unwed, young and poor mothers would be faced with giving up their lives to raise a child in poverty or going through the dramatic experience of child birth only to give up the baby.
If you are anti-abortion, you have to come up with a new alternative.
Wednesday, June 29, 2011
The economy
Oh, the state of the economy. Apparently we have been out of the recession for a while but are experiencing a sluggish growth rate. Most recoveries involve a boom, but apparently this one hasn't boomed yet.
As of May, 2011 unemployment is much higher then before the recession. Though it has come down some and is under the double digit mark, it has not dropped below 9%. Why is unemployment so high.
The most important factor for employers is certainty. The more uncertain the future is, the less willing firms will be to try to expand.
A major cause of uncertainty is the ironically named Patient Protection and Affordable Care Act. Many firms are requesting and being granted waivers because of how big a failure this act is. But there is uncertainty in how much compliance will cost because government bureaucrats get to determine how much coverage the firms have to pay for.
More uncertainty is being caused by our debt fiasco. The officials in power feel like making token spending cuts is sufficient to fixing the problem. Others have proposed serious spending cuts but few have proposed eliminating the deficit. Some even claim that we don't need to eliminate the deficit. But if you have a deficit year in and year out, eventually the interest payments on the debt will grow out of hand. Regardless of how small the deficit is, eventually it will catch up on us. Deficits might be useful for times of recession, but should be eliminated during good time. When you run constant deficits, when a recession hits, that is when things go to hell and some states and localities are facing that very situation.
Inflation is another cause for uncertainty. A producer cannot tell if the rising prices are due to increased consumer demand or just rising inflation and since QE1 and QE2 were such colossal failures, the Federal Reserve has decided that the third times the charm with QE3. What can we expect from more money circulating? Higher inflation. Since increasing the money supply has no actual effect on productivity, it cannot increase output.
It is easy to see with all the uncertainty that we have raining down from those on high that we are unlikely to get out of this slump any time soon.
As of May, 2011 unemployment is much higher then before the recession. Though it has come down some and is under the double digit mark, it has not dropped below 9%. Why is unemployment so high.
The most important factor for employers is certainty. The more uncertain the future is, the less willing firms will be to try to expand.
A major cause of uncertainty is the ironically named Patient Protection and Affordable Care Act. Many firms are requesting and being granted waivers because of how big a failure this act is. But there is uncertainty in how much compliance will cost because government bureaucrats get to determine how much coverage the firms have to pay for.
More uncertainty is being caused by our debt fiasco. The officials in power feel like making token spending cuts is sufficient to fixing the problem. Others have proposed serious spending cuts but few have proposed eliminating the deficit. Some even claim that we don't need to eliminate the deficit. But if you have a deficit year in and year out, eventually the interest payments on the debt will grow out of hand. Regardless of how small the deficit is, eventually it will catch up on us. Deficits might be useful for times of recession, but should be eliminated during good time. When you run constant deficits, when a recession hits, that is when things go to hell and some states and localities are facing that very situation.
Inflation is another cause for uncertainty. A producer cannot tell if the rising prices are due to increased consumer demand or just rising inflation and since QE1 and QE2 were such colossal failures, the Federal Reserve has decided that the third times the charm with QE3. What can we expect from more money circulating? Higher inflation. Since increasing the money supply has no actual effect on productivity, it cannot increase output.
It is easy to see with all the uncertainty that we have raining down from those on high that we are unlikely to get out of this slump any time soon.
Thursday, June 9, 2011
Gay Marriage
Many Christians in the gay marriage debate like to talk about historical marriage. By this, of course, they mean that marriage is between a man and a woman and has never historically been between 2 men or 2 women.
This point must be conceded. However, are we bound by the traditional norms and mores?
Historically, marriages were not done out of a sense of love or romance but were arranged. They were legal unions between families and often the couple never met before the ceremony. So important was the union of marriage that in ancient Greece and Rome unmarried men were denied access to certain public positions. The Greek lawgiver Solon contemplated making marriage mandatory and the Roman emperor Augustus actually passed laws mandating marriage and punishing those who did not marry.
The purpose of marriage in these cultures was not about an equal union or a union of partners. In Greek and much of Roman history, the man was dominant over his wife and family. The union was about producing off spring. So separated from our modern concept of marriage as a union of fidelity were the Greeks that the Greek orator Demosthenes explained: ""We have prostitutes for our pleasure, concubines for our health, and wives to bear us lawful offspring."
In ancient Israel, marriage too was radically different from our modern concept. Polygamy was permitted, Jacob married two sisters, Leah and Rachel. Again, arranged marriages were common. The father arranged the marriage for his son paying a "bride price" to the woman's father.
It is clear that we do not want the historical form of marriage. People should be free to choose their own partner. But historically, marriage was not just about the union of a man and a woman. It was about having children and raising a family. Clearly under that standard, gay marriage makes no sense.
Today, marriage has a very different meaning. People pair off voluntarily. Some put off marriage until later in life or do not marry at all. Couples may choose to have children together or may have no children. Marriage is a partnership. This modern concept of marriage is very much amicable to gay marriage. As our knowledge about human reproduction has increased, it is now even possible to allow for gay couples to raise children together without first having to conceive a child with the opposite sex. Perhaps future advances will allow the creation of offspring who's genetic parents are of the same gender.
In conclusion, marriage is not the same as it was historically. The original purpose of marriage, reproduction, is not the modern purpose. Gay marriage is the next step in our changing views of marriage. Even if you wish to impose the old tradition of having children and raising a family on marriage, science is allowing us to accomplish that end with same sex couples.
Wednesday, May 25, 2011
Oil speculators
Are speculators to blame for high oil prices?
This is a silly question but some economically illiterate people are spouting this claim.
What do oil speculators do? They puchase oil futures expecting the price will go up. As long as they expect the price to increase, the speculators will try to buy at the current price. However, if actual prices start to fall, the futures market will quickly clear. If the futures are priced higher then the market will bare, the speculators will lose money. The purpose of speculators is to buy oil when supply is high to sell when the demand is high. In this way they tend to smooth the price of oil. The smoothing is never perfect, but we have examples of markets where speculation has been banned and since the ban, prices tend to swing up and down more often.
Price swings are bad for producers. If a producer of any comodity over supplies, the market price may be too low and they may lose money. This is because of increasing marginal costs. If a producer supplies too little and the price is higher, the producer may lose out on potential profit.
Speculators prepurchase from the producers. In this way, the producers are guaranteed a set price and do not have to worry about the actual market price.
Speculation plays an important role in our economy. Stable prices ensure that producers make fewer output mistakes that might force them out of business, protecting jobs and ensuring a stable supply for consumers. Producer benefit, consumers benefit and speculators benefit.
This is a silly question but some economically illiterate people are spouting this claim.
What do oil speculators do? They puchase oil futures expecting the price will go up. As long as they expect the price to increase, the speculators will try to buy at the current price. However, if actual prices start to fall, the futures market will quickly clear. If the futures are priced higher then the market will bare, the speculators will lose money. The purpose of speculators is to buy oil when supply is high to sell when the demand is high. In this way they tend to smooth the price of oil. The smoothing is never perfect, but we have examples of markets where speculation has been banned and since the ban, prices tend to swing up and down more often.
Price swings are bad for producers. If a producer of any comodity over supplies, the market price may be too low and they may lose money. This is because of increasing marginal costs. If a producer supplies too little and the price is higher, the producer may lose out on potential profit.
Speculators prepurchase from the producers. In this way, the producers are guaranteed a set price and do not have to worry about the actual market price.
Speculation plays an important role in our economy. Stable prices ensure that producers make fewer output mistakes that might force them out of business, protecting jobs and ensuring a stable supply for consumers. Producer benefit, consumers benefit and speculators benefit.
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