Favorite sports teams

  • My favorite sports teams
  • (1) Braves
  • (2) Yankees
  • (3) Hawks
  • (4) Falcons
  • (5) Panthers
  • (6) UNC (basketball)
  • (7) UGA (Football)
  • (8) Alabama (Football)

Monday, March 17, 2014

The new normal: why low workforce participation rates and bad trade policies mean that the U.S. will be stuck in low growth and high real unemployment for the foreseeable future

     The United States right now is facing a weak economy, high unemployment, and low growth. There have been periods of recovery throughout the recession, but all have been followed by disappointing results. It has been over 4 years since the official end of the recession. Even before the recession, growth was much lower then in the mid 90s. From 1994-2000, the United States averaged an annual growth rate of about 4.05%. From 2003-2006, at the height of the U.S. economy on the last decade, the growth average was almost a full point lower, at about 3.18%. From 1994-2000, unemployment consistently fell or stayed put. In January 1994 it was 6.6%, falling to 5.1% in August of 1996 to 4.5%  in May 1998 and to under 4% in 2000. Although some of the growth toward the end of the period was driven by the technology bubble, the fact that the recession afterward was only made much worse after the terrorist attack of Sept 11, 2001 shows that despite the bubble, underlying economic conditions were still good. The period from 2003-2006 also saw a drop in the unemployment rate, although not to as low as a level as seen in 2000, and the low unemployment lasted for a shorter period of time. This period was driven not by one but two bubbles, a banking one and a lending one, which would prove to be much larger than the technology bubble. Yet despite this, the period from 2003-2006 was worse in regards to both growth and unemployment than from 1994-2000. The fact that conditions were dissapointing even before the recession reveal a worrying reality: that structural, not cyclical factors are hampering the U.S. economy. This is also known as secular stagnation. From 2001 onward, the economy was unable to create many jobs or produce good growth without a bubble, and even with the bubble conditions were not great. Former treasury secretary  Larry Summers admitted this in an interview with the Washington post. The United States is in danger of following a path similar to Japan, and France: consistently poor GDP growth, low workforce participation, and excessive regulation combined with relatively high unemployment and low inflation to create a economy that is permanently bad.

      Even worse news is that when one takes into account lower workforce participation, one can see that the unemployment rate is underestimating the number of people out of work. The workforce participation rate is now at a very low 63.0%. It has been in decline for a while. In 1998 around its peak it was at 67.1%. At that time it was expected to decline to about 63.0%, but in 2025 not 2014. In November 2007, the month prior to the recession it was at 66.0%. As the unemployment rate peaked at 10.0% in October 2009, workforce participation was at 65.0%. Despite the fall in unemployment by over 3.0%, the workforce participation rate has decline by 2.0%. This means not only that much of the decline was artificial, but also that the U.S. will have relatively fewer jobs because relatively fewer people are working. In short, unless this major problem is solved, it is highly unlikely growth can be sustainably what it was in the mid-2000s, let alone the mid to late 1990s.

      One thing that contributes to the low workforce participation rate is the excessive social safety net.  The retirement age had remained 65 ever since 1938. It was not until 1983 until a very small raise in the retirement age was introduced for people born after 1938, gradually rising to 67 for people born 1959 or later. In 1938 the life expectancy in the U.S. was 63.5 years. In 1983, even when in had risen to 74.6 years, the retirement age barley budged. In 2011, the life expectancy was 78.7 years. Despite the over 15 year increase in life expectancy, the official retirement age has barely moved since 1938. This contributes to the low workforce participation rate. The fact that there is an over 15% drop in workforce participation from ages 62-64 to ages 65-69 confirms this.  In addition to an early retirement age, disability claims are also being abused. Disability claims rose by during the recession. From 2008-2009, applications for the program rose by 21%, and from 2007-2011 the number of people collecting disability claims rose by 2.8 million, or about 20%. This is a significant increase that needs to be addressed. The Affordable Care Act makes the problem of less people working even worse. According to the CBO,  from 2014-2024 2.5 million less people will work full time because of disincentives to work by the Affordable Care Act.

      A low workforce participation rate is bad for the economy and country for many reasons. One reason is that with less people working, less income is made, causing both tax revenues to fall and  average household income to fall. It also means that less work and production is done, causing growth rates to fall. Lastly, with less people working, the people who are working will have a bigger average burden to support the people who are not.

I my next segment, I will discus the United State's poor trade policies and how it hampers growth.

      The Economist Feb 22-28 2014



    Monday, February 10, 2014

    The focus on inequality in America

         Today, there is a lot of focus on inequality, particularly from more liberal news sources such as the Huffington Post, Time Magazine, and MSBC. The President in the State of the Union Address as well as during other occasions, proposed solutions such as raising the minimum wage and increasing taxes on the wealthy.  Although income equality sounds like a wonderful goal for society, it can be a poor measurement of the prosperity of the society.  A society in which all citizens are poor is very equal but less prosperous than one that has a wide range of incomes from rich to poor.  Focusing on income equality alone leads to economic conditions that help the poor at the expense of mean income and wealth for the entire society. Some of these misguided measures taken to enhance economic equality are artificially raising wages higher than market value, and placing an excessively high tax burden on the wealthy.  The United States should not trade in the prosperity of the entire nation to achieve income equality.

       Even though inequality is rising, social mobility is not declining. According to a large Harvard economic study, social mobility has stayed constant over the past half century. The president has stated that social mobility is getting worse, when in fact it is not. This reveals a fundamental flaw in his world view of inequality, which in turn should make one take any solution he proposes with a grain of salt.

          Income equality is not necessary a good way of measuring prosperity. Using the Gini coefficient as a way of measuring inequality, with 100 being complete unequal and 0 being completely equal, the U.S. is in the highest third with a rating of 45.0. Canada, Australia, Sweden and Norway are often seen as models of wealth and/or income inequality. Canada comes is in the bottom half with a rating of 32.1, Australia in the bottom forth with a rating of 30.0 Norway 5th lowest with a rating of 25.0, and Sweden being the most equal with a rating of 23.0. Despite its high income inequality, the United States ranked first in the OECD, with a mean Household adjusted disposable income of $38,001. Norway comes in with $31,459, Australia with $28,884, Canada with 28,194, and Sweden with $26,242. The point is greater income inequality does not always translate into greater average income. In mean Household financial wealth, the U.S. outperforms its peers even more. The U.S. has $115,918, Canada with $63,852, Sweden with $44,889, Australia with $32,178, and Norway with a mere $6,905. Once again, greater wealth equality does not mean greater wealth. Yes, the U.S. has significantly higher poverty rates then these countries, but for the most part people in the U.S. make more and have more money than in every other OECD country. The stats show income equality is not a good way of showing how well people in a country are doing.

         What about the President's specific solutions for enhancing economic equality such as raising the minimum wage and increasing taxes on the wealthy? Are these good ideas? Raising the minimum wage to $10.50 an hour, as the president has proposed, would not be much relief. It would only be a annual income of $21,480 assuming the employee works full time. This is still below the poverty line for a family of four. Raising the minimum wage much higher would likely cause companies to not hire as many young workers, leading to high youth unemployment rates as seen across southern Europe.  In addition, one would expect companies that are forced to pay higher wages to pass off the increased expense to the consumer.

           Raising taxes on the wealthy is not a good idea either.  In March of 2013, the top 10% of American earners made 45% of the nation's income, but paid 70% of the income taxes. Proponents of higher taxes on high earners often focus on the wealthy paying their fair share. However, they are actually paying over one and a half times their fair share.  While income tax accounts for about 47% of the total, this is the only type of individual tax that is progressive, and thus is the only one that can be changed for only a certain group of earners. However, in 2012, the bottom 50% of earners paid only 2% of income taxes. Raising taxes on only the top income bracket is also inefficient. Were it to be raised 1% point on only them, from 2014-2018 tax revenue would rise about $38 billion, while if it were to be raised 1% point on all income tax brackets, tax revenue would rise $287 billion from 2014-2018.

         In summary, economic equality is a lofty ideal that does not work well in the real world.  European countries have more income equality but lower incomes and wealth than the United States. Moreover, the specific measures that the President is proposing to enhance equality are unhelpful and perhaps harmful to the economy.  Raising the minimum wage might help a small number of workers by a small amount, but corporations would be forced to compensate for the increased expense by hiring fewer workers and increasing prices that consumers pay for goods.  Increasing taxes on the wealthy is not nearly as efficient in raising tax revenue as raising taxes on all citizens.  In addition, the wealthy already pay more than their fair share of taxes.  The President should not focus on the deceptive goal of greater economic equality.  Rather he should focus on strengthening the economy as a whole.







    Thursday, January 9, 2014

    Why the affordable care act should be repealed

    The Affordable Care Act, more commonly known as Obama-care, was signed into law on March 23, 2010 after much Republican resistance. The law attempts to attain two main goals, to make health care more affordable and to cover many of the 48 million people without insurance (Pear). Supporters of the law claim it achieves both, but in reality it only achieves only the latter. In addition, many citizens are losing their current health insurance because their plan does not qualify.  Finally, even those who wish to sign up for the new exchanges created by this law are unable to because the website for signups seldom works. 
    The Affordable Health Care Act,  law makes healthcare less affordable.  A major problem is that the bill fails to significantly address health care costs. Drug prices were not negotiated; there was little action to curb rising insurance premiums.  This law promises insurance for millions of people, but has no plausible way to pay for their medical care. There is no doubt that insuring people who cannot afford medical care will be very expensive.  Since many sick people with preexisting conditions can now be covered, prices would go up. The law has a fine to encourage young people to sign up for health insurance to make up for this increase in cost.  However, the fine is insufficient.  In 2014, an adult would have to pay only $95 for not having health insurance (Luhnby). Meanwhile, the average monthly cost for a middle tier plan is $328 (Persaud), around 370% more in a single month than the fine is for an entire year. Even though the fine will rise, it will still cost over five and a half times as much to buy healthcare than to pay the fine.  Additionally, 80% of the uninsured will be exempt from the mandate (Luhnby). The lack of economic incentive for purchasing insurance and the difficulty navigating the website will result in fewer people purchasing insurance.  Costs will go up dramatically, further discouraging young people to sign up, which will further raise costs. The law will enter a death spiral of ever-higher insurance rates until the system collapses or major reforms are required.
    Furthermore, 12 million hard working Americans have lost their insurance (Killough). Part of the problem lies in the complicated regulations.   These people have relatively cheap plans, and the new law says these plans do not meet the new requirements. The President said, “If you like your insurance, you can keep it”, but this was clearly a lie. Ironically, the law tried to make it easier to obtain affordable healthcare, but affordable healthcare is obtained more difficultly. Some will get health insurance, but the rise in prices and the loss of insurance will make people who currently have it suffer.
    Another major problem is that the backend of the website has been dysfunctional. Even though individuals can now sign up, “…insurers have long said that they are receiving botched enrolment forms, or 834s, if they receive them at all” (The Economist). So, while many will think that they have health insurance, in reality they will not. This could become a major problem when people arrive in hospitals only to realize that they do not have insurance. The fact that health care officials “…would not confirm what share of 834s were being bungled” (The Economist) shows that it is a major problem. The worst of the website problems are probably over. However, not being able to deliver on a website for the president’s signature law calls into question the administration’s competency in performing a major overhaul of the U.S. healthcare system.
               A major problem lies with the fact that the law was designed in an unsustainable way. If there major changes are not added to the bill, it will lead to much higher insurance rates and eventually a collapse in the system. Once the system collapses, there will be millions of people who got their healthcare insurance through Obamacare and want to keep it. Unfortunately, for many of these people, a free market system will be unable to cover their insurance in a way that they can afford it. Ultimately, these people will want to keep the insurance and will become very influential in the healthcare debate. The only way that these people could be covered is a single payer system. The problem with that lies with the fact that this system would be expensive for the government and require tax hikes, something that neither party wants to do. Considering that Medicare already cost around 500 billion dollars per year (Sahadi), and that there were 3.3 workers per beneficiary in 2011 (Sahadi), even when factoring in that old people need more healthcare than others, and potential savings in costs of Medicare and Medicaid, this system could still add around $1 trillion dollars per year. Considering that the current GDP was 16.9129 trillion dollars after the 3rd quarter of 2013 (Bureau of Economic Analysis), this would equal about a 6% increase of debt as a percentage of current GDP every year. The situation could put us in a Spain like scenario were people do not want to cut services even if it is necessary, and the fiscal burden leads to prolonged high unemployment and recession.
    The U.S. should repeal the Affordable Care Act. It fails to allow people who like their insurance to keep it. It fails to make healthcare more affordable. It is likely that without repeals or considerable reforms, the law will cause the system to collapse on itself.
    That being said, Republicans should not solely focus on the law, or even make it their primary issue. Despite the law’s low approval rating of 35% (Alter) most Americans are still primarily focused on the economy. Despite the recent jump in GDP growth shown in the 4th quarter of 2013, unemployment remains high, and yearly GDP growth remains disappointing, especially compared to before 2008. The resurgence of Al-Qaida and affiliated groups in Syria and Iraq also make the president vulnerable after repeatedly stating that Al-Qaida is on the path to defeat. While the Affordable Health Care Act is a major issue, it should not be focused on too much by opponents of it in order to prevent ignoring other issues. Instead, opponents of the law should combine opposition to it with mentioning other issues in order to get elected, and focus on repeal after 2014.

    Monday, November 18, 2013

    Our government's current grid-lock: the problem and how to fix it. Part 3

            This is the last post in the three part segment on the U.S. government's grid-lock. In this post, I shall discuss the corrupting influence on money in politics, and how it has contributed to the current congressional stalemate. 

          In 1976 the supreme court ruled in Buckley v. Valeo that having limits on campaign donations was a violation of free speech. In 2010, the supreme court ruled in Citizens United vs FEC that corporations and unions have the same first amendment rights as individuals. Because of these rulings, creating a 501 (c) (4), more commonly known as a Super-Pac became legal. This is a non-profit organization that can raise unlimited money from corporations, unions, or individuals to support or oppose a candidate as long as they do not directly communicate with the candidate. These donations are often anonymous.

        In 2012, $567,498,628 were spent on elections by Super-Pacs, and there is good reason to think that more will be spent in 2016. All of this money has a large corrupting influence on politicians. Elected officials are likely to pay favors to those who give money to a Super-Pac supporting them, whether it is companies, unions, or individuals. This will dilute the influence that most Americans have on elected officials.

         Even worse, many of these Super-Pacs are funded by people in the political base of their party. These people tend to be less moderate and more extreme in their beliefs than other members of the party.  There are several possible results from the increasing influence of Super-Pacs.  One possibility is that it could make it easier for people at the fringes of the major parties to get elected, because they will tend to get more money from Super-Pacs. Another is that Super-Pacs could cause more moderate congressmen to shift even further toward the base of their party in order to get re-elected.  Lastly, Super-Pacs could help candidates with wealthy friends who would be free to donate as much as they want to their candidate's campaign via a Super-Pac.  In this case, elected officials would worry much more about pleasing wealthy donors than acting in the best interest of the rest of the nation.






    Sunday, October 20, 2013

    Our government's current grid-lock: the problem and how to fix it. Part 2

         The debt ceiling was suspended at the last minute on October 16th near midnight. This suspension will last until February 7, 2014, when another deal will need to be made. The "non-essential" government services have also recently been re-opened until mid January 2014. Essentially, Congress has done last minute what it was supposed to do, and according to Standard and Poor's, cost the U.S. economy over $24 billion. The damage done to U.S. credibility could be even more harmful. Furthermore,  there is no indication that this predicament will not happen again. In this post, I will discuss another way to fix the impasse in Washington.

            One of the primary causes of deadlock on Capital Hill is excessive partisanship and unwillingness to compromise.  Lawmakers are unwilling to relinquish the positions of their base because they fear losing the support of the voters in their party.  However, passing laws and budgets inevitably requires some concessions from both parties.  Lawmakers might feel leeway to make concessions unpopular with their base but necessary to pass laws, but they fear alienating their base during an election season. Unfortunately the election cycle in Congress is such that  it is ALWAYS election season.  The election cycle needs to reformed so that Congress is not in perpetual campaign mode.

         The most glaring case of this is in the House. Every 2 years, all members of the House face elections. This means that as soon as the congressmen are inaugurated, they are already in re-election mode. These short terms make it hard for House Members to get reforms passed that are unpopular in their district but are good for the country, such as budget or economic reforms. In addition, the congressmen are perpetually raising money to finance their expensive campaigns.  Unfortunately, big donors frequently want favors in return.  These favors may not be in the general public's best interest.  A less obvious case of this is in the Senate. Senators have 6 year terms. However, a 3rd of the candidates are up for reelection every 2 years. Although the only one third of the Senators are up for re-election, the other senators are motivated to avoid tough choices in order to help their party's performance in the election.

        I would change the House Members terms to 4 years apiece, in which all of them face election every 4 years. I would also change senator's terms to 8 years, in which half face election every 4 years. Both of these terms would coincide with the presidential elections. The upside to this would be that congressmen would be less worried about getting re-elected, and more focused on what is right for the country.  Since voter turnout tends to be better during presidential elections, an added bonus to this new election cycle would be greater voter turnout. The down side to this is that since all of the elections would be taking place at once, the months leading up to the election would be even more partisan than usual. However, the upside would probably be much greater than the flaws in this plan.