On an upward trend

While my lymph nodes are swollen up and I am dealing with an illness, I will just post that March was the best month yet for the site in terms of hits. Please refer your friends if you like the site.

Hold on to your grandkid's wallets

The money pit is hungry again, this time on the claim that banks need to go back to taking greater risks. Wasn't that part of the reason why so many of them are on government feeding tubes? Perhaps the problem is that banks are not being run in the conservative manner they were for centuries because shareholders demand record profits every quarter rather than long term capitalization. For example, under the mindset of the short term investor, laying off X workers to have a one time savings of 10% is less valuable than a 9% rate of return on assets backed up with reserves and based on sound lending. It's almost like a mental deficiency, that any big number is accepted and suddenly becomes the standard no matter how unsustainable, then when things go south the short term herd flees in the opposite direction, seeing a one time loss and believing the sky is falling. Risk and high yields are correlated, so the higher the returns to a bank, the more leveraged and risky the position. Perhaps a small rate of growth is the best for stability?

Interesting historical development

Britain is considering removing the prohibition on the royal family marrying Catholics. Maybe one day they will see that have hereditary tax burdens are redundant and antiquated. Baby steps first, I guess.

This is long overdue since the Anglican church has been decreasing in membership for generations and no longer is the largest religious group(nominal) in the UK. Centuries of history are undone by a few years of the EU and opened labor markets.

Today's most pointless and vapid column is...

here. Why anything involving a product which makes one look like a cloistered monk or cult member ever gets press in this country is beyond me. I guess these guys are getting creative in their methods of coping with being shut out of power?

Caveat emptor

Just a word of advice, if you are buying million dollar pieces of art, make sure the person selling them actually owns them. This is sage advice up there with:

"No Nigerian prince actually has a million dollars to give you"
"Sending an item in exchange for payment later to a stranger is idiotic"
"You cannot make one hundred thousand dollars a month working from home through an advertisement"

Excellent documentary on the debt

Frontline's episode Tuesday really is a good explanation on the reasons behind the massive debt and the political paradox of desiring low taxes and expanded government programs.

IBM should no longer be known as an American company

According to Yahoo, IBM has as many workers in foreign nations than in the US and is cutting another 5,000 US workers. I want a company to be upfront in their avarice and quit outsourcing to an expensive labor market like China and go straight for the bottom. I am talking about investing in the untapped labor markets of Somalia and Zimbabwe.

Just think of the possibilities with 70% unemployment and ramptan inflation, you do not even need to pay in currency! Instead of a paycheck, you can get a programmer in Harare to write code all day for a bowl of rice and a quarter of a chicken. The wonders of free trade! Imagine Mogadishu going from a land or warring factions to a land of warring call centers, staffed by people being paid in food scraps and maybe as a bonus they can get a bottle of clean water. The efficiency will be off the charts. Perhaps some might even explore the relatively untapped(except by Arab dictators and herdsmen) market for African slaves, seeing as they only cost $50 a head. Look at the potential, the entire laid off staff at IBM can be hired for only $250,000 and then never paid again! Talk about a human resources department's wet dream.

There's a call center waiting to happen

(The following is satirical in case you have never read this blog before)

I fear my national debt counter will break after two Obama terms

The CBO is forecasting over $9,000,000,000,000 in additional debt in the next ten years. That will be nearly more deficit spending than every president before him combined. We can believe in that kind of change, since belief will be all our change wil be worth if this prediction comes true.

Another day, another run on the printing press

Apparently banks which can afford corporate jets and hundreds of millions in bonuses to complete morons who have run companies into the ground are suddenly afraid to lend money. This slight detail has not evaded the administration, who are now proposing another $400,000,000,000 into the black hole that is big business to increase lending. I have stopped keeping track of the waste that the government has shoveled between these corporations and the bailouts. Much of this debt is already being monetized since foreign lenders are concerned for the solvency of the US, so expect inflation to rise up again as more dollars are chasing fewer goods.

I notice the British have a lot of cartoons on this topic, but over on this side of the pond we seem to be lacking in good political cartoons on printing money. I guess it is one more area in which we have lost our competitive advantage.

Washington Mutual, Boohoo

Sometimes you think that the financial firms cannot sink any lower and a story like this arrives hot off the presses. To sum up the lawsuit, Washington Mutual is suing the FDIC for selling them too cheaply when their banking business collapsed and for a "cryptic disallowance?!" This is a new spin on the fail for profit business, one which can be summed up by this business model:That sums up the modern "too big to fail business plan." Do not examine risky leveraging, then fail, have the taxpayers bail you out, then continue the same behavior which ruined the company in the first place. Lather, rinse repeat. Another thing that bothers me about all of these lawsuits over failed investments is that the same people suing because they lost their money would be talking about the glory of the free market when times were good. For a supposedly capitalist economic system, we sure have a lot of elites who have used legalisms and legislation to prevent competition and loss.

This national debt goes to 11

WE finally broke the eleven trillion dollar mark on the national debt counter. It's like ten, just with more debt.

On a related note, two bailed out companies are suing each other. It's like they know they have access to other people's money or something.

Health Care Options in the US, Bankruptcy or Death?

As one of the followers of this blog asked, I shall comment on my views on the pernicious state of health care in this country. First, the ground level must be established, which is that the US spends the most money in the world of any nation on health care, in both absolute and per capita terms. We are the only industrialized nation on the planet without a universal system, and with a very weak public health care system. On the positive side, those with the means to pay can get the best care in the world.

Given these realities, what causes the inequality between the the health care system for the average American versus the wealthy and how to correct this imbalance. A first problem arises in the nature of the insurance system. Insurance acts as a subsidy, so it pushes the demand for insurance to the right. This makes perfect sense, since consumers who are paying less than full costs will consume a larger amount to gain greater satisfaction, and hospitals will charge more because insurance will cover it. For those without insurance the cost of health care is priced out of the range they can afford, so the options for care are bankruptcy or death. Some social darwinists will argue that this is a price to be paid for being poor, and that the poor have medical care-namely the emergency room.

This makes a lot of sense when a visit to the ER, with nothing more than talking to a doctor for ten minutes costs 500-1000 dollars. So let's do a little math exercise here. Suppose that individual X works part time while going to college at ten dollars an hour. Their pay for the year before taxes is around 20,800. Let's subtract the circa 15% that all of the taxes and social security and unemployment insurance taxes out and we are down to $17,680. A single visit to the ER can costs 5% of their take home pay or more for the year. Subtracting the costs of a car, food, housing, and this figure rises to 15-20% or more. How is that any kind of equitable system?

My main issue is the insurance system which is used here. First, there is no real choice because individuals who have any kind of serious conditions are unable to be accepted by insurance within an affordable price range after they are dropped for a pre-existing condition here. In Israel, this is solved by having four nationally regulated HMOs, so individuals who pay into a health care plan there have transferability between jobs and the result is that individuals are not trapped to their jobs for insurance as happens in the US. Further, there are no mechanisms to prevent the denial of service on the basis of pre-existing conditions, so companies have a monetary obligation to drop individuals who will cost them more money. Why cover someone with cancer when they are costing more than they pay in?

Another problem is that we have little choice in how the public money we pay for health care is used. Finland uses a system I prefer the most, which is a publically funded healthcare system with the ability to use the taxes paid for part of a private plan if an individual so desires. They have higher taxes than here, but since nobody has guaged the actual tax levels paid between federal, state, city, Social Security, unemployment, worker's compensation, registration fees, etc. we do not know how much more these countries really pay. Considering that medical expenses are the number one cause of bankruptcy in the US, perhaps paying higher taxes is not as onerous as Rush Limbaugh and other corporate mouthpieces would lead us to believe.

I would write more, but it is 4 AM and dealing with the insanity that is the US insurance system casues great fatigue.

Finally

Madoff is finally in jail, which could not have come soon enough. His ability to live in a penthouse mansion while ordinary theives are thrown in the slammer was a miscarriage of justice. We will see in June what becomes of the biggest Ponzi scammer this side of Social Security.

Dead Cat Bounce?

If you have been conscious today you probably heard somewhere about the giant rise in the world stocks today due to Citibank reporting a profit. How much of that profit comes from the $45 billion dollars in bailout money from the taxpayers is a topic for another day. At least it is a good break from the depressing news of the past two weeks.

Anatomy of a Recession

There is a really cool graphic from the New York Time with unemployment by county that has a lot of variables to sort out what you look at. Be glad you don't live in Skagway, Alaska with a quarter of the labor force unemployed.

Steal $1.65, get fired. Steal $50 million, get promoted.

Germany has a major debate underway because a company has fired a cashier of over three decades due to accusations she stole $1.65. This is the modern world, where laws and responsibility are only for the little people. One quote from the article sums is up perfectly:

"I don't understand how a cashier can be fired because of 1.30 euros while managers who lose billions of euros can keep their jobs," Seehofer told a rally in Bavaria on Wednesday.

I can understand, it is because we are living in a kleptocracy.

Shame is so bouregeoise

In light of gaining new competition in the ridiculous amounts of money stolen category, Bernie Maddoff has decided to show that he is twice the scumbag of his nearest white collar theft rivals by claiming $62 million dollars in assets and his penthouse are actually in his wife's name. Of course, since we little people have to pay full value on used cars, we should be glad that our barons can transfer assets like $13 million dollar homes to spouses for $100. This brings the question of when people will wake up to the theft of their country that has been done by crooks like Madoff, Dick Fuld, the head of any company which is firing the workforce and giving management bonuses. The worst part is that places like AIG are being rewarded out of the treasury for failing. If you or I were losing money quarter after quarter, we would have to declare bankruptcy. Nobody would give us money unless they were going to buy us out, but then again we mere mortals.

The New York federal courthouse, where the Madoff has so far eluded justice

Today's lesson: Consumer and Producer Surplus

After weeks of depressing economic news, I figured a new economics lesson is needed to get one's mind off the madness that is this country's current financial situation. Today's lesson focuses on an important microeconomic principle, the consumer and producer surpluses. These two things are vital to any economic system working in ways which shall be explained and are vital to understanding how goods are rationed within an economy.

For starters, in definite terms the two surpluses are called so because they are the difference between the market price and either the demand/MR(consumer surplus) or supply/MC(producer surplus). This difference is what a person is willing to pay to buy and a firm is willing to pay to produce. This is illustrated by the first chart to the right of the opening paragraph. At the equilibrium (P* and Q*) there is a surplus of zero because every unit has both a buyer and a seller. Why do competitive markets tend to move towards equilibrium instead of a point to the left where there are willing buyers at a lower marginal cost?

The answer lies in the greed of others. If a firm operates at a point to the left of equilibrium they will make an economic profit(ie, the opportunity cost of being in business if less than the revenue being collected). This does not mean that a firm at equilibrium is not making a profit in the accounting sense, just that the opportunities for the firms at equilibrium would have made as much in other ventures also. Why is this? The next chart will explain why competition drives the surplus to zero. The chart on the right shows that when the market for watches is small, at an output of five units, then the and consumer surplus combined is the sum of taking the CS, 22.5({[7-4]*15}/2) and the PS({[4-2]*15}/2), 15. This 37.5 is the additional benefit to trade. At this first level of output, the firm makes a profit of 25, (the difference between the MR=7, and the MC=2, multiplied by the number of units).

As a result of the economic profit new firms will desire to enter the market, which will increase output to deal with the high demand. In chasing profits, the new firm will cut into the profit of the industry by doubling output, reducing CS to 10([6-4]*10}/2) and PS to 5. The profit decreases from 25 to 15({[6-3]*10}/2). The loss in surplus is the light blue and light green areas, which show how trading benefits both parties because the consumer gets more goods at a lower price while the producer has higher output.

However, for a firm they would ideally wish to reduce consumer surplus as much as possible. Since their profit is the Pmax-Pmin times output or (MR-MC)*Q the difference between the supply and demand curves is important. There are a number of ways for a firm to maximize this difference such as a monopoly, a two tiered pricing system(where units are sold at one price but an entrance fee is charged to reduce the consumer surplus to zero for the most inelastic customers, Costco or Sam's Club would be an example), or forms of price discrimination. Tell me if this made any sense and if you got anything out of it.