Tuesday, December 9, 2014
The New Republic Is Dead
The New Republic is one of America's venerable print magazines that made a good effort to provide well written journalism to the small audience that exists for good journalism. It was purchased by a 28 year old multimillionaire who was lucky enough to have been the room mate of the Facebook founder. This article describes the process by which the new owner destroyed the New Republic and lost a handful of his millions in the process. Its not easy making money with print journalism in the digital era but the demise of print journalism will leave its mark on our society. We will be less well informed and less literate in the "like generation".
Why The UK Budget Forecast Was Wrong in 2010 and Wrong Today
The UK Treasury announced a growth forecast in 2010, along with spending cuts that would balance the budget by 2014. The economy was expected to grow by 8.4% compounded but it only grew by 4.1%. Consequently, the budget is not balanced. There is a 91.3bn deficit. Lord Skidelsky explains why the government failed to meet its forecast and why its current forecast is worthless. It really is quite simple.
Government spending in the UK is around 40% of GDP. Consequently, the private economy must grow very fast to overcome the large cuts in government spending. The Treasury reported that the budget deficit was largely determined by a decline in tax receipts. That, of course, is exactly what happens when the private economy fails to grow fast enough to overcome the large cuts in government spending. Skidelsky predicted that the government would not hits its growth targets and balance the budget when it announced its 2010 budget. He claims that the government will fail to meet its deficit reduction target in its current budget for the same reasons that it failed to balance the 2014 budget. Private sector growth will not overcome the cuts in government spending.
The conservative government may be willing to accept budget deficits if it succeeds in cutting government spending on programs that it does not like. Its real goal is to cut government spending, and it is using deficit reduction targets, that it can't satisfy, as a cover for its real objective. That seems very similar to what Republicans like to do in the US. They use deficit reduction as an excuse for cuts in spending on government programs that Democrats seem to like. They are quite happy with government deficits when Republican Administrations cut taxes for their constituency and spend money on programs that they prefer.
Government spending in the UK is around 40% of GDP. Consequently, the private economy must grow very fast to overcome the large cuts in government spending. The Treasury reported that the budget deficit was largely determined by a decline in tax receipts. That, of course, is exactly what happens when the private economy fails to grow fast enough to overcome the large cuts in government spending. Skidelsky predicted that the government would not hits its growth targets and balance the budget when it announced its 2010 budget. He claims that the government will fail to meet its deficit reduction target in its current budget for the same reasons that it failed to balance the 2014 budget. Private sector growth will not overcome the cuts in government spending.
The conservative government may be willing to accept budget deficits if it succeeds in cutting government spending on programs that it does not like. Its real goal is to cut government spending, and it is using deficit reduction targets, that it can't satisfy, as a cover for its real objective. That seems very similar to what Republicans like to do in the US. They use deficit reduction as an excuse for cuts in spending on government programs that Democrats seem to like. They are quite happy with government deficits when Republican Administrations cut taxes for their constituency and spend money on programs that they prefer.
Sunday, December 7, 2014
China's Economy Surpasses The US Economy: So What?
Joe Stiglitz puts China's economic growth and power in perspective, and he indicates how the US might work together with China in world that is always changing. Stiglitz has a perspective that is better informed than that of most Americans, however, it is view that most Americans will reject. The comments that follow this article reinforce most of the points about US arrogance, and its likely outcomes, that Stiglitz attempted to make in this article. Ignorance is bliss. Few of the suggestions offered by Stiglitz will be on the political agenda in the US. Politicians who advocated his policies would not get elected to office.
Tyler Cowen Reframes The Inequality Debate Away From Thomas Piketty
Tyler Cowen is an economics professor at George Mason university and a director of the Mercatus Center which is affiliated with George Mason. Other directors on the Mercatus board include Charles Koch the founder of Koch Industries and Richard Fink who is a senior executive at Koch Industries. The Mercatus Center focuses on libertarian solutions to our economic problems. It is highly critical of government regulation especially when it interferes with the free operation of the energy industry.
In this article, Cowen argues that technology and free market innovations will ultimately reduce income inequality. Unequal access to technology is partially responsible for inequality today because it has not advanced to the point in which it easy to use by unskilled workers. Highly skilled workers, such as hedge fund managers, earn high incomes because they are able to use technology to outperform less skilled workers. That advantage will dissipate over time as artificial intelligence makes it easier for less skilled workers to increase their productivity. This explanation for inequality fits nicely into classic economic theories which assume that incomes are based upon one's marginal contribution to revenue.
Innovation also plays an important role in reducing income inequality. According to Cowen, America has been a provider of innovations to consumers which increase their utility. Apparently, reducing the utility gap between high and low income households is an alternative to reducing income inequality. Wages have been depressed by the globalization of the labor market, especially for manufacturing workers, but consumer utility has been increased because the prices for many products manufactured in low wage countries have declined. Even better, low wage countries like China will become innovation centers over time. In the long run, they will produce products that also increase consumer utility and reduce utility inequality much like the US has done.
Cowen acknowledges that his ideas about technological innovation are speculative and that they only provide a long term solution to growing income inequality. The intent of his argument, however, is to reframe the inequality debate which has been popularized by Thomas Piketty who argues that the source of income inequality is the gap between the return on capital and the return on wages. Since the ownership of capital is highly concentrated, and an important source of income, it follows that income inequality will continue to grow as long as the return of capital exceeds the return on labor. According to Piketty tax polices which reduce the net return on capital is the best way to reduce the growth in income inequality. Cowen claims that this is the wrong approach because it would limit the growth in technical innovation, which according to his analysis, provides the means for the reduction in income inequality.
Piketty's focus on wealth taxation may be futile because it would be opposed by powerful people like those who fund the Mercatus Center at George Mason University. On the other hand, there is no reason to believe that higher taxes on capital will reduce innovation, or that increases in consumer utility via product innovation, and lower prices, is a good substitute for greater income income equality as Cowen assumes. Cowen has done his job, however, if he succeeds in reframing the debate the debate on income inequality. That, of course, is what he is paid to do. Curiously, his income is not dependent upon the use of advanced technology. He was gifted with high intelligence which he has been able to sell at a high price to those who can afford to purchase and shape the uses to which intelligence is applied.
In this article, Cowen argues that technology and free market innovations will ultimately reduce income inequality. Unequal access to technology is partially responsible for inequality today because it has not advanced to the point in which it easy to use by unskilled workers. Highly skilled workers, such as hedge fund managers, earn high incomes because they are able to use technology to outperform less skilled workers. That advantage will dissipate over time as artificial intelligence makes it easier for less skilled workers to increase their productivity. This explanation for inequality fits nicely into classic economic theories which assume that incomes are based upon one's marginal contribution to revenue.
Innovation also plays an important role in reducing income inequality. According to Cowen, America has been a provider of innovations to consumers which increase their utility. Apparently, reducing the utility gap between high and low income households is an alternative to reducing income inequality. Wages have been depressed by the globalization of the labor market, especially for manufacturing workers, but consumer utility has been increased because the prices for many products manufactured in low wage countries have declined. Even better, low wage countries like China will become innovation centers over time. In the long run, they will produce products that also increase consumer utility and reduce utility inequality much like the US has done.
Cowen acknowledges that his ideas about technological innovation are speculative and that they only provide a long term solution to growing income inequality. The intent of his argument, however, is to reframe the inequality debate which has been popularized by Thomas Piketty who argues that the source of income inequality is the gap between the return on capital and the return on wages. Since the ownership of capital is highly concentrated, and an important source of income, it follows that income inequality will continue to grow as long as the return of capital exceeds the return on labor. According to Piketty tax polices which reduce the net return on capital is the best way to reduce the growth in income inequality. Cowen claims that this is the wrong approach because it would limit the growth in technical innovation, which according to his analysis, provides the means for the reduction in income inequality.
Piketty's focus on wealth taxation may be futile because it would be opposed by powerful people like those who fund the Mercatus Center at George Mason University. On the other hand, there is no reason to believe that higher taxes on capital will reduce innovation, or that increases in consumer utility via product innovation, and lower prices, is a good substitute for greater income income equality as Cowen assumes. Cowen has done his job, however, if he succeeds in reframing the debate the debate on income inequality. That, of course, is what he is paid to do. Curiously, his income is not dependent upon the use of advanced technology. He was gifted with high intelligence which he has been able to sell at a high price to those who can afford to purchase and shape the uses to which intelligence is applied.
Friday, December 5, 2014
Deceptive Marketing in The Internet Age
Millions of people would like to sleep better. The Internet provides a great opportunity to use deceptive marketing to tap into a potentially huge market opportunity. The Clever Owl website is operated by HFM Marketing, which is owned by Somnapure Products, that provides the "natural" product that will help millions to sleep better. Its rather strange to for a firm to do its marketing through a subsidiary that it owns, instead of using an internal marketing division, but there are probably some legal advantages to this arrangement which also enhances the impression that HFM's website provides legitimate news.
The Clever Owl website uses some interesting gimmicks to legitimize the Somnapure product. Everyone is familiar with CVS, GNC and Walmart. They are legitimate retail brands and the article claims that Somnapure's product selling great at CVS but it provides no data on sales at CVS. There is a sidebar on the right of the page which provides links to the three retailers that are well known. If you click on the link to any of the retailers you are not taken to their website. Instead you get a sales pitch on the product which claims that the product is scientifically proven, natural and made in America. The link to the popular retailers is only used to legitimize the product. No scientific evidence is provided to back up the claims made about the product, but the appeal to a natural product made in America may overcome that minor difficulty.
One might think that the salesperson would conclude her pitch by sending them to one of the three popular retailers that can be found anywhere in America. Instead she offers a free trial that is only available online. What she doesn't tell the unfortunate person who would like to sleep better is that Somnapure will ship a months supply of the worthless product, and charge it to the credit card used to pay for the shipping and handling of the free trial, unless the recipient of the "free trail" cancels that part of the deal which is buried in the terms and conditions of the offer. Somnacare is not interested in securing a satisfied customer who will benefit from its product and continue using it. It is primarily interested in making a single sale for $70 to millions of customers duped by the free offer.
This is only one example of this new form of predatory marketing that use the "free offer" gimmick and the Internet to sell worthless products to our most vulnerable citizens. This is a link to Clever Owl's sponsored article on Yahoo selling another product that is supposed to enable men with enlarged prostates (which includes almost every male over 50) to sleep through the night. The link to the free offer is set up so that it can be clicked before the terms and conditions are visible.
The Clever Owl website uses some interesting gimmicks to legitimize the Somnapure product. Everyone is familiar with CVS, GNC and Walmart. They are legitimate retail brands and the article claims that Somnapure's product selling great at CVS but it provides no data on sales at CVS. There is a sidebar on the right of the page which provides links to the three retailers that are well known. If you click on the link to any of the retailers you are not taken to their website. Instead you get a sales pitch on the product which claims that the product is scientifically proven, natural and made in America. The link to the popular retailers is only used to legitimize the product. No scientific evidence is provided to back up the claims made about the product, but the appeal to a natural product made in America may overcome that minor difficulty.
One might think that the salesperson would conclude her pitch by sending them to one of the three popular retailers that can be found anywhere in America. Instead she offers a free trial that is only available online. What she doesn't tell the unfortunate person who would like to sleep better is that Somnapure will ship a months supply of the worthless product, and charge it to the credit card used to pay for the shipping and handling of the free trial, unless the recipient of the "free trail" cancels that part of the deal which is buried in the terms and conditions of the offer. Somnacare is not interested in securing a satisfied customer who will benefit from its product and continue using it. It is primarily interested in making a single sale for $70 to millions of customers duped by the free offer.
This is only one example of this new form of predatory marketing that use the "free offer" gimmick and the Internet to sell worthless products to our most vulnerable citizens. This is a link to Clever Owl's sponsored article on Yahoo selling another product that is supposed to enable men with enlarged prostates (which includes almost every male over 50) to sleep through the night. The link to the free offer is set up so that it can be clicked before the terms and conditions are visible.
Two Nations Divided By Race And Culture
This article describes the new "Solid South" in the US. It turned completely away from the Republican Party after the Civil War. There were not many new born males named Abraham in the South after the war. The old confederacy remained culturally and politically conservative after the war, but it was represented by conservative members of the Democratic Party for generations. That enabled the Democratic Party to exert enough power in Congress to pass the civil rights bill under Lyndon Johnson who rose to power in Texas as a democratic Senator. Johnson correctly predicted that passing the civil rights bill would put an end to the Solid South represented by the Democratic Party. The Republican Party now controls almost every state legislature and governorship in the South; it is also likely to replace the remaining democratic Senator in the South with a republican. The incumbent democratic Senator made the mistake of voting for bills promoted by the national party headed up by a president that is despised by white voters in the South who almost unanimously voted against him in the national election.
Richard Nixon was the first republican president to exploit religious and cultural issues to begin the republican conquest of the old confederacy. He publically courted the popular Evangelist Billy Graham and he capitalized on conservative backlash in the South to the anti-war protests of the Vietnam era and the "Hippie Culture'" that represented a threat to traditional "Family Values". That formula has been very successful in the old confederacy which has had a strong tradition of militarism, evangelism and traditional values exemplified by the white majority. It also works in rural states which have historically been represented by the Republican Party. Unfortunately, the two major political parties in the US have been driven further apart by the exploitation of cultural divisions to gain political power. The polarization that we see in Washington is not primarily about policy issues that can be debated and resolved by a somewhat rational process as it has been done in the past. Polarization today represents cultural divisions that are being exploited to win elections. Its hard to see how a nation so divided can reach agreement on the critical policy issues that we face today. This does not auger well for the rest of the world that looks to America for leadership.
Richard Nixon was the first republican president to exploit religious and cultural issues to begin the republican conquest of the old confederacy. He publically courted the popular Evangelist Billy Graham and he capitalized on conservative backlash in the South to the anti-war protests of the Vietnam era and the "Hippie Culture'" that represented a threat to traditional "Family Values". That formula has been very successful in the old confederacy which has had a strong tradition of militarism, evangelism and traditional values exemplified by the white majority. It also works in rural states which have historically been represented by the Republican Party. Unfortunately, the two major political parties in the US have been driven further apart by the exploitation of cultural divisions to gain political power. The polarization that we see in Washington is not primarily about policy issues that can be debated and resolved by a somewhat rational process as it has been done in the past. Polarization today represents cultural divisions that are being exploited to win elections. Its hard to see how a nation so divided can reach agreement on the critical policy issues that we face today. This does not auger well for the rest of the world that looks to America for leadership.
Thursday, December 4, 2014
Why Housing Prices Should Rise In Areas With A Fixed Supply Of Housing
Interest rates are at historically low levels in many parts of the world. This article looks at two explanations for falling interest rates and concludes that housing prices should rise in areas where the supply of housing is relatively constant.
If the price of capital is falling as the cost of computing and networking technology responds to Moore's law, then business investment will fall. That will decrease the demand for savings relative to the supply of savings and push interest rates lower.
Similarly if the the ratio of government borrowing to GDP declines the demand for savings will fall and interest rates will fall.
The decline in business and government demand for savings will divert savings into residential real estate in response to lower rates. That will have two effects: it will dampen the decline in interest rates and it will cause housing prices to rise in areas where the supply of housing is relatively fixed. That might partially explain the rapid increase in real estate prices in highly desirable locations such as London, NYC and the Bay Area. The demand for housing is increasing faster than the supply of new housing. It might also explain the price increases for entry level housing in highly desirable suburbs which have little room for the development of new housing. Low interest rates increase the affordability of homes in suburbs with good schools and other amenities that would otherwise have been priced out of their market.
If the price of capital is falling as the cost of computing and networking technology responds to Moore's law, then business investment will fall. That will decrease the demand for savings relative to the supply of savings and push interest rates lower.
Similarly if the the ratio of government borrowing to GDP declines the demand for savings will fall and interest rates will fall.
The decline in business and government demand for savings will divert savings into residential real estate in response to lower rates. That will have two effects: it will dampen the decline in interest rates and it will cause housing prices to rise in areas where the supply of housing is relatively fixed. That might partially explain the rapid increase in real estate prices in highly desirable locations such as London, NYC and the Bay Area. The demand for housing is increasing faster than the supply of new housing. It might also explain the price increases for entry level housing in highly desirable suburbs which have little room for the development of new housing. Low interest rates increase the affordability of homes in suburbs with good schools and other amenities that would otherwise have been priced out of their market.
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