A Harvard economic professor ponders the career choices that are being made by 20% of Harvard graduates. They are attracted by the prestige and financial rewards of a career in finance. He hopes that they will use their talent to make the world a more wonderful place. However, he is concerned about the fact that much of the work done in the finance industry is rent seeking. It transfers value from society to those who work in finance. A nation that rewards its most talented young people for rent seeking is on the wrong track. Society prospers when it produces scientists who create knowledge, and when that knowledge is used to invent things like semiconductors which add value to many of the products that we enjoy today. It also prospers when its most talented individuals who enter into other professions choose to transfer value to society instead of extracting through rent seeking.
The outsized financial rewards available from a career in finance are only one of the determinants of career choices made by talented graduates. Career choices also reflect cultural forces. Youthful idealism has lost ground in a culture that places financial success above other values. The Harvard graduates who choose a career in finance reflect deeper changes in our culture.
Saturday, April 11, 2015
Art Laffer As A Symtom Of GOP Madness
Art Laffer was adopted by the GOP in the 1980's. The Laffer curve showed that high tax rates actually reduced tax revenues because they also reduced economic activity. Ronald Reagan used that argument to justify a dramatic cut in the top tax rate after he defeated George H. Bush in the GOP primary. Bush famously referred to Reagan's tax policy as "voodoo economics" but he lost the election. The GOP has been running with that idea ever since. If it takes voodoo economics to win elections, and reward your major constituents, they are all for it.
Art Laffer was wrong about the relationship between the top tax rate and economic growth, and all of his economic predictions about economic policy decisions during our recovery from the Great Recession have been wrong. However, he has never been more popular within the GOP than he is today. Paul Krugman argues that the GOP attachment to false economic ideas is a symptom of madness in a political party that lost its connection to reality. It used to be a real political party with a better connection to the real world.
Art Laffer was wrong about the relationship between the top tax rate and economic growth, and all of his economic predictions about economic policy decisions during our recovery from the Great Recession have been wrong. However, he has never been more popular within the GOP than he is today. Paul Krugman argues that the GOP attachment to false economic ideas is a symptom of madness in a political party that lost its connection to reality. It used to be a real political party with a better connection to the real world.
Wednesday, April 8, 2015
Energy Economics And Fossil Fuel Reserves And Resources
Unless we change the economics of the energy market we will not recognize the world that we will have created. The basic problem is that climate scientists believe that we must keep the increase in the average global temperature since the industrial revolution below 3.6 degrees F. We have already added 1.7 degrees to the average temperature since the industrial revolution. If we use the available fossil fuel reserves in the ground we will add another 2.8 degrees. That brings the total temperature increase to 4.5 degrees.
We also have a large quantity of fossil fuel resources in the ground that are not recoverable with current technologies and prevailing prices. We would add an additional 3.1 degrees if we used the oil and gas resources, and an additional 8.6 degrees if we used all of the coal resources. That brings the total temperature increase to 16.2 degrees. It is hard to even imagine the consequences of a 16.2 degree increase in the average temperature.
One of our problems is that economics of the energy market encourages the exploitation of new resources in the Canadian tar sands, and oil and gas resources in the Arctic. We would have to discourage the use of these resources as well as 90% of the coal resources that are underground in the US.
We also have a large quantity of fossil fuel resources in the ground that are not recoverable with current technologies and prevailing prices. We would add an additional 3.1 degrees if we used the oil and gas resources, and an additional 8.6 degrees if we used all of the coal resources. That brings the total temperature increase to 16.2 degrees. It is hard to even imagine the consequences of a 16.2 degree increase in the average temperature.
One of our problems is that economics of the energy market encourages the exploitation of new resources in the Canadian tar sands, and oil and gas resources in the Arctic. We would have to discourage the use of these resources as well as 90% of the coal resources that are underground in the US.
British Election And Food Fights
David Cameron faces a tough reelection bid in Britain. He has been making an effort to convince ordinary people to vote for him by sharing meals with ordinary people on his tours. Apparently, he doesn't know how to eat hot dogs like ordinary people. He was caught using a knife and fork in a gallant effort to show how ordinary he is really is. Queen Elizabeth did the same thing when she visited the US and was forced to eat a hot dog. However, she did not have to run for election. Its a pity that our democratic system forces "extraordinary" politicians to pretend that they are not different from most of the people that vote in elections.
FDA Fails To Supervise Dietary Supplement Industry
The dietary supplement industry is a $33 billion industry in the US that has a license to steal from naive consumers. They do not have to support the claims that they make for the benefits from the supplements that they sell; many of the supplements do not even have the ingredients that they place on the product labels, and some of their products present health hazards. One of the health hazards comes from BMPE which is a substitute for amphetamine. Canada has banned products containing BMPE, but the Federal Drug Agency in the US has not warned consumers about these products and it has made no effort to remove them from the market.
We should not be too surprised about the state of this $33 billion market in the US. The 1994 law that applies to the industry was developed by Orrin Hatch, who is the senior US Senator from Utah in which many of the producers are headquartered. Hatch's son Scott is a partner in a lobbying firm that represents the industry in Washington. The FDA, which is supposed to protect consumers, is a toothless tiger. The top FDA officials, in charge of the supplement industry, move back and forth between the FDA and the industry's official trade organization. Just another example of the revolving door between US regulatory agencies and the industries that they are supposed to regulate.
Its hard to imagine a more profitable business to enter. The list of purported benefits from the supplements is marketers dream. They will improve your sex life; help you to develop a powerful body; allow you to lose weight without having to diet; help you to get a good nights sleep, and they will cure some of our most common ailments. The advertised claims that they make for their products do not have to supported with evidence. Apparently, its sufficient to tell consumers that they are "natural" products and to show pictures of unidentified people who have benefited from the product. The products are also very cheap to produce. Studies have shown that they seldom have the "natural" ingredients that they advertise. Cheap fillers are the primary ingredient in the products. To make things even better, the prices that they charge for the products has little relation to the cost of producing the products. Their major expense is marketing and the cost of distribution. Organized crime organizations in the US should be jealous. They have to deal with violence and the risk of imprisonment. The dietary supplement industry only makes a relatively minor contribution to public officials in relation to their revenues and profits.
We should not be too surprised about the state of this $33 billion market in the US. The 1994 law that applies to the industry was developed by Orrin Hatch, who is the senior US Senator from Utah in which many of the producers are headquartered. Hatch's son Scott is a partner in a lobbying firm that represents the industry in Washington. The FDA, which is supposed to protect consumers, is a toothless tiger. The top FDA officials, in charge of the supplement industry, move back and forth between the FDA and the industry's official trade organization. Just another example of the revolving door between US regulatory agencies and the industries that they are supposed to regulate.
Its hard to imagine a more profitable business to enter. The list of purported benefits from the supplements is marketers dream. They will improve your sex life; help you to develop a powerful body; allow you to lose weight without having to diet; help you to get a good nights sleep, and they will cure some of our most common ailments. The advertised claims that they make for their products do not have to supported with evidence. Apparently, its sufficient to tell consumers that they are "natural" products and to show pictures of unidentified people who have benefited from the product. The products are also very cheap to produce. Studies have shown that they seldom have the "natural" ingredients that they advertise. Cheap fillers are the primary ingredient in the products. To make things even better, the prices that they charge for the products has little relation to the cost of producing the products. Their major expense is marketing and the cost of distribution. Organized crime organizations in the US should be jealous. They have to deal with violence and the risk of imprisonment. The dietary supplement industry only makes a relatively minor contribution to public officials in relation to their revenues and profits.
Monday, April 6, 2015
Larry Summer's Comments On Asian Infrastructure Investment Bank
China has been successful in establishing the AIIB and many US allies, including Britain, have joined the bank. The AIIB will provide many of the services that have been performed by the World Bank. According to Summers this is a seminal event which undermines US leadership in setting the global economic architecture. He describes the impact of this development, and he provides his analysis of the political dysfunctions in the US that contributed to the loss of US leadership.
Robert Samuelson Explains Why A Full Employment Economy Is A Bad Idea
I have posted the following quote from the Washington Post which gives Robert Samuelson a platform to pontificate about economic issues every Monday.
This is a typical example of Samuelson's opinion articles about economic policy. This article, like most of his articles, begins with several paragraphs that demonstrate his familiarity with economics. In this case, he shows that he is familiar with the idea of the "natural rate of unemployment". That is, the unemployment rate consistent with an acceptable rate of inflation, which can vary over time. After showing that he is familiar with freshman economics, he proceeds to the conclusion that is quoted above. He claims that three large swings in the US business cycle were caused by the false expectation that prosperity is guaranteed. Apparently, his unsupported explanation for the three economic events he cited, proves that it is counterproductive for governments to have a goal of a full employment economy. Governments, of course, cannot eliminate the business cycle but Samuelson argues that is a mistake for governments to create the expectation that they will develop policies to moderate the business cycle.
I have gotten into the habit of reading Samuelson's opinion articles by skipping to the conclusions that he reaches in the last couple of paragraphs. That is the message that he wants to deliver to his readers. The rest of what he writes is generally superfluous. It serves primarily to convince readers who share his political views that they are credible. In other words, Samuelson is good propagandist.
But we shouldn’t delude ourselves: What’s justified in the short run won’t work in the long run. Ensuring permanent “full employment” in a “high-pressure economy” is a seductive goal. It’s also utopian. It exceeds our powers of economic management.
The promise of constant full employment poses internal contradictions. If people believe that prosperity is guaranteed, they will behave in reckless ways that destroy prosperity. This happened in the 1960s with inflationary psychology, in the late 1990s with the tech bubble and in the 2000s with the housing crash. Societies that sow unrealistic expectations will reap destructive disappointments.
This is a typical example of Samuelson's opinion articles about economic policy. This article, like most of his articles, begins with several paragraphs that demonstrate his familiarity with economics. In this case, he shows that he is familiar with the idea of the "natural rate of unemployment". That is, the unemployment rate consistent with an acceptable rate of inflation, which can vary over time. After showing that he is familiar with freshman economics, he proceeds to the conclusion that is quoted above. He claims that three large swings in the US business cycle were caused by the false expectation that prosperity is guaranteed. Apparently, his unsupported explanation for the three economic events he cited, proves that it is counterproductive for governments to have a goal of a full employment economy. Governments, of course, cannot eliminate the business cycle but Samuelson argues that is a mistake for governments to create the expectation that they will develop policies to moderate the business cycle.
I have gotten into the habit of reading Samuelson's opinion articles by skipping to the conclusions that he reaches in the last couple of paragraphs. That is the message that he wants to deliver to his readers. The rest of what he writes is generally superfluous. It serves primarily to convince readers who share his political views that they are credible. In other words, Samuelson is good propagandist.
Subscribe to:
Posts (Atom)