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Friday, February 13, 2015

Creating Savings from Printing More Money: Is It Possible?

The Status quo thinks printing more currency leads to economic growth. Does it? This article, "You Cant Create More Savings by Printing More Money" discusses this. However, I will submit one extra item for mindful consideration. Consider the law of marginal diminishing utility. It states simply the following: As more of the item is used, the utility, need for the item declines. Recall from the prior blog entry, this law is the foundation of the downward sloping demand curve.



Money, more specifically, currency, can be considered a commodity. As more money is printed, as per the law of marginal diminishing utility, each additional unit printed does not hold the same utility as the prior unit printed.  The end result of printing or expanding the money supply is that the currency is debased.




Tuesday, February 10, 2015

Gross: "The Fed Must Be Careful


Key Excerpt from the article titled, "Fed Must be Careful Raising Interest Rates": 

"Bill Gross, the former manager of the world’s largest bond fund, said the U.S. Federal Reserve must be 'very careful in their moves' and needs to see a nominal growth rate of 4 percent to 5 percent before raising interest rates. "

The Fed should be careful with price fixing interest rates: High or Low.


Raising Minimum Wage Still Impacts Unemployment

While this seems to be quite obvious for many in the Economics profession, this may not be as obvious to others outside the profession. Many politicians present emotional arguments that stir up images of poverty and squalor, while making the case to raise minimum wage. However, in the world of Economics, what seems true to others, is typically the opposite in Economics. The case of raising minimum wage is no exception. Yes, there are many studies showing that raising minimum wage does not impact the OVER ALL unemployment rate, but this action still causes unemployment, at the individual level: i.e. Business Owner and Employee.  This is true because of many reasons, as this article titled, Yes, Minimum Wages Still Increases Unemployment states.

If the Economy is Strong, why is the Fed keeping Rates Low?

This is an excellent question, as Ryan McMaken addresses here with this article.



Many argue that the economy is not rebounding, or it is not rebounding as strongly as advertised.

Sunday, February 8, 2015

More on Deflation

Bloomberg provides an article on the "The Eight Unlucky Countries Facing Deflation This Year".  Deflation is a scary proposition for the ECB, or the Federal Reserve. However, in another article, "Deflation: Is It Really a Bad Thing?", it makes an argument that deflation is a good thing for the economy.

Since deflation represents falling prices, with respect to the money supply, this can be a good thing for consumers. As per the Law of Demand, as the prices of the good drops, the demand for that good increases. Consumers are able to purchase items, that were previously at higher prices, at lower prices.

A Trade off in the Division of Labor: Work and Leisure

"There are no solutions, only Trade Offs"~Dr. Thomas Sowell

This quote is a "truth" in the world of Economics. One of the specific examples of this "truth", is the trade off between Work(labor) and Leisure. Economic theory states the following: As a worker earns more income, his/her desire to have more leisure time increases. However, the more time the worker uses in leisure, he/she will eventually seek to obtain more labor hours.

This fascinating trade off can be displayed graphically, as shown here, specifically expressed with the comparison between the hours worked and the Wage Rate:

























This graphical display shows how the increase in the hours work, along with the increase wage rate eventually reveals that the worker will seek to work fewer hours, and spend more time in engaged in activities of leisure, cutting back on their hours. This explains the "back bending" shape of this graph. This may make sense to many, but why is this true? Why is this the case?

To address this question more effectively, one must dig deeper into two of the foundations of Economics: The Concepts of Utility and Diminishing Marginal Utility.

The Concept of Utility

This concept states that we rank, at any given time, goods, services commodities that we seek to acquire. We seek to use these things to bring us pleasure or happiness. This notion is subjective to each individual. Since we can not grab all those items at once, and resources are scarce, we must choose one item over another item in this utility(preference) ranking. We rank those items from most important to the least important based on that particular desire to fulfill satisfaction. An example of this would be what we would choose for dinner: e.g choosing Fast Food over eating at home. The choice for dinner would explicitly imply that the actor prefers one option over the other.

The Concept of Diminishing Marginal Utility

Another notion to consider in this labor/leisure trade off is the notion of Diminishing Marginal Utility. The notion of Diminishing marginal utility is the following: As the user consumes more of that good, the user begins to view the good as "less" valuable with each use of that good consumed, as his "wants" are being satisfied.  How do these two concepts tie into the notion of the trade off between Labor and Leisure?

The understand the trade off between these two activities, one must take the understanding that both are "goods", as utilized in a preference or utility ranking. As previously mentioned, an individual has limited resources, so he/she must rank those "goods" and prioritize them. As the Law of Diminishing marginal utility kicks in, the actor seeks to engage in more leisure over labor. Conversely, if the actor is utilizing more leisure, the actor will eventually look to seek to engage in more labor.

Conclusion

In closing, this trade off  is rooted in the notion of Utility and Marginal Utility. The framework of this trade off is central to many policy planning debates. An example of the consideration of this trade off is involved with the debate of unemployment benefits, and the extension of those benefits. Should unemployed people continue to receive benefits after the allotted time?. Many believe that the payment of these benefits impact the decision making process of the individuals in making this trade off. As the political debate rages for this issue, the trade off between Labor and Leisure will continue to exist.

Thursday, February 5, 2015

Deflation: Is it Really A Bad Thing?

Many supporters of the Central Banks, in many of the industrialized nations, fear deflation. Their rationale, in being against deflation, is that it pushes a downturn in an economy. For them, it also represents that spending is in decline, thus the Central Banks must pump more money into the banking system.

Deflation simply is a decline in prices. Why does this condition require intervention with the Central Bankers? Is a drop in prices a "good" thing?  Why should more money be pumped into the banking system due to a decline in prices?

Consider this example: Currently, the Gas Prices are well below the $3.50/gallon mark, as the price averages around $2.00/gallon. Are consumers excited about the prices being lower than $3.50/ gallon?

The article titled, "The ECB fears Inflation, But You Should Not" explores the folly associated with the fear of deflation.

Tuesday, February 3, 2015

Dan Mitchell on the US Tax Regime





Dan Mitchell on the US Tax Regime: Mises Institute


Daniel J. Mitchell is a PhD economist and the Cato Institute’s resident tax expert. He’s also a great defender, on moral grounds, of so-called tax havens—which are nothing more than sovereign foreign countries that dare to have lower tax rates than Uncle Sam prefers.

Taxes sound like a boring subject, but Dan brings great energy and passion to the subject: he’ll tell us why the US “worldwide” tax regime violates the basic human right not to be hounded by a country in which you neither live nor have income, why Burger King was right to move its corporate headquarters out of the US, why greedy politicians hate tax competition, and why invasive laws like FATCA should scare anyone who cares about privacy.