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Wednesday, April 12, 2017

End Airline Protectionism: Allow Foreign Carriers on Domestic Routes

End Airline Protectionism: Allow Foreign Carriers on Domestic Routes: In the wake of the United Airlines debacle — in which the airline had airport police assault one of its own customers — customers have begun to ask why there doesn't seem to be

Monday, March 27, 2017

How to Interpret the Shape of the Yield Curve

How to Interpret the Shape of the Yield Curve: Historically most recessions in the US are preceded by significant declines in the differential or interest rate spread between the 10-year T-bond and the 3-month Treasury security. Typically, this narrowing in the spread occurs many months before the onset of the recession.

Monday, March 20, 2017

Capital and Interest | Robert P. Murphy

Tariffs and Free Trade

Here is an excellent article titled, America Is Hardly a Bastion of Free Trade, as this is a key excerpt: "Rhetoric has recently trumped reality. It has become a misconceived bit of common “knowledge” that the United States of America is a bastion of free trade. Little could be further from the truth."

The author makes some good points, from an economic analysis standpoint. Tariffs, properly implemented and enforced, have an adverse effect on the market. It displaces scarce resources, and both markets(nations) suffer adversely. Of course, the incentive is in the favor of the domestic producers of the product to rent seek the local Government for the implementation of tariffs.

From a supply and demand analysis, tariffs shrink the supply, yet if demand is constant, the prices of the good rise. Another effect of tariffs: It reduces the number of firms in the marketplace. Since the cost of entry into that said marketplace includes the tariffs, potential firms will seek out other means that require their capital.



Tariffs acts similar to a tax, as the producers, or firms, pay the economic cost for the tax As previously mentioned, it raises the price of the good, but consumers price elasticity may push them to buy substitutes for that good. Once this happens, the substitutes will rise in demand, and the original good would drop in price.



If tariffs did not exist, then more firms would enter the marketplace, providing more options for the consumers. The more options that exist, the prices will fall accordingly. And, substitutes would appear on the marketplace for those consumers that prefer alternatives.

Tuesday, March 14, 2017

What Happens to Bond Funds When Interest Rates Go Up?

Bonds, on average, will decline when interest rates rise. In the capital markets, this is a common inverse relationship. Why?
Back to the fundamentals of Economic thought..
The true notion of interest rates is based on the time preference of consumers in the marketplace: The ratio of prices is based on consumption of goods in the present vs consumption in the future. If this ratio is lower, consumption is preferred in the present, conversely, if higher, then consumption is preferred in the future.
A bond is simply a debt instrument. It allows firms, or Govts, to raise capital, to wit, borrow the money, to expand operations. Investors will purchase these financial instruments to obtain a certain fixed percentage yield from the bond, as this income payout takes place until the maturity of the bond.
Since the bond yield is fixed, as it pays an income stream over time, if the interest rate rises, investors simply want to seek other investment opportunities away from bonds that will yield a better ROI. If the interest rate is lower, the fixed income stream, from the bond, works better, for the investor, in a lower interest rate environment.
In a lowered interest rate environment, capitalists will seek to acquire more equipment, spend more money to invest in their business, expand operations, and etc. This activity includes the intense purchase of bonds, as they are a means of raising capital.
This marvelous ebb and flow interplay between Bonds and interest rates creates arbitrage opportunities for investors, as interest rates rise and fall.
This quick analysis is an introduction into the notion of business cycle theory, as interest rates play a vital role in this process.

Tuesday, March 7, 2017

A Better Option for Health Care in the United States

Healthcare, in the United States, is seeing higher costs...rising exponentially. The price system is being removed, this keeps the buyers and sellers making choices without prices. Prices help actors allocate scarce resources to the highest uses.

This audio goes into detail on some ideas that can improve the current health care model.

A Better Choice: Healthcare Solutions for America. 


Monday, March 6, 2017

Can Yellen Keep the Boom Going?

Can Yellen Keep the Boom Going?: Yellen, like notorious previous Fed chiefs including Strong, Martin, and Greenspan, can now claim success in having prolonged and strengthened an asset price inflation which otherwise may well have been about to enter its severe end phase.

Watergate Redux?

Watergate Redux? A review from Mises.org on the current Trump Tower wire tap "scandal".

CEO Pay: Is it Fair?

Many news journalists push forward the premise that CEO pay is "unfair". Consider this the title of this article, "It's a Disgrace, this is how much CEO's make more than Workers".  The analysis is based on the difference, in pay, from the CEOs salary, as compared to the salaries of the workers. This a flawed analysis for various reasons.

Credentials

CEOs credentials, experience, and etc, are considered into the wage package. Most CEOs are college grads, many with Grad degrees, and years of experience. They chose to delay certain current choices, and invest into the future for their goal to be a CEO. Should the janitor's pay be equal or close to the CEOs based on their credentials? No. How about the entry level Accountant, that is fresh out of college? No. In short, time has allowed the CEO to demand a higher wage.

Risk

Does the Janitor, or the Staff Accountant have the same risk factor in their position, as compared to a CEO? Suppose an regulatory investigation begins: Who do the regulators interview and hold the most accountable? The CEO or the janitor? The CEO. So, it stands to reason that the CEO has more risk, qua CEO, as compared to someone being a janitor, or Staff Accountant. Thus, the CEO makes more money.

In reality, the CEO is UNDER PAID.

The median income of a CEO is around $1 million, yet what is the value of the firm he is managing? If it has a valuation of $100 million, he is under paid. A thought exercise: Review some of the top earning firms in the US, see the true market value. Then, compare the CEO's salary to the asset value. Most real estate firms, for example, charge around 10% for managing an asset.
If the CEO's salary, compensation package is less than 10% of the asset value, he *could* be under paid. NOTE: This does not mean the 10% is a magical baseline, the 10% is simply a means to demonstrate a point. The point: The CEO's wage should not be compared to the employees in the organization, but it should be compared to the value of the asset in which he is managing.

Conclusion

In reality, it is no one's business how much the CEO is compensated. That is a private agreement between the CEO and his board, or shareholders, or his superiors. The reality is that he has the most responsibility, as compared to any one in the organization. He ultimately is held accountable for the failure or success of the organization.

Saturday, March 4, 2017

I Love Capitalists!

As an Economist, and a business owner, this statement should not be shocking. However, for some, they loathe CEOs and Capitalists. Many have taken the moral argument, which can be defended also, against CEOs, Business owners, or these greedy capitalists. All of us, at some level, are capitalists. There is no way around it. We are all seeking to obtain "things", tangible or intangible, to gain "happiness".  There are multiple reasons why Capitalists are vital to an economy.

Risk Takers

Capitalists organize the factors of production, e.g. land, labor and capital, and synthesize them to develop a product or service for consumers in the marketplace. Since no human is blessed with clairvoyance, this is an enormous risk. After the organization of these factors take place, the capitalist takes his product to the marketplace, not really knowing if consumers will purchase his product. The capitalist is the one taking the risk, making the sacrifice, for those aforementioned factors of production, to make a profit. No one else is doing this risk but the capitalist.

Builders of the economy

Once the capitalist sees the profits from his business, he will re-invest those profits back into the enterprise. This allows him to continue to pay his employees, purchase more capital equipment, capital, or etc, back into his business. As consumers purchase more of his product/service, consumers benefit from the product/service the capitalist provides. This overall benefit expands the economy.

Investment increases 

As the business owner increases his profits, he will discover that he needs to expand the operation.  He will need to find investors, or more capital from a Financial intermediary, to gain more capital. The infusion of capital helps expand the business, and the investors, receive a return on the investment. This return on investment, or return on capital, helps investors and financial intermediaries, invest in other projects in the economy.  This also allows the capitalist to hire more labor, land and capital to expand the operation.

Conclusion

The Capitalist is vital to the economy. He is a speculator that blazes the trail to expand the economy. Without this effort, the economy will grow much more slowly. Since the Capitalist chooses to take the risk, he absorbs that risk, if the operation fails. Conversely, if the operation is a success, those profits, net expenses, return to him to reinvest and expand the economy. When the latter occurs, we all benefit.


Wednesday, March 1, 2017

Florida's Government Built a Train — And It Didn’t Go Well

Most of these Government sponsored projects, wait, all of them, never make an economic profit. Of course, proponents of these deals will always cite the revenues that the municipalities will earn from these projects. The revenue projections maybe correct, yet these proponents never cite the actual economic cost for these projects.



The tax dollars to underwrite these projects come from the Federal Government, namely, the Dept of Transportation. After those dollars flow to the local municipalities, the locals will have a planning organization to work with the Civil Engineers, and the like, to facilitate the project's creation. Since none of these individuals work for free, the costs mount up just from the planning stage. Include the cost to acquire the materials, and the economic costs continue to rise. Oh yes, there needs to be land to construct the rails for the train....enter eminent domain, hence raising the cost exponentially.


Once the project is completed, behind schedule, on average, the local politicians assume that charging ZERO for the fares, the rail project will make money. Econ 101 tells us that lowering prices will increase demand for that good or service, but in this case, it does not cover the sunk cost of construction. In short, the project continues to lose money, yet all the individuals involved are paid handsomely.



In conclusion, these projects are simply a wealth transfer from the tax payers, to the folks involved in the construction and maintenance of the rail project.



The Article is listed here:

Florida's Government Built a Train — And It Didn’t Go Well: "The state of Florida is well known for many things: beautiful beaches, outrageous headlines, and being the setting for the wacky antics of the Golden Girls."

Sunday, February 26, 2017

Why the Feds Should Legalize Interstate Commerce in Healthcare

Why the Feds Should Legalize Interstate Commerce in Healthcare: In a recent television interview, Aetna CEO Mark Bertolini, head of one of America’s largest health insurers, commented that selling insurance across state lines is “an outdated concept” in these days of the Affordable Care Act (ACA).

End the Sugar Tax Now

End the Sugar Tax Now: “Sugar Vs. Corn Syrup” reads the headline about legal wrangling between enablers of America’s sweet tooth.

Justice and 'Social Justice' Are Two Very Different Things

Justice and 'Social Justice' Are Two Very Different Things: Recently, Harvard political theorist Danielle Allen wrote in the Washington Post of “The most important phrase i

Thursday, February 23, 2017

Ten Great Economic Myths

Ten Great Economic Myths: Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies. Here are ten of the most dangerous of these myths and an analysis of what is wrong with them.

Primitive Minds - Cafe Hayek

Primitive Minds - Cafe Hayek: TweetHere’s a letter to a new and intrepid correspondent: Mr. Nolan McKinney Mr. McKinney: You point to Harley-Davidson’s resurgence, after Ronald Reagan drastically raised tariffs on imported large motorcycles, as “evidence of protectionism strengthening our economy.” Harley’s resurgence is evidence of no such thing.  The argument against protectionism is not that it doesn’t help the …

Sunday, February 19, 2017

Say's Law: The Antidote to Countless Economic Fallacies

Say's Law: The Antidote to Countless Economic Fallacies: To understand the principle that has been called Say’s Law, it is useful to start by thinking about what unhampered exchange is: the mutual offering of goods and services between people.

Friday, February 10, 2017

Price Controls and Propaganda

Price Controls and Propaganda: Most economists agree on one thing; price controls do not work. Many go on to say they create shortages of goods, which inevitably drives black market prices even higher than they would otherwise be. Price controls were last tried in the 1970s, and everyone swore, never again.

Friday, February 3, 2017

Why Those Student Loans Aren't Getting Paid Off

Why Those Student Loans Aren't Getting Paid Off: Last month, the US Department of Education admitted that a much larger number of students are defaulting on student loans than previously reported. According to the Wall Street Journal:

Tightening the Money Supply will Inevitably Lead to a Bust

Tightening the Money Supply will Inevitably Lead to a Bust: Fed policymakers are of the view that the correct interest rate policy could bring the economy onto a path of economic stability and low price inflation. The idea is to guide interest rates toward what is called the “natural” interest rate.