Economics @ ITT

What Is Enough?

Posted in economics, employment by ittecon on December 26, 2012

Robert Nielsen has been compiling a blog chock-full of thoughts on political economics. His post on A New Economic Theory is too broad of a topic for me to respond to meaningfully in the short time I have, so I may revisit and comment more than once. Given the shoratage of time, I’ll also ask for some liberties in organising my own thoughts, and edits may follow.

To me, the treatment labour theory gets has always been particularly strange in economics, especially with it being treated as a commodity—perfectly competitive—factor. When discussing labour theory and power, I feel it is important—in addition to being in control of means of production—to bring in risk profiles: an employer naturally has more power as s/he has the advantage of being risk neutral whilst more employees (or potential employees) are risk averse, which creates at the onset an imbalance in the ability to negotiate.

On the consumer front, it is interesting that Robert portrays them as powerless—and I agree that many feel that way—, but the fact is that in a demand-driven economy, consumers hold all of the cards, though it is a sticky wicket. It is more a solidarity problem that might be best evaluated using game theory.

However, given that there is indeed some interaction between supply and demand—even if not quite the textbook portrayal—, if consumers stopped demanding, prices would fall, and suppliers could either drop prices or go out of business. The problem is one of paradox: In a consumption-based economy people-as-consumers create demand for product, and this demand provides wages to people-as-workers, as these goods need to be produced. So if people are too successful at voting with their wallets, they could be left out in the cold.

At a more fundamental level, a problem lies in the obsession with the need to work for some 40ish hours and with the notion of full employment. Given historical trends, most people—and not only in industrialised nations—should be able to work 20 – 30 hours a week and be able to enjoy the rest as leisure time. This would also provide opportunities for others who are currently unemployed to fill in the gaps. However, with the current dysfunctional need to keep up with the Joneses—and one-up them—, we are never quite satisfied with enough.

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And All Shall Worship Money?

Posted in economics by ittecon on December 24, 2012

Our slice of the earth supplies us with some things, and in making others and providing services we operate at either an advantage or disadvantage in respect of other economies. Sometimes we do well – sometimes we do not; it does not take the doctrinal complexities of the economic priesthood for us to understand comparative advantage or competitiveness, even when the obfuscating veil of “globalisation” is draped over our eyes.

via BBC News – A Point of View: And all shall worship money.

Reality Economics

Posted in economics by ittecon on December 20, 2012

I’ve got to read Economists and the Powerful.

Today’s supply and demand approach treats the economy as a “market” in a crudely abstract way, as quantities of goods (already produced), labor (with a given productivity) and capital (already accumulated, no questions asked) are swapped and bartered with each other. This approach does not inquire deeply into how some people get the capital to “swap” for “labor.” To top matters, this approach gets the direction of technological growth and basic business experience wrong, by assuming conditions of diminishing returns and diminishing marginal utility. The intellectual result is a parallel universe, whose criterion for economic excellence is merely the internal consistency of its abstract assumptions, not their realism.

via Reality economics | Michael Hudson.

US Poverty Explosion Hitting Young People Hardest

Posted in economics by ittecon on December 20, 2012

The mainstream media continues to insist that the economy is “getting better”, but the poverty numbers for children and young people just continue to explode.

via 20 Signs That The U.S. Poverty Explosion Is Hitting Children And Young People The Hardest.

The Road From Rags To Riches No Longer Passes through College

Posted in economics, education, employment by ittecon on December 20, 2012

The apparent benefit of higher education is mostly attributable to selection bias and network effects. The increase in tuition costs makes this an ROI model that won’t work for most, though through marketing and deliberate disinformation people are led believe that this is not only a path forward, but that it’s the best path.

[C]olleges are sold to you as the critical stepping stone on the path to wealth and prosperity, but sadly the empirical evidence demonstrates that when it comes to an actual, demonstrable income effect, only the wealthiest people actually benefit from a degree! The lowest fifth of household by income see their change in income decline by 10%, while the middle fifth sees an incremental 2.1% drop.

via Sorry (Poor) Kids: The Road From Rags To Riches No Longer Passes Through College | ZeroHedge.

3 Approaches to Curbing Gun Violence Using Economics

Posted in economics, Policy Issues, Regulation, Taxation by ittecon on December 19, 2012

Undoubtedly, there are more economic incentives to employ, and I don’t want to get mired in the politics of this gun ownership issue, but these are decent ideas.

What if anything can the government realistically do to decrease gun violence in America? We’ll surely hear a number of proposals this week, but here are three that attack the problem as an economist would: through incentives.

via 3 Approaches to Curbing Gun Violence — Using Economics | TIME.com.

Another approach is to make the manufacturers and vendors civilly liable for any damage caused by the product—sort of like making a bartender liable for serving an inebriated patron alcohol after s/he gets into an accident. This takes the argument out of the constitutional realm into the domain of economics. People in the US might have the right to bear arms, but the liability would increase the cost to these parties, and so  based on classical economic theory, supply would decline and prices would increase.

11 Facts About the Simpson-Bowles Plan

Posted in economics, Taxation by ittecon on December 5, 2012

The Simpson-Bowles plan — which Erskine Bowles does actually support — occupies strange territory in Washington: Almost every politician professes to admire it, almost none of them are willing to vote for it, and almost none of its supporters know what’s in it. So here, with an assist from the Center on Budget and Policy Priorities, are a few facts to keep in mind about the Simpson-Bowles plan. And while you’re reading this list, remember: Simpson-Bowles is a centrist proposal.

via 11 shocking, true facts about Simpson-Bowles.

Citigroup to Cut More than 11,000 Jobs as Investors Rejoice Hallelujah

Posted in economics, employment by ittecon on December 5, 2012

Citigroup said Wednesday that it will cut 11,000 jobs, a bold early move by new CEO Michael Corbat. The cuts amount to about 4 percent of Citi’s workforce of 262,000.

via Citigroup to cut more than 11,000 jobs as it looks to lower expenses – The Washington Post.

US Banks Post $37.6B in Third-Quarter Profits

Posted in economics, Policy Issues by ittecon on December 5, 2012

The massive bailout is not over. If I had access to funds near 0% and know that I am TBTF, I might be earning near record profits, too.

Four years after a massive federal bailout, banks are recording near-record profits — a development welcomed by regulators but met with fresh demands by critics that the financial firms do more to benefit mainstream America.

via U.S. banks post $37.6 billion in third-quarter profits – latimes.com.

How Middle Class Wealth Collapsed to a 40-Year Low

Posted in economics by ittecon on December 5, 2012

Between 2007 and 2010, the median net worth of U.S. households fell by 47 percent, reaching its lowest level in more than forty years, adjusted for inflation.

The Recession’s Toll: How Middle Class Wealth Collapsed to a 40-Year Low – Jordan Weissmann – The Atlantic.