Category: Economics

trump-tweet-1417When running for president, candidates often makes outlandish promises about how we’ll benefit once they have power.

For instance, vice-presidential candidate John Edwards said in 2004 that, “when John Kerry is president people like [quadriplegic actor] Christopher Reeve will get up out of that wheelchair and walk again.” And in 2008, then-candidate Barak Obama said we’ll look back on his winning the Democratic nomination as the moment “when the rise of the oceans began to slow and the planet began to heal.”

The most absurd claims, though, are often about matters of economics. A prime example—and one of the silliest ever—was made the day after Christmas when president-elect Donald Trump tweeted, “The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!”

Only someone with an ego the size of Trump could truly believe he was having such a massive positive effect on the economy even before he took office. And only someone with Trump’s profound ignorance of economics could believe he possessed such abilities. Unfortunately, such illogical thinking is not unusual. Noah Smith calls this idea that the President of the United States controls economic outcomes the “Fundamental Fallacy of Pop Economics.”
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Blog author: abradley
Thursday, December 29, 2016
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On December 27, 2016, at the age of 86, Thomas Sowell published his last column. After publishing dozens of books and hundreds of columns, Dr. Sowell’s retirement may mark the beginning of the end of an era of black intellectuals who were champions of political and economic liberty. Other black scholars like Walter Williams, W.B. Allen, and Shelby Steele are all in the 70s or 80s and there does not seem to be a cadre of like-minded black scholars in their wake.
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Blog author: jsunde
Wednesday, December 28, 2016
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As protests for a $15-per-hour minimum wage continue to rage across the country, cities like Seattle and states like California and New York have already begun to adopt such schemes.

But alas, prices are not play things, and such measures are bound to reap a range of deleterious effects, from raised consumer prices to increased unemployment to reduced working hours to outright business closures. Contrary to the popular narrative, those consequences tend to hit small businesses and less-skilled workers first and hardest.

With the recent laws, the destruction has already begun. To illustrate the damage thus far, the Employment Policies Institute (EPI) is cataloging hundreds of stories on its Faces of $15 website, including a range of videos highlighting the frustrations and responses of business owners, employees, and faithful customers alike.

In the following 5 case studies, we see but a glimpse of the minimum wage’s cramping effect on human enterprise, creative service, and economic diversity.

1. Abbot’s Cellar

For Abbot’s Cellar, a newly founded restaurant in San Francisco, the recent wage hike made their start-up model unfeasible, even despite tremendous initial success. “How are businesses that have practically no margins as is – mom and pops, small businesses – how are they supposed to just absorb that?” asks Nat Cutler, one of the owners.

“San Francisco is a city that seems like it’s supposed to be built on a Bohemian, small-business, mom-and-pop-type vibe,” he continues. “That’s the culture of the city. I worry that the type of change that’s happening is going to take away from the great culture that was here…I wish a little more thought would be put into the long-term impact.” (more…)

Thomas-Sowell-Escaping-Socialism-900Earlier today I mentioned that economist Thomas Sowell was retiring from writing his syndicated column. For decades Sowell, age 86, has been one of the leading thinkers in the libertarian and conservative circles. But what is less known is the intellectual journey he took from being an advocate of socialism to a champion of free markets.

This past summer I wrote an article for The Stream examining on how Sowell thought his way into Marxism, then back out again into a vision of freedom:
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Blog author: jcarter
Tuesday, December 20, 2016
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Most consumers have heard of fair-trade coffee, but have no idea how fair-trade actually works. In this video, economist Victor Claar covers the basics of the fair-trade model, and explores whether fair trade can deliver on its promises to help the poor. Fair trade can also be used to vividly illustrate many key concepts in a principles of micro class, note s Claar, such as price elasticity and monopoly power.

It's_a_Wonderful_Life[Note: This is the final post in a series highlighting some of the financial aspects and broad economic lessons of Frank Capra’s holiday classic, It’s a Wonderful Life. You can find part one here and part two here.]

Economist Don Boudreaux recently outlined ten foundational lessons that should be learned in every well-taught principles of economics course. Examples of nearly all of the ten lessons can be found in Capra’s Christmas classic, but for the sake of brevity I’ll merely highlight two of them.

Principle 1: The world is full of both desirable and undesirable unintended consequences – consequences that are largely invisible but that even a course in ‘mere’ principles of economics gives us great vision that enables us to “see”.

This holiday film may be attributed to Frank Capra, but it could have just as easily been called “Frederic Bastiat’s ‘It’s a Wonderful Life’.” The central theme of the film is a creative example of Bastiat’s “That Which is Seen, and That Which is Not Seen”—which is (as both Boudreaux and I claim) the most important essay in economics.

In the opening line of his essay, Bastiat writes,

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baileypark[Note: This is the second post in a series highlighting some of the financial aspects and broad economic lessons of Frank Capra’s holiday classic, It’s a Wonderful Life. You can find part one here.] 

George’s Life Savings in a Life Insurance Policy

George attempts to secure a loan from Potter based on his life insurance policy. He says it has a $15,000 face value and a $500 cash value. Why is his life insurance policy worth cash?

George has a type of insurance policy—whole life insurance—that is guaranteed to remain in force for the insured’s “whole lifetime,” provided the required premiums are paid, or to the maturity date. As the New York Department of Financial Services explains,

The face amount is the amount of coverage you wish to provide your beneficiaries in the event of death. The cash value is the value that builds up in the policy. The minimum cash values are set by the Insurance Law and reflect an accumulation of your premiums after allowances for company expenses and claims. When you are young, your premiums are more than the cost of insuring your life at that time. Over time the cash value grows, usually tax-deferred, and the owner may be allowed access to that money in the form of a policy loan or payment of the cash value. The face amount of your policy will be higher than your cash value especially in the early years of your policy. If you surrender your policy you will receive the cash value not the face amount. If you die your beneficiaries will receive the face amount.

George could have cashed out the policy and received $500. But he was, as he says, “worth more dead than alive” since his family could get $15,000 if he died.
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