Category: Economics

Blog author: jsunde
Monday, October 13, 2014
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capterrorismThe Middle East is enduring yet another wave of terror and political change, spurring countless Western analysts and elites to offer their preferred strategies and solutions, most of which involve military force, foreign aid, or some mixture of the two.

In last weekend’s Wall Street Journal, Peruvian economist Hernando De Soto sets forth a less predictable path, arguing for “an aggressive agenda for economic empowerment,” similar to that which was promoted in Peru during the 1990s.

I know something about this. A generation ago, much of Latin America was in turmoil. By 1990, a Marxist-Leninist terrorist organization called Sendero Luminoso, or Shining Path, had seized control of most of my home country, Peru, where I served as the president’s principal adviser. Fashionable opinion held that the people rebelling were the impoverished or underemployed wage slaves of Latin America, that capitalism couldn’t work outside the West and that Latin cultures didn’t really understand market economics.

The conventional wisdom proved to be wrong, however. Reforms in Peru gave indigenous entrepreneurs and farmers control over their assets and a new, more accessible legal framework in which to run businesses, make contracts and borrow—spurring an unprecedented rise in living standards… Over the next two decades, Peru’s gross national product per capita grew twice as fast as the average in the rest of Latin America, with its middle class growing four times faster.

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farm-subsidy-column-imageHave you ever listened to a classical symphony and thought the music needed more distortion? Or have you ever read a newspaper and believed it would have been improved if it had more disinformation? Most of us don’t appreciate distortion in our music or disinformation in our news. Yet far too many do favor distortion and disinformation when it comes to pricing.

Prices signal information in markets. A “market” is a summary term for a variety of voluntary exchange for tangible commodities or nontangible services. In fact, one of the most important functions of a market is to use pricing to serve as an information system (creating, collecting, filtering, processing, and distributing information). When we describe a market as a “free market” one of things meant is the prices are largely free of distortions and disinformation.

This is one of the main reasons free market advocates oppose government subsidies: they inject distortions and disinformation into the pricing system. Almost always, the distortions result in an advantage of the strong over the weak, the big over the small, and the rich over the poor.

A prime example is government subsidies to farmers. During the Depression, the government began subsidizing crops to save family farms. But now the program costs billions, benefits big agricultural companies, and can even harm family farms.
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job seekerAccording to the U.S. Department of Labor, unemployment across the country is at about 6.1 percent (here in Michigan, it’s at 7.4 percent, which puts us in the bottom 10 states.) That means a lot of folks are still struggling to find a job, or a job where they are not underemployed.

Peter Morici, an economist at the University of Maryland give 5 reasons for this. Have all the “good” jobs moved overseas? Do we need to raise the minimum wage? Are we Americans lagging behind in math and science? Here are Morici’s thoughts: (more…)

baby-boomersIn the nineteenth century, fertility in Europe began to drop — and it never rose again. Of all the explanations given for the change (e.g., increase in birth control technology), there is one that is often overlooked: public pension systems.

Does knowing you’ll get a social security check at 70 limit the number of children you have in your 30s? Most people would say it wouldn’t (or, at least, shouldn’t). But a new study finds that in the past there is a strong correlation between state-provided pensions and fertility. The working paper produced by the European Central Bank finds,
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Thomas-Piketty-014Thomas Piketty’s new book, Capital in the Twenty-First Century, has created quite the stir, and with its overwhelming size (700 pages) and corresponding array of commentaries and critiques, it’s tough to know where to start.

Cutting through such noise, Russ Roberts provides his usual service on EconTalk, chatting one-on-one with Piketty about the key themes, strengths, and weaknesses of the book. The interview is just over an hour, and I encourage you to listen to the whole thing.

Piketty lays out his argument quite concisely in the beginning, followed by a fruitful back-and-forth led by Roberts. For those who aren’t aware, the book chronicles a recent rise in economic inequality, wherein, by Piketty’s account, wealthy elites sit on their stashes while those at the bottom increasingly struggle to keep pace. His solution: Tax, baby, tax.

In response to such an approach, there are many areas to poke and prod, but Roberts zeroes in on one of the more fundamental and overarching questions: What about those who accumulate their wealth by helping those at “the bottom”?  (more…)

Blog author: jcarter
Thursday, September 25, 2014
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marriageeconomyFor the past three decades, there has been an attempt by the political class to divide conservatism into two main branches: social and economic. The two are often pitted against each other despite the fact that most conservatives in America would identify with both sides. Mainstream conservatives realize what the elite class does not: economic and social factors are inextricably linked together.

Consider, for example, the connection between the economy and marriage. According to a new report by the Pew Research Center, the share of American adults who have never been married is at an historic high. In 2012, one-in-five adults ages 25 and older (about 42 million people) had never been married; in 1960, only about one-in-ten adults (9 percent) in that age range had never been married.

About half of all never-married adults (53 percent) say they would like to marry eventually. Out of that group, three-in-ten say the main reason they are not married is that they have not found someone who has what they are looking for in a spouse. So what’s holding them back? For women, the reason seems to be primarily economic. More than two-thirds (78 percent) of never-married women say finding someone who has a steady job would be very important to them in choosing a spouse or partner.
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doctor_clipartIn helping developing countries to increase their economic prosperity, says Acton’s Jordan Ballor, we must remember that human welfare cannot be reduced to material realities.

If a nation were to pursue GDP growth as its highest goal, it would probably institute policies and incentives to induce women to work outside the home and professionalize child care. GDP incentivizes specialization and the division of labor, since such transactions are the only things taken into account. As Ritenour concludes, “We ought not give into the temptation that all of human welfare is encapsulated in GDP.” Or in other words, man does not live on GDP per capita alone.

In a subtle way, measuring GDP can give the illusion that human flourishing is identical to economic growth and that economic growth is reducible to GDP. GDP is a useful, if limited, measure. But it should never be seen as a direct proxy for economic development, much less human flourishing.

Read more . . .

Blog author: jcarter
Thursday, September 18, 2014
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bible-studyMost Christians recognize that the Bible has lot to say about economic topics, such as money and poverty. Yet there is a paradoxical assumption, whether stated or unspoken, that these passages don’t speak to larger economic issues. Occasionally this is true, but more often than not, we can find principles from Scripture that can help us discern how we should think about matters related to economics.

Consider, for example, the issue of economic systems. The Bible doesn’t claim to favor any particular nation-based economic system, such as American-style capitalism or the old Soviet-style communism. But Scripture does seem to have a clear preference for the economic activities that underpin the free market. As David Kotter explains,
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poverty_20130311One of the most underreported stories of the last decade is about good news: we’re winning the struggle against chronic hunger around the globe.

A new U.N. report estimates that the number of chronically undernourished people in the world has decreased by more than 100 million over the last decade, and 209 million lower than in 1990–92. Those figures are even more remarkable when we consider the global population has increased by almost 2 billion since 1990.

According to the report, since 1990-92, 63 countries have reached the hunger target of halving the proportion of undernourished people and 25 countries have achieved the goal of halving the number of undernourished people. Of the 63 developing countries, 11 already had undernourishment levels below 5 percent (the methodological limit that can assure significance of the results different from zero) in 1990-1992 and have been able to keep it in that interval, and are therefore not the prime focus of the 2014 report.

In the same period, the prevalence of undernourishment has fallen from 18.7 to 11.3 percent globally and from 23.4 to 13.5 percent for developing countries. There has likely never been a time in modern human history when such a large percentage of the population has been freed from chronic hunger.

Unfortunately, about 805 million people — mostly in Africa and South-Eastern Asia still remain without adequate food resources, due largely to conflicts and natural disasters. But we’re making remarkable progress. In fact, as Steve Davies of LearnLiberty explains, in the near future we may be able to eradicate extreme poverty and global hunger altogether.

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Vatican Radio reports that the Organization for Cooperation and Economic Development is adjusting its economic forecast for major developed economies downward, with growth in the Eurozone projected to be only 0.8% in the coming year. Along with this forecast, the OCED is encouraging the European Central Bank to engage in a program of stimulus to offset the negative effects of such weak levels of growth.

For analysis on this story, Vatican Radio turned to Kishore Jayabalan, Director of Istituto Acton in Rome, who explained that adjusting monetary policy would only mask the fundamental problems that cause slow growth in European markets, such as high taxes, burdensome regulatory schemes, and strict employment rules that make it difficult for employers to have any flexibility in hiring and firing.

You can listen to the full report and interview using the audio player below.