Posts tagged with: economics

“You are a slow learner, Winston.”
“How can I help it? How can I help but see what is in front of my eyes? Two and two are four.”
“Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.” – George Orwell, 1984

In a calculation that surely qualifies as “new math,” the government has created an equation in which $29,000 is equal to $69,000. Within the current welfare structure a single mother is better off making $29,000 per year in income and subsequent welfare benefits, than she is making $69,000 per year in income alone. This perverse incentive is what perpetuates the cycle of poverty and condemns impoverished moms to dependence on a paternalistic state. Social Security, Medicare, Medicaid, and SNAP (food stamps) are all larger than ever before with no subsequent reversal in the level or scope of poverty.

The “Welfare Cliff,” an economic model developed by Gary Alexander, the Secretary of Public Welfare in Pennsylvania, shows the amount of net income a person would need to receive in order to match their current net income plus welfare benefits. This is called a cliff, as there are drastic drop-offs in welfare benefits as one increases their income. In this graph, “the single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income & benefits of $57,045.” In fact, if a single mother were to raise her income from $29,000 to just $30,000, she would lose nearly $10,000 in welfare benefits per year.

The incentives provided under this system replace the desire for individual development with the maintenance of the status quo.  A single mother is highly unlikely to spend the time, effort, or capital in order to gain skills that result in receiving a lower disposable income. (more…)

SR-culture-index-2014-Scorecard_Poverty-and-Dependence.The Heritage Foundation has released their 2014 Index of Culture and Opportunity, the first annual report that tells how social and economic factors relate to the success of individuals, families, opportunity, and freedom. Through charts that track changes, and commentary that explains the trends, the Index shows the current state of some key features of American society and tells whether specific indicators are improving or getting off track.

Here are a few highlights from the report:
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Blog author: jballor
posted by on Tuesday, July 22, 2014

Idle RichOver at his blog, Peter Boettke writes, “The idle rich are never really idle in a free market economy.”

Now while we might want to distinguish between the rich and their riches, could it be that even in their consumption, conspicuous or otherwise, the rich are contributing to a rising tide that lifts all boats? Wesley Gant makes that related case over at Values & Capitalism: “Is It Possible to Waste Money?”

Gant seems to conclude that it isn’t possible to “waste” wealth. “Humans do not consume resources; they create and exchange them,” he says.

One might argue, however, as John Mueller does, that humans create and exchange things, but that they also consume and distribute them. It’s a truncated and reductionist economism that doesn’t do justice to that fuller picture. A basic problem with this kind of view is that it cannot distinguish between types of consumption. Maybe we need “ethics” rather than “economics” proper to do so, but that just goes to show the limitations of the economic way of thinking.

On Gant’s account, it would seem that there is no such thing as bad stewardship. Now it may be that consumption of luxuries is not always bad, or that such consumption often does have some redeeming virtues. But is it the case that such reasoning can justify any exchange or consumption? (As long as it doesn’t involve the government, of course!)

Perhaps the guy who got the one talent and buried it in the ground should have just given the wealthy owner a basic lesson in such economics.

cherrypieShould we always take the side of the individual consumer?

That’s the question Rod Dreher asks in a recent post on “Amazon and the Cost of Consumerism.” It’s a good question, one that people have been asking for centuries. The best answer that has been provided—as is usually the case when it comes to economic questions—was provided by the nineteenth-century French journalist Frédéric Bastiat.

Bastiat argues, rather brilliantly, that,

consumption is the great end and purpose of political economy; that good and evil, morality and immorality, harmony and discord, everything finds its meaning in the consumer, for he represents mankind.

He summarizes his argument as follows:

There is a fundamental antagonism between the seller and the buyer.

The former wants the goods on the market to be scarce, in short supply, and expensive.

The latter wants them abundant, in plentiful supply, and cheap.

Our laws, which should at least be neutral, take the side of the seller against the buyer, of the producer against the consumer, of high prices against low prices, of scarcity against abundance.

They operate, if not intentionally, at least logically, on the assumption that a nation is rich when it is lacking in everything.

Bastiat uses this as the basis of his argument that the interests of the consumer, rather than the producer, align more closely with the interests of mankind (see addendum below for more on this reasoning). Producers want scarcity since it increases their profits. If they can’t produce scarcity in the market, they’ll seek out government protections that create artificial scarcity (which is why those who are pro-business are rarely pro-market).

Book publishers don’t like the fact that Amazon is reducing the scarcity of their product, because it lowers the cost. But what is the result from the consumer side? The lower prices allow consumers to consume more books than they otherwise would be able to afford.
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Blog author: ehilton
posted by on Tuesday, July 22, 2014

Economics, at first glance, doesn’t seem very…well…sexy. It’s all about numbers, right? How the stock market is doing, how much people are willing to spend on stuff they need or want, whether or not people have jobs. That’s economics, right?

As the Rev. Robert Sirico is fond of saying, economics is fundamentally about human action. If this is true, then economics applies to sexual activity as well. In the following video (from the Austin Institute), today’s sexual landscape is examined through the lens of economic truisms.

Last week was a busy one, news-wise, and this may have slipped by you. Suddenly, 4.5 million people in the 5 U.S. territories (American Somoa, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands) are now exempt from Obamacare. Just like that.

What’s the story? Obamacare costs too darn much, and insurance providers were fleeing the U.S. territories, leaving many without insurance or at least affordable insurance. These territories have spent the last two years begging to get out from under this law, only to be told the Department of Health and Human Services

has no legal authority to exclude the territories” from ObamaCare. HHS said the law adopted an explicit definition of “state” that includes the territories for the purpose of the mandates and the public-health programs, and another explicit definition that excludes the territories for the purpose of the subsidies. Thus there is “no statutory authority . . . to selectively exempt the territories from certain provisions, unless specified by law.”

Laws, let us remember, are made by Congress. Unless they’re not. For instance, last week, the Department of Health and Human Services said they’d reviewed the situation and

the territories will now be governed by the “state” definition that excludes the territories for both the subsidies and now the mandates too. But the old definition will still apply for the public-health spending, so the territories will get their selective exemption after all.

As the Wall Street Journal notes, there seems to be some elasticity in the White House’s definition of “state.” And, may I add, some elasticity in the democratic process, the Constitution and rule of law. Perhaps a review via Schoolhouse Rock will help.

social-mobility-01_500x260Earlier this year I wrote a series of posts explaining 12 principles that generally drive the thinking of conservative evangelicals when it comes to economics. Number 9 on my list was:

9. Social mobility — specifically getting people out of poverty — is infinitely more important than income inequality.

Social mobility is the ability of an individual or family to improve (or lower) their economic status. The two main types of social mobility are intergenerational (i.e., a person is better off than their parents or grandparents) or intragenerational (i.e., income changes within a person or group’s lifetime). Researchers at Harvard University recently released a study of intergenerational social mobility within the United States which controlled for five factors: racial segregation, income inequality, school quality, social capital, and family structure.

Can you guess which factor makes the most difference for social mobility?
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searching-blindfolded-manIn the latest edition of First Things, Acton’s Director of Research Sam Gregg discusses how adherence to Catholic social teaching does not require a limited economic viewpoint. In fact, such a limited vision, or blindness as Gregg states in the article’s title, is what holds back development in many parts of the world. (Please note that the full article is available by subscription only, but is excerpted here.)

Gregg recounts how the aggressive or “Tiger” economies of East Asia have resulted in positive changes, despite problems such as endemic corruption.

To be sure, not everything is sweetness and light in East Asia. Memories of the region’s severe financial meltdown in 1997 linger. More ominously, China’s mammoth banking system is a hopelessly run extension of its government. The same banks are heavily and rather incestuously invested in propping up thousands of underperforming Chinese state-owned enterprises. That’s a recipe for trouble. Corruption remains an endemic problem, most notably in China and India, which rank an unimpressive 96 and 134, respectively, in the World Bank’s 2014 Ease ofDoing BusinessIndex, while Singapore, Hong Kong, South Korea, Malaysia, and Thailand are ranked in the top twenty.

Nonetheless, the overall benefits of greater economic liberty in East Asia can’t be denied. In 2010, the Asian Development Bank reported that per capita GDP increased 6 percent each year in developing Asian countries between 1990 and 2008. Christians should especially consider how this growth has contributed to the reduction of poverty. The ADB estimated that between 1990 and 2005 approximately 850 million people escaped absolute poverty. That is an astonishing figure.

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TipsMillions of Americans who work for tips have now been dragged into the political battle over the federal minimum wage and whether it should be raised to $10.10 per hour. Since 1991, the federal minimum wage has been adjusted 5 times, increasing three dollars to its current $7.25. These changes have been made while the minimum wage for America’s largest workforce, tipped workers, has remained unchanged at $2.13 for 23 years.

Although tips are meant to be a gratuity that shows appreciation for good service, they have become the difference between poverty and a living wage for nearly 20 million Americans. Saru Jayaraman, founder of the labor advocacy group Restaurant Opportunity Centers United, says that abolishing the tipped minimum wage in favor of one fair wage will help reduce poverty, especially in families.

But the National Restaurant Association has a different view. In response to a study on tipped wages by the left-leaning Economic Policy Institute, the NRA states:

Ninety percent of restaurants are independent or franchisee owned and operate on razor thin profit margins. Drastic increases to the minimum wage will only hurt restaurants ability to continue to create jobs and provide real opportunity to young people looking to step into the workforce and those who are finding their economic footing.

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Arthur Brooks, president of the American Enterprise Institute, challenges conservatives to think and act differently in the fight against poverty and income inequality. He says conservatives must acknowledge that we have income inequality in our society, and be willing to do something about it. That does not mean income redistribution. Rather, he says, we must be willing to do what actually helps the poor.

Brooks is clear: what helps the poor is free enterprise. However, much of our political rhetoric is about things and ideas, and not people. People, he says, need to know that we care more about them than about ideas. People want to know someone is willing to fight for them, not a set of political or economic ideas.

He poses the question, “How do people change their lives?” In talking with people who have brought themselves out of poverty, he says three things are clear. People must be willing to make moral transformations and take responsibility for their own lives. They must have a dependable but short-term safety net from the government for extreme circumstances, and they must have hope. People need to know that if they work hard and commit to changing their lives, they can succeed. However, Brooks says that isn’t happening enough or fast enough in our country, and people lose hope.

Take a few minutes and listen to his thoughts on work, entrepreneurship and education.