Posts tagged with: economics

Blog author: jcarter
Thursday, June 13, 2013
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Among the most significant economic challenges in America today is getting Americans to understand what an economy is.

measure-economyWhen the Latin term oeconomia was first used in the 1500s it meant “household management.” A few centuries later, the term political economy was used in reference to the economies of states or polities. It wasn’t until the modern era, though, that “economy” became to refer primarily to the production and distribution of national income and wealth and lost almost all connection to the household.

Because of that shift, we often see a confusion of terms and concepts. Take, for instance, the opening sentence of this recent news report:

The U.S. economy grew at a modest 2.4 percent annual rate from January through March, slightly slower than initially estimated.

The problem with this is that “U.S. economy” is conflated with gross domestic product (GDP) — the market value of all officially recognized final goods and services produced within a country in a given period of time. While GDP can potentially be an important economic indicator, it is not a true measure of the nation’s economy (aka political economy).

Derek Scissors provide a superb explanation for why a better measurement is one that gauges the original economy:
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The call to “buy American” is one we hear frequently or see plastered on the bumper of the car in front of us. Donald Boudreaux, senior economics advisor at Mercatus Center, explains the problem with this ideal in a letter to the Washington Post:made in usa

Let’s make a deal.  Government will agree to protect only those American workers and small-business owners who in return agree to stop buying foreign-made products. (more…)

Blog author: jcarter
Wednesday, June 5, 2013
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trip_hurdles_400_clrOne of the most basic concepts in economics and business is marginal or incremental cost, the additional cost needed to produce or purchase one more unit of a good or service. For example, if a business can produce 100 widgets at a total cost of $5,000 and 101 widgets for $5,500, the marginal cost of the 151st unit is $500. At that rate, the company has a disincentive to produce more than 100 widgets since the cost rises sharply (an average additional cost of $4.45 per widget).

The same principle applies to the cost of labor. Imagine a worker who makes $16 an hour for 29 hours per week but whose incremental cost for the 30th hour of work each week rises to $112.15. For the 29 hours of labor, the cost is $464 while for 30 the cost is $576.15. That sharp increase would prevent many employers from hiring workers for more than 29 hours per week.

According to Jed Graham at Investor’s Business Daily, that is exactly what effect Obamacare will have on wages.
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Kishore Jayabalan, Rome director of the Acton Institute for the Study of Religion and Liberty, clarified remarks made by Pope Francis at a May 16 reception of new Vatican ambassadors. The pope, calling for an examination of the world’s relationship with money, said we are facing “dire consequences” due to the power we give money.

Jayabalan had this to say:

If we look at money as wealth itself, we can very easily place it above everything else. But if we look at money as a representation of wealth, as a measure by which we can judge whether we are using our resources well, it need not be an idol, but a useful instrument. The same goes for finance and the allocation of capital needed for new ventures and progress.

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German Finance Minister Wolfgang Schaeuble is a frustrated man. With unemployment rates in Germany hovering at around 8 percent, and Greece and Spain at almost 60 percent, he believes the EU is on the brink of “revolution.” His answer is not to protest signscrap the welfare model however; he wants to preserve it.

While Germany insists on the importance of budget consolidation, Schaeuble spoke of the need to preserve Europe’s welfare model.

If U.S. welfare standards were introduced in Europe, “we would have revolution, not tomorrow, but on the very same day,” Schaeuble told a conference in Paris.

Not everyone agrees. Italian Labour minister Enrico Giovannini says European youth are being asked to put their lives on hold, and that this is “unacceptable.” Werner Hoyer, head the European Investment Bank, acknowledged that there is no plan at this point to direct the spiraling downturn of the EU economy. There is, instead, a country-by-country “patchwork” approach. For instance, Greece is attempting to focus on job training and entrepreneurship for 350,000 young people, and France is working on a similar plan within its own borders. (more…)

In a May 16 address to four new Vatican ambassadors, Pope Francis denounced the “cult of money” in today’s culture, stating that we are now living in a disposable society, where even human beings are cast aside.

Phil Lawler, at CatholicCulture.org asks if this means the pope is a socialist. Not so:

Socialists make their arguments in moral terms, because if the argument is stated purely in practical terms, the socialists will lose. By the same logic, capitalists prefer to state their arguments in practical economic terms. Unfortunately, in doing so, they cede the moral high ground to their opponents. With rare exceptions—one thinks immediately of Michael Novak and of the Acton Institute–defenders of capitalism have not taken the trouble to state their case primarily in moral terms. And that’s unfortunate, because a powerful argument can be made that capitalism, tempered by a Christian moral framework, is the best available solution to the problem of poverty.

Nothing that Pope Francis said—nothing that any Pope has said—would rule out that approach. (Pope John Paul II opened the door to a Christian defense of capitalism in Laborem Exercens, then pushed it wide open in Centisimus Annus.) To be sure, the teaching magisterium has been critical of the excesses of capitalism, and of capitalism raised to an all-encompassing ideology. Pope Francis today repeated that condemnation of “ideologies which uphold the absolute autonomy of markets and financial speculation, and thus deny the right of control to States, which are themselves charged with providing for the common good.” Hard-core libertarians will be uncomfortable with that language, certainly. But then hard-core libertarians are often uncomfortable with the Ten Commandments.

Read “What capitalists should learn from the Pope’s critique” at CatholicCulture.org.

Does the free market encourage moral behavior? Virgil Henry Storr, Research Associate Professor in the Department of Economics at George Mason University, recently wrote a report called “The Impartial Spectator and The Moral Teachings of Markets.” He addresses critics’ concerns that the free market brings out and nurtures human vices.

Countless commentators have stated that “engaging in market activity can be corrupting.” Storr highlights two notable quotes. Aristotle “believed that there was something unnatural about the kind of wealth getting that occurred in the market.” Karl Marx “believed that the market could transform man into a ‘spiritual and physical monster.’”

Storr, who is also Director of Graduate Student Programs in the Mercatus Center, addresses these famous claims with quotes from those who have “made the point that markets are moral training grounds where virtues are rewarded and cultivated.” Michael Novak stated that engaging in trade “teaches care, discipline, frugality, clear accounting, providential forethought … fidelity to contracts, honesty in fair dealings, and concern for one’s moral reputation.” Deirdre McCloskey, Distinguished Professor of Economics at the University of Illinois at Chicago, says:

Capitalism has not corrupted the spirit. On the contrary, had capitalism not enriched the world by a cent nonetheless its bourgeois, antifuedal virtues would have made us better people than in the world we have lost. As a system it has been good for us.”

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