Posts tagged with: Financial economics

noun_project_19538As the US federal government sidled up to the debt ceiling earlier this week without quite running into it, one of the key arguments in favor of raising the debt ceiling was that it is immoral to breach a contract. The federal government has creditors, both from whom it has borrowed money and to whom it has promised transfer payments, and it has an obligation to fulfill those promises.

As Joe Carter argued here, “Member of Congress who are refusing to raise the debt ceiling (or raise taxes) until their ancillary demands are met are acting immorally, since they are refusing to pay the debts they themselves authorized.”

But as Connie Cass writes, the idea that the United States has never defaulted isn’t quite true. As she writes,

America has briefly stiffed some of its creditors on at least two occasions.

Once, the young nation had a dramatic excuse: The Treasury was empty, the White House and Capitol were charred ruins, even the troops fighting the War of 1812 weren’t getting paid.

A second time, in 1979, was a back-office glitch that ended up costing taxpayers billions of dollars. The Treasury Department blamed the mishap on a crush of paperwork partly caused by lawmakers who — this will sound familiar — bickered too long before raising the nation’s debt limit.

So if it is immoral to default, then America has done so at least twice.
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Shareholder activism, according to the headline in the most recent issue of PRWeek, is “rising” and “big companies [are] in crosshairs.” The ensuing article by Brittaney Kiefer, begins:

Shareholder activism used to be just a nuisance that arose during proxy season, involving a group of contentious investors who tended to target smaller or less established companies.

However, in recent years activists have set their sights on larger companies, and more traditional investors are joining those fights. As shareholder activism goes mainstream, companies are becoming more proactive in engaging investors year-round, communications professionals say.

Ms. Kiefer’s article is a fine example of objective reporting on the growing trend of shareholder activism, but she avoids untangling the Gordian knot of interests behind these increasingly concerted efforts by leftist activists. These efforts include the recruitment of such religious-based investment groups as Walden Asset Management, the Interfaith Center on Corporate Responsibility, the Needmor Fund and various and sundry Unitarian Universalist collectives to sprinkle – albeit disingenuously – holy water on the whole progressive agenda. Explains Kiefer:

An activist shareholder is an investor who attempts to use his or her stake in a publicly traded corporation to affect change at the company. Activists often launch campaigns that put public pressure on companies, tackling issues such as executive compensation, management structure, or corporate strategy.

Sounds rather benign, no? Actually, as noted here and here, these groups have metastasized from mere nuisance to genuine threats to not only corporate (and shareholder) profitability, but to free speech (including scientific debate) and helping the nation’s (and world’s) poorest. (more…)

At the height of the housing crisis, it was estimated that 11 million homes in America were mortgaged for more than they were worth. That debt crisis may soon be dwarfed—if it hasn’t been already—by the student loan debt problem:

With college enrollment growing, student debt has stretched to a record number of U.S. households — nearly 1 in 5 — with the biggest burdens falling on the young and poor.

The analysis by the Pew Research Center found that 22.4 million households, or 19 percent, had college debt in 2010. That is double the share in 1989, and up from 15 percent in 2007, just prior to the recession — representing the biggest three-year increase in student debt in more than two decades.

Unlike an negative equity mortgage, student load debt is not dischargeable in a bankruptcy. It’s also non-transferable—the college degree that was “bought” with the debt cannot be sold or traded. That makes degrees that are not “marketable” or that were acquired for reasons of personal growth an expensive luxury good.

Obviously many people (including me, with some qualifications) believe that the value of obtaining a liberal education is worth taking on debt. But what about graduates who will receive neither a life-broadening education nor a vocationally useful skill-set from getting a college degree? Should we continue to encourage them to take on debt to pay for higher education?

Whether the lottery is, as the old adage states, a tax on people who are bad at math, it is most certainly a tax on the poor. Those who have the least spend an inordinate percentage of their income every year on lottery tickets (estimates vary from 4-9%). Yet while it is irrational for those in poverty to waste their limited resources on a one in 176 million chance, there is something almost rational in the reasoning for doing so. As The Atlantic’s Derek Thompson points out:
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Pieter de Hooch - A Woman with a Baby in her Lap, and a Small ChildOne of the justifications for the HHS mandates (amended now to require insurance companies to provide contraceptives free of charge) has been purely economic. The idea is that the use of contraceptives saves insurance companies (and by extension the rest of us) money, as it is less expensive to pay for condoms or birth control pills than to pay for a pregnancy and birth.

Of course the calculus to come up with such a conclusion is flawed in myriad ways. But even if we were to assume the veracity of the contention, many questions immediately arise. For instance, why wouldn’t insurance companies voluntarily offer birth control coverage gratis if it would lower their costs? Aren’t these the same profit-maximizing institutions that politicians have been demonizing for years? Aren’t the insurers the professionals, whose business it is to know what ways are available for minimizing exposure? The very fact that up to this point insurance companies have not added free birth control as a preventive care measure is powerful evidence against the economic argument in favor of contraception.
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