Sunday, November 16, 2014

Financial Markets are the Heart of the Economy

 I think well functioning credit markets are essential to the health of the economy.  In the top diagram I show how the government, households, businesses, and the world depends on the flow of credit.

In the Regional Economist, Vol. 22, No 4, published by the St. Louis FED, Greenwood, Sanchez, and Wang Agree.  See page 12 and 13.

The cartoon below by David Simonds shows that when credit markets are clogged and banks won't lend, the economy comes to a stand still.



Saturday, November 15, 2014

Financial Markets

I am working on a presentation on loanable funds that I think will always lead to an accurate prediction of interest rate direction and quantity for AP macroeconomic students. I am looking at every source and listening to all instructors who have made similar presentations. In this presentation, the authors use nice graphics to add meaning to their description. This is similar to mine which explains why I like this YouTube video. When I am finished with my work, I plan to have a downloadable PowerPoint which can be sent to students, worksheets to accompany any textbook, and a pdf file for those who like to read on tablets. If you have favorite sources that discuss loanable funds I would be love you to post links or suggestions in the comment section.

Saturday, October 25, 2014

Does Too Much Choice Diminish Utility?

These authors think think that too much choice leads to complexity in decision making and later post-choice regret: Rainer Greifeneder, Benjamin Scheibehenne, and Nina Kleber.  The paper is gated, but has implications for competitive markets.  Thanks to John Muir Laws for the pointer while I was listening in on his colored pencil class.

  • Abstract

    Although consumers readily seek choice and abundance, the so-called too-much-choice effect suggests that having many alternatives to choose from eventually leads to negative consequences, such as decreased post-choice satisfaction. The present research extends this research by highlighting the role of choice complexity. It is argued that too-much-choice effects are associated with choice complexity, which is influenced not only by the number of alternatives, but also by other features of the choice set, such as the number of attributes that alternatives are differentiated upon. These other influences of choice complexity may propel or hinder the emergence of too-much-choice effects. Two experiments tested this hypothesis by orthogonally manipulating the number of alternatives and the number of attributes. Results revealed a too-much-choice effect when alternatives were differentiated on many attributes, but not when alternatives were differentiated on few attributes. Implications for theory and practice are discussed.

    Wednesday, October 22, 2014

    Manufacturing in Rochester

    Here is a link to an NPR broadcast on the declining role of manufacturing in NY. I recommend reading the comments.

    I believe that the fable of Alice in Wonderland still holds much truth today.  I believe the moral of the story is that you can never get ahead. Our workforce has to continually improve and evolve in order to keep pace with the technological change that is occurring faster and faster.  In my opinion, that simply is not going to happen.

    I believe that human nature is such that constant acquisition of a skill is beyond most people's work ethic.  Most people will choose to be satisfied with do the bare minimum everyday in order to get by.  When they get off work, they have time to do anything but improve.  This includes me too.  How can one keep up with changes that occur at the speed of electricity.   I think we will continue to see more and more structural unemployment as the story from Rochester shows.


    Sunday, September 07, 2014

    Trickle Up Economics

    This cartoon was posted on a social network with some confusion from readers.  Some of the comments are:

    Basically, we subsidize the wealthy on the off chance they'll create jobs. If they have any money left after feeding their polo ponies.

    The Government has been "giving" to "the poor" since the 1960's and what do we have? The same amount of poor people! IF the Government wasn't robbing business and US with their unbelievable amount of rules and regulations it would be a much different game. The wealthy create jobs because they know that's the key to MORE WEALTH!

     I thought I'd throw some facts in here. Since LBJ started the War on Poverty the US has spent over $20 Trillion on support payments and we have fewer people that are self-sufficient than when the "War" started. It has been a colossal failure BUT it makes people "feel good". The money would have been much better invested in polo ponies who create jobs for stable hands, etc. I'm not an Economist, but follow economics daily for my career, and the things that go on "behind the scenes" are very scary......

    Oh, I get it! The more money the government diverts from helping the poor and "gives" to business, the better chance business will hire the poor. Yea!

    Wikipedia defines "Trickle Down Economics" as:

    Proponents of the trickle-down effect believe that a free market, which is uninhibited by heavy taxation and other forms of government controls, will cause an increase in wealth for society as a whole, part of which will "trickle down" from the affluent to the less wealthy, making the latter group better off. In this model, relative poverty may increase, but proponents state that this is a moot point because absolute poverty decreases. Opponents to this theory may point out that a large gap in the distribution of wealth can lead to a similarly large gap in power and influence, thus making this economic model undesirable. The trickle-down effect is usually used to describe a process by which benefits to the wealthy "trickle down" to benefits for the poor. The trickle-up effect, in a corollary to this, states that benefiting the poor directly (for example through micro loans) will boost the productivity of society as a whole and thus those benefits will, in effect, "trickle up" to benefits for the wealthy.

    I think the cartoon is saying that the poor people aren't doing enough to stimulate the economy.  I think the cartoon is also making a point about income equality.  This cartoon was printed in the spring of 2014 right after Thomas Piketty published his book "Capital".  I think the cartoonist was motivated by that publication to make the same point but in few words.  In the traditional viewpoint, it's possible to fight poverty and promote GDP growth.  I believe the cartoonist is saying that that idea doesn't work.  I might be wrong, but I think The Economist was the first to use the term.  


    Monday, September 01, 2014

    Burger King

    What purpose do cartoons serve?

    In this cartoon, maybe the artist wanted us to drop our defensive guards and see that our governmental polices of taxation are garbage.

    I believe that cartoons help us form an opinion about complex issues.

    Cartoons even motivate behavior.  In this case to change corporate tax laws.

    I think cartoons such as this one help to make connections between contradictory issues.  For example, the government needs taxes to fund public projects, but a tax rate this is viewed as unjust motivates corporations to outsource work.

    The work of a political cartoonist is to help people come to some reasonable conclusions about the the complexity of a social issue.  This cartoonist made the issue of corporate tax avoidance easy to swallow.