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Tuesday, November 20, 2012
Monday, November 12, 2012
Synergies
Sometimes things just seem to fall into place. I've been pretty fortunate in my college education that when world events have gone down, I have been enrolled in the perfect class at that very time. For example, when Bill Clinton was impeached, I was in a class on the American Presidency.
Currently, I'm in a class where we take economic models and apply them to public policy. We're also about to go over the fiscal cliff. SYNERGY!
Or, oh yeah... this blog is about to get epic...
Currently, I'm in a class where we take economic models and apply them to public policy. We're also about to go over the fiscal cliff. SYNERGY!
Or, oh yeah... this blog is about to get epic...
Sunday, November 11, 2012
Poor Decision Rules
I know that my previous post is going to have some detractors, so I've got this one in the can and ready to post immediately following.
Consider the following situation: You have $100. I tell you that you can put this in a bank account, and by this time next year, you can have $100.05. Or, you can put it in a higher yield bond and earn $105. Or, you can go into a business venture and earn $120. What are you going to do? Unless you have decided to live off-grid in a self-sustaining agrarian commune that has no use for money, you'll pick the $120. Now, I tell you that last year, your options were $100.05 for the bank account, $105 for the bond, or $130 for the business venture. What is your decision? Still the business venture, right? Of course! Because if you want to maximize your profits, the business venture is still the best decision! You don't suddenly go, well, it was $130 last year, so I refuse to earn $120 this year.
So how do taxes really kill jobs? I haven't figured this one out.
If you are one of the companies that claim that Obama's policies kill jobs, and vow to cut jobs because of the threat of higher taxes, you probably have a business that's on the ropes to begin with. Looking at some of the companies whose CEOs have threatened this, it's pretty hard to see any of these companies actually having to really lay-off people because of an increase in taxes. While Murray Energy and Westgate Resorts are private companies, Papa John's is a publicly traded company with profit margins of 10.58% in their 2011 Annual Report. How much of an increase in taxes (payroll, income, etc.) would it really take for this rate to be so low that being in business is no longer the most profitable option for John?
Take this one step further, if taxes rise for John, they are rising for every business and pizza chain. So if Papa John's slips in profitability to 8%, it's a safe bet that all other businesses will have similar shifts downward. The attractiveness of Papa John's as an investment stays at the same level relative to the other options that exist at that time. If John is correct though, and the margin slips to nothing, then you wave to look at the other options for investing that are available. Interest rates for bank accounts are practically nothing. If companies are shedding jobs left and right, then they are not expanding, the demand for loans decreases, meaning that the interest rates on loans decrease. Even a 3-4% margin will be attractive to an investor.
However, you are assuming that profitability is a result of attracting investors. From a labor standpoint, if a company can be more profitable by hiring more workers, it hires more workers. If a company can be more profitable by hiring fewer workers, it hires fewer workers. What it doesn't do, or rather should do, is think that a 5% increase in taxes for the majority owner means a retaliatory layoff of 5% of the workforce. The stockholders sure as heck should keep the CEO in check if he really thinks that's a good decision rule.
Consider the following situation: You have $100. I tell you that you can put this in a bank account, and by this time next year, you can have $100.05. Or, you can put it in a higher yield bond and earn $105. Or, you can go into a business venture and earn $120. What are you going to do? Unless you have decided to live off-grid in a self-sustaining agrarian commune that has no use for money, you'll pick the $120. Now, I tell you that last year, your options were $100.05 for the bank account, $105 for the bond, or $130 for the business venture. What is your decision? Still the business venture, right? Of course! Because if you want to maximize your profits, the business venture is still the best decision! You don't suddenly go, well, it was $130 last year, so I refuse to earn $120 this year.
So how do taxes really kill jobs? I haven't figured this one out.
If you are one of the companies that claim that Obama's policies kill jobs, and vow to cut jobs because of the threat of higher taxes, you probably have a business that's on the ropes to begin with. Looking at some of the companies whose CEOs have threatened this, it's pretty hard to see any of these companies actually having to really lay-off people because of an increase in taxes. While Murray Energy and Westgate Resorts are private companies, Papa John's is a publicly traded company with profit margins of 10.58% in their 2011 Annual Report. How much of an increase in taxes (payroll, income, etc.) would it really take for this rate to be so low that being in business is no longer the most profitable option for John?
Take this one step further, if taxes rise for John, they are rising for every business and pizza chain. So if Papa John's slips in profitability to 8%, it's a safe bet that all other businesses will have similar shifts downward. The attractiveness of Papa John's as an investment stays at the same level relative to the other options that exist at that time. If John is correct though, and the margin slips to nothing, then you wave to look at the other options for investing that are available. Interest rates for bank accounts are practically nothing. If companies are shedding jobs left and right, then they are not expanding, the demand for loans decreases, meaning that the interest rates on loans decrease. Even a 3-4% margin will be attractive to an investor.
However, you are assuming that profitability is a result of attracting investors. From a labor standpoint, if a company can be more profitable by hiring more workers, it hires more workers. If a company can be more profitable by hiring fewer workers, it hires fewer workers. What it doesn't do, or rather should do, is think that a 5% increase in taxes for the majority owner means a retaliatory layoff of 5% of the workforce. The stockholders sure as heck should keep the CEO in check if he really thinks that's a good decision rule.
Convenient Scapegoats
The 2012 Midwestern Granola Douche Canoe Award seldom has to look long and hard to find suitable candidates to earn the award. This week, Robert Murray, CEO of Murray Energy, submitted an application packet so thorough that I doubt we will find a more deserving recipient of the Douche Canoe this year. He appears to have mastered being a douche canoe in the fields of campaign finance, labor relations, business ethics, and employment regulations, all while cloaking this in religious rhetoric. Really. Brilliant and thorough.
This week, you may have seen news coverage of Murray's press conference in which he fired 158 workers because Obama won the election. If you had not been paying attention to the exploits of Robert Murray, then you really need to read these. If you are thinking that the name sounds familiar, then, yeah... he's the guy who has those mines in Appalachia and Utah that occasionally collapse. As a former miner whose father was injured in an accident, I don't want to believe that he really wants these things to happen in his mines, but his actions do not indicate that he is doing everything in his power to prevent deaths and hazardous working conditions.
This year, the highlights of Murray Energy's policies have been:
On Wednesday, he led his workforce in prayer, asking God to forgive the horrible thing he was about to do, then went ahead and told 158 people that they were to lose their jobs because Obama won. Matthew 6:5 aside, there are fundamental problems with this statement. Mainly, that it is a giant crock of bullshit.
Let's get this clear: electing Obama had nothing to do with the firings. Instead, there's a simple business reason: Murray Energy competes on cost in an industry where prices are set by the commodity market. There's a lot of coal in Wyoming that's easy to get to. There's less in Galatia, Illinois, and Utah, it's harder to get to, more dangerous to mine, and higher in sulfur than other sources. If your plan is to buy the cheapest coal mines, the ones with the high sulfur coal, then try to sell them for prices near that of higher quality coal, you are going to fail. If the government tries to internalize the externalities associated with the burning of fossil fuels, especially by regulating the pollution caused by the sulfur content of your product, then your business fails. Most businesses do fail. Add to this a substitute good, natural gas, which is now so cheap you could basically give this away, and even without the EPA, the invisible hand of the market is going to smack you upside the head, and you are going to fail. Not letting Murray Energy fail? Well... where's the moral hazard in all of this?
Instead of blaming Obama, Murray needed to face facts: Coal is a mature industry. The only way to stay competitive in this industry is consolidation and maybe some favorable treatment by the government. He has a pretty good idea where Obama sits on this - he's not going to destroy the coal industry, but he's not going to help it become more profitable than it already is... and he's going to regulate the shit out of it. However, Murray was banking on Romney being more generous. He backed the wrong horse, so now he's having to face the problems associated for his own poor business strategy without a bailout by the Romney Administration. If anything, he should have just kept all his money, and prepared for the slow decline of his company. That would have been in his economic self-interest no matter who would have won.
This week, you may have seen news coverage of Murray's press conference in which he fired 158 workers because Obama won the election. If you had not been paying attention to the exploits of Robert Murray, then you really need to read these. If you are thinking that the name sounds familiar, then, yeah... he's the guy who has those mines in Appalachia and Utah that occasionally collapse. As a former miner whose father was injured in an accident, I don't want to believe that he really wants these things to happen in his mines, but his actions do not indicate that he is doing everything in his power to prevent deaths and hazardous working conditions.
This year, the highlights of Murray Energy's policies have been:
- Closing a mine in Ohio for a day so miners could attend a mandatory Romney campaign event, but not paying the workers for this mandatory event (I see a DoL Wage and Hour Division complaint here...)
- Tied bonuses and promotions of executives to their campaign donations to Republican candidates.
- Required executives and engineers to attend Republican fundraisers on their own dime.
- Created the Murray Energy PAC to funnel money to Republican candidates... while PACs are supposed to create an air that campaigns and PACs cannot coordinate, let's face it, when you see an ad funded by Murray Energy PAC attacking your opponent, you know who's behind it.
On Wednesday, he led his workforce in prayer, asking God to forgive the horrible thing he was about to do, then went ahead and told 158 people that they were to lose their jobs because Obama won. Matthew 6:5 aside, there are fundamental problems with this statement. Mainly, that it is a giant crock of bullshit.
Let's get this clear: electing Obama had nothing to do with the firings. Instead, there's a simple business reason: Murray Energy competes on cost in an industry where prices are set by the commodity market. There's a lot of coal in Wyoming that's easy to get to. There's less in Galatia, Illinois, and Utah, it's harder to get to, more dangerous to mine, and higher in sulfur than other sources. If your plan is to buy the cheapest coal mines, the ones with the high sulfur coal, then try to sell them for prices near that of higher quality coal, you are going to fail. If the government tries to internalize the externalities associated with the burning of fossil fuels, especially by regulating the pollution caused by the sulfur content of your product, then your business fails. Most businesses do fail. Add to this a substitute good, natural gas, which is now so cheap you could basically give this away, and even without the EPA, the invisible hand of the market is going to smack you upside the head, and you are going to fail. Not letting Murray Energy fail? Well... where's the moral hazard in all of this?
Instead of blaming Obama, Murray needed to face facts: Coal is a mature industry. The only way to stay competitive in this industry is consolidation and maybe some favorable treatment by the government. He has a pretty good idea where Obama sits on this - he's not going to destroy the coal industry, but he's not going to help it become more profitable than it already is... and he's going to regulate the shit out of it. However, Murray was banking on Romney being more generous. He backed the wrong horse, so now he's having to face the problems associated for his own poor business strategy without a bailout by the Romney Administration. If anything, he should have just kept all his money, and prepared for the slow decline of his company. That would have been in his economic self-interest no matter who would have won.
Saturday, November 10, 2012
THANKS!
Just hit 1,000 page views. I'd like to thank the internet spambots and automatic indexers for coming across my page from time to time. However, if you are an actual person with a topic that should be covered... leave me a comment, and I'll try to get to it.
Economics Instruction
One thing that I love about the study of economics is that it takes concepts that sound intuitive, but uses graphs and equations to demonstrate these concepts, which can make it easier to predict future behaviors.
So, take your classic example of earning wages. If you get paid $10 per hour, you could work 8 hours and make $80, or you could work 2 jobs, and get paid $160 for 16 hours of work. If you work the same job for 16 hours, you can earn an extra $40 for overtime, meaning that you can earn $200. If you create a graph for the first example, plotting the goods purchased by your income on one axis, and the amount of leisure that you have, then you end up with a nice smooth line showing all possible outcomes that can occur for your labor. This is a BUDGET CONSTRAINT. (Stick with me... this is going somewhere fun...)
When you plot out the second situation, you have a line with one slope for the first 8 hours, and a second slope for the second 8 hours. Your budget constraint has a kink in it. Economists have called this a KINKED BUDGET CONSTRAINT, because they tend to use terms that look easy to understand. Generally, you see these kinked budget constraints when government policies are in play, like time and a half for overtime, or welfare payments, or the earned income tax credit.
One thing that I hate about the study of economics is that it takes concepts that sound intuitive, then give them terms that sound really, really, really, really bad if you see them over and over again. Take kinked budget constraints. Read this a couple dozen times when you are studying for an exam, and your brain will probably go here at some point:
So, take your classic example of earning wages. If you get paid $10 per hour, you could work 8 hours and make $80, or you could work 2 jobs, and get paid $160 for 16 hours of work. If you work the same job for 16 hours, you can earn an extra $40 for overtime, meaning that you can earn $200. If you create a graph for the first example, plotting the goods purchased by your income on one axis, and the amount of leisure that you have, then you end up with a nice smooth line showing all possible outcomes that can occur for your labor. This is a BUDGET CONSTRAINT. (Stick with me... this is going somewhere fun...)
When you plot out the second situation, you have a line with one slope for the first 8 hours, and a second slope for the second 8 hours. Your budget constraint has a kink in it. Economists have called this a KINKED BUDGET CONSTRAINT, because they tend to use terms that look easy to understand. Generally, you see these kinked budget constraints when government policies are in play, like time and a half for overtime, or welfare payments, or the earned income tax credit.
One thing that I hate about the study of economics is that it takes concepts that sound intuitive, then give them terms that sound really, really, really, really bad if you see them over and over again. Take kinked budget constraints. Read this a couple dozen times when you are studying for an exam, and your brain will probably go here at some point:
tee hee hee... kinky budget constraints... hee hee...
Thursday, November 8, 2012
Jon Huntsman for Secretary of State
No... Really... Stick with me...
I was listening to NPR this evening, and Mark McKinnon suggested that the reason that the GOP lost on Tuesday was because they did not nominate someone like Jon Huntsman.
This got me thinking... Jon Huntsman... he'd be an awesome Secretary of State.
If Hillary Clinton really does intend to retire, then why not nominate someone who has executive experience as a former governor who has a great relationship with China? The political cynic in me would say that it's a smart move for Obama to nominate a Republican in order to show that he's bipartisan, but no, it's just smart to nominate a rather capable person to office, regardless of their political party.
I was listening to NPR this evening, and Mark McKinnon suggested that the reason that the GOP lost on Tuesday was because they did not nominate someone like Jon Huntsman.
This got me thinking... Jon Huntsman... he'd be an awesome Secretary of State.
If Hillary Clinton really does intend to retire, then why not nominate someone who has executive experience as a former governor who has a great relationship with China? The political cynic in me would say that it's a smart move for Obama to nominate a Republican in order to show that he's bipartisan, but no, it's just smart to nominate a rather capable person to office, regardless of their political party.
Wednesday, November 7, 2012
Just Let It Go...
As the night wears on, my patience wears thin.
CNN and NPR have both called Virginia for Obama. It means that Ohio doesn't matter at all, and neither does Florida. Romney needs to concede. There just is no way to have the math work out in his favor. I see a little note that Romney will speak in 10 minutes now... please do. I'm tired and I have places to go tomorrow.
CNN and NPR have both called Virginia for Obama. It means that Ohio doesn't matter at all, and neither does Florida. Romney needs to concede. There just is no way to have the math work out in his favor. I see a little note that Romney will speak in 10 minutes now... please do. I'm tired and I have places to go tomorrow.
Four More Years!
Very relieved to see that Obama won. I'm tired, it's been a long day, and I'm just waiting for someone to get Romney to concede already so I can go to bed.
It's not that I really don't like Romney. The problem is that as the Governor of Massachusetts, he was the type of Republican that I would have strongly considered voting for. However, Paul Ryan as President is just too scary to contemplate for someone who is currently financing buying groceries with subsidized student loans. So there's a giant sigh of relief on my part that I won't have to worry about having the Department of Education disappeared.
For now... just listening to Fox complain that Obama is trailing in the popular vote, even though the votes outstanding are predominantly from blue states, including California, the nation's most populous Democratic voting block. This isn't hard statistics to figure out that it's premature to say that the President will not win the popular vote. Maybe... but it's a little less likely as the votes come in.
It's not that I really don't like Romney. The problem is that as the Governor of Massachusetts, he was the type of Republican that I would have strongly considered voting for. However, Paul Ryan as President is just too scary to contemplate for someone who is currently financing buying groceries with subsidized student loans. So there's a giant sigh of relief on my part that I won't have to worry about having the Department of Education disappeared.
For now... just listening to Fox complain that Obama is trailing in the popular vote, even though the votes outstanding are predominantly from blue states, including California, the nation's most populous Democratic voting block. This isn't hard statistics to figure out that it's premature to say that the President will not win the popular vote. Maybe... but it's a little less likely as the votes come in.
Tuesday, November 6, 2012
Midwest in the House!
I have to admit, the idea of voting for a woman from my hometown for president was rather appealing, but I have a pragmatic side that just can't see the Green Party delivering on anything without a crazy amount of tax increases. The economic policies that provide high levels of benefits and high levels of incentives to drive behaviors the way you want them generally have unreasonable budgetary costs. The pragmatist in me tends to be less revolutionary and more liberal - focusing on market failures and externalities.
However, the Green Party managed to run a native Chicagoan. The Democratic party has a Chicagoan at the top of the ticket. The Republican Party has a native Michigander at the top of the ticket and a Wisconsinite at the bottom. Even if Janesville sucks (which it does... believe me... it's even worse than Beloit...), it was pretty impressive to see that many Midwesterners on the ballot this morning.
However, the Green Party managed to run a native Chicagoan. The Democratic party has a Chicagoan at the top of the ticket. The Republican Party has a native Michigander at the top of the ticket and a Wisconsinite at the bottom. Even if Janesville sucks (which it does... believe me... it's even worse than Beloit...), it was pretty impressive to see that many Midwesterners on the ballot this morning.
VOTE!
Very excited to vote this morning. This will be my first time voting at a synagogue, which has the bonus of being near the Dunkin' Donuts, so I will reward my fulfillment of my patriotic duty with a Boston Kreme donut and coffee.
Speaking about Boston, it's important to note that the Revolutionary War was fought in part about taxes, so yeah, the tea party had a little bit of that right. However it wasn't about the levying of taxes alone, but rather that the colonies had no say on what taxes would be raised, how they would be collected, and the right to determine how the money was spent. In "Taxation without Representation", the "Without Representation" part is the key gripe.
Go. Vote. Have your say on who determines how to spend our money. That's what the Founding Fathers would have wanted. Then, have a cup of coffee to stick it to George III.
Speaking about Boston, it's important to note that the Revolutionary War was fought in part about taxes, so yeah, the tea party had a little bit of that right. However it wasn't about the levying of taxes alone, but rather that the colonies had no say on what taxes would be raised, how they would be collected, and the right to determine how the money was spent. In "Taxation without Representation", the "Without Representation" part is the key gripe.
Go. Vote. Have your say on who determines how to spend our money. That's what the Founding Fathers would have wanted. Then, have a cup of coffee to stick it to George III.
Monday, November 5, 2012
October Surprise
Haven't really had a chance to look through the numbers thoroughly, but the first Friday of the month is like Christmas to data junkies who follow the job market. UNEMPLOYMENT NUMBERS ARE OUT!
Yes, yes, I take joy in the misery of others...
No, not really. While the media does focus on one or two numbers, the Department of Labor's Bureau of Labor Statistics looks at a crazy amount of data in 25 separate tables, and throws number after number at you until you have a robust idea of the nature of the workforce at this particular point of time. Or, you know, the Obama campaign mentions that 171,000 jobs were created while the Romney campaign looks at that slight increase in the unemployment rate.
Neither really demonstrates what's at play right now. I kind of like Table A-11 for this type of analysis, unemployed persons by reason of unemployment. If it is true that more jobs existed this month than last, but the unemployment rate did not change, then what's going on? Well, looking at this table, you start to see what it might be when you really think about what the unemployment rate is. To be unemployed, you must have had to have actively looked for work in the preceding week. So, when you look at how the percentages in the distribution shifted from October 2011 to 2012, you see increases in Reentrants and New Entrants to the work force. You also see an increase in job leavers. Put these three things together, and you have an economy where people are a little more optimistic about finding a new job than they had been a year ago. People are leaving their crappy bosses behind figuring that they can do better. The long-term unemployed have decided that they might be able to find jobs again (a more pessimistic point of view is that they've run out of savings and benefits and have no other choice). Kids have decided to try to find jobs rather than hide in law school for three years.
Sure, fine, that's all well and good, but these are subtle shifts - 3 percentage points. Yes, this is true. I'm interested in the movement of the composition of the unemployed. If you worry about the totals, then there's good news there, too. When you remove the frictional unemployment, and look at the nitty-gritty bad shit unemployment, the total number of permanent job losers, there's good news there, too. Over the past year, the unemployed for this reason has fallen from 5.3 million to 4.3 million. It sucks if you are one of those 4.3 million, but the number is headed in the right direction if your goal is total employment.
The news really isn't as bad (or as good) as most in a campaign or the media will make it out to be. The question is whether or not people will form their own opinions when data is thorough and readily available. Sadly, I don't think many people know exactly what the monthly unemployment figures really are, despite how easy they are to find and how widely reported they are.
Yes, yes, I take joy in the misery of others...
No, not really. While the media does focus on one or two numbers, the Department of Labor's Bureau of Labor Statistics looks at a crazy amount of data in 25 separate tables, and throws number after number at you until you have a robust idea of the nature of the workforce at this particular point of time. Or, you know, the Obama campaign mentions that 171,000 jobs were created while the Romney campaign looks at that slight increase in the unemployment rate.
Neither really demonstrates what's at play right now. I kind of like Table A-11 for this type of analysis, unemployed persons by reason of unemployment. If it is true that more jobs existed this month than last, but the unemployment rate did not change, then what's going on? Well, looking at this table, you start to see what it might be when you really think about what the unemployment rate is. To be unemployed, you must have had to have actively looked for work in the preceding week. So, when you look at how the percentages in the distribution shifted from October 2011 to 2012, you see increases in Reentrants and New Entrants to the work force. You also see an increase in job leavers. Put these three things together, and you have an economy where people are a little more optimistic about finding a new job than they had been a year ago. People are leaving their crappy bosses behind figuring that they can do better. The long-term unemployed have decided that they might be able to find jobs again (a more pessimistic point of view is that they've run out of savings and benefits and have no other choice). Kids have decided to try to find jobs rather than hide in law school for three years.
Sure, fine, that's all well and good, but these are subtle shifts - 3 percentage points. Yes, this is true. I'm interested in the movement of the composition of the unemployed. If you worry about the totals, then there's good news there, too. When you remove the frictional unemployment, and look at the nitty-gritty bad shit unemployment, the total number of permanent job losers, there's good news there, too. Over the past year, the unemployed for this reason has fallen from 5.3 million to 4.3 million. It sucks if you are one of those 4.3 million, but the number is headed in the right direction if your goal is total employment.
The news really isn't as bad (or as good) as most in a campaign or the media will make it out to be. The question is whether or not people will form their own opinions when data is thorough and readily available. Sadly, I don't think many people know exactly what the monthly unemployment figures really are, despite how easy they are to find and how widely reported they are.
Pot Pie
The weather turned for the worse last week, and while Sandy did not do too much damage in the area, it did end up producing a decent storm. However, it did really drop the temperature, and we had our first little flurries today. Major snow is expected on Thursday, but for now, I'm just getting into a nice, cozy, late fall routine.
Yesterday, I roasted a chicken with some mashed potatoes, then made some gravy from the pan drippings. This means... LEFTOVERS!
Behold, my chicken pot pie...
1) Get a really deep dish. I have an Anchor Hocking round glass bowl that fits in a carrying case, which ends up being perfect. It's the diameter of a pie plate, but a couple inches high.
2) Unroll one premade pie crust into your bowl/dish/pie plate. I am not gifted in the world of pie crusts. Or, rather, I really can't tell the difference between my best pie crust and a refrigerated store bought crust. Also, moving to New York, I have no counter space to roll out a crust.
3) This is why you want a deep dish: Add 1 cup leftover chicken, 1 cup thawed frozen peas, a cup of diced carrots, a finely diced onions, maybe a cup of diced celery, and a cup of leftover gravy. Gravy should be such that it's practically solid coming out of the fridge. This is not a low-fat recipe. Basic rule is at least two cups of veggies for your cup of chicken. Combine all of this together, and throw this into your pie crust.
4) Grab the other crust. Lay it over the top, crimp, and make the edge look pretty. If you have no idea how to accomplish this, just roll the one crust into the other. Pierce the crust to allow the steam to escape... 8 times should do it, making sure to space them evenly.
5) Bake. This is where it really depends on your brand of dough. General rule would be to see what temperature the package recommends, then bake until the top is browned and flaky. Otherwise, 375 for 30 minutes, check it, then adjust the time. Because everything is pre-cooked, your main concern is cooking the crust through.
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