Monetary and Fiscal Review

Here is the review I promised.

Go to the following link and scroll down to monetary and fiscal policy. You should check out each of the reviews under that heading.

http://reffonomics.com/textbook/macroeconomics.html

What rung of the ladder are you on?

More bad news about the recession. This information is somewhat similar to consumer confidence but much more forward looking. Check the following link to read about the methods used to arrive at this conclusion.

http://freakonomics.blogs.nytimes.com/2008/11/13/the-economic-downturn-takes-its-toll-on-well-being/

It’s a Time to Listen, and to Obey the Laws of Arithmetic

This editorial appeared in the New York Times. The author is one of the smartest and most gifted economists of our time. Obama should listen to his advice. Bush had him as his economic advisor but did not, in my opinion, utilize him very well. Mr. Mankiw forgot he was in Washington, inconveniently spoke the truth to the press, and was immediately gagged by the White House. - McKay

By N. GREGORY MANKIW
Published: November 8, 2008
IT was a good campaign, and a historic victory. As the president-elect gets ready for new responsibilities, here are four ways to become a reliable steward of the economy:

LISTEN TO THE ECONOMISTS During the campaign, Senator Barack Obama assembled an impressive team of economic advisers from the nation’s top universities, including Austan D. Goolsbee of the University of Chicago and David Cutler and Jeffrey Liebman of Harvard. The campaign’s director of economic policy, Jason Furman, is a smart, sensible and well-trained policy economist. I know: he is a former student of mine.

It would be a good idea to pay close attention to what they have to say. They will often give advice quite different from what will be coming from the Congressional leaders Nancy Pelosi and Harry Reid. To make sure the views of economic advisers are heard, they should have offices close to the Oval Office. The chief of staff should invite them to all the relevant meetings.

EMBRACE SOME REPUBLICAN IDEAS No party has a monopoly on truth. It would be wise to adopt the best Republican policy proposals, as Bill Clinton did with welfare reform in 1996.
Health policy is a case in point.

Over the past several months, Senator Obama lambasted Senator John McCain’s proposal to reform the tax code to include a refundable health insurance tax credit. But long before Mr. McCain ever proposed this idea, it was advanced by Mr. Furman, the Obama campaign’s policy director. He can explain why the Furman-McCain plan makes a lot of sense.

Now the new president may decide that this plan does not go far enough. He may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, he will run into the next issue.

PAY ATTENTION TO BUDGET CONSTRAINTS The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare benefits.

Yet during the campaign, Mr. Obama promised to cut taxes for 95 percent of Americans, to vastly expand health insurance coverage and never to cut Social Security benefits or raise the retirement age. The new administration will almost surely have to renege on some of these promises. As the economic team will often say, even if the laws of arithmetic are ignored during campaigns, they become a real constraint when making actual policy.

RECOGNIZE PAST MISTAKES As a new senator, Mr. Obama voted along predictable left-wing lines. As president, he will need a more eclectic, nuanced approach.

Consider trade policy. In the Senate, he voted against the Dominican Republic-Central America Free Trade Agreement. He opposed free-trade agreements with Colombia and South Korea. He supported Senators Charles E. Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. He supported the Byrd Amendment, which encouraged domestic companies to file antidumping suits against foreign competitors. He supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol.

The team of economists can explain why these positions were wrong-headed. Economic isolationism is not in the national interest. A high point of the Clinton presidency was the enactment of the North American Free Trade Agreement, which passed both the House and Senate with a majority of Republicans and a minority of Democrats.

Last Tuesday, many people voted for Mr. Obama hoping that he would achieve the kind of economic success that Mr. Clinton enjoyed in the 1990s. The best chance of delivering what they want requires abandoning some positions and pursuing a more moderate, bipartisan course.

More Ammunition for People Who Hate Daylight Saving Time

By Stephen J. Dubner
Even if you hate daylight saving time, you tell yourself: Hey, I shouldn’t be so selfish, it’s good for the economy, or for the environment, or for farmers, or something. Right?

Well, um, perhaps not. Consider a new working paper, “Does Daylight Saving Time Save Energy? Evidence From a Natural Experiment in Indiana,” by Matthew J. Kotchen and Laura E. Grant:

The history of daylight saving time (D.S.T.) has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970’s, consistent practice today, and recent extensions, the primary rationale for D.S.T. has always been to promote energy conservation.

Nevertheless, there is surprisingly little evidence that D.S.T. actually saves energy. This paper takes advantage of a natural experiment in the state of Indiana to provide the first empirical estimates of D.S.T. effects on electricity consumption in the United States since the mid-1970’s.
Focusing on residential electricity demand, we conduct the first-ever study that uses micro-data on households to estimate an overall D.S.T. effect. The dataset consists of more than 7 million observations on monthly billing data for the vast majority of households in southern Indiana for three years.

Our main finding is that — contrary to the policy’s intent — D.S.T. increases residential electricity demand.

Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the D.S.T. period. D.S.T. causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent.

These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. We estimate a cost of increased electricity bills to Indiana households of $9 million per year. We also estimate social costs of increased pollution emissions that range from $1.7 to $5.5 million per year. Finally, we argue that the effect is likely to be even stronger in other regions of the United States.

On the bright side, if President-elect Obama is looking for some quick hits on energy conservation, here’s one that’s all teed up and ready to go: Kill D.S.T.!

Young Voters, Get Mad

By Robert J. SamuelsonWednesday, October 22, 2008

To: Voters Under 35
Subject: Your Future
Recommendation: Get Angry

You're being played for chumps. Barack Obama and John McCain want your votes, but they're ignoring your interests. You face a heavily mortgaged future. You'll pay Social Security and Medicare for aging baby boomers. The needed federal tax increase might total 50 percent over the next 25 years. Pension and health costs for state and local workers have doubtlessly been underestimated. There's the expense of decaying infrastructure -- roads, bridges, water pipes. All this will squeeze other crucial government services: education, defense, police.

You're not hearing much of this in the campaign. One reason, frankly, is that you don't seem to care. Obama's your favorite candidate (by 64 percent to 33 percent among 18- to 29-year-olds, according to the latest Post-ABC News poll). But he's outsourced his position on these issues to AARP, the 40 million-member group for Americans 50 and over.

Don't believe me? Go to the Web site, http://www.aarp.org/. On Sept. 6, both Obama and McCain addressed an AARP convention celebrating the group's 50th birthday.

Click on the Obama video. You'll see some world-class pandering. There are three basic ways of reducing the costs of Social Security and Medicare: increase eligibility ages; trim benefits; and require recipients to pay more for their Medicare benefits (higher premiums, co-payments or deductibles). In his talk, Obama effectively rejected all three.

Or look at the September-October issue of AARP the Magazine, which has a "voters' guide." In it, Obama and McCain receive the opportunity to check boxes agreeing or disagreeing with AARP's positions on 11 issues. Obama checked agreement on 10. He's not an agent of change but a staunch defender of the status quo. Indeed, he would expand subsidies to the elderly by exempting from federal income taxes anyone 65 and over with $50,000 income or less.
McCain pandered, too. In his video, he praised AARP effusively. He didn't mention benefit cuts. But he hedged. He said today's system is "broken" and shouldn't be inflicted on future generations. In the voters' guide, he didn't check "agree" or "disagree" but merely described his positions. The hint is that, as president, he might try to curb retirement spending. There's a precedent; McCain voted against the Medicare drug benefit.

I am 62. Most of my friends are in their 50s, 60s and 70s. I wish everyone a pleasurable retirement. But we need to overhaul our government retirement programs for the common good and not just the good of the elderly. We have already waited so long that there's no way to do this without being unfair to someone -- overburdening the young or withdrawing promised benefits from older Americans. The present financial crisis, by reducing retirement savings, has made a hard job even harder. Still, these federal programs began as safety nets for the needy; now they've become subsidies for living long, regardless of need.

What the debate has lacked so far is a moral dimension. Obama says it's okay to raise taxes on those with incomes exceeding $250,000. Well, why should Social Security and Medicare beneficiaries with incomes of $250,000 get subsidies from the young making less? How about $200,000 or $100,000? What are acceptable eligibility ages? People live longer; they can work longer. Baby boomers cannot be excluded, because they are the problem.
There can be no "rewriting of the social contract" without benefit cuts, because paying today's benefits inevitably involves much higher taxes, massive deficits or draconian cuts in other government programs. Even with sensible benefit cuts, taxes will have to rise and there will be pressure on other programs.

What should you -- the young -- do? First, get angry -- at the media and think tanks for discussing this problem in misleading euphemisms (for instance, the problem is not an "entitlements crisis"; it's excessive benefits for the old); at the candidates for exploiting your innocence; and at yourself for your gullibility.

Next, start picketing AARP. It's the citadel of seniors' political power and the country's most powerful "special interest." It wields a virtual veto over roughly two-fifths of the federal budget. Your activist groups ought to be there every day with placards reading "Give Us Generational Justice" or "Get Off Our Backs." Ask direct questions of federal candidates about what benefits they'd cut, which they'd keep and why.

You need to appeal to the shame and guilt of older Americans by reminding them that their present self-absorption is not a victimless exercise. Only if older Americans act on their rhetorical pledges of worrying about their children will the political climate change. If you -- the young -- don't stand up for yourselves, believe me, your elders and your politicians won't.

If the world could vote.

http://www.economist.com/Vote2008/
This is an interesting look at who the world would like to see as our president. You might think that they prefer Obama because he may appear weaker than McCain but I wonder why third world countries would prefer a U.S. president that would reverse free trade?

It is an interactive map, spend some time cruising your curser over it.

Mind Blowing

I ask again. Where is the conservative candidate?

Do you have a caption for this cartoon?

Measure the gap between rich and poor based on consumption not income.

Enlarge This Image

This is long but I think it presents an interesting way to view the gap between the wealthy and the less wealthy. Spend a little time reading the two charts. - McKay

By W. Michael Cox

WITH markets swinging widely, the Federal Reserve slashing interest rates and the word “recession” on everybody’s lips, renewed attention is being given to the gap between the haves and have-nots in America. Most of this debate, however, is focused on the wrong measurement of financial well-being.
It’s true that the share of national income going to the richest 20 percent of households rose from 43.6 percent in 1975 to 49.6 percent in 2006, the most recent year for which the Bureau of Labor Statistics has complete data. Meanwhile, families in the lowest fifth saw their piece of the pie fall from 4.3 percent to 3.3 percent.
Income statistics, however, don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.
The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.
The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.
So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.
Let’s take the adjustments one step further. Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1. The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.
To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.
As the second chart, on the spread of consumption, shows, this wasn’t always so. The conveniences we take for granted today usually began as niche products only a few wealthy families could afford. In time, ownership spread through the levels of income distribution as rising wages and falling prices made them affordable in the currency that matters most — the amount of time one had to put in at work to gain the necessary purchasing power.
At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.
There are several reasons that the costs of goods have dropped so drastically, but perhaps the biggest is increased international trade. Imports lower prices directly. Cheaper inputs cut domestic companies’ costs. International competition forces producers everywhere to become more efficient and hold down prices. Nations do what they do best and trade for the rest.
Thus there is a certain perversity to suggestions that the proper reaction to a potential recession is to enact protectionist measures. While foreign competition may have eroded some American workers’ incomes, looking at consumption broadens our perspective. Simply put, the poor are less poor. Globalization extends and deepens a capitalist system that has for generations been lifting American living standards — for high-income households, of course, but for low-income ones as well.
W. Michael Cox is the senior vice president and chief economist and Richard Alm is the senior economics writer at the Federal Reserve Bank of Dallas.

I saw a movie this summer about the financial crisis.

Click below to see the clip.

You gotta be jokin'

My music was better than your music.

This is the most bizarre chart I think I have seen regarding oil production. Need I remind of the difference between correlation and causation? Theories anyone?

A liberal tightwad?

WASHINGTON -- Democratic vice presidential nominee Sen. Joe Biden released 10 years of tax returns Friday, in what his campaign said was in part an attempt to pressure his Republican counterpart, Sarah Palin, to do the same.
The returns, posted on running mate Sen. Barack Obama's campaign Web site for the tax years from 1998 through 2007, offered few surprises about the finances of the Delaware senator. Sen. Biden, in his sixth term, has long been viewed as a man of relatively modest means in a governmental body studded with millionaires.
The Bidens' joint gross income hovered between $215,000 and $320,000 a year during this period, and their tax rates, between 16% and 20% of total income, the records showed. They claimed very little investment income. Their biggest deduction was for mortgage interest on their Wilmington, Del., home. That interest totaled $38,000 in 2007.

The amount they gave to charity during this period never exceeded one-half of 1% of their annual income. The Bidens never gave more than $995 to charity in any of the tax years, and usually gave much less.

Since 1975 Americans have given between 1.6 percent and 2.16 percent of their income to charitable concerns. - McKay

Economists Speak About the Election

By Justin Wolfers
Scott Adams, the creator of Dilbert, is interested in electing the candidate who will be best for the economy. But along the way he has learned the iron law of the political marketplace: there is an excess supply of political blowhards, and there are far too few unbiased experts. Even worse, it is hard to sort out just who is an expert and who is a blowhard.
But Scott had an ingenious insight: an anonymous survey of leading economists might yield an unbiased snapshot of the opinions of professional economists. He paid a survey company to survey over 500 members of the American Economic Association, and he just released the findings.
The headline: Overall, 59 percent of his respondents think Obama would be best for the economy’s long-term prospects, compared to 31 percent for McCain, while 10 percent thought there would be no difference.
Some might argue that these results aren’t too surprising, given that 48 percent of the sample are registered Democrats, compared to the 17 percent registered as Republicans. As such, it might be more interesting to focus on the independents, who chose Obama by a margin of 46 percent to 39 percent.
The most important issues? According to the economists surveyed, the top four issues are education, health care, international trade, and energy. They expect Obama will do a better job on education, health care, and energy, but they give the nod to McCain on international trade. I was surprised to see that “reducing the deficit” ranked so low on the list, but perhaps that reflects the myriad of other concerns currently on the agenda.
There’s another very nice finding in this survey: economists’ views on the candidates are not really shaped by their incomes. Hopefully this suggests that we are able to see beyond pure self interest.
You can read more from Scott Adams here or see his own interpretation here. You can also view the raw data in this PowerPoint deck.

City uses DNA to fight dog poop

PETAH TIKVA, Israel (Reuters) - An Israeli city is using DNA analysis of dog droppings to reward and punish pet owners.
Under a six-month trial programm launched this week, the city of Petah Tikva, a suburb of Tel Aviv, is asking dog owners to take their animal to a municipal veterinarian, who then swabs its mouth and collects DNA.
The city will use the DNA database it is building to match feces to a registered dog and identify its owner.
Owners who scoop up their dogs' droppings and place them in specially marked bins on Petah Tikva's streets will be eligible for rewards of pet food coupons and dog toys.
But droppings found underfoot in the street and matched through the DNA database to a registered pet could earn its owner a municipal fine.
"My goal is to get the residents involved, and tell them that together, we can make our environment clean," said Tika Bar-On, the city's chief veterinarian who came up with the idea for the DNA experiment.

Incentives work in the strangest ways. -Mr. McKay

You won't get this unless you remember PacMan.

Poor P Diddy

LOS ANGELES, California (AP) -- Fuel prices have grounded an unexpected frequent-flyer: Diddy.
Sean "Diddy" Combs complained about the "... too high" price of gas and pleaded for free oil from his "Saudi Arabia brothers and sisters" in a YouTube video posted Wednesday.
The hip-hop mogul said he is now flying on commercial airlines instead of in private jets, which Combs said had previously cost him $200,000 and up for a roundtrip between New York and Los Angeles.
"I'm actually flying commercial," Diddy said before walking onto an airplane, sitting in a first-class seat and flashing his boarding pass to the camera. "That's how high gas prices are. I'm at the gate right now. This is really happening, proof gas prices are too high. Tell whoever the next president is we need to bring gas prices down."

How can we call ourselves a civilized nation if a man of Diddy's talents has to fly on a commercial airplane? Such a tragedy.

Mr. McKay

Did Soap Operas Shrink Brazil’s Families?

By Freakonomics
Between 1960 and 2000, Brazil’s fertility rate plummeted from 6.3 to 2.3. The only other country with a comparable decline during that period was China, under its rigid one-child policy. But what was behind the Brazilian fertility plunge?
One major factor may have been the influence of soap operas, according to a fascinating new working paper by Eliana La Ferrara, Alberto Chong, and Suzanne Duryea, issued by the Bureau of Economic Analysis for Development. Brazil’s most popular prime-time soaps have for years revolved around small and stable middle-class families that were much smaller than the traditional Brazilian family. The study found that wherever the soaps aired, the fertility for women dropped significantly, as they adapted to the reality they saw on television.
Imported soap operas, meanwhile, seem to have had no effect on fertility rates.
The study builds on work by the economists Robert Jensen and Emily Oster on the role television plays in the empowerment of women in rural India. But this new study is among the first to focus on the effects of specific programming.

Here is my question. If the Brazillian baby/TV connection is valid what does that say about the future of American families? Ideas? Caveats?

Mr. McKay

Stang'it

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The Not-So-Free Ride

April 20, 2008
Freakonomics
Not-So-Free Ride
By STEPHEN J. DUBNER and STEVEN D. LEVITT
The trouble with negative externalities
Americans drive too much. This isn’t a political or moral argument; it’s an economic one. How so?
Because there are all sorts of costs associated with driving that the actual driver doesn’t pay. Such a condition is known to economists as a negative externality: the behavior of Person A (we’ll call him Arthur) damages the welfare of Person Z (Zelda), but Zelda has no control over Arthur’s actions. If Arthur feels like driving an extra 50 miles today, he doesn’t need to ask Zelda; he just hops in the car and goes. And because Arthur doesn’t pay the true costs of his driving, he drives too much.
What are the negative externalities of driving? To name just three: congestion, carbon emissions and traffic accidents. Every time Arthur gets in a car, it becomes more likely that Zelda — and millions of others — will suffer in each of those areas.
Which of these externalities is the most costly to U.S. society? According to current estimates, carbon emissions from driving impose a societal cost of about $20 billion a year. That sounds like an awful lot until you consider congestion: a Texas Transportation Institute study found that wasted fuel and lost productivity due to congestion cost us $78 billion a year. The damage to people and property from auto accidents, meanwhile, is by far the worst. In a 2006 paper, the economists Aaron Edlin and Pinar Karaca-Mandic argued that accidents impose a true unpaid cost of about $220 billion a year. (And that’s even though the accident rate has fallen significantly over the past 10 years, from 2.72 accidents per million miles driven to 1.98 per million; overall miles driven, however, keep rising.) So, with roughly three trillion miles driven each year producing more than $300 billion in externality costs, drivers should probably be taxed at least an extra 10 cents per mile if we want them to pay the full societal cost of their driving.
How can this be achieved? Higher tolls, especially variable tolls like congestion pricing, are one option. This seems to have worked well in London but was recently quashed in New York City, where the political hurdles proved too high.
A higher gas tax might also work. If a typical car gets 20 miles to the gallon, then the proper tax would be about $2 per gallon. But with the current high market price for gas and the political hysterics attached to it — well, good luck with that one.
This brings us to automobile insurance. While economists may argue that gas is poorly priced, that imbalance can’t compare with how poorly insurance is priced. Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.
While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.
Aaron Edlin first noticed this imbalance more than 15 years ago. “I was a graduate student at Stanford,” he says, “and I drove maybe 2,000 miles a year. But I paid roughly the same $1,000 as if I’d driven 10 times as much, which was a huge portion of my budget.” A few years later, Edlin was serving on the President’s Council of Economic Advisers when he floated an idea that economists had long found attractive: pay-as-you-drive (PAYD) insurance. It seemed like an obvious solution. Since no one expects to pay the same price for, say, a 60-minute massage as they pay for a 15-minute massage, why should people pay the same for insurance no matter how many miles they drove?
“The objection within the White House,” Edlin recalls, “was there wasn’t good academic research on the subject.”
Edlin and a few others, including Jason Bordoff and Pascal Noel at the Brookings Institution, have since done such research. It makes a compelling case that PAYD insurance would work well, reducing the carbon emissions, congestion and accident risk created by too much driving while leading drivers to pay the true cost of their mileage. Bordoff and Noel put the total social benefit at $52 billion a year.
The better news is that PAYD insurance is no longer just an academic exercise. G.M.A.C. has begun using OnStar technology to offer mileage discounts, and next month Progressive will roll out a comprehensive PAYD plan called MyRate. Progressive, the huge Ohio-based insurer that has long prided itself as an innovator, will first offer the plan in six states, having run a similar pilot in three other states. Drivers who sign up for MyRate will install a small wireless device in their cars that transmits to Progressive not just how many miles they drive but also when those miles are driven and, to some extent, how they are driven: the device measures the car’s speed every second, from which Progressive can derive acceleration and braking behavior. Which means that Progressive will not only be able to charge drivers for the actual miles they consume but will also better assess the true risk of each driver.
If PAYD is such a great idea, why has it taken so long? There are at least three reasons: the tracking technology has only recently become affordable; insurers were anxious about drivers’ privacy concerns; and there was a substantial risk for whichever company was first to offer PAYD on a large scale.
Participation in the MyRate program is voluntary, and that’s where the economics get interesting. As with most incentive changes, there will be winners and losers. The clearest winners are people like Zelda, who can drive the same distance they used to drive and pay less. What’s less obvious is whether Progressive will be a winner; there are, in fact, a couple of situations in which Progressive could lose out. If all MyRate accomplishes is to give Progressive’s low-mileage customers the rate cut they deserve, then Progressive is doing little more than lowering its own revenues. It could, of course, try to compensate by raising rates on all its high-mileage Arthurs, but then there’s nothing to stop Arthur from buying his insurance elsewhere. (Of course, losing its riskiest customers to other companies might also prove profitable for Progressive.)
If, however, Progressive can corner the Zelda market by stealing millions of Zeldas from other insurers, then it could make a killing by being the first to sell accurately priced insurance for low-mileage drivers. The bigger goal for society — and the wild card in this or any incentive shift — is to create real behavior change. And that is always easier said than done. But if Progressive’s PAYD insurance can induce some of its high-mileage customers to drive less and especially to drive more safely, resulting in smaller claims payouts for Progressive and fewer negative externalities for everyone, then it could truly be a win-win-win situation.
Except, perhaps, for Progressive’s rivals.
Stephen J. Dubner and Steven D. Levitt are the authors of “Freakonomics.” More information on the research behind this column is online at www.freakonomics.com.

Smoking 1965 vs. 2006

What conclusions can you arrive at based on this data?

http://www.cdc.gov/tobacco/data_statistics/tables/adult/table_2.htm

Why do think these trends exist?

The Triumph of OPEC

Robert J. Samuelson

For much of its 47-year existence, the Organization of the Petroleum Exporting Countries (OPEC) has been a cartel in name only. It could not, in practice, control oil prices because many of its members regularly breached the production quotas that were intended to regulate the market. So OPEC generally followed oil prices up and down, as supply and demand conditions shifted. But now OPEC may be the real deal: a cartel that works. If so, that's bad news for us.

Look no further than last week's OPEC meeting in Vienna. Oil ministers declined to increase production despite a fairly obvious case for doing so. Not only were oil prices fluttering just above $100 a barrel, but the United States is either in or near a reces­sion and much of the rest of the world faces a noticeable econom­ic slowdown. The OPEC ministers were unmoved. Indeed, they indicated that they might actually reduce production if weak de­mand—presumably reflecting weak economies—threatens to de­press prices. Not good.

What's wrong is that a fall of oil prices is one of the mecha­nisms by which a recession or economic slowdown corrects itself. Lower prices for gasoline, home heating oil and diesel fuel improve consumer purchasing power. They muffle inflation and in­crease confidence. In this sense, they're an important "automatic stabilizer" for a faltering economy. If the automatic stabilizer is disarmed—or, worse, transformed into an automatic "destabiliz­er"—then the slowdown or recession may get worse.

Oil producers don't much care. High prices have been good to them. Since 1999, annual oil revenues for OPEC countries have more than quadrupled, to an estimated $670 billion in 2007, says energy economist Philip Verleger Jr. What's less clear—to ex­perts, at any rate—is whether OPEC has merely benefited from good luck (tight oil markets) or has acted as a true cartel, restrict­ing output and raising prices. The right answer is: both.

Of good luck, there's little doubt. Two massive oil miscalcula­tions both aided OPEC. First was a widespread underestimate of world demand, especially from China. Since 1999, China's oil use has almost doubled, to 7.5 million barrels a day (mbd) in 2007. (In 2007, world oil use was 86mbd, up 13 percent from 1999. American oil use was 20.8mbd, up 7 percent.) Second was an overestimate of supply. War, civil strife and nationalization have depressed production in Iraq, Nigeria, Iran, Venezuela and elsewhere. Total global capacity might be 4.5mbd higher with­out these setbacks, says the Energy Policy Research Foundation (EPRINC), an industry research group. The combination of higher demand and stunted supply has pushed up prices.

But that's only the half of it. Go back to late 2006. Crude prices were slipping from about $70 a barrel in August toward $50 a barrel (a level that, a few years earlier, seemed astronomi­cal). A true cartel would cut production to prop up prices. That's what OPEC did. In two steps, it reduced oil output by about 800,000 barrels a day, notes economist Larry Goldstein of EPRINC. "By July, 125 million barrels of oil inventory had been wiped out," he says. At the end of 2007, inventories (measured by days of supply) were at their lowest point in three years. Prices rose. Without OPEC's supply cuts, they wouldn't now be at $100 a barrel.

OPEC's present market power dates to early 1999, says economist Verleger. Oil prices then were about $10 a barrel. The 1997-98 Asian financial crisis had cut demand; supply was essentially unregulated. Saudi Arabia undertook frantic negoti­ations with other major producers, including Iran, Kuwait, Venezuela and non-OPEC members Russia, Norway and Mexico. The result was an agreement to cut production sharply. Compliance with output quotas was surprisingly good; coun­tries were terrified by the collapse of their oil revenues. "That's when OPEC started acting like a cartel," says Verleger.

To some extent, we are paying for past shortsightedness. De­pendence on oil imports, now almost 60 percent of our supply, is inevitable. We simply use too much and produce too little. But we could limit OPEC's market power by curbing our demand and increasing our supply. As the worldwide gap between supply and demand rises, it becomes harder for producers to control the market. More have spare capacity; more are tempted to increase production to raise revenues. Controlling supply today is easier because most producers are operating near their potential. The surplus is concentrated in a few countries, especially Saudi Ara­bia, which can adjust production to influence prices.

The American approach is to rant at foreign producers on the silly presumption that they should subordinate their interests to ours. The resulting self-righteousness rationalizes a refusal to do much that would actually influence their behavior and limit their freedom of action. It was only last year that Congress raised fuel-efficiency standards for new cars and light trucks: the dampening effects on oil consumption will be years in coming. We have steadfastly re­jected higher gasoline taxes to curb unnecessary driving and strengthen demand for fuel-efficient vehicles (better to tax ourselves than let foreigners tax us through higher prices). And we have consistently restricted oil drilling in Alaska and elsewhere.

It is a fair commentary that, by doing so little to check its own thirst for imports, the United States has unwittingly con­tributed to OPEC's present triumph. The extent of that tri­umph will be tested this year and next. The U.S. Department of Energy projects that non-OPEC oil supplies—from Brazil, Canada and Kazakhstan, among other places—will increase. Meanwhile, a weaker global economy may dampen demand. Even OPEC may be unable to hold prices at today's high and undesirable levels. Whatever happens, the long-term threat of a global oil cartel will remain. We should be taking the hard steps to limit its power. Considering our past complacency, we probably won't.

The Straight Dope (pun intended)

Follow these links to find the healthcare plans for each candidate. Their plans, in their words.

Clinton

Obama

McCain

If there is enough interest I will put this on the Blackboard site for some type of extra credit assignment.

(About that picture. This is what you get when you search google for a combined image of Obama, Clinton, and McCain.)

Oh crap! Is that poop on my lemon?

as reported on msnbc.com


It's fairly common for restaurant staffers to place a lemon slice on the rim of a beverage glass as a flavor enhancer or decorative garnish. But who knows whether these lemons have been handled using sanitary procedures? Anne LaGrange Loving, a professor of science at Passaic County Community College, decided to find out.

Loving began her investigation after she saw a waitress’ fingertips dip into her soda as the drink was being brought to her table. Although lemon juice is known to kill germs, Loving devised a study to determine whether lemon slices contain germs when they are served to customers.

Using sterile collection swabs, Loving took two samples from each of 76 lemons that were served in restaurants in North Jersey. Patrons normally start to drink a beverage moments after it is served, so samples were taken right away, before a sip was taken and before anyone at the table touched it. One swab was rubbed along the rind, while a second was rubbed along the pulp. The restaurants were unaware that she was doing this. Samples were then analyzed for microbes at a clinical microbiology laboratory.

A total of 25 different types of germs were found on 53 out of the 76 lemons that were sampled. Some are fecal in origin (either from dirty fingertips of the restaurant employees, or from meat-contaminated cutting boards and knives), while others are commonly found in saliva, on the skin and in the environment.

One sample had six different microorganisms on it, three of which are found in fecal material. Although some lemon slices had germs either only on the rind or only on the pulp, 29 percent had germs on both sites. In 15 instances the germs on the pulp were completely different from those on the rind, indicating that the pulp had been in contact with a contaminated surface as or after it was sliced. Sometimes when more than one lemon was sampled during a single restaurant visit, different germs were found on each.

Although there have been no reported outbreaks of illnesses attributed to lemon slices in beverages, every microorganism that was recovered has the potential to cause a variety of human infections. Establishment of an infection would depend upon the numbers and types of germs involved, the general health and age of the person and whether the person had chapped lips or a cold sore on the lips or gums.

People who love to have lemons with their drinks — especially those who are not in the best of health — might want to check out the sanitary practices of the restaurants they visit. At home, people can simply wash their lemons well with plenty of running water and soap to remove any protective wax that might have been added, then slice them using clean hands, a clean knife and a clean cutting board.

The study did not investigate other beverage garnishes such as olives, celery and limes. Alcoholic beverages were not tested. While alcohol is known to be antibacterial, studies would have to determine whether a beer, glass of wine, or mixed drink would contain sufficient alcohol to kill germs quickly. Previous studies have shown, for example, that the communion wine left in a chalice after all parishioners have taken a sip is loaded with bacteria.

The shrinking middle class?

Watch this video clip. and then comment on it.

Do you believe the middle class is shrinking? Do you think that the popular opinion is that it is shrinking? Are you in the middle class? Are you shrinking? I am expanding (I have the old pants to prove it).

Wall Street Throws A Tantrum

From Newsweek.
by Daniel Gross

Monetary policy, the management of global companies and the workings of Wall Street are indisputably the realms of the mature: one searches the gallery of Federal Reserve chairman portraits in vain for a full head of hair. At the World Economic Forum in Davos, I realized I hadn't seen so much silver hair since the 5 p.m. early-bird special dinner at Le Rivage in Boca Raton, Fla. The presence of all these wizened professionals should instill a good deal of confidence. When you're trying to bring a massive tanker to port amid stormy seas, the last thing you want to see is a 12-year-old apprentice steering the tugboat.

Yet in these turbulent times, Wall Street traders are the infants and toddlers. They're the tykes who stage public tantrums, screaming and yelling and writhing on the floor until they get what they want. Since the markets began to buckle last summer, what traders want is interest-rate cuts and other government measures to bail out banks from reckless and disastrous lending and investment decisions. In response, Federal Reserve chairman Ben Bernanke has done what any exhausted parent does when a child screams for three hours straight: he gives in. In the past two weeks, the Fed cut interest rates sharply twice, taking the Federal Funds rate down from 4.25 percent to 3 percent.

Of course, "giving in to a tantruming child just reinforces the demand," says Dr. Wendy Mogel, a clinical psychologist in Los Angeles and author of the wildly popular parenting tome "The Blessing of a Skinned Knee." And each time you cave to a screaming child, it buys you less quiet. The Federal Reserve's latest attempt to calm the market's tantrums—the half-point interest-rate cut on Wednesday—bought about 90 minutes of market silence. Within hours, as poor economic news continued to materialize, the clamor for further rate cuts began to rise. Mogel puts it in starkly financial terms: "Indulge tantrums and you get short-term gains and long-term loss."
If traders are the toddlers, investment bankers—and the CEOs they report to—are the tweens of the system, plagued by attention-deficit disorder. As we speak, your typical Wall Street managing director is glancing at CNBC in his office, intermittently checking six computer screens, thumbing out e-mails on his BlackBerry, barking out orders to a personal assistant—all the while furiously working out on the elliptical machine. Merrill Lynch, Morgan Stanley and Bear, Stearns take great pains to distinguish themselves from one another. But they all lurch together from hot financial trend to hot financial trend the way tweens ditch yesterday's pop stars for today's (goodbye, Britney; hello, Hannah Montana). Like proto-teens, bankers are incapable of exercising independent judgment. Which is why every bank—from the staid Swiss to the sharp trading houses on Wall Street—got caught up in the subprime debacle. Alan Hilfer, a child psychologist at Maimonides Medical Center in Brooklyn, N.Y., notes that investment bankers behave like kids in a candy store. "The candy is money. And when they see an opportunity to get more of what they want, they go after it without considering the consequences." The financial system has an upset stomach today precisely because every large financial institution gorged on subprime candy.

If Park Avenue bank headquarters are like middle school, Davos, which attracts truly senior bankers and financial statesmen, is like high school. It' got the jocks (the heads of state and CEOs), the cheerleaders (journalists), the cool guy in the garage band whom all the girls love (Bono) and a lot of math and science geeks (Bill Gates, economists, technology evangelists). As in high school, the culmination of the year is the big dance (the Google party). Two weeks have passed, but I still can't shake the vision of talking head David Gergen's getting down—it's available on YouTube if you dare.

There's a final, telling way in which the markets exhibit childlike behavior. Children typically display an unwillingness to reckon with the fallout of their own actions. They look to parents to pick them up when they fall, and spare them from the consequences of their own behavior. And parents will go to great lengths to insulate their offspring from the jolts the world can deliver.

The same might be said about Washington's current economic ministrations. The nation is now nursing a seriously skinned knee because of reckless behavior in housing and credit. But rather than force consumers, borrowers and bankers to face the consequences of their own actions, Washington is functioning as a helicopter parent. Harvard economist Ricardo Hausmann, who characterized America as "whiner of first resort," believes the rush to stimulus is being led more by a concern for Wall Street than a concern for Main Street. Rather than take their lumps after several years of exceptional returns, the banks are furiously lobbying for help. They're getting it.

Instead of looking to the Federal Reserve or Congress to bail them out, the people who dominate the global economy should engage in some introspection—to evaluate what they did wrong and how they could avoid screwing up in the future. As Wendy Mogel puts it: "Good judgment comes from experience and experience comes from bad judgment."

Hannah Montana

I think I told the class that the the "economic" thing to do is not always the right thing to do. If I didn't, I am now. The following story illustrates that truth.

As reported on Freakonomics.com

Hannah Montana is the hottest thing going. Her concerts are all sold out and scalpers are netting thousands of dollars for her tickets, according to media reports. What is an economist who wants to see a Hannah Montana show to do? Here is the true story of one such escapade. (The economist in question has asked me to keep his identity secret, out of fear that his reputation as a doting father will eclipse his economic accomplishments.)

His story starts just the way you might expect:

I had been working especially long hours recently. My family capital was running dangerously low. My oldest daughter Annika is a huge Hannah Montana fan. I figured it would be a good time to refill the tank and spend some quality time with Annika, so I announced gloriously in the morning that Annika and her papa were to see Hannah Montana that evening.

Our hero had not, however, mentioned to dear Annika that he didn’t actually have tickets to that night’s concert.

I quickly realized how out of touch with reality I am—the event was “sold out” and the ticket prices on various scalper sites were beyond reach for this academic’s salary. I concluded that I would take Annika to the local Wal-Mart and buy her a Hannah Montana CD and doll in lieu of the show.

This economist has raised far better children than I have, as you’ll see.

Annika raced in the house after school wondering when we would leave for the event and where we would be sitting. I shamefully broke the news that I had yet to find tickets. She took the news well, claiming that she really only knew half of the Montana songs anyway. Deep inside she yearned to go to the concert, but was not willing to admit that her papa let her down.

Shame is a powerful motivator.

After some reflection, I boldly announced that we would hold the course; Annika and I would leave at 5 p.m. for the show. I figured this would get us to the United Center by 6 p.m., with plenty of time to find a ticket scalper on site and get situated. After pilfering the family stash, I had enough cash in hand to pay up to $200 per seat, which I figured would gain us access to the restricted viewing seats (situated behind the stage).

If only it were this simple.

With heavy Chicago traffic, we arrived at the United Center just after 6:10 p.m. I wasn’t worried yet, as we still had 50 minutes to find tickets and get to our seats for the concert opening. For the first 15 minutes, we searched for tickets without much luck. No one was selling, and the euphoria around the stadium was beginning to get to Annika. Her eyes gleamed, and my willingness to pay shot up to $300 per seat…better find the closest cash machine!

Around 6:30 p.m., we came in contact with the first ticket scalper. He offered us some not-so-good, restricted view tickets, for $400 each. Glumly, Annika and I passed. I did not even have that much cash available. After haggling with a few other scalpers, the best offer I could find was $300 each for restricted view tickets. The price was too high.

The economist then does something so stupid and out-of-touch that only an economist would think to do it.

I decided to approach the United Center ticket box to inquire about available tickets.

Unfortunately for our hero, the show had been completely sold out for four months, and the woman behind the counter reminded him of that when he got to the front of the line. All the others in line had pre-ordered tickets and were collecting them at the will-call window. But as deluded as the economist was that he was going to be able to buy tickets at the box office minutes before the show, the strategy had an unintended benefit.

As I got into line, the ticket scalper who had stood firm at $300 for the restricted view tickets suddenly offered them for $275 each. “No thanks,” I said. Time was running out—6:45 and still no tickets. Annika told me to just buy the tickets for $275 each, but I told her to be patient.

Undeterred, the economist continued along the same path.

I approached a different ticket office. Once again my approach was interrupted by the ticket scalper who now offered the restricted view seats for $250 each. The official at the ticket box again refused my request, but I felt I was onto something. When I approached the ticket box, the ticket scalpers became anxious, trying hard to sell me their tickets. It dawned on me that the United Center must be releasing tickets slowly. Perhaps they had some tickets in hand that were still available.

There is obviously no way that there are any tickets left.

Out of the corner of my eye, I caught another ticket box, this one different from the others—it had a disabled sign placard clearly displayed. I approached the official at this window and asked if he had two tickets. “Yes,” he replied. “Two seats in the second row.” I was stunned. I openly wondered how this could be the case, and he informed me that they were just released to the public. I happily paid $66 per ticket.

Hurray! Against all odds, little Annika would get to see the concert from the second row. Oops, not so fast. This is an economist, after all.

I had gotten extremely lucky. Given the ticket prices I had been quoted by the scalpers, these two tickets were likely worth at least $1,000 apiece. If I acted quickly, I could sell them, and then go find the scalper with the two restricted view seats. His price might be down to $225, in which case I would net roughly $1,400 in profit, and Annika would still get to see the show.

Brilliant plan, except for one small detail:

I quickly explained my plan to Annika. We didn’t have time to dither. I strode off in search of buyers for our tickets. When I turned around to beckon Annika to follow me, I saw silent tears streaming down her face.

Torn between what he knew was the right thing to do (sell those tickets for as much as possible) and appease his daughter, the economist faced a tough choice. He knew he would be criticized later, but it had to be done.

I grabbed Annika’s hand and we headed for our seats. My colleagues would berate me at faculty lunch, but I would forgo this wonderful money-making opportunity and watch Hannah Montana from the second row.

The story ends happily:

Upon our arrival at the seats, one of the backup singers named Candace greeted us. Annika gave her a hug for good luck. As she left, Candace said that she would wave to Annika. Our seats were so close that Hannah even touched Annika’s outstretched hand at one point. Annika was kept busy singing and dancing the entire show. The smile never left her face. Remarkably, during the show, Candace even kept her promise. Her wave to Annika was heartfelt.

How Hillary is like Tracy Flick.

If you seen this movie you will get a kick out of this video clip.

No posting on this one, its just for fun.

5 Myths About That Depressing R-Word

If you read this article you will know a lot about recessions.

By Kevin A. Hassett

When Scottish historian Thomas Carlyle branded economics the "dismal science" in 1849, he gave it a name that would stick. (Some theorize that he picked on economists since, like most Scots back then, Carlyle had never visited a dentist.) Fortunately for economists, 1849 was a pretty good year. If Carlyle had seen how economists behave during recessions, he probably would have dubbed their subject something far worse.

Economists have the same occupational hazard as baseball managers and football coaches: Every person on the street knows their job better than they do. And if you listened to the economic stimulus package talk last week from the White House and Capitol Hill, not to mention Federal Reserve Board Chairman Ben Bernanke, you could be forgiven for thinking that the recession is just around the corner. But the main result of all this chatter is that far too many myths about recessions have made their way into popular culture.

1. We're already in a recession.
The truth is, nobody knows. The responsibility for declaring the stages of the business cycle is informally held by that most dreaded of concepts -- a committee of economists. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) uses a number of economic indicators, including personal income, unemployment, industrial production and sales and manufacturing volume, to determine the health of the economy. It's not true that they declare a recession if economic growth is negative for two quarters in a row. If it were that simple, we wouldn't need a committee.

If you want to know about the state of the economy in real time, you can't rely on the NBER. If the NBER did the D.C. weather forecast, here's how it would work. The bureau would gather precipitation data from every neighborhood, then interview residents to make sure that the data are accurate. After much deliberation, it would tell us whether it had rained last month. Same with recessions: The NBER's pronouncements historically come long after recessions have begun, a whopping seven months on average. By the time the bureau announced the recession of 1991, it had already ended.

It's impossible to tell whether the NBER will make a pronouncement anytime soon. Right now, we only have enough data to assess the economy accurately through last November. The best available real-time indicator of recession, a model developed by economist Marcelle Chauvet of the University of California at Riverside that has correctly called every postwar recession without ever giving a false signal, clearly indicates that the economy was not in recession in November. Things certainly have deteriorated since then, but it is an open question whether they have deteriorated enough. A recession may have started. Or it may not have.

2. The stock market tanks during recessions.
Not so. With the economy heading south during recessions, the conventional wisdom is that stock prices drop as well. Stocks usually drop before a recession, something that may be happening now. However, the market tends to look ahead and starts to respond favorably to the expected end of a recession long before it occurs. Influential economist Donald Luskin of Trend Macrolytics recently ran the numbers and found that stocks have produced an average return of 12.1 percent in post-World War II recessions. This is only slightly below the average return outside recessions.

3. Recessions used to be a lot worse.
Lunchroom economic conversations are inevitably graced with at least one statement from an old-timer along the lines of: "In my day, we walked 10 miles in the snow just to get to the recession." In fact, the nature of recessions hasn't changed much over the years.

Early economic studies seemed to confirm the view that the economy has become less volatile over time, with some estimates implying that the severity of recessions declined by 75 percent roughly around the end of World War II. However, a prominent study by University of California at Berkeley economist Christina D. Romer demonstrated that the problem really was that prewar data collectors had not advanced to the exalted level of data-geekdom of today's professionals. When important changes in data-collection methods and inconsistencies in the historical definition of the business cycle were accounted for, it emerged that recessions before World War I and since World War II have been just about equally severe.

While the past three recessions may have seen slightly smaller drops in economic growth on average, there is no guarantee that the next one -- when it arrives -- will be mild. The superstitious might even say that we are due for a whopper.

Recessions probably have become less frequent. In terms of duration, the average recession since World War II has lasted about a year. The past three recessions -- in 1981-82, 1990-91 and 2001 -- lasted about a year as well.

One factor that has clearly not helped is government discretionary fiscal policy, like the economic stimulus packages currently being considered on Capitol Hill. You might think that the brilliant postwar discoveries of economists would have provided tax medicine to stop recessions in their tracks. In an exhaustive study, however, Romer and her husband, David, found that fiscal measures such as temporary tax rebates and government spending increases have failed to push the economy out of recession because they have been too small or too late, or both.

4. Recessions are bad for your health.
David Mamet once told an interviewer that he got the inspiration for his 1984 Pulitzer Prize-winning play "Glengarry Glen Ross" from an account of a salesman's fatal heart attack, caused by a recession "so vicious the competition was for jobs and sales, especially among older men." However, for most Americans, the story is quite the opposite. Americans get healthier as the economy gets worse. Unemployment tends to increase during recessions, but economist Christopher J. Ruhm of the University of North Carolina at Greensboro has found that a temporary one percentage point increase in the unemployment rate leads to a 0.5 to 0.6 percent reduction in the mortality rate, or about 14,000 fewer deaths per year.

Why the health benefits? With more free time and less money on their hands, people tend to consume less tobacco, exercise more, prepare healthier meals and lose weight. In addition, they are much less likely to have car and other accidents, and to catch communicable and sometimes fatal diseases such as influenza. Among the top 10 causes of death in the United States, only suicide rates show a substantial unemployment-driven increase. Even deaths caused by heart disease fall substantially.

5. There is a regular business cycle.
In a pair of articles in the Quarterly Journal of Economics published in 1920 and 1921, Columbia University economist H.L. Moore hypothesized that the primary cause of economic cycles was the regular eight-year cycle of the modes of the planet Venus. This type of thinking, along with 19th-century English economist William Stanley Jevons's theory that the 10-year sunspot cycle causes economic fluctuations, perhaps accounts for the widespread notion that there is a regular business cycle.

Don't count on it. The term "business cycle" is imprecise. Economic fluctuations affect everyone, not just businesses, and they are, unlike astral cycles, anything but regular. In the nine recessions since 1949, the shortest time between two recessions has been three quarters (the recessions of 1980 and 1981-82), while the longest has been just short of 10 years (the recessions of 1991 and 2001). When the next recession ends, a good guess will be that the expansion that follows will be somewhere between one year and 10 years in length.
A better analogy might be to think of our economic future as being a road trip in a 1971 Ford Pinto. Our car might burst into flames in the next instant, there might be a truck in our lane around the bend, or we just might make it all the way to California.

Facts about Rich People

In the first Forbes 400 [1982], oil was the source of 22.8 percent of the fortunes, manufacturing 15.3 percent, finance 9 percent, and technology 3 percent. By 2006 oil had fallen to 8.5 percent and manufacturing to 8.5 percent. Technology, however, had risen to 11.75 percent and finance to an extraordinary 24.5 percent.

And get this:

The average net worth in 2006 of Forbes 400 members without a college degree was $5.96 billion; those with a degree averaged $3.14 billion. Four of the five richest Americans -- Bill Gates, casino owner Sheldon Adelson, Oracle's Larry Ellison, and Microsoft cofounder Paul Allen...-- are college dropouts.

Both are from the quite engaging All the Money in the World -- How the Forbes 400 Make -- And Spend -- Their Fortunes, by Peter W. Bernstein and Annalyn Swan.

In inflation-adjusted terms, here are the richest Americans of all time; Bill Gates is #13. Here are graphs on California vs. New York.

The Big Lie of 2008.

January 09, 2008

'Change' For Our Children
By Robert Samuelson

WASHINGTON -- The big lie of campaign 2008 -- so far -- is that the presidential candidates, Democratic and Republican, will take care of our children. Listening to these politicians, you might think they will. Doing well by children has now passed Motherhood and Apple Pie as an idol that all candidates must worship.

"We will do whatever it takes to make America a better country, to give our kids a better future," says Mike Huckabee, winner of the Republican Iowa caucuses.

"We will deliver for our children, our grandchildren and our great-grandchildren," claims Sen. Barack Obama, the Democratic winner.


"We're going to reclaim the future for our children," says Democratic Sen. Hillary Clinton.

Actually, these are throwaway lines, completely disconnected from reality.

Our children face a future of rising taxes, squeezed -- and perhaps falling -- public services, and aging -- perhaps deteriorating -- public infrastructure (roads, sewers, transit systems). Today's young workers and children are about to be engulfed by a massive income transfer from young to old that will perversely make it harder for them to afford their own children.

No major candidate of either party proposes to do much about this, even though the facts are well-known.

Spending for Social Security, Medicare and Medicaid -- three programs that go overwhelmingly to older Americans -- already represents more than 40 percent of federal spending. A new report from the Congressional Budget Office projects these programs could equal about 70 percent of the present budget by 2030. Without implausibly large budget deficits, the only way to preserve most other government programs would be huge tax increases (about 40 percent from today's levels). Avoiding the tax increases would require draconian cuts in other programs (about 60 percent). Workers and young families, not retirees, would bear the brunt of either higher taxes or degraded public services.

Similar pressures, though less ferocious, exist at the state and local levels. Schools, police, libraries and parks will be squeezed by the need to pay benefits for retired government workers. A study by the Pew Charitable Trusts found that states have promised retired workers $2.7 trillion in pension, health care and other benefits during the next three decades. Only about $2 trillion has been set aside; the rest would come from annual budgets.

Medicaid, a joint federal-state program with states paying about 40 percent of the costs, represents another drain; about two-thirds of its spending stems from the aged and disabled. Roads, water and mass transit might also be shortchanged. States and localities pay about three-quarters of their costs.

But facing these facts would expose candidates to three daunting problems.

First: Lightening the burden on the young requires cutting retirement benefits for the old -- raising eligibility ages, being less generous to richer retirees and making beneficiaries pay more for Medicare. Simply increasing taxes or cutting other programs won't work. The problem is not just closing the budget deficit.

Second: We can't wait. Ideally, prospective retirees would have received several decades' warning; but we've delayed too long. We need to cut benefits for baby boomers and even some existing retirees. They are the source of mounting costs.

Third: Even if retirement benefits were cut, pressures for higher taxes and lower public services would not disappear. Social Security and Medicare are part of the nation's social fabric. Although individuals' benefits can be responsibly trimmed, the growth in the elderly population (a doubling by 2030) and rapidly rising health costs would still expand total spending. The increases would simply be smaller.

A moral cloud hangs over our candidates. Just how much today's federal policies, favoring the old over the young and the past over the future, should be altered ought to be a central issue of the campaign. But knowing the unpopular political implications, our candidates have lapsed into calculated quiet.

They pay lip service to children but ignore the actual programs that will shape their future. The hypocrisy is especially striking in Obama. He courts the young, promises "straight talk," and offers himself as the agent of "change." But his conspicuous omissions constitute "crooked talk" and silently endorse the status quo.

The insidious nature of this problem is that because the spending increases for the elderly occur gradually, the pressures on taxes and other government programs will also intensify gradually. A crucial moment to clarify the stakes and compel politicians to make choices probably won't occur until it's too late.

The longer we delay -- and we've done so now for several decades, because the strains created by an aging society have been obvious that long -- the more likely that eventual "solutions" will be unfair to both young and old. To acknowledge that and to come to grips with it would constitute genuine "change."