The Dangerous Economist


The Dangerous Economist

I posted an op-ed piece in reply. It is below. On Mon if they print out it I assume I’ll find out. I am very worried about leading page article the Ranger did on the Occupy Wall Street Movement. I can understand and sympathize with the protesters. Unemployment is high for teenagers especially. I acquired my B.A. 1982, a year when the unemployment rate was over 9%. It had been again the next yr.

In fact, both inflation and unemployment averaged 7.7% over the nine years from 1975-1983. I began college in the center of that difficult economic period. It had been a period of bailouts also. The federal government bailed out Chrysler and Continental Bank. The article said that “the movements’ focus is big business and the government’s failure to modify big business.” They also seem to take into account inequality and how much money the top 1% makes.

I believe that the motion is either wrong about these issues or overstates their importance. And their solutions can harm the economy in the long run. How exactly fees and regulations could harm the economy is not widely understood. So i want to make an effort to explain. Let’s take rules. Many feel that it was too little regulation that triggered the financial meltdown.

This is an extremely debatable point. Experts like Nobel Prize winner Gary Becker, Peter Wallison, Jeffrey Friedman, Columbia University economist Charles Calomiris and Stanford University economist John Taylor have written on how it was rules that were the primary cause. Banks were told to lower their lending requirements which triggered the demand for homes to reach unsustainable levels. Even the business writer for the New York Times, Gretchen Morgenson, has written a book which lays at least area of the blame on the federal government created Fannie Mae and Freddie Mac.

It also might not be true that people don’t possess enough regulations. Federal spending by regulatory organizations is about nine times higher today than it was in 1970 (adjusted for inflation). Each year Thousands of web pages of new rules are added. But if we did add even more regulations, how will they are created by us work? Does each regulator do more work or do we hire more regulators? If the second option, we come across what economists call “the law of increasing opportunity cost.” We have to keep taking better and better employees out of the private sector to become listed on government firms.

Fewer goods and services will be produced. The cost of regulation will develop exponentially. Regulators are also at the mercy of “capture” by the interests they may be supposed to be monitoring. They finish up not offering or protecting the general public given that they may have previously worked for the reason that industry and anyone else don’t possess time to watch what government companies do. Regulations cost about 8% of the national income every year since we have to pay the cost of the government companies and businesses must spend money to adhere to regulations. Much has been made of the growing inequality problem.

It is true that the top 1% of earners have observed their talk about of income rise. People are not stuck at the bottom also. Of these in the cheapest one-fifth of incomes in 2001, 44% had moved to a higher “quintile” by 2007. That may not be adequate income mobility for some, but I think it is still quite a bit. More people may move between income brackets in Europe than the U. S., however the lower earnings in Europe make that easier generally. Those at the bottom of the income ladder might be doing better over time than is commonly thought. To measure incomes over time, we need to modify for inflation.

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But economists have found out that we should not use the same price index for the wealthy and poor. The main one for the indegent has not increased as much as time passes. Once this is taken into account, we can easily see that incomes have never stagnated as much as is normally thought. Many propose higher tax rates on the rich to deal with inequality. Yet this may lead to problems when recessions hit. The higher income earners are actually seeing their incomes fluctuate more and they decrease more than for most people in recessions. If we rely much on them for tax revenue too, it shall indicate immense budget deficits in recessions, as much claims have seen lately.

In 2007, the very best 1% paid about 37% of most federal taxes. The more we rely on them for revenue, the bigger the nagging problem will maintain the next tough economy. Taxes have another problem. They cause exponential damage to economic efficiency increasingly. Taxes distort financial activity. 5, I may choose not to purchase it. That is a loss for me personally and for the seller.