Category Archives: Economics

How Does This Trickle Down Thing Work Again?

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I’ve never been a believer in the concept of trickle economics.  My basic understanding of trickle down is that the government cuts taxes, which puts money into the hands of businesses, who will invest more and hire people, which gives people buying power, and that will drive the economy.  Basically, the riches acquired by corporations and the wealthy will trickle down to everyone else.

If the following is true, it sounds like there is a fatal flaw in the theory.  According to a speech the president gave to the US Chamber of Commerce,

American companies currently have nearly $2 trillion sitting on their balance sheets. And that’s just one of the confounding things about the recovery. Corporate profits are at record highs, bonuses are up, so is the stock market, but hiring is not.

So American companies have a whole bunch of money, but aren’t hiring people, which would seem to me to keep consumer spending depressed, which isn’t going to drive the economy anywhere.

So my question is, how is this trickle down thing supposed to work again?

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And This is Why We Need Economic Regulation

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I’m so beyond listening to the “deregulation of the market is the only way to save the economy types,” and the below quote from this CNN article is exactly why.

[C]hief executive officers of the 50 firms that laid off the most workers since the start of the economic crisis earned nearly $12 million on average in 2009. That’s 42 percent more than the average pay of CEOs at S&P 500 firms as a whole.

Regulations on the economy are required b/c society is inherently greedy.  No, I don’t think everyone out there is greedy, but our economic system is predicated upon a certain fiscal Darwinism where many people believe the one who dies with the most toys wins.

I just can’t reconcile in my head where people who lead companies that are performing like crap make obscene amounts of money (often wanting more), and then layoff a bunch of their employees.

Its not a big secret that one of the problems with the economy right now is a lack of consumer spending.  Hey guys, all the people you keep laying off are consumers.  You keep them working and paying them, they’ll keep buying crap.  Maybe it won’t save the economy, but it will probably help more than sending them to the unemployment line.

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Degree in Business, Minor in Being Delusional

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This chick got a degree in business administration in information technology and a minor in being delusional.

When I went to college, my diploma didn’t come with a guarantee on the pretty little folder that it came in.  Just because you get a degree doesn’t mean you’re going to get a job, in any economy.  Now with this economy and job market, you’re definitely not guaranteed to get a job.  Kind of makes you wonder how much she was studying macro- and micro-economics during her schooling years.  That whole supply and demand thing will jump up and bite you in the butt.

And I hate to be a jerk, but she has a GPA that she says herself is just “alright” from a college with less than overwhelming name recognition.  Nobody just gets a job handed to them with any GPA and having a GPA that’s just alright is going to make the job hunting task harder.

And regarding her complaints about the placement office not helping her enough.  Maybe I’m too cynical, but just like everything else, higher education is a numbers game and the number that matters most is the bottom line.  Schools want to place as many graduates as they can as quickly as they can so when they go to their alumni asking for money or to the government seeking grants they can say, “look how awesome we are.  We placed X number of students in a job within six months of graduation.”  Frankly, placing students with higher GPAs is easier and so that’s where the placement office is going to focus their energy.  That’s probably not the way it should be, but that’s the way the cookie crumbles.

They’ll also use those job placement figures when recruiting new students, and they like to make it sound as though they did everything in getting a new student placed.  What people have to realize is that there’s an unspoken portion of the new student recruitment sales pitch which goes something like this.  ”If you come to our school we’ll give you the best education we can.  If you work hard, get good grades, interview well, and find a job you like that wants to hire you, we’ll help you get placed.”  When it comes down to it, its your responsibility.

The last thing I’d like to bring up is that I don’t think Ms. Thompson is doing herself any favors by filing a crazy lawsuit like this.  If I’m a potential employer I’m now going to look at her as a lawsuit waiting to happen.  She gets disciplined or fired for any reason, I should expect a lawsuit coming.  Not a savvy move in my mind.

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Now the FDIC Needs to Borrow Money

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And this is why our economy is colossally screwed right now.  The FDIC didn’t collect any premiums from banks from 1996-2006 and not they want permission borrow $500 million to fulfill its purpose. The reason they didn’t collect premiums?  Congress wouldn’t give them the authority to b/c…

Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now is it me or is the way insurance generally work a pretty simple thing?  You pay a little bit of money each month when you can reasonably afford it, and then when something really bad happens your insurance company steps in and saves your bacon by helping to cover some to all of your expenses.

Because I like analogies, let’s look at the banks like a car.  What Congress basically said is, “hey, we have a Toyota Camry (reliable car that rarely has problems) so let’s stop paying our insurance cause we never use it.”  Too bad our reliable Camry just got totaled by a texting-while-driving teenager on the way home from the football game Friday night.

There’s a reason you’re required to carry auto insurance.  You never know when you’re going to get your car totaled or your going to total another driver’s car.  And its very rare that you’re the only one that’s going to be affected in an accident.  So now we’re stuck in the desert with jalopy quality banks that were Cadillacs several years ago trying to limp to the next gas station and we’re not sure they’re going to have enough gas to save our bacon.

Credit is the devil.

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Spending vs. Tax Cuts

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One of the constants throughout conversations on how to improve the economy is the spending vs. tax cuts debate.  I think this guy makes some really interesting and valid points about the whole tax cut idea.  I just don’t see people taking whatever little chunk of tax break money they get back and spending it right now.  Chances are really good that they’re going to save it.  

The current banking system is a perfect example.  We done some stuff to help out banks in trouble giving them a ton of money to get the credit market started again, but they’re still not loaning out money.  I’m definitely not a big fan of our government spending a bunch of money when we have a ridiculous amount of debt and deficit like we have, but people have to buy things to bolster companies, which will in turn cause those companies to hire people, which will improve the buying power of the general public and things spiral up.

That’s a problem I’ve always had with trickle down economics.  There’s a basic assumption that if you give a company a tax break they’re going to hire more workers.  From what I’ve seen the last year plus, I think they’re more inclined to either sock the money away or give their executives a fat bonus.  I think companies are only going to increase investment in their companies when people start buying their products again.  Example: American auto companies are going to keep cutting workers until people start buying their cars again.  No amount of tax break is going to change that trend.

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What the Republicans Think is Waste

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After reading this article I felt compelled to share my thoughts.  Some of what they complain about I agree with.  Some of what they complain about makes me think they’re playing rubbish political games.  One basic issue I have is if the spending is only going towards propping up current operations, I don’t think its the best use of money.  I really think that if we’re spending this money, it should go towards getting tangible things that will benefit the country while giving people jobs.  The country gets something while people make money that will spend, which will help bolster the economy.

Read it and tell me how foolish I am.  My comments are in italics.

• A $246 million tax break for Hollywood movie producers to buy motion picture film.  - Agreed, this is total rediculous, crap, stupid pork spending.

• $448 million for constructing the Department of Homeland Security headquarters. – If you saw what they work out of now, you’d understand.

• $248 million for furniture at the new Homeland Security headquarters.  - Easy there tiger.  What kinda furniture you getting?

• $600 million to buy hybrid vehicles for federal employees. – Let’s see, the American auto industry is in the crapper, the federal fleet uses American automobiles, this will help reduce pollution through cleaner emissions.  Sounds like a terrible idea to me.

• $150 million for Smithsonian museum facilities. – I’m not getting the stimulus from this, but maybe I don’t follow.

• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion. – Stimulus?  Crap idea.

• $75 million for salaries of employees at the FBI. – As a civil servant (admitted bias alert) I have a serious issue with calling this waste.  The American people want to be safe and have good roads and have clean water, but they don’t want to pay for it.  Maybe doesn’t belong in a stimulus bill, but I’ll support it anyway.

• $500 million for flood reduction projects on the Mississippi River. – I think its pretty clear that we’re not exactly squared away with dealing with floods of the Mississippi River.  If we’re building things this is exactly what we need, especially b/c it will save money in the long run.

• $10 million to inspect canals in urban areas. – Huh?

• $6 billion to turn federal buildings into “green” buildings. – See similar comment about buying hybrid cars.  Plus, many of the federal buildings in DC are old and really crappy and need to be refurbished anyway.  Make them greener in the process.

• $1.2 billion for “youth activities,” including youth summer job programs. – Programs to get more people working even if for a short period of time, putting money in their hands, that they will in turn spend on consumer products, which is what poeple aren’t doing now.  Terrible idea.  Why would we do that?

• $160 million for “paid volunteers” at the Corporation for National and Community Service. – a volunteer is someone who is unpaid by definition.  If they get paid, they’re not a volunteer.

• $850 million for Amtrak. – are we building or subsidizing.  Building good, subsidizing bad.

• $75 million to construct a “security training” facility for State Department Security officers when they can be trained at existing facilities of other agencies. –  Nice try State

Just my thoughts.

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Staggering Facts About our Government and Spending

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Say whatever you want about the opinions expressed in the rest of this Bloomberg article, some of the figures about the spending of our government and our current budget shortfalls knocked the wind out of me.  Here are the highlights:

Or try this. The whole world’s military spending in 2006 totaled a little less than $1.2 trillion. So next year’s U.S. deficit [$1.7 trillion projected] could cover that and still have $500 billion left over for building bridges.

And…

Perhaps the most disturbing comparison is this one: When President George W. Bush was first elected, total federal government spending was about $1.7 trillion. In other words, the difference between federal outlays and federal revenue this year will be bigger than the entire government was as recently as 2000.

Another interesting thing the article points out regarding our governmental spending is that revenue has increased from approximately $2 trillion to projected $2.4 trillion next year, while spending has increased around %95.  In 2000, the government spent around $1.8 trillion and it is projected to spend around $3.5 trillion.

A couple of thoughts on that last tidbit.  First, almost all of that increase in spending happened under a Republican government.  So much for small government conservative leadership.  Second, it really gives one pause when considering whether the new government should be teeing up another huge spending bill and whether the bill is going to really accomplish anything.  Obviously, money spent on the wrong things isn’t going to help the economy any, and I think we’ve proven our inability to spend on the right things over the last eight years.  Despite the view of many that Obama is going to make it all better, he can’t turn the Titanic himself.

http://bloomberg.com/apps/news?pid=20601039&sid=aGgZR28hHCPk&refer=columnist_hassett

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Apparently Mayors were Feeling Left Out

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Since everyone else in the country who’s economic situation sucks is asking for crap tons of money, the mayors of the country decided they’d get in on the action.  When the idea of requesting a monetary package from the federal government to help upgrade the national infrastructure while creating jobs was first thrown out, I thought it was a good one.  There’s been a lot of talk about our aging infrastructure and the problems its going to cause and lord knows we need to create jobs.  The mayors claimed they could create hundreds of thousands of jobs in pretty short order.

Today the other shoe dropped.  I missed the day at school where the explained that infrastructure included building a polar bear exhibit or a water park ride or starting a program to curb prostitution.  I’m not saying these are bad things by any means and I would likely advocate all of these things given different circumstances.   Essentially what they want to do is put a pool in the backyard instead of fixing the leaking roof.

This country needs improved roads, a reconditioned power grid, replaced bridges, more robust telecommunications facilities.  I don’t think increasing the attendance at the Providence zoo or a Miami waterpark.  And from my perspective, I’m betting attendance is down right now because people spend disposable income on activities like zoos and waterparks, and people just don’t have as much disposable income right now.  Once the economy turns around a bit, I’m betting that attendance will pick up again.

The thing that really bothers me about this is that they’re requesting economic stimulus through the guise of infrastructure improvement.  Its the same line of crap that congressmen use in their pork game.  Bottom line, if we’re going to spend federal money on an infrastructure improvement project, it should be something that is going to more directly benefit society as a whole.  Not the handful of people that visit a waterpark in Miami or a zoo in Providence.

One of my favorite parts of the article:

To reverse the current economic crisis, we must invest wisely. We must invest where we get the greatest return. We must invest in Main Street,” said [Miami, Florida, Mayor Manny] Diaz, who is the president of the mayors’ group.

Um, I think what constitutes “greatest return” is a hugely subjective thing here and I couldn’t disagree with you more.  Try again.

Other crap requested in the proposal includes:

CNN also found in the U.S. Conference of Mayors‘ report a proposed $20 million minor league baseball museum in Durham, North Carolina; $6.1 million for corporate jet hangars at the Fayetteville, Arkansas, airport; $20 million for renovations at the Philadelphia Zoo; and a $1.5 million program to reduce prostitution in Dayton, Ohio. Officials in those cities told CNN the projects were needed.

I really hope if the federal government considers this, they break out a line item veto pen and get rid of some of this crap.  I’m sure there are some extremely useful things in there, but I’ll be damned if I’m happily paying for a minor league baseball museum in the current economic environment.

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The CEO of Merrill is an Idiot

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I’ve been a little busy and haven’t taken the time to post, though a fair amount has been going on and multiple posts have probably been warranted.  (I’ll try to catch up with those soon)  Nothing like an ass of a rich white guy to bring me back.

First of all:

Merrill Lynch’s Thain, 53, who joined the ailing brokerage last December, is reportedly requesting a year-end bonus of $10 million, a source familiar with Cuomo’s investigation told CNN.

I must have been born and raised on a different planet than this guy.  Never in my life would I ask for a bonus of $10 million.  You don’t ask for a freakin bonus except under special circumstances like maybe your one of the guys from Armageddon and you’re going to save the world.  If you’re a pro athlete you can write bonuses based on performance into your contract and that’s okay.  And in that situation, you write a bonus in your contract for performing well, not for being an average to bad running back or for batting .150 as a lead-off hitter.

Let’s look at how Mr. Thain did for the year he’s requesting a bonus for:

In a strongly worded letter sent to members of Merrill’s board of directors, Cuomo points out that the brokerage reported losses for every quarter this year, and has lost more than $11 billion in 2008.

So you’re the captain of a ship that isn’t exactly sailing under its own power and you want a freakin medal?  Is anyone else insulted by this?  My first reaction is that this guy is a completely clueless, unintelligent moron, but if that were the case he probably wouldn’t be in the position that he’s in as the CEO of a major financial firm.  So I have to go with the idea that this guy is a collosally, arrogant ass, and he’s about as out of touch with what’s going on around him as the CEOs of the big three auto companies, and the heads of the UAW appear to be right now.

If you’re the head coach of a football team with a 3-9 record you get fired, you don’t get a contract extension or a bonus.

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Thoughts on the Economy and Bailout

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Okay, I’m going to exercise my little pea brain here and hope I don’t hurt myself in the process.

I’ve never claimed to be a mental giant when it comes to the economy.  I was a political scientist through school and I don’t think I ever really took a business class, so my understanding of the economy and all its nuance isn’t what you would call extensive.  That being said, I feel like I’ve always been pretty good with money and I make an effort to read up on economic happenings and understand them the best I can.

So here’s my questions:

As I understand it, the big problem with the economy right now is that banks don’t feel like they have the cash on hand to lend each other, which is a common activity and a critical element of our economy.  I don’t quite understand the whole lending money back and forth between banks thing, but I’m sure there is a good reason for it, and obviously its needed for how our economy works.  If I understand correctly, the lack of cash on hand is, at least in part, a result of the huge increase of people defaulting on their mortgages, which is keeping money out of the hands of the banks.

So if what I just laid out is accurrate, and if its not someone please enlighten me, why does the bailout plan not address that aspect of the problem.  It sounds like the government just wants to give a crap-ton (technical term) of money to companies that screwed things up in the first place, hoping they’ll do better next time.  That sounds like we’d be acting like an enabler around a recovering alcoholic.

Perhaps I’m way out of my league on this, but I just think if we don’t address the whole mortgage crises aspect its not going to fully correct the the problem, its just going to delay a continued decline.  If someone can help me better understand it, I’d be in your debt.

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