Super Freakonomics

The book ‘Super Freakonomics’ just came out. Just like the first one, the second has been controversial. The biggest controversy is the chapter on Global Warming. Steven Levitt (the author that is an economist) went on the daily show recently. This discussion summarizes this controversy.

New Business Model Needed for Newspapers

Newspapers are a dying industry. The latest from the link: "Average daily circulation at 379 U.S. newspapers plunged 10.6 percent in the April-September period from the same six-month stretch last year..." Competition from the internet has created an incentive to put articles online, and anyone who charges does so alone thus driving down viewership. Someone has to come up with a business model that will work. So how about this idea:

Allow the newspaper industries to collude. Basically grant them an Anti-trust exemption like the one sport leagues have. Instead of the Phillies and Yankees acting together to figure out ticket prices, advertising, etc... we can allow the Inquirer and NY Post to act collectively on advertising, and most importantly a collective requirement for payment for its online content. Just as the Phillies and Yankees compete on the field the papers can compete with its content. Otherwise there is a classic prisoner's dilemma (like our OPEC studies in class). Any thoughts?

Unions and Politics... an Unholy Alliance?

At one point California had to give out IOU’s instead of money. Pennsylvania just completed our state budget despite new sources of revenue by renting out land for natural resource drilling and new casino tax revenue. One of the smallest states in the nation (New Jersey) has an awful mess dealing with their insane property taxes despite annual enormous revenue from Atlantic City casino taxes. Ever wonder how the trail to state insolvency is ploughed? This article from today’s ‘Currents’ section in the Inquirer written by Fred Siegel and Dan DiSalvo has many of the answers. Their argument is that powerful state unions are draining funds from the states, and it is the politicians who give out those contracts that should be to blame. Is this article fair to unions? Some money quotes:

The governmor of a state is supposed to keep the spending in check. What does Gov. Corzine do it 2006?

"...when [Corzine] shouted at a Trenton
rally of about 10,000 public workers: "We will fight for a fair contract."
Corzine was, of course, management in that situation, not labor."

The situation in NY looks dismal… maybe this has something to do with it.

"Nearly 800 Gotham "rubber room" teachers who have problems on the job are
being paid not to work. Salary increases have been running at better than twice
the rate of inflation."

When did this begin?

A significant boost was President John F. Kennedy's decision to mobilize public-sector workers as a new source of political support.

Some additional stats:

"In New York City, where public-sector union benefits have grown twice as
fast since 2000 as those in the private sector, firefighters may retire after 20
years at half pay. Pension benefits for a new retiree averaged just under
$73,000 (all exempt from state and local taxes). To top it off, retirees receive
a health insurance policy that is worth about $10,000 annually."

The punch line:

"In the absence of tough-minded
leaders who will take on the public-sector unions, the fiscal future of states
and localities is bleak."

Politics and the Media

Politicians often feed off of people not understanding the difference between deficit and debt (and the media seems unwilling to take on the task). This article outlines how we reached a record deficit in 2009. The print inquirer article puts it best (I don’t understand why the article changed once it hit online).

This deficit represents “… more than $4,700 for every man, woman, and child in the United States.”

It is as if everyone in America just increased the balance on their credit card by 5k (including my two year old daughter!). The scary thing is that next year will probably be just as bad. Another quote:

“President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling. But economists worry the government lacks the will to make the hard political choices to cut spending and raise taxes to get control of the imbalances.”

This completely ignores the fact that the powers that be must cut the DEBT, not the deficit. Even if Obama cuts the deficit in half every year for the next seven years the debt will continue to grow (and it will be your generation that will pick up the tab). Politicians get votes by ignoring this issue (so at least I can understand why they do it) but I can not figure out what the media gets

Drop in Minimum Wage

An historic drop in Nominal Minimum Wage. Very interesting.

California and Pot

Talk about a quick way to increase GDP. Take the underground economy involved in pot and make it legal. Now all of that production is calculated in GDP. That may be the quickest fix to get us out of this recession.

Are we in a recovery?

If you hold a conversation with someone very ill you probably pick up on the fact that they are sick. Medical doctors specialize in telling us why they are sick. Similarly anyone living in America over the past year knows the economy is sick. Macroeconomists try to tell us why this is the case.

This leads to the latest batch of economic numbers. Looks like the unemployment rate went up to 9.8%. To the casual observer this is not much of a jump, but it is actually worst than it appears. Lets dive deeper into the numbers: Many economists and politicians are sold on the fact that we are in a recovery. They cite a small uptick in housing prices and a small decline in 2009 second quarter GDP (with the implication that we are now in the upswing). To quote the article: “The latest data "sets the stage for an improved economic outlook for the rest of 2009 and throughout 2010," said Aaron Smith at Moody's Economy.com.” (Sounds optimistic… right... like any news coming after that date will be positive). Now this info: We lost a net total of 263,000 jobs last month (more than expected). In addition this takes into consideration that previously unemployed workers have begun part time work to make ends meet. They are counted as employed. Take this into account and the number of 9.8% unemployed actually underestimates the problem. In addition to this, these numbers do not take into consideration the discouraged workers effect. We will discuss these things in greater detail in the class soon (oh joy!).