Proposition 19 and police power

California’s Proposition 19 to alter the legal status of marijuana may be a test of the power of the police in that state.  A report on the financial implications suggest the greatest impact would be from massive law enforcement cuts.

Cash-strapped California would get some relief by legalizing pot, but the biggest boost would be thanks to massive law enforcement cuts, not new tax revenue, experts say.

….

Jeffrey Miron, a senior lecturer at Harvard University and senior fellow at the Cato Institute who co-authored the study, said the majority of the cost savings would be a result of cuts to law enforcement personnel whose services would no longer be required. And axing police officers, prison guards, prosecutors and judges would hurt the job market, at least initially, he said.

It will be interesting to see how many police will quietly accept pink slips if Proposition 19 passes.

The Living Planet Report

A major weakness of most economic analysis is that once one gets away from the blackboard the real side of the economy is forgotten. Everything is considered in financial terms and people tend to assume unlimited financial resources.  We assume the potential for growth is unlimited.

Last week the WWF (World Wildlife Fund)  offered some evidence as to where the physical aspect of the economy is at with the release of it’s Living Planet Report. This report claims our ecological footprint exceeds the earths biocapacity by 50 percent and that by 2030 we will need two earths to support sustainable life on the planet.

Humanity is currently consuming renewable resources at
a faster rate than ecosystems can regenerate them and continuing to
release more CO2 than ecosystems can absorb.

If this is true, and there is probably some truth in it, then it must be having some impact on the world economy.  Probably some people would be experiencing a decline in their standard of living, resources would become more difficult to extract and therefore more expensive and there might even by a major recession.

Perhaps the real economic challenge of our time is to adjust our economy to cope with zero or even negative growth with a minimum of human suffering.

 

Dangerous debt

I came across this article from the Guardian about the U.S. spend or cut debate shortly after I started reading This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth S. Rogoff.  The article reports Paul Krugman is urging  the Obama administration to go with a trillion dollars of stimulus.

In the book the second paragraph of the preface talks of excessive debt accumulation.  Granted that the authors are talking about dept during a boom, but if that is a problem what is it during a  recession.

If there is one common theme to the vast range or crises we consider in this book, it is that excessive debt accumulation, whether it be by the government, banks, corporations or consumers, often poses greater systemic risk that it seems during a boom.  Infusions of cash can make a government look like it is providing greater growth to its economy that it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable they really are.  Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short  term and needs to  be constantly refinanced.  Debt-fueled booms all too often provide  false affirmation of a government’s policies, a financial institution’s ability to make outsized profits, or a country’s standard of living.  Most of these booms end badly. Of course, debt instruments are crucial to all economies, ancient and modern, but balancing the risk and opportunities of debt is always a challenge, a challenge policy makers, investors, and ordinary citizens must never forget

My own reasons for objecting to stimulus spending is stated in the post Economic policy, least squares and the Elliott wave

Food labelling

A committee of the U.S.  Institute of Medicine is recommending food packaging have information regarding calories, saturated fat, trans fat and sodium clearly marked on the front of packages. (See a news report here.)

This is good because the perfect competition model says consumers should have all the information necessary to make  good decisions.

Quantitative easing – increasing the money supply

It appears thee Federal Reserve may try to stimulate the U.S. economy with what is being called quantitative easing. (Here is a report on this.)

To do this the fed would purchase Treasury securities rather than letting them be sold to the public.  This is how central banks try to increase the money supply in the hope it will bring interest rates down.  The money paid for these securities is called high powered money because it is subject to a multiplier effect as bankers use it to make loans.

It will be interesting to see if and how this works.   It depends upon bankers being willing to make more loans and it will depend upon the ability of the economy to increase the output of goods and services.   There is a danger increasing the money supply will only increase inflation.

 

Wishing for peace

Through the milenia religious leaders and wise men have preached peace.  Yet we still have wars and genocides and people being nasty to each other.

Lets wish or prey for the Dalai Lama to be more sucessful with the Happy Thoughts world peace festival.

 

Why does Canada have so few female CEOs?

This question is the topic for  a Globe and Mail online discussion.

There are two simple answers.  Most women are smarter than men and know that the stresses of senior management are not worth it.  They also know that if one wants power it is more effectived to remain in the background and manipulate the men.

 

Competition, governments and economists

I believe, a s a general rule most economic legislation works to restrict competition by overruling the fundamentals of the perfect competition model.  Patent and copyright, licensing, tariffs and subsidies all restrict competition.  Therefore business people have a large interest in ensuring that only that type of legislation gets passed.

I also believe the main function of economist is not to solve economic problems but to provide a sort of religious legitimacy to our economic activity.  They allow us to feel we are doing something good as we use up scarce resources and as some people exploit others.

Now, I encourage you to have a look at this article economists working in academia , the financial industry and government.

 

 

Stimulus and short-term interests

Most of the time most of us think and act in our own short-term interests.  This may apply to George Soros who has an article on the Financial Times website calling for further stimulus spending by the U.S. government.  This would probably allow a ot of business people to make lots of profits – in the short term.

I believe there is a strong case for further stimulus. Admittedly, consumption cannot be sustained indefinitely by running up the national debt. The imbalance between consumption and investment must be corrected. But to cut government spending at a time of large-scale unemployment would be to ignore the lessons of history.

A wage increase for government employees

One has to wonder if it is fair for government employees to get raises at a time when so many people are out of work or working fewer hours orotherwise having to cope with reduced incomes. The quote is from the CBC news website

The federal government has reached a tentative labour agreement with 95,000 of its public servants in a deal that includes a wage increase.

The Public Service Alliance of Canada said it reached a tentative deal with the Treasury Board for new collective agreements for three of its five bargaining units late Monday.

The tentative agreements, which affect mainly program and administrative staff, include a 5.3 per cent wage increase over the next three years and changes to severance pay. They are a result of exploratory talks on contracts set to expire in 2011.

Read more: http://www.cbc.ca/politics/story/2010/10/05/public-service-talks.html#ixzz11VUNizyO

Money and love

Here’s an interesting video report on economics and dating.  What caught my attention was the statement that in these uncertain ecomimic times “70 per cent of singles do not consider money to be an important factor when choosing a mate.”

What is important is that both partners should come from a similar financial background. Financial problems are behind a lot of divorces.  When two people come from different financial backgrounds they have different approaches to handling money which can cause conflicts.

Financing Jack the robot

The high costs of some medical treatment is an issue.  A recent news item reported a procedure which cost $93,000 and extended life expectancy by four or five months.  An recent article in the Vancouver Sun reports on a $3 million surgical robot for which future operating funding is uncertain.  A friend of ours reports the new cancer medication she is taking would leave her bankrupt if she weren’t a test cast.

If we can expect the recent economic growth trend to continue unabated after the current short recession, then we should all expect to receive the lasted medical treatment.  However, if the current depression is the start of an extended down  trend or even a levelling of the economy, then not everybody will be able to have the most up-to-date treatment.  (See my post on Economic policy, least squares and the Elliott wave.)

Personally I try to get some exercise, eat mostly healthy food, balanced by some not so healthy food, and hope that when my turn comes I will be able to accept it gracefully

How to reduce a budget deficit?

How would you reduce the budget deficit?  This question is asked on the weblog of the The Business Department of St. Gerald’s College, Castlebar, Co. Mayo, Ireland

My answer is simple: reduce public sector salaries.   for the rational see my recent post titked Economic policy, least squares and the elliot wave.

The financial crisis, banks and money creation

Throughout the financial crisis I have seen nothing about the role of banks in creating our money supply. It is a very simple process yet many people who work for banks can’t believe it yet alone everyone else. (Google money creation and you will get numerous explanations including this one from Wikipedia http://en.wikipedia.org/wiki/Money_creation

The important thing is that when banks make a loan they are creating money. Because banks are required to keep a small percentage of deposits on reserve (the fractional reserve system) when new money is added to the banking system the money creation is multiplied depending upon the reserve requirement. Central banks add new money to the system usually by buying government bonds.

All this means that banks are an essential part of our exchange of goods and services. Without them there would be no economy. It is not that some banks are too big to fail, it is that banks are too important to fail.

There has been a lot of talk recently about the power and the evil of bankers and attempts to increase regulation of the industry. It is clear that bankers are extremely powerful people and some are probably evil to varying degrees. However, I cannot see how we can hope to discuss, evaluate and even reform the banks if we don’t recognize and take into account their role in money creation.

I would also suggest there may be other ways of creating money but that is so radical as to be treasonous.

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