A taxing idea for weight loss

Here’s an article claiming strong support for a proposal to tax junk food and use the proceeds to subsidize healthy foods  as a way to help people lose weight.

How does one define junk food?  A vegan would likely consider meat  in that class.

As agriculture is heavily subsidized  the first thing would be to remove all subsidies from all food and see what happens to prices and eating habits.  It could be that junk foods are more heavily subsidized than healthy foods.

A possible run on some banks and quantitative easing

As a general rule banks keep a small portion of their deposits as cash reserves with which to refund depositors.  Therefore if a lot of depositors demand their money back (a run on the bank) the the bank is in deep trouble.  That’s why one of the requirements to be a banker is the ability to lie with a straight face.

It’s also a reason to be concerned about this report of money being moved from European banks to American banks.

Another concern from this report is that some large American banks are charging for deposits in excess of $50 million because they don’t know what to do with it.  This doesn’t look good for another round of quantitative easing which would try to stimulate the economy by pumping more money into the banking system.

Is this money being moved from Europe to the United States as an act of faith in the U.S. economy or because its owners don’t know what else to do with it?

Who’s to blame and what do we do about the economy?

One thing of which there has been no shortage during this economic crisis is words with lots of scapegoats and ideas as to what to do.  Here’s my attempt to summarize.

Who is responsible for this mess?

The two favorites are greedy Wall Street bankers and incompetent politicians who aren’t following the policies which would most benefit the speaker.  The bankers may be greedy and the politicians may be incompetent but are they any more so than their predecessors who ruled during the golden age of prosperity?

The next groups to blame are those who won’t approve stimulus spending and those who object to spending cuts. Sometimes both groups are blamed for refusing to compromise.

Others who can be blamed are the ratings agencies who gave false assurances,  those making negative statements who are thus creating a negative feedback loop and those who spreading lies to create profit opportunities for themselves.

What can we do about the economy?

One approach is to cut government spending especially that which benefits poor people or those whose finances are precarious..  Of course we don’t want to cut government spending which finds its way into our own pockets.

The second approach is to stimulate the economy.  There are several ways of doing this including government spending, creating more money (quantitative easing and the National Infrastructure Bank) or encouraging exports and restricting imports to protect jobs. We could also use people with DBS degrees (the D stands for doctor) to convince us there is no real crisis and everything will be okay.

Now here are the answers to these two questions in the view of the author of this blog.

We are all to blame.  The basic problems is that humans have used up a lot of resources, especially those that are easily accessible,  and most of us have had a part in this.  Most of us have had nice homes, designer cars, interesting vacations, frequent restaurant meals and lots of other things.  Most of us have been demanding high returns on our pensions and savings.

So what should we do about the crisis?

If the problem really is with the resource base,  stimulating the economy will only make things worse and socking it to the poor is mean – and many more  people are likely to join them.

Therefore my vote is that everyone should be expected to accept a lower standard of living starting with those with higher than average incomes supported by taxpayers (most of whom get their high incomes from belonging to a union in a monopoly field) and those with high incomes resulting from legislation that restricts competition.  This includes people whose income comes from copyright and patent legislation and those whose income is protected by licensing requirements.

It is my fear that not enough of us care enough about our neighbors for this to actually happen.

So there you have it.  This post has added 489 words to the economic hot air.

On selling wheat and the Canadian Wheat Board

I have mixed feelings about agricultural marketing boards.  On the one hand I like competition to keep consumer prices down and on the other hand through the millennia food producers have often lived at a subsistence level and that is not fair.

The Canadian government is going to strip the Canadian Wheat Board of its exclusive powers to sell wheat and barley.

The problem for marketing boards is that any producer who can sell outside the marketing board will be able to sell at a cheaper price and therefore sell more and presumably get a better return for his work.  But if everybody sells on the open market then prices for all will go down and all will be worse off – except for us consumers.

When we drive across the Canadian prairies and see the nice farm houses, it appears most of them are doing quite well although one wonders if some that may reflect subsidies.

There is a basic problem in agriculture around the elasticity of the demand curve.  If you are making electronic gadgets and bring the price down by making more of them you can hope to sell more and your overall profits will increase.

That doesn’t always work in agriculture because when the price goes down rather than buying more food we will likely buy electronic gadgets.  If a farmer has a poor crop the price will go up and we will pay the higher prices in order to continue eating.  In theory when farmers have a poor crop they can do better than with a good crop.

I really don’t want to be a farmer although I still think that under current economic conditions a market garden would be a good investment and a good career.

The two worst things to happen to music

This guy is not a musician and only a small scale listener.  However having married into a family of musicians dynamics have required that I attend a number of musical events, some of which I have enjoyed more than others.

I have decided the two worse things to happen to music were the invention of the amplifier with 13 buttons for louder and copyright legislation.

We used to have as a neighbor a retired music professor who said, “If you can’t play it well, then play it loudly.”  Unfortunately he retired before the current crop of musicians took their training.

If we didn’t have copyright then all the money which currently goes to the superstars and the record companies would be available  to support all those professional quality musicians who currently work in other fields.  Young musicians would focus on learning to play or sing well rather than chase the almost impossible dream of becoming a superstar.   They may not earn great livings but they would probably survive and we as music consumers would enjoy the intimacy of live performances in small venues

Challenging patents

This week’s issue of The Economist has a couple of articles and an editorial on patents.

Patents are currently  a motherhood thing in economics.  To challenge them is to commit treason.  Well, here goes.

One of the features of a competitive market is that it be easy for participants to get in (and out)  To do that the technology must be known to all.  Patents work to protect the interests of those already in the market.  If we really wanted a competitive market economy we would retract all patent legislation.

Progress comes from building upon what others have done.  I have read that during the Industrial Revolution the inventors and designers frequently helped each other. Patent legislation was apparently loosely enforced, if at all.  Some of the major inventors never got rich and many died poor.

Not only does the current obsession with patents restrict competition, the large sums of money involved add to costs and eventually come out of the pockets of customers.  And in any case, do we really need all these gadgets?

Probably we would all be better off if there was no patent legislation.

Economic theory and anti-smoking graphics

So the tobacco companies are going to court to try and stop a government requirement that they show graphic anti-smoking images on cigarette packages.

I don’t smoke and I don’t like to see other people smoking.  Nor do I like to tell others not to smoke

I also like the perfect competition model which says that all participants in a market should have complete information about the products and the market conditions.  I believe it is good for governments to require firms to publish information about their business so that consumers can make informed decisions according to their own values.  This is probably the best and maybe the only way governments should interfere in the economy.

So are emotional pictures a part of the required knowledge about a product that is highly addictive?  What other information about the industry should its customers know?

Paul Krugman’s wish for an alien invasion

Paul Krugman is so frustrated by the lack of support for another round of stimulus spending that he’s now calling for a fake alien invasion of the United States to spur a World War II-style defense buildup.

The above quote is from a Huffington Post news item.

I can see his point but the more I think about it, the less I like it.

The Second World War was  65 years ago.  Since then the people on this planet have used up a lot of resources.  If it is true that current economic problems are caused by declining resources this kind of stimulus spending would bring closer the date of a major human catastrophe – unless we can discover some new easily accessible resources.

If the resources are available we probably won’t need to a fake alien invasion.  There are enough human warriors around to get the real thing going but good.

Aren’t there nicer ways to do stimulus. With all those new weapons around, somebody would find an excuse to try them.  Then we would all be losers.

Bolsa Familia – paying mothers to send children to school

One of my concerns is that as we go through an economic downturn people will be caught unequally.  The poorest are like to suffer the most and disproportionately.  One of the ways to deal with this is some sort of  income scheme.

Therefore I bring to your attention this article about the Bolsa Familia program in Brazil.  This gives poor people a regular cash grant so long as they keep there children in school.

One of the reasons I like this is because I believe subsidies should be given to  consumers rather that producers.

I know of a young person in Canada who doesn’t even have an elementary education because his mother thinks school is not important.  He would probably be  much better off if Canadian  family allowance payments were dependent upon his attending school.

How safe are defined benefit pension plans?

It may appear that the luckiest people in the world these days are those with defined benefit pension plans especially those backed by taxpayers.  However, they are subject to the same risks as any other paper investment asset.  The institution that issues them could go bankrupt or declare a default or they could lose their value because of inflation.  I still think the safest  investment is a market garden.

Job creation – more jobs or redefining the problem

With 25 million Americans looking for work and the unemployment rate at 9.1 per cent, an article on the ABC news site looks at proposals for job creation including a National Infrastructure Bank and “Buy Domestic” plans.

The first thing to say about job creation is that it may be wise to redefine the problem.  Rather than creating jobs we should be looking at how to ensure everyone has a reasonable and equitable standard of living.When there is some evidence that the resource base is declining, creating more jobs is going to deplete resources even faster and bring forward a major catastrophe.  One way to ensure a standard of living would be some sort of guaranteed annual income scheme.

Whenever I hear the words bank and loans I think money creation.  A National Infrastructure Bank would be another attempt to create more money in the economy.  This is the same as quantitative easing which has already be tried.  Also such a bank owned by the government would end up making loans to further the political interests of those in office.

The other job creation proposals mentioned in this article would work to limit imports.  The law of comparative advantage tells us we would all be better off to specialize and trade.   Even if the economy is declining this law would still be in effect.

Why emerging economies are doing well

There’s a theory that civilizations rise with the exploitation of their topsoil and fall with its depletion.   Countries that are poor are poor because their ancestors have depleted the topsoil.  An article in The Economist about how well emerging economies are currently doing  appears to show this theory is wrong.      See the 1955 book Topsoil and Civilization by Vernon Gill Carter and Tom Dale.  Here us a review of that book.

Since the Industrial revolution civilizations have been based on minerals as well as agriculture.  Minerals in the form of energy and fertilizers have allowed us to increase agricultural productivity in our own and in the emerging econmies.  But what has all this done to the topsoil?  When we drive into town (or out of town) we see the farms and as  they look nice we take them for granted.

As the developed countries have industrialized we have used up a lot of our mineral resources so that it is now easier and cheaper to get them from  other places.  Thus the emerging economies are doing well.

China and the United States debt

So China has taken the United States to task for its high debts of which China holds a good portion. Shakespear has a line of advice to both of them:

Neither a lender nor a borrower be.

There’s also an old saying that people who live in glass houses should not throw stones.

How will overuse of resources show up in the economy?

On a number of occasions this web log has noted the Living Planet report and its claim that we are currently using 150 per cen of the resources that the planet will sustain.  If this is true, how is it going to affect the economy and how will we notice it?

It may be that the quantity theory of money can help us.  This theory states that


M is the amount of money in circulation
V is the velocity at which the money is exchanged in the economy
P is the prices at which goods and services change hands
Q is the quantity of goods and services produced.

If we are using resources faster than they can be replaced where will it show up in this equation?

The first place to look is on the PQ side.  As the demand for resources increases, and as resources become more difficult to extract or produce then we can expect prices to increase.

There may also be shortages or declines in some components of Q  some resources will be at or near depletion and many will require increasing amounts of energy to extract.  This again will cause an increase in prices.

On the other side of the equation velocity is difficult or impossible to  measure so we have to ignore it.  Money supply is also difficult to measure.  Definitions  usually start with cash in circullation and demand deposits in the banks known as M1.  However, other types of deposits are often added to M1 sot that we can have multiple defitions of money – your choice.  Money is created when the banks make loans and central banks try to control the total by purchasing or selling government bonds.

One thing is clear:  changes in the Q part of the equation are going to force changes on the other three variables.  If there are stressful or abrupt changes in Q, there will probably be turmoil in the financial side of the economy.  We probably need to evaluate what is happening to Q in physical rather than monetary terms.

We should also note that changes in M can affect production of goods and services. For example, what would happen to the North American food factory if a failure in the banking system were to prevent farmers from getting the loans to put chemicals on their crops?  Also a major drop in the money supply (such as probably happened with the housing crisis a couple of years ago would and did create turmoil in the economy.

So if we are using resources at a faster rate than they can be replaced how are we likely to notice it?  Overall there will probably be a steady rise in prices and a steady decline in living standards,  unless there is a huge major shock  to the system.  Also where there are localized shocks such as earthquakes, tsunamis  or an electro magnetic pulse from the sun (forecast for sometime in the next two or three years) we can expect major drops in local standards of living as people will find it difficult to recover.

As time passes, more and more people will be faced with a lower standard of living.  But people being people, some will prosper.  The rich will continue to get richer and the poor will continue to get poorer.

Wouldn’t life be nicer for everyone if we could go back to the golden years of prosperity?

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