A Philosopher's Blog

Myths of the Economy?

Posted in Business, Politics by Michael LaBossiere on April 26, 2011

For many Americans, the economy is still not doing very well. Unemployment is higher than it should be and people are still facing serious concerns regarding their pay, job security, and finances.

The Obama administration has been blamed for many of the woes. This is, of course, a great American tradition. Part of this blame is fair. After all, the actions of the President certainly have some impact on the economy. However, blame should only be placed where it is deserved. Interestingly, some of what Obama is being blamed for is not actually his fault. However, the blame is placed on the basis of what can be best described as myths.

The first myth is that Obama is to blame for the loss of oil related jobs. While this does seem plausible because of the ban imposed after the BP rig blew up, it does seem to be a myth. According to the White House, 2 out of three oil and gas leases in the Gulf of Mexico are not being utilized. As such, it seems more reasonable to blame the companies who are electing not to exploit those leases. Also, there is the fact that the number of active oil rigs is now higher than during the Bush administration. If these claims are true, then it would seem that the idea that Obama is holding back big oil is not true.

The second myth is that Obama is somehow holding back hiring in some manner, perhaps by his assertion that he wants to let the Bush tax cuts expire for the wealthy. However, the wealthy have enjoyed these benefits throughout the course of the economic mess and the impact on employment seems to be rather clear. There is also the fact that corporations are, in general, doing amazing well. However, while many of them are “rewarding” their top people with bonuses, they are (with the notable exception of McDonald’s) not very inclined to hire people. This clearly is not due to a lack of money (as noted above, it has been a good year for corporations and their top people) and seems best explained in terms of corporate strategy rather than as an act of Obama.

Of course, the impact of the deficit on the economy is no myth and Obama (and congress) have to bear some of the blame for this. Until they show the political will needed to do what must be done, the economy will continue to be impacted by the deficit. That said, one reason why they need to have the will is because we make it hard for them to cut entitlements. As such, they have to be willing to stand up to us to do what must be done.

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Sugar-Mamas

Posted in Relationships/Dating by Michael LaBossiere on May 17, 2010
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Traditionally, there has been no stigma attached to a man marrying a woman who has less education and income. In fact, that is the way how it generally has been throughout history and women generally strove to “marry up.” The reverse, however, has not been true. A man whose wife makes more than him tends to bear a mark of shame for this failing as a man. After all, the sugar is supposed to be a daddy and not a mama.

However, things are changing. As of 2007, 22% of married women made more than their husbands. While this means that 78% of husbands make more, this is a significant change from 1970. Then, only 4% of women reported that they made more than their husbands. The trend seems to be continuing.

On the positive side, this can be taken as showing that society is becoming more equal in terms of gender. That is, women have more opportunities and better salaries than in the past. Given how expensive living is these days, this can be good for the husband.

On the negative side, part of the trend of women making more than their husbands can be attributed to the fact that the economic mess has hit traditional male jobs harder. As such, the wife might be making more because the husband is making less. However, even with this factored in, the trend can be seen more of the result of gain by women as opposed to a loss by men.

One reason why women are making more is that women are better educated than in the past. In fact, at the level of two and four year degrees, women are now the majority. This means that there are more marriages in which the wife is both better educated and better paid than her husband.

While women being better educated and better paid are good things, this does lead to concerns when it comes to relationships. While times have changed, attitudes tend to lag a bit behind. Women still seem to prefer to marry men whose education and income at least match their own. Male pride, of course, still moves men to prefer to be the breadwinner. As such, women are likely to find it more difficult to find a husband whose income and education match (or exceed) her own. If a woman marries a man with a lower education and income, then the likelihood of marital problems will increase. After all, there is the matter of male pride and the fact that money is often a source of conflict in marriages. While a disparity in education does not entail a disparity in intelligence, it can also be a source of problems.

For educated men who have high incomes, this situation might be a good thing. After all, they will be the smaller supply in a higher demand situation. It could also be a good thing for men who are willing to accept being the lower earner. After all, having a higher income partner means a better economic situation. As such, men who are able to adapt to the changing social conditions will be better off than those who cannot (or will not).

If the trend continues, we might see the rise of the sugar-mamas. This would certainly be an interesting reversal of roles, but perhaps not a very enlightened one.

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Big & Small

Posted in Business by Michael LaBossiere on December 14, 2009
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Once staggering like wounded giants, the big financial players have one again stood up straight, their heads in the financial clouds. Part of this is due to the huge infusion of our money. Part of this is due to actual financial recovery. Part is due to…well, whatever it is that makes the economy go.

These giants are doing well-well enough that big bonuses and massive paychecks are being handed out to the top folks. In short, it is almost business as usual for these folks. Of course, nothing really has been fixed and nothing substantial has been changed-so we can expect the problems that occurred before will occur again.

While the giants are doing well (or seem to be doing well), the little people who dwell in their vast shadows are not doing quite so well. One obvious problem is that unemployment keeps increasing as more and more jobs are lost. While there are various reasons for this, one main factor is that small businesses are not doing well. One significant part of this is that small businesses have to really heavily on loans in order to start up, stay in operation and expand. But, the giants who have the money seem loath to part with their gold (except to give it to the CEOs and top folks). So, the little folks stare up the giants and their cries for help go unheeded. Meanwhile, the federal government seems unwilling to provide support to the folks who need it most and where it would do the most good-the small businesses that employ the majority of Americans (or used to).

The stimulus plan did stimulate the big players and their CEOs, but the small folks find themselves joining the ranks of the employed. True, the rate is slowing down. But, of course, once a body has lost enough blood the gusher will slow to a trickle because there is so little blood left. Of course, a better option might be to let the big players fail and thus open the way for new businesses-hopefully ones who will hire more people rather than being the sort of business that hands millions to a CEO while firing people to boost stock value.

So, what should the government do? Should it keep shoveling money into the big players? Well, the big players and their lobbyists surely think so. However, this approach seems to have benefited the folks on Wall Street and left the rest of us holding the bill. So, if the government folks are going to step in again, they should think a bit less about their buddies on Wall Street and think more about the majority of Americans. This can be done by applying pressure to the big players to loan some of that taxpayer money to the taxpayers.

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Ready for the Next Economic Crisis?

Posted in Business by Michael LaBossiere on September 14, 2009

About twenty years ago I had an old Ford Escort that my friends called “the Blue Beast.” This was because it was both blue and a beast. The car would get me to and from work, but the heater did not work (this is a bad thing during the Maine winter), the steering wheel shook up and down, and it ran like a lawn mower (that is, it seemed to burn as much oil as gas). While the car did get me around, it was such a beast that it was not worth fixing-the only real solution was to replace it. However, I kept it going for quite some time by pouring more and more oil into it. This was wasteful, but it was the only viable solution I had at the time.

In many ways, the current financial system is the same way. Like my Blue Beast, the system is a mess. Also like the Blue Beast, the only thing really keeping it going has been the constant application of what it burns. In the case of the financial system, the influx of federal dollars (that is, my money and your money) has served to keep it going. Oddly enough, there has been no real effort to fix the main problems. Most of the fixes have been fairly minor or cosmetic and some of them really seem to be open to exceptions (like CEO compensation).

Part of the reason is that the main focus has been on health care. In many ways, Congress, the media and the people are like the cyclops-with one eye they can only look at one thing at a time. Part of the reason is that Wall Street and their associates have large sums of money that they can use to manipulate the political system in their favor (or what they see as in their favor). Another part of the reason is that the folks in finance have friends in the government and people look out for their friends. Naturally, finance is also difficult.

Because of these factors and others, the economy is like my Blue Beast. It seems to be running okay now, but not because anything fundamental has been fixed. It has a fresh supply of  “oil” but is burning through that. As such, it seems to be just a matter of time before the economy (like my Blue Beast) dies by the side of the road.

Cash for Clunkers

Posted in Business, Politics by Michael LaBossiere on August 27, 2009
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Opponents of the cash for clunkers plan often criticized it because it would allow folks to buy either foreign or domestic cars. The worry was that American tax dollars would go to helping foreign car companies rather than US companies. This fear turned out to be true.

People who buy cars in the US normally buy American 63% of the time. Those cashing in on the clunker plan did so only 53% of the time. I suspect that since the plan is intended for folks to trade from low mileage cars to higher mileage ones, folks would tend to buy foreign because these cars generally seem to do better in mileage than US cars.

While critics are right to be concerned that our tax dollars are, in some cases, helping out foreign companies it is also important to keep in mind the following facts. First, these cars are purchased in the US from American dealers (unless people are doing direct buys from, for example, Japan) and this helps out the US economy. Second, many “foreign” cars are actually made in the US, thus also helping out the US economy. Third, helping out foreign car companies will help the foreign economies and this can help contribute a tiny bit to getting the world economy back in order, thus helping the US.

Of course, there are good reasons to believe that the program should have been for US cars only. However, since many foreign companies have plants in the US and have plenty of clout, that would have been an unlikely course of action.

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The Mystery Loophole & AIG Bonuses

Posted in Business, Politics by Michael LaBossiere on March 18, 2009

While the AIG bonuses have become a national fixation (perhaps even a distraction), it seems that they are actually legal.  While Congress did place restrictions on companies who receive bailout money, someone wrote in a loophole:

iii) The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.

Given this, the AIG bonuses are legal. Of course, they are still outrageous and morally unacceptable. Not surprisingly, people are trying to find the person responsible for this addition.  Also not surprisingly, no one is (as of this writing) claiming credit for it.

Naturally, some people suspect that someone in the pay of AIG (or some other company being bailed out) put in the loophole. That seems to have some plausibility. But, as of yet, there is no concrete evidence for this claim. However, such political dealings would seem to be business as usual in Washington.

While the number one question is about who put in the loophole, it is also important to ask how the loophole went unnoticed for so long. One hypothesis is that it was intentionally ignored by those who should have been reviewing the document. If so, they would share the blame in this fiasco. Another hypothesis is that the folks who are supposed to review the document simply failed to read it fully and carefully. In this case, their failure would not be one of malicious intent but rather one of laziness. I would like to think that such things are carefully checked before they are signed. However, I am reasonably confident that such documents are often only given a cursory review. In this case, those involved would still deserve some of the blame-their negligence allowed this to happen.

I was discussing this matter with a colleague during my office hours and jokingly suggested that if no one admits to writing the loophole, then it should be treated as a typo or mistaken inclusion. As such, it should simply be deleted. After all, if no one with the official right or power included that loop hole, then it is not a legitimate part of the law. After all, if I were to sneak some text into the document and it was signed, surely it would not thus become law. Likewise for this mystery loophole-unless it can be shown that it was legitimately added, we should treat it as an illegal inclusion and it should be removed immediately.

If I am wrong about this and any text in such a document becomes law when signed, I plan to make a quick trip to DC to start changing laws-beginning with making myself tax exempt and the recipient of federal funding.

Balloons & Bricks

Posted in Business by Michael LaBossiere on March 13, 2009

A few weeks ago, I was talking about the job market in academics with a colleague. Naturally, we eventually got around to the larger economic mess. Since speculating about the cause of the economic woes has become a national pastime, I thought I’d throw in my one cent (the expression has changed from “two cents” because of the tough times).

In the course of the discussion, I came up with a metaphor involving bricks and balloons. One way to build up wealth is like piling up bricks: in the most basic form, you have a solid good or item of value that you accumulate and use to build a sturdy foundation. For example, having real assets such as land, oil, weapons, or gold would be an example of such wealth building. Such items of value typically also have worth apart from their mere financial value-that is, there are useful in other ways. For example, you can use oil for fuel or weapons to protect yourself. Such a solid structure tends to produce wealth relatively slowly (though there are exceptions). This is often seen as the “old way” of building wealth, the sort of thing done by selling a product such as oil or steel (and then getting a monopoly on it…). While such bricks can be “destroyed” and the structures built from them can collapse (like the decay of the steel and auto industries in the United States), they tend to be reasonably secure. Naturally, what might seem to be a brick might turn out to be nothing more than crumbling sand.

Another way to build up wealth is like inflating a balloon. When a balloon is inflated, it grows larger but really gains little in term of substance. It is also vulnerable in that it can be popped rather easily. This makes a nice metaphor for much that happened in the lead up to crisis. Rather than creating new bricks to add to the foundation of the economy, much of the wealth was created out of thin air by re-packing loans and through clever financial instruments. Or, in some cases, by outright fraud such as Ponzi schemes. Continuing the metaphor, balloons do not hold up weight as well as bricks do-hence a pop was to be expected.

Speaking of Ponzi schemes, it might be suspected that much of the economic growth in recent years (that is to say profits) rested on just such a scheme. A classic Poniz scheme works by paying off early participants with money taken from the newer participants. The scheme falls apart when those running it cannot get enough money from new participants. To use the balloon metaphor, to keep a leaky balloon inflated (the leaks are the payouts) air must be constantly coming in. In the case of the economy, it seemed to be going well as long as more “air” was found to be pumped into the leaky balloon. Of course, some of those involved also seemed to excel at creating air (value) out of nothing-literally inflating the value of houses so as to pump more air (money) into the big balloon of the economy.

Apparently there is a limit to just how much value can be created by inflating and clever repackaging. We, obviously enough, reached that limit and the economy went kaboom. Perhaps there are economic laws analogous to those of physics. Then again, perhaps not. After all, the economic system is a human creation, although people do very much love to reify it and pretend it has a life of its own.

Perhaps those running the show just could no longer hide the fact that many companies were built upon balloons rather than bricks.

Obviously, these economic approaches are not really like bricks or balloons-these are just metaphors. However, they do create, I think, some useful images for trying to get an idea about what might have happened. I am, of course, not an expert on the economy and I’m just tossing out some random thoughts on the matter.

Fortunately, there have been some signs of good news. Hopefully, that will continue.

An Obvious Metaphor

Posted in Business by Michael LaBossiere on February 24, 2009

The fossil record indicates that there have been various mass extinctions in earth’s history. Of course, the most famous general extinction is that of the dinosaurs. There are various theories as to why these extinctions took place, but the basic idea common to all is that conditions changed in ways that made survival impossible-at least for the species that perished. This left space open for other species to fill the newly emptied niche. For example, some have claimed that the death of the dinosaurs opened the way for the rise of humans.

Now, to the obvious metaphor. The companies that are failing are, obviously enough, like the dinosaurs. Once, they were powerful, successful and dominant. But, conditions have changed and they are dying off. Unlike the dinosaurs, they have largely contributed to their own demise.

Trying to save these companies could, if the analogy works, be like trying to save the dinosaurs from extinction. If so, it would make little sense to dump resources on these dying behemoths. Naturally, the analogy can be countered-there might well be some important differences between dinosaurs and such companies (for example, dinosaurs are regarded as cool and people really like dinosaurs-no so for the failing companies).

To push the analogy even further, perhaps it can be a good thing to let these companies fail. Just as the death of the dinosaurs opened the way for the rise of the mammals, the death of these failing companies can open the way for newer (and hopefully better) companies. While it will be ugly for a while with all those rotting carcasses lying around, things will (one might argue) improve.

Reviving the Economy

Posted in Business, Politics by Michael LaBossiere on February 20, 2009

Not surprisingly, people are comparing the current economic situation to the Great Depression. While there are some similarities, there are critical differences that make the comparison somewhat inaccurate. The distinction is, of course, the extent of the economic woes. For example, unemployment today is not even close to what it was during the great depression. However, the same basic question that was asked in the Great Depression is still being asked today: how do we get out of this mess?

While a popular view is that FDR’s policies helped America out of the Great Depression. However, that view is countered by the almost equally popular view that WWII was primarily responsible. After all, the war certainly put people to work. There is even a fairly recent view that contends FDR actually prolonged the Great Depression. Naturally, it is useful and important to determine what worked and what did not work during the Great Depression-both as a matter of academic interest and practical necessity.

The war solution does not seem to be a viable option. After all, we have two of those going now and they do not seem to be sufficient. Of course, these wars are not on the scale of WWII in terms of mobilizing the population and the economy. As such, perhaps a really big war (or a larger number of small wars) would do the trick. Obviously, starting wars just to revitalize the economy might be regarded as morally problematic and there is still the question of whether it would work or not.

One aspect of the current approach is to pour money into troubled companies in the hopes of stabilizing the economy. Of course, the money has to come from somewhere and in this case it comes from the taxpayers. One obvious concern is that this seems to be more of a shuffle of money and not a real infusion of new money. One might suspect that using tax payer money to do this is like trying to repair a hole in your roof by cutting out another section of the roof and nailing it over the hole. This just moves the hole rather than fixing it. In order for the roof to be properly repaired, all the holes have to be patched and this requires material that does not come from the roof.

Another aspect of the current approach is to use tax dollars to hire people to work. While this seems better than dumping money on failing companies (after all, they have a record of failure that tends to indicate future performance), it is still taking tax money to shore up the economy. In short, tax payers are being taxed to pay other tax payers to work. This can work to a certain extent-provided that there is enough tax income to support the workers hired using tax dollars (directly or indirectly). As such, repairing the economy using taxpayer money will require getting at least part of the economy in good enough shape to support the cost of these repairs.

Of course, the government can get money from other sources than taxpayers. For example, the government can continue to take out loans and dump some of that money into the economy. Of course, this will tend to be more wasteful than having those in need take out loans directly (after all, the government is not known for its efficiency). Further, such loans merely move the problem to the near future. After all, those who make the loans will expect to be paid back (and make a profit) and this money will need to ultimately come from the taxpayers. But, perhaps such loans can buy enough time for something to work. Then again, perhaps not.

Gender & The Economy

Posted in Business by Michael LaBossiere on February 10, 2009

As the economy continues to spiral down, the percentage of workers who are women continues to rise. Unfortunately, this is not due to an increase in the hiring of women. Rather, it is due to the fact that the majority of jobs being lost are held by men. As such, as the number of employed men drops, the percentage of the work force composed of women will increase.

Somewhat ironically, the jobs that are being lost have often tended to be jobs that pay relatively well. Meanwhile, certain lower paying jobs remain. This helps explain the gender shift: men generally have the better paying jobs and women tend to have the lower paying jobs. Further, the jobs that are being lost have tended to be in fields that are male dominated (finance, manufacturing, etc.).

While the majority of people losing their jobs have been men, this has obviously not been a good time for women. Women are not moving into better jobs-they are mainly just keeping the same jobs. Further, in most families the main income provider is still the man. Thus, the reduction in male employment is hurting women indirectly.

Interestingly, I have heard some arguments to the effect that this change can be advantageous to women by shifting the balance of power in the family. After all, power goes with income and if the woman becomes the main provider, then her power will increase. However, this shift in power obviously comes at a cost: while some women might benefit from this shift, the family as a whole will be worse off financially. Also, as noted above, this situation is not a case in which women are making gains in the workplace. They are, rather, not losing as badly. At least for now.

One point of concern is the impact that this shift will have on the family. On one hand, families sometimes grow closer and stronger in times of crisis and stress. On the other hand, families sometimes shatter under such stress. Given that one major factor in marital problems is money, it is not unreasonable to worry that the gender shift could lead to an increase in divorces.

Historically, gender shifts in employment have occurred in times of crisis (mostly wars) and have lead to lasting effects. For example, the entry of women into the workforce during WWII (to replace the males who were off in the war) changed how women and work were viewed. While the 1950s saw a return to more “traditional” roles, the impact of the shift remained. The same will probably be true of the latest gender shift. It will remain to see what sort of impact it will have.