Friday, September 23, 2016

The Economy Of Westeros

See 'Game of Thrones' economics: Austerity, tax and QE by Catherine Boyle on CNBC. From April 2014. Excerpt:

"Littlefinger is Westeros' Master of the Coin, and as the books describe, has "a gift for rubbing two golden dragons together and breeding a third."
Like the modern-day Federal Reserve, it seems as though he has been doing his own version of quantitative easing by injecting more gold dragons into the economy (although in a rather less sophisticated way, by clipping coins to create more money)."

Quantitative easing is a name given to a policy that tries to increase the money supply. The Fed buys long-term bonds. They basically create as much money as they want. This is an attempt to stimulate demand and try to increase output in the economy.

"In ancient times, the Romans clipped coins to increase the money supply. See Central Banks Clipping Coins by Bill Tatro of TownhallFinance.com. Excerpt:

As a form of payment back in those days, Julius Caesar routinely gave silver coins to his troops, and it was clearly understood that the silver coins were indeed 100% silver.  In other words, there was no mixing with other cheaper metals. 
Thus, knowing the Roman coin was 100% silver, the only way to devalue the currency was to take a knife and shave, or “clip,” some silver off the edges of the coin.  Consequently, we now seeRoman coins of antiquity with very odd shapes, all thanks to “clipping.”

For example, 100 coins could be “clipped” in order to create an additional 5 coins"

The ridges on coins might have been a way to prevent this clipping. I suppose you could tell if they were clipped if there were no longer any ridges on the edge of the coin. See also The Westeros Economy: A Financial FAQ for GoT Fans By Caroline Hsu of Investopedia

Thursday, September 15, 2016

The San Antonio Spurs And Federal Subsidies

See Study: San Antonio Spurs netted $41 million in federal subsidies for AT&T Center construction: Public makes up for taxes not paid on arena bond interest. By Joshua Fechter of The San Antonio Express-News, September 8, 2016. Excerpts:
"The Spurs received $41 million in federal subsidies to build the AT&T Center with little economic gain for the community due to a quirk in federal tax law, a Brookings Institution study released Thursday shows.

U.S. taxpayers have effectively paid about $3.2 billion to finance the construction of 35 major league sports arenas since 2000, the study says. That’s because the interest earned on municipal bonds issued to finance stadium or arena building is exempt from federal taxes, thus generating the subsidy.
That amount rises to $3.7 billion when windfall tax breaks for high-income bondholders are taken into account, the study shows.

About $169 million in tax-exempt municipal bonds were issued to construct the county-owned AT&T Center, which originally opened in 2002 as the SBC Center, essentially giving the Spurs a $41 million federal tax subsidy, the study says. The arena’s total price was $245 million for construction costs as well as parking and infrastructure improvements, it adds.

Bondholders received $3 million in tax breaks on municipal bonds, costing taxpayers $44 million in lost federal tax revenue, the study shows.

“The justifications for public funding for stadiums are weak, and the justifications for federal government subsidies are even weaker because to the extent the projects confer any benefits, those benefits are local, not national,” the study says.

Spurs Sports & Entertainment officials declined to comment for this report.

Local governments often offer incentives to sports franchises to lure or keep them from moving to another city including bonds, cash payments, tax abatements, infrastructure improvements or coverage of operating costs, leaving teams with only a percentage of costs stemming from stadium or arena costs.

The Spurs shelled out $46.5 million to build the AT&T Center — about 24 percent of the $193 million in total construction costs — and $26 million to cover $111 million worth of improvements to the arena in 2014, including a scoreboard, digital screens, Wi-Fi upgrades and seating improvements among other things."

"multiple studies show major private sports stadiums don’t ultimately produce substantial economic growth relative to the government incentives they receive"
Here is a related story about San Antonio sports: Triple-A baseball falling off back burner: Mayor can’t get financial commitments

Friday, September 09, 2016

Alexander Hamilton And The National Debt

See Lessons from Hamilton by Michael Taylor writing for the The San Antonio Express-News. See also Alexander Hamilton May Rule Broadway, But He Was No Banking Genius by Brian Doherty of Reason Magazine.

Excerpts from Taylor's article:
"The new republic was flirting with financial ruin when President George Washington asked him to be the first treasury secretary of the United States, placing particular weight on everything Hamilton did.

Soldiers in the Revolutionary War had received state IOUs in return for their military service. Years after the end of fighting with the British, many of these debts remained unpaid. In addition, different states had repaid debts to different degrees. Virginia was nearly debt-free for example, while Massachusetts still owed tremendous amounts to soldiers.
Some believed that this new federal government would not, and could not, pay off its debts to soldiers. Chernow writes that these debts traded at 15 cents on the dollar as former solders sold them early, in part because they needed the money and in part because full payment seemed doubtful. Speculators bought the debt at extreme discounts, hoping to make money if the young government could restructure the debt somehow. At that price, even a settlement of 30 cents on the dollar offered a financial windfall to debt-buyers.

What kind of deal would Hamilton, as treasury secretary, offer on the debt? Should he restructure it and offer a lesser amount? Should he seek a way to punish the speculators? Could he track down the former soldiers who had sold their IOUs, to compensate them, instead of the investors? Wait for it …
Let’s pause for a moment and really wallow in the awful optics and politics of Hamilton’s choice. Nobody deserved more respect than the first patriots who suffered and died under Washington, when his “ragtag volunteer army in need of a shower” defeated a global superpower, in Miranda’s purposefully anachronistic phrasing.

But most of the government debt issued to soldiers wasn’t owed to them anymore, but rather to buyers of their debt. These were some of the least sympathetic people. You know, Wall Street-type people.
The most powerful member of Congress, James Madison, and Secretary of State Thomas Jefferson vehemently opposed rewarding the speculators. As Virginians, they also argued that consolidating the debts at the federal level would reward less prudent states at their state’s expense.

Picture, as well, Hamilton’s childhood as a near-destitute orphan in the Caribbean. He was not a natural friend of Wall Street. He’d served as a captain of an artillery company under fire in the Battery in Manhattan and the Battle of Kips Bay; he had personally led a bayonet charge on an entrenched position of redcoats at Yorktown.

Was Hamilton prepared to honor commitments that would enrich these greedy speculators who bought government debt at pennies on the dollar from his fellow soldiers? Wait for it …

He was, and he did. He consolidated the states’ debt into federal debt. On his first and second days after confirmation as treasury secretary in 1789, he took out fresh federal loans from the Bank of New York and the Bank of North America in Philadelphia.

Hamilton understood the value of communicating a policy of honoring one’s debts, a policy that strengthens the nation.

“In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it, and this is affected by appearances as well as realities,” he wrote in his 40,000-word “Report on Public Credit,” delivered to Congress in January 1790.

He further set the precedent that the government does not interfere in private transactions of its public securities, even if the optics and politics would make it expedient to change terms, after the fact.
As Chernow reports, Hamilton reframed the moral issue into one of honoring private property and “security of transfer.” The soldiers were not as heroic as they seemed, nor the speculators as greedy. Investors after all, had risked their capital. The ex-soldiers, in turn, had shown little faith in the government.

That the buyers of soldiers’ debt made extraordinary short-term fortunes was, in the far-seeing perspective of Hamilton, irrelevant to the more important work of establishing a solid financial footing for the country. Meanwhile, Madison and Jefferson fumed.

The U.S. has never defaulted on its debt. Not through the ruin of a burned capital in 1812, nor through a crippling Civil War, nor the world wars and the Depression of the 20th century. Hamilton’s honoring of national debts — against all the political, fiscal and moral pressure of his day — bolstered us as nation. It set us up for national prosperity."

"Hamilton had the foresight to know that once you default on debt — which is what “pay back with discounts” means — you set a precedent for how lenders view your credit in the future. I would even argue that once you even say that out loud — if anyone takes you seriously — you risk submarining your nation’s future ability to borrow."

Friday, September 02, 2016

The percentage of 25-54 year-olds employed decreased in August

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates college age people who might not be looking for work)

The percentage of 25-54 year-olds employed is 77.8% for August. It was 78.0% in July. It is still below the 79.7% in December 2007 when the recession started. Click here to see the BLS data.The percentage of the adult population employed was 59.742% in July (the civilian noninstitutional population 16 years and over). It fell to 59.725% in August. Click here to go to that data. It also shows that the unemployment rate was 4.9% in August.

Here is the timeline graph of the percentage of 25-54 year-olds employed since 2006. Notice how we had been rising before this year but it seems to be flattening out.

 Now going all the way back to 1948

Tuesday, August 23, 2016

My Fall Semester Has Started

Welcome to any new students. The entries usually have something to do with a basic economic principle that is related to a recent news story. If you want to learn more about me go to Why is college so hard? (you may have to be patient with this site but the article is not long)

If that link is not working try this one

Thursday, August 11, 2016

Cartels: They're not just for drug dealers and oil producers anymore-maple syrup producers have one, too

See Maple Syrup Cartel Battles a Black Market Rebellion: Canadian production is set to grow 10 percent in a push for market share by Jen Skerritt of Bloomberg. Cartels are producers who get together and all agree to reduce output. That raises the price and profit (more or less, price goes up more in percentage terms than quantity goes down). But the higher price creates incentives for some producers to sell more than their quota or for other businesses or entrepreneurs to enter the market. This has happened with both oil and diamonds.

This is a government sanctioned cartel and they even have a strategic reserve (the U. S. has a strategic petroleum reserve). Excerpts:
"The cartel that produces 72 percent of the world’s maple syrup is starting to crack.

After eight years of tightly limiting output to keep prices high, the Federation of Quebec Maple Syrup Producers next year will boost its quota by 12 percent for 13,500 sap farmers who operate in the Canadian province. The goal is twofold: Reclaim the 10 percent of market share lost to the U.S. over the last decade, and quell a rebellion by producers increasingly turning to black market sales for growth.

Boosting the quota now is “almost perfect timing” as farmers are seeing record output, according to Alan Bryson, 41, who drains sap from 45,000 taps on trees in Notre-Dame-de-la-Merci, Quebec. The prospect of more sales “outweighs the frustration” felt by farmers in the past, he said."

"Bryson wants to add as many as 15,000 taps this year and seeks to expand to 75,000 eventually, he said. Overall, Quebec produced about 148.2 million pounds of maple syrup this year. Under the new quotas, output could grow by 15 million pounds, according to the federation."

"The unanswered question is where all this additional product is going to go. Tappers this year will be paid C$2.88 ($2.20) a pound, based on a weighted average, federation data show. That’s up a penny from the previous two years,

“It’s a lot of new production,” said Matt Gordon, executive director of the Vermont Maple Sugar Makers Association in Waterbury Center, Vt. “There are plenty of examples throughout history of agricultural crops where there’s been increased demand, so production increases. Then suddenly, it’s a little too much.”

U.S. production this year totaled 4.2 million gallons, a 23 percent boost from a year earlier, with Vermont accounting for 47 percent of the total, the U.S. Department of Agriculture said in June. The number of taps rose 5 percent this year, to 12.55 million, after increasing 45 percent from 2007 and 2015, according to the USDA.

That growth frustrated Quebec farmers, who have been urging an end to quotas. While the government-sanctioned cartel kept prices stable by limiting output and maintaining strategic stockpiles, tappers complained that the system imposed a “heavy, inflexible handicap to the province’s performance,” according to a 70-page report commissioned by Quebec Agriculture Minister Pierre Paradis, released earlier this year.

That frustration was leading some farmers to sell on the black market, and some said they felt harassed by the federation, according to the report.

After a formal request from producers last year, Regie des Marches Agricoles et Alimentaires du Quebec, the province’s agricultural marketing board, authorized the cartel to increase quotas as it deems necessary, said Caroline Cyr, a federation spokesman.

The quota increase makes the system more flexible and adaptable to the free market and will curtail black market sales, said Simon Trepanier, executive director of the Federation of Quebec Maple Syrup Producers.

“If we allow producers to add more taps or at sell inside here, they will not be interested in selling on the black market,” Trepanier said in a telephone interview. “It will help to have a clean market, instead of a black market.”"