Is An Electronic "Helicopter Drop" Feasible?

Economist Mark Thoma wrote about something called a "helicopter drop" on his blog last Sept. It was called "The Repo Man" The idea is that the FED (Federal Reserve Board), simply drops money out of helicopters so that people would spend it. We might do this if there is not enough aggregate demand (AD) in the economy. The FED might have lowered interest rates to stimulate spending, but businesses and consumers might be afraid to spend more even at these lower interest rates. So the argument is that if we are all just given cash, we would spend it.

But what if people don't spend it, the cash they recieve? Mark Thoma said that even the money they just stuff into cookie jars might make them take more risks, which could increase AD. But supposing that even that does not happen and there is no effect on AD, that everyone just holds it? Then I guess the drop does not work.

But suppose that everyone has an account with the FED and we are all given debit cards that initially have a zero balance. If the FED saw the need for a quick stimulus that they know would be spent, they could simply announce that everyone citizen now has $100 (or whatever amount is appropriate) in their account and they have some fixed, finite time period to spend it, say 1-3 months. If you don't spend that money, use the debit card, then after the deadline your account reverts back to zero. Maybe it would not be all citizens, just those who earned below a certain amount the previous year. Maybe the FED debit card could only be used in department stores and grocery stores if people are worried about what it gets spent on. People could not get cash back or withdraw the value in cash from the FED.

All consumers would have an incentive to spend it fairly quickly and we could get a quick stimulus to the economy with no time lag issues (other than the time it takes for the FED to realize the policy is needed). Once people started spending money, the FED would have to pay the stores the money that we spent in some similar fashion to the way current debit cards work. The FED would simply use a computer to put the money in everyone's account. They would have to create new money to pay the stores.

I know this might seem like a crazy idea and there could be all kinds of technical and logistical issues. Fraud and theft could be problems. There would be a cost of creating the debit cards and running the program.

Update: My department chair here at San Antonio College, Bruce Norton, said that people who get money put into their debit card accounts might spend less out of their paycheck than they normally do if they can spend the money in these accounts. They would put $100 from their paycheck into the bank (something they would not normally do) and can spend the money from the debit card. So it is possible that this increase in the money supply will not lead to an increase in AD. But it would be no worse than any other money supply increase. And if people in lower income groups get this money, their MPCs (marginal propensity to consume) may be higher than it is for other people, so they might be likely so spend it. Also, if we don't have enough AD, some of the people getting this money will be unemployed, so they are likely to spend it (I am not suggesting getting rid of unemployment insurance or other programs like this).

End of Semester

Since this is finals week and the semester is just about over, I won't be blogging until around Jan 10.

Is The Environment Sacred?

Last week in the San Antonio Express-News, Michael E. Kraft, professor of environmental sciences at the Unviersity of Wisconsin-Green Bay, said that "in writing the Clean Air Act, Congress explicitly instructed the agency (EPA) to base its decisions on public health and not economic costs." Then in yesterday's Express-News, the environmental watchdog Germanwatch said the U. S. was the 2nd worst "climate sinner" behind Saudi Arabia. So we are at the point where air should be cleaned no matter what the cost and those who don't go along with this are sinners. It seems that this has now become a religious crusade. Environmental policy should be made both scientifically and cost-effectively. If it isn't we will all pay a very high price in the long run.

Also, here is an exerpt from an article in the International Herald Tribune

"James Lovelock, a British scientist whose 2006 book, "The Revenge of Gaia," argued that most of humankind is doomed, does not think much of renewable energy. At a panel on climate change at the University of Cambridge this summer, Lovelock was asked what would be the most effective action people could take. Because humans and their pets and livestock produce about a quarter of the carbon dioxide in the atmosphere, he said, "just stop breathing.""

Gaia is an earth goddess, so again, we see the extremism that results when religion is brought in: die (stop breathing) to save mother earth.

An Economic Analysis of Toll Roads in San Antonio

This is a big issue here. There was an op-ed article on this in the San Antonio Express-News yesterday by John Merrifield, economics professor at UTSA. You can read it here. One of the big points is that if you build special lanes for toll payers, they will only be used when the rest of the lanes are very congested. Why pay to use the toll lanes when the free lanes are moving pretty fast? So you end up building lanes that don't get used much. But things still move slowly during rush hour and that may be the time to have tolls. That would cut down on the congestion and speed things up.

Some Good Economic News: Alot of New Jobs Added and Productivity is Up

You probably hear alot of bad economic news: the dollar is down, the housing crisis, high oil prices, etc. But there was some good economic news today. Worker productivity was up 6.3% (adjusted to an annual rate) in the third quarter. That is a very high rate. In the long run, the only way to raise our standard of living is through productivity growth. You can read about this here. The economy also added 189,000 new jobs in November, many more than predicted. You can read about that here.

Tattoos: Symbols of Rebellion or Signs of Selling Out to the Man?

It seems that tattoos are now being used for advertising. That means they are furthering the aims of the capitalist, for profit making system. So how can getting a tattoo be a rebellious act when it merely helps preserve the status quo? You can read all about it at Tattoos: a new favorite of advertisers

Historical Tax Rates

Ever wonder how much people paid in income taxes in the past? Some of my students have asked about this. Our current federal income tax began in 1913. If you made under $20,000 then, your tax rate was 1%. In 1963, every dollar you made above $400,000 your rate was 91%. In 1980, your rate between $45,800 and $60,000 was 49%. In today's terms, those incomes would be between $100,000 and $120,000. That 49% is higher than even the highest bracket now (35%). The Tax Foundation has all of the historical income tax rates. Click here to go to that site.

The Misery Index

The misery index is simply the inflation rate plus the unemployment rate. The graph below shows how it has changed since 1970. Notice it used to be alot higher. From 1975-83 the average unemployment rate and the average inflation rate were both 7.7% for an average misery index of 15.4. This year it will probably be about 8.7.

Want Kids Immunized? Threaten the Parents With Jail

Student are supposed to get vaccinated against certain diseases. But what if the parents don't take care of it? Make it costly for them not to, like sending them to jail. Here is the intro to one of the articles:

"UPPER MARLBORO, MD. — The threat of jail time injected a little motivation into scores of parents who lined up around the courthouse Saturday to get their children vaccinated on the spot or prove they've already had the shots.

It was one of the strongest efforts yet by a U.S. school system to ensure that youngsters are immunized, upsetting some parents who grumbled that Prince George's County officials went too far and irking opponents of mass vaccinations, who demonstrated outside.

Two months into the school year, county officials realized more than 2,000 students didn't have the vaccinations required to attend class. So Circuit Court Judge C. Philip Nichols ordered parents in a letter to appear at the courthouse Saturday or risk 10 days in jail."

You can read about it here and here and here

Is Barry Bonds Guilty?

He has been charged with four counts of perjury and one of obstruction of justice following a four-year investigation into steroids. But what evidence is there that he used steroids? I can't comment on the chemical and biologicial issues, but I have analyzed his stats. What comes out is that probably no other player has had such a dramatic and sustained improvement in his late thirties. Players normally have their best performances in their late 20s but Bonds had his best years in his late 30s. Some players have done better in their late 30s than they did before, but no one has improved as much as Bonds. Why would a player do so much better in his 30s, an age when many players' careers are actually over? A special training program? Better nutrition? Some new batting technique? It raises the questions that steroids were involved, so Bonds may have had something to hide. You can read my analysis on this here and here and here

Did the Clear Air Act Reduce Crime?

I talk about the Clean Air Act of 1990 in class and how, like any other regulation, it decreases supply. Any regulation raises costs to producers, so that is why supply is reduced. The price of the good increases and the amount produced falls. But we also hope that regulations have benefits. The first Clean Air Act from the 1970s called for a reduction in lead in gasoline. It turns out that this may have had other benefits by reducing crime. Below is an exerpt from the New York Times article Criminal Element

"The answer, according to Jessica Wolpaw Reyes, an economist at Amherst College, lies in the cleanup of a toxic chemical that affected nearly everyone in the United States for most of the last century. After moving out of an old townhouse in Boston when her first child was born in 2000, Reyes started looking into the effects of lead poisoning. She learned that even low levels of lead can cause brain damage that makes children less intelligent and, in some cases, more impulsive and aggressive. She also discovered that the main source of lead in the air and water had not been paint but rather leaded gasoline — until it was phased out in the 1970s and ’80s by the Clean Air Act, which took blood levels of lead for all Americans down to a fraction of what they had been. “Putting the two together,” she says, “it seemed that this big change in people’s exposure to lead might have led to some big changes in behavior.”"

The economist, Jessica Wolpaw Reyes, of course, did attempt to hold all other factors constant. But only more research will show if she is right.

Another Book Relates Religion to Economics

The book is Shopping for God: How Christianity Went From in Your Heart to in Your Face by James Twitchell. You can read reviews of it here and here. There is an interview with the author here. About a year ago, I had an entry about a similar book. You can read that entry here.

One of Twitchell's main points is that competition in the religion market is fueling the rise in mega churches. If a church wants more members, it has to offer a better deal and more benefits than other churches

Employers Want To Know: Which Job Applicants Will Fit In?

If a prospective employer asks you if you're nice, if you get along with others, are you a team player, etc, you will, of course, say yes. Who wouldn't? Since no one says "I don't get along with co-workers," how will employers figure out who will and won't fit in? It is the age old search for information and indicators (or signals as economists call them) of who people truly are. So employers are devising all kinds of new ways to figure out who will be right for them. Below is an exerpt from the article Employers study applicants' personalities to give you an idea

"At KaBoom, a nonprofit that builds playgrounds, the board was hammering co-founder and CEO Darell Hammond four years ago over the organization's high employee turnover. "I rationalized that they were on the road too much, when in reality, it was the wrong fit in the wrong role," he said. He started thinking about who left and why, then focused on the characteristics of workers who stayed. The list of traits: Can do, will do, team fit, damn quick and damn smart. His team kept a closer eye on job applicants in the reception area, which is set up as a playground, to see how they acted around playground equipment. "If you're early, you may have to sit on a swing or the bottom of a slide," Hammond said. People who stand with a tight grip on their briefcases instead of sitting on the playground equipment aren't asked back.""

Has the Minimum Wage Kept Pace with Inflation?

The first federal minimum wage was set in 1938 at $0.25 per hour. As of this past July, it went up to $5.85. It will go up to $6.55 next July and $7.25 in July of 2009. To see the history of changes in the minimum wage CLICK HERE. The numbers below show by what percentage the wage increased each time it was raised, followed by the change in the CPI in that year relative to 1938. For example, the increase in 1939 raised the minimum wage 20% while prices actually fell 1.42%. The 1967 increase raised the minimum wage 12% while prices in that time (since 1963, the time of the previous increase) went up 9.15%. There have been times when the increase in the minimum wage was less than the increase in prices. In 1990, the minimum wage increase was 13.43% over the 1981 level while prices since 1981 were up 43.78%. Since 1938, the minimum wage has increased 2240% while the Consumer Price Index is up 1371%. To make a long story short, this amounts to an increase in the minimum wage of 63%, adjusted for inflation.

1939 ** 20.00% ** -1.42%
1945 ** 33.33% ** 29.50%
1950 ** 87.50% ** 33.89%
1956 ** 33.33% ** 12.86%
1961 ** 15.00% ** 9.93%
1963 ** 8.70% ** 2.34%
1967 ** 12.00% ** 9.15%
1968 ** 14.29% ** 4.19%
1974 ** 25.00% ** 41.67%
1975 ** 5.00% ** 9.13%
1976 ** 9.52% ** 5.76%
1978 ** 15.22% ** 14.59%
1979 ** 9.43% ** 11.35%
1980 ** 6.90% ** 13.50%
1981 ** 8.06% ** 10.32%
1990 ** 13.43% ** 43.78%
1991 ** 11.84% ** 4.21%
1996 ** 11.76% ** 15.20%
1997 ** 8.42% ** 2.29%
2007 ** 13.59% ** 29.22%

What is the Inflation Rate?

It may not be as obvious as you would think. The CPI was 207.917 in August and 208.490 in September. The 208.49 means that what cost $100 in 1983 now costs $208.49. Since 208.49/207.917 = 1.00276, prices were up .276%. If that happens for 12 months, the inflation rate would end up being 3.36%.

But that is based on just one month. In September 2006, the CPI was 202.9. That means that prices went up 2.76% in the last 12 months. In all of 2006, they were up 2.5%. So far in 2007, they are up 3.3%. The CPI was 201.8 in December of 2006. Since 208.49 (the Sept 2007 CPI) divided by 201.8 =1.033, we get a 3.3% increase. That works out to .364% per month. If we get that increase over 12 months, the inflation rate would be 4.4%.

How could they have gone up 2.76% over the last 12 months while they might go up 4.4% for all of this year? Prices fell in the last few months of 2006. The same thing happened in 2005. Both of those years we were headed to 4-5% inflation but prices fell the last few months to give us a decent rate for the year. The CPI was up only 3.4% in 2005. Will we get lucky the last few months this year?

Click here to see inflation statistics

Millionaires Are Regular Folks

It seems like they work hard and don't want to show off too much. Here are the first two paragrahps from an article titled More U.S. millionaires are middle-class

"Sitting on a million but still middle-class? New research has found that more and more Americans worth at least $1 million want luxury goods such as yachts but otherwise lead family-focused, work-oriented lives.

Private wealth specialists Lewis Schiff and Russ Alan Prince found the number of Americans with $1 million to $10 million had risen to 8.4 million households -- or 7.6 percent of U.S. households -- and was growing at 15 percent a year."

At that rate, about half of American households will be millionaire households in 13 or 14 years. Maybe a little longer, since if inflation averages 3% a year, after 13-14 years $1 million will only be worth about $600,000 or $700,000. But since the number of millionaires is growing 15% a year while inflation has averaged just about 3% a year for the last 24 years, it is not just rising prices that is causing the number of millionaires to grow. So if we subtract 3% from 15%, and use a growth rate of 12% a year, it will take 16 or 17 years before half the households are millionaires.

Taco Bell Gives Away "Free" Tacos, Problems Arise

Maybe you heard that if a player stole a base in the World Series, Taco Bell would give away a free taco to anyone who wanted one on Tuesday from 2-5 pm. There was a stolen base, so they gave them away yesterday. At one Taco Bell, there were so many cars in the drive up lane that they went out into the street. It got so bad that the there was a traffic jam and the police had Taco Bell close their drive up window. Tempers also flared. But the tacos were not really free if you had to wait that long. This all shows that when something is given away for free, it causes problems. You can read about it in Promise of free taco brings on the fans: Tempers flare in Norwell; crowds jam Quincy restaurant

Are Rock Stars "Selling Out?"

With revenue from the sales of recordings down in recent years, rock stars are looking for other ways to make money. Sales of CDs are down because of downloading and file sharing. So some of them have gone back to school to take business classes, sold their songs to be used in TV commercials and have formed partnerships with corporations. Some say they should stay pure, caring only about their music and not "go commercial." The New York Times today had an article on this called If It’s Retail, Is It Still Rock?.

Are Chimps More Rational Than Humans?

Seems hard to believe. But an experiment suggests it. The article is Chimps choose more rationally than humans. My student BRUNO MEJIA sent me this.

It reminds me of research that was done at Texas A & M some years ago. They found that rats and pigeons act rationally. If they had to press a lever so many times to get a drop something to drink or a pellet of food, they "bought" less of either one if the scientists raised the number lever pushes it took to get one. This was like raising the price. More lever pushes to get either food or drink, the less they tried to get of it. So they followed the law of demand. This was reported in Steven Landsburg's book The Armchair Economist.

Moral Hazard and the Housing Crisis

When economists use the term "moral hazard" they mean the fact that when people buy insurance, they might not be as careful as they were before. For example, if you don't have fire insurance for your house, you will be very careful not to create fire hazards. But once you buy insurance, you might not go to as much effort to make sure everything is safe. But that increases the chance that fires will happen.

Reuter's has an article called Popular mortgage "mods" fuel moral hazard by By Al Yoon and Walden Siew. See if you can spot the moral hazard in the excerpt below.

"NEW YORK (Reuters) - Mortgage companies scrambling to ease the terms on thousands of loans destined for default may be doing more harm than good by rewarding investors and homeowners who took on excessive risk.

Efforts to help Americans pay their mortgages have forced companies such as Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender, to expand their practice of loan modifications, which lower payments for borrowers vulnerable to foreclosure. Countrywide on Tuesday said it would refinance or modify $16 billion of loans.

While such concessions are largely a win-win situation for the parties involved, since homeowners keep their homes and the bank reduces losses, the practice may exacerbate a credit crisis that began in July and is leading to growing cries of foul in the $7.2 trillion mortgage bond market.

To some, the loan adjustments are little more than a bailout of bond buyers who were paid to take greater risks. The practice of lowering interest rates or forgiving a portion of the principal could even encourage more of the bad lending that helped create the U.S. housing bubble and subsequent credit crunch."