Michael D'Angelo

To take a break from dynamic markets, and Fed inefficiencies; ordinary people can find ways to use the basic principles of Economics in their day to day activities. Now, I’m not talking about the supply and demand ratio of food to hunger, or indigestion to sweets; I’m talking about using this stuff to help find a job, keep that job, and plan for retirement. When assessing the prospective job, you must employ a cost benefit analysis to see if this job is right for you. Personally, I like to look at the costs associated with the position first, exaggerate them generously, and then apply the benefits. This type of model allows me to see a more accurate forecast because it incorporates more cost than actually exists. This will allow you to account for unforeseeable circumstances and changes in your lifestyle after you already accept a position. A good sample of the cost categories you should think about are: travel time (roundtrip), monetary travel cost per week (gas, metro card, tolls, etc.), and of course, opportunity cost- what are you giving up to instead be at work (time with family, gym time, time with a significant other, vacation, etc.). The last category really is individual dependant. Some people can’t put a dollar value on family time, while others can. Once you consider these costs, then you can think of the benefits.

How much are you getting paid? Is it hourly rate or yearly salary? If it’s an hourly rate, then each marginal hour worked will further mitigate monetary costs but could also increase intangible costs (family time, etc.). If your compensation is based on a yearly salary, then you are likely to be less productive because you lack an hourly incentive. Furthermore, you know that regardless of what you produce for the day, you will still earn the same amount of money. For every hour over the required time you spend at work you incur a greater cost in every category (unless of course you consider less time with the wife a benefit). If you’re not getting paid based on time spent at work and productivity, what incentive can you possibly have to work hard? Lastly, you will want to consider retirement benefits. If you choose an extended health care plan that costs more, and/or you pay the maximum amount into your 401(k), then working extra hours will be a long-run benefit. While the immediate cost of an extended health care plan and higher 401(k) deduction from your paycheck may seem like a ‘cost’ because its less liquidity you are achieving for your time spent working; those extra hours put in will offset those costs and lead to a greater benefit in the long-run.

Ultimately, all this is about the value you as an individual put on the dollar. If you enjoy making lots of money and always want more of it, then perhaps you should consider a job with an hourly rate and pursue overtime opportunities. If you really don’t care about money and want a low-stress job with more freedom; than a yearly salaried job with lower productivity may be something you want to consider. Either way, please go out there and work; the more people work, the better our society will be.

The Chinese influence.  This is a concept that so many people in the United States regard as a powerful growing force that will eventually take over the world.  The influence that I am talking about is China’s growth rate.  For the past forty years, China’s real GDP has grown at astonishing rates of 10% or more per year.  The issue for many people is that they fear that the Chinese Economy will grow so much, that it will usurp the United States as an Economic powerhouse; coupled with an over 1 billion person populace, and impose its will on the World.  However, what many people, and professionals overlook, is the source of China’s power.  The reason China‘s growth rates are so sporadic and high is because the source of their economic power lies within Capital Accumulation.  Capital Accumulation is what a person or nation does by investing heavily in capital-intensive resources such as stocks, derivatives, commodities, etc.

The problem with Capital assumption is its volatility.  If you look at the embedded graph, you will see that China’s real GDP fell sharply in the 1970’s and in the 1980’s because of recessions caused by the OPEC oil crisis.  In contrast, if you look toward at the United States, you will see that the U.S. has maintained a relatively stable growth rate of approximately 3% for almost half of a century, and yet our economy is still stronger than that of China’s.  The economy of the United States is more consumption based, and therefore its GDP builds off everything every single American consumes.  Even in times of recession, people still consume, and therefore our nation is able to continue to grow.

For those naysayers out there, China’s sporadic growth may help them day-to-day; but for the long run economy, the U.S.’s consumption model wins.

Many of my views and beliefs parallel those of Ludwig Von Mises and Friedrich Hayek; two of the most well known Austrian Economists.  The belief behind the Austrian school has its roots in fundamental classical liberalism; not modern day liberalism (just so we don’t confuse the two).  One facet of the Austrian school that catches my eye is that it is user-friendly.  It doesn’t require a complex understanding of mathematics or economic growth models; it simply is common sense and extremely logical.

The belief in the Austrian school spawned a new generation of Economists here in the United States after many saw the failures of Keynesian economics and the rise of the Neo-classical movement.  This was the United States own brand of what could be considered close to Austrian Economics could be the Chicago School.  The Chicago school has produced some of the most influential Economists of our day including Paul Samuelson, Robert Lucas Jr., and of course the venerable Milton Friedman.  Point of fact, the Chicago School has produced more Nobel Laureates than any other University.

Not to harp on a subject, but to those readers who are interested; I would challenge you to learn about what these schools have produced in society and compare them to all the political philosophers such as Karl Marx and Vladimir Lenin; see for yourselves which one creates growth and which one destroys prosperity.

For the past decade, the idea of Global Warming and human consumption has been on the forefront of debate, legislation, and production ledgers of many companies.  While I am not here to debate the legitimacy of global warming; I do however want to speak about the fallacies of the environmentalist movement.

The biggest problem I have with the Environmentalist movement is that it targets the wrong antagonist.  The crux of the argument is that: humans consume too much, and it is the human tendency to consume as much as they can until the resource is depleted.  This argument sounds appealing to the masses; but to those of us who understand Economics, the argument has quite a few holes in it.

Without going on a long tirade of numbers and statistics, I’ll make my argument clear and concise.  The reason the environmentalist standpoint is flawed is because it does not take into the simple effects of supply and demand.  According to their argument, humans keep consuming until we deplete a resource; incomplete.  The truth is that we humans will continue to consume, however, if the supply of such a resource is becoming scarce, the market adjusts and the price of that good increases.  When the price increases, demand levels off because that good will have become too expensive for everyone to buy.  When this happens, consumers look to cheaper alternatives and substitutes; while consumers buy these substitutes, suppliers of the original resource have time to replenish their stocks and increase supply, and so the cycle continues.

The idea that we will use all the worlds’ oil in 15 years or so is ridiculous, there will always be substitutes both naturally and synthetically.  The entire argument has to be looked at in a different perspective.

Health care is one of those things that everyone should be entitled to.  I mean, who wouldn’t want to have all their medical expenses paid for and not have to worry about the cost of getting sick in America.  Now, when I say “cost of getting sick”, I don’t mean the opportunity cost of burning sick days, the cost your family members have to expend to take care of you and protect them, or the cost on your body; I simply mean the doctor or hospitals medical bill.

Having done some research on the current ideas floating around on capital hill, The Wall Street Journal Online has put together a rather nice collaborative table about the current plans.  I will post the link at the end of this post. Since this issue is probably one of the biggest facing our nation and the current administrations ledger, lets look at it in an everyday Socio-political aspect.

If anything is going to happen with health care reform, it is going to be a mix of the Senate proposed bill and the House bill.  At this point President Obama’s plan offered no specifics and unanswered questions, which leaves only the Senate and House bills as viable candidates.  What the government wants to do here is take the power out of insurance companies and give it to themselves.  Governments love to paint the picture of “greedy insurance companies” or “robber barons, thriving off of human suffering”, these claims are as bogus as a green sky and blue grass.  Insurance companies are like any other company, they provide a service to people that want them; you pay a premium every year and you receive benefits; most of these coverage’s are job sponsored.  If you do not like the service you can cancel it.  If you can afford X amount of dollars, you receive X amount in coverage; if you are wealthier and pay more, you receive more.  You choose your insurance companies and your doctors.

While it is unfortunate that there are those who cannot afford insurance; think of it from a business perspective: businesses do not give away free goods and services, in order for them to provide coverage for paying customers, everyone must pay; if people do not pay the company fails, if there is no company, thousands more would be worse off than the handful who couldn’t pay.

Another aspect of the Senate bill is that people who do not buy into this coverage (which by the way would cost a person around $8,000+ a year, and even more if you have a family) the government fines you at an accelerating rate.  In other words, they may fine you $1,000 this year, $2,000 the next year, $4,000 after that, so on and so forth.  Believe it or not, it will become a crime punishable by fees and fines to not have healthcare.  What ever happened to personal responsibility; people should be responsible for their actions.  If you want health care you can buy it, if not, you shouldn’t have to buy it.  Why would the government fine you for not buying insurance?

The answer is rather simple; as of now, the model goes something like this: we pay insurance companies, insurance companies pay doctors and medical bills on our behalf, doctors and pharmaceutical companies are compensated for their time and products through this transaction.  If the government enacts its plan, the shift moves away from the insurance companies (which remember are private companies that minimize cost and maximize revenue) to a government agency (runs on a budget and is not concerned with wasteful spending or cutting costs).  Therefore, the government would be paying the doctors and medical bills.  The agency set up to oversee these transactions would have a budget that is constantly increased over years detracting funds from other programs, thus requiring more money.  Where do they get this money?  Tax’s, fees, fines for not purchasing insurance, and out of your paycheck. 

The truth goes further than this.   Consider this scenario: Lets say you do not have insurance because you can’t pay the $8,000 a year the government mandates or you simply do not want insurance and one day you suddenly have a heart attack and are in the hospital.  Well now not only do you have to pay your hefty government fine, you also have to pay or at least try to pay your hospital bill.  So now the government in fact has profited from your illness through the fee and through your hospital bill; and you ended up paying more than if you had just paid your standard premium to an insurance company. 

What you can expect with this government program:

With a government model such as what they have proposed, they want to cover 94% of Americans.  This means that whatever you would be paying to the government, it would be increasing each year (unlike private insurance companies) coupled with more hidden fees and taxes to fund their mammoth program.  Since they are not a cost cutting model, they would have to increase the funding for the program, which means you would need to pay more.  You can also expect overcrowded hospitals, ridiculous lines, reduced hospital staff, and lower quality health care.

Let’s face the truth; Doctors make a great salary (most of it funded by insurance companies bought into by citizens at their own will and discretion).  With the government forcing this massive influx of patients on them, it would no longer be as profitable to become a Doctor.  Since the government would be paying the paychecks of these doctors, salaries would be decreasing and it would hardly be enough to cover medical school costs, and the insanely long hours they would need to work to cover all these patients.  With less competing Doctors and lower wages, the last thing that you could expect would be medical breakthroughs, research and development.  America’s health care quality would flatten and then downturn sharply at accelerating rates.

Source: http://online.wsj.com/public/resources/documents/st_healthcareproposals_20090912.html

Recently, a friend of mine recommended a rather amusing website to me.  This particular website is right up my ally; it is a site entirely devoted to opposing Michael Moore.  Some of the videos on this site make me sick because of how misinformed Michael Moore is.

Most of the things Michael Moore is against are more Corporatist and Fascist policies than they are Capitalist; he is constantly talking about how this country needs to “stick up for the little guy”.  If Michal Moore had half a brain and wasn’t so lazy, he could do some real research and see how Capitalism is actually the most poverty friendly system ever to exist.

Capitalism gives people a real chance at moving up the social ladder.  Under Capitalism, firms are forced to compete to produce goods at the lowest possible price.  Firms that over charge or produce cheap goods are not rewarded with consumer dollars; instead they have to find a way to produce better quality goods at cheaper prices or face possible liquidation.  Even in instances where some goods that may be considered a luxury, such as computers, can eventually favor the poor.  While very poor people may not be able to afford the latest machines and technology; through the natural progression of technology under Capitalism, as firms develop newer technology, the older models’ prices are cut drastically, making them affordable by even the lowest income families.  Acquisition of goods in this way allows these poor families to still acquire technology and resources and gives them a chance to bring themselves out of poverty.  The very same example could be made about the education market about competition between schools and their tuition prices.

The link to the anti-Michael Moore website I am talking about can be found here:  http://moorewatch.com/

Today I will conclude this series with my third installment of the Economic Implications of Socialism.  What follows is not verbatim from Dr. Maltsev, but paraphrased via my notes.

The last major component of socialism in the Soviet Union was what Dr. Maltsev called “Monopoly of Thought”.  This was in essence a mirror image of what a business monopoly was.  There was no market place of ideas; you had no choice in what you wanted to believe in.  The Soviet government would show people only what they wanted to show.  Many communications from outside the country were jammed, therefore forcing you to believe what they were saying.  After all, the Soviet government could not allow people to learn about the wonderful freedoms of the west and the seemingly infinitely higher quality of life than that of the Soviet Union.

Many schools and universities would serve as brain washing institutions.  Even the newspapers lied about everything; after a while people began to secretly distrust them.  This eventually led to the creation of underground newspaper publishing.  The Soviet propaganda was so powerful that they even portrayed Jesus as an evil con-man.  Through the use of fear and propaganda, the Soviet Union was able to stay in power.  Economically, there was no way the country could sustain itself.  The very principles behind Economics foster trade and specialization.  The Soviet Union was not a very arable country; they had limited resources and could not produce everything alone.  Coupling that fact with the gross misallocation of resources within the country; the Soviet Union was looking at one of two options: admit failure and reorganize as a government, or subject themselves to Western demands for resources.

When the Soviet Union finally disbanded, the country was in ruins, millions have died, and many were poor.  However, as Russia is still not a Capitalist society, it is moving in that direction.  Unfortunately many obstacles still stand in the way.  People like Vladimir Putin and his advisors were former proud KGB officers.  Under him many areas in Russian were forced to be condemned by government.  One example would be Aral Sea.  This once salt water sea was destroyed by central planners hungry for resources.  Today it is a salt bowl with violent salt storms that kill many people in the area every year.

After reading my three part series on Soviet Socialism, I hope you can see the many problems that exist under this system and why it is important for the United States to adopt as little of these philosophies as possible.  Sure, it is a warm and comforting notion that everyone is equal and should be treated as such; however it is untrue.  Each and every one of us is unique; some of us are great at math, others are good with their hands.  Some of us love to teach, while others are introverts.  There is nothing wrong with any of this, the simple is, we are all different, and our paths in life should represent that difference and allow us to thrive in whatever context we feel fits us.  Subjecting everyone to the same professions and quality is just not real.

Today I will continue with my second installment of the Economic Implications of Socialism.  What follows is not verbatim from Dr. Maltsev, but paraphrased via my notes.

Continuing right where I left off; the catastrophic death toll was not the only consequence of Socialism.  The very teachings of Karl Marx were meant to be classified from the public.  The Soviet government took great care picking and choosing which rules to show people, and which ones to keep secret.  More so, many other books were banned.  Reading or possessing such banned books were grounds for 7 years in a Siberia labor camp (most people would die after 3 years if they were lucky).  Part of the brain washing that the Soviet Union employed was the belief that Karl Max and his teachings were true and absolute.  Any books published before Karl Marx were allowed simply because they pitied the writers that didn’t know the truth.  However, any books published after Marx that proclaimed something different were considered a lie and therefore a crime.

As you can see, this infatuation with Karl Marx left little room for religion.  In fact, Religion was considered opulent.  Holidays like Christmas were banned.  During the formation of the Soviet Union, over 900,000 Priests and Clerics were killed or imprisoned; it was something Stalin referred to as “pest control”.  In fact, the strict Soviet controls of religion lead to serious military defection; 25% of Nazi forces attacking on the Eastern front were Soviet defectors.  Considering this problem, the Soviet Government decriminalized religion in 1942.  Still, churches and religion was not free.  Many patriarchs of these churches were secret KGB officers, strategically placed to continue the influence of socialism.

This past week, I had the privilege of attending a lecture with Dr. Yuri Maltsev of Carthage College.  Dr. Maltsev grew up in the Soviet Union and was an Economic advisor to Mikhail Gorbachev.  He was also part of the team that drafted the Perestroika plan.  Having been a key part of the Soviet Government, Dr. Maltsev knows the intricacies of the Soviet planning; and has knowledge of facts and figures that have never seen the light of day.

This blog will be the 1st in a series of three that I am writing.  What follows is not verbatim from Dr. Maltsev, but paraphrased via my notes.

The crimes committed by the Communist Soviet government were horrendous to say the least.  Firstly, we need to dispel the notion that the Soviet Economic System was an Economic system, it wasn’t; there were no Economics involved in their central planning, instead it was only a system of control.  The key reason centrally planned Economies failed was because there were no incentives, or ability to calculate.  They cannot compare costs and benefits of products and services because of the absence of price; therefore it is impossible to properly allocate resources in a meaningful way.

Since there were no incentives in the economy, workers knew life was going to stay the same despite the amount of work they did.  Many workers felt hopeless and would slack off and not produce.  Why would they produce?  What incentives did they have?  If they worked, they got paid X; if they slacked off and did nothing they still got paid X.  Instead of providing capitalist incentives such as more money, or more food, the Government created the incentive of fear.  Now workers had an incentive to work; not to make more money or provide better lives for their families; simply put, if they didn’t work they would be shot, or jailed in Siberia (which often lead to death).

Because of this shoddy system of control, the death toll spiraled.  According to Dr. Maltsev, when the Russian KGB files were opened for a brief month, there existed letters and communication records from Lenin himself to the leader of the KGB telling him that, “people weren’t listening, shoot some people and make them listen”.  After that transmission, people were being killed at a rough estimate of 12,000 a day.  According to the KGB’s report, over the years anywhere from 43 to 86 MILLION people were killed by Soviet soldiers for little or no reason.  It is important to point out that this number is death by Soviet soldiers, NOT from natural causes, or disease.

Today I want to take a break from modern day issues and focus on more of a book review.  A few weeks ago, Dr. Robert Murphy came to speak in one of my Economics classes.  His lecture focused on the hidden thoughts behind many mundane issues such as: seatbelt laws, airbag legislation, discrimination laws, and environmental protection laws.  Many of these issues he discusses in his book:  The Politically Incorrect Guide to Capitalism.

Dr. Murphy continued to host a seminar later that evening about his new book:  The Politically Incorrect Guide to the Great Depression and the New Deal.  I found his lecture about his book to be terrifically spot on, and dispel a great myth that has been spun in classrooms around the country for decades.  I particularly enjoyed this book because Dr. Murphy doesn’t beat around the bush; he flat out tells you that the New Deal was not the reason we got out of the Great Depression.

More interestingly, this book is not theory, or math intensive.  While critics of his may like to point out that lack of empiric proof could be grounds for dismissal, the idea behind this book was for people of little to no Economics background to be able to read through it.  This book is also a great introductory book for people who are not familiar with free-market thought or just enjoy a good political thriller.

Throughout the book, Dr. Murphy also provides a bunch of “what if” columns; not only for entertainment, but to also stimulate intellectual thought.  Lastly, I like how Dr. Murphy includes quotes and arguments from famous speakers and Economists on the matter of the New Deal.  These arguments help convey the theme of the book and strengthen his argument.  Overall, I thought this book was a great read, and more importantly a very informative piece on of the most defining moments in current American Economic policy.