Obama economic theory

Name

11/13/11

Assignment 7: Paper 2

The article is from Bloomberg Business week for the week of November 14 to November 20, 2011 the title is called Nudge Not. This article explains the economic theory that the Obama Administration relied on in their Making Work Pay tax credit which was a part of the stimulus bill. The tax credit gave $400 or $800 if you a couple filing jointly to most Americans. This credit wasn’t given as a lump sum it was given quietly as a slight increase in their paychecks. Many people did not realize they were given a tax cut.

The thought behind this is if people received a lump sum check they would be inclined to save it while if it was given to them without their knowledge they would spend that extra income. The idea of the tax cuts being given to people without them noticing is from a school of thought known as behavioral economics. Behavior economics takes the stance that people may not always act in a rational manner. People rely on instincts, biases, and cognitive shortcuts to make decisions, which leads to poor choices.

Making Work Pay is based on the belief that people are more likely to spend money they have mentally accounted for as current income and not their mental assets account. What this means is people will measure how much they spend based on their paycheck and not the size of their bank account. This theory also believes a lump sum payment will be seen as an increase in wealth and there for is more likely to be saved. In a paper from University of Michigan by three economists they found the Making Work Pay did not get people to increase their spending, it actually caused them to spend less. The paper being released by the economists has come under fire due to it being reliant on a survey of people. To the behavioral economists people are not a reliable source of information; they are also blind to what shapes the financial choices they make. Another point behavioral economists make is that with traditional economics a tax cut is a tax cut and their shouldn’t be any different reaction to a lump sum and a slight increase in paychecks, both strategies should increase spending this was not the case.

The Making Work Pay tax cut was an attempt to give more working people larger paychecks in order to encourage them to spend more. During tough economic times the government takes actions that are thought to increase spending and there for spur the economy to grow and increase output. This strategy is to increase demand which causes people to buy more products which means businesses will increase output hire more workers and increase inventory. The most prominent of demand side theories is the Keynesian view. Keynes felt it was the government’s role to increase demand when the market was no longer operating as it should. He believed that the economy was fragile and not able to self-correct and therefore needed someone to increase demand.

The goal of the Making Work Pay tax credit was to give people more money to increase output. When people spend more they actually help create new jobs with more people willing to spend. There is a multiplier effect when it comes to the economy when a person spends money that causes more spending somewhere in the economy. One of the macroeconomic goals is to promote economic growth/ increases in output there are many way to grow an economy and some of these strategies conflict with each other. The strategies may differ greatly but they all have the same basic goal of increasing wealth and promoting prosperity within the economy. Behavioral economics is an important theory to understand because people don’t always do the rational thing and make mistakes, but it shouldn’t be assumed that they will always make irrational choices. 

recovery brightspot

Name

11/8/2011

Assignment 6: paper 1

The article that was read is from Bloomberg Business week for the week of November 7- November 13 2011. The title of the article is Surprise! Carmakers are a recovery bright spot, it can be found on page 19. By 2015 carmakers plan on hiring or bringing back 25,000 people this includes 4,000 people in the 4^th quarter of 2011. In part the jobs being created are a reaction to the Japanese earthquake which caused supply disruptions which lead to low inventory on car dealer lots. Edmunds.com is an auto industry researcher who estimates that 13.5 million new cars and trucks will be purchased next year up from the 12.6 million bought this year.

The auto industry is the United States largest manufacturing sector. Most of the assembly jobs being created are moving to the Southern states due to lower taxes and lower labor costs. The new jobs being created are from Domestic, Asian, and European makers. The jobs pay $15.00 an hour lower than veteran autoworkers in unionized companies. Toyota’s executive vice-president of engineering and manufacturing predicts that the U.S auto industry will create 88,000 additional jobs. When an auto company expands or builds a new manufacturing factory it is an investment that will remain in place for many years while providing an economic boost to the community for possibly decades. The Center for Automotive Research estimates for each worker hired creates seven other jobs by suppliers or spending from the new hires. 

The value of the United States dollars has become weaker compared to the yen and euro. While in developing economies the cost labor is increasing, this has made manufacturing in the United States more appealing. International automakers added 6,350 jobs this year with 3,400 more in 2012. Toyota, Honda, Nissan and Mercedes are expecting to expand their U.S. operations.

Full employment in one of the four macroeconomic goals, this article is about jobs being created in the United States. The current unemployment rate in the United States is 9.0% so any jobs that are being created are looked at as an improvement. With the expected 88,000 additional jobs expected to be created from automakers 25,000 new jobs clearly show how the multiplier effect is expected to give a boost to the entire economy. Making sure there are enough jobs for people who want them is an important part of macroeconomics. One of the goals of the Federal Reserve is to create an environment that allows for full employment. This shows the importance of getting people to work.

When a person is hired into a new job with long-term earning potential they feel more secure about their future and tend to spend more. This increased spending causes other businesses to add more employees to serve the increased customers. With people confident in their future and spending more, creating new jobs this leads to eventual gains in the gross domestic product. Employment gains often are a sign of a strong or improving economy. The lower the employment rates the closer to full employment we get. We will not get to 0% unemployment due to people changing jobs, people who do not have the skills for the jobs that are in demand and people unemployed due to seasonal reasons.

More stories about job gains can lead to people feeling more confident in the economy, which can spur on additional spending. Someone who feels the economy is starting to create jobs will feel less stressed about losing their current job and may increase spending. Improvements in the labor markets helps support confidence in the entire economy, this could have the potential to create more jobs just because people feel better and may spend more. 

Consumer Education Resources

Name

10/29/11

Bus254: Macroeconomics

2c. Question2c: Consumer Education Resources (5 points).

            You have the power to stop identity theft. By using this link you can read information on how to avoid being taken advantage of. It gives you advice such as not being intimidated by emails or callers that suggest severe consequences of not giving them your information. It also suggests never clicking on a link in an email you believe to be fraudulent. The link also provides the contact information of the three major credit bureaus. The links are provided just in case you become a victim of identity theft. This link is important to people in today’s modern world because identity theft is the fastest growing crime in the world.

            Home Mortgages: Understanding the Process and Your Right to Fair Lending. What this link does is explain the process of looking for a mortgage provider. It then goes on to explain the application process. The third section explains the consumer protections and rights as a borrower to fair lending. The fourth section has a list of government agencies that could assist in certain aspects of home purchasing. The link will help people understand new laws and their rights when starting on a search for a home.

            Savings resources for consumers: Top 10 ways to prepare for retirement. What this link shows is a simplified top 10 list of major issues a person should consider when planning retirement. The first thing is to start saving or keep saving and make saving for retirement a priority. Second on the list is all about knowing what you will need for retirement. Such as most people will need 70% of pre-retirement income but some low income earners may need 90%. Number three on the top ten lists is contribute to your company’s retirement savings plan. The article says it will reduce your tax bill as well as possible additional contribution from your company. Number four say if your employer has a pension plan learn about it. Number five suggests learning basic investment principals. Number six is a very important part of retirement saving do not touch the retirement savings. Number seven suggests that if your employer does not offer a plan ask them to start one. Number eight suggests putting money into an IRA. Number nine talks about learning about Social Security benefits. Number ten says ask questions regarding your retirement to learn more then what this list advises. This list is needed to give people direction and to explain the importance of starting a retirement account early. Everyone wants to retire and to do that today requires planning ahead to make your goals come true.

Sandra Pianalto Speech

Name

10/29/11

Bus 254: Macroeconomics

2b. Question 2b: (15 points) Sandra Pianalto Speech

The Federal Reserve Bank that serves Toledo, Ohio is located in Cleveland, Ohio on 150 East Fourth Street. In the speech U.S. Manufacturing and the Economic Outlook the major concern expressed was human capital. What the speaker stresses is that we need to make investments in education and training. America is falling behind in college graduation rates in 1995 we ranked 2^nd in graduation in 2008 we ranked 13^th. The state of Ohio ranks 38^th out of the 50 states in the United States in graduation rates.

 The speaker believes that investments in human capital help with productivity and the standards of living. America needs to improve its educational performance, as we continue to fall behind we will find it difficult to lure businesses and the jobs we want to the United States. Education is becoming a vital necessity for manufacturers with less blue-collar workers and more college educated employees. With productivity in the United States increasing the number of employees needed decreased.

In the last two decades manufacturing has lost 3.7 million jobs due to improved productivity. This trend has been the same across nearly all industrialized countries. The decline in manufacturing has mostly been blue-collar workers. While on the surface the decline in employees due to improved productivity seems negative, it has allowed companies to modernize by investing in new plants and equipment.

            U.S. manufacturing during the recession lost 2 million jobs. Production has had some recovery but is still below pre-recession levels. The Manufacturing sector during the recovery has had mixed results, the automotive industry as improved fairly well while manufacturing related to construction has seen almost no growth. The Japanese tsunami disrupted supply chains for the auto industry but as companies we able to repair their supply chains they were able to increase their production of autos. Even with the mixed results of manufacturing the overall growth still doesn’t come near pre-recession levels. The recovery yielded 300,000 jobs compared with a loss of 2 million during the recession.

            The speaker also outlines how consumer, business and government spending is still too low to give much momentum to the recovery. This means that most of the current unemployed in the country are due to cyclical unemployment and less structural in nature. The unfortunate reality is that many of the unemployed today remain unemployed for extended time. About half of the unemployed have been unemployed for 6 months or more. The U.S. economy has only created 2.5 million jobs since 2009. While during the same time the government has cut around 500,000 jobs.

            Manufacturing in the United States has many different challenges. The most important of them is educating citizens to be able to compete with the rest of the world. By producing skilled workers America can combat the low-wage labor of developing countries, using productivity and quality to generate sales. Manufacturing over time changes and America has to change with the times. We have done this many times before and must continue to do so. Today our challenge is education and we must rise to meet that challenge.

Ben Bernanke Speech

Name

10/27/11

Bus 254: Macroeconomics

2a.       Question 2a: (15 points) Ben Bernanke Speech

The Federal Reserve Chairman Benjamin S. Bernanke has seen some improvements in the economy. Within the U.S. the financial markets and banking system has seen large improvements since the financial crisis. Manufacturing within the U.S. has risen almost 15% since its lowest point. The improvement has been mostly caused by growing exports helping to lower the United States trade deficit noticeably. The growing exports demonstrate how products and services made in the United States have been able to compete worldwide. Businesses have continued to invest in equipment and software helping to make productivity gains in some sectors. While there has been improvement the recovery has not been as strong as the U.S. would have preferred. New government information shows the recession was deeper than estimated, while the recovery has been weaker than previously estimated. United States output still hasn’t achieved levels that were in place before the recession. With slow growth in the economy, the rate of joblessness and household incomes continues to be slow.

Mr. Bernanke Believes the United States federal budget is not sustainable. The chairman has recognized four key objectives that need to be considered when setting tax and fiscal policy. The first is to achieve long-run fiscal sustainability. With growing deficits and the federal government being forced to borrow more and more something has to be done. We cannot continue to borrow the money we need indefinitely. The second key objective is to avoid fiscal actions that could impede the ongoing economic recovery. Basically the U.S. government should keep in mind the near term goal of recovery when developing a plan to reduce the deficit over the long-term.

 Third is fiscal policy should aim to promote long-term growth and economic opportunity. The goal of reduced deficits should not impede the growth of the economy in the long-term either. The fourth objective is to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and economy. What the chairman seems to mean with his fourth objective is to tell the government they have to make better long term budget decisions. Making sure that the budget decisions they make can actually be paid for without causing massive changes in the economy. Businesses will not want to operate in a country without stability so predictability and clarity are important to economic growth. The chairman does not believe the United States budget spending is sustainable. He believes the nation has to make a fundamental choices with how we spend most of which will not be easy. Mr. Bernanke believes these decisions must be made it is ill responsible and unsafe to ignore them further.

The chairman made the statement that monetary policy is a powerful tool, but it not a panacea. What he meant by that is that while monetary policy to make progress within the economy it is not able to fix every problem the United States faces. Policymakers with cooperation from the private sector are needed to promote economic growth and job creation. Fiscal policy is of vital importance to ensure growth and sustainability. Along with fiscal policy other policies such as labor markets, housing, trade, taxation and regulation have major roles in the economy and will contribute to economic growth. The Federal Reserve will continue to do its part to help promote the best possible economic opportunity for all American citizens.

Financial Crisis.

Name

10/26/11

Bus 254: Macroeconomics

1b.       Question1b: (20 points) Financial Crisis.

During the early 21^st century easy access to credit along with low rates on mortgages gave more people the possibility of owning a home. After the recession of 2001 the Federal Reserve enacted a policy aimed at stimulating the economy which leads to the lower mortgage rates. With easy credit and low rates people bought houses, causing home prices to rise and for new house construction to reach all time highs. From 2000 – 2006 U.S. home prices rose 10% a year on average.

            The securitization of mortgages had helped fuel the housing boom due to its rapid growth. Securitization of mortgages is the act of bundling of mortgages into securities that then are sold to investors and traded in financial markets. Securitization of low-risk mortgages has existed for many years and has expanded the market, making it easier for investors to hold mortgages. Unfortunately in the early 2000s riskier mortgages were securitized in huge amounts. The riskier mortgages included subprime mortgages; a subprime mortgage is made to borrowers with low credit scores. When subprime borrowers defaulted on their mortgages during the housing boom the lender could easily refinance or sell the property to avoid a default. With high profits and low defaults investors and lenders became complacent in the mortgage-backed securities market. With increased compliancy underwriting standards dropped lenders demanded little or no down payment or documentation. Ratings agencies gave investors reassurance by rating mortgage-backed securities as low risk.

            As new houses came into the market people realized that home prices could no rise forever. In 2006 home prices began to falter than fell sharply. With home prices falling sales and construction came to an immediate halt. For new home owners and people who refinanced their home value fell below what they currently owed on their mortgage. Subprime borrowers began to fall behind in mortgage payments which eventually this spread to prime mortgages made to people with high credit scores.

            As delinquencies started to increase it became clear that residential mortgages were much more volatile than people had assumed. As the market imploded the level of expected losses rose dramatically. Due to the millions of U.S. mortgages repackaged as securities the losses spread around the world. In the early part of the housing bust the International Monetary Fund estimated worldwide losses to be $240 billion, in April 2009 that estimate climbed to $1.4 trillion.

            As estimates for mortgage-related losses rose, investors and financial institutions became nervous over their risk as well as the risk of others. Anxiety increased because of the difficulty to determine the value of many loans and mortgage-backed securities. The complexity of financial instruments increased the vulnerability of financial institutions to losses. Businesses became reluctant to lend to each other. In 2007 fears about the financial health of other firms led to huge disruptions in lending. Institutions used the lending market to fund day-to-day needs for cash. With firms reluctant to lend rates on short-term loans increased sharply compared to overnight federal funds rate.

            The fall of 2008 saw the failure of two large financial institutions Lehman Brothers and Washington Mutual. American Insurance Group as well as several others also threatened to fail. With some many institutions connected in a large complex web the failure of one could start a cascade of losses all through the financial system. A large money market mutual fund incurred sizeable losses which extended the crisis to a section of the financial system thought to be safe. The losses lead investors to pull their money out of the market. Short-term debt securities for corporations froze due to declining confidence. With confidence in the financial sector heading south the stock prices of financial institutions around the world fell off a cliff. The global financial system found itself on the brink of a meltdown.

            The Federal Reserve took action to prevent a full meltdown of the financial system. With short-term markets freezing up the Federal Reserve expanded its own collateralized lending to financial institutions to make sure there was access too much needed funding for day-to-day operations. Under normal conditions the Federal Reserve only loans to institutions that take deposits through a process known as discount lending. During the collapse of confidence in 2008 investment banks also had difficulty in obtaining short-term funding making them vulnerable to credit cutoffs resembling bank runs. In March 2008 the Federal Reserve created two programs to provide short-term secured loans to primary dealer similar to discount-window loans.

            Bear Stearns in 2008 was close to failure, its failure would have created a domino effect that would have disrupted the markets severely. The Federal Reserve attempted to contain the damage by facilitating the purchase of Bear Stearns by JP Morgan Chase. The Reserve provided loans backed by specific Bear Stearns assets. Within several months the investment bank Leman Brothers collapsed due to no private company willing to acquire the troubled investment bank. The Federal Reserve did not issue direct loans to Lehman due to a lack of collateral. The failure of Lehman resulted in a financial panic which threatened to spread to several key financial institutions, including American International Group which is a large insurance company. AIG was central to guaranteeing financial instruments its failure could have lead to a cascading effect of failures and cause a meltdown of the global financial system. To protect the global financial system the Federal Reserve provided secured loans to AIG.

            In response to the financial crisis the U.S. government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The reform act establishes the Bureau of Consumer Financial Protection; the bureau has authority over a range of financial services providers. The mission is to ensure that people are treated in a fair and transparent way in the financial marketplace. The bureaus director will be appointed by the President and confirmed by the Senate, the bureau will be autonomous within the Federal Reserve.

            The financial reform legislation requires regulators to focus on the entire interconnected system instead on individual firms. This new perspective is known as a macro-prudential view. The legislation gives the Reserve the power to act when a group of institutions practices create risk within the financial system. In order to properly understand the possible risks regulators need to collect accurate and up-to-date information on the interconnections of financial firms.

            In recent decades there has developed a banking system that is less rigorously regulated. During the crisis this unregulated system was vulnerable to panics and was a major source of credit-market disruption. The Dodd-Frank legislation attempts to remove regulation gaps by focusing oversight on how the firm functions and its level of risk to the economy. The act creates a Financial Stability Oversight Council to watch the overall risks within the financial system and the broad economy. Federal Reserve has been given authority to regulate all systemically important financial institutions, even non-banks.

Federal Reserve overview and study.

Name

10/26/2011

Bus 254 Macroeconomics

1a.       Question 1a: (15 points) Federal Reserve overview and study.

The Federal Reserve Bank has two basic goals. The first is to promote sustainable output and employment. The second is to ensure stable prices which means low, stable inflation. The Federal Reserve does not directly control inflation, output, or employment and it does not set long-term interest rates. The Reserve indirectly influences these vital economic variables, mostly by using the federal funds rate. The federal funds rate is the interest rate institutions in the Federal Reserve System charge each other for overnight loans of reserves, which are often needed to meet minimum requirements. Depository institutions in the reserve system are required to hold a minimum reserve balance at Federal Reserve Banks.

 When the Federal Reserve wants to slow inflation it uses monetary policy tools to raise the federal funds rate. When the federal funds rate rises monetary policy is called tight, or contractionary. When the Federal wants to counter recessionary pressures the Fed uses it’s polices to lower federal fund rates. When rates fall monetary policy is said to be easy, expansionary, or accommodative.

The Federal Reserve has historically used three tools to conduct monetary policy: open market operations, the discount rate; and reserve requirements. Recently it has come up with new ways to affect monetary policy such as paying interest on reserve balances. The Reserve has also used temporary nontraditional tools in the last few years to combat a weak economy.

Open market operations are the Reserves most used policy tools. What the open market operations are, are basically buying and selling U.S. government securities on the open market with the goal of aligning the federal funds rate with a publically announced target set by the Federal Open Market Committee. The open market operations are conducted by the Federal Reserve Bank of New York at its trading desk. If the Federal Open Market Committee lowers the target federal funds rate, then the trading desk will buy securities on the open market. The Federal Reserve pays for the securities by crediting the reserve accounts of the banks that sell the securities. When the Reserve buys securities in the open markets it is creating money. When the Federal Reserve creates money and credits it into reserve accounts it puts downward pressure on the federal funds rate. With lower federal funds rates, the interest rates that are directly and indirectly linked also tend to fall. With lower interest rates businesses and consumers are encouraged to spend stimulating economic growth.

When the Federal Open Market Committee raises its federal funds rate then the trading desk sells government securities, collecting payments from banks by withdrawing money from there reserve accounts. Less money in reserve accounts means less money in the banking system putting pressure on the federal funds rate. By selling government securities market interest rise which slows consumer and business spending which slows the economy but also reduces the rate of inflation.

The Federal Reserve may also change the reserve requirements, which is the amount a financial institutions are required to hold in reserve. By changes this it can add or remove money from the Banking system, it is rarely used. The discount rate is also an option the Federal Reserve has its disposal to influence the amount of money in the banking system. Unlike the open market operations the discount rate is set by the Federal Reserve. The discount rate is used as a lender of last resort which occurs when the open market lending freezes up. The Reserve in 2008 was granted authority to pay interest on reserve balances. This has the effect of creating a floor beneath the federal funds rate because banks are not willing to loan to each other at rates far below what they can earn by leaving their reserves on deposit with the Federal Reserve. The Federal Reserve also devised nontraditional tools to lower borrowing costs for consumers and businesses. One tool used was large-scale purchases of long-term securities, including Treasury securities, federal agency debt and federal agency mortgage-backed securities. These purchases lowered long-term interest rates including mortgage rates.

CPI, Cola, PPI

Name

Class

10/02/2011

1.      You read that in 1960 gas cost 31 cents a gallon. How could you tell if gas increased faster or slower than most goods and services? Convert the price into today’s dollars by using CPI.

CPI 1960=29.6           CPI 2011=225.4

2011 price=1960 price x (2011 CPI/1960 CPI)

2.36 = .31(225.4/29.6)

The average price of gas today $3.64 a gallon, therefore the price of a gallon of gas has risen in price faster than most other goods and services.

2.      Cola is an adjustment that occurs automatically every year. It was put in place by Congress in 1972 in order to maintain the purchasing power of people receiving benefits from Social Security. Cola is based off the percentage change in the consumer price index for urban wage earners and clerical workers (CPI-W).

The first increase for cola occurred in 1975 it was for 8.0%. For the years January 2007, January 2008, January 2009 cola increased 3.3%, 2.3%, 5.8% respectively. January 2010 and 2011 there was a 0.0% increase in cola meaning there was no rise in benefits for Social Security recipients. Cola did not rise in 2011 because there hasn’t been a rise in CPI-W since the third Quarter of 2008.

3.      Quarter to quarter GDP growth shows the 1^st, 3^rd, 4^th quarters of 2008 showed a decline with only the second quarter showing a small increase. The 1^st and 2^nd quarter of 2009 showed a decline in GDP while the last two quarters showed increases. Since the last half of 2009 GDP has risen every quarter up to the second quarter 2011. First quarter 2011 GDP only rose by .4%. Second quarter 2011 GDP increased by 1.3%. This shows the economy is still growing, but has fluctuated a lot recently.

The chart of personal income from May to August shows some volatility with consumer spending rising than falling same seems to be true with disposable income it rises than falls sharply. In August personal income fell .1% while the prior month it increased .1% so personal income has remained flat for at least two months.

4.      Unemployment has held at 9.1% since July with about 14 million people are without a job. 6 million of those people are long term unemployed making long-term unemployment 42.9% of the unemployed population. Healthcare continues to add jobs but government  employment has a downward trend. The unemployment rate has hovered near the 9% for the last six months. The number of long term unemployed is worrisome because many of those people may give up looking for jobs and just leave the work force. Unemployment has a negative affect on the entire society it often leaders to higher crime and reduced confidence in the economy.

Consumer Price Index for all urban consumers (CPI-U) rose .4% in August. Fuel, food, shelter, clothing continues to increase. With the exception of June 2011 CPI-U has risen every month since August 2010. Prices are on the rise with personal income and disposable income being volatile, there could be a worry that prices rise faster than people can afford to pay hurting demand for many goods and services.

               Producer price index  did not change for the month of August after adjusting for seasonally changes. In July the index only rose .2 percent in July and in June it fell .4 percent. What this means is producers prices haven’t changed much over the last few months. With producer’s prices not changing much but consumer prices going up this shows that producers are in general raising their cost for other reasons other than passing on increased cost to their customers. 

               Productivity fell in the 1st and 2nd quarter of 2011 at a.6% and .7% annual rate. From the second quarter 2010 to second the quarter 2011 productivity increased by .7 percent. Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers. Year over year shows an improvement in productivity bust the first two quarters of 2011 show a possible downward trend. When productivity falls  there is a need for more workers because less is getting done with the people currently employed.

5.      After looking at the presentations and looking at the fed website I believe the presentations are updated monthly.

Index of Economic Freedoms United States and India

Name

Date

Macroeconomics

On the 2011 Index of Economic Freedoms the United States ranks 9^th and India ranks 124^th. India has a population of 1.2 billion with a GDP of $3.5 trillion and a per capita GDP of $2,941. United States has a population of 307.4 million with a GDP of $14.2 trillion and a per capita GDP of 46,381. The unemployment of India is 10.9%, while the U.S. has 9.6% of its population unemployed. In the last five years India has grown at an 8% compounded rate while the U.S. has only grown at .7%.

 Even though India ranks low it has seen improvements in four categories: Business, Fiscal, Government and Labor freedoms. India has also seen a drop in two categories: Trade and Monetary freedoms.  The United States has seen a drop in four categories: Business, Trade, Government, and Monetary freedoms. The United States has seen improvement in Fiscal and Labor freedoms.

One clear difference between the U.S. and India is in property rights, Copyrights and intellectual property rights are difficult to protect in India. Domestic companies have used patented products without legal penalties. Property rights in the U.S. are secure there is a well developed licensing system that protects patents and copyrights. Protecting property rights goes a long way in creating a strong economy, it allows people to develop new products or services and bring them to market without fear of someone stealing their property.

Business freedom in the United States even though it has declined is still much higher than India’s. In India it is still difficult to start a business regulations are burdensome with little legal framework. It takes a very long time to start a business and even longer to get permits to do anything. Although India has shown improvement in allowing more freedom in creating a business it still has a long way to go. America protects the freedom to create and run a private enterprise. New regulatory uncertainty in the U.S. has led to a small drop in business freedom. Despite that the U.S. still remains well above average in allowing business freedom to form. Creating an environment that allows people to easily start a business aids in economic expansion by making it easier for someone to put their ideas to work. Regulation hampers new business because it adds more costs to the start up costs.

In India 28 state-owned banks dominate the banking sector they control 70% of the commercial banking assets. The high cost of credit makes it difficult for private businesses to grow and develop. Foreign banks are limited to owing only 5% equity in a private Indian banks. The United States has made changes to its financial sector since the sub-prime mortgage crisis in 2008. The government has intruded on the management of financial firms many of which have been bailed out. The Sarbanes Oxley act of 2002 still raises concerns due to increased disclosure and internal control requirements that hurt smaller firms. Even with the U.S. making its changes to the financial sector it still ranks much higher than India with regards to financial freedoms. Allowing the financial markets to run independently from the government allows greater access to financial options, such as securing loans for business expansion. The changes the U.S. has implemented also show the how public opinion can encourage governments to restrict the total freedom of financial markets.

The United States has burdensome taxes, top income and corporate tax rates are 35%. There are also estate taxes and excise taxes. On the state and local levels there are additional income, sales and property taxes. Tax revenue in the most recent year was 26.9% of GDP. There is also the possibility of the top income tax bracket to rise to 39.6% and capital gains tax to change from 15% to 20%. India has high taxes a top income tax rate of 30.9 %. The top corporate tax rate is 33.99%. There are also taxes on dividend and interest as well as a new general sales tax. Tax revenue was 18.6% of GDP in the most recent year. Higher tax means less reward for an investor or entrepreneur who takes a risk in hopes of a large return. High taxes are never popular it creates a feeling of being robbed, especially if you don’t see or feel the benefits of that tax revenue. With more money going to the government it could cause people to move their money or ideas to a country with lower taxes. When money and ideas leave there are less new businesses and less innovation.

Fixing Zimbabwe's economy

Name

August 29, 2011

Bus

            If I were the President of Zimbabwe I would first sell off government owned arable land than encourage the new owners of the farm land to build partnerships with foreign investors to grow maize, tobacco, cotton to be sold in the open market in exchange for  the necessary skills and equipment to create profitable commercial farms. I would create and pass laws to protect personal property in an effort to show foreign investors that if they invest in Zimbabwe they can feel secure that they won’t lose their investment to a government take over. To encourage production I would have to allow the market set the price for all goods bought and sold in Zimbabwe instead of forcing prices down unnaturally. This would at first make food prices rise but as production of basic needs increased the price should start move towards something more affordable on its own.

            Cutting government salaries and benefits as well as unneeded jobs, while very unpopular needs to happen in order to fund other government activities that could prove more valuable to the overall economy. By building infrastructure the government can make the movement of goods cheaper, easier, as well as making it much possible to supply business and people with steady sources of water and electricity. Allowing prices to rise and fall on their own, as well as protecting people’s rights to personal property will go a long way to improving Zimbabwe’s economy. A government that focuses on the most efficient use of funds instead of the populist short term fixes will improve the overall economy. Trying to create a more equal economy tends to weaken the entire economy. People want to have more than others and when you restrict that desire by forcing equality into the system production falls, prices rise and investors flee. By taking away the reward of taking risk people will not take the risk. 

Economic policy

CMP 111

Economic Policy

And what’s best for America

Name

7/14/2009

In America we have many ideas of what is best for the future economic growth of our nation. The two main theories have very different views in what is best to move our country forward. The first is often promoted by the Republicans, the basic belief is that lower taxes for business and the richest of the population helps expand the economy, by creating new investment opportunities. The second is promoted by Democrats; they believe that when the masses have lower taxes our economy grows, because the money they receive is spent on goods and services which increase the profits of everyone. Both have endless amounts of research and statistics to back up their views. But only one can keep the American economy competitive for the long term. This paper sets out to show that lower taxes for the largest percentage of Americans can make the American economy stronger.

            In the 1980’s the Republican Party tested what we will call supply side economics

and the U.S. Treasury Department lost $644 billion in revenues with no increase in

worker productivity or investment activity (Hage, December 1994). A problem with the Treasury losing so much money is that the Fed had to slash grants to states and local governments which

 caused many states to raise income and sales taxes. In 1981 congress enacted a

series of tax breaks such as capital gains, generous write-offs for business investment.

 The Reagan Administration believed it would expand the economy 4.4% annually and

create a budget surplus of $28 billion by 1984 (Hage, December 1994). But this estimate was far off base in 1986 the Treasury collected $171 billion less than expected (Hage, December 1994). Thomas Sowell argues in the article “A dishonest Slogan” that lowering capital gains tax only

helps to keep up with the rate of inflation and isn’t really a gain at all. He also believes

 that raising capital gains tax discourages investment and hurts the economy. This

argument just doesn’t hold up when you realize that the people that benefit the most from

 capital gains tax will always invest their money because it is there chosen profession.

            In America both of our major political parties have conflicting ideas of how our

economic policy should work this goes beyond their tax plans. The Republicans believe

 that self reliance means there is no safety net needed. They believe business can thrive

without healthy social conditions (Porter, Novemeber 2008). While the Democrats talk in a way that sounds like they want to penalize investment and economic success. They believe social

progress can only happen at the expanse of business (Porter, Novemeber 2008). Both these views are wrong we need to realize what makes America great is our ability to find a middle ground, something that allows business to grow while offering a protective net for those who need it. Business can thrive in an environment where our poorest Americans are given a helping hand. The problem is that a politician by their very nature can’t admit when they are wrong and spend all their time defending the policies of the past to prove they were right. What we need is for political leaders, business leaders, and civil society to have a respectful fact-based dialogue about the challenges we face.

            Taxes are still a major part of what happens in our country and Americans tend to

look poorly on taxes. Taxes are necessary in any government, and a fair and balanced tax

structure is something everyone can agree on. But this hasn’t been the case in America

for a very long time. Most Americans believe business has put their personal gains over

what is best for the entire nation. And with a August report released by the U.S. General

Accounting Office that stated that two-thirds of all American corporations paid no

federal income taxes between 1999 and 2005, it’s easy to see why the American people

feel that way[1] (Zuboff, 2008). No one likes paying taxes but everyone should pay taxes not just

some people. But with the current economy we are dealing with there is a growing belief

that what has been seen as a “Liberal Democratic policy” might be what is needed to

keep America competitive in the future (Zuboff, 2008).

            A Business Week Online article by Jane Sasseen offers a good contrast between

the tax plans of the Republicans and the Democrats here are a few samples from her

article:

“Len Berman a former Treasury tax official who is a senior fellow at the        Urban Institute say if Obama’s proposals which include plans to    

rescind the Bush tax cuts on couples making more than $250,000,  

close corporate tax loopholes, and tax private equity earning           

known as ‘carried interest’ as ordinary income were adopted in

quintile of the population would see their after tax income rise

5.8%. Those in the next quintile would see an increase of

4%. McCain’s proposals by contrast far more benefits would go

to the top a corporate tax cut and a large reduction in estate taxes

also extension of the Bush tax cuts. In 2009 if McCain’s

proposals went into effect the bottom fifth of the population would

see after tax income go up just .2% and people in the next

quintile would see a  .7% hike. But the top quintile would see a

bump up in after tax income of 2.7%. Obama’s proposals when

compared with current tax policy would actually increase revenues

coming into government coffers. Although he has promised tax

cuts too many middle and working class families, along with the       elderly. Obama’s tax plans would bring an estimated additional

$734 billion to the treasury over 10 years. By contrast McCain’s

tax changes would still leave the Treasury coming up short.

McCain’s proposals would slash tax revenues by an estimated

$628 billion over the 10 year period.” (Sasseen, 2008)

Obama ·         $734 billion in treasury in 10 years

McCain ·         Slashes $628 billion in treasury in 10 years

           

There are many theories to what is best for the economy, but the obvious choice is

to give money to the mass of consumers. They will generate sales which will help

business and also bring in sales tax for many states. A fair and balanced tax structure that

 taxes the people on top and on bottom at a nearly equal rate means that everyone thrives

 from the increases sales. And if more people have more money investments will

naturally rise. A fair tax plan that lowers taxes for most Americans is a long term solution

that will grow our economy for many years.

Bibliography

Hage, D. a. (December 1994). The Repackaging of Reaganomics. U.S. News & World Report .

Porter, M. E. (Novemeber 2008). Why America Needs an Economic Strategy. Business Week , 38-42.

Sasseen, J. (2008, November 30). Obama vs. McCain: Taxing and Spending. Retrieved from Bussiness Week Online: http://web.ebscohost.com

Sowell, T. (January, 1995). A dishonest slogan. Forbes , 81.

Zuboff, S. (2008, November 30). Bill Bradley Slams McCain's Tax Rant. Retrieved from Bussiness Week Online:http:/web.ebscohost.com

           

           

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[1] Zuboff, S Bill Bradley slams McCain’s tax rant

human values world view

Name

July 20, 2009

100

            I view the world as a place where people do what they need to do to survive. The world is survival of the fittest no matter where you are on this planet and what your struggles are if you cannot meet those challenges you don’t survive. If you are homeless or jobless this world doesn’t care about you. We aren’t much different from animals if you cannot compete then you don’t survive very long. There are people that go out of their way to help others but they are so few in number even fewer do it just because they feel it is the right thing to do many do it because it may help with their taxes or make them look good in the public eye or some other motivation that is based on themselves. I don’t believe in anything really at all except what is best for me, I focus on me and what is best for me no one else why should I think of others. I don’t know why I am only concerned with myself and I don’t know when this selfish thought process began but I know that it just feels right. It feels more natural to be concerned about myself then others.

            I am not at all religious I don’t believe in a god at all I don’t see the point I believe the idea of a god was thought up by people smart enough to know that most people are basically stupid and would believe what they were told. Those same people used the idea of a god to scare the masses and take control over the larger group of people. I think people hold onto religion because they are afraid to admit to them that this is all there is to life and no one cares about them. All they truly have in life is they and that scares people so they hold onto this idea of an all loving god. I don’t hold any values dear or close to me if it will suit my needs I will do what needs to be done. And I expect all people I deal will to react in the same way personal self interest isn’t a bad thing even though we are all taught that it is. I respect a person who is motivated by doing what is best for them.

            I think that I should have everything that I want in the world and I am willing to do what I have to to achieve it because I don’t believe anything should be handed out to anyone. But since I am motivated by self interest I am not adverse to taking a hand out either it is strange because I am a hypocrisy and I realize that and have no problem with it. Something I don’t think another person should be given I will take just as easily if offered to me because it benefits me. The world is an unforgiving thing if you fail no one will help you or even care. The world is a harsh place to live every corner or the world there are people that are struggling to survive they don’t have the very basic needs to survive food water shelter. And there are places that have these things in abundance and don’t even think of giving the people that need these things to them or at least not enough to survive on just enough to stave off death for a little while longer. This sounds horrible but that what people do we naturally care about ourselves more than others we are greedy and when we have we don’t want to give we want more more more and I don’t think there is anything wrong with that I believe it is actually more natural then helping another person survive.

            People are always competing with one and another we seem to have a natural drive to dominate another group or species, why is it strange or wrong to realize that we only do the things we do to benefit ourselves. Natural selection is a driving factor in evolution and it is in its basic form all about dominating in an ecosystem. The person that is most successful has best mating opportunities and best access to the basics of survival. Why do woman try to look more attractive and why do men try to show off their car of whatever else they have of value, I believe these actions are a basic instinct to dominate or compete with other members of our species in order to better survive and spread their DNA. My view of the world seems very negative and pessimistic but I don’t really see it that way I look at it in more of a realistic view. Life is not fair this is a fact in life but it is wrong or maybe unfair for me to admit that I do everything in my life for myself it just doesn’t make any sense to me. If the world is not fair then why should I be fair or care about other people doesn’t it make more sense to be concerned about only yourself in a world that is clearly not fair?

            I fully expect the people I come in contact with to do what is best for them and I know that this sometimes means that it won’t be what is best for me. So with everybody I meet I maintain a distance a certain level of distrust. I also maintain what could be considered a quick release from the relationship in the event that my needs to align themselves with the person I am associated with. It sounds bad but the truth of the matter is can you truly trust someone completely, no you can’t because people are capable of doing anything a person you have known and trusted your entire life could be a person to rob you if they felt the need to do so, or the person you love could turn out to have been cheating on you for as long as you have been together. Trust is something no one should ever give to someone completely a person should always stay on their toes about a person in their life.

            I would have to say that a lot of what I have been taught I have rejected. The idea that god loves you people are good and honesty is important I would have to say I do not believe any of that. The reality as I see it is that we are told things like that by the people who control the masses business leaders government officials and religious leaders all feed that stuff to us so they can maintain their place in power which I can’t be mad at them for it good for them, but I want to put myself into a powerful position so instead of being a follower I decided to do what is necessary to succeed and not care about other people. People are taught certain things at very young ages so young that they aren’t able to create an argument against it and so they grow up believing what they were told without questioning it that is why so many people still believe in god because they were told he was real. Our culture teaches that people should be good and help each other but we often do not practice what we preach, we talk about how good it is to help people and then tell the homeless person asking for food to get a job. Why teach that giving is good when it goes against our natural instincts to give to another person?

            People say they value justice or honesty but in reality they only like to say they do. When a person is accused of a crime they are instantly marked as guilty without a trial or anything justice isn’t important people are more concerned with revenge than anything else. People are only honest when it suits their needs people have no trouble lying if it benefits them. People are only concerned with what pleases them and we create this unrealistic view of what we humans beings truly care about because we don’t like being falsely accused or lied to but when it comes down to it we have no trouble accusing someone without evidence or lying to save our own ass. So all people are only truly concerned about themselves whether or not they admit it. I am just one of the few that will admit that I am more important than anyone else.

            I believe the world would be a better place if we would all just admit that the only concern we have is for ourselves. If we did this religion business and government would not be able to control the masses in the way that they do. What is right and wrong would cease to exist it would simply become what is best for me and even though that may sound like chaos there would be a natural order to things because people even today still do what is best for them. If you allow everyone to do what is best for themselves without any social consequences people would be able to reach their full potential.