Debt is not your friend

Katie Brotherton:

There is great irony in pursuing freedom through education only to be shackled by crushing debt.

What good is an education which doesn't illuminate the reality of modern life in the US? Simple knowledge of history and economics should be enough to show that tuition fees have seen an insane increase while salaries have been either stagnant or dropping thanks to inflation.

Link via Instapundit.

Gimme gimme gimme!

America in only 50 years:

The growth of entitlement payments over the past half-century has been breathtaking. In 1960, U.S. government transfers to individuals totaled about $24 billion in current dollars, according to the Bureau of Economic Analysis. By 2010 that total was almost 100 times as large. Even after adjusting for inflation and population growth, entitlement transfers to individuals have grown 727% over the past half-century, rising at an average rate of about 4% a year.


The Republicans have been worse than Democrats:

Notwithstanding the criticisms of "big government" that emanated from their Oval Offices from time to time, the administrations of Richard Nixon, Gerald Ford and George W. Bush presided over especially lavish expansions of the American entitlement state. Irrespective of the reputations and the rhetoric of the Democratic and Republican parties today, the empirical correspondence between Republican presidencies and turbocharged entitlement expenditures should underscore the unsettling truth that both political parties have, on the whole, been working together in an often unspoken consensus to fuel the explosion of entitlement spending.

The Greatest Ponzi Scheme of All Time will end. The only question is when.

Link via Instapundit.

Debt will soon implode

Vox Popoli:

Household has been deleveraging since Q3-2008 and is presently down $1 trillion. Financial has been deleveraging since Q4-2008 and is presently down $3.4 trillion. The only reason this private deleveraging hasn't shown up as general deflation is due to the $5.6 trillion increase in Federal leveraging; the Federal government has literally doubled its outstanding debt in four years.

That's the main reason the full force of this Second Great Depression has been on pause. The MSM is slowly coming to this view; they'll fully realize that we're in a depression right after Romney beats Obama in November.

The fruits of grade inflation

Vox links to this interesting piece:

[...] the weak student who believes in his high grades has also had a disservice done him. He has been misled about his abilities, falsely persuaded that career paths and goals are open that may be out of reach. Eventually, the fraud will be revealed: by an employer who finds him inadequate, by his own dawning recognition that he cannot achieve what he hoped. The reckoning will likely be bitter; evidence exists that the pedagogy of false esteem can even cause psychological harm. When students who have always been praised must confront the reality of their low achievement, their tendency is, as researchers James Coté and Anton Allahar report, not to confront the problem directly but to hit back at its perceived source — the teacher who has given them the bad news, the employer who does not renew a contract.

Assuming that one has a job. 

Frugality helps

Life in Canada today and 30 years earlier:

Today, financial self-sufficiency is impossible without taking breaks from school to work. The Bank of Canada’s handy inflation calculator tells us that my $1,000 tuition back in 1984 would cost $2,028 today if it increased just by the inflation rate annually. But according to Statistics Canada, the latest read on average tuition fees is $5,366.

In Ontario, the minimum wage is $10.25. A student who puts in a 40-hour work week for 12 weeks would stand to make about $4,900. That’s a sizable shortfall on tuition, never mind the cost of student fees, books and living expenses. As a parent of an 18-year-old heading to university out of town next year, I can tell you that budgeting $18,000 to $20,000 per year is prudent.

It's quite depressing to be a graduate from university in the last few years. The tuition fees have outstripped inflation by a huge margin and wages have been stagnant. So, young people are paying more and more money to get a degree which, as time passes, results in a lower and lower wage.

In addition, the price of housing, utilities, food and oil has been increasing. So, whatever litttle money new graduates do make goes to the necessary bills. There's little left over for savings.

Many young adults can avoid a lot of headache if they choose their major(s) wisely and don't spend their money frivolously. There's no question that life is tough but it's tougher if you're stupid.

Bad Economics

Vox Popoli:

In a free and well-governed society, exile is a punishment. In an unfree and misgoverned one, exile is impermissible. There is no stronger indication that America is no longer free than the fact that its leadership is seriously contemplating the idea of attempting to imprison its citizens within its borders.

That's one reason why increasing numbers of Americans are renouncing their citizenship. It's difficult to appreciate freedom when you feel like a slave.

Budgeting Ignored

Ed Driscoll:

A couple of interesting financial stats popped up today, and we’ll see if we can tie them together in our usual tendentious fashion in just a moment. But first, found via blogger/financial author Christopher Fountain, Henry Blodget of Business notes that “Households Earning Less Than $13,000 A Year Spend 9% Of Their Income On Lottery Tickets.” Having worked for a time during school vacations selling them, that stat doesn’t surprise me at all.

On the other end of the spectrum, we find athletes who were once rich. One would think that earning millions, sometimes hundreds of millions, of dollars would provide a person with superb financial security. Unfortunately, their self-control is non-existant; their spending outstrips their earnings.

Really, how difficult is it to spend less than one makes?

Hypergamy + Economics

EconLog via Instapundit:

Lots of interesting discussion in the comments, including this: “I’m a stay-at-home mom with three small kids. My husband’s income is quite good, but not amazing (especially since we live in an expensive state and have three children.) My MTR is about 45%. Between that and day care I would have to make about $70,000 a year before I would take home $1. Not worth it. So I’m home with the kids. BTW, I’ve had this conversation with many many SAHMs around here and almost all of them are home because of this. Now it turns out I like being home and probably wouldn’t go back anyway now, but that’s not true of many people I’ve talked to. Ironically, with the rise of assortative mating, its often the highly educated, accomplished women who marry men with high enough incomes to put them in this predicament, so we’re probably selecting for the drop out of some of our most productive workers.”

Women who are interested in having a family will definitely face this situation. Often, the logical and economical choice is for the mother to stay at home. The extra, net income could be negative if the wife works while the child or children are in daycare.

This is the type of conversation forward-thinking men have with women when they are on a date. Do you understand the perverse effects of such a tax system? Are you willing to stay at home and raise the children while I bring home the bacon? Unfortunately, the cancer of feminism results in women calling such men SEXISSS!

Most impressive

Nikons makes their premium cameras in Japan. So, of course, their production was damaged because of one of the most powerful earthquake ever to hit that weird place. Later, in the same year, their low-end camera production went under because of the floods in Thailand.

Yet some people in the comments here are upset because of the product delays and high prices of Nikon DSLRs. Thom Hogan provides perspective:

Everyone needs to think about this in a different fashion: in LESS THAN A YEAR, Nikon will have completely replaced ALL of its DSLR manufacturing with completely rebuilt facilities, all while manufacturing a record number of DSLRs. If that doesn’t impress you, nothing will.

Prices for their cameras are not high when compared in Yen. The stronger Yen has pushed Nikon to increase prices in non-Japanese markets. Again, this is something out of their control.

Anyway, moment of truth coming up next week. The long-rumored Nikon D800 is supposed to be announced. Will it be 36 megapixels of goodness? Or will it be a let down in either quality or less megapixels?

No sexy time in Japan

A staggering number of young people in Japan are not interested in sex.

Combine an economic downturn with the increasing excellence of porn and video games, then throw in female economic independence and this is the result. For all that they are decried as soshoku danshi, the position of the "herbivores" is a perfectly reasonable one.

It's likely that the modern Japanese teenage girl is ultra-materialistic. Japan has lost 'two' decades to poor economic growth. Therefore, a majority of guys in her age group are utterly unappealing.

Moocher lifestyle

Zero Hedge:

Tonight's stunning financial piece de resistance comes from Wyatt Emerich of The Cleveland Current. In what is sure to inspire some serious ire among all those who once believed Ronald Reagan that it was the USSR that was the "Evil Empire", Emmerich analyzes disposable income and economic benefits among several key income classes and comes to the stunning (and verifiable) conclusion that "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year." And that excludes benefits from Supplemental Security Income disability checks. America is now a country which punishes those middle-class people who not only try to work hard, but avoid scamming the system. Not surprisingly, it is not only the richest and most audacious thieves that prosper - it is also the penny scammers at the very bottom of the economic ladder that rip off the middle class each and every day, courtesy of the world's most generous entitlement system.

There really are Two Americas. One is where people work hard and don't scam the system. The second is filled with entitled parasites.

Understanding economics

Richard Epstein writes about the effects of the "living" wage and the minimum wage laws in the United States:

When the minimum wage law was equal to $5.15, about 6.6 million individuals earned less than the $7.25 wage level. By 2010, after the wage level was increased, unemployment rates did move sharply upward. Some of today’s workers will be lucky enough to ride the living-wage tide upward, but others are likely to be cast aside. The empirics on matters of degree are always up to debate, given the huge set of other regulations that hit labor markets. In principle, the law of demand says that as the wage demanded increases, the jobs offered will decline. Unless demand curves are flat, there must be unemployment effects. The only question is their magnitude. The imposition of a high minimum living wage will reduce, all other things being equal, the demand for labor.

No question about it. There will be some who will have their wage cut down to $0 because of such laws.

Americans getting poorer

PJ Media:

The essay below is excerpted from the December 2011 issue of Stansberry’s Investment Advisory. Its author, Porter Stansberry, examines the question of whether America is growing richer or poorer based on an analysis of its per-capita gross domestic product (GDP). Said simply, is our economy growing faster than our population? As individuals, are we becoming more affluent? Or is the economic pie, measured on a per-person basis, growing smaller? It’s a hard question to answer, and this article provides Porter Stansberry’s insight.

I was stunned by the level of credit card debt of older Americans.

The Euro Empire

Vox Day:

In the Eurozone, the state of democracy is even worse, thanks to the latest version of what is improbably described as the "Greek rescue deal." The "stability union," which was announced in Brussels last week, removes the power of national governments to make decisions concerning issues of taxing and public spending. This means that the two central economic functions of national government, monetary and fiscal policy, are now completely out of government control.

This is scary. The Euro took away monetary control out of the hands of smaller European governments and concentrated the power mainly in Germany and France. But soon taxation and spending will no longer be decided upon by national governments in Europe! No wonder the peoples in many nations are angry. Their voice has become meaningless.

New inflation

Vox Popoli in the comments:

It appears I should start publishing the monthly Day report to track hooker prices in European capitals the way Case-Schiller tracks US home prices.

Hmm, perhaps someone can come up with The Whores Index. It'll likely perform better than the sham consumer price index.

The same old deal

James Pethokoukis via Instapundit:

The American Recovery and Reinvestment Act was Barack Obama’s signature achievement in dealing with the most worrisome set of economic conditions since the Great Depression. It was how Obama, to use a pair of his now seemingly abandoned metaphors, sought to drag the economy out of the ditch while the Republicans were standing around sipping Slurpees.

As Obama said on the first anniversary of signing the bill, “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility.”

No, it's partly thanks to the epic and wasteful government spending that we'll see the Great Depression 2.0.

The New Deal had the same effect in the 1930s. FDR tried many different policies which were puzzling and economically destructive but it gave the appearance that he was doing SOMETHING instead of doing nothing like those heartless republicans.

A small sample of what went on in the 1930s:

1. Farmers, who were a decent chunk of the voting bloc, hated low prices for food. So, the US government gave handouts to farmers to not grow food! That's right. Millions are without jobs. Many have lost their savings when hundreds of banks failed. They don't have money for utilities or food. Yet, the government is taking money out of the private sector and handing it to a special group ... so that food prices stay high.

2. The government enforces a minimum wage. If a person wants to buy a service, let's say a haircut for $0.50, then that's illegal because the minimum charge ought to be $0.60. Some "criminals" ignore the law and offer a haircut for $0.50 anyway. When the cops find out, they go to jail. This actually happened -- a person spent time behind bars because they took a lower than mandated wage for a haircut!

3. Promotion of labor unions. They increase the wages of workers in the union but overall decrease the number of employed workers in the economy. Not something you would want in the middle of a depression.

Respek the equilibrium


MILLIONS of school-leavers in the rich world are about to bid a tearful goodbye to their parents and start a new life at university. Some are inspired by a pure love of learning. But most also believe that spending three or four years at university—and accumulating huge debts in the process—will boost their chances of landing a well-paid and secure job.

Not in the Great Depression 2.0.

Vox Day:

It's not rocket science. If supply is increasing faster than demand, then wages for university graduates are going down even as tuitions rise.

In other words, a degree is worth less and less with each passing year. One only needs a simple understanding of basic economics to understand this issue. This can be learned in a Grade 11 course but too many are ignorant.

Take another issue: medicine. Specifically, cancer drugs.

Last week in the New York Times, veteran health correspondent Gardiner Harris wrote of the recent sharp and puzzling shortages of critical drugs used for treating a wide range of life-threatening cancers and bacterial infections. The total number of shortages has increased from 58 vital drugs in 2004 to 211 in 2010. These shortages have prompted some wholesalers to hoard certain scarce drugs, which has only aggravated the problem.

But how could a shortage arise? Couldn't firms simply increase their price? Nope.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a set of complex price controls as part and parcel of the new prescription drug benefit contained in Medicare Part D. These are not garden-variety price controls, like those on gasoline or rents, which interfere with solely private transactions. They are controls that the government introduced as an effort to prevent overpayments under the Medicare program.

Because the government is your friend! Again, as Vox wrote, this isn't rocket science. The price controls in this case are meant to act as a price ceiling which logically lead to shortages. This was and is predictable. Yet, the US government keeps on using the same policy which results in serious consequences.

I'm sure Obamacare will fix all such issues. To think otherwise would be raciss!

Who decides how much is allowed?

Sam Harris: How Rich is Too Rich?

even in the ideal case, where obvious value has been created, how much wealth can one person be allowed to keep? A trillion dollars? Ten trillion? (Fifty trillion is the current GDP of Earth.) Granted, there will be some limit to how fully wealth can concentrate in any society, for the richest possible person must still spend money on something, thereby spreading wealth to others.

[Emphasis mine.]

Vox Popoli:

And the inevitable atheist tendency towards totalitarianism finally shows through. Rich people aren't "allowed to keep money". They have it. It's theirs. As in, not yours, Sam. This is called the principle of private property, and upon it all the wealth of the Western world is founded. Or rather, was founded before it was turned into collateral in a ponzi scheme.

G Powered Recovery Bummer

Karl Denninger provides a summary of the recent past:

First, we build a Ponzi in the tech industry. Companies with no profit (and no reasonable expectation of ever having one) sell for hundreds of dollars a share, get 100% (or more) first-day price ramps and then, when the bubble bursts, crashes.

Not content to accept that we built a Ponzi Bubble in tech during a Democrat Presidency, and that the fluff had to come out of the economy, we do it again under a Republican one, this time in houses. This culminates in giving people $500,000 loans with no income, no job and no assets, creating price ramps of 100% or more in significant parts of the economy. At the same time we accelerate the offshoring of our job base to an insane degree, decimating the tax base.

The situation has been made worse in the last three years. The inevitable crash will come -- the great depression of our time. The only question is: When?


Meredith F. Small:

How competent are 4-year-olds? They are competent enough to work. By “work,” I don’t mean on the factory line, or forced labor of any kind. Instead, I mean tasks that are, by any cultural standard, age-appropriate.

Look outside Western culture and watch children, even very small children, as they gather firewood, weed gardens, haul water, tend livestock, care for younger children and run errands. And no one complains because they are mostly outside and usually with other children.

Furthermore, child labour laws in the US set the minimum working age at 16. What exactly is wrong about a 13-year-old working at Walmart for a few hours during the weekend? I think too many conjure up an image of an oppressed, miserable child slaving away for 12 hours a day making not a penny more than minimum wage when "child labour" is mentioned.

I would have not mind working a little when I was young -- around 10-14 years of age. The problem was that I lived in Saudi Arabia. Only my dad could work in that foreign land. After hearing my complaints, my father offered me a small deal: wash the car, wax the car, then wipe off the wax; all under the blazing sun in the brutal Arabian heat.

My wage? $1.33. It would take me two hours to complete the work. I sure did understand the value of money a lot more after that.


The Thinking Housewife:

THE EUROPEAN UNION’S executive body urged Germany last week to discourage women from being full-time mothers. With Europe’s demographic crisis, more women should work, a report on the German economy stated.

Ignore your nature and strength; be an office drone! How exactly this will reverse the demographic decline is a mystery.

Us Poor Canadians!

Financial Post:

Of the 24.5 million returns filed, 18 million Canadians reported total income of $50,000 or less. That’s not a typo. In other words, ignoring individuals who don’t file returns such as children, nearly 75% of tax-filing Canadians earned under $50,000 in total income in 2009.

Add another 5 million Canadians who reported total income of between $50,000 and $100,000 and you conclude that about 95% of individuals have income below $100,000 annually.

A prudent person can live comfortably on $50,000 in Canada. Too often it's the debt-powered spending that's the problem; not the income.

Lot of Pain

Greg Mankiw writes the bitter truth.

We have to cut Social Security immediately, especially for higher-income beneficiaries. Social Security will still keep the elderly out of poverty, but just barely.

We have to limit Medicare and Medicaid. These programs will still provide basic health care, but they will no longer cover many expensive treatments. Individuals will have to pay for these treatments on their own or, sadly, do without.

The reason most politicians don't cut these programs is because most of the voters, the elderly, benefit from such schemes.

We will increase the gasoline tax by $2 a gallon. This will not only increase revenue, but will also address various social ills, from global climate change to local traffic congestion.

Good luck.

Stay in the West

Some jobs aren't worth it:

When it held jobs fairs in cities like Miami and Houston, only about 50 people showed up, "compared to a global average of about 150 and as many as 1,000 at some events in Europe and Asia." The jobs don't require much in the way of education, and they come with benefits, free accommodations, and a starting salary of $30,000. But you'd have to move halfway around the world, to Dubai—an alien and expensive place. Would you uproot yourself and your family for $30,000 a year?

The average annual salary for an American is above $30,000. So, it's surprising that Emirates Airlines is offering Americans a below-average salary to work in Dubai -- a land with a demented culture, a different language and a dastardly hot atmosphere.


Vox Popoli skewers the Keynesians:

the U.S. military should set off a series of nuclear explosions in the Atlantic, the Gulf of Mexico and off the California coast to trigger a series of tidal waves that will trigger instant economic growth all along the coasts.

Who knew that all the building codes hinder future economic growth.

Is It Inevitable?

Vox Popoli:

Most Americans recognize that having the federal government pay 100 percent of the nation's wages and salaries is not possible. At this rate, it will have to pay 50 percent or more by 2020, which I note tends to correspond nicely with my long-standing prediction that by 2033, the U.S.A. will no longer be an independent, sovereign nation.

That's a bold prediction. I wonder if there is anything that can be done by the American people that would halt this vicious decline ... that is if most even recognize the problem.

Most Want A Free Lunch

What else is new?

Americans overwhelmingly say that in general they prefer cutting government spending to paying higher taxes ...

Of course, but ...

Yet their preference for spending cuts, even in programs that benefit them, dissolves when they are presented with specific options related to Medicare and Social Security, the programs that directly touch the most people and also are the biggest drivers of the government’s projected long-term debt.

So, who's going to pay for it all?

If Medicare benefits have to be reduced, the most popular option is raising premiums on affluent beneficiaries. Similarly, if Social Security benefits must be changed to make the program more financially sound, a broad majority prefers the burden fall on the wealthy.

But, of course.

Link via Calculated Risk.

Time to Pay the Bill

The Fiscal Times:

But just how flush is a family of four with a $250,000 income? Are they really “rich”? To find the answer, The Fiscal Times asked BDO USA, a national tax accounting firm, to compute the total state, local and federal tax burden of a hypothetical two-career couple with two kids, earning $250,000.

Interesting. Though, what's going to affect the average Joe is these terrible little taxes:

States and municipalities have been steadily raising income tax rates to help close gaping holes in their budgets. Property taxes are also increasing, even though real estate values have cratered. And sales taxes are hitting record levels, in some areas nearing 10 percent. Gas taxes, alcohol taxes and hidden surcharges on everything from airline flights, ferry rides, soda, vehicle registrations and rental cars have also been stealthily rising.

Politicians can only soak the rich for a while before they simply stop working or move. Then it really is the definitely-not-rich crowd which sees the higher taxes in the form of higher prices.

Ungrateful Goons

David Thompson on "protests" by college students in the UK:

One enormous placard read, “We are not your slaves!” An odd sentiment, really, from people so engorged with entitlement they assume an almost aristocratic right to other people’s labour and other people’s earnings. A more honest placard might have read, “You will pay for things I want or I’ll smash up your stuff.” But that would sound like extortion more than slavery.

Thuggery has a long and proud tradition on the left. Violence is perfectly fine as long as the cause is "just".

Ignoring the Austrians

Classical Liberal posted this link in the comments:

when looked at critically, the budget position of the United States is no better than that of the more feckless EU countries, while several of its states are close to bankruptcy. Japan too has debt levels so high that its credit would be questionable in any crisis. Rich country government debt, since 1694 considered the safest of all assets, could be forced into write-down as rollovers proved impossible. If that happened, the global economy, in which confidence would have vanished, would almost certainly descend into a recession that would rival the Great Depression and might well prove permanent as overpopulation, resource and environmental problems overwhelmed its ability to recover.

I agree with the main point: A huge price will be paid for many years of mal-investment in the US and other richer parts of the world.

In the 1930s, for the first time in human history, the American government decided to pay farmers to not grow food. Why? To keep food prices high and the farmers happy. This economically destructive policy was used right in the middle of the Great Depression. Recently, the American government has taken productive dollars away from taxpayers and given it to businesses that are failing. These workers are making products that are not profitable in the market but such businesses have enough muscle to steal money from taxpayers. Again, it's another policy that makes little economic sense.

The immediate future will bring a lot of pain. As Vox Day has stated, we are in the Great Depression 2.0.

Bad Incentive Structure

Greg Mankiw:

when I hear economists advocate the extension of UI to 99 weeks, I am tempted to ask, would you also favor a further extension to 199 weeks, or 299 weeks, or 1099 weeks? If 99 weeks is better than 26 weeks, but 199 is too much, how do you know?

Unemployment insurance ought to be of a short duration. When it lasts more than a year, it starts to look like a lifestyle choice. Besides taking money away from productive sectors of the economy and handing it to people who aren't working isn't a smart policy.

Next-Best Choice

Vox Popoli writes about an atrocious question regarding economics which was asked in the NYT. Oddly enough, the NYT got the answer incorrect.

There's a lot of confusion in the comments there as many people try to dissect the problem. Vox cuts to the heart of the matter with his comment on "11/30/10 6:59 AM".

Fresh, New, Hot Dollars!

The Globe and Mail:

The U.S. Federal Reserve’s decision to print dollars to buy U.S. Treasuries – a measure that is designed to lower longer-term interest rates, but that might also weaken its currency – has heightened tension between leaders of the G20 countries as they prepare to begin their summit in Seoul on Thursday. Senior officials from Germany, Brazil and elsewhere have been critical of the Fed decision; some countries, fearing the new money will flood into their countries in search of higher returns, are actively trying to keep some of it out, to take the pressure off their currencies.

I doubt the American economy will perform better in 2011. The Americans have practically exhausted their monetary policy; it's fiscal policy that needs to be corrected. If the income tax cuts expire by the end of this year, then it's a certainty that the US economy will contract even more.

Show Me the Money!

A fascinating article about the Rolling Stones:

A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out.

[Emphasis mine.]

It's amazing how governments keep on implementing such dumb policies to soak the rich ... and then are stunned when the rich pack up and leave.

Link via Greg Mankiw.

No Cure

Vox Popoli:

Now, not everyone is capable of blowing $120,000 in only four months and winding up with nothing but another notch on the old bedpost. But this sort of behavior is seen all the time, from professional athletes to lottery winners. So long as an individual's time preference is limited to the short term, he will never amass any wealth because he will immediately spend any amount of money that is given to him or earned by him.

Yet, their poverty is often blamed on the greedy rich!

It's not about how much you make but how much you save.

How Taxes Destroy

Greg Mankiw:

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding.

Read the rest to fully understand how the numerous taxes in the US annihilate such simple savings.