Entries Tagged 'Economics and Investing' ↓

Six Ideas To Improve Our U.S. Economy

There are obvious things that no one running for President seems to be talking about these days. Here are six issues I think we should talk about.

(1) Talk about how we are going to improve our infrastructure 

From assertions that fossil fuels that would immediately be outlawed on election day, on one hand, to, on the other hand, the fact that fossil fuels are so far the only industries that our President supports wholeheartedly, we’re not talking about infrastructure. Why? A functional infrastructure is the foundation of good economics. We have no idea what needs fixing and how much it will cost. How can we be realistic in our expectations about updating our infrastructure. A recent documentary on TV lately showed that China is far ahead of us in building its infrastructure, and solving technical problems. We can’t afford to lose out in this race!

(2) Extending the time limit on unemployment insurance

So far, the only person I’ve seen argue for this idea is an economist who predicted the last financial crisis.Raghhuram G. Rajan (“Raj”) pointed out in his 2010 book, Fault Lines that European countries now allow their unemployment support to go on for two to three years. Given the need to retrain workers for jobs robots can’t do, I think unemployment and job training should be on the near horizon – especially since the Fed is feeding a low-interest-rate frenzy on Wall Street that may lead to stagflation and unemployment as soon as next year.

(3) Considering rotating teachers among schools rather than busing students or giving students vouchers to go to schools far away from home

Botswana in Africa (home of the Ladies #1 Detective Agency) rotates 20% of its teachers each year. Why? Because Botswana has a multitude of tribal groups. Rotating teachers has helped bring understanding among different tribes, and Botswana is an exceptionally peaceful country, having had no race wars. If any other country needs help with encouraging its racial/ethnic groups to understand and trust each other, it is the United States! We have the most diverse population in the world.

(4) In keeping with the above idea, how about restructuring the housing situation in this country?

Not just in terms of how to promote environmental justice for less-well-off people, or for controlling climate change, but also to encourage integration of neighborhoods. This would decrease gerrymandering and increase connections among the hundreds of racial/ethnic groups in the United States. The funding of housing is intimately connected with both Wall Street and our federal government. Government has looked the other way at redlining of whole neighborhoods, and banks have gotten burned profiting off sub-prime loans. How could we encourage government and banks to get involved in bringing Americans of all backgrounds together rather than segregating so many of our urban and suburban neighborhoods.

(5) Changing the way race is defined in this country.

The Census Bureau lists only a few categories of race. This country has over 500 Native American tribes along with successive inflows of immigrants from everywhere around the globe over many centuries. We are the most diverse country in the world. Our Census categories are completely inadequate for drawing any rational conclusions about how to serve all Americans. At best, using other sources, our government can only come up with percentages for 20 categories of Americans by race or ethnicity. This is a cornucopia of data with big holes in it.This kind of data promotes exclusion more than inclusion.

(6) Abandoning the view that corporations exist principally to serve shareholders

According to the Financial Times economist, Martin Wolf, The U.S. Business Roundtable, represented by 181 CEOs of the world’s largest companies has just issued a statement that their companies will “share a fundamental commitment to all of our stakeholders.” This is not a new idea. I worked for a non-profit in the 1990’s that was promoting the idea of serving long-term stakeholders in corporations, such as employees, clients, and communities. In fact, a Wall Street power broker named Marty Lipton put forth a call to abandon short-term profits for long-term commitments to stakeholders in his 1979 paper, “Takeover Bids in the The Target’s Boardroom” (Source: Financial Times Gillian Tett, “Does capitalism need saving from itself”). Isn’t it about time to discuss this idea!

If you have ideas that you think should be discussed by our Presidential candidates but aren’t, please comment (briefly as you can) and I’ll post comments (with or without your name if you prefer). Let’s hear your ideas about changing things for the better!

Word of the Day – Comparative Advantage

Comparative Advantage is a bedrock economic theory of trade that says whenever nations vary in goods they grow or make, they gain when they trade with another nation that cannot grow or make those goods. This is a win-win situation. Both nations benefit when they sell another nation their main products that the other doesn’t have.

What makes nations different? Their locations around the globe, topographical geography, traditional cultures, their status in terms of being developed or less developed nations, education, values, and a host of other factors.

What comparative advantage relies heavily upon is weather. And that’s really a problem right now. Climate change is happening, no amount of denial can keep it from happening. Climate changes are affecting the comparative advantages of nations around the globe.

Capitalists are ignoring climate change at their peril. Donald Trump seems to have thrown out the whole theory of comparative advantage (if he every knew about it in the first place). He is using numbers instead of rational reasons to promote his trade wars.

Real trade is not based on using threats of gigantic monetary penalties to punish other countries – real trade is based on the comparative prices for which things of value are traded by countries who each need things others have. Continue reading →

Word of the Day – Zero Sum Game

A situation in which one person or group can win something only by causing another person or group to lose it. (Source: Mirriam Webster Dictionary

The definition of this economics term is simple, but spotting the reality of being in such a game is not so easy.

We’ve all seen shell games. If not in person – on TVs or movies. 

In these games, watchers are invited to bet on whether they can see where the con man places a ball under three containers he is shuffling around. 

The financial markets essentially do the same thing. We are invited to bet that we (or someone we pay who we think is smarter than we are) can predict where some kind of investment is going to land by a stipulated amount of time.  

The probability of any random event, e.g. rain on any particular day is actually 50/50 over the long run 

We know this from the law of large numbers used in statistics – where a coin is tossed Ad infinitum, the results ultimately move towards 50/50 heads/tails.

But of course, on some days it is easy for us to see that rain is more likely than not and vice versa. 

So we bet on stocks (or futures contracts or commodities or currencies, etc.) within short periods of time where the law of averages (i.e. large numbers) does not yet make the odds 50/50

After the end of each time period we choose, (a minute, hour, day, week, month, etc.) the result is always a zero sum game. The total payout for bets is zero. The winners cancel out the losers.

There may be differing amounts of winners or losers in each time period (i.e. higher or lower volume of bets) but the total amount of money they all bet will sum up to zero.

Winners win at the expense of the losers. Winners (including the Brokerages who take out their cut first) are not necessarily those who will have better knowledge of factors affecting the bets they make. They may just be lucky. But losers are those who, by definition, make poorer choices. Continue reading →