Archive for category Economics

The 77% Myth

Equal Pay

For 30 years I have been a supporter of equal pay for women. My reasoning is very selfish and I have shared it with everyone who has asked. As I was married to a working woman, I benefitted as she made more money. It’s a simple and straight forward as that.

It’s also rather obvious and it’s quite similar to clean air and clean water. Do you hear anyone arguing the other side. Are there presidential candidates who argue in the debates that we have to lower woman’s pay. Of course not. And yet in every speech that Hilary and Bernie give they bring up ensuring that women receive equal pay for equal work.

But where are the companies that aren’t doing this? If either of them can name just one company that does not pay women the same as men then a lawsuit should be filed immediately under the two laws that are currently on the books.

Equal Pay Act of 1963

Lilly Ledbetter Fair Pay Act

But they can’t do that because there is no such example.   So why do they keep up this pretense?

Of course it’s about politics. If they can keep up the narrative that there is a war on women it will only help them in the general election. (And if they can get a new law passed that uses the same shoddy standards of evidence that the 77% claim uses than the trial lawyers will be happy to file lots of lawsuits).

To fight this narrative, there needs to be more focus on the facts. Not the shoddy analysis done by the Obama Administration.

A very good analysis was discussed by the folks at Freakonomics. Although Steven Levitt, one of the founders, is a professor at the University of Chicago and therefore you might say leans right, However, Stephen Dubner really runs the place and if you have read his stuff or listened to his podcast you know that he leans more left. This is the link to their podcast on the subject.

The analysis that he discusses was done by Harvard University Professor of Economics, Claudia Goldin. She was the first woman to get tenure in the Harvard Economics department and a former President of the American Economics Association. In other words, pretty credible.

What she found was that when you control for factors such as education, profession, experience and hours worked the gap virtually disappears. Additionally, there is another factor that could be called flexibility selection that can explain any remaining delta. Flexibility selection is employees “selecting” jobs that give them more flexibility for their personal lives. Some factors of flexibility could be to work from home occasionally, set their own hours, less travel amongst other things. This may be to take care of kids or parents or just because the person doesn’t want to have their life consumed by their work. One example of this is the lawyer who leaves the high pressure law firm to become a corporate council. Lower paying but giving the person more flexibility with their schedule. Yet both positions show up on census data as the same job. These elections are made by women more often than men and although they show up in the data as the same job, one is paid less. Should this be illegal.

A major problem in continuing this narrative is that by constantly repeating it we are creating an entire generation of victims. I don’t want my daughters thinking that they are being taking advantage of by “the man”. To quote President Obama “that’s not who we are”. I want them to believe that they are in control of their future and with hard work can achieve whatever their goals are. That is the American Dream. That is who we are and it applies equally to men and women.


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Embrace Chaos

Embrace Chaos

As an Engineer and an Entrepreneur chaos is not my friend.  When executing on a business plan chaos is the last thing that I want.  It scares your two most valuable resources, capital and people.  Investors want surety and employees want stability.  When designing a warehouse space chaos only gets in the way.  The whole idea behind any facility design is order and predictability so things move smoothly from manufacturing to the customer.


But I have learned to embrace chaos.  Driving along Rte 128 around Boston during rush hour or walking through Rockefeller Center in NY at 2:00 in the afternoon you see chaos all around you.  People moving through close proximity but with wildly varying starting points and destinations.  To add to the lack of order, the variation amongst what they are driving or what they are wearing would drive any central planner to drink.


But that’s the point.  Each person driving on that highway got there based on decisions that they made.  They decided what type of car they wanted to drive based on their budget, tastes, driving style and experiences.  They decided what time to leave based on when they needed to be at their destination, the weather and their knowledge of local traffic patterns.  No one told them what to do, they got to decide for themselves and that’s what makes it work.  That’s what makes Chaos beautiful.


We all have defining moments in our lives.  As strange as it sounds for me one of mine was when I was 27.  I was a consultant working for Kmart (back when they mattered) and I was tasked with fixing their distribution network.  One day I was standing alone in a 1,500,000 sq ft warehouse (almost 40 acres) looking around at TV’s, housewares, clothes and various other products stacked 40’ tall.  People were moving all around me, the din of the conveyors made it hard to hear myself but I was in awe of the beauty of it all.  Totally chaotic but it was the embodiment of the free market system at work.  There were no central planners deciding what to produce, no government agents setting prices.  Just products flowing based on consumers in 100’s of stores sending signals by buying things.  Those signals flowed up the supply chain via orders for restocking and new purchase orders.  An economy working.  To me it was more beautiful then the Mona Lisa in the Louvre.


Politicians abhor chaos.  They want order.  They believe order allows for knowledge and control.  Anytime a new regulation is enacted or a law is passed chaos is reined in and the free market dies a little.  Yes it would be much more efficient is we all drove a Ford Fusion.  Just think of the economies of scale that could be achieved.  But where is the fun in that.

As you go through this holiday season, I encourage you to observe the chaos all around you.  In the grocery store with tens of thousands of products all begging for you to put them in your cart.   In the mall with 100’s of options (styles, colors, fabrics) of where to shop and what to buy your mom for Christmas.  On the streets with people going here and there, running errands, picking up kids or just enjoying a cup of coffee.  Every where you look people are making literally thousands of little decisions everyday.  All of these tiny unorganized chaotic decisions when added up create our economy.


Merry Christmas and embrace the chaos.


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Health Care Debate

How did I ever get so lucky to draw the publishing slot on the morning of the end of the world?  As I write this (Wednesday morning) I have no idea how or when the standoff will resolve itself but I feel that I must comment on what is going on.

There has been much discussion from both Sir Timothy and Mr. Bard about defunding ObamaCare.  A short note from another point of view …  During the whole previous presidential primary cycle we heard a lot about nominating the most electable conservative candidate.  Not the most conservative candidate, but the most conservative candidate who was electable.  If that was the goal, what is the equivalent here?

Did we really expect that the sitting president who has his name on this signature piece of legislation (ObamaCare) would ever agree to a deal where it was defunded?  I don’t think so.

I am not trying to be a Monday Morning Quarterback but I think that we could have predicted the outcome to that fight.  The goal was worthy but in losing there has also been a lot of collateral damage.  What frustrates me is that even though most politicians have moved away from the defunding position about a week ago, the Main Stream Media and the average person on the street is still acting as if the demand is still defunding.  This makes us look unreasonable.  The well has been poisoned.

So what would have the most electable candidate looked like?  I believe if we had focused on two broad goals:  No special treatment for big business or anyone else and supporting economic growth we could have talked about a delay for the individual mandate as being fair.  We could have also sold the medical devices tax as hurting small business and job growth.

The real missed opportunity was not having a strategy for what happened when the big flaws in ObamaCare became apparent.  The incompetence of the government trying to build and run a system this large and complex was predictable.  The shear lunacy of pricing that has lower income young people subsidizing wealthier older people is clearly indefensible.

Smart operatives should have seen the outcomes of both of these and had solutions at the ready.  The systems challenges themselves should have called for an immediate delay in the implementation of a year.  No business would have tried to implement such a complex system that touches their customers without rigorous testing and a back up plan.  I have been overseen large ERP and ecommerce implementations and testing and the ability to roll back are the price of admission.

At the moment the systems didn’t work, we could have won that debate but now the debate on delay is about Conservatives hating ObamaCare and being unreasonable.  Additionally, as reaction to higher premiums came out we could have had a debate about the fairness of the premium formula and why there were young participants subsidizing older participants.  We know that if that wasn’t the case people wouldn’t sign up and the whole system would collapse, but that argument doesn’t fit on a bumpersticker.  It’s actually indefensible.

At the end of the day, we probably would have ended up about where it looks like we are going to be on the debt ceiling fight but we could have still had the discussion on ObamaCare regarding government competence and the fairness of premiums.  Two fights we could have won.

Just my two cents.


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Economic Freedom

To Increase Jobs, Increase Economic Freedom
Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.

Is the United States exceptional? Of course we are! Two hundred years ago we were one of the poorest countries in the world. We accounted for less than 1% of the world’s total GDP. Today our GDP is 23% of the world’s total and more than twice as large as the No. 2 country’s, China.

America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.

The success of economic freedom in increasing human prosperity, extending our life spans and improving the quality of our lives in countless ways is the most extraordinary global story of the past 200 years. Gross domestic product per capita has increased by a factor of 1,000% across the world and almost 2,000% in the U.S. during these last two centuries. In 1800, 85% of everyone alive lived on less than $1 per day (in 2000 dollars). Today only 17% do. If current long-term trend lines of economic growth continue, we will see abject poverty almost completely eradicated in the 21st century. Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders—customers, employees, suppliers, investors and communities.

So why is our economy barely growing and unemployment stuck at over 9%? I believe the answer is very simple: Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland.

The reforms we need to make are extensive. I want to make a few suggestions that, as an independent, I hope will stimulate thinking and constructive discussion among concerned Americans no matter what their politics are.

Most importantly, we need to radically cut the size and cost of government. One hundred years ago the total cost of government at all levels in the U.S.—local, state and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending—money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs. Government debt is growing at such a rapid rate that the Congressional Budget Office projects that in the next 70 years public money spent on interest annually will grow to almost 41.4% of GDP ($27.2 trillion) from 1.4% of GDP ($204 billion) in 2010. Today interest on our debt represents about a third of the cost of Social Security; in only 20 years it is estimated that it will exceed the cost of that program.

Only if we focus on cutting costs in the four most expensive government programs—Defense, Social Security, Medicare and Medicaid, which together with interest account for about two-thirds of the overall budget—can we make a significant positive impact.

Our defense budget now accounts for 43% of all military spending in the entire world—more than the next 14 largest defense budgets combined. It is time for us to scale back our military commitments and reduce our spending to something more in line with our percentage of the world GDP, or 23%. Doing this would save more than $300 billion every year.

Social Security and Medicare need serious reforms to be sustainable over the long term. The demographic crisis for these entitlement programs has now arrived as 10,000 baby boomers are projected to retire every day for the next 19 years. Retirement ages need to be steadily raised to reflect our increased longevity. These programs should also be means-tested. Countries such as Chile and Singapore successfully privatized their retirement programs, making them sustainable. We should move in a similar direction by giving everyone the option to voluntarily opt out of the governmental system into private alternatives, phasing this in over time to help keep the current system solvent.

In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government.

Why would taxes collected go up if rates go down? Two reasons—first, tax shelters such as the mortgage interest deduction used primarily by more affluent taxpayers would be eliminated; and secondly, the taxable base would increase considerably as entrepreneurs create new businesses and new jobs, and as people earn more money. Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.

Corporate taxes also need to be reformed. According to the Organization for Economic Cooperation and Development, the U.S.’s combined state and federal corporate tax rate of 39.2% became the highest in the world after Japan cut its rates this April. A reduction to 26% would equal the average corporate tax rate in the 15 largest industrialized countries. That would help our companies to use their capital more productively to grow and create jobs in the U.S

Government regulations definitely need to be reformed. According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.

A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.

According to a recent poll, more than two-thirds of Americans now believe that America is in “decline.” While we are certainly going through difficult times our decline is not inevitable—it can and must be reversed. The U.S. is still an extraordinary country by almost any measure. If we once again embrace the principles of individual and economic freedom that made us both prosperous and exceptional, we can help lead the world towards a better future for all.

Mr. Mackey, co-founder and co-CEO of Whole Foods Market, is a member of the Job Creators Alliance, a nonprofit devoted to preserving free enterprise.

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Keynsian View of Stimulus

This is one of the best explanations of the Keynsian view on the Stimulus that I have ever heard. It also tells you why it doesn’t work.
Podcast # 2 – Garret Jones on Stimulus
It is an interview between Russ Roberts (host) and Garret Jones from the Mercatus Center at George Mason University.
Some highlights from the Podcast and the research.
Government spending tends to crowd out private spending. So while the economy may grow as a whole, the private economy actually shrinks. So the % of GDP for government spending rises. This is exactly what we are seeing now.
Also any multiplier for growth for stimulus spending (for the non economists – $1 of spending leads to $1 of GDP would be a multiplier of 1) is less than 1. To justify the last spending bill they used a multiplier of about 1.52.
They also found that the multiplier for tax cuts is much higher than the multiplier for spending. One of the key studies that found this was done by Christina Romer the former chair of Obama’s Council of Economic Advisors.
Lastly and most importantly, they found that it if you are trying to shrink a budget deficit it is much more effective to reduce spending than to increase taxes. When the government spending shrinks, the private economy actually grows.
The podcast is 60 minutes long but the most interesting stuff is in the first 30 minutes and if you listen at double speed like I do it only takes 15 minutes (or so).

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Obama’s Jobs Program

I keep thinking about Obama’s latest jobs program and it really makes me wonder if anyone in the White House knows anything about economics or creating jobs.

First a Recap of Obama’s Plan

Payroll Tax Cut – both the share paid for by the employee and the share paid for by the employer ($240 billion) – This is the biggest element but it is only temporary. So while it gets an additional $12.50 in someone’s paycheck it doesn’t have the desired effect (remember Bush’s $300 checks – people paid off bills). Milton Friedman proved that people make decisions based on permanent incentives not temporary ones. No one is going to hire people based on a small reduction in payroll taxes, it will just add to corporate profits and make the left go crazy.

Extension of Unemployment Benefits ($49 billion) – Although this smacks of compassion, it is exactly the opposite. In general the intensity of someones job search increases when unemployment benefits are about to run out. I actually had lunch with someone this week and that was what they were doing. Benefits were going to run out in December so they were in no hurry. So people purposely stay unemployed longer and the longer they are unemployed the less employable they become. Compassion indeed.
Subsidies for Construction and related projects (highways, airports, school renovation -infrastructure bank) ($90 billion) – didn’t our president say “There is no such thing as shovel ready”. These projects are guaranteed to be tied up in red tape so the spending will happen sometime in the future. There are also buy American provisions and other rules that can add up to 20% of the cost of a project so we won’t get as many of these “essential” projects done.
Aid to State and Local Governments ($35 billion) – we tried this with the last stimulus. It just pushed out the pain and keeps government spending on an unsustainable path. It does nothing to help the private sector which has to support the state and local governments.
Financial Assistance to Homeowners to Refinance their Mortgages ($15 billion) – This is a loser from the get go. Once again trying to bail out people who have made bad choices. Previous efforts have found that they default again within 6 months and in many cases there are legal restrictions on refinancing because they have bad credit.
Tax Credits for Employers who hire persons who have been unemployed for at least six months ($8 billion) – It’s obvious that no one in the White House has ever hired anyone in the private sector. If I have a job opening I interview candidates, find the best person and hire them. If it turns out that they are eligible for a tax credit great – free money – but that is not why I hired them.

The aim would be to spend most of the $450 billion between now and the end of 2012. The cost would be recouped by a combination of unspecified spending cuts and unspecified tax increases for upper-income taxpayers—but not immediately The Wimpy plan – “I’ll gladly pay you Tuesday for a Stimulus today”.

“OK Dave, it’s easy to trash someone’s plan but do you have anything better.”

The Blakelock Job’s Plan – Also known as get the hell out of the way.

Most of these can be done immediately with no cost and very little legislation. Which is why Barak would never do it.

Trade Bills – Immediately pass the three trade bills (Panama, Columbia and South Korea) that Obama has been holding on his desk. The International Trade Commission has estimated that these bills would create 250,000 jobs.

Keystone XL – Have the State Department approve Keystone XL – It has been estimated that this would create 118,000 jobs.

Energy Exploration – Immediately stop opposing Fracking, drilling off the east coast and in the gulf and exploration in Alaska. Not only would this have the benefit of creating jobs but it would also reduce the dollars that we would be sending oversees.

Bush Tax Cuts – Businesses are just waiting for the other shoe to drop. Very few are expanding because all they see on the horizon is bad news. Increased taxes that only appear to be going even higher. Make the Bush tax cuts permanent and that uncertainty will be eliminated. At the same time begin a process for redoing the tax code to make it simpler with lower overall rates.

Obama Care – Immediately repeal Obamacare and replace it with common sense reforms like medical malpractice reform, cross state line purchasing, no tax preference for premiums, reduction in mandates to allow for low cost catastrophic plans. This will remove another big unknown that is hanging over businesses head.

This is my start, it could all be done by November 1. After that I would move onto Sarbanes Oxley, Dodd-Frank and Entitlement Reform. The first 3 Obama could do right now. The other two he could do but would never do in a million years. If you want jobs it really isn’t that hard. The problem comes when the jobs take a back seat to your basic dogma that carbon based fuels and rich people are bad and need to be eliminated at every turn.

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