Don't Quit Your Day Job…

One of the most contentious issues of the past couple of decades has regarded policy debates on how to benefit lower-income individuals (colloquially referred to as ‘Welfare’ programs). This article will not deal with the benefits or disadvantages of Welfare programs in general, but instead will compare the various forms of implementing Welfare. Also, I will show (in the next article) a very important unintended consequence that arises from the current preferred Welfare program, the Earned Income Tax Credit.

I want to share another fascinating Economic study with you… this one from Brown University. The three authors, J. Vernon Henderson, Adam Storeygard and David Weil, were looking for a way to track economic growth in regions which have poor geographic connections, poor statistics, or have other impediments to useful growth tracking. Using light (specifically, light coverage in satellite photos) as a proxy for economic activity (“Consumption of nearly all goods in the evening requires lights”, they state), they show the growth in productivity in remote regions using nighttime satellite pictures.

California recently closed a $26.3 billion budget gap after resorting to issuing IOUs in lieu of checks on state contracts. The budget worked out to $15.5 billion in cuts and a transfer payment where California will take money from local treasuries toclose some of the gap. The rest is covered through various accounting gimmicks that would make Enron blush. California’s budget compromises lead to many questions including the most important, “Does this fix anything?”

There are 12 branches of the Federal Reserve Bank: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Eight times a year they get together and compile a report, the Summary of Commentary on Current Economic Conditions, better known as the ‘Beige Book’. On July 29, the most recent version of the Beige Book was posted. The summary reports, anecdotally, that conditions are moderating since the report issued June 10.

In an earlier article, I detailed how you could check on inflation expectations using information publicly available from the Department of the Treasury. Using the data they provide, it is simple to calculate the market’s expectations for inflation over the next 5, 7, 10, and 20 Year periods. Let’s take another look not at the 2009 inflation rate, but the expected inflation rate of the future viewed through ’2009′ colored glasses.

What would happen if a private company fired its actuary for pushing the company to adopt the mandatory pension accounting method for the company’s pension?

I think we can agree that a scenario such as that wouldn’t go over well. How about a public pension plan? For whatever reason, public plans are not mandated to use the same pension valuation methods as private plans. The Wall Street Journal recently featured an article on this public subterfuge.

What explains the difference in returns between stocks and bonds?

One theory is that the difference in returns is due to the safety of bonds when consumption declines (the so called ‘risk premium’ is built into stock returns). One of the issues with testing this hypothesis is that the most commonly quoted measure of consumption, the National Income and Product Account, is too nonvolatile to explain the risk premium on its own. Alexi Savov, a grad-student at Chicago, has produced a fascinating look at using residential garbage production in order to take a closer look at the correlation between stock returns and consumption.

This is part two of a two part series discussing cigarette laws and pigovian taxes. Pigovian taxes are excise taxes placed on a market to correct a market income, presumably because a negative externality such as health risk or pollution that is inherent in the good traded.

The Family Smoking Prevention and Tobacco Control is a newly-enacted federal law that gives the FDA regulatory power over the tobacco industry, among other provisions that attempt to dissuade misleading advertisement on young and old smokers alike. The law was signed into effect on June 22, 2009.

There were two major advertising provisions contained in the law. The first was that over 50% of the front and back of every cigarette pack must be warnings with a giant ‘WARNING’ in capital letters . The second, and maybe more important, is the banning of the use of words ‘light’, ‘mild’ or ‘low’.

There are three ways for a government to pay for debt: issue new debt, collect taxes, and cause inflation. Inflation is a ‘hidden tax’ on a populace- it decreases the value of future money, and allows governments to pay off their current debt with devalued money. The United States dollar, as the world’s reserve currency, gives the United States a unique temptation (opportunity?) to pay off their debts in a currency it can print. What exactly is inflation, though? And if you believe inflation is on the way, how do you set yourself up to counteract it?