Super Freakanomics Part 1

     Ever wondered how much is life really worth? Super Freakonomics takes a look into this timeless question. With the healthcare system ( medicare, Medicaid, etc) eating away the U.S. Budget, how much money can be allocated to extending the lives of dying patients of a few weeks or a month? A study from VCU shows chemotherapy for metastasized breast cancer patients only extends their lives by 2 months. However, it costs on average $360k for this treatment. That's close to $6k per day.
     If chemotherapy cured breast cancer, this procedure would be miraculous. However, why not allocate this expense to finding a cure... In the short term this would detrimental but think of all the lives saved in the future. Instead of extending terminally I'll patients lives in the next x amount of years (until a cure is discovered) you would save z amount of lives in the future which would'v been lost if a cure had not been discovered as quickly. Food for thought

A solution to the national debt?

     How many times have you heard the line, "We have an unsustainable and immoral national debt that's being foisted on our kids and our grandkids."? This statement, made during an interview with Virginia Governor Bob McDonnell, has been beaten into the heads of American citizens to the point where it has almost become an unquestioned fact. The majority of politicians across the country pound the same drumbeat: the growing national debt will cause the United States to collapse.

     The national debt, which currently stands at around $14 trillion, is an accumulation of all past deficits and surpluses. Essentially, the United States has borrowed $14 trillion more than it has received via taxes. This staggering number has Congressman screaming fire on the top of the Capitol building.

     But have you ever stopped to wonder... why that is?

     Despite common belief, debt incurred by businesses, government, and households is not a bad thing! To put it into a micro perspective, most households take out loans in order to finance cars, homes, and an education. Most American employees do not have a couple hundred thousand of dollars lying around to purchases.

     The same concept applies to the United States government, but on a larger scale. In order to increase the standard Japan have ratios of 102% and 225% respectively. The last time i checked, Japan and Singapore are still thriving economically.

     The amount of debt, although staggering in size, should not cause alarm or panic by itself. However,w hat most economists and educated politicians are concerned with is the rate of growth of the National Debt. This concern deals with a though economic concept that can be explained using another simple micro example. 

     If Mr. and Mrs. Johnson try to purchase a home, they must first find a bank to offer them a mortgage. If the wedded couple has a large, overdue balance, the bank will not give the Johnson's a loan. The bank lacks confidence that the Johnson family will repay back their loan in a timely manner; and thus, refuse to offer a loan.

     If domestic and foreign institutions view investing in the United States as a financial risk due to the large amount of unpaid natioanl debt, thsi could be a serious problem. However, the current $14 trillion debt level has not scared off investors so far. The national debt level could double in amount, but the key to maintaining a stable economy is the confidence level investors hold in the United States. If the United States cannot borrow money then the economy risks flat lining into cardiac arrest- similar to what happened in Greece.

     In order to curb the U.S. from bankruptcy, Congress should focus on maintaining a manageable rate of national debt. It would be counterproductive to pay off the entire $14 trillion debt in a relatively short amount of time. However, if spending continues to increase without a proportionate increase in taxes, the economy could be treading in deep, risky water. American and foreign institutions will eventually refuse to loan the U.S. government loans if the institutions believe that their loans will not be repaid in a realistic timetable.

     The majority of economists agree that a GDP to debt ratio of approximately 67% should be the goal of fiscal policy makers, Taking this figure into account, the long-term goal for Congress would be to reduce the national debt by about $4 trillion while keeping GDP constant. This feat could easily be accomplished, especially since the U.S. continues to crawl its way out of the Great Recession. 

     Still not convinced that the national debt may be overblown? The majority of politicians also fail to mention that foreign institutions must reinvest profits earned from loans right back into the American economy. China cannot take American dollars, earned from interest from loans, and convert the currency into Yuan. The profits earned either must be saved in American banks or must be used to purchase more American bonds or capital goods.

     The national debt makes front-page headlines in nearly every major newspaper publication. Granted, if left untouched, the national debt could ruin the U.S. economy; but at this point, the concerns of the U.S. economy  of deteriorating are overblown. As long as foreign and domestic investors continue to believe that U.S. can pay off their loans, our children and grandchildren will not have to worry about paying off trillions of dollars

Buy America

Here's the rough draft to a column that i'll post in my school paper. If you notice something economically wrong or if I failed to expand on something let me know.

Debunking Myths
Buying American: Good or bad?

Here’s the task: Bob, a middle aged man, experiences a mid life crisis and realizes in order to live life to the fullest he must buy a new car. Bob narrows his choices down to two cars; a Toyota Celica or a Ford Mustang. Both cares provide the oldie with a self-confidence boost; however, the Celica costs $35,000 while the Mustang costs $40,000.
If Bob values both cars equally, should Bob buy the American or Japanese hot rod? In other words, this leaves you with the predicament: do I support the local American Business or the international tycoon business? Generally, Americans would pick the good ole red, white, and blue over foreign competitors; but by doing so, Americans are shooting themselves in the foot (sorry Florida).
It is foolish to buy products based solely on where the product is made! The general misconception of buying international somehow involves money leaving our economy and floating over to foreign countries. This is not the case: if Sally bought a Toyota car, Toyota could not exchange the American dollars for the Japanese Yen.
Alas, this leaves Toyota with the predicament of how to spend the American dollars. A portion of the money is spent on American goods and services, while another portion is invested into the American bonds, the stock market, and other securities. In effect, Japan is trading a consumer good, the Toyota Celica, for American goods and investments.
Back to the example, Bob could have saved $5,000 if he bought the Celica instead of the Mustang. In economic lingo, this is called the opportunity cost. The opportunity cost was huge, meaning Bob sacrificed a lot of money to buy a car of equal value. The lost $5,000 could have been used to pay for Bob’s daughters college education or invested into his 401k retirement plan.
If opportunity cost is not convincing enough, take a closer look at the incentive structure behind buying American. If Ford realizes that consumers will only buy their products, the incentive to provide a cheaper and better car will diminish. If every American consumers buys Ford, the company’s profits will soar while its product quality will drop.
In conclusion, always pick the best product based on quality and price no matter where its made.

Goodbye lightbulbs

The last light bulb factory in the United States closed down today, meaning more jobs will be shipped overseas (to China presumably). I sympathize for the 200 people who lost their job, but I'm also glad China is making the lightbulbs while we're providing the better paying (and more educated) services. Thomas Edison may be ticked, but I don't mind really.

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/07/AR2010090706933.html

Catholic Priests

I wrote this article for a microeconomics class.

Why do most branches of Christianity encourage their priests to marry while the Catholic Church enforces celibate priests?

The Catholic Church forbids all members of the clergy to marry except for deacons, while all other branches of Christianity grant the rite to marriage to all members of the clergy including priests. The sacrament of matrimony is seemingly available to all Christian men except Catholic priests. Generally, Catholics follow guidance from two sources- scripture and tradition. The celibate life of a priest was derived from tradition over several centuries, not from scripture such as the Bible. Scripture may be permanent, but tradition is flexible enough to grant priests the permission to marry. However, this has yet to happen.

Despite being a nonprofit organization, the Catholic Church does not publish its financial records but assume that each priest earns $40,000 a year. A priest can reasonably rent an apartment, own a decent car, and pay for all living expenses while earning this income. The Diocese of Arlington contains 251 priests. If each priest earns on average $40,000 yearly, the diocese has to allocate $10,040,000 of its yearly budget to salaries.

Most priests realize that celibacy not only allows for a stronger bond with God, but it also allows the Church to allocate resources to more needy people. Let’s say the Catholic Church disbanded its celibacy stance, allowing all clergy members to marry. If 75% of the 251 priests in the Diocese of Arlington married their true love, the Church would be forced to pay all priests a higher salary. The average cost of raising a baby per year is around $10,000[1]. If each priest raises two children on average, the yearly salary for a priest would elevate to $60,000.  The Diocese of Arlington now has to allocate an additional $5,020,000 of its budget to the salaries of priests. 

The Catholic Church strives to assist the poor and needy as a non-profit organization. By enforcing strict celibacy rules, the Church can allocate millions of dollars to the less fortunate. In economic lingo, a priest’s opportunity cost of remaining celibate is low. The opportunity cost is the net gain of the next best option. This means that priests are happier knowing that they sacrificed a potentially better life for themselves for a better life for the impoverished.

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[1] http://www.babycenter.com/cost-of-raising-child-calculator

How education affects employment

I found this article interesting because it analyzed the relationship between the current unemployment rate and the education system of the United States. The article states that the U.S. will see an increase in demand for college level jobs, but the number of college grads in the future will not match the demand (there will be shortage). Thus, the U.S. will see a slower recovery due to cyclical employment and the shipping of jobs overseas.

I see a separate problem arising: if the U.S. cannot expand its education system, more educated countries will lead the way in innovating ideas. Innovating ideas may not seem important, but where would the U.S. be without Bill Gates and Microsoft, Edison and the light bulb, and Bell and the telephone? The education system needs to be reformed; otherwise, expect to see the current recession to drag on.

Goal for the blog

I created this blog to share my thoughts and opinions on current economic issues and topics. I an Independent, meaning I do not support a political party, so I like to think I have an unbiased view of the world.