Obama urges budget consensus to prevent 'gridlock'

http://www.bbc.co.uk/news/world-us-canada-12588501

We're steadily approaching Obama's proposed doeadline of March 4th for what he believes are necessary tax cuts to keep government offices running. Obama's cuts are to total over 1 trillion dollars over the next decade, the majority of these come as spending cuts in order to keep the government funded and operating. Dems have responded positively to the plan, which Obama is calling a "down payment" to our debt crises.

There is an overview of the cuts outlined at http://www.whitehouse.gov/omb/overview.

Thoughts?

Texas Budget Cuts and Children

http://www.nytimes.com/2011/02/28/opinion/28krugman.html?_r=1

I thought this article was very interesting. Had to share it

Budget Cuts and Prosperity

http://www.nytimes.com/2011/02/23/business/economy/23leonhardt.html?ref=economy

This article takes on two different approaches to economic recession, austerity and stimulus spending. The author argues that austerity, can hinder a governments efforts to put the economy back on track, since austerity is a backlash to the overspending euphoria which causes bubbles to form. However, I don't completely agree, especially when economies are crashing left and right from uncontrolled spending and unsustainable policies. What are your opinions?

State Budget Crisis

This weekend, the National Governors Association will be convening to discuss the various budget crisis faced by the states. It is a balancing act, trying to bridge massive budget deficits, while keeping unemployment down. This has lead to drastic action by states such as Wisconsin and Illinois. What everyone will have to come to terms with, is that taxes will be increased and spending drastically cut. As a matter of fact, Illinois instituted a 66% temporary personal income tax to close a $15million budget gap. Thoughts on the article? Do you see other states drastically raising taxes like this soon?
http://seattletimes.nwsource.com/html/nationworld/2014334219_apusgovernorsbudgetwoes.html

Not Unions?

http://www.theatlantic.com/business/archive/2011/02/what-really-matters-for-state-budgets/71651/

I found this article which is a different take on the current budget crisis. The scapegoat is not unions, but the dismal housing budgets. Do you think the statistics and graphs are convincing?

Bailing Out the States

http://www.economist.com/node/18178497
This is in lieu of what we talked about in class today.
As the recession increased joblessness rates, States borrowed considerable sums of money from the federal government. As it comes time to pay this money back, many states (Michigan included) find themselves in the red, and some even on the verge of bankruptcy. Obama has proposed a plan to give financial relief to these ailing states by deferring interest and payments until 2014. On the other side of the aisle, some Republicans believe that the states should be left to fall into bankruptcy. What do you think should be done?

Bank Closures In Low Income Neighborhoods

While the buyouts and bailouts are well publicized, banks in low income neighborhoods are closing at an abnormally high rate. Conversely, wealthier neighborhoods are experiencing an increase in bank openings. Lower income neighborhoods need banks, which can serve as financial stabilizers, allowing people to save and borrow money at competitive and fair rates. Experts worry that these banks will be replaced by cash advance offices or predatory lending practices. What else could the loss of banks mean for these communities and the economy as a whole?
http://www.nytimes.com/2011/02/23/business/23banks.html?_r=1&hp

More Budget Fun!

Here is a look at Rick Snyder's proposal for Michigan budget cuts. He replaces business tax with a flat 6% corporate tax and proposes 5% cuts in education spending. What do you think the possible consequences could be?

http://www.connectmidmichigan.com/news/story.aspx?id=582566

Inflation or Reflation?

According to the article, some businesses remain optimistic, despite a sluggish economy and rising materials prices. Will this growth promote inflation that will further weaken the economy? What do you think the Fed should do?

http://www.reuters.com/article/2011/02/20/us-economy-weekahead-outlook-idUSTRE71J2GK20110220

Budget Puzzle

I know some of you may have come across this before, but I think it is some snow day fun, great for mindful entertainment. What were your results? What do you think the real life implications are if these measures were to come to pass? Comments?
http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

Bernanke Defends US Policy

Federal Reserve Chairman Ben Bernanke needed to rebuttal his critics for saying that US policies are leading to inflation, deflating the dollar's value across currencies. Other surging economies are able to adjust their market by adjusting the exchange rate, interest rate and other means to help with the economy struggles in our own market. It is important when a super economy like the United States goes into a recession that other economies of that stature help to balance out the shift in money and values across the board. The French are worried about getting overloaded with indicators that are informing us about the economic situation that is present and where it is headed. Should we fix some of the policies in place now? What else can we do to help the global market rebound from the worldwide recession that has occurred? Here is the link.

House Cuts Money

The house voted to cut $60 billion from the federal budget over a 7 month period to help show that the Republicans are serious about the debt and the government. The Senate is controlled by the Democrats and will show no sign of budget cuts, which could lead to a standoff later in the future. A quote from the article, “We have a mandate from the American people to cut spending,” declared Representative Judy Biggert, Republican of Illinois." I am guessing everyone is for this spending? The Republicans want to cut spending in every area of the government. Is there a certain area that you would cut first before another?

Is this class making us less empathetic?

I read this blog posting (see here).  We have talked continually about social welfare functions and democratic choice.  If U.S. citizens choose politicians who gut social programs and international aid, do we say that it is ok?  If we see ourselves as potentially high income earners, do we stay out of the political fray? 

Where is the stimulus?

The stimulus that Obama proposed was supposed to stimulate our economy. But why hasn't it happened yet? There has been some good that the stimulus has provided, but our unemployment rate has increased since Obama signed the bill in 2009. Only a third of the money has gone to creating or saving jobs. The other 2/3's have been issues for tax benefits and entitlements. Part of the money still hasn't even been paid out, even though there is the funds to do so now. How do you feel about this whole plan was supposed to get us out of the recession, but not even all the funds have been used? The bottom of the article helps to show what goals are out there, even if they haven't been utilized. Thoughts?

So, should the United States pay for the damage?

Baghdad's municipal government is asking the United States to apologize for damages to the city and for $1 billion in damages.  See here.  Should we pay?

Fed Raises Its Forecast for Growth

Sorry, apparently my last post didn't take the link to the article. I had an article and tried to post it with the hyperlink, but I guess it didn't work. I didn't make up that information.

For today, this article explains how the Fed is forecasting a good year of growth for the economy, but the unemployment rate will remain high. At the rate they are suggesting, it will be the biggest growth since 2004. The $600 billion stimulus plan was still voted unanimously to continue to help spur growth. Yet, some people are worried that this stimulus plan will cause high inflation in the future. People are still skeptical about the huge funds that are being used that increase our deficit, worrying that a huge inflation is on the way. To help with this, the Fed is thinking about raising interest rates. What are your thoughts on the plans the Fed has proposed? Are these necessarily the best ways to handle our frail economy? There are many external pressures that are pushing the Fed from all directions to improve several areas of our economy so the worst doesn't happen again.

States Cutting Spending

According to this article, states are cutting spending due to the recession. We all knew this, but most of the slashing of money is aimed at higher education. Colleges are eliminating majors and entire departments. This has led to change majors and even transferring due to the removal of a subject. At least 43 states in the last 2.5 years have cut budgets for higher education, targeting the least popular majors to do so, in order to limit the damage. This has 'saved' states $3.5 billion since last year, allowing them to use this money for other more 'necessary' needs. I forget if the graph yesterday showed it clearly, but plans for the new budget in 2012 show even more slashing. What if this meant some majors at K would be cut? How would everyone react? Is this plan for raising money for other projects the best way of going about it? I know money is in short supply at the moment, but some students are becoming increasingly angry over the removal of their major.

2012 Budget Proposal

I found this 2012 proposal for our budget coming up next year. This is a shocking way to see how exactly $3.7 trillion is spent in a year. Much of the money spent is mandatory, but as you can see, a decent amount is discretionary. This obviously means those numbers are just averages and can change as the government sees fit. The side bar also lets you isolate certain categories, so you can exactly see what is mandatory and what is discretionary. We have been talking a lot about Medicare and Medicaid and Social Security in class and, again, both are increasing from 2010 totals. Yet, there seems to be (at least now) a lot of red boxes that indicate possible or certain drops in funding to certain areas. What are your thoughts on how our budget in 2012 will be allocated? Would you like to see some areas with more funding and others with less? It is strange how little $10 million dollars is when you look at how small the slice is on the graph. You can't even see a $10 million box at the bottom.

Something interesting.

This article here, though not related to the class material, grabbed my attention. It highlights how the average American views the global economic playground. Do you guys agree with the changed and changing trend?
I think that the world economy is no longer dominated by a single power but a multitude and in the 'next 20 years' China would have definitely moved ahead of the US in terms of economic influence. What do you guys think?

Valentine's Day

I thought I would start off my blogging week with an article attributed to the day today. Happy Valentine's Day everyone (or in my family, Happy Valen'Tuyn's Day). This article talks about how Valentine's Day is a day of deliberate commercial exchange in the eyes of an economist, which I totally believe in. Is that fair to say? He gives some good economic perspectives on presents like jewelry, flowers and other accessories. I particularly enjoyed the part where one can express his love for another through reducing carbon emissions. And he also gives tips on what to give for your significant other at the bottom. More of a fun article to ponder than anything, but I figured with 3 people blogging today, I was off the hook a little bit.

"Bankruptcy in the Making"

A large issue has been made relevant in this California interview on the Fox News Network that is costing states billions of dollars... The problem of illegal immigrants filing for welfare through our financial aid system. According to this report, these families and individual are contributing immensely to state and federal debt and is an issue that should be dealt with as soon as possible. Complimented with the fact that these illegal immigrants also contribute to the rate of the imprisoned population which is another huge expense states incur illegally. However, any agency to prevent this from happening will be expensive in itself to prevent such a problem. Can one argue that these illegal immigrants bring any good to society on the state or federal level? Or are they taking from our nations job supply and negatively contributing to our nations debt?

Drug testing for welfare recipients.

There is a move in some states to try to get randomized drug testing for welfare recipients according to this article. In a way this tackles the core of the issue that we spoke about in class when we were trying to figure how to decide on welfare spending (Richard brought up that cash benefits might be spent of 40 oz beer) but at the same time it is attacking a segment of society that is least able to help themselves.
Would you support such a bill? Why or why not?

Ps: I totally forgot to post yesterday so this post is for yesterday. Also, I'm not sure if I am supposed to post today as well so I most probably will be posting again later in the day.

Attacking Our Nations Debt

It appears that president Obama is making plans to attack our budget deficit tomorrow by $1.1 trillion (see here). Some of this will come from education as well as limiting tax breaks for the rich like we talked about in class on Tuesday. However, it does little with the major issues leading to debt in the long run (Medicare, Medicaid, and Social Security).

Will these efforts be a significant improvement and begin action towards cutting our nations debt, or are we still beating around the bush and attacking the wrong issues?

"Eat the Future"

While the general trade off in economics about the present and the future deals with consumer goods and capital goods, Paul Krugman provides another example of a trade off b/w the present and the future.
Discussing the budget and the proposed cuts in his blog post, he mentions about how so many politicians (representatives) are proposing cuts that will help them and the voters today but, most probably, be a problem for the people and politicians of the future.
This posting nicely ties into the budget deficit problems as well as the idea of the 'economic man' being myopic (apparently now the political man is also myopic!). If this really is the underlying rationale behind these proposals then our generation of Americans will have even more problems to deal with in the near future.

Rethinking the budget.

The Pew Research Center has an article out about the Budget, the proposals, and (in general) how the public feels about these issues - "fewer want spending to grow, but most cuts remain unpopular".
So, less people want federal spending to increase (great!) but most cuts still remain unpopular. How is it that the public wants the government to deal with the fiscal deficit then?
Other interesting facts from the article are that people's support for unemployment benefits by the government has decreased significantly and people are still supporting spending on education ( 62% favor an increase in education spending!). What does this say about the American society's (changing?) preferences and its Social Welfare Function?
While the article says that unemployment/job creation remains a major concern, support for the unemployed is not favored and at the same time people are in favor of increasing education. Is this because people believe that education will make more people self sufficient and unemployment benefits benefit the lazy/provide disincentives to work?

I wonder how many of our classmates are stuck in traffic....

Trying to get to the new casino?  See the link here. 

Prioritizing between different welfare options.

This article here is an interesting read.
While the whole article brings out multiple points of interest and controversies that come along, what interested me the most was the idea of marginal social benefit of money spent on welfare - in terms of how even a $10 donation can be used the most effectively cause, I feel, these programs are what should be our priority.
Read the article and lemme know what you think!

Food stamps and college students

I guess you seniors are graduating just in time.  The state is cracking down on the use of bridge cards by college students.  See here for the story.  Given our conversations in class, I think most of you will think that this is fair.  But is it vertically or horizontally equitable (yes, it is at least one of them).

Another Government Program Going Down!

The US Postal Service is going through some tough times right now (see here). I never knew it was so expensive to keep the mailing process so fluid, but what do you guys think? With all of our technological advancements and innovation always on the rise, is the old system of mailing doomed anyway? Services provided by FedEx and UPS may still be quite necessary, but will the few measures suggested in this short article be adequate? There are a lot of jobs on the line here...

Battling an externality?

This article and video I found is really interesting.
What happens when the government, without taking into confidence the people, starts doing things that we are not even aware of? Is this for the public good - if yes, then why are the public left in the dark about it?
Battling Global Warming (a great example of externalities) is definitely a daunting task but how does one choose between two evils (as 'Chemtrails', suggested by the article, is probably not without its own negative externalities).
There is definitely a case of asymmetric information here and from the outlook I'm not sure I trust what the government is doing!

Looking Ahead...

It seems crazy to imagine, but it won't be long before we begin observing the heat of the 2012 presidential campaigns. What do you guys expect to see rise from this years election? Who do you feel are the favorable candidates and how do these characters relate to the several topics we've discussed already in class?

Here's a video that sparked my interest and you guys might enjoy
http://www.cnn.com/2011/POLITICS/02/09/cpac.guide/index.html?iref=allsearch

What kind of a Social Welfare Function would apply to developing countries?

In all our talks about the Social Welfare Function (SWF), one question has always resonated in my mind. What kind of a Social Welfare Function would apply to a developing country? While opponents of economics criticize economic theory for being idealistic and not practical in a real economy, this class makes me think that even a welfare system like the SS is an idealistic notion for a developing country.
What would a SWF for a developing country look like and can a welfare function even be considered plausible in a third world, developing country. Our class has been focused on America and here the rule of law is rampant. I'm sure tax evasion happens here too but compared to a developing country it is negligible. Here is a case in point, Pakistan.
In a country where the majority of people (apart from the working middle class) evade direct (income) tax, a huge part of the rich are tax evasive, self interested individuals, and the legislators themselves are the worst apples in the orchard, is a social welfare function even applicable?

Reopened for business

I asked you to read this article on the lottery (see here) for class but you can get a headstart if you like.  This is an example of a regressive tax.  Note the use of the lottery as a wealth-building scheme.  How often do you play the lottery?  Do you expect to win?