Schools of Economics

There are two major schools in economic thought: Keynsian and Friedmanistic economics. The difference between the two is how they view government's role in the economy. Keynes, who beilieved that controlling demand was more important than supply, thought that the government should have an active hand in the economy. He thought that the best way to solve an economic problem is to have the government enforce rules and regulations and generally tke charge of the scene. Friedman, on the other hand, thought that managing supplies was more important than demand. He thought that the government should never intervene in the economy. According to Friedman, an economy has natural fluctuations and will eventually right itself after a hard spot. Also, he thought that these fluctuations weed out the weaklings and keep the economy healthy by only allowing the strongest competetors to survive.

One example of a demand side economy is communism. In communism the government decides what to produce and how much of it. In this way, the government controlls demand by producing only certain things. An example of a supply-side economy is the United States. Here there are few controls and the 'invisible hand' of the market guides production.

In my opinion, supply side economies are better. This leaves control in the hands of the masses and allows for the needs of the people to be metdirectly. It also is better for providing competition, which keeps prices low and quality high.

Genomics

When economists use the word 'genomics' they are reffering to an emerging system in the world of economics centered around genetics. They think that genomics will be the new economic system to replace the present one. Formerly, the world was dominated by agrarianism. A few hundred years ago the world saw a shift from farming to industrialism. We are presntly in the age of industrialism. If the new school of economists are right, we are at the end of the age. Soon manufactoring will no longer be the driving force in economics. The new force will be genetic manipulation. We are already seeing the beginning of this: crops are genetically modified to have pesticides, gene therapy has been invented (though is nto yet practical) and scientists are considering genetically modifying animals to produce more food.

Success in this form of economics is the knowledge of genetics. If a particular country is lacking in its knowledge of the genomes of humans and other organic beings, or even knowledge in general, they will fall behind other countries who are more skilled in these areas. For this reason, education will become even moreimportant. If people in a particular country are not educated well enough (especially in genetics), they will not be able to compete with people from other countries. Also, countries who are already behind in education and technology (another important factor) will likely fall even more behind. Education and technology will become a moreimportant part of politics as timegoes on.

Market Value

There are several components of product value. The first and probably the most obvious factor of product value is the utility. The main goal, in theory, of buying is to obtain something to do what you need done. For instance, if you are just starting off in life you will probably need a washing machine. This need creates the reason that you should buy the washing machine, and the product is therefore valuable to you. Needs are not the only thing that creates value, though. Desire also does this in a similar manner. One other thing that determines value for a product is a trend. If something is trendy, and if you desire to be trendy, then you may buy that product. In theory, though, utility should outweigh trends. Trends should not be a very big part of a product's value to a consumer.

Market value is different than product value. Where product value is the value of something for one person, market value is the value of a product for an entire group of people as a whole. This is where trends really come into play. When people buy things based on market value, potentially useless things can be sold. If this is the case, it is likely that that product which was sold was 'cool' or 'trendy'. In other words, other people have it and in order for someone to be considered 'cool' that person must own whatever the product is. An example of this is the .dot com bubble in the 1990s. The internet was a new technology during this period. A multitude of online companies (such as Amazon and ebay) were formed. The share prices for these companies skyrocketed quickly, even though they may have actually been worth exactly nothing. Really the only thing to look at when thinking about a product's market value is how the group as a whole views it. The actual amount that it cost to make or the product's utility matter very little.

Whenever a person makes a financial transaction of any kind, it is important to do research. If that person did not do any research they may not get what they bargained for. Consider the stock market. As for the product value of a stock, its only use is to make money. Stocks generally tend to be rather volatile. This means that they do not usually stay at a constant price; they are always rising and falling. If you were to invest in the stock market, you must do research. This research can be anything from looking at the stock's history (possibly from a graph or a table) to making educated predictions about what will happen with that stock's price (by watching the news for stories concerning the stock). A similar idea must be taken when buying other things, for instance home appliances, but one can also research smaller ticket items if one wants a good deal. In general, if a buyer does not do research he will likely lose money due to the volatility of prices.

When the Future Catches You: Chapter Three

Summary

In the past, the major way to make money is by selling commodities such as gold or food. This has been the case from the time agrarianism began and on through the time of industrialism. Nowadays, according to Juan Enriquez, this is no longer the case. The new way to make lots of money is to be in the idea business. As an example of this, take software companies such as Microsoft. They do not sell a tangible product, but have made billions of dollars over the past decade or two. The key to success, in the idea business, is growth of the company and spreading of the product. When products are easier to improve, their company grows faster. Also, the people are happier when they get better products, which makes the products spread faster (through advertising via word of mouth). There are two ways to make good products (ideas): educate your nation’s people or bring in educated people from other nations. Nations who do not have educated people tend to fall behind economically quite quickly.

Political Application

No less than one third of this chapter is spent comparing several countries to each other. Taiwan is compared with Mexico. Before technology became a major factor in economics, Mexico had a superior economy. This was reversed after Taiwan began to manufacture computer parts and Mexico didn’t. Comparatively, other nations (such as the U.S.) who produced many more computer parts were much bigger than Taiwan economically. Studies by the author show that countries that have high technology capability are more likely to be successful than those who don’t. This idea is highly relevant to politics today. A major topic of discussion is what a presidential candidate intends to do with education in this country. If they succeed in bettering the school system, we will be able to compete in more areas of economics with other countries. For instance, science is a big industry. If this nation was on the cutting edge of technology, we would be able to make and sell advancements in technology.

My Position

Personally, I do not like this new form of economics. This new form is one that puts less emphasis on physical work and more on mental work. In the past, if someone wanted to be prosperous, they advanced themselves by the sweat of their brows. In the future, according to this system, the only thing that you will need to make a good living is the capacity to think abstractly. We are already seeing the foreshocks of this system. Anyone who does manual labor, for instance a construction worker, is looked down upon. In the future, these people will probably make less and less and no one will want to do these jobs. This has serious repercussions. Without people doing the physical work, academics would not be able to do their work. As for my part in this new system, I guess I would have to fit into the academic crowd, because that is what I am good at. I am able to do physical work, but I prefer not to.

Economics

The economy of the future, if it goes the way When the Future catches You says it will, we should focus on things that have little immediate physical application. In other words, we should make innovations in all things theoretical, and let the practical applications come later. Genetic engineering, advanced forms of medicine and data storage devices, among other things, will probably be important in the future. Essentially, if a country wants to be prosperous, it should educate their people in science and math. The first country to make technological advances will be able to make lots of money from those advances.

Housing Crisis

Over the past two years the housing market in the U.S. has been declining. This is due in no small part to the sub-prime, adjustable rate mortgages that were issued. Both the banks who were lending mortgages and the homebuyers who were consuming them were irresponsible. The banks were not being upfront with the terms of the loan. They were hiding the fact that the interest rates would double after two years. In addition to this, they did not check the homebuyers' records to make sure that they would be able to pay off what they borrow. At the same time, the homebuyers were not being reasonable and taking out mortgages for homes within a price range they could actually afford.

This cannot be allowed to happen again, so there must be consequences. If businesses are not given penalties, they will continue to operate in a manner that risks upsetting the entire economy due to carelessness and extreme greed. However, if no help is given to these companies they will likely go out of business. This would, in turn, lead to workers losing their jobs. This would create a vicious cycle that would drag the economy headfirst into another depression. The best way to fix this problem is for the government to punish the businesses enough to get the point across, while not punishing them so much they will close their doors.

The government should make the banks that have problems with sub-prime mortgages rework their deals to make them work. This would cause the banks to lose profit (as a punishment), and also help them not to go out of business. However, the homeowners should not get off scoff-free either. They should be made to stay in the house they have the mortgage on and make sacrifices wherever possible to pay off the loan. This would mean that they might not be able to buy all the things they want to, but they would still have a roof over their heads.

In this manner responsability would be brought back to the housing market. With repercussions to all parties they would think twice before being so irresponsable and, in theory, will not do it again. The economy will be saved serious strain and possible depression. In the future, I would suggest reconsidering the system we use to give out mortgages. Possible limit the amount of mortgages banks can sell. This would make the banks check the buyer's records more thoroughly.

Economic Reform

The first problem our economy is faced with is the sub-prime mortgage crisis. The nation is having this problem because banks were extending mortgages to people that could not afford them. There used to be a safeguard: home buyers used to have to pay twenty percent of the value of the home up front, and then borrow the rest through a mortgage. Nowadays buyers can get a mortgage without paying anything up front. This makes the housing market less stable. In order to bring stability back to the economy, banks should require potential buyers to pay eight percent of the property value before taking out a mortgage. Doing this would add another layer of safety, ensuring that anyone who takes out a mortgage will indeed be able to pay it off.

A second problem we face is that of outsourcing. Outsourcing is when companies move their production facilities, headquarters or both to foreign countries that have cheaper labor. This is bad for the American economy. When we buy a foreign produced product, most of the money we spend goes to paying for a foreign worker instead of staying in our economy. If the jobs stayed in the United States, the lifeblood of the economy (money) would stay in the country and simply circulate. Also, having companies produce their products in the U.S. would create more jobs and thus boost the economy even more. Businesses should be given incentive to move their companies back into the U.S. Also, those businesses that are already here should be given incentive to stay here. This incentive could be something like a substantial business tax break.

Another problem with the economy is that there are a lot of illegal immigrants. The problem with illegal immigrants is that their pay is ‘under the table’. In other words, companies don’t report that they employ illegal immigrants. When this happens, the pay that goes to the immigrants does not get taxed. This causes several problems. First, the economy suffers the loss of a sum of money that would be taken out for income tax. On top of that, illegal immigrants who recieve 'under the table' pay don't contribute to Social Security. Since these illegal immigrants are generally poor, they receive welfare when they need it. However, they do not contribute to welfare. Essentially, all the people that pay their taxes end up having to pick up the slack for those who don’t. For this reason the United States should tighten up its borders. The nation should take extra steps to ensure that people are not bypassing the system to get into this country, in order to reap the rewards without sharing the burden. In addition to these things, if there were only legal immigrants companies would have to compete more and thus raise their wages to the normal amount. This helps out the economy by helping out the poor.

Credit cards can be a good thing in some hands and a bad thing in others. For those who are responsible with them it can mean having something that that person needs. For those who are not responsible, it can mean a ruined life. Whether the spender is responsible or not, a big issue concerning credit cards is the interest rate. Presently, credit card companies can change the interest rate they charge to whatever they want, even without a reason. This is bad for the consumers because it can make it virtually impossible to get out of debt, even if you were responsible with your spending. It would be beneficial to place a ceiling on the interest rate these companies can charge. If this was done, the general public would be more likely to get out of debt and thus have more money to spend elsewhere. Also, people should use debit cards more and credit cards less. Credit cards are okay for emergencies, but everyday use is irresponsible (and causes higher debt). Debit cards encourage responsability because you can only spend what you already have and are therefore safer.

The last problem that the economy has is waste in governmental programs. There are many good programs that the government has in place. Some, like Social Security, are well regulated. Others, like welfare, are not particularly well regulated. When programs go unregulated, waste usually occurs. This is the case with welfare. Certain states, such as Maine, are not being reasonable about who gets what benefits. Someone should make a way to cut out the waste from these programs and ensure that people who actually need the programs have them, and not those who simply want them.

Corinna Road Debate

At the Corinna Town Meeting the hottest topic by far was the condition of the roads and how to fix them. An article was proposed asking that a two million dollar bond loan be taken out to finance the repair and reconstruction of a number of roads in town. As would be expected when such a large sum of money is on the line, a long debate ensued.

One of the major concerns the citizens had regarded the 'mill rate' of the town. The mill rate is a tax imposed on property. To be more exact, it is a tax of one thousandth (.001) of a dollar for every dollar a property is worth. For example, if a property was worth one hundred fifty thousand dollars and the mill rate was ten, the owner of that property would have to pay one thousand five hundred dollars in taxes that year.

At the end of last year, the mill rate for the town was thirteen. This year, however, it will be five mills higher. Two of these mills are from the two million dollar amount that was accepted for road repair. This upset some of the people. Another interesting thing that came up at the meeting is whether or not it would be better to repair the roads over time. It was decided that it would be worse to do that, because if it was done in small increments the prices would be greater (due to price increases in labor and materials). In the end, a secret ballot vote was taken and the outcome was that the article was accepted.

Sources:
http://www.investopedia.com/terms/m/millrate.asp

The Productivity Report

Definition:
The Productivity Report measures the level of 'output' (defined below) for businesses. This report is released quarterly (every three months) by the Bureau of Labor Statistics (BLS). The BLS compares the level of input to the level of output:
Input- consists of the number of work hours and money used in business.
Output- the amount of products produced.


Usage:
The data released in these reports is not new information, since it is a compliation of other indicators. It takes into consideration several things like GDP, the Consumer Price index and employment cost reports. It involves complex equations to determine the finished information. Though the information is not new, it is helpful to have it all collected in one report and in an easier to understand form. Using this report, businesses determine whether or not they can raise wages without passing on the cost to consumers.

Strengths:
Simplifies the information for investors.
Helps monitor inflation.
Helps businesses and investors make important decisions.
Factors government out of the figures, leaving only businesses.
Compares U.S. figures to ther industrialized countries.

Weaknesses:
Takes a long time to make (comes five weeks after the end of a quarter).
Fairly volatile, not so good for short term planning. Better for long term planning.
Isn't in and of itself new information.