Im going off tangent for this short piece, unusally huh, but i wanted to soak in some of creative responses you guys have shown me for this assignment, and I will hopefully stay on line with the economic peculiarities discussed in these two books. I found a book at the thrift store i work at, which is basically a cross-section of the languages of the world and how ours evolved from other Indo-European branches. Mario Pei, in his book The Story of Language, sheds light onto some of the topics that you have brought to the surface, including economics. Part of his research focuses on many different aspects of the culture of business throughout time, however being written in 1949, it was almost a premonition of how much language would impact the consumers world in a world of advertising. Namely, that products and services which capture the consumers delight through something so simple as its name and the reputation it builds through marketing would be the decider of who rises to the top of fortune 500's.
In an excerpt from his book, he states that "several theories are current among linguists today, but with the distinct understanding that they are as yet unproved and, in the nature of things, probably unprovable. They have been given picturesque names, which proves that linguists, too, can be imaginative on occasion. The "bow-wow" theory holds that language arose in imitation of the sounds occurring in nature. A dog barks; his bark sounds like bow-wow to a human hearer. Therefore he designates the dog as bow-wow. The "ding-dong" theory is to the effect that language at first consisted of spurts of surprise, fear, pleasure, pain, etc. It is often paired with the "yo-he-ho" theory to the effect that language arose from grunts of physical exertion, and even with the "sing-song" theory, that language arose from primitive inarticulate chants. The "ta-ta theory that lanaguage comes from imitation of bodily movements is further exemplified in the Darwinian belief described above.
In Pei's approach to language, it becomes more clear to me anyway, that some of the most successful companies of the internet boom reached their apex because of their name, not so much as the goods they offered. Upon reaching their initial gold vein, they were then able to focus their capital on truly improving their products or services. Google.com would be an example of the sound of a baby makes, on the cusp of forming words, yet very new to the world and trying to make sense of a God-given ability, also the symbolic sound of 0's and 1's, which to the average mind- is, well, mindblowing. Amazon.com - this name just sounds looooonnnnngggg, full of just about every sound it seems, every creepy critter crawler, which gives the consumer an idea of what the company might offer before spending sleepless nights browsing the sight building a massive shopping cart knowing full well theres only pennies in the pockets. There are many more out there, but just as people carefully choose the names of their kids, sometimes even changing it after birth after deep pondering, companies that can find the name that appeals to their target audience are more able to ignite a trend and build a lasting reputation and profitable business.
To me a new product, even if innovative and unheard of, is only half the challenge. Finding a name for it, one that like Pei says, symbolically brings some sense of satisfaction and a feeling for the customer of being "involved" in the inventors revolution, "involution" i guess, is only half the adventure. Doctors and medical workers i've noticed are surfing the Croc craze, as their job requires extreme comfort for their feet and standing long hours in their work, and if we haven't learned yet, crocs are about the toughest, sometimes cranky, creatures on earth. Names, in all actuality, breathe life into creation. Could you imagine it any other way? I can't.
May 16, 2008
May 15, 2008
gas prices: upward sloping supply curve?
as fuel prices are endlessly racheted higher and higher, I sometimes have trouble seeing any drop in usage. I can only assume that gas in extremely inelastic.
I wonder if perhaps we have come to a developmental plateau as a society. I wonder if in the ensuing couple of months and years and decades, if we will see a back-slide in our economy's technological advancement.
A lot of economic models assume that cost will merely rise as the something (say gas) i more greatly used and with this increasing price, more people will enter the supply side of the market.
A lot of Economic models do not assume a vericle supply in both short and long term. I would hypothesys that that is what is happening. The demand curve is moving ever to the right and intersecting an ever high part on the verticle S curve. Eventually this will diminish an found supplies dwindle and are stockpiled by fearful hoarders wanting for themselves. They will be reluctant to sell because they know they can get an ever-higher price. They never see it falling in price so they won't sell.
As these supplies dwindle and are hoarded, wonder if we will backslide as a world, national and local economy to more local and isolated areas of activity, less specialization across countries and less sprawl as people will want to bike and walk (and maybe horseback ride) to work.
I wonder if perhaps we have come to a developmental plateau as a society. I wonder if in the ensuing couple of months and years and decades, if we will see a back-slide in our economy's technological advancement.
A lot of economic models assume that cost will merely rise as the something (say gas) i more greatly used and with this increasing price, more people will enter the supply side of the market.
A lot of Economic models do not assume a vericle supply in both short and long term. I would hypothesys that that is what is happening. The demand curve is moving ever to the right and intersecting an ever high part on the verticle S curve. Eventually this will diminish an found supplies dwindle and are stockpiled by fearful hoarders wanting for themselves. They will be reluctant to sell because they know they can get an ever-higher price. They never see it falling in price so they won't sell.
As these supplies dwindle and are hoarded, wonder if we will backslide as a world, national and local economy to more local and isolated areas of activity, less specialization across countries and less sprawl as people will want to bike and walk (and maybe horseback ride) to work.
economics naturalist: Relationships
Why does the "Nice guys finish last Axiom hold?
In College dating and relationships hold a lot of importance among students. For many people it is really their first chance to be out and away from a lot of parental super vision. It is their first chance for many to date whomever they wish without parental judgment.
The problem plaguing many, myself included at times. is that I am aften among many female friends who complain to me about those they date but do not consider me a dateable option. Assuming a desire to be self-improving I do not know what to make of females actions which seem to be self-harming.
My hypothesis is that in a sense it is self improving. before people can acheive rationality and a better grasp of how to improve welfare in dating, women need to "improve" themself in the sense that they need to prove to themselves as a "babysitter." They see a benefit of appearing as a good guy in such a relationship. It is greater than putting up with the cost of being with someone they cannot stand.
Beyond this, there is the assymetric information failure. They see someone they like and either irrationality or decption causes them to ignore or be "oblivious" to the faults. This is assymetric information because the guy has no intention of changing but puts forth the fallacy that he will.
In College dating and relationships hold a lot of importance among students. For many people it is really their first chance to be out and away from a lot of parental super vision. It is their first chance for many to date whomever they wish without parental judgment.
The problem plaguing many, myself included at times. is that I am aften among many female friends who complain to me about those they date but do not consider me a dateable option. Assuming a desire to be self-improving I do not know what to make of females actions which seem to be self-harming.
My hypothesis is that in a sense it is self improving. before people can acheive rationality and a better grasp of how to improve welfare in dating, women need to "improve" themself in the sense that they need to prove to themselves as a "babysitter." They see a benefit of appearing as a good guy in such a relationship. It is greater than putting up with the cost of being with someone they cannot stand.
Beyond this, there is the assymetric information failure. They see someone they like and either irrationality or decption causes them to ignore or be "oblivious" to the faults. This is assymetric information because the guy has no intention of changing but puts forth the fallacy that he will.
April 29, 2008
Why do American car companies change the name of their car models so much?
With only a few exceptions, it is very noticeable that the names for American cars change rather consistently. Call it American ideology and lust for something “new” or whatever, the reality is that a name or even an entire model of a car lasts for minuscule amounts of time among the “big 3” auto makers in this nation. Whereas foreign companies will keep a model around for decades, (i.e. Corolla, Civic, Accord, Tacoma, Legacy, Forester, etc.) American companies have this consistent tendency to change a model name of a car about every 6 years. This seems strange at first because it negates the opportunity for brand recognition within a manufacturer reputation. So for the foreign companies that keep car names around the longest, they are creating cult followings for not only their company as a whole but also for vehicles within their fleet. One example of this is Subaru. Recently, Subaru completely redesigned the Forester. A car that once was a boxier version of the Outback wagon and gave a sort of sporty SUV feel to the station wagon genre has now become similar to a Ford Explorer. And despite a complete overhaul it maintained the same name as previous. Why? Because people identify quality, safety and economy with the Forester name so there is no reason for Subaru to give that away and have to spend tons of money convincing people that this car should have the reputation of the Forester. Rather they can avoid all of that with simply keeping the Forester name.
However, you just don’t typically see this inside of American auto sales. A mirror change and some rounded bumpers constitute a name change for a number of vehicles in America. Why? Because most of those vehicles that have constant name changes aren’t worthy of name brand recognition and if they did carry a long lived legacy, it would be a bad one. In other words, those cars gain a reputation for sucking. So rather than actually make a good vehicle what do the genius American car companies do? Change the name!!!!! “Discover the all new _______” they say, as if to try and convince you that this vehicle with a different name is much better than its predecessor. To put it plainly, nothing bad is worth keeping. When a car develops a bad name, Ford, GM and Dodge just change the bad name and start over with a fresh one. Same car, new name, and six years later their stock is right back where it was.
However, you just don’t typically see this inside of American auto sales. A mirror change and some rounded bumpers constitute a name change for a number of vehicles in America. Why? Because most of those vehicles that have constant name changes aren’t worthy of name brand recognition and if they did carry a long lived legacy, it would be a bad one. In other words, those cars gain a reputation for sucking. So rather than actually make a good vehicle what do the genius American car companies do? Change the name!!!!! “Discover the all new _______” they say, as if to try and convince you that this vehicle with a different name is much better than its predecessor. To put it plainly, nothing bad is worth keeping. When a car develops a bad name, Ford, GM and Dodge just change the bad name and start over with a fresh one. Same car, new name, and six years later their stock is right back where it was.
Why do fast food restaurants not allow “walk throughs”?
Many times I have found myself on my bike riding around town in the late evening and craving a burrito or a large fry. Yet as I saunter on up to the door of Taco Bell, I find that the dining room is closed. But wait… the drive through allows me to “eat great, even late.” Oh but actually, that is only for those with cars. Even though my bike is classified for law purposes as a street vehicle, I’m classified as a walk up at Taco Bell. And thus I am turned away with the response that due to corporate rule they cannot accept my business without me being in a vehicle. So why is this? Why would fast food restaurants turn away business just because I am not within the confines of a motor vehicle?
One reasoning I was given via a plastic sign at Wendy’s drive through window is “for the safety of the drive through employees, no walk ups are allowed in the drive through.” So evidently I’m more likely to shoot and rob an employee standing there on foot and be able to get away if I’m outside of a vehicle?! Yeah right, I don’t buy that for a second.
The conclusion I was able to come to is that it all surrounds control of the premises. Taco Bell doesn’t mind if you get food outside the store in a car because you are most likely going to take it off of their premises and eat and dispose of your garbage somewhere else so they don't have to deal with it. Likewise, when you sit down at the restaurant indoors, there are very convenient garbage receptacles that accommodate an easy clean up for the restaurant. The system then works very well as long as they can for the most part control how garbage is disposed within a limited area. However, for someone that comes walking up to the drive through… the likelihood is high that they will simply sit down on the curb in front of the store or in the grass in the median and eat right there. What does this mean? Even if the store were to put a garbage receptacle outside the store, the environment is much less controlled outside because of the unlimited space and additional factors like wind. Now the store has to deal with not only cleaning garbage on their own property but they have to deal with complaints from the gym across the street that ketchup packets were left on their lawn, etc. So in the name of cleanliness… drive your car! I bet that’s one you won’t hear very often.
One reasoning I was given via a plastic sign at Wendy’s drive through window is “for the safety of the drive through employees, no walk ups are allowed in the drive through.” So evidently I’m more likely to shoot and rob an employee standing there on foot and be able to get away if I’m outside of a vehicle?! Yeah right, I don’t buy that for a second.
The conclusion I was able to come to is that it all surrounds control of the premises. Taco Bell doesn’t mind if you get food outside the store in a car because you are most likely going to take it off of their premises and eat and dispose of your garbage somewhere else so they don't have to deal with it. Likewise, when you sit down at the restaurant indoors, there are very convenient garbage receptacles that accommodate an easy clean up for the restaurant. The system then works very well as long as they can for the most part control how garbage is disposed within a limited area. However, for someone that comes walking up to the drive through… the likelihood is high that they will simply sit down on the curb in front of the store or in the grass in the median and eat right there. What does this mean? Even if the store were to put a garbage receptacle outside the store, the environment is much less controlled outside because of the unlimited space and additional factors like wind. Now the store has to deal with not only cleaning garbage on their own property but they have to deal with complaints from the gym across the street that ketchup packets were left on their lawn, etc. So in the name of cleanliness… drive your car! I bet that’s one you won’t hear very often.
April 27, 2008
Car buying: new or used?
Car buying: new or used?
What is the difference between buying a new car and a used car? The obvious answer if that one has been owned and used by other drivers and the other has not been owned before. The other difference is the price; a new car will be much more expensive than a used car. The difference that holds value for many people is that most new cars have a manufacturers’ warranty whereas a used car most likely will not come with a warranty. A warranty can be bought for new cars, give the condition at the time of sale, but will be expensive and not have the same coverage as the manufacturer’s warranty.
Obviously a new car is a new car and will most likely be free of any mechanical or other problems. A new car is a bit of a mystery because the previous owner might have taken great care of it, horrible care, or mediocre care of the vehicle. They amount of care a car is provided will determine how well it will work down the line. We all know that oil changes are recommended every 3,000 miles, and some of us are very diligent in having the oil changed, and some of us are very lazy or might not have enough money to have the oil changed regularly. This is just one way a car can be taken care of or not taken care of. New cars are also a mystery because it is hard to know at the time of purchase how many times the car has had mechanical problems or been in an accident, or flood, etc. You might even say that buying a new car is a crapshoot.
New cars are more expensive than used cars and there are two main reasons for this: one of course is that it is brand new, and second is that there is no history of damage or misuse. Many people prefer to buy a new car over a used car for the peace of mind that it should work like brand new and other people just like having a new car for the sake of having a new car. There are many of us that are somewhere in the middle, and therefore have a difficult time deciding whether to buy new or used. A used car will initially save a lot of money, and the insurance will be less expensive etc. The question that leaves many of us on the fence is: Will this car break down; is the transmission good, etc.? You can certainly as the same questions about a new car, because it is entirely possible that there is a manufacturer problem and the minute you are off of the car lot it breaks down.
The warranty is the deciding factor for many because new opposed to used will not only provide a new car that no one has ever owned but will also provide the peace of mind that even if there is some manufacturer problem and the car breaks down the minute you buy it is will be repaired for free. Warranties have many different time frames and mileage limits on the coverage but the minimum will usually cover you for four years or more and up to 50,000 miles. This all means that as long as the car is serviced according to the manufacturers’ specifications, most all parts of the car are replaceable for free, providing you have not done something to damage them. Warranties available for used cars are usually not as extensive and will only cover certain parts. There may also be a deductible for any repairs.
So which is better, the new more expensive car or the used car? What if we suppose that the price difference can be at least $5,000? How do we decide? The decision can be dependent on how much money a person has to spend, but that doesn’t always hold true.
Why do people choose to use illegal drugs when they are expensive and dangerous?
Why do people choose to use illegal drugs when they are expensive and dangerous?
It is common knowledge that illegal drugs like cocaine, heroin and methamphetamines are extremely expensive, yet so many people fall prey to this addiction even if they cannot afford to. From a cost benefit perspective drug addicts feel that the benefit of getting high is more than the cost. Many times the drugs become the most important purchase, and they find themselves in debt and are forced to start selling their belongings just to make ends meet.
Drug addicts also choose the benefit of getting high over good health. They do not consider the consequences of later health problems or even death when they decide to use drugs. Drug use is very dangerous and harmful on the brain, heart, and many other organs of the body. There is also an increased risk of contracting a disease like Hepatitis B or HIV/Aids from sharing needles and unsafe behavior practices.
Trying to make a drug addict understand the affects of their behaviors is extremely difficult and rehabilitation services are almost always needed. Rehabilitation services are also very expensive and are also not thought of as possible consequences when first deciding to take the drugs. It is hard to imagine why some people become drug addicts when it seems like common sense to stay away from drugs. Is education enough to prevent drug use, or will people always let their curiosity lead them down a dangerous path that they know they should not be on. Is the cost of the consequences less than the high? The answer is no.
It is common knowledge that illegal drugs like cocaine, heroin and methamphetamines are extremely expensive, yet so many people fall prey to this addiction even if they cannot afford to. From a cost benefit perspective drug addicts feel that the benefit of getting high is more than the cost. Many times the drugs become the most important purchase, and they find themselves in debt and are forced to start selling their belongings just to make ends meet.
Drug addicts also choose the benefit of getting high over good health. They do not consider the consequences of later health problems or even death when they decide to use drugs. Drug use is very dangerous and harmful on the brain, heart, and many other organs of the body. There is also an increased risk of contracting a disease like Hepatitis B or HIV/Aids from sharing needles and unsafe behavior practices.
Trying to make a drug addict understand the affects of their behaviors is extremely difficult and rehabilitation services are almost always needed. Rehabilitation services are also very expensive and are also not thought of as possible consequences when first deciding to take the drugs. It is hard to imagine why some people become drug addicts when it seems like common sense to stay away from drugs. Is education enough to prevent drug use, or will people always let their curiosity lead them down a dangerous path that they know they should not be on. Is the cost of the consequences less than the high? The answer is no.
April 25, 2008
Why would people purchase used items on ebay, but choose to shop in second hand stores?
I know quite a few people who purchase things online and do not think anything of it, but when you ask them if they shop in a store like Goodwill, their faces tend to say it all. So, why are we willing to purchase items online having never actually physically held them, versus looking and holding them in person? One very simple answer could be that if certain items go to Goodwill, then they might not have even been worth the person’s time to try to sell. They are just not good enough. If you’re willing to just donate it, then why would someone take the time to go in and purchase the item?
Another simple answer could be that since many people donate items to places like Goodwill so they are less likely to go in there because they know that they donated “junk.” I know that one man’s junk is another man’s treasure, but what makes the items online so much more worthy of our dollars? People’s preferences are given, and in that sense it is hard to change the way that people think about shopping second hand or shopping online for that matter.
There is also the issue of convenience. If you can just do a simple search online to find what you are looking for you have almost instant results but you have to wait for shipping, whereas if you are shopping in stores to find the items it may take a little bit more effort. Maybe the comparison of shopping online versus shopping in secondhand stores is too limited. In fact many people opt to just shop online over shopping in physical stores for a lot of different items, not just used ones.
One of the biggest drawbacks to shopping online is not knowing what kind of quality you will get when you actually receive the items. When you are in a store, you can very often easily tell if the quality is good or bad. When purchasing items online there is the issue of asymmetric information so there is very little certainty about the condition of the goods, and people often end up paying somewhat more money to try to help guarantee that they will be satisfied in the end. In dealing online people face the issue of adverse selection and moral hazard. If there are two items that appear to be completely identical online, and have very similar descriptions, some people who are risk averse will pay more merely because they think that they have a better chance at getting just what they were looking for. It seems that if you can buy any item in person whether it is at a second hand store or brand new, you will likely be better off in the end. But for those looking for the possibility of a better deal and a small gamble there is always eBay.
Another simple answer could be that since many people donate items to places like Goodwill so they are less likely to go in there because they know that they donated “junk.” I know that one man’s junk is another man’s treasure, but what makes the items online so much more worthy of our dollars? People’s preferences are given, and in that sense it is hard to change the way that people think about shopping second hand or shopping online for that matter.
There is also the issue of convenience. If you can just do a simple search online to find what you are looking for you have almost instant results but you have to wait for shipping, whereas if you are shopping in stores to find the items it may take a little bit more effort. Maybe the comparison of shopping online versus shopping in secondhand stores is too limited. In fact many people opt to just shop online over shopping in physical stores for a lot of different items, not just used ones.
One of the biggest drawbacks to shopping online is not knowing what kind of quality you will get when you actually receive the items. When you are in a store, you can very often easily tell if the quality is good or bad. When purchasing items online there is the issue of asymmetric information so there is very little certainty about the condition of the goods, and people often end up paying somewhat more money to try to help guarantee that they will be satisfied in the end. In dealing online people face the issue of adverse selection and moral hazard. If there are two items that appear to be completely identical online, and have very similar descriptions, some people who are risk averse will pay more merely because they think that they have a better chance at getting just what they were looking for. It seems that if you can buy any item in person whether it is at a second hand store or brand new, you will likely be better off in the end. But for those looking for the possibility of a better deal and a small gamble there is always eBay.
Why is a glass of water, at a restaurant, ‘free’?
Why is a glass of water, at a restaurant, ‘free’?
When ones goes to a restaurant (except during a drought) one gets a glass of water with ice on the table, much like the silverware and napkins. Yet, if a glass of ice tea or soda is ordered then bill increases. However, the cost difference, to the restaurant, is only cents different. Why doesn’t the restaurant give free tea or soda? Why does it give the water?
Waters ‘free’ in my house. The is no usage charge when I drink for a public fountain or a private firms water. Yet there is a real cost to water: however many cents per gallon. A small fee, but a fee none the less. This then begs the question; is every item on the menu already built with the cost of water into it? Each item does have the cost to produce the item, clean the dish and serve that ‘free’ glass of water. But, if I walk into the restaurant and order a muffin, does the muffin have the whole cost of the glass of water served to me? If so then what if I order a muffin and a sandwich. Each item has the cost of the ‘free’ glass of water built into the price, but if I only drink one glass of water I am paying not to drink another glass of water.
Instead of allowing me to decide if I want to pay for my glass of water they are already charging me for it. I don’t get my money back if I refuse the glass of water either. This would set up an incentive for each person to then drink as much water as possible because the cost of consumption is already in the price of the meal (until saturation point). Why stop at water?
Why don’t restaurants hand out ‘free’ soda or tea to the customers? This, as far as I can tell, is only because of rational ignorance and perceived value/savings. Well waters ‘free’ so it must not be as good as soda or tea, therefore the restaurant can charge a much higher differentiated price for the two items.
Next time you enter a restaurant remember that everything you order has another product attached to it, that ‘free’ glass of water.
When ones goes to a restaurant (except during a drought) one gets a glass of water with ice on the table, much like the silverware and napkins. Yet, if a glass of ice tea or soda is ordered then bill increases. However, the cost difference, to the restaurant, is only cents different. Why doesn’t the restaurant give free tea or soda? Why does it give the water?
Waters ‘free’ in my house. The is no usage charge when I drink for a public fountain or a private firms water. Yet there is a real cost to water: however many cents per gallon. A small fee, but a fee none the less. This then begs the question; is every item on the menu already built with the cost of water into it? Each item does have the cost to produce the item, clean the dish and serve that ‘free’ glass of water. But, if I walk into the restaurant and order a muffin, does the muffin have the whole cost of the glass of water served to me? If so then what if I order a muffin and a sandwich. Each item has the cost of the ‘free’ glass of water built into the price, but if I only drink one glass of water I am paying not to drink another glass of water.
Instead of allowing me to decide if I want to pay for my glass of water they are already charging me for it. I don’t get my money back if I refuse the glass of water either. This would set up an incentive for each person to then drink as much water as possible because the cost of consumption is already in the price of the meal (until saturation point). Why stop at water?
Why don’t restaurants hand out ‘free’ soda or tea to the customers? This, as far as I can tell, is only because of rational ignorance and perceived value/savings. Well waters ‘free’ so it must not be as good as soda or tea, therefore the restaurant can charge a much higher differentiated price for the two items.
Next time you enter a restaurant remember that everything you order has another product attached to it, that ‘free’ glass of water.
Why do banks give out new cars loans so easily and used car loans so strictly?
Why do banks give out new cars loans so easily and used car loans so strictly?
I see at least 10 finance deals a day on new or used cars. A car that has been previously titled is considered used. Every time a used car comes up our bank raises its interest rates and requires more income and a higher credit score to process (also the length of the loan is shorter). Further, if the car is too old then the bank will not finance. Why?
What is the incentives for the bank to process newer car loans better? One reason is the incentives. The bank knows that if it keeps the rates for new cars low the new car dealers will continue to bank with it. Yet from the banks perspective if the income from used transactions matched new transactions wouldn’t it just be a wash for the bank? A clear advantage is seen then by the new car dealer: the rates and requirements are lower and therefore they are more likely to seem more attractive to customers.
I think this comes to one of the reasons that banks do these deals and setup the incentives for consumers: rational ignorance. When the person goes out to purchase the vehicle they focus on interest rates and monthly payments. What if instead they focused on the amount of interest paid. The rate may then not be as important and the length and amount of loans may be smaller. Since people are convinced that rate is important and focus on rate and it is viewed as a smart buying decision to focus on rate the total finance charge is ignored (largely).
This shows why banks are going to offer lower rates on the new cars because typically they are going to be more expensive and therefore make the bank a larger total finance charge. The requirements being higher are related to this system. If the bank makes the loans further unattractive for the customers then it will push them into a new car loan. I think one final issue is present here as well.
The bank is acting on moral hazard assumptions. An older car maybe close to the end of its warranty (or already past it). The bank looks at this situation and figures that if the car fails then the person may have a certain interest in simply stop paying. So the bank guards against this default by setting the incentive structure as such; however, credit scores do illustrate a slight problem. Even if the person does default they are effected in everything else they do including trying to buy a replacement car. So this doesn’t appear as quite as big of a reason.
Until there is some incentive for the banks to change their structure, very unlikely, the incentives for the people is to buy new.
I see at least 10 finance deals a day on new or used cars. A car that has been previously titled is considered used. Every time a used car comes up our bank raises its interest rates and requires more income and a higher credit score to process (also the length of the loan is shorter). Further, if the car is too old then the bank will not finance. Why?
What is the incentives for the bank to process newer car loans better? One reason is the incentives. The bank knows that if it keeps the rates for new cars low the new car dealers will continue to bank with it. Yet from the banks perspective if the income from used transactions matched new transactions wouldn’t it just be a wash for the bank? A clear advantage is seen then by the new car dealer: the rates and requirements are lower and therefore they are more likely to seem more attractive to customers.
I think this comes to one of the reasons that banks do these deals and setup the incentives for consumers: rational ignorance. When the person goes out to purchase the vehicle they focus on interest rates and monthly payments. What if instead they focused on the amount of interest paid. The rate may then not be as important and the length and amount of loans may be smaller. Since people are convinced that rate is important and focus on rate and it is viewed as a smart buying decision to focus on rate the total finance charge is ignored (largely).
This shows why banks are going to offer lower rates on the new cars because typically they are going to be more expensive and therefore make the bank a larger total finance charge. The requirements being higher are related to this system. If the bank makes the loans further unattractive for the customers then it will push them into a new car loan. I think one final issue is present here as well.
The bank is acting on moral hazard assumptions. An older car maybe close to the end of its warranty (or already past it). The bank looks at this situation and figures that if the car fails then the person may have a certain interest in simply stop paying. So the bank guards against this default by setting the incentive structure as such; however, credit scores do illustrate a slight problem. Even if the person does default they are effected in everything else they do including trying to buy a replacement car. So this doesn’t appear as quite as big of a reason.
Until there is some incentive for the banks to change their structure, very unlikely, the incentives for the people is to buy new.
Why do some products only become popular when attached to a new movement?
Around 6 or 8 years ago compact florescent light bulbs were introduced on the American market. The ad campaign for these bulbs billed them as long lasting bulbs. These light bulbs were something that you could buy and not have to replace for about 5 years. Since our house has 10 foot ceilings and a light fixture expertly placed above the 2nd stair form the top, my Dad went out and bought some compact fluorescents so that he would have to bring the later up and try to lean it against the wall while on the top and 2nd stairs and hope he didn’t fall every year.
Recently, compact florescent light bulbs have been on the market billed as energy efficient and environmentally friendly. Their popularity has flourished. Hybrid cars have experienced the same type of thing though theirs is swinging between cost efficient and environmentally friendly. The hybrid car came on the market as the environmentally friendly way to drive. They were first only popular with certain groups of people, as parodied on South Park, but have since become exceedingly popular due to the rise in fuel costs. What I want to know is why do some perfectly cost effective products only become popular when social sentiment changes?
The compact florescent bulb is a perfect product. It saves energy, and it rarely needs to be replaced, so it is not a time consuming product to have. I have one in a lamp and it has been there for years and works just the same as it always did. As far as cost saving, I don’t really care. But I love that I never have to think about my light bulb. As for fuel efficient cars, I really don’t understand how anyone could not want one. I’m not going to rally against big cars, but everyone is always looking for little ways to save money and that is a huge one.
Hybrid cars came out in groups. The Toyota prius was most popular with yuppie types and as gas prices and Al Gore’s influence rose, they became more popular with the general public. What is interesting is that not all hybrid and fuel efficient cars took off in quite the same way. Lexus had a hybrid that came out several years ago and has recently been remarketed because of rising fuel costs. This particular hybrid was not popular for its cost effectiveness. It has only become popular because of the craze to save the environment and money at the same time.
Why is happening? The reason, I think, is that people often do not want their outside image to reflect something other than popular sentiment. I light bulb that lasts 5 years is great, but unless you are like my Dad and bought a house where the light fixtures were not well thought out, why spend the money. But when energy costs go up and it becomes popular to save the environment again, you feel like you have to be seen with compact fluorescents. The same thing happens to cars. When gas is cheap, nobody cares about the cost to fill up. But as public perception of global climate changed again, and gas prices went quickly skyward, everybody wants a more fuel efficient car. And they complain about damage to the environment by emissions and drilling for oil, however, if asked most people would not vote for or use public transportation. We only car about the environment as long as it is convenient. But at least now I can get a car that doesn’t require so much time wasted at the gas pump. I guess really, it isn’t about cost at all, just convenience.
Around 6 or 8 years ago compact florescent light bulbs were introduced on the American market. The ad campaign for these bulbs billed them as long lasting bulbs. These light bulbs were something that you could buy and not have to replace for about 5 years. Since our house has 10 foot ceilings and a light fixture expertly placed above the 2nd stair form the top, my Dad went out and bought some compact fluorescents so that he would have to bring the later up and try to lean it against the wall while on the top and 2nd stairs and hope he didn’t fall every year.
Recently, compact florescent light bulbs have been on the market billed as energy efficient and environmentally friendly. Their popularity has flourished. Hybrid cars have experienced the same type of thing though theirs is swinging between cost efficient and environmentally friendly. The hybrid car came on the market as the environmentally friendly way to drive. They were first only popular with certain groups of people, as parodied on South Park, but have since become exceedingly popular due to the rise in fuel costs. What I want to know is why do some perfectly cost effective products only become popular when social sentiment changes?
The compact florescent bulb is a perfect product. It saves energy, and it rarely needs to be replaced, so it is not a time consuming product to have. I have one in a lamp and it has been there for years and works just the same as it always did. As far as cost saving, I don’t really care. But I love that I never have to think about my light bulb. As for fuel efficient cars, I really don’t understand how anyone could not want one. I’m not going to rally against big cars, but everyone is always looking for little ways to save money and that is a huge one.
Hybrid cars came out in groups. The Toyota prius was most popular with yuppie types and as gas prices and Al Gore’s influence rose, they became more popular with the general public. What is interesting is that not all hybrid and fuel efficient cars took off in quite the same way. Lexus had a hybrid that came out several years ago and has recently been remarketed because of rising fuel costs. This particular hybrid was not popular for its cost effectiveness. It has only become popular because of the craze to save the environment and money at the same time.
Why is happening? The reason, I think, is that people often do not want their outside image to reflect something other than popular sentiment. I light bulb that lasts 5 years is great, but unless you are like my Dad and bought a house where the light fixtures were not well thought out, why spend the money. But when energy costs go up and it becomes popular to save the environment again, you feel like you have to be seen with compact fluorescents. The same thing happens to cars. When gas is cheap, nobody cares about the cost to fill up. But as public perception of global climate changed again, and gas prices went quickly skyward, everybody wants a more fuel efficient car. And they complain about damage to the environment by emissions and drilling for oil, however, if asked most people would not vote for or use public transportation. We only car about the environment as long as it is convenient. But at least now I can get a car that doesn’t require so much time wasted at the gas pump. I guess really, it isn’t about cost at all, just convenience.
Paper Please!
I have never understood why “plastic” is so much better than “paper” in the check-out line. The two most common justifications I have heard are “plastic is recyclable” to “plastic doesn’t kill trees.” Well, let’s use some economic reasoning to rip apart these justifications.The most obvious point is that paper bags are just as recyclable as plastic bags are, but very few bags, paper or plastic, are actually recycled. What happens to the “recyclable” bags that aren’t recycled? They end up in a landfill. Paper bags are better there, because they are also biodegradable, which gets to the economic argument of this point.
Landfills cost money. Plastic bags last forever. I know that one plastic bag takes up very little space, but the 100 billion plastic bags tossed away each year add up, and huge amounts of economic resources go into maintaining those plastic bags, forever (at least for the 1,000 years it takes for a plastic bag to break down).
But what happens to the plastic bags that are blown away or littered? National Geographic and PBS have recently reported that many of those bags make their ways to rivers, lakes, and oceans and end up in the bellies of wild animals, taking away space for food and leading to malnutrition and sometimes even death. Out in the Pacific Ocean, there is a huge toilet bowl-like water system twice the size of Texas that draws discarded plastic into a huge pool, and some animals in that region have even begun recognizing plastic as viable food sources.
As terrible as this all sounds from a sympathy perspective, from an economic perspective, it is just as troubling. Wildlife funds and environmental clean-up programs must now pump millions of dollars toward cleaning up areas in which the plastic bag pulp, made up of tiny pieces of plastic bags that often outnumber plankton, is depleting fish populations. The decrease in fish then has a ripple effect on the global fish market, a huge source of revenue for many developing coastal nations. Instead of all those millions of dollars going toward other earth-friendly programs, like helping to develop viable fuel alternatives or helping to limit desertification of potential farmland in Africa, it goes toward cleaning up “recyclable” plastic bags.
So, let’s all use paper bags, because even if we don’t recycle them, we won’t contribute to the decline of developing countries’ primary source of revenue. Okay, so farmed forests aren’t as ecologically friendly as wild forests, but this problem seems much less significant on a global scale than dumping BILLIONS of plastic bags, that last forever and have to go somewhere, into landfills and bird bellies. I'm not saying that deforesting the Amazon Rain Forest is the way to go, but recycling paper bags and replanting farmed forests seems like the more sustainable option.
http://www.salon.com/news/feature/2007/08/10/plastic_bags/
Why don't people consistently clip coupons and use them to save money?
It's hard to believe that such a large population of people would pass up the chance to keep even just a small portion of money. Why don't people just take a small amount of time to clip out coupons from the newspaper for items they know that they will need to purchase?
For some people the answer could be as simple as laziness, but is it just that? Many people who don't clip coupons might contend that their time is more valuable than the potential savings. Why wouldn't someone take the time to flip through the sale paper for maybe twenty or thirty minutes to save a total of around say five or ten dollars? Often times the best coupons can be found in the Sunday morning paper so then the question could be whether to save money at some time in the future or to relax and take a nap now. The opportunity cost of clipping coupons and losing a nap is too high, and those who are unwilling seem to be somewhat less sensitive to prices.
So some people may feel that their time is better spent napping than it is cutting coupons. What about the rest of the people, what are their reasons? If the potential money that shoppers can get back is not enough to give them the incentive to cut the coupons, then maybe they feel it is a wast of time and effort. They know that in the end when they go shopping they won't even have all the coupons they clipped when they go to purchase their items. Some shoppers may also chose not to cut coupons because they may then just purchase new items that they don't ordinarily use or need, but they will still get them at a discounted rate. The coupons are merely a signal to buy.
Some people might not clip coupons because they also have rules or stipulations that make them somewhat less easy to use. Most coupons have expiration dates, or offers that are only valid when more items are purchased. The phrase, "buy one items, and get a second item of equal or lesser value free," is common and familiar to many shoppers. The buy one get one free or half off idea is a great way to market to consumers who are looking for that good deal, but it may once again lead to excess spending. These types of coupons encourage overbuying or unnecessary purchases. Good for the seller, bad for the buyer. Some people may just take advantage of the savings on their own and share the wealth by bargaining with a friend. "I'll buy this shirt and get another one for half off in your size and then we'll split the total cost between us." It is in a sense a type of savings trade which benefits both parties and leaves everyone potentially better off than they were before the transaction.
With all the coupons out there, one can only guess why many consumers choose not to take advantage of the savings. For people who have the patience, time, or need there are a multitude of opportunities to find and use coupons for substantial savings.
For some people the answer could be as simple as laziness, but is it just that? Many people who don't clip coupons might contend that their time is more valuable than the potential savings. Why wouldn't someone take the time to flip through the sale paper for maybe twenty or thirty minutes to save a total of around say five or ten dollars? Often times the best coupons can be found in the Sunday morning paper so then the question could be whether to save money at some time in the future or to relax and take a nap now. The opportunity cost of clipping coupons and losing a nap is too high, and those who are unwilling seem to be somewhat less sensitive to prices.
So some people may feel that their time is better spent napping than it is cutting coupons. What about the rest of the people, what are their reasons? If the potential money that shoppers can get back is not enough to give them the incentive to cut the coupons, then maybe they feel it is a wast of time and effort. They know that in the end when they go shopping they won't even have all the coupons they clipped when they go to purchase their items. Some shoppers may also chose not to cut coupons because they may then just purchase new items that they don't ordinarily use or need, but they will still get them at a discounted rate. The coupons are merely a signal to buy.
Some people might not clip coupons because they also have rules or stipulations that make them somewhat less easy to use. Most coupons have expiration dates, or offers that are only valid when more items are purchased. The phrase, "buy one items, and get a second item of equal or lesser value free," is common and familiar to many shoppers. The buy one get one free or half off idea is a great way to market to consumers who are looking for that good deal, but it may once again lead to excess spending. These types of coupons encourage overbuying or unnecessary purchases. Good for the seller, bad for the buyer. Some people may just take advantage of the savings on their own and share the wealth by bargaining with a friend. "I'll buy this shirt and get another one for half off in your size and then we'll split the total cost between us." It is in a sense a type of savings trade which benefits both parties and leaves everyone potentially better off than they were before the transaction.
With all the coupons out there, one can only guess why many consumers choose not to take advantage of the savings. For people who have the patience, time, or need there are a multitude of opportunities to find and use coupons for substantial savings.
The Cursed National Debt
In the United States today there is a struggling economy. Many economists call upon the U.S. debt as a leading factor. What we need to focus on is the cost-benefit of having a deficit in the United States.
Many economists argue about getting rid of the national debt, or letting it be. Across the board, there is little debate over the fact that the debt is increasing at a rapid rate. However the National debt does serve some purposes that are generlly overlooked. The Federal debt is an economic asset. The economy is the creditor, and for a creditor, debt is an asset. The federal deficit is an economic surplus. This means the economy receives more money from the government than it sends to the government. This can be seen through tax cuts and refunds such as the 2008 economic stimulus plan.
The second thing that the national debt does for our economy is that it relys on the purchase and sale of a government bond. This is how the Fed adds or removes money in our economy, so it can be said that the Fed requires this type of "transaction." On the other side of this "transaction," we have those who would like to buy or sell bonds, such as U.S. citizens, businesses, or even other third party countries. Many are dependant on this relasionship with the Fed.
So to say that we should completely pay off the U.S. debt would be going a little far. We must make this cost-benefit choice of whether to or not to have the U.S. debt. One thing is for certain, and that is the rate that it is rizing. We do not want to be too hasty with paying it completely off, however aside from sarcasm, we don't want to get over our heads with debt. One thing is for certain, we have really put our country in a bind with a cursed national debt.
Many economists argue about getting rid of the national debt, or letting it be. Across the board, there is little debate over the fact that the debt is increasing at a rapid rate. However the National debt does serve some purposes that are generlly overlooked. The Federal debt is an economic asset. The economy is the creditor, and for a creditor, debt is an asset. The federal deficit is an economic surplus. This means the economy receives more money from the government than it sends to the government. This can be seen through tax cuts and refunds such as the 2008 economic stimulus plan.
The second thing that the national debt does for our economy is that it relys on the purchase and sale of a government bond. This is how the Fed adds or removes money in our economy, so it can be said that the Fed requires this type of "transaction." On the other side of this "transaction," we have those who would like to buy or sell bonds, such as U.S. citizens, businesses, or even other third party countries. Many are dependant on this relasionship with the Fed.
So to say that we should completely pay off the U.S. debt would be going a little far. We must make this cost-benefit choice of whether to or not to have the U.S. debt. One thing is for certain, and that is the rate that it is rizing. We do not want to be too hasty with paying it completely off, however aside from sarcasm, we don't want to get over our heads with debt. One thing is for certain, we have really put our country in a bind with a cursed national debt.
I government
| I manage a baseball team. I suppose that an adult-league baseball team could pretty much figure out how to operate without a manager, but there are a few things that might transpire. For one, other teams as roving bandits would in a sense rob and pillage the unmanaged team. Without organization or strategy, a team wouldn't operate as a single unit. Another occurance is that the team without a manager may not see the incentive in acquiring uniforms. If a team does want uniforms, then they'd probably have to each be responsible for purchasing their own which could mean that they may NOT be uniform, OR it would incur some transaction costs of higher per-item price with whatever purveyor of uniforms than if they were bought in a group. Also, there is implied that one or few people would have the burden of ordering/purchasing/collecting funds... which is what a manager does! As manager, I am able to plan ahead and bring $60 per game for umpires and then collect whatever appropriate amount is necessary of each player. As well, I can organize a line-up that utilizes strategy for game play. It might be assumed that batting order may have positional value by different players and thus arguments may ensue taking away from focus that can otherwise be channeled to playing ball. As manager, I could exercise my strength to sit some players on the bench while playing other players. As long as I maintain an empirical interest in the team's welfare, I won't be suseptible to influence by the best 9 players to exclude the worst 5 players... in other words, I government could fight against the tyranny of the majority and thus prevent scoliosis from occurring on my team. There could be an incentive for me to be a stationary bandit which would spread the cost of the team/players fees across every player (other than myself) so as to have MY portion of the fees be absorbed, but that would be borderline predatory. Other issues of good management by I government would include encouraging prosperity. I personally see an incentive in the prosperity of my players because in turn, I as a manager of a WINNING ball club reap the benefits of prosperity. A problem may come into play when players may attempt to use me against other players; knowing that allowing this to occur would tear my team apart, I exercise my power, my authority with the prosperity of the team in mind. Therefore, I maintain as unbiased as possible, yet, I establish and maintain authority while offering incentives that are in line with my agenda. An agenda that is shared by every member of the team, including myself: win games! |
This application of "undercover economics" is at the back of my mind whenever I am in a position to use my power as a manager, as a governor, of our baseball team. Perhaps I'm a little influenced by Mancur Olson, but what do you expect when I am left to my own devices regarding economics and we happen to be reading with in-depth comprehensive analysis material that questions power and prosperity in terms of economics, incentives and governance?!
Baby Boomers - Why on Earth do They Exist?
Whenever people talk about the future of social security, the subject of baby boomers comes up. Many people believe that they will deplete social security, leaving our generation with no source of government-funded retirement income. I keep hearing people say that us young people should begin saving as much as possible towards retirement because we will have no source of income other that what we are able to save through 401(k)s, IRAs, and annuities. I cannot answer whether or not social security will be depleted, but I cannot help but wonder why on earth baby boomers even exist?
Between World War I and World War II the United States’ economy was not doing very well. In fact it was miserable. People lost their life savings in the stock market, there was very high unemployment, and no confidence whatsoever in the economy. However, WWII helped end all that. While many of the younger men were off fighting, the women took their jobs on the home front, causing the economy to grow rapidly. After the war, because of the massive stimulus caused by the war, many job opportunities existed for the men, thus giving women the option of being homemakers. Because the women did not have to work as much, the opportunity cost of raising large amounts of children was relatively low, because they did not have to give up a lot in terms of wages etc. I guess we can thank them for causing all of the uncertainty surrounding our retirement income.
Between World War I and World War II the United States’ economy was not doing very well. In fact it was miserable. People lost their life savings in the stock market, there was very high unemployment, and no confidence whatsoever in the economy. However, WWII helped end all that. While many of the younger men were off fighting, the women took their jobs on the home front, causing the economy to grow rapidly. After the war, because of the massive stimulus caused by the war, many job opportunities existed for the men, thus giving women the option of being homemakers. Because the women did not have to work as much, the opportunity cost of raising large amounts of children was relatively low, because they did not have to give up a lot in terms of wages etc. I guess we can thank them for causing all of the uncertainty surrounding our retirement income.
Cost-Benefit of the Emmissions Program
Why are 25-year (and older) automobiles exempt from emissions programs, while newer vehicles are still held “emissions accountable?”
All vehicles produce emissions, whether they are new, old, small or big. However, new vehicles that have new technology are continuously improved making them run more efficient, while producing less carbon dioxide and sulfur. Older models generally produce more, and yet they are not held accountable, so why does the state government system disregard these vehicles?
One possibility is that new automobiles are held at a level of “higher accountability” by the state governments, because there are more of them on the road? It could also be said that environmental groups are putting more pressure upon the automotive manufactures to improve upon the emissions control?
Rumors circulate that state government has little control over there emissions control program. Many emissions control facilities have become outdated or are non-functioning. Some control stations have been caught taking bribes to make their customers vehicles pass.
Today we all face a cost-benefit decision that suggests that we can buy new automobiles that are economically beneficent and are constantly being held accountable, or we can choose to keep our older vehicles that produce vastly larger amounts or carbon and sulfur. In today’s society a “green outlook” comes with a choice, whether to serve the environment or our own needs.
By Brandon weber
Why Major Retailers Ignore the FCC
As many of us have heard, next February the nation-wide transition to digital TV will begin. This means that if you own a TV that receives analog-only signals, you are out of luck. In order for it to work, you will need to purchase some sort of converter box.
Currently, the FCC has placed a ban on importing and manufacturing analog TV sets. The purpose behind this is that the transition to digital will be easier if all new TV sets sold on the market are capable of receiving digital signals. However, analog TVs that retailer currently have, in stock, can still be sold. The catch is that retailers are required to place a warning sign next to them that says they won't work next year without the purchase of a special converter box.
Major retailers including Target, Sears, Circuit City, and Wal-Mart have all chosen not to comply with this rule. This seems unusual, as large retailers seem like the ones most likely to comply with federal rules and regulations. However, when looking at the costs and benefits associated with this situation it is easy to see why they don’t comply.
If a person was considering buying an analog television and saw a sign next to it saying it would not work in a year unless they were to buy another piece of equipment, they are more likely to just buy a digital TV. In that case, the large retailers would be stuck with large quantities of outdated TVs. Also, the penalties they receive for failing to comply with the FCC are not that severe. For example, Wal-Mart received a fine of about $900,000. $900,000 to the largest retailer in the world is nothing more than pocket change. They probably made more than that just from selling the analog TVs. Here, the benefits of getting rid of old TVs, and freeing up warehouse and shelf space, far outweigh the $900,000 fine. If the FCC does not want these retailers to deceive consumers, they need to up the penalty for doing so.
Currently, the FCC has placed a ban on importing and manufacturing analog TV sets. The purpose behind this is that the transition to digital will be easier if all new TV sets sold on the market are capable of receiving digital signals. However, analog TVs that retailer currently have, in stock, can still be sold. The catch is that retailers are required to place a warning sign next to them that says they won't work next year without the purchase of a special converter box.
Major retailers including Target, Sears, Circuit City, and Wal-Mart have all chosen not to comply with this rule. This seems unusual, as large retailers seem like the ones most likely to comply with federal rules and regulations. However, when looking at the costs and benefits associated with this situation it is easy to see why they don’t comply.
If a person was considering buying an analog television and saw a sign next to it saying it would not work in a year unless they were to buy another piece of equipment, they are more likely to just buy a digital TV. In that case, the large retailers would be stuck with large quantities of outdated TVs. Also, the penalties they receive for failing to comply with the FCC are not that severe. For example, Wal-Mart received a fine of about $900,000. $900,000 to the largest retailer in the world is nothing more than pocket change. They probably made more than that just from selling the analog TVs. Here, the benefits of getting rid of old TVs, and freeing up warehouse and shelf space, far outweigh the $900,000 fine. If the FCC does not want these retailers to deceive consumers, they need to up the penalty for doing so.
Back to the barter system?
Do people driving into a big city notice the pollution, the smog, the dark brown cloud that hovers over the city top? Is it a concern to the people that live in the city, that are breathing that smog in for air? In the recent years there have been movements to clean up the air, but has it been done? The major problem I see is that companies are making a profit off of selling their certificate, to be able to pollute to other companies. This profit is probably just a segment of their business and not really in business for that segment, but at the end of the year they get to report a profit on their income statement from this type of business. So how is air traded or sold when air mixes and mingles; clean air with dirty air; and no one owns it? There is a financial market growing around the trading of polluted air, where brokers match those who need pollution allowances with those who have extra. Pollution traders just measure the pollution coming out of the smokestacks, so how does this work? Each polluter is allotted a certain number of pollution certificates, when all the certificates are used up the polluter must buy more certificates. Currently the goal of any emission market is to clean the air at the lowest possible cost to society. But is this going to work in the future or are we moving into finding a technology that polluters must use to control and be able to administer and enforce.
Economic Stimulus leading Americans to Economic growth?
Could this really be true….yes, but not so fast! What is this and what is all the rage about? The main question is how bad is this going to be for the economy in the long run? The economic stimulus payment will be received by more than 130 million households; and this money won’t be taxable and won’t have an effect on your 2008 return. The stimulus package will send critical relief to millions of lower to middle income families whose economic situation dictates that they spend the rebate check and purchase goods and services to spur our economy. So who is eligible? The majority of people that filed a 2007 tax return; you just have to have a social security number and made at least 3,000.00 dollars in 2007 and not more than 75,0000.00 filing single and 150,000.00 filing jointly.
So where is all this money coming from? Option 1; if it comes from taxes, the value of a person’s stimulus check is offset by the greater taxes paid by another person or business, who will then have less money to reinvest or spend. Option 2; if the money is borrowed by Uncle Sam to pay for all the stimulus checks the borrowing takes money out of the private sector. Option 3; for the Federal Reserve to create money, well we all know that outcome will lead to inflation. None of these option seem like a good way to go…Spending power is not so much the meat of economic growth, but the key to economic growth is investment that raises workers productivity.
So where is all this money coming from? Option 1; if it comes from taxes, the value of a person’s stimulus check is offset by the greater taxes paid by another person or business, who will then have less money to reinvest or spend. Option 2; if the money is borrowed by Uncle Sam to pay for all the stimulus checks the borrowing takes money out of the private sector. Option 3; for the Federal Reserve to create money, well we all know that outcome will lead to inflation. None of these option seem like a good way to go…Spending power is not so much the meat of economic growth, but the key to economic growth is investment that raises workers productivity.
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