Tag Archives: economics

Venezuela TL;DR

From Metafilter:

“Background: Venezuela is a former Spanish colony, population of 30 million, GDP per capita of $15k PPP (comparison point, Malaysia is $10k PPP, Australia is $67k PPP). Primarily oil driven economy – they have the largest oil reserves on the planet and have pulled over a trillion dollars in oil profits in the past and they were the founders of OPEC. So far so good.

“The current, horrible situation: Oil represents 95% of exports and current low oil prices have plunged the country into crisis: they do not have the cash to keep running. It’s not a matter of defaulting on debt like in the case of Greece: they literally do not have the ability to continue functioning as a country.

“Projected net income from oil exports this year = $18 bil
Debt repayments = $10 bil
Remaining income = $8 bil
Imports per year = $37 bil (nearly all food is imported)
Current level of foreign reserves = $14 bil …

“This means they have only a few months left until their foreign currency runs out. They have broken their relations with the IMF, no private lenders will lend them money, and even China has lent them $50 bil and is unlikely to lend them any more.

“They no longer have any other income producing assets to seize. To generate money, the president has seized foreign oil producing companies – and any other profitable private companies – to generate cash directly for the state to reduce their budget deficit – 1,200 private companies have been seized so far and their incomes added to the state treasury. At various points they’ve seized all foreign owned oil wells and refineries and made them state property.

“Inflation is set to hit 720% this year and shortages of goods are rampant due to insufficient foreign exchange for imports. Empresas Polar SA, currently the largest private company in Venezuela, has been progressively shutting down their factories – the government has not provided them with enough USD to purchase raw materials from abroad to keep the factories running. There is talk about them being seized by the government as well. …

“Surely, you’d think, the country with the largest oil reserves in the world could do better than this. Their administration over the last few decades has seen stunning amounts of waste and corruption turn Venezuela from one of the richest emerging countries into what we see today.”

Discussion in context.

Image from CNN: Venezuelan opposition tells military that it’s time to choose

The 1950s and The American Dream

From the sub-Reddit, AskAHistorian: Was the 1950s largely middle class, American dream portrayed in modern media a reality in its time?

“Many factors went into making this the dominant picture/stereotype of the ‘ideal’ family; one is is that a whole generation of people who had grown up during the Great Depression and WWII were very happy to have the chance to have a family and live a more stable life after the war ended.

“Americans whole-heartedly embraced the ‘domestic’ ideal of focusing of marriage, children, the home, and the consumption of commercial goods as the primary means of making themselves happy after the war. As part of that, large numbers of women either chose or were admonished (often a bit of both) to believe that their highest calling in life was to be a wife and a mother – they faced enormous social and cultural pressure to find a man, settle down, and become a housewife.

“At the same time, the federal government made a conscious policy choice to encourage massive consumer spending to help grow and feed the American economy after the war; things like the GI Bill (and the cheap mortgages which it allowed veterans to get), interstate highways (which spurred the growth of suburbs) and a whole range of other policies underwrote and encouraged Americans to buy and idealize the one-family, suburban home. And these policies worked: the post-war period was a time of tremendous economic growth and prosperity, which meant that large numbers of American families could afford these things.

“But the ideal was just that: an ideal. It’s definitely a mistake to look at “Leave it to Beaver” and think that this actually how most 1950s families lived. I don’t watch a lot of TV these days so forgive the dated reference, but that’s basically like watching Friends and assuming that everyone in the 1990s lived like Ross, Chandler, and Rachel (in massive, wonderfully furnished apartments that would have been way beyond the means of these characters in real life) …

“You also need to acknowledge that for black families and other minorities, the ideal of the suburban home was almost completely unachievable: they were denied access to the jobs that would have enabled them to live that life, while racist housing policies + practices kept them out of the suburbs and confined to predominantly black neighborhoods.”

Full discussion http://www.reddit.com/r/AskHistorians/comments/2vw07k/was_the_1950s_largely_middle_class_american_dream/

The Problem With the Laffer Curve

The Laffer Curve – the idea that by lowering taxes on the rich they’ll suddenly make tons of jobs instead of hoarding wealth instead of realizing that primarily middle-class consumers drive demand, employment and GDP – has been a disaster for decades now. Commenter on Metafilter:

“The biggest problem with the Laffer Curve is that it singularly focused people’s attention on taxes as a way to raise revenue. It completely diverted people away from the concept of taxes to shape the economy.

The top tax rate in 1960 was 92%. No sane person would pay 92 cents of a dollar earned to the government. Instead of the 92% rate raising revenue, it served to channel income in the economy away from the wealthiest individuals and toward workers. It served as a way to take the harsh, ruthless edge off of capitalism.

The result was more employment – if you had to choose between taking $1 in profit but paying 92 cents to the government, or hiring a window washer for your home office, you would take clean windows over the 8 cents in your pocket. Or maybe you would hire a guy to do research and development. Or maybe you would have a groundskeeper picking up trash.

And maybe, just maybe, when the opportunity arose to close your factory and send the work to Mexico to earn another $1 million per year, you would say “but I would actually only pocket $80,000 of that money, so it is not worth it”.

Laffer caused us to forget about that. Sure, it is common sense that you can raise more revenue with a 22% tax than a 92% tax – but taxes aren’t only about raising revenue.”

Full discussion http://www.metafilter.com/145670/Laffers-Napkin#5871315

Image from Huffington Post.

Simple Explanation of the 2008 Financial Collapse

From a Reddit thread about student debt comes a pretty easy to follow explanation of the 2008 financial collapse:

“The financial crisis wasn’t just ‘a bubble bursting.’ It’s far more complicated than that. Housing prices collapsed, that’s true, and while it certainly exacerbated the crisis, it was far from the only issue.

“Mortgage loans were packaged into securities and sold to investors, including banks. The idea was that one lender may fail to pay back his loan, but if we throw 50 mortgage loans together chances were presumed to be very likely that 40+ or 45+ of those loaners would pay the loan back, making it seem like a sound, safe investment.

“But since the demand for these securities (CDOs) was so high, this in turn meant that lenders would become less stringent on who they would lend money to, since they cared less about being paid back the loan and more about repackaging it and selling it as a security.

“Now when these two issues come together, the housing bubble collapsing driving property prices way down (so that people who had recently purchased real estate got royally screwed), and the fact that everyone and their mother was getting a mortgage loan, you can see see that it presumably wouldn’t be the case anymore that we should expect 40 or 45 of those 50 mortgage loans to be paid back.

“But the rating agencies like S&P, Fitch, etc. didn’t see it that way. So they would slap their triple-A rating on these subprime securities, incentivizing investors (including banks) to keep buying them.

“As you can see, all these issues – the housing bubble, the securities, the lower standards for giving out mortgage loans, the poor underwriting of the rating agencies – they were all interconnected, and they all exacerbated each other. Without any one of those issues, we wouldn’t have had a financial crisis; or at least one as significant and dramatic.”

Full thread http://www.reddit.com/r/explainlikeimfive/comments/2luztg/eli5_what_will_happen_when_the_student_loan/

Image from this Guardian article http://www.theguardian.com/commentisfree/cifamerica/2011/dec/12/lehman-brothers-bankrupt

The Economics of Med School Debt

From a Reddit thread about med school and student loans:

“400k for a medical education is a crippling, unconscionable amount of debt. That amount will capitalize upon graduation, and then you’ll hardly be able to touch the loan during residency. Here’s four years of $100k/year expenses with 5.4% interest. Holy shit.

(it’s slightly off because the interest does not capitalize until graduation but too lazy to do the calculation otherwise.)

What does that mean? So you will be left with 440-450k of principle right at graduation. Now here’s what happens after 3 years of residency:

Double holy shit.

So you’ve got $537k in debt after residency! You have no house. You’ve got no savings for your kids to go to college. You have no retirement funds. Each kid will probably need at least $100k for college, and you need roughly $1.5M to retire comfortably. Now you get to start over from scratch with a massive debt burden in your mid to late 30’s. Congrats – doctor.

To pay off $537k at 5.4%, you would have to pay $5000 per month for over 12 years! Think about that – writing a check for $5000, every month, for 12 years.”

Full discussion and graphs from http://www.reddit.com/r/medicalschool/comments/20t3yn/how_can_i_possibly_afford_this/cg6um2f

Personal Integrity as Mental Illness

A thread about the Russian TV anchor quitting in the midst of reporting on the crisis in Ukraine comments on personal integrity:

“Our society has an implicit tendancy to view human beings as tabulae rasae with no inner life or essence, therefore social planners attempt to design society in a way that tightly controls and manipulates people “for their own good”. This is not seen as a violation of human freedom and dignity, because freedom and dignity are not recognised by the behaviourist philosophy that animates all social institutions.

That’s why our society is constructed in such a way that there is no incentive to deviate from your assigned role, because your role is considered to be something that is purely imposed on you externally so that you may fulfill the obligations of your social contract. Therefore, actions stemming from ones own sense of integrity are dismissed and marginalised, and ones personal actions are always interpreted through the reductionist lens of self-interest and the degree of your adherence to arbitrary social and legal rules. Acts of personal integrity that objectively seem to go against your immediate social interests are seen as suspicious veiled acts of self-interest at best, and signs of mental illness at worst.”

Full thread http://www.reddit.com/r/videos/comments/1zo1q2/russia_today_anchor_quits_on_air/

Image is of Russian TV newscaster Liz Wahl as she quits her job http://www.hollywoodreporter.com/news/russia-today-anchor-liz-wahl-686372

Pushing Crumbs Around in The Sharing Economy

Commenter on Metafilter about a thread on the ‘sharing economy:’

“Well, I think what we’re looking at here is that we’re rapidly dismantling not just the safety net but the traditional employment structure and while that may be all exciting in a “Woo, smash the system!” kind of way, there’s not going to be a lot left standing.

Like the high schools where I grew up were busily dismantling their vo-tech programs because in the future we were all going to be Knowledge Workers doing something in an office, so why even have these boring old Making of Things training courses? Naturally even the increased demand for skilled workers didn’t actually bring BACK vo-tech programs once that structure was dismantled, so there was just less access to training for that kind of job. Instead you’re now herded relentlessly towards college and all that entails.

I mean the future I’m worried about isn’t grinding away in a vast corporate dystopia. The real dystopian future is the one where we’re all “independent contractors” fighting each other for pennies for jobs on something like Mechanical Turk or Fiverr where not only are we responsible for our work, we’re also responsible for marketing ourselves, handling our taxes and payroll, building new business, and so forth.

We’re forcing ourselves into the “sharing economy” because that’s what they want us to do, be so focused on pushing our crumbs around our plate that we don’t notice who the hell has most of the pie to begin with. Capitalism has monetized compassion and goodwill and trust in a remarkable why. So okay, I dig AirBnB as much as the next yuppie, but what happens to all those hotel and hospitality jobs once we’re all couchsurfing across America? How do you even participate in the “sharing economy” if you have no resources you could share?”

Full thread http://www.metafilter.com/137331/The-Collaborative-Consumption-Trap#5454124

Image is from a London workhouse in 1808 http://en.wikipedia.org/wiki/File:Workroom_at_St_James_Workhouse.jpg