What if we default…from Businessweek

The truth is that nobody really knows exactly what will happen if the US were to default on its debt payments.  However, here is a Businessweek article about what could happen.

http://www.businessweek.com/news/2013-10-06/a-u-dot-s-dot-default-seen-as-unprecedented-catastrophe-dwarfing-lehman

Note that most see it as unlikely to happen.  However, the Speaker of the House, Jon Boehner, said over the weekend that we were on the path to default.  It is a political issue now.  A very complicated one.

If I were to assign rationality to both Republicans and Democrats, I would explain the situation like this:

Republicans think Obamacare (the nickname of the health care plan made law by the Affordable Care Act) will be very bad for the US.  In fact, they think it would be one of the worst things ever.  Therefore, from their perspective, anything that stops Obamacare is reasonable.

Democrats don’t want to be extorted.  I hate to sound extreme here, but this is what is going on.  A small group of very conservative Republicans in the House are seemingly controlling the bills that come to the floor.  They are now asking for the President to negotiate with them on Obamacare.  If the President doesn’t negotiate, they are signalling that they are willing to let the US default.

We will watch and see what happens.

Gov’t Shutdown

The federal government has been shutdown.  This may or may not have an impact on the nation’s gdp.  However, if this mess is indicative of the way raising the debt ceiling is going to go, we are in for a bumpy ride.

http://www.huffingtonpost.com/2013/10/01/paul-ryan-government-shutdown-debt-ceiling_n_4023983.html

We haven’t gotten to all the macroeconomic stuff yet, but here are a couple of articles about what default could mean.

http://www.forbes.com/sites/johntharvey/2013/09/25/debt-ceiling-dinosaur/

http://money.msn.com/investing/would-a-us-default-mean-disaster-jubak

http://www.theatlantic.com/business/archive/2013/09/not-raising-the-debt-ceiling-would-be-either-a-disaster-or-a-historical-calamity/280057/

Median Income

One of the major themes of the recovery from the “Great Recession” has been the increasingly unequal distribution of income.  Here is another piece of evidence for this debate.  The Census Bureau has reported that the median income has dropped for the 5th straight year.  A quick math refresher on what “median” means follows.

If you lined up all the people in the US in order of their income from lowest on one end to highest on the other, the median person (or household) would be the one in the middle.  The median person could look up or down the line and see exactly the same number of people on both sides.

If the total income of the society (measured by Gross Domestic Product or GDP) is going up but the median income is going down, then that means that the lower half of society is gaining less than upper half.  More specifically, if the median income is dropping it means that more people are below the old median than before.

If you look at mean or per capita income you won’t see the impact of then unequal distribution of increased income as these are simple averages.

Of course the question of income inequality is a contentious one.  While no one outside hardcore communists would argue for complete income equality, the current size of income inequality between rich and poor has become an issue.  Some say that income inequality is good for society because it incentivizes entrepreneurs and innovators.  Others argue that extreme income inequality can destroy democracy or tear the “social fabric.”

What do you think?

Jobs Report

I know that I asked you all to look for an article on pricing or prices, but this is another major economic story.  The recovery from the recession had been particularly anemic. (Did you know that the recession officially ended in June 2009? http://money.cnn.com/2010/09/20/news/economy/recession_over/index.htm)  The latest jobs report is more of the same.

This was the longest recession in the post-WWII era.  It has also been a very slow recovery.  Some economists speculate that this is actually normal for finance-based recessions.

The really interesting thing is that generally speaking wages track with productivity.  In other words, as you are more productive, you get paid more.  However, a gap between the two has opened up.  As you can see on this page, also from the Bureau of Labor Statistics, since 1979 a large gap has opened up.

http://www.bls.gov/opub/ted/2011/ted_20110224.htm

This leads to the question, where have all the benefits of the higher productivity gone?  If workers are more productive but their wages haven’t risen along with their production, where has the additional production gone?

First Post

Hello students!!

Okay, we are going to give this a chance.  I will speak to you next class so we can figure out how to make this all work together.

I am excited to see all that you will write about.

Here are the blog rules:

  1. Be Respectful. It is possible for reasonable people to disagree.
  2. Be Appropriate. This is a school-based blog. Normal school rules as to content, tone, and topic apply.
  3. Be Thoughtful.  Think before you post.  Remember, anything you post is public forever.

The final rule is that I am the administrator of these blogs.  If I deem something inappropriate we will remove it from the blog and/or remove the entire blog.  I don’t expect to have to do this as I trust you all to act in an acceptable way but I reserve the power to remove things I find inappropriate, offensive, or otherwise not in-line with the norms of behavior of the school.

-Mr. M