By the same token, if there is an entire topic we have not touched upon at all that you would like added, feel free to let us know as well. In fact, if you want to write something yourself and if we like it we will feature it and consider it for inclusion in the book (this is an “if” guys, so no guarantees!).

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When most people think about inflation, they think about commodities such as gold and gas going up in price and currencies eroding in value.

As the speed of inflation picks up, the risk of hyperinflation occurs, with prices in supermarkets changing in front of your eyes as you shop and rotating strike cycles for workers struggling to keep up with those price increases. As workers salaries are raised by paralyzed goods producers, producer margins are squeezed, forcing producers to increase prices, and so it goes, a classic textbook economics case that that has been demonstrated, particularly in the 70s, and well studied. Recent world wide unrest is thought to be at least in part related to the inflationary commodity spikes, by analysts and economists of various stripes (i.e., it’s not meaningfully in dispute), although the Fed insists that such inflationary pressures are “transitory”.

But there’s a different way to think about inflation, and the best analogy is all around us, and it obeys well understood (or at least better understood) laws — it’s our inflationary universe. It may seem a stretch (pun intended), but it’s a great analogy. Once viewed in those terms, bubbles do in fact become more predictable.

How does the inflationary universe work? It’s expanding in all direction but, most of it,quantum foam aside, is completely empty. The interesting stuff tends to happen around sources of mass and energy, and the larger the object, the more interesting stuff happens around it, as it actually causes smaller objects, and space itself, to warp around it.

Back to the world economy. On a macro level, it’s been growing since at least the Sumerians, and just as space warps itself around sources of mass and energy, the economy warps around sources of money. This is perfectly normal, of course: a Walmart feeds over a million workers, numerous small businesses, a large range of medium size businesses, and finally dozens of large businesses (e.g. a Sony or a Kellogg). And, just like the physical universe has “unusual” objects where the laws of nature themselves get warped, such as black holes, or perhaps the even more exotic worm holes, so does the economy — the unusual objects in this case are governments with “fiat currencies”: http://en.wikipedia.org/wiki/Fiat_money.

To create warps in the economy, such governments can go way beyond printing money. They can create incentives and regulations that then rapidly attract (or divert) smaller entities (i.e. people, small businesses, large businesses and even giants). But there’s a price to be paid: this mass of people and companies, instead of being distributed “evenly”, or among naturally occurring gravity wells, streams quicker and quicker towards the source of “free lunch”, or, as another common phrase would put it, OPM or Other People’s Money. Eventually, unless the incentive is eliminated or reduced, a bubble is formed. And, since even governments must obey physical laws, the free lunch eventually ends, and poof, supernova, or worse, everything gets sucked into a black hole.

OK, so far we have a fancy analogy, what are some real world examples?
Here’s a quick list:

1. Housing bubble. Started forming on a combination of artificially low
interest rates and pressure and incentives to lenders to issue
unprofitable loans. The housing deduction in the US is a major
distortion of the market.

2. Student loans. Government mandates and participation in the market
distort the real value of loans. When you open a business and borrow
money from a bank, the rate you get (if you get the money at all) is
based on the risk of your business actually generating sufficient money
to pay it back. How can a degree in English Literature, with an average
starting salary of $30K, be worth the same, to the bank, as a degree in
mechanical engineering which might result in a starting salary of $100K?
The availability of loans, out of proportion to ability to pay,
continues to direct students to more expensive schools and academic
pursuits with dubious employment opportunities, instead of saving $100K
or more by going to a local community college

3. Medical costs. The government ostensibly tries to contain costs by
regulating prices, or at least the rate of price increases. But since
buyers are divorced from the financial impact of their choices, costs
continue to go up.

Numerous other examples abound. Bubbles (and the business cycle) cannot be wished out of existence, or repealed. Fear and greed drive the markets, and speculative excess (early notable example being the Tulip Mania during the Dutch Golden Age) will occur even without fiat currencies. But markets work. When people talk about “free markets failing” in 2007, they didn’t — what failed was the set of economy warping incentives and regulations and the Fed, which inflated the bubble. We continue to be in the “try to tear the Band-aid off slowly” phase now. It’s not going too well, because we have not let markets work.

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Arthur is a a venture investor, inventor and alchemist. His early stage investment fund, @venture.us, turns ideas jotted down on napkins into gold, and he is building his latest company, Surre.al to give the entire world rose colored glasses.

He hails from suburban New Jersey, where he arrived by way of lucky marriage, Brooklyn, Haifa and Tiraspol, Moldova, which he is quite confident he does not remember. His solid credentials as a card carrying member of the Bourgeois class are cemented by his personal twitter handle, @iamthepoint99pct and his obsession with words and ideas is best exemplified by his Halfbakery account http://www.halfbakery.com/user/theircompetitor, where he is nearing 300 posted inventions.

The price of new college textbooks keeps rising and this forces students to spend thousands annually on their education. When the amount a student can spend is limited (as is the case with most college students) this becomes a titanic obstacle. Students are constantly suffering due to this, which therefore drains their energy from their studies.

With government representatives and faculty chairmen in endless discussions, a solution to this crisis involving college textbooks is still nowhere in sight. As students nationwide are saving up and search for ways to find enough money to pay for their college textbooks, the parties that have promised to put an end to this crisis of unrelenting college textbook price inflation are never any closer to reaching a compromise. Students, seeing the way matters are going with the school boards and the government, have tried to get things under control and help each other by organizing various programs and campaigns intending to bring down the prices of mandatory college textbooks and other study materials.

Student campaigners mainly condemn textbook publishers for causing and maintaining this situation, their primary allegations include exaggerated prices and the unnecessary release of new editions. Student campaigners even accuse publishers of attempting to bring the used textbook market to a halt through these frequent updates. But all this was laid in vain as the authorities only ignored the students. The American Association of publishers has challenged the students’ scheme, reproving them of embellishing the proportions of the situation and stating that the mean annual expenditure for college textbooks doesn’t exceed $625. The approximate made by students was for $900.

The publishers then tried to save their skins by blaming the colleges for the inflation of the prices of college textbooks; they say that it’s the lecturers that request up-to-date iterations of college textbooks. Colleges denied this, adding straw to the fire. Faculty chairmen stated that it’s not necessary to request annual updated versions of college textbooks for fields that haven’t had major changes for years; fields such as calculus and simple chemistry. This fended off the textbook publisher fingers that were pointed at faculty leaders.

As a result of this, most parties are throwing allegations blindly at each other with the actual motives of the venture blurred in their minds. The number of authorities that are doing anything to help the situation is pathetically low. Higher education institutes, for example; Princeton university, have taken an effective, but temporary initiative aimed at reducing the prices of college textbooks. They will start selling college textbooks in downloadable PDF format for 70% of the price of an equivalent print edition. Several other institutions have taken this as an example and adopted this method while also developing schemes such as textbook lending, renting, exchanging and buyback programs.

This is not unlike management styles (bear with me here). It’s not about a formula, applied and repeated across people, projects and companies. It’s actually just about the outcome.

I’ve never seen an Italian grandmother measure an ingredient going in to a food. She will use her instinct, and years of experience just seeing the right amount in her hand. She will stand over a pot and taste and smell it, adding what is necessary until the flavour is right.

Same goes for management. If you assemble your team, find a list of best practices and go through the motions, you will get nowhere. Similarly – and a common problem in management – if you were previously a producer promoted to (your level of incompetence) management. You might think “This is how I did my job and I have been successful, so everyone else should input the same formula and we’ll do great”.

It doesn’t work like that. Humans are all different. We are each incentivised and motivated in different ways. A good manager will work to the strengths of each, maximising the resources at his disposal and adding the relevant knowledge from his own experience. Food ingredients, as a matter of interest, are very much the same: try making the exact same dish with two different brands of cocoa powder and you will see what I mean.

You know where you want to be at the end, let’s say, a carbonara, or a chosen quantitative team result, and you know where you are now: 3 eggs, bacon and spaghetti, or a team of 5, 3 weeks of time and given budget. Now lead your people toward their strengths, deal with each depending on his preference, and be accountable for the outcome. You don’t create the flavours: your ingredients do. You simply mix ‘em all together.

I bet Adam Smith had a great dating life…

The economic principles on blind dating in Korea

Seoul has recently stoked the fires of two different and unpopular types of dating: internet dating and blind dating. I am going to focus on the latter since I can’t read and comprehend half the stuff on the Korean dating websites, plus Internet dating is quite pricey. Most working professionals are too busy to meet/find people so for the most part they rely on their closest friends to help them get a date with a promising and compatible person. What ends happening though is either friends are tired of hearing about how bad single life is, or they are just hooking up two single friends just for the sake of it and hoping for the best.

Through mutual friends I have met a few Korean nationals, and I guess they see a gregarious side of me that automatically assumes that I want to be set up on a date with one of their friends. Up until now, I have yet to reject an offer (what does that say about me?) but lately I have been rethinking my willingness to say yes. I can’t be a blind date whore all the time, right?

A quick aside: I have no problems getting my own date. No. Really. I can.

I have gone on a few blind dates, and the one thing I learned is that there is nothing that can replace the initial reaction of the first impression. It’s pretty comical actually. You approach blindly and stealthily like you are coming upon the enemy in battle. You have several girls in your sight, hoping for some to be the girl, others just praying that your friends aren’t playing a cruel joke on you. As soon as the realization dawns on you on who the girl is, there is a natural struggle on how your face reacts next. You try so hard to make sure your face does not display a frown or too much excitement, all the while at the same time you try to interpret her reaction—all in a matter of seconds. Ah the true awkwardness of blind dating. This is probably the third best thing coming in behind: awkward silences and her reaction during a lull in conversation, and a her reaction when you go your separate ways after a date. I love to see a girl’s reaction in a moment of awkwardness.

But now onto the economic principles: The first economic principle to apply here is The Law of Diminishing Returns. The more blind dates you go on with the recommendation of that friend, the less you listen to him or worse the less you think of him a as a friend, if the dates have turned out miserable. I often wondered during the date, “What the fuck is my friend thinking?” What is my friend seeing that I have obviously thrown out there to say, “Yes, Joey and this girl would be a great match!” What the fuck am I projecting? There is some definite Lost in Translation going on what I look for in a girl. ”You just fuckin’ piecemealin’ this shit together like you MacGyver on Love Connection.”

As the actual date progresses, the second economic principle begins to rear its head. There is a finite number of jokes, stories and one-liners in my repertoire that works its magic and at the very least guarantees a laugh or congers up at least a fake, nice giggle, especially my funny ass stories in Korea…or jokes in Korean. With my preservationist attitude, there are some stories I care not to waste if the girl does not warrant the demand of my hilarious and charming quips. Eventually, throughout the date, there will be a comfortable equilibrium set on the Supply and Demand graph, thus giving us the price, or in this case, the grade of how great (or not) the date is.

Lastly, there is the last economic principle, which happens on the walk home after the date: The Invisible Hand. After much tribulation and a few funny and/or awkward moments, the forces of competition and my own self interest have compelled me to start regulating the market and bring some stability back to my freakin’ wallet—all for the sake of society and its needs to function.

The original post can be found here.

Rich and Diane are very, very proud parents. Their three wonderful children had taken to heart their persistent reminders that nothing was more important than to do well in school, and were accepted into Cornell, Stanford, and Penn, respectively. With corporate boardrooms and the upper echelons of government from the President on down filled with Ivy League alumni, it was clear that in this day in age, a college education was no longer the catalyst for the American Dream—that required an elite education. (1). So there was no question that all three children would attend their respective universities, no matter what the cost.

And the cost was shockingly high, enough to cast a cloud of apprehension on the parents’ pride. Together, they earned $50,233 per year, a mirror image of the median household income and as middle as middle class could be. (2). They were therefore surprised that their annual gross earnings could not accommodate even a single year at any of their children’s’ universities. Once housing, food, and books were included along with tuition, one year at Cornell would cost $54,676. (3). One year at Stanford would cost $ 54,900. (4). And one year at Penn would cost $55,250. (5). In sum, to ensure that all three of their children obtained their elite Bachelor’s Degrees, the proud parents would have to spend no less than $ 659,304! And that was the minimum: in the 21st Century, it would not be surprising if one or more of the children decided to pursue post-graduate education, which, using the average cost per child per year, could raise the total to a range between $714,246 (one child completes an accelerated Masters program) and a staggering $1,318,608 (three children go to med school). Once taxes, pensions, and the general costs of supporting themselves and three children were taken into consideration, the proud parents’ college savings inevitably fell far below the university estimates. Who has this kind of money just lying around, the proud parents wondered, that they could simply write a university a check? They guessed only the obscenely wealthy, and they guessed right. Consequently, the proud parents lamented that we had come full circle: after opening the Ivory Tower’s doors wider than they’ve ever been in the twentieth century, college is again a pastime reserved for ultra-rich elites, as it was at our nation’s founding.

The proud parents’ neighbor disagreed, claiming, “college never has been more accessible.” And certainly, the neighbor was right. Yet the proud parents knew better. They understood that this enhanced access was made possible primarily by student loans. These lump-sum checks can seem quite appealing when they’re issued. The problem comes later, when graduates realize that, while the United States government has promoted college to the extent that a degree is now necessary to get a job stocking shelves at Home Depot, it has not really done much to make it affordable. Federally “subsidized” loans carry interest rates up to 6.8%. (6). And even then, they cap out at $18,500 per year, less than half the estimates given to our proud parents. (7). The rest must be funded with private loans, which commonly carry interest rates reaching 11.35%. (8). The result is mortgage-like debt on credit-card-like payment terms. Using a simplified but realistic example, assume that the proud parents saved enough to cover a third of each child’s education; the children must borrow the rest. Assuming further that they decline to pursue graduate education, each child, on average, will personally be on the hook for between $223,428.82 (standard plan) and $371.114.79 (extended plan). (9). Not something the proud parents want to leave their children with, especially considering that a college degree doesn’t buy what it did during the Greatest Generation. A cheaper education is an alternative, but not a plausible one for proud parents who want their children to reach the stars. Accordingly, the proud parents stand by their earlier lamentable conclusion, with two qualifications: to (I) provide your children to best education possible; and (II) do so without saddling them with debt that will haunt them until their own retirements, then yes, you have to be part of the millionaire elite. Way to invest in your future, America. Congratulations.

The author is well aware that the provided calculations—accomplished using simple arithmetic—omit myriad complexities, such as cost fluctuations, interest variables, and self-sufficiency. Nevertheless, the simplified calculations do the issue justice.

(1)http://www.theamericanscholar.org/the-disadvantages-of-an-elite-education/
(2)http://www.census.gov/compendia/statab/2010/tables/10s0675.pdf
(3)https://www.finaid.cornell.edu/costs/
(4)http://www.stanford.edu/dept/finaid/undergrad/how/calculator/input.html
(5)http://www.sfs.upenn.edu/paying/undergraduate-expense-budget.htm
(6)http://www.direct.ed.gov/calc.html
(7)http://studentaid.ed.gov/students/attachments/siteresources/At_a_Glance8.pdf
(8)https://www.studentloan.com/studentloans/genericAPRExamples/GenericAPRExamplesView.do
(9)http://www.finaid.org/calculators/scripts/loanpayments.cgi

We are looking for articles that develop and build upon Current Events, or develop and build upon Economic theories and then relate these to Current Events or everyday life.

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Good luck!

It has also been attributed to Aleb, so Congratulations to you as well!

Of particular interest is his analysis on how its stringent immigration policy has kept many foreign nationals out and this, coupled with the low fertility rate, has brought the median age to 43 years of age. While many thought this would not have many consequences beyond social security payments, he argues differently:

The consequences are, basically, to be seen in very weak domestic consumption growth, which means that economic growth (which is needed to pay all those pensions and health care costs) is totally dependent on exports, and hence the economic well-being of others.

When countries like the United States and China are consuming less, therefore, Japan’s manufacturers lose customers they cannot gain back in their own market. It is hard to sell flat screen TV’s, new cars and electronics to retirees. Much less so to soon-to-be-retirees weary of their jobs in export-driven industries.

A low fertility rate coupled with a strict immigration policy starts a vicious cycle which slows domestic demand and increases reliance on exports. This can work when other countries continue importing, but is unsustainable as the population ages, new workers don’t enter the market as quickly as old ones exit, and younger kids leave the country to seek opportunities elsewhere. The same pattern can be seen in Germany.  While the problems have become evident due to the slowing global economy, they would manifested themselves sooner or later regardless. 

Of further interest would be a study on the direct impact of immigration policy on domestic consumption and/or export reliance in a group of countries. If keeping foreign workers out decreases domestic consumption, companies will start focusing on foreign markets, setting up more stores and factories abroad, while focusing their local branches on exports. Something to keep in mind when talking about sealing borders and foreign nationals stealing local jobs.

Hat tip to Doug for the article.

G.M. is sort of like a drunken old grandpa who has let his life slide into bankruptcy because of his seemingly unbreakable addiction to old habits. Because of his attitude toward us in the past, we’d like to wash our hands of the old geezer, let him sleep under a bridge in a cardboard box.

Alas, he’s family. (“What’s good for G.M. is good for the USA,” and all that silly rot.) Whether he deserves it or not, our responsibility is to clean him up, give him a shave, wash his shirt, his underwear, help him live through his last days or years with a little dignity. Again, he’s family.

But geeze, the whole family’s a bit strapped right now, over-committed, cash flow’s down, other obligations pressing. To help pay for Grandpa G.M’s rehab we’re going to have to juggle some accounts. Where can we squeeze the hefty rehab fee?

After reviewing all our family expenses—Aunt Social Security, Uncle Health Care, Cousin Education—it seems there’s only one obvious place we can tap to rescue Grandpa G.M, from the poor house: Uncle War Budget.

Here’s the plan: Uncle War Budget has been spending over two billion a week in Iraq, and over a billion a week in Afghanistan. Actual cost is over 9 billion a month, but let’s be conservative, and make the math easy. Let’s say 8 billion per month, two billion per week. Now, the lowest priced model G.M. car is the Astra, retailing without options at around $16,000. If we bought them by the carload (so to speak) let’s assume we could get a deal— say 12,000 each. That means for one week of Uncle War Budget’s allowance we could buy over 83,000 brand new G.M. Astra’s.—in a week! That should go a long way towards meeting the down-payment for his rehab.

If we took a whole month’s allowance, we could buy over 300,000 Astra’s. That might keep Grandpa G.M. off the streets for maybe a year. Now of course Uncle War Budget’s entire allowance doesn’t go to bombs and bullets and bunker busters. A portion of it goes to actually feed and house and clothe the soldiers. So let’s just divert half of it, for a little bit, say three months, until late spring. During this time we’ll have the soldiers “stand down,” as it were, hang around the camp, send e-mails, play video games, let the Iraqi’s work with their newly elected local leaders. For three months we won’t ship any more bombs or bullets or machine guns into that country.

Of course, that would give us 450,000 spanking new Astra’s. What do we do with them? We could pass them out here but it seems only fair that if they came out of Uncle War Budget’s allowance that we use them in the effort to bring relief and stability to those poor suffering people.

So what we do is fly these cars to Iraq, Afghanistan and Pakistan and simply parachute them out the back of the C130 Cargo Planes, with keys in the ignition. The somewhat baffled citizens of these countries would, on one hand, immediately cease trying to shoot down our planes, and, on the other hand, start to see the downside of blowing up their own oil facilities, and roads and bridges.

Doing the math, that means that for three months we could drop 5000 new Astra cars a day into various parts of these countries. The villagers in remote Afghanistan might see the wisdom of making their roads more passable. The folks in Falluja can go visit cousins in Syria.

Okay, the obvious questions: would this plan generate more opportunities for car bombings and movement of terrorists around the region? The answer to both questions comes as another question: which creates incentives for more terrorists and car bombings: dropping bombs, or dropping Astras? I rest my case.

Just because this plan is simple and obvious doesn’t mean we shouldn’t give it a try. After all, Grandpa’s standing there with his hat in his hand, his Astra’s in a sling.

Original article here: http://www.dammm.org/blog/how-to-save-general-motors/