Supply Side Economics?

 Break on Through

You know the day destroys the night

Night divides the day

Tried to run

Tried to hide

Break on through to the other side

So what is supply side economics?

Supply side economics assumes that increasing the supply of goods can stimulate the economy.  This is the opposite from a demand side economics, also known as Keynesian, stimulus which seeks to  increase  the demand for goods, by increasing the purchasing ability of buyers. 

To properly execute this supply side policy, it is necessary to properly define the production equation of suppliers.  The production  equation is traditionally thought to be a function of only capital and labor. However capital is not only investment but also supplying the raw materials, goods, needed to produce a product.  Economists classify goods not simply as free and priced.  Economists use an additional attribute besides price, exclusivity.  A good is exclusive if it can not be used by more than one person at a time. For example my eating a piece of bread means that you can not also eat that piece of bread, i.e. it is exclusive. By contrast, my watching a movie does not prevent you from also watching that same movie, i.e. it is Non-exclusive.

This leads to not just two classes of goods, Private and Public, but four classes of goods. These include Priced and Exclusive, which are Private goods, and  Non-priced and Non‑exclusive, which are Public goods. But it also includes Natural Monopolies: Priced and Non-exclusive; and Common Resources: Non-priced and Exclusive. Suppliers acknowledge natural monopolies, e.g. a cable TV company.  My watching cable TV does not prevent my neighbor from also watching cable TV, but both of us separately pay the cable TV provider.  ( if you have cut the cord like I have, substitute Disney+ or any streaming provider in this example.) The initial cost of Natural Monopolies  is often high, thus society offers protections, e.g. an exclusive franchise to offer cable, to industries to encourage then to make that initial investment.  Industry seems less inclined to acknowledge  Common Resources.  Fishing stocks are a common resource.  It is exclusive. If I eat a fish, then you can not eat that same fish. That fish might be free and the stock may seem vast but it is really has a limit.  Just as it is in society’s interest to encourage industries to invest in natural monopolies, society may spend to increase, or regulate in order to protect, those common resources.  Fishing stocks are regulated to prevent overfishing.  An educated workforce may be necessary for suppliers, but education is a common resource and society invests in education to provide this work force.  Just because a good does not have a price does not mean that society can’t regulate, or spend, to ensure that this common resource will continue to exist, and might even increase.

“Supply side” economics, as it is currently practiced, stimulates the economy by encouraging INVESTMENT.  If the production equation did not require any common resources, including public education and public highways, as raw materials, then neglecting measures to stimulate labor, encouraging investment should increase supply in the long run.  However if the production equation relies on common resources, eliminating regulations on, and decreasing expenditures for, common resources will in the long run DECREASE supply.  Thus the so-called “Supply side” policies have seemed to serve only to reward investment. It provides no reward for labor and reduced common resources.  Truly supply-side economics would also ensure that common goods, as regulated and/or provided by society, increase. Supply side stimulus might be an alternative to demand side stimulus, but what had been practiced has NOT been supply side economics, even if it is called supply side economics.  It is more properly “Investment”  economics at the  expense of Labor and Common Resources.

Is Boston Racist?

 

This Is Me

When the sharpest words wanna cut me down
I'm gonna send a flood, gonna drown 'em out
I'm gonna send a flood
Gonna drown 'em out
Oh
This is me

Recently The Daily Show had an Instagram post concerning a piece it did on "Is Boston Racist"?

Boston, my hometown, is not a racist city.  It is far, far worse.  It is racist, and anti-Semitic, anti-Catholic, and nativist, and sexist, and….. well you get the idea.  Isabel Wilkerson proposed combining all of these forms of discrimination in one word, Caste. The ancient Aryans divided the people of India into four castes ( five if you consider Untouchables who have no caste) based only on their ancestors, even though caste members spoke the same language, practiced the same religion, lived in the same country, and otherwise seemed exactly the same as those in other castes.  Nazis were not shy about adopting this system of Caste, in fact they proudly proclaimed themselves to be Aryans. 

But as Isabel Wilkerson also reported, Nazis did not only borrow from the Aryans,  they borrowed from America, especially the Jim Crow laws of the South .  Slavery and the Jim Crow laws of the Old South were not the only example of Caste in American.  The North might have opposed slavery but it proudly embraced Caste.  The drinking toast in Boston goes.

Here’s to Dear old Boston,
The land of the bean and the cod,
Where the Lowells talk only to Cabots,
And the Cabots talk only to God.

Slavery was an extreme from of Racism.  But Racism is only one form of class/caste.  So if the question is Boston a Racist city, the answer will be no.  But that is only because Boston embraces a rigid system of Caste and race is only one of the lowest levels of that Caste system. Does South Boston look down on Roxbury? Of course, but as South Bostonians will tell you that is because Beacon Hill looks down on South Boston,  and South Bostonians think that this is perfectly proper. South Boston does not look down on Roxbury because it is predominantly Black.  It looks down on Roxbury because is residents are a lower caste, and South Boston has accepted their place in the caste system.  Just because this is how things have always been, is not a valid reason for how things will be. For all of us, including Boston, please be you.

Olympic Medal Count

 

My Dog's Bigger Than Your Dog

My dog's bigger than your dog,
My dog's bigger than yours,
My dog's bigger
And he chases mailmen
My dog's bigger than yours.

Do the Olympics “prove” that my country is better than yours?

The Olympic medal count can be viewed in numerous ways.  Countries should not be ranked by medal count, but its is hard to prevent that.  I remember when my sons were first playing Little League, score was not kept in any game, but if you wanted to know the “score” just ask any of the Little Leaguers who were playing.

If countries are to be ranked, there are a variety of ways by which score can be kept by country.  One way is to count the number of Gold Medals.  By that tally, as of the morning of August 5^th, the People’s Republic of China was in first place with 34 Gold medal to second place United States of America with 29 medals.  However the United States ranks by total medals: Gold, Silver and Bronze, and by that count the United States ranks first with 91 medals compared to China’s 74 medals.  However Gold Medals are worth more than Silver or Bronze medals.  If  Gold Medals are worth 3 points, Silver Medals are worth 2 points and Bronze Medals are worth 1 point, then the United States is in first place with 184 and China is in second place with 166 points.

 However the number of “points” you receive is dependent on the number of chances you had to win “points”.  Some countries did not compete for certain medals so their points are low.   I can’t find the number of medals that could have been earned by country, but it seems fairer to rank countries by their efficiency, how many points they won compared to the potential points they could have won.  The problem with efficiency is that a country may have only competed in events it was likely to win, and that would would unfairly boost the country’s efficiency.

Another way to rank countries is by dividing the points earned by the country’s size.  But what do you use for size?  Population?   On that basis San Marino with 1 Silver and 2 Bronze Medal with a population of only 33,731 would be first.  GDP? On that basis San Marino would also rank first because its GDP is only $1.6 trillion. But fielding an Olympic Team is from surplus wealth not from necessity.  Points per mean or median wealth?  On that basis Russia would rank first according to the Credit Suisse Global Wealth Data Book, but to be fair a number of counties with medals are not included in the Global Wealth Data Book.

How should countries that are part of other countries be ranked?  E.g. China Taipei (Taiwan)? Puerto Rico?  How should countries which are banned from competing, like Russia, be ranked?

Since the focus of the Olympics is supposed to be the competitors not their country, maybe keeping score by country is NOT in keeping with the spirit of the Olympics.

Vaccines

 

I Can’t Make You Love Me

'Cuz I can't make you love me
If you don't.
You can't make your heart feel
Something it won't.

Can I make you do something you won’t?

The reluctance to get the COVID-19 vaccine is a classic case of a User Optimal versus a System Optimal solution.  The System Optimal solution is for enough of the population, around 70%,  to get the vaccine in order to achieve herd immunity.  Since in the United States, the vaccine has not been approved for those under 12 years old, it requires that those over 12 years of age have more than a 70% vaccination rate.   The vaccination  rate is currently 64% and  moving slowly.  Those who accept the System Optimal solution have probably already gotten the vaccine.  But the User Optimal solution is to NOT get the vaccine.  If you place no value on others, not yourself, getting COVID, and there is a real probability of a reaction to the vaccine and a long term possibility of side effects of the vaccine, then not getting the vaccine is a valid User Optimal solution. 

Arguing that those not getting the vaccine are being selfish will not change that User Optimal solution.  Paying to get the vaccine might work, but only if that payment is more than the cost perceived for the immediate reaction and the long-term side effects.  Additionally the necessary payment will vary for each individual.   Finding a value that achieves the desired herd immunity is difficult.  Since this is a System Optimal solution, prohibiting Users from participating in desirable system events, say concerts, sporting events, travel, etc. may be the only way to change the User Optimal solution.  Will those who have opposed getting a vaccine complain loudly?  You bet.  But  they may not otherwise choose the System Optimal solution, and the shadow payment of getting them to adopt that System Optimal solution is not known. Making those Users pay a price for not getting the vaccine may be the only way to get them to choose the System Optimal solution.  Society, i.e. the System, just has to ignore the complaints coming from those who are reluctant to getting vaccinated. After all murder, theft, lies, etc. are all User Optimal solutions.  But no murder, no theft, no lies are System Optimal solutions.  If a cost is imposed to make Users choose what society has determined to be a System Optimal solution, then it seems like a small price to pay.  If society is  willing to impose a death penalty to prevent murder, then imposing a vaccine requirement to prevent further COVID outbreaks seems like a small imposition.

Money

 

Money (That's What I Want)

The best things in life are free
But you can keep them for the birds and bees
Now give me money, (That's what I want)
That's what I want

But what is money?

Webster defines money as “something generally accepted as a medium of exchange, a measure of value, or a means of payment.”  To prevent the need to barter, which requires that I have a good that I can exchange for your good, people have historically accepted gold as a medium of exchange.  The problem with gold as  medium of exchange, is that is bulky and heavy.  Paper money began when that gold was stored somewhere and a paper note that represented that gold was used as the medium of exchange.  A problem with this is that it required trust that the paper note was true.  The paper US Dollar might say “In God we trust”, but in fact we trust that the paper dollar is not a counterfeit and does represent something of value.

In addition to trusting that a note is something of value, in order for an economy to grow that medium has to also grow.  Gold can not grow. The frenzy around gold rushes is because the amount of gold on earth is fixed and can not be increased.  This is also true with one of most successful digital currencies, Bitcoin.  There is a limit to the number of Bitcoins that can be created, 21 million, and when all Bitcoins have been created, it can not be grown.

To accommodate growth banks lend the money which is deposited with them.  However, if that money is lent, then it can not be immediately returned to their depositors.  That is why historically there were runs on banks.  The creation of a national bank was a way to spread that problem among the entire nation and not just a few banks.

A popular idea in economics in Modern Monetary Theory, is that the state can create money by increasing the supply of money.  This is hardly modern.  William Jennings Bryan campaigned for silver coinage to increase the supply of money so that “mankind would not be crucified on a cross of gold”. The Weimar republic printed, increased the supply of, money so fast that a loaf of bread in Berlin that cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks by late 1923.  Increasing the supply of money works only if we can trust those creating money.  They are not really printing money. They are increasing the medium of exchange.  Printing money that exceeds the need for that medium of exchange creates hyperinflation.

The rapid inflation in the 1970s, and the continuous low, but pervasive, inflation of today can arguably be tied to one event, the Nixon Shock of 1971.  Before that event, international trade used the US Dollar backed by gold as its medium of exchange.  When it was no longer backed by gold there was a surplus of international dollars but no comparable increase in the existing supply of goods.  The initial shock resulted in the rapid US inflation in the late 1970s.  The continued growth of the global economy, without increasing the US money supply to consider this growth, has arguably resulted in today’s low but persistent inflation.

When I was a young engineer, I was given advice by an older colleague that a good rule of thumb is that growth should be considered to be 2% per year.  Inflation has been averaging about 2% per year.  A coincidence? I would suggest not.  Should the supply of money be increased, as Modern Monetary Theory suggests? In my opinion yes, but heeding that old advice, it should be limited to about 2% per year.

Olympics

 

Try 

Yeah, yeah, you better try, try, try, try a little more
You ain't never gonna get any man if that's the sort of thing you can do
Shit, there's lot more talent around than that man
Try, try, try, try try try
You've gotta try, try, try, try 

Congratulations to MyKayla Skinner and all of the Olympians, especially those who were NOT gold medal winners.

“And the word was much better for this.  That one man scorned and covered with scars.”

“A man’s reach should exceed his grasp, or what’s  a heaven for.”

“They also serve who only stand and wait."

I hope that we have all learned some lessons from watching these Olympics.  Second place is not first loser.  Katy Ledecky's most impressive race was not her Gold Medal performances.  It was the Silver Medal in the women’s 4 x 200m relay where she showed her heart and did not count her team out or let it down.  Great Britain Jesse Knight’s  Olympics did not end in heartbreak when she tripped in the heat of the women’s 400m hurdles. Jordan Rainey did not even get to travel to Tokyo because she was the last person cut from the women’s US Women’s Water Polo team. MyKayla Skinner won a Silver Medal in the Women’s Vault but only got a chance to compete after  Simone Biles dropped out.  Simone Biles may not have won a single medal but her courage and sportsmanship in admitting that she was not her best has been the story of this Olympics.

Winning is not the only thing.  It is the effort that counts.  We can be entertained and celebrate the winners of the competition.  But there would be no competition if you all did not try and try your best.  Thank you all for trying.  If this last year has taught us anything it is how fragile and temporary everything is and how important the effort is.  Stay safe and thank you all.

Fantasy

 

Pure Imagination

There is no life I know
To compare with pure imagination
Living there you'll be free
If you truly wish to be

Is truth always better than fantasy?

In a previous blog post I proposed a framework for human behavior https://dbeagan.blogspot.com/2021/06/truth-justice-and-american-way.html, that included an attribute of Truth vs. Fiction.  I stand by that attribute, but it is not meant to be judgmental.

Being at an extreme for truth might mean reading only works of non‑fiction, watching only documentaries, and viewing a suspension of disbelief as a waste to time.  You can enjoy fiction without abandoning the truth.  Much of the humor in cartoons comes from the knowledge that the reality does not act that way.  If Wil E. Coyote runs off a cliff and doesn’t begin to fall until he realizes that he is running on air, or  the Road Runner enters a tunnel painted on a rock, the humor is that this is contrary to the way things work.  Superheroes smash and destroy buildings without injuring anyone but showing the probable injury might evoke horror instead of the intended excitement. We willingly suspend our belief and accept the conventions of fantasy.  If you read Harry Potter, watch Star Wars, Star Trek or Game of Thrones, you can accept the rules of the story even if those are not the laws of physics.

Believing in something that is not true does not mean that your other contributions are not valuable.  Isaac Newton developed calculus, the law of gravity, optics, etc., but he also wasted his time pursuing  alchemy and occultism and trying to find an elixir to turn lead into gold.

Being able to do stage magic, practicing the art of deception, can be useful in telling stories. Some of the most famous storytellers and performers (e.g. Charles Dickens, Walt Disney, J.J. Abrams, Arsenio Hall, Johnny Carson, etc.) were amateur magicians.  That does not mean that using the tricks of stage magic for deceit or swindling is not wrong. In fact some of the most famous debunkers of the occult were themselves stage magicians, e.g. Harry Houdini, The Great Randi, Penn Jillette).  They better than anyone understand that there is a difference between fantasy and reality.

Believing in fantasy despite facts to the contrary is an extreme that is just as problematic as denying all fiction.  I believe that people who believe in ancient astronauts, UFOs, astrology, a flat Earth, etc. despite facts to the contrary are to be pitied.  But those who swindle, lie, or deceive those who have those beliefs are to be condemned.  There is a difference between believing in fantasy ( e.g. “the WWE is real”) and being entertained by fantasy ( e.g. “I enjoy watching the WWE”).  Some of the greatest advances have come because people adapted ideas from their fantasies.  It is good to have an imagination. It is only bad if you start believing your imagination.