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    Social Insecurity

    Apr 3 • Economic History, Government • 173 Views

    Is there a “lock box” with surplus social security funds? Sort of.  

    In 1983,  when we had inadequate funding for the social security program, a commission led by Alan Greenspan suggested extra sources of revenue for a Social Security trust fund. As a result, primarily through higher payroll taxes, more was collected for social security than they needed then and the money was put aside.

    Here is where you can imagine a lock box. Theoretically kept in the lock box, U.S. treasury securities were purchased with the social security surplus. As a result, social security surplus revenue became available to the U.S. government to spend until the social security administration needed the money.  

    Fast forward to now.  In a recent NY Times article, we learned that this year social security benefits exceeded social security revenue.  Because the recession was the likely cause, all should return to normal soon. But what is normal? Normal means that in 2016, the program will face a tipping point and pay-outs will consistently exceed revenue.

    Are you concerned about the future of social security? Comments?

    The Economic Lesson

    Hoping to give “ownership” to all of us, the creators of Social Security designed a universal pay-as-you-go program in 1935. When we “pay-as-you-go”, we are giving today’s workers’ payroll tax dollars to today’s social security recipients.

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    Tall Stories: Height and Success

    Apr 2 • Households, Macroeconomic Measurement • 165 Views

    A recent Daily Mail article about President Sarkozy’s height sensitivity reminded me of studies that relate height to success.  

    But first, some height stats:

    • Nicholas Sarkozy (France): 5’5″
    • Barack Obama (U.S.): 6’2″
    • Angela Merkel (Germany): 5’8″
    • Gordon Brown (U.K.): 5’11″
    • Stephen Harper (Canada) 6’2″
    • Carla Bruni Sarkozy (French first lady): 5’10″
    • Napoleon Bonaparte: 5’6″
    • 39 U.S. presidents were taller than average while 5 were shorter

    A 2004 New Yorker article has wonderful facts about the economic implications of height: 

    • The tallest in Europe, the average male in the Netherlands is 6’1″ and the average female is 5’8″. Consequently, homes, cars, ambulances and clothing need to be redesigned.  Ceilings need to be higher and ambulances need to be longer.
    • Taller men earn more.  One study indicated that an average six footer will earn close to $165,000 more than someone who is 5’5″ during a 30 year period.
    • Historically, as cities grew larger, humans became shorter. Economists theorize that deficient nutrition was the cause.
    • Height corresponds to economic growth. When affluence grows, so too do people.

    The Economic Lesson

    Called anthropometric history, the history of human height has become an economic field of study. Economists use height data to form hypotheses about GDP, national affluence, food consumption, real family income, wages and prices.

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    The Ten Best Money Movies

    Apr 1 • Entertainment, Financial Markets, Thinking Economically • 154 Views

    From a Forbes.com, 2006 reader survey, the 10 best money movies:

    1. Wall Street (1987; 35% of votes)
    2. Trading Places (1983; 10% of votes)
    3. The Sting (1973; 6% of votes)
    4. Ocean’s Eleven (1960; 5% of votes)
    5. Boiler Room (2000; 5% of votes)
    6. It’s a Mad Mad Mad World (1963; 4% of votes)
    7. Casino (1995; 4% of votes)
    8. Glengarry Glen Ross (1992; 4% of votes)
    9. The Treasure of the Sierra Madre (1948; 4% of votes)
    10. American Psycho (2000; 3% of votes)

     

     

     

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  • Movies and Business

    Mar 31 • Behavioral Economics, Businesses, Entertainment • 199 Views

    Having discovered a paper that explained why American films tend to present a negative view of business, I was especially interested in seeing which films were discussed.

    “Evil” Firms and Capitalists: The Godfather (1972), The China Syndrome (1979), Norma Rae (1979), Wall Street (1987; remember Gordon Gekko?), Robocop (1987),  Pretty Woman (1990), A Civil Action (1998), The Constant Gardener (2005), Michael Clayton (2007), American Gangster (2007)

    Pro-business: Schindler’s List (1993) Jerry Maguire (1996, Tom Cruise) You’ve Got Mail (1998, Tom Hanks and Meg Ryan) Pursuit of Happiness (2006, Will Smith)

    Where would you place Eddie Murphy’s Trading Places? Others you might add?

    My Source: “Wall Street and Vine: Hollywood’s View of Business”

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    Appreciating the Market

    Mar 30 • Demand, Supply, and Markets, Economic Thinkers, Government • 198 Views

    In a recent WSJ interview, Nobel laureate Gary Becker tells us that, “Markets are tough to appreciate.” The reason, he says, is people feel government can better care for them than a profit seeking individual. Calling markets counterintuitive, Becker sees why people question the benefits of a system that seems to harm the unfortunate. For him though, the key is economic growth which only a market can create.  

    Becker also comments on the cost of health care. Implying that incentives rather than government provide the solution for cutting health care costs, he compares health care spending in Switzerland and the United States. Yes, the Swiss spend close to 11% of GDP on health care and we spend approximately 17%. However, for him, insight comes from asking who does the spending. In Switzerland, 31% of the total is from individuals;  for us, only 12% of total health care spending is an “out-of-pocket” expense. 

    Hearing Gary Becker’s ideas reminds me of a quote from William Bradford about Plymouth Plantation in 1623: “So they began to think how they…could…obtain a better crop than they had done…At length…the Governor…so assigned to every family a parcel of land…This had very good success, for it made all hand very industrious…”

    The Economic Lesson

    Whether your bias is more government or less, still we always can conclude that the incentives created by a decision will determine its outcome.

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