• Including frivolous and necessary spending, fiscal policy for legislative branch expenses might be a microcosm for the entire federal budget.

    What Legislators Spend on Themselves

    Oct 17 • Economic History, Economic Humor, Government, Labor, Macroeconomic Measurement, Thinking Economically • 145 Views

    Looking at the federal budget, out of a total of close to $3.5 trillion, the legislative branch spends $4.47 billion on itself. A tiny slice of the budget pie, Senate and House spending is still interesting for the insight it provides. So let’s take a look.

    The Barbershop and More

    We can start with a controversial allocation, the barbershop.

    But first, a quiz. Can you identify each of the following senators? (Answers follow at the end of this post.)

    A small part of fiscal policy, Senate spending includes its barbershop and hair salon.

    From: Mother Jones


    Called Senate Hair Care Services in the Secretary of the Senate’s budget report, the institution dates back to the 19th century when its services were free (to the Senate–not the taxpayer) until the late 1970s. Now, while the barbershop/salon charges $20 for a trim and $75 for a perm, with “sequestration,” the manicures were eliminated. Between October 1, 2013 and March 31, 2014, the $177,488.29 that the Senate Hair Care Services lost, the federal budget absorbed.

    There for Senators, staffers and interns, barbershop appointments are available for you and me too. But the scheduling hierarchy dictates that the most powerful Senators have priority. When they want their hair done, they get the slot, even if someone else has it. The priority list moves downward, with interns at the bottom and then those who are not affiliated with the Senate.

    We also have an Architect of the Capitol (AOC). I just learned that the capitol dome needed restoration because of 1300 cracks in its 8.9 million pounds of cast iron. Begun in 2013, the repair was managed by the AOC. In addition, as you might imagine, with multiple 19th and 20th century buildings to refurbish and more to maintain, they have to prioritize because of budgetary restraints.

    You can see below that we have not even mentioned the largest slices of the legislative branch’s spending pie–our legislators’ salaries–and the smaller pieces like the Government Printing Office, a photographic studio, a recording studio, mileage reimbursement, childcare, and mailing expenses.

    Although three years old, the totals in the following graph are pretty close to today’s–enough to give us a realistic picture of what the legislative branch costs us in dollars and sacrificed alternatives.

    Fiscal policy includes budget for legislative branch.

    From: Dayton Daily News.

    Our Bottom Line: Fiscal Policy Decisions

    Faced with a deficit that annually adds to a potentially unmanageable debt, we need a dose of reality to see where the spending goes and the relative size of its slice. Should we be concerned about the barbershop?

    Answers: John C. Calhoun, Andrew Burnsides, Joe Biden, Kay Bailey Hutchison, John F. Kennedy, John Edwards, Rand Paul, Strom Thurmond


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  • The GDP growth rate can be affected by an elderly population.

    The Best Places For Growing Old

    Oct 16 • Behavioral Economics, Developing Economies, Economic Growth, Economic History, Government, Health Care, Households, Labor, Macroeconomic Measurement, Thinking Economically • 169 Views

    We have bad news and good news about being elderly in the United States.

    First the bad news…

    Evaluated for the adequacy, sustainability and integrity of its old age pension system (primarily Social Security), the U.S. got a “C.” Its rank was #13 in a list of 25 countries,  Denmark was #1 and India, #25.

    Below are all the grades;

    Global entitlement spending for pensions varies in quality.

    From: Melbourne Mercer Global Pension Index 2014


    But the good news is that the U.S. received a high rating in a 2014 Global AgeWatch report on the “wellbeing of the elderly.”

    Ranked #8 out of 96 countries (below), it had especially high grades for an elderly friendly environment that was safe, socially-connected and supported self-esteem.

    The Top Ten Countries For Growing Old:

    The expense of an elderly population affects the GDP growth rate.

    From: Global AgeWatch Index 2014

    The four criteria are defined below. Somewhat ironically, as a source of self-esteem and self-sufficiency, employment is a plus.

    The expense of an aging population might affect the GDP growth rate.

    From: Global AgeWatch Index 2014


    Our Bottom Line: GDP Growth Rate

    While I do want to reiterate my skepticism about the objectivity of ranking — still, some threads are evident. Elderly well-being and a high GDP correlate. We can continue to ask, though, about the impact that a growing proportion of the elderly population will have on the GDP growth rate. In dollar and non-dollar tradeoffs, the cost of elderly well-being can be high.

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  • Everyday economics for government pension plan

    All You Need To Know About the World’s Social Security Systems

    Oct 15 • Behavioral Economics, Developing Economies, Economic Debates, Government, Households, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 133 Views

    The Melbourne Mercer Global Pension Index gave Denmark an “A” for its pension system while the United States has a “C.” (I know I recently suggested ranking systems are not dependable but still, let’s look at this one.)

    Worldwide, the quality of pension entitlements varies.

    The quality of pension entitlements vary.

    From: Melbourne Mercer Global Pension Index 2014

    The criteria were adequacy, sustainability and integrity.

    Worldwide, the quality of pension entitlements varies.

    From: Melbourne Mercer Global Pension Index 2014

    Below, for adequacy (red), sustainability (yellow) and Integrity (blue), you can see how the U.S. (#13) and 24 other countries fared:

    For Pensions, U.S. Entitlement quality is subpar

    From: Melbourne Mercer Global Pension Index 2014

    Our Bottom Line: Entitlements Criteria

    Just think adequacy, sustainability and integrity, Denmark #1 and the U.S. #13 and you have pretty much all you need to know about the world’s social security systems.

    Tomorrow, we will have Part 2 and some specific reasons that the Dutch system is ranked so high and the U.S. is so low.


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  • Everyday economics of LED bulbs

    The Unexpected Consequences of More Efficient Lighting

    Oct 14 • Behavioral Economics, Demand, Supply, and Markets, Developing Economies, Economic Growth, Environment, Households, Innovation, Tech, Thinking Economically • 166 Views

    With one LED bulb lasting up to 100 times as long as an incandescent bulb and 10 times longer than fluorescent lights, you can see why the scientists who developed LED lighting just received the Nobel Prize in Physics for the energy and materials their innovation will save.

    A 19th century economist would disagree.

    In The Coal Question (1865), William Jevons tells us that, “It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is truth.”

    Called the rebound effect, 150 years ago, the efficiency created by the steam engine encouraged more coal use rather than less. After that, as we moved from coal to whale oil to kerosene and electricity, more efficiency expanded energy use as the market responded to a better, cheaper product.

    And therein lies the rebound effect. Described in a Congressional Research Service (CRS) report, the rebound effect has a triple source:

    1. We use more energy because it is less expensive. When gas is cheaper we tend to drive more.
    2. With the money we do save, other energy guzzling purchases become affordable.
    3. Lower resource prices can encourage subsequent innovations that increase the use of that resource. Starting as illumination, electricity spread to run our appliances.

    But, the CRS report also explains that the rebound effect is most evident in a developing economy because slack demand provides considerable room for a boost in energy use. By contrast, in a mature market, the rebound effect is less pronounced and more unpredictable.

    Indeed, imagine an entire world that is LED lit at night rather than (below) developed and urban areas.

    The lower opportunity cost of LED lighting will fuel its spread in the developing countries.

    From: Vox

    Our Bottom Line: Opportunity Cost

    As economists, we can say it is all about opportunity cost. As the opportunity cost of using a commodity decreases, we tend to use more of it. Diminished opportunity cost is one reason that demand slopes downward. The lower the price, the more we want because we sacrifice less to get it.


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  • Everyday economics indicators

    Surprising Economic Indicators

    Oct 13 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic Thinkers, Entertainment, Government, Households, Labor, Macroeconomic Measurement, Thinking Economically • 148 Views

    Eleven months before the great recession began in December 2007, the number of dental patients who returned for a follow-up plummeted as did the demand for x-rays. People continued having their teeth cleaned but rejected most other discretionary procedures.

    Calling it “toothenomics,” Bloomberg News has hypothesized that, like stock prices and building permits, dental care is a leading economic indicator that tells us where the economy is heading.

    Looking below at the Bloomberg graph of the number of dental patients who returned for a follow-up, do note a recent and perhaps worrisome decline:

    Economic Indicators


    Unusual Economic Indicators

    While stock prices and building permits are two of the 11 leading economic indicators that government statisticians compile to generate an index number, I suspect, after checking dental revenue trends at the Journal of Dental Education, that dental care would better fit with a much less rigorous list.

    And that takes us to the Men’s Underwear Index (MUI). Said to have been monitored by former Fed Chair Alan Greenspan, a dip in the MUI is a signal that “here comes trouble.”

    As NPR Radio Lab host Robert Krulwich explained in 2008, “[Greenspan] once told me that if you think about all the garments in a household, the garment that is most private is the male underpants because nobody sees it except people in the locker room and who cares. Your children need clothes. Your wife needs clothes…You need clothes on the outside. But the last purchase that you don’t have to make is underpants…”

    Other possible recession indicators:

    • diaper rash cream sales (up)
    • lipstick sales (up)
    • sleep hours (up)
    • divorce rates (down)
    • shark attacks (down because of fewer vacations)

    Our Bottom Line: Income Demand Elasticity

    Like a rubber band, our spending can be somewhat elastic. During prosperity, for certain goods and services, our spending stretches a lot. Then, however, for those same items, when recession hits we buy much less. Called the income elasticity of demand, when we have noticeable changes in the quantity that we demand because our income rises or falls, our buying behavior becomes an economic indicator. What economic indicators will you be sending out as you go about your day today?

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