Posts Tagged ‘economics’

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Bailout Trade-Offs

January 31, 2009

I am pretty sold on the idea that, for long-term economic growth, tax cuts are one of the best things.  They keep more of the money in the economic machine.  However, short term, I do not think tax cuts have any real stimulating effect.

So, what do we do?  Do we spend our way out of the problem?  I believe a large spending stimulus package will stimulate the economy in the short term.  Throwing that much money into the economy and money will start flowing through the economy.  What remains to be seen is how far and how fast it will flow.  If it flows fast and far enough, it might just get us out of this downturn.

The downside to the large stimulus package is the large increase to federal debt.  It prevents larger future tax cuts because that debt needs to be paid back with interest.  So, it appears the cost of stimulating the economy now may be slowing the economy’s long-term growth.

Is it worth it?  I do not know.

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Competition At Work

January 8, 2009

This trip to Arizona, my wife and I discovered something rather interesting.  It is a private parking lot near Baltimore-Washington Thurgood Marshall Airport.  BWI has its own parking lots, but we had heard the private parking lots were a little cheaper and had some nice amenities, like free newspapers and water.  So, we headed out to Airport Fast Park.

When we got there, they told us exactly what row to park in, and the very first spot was open.  A shuttle had arrived and was helping us load bags literally before we could get all the bags out of the car.  We scored a free newspaper and a quicker ride to the airport than the shuttles at the long-term parking.  In addition to all this, even with taxes, the daily rate will be less than the long-term parking lot and for every 8 days we stay, we get a free day of parking.

So, thanks to private competition, we will end up getting better service and paying less than if we had parked in the official airport parking lots.

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Regulation Is The Mother Of Invention

March 28, 2008

Yesterday The Washington Post ran this article. Treasury Secretary Paulson is calling for more, if only temporary, regulation of investment banks.  He’s finally realized that the investment bank community has come up with a lot of other ways to invest money that flies under the regulation radar.

Does this really surprise anyone?  They came up with new ways to slide money around regulation.  They’ve had so much time to do it, over 30 years.  It happened because regulation limited their ability to make money.  So they invented new ways to make money.

People claim regulation stifles growth and innovation, however greed goes a long way towards compensating.  I think the regulation is needed, given the fact that investment banks have proven they cannot be trusted to regulate themselves.  Of course, any extra regulation that is added will cause them to come up with new ways to bypass the new regulation.  This probably isn’t a bad thing, since it will give rise to new money making opportunities for people.

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My Economic Stimulus Package

March 14, 2008

So, this year the federal government is giving people up to $600 a piece to spend.  That’s crap.

You want to see some real stimulus?  Let’s look at ExxonMobil.

They posted a record profit of $40 BILLION.  That’s more money than any corporation has ever made in one year in the U.S.  What do I think they’re going to do with it?  I’m betting a stock buyback.  It’s one of the stupider moves they could make.  Their stock prices are already flying high, so they’ll be buying those shares of stock at a premium.  One of the first rules of using the stock market is to buy low and sell high.  Buying their own stock now would be buying high.

Second, all a buyback does is raise the equity of shareholders on paper.  They actually have to sell the stock in order to reap the benefits of the buyback, which would in turn lower the price of ExxonMobil stock.  So, you’re not actually giving value to your shareholders.

If ExxonMobil really wants to give back to its shareholders, it should issue a dividend.  Give the cash straight to the shareholders immediately.  Reward them directly for having faith in the company.

However, if ExxonMobil really wants to reward the people that made their record profit possible, they should give some money back to its employees.  After all, if their employees hadn’t done their jobs as well as they did, they wouldn’t have made as much money.   Here’s my recommendation:  Give each employee a $100,000 bonus.  $100,000 is a lot of money, right?  How could they possibly afford to do that?  With ExxonMobil’s 100,000 employees, that $100,000 bonus works out to $10 billion dollars, one quarter of the company’s profit.

It’s a decent chunk of their profit, but there are lots of benefits.  First, any company that gives all of its employees that size of bonus will have wonderful morale and very little turnover.  It would also generate a feeling of investment.  After all, I know I would be more likely to try to generate profits if I knew I’d be getting some of those profits.  Second, the government will suddenly have almost 100,000 people jumping up a number of tax brackets.   So the government will actually get MORE revenue.  Finally, 100,000 people suddenly getting $60k after tax withholdings will be throwing huge amounts of cash into the economy.  They could use it to pay off loans and credit cards, adding liquidity to the credit market.  They could buy large ticket items like TVs, cars, etc.  The least likely thing they’ll be willing to do is invest all of it, effectively negating the stimulating power of the bonus.

Now,  it would take more than just ExxonMobil doing this, but if every company gave 25% of their profits back to their employees, a lot more money would be flowing through the economy.  It also means the government wouldn’t have to get involved and would maybe even benefit financially.