Posted in Access to healthcare, big government, Economic Issues, Government Spending, Government Stimulus, Health Insurance, Healthcare financing, Medical Costs, Medicare, Organizational structure, Philosophy, Policy Issues, Uncategorized

5 Charts That Explain the Student Debt Crisis – Foundation for Economic Education

The commonality between the insatiable rise in both healthcare costs and college tuition, post 1965, should be obvious:  Massive amounts of other people’s money in the form of government programs, payments, subsidies and loan guarantees; which economists call the 3rd-party payer effect.

As exposited in the FEE article below, the U.S. Higher Education Act introduced “incentives” into the market for higher education, encouraging both the supply side and the demand side to make decisions that they would not be as likely to make under “non-stimulated” market situations.

Similarly, the passage of Medicare in 1965 sent huge surge of money into the healthcare system. The predictable consequence of this massive revenue stream was an incentive for healthcare providers to enter the market and expand services at an unprecedented magnitude and rate.  Essentially, demand was spurred by new source of financing.  Amy Finkelstein, et.al have done excellent work in this area.  Her work indicates that Medicare funding may have allowed hospital to spend 6-fold more than what individual levels of insurance would have predicted.  And that the spread of 3rd party insurance from 1950 – 1990 may explain about 50% of the increase in real per capita spending over that time period. https://economics.mit.edu/files/788

 

 

“As Bernie Sanders tweeted last year, the cost of education, in nominal dollars, has increased by roughly 3,800 percent since the mid 1960s.

What Sanders didn’t mention was that this was when the US Higher Education Act was passed (1965), which directed taxpayer dollars to low-interest loans for students pursuing college. This increased accessibility to higher education, but the flood of federal money also caused a surge in demand and costs.

The problem isn’t unsolvable, but it will require significant changes to universities and the federal loan program. “Free” tuition and student debt forgiveness will only make the problem worse.

Instead, as University of Maryland economist Peter Morici recently argued, market discipline must be brought back to our institutions of higher learning as part of any debt forgiveness.

While policy wonks offer no shortage of proposals for tweaking the federal loan program to improve it, perhaps the best solution would be to get the federal government out of the loan business all together.”

https://fee.org/articles/5-charts-that-explain-the-student-debt-crisis/

Posted in Bailouts, Dependency, Economic Issues, Entrepreneurs, Free Society, Free-Market, government incompetence, Government Regulations, Government Spending, Government Stimulus, Job loss, Keynesian Economics, Liberty, Organizational structure, Philosophy, Policy Issues, Uncategorized, Unemployment

Focus on People During Economic Crises, Not Macro-Statistics – Foundation for Economic Education

By Mark Hornshaw

“Economics studies human choice under scarcity. Humans must act in the present to provide for the future. Informed choice relies on market data in the form of prices—specific prices for specific things, as we assess various different means to satisfy our ends—that is what economics is about.

Macro-statistics such as GDP and CPI, whether they are rising or falling in the aggregate, do not help much with this vital task. These statistics are compilations of vast amounts of data to come up with averages across entire countries and time-periods. It’s a dilution of the data, not an enhancement.

“What a country wants to make it richer, is never consumption, but production. Where there is the latter, we may be sure that there is no want of the former,” said John Stuart Mill, citing Say’s law.

In a tune of rapid change and disruption, we need prices to do their job more than ever so the entrepreneurial process can work. High prices show which industries to move more resources into, and low prices show which ones to move resources out of to free them up for more urgent uses. From the point of view of consumers, high prices show us what we should cut back on, and low prices show where we can pick up bargains.

This process takes time. Interfering with this process just locks in shortages and surpluses.
So-called “stimulus,” just thrown at “the economy” to increase “aggregate demand” in the abstract, cannot work, when there are supply constraints in some industries and prohibitions in others.

Government policy should be on mending holes in the social safety net, compensating those it has forced out of business and jobs, and reducing the tax and regulatory burden it places on businesses, workers and consumers as they try to adjust.

These are all microeconomic responses to relieve suffering and remove impediments.”

https://fee.org/articles/focus-on-people-during-economic-crises-not-macro-statistics/

Posted in American Exceptionalism, American Independence, American Presidents, big government, Economic Issues, Free Society, government incompetence, Government Spending, Government Stimulus, Job loss, Leadership, Liberty, Patient Safety, Philosophy, Policy Issues, Rule of Law, Uncategorized, Unemployment

Panic Has Led to Government “Cures” That Are Worse than the Disease, History Shows – Foundation for Economic Education

Smoot-Hawley and the New Deal are hardly the only examples of government actions making a panic worse.

Thomas Sowell recounts several instances in which governments turned small problems into major ones by using blunt force—often price controls—to respond to public panic about rising costs of a given commodity.

One of the more famous examples of this is the gasoline crisis of the 1970s, which started when the federal government took a small problem (temporary high costs of gasoline) and turned it into a big one (a national shortage).

As Sowell explains, however, there was not an actual scarcity of gasoline. There was nearly as much gas sold in 1972 as the previous year (95 percent, to be precise).

Similar examples kind be found throughout history, from the grain shortages in Ancient Rome brought about by Diocletian’s “Edict on Maximum Prices” to the mortgage crisis in 2007.

It is no coincidence that crises—foreign wars, terrorist attacks, and economic depressions—have often resulted in vast encroachments of freedom and even given rise to tyrants (from Napoleon to Lenin and beyond). In his book Crisis and Leviathan, the historian and economist Robert Higgs explains how throughout history, crises have been used to expand the administrative state, often by allowing “temporary” measures to be left in place after a crisis has abated (think federal tax withholding during World War II).

Like an economic panic, pandemics incite mass fear, which can lead to flawed and irrational decision making.

https://fee.org/articles/panic-has-led-to-government-cures-that-are-worse-than-the-disease-history-shows/

Posted in Economic Issues, Government Spending, Government Stimulus, Job loss, Keynesian Economics, News From Washington, Organizational structure, Policy Issues, Uncategorized

Government Shutdowns and Economic Activity | International Liberty

Dan Mitchell

From a microeconomic perspective, there is some genuine disruption for affected federal bureaucrats, even if they eventually will get full – and lavish – compensation for their involuntary vacations. And some federal contractors are being hit as well.

There’s also a debate about the macroeconomic impact, with some making the Keynesian argument that government spending is somehow a stimulant for the economy.

I’ve endlessly explained why Keynesian argument is bad in theory and a joke in reality.

In this interview, I tried to make a more nuanced point, explaining that we should focus more on gross domestic income (GDI), which measures how we earn our national income, rather than gross domestic product (GDP), which measures how we allocate national income.

I’m not sure I got my point across effectively in a 30-second sound bite, but it’s a point worth making since people who understand GDI are much less susceptible to the Keynesian perpetual-motion-machine argument.

But enough from me.

Harold Furchtgott-Roth, in a column for the Wall Street Journal, analyzes the potential macroeconomic consequences of the shutdown.

Does the U.S. government shutdown endanger economic growth? It has led to missed paychecks… Yet these employees represent approximately 0.5% of all American workers… The effect of the furloughs on gross domestic product is likely small. …U.S. GDP is more than $20 trillion annually, or approximately $55 billion daily. The daily compensation of furloughed federal workers is about $52.5 million, or less than 0.1% of GDP.

Source: Government Shutdowns and Economic Activity | International Liberty

Posted in Bailouts, Cost of labor, Economic Issues, Federal Reserve, Free-Market, government incompetence, Government Regulations, Government Stimulus, Interest on the Debt, Interest rate manipulation, National Debt, Policy Issues, Tax Policy, U.S. Security, Uncategorized, Unemployment

The Grumpy Economist: Volalitily, now the whole thing

WONK ALERT!

And now for the meaty post of the week! Seriously, this is a fantastic piece by The Grump Economist, John H. Cochrane, senior fellow at The Hoover Institute.

Here’s a sneak preview:

What’s causing the big drop in the stock market, and the bout of enormous volatility we’re seeing at the end of the year?

The biggest worry is that this is The Beginning of The End — a recession is on its way, with a consequent big stock market rout. Is this early 2008 all over again, a signal of the big drop to come?

Maybe. But maybe not. Maybe it’s 2010, 2011, 2016, or the greatest of all, 1987. “The stock market forecast 9 of the last 5 recessions,” Paul Samuelson once said, and rightly. The stock market does fall in recessions, but it also corrects occasionally during expansions. Each of these drops was accompanied by similar bouts of volatility. Each is likely a period in which people worried about a recession or crash to come, but in the end it did not come.

Still, is this at last the time? A few guideposts are handy.

https://johnhcochrane.blogspot.com/2019/01/volalitily-now-whole-thing.html

Posted in Consumption Inequality, Currency Manipulation, Economic Issues, Entrepreneurs, Federal Reserve, Free-Market, Government Stimulus, Interest rate manipulation, Policy Issues, Wealth

How Private Banks Create Bubbles — with the Help of Central Banks | Mises Wire

Observe that while fulfilling the role of the medium of savings, money is not savings. An increase in money will not result in more savings. An increase in savings requires the increase in the production of consumer goods all other things being equal. Through money, people channel real savings, which provide support to economic activity.

Once real savings are exchanged for money it is of no consequence what the holder of money does with the money. Whether he uses it immediately in exchange for other goods or puts it under the mattress, it will not alter the fact that his real savings are already employed towards the expansion of real wealth.

In a free unhampered market economy there will be a harmonious and sustained change in the pattern of consumption with a rise in consumers’ real wealth. With an increase in real wealth, individuals are likely to strive to acquire various less essential goods and more goods that are luxurious. This harmony however, tends to be disrupted whenever the central bank pumps money.

Source: How Private Banks Create Bubbles — with the Help of Central Banks | Mises Wire

Posted in American Presidents, Bailouts, big government, Caricatures, Cartoons, Crony Capitalism, Currency Manipulation, DC & Related Shenanigans, Economic Issues, government incompetence, Government Spending, Government Stimulus, Job loss, Keynesian Economics, Liberty, Policy Issues, Poverty, Rule of Law, Tax Policy, U.S. Constitution, Uncategorized, Unemployment, Wealth

Everything You Need to Know about Assigning Blame for the Great Depression, Captured by a Cartoon | International Liberty

https://danieljmitchell.wordpress.com/2017/11/18/everything-you-need-to-know-about-assigning-blame-for-the-great-depression-captured-by-a-cartoon/