Principles of Economics

2011-07-08T23:07:00.000-07:00

Operation Twist and the Effect of Large-Scale Asset Purchases

By Titan Alon and Eric Swanson

The Federal Reserve's current large-scale asset purchase program, dubbed "QE2," has a precedent in a 1961 initiative by the Kennedy Administration and the Federal Reserve known as "Operation Twist." An analysis finds that four of six potentially market-moving Operation Twist announcements had statistically significant effects and that the program cumulatively caused a significant but moderate 0.15 percentage point reduction in longer-term Treasury yields. These results can be used to estimate QE2's effects.

Read Here

2011-07-05T16:22:00.000-07:00

Which Came First—Better Education or Better Health?

By Rubén Hernández-Murillo and Christopher J. Martinek

A very interesting article written by the Saint Louis Fed economists about the correlation between education and health.

Which came first - better education or better health

2011-07-04T09:39:00.000-07:00

How Inflation Tax affects the future of our children

As life goes on, the number of taxes we have to pay grows up significantly. We disburse income, corporate, capital gains, payroll taxes and much more. The colossal interference of the government nowadays must ring a bell to us of another enemy – inflation tax. According to Gregory Mankiw, a professor from Harvard University, inflation tax is the revenue the government raises by creating money. It is not a secret that the government use money creation as a way to pay for the spending. The insatiable appetite shown in the last 20 years has lifted up a crucial question: Who is going to pay for irrational decisions taken by the government? The answer is fairly palpable – our children.

The quantity theory of money, developed by a prominent economist Irving Fisher, lends us a hand in understanding how future generation will have to fork out for current mistakes made by politicians. (Equation 1)

Equation 1 Equation of Exchange

M * V = P * Q

The equation of exchange can be read this way: The money supply multiplied by velocity (MV) must equal the price level times Real GDP (PQ).

The simple Quantity theory of money states that velocity (the rate at which money changes hands) and Real GDP are constant. Any changes in the money supply (M) lead to strictly proportional changes in the price level (P).

It means that any additional percentage increase in the money supply will find its reflection in the price level, whether it will come about now or in the future.

It is easy to see that the higher the average annual money supply growth rate in the US, the higher the average annual inflation rate (the US economy from 1981-2010). Therefore, when the Fed increases the money supply, the result is a high rate of inflation. So how does it affect our future from an economic point of view?

When the Federal Reserve prints much money and does it frequently, the value of the dollars, along with, the purchasing power of money drops. The large amount of printed dollars causes the prices to go up. People become very cautious about the future economic prospective and tend to consume more than save (on account of the rising inflation). All the books of economics inform us that government policies can influence the economy’s growth rate using the following options:

· Encouraging investment from other countries;

· Maintaining political stability;

· Encouraging saving and investment;

· Pursuing high quality education;

· Promoting the research and development of new technologies.

If the government does the opposite, the consequences will have a detrimental outcome. That’s what we can observe in today’s America. Low saving leads to low investment and, therefore, to inadequate growth in the long run.

The more money the Fed prints, the less valuable it becomes. Since 1913, when the Federal Reserve was created by Congress, the purchasing power has declined by more than 100%.

Over the last few years, we have seen an influx of trillions in government spending. These trillions chase a limited supply of goods. Whenever a country faces a barrier to repay its obligations, it resorts inflation in an effort to monetize its debt. The United States has come close to this line. For the last 20 years, the nation’s saving rate declined, proving the fact that people are used to living in a big way, and not think about the saving.

How can those with saving plan to protect their money from the devaluation? Can we save extra income to pay for our children’s education? The new way of saving must be developed to break a vicious circle of continual spending.

Here is the vivid example why we must focus our attention on that. What one dollar bought two years ago costs $1.88 today. With the increasing amount of newly issued money, the rate will inflation will only keep on rising in the near future. This burden will be placed on our children and will have an indelible impact on their wealth.

With the way the US government spends the money now, I, personally, do not see a bright future for the US children. The investment on education stays on a low level, the spending on health care reform and defense only grows.

As Vern Sumnicht, the founder and president of iSectors said in one of his publicaions, this is likely to be the beginning of a long-term trend that will see higher inflation and interest rates for many years to come. I, for one, agree with him and think that future generation will have to pay a high price for incongruous demeanor that reigns in today’s America.

2011-06-30T20:41:00.000-07:00

The Russian Problem Number 1

HIGH MORTALITY RATE

1. Population levels in many developed countries have stagnated and are expected to fall by 2025, but Russia's population, currently around 142 million, has been in retreat since 1992;

2. Russia's mortality rate is among the highest in the developed world, with average life expectancy for males at barely 60 years;

3. The biggest problem that affects on the duration of life is alcohol. It has been linked to everything from the liver disease to fatal accidents;

4. In 1950 the Russian Federation had the world’s fourth-largest population. By 2007, Russia ranked ninth globally. By 2025, Russia will rank 15^th if the problem with high mortality is not solved;

5. The influx of immigrants over the past 16 years has helped the country soften the impact of Russian dying young and having fewer children. The reforms to increase the birth and cut the death in the country do not work properly;

6. Many Russians are looking for a place abroad, where the entrepreneurship climate is better and where young people may fully realize themselves.

2011-06-28T16:31:00.000-07:00

What approach does the USA use: Classical or Keynesian?

I was visiting my uncle in Europe in 2008 and did not even realize that the world would experience one of the most terrifying crises in the history. With the population of almost 3 million people, Latvia seems to be a small spot on the map. Because of the unfair policy, few resources and corruption, the country faces a crash.

Hardly had I left the country when the financial crisis took place. Talking over the phone with my uncle, I realized that his nation was on the brink of destruction. The population shrinks, the unemployment rises, the banking system fails, and the united faith shows no revival.

In the year of 2010, I opened my visa and headed for the USA – the country of prosperity and comfort, where people always were looking for protection and understanding from the cruelty and poverty of this world.

One observation I noticed being in the epicenter of these events was that big countries could be destroyed completely, along with small ones. It is just a matter of time. American people suffer from the actions that were taken by their ancestors to live in abundance, in a big way.

Over the years there were two the most prominent groups of economists who changed the world and our approach to the stimulation of the economy: the Classical and the Keynesian. These groups pursued their own principles how to take the economy out of recessions.

The Classical economists believe that monetary methods used by the government only enlarge a snowball that becomes only bigger and bigger. The economy must be self-regulated. Supply creates its own demand. Do not let the authorities put their hands into the midst of the economic heart. It will find its way to recovery.

The Keynesian economists are skeptical about the process of the recuperation that the economy can take if left on its own. They proposed a new approach that is used all over the world and is called “government intervention”. The purpose of the approach is to create aggregate demand and therefore increase the level of consumption, decrease unemployment and see considerable inflation as an indicator of a stable economic growth.

I would like to show you a simple example that will give you a clear picture about the tools our authorities use to stimulate the economy. Let us imagine the situation when the disease of one person passed on many people. The first thing any doctor would do is to check the temperature a patient has. In economics a temperature stands for the quantity of the money supply. The problem is that M1[1] in the USA for the past several years have grown faster than the economic growth. That is exactly the moment when too much money is chasing too few goods. The prices for these goods are growing so rapidly that there is no chance to adjust wages to the level of inflation.

If the disease is too dangerous, a doctor will ask if a patient ever had anybody who suffered from the same issue. In the American economy it indicates an insatiate appetite. America as a country for many decades lived beyond its means.

Finally, a doctor will write a prescription in forms of mixture, pills and several days of weakness. In economics, a words prescription means active steps to help the economy get out of a problem. Usually the period of weakness lasts for more than several days. It can take years, and even decades to see positive signs of recovery.

2011-06-27T17:53:00.000-07:00

Core Inflation Rises-Interest Rates May Follow

Read the column written by James C. Cooper about the Inflation and Interest Rate.

The article was published in the Fiscal Times.

Core Inflation Rises - Interest Rates May Fall

2011-06-22T13:12:00.000-07:00

How the Fed Could Set Off a New Recession
by Mr.Thoma, a professor from Oregon University

Until recently, it seemed unlikely that we were headed for a double-dip recession. We were clearly looking at a very slow recovery, especially for employment, but there was little reason to worry about a second recession.

Now widespread weakness in recent economic data makes a double dip much more likely. In May, just 54,000 jobs were added, auto sales declined significantly, retail sales were sluggish even excluding autos, and growth in manufacturing slowed sharply. Meanwhile, house prices continue to decline to new post-bubble lows, home sales have slowed, claims for unemployment insurance have risen, and consumer sentiment has weakened. Both stimulus spending and QE2 are coming to an end, state and local budgets are still a problem, and corporate bond issuance “fell to its slowest pace of the year.” The fall in investment activity is particularly worrisome because business investment has been growing at near pre-recession rates and has been a key factor in bringing about the moderate output growth we’ve experienced recently. If business investment falls off, it’s hard to see what will replace it.

The recent data is not the only reason I’ve changed my mind about the possibility of a double dip. When the recession started, I was certain we wouldn’t repeat the mistakes of the past. One mistake in particular looms large right now, the deficit reduction and interest rate increases that sent the economy into a tailspin in 1937-38. Many people do not realize that there were two recessions within the Great Depression. The first, which came in 1929, is well known. This recession lasted until 1933, and then the economy began slowly recovering, much like today. As the recovery continued, people began to worry about the budget deficit and the possibility of inflation – again much like today. In response, fiscal authorities began reducing the deficit and monetary authorities raised interest rates, and the result was a second recession in 1937-38. This mistake prolonged the economy’s troubles considerably, and in part was why this became the “Great” Depression.

Fiscal policy makers today seem determined to repeat the mistake of cutting the deficit too soon, the only question at this point is the severity of the error. They also seem determined to make it worse by using the debt ceiling as a bargaining chip in deficit negotiations. If the people pushing the debt ceiling debate to the brink miscalculate, it could create serious economic difficulties.

The Fed’s Federal Open Market Committee begins its two-day meeting Tuesday. QE2, the Fed’s second round of purchases of Treasury securities, is coming to an end, and policymakers must decide what to do next. Should the balance sheet be expanded further with QE3 or kept on hold at QE2 levels? If the balance sheet is kept on hold for now, when should reversal of the quantitative easing policy begin? When will the Fed begin raising interest rates?

The Fed must be very careful not to increase rates before the economy can handle it, but getting the timing right is difficult. There are long and variable lags involved with monetary policy, and the Fed must make policy decisions far in advance of knowing the actual state of the economy. If it moves too soon, it could kill the recovery and even cause a double dip, especially with deficit reduction and spending cuts, troubles in Europe, or other problems we don’t yet know about. If the Fed moves too late, the result could be inflation.

Which should take precedence, economic output or inflation? The damage from a slower recovery or a second recession would be far greater than the damage from temporary outbreak of inflation, so the Fed should be more worried about output than inflation. But that doesn’t appear to be the Fed’s current stance. Inflation hawks on the policy committee have biased Fed policy in the other direction even though there’s very little to suggest an outbreak of inflation is imminent or even likely.

The problem goes beyond the inflation hawks at the Fed. Monetary policy has been increasingly politicized in recent years, and worries that the Ron Pauls in Congress will use an outbreak of inflation as an excuse to take away some of the Fed’s autonomy, and hence its effectiveness, are inhibiting a more aggressive attack on the output and unemployment problems.

The politics of fiscal policy are difficult and at times prohibitive. But the Fed is supposed to be above politics. I wish I felt more confident that the Fed is willing to invoke QE3 or whatever policies are needed to minimize the risks of a double dip. Monetary policy is the best hope we have to offset the fiscal insanity in Congress and keep the recovery going. However, at best, I expect the Fed to keep policy on hold for awhile, although there’s still the chance that the Fed will raise rates prematurely.

And even with the best possible policy from the Fed, the weak economy, problems in Europe, and the determination of fiscal policymakers to make things worse make it hard to shake the worry that we might be headed toward a second recession.

2011-06-21T14:28:00.000-07:00

Geography of a Recession

The New York Times has geography of a recession by states. Click the link below to see counties, cities and states with their unemployment rates.

The Unemployment Map

2011-06-20T21:07:00.000-07:00

Things about the consumer price index (CPI)

1. What is the CPI?

A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

2. How is the CPI used?

as an economic indicator;
as a means of adjusting dollar values;

3.How is the CPI market basket determined?

The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought.

4. What goods and services does the CPI now?

Food and beverages;
Housing;
Apparel;
Transportation;
Medical Care;
Recreation;
Education and communication;
Other goods and services(haircuts; tobacco)

5. Is the CPI the best measure of inflation?

The CPI, along with, the GDP deflator plays a fundamental role in calculation of inflation. It is the most well-known method that economists use.

6. How to compute the CPI?

CPI = (Market basket in current year / Market basket in base year) X 100%

2011-06-17T17:49:00.000-07:00

Need to know more about the Federal Reserve? No problem!

If you have any question about the life inside of the Federal Reserve, feel free to watch this video. It will provide you with helpful information, introducing you to who the Fed is and what the bank do

The Fed in Plain English

2011-06-14T14:12:00.000-07:00

What are the ways to stabilize the world economy?

Brain Contest by Ivan Lyagushov

In this post I am willing to push forward a topic for public opinion about the world economy. How long will the world stagger? What will the consequences be? Will China become the global power? What are the methods countries can use to bring their economies onto a prosperous level?

I am looking forward to reading your comments.

Send your opinion to vania.mu7@rambler.ru

The brightest comments will be published on my blog.

Thank you

2011-06-12T20:11:00.000-07:00

What are the pros and cons of unemployment benefits?
By Juan Sanchez, an economist in the Fed Saint Louis
In short, the answer is insurance and incentives.
Unemployment insurance benefits help individuals who have lost their job to sustain a desirable consumption level. An MIT economist, Jonathan Gruber, argues that private insurance or savings are not enough to prevent a large drop in the consumption of the unemployed. In particular, he estimated that in the absence of unemployment insurance, the consumption of the unemployed would fall by 22 percent. This drop would be more than three times the average fall in the presence of this program. Perhaps the most important disadvantage is that unemployed individuals may be discouraged from searching for a job (or taking certain jobs) if unemployment benefits are too generous. In a recent paper, Alan Krueger from Princeton University and Andreas Mueller from the Institute for International Economic Studies at Stockholm University found that across the 50 states and District of Columbia, job searches are inversely related to the generosity of unemployment benefits. In particular, the time devoted to job search drops by about 16 percent when unemployment benefits increase by 10 percent. The two economists also found that job search intensity increases prior to the exhaustion of benefits.
The current programs in the U.S. and in most of the developed countries involve two or three levels of benefits that often decrease over the unemployment spell; the benefits are provided for a restricted period of time. This design resembles prescriptions in the seminal work of the economists Hugo Hopenhayn from UCLA and Juan Pablo Nicolini from the Federal Reserve Bank of Minneapolis and Universidad Torcuato Di Tella in Buenos Aires. They found that the best way to design an unemployment insurance program involves payments that decrease throughout the unemployment spell. They also prescribe a tax on each individual after re-employment—a tax that increases with the length of the previous unemployment spell. The entire program can be implemented with unemployment insurance accounts for each individual. Individuals who use their benefits for a longer period of time would have to contribute more after re-employment to balance their account.

2011-06-09T20:23:00.000-07:00

The Banking Emperor Has No Clothes

Here is the article in the Times by Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers

Click here:The Banking Emperor Has No Clothes

2011-06-03T14:27:00.000-07:00

Making The Tax Cut Case

Discussing whether the extension of the tax cuts will be good for the U.S. economy, with N. Gregory Mankiw, Harvard Univ. professor of economics, and Gary Kaminsky, "Strategy Session."

Click Here: Making The Tax Cut Case

2011-06-02T20:27:00.000-07:00

Questions about Unemployment. Answer to David Leonhardt's letter in the New York Times

Dear Mr. David,

In your June 2 publication “In the Jobs Report, One Big Question” you posed an imperative topic for discussion by asking the subsequent questions: Has job growth slowed, as many economists now fear?

Last month, the Bureau of Labor Statistics released the unemployment rate to be 9 percent, which is a 2.3 percent higher that the month before. Despite a sustainable job growth in a number of major economic sectors, (the private sector grew from 231,000 to 268,000) the government aid seems to go down the drain. Approximately 13.7 people are presently unemployed.

The numbers, as we know, don’t prevaricate. The ineffectiveness of tax stimulus, along with high unemployment benefits, has done its job. The behavior of the Unites States rings a bell to me, when I think about the times Germany experienced in 1997. In Germany, unemployment has risen relentlessly since 1991 and reached 4 1/2 million or 11.7 percent of the labor force in 1997.

This time, there is only one big question: Does America want to be in the same boat and swim in the same current as Germany did?

2011-05-31T19:37:00.000-07:00

My Thoughts about Mr.Bartlett's Article in the Times

I applaud and have a high regard for the research that Mr. Bartlett did in his last publication in the Times. He was able to break the myth about a weighty yoke the Americans bear on their shoulders. What he proclaimed could be combined into one verdict: There will be no tragedy if taxes are increased, but not now.
In addition to a widely accepted technique Mr. Bartlett used, I want to accentuate the importance of knowing the Tax Revenue as a percentage of GDP to GDP per capita in most industrialized countries.
Next are the outcomes for some of the developed nations:
Rank
Country
Taxes/Person
1
Denmark
$27,996
2
Sweden
$20,910
3
France
$18,924
4
Germany
$16,512
5
UK
$13,714
6
Australia
$12,895
7
United States
$12,371
Source: Index of Economic Freedom; World Development Indicators Database, World Bank(2009)
Mr. Bartlett was absolutely right when he said that the United States is indeed a low-tax country if measured by taxes as a percentage of GDP. But is it all? The table above confirms that disputes about America’s over-taxation are also groundless, if measured by taxes per person.
So, don’t let anyone deceive you by telling that federal taxes in the United States are high and excruciating. Reducing them further will bring neither productivity nor economic recovery.

2011-05-31T19:33:00.000-07:00

Are Taxes in the U.S. High or Low?

Read an interesting article published in the New York Times on May 31 by Bruce Bartlett. He has served as an economic adviser in the White House, the Treasury Department and Congress.

Click Here: Are Taxes in the U.S. High or Low?

2011-05-30T13:12:00.000-07:00

How much does the credit company charge?

In our world of globalization, where markets are connected together, we all use credit cards as the most convenient way of payment. But have you ever thought about the consequences of late, outstanding payments? Here is an example:
If a credit card company charges 1.2% a month on any outstanding balance, what is the annual percentage rate (APR)?
Many people make a big mistake just by multiplying 1.2% to 12 months. The answer 14.4% is incorrect.
Look how it works in a real life. The banks earn an immense amount of money, because of our irrational spending and inability to cover this spending on time.
Remember this equation: APR = (1+Im)^12-1
A simply calculation shows us, that the answer will be: (1+0.012)^12-1 = 15.39%
The difference between the incorrect method and correct method is almost 1%. That's the way the economy works.
Advice: Use cash more often, or buy only those items you can easily pay for. Do not take an unbearable burden.

2011-05-29T17:43:00.000-07:00

The country's budget is at your hands!
You have a great chance to operate the America's deficit. Using the two strategies, tax increases or spending cuts, you can create the place you want to live. Make your own plan, and then share it online.

Click here: Budget Puzzle by the New York Times

2011-05-28T23:12:00.000-07:00

10 The Most Important Principles of Economics
Being a student of the Russian University of Economics, I started analyzing the huge role of economics in our world. You may work as a carpenter, plumber, or even be unemployed, but still experience the breath of its consequences every day. Here are the most amazing things that I, as a student, could hear from my professors and on TV almost every day:
1. Opportunity Costs (No easy ways. Actions require a price to pay);
2. Demand and Supply factors (Markets are usually the best way to allocate resources, if the wants meet each other);
3. Elasticity (Elasticity is a helper of the economy);
4. Nominal and Real GDP (The Positive Real GDP can become a close friend of yours);
5. Unemployment and its natural rate (High unemployment opens the door to sluggish recovery);
6. Inflation (A moderate inflation usually has two positive sides);
7. Monetary Policy ( Too much money never rescues the economy);
8. Fiscal Policy (Timely Stimulus Create Future Growth);
9. Wealth and Poverty (Income distribution helps only the rich layer);
10. Currency Wars ( All countries pursue their OWN interests).

I will start revealing these segments of economics in my following letters. Please wait.

2011-05-26T15:47:00.000-07:00

Is the Keynesian Approach still alive?

I came across an interesting video dedicated to the approach, that J.Keynes believed would be the most reasonable, to save the economy during deep recessions. Let's me first clarify you some of the principles, that Keynes based his faith upon:

1.Government intervention is necessary to stimulate growth and stability;

2.The reason why countries fall into recessions: low demand;

3.Stimulation should generally be approached through encouraging consumption;

4.Effective Demand plays a crucial role. Not enough to want something such as food or luxuries. One must have real assets or some products to sell in order to male that demand effective;

5.Effective Demand creates its own supply. The opposite to the Say's Law.

"The battle between the Keynesian team and the Classical team is not over" says somebody who is going to watch the video below. You are absolutely right. The more we see the uncharacteristic changes in the economy, the more we realize how far we are from knowing the complete truth about this struggling and hard-comprehending world.

2011-05-25T16:45:00.000-07:00

Stagflation. It's back
by Larry Kudlow

Stagflation officially returned today with a nasty GDP report that showed only 1.8 percent real growth, but 3.8 percent for the consumer spending deflator. It’s a mini version of the 1970s: low growth, higher inflation.

Looked at another way, rising inflation is coexisting with high, near-9 percent unemployment. Keynesians argue this can’t happen. They believe strong growth and too many people working leads to high inflation. But they were blown out of the water way back in the ’70s. And their view is hitting another pothole right now.

Supply-siders know that inflation is a monetary problem. Growth is caused by low tax-rate incentives. And the combination of flat tax rates and sound money could produce strong growth with no inflation. Think 1980s and 1990s.But that’s not what we have now.

The dollar is falling relentlessly and gold is soaring. These market indicators are correctly predicting higher inflation as the Fed creates more excess money than anybody knows what to do with.

Fed head Ben Bernanke yesterday told us that low Q1 growth and high inflation will be “transitory.” How does he know this? Gold has gone up $40 since he started talking at his Wednesday press conference. It’s now at $1,536 an ounce. And the greenback keeps falling. Transitory? Actually, it looks like the whole QE2 pump-priming hasn’t stimulated economic growth, but has stimulated inflation.

And while the Bush tax cuts were extended last December, the sharp dollar decline and the resulting inflation have neutralized the positive effects of continued lower tax rates.

Once again I note the supply-side model is low tax rates and a stable dollar (backed by gold). But low tax rates and collapsing dollar is no good. Neither is overspending and over-borrowing. Nor is the new round of Obama-based tax-hike threats.

And the Treasury Department hasn’t lifted a finger to support the dollar. So the Bernanke Buck keeps tumbling. The White House won’t come to the table for a budget deal. And the economy is showing signs of stagflation.

Thank heavens for profits. Business productivity and profits in the private sector are the saving grace of this whole story. And let me dream that government will just leave businesses alone, and let them continue to support the economy and the stock market.

Because if stagflation is not transitory, businesses may have to tighten their belts once again.

2011-05-17T20:52:00.000-07:00

Dollar dominance to end by 2025: World Bank

"By 2025, the six emerging economies of Brazil, China, India, Indonesia, South Korea and Russia will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency", said the World Bank on Tuesday.

Emerging economies will grow on average by 4.7% a year between 2011 and 2025, while advanced economies are forecast to grow by 2.3% per year over the same period. "The most likely global currency scenario in 2025 will be a multi-currency one centered around the dollar, the euro, and the renminbi," said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank, arguing China's size and the rapid globalization of its corporations and banks will likely mean a more important role for the renminbi.

2011-05-17T18:12:00.000-07:00

People respond to incentives, if the government doesn't kill them by high taxes.

The United States of America has always been proud of its unwavering and startling economic position in the world, that the appetite to become even better has enthralled the nation from top to bottom. In many novels, America is described as a country of milk and honey, the land of prosperity, the place, where the manna from heaven has a prolific amount to feed the entire planet.

The last 10 years have bore out, to some degree, the inaccurateness of these words that literally praised the country to the skies. The US experiences one of the worst shocking periods in its history, and the charge for this lays not upon the mortal people, but on the irrational and insatiable desires from the side of the government.

In 2008, the global financial crisis proved that even the strongest warriors can in a split of a second become vulnerable victims, if the foundations are broken and the spirit is disturbed. These periods played a major role in escalating of the national debt ceiling and creating new problems to our future generations.

You can hardly surprise people with the debt records, unless you are going to tell them that the upper limit can be extended by raising taxes. Can the government do that? Of course they can. Will it save the situation? Of course not, and the reason is that high taxes kill people’s incentives to work. In times of turmoil, the government must do its best to stimulate the demand by letting people live without heavy tax burdens. If it is not implemented timely, it causes the disruption of the whole economic system: wealth and consumption dwindle, unemployment rises, investment falls, leaving stock markets empty-handed. (300)

As for me, I can be honest and say that I can pay higher taxes, but they will make me work less. Moreover, the tax rates may be so unreasonably doled out among different layers of people, that it will bring income redistribution. The rich will remain rich, while the poor become even pooper.

Even if the government tells you, that only the rich class will pay higher taxes and not you, please do not believe that. The national debt has turned out to be so immense, that requires hard choices about taxes and spending. Instead of creating possibilities for people in terms of low income taxes for those receiving insufficient amount of money, the authorities dishearten people by making them ponder about the uncertain future, where people ask themselves only one question: “How much should we pay more to satisfy the government’s unmanageable expenses”. (450)

Never forget that even if the treasury department issues securities/bonds to cover its current debt, you will be the one who will have to fork out to help the nation remain steady, at least, for a little while.

Many Americans are not affluent enough to say that they are completely sated and can afford paying any tax rate. There are citizens in the country that have trouble making both ends meet and it’s the responsibility of the government to take them out of this calamity. (520)

The president’s team plays an iniquitous game with the people by making them believe that higher taxes will even out the situation and bring innumerous benefits in the years to come. Is it true? No, it is not, and don’t even dare to accept it as true. (570). The incentive is just a ‘dazzling’ word that the rulers bring into play to give you an idea about honorable feats made in the past. In reality it is the game of alleviation by hook or by crook the yokes the people have been transmitting from generation to generation. But does this course of action work? No, because of the actions that are off beam.

The paramount thing I can carry out for my children is to save now more than I consume. If all people realize that the future won’t be as bright as we are told, we will see an old

America

with high level of saving and moderate consumption.

I share the idea that high taxes will make me work less, but it is not the end. Many Americans will lose their jobs as a result of inappropriate decisions. As for me, I do not want to see my friends and relatives living in a nightmare, just because of the egocentric motives that were covered under a rose blanket.

Do you still believe that high taxes will lead the country out of Egypt?

2011-05-03T17:05:00.000-07:00

Dimming Optimism for Today’s Youth

By CATHERINE RAMPELL, New York Times

Maybe it has to do with sky-high levels of youth unemployment. Maybe it’s because student loan levels are climbing. Maybe it’s because today’s young will someday be stuck supporting so many of their elders.

Whatever the reason, for the first time on record, most Americans said they did not believe today’s young would have better lives than their parents, according to new survey data from Gallup. In an April poll, only 44 percent expressed that view.

Several polling organizations — including The New York Times — have been asking the question intermittently since 1983. The specific wording is: “In America, each generation has tried to have a better life than their parents, with a better living standard, better homes, a better education, and so on. How likely do you think it is that today’s youth will have a better life than their parents — very likely, somewhat likely, somewhat unlikely, or very unlikely?”

The measure peaked in December 2001 at 71 percent, shortly after the terrorist attacks.

Rank	Country	Taxes/Person
1	Denmark	$27,996
2	Sweden	$20,910
3	France	$18,924
4	Germany	$16,512
5	UK	$13,714
6	Australia	$12,895
7	United States	$12,371