Friday, August 19, 2011

Bachmann's $2 Gas

On Tuesday, in South Carolina, Republican Presidential Candidate Michele Bachmann made a proclamation to potential voters.

 "The day that the president became president gasoline was $1.79 a gallon. Look at what it is today.  Under President Bachmann, you will see gasoline come down below $2 a gallon again. That will happen."

Of course many of us are used to these sort of promises.  They give us something that we want and just keep pouring it on thinking we fully believe in it.  However, is this just an empty promise or is there actually something to it?  Can it be done?

The $1.79 she's talking about was actually in December the year before Obama was inaugrated.  A mere $.02 difference than when he actually became President, a slight mistake on her part but the point is still the same.  What is important to note about these prices is that they were so low because of a massive recession, the worst we've had since the Great Depression.  With the previously high cost of gas earlier in the recession, demand was far too low.  In order to generate demand the price per barrel of oil was reduced significantly, allowing more people to buy.

Knowing this, how can Bachmann really lower the price of gas?  One of the proposed methods was to get more oil.  Bachmann has preached the need to drill in shale and to open our coasts to more drilling.  Both, however, will not solve this problem.  Shale drilling is far too expensive and if the price per barrel becomes too low than it becomes completely unprofitable, making it an extremely disfavored option to those who actually understand the oil industry.  Coastal drilling is a standard practice today, but there isn't nearly as much oil as people seem to think.  According to a study in 2009 by the U.S. Energy Information Administration, opening all of our shores to drilling would increase production by 500,000 barrels a day by 2030.  The U.S. alone currently consumes nearly 19 million barrels per day, and that will only increase by 2030.

Bachmann then is left with very little options.  Can she put a cap on gas prices?  Not only is that a terrible idea, but it will cause untold amounts of problems with the oil industry.  Send the world into another depression?  That's an even worse idea.

One option does come to mind, a very Keynsian strategy that obviously is against every the current Republican party stands for.  A program by the government to pay the difference in the price per barrel so that the American public would only have to less than $2 per gallon of gasoline.  It would work as an interesting demand-side project as it gives more money to the people and increases demand all around.  This is, however, the only substantial solution and the one that would recieve the least support from Bachmann and her fellow Republicans.

So why make the promise?  Simply because people who don't know these things eat it up like no tomorrow.

Wednesday, August 17, 2011

The Defense of Marriage Act

Enacted on September 21, 1996 and signed by former President Clinton, DOMA defines marriage as a legal union between a man and a woman.  It also makes it that no state, or other subdivision within the US, has to recognize a same-sex relationship considered a marriage by another state.  Just how legal is this act?

The act is broken into three sections, only two of which are effective.  Section 2 is what allows states to not recognize same-sex marriages performed in other states.  Following the "Full Faith and Credit Clause" of Article 4 section 1 of the Constitution,  all states are required to honor all "public acts, records, and judicial proceedings of every other state".  However, Congress is also allowed to legislate on what these obligations are.  Under DOMA, Congress excluded same-sex marriages from the state acts that other states had to recognize.  This section then has to be argued on seperate grounds that become more of a matter on interpretation and personal beliefs.  That of course makes things highly irregular and most arguments rather illogical.

Section 3, the other effective section, prevents the federal government from recognizing the validity of same-sex marriages.  This, of course, falls into a similar state as Section 2, where in it can now only be argued on interpretation of what is discrimination and a person's beliefs.  It has, however, been found unconstitutional in two Massachusetts cout cases and the Obama Administration.  The court ruling is currently under appeal.

tl;dr:  Technically legal, can only argue by personal beliefs.

Sunday, August 14, 2011

The Seperation of Church and State

A well known phrase in the United States, this standard of government has been a cornerstone since the founding fathers.  Even today, however, much controversy surrounds it.  Just where did this idea come from?  What does it actually mean?  Does it work?

The very idea of seperating church and state came from the very founding of this nation.  Reading from Article Six of the United States Constitution, it is said that "no religious test shall ever be required as a Qualification to any Office or public Trust under the United States".  This would mean that there would be no religious requirements to hold any sort of political office, preventing the dominance of one religious group's official power over another.  Furthermore, the First Amendment within the Bill of Rights reads that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof".  Forming what are known as the "establishment clause" and "free excercise clause", the amendment prevents the government from establishing a national religion nor preventing someone from following whatever religion they so please.

Both James Madison and Thomas Jefferson have written their own thoughts on the topic.  Within Madison's papers, in an August 15, 1789 entry, he "said he apprehended the meaning of the words to be, that Congress should not establish a religion, and enforce the legal observation of it by law, nor compel men to worship God in any manner contrary to their conscience....”.  While fully supporting the amendment, some controversy surrounds just what is meant by "[enforcing] the legal observation of it by law".  Though it relates to an established religion, speculation arises whether this lega observation also extends to all religions.  This could mean that laws based on the ideals of a religion would in fact be infringing on the rights of those who do not follow them.

Originally coined by Baptist theoligian Roger Williams in 1644, the term "seperation of church and state" is attributed to Thomas Jefferson.  In a letter to the Danbury Baptists in 1802, Jefferson wrote of the religious portion of the first amendment and how it was "building a wall of seperation between church and State".  Much controversy surrounds this document and Jefferson himself.  Many argue that the quote is made up and deny the existence of this letter, despite the fact that it is real and public knowledge that is readily accessible from the internet.  Controversy around Jefferson mostly comes from fabrications of his own religious beliefs, dispite documented evidence and historical accounts of his lack of faith it is argued that he was a highly religious figure with very limited and often questionable evidence.

Following the strictest of interpretations, the seperation is a success.  There have been no national religions since the ratification of the Bill of Rights and the 14th Amendment now prevents any state from establishing their own state religions.  Previous religious tests were removed and now people of any belief are free to pursue any office they so choose.  People are free to practice their faiths free of government persecution.

Controversy still stems from what truly does seperate religion from the government, however.  With many social subjects arising today that were not common, recognized, or simply not created at the founding, debate of these subjects are often left unchecked and riddled with religious ideals.  Subjects such as same-sex marriage, stem cell research, and abortion are plagued by the religious beliefs of those against it, often times the basis of laws against them.  However, is this really the government forcing the ideals of one religion on the people?  Are those that argue that we are based on an overtly Christian beginning and preaching their religious beliefs trying to force their religion upon us?

Is the church really seperated from the state?

tl;dr:  Article 6, 1st Amendment.  Madison & Jefferson liked it.  Did its job.  Government still used to force religion on people.

Friday, August 12, 2011

Critiques of Keynesian Economics

Though an efficient and working economic theory, Keynesianism faces several critiques of various parts of its overall policy.  These criticisms stem from various economics schools and pick apart the theory, some of which are actually substantial claims while others seem to have failed the test of time.

The Monetarist School embraced the macro-measurements and treatment of the economy as having a supply and demand equilibrium.  However, they argued that inflation was solely due to variations in the money supply, rather than being a consequence of aggrgate demand.  Monetarists also believed that the policy of government investment into the people would cause a "crowding out" of businesses because of their inability to compete with the government.  This is said to hurt or deprive fiscal policy of its positive effects.  Both criticisms are correct and have led to revisions and a more balanced monetary policy in the Keynesian theory.

Criticism also comes from a Classical Liberal point of view.  It is said the money used to repair damage, such as stimulus, comes at an opportunity cost, the cost and sacrifice related to the second best choice available in terms of best forgone alternative.  Government decisions are also able to be just as misguided as private-sector decisions, leading to unintended consequences.  Changes to interest rates either increase GDP or the value of currency, but never at the same time.  If stimulus money is misspent, this may lead to lower GDP, reduced value of currency, and high inflation.  Stagflation, high interest rate and low economic growth, plagued both Jimmy Carter and Barack Obama.  This situation is a dilemma for Keynesianism as actions were designed to lower inflation may hurt economic growth and vice versa.  Stagflation and/or misspending stimulus can then cause a net-loss to society.  Though these criticisms have proven true, the faults seem to fall not to the theory but the misguidance and bad decisions of people themselves.

The Lucas Critique, which formed the basis of the New Classical Macroeconomics school of thought, focuses on how Keynesianism stands up against changes in policy.  With some relationships based on aggregated historical data, whenever economic policies changed decisions made from these models would be misleading.  Decisions to maintain conditions that provide the outcome most wanted can often cause firms to change policies.  With low unemployment attributed to high inflation in the Phillips Curve, monetary authorities could exploit this by keep inflation high.  This would lead to firms' inflation forecasts to rise, changing their employment policy.  The Lucas Critique calls for macroeconomists to build microeconomic foundations to their models for the economy.

The Austrian School seems to have the most criticisms for the Keynesian theory.  Keynesianism is seen to have a fundamentally collective approach, encouraging centralized planning, which leads to malinvestment of capital; this, according to the Austrian school leads to business cycles.  Keynes' study of aggregate relations is believed to be wrong because recessions are caused by microeconomic factors.  These economists also believe that temporary government fixes become permanent and expand, which stifles the private sector and civil society.  Though not lacking in arguments, the Austrian School tends to lack any evidence to support these claims and often disregards empiracal or mathematical data for other theories or its own.  This entire school is actually widely ignored by many economists because they ignore facts and often overstate claims.

Several criticisms have changed parts of the Keynesian theory, ultimately, however, it has stood the test of time as one of the most reasonable theories and is often the basis of policies and newer theories today.

tl;dr:  Focus on money.  People are idiots.  Conditions change, theory too general.  Stop liking what I don't like.

Saturday, August 6, 2011

Keynesian Economics: The Long-term Solution

Opposite of Reaganomics and the supply-side theory stands the ever popular and larger Keynesian economics policy and the demand-side theory.  These aren't simply opposite of the two however, and have a much different role for the government as a whole.

Keynesianism is more of a macroeconomic theory, focusing on the absolute largest picture of the economy.  It follows a belief that, using much larger actions, we are able to control the economy and prevent, cause, or repair any sort of recessions and monetary issues.  The theory follows the idea that microecoconomic actions, if taken upon by many, can force macroeconomic outcomes that are largely inefficient and detrimental.

One of the most popular examples of these microeconomic actions is directly related to the trickle-down theory.  Following Say's Law, corporations would increase production of goods because they believe that "supply creates its own demand".  This is known to lead to a "general glut", where the supply far exceeds the demand.  In this situation an economic downturn arises, which in turn results in a reactive decision by the producers to fire more workers than were hired to slow production.

A major portion of the theory is that the government has to invest in infrastructure.  The investment injects income, this in turn increases spending and demand,which leads to increased production and expansion, this leads to more income which leads to more spending, and on and on.  Ultimately meaning, if the lower classes get more money, they then spend it on more things.  This creates a higher demand, forcing the corporations to increase supply by expanding.  This means they have to hire more which means the lower classes get more money.

The Keynesian theory believes in an active policy by the government in order to stop or fix problems like these with the absolute minimum losses.  At least portions of this policy have been used by the United States in the past.  Under Franklin Roosevelt, the New Deal created programs to combat the Great Depression.  Agencies, acts, and administrations were created to monitor and manage loans to people and businesses, create millions of jobs for unskilled workers, create public works projects for private contractors,  and various social and farm programs.  All of this allowed the economy to slowly grow and begin recovering.  Reagan himself used the basics of the theory to solve our high inflation.  With raised interest rates in the Federal Reserve, unemployment was on the rise and eventually led inflation to drop to more stable levels.  The interest rates were lowered and unemployment dropped and the economy recovered.

Keynesianism ultimately focuses on one simple plan.  Use the government to manage the economy, it has worked in the past and is still used today.  The problem that lies with it, however, is simply human ignorance.  Without a real understanding of the real theory, many are trying to practice it in environments that prevent the full effects of the plan and end up just making unmanageable problems.

tl;dr:  Take from the rich, give to the poor, who then give to the rich, who give it back to the poor.  Make sure they don't screw things up.

Thursday, August 4, 2011

Reaganomics: A Short-term Plan with Long Reprecussions

A large part of the Republican platform for the past few decades, the Reaganomic policy has been forced upon the American government.  Though a seemingly simple policy that many seem to enjoy and believe in, the true intentions and working of the policy are lost upon many who preach its affectiveness.  The true horror of this, is that these same people are in fact the ones running the American government.  But what is Reaganomics?  How does it work?  Where does it fail?

Reaganomics is simply a newer rendition of traditional supply-side economic policy that focuses highly on the trickle-down economic theory.  Following the Laffer Curve, supply-side economics refers to an idea that by lowering the taxes on economic participants, companies/corporations, these participants are then allowed higher specialization, economic efficiency, and economic expansion.  Though lowering taxes does increase deficits, proponents of this theory argue that the persistent budget deficits would force the government to reduce spending.  The trickle-down theory, considered the father of the supply-side theory, explains that the increased freedom for the rich corporations will allow them to hire more and increase the salary of those already under their employ.

A highly successful policy, Reaganomics aided the economy drastically during the recession.  The GDP rose over 4%, which resulted in a 1.6% drop in unemployment.  The federal deficit dropped from 6% to 2.9%.  Growth of federal spending fell from 4% to 2.5%.

With the recession leading up to the end of 1982, the economy was deeply depressed, with the worst unemployment rates since the Great Depression.  In such a time, there was a lot of room to grow.  The expansions under Reaganomics, however, were much closer to the workings of the Keynesian or demand-side economic theory.  With high inflation before the recession, a policy of higher interest rates applied to the Federal Reserve.  Once inflation had stabalized at 4.1%, interest rates were lowered to promote economic growth.

Though successful under Reagan, this policy has had many failings in its time and has had damaging effects on the economy.  The policies of supply-side economics are purely based on what can only be described as a lack of understanding of the economy.  These policies are based on short-term solutions or quick, but small boosts in the economy.

Lowering the taxes of companies does give them more room to expand.  This does, however, have a limit.  The higher specialization allows a small increase to the resources required by these corporations.  Specialization, however, is a policy that is always followed, which means the slight and temporary increase in demand for these resources is miniscule in scope.  The ability to increase efficiency also allows for easier and simpler production.  This also completely counters the idea of expansion, with more efficient ways to create products less workers are required.

The idea that these corporations will expand is understandable to a small point.  With more capital available, more goods can be made by hiring more workers to make them.  However, the simple rules of supply and demand prove the theory quite lacking.  With lower supplies there is higher demand and vice versa, this results in a point where there is a stabalization of supply and demand called equilibrium.  All companies are forced to reach this equilibrium or lose money, and all but the newest did a long time ago.  Though they may have the ability to grow, without an increase in demand there is no reason to as it would only reduce profit.  Even with more specialization, new goods would only reduce the demand of old goods and allow a simple shift in production without having to expand.  The only companies that do expand are small or under extreme duress, a small boost that is almost completely unnoticeable.

A deficit forcing the government to reduce spending is a puzzling idea.  The policies in supply-side economics would always force a deficit as long as it is followed.  This in turn continually reduces the government's spending more, ultimately leading to the government doing absolutely nothing or collapsing altogether.  Without decreases in government spending, however, the government would have to borrow money to pay off the deficits and increase the national debt.  This happened under Reagan as he increased spending, raising the national debt from $997 billion to $2.85 trillion.

tl;dr:  It's a quick boost that the Republicans love because it fixed a recession by following another theory