A Theory of Our Current Long Lasting Unemployment

It has been 3 years since the financial crisis and yet unemployment is still over 9%.  So why?  Well, from my admittedly narrow perspective the internet and China eliminated certain jobs faster than jobs could be added in other areas. For example due to the internet our company was able to reduce marketing staff.  We found that marketing staff made very little difference because buying Google search terms was the only thing that significantly effected sales.  


The way I see it the 2001 downturn corresponded with the fall in the need for certain worker due to the internet even while mechanization and China's fast growing economy eliminated many manufacturing jobs. Greenspan pushed interest rates down low enough that housing absorbed enough workers to mask the situation. Now that the housing bubble has burst we need some deep changes. There is as always plenty of work to be done but it takes time for new services to evolve and be accepted.

Taxing Warren Buffet

Interestingly, if the goal of taxation to transfer consumption from one person to another, it would be impossible to at any acceptable rate to tax Warren Buffet.  You would need to tax him enough to cause him to lower his consumption. Very unlikely. Saving and investing money that you will never spend is like indiscriminate charity.

By the same logic corporations cannot pay taxes. The corporate profits taxes fall on the shareholders, employees and the customers of the corporation in portions that depending on how competitive the markets are.

NOTE: That does not mean that I am for completely eliminating  the Corporate profits tax because it might be good that people who work for, own or buy things from Corporation should pay a little more tax for the limited liability as a sort of as insurance premium.  The corporate tax favors partnerships which are liable for more of their damages than are corporations but a few percentage points should be enough for that.  Of course it would make more sense to charge more for that insurance to riskier businesses like banks and deep water petroleum drilling companies and companies with high debt than to low debt companies in safe businesses.

The Politicians are Very Smart, the Voters are Smart so Why...

3. Used car prices are rising so much that many models are selling for more today than a year ago.

Thinking about the destruction of all those used cars in the cash for clunkers program. The politicians are smart but use that smarts to gain and keep office, the voters are smart but rationally ignorant. Everyone is smart but the outcome is very stupid.

Science and Specialization

From Tyler Cowen quoting Tim Harford:

The toasting problem isn’t difficult: don’t burn the toast; don’t electrocute the user; don’t start a fire.  The bread itself is hardly an active protagonist.  It doesn’t deliberately try to outwit you, as a team of investment bankers might; it doesn’t try to murder you, terrorise your country, and discredit everything you stand for…The toasting problem is laughably simple compared to the problem of transforming a poor country such as Bangladesh into the kind of economy where toasters are manufactured with ease and every household can afford one, along with the bread to put into it.

My comment: 

One implication is that greater specialization makes innovation much harder — hardly anyone has a good grasp of the whole 

Could this be something that was/is made worse by signaling squeezing out education in schools? The principles of the science are simple, though not always intuitive, and an intelligent person could absorb there principles across all sciences pretty quickly but in order for sciences to be difficult enough to signal high intelligence we go in great depth in a single area describing the principles in depth with difficult math that almost no one needs to know. This leaves little time for a broad approach. If one takes a broad but shallow approach in school, say by taking all low level classes, he will not have signaled enough intelligence to move on in the sciences.

Means Testing Social Security and Medicare

Great post by Caplan riffing on a post by Posner about means testing Social Security and medicare.  My take is a little different on Social Security, I think that we should eliminate the SS tax give everyone over 65 the same amount as a welfare payment.  This would make the program more an insurance plan than a retirement plan.  It would be insurance against out living your savings and not having children that are willing and able to help you. It would reduce the burden on the young, who tend to be less wealthy than the elderly, and eliminate the burden on the working poor.

Reason to Reform SS

Lately some Democrat pundits have started to call for reform of SS in order to reassure future beneficiaries about the program. I think that the fact that republicans are scaring people about SS is not sufficient reason to mess with it but I do think there is at least one good reason to mess with it.

The only reason to address SS now is that it would allow us to lower the SS tax (FICA). The way I see it SS is a pay as you go welfare program and so as long as it is not in the red now there is no problem with it except that young people trying to start families are over taxed to give more to rich and middle class people over 65.

WIll Healthcare Per Capita Spending Continue to Increase

People seem to take it as a given that per capita health care spending will continue to grow for a long time and eventually break the bank. I am not convinced that it will continue to increase faster than inflation. There is not that much cutting (surgery), one of biggest expensive items, that can be done that is not already being done. Researchers have lately been finding that some surgeries do not help with survivability, this could lead to less surgery. On one of the other big spending items, cancer treatments, new ways of controlling cancers are likely to less expensive and more effective than the current methods. It is my impression that the rate of new drugs coming to the market has slowed and the existing drugs will go off patent this should produce some savings. My conclusion, I think that medicine as a percent of GDP may peak in 10 or 15 years at a lower point that most projections predict.