Wednesday, September 29, 2010

Edmund Phelps and Unemployment

On this econtalk  Edmund Phelps talks about the tendency to have some level of persistent involuntary unemployment.  He says that most everyone who has a job is overpaid becuase of the cost to employers of turnovers and keep the employees motivated and reasoably happy to work for the employer.

This overpayment leaves insufficient money to reach the market clearing 100% rate of employment and instead  we have some persistent level of unemployment.  I think he estimates that about  4% unemployment it about as close as we can get to full employment without creating a future distortion.  

It seems that a increase in the rate of inflation can lower unemployment below 4% but since you cannot keep raising the rate of inflation for very lowing when you stop the unemployment rate will rebound to above 4%. 

It would then be logical that in a period like we are in right now of a sharp decline in the inflation rate, people with jobs would tend to be even more overpaid, leaving even less money available to increase hiring and producing a high level of un-employment like we have today. 

One response to this could be for the unemployed to accept very low wages much below their productivity level.   The minimum wage would stand in the way of this,  an hourly wage subsidy would work much better than this. 

When pushing government to act on a problem we should keep in mind that political realities make Governments do things roundabout and very inefficient ways.  I think therefore that if you are a supporter of raising the pay of the people at the bottom of the wage pyramid that you should think hard about possible offsetting behavior and never compromise and accept something like a minimum wage.  Such compromises are often worse than nothing. 

Friday, September 24, 2010

Super Bugs and Super Weeds

When greens talk about proper use of DDT and roundup, I support them, externalities do exist after all, but many if not most want to ban its use altogether.  

I hear people who want a total ban on the use of DDT and Roundup, who justify such by citing super bugs or super weeds.  Super bugs or super weeds are just bugs/weeds resistant to the pesticide or herbicide that they want banned anyway so what what is the big deal? 

Part this has to do with optimism verses pessimism if one is optimistic about a richer better future he says lets maximize the befits from roundup and DDT now when we need them more.  Future generations will have better ways to deal with bugs and weeds.  Even if they don;t they will surely have better means of dealing with other problems leaving them able to invest more of their energy on growing food. 

BTW resistance usually costs energy to an organism  and so if we stopped using DDT or Roundup the resistance would slowly be lost. 

Monday, September 20, 2010

A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.

Here is an article that suggests life time health insurance

He suggests legislation that builds a a life time insuance scheme but we can build such a scheme ourselves. 
He like most people debating this issue ignores the fact that if an expensive medical intervention works one can amortize the bill over time. Since young people can amortize a bill, people do not ever need anything more than very high deductible insurance throughout life. People could take the difference between a very high deductible premium and a comprehensive plan premium and save it for future expenses. You could use this to keep your medical spending stable throughout life.

The only question is why do they not do this. My theory is that employers took on medical insurance when medical spending was small and so it made sense for them to do so. Now employers are increasing deductibles and dropping insurance which makes sense (who wants someone else to make 20% of their expenditures) but is perceived as bad and painful.
A payment method that makes sense for 3% of the economy does not make sense when the sector balloons to 20% of the economy.