Forever gone

Ocean breeze cools the blowing sand

Across the beach, onto the road.

The skys, clear, show promise,

A vision of tomorrow.

I saw her tonight strutting

In the Castro, alone, strong.

The wind whispers that it is forever gone,

That Love slips away in the chill summer breeze.

The American government’s accounts look about as r…

The American government’s accounts look about as reliable as Enron’s

I had a post a couple days again that had this ‘completely different note’:

“why are there no aggregate wealth statistics that are widely reported? I mean you hear about GDP everyday it seems in one article or another. It seems that the health of the economy, as businesses, can be judged by looking at income AND the balance sheet (which I take to mean wealth).”

The Economist also points out this deficiency. They introduce two concepts FI (fiscal imbalance) and GI (generational imbalance). The first measures a sort of national balance sheet and the second measures discounted cash flows of the current generation (a negative value means that future generations will need to pick up the tab, in addition to paying for their own benefits).

The government can no more measure its fiscal health by measuring only its current income than a business can. The business who does this, ignores the revenues to be gained in the future by its current assets and it misses the burden of debts that may not come due but in years hence. The first thing you learn in financial accounting courses is that a good financial analysts take income, cash flow and the balance sheet in to account when analyzing the health of a company. The same is true of the government.

The government makes promises to its citizens that amount to debts that will come due only in the future. These promises are ignored by measures of GDP, deficit and debt. Those debts only make sense in the context of its future assets. Making promises is fine as long as policies also allow for those promises to be paid for. So measuring the difference between the present value of all future debt and assets gives a better sense of the fiscal health of the government.

Similarly, if a government is cash flow negative in the short term, it is borrowing against future generations. At some point cash flows will need to equalize. This is why its important to measure the balance of cash for the current generation to see how much they’re borrowing against us kids.

I’ve started to read the Gokhale and Smetters paper and I’m pretty sure I’m misplacing the analogies between FI and GI and balance sheets and cash flow statements… But its a start. I think this is an important enough issue to look into more seriously.

FRBSF: Economic Letter – Unemployment and Producti…

FRBSF: Economic Letter – Unemployment and Productivity (10/12/2001)

Sounds like there are no grand theories on connections between unemployment and productivity (at least in the long run).

The article states 2 ways in which technology improvements can cause permanent changes to the natural unemployment rate:

1. Job search technology speeds up the process of finding the right employer for the unemployed worker. The natural unemployment rate is ‘natural’ because all workers spend some time in between jobs. If this in-between time is shorter than fewer people will be unemployed at any one time.

2. Productivity growth increases profit (more output per unit of labor) which encourages firms to want to produce more by hiring more workers.

There’s one ‘it depends’ model presented that shows that examines the fact that some technical progress may destroy more jobs than it creates. The determining factor is the cost of upgrading jobs as capital becomes obsolete. If it costs a lot to upgrade an existing job as the capital used in that job becomes obsolete, that job will be abandoned. The problem with this model is that the relationship between unemployment and productivity depends on the type of job and the technology. In other words, it says nothing of the relationship between the two in aggregate.

Too bad, this last model has appeal. I wonder if we can talk about productivity in terms of its relationship to unemployment by examine its decreasing and increasing components… change in employment equals change in leveraged productivity (technical progress that improves existing jobs) minus change in replicative productivity (technical progress that replaces existing jobs). How would you measure aggregate productivity broken into its leveraged and replicative components? I’m sure I could find out more here, but I’m going to pass on paying $30 to see the article… Berkeley has it, and I guess you can access the article via ScienceDirect if your inside Berkeley’s network.

The Wedge Between Output and Employment Growth: Ar…

The Wedge Between Output and Employment Growth: Archive Entry From Brad DeLong’s Webjournal

Seem’s pretty straight forward. The economy grows because of productivity improvements. Each worker can produce more stuff. Also, if the unemployment rate goes up, the economy shrinks. Less workers to produce the stuff. So employment and productivity are substitutes for each other.

Well, today we have a situation were productivity and the economy are rising but unemployment is rising, too. This is easy to explain by saying that income gains from productivity increases are outstripping the income losses from unemployment.

Question: is there a causal relationship between productivity and unemployment or are they really perfect substitutes? I mean, is there some future economy that has such high productivity that it only takes one worker to produce all the output. Two follow-ups: First, what happens if productivity goes to infinity? No workers required and 100% unemployment? Second, is it ‘bad’ for productivity to replace employment?

Thomas Sowell: Who’s Rich Sowell points out tha…

Thomas Sowell: Who’s Rich

Sowell points out that there is often confusion between wealth and income. He claims that rich people may have insignificant income as its their wealth that makes them rich. He would have you conclude that discussions about taxing the rich are misplaced because rich people are wealthy and don’t necessarily have high incomes. Futhermore, when you ‘unfairly’ tax high income earners, you’re punishing folks that are making high contributions to the economy. You punish those folks, you punish the economy. Which means you punish us all.

I suppose this is correct in terms of income derived from labor, but what about investment income… I agree that there should be low(ish) taxes on income derived from labor, but this is not an argument for low taxes on investment income or on wealth in general.

It doesn’t seem fair to tax income based on work performed. A virtuous tax policy would have low tax on income from salary. It does seem just to tax wealth and income derived from wealth.

On a completely different note: why are there no aggregate wealth statistics that are widely reported? I mean you hear about GDP everyday it seems in one article or another. It seems that the health of the economy, as businesses, can be judged by looking at income AND the balance sheet (which I take to mean wealth).