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alf2011

alf2011
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  • In Praise Of Clear Thinking Over Blind Modeling [View article]
    “PQ = MV ... In other words, you could control the rate of growth in the economy by controlling the money supply, since monetary velocity is constant over the long-run."

    Not to be implying that PQ = MV doesn't have its problems, it does, but in so far as we are considering it, how it is usually interpreted is that by controlling the money supply you can control inflation (provided the money velocity is constant) not the growth of the economy. M controls P, not Q.

    Can regulators, if only they were a bit smarter, if just a little cleverer, be successful in micromanaging situations which are essentially economic? The article seems to suggest that the answer is "yes," but I suspect that this is not right. Does that mean all regulation is bad? Absolutely not.

    Regulation has an important role to play in ensuring the public safety and in safeguarding that competition in the marketplace is intense. Anything beyond that is asking for trouble.
    Apr 2 06:34 AM | Likes Like |Link to Comment
  • Financial Planning Challenges In An Unequal Society [View article]
    "Today, we seem to be seeing those kinds of conditions. The returns to capital are durably higher than the returns to labor and they are "durably higher" than the economy's growth rate. It's no wonder inequality has grown."

    Individually, one can gain higher returns by taking additional risk, but, in the aggregate, the return on capital is the risk-free interest rate (i.e. the treasuries rate) and it is manifestly not "durably higher" than the economy's growth rate.

    In fact, I would challenge anyone to come up with a 5-year period in the history of the US when the real risk-free rate has been above the growth rate. It has never happened.

    Or think about it this way, where are the families of the robber barons of the 19th century today? Why couldn't they entrench themselves? There were no income taxes and no inheritance taxes back then.
    Apr 1 07:01 AM | Likes Like |Link to Comment
  • Kerry, Lavrov set to meet over Ukraine crisis [View news story]
    Oh dear, poor British.
    Mar 30 01:16 PM | Likes Like |Link to Comment
  • Economic Consequences Of Income Inequality [View article]
    Remember, at the place I am pointing out, the author is talking about the global economy ('global unemployment'), not a local economy.

    In any case, I am not so much disagreeing with the article's argument as with one of the facts put forward, namely that global savings are too much compared to the need/opportunity. If what I claim is true, then part 2a of the argument applies and the global economy will experience increased investment 'for many more years' as a consequence of income inequality.

    You seem to imply that capital invested abroad is necessarily put to unproductive uses (it is 'hot money'). Do you have any basis for that?
    Mar 25 07:59 AM | Likes Like |Link to Comment
  • Economic Consequences Of Income Inequality [View article]
    It is easy to see where the heart of the author is,

    "Even if they do, the amount of excess savings is likely to be huge, and without a significant redistribution of income to the middle classes and the poor, it is hard to see how we can avoid high global unemployment for many more years."

    Hence the assumption made that there are not enough investment opportunities in the world. However, how can one believe that as long as the manufacturing capacities and the standard of living of Latin America, Africa, India, etc. have not caught up with the developed countries? Until that day there will be a huge need for investment (or put differently, a chance to make a buck). Maybe, once we are at that point, we can start worrying about 'excess' savings, but not before.

    Then there is the curious case of Germany. The author notices that it is an example of a country with excess savings, but if the cure for that is 'a significant redistribution of income' we have a fascinating contradiction on our hands.

    The things is that Germany is a paragon of income redistribution. Gini of 29, enviably low poverty rate, when it comes to income redistribution without completely killing the economy, as good as it gets. How come it suffers from excess savings?
    Mar 24 09:35 AM | 2 Likes Like |Link to Comment
  • McDonald's franchise operator settles NY labor case [View news story]
    "Far from the compassion I have ..."

    There is a difference between simplistic solutions and compassion. Wage 'reform,' a new and funny euphemism for increasing the government-mandated minimum wage, is in the first category.

    Going from $7.25/hour to $10.10/hour is a 39% increase. Suppose your boss told that over the next several years they expect you to increase your productivity by 39% or you are going to be out of a job. Would you consider that compassionate?

    There seem to be some who believe that people making the minimum wage are unfairly compensated, but lack the power to negotiate higher wages, so the government should do it for them. Suppose that is true. Instead of supporting politicians who use the minimum wage issue as a sound bite, there is a better way to help.

    Start a business that employs minimum wage workers. If the minimum wage is below what it should be, such a business would be excessively profitable. You can split the extra profit with your workers by paying them higher wages, and still become rich.
    Mar 20 09:08 AM | 1 Like Like |Link to Comment
  • At Best, Apple Is Trading At Fair Value [View article]
    I don't understand why people are so down on P/E's? If you have too companies that are in the same industry, have the same net cash position, the same capital structure, and the same growth rate, by looking at their P/E's you can quickly tell if one is cheaper than the other. If any one of those things are not the same, the P/E's are worthless, but that doesn't happen often, does it?
    Mar 19 11:58 PM | 1 Like Like |Link to Comment
  • McDonald's franchise operator settles NY labor case [View news story]
    "Wage reform?" Seriously?
    Mar 18 02:31 PM | 4 Likes Like |Link to Comment
  • No "common vision" on Ukraine between U.S. and Russia, says Lavrov [View news story]
    "Whatever happened to the right of self-determination?"

    The right of people to vote to get annexed undertaken under the benevolent but watchful eyes of heavily armed masked men who have invaded from an 'undisclosed' country?

    Is this what we should be willing to stand up for?
    Mar 15 11:58 AM | 1 Like Like |Link to Comment
  • Gold: U.S. Income Inequality Is A Powerful Long-Term Bullish Catalyst [View article]
    "But why do that if you can pay them $8 as well and keep the bigger profit for yourself?"

    Certainly, if you want pay $8, pay $8 (especially if you are assuming that your actions won't make a dent in the labor supply). The point is that as long as there is a gap between compensation and productivity, there is an unusually lucrative opportunity to start a business.

    Call me a romantic, but I believe that if there is money to be made, things have been already optimized and such gaps closed.

    However, if liberals believe in their hearts in what they are saying about the minimum wage, they should be starting businesses and going bust.

    And if they believe in what they are saying, and it is also true, they should be starting businesses and becoming filthy rich.
    Mar 14 07:08 AM | 5 Likes Like |Link to Comment
  • Gold: U.S. Income Inequality Is A Powerful Long-Term Bullish Catalyst [View article]
    "One could make a good case that the US government is actually subsidizing corporations by taking the burden of paying a livable wage off of companies'
    backs and putting it onto Uncle Sam's."

    This is a common misconception, but it is not correct. The total compensation (not the wage) a company pays has to track a worker's productivity (adjusting for risk) pretty closely. Here is an example to see why.

    Suppose that a no-skill worker in the XYZ industry has productivity such that their employer can compensate them $10/hour and, with consideration for the risk taken, generate sufficient profits to be a going concern. However, for whatever reasons, the government 'taking the burden of paying a livable wage off', the employer having too much bargaining power, or being just plain mean, they are only getting paid $8/hour. What does that mean?

    What that means is that anyone can start an XYZ business, pay $9/hour (improving the lives of many) and still have a profit of $1/hour per employee above what is necessary to run the business successfully. This is not a small thing.

    In essence, the free market is paying prizes (multi-million dollar prizes) to anyone who can detect and exploit a mispricing between compensation and productivity.
    Mar 14 05:52 AM | 3 Likes Like |Link to Comment
  • Things You Probably Don't Understand About Russia's Agenda And Why You Need To Understand Them [View article]
    In the former Soviet Union you don't visit Russia, Russia visits you.
    Mar 11 02:03 PM | 9 Likes Like |Link to Comment
  • The Illusion Of 'Investing' [View article]
    What investing is is really very simple. It is giving your neighbor money so he is able to go buy a ladder and buckets of paint, go paint houses, make money, and pay you the loan back and with interest.

    Peeling a few layers of abstraction, buying bonds or equities is essentially the same thing.
    Mar 5 03:02 PM | 5 Likes Like |Link to Comment
  • McDonald's: Business Model, Valuation And Minimum Wage Legislation [View article]
    All -1.0 is saying is that (assuming your estimate of price increase) revenue will go down by 4.3%.
    Feb 26 10:12 PM | Likes Like |Link to Comment
  • McDonald's: Business Model, Valuation And Minimum Wage Legislation [View article]
    Tom, quoting from the paper that you have linked to,

    "Brown (1990) estimates that the price elasticity of demand for all restaurants is -0.2 but is -1.0 for fast food restaurants."

    The price elasticity of demand for fast food restaurants is 5 times higher than for all restaurants. Raising their prices will have a noticeable effect.
    Feb 26 09:28 PM | 1 Like Like |Link to Comment
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