Category Archives: Economics

Reduce Homelessness

Problem: Homelessness exists. Untrained workers might be worth too little to hire, and they cannot receive training. This is how the cycle of joblessness starts.

Solution: Break the cycle by allowing workers to take jobs even when they pay less than minimum wage; and give them a tax break until they gain financial momentum. Specifically: eliminate the minimum wage and increase the standard tax deduction to $25k.

Implications: A huge new number of low-paying jobs would open up, offering an opportunity for training and experience to young or untrained workers. And everyone earning $25k/year or less would have no tax bill at the end of the year. The large number of new workers and jobs would rapidly grow the economy. This might not completely eliminate homelessness, but it would help a great deal. Far more jobs would be created than would be filled, so those earning the minimum wage now should expect that the job market would become more attractive, and offer better income to those with some experience or training.

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Tax Retirement Savings Fairly

Problem: The 401(k) system means that my employer determines my tax rate on retirement savings. This means that any workers who do not have access to 401(k) plans through their employers have a higher tax rate on their retiment savings. This usually means that low-wage, hourly, and part-time employees pay higher tax rates on their retirement savings; obviously unfair.

Solution: Combine 401(k) into existing IRA program and eliminate old 401(k) program. In effect, increase the IRA contribution amount to $18k and eliminate 401(k)s.

Benefit: Everyone will have access to tax-advantaged retirement savings plans, not just those fortunate enough to work for companies that offer 401(k)s. Eliminates administrative cost for businesses. Simplifies tax code. Also, this plan helps small businesses by letting them compete more fairly with large companies that can offer 401(k)s.

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Trade keeps inflation lower

My latest quarterly investment commentary discusses how trade is effectively importing low inflation.

“Prices are only stable for imports.”

“The US imports a low inflation rate.”

Download: 2005 Q4 Investment Commentary

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Inflation: Labor, Commodities and Energy

There has been a lot of talk about the impact of rising energy prices on corporate profit margins. This is over-rated.

Corporate costs in America are much more heavily weighted toward labor. And it is labor cost inflation that hurts corporate profit margins most. Corporate costs are, on average, 70% labor, 5% commodities, and 3% energy. Energy and commodity prices could continue to rise – even double from here – without changing the cost structure of American businesses in a drastic way. The same dynamic is not true in many other countries, including emerging markets, where labor costs represent a smaller proportion of corporate costs. As energy and commodity prices rise, those companies may encounter much more pressure on their profit margins.

So what’s the bottom line? Energy and commodities can continue to rally without significantly damaging corporate profit margins. Furthermore, rising energy and commodity prices will give a relative advantage to the most efficient producers.

Population, Productivity, and Commodities

My latest quarterly investment commentary discusses some longer term global demographic trends, and implications for investors.

Download: 2005 Q3 Investment Commentary

Recent global growth rates are unprecedented in economic history.

Economic growth at this pace will put predictable strains on resources.

Population, productivity, economic growth, and production capacity point to long-term commodity gains.