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Economics 101, Quiz #1

Adam Smith

Adam Smith

Q. What does the phrase “Privatize the profits, socialize the losses” refer to?

A. It refers to an economic system where a private enterprise keeps whatever profits it makes, and taxes society at large to cover its losses.

Q. That sounds impossible! Can you give an example?

Karl Marx

Karl Marx

A.When the banking system in Cyprus made bad bets and suffered losses in billions of Euros, putting the nation’s economy at risk, the grand plan to make up for those losses was to take money from the bank accounts of those trusting souls who had put their money in the bank.

Q. Then what happened?

A. The depositors, no longer trusting souls, immediately began to take their money out of the bank.

Plan B should be ready soon.

Corporate Takeover of New Internet Names

Internet map

Map of the Internet - Global Nerve System

Now somebody wants to privatize internet addresses. We think that’s a lousy idea.

The internet is getting to be a crowded place and we need new top-level domain names. Frankly, it’s getting harder and harder for businesses and individuals to invent .com names that haven’t alrady been thought of and taken. So the Internet Corporation for Assigned Names and Numbers (ICANN) has come up with over a thousand new top-level domains – tags such as such as .book or .news or .art or .bank or .university or .beer so forth.

Unfortunately, there’s a movement afoot to allow the new domains to be managed by private, for profit corporations.

Change.org has a petition to stop the private take over.  As they say – “If companies like Amazon and others have their way, there will be no .MUSIC website names available for musicians and bands, No .SALON domain names for real salon owners, no .APP web addresses for app developers.” We at CriticalPages agree.  As we said, we think that’s a bad idea, a lousy idea, a really, really terrible idea.

Far Away Planets Just Like Ours! Sort of… Maybe.

Planets in Milky WayMaybe you’ve seen the curious painting just above here. It was released on January 7, 2013, by the Harvard-Smithsonian Center for Astrophysics. According to the caption that usually accompanies the painting, it  shows the different types of planets in our Milky Way galaxy detected by NASA’s Kepler spacecraft. The caption also says that a new analysis of Kepler data found there are at least 17 billion planets the size of Earth in the Milky Way.

New stories about the Kepler data are happy to suggest there’s a possibility, a strong possibility — there must be !—-other worlds just like ours out there. I mean, out of 17 billion there must be at least one beautiful blue-and-white planet like our earth, right? Old TV viewers may remember Carl Sagan, the brilliant  Cornell astrophysicist and his award winning TV series, Cosmos: A Personal Voyage.  Sagan often spoke of the billions and billions of stars in the cosmos, and if there were “billions and billions” of stars, then there must be only a few billion fewer planets to orbit those suns, and if there are billions of planets then surely there’s one, probably many, like our own.

Popular commentary on the recent Kepler data relies on the same statistical hope that there must be some, surely a few,  certainly at least one, just like our own. And if it’s just like our own, then it must have life, like our Earth does, and — oh, hell, let’s go all the way — there must be somebody on some earth-like planet out there looking at a computer screen, reading a post just like you are now!

The people who gather and present the Kepler data don’t make such claims.  As a matter of fact, a visit to the Kepler web site will be a cold shower for anyone hoping to discover there’s a world like ours out there.  In dull fact, the Kepler site counts 105 confirmed planets and 2740 candidates that might get confirmed someday.  Where did the news about 17 billion planets come from? It came from a press conference, January 7, 2013, at the American Astronomical Society Meeting in Long Beach, California. The first two panelists at the press conference spoke about Kepler:

  • Planet Candidates Observed by Kepler: Two Years of Precision Photometry – Christopher Burke (SETI Institute)
  • At Least One in Six Stars Has an Earth-size Planet – Francois Fressin (Harvard-Smithsonian Center for Astrophysics)

And why now? Maybe — is it possible? — because there are going to be severe cuts to budgets in all sectors of the United States government and even NASA will be on the chopping block. People, tax payers in particular, aren’t especially interested in paying for a space program that scans a bit of the Milky Way looking for a transient dip in starlight, which dip might indicate a planet coming between us and that star, and that’s what Kepler does. But even tax payers are curious about extra terrestial life. So now is a good time to hold a press conference and let the media do the rest.

Republican Ryan’s Health Plan

Paul Ryan, the Republican’s vice presidential candidate has a plan for Medicare.He laid out the specifics months ago when he was Paul Ryan, Congressman from Wisconsnin, House Budge Committee, VP candidate 2012.known chiefly as the articulate congressman from Wisconsin and, more importantly, the bold chairman of the House Budge Committee. Ryan’s plan for Medicare won’t affect citizens who are 55 years old or older. Many of them would be financially crushed it if did. But Ryan’s plan would change Medicare for the enormous majority currently under 55.

Ryan’s plan is as up front and straight forward as the man himself. He would change the government’s health insurance plan for seniors so that instead of having Medicare pay the medical bills, the government would give the elderly a fixed amount of money to use in buying their own health insurance. In other words, it would do away with Medicare as we know it and substitute a voucher plan. And if the amount of the voucher isn’t enough to pay for the nice peace-of-mind plan  you want, you’ll have to pay the difference or take the crummier, less expensive insurance. (more…)

Astonishing News! Fed Says the Middle Class Has Become Much Poorer!

House of cardsThe Federal Reserve reports that the middle class has taken a financial beating. The report made the front page of the New York Times. The Times  called it  “much anticipated.” (Please stifle that yawn.) The Fed issues its Survey of Consumer Finances every three years; this survey is about consumer finances in 2010, so the report is already 18 months out of date.  OK, it isn’t news. You knew it all along — the middle class is going down the drain.

Here are the basics.  Most of the wealth of a middle-class family is bound up in its house. In general, a lower-class family doesn’t own a house; it pays rent forever and never gets to own the roof over its head. The upper class not only owns a house, it also has money in the bank and a portfolio of stocks, bonds and government securities. So when housing prices collapsed, it was the middle class whose finances collapsed.  Now you don’t have to read the Fed’s report.

But a little background information is helpful and here it is.  Sectors of the middle class began their long decline in the 1970s. The descent became general in the 1980s and has continued relentlessly since then. Middle class wages and salaries, when adjusted for inflation, have remained stagnant or declined for at least 30 years. The middle class standard of living didn’t appear to decline because married women streamed into the workforce, giving families a second earner, and when the continuing descent wiped out that, families used their credit cards to maintain their living standard, and when credit cards maxed out, they refinanced their homes which at that time had an inflated value. And when housing prices collapsed – well, you know the rest.

As for the upper class,  the top 20 percent of US families also suffered from the collapse and consequent recession – their 401K plans and their brokerage accounts took a dive. Stock prices fell roughly 50 percent from peak to trough from October 2007 to March 2009.  But since then equity prices have risen and, while fluctuating, they have essentially made up for what they lost. The upper class — have you noticed? — tends to do well, no matter what.

The Fed’s Survey of Consumer Finances also showed that our middle class is still mired in debt. The number of families able to put some money aside in savings has shrunk while the number not saving so much as a dollar has increased.  Furthermore, the median amount owed has remained the same. Most people are not going to be able to retire their debts before they themselves retire

In conclusion,  here’s the Good and Bad news.  First, the absolutely bad news — the middle class is headed for a cliff.  Now, the sort of good news — the looming catastrophe isn’t in the same category as a hurricane or earthquake or tsunami. It’s not an act of nature, an act of God or a force majeure. The 30-year decline of the middle class is largely the result of the US economic system with its peculiar structural defects. It’s a human artifact. It can be changed.


We would have given credit for the graphic illustrating this post, but our search provided neither the artist nor the origin of the graphic.

JPMorganChase, Jamie Dimon, & Chicken Little

Chicken Little

Chicken Little

We’ve called on our financial adviser, Chicken Little, for views on JPMorgan Chase’s loss of $2 billion in a trading mistake:

First we have to put the $2 billion in perspective. Jamie Dimon, the CEO, and all the others at JPMorgan Chase will be happy to tell you that $2 billion isn’t much of a loss when you consider that the bank had revenues around $90 billion over the past year. And, yes, we know JPMorgan Chase stock (JPM) has gone down, losing the company almost $20 billion in value, but it’s already on the way back up. So why are so many people upset about $2 billion?

Maybe it’s because the median household income in the US is $46,326. Let’s call that $50,000 just to make the math easier. Now, if you divide $2,000,000,000 billion by the median household income of $50,000 you get 40,000. In other words, that trading mistake equals the sum total of the year-long income of forty thousand households. (That’s a lot of households. Maybe you should check the math. We did. We kept coming out with 40,000 households.)

When Obama said that JPMorgan Chase was “one of the best managed banks”

Jamie Dimon

Jamie Dimon

and Dimon “one of the smartest bankers we’ve got,” the President was reflecting what most people in the banking and financial industry have been saying for years. After all, JPMorganChase was one of the largest banks that did NOT need a bailout,and Jamie Dimon has steered the bank through very troubled financial waters with great success.

It may be that Jamie Dimon had come to that point in his career where he believed he was as wise at investing and at managing risk as other people said he was. No matter the profession, when your work earns you continuous year-in and year-out praise as “the best,” and when you’re paid millions upon millions, you can believe that you simply do no wrong. Your colleagues grow deferential and no longer challenge you, nor do the directors on your board. That’s when you make a mistake, make the wrong assessment of risk, make the wrong bet, and then make another to cover the first. And another to cover the second.

Our prudent financial adviser believes that even pieces of the sky can fall.

Middle Class & College Class

Diploma from Messina, class of 1672

Diploma from the University of Messina, Class of 1672

College students are now more than a trillion dollars in debt. That comes as news to anyone who isn’t a college student or the parent of a college student. The young and old who graduate this year are quite aware of it. Last year’s college grad started working life — if he or she could find a job — with an average debt of $27,000.

That average of $27,000 is the debt owed only by the student. Mark Kantrowitz, a knowledgeable expert in the field of student loans and student debt, estimates that if you add in the loans taken by parents to pay for their kid’s education, you get an average total bill of $34,000. That was last year. The numbers have been getting worse, year after year. (Kantrowitz was quoted in the New York Times last year, saying that student debt goes up and it doesn’t ever go down.)  If student debt goes up 5 percent this year, as it did last year, then the burden — well, you can do the depressing math.

The economics of borrowing and debt often inspires comfortable  moralists to criticize the profligate borrowers. But there’s been no criticism of students’ or parents’ borrowing. Over the past 30 years the purchasing power of the middle class has remained flat or has declined.   Our average worker hasn’t been able to make the necessary strides ahead of the cost of living which permits increased savings or increased purchasing. But in that same period, the price of a college diploma has steadily gone further and further ahead, rising between 4 and 6 percent a year.

As has happened repeatedly over the past three decades, parents  —  and now their college-bound children —  have to borrow. The gradual erosion of the middle class has increased so that now we are witnessing something rather like a collapse. The rich float further and further up, the poor drift further and further down.

But that’s a terrible note to post during the month of college graduations, so we’ve illustrated this with a diploma from the Italian University of Messina in 1672.  We think it’s a great diploma with great but serious colors, a truly intricate initial letter and fancy writing. That’s something worth hanging on the wall! Even if it does put us a bit in debt.

April Is National Poetry & Financial Literacy Month

April is National Poetry Month and National Financial Literacy Month, too. If you knew about the one, you probably didn’t know about the other, so we’re spreading the word about these national observances.

National Poetry Month was started by the Academy of American Poets in 1996. It’s relatively well established, kept alive and vigorous by booksellers, publishers, libraries, schools and poets. According to the Academy of American Poets, “Thousands of businesses and non-profit organizations participate through readings, festivals, book displays, workshops, and other events.” And if you go to the Academy’s website you can find a good list to this year’s programs.

National Financial Literacy Month was born as Financial Literacy for Youth Month in 2000, inaugurated by the The Jump$tart Coalition for Personal Financial Literacy. In 2003 it received the imprimatur of the US Senate, and in 2004 the Senate dropped the youth part and passed a Resolution naming April as our National Financial Literacy Month. Apparently, the National Foundation for Credit Counseling (NFCC) has become the leading organization to celebrate and promote Financial Literacy Month.

We thought it would be nice to merge Poetry and Financial Literacy and we’ve come up with two quite different songs. The first is “The Banks Are Made of Marble,” sung by The Weavers, with that rousing chorus:
But the banks are made of marble
with a guard at every door
and the vaults are stuffed with silver
that the farmer sweated for.

Unfortunately, though you’ll hear a great song by the Weavers, there are no visuals to accompany it. By the way, you’ll hear Pete Seeger singing the first stanzas. It’s a great little song and always comes back during hard times. Take a listen.

The other song, quite different in sentiment, is “The Fear,” sung by Lily Allen. Lily Allen’s songs are generally characterized as “explicit,” as is this one. We warn you of that, and warn you also that the video is one of the silliest we’ve ever seen. The song begins with:

I want to be rich and I want lots of money
I don’t care about clever I don’t care about funny
I want loads of clothes and fuckloads of diamonds
I heard people die while they are trying to find them.

You see how it goes. We like Lily Allen for her cheerful vulgarity and we don’t know what she’s doing dancing around in that stupid dress in this lame pastel video.

Amazon Vs. Writers & Publishers

Jeff Bezos

Jeff Bezos

Book buyers like to shop Amazon.Com. You could even go so far as to say they love it. Consumers don’t know much about Amazon’s top man, Jeff Bezos, but they do know that Amazon is the world’s largest bookstore. Best of all, you can buy a book with a few clocks of your computer mouse. And if you don’t want to buy it at full price, you can see right there beside it some second hand copies for sale at a lower price. (That might be hard on the writer but, hey, we’re poor readers, not starving writers.)

Furthermore, the book will arrive at your home the very next day, or in a few days if you’re not in a rush. And if you’re in a big hurry and want something right now you can download a book to your Amazon Kindle reader. But maybe you don’t want a book. Maybe you’d like a movie. Amazon has lots of those. And lots of music, too. As Amazon says: “20 million movies, TV shows, songs, magazines, and books.” And dresses. And shoes. And crockpots and shovels and tomato sauce and banjos. Amazon is amazing!

So it’s interesting that writers and publishers loath Amazon, the world’s largest bookstore. How can that be? (OK, we’ve already given you a hint. But please keep reading anyway.) Publishers don’t sell books to directly readers, they sell them to booksellers who then sell them to readers. Now online shoppers in the United States will spend $327 billion in 2016, up 45% from $226 billion this year and 62% from $202 billion in 2011, according to a projection by Forrester Research, Inc. And Amazon dominates the online book selling world.

Here’s what you do when you dominate the market, if you’re Jeff Bezos.  A couple of years ago Amazon decided to sell MacMillan’s e-books, and e-book of every publisher, for $9.99 or less. (Great for customers, right?) That meant Amazon would lose money on every sale, but Jeff Bezos has money to burn and selling at a loss would knock out other e-book sellers, such as Barnes & Noble, whereupon Jeff and Amazon could monopolize the market.

But MacMillan objected to Amazon’s pricing and said that only MacMillan had the right to determine pricing for MacMillan’s books.  So Amazon simply turned off the little buttons that permit you to buy MacMillan books  at Amazon, thereby shutting the publisher out of the biggest online market. (more…)

Investment Advice

Chicken Little nd maybe a crack in the skyWe’ve called upon our financial adviser, Chicken Little, for investment advice. Here’s why.  According to the government’s Bureau of Economic Analysis, real gross domestic product — the output of goods and services produced by labor and property located in the United States  — increased at an annual rate of 3.0 percent in the fourth quarter of 2011. That’s nice, but it’s not great. Yet the Labor Department reported that the US added 227,000 jobs in February. That was the third month in a row that the country added more than 200,000 nonfarm jobs.  That seems excessive when the GDP is so anemic.

Apparently, consumers are buying more things and paying for more services and that induces employers to hire more workers to make more things and to provide more services.  But those nice consumers are building up their credit card debt again. After the recession hit home, people began paying off their debt instead of spending. But now, according to the Federal Reserve, revolving credit, made up mostly of credit card debt, increased during the last four months of 2011, going up nearly $3 billion to $801 billion.  (It went down in the first month of this year, but January always shows a drop in credit card debt because consumers are exhausted by what they spent for Christmas.)

So people have begun once again to spend money they don’t have and maybe that’s what this improvement in the economic scene is built on. That’s why called on our financial adviser, Chicken Little.

As usual, Ms Little explained everything and put our minds at rest. “While the job numbers have improved, I would not call them excessively good,” she said.  “GDP is only weakly linked to current employment numbers.  It combines things like consumption, investment, balance of trade and stuff. It’s related like the stock market is related to the economy — only over time they track.   Consumers always feel better and spend more when employment and the stock market goes up. We who follow such things are never bothered by contradictions.”

More Notes

Tim Carmody, in his excellent piece, "How Haiti Became Poor", notes that President Trump's racist policies and vulgar language have sullied the word "shithole" which used to be one of the all-time great swear words. He's right. It's another terrible power this careless President wields.