Ask an Economist (Post #1005 and counting)

[happy_Alex]

One reason why horrificly bad school systems get so much money per pupil is that its an attempt to attract (through higher pay, one would hope) better teachers. Sadly, that's not happening, mainly due to the power of the teacher's unions at the local jurisdiction level.

Can't agree with this generalisation. Unions are local authorities are part of the soloution.
1. Union membership is drawn from regions other than the inner cities where the problem is that you speak of. Their actions and policies and decisions are formed at national conferences which reflect this broad membership base. Their expertise and experience is a valuable resource and they maintain standards of employment and ensure procedures are followed. Additionally, they are democratically controlled.
2. Local authorities are democratically accountable. Foundation schools and Academies in the UK (I'm not sure how Charter schools are controlled in the US) are outside local authority and thus democratic control. This makes it impossible for authorities to respond to factors in a coherent and planned way, e.g changes in demographic bought about by increased migration, for example.
3. The problems faced by inner city schools are not just about education, as you may be aware, but involve social issues as well. The link between poverty and poor educational performance is well demonstrated. The issues are complex and therefore require a planned and structured response. There's no magic bullet here, and just blaming teachers is no answer. Staff performance in urban circumstances is affected by variables other than their capabilities. Such as i) lack of affordable housing, meaningstaff don't stay in schools very long and children become unable to experience consistency and stablity ii) poor discipline, meaning staff don't want to stay or are unable to focus on teaching and learning. And other children may experience violence, which means they are unable to focus on teaching and learning.

These are just some issues, but a complex picture it is, and the notion that outside agencies can be bought in and do a better job than seasoned and experienced professionals has proved to be somewhat untrue, at least in the UK.

In Islington, the edubusiness responsible, Cambridge Education Associates, was fined £300,000 last year - more than a third of its management fee - for failing to reach its targets on exam results. This year it expects to be fined £450,000. Nobody wants to go down the Islington route any more. Essex - a ferociously Conservative council - has just dropped a plan to privatise its education service.

There's no magic bullet here.

 

[JerichoHill]

Alex,

I'm referring to American, not British, unions. Our situation with them here is a bit different. Sorry to not have stated such. I know very little about British union behavior or your schooling system

 

[downtown]

Alex,

I'm referring to American, not British, unions. Our situation with them here is a bit different. Sorry to not have stated such. I know very little about British union behavior or your schooling system

Yeah, I would agree that Teachers Unions have done some negative things with the US public school system. They're resisted merit pay and made it impossible to fire teachers. Also, they're typically mandatory to join (or at least pay dues for)

They do provide some very important services to educators, but they are hindering some reforms that could really help.

 

[JerichoHill]

http://www.breitbart.com/article.php?id=D8U36CRO3&show_article=1

Lower fed rates to come in the US, yet interest rates charged to consumers remain pretty much unchanged. For example, the fed funds rate has been cut .75 basis points, but home mortgage rates have only decline .25 basis points.

Good job Bernanke! Here's a hint: The economy already has a cold, so you can't prevent it from catching one. You're only baiting for inflation to get out of control. You're being pressured by business interests trying to recover from their own bad lending practices. And what brought those on? Exceptionally low interest rates...encourage risky behavior.

 

[Godwynn]

Good job Bernanke! Here's a hint: The economy already has a cold, so you can't prevent it from catching one. You're only baiting for inflation to get out of control. You're being pressured by business interests trying to recover from their own bad lending practices. And what brought those on? Exceptionally low interest rates...encourage risky behavior.

Why does Wall Street favor cuts over a raise when the cut will bring more inflation?

 

[Elrohir]

Let me see if I understand this correctly....they're cutting interest rates for the Fed, correct? And that will lead to an increase in inflation, because there will be more money out there (Because it can be borrowed "cheaper"), right? Why are they doing this, again?

A question Jericho. Lots of people talk about the weak dollar, and the coming recession and so on and so forth. In your view, what's the best method for propping up the dollar and shortening the recession? (In the long term) Would cutting government spending and reducing debt help with this long term?

 

[JerichoHill]

Why does Wall Street favor cuts over a raise when the cut will bring more inflation?

Because its good for their short term balance sheets.

Why are they doing this, again?

A question Jericho. Lots of people talk about the weak dollar, and the coming recession and so on and so forth. In your view, what's the best method for propping up the dollar and shortening the recession? (In the long term) Would cutting government spending and reducing debt help with this long term?

See above for your first question.

The second question is that a country should not fear its currency being weak or strong. It is what it is. There's no magic bullet to prevent a recession, other than creating an environment attractive to investment. I believe that in our case, we had an infection of toxic loans and right now we have to let them get out of our system, so to speak, we have a cold so we need chicken noodle soup and rest. I'd work on promoting exports (which a weak currency encourages as its now cheaper for others to buy our goods) and setting up rules/regs to ****** further problems with the CDO sector.

Too much is made of the Fed raising and lowering its funds rate. It's not a magic bullet.

What concerns me is that our interest rates are already low and inflation is already a concern. Thus, we can't continue to lower interest rates because that will speed up inflation. Inflation erodes wealth worse than a recession.

 

[carmen510]

Do you think socialism shall ever make a comeback? And if it does, where?

 

[Norseone]

Do you think socialism shall ever make a comeback? And if it does, where?

depends what you mean...if you mean European socialism its going strong. If you mean castro socialism or somthing else...no never. Thats my prediction for JH's answer

 

[DNK]

But there's an apparent argument against WS that I'm hearing from you. I guess it wouldn't be an institutionalized opposing opinion, but you're not the only financial person I've heard saying not to cut rates.

I'm seeing WS asking for low rates to help businesses, but then experts, etc, say it's bad policy and the current problems need to resolve themselves "naturally", rather than get strung out over time and end up being worse, including raised inflation.

Is WS just another way of saying short-sighted individuals wanting growth now and unwilling to accept any negatives in stock prices? That's the feeling I keep getting.

 

[DNK]

Also, what do you think of the arguments put forth here:
http://www.shadowstats.com/section/primers

The arguments are that general government reporting is off by an order of magnitude. It says the deficit is off by a couple hundred billion or so when proper GAAP methods are used, and off by trillions when SS and medicare liabilities are added in. Oddly enough, this corroborates the story in that other link I found, even though I wasn't specifically looking for either.

It also argues that CPI is off (although its argument isn't the most straightforward) by 7%, unemployment by a few percentage points, and GDP is also off significantly, not only because of CPI. I know it's long, so I won't expect you to read it, but what about these issues? Have you heard anything about it?

 

[JerichoHill]

Do you think socialism shall ever make a comeback? And if it does, where?

What do you mean by socialism? Policies that socialists touted have been adopted by many European countries that operate with a free market and heavy state influence. Even the US adopted many policies once advocated as part of socialism? DO you mean state control and planning of the economy? If its that, I don't believe you'll see such attempts gain fashion, because state control and planning doesn't work.

depends what you mean...if you mean European socialism its going strong. If you mean castro socialism or somthing else...no never. Thats my prediction for JH's answer

Bingo.

I'm seeing WS asking for low rates to help businesses, but then experts, etc, say it's bad policy and the current problems need to resolve themselves "naturally", rather than get strung out over time and end up being worse, including raised inflation.

Is WS just another way of saying short-sighted individuals wanting growth now and unwilling to accept any negatives in stock prices? That's the feeling I keep getting.

I have that same general feeling. There is alot of political pressure in and around stuff going on this year. I do not feel lower interest rates are in America's best interests for the long term future.

Also, what do you think of the arguments put forth here:
http://www.shadowstats.com/section/primers

The arguments are that general government reporting is off by an order of magnitude. It says the deficit is off by a couple hundred billion or so when proper GAAP methods are used, and off by trillions when SS and medicare liabilities are added in. Oddly enough, this corroborates the story in that other link I found, even though I wasn't specifically looking for either.

It also argues that CPI is off (although its argument isn't the most straightforward) by 7%, unemployment by a few percentage points, and GDP is also off significantly, not only because of CPI. I know it's long, so I won't expect you to read it, but what about these issues? Have you heard anything about it?

Shadowstats is somewhat infamous. They're wrong, but they're right. For instance, our inflation index that is reported is normally core inflation...but that measure doesnt include food and energy...so thats not very useful when talking about how inflation affects average folks.

I believe that as for the first point, the head of the GAO has been touring the country on a fiscal wakeup tour, but so far, no one is listening

 

[gallego]

Isn't the Fed supposed to be an independent central bank? What's the bottom line for the Fed, whose interests matter most?

 

[Godwynn]

Isn't the Fed supposed to be an independent central bank? What's the bottom line for the Fed, whose interests matter most?

The Fed I believe is a private bank, but the United States Government has oversight abilities.

They have private shareholders.

 

[DNK]

Trade deficit: what exactly are the outcomes from a deficit? How do we finance a deficit? We import $60bn more than we export, where does that wealth come from, how does it in the aggregate get moved, and what are the long-term ramifications?

 

[JerichoHill]

Trade deficit: what exactly are the outcomes from a deficit? How do we finance a deficit? We import $60bn more than we export, where does that wealth come from, how does it in the aggregate get moved, and what are the long-term ramifications?

A trade deficit means that you are importing more than you are exporting. That's why a trade deficit is neither good or bad. It can be either, and the answer is that it all depends. Trade deficits depend alot on the prices of goods in other countries, and thusly depend on currency exchange rates as well.

 

[C~G]

So I guess, I just put this from Point Blank range.

Looking around and keeping mind this all the stuff that have been going around...will there be major financial downtime (first in US, then globally) in 2-3 years (in 4-6 at max) and what would be the possible reasons behind this to be?

No, this isn't my idea. I'm pondering what one person said to me and wondering whether it is true or not. And I do trust this person usually with these issues.

Just want a second opinion since you're here.

 

[JerichoHill]

I guess it depends on what you consider "a major financial downtime". The US currently has inflationary pressure, pressure to reduce our commitments overseas, pressure to withdraw from trade agreements. That's alot of ifs in our near future. The US's main problem is the housing sector and its drag on CDO's and other debt instruments.

England had a similiar start to a recession a few years ago. They're okay now

Is the US headed for a recession? Most economists would say yes. I believe we are.

Is the US headed for a bleak recession(1978-1980)? I believe no one knows that for sure. Alot depends. Based on what information we have today, most economists do not believe that we are headed for a bleak recession.

Will this spread to the rest of the world? Probably not as much as one would think. The world isn't as dependent on US fueled growth anymore. It might be that the US recession is moderated because of economic growth in the rest of the world...particularly the emerging markets.

How should this downturn affect you? If you have a long time horizon, it shouldnt affect your current decisions. Dont let it stop you from investing in 401ks or going to school or buying a home...as always, if you can afford it.

 

[C~G]

Thank you for your answer.

The issue he was making that there are some patterns which would imply that this "fall" could be quite nasty. The main point was that if US recession hits hard and some other hidden variables come into play...what will happen is kind of chain reaction (or reaction to reaction and so on) that won't affect only US but probably Europe as well. I guess example Asia might survive somehow better. Personally I'm not any kind of whiz with these things and some stuff just went right past my ear, but it had not only to do with housing sector but credit markets in general.

But maybe I get back to you if I happen to talk my friend more closer about this. He's abroad right now.

It's not my investments since don't have currently that much (some of course) which would matter. But some other people do have. Of course the issue just started intriguing me since he sounded so certain. Not that he's known for his jokes anyhow. Usually talks only business.

 

[JerichoHill]

To me, that's alot of ifs. It would be irresponsible of me to state that something was going to occur only if 10 ifs happen.

I'm afraid your friend is probably watching too much TV. The world doesn't depend on the US as much as it did a decade ago, mitigating any downturn here abroad.

I mean, if the US economy completely fell apart 1929 style, then the world's gonna be messy. But I don't see that in the cards or anywhere close to it. Neither do most economists...here...and abroad.