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									Principles of
Macroeconomics


Economic Crisis
    Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES


BENEFITS
COSTS
QUESTIONS
       Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES



    BENEFITS


       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Households received up to $1200 tax rebate
 check from Bush’ tax rebate plan of 2008

Less FIT withholding and more disposable
  income per paycheck up to $800 under
  Obama plan for 2009



              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
COBRA Health Care Subsidy – Continues
   health insurance coverage if laid off since
   September 1, 2008
Workers pay 35% of their health-insurance
   premiums and the government pays the
   remaining 65%
If laid off since September 1, 2008, but didn't
   sign up for COBRA coverage, get a
   second chance to choose COBRA and
   benefit from the subsidy

               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES

Federal law requires most companies with
  20 or more employees to let former
  employees keep group health-insurance
  coverage for up to 18 months after they
  leave their jobs

65% COBRA subsidy lasts for nine months,
  with premiums then rising to the full price

               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


Unemployment insurance benefits have
 been extended 3 times.

For example, a California employee who
  previously would be eligible for 26 weeks
  of benefits, can now collect
  unemployment for up to 79 weeks.

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Some households will be able to refinance
 their home loan if they have enough
 income and good credit to qualify for a
 new loan at a lower rate of interest

Other households will be able to get both
  the principle balance on their mortgage
  lowered and the interest rate lowered

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Some households experience foreclosure
 and lose the burden of a mortgage and
 related housing costs

Foreclosure is commonplace today given
  the number of ARMs

Would you want to be stuck with a $600K
 mortgage on a property with a market
 value of $400K?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
More $ for highways, police, parks and
  schools
College tuition tax credit
More Pell Grant money
Use 529 College Saving Plan to buy
  computer and software, not just pay for
  tuition and books
Tax credit for energy efficient windows and
  appliances
Extended food stamps programs
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

UAW jobs and their benefits are protected

UAW may ultimately gain partial ownership
 of Chrysler and possibly General Motors




              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES

Fed currently committed to low interest
  rates

Financial Institutions bailouts prevent
  insolvency or allow for takeovers

Stability in our financial system

               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Effective oversight and regulation of
  financial institutions

Federal Reserve Board of Governor’s
  undertaking Bank Stress tests for 19 US
  large banking institutions, report was
  delayed and now is due May 7, 2009

Using Assumptions:
               Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Tax breaks for small business include two
  provisions, designed to encourage
  business spending, come in the form of
  bigger depreciation write-offs

ONLY FOR TAX YEARS 2008 AND 2009



              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Section 179 Deduction almost doubled —
  Maximum write-off is generally increased
  to $250,000 (up from only $128,000 before
  the new law).

For 2009-2010, the maximum deduction will
  revert back to $125,000 (plus inflation
  adjustments) unless Congress takes
  further action.


              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
50% first-year bonus depreciation:
For new qualifying assets that are acquired
  and placed in service during calendar year
  2008 with the placed-in-service deadline
  extended through Dec. 31, 2009, for
  certain long-lived assets.
Under the 50% first-year bonus depreciation,
 a business can immediately deduct half of
 the cost of a new asset if it is purchased
 and placed in service during 2008.

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Small Businesses:
 Businesses that employ less than 500
 employees will increase as they have
 during the last 3 recessions, why?

Increases in energy efficient automobiles

Increases in energy efficient appliances and
  devices
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Expectations may improve
Stock market prices may rise
Household wealth may rise
More labor market opportunities
Paradox of Thrift – More savings for
  business investment

             Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES



      COSTS


       Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES



   Increasing Size of
      Government



       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
CBO Estimates we will add $11.1T in debt by
 2019 MORE THAN DOUBLING OUR
 CURRENT US NATIONAL DEBT

September 30, 2008 US DEBT:                                  $10.0T

Estimated Debt Increase:                                     $11.1T


TOTAL PROJECTED US DEBT:                                     $21.1T
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Ratio of US Debt to US GDP as of
   September 30, 2008:

     Current ratio of debt to
           GDP is 78%

       What will it rise to?
           Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES


 Using CBO Real GDP estimates:

  US debt may be $22.4T by 2019

  Rise to equal to or more than

          100% of GDP
          Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

2008 Social Security Trustees Annual
  Report about the status of Social
  Security and Medicare reads

 The report on the state of entitlement
  programs is rather grim—the combined
  unfunded liabilities of both programs
  are $101T

             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


Unfunded liabilities are the amounts
 government must be able to pay in order
 to make good on its promises—there are
 no assets available to cover these
 liabilities.



             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Pensions of employees working for bankrupt
  firms are covered by the (PBGC) Pension
  Benefit Guaranty Corp

The PBGC created in 1974 insures 44 million
  workers covered by defined benefit
  pension plans


              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
      Increasing Size of Government

April 2008 sixteen economists from The
 Brookings Institute and The Heritage
 Foundation authored ―Taking Back Our
 Fiscal Future‖ in which they made policy
 recommendations ―generated by a deep
 concern about the nation’s long-term
 fiscal outlook,‖ they agreed that

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Unsustainable deficits in the federal budget
 threaten the health and vigor of the
 American Economy. The first step toward
 establishing budget responsibility is to
 reform the budget decision process so
 that the major drivers of escalating
 deficits—Social Security, Medicare, and
 Medicaid—are no longer on autopilot.

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

April 2009, ―Number of Federal
 Subsidy Programs Tops 1,800‖

Chris Edwards, Director of Tax Policy
 Studies, Cato Institute, reported the
 rise in government subsidy
 programs
             Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES

  In 8 short years, from 2000 to 2008,
 there has been an increase of 27% in
    government subsidy programs

 How should we expect this number to
         change after 2008?



           Macroeconomics, May 5, 2009, Martha Stuffler
   COST/BENEFIT OF CHOICES
USA Today, January 2008 ―Subsidies Keep
 Small-Airport Flight in the Air‖ reported

The Department of Transportation (DOT) pays
  a few small airline $110 million a year total
  so that they can profitably carry as few as
   four passengers per day to nearby hubs,
          often for rock-bottom fares.


                Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
For example, a roundtrip in Montana from Mile
   City to Billings—a two-hour drive away—
 costs passengers just $88 on Big Sky Airlines
     because the government kicks in $779.
Flying roundtrip from Lewistown Montana to
Billings—also a two hour drive—costs $88 as
    well on Big Sky. The government cost:
  $1343 per passenger. Just two people per
 day took the Lewistown-to-Billing flights on
    average in 2006. according to the DOT.

               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
GAO July 2007 Report looked into the
 Student Loan Program

August 1, 2007 Press Release from Senators
 Kennedy and Durbin titled ―NEW GAO
 REPORT UNDERSCORES
 ADMINISTRATION'S FAILURES TO
 SAFEGUARD FEDERAL STUDENT LOAN
 PROGRAM” read

              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
The U.S. Department of Education has failed to
  safeguard the nation’s federal student loan
  programs and should immediately increase its
  oversight of lenders and schools and fully
  enforce the law.
Today’s report comes after months of
  congressional and state investigations have
  uncovered unethical financial relationships
  among lenders, school financial aid officers, and
  public officials responsible for overseeing the
  federal student loan program

                 Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Under current law, lenders participating in
  the federal loan program are prohibited
  from using inducements or gifts to curry
  favor with colleges or universities.
The report … found that the Department
  does not have a sufficient oversight
  program in place to identify and address
  questionable lender behavior, such as
  inducements.

               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
In addition, the report found that despite
  repeated requests from lenders for the
  Department to provide direction on
  inducements, the Department had not
  updated its inducement guidelines in
  nearly 20 years and, in some cases, did
  not respond to lenders’ inquiries at all.

http://www.gao.gov/new.items/d07750.pdf

               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
U.S. Office of Management and Budget,
  2008 reported
Medicare and Medicaid made an
  estimated $23.7 billion in improper
  payments in 2007. These included
  $10.8 billion for Medicare and $12.9
  billion for Medicaid.
Medicare’s fee-for-service reduced its
  error rate from 4.4 percent to 3.9
  percent.
             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Medicare and Medicaid lose an estimated
  $60 billion or more annually to fraud,
  including $2.5 billion in South Florida.
  (Miami Herald: August 11, 2008)

U.S. Department of Health and Human
  Services estimated, ―Every $1 spent on
  Medicare fraud prevention would stop $10
  in fraud.”

               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Inspector General report, Department of Health and
   Human Services, August 2008 reported,
Nearly one of three claims (29 percent) Medicare
   paid for durable medical equipment was
   erroneous in FY 2006

American College of Radiology, 2004 reported,
Medicare and private health insurers pay up to $16
  billion a year for needless imaging tests ordered
  by doctors.

                 Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Medicare spends less than 0.2 cents of every $1 of
  its $456 billion annual budget combating fraud,
  waste and abuse. (Miami Herald, August 11, 2008)

U.S. Senate Permanent Committee on
   Investigations, 2008 reported:

Medicare paid dead physicians 478,500 claims
  totaling up to $92 million from 2000 to 2007.
  These claims included 16,548 to 18,240 deceased
  physicians
                Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES

   THE US GOVERNMENT IS
      GETTING BIGGER

  Besides our $22T projected
national debt, why is it important
  to understand the effects of
increasing size of government?
          Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
SHORT ANSWER:


   Empirical evidence indicates
 that the size of government as a
    percent of GDP is negatively
    related to economic growth


           Macroeconomics, May 5, 2009, Martha Stuffler
   COST/BENEFIT OF CHOICES
Gwartney, Lawson and Holcombe April 1998 in ―The
 Size and Functions of Government and Economic
 Growth‖ prepared a report for the US Joint
 Economic Committee which concluded

There is overwhelming evidence that both the size of
  government and its expansion have exerted a
  negative impact on economic growth during the
  last several decades.
As government outlays in the United Stated have
  grown from 28.4% of GDP in 1960 to 34.6% in 1996,
  investment as a share of GDP, labor productivity,
  and real GDP growth have fallen.
                  Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Data for 23 OECD (Organization of
 Economic Cooperation and Development)
 countries also revealed that higher
 government expenditures were correlated
 with both less investment and lower rates
 of growth during the 1960-96 period.

An analysis of data for a larger set of 60
 nations illustrates the same thing.

               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Moreover, the size of government in the world’s
  fastest-growing economies is generally less then
  20%, and their non-investment government
  expenditures are approximately 13% of GDP, far
  less than the comparable figures in the US and
  other OECD countries.
All of the evidence suggests that the level of
  government that maximizes the performance of
  the economy would place government
  expenditures at 15% or less of GDP.

www.house.gov/jec/growth/function/function.htm

                Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Center for Economic Research October 2005 at
 ETH Zurich, working paper 05/44 ―The bigger the
 better? Evidence of the Effect of Government
 Size on Life Satisfaction Around the World‖
 concluded

 A rather simple policy implication: governments
   interested in maximizing the life satisfaction of
  their voters should, regardless of their ideology,
  limit their direct interventions in the economy to
   allow voters a high degree of personal freedom

                 Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
"Big, Not Better?" by economist Keith
  Marsden of the Center for Policy Studies,
  former operations adviser at the World
  Banks, a senior economics in the ILO
  (International Labor Office) has completed
  advisory missions in over 60 countries,
  during April of 2008 summarized his
  research of 20 countries, 10 were labeled
  ―slimmer governments‖ compared to 10
  ―bigger government‖ economies and he
  concluded:
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Slimmer governments have on average,
  reduced personal and corporate tax rates
  at a faster pace then bigger governments.
  They are now 30% and 22% respectively,
  compared to 45% and 29% for bigger
  governments.

What are the highest corporate and personal
 income tax rates now in the US?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
What are the highest corporate and personal
 income tax rates now in the US?

CA Corporate 8.84 + 38 = 46.84%
CA Personal Income Tax 9.3 + 35% = 44.3%


   How will these rates change?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Slimmer governments have a lower average
  government spending ratio:
       32% of GDP compared to 48%

Slimmer governments have significantly
  higher growth rates:
Their GDP increased by an average of 5.4%
  per year between 1999 and 2008 compared
  to 2.1% for bigger governments

             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Abundant positive economic research
 that quantifies the negative
 relationship between the size of
 government and economic growth,
 life satisfaction, and social welfare

New studies are examining the optimal
 size of government

             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Richard W. Rahn, Chairman of the Institute
  for Global Economic Growth analyzed the
  results in an article ―The Optimum
  Government,‖ November 12, 2008 wrote
Rather than increasing the size of
  government, the empirical evidence show
  that sharply reducing taxes, regulations
  and government spending down to at least
  25% of GDP would do the most to spur
  economic growth and create more jobs
  over the long run.
              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
  Those members of Congress and
  parliamentarians in other countries who
  vote for a “stimulus package” that
  increases the size of government will be
  voting for slower economic growth and
  higher rates of unemployment over the
  long run, based on both solid empirical
  evidence and theory.

http://ime.bg/en/articles/the-alternative-budget-of-ime/
                   Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
January 2009, economists at the Institute for Market
  Economics in Sofia, Bulgaria provided new
  estimates of the optimum size of government
  using standard models with the latest data and
  concluded

There is a 95% probability that the optimal size of
  government is less than 25% of GDP…. Because
  most governments are—and have been for may
  years—larger than the optimal, there are
  insufficient data to give a point estimate as to the
  best size, other than it is less than 25%.
                  Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
US Government increasing size with
 the debt projected to double in the
 next 10 years up to $21 trillion

Often cite Keynesian economics

Keynes is turning over in his grave at how his
  theories have been the support for bigger
  government

                 Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Keynes believed the

BUDGET WOULD BE BALANCED
 OVER THE BUSINESS CYCLE

From peak to peak

When was the last time the budget was
 balanced? And before that?

              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES
Greater market power among banking
 institutions, bank will be more
 concentrated in the hands of relatively
 few:

         1984: 14,400 banks
         2008: 7,200 banks
         2012:   ?    banks


              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Milton Friedman researched the relationship
 between growth of the money supply and
 inflation using the equation of exchange
 and concluded

  “Inflation is always and everywhere
        a monetary phenomenon”

Excessive money supply growth causes
  inflation
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

     US Debt today is more than $11T

US Government is projected to be running
 budget deficits until 2019

     Interest rates are going to rise



               Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Market for Loanable Funds with Supply and
 Demand for funds

 Households are saving more
 Business competes with government for
 the savings of households
 Other nations are running large budget
 deficits


              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES

How will the US attract foreign investors to
 purchase US Treasury securities?

Which nation has lent the US more money
 than any other country?

Could this affect US monetary policy?

               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
   CBO now estimates cost of TARP to be
    much higher than originally estimated

Is this situation an aberration?

Is it unusual for government estimates to be
  too low?

How reliable are the estimated bailout
 costs?
               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Government estimates typically understate
 the actual cost
Sept. 2003 report ―Government Schemes
  Cost More Than Promised‖ by Chris
  Edwards, Director of Fiscal Policy, CATO
  Institute concluded
 Governments are wasteful users of
 resources because they tend to replace
 competition with monopoly and market
 pricing with bureaucratic regulation.
              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Also, since public officials do not risk their
  own personal funds, they are more likely
  to support unsound schemes and be less
  interested in keeping programs on budget.
As a consequence, we would be better off if
  Congress scaled back entitlement
  programs, privatized infrastructure such
  as airport and energy projects, and let
  entrepreneurs put up their own capital for
  risky pursuits.
               Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES

Included in his report was an
  analysis of 22 government
  projects in a wide variety of
           categories



          Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES




       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Possible Fraud in TARP, ARRA, and PPIPs


 April 23, 2009 Gordon Grigg, a
 Tennessee investment advisor, has
 agreed to plead guilty to embezzling
 more than $10 million in first TARP-
 related fraud case.


             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Neil Barofsky, Special Inspector General,
 overseeing the TARP Troubled Asset
 Relief Program, released a 250-page report
 detailing a long list of concerns about
 government efforts to prop up hundreds
 of banks, Wall Street firms and auto
 companies.

Quarterly Report to Congress dated
 April 21, 2009

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


Barofsky stated Tuesday April 21, 2009
 that he has opened 20 criminal
 investigations and six audits into
 whether tax dollars are being
 pilfered or wasted


            Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Among Barofsky’s recommendations:

Treasury should set tough conflict of
  interest rules on PPIP fund managers to
  prevent investment decisions the benefit
  them at taxpayer expense.

Treasury should disclose the owners of all
  private equity stake in a PPIP.

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Barofsky’s recommendations:

Fund Manager should have ―investor
  screening‖ procedures to prevent asset
  purchase transactions from being used for
  money laundering.

NB: PPIP could cost taxpayers up to $2T


              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES



  QUESTIONS


       Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Does the mortgage bailout use taxpayer
 money?


Given the government spending increases
  and growth of the money supply, do you
  think there will be more scams, tax cheats,
  and identity theft?



               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


Do the bailouts reinforce or retard moral
 hazard?

Can the government make choices based on
 moral hazard?




               Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

How do these bailouts stimulate small
 business defined as those business with
 less than 500 employees?

 Firms with less than 500 employees create
 58% of all the US jobs




             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Are you concerned about the efficacy of the
  government’s oversight of the biggest
  spending programs in US history?

Consider the 2004 Fannie Mae/Freddie Mac
 hearings and Frank Raines, the extent of
 Medicare fraud, the student loan program,
 Neil Barosky’s recent report, and the S&L
 Crisis of the late 1980s

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


Does it bother anyone that some of the
 individuals making these momentous
 history-making decisions did not pay their
 personal income taxes?




              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Does the US Government waste money?

 Many organizations track waste

 Presidents have tried to cut waste and
 have not succeeded

 Waste is a vague word, so here are just
 two examples out of many

             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
The infamous ―Bridge to Nowhere‖

CASE OF THE MISSING $25 BILLION

Buried in the Treasury Department’s 2003
 Financial Report of the United States
 Government is a short section titled
 ―Unreconciled Transactions Affecting the
 Change in Net Position,‖ which explains
 that these unreconciled transactions
 totaled $24.5 billion in 2003.
              Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
The unreconciled transactions are funds for which
  auditors cannot account:

  The government knows that $25 billion was spent
  by someone, somewhere, on something, but
  auditors do not know who spent it, where it was
  spent, or on what it was spent.

  Blaming these unreconciled transactions on the
  failure of federal agencies to report their
  expenditures adequately, the Treasury report
  concludes that locating the money is “a priority.”
                 Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Do you suppose they ever found the $25B?

 The unreconciled $25 billion could have
 funded the entire Department of Justice
 for an entire year.




             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

What would have happened if the
 government had not bailed out
 the financial institutions and the
 mortgage holders?



            Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

How many more firms do you think will
 need to be bailed out?

Is there a limit to the number of firms
  that the government can bail out?



             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Is there a limit to the amount of money
  the US government can spend?

Is there a limit to the amount of money
  the US government can borrow?



             Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES
        Haste Makes Waste

Given the speed and magnitude of
current legislative changes, do you
think that is this the way significant
fiscal policy should be enacted
during the second largest
contraction in US history?
            Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
The Fed’s assumptions for the Bank Stress
  Tests for the 19 largest US banks are
  based on:
                     2009 2010
Unemployment          8.9% 10.3%
Real GDP Growth -3.3% -0.5%

How do these assumptions differ from the
 those used by the CBO for their budget
 projections?
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

If the Fed’s assumptions are correct,
   how will that affect projected future
   budget deficits and the estimated US
   national debt?




             Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

What is the fair share of taxes the
 ―rich‖ should pay?

What is the elasticity of taxable
 income?


            Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Huge opportunity costs have been incurred
 by many individuals during this economic
 contraction.

Who have not been bailed out?

Have those that have been bailed out made
 rational well-thought-out reasoned
 decisions?
              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES


Are fiscal policies rewarding
irresponsible behavior at the
cost of those who have behaved
responsibly?


         Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES

Do you think the government can do a better
 job of restoring the economy to full
 employment than the private sector?

Is it preferable to have the government
  spend a dollar in the economy or for
  business and households to spend a
  dollar?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Economists agree that fiscal policy may be
  effective in the short to increase Real
  GDP, but in the long run causes complete
  crowding out. For every dollar the
  government spending, one dollar of
  business investment is not undertaken.

Why are the words may be effective so
 important?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
What do economists think about the fiscal
 policies being pursued?

Ask Krugman, Reich and Summers you will
  get one answer.

However, if you were to ask Becker, Barro,
 and Sowell you will get quite a different
 answer.
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Article ―Training the Brain To Choose
  Wisely‖ regarding individuals health
  choices.

Do you believe there should be a significant
 change in formal education that teaches
 people about consumer and household
 economic choices particularly those
 involved with credit and debt?

              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
Who will bear the costs for the fiscal
 policies implemented today?

Do you believe the benefits of current
 fiscal policies outweigh the costs?

Or is it the case that the costs
 outweigh the benefits?
              Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES
And as Milton Friedman said,

  Our country would be far better off
  with a federal budget of $1 trillion
  and a deficit of $300 billion than with
  a fully balanced budget of $2 trillion.

Do you understand the significance of this
 statement today?

              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFIT OF CHOICES

    Ideological Debate

  Capitalism vs socialism




       Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
To date, I have visited 140 countries with
  visits to 46 countries more than once

There are 5 Communist countries in the
  world, I have been to all but one.

China Vietnam Cuba                         North Korea        Laos



               Macroeconomics, May 5, 2009, Martha Stuffler
  COST/BENEFIT OF CHOICES
Sabbatical visited 14 ex-Soviet countries and China
  to see how economics was being taught in their
  universities since the collapse of the Soviet
  Union.

If anyone believes that Socialism is preferable to
   Capitalism, I strongly recommend that you visit
   China, Cuba, Laos, North Korea, and Vietnam.

Also, visit any of the ex-communist or self
  proclaimed socialist nations, I have been to most
  of those as well.

                 Macroeconomics, May 5, 2009, Martha Stuffler
 COST/BENEFIT OF CHOICES


My travels have taught me
 two important lessons




         Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFITS OF CHOICES
 The idea for this series was conceived
 during mid-March and has caused me to
       bear huge opportunity costs



But I must consider the benefits and hope




             Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFITS OF CHOICES
  That you have gained knowledge about the
         current macro economic crisis

That you have developed critical thinking skills

     That you have learned how to think,
               not what to think

   That you will read and fully examine and
     critically evaluate fiscal and monetary
    policies that will affect the US economy
               Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFITS OF CHOICES
        ERRORS AND OMISSIONS

Events are occurring daily that affect the US
  economy and it is not possible to include
 all events and changes that have occurred

While every effort has been made to ensure
 the accuracy of the information supplied,
   any errors and omissions are my sole
                responsibility
              Macroeconomics, May 5, 2009, Martha Stuffler
COST/BENEFITS OF CHOICES
      WHAT IS GOING ON √

    HOW DID WE GET HERE √

     WHAT ARE WE DOING √

COSTS AND BENEFITS OF CHOICES √

          Macroeconomics, May 5, 2009, Martha Stuffler

								
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