Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong


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Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong

With The Scandal of Money he may have written the road map to the next big boom. Laffer, coauthor of the New York Times bestseller An Inquiry into the Nature and Causes of the Wealth of States "Gilder pushes us to think about the government monopoly on money and makes a strong case against it. If you believe in economic freedom, you should read this book. He claims that the Democrats will steer us to ruin — but points out that Republicans are also woefully misguided on how to salvage our economic future.

Norman Frumkin. This book focuses on the performance of the economy and the actions taken during the expansion period before the onset of each recession. Its goal is to help prevent or at least lessen the severity of possible future recessions. Bud Conrad. Visit www. Political Competition and Economic Regulation. Peter Bernholz. Organized, readable, technically sound and comprehensive from both theoretical and empirical standpoints, this book summarizes a vast amount of institutional, historical and descriptive detail.

Using case studies from the US, Canada, Germany and Switzerland as well as the European Union and the global economy, this is the first book of its kind to e. Similar ebooks. Edward Conard. Four years ago, Edward Conard wrote a controversial bestseller, Unintended Consequences, which set the record straight on the financial crisis of and explained why U. He warned that loose monetary policy would produce neither growth nor inflation, that expansionary fiscal policy would have no lasting benefit on growth in the aftermath of the crisis, and that ill-advised attempts to rein in banking based on misplaced blame would slow an already weak recovery.

Unfortunately, he was right.

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Using fact-based logic, Conard tracks the implications of an economy now constrained by both its capacity for risk-taking and by a shortage of properly trained talent—rather than by labor or capital, as was the case historically. Instead, he argues that the growing wealth of most successful Americans is not to blame for the stagnating incomes of the middle and working classes. If anything, the success of the 1 percent has put upward pressure on employment and wages. Conard argues that high payoffs for success motivate talent to get the training and take the risks that gradually loosen the constraints to growth.

Well-meaning attempts to decrease inequality through redistribution dull these incentives, gradually hurting not just the 1 percent but everyone else as well. Conard outlines a plan for growing middle- and working-class wages in an economy with a near infinite supply of labor that is shifting from capital-intensive manufacturing to knowledge-intensive, innovation-driven fields.

He urges us to stop blaming the success of the 1 percent for slow wage growth and embrace the upside of inequality: faster growth and greater prosperity for everyone. Laurence J. Social Security law has changed! It is an engaging manual of tactics and strategies written by well-known financial commentators that is unobtainable elsewhere. Some of those people are even in the book.

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Changes to Social Security that take effect in make it more important than ever to wait as long as possible until age 70, if possible to claim Social Security benefits. The new law also has significant implications for those who wish to claim divorced spousal benefits and how many Social Security recipients even know about divorced spousal benefits?

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Besides addressing these and other issues, this revised edition contains a chapter explaining how Medicare rules can shape Social Security decisions. Those who make investments risky by introducing more political risks cannot be said to favor growth. And so, we could all do with a little more income inequality. While some are quick to condemn income inequality and while Mr. Conard is right to dismiss the s as not very representative, he would have done well to look at income inequality over time.

Had he, he would have realized that the model for the s is the s, where the economy grew over 7 percent from to and real annual income per capita rose 37 percent. Virtually every time economic inequality has risen, average people have gotten richer as the luxuries of the rich have become middle class. Conard , in a time when the 1 percent are unjustly persecuted, are finding their voice. Click here for reprint permission. Click to Read More and View Comments. Click to Hide. May Cheryl K. Donald Trump. Joseph R.

World Cup. No high-wage economy has done more for workers. Skeptics claim that the growth of the economy came from increased consumption funded by a one-time unsustainable increase in debt. This debt-fueled consumption temporarily inflated asset values, explaining why as credit markets froze, asset prices fell causing the Financial Crisis. To the contrary, we should recognize that consumption does not grow productivity, nor does it increase wealth.

Only successful investment and innovation can do that. Since , the market value of U. Investors clearly believe the value of companies has increased. They are also doubtful of the power of financial incentives and argue that risk will exist no matter the upside. They argue that most of the success attributed to the United States over the last half-century can be seen as a byproduct of an entrepreneurial culture. And like any game of chance, payoffs for success incentivize investors and employees to take risks and suffer their losses. In both cases, no incremental resources are needed to create more value in the economy.

Innovation subsequently spurs competition, and thus lowers prices, which is largely captured by consumers. Another interesting link that has been drawn is the relationship between investment and productivity. There is a delicate balance between consumption and investment, and Nobel Prize-winning economist Edmund Phelps contends that capital investment is in chronically short supply.

The United States is continually in short supply of equity needed to underwrite the downside risk associated with making investments. Purely limited resources such as production capacity, know-how, and skilled workers cap the amount of production available to the economy. Because the American population is more prone in general to consume rather than invest, there is a limited amount of equity left to be invested. A number of variables have allowed the United States to increase the consumption of our own resources while simultaneously increasing investments overseas, despite capacity constraints and full employment prior to the crisis.

There are many misconceptions about the role the trade deficit plays in terms of growing our economy.


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When China buys our assets, they have limited options with what they can do to with our dollars. Due to an emerging, yet largely undeveloped economy, there are few opportunities to put capital to work. By selling the offshore producers our assets namely sovereign debt , we use these funds to fuel domestic investment and services. Increases in innovation from this increased investment have cut costs and increased asset prices across the board. As long as the United States can continue to deploy capital in an efficient way at a higher rate than we are borrowing, this can theoretically go on forever.

Another issue that is highly politicized is the transfer of labor to places where costs are much cheaper. At prices where labor is essentially free, we can find more effective ways to deploy that capital to increase returns. If a trade were to be balanced, we would have to decrease our consumption in order to produce goods for other economies instead of increasing domestic investment.

Increased business development from the reassignment of labor costs to more valuable domestic investment has grown the U. Countries such as Germany, Japan, and China have proactively sought a trade surplus strategy to buoy employment and suppress their respective currency valuations at the cost of allowing the U.

Unintended Consequences: Why Everything You've Been Told About the Economy Is Wrong

This is largely because we do not want the benefits of investment in the hands of others that would not in turn spur growth and innovation within our own borders. Although risk-averse offshore capital is abundant, we run the risk of misallocating this capital to unprofitable endeavors i. Legislators have consequently been using the inflow of funds to fuel public entitlement spending. Politicians are largely reluctant to raise taxes to fuel spending because of political backlash, so using the proceeds from our sovereign debt is an attractive option.


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  • There is little to restrain public spending when the cash is flowing in so fast. As innovation grows more valuable relative to everyday activities, it motivates increased risk-taking and investment, like the payout in any game of chance. Compared to countries such as France and Japan, the United States has resources and policies in place to encourage an advantageous incentive scheme for those willing to bear the risk.

    Low labor redeployment costs, valuable on-the-job training, and lower marginal tax rates all increase the benefit for successful risk-taking. The large payoffs and status, more importantly, were powerful enough to make these risk-conscious individuals overcome their logical fear of failure. As the most talented Americans took risks and grew more successful, they motivated others with the necessary talent to duplicate their success.

    Workers in risk-averse regions such as Europe and Japan have largely avoided such risk. When the top 10 percent of income earners account for 40 to 50 percent of U. GDP, it is not difficult to see how the success from increased risk can drive a productive economy. A study by the Organization for Economic Cooperation and Development finds that there is significant evidence that shows a negative relationship between higher marginal tax rates and — total factor productivity innovative know-how. Lower marginal tax rates in the United States have also coincided with an increase in the number of hours worked per week.


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    • The portion of American men working more than fifty hours per week increased from 15 percent for the highest quintile of earners in to 27 percent in Some combination of lower taxes and higher rates of success relative to Europe and Japan motivated the most talented American workers. When considering the underlying capital structure of a business, short term debt can only fuel investment if there is equity to underwrite the risk involved.

      Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong

      Research finds that there is a strong positive relationship between current income and savings rates. Additionally, asset prices also influence an appetite for risk. In order to incentivize managers, investors have instituted exorbitant pay-for-performance measures that allow for a higher tolerance for risk taking.

      The decision mobilized the small social conservative population to join the pro-investment minority in order to form a powerful union that reshaped the landscape of financial and fiscal policy. Drastic decreases in the marginal tax rates, stabilized inflation, and extensive deregulation were all by-products of the newly formed alliance. From a bottom-up perspective, these factors seem to make sense of the Crisis. However, the report avoids analyzing the issue from a top-down view that takes the circumstances in context.

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      When reviewed from this vantage point a differing set of conclusions can be reached. Predatory lending by mortgage companies and community lenders was cited as one of the chief factors in causing the Financial Crisis. Subprime lending was largely facilitated through adjustable-rate mortgages guaranteed by the federal government.

      Interestingly, for years adjustable-rate mortgages benefited lenders and borrowers because of the option to refinance under better terms due to home price appreciation. Which brings about a simple lesson in economics: If a homeowner has little to nothing paid down for the home, then it makes financial sense to walk away and default once there is negative equity. This leaves the lender with the loss and allows the borrower to recover any downside by paying lower rent from suppressed home values.

      This is exactly what happened in the mortgage market after the collapse, which indicates that the demand for loanable funds was far less than the inflated supply. Therefore, when analyzed from a top-down perspective, advantageous credit standards overwhelmed the market causing a disastrous collapse. Again, from the top-down viewpoint, this hypothesis entails a few questionable assumptions.

      Why would banks syndicate risky securities if they were holding 40 percent of all mortgages and home equity loans on their balance sheets? Why would the price dictated by the market not be an accurate assessment of the sentiment of investors? As for the FCIC commentary on this subject, the commission sheds no light on the fact that investors recognized the innate differences between CDOs and other corporate securities. This difference was reflected in the way the securities were rated and perceived. It is hard to believe that this went overlooked by professional investors.

      Each rating agency had proprietary methods for rating these securities, and while they are all different, they largely came to the same conclusion regarding the risk. In retrospect, we can see that rating agencies underestimated the amount of CDO equity necessary to ensure creditworthiness, just as they did with the underlying mortgage-backed securities. Short-term debt played an integral role in the way the economy began to unravel in

      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong
      Unintended Consequences: Why Everything Youve Been Told About the Economy Is Wrong

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