The Economics and Politics of Socks

NPR did a fascinating two-part story on the globalization of the sock industry. Here's a snippet I found particularly interesting:

Baker tells me he can make a sock core just as cheaply as anyone in China or Honduras. The machine costs the same. So does the yarn. There's hardly any labor.

The big cost, and the reason more than 100 Fort Payne mills have shut down recently, comes in the next step.

"Generally, the biggest difference is the closing of the toes or the seaming of the sock," Baker said.

Take your shoe off. Look at your sock. That little line near your toes, that seam — it is what's killing the U.S. sock industry.

The really ironic thing is that under the Central America Free Trade Agreement (passed in 2005) the old tariff on imported socks will be reinstated. So, the American sock industry will be saved, people in Honduran sock factories will lose their jobs, and American consumers will have to pay more for socks. Kudos to our legislators. You can check out the full story here:

World Sock Capital Suffers From Duty-Free Imports

Common Sense Goes To Liberty

The Economics colloqium for "Common Sense Economics" took a field trip to Liberty Fund last friday. Here are some pictures, as well as the site for Liberty Fund in case you're interested in learning about them here

Constitution

As I stated last meeting, the college requires a certain set of guidelines for governance for extracurriculars like our group. Part of our reinstatement is the introduction of a new "Constitution," (though the cynic in me may prefer something less structured than a "Constitution"). I would like to propose a complete rewrite of the Constitution, but for both a frame a reference and for fun, I wanted to post the old constitution (please comment back with your ideas). That said, here's the April 23, 1996 (!) version:

GDP Constitution

Preamble

We, the People of the Ball Sate Miller College of Business, in order to form a more perfect educational institution, do ordain and establish this Constitution for our organization, Gamma Delta Pi.

Article 1- Name

The Gamma Delta Pi Economics Society is hereby established and the rules for governing it are contained in this Consitution.

Article 2- Purpose

The purpose of Gamma Delta Pi is to promote the understanding and appreciation of the science of Economics.

Article 3- Membership

All Economics Majors or Minors, as well as those earning the grade of A in Economics 201 or 202, are eligible for membership in Gamma Delta Pi. Faculty members of the Economics Department are also eligible for regular membership. There shall be no limitation to the size fo the organization. Prospective members can join the organization at any time during the academic year.

Membership in Gamma Delta Pi will not be restricted on the basis of race, sex, religion, color, national origin, physical or mental handicap, age, status as a Vietnam Era Veteran, degree of fashion sense, or general cluelessness.

Article 4 - Officers

The terms of offices of the President and the Vice-President of Gamma Delta Pi, as well as those of all other offices deemed necessary by its members, shall last one academic year. The elections shall take place during the first meeting of each academic year.

Article 5- Executive Council

The executive council, comprised of the elected and appointed officers of Gamma Delta Pi, shall meet monthly to discuss business and plan future events.

Article 6- Meetings

The general meetings of Gamma Delta Pi shall take place on a monthly basis at a time and location deemed acceptable by its members. Special meetings in order to listen to guest speakers or to take trips shall be in addition to the monthly meetings.

Article 7- Finances

Membership in Gamma Delta Pi shall be free of charge. However, since there is no such thing as a free lunch, user fees for individuals based upon consumption can be established by the executive council.

Article 8- Amendments

Amendments to this Constitution can be presented for consideration at any of the general monthly meetings. A quorum must be in attendance in order for a vote to be taken. Amendments shall need a two-thirds majority in order to be passed.

Jump Start/Social Security

It seems like this blog could use a little bit of a jump start, so I'll start with some food for thought. The issue is Social Security.

Now, we know Social Security has been a hot-button issue for some. In his first term, the Bush administration tried hard, albeit unsuccessfully, to turn the accounts from a community trust fund to privatised accounts. Well, it appears that arguments for privatization are returning. So what's the issue?

Well, some people, mainly conservative Republicans, are saying that we need to overhaul (through privatization) Social Security because of the rising medical costs that we'll see as the baby boomers begin to retire. This seems to be deceptive at best. Here's why.

Currently, federal spending on the healthcare trio (Medicare, Medicaid and Social Security) is 8.5% of GDP. By mid-century, projections from the GAO have this rising by 10%. That could be a problem, yes, but how much of that is due to Social Security? After taking into account the new worker-to-beneficiary ratio that will result when the boomers retire (3-2), the percentage of GDP spent on SS will rise about 2 percentage points to 6% of GDP -- not a huge issue in terms of entitlements.

In 1983, the format was altered to increase the payroll tax and build up a trust fund that, according to CBO estimates, will keep Social Security paying out benefits until 2041.

As for Medicare and Medicaid, a lot of the reasons for the projected increase in these areas are due to rising healthcare costs. The aging population, according to the CBO, actually has a very modest effect that is more than cancelled out by rising costs. So even if privatization of Social Security were a good idea, it wouldn't do anything to address the rise in healthcare costs.

The bottom line is: Social Security isn't the problem.

Wal-Mart to Overhaul Healthcare

I figured this would be of some interest to those in inner circles that revolve around discussion of Wal-Mart. In my own opinion Wal-Mart is developing into a monopolistic competitor. One of my problems with a lasseiz-faire system is that, as history has shown, the employers get the better of the deal while the employees get the shaft. Now, don't attempt to label me a socialist here. I'm not in favor of the state controlling industries, but I do believe in a fair amount of regulation. That said, take a look at this from the New York Times:

The company, according to data available for the first time, is offering better coverage to a greater number of workers. Wal-Mart, the nation’s largest private employer, provides insurance to 100,000 more workers than it did just three years ago — and it is now easier for many to sign up for health care at Wal-Mart than at its rival, Target, whose reputation glows in comparison.

Wal-Mart has hardly become a standard-bearer for corporate America: it still insures fewer than half its 1.4 million employees in the United States.

In addition to being a magnet for discussion revolving around Wal-Mart (or Big Box Mart if you've ever been to JibJab), I can see how this could go to serve the interests of single-payer healthcare advocates. Here we have an employer who for years gave a hard time to their employees with regards to benefits simply because they had the power to do so.

On one side, you can't really blame Wal-Mart. A business owner's objective is to maximize profits, and paying for healthcare benefits could be rather costly. But at the same time, doesn't a company have a responsibility to look out for their employees, and therefore, their investments? Looks like we may finally have that showing up.

In one sign of its success so far, the company has pushed down the price of 2,400 generic prescription drugs to $4 a month for employees, starting next year, a program that it offers, in more limited form, to its customers.

Now, the chain is even considering weight-loss clinics in its 4,000 stores and is toying with the idea of selling health insurance, hoping to finally bring coverage within reach of most Americans. The company’s turnabout demonstrates the power of public pressure to change even the biggest corporations like Wal-Mart, which has based its business strategy on low costs at all costs.

Great economics books

I'm interested in everyone's recommendations on economics books. I'll go ahead and give my short list of "recommended readings."

1) Economics in one lesson, by Henry Hazlitt, 1946
2) Economic sophisms, Frederic Bastiat, 1845
3) The Road to serfdom, F.A. Hayek, 1944
4) Freakonomics, S. Levitt and S. Dubner, 2005
5) The Mystery of Capital, Hernando De Soto, 2000


Economics in one Lesson is the main reason I am economics major. I read it as a senior in high school and I have been hooked ever since.

I read economic sophisms in the international economics discussion class with C.B. and Van Cott. Before this book by Bastiat I read "What is seen and what is unseen" which is a fantastic essay. You can find it and other Bastiat readings on www.bastiat.org .

The Road to Serfdom is an interesting look at, in general, freedom in America and the U.K. in the 1930's and 1940's. I can't do much more explaining, just read it.

Freakonomics is terribly interesting. No real point to the whole thing, but you'll want much more by the end. I read it in about two days as a junior here at Ball State. Seriously, just read it.

The Mystery of Capital is great if you want to get a grasp on how important institutions are to our well being.


If anyone has other ideas about what great readings on economics are I'm sure everyone would appreciate it.


W.A.H

Fed Chairman: Economy Likely to Slow

By now we've all heard about the lagging housing market and how much of a strain that's been on consumers. It appears, however, that the entire economy is going to suffer.

WASHINGTON, Nov. 8 — Ben S. Bernanke, chairman of the Federal Reserve, told Congress today that the economy is going to get worse before it gets better, a message that got a chilly reception from both Wall Street and politicians.

On a day when stock prices swung wildly, the dollar hit another new low against the euro and further signs emerged that consumers are growing more cautious about spending, Mr. Bernanke warned that the economy is about to “slow noticeably” as the housing market continues to spiral downward and financial institutions tighten up on lending.

But in a disappointment to investors, Mr. Bernanke offered no signal that the central bank might soften the blow by lowering interest rates for a third time this year at its next policy meeting on Dec. 11

Now, I'm at this point not an economist with the knowledge of, say, Paul Krugman. But even I can admit that a sluggish economy is never a good thing. Of course, lowering the interest rates could be somewhat of a Catch-22. Lowering them now will stimulate extra borrowing of funding, therefore putting more money in circulation, but of course that comes at the expense of having loanable funds around later to promote investment and growth.

The plus side is, however, that there's still some growth, just not nearly as much as we're used to.

Testifying before the Joint Economic Committee, the Fed chairman said that the two rate cuts in September and October “should” be enough to keep the economy from slipping into a recession. Without being specific, he reinforced statements by other Fed policymakers that the economy would have to show signs of stalling out entirely before they would reduce rates again.

Asked if he saw any risks of a recession, Mr. Bernanke demurred. “We have not calculated the probability of a recession,” he responded. “Our assessment is for slower growth, but positive.”

Stay tuned.

Mike did a great job talking about Wal-Mart for GDP last evening. Thanks Mike! Also thanks to Cecil for taking the lead on this and getting the club moving in an interesting direction.

In preparation for the upcoming panel discussion a paper I co-authored with Coelho might be useful background reading as it compares and contrasts alternative approaches to "corporate social responsibility"; the link below should take you to it:

http://web.bsu.edu/jmcclure/SOCIAL%20RESPONSIBILITY.pdf

Fed Challenge

Here are some pictures from our (David, Allen, James, Dr. Stone) weekend in Chicago. I've also added some to my photoblog listed here: school photos.

Starting this out

Everything has a beginning. Here's ours (online). Part of this blog's purpose is to discuss day to day issues in the overall economy between GDP meetings (usually every thursday during the school year), but I mainly see it as an avenue to further the mainstream appeal of our subject of interest-Economics. It seems that in general, there is little appeal for the public to have a basic understanding of Economics. Our objective is to not only address our interests in discussions of economics, but the overall issue of a public veil of ignorance on the subject. We encourage readers for their input, as well as furthering the understanding of economics in their community. Our community is Ball State University. As a proud member of this community, I hope our discussion of economics can better our community- in that with understanding of these principles, many subjects can be put in perspective. That said, I hope all readers will garner not only understanding, but the same fascination and passion for econ that I've had since my first class.

Here's to scarcity.

James

President of GDP