Pop that Bubble for Uncle Sam

Deleveraging is the act of reducing the amount of debt you owe. In a word, it is austere.

When the economy is good, people are working and borrowing money with the intention of buying bigger, better products. In America we frequently use credit to buy what we want. Little thought is given as to if it will be paid back because incomes aren't scarce. But when the economy slips into recession, the medicine comes next in the form of austere deleveraging, paying back debt to quell further losses. If the situation is bad enough, this austerity can be excruciating.

No one in U.S. politics wants to even think about formulating a deleveraging plan. It's an election year, and talk of saving money, tightening belts and eating our peas makes voters look to the other guy. So the bureaucrats are procrastinating until after November. But by then it'll be too late to make any meaningful, long-term policy stick. Already we've seen the housing bubble burst, which ushered in the Great Recession and left us with recalcitrant unemployment. It's past time to deleverage and pursue austerity. Isn't watching Athens burn proof positive that another advanced nation like America (or Spain or Portugal) could face the same outcome unless we get control of our borrowing?



Athens, Greece riots, 2012




Yesterday, Twitter told me (via @MsGypsy_Jones) that we're facing another asset bubble. Mass media reports that the cost of a college education is overvalued, and I believe it. Students invest upwards of $100,000 into four years of school without guarantee of a job that will provide a rate of return that makes attending an accredited college worthwhile. With an unemployment rate of 8.1%, that situation's not improving anytime soon. Instead of pushing more students into desks, we ought to control the bubble now and seek alternatives: unaccredited programs, vocational training, community colleges and entrepreneurship basics for children. This way we can head off the inevitable bubble burst at the pass. Remember that economics is about information and weighing the benefits of any choice against the costs. Ultimately we save on the time it takes to get qualified graduates into compaable jobs, the money we lose from overinvesting in education and the economic consequences of postponing debt reduction.


So go'head. Pop that bubble for Uncle Sam. It'll only be worse if we wait.



Prosperity,


@RogueEconomista

By the seat of your gasoline underpants

So many of the decisions we make in our everyday lives can be discussed or predicted using economics. Here's a step-by-step example:

• People desire (demand) gasoline. We use it in  our cars so we can go!
• Gasoline comes from countries (mainly OPEC supplier) who seek profits and control distribution.
• Because of  supply (OPEC) and demand (me and you) we sometimes faces ridiculously high gas prices!

Now we have a choice to make: Pay the higher price to ride around or refuse and stay home/carpool/take public transportation?

Choice

That's economics in action! When faced with any decision - from buying outrageously priced energy to choosing to go back to school - we weigh the benefits against the costs. Rational people will make decisions where the benefits are greater than or equal to the costs (I'll leave it up to you to decide if paying $4/gallon for gas is "rational" or not).

As of late, gas prices have slipped a tad. I filled up for $3.45 this weekend. Last summer I was surely paying in the $3.80s*. But 12 years ago when I left home for college, price per gallon was about $1.25 in Atlanta. What gives and who do I blame for all this volatility??

People like to point to years that gas prices were more "acceptable," then associate any changes (new President or frequent oil spills, for example) with ruining the good ol' days when prices were low. Not fair. Economics on the macro-level is indicative of the choices made by its myriad micro units. If we are more willing to pay $4/gallon, than we are to carpool, we're implicitly telling OPEC that the price is negligible. These countries will continue to earn greater profits as long as our demand stays the course! In this sense, demand creates supply and not the other way around. Sure OPEC has the best and the most oil, but it's worthless until a market for oil opens and flourishes. When cars begin to run on beer, expect to see Anheuser-Busch, Corona and Fat Tire merging to restrict supply and push up prices. It's just economics. We like gas and well, we like beer too. Prices will rise to see just how much we like them.




Custom made beer tap gas pump by GarageArt.com


But by how much will demand for gas rise as energy prices creep north? Economists use a measure called elasticity to answer this, but to keep from boring you to pieces, suffice it to say that gasoline is pretty inelastic: Americans don't respond to higher prices by demanding less gas. We just pay for it and keep pushing. But why?? One reason is that after adjusting the volatility of gasoline for inflation, we're in a place we've already been so it's not that big a deal (relatively speaking). Take a look at adjusted gas prices since 1919:

After accounting for inflation, I was right to feel great about gas prices in 2000 and in Atlanta, they were lower than the national avearge shown above. But these last twelve months are more like the late-1970s and early 1920s. It's not new or even excessively high; but it is very similar to the purchasing power Americans had in those eras. So spend like you know and stop acting so brand new. If your parents or (great)grandparents came of age during either of these times they may well have lacked the daily convenience of debit cards, extensive education (despite skin color), and personal automobiles. During these eras the nation had less debt and higher taxes as well.  Since they made it, how will you? What choices do you exercise when faced with increasingly higher energy bills?


Everything in perspective and moderation. Prosperity,

@RogueEconomista

* I use a handy application on my smartphone called Mileage to track how much bang I get for my buck. Very cool

Personal, Practical Economics!

When people ask me what I do, I say "I'm an economist." Now, I know this is vague, but it gives the opportunity to do what I love: talk about economics!

ECONtrepreneurship in Action

Naturally, the next question is: "Well....what's that?" And naturally, I'm immensely pleased that I've been asked. Have a seat and prepare to get your coattail pulled.

ECONOMICS is the result of people not having enough of the things they desire. Money, clothes, credit, time, energy, anything you can think of! All of these things are scarce, if they weren't we'd have no reason to desire them. Scarcity forces us to make decisions, and making decisions is Economics.

This clip from Wall Street: Money Never Sleeps is a great example of scarcity. Dig Josh Brolin's response:

As on Wall Street, Main Street, and as on Main Street in our homes. Most of our economic decisions are about money and how to get more of it. Economics is useful for becoming financially fit, but its applications extend far beyond finance!

As an economist, I make it my business to help people get informed about sound economic principles to help them make better choices. That goes for you, your household, your business or your community group. Economic principles can help you understand and exercise your rights when it comes to:

• Employment (resumes & cover letters)
• Entrepreneurship (business plans, cost-benefit analyses & websites)
• Wealth acquisition (budgeting, saving & investing models), and 
• Planning for the near future in a complex economy. 

Specifically, I specialize in creating curricula to educate the masses, and delivering personalized consulting that will help you to help yourself. Real information that you can use immediately. Hands-on, practical economics. Oh, and what's in parentheses above are services I offer. See http://www.delasol.biz for more information.

Obviously, making a "good" decision is largely a function of the quality and quantity of the information you receive. The Delasol Group offers a focused group of services and goods that aim to help you nurture your personal economy at your own pace. So to make "good" economic choices, you should get your information from The Delasol Group!

prosperity,

@RogueEconomista