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September 30, 2008

Dealing with 'bads'

Some of the language of economics is interesting. For example, you use the word "goods" to mean products and services consumers buy that give them pleasure and benefits like food, clothing, vehicles, movies, trips to the beach, etc. But is there a comparable term in economics called "bads"? And if so, how are they handled?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there is, and first of all, don't blame me for the language of economics. It's been around about 100 years, and some of it is antiquated. I always tell my students, I kind of translate for them what these words mean, but yes, there is a term in economics called 'bads' and it simply means, obviously, a product or service that we consume that is harmful for us. Usually, it's resulting from us not - we consumers - not directly, willingly consuming that bad, but it may be a side effect, someone else doing something that creates this bad. The all-time best example would be pollution. When we drove in this morning to do these programs, we created some air pollution, and so, for example, people that have asthma, may be bothered by that, that pollution that we created. Now we didn't do it on purpose, we weren't trying to harm people with asthma. It was a byproduct of what we did, but clearly pollution is a bad for many people, especially folks with respiratory situations. Now, how do we handle that in economics? Well, actually the most efficient way to handle it would be to tax the creator of the economic bad, to say, 'Ok, you can still drive your car and create pollution; however, if you pay some tax based on that economic bad and that we use that tax money to try to mitigate the adverse effects of your activities.' So, yes there are economic goods; there are economic bads, and there are important ways to treat each."

Posted by Dave at 08:00 AM

September 29, 2008

Portable health insurance

Health insurance is different than many other kinds of insurance, like life and auto, in that it is usually tied to your job. However, one problem is that when you change your job, you can lose your health insurance. Why is health insurance like this?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is becoming a bigger and bigger problem as more people are changing jobs more frequently over their work career. And really, the answer to your question goes back, curiously, to World War II. During World War II the government imposed controls on wages and salaries. That is to say, businesses were limited on how much they could increase someone's pay. But the government did not control benefits like health insurance. And so what businesses did in lieu of giving someone a pay raise, they, for example, added or improved their health insurance. Actually, the business also got tax benefits for doing that. And so this is held over to today and it is really why most of us get tied to our job vis-a-vis our health insurance. Now if we want to make health insurance portable, what we would have to do is break that tie, that link, between health insurance and the business. That could be done in two ways. One, it could be done by taking that tax benefit that businesses get by providing health insurance away or to give a similar tax benefit to people who buy their health insurance directly. And many are calling for this kind of change. They say in this kind of modern economy where people move around a lot we need to make health insurance portable."

Posted by Dave at 10:39 AM

September 26, 2008

Do cities still matter?

Some people may think cities are becoming obsolete. With technology making distance less consequential, some see a future where people can live and work anywhere. How accurate is this view?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I think it is accurate to say that more and more people will be able to work remotely using modern technology, but I think it is inaccurate to, therefore, leap to the conclusion cities will become obsolete. Historically, cities were where people came together to trade goods and services. Today cities are important because it is where ideas are generated. There is still a benefit for folks to get together and collaborate and innovate and think and work together. And that is one of the big functions that cities serve today. And in fact if you look worldwide, cities are actually becoming more important. Here in North Carolina, for example, if you look at the state's six largest cities, their share of total economic output in the state has gone from 42 percent in 1990 to over half - 51 percent - today. So I think large cities are actually on the upswing. Now at the other end of the spectrum, many of our smaller cities especially here in North Carolina are being challenged by our new economy. I think that is where the focus will be on the future of what will be cities."

Posted by Dave at 08:45 AM

September 25, 2008

Pitfalls in using the tax code

The federal income tax is used to achieve goals other than raising revenue for the government. The code is full of deductions, exemptions, credits and adjustments, all designed to assist taxpayers with certain expenditures or motivate them to spend in a certain way, but are there any disadvantages to this tactic?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There are two big disadvantages, and analysts have to decide if those disadvantages outweigh the advantages of what the fiddling with the tax code is intended to achieve. One, of course, is obvious, that if you add more exemptions, deductions, credits to the tax code, you complicate it. You make the tax code more complex, more difficult to understand. And in some sense, I think you're also making it a little less trustworthy, in the sense that some person might think that guy or gal down the road is getting something in terms of a benefit I'm not getting. So I think we do have to watch that; we have to take that into account. The other thing is when you add these complications, usually what you do - what a policy maker does - is the complications are only added for certain kinds of taxpayers, usually defined by income. Well, what you have worry about is, How are you going to phase that out? Are you simply going to say, once you get to this level of income, boom, they're gone. Well, if you do that, that creates these break points in the tax code, and there have been lots of studies that have shown that people actually take these into account, change their behavior, maybe even decide not to take a better-paying job because it leads them away from being able to qualify for those tax goodies in the tax code. So those are two complications that we really have to keep in mind when we're trying to use the tax code for something other than simply raising revenue."

Posted by Dave at 08:13 AM

September 24, 2008

The surge in foreign buying

There have been several purchases recently of big-name American companies and assets by foreign interests. Is there any particular reason why this would be occurring now?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There is, and we actually, periodically see this happen. And it's really stemming from two things. First of all, as most people know, we've been running huge trade deficits in our country, meaning that we're buying more products from overseas than we're selling to those countries. And what this does is put U.S. dollars in the hands of those foreign producers, and those foreign producers have to ultimately use those dollars to buy something in the U.S. And so what they're coming back and doing is they're buying those assets you mentioned and companies and land and buildings and so forth and other kinds of investments. So that's one factor. The other factor is that the U.S. dollar, of course, relative to foreign currencies has been low. So actually U.S. assets in terms of their price have looked relatively cheap to foreign buyers. So the bottom line here is that foreign buyers have the dollars to buy U.S. assets, and the U.S. assets look very reasonable in terms of price. And that's the reason we're seeing this boom in foreign buying here in the U.S. Now, you might say, to what extent is this going on? Well, still, if you look at all the assets, all the investments in the U.S. economy, and you ask what part of those is owned by foreign people, it's about 15 percent."

Posted by Dave at 08:00 AM

September 23, 2008

Collapsing Commodities

The prices of commodities from oil to metals to farm products to gold have been dropping recently. Some see this as a good sign resulting from consumers reacting to their previous high prices, but other analysts aren't so cheerful. They don't see such a silver lining. What's the downside of these lower commodity prices?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There's an economic lesson here, and it is that there are two fundamental economic factors that determine how much of something we buy: the price of that something and the income of the buyer. Now, folks who are happy about the drop in commodity prices are focusing on price, and what they're saying is that people have responded to these high prices that we've seen, like for gasoline, by reducing their purchases. That has reduced demand - in economics lingo - and that's actually, ultimately pushed down the price of the commodity. And so everyone's cheering that. But other economists aren't so happy because they're saying, well, there's an income effect here. And that is that people are driving less, and there's less construction going on in the country, in the world and so forth because income is down because we're having what's looking like now worldwide economic slowdown. And so the reduction in commodity prices isn't a result of something good, it's actually the result of something bad and that is a slower economy. Plus they say, when the world economy does rebound so too will the demand for these commodities, and that will put upward pressure on their prices."

Posted by Dave at 08:40 AM

September 22, 2008

Paying off loans

With today's tight economic times, many folks are considering paying off some loans. Can you give us an idea whether this is a good idea, and if so, when?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I sure can, and it's actually fairly simple. The rule of thumb you want to use is always to put your money where the interest rate is highest. Let me give you an example, let's say you have a credit card and you have loans on that credit card charging you 18 percent. Let's say you have a car loan that's charging you 2 percent, and then thirdly, let's say you can earn 5 percent by investing your money. Well, what do you want to do? Well, what you want to do first if you have any spare cash, obviously, is put that money toward paying down the credit card rate. That card is charging you 18 percent, and for every dollar you pay down, it's like earning 18 percent on your money. Now secondly, if you did that, and you're left with a car loan of 2 percent and earning money at 5 percent, you actually would not want to pay off the car loan because you're better off taking any spare dollars earning 5 percent, which is higher than 2 percent you would effectively earn by paying down on the car loan. Now, there's one addendum to this, and that is that you never want to carry on any kind of loan debt on an asset or some kind of purchase that has a very short life. So, for example, if you have debt on restaurant bills, you do want to pay those off because you don't want to carry debt on something that you've already used up."

Posted by Dave at 08:16 AM

September 19, 2008

Some economic improvements

With so much gloomy economic news around today, it's good to find some sunshine wherever we can. Can you give us any good news about our every day economic lives? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I can, and I think this is important to sometimes take a longer run perspective and see that things perhaps aren't as bad as they used to be. And I think one of the big changes we've seen over the recent decades is the spread of new products and technologies that make our lives better. For example, 40 years ago, of course, computers, cell phones, microwaves, digital cameras, VCRs and the internet didn't even exist. Today, over half and in some income ranges, two-thirds of households have all of these technologies. And of course, we can talk about how they've improved our lives. Likewise, about 40 years ago, only a few households had air conditioning. Only a few had dishwashers and clothes dryers. And now the rate of ownership of these items is close to 80 percent in many cases; in some segments, 100 percent. And we've seen especially gains in all of these technologies in terms of their use, not only for all households but especially for low-income households. And then, finally, people are taking more leisure time actually. The data show that. And the workplace has become much safer. So there is a silver lining in all this gloomy economic news, especially if you look over long-run trends."

Posted by Dave at 08:22 AM

September 18, 2008

Is it time for solar power?

Many people think the next great energy source is obvious; it's solar power. Certainly, interest in solar power has been increasing with the rise in conventional energy prices. What's holding solar power back? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think one word: cost. Certainly, I think you're right that probably 50 years from now, solar power will be, perhaps, much more dominant and maybe the dominant energy source in the country, but right now, the problem is cost. And it's really the up-front cost. For an average house, right now, it costs about $20,000 to $30,000 to equip that house with solar panels, and to set up a solar system. And at that cost, even with, therefore, your monthly reductions in electric bills, it'll take about 10 to 15 years for those costs to be recouped in savings. Now, that's really what's deterring people. Now, granted, some states are offsetting some of those costs by incentives, by tax credits, but they do vary from state to state. Another problem is solar, of course, isn't as effective in all parts of the country. It's clearly best suited for the Southwest, obviously not as well suited for the North and Midwest, where there are not as many sunny days. But we can be optimistic and say as we move forward, if the cost of solar panels drops - and many people think that will happen as well as the prices of conventional energy rising - then the equation for solar power will probably look much more positive down the road."

Posted by Dave at 08:00 AM

September 17, 2008

Are we in the midst of a great unwinding?

There's no question we're in some challenging economic times today. Some call it a slowdown, while others say it's a recession. But many go further and think the country is in the middle of a fundamental economic shift. What might it be? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"If it's occurring, some have dubbed this shift the great unwinding, and what they mean is that if you look back over recent years, you find - and this is no news to most people - you find that many people took on a lot of debt. They borrowed a lot of money to buy homes. They put a lot of debt on their credit cards. And in some sense, this made sense, because, for example, interest rates were very, very low, so it actually made sense to borrow money. Secondly, if you look at buying homes, what was happening to home prices? Well, they were going up, and up, and up. So people thought, hey, borrowing money to buy a house when that asset value's going up, again, that made sense. So I don't want to create the impression people were making bad choices. They were, probably, most people making good choices given the economic environment. But now of course, things have changed. Interest rates aren't at those basement low levels they were a few years ago. Of course, everyone knows about the housing market, and prices on many markets are going down. And so now many economists think that there's this shift going on in the economy where people are going to shy away from taking on new debt and actually they're going to start saving more out of their paycheck. It used to be they were relying on their home to provide their savings. And so, if this is occurring and if it's going to last, we could be looking down the road at a much greater consolidation of debt, lower debt loads and a much bigger increase in the savings rate."

Posted by Dave at 08:00 AM

September 16, 2008

Keeping up with yourself or the Joneses

All of us are interested in how well we're doing financially, but a question arises as to what we use as the basis of comparison when doing this analysis. What are the options? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there are really two options. First of all, you can simply track how you're doing against yourself. So you look at your income last year, you look at your income two years ago, you compare that to your income today. Now, very importantly, when you do this, you have to take out inflation. So just real quickly, if you saw that your income went up 5 percent over last year but recognize inflation is running about 5 percent, then you really are simply treading water. The other way you can do it is to compare yourself to other people - the so-called keeping up with the Joneses approach. And this approach says that rather than simply saying, well, if your income after inflation has gone up, that means you are getting better off. What you would want to do is say, 'Well, yeah, my income has gone up, but how much has the income of other people gone up?' And if their income has gone up more, then I'm actually worse off. So what this does is put you in the sense of making relative comparisons. You're not comparing you against yourself, you're comparing yourself against other people. And the fact is that everyone's standard of living could be going up, but if yours is going up at a slower rate, you may very well feel worse off."

Posted by Dave at 08:00 AM

September 15, 2008

Offshore drilling and oil prices

There's a debate today about expanding the exploration for oil off the coasts of the U.S. Of course, the reason for this drilling would be to increase oil supplies and presumably reduce both oil and gas prices. Do we have any studies indicating the degree to which this would happen? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, of course this is a very controversial issue, and there is a lot of uncertainty related to any studies, so we don't have a final answer. What I am going to report today is sort of the official study, if you can call it that, actually from the U.S. Department of Energy. And they have looked at the situation, and they have looked at what would be the impact of drilling offshore on energy supplies as well as prices. And what they have concluded is that if we started right now and expanded the range of drilling that companies could do off the coast of the U.S., first of all, we probably would not get any additional production until about 2017. And secondly, once that production was in full swing - again, U.S. Department of Energy estimates - that the increase in domestic oil production would be in the range of 2 to 3 percent. And they conclude the impact on, therefore, the price of oil - which, of course, is set in the world market - would be very, very minor. Now that said, there are certainly a lot of debates about this Department of Energy report and their conclusions. First of all, many people in the oil business say, 'You know, you really don't know how much oil is down there until you start to drill.' So anything based on some estimate of how much is - in this case - under the ocean is just that, an estimate. Also, they say that, some critics of the Energy Department report say that if we increased offshore drilling it would change the whole psychology of the oil markets, especially the psychology of the large suppliers like in the Middle East as well as Russia because it would suggest that there is going to be more competition. And as these critics say, that would actually further lower oil prices. So this is really a wide open debate. Nothing is settled, but it is certainly a very important one."

Posted by Dave at 08:00 AM

September 12, 2008

Tax rates

We're beginning to see some detailed proposals from the presidential candidates, and many of these proposals have to do with taxes. However, today, let's see if we can gain some understanding of concepts. For example, when a candidate talks about increasing or decreasing an income tax rate for households making certain amounts of money, does that rate change apply to all of their income? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Excellent question, and the short answer is, no it does not. Here's what happens. The money that you make during a year from working - first you are not taxed on all that money - you get to take exemptions, deductions and adjustments. And after you take those off, you are left with something called taxable income. Then, that taxable income is broken up into ranges. And there are different tax rates applied to each range, and everyone gets to take advantage of all these ranges. So for example, today for federal income taxes, there are five income tax ranges, and so there are five tax rates applying to each of those ranges. And the tax rates go from a low of 15 percent applying to the lowest income range up to 35 percent applying to the highest income range. Now, that 35 percent right now for married couples only applies to your taxable income over $357,700. Obviously, if you are not that high, you don't have to worry about it. But the point is that if a candidate said, 'Well, we're going to adjust that upper tax rate, that 35 percent tax rate,' that wouldn't apply to all income of households making a lot of money. It would only apply to that part of their taxable income over - again - $357,700."

Posted by Dave at 08:00 AM

September 11, 2008

Income and taxes in North Carolina

We hear a lot about who pays taxes at the national level but perhaps not as much at the state and local levels. However, a new analysis just became available that gives an insight into tax payments at the state level. What does it reveal? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is from the very prestigious think tank called the Tax Foundation. What they were able to do is look at each state, and first of all, look at the percentage of total income earned by taxpayers in various income categories and then look a the percentage of federal income taxes - only federal income taxes - paid by these same taxpayers. And I think the numbers are very interesting. For North Carolina in 2006, first of all, they showed that the top 1 percent of income earners in the state earned 17 percent of all income. The top 5 percent earned 32 percent of all income. The bottom 50 percent earned 11 percent of all income. Now these numbers are actually somewhat lower than for the nation, meaning that there appears to be a higher percentage of North Carolinians who are in the middle income category. Now in terms of federal taxes - federal income taxes paid - the top 1 percent of income earners in North Carolina paid 35 percent of all federal income taxes, the bottom 50 percent paid 3 percent."

Posted by Dave at 08:00 AM

September 10, 2008

China and jobs

A report was recently released saying that as a result of the increased trade with China since 2001, 2.3 million U.S. jobs have been lost or displaced. The toll for North Carolina is 80,000 jobs. If accurate, what do these numbers mean about increased world trade and its impact on North Carolina? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, it means that trade creates change, and that's the long-run result. When you change who does things in the world, who makes things, when you shift production from one country to another country, for example, that's going to create change. It's going to create some jobs, somewhere, but lose jobs elsewhere. Now, clearly North Carolina has seen this directly because we've lost many, many jobs in the textiles, apparel and furniture industries as a result of increased trade with China as China has expanded its production in those areas. So there's no question that we've lost some jobs, but on the other hand, this study doesn't point out there are some benefits to trade. First of all, U.S. exports to China have also increased, and that has created some jobs, not necessarily for the same people, unfortunately, who have lost their jobs, but it does create jobs. Secondly, we now have evidence that China's movement into the world economic arena has resulted in lower prices for many products. And so, for example, we're able to buy our clothes at a cheaper price. That also creates some consumer benefit. So trade and changes in trade area always going to create benefits and costs, but the thing to recognize is that some people are going to benefit, others are going to face the costs, as well as some regions and some states."

Posted by Dave at 08:00 AM

September 09, 2008

Do gas prices rise faster than they fall?

As oil prices have come down recently, it seems as if it takes a much longer time for gas prices to drop. In contrast, when oil prices rise, it seems like pump prices jump almost immediately. Is this the case, and if so, what's going on? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, studies do show that there's what we call an asymmetric relationship in gas prices. They go up much faster than they come down. So the question is why, what's going on? And economists think that it really comes down to our behavior, buyers' behavior. Because when gas prices go down, first of all, we're going to feel a little richer. We're going to feel like, well, I'm going to add a couple of more gallons at the pump when I'm buying gas. And so demand - usage - tends to go up, and that tends to elevate prices a little bit, or in other words, keep them from falling as fast. The second thing that we do is when gas prices go down - again, we're happy - and we don't shop around as much for cheap gas. You know, we remember when gas prices we're going up, everyone was in a tizzy about where can I get the cheapest gas. When gas prices go down, you don't hear that as much, and again, because we're not as watchful, because we're not shopping around, that means there's a little less competition for gas and, again, that holds up the price. So I think the bottom line here to consumers is, behave the same when gas prices go down as when they go up, and if you do, you'll see a faster drop in those prices."

Posted by Dave at 08:00 AM

September 08, 2008

So, no recession?

The latest numbers from the government show the pace of economic growth actually picking up in the second quarter of 2008. Does this mean we're not in a recession? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we don't know yet, and of course, it depends on how you define a recession. The old rule of thumb was that you had to have negative growth in the economy - that is, the economy actually shrinking, producing less goods and services - for six months or two consecutive quarters. Now, the latest numbers show that we actually had a slight negative growth rate in the fourth quarter of 2007, but thus far this year - for the first two quarters of this year - the growth rate has been positive. And actually the second quarter's growth rate was a fairly decent positive number. Now, many think that was helped by the stimulus checks, and of course, they're temporary. But this does leave us in a fairly unusual situation. I think most people - if you just polled people on the street - would say, 'Yeah, the economy's bad. We're definitely in a recession.' The statisticians - economic statisticians - would say, 'Well, wait a minute, we're not so sure.' But I think in some sense, this is simply a word game. We obviously have big issues now in the housing market, in the financial services market. We have had a somewhat modest rise in the unemployment rate. So I don't know that it really matters what you call it. We do have an economic slowdown. Again, it won't be for maybe six more months before we can know if we've had an official recession."

Posted by Dave at 08:00 AM

September 05, 2008

What's the optimal inflation rate?

With relatively high inflation cited as an important issue by most people, the question then becomes, What is the best inflation rate? Many would say zero or negative, meaning prices are falling. What do economists say? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this has been a question that's been bandied back and forth by economists for several decades, and the conclusion right now - if you can say that economists agree on anything - is that probably an inflation rate between 1 and 2 percent is optimal. And there are several reasons for that. First of all, measured inflation tends to be on the high side, and we won't go into why, but we tend to overstate inflation, so if you have a 1 to 2 percent measured rate, your actual rate may be closer to zero. Secondly, there are a couple of issues if you have a negative inflation rate. One, is that ultimately that would cause workers wages to fall, and of course, we don't like that. It would also increase the real value of your debt. In other words, if your debt payments are set in a specific dollar amount and prices are going down, the actual burden of that debt is higher. And finally, low inflation rates imply low interest rates, and in terms of public policy for the Federal Reserve that gives them less wiggle room to reduce interest rates when the economy is in a downturn or recession."

Posted by Dave at 08:00 AM

September 04, 2008

Should we have an oil floor?

A bit of a smile has come back to drivers, as falling oil prices have pushed down gas prices at the pump. Many economists have attributed this pull back in oil prices to drivers buying less gasoline when pump prices become so high. However, if we've done good things like drive less and become more energy efficient as a result of high gas prices, will this behavior end when gas prices dip? Should the government, therefore, put a floor on oil and gas prices? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this a very important question, and it's not a new question, but I think it's one you're hearing more and more now that gas prices have started to go down. Many economists, for example, are predicting that we can see gas prices down in the low $3 a gallon. And it's just human nature - it's economic human nature - that when gas prices go down, people will drive more. People will be less prone to buy those fuel - efficient cars. They'll be less willing to carpool, etc. And so there is a buzz about - especially in policy circles - about, well, maybe if we think these gas saving behaviors that we're doing now are good for the country in the long run, should we put some kind of a floor on gas prices? Maybe the federal government should say, for example, well, we're not going to allow gas prices lower than $3.50 a gallon. Now, obviously that would collect more revenue for the federal government. What could they do with that revenue? Well, they could build more roads, more mass transit or invest in energy alternatives or the money could be returned to households in a way that is not related to how much gas they're buying but doesn't make the average household any worse off than a tax increase, so this is an important question. It's not going to be resolved any time soon, but I think you're going to hear it discussed more and more."

Posted by Dave at 08:18 AM

September 03, 2008

Are the Europeans lazy?

Statistics show that Americans work more and take fewer vacations than Europeans. Some have attributed this in part to higher tax rates in Europe compared to the U.S. But is there anything else to account for Americans working more and Europeans working less? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Actually, there is, and I think the key depends on how you define work. If you're defining work simply to be the activities that you get paid for - basically your job - then, yes, you do, indeed, see that Americans work more. We take less vacation than do the Europeans. On the other hand, if you expand your definition of work, and you recognize that work includes some things that you have to do around your house in terms of household chores, raising children, making meals, etc., as household tasks. You certainly don't get paid for those, but it's work. Then, actually, when you combine the two - work at home and paid work in the marketplace - you find that Europeans actually work as much as the Americans. Again, the big difference is that Europeans do more tasks at home. For example, Americans eat out much more than do Europeans. The service industry in the U.S. that replaces many of those tasks that we used to do before, like making meals at home or mowing our lawn or working on a car, the service industry in the U.S. is much broader than it is in Europe. So the key point here is that how do you define work? And when you think of it as this broad definition of work in the marketplace and work at home, Europeans actually are not lazy. They work just as hard as we do."

Posted by Dave at 08:00 AM

September 02, 2008

What machines can't do

Technology is the defining feature of today's economy, and it seems like every day someone is inventing a technique or a machine that replaces a human activity. Does this mean that eventually the only jobs left for people will be the ones inventing those technologies and machines? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, that is an interesting question and certainly an excellent question. And I think it does appear like more and more, we are inventing smart machines, computer-based. But thus far economists would argue that there are two things - two qualities - that humans have that machines have yet to replace. One is dexterity. This simply means the ability for people to better identify and manipulate objects in space. That's the formal definition, moving things around. For example, if you look at a fast food restaurant, you still need people in there to transfer the ingredients and assemble the ingredients. Now this is obviously where machines are making big strides, and it may be down the road that more and more of those tasks can be taken over by machines. But thus far that's a benefit to having people in your workforce. The other big advantage - and I think the one that will take much longer for machines to take over - is the simple fact that humans can think. And we have an ability to interact. We have an ability to reason and react to other people. That's something that is very, very hard to program into machines, and I think it's a key reason why at least for the foreseeable future we are going to need people around to do many tasks."

Posted by Dave at 08:00 AM

September 01, 2008

Demographics and the housing boom

As people are trying to find answers as to why we first went through a housing boom and now a housing bust, many are pointing to demographic changes as a factor. What's the essence of this argument? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, you had a situation earlier in this decade where there was a lot of money to loan to home buyers. That money was provided by the Federal Reserve. But this also allowed the demographics to take effect. And simply put, in the earlier part of this decade, the demographic groups that were susceptible to buying homes were increasing. For example, you had a significant increase in folks in their 20s. Now, these folks are typically renters, but when you had low interest rates and ample money to buy homes, they moved into the home buying market. You also had growth in the 40-year-old range of people. These are typically people who were trading up to bigger homes. Again they were ripe to buy new homes. And then finally you had an increase in the so-called empty nesters, those people who were 50 years old or older. It's time for them to move beyond the home they raised their kids in. The only demographic group that was not growing at this time were 30 year olds. So the point here is that you had this conflux of demographic power, really, here to take advantage of those lower interest rates. Now of course the housing bust came when the Federal Reserve took the money away."

Posted by Dave at 08:00 AM