Naked Economics - Blog Entry #6

I would choose World B. Because I even though I had less money I would be able to get more for my money. Therefore I would have a higher standard of living and be a more productive member of the society, which I believe is of greater value. My mom, dad, and sister on the other hand would choose World A for very different reasons. My sister thinks that begin the richest in the neighborhood would make more people come and ask you fro money. My dad would like World A because while the rich person would have more money they would also raise property values and thus make him wealthier without any addition work. My mom says that she doesn't care what the neighbors have so she would take the option with the most money that being World A. It is very interesting that everyone had different reasons but that they all make sense and could all be argued. I think that the actual decision itself doesn't tell as much about a person as the rational behind their decision.

Also how did you post blog entry in December 1, 2008 at 8:00AM if I am able to read it several days prior?

My first thought of this fact was that it is sad to hear one out of five American children live in poverty; but my answer to the question about if the federal government should change this number is that they should not attempt to change these numbers. I understand and agree that we need a safety net for people. There is a point though that people need to be self-sufficient. I understand there are people with disabilities, which should be helped by the federal government, but if people are able to work then let them use capitalism at its finest and work and succeed as an individual. Wheelan uses a lot of examples of Bill Gates and yes I understand he is rich and has certain things that are not necessary but I also understand that Mr. Gates does work that most people cannot do. He also works more than most people do and he has spent most of his life doing what he does, so who has the right to take that away. If there were no wealthy people there would not be as many jobs. Have you ever heard of getting a paycheck from a poor man? I doubt it and if you have it would be very very small. It is a sad reality that this is life, but yes there should be a safety net but we can’t save 40%. You can take take take…. But people will stop producing if there is no incentive and everything is just going to be taken. Why should people not work if they are completely capable of working? And there are people who will take advantage of getting money for doing nothing. Yes it sucks to be the person on the bottom but without people and top and on bottom there is nothing. I understand that 40% of these children are black but you can’t base everything on race. Look at Oprah, she is a women and black that’s capitalism right there because she beat all the odds and what is she famous for? She is famous for sitting on a chair and talking to other famous people. So to conclude yes it is a sad thing to see and realize that 1/5 of American children live in poverty but understand that they have a chance, the laws give them a chance. The federal government should help those that are not capable but those that are capable should work and circulate the money in the economy.

Question #1

The number of families with children who are in poverty are astonishing and I do believe the federal government should help get these people back on their feet. Though, I do not support the obvious solution to this problem, raising taxes on the wealthy. The government should not spoon feed these people, but instead just give them a choice to pick themselves up. If they are to one day live on a fixed income and have a sturdy life they need to learn to work. Therefore, the federal government should only give opportunities to those in poverty. They should have to work for their money and earn their income just as everyone else does.

(Question 5) Addressing this question as an economist, I believe that rising inequality is a price worth paying if it is accompanied by rising productivity. I believe, as Wheelan does, that the standard of living for all (poor and rich) is improving as our productivity rises. Their may be a large gap between the rich and the poor, but everyone will be better off. In other words, the poor will be better off, though the rich will be even better off. In my opinion, this is good enough for our world today. Wheelan presents this argument on page 113, “…many economists argue that we should not care about the gap between the rich and poor as long as everybody is living better.” I also believe, as Wheelan does, that the increase in income inequality will be a powerful incentive for more people to work harder and invest more in their own and their children’s human capital, making everyone better off: “....income inequality sends important signals in the economy. The growing wage gap between high school and college graduates, for example, will motivate many students to get college degrees… economics is about incentives, and the prospect of getting rich is a big incentive.” (page 113)

From a moral standpoint, I believe something should be done to decrease the vast income gap between the rich and the poor. I believe that it should be everyone’s duty to our country to help those worse off than us and I think the main way this redistribution should be orchestrated is through more progressive taxation. Tax the poor less and take some of the burden off. Compensate for taxing the poor less by taxing the wealthy more. In my opinion, every member from the upper class should be willing sacrifice a little for the greater good. My only stipulation with this redistribution is that it should only be conducted if it does not greatly hinder economic productivity and advancement.

The federal government should be doing more to help the American families, specifically the children come out of poverty. Wheelan states that 11 percent of Americans are poor. All Americans should have the ability of the pursuit of happiness, but when children grow up in poor communities with inadequate education, the pursuit of happiness is extinguished. Wheelan says that the human capital is the economic passport, those children are unable to reach their full potential. Many children growing up in poverty do not go to college, finish high school, or the tools to become successful in a career, which prevents them from becoming successful. Specifically black children, who take up 40 percent of children living in poverty, should be a huge priority. If a large percentage black children are growing up in poverty, then those who live outside of poverty will recognize this and begin to discriminate. But most importantly, those children will begin to identify themselves as reaching the full potential, when they could go much farther. If the federal government helped out those who are poor, it would open up more jobs. Over time less people would be living in poverty, and the amount who receive welfare would be reduced as well.

"Meanwhile, one in five American children - and a staggering 40 percent of black children - live in poverty." Should our federal government be doing more to change these numbers? If so, what? If not, why not?

I do think the federal government needs to step in, because I think these numbers show that we aren't helping ourselves very well. To help impoverished children, though, who you really need to help is their parents. One way to possibly improve their conditions, it to give them more opportunity. If we could create more jobs, and perhaps increase wages as well, that would probably help their standard of living. Of course, with the current economy, it's difficult to just create new jobs. There is also a possible problem with motivation. Some families simply live off welfare, and are either unable, or uninspired, to try and find work. A solution could be that the federal government specifically helps them to look for jobs, or works on providing good incentives (again, increased minimum wage could be one of them). Something that could be done immediately would be to raise taxes, and take some of that money to those who need it, but of course, people who have a higher standard of living already don't often agree with having to give away more of what they earned. Still, one would hope that even if we aren't all as rich as Bill Gates, we would be willing to give a little more for the greater good.

4 Human capital or the sum of experiences, brain-power, and everything else that makes up a human being's ability to work, directly effects the economic well-being of a country. As such, India will fall even farther behind, while China's growth will continue to grow exponentially as it continues to increase its human and industrial capital, until it more than likely surpasses even the United States. The final "country" that should be on the upswing is the entire European Union, with its wealth of human capital that is already showing in its fairly strong economy, and should continue to drive its economy in the future.

Yes, I think that the government should help the problem of poverty. Wheelan explains that a huge reason people live in poverty is that they do not have enough human capital to maintain a good paying job. The government does not need to play with markets or anything, but I do believe that they should possibly redistribute more revenue to help some of the schools that do not have funds to be as effective. Given the fact that countries wealth and the human capital in that country are correlated I could see countries like China creating huge amounts of improvements in schooling and then medical advancements and all sorts of discoveries. I think poor countries will remain poor because they will not have the resources to “upgrade” human capital. This example comes up when thinking about different colleges obviously and getting a good job after college. But it also is very evident if you think about how much experience someone has at a job. The more time someone has been at a job the more experience they will have and the better they will be and often if they do a good job they get promoted and earn more money.

(Question #1).

First off, I do not think anyone can look at these numbers and think nothing should be done about them. Clearly there needs to be a change. Now, whether that change is financial, or simply behavioral, that is the debate. Our federal government should not be solely responsible for ensuring that these children come out of poverty & begin to flourish in our society & economy. However, I think our government needs to provide the means for these people (whether it be the children as they grow older, or, more ideally, the parents of the children) to improve their standard of living. Our government needs to "give them the ladder" to climb out of poverty, but it is not their duty to "help them up the ladder." The parents of the children need to take the initiative to work to improve their own, and their children's, lives. Unfortunately, incredibly talented, brilliant, and wonderful children may be in the care of, frankly, losers. Although I do not have an answer to solving that specific problem, I think it is important that the debate begins to be focused on how to remove children specifically from the situation, whether it be Social Services playing a larger role, or a considerately larger amount of foster families, and not simply to force the parents to provide for their children.

5. I think we should not be so worried about the rich-poor gap as much as the total quality of life for everyone. As productivity rises, so does the quality of life for everyone. Like Wheelan says, "...we should care about how much pie the poor are getting, not how much pie they are getting relative to Bill Gates" (113). This is a very important point, inequality motivates people to better their own lives by either going to college, or taking risks. Both of these help productivity, so everything seems to work out. I'm not saying we shouldn't help the poor, because they do need to be lifted up in order to find these opportunities, but I think some degree of inequality is very important in a good economy. I really like how Robert Fogel puts it on page 113. "Our poorest citizens have amenities unknown even to royalty a hundred years ago." Productivity has brought society all sorts of new amenities, and the poorest of the poor are much better off than they would be [in earlier time periods] because of it. It's not just the rich that are getting richer, it's everyone.

6. "Take" Cornell economist Robert Frank's survey on page 114. What would you select? What do you think that says about you? Ask three people not in the class and report on which they picked.

I would probably take Option B- I would earn less money than option A, but would be making more than everyone else. I think most people choose that because even if you would make more in option A compared to everyone else it is less money. In option B as long as you are making more than everyone else I doesn’t matter that it is less than A because if that is the highest amount paid you would have the advantage over everyone else anyway. People choose B, because it guarantees they will be richer than everyone else. If you are already paid more than everyone else, making the extra 1,000 that you would get in option A does not make that much of a difference to you. The basic idea of economics is that you want to maximize your utility. Thought it may seem like choosing option B shows that a person is selfish, but in reality everyone is out to make the highest profit they can and by choosing option B you will get the higher edge over everyone else. When it comes down to it, people will live in a "dog eat dog" kind of world if it gives them a chance to make some extra money and you can bet that they will do whatever they can to come out on top.
My dad picked B
My mom picked A
Sonia picked B