Barry, My Liege :
It is appropriate to forecast what would be the effects of a Romney Presidency on our economy, even though such an exercise approaches politics. Nevertheless.................
Since he states that he would follow the economic policies of G W Bush, it is a simple matter to see what key indicators were when Bush took office in 2001 and compare them to when he left office in 2009. Then we can apply the percentage changes to our key indicators today and forecast where we would be after 8 years of a Romney Presidency.
DOW JONES AVERAGE
The DJ was about 10800 when Bush took office and finished at 10600.
But, there was a large drop to about 8000 and recovery back to 10600. Now it is about 12100.
We can forecast a Dow ending in similar range as the beginning, but a huge panic at some point in the Romney Presidency.
UNEMPLOYMENT RATE
Bush inherited a 5.0% unemployment rate and finished with a 9.9% rate.
We can forecast a doubling of the unemployment rate during a Romney Presidency.
TOTAL NON-FARM EMPLOYMENT
Total non-farm jobs were about 132 million when Bush took office and were about 130 million when he left - a drop of 2 million jobs or about 2%.
This masks the fact that total jobs grew to about 138 million by 2008, but fell back to 130 million by 2009. Total jobs now are about 139 million.
A Romney Presidency would bring little or no long term job growth.
MEDIAN HOME PRICE
The median home price was about $162,000 when Bush took office. It rose to about $230,000 in 2008 and is now about $170,000.
A Romney Presidency would lower home prices further.
TOTAL DEBT OF THE UNITED STATES
Our national debt was about $5.6 trillion when Bush took office and it rose to $11.9 trillion when he left.
We can forecast a doubling of the debt under a Romney Presidency.
BANK REGULATION AND PANICS
Bush fostered a climate of non-regulation for banks with a resulting panic and economic meltdown.
We will see the same under Romney.
SOCIAL SECURITY
Bush made an attempt to privatize Social Security - Romney will do the same. If successful, life for senior citizens will deteriorate rapidly.
Your faithful servant,
Wednesday, June 6, 2012
Tuesday, June 5, 2012
Recovery : Regulating Utilities
Barry, My Liege :
'A public utility, or utility, is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies.' [wikipedia]
Public services regulated as monopolies in the United States have included water, sewer, electricity, natural gas, highways and roads, telephone and telegraph, airlines and railroads.
Often the service provided by the utility is a monopoly or oligopoly for a variety of reasons. One reason can be capital requirements : Perhaps the provision of the service requires huge capital investments such that the service provider could not attract the capital required to provide the service without a guarantee of returns to the capital providers. The guarantee is usually in the form that the provider will be insulated from competition.
Regardless of the reason for achieving or granting such monopolies or oligopolies, the effect is that the providers have such enormous power over customers that there is a great temptation to achieve monopoly profits by pricing the product or service at a higher price than would obtain in a competitive marketplace.
Monopoly profits can occur whether the industry is a monopoly or not. The test is whether the firm faces a sloping demand curve and can achieve monopoly-style profits by raising the price above and reducing the quantity sold below a competitive equilibrium.
If monopolies and oligopolies are allowed to earn monopoly style profits, the result will be greater inefficiencies in the market place and a transfer of significant portions of consumer surplus to monopoly profits; the effect would be to reduce middle class incomes further.
A common solution to this problem is to regulate the utility carefully so that it has the ability to earn a sufficient return to attract capital but is prevented from usurping consumer surplus into monopoly profits.
For example, many communities have Public Utility Commissions which regulate the pricing and practices of utilities. These are elected bodies which have the power to approve or reject rate changes and capital investments. This concept has been recognized in the United States for more than 100 years; for example, a Public Utility Commission was established as part of the Colorado Constitution adopted in 1876 as 2.26 ARTICLE XXV. Public Utilities.
When left to function in the public interest, these commissions frequently succeed in pricing the service close to what a competitive market might establish.
When that occurs, the public interest is served since the Utility is prevented from achieving monopoly profits.
In today's economy there are numerous examples of monopolies and oligopolies which do secure monopoly profits but are not regulated to prevent that occurrence.
My Liege, I think it is time to expand the number of industries subject to Public Utility Commission style regulation. Such an extension would reduce the accumulation of monopoly profits and the consequent reduction of middle class purchasing power. By that mechanism, we would see additional economic growth springing from an increase in middle class buying power.
And, I suggest we extend the candidates for such Public Utility Commission style regulation to include industrial products as well.
Utilities should include industries in which the final product or service is used by more than one third of the households AND in which the four firm concentration ratio exceeds 60%. Such a calculation will be allowed for city, county, and state as well as national public utility designations.
When considering industrial products which are not sold directly to households but are raw materials or components of other products, then we should consider only the concentration ratio. Whenever the revenues of the top four firms in such an industry exceeds say 70% of the total industry revenues, then the industry should be deemed a utility and a Public Utility Commission should be assigned to regulate it.
By adopting such a course, the United States of America will strengthen its Economic National Security by reducing the power of some monopolies and oligopolies to accumulate capital and by transfering some of that capital to consumers in the form of lower prices and greater access to products and services.
Your faithful servant,
'A public utility, or utility, is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies.' [wikipedia]
Public services regulated as monopolies in the United States have included water, sewer, electricity, natural gas, highways and roads, telephone and telegraph, airlines and railroads.
Often the service provided by the utility is a monopoly or oligopoly for a variety of reasons. One reason can be capital requirements : Perhaps the provision of the service requires huge capital investments such that the service provider could not attract the capital required to provide the service without a guarantee of returns to the capital providers. The guarantee is usually in the form that the provider will be insulated from competition.
Regardless of the reason for achieving or granting such monopolies or oligopolies, the effect is that the providers have such enormous power over customers that there is a great temptation to achieve monopoly profits by pricing the product or service at a higher price than would obtain in a competitive marketplace.
Monopoly profits can occur whether the industry is a monopoly or not. The test is whether the firm faces a sloping demand curve and can achieve monopoly-style profits by raising the price above and reducing the quantity sold below a competitive equilibrium.
If monopolies and oligopolies are allowed to earn monopoly style profits, the result will be greater inefficiencies in the market place and a transfer of significant portions of consumer surplus to monopoly profits; the effect would be to reduce middle class incomes further.
A common solution to this problem is to regulate the utility carefully so that it has the ability to earn a sufficient return to attract capital but is prevented from usurping consumer surplus into monopoly profits.
For example, many communities have Public Utility Commissions which regulate the pricing and practices of utilities. These are elected bodies which have the power to approve or reject rate changes and capital investments. This concept has been recognized in the United States for more than 100 years; for example, a Public Utility Commission was established as part of the Colorado Constitution adopted in 1876 as 2.26 ARTICLE XXV. Public Utilities.
When left to function in the public interest, these commissions frequently succeed in pricing the service close to what a competitive market might establish.
When that occurs, the public interest is served since the Utility is prevented from achieving monopoly profits.
In today's economy there are numerous examples of monopolies and oligopolies which do secure monopoly profits but are not regulated to prevent that occurrence.
My Liege, I think it is time to expand the number of industries subject to Public Utility Commission style regulation. Such an extension would reduce the accumulation of monopoly profits and the consequent reduction of middle class purchasing power. By that mechanism, we would see additional economic growth springing from an increase in middle class buying power.
And, I suggest we extend the candidates for such Public Utility Commission style regulation to include industrial products as well.
Utilities should include industries in which the final product or service is used by more than one third of the households AND in which the four firm concentration ratio exceeds 60%. Such a calculation will be allowed for city, county, and state as well as national public utility designations.
When considering industrial products which are not sold directly to households but are raw materials or components of other products, then we should consider only the concentration ratio. Whenever the revenues of the top four firms in such an industry exceeds say 70% of the total industry revenues, then the industry should be deemed a utility and a Public Utility Commission should be assigned to regulate it.
By adopting such a course, the United States of America will strengthen its Economic National Security by reducing the power of some monopolies and oligopolies to accumulate capital and by transfering some of that capital to consumers in the form of lower prices and greater access to products and services.
Your faithful servant,
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