Why we should bring back the $500 note and other big bills

A world without cash seems wonderful at first glance since it is convenient and fast. You don’t need to withdraw dollars or euros ahead of time. You don’t have to worry about money being lost or stolen. Paying for things with your phone is a breeze.

Many countries around the world are steadily shifting away from cash. Canada, the United Kingdom and Sweden have already largely embraced a cashless society. The U.S. is also steadily making the move, with people holding smaller amounts of cash.

However, the recent string of natural disasters and security breaches at major financial entities exposes a huge flaw in this trend: When the power goes out, telephone lines shut down or account information is stolen, it is impossible to use ATMs, credit or debit cards or mobile payments – no matter how rich you are.

In other words, giving up cash increases the chance of the kind of economic catastrophe that results when people can no longer easily trade for the goods they need and want. The solution to this national security issue is simple: bring back the currently maligned large denomination bills like the $500, which was discontinued in 1969. Continue reading

Cincinnati Ohio and P&G’s Board Fight

On October 10th Proctor and Gamble, nicknamed P&G, is holding a shareholder meeting to elect a new board of directors.  This vote has the potential to dramatically impact Cincinnati, Ohio.

Most corporate shareholder meetings are boring affairs that rubber stamp management’s slate of candidates.  Not this one.  Nelson Peltz, a Wall Street billionaire, is spending huge sums of money asking P&G’s shareholders to vote the white ballot.  Voting white will put him on the board and give him some control.  P&G is spending equally large sums to convince shareholders to vote the blue ballot.  The blue ballot will keep Peltz off.

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Is it me or are there more disasters in the US?

Is it just me, or do you also think the number of major natural disasters is increasing each year?  Disasters make news.  Are they just being over-hyped by the onslaught of 24/7 reporting?

The U.S. government’s National Oceanic and Atmospheric Administration (NOAA) actually maintains a website that answers this question.   NOAA’s list of billion dollar weather and climate disasters goes back to 1980 and records the date, place, deaths and total cost.  Since 1980 there have been 212 disasters, which NOAA calculates have a combined cost of over US$ 1.2 trillion. Continue reading

The penny may be worthless, but let’s keep it anyway

There has been a growing war on cash in an attempt to curb terrorism and tax evasion.  Much of the focus has been on abolishing large bills, such as the decision to eliminate the €500 note from circulation.  However, politicians are also targeting smaller forms of money for elimination.  U.S. Senators John McCain and Mike Enzi introduced legislation in March 2017 to eliminate minting of pennies and switch the dollar from paper to a coin only. Continue reading

How Trump’s nominee for the Fed could turn central banking on its head

President Donald Trump on July 10 nominated Randal Quarles to be one of the seven governors of the Federal Reserve System, the central bank of the United States.

Before I get to Quarles and his qualifications, it’s important to understand the Fed and what it does. Its decisions are vital to every person on the planet who borrows or lends money (pretty much everybody) since it has enormous influence over global interest rates. Its board of governors also influences most other aspects of the global financial system, from regulating banks to how money is wired around the world. Continue reading

Census director’s resignation could affect control of Congress after 2020

John H. Thompson, the director of the U.S. Census Bureau, just resigned amid a funding fight over the 2020 Census.  Since it comes at the same time that the president fired the director of the FBI, why should anyone care about the resignation of just another Washington “bean counter”?

This bean counter, whose name is likely unfamiliar to the vast majority of Americans, is actually one of the most important people in determining whether Democrats or Republicans control Congress. The census has a significant impact on political representation and how federal money is distributed. Moreover, how hard the director fights for more funding helps determine the accuracy of the census. Continue reading

Is The Trump Individual Tax Cut The Biggest Ever?

President Donald Trump has long been known for his fondness for superlatives when describing his projects and policies. His administration’s proposal for a tax cut is certainly no exception.  In a recent interview with the Associated Press he declared: “It will be bigger, I believe, than any tax cut ever. Maybe the biggest tax cut we’ve ever had!”

Americans just got their first taste of some of the details of his tax overhaul. Treasury Secretary Steve Mnuchin repeated his boss’ boast about the tax cut’s size and said it would slash the top corporate rate to 15 percent from 35 percent. It would also simplify individual income rates and reduce them a little, while doubling the standard deduction and eliminating certain itemized deductions.

In assessing whether his cuts might be the biggest ever, many pundits have pointed to President Ronald Reagan’s tax overhaul in 1981, which reduced government revenue by 2.9 percent of GDP.

But was that really the biggest U.S. tax cut ever? Hardly. In fact, we have to go back almost 150 years – immediately after the Civil War and the beginning of the income tax – to find the American whopper of tax cuts. Put simply, it would be very hard for Trump to exceed that cut. Continue reading

Taxes: Where the Federal Government gets its money is not where you think

It is almost April 15th; the time many people in the U.S. file their income taxes.  Shocking as it may seem, personal income taxes don’t provide most of the federal government’s revenue.  Since World War II personal income taxes have consistently provided less than half of all the money taken in by Washington.

Just as shocking has been the change in the source of federal revenues over time. The official statistics show in the 1940s and 1950s corporations picked up a major share of supporting the federal government. Today, it is taxes on workers. Social security and Medicare taxes are now four times more important in providing revenue for the government than they were in the mid-1940s. Continue reading

Why Some People and Businesses Are Happy About Rising Interest Rates

The Federal Reserve is expected to lift short-term interest rates at the close of its two-day meeting today and signal that more hikes are to come over the course of the year.

Numerous commentators have focused on who is hurt by rising rates, particularly those with lots of floating rate debt, such as a credit card balance, or anyone in need of a loan.

Not everyone, however, is negatively affected by rising rates. There are some individuals and businesses cheering the Fed on as it pushes up rates, including savers, people traveling abroad and foreign exporters and businesses with large cash balances.
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What is the Council of Economic Advisers and Does it Really Matter?

When President Donald Trump formally announced his Cabinet, one of the surprises was that the list of 24 Cabinet-level officials did not include the chair of the Council of Economic Advisers (CEA).  There is no formal requirement that an economic adviser be part of the Cabinet. However, Barack Obama started a new trend by appointing the last four council chairs as part of his Cabinet. Being part of the Cabinet is important because it ensures economic as well as political considerations are part of presidential decisions.

Not only has the position now been eliminated from Cabinet meetings, but the council’s website has also been turned off. Only archival versions from past administrations remain.  This apparent sign of disrespect for the role of the CEA, along with the fact that President Trump has yet to actually nominate a council chair, has caused some to worry that he won’t be getting much economic advice from actual economists. A website that takes bets on who will fill various posts in Trump’s Cabinet suggests he may not even fill the position.
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Why Wall Street’s Dow 20,000 is totally meaningless

The Dow Jones Industrial Average just broke 20,000 for the first time.  Traders and investors cheered this historic high of the world’s most famous stock market index, which is composed of 30 of the biggest and best-performing American companies and is frequently used as a barometer of the strength of the economy.

However, it’s hardly a surprise that the Dow hit this particular milestone. It and other major stock indexes like the Standard & Poor’s 500 have two key features that ensure that they will continually rise and break new zero-filled records: They ignore inflation and are heavily curated. Continue reading

Outlook 2017: Get ready for a recession

My outlook for 2017 and beyond is that the U.S. economy will likely see another recession. Yes, the economic picture currently looks wonderful. The Dow and S&P 500 are at record levels. Unemployment is well below 5 percent of the labor force. Inflation is still tame. The U.S. dollar is strong.

The U.S. economy has grown dramatically over the long-run. GDP has increased by one-third since the beginning of the 21st century, even after adjusting for inflation.

However, capitalist economies do not simply grow steadily larger. Instead, their long-term growth is periodically punctured by downturns. Continue reading

Great news for women: The gap between male and female earnings is narrowing.

Each year in September, the U.S. Census Bureau releases a report showing how income and poverty have changed over time. The most recent report, which came out on Sept. 13, was filled with great news. Compared with the previous year, average inflation adjusted income soared 5.2 percent. The U.S. poverty rate fell 1.2 percentage points, resulting in 3.5 million fewer people living in poverty. Even the number of people without health insurance fell by 4 million people in the past year.

While these statistics got the headline attention they deserve, there is one piece of great news in the report that hasn’t attracted as much attention but is just as important. The gap between women’s and men’s earnings shrank to a new record low. The median woman working a full-time year-round job now earns 80 percent of the median earnings given to men working full-time. Continue reading

A common misperception about Labor Day is we all get the day off.

Labor Day is a U.S. national holiday held the first Monday every September. Unlike most U.S. holidays, it is a strange celebration without rituals, except for shopping and barbecuing. For most people it simply marks the last weekend of summer and the start of the school year.

The holiday’s founders in the late 1800s envisioned something very different from what the day has become. The founders were looking for two things: a means of unifying union workers and a reduction in work time. Continue reading

Will Cleveland get an economic boost from the GOP Convention?

The Republican National Convention is coming to Cleveland, and boosters are cheering the millions of dollars it will bring to northeast Ohio’s businesses.  There are lots of impact studies of previous Republican and Democratic nominating conventions. Each seems to produce more eye-popping figures than the last. However, some academics and journalists suggest these conventions really have no impact on the local economy.

Which is the true story? Continue reading

Brexit backers claim U.K. is drowning in EU regulations – are Americans underwater too?

On June 23, the United Kingdom will decide whether to leave the European Union or stay. The vote is nicknamed Brexit, short for British Exiting. One reason the debate is important outside of the U.K. is that it is partly a referendum over the amount of government regulation voters want. Continue reading

Was the May 2016 Jobs Report Really That Bad?

This past Friday, the Bureau of Labor Statistics issued a press release stating the monthly employment figures for May 2016.  The headlines following the report’s release emphasized that the U.S. economy created only 38,000 additional jobs in May 2016. This figure promptly caused the stock market to fall. The next day’s Wall Street Journal front page led with a story declaring “Weak Hiring Pushes Back Fed’s Plans” for an interest rate hike. But the true figure was much higher than 38,000 jobs.

The actual number of additional jobs created between April and May was 651,000! This much larger figure is calculated using numbers found in table B1’s top line located on the press release’s 28th page. Continue reading

What is Brazilian President Dilma Rousseff’s real crime?

Dilma Rousseff, Brazil’s first female president, is about to go on trial. She is temporarily suspended from office while Brazilian politicians debate whether she broke the country’s laws.

Her crime is she allegedly borrowed about US$11 billion from Brazil’s state banks – about one percent of GDP – to fund long-running social programs for small farmers and the poor while trying to get reelected, which concealed a budget deficit. Continue reading

Why is corruption so costly?

The news is currently filled with stories of corruption.  A global group of media outlets just broke the story of secret offshore bank accounts in Panama, which suggests widespread corruption in the Russian government and elsewhere. For months, stories of the Brazilian government’s bribery scandal have filled the news. Other headline-grabbing events include Malaysia’s prime minister allegedly siphoning almost a billion dollars from a state development fund. Continue reading