Tuesday, October 28, 2008

Redistributing the Wealth: Understanding the Presidential Candidates’ Economic Policies

With the presidential election looming in the next week, I thought it would be appropriate to write about the plan each candidate has for the economy if they are elected, as well as a brief analysis of the strengths and weaknesses of each person’s ideas. As John McCain’s “Jobs for America” economic plan is around thirteen pages long and Barack Obama’s “At a Glance” section of his economic policies is around five pages long, I realized I could not include every detail of what each candidate hopes to accomplish during their term. Instead, I have identified three important categories (taxes, international trade, and energy) in which they have differing points of view and will briefly outline their plans in each.

One of Barack Obama’s major points during this campaign has been that he wants to provide tax relief for lower and middle class Americans and compensate for that by increasing taxes on the top 1% of wage earners. In fact, according to Martin Crutsinger, an economic writer for the Associated Press, under Obama the top 1% would see an average increase in taxes of $93,709 annually while the bottom 20% and middle 20% would experience average annual declines in taxes of $567 and $1,118, respectively (see another forecast, left). All told, Obama’s taxation plans would result in an increase in federal revenues of approximately $627 billion over the next decade. Additionally, Obama’s international trade policies would be tailored towards keeping jobs in America and fighting for fair trade internationally. Obama is not a strong believer in free trade between nations. He believes the North American Free Trade Agreement (NAFTA) should be amended to be more fair to American workers, and that, not only should companies no longer receive tax breaks for sending jobs overseas, but that tax breaks should be given to companies that support American workers. Finally, Obama hopes to invest heavily in green energies to reduce our dependence on foreign oil as well as create new jobs. He wants to invest $150 billion over 10 years to advance the development of green energies and energy infrastructure, as well as create a federal Renewable Portfolio Standard (RPS) that will require 25% of American electricity to be derived from renewable sources by the year 2025.

Unlike Barack Obama, John McCain’s economic policies are rooted more in his confidence in a free trade economy. Interestingly, in an article for the Media General News Service, Dan Griswold, director of the Center for Trade Policy Studies at the Cato Institute, calls McCain an “unabashed free trader,” and that “there's a stark contrast between the two major presidential candidates on trade, probably the starkest…in decades.” McCain wants to reduce barriers to international trade, level the global playing field, and create a way to effectively enforce global trading rules. With regards to taxes, McCain believes that tax rates should be kept low; promising to keep the top tax rate at 35 percent, maintain the 15 percent rates on dividends and capital gains, and phase-out the Alternative Minimum Tax. Additionally, he believes the corporate tax rate should be cut from 35% to 25% and the Estate Tax rate should be reduced to 15%. Compared to Obama, McCain’s energy plan is less focused on funding research for new forms of energy, but rather on finding ways to make energy more affordable. His energy plan calls for increased domestic exploration of oil and natural gas, and he hopes to build 45 new nuclear power plants by the year 2030, devote $2 billion to finding a clean way of using coal, and more strictly regulate the oil futures markets to prevent the speculative pricing of oil. The fact that he is focused on lowering current energy costs does not mean that he does not support other research. He has proposed a $300 million prize for an improved battery technology that has the size, capacity, cost, and power to be able to deliver a viable power source for hybrids at 30% of the current costs.

Originally, being a fiscal conservative, I believed that John McCain’s economic plan would be better than Barack Obama’s. However, as I read more and more about each plan, I found that there were things I liked and disliked about each one. I liked McCain’s plan to build 45 new nuclear power plants by 2030 and his $300 million prize for creating an improved battery technology. Nuclear energy is safer than people give it credit for (see below, right), and it is also a low emission and relatively inexpensive source of energy. Combined with a battery that would make electric cars or hybrids cheaper and more efficient, the United States could reduce its emissions as a country drastically. Conversely, I do not like his plan to increase domestic energy exploration or his encouragement of the use of coal as an energy source. No matter how clean we may make them, they are still non-renewable resources. If he wants to make a significant impact on the availability of oil, McCain should fund the development of an efficient oil shale extraction method. As Michael Schirber points out in U.S. News and World Report, American shale reserves contain approximately 2 trillion barrels of oil – more than double the amount of crude oil humans have ever used. On the other hand, despite my conservative inclinations, I liked many of Obama’s ideas. I agree the NAFTA needs to be amended. In a 2006 Economic Policy Institute (EPI) research report, Robert Scott, an analyst for the EPI, found that NAFTA “eliminated a net total of more than 1 million jobs in the United States, 65% of which were in the manufacturing sector.” Additionally, I agree that the government should raise the minimum wage and eliminate income taxes for seniors making less than $50,000 a year. Taxing seniors living on social security and their retirement accounts is unnecessary and makes it harder for people to make enough money to retire. This is especially true if they are making minimum wage. Having worked for minimum wage before (which is significantly higher in California than in other parts of the country), I can attest that it is not enough to cover one’s cost of living. While I liked many of Obama’s ideas, there were some that I did not agree with. I think that giving more protections for unions (such as banning the permanent replacement of striking workers) and expanding the Family and Medical Leave Act to companies that have more than 25 employees (rather than more than 50) would only hurt our economy, especially the small businesses Obama claims to be encouraging. If an individual decides to stop working out of protest, they should not be guaranteed the right to keep their job. They elected to stop doing it in the first place. And while I would love to see the Family and Medical Leave Act expanded, companies that are smaller than 50 people are reliant on every single employee they have, so being forced to allow one to take time off would significantly affect their ability to operate.

Having looked at each candidate’s economic policies, I realized that it is hard to decide which candidate is better based on economic criteria alone. I agree with some ideas by both McCain and Obama, but disagree with some as well. Choosing a candidate is an issue of deciding which issues are most important. To me, taxation is one of the largest issues, and, as economist Arthur Laffer is quoted saying in the Victorville Daily Press, “”If you tax people who work, and give it to people who don't, pretty soon you're going to have an awful lot of people who don't work.” I could not agree more.

Tuesday, October 14, 2008

A Wealth of Knowledge: An Exploration of the Online Financial Community

As I was sitting down this week to do my daily perusing of the internet to see what is happening in the world and the economy, I realized that my blog is lacking any reference to the vast financial and economic online community, the goal of which is to keep its readers up to date on all that is happening in the economy. With this in mind, I chose to explore the internet and develop a robust linkroll of resources to complement my own posts. In order to ensure I only included the best sites, I used the Webby and IMSA criteria when evaluating these external sources, evaluating them by their content, structure, visual design, functionality, interactivity, depth, and activity. After extensive research, what I found were twenty resources that provide unique and valuable insight into finance and the economy. I have included links to them in my linkroll on the right. These sites can be broken into four categories: news, government, research and opinion, and private equity/investment banking. In order to further educate my readers, I have chosen to give a summary of the strengths and weaknesses of each.

The news sources offer up to date commentary and reports of what is going on in the world. They are laid out similarly, but are often difficult to navigate due to the abundance of information on their pages. For the most part, they also lack in-depth analysis of current issues. Among the news sources listed, American Banker is the least known. Its site is simply laid out and reports the major economic headlines as well as giving an analysis of that news. However, its navigation bar was vague and is grouped into odd categories like mortgages and retail delivery. The Wall Street Journal is the best known of the news sources, and its U.S. Business site’s “What’s News” section (see left) offers brief summaries of the headlines for the day. However, the reader looking for headlines across a broad scope of industries and economies will become frustrated, as the website is segmented into over ten categories, each of which has between five and ten sub-categories. Those looking for more general news should go to CNNMoney.com. Its homepage has headlines spanning a wide variety of classifications, but due to the large quantity of headlines it covers, the site is cluttered with news that is often trivial or unhelpful. While the previous three sites are more traditional news sources that give a report of what happened earlier, Yahoo! Finance and Bloomberg Market Data offer real time updates on the market and major news. The two sites complement each other well; Bloomberg Market Data has detailed data of the market’s performance with no explanation of why while Yahoo! Finance focuses on top stories that affect the market with data on only the major U.S. indices.

When reading the previous news sources, readers may notice references to various statistics as indications of the health of the economy. Rather than wait for one of these statistics to be referenced in an article, The White House Economic Statistics has every statistic that offers any indication of the health of the economy. However, these statistics are not always intuitive, and the site offers little explanation of the significance of the different numbers. A simpler way to gauge the health of the economy is to go to the Federal Reserve website and see what the recent developments are. They give a good indication of how the economy is faring, but the data is incomplete, for the Fed only offers information on things it has done, not those it is considering doing. For those more concerned about the future performance of the economy than its current health, Barack Obama and John McCain’s economic policy pages give a hint as to what the regulatory environment will be for business in the next four years. Though Barack Obama’s page is much better organized than John McCain’s, I find both to be overly flashy and lacking a concise summary of what they want to do.

Some of the least flashy pages are the best sources of news or in-depth analysis of various news items. These sites are the ones I have classified as research and opinion. Economy Society is business consultant Bill Birnbaum’s forum for discussing his predictions for the future of the economy. His blog has interesting information and opinions, but its credibility is reduced by how cheap the website looks. Focusing on more current issues, Rogue Economist Rants and The Common Man’s Politics provide alternative perspectives on many issues. Their major problem is that they lack credentials. The Common Man’s Politics provides no credentials for its author, while Rogue Economist Rants only offers vague credentials for its author as having experience as a banker and consultant. The final three blogs in this category do not suffer from such a lack of credentials. Financionomics is written by an MBA candidate with a Post-Graduate degree in Economics, Freakonomics is written by the bestselling authors of the book Freakonomics, and The Conscience of a Liberal is written by Paul Krugman (see right), who was awarded the Nobel Prize for economics on Monday. Of these three, Freakonomics is my favorite, because it comments on such a wide scope of issues and makes bold statements whenever it can. These blogs are hard to critique, and my only complaint would be that their entries tend to be shorter, as they do not seem to ever settle on a single topic.

Outside of the resources focused on the market and economy, the sites that discuss private equity and investment banking are the most interesting to me, as those are the industries in which I plan to pursue a career in the future. DealBook, peHUB, and Financial News: Private Equity News are all fantastic resources for updates on recent mergers and acquisitions activity as well as other developments in the industry. Their main shortfall is how difficult each one is to navigate. A last resource anyone interested in investment banking or even finance in general should be aware of is Thomson Reuters League Tables. This resource provides information on the number and size of deals each major investment bank has announced or completed, and is used to rank investment banks as well as determine trends in the investment banking industry. It is a bit difficult to navigate and its files are often slow to load, but to investment bankers, the information it holds is well worth the wait.
 
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