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Making of an Economist - Monetary Policy - Pot Legalization

 
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PostPosted: Sun Aug 24, 2014 7:49 am    Post subject: Making of an Economist - Monetary Policy - Pot Legalization Reply with quote

PeakTrader:

Obviously, the Fed uses the orthodox economics literature to help it stay ahead of the curve and maintain an appropriate stance.

However, we had a “perfect storm” in the last recession, e.g. from changing demographics, consumption, household debt, “peak oil,” and terminating “too big to fail.”

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I read in the original book of “The Making of an Economist” only 800 Ph.Ds and 2,000 MAs in economics are awarded each year in the U.S..

It’s not surprising, since it’s one of the hardest fields to understand.

Sample Chapter:

http://press.princeton.edu/chapters/s8438.html

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Ricardo, I’ve never heard of an econ academic teach an illogical theory.

Why do you want “moms and dads” to live and work in suboptimal economic conditions to a much larger extent?

There has been tremendous progress in economics, including in macro, micro, international trade, central banking, etc..

You can praise economists later.

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The Fed raised “animal spirits” to facilitate nominal growth, which facilitates real growth.

The Fed deserves a lot of credit (pun intended) learning from the Great Depression (although, the U.S. was on the gold standard) and Japan’s liquidity trap.

Since the easing cycle began in late 2007, the Fed stimulated growth through lower interest rates for households and firms, along with creating a “wealth effect” (in asset markets) to induce demand and reduce saving, in the attempt to generate a self-sustaining cycle of consumption-employment.

The Fed has raised living standards for the masses substantially, ceteris paribus, because smoothing-out business cycles results in a higher level of growth.

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Quantitative easing or accommodative monetary policy stimulates demand, e.g. through lower interest rates for consumer borrowing (which reduces monthly payments and raises discretionary income), refinancing mortgages at lower rates, a lower cost of capital for businesses, including for business start-ups and expansions, higher home prices and more home equity, more money in retirement accounts (to reduce saving for retirement – both bond and stock prices rose substantially), etc.

Raising output = income raises income = consumption + saving.

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Lower interest rates and higher bond prices stimulate growth.

Yield Curve:

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

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BC, monetary policy is a crude tool. It doesn’t micromanage the economy or helps only the rich.

You assume it’s ineffective or counterproductive, because you ignore the negative forces, or headwinds, outside of monetary policy.

For example, at the beginning of last year, a massive contraction in fiscal policy began, raising both federal tax revenue and reducing federal spending, substantially.

The Fed wasn’t getting the help it, and the economy, needed. You can’t blame the Fed for doing what needed to be done.

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Steven Kopits, if I was in a foreign government intent on destroying the U.S., legalizing marijuana would be part of the strategy. There’s already massive propaganda on the internet about pot to brainwash more Americans into legalization.

And, if I was a pot smoker, breaking the law, I’d feel guilty about giving money to drug cartels, which marijuana is a small part of their criminal activities. Why make that part of their business legal and easier to promote?

It should be noted, the “War on Drugs” was a response to drug use reaching epidemic proportions in the ’60s and ’70s. It not only stopped the steep rise in drug use, it reversed it and contained it.

Spending $20 billion a year to prevent and reduce $300 billion a year in social costs, which include lost productivity, traffic & work injuries & fatalities, health problems & drug treatment, mental illness, unemployment, crime, domestic violence, child abuse, and other social services, means we’re not spending enough on the “War on Drugs.”

Drug Legalization: Why It Wouldn’t Work in the United States
By Edmund Hartnett, Deputy Chief and Executive Officer, Narcotics Division, New York City Police Department, New York
March 2005

“Former New York City Mayor Ed Koch described drug legalization as “the equivalent of extinguishing a fire with napalm.”

Joseph Califano, the author and a member of President Johnson’s cabinet, stated: “Drugs like marijuana and cocaine are not dangerous because they are illegal; they are illegal because they are dangerous.”

William J. Bennett, former director of the Office of National Drug Control Policy…”legalized alcohol, which is responsible for some 100,000 deaths a year, is hardly the model for drug policy.””

Alcohol in one hand and marijuana in the other is a powerful combination. Why compound a problem?

Examining the Impact of Marijuana Legalization on Marijuana Consumption
Insights from the Economics Literature

“From this review it is clear that total consumption will rise in response to legalization due to increases in the number of new users, increases in the number of regular and heavy users, and probable increases in the duration in which marijuana is consumed for average users.”

American College of Pediatricians, June 2010
Marijuana Use: Legalization Not a Good Idea

“The negative physical and mental effects of marijuana use are well documented. It’s associated with lower educational accomplishment, lower work productivity, increased risks of motor vehicle accidents, and heart and lung disease. All forms of cannabis are mind-altering drugs due to delta-9-tetrahydrocannabinol (THC), the main active chemical in marijuana. THC affects nerve cells in the region of the brain where memories are formed. This makes it difficult for the user to recall recent events. Chronic exposure to THC may hasten the age related loss of nerve cells. Marijuana impairs a person’s judgment, coordination, balance, ability to pay attention and reaction time. Cannabis use in adolescence is a predictor of depression in later life. Cannabis induces psychotic symptoms and cognitive impairment in some individuals. Numerous mechanisms have been postulated for the link between cannabis use and attention deficits, psychotic symptoms, and neural desynchronization. Studies indicate that it impairs driving performance in the same way alcohol does, with users displaying the same lack of coordination on standard sobriety tests. Marijuana is second only to alcohol as a factor contributing to traffic accidents involving loss of life. Students who regularly use marijuana have lower grade and test scores and are less likely to achieve personal goals. Marijuana smokers often jeopardize their future by engaging in risky practices or committing criminal acts.”

AMERICAN ACADEMY OF PEDIATRICS
Marijuana: A Continuing Concern for Pediatricians

“The abuse of marijuana by adolescents is a major health problem with social, academic, developmental, and legal ramifications. Marijuana is an addictive, mind-altering drug capable of inducing dependency. There is little doubt that marijuana intoxication contributes substantially to accidental deaths and injuries among adolescents, especially those associated with motor vehicle crashes, and is frequently involved in incidents related to driving while intoxicated. Adolescents who use marijuana are 104 times as likely to use cocaine compared with peers who never smoked marijuana.”

NPR: Mixed Results For Portugal’s Great Drug Experiment
January 20, 2011

“When Portugal decriminalized all illegal drugs in 2000, officials hoped to reduce addiction rates and drug-related violence. Today, more users are in rehab, but drug use is on the rise, and reporter Keith O’Brien says the policy has made the problem worse….”

When you legalize something, you get more of it.

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