Pop Quiz

May we cheat by googling?

Forgot that part. No Googling...the purpose of this quiz is to measure what we know and hopefully start a discussion, not measure how well we can Google.

Well, this went over like a lead balloon! I love numbers and statistics but obviously not everyone does. Anyway, the answers are below with some commentary...

1. Which country has the largest economy in the world?

I asked this question on another message board and to real life friends. Eighty percent answered China. The answer is the United States and it is not even close. Media types have extrapolated the growth of China and the US and declared that China's economy will surpass that of the US forty-five years from now or so. The problem is that that is based on linear thinking, i.e., China will keep growing at 10% per annum which is unlikely in my view.

2. From which country does the US get most of its oil?

Most said Saudi Arabia. In fact, it is Canada! SA is number two and Mexico is number three! So, when Hillary and Obama said they wanted to renegotiate NAFTA, ears perked up in Ottawa and Distrito Federal and the chorus was: sure, we would love to renegotiate the treaty as well.

3. The dollar has fallen dramatically. Is this good or bad?

The answer is neither. The reason for the dollar's decline owes to complex reasons manifested in the "current account". A large component is the trade deficit. A lower dollar makes foreign good more expensive and US good less expensive as compared to currencies which have increased in value. The AP likes to talk about the loss of American influence. It is BS. The AP and others also say that the decline in the dollar is the result of a weak US economy. Again, BS. The US economy has not been weak until recently and the dollar has been in virtual freefall for a few years.

4. Other than the cost of crude, what is the largest cost component of gasoline?

It is not "windfall profits" by the oil companies. The answer is: taxes. Obviously, it varies with each states' tax but next time your congressman talks of windfall profits, tell him/her to look in his/her own backyard...

5. Under which of the following Presidents did the economy grow at the fastest annual amount as measured by annual GDP changes: Reagan, Bush, Clinton or Bush?

Reagan and by a long shot. During Reagan's eight years, the economy, as measured by annual GDP increases, grew at a clip of 7.9%. Interestingly, Papa Bush and Clinton tied at 5.6%. "W" was not far behind at 5.0%. This goes to show that no matter who the President is, the US economy finds a way to gallop along. Since 1950, the US has never had a single year in which GDP decreased!

6. What was the proximate cause of the Great Depression?

While economists point to several reasons, many agree with the groundbreaking opinion of Milton Friedman which the Fed later admitted was correct: the Fed messed up. Faced with deflation, the Fed drained liquidity when the sure cure for deflation is to add liquidity.

7. No matter your age or goals, you should ensure your investment portfolio is well diversified, T or F?

No. If you are twenty five and looking at a normal retirement horizon, you should have 100% of your investment portfolio in stocks. If you are within ten years of retirement, diversification can be good.

8. CD?s are a safe investment, T or F?

False. First, there is bank default risk which may be low or not depending on the health of your bank. Moreover, the return on a CD hardly covers inflation.

9. Bonds are a safe investment, T or F?

No, there is always default risk which is admittedly small if buying US Government bonds. Bonds are capilaized instruments and prices vary, hence effective returns vary as well. A few weeks ago, I heard a financial newsperson who wondered where investors should move their bond money as interest rates fall. The best time to own bonds is when rates are falling because it increases the value of the bonds you hold.

10. When the tax rate is decreased, government ?revenues? decrease. T or F?

Goverment "revenues" increase when the tax rate is decreased and when tax rates are increased.

And now that everyone is asleep or drunk...

Thank you for not doing as others have recently done, which is dragging out responses and never furnishing the answers.

10. When the tax rate is decreased, government ?revenues? decrease. T or F?

Goverment "revenues" increase when the tax rate is decreased and when tax rates are increased.

I understand that tax revenues increase when the tax rates decrease, but when tax rates are increased too much, people clamp down and don't earn as much money, thereby paying less in taxes to the gov't.

Example -- If person A earns $100,000 per year, and the gov't taxes him 30%, Person A typically pays the tax bill. If Person A were charged a tax rate of 85% on his earnings, how much do you think Person A would work? Answer: not very much, if at all. If the taxes in the US increase to pay for all of the socialized programs which many want to the gov't to run, we, too, may begin sleeping in the afternoons like the Europeans, rather than working.

I disagree w/ 7-9, but interesting discussion points!

I understand that tax revenues increase when the tax rates decrease, but when tax rates are increased too much, people clamp down and don't earn as much money, thereby paying less in taxes to the gov't.

Example -- If person A earns $100,000 per year, and the gov't taxes him 30%, Person A typically pays the tax bill. If Person A were charged a tax rate of 85% on his earnings, how much do you think Person A would work? Answer: not very much, if at all. If the taxes in the US increase to pay for all of the socialized programs which many want to the gov't to run, we, too, may begin sleeping in the afternoons like the Europeans, rather than working.

The laffer curve. Tax too much, tax too little, and you get nothing.

Course I get all my information from Wikipedia.

[ame]http://en.wikipedia.org/wiki/Laffer_curve[/ame]

My mentor, Stephen Colbert, says it is the ultimate source for all true information.

http://spring.newsvine.com/_news/20...ses-chaos-on-wikipedia-gets-blocked-from-site

Thank you for not doing as others have recently done, which is dragging out responses and never furnishing the answers.

Thanks for the feedback however, I did not drag out responses very well, lol. The reason I posted this stems from a conversation with one of my sons. I asked him who he liked for President. Obama. I asked him what is Obama's position on the economy, foreign relations, free trade, the environment, etc? He could not answer and this is the son who I regard as one of the best critical thinkers I know. It points to a huge issue for me: we elect Presidents based on sound bites and general, sweeping statements. I am so sick and tired of the press such as AP, AFP and Reuters putting the US down while they laud Europe. So many opinions are shaped by the press because few are willing to tackle research and statsitics. It is a terrible way to elect a President but I believe the methodology is here to stay.

Neal Boortz had a segment today discussing Obama's honesty. BTW, I have verified none of this... Boortz said that Obama claims that he doesn't take money from oil companies. This implies that perhaps McCain and Hillary do take money from oil companies. The fact is that it is illegal for candidates to accept money from any corporation, oil companies or otherwise. However, Obama has accepted money from oil company execs. Any guess why they contributed to his campaign fund? I am not suggesting that any of this is wrong, except that Obama projects an honesty image which is misleading...

I am not suggesting that any of this is wrong, except that Obama projects an honesty image which is misleading...

I disagree w/ 7-9, but interesting discussion points!

Could you please be specific as to the reasons for your disagreement with 7-9? Thanks.

The laffer curve. Tax too much, tax too little, and you get nothing.

Yes, the Laffer Curve. Thanks wrobert, I should have been more specific. I meant to refer to the Reagan, Bush, Clinton and Bush years with the point being that nominal increases in the federal tax rate do not decrease "revenues". BTW, I have a huge problem with the government referring to taxpayer money as revenues. I guess they are attempting to sound like a corporation. It is a euphemism of the highest order.

Yes, the Laffer Curve. Thanks wrobert, I should have been more specific. I meant to refer to the Reagan, Bush, Clinton and Bush years with the point being that nominal increases in the federal tax rate do not decrease "revenues". BTW, I have a huge problem with the government referring to taxpayer money as revenues. I guess they are attempting to sound like a corporation. It is a euphemism of the highest order.

I would much rather they call it 'loot'. Since they take it from us. Government wants you to think it can create revenue, when all it can do it take from the sweat of others.

7 - You should still have a little diversification in your portfolio. At that age you are encouraged to be more risky and weighted differently among the different categories than someone who is older and closer to retirement, but 100% in stocks is still bad IMO.

8-9 those are "safe" investments as long as the US Govt endures. If the US govt or the bank fails and no longer backs them, almost ANY other investment has also hit the fan!

I understand that tax revenues increase when the tax rates decrease, but when tax rates are increased too much, people clamp down and don't earn as much money, thereby paying less in taxes to the gov't.

Example -- If person A earns $100,000 per year, and the gov't taxes him 30%, Person A typically pays the tax bill. If Person A were charged a tax rate of 85% on his earnings, how much do you think Person A would work? Answer: not very much, if at all. If the taxes in the US increase to pay for all of the socialized programs which many want to the gov't to run, we, too, may begin sleeping in the afternoons like the Europeans, rather than working.

Well, if you made millions per year and the tax rate was 90%, you might be compelled to write a song entitled "Taxman" with the lyrics "here's one for you and nineteen for me...", lol. I meant nominal changes in the tax rate such as that implemented by Clinton. BTW, as a Libertarian, I favor a tiny, tiny tax rate, maybe 5% or so. In my view, the only proper provinces of government are defense and a police/judicial system.

7 - You should still have a little diversification in your portfolio. At that age you are encouraged to be more risky and weighted differently among the different categories than someone who is older and closer to retirement, but 100% in stocks is still bad IMO.

8-9 those are "safe" investments as long as the US Govt endures. If the US govt or the bank fails and no longer backs them, almost ANY other investment has also hit the fan!

The purpose of diversification as described by Markowitz, is to optimize returns versus risk. At age 25, you have a forty year horizon and IMHO, the goal should be, at least for the next 25-30 years, to maximize returns. There is plenty of time to recover from any bear markets.

US bonds are safe, safe as any loan instrument can be but what about corporate and municipal bonds? Most are safe but there have been some mega failures. However, risk wears many costumes and if an investor receives an annual return in CD's of 2.8% while inflation is 3.0%, this violates the first rule of investment returns which is to cover inflation.

Thanks for the feedback however, I did not drag out responses very well, lol. The reason I posted this stems from a conversation with one of my sons. I asked him who he liked for President. Obama. I asked him what is Obama's position on the economy, foreign relations, free trade, the environment, etc? He could not answer and this is the son who I regard as one of the best critical thinkers I know. It points to a huge issue for me: we elect Presidents based on sound bites and general, sweeping statements. I am so sick and tired of the press such as AP, AFP and Reuters putting the US down while they laud Europe. So many opinions are shaped by the press because few are willing to tackle research and statsitics. It is a terrible way to elect a President but I believe the methodology is here to stay.

Neal Boortz had a segment today discussing Obama's honesty. BTW, I have verified none of this... Boortz said that Obama claims that he doesn't take money from oil companies. This implies that perhaps McCain and Hillary do take money from oil companies. The fact is that it is illegal for candidates to accept money from any corporation, oil companies or otherwise. However, Obama has accepted money from oil company execs. Any guess why they contributed to his campaign fund? I am not suggesting that any of this is wrong, except that Obama projects an honesty image which is misleading...

To clarify your statement, that implication was not made by Boortz. The implication is made by Obama's statement of a legal fact. The show was a repeat by the way, so I didn't bother to listen, but heard it a week or so ago. It is like having a label on Margarine promoting, "No Cholesterol."

Is Obama's statement misleading, since the oil execs and employees personally contribute money to Obama? Perhaps, somewhat, but remember that Bill Clinton's debate on the semantics of the definition of "is." Each of the candidates is well aware that the majority of the votes are coming from sound bites. Obama's statement is plain old poliTRICKS, and he doesn't stand alone when it comes to playing with words. At least he didn't errantly state that he was under sniper-fire when he was landing in Kuwait. There is such a thing as blatant lies, and then there is dancing around words. I'll usually take the dancer, though Obama is such a good dancer around words, that I'm a little scared that it would be too easy for him to screw us while giving us a pat on the back.

McCain? I don't see much difference in the status quo.

I understand that tax revenues increase when the tax rates decrease, but when tax rates are increased too much, people clamp down and don't earn as much money, thereby paying less in taxes to the gov't.

Example -- If person A earns $100,000 per year, and the gov't taxes him 30%, Person A typically pays the tax bill. If Person A were charged a tax rate of 85% on his earnings, how much do you think Person A would work? Answer: not very much, if at all. If the taxes in the US increase to pay for all of the socialized programs which many want to the gov't to run, we, too, may begin sleeping in the afternoons like the Europeans, rather than working.

Your post reminded me of this:

A valuable lesson for all.
>
>
> Subject: Bar Stool Economics
>
> Bar Stool Economics
>
> Suppose that every day, ten men go out for beer and the bill for
> all ten comes to $100. If they paid their bill the way we pay our
> taxes, it would go something like this:
>
> The first four men (the poorest) would pay nothing.
> The fifth would pay $1.
> The sixth would pay $3.
> The seventh would pay $7.
> The eighth would pay $12.
> The ninth would pay $18.
> The tenth man (the richest) would pay $59.
>
> So, that's what they decided to do. The ten men drank in the bar
> every day and seemed quite happy with the arrangement, until one day,
> the owner threw them a curve. 'Since you are all such good customers,
> he said, 'I'm going to reduce the cost of your daily beer by $20.
> Drinks for the ten now cost just $80.
>
> The group still wanted to pay their bill the way we pay our taxes
> so the first four men were unaffected. They would still drink for
> free. What happens to the other six men - the paying customers? How
> could they divide the $20 windfall so that everyone would get his 'fair
> share?' They realized that $20 divided by six is $3.33. But if they
> subtracted that from everybody's share, then the fifth man and the
> sixth man would each end up being paid to drink his beer. So, the bar
> owner suggested that it would be fair to reduce each man's bill by
> roughly the same amount, and he proceeded to work out the amounts each
> should pay.
>
> And so:
>
> The fifth man, like the first four, now paid nothing (100%
> savings).
> The sixth now paid $2 instead of $3 (33%savings).
> The seventh now pay $5 instead of $7 (28%savings).
> The eighth now paid $9 instead of $12 (25% savings).
> The ninth now paid $14 instead of $18 (22% savings).
> T he tenth now paid $49 instead of $59 (16% savings).
>
> Each of the six was better off than before . And the first four
> continued to drink for free. But once outside the restaurant, the men
> began to compare their savings.
>
> 'I only got a dollar out of the $20,'declared the sixth man. He
> pointed to the tenth man,' but he got $10!'
>
> 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a
> dollar, too. It's unfair that he got ten times more than I!'
>
> 'That's true!!' shouted the seventh man. 'Why should he get $10
> back when I got only two? The wealthy get all the breaks!'
>
> 'Wait a minute,' yelled the first four men in unison. 'We didn't
> get anything at all. The system exploits the poor!'
>
> The nine men surrounded the tenth and beat him up.
>
> The next night the tenth man didn't show up for drinks, so the nine
> sat down and had beers without him. But when it came time to pay the
> bill, they discovered something important.
> They didn't have enough money between all of them for even half of
> the bill!
>
> And that, boys and girls, journalists and college professors, is
> how our tax system works. The people who pay the highest taxes get the
> most benefit from a tax reduction. Tax them too much, attack them for
> being wealthy, and they just may not show up anymore. In fact, they
> might start drinking overseas where the atmosphere is somewhat
> friendlier.
>
> David R. Kamerschen, Ph.D.
> Professor of Economics, University of Georgia
>
> For those who understand, no explanation is needed.
> For those who do not understand, no explanation is possible.
>
>
>
>

Why are you smarties over here debating useless stuff when we need some real answers next door?

[ame="http://sowal.com/bb/showthread.php?t=22070"]http://sowal.com/bb/showthread.php?t=22070[/ame]





Just kidding,of course. The bar stool analogy is priceless.

Your post reminded me of this:

A valuable lesson for all.
>
>
> Subject: Bar Stool Economics
>
> Bar Stool Economics
>
> Suppose that every day, ten men go out for beer and the bill for
> all ten comes to $100. If they paid their bill the way we pay our
> taxes, it would go something like this:
>
> The first four men (the poorest) would pay nothing.
> The fifth would pay $1.
> The sixth would pay $3.
> The seventh would pay $7.
> The eighth would pay $12.
> The ninth would pay $18.
> The tenth man (the richest) would pay $59.
>
> So, that's what they decided to do. The ten men drank in the bar
> every day and seemed quite happy with the arrangement, until one day,
> the owner threw them a curve. 'Since you are all such good customers,
> he said, 'I'm going to reduce the cost of your daily beer by $20.
> Drinks for the ten now cost just $80.
>
> The group still wanted to pay their bill the way we pay our taxes
> so the first four men were unaffected. They would still drink for
> free. What happens to the other six men - the paying customers? How
> could they divide the $20 windfall so that everyone would get his 'fair
> share?' They realized that $20 divided by six is $3.33. But if they
> subtracted that from everybody's share, then the fifth man and the
> sixth man would each end up being paid to drink his beer. So, the bar
> owner suggested that it would be fair to reduce each man's bill by
> roughly the same amount, and he proceeded to work out the amounts each
> should pay.
>
> And so:
>
> The fifth man, like the first four, now paid nothing (100%
> savings).
> The sixth now paid $2 instead of $3 (33%savings).
> The seventh now pay $5 instead of $7 (28%savings).
> The eighth now paid $9 instead of $12 (25% savings).
> The ninth now paid $14 instead of $18 (22% savings).
> T he tenth now paid $49 instead of $59 (16% savings).
>
> Each of the six was better off than before . And the first four
> continued to drink for free. But once outside the restaurant, the men
> began to compare their savings.
>
> 'I only got a dollar out of the $20,'declared the sixth man. He
> pointed to the tenth man,' but he got $10!'
>
> 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a
> dollar, too. It's unfair that he got ten times more than I!'
>
> 'That's true!!' shouted the seventh man. 'Why should he get $10
> back when I got only two? The wealthy get all the breaks!'
>
> 'Wait a minute,' yelled the first four men in unison. 'We didn't
> get anything at all. The system exploits the poor!'
>
> The nine men surrounded the tenth and beat him up.
>
> The next night the tenth man didn't show up for drinks, so the nine
> sat down and had beers without him. But when it came time to pay the
> bill, they discovered something important.
> They didn't have enough money between all of them for even half of
> the bill!
>
> And that, boys and girls, journalists and college professors, is
> how our tax system works. The people who pay the highest taxes get the
> most benefit from a tax reduction. Tax them too much, attack them for
> being wealthy, and they just may not show up anymore. In fact, they
> might start drinking overseas where the atmosphere is somewhat
> friendlier.
>
> David R. Kamerschen, Ph.D.
> Professor of Economics, University of Georgia
>
> For those who understand, no explanation is needed.
> For those who do not understand, no explanation is possible.
>
>
>
>

Should be required reading!

Your post reminded me of this:

A valuable lesson for all.
>
> Subject: Bar Stool Economics>
>

What was not included in the Bar Stool economic theory:

The nine poorest men worked for the tenth man. They all worked hard, paid their taxes, raised their families, and obeyed the law. Some of them were asked to serve their country and did. The tenth man bought his way out of serving.

The company they all worked for (owned by the tenth man) is making huge profits because of their labor. Over the past ten years the tenth man's income went up 150% while he (making a good business decision) continually cut the health benefits and retirement benefits of his workers(to keep up with the increasing costs). During this time the tenth man outsourced two of the men's jobs overseas, layed them off and gave his remaining employees just enough of a raise to help them keep up with inflation. At the same time increasing his own income.

The moral of the story is: We don't need a government that can give us tax breaks. We need employers dedicated to keeing jobs in the US, who respect their employees, offer profit sharing, and pay the same percentage of Social Security taxes as they're employees.
We need employers who will spend less money on protecting themselves employing their special interests and make their employees their special interest.
Oh, and the story forgot to include that the poor men were getting Bud Lights and the rich man was really getting poured a Guiness!

Below link is to YouTube video of Obama stating that he does not accept money from oil companies...

[ame="http://youtube.com/watch?v=NdOK4L868cI"]YouTube - Nothing's Changed[/ame]

The laffer curve shows an answer which is different than your answer to #10.

I think you missed the part about the first four not paying any taxes. di

What was not included in the Bar Stool economic theory:

The nine poorest men worked for the tenth man. They all worked hard, paid their taxes, raised their families, and obeyed the law. ...

"[ame="http://www.amazon.com/Atlas-Shrugged-Ayn-Rand/dp/0451191145"]Who is John Galt?[/ame]"