By Jennifer Bunn, on July 16th, 2008
There has been much debate over the past several years regarding the current nursing shortage. The statistics are grim: the current shortage is projected to double to around 12% by 2010 and to quadruple to 20% by 2015. By 2020, it is expected that the shortage will amount to 800,000 nurses.
One of the suggested solutions to the nursing shortage crisis has been to hire foreign nurses to fill the void. In theory, this makes perfect sense – they need the work and we need the nurses. Foreign nurses often receive a free education in their country of origin and are willing to work for less wages than domestically trained nurses. Why is this a problem?
The law of supply and demand is the basic underpinning of economic theory. When there is a shortage of labor in a market economy, wages increase as employers compete with one another to attract workers. If the shortage persists, wages and other compensations rise until enough workers are attracted by the higher wages and compensation; at this point, equilibrium is reached and supply and demand is balanced.
The practice of hiring foreign nurses to address the crisis may be beneficial in the short term but may worsen the situation in the long term. Foreign nurses willing to work for less pay and benefits falsely lower wages below what they would be in a fair market. Driving down nursing wages will result in nurses leaving the profession to work in other occupations.
In eight National Sample Surveys of the Registered Nurse Population (NSSRN) conducted between 1977 and 2004, a disturbing trend emerged: “According to the 2004 survey, there were an estimated 2,909,467 registered nurses in the United States as of March 2004. Of these, 16.8%, or 489,790, were not employed in nursing. Of those RN’s who were not employed in nursing, many were retired and others had left for family reasons. However, an estimated 209,140 to 241,563 left “for personal career reasons…or reasons connected to the workplace”*.
The NSSRN found that there were several reasons why these nurses chose to leave nursing. Some found that their current position was more rewarding. Others cited better wages, better hours, and concerns about their personal safety as reasons for leaving nursing.
Hiring foreign nurses to address the nursing shortage is not likely to fix the problem. Eventually, foreign nurses will leave nursing for the same reasons that many nurses now leave the profession: low wages, long working hours, and concerns about their personal safety as well as dissatisfaction with working conditions. In the meantime, hiring foreign nurses to fill the gap will only drive down wages and force more domestic nurses out of the profession.
The cure for the nursing shortage may be to address the issues that are leading to job dissatisfaction and to make nursing, as a profession, more attractive to those contemplating nursing as a career.
*Elgie, R. “Politics, Economics, and Nursing Shortages: A Critical Look at United States Government Policies.” Nurs Econ. 2007;25(5):285-292.
By G.L.C., on July 16th, 2008
Forbes magazine estimates that if same-sex marriage were legalized across the United States, the weddings would generate $16.8 billion in spending during the first several years. In 2008, the total buying power of the U.S. gay, lesbian, bisexual and transgender adult population is projected to be about $712 billion. Same-sex couples are less likely to have kids and more likely to have both partners in the workforce which translates into higher per-capita household income.
In 2004, the Commonwealth of Massachusetts became the first state to legalize same-sex marriages. The California Supreme Court ruled in May 2008 that the state constitution requires the state to extend marriage to same-sex couples. A ballot initiative will be held in November 2008 to amend the constitution. Many other states are on the verge of legalizing same-sex marriages.
A recent study by the Williams Institute, UCLA School of Law, on the fiscal impact of marriage for same-sex couples in different states suggests that legalization of same sex marriages would have a positive impact on the state economy. Studies by legislative offices in Connecticut and Vermont and by the Comptroller General of New York also suggested the same results.
The State of California stands to earn more than $684.6 million over the next three years due to weddings and tourism generated by the legalization of same-sex marriages. It will create new jobs and generate revenue for state and local government. From 2008-2010, spending on tourism and weddings by same-sex couples would boost California’s economy by over $63.8 million, creating almost 2,200 new jobs. The state stands to gain $8.8 million from marriage license fees alone.
According to Bard Sears, Executive Director of the Williams Institute, the estimated economic boost a small state like Hawaii can generate by legalized same-sex weddings would be above $200 million over the next three years. There are an estimated 2898 same-sex couples in Hawaii. Even if half of them were to get married, over $10 million would be generated by their weddings over the next three years. This is a conservative figure assuming that a same-sex couple would spend about $7000 on their wedding which is much less than the average $30,000. If same-sex marriages are legalized in Hawaii, many would visit Hawaii for a same-sex wedding. This would boost the tourism industry, and the state would gain millions by way of taxes and marriage license fees.
The State of Washington stands to gain $4-6 million from same sex marriages. Wedding related businesses in Washingtonwill see a $63 million increase annually. Retail sales tax collection will increase by $4 million.
Legalization of same-sex marriages would result in states treating same-sex and opposite-sex married couples equally under public assistance programs – the income of a person’s same-sex married partner will be included when determining eligibility for such programs. Even if only a small percentage of individuals living with partners marry and become ineligible for benefits, states will save hundreds of thousands of dollars each year.
By Cheryl Grey, on July 16th, 2008
Australia finds itself in an enviable situation. While many of the world’s economically developed nations are slowing down, Australia is speeding so fast it’s going to have trouble stopping.
Over the past two years the growth in the Australian economy has been phenomenal, mostly due to skyrocketing commodities. Fully 17% of Australia’s economy depends upon exporting raw materials including coal, iron ore, gold, meat, wool, alumina and wheat. So when prices go up, Australia gets richer.
At first blink, it seems that the slowdown currently underway in the U.S., the UK and the Eurozone, whether technically a recession or not, would tend to choke off those exports. However, most of Australia’s shipments go to Asia, including Japan (19.4% in 2007), China (13.6%) and South Korea (7.8%), as compared to the U.S. (5.8%) and the UK (3.7%), and those to the Eurozone were so minor they were under the Australian Bureau of Statistics’ official radar. With economic growth in Asia remaining fairly strong in global terms, the market for Australia’s exports remains hungry.
Because of this economic surge, the Australian budget has run a surplus since 2002, although the government keeps several million dollars in bonds available as risk-free securities.
More Jobs than Workers
Australia also has an extraordinarily tight labor market. In May 2005, the unemployment rate was 5.1%. That’s not bad, but by May 2008 it had fallen to 4.3%, and many businesses reported that they’d love to expand but just couldn’t find the skilled workers to fill new positions.
In fact, the economy has been accelerating so fast it’s starting to overheat. Rising consumer and corporate demand has boosted imports even faster than exports, with passenger cars, computer and telecommunications equipment, pharmaceuticals and petroleum products being offloaded onto Australia’s docks daily. This demand-pull, coupled with the cost-push of higher fuel, energy and food prices, has sent inflation spiraling. On average, prices for finished goods were 1.3% higher in March 2008 than in December 2007 and 4.25% higher than March 2007.
In their fight to slow business and consumer demand and thereby curb inflation, the Reserve Bank of Australia has raised interbank lending rates twelve times since May 2002. In March 2008, the official rate hit 7.25%, in contrast to the U.S. at 2.00%, the Eurozone at 4.00%, Japan at 0.50% and Switzerland at 2.75%, which should speak volumes about the relative speeds of those economies.
Interest rates for retail clients, of course, are higher than interbank rates, and 12.0% per year for an Australian credit card or car loan is considered a pretty good deal right now. Variable rate home loans start at 7.98% and fixed rate at 9.53%—if you can find a lender willing to offer one.
Desired Results
Such a high price for credit has answered the RBA’s intent, and consumer and business demand has diminished. In April 2008 new loans for buying a home fell by 5.8% from March for a total decline of 17.3% over the previous three months, and in June consumer sentiment fell to its lowest level since December 1992.
But the prices of Australia’s export commodities just keep rising. Driven by strong demand for steel in developing Asian nations, prices for Australia’s iron ore rose by 85% in June 2008. Wheat has more than doubled over the last two years, and gold has averaged well above US$850 per ounce for the year to date.
To make matters worse, Australia’s high interest rates have made it a favorite target for the carry trade, an investment strategy where funds are borrowed in a nation with a low interest rate and invested in a nation with a high one. The investor earns the difference between the rates, currently 6.75% between Japan and Australia, but runs the risk that violent exchange rate fluctuations due to financial market fears will wipe out the profits. The weekly chart above of the Australian dollar versus the Japanese yen graphically illustrates that risk.
The big drop in the middle of the chart marks the beginning of the subprime mortgage crisis, but note that every time the bottom falls out of the carry trade market, it just comes right back up.
With economic activity plunging, the RBA is understandably hesitant to raise interest rates further and risk throwing a vibrant economy into recession. But if that brake doesn’t hold, the influx of exports and foreign investments will refuel demand-pull and cost-push, starting the inflation cycle all over again.
By J.D. Seagraves, on July 16th, 2008
The question of drug legalization is not part of the political debate in the United States. The resounding consensus among America’s governing class is that it would be insane to legalize or decriminalize even marijuana, let alone “hard” drugs. Many of these drug-warrior politicians admit to prior use of illicit drugs, and yet they show no compunction in supporting policies that would imprison people for doing the same things they did themselves. The hypocrisy is rather staggering.
Among economists, of course, the question of drug legalization/decriminalization is taken much more seriously. Hardcore free-market economists from the Austrian school are virtually unanimous in their opposition to the government’s War on Drugs. But it’s not only academics of the laissez-faire fringe that strongly condemn prohibition—Nobel Laureate Milton Friedman was also an uncompromising critic of the Drug War and made it a primary focus of his later years in life.
How can these economists stand for legalizing drugs? Do they think illicit drugs are good? On the contrary, anti-prohibition economists who oppose the War on Drugs generally acknowledge that drugs are bad but argue that, economically, prohibition is worse.
There are legal and moral arguments against the War on Drugs as well. For example, the federal government needed a constitutional amendment to outlaw alcohol on a national scale—why did it need no such amendment to outlaw marijuana or cocaine? An entire book could be written about this question alone, but for the sake of brevity, this article will look only at the economic arguments against drug prohibition.
I should, however, clarify that by “economic,” I do not mean strictly “dollars and cents.” The Austrian view of economics is much larger, considering economics to be the study of human action; cause and effect. What are the logical effects of drug prohibition in a world ruled by the immutable law of supply and demand? Like any intervention in the free market, there are unintended consequences to the War on Drugs.
Long-Term Consequences
For starters, let’s admit that there is a demand for intoxicating products—be they in potable, puffable, powder or pill form. This is a fact backed up by tens of thousands of years of human history. When the state prohibits a product for which there is clear demand, it does very little (if anything) to dampen demand. Instead, prohibitionist policies have a greater effect on supply, reducing it, and creating scarcity. As a result, the price of the product in question rises, making it less affordable for people to consume.
Perhaps this is the logic behind prohibition. But as is virtually always the case with interventionist economic policies, central planners do not take the long view. For when prohibition causes scarcity and higher prices, it also creates greater profits for the individuals or businesses involved in the illicit trade. These black-market entrepreneurs then have an incentive to market their products to new consumers—to stimulate demand. Thus, the demand for a prohibited product can, and often does, increase rather than decrease, even as supplies are limited.
This is exactly what happened during America’s failed experiment with alcohol prohibition. In 1919, the last year before the Eighteenth Amendment prohibited alcoholic consumption on a national scale, the average American consumed just under 0.8 gallons of pure alcohol per year. According to a 1932 Columbia University study, within ten years, this figure had increased to nearly 1.3 gallons a year, despite—or more accurately, because of—the illegality of drinking.
Further evidence to suggest that prohibition actually stimulates demand can be found by comparing drug-usage rates in the U.S. to those of the Netherlands. In 2005, a study conducted by the U.S. Department of Health and Human Services found that more than 97 million Americans—40.1%—had used marijuana at least once. Over 33 million (13.5%) had used cocaine at least once, and 3.5 million (1.5%) had tried heroin. In the Netherlands, where drug addiction is treated as a health problem rather than as a criminal one, a 1999 study by the University of Amsterdam found that only 15.7% of Danes had ever tried marijuana—which is essentially legal in their country. Only 2.1% had ever tried cocaine, and just 0.3% had ever used heroin.
The disparity between “tough on drugs” America and the comparatively hands-off Netherlands is even more staggering when you look at figures for people who have used a given drug in the past month—i.e. likely addicts. Six percent of Americans had smoked pot in the past month, according to the DHS, versus just 2.5% of Danes who can legally procure and smoke it in a “coffee shop.” One percent of Americans had used cocaine in the past month versus 0.3% of Danes. And about 140,000 Americans—0.1%—had used heroin in the past month whereas the number was too small to calculate in the Netherlands.
It’s also telling that the Dutch have no crack problem whatsoever. In the U.S., a shocking 7.9 million people have tried crack, with 1.3 million smoking it in the past year and 680,000 in the previous month. The Netherlands can’t even track usage of the drug because it is so small. Why would this be? An economist would argue that crack—which is cheaper than cocaine—is a byproduct of the high cost of cocaine caused by prohibition.
Organized Crime
Alcohol prohibition also had another very serious, unintended consequence—it led to the rise of an organized criminal infrastructure. The streets of major cities were turned into war zones as rival gangs fought over the valuable turf in the booze trade. Does this sound a lot like South Central L.A. in the eighties and nineties? Prohibition leads to black markets which are inevitably ruled by violence. If the CEO of Coors gets cheated by the CEO of Miller, he takes his case to court. When the leader of a drug gang gets cheated by a rival, he has no legal recourse—he can’t file civil suit for breach of contract. Therefore, the only people who do not get cheated in the drug trade are those who are able to strike fear into the hearts of their competitors. A man cannot survive as a high-level drug dealer unless his rivals know that he will kill, if necessary, to protect his business interests.
It is statically proven that drug prohibition leads to greater usage rates and more crime. What are the arguments for maintaining it? The only groups that benefit from drug prohibition are drug dealers—who are able to capitalize on the profits caused by product scarcity—and the “prison industrial complex,” which reaps massive profits from the incarceration of non-violent perpetrators of victimless crimes. The cost of prohibition is great in terms of dollars and lives. Think of the children shot down in drug-related drive-by shootings. When’s the last time you heard of an executive from a beer or pharmaceutical company gunning down an innocent bystander in pursuit of a corporate rival?
The Drug War, from a hardcore laissez-faire economist’s view, is nothing more than price support for drug dealers, and like all interventions into the economy, it should be ended.
By Evelyn Black, on July 16th, 2008
The recent failure of IndyMac bank came after a week of constant reassurance from its corporate handlers that everything was fine, really, just fine. Then, on Monday, July 14, after a harrowing weekend spent scrambling for solutions to the Fannie Mae and Freddie Mac mess, George Bush went before press conference cameras to reassure the American people that everything is fine, really, just fine.
I don’t know about you, but my immediate response to that was, “Oh God, we’re all screwed!“
I did calm down though. (At least for now I did, check with me later this week and that may change.) All of that news footage of people lined up outside IndyMac to get their money helped me remember that, hey, we do have a bit of help here: the Federal Deposit Insurance Corporation, created after the Great Depression to prevent bank runs by insuring depositors’ money up to $100,000 per customer.
Can you really get your money back if your bank fails? What if you have more that 100K? What about your investments? How can you tell if your bank is on the list of 90 that may be in trouble this year? What follows are some basic precautionary measures you can take right now, along with information that may help:
Know Your FDIC insurance limits.
Deposits at retail banks include products like checking accounts, savings accounts, and CDs. You are insured through FDIC for up to $100,000 at each retail bank where you have these deposits. If you are married and your accounts are held jointly, you have $100,000 each, so you are actually covered for up to $200,000 on all of your jointly held deposits at one bank. IRA accounts are insured for up to $250,000, and that is in addition to the $100,000 each for ordinary deposits.
What if you have more than $100,000 on deposit? You can move anything in excess of that $100,000 to another financial institution, where you will get another $100,000 in FDIC coverage. Should you do this? Probably not, unless you are currently keeping that money in a shaky regional bank. Even then, you want to think twice about it, then think again. Don’t act out of fear. That’s what starts a bank run.
If you have more than the $100,000 limit on deposit and the bank is seized by FDIC, you will get a percentage of the amount over the limit if your bank is shut down. Right now at IndyMac the FDIC is projecting 50-75% refunded on everything over $100,000 depending on how much cash the bank can raise when assets are sold off. So, say you had $150,000 on deposit. You’ll get your $100,000 back no problem. On the $50,000 over the limit you’ll get between $25,00 and $38,000.
So if you have lots more than $100,000 in a single bank and that bank is a smallish regional bank, you may want to review your strategy. Keep in mind that most CDs carry a penalty for early withdrawal, so you will have to factor that into your decision.
Keep Some Cash On Hand.
I advise people to do this even in ordinary times. You never what will happen: a storm blows out the electricity for your city and you can’t get to your money for a day or two. An emergency arises such that even a trip to an ATM is too much wasted time. You never know. It doesn’t hurt to have a couple hundred tucked away at home, in a box in the freezer, under your mattress, anywhere you feel safe keeping it. Most homeowners insurance policies will cover up to $200 in cash if you experience a break-in, so I wouldn’t keep much over $200, but do keep some money at home. That way, whatever happens, you won’t panic, and you have some milk and gas money to carry you through.
Research Your Financial Institution.
I read the New York Times daily, but any paper that carries stock prices and financial information will do, and lots of information can be found online. Do a news search under your bank’s name and see what comes up. Compare your bank’s stock performance with the performance of comparable banks. Read the press releases sent out by the bank itself. They are usually listed right on the stock page under the description of the bank. Do you see any red flags?
Red flags include a rapid drop in stock prices since November of 2007, heavy investment in home equity lines and mortgages, recent CEO turnover, and press releases stating that everything is fine, just fine, and all rumors are false. Banks don’t issue press releases saying everything is fine unless something is wrong.
However, even if your money really is in one of the stressed regional banks, you should still think twice before pulling all of it and moving it somewhere else. The reason IndyMac failed as fast as it did was that people panicked and started to pull all their money all at once.
Most of the depositors will in fact get every penny of their money back in the event of a bank failure. Bank runs are self-fulfilling prophecies: A few people get scared, that spreads, and pretty soon it’s a not so wonderful life all over again. I personally work for a regional bank on the short list for big trouble, and I have all my money there. Am I going to pull it? No. How can I advise other customers to stay with us if I pull my own money out of fear? I can’t do it, and besides, I’m not very rich anyway.
By J.D. Seagraves, on July 16th, 2008
Since I wrote my most recent article about the economic and fiscal views of the “third-party” presidential candidates – Ralph Nader, Cynthia McKinney, Chuck Baldwin, and Bob Barr – I thought I’d use my blog to highlight a U.S. Senate candidate with an Austrian economics-friendly platform. His name is Scotty Boman, and he’s a Libertarian from Michigan.
Boman’s issues page is divided into three categories: Peace, Liberty, and Prosperity. This triumvirate of topics will be familiar to fans of Ron Paul, the most famous popularizer of Austrian economics of all time, and that’s because Scotty Boman was a grassroots leader of the Ron Paul campaign in Michigan. In fact, Boman voted for Paul not only in 2008 but also in 1988 when Paul was the Libertarian Party’s nominee for president.
Since this is an economics blog, I’m concerned here with the candidate’s views on “Prosperity.” On the downside, Scotty doesn’t paint a very rosy picture when discussing the Federal Reserve System, the income tax, and Social Security. This is a common knock against Austrians, who are often said to be even more pessimistic than Communists! But hey, we see the direction the U.S. is headed, and we refuse to put on the rose-colored glasses. Sorry!
Boman points out that the U.S. dollar has lost 95% of its value since the 1913 debut of the income tax and Federal Reserve System. Of the income tax, he says he supports “repealing it and replacing it with nothing” and makes a mostly moralistic argument against taxation in general. While I agree, the view has little to do with economics. Boman’s views on the Fed are more suitable for discussion here.
Boman says the Federal Reserve System has been “absolutely ruinous” to our country. He points out the ridiculousness – so eagerly regurgitated by the financial media – that the Fed exists to “combat inflation” when, in reality, only the Fed can cause inflation in the first place!
“They do this by expanding the money supply. Each time the Fed creates new money, it diminishes the value of your dollar-based financial holdings. It thus imposes a hidden tax – the ‘inflation tax’ – and redistributes wealth from the poor and working class to the rich and politically connected.”
This is a hardcore Austrian view in line with the “principled populism” of Dr. Murray Rothbard.
As for a solution, Boman supports the revolutionary idea of free market competing currencies. This would take the power of determining “what is money” out of the hands of the government and put it into the hands of the people. The core of this philosophy rests on the Austrian “Theory on the Origin of Money,” which states that money arose naturally as the most commonly accepted means of exchange during the course of prehistoric barter. Gold and silver became “money” for a variety of reasons but basically because they were widely accepted and easily transportable. Once you see that the government doesn’t need to declare anything money, that the free market can do that, then the Federal Reserve System’s theft is demystified. You can see the Man Behind the Curtain and find out that the Emperor has no clothes. It’s not a pretty sight.
Of Social Security, Boman’s solution isn’t nearly as well defined. He basically throws his hands up in the air and admits there is no good solution, or at least, he doesn’t have one. This is refreshing from a politician. But he does offer one reform: make Social Security voluntary and allow young people to opt out. I know I would.
Author’s note: Since writing this article, I have become involved with the Boman08 campaign.
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