Archive for September, 2011

lucerne

In addition to visiting Zug, we also went to Lucerne – another city in north-central Switzerland, in the German-speaking portion of the country. Last year, Lucerne was voted the fifth most popular tourism destination in the world by Tripadvisor. And it is not really hard to understand why.

View from a wooden bridge that was first erected in the 14th century

Ruess river and Jesuit Church

Fountain and Jusuit Church again

The famous carving of a dying lion

View over the whole city with its picturesque lake

Panorama view

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Ten years after 9/11, Judge Andrew Napolitano poses some questions:

What have we learned, America?

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Last week, the Wall Street Journal published an article about the city of Zug in Switzerland:

Tax Haven’s Tax Haven Pays a Price for Success

Developed nations from Japan to America are desperate for growth, but this tiny lake-filled Swiss canton is wrestling with a different problem: too much of it.

To see what it is like to be in a world as wealthy as Zug, I drove there this weekend. Have to say, it is a pretty nice place indeed. The combination of urban shops, the historic old city, the lake, and the mountainous surrounding definitely makes up a fantastic area to live.

However, it is also true that “if you (only) make 300,000 or 400,000 francs, you struggle”. Everything is quite pricey, even by Swiss standards.

View over the historic old city

Panorama view

Promenade along the picturesque lake

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hunting the rich

Among all the recent articles about higher taxes for “the rich”, here is one of better ones, published by The Economist:

Taxation and class war – Hunting the rich

Imagine a tax system which made the top rates on wages and capital more equal, and which eliminated virtually all deductions. To avoid taxing investments twice, such a system would get rid of corporate taxes. It would also allow for a much lower top rate of income tax. The result? A larger overall tax take from the rich, without hurting the dynamism of the economy. Now that would be worth blowing your horn about.

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bailout revisited

A short tale on President Obama’s “successful” bailout of GM:

Imagine there was a college professor teaching a class with, say, fifty students. One day a student suggests that the whole course should arrange an excursion. After a brief discussion, the professor proposes that he will organize a 7-day trip to a nearby town. Each student is asked to pay $200 for the bus, the hotel, and all other expenses. So, during the following class the professor collects the money to make the respective reservations. But instead of paying for the bus, the hotel, and so on, he takes the $10,000 and goes to a casino. After a few hours of successful gambling, he leaves the casino with $12,000.

The next day, he tells his students that thanks to his success, the group will have an additional $2,000 to spend on their excursion. Surprised by that story, almost all of the students applaud and praise the professor for the additional money. In fact, they cheer so much that no one gets to hear the few students who do not clap but think a bit more carefully about what their professor has done and whether his behavior ought to be praised.

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auto bailout

For the Washington Post, Eugene Joseph Dionne argues that President Obama’s biggest success was a “socialist” act to bail out GM:

GM is back – Thanks to Uncle Sam

We can seek to control our fate, or we can turn the invisible hand into a God who commands us to be helpless.

Let aside the nonsense of this statement, the interesting thing about that op-ed is that car companies were already bailed out in the past. And thirty years ago, Milton Friedman discussed the issue with Phil Donahue:

The question is, should the people in this country bail out Chrysler by taking money out of their pockets, not to buy cars which they want to buy, but to pay for whatever have been the causes of the losses at Chrysler?

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Jon Stewart with a hilarious comment on President Obama and the Solyndra disaster:

Daily Show – Solyndra

Welcome to that custom-tailored Obama scandal you ordered!

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Yesterday, CNBC broadcasted a pretty interesting documentary about the world’s most admired company: BMW

Some critics have dismissed BMW as over-engineered, over-hyped, and over-priced. But what about the legions of imitators and buyers?

On its website, CNBC has also prepared some further information:

BMW: A Driving Obsession 

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some math

At the beginning of 2011, welfare benefits (so-called ALG II) in Germany were raised slightly to 364 euros. Many left-wing politicians complained about the small increase and the weird calculation that brought up the new welfare sum.

However, it seems like they only look at one side of the coin (the undisputed needs of unemployed), whereas they completely ignore the incentives at work.

So let us do some math. German welfare benefits consist of the following three pillars:

  • 364 € welfare benefits in cash
  • plus up to 450 € for rent (depends on region, up to 45 sqm)
  • plus side benefits (training programs, grants, health insurance, etc.)

All this sums up to something between 800 and 1’000 euros.

Now compare this to a low-wage worker who has a gross monthly income of, say, 1’200 €. Depending on some factors such as religious status, region, health insurance, and so on, this worker will end up with a net monthly income of about 950 €. Evidently, this is quite similar to what long-term unemployed get for not working at all.

But let us go one step further and consider the situation from the employer’s perspective. It seems pretty clear that an employer only hires a worker if that worker creates more value than his labor costs. Thus, if we take the above-mentioned worker with a gross monthly income of 1’200 €, we can add employer’s contributions plus some side costs, and come up with total labor costs of more than 1’400 €.

So, the worker who creates value of more than 1’400 euros per month ends up with the same disposable income as someone who does not create any value at all. In other words, whether or not you create any monthly value below 1’400 € does hardly affect your material well-being. (Regarding immaterial well-being, it is hard to say whether 24h of leisure is better or worse than having workmates and a ‘structured’ everyday life.)

 

This simple calculation highlights the problematic incentives at work with Germany’s unemployment benefits.

However, this only explains why many low-qualified Germans are long-term unemployed. But the question remains why many of them actually do work. As far as I can see, there are only three reasons:

  1. People are not eligible for welfare benefits.
  2. People do not want to be unemployed (stigma theory).
  3. People hope for occupational advancement.

Given that list, it is kind of worrisome to see the last two arguments more and more eroding.

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tribute to reagan

There is much reason to disagree with his policies, but no doubt Ronald Wilson Reagan is one of America’s most popular presidents of all time. On youtube, there is a great tribute to the 40th president, summarizing some of his most affecting words:

I know it is hard to understand that sometimes painful things like this happen. It is all part of the process of exploration and discovery. It is all part of taking a chance and expanding mankind’s horizons. The future does not belong to the fainthearted, it belongs to the brave.

General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!

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