New York, Teacher's Union, And Wall Street

This issue is complicated by the fact that few Americans understand the workings of their government or economics.  Ask the man in the street the difference between fiscal policy and monetary policy and you likely will be met with silence.  Don't even bother asking him where fiscal policies and monetary policies are worked out.

The answer to the above quiz questions are as follows:  Monetary policy is worked out at the Federal Reserve.  Fiscal policy in the Congress.  (It's not helpful to  the average man in the street for our national bank to be called the "Federal Reserve."  So why did we call it that?  Explanation: There was a time when powerful people in our government felt we shouldn't have a national bank.  There were other powerful people that understood that America, like Great Britain, needed a national bank.  So they compromised.  They created a national bank, but did not call it that.  They called it the Federal Reserve.)

Monetary policy includes setting the interest rates American banks can charge,  how much money the banks must hold in reserve and ultimately how much the nation borrows.

Fiscal policy deals with how much a nation spends and how much it takes in through taxes and duties.  Fiscal policy is the responsibility of Congress.  Ideally, fiscal policy and monetary policy should be coordinated between the Federal Reserve and the Congress.  But, that unfortunately is just a pipe dream.  The reality is that Congress comes out with a fiscal plan that may or may not be realistic.  Then, by means of monetary policy, the Fed using monetary policies tries to keep the ship of state on an even keel.  It's amazing that the Fed has done as well as it has.

The matters just mentioned don't come up often in election campaigns because they're so poorly understood by the public.  But, now let's go to an issue that seems to be very popular on the debate circuit: income inequality.  This refers to the fact that the middle class isn't doing very well, but the top 1 % seem to be getting richer and richer.  The poor seem mired in their poverty.

But, among facts less well understood is how low interest rates effect the savings of the middle class.  Remember how, when our children were growing up, we'd open up a savings account for them to help them get started with saving their money?  Today, you'd be better off taking them to a broker and putting some money for them into a mutual fund that tracks the S&P 500.  Consider this: Interest paid on money deposited in a bank is fairly well understood.  Do poor people understand anything about brokers?  Do they grasp the meaning of a mutual fund?  And, do they know about the S&P 500; what it is, and why you'd like to have your money buy some of it?

There's a saying that the poor work for their money, whereas the rich have their money working for them.  That's not far off the mark.  But, if you are in the "poor" class and you're willing to work hard, how do you improve your pay?  Improving your skills is a start.  An electrician makes more than a fellow mowing lawns.  From there it's on to becoming a contractor.  There are other routes such as accountant, lawyer, and doctor.  But, that requires money for school and living expenses to cover you while your studying.

The very rich don't have to deal with any of this.  They have their endowments and other sources of funds.  Did they develop these funds by themselves or was it handed to them by their parents?  Should we cut them down to size by limiting their funds or through heavy taxation?

Since this is a blog and not a textbook, let me touch on just one more election issue; namely, public unions.  Public unions are unions whose members are paid and receive benefits, not from a private entity, but rather from the public through taxation.  This is great for union members, but not so great  for the public.  Example: The teachers union provides for IRA retirement accounts.  There is an IRA account that pays interest on the deposited fund and an IRA that rests on stocks.  In the case of the IRA that is based on deposited funds, the interest rate is currently 6.5%.  Where can the public get 6.5%?  Nowhere.  How does the union do it?  Simple, they get it from the public through the taxes they pay.   To put it another way, unionized public workers have benefits that no other workers enjoy.

Workers for unions in the private sector are in a totally different situation.  Unless the company can meet their demands, the company goes out of business.  That's not good for the company, nor for the union.  Or, the company might go to Vietnam.  That wouldn't be good for the union either, but might be very good for the company.  Or the company could automate processes previously held by unionized workers.  Again not so good for the unions.  Public sector unions have none of the these problems.

A quick word about Wall Street.  Financial houses on Wall Street are a huge source of revenue for New York.  The New York Teachers Union has to be very careful in deciding whether to go after them.  If they did succeed in cutting down their size, it is likely that revenues to the City would be much diminished.  This would not be a positive outcome for public sector unions.

Now, let's vote.