Friday Five, February 1, 2014

There are several troubling parts of this story, but one that caught my attention is that the idea of common Christian values can be considered “extreme”. When the population accepts that a line of thinking or a believe system is “extreme”, it is easier for them to support government action to remove the extreme ideology from contact with and existence within the population. This is why Governor Cuomo’s comments that “extreme conservatives have no place in the state of New York” are so troubling. How does he define “extreme”? Those who are pro-life and pro-gun. I had dinner recently with a friend who commented that he enjoys reads my “extreme conservative views”. He was serious in his description of my views. I don’t think it’s far away when Christianity will be considered “extreme” and the Bible will be considered hate speech because of the Lord’s teachings that relations between the same sex and/or relations out of marriage – is sin. What our culture holds is this: As long as the love between two people is sincere, it’s holy love that is acceptable to God. The Bible doesn’t teach this. But that doesn’t matter. Views that have been accepted for decades in the country and even millennia by other cultures are fast on their way to becoming “extreme” in our society.

Out of state applications to the University of Colorado are up 43%. But don’t automatically conclude this is a result of the new marijuana laws. University officials says the increase is due to increased recruiting efforts and the use of a common application that helps prospects apply to multiple colleges with a single application. OK. I must ask: are the school officials smoking it too?

With all of the quantitative easing (QE), one might wonder why we’re not experiencing much inflation. It stands to reason that when the money supply is increased, the value of each dollar falls and so prices must rise in order to retain the same buying power. The rise in prices is inflation. The answer to this question is to look at the Equation of Exchange: M · V = P · T, where:

M: It’s simply the total amount of money present in the economy

V: Velocity: how often each dollar (bill) is used over the course of a year. This quantity depends on the saving habits of the people in the economy. If they are keen on saving, the bills will only pass through a few hands each year, thus V is small. The combination of these two quantities is the total spending in the economy. For example: if there are M = 100 billion $ in the economy and each dollar is spend V = 5 times per year, the total annual spending must be M · V = 500 billion $.

P: Price. It tells us the average price of a good in the economy. If there’s inflation, this is the quantity that will increase.

T: Transactions – the total number of goods sold over the entire year. The product of these last two quantities is the total sales revenue in the economy. If the average price of a good is P = 25 $ and there are T = 200 billion goods sold in a year, the total sales revenue must be P · T = 500 billion $. It is no accident that the total sales revenue equals the total spending. Rather, this equality is the (reasonable) foundation of the Equation of Exchange.

So, if we increase the money supply M in the economy and the spending habits of the people remain unchanged (constant V), then the combination of total spending must increase as well. Total spending can increase through inflation or through a rise in the number of transactions. Now, recall that prices are determined by an equilibrium of supply and demand. If demand drops, the retailers have to lower their prices to sell off their stocks. Similarly, if demand suddenly increases, the retailer will be able to set higher prices, resulting in inflation, unless, of course,

So, if you’re wondering why the QE hasn’t resulted in significant inflation, work the equation and learn what happens when one or more of the four variables is manipulated. You can learn more here, here and here.

Looks like Amazon wants to send you stuff before you order it. It’s called “anticipatory” or “speculative” shipping. Hmmm………………

Finally, would you like to watch a sitcom on TV called Selfie? Well, it’s coming this Fall……

Bill English, CEO