The fallacy of Taxing the Rich

An interesting account from a true American hero in Doug Robinson's latest column.

The Death Tax

Pavel Yakovlev, who entered the WVU doctoral program the same year that I did, and his colleague Antony Davies are mentioned on the opinion page of the Wall Street Journal today for a paper that demonstrates the negative impact from the death tax.

Why can't I be as eloquent as Munger?

Mike Munger nails it with the following statement:

"The problem with health care is not that we can’t afford insurance. The problem is that we can’t afford health care."

Most people don't know that health insurance and health care are two different things. We need cheaper health care, not more health insurance. The problem is that as we rely more and more on insurance to cover our health care needs, the more expensive it becomes.

Is increasing college attendance rates desirable?

The chronicle of higher education points out that college really isn't for everyone.

Drug War

Art Carden on the drug war.

Nobel in Economics Announced

As a public choice economist, I am delighted in this year's selection of Elinor Ostrom and Oliver Williamson. Here is a scientific background provided by the Nobel Committee. You can also find comments from some of my favorite bloggers here, here, here and here.

Mankiw on Healthcare

There is an inevitable trade off between people's conceptions of fairness and inequality:

"Inequality in economic resources is a natural but not altogether attractive feature of a free society. As health care becomes an ever larger share of the economy, we will have no choice but to struggle with the questions of how far we should allow such inequality to extend and what restrictions on our liberty we should endure in the name of fairness."

Factchecking Obama on Healthcare

Scott Harrington in the Wall Street Journal.

Really Stupid Tariff

The consensus amongst economists is that this tire tariff is really not a good idea. Here's one good explanation made by Brad Delong:

"Let's see... 250 million cars in America... need 4 tires per car... need new tires every 2.5 years. 400 million tires a year... $1.4 billion dollars a year... 10,000 worker jobs saved... $140,000 dollars per worker-job per year.

Looks like we could (a) let the Chinese sell us tires, (b) tax each tire by $2.50, (c) pay each tire worker who loses his or her job $100K a year, and we come out ahead: American households have more money to spend on other things, China has more jobs to help what is still a very poor country grow, and tire workers have higher incomes and more leisure as well.

But, you say, it would be stupid to impose a $2 a tire tax and use the money to pay each laid-off tire worker $100K a year.

That's the point: when the policy you are adopting is worse for everybody than a policy you agree is stupid, the policy you are adopting is best characterized as really stupid."

HT: Art Carden, Will Wilkinson

Update: Other articles on the issue are here, here, here, and here.

The Right to Life Begins at 22 Weeks of Gestation in the UK

A mother gives her story of how the doctors refused her premature baby medical attention. Why? He came two weeks too early.

(HT: Art Carden)

Betsy McCaughey writes about the views of Ezekiel Emanuel on the value of life. Quite shocking was the following written by Emanuel:

"Treating 65 year olds differently because of stereotypes or falsehoods would be ageist; treating them differently because they have already had more life-years is not."

Even more shocking:

"Adolescents have received substantial education and parental care, investments that will be wasted without a complete life. Infants, by contrast, have not yet received these investments...As the legal philosopher Ronald Dworking argues, 'It is terrible when and infant dies, but worse, most people think, when a three-year old dies and worse still when an adolescent does,' this argument is supported by empirical surveys."

The government has no right whatsoever to decide whose lives are most important. It is arbitrarirally discriminatory. It is true that leaving decisions to the market can be harsh and discriminatory as well. But I prefer the discrimination of nature to the arbitrary discrimination of government bureaucracy.

The absuridity of hate crimes

Here is an article by Richard Cohen from the Washington Post. Hate crime legislation is immoral and discriminatory in nature. It legislates against thought and speech which are constitutionally protected. Not to mention it seems to me to be a redundant term. Maybe all crimes are not motivated by hate per se; then again, what exactly is a "love crime?" Should it matter that the person that rapes and kills an innocent woman or child is so desensitized that s/he has no feeling for that person or even claims to "love" the person? Should that person be treated any differently? If so, what does that say about the value of life of the victim relative to victims of a "hate" crime? It suggests that the value of life is not equal. If two people are victims of the same crime are treated differently, it suggests that the value of life of one was greater than the other. This is completely at odds with the concept that "all men are created equal." (HT Don Boudreaux)

Protecting Cheese

A little known tariff on roquefort cheese from France (HT Donald Boudreaux and Caleb Brown)

The Law of Unintended Consequences Revisited Again

This article in the Deseret News points out some issues I hadn't thought about. In addition, to encouraging people to take on more debt to buy a car they otherwise wouldn't have purchased, those of us who choose to live our lives in thrift and only buy used vehicles are going to pay an even greater price. Used cars will inevitably go up in price due to the significant reduction of used cars on the market.

The whole idea of "cash for clunkers" is completely moronic. It doesn't even create the benefits it claims. It certainly does not help the environment. How does filling up our dumps or recycling plants in order to produce new cars that otherwise would not have been produced actually benefit our environment? Sure, there might be a reduction in CO2 emissions due to higher fuel standards. But there is also an increase in C02 emissions in order to produce these new fuel-efficient vehicles. And mind you, recycling is a very costly use of resources as well. It is much more environmentally friendly to re-use what we have as long as the good still functions than waste resources converting these goods into other goods. Nothing is better for the environment than using the goods and services we have for as long as possible regardless of the negative impact that it might have on GDP. Another great example of how good the government is at appearing like it is doing something good.

The Importance of Property Rights in Zimbabwe

This link demonstrates the impact that property reform has had in Zimbabwe. (HT: Art Carden)

The Law of Unintended Consequences Revisited

An article by Ellen Schultz in the Wall Street Journal today points out that wages above the payroll tax threshold have increased faster than wages below the threshold that are subject to the full payroll tax. Well, of course this is the case. The payroll tax encourages this. For example, assume that an employer is choosing to give a raise to two employees. Worker A earns $90,000. Worker B earns $110,000 (the threshold as of 2009 is $106,800). For every $1 increase in salary of Worker A, it will cost the employer $1.062. For every $1 increase in the wage for Worker B, it will cost the employer $1. It is clearly cheaper to give Worker B raise. Of course, both will probably be able to get a raise, but the raise of the Worker B will be larger. The payroll tax is regressive plain and simple. Am I in favor of increasing the threshold? With a caveat. It has never made sense to me why the poorest must bear this tax and the richest must not. The argument is the rich are not likely to use social security in retirement and therefore should not be obligated to pay beyond the threshold. However, what happens is that those closest to the threshold--but not above it--subsidize social security for the poorest. Why does it make sense that someone making $100,000 should subsidize the poor more than someone making $120,000 should not? I propose extending the payroll tax to all income earners as long as it is packaged with marginal income tax rates on the wealthiest are brought below 30%. That way the marginal income tax for the wealthiest would not be affected and social security would be more sound. I realize this is not likely to happen. Of course, my preference would be to reform social security to a fully funded program with private accounts. This is even less likely to happen any time in the near future.

Top Economics Blogs

A list of the top economics blogs in Wall Street Journal yesterday. My personal favorites:

Division of Labour
Marginal Revolution
Cafe Hayek
Greg Mankiw

On Discrimination

For the most part, I agree with Art Carden in dealing with discrimination issues.

Capture Theory at its Best

How Convenient, Senator Specter!

Arlen Specter had a change of heart today. He is now a Democrat. Of course, it has nothing to do with political opinion in his state.

“Since my election in 1980, as part of the Reagan Big Tent, the Republican Party has moved far to the right. Last year, more than 200,000 Republicans in Pennsylvania changed their registration to become Democrats. I now find my political philosophy more in line with Democrats than Republicans.”

Another example of how Public Choice accurately describes the world we live in.

In Defense of Mormon Happiness

I wrote the following comment in response to Will Wilkinson's critique on Mormon happiness:

Will,

I believe it is quite hubristic of you to suggest that you are so enlightened and that Mormons are "squandering their potential" by choosing to use their resources differently than others in society. In my mind nothing can be more rewarding than taking part in the development of a human being. I admit that I am Mormon, and therefore maybe I have been too “brainwashed” to know what “really matters in life.” Obviously, you think differently, and I respect your right to your opinion. However, just because others choose to locate on a different point on the production possibility frontier doesn't make them less productive nor does it make them any less rational than you would consider yourself to be.

I’d like to analyze your comments from a positive rather than a normative perspective. From an economic point of view the division of family labor actually makes quite a bit of sense. Utah has fared much better than most states in the country despite the unmeasured home production which is not included in estimates of Gross State Product. It is hard to argue against this model on efficiency grounds relative to the rest of the country. Let’s assume that a child that is raised primarily by a stay-at-home parent will grow up healthier in many ways. This may be an issue of contention, but I do not believe that there is any evidence to the contrary. (The evidence I have seen suggests that children are raised in daycare (preschool) often enter grade school perform better initially than home-raised children. However, the home-raised children quickly converge and there is some evidence that the daycare children act up more. Much remains to be done on this issue.) Given the outcome from a state like Utah with a significant portion of stay-at-home parents, I believe the anecdotal evidence should be somewhat convincing. Although no one likes to point this out, economically it makes sense in some cases to divide labor between home production and out-of-home production. To suggest that there is no trade off between the two is just bad economics. The reason why this trade off is taboo is due to the fact that the stay-at-home parent is often—if not usually—a woman.

I will dare claim that a woman will generally have a comparative advantage in child rearing. This does not suggest that they are less productive outside the home. In fact, they very well may be more productive than the man working outside the home in the majority of cases. But anyone that understands comparative advantage knows that just because one has an absolute advantage in the production of one good does not mean that it would be more efficient for him/her to produce that good. What matters is relative advantage. Let’s say that a woman generally is twice as productive as a man at rearing children. (I obviously am making this number up. In reality I do not believe the advantage to be so significant. I use this number for simplicity. But it would seem to me ridiculous to think that a woman would not have at least a slight advantage in child-rearing activities. I will admit that this advantage has possibly weakened through time due to technology, ability to formula feed, and other factors; but I still believe that there is an advantage regardless of how politically incorrect of a statement it may be.) For the woman to work outside the home, she would have to be more than twice as productive at production outside the home. Indeed, this is probably the case in some situations which is why often the father will stay at home (even in many LDS homes). However, it is less likely that women will be relatively more productive at out-of-home production, even if they are always more productive in absolute terms. The reason why it is such a prevalent choice is because total consumption and production of the father and mother is much greater through the division of labor when both spouses place a significant amount of weight on the family as part of their utility function. In short, both benefit through a voluntary contract. This to me is not “squandering potential”; rather it is self interest “rightly understood.” It puzzles me why someone who places so much value on individual freedom would act so condescending towards other individuals’ choices just because they do not jive with your own value judgments.

When teaching comparative advantage, I often use the example of John Stockton and Karl Malone. Any good basketball fan, knows that John Stockton had the scoring ability to average more than 20 points a game, possibly 25, if he reduced average in assists. Scoring would have gotten him much more individual attention, possibly an MVP award. However, he understood that it was in his and the team’s interest for him to pass the ball more since Karl Malone clearly had the comparative advantage at scoring. Was John Stockton “squandering [his] potential” or was he merely acting in his own self interest given his desired objectives?

There is significant value to what a parent produces at home. You might not think so, but do you not agree that value is subjective? So go ahead. Go to Utah, and try and convince these women that they are misguided and selling themselves short. However, I think you know that your time could be used much more efficiently elsewhere. For instance, how about fighting against the greater threat to your libertarian convictions, the Fair Pay Act, which will artificially increases the wage for women and effectively increase the opportunity cost for women staying at home. I think that we would both agree that if more women are to enter the workforce, it will be better for them to do so due to actual market conditions rather than government-induced distortions.

Sincerely,

Nathan Ashby

Chances of depression are 1 in 5

Here's Robert Barro reporting on the chances of a depression.

You Could Only Come up with 40 Economists. Seriously?

The Economic Policy Institute published an ad in the Washington Post with 40 economists supporting the Employee Free Choice Act (HT: Russell Roberts). Notable exception: liberal favorite Paul Krugman. Given Krugman's opinion (begin at "2. The cult of the new") in the past, it's understandable why. There have been many petitions published lately with hundreds of economists expressing their support. To include a petition with only 40 economists, regardless of how "prominent" they may be, only reduces the legitimacy of the institute's claims.

Will Wilkinson and Canadian Liberty

Will Wilkinson seems to believe that freedom in Canada is not much different from the U.S. He says that anecdotally it may seem that Canada less free, but that actual indices measuring freedom between the two actually suggest that they are quite comparable. I am not sure what indices he is referring to, but the indices I am most familiar with in my research are the Economic Freedom of the World Index and the Economic Freedoom of North America Index both constructed by the Fraser Institute. For the most part, Canada ranks quite well at the country level compared to the United States. The U.S. has generally ranked higher, but in recent years Canada has surpassed it slightly (in 2006, the most recent year that is estimated, Canada ranks 7th and the U.S. ranks 8th). However, at the state level economic freedom is consistently higher in the U.S. states. Delaware ranks highest overall followed by Alberta. However, none of the other Canadian provinces rank in the top 50 (West Virginia is the only U.S. state not to rank in the top 50). Of course, it could be that although there are differences, the differences are not significant compared to other countries.

An Economic Laboratory

Most countries in the world are subscribing to the idea that significant government stimulus is necessary for economic recovery. If these policies fail to live up to their predicted outcomes, then the response from stimulus proponents will be that things would have been much worse without the stimulus. However, at least one country (Ireland) is cutting expenditures. It will be interesting to see how Ireland performs in coming years relative to the United States and other countries. My bet is that in the long run it will fare much better; in the short run, it may fare worse, but not by much. It will be interesting to see if other countries adopt Ireland's policy.

How to solve the crisis: Open the borders

Thomas Friedman points out the absurdity of prohibiting banks receiving funding from the federal government from hiring immigrants with H-1B visas. For one, if there is any where that we need skilled foreign labor, it is in the financial sector. Also, they will be willing to buy up the houses on the market so that the housing market can get going again.

Daron Acemoglu's thoughts on the economic crisis

http://econ-www.mit.edu/files/3722

Interview with KFOX News

I was interviewed by KFOX News here in El Paso this evening. I listened to President Obama's speech with two friendly construction representatives who were obviously in favor of the stimulus. We knew we didn't agree, but we got along well enough. I was asked about the stimulus and made it known that I am extremely pessimistic that fiscal stimulus will work. Anyone who says that there is significant agreement amongst economists that fiscal stimulus actually works, is deceiving you. There isn't. It didn't work during the Great Depression and it sure didn't work for Japan during the 1990s. Japan has never fully recovered from its lost decade and the only thing that's left to show for it is a ridiculous amount of debt (and a lot of useless roads). This is what worries me. The usual response to this is that past stimulus expenditures didn't go far enough to have their effect. I believe drug addicts often use the same reasoning, "Just a little more, and I'll be good!"

I have a real problem with this concept in macroeconomics called the "paradox of thrift." This means that while thrift may be economically reasonable for the individual/family, for the economy as a whole it is destructive. How does this even make sense? Until recently, our problem was that we didn't save enough. Now our problem is that we aren't spending enough and therefore the government has to do it for us? I hate macroeconomics. The main thing I learned from my graduate economics course is that economists don't really know very much about macroeconomics. Macroeconomics as it is currently being applied by the federal government contradicts with basic microtheory upon which it should be founded. In short, in order to solve a problem that was created by Americans living beyond their means, Americans must continue to live beyond their means.

Anyway, I attach the transcript and the video here. You gotta love soundbites. Obviously, I said a lot more than this, but you give them something catchy, and of course they'll use it. However, it does basically sum up my feeling on the stimulus.