Division of Labour: December 2012 Archives
December 25, 2012
An Adam Smith Christmas
Courtesy of one of my students.
Posted by E. Frank Stephenson at 08:57 PM
December 23, 2012
Worst Business Projection Ever
Here's something I found while looking for something else. Is this the worst business projection ever?
From the Associated Press, Jan. 3, 1951:
Four of the nation's biggest athletic conferences will lead a fight against live television of football games at the NCAA convention in Dallas next week.
December 18, 2012
Posted by E. Frank Stephenson at 12:44 PM
Pro-Choice on Gasoline
This letter in the WSJ is spot on. Well played sir.
Responding to the Dec. 13 letter from Bob Stallman, president of the American Farm Bureau Federation ("There Is More to Higher Food Prices Than Corn Ethanol"): The most upsetting aspect of the government mandates to dilute gasoline with ethanol is that it denies me the option of using 100% gasoline in my motor vehicle. I believe pure gasoline is better for my engine and also gives me more hope to achieve the fuel-efficiency ratings for motor vehicles issued by the EPA. Its miles-per-gallon numbers are based on 100% gasoline, a fuel you virtually cannot find in the marketplace.
Posted by E. Frank Stephenson at 09:11 AM
On the Fiscal Cliff
I haven't paid much attention to the fiscal cliff circus but I've been inclined to think we'd be worse off with any deal negotiated by Obama and Boehner. News reports suggest that may well be the case. While the so-called cliff actually cuts some spending, the proposed deal that might cut spending at some future point actually extends unemployment benefits and adds some more stimulus for shovel-ready ratholes. On the tax side, the top heavy distribution of federal taxation would become even more so. If the Repubs vote for this deal they really are the stupid party.
Here's cartoonist Mike Lester's take from the RN-T:
Posted by E. Frank Stephenson at 08:30 AM
Walmart & Prescription Drugs
It's been awhile since I've tooted Walmart's horn for making people's lives better. Well here's the abstract of new paper on the benefits of Walmart's $4 prescription drugs:
This paper analyzes how competition in the retail market for pharmaceuticals affects utilization of health care. Specifically, I study the impact of Walmart’s $4 Prescription Drug Program on utilization of blood pressure medication and hospitalizations for conditions amenable to drug therapy for the state of Florida. The empirical strategy relies on the change in the availability of cheap generic drugs introduced by the launch of Walmart’s program in 2006, exploiting differences in the distance to the nearest Walmart store across ZIP codes in a difference-in-differences framework. I find that living close to a source of cheap generic drugs increases adherence to antihypertensive medications by sixteen percent and decreases the probability of an avoidable hospitalization by 5.6 percent, saving $43 million annually in inpatient costs.
Posted by E. Frank Stephenson at 08:13 AM
December 14, 2012
A Neutral Arbitrator? I Doubt It
An excerpt from a guest column by Barry Goldman in today's RN-T:
I’m a 60-year-old lawyer and part-time law professor. Chanting slogans is not my preferred method of discourse. But on Tuesday, I was in the streets of Lansing marching and chanting myself hoarse.
I doubt anyone who cares enough, pro or con, about right-to-work legislation that he'll protest over it has an business passing himself off as a neutral arbitrator. I'd guess Mr. Goldman, who protested against RTW, is a union-friendly arbitrator.
Posted by E. Frank Stephenson at 10:07 AM
A Very European Christmas
A light look at conditions in Europe ...
Many thanks to the reader who sent this along.
Posted by E. Frank Stephenson at 09:59 AM
December 10, 2012
Paris hit by wave of street muggings and grave robberies
(A footnote: A reader wondered if I was aware that M. Sarkozy was no longer the president of France. I do, but to my knowledge the new president Francois Hollande has not made any public statements about happiness adjusted GDP. Until he does, I'll continue to associate this bit of silliness with M. Sarkozy.)
Posted by E. Frank Stephenson at 08:56 AM
Phone for You, Dr. Laffer
That's the headline of an article which claims California tax revenue fell in response to the income tax hike passed in November. A caveat--the income tax revenue came in below the forecast and the article doesn't have enough details to be sure that what's going on in California is Laffer Curve behavior or just crummy forecasting (or both).
Posted by E. Frank Stephenson at 08:50 AM
Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
That's the title of a new NBER WP by Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru. Their answer:
Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.
Posted by E. Frank Stephenson at 08:41 AM
December 09, 2012
The "Fiscal Cliff": You Got to Know When to Fold
Mercifully, sometime in January the phrase "fiscal cliff" is likely to disappear from the American vocabulary. Meantime, if you don't know what the "fiscal cliff" is, you probably aren't reading this site. If you've stumbled here and want to know, do a google search, then come back. But basically, unless Congress acts, after the first of the year income tax rates will increase across the board, and the budget will be subject to a "sequester," meaning automatic cuts in spending across the board.
I won't discuss the economics of this situation, and I'm not capable of adding much insight there anyway, except to note that most economists assume that if these events take place, it will be bad for the economy. But a few comments on the politics of things follow.
President Obama has insisted that the 35% tax rate on upper incomes be allowed to rise to 39%, which will happen automatically if Congress doesn't act. Publically, at least, he wants Congress to act to extend the current tax rates on all other brackets, rather than let them rise after January 1. Republicans think that raising the rates will damage the economy, and want the current tax rates maintained in all brackets.
Many Republicans, especially on the talk radio circuit, are arguing that Republicans should not give on extending the current tax rates on all brackets. They seem to think Obama is bluffing and will cave at the end. And such a view seems to be extremely popular with the Republican base and with conservatives commenting on websites and elsewhere.
I don't think these advocates of "no compromise" quite grasp the situation. For the President and Congressional Democrats, there are three options:
1. Allow all tax rates to increase;
Conservatives must understand that the President and Democrats prefer options 1 and 2 to option 3, and that if they do nothing, option 1 kicks in automatically. In other words, they simply have no incentive to agree to option 3. They do not believe that raising the top bracket, or raising all brackets, will damage the economy, or if they do, it is a price they are willing to pay in order to get more funding for the welfare state, or the emotional satisfaction of "asking the wealthy to pay their fair share," in the President's oft-repeated, Orwellian line.
Moreover, they justifiably feel confident that if all rates go up because no deal is reached, the press will blame Republicans, and the public will follow. Further, once the January 1 increase is sprung, it will be easy for Democrats in Congress to introduce legislation to cut taxes on all but the top rates, placing Republicans in the impossible position of opposing tax cuts that would benefit the overwhelming majority of tax filers. If Republicans did stand firm, the Democrats would get their across the board rate increases, while Republicans would suffer terrific political fallout. If Republicans caved at that point, Democrats would still get their increase on the top brackets, would get credit for lowering rates on everybody else, and the phrase "Obama tax cuts" would enter the political lexicon.
In short, the Republicans cannot win this game. The top rates will go up.
That being the case, the best thing Republicans can do is act now, and quickly, to minimize the damage to the economy and to the conservative, low tax position. The House ought to pass two bills. The first would maintain the current tax rates for the top bracket. The second would maintain the current rates for everybody else. The first will almost certainly die in the Senate, and if it somehow did not, the President would veto it. The the statist wing would have to take political responsibility for raising the top rate. The second bill would sweep through the Senate and be signed by the President, and would be a bill promoted by Republicans. Liberals, who have complained for years that our deficit spending problem is simply the result of the "Bush tax cuts" would finally have to buy in to the vast majority of those tax rates.
Meanwhile, those eager to reduce spending and tax rates would then have enormous advantages politically. The new House meeting in January could pass legislation to lower the top rate, which the Democrats would block, further clarifying that party's desire for higher taxes. The revenue from the top bracket increase will have almost no discernable effect on the deficit, thus exposing the President's popular but bald faced lie that serious spending cuts or broad based tax increases can be avoided by tax increases only on top earners. If Republicans are correct that the rate increases will harm the economy, at least they will have made Obama own it. If they are wrong, well, it would be good to know that, too.
Meanwhile, the President will still need authority to raise the debt ceiling early in the new year, so the Republicans will retain an incredibly powerful negotiating chip for future spending reductions. And the President will have lost his biggest chip for those negotiations - the threat of higher tax rates kicking in on the middle class. Serious entitlement and spending reform may then become a real possibility.
Conservatives, libertarians, and Republicans, who are taking the "no negotiations" or "no caving on the top rates" approach, simply are not facing the reality of the situation. Remember, the President and his party favor both option 1, allowing all tax rates to increase; and option 2, allow tax rates on the top bracket to increase, while maintaining currents rates on everybody else; over option 3, maintaining current tax rates in all brackets. And they'll option 1 if no deal is reached. The only reason for them to deal would be if they believed raising the top rate would actually be a bad thing. They don't believe that.
The top rate is going up. The GOP has no chips on that question. But they can end this in a smart fashion, one that minimizes the economic damage to the country, the political damage to the low tax case, and that might even improve the odds for long term budgetary and entitlement reform.
December 07, 2012
Deck the Halls With Macro Follies
So I slapped on my Santa Claus bowtie this morning and look at the present I found--Hayek singing a song on savings!
Posted by E. Frank Stephenson at 11:22 AM
December 05, 2012
Paging M. Sarkozy
I'm guessing this doesn't bode well for French happiness adjusted GDP:
Posted by E. Frank Stephenson at 02:19 PM
Southpark Adam Smith
Looking for a special holiday something for the economist in your life? How about a Southpark style Adam Smith coffee mug--a must have for your eco nerd pals! Maybe the invisible hand killed Kenny ...
Posted by E. Frank Stephenson at 02:16 PM
FEE Summer Seminars for 2013
A video of preview of FEE's 2013 summer seminars, one of which will be held at Berry--apply early and often, I hope to see you on our beautiful campus next July!
Posted by E. Frank Stephenson at 10:19 AM
December 04, 2012
Art Carden on Sugar Tariffs
A congressman from Florida defends sugar protectionism; Art takes his argument apart.
Posted by E. Frank Stephenson at 01:15 PM
The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith
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