I'd like to formally pledge my support, for what it is worth, to the FairTax movement.
For the uninitiated, basically FairTax seeks to eliminate, via legislation our current system of national income tax in favor of a ~23% sales tax on most retail items (with few exclusions such as education tuition, supply inputs, etc). There would be no other exemptions or other fun little loopholes companies like to take advantage of. The regressivity issue has been addressed by basically providing an annual rebate in an amount up the consumption at poverty level (in other words, you wouldn't be taxed on necessity items). There really are very few downsides and a whole lot of upsides which I think their website goes into pretty well.
One great thing about this that people don't think about is that the US would lose the ability to provide targeted tax incentives (or disincentives) for economic development. This is a GOOD thing. The companies that currently receive these tax incentives are precisely the ones, often, that don't need them. Often, these companies get the funds via earmarks - which is nothing more than political location-pandering - and is extremely inefficient. The FairTax takes basically all taxation out of business operations and puts the onus on individuals. This of course is good for long-term growth.
The great thing about FairTax also is that we can still 'play' with our tax code (in the future) if we wanted to. Say, for example, that we wanted to disincent tobacco companies and smokers - we could just increase the sales tax. Doing so provides a disincentive to smoke which in-turn reduces the clout of tobacco companies via reduced revenues and market power. Right now, we can punish smokers via state sales tax, but it is very difficult to punish tobacco companies via the tax code.
Of course, this is a political longshot. This is not a new concept - it is just in vogue now. But if policymakers can convince people that is actually structured quite progressively AND it promotes growth, then the age-old economist argument may actually take shape - albeit in a bit more compassionate form.
Thursday, March 29, 2007
Tuesday, March 27, 2007
Case in Point
Mankiw says:
"being an economist involved in the policy process is harder than being an economist in academia. Academics can easily say "I don't know" and move on to another question. Policy advisers are often required to take a position on the key issues of the day, sometimes in the absence of reliable evidence."
This to me is precisely why economic advisors have no business being policy advisors. A true economic advisors, should in theory at least, provide any data available - describe what that data means based on various realisitic assumptions, and provide any alternatives that the data might imply (based on other assumptions). It is role of SOMEBODY ELSE to take that snapshot and add in others' snapshots (advisors from other fields) to determine what a specific policy change might have an effect on. My question to Mankiw is, when did economists cease being economic advisors? When did they cease recognizing that their worldview has limitations in the real world? When did they start trying to be the be/all end/all of decisionmaking? Such shifts seem problematic to me (as they apparently do to a number of commenters on his blog).
"being an economist involved in the policy process is harder than being an economist in academia. Academics can easily say "I don't know" and move on to another question. Policy advisers are often required to take a position on the key issues of the day, sometimes in the absence of reliable evidence."
This to me is precisely why economic advisors have no business being policy advisors. A true economic advisors, should in theory at least, provide any data available - describe what that data means based on various realisitic assumptions, and provide any alternatives that the data might imply (based on other assumptions). It is role of SOMEBODY ELSE to take that snapshot and add in others' snapshots (advisors from other fields) to determine what a specific policy change might have an effect on. My question to Mankiw is, when did economists cease being economic advisors? When did they cease recognizing that their worldview has limitations in the real world? When did they start trying to be the be/all end/all of decisionmaking? Such shifts seem problematic to me (as they apparently do to a number of commenters on his blog).
Tuesday, March 20, 2007
David Friedman: Reality-based assessment of carbon taxes
While I could be in favor of some caron tax (definately not a retail gas tax hike like Mankiw offers however), Friedman makes the point that I've made before that in times of war especially, increases in gas taxes are often not offset by decreases in other taxes.
Mankiw takes issue with his stance as a slippery-slope. Here is my response to Mankiw:
As I tried to get across in your "politics aside post," it seems to be completely biased that you as a new keynesian economist advocating normative policy can say, "let's focus on individual's likely behavior and call it good normative policy." The problem is that this completely ignores the likely (historically, esp. in times of war) behavior of governments when face with the idea of a large ambiguous-effect carbon tax. It is simply not a fair logic to ask people to put likely political action aside when making up ones mind about whether or not to normatively advocate a policy. This is of course why, when it comes to policy decisions which must necessarily extend past the blackboard, academic economists should offer multiple Postitivist solutions only (sets of possible solutions and probable outcomes) and give policy makers the assumptions and data behind those solutions.
Economists should butt-out of having a direct hand in NORMATIVE policy PRECISELY because most economists tend to narrowly focus only on what they want to see (gas tax potentially effecting consumer behvior) and they completely ignore all else (government political behavior, etc). Let economists have their opinions, but don't let them push their narrow minded normative agenda. Let them merely contribute via postiive economics.
So I say kudos to David Friedman for being one of the few academic economists who "gets it."
Also, I take issue with the characterization of his argument as being slippery slope. It seems to me that that is just code word used by people who don't like thinking in shades of gray. The fact is, reality isn't always pretty, and decisionmakers need to be aware of all the likely outcomes of a change in X. Will they anticipate all outcomes - no. But it's a heck of a lot better than focusing on only one effect that X has and ignoring all else.
Mankiw takes issue with his stance as a slippery-slope. Here is my response to Mankiw:
As I tried to get across in your "politics aside post," it seems to be completely biased that you as a new keynesian economist advocating normative policy can say, "let's focus on individual's likely behavior and call it good normative policy." The problem is that this completely ignores the likely (historically, esp. in times of war) behavior of governments when face with the idea of a large ambiguous-effect carbon tax. It is simply not a fair logic to ask people to put likely political action aside when making up ones mind about whether or not to normatively advocate a policy. This is of course why, when it comes to policy decisions which must necessarily extend past the blackboard, academic economists should offer multiple Postitivist solutions only (sets of possible solutions and probable outcomes) and give policy makers the assumptions and data behind those solutions.
Economists should butt-out of having a direct hand in NORMATIVE policy PRECISELY because most economists tend to narrowly focus only on what they want to see (gas tax potentially effecting consumer behvior) and they completely ignore all else (government political behavior, etc). Let economists have their opinions, but don't let them push their narrow minded normative agenda. Let them merely contribute via postiive economics.
So I say kudos to David Friedman for being one of the few academic economists who "gets it."
Also, I take issue with the characterization of his argument as being slippery slope. It seems to me that that is just code word used by people who don't like thinking in shades of gray. The fact is, reality isn't always pretty, and decisionmakers need to be aware of all the likely outcomes of a change in X. Will they anticipate all outcomes - no. But it's a heck of a lot better than focusing on only one effect that X has and ignoring all else.
Saturday, March 17, 2007
Debunking Normative Economics
Mankiw discusses why it's ok for him to advocate a gas tax increase even though it's surely politically infeasable. He quote Friedman as saying that normative economics should be analyzed separately from politics.
That to me makes no sense. Normative economics by its very definition is subjective. The so called "analysis" in normative economics stems from assumptions that in many cases may be largely informed by ones political beliefs. If I say that we should increase taxes because the government will do better with that revenue that individuals, then that is my economic opinion, perhaps based on an economic assumption of large market failures. However, another analyst might say, we should NOT increase taxes because taxes are inefficient - and he would be basing his analysis on the idea that markets are usually pretty efficient and governments are large bureacraies (in that particular situation).
So, you see, normative economics is dependent on political bent - small vs. large government, the belief in redistribution vs. efficiency.... Normative economics, in a word is a sham - and is a shame to the science. It is the single largest contribution made by Friedman that should NEVER have been made. It turned economics into a slumgullion of pseudeo-science mixed with politics. At a time when econmics could have incorporated other sciences like psychology and sociology, Miton turned to politics and turned the jobs of economists from informers to ideological idea men. Normative economics is fine in the sense that everyone needs to have a framework to make opinions - the danger is that normative economics has become a 'field' of study and has been artificially elevated and propagated as a part of science. That can become dangerous if policy makers feel influenced soley or almost entirely by their economic advisors.
When Mankiw says that he now can point to Friedman and say, 'see, it's not the job of the economist to take into account whether or not the government will cut other taxes if they raise the gas tax, he could not be further from the truth. Point to Friedman in this regard, and you only prove the conservative's point. And this is the ironic tragedy of normative economics. Normative economics says study a subject from a narrow lens of economics and advocate a policy. The problem is that economics is a study of behavior. So why stop at analyzing the effect of a gas tax hike? Why not analyze whether or not the government should cut income taxes? Why not take into account the probability that the government would cut other taxes? What makes that any lesser of a question than the direct effect of a gas tax hike? It's all about behavior - why ignore the likely behavior of the government? And so you see this is the slippery slope of normative economics - it's not a science - it's a study of whatever, based on whatever - guided by a few key economic assumptions. It's hard to say what people "should" do from a so-called scientific perspective when the intricicies of the real world make analysis so difficult. The best economics can and should do is positively study behavior and incorporate other fields of studies in order to try and explain and predict that behavior. Leave the "coulds" and "shoulds" to politics entirely.
That to me makes no sense. Normative economics by its very definition is subjective. The so called "analysis" in normative economics stems from assumptions that in many cases may be largely informed by ones political beliefs. If I say that we should increase taxes because the government will do better with that revenue that individuals, then that is my economic opinion, perhaps based on an economic assumption of large market failures. However, another analyst might say, we should NOT increase taxes because taxes are inefficient - and he would be basing his analysis on the idea that markets are usually pretty efficient and governments are large bureacraies (in that particular situation).
So, you see, normative economics is dependent on political bent - small vs. large government, the belief in redistribution vs. efficiency.... Normative economics, in a word is a sham - and is a shame to the science. It is the single largest contribution made by Friedman that should NEVER have been made. It turned economics into a slumgullion of pseudeo-science mixed with politics. At a time when econmics could have incorporated other sciences like psychology and sociology, Miton turned to politics and turned the jobs of economists from informers to ideological idea men. Normative economics is fine in the sense that everyone needs to have a framework to make opinions - the danger is that normative economics has become a 'field' of study and has been artificially elevated and propagated as a part of science. That can become dangerous if policy makers feel influenced soley or almost entirely by their economic advisors.
When Mankiw says that he now can point to Friedman and say, 'see, it's not the job of the economist to take into account whether or not the government will cut other taxes if they raise the gas tax, he could not be further from the truth. Point to Friedman in this regard, and you only prove the conservative's point. And this is the ironic tragedy of normative economics. Normative economics says study a subject from a narrow lens of economics and advocate a policy. The problem is that economics is a study of behavior. So why stop at analyzing the effect of a gas tax hike? Why not analyze whether or not the government should cut income taxes? Why not take into account the probability that the government would cut other taxes? What makes that any lesser of a question than the direct effect of a gas tax hike? It's all about behavior - why ignore the likely behavior of the government? And so you see this is the slippery slope of normative economics - it's not a science - it's a study of whatever, based on whatever - guided by a few key economic assumptions. It's hard to say what people "should" do from a so-called scientific perspective when the intricicies of the real world make analysis so difficult. The best economics can and should do is positively study behavior and incorporate other fields of studies in order to try and explain and predict that behavior. Leave the "coulds" and "shoulds" to politics entirely.
Friday, March 16, 2007
Gary Becker: Anti-Gay agenda?
This week, Gary Becker discusses marriage subsidizing. He's against it as a means of "social engineering." I generally agree with his hesitancy. His other statement, however, I disagree with:
"A further question is whether all two parent households, or only households with two biological heterosexual parents, benefit children? The statement by Cameron at the beginning of my discussion says that 'families come in all sizes and shapes and they all need support'. I am persuaded that children raised by two gays or lesbians do worse than children raised by heterosexual parents, although the evidence is far too limited to be certain about this."
Now, Gary Becker is an microeconomic theorist. And much of his academic research is on the economics of families. He has contributed nothing, to my knowlege, of the study of gays, or their familes however. Yet, he is persuaded that gays make bad (or at least not as good) parents. Seeing as how the blog topic he writes is about marriage subsidies, I fail to see why he even mentioned that statement (since gays can't legally marry federally) other than to signal to his readers that he is a Bush conservative (or a Rove conservative - as I define as being both fiscally and socially conservative).
What is more shameful is that he notes that he has no evidence to back his prejudice up - he just is "persuaded." I was persuaded that Prof. Becker was an objective thinker, but now I think I might be persuaded otherwise.
Researchers, the APA, and others agree (as do countless studies) that: "gay parenting has no measurable effect on the quality of parent-child relationships or on children's mental health or social adjustment". And given that 'gay income' is more than 'straight income', on average, one could presume that children of gay families could be better off financially than their straight coutnerparts. So, I am persuaded to think that Prof. Becker needs to pull the wool from over his eyes.
"A further question is whether all two parent households, or only households with two biological heterosexual parents, benefit children? The statement by Cameron at the beginning of my discussion says that 'families come in all sizes and shapes and they all need support'. I am persuaded that children raised by two gays or lesbians do worse than children raised by heterosexual parents, although the evidence is far too limited to be certain about this."
Now, Gary Becker is an microeconomic theorist. And much of his academic research is on the economics of families. He has contributed nothing, to my knowlege, of the study of gays, or their familes however. Yet, he is persuaded that gays make bad (or at least not as good) parents. Seeing as how the blog topic he writes is about marriage subsidies, I fail to see why he even mentioned that statement (since gays can't legally marry federally) other than to signal to his readers that he is a Bush conservative (or a Rove conservative - as I define as being both fiscally and socially conservative).
What is more shameful is that he notes that he has no evidence to back his prejudice up - he just is "persuaded." I was persuaded that Prof. Becker was an objective thinker, but now I think I might be persuaded otherwise.
Researchers, the APA, and others agree (as do countless studies) that: "gay parenting has no measurable effect on the quality of parent-child relationships or on children's mental health or social adjustment". And given that 'gay income' is more than 'straight income', on average, one could presume that children of gay families could be better off financially than their straight coutnerparts. So, I am persuaded to think that Prof. Becker needs to pull the wool from over his eyes.
Thursday, March 8, 2007
Foreign Students in the US should have track for automatic citizenship
This reminded me of what I consider to be a very sad US policy - that is requiring foreign grad students who want to get degrees in the US to have to go through the same lengthy process of citizenship as any stupid immigrant.
I've had a couple friends from India in grad school who had to go back to india just to straighten out their papers... and working here on a visa is a nightmare if you are a foregin grad student.The fact is, we should be helping high-skilled (or potentially high skilled) people get their educations here by allowing them to skip the hassles of having to get particular work visas etc...
In other words, they should have a path to citizenship such that if they attend a 4 year college or grad school here and pass with X grade, they should be granted automatic citizenship. This acts not only as an incentive to attract smart foreigners to our country, but it also acts as an incentive to KEEP them here as US citizens and to continue contributing to our economy.
I've had a couple friends from India in grad school who had to go back to india just to straighten out their papers... and working here on a visa is a nightmare if you are a foregin grad student.The fact is, we should be helping high-skilled (or potentially high skilled) people get their educations here by allowing them to skip the hassles of having to get particular work visas etc...
In other words, they should have a path to citizenship such that if they attend a 4 year college or grad school here and pass with X grade, they should be granted automatic citizenship. This acts not only as an incentive to attract smart foreigners to our country, but it also acts as an incentive to KEEP them here as US citizens and to continue contributing to our economy.
Wednesday, March 7, 2007
Credit Card Fees
A Senate panel told credit card companies to stop charging late fees and interest penalties becuase too many Americans, in their view, are being kept in debt because of these policies.
While I can understand the plight of these Americans, as a fiscally responsible person, I say, "tough." Why should credit companies have to endure more risk just because Joe Schmo wanted to waste $30,000 in his college days on extravagences and is late on paying off his card every other month? If you are in up to your head in debt, you should be doubly on the ball to make sure you aren't late on your payments. Credit card companies aren't your friggin' parents.
The simple fact is, if you pay your minimum, you are guaranteed not to ever fall behind. It may take you a long time to pay off your card, but your debt won't grow. The only way it would grow is if you are grossly negligent with your account - chronically missing your due dates or overdrawing on your account. And in those cases, you get what you deserve I say.
While I can understand the plight of these Americans, as a fiscally responsible person, I say, "tough." Why should credit companies have to endure more risk just because Joe Schmo wanted to waste $30,000 in his college days on extravagences and is late on paying off his card every other month? If you are in up to your head in debt, you should be doubly on the ball to make sure you aren't late on your payments. Credit card companies aren't your friggin' parents.
The simple fact is, if you pay your minimum, you are guaranteed not to ever fall behind. It may take you a long time to pay off your card, but your debt won't grow. The only way it would grow is if you are grossly negligent with your account - chronically missing your due dates or overdrawing on your account. And in those cases, you get what you deserve I say.
Friday, March 2, 2007
Are You Smarter than a 5th Grader? ('Cause I'm Not Apparently)
This is slightly off topic, but it's about education which is IMOP the most important input to a productive society.
I've started watching that new Fox TV gameshow, "Are you smarter than a 5th grader?" with Jeff Foxworthy as host. For the uninitiated, it's basically a 'who wants to be a millionaire' style question/answer show. The contestent has to answer questions that build their bank and they have a chance of winning $1 million. The catch is that all the questions are at or below the 5th grade level (in subjects like History, Science, Math, Animal Science, Animal Science???).
Also, the contestent may use a handful of lifelines - cheat by copying off one of the actual 5th graders playing right alongside him or her. In the end, after all lifelines have been exhausted, if they don't know the question, they can "drop out" and proclaim, "I am not smarter than a 5th grader!"
Well I gotta tell you folks, I apparently am not either. I missed quite a few questions as I was playing along with the series premiere. And last night, there were questions like, "What constellation is the big dipper in?" "What % of the Earth is covered in water? 70, 80, or 90" (I always heard 75%, so I was screwed from the get go), "How many teaspoons are in 5 tablespoons?" (I don't cook).
So, I got really depressed, realizing that my Bachelors and Masters degrees were all for naught. I contemplated becoming a hermit, or maybe joining my stupid kin, but then I realized something... I wasn't the only one not getting this stuff. These contestents are lawyers, real estate brokers, etc - smart people. Even my coworkers who all have advanced degrees were saying how difficult the questions were....
So, we are left with 2 possible reasons for why these perfectly smart people are not getting these questions:
1. These really aren't 5th grade or lesser questions
2. Our education system teaches mindless trivia that no one remembers because most everyone in the adult world doesn't use/need the information in real life. In other words, we are teaching our children the wrong things
I really hope the answer is number one, but I have a feeling it's number 2.
I've started watching that new Fox TV gameshow, "Are you smarter than a 5th grader?" with Jeff Foxworthy as host. For the uninitiated, it's basically a 'who wants to be a millionaire' style question/answer show. The contestent has to answer questions that build their bank and they have a chance of winning $1 million. The catch is that all the questions are at or below the 5th grade level (in subjects like History, Science, Math, Animal Science, Animal Science???).
Also, the contestent may use a handful of lifelines - cheat by copying off one of the actual 5th graders playing right alongside him or her. In the end, after all lifelines have been exhausted, if they don't know the question, they can "drop out" and proclaim, "I am not smarter than a 5th grader!"
Well I gotta tell you folks, I apparently am not either. I missed quite a few questions as I was playing along with the series premiere. And last night, there were questions like, "What constellation is the big dipper in?" "What % of the Earth is covered in water? 70, 80, or 90" (I always heard 75%, so I was screwed from the get go), "How many teaspoons are in 5 tablespoons?" (I don't cook).
So, I got really depressed, realizing that my Bachelors and Masters degrees were all for naught. I contemplated becoming a hermit, or maybe joining my stupid kin, but then I realized something... I wasn't the only one not getting this stuff. These contestents are lawyers, real estate brokers, etc - smart people. Even my coworkers who all have advanced degrees were saying how difficult the questions were....
So, we are left with 2 possible reasons for why these perfectly smart people are not getting these questions:
1. These really aren't 5th grade or lesser questions
2. Our education system teaches mindless trivia that no one remembers because most everyone in the adult world doesn't use/need the information in real life. In other words, we are teaching our children the wrong things
I really hope the answer is number one, but I have a feeling it's number 2.
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