Smoking and Externalities

I think the current law in Indianapolis is fair - banning smoking except places like bars, clubs, bowling alleys (and casinos?)... these are places that if you patronize them or you work there, you should expect smoking as a part of the ambiance. I think this newer potential law is far too restrictive.

A better idea would be to, in conjunction with a ban containing the above exceptions, increase the cigarette tax statewide to a substantially higher level to be more in-line with other more progressive States' levels. Or, if the concertn is more targeted to the exceptions, add a specific tax to all cigarettes purchased at bars, casinos, clubs, etc. That would allow smoking to remain legal in those few places but also provide significant revenue to the State to counteract the negative side-effects on others. This is doubly true since I imagine the demand for cigarette purchases at these locations is quite price-inelastic (from my own observation).

Still Don't Think Those in the "Know" Are Too Optimistic?

"The Commerce Department said retail sales dropped 2.7 percent, more than double the 1.2 percent decline analysts expected."

-AP, 1/14/09

TED and Barron - How the Heck Are We?

Hat-tip to Mankiw on this optimistic note: the TED spread is now below 1! I had been tracking TED but stopped before the holidays and at that time it was still above 200 basis points and appeared to be growing. This is good news though other measures of uncertainty and the like, for example Barron's Confidence Index or the CitiGroup "Panic"/"Euphoria" Investor Model indicate the situation is still bad from an end-user (consumer and business investor) perspective.... But could there be an uptrend?

Posner redeemed!

Judge Posner has redeemed himself (from some of his past, shall we say, rants) in his recent blog post. Kudos.

Unemployed?

Official unemployment rate now stands at 7.2% for December, per BLS data released today. But, often lost in the numbers the rampant growth in the 'underemployed', which is just as disturbing:

"In December, the number of persons who worked part time for economic reasons (some-
times referred to as involuntary part-time workers) continued to increase, reaching
8.0 million.The number of such workers rose by 3.4 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs."

Also from the BLS

Obama's Speech

An excerpt from Obama's economic crisis speech to be given in short order:

"There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy –- where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."

...It will be so nice to have a President that understands things again.

A Note on Hal Varian's View of Economic Stimulus

First, let me say I have a lot of respect for Hal R. Varian and I love his advanced micro text(s). That being said, he says:

"Ultimately, we want to end up with a significantly higher savings rate in the U.S. than we have seen recently. That means some other component of demand must increase to compensate for the reduced consumption. And the most attractive candidate by far is private investment."

Of course, in an ideal world and under 'normal' economic circumstances, private investment is the most attractive candidate, but as Hal even mentions, people and businesses and banks are hoarding cash. So tax incentives for investment can only go so far. Government spending is the only direct route to compensate for reduced consumption. And of course, it is no magic bullet either as even Obama says we will have huge deficits for years to come.

Finally, Varian's criticism of governement spending may not hold under an obama administration with a sympathetic congress. He says:
"it takes too long for the government spending to kick" and
"spending may easily focus on pork-barrel projects that have little inherent value"

... both of which Obama has directly commented on saying would NOT happen. And, given his political capital, there is reason to believe him.