US releases Economics Education Report Card

The study conducted by the US. Dept. of Education is the first ever National Assessment of Educational Progress - and is a measure of national knowledge of economics by 12th graders in the US. I saw the Fed Reserve Chair from Minneapolis comment on the results...his assessment is rosier than mine. He says the fact that 42% of the sample were 'proficient' in economics is a "good base." I tend to look at the glass being half empty on this - there's a lot of room for improvement.

About 79% of students scored at the "basic" level - having a rudementary knowlege of some econ concepts. I don't think that is too bad, but again, still a lot of room for growth.

One of the more interesting findings is that males tend to only slightly outperform females in econ. I would expect that to be true given the more mathematical/logical nature of the way econ is often taught. But it's surprising to me how close the genders performed. I would have thought the gap to be much higher. I do think it is meaningful that the gap widens at the higher levels of proficiency - and I would expect this is a foreshadow of college results - as more math is applied to econ in advanced levels, males should tend to increasingly dominate.

The basic "scores" are as follows (discussing micro, macro, and international econ topics):

Market Economy

72% described a benefit and a risk of leaving a full-time job to further one’s education

52% identified how commercial banks use money deposited into customers’ checking accounts

46% interpreted a supply and demand graph to determine the effect of establishing a price control

36% used marginal analysis to determine how a business could maximize its profits

National Economy

60% identified factors that lead to an increase in the national debt

36% identified the federal government’s primary source of revenue

33% explained the effect of an increase in real interest rates on consumers’ borrowing

11% analyzed how a change in the unemployment rate affects income, spending, and production

International Economy

63% determined the impact of a decrease in oil production on oil-importing countries

51% determined a result of removing trade barriers between two countries

40% determined why industries can successfully lobby for tariff protection

32% identified how investment in education can impact economic growth

Download the whole report here.

Are there significant externalities to marijuana smoking?

I comment on this at Mike Moffat's blog (about.com).

I think it's pretty obvious that there are some negative and positive externalities...the question is, which is dominant, and is that dominance substantial? I'd love to hear your thoughts on that....

In general though, Mike is right - people who don't support the carbon tax should either help contribute to a solution to our environmental issues, dependency on gas (to live basically), etc...or, just keep silent. Saying the pigou club is wrong without offering an alternative to our current policies (which doesn't appear to be working) is not particularly useful.

This also though points to a general problem with Pigovian taxation (despite its benefits to efficiency) and that is, we almost never know what the social costs or benefits are to an externality - and often our studies can be biased one way or the other, or grossly miscalculating the benefits or cost...this makes using pigovian taxation tricky.

If you under-tax - you may be adding little benefit to reducing a negative externality at the expense of a higher tax that may or may not be passed back to consumers.

If you over-tax, you are likely doing more harm than good.

Book Review Pending

I am currently reading Steven Cohn's: "Reintroducing Macroeconomics: A Critical Approach."

The book is a heterodox economic critique of mainstream macro thought that is taught in today's classes. I hope to use the book along with Mankiw's mainstream text to help with a point-counterpoint way of teaching this fall.

I can imagine that will be difficult as I tried somewhat last year to broaden the discussion beyond the mainstream (to include some post-keynesinan ideas, contributions of psychology, ran some class experiments...) to some success, but also some confusion by the students.

I still don't know how best to broaden the scope while simultaneously cover all the necessary mainstream topics for the common final exam. It may be impossible; I don't know. Anybody with any thoughts please let me know. Look for my review of Cohn's book in a week or two.

Another example of economics stumbling over itself

As a follow-up to my most recent post, I came across this which talks about when it is rational to vote in elections. This is just something I came across, and I'm sure there are others. This has been a hot topic in economics and game theory for more than a decade now.

In fact, I remember one of my econ profs during my undergrad days talking about this talking and talking about how he was completely dumbfounded by the idea that people voted - he just didn't understand why they would. Afterall, "rational" people think at the margin, and voting is hardly an excercise where one vote counts for much.

And I remember thinking at the time, "uhh, what's so hard to understand? Do economists really think people really go to vote JUST for the purpose of hoping to help enact X legislation or install Y governor? How ridiculous.

People of course vote for numerous reasons including: something to do, feelings of patriotism, feelings of community, an excuse to take off work and not feel guilty... ie, the additional costs of transport, lost wage, and/or time are exceeded by the benefits of all the mentioned items plus I'm sure others. Of course voters are rational --- just not confined to the small space that some economists want to put them in. This is just a typical case of an economist's assumption (that a person votes only for reason X) being, well, just plain silly. But notice feelings of community etc are not things easily modeled by math, hence the reason economists tend to ignore that and the like.

Why Can't We All Just Get Along (and learn from each other)

To show the inappropriateness of accusing an entire social science of poor science while ignoring your own science’s shortcomings (…without sin cast the first stone…), I would like to sarcasstically point out the following:

Would a psychologist reduce human market behavior to marginal cost and benefit? Would a psychologist reduce most research to rigid mathematical models while avoiding social situational issues? Would a psychologist look down from their Ivory Tower and bemoan economists as being inferior and less rigourous in their analysis?

Maybe, maybe not...but economists don't seem to have problem doing the same to psychology.

My question - Why can't an economist be more like a psychologist? Why can't economists be more like that.

IN government just not getting it....

The situation now in Indiana (or at least Indianapolis) has become one of those rare instances in which the general populace actually agrees with mainstream economists on something (which is something I myself am increasingly rarely doing these days). Protest after protest of people have urged their local and State officials to repeal property taxes in favor of a modest increased income tax and a real progressivity-adjusted increase in the sales tax.

Property taxes are outdated and an inefficient and unfair form of taxation in that it has a tax base that is 'based' on one asset - which just so happens to be the most important asset an individual can have. It is inefficient because it distorts investment decisions and unfair because it hinders people on fixed incomes. But in Indiana, it's not really taxation itself that people don't like (provided its used wisely), and indeed, most people could care less about what kinds of taxes are efficient or not. The reason people are upset in Indiana is due to the poor transition of the property tax calculation and the fact that residences are paying more for relatively few local and State services.

It used to be that property tax was calculated as cost-depreciation. Now (as of a couple years ago), property taxes are based on market assessment of the area of the property. What this has done is it has caused large % increases in property taxes for homeowners in high-value areas, as well as homeowners with older homes (which are often owned by the poor). Combine this with the fact that there are so few market transactions of corporate real property, that commercial and industrial taxes have remained flat - pushing an even greater burden to residences (oh, and the inventory tax was abolished last year which aided that change even more).

But I digress from my main point. It is exciting that people are demanding such a substantial change (which unfortunately in Indiana would require a constitutional amendment). But then, that seems to be hoosiers' MO: wanting to do what is right for the long-term. The problem is that is also hoosiers' MO to hate change. As such, the State is constantly in this catch-22 where people know what they should do, but seldom end up actually doing it. What people want is simple: more efficient government (read CHEAPER) and a repeal of property taxation

This unfortunate dichotomy is explained best by today's recent plan to 'fix' the property tax problem issued by the State's GOP. Here is their plan:

*Taking $100 million of the state's surplus to fund an additional
property tax credit for all homesteads

* Changing the rebate checks, passed by this year's legislature, to
credits

* Extending the filing deadline for homestead credits for this year's
tax bills to Sept. 30 or 45 days before a county issues its final tax
bill to be paid this year, whichever is later;

* Letting local government decide how best to target the $300 million
in property tax relief the legislature approved this year instead of
giving all homeowners those rebate checks

...All short-term fixes. Delving into the State surplus, changing rebates to credits, etc. are all small fixes or to the current issue (and at worst is just passing the buck) but they don't respond to hoosiers' concerns about the philosophy of taxation in general. People want a quick fix, but they also are demanding real change so that their hard-earned property isn't taxed to the point where people can barely afford to live.

That concern is not being met by either party. Democratic House Speaker Bauer, in addition to much of the above GOP solution, wants the State to start financing local child welfare costs for those counties that use local income taxes to replace property taxation to a small degree. But that is just shifting cost from one bureucracy to another - and, secondly, income taxation is not nearly as 'productive' (or fair in my opinion) as sales taxation. In any case, neither plans get at the psychological and sociological issue that different forms of taxation can effect. Taxing a house IS different than taxing a wage or taxing general consumption. It is targetting at its worst. And few legislators seem to get it.

Not econmics, but not politics either - just funny

I didn't watch the Democratic YOUTUBE debate last night (I was too busy reading Harry Potter), but, in reading the transcript, I almost fell off my chair... This was the opening segment:

"ANDERSON COOPER, CNN host: Our first question tonight is Zach Kempf in Provo, Utah.

QUESTION: What's up? I'm running out of tape; I have to hurry.
So my question is: We have a bunch of leaders who can't seem to do their job. And we pick people based on the issues they that they represent, but then they get in power and they don't do anything about it anyway. You're going to spend this whole night talking about your views on issues, but the issues don't matter if when you get in power nothing's going to get done.
We have a Congress and a president with, like, a 30 percent approval rating, so clearly we don't think they're doing a good job. What's going to make you any more effectual, beyond all the platitudes and the stuff we're used to hearing? I mean, be honest with us. How are you going to be any different?

COOPER: Senator Dodd, you've been in Congress more than 30 years. Can you honestly say you're any different?

SEN. CHRISTOPHER DODD: Well, I think so.
First of all, thank you for inviting us here in The Citadel. It's great to be here at this wonderful college, university.
Certainly, I think it's a very important question one ought to be asking because, while hope and confidence and optimism are clearly very important, I think experience matters a great deal -- the experience people bring to their candidacy, the ideas, the bold ideas that they've championed over the years, whether or not they were successful in advancing those ideas and able to bring people together.
I'm very proud of the fact that, over my 26 years in the Senate, I've authored landmark legislation, the Family and Medical Leave Act, child care legislation, reform of financial institutions.
In every case, those are new ideas, bold ideas, that I campaigned on and then were able to achieve in the United States Senate by bringing Republicans as well as Democrats together around those issues.
That's what's missing, more than anything else, I think, right now, is the ability to bring people together to get the job done."

Just because you say something is a "new idea," doens't make it one. I love platitudes ;)