Defining Sin

Followers of my blog with recognize that I'm a fan of some sin taxes (smoking is a no-brainer example), but enacting this dynamic pigovian taxes do have downsides. The biggest downside is, how do we define "sin?"

If I sneak over to your house while you are at work, shoot your dog in the face, and leave it on your porch for you to find when you get home, that is "sin" by most all accounts.

If I put a little extra salt on my french fries and eat it or serve it to others, is that sin? If it is sin, what does that sin cost? Surely if I know salt will kill myself or others in the future, and I knowing feed it to myself, then I am acting in a sado-masochistic fashion - I'm slowly killing myself or others, and damn it feels (tastes) so good.

But, do we know salt will cause harm to us in the future? If so, how much?

People can point to statistics and say salt is a factor in high blood pressure and heart disease. Others may point to statistics showing that, globally, that is not always the case. In the case of salt, many of the producers of salt-laden product have come to an agreement to voluntarily reduce their usage of salt in their products. In many ways, this is a much more palatable way of reducing 'sin' when compared to a forced taxation. But, I've come to learn that large corporations usually don't do something on purpose to hurt their bottom line - so one has to wonder if this is a temporary PR move that can enable companies to get on-board the 'health' train. I hope it isn't - if not it's a huge plus for Bloomberg and I give him kudos for getting around having to tax the salt out of peoples' mouths.

The Contract From America Will Destroy Us All

I originally posted this on facebook, but I think it makes sense to put this on the blog as well:

First, read the contract here: http://www.thecontract.org/
Second, thank the flying spaghetti monster that they aren't in power (yet)

Here is my point by point critique, which I normally wouldn't do, but since it was requested:

1. Protect the Constitution
Yeah, sounds great, until you read the fine print - which would require congress to prove (to who?) that their legislation is allowed by Constitution. Last I checked, most everything Congress does is Constitutional, and if it's not, they are brought before the Supreme court. I assume this point stems from the health care bill - which is completely Constitutional and the vast majority of legal scholars agree. So, this is a ridiculous red herring for the fact that tea partiers, who tend to be old white guys, just hate the health care bill.

2. Reject Cap and Trade
I actually agree with this - I'm against Cap and Trade because I'm suspicious of it's ability to be geographically or socioeconomically equitable. But, I disagree with the subtext which says we should reject ANY legislation that is 'regulation that would increase unemployment, raise consumer prices....' Frankly, I think we need (at some point in time) some legislation that could do just that. This point has the same problem also that the first one does - who decides what regulation is "bad" and "good?" Sarah Palin? Count me out, bro.

3. Demand a Balanced Budget
OOOOh how original. First of all, Obama AGREES that we need to re-institute PAYGO. I like that generally, but again, the subtext is the kicker: a "2/3 majority vote for a tax hike?" Seems kinda random. What about a tax CUT? What about changes in tax code to maintain progressivity over time? What about spending to increase public infrastructure and tech improvements that the private market fails to do? I don't like GM bailouts, and I agree much of our spending is out of proportion, but I'm not prepared to be so absolutist and black and white like the tea party crazies.

4. Enact Fundamental Tax reform
HAHAHA. This one is easy. It's conservative code for a flat tax. I thought Forbes was dead, but I guess not. Limiting the tax code to be the same length as the Constitution??? Not even worth a comment.

5. Limited Government and Fiscal Responsibility (or as I like to call it, "Repubicans in disguise")
Every President that has been in office since I've been alive has done some version of this so-called blue ribbon task force, including Clinton and Obama - so I don't really see the point or value added here.

6. End runaway government spending
Not really seeing the difference between this and "5" above... they all start to run together. There's some merit, nevertheless, in limiting government spending to changes in inflation and population growth, from an economics perspective, but again, it seems like a 'hand-tying' kind of legislation which, if it were in place at the start of the financial crisis, would likely have crippled our economy.

7. "I hate health care"
Yeah, yeah, we get it. Too f-ing bad. You lost, get over it. I had to bare the damn Iraq war which I was against when it popular... I never said it was unconstitutional (immoral, maybe)

8. All of the above energy policy
I agree. This is what Obama campaigned on, and what he is doing. So what's your point?

9. Stop the pork
I agree with this - and I bet Obama would agree.

10. Stop the tax hikes
Wow, just wow. Only the tea party crazies can contradict themselves in their own contract. See point "5" above.

The movement is starting to churn!

I doubt that Mr. Macdonald saw my 'call to arms' post from a couple weeks back, but that makes his post all the more fascinating.

Michael Burry Asks How Greenspan and other Economists Could have Missed the BOat

I'll tell you how:
Greenspan and many economists didn't realize they were neck-deep in water.

Were Burry and the handful of non-mainstream economists and business gurus that called the crisis a bunch of "lucky coin flippers?" I don't think so.

What they were were realists - not held down by textbook models of overly-applied math and unrealistic theories of finance and money.

Mmmm, this cocaine is delicious

If the study of rat-behavior in the presence of fatty foods can translate to humans, it suggests that pigovian sin taxes will not be enough to stop the growing obesity problem in the US. If over-eating can be like becoming addicted to cocaine, and humans increasingly tolerate pain (in the stomach and in the wallet) in order to satisfy their addiction(s), then the motivation to reduce consumption in the presence of higher prices/taxes will be inadequate by itself as a long-term strategy. After-all, coke-heads pay a hefty premium for their habit without blinking an eye.

So why isn't cocaine so prevelent? Well for one, banning a substance, while it does lead to black market activity, does work. Does this mean we should ban all fatty foods? No, I'm not suggesting that (in fact, if you were to take my peanut butter away I'd probably injure you). But perhaps there is a middle-ground? Perhaps the FDA should be given power to enforce stricter regulations of food content. Perhaps, dare I say, we need to change the way we reward children in the developing years. When I was a kid, after my mom's divorce, I had a bad habit of kicking the shit out of my cousins for no apparent reason. So, my mom took me to a behavioral psychologist who decided all my problems could be solved if she rewarded my good behavior with a McDonald's 'Happy Meal' each time. ... I don't think I need to spell out all the problems with that for you. Heck, even the way we market implies fat=happy. And why shouldn't companies market it that way... fat and sugar = big bucks to companies that rely on addictive eating behavior for their profits.

The government regulates how we safely drive our cars (seat-belts), how we safely go to work (not at age 10), how we safely drink our alcohol (again, not age 10), but the government does not yet regulate how we safely eat. Some major cities (New York) already have bans on trans fats. But obviously regulations can be problematic because they interfere with individual choice - exactly what fats are 'bad'? Where is the line?

But there are other more outside-the-box ways the government can get involved. The government could provide subsidies for 'buddy' programs. Some of us spend hundreds of dollars a year on gym coaches (think Biggest Loser), but completely ignored is that the real problem is not in the gym - it's in the home. People don't (just) need fitness experts, they need eating experts. The government could subsidize payment to dietitians etc. to basically become home nurses / 'buddies' in a family's fight to change their eating and food shopping beliefs and habits.

I'm no diet expert, but this is my two cents. I'd love to hear yours.

Reviving Economics - Call to Arms

David Brooks (IMOP correctly) states that the state of (mainstream) economics is at a crossroads, and simply cannot continue along its current path without some major upheaval in thought and methodology.

Mainstream economist and textbook author Greg Mankiw disagrees (of course), and absurdly implies that mainstream economists were, for years before the crisis, paying attention wholeheartedly to financial structural problems. I'm sure there were a handful of mainstream economists dipping their toes in the water, but I know of no mainstream economist who put forth any real ideas - all the real ideas were coming from heterodox schools (for DECADES)which mainstream economics not so subtly abhorred and continues (amazingly) to shun (because its gains mean the very revolution David Brooks talks about). And I find it laughable that he invoke behavioral economics as if there is the great hand-holding relationship between behavioral economists and the mainstream. It's true that behavioral economics is gaining (and has received) some acceptance at the micro level - but there is still the undercurrent within the mainstream that behavioral econ is just a nice "add on" to mainstream models - which defeats the point.

There's a reason that the vast majority of economists and academics that predicted the impending doom were from heterodox fields - it's because textbook economics - arguably led and embodied by Greg Mankiw - is, by itself, a failure. I acknowledge the usefulness of much of what can be found in such textbooks - I still use a mainstream text to teach - but the old textbooks do need to be thrown away (or at least heavily supplemented). I threw away Mankiw's two years ago because there are other authors that aren't so dismissive of the need for the field to change.

David Brooks is spot on when he says:
"The moral and social yearnings of fully realized human beings are not reducible to universal laws and cannot be studied like physics."

And I'll let people in on a secret - students agree. I teach a mix of mainstream and heterodox concepts from a pluralist perspective - and I'm seeing the light bulbs go on in students' minds - the next generation, whether people like Mankiw like it or not, will change the field. Mankiw will have a legacy of supporting the stagnation of economics - via his short-sighted best-selling economics textbooks. But I for one will be proud that, albeit in a very small way, I supported the dialog of change that will help revive economics.

American Enterprise Institute is Bad Research

Nothing about AEI is non-partisan. They are group-think conservative Republicans. The end. Everyone of course already knows this, so I don't understand why serious academics even consider working for such a scientifically bankrupt and biased institution.