Archive for the 'Current Events' Category

Mitt Romney vs. Joe Paterno

Published
by
Steve Landsburg
on July 24, 2012
in Current Events and Economics
. 70 Comments

What do Mitt Romney and Joe Paterno have in common? They both devoted substantial fractions of their careers to promoting wasteful competition — Romney at the Olympics, and Paterno at the Penn State football program. How do Mitt Romney and Joe Paterno differ? Romney, unlike Paterno, devote a substantial fraction of his career to promoting healthy competition at Bain Capital.

To understand what’s wasteful about Penn State football, think about what life will be like now that the program’s been eviscerated. The overall quality of college football will decrease — but not by much. Any titles Penn State might have won, someone else will win instead, and the games leading up to those titles will be almost as fun to watch. But Penn State has reaped enormous rewards over the decades in exchange for its relatively small contribution to the quality of college football — and has plowed a substantial fraction of those rewards back into the program in order to maintain the flow of revenue. In short, Penn State football has sucked up a lot of resources while providing relatively little in return.

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Charting the Tax Plans

Published
by
Steve Landsburg
on July 16, 2012
in Back of the Envelope, Bad Reasoning, Current Events, Paul Krugman, Policy and Politics
. 48 Comments

Ezra Klein, quoted with approval by Paul Krugman, offers this chart of how the Obama and Romney tax proposals will change rates for taxpayers in various quintiles:

What we’re supposed to infer, according to Krugman, is that

we have an election in which one candidate is proposing a redistribution from the top … downward, mainly to lower-income workers, while the other is proposing a large redistribution from the poor and the middle class to the top.

But no such thing is remotely true. What we actually have is an election in which both candidates are proposing massive redistributions from the top downward, one slightly less so than the other. You’d never know this from looking at Klein’s chart because it illustrates changes in rates, whereas what actually matters is the rates themselves. It makes no sense to ask whether any particular group ought to be paying more or less without reference to how much they’re already paying.

Indeed, this is a classic example of what I once called the “Grandfather Fallacy” — by focusing on changes instead of absolutes, Klein’s chart conceals any existing inequities and hence treats them as “grandfathered in”.

Fortunately, Greg Mankiw has provided the numbers that allow us to make the requisite correction. Here, according to Mankiw, are the current tax burdens on various income groups (counting transfers as negative taxes, as of course one should):

Bottom quintile: -301 percent
Second quintile: -42 percent
Middle quintile: -5 percent
Fourth quintile: 10 percent
Highest quintile: 22 percent

Top one percent: 28 percent

That “-301 percent” means, for example, that a typical family in the bottom quintile receives $3.01 in net transfers for every $1 that it earns.

By adding these numbers to the numbers in Klein’s graph, we can construct a picture that actually depicts something interesting, namely the projected tax burdens for each group. It looks like this (the vertical axis represents percentage of income):

Note, for example, that, contrary to the impression you might have gotten from Klein’s and Krugman’s posts, both plans place the highest percentage burden on the top 1%, and both plans place a negative burden on the middle quintile — though Obama’s does both of these things to an ever-so-slightly greater extent than Romney’s does. There’s room for disagreement about which plan is fairer, but no room, I think, for disagreement about which chart is relevant.

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A Naive Question

Published
by
Steve Landsburg
on June 29, 2012
in Current Events and Law
. 92 Comments

Can someone help me understand this?

1) The Constitution, as amended, gives the federal government the right to levy taxes uniformly across the states, and also to tax income.

2) The federal gasoline tax is neither levied uniformly across states nor is it a tax on income. Thus it must be justified under something other than the explicit taxing powers set forth in the Constitution.

3) I’ve always sort of presumed that the missing justification is provided by the Commerce Clause.

4) In other words, the right to levy a gasoline tax seems to be dependent on the Commerce Clause.

5) By the same reasoning, the right to levy a tax on not-having-health-insurance would seem to be dependent on the Commerce Clause.

6) But John Roberts says explicitly that the Commerce Clause can not be used to justify a tax on not-having-health-insurance.

7) How, then, can a tax on not-having-health insurance possibly be constitutional? It’s not levied uniformly across states, it’s not a tax on income, and we have the Chief Justice’s word that it can’t be justified by the Commerce Clause. Whence, then, the constitutional authority to levy such a tax?

Click here to comment or read others’ comments.

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Post Mortem

Published
by
Steve Landsburg
on June 28, 2012
in Current Events
. 49 Comments

So the individual mandate is Constitutional because it’s a tax.

I wonder if the Chief Justice forgot that all tax legislation must originate in the House of Representatives. There’s that pesky Constitution again.

Hat tip to Jim Kahn for this.

Click here to comment or read others’ comments.

Edited to add: The really striking thing about this ruling is that someone could use the exact same reasoning to decide that Social Security is constitutional. This is what’s known as a reductio ad absurdum.

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Immigration Followup

Published
by
Steve Landsburg
on June 20, 2012
in Current Events and Policy
. 150 Comments

I’m a little frazzled this week, so I haven’t caught up with all the comments on Monday’s
post on immigration, but I know there’s been some discussion about the actual costs and benefits of admitting unskilled immigrants. I thought I’d supply some numbers that might inform that discussion; all of this is lifted from Chapter 20 of The Big Questions.

When an unskilled Mexican immigrant arrives in the United States, his wages typically rise from about $2 a hour to $9 an hour — call it a $7 an hour gain. He also bids down the wages of American workers by (and this is a high-end estimate from the labor economics literature) about $.00000003 per hour; multiply that by a hundred million American workers and you’ve got a collective $3 an hour loss.

Now there seems to be something like a consensus that it’s okay for US policies to benefit US citizens at the expense of Mexicans, but there also seems to be something like a consensus that there’s a limit to that; we would not want, for example, to allow Americans to hunt Mexicans for sport. So when we consider turning someone away at the border, one good question is: Are we willing to do $7 worth of harm to a Mexican in order to confer $3 worth of benefits on American workers?

Note that the potential Mexican immigrant is typically much poorer than those American workers, and that it’s not uncommonly argued that we should care more about the poor than about the rich. If you weight that $7 loss to the Mexican and that $3 gain to the Americans accordingly (i.e. assuming logarithmic utility, which is a quite conservative assumption — that is, one that biases the result in the anti-immigration direction), you discover exclusion hurts the Mexican about five times as much as it helps the Americans.

So, at least if you buy into that way of thinking (which pervades a lot of the policy literature) then exclusion is justified only if you “count” a Mexican as less than one-fifth of an American. That’s a pretty extreme position. It’s not as extreme as hunting Mexicans for sport, but it’s still pretty extreme.

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Lest We Forget

Published
by
Steve Landsburg
on June 18, 2012
in Current Events and Policy
. 106 Comments

Thanks to an election-year conversion by the President of the United States, 800,000 young people born outside the country will now be spared the threat of deportation. That’s a good thing. But let’s not lose sight of the fact that the biggest victims of American immigration policy are not the ones we deport; they’re the ones who never got to come here in the first place.

The President defends his new policy as humane. Put aside the question of where his humanity has been for the past three and a half years and ask yourself what’s so humane about protecting the children of relatively rich “illegals” (that is, the ones who have had the opportunity to earn American wages) while we continue to bar the door to their desperately impoverished cousins.

Regarding the beneficiaries of this new policy, the President says that

These are young people who study in our schools, they play in our neighborhoods, they’re friends with our kids, they pledge allegiance to our flag …

Why is any of this relevant? When did visibility become a criterion for moral status?

This is indeed a time to celebrate and I don’t want to diminish that. But I do have two questions for the President:

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Fighting Back

Published
by
Steve Landsburg
on May 23, 2012
in Current Events, Law and Policy
. 78 Comments

notredameA consortium of Catholic institutions, including the University of Notre Dame, is suing to overturn the Obama administration’s contraception mandate. I hope they lose. I think.

The birth control mandate strikes me as a very hard policy to defend, though I’ve done my part to put together the best possible arguments in its favor. For the record, I do think there’s a quite reasonable case to be made for some insurance mandates — primarily with regards to pre-existing conditions and catastrophic illnesses. (There’s also a very good case against those mandates, so don’t take this as an endorsement!). Those mandates at least address plausible market failures. A contraception mandate pretty clearly fails that test (though see the discussion at the linked post for some reasoned argument to the contrary).

So I believe the mandate is bad policy, both in its specifics and in its general presumption in favor of government power. If this isn’t unconstitutional, we need a better constitution. But that’s not the basis of Notre Dame’s lawsuit. Notre Dame’s position, as I understand it, is that Catholic institutions (as opposed to, say, General Electric) should be exempt from the mandate because religious objections (as opposed to, say, financial objections) have some kind of special exalted status. That strikes this non-lawyer as straying perilously close to a law respecting the establishment of religion. And if that’s not unconstitutional, then we really need a better constitution.

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News of the Day

Published
by
Steve Landsburg
on May 10, 2012
in Current Events
. 75 Comments

obamaThe President of the United States thinks that gay marriage should be legal. So do I. But I have two coments:

First, I am dismayed by the notion that anyone’s vote might be swayed by this issue, in either direction.

As I said earlier in the week, I do understand why this is an issue of major importance in some people’s lives. But the number of people affected, and the magnitude of the effects, are still meager compared to the effects of, say, trade or immigration policy. What ever happened to perspective?

Of course, Bryan Caplan will tell you that voters are systematically irrational in any event, so it might be just as well that they’re basing their votes on things that don’t matter very much, as opposed to basing their votes on things that really matter and getting them wrong. But it’s still disheartening to think about.

Second, I am dismayed by the President’s suggestion that he came to this viewpoint through observation of “incredibly committed monogamous” same-sex relationships among his staffers — suggesting (though not outright asserting) that monogamy ought to be somehow relevant to the legal status of one’s marriage. And here I’d thought the whole point of this gay marriage thing was that the way people have sex is not properly a concern of the legal authorities. If he’s continuing to deny this principle, then the President remains philosophically on the same side of this divide as Family Research Council.

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In the News

Published
by
Steve Landsburg
on May 4, 2012
in Current Events, Musings, Policy and Politics
. 54 Comments

As long as we have anything like traditional marriage, I believe that restricting it to heterosexual couples is an exceptionally bad and stupid policy, laced with unnecessary cruelty. It is not, however, an issue that is likely ever to affect my vote, because so much else dwarfs its importance. Legalizing gay marriage would make life substantially better for a few million people of the wealthiest people in the world (i.e. Americans) and is therefore a good thing, but if I’m going to pick my battles, I’ll cast my lot with, say, the tens or hundreds of millions of Third Worlders who are relegated to dire poverty by American trade and immigration restrictions. I’ll take the homophobic free trader over the protectionist crusader for sexual equality every single time.

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And the Winner Is….

Published
by
Steve Landsburg
on March 29, 2012
in Bad Reasoning, Current Events, Economics and Policy
. 114 Comments

The Supreme Court has been a veritable festival of economic ignorance the past few days, but if I had to pick a prize specimen, I think it would be Paul Clement’s response to Justice Kennedy’s observation that the uninsured — given our unwillingness to turn them away from emergency rooms — impose a burden on the rest of us. Mr. Clement (the plaintiff’s attorney) tried to argue that the same is true in any market:

When I’m sitting in my house deciding whether to buy a car, I am causing the labor market in Detroit to go south…

thereby blurring the key distinction between a pecuniary and a non-pecuniary externality.

The point is that Mr. Clement’s decision not to buy a car (and therefore to drive down the price) is bad for Detroit auto workers only to the extent that it’s good for other car buyers. It is therefore in no sense a net burden on the rest of society. Contrast that with the clear burden imposed by the uninsured fellow who wants you to pick up his hospital tab.

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Some Questions for Uwe Reinhardt

Published
by
Steve Landsburg
on March 16, 2012
in Bad Reasoning, Current Events, Economics, Fairness and Policy
. 94 Comments

First Greg Mankiw wrote a good piece in the New York Times about how there’s sometimes a hazy line between ordinary income and legitimate capital gains. Then Uwe Reinhardt wrote a puzzling (at least to me) followup in which he concluded that we might as well just give up and tax both at the same rate. I have some questions for Professor Reinhardt.

Question 1:

  1. Sometimes there is a hazy line between quotation and plagiarism. Does it follow that we should treat every quotation as an instance of plagiarism?
  2. Sometimes there is a hazy line between a pat on the back and an assault with intent to harm. Does it follow that we should treat every pat on the back as an intent to harm?
  3. Sometimes there is a hazy line between adolescence and maturity. Does it follow that we should treat everyone as an adolescent?
  4. If the answer to any of the above is no, what’s different about capital gains?

Professor Reinhardt goes on to instance the case of a person who buys a vacation home for $500,000 and sells it two years later for $1.5 million, suggesting that it would be unfair to let this person hang on to all of this gain, so it should therefore be taxed at the same rate as ordinary income. This brings me to the next questions:

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The Analogists

Published
by
Steve Landsburg
on March 14, 2012
in Bad Reasoning, Current Events, Policy and Truthseeking
. 167 Comments

    

Viagra analogies have been in the news a lot lately, both in connection with contraceptive coverage and in connection with state laws restricting abortion. I love good analogies and I hate bad ones, so I’d like to take a little time to sort out the bad from the good.

Because there are several scattered points to be made here, I’m putting them in sections and labeling them with Roman numerals, to make it easier for commenters to tell us just which section(s) they’re responding to.

I.

My insurance policy covers Viagra. I would prefer that it didn’t. Given the costs and the probabilities, erectile dysfunction seems to me like a crazy thing to be insured against. There are a whole lot of other things I feel the same way about. I’d prefer not to be insured against losing my eyeglasses. On the other hand, I’m very glad to be insured against needing chemotherapy or kidney dialysis.

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Letter to a Reporter

Published
by
Steve Landsburg
on March 9, 2012
in Bad Reasoning, Current Events and Economics
. 164 Comments

I suspect we’re all getting bored of talking about Sandra Fluke, contraception policy, alternative solutions, and the reaction thereto, but I’ve just had an email from a reporter who’s confused on a point so basic, I thought it might be worth clearing it up for a larger audience.

The reporter writes:

As you might suspect, I disagree with your assertion that “All she said, in effect, was that she and others want contraception and they don’t want to pay for it.” I was wondering if you happened to catch the part of her speech where she talked about wanting women whose doctors have prescribed birth control pills to treat medical disorders like endometriosis to be able to get such drugs without having to pass tests demanded by religious institutions? Is this an unimportant part of the debate?

Here is a slightly edited version of my reply:

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Aftermath

Published
by
Steve Landsburg
on March 8, 2012
in Current Events, Policy and Truthseeking
. 192 Comments

Joel Seligman, the president of the University of Rochester, has, in his words, exercised his right to express his views with a dissent from my recent posts about contraceptive subsidies.

Several news organizations have asked me for a statement. Here is what I sent them. (Below the fold is a copy of my email response to President Seligman.)

President Seligman says that the mission of the university is to promote the free exchange of ideas and lively debate, and I agree. That mission is undermined whenever a member of the academic community elevates raw self-interest over the exchange of ideas.

That’s what Sandra Fluke did. She observed that contraceptives are expensive, and therefore demanded that somebody other than herself and her fellow students pick up the tab. She didn’t even pretend to be interested in debating any of the serious issues raised by the question of when some of us should pick up the tab for others’ expenses.

Sometimes we should, sometimes we shouldn’t, and there’s a lot to be said, discussed, and debated about the particulars. An emotional appeal for one’s preferred outcome, ignoring all the substantive issues, is the
exact antithesis of the free exchange of ideas that President Seligman claims to endorse.

I’ve had three blog posts on this subject, here, here, and here. The commenters have offered many bright and lively arguments and observations, some of which have led me to modify some of my views.
This is a wonderful thing. It’s also the very opposite of Sandra Fluke’s approach, which amounts to a contemptuous dismissal of the very possibility of engaging these issues through intellectual discourse. I’d have expected a distinguished academic to feel the same way.

And now, my letter to President Seligman:

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Let’s Just Tax Men

Published
by
Steve Landsburg
on March 7, 2012
in Current Events, Economics and Policy
. 88 Comments

pillsA few final thoughts (following up on this post and this post) re mandated insurance coverage for contraceptive pills:

  1. Mandated insurance coverage means that the government requires everyone who doesn’t use contraceptive pills to contribute to the costs of everyone who does. This is exactly equivalent to a tax on not using contraceptive pills.
  2. The burden of that tax falls on three groups: Men, infertile women, and fertile women who choose not to use contraceptive pills. We can consider separately the wisdom of each of these taxes.
  3. The tax on men is easily the most defensible. First, it’s non-distorting: There is (correct me if I’m wrong) currently no technology by which a man can convert himself into a fertile woman. So we don’t have to worry about the tax changing anyone’s behavior. Second, men, on average, earn more than women do, so if you believe in redistributive taxes at all, this is a great one. (We can have, someday, a separate discussion about the merits of redistributive taxes. But given that there’s a substantial constituency for those taxes, and given that we’re therefore going to have them, it seems far wiser to tax people for being male or white than for earning high incomes, since the redistribution goes for the most part in the right direction with essentially no disincentive effects.)

    4. Continue reading ‘Let’s Just Tax Men’

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Rush to Judgment

Published
by
Steve Landsburg
on March 2, 2012
in Current Events, Fairness, Morality, Outrage, Policy, Sex and Snark
. 214 Comments

rushRush Limbaugh is under fire for responding in trademark fashion to the congressional testimony of Georgetown law student Sandra Fluke, who wants you to pay for her contraception. If the rest of us are to share in the costs of Ms. Fluke’s sex life, says Rush, we should also share in the benefits, via the magic of online video. For this, Rush is accused of denying Ms. Fluke her due respect.

But while Ms. Fluke herself deserves the same basic respect we owe to any human being, her position — which is what’s at issue here — deserves none whatseover. It deserves only to be ridiculed, mocked and jeered. To treat it with respect would be a travesty. I expect there are respectable arguments for subsidizing contraception (though I am skeptical that there are arguments sufficiently respectable to win me over), but Ms. Fluke made no such argument. All she said, in effect, was that she and others want contraception and they don’t want to pay for it.

To his credit, Rush stepped in to provide the requisite mockery. To his far greater credit, he did so with a spot-on analogy: If I can reasonably be required to pay for someone else’s sex life (absent any argument about externalities or other market failures), then I can reasonably demand to share in the benefits. His dense and humorless critics notwithstanding, I am 99% sure that Rush doesn’t actually advocate mandatory on-line sex videos. What he advocates is logical consistency and an appreciation for ethical symmetry. So do I. Color me jealous for not having thought of this analogy myself.

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Frankly Speaking

Published
by
Steve Landsburg
on February 29, 2012
in Current Events, Economics and Politics
. 51 Comments

Here’s something curious about this year’s political rhetoric: The Republican candidates claim that President Obama has made things worse, while he claims he’s made things better.

You might not think that’s a hard thing to explain. If so, I conclude that you are not Robert Frank, who keeps reminding us via his New York Times column (this one for example) that in many circumstances people care less about their absolute economic well-being than about their place in the pecking order. According to Frank, we buy big homes and fast cars not because we like big homes and fast cars, but because we like our homes and cars to be bigger and faster than our neighbors’. This in turn calls for a tax increase to tamp down that wasteful arms race.

But here’s the thing: Each of us has pretty good information on how we ourselves are doing. When politicians say the economy is doing poorly, they’re mostly informing us that other people are doing poorly. If Frank is right, we’ll consider that good news and (if we believe the news to be accurate) reward the incumbent who brought everyone else down. In other words, is Frank is right, then President Obama’s best strategy is to take credit for a disastrous economy, while his Republican opponents should argue that in fact we’re in the midst of a strong recovery.

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Your President Hopes You’re Stupid

Published
by
Steve Landsburg
on February 13, 2012
in Current Events, Economics and Policy
. 245 Comments

When an ideologically diverse roomful of economists, upon hearing the announcement of a new presidential policy, bursts into unanimous laughter, you can be pretty sure the president is trying to pull a fast one.

A couple of days ago, I happened to arrive a little late for our department’s regular Friday 10AM bagel hour, where a heated discussion of the original contraception-for-all policy was in full swing. I was able to report that I’d just heard on the radio that the president was “backing off” by transferring the mandate from employers to insurers. Hilarity ensued.

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Pro and Contra-ception

Published
by
Steve Landsburg
on February 10, 2012
in Current Events and Policy
. 146 Comments

I’d been planning a blog post on the birth control mandate, but it turns out that John Cochrane has already said everything worth saying.

Click here to comment or read others’ comments.

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Mitt Romney’s Taxes

Published
by
Steve Landsburg
on January 18, 2012
in Bad Reasoning, Current Events and Economics
. 108 Comments

Mitt Romney says his tax rate is “probably around 15%”. It’s not clear what he means by that (marginal rate? average rate? federal rate? federal-plus-state-plus-local rate?) but the New York Times is quick to point out that he’s a beneficiary of the “fact” that investment income is taxed at a much lower rate than wages and salaries, leaving him with a lower percentage tax burden than the working-stiffs he employs.

For at least the eighth time on this blog, I want to point out that this widely believed “fact” is not true.

To understand Mitt Romney’s tax burden, you have to compare him to his doppelganger Timm Romney, who lives on a planet with no taxes. In the year (say) 2000, Mitt and Timm both earned (say) a million dollars. Timm invested his million dollars, saw it double over the past decade or so, and cashed out his investment this year, leaving him with two million dollars. Mitt, by contrast, paid 35% tax in 2000, leaving him with $650,000. He invested it, saw it double, and cashed out last year, paying 15% tax on the $650,000 capital gain. That leaves him $1,202,500, which is about 60% of what Timm’s got. In other words, the tax system costs Mitt almost 40% of his income.

By contrast, people on our planet without investment income collect their wages, pay 35% in taxes, and spend what’s left. The tax system costs them 35%, while it costs Mitt almost 40%. In other words, people with investment income bear a higher tax burden, as a percentage of their income, than anyone else — and that’s before you even start accounting for the taxes on dividends, interest, corporate income and inheritance.

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This Particular God, at Least, Appears to Be Dead

Published
by
Steve Landsburg
on December 21, 2011
in Current Events, Philosophy, Religion and Science
. 20 Comments

higgsThe apparently imminent discovery of the Higgs boson by scientists at CERN will have at least one quirky side effect that appears to have gone entirely unremarked until the appearance of this blog post — it threatens to inflict fatal collateral damage to the brilliant, eccentric and infuriating Omega Point Theory proposed by the physicist Frank Tipler.

Tipler, who is not a crackpot, once published a book called The Physics of Immortality, purporting, on the basis of orthodox physics plus some plausible auxiliary assumptions, to establish the existence of an omnipotent, omniscient, omnipresent and altruistic “being” who will one day resurrect everyone who has ever lived to eternal life.

The first step toward that startling conclusion is the assumption that our descendants will not allow all life to come to an end. This in turn will require them to control the evolution of the Universe so that it doesn’t collapse in anything that human beings perceive as a finite amount of time; Tipler argues that they’ll quite plausibly have the technology to do that. But all this future tinkering with the shape of the Universe has consequences that (in a very rough sense) radiate backward and forward through time. From this and some highly technical but more-or-less standard physics, Tipler manages to conclude the existence of an Omega Point — a place where (again speaking roughly) all the information in the Universe is stored. Writing in 1994, Tipler never considered the possibility that the Omega Pont might be located in Mountain View, California. Instead, he stressed that in its omniscience, it’s something very like God.

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The Price of a Haircut

Published
by
Steve Landsburg
on December 8, 2011
in Current Events and Economics
. 31 Comments

Yesterday I had the pleasure of attending a very good talk by Yale’s Gary Gorton on the origins of the financial crisis.

Gorton’s story is that this was a bank run, not substantially different from the bank runs that have always plagued capitalist economies. In this case, the run took place in the repo market, which is an unregulated (and largely unmonitored) industry roughly equal in size to the standard banking industry. The repo market serves large institutions (e.g. Fidelity Investments or state governments) with a lot of cash on hand that they want to stash in an interest-bearing account for a day or two. So Fidelity deposits, say, a half-billion dollars at, say, Bear Stearns, just as you might deposit five hundred dollars at your local bank. One difference, though, is that your account at your local bank is insured, whereas Fidelity’s account at Bear Stearns is not — so Fidelity, unlike you, demands collateral for its deposit. Bear Stearns complies by handing over a half-billion dollars worth of bonds, of which Fidelity takes physical possession. The next morning, Fidelity withdraws its money and returns the bonds.

The problem comes in when rumors begin to spread that some bonds might be riskier than they appear, and Fidelity starts to worry that maybe Bear Stearns is picking particularly risky bonds to hand over. Therefore Fidelity demands more than a half-billion in bonds to guarantee its half-billion dollar deposit. If there’s, say, a 10% discrepancy between the deposit and the collateral, we say that Bear Stearns has taken a half-billion dollar haircut.

Because Bear Stearns has a fixed quantity of bonds on hand, and because all of its depositors are demanding haircuts, Bear Stearns can now accept fewer deposits than before. This means that Bear Stearns has less cash on hand. This makes depositors even more worried about the security of their deposits, which means they demand larger haircuts. The effects snowball until Bear Stearns collapses. Like so:

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Quote of the Day

Published
by
Steve Landsburg
on November 10, 2011
in Current Events
. 68 Comments

From Jonathan Gelbord, research associate in astrophysics at Penn State:

We always knew that Penn State football was like a religion. Now we know which religion.

Click here to comment or read others’ comments.

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Ranking the Tax Plans

Published
by
Steve Landsburg
on November 1, 2011
in Current Events, Policy and Politics
. 52 Comments

This post is a first attempt to rank the efficiency of the Republican candidates’ tax plans, concentrating on six dimensions:

1) The tax rate on wages and/or consumption. A wage tax and a consumption tax are pretty much interchangeable; you can tax the money as it comes in or you can tax it as it goes out. So I’m treating this as one category. The “right” level for this tax depends on your forecasts for future government spending.

2,3,4,5 and 6) The tax rates on dividends, interest, capital gains, corporate incomes and estates. I believe these tax rates should all be zero. That is not a statement about how progressive the tax system should be. A wage tax and/or a consumption tax can be as progressive (or regressive) as you like. It is instead a statement that while all taxes discourage both work and risk-taking, capital taxes have the added disadvantage that the discourage saving. This simple intuition is confirmed by much of the public finance literature of the past 25 years. (Here is a good example.)

My personal preference is for a system substantially less progressive than the one we’ve got, but for purposes of this exercise I won’t penalize candidates whose preferences differ from mine. For the record, Romney, Huntsman and Santorum are the three who (as far as I can tell) want to maintain substantial progressivity, with Romney, uniquely among the candidates, preferring even more progressivity than we currently have.

Here, then, is a chart, with candidates ranked roughly in order of their willingness to exempt capital income from taxation. I prepared this chart with a few quick Google searches (this is a blog post, not a journal article) and it probably contains errors. I’ll be glad for (documentable) corrections and will update the chart as they come in. Asterisks refer to further explanations, which you’ll find below the fold.

If we care about efficiency, we’re looking for zeroes in the last five columns. On the face of it, Johnson is the clear winner. But Cain’s 9/9/9 plan has two arguments in its favor that don’t appear on this chart. First of all, people are a lot less likely to bother evading one of three 9% taxes than a single 23% tax; therefore we’d have a lot fewer evasion problems under Cain than under Johnson. Second, it’s pretty easy to imagine Congress raising a 23% tax to 24% or 25% or 26%, but it’s a little harder to break the psychological barrier of single-digit tax rates, so Cain’s 9/9/9 might be more politically stable than Johnson’s 23. Therefore I’m calling this a tie between Johnson and Cain.

But the top six are all pretty good, except maybe for Paul, who hasn’t revealed his key number. Santorum is bad, Romney is atrocious, and Bachmann (who, as far as I can tell, has not bothered to release a tax plan) is an enigma.

Some explanations:

Continue reading ‘Ranking the Tax Plans’

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Death And Taxes

Published
by
Steve Landsburg
on October 21, 2011
in Current Events, Economics, Policy, Politics and Self-Promotion
. 37 Comments

Herewith my remarks about the estate tax (with particular reference to its effects on the very rich, and why we should care) to Congressional staffers, presented a couple of days ago under the auspices of the American Family Business Institute. Here is higher quality video. Here is the even higher quality YouTube version. Here is video of the entire event. I particularly recommend the first talk, by Stephen Entin.

Note that all of my remarks apply equally well to all forms of capital taxation. Entin did a better job of focusing on the particular shortcomings of the estate tax.

Click here to comment or read others’ comments.

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Relatively Speaking

Published
by
Steve Landsburg
on October 17, 2011
in Anecdotes, Current Events and Science
. 16 Comments

With a hat tip to our occasional commenter Ron….

Remember those faster-than-light neutrinos? The ones that threatened to overturn relativity, and along with it everything we think we know about how the universe works?

Well, it turns out that maybe they weren’t faster than light after all — they might have only appeared to be faster than light because their arrival time was mismeasured. The mismeasurement was (it seems) caused by the researchers’ failure to account for the effects of ….. relativity!

I hear an echo of the great ongoing debate between Einstein and Bohr on the foundations of quantum mechanics. Continue reading ‘Relatively Speaking’

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Stopped Clocks

Published
by
Steve Landsburg
on October 6, 2011
in Blogging, Current Events, Paul Krugman and Politics
. 33 Comments

Incidentally, Paul Krugman made an incisive point last week when he wrote:

Here’s a question I haven’t seen asked: If fear of future regulations and taxes is holding business back, as everyone on the right asserts, why didn’t the Republican victory in the midterms set off a surge in employment?

After all, if you really believed that fears of Obamanite socialism were the key factor depressing employment, the GOP victory — with the clear possibility that the party will take the Senate and maybe the White House next year — should greatly reduce those fears. So, where’s the hiring surge?

I even set out to write a blogpost citing this argument with approval — but around the time I was composing it, Krugman followed up with this bit of idiocy, to which a response seemed more urgent.

Now that that’s out of the way, I can come back to the bit about the missing Boehner Boom. It’s a more-than-fair question. How would you respond to it?

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Neutrinos and Appomattox

Published
by
Steve Landsburg
on September 26, 2011
in Current Events, Musings, Physics, Science and Truthseeking
. 56 Comments

Scientists at CERN have found apparent evidence that neutrinos can travel faster than light.

Suppose that tomorrow historians at Harvard find apparent evidence that the South won the American Civil War — not in some metaphorical “they accomplished their goals” sense, but in the literal sense that it was actually Grant who handed his sword to Lee at Appomatox and not the other way around.

Question: Of which conclusion would you be more skeptical?

Of course your answer might depend on exactly what this new “apparent evidence” consists of. So let me reword: As of this moment, which do you think is more likely — that neutrinos can travel faster than light, or that the South won the Civil War?

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Survival of the Fittest

Published
by
Steve Landsburg
on September 21, 2011
in Current Events and Economics
. 37 Comments

The Wall Street Journal reports that `daily deal’ sites like Groupon are dying fast, casualties of the expensive competition for new users. Groupon now spends about $8 to lure one active user.

This looks like a good example of Darwinian competition yielding an inefficient outcome — as we should expect. (See Chapter 8 of my book The Armchair Economist for more on why Darwinian competition is nothing like market competition, and far more likely to yield bad outcomes.) Vast sums are being spent in an arms race with relatively little social value. Surely consumers benefit from all this competition, but it’s highly implausible that they benefit enough to justify such high expenditures. Even after the recent Great Winnowing, about 350 of these sites remain; surely consumers (none of whom have the time to visit 350 sites a day) would be almost equally well served by 50 sites, at about 1/7 the cost.

Continue reading ‘Survival of the Fittest’

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Compassion Play

Published
by
Steve Landsburg
on September 19, 2011
in Current Events, Economics, Morality, Outrage, Paul Krugman and Policy
. 83 Comments

One thing I like about the study of economics is that it fosters compassion. When part of your job is to predict human behavior, you quickly learn the value of understanding other people’s problems. When the other part of your job is ferreting out the unseen global consequences of our choices, you’ve taken the first step toward caring about those consequences.

For example: Suppose a guy with no health insurance and no assets shows up at a hospital emergency room with an urgent life-threatening condition. Should you let him die? Ordinary compassion says no. The heightened compassion of the economist says, at the very least, maybe.

First, a policy of providing emergency health care to everyone is pretty much the same thing as a policy of providing emergency health insurance to everyone. It was specified here that this was a guy who didn’t want health insurance. So let’s recognize for starters that such a policy runs counter to — I am tempted to say runs roughshod over — the guy’s own revealed preference. It’s an odd sort of compassion that forces people to buy things they don’t want.

Now you might object that nobody’s forcing this guy to buy emergency health care; we’re trying to give him emergency health care. Not so fast. Here’s the first place where a little economic training goes to hone one’s sense of compassion: The emergency health insurance we’re foisting on this guy has a cost. We can spend that money on emergency rooms or we can spend it on a myriad of other things the guy might prefer. How is it compassionate to give him one thing when he prefers another?

This is particularly true if the guy happens to be very poor. Poor people have a lot of problems, and emergency health care is only one of them. They need better education, they need better transportation, and they need a little help buying groceries.

There is room for lots of debate and lots of disagreement about how much we as a society should be spending to help poor people. That’s not the issue here. The issue here is: Given that you’ve decided to spend an extra such-and-such many dollars a year helping poor people, why would you spend it in this particular way rather than one of the many other ways they could use it? For God’s sake, why not at least ask them if they’d rather have the cash?

Continue reading ‘Compassion Play’

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