Search This Blog

Friday, August 29, 2008

Harsh Words

Syndicated columnist and member of San Diego Editorial Board, Ruben Navarette Jr. says this about Democrats' views on economy:

"This is a party that maintains power by trying to convince people that our country is a dark place, devoid of opportunities, and that the answer is to elect more of them."

I suppose I agree with the sentiment that sometimes Democrats take their populist message a little too far (maybe that's the politico-economic moderate in me). But I think Navarette's opinion is harsh and mis-characterizes Democrats on 2 main fronts:

1. That Democrats view America as a dark place without opportunity -
I don't know what Navarette heard, but more than once and from most everyone that took the podium at the DNC, I heard people talking about the power of America and how special America is. What I heard was that America is a bright place that has fallen on dark times. There is a difference.

2. That Democrats think that they are the answer to America's collective problems -
I don't know many Democrats that believe that. I think Democrats think they have the ideas that can help solve the problems we face, but I think it's a gross mis-charachterization to suggest that Democrats don't understand that it will take everyone, regardless of party or affiliation, to help improve our country. Obama has said that numerous times.

The "answer" does at least in part require Democrats to be elected though; I'll agree on that front. Why? Because the last 8 years has shown the GOP to be the party of go-it-alone politics. The same people that talked about being "uniters," when faced with reality, showed America that they don't care about the opinions or ideas of others. So yes, Democrats do think it is time for a change. But they don't think that that alone will come close to solving anything.

Thursday, August 28, 2008

Mankiw agrees with false dichotomy

According to this, the key difference b/w a Democrat and Republican is that Democrats care about the less fortunate at the expense of the general taxpayer while Republicans care about the general taxpayer while failing to wholly account for the less fortunate.

I don't think that's accurate at all.

There were a number of people over the last 3 days at the Democratic National Convention that expressed real concern for middle American taxpayers and small business owners. The difference, more accurately portrayed is this:

Democrats care about distributional issues and the potential economic growth a well diversified and and relatively more equalized economy can bring, at the expense of the richest Americans. Republicans care about the idea of textbook (underscore textbook - with all it's unrealistic assumptions and simplistic models) economic growth at the expense of the down-trodden.

That's really all it is. Though, to be fair, I need to caveat the Republican philosophy, I do not think most Republicans want to have policies at the expense of the less well off. But I do think they cling to a false notion that the growth via textbook economics will trickle-down or will somehow magically make most all of the less fortunate more well off in the long-run. But as we all know, economics as a profession (I should say mainstream economic profession - there are some that have embraced a more encompassing economics) has ignored and completely detached ideas of equity from efficiency, so this unfettered short-sighted growth never really pays off the way Republicans want it to.

Economic Growth or Temporary Spike

The major weblink today from msnbc is:
"Economic Growth Stronger than Expected."

All this because revised GDP growth for the second quarter 2008 is 3.3%, up sharply from the original estimate and past quarter.

The problem of course is that is when everyone started getting and spending their stimulus checks. So, it's demand-led growth certainly, but it's temporary and many economists are predicting the spike to subside in coming quarters. I don't think such a misleading idea is warranted here. It's kinda like telling people the hurricane has passed but ignoring the fact that the levees you built are about to give way to a flood.

Monday, August 25, 2008

Why I'm Removing "Becker/Posner" from my blog list

For posting too many quotes like this (Becker):

"Creative contributors to films divorce in large numbers, often several times. Many have frequent affairs, often while married, they have children without marriage, they have significant numbers of abortions, have a higher than average presence of gays, especially in certain of the creative categories, who are open about their sexual preferences, they take cocaine and other drugs, and generally they lead a life style that differs greatly from what is more representative of the American public. By contrast, an important base of the Republican Party is against out of wedlock births, strongly pro life and against abortions, against gays, especially those who adopt an publicly gay lifestyle, against affairs while married, and very much oppose the legalization of drugs like cocaine and even marijuana."

Everyone's entitled to their own opinion. And man I certainly have quite a few. But if I were to write something scathing like that basically saying that the average "creative" type is a gay, drug abusing, baby-killer, I would like to think I'd back it up with some data or something. I'd like to think my stereotypes are a little more informed than that. In any case, this kind of post has been a recurring pattern over at Becker-Posner, and while I once really admired Dr. Becker, I find myself becoming more offended than enlightened by their occasional posts.

Thursday, August 21, 2008

Tax Rates vs. Tax Revenue

Mankiw posts this video of Obama economic advisor Austan Goolsbee being interviewed on economic policy.

In previous posts Mankiw has showed the fact that, under Obama's current tax plan, effective marginal corporate tax rates would rise pretty substantially.
But he neglects to say that, as Austan points out in the interview, the US reaps some of the smallest tax revenues as a percent of GDP in the entire world. So, slight laffer effects aside (which history shows to be minimal), having companies pay a bit more than they already are (either due to current subsidies or loopholes) makes sense to me at evening the playing field and increasing revenues overall.

Also as Austan points out, eliminating some of the subsidies large corporations currently receive for shipping jobs overseas means more jobs / businesses staying here, which means more revenue and/or may eliminate the need to let the marginal tax rates to go back to the 1990s level to the same degree.

Friday, August 8, 2008

Airlines Find a Way Around Ticket Price Competition

They compete in the business of asymmetric information: raising baggage / hidden fees.

"This isn't just annoying. It's an assault on capitalism. Companies with the best prices and the best products are supposed to win in our Darwinian economic system. Instead, sneaky charges and tack-on fees prop up poorly performing companies. Instead of rewarding the best performers, we are rewarding the members of the Gotcha Hall of Shame."

This is an ingenious way for companies like American Airlines and JetBlue etc. to show up as "cheap(est)" on sites like, since such sites don't report fees specifically (how can they as they seem to be cropping up everywhere).

In fact, if you try to find a flight on Travelocity, here is what shows up (for American Airlines):

"Bag Fees May Apply more
Nonstop Service more"

When you click on the link, you get:

"Checked Baggage Fees May Apply

Some airlines have announced changes to their checked baggage policies and these fees may impact your trip.

Please review the link below for information regarding this airline's checked baggage policy."

One would hope savvy shoppers wouldn't be fooled, but my guess is that this added "search cost" to find out exactly what these fees are are too high for many shoppers - leading to huge gaps in information between traveler and airline.

Thursday, August 7, 2008

Windfall Profits Tax is a (Weak) Pigovian Tax

Mankiw argues that Obama's Windfall Profits Tax is not Pigovian. I disagree. It is only not pigovian in a completely hypothetical world where world supply of oil can exactly offset the decrease in domestic supply brought about by the increased domestic burden placed via the tax, or, in a world where changes in inputs or business structure due to the tax increase have no effect on pricing.

As I mentioned here, the windfall tax is different than a consumption tax largely, as Mankiw points out, it is more distortionary. But, provided world supply is constrained to some degree greater than zero, then world supply of oil will fall by some percentage that domestic supply falls by as the overall cost of production rises, thereby raising the price of oil and reducing consumption - sounds pretty pigovian to me - albeit a weak one as a windfall tax is not likely to increase price dramatically as world supply would surely partially compensate. Mankiw's own cite - Josh Barro - makes this very point in his last sentence of his post:
"So there's your windfall profits tax in a nutshell: reduced domestic production, increased dependence on foreign oil, and pump prices either unchanged (best case) or higher (worst case)."

It is true that a windfall profits tax could distort the labor/capital tradeoff, but even that would presumably increase the costs of production and the price of gas at the pump as any tradeoff change would be less than optimal due to a tax on domestic profit.

So, I fail to see how a windfall profits tax can be labeled NOT pigovian. It seems more accurate to label it as LESS pigovian than the proposed consumption tax would be. There would have to be some pretty extreme assumptions made to call a windfall profits tax completely 100% not pigovian.
Mike Moffatt at talks about math and the economic way of thinking.

I ask:

What is the "economic way of thinking?" I see this explained in textbooks all the time as thinking "rationally" where "rationality" is typically defined as behavior that maximizes some strategic function (utility) subject to some constraint. So my question is, aren't the "economic way of thinking" (at least the way many mainstream economic texts read) and the "math" way of thinking really one and the same?

It seems the Federal Reserve Bank would agree with my assessment:

It further seems that what we need is a little less math, a little less thinking like closed-box economists, and a little more thinking like the holistic scientists we are suppose to be.

Tuesday, August 5, 2008

Credit Card Bill of Rights - A Reality

Finally, something akin to a credit card bill of rights is moving through congress.

You can read the above article, but the basic gist of the plan is that it (much like my previous post on fat/calorie disclosure) allows for better disclosure of interest rate changes so that consumers can make more informed decisions. It attempts to stop the practice of credit card companies manipulating the system by sending out their statements with just a couple weeks or so before the due date (thereby practically forcing late payments). Finally, and most importantly, it would ban most retroactive interest rate hikes which is perhaps the single biggest way in which credit card companies 'stick it to' consumers. Person A may be deemed to be a slight credit risk at time A, and therefore receive an relatively low interest rate. But, credit card companies can for ANY REASON raise your interest rate - which is not in debate since they should be able to have rate flexibility - but the problem is they raise the interest rate and apply to purchases already made - ie, purchases you made when you were supposedly deemed low risk. That is of course bilking millions out of American's checkbooks in a most unfair and devious way.

Now, will this legislation perhaps make credit card comapanies raise rates or fees in general? Maybe, maybe not to any big degree. But frankly, I'd rather the costs of regulation be spread out over everyone in an equitable manner than put to just a handful of people who most often don't deserve the increased cost.

I mentioned in a post a couple months back about how Capital One raised my rate (without me knowing - they claimed they sent notice but who opens those things when you get 20 in a week!) from 7.9% to 11% all the way to around 20% in the span of a couple months (the first increase due to market conditions, the second because I supposedly missed 2 payments by a handful of days). I'm hardly a credit risk, but many credit card companies' systems/equations that determine these rates are outdated or geared toward bilking consumers, which is why we need good legislation.

Obama also has a similar plan only his is perhaps even more stringent.

Monday, August 4, 2008

Starting To Worry Me

Obama's seeming continued flip-flopping is worrisome. And his "new" policies regarding tapping oil reserves (bad idea) and potential "environmentally friendly" offshore drilling (worse idea) are extremely disturbing to me.

Ok, so he's not really flip-flopping per se. He says he would only support offshore drilling as part of an unfortunate compromise necessary to pass his overall energy plan (which is sound). But my question is, how do you know such compromise would be necessary, especially given that the congress is likely to be heavily democratic. Why make concessions now?

It seems that McCain's misguided attacks are serving to throw Obama into a tailspin. If this is Obama's idea of "fighting back" then maybe he really isn't up to the task. I will never vote for McCain, but the Obama of the past month or so has me reconsidering him as well.

More on economics of transfat and fast food

I was thinking some more about the posts made by Chicago school economist Gary Becker and Judge Posner basically arguing that trans fat and fast food regulation aren't really that important and that disclosure of nutritional data by fast food chains isn't really beneficial.

This thought process is typical of followers of the Chicago school (read: conservative economics - from Posner):

"people concerned about their weight have the incentive and ability to inform themselves about the number of calories that they consume."

I started thinking more about this when I came across a report from the non-profit org, Center for Science and the Public Interest, just published, entitled: "Kid's Meals: Obesity on the Menu." It surveyed about 2 dozen fast food chains and found that of the the typical kid's meals in fast food chains well exceeds one third of a child's daily allowance of calories and fat. In fact, a whopping 93% of meals surveyed exceeded the calories coded as 'healthy.'

According to their data, all possible combination of kid's meals at KFC, Sonic, Jack-in-the-box, Chick-fil-A, and Taco Bell exceed 430 calories. As you might imagine, Subway has the most healthy meals: only 1/3 of their meals exceed 430 calories.

Given all this, and the fact that other studies show that nearly 20% of all expenditure of 'bad' food marketing is aimed at children, and given the potential heart disease, high cholesterol, diabetes, and just general poor health habits that this entire picture creates in our youth, it just blows my mind that anyone can suggest that the simple act of making fast food chains post calories per meal (not try to hide it on some obscure placard by their bathrooms, or embedded 20 clicks into their website) is somehow not worth it.

The cost to these chains of adding this to their posted menus would be next to nothing. The real cost would be in the lost revenue. Currently information is asymmetric: restaurants know they are slowly killing our kids. But kids and parents don't - they are not machines and cannot spend time trying to find hidden nutritional signs. Information is scarce. I'm not a parent, but if I was and if I saw that my child was eating nearly an entire day's worth of calories in one sitting, I would think twice before spending my money there. But, that is the point isn't it? Let people realize they need to eat healthier which will enable companies to realize they can make better profits by shifting to healthier menus.