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Brooks Wilson's Economics Blog

Wednesday, February 12, 2014

The U.S. behind Romania in Press Freedom

A fall in freedom of any kind should be a big story in the United States.  From Meghan Drake of the Washington Times, “Survey: U.S. press freedom plunges under Obama to 46th in world, after Romania.”

The U.S. fell from 32nd to 46th in the 2014 World Press Freedom Index, a drop of 13 slots. The index, compiled by the press advocacy group Reporters Without Borders, analyzes 180 countries on criteria such as official abuse, media independence and infrastructure to determine how free journalists are to report…

“Journalists are being caught up in what is, I think, fairly characterized as a rapidly growing surveillance apparatus, and this is happening all over the world,” said Geoffrey King, Internet advocacy coordinator for the Committee to Protect Journalists.

The Huffington Post reports the same.  See Josh Stearns, “U.S. Plummets in Global Press Freedom Rankings.”


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Wednesday, July 18, 2012

Market Income, Transfers and Taxes

I am indebted to Greg Mankiw for his recent post “The Progressivity of Taxes and Transfers” for two reasons.  First, it citied a CBO report that I had not seen and enjoyed reading.  Second, his post reports transfers as a percentage of market income, and this is the fifth column of my table.

A current political debate focuses on the “fairness” of federal taxes.  Fairness means something different for everybody, but a clear view of a presentation of data should clear up some misunderstandings or data cherry picking on one side of the political aisle or the other. 

The income data is broken into quintiles, or fifths of the country’s households.  The highest quintile is further divided into smaller groupings.  Market income is the sum of labor income, business income, capital gains, capital income, income received in retirement for past services, and other sources of income.  Labor income includes in-kind payments such as health insurance. 

2009

Market
Income


Transfers

Taxes

Effective Tax Rate

First Quintile

$7,600

$22,900

$0

-301.3

Second Quintile

30,100

14,800

2,200

-41.9

Third Quintile

54,200

10,400

7,700

-5.0

Fourth Quintile

86,400

7,100

15,400

9.6

Highest Quintile

218,800

6,000

53,400

21.7

Breakdown of Highest Quintile        
81st-90th

125,800

5,800

25,800

15.9

91st-95th

169,800

5,700

38,300

19.2

96th-99th

266,200

6,200

66,800

22.8

Top 1 Percent

1,219,600

9,000

356,300

28.5

Transfer are are cash payments and in-kind benefits from social insurance and other government assistance programs.  Taxes include the federal income tax, social insurance taxes, corporate income tax, and excise taxes.


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Friday, July 6, 2012

The ACA and National Income Accounts

I was reviewing my notes on national income accounting as the great debate about whether the payment under that Affordable Care Act that forces citizens to buy health insurance is a tax or a penalty raged.  Although I would bet dollars to doughnuts that the Department of Commerce has worked out most of the particulars, what follows is my musings on how these payments will fall. 

My analysis uses definitions from Greg Mankiw’s and my favorite principles text.  The income approach starts with gross domestic product, and through the deletion and addition of accounts, is reduced successively to gross national product, net national product, national income, personal income, and finally, disposable income.  Important to this post are national income, the income households receive from wages, profit, rent and interest, personal income, which is defined below, and disposable income, the sum that households have at their disposal to consume or save. 

Personal income and disposable income are defined in equations (1) and (2)

(1) Personal Income (PI) = National Income (NI) – retained earnings – indirect business taxes – corporate income taxes – social insurance taxes + interest on government debt + government transfers,

and

(2) Disposable personal income (DI) = PI – personal taxes – nontax payments.

Substituting equation (1) into (2) and regrouping terms yields equation (3) which contains the accounts that  will be affected by the ACA.

(3) DI = NI – indirect business taxes – retained earnings - corporate income taxes – social insurance taxes – personal taxes – nontax payments + interest on government debt + government transfers.

I believe that the benefits of the ACA will be part of government transfers, in this case, subsidized medical insurance payments.  The costs will show as social insurance taxes or nontax payments such as parking tickets and other penalties.  From an economic accounting perspective, there is little difference between a tax and penalty. They both reduce disposable income.  In the long-run, payments and penalties will exceed the subsidized insurance payments because it is costly to collect taxes.  The income does not leave the economy.  This cost will consist in part in wages to new government employees that administer the ACA bureaucracy and those who interface with them in the private sector. 


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Tuesday, July 3, 2012

An Example of Age and Educational Success

Last week, I had a pleasant and useful conversation with an older student who described to me his past and current attempts at earning a BA degree. They sounded typical of a number of MCC’s students so I asked him to briefly describe his efforts.
I have attempted to complete my college degree on three different occasions, my current being my most successful. Right out of high school, my parents sent me to MCC to begin my college journey and my first semester was great, I went to classes and really studied. On my second semester, I realized that my professors did not care if I showed up to class, and there was no one to call my parents and let them know that I was not going. So I began it skip classes and got lured away from college by a full-time job, making what I thought was a lot of money. So my parents gave me an option. Finish College and they would pay for it, or I could quit and I would have to pay for any type of school later on my own. So off into the real world I went.
Fast forward 5 years, and I am now married and we are expecting our first born. Realizing that my full-time job was not going to be able to provide for my wife and child, I went back to school for my second try. This time, I was going to TSTC for computer networking, and this time, I was paying for everything myself. After about a year of schooling, I got a job at a local retail store as a department manager. I thought it over and spoke to my wife and I made a decision to quit school and focus on my career once again.
Now fast forward 10 more years. I have been promoted to a store manager and my career was doing very well. Then at one point I came to a stale mate. I was no longer up for promotions and I was not getting moved any longer. I looked around and tried to figure out what it was that I was doing wrong and I found nothing. What I did find out was that everyone at this level was just as good as me, if not better. We all had the same skill levels. The individuals that were getting promoted did have an advantage over me; they had actually finished their degrees. They all had Bachelors or Master Degrees. So, here we are at my third and final attempt at completing my Bachelor’s Degree in Business Mgmt. This time is different as I have learned from my previous mistakes. By continuing my college education, I have been able to see the rewards. I have been able to use some of my new found skills in my current role. By demonstrating to my current supervisors my drive and focus, I feel that I will once again be recognized.
Why is this student enjoying more success in his third attempt? Let me suggest a few possible explanations. He is older and older students are more focused. This is not a very satisfying explanation. Does aging cause physical changes that make us better students? Do additional years help us better measure benefits of a degree? During his first attempt at earning a degree, his parents paid the bill. Beginning with his second attempt—earning a computer networking degree for TSTC—he paid his own bills. Have skin in the game may increase effort but the real improvement did not come until his next attempt. His third attempt came after glancing up the corporate ladder and seeing that those above him all had degrees and really were as good as or better than him and that their edge probably came from their educations. Was necessity the mother of educational effort? His parting words of advice to students
Please learn from my mistakes and allow me to save some of you time, stay in school. There is no substitute.

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Sunday, July 1, 2012

Mismeasurement of the Cost of For-Profits?

The Obama and the Bush administrations distrust the quality of education offered by for-profit schools (John Hechiger and John Lauerman, “For-Profit Colleges May Lose Tax Money Under New Rules”).  The schools derive income from tuition paid largely by student loans.  Apparently, a high percentage of their students graduate with large student loans that they cannot payoff with income earned based on their degrees and taxpayers are left with the bill.

Is the government’s concern due in part to mismeasurement?  Public colleges and universities are subsidized by taxes and for-profit colleges are not.  Student loans may be a good estimate of the cost of the education at a for profit but a poor estimate of the cost at a public institution.  The tax subsidy per student at public institutions must be added to a student’s loan balance to more accurately compare the costs to the taxpayer.  Public institutions should undergo the same scrutiny as for-profits.   


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Friday, June 29, 2012

The Constitutionality of the Affordable Care Act

I am not an expert on Constitution law, so my opinion is of limited value but as you might have guessed, I will give an opinion anyway.  Yesterday’s decision on the Affordable Care Act is of course now constitutional law but it is not the decision I would have preferred.  The Constitution was written to limit governmental powers and the decision expands it by permitting the government to fine individuals through taxation for not buying health care.  As Richard Epstein, a professor of law at New York University, writes in “A Confused Opinion

Chief Justice Roberts has ignored this fundamental principle: If direct regulation is beyond the scope of the Commerce Clause (as he held), then taxation as an indirect route to the same regulation should be off limits as well (as he failed to hold). This is a baby that should not be split. His attempt to do so undermines his ruling, the court and the Constitution.

The Court has been swift to protect political rights but slow to protect economic rights.  The two are intertwined and both deserve protection. 


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Thursday, June 28, 2012

Hoover and the Great Depression

A student recently asked me about Herbert Hoover’s role in the Great Depression. To answer that question, I quote Robert Higgs from Crisis and Leviathan to describe his actions and to correct a common myth.
WHAT DID HOOVER DO? The traditional answer, of course, is nothing. If the man in the street remembers anything about Herbert Hoover it is that his middle name was Laissez-Faire and he did nothing while the American economy went to rack and ruin. As usual the knowledge of the man in the street leaves something to be desired. The popular remembrance of Hoover’s quiescence in the face of the depression is a myth. The Great Engineer may have had his faults, but fiddling while the economy burned was not one of them. “Do nothing” was never his motto; his middle name was actually Clark…
President Hoover rejected completely the liquidationist school of thought. He believed that the federal government could and should take actions to cushion and reverse the economic decline. As time passed and the government’s policies failed to arrest the contraction, the Hoover administration intervened more actively. Because later the New Deal went so much further, Hoover’s antidepression policies are customarily pilloried as at best “far too little, much too late”. Yet no previous administration had done nearly so much to remedy an economic bust. (In the presidential campaign of 1932, candidate Roosevelt criticized Hoover for failing to balance the budget).
Hoover‘s first action after the stock market crashed was to make reassuring speeches, a practice he continued throughout his unhappy term in office. This struck him as seemly-after all, if the President himself were to play the role of Chicken Little, what would the public do? It also comported with his theory of recovery. He believed that recovery hinged on a revival of private investment spending, which required an adequately optimistic state of “business confidence”. By maintaining a personally sanguine outlook, at least in his public pronouncements, Hoover hoped to encourage investors to pour their money into new factories and equipment. Although, he has been ridiculed ever since for his reassuring displays, they could hardly have done much harm.
Hoover next resorted to a series of meetings in November 1929 with the leaders of selected businesses, labor unions, and farm organizations. Ostensibly the parleys produced only choruses to sing in harmony with the President’s melody of optimism. (Apparently accomplishing nothing of substance, they inspired J.K. Galbraith to invent the amusing and insightful concept of the “no-business meeting”.)
But it is possible-one cannot know for sure-that the meetings did have an important effect, ironically a harmful effect. From the employers attending his conferences the President extracted a promise not to cut wages any faster than the cost of living declined. He believed that real wage cuts, besides being unfair and productive of strife, would reduce consumer purchasing power and thereby exacerbate the recession. Whether because of fidelity to the Presidents or for other reasons, many employers did not reduce money wages much until well into 1931. Meanwhile deflation proceeded apace. Workers who continued to receive the same money wage were getting an increasingly higher real wage. Given the extreme decline of the demand for labor, which happened to be greater in the sectors most refraining from wage cuts, a higher real wage implied a magnified reduction in the quantity of labor that employers would find it worthwhile to hire-that is, the increased real wage caused a great deal of unemployment. Unfortunately, as Lester Chandler has observed, the President “seems to have paid little attention to wage rates as a determinant of costs of production.”
Hoover backed various measures to stimulate federal spending and extensions of the government’s credit, including increased appropriations for public works and the Federal Land Banks, creation of the Agricultural Credit Banks and the Home Loan Banks, liberalization of the Federal Reserve Banks’ lending authority by the Glass-Steagall Act of 1932, and passage of Emergency Relief and Construction Act of 1932, which allowed the federal government to give (officially, to lend) the state governments funds to use for relief of the unemployed. Hoover also used his discretionary authority to reduce immigration-he supposed that an immigrant would either become a public charge or displace someone else from a job. To quiet the unsettling international disputes over reparations and war debts, he secured a moratorium on intergovernmental payments. None of this suggests a dogmatic adherence to laissez-faire…
The administration’s most important antidepression action, the creation of the Reconstruction Finance Corporation, clearly benefited from the emergency rationale and the wartime analogy. The RFC Act, which became law on January 22, 1932, was officially entitled, “An Act to provide emergency financing facilities for financial institutions, to aid in financing agriculture, commerce, and industry, and for other purposes.

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