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Brooks Wilson's Economics Blog

Saturday, November 24, 2018

Current Policy and Concurrent Economic Performance

Among people interested in politics, there is a natural desire to discover a positive relationship between their favorite party and good economic performance. I shared this belief, and it only faded slowly after many years of studying and teaching economics. Why shouldn’t many people share this belief? Our politicians certainly encourage it, taking credit for positive outcomes, and blaming opponents for negative outcomes. I have accumulated data on quarterly real GDP growth from the Reagan administration through the first two years of the Trump administration, and presented the data in a series of graphs to informally test the hypothesis that current policy influences current economic performance. As a note, fourth quarter 2018 growth during the Trump was estimated by the Atlanta Federal Reserve.
The first graph shows the quarterly growth of real GDP by administration from 1981 to the present. The data in red demarks the first term of a Republican president, and the data in blue, a Democrat president. Likewise, the light red reflects the second administration of a Republican president, and the light blue, a Democrat president. I could not visibly determine a difference in outcomes by party. Other readers may pick up trends that I missed.
The first histogram displays real GDP growth 88 quarters (22 years) of Republican administration and 64 quarters (16 years) of Democrat administrations. The red is the Republican, the blue, the democrat, and the purple, the overlap between the two parties. There are differences in the performance between the two parties. Republican administrations seem to have weathered the most severe downturns, and enjoyed the highest levels of economic growth. More striking is the overlap. The red represents the histogram of Republicans and the blue and purple, the Democrats. The distribution of growth between the two parties center around the same mean, 2.7 for the Republicans and 2.9 for the Democrats.
Picking on President Trump because he is the current president, and because he recently asserted that second quarter 2018 growth is “an economic turnaround of historic proportion,” the second histogram separates the Trump administration figures from the other Republican administrations. Growth to date for his administration averages 2.8%, splitting the difference between Democrats and other Republicans.

The final graph places real GDP quarterly growth by administration along with the average level of growth, and both a two standard deviations upper and lower band. Growth during the Trump administration is nothing out of the ordinary. It centers around the mean and does not approach the two standard deviation threshold. While disproving President Trump’s claim of historic growth, it also dispels the notion that Trump’s policies have already ruined the economy. 

The fact that current policies do not seem to immediately influence economic outcomes is not my belief alone. The European IGM Economic Experts Panel was recently asked to respond to the statement, “Voters overestimate the effect that current governments have on their economies’ concurrent economic performance.” Sixty-four percent of the respondents strongly agreed or agreed whereas only 4% strongly disagreed or disagreed. Six percent were uncertain, while 4% held no opinion, and the remaining 22% did not answer the question. As an aside, several of the economists surveyed offered valuable comments. 

There are many reasons why policy seems to have no immediate impact. We participate in a market economy, and the independent actions of economic agents attempting to maximize their outcomes might overwhelm the actions of any president or party. Perhaps policy of both parties is more similar than different. Autonomous agencies, like the Federal Reserve, might have more impact than presidential administration. Professional bureaucracies that span administrations may act as a ballast to policies that deviate from norms. Finally, both good and bad policies might take time before their impact is realized, and might not be easily associated with a past administration, suggesting that policy is important, but its impacts are often not immediate. .

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Friday, November 9, 2018

What Do Economists Think about Immigration

When I speak to friends about the impact of immigration, legal and illegal on the United States, they typically argue that the influx of workers causes a drop in wages.  The equilibrium wage drops as the supply of labor shifts outward. 

Increasing supply of labor is only a first step.  Immigrants also buy goods and services, leading to an increase in labor demand.  Wages rise as the demand for labor increases.  Which labor effect is the greatest determines if wages fall or increase with immigration. 
The impact of immigration on wages is only one question economists ask when studying immigration.  Given that they are our countries experts on the economy, it might be wise to learn what they have concluded.

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Saturday, November 22, 2014

Subsidiarity and Textbooks in Texas

The State of Texas approves school textbooks.  At best, it is a costly but meaningless exercise.  According to Fox News, “A 2011 state law allows school districts to buy books both on and off the board list.” 
At worst, it limits the democratic process by centralizing decision making at an unnecessarily concentrated level.  According to the Merriam-Webster Dictionary, subsidiarity is “a principle in social organization: functions which subordinate or local organizations perform effectively belong more properly to them than to a dominant central organization.” 
It is a principle that most conservatives accept.  It is a principle that politicians beyond the local level often ignore.  Governor elect Abbot show your conservative principles and dismantle this committee!

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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. 





Effective Tax Rate

First Quintile





Second Quintile





Third Quintile





Fourth Quintile





Highest Quintile





Breakdown of Highest Quintile        















Top 1 Percent





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,


(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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