When Working Hurts

We know that people appreciate the things they work for.  That people tend to care for and maintain those things that have taken effort to acquire.  So for no other reason (though there are many others) the balance would seem to stand in favor of making sure that people have the incentive to continue working, or to start working.  Oh, and working adults, if they are employed through mutual voluntary exchange, create this thing for society called wealth.

But...a couple of years ago a study was conducted about the implicit marginal tax rate faced by people on the low skill / low income side of the equation.  What is "implicit marginal tax?"  Simply the percentage amount by which the paycheck of a worker is reduced as they earn more money.  This takes into account not only the increasing types and rates of taxes they must pay, but also their advancing ineligibility for federal and state hardship aid of various kinds.  For example, if I make an additional $10,000 and am taxed 10%, it looks like my marginal tax rate for that $10K is 10%.  However, if by making that $10K I am now too "rich" for $5K of housing assistance, my implicit marginal tax rate is now 60%!  So by working hard and earning $10K, I have only made myself $4K better off!

And it gets worse.  These charts are from this column.




And...



Essentially, if you earn between $25,000 and $50,000/year, each additional dollar of income you earn results in the LOSS of MORE than a dollar of buying power.

Remind me, what is the message we want to send to the younger generation, those getting in on the ground floor of their working lives? 

Wouldn't/Doesn't Surprise Me

Maybe not real, but the fact that if real, I wouldn't be surprised in the least speaks volumes about bureaucrats and government rules. 

Apollo 11 astronauts had to go through customs upon returning from the moon.

Awesome Essay on the Cost of Business

Read this.  Seriously, you won't thank me, but you need to know.  The author is an experienced accountant, speaking about his experiences with the cost of doing business in this country. 

Wow. I wonder what value I could’ve been adding to my company during that instead of creating multiple phone book sized reconcilliations that no government employee will actually ever read. However, if I’d failed to spend hundreds of hours producing these useless documents, we’d have gotten fined and put out of business.

 And...

 You want employees? Get ready for the DoL. Better get your EEOC reports done on time (one of the only places left where anyone actually gives a damn what color you are). When I opened my first business, I was rather surprised to discover that I had to contact 5 different state and federal entities before I could hire my first employee. You want to actually build something? Get ready for OHSA and the EPA. The approvals alone will eat up an eternity of time you could be productive. And you’d darn well better make sure you do your quarterly filings with the IRS and your state tax commission, or they will eat you.

Finally...

 Ken Salazar put thousands of men out of work in eastern Utah with the stroke of a pen. Then they did the same thing in the gulf. Now Canadians are having to hire Americans to fill all their many job openings. Think about that… Canada. Friggin’ Canada is kicking our asses! They were all like, “Hey, we’re all out of jobs, eh? But under our feet is stuff worth money. Maybe we should dig it up and sell it, eh?”

Abdicating Responsibility

When people choose to let others make their decisions for them, they have to live by the decisions of others.  Reflect on this: People told government to "do something" about kids eating unhealthy food.  Government decides that the best way to help kids eat healthy is to prohibit food manufacturers from advertising unhealthy foods to kids. 

As a result, among other things, you will no longer see Ballpark Franks advertised at sporting events.  

Presentation to Titan Society

Tonight I am presenting to the Titan Society.  Among other topics, we will be discussing the contents of this column.   From Alhambra Associates, a financial consulting firm, the column details all actions by the BHO administration in a one week period of time that would give pause to business. 

Research by Crowd (of gamers)

The "Wisdom of Crowds" is an economic idea that has been around for a while.  Basically the idea that a large group of people will possess many little bits of information that, if properly assembled, can solve even very complex and difficult problems.  The trick is getting the holders of the information to assemble it.  You can have a contest (guess the weight of a steer at the fair), allow people to "invest" their knowledge (political betting markets), or you can CREATE A GAME. 

Pretty cool.  The potential of using the creative and problem solving skills of diverse people, especially if they don't know they are solving problems is fairly incredible. 

What other problems could we solve? 

White House vs. Reality

Will companies keep their employer-provided health care as the health care reform act take full effect? Will your employer?  A new survey suggests that many businesses will drop their coverage - a suggestion strenuously denied by the WH.  Look though at the sources of the WH's denial; each one is a fairly partisan politically inclined think-tank, whereas the original study comes from a professional HR support services company.  The profitability of a HR service company depends on its ability to predict such things accurately. 

http://market-ticker.denninger.net/archives/1039-Thuggery-And-Mob-Action,-Government-Style.html

"Batch" vs "Real Time"

http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell?currentPage=all

Great article on Uncertainty

HERE you find a great article on why the US government should pick its poison and stop mucking about, hemming and hawing, regarding how they will deal with the "financial crisis."

Lions, Tigers, and Bears - Oh My!

First, the $2 Trillion in federal bailout loans that the Federal Reserve is refusing to identify the recipients of. The only justified reason I can think of, off the top of my head, that they would have for not releasing the data is that the recipients are businesses that investors would be shocked and disturbed to learn were in need of a bailout. Butttttt..... It seems that if it is illegal for a company to misrepresent its earnings, it is at least shady for the purchasing of that companies stock by the government in a bailout fashion - or even emergency loans from the FED. Also, shouldn't the very fact that the FED isn't being transparent in their actions make investors less secure?

Second - Obama has appointed Michigan governor Jennifer Granholm to his council of economic advisers. Yes, that's right, the same Granholm who has demolished the Michigan economy in six years. She thought it was smart to "close" a state budget shortfall by raising the tax on gas this summer, raising the taxes on small businesses, and expanding the scope of the sales tax.

No wonder it costs 300% as much to hire a moving service to move you out of Michigan as to move you in. Supply and demand and all that.

More later. Sure is a lot of stupidness going on right now.

Median Voter Theory

So, one of the primary theories in Public Choice Economics is the Median Voter Theory. Basically, this says that politicians will move toward the center in an attempt to garner votes. In the past this has typically meant that hard-left politicians moved away from socialist ideas. However, this entire election cycle I have been struck with the realization and fact that this has not in fact happened. Sure, the candidates have moved toward the center on certain, key, issues, but overall they have taken great pains to be very far apart. In fact, the Democrat as even taken great pains to proclaim his allegiance to socialist ideals on many occasions.

This doesn't mean that MVT is dead, but rather I think it means that the American electorate is deeply divided. Yeah, I know, big surprise. But it also means problems for stability and business climate. See, businesses and investors like stability. They like knowing what to expect. But having such a close election and two candidates saying and planning such very different things is the antithesis of stability.

Interesting.

Just a little bit scary Part 2

Here's something interesting. Just a look at the crazy bills that have been stopped in the senate b/c the Republicans currently have enough votes to filibuster (or threaten to do so). If the Dems win big this fall, several or all of these bills may be re-introduced - and, regardless of your personal proclivities, this slate of bills is objectively bad for the nation. Unless, of course, your goal is to remove the necessity and even the ability for individuals to take care of themselves and run their businesses.

Here's a snippet, but read the article yourself.

Just a little bit scary

So we now know that the federal government - and the treasury department in particular - has "essentially forced" nine major US banks to accept the government bailout. To accept partial government ownership of their company. From today Wall Street Journal:

While the program is voluntary, Treasury essentially forced nine major U.S. banks to agree to take $125 billion from the federal government. Treasury will buy $25 billion in preferred stock from Bank of America -- including soon-to-be acquired Merrill Lynch -- as well as from J.P. Morgan and Citigroup; $25 billion from Wells Fargo & Co.; $10 billion from Goldman Sachs Group Inc. and Morgan Stanley; $3 billion from Bank of New York Mellon; and about $2 billion from State Street. The remainder will be available to small and medium-size institutions that apply for an investment.

So, we have government requiring that private business sell a portion of their business to the government for the supposed good of the nation.

Are you comfortable with that? I, certainly, am not.

B HO 's tax plan and economist angst

Many economists (including several Nobel Prize winners) have signed a letter opposing Obama's tax plan.

I whole heartedly agree. This is the Link, and the key paragraph.

We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.

Krugman and the Nobel Prize

I'm not going to beat a horse that's already moving, so rather than re-analyze the awarding of the Nobel Prize to Paul Krugman, I'll let economic minds with more institutional knowledge than mine have their say.

http://www.marginalrevolution.com/marginalrevolution/2008/10/what-is-new-tra.html

http://www.marginalrevolution.com/marginalrevolution/2008/10/paul-krugman-wi.html

http://www.marginalrevolution.com/marginalrevolution/2004/07/paul_krugman_gu.html


Well, I might say a few words.

Krugman can easily and truly be said to be the best-known and most popular left-wing economist in the United States, if not the world. Interestingly, though he is in favor of several government interventions that I'm uncomfortable with, Krugman's economic ideals are much, much closer to mine than are those of most politicians from either party.

His Nobel was technically awarded for his work on trade theory (much of which I was actually unaware of), but many economists feel that this award also signals the importance of social and policy relevance to the work of an economist. I agree. There is no point to theory if that theory cannot be used to better society in some fashion.

However, despite the undeniable successes that Krugman has achieved in issues of trade, he has also unquestionably fallen flat on his face regarding basic economic thinking. Please read this article!

Wow - what a ride.

So it's been a while, but times have been crazy. I've been spending more than 2 hours every day just trying to stay up on the current issues in the economy so I can answer the questions from my students and colleagues.

And there's a lot I could say.

But I won't, at least not right now.

Well, perhaps I'll say something.

In economics there is this concept called "regime uncertainty". Basically, the idea is that investors and businessmen will be less willing to take an active role in the economy if they have uncertainty about the future "regime". In the US this translates into "wow, the .gov just passed a $700B spending bill that tremendously expands federal power. I wonder how this will effect the future of business in the United States?"

GROWTH!

The economy grew last quarter. A lot. Especially compared to recent quarters. 3.3% Now, we don't know if it will continue to grow at such a pace - apparently there are concerns about some level of worldwide economic draw-down.

Rainy Day Sale

A rainy day here at PHC. While going to lunch I noticed that the bookstore was having a "rainy day sale" on umbrellas.

My economist sense tingled.

Hmmm....

You see where I'm going with this - a store interested in making money should not decrease the price of an item just as the demand increases (as for umbrellas when the sky leaks). The customers demand or desire for an item is at least partially influenced by perceived need. Your perceived need for an umbrella increases when liquid steam is falling from the sky. So, in general, customers will be more willing to purchase umbrellas and the store should increase prices.

But they didn't. They reduced prices.

Why?

I see two options. First - the PHC college bookstore exists not to make money, but to serve the students so they reduced umbrella prices in the students' day of (wet) need. Second - the bookstore does intend to make money, but umbrellas are a poor seller and the bookstore is taking advantage of the rain to get them to move off the shelves.

I'll have to ask the bookstore staff....

Dollar is up

And my optimism over the last year has made people look at me like I have two heads. Well, the housing market is beginning to turn back around (at least in the DC area) and the dollar is moving back up.

Olympic Pride - Pride of the Nation or Pride of the State?

Just a quick thought tonight.

Nations around the world sponsor training facilities and camps for their Olympic and potential Olympic athletes. True (well, with a few exceptions, such as Togo). However, there are some nations that certainly seem to pour significantly more resources than others into their national athletes. Not only money, but various nations, through the years and currently, have also sequestered large numbers of young people in athletic training camps.

A tremendous expense, of people and of money. And it pays off - to some extent, and for as long as the money flows. For what? National prestige? Now, I'm glad the U.S.A. wins medals. But I'm also glad that the U.S. gov doesn't take hundreds of children with promising genetic structure and house them in training camps for 15 or more years.

But this is really beside the point. Or, at least, beside the point I was originally thinking of.

My initial thought was this. Most nations draw their athletes from trials, at which the top athletes compete to represent their nation. These athletes could have chosen to follow another path, to do something else (or many somethings) with their 4-8 hours a day that they spent practicing, but instead they practiced. They love their sport.

Other nations - East Germany, Soviet Russia, China today, and others - draw their athletes from state-run training camps. These athletes have much less choice of pursuits.

When an athlete from the first group of nations wins a medal does it better represent the sporting spirit and pride of the national population or of the government? What about those athletes from the second group of nations?

Then ask yourself this. Why do nations feel the need to go to such extremes to clinch victory in sporting events? And, if they are willing to go this far for sports, how far will they go in other situations?

Labor and Capital

Tonight I visited a local fast food establishment to grab something on my way home from the college. In most respects this is a very typical establishment, but it normally stands out in one notable way. Rather than giving your drive-through order to a voice-box, you give your order to a live person standing by the menu board. And this is no temporary situation - there is almost always a person stationed outside by the menu.

Today the order-taker was, as usual, stationed outside. Additionally there was a second employee outside, running up and down the lane, taking money/credit cards, giving the payment to the teller inside, and returning change/cards to each vehicle. I'm not sure why the manager chose to do this (pay a second employee to collect payments), but let's take a brief look at the economics in play.

Any producer must make a wise choice between investing in capital (equipment, machines, etc...), labor (manpower), or some combination of the two. Both are usually necessary for the production of goods or services. At the local fast-food establishment, the manager made a choice between upgrading his order-processing equipment and paying additional people. The producer (the manager in this case) will typically make the choice based on a comparison of cost and productivity for each additional unit of labor or capital.

From what I observed today, I can only conclude that the local manager believes that it is better (leading to greater net profit) to hire two additional people beyond what similar establishments usually employ than to upgrade the capital. In this case "capital" may include capability of the person working the registrar (who usually handles orders and taking payment as well). Therefore, because most fast-food establishments choose the capital route, I must conclude that either the capital improvements are for some reason unavailable or that labor is particularly cheap for this particular manager.

"In a hurry, will pay"

One of the persistent dreams for future transportation is a road/vehicle/transportation network in which personal vehicles (cars) talk to each other. The hoped-for result is to create a smoother traffic flow with fewer (or no) traffic jams or accidents.

If cars are talking to each other, then it should be entirely possible for you to program your vehicle to offer to pay/bribe other vehicles (and their occupying passengers) to move our of your way. Emergency vehicles will already, I expect, have this power - - so why not create a system that allows your car to implement the same "get out of my way" program for a price?

But such a system might not be so simple. In many urban areas (especially DC) everyone will program their cars to scream "I AM IMPORTANT! MOVE!!!" And because everyone has programmed their vehicles to be important, no one will move, and no one will benefit.

To solve this impasse we turn to the economist's favorite tool - pricing. For most economists, the creation and function of prices is the equivalent of duct tape, a good knife, all-purpose oil/grease, and adjustable pliers all rolled into one. Prices hold things together, allowing people within a market to trade with each other and function as one unit. Prices remove and separate unwanted or unproductive portions of the economic structure, resulting in concentration of resources on productive uses. Prices speed and smooth interaction between the various elements of an economy, allowing greatly reduced friction (transaction cost) and less wasted energy. Prices continually adjust to best regulate the good or service being traded, adjusting much faster and more precisely than human-controlled mechanisms ever could.

But how do prices help us solve our priority-auto-driving problem? Well, the simplest way would be to have each driver program a price at which (s)he is willing to move out of the way for other drivers. In this case your vehicle would automatically accept a move request, and payment, from the vehicle of a driver who is willing to pay more than the minimum you have set. You could even allow drivers to change their prices on the fly. Say you have an important meeting to rush to. You set your "priority price" at $0.75 and set off. Many people move out of your way, but as traffic gets heavy and you are forced to slow, you look up from your laptop and instruct your car to offer $0.80. That doesn't free you, so you increase your "bid" to a full $1.00. That does the trick, and you are soon zooming on your way.

You, as the driver, may also opt to allow your car to automatically increase your bid to whatever level is necessary (or some maximum you pre-select) to buy speedy passage.

Both of these methods are, however, potentially subject to what economists call the "holdout problem."

Presumably, drivers of vehicles would be able to set not only their "priority price" - the price they will pay to pass others - but also their "move aside price", the price they expect to receive before they will reduce their own speed or change lanes for someone else.

A holdout would potentially occur if, for example, you are trying to hurry your way through heavy traffic and, instead of allowing you to pay them and move out of your way, the vehicle in front of you sees your hurry and simply increases its prices. Dramatically. Before you know it, you might be asked to pay $50 or more before the person in front of you will move out of the lane.

One potential way of solving this problem would be to program your vehicle to hold a brief, almost instantaneous, auction. By communicating with the vehicles in relevant positions around you, your car could determine whether it would be cheaper/faster to negotiate a path around the recalcitrant vehicle in front of you rather than buy him off. Though you may run into areas (especially around DC) where everyone expects a fair amount to cede right-of-way, peoples' self-interest should give them enough incentive to accept your offer before someone else does.

Olympic Thoughts

I wonder if any economist has ever run an analysis of national spending for Olympic games. In particular, watching the opening ceremony for the summer games in Beijing, I was struck by how much of the ceremony was directly focused on the history and glory of China. Now, I know that every host nation does its fair share of strutting, but I wonder if nations with a more command-type central political structure tend to spend more on Olympic opening ceremonies?

Oil Prices

I don't really have anything earth-shaking to say, but I know that oil and gas prices have been large in peoples' minds and pocketbooks.

Oil prices are going down. Despite explosions and further uncertainties of supply. See This, and This. This is a good thing, but I hope it doesn'(though it probably will) take focus and impetus away the various domestic oil production/replacement possibilities. Just to make sure you don't misunderstand, I don't think such schemes are necessary for any nationalistic/environmental/global warming reason, but rather for reasons that there seems to be decent statistical information that links (relatively) cheap energy with greater rates of economic growth around the world. And I like economic growth because nothing else comes close to being as effective at lifting people from poverty and saving lives. Economic growth also gives people more slack in life to pursue political/personal/religious freedoms.

Why are oil prices falling? Probably due to a variety of factors - but all are related to supply and demand. Iraq is restarting exploration, Saudi Arabia is signaling that they may increase supply, the summer driving season is slacking off, world oil/gas consumers have (slightly) decreased consumption,

High oil prices were never the doomsday scenario that many people assumed they were, but I'm comfortable seeing them decrease.

Mulligan

Ok, so I didn't really start posting again like I said I was going to. The dissertation topic is still in process also - well, I have a topic, but haven't presented it yet. But now I'm finished with my set-term job at the Charles Koch Foundation and I'm joining the Patrick Henry College faculty full-time.

And I'm moving (again, just moved in June '08).

And I'm getting married! Yeah!

And Nicole and I are trying to buy a house.

Despite all of this I'm trying to get back into the routine of regularly commenting on economic affairs.

Let's see how this goes.

Overton Window Follow Up

So I've decided that I won't be posting my scholarly writings on Overton Window Theory. Primarily because I plan to do more with them in the future, but also because, well, I just don't have time right now to clean them up and bring them up to speed with my current thinking.

However, just in case anyone finds their way here after reading discussions regarding the Overton Window that have taken place on several Internet discussion boards, I would like to point out that the whole idea behind Overton Window Theory is not for it to be a grand strategic design of the conspiratorial right-wing. Rather, OWT is simply a tool to explain what a think-tank does and to help people understand how a think-tank or public research organization can have an impact on public policy.

In reality, the entire concept of the Overton Window is merely a further example of a fundamental economic trait - one that I have picked-up over the years and one that Joe Overton apparently possessed. That trait is the naming of and fitting complex theories to common truths/mechanics that have been occurring of their own accord, happily un-named. Then along comes an economist, joyously declaring "look, supply and demand" or "hey, let's formalize how think-tanks impact policy."

And that is really what the Overton Window is all about - the formalization of think-tank workings and influence in a way that can be understood by just about anyone, and yet is also of interest to the most highly educated economists and public policy nuts.



Oh, and the impetus behind this post? My recent discovery that my Current Comment for the Mackinac Center for Public Policy (on Overton Window Theory) was the second most read CC of 2006, that there is a Wikipedia page for OWT, and that the concept of OWT was picked up by several blogs holding views very different from MCPP's limited-government, free-market, ideals. Do a search for "Overton Window" and you will see what I've seen - with the exception of my academic stuff.

Here is the ranking of MCPP CCs.

Here is the original MCPP article.

Here is my previous blog posting on the Overton Window.
(similar to the previous, but I like it a little more)