Drezner also mentions that his own most influential publication was one making the obvious point that China’s ownership of a bunch of US bonds doesn’t give it leverage over America; a point people like Dean Baker and yours truly have also made. When you try to make this point to Beltway types, however, you encounter not so much disagreement as incredulity — “everyone” knows that China has immense power over us, “nobody” disagrees. Indeed, if you go to the link you’ll see that Dean was reacting to a news article that stated the Chinese power thing not as a dubious hypothesis but as simple fact.
I've made that point for about 13 years (after I taught Money and Capital Markets at UNCW ... at 8 am with a brand new baby after teaching a night class [what sort of sadist gives a guy that sort of schedule?]). How does China have power over us by holding our bonds? What are they going to do, sell them? Then the price of bonds goes down, interest rates spike, we have a recession and demand for Chinese exports fall. Also, they're holding our bonds so they can keep the value of their currency artificially low.
Tuesday, Feb. 18, "Inequality for All", hosted by Belk Library, takes a closer look at the vicious cycle most middle class Americans are facing with the current economic status. "This movie is critically important. It exposes the heart of our economic problem. Something that’s been getting worse and worse for over 30 years. Widening inequality."
Film is followed by a brief panel discussion about income ineqaulity.
Dr. Alan Singer -James Holshouser Distinguished Professor of Ethics at Appalachian
Dr. John Whitehead -Professor in the Department of Economics
Dr. Hugh Hindmand -Professor of Labor & Human Resources
Christian Shelton - President, Appalachian Economics Club
Sponsor: Office of Sustainability
Yikes. A few films ago the panel griped about economics. I had sent my senior seminar class and they thought it was unfair. I griped to the film series people and now I can't say no when they ask me to do it!
There is nothing in Mankiw's article to make anyone irate. He describes why very talented people may make very large piles of money and then explains that they pay a lot in taxes:
A reliable tax system is also important to ensure that the wealthy pay their fair share to support the public weal. That is generally the case. Our tax system is far from perfect and is arguably in dire need of reform, but examples of the tax-dodging wealthy are not at all the norm.
The Tax Policy Center estimates that in 2013, the top one-tenth of 1 percent of the income distribution, those earning more than $2.7 million, paid 33.8 percent of their income in federal taxes. By contrast, the middle class, defined as the middle fifth of the income distribution, paid just 12.4 percent.
So, by delivering extraordinary performances in hit films, top stars may do more than entertain millions of moviegoers and make themselves rich in the process. They may also contribute many millions in federal taxes, and other millions in state taxes. And those millions help fund schools, police departments and national defense for the rest of us.
The thing that should make one gasp is that Mankiw may be the most famous proponent of lower income taxes for the rich and, apparently, the editor cut another plea for lower taxes on upper income people from today's piece.
Here is an excerpt from an article where he describes how one rich guy works less because of high taxes (and here is an earlier blog post). He goes on to suggest that the non-rich bear much of the burden because we won't be able to enjoy movies, sports and orthodontic services as those workers cut back on their labor:
Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.
Has there been a study that ties the price of braces to the marginal tax rate?
And you also wonder if the key component of the Pigou Club is not the optimal taxation of energy but the revenue neutrality of energy taxes (i.e., the increased energy taxes would be offset by lower income taxes) [to be fair, this longer article in the Eastern Economic Journal never mentions reducing taxes on the rich; it's free here].
I don't think Mankiw understands what makes people irate. It is not so much the market based wages that upper income people earn, it is the argument for an upper income tax cut (i.e., making Bush tax cuts permanent) that is greater than U.S. per capita income.
Mankiw argues that our tax system is fair because the top 0.1 percent pays a higher share of income in federal taxes than the middle class. This neglects the partial offset of this progressivity by regressive state and local taxes. But surely the main point is that to the extent that taxes on the 0.1 percent are high (they aren’t really, in historical context) that’s largely because Mitt Romney lost the 2012 election, so that Obama’s partial rollback of the Bush tax cuts and the high-income surcharges that partially finance health reform remained in place and the Ryan budget didn’t happen. It’s kind of funny to claim that our system is fair thanks to policies that you and your friends tried desperately to kill.
I'm no expert on European macroeconomics, but my casual reading suggests that climate policy isn't necessarily the villain here:
For years, Europe has tried to set the global standard for climate-change regulation, creating tough rules on emissions, mandating more use of renewable energy sources and arguably sacrificing some economic growth in the name of saving the planet.
But now even Europe seems to be hitting its environmentalist limits.
High energy costs, declining industrial competitiveness and a recognition that the economy is unlikely to rebound strongly any time soon are leading policy makers to begin easing up in their drive for more aggressive climate regulation.
On Wednesday, the European Union proposed an end to binding national targets for renewable energy production after 2020. Instead, it substituted an overall European goal that is likely to be much harder to enforce. ...
Europe pressed ahead on other fronts, aiming for a cut of 40 percent in Europe’s carbon emissions by 2030, double the current target of 20 percent by 2020. Officials said the new proposals were not evidence of diminished commitment to environmental discipline but reflected the complicated reality of bringing the 28 countries of the European Union together behind a policy. ...
But the proposals were seen as a substantial backtrack by environmental groups, and evidence that economic factors were starting to influence the climate debate in ways they previously had not in Europe. ...
The British government, a frequent critic of what it sees as moves by the European Union that inhibit economic performance, welcomed the proposals. It singled out for praise the scrapping of national targets for renewable energy in favor of an overall goal of producing 27 percent of Europe’s energy from renewables by 2030, an approach that will leave countries battling among themselves over who should do more.
88% of AERE survey respondents disagree that “we should wait until the economy gets better before we make the environment a major policy priority” and 84% disagree that “we worry too much about the future of the environment and not enough about prices and jobs today.”
And actually, the policy change makes good sense. A well designed climate policy, either an efficient carbon tax or cap-and-trade cap would provide sufficient incentives to pursue the efficient amount of renewable energy (whatever that may be). No renewable energy standards would be necessary.
If any of my co-authors, journal editors looking for referee reports, students or administrators expect any work out of me, please note that Watauga County schools have been closed all week. Today the culprit is "black ice on secondary roads."
... last July, North Carolina sharply cut its unemployment program, reducing the maximum number of weeks of benefits to 20 from 73 and reducing the maximum weekly benefit as well.
The rest of the country is now following North Carolina’s lead. A federal program supplying extra weeks of benefits to the long-term unemployed expired at the end of 2013, and congressional Democrats failed in an effort to revive it. About 1.3 million jobless workers received their last payment on Dec. 28. Starting on Jan. 1, the maximum period of unemployment payments dropped to 26 weeks in most states, down from as much as 73 weeks.
With that move, the country’s safety net for jobless workers has undergone a sudden transformation, from one aimed at providing modest but sustained protection to workers weathering a tough labor market to one intended to give relatively short-term aid before spurring workers to accept a job, any job.
It is still early, but the results in North Carolina suggest that there are both gains and losses from cutting back on support for the jobless. The state’s unemployment rate has plummeted to 7.4 percent from 8.8 percent, the sharpest drop in the country. In part, that is because more jobless workers are connecting with work. But an even greater number of workers have simply given up on finding a job. ...
Nonpartisan economists said it was difficult to definitively show the impact of the change to the unemployment insurance program on the state’s labor market. Employment increased from June through November by more than 22,000 people (reaching a total of over 4.3 million). But for every worker who found a job, more than two dropped out of the labor force entirely, according to the latest survey by the Bureau of Labor Statistics, which recorded a decline of over 50,000 from June through November.
It is hard to separate the effects of the unemployment cutbacks from overall changes in the regional and national economy.
The unemployment rate is one of the worst macroeconomic indicators because it can improve (go lower) when macro conditions worsen (people drop out of the labor force by discontinuing their job search).
Usually when Snuffy Smith makes a joke about “th’ economy” they at least take a stab at putting “haw haw our community is very far outside the economic mainstream” at the center of the joke. This one mostly seems like an “old hillbillies say the darndest things when they misconstrue extremely common English-language idioms” gag which is pretty weak. It’s not helping that Lukey is shouting the punchline at us at the top of his lungs for no reason in panel two. “I said, I never heard it leave!! Get it? Get it? Eh? I’m being deliberately obtuse, for laughs?”
The Bet is Yale University historian Paul Sabin's (no relation to Nick) telling of the story and political culture surrounding Paul Ehrlich and Julian Simon's 1980-1990 $1,000 bet over the Hotelling rule. OK, it wasn't really over the Hotelling rule, but it was about Hotelling-like predictions of changes in depletable resource prices. In particular, the bet focused on the change in prices of five metals (Copper, tin, chromium, nickel and tungsten--I think they made that last one up) over a 10 year period. Whack-job dooms-day ecologist Paul Ehrlich--OK, that's unfair to Ehrlich, he is a butterfly biologist, not an ecologist (is that biased?)--famously predicted throughout the late 1960's and 1970's the coming cataclysmic collapse of the Earth's environmental/ecological systems due to natural limits and exponential population growth.
In short, Ehrlich believed that humans are but one part of the broad ecosystem, and subject to all of the natural laws and limits that come with being part of that system--including species collapse due to exceeding the system's natural carrying capacity. Ehrlich was the loudest voice of the early zero-economic growth movement (and a contemporary of the Club of Rome and Limits to Growth). One observable indicator of Ehrlich's and his colleagues' dire predictions would be the Hotelling-like rise in depletable resource prices over time. As resources become more scarce (reach their natural limits), prices would have to rise. This is a somewhat ironic prediction from Ehrlich given the lack of price rationing in the Limits to Growth-type models of world collapse, but I digress.
Julian Simon, a mild-manned Chicago-trained University of Illinois professor of marketing (who eventually ended up in the University of Maryland School of Business), disagreed with Ehrlich's basic premise that population growth necessarily strained the natural limits of the ecosystem and instead argued that scarcity creates increasing opportunity costs and opportunities for investment, exploration, discovery, innovation and development of subsitute forms of capital. In short, Simon the economist argued that the simple form of Hotelling (prices rise in response to increasing scarcity) was correct, but the extension needs to be accounted for--increasing prices create incentives for the generation/investment/invention of alternative resources. Simon believes that increased in population actually increased general well being, increased the stock of human capital and would ultimately result in the creation of substitute pools of resources (whether natural or man-made). Simon believed that man-made capital would remain substitutable for depleted natural capital and resource prices would fall.
In the end, Simon won the bet and Ehrlich paid off without much fanfare. But in Sabin's view, the bet highlighted a growing set of divides: The academic divide between ecoologists and economists on matters of the environment, the philosophical divide between growthers and zero-growthers, and the political divide between the left and the right over matters of economic management. Sabin does an intriguing job of couching the bet within the heated political environment of the 1970's and 80's tracing the environmental movement through the national political scene from the environmental conservatism of Nixon, to the limited growth/strict conservation advocacy of Carter (not much mention of Ford), to the deregulated free-marketism of Reagan. In the end Sabin draws lessons from both Ehrlich and Simon to make a strong and lucid case for a middle ground between the coercive population reduction arguments of Ehrlich and the free-market environmentalism of Simon.
On a personal note, I found the book particularly useful at providing a different perspective on my own training in environmental economics. Beginning my graduate training in 1991, the year after the bet ended, the foundations of market-based environmental interventions had already been accepted by most economists and much of the mainstream public (to varying degrees of course). "The Bet" provides an interesting, easy-to-read introduction to the muddy politics and social setting that served as a backdrop for the development and relevance of the field of environmental economics. The political and public context provided by "The Bet" has helped to provide me with a much better understanding of how I ended up thinking like I do about environmental issues.
The Car Allowance Rebate System (CARS) or “cash for clunkers” program, launched during the height of the recession with the intention of stimulating the economy, creating jobs, and reducing emissions, was actually far more expensive per job created than alternative fiscal stimulus programs. Ted Gayer and Emily Parker have performed a wide-spread evaluation of the various aspects of the program, from numbers of vehicles traded-in to impact on GDP, cost per job, environmental impact and the types of consumers who took advantage of the program. Among other conclusions, they found that:
The $2.85 billion program provided a short-term boost in vehicle sales, but the small increase in employment came at a far higher implied cost per job created ($1.4 million) than other fiscal stimulus programs, such as increasing unemployment aid, reducing employers’ and employees' payroll taxes, or allowing the expensing of investment costs.
Total emissions reduction was not substantial because only about half a percent of all vehicles in the United States were the new, more energy-efficient CARS vehicles.
The program resulted in a small gasoline reduction equivalent only to about 2 to 8 days’ worth of current usage.
In terms of distributional effects, compared to households that purchased a new or used vehicle in 2009 without a voucher, CARS program participants had a higher before-tax income, were older, more likely to be white, more likely to own a home, and more likely to have a high-school and a college degree.
And you thought the debt ceiling fight was about government spending ... ha! it's about water resources:
For the second week in a row, the House will consider legislation aimed at boosting federal funding for a water project along the Kentucky and Illinois border.
Last week, the House and Senate approved a debt-ceiling bill that authorizes up to $2.9 billion for the Olmsted Locks and Dam Project on the lower Ohio River. That's a $1.2 billion increase above the project's current authorization level, a bump that prompted some to criticize it as a "Kentucky kickback" for Senate Minority Leader Mitch McConnell (R-Ky.).
This week, the House will take up legislation that would increase the extent to which taxpayers pick up the cost of the project.
Under current law, water projects around the country are paid for through a 50-50 split between taxpayers and the Inland Waterways Trust Fund. That fund is similar to the gasoline tax for automobiles — a fuel tax is assessed on inland waterways users, and the money is used to maintain and repair those waterways.
The Water Resources Reform and Development Act, H.R. 3080, includes language in Section 216 that would require taxpayers to shoulder 75 percent of the costs for the Olmsted Project, instead of 50 percent. Under the bill, the trust fund would pay for the other 25 percent.
That bill could get a final House vote as early as Wednesday. If Section 216 remains intact, taxpayers will pay for $900 million of the
SEC. 216. PRESERVING THE INLAND WATERWAY TRUST FUND.
(1) IN GENERAL- Notwithstanding section 102(a) of the Water Resources Development Act of 1986 (33 U.S.C. 2212(a)), for each fiscal year beginning after the date of enactment of this Act, 25 percent of the cost of construction for the Olmsted Project shall be paid from amounts appropriated from the Inland Waterways Trust Fund. ...
"This blog aims to look at more of the microeconomic ideas that can be used toward environmental ends. Bringing to bear a large quantity of external sources and articles, this blog presents a clear vision of what economic environmentalism can be."
... the Environmental Economics blog ... is now the default homepage on my browser (but then again, I guess I am a wonk -- a word I learned on the E.E. blog). That is a very nice service to the profession. -- Anonymous
"... I try and read the blog everyday and have pointed it out to other faculty who have their students read it for class. It is truly one of the best things in the blogosphere." -- Anonymous