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Exactly.. Coase Doesn't Apply to Air PollutionEclectecon takes the bait:
The Coase Theorem holds ONLY if transaction costs are low or zero. They clearly are not in the case of air pollution.Exactly. So on the topic of air pollution, lets never hear of Coase's theorem again - as we did here, here, here, here, here, here, here, etc. etc. Thursday May 15, 2008 | permalink | comments (2) The 1970s were a horrible periodAccording to Janet Yellen, president of the San Francisco Federal Reserve Bank:
"The 1970s were a horrible period. If there's one thing that has to be very high priority, we don't want to go back to a period that is anything like that," she said, critiquing presentations on the economy at a symposium for college students in Tacoma, Washington...H/t: William J. Polley. This is an issue I have discussed a few times - see here. If there is one economic issue I am worried about, it isn't rising oil prices and peak oil. It isn't rising food prices. It isn't this housing mess or problems with financial firms. It is that we did not learn our lessons the first time and U.S. monetary policy will bring on another period of stagflation. it certainly isn't the end of the world if it does happen - it'd be more like a bad rash to the economy rather than a gunshot wound. That being said, I really hope my fears are unfounded. Thursday May 15, 2008 | permalink | comments (0) Air Pollution Externalities and CrimeFelix Salmon - How Unleaded Gasoline Slashed the Violent Crime Rate:
...The main result of the paper is that changes in childhood lead exposure are responsible for a 56% drop in violent crime in the 1990s.That is a pretty striking result. I am not sure if I entirely believe the 56% number, but I cannot see anything wrong with the methodology. Even if the true figure is half of that finding, it is a remarkable result. Two questions for the Coase-lovers out there?
Thursday May 15, 2008 | permalink | comments (2) How Do High Small Business Corporate Tax Rates Hurt The Economy?I tend to think of the deadweight loss associated with high tax rates being due to substitution effects. However, if you ask an MBA student about why taxes hurt business and the economy, in my experience they will, without fail, give you a story about income effects - if you take money out of the (metaphorical) pockets of business, they will have less resources to invest (and therefore invest less).
Having founded and worked in a small business for 3+ years, I am starting to think that the MBA's are correct to emphasis income effects. In How Do High Small Business Corporate Tax Rates Hurt The Economy? I explain why. Tuesday May 13, 2008 | permalink | comments (1) The U.S. Government Subsidizes Every Type of ElectricityFrom the Wall Street Journal:
Some clarity comes from the U.S. Energy Information Administration (EIA), an independent federal agency that tried to quantify government spending on energy production in 2007. The agency reports that the total taxpayer bill was $16.6 billion in direct subsidies, tax breaks, loan guarantees and the like. That's double in real dollars from eight years earlier, as you'd expect given all the money Congress is throwing at "renewables." Even more subsidies are set to pass this year.Detractors of gas taxes and the Pigou Club like to frame the debate as being between a laissez-faire status quo and a group of people who want more government intervention in the economy. See here for an example. So we are left to believe that financing government spending through relatively economically benign externality taxes is interventionist but having one of the highest corporate income tax rates in the world then giving that tax money back to corporations in the form of subsidies is the antithesis of government intrusion. Monday May 12, 2008 | permalink | comments (0) Sorry Greg Mankiw, EclectEcon and Environmental Econ Guys...But I beat my goal, so $100 will not be going to the sources of your choice. Results under the cut:
Read more... Saturday May 10, 2008 | permalink | comments (0) Economic Effect of TariffsI just finished teaching a 3-day all-day "boot camp" macroeconomics course to 60 MBA students. One topic that came up a few times was what would happen if NAFTA were to be repealed and tariffs were increased in North America. The article: Economic Effect of Tariffs examines the economic impact of trade restrictions.
Wednesday May 7, 2008 | permalink | comments (0) Corporate taxes, gas taxes, optimal rates...This might be the least compelling argument against carbon taxes, but it is one that gets repeated ad nauseam. From Will Wilkinson:
So in order to estimate the optimal pigouvian tax, we not only need a solid estimate of the net harm of warming, but we also need a good estimate of how much of that is the external effect of human activity. I don’t think there exists a good estimate, which I think gives us good reason to worry about proposed carbon taxes. Any tax, unless we are very lucky, will either be too low or too high. If it is too low, we’ll get too much carbon emission. But if it’s too high, we’ll get too little and I think that’s likely the more worrying scenario, especially if it slows growth for poor countries.I have address that argument in detail here. But put more simply: Does anyone anywhere ask what the optimal corporate income tax rate is? Ask what the optimal income tax rate is? Payroll tax rate? Sales tax rate? Given that government spending shows no signs of slowing down (particularly in the U.S.) and given that countries are making the sensible decision to reduce corporate tax rates (since corporate taxes are about the most economically destructive taxes ever created) and given that you cannot run massive deficits forever - why on earth are we worried about raising about the only tax that might lead to more economic efficiency at higher-than-current-rates? I have said it before and I'll say it again - there are good reasons to increase gas tax rates (and other sales tax rates) rather than raising income taxes - even if there were zero environmental benefits from doing so. Wednesday May 7, 2008 | permalink | comments (0) This Just In... Oil Prices Are VolatileEvery day when I open the paper there is an article like this: Some See Oil At $150 a Barrel This Year:
Oil's seemingly unstoppable surge has led some analysts to issue gloomier price outlooks. Goldman Sachs Group Inc., which predicted the latest run-up, says the world may face a "super-spike" in which crude ranges from $150 to $200 a barrel as early as October, up from just over $120 now.A 21% movement in oil prices over a 6-month period would not be unusual, in either direction. But I suspect we won't be seeing any articles predicting a 21% price drop any time soon. Given that all the convential wisdom seems to be saying that oil is unstoppsable upward trend, I am almost tempted to start buying put options. More: Will Oil Hit $135 a Barrel In 2008? Wednesday May 7, 2008 | permalink | comments (1) Add the UK to the list of countries that don't listen to economists...
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