Subscribe: EconLog
Added By: Feedage Forager Feedage Grade B rated
Language: English
american  bryan  david  deadweight loss  dwl  eggertsson  income  new  people  rate  status quo  tax rate  tax  trump  ubi 
Rate this Feed
Rate this feedRate this feedRate this feedRate this feedRate this feed
Rate this feed 1 starRate this feed 2 starRate this feed 3 starRate this feed 4 starRate this feed 5 star

Comments (0)

Feed Details and Statistics Feed Statistics
Preview: EconLog


Last Build Date: Tue, 21 Feb 2017 21:58:11 -0500

Copyright: Copyright 2017

How San Diego Built a Bridge Over the Wall, by David Henderson

Tue, 21 Feb 2017 21:58:11 -0500

That's the title of a great article in Politico by Ethan Epstein. There's so much interesting in there:

1. How forward-looking San Diegans figured out how to get a better airport without using a military base--and why. (On the latter, try flying into San Diego's one-runway airport. I've done it many times and it's cool--you are almost at eye level with tall buildings as you land--but the location and the one runway are a tight constraint.)


Around the same time, a new idea began being seriously discussed by Mexican and American authorities and business leaders. Rather than build a runway on the northern side of the border, what if San Diego simply constructed a new terminal, which would provide access to the Tijuana side of the border? That would provide all of the benefits of a binational airport, but without the headaches of runways and taxiways crossing international borders. And better yet--what if the project could be completed using private funds? That made the idea particularly appealing in a traditionally tightwad, conservative area like San Diego.

Clearly, by "tightwad" the author means that they don't like taxes, which is very different.


The elegant simplicity of the idea is apparent when one visits. The firm that built the CBX [Cross Border Xpress] explains it this way: "Passengers departing from the U.S. park on CBX property, enter the building, check in, walk over the border using the new bridge, and literally descend into [Tijuana airport] to reach their flights. Returning passengers land at [Tijuana], take the bridge across the border, enter the U.S. through the new [U.S. Customs and Border Patrol] facility, and emerge from the CBX to take their preferred form of transportation." Passengers pay a fee--usually around $16--to use the facility. (That's how the private investors make their money.) And one has to possess a valid boarding pass to use it.

2. How the various players are figuring out how to relieve the congestion at the San Ysidro crossing. It's called tolls.


The project has also provided an opportunity for enhanced cross-border cooperation. Given that Mexico also has to build new roads to the crossing on the southern side, the idea is that the toll revenues on the American side will be shared with the Mexicans. And because the toll is technically only for the access roads, not the crossing itself, the feds don't need to get involved. "If we pull this off, this is a new model," Ducheny says.

3. How to pronounce Tijuana. I now know.

Signs of integration abound. You can hear it in the impeccable Mexican-Spanish pronunciation that even many Anglo San Diegans possess; the city to their south is named "Tee-hwana," not "Tee-a-wanna," they remind visitors.

But none of these excerpts does justice to the article. I found the whole piece spiritually uplifting. Ethan Epstein has a real flair.

HT2 Tyler Cowen.


Freedom of Speech and Private Property, by David Henderson

Tue, 21 Feb 2017 13:54:01 -0500

In the last few days, I've seen a number of discussions, mainly on Facebook, in which even some libertarians have claimed that two people's free speech rights were violated in two recent events. I was thinking about writing about it, but then I found that Casey Given has already done so. His article is titled "Milo Yiannopoulos and Richard Spencer remind us what free speech is and isn't." Casey nails it.

The two events I'm writing about are white nationalist Richard Spencer showing up at a bar in a hotel where a libertarian conference, the International Students for Liberty Conference (ISFLC), was held and the Conservative Political Action Committee (CPAC) disinviting speaker Milo Yiannopoulos from its annual conference.

Casey writes:

The reaction to both events have [sic] generated predictably lazy outcries that the controversial speakers' "free speech rights" have been violated. Had they been disinvited or removed from a public university, perhaps the outrage mob would have a point. But it's important for libertarians and conservatives to also recognize private property rights when discussing such flare-ups.

Casey continues:
Just as Spencer has the right to discuss his despicable views at a bar, so did the ISFLC conference-goers have the right to confront him about them. In matters of private property, it's up to the business owners to decide who gets to stay or leave. In this instance, they decided to disperse the crowd and eject Spencer.

From the extensive video I watched on line, it looked to me as if the bar manager ejected everybody. That's how the Students for Liberty, organizers of the conference, saw it also. Funny how profit-maximizing businesses don't like people arguing and raising their voices when other customers are there simply to drink and socialize.

I do want to challenge one thing Casey Given says:

Nobody's rights were violated. Indeed, given Spencer's history as the victim of a physical attack, the ISFLC crowd should be commended for respecting the non-aggression principle.

He's right that nobody's rights were violated. That's the really good news. I think Casey overstates, though, in commending the crowd for not physically attacking him. Of course, it's good that they didn't. But that hardly deserves a commendation.


Whither the Ex-Im Bank?, by Scott Sumner

Tue, 21 Feb 2017 11:54:41 -0500

The Ex-Im Bank is often considered a near perfect example of crony capitalism. But the politics of Ex-Im are very messy, perhaps the most confusing and complicated of any issue: 1. Obama opposed Ex-Im as a candidate, and then supported it in office. 2. Trump opposed Ex-Im as a candidate, and has recently signaled that he will support it. But that's just the beginning. Is Ex-Im an example of special interest politics that almost all idealistic pundits oppose, like sugar subsidies? Is it a left/right issue? Is it a pragmatist/ideologue issue? And if Trump does support Ex-Im, why does the budget his staff is preparing call for abolishing Ex-Im. Matt Yglesias has an excellent article on Ex-Im, which looks at the issue from many different angles. (He does a good job explaining why Trump's staff doesn't agree with Trump.) But it's such a complex issue that even he doesn't really cover all the bases. For instance, Yglesias implies that support for Ex-Im is the "left" position on this particular issue. But he doesn't really explain why the left would favor crony capitalism subsidies for big corporations like Boeing. Yes, jobs are one argument, but since when does the left believe in "trickle-down economics"? Matt also suggests that Trump would be expected to support Ex-Im because he favors protectionist policies that favor a few special interests at the expense of the broader American public. That's a good argument, but an equally strong argument can be made the other way. Protectionist policies tend to reduce the amount of international trade, both imports and exports. An export subsidy like Ex-Im tends to have exactly the opposite effect. It tends to boost both exports and imports, hurting American companies that compete against Mexican and Chinese exports. Does Trump know this? Trump also seems to oppose a stronger dollar, but Ex-Im makes the dollar stronger. In the end I believe that the complexity of the Ex-Im issue is due to the fact that divisions occur on multiple fault lines: 1. Ideology: Interventionism vs. laissaz-faire 2. Ethics: General interest vs. special interests 3. Factual: Does Ex-Im create jobs, or not? Does it boost GDP? 4. Regional: About 40% of Ex-Im loans go to Boeing I always find the factual debates to be the most interesting. It's hard to know where the "left" should stand on this issue until one can resolve the factual issues surrounding things like job creation. The fact that some on the left support Ex-Im while opposing cuts in corporate tax rates suggests to me that they have a fairly primitive model of public finance. Some people on the left (and right) would benefit from reading Bastiat on "What is Seen and What is Not Seen". On the right, it exposes a division between the ideologues and the pragmatists. But it's often hard to distinguish between normative and positive disagreements. It's quite possible that these two groups within the GOP also differ on the key factual questions. I've noticed that even people who are not utilitarians (which is most people) often resort to utilitarian arguments to make their case. They seem to (implicitly) believe that it's the only thing that will convince the other side. As is often the case, I'm a pragmatist who ends up siding with the ideologues, and all because my view of the "factual" issues differs from the view held by the vast majority of people. And that's because I pay more attention to the "unseen" than most other people. One thing that makes Yglesias's post so good is that he's one of the rare non-economists who actually do pay attention to the unseen: A really poorly managed loan program could, of course, still make money. But a moderately competent one -- and the Ex-Im Bank qualifies -- turns a pretty steady profit. But that doesn't mean federal credit programs are costless. If they were, it would make sense to extend loan guarantees to everyone. But the way the American economy works is that the Federal Reserve essentially rations credit a[...]

UBI Debate Video, by Bryan Caplan

Tue, 21 Feb 2017 10:30:44 -0500

Video of the Wilkinson-Caplan Universal Basic Income Debate is available here.  The video quality could be a little higher, but the camera does get properly rotated after a few seconds.  Thanks again to Students for Liberty and the Institute for Humane Studies for setting it all up!


Bryan Caplan's Best Line and My Thoughts, by David Henderson

Mon, 20 Feb 2017 20:37:11 -0500

I was stuck at LAX for about 9 hours on Saturday after my wife's and my flight was cancelled. So we used our time to work and I used part of my time to watch on Facebook co-blogger Bryan's debate with Will Wilkinson about the Universal Basic Income. (No, I can't find it now, but look around and you probably will.) I thought Bryan knocked it out of the park, both with his prepared presentation that he posted about today and with his back and forth with Will. I had two favorite parts. The first was his question to Will about the phase out rate. Will supported a $5,000 UBI per adult and Bryan asked him by what percent the UBI would fall as the recipient got other income and at what income threshold the UBI would fall. That was a great question to ask. Will didn't know the answer to the first part and said, if I recall correctly, that the phaseout would be gradual. I would bet he has in mind 25% or less, but he wouldn't put a number on it. Will did, though, put a number on the income one is allowed before losing a dollar of UBI: $20K. That is, $15K in other income and $5K in UBI. So if my hypothesized 25% phaseout is correct, anyone with other income of up to $35K would get some benefit. That makes the program very expensive. The second, and my absolute favorite, was Bryan pointing out that his father, a man I met and liked, by the way, is not at all libertarian and that even he would oppose a UBI because it would give money to people who are not necessarily desperate. Then Bryan said, "I think libertarians should be at least as libertarian as my father." Here's a point that Bryan didn't make but is important. In the UBI version that Ed Dolan supports, Dolan makes it spending-neutral by ending Social Security and Medicare as well as all the welfare programs. Consider what the Dolan $4.5K per person would mean to a 70-year-old couple who, in 2016, were getting the maximum monthly Social Security benefit: $2,639 for the high-earning spouse and half of that, $1319, for the other spouse. That's $3,958 per month, or $47,496 per year. Their income from the government would fall from $47,496 per year to $10,000 per year, a drop of $37,496. And notice that in these calculations, I haven't even measured the loss due to losing Medicare. Will Wilkinson works for the Niskanen Institute, an organization that prides itself on coming up with partial steps that could be politically palatable. Imagine the political storm that this proposal would face. In 1981, when Reagan and Stockman proposed cutting the early retirement benefit for 62-year-olds from 80% of the benefit for 65-year-olds to 55%, they faced huge opposition and quickly took it off the table. A UBI fashioned a la Ed Dolan would be dead on arrival. Why say this in a debate with Will when Will explicitly said that he would not touch Social Security? Because in the back and forth between Bryan and Will, Will was edging towards a UBI that would be spending neutral and would be about $5K. To get there, he would have to end Social Security and Medicare. I gave a talk at my daughter's school, Santa Clara University, that Dan Klein sponsored in 2004 when he was on the faculty. It was titled "Social Security: The Nightmare in Your Future." I think one thing that many people do not understand is that with regard to federal spending, the cupboard is bare. If we're lucky, we're going to be trying to come up with ways of reining in the welfare state for the next 50 years. Update: Bryan has informed me that I was unfair to Dolan. He does not advocate eliminating Medicare. Bryan quotes Dolan as follows: "In the following discussion of affordability, I will neither expect the UBI grant to cover healthcare expenses, nor will I look to any reduction of existing government healthcare spending as a source for financing the UBI." (13 COMMENTS)[...]

Why Libertarians Should Oppose the Universal Basic Income, by Bryan Caplan

Mon, 20 Feb 2017 14:05:42 -0500

Here's my opening statement for my Students for Liberty debate with Will Wilkinson.  Enjoy. Libertarians have a standard set of fundamental criticisms of the welfare state.  1. Forced charity is unjust.  Individuals have a moral right to decide if and when they want to help others. 2. Forced charity is unnecessary.  In a free market, voluntary donations are enough to provide for the truly poor. 3. Forced charity gives recipients bad incentives.  If the government takes care of you, you're less likely to take care of yourself by work and saving. 4. The cost of forced charity is high and growing rapidly, leading to a future of exhorbitant taxes or financial crisis.   Taken together, I think these criticisms justify the radical libertarian view that the welfare state should be abolished.   But this is an extremely unpopular view, so it's natural for libertarians to consider more moderate reforms like the Universal Basic Income.  And when you're considering moderate reforms, the right question to ask isn't: "Is it ideal?" but "Is it better than the status quo?"  My claim: the Universal Basic Income is indeed worse than the status quo.  In fact, all the fundamental criticisms of the welfare state apply with even greater force. 1. Some forced charity is more unjust than other forced charity.  Forcing people to help others who can't help themselves - like kids from poor families or the severely disabled - is at least defensible.  Forcing people to help everyone is not.  And for all its faults, at least the status quo makes some effort to target people who can't help themselves.  The whole idea of the Universal Basic Income, in contrast, is to give money to everyone whether they need it or not.  Of course, the UBI formula normally reduces the net payment as income rises; but if a perfectly able-bodied person chooses never to work, the UBI gravy train never stops. 2. The UBI is an extremely wasteful form of forced charity.  Helping the small minority of people who can't help themselves doesn't cost much.  Giving an unconditional grant to every citizen wastes an enormous amount of money.  If you were running a private charity, it would never even occur to you to "help everyone," because it's such a frivolous use of scarce charitable resources.  Instead, you'd target spending to do the most good.  And unlike the UBI, the status quo makes some effort to so target its resources. 3. Overall, the UBI probably gives even worse incentives than the status quo.  Defenders of the UBI correctly point out that it might improve incentives for people who are already on welfare.  Under the status quo, earning another $1 of legal income can easily reduce your welfare by a $1, implying a marginal tax rate of 100%.  But under the status quo, vast populations are ineligible for most programs.  Such as?  You guys!  If you're an able-bodied adult, aged 18-64, who doesn't have custody of any minor children, the current system doesn't give you much.  Switching to a UBI would expand the familiar perverse effects of the welfare state to the entire population - including you.  And if taxes rise to pay for the UBI, the population-wide disincentives are even worse. 4. A politically acceptable UBI would be insanely expensive.  Libertarian economist and UBI advocate Ed Dolan has a detailed, fiscally viable plan to provide a UBI of $4452 per person per year.  But every non-libertarian I've queried thinks it should be at least $10,000 per person per year.  Even with a one-third flat tax, that implies that a family of four would have to make $120,000 a year before it paid $1 of taxes.  This is pie in the sky. But doesn't the UBI give people their freedom?  In some socialist sense, sure.  But libertarianism isn't about the freedom to be coerci[...]

Beckworth interviews Eggertsson, by Scott Sumner

Sun, 19 Feb 2017 10:23:10 -0500

David Beckworth has done a very interesting set of interviews with leading figures in monetary economics and related fields. One of my favorite occurred a few weeks ago when David interviewed Gauti Eggertsson. Eggertsson is a prominent monetary theorist, who has also worked at the New York Fed. This gives him an excellent vantage point to evaluate the past decade.

Since there is no written transcript, I'll rely on memory. Thus keep in mind these are not exact quotes:

1. Eggertsson expressed surprise that the Fed did not try for the sort of reflationary policies that FDR adopted in 1933. Recall that Bernanke once called on the Bank of Japan to show "Rooseveltian resolve", and specifically suggested ideas such as "level targeting." Both David and Gauti argued that level targeting could have been very helpful at the zero bound.

2. David pointed out that many central bankers were afraid of making the same mistakes as we made in the 1970s, (when, many would argue, we let the inflation genie out of the bottle.) Eggertsson responded (I paraphrase) "instead they made the same mistakes as in the early 1930s."

3. Eggertsson suggested that some central bankers seemed afraid that unconventional monetary stimulus could lead to an increase in risk premia, which would actually be contractionary. Eggertsson didn't seem to think much of that theory, and neither do I.

4. As in almost all conversations these days, talk eventually turned to Trump. Eggertsson suggested that if any idea has recently taken a beating it is the claim that uncertainty is recessionary. I've made that argument about Brexit, but Eggertsson was thinking of the uncertainty created by Trump. I think that's right, even today no one seems to have a good idea as to what sort of trade policy will eventually be adopted, or what will replace Obamacare. And yet stocks are soaring, suggesting that no recession is expected. I'm increasingly inclined toward the view that "uncertainty" is a lazy way of thinking about economic shocks. Economists are better off focusing on specific shocks, such as tight money, tax cuts, or an actual trade war.

5. At one point David brought up the idea of "helicopter drops", which is a metaphor used by economists for combined fiscal/monetary stimulus. Eggertsson asked how that's different from what Japan has been doing over the past 20 years. I've made similar arguments over the past few years.

Overall I thought it was one of David's best interviews. I expected to disagree with a good portion of what Eggertsson had to say, as he's certainly more Keynesian than I am. But I ended up agreeing with most of what he said, and also learned something from the way he thought about problems.

PS. My only regret is that David didn't ask him about Iceland, where Eggertsson grew up. They had a very severe banking crisis back in 2008, and used currency devaluation to cushion the blow.



Taxes and Deadweight Loss, by David Henderson

Sat, 18 Feb 2017 11:06:13 -0500

In his excellent post on taxes and the incidence of taxes, co-blogger Scott Sumner does not mention another important issue in taxation: deadweight loss. The deadweight loss from a tax is the part of the loss to those who bear the tax that does not go to the government. Thus the term "deadweight." (Scott's graph shows a small deadweight loss, but he does not elaborate on this.)

I noticed when checking the Concise Encyclopedia of Economics that the article on taxation, although it mentions incentive effects of taxation, does not introduce the term "deadweight loss." That's my bad as the editor.

There are three important bottom lines on deadweight loss.

1. The easier it is to avoid a tax (that's usually expressed as a higher elasticity of supply or demand), the greater is the DWL per dollar of revenue raised. That's because the tax has distorted a lot. If, for example, the number of cigarettes people buy drops a lot in response to a given increase in the per-pack tax, the tax has distorted the smoking decision a lot. Of course, some people, those who don't want people to smoke, like this distortion.

This is why the capital gains tax is so inefficient, that is, causes a large DWL. It is very easy to avoid the tax by not realizing your capital gain, that is, by not selling your asset whose value has increased.

2. A tax can cause a DWL and raise zero revenue. Here is my favorite example I've used when I've taught this. When I fly into Winnipeg every summer, I don't rent a car at the airport. Instead, I can save almost 20 days of airport taxes on the car rental by paying about $20, including tip, to take a cab to the Avis in downtown Winnipeg. I save close to $200 in taxes by spending an extra 15 minutes plus $20. The latter is the DWL. Notice that the tax raised zero revenue from me. Of course, I'm not claiming that it raised no revenue. But it led to a DWL on my part with zero revenue from me.

3. Last, and possibly most important, the DWL from a tax is proportional, not to the tax rate, but to the square of the tax rate. So doubling a tax rate will quadruple DWL. Cutting a tax rate by half will reduce DWL by 75%. So, imagine that Republicans somewhat succeed in cutting the corporate income tax rate from 35% to 20% and assume, for simplicity, no state tax on corporate income. That's a 43% drop in the tax rate and the new tax rate is 57% of the old tax rate. The new DWL will be (0.57)^2 of the old DWL. That's 0.32. So the DWL falls by 68%!

See these earlier posts by me for more on DWL from taxes.


The lump of labor fallacy, by Scott Sumner

Fri, 17 Feb 2017 18:03:34 -0500

Andy Puzder was one of the few Trump appointees that I sort of liked (I say "sort of", because even he had ethical issues.) He was pro-immigration and anti-minimum wage. But in the end even many conservatives opposed him so he withdrew his name from consideration for Labor Secretary. Reihan Salam was one of the conservative opponents of Andy Puzder: Puzder has also been an influential critic of minimum-wage hikes and overtime regulations, warning that such measures would force employers to replace low-wage workers with machines. He seems animated by the Luddite conviction that productivity-boosting automation is necessarily a bad thing, despite the fact that rising productivity levels are essential to wage growth. This has things exactly backwards. People who subscribe to the lump of labor fallacy (there are a fixed number of jobs) are exactly the people who favor these four bad public policies: 1. Restrictions on automation 2. Higher minimum wage rates 3. Protectionism 4. Lower levels of immigration People suffering from this fallacy think there are a fixed number of jobs, which allows the government to arbitrarily raise the minimum wage without hurting employment. This view also suggests that there is only so much to be produced, and if more is produced overseas, or by immigrants, or by robots, then less will be produced by American born workers. In the past, commenters have objected when I claim that deporting illegals would devastate the California fruit and vegetable industry. They insist that someone will do the work, that high quality farmland won't lie fallow. That's missing the point: Some farm jobs, like tomato picking, could be automated fairly easily in the 1960s. And ending the bracero scheme seems to have accelerated mechanisation in the tomato fields of California. Much the same happened with cotton and sugar beet. Other crops, like lettuces and asparagus, still required human pickers. Production of some such crops simply declined. . . . In California, America's most important farming state, politicians have ensured that workers will receive at least $15 an hour by 2023. And Manuel Cunha, a citrus grower who is president of the Nisei Farmers' League, complains about other costly reforms, such as mandatory overtime pay for people who work more than eight hours a day. In response, he says, farmers are moving from crops that require careful handling, like apricots--"just look at an apricot and it will turn brown"--to crops that can be harvested by machine. Almond trees are spreading across California. In spring the fields are white with their blossom. In September great machines shake the nuts to the ground and sweep them up. There's simply no way that California fruit and vegetable producers could pay enough money to attract America workers. They'd go out of business, and their output would be replaced by imports. Instead they'd switch to crops that do not require significant farm labor. Thus deporting illegals will not create new jobs for American workers. A dramatically higher minimum wage will make America more like southern Europe. Today, Hispanic Americans are employed at a fairly high rate. Do we want to make our labor market more like France, where large numbers of Arab immigrants are unemployed, and often resentful of the country they live in? The same article also reported: Michael Clemens and Hannah Postel of the Centre for Global Development, and Ethan Lewis of Dartmouth College, have used archived records of American agricultural jobs and wages to test whether Kennedy was right. Did ending the bracero scheme in 1964 in fact lead to higher wages and more work for Americans in the fields? The answer is a firm no. In states where farmers had relied heavily on foreign labour--a group that includes California and Texas--American natives found a few more f[...]

Michael Novak RIP, by David Henderson

Fri, 17 Feb 2017 15:27:11 -0500

Michael Novak, the well-known Catholic theologian at the American Enterprise Institute, died today.

I didn't know him well and I didn't know his work well. My late friend Roy Childs, Jr., was somewhat of a fan, if I recall correctly. When I read various people talking about how generous and classy a man he was, I agree. I had one interaction with him in which he implicitly gave me advice about my speaking style.

Novak, David Friedman, a couple of other speakers, and I were speaking at a day-long event held in the Silicon Valley and sponsored by the Intercollegiate Studies Institute. There were a few hundred college students, mainly conservatives, in the audience. I can't remember my topic but it was likely about how free markets are great and solve a lot of problems. That was a standard talk I gave in the late 1990s.

I normally do well with such topics in front of such audiences. But this time, the applause was only slightly above the level of "polite" and well over half the questions were hostile. I think I did a good job of fielding them because I adjusted quickly to the tone. When I sat down, I asked Michael, who I knew had to have given over 20 times, if not 100 times, the number of talks I had given, whether he noticed the audience's hostility. He said that he had.

"I don't understand it," I said, "I usually do so well with such audiences."

"They don't like the fact that you don't believe in God," he said.

"How do they know that? I didn't say a thing about belief in God."

"Exactly," he said, his eyes twinkling.