Wednesday, December 15, 2010

Quotes of the day

The Grinch was crestfallen, he knew he had lost
For he was the source of the “external” cost
He’d come to the nuisance, and yes, he was wrong
He’d now have to live with their noise and their songs

He realized that day, though, that they could be friends
His heart grew three sizes (you know how this ends)
The Whos asked the Grinch to join them in their feast
And he—he, the Grinch—carved the Roast Beast.

The holiday season brings specials galore
They teach us that Christmas can’t come from a store
Reflect, as you watch them, as day turns to night
On good economics, and property rights.--Art Carden

Over the past 20-or-so years, GDP has increased 87% and the amount of money the top 1% pays in Federal income taxes has increased 377%, while the average tax rate for that group over that period has decreased 32%! So, to summarize: The tax rate on “the rich” has gone down, but the amount of money they pay in Federal taxes has gone up, as has GDP.--Stone Street Advisors

It is no accident that much of the drug trafficking is found in poorer black and Hispanic neighborhoods since high school dropouts and other low earners are attracted to becoming involved in the drug trade. The result typically is a sizable deterioration in the quality of living in drug-dominated neighborhoods, with residents often terrorized by the drug dealers. No one to my knowledge has estimated the social cost of neighborhood deterioration due to drugs, but it is likely very high.--Gary Becker

In retrospect, the aristocracy arrogated power via myth, tradition, and brute force, rationalized via their exception valor. The problem with their self-serving story is that many would accept a probability of death for such success, so this 'courage premium' was not a real equilibrium result, as WW1 showed. Courage was a necessary, not sufficient, condition for acquiring power. Similarly, risk taking is a necessary condition to achieving riches, not sufficient. In standard theory, you take risk, and on average you will get rich quicker than others. That's all you need, a willingness to experience the randomness.--Eric Falkenstein

If people don’t anticipate future taxes or don’t respond to them today, then yes, says the standard argument, you will get $10 of stimulus today, but it will be offset by $10 of losses tomorrow. The Keynesian then responds with the second idea behind using government spending to stimulate the economy. That’s the idea that when we’re in a recession, the economy is broken. The engine of the economy needs a jump-start. The pump needs priming. By giving people money who start spending now, the whole system gets going so it can be once again be healthy and self-sustaining. It’s like the battery of your car. If you drain your battery because you left the lights on overnight, the car needs a jump. Once it gets going, it will recharge simply by driving. So in the economic analogy, once people get spending, the circular flow of spending gets going once again, the people who were unemployed soon get employed, they start spending and the economic engine will once again be healthy and keep going. This is what Keynes meant when he talked about “magneto trouble.” This metaphor of the car that needs a jump start or the ship that needs a push because it’s hit a patch of water that’s windless, has a certain compelling feel to it. But it really has no intellectual content. It’s an ex-post story to make you feel good about spending money. There’s no there there. So when a Keynesian is confronted with the fact that about $800 billion dollars of spending was promised in February of 2009 (and more than half of it has been spent) but unemployment has barely budged, well that just proves how bad the economy was in February of 2009. It’s like saying that using these jumper cables will get your car started but sometimes, a regular jump isn’t sufficient. You have to power up the healthy car when you do the jump because the car with the dead battery is so far gone that a regular jump won’t do it. That’s true with cars. But is it true with economies? ... the current Keynesian stories of why the stimulus didn’t work are just stories. Ex-post stories. They can’t be distinguished from the hypothesis that we don’t know what we’re talking about or the hypothesis that stimulus spending is a sham. ... The bottom line for me is that Keynes was very right about one thing–people’s perception of the future plays a big role in their willingness to take risks. What he was wrong about is the ability to use government spending as a way to encourage a positive perception of the future or to produce real economic results that lead to prosperity and increased employment.--Russ Roberts

As the policy was described yesterday, this payroll tax cut goes entirely to the worker. This increases work incentives, but the main motivation is probably to increase take-home pay, consumer spending, and aggregate demand.--Greg Mankiw

The White House reads this blog.--Greg Mankiw

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