Re: Return to Education and IV
because I strongly suspect that 1) people have almost no idea how much it will be worth for them to continue in school, Gee, now you're sounding Austrian! No idea? Come on. Just look at how parents groan when their kids talk about the low-earning majors like sociology, and rejoice when they do CS and the like. There's certainly some plausible guesstimating going on, though I agree it could be improved if people knew the PDV formula and used Excel (as I make my labor undergrads do). Note its the _parents_ in your story who are groaning, not the kids. OK, I'll admit that the no idea was based on what I know it was like when I was going to college in the 70s. However, it is still my impression after 13 years of teaching college that the vast majority of college students not only have never done a present value computation about their decision to go to school, but have never seriously considered the alternative of not going to school - - what they could do, how much they could make, what their lives would be like etc. 2) most people's decisions about schooling have to do with how much they like it vs. how much they like whatever the alternative is (and are therefore fairly short sighted), How much they like it is in turn heavily influenced by how good they are at school - an indirect channel for ability bias. Fine. I'm happy to acknowledge that ability affects decisions to go to school, but my contention is that the decision is more of a present trade-off decision than a future vs. present trade-off as the standard economic analysis maintains. At least my experience with school is that most college kids are looking forward to $$$. They almost never compare current fun of school with current fun of work. Are you thinking only of economics majors? Business and economics majors (some) think this way. Do you think the average lit major is? Psych? Pol. Sci? 3) 2) is heavily influenced by whether mom and dad are willing to pay for you to go to school (or someone else is), and True, though it's not clear what the relevance is. Standard economic model assumes that most of the costs are forgone earnings. Mom and Dad paying for school should be small potatoes (since you can always go to a state school at low cost). My impression is that this factor ways in people's decisions way out of proportion to its economic value. 4) whether mom and dad are willing to pay depends on their own views about the return to education and their bequest motive and has nothing to do with any discount rate. ??? Isn't their view of the return to education a view about the discount rate? Well I suppose if you believe in perfect capital and education markets with completely rational and identical consumers it would have to be, but otherwise why would you think that the return to education would have anything to do with an individual's discount rate? But more to the point, I doubt that parents are making any sort of intertemporal comparison in paying for kids school. How many do you think have thought Well, if I invest the money I'm paying for the kids school in corporate AAAs at 6.5% his income from my bequest will be $XX, in 20XX whereas if I pay for his school it will be... No way. What they think is better to teach a man to fish than to buy him fish... or something like that and they fork over the bucks to U. Not the economic model at all. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: VA sales tax question
[EMAIL PROTECTED] wrote: But, where will the money come from? Will people buy less each week? Will randomly select items to strike from their purchases? Or will they have difficulty at the end of the month. Not sure where the 2 billion figure comes from. It is my understanding that they are only expecting $130 million per year to finance $5 billion dollars in bonds. Clearly if the government is making some of the choices for us we would still be buying the same amount (or more since they are leveraging that money using debt). We are simply spending more on what the government decides to do with our money than what we might choose. This leaves us with fewer resources in which to make our opportunity cost decisions. There is no way to know whether some people will have trouble changing their spending habits and therefore borrow (use the credit card). In the long run, people will either buy less (12 inch pizza rather than 16 inch) or substitute cheaper items (Safeway brand versus name brand). An additional comment (outside of the focus of your question) is that there will be some businesses particularly impacted by this tax change. Businesses located on the southern border of the regional sales tax area may lose customers to businesses across the county borders. Over time, (as businesses close to the border dry up) this disparity may grow resulting in less sales tax revenue than forecast. Fred Childress - Original Message - From: [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Monday, October 21, 2002 9:44 PM Subject: Re: VA sales tax question I didn't ask my question very clearly. Sure, a sales tax shifts purchases. They want to raise 2 billion in Northern Virginia. That has to come from somewhere. And there will be leakage -- some people will be more inclined to buy off the net or in DE which has no sales tax. But, where will the money come from? Will people buy less each week? Will randomly select items to strike from their purchases? Or will they have difficulty at the end of the month. Again, I'm sorry that my question wasn't clear. mitch - Original Message - From: Fred Foldvary [EMAIL PROTECTED] Date: Monday, October 21, 2002 9:34 pm Subject: Re: VA sales tax question --- [EMAIL PROTECTED] wrote: If you ask the average person, they argue that it won't change what they buy at all. A sales tax does shift purchases; some purchases will shift to out- of-state mail-order or nontaxed services. (Virginia does have a use tax, but few pay it, as I recall.) Fred Foldvary = [EMAIL PROTECTED]
Re: VA sales tax question
I've got a non-technical paper on this issue. I looked at the Vermont/New Hampshire border. Until Vermont implemented a sales tax in 1969, per capita retail sales in the counties bordering the Connecticut River in Vermont and New Hamsphire were identical. Since then the Vermont sales tax has gone from 3% to 5%. New Hampshire's is 0%. Today, per capita retail sales are 60% higher on the NH side compared to the VT side. The paper can be accessed at http://www.vteconomy.com/Border.pdf Art Woolf At 09:44 PM 10/21/02 -0400, you wrote: I didn't ask my question very clearly. Sure, a sales tax shifts purchases. They want to raise 2 billion in Northern Virginia. That has to come from somewhere. And there will be leakage -- some people will be more inclined to buy off the net or in DE which has no sales tax. But, where will the money come from? Will people buy less each week? Will randomly select items to strike from their purchases? Or will they have difficulty at the end of the month. Again, I'm sorry that my question wasn't clear. mitch ** Arthur G. Woolf, Ph.D. Associate Professor Economics President, Vermont Council on Economic Education www.bsad.uvm.edu/vcee 339 Old Mill University of Vermont Burlington, VT 05405 (802) 656-0190 or (802) 656-4711 fax: (802) 656-8405 [EMAIL PROTECTED]
Will Britain succumb to Japanese disease?
http://www.observer.co.uk/economy/story/0,1598,776295,00.html Will Britain succumb to Japanese disease? The spectre of deflation is haunting central bankers around the globe Faisal IslamSunday August 18, 2002The Observer In Waco, Texas, at President Bush's 'economic forum', the pom-poms were missing but the cheerleaders did their job nonetheless. The markets may have applauded last Wednesday's mass certification of company accounts by chief executives, but central banks around the world were refusing to budge, or announcing their reasons for doing nothing. The Bank of England, in published minutes, announced that it discussed cutting rates, but held back for fear of panicking the markets. The Federal Reserve decided to hold fire, but said it stood ready to cut if economic conditions deteriorated. But bankers on both sides of the Atlantic are keeping a careful eye on Japan - still suffering a deflationary spiral of falling prices and a rotten financial system after a decade. The much-feared 'double-dip' recession in the United States and Europe would actually be one of the more benign outcomes for the world economy compared with the really scary scenario: the world's largest economies following Japan into a sustained period of stagnation, compounded by deflation - subverting the ability of monetary policy to help boost the economy. Stephen King, chief economist at HSBC, has no illusions: 'The environment we are painting is one in which deflation provides the greatest single risk to ongoing economic stability.' He points to warning lights that are 'flashing red', such as the persistent weakness of equities and rise in corporate bond spreads. Money supply growth is still strong despite low price inflation. King puts this down to an increase in the demand for money to hold on to rather than to spend. A sharp decline in the 'velocity of money' - the extent to which the same notes and coins are circulated - supports this view. In deflationary times, holding on to cash is a sensible financial strategy. Here, the Bank of England's 'symmetrical' mandate gives equal weight to avoiding inflation and deflation. The European Central Bank, long accused of inheriting a 'deflationary bias' from the German Bundesbank, recently announced that its target of positive inflation, less than 2 per cent, should also be deemed 'symmetrical'. Deflation is essentially the painful march down a hill after an asset price bubble. As such, it is more of a worry for the US post-dotcom economy than for the UK or Europe. Mervyn King, the Deputy Governor of the Bank of England, calls this 'debt deflation', where the burden of nominal debt grows as prices fall leaving an even bigger burden of debt this kickstarts a cycle of lower demand and even lower prices. 'The phenomenon of debt deflation is one that all of us are conscious of as a conceptual problem, but no one thinks it is an immediate problem for the UK, and part of our task is to ensure it remains that way,' said King at the launch of this month's Bank Inflation Report. Price statistics are not showing overall deflation just yet. In the US the GDP deflator, a broad measure of price trends, shows that the price of all the goods and services produced in the economy rose at an annualised rate of 1.2 per cent in the second quarter of this year. 'This is somewhat below the 3.1 per cent average annualised rate since 1930, but it by no means suggests the [US] economy is on the verge of deflationary slump,' says Peter Dixon of Commerzbank. Last week, the monthly retail price index in the UK showed that inflation had gone up from 1.5 to 2 per cent, still well below the Bank of England's target of 2.5 per cent. Over the last half-decade, British inflation has been the lowest it has been at any time since the Fifties. But the overall figures mask important divergences within different sectors. In the US and in the UK healthy inflation in the service sector coexists with deflation in goods prices. On the Federal Reserve's favoured measure, second quarter services, prices were up 4.6 per cent while durable goods slumped 2.9 per cent. In the UK, figures released last week showed goods prices down 1.7 per cent and services prices up 4.5 per cent. Globalisation helps to explain this. Goods can be traded more readily than services, and are therefore more sensitive to international price competition. In ultra-competitive markets, companies completely lack pricing power. Only last week it was announced that already embattled mobile phone companies, weighed down with mountains of debt, were to face even more competition from 'Three', a new entrant in the UK. But this is not the reason that Japan fell into its deflationary spiral in 1991. In the Far East the markets marked out a path of over-investment, excess capacity and unserviceable debt to speculation and exuberant valuations in property markets that slumped. But, hey presto,
Re: Return to Education and IV
The history majors knew they'd make less with a history degree, on average, but placed a higher value on doing something they enjoyed then on having a higher income. Yes, but did they know how much of a difference it would make? I once did a survey of students in one of my undergraduate economics classes about their knowledge of gains from additional years of education. What I found was that: 1. They thought the average HS graduate made about 30% more than that person actually makes, 2. They thought the average family income was 50% above what it actually was at the time, 3. They thought that going to college would double their income (and would do the same for anyone - - this was early 80s before the big gains so it wasn't anywhere near close) 4. The standard deviation of their estimates of the _average_ return to attending college was over 15 percentage points. Of course I'm sure that they actually knew the answers perfectly well, but couldn't be bothered to answer my questions accurately being the profoundly rational optomizers that they are... ;-} - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
