Re: Median Wages
--- Cyril Morong wrote: If real median wages have fallen, especially over a long time, why would that be? The geoclassical explanation (Henry George, Nicolaus Tideman, Mason Gaffney, Harry Gunnison Brown) is that rising land rent (and thus the price of land) has absorbed most of the gains from greater productivity. Fred Foldvary Santa Clara University
Re: paid parking a market failure?
--- Robert A. Book [EMAIL PROTECTED] at a time X1, they price goes up to $Y per minute, and everybody whose car is on the lot at that time pays $Y per minute until either they leave, or the price goes down at time X2? Yes. In congestion pricing, every agent in the congested space pays the same amount at that time. And that all of X1, X2, and Y are known in advance with certainty? For analysis, let us assume this, to show what the efficient price is with certainty. Part of the problem here is that the number of spaces has to be an integer. This means that the marginal consumer, the marginal value, etc., are (strictly speaking) undefined. We can determine the efficient price if the number of spaces is a continous variable, then relax the premise to integers and see if there is any significant difference. The real world has integers: the next apple, the next pencil. If we rule out integers, we can't analyze the real world. These concepts require continuity. Then economic theory does not apply to the real world. When the lot is full, the price is high enough that nobody wants to pay for a space Nobody extra. If we assume that people have diverse subjective values for parking places, and so the demand curve slopes down, then those who paid for a space have a positive consumer surplus. If all have identical an marginal willingness to pay, then the price is such that all are indifferent between parking or not, so the lot fills up with those whose coin toss is park. Are you assuming that (a) the space stays empty for a while and everybody still in the lot pays zero for that time, Yes, so long as there is an empty space. or (b) that the price drops a bit, and somebody else immediately takes that space? After the peak time, demand falls, and parkers will leave spaces empty unless the price drops. It does not matter whether new cars replace previous parkers or the old ones stay. If you do this, I expect you will find that the price is sometimes zero (at periods of low demand), If it is a private lot, and parkers are willing to pay more than zero, there being no free alternative, why would the lot owner not charge a positive price? Fred Foldvary
Re: paid parking a market failure?
--- Ricardo Gambirasio [EMAIL PROTECTED] wrote: I fail to see what's so special about parking. Parking as such is indeed not a special case. It only illustrates the general case. also in software, I don't see how software, etc., are similar. With software, shoes, etc., I pay for actual use and also for their availability. In the case of parking, if a city government provides it, nobody is paying for empty spaces. The availableness of street parking increases the productivity of the area and increases the rentals charged to tenants. People pay for empty street spaces as higher land rent or land prices. If city-provided street parking is not congested, what is the efficient price for parking, zero or greater than zero? I guess a tougher question would be: where isn't there this kind of market failure? Are you saying there is, or is not, market failure? I can't see how that is any more of a waste I don't claim it is a waste of space. The question is whether charging for parking space when there is no congestion, is efficient. problem is: where do we find such a government? It seems to me that is a separate question. Mine is about economic theory. Fred
Re: paid parking a market failure?
I seem to recall learning that rather than demonstrating an inefficiency, the presence of inventories represents a form of insurance against uncertainty in demand. David Levenstam Right, but suppose that the parking lot is an evenly rotating economy, and the parking use is the same day after day. The parking lot is full at particular times and not full other times. There is no uncertainty. It is known how many cars will park at particular times. Unlike produced goods, the number of parking places is fixed. Now, is it efficient to charge for a parking place when the lot is not full? Fred Foldvary
Re: paid parking a market failure?
Robert A. Book [EMAIL PROTECTED] wrote: I think the problem is, that idea that marginal cost pricing is optimal is in some sense related to the assuming that marginal cost is rising at the optimal point. But suppose the marginal cost curve at that point is horizontal. Does marginal cost pricing cease to exist? Recall that many authors define the supply curve as the upward-sloping portion of the marginal cost curve. MC rises because MP falls. MP falls because in the short run, one factor is fixed. But MC can be zero. Textbooks also have an illustration of the Nash equilibrium for a duopoly of water provision, where the MC of water is zero. In perfect competition, the price of water is zero. In monopoly, revenue is profit, and is maximized where MR is zero, where MR=MC=0. what is the optimal (i.e., surplus-maximizing) price when MC is decreasing everywhere? -- he said it has to be long-run average cost and that it's not really an interesting problem. He was wrong. A hotel elevator has a zero MC for another user. The hotel prices the use at MC. Shuttles are often user-priced at zero. A restaurant bathroom is usually priced at zero (but not always). Drinking fountains have no charge. Lots of services are priced at zero. Fred Foldvary
Re: paid parking a market failure?
--- Xianhang Zhang [EMAIL PROTECTED] wrote: This would be true if it were possible to charge different people different prices for parking based on congestion. It is possible, and is done in practice. Many parking lots charge more during peak times than in other times. There is predictability, because the typical usage does not vary much. cost of admitting an extra person is NOT zero because it requires you to drop prices which means you lose the revenue from all the other parkers/theatre goers. I don't follow this. Why does charging zero at some times require a drop in price when the lot is full? Fred Foldvary
Re: paid parking a market failure?
--- Robert A. Book [EMAIL PROTECTED] 5 cars come at 1pm and SIX cars at 2pm. During that time, charge just high enough so that all who want to park, can. The last car in does get a space, if he is willing to pay. between. But there's another possible outcome -- everyone races to be the 9th to arrive and get the last free space. Everybody knows the price will go up at a particular time. Every car there will pay the price. The spaces are no longer free. I think you are (inadvertently) assuming that there is some non-price way of allocating spaces taht is superior to an allocation with prices. No, that is not a correct inference. Is the marginal consumer the last to get a space, or the first to be turned away? It is the next one to get a space. Nobody gets turned away, because when the lot is full, there is a positive price. Fred Foldvary
Re: Katrina and the Evacuation: Market Failure?
The government (local, State, and Federal)appropriated responsibility for the Mississippi River levy system, the drainage systems, the pumping systems, the road ways, and the bridges, but apparently, they left it to the market to provide the service of evacuating the poor and the infirm. --- Michael Giesbrecht Why do you think so? The federal government is being blamed for not sufficiently preparing and executing evacuations. This implies the general belief that this too is the responsibility of government. Governments have appropriated the means of evacuation, such as highways, public transit, and military resources. is this an example of market failure? No. The market is not operating in transportation and in emergency services, as it has been pre-empted by government. Only when the highways, public transit, and emergency services are voluntarized would the market be culpable. Today, everybody expects the cavalry that trots to the rescue to be governmental. Fred Foldvary
Re: Katrina and the Evacuation of the Poor and Infirm: Market Failure?
--- Jeffrey Rous [EMAIL PROTECTED] wrote: I recently saw a table of murder rates through time (maybe in Freakonomics) and, through that measure, it appears that we are living in a relatively low homocide era. Right, if you don't count the holocaust, Gulag deaths, China mass murders, Cambodia slaughters, Rwanda genocide, etc. Fred Foldvary
Re: Interest rates and housing
Are you saying that there's a real cycle of real estate that takes 18 years from (from peak to peak or from peak to trough?)? David That is the usual cycle, although there are exceptions. That seems different from your initial contention that the current bubble has been caused by monetary growth. My contention is that there are two causes, monetary and real (including fiscal), and the causes are complementary. The timing of the cycle is inherent in the nature of the real estate market for rentals and construction. then do you predict a collapse of real estate prices based on monetary or real factors, or both? Both Fred
Re: Interest rates and housing
If the real estate cycle is based on government expansion of money, David It is based on that and also on fiscal policy and the inherent nature of real estate rentals and construction. why has it been the same under three or four different monetary systems? It does not matter much to the economy why there is a monetary expansion. In the 1830s the expansion was caused by the state control of banks, including the prohibition of branch banking, and with banks having to buy state bonds, and excessively issuing currency. The effect was similar to today's expansion of money by the Fed. It's essentially the Austrian-school business cycle, with the higher-order capital goods consisting of real estate construction. See my paper referenced in the cycle table for further explanation. Fred
Re: Interest rates and housing
If government has caused a real estate price bubble by artificially lowering interest rates, how can it have an 18-year cycle, David Because real estate construction takes years, and recovery from a downturn takes years. An exception is an inflationary boom that is not a real economic recovery, such as the stagflation of the 1970s. That's why there was a real estate peak in 1979. Why does the money go into residential real estate and not into stocks or automobiles or other assets? The money goes into all real estate, not just residential. Of course it also goes into stocks, as with the tech boom of the 1990s, followed by the downturn of 2001, which was not caused by real estate. But the real-estate boom prevented the 2001 recession from becoming major. The big depressions have all followed real estate booms. Fred
Re: libertarian paternalism
--- Edi Grgeta [EMAIL PROTECTED] wrote: I am trying to decide whether it is moral for a designer to impose his benevolent will through menu design by exploiting imperfections in how people choose. It is not an imposition, because the user is not forced to choose one of the options, since another option is to exit the menu. For example, if the designer thinks that option B is best, and people presented with options ABC (in that order) choose A, but presented with options BAC (in that order) choose B, then is it moral to select the options order BAC rather than ABC or a random menu? No freedom is lost. It is not immoral, since there is no coercion. One situation where this question comes up is in designing 401k plans. What exactly is the moral issue? Fred Foldvary
Re: Private urban green space
--- Sampo Syreeni [EMAIL PROTECTED] wrote: ... libertarians are sure hostile to the public goods scene, because there the emphasis is on things that *need* to be solved publicly. Public goods means collective goods, used simultaneously by some group. This is a completely different meaning from public as in public sector. Collective goods can be provided by private firms or by government. Solved publicly is ambiguous because it can mean solved by a group or solved by government officials. Fred Foldvary
Re: Private urban green space
--- Jeffrey Rous [EMAIL PROTECTED] wrote: I do think that a lot of times, economists are hostile the the idea of a public good like a park if there is some way to make the good excludable (fenced parks in London, country clubs, etc.). -Jeff Economists are not hostile to public goods. Public goods are facts to which economists apply theory like any phenomenon. There is nothing inherently good or bad about public goods. Fred Foldvary
Re: Private urban green space
today I had a discussion with a friend about urban planing and the necessity of public provision of urban green space (parks etc.). Do you know cases of private provision of urban green space and in that case, how do they make money out of it. Steffen Many residential associations provide green space, as do land trusts and proprietary communities such as Walt Disney World. See my book * Public Goods and Private Communities *, chapters on Arden Village, the Reston Association and Walt Disney World. Fred Foldvary
Re: [armchair] Re: spamonomics
Fraud is not part of the market. Fred Foldvary --- Ron Baty [EMAIL PROTECTED] wrote: Fraud should not be part of the market but always has been and will likely continue to be part of any realistic market A pure market consists of voluntary economic acts, and theft, including fraud, has involuntary victims, so fraud is outside the pure free market. You are really saying that there will always be attacks on property rights; but these are violations of rather than part of a pure market. In a free market economy how would you eliminate fraud without limiting the free market or changing human nature? Of course no policy can eliminate fraud; rather, optimal policy seeks to minimize the net social cost of fraud. And is it not the presence of fraud, using a broad definition, that enhances the effect of reputation in market exchanges. I don't see why that would be the case. Fred Foldvary
Re: spamonomics
--- Christopher Auld [EMAIL PROTECTED] wrote: Followed closely by offers from extremely respectable officials in Nigeria who will give me hundreds of thousands of dollars merely for sending them my chequing account information. One can see how the first three products are highly complementary, but I don't see how the third relates. The complementarity is the belief in magic, that one can create something out of nothing, getting rich without work effort or getting something for your body beyond the natural possibilities frontier. This ultimately comes from parents teaching children that there is magic, e.g. Santa Claus and the tooth fairy. If parents would keep it real with children, children would be less likely to belive in getting something for nothing or something beyond the possibility frontier. Fred Foldvary
Re: increases money supply over time?
Fred Foldvary Wrote: The Fed buys bond and in effect pays with a check. john hull [EMAIL PROTECTED] wrote: To buy back bonds, it must have sold them at some time in the past. No. The Fed does not buy the bonds back. They buy bonds in the market, just as any buyer would. If you buy bonds, that does not imply that you sold them previously. I don't know anything about blue lines, Some emails in this list in HTML have a blue line at the left. When I reply, that verkakte blue line is still there. I turned it off in this reply by using plain text rather than HTML. Fred Foldvary
The blue line
You're at the bar with your buddies, and BillGates walks in through the door. Obviously the distribution of wealth hasbecome more unequal. But do you really feel worse off?--- I'd like to know how the annoying blue line at the left gets put into email, why one would inset it, and whether onecan removeit in replying. Fred Foldvary
Re: Too many choices
--- [EMAIL PROTECTED] wrote: He says that as the number of choices we have grows (for products) we become less happy, Is he just guessing, or is there evidence for this? that it is too hard to know which toothpaste, for example, to buy. That seems ridiculous. People tend to settle on one brand and stick to it. All of this affluence and choices has made us less happy. Another conclusion from thin air? Could it not be something like less satisfactory relationships, or worry about war, or more stress? It seems that as we become freer to pursue and do whatever we want, we get less and less happy. What data makes it seem so? What do list members think of this? Where's the evidence? If people are too affluent, could they give some of their money away and become happier? This is in fact what many of them do. Fred Foldvary = [EMAIL PROTECTED]
Re: why aren't we smarter?
--- [EMAIL PROTECTED] wrote: American Jews tested below average on Army intelligence tests conducted around the turn of the last century (1900) I suspect this was not a pure IQ test but had a bias towards education, and at that time, American Jews, especially recent immigrants, many not have been so well educated, and now they are. I do wonder about the meaning of IQ tests. I test out in the top 1% of the IQ distribution but have been singularly unsuccessful. Although it's anedotal, I know many other unsuccesful high IQ people as well. Clearly high IQ and success don't automatically go hand in hand. David Levenstam Success in what? Many high-IQ persons do not have wealth as their highest goal. Also, chance falls equally on the high and low IQs. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is a dollar today worth more than a dollar tomorrow?
--- John Morrow [EMAIL PROTECTED] wrote: By the way, there have been times and places where the measured real interest rate was essentially zero; I think this happened in Japan in the 1990s. So the question is, why at the zero rate was there not greater demand to borrow? The answer may well be that the expected future inflation and real interest rates were highly uncertain, and the transaction costs of getting and exiting from a loan were high, and there was a high level of risk aversion. What counts is not just the cost of borrowing but also the expected return on the borrowings, and if business conditions are bad, then the demand for loanable funds may be low because of uncertain earnings or asset appreciation. The inflation part of the nominal interest has to be paid in actual dollars, and so high rates of inflation may well deter demand. A low real rate of interest induces more borrowing, other things equal, but with higher inflation and greater business uncertatainty, other things may not be equal. Fred Foldvary = [EMAIL PROTECTED]
tax credit for housing?
--- Tigger [EMAIL PROTECTED] wrote: I support an alternate way for the gov't to support housebuying: 50% tax credit on house payments (interest and principle), with some lifetime maximum ($2, 3, 400 000?). Tom This tax-credit subsidy will add to demand and further increase the price of housing, which then requires a bigger credit. The credit reduces tax revenue, and so for a given budget, other taxes get increased, so the result is further distortion of prices and a greater excess burden on the economy. This treats the symptom rather than cure the cause. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is a dollar today worth more than a dollar tomorrow?
--- Marko Paunovic [EMAIL PROTECTED] wrote: OK. Then, as long as the expected profit from building a factory is higher than zero, I would not lend the money at zero interest rate. If at a zero rate of interest, the quantity of savings exceeds the quantity of borrowings, savers would earn zero interest. Borrowers would just pay the overhead costs and a risk premium and an inflation premium. You as lender would earn a wage for engaging in the lending business, but the pure interest rate would be zero. The reason the interest rate is positive is that at a zero rate, the quantity of funds demanded for loans exceeds the quantity of loanable funds from savings, so this scarcity drives up the rate just as with other prices. Fred Foldvary = [EMAIL PROTECTED]
Re: Real wages constant since 1964?!
If you measure wages in desk calculators instead of dollars, I'm sure they've gone up substantially! ;-) --Robert And if you measure wages in units of a real-estate price index, they have gone down substantially! Fred Foldvary = [EMAIL PROTECTED]
Re: Why is a dollar today worth more than a dollar tomorrow?
On 2003-12-05, john hull uttered: For some reason, I can't get it straight in my head why the risk-free rate of interest would be higher than zero. The easiest example I know of is, would you be happy saving all of your income for the next year, without receiving a formidable compensation? Sampo Syreeni, aka decoy - mailto:[EMAIL PROTECTED], tel:+358-50-5756111 That does not explain it, because many folks would save SOME of their income even if the interest rate were zero. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is a dollar today worth more than a dollar tomorrow?
--- Marko Paunovic [EMAIL PROTECTED] wrote: In a risk-free world I can't fail. Risk-free interest is quite different from a risk-free world. We need to assume the usual risky world, but a loan that is sure to be repaid and with the interest sure to be paid, which US treasury bonds currently come close to. Fred Foldvary = [EMAIL PROTECTED]
Re: Inflation-Free Currency
--- john hull [EMAIL PROTECTED] wrote: Some sources of info claim that currencies can be made to be resistant/immune to inflation. Yes, if the unit of account is an hour of unskilled labor or a commodity. If we use an Hours model, then the currency is worth 1 hour of (anybody's) labor _or_ $10 in terms of real dollars. Next year, it is worth one hour or $9.70, let's say, in real dollars. So if the value in dollars is declared by fiat, then it needs to be changed periodically to maintain purchasing power. The local currency unit is still the hour, so it does not matter how hours exchange with dollars or euros. They are trading an hour of labor for a pound of carrots regardless of the exchange rates with fiat money. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is local currency good or bad or neither?
--- Sampo Syreeni [EMAIL PROTECTED] wrote: On 2003-10-30, Fred Foldvary uttered: So basically this is a response to credit constraints. Another reason people may be inclined to use local currencies is that the narrow circulation and informal accounting usually associated with them make it difficult to collect taxes on the associated transactions. At least in some cases we can analyse local currencies as instances of tax evasion. So why not just use federal paper dollars for that? Another common reason why local currencies are used is unemployment. When people are unable to earn a living on the open market, they'll have to rely on friends and neighbours for help, which easily leads to reciprocal trade in services. That can easily spread and give rise to a new, local currency when bilateral trade no longer suffices. From this perspective local currencies can also be a means to circumvent labor market rigidities. Again, why not just use federal cash? What I can't fathom is why these people engage in indirect trade, use what is essentially money and even compete, but still think that it's somehow more neighbourly or human to do all this in an alternative currency. What is more neighbourly is the local organization and the relationships it fosters. The use of LETS or local currencies is incidental to this. Fred Foldvary = [EMAIL PROTECTED]
Re: financial leverage
--- Tyl [EMAIL PROTECTED] wrote: I don't see how bond would be a loser if interest rates goes higher since I will locking in a bond that yields a higher coupon rate than the borrowed rate. If you can borrow money at a lower interest rate than what the bonds pay, and you hold the bonds until maturity, then yes, you will have a profit if the inflation rate has not risen to offset the after-tax gain. If the interest you pay on your borrowed funds is tax-deductible but the interest you receive is not taxable, so much the better. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is local currency good or bad or neither?
--- Burns, Erik [EMAIL PROTECTED] wrote: and also of e-gold (which is still around: www.e-gold.com), all of which use tokens rather than dollars (which are tokens too). Gold is not a token. Gold is a real commodity. Tokens are substances of little intrinsic value which can be exchanged for something of real value, like a ticket to a movie, or like fiat paper money. What we call coins today are really tokens rather than true coining of precious metal. these always seemed to me to be ADDING a step to transactions rather than making them easier. What step does it add to exchange in terms of gold ounces rather than dollars? It is a step to translate from dollars to gold, but if you reckon in terms of gold ounces, then the extra step is to translate to dollars. and the argument that e-gold solves the fiat money problem is, to me, false because you're stuck with gold's value being determined by a market that's priced in ... dollars. The fiat problem is the arbitrary inflating of the amount of currency, which does not take place with gold. Gold's value is relative to everything else, not just dollars. Those who had their money as gold during the past couple of years are not crying. Fred Foldvary = [EMAIL PROTECTED]
Re: Why is local currency good or bad or neither?
People also often suffer from a confusion between income and money. They tend to think of the two as synonymous, that anything not received in money isn't income and therefore isn't taxable. Precisely. If we drop the distinction, we can for instance easily see that all sex is actually prostitution of one kind or another. Sampo Syreeni, aka decoy - mailto:[EMAIL PROTECTED], tel:+358-50-5756111 No, prostitution is sex in exchange for money or goods, when there is no emotional or relational benefit from it. If one obtains psychic income from sex, one has not really prostituted oneself. Fred Foldvary = [EMAIL PROTECTED]
Re: gold rush
What do you feel is the main reason why there has been such a steep rise in the price of gold in recent times? Chris Macrae One reason is that Chinese residents are now able to buy gold, where it was formerly more restricted. Also, I have read that the government of China is buying gold. Also, the price of gold was depressed for so long that once demand rose, others took note and bought. Fred Foldvary = [EMAIL PROTECTED]
Re: intellectual property
--- Barney Hamish [EMAIL PROTECTED] wrote: How does the market decide that the _thought_ creation belongs to the creator as you state? The publisher includes a contract with the book that states that the seller agrees not to copy the book, and not to transfer it to anyone unless the next owner also agrees not to sell the book. It would be like a covenant that goes with the book. Fred Foldvary = [EMAIL PROTECTED]
Re: immigration: net gain or net drain?
--- Bryan Caplan [EMAIL PROTECTED] wrote: All it claims is that immigrants reduce wages. But this is by definition balanced by the extra surplus enjoyed by employers. If the surplus is general to the economy, then is it not the case that in industries with competitive markets for labor and capital goods, and with substantial competition in the goods markets, providers of labor and capital goods earn their marginal products and firms have zero economic profits, so the surplus goes to land rent? If so then it is not employers qua firms who get the surplus, but the landowners. Firms which rent their premises would get no surplus from being employers. Fred Foldvary = [EMAIL PROTECTED]
Re: Horses and Subsistence Farming
The issue is marginal productivity, not average productivity. The subsistence scenario is one where the supply curve of laborers is low and fat. The demand curve may rise to great heights, but eventually if falls down to meet such a low supply curve. Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Even when horses increase marginal productivity, that may not lift farmers above subsistence. If they don't own the land, they pay rent to a landlord, who might be able to absorb the wealth above the subsistence level, if there is no free land available of that quality. Every farmer gets a horse, but that is to achieve, rather than rise above, subsistence. Fred Foldvary = [EMAIL PROTECTED]
Re: California Recall
--- [EMAIL PROTECTED] wrote: I'd wager $10 that Davis will be recalled--and then win reelection. David Does the recall law permit the incumbent to be on the ballot for the new governor if he loses the recall? Fred = [EMAIL PROTECTED]
Re: California Recall
--- fabio guillermo rojas [EMAIL PROTECTED] wrote: It seems that optimal strategy for Democrats is to choose one candidate and pay off the others not to run, and hope the GOP vote is split. Fabio If Governor Davis is recalled, the election for the next California governor will be won by a plurality. With many candidates on the ballot, a well-organized group can win the plurality even if they have a small total portion of the vote. So far, the Democrats do not want to put up a major candidate because that would increase the vote to recall the incumbent. So the optimal strategy for the Democrats would be for Davis to win the recall election, thus they are avoiding providing an attractive Democrat alternative. Fred Foldvary = [EMAIL PROTECTED]
Re: California Recall
Schwartzeneger will not run, so Riordan, a Republican 2002 primary-election candidate, will run, and is most likely to win the plurality race. Negative ads knocked him off the general election in 2002, but will not work so easily this time. What's the predicted outcome? Fabio = [EMAIL PROTECTED]
Re: Absolute vs. relative income level
i think there is a at least partial contradiction between the hypothesis of diminishing marginal return of income and the hypothesis that people care about consuming more than their neighbors or about earning more than their neighbors (Frank: Luxury Fever). If the latter is true than the first hypothesis is weak. What do you think about this? Steffen If the latter is true, it too can be subject to diminishing marginal returns. So where is the contradiction? Fred Foldvasry = [EMAIL PROTECTED]
Re: Absolute vs. relative income level
--- Tigger [EMAIL PROTECTED] wrote: Fred ( Alpius) are acting dense. Density is efficient. With greater density, we get more mass per volume, thus a more efficient use of space. A desire to earn more than the neighbors seems to say that at a level equal to the neighbor, the next dollar has a (much?) greater return than the prior few dollars--obviously contradicting the diminishing. This does not contradict diminishing marginal utility. DMU proposes that for a given good, after some amount, extra amounts yield ever diminishing extra utility. For a different good, marginal utility starts all over again. I get diminishing marginal utility from consuming more and more apple, but if I switch to organge, my marginal utility can go up. The good of beating one's neighbor is a different good than that goods obtained for incomes up to that of the neighbor. If a particular threshold of income is needed in order to get utility from a good (i.e. having more than the neighbor), marginal utility theory is not contradicted but simply does not apply. The maximization of utility from a mix of goods implies that the goods are obtainable. Once one achieves the threshold and can then obtain the good, marginal utility kicks in. One gets more of the new good until its marginal utility per cost is equal to that of anything else. The implication is that after the threshold, one would strive to get more income until extra neighbor-beating has the same utility as extra other goods or extra leisure. Fred Foldvary = [EMAIL PROTECTED]
Re: calculating the irrational in economics
Calculating the Irrational in Economics By STEPHEN J. DUBNER the average investor is hardly the superrational homo economicus that mainstream economists depict. Who depicts it? What's the difference between superrational and rational. behaviorists are essentially calling for an end to economics as we know it. A good reason to be wary. Most revolutions are just spin. The point is that too many options can flummox a consumer. So what? Standard economics would argue that people are better off with more options. Where does standard economics argue this? This sounds like straw. But behavioral economics argues that people behave less like mathematical models than like - well, people. No doubt many mathematical models are unrealistic. But their purpose is not to be realistic. Among the behaviorists, there is the common sentiment that economics has been ruined by math. Others say this also. Richard H. Thaler. His paper, written with the legal scholar Cass R. Sunstein, was called Libertarian Paternalism Is Not an Oxymoron. Mr. Thaler has concluded that too many people, no matter how educated or vigilant, are poor planners, inconsistent savers and haphazard investors. His solution: public and private institutions should gently steer individuals toward more enlightened choices. That is, they must be saved from themselves. Mr. Thaler's most concrete idea is Save More Tomorrow (SMarT), a savings plan whereby employees pledge a share of their future salary increases to a retirement account. That's a good idea, but it does not overturn economics. an automatic asset reallocation to keep an employee from holding more than 20 percent of his portfolio in company stock. Better yet, use modern portfolio theory and invest only in index funds. Fred Foldvary = [EMAIL PROTECTED]
Re: some people are optimizers
--- Wei Dai [EMAIL PROTECTED] wrote: and also often act directly against the interest of their genes (e.g., deciding not to have children) when they apply more rational decision processes. Why is deciding not to have children against the interest of the genes? Genes also induce people to want happiness, and children are very costly, at least in modern society. So the net benefit of children may well be less than alternatives. Note also that modern parents stop at one or two children, rather than many, and is that too against the interest of the genes? Human genes endow people with the intelligence to choose not to have children when the cost and risk are high. Fred Foldvary = [EMAIL PROTECTED]
Re: socialism historical?
So what label would you use? Fabio I would avoid using the labels capitalism and socialism. Substitutes for capitalism: 1) private enterprise 2) free market; free enterprise; pure market 3) market economy 4) interventionism 5) mixed economy Substitutes for socialism: 1) forced redistribution 2) command economy 3) government ownership 4) worker cooperatives; worker ownership of capital 5) forced collectivism Fred Foldvary = [EMAIL PROTECTED]
Re: socialism historical?
--- [EMAIL PROTECTED] wrote: You seem to confuse the concept of subordinating the individual to a greater human collective to subordinating the individual to the will of the tyrant. But does not the practice of the subordination of the individual to the collective go back to ancient times, indeed to pre-historical tribal practice and belief? Fred Foldvary = [EMAIL PROTECTED]
labor supply
labor supply elasticity is near-zero... Prof. Bryan Caplan Does this take into account when workers can choose to work overtime, take more or less vacation, retire earlier or later, have a second household worker employed or not, have a second job or not, take time off without pay or not? Does this take into account that workers may migrate or change their commute destination? Also, if labor has a fixed supply, does this include the premium for human capital? Fred Foldvary = [EMAIL PROTECTED]
socialism historical?
--- [EMAIL PROTECTED] wrote: government money, as it predates socialism, probably doesn't rightly fall under the category of socialism. Does the meaning of socialism include a time frame, so that a policy that is socialist after that time is not socialist before that time? What is socialism, what year does it take effect, and why is the time element involved? Fred Foldvary = [EMAIL PROTECTED]
Re: Health insurance for kids
Now I work for the state of Texas and my policy is set up similarly. Adding my wife costs $150 per month and adding any number of children costs $120 per month. And her policy at a law firm is also structured the same way. How can this be rational? -Jeffrey Rous Find out whether the insurance company has laid down this policy or whether the employer is subsidizing the extra children. Fred Foldvary = [EMAIL PROTECTED]
RE: decreasing voter rates, a simple theory
use scientific sampling to select 1200 representative voters ~Alypius The foundation of the republic is the sovereignty of the citizens, which is manifested by their individual votes. That could be preserved by a system in which a voter may volunteer to delegate his vote to the sample set, just as shareholders of a corporation may delegate to proxies. Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
--- Wei Dai [EMAIL PROTECTED] wrote: a donor should give all of his contributions to one charity, and not spread them among several. The logic is almost exactly the same. Likewise, a parent with several children should confine his spending to one child and let the rest die off. The logic is exactly the same. Fred Foldvary = [EMAIL PROTECTED]
Re: charity and time preference
--- Wei Dai [EMAIL PROTECTED] wrote: ... surely one should either borrow money to do a life time worth of giving right away, or save and do all charity in one's will, or otherwise concentrate all charity giving to a single moment in time. That should generalize to raising children; when one's child is born, one should borrow enough money to create a fund that will pay for all the child's expenses until his age of maturity, rather than pay for the child's expenses every year out of one's income. Yet nobody does this! Fred Foldvary = [EMAIL PROTECTED]
Re: broadcast spectrum rent
excellent case could be made for either requiring the spectrum to be used for anything *but* television (best), or making television a government monopoly: ~Alypius That reflects your personal preferences, but what is the moral justification for imposing your anti-TV personal values? Fred = [EMAIL PROTECTED]
Re: charity and time preference
--- Wei Dai [EMAIL PROTECTED] wrote: By holding on to my money, I'm actually increasing the present value of the gift from the perspective of the recipient. Can anyone find a flaw in this argument? If the discount rate used for present value equals the interest rate of the investment, then the amount of funds today equals the present value. Some charities have an urgent need at the present, such as earthquake aid or feeeding people in a famine. If one gives later, it would be too late. Fred Foldvary = [EMAIL PROTECTED]
broadcast spectrum rent
--- Wei Dai [EMAIL PROTECTED] wrote: the broadcast spectrum currently used for television may be worth as much as $400 billion in an auction. How are the 15% of households who still watch TV over the air able to prevent this spectrum from being sold for another use? They should not be able to. The spectrum should be auctioned to the highest bidders who pay for a leasehold franchise good for several years, after which it is again put up for leasehold bid. The annual rent would go to the US Treasury. With a 10% return, that would be about $40 billion. Today, the spectrum holders have a license from the federal government at no charge. But the spectrum legally belongs to the people. So the spectrum holders are receiving an implicit subsidy. The spectrum leaseholders should be free of any content restrictions (other than the usual laws about fraud). That would create a market for the highest and best social use of the spectrum. Fred Foldvary = [EMAIL PROTECTED]
Re: Charity
--- Jason DeBacker [EMAIL PROTECTED] wrote: Why don't more people give more money to charity? - The history of charitable money getting into the wrong hands has scared people from donating. Yes, and also the fact that in many charities, most, even up to 80 percent or more, of the donations go to fundraising and expenses. - There is some kind of market failure. But we don't have a pure market, so there may be government failure mixed into this. - People really don't care about helping someone else, but are ashamed to admit that. But there is a great deal of charity giving as well as much volunteer time. Social entrepreneurs can stir up sympathy for a cause. There is also a great lack of information about the various charity options. For example, my favorite charity is the Pygmy Fund, which is helping the Pygmy people in the Congo (Zaire) to survive amidst the war and disease in the area. It is a small organization that hardly anyone knows about. I donate to it because I know the head man (Jean-Pierre Hallet) and am confident that all of my donation is going to the cause rather than to fundraising and plush offices. It seems to me there is an entrepreneurial opportunity to provide a comprehensive Guide to Charities that would list them and their expenses. Fred Foldvary = [EMAIL PROTECTED]
Re: Timing of Mother vs. Lover Flowers
Also Mother's day always falls on a Sunday which reduces delivery options (not to zero but fewer options are available on Sunday) and raises the attractiveness of sending flowers to arrive on the Friday or Saturday prior. Alex If someone personally cuts some flowers from a garden (with permission) and puts them in a vase one already has, in the general American culture, who would likely think that this is a thoughtful gift because of the personal effort, and who would likely think the giver was being cheap? a) mother b) wife c) exclusive girlfriend d) non-exclusive girlfriend Fred Foldvary = [EMAIL PROTECTED]
Re: Is a non-optimizing organism evolutionarily viable?
--- john hull [EMAIL PROTECTED] wrote: Is an organism that routinely fails to optimize evolutionarily viable? Human beings, for example? Fred Foldvary = [EMAIL PROTECTED]
RE: Rational Paranoia? A strange idea...
What is paranoia? The typical example is the leftist who believes that the FBI is out to get them, or is behind every wrong in the world. Fabio The former is paranoia; the latter is not. The latter is a conspiracy proposition. Unusual beliefs are paranoid if they do not permit an individual to cooperate with most others in a game of imperfect information. That does not capture the meaning of paranoid, since others could fit that also, and it seems to me that paranoid people might well be willing to cooperate; they just have different assumptions about social reality. It seems to me that paranoia is a belief, not a behavior. It can lead to particular behaviors, but paranoia by itself is not sufficient to cause any particular behavior. Fred Foldvary = [EMAIL PROTECTED]
RE: Questions about the stagflation episode...
--- Grey Thomas [EMAIL PROTECTED] wrote: First off, if macro is at all close to a science, there should be near unanimity, among macro experts, Is there unanimity among anthropologists and biologists and physicists and medical researchers? Fred Foldvary = [EMAIL PROTECTED]
Re: Questions about the stagflation episode...
Also, almost all the profession will now also agree that ... a large fraction of what we call business cycles are the natural responses of an economy to real shocks. Alex Would that fraction include the downturn that followed the 1990s techno-boom, the recession having begun before the Sept. 11 shock? Fred Foldvary = [EMAIL PROTECTED]
Re: Advise to Journalists: keep it real!
--- Alex Tabarrok [EMAIL PROTECTED] wrote: I will be giving a 15-20 minute talk to a bunch of journalists and proto-journalists ( most of them are editors of student university newspapers) about what economics has to offer journalism. I am interested in the suggestions of list members as to what the most important lessons economics has to teach. I have a number of thoughts myself, of course, including I tell students that the most important lesson economics teaches is to understand the reality beneath the superficial happenings and appearances of economic activity. I tell students that the motto of economics is keep it real. That gets a good response. This is why economics uses economic profit, opportunity cost, real interest, real GDP, etc., rather than nominal and accounting data, and why what is unseen has to be understood along with that is seen, and the total and long-run effect along with the immediate and local effect. Tell the journalists to keep it real. Economics discovers and analyzes the implicit realities. Fred Foldvary = [EMAIL PROTECTED]
Re: are real estate markets competitive?
--- [EMAIL PROTECTED] wrote: Federal, state and local land regulations often discourage the conversion of currently-farmed land for other purposes, like indstrial or high-density residential use. The number of people engaged in full-time farming has continued to decline, and virtually nobody not already engaged in farming or from a farming family enters farming. There's thus little additional demand for farming land, But don't the billions of dollars of farm subsidies benefit some farmers, making their land more valuable? When farmers are grandfathered into price supports, does this run with the land or with the farmer? Fred Foldvary = [EMAIL PROTECTED]
Re: Bubblemania
How does one figure out discount for things like earthquakes, terrorism or other disasters? Fabio Where the probabilities are unknown, there is uncertainty rather than insurable risk, and such chances are like many other uncertainties that entrepreneurship necessarily deals with. One either confronts or disregards the uncertainty. People could escape the threat of terrorism by moving to New Zealand, but few seek that option. I live in California where earthquakes can strike, and choose not to move out. So there are worse things than these possible disasters. People prefer a low chance of disaster than the sure trauma of changing locations and affiliations. Fred Foldvary = [EMAIL PROTECTED]
Re: are real estate markets competitive?
--- john hull [EMAIL PROTECTED] wrote: In most localities is seems that real estate markets are pretty heterogeneous in terms of both land characteristics and extant buildings, Actually, the land is quite homogenous. Your neighbor's land is not much different from your's, unless one of you lives in a corner lot. the markets might often be pretty thin, especially outside of urban areas. In cities, they seem to be thick enough, as I see listings of many properties sold every week. real estate markets aren't competitive, in the economic sense of the word? In the sense of rivalry, there is plenty of competition in cities. Maybe not in some rural areas. Fred Foldvary = [EMAIL PROTECTED]
RE: Lester's extreme compatibility thesis
--- Gil Guillory [EMAIL PROTECTED] wrote: ... I think there's something to Hoppe's and von Kuehnelt-Leddihn's arguments that monarchy is superior to democracy with regard to this general problem of what we might euphemistically call the externalities of war. Does World War I and its initiation by the monarchies of Germany, Austria, Turkey, the UK and Russia, fit this? Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
--- Birgir Runolfsson [EMAIL PROTECTED] wrote: But that makes the player indifferent between playing for the team that values him at $1,000,000 and the one that values him at $ 100,001, and therfore there is no certainty that the resource (player) will be allocated to its most valued use. If the tax is $899,999, this implies that the player was already getting paid $1 million. The tax will not make the player leave. Another team will not offer $100,001 because the premise was that the next best opportunity was $100,000. Fred Foldvary = [EMAIL PROTECTED]
neutral taxation
Economic rent is a payment not need to put a factor into its most productive use. But use is relative. Consider a basketball player who has offers of employment in basketball from team A at $1 million, team B at $800 thousand, and team C at $500 thousand. The higher the offer, the better the team. If he did not play basketball, his best opportunity would be working as a model at $100 thousand. The economic rent paid by team A relative to team B is $200 thousand, and A need not offer more than $801K if it knows the offer from B. But if A is paid $1 million, the economic rent of him playing basketball at all is still $899,999. If the economic rent is to be taxed, there are two cases: 1) The government knows that the basketball economic rent is $899,999, and that amount is taxed. The player plays for A in order to pay the tax. 2) The government does not know the economic rent among the basketball teams, but it does know that the next best opportunity if he does not play basketball is $100,000. The government taxes the income above $100,000 at, say, 90 percent, providing an incentive for the player to accept the best offer, but still taking most of the economic rent. In both cases, the player plays for A, so the tax did not affect his choice. Fred Foldvary = [EMAIL PROTECTED]
Re: neutral taxation
--- Birgir Runolfsson [EMAIL PROTECTED] wrote: there is no certainty that the player will end up playing for the team that values his services the most. He will be indifferent between playing for any team valuing him at more than $20. Given a tax on economic rent of 90%, with income above $100,000 being economic rent, with a team that offers him $1 million, his net is 100,000+.1*900,000= $190,000. With a team that offers him $210,000, his net is 100,000 + .1*110,000 = 111,000. Why would he be indifferent between $190,000 and $111,000? Fred Foldvary = [EMAIL PROTECTED]
Re: neutral taxation
--- Eric Crampton [EMAIL PROTECTED] wrote: On Sat, 18 Jan 2003, Fred Foldvary wrote: 2) The government does not know the economic rent among the basketball teams, but it does know that the next best opportunity if he does not play basketball is $100,000. The government taxes the income above $100,000 at, say, 90 percent, providing an incentive for the player to accept the best offer, but still taking most of the economic rent. Ummm...wouldn't we rather quickly see teams stop offering wages above $100K and offering in-kind benefits instead? Not if the benefits are taxed the same as wages. The issue is whether there is a neutral tax, and I concocted an example of one. The example premise is that income above $100K is taxed at 90%, and in-kind benefits are income. This is an example for illustration, and bringing in other data changes the premise. Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
[Tax neutrality] would be one that would not impact any person or group more than any other person or group. I.e., there would be no redistributive effects from the taxation. Dan I don't think that type of neutrality is possible. Suppose there is a poll tax, where everyone pays the same amount, and the funds are used to provide a collective good. Since utility is subjective and differs among persons, the value of the good would differ among the persons. Thus there would be an implicit redistribution from those who don't highly value the good to those who do. Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation? with respect to what?
--- [EMAIL PROTECTED] wrote: By neutral I actually thought you mean one that wouldn't prejudice people's economic behavior. By that definition I can't imagine any neutral tax. Why can you not imagine that a tax on economic rent is neutral? Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
--- Susan Hogarth [EMAIL PROTECTED] wrote: A tax on economic rent is neutral, since by definition, economic rent is income not necessary in order to put a factor to its most productive use. I don't understand this. Could you expand it a bit, please? Susan Hogarth Suppose a basketball star gets $1 million per year. If he did not play basketball, the next best opportunity would be to be a model earning $100,000 per year. So he would play basketball for $100,001. The rest of his income comes from his personal monopoly, and is not needed to get him to play basketball. This is economic rent, a surplus. The economic rent could be taxed, and he would still play basketball. Most of the rent of land is economic rent. By land I mean natural resources, including the space around the earth. So buildings and improvements are excluded from land, including the preparation of the soil or surface. Since land is here by nature and cannot be created nor moved, the supply is fixed. Unlike labor, land does not seek leisure. So to put a plot of land to its most productive use, the title holder need only retain a small fraction of the rent (say 10 to 20 percent), and the rest is economic rent. That rent can be taxed without any reduction in the amount of land or any diminution of its productivity. If the landlord had already been charging the maximum rent the market can bear, the tax on rent cannot be passed on to tenants, so it is neutral with respect to economic action. Fred Foldvary = [EMAIL PROTECTED]
Re: National sales tax (was: Re: Neutral taxation?)
--- Susan Hogarth [EMAIL PROTECTED] wrote: Has there *ever* been an instance where one type of tax has entirely replaced another, or even replaced in some 'revenue-neutral' fashion for even a few years, the tax it is proposed to 'replace'? Yes, prior to the Civil War, the US government several times enacted a direct tax on real estate and slaves. That helped to finance the War of 1812. As the Constitution required, it was paid in proportion to population (enumeration). Congress attempted such a direct tax in 1861, but now the western states objected. Their per-capita wealth was much lower than that of the richer northeastern states. So Lincoln pushed through the first income tax. The direct tax on real estate was never again implemented. With the passage of the 16th Amendment, Congress could now enact a tax on land rent without regard to population. Indeed, the Articles of Confederation authorized taxes from the states based on their land value. But now, this physiocratic concept has been forgotten and is no longer understood. It is still sound economics. Milton Friedman has called the tax on land value or rent the least worst of all taxes. Adam Smith said so too. Fred Foldvary = [EMAIL PROTECTED]
Re: May not be combined with other offers
--- Bob Steinke [EMAIL PROTECTED] wrote: However, giving cash in our society is gauche. You are not really giving cash, but you want the benefits of giving cash, so create a fancy home-made gift certificate good for reimbursement for the internet service, with a brief explanation of why this is a greater benefit. The certificate avoids the outre' cash, and when your friend hands you the certificate, at that moment it is a redemption and not a cash gift, as the gift was previously made by the certificate. It is not really cash, because you personalize it in the form of a certificate. Fred Foldvary = [EMAIL PROTECTED]
Re: questions about dividend tax cut
--- Jacob W Braestrup [EMAIL PROTECTED] wrote: an income is a certain payment at a certain date, subject to a formal or informal contract, That is income from an accounting view, but not from the economic perspective. Economic income has no regard for contracts. In economics, income equals consumption plus the change in net worth during some time. while a capital gain is uncertain and not guaranteed to be positive. The ex-ante uncertainty is irrelevant. Dividends are also uncertain ex-ante. For income, we take some time period, such as a year, and calculate the change in actual net worth. If the change in net worth is negative, it gets subtracted from consumption. It is possible for income to be negative. Fred Foldvary = [EMAIL PROTECTED]
RE: Neutral taxation?
I suppose there *could* be a neutral tax, but what would be the point? It would be something like taking five dollars from everyone and giving them back five dollars worth of 'services'. Susan Hogarth The whole point is to provide collective services. If you join a club and pay dues to get some services, do you then complain that you paid money and got services? Fred Foldvary = [EMAIL PROTECTED]
RE: Neutral taxation
--- Susan Hogarth [EMAIL PROTECTED] wrote: I would tend to agree with Larry Sechrest here -- viz., there are no neutral taxes. (Sechrest's position is laid out in his Rand, Anarchy, and Taxes in _The Journal of Ayn Rand Studies_ 1(2).) Do any of you agree? I suppose there *could* be a neutral tax, but what would be the point? It would be something like taking five dollars from everyone and giving them back five dollars worth of 'services'. Hmm, I guess that's truly not possible, though. Yes, I agree :) Susan Hogarth Triangle Beagle Rescue of NC www.tribeagles.org [EMAIL PROTECTED] = [EMAIL PROTECTED]
RE: Neutral taxation?
--- Grey Thomas [EMAIL PROTECTED] wrote: My own preferences are more towards a flat(er) tax, with a large (poverty level) deduction, and rates tending down (to zero?); a land tax, split between local, state, and federal (1/3 each? 50-25-25?); and ever increasing taxes on pollution. Given a tax on land value and on pollution, plus user fees, why would we also need a flat tax on income? It seems to me the former would be sufficient. Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
--- [EMAIL PROTECTED] wrote: I can't imagine any tax that would be neutral A tax on economic rent is neutral, since by definition, economic rent is income not necessary in order to put a factor to its most productive use. Fred Foldvary = [EMAIL PROTECTED]
RE: Neutral taxation?
Given democracy, one (adult) person, one vote, a strong case can be made for a neutral poll tax. Tom Grey The poll tax is what got Maggie Thatcher thrown out of office in the UK. The problem is that different people benefit differently from government services, and so the poll tax is not well correlated with benefits. The poll tax also amounts to forced labor. The poll tax is how the colonial governments in Africa got the natives to work in the fields. So the poll tax is not really neutral: 1) it is not related to benefits, hence it subsidizes some and penalizes others. 2) it forces workers to work extra to pay the tax in order to get some amount of net income. Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
--- [EMAIL PROTECTED] wrote: A tax on economic rent is neutral, since by definition, economic rent is income not necessary in order to put a factor to its most productive use. Fred Foldvary I'm not sure if I'm following this, but it sounds like you're saying that it's okay to tax non-productive income because that's bad. I'm surprised that it sounds like this, because I see nothing in my statement that implies it. From what do you infer a bad? That sounds very much again like a Progressive notion of taxation, Do you mean progressive as in the tax rate increasing with income? The rationale for taxing rent has nothing to do with this, and the tax rate would be flat. Incidentally, you talked earlier about taxing land value rather than rent Taxing land rent is the same as taxing land value. The price or value of land is based on the expected future rent. The simplified formula is: p = r / i, where p is the price of land, r the annual unchanging rent, and i the real interest rate. Given a tax rate t based on p, the equation is p = r / (i+t). The fraction f of rent taxed is thus f = t/(i+t) So for example if i=.05 and t=.20, the tax rate is 20% of the price of land, and the percent of rent taxed = .20/.25 or 80%. which might, as sometimes happens with existing real estate taxes, force the owner to sell his or her land just to pay the tax. That seems like one of the greatest wrongs of all. If that happens, the title holder is underusing his land. Otherwise, it would fetch a market rental higher than the tax on the rent. If the user holds idle land, then it is socially efficient for him to transfer the site to someone who puts it to a more optimal use. Fred Foldvary = [EMAIL PROTECTED]
Re: Neutral taxation?
I find some appeal in the notion of having to pay some small poll tax in order to vote. David B. Levenstam If there is no penalty in not paying the poll tax, and it is required for voting, then it is not really a poll tax but a tax on voting. Since the probability of my vote being decisive in large elections is epsilon, I would be very happy to have a voting tax and avoid voting. I just wonder how many people would pay the price of voting. Fred Foldvary = [EMAIL PROTECTED]
Re: Taxes direct and indirect
--- [EMAIL PROTECTED] wrote: I read the The Debate on the Constitution and discovered that direct taxes seemed to be one of those phrases that everybody thought he understood, but that in fact nobody could actually define. The distinction goes back to the French Physiocrat economists of the 1700s. In Physiocracy, there is a net product that comes from nature, which we now call an economic rent. A tax on the net product, or rent, is direct. Other factors, such as labor, do not have a net product, and a tax on these is ultimately shifted to rent. John Locke wrote along these lines also, so this proposition was thought of also in the UK. Locke wrote that all taxes are ultimately shifted to rent, and are therefore indirectly on rent. Consider a worker earning a substistance wage. If that wage is taxed, the worker goes below subsistence, so the employer will increase the gross wage to leave the net wage the same. This reduces his profitability, so he bids less to use land, and rent falls. So the wage tax is indirectly on rent. Thus, by this view, a tax on rent is direct, and all other taxes are indirectly on rent. This distinction between indirect and direct taxes drifted to America and into the constitutional convention, where it was only vaguely understood, which is why some thought it involved taxes on heads and slaves in addition to land. Interestingly, when the US Supreme Court knocked down the federal income tax in 1894 as violating the direct/indirect distinction, they referred to Physiocratic doctrine. Fred Foldvary = [EMAIL PROTECTED]
Re: questions about dividend tax cut
why the dividend tax, instead of the corporate income tax, is being proposed for a cut? If there are zero taxes on corporate profits, but taxes on dividends, then the incentive is to retain earnings rather than pay dividends, and the shareholders get the profits tax-free until the shares are sold for capital gains. The shares might never be sold, but passed on to heirs. For tax fairness, given the income tax, all income should be taxed equally, and for efficiency, the tax system should minimize the impact on decisions. So it is better to tax corporate profits and then credit that against tax liabilities of dividend income. To achieve neutrality, unrealized gains should be taxed annually, and then we can forget about capital gains. That being said, the income tax is inherently unjust, complex, and burdensome, but that is another story. Fred Foldvary = [EMAIL PROTECTED]
RE: going on about 'statists' -- what tax policy works best?
Help please -- is there a good tract on Austrian tax policy, ordering or ranking various taxes? Tom Grey Probably not, but a good book on tax policy and the effects of current taxes is: The Losses of Nations, ed. Fred Harrison, 1998, Othila Press, ISBN 1 901647 15 3 Fred Foldvary = [EMAIL PROTECTED]
Re: Taxes direct and indirect
It's been a while since I read Pollock, but I don't recall anything like what you're describing. David Levenstam See: http://www.geocities.com/antitaxprotestor/harvard.html From Pollock v. Farmers': All the acts passed levying direct taxes confined them practically to a direct levy on land. True, in some of these acts a tax on slaves was included, but this inclusion, as has been said by this court, was probably based upon the theory that these were in some respects taxable along with the land,... Fred Foldvary = [EMAIL PROTECTED]
Re: Tax cuts and US citizen responses
Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Koushik Dividend tax cuts also favor retired folk whose income comes from dividends and interest. Some ordinary Americans also recognize the unfairness of taxing corporate profits twice. They also favor that corporations will borrow less and be less vulnerable to a collapse. They also think that paying more dividends will make give the shareholder more of the profits and make the company less vulnerable to looting by the directors and executives. Some believe that lower marginal tax rates will lead to more investment. Fred Foldvary = [EMAIL PROTECTED]
Taxes direct and indirect, was: Dividend Tax cut
In the 1796 Hylton case the Supreme Court accepted Hamilton's view that the only direct taxes are the poll tax (a tax on heads, not on voting), and taxes on real property and slaves constituted direct taxes. Taxes on other items were indirect. (They didn't use the current distinction that economists often use of direct taxes refering to taxes which the taxpayer pays directly to the government.) David Levensam Hamilton was incorrect, as was the Supreme Court. There is no logical reason why if a tax on a slave is direct, a tax on a horse is not also direct. If a tax on a house is direct, why not on a carriage? It seems to me that the Supreme Court reasoned illogically that since the 1790s tax on carriages was not proportioned by population, it was thus indirect. I can see the 18th century argument that only a tax on land is direct, as all other taxes ultimately get shifted to rent (cf. John Locke on taxation). But once a tax on slaves and on buildings is designed as direct, then so too must be taxes on a horse and carriage or any other property. Fred Foldvary = [EMAIL PROTECTED]
Re: questions about dividend tax cut
--- john hull [EMAIL PROTECTED] wrote: If the price of a stock is the PV of the dividend stream into the future, then should there merely be a one time jump in the value of a stock as a result? No. There is also a supply-side effect from cutting the marginal tax rate, from less uncertainty about the company as it shifts to less debt and more equity, as well as more investor confidence when the profits are sent to the shareholders rather than retained by possibly theiving executives. Fred Foldvary = [EMAIL PROTECTED]
Re: questions about dividend tax cut
--- Wei Dai [EMAIL PROTECTED] wrote: Cutting taxes on dividends while keeping taxes on capital gains seems to provide a perverse incentive for companies to retain as little profits as possible, leading to a higher rate of corporate bankruptcy in the future. My recollection from reading about it is that the proposal does indeed cut the tax on capital gains to the extent it is due to retained earnings, as the attempt is neutrality with repect to paying dividends or not. However, to truly do capital gains right, it needs to be indexed for inflation. Fred Foldvary = [EMAIL PROTECTED]
Re: Accountancy vs Entrepreneurship
--- Francois-Rene Rideau [EMAIL PROTECTED] wrote: What is the right technical name for what I call accounting cost? These are often called explicit costs in contrast to implicit costs. Fred Foldvary = [EMAIL PROTECTED]
Re: Babynomics
--- fabio guillermo rojas [EMAIL PROTECTED] wrote: By that logic, animals are economic actors - animals seem to choose their actions. To some degree, to the degree that choice is involved, some animals are economic actors. However, most animals seem to be controlled by genetic programming (instince), so choice is not involved, but the genetic behavior does indeed adhere to economizing, otherwise the species would not survive. The fittest are also the economizing. when do humans start to engage in *sophisticated* economic behaviors not found in animals? For example, at what age are children able to understand the concept of interest? In terms of discounting the future, or what? At what age do children understand that exchange can make you better off? When they understand that theft will not. Fred Foldvary = [EMAIL PROTECTED]
Re: Dividend Tax cut
--- Tommie M. Jones [EMAIL PROTECTED] wrote: I was wondering what you all's opinions are on the elimination of the dividend tax President Bush is endorsing. Given that the rest of the income tax code stays the same, it would be better to have a tax credit for dividends, proportional to the income taxes paid by the corporation. The Bush proposal also eliminates some capital gains that are due to retained earnings, to avoid skewing policy towards paying dividends to reduce the tax. To do it really right, both realized and unrealized gains from shares of stock should be taxed, with a credit for taxes paid at the corporate level. The capital gains tax could then be eliminated. Fred Foldvary = [EMAIL PROTECTED]
RE: going on about 'statists'
--- Pinczewski-Lee, Joe (LRC) [EMAIL PROTECTED] wrote: ... A world with the all inclusive Corporatist State or NO state would all be equally horrific. So, we debate at the margins of the middle ground for the best mix of us and me that works best. Two questions: 1) How was Medieval anarchic Icerland horrific? 2) It is possible to have a voluntary, non-state we, so there must be some other necessary distinction. Fred Foldvary = [EMAIL PROTECTED]
Re: Babynomics
Question: At what can humans engage in economic behavior? Are there studies showing when children learn to trade ? Fabio Humans start to engage in economic behavior as soon as they are born. Trade is not a necessary characteristic of economic behavior. The issue is rather whether infants are consciously choosing their actions. It seems to me that the genetic basis for behavior is the same in an infant as in an adult. Fred Foldvary = [EMAIL PROTECTED]
Re: FW: History shows paths to market crashes
--- Bryan D Caplan [EMAIL PROTECTED] wrote: (Incidentally, 7% sounds low relative to other averages I've heard. Burton Malkiel cites a figure of 10% real pre-tax if I recall correctly). Roger Clarke and Meir Statman, Winter 2000, The DJIA Crossed 652,230, Journal of Portfolio Management, have a table of DJIA: capital, wealth, real capital, real wealth, and after taxes, and for Wealth DJIA (including dividends) they put the geometric mean annual growth at 9.89%, 1896 to 1998, and for real wealth DJIA for those years they have 6.69%. For the SP, they have real wealth at 7.76%, wealth at 11%. Fred Foldvary = [EMAIL PROTECTED]
Re: FW: History shows paths to market crashes, but lessons seem forgotten
If one had a cynical bent one might suggest that the predominance of stories about the small bubbles in the huge cake batter of the miracle of modern economic growth stems from a prevalence of statists in the news media. David Levenstam What about the large bubbles? Fred Foldvary = [EMAIL PROTECTED]
Re: FW: History shows paths to market crashes, but lessons seem forgotten
--- Bryan D Caplan [EMAIL PROTECTED] wrote: I find it interesting that there are so many more articles about bubbles than about the underlying reality of the equity premium puzzle. This is a nice case where a little knowledge is a dangerous thing. The average investor would be far better off if they did think that enormous returns could continue forever because, in a deep though less dramatic way, they DO. I suspect that a lot of people have been turned off to stock ownership for decades in spite of the fact that they are the smart long-term bet. Two reason for owning bonds in addition to stocks are: 1) the long run for stocks can be a very long run, so short-term bonds are used for funds that need to be available sooner. 2) what counts is returns after tax, and the double-taxation of dividends plus the taxation of nominal rather than real gains reduces the compounding gain. For a 50% marginal tax rate, the real wealth return on the DJIA is only about 2.5%, relative to an untaxed rate of 6.7%. Thus, a high-income person may be better off in tax-free municipal bonds after having maxed out his tax-free retirement accounts. Fred Foldvary = [EMAIL PROTECTED]
Re: Fw: Brains and Capital
--- Alypius Skinner [EMAIL PROTECTED] wrote: The Force of Finance is an important new book that should cause investors to tear themselves away from their usual obsession with recession, earnings season and the accounting scandal du jour. I didn't see anything in this promotional review that provided any advice to an investor. Also, since he says the top brains go to America, why is he in Canada? Fred Foldvary = [EMAIL PROTECTED]
