• 16760_3.24_000011088049XSmall

    California and Kentucky

    Nov 20 • Economic Debates, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 538 Views

    Could we compare California’s relationship with Kentucky to Germany and Greece?

    Somewhat like Germany and Greece…

    • California and Kentucky share the same currency.
    • California has a more vibrant economy than Kentucky’s.
    • Workers in California earn more than workers in Kentucky.

    And yet, even though they are more productive and more affluent, California residents do not complain that a higher proportion of Kentucky’s residents receive Medicare and Medicaid funds. 

    Could we say that we in the US comfortably support “have” states’ taxes going to the “have-not” states while German citizens resist similar support for Greece? The parallel is inexact but it is interesting to contemplate.

    The Economic Lesson

    Now, as we try to diminish our deficit, the issue of redistribution resurfaces. Taking money from one group and using it for another, taxation redistributes income. Also though, by spending less, we are making a statement about redistribution.

    An Economic Question: Specifically noting “from” and “to,” how might different kinds of taxes redistribute income?

    The idea for today’s post came from this blog. Please do note that contrary to what that blog implies, California has a higher unemployment rate than Kentucky.

    No Comments on California and Kentucky

    Read More
  • 16758_7.19_000006524235XSmall

    Stagnation or Education?

    Nov 19 • Businesses, Demand, Supply, and Markets, Economic Debates, Government, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 576 Views

    Is the problem stagnation or education?

    For George Mason economist Tyler Cowen, it was all about his grandmother. Debating MIT economist Erik Brynjolfsson, Cowen reminded us that a long list of innovations including cars, antibiotics and refrigerators revolutionized his grandmother’s life. More recently? As he says in his book, The Great Stagnation, relatively little has changed. His conclusion? Stagnation is our problem.

    Disagreeing, Brynjolfsson specifically cites his brother’s heart transplant and the digital technologies that are transforming the workplace. In his book, Race Against The Machine, he takes us to the 3 gaps that are leaving many people behind: 1) higher skilled/lower-skilled workers; 2) superstars/everyone else; 3) capital/labor. His conclusion? Education is our problem.

    The Cowen/Brynjolfsson half hour debate is great to watch and for $3.99 each, you can download their books here and here.

    The Economic Lesson

    As a factor of production, capital can be divided into 2 categories.

    • Physical capital: The machines, buildings, and inventory that make labor more productive.
    • Human capital: The education that make labor more productive

    While both economists’ ideas intersect, we could conclude that Cowen is saying we need more innovative physical capital while Brynjolfsson is emphasizing how human capital needs to change.

    An Economic Question: How does the following relate to the Cowen/Brynjolfsson debate and economic growth? Defining the problem shapes the solution.

    No Comments on Stagnation or Education?

    Read More
  • 16756_3.17_31000008087744XSmall

    Health Insurance Dilemmas

    Nov 18 • Behavioral Economics, Businesses, Government, Households, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 521 Views

    Assume for a moment that you are slim, love broccoli and run 4 miles each day. Should your health insurance premium be lower than the amount paid by someone with an unhealthy lifestyle? Wal-Mart, PepsiCo and Safeway say, “Yes.”

    One Wal-Mart employee pays a $40 monthly smoking surcharge. PepsiCo charges $600 annually unless a smoker completes a smoking cessation program.

    But here are the dilemmas:

    • A regressive fee, the smoker’s surcharge represents a larger proportion of lower earners’ incomes.
    • Low earners have less access to health clubs.
    • An asthmatic might not be able to participate in a mandatory exercise program.
    • Health checks invade privacy.
    • Nicotine addiction is tough to overcome.
    • Obesity could be genetic.
    • Unaffordable surcharges might lead to less insurance coverage for certain people.

    And finally, our health is shaped by countless lifestyle decisions. Is it fair to focus on smoking and weight?

    Reuters and the NY Times discuss the health-care issues here and here.

    The Economic Lesson

    An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, we call the result a negative externality.

    Smoking and obesity create a negative externality because higher health costs smokers raise everyone’s insurance premiums.

    A benevolent impact on an uninvolved third party is called a positive externality. A community experiences the positive externality of flu vaccinations.

    An Economic Question: Explain how charging higher health insurance premiums for people with unhealthy lifestyles could create unintended consequences.

    No Comments on Health Insurance Dilemmas

    Read More
  • 16754_turkey.11.17_000017818522XSmall

    Ben Franklin’s Turkey

    Nov 17 • Behavioral Economics, Economic Debates, Economic History, Economic Thinkers, Macroeconomic Measurement, Thinking Economically • 556 Views

    The bald eagle is our national bird but, according to Ben Franklin, the turkey should have been. In a letter to his daughter, he explains why.

    “True original natives,” turkeys are American birds. “…Though a little vain and silly, [the turkey is] a bird of courage…” that does the right thing…” By contrast, the bald eagle has “bad moral character…[and] looks “flashy” but steals instead of working hard for his food.”

    In a wonderful New Yorker article, discussing Franklin’s letter, Adam Gopnik explains how the turkey relates to hard work, honesty, respect for education and all that we need for a healthy economy. He even connects the bird to globalization through the turkey curry and tacos that we make with our Thanksgiving leftovers.

    I recommend looking at the original Franklin letter. You can get a good picture of his insight.

    The Economic Lesson

    The turkey also takes us to food inflation. At $49.20, a Thanksgiving dinner for 10 will cost us 13% more than last year. The biggest increase? The price of a turkey went up 22%.

    By contrast, the CPI, from December to December rose 3.5%. For food, it was up 4.7%.

    An Economic Question: Thinking of rising commodity prices, draw a supply/demand graph showing why turkeys are more expensive.

    No Comments on Ben Franklin’s Turkey

    Read More
  • 16750_SupremeCourt.11.16_000002592980XSmall

    The Supreme Court and the Health-Care Law

    Nov 16 • Businesses, Economic Debates, Economic History, Government, Households, Labor, Regulation, Thinking Economically • 486 Views

    How to understand what the Supreme Court will look at when they decide whether parts of the health-care act are constitutional?

    In an excellent interactive graphic, the Washington Post identifies the issues that Supreme Court will consider:

    • Individual mandate: Requiring most Americans to buy insurance or pay a penalty.
    • Medicaid expansion: Mandating extra state Medicaid spending for expanded coverage.

    Formally called Florida v. Dept. of Health and Human Services, No. 11-400, the case is also known as the multi-state suit because 26 states are involved with challenging the Patient Protection and Affordable Care Act.  March oral arguments have a 5 1/2 hour Supreme Court slot rather than the traditional single hour.

    These health-care law issues have also been challenged in the courts but will not be considered this year by the Supreme Court:

    • Employer mandate: Requiring firms employing 50 or more to provide health insurance or pay a penalty.
    • Health benefits exchanges: Requiring states to establish their own insurance markets or to let the federal government set one up for them in order to supplement existing markets.

    The Economic Lesson

    Hoping to promote a single national economy, the framers of the Constitution said that the Congress has the power to, “regulate Commerce with foreign nations and among the several states, and with the Indian Tribes.” However, since 1824, the Supreme Court has had to define “commerce.”

    Now again, for health care, the commerce clause has played a leading role in determining Congressional power. So far, lower courts’ opinions have varied about whether the “commerce clause” facilitates or prohibits Congressional health-care legislation.

    Here, in an econlife post, you can see historic definitions of the “commerce clause.”

    An Economic Question: How can opponents and supporters of the Patient Protection and Affordable Care Act each use the “commerce clause” to support their position?

    No Comments on The Supreme Court and the Health-Care Law

    Read More