• Female Longevity

    Nov 22 • Gender Issues, Government, Households, Labor, Thinking Economically • 562 Views

    Reading that 90 year old women outnumber 90 year old men, I wondered about the policy implications.

    Women get more social security. No wonder Alan Simpson (gray “tigers” lady against simpson)

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  • The US is again hitting its debt ceiling.

    If You Were the Supercommittee…

    Nov 21 • Behavioral Economics, Economic Debates, Government, Macroeconomic Measurement, Thinking Economically • 570 Views

    This simulation from Pew is a great way to understand what the supercommittee is trying to do. Called “the Pew Budget Challenge,” it presents close to 100 revenue and expenditure alternatives for bringing the debt down to 60% of GDP by 2021. You make the decisions and see where the debt goes.

    If you want more of an academic approach, this Congressional Budget Office (CBO) report explains budget controlling alternatives. I’ve noted below the CBO’s candidates for cuts and revenue boosts. Within each category, items are listed in descending size order.



    • Social Security
    • Medicare
    • Other
    • Medicaid and other Health Programs
    • Unemployment Compensation

    Defense Discretionary:

    • Operation and Maintenance
    • Military Personnel
    • Procurement
    • Other

    Nondefense Discretionary:

    • Other
    • Education, Training, Employment, Social Services
    • Transportation
    • Income Security
    • Health
    • Veterans
    • Justice
    • International Affairs


    (The CBO cites 35 ways to raise revenue in their report.)

    • Individual Income Taxes (42%)
    • Social Insurance Taxes (40%)
    • Other Revenue Sources (10%)
    • Corporate Income Taxes (9%)

    Called “Fiscal Commission Deja Vu,” this past econlife post looks at proposals from presidential budget commissions. The 2 commissions had similar proposals but the Congress and President never proceeded. And now, we await the supercommittee.

    The Economic Lesson

    Specifically defined, federal fiscal policy refers to taxing, spending, and borrowing. It involves the federal deficit which is the shortfall between annual spending and revenue. The federal debt is the total amount that the U.S. government owes.

    An Economic Question: In the Pew simulation, how much could you cut the growth of the debt?

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    California and Kentucky

    Nov 20 • Economic Debates, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy, Thinking Economically • 588 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.

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    Stagnation or Education?

    Nov 19 • Businesses, Demand, Supply, and Markets, Economic Debates, Government, Households, Innovation, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 646 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.

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    Health Insurance Dilemmas

    Nov 18 • Behavioral Economics, Businesses, Government, Households, Labor, Macroeconomic Measurement, Regulation, Thinking Economically • 581 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.

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