• The FCIC Sounds Good

    Jan 29 • Thinking Economically • 253 Views

    Reading Dr. Ed’s Morning Briefing (a great newsletter from Ed Yardeni–the 1/13 briefing), I was encouraged to hear about a member of the new Financial Crisis Inquiry Commission (The new FCIC website is at www.fcic.gov).

    One of eight commissioners on the commission, Brooksley Born had been the head of the CFTC (Commodity Futures Trading Commission). She resigned, though, after almost three years because President Clinton’s financial team (Greenspan, Summers, Rubin) disagreed with her concern about credit swaps and other derivatives. While she pushed for regulation, the administration worried instead that she would create turmoil and diminished value of the dervivatives she targeted.
    You might want to look at a “Frontline” report (55 minutes) about “The Go-Go Years” that includes a focus on Alan Greenspan and Brooksley Born.

    The Economic Life:
    Just like bubble gum, hot air that has no substance inflates financial bubbles until they pop. Derivative related securities that ranged from credit default swaps to collateralized debt obligations (CDOs) helped to inflate the housing bubble because they made more money available for mortgages. More money for mortgages pushed home prices up.

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  • Tiny Taxes…Big Results

    Jan 28 • Thinking Economically • 224 Views

    Journalists discussing the D.C. bag tax think they are on to something.

    1.The small tax has a better chance of being passed. Seattle refused to accept a $.20 bag tax. D.C. said $.05 was okay.
    2. Because of the tax, people perceive bags entirely differently. Bag use has plummeted. Because of the $.05? Probably not.
    3. The lesson? For cap and trade and for high priced health insurance? Very small taxes can lead to big results.
    Yes/ No?

    The Economic Life:
    Incentives shape behavior. All taxes, big and small, create incentives that make each of us choose to behave a certain way. Sometimes, legislators have been surprised by the incentives they created.

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  • A Bag Tax

    Jan 27 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Humor, Government, Regulation, Thinking Economically • 315 Views

    Washington, D.C. got a bag tax on January 1. Now, any store that sells food (even a book store that sells mints) has to charge its customers $.05 for every bag they use (not just for the food but everything!).

    The results…
    1. One Safeway reported using 6,000 fewer bags during the past week.
    2. Because Victoria’s Secret sells edible body icing, it falls within the jurisdiction of the act (not just for the icing but for all purchases).
    3. Countless people report dropping parts of lunches as they juggle sandwiches, Sushi, water bottles, fruit, fries.
    4. Someone carrying a container of milk and a can of Spam had an onlooker wonder, “What is he going to do with SPAM?” Will Spam purchases decline?
    5. One woman, pushing a cart of 19 items in her shopping cart as she walked to her car said, “Now it looks like I’m stealing them.”
    6. When it is raining, more people want bags.
    7. What about bag related jobs? How will the tax impact unemployment?
    Behavioral economist Dan Ariely, predicted the outrage over the tax would last because people are reminded at the register every time they make a purchase. “It creates a very small financial burden but a very big emotional reaction.”


    The bag tax is about a lot more than bags. Tomorrow, lessons that proponents of cap and trade and health insurance can learn from the bag tax.

    The Economic Life:
    Taxes affect supply and demand curves. When they increase a firm’s costs, the supply curve shifts leftward. Similarly, when the demand side is directly hit, the demand curve shifts leftward. Either way, taxes make price increase and quantity decrease.

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  • Hayek vs. Keynes

    Jan 26 • Economic Debates, Economic Thinkers, Government • 569 Views

    Good enough to watch, this youtube performance between Hayak and Keynes is similar to a recent Planet Money “boxing match” between the classical perspective and Keynes which I also recommend. Both are helpful when deciding whether you prefer government assistance or waiting for the market to come to the rescue.

    The Economic Lesson
    In the voting booth, we demonstrate a preference either for legislators who want to do less or those who want to do more. Representative of the Austrian school, Hayek’s ideas emphasize government doing less. By contrast, John Maynard Keynes believed government economic intervention could be beneficial.

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  • Ethical Man

    Jan 25 • Thinking Economically • 303 Views

    For the

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