• Weekly roundup and Russian alcohol consumption

    The Economic Side of Russian Vodka Consumption

    Apr 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Government, Health Care, Lifestyle, Regulation, Thinking Economically • 96 Views

    How we spend our money conveys a message.

    You can see below that for South Korea, spending on education is relatively high, Australians appear to allocate a large proportion of their money to recreation and in the U.S., it is healthcare. But today, we will take a closer look at that big dot next to Russian alcohol consumption:

    Consumer spending and Russian vodka consumption

    Where are we going? To the economic incentives that affect Russian vodka consumption.

    Vodka Taxes and Prices

    The Russian government and the Russian male have had a long relationship with vodka. To see the beginning, we can go back to Ivan IV and a government tavern monopoly that generated big tax money. During the 18th century, we had Peter the Great proclaiming that a wife should be whipped if she took her husband home from a tavern prematurely. Fast forwarding almost 200 years, first Vladimir Lenin prohibited vodka and then Stalin reversed the policy because he needed the money for industrialization.

    The following joke displays the opposition faced by Mikhail Gorbachev for his 1985 anti-drinking campaign:

    “There was this long line for vodka, and one poor guy couldn’t stand it any longer: ‘I’m going to the Kremlin, to kill Gorbachev,’ he said. An hour later, he came back. The line was still there, and everyone asked him, ‘Did you kill him?’ ‘Kill him?!’ he responded. ‘The line for that’s even longer than this one!’”

    The reason for an anti-drinking campaign? In 2012, the average Russian male had a life expectancy of 65 years–11 fewer than in the U.S. Including cirrhosis, alcohol poisoning, accidents and suicides, the following graph displays deaths attributable to alcohol for selected countries in 2012. At 30.5%, Russia tops the list:

    Russian vodka consumption

    From: qz.com

    Our Bottom Line: Ceilings, Floors and Fiscal Policy

    Vastly oversimplifying a complex history, we could look to ceilings, floors and fiscal policy for economic incentives that influenced Russian alcohol consumption. During the 1990s, hoping to calm civil unrest from the economic chaos that had begun to unfold, the government initiated a ceiling on vodka prices that resulted in more vodka consumption among middle-aged men. Then during 2009, it established a minimum price–a floor– that it hiked twice in 2014 when it sought to diminish consumption.

    Located below where quantity supplied meets quantity demanded, a ceiling stops price from rising to a market determined level. A floor, on the other hand, keeps a price higher than it would be if the market were the boss.

    Ceilings, floors and Russian vodka consumption

    And always we can return to the revenue issue. Now, with oil prices plunging, again the government needs more vodka tax revenue.

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  • Weekly oundup and Interstate Migration

    Where and Why We Move

    Apr 18 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Financial Markets, fiscal policy, Government, Households, Labor, Lifestyle, Money and Monetary Policy, Thinking Economically • 112 Views

    New York, Ohio and New Jersey are the top three in a competition they might have wanted to lose.

    Interstate migration data

    Where are we going? To the importance of being able to move.

    Where Do We Move?

    Using data from 77,705 interstate and cross border moves, the Atlas Group tells us that we can associate inbound migration with Texas and North Carolina while we are leaving NY, Ohio, NJ and Indiana:

    Interstate Migration

    From: www.atlasvanlines.com/atlas/infographics/2015-migration-patterns/

    New Jersey:

    Curious since NJ is my home state, I checked to see where my neighbors were going. The Florida “stream” seems to be growing.

    In the following NY Times graphics, geographic areas are color-coded: Interstate migration

    Interstate migration from New Jersey

    Texas:

    Meanwhile, as a destination, Texas draws people from the South and Midwest.

    Interstate migration

    Interstate migration and Texas

    This is the big picture:

    Interstate migration patterns

    From: atlasvanlines.com/migration-patterns/

    Why Do We Move?

    The US Census tells us that interstate moves primarily have a jobs-related reason. A closer to home move is more typically caused by a change in housing. Below, displaying the dominance of local moves, housing was the main reason people relocated:

    Interstate migration

    Our Bottom Line: One Market

    Yes, states vary but still, as a “dollar zone,” the U.S. makes moving easy. So too does a single fiscal policy that provides the same Medicare and Social Security dollars, no matter where we live.

    To see how we got here, we can start with the 19th century and a transportation infrastructure of roads, canals and then railroads that moved people and goods. With midwestern farming, southern cotton and northeastern manufacturing, each of us could do what we did best and then trade. Because each section of the country was producing what it was most suited to, we enjoyed the benefits of comparative advantage.

    Now again we continue to enjoy the positive externalities of state-to-state migration. Being able to move freely across the vast expanse of the U.S. means households and businesses make production and distribution decisions that can allocate land, labor and capital most efficiently.

    Perhaps people are leaving NY and NJ for the economic efficiency they can enjoy elsewhere?

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  • Cigarette taxes and impact of sin taxes

    Everything We Could Ever Want to Know About Cigarette Taxes

    Apr 17 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic History, Government, Sports, Thinking Economically • 101 Views

    Last May, Cleveland area voters decided to extend for 20 years a 4 1/2 cents sin tax on each pack of cigarettes. While everyone knew the revenue (plus an alcohol tax) would be used to upgrade the Browns’, Cavaliers’ and Indians’ sports stadiums, no one had decided who would get how much. One politician said they should tie part of the projected $260 million payout to team performance. Saying it was a win tax, the idea would have created a rather unique sin tax incentive.

    Where are we going? To a closer look at cigarette taxes.

    Cigarette Taxes

    Let’s just start by looking at Chicago. The highest in the U.S. at $7.17 a pack, their cigarette tax funds four levels of government.

    The source of the tax per pack in Chicago:

    • federal: $1.01
    • state: $1.98
    • county: $3.00
    • city: $1.18

    But it is not quite that simple.

    Because of elasticity and smuggling, the increased revenue from a cigarette tax increase can soon decline.

    Elasticity

    Called elastic demand, when price rises, our spending can contract considerably. As a result, a higher tax does not necessarily mean more revenue. You can see below that as average prices climbed, sales diminished and tax revenue started to slip:

    Diminishing revenue from cigarette taxes

    Smuggling

    Meanwhile, tax rate differences create the incentive to smuggle cigarettes from low tax to higher tax regions. When Illinois’s tax rates increased, smuggling spiked to 20.9% from a low 1.1% of consumption.

    Below, the blue states show cigarettes leaving and orange indicates inbound packs. The Tax Foundation tells us that in 2013, the Missouri state tax was just $.17, Idaho’s was $.57 whereas New York’s cigarette tax was $4,35 a pack.

    Cigarette taxes and smuggling

     

    Our Bottom Line: Tradeoffs

    When Harry Truman asked for a one-handed economist, he might have been talking about cigarettes.

    In a report on a hypothetical rise in the federal cigarette tax, the Congressional Budget Office (CBO) tells us that smoking less saves lives and reduces healthcare expenses. But on the other hand when people live longer, Social Security and Medicare expenses increase. On the one hand, too high a sin tax diminishes the revenue it can generate. But on the other, when it is too low, people continue their unhealthy behavior.

    So, whether we expect a sin tax will make the Cleveland Browns win more games or raise revenue for their home city, it will never be quite that easy.

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  • New 10 dollar bill

    Keeping Hamilton on the New 10 Dollar Bill

    Apr 16 • Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Financial Markets, fiscal policy, Gender Issues, Government, Money and Monetary Policy • 95 Views

    The currency images below are for real. Until 1928, Andrew Jackson was on the $10 bill.

    Printed in 1914 just after the Federal Reserve was created, this was the $10 bill with Jackson’s picture:

    Hamilton and new 10 dollar bill

    From: Mentalfloss

    From a series that was issued in 1918, this $1000 bill had Hamilton’s image:

    Alexander Hamilton who was on $1000 bill in 1918 should stay on new 10 dollar bill

    From: antiquemoney.com

     

    In 1928, for a reason that no one seems to know, Jackson wound up on the $20 bill. At the same time, we had some currency “musical chairs” as Hamilton was moved to the $10 bill and Cleveland who had been on the $20 went to the $1000 bill.

    Where are we going? To the reason that Hamilton might remain on the $10 bill.

    A New $10 Bill

    Our story starts in 1778. At a lunch date in Paterson, NJ, Alexander Hamilton, George Washington and the Marquis de Lafayette had ham, tongue, biscuits and grog. One journalist suggests that Lafayette might have been thinking that the wine could be better. As for Hamilton, Paterson must have made a lasting impression because 23 years later as Secretary of the Treasury he cites the area for the development of manufacturing.

    Hamilton referred to Paterson in the economic development plan that he presented to the U.S. Congress when he was George Washington’s Secretary of the Treasury. Inextricably interwoven, manufacturing, national credit that facilitated a manageable national debt and a national bank were the three parts of his plan.

    Or, as Lin-Manuel Miranda’s Hamilton raps it, “If we assume the debts, the union gets a new line of credit, a financial diuretic. How do you not get it? If we’re aggressive and competitive, the union gets a boost. You’d rather give it a sedative?”

    Andrew Jackson

    From Hamilton’s development plan, we can fast forward approximately 40 years when Andrew Jackson unravels it all. As a president who disliked banks, paper money and debt, he prevented the charter of the second Bank of the United States (BUS) from being renewed. As a result, soon after we no longer had the institution that supported the federal government’s fiscal policy, issued a dependable national currency, and offered business loans. Moving the government’s money from the second BUS to state banks, Jackson eliminated the union’s boost.

    Our Bottom Line: Hamilton’s Legacy

    As economists we can say that Broadway’s Hamilton is creating a positive externality. Having seen the show and heard the message that Hamilton is the father of our economy, Treasury Secretary Jack Lew might decide to keep Hamilton on the $10 bill and replace Andrew Jackson with a woman’s image on the $20.

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  • Weekly Roundup The econlife.com economics news summary

    Weekly Roundup: From Income Inequality to Parental Leave

    Apr 15 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Environment, fiscal policy, Gender Issues, Government, Households, Innovation, International Trade and Finance, Labor, Lifestyle • 86 Views

    Weekly News Roundup

    Weekly roundup and Fuel economy regulation, Tesla and CAFE Sunday 04.10.16

    The consequences of fuel economy…more

    Weekly roundup and Swedish wealth distribution Monday 04.11.16

    Sweden’s income inequality…more

    Weekly roundup and parental leave plans Tuesday 04.12.16

    The best places for parental leave…more

    Weekly roundup and the living w, minimum wage and paycheck Wednesday 04.13.16

    Why workers want a living wage…more

    Weekly roundup and U.S. corn markets and corn imports Thursday 04.14.16

    How corn markets surprise us…more

    Weekly Roundup and ethanol gut and gasoline Friday 04.15.16

    What caused the ethanol glut…more

    Ideas Roundup

    • unintended consequences
    • markets, exports
    • trade,supply and demand
    • prices
    • regulation
    • price floors
    • minimum wage
    • entitlement
    • incentive
    • income
    • environment
    • regulation

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