• Everyday economics and Legalizing recreational pot in Colorado has provided another example of how tough it can be to do economic forecasting for taxes and GDP.

    Dude, Where’s My Tax Revenue?

    Oct 1 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Government, Health Care, Lifestyle, Macroeconomic Measurement, Regulation • 306 Views

    When you legalize marijuana, there’s a lot you cannot predict.

    Inaccurate Tax Projections

    One reason that Colorado voted to legalize recreational marijuana was the tax revenue. The pro-marijuana lobby even had a jingle: “Jobs for our people. Money for schools. Who could ask for more?” Projecting $100 million in taxes with the first $40 million going to school construction, legislators expected a revenue bonanza. Even with a 30% tax rate, they seemed to think demand would be inelastic.

    But legislators were surprised. The black market was still active and medical marijuana, with its lower tax rate, had booming sales. Consequently, between January and June 2014, Colorado’s coffers received 46% of the marijuana tax revenue projected by the group that advises the legislature.

    Now though, with recreational sales climbing and medicinal marijuana seeing less demand, tax revenue might increase. But no one is saying $100 million.

    Economic forecasting marijuana tax dollars is difficult.

    Incomplete GDP Numbers

    Curious about whether legal pot production in Colorado is included in national GDP totals, I called the phone number listed on the press release. So, I was pleasantly surprised when Lisa Mataloni answered the phone—no voice mail, and no hierarchy to climb through to get a person. Her answer was that marijuana will be counted if and when marijuana businesses are among those surveyed by the BLS for GDP data. She implied that right now, they probably have not yet trickled in.

    So, although GDP is our record of the goods and services we produce, marijuana is not included.

    Our Bottom Line: Economic Forecasting

    Unpredictable human behavior makes economic forecasting more of an art than a science. (That takes us to behavioral economics but you can read about that here at econlife.com.)

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  • Everyday economics and Increased demand, less physician supply and a price ceiling for Medicaid explain why we have network inadequacy.

    A Solution for Too Few Doctors: More Patience

    Sep 30 • Demand, Supply, and Markets, Economic Debates, Government, Health Care, Labor, Regulation, Thinking Economically • 184 Views

    Months long delays and long distance travel have become typical Affordable Care Act (ACA) problems for Medicaid patients. The cause, according to a government report, is unenforced patient accessibility standards. Especially because eight million new enrollees need care, the problem is a big one.

    In a new report from the Department of Health and Human [glossary_exclude]Services[/glossary_exclude], the inspector general said many states were not doing a good enough job providing access to care through Medicaid. While he was referring to “network adequacy,” we need to go to supply and demand.

    But first…what is Medicaid?

    Medicaid recipients

    From: Kaiser Family Health ( a section of their graphic)

    Because each state implements Medicaid with federal dollars and its own money, the state further defines who gets the aid and what they get. Consequently, if you know one [Medicaid program]…you just know one. There are 49 others + D.C.”

    Then it got even more complicated when, after the ACA mandated a bigger Medicaid umbrella for all states, the Supreme Court said, “Let’s make it optional. States can expand how the law specifies; or they could not extend, and just keep the existing program.”

    So far, according to Kaiser Health, 27 states and DC have expanded their Medicaid accessibility:

    Medicaid entitlement expansion creates a shortages through a price ceiling.

     

    So, with the Congressional Budget Office estimating that by 2016, one-quarter of all Americans will be on Medicaid at some time, let’s see why it has accessibility problems.

    Supply and Demand and Medicaid

    When we read that Medicaid patients wait for months for an appointment, it is all about supply and demand.

    On the supply side…

    • Because of insufficient reimbursement, physicians are refusing to treat Medicaid patients.
    • The ACA had to cut funding for training new doctors to keep costs down.
    • Baby boomer aged doctors are retiring.
    • Primary care medicine pays less than specialty fields.
    • More medical students are opting for part-time and work-life balance.
    • Silicon Valley and investment banking are attractive career alternatives.

    On the demand side…

    • Especially because of the ACA, Medicaid enrollees are multiplying.
    • All of those baby boomers still “love rock ‘n roll but increasingly need hearing aids to enjoy it.”

    With federal guidelines mandating no more than 3,500 people for each primary care provider, in just six years, 20 percent of all Americans could have an insufficient number of primary care physicians.

    I guess we could say that our healthcare system is sick.

    The Bottom Line: An Economic Diagnosis

    Here is the economic diagnosis. We have less of a doctor supply, more demand for doctors, and a price ceiling that creates shortages.

    Medicaid Graph

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  • Ask Alexa Economic Advice from econlife.com

    Internship Inquiry

    Sep 29 • Ask Alexa • 178 Views

    My son was just offered an internship.  However, he is wary about accepting it because the pay is minimal.  Should I encourage him to take the position?

    -Concerned Parent

    Dear Concerned Parent,

    Let’s examine the concept of internships through the lens of human capital. Today, an individual’s human capital is often used to measure their value when entering the workforce. Measuring a person’s human capital is as simple as performing basic addition. All we must do is add up all the education, knowledge, and experiences he or she has had up to this precise moment in life, and the sum of those, my friend, is their human capital. This standard of measuring a person’s value in the workforce has made the word “internship” a trending topic.

    Internship is a Trending Topic

    An internship will augment your son’s human capital with invaluable experience, serving as an investment in his future. Remember, the math is simple. The higher your son’s human capital, the higher the chance of changing the status on his ID badge from “temporary” to “permanent”.

    Internships are like those little spoons of ice cream you get at your local shop – they can help your son pick what “flavor” profession works best for him, for his personality and for his long-term goals. Working side by side with full-time employees, he will get a bird’s eye view on what it is really like to be an accountant, designer, or engineer. So, not only will an internship increase his chances of landing his dream job, but it will also help him figure out exactly what his dream job is.

    I would urge your son to accept the offer, as they are hard to come by in today’s world. Don’t fuss over the pay; I have no doubt that his salary will increase significantly over time as a result of the hands-on experience he will gain. And if your son is in need of cash income now, perhaps he could supplement with a part time job. It might feel like a lot of work now, but it will pay big dividends sooner than he knows it.

    Sincerely,

    alexa economic advice

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  • Everyday economics and the benefits of city living

    What Makes a City a Good Place to Live?

    Sep 29 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Growth, Economic Thinkers, Environment, Households, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Tech, Thinking Economically • 150 Views

    Using a Milken Institute study, Pew Research tells us that a list of the best-performing large cities in the U.S. is topped by the Austin, Texas area while we could travel to Atlantic City, New Jersey to see the bottom. For ranking, their key variables were jobs, wages and technology trends with energy and technology fueling the rise to the top in 2013.

    The top large cities generate positive externalities.

    From: Milken Institute

    But we can look at more than the economy to judge a city.

    The Reasons We Like Where We Live

    According to a University of Illinois economist, in addition to jobs and wages, we care a lot about amenities. Qualities that relate to geography and climate like proximity to a coast, slopes, sunshine, warm winters, and mild summers can make a city more attractive. Add to that restaurants, bars and cultural institutions and you get a spike in quality of life ratings that can offset more traditional economic perks.

    And that takes us to Portland, Oregon.

    Called a city for the over-educated and underemployed by the NY Times, Portland has been a magnet for people who value non-dollar amenities. As a result, the city has not needed the attraction of tax breaks and personal income growth. Instead a two-income family could be composed of a barista and a freelancer who enjoy “locally grown kale, homesteading, beer, bikes and Birkenstock…”

    In his 2012 paper, using dollar and non-dollar amenities, University of Illinois economist David Albouy tops his list of the best cities to live with Honolulu, Hawaii and Santa Barbara, California while his top five states are Hawaii, California, Vermont, Colorado and Oregon.

    Our Bottom Line: Externalities

    Harvard scholar Ed Glaeser tells us that cities are where innovation incubates and the environment is treated more kindly because people who live close to each other use fewer resources. Also, we could add that business firms enjoy a more concentrated labor pool for choosing employees. So, whether we focus on Austin or Portland or Honolulu, and use the Milken Institute’s variables or a broader set of amenities, the top U.S. cities generate positive externalities from which we can all benefit.

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  • Everyday economics for government pension plan

    When You Can Expect to Be Most Creative

    Sep 28 • Behavioral Economics, Economic Thinkers, Education, Government, Innovation, Labor, Macroeconomic Measurement • 145 Views

    Our econlife.com Sunday Charts

    Albert Einstein was not so far from the truth when he said, “A person who has not made his great contribution to science by the age of thirty will never do so.”

    The Age of Peak Creative Genius

    You can see below that Nobel Prize winners and great inventors did their best work when they were close to 40 years old.

    Human capital builds before a major research breakthrough that contributes to economic growth.

    From: “Age and Scientific Genius”

    Then, hypothesizing that “experimentalists” who depend on past empirical work need more time for a concrete foundation than the theorists whose work is abstract, scholars say peak performance age for Nobel Prize physicists was approximately 36 while winners of the Nobel Prize in Medicine averaged 41.

    After building human capital, we are most creative.

    From: “Age and Scientific Genius”

    Again changing their perspective, researchers also compared peak creativity in different centuries. Maybe because there was less to learn, the age of optimal creativity (below) has probably risen over time. After all, in 1639 Harvard’s Library had 320 volumes while the Library of Congress’s current count is closer to 35 million.

    Changes in Creativity Peaks Over Time

    From: Age and Scientific Genius”

    And here, from an Atlantic article, we have a creativity graph that could apply to many of us:

    Creativity potential

    From: “Why I hope to Die at 75″

    Our Bottom Line: Economic Growth

    The “when and how” of peak creativity has implications for economic growth and education policy. We’ve looked at “when,” For the “how,” let’s see what Malcolm Gladwell has to say:

     

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