31 Aralık 2012 Pazartesi
President rejects his bipartisan commission
The fiscal deal struck last night makes one thing clear: President Obama must have really hated the recommendations of the bipartisan Bowles-Simpson commission that he appointed. The commission said that we needed to reform entitlement programs to rein in spending and that increased tax revenue should come in the form of base broadening and lower marginal tax rates. The deal appears to offer no entitlement reforms, no tax reform, and higher marginal tax rates. After all the public discussion over the past couple years of what a good fiscal reform would look like, it is hard to imagine a deal that would be less responsive to the ideas of bipartisan policy wonks.
The Neverending Quest for a More Redistributionist Tax System
I just listened to President Obama's latest remarks on fiscal policy. This passage caught my attention:
Translation: The deal we are about to strike will raise taxes on the rich. But the fiscal imbalances we face will remain unsustainably large. So I will ask for more tax increases on the rich later.
I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced, because, remember, my principle always has been let’s do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts.
Now, the same is true for any future deficit agreement. Obviously we’re going to have to do more to reduce our debt and our deficit. I’m willing to do more, but it’s going to have to be balanced. We’re going to have do it in a balanced responsible way.
For example, I’m willing to reduce our government’s Medicare bills by finding new ways to reduce the cost of health care in this country. That’s something that we all should agree on. We want to make sure that Medicare is there for future generations. But the current trajectory of health care costs has gone up so high, we’ve got to find ways to make sure that it’s sustainable.
But that kind of reform has to go hand and hand with doing some more work to reform our tax code, so that wealthy individuals, the biggest corporations, can’t take advantage of loopholes and deductions that aren’t available to most of the folks standing up here; aren’t available to most Americans.
So there is still more work to be done in the tax code to make it fair, even as we’re also looking at how we can strengthen something like Medicare.
Translation: The deal we are about to strike will raise taxes on the rich. But the fiscal imbalances we face will remain unsustainably large. So I will ask for more tax increases on the rich later.
Are long-run incentive going to ruin healthcare reform in the US?
Insurance is a horribly complicated concept. While it provides benefits by preventing to a large extend the consequences of adverse shocks, it can also lead to sometimes severe moral hazard. Car insurance can lead to more dangerous driving. Health insurance can lead to more risky behavior. It is thus not obvious that introducing insurance is on the whole beneficial, especially if premiums cannot reflect risk.
Harold Cole, Soojin Kim and Dirk Krueger do such a welfare analysis for the upcoming US health insurance scheme. While there is a clear benefit in the short term, current conditions not having been perverted by the presence of insurance, the welfare outcome in the long-run needs to be determined once people have adjusted their behavior. They find that the negative impact of uniform insurance is severely amplified if other consequences of poor health choices are prevented from occurring, in their example prohibition of wage discrimination against workers with poor health. They find that this effect is so strong that cohorts become gradually of poorer health and overcome the positive impact of insurance stricto sensu. This means we need to incentivize good behavior, an example being sin taxes that have been the subject of several recent blog posts here.
Harold Cole, Soojin Kim and Dirk Krueger do such a welfare analysis for the upcoming US health insurance scheme. While there is a clear benefit in the short term, current conditions not having been perverted by the presence of insurance, the welfare outcome in the long-run needs to be determined once people have adjusted their behavior. They find that the negative impact of uniform insurance is severely amplified if other consequences of poor health choices are prevented from occurring, in their example prohibition of wage discrimination against workers with poor health. They find that this effect is so strong that cohorts become gradually of poorer health and overcome the positive impact of insurance stricto sensu. This means we need to incentivize good behavior, an example being sin taxes that have been the subject of several recent blog posts here.
29 Aralık 2012 Cumartesi
The year ahead
It is not my style to opine on current events, and especially not to forecast. Yet, seems that there are some general trends that are worth mentioning that may not have been stated enough. So here we go with my take about what lies ahead.
Latin America
Latin America has done remarkably well lately, especially considering developed economies were not. Even more remarkable is the very rapid income growth of the poor population leading to a rapid reduction in inequality. There is still a lot of potential and things look good. Of course, the region is always good for bad political surprises.
Asia
This is a big continent, so it is difficult to generalize. Its economy has grown tremendously in the past years and this will continue. Unfortunately, there are risks. May a housing bubble burst in China? Will the very large number of underprivileged in China ask for its fair share of the new riches? Can India continue its liberalization? Contrast this with long-stagnating Japan, whose new government wants to get the economy kicking again by creating inflation (it is not clear how the government can do that). And politics will continue to dominate economic affairs in the western part of the continent.
Europe
Europe is a mess, and mostly of its own doing. Undoing this is not going to be easy, as credibility needs to be rebuilt. This is going to be another nerve-wracking year with empty promises. Greece will continue in its corrupt ways, inexplicably dragging everybody with it (and possibly collapsing for the second time a currency union). Italy will go through unnecessary instability thanks to Berlusconi again, and the French government will listen to the street instead of the experts. Watch out also for Norway, Sweden and Switzerland, where housing bubbles may burst. And Germany will continue posturing and lecturing the others, while everybody ignores the UK (and Russia, too).
North America
Speaking of unnecessary posturing, the US is the poster child right now. Republicans are hoping taxes will go up with the "fiscal cliff" and claim it is not their fault, then negotiate a compromise with taxes at midpoint and claim victory thanks to lowered taxes. And what did we gain from this? Uncertainty, frustration and unnecessary distractions. And unless Democrats (and the President) finally take a strong stand, politics will remain in flux and threaten a nascent recovery. Canada will watch all this, shake its head and go on, hoping for the best.
Africa
What to think of Africa? It is going to remain a basket case, with a few hopes that are quickly dashed. Rebels will be disrupting the normal course of things in several countries, corruption and rent-seeking will remain the principal industry, and foreign aid will continue to be wasted. Let us hope that manufacturing will finally take off on a continent that is not made for agriculture.
In summary
Politics will continue messing with economies (and economists).
Latin America
Latin America has done remarkably well lately, especially considering developed economies were not. Even more remarkable is the very rapid income growth of the poor population leading to a rapid reduction in inequality. There is still a lot of potential and things look good. Of course, the region is always good for bad political surprises.
Asia
This is a big continent, so it is difficult to generalize. Its economy has grown tremendously in the past years and this will continue. Unfortunately, there are risks. May a housing bubble burst in China? Will the very large number of underprivileged in China ask for its fair share of the new riches? Can India continue its liberalization? Contrast this with long-stagnating Japan, whose new government wants to get the economy kicking again by creating inflation (it is not clear how the government can do that). And politics will continue to dominate economic affairs in the western part of the continent.
Europe
Europe is a mess, and mostly of its own doing. Undoing this is not going to be easy, as credibility needs to be rebuilt. This is going to be another nerve-wracking year with empty promises. Greece will continue in its corrupt ways, inexplicably dragging everybody with it (and possibly collapsing for the second time a currency union). Italy will go through unnecessary instability thanks to Berlusconi again, and the French government will listen to the street instead of the experts. Watch out also for Norway, Sweden and Switzerland, where housing bubbles may burst. And Germany will continue posturing and lecturing the others, while everybody ignores the UK (and Russia, too).
North America
Speaking of unnecessary posturing, the US is the poster child right now. Republicans are hoping taxes will go up with the "fiscal cliff" and claim it is not their fault, then negotiate a compromise with taxes at midpoint and claim victory thanks to lowered taxes. And what did we gain from this? Uncertainty, frustration and unnecessary distractions. And unless Democrats (and the President) finally take a strong stand, politics will remain in flux and threaten a nascent recovery. Canada will watch all this, shake its head and go on, hoping for the best.
Africa
What to think of Africa? It is going to remain a basket case, with a few hopes that are quickly dashed. Rebels will be disrupting the normal course of things in several countries, corruption and rent-seeking will remain the principal industry, and foreign aid will continue to be wasted. Let us hope that manufacturing will finally take off on a continent that is not made for agriculture.
In summary
Politics will continue messing with economies (and economists).
28 Aralık 2012 Cuma
There is no such thing as a real economy
Nothing beats a well-written abstract. You want in particular to use the right terminology, state clearly what you want to do and given a few good hints about your conclusions. A confusing abstract is a real put-off, but they do happen. They usually signal a really bad paper, and the chances that there is interesting content behind the veil of a obfuscating presentation is slim. Take this one:
This is the work of Egmont Kakarot-Handtke, whose paper mirrors the abstract. It hinges on absurd assumptions which are not justified in any way, and some sort of logic is applied from there. For example, it is stated as a basic premise that profits are not real, only monetary, and this was completely overlooked by all economists. I wonder how economies worked before the introduction of money. The paper continues with "axioms" which are in fact three definitions, whose equations do not share a single variable, and a law of motion for yet another variable. After seeing how prices are determined by accounting identities, I stopped reading. Yet, I somehow felt compelled to write this. It must be the holiday spirit.
There is no such thing as a real economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output.
This is the work of Egmont Kakarot-Handtke, whose paper mirrors the abstract. It hinges on absurd assumptions which are not justified in any way, and some sort of logic is applied from there. For example, it is stated as a basic premise that profits are not real, only monetary, and this was completely overlooked by all economists. I wonder how economies worked before the introduction of money. The paper continues with "axioms" which are in fact three definitions, whose equations do not share a single variable, and a law of motion for yet another variable. After seeing how prices are determined by accounting identities, I stopped reading. Yet, I somehow felt compelled to write this. It must be the holiday spirit.
Kaydol:
Kayıtlar (Atom)
31 Aralık 2012 Pazartesi
President rejects his bipartisan commission
The fiscal deal struck last night makes one thing clear: President Obama must have really hated the recommendations of the bipartisan Bowles-Simpson commission that he appointed. The commission said that we needed to reform entitlement programs to rein in spending and that increased tax revenue should come in the form of base broadening and lower marginal tax rates. The deal appears to offer no entitlement reforms, no tax reform, and higher marginal tax rates. After all the public discussion over the past couple years of what a good fiscal reform would look like, it is hard to imagine a deal that would be less responsive to the ideas of bipartisan policy wonks.
The Neverending Quest for a More Redistributionist Tax System
I just listened to President Obama's latest remarks on fiscal policy. This passage caught my attention:
Translation: The deal we are about to strike will raise taxes on the rich. But the fiscal imbalances we face will remain unsustainably large. So I will ask for more tax increases on the rich later.
I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced, because, remember, my principle always has been let’s do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts.
Now, the same is true for any future deficit agreement. Obviously we’re going to have to do more to reduce our debt and our deficit. I’m willing to do more, but it’s going to have to be balanced. We’re going to have do it in a balanced responsible way.
For example, I’m willing to reduce our government’s Medicare bills by finding new ways to reduce the cost of health care in this country. That’s something that we all should agree on. We want to make sure that Medicare is there for future generations. But the current trajectory of health care costs has gone up so high, we’ve got to find ways to make sure that it’s sustainable.
But that kind of reform has to go hand and hand with doing some more work to reform our tax code, so that wealthy individuals, the biggest corporations, can’t take advantage of loopholes and deductions that aren’t available to most of the folks standing up here; aren’t available to most Americans.
So there is still more work to be done in the tax code to make it fair, even as we’re also looking at how we can strengthen something like Medicare.
Translation: The deal we are about to strike will raise taxes on the rich. But the fiscal imbalances we face will remain unsustainably large. So I will ask for more tax increases on the rich later.
Are long-run incentive going to ruin healthcare reform in the US?
Insurance is a horribly complicated concept. While it provides benefits by preventing to a large extend the consequences of adverse shocks, it can also lead to sometimes severe moral hazard. Car insurance can lead to more dangerous driving. Health insurance can lead to more risky behavior. It is thus not obvious that introducing insurance is on the whole beneficial, especially if premiums cannot reflect risk.
Harold Cole, Soojin Kim and Dirk Krueger do such a welfare analysis for the upcoming US health insurance scheme. While there is a clear benefit in the short term, current conditions not having been perverted by the presence of insurance, the welfare outcome in the long-run needs to be determined once people have adjusted their behavior. They find that the negative impact of uniform insurance is severely amplified if other consequences of poor health choices are prevented from occurring, in their example prohibition of wage discrimination against workers with poor health. They find that this effect is so strong that cohorts become gradually of poorer health and overcome the positive impact of insurance stricto sensu. This means we need to incentivize good behavior, an example being sin taxes that have been the subject of several recent blog posts here.
Harold Cole, Soojin Kim and Dirk Krueger do such a welfare analysis for the upcoming US health insurance scheme. While there is a clear benefit in the short term, current conditions not having been perverted by the presence of insurance, the welfare outcome in the long-run needs to be determined once people have adjusted their behavior. They find that the negative impact of uniform insurance is severely amplified if other consequences of poor health choices are prevented from occurring, in their example prohibition of wage discrimination against workers with poor health. They find that this effect is so strong that cohorts become gradually of poorer health and overcome the positive impact of insurance stricto sensu. This means we need to incentivize good behavior, an example being sin taxes that have been the subject of several recent blog posts here.
29 Aralık 2012 Cumartesi
The year ahead
It is not my style to opine on current events, and especially not to forecast. Yet, seems that there are some general trends that are worth mentioning that may not have been stated enough. So here we go with my take about what lies ahead.
Latin America
Latin America has done remarkably well lately, especially considering developed economies were not. Even more remarkable is the very rapid income growth of the poor population leading to a rapid reduction in inequality. There is still a lot of potential and things look good. Of course, the region is always good for bad political surprises.
Asia
This is a big continent, so it is difficult to generalize. Its economy has grown tremendously in the past years and this will continue. Unfortunately, there are risks. May a housing bubble burst in China? Will the very large number of underprivileged in China ask for its fair share of the new riches? Can India continue its liberalization? Contrast this with long-stagnating Japan, whose new government wants to get the economy kicking again by creating inflation (it is not clear how the government can do that). And politics will continue to dominate economic affairs in the western part of the continent.
Europe
Europe is a mess, and mostly of its own doing. Undoing this is not going to be easy, as credibility needs to be rebuilt. This is going to be another nerve-wracking year with empty promises. Greece will continue in its corrupt ways, inexplicably dragging everybody with it (and possibly collapsing for the second time a currency union). Italy will go through unnecessary instability thanks to Berlusconi again, and the French government will listen to the street instead of the experts. Watch out also for Norway, Sweden and Switzerland, where housing bubbles may burst. And Germany will continue posturing and lecturing the others, while everybody ignores the UK (and Russia, too).
North America
Speaking of unnecessary posturing, the US is the poster child right now. Republicans are hoping taxes will go up with the "fiscal cliff" and claim it is not their fault, then negotiate a compromise with taxes at midpoint and claim victory thanks to lowered taxes. And what did we gain from this? Uncertainty, frustration and unnecessary distractions. And unless Democrats (and the President) finally take a strong stand, politics will remain in flux and threaten a nascent recovery. Canada will watch all this, shake its head and go on, hoping for the best.
Africa
What to think of Africa? It is going to remain a basket case, with a few hopes that are quickly dashed. Rebels will be disrupting the normal course of things in several countries, corruption and rent-seeking will remain the principal industry, and foreign aid will continue to be wasted. Let us hope that manufacturing will finally take off on a continent that is not made for agriculture.
In summary
Politics will continue messing with economies (and economists).
Latin America
Latin America has done remarkably well lately, especially considering developed economies were not. Even more remarkable is the very rapid income growth of the poor population leading to a rapid reduction in inequality. There is still a lot of potential and things look good. Of course, the region is always good for bad political surprises.
Asia
This is a big continent, so it is difficult to generalize. Its economy has grown tremendously in the past years and this will continue. Unfortunately, there are risks. May a housing bubble burst in China? Will the very large number of underprivileged in China ask for its fair share of the new riches? Can India continue its liberalization? Contrast this with long-stagnating Japan, whose new government wants to get the economy kicking again by creating inflation (it is not clear how the government can do that). And politics will continue to dominate economic affairs in the western part of the continent.
Europe
Europe is a mess, and mostly of its own doing. Undoing this is not going to be easy, as credibility needs to be rebuilt. This is going to be another nerve-wracking year with empty promises. Greece will continue in its corrupt ways, inexplicably dragging everybody with it (and possibly collapsing for the second time a currency union). Italy will go through unnecessary instability thanks to Berlusconi again, and the French government will listen to the street instead of the experts. Watch out also for Norway, Sweden and Switzerland, where housing bubbles may burst. And Germany will continue posturing and lecturing the others, while everybody ignores the UK (and Russia, too).
North America
Speaking of unnecessary posturing, the US is the poster child right now. Republicans are hoping taxes will go up with the "fiscal cliff" and claim it is not their fault, then negotiate a compromise with taxes at midpoint and claim victory thanks to lowered taxes. And what did we gain from this? Uncertainty, frustration and unnecessary distractions. And unless Democrats (and the President) finally take a strong stand, politics will remain in flux and threaten a nascent recovery. Canada will watch all this, shake its head and go on, hoping for the best.
Africa
What to think of Africa? It is going to remain a basket case, with a few hopes that are quickly dashed. Rebels will be disrupting the normal course of things in several countries, corruption and rent-seeking will remain the principal industry, and foreign aid will continue to be wasted. Let us hope that manufacturing will finally take off on a continent that is not made for agriculture.
In summary
Politics will continue messing with economies (and economists).
28 Aralık 2012 Cuma
There is no such thing as a real economy
Nothing beats a well-written abstract. You want in particular to use the right terminology, state clearly what you want to do and given a few good hints about your conclusions. A confusing abstract is a real put-off, but they do happen. They usually signal a really bad paper, and the chances that there is interesting content behind the veil of a obfuscating presentation is slim. Take this one:
This is the work of Egmont Kakarot-Handtke, whose paper mirrors the abstract. It hinges on absurd assumptions which are not justified in any way, and some sort of logic is applied from there. For example, it is stated as a basic premise that profits are not real, only monetary, and this was completely overlooked by all economists. I wonder how economies worked before the introduction of money. The paper continues with "axioms" which are in fact three definitions, whose equations do not share a single variable, and a law of motion for yet another variable. After seeing how prices are determined by accounting identities, I stopped reading. Yet, I somehow felt compelled to write this. It must be the holiday spirit.
There is no such thing as a real economy. The task, therefore, is to consistently reconstruct the fluctuations of employment and output from the interactions of real and nominal variables. The present paper does exactly this. No nonempirical concepts like utility, equilibrium, rationality, decreasing returns or perfect competition are applied. The analysis runs rigorously in objective structural axiomatic terms. Therefrom follows that it is the factor cost ratio, i.e. the relation of the nominal variables wage rate and price and the real variable productivity that, for any given level of effective demand, drives the fluctuations of employment and output.
This is the work of Egmont Kakarot-Handtke, whose paper mirrors the abstract. It hinges on absurd assumptions which are not justified in any way, and some sort of logic is applied from there. For example, it is stated as a basic premise that profits are not real, only monetary, and this was completely overlooked by all economists. I wonder how economies worked before the introduction of money. The paper continues with "axioms" which are in fact three definitions, whose equations do not share a single variable, and a law of motion for yet another variable. After seeing how prices are determined by accounting identities, I stopped reading. Yet, I somehow felt compelled to write this. It must be the holiday spirit.
Kaydol:
Kayıtlar (Atom)