What Do the Children Know?

November 20, 2015 Leave a comment

As reported in the news media recently, there have been a series of student protests on university campuses. A number of grievances have been reported (although some of these are so vague that I have no idea what they really are) but one issue in particular caught my attention. That concerns student loans and there appear to be demands by some students that all student loans should be paid off by someone other than the students who borrowed the money. Specifically, there was an interview on one news outlet with a student “leader” where this student issued a demand that all students loans should be paid off by the rich, however defined.

This got me to thinking.  Does the student know the size of the stock of student loan debt and does he or she know if the incomes of the rich are large enough to pay off student loans? A little bit of data helps answer those questions. Read more…

More Fallout from Obamacare

November 11, 2015 Leave a comment

I recently saw a news item regarding the events at the University of Missouri resulting in the resignations of two senior university administrators.  That article suggested that the Affordable Care Act had a role in the student protests at the university. Turns out that this is indeed the case.

It appears that one of the student grievances, and also one reason for a hunger strike by a student, involves the loss of health insurance by the university’s graduate students. This loss of insurance was explicitly mandated by Obamacare as explained by a university post last August (you can read it here). That web site reports the following.

Due to changes in federal policy and IRS interpretation of that policy, general counsel has informed us that the University of Missouri no longer is allowed to pay for graduate students’ health insurance. (Previously, the university provided a subsidy to those students who opted in for insurance and were paid from a qualifying assistantship or fellowship). The IRS considers our student health insurance plan an “individual-market plan” rather than an “employer-sponsored plan,” such as our health plans for MU employees.

The Affordable Care Act prevents employers from giving employees money specifically so they can buy health insurance on the individual market. Graduate teaching and research assistants are classified as employees by the IRS, so they fall under this ruling.

So the university finds itself in violation of federal law if it pays for graduate student insurance. I wonder how many students realized this element of the university’s policy? I regard this as just another example of the Law of Unintended Consequences arising from central planning by the government. It also reveals that as the law continues to grow in complexity and in size, it is no wonder that it has been said that every day, each resident of the U.S. commits three felonies and has no idea that he or she has done so.

The Importance of Economic Growth

October 28, 2015 1 comment

The decline in economic growth in the United States is the most serious economic problem facing the country (see my previous post here on this subject) and it should be the top economic priority for the voters in the presidential election which is approaching. To see why, the following example is instructive.

Consider two economies. One grows at two percent per year (the slow-growth economy) and one grows at three percent per year (the fast-growth economy). Their growth rates “only” differ by 1 percent but this difference turns out to be very large when viewed over many years. The table below illustrates the relative sizes of each economy.  In the table, the entries are the extent to which the three-percent economy exceeds the two-percent economy in size over several time periods.

5 Years: 5.0%

10 Years: 10.25%

25 Years: 27.6%

50 Years: 62.87%

100 Years: 165.28%

So after five years, the fast-growth economy is 5% larger in size than the slow-growth economy.  After ten years, the difference is over ten percent, and at the end of a century, the fast-growing economy is over one and one half times as large as the slow-growing economy.  And remember – GDP is a measure of the size of aggregate incomes in the economy so what we are really seeing is how much lower incomes will be when the growth rate of an economy falls by one percent.  Simply put, the differences are staggering in size over long periods of time. The high-growth value of 3 percent was not chosen arbitrarily. This is the growth rate of the U.S. over the hundred-year period ending at the onset of the last U.S. recession.

The next election for President of the United States is a crucial one for the future welfare of U.S. residents. If nothing is done to restore economic growth to its historical average of three percent, there will be huge income losses in store for U.S. citizens.

Categories: Economic Growth

Little League Baseball and Discrimination

September 21, 2015 Leave a comment

I live in the Detroit area and, for as long as I have lived here, I have heard media commentators claim that we need more dialogue about racial issues. Yet when I observe such dialogue, I have often seen people talk past one another about racial matters because people often disagree about the definition of racial discrimination. A recent dispute involving Little League baseball illustrates this difference of opinion quite clearly (a news account of this sad story may be found here).

The dispute involves a baseball team from the Chicago area that competed in the competition that ultimately could lead to the team winning the Little League World Championship. The team’s players were all African American. They won the U.S. championship but did not win the world championship. The team’s achievements were praised widely and they were invited to the White House where they met the President. Recently Little League Baseball vacated all of the team’s achievements because it was found that the team’s management violated rules that dictated where the players must live if they were permitted to play on the team. A lawsuit was filed by parents of the players on the team and one parent, in a news conference that I happened to see, claimed that vacating the team’s victories was evidence of discrimination. But is this really what we mean by discrimination?

Little League officials claim that the rules regarding residency were in place before the team competed. In addition, the rule was applied to other teams, including ones who were not African American. If these claims are found in court to be true, then in my opinion, no discrimination has occurred. But what is clear by the lawsuit filed on behalf of the team, the parents think that discrimination occurs even if the rules are in place beforehand and applied to everyone. As a result, there are two definitions of discrimination at work here. What purpose will be served by more dialogue between people who believe each view of what is meant by discrimination?  Will I change my belief? No and will the others who disagree change theirs? I suspect not.

I think the reality of race relations in the U.S. is that there is a wide difference of opinion about the existence of discrimination which will make it very difficult to get past this divisive issue in politics and in everyday life.

Categories: Government

Random Thoughts After a Long Hiatus

September 21, 2015 2 comments

It has been quite a while since I last posted on this blog. I finally decided to catch up by posting a series of remarks on a number of issues that are of interest to economists and (hopefully) others.

Disparate Impact Analysis

I teach in a university economics department. If you were to attend one of our faculty meetings, you would observe that nobody in the room is a seven-foot Chinese basketball player. Does that mean the faculty in my department discriminated against the seven-foot Chinese basketball players in the world who wanted to be on our staff and attend this meeting? If you were to use a nonsensical theory known as disparate impact analysis, then if seven-foot Chinese basketball players were a politically-protected group, the answer is yes and my university could be charged with discrimination in federal court.

To say the least, disparate impact analysis ignores the scientific method which most of us learned in primary school. The fact that a person has the disease known as AIDS does not imply how the person got that disease. The reason is that medical science has determined that the disease can be contracted in more than one way. Similarly, if one group of individuals makes less money than another group, there are many reasons why this may be so.  One of those reasons could be discrimination but how do we know this to be true? Put differently, there are causal relationships in an economy and there are many random events that can make a group of individuals have the demographic characteristics that they have. Read more…

Ballot Initiatives and Michigan Roads

April 3, 2015 2 comments

Michigan voters will soon be asked to vote on a sales tax increase and other measures partly designed to raise additional revenue for the repair of state roads which are widely regarded to be in poor condition. These initiatives seem to me to be a sign of government incompetence or an inability of government to function to serve the interests of the voters.  In California, a state where these ballot proposals have often occurred, the traditional explanation is that the legislature is unable to function because it is so polarized and, as a result, the voters must step in to get things accomplished that ought to be done by the state government. But there is another aspect of the Michigan ballot which is troubling.

“Logrolling” is a word used to describe a practice in government of attaching laws with weak support to a bill containing other policies with strong support. The idea is to get a weak law passed which would not pass on its own. This seems to happen regularly at the federal level. And so one additional aspect of the Michigan ballot measure will contain an expansion of tax subsidies using the Earned Income tax credit which I suspect is a feature of the state tax code that would not garner widespread support.

I intend to vote against the Michigan ballot proposal despite the fact that I, like most voters, agree that state roads are poorly maintained. My reasons are as follows.

  1. I regard road maintenance as a responsibility of government. If the Legislature can’t meet this basic responsibility, why do I need them?
  2. Voters cannot be well-informed about budget matters compared to politicians. We solve an agency problem when we vote, electing agents (politicians) to represent the interests of the principals (the voters) in the state. Policymaking done by voters can’t possibly be better-informed than when policies are implemented by the managers that we elect. I simply don’t have the time to do the job of politicians that we elect. Poor policies are more likely to occur when ballot initiatives are used.
  3. A sales tax is a poor way to fund roads. User fees are the proper way to do this and so taxes on gasoline are a better way to fund road maintenance.
  4. I am suspicious of the logrolling that is in the ballot proposal. I find it most interesting that there seems to be little discussion of the proposal outside of the road maintenance aspect of it.
  5. Finally a message needs to be sent to the Legislature. Do your job. Or perhaps we need a new set of politicians serving the interests of the voters.

So far, polls show that the ballot proposal is not supported by the majority of taxpayers in the state. I hope this is still true when the vote is actually done. This ballot proposal s a monument to the low quality of government in Michigan.

The New York City Murder Rate in 2015

April 2, 2015 Leave a comment

I recently saw a media report that the murder rate in New York City is increasing. I decided to collect some data that might provide part of the basis for this claim. I found a report by the Police Department in the City of New York (NYC_Report). If you look at the first line of the table, the year-to-date increase in the murder rate for 2015 is just over 20 percent compared to 2014. That data clearly raises a red flag that would catch the attention of the media.

This isn’t much data upon which to base a conclusion about the causes of the apparent increase in the murder rate. In particular, there is no evidence presented here about changes in the Stop and Frisk policy of the Police Department (there are reports that the policy has been changed in some fashion). But there is little doubt that this is a developing story that bears watching. The emerging evidence will reveal some information about the value to society of the Stop and Frisk policy.

Mayor Bill de Blasio is known to be a critic of the Stop and Frisk policy that was in place when he was elected. Whatever changes he has implemented will not jeopardize his safety while he is in elected office but there will be an impact, perhaps catastrophically, on the lives of citizens of New York.

Economics One

A blog by John B. Taylor

The Grumpy Economist

One economist's views on economic policy.

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