Archive for the ‘Uncategorized’ Category

Population in “Blue” States

March 23, 2018 Leave a comment

Every so often, I see reports in the media about residents fleeing so-called “blue” states. So in these states, controlled by Democrats, it is sometimes claimed that people are fleeing supposedly because of the government policies driving out residents of these states. I wondered where these numbers came from and so I went to the Census Bureau ( to see if I could verify these media claims. Consider the data that I found.

The U.S. Census is done every decade in the U.S. so the demographers at Census must estimate population in non-census years. California and Illinois are states often mentioned as losing population so I chose these two states in selecting data. The table below has census data from 2010 and the latest estimate for each state in 2017 that I found.

2010 Census 2017 Estimate Change
California 37,253,956 39,536,653 2282697
Illinois 12,830,632 12,802,023 -28609

The numbers reveal that California is estimated to have gained population between 2010 and 2017 while Illinois fits the narrative of population loss. Note there is another aspect of population loss: the population growth rate could decline so it may be that the story can be salvaged by showing a declining population growth rate. But this is clearly not what I have seen in media reports so I did not look for such evidence.

The next census will provide more data about population trends and such new data could possibly salvage the story about migration in the U.S. and the implication of these flows for political parties. Until then, the reader should be skeptical of media claims about population trends between states.


Investment and Tax Reform

March 23, 2018 Leave a comment

The tax reform recently enacted should have an impact upon investment spending by firms. In a previous post, I argued that the ability to expense (deduct from revenue in the computation of taxable income) all of the investment done by firms in a year should cause investment to rise in the U.S. This is crucial because our living standards depend in part on the stock of capital goods in our economy which in turn affects labor productivity.  More capital should enhance or increase the productivity of labor and thus real wages.

For future reference, it is a good idea to get a look at some data so that, in a future post when more data is available, we can see if investment has responded to tax reform. For this reason, consider the following table.

2017:01 19057.705 2383.409 12.51
2017:02 19250.009 2433.551 12.64
2017:03 19500.602 2468.374 12.66
2017:04 19736.491 2511.182 12.72

In the table for the year 2017, quarterly GDP is given (so we have GDP in the range of $19 Trillion), NRFI is Nonresidential Fixed Investment, a sensible measure of investment spending by firms, and the ratio of NFRI to GDP.  So we see that about 12.5 percent of GDP has been devoted to building additional nonresidential plant and equipment.

An increase in this ratio would be a reasonable measure showing that tax reform is actually raising investment in the U.S. We will see if this is the case when new data for 2018 is available.

Real Wages

January 2, 2018 Leave a comment

In two recent posts, I pointed out that the new tax bill should cause real wages to rise for two reasons. One is that the reduced corporate tax rate increases the after-tax profitability of labor which will increase the demand for labor. Second, the expensing of new capital goods reduces the cost of capital goods which should cause firms to add to their capital stocks and thus increase the productivity of workers. This also should increase the demand for labor. As a result, we would predict that real wages for workers should rise. Here I thought I would provide some data on real wages to be used for assessing our predictions about the effects of the recent tax reform. Read more…


December 28, 2017 Leave a comment

I have been a professional economist for many years and one of the things I noticed early on in my career was how little impact economists have upon public discussion of economic issues. While there are undoubtedly many reasons for this, one obvious reason is the inability of professional economists, particularly academic ones, to communicate with the public in a way which the public understands. Let me illustrate this with two possible ways that we might describe the problems with guaranteed issue, a feature of Obamacare that I have written about in earlier posts which is an important reason for the collapse of the insurance exchanges. Read more…

Expensing New Capital Goods

December 28, 2017 Leave a comment

My last post described a simple story about the new tax reform passed by the federal government regarding the effect of the corporate tax rate and labor demand. There is another aspect of that story which involved the capital stock and the tax rate on corporations and I pointed out that the reduced corporate tax rate would stimulate capital investment which would also increase real wages. But another provision of the new tax bill also affects real wages and the capital stock. That aspect of the bill is the expensing of new capital goods. This feature of the tax bill has the effect of reducing the cost of new capital goods. Read more…

Tax Rates and the Firm

December 27, 2017 Leave a comment

Congress just passed a tax code reform reducing tax rates for firms. Firms announce they will increase the minimum wage rate that they pay workers. What’s the connection between these two events?

Tax Rates and Factor Productivity

Econ 101 students are told a very simple story about the behavior of firms, namely they are told that firms want to maximize profits when they choose their inputs in production. This isn’t literally true but it is a simple story designed to illustrate insights about labor and capital demand and how they generate the demand for inputs in factor (labor and capital) markets. That story leads to the condition

Marginal Revenue = Marginal Costs

for inputs like labor and capital used to produce output. Marginal revenue in this simple story is not taxed but suppose that it is. Then we would amend the story to state that

After-Tax Marginal Revenue = Marginal Costs

which is similar but now the condition recognizes that the government taxes away part of the marginal revenue earned by the firm when using labor and capital. Both of these conditions can be used to generate the demand for inputs in production. Read more…

RIP Individual Mandate

December 21, 2017 Leave a comment

The tax bill recently voted out of Congress eliminates the individual mandate which was one component of Obamacare. One politician was quoted as saying that this feature of the tax bill is the beginning of the end of Obamacare. It is reasonable to ask if this is true and, I will argue that this is true, although it may be for reasons different from the opinions of this politician.

I have written previously that one of the many flaws in the design of Obamacare is guaranteed issue, the feature which lets people sign up for Obamacare and drop it after receiving medical services. Obviously this aspect of Obamacare is incompatible with the profitability of insurance companies and it is one reason why insurance companies have left the Obamacare insurance exchanges. The elimination of the individual mandate means that fewer good risks, largely those who are young, will buy health insurance on the exchanges, which implies that the applicant pool will contain fewer good risks. That means more losses for the insurance companies selling the insurance and, as a result, higher premiums and/or fewer companies selling the insurance. In other words, the “death spiral” will accelerate to some extent which leads ultimately to the collapse of the Obamacare exchanges.

I really can’t think of a better example of the perils of central planning. And it also reveals what happens when one political party passes a new entitlement program without the support of the other political party.

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A blog by John B. Taylor

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