Quote of the Day

“I have debated the legalization of organ selling with quite a few people over the years.  In my experience, 100% of people who can correctly explain economists’ standard case for legalization favor legalization, and 100% of people who can’t correctly explain the case oppose legalization.”

~ Bryan Caplan

Three sentences on immigration

A letter from Donald Boudreaux to the Wall Street Journal:

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

To the Editor:

Successful politicians Bernie Sanders and Chuck Grassley assert that the productivity of America’s economy is not reduced by restricting businesses’ ability to hire immigrants (Letters, March 17). In contrast, successful entrepreneur Jeremy Chester explains that his business thrived largely because he was able to hire immigrants.

Two different opinions from two different sources. Which source do you reckon is most credible?

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Effective tax rates across the globe

From The Economist:

A person earning $100,000 in Sweden has 37.5% of it deducted as income tax, according to an annual survey of effective tax rates by KMPG, an accounting firm. Sweden’s income-tax rates are among the world’s highest, but the addition of social-security contributions means that people earning this sum in Slovenia, India or Italy take home an even smaller share of their gross earnings. Slovenia’s government deducts almost 55% from earnings of $100,000. Social-security levies eat up a chunky 22% of earnings at that level in France, but low income taxes bring the total take, at 36%, into line with that in other rich nations. Switzerland’s effective tax rate on the fairly well-off is one of the lowest in the world.

‘Bill would give president emergency control of Internet’

According to CNET News,

Internet companies and civil liberties groups were alarmed this spring when a U.S. Senate bill proposed handing the White House the power to disconnect private-sector computers from the Internet.

They’re not much happier about a revised version that aides to Sen. Jay Rockefeller, a West Virginia Democrat, have spent months drafting behind closed doors. CNET News has obtained a copy of the 55-page draft of S.773 (excerpt), which still appears to permit the president to seize temporary control of private-sector networks during a so-called cybersecurity emergency.

The new version would allow the president to “declare a cybersecurity emergency” relating to “non-governmental” computer networks and do what’s necessary to respond to the threat. Other sections of the proposal include a federal certification program for “cybersecurity professionals,” and a requirement that certain computer systems and networks in the private sector be managed by people who have been awarded that license.

High Taxes Hurt Union Workers

According to a new study by the National Bureau of Economic Research:

American workers who belong to unions are paid more than their non-union counterparts, and this difference is greater in low-tax locations, reflecting that unions and employers share tax savings associated with low tax rates. In 2000 the difference between average union and non-union hourly wages was $1.88 greater in states with corporate tax rates below four percent than in states with tax rates of nine percent and above. Controlling for observable worker characteristics, a one percent lower state tax rate is associated with a 0.36 percent higher union wage premium, suggesting that workers in a fully unionized firm capture roughly 54 percent of the benefits of low tax rates.

The study, undertaken by R. Alison Felix, an economist at the Federal Reserve Bank of Kansas City, and James R. Hines Jr., from the University of Michigan, looks at “union wage premiums,” the average amount union hourly wages exceed non-union hourly wages.

According to the study, union workers made $1.30 more per hour than non-union workers in states with a corporate tax rate greater than 9%. But in states with a corporate tax rate below 4%,  the wage premium increased to $3.73.

In an interview, Hines explained that since lower taxes leave firms with higher profits, and unions hold significant negotiating powers over profit distribution, it come as no surprise that high taxes hurt union wages more than non-union wages.

Ultimately, Hines points out that “the study provides more evidence that while income taxes tax corporations, it is the stakeholders, including employees, who bear the burden of those taxes.”

The Profitable Fed

According to a report released yesterday on economic growth and corporate profits by the Bureau of Economic Analysis, the Federal Reserve seems to boast impressive profits:

(Click to enlarge)

The Commerce Depart report shows the Fed earned money at a $46 billion annual rate in the second quarter. That figure is up 48% from this point last year. Jon Hilsenrath of the Wall Street Journal attributes this to the Feds ability to “borrow money for next to nothing-– from mortgage backed securities purchases to commercial paper loans to emergency loans to banks.”

Israeli-Palestinian trade growing

According to Globes (גלובס‎), Israeli-Palestinian trade has been growing, reaching ₪ 20 billion ($5.3 billion) in 2008.

Despite the global economic crisis, Israeli-Palestinian trade has been steadily growing and reached NIS 20 billion in 2008. This included NIS 14.6 billion of domestic trade and NIS 4.6 billion in Palestinian imports and exports through Israeli ports, according to figures presented by the Customs Administration of the Israel Tax Authority to Palestinian businessmen at a conference at the Allenby Bridge border terminal.

Mid-way through 2009, Israeli-Palestinian trade continues to grow.

‘The Least Surprising Correlation of All Time’

Professor Greg Mankiw writes,

The NY Times Economix blog offers us the above graph, showing that kids from higher income families get higher average SAT scores.

Of course! But so what? This fact tells us nothing about the causal impact of income on test scores. (Economix does not advance a causal interpretation, but nor does it warn readers against it.)

This graph is a good example of omitted variable bias, a statistical issue discussed in Chapter 2 of my favorite textbook. The key omitted variable here is parents’ IQ. Smart parents make more money and pass those good genes on to their offspring.

Suppose we were to graph average SAT scores by the number of bathrooms a student has in his or her family home. That curve would also likely slope upward. (After all, people with more money buy larger homes with more bathrooms.) But it would be a mistake to conclude that installing an extra toilet raises yours kids’ SAT scores.

It would be interesting to see the above graph reproduced for adopted children only. I bet that the curve would be a lot flatter.

The Value of United States Currency in Circulation

HT: Visual Economics

Quote of the Day

“A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”

~ Milton Friedman