Quote of the Day

“At the SEA meetings, Jagdish Bhagwati dismantled the rhetoric of “fair trade” and said something that will stick with me for a long time. I paraphrase here: movements advocating what is grossly and misleadingly called “fair trade” and movements advocating higher minimum wages are filled with people who imagine themselves fine human beings but who are actually busy (unwittingly) doing horrible things to the people they claim to love so much.”

~ Art Carden

How to avoid overeating on Thanksgiving

Well, its Thanksgiving today and that means an inevitable feast. But there are a few ways to avoid overeating. My method is by living outside the United States in Israel (though Israelis do eat the most Turkey per capita in the world). But if you find yourself at an American dinner table tonight, there are a few economic tips to help you avoid taking that extra bite.

In a great Washington Post article by Ezra Klein, he asks MIT Professor Dan Ariely how to apply (behavioral) economic principles to the dinner table. His suggestions include:

1) “Move to chopsticks!” Or if you can’t get away with that, use smaller plates and utensils.

2) Place the food “far away” so people have to get up for that extra scoop of mashed potatoes.

3) Start with a soup course or other low calorie option.

4) Limit the number of courses. As Klein explains:

Variety stimulates appetite. As evidence, Ariely brings up a study conducted on mice. A male mouse and a female mouse will soon tire of mating with each other. But put new partners into the cage, and it turns out they weren’t tired at all. They were just bored. So, too, with food. “Imagine you only had one dish,” he says. “How much could you eat?”

5) Make the food yourself:

Economists believe that the obesity epidemic is largely attributable to the rise in food we don’t make for ourselves.

There will be fewer calories available if Grandma’s stuffing isn’t supplemented with bowls of chips and cheese.

6) And if all else fails, “wear a very tight shirt.”

Help Wanted, No Private Sector Experience Required

Nick Schulz has posted an excellent chart from a J.P. Morgan research report that illustrates the private sector experiences of cabinet officials since 1900.

The chart includes secretaries of State, Commerce, Treasury, Agriculture, Interior, Labor, Transportation, Energy, and Housing & Urban Development, and excludes Postmaster General, Navy, War, Health, Education & Welfare, Veterans Affairs, and Homeland Security—432 cabinet members in all.

Over 90 percent of the current cabinet’s experience was in the public sector.

Tire Tariff Cost US About $1.35 Billion

The consequences of Obama’s 35 percent tariff on imported Chinese tires are now starting to become apparent. An Associated Press article yesterday (via Pushing Possibilities) identified a few of the explicit and implicit consequences of the tariff.

Explicit costs include:

Under the government’s new tariff, which went into effect in September, a set of Chinese tires that would have cost $280 now cost nearly $100 more.

Implicit costs include:

Jennifer Stockburger, a tire test engineer for Consumer Reports, says six of the top ten all-season tires recently tested by the magazine were made in China by major manufacturers.

To calculate the true cost of the tariff, Pushing Possibilities conducted a cost-benefit analysis:

17% of the tire market is made up of Chinese tires.  Tire sales for 2008 was around $27 billion, which means that about $4.6 billion is Chinese tires. With an average price of $280 for Chinese tires pre-tariff, the total quantity of Chinese tires sold would amount to 16.4 million.  With a $100 price increase, assuming that domestic tire price increases offset the tariff increase, U.S. consumers are expected to lose out on a net savings of over $1.6 billion.  And that of course does not take into account the implicit cost of quality loss.

The tariff was expected to stop the loss of employment in the U.S. tire industry.  By assuming there would be a benefit of saving 5,000 jobs in the tire industry, even at the median U.S.  income, that only amounts to a very large estimate of over $250 million of saved income.

Therefore, Obama’s tire tariff cost the U.S. over $1.35 billion dollars.

Stupid Tax Reform

The Associated Press reports on Michigan state Rep. Alma Wheeler Smith’s proposal to restructure her state’s tax code in order to raise $6.5 billion. Here are some of the highlights:

– Extend the sales tax to services and reduce the overall tax rate from 6 percent to 5.5 percent.

– Eliminate the 22 percent surcharge on the Michigan Business Tax.

– Replace the state’s 4.35 percent flat income tax rate with a graduated income tax rate of 4 percent for individuals making zero to $45,000, 7 percent for individuals making $45,000 to $60,000 and 9.75 percent for individuals making more than $60,000 (income brackets would be doubled for joint filers). Some of the tax would be offset for those who itemize deductions on their federal income tax forms.

– Eliminate $3 billion in business tax exemptions.

– Create a new income tax credit that would cover all tuition paid to state universities, community colleges and vocational schools. The credit also would apply to preschool costs.

– Set aside $500 million from the elimination of the business tax exemptions for public education, erasing all the cuts made this fall.

The three glaring points include the elimination of business tax exemptions (which will raise the effective tax rate for businesses), creation of a more progressive tax system (which will punish production), and guarantee of free education for Ameircan citizens.

Any rise in taxes for business is of course a terrible idea for multiple reasons. The first is that the less income a business has, the less money it has to spend on new jobs and capital investments (i.e. those things that would increase the quality of life for Michigan residents). The second is that it will provide incentive for businesses to relocate to other, lower-taxing states and discourage new businesses from forming in Michigan.

Apart from undermining individual liberty, a progressive tax system punishes production and discourages economic growth by discouraging capital investment. Call it supply-side or trickle down economics if you’d like, but a slanderous name does not render these basic economic principles false.

Finally, education is a scarce good. There are not enough facilities, teachers, etc. to provide every single person with a college degree. Granted, this may (and hopefully will) change over time, but the supply of education would – in a free market – gradually adjust with increasing demand as quality of life improves and more consumers can afford it. But with a price ceiling effectively set at $0, there will be shortages in the supply of education because of the artificially low demand. This is econ 101 – price ceilings create shortages. A tax credit for education means that an individual will be able to deduct the entire cost of education from his final tax liability, rendering the cost of education $0 by the time all is said and done. And none of the above reasons against free education even touches on the questions “by what right?” and “at whose expense?” (Ayn Rand, Capitalism: The Unknown Ideal)

Michigan, by no stretch of the imagination, has a fantastic record when it comes to its tax code. But this proposal goes so far that “stupid”may be the only appropriate description.

How to think of the deficit

Tyler Cowen gives his view:

Krugman writes: “Belgium is politically weak because of the linguistic divide; Italy is politically weak because it’s Italy. If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we.”

I would interpret this evidence differently.  A high deficit often is an unfavorable symptom of bad politics, even if you think the high deficit is economically OK on its own terms.  It’s a sign that you have dysfunctional institutions and decision-making procedures, as indeed they do in Belgium and Italy.  I believe that the not-always-swift American voter in fact understands high deficits — correctly — in this light.  They don’t hold theories about “crowding out,” rather they sense something in the house must be rotten.  And so they rail against deficits, as do some of their elected representatives.  It’s a more justified reaction than the pure economics alone can illuminate.

When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.

Quote of the Day

“The worst thing that can happen to a good cause is not to be skillfully attacked, but to be ineptly defended.”

~ Frédéric Bastiat

It is times like these I wish George Carlin could smack some sense into humanity

From Reuters:

The word “fail” should be banned from use in British classrooms and replaced with the phrase “deferred success” to avoid demoralizing pupils, a group of teachers has proposed.

Members of the Professional Association of Teachers (PAT) argue that telling pupils they have failed can put them off learning for life.

A spokesman for the group said it wanted to avoid labeling children. “We recognize that children do not necessarily achieve success first time,” he said.

“But I recognize that we can’t just strike a word from the dictionary,” he said.

The PAT said it would debate the proposal at a conference next week.

George Carlin always criticized this deceptive behavior, among almost all other human behaviors. He argued that euphemisms “hide the truth,” they “conceal reality.” Euphemisms, moreover, “take the life out of life.”

In his stand-up special Parental Advisory, he explained:

We have no more deaf people in this country, hearing impaired. No ones blind anymore, partially sighted or visually impaired. We have no more stupid people. Everyone has a learning disorder…or he’s minimally exceptional. How would you like to be told that about your child? “He’s minimally exceptional.” “Oohh, thank god for that.” Psychologists actually have started calling ugly people, those with severe appearance deficits. It’s getting so bad, that any day now I expect to hear a rape victim referred to as an unwilling sperm recipient.

And we have no more old people in this country. No more old people. We shipped them all away, and we brought in these senior citizens. Isn’t that a typically American twentieth century phrase? Bloodless, lifeless, no pulse in one of them. A senior citizen. But I’ve accepted that one, I’ve come to terms with it. I know it’s to stay. We’ll never get rid of it. That’s what they’re going to be called, so I’ll relax on that, but the one I do resist. The one I keep resisting is when they look at an old guy and they’ll say, “Look at him Dan! He’s ninety years young.” Imagine the fear of aging that reveals. To not even be able to use the word “old” to describe somebody. To have to use an antonym. And fear of aging is natural. It’s universal. Isn’t it? We all have that. No one wants to get old. No one wants to die, but we do! So we bullshit ourselves. I started bullshitting myself when I got to my forties. As soon as I got into my forties I’d look in the mirror and I’d say, “well, I…I guess I’m getting…older.” Older sounds a little better than old doesn’t it? Sounds like it might even last a little longer. Bullshit, I’m getting old! And it’s okay, because thanks to our fear of death in this country, I won’t have to die…I’ll pass away. Or I’ll expire like a magazine subscription. If it happens in the hospital, they’ll call it a terminal episode. The insurance company will refer to it as negative patient-care outcome. And if it’s the result of malpractice, they’ll say it was a therapeutic misadventure. I’m telling you, some of this language makes me want to vomit. Well, maybe not vomit. Makes me want to engage in an involuntary personal protein spill.

All comedy aside, George Carlin makes a valid point: Changing language doesn’t change reality.

Obesity and Health Care Spending

Economix has compiled two maps to show the relationship between obesity and health care spending.

The map below is from a report on obesity and diabetes released last week by The Centers for Disease Control and Prevention. It shows obesity rates around the country:

Age-adjusted percentages of persons aged ≥20 years with diabetes and obesity, by county. Data for United States, 2007.

The map below illustrates Medicare expenditures across the country (from the Dartmouth Atlas Project):

Data show average age-sex-race-adjusted Medicare spending per enrollee by state and by hospital referral regions for 2006.

I see a clear overlap here.

In a separate post by Economix, David Leonhardt discusses a conversation he had with several economists at the Rand Corporation. While reporting on his column on soda and obesity, he asked the economists to estimate how much money obesity costs the federal government:

They imagined that the American population was no more overweight than it had been in the 1980s and then analyzed how Medicare and Medicaid costs would be different in that situation. (They used a Rand economic model of theirs called the Future Elderly Model.)

The answer: $40 billion.

This is serious money that clearly justifies one of two changes.

On the one you hand, the government could provide the correct incentives that will lead to healthy lifestyles, thus reducing obesity and the financial strain on the federal government. These incentives almost always include taxes.

On the other hand, the government could respect (and accept) the choices people make. If people overeat to the point of obesity, they will personally pay the consequences . Their neighbors will not. In other words, the $40 billion will be paid only by those who spent it.

Of these two options, I pick the second.

Wal-Mart Vs. Amazon: The Capitalist Fueled Price War Continues

Slate reports:

With retails sales expected to drop again this year, Wal-Mart is fighting for sales with Amazon, “a relative schooner to Wal-Mart’s ocean liner.” Even though Wal-Mart’s annual sales are more than 20 times that of Amazon’s—the retail giant made $405 billion last year, while Amazon made about $20 billion—Wal-Mart is concerned about the growing popularity of e-commerce, which is cutting into its market. “This fight, then, is all about the future,” the New York Times says. As retail sales have gone down, e-commerce sales have gone up, and Amazon enjoyed a 24 percent sales spike last quarter. Even though Amazon has been doing well for years, major retailers are now responding. According to the Times, the fight began last month over media pricing, with Wal-Mart dropping prices on popular novels and video games in order to compete with Amazon. Bizarrely, Wal-Mart has been framed as the underdog in the fight. When asked about the price sniping, one retail executive referred to it a “part of a greater strategic plan,” adding, “they are just not going to cede their business to Amazon.”

So who will win this war? Whether its Wal-Mart or Amazon, I am not certain. But either way, the consumer will enjoy the falling prices. Thanks again Capitalism.