Ask an Economist

[JerichoHill]

@JerichoHill: Speaking of Singapore, are you familiar with their health care system? If I'm not mistaken, they have one of the most economically efficient health care systems in the world, as a result of keeping third party payments (and therefore costs, since people aren't as willing to waste their own money) to a minimum.

You're not, and they do. About the managerial practice, I can't link to it (costs money to subscribe to the Economist, and I don't want to give out my info!).

Singapore is developing several islands around Singapore itself, almost like min-Singapores

http://choo.fis.utoronto.ca/FIS/ResPub/IT2000.html

 

[JerichoHill]

Ummm, you still haven't answered my question on what a "Rhetorical economist" is.

Ooops.

http://tigger.uic.edu/~deirdre2/Articles/sub8.htm

Economic modernism dominates contemporary economics. Its practitioners radically differentiate what they do from literary studies or from softer social sciences. It is behaviourist in the sense that what matters in the final analysis is what people do rather than what they think (p.28). It highly values mathematical formalization, quantification, and statistical tests - particularly tests involving one or another regression procedure. It is positivist in the sense that it treats falsifiability - and the failure to falsify in a test - as the most important gauge of scientific value. It is also, thoroughly unsatisfactory - a form of "voluntary imbecility", in fact (p.99).

To make her case McCloskey shows that the effectiveness of the leading figures in the discipline is enhanced when they stray from the modernist canon. It is not experimental or statistical tests that determine the acceptance of their arguments, it is the rhetoric deployed in making them. In his classic Foundations of Economic Analysis Samuelson sometimes used mathematics not because it is necessary to the argument but to impress. He legitimates his claims through appeals to authority. He uses analogy or metaphor. So does "the Kipling of the economic empire" (p.42), Gary Becker, when he treats children as consumer durables (like refrigerators). Muth's pioneering paper on rational expectations, though badly written, persuaded (after a lag) not because of the evidence it contained - there was little of that - but because of a number of theoretical arguments, including the general case that if reason is assumed in most domains of economics one should not readily abandon it in, in this particular case, agricultural price determination. In identifying and analyzing the rhetorical content in the writings of a number of distinguished economists she is not trying to debunk them. She simply wants to make the case that economic knowledge advances through procedures that diverge wildly from those incorporated in the modernist canon.

She also tries to show that following the precepts of the modernist canon produces inferior work. Quantification is all very well but the resulting quantities do not speak for themselves. An issue that (very properly) exercises economic historians is the extent of the integration of markets in various places, at various times. Integration might be measured by the correlation of prices of, say, wheat in different cities. But how high does the correlation have to be to allow the conclusion that markets are integrated? On its own it tells us more-or-less nothing. Its meaning must be derived from reasoned discussion. McCloskey is arguing that, all too often, quantities are treated as if they speak for themselves, with the accompanying but crucial discussions of importance neglected. The extreme of this is the use of tests of significance where, McCloskey shows us, statistical and substantive significance have been confused, even in the very best journals. Most fundamentally, I think, McCloskey is arguing that economic modernism is intellectually stultifying. No slouch at rhetoric herself, she describes methodology as the "middle manager in a green suit" (p.160), providing neither particularly practical advice (economists usually pay only lip service to its precepts) nor the broader injunction to civilized discourse that underlies, she says (citing Habermas), the very best scholarship. It yields an annual harvest of intellectually mechanical and illiterate young economists like the anonymous young colleague who had the misfortune to sit next to her on a transatlantic flight - and who she cheerfully calls a barbarian (pp.189-190).

For what, then, does McCloskey stand? She is not in favour of the "Santa Monica approach to science ('Hey, man, how do you feel about the law of demand today?')" (p.167). She is not against tests of significance, only their misuse. She is in favour of mathematization, for the precision it brings to thought (p.139). Her concern with the issue of "how large is large?" means that she is for quantification. She is in favour of falsifiable statements. ("Refusing to offer hostages to evidence, though not rare even in modernist circles, is cowardly: so much you can take from the idea of falsification by evidence. Facing facts, we all agree, is good." - p.158). In other words, she is in favour of all the central precepts of economic modernism including the essentials of positivism! She wants, I think, to see more imagination added to this. Intuition, introspection, and simulation are all ways through which imagination can be expressed. They contribute to the debates that are at the heart of science but are ruled out by a strict interpretation of the precepts of economic modernism.
http://www.ualberta.ca/~cjscopy/reviews/rhetecon.html

Close enough for government work.

 

[punkbass2000]

And is this thread about the article you mentioned to me? And is Uiler's synopsis reasonably accurate, IYO?

 

[JerichoHill]

I'm all caught up. I'd be more interested in theory questions (no financial advice questions please!)

 

[El_Machinae]

What reasonable steps should the common person take to ensure that his local or societal economy continues to grow and thrive?

 

[JerichoHill]

And is this thread about the article you mentioned to me? And is Uiler's synopsis reasonably accurate, IYO?

Different article. Same general conclusions

 

[Whomp]

Jericho some comments from the IMF today...
IMF: Bush Admin Deficit Reduction Goals 'Unambitious'

Spoiler :

The Bush administration's plans to halve the U.S. federal deficit by 2011 is "unambitious" and not credible given pressures to its reliance on
unprecedented cuts in discretionary non-defense spending, pressure to reform the Alternative Minimum Tax, and the White House drive to extend the tax cuts of 2001 and 2003, the IMF said. The U.S. will likely have to resort to tax hikes, or "revenue-enhancing measures" in IMF-speak, in the form of energy taxes or a federal Value Added Tax to raise national savings enough to affect the current account deficit,
the IMF said.

Two questions...
One of the things the IMF proposes is a VAT tax.
What is your view of the VAT tax? From my perspective, the lack of consumption in Euroland is directly correlated to the VAT as well as being regressive.
The second is AMT. My understanding is that AMT will hit the vast majority of wage earners making $40,000 by 2008. If this were to be the case it's said the AMT receipts would be greater than what's received from the marginal tax rate payers. Any thoughts on the impact of AMT reform on the economy/deficit or if it's even possible to reform?

 

[jameson]

A question related to the flat tax, which I saw something in the vicinity of an endorsment of on your part in another thread: Would you like to have an effective tax rate that's entirely flat or is there some room for progressiveness just to make sure that low-income families aren't hurt disproportianlly, like a starting tax credit or the like ?

 

[Ebitdadada]

Hi. My name's JerichoHill, and my professional responsibility is well, I'm an economist. There seems to be alot of discussion about economics, and alot of misconceptions about what is actually true, and what is actually false. That's one of the problems I find when I talk to people about economics. No one knows which is which.

Please consider this a thread where any questions related to the subject of economics, economies, et. al. can be answered. I more than welcome the contributions of anyone with degreed qualifications as well, but I hope this is more an educational thread than a thread where economic issues are debated. My point isn't to debate here, but provide the best answer possible.

Yay! I've been waiting for this for a while!

First, about me in reference to econ: I have a BA in Econ (U of Minnesota): my emphasis was almost entirely on micro econ (I took intermediate macro my sophmore year (2 years ago) and that was about the extent of my macro). My real emphasis in college was on finance / business administration (not my econ degree). I'm currently a financial analyst at a somewhat large industrial conglomorate called Ingersoll-Rand. I comprehend calculus somewhat (notice the BA, not BS) but get lost when they throw in logs.

1. I'd like to subscribe to a semi technical / technical Economics Journal to keep myself up-to-date / learn more. Problem is I can't remember any of them and don't have access to J-Stor like I did in college. I'd like one with a nice mix of micro and macro issues. I also want one that is challenging but also one where I at least have a chance of understanding it. Any ideas?

2. Is the following math correct? I semi remember something like this from macro but
GDP = Investment + Consumption + Government Spending + (Ex-Im)

GDP = Savings + Consumption + Taxes

Sav+ Con + Taxes = C + I + G +(Ex-Im)

so

(Sav - Inv) + (Tax-GovtSpend) = Ex - Im

and

Every factor in the above math is influenced by every other factor in the above math and a whole host of other things.

3. With as little political spin as possible (you're in DC after all) and assuming #2 is right, what would you say the key conclusions are reguarding US economic policy, especially given the huge current account deficit?

4. Many states and localities use multiplier analysis to evaluate whether they should give tax breaks / subsidies to try to lure companies. Ex. of multiplier analysis: Fakey Fake corporation is considering building a customer service center in Fakeyville that will employ 1000 people. Due to the multiplier effect, 1,500 "secondary sector" (retail, doctors etc.) jobs will be created if Fakey Fake goes forward with the plant, thereby increasing total employment in Fakeyville by 2,500).

If Fakeyvill's only goal is to increase its population, do you think offering subsidies / tax breaks to lure companies like Fakey Fake to Fakeyville is an effective strategy?


That's All I've got for now! Thanks!

 

[JerichoHill]

Jericho some comments from the IMF today...
IMF: Bush Admin Deficit Reduction Goals 'Unambitious'

Spoiler :

The Bush administration's plans to halve the U.S. federal deficit by 2011 is "unambitious" and not credible given pressures to its reliance on
unprecedented cuts in discretionary non-defense spending, pressure to reform the Alternative Minimum Tax, and the White House drive to extend the tax cuts of 2001 and 2003, the IMF said. The U.S. will likely have to resort to tax hikes, or "revenue-enhancing measures" in IMF-speak, in the form of energy taxes or a federal Value Added Tax to raise national savings enough to affect the current account deficit,
the IMF said.

Two questions...
One of the things the IMF proposes is a VAT tax.
What is your view of the VAT tax? From my perspective, the lack of consumption in Euroland is directly correlated to the VAT as well as being regressive.
The second is AMT. My understanding is that AMT will hit the vast majority of wage earners making $40,000 by 2008. If this were to be the case it's said the AMT receipts would be greater than what's received from the marginal tax rate payers. Any thoughts on the impact of AMT reform on the economy/deficit or if it's even possible to reform?

I'm not a proponent of a VAT Tax, though I do agree with the IMF's assessment of Bush's deficit plan. I'm of the opinion that either the government is going to have to restrict its growth or raise taxes. History shows us that its more likely that taxes will be raised.

Tax reform is a heavy subject, and currently I dont have time (dinner) but I will have a very long response tomorrow, including my own personal solution.

 

[JerichoHill]

A question related to the flat tax, which I saw something in the vicinity of an endorsment of on your part in another thread: Would you like to have an effective tax rate that's entirely flat or is there some room for progressiveness just to make sure that low-income families aren't hurt disproportianlly, like a starting tax credit or the like ?

I'm not sure how I endorse a flat tax. I can understand that since the rich benefit more from property rights than the poor, they should pay relatively more in taxes. I feel the current income tax system is harmfully bureaucratic and has so many loopholes that its a very ineffective tax system. I'm not a fan of a consumption tax, so a simpler income tax or flat tax seems to be the best solution so far.

The current income tax system as an EITC, which helps poor families. I think in most flat tax proposals this EITC stays in place.

More on taxes tomorrow

 

[JerichoHill]

Yay! I've been waiting for this for a while!

1. I'd like to subscribe to a semi technical / technical Economics Journal to keep myself up-to-date / learn more. Problem is I can't remember any of them and don't have access to J-Stor like I did in college. I'd like one with a nice mix of micro and macro issues. I also want one that is challenging but also one where I at least have a chance of understanding it. Any ideas?
--The Economist will make you aware of public policy issues. For a trade journal, I think the Journal of Economic Literature or the American Economic Review would be good for what you want. AER I think would be the better.

3. With as little political spin as possible (you're in DC after all) and assuming #2 is right, what would you say the key conclusions are reguarding US economic policy, especially given the huge current account deficit?
--Well, it might be advisable to keep foreign confidence up. I think the US needs to look at its savings rate if were basing the analysis on your equation. Sadly, thats the basic version, its a bit more complex. I'd be much less concerned for the health of our future nation if our savings rate was better. More later...food


4. Many states and localities use multiplier analysis to evaluate whether they should give tax breaks / subsidies to try to lure companies. Ex. of multiplier analysis: Fakey Fake corporation is considering building a customer service center in Fakeyville that will employ 1000 people. Due to the multiplier effect, 1,500 "secondary sector" (retail, doctors etc.) jobs will be created if Fakey Fake goes forward with the plant, thereby increasing total employment in Fakeyville by 2,500).

If Fakeyvill's only goal is to increase its population, do you think offering subsidies / tax breaks to lure companies like Fakey Fake to Fakeyville is an effective strategy?
--If their only goal is to increase population, what kind of population? Residential, industrial, commercial? Fakey Fake could come in and increase commercial population, but could the people who work there and the new customer service people live in another city?


That's All I've got for now! Thanks!

See my responses in your quotes

 

[superisis]

I'm not normally in favor of government interference in the market mechanism.

yet some of the worlds best economies are heavily dependant on government intervention.

So, in conclusion. Probably a living wage wouldn't create massive unemployment or inflation (but I think it would create some). But it wouldn't solve the underlying problem both sides want to help alleviate, and that's chronic poverty.

A minimum wage is only a successful as it is backed up (by the unions). What is the point of having a legal minimum wage when companies can hire illegal immigrants for a percentage of it. In the end it is solely production and consumption... and we produce enough to live, hence it's a question of distribution. That's why you have people starving in the world's "greatest" economy. Because society is not willing to distribute (share the wealth).

HyperInflation? See Russia after the collapse of the Soviet Union and what happened there. I think that's pretty much your answer. Introducing money into your economy at such high rates creates inflation (value of money is devalued).

Eh, increased government spending, the multiplier effect? See USA and the increase in military spending and the Second World War.

It's simple really, if there are goods to be sold, but not to be bought (aka, lower demand), then price should go down... or it can go up (if the value of money goes down as well)

If an economy is producing goods that just rot away, then there's no demand for those goods, so any "Social Credit" would in a sense be a subsidy of support. This messes with the market mechanism, as the market is clearly saying that there's an imbalance.

see previous post.

costs money to subscribe to the Economist, and I don't want to give out my info!).

use the quote mechanism... or tell me of the article, I also have a subscription (and can post)

 

[WillJ]

That's why you have people starving in the world's "greatest" economy. Because society is not willing to distribute (share the wealth).

Huh? I'm assuming the world's greatest economy is America's, and I don't see anyone starving.

 

[JerichoHill]

Superisis,

I honestly am lost by your comments.

1) Yes, some of the world's best economies have government support. However, all of them have a common theme of attempting to have a free market system. The government cannot regulate the market efficicently, there's too much information out there.

2) Umm, we have less people starving the most developed free market economies than in the socialist countries. Your argument is bunk. There will always be inequity, we are human.

3) If you create more money, the value of money goes down. It is a simple economic principle. Now, if your economy is growing to support the new money, then the value of money doesnt go down. But if it is not, a monetary authority introduces inflation. Again, see Russia.

4) Sorry. Social Credit is a flawed economic policy, plain and simple.

 

[Paalikles]

Seems to me that Superisis is mixing keynesian economics into his/her argument.

It can be shown that increased demand for goods and services (as in increased govt. spending) can increase production, and via the multiplier effect lead to GDP growth (have in mind that I am doing a rough translation, since my education is in Norwegian, and not English, so I may write GDP instead of GNP etc, since the terms used in Norwegian differ). In a keynesian model, the economy reacts to changes in demand. I havent the time and need to make such a model to demonstrate my point. Jericho's post already takes care of why social credit is not a good thing, and my post is more on the side of that (it matters not if it is the government handing out money to increase private consumption, or if it is the government itself spending to increase demand)

It can be shown that this increase in demand is swallowed in medium and long run though. IIRC that is where Keynes was proven wrong. I believe the AS-AD model would be appropriate to show this

Well, actually, I guess it is fairly difficult to present such a model in a bulletin board (ie. I dont want to spend time doing it )

Of course, I am not yet finished with my economics degree. And I suppose I am neoclassical....

 

[JerichoHill]

Paalikles,

Dead on right in bringing up the AS-AD as a simple model explanation.

 

[JerichoHill]

Here's a good summary of the Austrian position on the tax code. Please note that Buchanan is a GMU Nobel Prize Winner. Personally, I'm not completely sold on any Flat Tax proposal yet, but the system is obviously broken

http://www.alexpadilla.org/ascweek101daee.pdf

I have no comment on Rothbard.
http://econlog.econlib.org/archives/2005/09/austrian_econom_1.html
Some stuff that Boettke says. I'm an Austrian trying to work in the mainstream.


http://www.mises.org/quiz.asp
Take the quiz! I score a 73/100 for Austrian, so I'm right on in that I'm an Austrian who's somewhat

 

[Bozo Erectus]

Heres one:

To what extent is the viablility of our global economic system dependent on cheap oil and gasoline prices?

 

[betazed]

Heres one:
To what extent is the viablility of our global economic system dependent on cheap oil and gasoline prices?

Let me chime in (with the caveat I am no economist)

As of now it is very dependent. But if cheap oil ends I do not think it will be the end of the world. Global GDP will drop for a time, some hardship will follow. But slowly consumption and investment will shift away from cheap oil requirement, to other energy sources. This may take time though. Anywhere from 10-20 years to 40-50 years (depending on technological progress in alternate energy sources).

All of which would have been easily avoided if we showed some foresight and unity.

More than economic changes what will really change drastically will be the political changes. Imagine no-one fighting over middle east oil and no trading of oil resource in dollar will do to the world order.