Still more random econ

They do the thinking, I do the linking.


First off, Bryan Caplan has a comment on a public wager (or rather, an offer thereof) by Don Boudreaux:

It’s a bit peculiar compared to the rest of the social sciences, but people — er, blogging pundits — often demand that economists “put up or shut up” when it comes to their pet hypotheses.  Here’s Don Boudreaux to (Administration officials) Peter Orszag and Nancy-Ann DeParle:

If the House passes a health-reform bill this year and the Senate adopts that bill through reconciliation, pick any year in the future between 2021 and 2046.  Then tell me your official (that is, the administration’s on-the-record) estimate today of how much Uncle Sam will spend on health-care that year.  I’ll bet each of you $5,000 that Uncle Sam’s actual, CPI-adjusted expenditures on health-care in that year will be at least 25 percent higher than your estimate.

It looks like a clever way to get the administration to commit to a potentially-disastrous prediction, and evidence that Boudreaux is strongly committed to his beliefs about public involvement in health care (which I don’t doubt he is).  But I can’t imagine that a private side bet would be enough of an incentive, in utilitarian terms, to convince a public official to take this sort of political risk.  Orszag and DeParle would have to speak on behalf of an institution (the administration) to make a personal wager.

Now that I think about it, this line of reasoning does seem to illustrate that the personal risks politicians take on when they propose or implement policy are dwarfed by the societal risks their policies incur.  It reminds me of tech-company CEOs playing IPO games to maximize return from their stock options, or investment bank execs gaming the conditions on their bonuses.

Time for a blog post on public choice theory?


Next we have another post on health care costs and employer-pays distortion from Austin Frakt:

The theory behind the employer-plan tax subsidy is that employers will use health benefits as an incentive to their employees, rather than simply raise compensation.  We’ve discovered that the tax subsidy amounts to about thirty-seven cents on the dollar, so in purely monetary terms employees should prefer to get all their health-coverage needs from this pre-tax source.  But of course there’s more going on than just that: buy your health insurance through your employer, and you’re limited by the plans your employer provides.  How much does that lack of choice cost?  Frakt picks the good bits from a recent paper:

Combining these figures with data on employer subsidies, we find the median employee would be willing to forego 27 percent of her employer subsidy simply for the right to use what remains toward a plan of her choosing. (© 2010 by Leemore Dafny, Katherine Ho, and Mauricio Varela.)

Maybe that tax subsidy isn’t worth as much to the employee as it first appears.


Being a short little shit gentleman of Napoleonic stature, I’m a big fan of Mankiw and Weinzierl’s proposed height tax.

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard Utilitarian framework for tax policy analysis answers this question in the affirmative. Moreover, based on the empirical distribution of height and wages, the optimal height tax is substantial: a tall person earning $50,000 should pay about $4,500 more in taxes than a short person earning the same income.

Eric Crampton Seamus Hogan comments:

[I]t is not utilitarianism per se that justifies the height tax; it is consequentialism (the idea that only outcomes that matter for assessing outcomes, not how those outcomes come about), of which utilitarianism is but one example. But if you do reject the height tax, you are rejecting a welfare framework that assesses all policy purely through the eyes of an equity-efficiency trade-off.

Consequentialism is a funny beast.  Surely “how those outcomes come about” is itself an outcome of consequentialist policy, with its own ramifications and repercussions; writing off the means to an end as inconsequential strikes me as laziness at best and moral cowardice of the filthiest sort at worst.


Finally, some posts relevant to the Greek situation.  Nick Rowe does the math on debt/GDP ratio, debt burden, and growth:

It seems to me that the (admittedly off-the-cuff) analysis conflates population growth with individual income growth.  But the insightful part (to me, at least) is this comment on debt/GDP vs. debt in general:

To my mind, the “primary surplus” needed to prevent the debt/GDP ratio rising over time is a good measure of the burden of the debt. It represents taxes we pay that cannot be spent on the things we want to spend it on.

This strikes me as a very marginal way of looking at debt, which is probably plenty common in the econ literature but noticeably absent in public discourse on debt.  Debt, in the short term, isn’t a big huge scary thing we have to pay off in the tangible future (as with, say, a mortgage); but it does impose significant and immediate costs if one doesn’t want to go the way of Greece.

Speaking of Greece, David Henderson points out some dumbworms:

Discussing a caption from the WSJ, Henderson notes:

The Greek government doesn’t plan to cut spending by 4.8 billion Euros. Rather, it plans to cut the deficit by $4.8 billion Euros, with a combination of spending cuts and tax increases.This isn’t a picky distinction. What this error shows, at best, is how cavalier reporters tend to be about distinguishing between budget cuts and deficit cuts. At worst, it shows that they have accepted a language that you often hear from U.S. congressmen in which cuts in budget deficits are referred to as “savings” even if they include tax increases.

Commenter “Jack” points out that this may well be a copy editor’s doing, rather than a reporter’s.


2 Responses to “Still more random econ”

  1. March 9, 2010 at 05:36

    The piece linked above from Offsetting comes from my occasionally seen co-blogger, Seamus Hogan. My own views of the appropriate weighting of consequentialist outcomes are far too muddled for a proper post as yet.

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