Archive for the 'Myths' Category

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Quote Of The Day

“Not only is Smith not endorsing a progressive income tax, he isn’t endorsing any sort of income tax. Reading further into the passage, he successively rejects taxes on income from capital, taxes on wages, and taxes on the income of professionals. The only income he approves of taxing is the income of government officials. What he is arguing for is a system of taxation whose effect is proportional to income, not a tax on income.” — David Friedman, rebutting the claim that Adam Smith endorsed a progressive income tax

Quote Of The Day

“But here’s one failing, that neither Tyler nor Arnold mentions, of the vast majority of both left-wing and market-oriented economists: their apparently dogged determination not to analyze the role of war and an aggressive foreign policy in leading to the rise of the interventionist state. Robert Higgs has laid this out well in his 1987 book, Crisis and Leviathan, which I reviewed in Fortune. Jeff Hummel is currently completing a book showing, inter alia, how almost any domestic government intervention you can name had its origin in this or that war.” — David Henderson

Oil Economics

Economist David Henderson, in a book review, states oil economics that many environmentalists lack:

Another problem, state Hubbard and Navarro, is that America’s heavy oil dependence makes our economy far more vulnerable to slower growth and recessions triggered by sudden price increases. But because oil is traded in a world market, we are vulnerable to price increases whether we import all or none of our oil. So whether we produce all or none of the oil we use, an oil price increase hurts our consumers the same amount. To be sure, if we imported less oil and produced more domestically, a price increase would help our producers. But how would we put ourselves in the position of having more production? By guaranteeing a higher price to domestic producers. By insisting on higher-cost domestic production, we would avoid the possibility of more-expensive oil when prices spike for the certainty of more-expensive oil all the time.

The full review can be found here.

Quote Of The Day

“The New York Times invites you to eliminate the federal deficit by picking and choosing among 16 options. I agree with Arnold Kling and David Henderson about the takeaway message: It’s really really easy to cut the deficit to zero without raising taxes. And that’s without even eliminating any agencies. Moreover, the Bowles-Simpson proposals include dozens of additional specific recommendations that are not listed on the Times site. So cutting spending is even easier than the Times makes it appear.”” — Steve Landsburg

Quote Of The Day

For 2010, the #1 American-made car is the Toyota Camry for the second year in  a row, followed by the Honda Accord.  Toyota has two other models in this year’s top ten, the Tundra at #7 and the Sienna at #10; and Honda has the Odyssey at #6.  So the two “foreign car companies” – Toyota and Honda – captured half of the top ten spots for American-made cars in 2010, just like last year.  ” — Mark Perry

Quote Of The Day

“In this article about college funding, Kevin Carey says something that I’ve long believed, which is that government-supported financial aid doesn’t quite work how you might imagine: colleges can just raise their prices along with any aid packages that come along. The price tag for college is not fixed, and so what looks like a subsidy for low-income students can just end up being a way for universities to jack up their prices by a corresponding amount.” — Andrew Gelman

Milton Friedman On The Responsibility To The Poor

[youtube:http://www.youtube.com/watch?v=Rls8H6MktrA&feature=player_embedded]
Just as true in 1978 as it is today.

Credit Card Economics

When Obama proposed his credit card regulations, economic theory predicted what would happen: harm those with less than perfect credit scores (primarily the poor). Bryan Caplan, professor of economics at George Mason University, explained it best when he wrote:

” When you make lending to high-risk people less attractive, the result is not worse terms for low-risk people who have been profitable all along. The result is that high-risk people get less credit. They used to be able to get credit despite their credit-unworthiness by paying extra; if the law forbids this, why lend to them?”

How did this prediction fare with reality? Very well, according to this Yahoo Finance article:

During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

The only way this bill makes sense is in assuming that regulators, centered in Washington, know more about the cost/benefit analysis of the poor than the poor themselves do. An assumption that comes easy to politicians and technocrats in Washington.

Dont Copy Europes Healthcare

So says a European:

[youtube:http://www.youtube.com/watch?v=RZum_o-GAEI]

Quote Of The Day

“About 10 percent of infants die in their first year of life in Africa — still shockingly high, but considerably lower than the European average less than 100 years ago, let alone 800 years past. And about two thirds of Africans are literate — a level achieved in Spain only in the 1920s.” – Charles Kenny writing in Foreign Policy, link via Tyler Cowen

Quote Of The Day

“IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act. Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined.” — Tax Foundation, link via Greg Mankiw

Buy American Is Meaningless

[youtube:http://www.youtube.com/watch?v=pWQ_UV-9Wb4]

Why the “Buy American” campaign is just another union power grab and should be ignored.

Quote Of The Day

“The young interviewer, Conor Clarke, owes a huge debt to Milton Friedman, who did more for him and for every healthy American male under age 54 than [liberal economist] Samuelson ever did. I’m referring, of course, to Friedman’s “nutty libertarian” crusade against the draft. The draft ended in 1973 and among the leaders who pushed to end it were Milton Friedman, Alan Greenspan, W. Allen Wallis, William Meckling, and Walter Oi, all of whom were or are strong believers in the free market. Meanwhile where was Samuelson? He was AWOL. He was represented by a Senator, Ted Kennedy, who was one of the staunchest proponents of the draft and, if Samuelson ever wrote against the draft or ever tried to talk Kennedy out of it, I can find no record of it. In 1980, when Senator Sam Nunn was trying to bring back the draft and I circulated an economists’ statement against the draft, Samuelson refused to sign. Friedman, by contrast, not only served on President Nixon’s Commission on the All-Volunteer Force but also lobbied Congressmen personally against the draft.” — David Henderson, commenting on an interview with liberal economist Paul Samuelson

The Clinton Years vs The Bush Years – A Pet Peeve I have

Casey B. Mulligan, professor of economics at the University of Chicago, made a comment that he should know is disingenuous, he wrote:

the “big spending Democrat” stereotype is incorrect — government spending / GDP fell under Clinton and increased under Bush.

This comparison, used to argue that when it comes to spending there is no difference between Republicans and Democrats,  is made often, both in the blogosphere and by academics who should know better. The main problem I have with it is that it is not comparing apples to apples.  Milton Friedman argued that the best form of government, from a small government and low spending perspective, is a Democratic president and a Republican Congress, where Republicans control the spending (congress), and Democrats control foreign policy – precisely what we had under Bill Clinton. The worst form of government is when the same party controls the presidency and congress – precisely what we had under George W Bush.

In other words, you are comparing arguably the best scenario under a Democratic president with the worst scenario under a Republican president – of course they are going to be alot closer than what they really are. Don’t get me wrong: I am not arguing that Republicans are true fiscal conservatives, no, I am arguing that the gulf between the two is larger than what these “Clinton years vs Bush years” argument would lead you to believe.

The difference between the two is even larger when you compare the kind of spending each does: Republicans tend to overspend on wars while Democrats tend to overspend on entitlements. Wars are temporary, they are one time events that come to an end, whereas entitlements are forever and worst of all, they get more inefficient and expensive with time. Take FDR and LBJ – both were involved in wars and both created entitlements, FDR with World War II and social-security and LBJ with the Vietnam war and medicare. Yet today we worry about the growing costs of social-security and medicare while the financial costs of World War II and Vietnam, though expensive at the time, are now but forgotten.

And Bill Clinton would not have been any different, had he had more control of congress, Matthew Yglesias explains:

If the health care bill that the Clinton administration authored, pushed for, and staked its presidency on had passed you would say that FDR, LBJ, and Bill Clinton were the three main architects of the modern welfare state. Because the bill didn’t pass, the institutional legacy of the Clinton years is considerably more moderate than that and the Clinton administration is instead remembered for its responsible stewardship of national affairs. But that’s because congress blocked the bill not because of Clinton’s moderation.

That was the Republican controlled (for the first time in ~50 years) congress that blocked the bill.

A better comparison is between the Bush years and the Obama years – but given the fact that in Obama’s first 100 days in office, he’s already proposed spending more than Bush spent in his entire 8 years, including both wars, its a strong argument that there really is a difference between the two parties. Especially considering that most of Obama’s spending comes in the form of very expensive entitlements – entitlements that Obama is hoping will last forever.

You can argue that entitlements are worth the costs, that is an argument for another day, but you can’t make the argument that the spending is the same between the two parties.

Quote Of The Day

” When you make lending to high-risk people less attractive, the result is not worse terms for low-risk people who have been profitable all along.  The result is that high-risk people get less credit.  They used to be able to get credit despite their credit-unworthiness by paying extra; if the law forbids this, why lend to them?” — Bryan Caplan, professor of economics on the Real Unintended Consequences of New Credit Card Regulations

When Doing Nothing Is Better

The New York Times art section ran an article on differing views of the great depression: its causes and the affects public policy had on it.

Richard Vedder, an economist at Ohio University, made this interesting observation:

Mr. Vedder playfully offered another analogy: the recession of 1920. Why was that slump, over and done with by 1922, so much shorter than the following decade’s? Well, for starters, he said, President Woodrow Wilson suffered an incapacitating stroke at the end of 1919, while his successor, Warren G. Harding, universally considered one of the worst presidents in American history, preferred drinking, playing poker and golf, and womanizing, to governing. “So nothing happened,” Mr. Vedder said.

Of course Mr. Vedder does not wish ill health — or obliviousness — on any chief executive. Still, in his view, when you’re talking about government intervention in the economy, doing nothing is about the best you can hope for from any president.

The full article can be found here.

Update: David Friedman has more here.