Good Government and Animal Spirits

Great Op-ed piece in the WSJ from Nobel Laureate George Akerlof and Yale Economist Robert Schiller:

Such a world of animal spirits justifies the economic intervention of government. Its role is not to harness animal spirits but really to set them free, to allow them to be maximally creative. A brilliant player wants a referee, for only when the game has appropriate rules can he really show his talents. While the sports of baseball and football haven't changed much in the last century, the economy has -- and American financial regulation hasn't had an overhaul in 70 years. The challenge for the Obama administration, along with the U.S. Congress and our SROs, is to invent a new and better American version of the capitalist game.

Government Spending 101

From the Center on Budget Policy and Priorities:

While critics often decry “government spending,” it is important to look behind the rhetoric and determine whether the actual public services that government provides are valuable. To the extent that such services are worth paying for, the only way to do so is ultimately with tax revenue. Consequently, when thinking about the costs that taxes impose, it is essential to balance those costs against the benefits the nation receives from public services.

After-Tax Income Changes (1976-2006)

From the Congressional Budget Office via Brad DeLong and Ezra Klein:

Its astonishing the leap within the top 5th, particularly the top 1%. Granted, the top 1% starts around $300K or so if I'm not mistaken--so the numbers are a bit distorted in this category since it includes the likes of Bill Gates and A-Rod with the likes of a duel-income family making $300K. Maybe a calculation of the median for the top1% would be more appropriate; or maybe breaking the top 1% into smaller sub-categories (0.1%, 0.001%, etc.)

Education and Inequality

From Peter Orszag, President Obama's Director of the Office of Management and Budget:

This slowdown in the growth rate of educational attainment is a problem both in terms of attenuated economic growth (the hard head part) and increased economic disparities (the soft heart part). As Claudia Goldin and Lawrence Katz have shown, both effects are traceable to a decline in the relative supply of highly educated workers – which dampens economic growth while also increasing the wage premium for being a college grad. Said differently, the fewer college grads we produce, the slower overall economic growth and the higher the salaries for those fortunate enough to go to college. And since we know that those from lower-income families are less likely to go to college and graduate (as compared with students from higher-income families with similar test scores), the overall result is that we perpetuate inequality.

Claudia Goldin spoke to the Economics majors at Davidson College last year and gave an exceptional talk on this very subject. Education has to be at the center of any social policy geared at reducing inequality in this country.

30 years of economic growth?

Paul Krugman, again:

In short, how much of the apparent US productivity miracle, a miracle not shared by Europe, was a statistical illusion created by our bloated finance industry?

He cites this paper from June 2007 by Dean Baker and David Rosnick of the Center for Economic and Policy Research. I think if we as a nation start being honest with ourselves (starting with using more appropriate indicators of economic health) , we will find that we have a bit of growing-up to do.

Big Business in Bed with Big Government

This kind of thing really makes me want to start a revolution.
Courtesy of Mother Jones:

It's nothing unusual for the chairman of an influential committee to haul in loads of campaign cash from the businesses that are within his committee's jurisdiction. But with his future in the Senate in jeopardy, Dodd truly has to rely on his supporters in the industries he oversees, all while presiding over key components of the various financial bailouts currently underway. That is, he's pushing the envelope when it comes to Washington's pay-to-play routine.

Also, here's this morning's op-ed from Paul Krugman. Great stuff as always.

Update: Amen, via Simon Johnson at The Baseline Scenario

Let's Get Smarter

Nicholas Kristoff talks about Raising the National I.Q.

“Some of the things that work are very cheap,” Professor Nisbett noted. “Convincing junior-high kids that intelligence is under their control — you could argue that that should be in the junior-high curriculum right now.”

The implication of this new research on intelligence is that the economic-stimulus package should also be an intellectual-stimulus program. By my calculation, if we were to push early childhood education and bolster schools in poor neighborhoods, we just might be able to raise the United States collective I.Q. by as much as one billion points.

Beer, Tea & Tobacco

Harvard economics lecturer Jeffrey A. Miron and Yale Law student Elina Tetelbaum, on Forbes, present findings against the logic that a higher legal drinking age reduces traffic deaths:

The major implication of these results is that the drinking age does not produce its main claimed benefit. Moreover, it plausibly generates side effects, like binge drinking and disrespect for the law--the very behavior that events planned for this month's alcohol awareness theme are designed to deter.

Ryan Avert puts those "tea party" cronies in their place:

Consider this -- core consumer prices rose slightly in March thanks primarily to an 11% increase in the cost of tobacco products (there's that Obama tax increase), and smoking is much more prevalent in the population among the poor.

Which isn't to argue against cigarette taxes; they're a valuable public health tool. It's just to note that pretty much any way you slice recent economic data, things end up being harder for those with lower incomes. Something to keep in mind tonight as you watch tea bag coverage rolling in.

John Stewart does too (pretty funny)

Asset Bubbles and Income Inequality

Interesting post from Justin Fox via Mark Thoma

Well now, after looking at the data about the country's 400 highest earners and reading the comments by pneogy and shepherdwong, I am ready to offer an important new theory (well, not entirely new): The rise in income inequality over the past 30 years has to a significant extent been the product of a series of asset-price bubbles. Whenever the market (be it the market in stocks, junk bonds, real estate, whatever) booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble. It's not the same people raking it in every time—there's lots of turnover in the top 400—but skimming the top off of asset bubbles appears to have become the leading way to get rich in these United States in the past three decades. ...

Also, from Fortune Magazine just before the election about the HENRYs ("High earners, not rich yet"):

Most of all, the HENRYs face daunting choices. "They can become wealthy, but they must starve themselves of luxuries to get there," says advisor Tysk. "These people save only because they go without." Most HENRYs view achieving a comfortable retirement as a long and difficult climb.

The dream still lives for the HENRYs, but it's elusive. It's a dream that enriches us all, and that America would do well to nurture.

Another nuance to the tax debate. I don't think it's as much a sob story as the authors try to make it out to be, but it does present another side.

Happy Tax Day, America

Some noteworthy tax-day posts from Huffington and others:

• Famous Tax Cheats
  
• Why Our Tax Code is So Complicated
• The Burden of Tax Havens on the Rest of Us ($100 billion)
  
• Taxing Matters
• Paul Krugman - "Tea-Parties Forever"
• Robert Reich - "A Short Citizens Guide to Kooks, Demagogues, and Right-Wingers on Tax Day"
  

Progressive or Not? You Decide:

Not enough:

• Mother Jones - "How to Think About Taxes (Differently)"
• Ezra Klein - Tax Graphs
• NYTimes Economix Blog - Better Tax Graph than Ezra's

Maybe:

• Tax Foundation - Tax Burden the Wrong Way to Think About It (read the abstract)
• Tax Foundation - 10 Myths About Tax Policy
  

Fun thoughts via the Urban Dictionary:

plaid:
1. Cool, in-style, pleasing to look at; awesome
2. An incredible pattern created by the Scots and Irish in ancient times.

granola:
1. A person who dresses like a hippie, eats natural foods (granola), and is usually a Liberal, but in all other ways is a typical middle class white person, and is likely to revert back to being straight when they finish college.

It's Official...

...I've joined the blogging world. I figured since I spend a decent amount of time reading these things I might as well have my own. Welcome to Plaid & Granola, your one-stop shop for what I'm reading and thinking about at the moment. I'm new to this, so I'm not quite sure how the blog will evolve - hopefully with feedback from the loyal fans I can shape the content of my postings to keep you intrigued. Be sure to leave comments and feedback. And remember: Be safe. Safety first, then teamwork...