Category Archives: Economics

Of vs. In vs. Adding Words

Over at Politico this morning, Michael Lind has an interesting item out that suggests Donald Trump “exposed the Tea Party.”

One line, very early in the piece, jumped out at me. Lind is quoting Trump here:

“People as they make more and more money can pay a higher percentage” of taxes.

Lind didn’t use an ellipsis (…) after percentage to show that he was cutting up the quote. This is a bit sloppy.

Here’s what Trump actually said on Sean Hannity’s show:

TRUMP: I actually believe that people, as they make more and more money, can pay a higher percentage, OK?

HANNITY: How high?….What’s the cap?

You can read the full exchange here, but Trump doesn’t answer the question, other than to suggest that hedge fund managers can afford a tax increase. (This as some surmised, and later was confirmed, had to do with the “carried interest” tax rate, which is lower than the personal income tax rate a hedge fund manager would typically pay.)

This is not a defense of Trump. He didn’t answer the question with specificity, so we still don’t really know. And specificity is a problem area for Donald.

I know what you’re thinking — who cares? “‘a higher percentage’ of taxes” vs. “‘a higher percentage’ in taxes” are six and one half-dozen of the other, right? Nope, not necessarily.

Since raising taxes is generally a no-no for the political right, a distinction is important.

To say one wants wealthier people to pay “‘a higher percentage’ of taxes” is to suggest — assuming we’re only talking income taxes — that you want their contributions to represent a higher percentage than present of the total amount of taxes that are collected.

Of course, when it comes to income taxes, the top 50% of taxpayers pay 97% of all federal income taxes. The top 1% pay 38% of it.

Now, saying one wants wealthier people to pay “‘a higher percentage’ in taxes” is saying you want to raise rates on individuals as they get wealthier, or change the tax treatment of certain types of income (like carried interest or investment income) so it is treated as ordinary income.

So, what’s the distinction? Well — Trump’s views are still a mystery, but Lind inadvertently put words in Trump’s mouth by butchering the quote.

Conservatives, rightly, claim that when you tax something, generally, you get less of it. It’s not an absolute principle, but it’s generally correct. (To those who disagree, why, then are cigarette sales declining? Could it be a $1 per pack tax increase Obama signed? OK.)

In some instances, raising taxes on certain activities or on certain individuals, could ultimately result in less of that activity or individuals doing less work. It could even result in lower tax revenues than at lower rates.

The distinction between a higher percentage of all taxes and a higher percentage in tax rates is real. But Trump still hasn’t made it clear, and Lind (wrongly, though probably unintentionally) tried to make it clear.

I guess we’ll find out when Trump releases his tax plan. Though, if it’s anything like his immigration plan, don’t expect many specific details.

Jack, Jack…

Friend and fellow SLU grad — now a St. Louis City Alderman — is apparently on board with a city-funded stadium in St. Louis.

He appeared on NPR‘s “All Things Considered” this morning in a sound-byte about the city’s frantic effort to keep the bottom-tier Rams from moving to Los Angeles.

Jason Rosenbaum (NPR St. Louis): People like Jack Coatar see this place as the future of professional football in St. Louis. The St. Louis Alderman says building a publicly-financed football stadium here will inject economic vitality into a blighted area, and keep St. Louis as an NFL city.

Jack Coatar: You know, we have the opportunity to completely change what that river front looks like. Take a blighted area north of the arch and completely regenerate that area.

Also joining the conversation was Holy Cross’s Victor Matheson. (Whose work I cited in an item arguing why Cleveland should turn down the GOP or Democratic conventions.)

The math on publicly funded stadiums (like political conventions or Olympics) usually does not add up to a net gain.

Here’s Matheson in a 2011 report, Financing Professional Sports Facilities:

Numerous scholars, starting with Carlino and Coulsen (2004), have used hedonic-pricing techniques to attempt to quantify the quality of life aspects of sports. If the presence of an NFL franchise, for example, is a vital cultural amenity for residents in the area then the value of the franchise to local citizens should be reflected in a higher willingness to pay for living in a city with a team.

One problem is St. Louis is a small, relatively poor city given its size with 318,000 residents. The region has 2.8 million people — and that includes Illinois. Missouri politicians (and not Illinois politicians, who represent a not-insignificant amount of Rams fans) appear ready to pour $400 million (plus) into the stadium.

That means that financing of the stadium is likely to be borne by state taxpayers as a whole. I recall during my time at SLU seeing highway billboards farmers put up that said “If Cardinals build highways, we’ll build stadiums.”

I’m dubious about publicly funding any pro-team’s sports stadium. This, despite being from Cleveland. There, our politicians helped hasten Art Modell’s decision to move the Browns to Baltimore by giving stadiums to the Cavs (not so great at the time) and the Indians (historically bad but on the verge of being good enough to lose in the World Series twice) and not the Browns. Modell just wanted improvements to a stadium far more inferior to the Edward Jones dome.

After the Browns left, we fought to keep the name and got a new franchise which, like the Rams, has under performed. Browns fans, happy(?) to have a team again, will likely hold the bag for a team’s stadium that, at best, hosts 10 games a year there. After paying for 74% of it.

At least the Cardinals are there more often and have a chance at going to playoffs.

But here’s the thing about the Matheson report. The benefits of new stadiums tend to benefit apartment building owners, not necessarily citizens writ large:

Carlino and Coulsen (2006), for example, find that rental housing in cities with NFL franchises command 8% higher rents than units in other metropolitan areas after correcting for housing characteristics…

Others such as Feng and Humphreys (2008) and Tu (1995) find localized effects of stadiums and arenas on housing prices but also that these effects fade quite quickly as the distance from the stadium grows. (Editor’s note: St. Louis is nothing if not spread out.) Conversely, Coates, Humphreys, and Zimbalist (2006) find that Carlino and Coulsen‟s results are highly dependent on model specification. Kiel, Matheson and Sullivan (2010) find that the increase in housing costs does not extend to owner-occupied housing and also find that the presence of stadium subsidies lowers housing values, a finding also uncovered by Dehring, Depken, and Ward (2007).

Here’s a rare intersection where Vox and I agree. Let the Rams build their own stadium or leave.

Matheson concludes his report by saying this:

Improving citizens’ quality of life is clearly an important goal for public policy makers, and there is evidence that sports are a valued amenity for local communities. Evidence of significant direct economic benefits from sporting events, franchises, and stadiums is lacking, however. While public-private partnerships can be justified on quality of life grounds, voters and public officials should not be deluded by overoptimistic predictions of a financial windfall. Sports may make a city happy, but they are unlikely to make a city rich.

Love you, Jack. Happy you’re succeeding as an elected official. But you’re wrong here.

Drop the economic vitalization argument and just say you want to keep an NFL team because the city likes sports. Voters appreciate honesty.

You can listen to the NPR report below:

Paul Krugman Was (Probably) Right!

It pains me to admit this, but Paul Krugman was probably correct about something. (Though, modern-day Krugman might disagree.)

I’d point you to this excellent NRO item:

But what if 2014’s jobs boom is mostly thanks to the expiration of a program that the Obama administration and Democrats fervently pushed to renew?

That’s the finding of a new NBER working paper from three economists — Marcus Hagedorn, Kurt Mitman, and Iourii Manovskii — who contend that the ending of federally extended unemployment benefits across the country at the end of 2013 explains much of the labor-market boom in 2014.

About 60 percent of the job creation in 2014, 1.8 million jobs, they find, can be attributed to the end of the extended-benefits program. That’s a huge amount, and suggests that long-term unemployment benefits, while there’s a good charitable case for them, could have played a big role in the ongoing lassitude of our labor market. (Indeed, an earlier working paper from a few of the same authors argued that extended benefits raised the unemployment rate during the Great Recession by three percentage points; see a summary of that paper here.)

This brings me back down memory lane, nearly five years ago, to my days as a young and brash aide to Senator Jon Kyl (R-AZ) in 2010.

Here’s what Krugman sneered in his column back then about floor remarks made by my boss regarding the large expansion of unemployment insurance:

Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

To Krugman fanatics and haters, it’s not news that Krugman will write one thing, and then, years later with a newspaper column, write something completely different.

So, we went to the Library of Congress and pulled out the text book he had written with his wife, called “Macroeconomics” and look what we found:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.


So, a letter to the NY Times — something they are known for not publishing if critical — was drafted. And wouldn’t you know? It got published.

Though, we never did hear back from Paul Krugman. But I hope pre-NYT Krugman is feeling somewhat vindicated.

Here’s the letter:

jk nyt unemployment

On ‘Free’ Community Colleges

Over on Facebook, my friends and I have had an interesting discussion on the elusive details of the President’s budget/SOTU proposal for ‘free’ community college education.

Because of a New Year’s resolution a few years ago, I rarely delve into long, drawn-out debates on Facebook. It’s usually not worth your time. But I made an exception here, in part because of the thoughtful insights from my friends (and a friend/former teacher!) and partly because I wanted to weigh in further.

Here’s my (lightly edited) rant:

Edward and Shawn, I agree with points you both make. The cost of ignorance is high and not everyone has the opportunity to attend a Jesuit school with great science teachers like Mr. Nolan. (Though the Jesuits are trying as hard as they can with the Cristo Rey model, which is phenomenal.)
I love community colleges. My grandfather was a professor at one, and my mother attended there before going to tOSU. I’m just opposed because I don’t think this level of involvement by the government is appropriate. It’s my libertarian side coming out.
Realistically, this has ~0% chance of passing Congress. The “Pay Go” rules don’t help because anyone who proposes it on the Democratic side will “pay for it” with a tax increase and not a cut, which is how the game is played in Congress these days.
If Obama / Congressional Democrats wanted to be clever, here’s how they’d structure it:
1.) You apply for this program and by doing so, you agree to forfeit your Pell Grants entirely.
2.) Under Pell Grants, you get up to 12 semesters (six years) worth of grants, which, under maximum level at max time before exhaustion represents a little under $35,000. Of course, not everyone qualifies for Pell Grants, or gets the full amount. But you could argue savings by doing this.
3.) Cynically, if you wanted to obtain a 4-year degree, then you’d likely go to the student loan market (effectively nationalized since 2010!) where the government could make the money back. (Though, they’ve already used the “profits” from that to defray the cost of Obamacare and it would be hard to count that twice.)
A friend of mine, an analyst type, observed that this would be among the cheaper proposals Obama has proposed, even though the costs would be in the tens of billions, according to some estimates.
Two states (and others I am sure) have tried “free college programs.” Their examples are instructive. (I still am weary about government involvement in this, but at the state level it is at least appropriate from a federalism perspective.)
Arizona, when I worked for Senator Kyl, had something called an AIMS scholarship. If you met certain requirements under their AIMS program — you got a full tuition waiver at in-state schools, provided you were accepted. Of course, the test was not terribly hard and lots of people qualified. Now, it covers 25%, and is renewable — subject to college-specific requirements — over the remaining three years.
It was poorly planned. And it was done by Republicans!
Tennessee has the “Tennessee Promise” program, a brainchild of their Republican governor, gives free community and technical college tuition (for 2 years) to high school graduates in the state. The program is funded by the lottery. The program, which I also think was poorly implemented as such measures often are, has seen 58k applicants. Double what they expected. They’re learning Freidman’s adage of “no such thing as a free lunch” despite being well-intentioned.
Details on Obama’s plan are still forthcoming, but right now we know you have to have a C+ average, these CC’s have to agree to certain stipulations about their programs and credit transferability, and some vague notions of “student outcomes.” The feds expect states to pick up 25% of the cost.
While I agree with Mr. Nolan about college/knowledge having an effect on real-world life outcomes, Shawn’s point about high school and those outcomes is also worth delving into. To paint with my partisan broad brush, Democrats only seem to be interested in spending more money, not reforming public education in meaningful ways. (Thanks, teachers’ unions!)
So, rather than improve the K-12 system, I think there is room to criticize this proposal as keeping the bad and just inflating the bar.
White House director Cecilia Muñoz told Politico that “Obama aims to make college ‘the norm in the same way high school is the norm now.'”
Depending on your partisan lens, this statement will be interpreted differently. I see this as what I alluded to earlier — education inflation rather than education reform.
Granted, we’re all wasting our time in a thought exercise because this has about the same chance of happening as anything in President Obama’s budgets. Budgets these days are a thought exercise in “how I’d like things to be, but obviously won’t be.”
This started the last two years of the Bush presidency, when Congress was controlled by Democrats. They became “Hope Documents” or “Wish Lists.” Even after Obama was elected, his budgets were never taken seriously by Congress because Congress was not serious about budgeting.
They quickly abandoned regular order and the normal appropriations process in favor of continuing resolutions and omnibus packages. A power grab by the leadership, disenfranchising moderate and oddball Democrats and castrating Republicans in the minority.
Presidential budgets have always been blueprints. Congress is under no obligation to consider them, but Presidents are still obligated by the law to churn them out. It used to make sense, but now it’s sort of a pointless partisan exercise.
Boehner tried to restore regular order when I went from the Senate to the House as a staffer. In that, he failed. McConnell has signaled he wants to try his hand at that, too.
I wish them luck and hope it succeeds, but I’m not optimistic.
Prospects for reforming K-12 education are equally dire, but then again, while I agree with conservatives on their reforms, I’m of the view that the federal government shouldn’t be involved in the first place on education, a position many conservatives share. Hard to argue that when you’re voting to essentially maintain some semblance of federal control over it, even if it is diminished.


EconPop – The Economics of It’s A Wonderful Life

It’s that time of year — time for Andrew Heaton to peel back the onion on the economics of one of my wife’s favorite films.

Pay To Recline, Pay to Be Recline-Free

In the latest round of First World Problems that receive way too much attention from the chattering classes, there’s the debate over the knee defender device and reclining in seats on airplanes. Naturally, given my penchant for devouring an amount of media and social media well above the average, I’ve seen people I know weigh in on the topic on both sides.

My colleague Mark Hemingway even was called out in the New York Times for his view that recliners are monsters. (To be fair, I, while tall, am not as tall as Mark is. And we all know where most tall people stand in this debate.)

I almost exclusively fly Southwest Airlines for obvious reasons — it’s the best airline in the world and anyone who tells you otherwise is wrong. Southwest is not nearly as guilty as its counterparts, both budget and mega carriers, who charge customers for what used to be randomly-assigned or luck-of-the-draw benefits. Like aisle seats, party row seats (remember those?), emergency exit row seats, and snacks. Some, like Spirit Airlines, charge you more to bring a carry on item, since it increases departure times and reduces time-in-air.

I don’t like flying United, not because I don’t respect their efficient ways of making profit from things (I do), but because I just enjoy Southwest airlines that much more. And their wifi always works for me. And I don’t get charged for wifi that doesn’t work. When flying United alone — my wife is #TeamUnited — I will opt to pay for a bigger seat. Because I am tall and I have what parents describe as “ants in my pants.”

I need room. And, I’m willing to pay to get that room.

Some find this concept abhorrent. (Usually they’re net neutrality proponent types whose sense of neutrality and “fairness” disappears when talking about bike lanes, bus rapid transit lanes, or car pool lanes.)

When it comes to short domestic flights, I’ll admit reclining is annoying. But it’s an annoyance I can deal with. On long-haul flights, pretty much everyone reclines and it’s not a problem.

We get it, you're not as tall as BuzzFeed's John Stanton.

We get it, you’re not as tall as BuzzFeed’s John Stanton.

Barro’s NYT piece opens with a nice discussion of economics, but he loses me at property rights. I don’t think a plane ticket is a guarantee of property rights, since the airline can pretty much move you around without your consent. (And, let’s not forget loud children, people who violate your space, and the “talkers.”) A ticket is sort of a guarantee to get from one place to another, except when it isn’t.

As such, I don’t agree with his contention that you should pay each other directly for reclining or not reclining. Or when he turns it into a war on tall people.

If this is such a problem that has requires a national debate (hint: it isn’t!) I have a solution that both sides will probably hate, which is why I’m inclined to think it’s a good one.

Here it is, in its simplicity: If you don’t care, you get a discount/pay normal price. If you do care, you pay.

Hot Pockets, US International Tax Law, and Corporate Inversions

Here’s a recent appearance on One America News Network where I discuss the global economy, corporate inversions, and everyone’s favorite treat: Hot Pockets.

EconPop — The Economics of the Lego Movie

As usual, Heaton delivers describing the movie my Lego doppelgänger is the star of:

Benefits of Price Discrimination, Continued…

As a consumer, I salute Safeway for participating in the perfectly acceptable (and beneficial!) practice of price discrimination.

Thank you, Safeway.


EconPop — Ghostbusters

Hey, I know that Jim guy! Make sure you check out the podcast here.