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September 13, 2012

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That Does Not Compute

Posted: 12 Sep 2012 12:42 AM PDT

Paul Krugman:

No Details Forthcoming: Hmm. So even on the right, people are complaining that Romney isn't providing enough details about his plans. And I've spoken to journalists who are sure that Romney will be forced to say more before Election Day.
No he won't ... for a very simple reason: his proposals don't add up. He literally can't do what he says he would do, namely cut tax rates on the rich without raising the tax burden on the middle class or making the deficit surge; nor can he propose spending cuts as large as he claims without cutting deeply into programs people depend on.
Another way of saying this, of course, is that his alleged budget plan is actually a fraud.
Why would he do such a thing, and expose himself to the criticism he now faces? Well, why should he have expected this scrutiny? Paul Ryan has been running around for years with a supposed fiscal plan constructed largely out of magic asterisks, and got hailed as a Bold Truthteller. Romney must be asking why the rules have changed.
Apparently, though, they have. And because Romney went with the assumption that he would never be asked to put up, he is now in a position where he can't.

'New and Larger Costs of Monopoly and Tariffs'

Posted: 12 Sep 2012 12:31 AM PDT

Monopolies and tariffs are costly:

New and Larger Costs of Monopoly and Tariffs, by James A. Schmitz, Jr., FRB Minneapolis: Abstract Fifty-eight years ago, Harberger (1954) estimated that the costs of monopoly, which resulted from misallocation of resources across industries, were trivial. Others showed that the same was true for tariffs. This research soon led to the consensus that monopoly costs are of little significance—a consensus that persists to this day.
This paper reports on a new literature that takes a different approach to the costs of monopoly. It examines the costs of monopoly and tariffs within industries. In particular, it examines the histories of industries in which a monopoly is destroyed (or tariffs greatly reduced) and the industry transitions quickly from monopoly to competition. If there are costs of monopoly and high tariffs within industries, it should be possible to see those costs whittled away as the monopoly is destroyed.
In contrast to the prevailing consensus, this new research has identified significant costs of monopoly. Monopoly (and high tariffs) is shown to significantly lower productivity within establishments. It also leads to misallocation within industries: Resources are transferred from high- to low-productivity establishments.
From these histories, a common theme (or theory) emerges as to why monopoly is costly. When a monopoly is created, "rents" are created. Conflict emerges among shareholders, managers and employees of the monopoly as they negotiate how to divide these rents. Mechanisms are set up to split the rents. These mechanisms are often means to reduce competition among members of the monopoly. Although the mechanisms divide rents, they also destroy them (by leading to low productivity and misallocation). ...

Links for 09-12-2012

Posted: 12 Sep 2012 12:06 AM PDT

Eichengreen: Audit the Fed?

Posted: 11 Sep 2012 10:10 AM PDT

Barry Eichengreen argues that the Republicans' proposal to audit the Federal Reserve is a bad idea:

Audit the Fed?, by Barry Eichengreen, Commentary, Project Syndicate

He's right.

'Is Medicare Really Going Bankrupt? Definitely Not'

Posted: 11 Sep 2012 10:04 AM PDT

Trudy Lieberman of the Columbia Journalism Review catches CNN getting something right:

Medicare 'bankruptcy': CNN gets it right, by Trudy Lieberman: Hooray for, for fact checking the often-heard claim of Medicare's "impending" bankruptcy. CNN's contribution sets a high bar...
The "bankruptcy" language comes up a lot. ... But is Medicare really going bankrupt? Definitely not, says CNN. The network is correct, and the point is crucial.
How did CNN pull away from the fact-checking pack on this one? ... First, CNN reported, as CJR has urged news outlets to do, that only one part of Medicare is in potential trouble—the Hospital Trust Fund, which is financed by payroll taxes. The other parts of Medicare, including Part B, which finances doctor visits, lab tests, and outpatient services, "are adequately financed for now," Medicare trustees have said. ...
CNN pushed further and asked a logical question that most reporters writing about Medicare have missed. When the magic date for "bankruptcy" arrives—2024 according to the Dems, or 2016 if the ACA disappears in a Romney presidency—would Medicare really disappear? Jonathan Oberlander, a health policy expert at the University of North Carolina, told CNN that ... "Medicare is not going bankrupt. Medicare would still have most of the necessary funds to pay those expenses and other parts of the program would be unaffected. Medicare won't go bankrupt in the literal sense in 2016 or 2024 or 2064—or ever." The Centers for Medicare and Medicaid Services, which runs the Medicare program, said this year that even in 2024 the Medicare hospital trust fund could still pay 87 percent of its estimated expenditures, and noted that, "in practice, Congress has never allowed a Medicare trust fund to exhaust its assets." ...
That's not to say that Medicare's cost explosion is not a problem. How to control cost—not just for Medicare but for al the rest of the healthcare system, too—is a central issue that the press needs to clarify. ...

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