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August 7, 2015

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Posted: 07 Aug 2015 12:06 AM PDT

'Buying Locally'

Posted: 06 Aug 2015 12:29 PM PDT

Via the blog A Fine Theorem:

"Buying Locally," G. J. Mailath, A. Postlewaite & L. Samuelson (2015): Arrangements where agents commit to buy only from selected vendors, even when there are more preferred products at better prices from other vendors, are common. Consider local currencies like "Ithaca Hours", which can only be used at other participating stores and which are not generally convertible, or trading circles among co-ethnics even when trust or unobserved product quality is not important. The intuition people have for "buying locally" is to, in some sense, "keep the profits in the community"; that is, even if you don't care at all about friendly local service or some other utility-enhancing aspect of the local store, you should still patronize it. The fruit vendor, should buy from the local bookstore even when her selection is subpar, and the book vendor should in turn patronize you even when fruits are cheaper at the supermarket.
At first blush, this seems odd to an economist. Why would people voluntarily buy something they don't prefer? What Mailath and his coauthors show is that, actually, the noneconomist intuition is at least partially correct when individuals are both sellers and buyers. Here's the idea. ....
One thing that isn't explicit in the paper, perhaps because it is too trivial despite its importance, is how buy local arrangements affect welfare..., an intriguing possibility is that "buy local" arrangements may not harm social welfare at all, even if they are beneficial to in-group members. ...
[May 2015 working paper (RePEc IDEAS version)]

'The Declining Impact of U.S. Income Taxes on Wealth Inequality'

Posted: 06 Aug 2015 10:35 AM PDT

Nick Bunker:

The declining impact of U.S. income taxes on wealth inequality: A growing number of papers measuring U.S. wealth inequality and its continuing growth were published over the past year. One of those key papers, by economists Emmanuel Saez of the University of California-Berkeley and Gabriel Zucman of the London School of Economics, finds that the share of wealth held by the top 0.1 percent of families in the United States grew from about 7 percent in the late 1970s to 22 percent in 2012. Yet it's important to note that Saez and Zucman's results and similar estimates look at the distribution of wealth before accounting for the impact of taxation. A new paper looks at the post-tax distribution of wealth and finds that the federal income tax system is doing significantly less to reduce wealth inequality than in the past. And there are signs that the federal tax system in recent years might actually be increasing wealth inequality.
The paper by economists Adam Looney at the Brookings Institution and Kevin B. Moore at the U.S. Federal Reserve looks at trends in wealth inequality from 1989 to 2013 using data from the Fed's Survey of Consumer Finances. ...
Looney and Moore's analysis is, as they note, the first attempt to analyze trends in post-tax wealth inequality. So their paper is just the beginning of the investigation into this area. But if their results hold up they would have strong implications for how we think about the tax code and wealth inequality.

'Unwavering Fealty to a Failed Theory'

Posted: 06 Aug 2015 10:16 AM PDT

Bad economic theory (but good if you are rich) has trickled down to this cycle's Republican presidential candidates:

Unwavering Fealty to a Failed Theory, by David Madland, US News and World Report: With their first debate set for tonight, Republican candidates have been trying mightily to claim they can help address the economic problems most Americans face. ...
While Jeb Bush declared in February that "the opportunity gap is the defining issue of our time," more recently he's been forced to backtrack from his statement that Americans "need to work longer hours" in order to boost their incomes. Sen. Marco Rubio's argument that if the United States is to "remain an exceptional nation, we must close this gap in opportunity," rings a bit hollow next to his tax plan that disproportionately benefits the wealthy. Gov. Scott Walker says he wants to help families achieve the "American Dream," but thinks the minimum wage is "lame," has stripped the words "living wage" from state laws, and has attacked workers' right to join together to collectively bargain for better wages.
Looking beyond the rhetoric and individual policies, however, lies the Republican Party's major problem: unwavering fealty to trickle-down economics. Virtually all Republicans since Ronald Reagan was elected president have run on a platform of supply-side policies, and the 2016 election will be no different. But it should be, because there is now a growing recognition that trickle-down economics has failed....

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