Cheap Talk: The PA Tax Amnesty

My current research involves state tax amnesties, and part of it is going to involve credible threats. Remember this creepy commercial that circulated the web last spring?



Well, the amnesty is over. Time for the crack downs to begin, right? Rebekah Lu reports:

In the wake of the Pennsylvania Sales Tax Amnesty program, which Governor Rendell calls 'an overwhelming success' Pennsylvania has announced that it is still willing to take money from any tax delinquents out there who didn't pay up when they had the chance to avoid paying penalties. (The Amnesty program waived all penalties plus half the interest owed.)During the amnesty program the state had suspended the voluntary disclosure program which is the usual avenue for delinquent taxpayers to come forward and pay their debts. As of August 1st that program is again available. In return for coming forward voluntarily taxpayers now taxpayers will be responsible for any taxes owed plus all the interest. A 5 percent non-participation penalty is also assessed.

So by "amnesty", the state was really just undertaking a heavy marketing promotion of a special they were running on an already existing and permanent tax amnesty program. Half-off everybody, this time only!!

The Panther's "Name Your Own Price" Ticket: My Two Theories of Rent Extraction

From Wired:

To counteract that wave, the Panthers are trying out a bold, new season ticket-selection process called Perfect Plan. The system is ridiculously simple: Fans need only pick out an area within BankAtlantic Center and propose a per-game price for a specific seat. Then, within 24 hours, someone from the team will notify them to either accept their “bid,” reject it, or offer them a seat elsewhere in the arena for a price similar to what they offered.

I think this system of pricing will turn out perform two functions for the Panthers:

1. It will serve as a mechanism for extracting an anchoring rent. People will propose a price, which will be anchored in their mind when they are offered an alternative seat with lower value.
   
2. It will put ticket scalpers into a position for falling victim to the winner's curse. I suspect this somehow is aided by the recent ban on scalpers from using software bots to purchase tickets online, but I'm not sure on the mechanism.

Labor Demand Slopes Down: #3,672

Forthcoming in the Journal of Urban Economics (ungated, but I haven't compared to see if they are the same). Abstract:

This study examines the effect of state minimum wage changes on new and existing business establishments. It employs a refined border approach in conjunction with other differencing methods to control for unobserved heterogeneous area characteristics. The findings suggest that state minimum wage increases deter new establishments from locating in an area, particularly in industries that rely on low-education workforces, such as the retail and manufacturing industries. However, existing establishments, regardless of industry type, are not found to be adversely affected by minimum wage policy.

Clearly on the wrong side of the Laffer

The inflection point of the Laffer curve is under discussion at Ezra Klein's blog. It unintentionally reminds me that FDR once seriously proposed a 99.5 percent marginal income tax rate, proving once in for all that such exercises are important:

As pointed out earlier in this essay, Herbert Hoover's own version of a "New Deal" had hiked the top marginal income tax rate from 24 to 63 percent in 1932. But he was a piker compared to his tax-happy successor. Under Roosevelt, the top rate was raised at first to 79 percent and then later to 90 percent. Economic historian Burton Folsom notes that in 1941 Roosevelt even proposed a whopping 99.5-percent marginal rate on all incomes over $100,000. "Why not?" he said when an advisor questioned the idea.

Moral Portfolio Theory

From Psychology Today:

"Save a Plastic Bag, Help Save the World." The idea, of course, is that if we throw away fewer plastic bags, nature will benefit. Many such small virtuous actions can, in congregate, impart an enormous benefit. Also underlying the slogan is another idea, which is generally unexpressed explicitly yet a part of our collective folk psychology, that good behavior leads to a virtuous circle: doing one good deed puts us in a beneficial mindset that leads us to do more good deeds....Unfortunately, as psychological research has shown, human behavior doesn't work like that at all. On the contrary: single, small acts of virtuous behavior actually predispose us to behave worse.

Last Names for Economists

In the middle ages, there was a tendency for people to take their occupation as their last name. For example: Smith, Miller, Taylor, Baker, Cooper, etc.

If that practice was to reoccur, I wonder what last name would work well for us economists. I have heard far worse last names than Economist, but I bet some more creative last names could be used to represent the occupation. Dismalist? Oikonomia? Maxyew (derived from "Max U")? Samuelsonite?

Is the Welfare State Larger in America than in Europe?

Apparently, and by a considerable amount, according to a new article in International Tax and Public Finance (I couldn't find an ungated copy). I haven't read it, but here is the abstract:

Fighting poverty is an important concern in most societies. This usually involves transferring resources to the poor. There exists a widespread view that European countries are much more generous to the poor than the United States. We study whether this is really the case. First, we argue that using data on aggregate spending does not allow us to conclude who the final recipients of social expenditure are. We then analyze microeconomic evidence from the Current Population Survey and the European Community Household Panel and find mixed results. In particular, when the concept of relative poverty is used, we find that every individual below the poverty line receives an average transfer in the United States that is 45% higher than in the European Union. When the old are excluded from the sample, this difference is reduced to 14%.

Quote of the year: There are two sides to the coin edition

I just put up a CNN article concerning the 100 worst stimulus projects. The article goes on to say that some people believe the report is a bit one sided. (It is; the point is you can never have enough examples for class of the government funding, say, international ant research.) But check out this nugget, from the lead researcher for a group receiving money to develop choreography that didn't like the cut of the report's jib:

"I think it's sad that this research money that is really allowing innovation and funding students doing great research is being used as a political tool," Latulipe said.

You just can't make this stuff up.

100 Worst Stimulus Projects

As CNN reports here, Senators Coburn and McCain have assembled a report that lists the 100 worst stimulus projects. The title of it is "Summertime Blues," the official summary page is here and the report itself is here.

In related news, here's the 2010 Congressional Pig Book.

A Belated Review of "Firefly"

Yes, the show that was canceled in 2002, but which I only just now watched on Netflix.

I had never really heard of it and almost stopped watching midway through the first episode because I had to recoil from the unexpected blending of Sci-Fi and Western. The economist in me struggled with the notion that an intergalactic race of humans would travel from planet-to-planet in order to go on horseback cattle-drives. I managed to stay with it, however, and enjoyed it more as the (only) season progressed. I had a hard time discerning why I liked it, and really it wasn't until the end of the series and the follow-up movie that I was really able to articulate what I enjoyed about the show. In fact, I would say that the show took this entire span to develop its theme, and in the end I felt it was a decidedly libertarian theme. Since I know a fair number of libertarians follow the blog, I decided I would briefly explain why, since libertarian entertainment is in rather short supply.

(FWIW: I'm not the only one to make the connection, but I didn't agree with the few reviews I read. Here is Tyler Cowen, who sees it as "Burkean Conservative," but mentions that he had only seen it through 8 episodes. I read on a message board that the show's creator, Jos Whedon, is a socialist but said at a sci-fi convention that he intended to make the lead character libertarian).

The main setting of the show is on a space ship called Serenity, and takes place in the years following a failed war of succession during the 26th century. Most planets are ruled as part of an empire known as "The Alliance," but planets on the outer rim of the galaxy remain independent in a nobody bothers sort of way. The crew of the ship take miscellaneous jobs, most of which involve some form of smuggling or bootlegging, and the crew does its best to remain an honorable bunch.

More to the point of my review, however, is that the setting of the show really demonstrates a crew trying to navigate between two conflicting totalitarian regimes. The Alliance is a decidedly leftist regime with a strict utilitarian welfare function. In this regime, individualism is viewed with suspicion because it seems unnecessary, given the Alliance's pure and great objectives ("why wouldn't they want to conform" is a reoccurring Alliance retort). The individual human is flawed, but perfectable, and the perfection of humanity is the end in itself. They pursue this perfection with a utilitarian theme, which at its lowest point sacrificed an entire planet to an experimental drug that created a barbaric race called Reavers.

The outer planets are not ruled as a collective, but the constant threat of Alliance coercion causes them to operate in a state of either lawlessness and/or reclusiveness. In the series, each planet seems to be ruled by some type of right-wing regime that makes them about as totalitarian as the Alliance itself. This, to me, was a most logical outcome. The Alliance's pursuit of perfection created a galaxy-wide black market (an organ shortage, no less!). At the same time, the constant fear of annihilation (even among those who were not part of the black market) cultivated rather conservative societies, ruled by dogma and norms that apparently had proven useful for survival, and often with a very religious bend to them.

The crew of the Serenity demonstrate little interest in living under either regime, and frequently find themselves at odds with both camps. Indeed, their desire for independence makes them natural enemies of both forms of totalitarianism. Though it is the sort of independence that characterized much of the early American pioneers: rugged individualists who were also fiercely defensive of their community. In this way, they portray libertarians better than libertarians usually portray themselves.

By the series end, and especially in the movie, you get to see just how similar the leftist Alliance is to their conservative counterparts from the outer planets in their religiosity. Both preach adherence to blind faith and cultivate a self-serving status hierarchy. In no place are their similarities more apparent in the treatment of the character River, who it is implied has some psychic abilities. On one occasion in the outer planets, she is nearly burned following accusations of witchcraft. The Alliance, on the other hand, wants to dissect her brain "for the greater good," by which it turns out to mean the greater good for the ruling elites.

The way the two conflicting ideologies managed to merge in their practices, and watching a crew of independent (yet, not isolationist) bunch trying to navigate between them made for a decidedly enjoyable experience. My two cents. If you watched the show, I'd be curious to know how my interpretation squares with yours.

Mopping Up Excess Reserves

As you probably know, the Fed has expanded base money by roughly 140% over the last couple years. Under normal circumstances, we would expect a rapid increase in the money supply to follow (recall that M = B m, where M is the money supply, B is base money, and m is the money multiplier). However, banks are holding higher reserves (that's in the denominator of m, hence the multiplier is decreasing). So the unprecedented increase in B is being largely offset by the decrease in m. As a result, M1 and M2 have grown slowly.

Bob McTeer asks whether the Fed should "mop up" the excess reserves held by banks:

The idea that the excess reserves held on banks’ balance sheets should be “mopped up” to prevent them being used in inflationary ways later is a very dangerous idea. They are there voluntarily because bankers feel they are needed. To remove them would cause further bank retrenchment, as it did in the 1930s when the Fed decided to “mop up” the excess reserves of that time.

As the economy and confidence improves, banks will begin using their excess reserves more aggressively. At that point, the Fed will have to be very careful not to stifle that desirable activity on the one hand or let it get out of hand and become inflationary on the other hand. Since they have lots of good, two-handed economists, I think they can pull it off.

Should the rapid increase in B over the past few years be mopped up? Absolutely. But when? Ahhh. That is the tricky part. Ideally, we would want B to fall as m returns to normal levels--that is, when banks start lending out their reserves. If the Fed reduces B too quickly or too soon, the money supply will shrink (deflation). If it reduces B too slowly or too late, the money supply will grow (inflation). This, unfortunately, is the knife's edge that central bankers must traverse if they are to maintain monetary equilibrium.

HT: Harry David

Incentives and Cairo housing

On a recent trip to Cairo, I was struck by two things.

First, there were a lot of run-down apartment buildings. Emphasis on "run down" and "a lot," and interspersed throughout the city. Yes, Egypt isn't the richest country in the world, but it's still a large (read: more than 20 million) city and prevalence of poor buildings was surprising in all areas of the city.

Second, there seemed to be a preponderance of unfinished buildings. This isn't entirely uncommon in Muslim areas but, again, Cairo is a large city and, once more, there was surprising amount of (seemingly non-progressing) construction.

Things like this don't happen without reason; where there's bizarre outcomes, government nonsense isn't usually too far behind. See if you can guess for yourself the government policies that exaggerate these outcomes-- I'll put the answers below the fold.

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1. Apartment owners are not allowed to raise the rent on a family living in a unit. Thus, once families secure an apartment, they keep it as long as possible at the same level of rent. Think generations. Incentive to improve the building to satisfy tenants? Little. In fact, insofar that the only way you can get more revenue from your building is by getting new customers, the incentive is to (perhaps actively) make the experience as bad as possible. Rent control, anyone?

2. Building owners don't pay taxes on building until the construction is complete. Thus, buildings in perpetual states of construction don't pay taxes. Not hard to see the incentive there-- keep it unfinished and avoid the State.

One Line to Sum Up Somalia

From the NYT:

Somalia’s sheer ungovernability is both its curse and its blessing.

HT: Pete B.

Austrian Capital Theory

From Steve Horwitz @ FEE:

Capital is not like a bucket of water from which we scoop identical cups. Instead, capital goods, including human capital, have a limited number of specific uses to which they can be put. As Peter Boettke puts it, capital is not like Play-Doh, which can be formed into any shape, but like Legos, the versatility of which is limited by the sizes, shapes, and interconnections of the pieces.

Austrians speak of the need for capital to be “complementary” to other capital in order for it to help create an integrated production plan. A producer must have the “right” capital, that is, capital that “fits together.” An important implication here is that “more” capital isn’t always better. What firms need are pieces that fit, not just duplicates of what they already have.

Shared Beliefs, Focal Points, and Phone Finding

I lost my phone last Thursday.

Fortunately, I knew exactly where I'd left it. I constantly check the clock on my phone during class to adjust my lecture speed so that I don't spend too much or too little time on any subtopic. Given that I had driven straight home from class, and that I realized I'd left my phone almost immediately upon getting home, I knew it had to be sitting on the podium. But when I returned, it wasn't there.

I figured there were two possibilities:
1. Someone found the phone and decided to keep or sell it.
2. Someone found the phone and attempted to get it back to me.

Obviously, P(1) > 0. There are criminals in the world. However, I reasonably assumed the conditional probability that the person finding my phone was a criminal was quite low. Most likely the person finding my phone would be a college professor, as it was on the podium. There was also a relatively high probability that a student taking summer classes found my phone. Regardless, I'd guess few individuals in these groups are criminals or have access to criminal networks such that reselling the phone would be worth the risk of being caught. There was also a possibility that someone on the cleaning staff located my phone. Now, I'd imagine the probability that cleaners--typically from low-income households--have access to criminal networks would be significantly higher than college professors and students taking summer classes. But the odds that a cleaner found my phone would be low. I teach a morning class and cleaners typically work at night. So scores of people would have to overlook my phone for it to be on the podium when the cleaners arrived in the evening. Hence, I believed P(1) < P(2).

But how would they attempt to get it to me? They did not try to call me. Nor, to my knowledge, did they try to call anyone in my recent calls. Instead, they would likely do what people in our society normally do when the find something that has been lost: drop it off at a lost and found. This is where focal points become important.

Where is the lost and found? As it turns out, there are several options. Here are the most likely:
1. Secretary
2. Campus police
3. Johnson Center Information Desk
4. Student Union Information Desk

A lazy person might just walk over to the secretary in the building where the phone was lost and let her deal with it. But this assumes two things. First, it assumes that the phone finder knows where the secretary is. I am an instructor in that building and (until I actively began looking) I didn't know where her desk was located. Second, it assumes that either (1) I will know to go to the secretary to retrieve my phone or (2) the secretary will know where I'm likely to go and be willing to take the phone there. Note the importance of shared beliefs. The only way this works out is if the phone finder and I or the secretary and I have shared beliefs about what should happen to lost and found phones.

If the secretary option is not particularly salient, perhaps the next option would be the campus police. However, the GMU police station has recently moved from a building relatively close to the class where I lost my phone to the other side of campus. This decreases the likelihood of my phone ending up there for two reasons. First, it requires more effort to get it there than any of the other potentially salient options. Second, given that the change took place recently, it increases the likelihood that either I or the phone finder is not aware of the change and hence decreases the likelihood of a match. Knowing this, even a phone finder aware of the station change might be reluctant to take the phone to the police. Again, note the importance of shared beliefs and knowledge about shared beliefs.

The third option, JC Info desk, has an advantage in that it is right in the center of campus. All the food vendors are located in the JC. Going to any other class or office on campus would likely cause you to walk past the JC. However, the JC is in the opposite direction of the nearest parking lot. So instructors or students showing up for one summer class might have to go out of their way to go to the JC.

The fourth option, the Student Union Info desk, is anything but centrally located and is also off path from the nearest parking lot. While this option might be particularly salient to students, it is not likely to be as salient to instructors. And recall that the phone finder is likely to believe the phone was lost by an instructor since it was on the poduim. Hence, even if it were salient for a student phone finder, the student would have to consider whether it would be salient for me.

So where did the phone finder conclude that I would most likely look for my phone? Well, since I was fortunate enough to retrieve it today, I can tell you. And we can all learn a little something about shared beliefs. Take a guess. The answer is below the fold.

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JC Info Desk

Ecuminical (and Financial) Incentives

From Slate:

Working with David Yermack of New York University, the two preachers' sons set out to test the Corinthian hypothesis by investigating the economic incentives affecting the United Methodist clergy of Oklahoma, where Hartzell's stepfather had spent his career. In "Is Higher Calling Enough?" a study forthcoming in the Journal of Labor Economics, the researchers show that Oklahoma's ministers are driven not just by spiritual motivations but also by high-powered financial incentives. Working with more than 40 years of church records covering more than 2,000 clergy, the authors find that ministers received about a 3 percent share of revenues generated from boosting membership, comparable to the pay-for-profit sensitivity of Fortune 500 CEOs. They also uncover some unfortunate side-effects of financial incentives for ministers who, motivated by material concerns, may have been encouraged to poach congregants from one another's flocks rather than to bring new believers into the fold.

Nerd Alert: Econ T-Shirts

I've designed and ordered a couple shirts at Cafe Press. Understanding that the marginal cost [of the design] falls to zero, I have made these designs available in a "shop" so that--if you are as nerdy as I am--you can order them. Here are a few of the Ts.

The first two shirts are related to Pete Boettke's claim that Austrian economists can decide to emphasize the Austrian or the Economics.





The third shirt allows you to channel your inner Scott Sumner and advocate a nominal income target.



Shirt number four is a little less cryptic, allowing your nerdy econ friends to see you support a constant PQ.



And finally, though I imagine few of our readers are interested, there's a shirt w/ the JEL code for "Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems."



Interested in having your own? It's a little more complicated to order than I would have thought. But details are below the fold. I'm sure there will be more to come, as I really like custom shirts.+/-

Instructions for ordering from the shop:
1. choose the design [MV=PQ, Nominal Income Target, etc.]
2. choose the shirt type [Mens T, Women's T, etc]
3. choose the color
4. choose the size [there is a sizing chart ]

For the Teaching Vault: Deadweight Loss

The deadweight loss of Ohio's income tax is LeBron James.*

The deadweight loss of the British Income Tax code is Usain Bolt.

*Incidentally, my first publication was on the state income tax incidence on All Star MLB free agents. Players paid non of the tax.

New Member of the "Juicing the Mitchell" Club

It is Jason Kuznicki at the League of Ordinary Gentleman (Hat Tip: Zach Wendling). Jason summarizes support for Alvin Irvine's (the improbable SC gubernatorial candidate) proposal to have action figures made of himself to give to children at Christmas:

Compared to endless war, stripping us of our civil liberties, running up giant budget deficits, and all the rest… I have to say I’m all in favor Greene’s proposal. Politicians have limited time. Let’s use it wisely. Or at least use it up.

Indeed, welcome to the club Jason!

InTrade on LeBron James

As a longtime Cleveland Cavs fan, I have been keeping an eye on the LeBron James resigning saga. Right now, the InTrade odds seem to favor the Bulls, but note that the low volume reveals an internal inconsistency (the probabilities don't add up correctly). For Cavs fans, the disappointing bottom line is that the most liquid market puts only a 29% chance at him returning.