Posts tagged with: Fiscal policy

Blog author: jcarter
Tuesday, December 13, 2016

Note: This is post #13 in a weekly video series on basic microeconomics.

What is a subsidy? A subsidy is really just a negative or reverse tax, explains Alex Tabbarok. Instead of collecting money in the form of a tax, the government gives money to consumer or producers. In this video by Marginal Revolution University, Tabbarok looks at the subsidy wedge and who benefits the most from different subsidies.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: Understanding tax revenue and deadweight loss

customer-satisfactionThe United States spends a lot of money each year on public schooling. As a percentage of GDP, government expenditures on public education (five percent) exceed the amount we spend on defense (four percent) or welfare (two percent). But how do we know if we are getting our “money’s worth” on public school?

Too often, the primary criterion of effectiveness is standardized testing. A school is rated almost exclusively on on how well its students perform on standard testing (usually limited to reading and math) as compared to other students in the same city, district, or state. When the issue of school choice comes up, critics assume that this standard is the only one that matters.

If an experiment in school choice doesn’t show improvement on test scores, it’s often considered empirical proof choice doesn’t work. Yet as economist Tyler Cowen says,

Growing up, I attended a private, Christian school until 4th grade, when my mother couldn’t afford it any more and my brothers and I switched to a blue collar, suburban public school. Academically, I experienced a clear difference. The worst contrast was in math, where I learned basically nothing for three years. The only subject that was probably better at the public school was science, but I’m not even certain about that. Class sizes were larger too.

None of this is to say that I didn’t have good teachers and experiences and learn a great many things at my public school. I did, and I’m quite thankful for it, in fact. And, of course, private schools are perfectly capable of employing bad teachers and failing to properly educate their students. But this was my experience.

So in high school, for purely anecdotal and self-interested reasons, I supported school vouchers, much to the chagrin of many of my teachers. (There was a state level proposal in the 2000 Michigan election in support of vouchers that I wore a button supporting — I wasn’t old enough to vote at the time. Incidentally, the proposal failed.) After all, I thought, I might not have become such a slacker if I had continued to be challenged in my public school like I was in my private school.

With the recent appointment of Betsy DeVos as Secretary of Education by president-elect Donald Trump, vouchers may become a national issue. She has championed the cause and supported politicians who do for years.

Able now to take a less self-interested look at the issue (or so I tell myself), I’m actually a bit confused by the politics of vouchers — why isn’t there more skepticism on the right and support on the left? (more…)

grouchomarxThe Obama Administration seems to think that moving money from one place to another constitutes economic stimulus. A Washington Times editorial points this out. First, the administration is pushing food stamps, or SNAP (Supplemental Nutrition Assistance Program), as a way to get the economy moving.

“I should point out,” Agriculture Secretary Tom Vilsack said on MSNBC two years ago, “when you talk about the SNAP program or the food-stamp program, you have to recognize that it’s also an economic stimulus … . If people are able to buy a little more in the grocery store, someone has to stock it, package it, shelve it, process it, ship it. All of those are jobs. It’s the most direct stimulus you can get in the economy during these tough times.”


Remember the “fiscal cliff”? It wasn’t a cliff.

Over at Neighborhood Effects, James Broughel asks the question, “Has the Sequester Hurt the Economy?”

So have the sequester cuts hurt the economy? One possible answer comes from a new paper by Scott Sumner of Bentley University. Sumner argues that cuts to government spending don’t have serious deleterious macroeconomic effects when the Federal Reserve is targeting inflation. This is because the Fed ensures that prices stay stable under an inflation targeting regime, which keeps demand stable even in the face of government spending cuts. Similarly, when the Fed stabilizes the price level it also offsets any beneficial effects that fiscal stimulus might have, which helps explain the lackluster results from the 2009 American Recovery and Reinvestment Act (aka the “stimulus”).

Implicit in Sumner’s theory is that expansionary austerity, or the idea that the economy can grow even in the face of large government spending cuts, is indeed possible. Some of my colleagues at the Mercatus Center have described other ways in which expansionary austerity is possible.

First of all, I would like to be clear that I do not disagree that “expansionary austerity” may be possible. Nor do I disagree that the sequester cuts have not significantly hurt the economy. However, while the sequester included spending cuts and, therefore, technically qualifies as “austerity,” it was not what everyone was making it out to be. (more…)

[Note: This is the second in a three part series. You can read the introductory post here and part three here.]

How Bitcoin Works (The Simplified Version)

In order to use the Bitcoin system, a user installs a “wallet” on their computer or mobile phone. Once installed the wallet generates a Bitcoin address (similar to an email address) that allows the user to send and receive payments. Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×1014 currency units. This allows a person to spend a fraction of a Bitcoin (the current exchange rate as of April 15, 2012 is 1 Bitcoin = $95.36000). Unlike standard e-commerce and money transfer system, Bitcoin transactions are irreversible.

How Bitcoin Works (The More Complicated Version)


A Bitcoin is merely a chain of digital signatures attached to a transaction log. In the very first transaction of the system, Nakamoto’s computer program (which is open source and distributed across a peer-to-peer network) created 50 Bitcoins. When Nakamoto spent some of the coins, it created a new transaction that subtracted the amount from his account and credited it to the recipient’s. All such transfers entail the owner digitally signing a hash (a numerical value created by an algorithm) of the previous transaction and providing the public key for the encryption to the next owner. Both items are then added to the coin’s transaction log. A payee can verify the signatures to verify the chain of ownership, which prevents double spending of the same coins.

This transaction—and all subsequent exchanges—is distributed to the entire network for verification. Collections of transactions, known as “blocks,” are deemed valid when another computer on the network creates a transaction log for it that matches the previous blocks. To prevent the falsified logs from being accepted, the system must provide a means of verification that is prohibitively costly to any individual user, but relatively cheap for the network as a whole. As explained in The Economist:

Frank Hanna III, CEO of Hanna Capital, LLC, has made Catholic education a special focus. In an interview with the National Catholic Register, Hanna spoke of the challenges, changes and reasons to champion religious education:

The more I looked into the issues of society, the more I became convinced that a lot of our societal failings happen much sooner; so much of the foundation of our failure was happening in our educational system. And that’s what actually got me thinking about education. I was thinking, “If you are going to do your own part in turning the world around, education is the place to start.”

I started to examine it in the secular world, and the more I began to study education, the more I became convinced that the very process of educating a child is inherently a religious undertaking.

Hanna goes on to say that parochial schools are in need of financial renewal, and spoke of the role of parish subsidies:

I think it is worth exploring whether parents should receive the subsidy from the parish or the diocese, rather than the school. In other words, parents who are tithing or who are parish members would receive something of a voucher that they can use at any Catholic school, thereby putting more control into the hands of the parents. Rather than subsidizing schools, we would instead be giving financial help to those parents who need it, and reconsidering whether parents who actually don’t need financial help should still be paying tuition that is subsidized. This is one example of the kind of financial modeling that we might reform.

Read “The State of Catholic Education” in the National Catholic Register.