Friday, December 31, 2010


The America Creating Opportunities To Meaningfully Promote Excellence in Technology, Education, and Science Act (America COMPETES Act) was reauthorized by the 111st Congress. I admittedly don't know much about these prizes and will be looking closer at them in the near future. Here's a link to various prizes the government's offering (the core of the law's been around since 2007; it looks like the reauthorization, among other things, increased the role of prizes).

Saturday, December 25, 2010

The Spirit of the Season

Rasmussen Reports published today that most people prefer stores greet them with "Merry Christmas" (69%) versus the 24% preferring Happy Holidays.

Very few Americans are offended when someone wishes them a "Merry Christmas," but most are more likely to say "Happy Holidays" to someone else rather than risk offending them.
Also, few who don’t celebrate the holiday are offended when an acquaintance wished them "Merry Christmas."
Wishing someone a "Merry Christmas" is an externalized benefit (people prefer it more) at a small risk of an internalized cost (offending someone...which is also an externalized cost but I figure if you're going to bother to say anything in the first place, you have sympathetic preferences). According to these reports, as economics predicts, we have too few "Merry Christmases" because (drum roll please), people are taking their niceness too far! It's a strange world when a selfish Scrooge can teach us about spreading some Holiday Christmas cheer.

Merry Christmas.

Monday, December 13, 2010

Growth Is Efficiency

An article by Steve Horwitz brought on one of Brad Delong's most prestigious awards: Stupid Economist Alive. Horwitz argues that supply, not demand, is the key behind economic growth.
Starting the analysis with consumption assumes one has already acquired means. Contrary to that analysis, wealth is created through acts of production that rearrange resources in ways people value more than alternative arrangements. These acts are financed with savings that come from households refraining from consumption.
Delong (and Karl Smith and Matthew Yglesias and other Keynesians) argue growth comes from demand (hence the call for stimulus packages). From Smith:
That having been said there is a difference between consumption and investment. Investment – which is perfectly good Keynesian demand by the way – is using the resources of the universe to create tools that will allow me to make even more stuff in the future.

However, I don’t just do this for the hell of it. I hope that one day this investment will lead to a world of even greater consumption. Consumption is still the ultimate goal.
The whole discussion strikes me as silly because it ignores what economic growth is and it's not people buying things or people making things. The Soviet Union learned that when it made a bunch of stuff people didn't want and then bought of bunch of stuff people didn't want. Growth is efficiency. Period.

When we think of efficiency, we think of giant machines doing monotonous tasks but efficiency is much more than that. At its core, it's getting more output with the same amount of input, "output" and "input" broadly defined. So this isn't just technology. It's also new companies, new products, new hobbies, a better division of labor, smarter organization, etc. Anything that enriches our lives in a material or non-material way. If there's a new religion that enriches souls more fully than an older one (holding costs equal), that's growth (maybe not in terms of GDP, but growth in a way that still matters).

Now if you think this sounds like I'm echoing Horwitz's argument, think again because achieving efficiency isn't free. If it was, we'd have invented flying cars and Google a long time ago. Inventing new technology, taking on the new workers for the better division of labor, designing new products...these things are expensive to do. I'll need some kind of incentive to take on these costs, not to mention the costs associated with uncertainty. To achieve efficiency, we need not just the means, but the motive.

Roughly stated, the means are what we hear from the right/libertarians. Reduce capital gains taxes, cut down on regime uncertainty, etc. It's all about reducing the costs of operating a business, which is largely about finding ways to boost efficiency. And roughly stated, the motives are what we hear from the left/Keynesians. Increase unemployment benefits, make stimulus packages, boost aggregate demand. My point is that you need both mindsets.

This doesn't mean I'm behind more stimulus spending or cutting taxes across the board. There are good ways to embolden means and motives and there are not-so-good ways. The key point is that these two sets of policies aren't substitutes...they're complements. If you increase aggregate demand and pair it with a drop in aggregate supply (costs), then you're much more likely to increase efficiency than if you do just two policies from one set of theories.

Growth is efficiency. Understand that basic point and it's clear that the debate about if supply or demand is behind economic growth is foolish debate. You might as well ask which blade of the scissors cuts the paper.

Thursday, December 02, 2010

The Bush Tax Cuts

I was largely agnostic when it came to the Bush-era tax cuts. But I had no idea how much taxing the rich taxed small business.

From what I gathered (via this video), all revenue from a privately held company (which small businesses are) counts as income for the owner. If the efforts of dozens of people bring in half a million, that's the legally the same as a CEO of a big company making half a million. In the former case, that money goes to employ the people to keep the business afloat. In the latter case, it's not. The narrator in the video underlines how risky it was for him to hire more people since it's unclear if the tax cuts will expire or not.

The video's produced by the Small Business & Entrepreneurship Council, so I assume they're correct that the tax system works as described, but of course there could be many exceptions that exclude most small businesses and the narrator's just in a bad place. Still, I think when most of us think "the rich's income" we're not thinking small business revenue.

That's not to say that small business is the "key" to economic recovery...I don't think it is. But it's not insignificant, either, and allowing the cuts to expire look less and less like a good idea.