Free Banking

For a free banking system to work well the bankers need to know their business, they need to be greedy but not completely immoral and nobody needs to understand the monetary system.  For the current system to work well the bankers need to be free of  greedy and highly moral, and the median voter needs to understand the monetary system and the government regulators need to diligent.  

Cigarettes the Drug war and Transfer of Learning

Aaron Carroll over at the incidental economist blog has a good post on the costs of alcohol consumption.  

In 2006, the economic costs of excessive drinking in the US were $223 billion. That’s about $1.90 per drink. Another way of looking at this is that the cost was almost $750 per person in the US.
Almost three quarters of that sum is from lost productivity. An addition 11% is due to healthcare costs and 9% is due to criminal justice costs.
Underage drinking cost $27 billion. Binge drinking cost more than $170 billion. Drinking during pregnancy cost more than $5 billion. Alcohol-attributable crime cost more than $73 billion.
The cost to the government was more than $94 billion, or about $0.80 per alcoholic drink.

It is funny that Democrats are on a holy crusade against smoking (there is now a big black market in cigarettes) but they do not touch alcohol due to our experience with prohibition. Worse yet, both Democrats and republicans are on a holy crusade against recreational use of drugs. I guess that is proof that knowledge in one area is not transferable to other areas:

Here are links to Bryan Caplan on that subject:  

http://econlog.econlib.org/archives/2010/10/take_notice_of.html
http://econlog.econlib.org/archives/2011/01/the_case_agains_5.html

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A Progressive Consumption Tax

You tax experts out there, would this work?

Many economists have called for a consumption tax to replace the income tax. Invested money that is never spent promotes economic growth and has been compared to indiscriminate charity.

The problem is that it is difficulty to make a consumption tax that is simple and progressive. One way to achieve this goal would be to allow a person to put as much money as they want, pre-tax, into an IRA. Then allow people to take as much as they want out of their IRA at any time but pay taxes on all of the withdrawals.

You would tax income not put in an IRA plus any withdrawals from the IRA at a progressive rate. You could also allow people to buy cars and homes in their IRA and rent them at market rates.  The result would be a progressive consumption tax.

You would also want to end the Corporate profits tax.

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Eric Falkenstein's and Research Shows that People Pay to take Risk

I have been impressed by Eric Falkenstein's videos. In them he makes a case that because people are trying to out perform or to get rich quick, they drive the price of riskier stocks up so hat there is a cost to taking on high risk rather than a return. That is that higher risk stocks produce lower long term yields than lower risk stocks. This would explain a lot including why people buy the state lotteries and why they like large lottery pots. The implications are that investors should buy the safest stocks that they can find and hold long term.  Low debt, high profit margin, low volitility and low beta boring enterprises like LOW,MCD, PG, KO, PEP, utilities etc. fit the description. .


There are now low volatility and low Beta ETFs to serve people who want to invest this way.  


I highly recommend his videos.  They are free and that just shows that you low risk is free and to take more risk you have to pay.  


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Can Fiscal Stimulus Work

Scott Sumner has a post on fiscal stimulus he questions the value of it as I do.
Scott questions if based on empirical evidence.  I question it theoretically, how is it supposed to work.    


My problem with understanding how fiscal policy could work is that you are taking just as much money out of the economy by selling t-bills as you are putting in.

Now, I heard one plausible argument for fiscal stimulus. It said that said if Gov announces say a big 10 year road building project a road construction company might borrow money to buy equipment and hire people and that borrowing would be monetarily expansive. I do not think that at any reasonable level could be enough to jump start the economy nor do I see it as good, maybe in the future there will be less borrowing/debt. That IMHO would be a good thing so if monetary policy can get the economy going with less debt that would be doubly good IMHO. Also the gov must at some point pay back the money that it borrows.

It seems to me that monetary policy is far better.

Great Quote from the Very Quotable Bryan Caplan

Great quote from the very quotable Bryan Caplan here.

"The public is wrong.  Indeed, the public is delusional.  It's crazy to tax everyone to provide "free" pensions and health care for everyone.  And it's logically impossible for benefits to permanently grow faster than GDP."   Bryan Caplan

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The President's Latest Stimulus Proposal

From a NY Times Editorial:

According to Mr. Zandi, President Obama’s $450 billion jobs plan could add 1.9 million jobs in 2012 and cut the unemployment rate by a percentage point. With interest rates so low, the government could easily pay for a bigger program.

Wow that is $459 billion / 1.9 million = 241,578.95 per job! One would hope that would make Mark Zandi against this stimulus plan but not so. He is for the plan.  Now I admit that you do get some stuff for the money not just jobs, they are not digging holes and filling them in. I also admit that this is a great time to get ahead on building and fixing roads and bridges and some of the proposed stimulus is in tax cuts which is almost free.   All tolled thought, $241,578.95 per job is still seems like a very expansive way to create jobs but since the median voter seems to demand jobs programs we should find cheaper ways to do it.

Perhaps this simplest way would be to replace the minimum wage with some kind of wage subsidy.  The recipient would get the bast wage that he can find and the Government would pitch in enough to get the recipients income up to some acceptable level.  We are already paying those who are still eligible to collect unemployment so we might as well pay them to work rather than paying them to not work!

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