John Cochran Makes The Case For Selling Snake Oil

This article reviews an article that John Cochran posted against usury laws, and against the need for a financial consumer protection agency. His arguments illustrate the libertarian perspective that prevails at the University of Chicago. He argues that usury laws hurt the people they were designed to protect because they will turn to loan sharks when they need money and be worse off. Libertarians make a similar argument about minimum wage laws. They argue that they reduce employment for the people they were designed to help. Research does not support that view, but it is always with us because it is supported by libertarian assumptions that government intervention will always have negative unintended consequences. Cochran makes that argument against the need for a financial consumer protection agency. His point is that markets are not always right but government policies are subject to the same biases that financial consumers have. We are better off with imperfect markets than with government regulations that are less perfect and distort markets.

Underneath Cochran's libertarian perspective is the notion of consumer sovereignty. Markets work by giving consumers what they want, and they are better judges of their needs than government. Under this assumption there would be no need for government intervention in any market. I think we are better off with the FDA than we were when we had snake oil peddlers selling worthless, and potentially harmful medicine to consumers. The mortgages that were sold to unwary consumers, and turned into securities that were sold to unwary investors make the case for more extensive government regulation rather than less. Indeed, there will be efforts made by businesses to capture the regulators, and the regulations may not be as effective we would like. That makes the case, however, for democratic supervision of regulators, and not for their elimination.

In Search of The Fiscal Policy Multiplier

This article from the San Francisco Federal Reserve reviews recent research on the effect of government spending and tax policy on GDP. The focus was on determining the multiplier. That is, the effect of an additional dollar on output. During the debates on the use of fiscal policy in the Great Recession, conservatives estimated that the multiplier would be negative; others argued that the multiplier would be positive. Their estimates of the multiplier depended upon the assumptions that were made about the state of the economy, and on how the policy is implemented. That should not be surprising. Doctors do not prescribe the same medicine for every patient. They realize that each patient is unique, and that there are potentially damaging interactions between medications. The research on fiscal policy led to a similar conclusion. The economy is very complex and so is the manner in which fiscal policy is implemented. There is no such thing as a universal multiplier. In particular, it depends upon the relationship between fiscal policy and monetary policy. The multiplier is likely to be higher when monetary policy is limited by the zero bound. It also depends upon whether fiscal policy and monetary policy are working in the same direction. Given the result from this review of research on fiscal policy we can expect that economists and politicians will continue to view fiscal policy from the perspectives of their particular biases.

Data on State Taxes On Scale Of Regressivity

Conservatives hate the federal income tax because it is progressive. That is, tax rates are higher as income increases. They have been effective in making the federal income tax less progressive but state taxes are very regressive. This article provides the tax data on each state. It turns out that all of the states have a regressive tax system. That is, the tax burden as a percent of income falls as income increases. Mississippi is the median state on a scale of regressiveness. In Mississippi, the lowest income group's tax payments as a percent of their income is 2.0 times greater than the share of income going to state tax payments by the top 1%. Half of the states have a more regressive tax code, and half are less regressive than Mississippi. Most of the states get their largest share of tax income from the sales tax and those in the lowest tax bracket spend almost all of their income.

The 99% Solution And The Development Of A Progressive Agenda

This is the first in a series of articles on a progressive vision of society. The series is co-sponsored by the Roosevelt Institute and Salon magazine. For the last thirty years conservatives have funded numerous public policy "think tanks" to develop and distribute a particular vision of the conservative society. It stresses the virtues of markets and the negatives of government. Markets are purported to maximize freedom and governments are viewed as threat to personal liberty. Moreover, the profit motive is promoted as the best way to provide the efficient delivery of goods and services. It is assumed that government agencies have no incentive to provide efficient services since they are not subject to the discipline of the market. The well funded attack on government, and the promotion of free markets has been successful. There is no comparable mass of progressive institutions that are funded to develop and distribute a progressive agenda. This series is small step in the right directions. Markets and government have unique roles to perform in society. Both have strengths and weaknesses. We need to have a better understanding of the strengths and weakness of each.

The first article in this series is about the outsourcing of government services to private industry. There has been a widespread outflow of tax dollars to private industry to provide services that once were provided by government. The public is viewed as consumers of services and it is argued that markets are better able to satisfy consumer needs than government. It is also argued that markets can deliver services at lower costs than government. This article illustrates the numerous risks that are inherent in that perspective and it also stresses the need for government to do a better job of monitoring its own agencies.

A Dangerous Game of Chicken In The Eurozone Between Greece And Troika

There seems to be tough game of chicken going on between Greek politicians and the troika that is setting the conditions for the Greek bailout. Greece has been in recession for 5 years and its politicians claim that the imposed restructuring of its economy will only worsen the recession. On the other hand, the troika is using the threat of bankruptcy to force the Greek politicians to accept its conditions for further support. If the game of chicken leads to a Greek default, there is a risk that the contagion could spread to other eurozone countries that are at risk.

The Koch Family Purchases An Economics Faculty At The Mercatus Center

Tyler Cowen is the Director of the Mercatus Center at George Mason University. He serves on the Board with Charles Koch and Richard Fink who is also on the Board of Koch Industries. The Koch family provides a large share of the funding for Mercatus Center which also provides a home for the Hayec Center which promotes Austrian Economics. This article provides a critique of a post by Tyler Cowen who concluded that a one month uptick in job creation proves three things. It proves that "Old Keynesianism" is dead along with liquidity trap theories. It also proves that Real Business Cycle Theory, incubated at The University of Chicago, is the correct way to interpret the business cycle.

The critique of Tyler Cowen's conclusions from one month's worth of data is devastating, but that is not why I posted this article. I posted it to show how academics can be corrupted by billionaires who provide the funding for a huge staff of economists at the Mercatus Center to broadcast economic perspectives that serve their economic interests. The Koch family has been one of the major sources of funding to global warming deniers as well. Tyler Cowen is just doing his job when he produces academic nonsense. Unfortunately, the Mercatus Center is in the business of distributing misinformation and that is why Tyler Cowen is one of the Directors, as well as a Full Professor in George Mason's Economics Department. He is very good at his job. His productivity is good for the Koch family and bad for academia as well as the public that consumes the misinformation.

A Lesson From The Congressional Budget Office On The Impact of "Tax Expenditures"

This article from the CBO provides a lesson on the poorly understood impact of "tax expenditures" on federal tax revenues. They are called tax expenditures because they have the same effect on the federal budget as spending. They have been built into the tax code in order to encourage certain kinds of behavior deemed to be important to Congress. This also provides a lesson on how the tax code enables government to shape public behavior. Some of those behaviors may be of questionable value. For example, payments made by employers for employee health insurance are not subject to taxation. That exclusion shrinks the tax base by a very large amount and it is one of our largest tax expenditures. It may also lead to the overconsumption of healthcare. The deduction of mortgage interest from taxable income is also a major tax expenditure. It may also encourage consumers to purchase more expensive homes than than they may need.

The total impact of tax expenditures on the federal budget exceed spending on Defense, Social Security or Medicare. They should be better understood by the public.