Month: April 2004

Where Your Money is Going

by  Tyler Cowen in

The federal government is projected to spend $21,671 per household in 2004…$3,500 more than in 2001. Tax revenues will reach $16,981 per household through a combination of the income tax, payroll tax, gas tax, estate tax and assorted business taxes typically passed on through higher prices and smaller investment returns. The remaining $4,690 represents the deficit per household, which will be dumped in the laps of our children.

Here is a breakdown of where that $21,671 goes:

Social Security and Medicare: $7,165. The 15.3 percent payroll tax, split evenly between the employer and employee, covers most of these costs.

Defense: $4,240. Lawmakers drastically cut defense spending throughout the 1990s. The September 11 attacks reversed this trend, and the $1,300 per household increase since 2001 has returned defense spending to its historical levels.

Low-income programs: $3,479. Nearly half of this spending subsidizes state Medicaid programs that provide health services to poor families. In line with economywide health-care trends, Medicaid costs are rising 10 percent per year. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child-care subsidies, Supplemental Security Income (SSI), and low-income tax credits.

Interest on the federal debt: $1,460. Washington is $7 trillion in debt. It owes $4 trillion to the public that owns its bonds and the rest to other federal agencies. Record-low interest rates have reduced the interest payments by $1,000 per household over the last six years. As interest rates climb back to normal levels, so will these costs to taxpayers.

Federal employee retirement benefits: $835. This funds the retirement and disability benefits of federal employees, including the military. Interest from federal trust funds covers part of this spending.

Health research and regulation: $619. Health-research spending has doubled since 1998, and nearly all of that spending growth has been concentrated in the National Institute of Health. This category also includes the Food and Drug Administration and dozens of grant programs for health providers.

Education: $583. Primarily a state and local function, 8 percent of education spending comes from Washington. Federal education spending has surged 76 percent since the 2001 enactment of the No Child Left Behind Act. Most federal dollars go to low-income school districts, special education, and college student financial aid.

Veterans benefits: $565. The federal government provides income and health benefits to veterans. Spending is up 34 percent since 2001.

Unemployment benefits: $451. Unemployment costs fluctuate based on the number of unemployed Americans. Recent costs have ranged between $220 per household in 2000 (when unemployment was low) and $526 per household in 2003 (when unemployment was higher). This year, unemployment costs are decreasing as job growth continues.

Highways and mass transit: $400. Most highway and mass transit spending is financed by the 18.4 cent per-gallon federal gas tax. Per-household costs have increased from $254 in 1998 to $400 this year, and the current highway reauthorization bill in Congress would boost them substantially.

Justice administration: $389. Justice spending includes federal attorneys and prisons, as well as law enforcement grant programs. New homeland security costs have added $100 per household to justice spending.

International affairs: $320. This includes foreign economic and military assistance, operation of U.S. Embassies abroad, and contributions to organizations such as the United Nations. International spending has doubled since the terrorist attacks of September 11, 2001.

The programs listed above cover $20,506 per household. The remaining $1,165 is allocated to all other federal programs, including farm subsidies, environmental programs, space exploration, air transportation and community development.

Here is the full story, I’ve added the bold face. Here is a Charles Murray proposal to let taxpayers choose which parts of government they will finance. You can’t lower your tax bill but you can direct your funds to one department rather than another. The obvious problem is that everyone will wish to send their money to the glamorous programs, but still the sentiment is a good one.

P.S. Don’t forget to send in your check. That’s today’s bottom line, no matter what else I have to say.

How well do art books sell?

by  Tyler Cowen in

The answer is simple, art books do not sell many copies. Not counting photography books and “how to” books, the bestselling art book of 2003 was Ross King’s Michelangelo and the Pope’s Ceiling, which sold 55,693 copies. In the U.S. only four other art books sold over ten thousand copies, again excluding photography and how to books. The amazing fact, from my point of view, is just how many art books you will find in your average Borders or Barnes & Noble. Of course many end up returned to the publisher. The copies get you in the door to buy The da Vinci Code there rather than in Wal-Mart.

Despite having a much smaller population, the British show a greater interest in art books. The bestselling art book in the U.K., a Titian catalog, topped the 60,000 mark.

From the April 2004 issue of The Art Newspaper, “Big Market but Few Books Bought,” not yet on-line.

War Politics

by  Alex Tabarrok in

In 1995 the most prestigious journal in economics, the American Economic Review, published one of the most controversial papers in its long history, War Politics: An Economic, Rational-Voter Framework (JSTOR). Gregory Hess and Athanasios Orphanides modeled voters as caring about two presidential abilities, the ability to make war and the ability to manage the economy. To get reelected an incumbent President must convince voters that his combined abilities make him better than a challenger.

This simple model has some profound implications. If the economy is doing well, the President is up on one score and without evidence can be assumed to be as good as the challenger in war-making ability. Thus, the President gets reelected. But if the economy is doing badly then an incumbent who cannot present evidence that he is of superior war-making ability will lose for certain. Crucially, an incumbent can’t demonstrate war-making ability without a war – thus when the economy is doing poorly and the President is up for reelection the model predicts more wars.

Hess and Orphanides define a war as “an international crisis in which the United States is involved in direct military activity that results in violence.” Using data from the International Crisis Behavior Project they compare the onset of wars in first terms when there is a recession with the onset of wars in first terms with no recession and second terms. If wars are random these probabilities ought to be the same. Stunningly, however, they find that in the 1953-1988 period wars are about twice as likely in first terms with a recession than in first terms with no recession and second terms (60 percent to 30 percent). The probability of this result occurring by chance is about 5%. Various extensions and modifications produce similar results.

Need I mention that the Hess and Orphanides model has proven to have predictive power?

Can humans learn chimpspeak?

by  Tyler Cowen in

“Very few researchers have asked whether humans can learn to communicate like another animal,” says Dr Laurie Santos, director of the Primate Cognition Lab at Yale University.

“Most of the research on animal communication consists of mostly failed attempts to see if animals can use human language. Researchers spent decades and lost many fingers trying to teach chimpanzees to speak, manually moulding their mouths into the right positions. So this is a neat twist on an old question.”

Here is the full story. I’ll predict that humans are not very good at communicating with animals in this manner, for many of the same reasons that animals cannot speak English very well.

Why is Western Europe so secular?

by  Tyler Cowen in

If you have lived abroad, it is obvious that the United States is very religious for a wealthy country. Here are some explanations why:

One theory involves the different histories of religious marketing over the last two centuries. Because religion has a long history of state sponsorship in Europe, religious bodies there have perhaps grown lazy. State-supported congregations need not aggressively recruit parishioners to “stay in business.” In the United States, however, religions must support themselves and therefore are more aggressive “marketers,” going to much greater lengths to attract congregants than their European counterparts. In other words, American religious organizations spend a great deal of time and energy advertising, and their advertising nets results (Stark and Finke 2000).

A second theory involves the ethnic, racial, immigrant, and national diversity that typifies American society. Unlike certain European nations that are made up of relatively homogenous populations (Iceland, for instance), the United States is permeated by an enormous array of different cultural groups, whose members may find solidarity and community in religious involvement (Warner and Wittner 1998; Herberg 1955). For example, W.E.B. Du Bois, the first American sociologist of religion, observed the unparalleled importance of the church to black Americans, noting that, beyond promulgating theology, the black churches provided a social space and communal refuge in an often hostile world (Zuckerman 2002). In sum, it is possible that a significant level of ethnic/ cultural/racial heterogeneity, as typified by American society, spurs greater religious participation as people seek a sense of belonging or communal support.

A third consideration involves the possible impact of different social welfare systems. Perhaps when the government takes a greater role in providing social services, religion wanes, and when the government fails to provide extensive social services, religion thrives. For instance, religious belief and participation is the absolute lowest level in Scandinavia, whose countries are characterized by generous social support and extensive welfare systems. In contrast, the United States government offers far fewer social services and welfare programs than any European nation.

A fourth possibility may have to do with differing elementary and secondary educational systems. Perhaps the Europeans have done a better job of conveying rational thinking, scientific methodology, and skeptical inquiry to their children than have American educators.

Here is the full story.

My take: I don’t believe the fourth possibility of greater rationality. A big chunk of Germany, for instance, thinks that 9/11 was an American conspiracy. The first three all ring true. I would add that America is a more rural country with lower population density. This encourages religion over urban entertainments. Furthermore the European churches are identified with aristocratic landholding, taxation, and state privileges. That being said, I do not expect the low religiosity of Western Europe to last. Europe has gone through waves of greater and lesser secularization. Furthermore people may be biologically programmed to believe in myths and religions. The real puzzle is why religious suppliers have been so slow to offer products that suit the new European mentalities.

It’s a mad, mad, mad, mad cow world

by  Alex Tabarrok in

The market is often accused of under-providing safety. Consider, however, that the Department of Agriculture is refusing to let a Kansas beef producer test its cattle for mad cow disease. Yes, you read that right. The producer, Creekstone Farms, is losing $40,000 a day because it exports its beef to Japan where such tests are required. The testing of individual cattle, however, runs contrary to the DOA/industry message that American beef is perfectly safe without expensive testing.

The mad cow case is a clear example of regulatory capture. By the way, the DOA aquired its power to decide minimum and maximum testing standards test under the Virus Serum Toxin Act of 1913 – it was captured a long time ago.

Don’t be surprised if the DOA requires such testing in the near future. I am reminded of the similar folic acid story that I wrote about with Dan Klein at FDAReview.org:

In 1992, the federal Centers for Disease Control and Prevention (CDC) recommended that women of childbearing age take folic acid supplements. Studies showed that taking folic acid reduced risks of babies suffering neural-tube birth defects such as anencephaly and spina bifida. The FDA immediately announced, however, that it would prosecute any food or vitamin manufacturer that placed the CDC recommendation in its advertising or product labeling (Calfee 1997). The public did not learn of the importance of folic acid until Congress passed the Dietary Supplement Health and Education Act of 1994, which loosened the FDA’s vise on the advertising of vitamins and other dietary supplements. Within only a few years of its ban on publicizing the CDC recommendation, the FDA made a complete turnabout. Since 1998, the agency has required manufacturers to fortify a variety of grain products with folic acid–that which is not prohibited is mandatory.

The ten oddest American taxes

by  Tyler Cowen in

Here is number one:

At least 11 states, including Alabama, North Carolina and Nevada, tax people who possess illegal drugs. Usually, though, you have to be in possession of a minimum quantity (for example, over 42.5 grams of marijuana in North Carolina) to be subject to the tax.

But no need to wait for the police to cuff you before you cough up the cash. In North Carolina, for instance, when you acquire an illegal drug (or even “moonshine”), you can go to the Department of Revenue and pay your tax, in exchange for which you’ll receive stamps to affix to your illegal substance. The stamps serve as evidence you paid the tax on the illegal product.

Don’t worry that you might get in trouble for admitting you have enough drugs to fuel a rave party for years. You needn’t provide any identification to get the stamps and it’s illegal for revenue employees to rat you out.

Still, according to North Carolina’s department charged with collecting the unauthorized substance tax, only 77 folks have voluntarily come forward since 1990. Most of them are thought to be stamp collectors. (Or perhaps they were just high?)

The majority of the $78.3 million the state has collected thus far has come from those who got busted and were found without stamps.

But even if they had had stamps, it’s not like their legal troubles would be over. “Purchasing stamps only fulfills your civil unauthorized substance tax obligation,” according to the N.C. DOR Web site.

Here is the full story and list.

China fact of the day, once more

by  Tyler Cowen in

In Beijing, dogs are not allowed outside in the daytime; those caught outdoors are confiscated and killed. They are not allowed in parks, on grass or on elevators – even when elderly owners live on the 14th floor. They may not grow taller than knee-high, on pain of death. And licenses are expensive.

The predictable result: many dogs never go outside. Thousands are confiscated each year for being in the wrong place at the wrong time, or growing a little too big. In the back alleys, where the police can’t drive, families flout the law and play with their pets outside during the day. In fancier parts of town or near any major street, nobody dares.

Now The New York Times goes out on a limb:

Many dog owners are seething, even as their pets suffer…Matters like this, as much as censorship of the press and the jailing of dissidents, may determine the fate of the Communist Party.

Here is an article on new dog regulations in China. The yearly registration fee used to start at $600 for the first year, now it is $121, read here. Here is a Chinese “man bites dog” story (seriously). Here is an article on dog deregulation in southern China.

DDT

by  Alex Tabarrok in

Mainstream media is finally getting the message about DDT. Tina Rosenberg, writing in the New York Times Magazine, puts it well:

DDT killed bald eagles because of its persistence in the environment. ‘Silent Spring’ is now killing African children because of its persistence in the public mind.

I’m delighted to see the Rosenberg piece, even if everyone I know has understood this issue for years.

Daniel Drezner describes my weekend

by  Tyler Cowen in

Read his witty and salacious account of a conference on Steven Pinker, attended by some of the major bloggers, including Alex. What I found most interesting was the following. The fellow bloggers (who in general had not previously met) had more to say to each other, even when the topic was not blogging. If you read (and write) blogs, you probably have different ideas what the cutting edge questions are, compared to your blog-ignorant friends.

New punishment for speeders

by  Tyler Cowen in

In a move unprecedented in the Bay Area, the city’s traffic engineers have created a traffic signal with attitude. It senses when a speeder is approaching and metes out swift punishment.

It doesn’t write a ticket. It immediately turns from green to yellow to red.

Here is the full story, thanks to the ever-vigilant Geekpress.com.

My take: This will succeed in reducing speeding. By making the decision calculus more uni-dimensional (time vs. time, rather than time vs. speeding ticket), individiuals are more likely to see the folly of driving at unsafe speeds.

Here is a general introduction to framing effects. Here is a short article about framing effects in Alice in Wonderland. Here is Daniel Davies on how framing effects matter.

But what about civil liberties? One commentator opined: “It’s depriving you of another one of your liberties — going fast”.

Addendum: Tim Worstall writes in:

“The anti speeder traffic light ?
Been around for years.
Here in Portugal they’re all over the place.
And they work very well, just as advertised.”

Proposition 13, anyone?

by  Tyler Cowen

Every year I get hit by a big increase in my property taxes. I pay more and get nothing in return. I am reminded by Willy Sutton’s adage that he robs banks because “that is where the money is.” Why should local governments have more money to spend, simply because our homes are more valuable? Why should real estate appraisers have so much power over our pocketbooks?

Apparently many taxpayers feel the same way I do:

More than half the states are considering new property-tax limits or cuts, says David Brunori, an expert on state and local taxes.

States are more likely to tinker with the property tax, rather than overhaul it, he says. But the unrest may signal the start of the most extensive attack on property taxes since 1978. That’s when California voters approved Proposition 13, which capped property taxes and started a nationwide tax revolt.

“Something has to be done or there’s going to be a revolution,” says Deloria Bucknell, 86, who pays $1,200 a year on her trailer home in Topsham, Maine.

Voters in Maine and Washington are expected to vote later this year on citizen-initiated measures that would slash property taxes 20% to 50%. Elsewhere, state legislatures are considering cutting rates, adding to exemptions and limiting how much assessments can rise.

Behind the discontent: higher property values.

Property-tax collections have risen an average of 5.7% annually over the past five years to a record $297 billion nationally in 2003, according to the Census Bureau. Higher home values, rate hikes and new construction caused the increase that is about twice the rate of all other state and local taxes.

Here is the full story. Here is a related account about how the taxes are scaring off would-be homeowners. Read the attached graph on property taxes as a percentage of income; in Maine and New Hampshire the figure hits a high of 4.9 percent. Alabama is lowest with 1.3 percent.

That all being said, Proposition 13 did not work out very well for the state of California. For all their vices, property taxes are a relatively decentralized source of government support. If you don’t like how the money is spent, you can move. Replacing local property taxes by state taxes ended up gutting California schools, without saving taxpayers much money in the longer run. Stay tuned…