Tag Archives: Economics

Republican Economics the Same in 1920′s and Today

Since I teach high school history, I thought I’d share a couple graphs I found for one of my classes.  During the 1920′s, GNP per capita was increasing…

But gains were concentrated the top…

Calvin Coolidge and Herbert Hoover were the proponents of supply-side economics and “rugged individualism” from 1921-1932.   Republicans spout the same ideas today.  Look at 2007 in the graph above.  Do we have any reason to think the superrich aren’t at it again?

Thoughts on Externalities

I’ve been looking back at material I read a long time ago by Robin Hahnel, economics professor emeritus at American University, and it got me thinking about the problem of externalities in market systems.  As basic economics tells us, an externality is an effect of a purchase on a third party in addition to the buyer and seller.  Thus, when someone buys gas for their car the gas company tries to get a maximum price and a buyer a minimum price, but air pollution does not factor into the price determination.  It is basically supply and demand.  There can be positive externalities too.  An increase in electric cars reduces the amount of pollution.  As Hahnel pointed out in his excellent book, The ABC’s of Political Economy (the link will take you to the full book in pdf format), a fundamental problem with markets is that they underprice goods with negative externalities and overprice goods with positive externalities.

The examples just given demonstrate this.  When you buy gas, you may pay $3.50-4.00 per gallon, but there are additional costs.  For example, an analysis of several studies on the externalized costs of gasoline by the Victoria Transport Policy Institute makes the observation that inpatient admissions among Medicare recipients to hospitals is 19% higher in high pollution areas.  That’s partially tax money covering the costs of gasoline.  Meanwhile, the benefits of an electric or hybrid car are not included in its price.  This means that society bears the costs of gasoline usage and forgoes the benefits of electric cars.

If we are to have less pollution, the government needs to tax gas at a higher rate and subsidize electric cars so they can be sold at a lower price.  I am using this as an example to illustrate the point, but the reality is that externalities are an inherent part of any economy and in a market economy the only way to address them is government intervention.  Think of all the added costs of negative externalities in the form of environmental damage from a whole host of products.  Or the poor nutritional value of fast food, which is very cheap to buy.  We also have less incentive for renewable energy.

The fact that externality problems are inherent in markets makes in daunting to think of the government intervening to fix every imbalance.  But markets cannot address externalities from within.  Robin Hahnel and Michael Albert have developed a method of accounting for externalities in their vision of Participatory Economics, but that is in the context of a future society with far different economic institutions.  I personally think their long-term vision is on the right track, but what is the best approach to externalities in the short run?  I would love to hear suggestions.


Mainstream Economics Anyone?

Mainstream economics tells us (quite logically I believe) that the multiplier effect of government spending is greater than that of tax cuts. That is to say an increase in government spending increases GDP more than a tax cut of the same amount. Why? Because if I have a tax cut, I am likely to save some of that money. The government can inject money directly into the economy. That obviously doesn’t mean there should be extremely high taxes and only government spending. But it does make us ask what will happen to the economy under Ryan’s budget, since he wants to massively reduce government spending.  That may not be the best idea.


Romney Praises Another Country That Does the Opposite of What He Wants

Romney on Poland:

“Rather than heeding the false promise of a government-dominated economy, Poland sought to stimulate innovation, attract investment, expand trade, and live within its means…Your success today is a reminder that the principles of free enterprise can propel an economy and transform a society.”

Facts (from the World Bank):

Government Final Consumption as a Percent of GDP—Poland:  19%    US: 17%  Canada: 22%

Tax Revenue as a Percent of GDP—Poland:16.3%   US:  9.3%    Canada: 11.9%

Total Tax Rate of Commercial Profits—Poland: 43.6%  US: 46.7%   Canada: 28.8%

Central Government Dept as % of GDP: Poland: 48.1%  US: 76.1%   Canada: 52.6%

They are little better than US and Canada on debt, but that is not an automatic indicator of economic health.  France is at 83.5% and Germany at 47.6%.  So if government spending is a larger percent of GDP in Poland than in the US and only a bit smaller than Canada, tax revenue is a much greater portion of GDP than here or Canada, and the tax on profits is about the same as ours and far more than Canada, where is this free enterprise?  See more in the AP article linked at the top of this post.