Tuesday, May 6, 2008

A Beautiful Day

Boston over the Charles
Spring arrives in Boston (cf. winter)

In yesterday's Financial Times, Larry Summers on tax competition and cooperation:

First, the US should take the lead in promoting global cooperation in the international tax arena. There has been a race to the bottom in the taxation of corporate income. Closely related is the problem of tax havens that seek to lure wealthy citizens with promises that they can avoid paying taxes altogether on large parts of their fortunes. It might be inevitable that globalization leads to some increases in inequality; it is not necessary that it also compromise the possibility of progressive taxation.

Agreeing or disagreeing with Secretary Summers' point is largely a question of the role of government as much as it is one of international economics. I generally view tax competition as a healthy restraint on the tax burden and thus a bridle on the size of the state. Here, Larry is taking the view that without cooperation, you will have nanny states without nannies and thus nothing to transfer.

Sunday, May 4, 2008

You're gonna be so proud. Proud? Proud.

From the make-Edward-Tufte-proud department, another stellar graphic in today's Sunday Times, this one visualizing the basket of goods making up the CPI and both the relative size of those goods within the consumption bundle and the year-on-year change in that size:

All of Inflation's Little Parts
All of Inflation's Little Parts by Amanda Cox

You always glean points from a good visualization that you don't from the tabular data. For example, consumers spend the same amount (about 1% of total) on cable service as on doctor visits. The portion of consumer spending allotted to "computers" has declined 12% year-on-year. Rising import prices, particularly oil (which, although denominated in dollars, experiences the same exchange rate pressure as other world market goods), and growing food costs account for the bulk of inflationary pressures. I am happy to note if you rent your home, don't own a car, and spend most of your money on clothes and bacon, your purchasing power has actually increased year-over-year.

Note that, while a proxy, the change in spending on a category is not the same as inflation. For example, the share of spending on citrus dropped 9.5% year-over-year. That could be due to deflation, but the spending drop could also be caused by a decrease in demand—perhaps consumers are substituting oranges with apples, which grew 7.5% year-on-year. Alternatively, note that while the cost of most health-related expenses went up, so did the science advancing the field, ushering in new drugs and improved procedures. If you aren't comparing, say, apples to apples year-on-year, you are measuring more than monetary inflation. These are just two of a myriad of problems with computing inflation.

A page earlier, Alan Blinder argues for greater regulation of the financial industry. Unfortunately, Prof Blinder notes:

It will, for example, substantially reduce the profitability of investment houses and, therefore, reduce their scale. But that’s the price you pay for access to a publicly financed safety net.

No doubt increased regulation, particularly in the area of margin requirements curbing excess leverage, will lower short-term profits. But I don't see why the goal of any changes in regulation shouldn't include maintaining or even improving longer term profits. After all, you'd have to take substantial bites out of Goldman's earnings to equal the loss in a single implosion such as Bear's.

Saturday, May 3, 2008

Linux Journal Readers' Choice

Linux Journal unleashed their annual Readers' Choice Awards the other day, and I am proud to note that Linux System Programming—my recent work on system-level Linux hacking—received an honorable mention in the category of "Favorite Linux Book." Whether you live strictly at the lowest levels or only occasionally reach outside your cozy virtual machine; whether you code in C++ or Python; whether you are wolf or neophyte, the text is both an excellent guide to systems programming and a handy reference to Linux's sparsely-documented system call API.

Also, congratulations to GNOME for winning "Favorite Desktop Environment" and—natchvi for winning "Favorite Text Editor."

Disclaimer: I am Contributing Editor at LJ, but I was wholly uninvolved in the Readers' Choice Awards. Hat tip to "loyal reader" for the link.

Thursday, May 1, 2008

Economists in Post on Gas Tax

Today's Post tackles yesterday's topic:

A growing chorus—including a top congressional Democrat—labeled Sen. Hillary Rodham Clinton's proposal for suspending the federal gasoline tax ineffective and shortsighted yesterday, even as she continued to paint Sen. Barack Obama as insensitive to drivers' woes for not endorsing the plan.

The initimble Prof Mankiw chimes in:

Harvard professor N. Gregory Mankiw, who has written a best-selling textbook on economics, said what he teaches is different from what Clinton and McCain are saying about gas taxes. "What you learn in Economics 101 is that if producers can't produce much more, when you cut the tax on that good the tax is kept by the suppliers and is not passed on to consumers," he said.

Over the short-run—and particularly over the summer, with refineries already at maximum capacity—the quantity supplied is fixed. Cutting the tax will cause consumers to simply bid the price back up to its original value, allowing demand to meet the fixed supply.

Here is a policy proposal: Ditch the gas tax and replace it with a broader tax on all carbon. Offset the carbon tax with a revenue-neutral reduction in marginal tax rates. Also—for good measure—abolish all farm subsidies.