It’s Consumption Not Income

Scott Sumner argues that consumption is a much more reflective variable than income when evaluating the level of economic inequality in society. Accordingly, a progressive consumption tax is more effective than income tax as a response if the goal is to limit inequality.

A progressive consumption tax is somewhat difficult to imagine, however, as standard consumption taxes are regressive in theory. I am not sure exactly what Sumner has in mind for a progressive consumption tax but one such scheme was explored by economist David Bradford. His idea was to tax a business’ cash flow at a flat rate and wages at a progressive rate (X Tax). In doing so, the non- distortionary benefits associated with a consumption tax or VAT are preserved.

 

 

 

 

NCAA Antitrust Hearing Underway

Antitrust Today Recap

“[P]laintiffs’ economist Roger Noll, a professor emeritus at Stanford University, developed the framework for plaintiffs’ rule of reason antitrust case.

Noll characterized the NCAA as a cartel that implements a price-fixing agreement among its member schools, and harms competition in two markets: (1) the higher education services market in which schools compete for the best athletic prospects; and (2) the sub-market of the collegiate licensing market, in which broadcasters and video game developers compete for licenses to make commercial use of athlete’s names, likenesses, and images.”

Ongoing debate on Lucas and Sargent’s 1979 Keynesian piece

Simon Wren Lewis: Rereading Lucas and Sargent

Krugman: Stagflation

John Cochrane: Revisiting Lucas and Sargent

Robert Waldmann

Mark Thoma

links

Wired: Netflix style Amazon book service

WashPo: Baseball ‘hot streaks’ are real

Bloomberg: Lessons on Washington from 23AndMe

LibertyLawSite: Hayek and Bruno Leoni

Fed Reserve Reform hearing

John Taylor, Simon Johnson, Hester Peirce, and Mark Calabria testify

Taylor is supporting a legislated rules-based approach to monetary policy that would potentially limit the autonomy and discretion of the federal reserve board. Under the proposed legislation, the Fed Reserve would have to report to Congress for any Federal Funds rate deviations from the “Taylor rule” (Fed funds rate = 2+ rate of inflation + 1/2(difference between real and target inflation) + 1/2 (difference between real GDP and potential GDP)).

This additional oversight may have some benefits (explained here) with respect to predictable actions by the Fed but the concept is likely not without cost. First, there is significant debate as to even what type of rule should be implemented (inflation, interest rates, different monetary aggregates, NGDP). Although the legislation doesn’t seem to preclude the Fed from setting policy using a different set of monetary indicators, it does add a layer of potential politicization. Second, Congressional oversight may amplify some problems with implementation and policy timing lag, two critiques usually associated with fiscal policy levers.

Overall, the pretense of knowledge risk associated with monetary policy is already high and the effect of external dialogue with Congress is ambiguous as to whether it increases or decreases that risk.

Net Neutrality Links

WashPo: Former FCC Commissioner on Net Neutrality

Naked Capitalism: FCC receives thousands of comments

AT&T Comments

The Open Internet proposed rulemaking comment period ended on July 15th. The commission now has opened a reply comment period, ending on September 10th.

Race for the Senate

Rothernberg Report: Senate Up for Grabs

538: Senate Breakdown

It seems non-controversial that Republicans will add at least two Senate seats to the R-column. 538′s data models suggest that a Republican sweep of 10 seats is not out of the question but a pick up in the range of four to six in more likely.

Alaska, Arkansas, Colorado, Georgia, Kentucky, Iowa, Louisiana, Michigan and North Carolina are all considered toss up races at this point. The Arkansas race may be the best bellwether as polling continues to swing back and forth between incumbent Mark Pryor and challenger Tom Cotton.

Marginal Revolution: Bernanke v. Friedman

Under the immense pressure of the great recession, however, the differences became large and important. Instead of primarily pursuing a Friedman policy of injecting liquidity into the system, Bernanke followed his nonmonetary prescription and injected credit. Bernanke’s approach has turned the Fed into what Hummel calls a central planner of credit (e.g here), an unprecedented change with potentially very large consequences for the future. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/bernanke-v-friedman.html#sthash.BjwjpXtE.dpuf
Under the immense pressure of the great recession, however, the differences became large and important. Instead of primarily pursuing a Friedman policy of injecting liquidity into the system, Bernanke followed his nonmonetary prescription and injected credit. Bernanke’s approach has turned the Fed into what Hummel calls a central planner of credit (e.g here), an unprecedented change with potentially very large consequences for the future. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/bernanke-v-friedman.html#sthash.BjwjpXtE.dpuf

Bernanke and Friedman disagreed on the underlying cause of the Great Depression– Bernanke looked to the destruction of credit induced by bank failures while Friedman focused on a contraction in the money supply. The diagnosis has subtle, yet important, differences in the treatment of the recent recession.

Friedman’s diagnosis tracks more closely with Scott Sumner’s nominal GDP solution, that is to keep the money supply (while counting velocity) stable or growing. Bernanke’s, on the other hand, requires emergency lending to banks in order to maintain credit in the system. One solution focuses on liquidity while the other focuses on credit.

Under the immense pressure of the great recession, however, the differences became large and important. Instead of primarily pursuing a Friedman policy of injecting liquidity into the system, Bernanke followed his nonmonetary prescription and injected credit. Bernanke’s approach has turned the Fed into what Hummel calls a central planner of credit (e.g here), an unprecedented change with potentially very large consequences for the future. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/bernanke-v-friedman.html#sthash.BjwjpXtE.dpu
Under the immense pressure of the great recession, however, the differences became large and important. Instead of primarily pursuing a Friedman policy of injecting liquidity into the system, Bernanke followed his nonmonetary prescription and injected credit. Bernanke’s approach has turned the Fed into what Hummel calls a central planner of credit (e.g here), an unprecedented change with potentially very large consequences for the future. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/bernanke-v-friedman.html#sthash.BjwjpXtE.dpuf
Under the immense pressure of the great recession, however, the differences became large and important. Instead of primarily pursuing a Friedman policy of injecting liquidity into the system, Bernanke followed his nonmonetary prescription and injected credit. Bernanke’s approach has turned the Fed into what Hummel calls a central planner of credit (e.g here), an unprecedented change with potentially very large consequences for the future. – See more at: http://marginalrevolution.com/marginalrevolution/2014/07/bernanke-v-friedman.html#sthash.BjwjpXtE.dpuf

Possible futures for transportation

The Guardian: Helsinki 2025 transportation plan

“Helsinki aims to transcend conventional public transport by allowing people to purchase mobility in real time, straight from their smartphones. The hope is to furnish riders with an array of options so cheap, flexible and well-coordinated that it becomes competitive with private car ownership not merely on cost, but on convenience and ease of use.”

——

This concept is one theoretical potential for apps like Uber. As companies like Uber grow and their fleets become more versatile (more cars, vans, buses, etc), the need to ever own a car falls dramatically in urban areas. The implications are quite large if you take this idea to its extreme. We could soon enough be living in a world where individual car ownership declines drastically, which thereby completely alters the demand for parking in cities. Vehicle utilization increases dramatically and existing parking lots and street parking can be used in more productive capacities.

Weekend Links

WashPo: College wage premium and city choices

Vox: Another ACA suit

538: Job recovery gaining strength

Charles Blahous: Growing fiscal problems for the ACA

CNN (Yves Smith Op-ed): Response to BNP Paribas settlement 

 

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