2008 Woodie Awards
Marcin: Economics, without the Voodoo
Daniel Marcin
Issue date: 4/8/08 Section: Opinion
In his column Thursday, "Economic Bewilderment," Daniel Bianco made a strong point: The need for better education about current issues in the U.S. economy is clear. However, that is about the only strong point Bianco makes. The piece is full of factual errors being passed off as opinions and other factual errors just being passed off as facts.
The first thing that really caught my eye was a quote from John Lott. Now, when writing newspaper columns, I always find it best to quote people who haven't wound up in massive heaps of ethical trouble (See "Scholar invents fan to answer his critics" in The Washington Post's Feb. 1, 2003 issue or more on Lott's misdeeds). But even when we ignore Lott's past and just examine the statement, we see he makes a point that is at the least disputed and sometimes strongly refuted.
In the quote, Lott said to "give [people] an incentive to work and invest. The best way to do that is to cut marginal tax rates on individuals and companies. The more people get to keep of what they are making, the more they will work." Now that sounds fine, but it doesn't remain as obvious when put into the consumption-leisure choice model. Essentially, economists assume when people decide how much to work, they choose between consumption, the things they can buy with the money they make, and leisure, the time they're not working. People will choose the consumption-leisure bundle that makes them the happiest of all of their options. Now if we increase their hourly wage rate, they can afford more consumption than before with the same amount of leisure time. Lott argues that these people will then give up some of the leisure time they enjoyed before to have even more consumption. I don't see how this is possible. The way I think of this is that people care more about their income than their hourly wage. Increasing the wage rate means people can live with more income on slightly more leisure time.
The next problem I have is with Bianco's "big government" gripe. He states, "About 60 percent of that government spending goes to socialist programs: Medicare, Medicaid, welfare and Social Security, all of which continuously suffer net losses. If a private business were run this way, it would fold in a heartbeat." Arguments like this are always very effective at winning over the fiscally conservative. Here's the punchline: It's completely wrong. What net losses are you talking about? Social Security has hardly ever suffered a net loss; the last was in 1981. During its entire history, the Social Security Administration has amassed a surplus of about $2.238 trillion dollars. This surplus is projected to continue until 2017, and the trust fund is expected to run out in 2041. Furthermore, it is estimated that the system would be actuarially balanced, meaning the system would not go into the red for all of eternity, if payroll taxes increased from 12.4 percent to 15.6 percent.
In addition, Bianco ignores the social and hidden benefits of any of these programs. When the elderly and the poor have health care don't we all benefit? How would you feel if retired blue-collar workers down the street could not afford health care and had no family to help them? Don't forget the elderly are more costly to insure and removing them from the pool of those seeking health insurance pushes down the cost of health insurance for the rest of the population.
Bianco leaves us with two priceless quotes. We supposedly pay for the programs mentioned above because "the government continues … raising taxes," and we need to return to "basic, proven-effective 'Reagonomic' logic."
I'll leave Bianco with two challenges.
1. Name one time in the last 10 years that the federal government raised taxes. If you can't, then there is nothing "continual" about tax hikes.
2. Give one example of a historical event that proves "Reaganomics" to be effective. Hint: the key word here is "proves." Good luck.
Daniel Marcin is a senior economics and mathematics major. He can be reached at dmarcin@umd.edu.
The first thing that really caught my eye was a quote from John Lott. Now, when writing newspaper columns, I always find it best to quote people who haven't wound up in massive heaps of ethical trouble (See "Scholar invents fan to answer his critics" in The Washington Post's Feb. 1, 2003 issue or more on Lott's misdeeds). But even when we ignore Lott's past and just examine the statement, we see he makes a point that is at the least disputed and sometimes strongly refuted.
In the quote, Lott said to "give [people] an incentive to work and invest. The best way to do that is to cut marginal tax rates on individuals and companies. The more people get to keep of what they are making, the more they will work." Now that sounds fine, but it doesn't remain as obvious when put into the consumption-leisure choice model. Essentially, economists assume when people decide how much to work, they choose between consumption, the things they can buy with the money they make, and leisure, the time they're not working. People will choose the consumption-leisure bundle that makes them the happiest of all of their options. Now if we increase their hourly wage rate, they can afford more consumption than before with the same amount of leisure time. Lott argues that these people will then give up some of the leisure time they enjoyed before to have even more consumption. I don't see how this is possible. The way I think of this is that people care more about their income than their hourly wage. Increasing the wage rate means people can live with more income on slightly more leisure time.
The next problem I have is with Bianco's "big government" gripe. He states, "About 60 percent of that government spending goes to socialist programs: Medicare, Medicaid, welfare and Social Security, all of which continuously suffer net losses. If a private business were run this way, it would fold in a heartbeat." Arguments like this are always very effective at winning over the fiscally conservative. Here's the punchline: It's completely wrong. What net losses are you talking about? Social Security has hardly ever suffered a net loss; the last was in 1981. During its entire history, the Social Security Administration has amassed a surplus of about $2.238 trillion dollars. This surplus is projected to continue until 2017, and the trust fund is expected to run out in 2041. Furthermore, it is estimated that the system would be actuarially balanced, meaning the system would not go into the red for all of eternity, if payroll taxes increased from 12.4 percent to 15.6 percent.
In addition, Bianco ignores the social and hidden benefits of any of these programs. When the elderly and the poor have health care don't we all benefit? How would you feel if retired blue-collar workers down the street could not afford health care and had no family to help them? Don't forget the elderly are more costly to insure and removing them from the pool of those seeking health insurance pushes down the cost of health insurance for the rest of the population.
Bianco leaves us with two priceless quotes. We supposedly pay for the programs mentioned above because "the government continues … raising taxes," and we need to return to "basic, proven-effective 'Reagonomic' logic."
I'll leave Bianco with two challenges.
1. Name one time in the last 10 years that the federal government raised taxes. If you can't, then there is nothing "continual" about tax hikes.
2. Give one example of a historical event that proves "Reaganomics" to be effective. Hint: the key word here is "proves." Good luck.
Daniel Marcin is a senior economics and mathematics major. He can be reached at dmarcin@umd.edu.
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Thomas
posted 4/08/08 @ 1:12 PM EST
These two articles that bash Reaganomics seem to leave out one thing: Why was it attempted in the first place. Reagan didn't just get elected for no reason, made up his economic idea, and make it magically approved by congress. (Continued…)
Mike
posted 4/08/08 @ 4:17 PM EST
Marcin is an idiot.
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