Going Cashless: Benefits for the Poor?

I recently returned from a conference of the ABA Business Law society in Montreal, where I was joined by several pals (Erin Fonte, Jillian Friedman, and Denis Rice) to present on the topic of The Emerging Cashless Society. Movement away from paper money (or coins) to electronic payments is a global phenomenon. While other countries may be leading the United States in moving away from cash, the United States is not far behind.

This phenomenon is primarily a product of private ordering. People choose to transact business with credit cards, mobile payments, or other technologies such Pay-Pal or Dwolla rather than using currency. ( I like to use my Android Pay feature when I am at Whole Foods or Trader Joe’s. In fact, when the fellow ahead of me uses cash, I cannot help wondering if the young clerk is really thinking, “what are these green papers and why do they convey value”?) We like the convenience, as well as some of the additional services like fraud protection, dispute resolution, and airline miles that we get with other payment media, which cash cannot deliver. Continue reading Going Cashless: Benefits for the Poor?

Free Trade, Carrier, and Social Capital — Trust in the Marketplace

As discussed in my prior post, free trade commitments produce winners and losers based on diffused decisions in the marketplace, rather than centralized government choices. The capacity of government to redistribute creates a market for influencing those decisions. This likely explains the fact that the Washington, D.C. metro area has the largest concentration of so-called “super Zips”, which reflect where high-earning individuals live. Brokering that redistribution apparently pays very well. (For more on this topic, see this story and interactive map: http://www.washingtonpost.com/sf/local/2013/11/09/washington-a-world-apart/ . And that compensation likely comes from the rest of us.

Continue reading Free Trade, Carrier, and Social Capital — Trust in the Marketplace

Free Trade and the Political Milieu

Free trade is like virtue – it is widely approved, but hard to practice.  Carrier Corporation’s recent announcement that it is moving manufacturing operations from Indiana to Mexico illustrates this tension.

Carrier, a subsidiary of United Technologies, manufactures heating and cooling systems and related products.  It also claims the mantle of an environmental steward: “Whether it’s reducing our greenhouse gas impact, leading the phase-out of ozone-depleting refrigerants, or introducting many of the world’s most energy efficient building solutions, at Carrier, we incorporate sustainability in all that we do. To us, it’s only natural.” https://www.carrier.com/carrier/en/us/sustainability/

Continue reading Free Trade and the Political Milieu

The Economic Milieu

Winston Churchill is often quoted for his observation, “The best argument against Democracy is a five-minute conversation with the average voter.” Or as some might say in these times, a fifteen-second sound bite from Presidential candidates as reported in the mainstream media.

The campaign so far has not generated much serious conversation about the serious budgetary challenges facing our country. According to a recent CBO analysis, the federal budget deficit this year will rise to $544 billion, about 2.9 percent of GDP, up from 2.5 percent of GDP in 2015. While federal revenues will grow at a respectable 3.9 percent, federal spending will grow by even more – 6.3 percent. This is not a path to fiscal soundness.

Continue reading The Economic Milieu

The Problem of Cash

One area of my research involves payment systems and the role of financial intermediaries in fulfilling various government functions, including tax and criminal enforcement. When we use banks or credit card networks to pay others, we create electronic records that can be accessed by the government for various purposes. (The same is true when we use our cell phones, but encryption may make it difficult to access such information – a problem unfolding in the current controversy with Apple.)

Anti-money laundering (AML) rules impose some obligations on financial intermediaries to identify their customers, know something of their business, and report suspicious transactions. Tax reporting rules also require tracking and reporting of certain kinds of payments – including interest, dividends, and other revenue sources. This allows the government to “trust, but verify” positions taken by its citizens, ensuring that our voluntary tax reporting system remains functional. Continue reading The Problem of Cash

Primordial Brain Modules?

Dr. Michael Munger of Duke University delivered a very interesting lecture at the Heider College of Business on Friday, February 5. He explored problems associated with price gouging laws, which proscribe the practice of raising prices during a state of emergency. Those trained in economics are likely to understand that such laws are likely to harm those affected by emergency conditions. Prices provide important signals to the marketplace, allowing consumers to allocate scarce resources based on where they are valued most. Moreover, those higher prices are likely to trigger increased supplies, thereby providing the impetus for consumer demands to be met and lower prices in the near future. Obfuscating the price signal through legal constraints does not change Continue reading Primordial Brain Modules?

Temperate Climates and Human Capital Development

Today in Nebraska we are enduring a winter storm, with near blizzard conditions in many areas. This kind of weather tests our coping abilities. Visit a grocery store and you will find depleted inventory, as people stock up for what is likely to be a day or two of isolation. This kind of weather reveals the malleability of human preferences in the face of potential scarcity. What a great country where we ordinarily get so many choices!

These formidable challenges of living in a temperate climate may also produce higher economic output and development as compared with easier climates – at least in the case of our ancestors. Thomas Sowell outlines some of these advantages in his latest book, Wealth, Poverty, and Politics (Basic Books 2015).

Dr. Sowell explains how geography affects Continue reading Temperate Climates and Human Capital Development

The Elusive Quest for Income Equality

Institute scholar Ernie Goss posted an interesting piece at the Economic Trends blog, which can be found here http://www.economictrends.blogspot.com/. In this post, “Taxing Rich More Heavily Gets Votes, But Ineffective in Reducing Inequality”, Dr. Goss discusses data involving the share of federal income taxes born by the top 10 percent of earners. It may not surprise you that the relative tax burden (measured by the share of income tax collections) born by that group has increased over time, while the share born by the bottom 50% has gone down. As Dr. Goss reports, many in the bottom 50% have negative tax rates, due to the Earned Income Credit and other refundable credits that function as transfer payments from the government.

Looking at the IRS Statistics of Income, it appears Continue reading The Elusive Quest for Income Equality

The Value of Information in Rulemaking

Earlier this month, the Treasury Department announced the withdrawal of proposed regulations dealing with the substantiation of charitable gifts of more than $250. Before you yawn and move on to the next topic, please stay tuned. This provides a valuable object lesson about the value of information in the hands of rulemakers — and its conspicuous absence in some cases.

Unlike the “Galaxy Far, Far, Away” that was the subject of my last post, people in the real world are in the process of getting materials together to complete their federal income tax returns. Charitable organizations are working to ensure that their donors receive appropriate receipts for their donations, which are required in order to claim itemized deductions on their tax returns. Those deductions Continue reading The Value of Information in Rulemaking

The Economics of Star Wars

This past week, my sons and I ventured out to see Star Wars: The Force Awakens. We saw the 3-D version, which requires wearing those fashionable glasses and delivers the added benefit of seeing fellow humans wearing the same eyewear.   Shared cultural experience is all too rare in the isolating world of entertainment on demand — we should value it whenever it occurs.

My oldest son, who remembered prior installments from his youth, observed that the new film has the same look and feel as the early ones. We agreed that the film has the capacity to reawaken that sense of wonder and amazement about this imagined world.  Nostalgia was stoked by appearances from original cast members, including Harrison Ford and his sidekick, Chewbacca, who are still up to their usual hijinks. (I hope that someday there is a spinoff featuring Wookie culture — but the dialogue might become tiresome.)

I have not come to praise the film, but instead to ponder the economic premises underlying the story.  Continue reading The Economics of Star Wars