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Chapter 1: Ten Principles of Economics

Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

December 20

The Peltzman Effect

People respond to incentives. Safer cars have reduced deaths in car crashes, but that has made people less careful. As a result, the number of pedestrians killed by cars has increased.

Textbook References:

Pages 7-9 “Principal 4: People Respond to Incentives”

May 3

VHA Revisited

It is sometimes suggested that the Veterans Health Administration is an example of how government can deliver good healthcare. Yet recent revelations suggest that it might actually be an example of government failure.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”

April 11

Next time you hear someone advocate for single-payer healthcare, remember this

A persistent danger of government involvement in the economy is corruption. People respond to incentives, and politicians may provide special treatment for people who give them money.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”

April 11

Next time you hear someone advocate for single-payer healthcare, remember this

A persistent danger of government involvement in the economy is corruption. People respond to incentives, and politicians may provide special treatment for people who give them money.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”

February 5

Sentence of the Day

The Congressional Budget Office estimates that the Affordable Care Act will induce some workers to supply less labor.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

October 3

The Coming Tax Hike

Casey Mulligan argues that the Affordable Care Act will sharply raise marginal tax rates on median-income workers. That will create disincentives to work.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

August 3

Obamacare versus the Faculty

Part-time faculty members may have their hours reduced as universities seek to minimize the cost of complying with the Affordable Care Act.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

October 17

People Respond to Incentives

France has just passed a 75 percent marginal tax rate on the rich. In response, the rich are preparing to move out of the country.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

July 13

Anti-poverty programs raise effective marginal tax rates

As income rises, poor people lose benefits. As a result, the effective marginal tax rate on the poor can be punishingly high.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 431-432 “Antipoverty Programs and Work Incentivess”

June 5

Barro on the Slow Recovery

Casey Mulligan argues that the recently expanded social safety net has raised the effective marginal tax rate for low-income households from 40% to 48%. As a result, incentives to work have been reduced.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

May 6

Laura Tyson on the Corporate Tax

Capital is mobile and will leave countries with high tax rates. Laura Tyson argues we should cut the corporate tax rate and pay for it by increasing the tax rate on capital gains and dividends.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 250-251 “Who Pays the Corporate Income Tax?”

May 2

Principle 5

A cartoon illustrates why trade can make people better off.

Textbook References:

Page 10 “Principle 5: Trade Can Make Everyone Better Off”

April 22

A Defense of Oil Speculation

James Hamilton argues that those who blame speculators for high oil prices do not know what they are talking about.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”

April 14

The Case for Federalism

Competition among governments causes better governance. A federal system allows people and capital to move to cities and states that are better governed.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 234-241 “A Financial Overview of the U.S. Government”

April 4

Inflation Risks

Martin Feldstein notes that bank excess reserves have increased dramatically over the past few years, but bank deposits have not. If banks decide to start lending those excess reserves, the money supply could grow rapidly.

Textbook References:

Page 15 “Principle 9: Prices Rise When Government Prints Too Much Money”
Pages 627-632 “Banks and the Money Supply”
Pages 632-639 “The Fed's Tools of Monetary Control”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

March 20

Free Bikes and Girls' Education

India's poorest state gives bicycles to girls who stay in school. Two economists discuss how to measure its effectiveness.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 22-29 “The Economist as Scientist”
Pages 543-544 “Education”

February 23

Dynamic Scoring Redux

Mankiw provides a link to his paper on the extent to which tax cuts are self-financing. The possibility arises because if a tax cut creates growth, then the tax base grows as the tax rate falls.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 165-166 “The Laffer Curve and Supply-Side Economics”

February 22

MMT

The Washington Post discusses a school of thought called "Modern Monetary Theory." Its basic premise is that governments can never run out of money because they can print it. Moreover, governments should use that ability to increase spending.

Textbook References:

Page 15 “Principle 9: Prices Rise When Government Prints Too Much Money”
Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

February 5

Do Manufacturers Need Special Treatment?

Christina Romer refutes the idea that manufacturers need special tax breaks and support from the government.

Textbook References:

Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 201-202 “Technology Spillovers, Industrial Policy, and Patent Protection”

January 21

How to Reform the Tax System

Mankiw suggests four ideas to reform the tax system: 1. Broaden the tax base and lower tax rates. 2. Tax consumption, not income. 3. Tax bads (negative externalities), not goods. 4. Make the system as simple as possible.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”

December 18

Is Modern Capitalism Sustainable?

Kenneth Rogoff agues that modern capitalism will continue to evolve and there are no viable alternative systems.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 532-536 “Economic Growth Around the World”

November 28

Richard Epstein on Inequality

Richard Epstein argues that more income redistribution would reduce the incentives to produce and consequently harm everyone.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”

November 26

What Milton Friedman might say to the Occupy movement

Two short video clips show Milton Friedman explaining how free markets are the best cure for poverty. At the end of the clips are links to additional clips of Friedman and Hayek.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 13-14 “Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services”

November 23

Thanksgiving Shopping Advice

Steve Sexton argues that buying locally grown food is not better for the environment.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Chapter 3 “Interdependence and the Gains from Trade”

November 12

The Long, Sad History of Industrial Policy

Government attempts to foster alternative energy technologies have a long history of failure.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 201-202 “Technology Spillovers, Industrial Policy, and Patent Protection”

October 22

Fates to Avoid

Mankiw warns against the policy blunders made by Zimbabwe, Japan, Greece, and France.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Page 654 “Hyperinflation in Zimbabwe”
Page 662 “Inflation Is Bad, But Deflation May Be Worse”

September 30

Principle #4 in Action

Social Security Administration managers told their workers to slow down for a week because of perverse incentives in managers' contracts.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”

September 24

A Conversation with Robert Lucas

Robert Lucas talks about the effects of high marginal tax rates on growth, about the recent financial crisis, and about rational expectations.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Page 561 “Financial Crises”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”
Pages 789-795 “Shifts in the Phillips Curve: The Role of Expectations”

September 14

Hayek and Keynes

An Excerpt from Silvia Nasar's book The Grand Pursuit: The Story of Economic Genius discusses Keynes and Hayek.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 342 “Galbraith versus Hayek”
Page 751 “The Origin of the Model of Aggregate Demand and Aggregate Supply”
Pages 773-779 “Using Policy To Stabilize The Economy”

September 10

A Plan for Zero Unemployment

Steve Allen suggests a novel plan to eliminate unemployment.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 604-605 “How Much Do the Unemployed Respond to Incentives?”

September 10

Fixing Our Sick Economy

Two essays, one by Mankiw and the other by Robert Barro, address the causes of the weak recovery, and suggest possible solutions.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 250-251 “Who Pays the Corporate Income Tax?”
Pages 250-251 “The Value-Added Tax”
Page 568 “Policy 2: Investment Incentives”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

September 4

Something for Nothing

Mankiw recommends a novel about economics

Textbook References:

Inside Back Cover “Suggestions for Summer Reading”

August 31

The Economics of Disaster Relief

Paul Krugman and Steve Landsburg disagree about how to pay for Federal disaster aid.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Page 447 “Utility: An Alternative Way to Describe Preferences and Optimization”

August 30

Glaeser on Mortgage Modification

A recent proposal would allow people with government-backed mortgages to refinance them at today's lower interest rates. Proponents claim it is a cost-free way to boost the economy. Edward Glaeser argues that it will not boost the economy and it will cost taxpayers a lot of money.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

August 27

Auctioning Public Parking Spaces

A new iPhone app has created a market linking people looking for a parking space to people leaving a parking space.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Page 538 “Technological Knowledge”

August 24

Jeff Miron on Capitalism

Jeff Miron discusses three common misconceptions about capitalism.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 13-14 “Principle 8: A Country's Standard of Living Depends on Its Ability to Produce Goods and Services”
Chapter 6 “Supply, Demand, and Government Policies”

July 25

The Light Bulb Ban

Is the ban on incandescent bulbs a good idea?

Textbook References:

Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 203 “Command-and-control Policies: Regulation”

July 12

GSE Fact of the Day

By 2008 half of all mortgages were excessively risky, and government sponsored enterprises such as Fannie Mae owned 12 million out of 27 million such loans.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 561 “Financial Crises”
Pages 745-748 “The Recession of 2008-2009”

July 1

Housing Tax Subsidies

The preferential tax treatment of owner-occupied housing distorts capital allocation in the U.S. economy.

Textbook References:

Pages 6-7 “Principle 3: Rational People Think at the Margin”
Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 745-748 “The Recession of 2008-2009”

June 26

How To Waste $600 Million

Congress spent $600 million to mint coins that nobody wants.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 623-625 “Money in the U.S. Economy”

June 9

Rajan on Monetary Policy

Raghuram Rajan discusses why extremely low interest rates have not boosted demand. He also notes that the Fed's policy punishes savers.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 644-656 “The Classical Theory of Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

June 2

Lucas on the Great Recession

Robert Lucas discusses the recent recession in an historical context. He worries that the government is now doing too much.

Textbook References:

Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 744-745 “Two Big Shifts in Aggregate Demand: The Great Depression and World War II”
Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

May 17

Google Plays the Yield Curve

Why is Google borrowing money in the bond market when it has $37 billion in cash?

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 576-577 “The Bond Market”

May 13

Evaluating the ARRA

Tom Conley and Bill Dupor argue that the recent fiscal stimulus (the American Recovery and Reinvestment Act) actually destroyed more jobs than it saved.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 560-572 “Economic Growth and Public Policy”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

May 10

Libertarian Paradise

A short video satirizes extreme Libertarianism.

Textbook References:

Pages 8-10 “Principle 6: Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 444-445 “Libertarianism”

May 5

If Supermarkets Were Like Public Schools

Donald Boudreaux describes how awful supermarkets would be if they were run the same way as public schools.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 248-249 “State and Local Government”

April 28

Keynes vs. Hayek Round Two

The views of Keynes and Hayek are dramatized in a music video.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize The Economy?”

April 21

Price Controls for Limo Rides

A short video demonstrates the harm caused by a price floor.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 118-121 “How Price Floors Affect Market Outcomes”

April 13

Two Visions for Medicare

Mankiw is pleased that the long-run fiscal health of the nation is now taken seriously by both parties. Yet there are fundamental philosophical differences between the two sides.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 19

Some Commentary

Scott Summers, Paul Krugman, and Greg Ip comment on the paper Mankiw posted on March 17.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

March 17

Optimal Stabilization Policy

A research paper by Mankiw and Matthew Weinzierl look at optimal monetary and fiscal policy.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

February 27

Empiricists versus Theorists

Christina Romer argues that when inflation is low and the unemployment rate is high, there is little danger of inflation. She says that the Fed could engage in more aggressive quantitative easing, but seems to be overly worried about inflation expectations.

Textbook References:

Pages 14-15 “Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment”
Pages 664-676 “The Classical Theory of Inflation”
Pages 809-810 “The Short-Run Phillips Curve”

February 23

Tax Fact of the Day

The corporate tax rate on new investment in the U.S. is the highest in the OECD.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 257 “Who Pays the Corporate Income Tax?”

February 22

Tax Fact of the Day

From an estate tax perspective, New Jersey is the worst place to die in the U.S.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 248-249 “State and Local Government”

February 12

Jobs, Jobs, Jobs

Should the government embrace anything that creates jobs, or should it consider the long-run value of its projects?

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 25-28 “Our Second Model: The Production Possibilities Frontier”
Page 742 “Fact 3: As Output Falls, Unemployment Rises”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

February 9

Incentivizing Customers to Monitor Workers

A sign in South Africa offers customers a reward if an employee fails to provide a correct receipt.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”

January 31

Would you call Gary Becker for marital advice?

Paula Szuchman argues that economics offers insights into successful marriages.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 52-53 “Specialization and Trade”
Pages 54-57 “Comparative Advantage: The Driving Force of Specialization”

January 2

Natural Resources and the Limits to Growth

John Tierny explains how high oil prices encourage more exploration, which in turn reduce energy prices.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 300-306 “The Supply Curve in Competitive Markets”

January 1

Letter to the President

Mankiw offers advice to President Obama on how to work with Republicans.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 442-445 “The Political Economy of Income Redistribution”
Pages 563-565 “Education”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

December 29

Voting with Your Feet II

Edward Glaeser argues that states with fewer restrictions on building grow faster.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”

December 24

Voting with Your Feet

Michael Barone reports that the states that do not have income taxes grew faster than other states.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”

December 24

Economists on Ebenezer Scrooge

Three economists discuss the virtues of Scrooge, and a fourth claims there is a humbug industry.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 560 “Saving and Investment”
Pages 584-585 “Supply and Demand for Loanable Funds”

December 19

The Charitable Deduction

Richard Thaler argues that there is little reason to allow a tax deduction for charitable giving. Mankiw disagrees.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 34-36 “Why Economists Disagree”
Pages 246-248 “The Fiscal Challenge Ahead”

December 16

The Economics of Seinfeld

Clips from the TV show "Seinfeld" are used to illustrate a variety of economic concepts.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 5-6 “Principle 2: The Cost of Something is What You Give Up to Get It”
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 67-72 “Demand”
Pages 73-76 “Supply”
Pages 144-153 “Controls on Prices”
Chapter 10 “Externalities”
Pages 226-227 “The Different Kinds of Goods”
Pages 227-232 “Public Goods”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 232-237 “Common Resources”
Pages 274-275 “Fixed and Variable Costs”
Page 281 “Economies and Diseconomies of Scale”
Pages 312-315 “Why Monopolies Arise”
Chapter 16 “Monopolistic Competition”
Pages 370-378 “The Economics of Cooperation”
Pages 399-400 “The Supply of Labor”
Page 414 “Compensating Differentials”
Page 442 “Utility”
Page 465 “Utility: An Alternative Way to Describe Preferences and Optimization”
Pages 484-489 “Asymmetric Information”
Pages 556-558 “Technological Knowledge”
Pages 578-580 “Financial Intermediaries”
Pages 598-600 “Present Value: Measuring the Time Value of Money”
Pages 603-604 “Diversification of Firm-Specific Risk”
Pages 606-609 “The Efficient Market Hypothesis”
Pages 630-631 “The Economics of Unions”
Pages 703-705 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 707-708 “The Basic Logic of Purchasing Power Parity”
Page 833 “Time Inconsistency”

November 16

Hubbard on the Bowles-Simpson Tax Plan

Glenn Hubbard likes the idea of broadening the tax base so as to reduce tax rates.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

November 11

The Simpson-Bowles Social Security Plan

Charles Blahous examines the Simpson-Bowles plan for making Social Security financially sound.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

November 7

Thaler on the Estate Tax

Richard Thaler argues in favor of retaining the estate tax. Greg Mankiw makes the opposite case.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 256-257 “Tax Incidence and Tax Equity”

October 29

A Rolling Stone gathers no taxes

The Rolling Stones make decisions on where to work and live based on the tax laws.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 167-171 “Deadweight Loss And Tax Revenue As Taxes Vary”

October 26

John Cochrane on Tim Geithner

John Cochrane discusses Tim Geithner's plan to reduce "external imbalances." Cochrane suggests that Geithner and the IMF intend to engage in a type of global central planning that is bound to fail.

Textbook References:

Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 692-702 “The International Flows of Goods and Capital”
Pages 707-711 “A First Theory of Exchange-Rate Determination: Purchasing Power Parity”
Chapter 32 “A Macroeconomic Theory of the Open Economy”

October 18

Hear Me Squawk

Mankiw discusses a variety of issues including marginal tax rates, long-term deficits, and ways to stimulate the economy.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Page 399 “The Trade-off Between Work and Leisure”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 749-751 “Why the Aggregate-Demand Curve Might Shift”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

October 12

Response to Queries

Mankiw responds to questions about his New York Times article that was posted on his blog on October 10.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Page 399 “The Trade-off Between Work and Leisure”

October 10

My Marginal Tax Rate

Mankiw explains how the marginal tax rate affects his decisions about how much to work.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Page 399 “The Trade-off Between Work and Leisure”

September 16

The Tourist Platter of Economics

Nick Rowe explains why Mankiw's Ten Principles is akin to the Tourist Platter in a Jamaican Restaurant.

Textbook References:

Chapter 1 “Ten Principles Of Economics”

September 15

How much would the President raise the top rate?

Alan Viard argues that while the marginal tax rate on top earners will rise to 39.6 percent, the elimination of itemized deductions and increases in the Medicare tax will make the effective rate 44.6 percent by 2013.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 164-167 “The Determinants Of The Deadweight Loss”

September 13

Viard on Marginal Tax Rates

Alan Viard argues in favor of keeping the Bush tax cuts because they will promote growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 560 “Saving and Investment”
Page 586 “Policy 1: Saving Incentives”
Pages 587-589 “Policy 2: Investment Incentives”

September 11

Miron on the Bush Tax Cuts

Jeffrey Miron argues in favor of making the Bush tax cuts permanent.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 560 “Saving and Investment”
Page 586 “Policy 1: Saving Incentives”
Pages 587-589 “Policy 2: Investment Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

September 10

A Dastardly Clever Scheme

Some universities in New York City are buying rent-controlled apartment buildings. They then rent to faculty at the rent-controlled price, which allows them to reduce faculty wages.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 117-118 “Rent Control In The Short Run And The Long Run”

September 7

A Small Step in the Right Direction

The Obama administration is proposing that, for tax purposes, investment expenditures be expensed as they occur as opposed to depreciated over time. That should have a small but positive impact on investment.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

September 4

Should the Bush Tax Cuts be Extended?

Most economists recommend that the Bush tax cuts be extended.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

September 2

Cash for Clunkers

Jeff Jacoby argues that the Car Allowance Rebate System (Cash for Clunkers) drove up the price of used cars by over ten percent. That's because it required the destruction of cars that were traded. It also did not have an appreciable effect on carbon emissions.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 80-81 “Example: A Change in Market Equilibrium Due to a Shift in Supply”

August 7

A Wise Passage

Paul Seabright suggests that politicians have less influence over the economy than commonly believed.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”

July 6

An Interview with Bob Hall

A wide-ranging interview with Robert Hall touches on a variety of topics.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 566-567 “Property Rights and Political Stability”
Pages 604-605 “The Trade-Off Between Risk and Return”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

June 5

Soda and Other Sins

Mankiw considers the question of whether decisions that do not impose external costs on others may impose external costs on future versions of ourselves. He also asks us if we "trust the government enough to appoint it your guardian?"

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 204-209 “Externalities and Market Inefficiency”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Page 251 “Should Income or Consumption Be Taxed?”

June 1

Lessons from the BP Spill

Kenneth Rogoff argues that "when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right." But he also warns that we do not know "how to adapt regulation over time to complex systems with constantly evolving risks."

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 10 “Externalities”

May 28

Fama on Financial Reform

There is a video of an interview with Eugene Fama. He discusses the recent financial crisis and suggested reforms.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”
Pages 821-822 “Bernanke's Challenges”

May 11

Opportunity Cost

Writer Neil Gaiman charges very large speaking fees. He does so because the opportunity cost of his time is so high.

Textbook References:

Pages 5-6 “Principle 2: The Cost of Something is What You Give Up to Get It”
Page 6 “Principle 3: Rational People Think at the Margin”

May 5

In Defense of Price Gouging

Should vendors of bottled water raise their prices when tap water is no longer clean enough to drink?

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 114-118 “How Price Ceilings Affect Market Outcomes”
Chapter 1: Ten Principles of Economics
Archived Posts

 

May 1

How to Solve Inbox Congestion

A blog reader suggests a tax on email as a way to reduce the volume of unwanted email.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”

April 19

Egalitarianism: the Next Step

European Union commissioner for enterprise Antonio Tajani claims that "travelling for tourism today is a right," so those who cannot afford it should receive subsidies.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 442-445 “The Political Philosophy of Income Redistribution”

April 17

Spreading the Wealth Via Healthcare Reform

The Tax Foundation estimates the extent of income redistribution implicit in the new healthcare bill.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 442-445 “The Political Philosophy of Income Redistribution”

April 14

A Guest Post From John Galt

Mankiw suggests that the marginal tax rates on income have a significant effect on behavior.

Textbook References:

Pages 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 169-171 “The Laffer Curve And Supply-Side Economics”
Page 795 “Keynesians in the White House”

April 10

The Enormity of the Fiscal Gap

The Tax Policy Center argues that income taxes must rise by 40 per cent just to reduce the deficit to 3 per cent of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

March 22

Healthcare, Tradeoffs, and the Road Ahead

Mankiw argues that the debate over the current healthcare bill is fundamentally a debate over the tradeoff between liberty and community.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”

March 20

A Warning About CBO Scoring

Mankiw warns that the CBO's assessment of the impact of the healthcare bill assumes that the growth rate of GDP will be unaffected. Mankiw argues that the higher marginal tax rates associated with the bill will likely reduce the growth rate of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”

March 5

Economics in One Picture

A humorous picture illustrates the idea of incentives.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”

February 23

Financing Healthcare Reform

The most recent healthcare reform proposal does not include a tax on "Cadillac" health insurance and adds a tax on capital. It will not reduce demand for healthcare and will likely slow growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 125-127 “How Taxes on Buyers Affect Market Outcomes”
Page 560 “Saving and Investment”
Pages 586-587 “Policy 1: Saving Incentives”
Pages 587-589 “Policy 2: Investment Incentives”

February 4

Defending Jobs Abroad

Matthew Slaughter argues that taxing U.S. firms' foreign operations will destroy jobs in the U.S.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Pages 54-57 “Comparative Advantage: The Driving Force of Specialization”
Page 567 “Free Trade”

January 31

Slow Growth and Rising Debt

Carmen Reinhart and Kenneth Rogoff warn that rising public debt may lead to default, higher taxes, or financial repression. All harm growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

January 29

ECONOMICS!!

Gordon Boronow provides an acrostic for Mankiw's Ten Principles of Economics.

Textbook References:

Chapter 1 “Ten Principles of Economics”

January 28

Lazear on the Spending Freeze

Edward Lazear argues that the spending freeze is "optical rather than substantive." Higher taxes will be needed to pay for higher government spending, and higher taxes mean slower growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

January 25

Hayek vs Keynes Rap

There is a short video of a rap song that presents the differences between Keynes and Hayek.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 358 “Galbraith versus Hayek”
Page 750 “The 2008 Fiscal Stimulus”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize The Economy?”

January 21

Bob Solow on John Cassidy

Robert Solow reviews John Cassidy's book "How Markets Fail: The Logic of Economic Calamities." He discusses the enormous value of markets, but warns against over-stating the case.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 10 “Externalities”
Chapter 15 “Monopoly”

January 20

Feldstein on Obamanomics

Martin Feldstein argues that Congress poorly targeted the fiscal stimulus. As a result, its impact was smaller than it might have been.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Affects Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize The Economy?”

January 16

Healthcare Reform Debate

There is a link to a video and the Powerpoint slides of a symposium on healthcare reform. The U.S. and Canadian systems are discussed.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 271-273 “Production and Costs”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

January 16

The Inflation Monster

Mankiw considers the chances of significant inflation in the coming years.

Textbook References:

Pages 13-14 “Principle 9: Prices Rise When the Government Prints Too Much Money”
Pages 645-647 “Money in the U.S. Economy”
Chapter 30 “Money Growth and Inflation”

January 13

The Rise of European Leisure

Mankiw discusses some possible explanations for Europeans working less than Americans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-163 “The Deadweight Loss of Taxation”
Page 170 “On the Way to France”
Page 243 “Table 1: Total Government Tax Revenue as a Percentage of GDP”
Page 399 “The Trade-off between Work and Leisure”

January 11

Learning from Europe

Mankiw takes issue with Paul Krugman's assertion that Europe's high social spending does not affect its economic performance.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-163 “The Deadweight Loss of Taxation”

January 8

Wealth-Dependent Fines

Should traffic fines rise with the offender's wealth?

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 254-256 “The Ability-to-Pay Principle”

December 30

The Temporarily Disappearing Estate Tax

The estate tax will expire on January 1, but only for one year. The terminally ill rich may make different choices about life support.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 250 “Deadweight Losses”

December 30

Why Health Consumers Aren't Cost Conscious

Out-of-pocket costs for health-care have fallen to 12% of total spending on health-care.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 67-68 “The Demand Curve: The Relationship Between Price and Quantity Demanded”

December 28

Gruber on the Cadillac Tax

Jonathan Gruber is in favor of the tax on high-cost insurance plans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”

December 26

The Ten Principles Down Under

The Sydney Morning Herald summarizes Mankiw's Ten Principles of Economics.

Textbook References:

Chapter 1 “Ten Principles of Economics”

December 22

The Case Against the Millionaire Surtax

Alan Viard argues that taxing the rich to pay for health-care reform will do significant damage to the economy.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 164-167 “The Determinants of the Deadweight Loss”
Pages 167-171 “Deadweight Loss and Tax Revenue as Taxes Vary”
Pages 583-593 “The Market for Loanable Funds”

December 21

Rolling the Dice on Medicare

The rate of increase of spending on Medicare is scheduled to decline, but it isn't clear how the savings will be achieved.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Page 493 “Politicians are People Too”

December 20

Epstein on the Reid Bill

Richard Epstein argues that the Reid Health-Care Bill is unconstitutional and would likely drive private insurers out of business.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”

December 9

The Transactions Tax

Burton Malkiel and George Sauter argue against taxing financial transactions.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 123-130 “Taxes”
Pages 654-655 “The Financial Crisis of 2008”

December 3

Glaeser on Financial Regulation

Edward Glaeser suggests a way to extract better information from financial firms.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”

November 30

How to Create Jobs

Nobel laureates Paul Krugman and Gary Becker offer different advice on how to create jobs.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 400-405 “Equilibrium in the Labor Market”
Pages 614-623 “Identifying Unemployment”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

November 27

A Reading for the Pigou Club

John Cassidy prevents an overview of Pigou's ideas.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes”
Pages 654-655 “The Financial crisis of 2008”

November 24

Healthcare Reform and the Big Tradeoff

The healthcare debate illustrates the tradeoff between efficiency and equality.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 5-6 “Principle 2: The Cost of Something Is What You Give Up to Get It”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”

November 15

Supply, Demand and Healthcare Reform

The healthcare reform bill passed by the House contains significant reductions in Medicare payments to hospitals and nursing homes. This is likely to limit access to care for millions of people.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 73-76 “Supply”
Pages 114-123 “Controls on Prices”

November 14

Netherlands Joins the Pigou Club

The Netherlands has introduced a tax on every kilometer driven. The tax should reduce pollution and congestion.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 209-215 “Public Policies Towards Externalities”
Pages 216-217 “The Case for Taxing Carbon”

November 13

Bending the Curve: How's it Going?"

James Capretta argues that because of political constraints, the federal government is incapable of restraining healthcare costs. Only a functioning marketplace can do that.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”

November 12

Steuerle on Healthcare Reform

Gene Steuerle argues that some versions of healthcare reform clearly violate the principle of horizontal equity.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 254 “Horizontal Equity”

November 11

The Poverty Trap

Government tax and transfer policies provide very little incentive to earn more income for people with income in the range $15,000 and $20,000.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 449-451 “Antipoverty Programs and Work Incentives”

November 9

Unintended Consequences

David Meltzer and Zhuo Chen argue that there is an inverse relationship between the real minimum wage and the average body mass index of Americans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 119-121 “The Minimum Wage”
Pages 348-354 “Competition with Differentiated Products”

November 8

Feldstein on Obamacare

Martin Feldstein argues that if insurance companies must immediately accept people with pre-existing conditions, then rational people will go without insurance until they need it. The proposed fines for being uninsured will be too small to prevent it, according to Feldstein.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”

November 5

Environmentalism vs Homeownership

Edward Glaeser explains how the home-buyer tax credit and the tax deductibility of mortgage interest increases the size of the average American's carbon footprint.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 204-209 “Externalities and Market Inefficiency”
Pages 209-215 “Public Policies Toward Externalities”

November 2

Government Motors-Update

When the government took over GM, it said it would not interfere in the company's decision-making. Yet politicians are doing just that.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Pages 148-150 “Evaluating the Market Equilibrium”

November 2

Disincentives from Reform: The House Edition

The implicit marginal tax rates in the House version of health care reform are even higher than in the Senate version.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 31

Disincentives from Health Reform

Mankiw discusses how the proposed health care reform would significantly increase marginal tax rates on the middle and upper classes.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 30

Average Marginal Tax Rates

Robert Barro and Charles Redlick present a graph of the average marginal tax rate, defined as the sum of the marginal rates of the federal and state income taxes plus the marginal FICA tax.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12 “The Design of the Tax System”

October 26

The Public Plan, Again

Robert Samuelson, Paul Krugman, Richard Thaler and N. Greagory Mankiw discuss the proposed government health-insurance option.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 15 “Monopoly”
Page 406 “Monopsony”

October 25

Cowen on Insurance Mandates

Tyler Cowen says that forcing everyone to buy health insurance may make many people worse off.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”

October 25

A Question for Class Discussion

How would a utilitarian social planner allocate a limited quantity of a flu vaccine?

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 442-443 “Utilitarianism”

October 24

A Defense of Insider Trading

Donald Boudreaux argues that insider trading is "impossible to police and helpful to markets and investors."

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”

Pages 606-607 “The Efficient Market Hypothesis”


October 20

More Shots in the Trade War

China imposes a new tariff on nylon in a tit for tat trade war with the U.S.

Textbook References:

Page 8 “Principal 5: Trade Can Make Everyone Better Off”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 183-185 “The Effects of a Tariff”
Pages 728-730 “Trade Policy”


October 10

Marginal Tax Rates from Health Reform

The CBO estimates that the Baucus healthcare reform bill will add about 22 percentage points to the marginal tax rate of many working-class people.

Textbook References:

Pages 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”


October 9

A Cautionary Tale

The current discussion of a tax credit for job creation is reminiscent of a Carter-era tax credit.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


October 8

Feldstein on Healthcare Reform

Martin Feldstein offers his solution to the healthcare reform debate.

Textbook References:

Pages 4-5 “Principle 1: People Face trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”


October 7

A 70-Percent Marginal Tax Rate

James Capretta argues that the Baucus healthcare bill will impose a marginal tax rate of 70 percent on workers just above the poverty line.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”

A Tax Credit for New Hiring?

Congress is considering a tax credit for firms that create new jobs. But the issue is not as simple as it appears.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


October 6

David Brooks at his Best

The current debate about health care reform reflects two very different views about the proper role of government in our economy.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 442-445 “The Political Philosophy of Redistributing Income”


October 5

Medicare and Freedom

Medicare sometimes imposes price controls on markets. When people try to circumvent them, more restrictive rules are imposed.

Textbook References:

Pages 7-8 “People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”


August 21

We are all supply-siders now

David Leonhardt and Geraldine Fabrikant argue that in the three decades after WWII, high marginal tax rates reduced the pre-tax income of the rich.

Textbook References:

Pages 7-8 “Principle 4: People Respond To Incentives”
Pages 169-171 “The Laffer Curve and Supply-Side Economics”
Chapter 12 “The Design of the Tax System”


July 10

Miron on Bailouts

Jeff Miron suggests that the government should not have subsidized home ownership to begin with, and should not have bailed out banks after the crash.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?

Makin on Homeownership

John Makin argues that the housing bubble was the result of government policy, especially the mortgage interest tax deduction.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


July 9

Lazear on Fiscal Stimulus

Edward Lazear notes that very little of the stimulus package has actually been spent. He claims that it is primarily an excuse to expand the size of government.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


July 02

Old Speeches, New Policies

Blogger Mark Thoma uses a speech Mankiw gave six years ago to defend Obama’s deficit spending. But Mankiw’s speech emphasizes that a deficit caused by spending may have a different long-term effect than a deficit caused by tax cuts.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?” Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”


June 25

Posner on Financial Reform

Richard Posner argues that the proposed financial reforms ignores the fact that existing regulators were asleep, so more regulators will not guarantee better performance.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


June 19

Kling on Financial Regulation

Arnold Kling points out that the tax deductibility of mortgage interest and government mortgage subsidies played a role in creating over-leveraged consumers.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”


June 05

Government Motors

The Obama administration has said that the government will not interfere with GM’s business decisions. Yet Congressman Barney Frank has done just that.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”


May 28

Blame the Board

Alan Blinder blames corporate boards for much of the financial crisis. They created incentives for executives to take on excessive risk.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”
Page 486 “Corporate Management”


May 17

Accountability?

The actual unemployment rate in the past two months has been higher than the administration said it would be with the stimulus bill.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


May 15

The Personal Side of the Credit Crisis

An economics reporter for the New York Times explains how he became part of the mortgage crisis.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 654-655 “The Financial Crisis of 2008”


May 14

Limited Purpose Banking

Laurence Kotlikoff and John Goodman make the case for limiting banks to their role as financial intermediaries.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 578-580 “Financial Intermediaries”
Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


May 7

The Auto Industry of the Future

George Will thinks that the government’s efforts to save GM and Chrysler amount to trying to extract sunbeams from cucumbers.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 208-209 “Technology Spillovers, Industrial Policy and Patent Protection”


May 6

Is the White House bullying hedge funds?

Cliff Asness argues that the Obama administration’s attack on hedge funds is “the big lie writ large,” and is politically motivated.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 237 “The Importance of Property Rights”
Pages 566-567 “Property Rights and Political Stability”


May 5

An Overview of the Credit Crisis

There is an article that summarizes how the current crisis started, how it spread and the actions taken to counteract it. There are also links to a large number of articles and videos on the same topics. This should be an especially valuable resource for instructors.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 26 “Saving, Investment, and the Financial System”
Pages 654-655 “The Financial Crisis of 2008”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 30

The Rule of Law – Not!

Mankiw fears that recent government actions may erode property rights.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 237 “The Importance of Property Rights”
Pages 566-567 “Property Rights and Political Stability”


Apr. 29

Miron on the Financial Crisis

Jeff Miron argues the case for the government to do nothing in response to the financial crisis.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 21

Solow on Posner

Robert Solow reviews Richard Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression. Along the way he provides insightful observations, as one would expect from a Nobel laureate.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 484-489 “Asymmetric Information”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 19

A Quick Quiz

Take a quiz made up of questions from past AP tests.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 614-619 “How is Unemployment Measured?”
Pages 649-653 “Banks and the Money Supply”
Pages 653-656 “The Fed’s Tools of Monetary Control”
Chapter 30 “Money Growth and Inflation”
Pages 742-744 “The Assumptions of Classical Economics”
Pages 749-751 “Why the Aggregate–Demand Curve Might Shift”
Pages 753-755 “Why the Long–Run Aggregate–Supply Curve Might Shift”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Apr. 07

More on the Treasury Plan

Ricardo Caballero believes the Treasury is on the correct track. Jeffrey Sachs thinks the Treasury’s plan will cost the taxpayers a bundle.

Textbook References:

Pages7-8 “Principle 4: People Respond to Incentives”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Apr. 06

The Four Pillars of Sound Policy

Edward Glaeser worries that the “Washington Consensus” (fiscal restraint, the rule of law, free trade and privitazation) may be coming to an end.

Textbook References:

Pages7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 566-567 “Property Rights and Political Stability”
Pages 589-593 “Policy 3: Government Budget Deficits”


Apr. 04

Hoover Did It!

Lee Ohanian argues that higher wages, which were paid to prevent unions from organizing, was an important cause of the Great Depression.

Textbook References:

Pages7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 118-121 “How Price Floors Affect Market Outcomes”
Pages 421-422 “Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages”
Pages 629-631 “Unions and Collective Bargaining”


Apr. 02

My Whereabouts

Phillip Swagel describes the actions taken by the U.S. Treasury as the financial crisis unfolded. He emphasizes the legal constraints faced by the Treasury.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Mar. 31

The Mess that is GM

David Brooks argues that GM has been “restructuring” for decades. It will take enormous political will to make it actually restructure.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 30-34 “The Economist As Policy Advisor”


Mar. 23

And I Did Not Even Get a Citation

The new Treasury plan to fix the financial system has some of the characteristics of what Mankiw suggested on his blog last October. But there are also important differences.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 576-580 “Financial Institutions in the U.S. Economy”
Pages 654-655 “The Financial Crisis of 2008”


Mar. 22

Sumner on Financial Regulation

Scott Sumner defends the efficient market hypothesis and denies that more regulation would’ve prevented the financial melt-down.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 606-609 “The Efficient Market Hypothesis”


Mar. 21

Interview with Gary Becker

Gary Becker defends market economics.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”


Mar. 20

The Direction of Policy

Alan Blinder argues that Obama is not a socialist. Gary Becker and Kevin Murphy think that Obama’s plan may kill capitalism.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Mar. 13

The Obama Program

Larry Summers describes the causes of the current crisis, the administration’s response and long-term implications.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Mar. 08

Soaking the Rich?

A Washington Post article presents the views of a variety of people on the redistributive effects of Obama’s plan.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12: “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”


Mar. 6

How is the President Doing?

Michael Boskin thinks Obama is too radical. Paul Krugman thinks Obama is dithering. And the Economist thinks Obama has not explained how he is going to pay for everything.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”


Mar. 05

The Latest Mortgage Plan

John Geanakoplos and Susan Koniak argue that the plan to reduce interest payments for troubled mortgages won’t stop the foreclosures.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 654-655 “The Financial Crisis of 2008”


Mar. 04

Another Loss for Economic Freedom

The economic stimulus bill restricts the hiring of foreign workers.

Text References:

Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”


Mar. 03

The Case for Moderation

David Brooks argues that the Obama administration wants to fundamentally change government’s role in the economy and society.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 442-445 “The Political Philosophy of Redistributing Income”
Pages 489-493 “Political Economy”


Feb. 27

A Speech From the CEA Chair

CEA Chair Christina Romer Defends the Stimulus Bill.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 25

Gleaser on the Mortgage Interest Deduction

Ed Gleaser argues that the tax deduction on mortgage interest payments should be limited to loans up to $300,000.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”
Pages 609-610 “Market Irrationality”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”

Leonhardt vs Obama

Obama says that families making less than $250,000 will not see a tax increase. David Leonhardt says that families making less than $250,000 will have to pay higher taxes.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 20

Loose Money and Politicized Mortgages

Phil Gramm argues that the financial crisis was caused by loose monetary policy and politicians interfering in the mortgage market.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”


Feb. 17

An Increase in Marginal Tax Rates

David Henderson argues that the rebate included in the stimulus plan effectively raises marginal tax rates for the most productive people.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 252-253 “Marginal Tax Rates versus Average Tax Rates”

Bebchuk on Pay Caps

Harvard law professor Lucian Bebchuk argues against the rules on executive pay in the stimulus plan.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”


Feb. 16

Nationalization, or Pre-Privatization?

Is the government nationalizing the financial system?

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”


Feb. 15

A Victory for Populism

Some worry that the restrictions on executive compensation may reduce the effectiveness of the stimulus package.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”


Feb. 10

Tit for Tat

Canadian unions join the chorus for economic nationalism.

Textbook References:

Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”
Pages 728-730 “Trade Policy”

Becker and Murphy on Fiscal Stimulus

Gary Becker and Kevin Murphy suggest that the stimulus plan has many defects.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 07

Stimulus for Libertarians

Jeff Miron presents a Libertarian’s view of what should be done.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 444-445 “Libertarianism”


Feb. 05

Interview with Robert Barro

There is a link to an interview of Robert Barro by The Atlantic

Textbook References:

Pages 7-8 “People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Page 793 “How Fiscal Policy Might Affect Aggregate Supply”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?

Malkiel on “Buy American”

Burton Malkiel argues that the stimulus package should not include protectionist provisions.

Textbook References:

Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”
Pages 728-730 “Trade Policy”


Feb. 02

The Problem of Hasty Public Investment

A newspaper illustrates how wasteful government spending can be.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Page 11 “Adam Smith and the Invisible Hand”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”


Jan. 26

Listen to me Squawk

There is a link to a video of an interview with Mankiw about the current efforts to revive the economy.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Jan. 23

A Discussion Question

Does it matter if the fiscal stimulus is spent by banks to remodel the executive bathroom or loaned to someone else to do the same thing?

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Jan. 22

Barro on Fiscal Stimulus

Robert Barro argues that the proposed stimulus package ignores what have economists have learned since 1936. There is also a link to Paul Krugman’s blog where he chides Barro for misrepresenting Keynes.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 791-792 “The Crowding-Out Effect”


Jan. 19

Advice for Tim Geithner

There is a link to commentary by Luigi Zingales, who has advice for the new Secretary of the Treasury.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 578-580 “Financial Intermediaries”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Page 821 “Bernanke’s Challenges”

Infrastructure Spending as Stimulus

There is a link to Gary Becker’s blog where he explains why the stimulus package will not work.

Textbook References:

Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”


Jan. 16

More Spending Stimulus Skeptics

There is a link to a short article in the Chicago Tribune that quotes prominent economists who do not think the spending stimulus will work.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Jan. 13

Mankiw responds to a question about comparing the short-run benefits of fiscal stimulus to the long-term costs of higher taxes to pay for the stimulus.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”

There is a link to an NPR interview with Mankiw, who is skeptical about Obama’s stimulus package.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Jan. 12

There are links to a blog by Gary Becker and an editorial by Kevin Hasset. Both doubt the wisdom of the proposed stimulus plan.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”


Jan. 10

There is a link to Mankiw’s editorial in the New York Times. He points out some of the pitfalls of increased government spending as a way to end the crisis.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Dec. 27

The Seeds of the Current Crisis

The is a link to an editorial by Tyler Cowen that argues that the bailout in 1998 of Long-Term Capital Management sent the wrong signals.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”


Dec. 20

Another Stimulus Spending Skeptic

Mankiw posts a letter arguing that the government cannot efficiently increase its spending quickly.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”

Let the Rent Seeking Begin

Mankiw posts a link to a story illustrating how lobbyist will influence how any new government spending is allocated.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”


Dec. 18

Two Views of Housing Policy

There is a link to an editorial by Glenn Hubbard and Chris Mayer that argues in favor of more government action to reduce mortgage interest rates. There is also a link to an editorial by Ed Glaeser and Joe Gyourko that argues that such a policy is the cause of the current crisis.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Dec. 17

Crises and Government

Mankiw discusses how crises generally lead to permanently larger government.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 242-248 “A Financial Overview of the U.S. Government”


Dec. 13

Interview with Marty

There is a video of an interview with Martin Feldstein. Martin addresses the auto bailout, Fannie Mae and Freddy Mac, and real interest rates.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 298-300 “The Firm’s Long-Run Decision to Exit or Enter a Market”
Pages 348-351 “Competition with Differentiated Products”
Chapter 26 “Saving, Investment, and the Financial System”
Page 821 “Bernanke’s Challenges”


Dec. 10

Cooley on Mortgage Restructuring

There is a link to an editorial by Tom Cooley. Tom argues that the current mortgage restructuring methods have had little impact because they are badly designed.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 821 “Bernanke’s Challenges”


Dec. 6

Mortgage Forgiveness as a Tax Hike

There is a link to an editorial by Casey Mulligan that argues the current mortgage forgiveness plan creates perverse incentives.

Textbook Reference:

Pages 7-8 “Principle 4: People Respond to Incentives”


Dec. 5

Ed Gleaser on Subsidized Mortgages

There is a link to an editorial by Ed Gleaser that argues that government subsidies for mortgages raise the price of houses and led to the current crisis in the housing market.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation” (Subsidies are not discussed in the chapter, but the model can be extended to subsidies.)


Dec. 3

Morning Reads

There is a link to an editorial by Oliver Hart and Luigi Zinglaes that argues that the government should not bail out failed firms.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 821 “Bernanke’s Challenges”