Friday, November 12, 2010

Week's Business Roundup

Martin Kennedy
Martin Kennedy teaches economics at MTSU. In this column he discusses business news and invites reader input. Views expressed are not necessarily those of the Jennings A. Jones College of Business.

The Deficit Commission

Here's a pretty good rundown of the basics from the LA Times on the outline of the commission's proposals:

1. Enact tough discretionary spending caps.
2. Tax reform: reduce rates, simplify, and broaden the tax base.
3. Address reforms to the health care system to reduce spending.
4. Cut farm subsidies, and adjust civilian and military retirement costs (pensions).
5. Raise the retirement age to improve Social Security system solvency.

You can see why a commission was appointed. This is the stuff that costs elected officials votes. Better from their perspective to have to make an up-or-down vote and later argue to angry constituencies that they too opposed cutting this or that but had no opportunity to amend what the commission put forth.

On tax reform, the approach is sound. Taxes lead to inefficiencies; they distort behavior. Better to have a broader and lower tax than a higher, narrower tax base. So the commission recommends lower rates and scrapping various deductions like the mortgage interest deduction.

Social Security? We indexed benefits to inflation (1960s), but we never indexed the retirement age to the increases in life expectancy. Sounds reasonable.

There's a recommended tax hike of 15 cents per gallon on gasoline. Arguably that tax could enhance efficiency (anytime negative externalities or spillovers are present, a tax can improve efficiency). Here's a powerful argument for a gas tax hike from Greg Mankiw, who served as the Chair of the President's Council of Economic Advisors under George W. Bush.

Do What You Are Doing

In economics, we assume that people strive to maximize utility. Plausible and intuitive, of course, but we leave it to psychologists to study the nature of utility. Here's a pretty interesting study that suggests we'd be better off if we just paid attention to what we're doing rather than letting our minds wander. Is this new or just forgotten? As I read this — focus on what you're doing — I thought of the centuries-old Jesuit admonition: "age quod agis"—“Do what you’re doing!”

Even when what you are doing isn't pleasant? Or in a pleasant environment? Seems so, according to the Jesuits.

What Do Academic Types Write When Recommending Job Candidates from Their Departments?

Depends on whether the job candidate is a man or woman, according to this study. Interesting, no doubt. I wonder what you'd find if you controlled for the gender of the letter writer. Are female letter writers more likely to describe female candidates as "nurturing" or "warm?" What about the position applied for? "Nurturing" and "warm" might be better suited to impress people in some disciplines... words like "bold" and "aggressive" more appropriate for others.

Markets Are Interesting

Here's a case where a small piece of cardboard sold for over $260,000. The picture on the card was the thing—some old baseball player—but a good story. I have an Ernie Banks (Mr. Chicago) baseball card lying around somewhere.

Then there's the case of the Lingerie Football League. Someone thinks there's a market in Oklahoma City, but the mayor won't allow it.

From Bangledash

MTSU economist Dr. Richard Hannah will be in Bangledash for MTSU's Yunus Program for two weeks in December. I look forward to hearing from him and keeping you up to date on Richard's wonderings (and his wanderings).

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