Economics and Government

I currently work for Outback Steak House. I recently received notice that this year Outback has chosen to pay for over half of the cost of flu shots. All we must do is take our pay stub into Target and pay a small fee of ten dollars, total cost is twenty four, and we will receive this years shots. Surprisingly, there are still many of my fellow co-workers who have chosen to abstain from getting the shot, even when it is provided at such a cheap rate. Apparently, the subsidy alone does not provide enough incentive to go to Target and receive the vaccination. Interestingly enough, more people have been sick this month with the flu, and probably because they chose to abstain from the shot. The question now becomes, what would serve as better motivation. Should Outback start making it mandatory to get the shot? Obviously there are pros and cons to this approach, but something has to be done. We talked in class last week, Power and Prosperity, about how when the population size of a group is smaller, it is easier to hold people accountable. I wonder if that approach would work for us at Outback. Maybe if we had a board that showed who had gotten their shot, and who had not. This way when people got sick we could hold them accountable. Although the subsidy has been provided, we still fall short of taking advantage.

There are several concerns as of late regarding the system of social security. Some argue that it is a source of market failure calling it intergenerational injustice, while others argue it is a system that has worked for many years, and wonder what problems we would face if it suddenly changed. There are several positve consequences of privatizing social security. First, it wouls lessen the hinderances for work and savings and is likely to contribute to an increase in economic growth. Second, with advance funding, it is likely that the program will need the repeated fixes that have become normal occurrences in the social security program we have today. And finally, investing in private accounts would create a way to avoid the government spending social security money to cover deficit spending. Privatizing social secuirty would give those donating today a sense of confidence about the future, the same confidence that is enjoyed by the beneficiaries of todays social security. Privatizing social securty would allow for a bridge in the generational gap created by the current system.

There are several ideas on how to fix social security; one of the more popular ideas right now is increasing the retirement age. An article in National Underwriter magazine reports that the American Academy of Actuaries has called for the retirement age to be increased. Now, what would this do to social security? It would change the full retirement age at which people start receive their full social security benefits, it would not affect anyone already receiving it. How effective this will be really depends on how many years the retirement age is pushed back. In all likelihood the retirement age will only be pushed back a few years if at all. This would in affect only delay the inevitable. There would be less people collecting social security and it would also reduce the amount of years that they did collect before they passed away. The problem is everyone who reaches the retirement age is still collecting; a couple of years of not collecting won’t do much good. Another problem is that people can still retire early, although they don’t receive as much benefits as the people who wait till full retirement age. The early retirement age would also have to be increased to have any fiscal effect on social security.
There is a lot of opposition to an increasing of the retirement age. The major outcry is that this would hurt people who work jobs which force them into early retirement, i.e. physically demanding jobs, and anyone who retires and runs out of money before they can collect social security. The solution to that is something we discussed in class. People who have no money when they are forced to retire or run out can draw from social security before reaching the age of early or full retirement.
The problem is that increasing the retirement age is only a quick fix. With more people retiring and people living longer at some point we will be back at the point where there is not enough money coming in to support all the people drawing social security benefits. The same thing will happen all over again and again till the point where the only people drawing social security benefits are the very old or the people who have outlived their money. This could possibly lead to an end of retirement as we know it. People will lose their golden years and be forced to continue working. If we are taxed for social security, that money should be yours when you retire. We should not have the young paying for the old to retire.

The Pay As You Go System (Paying for Pops)

Depending on one’s vantage point, Social Security is either a pro and/or con. I believe the social Security program to be the latter. Social Security is defined as government provided pensions, disability payments, unemployment compensation and health benefits ( or simply, the income redistribution from the young to the old and from the worker to the non worker). From the definition alone one can (who doesn’t receive S.S.) recognize the gaps of this program. Many Americans leave the work force somewhat relying their livelihood on this awful program most of them having been born during the baby boom generation in which the program was set up (1935) to fix the Market failure of the Great Depression. This is an important factor now as the current generation is being trumped (in terms of population) by the baby boom generation who in turn is expecting to get Social Security benefits in which they once put in for. The issue of using Social Security as a crutch is that it may not be enough to adequately live off of but enough to exist off of with stipends between 1000-1100 a month.
According to Mary W. Walsh in the New York Times article entitled, Social Security to See Payout Exceed Pay-In This Year, the 2008 recession has depleted Social Security funds more quickly than expected therefore depleting the funds before 2037. This means by the time I’m ready to retire the funds and benefits of Social Security (in which I contributed to while participating in the workforce) would have been long gone. Stephan C. Gross. Chief actuary of the Social Security Administration stated, “ the problem… have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.” This implies that because certain citizens were laid off (as a result of the recession) had to take an early retirement in which they had not properly planned nor saved for, forcing an even greater number of employed workers remaining to pick up the check of both the already retired and the newly retired.
Where is the Market Failure? There isn’t a foreseeable market failure in my eyes because Social Security itself cannot be defined as a market because it is entirely financed by the government. However Social Security is highly inefficient in terms of a “Pureto Optimal Allocation of Resources.” It forces generations unborn to a contract that may not have any application to them directly. It affects the size of the workforce by giving some older workers the incentive not to work because of a set age of retirement (65) hence allowing for S.S. benefits. It opens the door for Moral Hazard (because of insurance I can have risky behavior) to creep through, in turn significantly reducing the incentive to save and allowing S.S. to not only be a crutch for some but a wheel chair for others. As Mary Walsh put it, S.S. will outlay and exceed revenue every year, regardless of how well the economy is operating. Something must be done, government can’t just cut off Social Security entirely however it can’t continue on the path its going without my generation (me in particular) becoming vehemently outraged especially after we have paid our dues.
Cites, David N. Hyman, Public Finance.

Today, the US dollar dropped in value to $1.3972 per euro from 1.3947 a couple of days ago, October 29. It is currently at 80.35 yen. I believe this is proof that it is a negative externality within the economy. Even though the economy is recovering from this recession, the value compared to the euro is dropping at a slow rate. There are some who believe that this is helping the economy because we can produce goods that are cheaper and more competitive when compared to goods from other countries. I do think that is a good thing.
For example, as the dollar drops the Saudi’s will raise the price per barrel of oil to still make a profit, this is because the Saudi riyal is set to the US dollar so it dropped in value also. This means that they, the Saudi’s, are paying higher prices for things that are not in their country such as milk, if they get it from England or another country in Europe. So as business people, the Saudi's will raise the price on oil eventually to still make a profit. That is a bad thing for us, as a people, due to there are those who are in a pinch to pay for gas right now as it is and cannot afford higher gas prices due to the economy right now. I believe the effect of the US dollar value has an impact in many other countries other than our own. I believe that right now it is affecting a lot of people in a negative way financially. Which also has a negative effect within the economy because if a good portion of people still are having to continue to cut down on paying for certain things because prices for foreign products are rising due to the dropping value of the US currency then it, the economy, will continue to get worse.

Sources:
Harui, Ron and Monami Yui. "Dollar Falls for Third Day Versus Euro on Fed Easing Bets; Aussie Climbs." 31 October 2010. Bloomberg. 31 October 2010 .

Amadeo, Kimberly. "Value of the US Dollar." 19 August 2010. About.com. 31 October 2010 .

# posted by Michael Keck : 9:43 PM  1 comments

California voters are faced with many important decisions to make when voting on propositions this November, in particular proposition 19. Prop 19 would legalize growing and consumption of marijuana in California for non-medicinal use. While there are varying opinions on this proposition, the predominant economic justification for prop 19 is that it will allow local and federal governments to tax marijuana sales, with estimated tax revenue of $1-2 billion per year, in California alone.

In analysis of this proposition, I assume that there will be two markets that develop: The legal, taxable market, and the illegal, non-taxable, black-market. While the product that is supplied in each market is basically identical, the two market products will be considered substitutes.

If this proposition were passed in California, there could be a significant change in the legal marijuana market (which currently only exists for medicinal users). The supply curve for legal marijuana will likely shift outward. I believe this will occur considering there is a relatively low entry barrier for a supplier to enter this market (labor, equipment, and license). There will likely be a large amount of prospective suppliers entering the market in California, including some suppliers who previously operated in the black market. Additionally there will likely be an outward shift in demand for legal marijuana, as consumers who were previously obtaining it illegally decide to avoid the legal risk of obtaining marijuana through the black market. As the demand and supply shift outward, quantity demanded will increase and price will stay relatively similar, depending on how much each curve shifts relative to each other.

Conversely, in the substitute black market, with users switching from illegal to legal marijuana, there could be an inward shift in demand for illegal marijuana. There will likely be an inward shift in supply also, as some suppliers (at least the California based ones) choose to operate in the new legal market without previous legal ramifications. So based on these assumptions, quantity supplied will decrease, price remaining constant, initially.

I believe that initially there will be a shift in consumers “taste”, many consumers will opt to go the legal route, and obtain marijuana legally. As this occurs, there will likely be a reaction by black-market suppliers, not wanting to lose market share and revenue; consequently the price for illegally supplied marijuana will drop. Considering the legal and black-market marijuana goods are substitutes, some consumers will shift back to consuming black-market marijuana. These two markets will battle back and forth until equilibrium is attained.

The most important factor in these two competing markets that I have yet to address is taxation. The legal marijuana market is subject to sales tax, the black-market is not. As these two markets compete, the price of marijuana will indubitably go down, but the fact of the matter is that legal marijuana suppliers still would have to supply at a price that reflects tax. This is an added cost of production, which normally would be burdened by the consumer, but considering the consumer would have the option to buy a “legal” good at a price that does not reflect a tax in the black-market, there could be an incentive for consumers to obtain “legal” marijuana illegally.

The legal consequences of selling marijuana illegally would essentially be tax evasion. Some legal suppliers may choose to forgo taxation and operate illegally. If this occurs with a large proportion of suppliers, then the function of legalizing marijuana in order to boost tax revenue is essentially irrelevant.

Can the government effectively monitor and regulate marijuana distribution? Because it may cost more money to police distribution of marijuana than it’s taxation generates.

With the upcoming election quickly approaching candidates around the United States are making a variety of promises. This election tea party favorites are promising to end the department of education. Among those voicing the anti-department of education view are U.S. Senate candidates Rand Paul and Ken Buck. The reason these candidates are seeking to de-fund the bureaucracy is to return the control over education to local authorities and parents. It makes sense that a local school organization would be more concerned with the actual education needs of a community due to the fact that people could hold them accountable easier. However, the tea party argument does not address who should fund education, which is essential to the debate.

The government’s only possible role in the economy, according to the efficiency criterion, is to act to correct market failures. However, neither party is addressing whether education presents a market failure or not. For education to be a market failure, a positive externality would need to occur because of education. Suggested positive externalities include increased productivity or knowledge on the part of employees as well as the benefit of having an informed electorate. The first suggested externality is unreasonable, because there is no third party affected by a non-market transaction. The employer pays the employee to produce goods, and people buy those goods through the market.

The view that educated people create a positive externality by forming a more knowledgeable electorate makes slightly more sense than the previous position. Literate people certainly have more opportunities to educate themselves about candidates and issues. However, as Mancur Olson presents in The Rise and Decline of Nations, even educated people have rational reasons to remain ignorant about elections. He calls this “rational ignorance” (26). People weigh the time it would take to become knowledgeable about the issues against the effect of their vote. The cost outweighs the benefit, so people choose to remain ignorant. This is the origin of the term rational ignorance. Therefore, even the informed electorate position fails to justify government support of education as a positive externality.

Perhaps other positive externalities exist that are not commonly mentioned. The two mentioned above are far from an exhaustive list. Whatever the case, the debate over education should center around who should pay for the education of the next generation. Even after the election it is unlikely that the education system will change. However, no change will be possible unless the core of the issue is discussed.

References:

Olson, Mancur. The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. New Haven: Yale University Press, 1982. Print.

Weber, Joseph. “Tea Party Hopefuls Target Education Department.” The Washington Times. 25 October 2010. Web.

This article was about the city of Colorado Springs’ budget, and cuts that have been made due to recent decreased tax revenue. The article pointed out that the Parks and Rec services have been diminished due to lack of funding. The article says that budget cuts forced the city to close all its swimming facilities, and some were taken over by private swim clubs, while others were unable to find funding to stay open.

The city’s Parks, Recreation and Cultural Services Department provides services to the city that include: providing aquatic and ice activities, adult and youth sports, community and senior centers, therapeutic recreation, as well as the city auditorium, and furnishing safe and clean environments (City of Colorado Springs Parks, Recreation, and Cultural Services website).

Other budget cuts reduced more public services around the city. Some cuts included maintenance of parks, flower beds, and medians, which are now overgrown and not watered enough. Bus service and infrastructure work have been reduced, and a number of police and fire fighter jobs have been eliminated as well. They can no longer collect trash or keep restrooms open at public parks, and many streetlights no longer light up at night.

My first question is: are public swimming facilities a public good? The government should only provide services to the public if there is a market failure due to a monopoly, externalities, or if the good is a public good. It seems to me that none of these qualities apply to swimming facilities. The private market is able to provide some swimming facilities, which is efficient. Swimming facilities are an excludable as well as a rival good. They are excludable because everybody has to pay a fee if they want to get in to the pool and use it for a day. Swimming facilities are also a rival good because different swimming facilities can offer different specialty services or activities, all of which require a fee to participate in, such as indoor wave pools and water slides, swim lessons, birthday parties, and fitness opportunities.

It seems to me that many of the goods provided by Parks and Rec are beneficial to the community because they provide outdoor activities and recreational areas for free. It does not seem to fit that they also provide goods such as swimming pools, golf courses, or rentals of boating equipment for lakes, because these could be provided by the market by private businesses, as people are charged money for them and are able to make a profit. Because taxes paid in Colorado are used to pay for facilities and services provided by Parks and Rec, all Colorado citizens should have equal access to them, and should not be charged to use them.

The city has programs for citizens to “adopt a street light” and “adopt a trash can,” and is increasingly relying on volunteers’ efforts to maintain some of its services, including visitors’ centers and museums, and a fountain downtown. The article questions the role of government and what should be receiving funding. Decreasing police and fire fighters for a growing population puts the public’s safety at risk, and necessary services such as these and bus routes will be the first to receive additional funding as it becomes available. Other services, such as swimming facilities and maintenance of medians will likely need to be funded through the private sector.

I believe it would be a more efficient result to cut the budget for swimming facilities and golf courses because they are not public goods, rather than funding for services that are public goods, such as neighborhood lighting, maintenance of parks and trails, and public safety.

Sources:

Patton, Zach. “Colorado Springs' Do-It-Yourself Government: The citizens of Colorado Springs must decide how much they want from their government, and how much they're willing to pay for it.” Sept 2010. http://www.governing.com/topics/mgmt/Colorado-Springs-DIY-government.html

City of Colorado Springs: Parks, Recreation & Cultural Services. http://www.springsgov.com

The article in the Philadelphia Inquirer discussed Social Security benefits that are provided to the elderly people and how these funds are not enough for them to live off of. Social Security is a Government program that redistributes income from the younger to the older people. In the article the elderly lady named Stephanie Mikalic broke. After all of the expenses she has she still does not have enough money to purchase food and other necessities.
Social Security provides Stephanie with $1,117.00 a month and she is also receiving a pension check of $241.50 monthly. Stephanie does not have money at the end of the month; she is not able to live off of these funds. Social Security is highly depended on a lot by the elderly people depend on, but it will not be available for long. People who are working and have an income are contributing to Social Security benefits, but that does not mean that they will be able to receive Social Security when they are ready to retire. Social Security is looked at as financial security when you retire, but it will not always be there.
When you are being a productive working citizen you are able to contribute to Social Security but you can also put money away for when you retire. Elder retired people are no long being productive. There are several options available for saving for retirement. You are able to put money aside slowly while you are young in an IRA account or annuity account; these accounts are available to you at the age of 18. If a person save while they are young when they are ready to retire they will be able to live comfortable and not have to depend on Social Security benefit to live. Social Security is not a for sure thing that you will have access to when you retire. The Social Security funds are decreasing in mass amounts and more than likely will not be available in the next 45 years.
Stephanie had to request emergency funds from grants; these grants are provided by programs that are run by the Jewish Community Center. These grants are made available in very extreme cases of emergencies, but he funds are getting lower and lower. The funds for the grant are donated. Donations are getting smaller. With the emergency funds Stephanie will be able to purchase a water heater for her home. If Stephanie would have put some money away in Annuity fund while she was working she would not have to depend solely on Social Security. Being able to provide for yourself when you are no longer able to work is very important and by saving while you are young is the way to be able to do this. As a retiree you should not have to worry about being able to make it through the month.
Is Social Security a market failure? No, because technically Social Security is not a market it is a government funded program. I could be looked at as a program failure but not a marker failure, and no transactions are taking place. Market failure is when an optimal allocation of resources is not met. A market is efficient, and absent of any failures, when both parties benefit from the transactions taking place. Producers receive surplus, as do consumers. A market failure therefore occurs when one or both parties are worse off the before the transaction after a transaction takes place.
In the market for social security, since it is only the demanders of social security (the elderly) that stand to benefit from the funds, and not the suppliers of the funds (the government) then there is no market failure or room for a market.
In order for an elderly person to live comfortably they will have to try to save enough money in their working life time and try to predict how long they will live and try to save accordingly. Saving money while they are young will defiantly prevent a person from living day to day while retired. Market failure is when an optimal allocation of resources is not met. http://www.philly.com/inquirer/front_page/20101021_Daniel_Rubin__Emergency_fund_to_help_Phila delphia_s_aging_with_basic_living_expenses_is_running_out_of_money.html

I don't smoke. I think I tried it once as a teenager and decided when it didn't make me as cool as I was hoping it would I stopped right away. And the ill effects of smoking have long been documented, yet despite this I have several friends and acquaintances who I think are highly intelligent yet still smoke. And that's cool with me, they respect my air space and I respect their right to smoke.

The issue of smoking here in Colorado has for a few years been nonvolatile, ever since they opted on banning smoking in public spaces the new rules have been taken as given without much chance of affecting retroactive change. The government has herded the smoker's into small tiny, and well defined areas, for all intensive purposes they are keeping them away from public areas in order to help to 'control' the airspace.

Now after taking slightly more then half a semester a public sector/public finance economics we have learned that perhaps the government should intervene in a market if an externality exists. In the case of smoking one might define the effects of second hand smoke (upon non-smokers) and similarly the resultant air pollution from smoking as being areas that the government might want to pay attention, that they might be negative externalities. If you accept the argument that they are, air pollution and public health issues then you'd explore the potential of government intervention and even previous to the above noted law it did intervene. The excise tax on cigarettes is well known and has been increased at times steadily and other times dramatically.

In class we've discussed that there are more then one way to restrict the amount of an activity that produces an externality. You can tax it, shifting supply and moving the quantity appropriately (excise tax) or you can restrict/prohibit it (limiting smoking areas). So by restricting smoking areas the government limits the area of the externality and makes it more easy to avoid the second hand smoke externality associated with smoking. This action either ignores any contributory effects of smoking to air pollution or affirms that they may not be contributory at all. So if the government regulation on places to smoke deals with the externality in this way then shouldn't the tax be lifted or vice versa, imposing two controls is somewhat double dipping or at least increases the margin of error? My suggestion would be to deal with it in a taxing manner and then let the individual decide on the margin whether they choose to smoke or not.

This article talks about how the issues associated with road maintenance and expansion have taken a back seat in the 2010 election. The article mentions the need repairing and expanding Colorado roads, particularly along I-70, between Denver and the ski resorts. The author explains that there is a need to do something about the traffic, and safety issues associated with that are. He describes a few options on the table including adding new lanes and adding "zipper" lanes, which would allow the median to be mobile, thus shifting the lanes to optimize flow during peak travel times. He also described the need for the government to allocate the money for the building of new lanes, as well as maintaining and repairing existing roadways. The author complains that this issue of transportation is remaining on the back burner of the current CO election; but roads shouldn't be the commission of the state, or the hot issues of an election.

A recent article in USA Today covers how for the second year in a row seniors will not receive their COLA (not a type of soda, it stands for cost of living allowance) added to regular Social Security income. The COLA is supposed to account for inflation and the overall increase in the cost of living based on the CPI. This annual adjustment adds to the burden imposed by the program and means that the tax increases every year that prices rise, this seems almost circular to me. The article goes on to list several statistics about how nearly a third of seniors depend on Social Security for nearly 90% of their income and on average makes up 40% on average of all retirees income. Yet the article goes on to list how without the additional COLA seniors can still get by.
As this article demonstrates how retirees are able to get by without the cost of living allowance I wonder if the COLA could be done away with all together. As we learned in class Social Security is not sustainable and within the next 100 years will be deep in the red. It seems obvious that something must be done about it. Now Social Security cannot be done away with immediately millions of retirees cannot have the proverbial rug pulled out from under them. However over time we need to begin phasing out the system to resemble more of an emergency insurance system perhaps like Professor Eubanks mentioned in class. To start people must start making adjustments now and begin by setting up their savings and investments for retirement. Another method of action would be to remove the COLA meaning that seniors will have to start making do with less, but less would have to be taken from the productive members of society. This is just a thought on how the looming problem of Social Security could start to be handled.

Labels: COLA, Social Security

“White House pushes to extend college tuition credit”
This article notes the need for continuing a tax credit for college students. The credit allows people to receive some money that they paid for in tuition back when they file their taxes. This is essentially a grant that the government is giving people to go to school. School is expensive and this helps the payers of the tuition recoup some costs. These tax credits lower the price level for college tuition and increase the quantity of people that can afford school. This will lower the value of higher education and decrease the value of people with college degree. In this class we consistently discuss efficient quantities of goods; therefore I feel there should be an efficient quantity of people without degrees so other degree holders can have greater value in the job market. The market effect of the numerous higher education breaks and grants create a market place with too many degrees and not enough unskilled or uneducated labor. While looking at this idea it seems that while combining the greater quantity of degrees with the minimum wage laws the United States has begun pricing its labor force too high to produce goods of lower value. Under the current tax credit a student receives up to $2,500 a year in incentives to go to college. A full time student at UCCS receiving COF only pays 8-10 thousand dollars a year. Considering the credit the government has given the student somewhere around 25% of their college tuition back, as long as they have paid that in taxes.
Does this credit fix a market failure? I argue no, instead it could lead to slower growth in the economy. “The world needs ditch diggers too.” This common cliché may reveal the problem. With so many degrees the government could be reducing the efficient quantity of lower skilled/education level jobs. I am not completely sure about this but with my graduation soon approaching I would like to know that there are too few degree holders in the market place and not too many. From selfish perspective I would like to see all government incentives removed from higher education, but there is benefits to living in a society where education is valued so highly.

Everybody's nervous about social security these days, and when you look at the projections, it's no wonder. With citizens panicking and politicians mud-slinging about the national debt and deficit, the last thing anyone wants to hear about is another instance of a government program's monetary obligations exceeding its revenue.

But BusinessWeek columnist Chris Farrell says that Social Security isn't broken--future productivity growth should cover most if not all of the social security deficiency. According to him, relatively small changes like raising both the retirement age and the cap on annual wages subject to the payroll tax would keep social security, well, secure. In fact, he says that, ideally, we can improve social security while we're at it, perhaps by adding a "program of voluntary additional contributions" for investment. Americans don't save enough money for their old age, and government could be the answer. These things could grant "financial independence and peace of mind for our elderly population."

Umm, no offense Mr. Farrell, but I've got a couple of bones to pick here.

The question isn't whether social security is broken, but whether that ought to even matter. Those of you who are less creative probably don't care whether or not your nuclear-powered cat-massaging car seat is broken, because you're stuck on why in the world you would need a nuclear-powered cat-massaging car seat in the first place. Now, it's easier to find a use for social security than for a nuclear-powered cat-massaging car seat, but that doesn't mean we really need it any more than we need the cancer chair. What kind of market failure is social security correcting? The negative externality from the fact that the guy down the street hasn't kicked the bucket yet? (Please note that the strange smells wafting into your yard do not in fact count as an externality.) The public good of... old-agey-ness? Perhaps there's a positive externality from the cryptic and possibly dementia-inspired wisdom that only the elderly in poorly written movies have to impart? Farrell has pointed out that Americans aren't saving enough for retirement--is that a market failure? Is inefficiency produced by citizens' "oops" moments (or lifetimes)? Do we expect the magic market to save us from our irresponsibility, or even just from plain old bad luck? Of course it sounds silly; we all know the market isn't big brother government.

Er, that came out wrong. Carrying on.

The point is that efficiency isn't the standard that social security was weighed on when it was deemed appropriate government action--no market failure should equal no government involvement. It wasn't individualism either, for sure. Listen to the suggestion Farrell made earlier: add to social security a "program of voluntary additional contributions" because "it's well-known that Americans haven't been saving enough for their old age." If an individual doesn't save for his rainy (or wrinkly) day, how is that a market problem? How is that even a social problem? It's a problem for the guy who just lost his Starbucks budget, no one else. Why should the government have to step in with a savings solution? Is there a problem with the investment market? Are Americans incapable of investing on their own without the government helping them do it? In the end, "financial independence and peace of mind" are the responsibility of those who desire it, not the government or society as a whole. The Declaration of Independence doesn't assert that people have the right to life, liberty, and unconditional satisfaction. It's the "pursuit of Happiness." Pursuit. It's not the government's job or place to guarantee a good life; it never has been.

Social security isn't fixing a market failure, it's just taking money from the dwindling younger generations to give it to the elders, now specifically the hordes of retiring Baby Boomers. Instead of trying to fix it, or arguing that it doesn't really need fixing, we probably shouldn't have it to begin with. But I understand that it's pretty much politically impossible to get rid of a program like this once you have it--how many ads have I heard this election season accusing some candidate or another of wanting to abolish or privatize social security (Heaven forbid)?

So, in the interest of coming up with feasible alternatives, I offer to you another approach that would reduce all kinds of strain the elderly put on society: Dr. Kevorkian's.

Sources:

"The Social Security Squeeze Can Be Solved" by Chris Farrell. http://www.businessweek.com/investor/content/jul2010/pi20100719_245091.htm

P.S. I'm so not cynical. So totally not at all.

I agree with the fact that the BP oil spill was not a market failure, but indeed a government failure. Oil drilling was not causing any harm to the community around itself until the machinery actually burst open. Because of this spill, liability rights are taken into account and BP pays for its damages to society. If BP is responsible for providing the right amount of compensation to the fishers and fish markets in the gulf, and all who were harmed, a market failure has not occurred. It is only a negative externality when harm is being done and not fully compensated for. The reason I believe that the spill was a government failure is because the government obviously thought the marginal cost of making sure BP was abiding by its regulations was much larger then the benefit of making sure they were. However, the cost for providing compensation to all who were affected by the spill is actually much larger now than the cost of making sure BP was abiding by the law and regulations placed on them. This cannot be a failure by the market but by decisions of the government. Because drilling was not directly affecting the environment such as pollution does, it seems that the right amount of precaution was not taken because the effect of an accident was not as obvious such as that of pollution. According to Inhabitat, “A new report by Member Scholars of the Center for Progressive Reform on the principle cause of the spill concludes that the spill was entirely preventable and points blame at regulatory agencies, BP and the oil industry for not being vigilant about warning signs. The study points its biggest finger at incredibly lax oversight by the now defunct government agency in charge of regulating offshore drilling, the Minerals Management Service (MMS).” In conclusion, the BP oil spill was a government failure, not a market failure.

Sources: “Study Shows that BP Oil Spill Could Have Been Prevented by Regulation” Inhabitat. 30 September 2010. WEB. 25 October 2010.

"My advice to students and readers is: When you hear us economists wax eloquent on the virtue of greater efficiency — beware!"

This pretty much sums up the entire article. What I received from this article is that  when economists argue towards efficiency, they typically end up making recommendations based on the Kaldor-Hicks model of efficiency. However, ethical considerations also tend to be ignored. For example, it is considered efficient overall if Jack loses ten dollars but Jill gains fifteen. What is not considered in this example is that fifteen dollars to Jill might be like one million dollars to Jack. There are different preferences for each individual in this world.
To me, a great example of this type of ethical mistreatment is subsidies for those in poverty. College students like myself are not able to receive any type of assistance because we are attending school, and are ignoring the opportunity for immediate work, and an income. In order for those in poverty to benefit, taxes are taken out of what little income college students make to pay for items such as food stamps, medicaid, and housing. In my opinion, the ethical mistreatment lies in the assumption that assistance to college students is not allowed becausethe gain for those not in college is greater. This is a Kaldor Hicks way of looking at this. Food to me is just as important as it is to the one receiving food benefits. Wealth is a choice, and it seems as though those making the choice to ultimately be wealthy are being punished as opposed to those who do not choose wealth, because of this concept of efficiency. While I am speaking generally, I know that there are different cases for every individual.

Last week in class someone made a suggestion that government should just let charity take care of giving the poor what they need. If the objective is to truly provide the needed amount of aide to the poor then charity alone will never be enough. People in a large group, in this case the wealthy, will tend to assume that other people will do the work. This free-rider problem is prevalent in large groups because the amount of people that are involved in the group. Large groups of people are far harder to organize than smaller ones. Summing up Mancur Olsen's explanation of this topic, people who are intrinsically motivated to give and find a personal benefit in giving away money will give because they in their own minds are acting rationally, but those who do not feel that giving money to charity is a rational decision will not give their money. Even though those who think charity is a good thing will often not give because they figure someone else will take care of the needy. If the goal of public policy is to provide the poor with enough money to not be "poor" then relying on charity will not be enough. Hopefully this provides some insight for those who haven't taken the glorious Power and Prosperity class.

A few weeks ago, the Cranick family of Olbion County, TN watched as their house burned to the ground. According to Timothy Cranick, son of Gene Cranick, his burning of trash in the front yard of their home ultimately led to the fire. After the flames had become uncontrollable, Gene Cranick called 911. Eventually, it was revealed to him that the fire department would not be coming out to assist his plight.

Mr. Cranick had failed to pay a $75 fire protection fee, an added expense due to the location of their house. Since the family home was along the rural outskirts of the county, the South Fulton Fire Department requires the fee in order to finance the activities.

However, when the flames spread to Cranick's next-door neighbor's property, the fire department responded, spraying the line between the homes in order to control the fire so as to avoid the neighbor's property catching afire as well. As for the Cranicks, the firemen on location were ordered to ignore the property since they had not paid their fee.

As it were, both the Cranicks and their neighbors offered to pay the fee on the spot, Gene Cranick later offering that he had simply forgotten to pay the $75 this year. Some may argue that this free riding behavior substantiates the position of the fire department and the decision not to provide assistance. However, Cranick had paid the protection fee before, and he felt that the label of "free-rider" was unwarranted. The fee had simply slipped his mind, and now he acknowledged that he must pay the consequences.

I felt from the moment that I had heard this story that this was a potent example of the ins and outs of Public Finance and all of the gray areas as a result of public policy. If one accepts the notion that the necessary fee had not been paid and therefore the fire department was justified in their actions, what happens if other similar services follow suit? If security protection receives a call about a domestic dispute and a case of breaking and entering, should they as well not respond unless the neighbor gets involved? Or maybe they should just wait until the burglar is finished with the house and family, then arrest them? On the other hand, if the protection fee helps cover expenses beyond those covered by taxes, can any citizen that lives outside the "coverage line" justifiably fail to pay the fees? A potential conclusion from any similar situation may be that no citizens ever pay the fee since they know the fire department will come rescue them regardless.

Although I personally do acknowledge the necessity of paying required fees for any particular service, I find it hard to accept the notion that allowing a home worth tens if not hundreds of thousands of dollars to burn to the ground and sacrificing the lives of their family pets is worth the public example, both economically and politically, made of the Cranicks and their neglect of payment. Would it truly affect the overall community in a severe and adverse fashion if payment were accepted at the scene of the crime as opposed to prior?

Of course, as we have discussed, free rider behavior is to be expected. Public and club goods both reveal some of the issues revolving around market failure and expected government involvement. But if one takes an oath "to protect the lives and property of its citizens, and provide good public relations through fire safety education to all businesses and schools"(SFFD online), how much justification is necessary to support such actions as found in this case, and what are the economic ramifications of either assisting families in need and billing after the fact or holding steadfast to the department's convictions and allowing a home to burn to ash in order to portray the consequences of failing to pay the protection fees? In the end, would it be better to apply subscription fees like the one seen here to all services or should taxes prove sufficient to cover all citizens, no matter the cost?

Links:

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/13/AR2010101307592.html

http://www.csindy.com/colorado/stranger-than-fiction/Content?oid=1877560

http://www.cityofsouthfulton.org/fire.htm

Here is the link for take home midterm 1.