Sunday, June 15, 2014

Long guns homicide trends in the United States

Using FBI and US Census data I found the following: 

-The number of rifle homicides declined 41% between 1998 and 2012. Rifle homicides per 100,000 people in the Unites States declined 48.5% in the same period of time. 

-The number of shotgun homicides declined 52% between 1998 and 2012. Shotgun homicides per 100,000 people in the Unites States declined 58% in the same period of time. 

Most firearm homicides are committed using handguns, not rifles or shotguns. The number of homicides committed with long guns is small, according to FBI data, the number of people killed by rifles and shotguns in 2012 was 625, compare this to:

-518 people murdered with blunt objects
-678 people murdered with hands/feet
-1,589 people murdered with knives

In my opinion, the evidence suggests that long guns, which includes "assault weapons", are not a serious threat to public safety. Also, their use in murder has been declining dramatically in recent years. Thus, the case for banning long guns is as strong and as weak as the case for banning knives, blunt objects, and hands/feet.

FBI Data:

US Census data:

Friday, June 13, 2014

Wages vs. Productivity

Wages and Productivity: 

Often times it has been claimed that wages have not increased with economic growth. Think tanks like the Economic Policy Institute have made this claim by comparing the increase in GDP per hour (economic growth) over time to the increase in median wages adjusted to the Consumer Price Index (CPI). This is wrong for the following reasons:

-Economic theory predicts that workers are paid according to the revenue they bring to their employers. Thus, worker compensation is tied to the price changes in ALL goods and services, not just consumer goods.

-Comparing average productivity to median wages is an apples to oranges comparison. 

-Wages are not the only way workers are compensated for their labor, they are also paid in health care benefits, pensions, etc. Thus, we need to look at worker compensation over time, not just wages. 

- Even if one wanted to see how median compensation changed over time, the correct price index is the Personal Consumption Expenditure (PCE), since the CPI is widely believed to overstate inflation. According to the Federal Reserve, "[We] carefully considered both indexes [CPI and PCE] when evaluating which metric to target and concluded that PCE inflation is the better measure. [1]"

Luckily a 2013 study has examined all these things [2]. Their results can be seen in the graph below. Here is a summary of their findings:

-The Blue and Purple lines show the relationship between average productivity and average worker compensation (respectively) in the United States over time. As you can see, up until 2001, there is a perfect correlation. After 2001, worker compensation has lagged a little but not by much. 

-The bottom orange line shows how median worker compensation adjusted for the PCE has changed over time. As you can see, since between 1980-2010, it has increased approximately 30%, indicating a 1% increase per year.




Wednesday, June 11, 2014

Wealth redistribution and poverty

Thoughts on taxing the rich: 

The typical left wing solution to any problem is higher income taxes on the rich. In fact, I remain unconvinced that modern liberalism is nothing more than envy wrapped in political rhetoric. For example, here are two issues which leftists think can be fixed by even more taxation of the wealthy:

1. Wealth inequality
>Modern liberal solution: Tax the rich even more
>Classical liberal solution: Privatize social security (thus making everyone an owner of capital)

2. Poverty
>Modern liberal solution: Tax the rich even more (wealth redistribution)
>Classical liberal solution: Grow the economy, 75% of the income gains that accrued to the bottom 40% of income earners worldwide are a result of economic growth according to the World Bank. [1]

Indeed, economic growth is the main driver in poverty reduction and the means through which the standard of living of country's citizens increases. Thus, anything that hinders economic growth is very much against the interests of the poor, as well as everyone else. And of course, a recent survey of the economic literature on government spending and taxation has found that in OECD (developed) countries, taxes are significantly negatively correlated with growth even after controlling for numerous of relevant factors that could affect growth. According to the authors:

"Most studies find increase in government size [taxation or spending as a % of GDP] by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate." [2]

For the United States specifically, research conducted by Keynesian economists David and Christina Romer states:

"[W]e find that a tax increase of one percent of GDP lowers GDP by about 3 percent." [3]

It's also worth noting that according to the Fraser Institute, the poor in the most economically free (the most capitalist) countries are better off than the average person in the least economically free countries:

"In the top quartile [of economic freedom], the average income of the poorest 10% was $10,556, compared to $932 in the bottom quartile in 2011US(PPP) dollars (Exhibit 1.9). Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the overall average income in the least free nations." [4]

Thus, there is good reason to expect that higher taxes on the wealthy could hurt economic growth and thus the poor. There is also good reason to expect economic freedom to be good for the poor. However, I'm not convinced that modern liberals actually want to help the poor. If they did, they would be actively doing something to help them, not trying to reach into other people's pockets to do what they think is right. I think their obsession with taxing the rich is more driven by envy than anything else, that or they wrongly believe in the zero sum game view of the world, in which one man can only gain at the expense of others. Regardless, I seriously doubt much good could come from further taxation of the wealthy (or anyone else) or further degradation of economic freedom (which the US has been experiencing for a decade).






Sunday, May 25, 2014

Economic growth and poverty reduction.

Economic growth is what lifts people out of poverty:

A 2013 study of 118 countries over four decades finds that over 75% of the income gains of the poorest 40% of income earners is attributable to economic growth [1]. In an earlier study with similar findings, the same authors have noted:

"[These findings support] the view that a basic policy 
package of private property rights, fiscal discipline, macroeconomic stability, and openness to trade on average increases the income of the poor to the same extent that it increases the income of the other households in society. It is worth emphasizing that our evidence does not suggest a “trickle-down” process or sequencing in which the rich
get richer first and eventually benefits trickle down to the poor. The evidence, to the contrary, is that private property rights, stability, and openness [to trade] contemporaneously create a good environment for poor households -- and everyone else -- to increase their production and income...we emphasize that growth on average does benefit the poor as much as anyone else in society, and so standard growth-enhancing policies should be at the center of any effective poverty reduction strategy." [2]

This is very important. Instead of pursuing wealth redistribution we should be focusing on promoting economic growth.




BCL's guide to becoming an informed liberal.

This is BCL's guide to becoming an informed liberal. The following is a collection of online articles which should be read in order to become knowledgeable in economic matters such as Free trade, the effects of government spending and taxation on growth, how growth helps the poor, etc.

Free trade and globalization: 

Article: In Praise of Cheap Labor by Paul Krugman
About: Paul Krugman explains that 3rd world citizens are among the greatest beneficiaries from free trade and that any attempt to block trade or impose international regulations could backfire and cause 3rd world countries export industries to shrink, leading to lost jobs, lost economic growth, and ultimately a lower standard of living. 

Government spending:

Article: Government Size and Growth by Magnus Henrekson and Andreas Bergh
About: Examines the relationship between government size and economic growth. They generally find that larger government is associated with lower economic growth. 

Climate Change

Climate Change:

I was doing a bit of research on climate change today in order to learn whether or not the costs of mitigating it exceed the costs of doing nothing. Most cost/benefit analyses find that the benefits of mitigating global warming outweigh the costs. However, the validity of these studies is uncertain since they have to make many assumptions. Also, scientists have little faith in them since measurements of the "optimal" level of mitigation are entirely subjective:

"[T]he decision over what "optimal" is depends on subjective value judgements made by the author of the study" (Azar, 1998)

This is quite unfortunate. However, one thing worth noting is that, according to a University of California study:

"A comprehensive assessment of global fossil-fuel subsidies has found that governments are spending $500 billion annually on policies that undermine energy security and worsen the environment." [1]

So, predictably, governments are doing the opposite of what they should be doing, which is not providing any subsidies for fossil-fuels whatsoever. Economic theory suggests that the best way to reduce fossil fuel emissions is to take away their subsidies and instead tax carbon emissions.

Pollution is in fact a negative externality which affects third parties without their consent. It is a market failure. Most economists would suggest dealing with this market failure by use of a Pigovian tax on carbon emissions.

Pigovian taxes are meant to discourage whatever is being taxed, in this case carbon emissions (and thus, pollution). Unfortunately, taxes are almost always harmful to growth, the question in this case is whether or not the benefit of reduced carbon emissions exceeds the cost of reducing them (through a carbon tax).

However, according to wikipedia:

"Global studies indicate that even without introducing taxes, subsidy and trade barrier removal at a sectoral level would improve efficiency and reduce environmental damage (Barker et al., 2001:568). Removal of these subsidies would substantially reduce GHG emissions and stimulate economic growth."

Thus, while we can't be sure that the benefits of a carbon tax would exceed the costs of it, research already suggests that removing subsidies to fossil fuels is a sure way to reduce carbon emissions. While many libertarians may oppose a carbon tax, I doubt any of them would oppose removing fossil fuel subsidies.

What do you all think? Is a carbon tax the way to go? Should we just remove fossil fuel subsidies? Or both?

University of California study:

Tuesday, May 6, 2014

Free trade benefits everyone.

Many people seem to think that allowing free trade will lead to declining wages for American workers. This doesn't make sense to me, since we know that worker's wages are based off their productivity, not trade policy. Regardless, a plethora of empirical research has been done on the matter. 

According to the Organization for Economic Co-operation and Development (OECD):

"Of the 14 main studies undertaken since 2000 reviewed in the publication Policy Priorities for International Trade and Jobs, all 14 have concluded that trade plays an independent and positive role in raising incomes." [1]

According to research, workers in sectors of the economy which are more open to international trade make much more than those in sectors where there isn't much. This makes sense since opening a country to trade allows foreign companies to compete for domestic workers. For example:

"Over the 1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region."

Additionally, the OECD notes that studies either find free trade to not effect unemployment, or to decrease it. Thus, there is not evidence to support the notion that free trade will lead to unemployment.



Saturday, May 3, 2014

Thought provoking studies.

Challenge your modern liberals friends with this information:

Does government spending increase economic growth?

Apparently not. A recent survey of the empirical research on the matter states: 

"[When we examine] studies of the relationship [between government spending and growth] in rich countries, measuring government size as total taxes or total expenditure 
relative to GDP and relying on panel data estimations with variation over time... most recent studies find a significant negative correlation: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth
rate." [1]

Additionally, recent research suggests that the growth maximizing size of government in rich countries is no greater than 25% of GDP [2], much smaller than the 40% of GDP currently consumed by government spending in the US.

Is it true that regulations don't harm the economy?

According to a 2013 study published in the Journal of Economic Growth: "[Federal] Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added
over the past fifty years have reduced real output growth by about two percentage points on average over the period
1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as
of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if
regulation had remained at its 1949 level." [3]

This means that the average American household is $277,000 poorer than it otherwise would have been.

Does the minimum wage really have no impact on unemployment?

A summary of the last two decades of research from economists at the University of California-Irvine and the Federal Reserve Board found that 85 percent of the most credible studies on the minimum wage point to job loss for less-skilled employees. [4]

Does Capitalism (economic freedom) really make people worse off?

Economic freedom (measured using the Heritage Foundation’s Economic Freedom Index) is highly correlated with higher environmental protection, improved sanitation, cleaner water, longer life expectancy, lower infant mortality rates, more income equality, etc. [5]

Additionally, economic freedom is significantly positively correlated with economic growth and national income per capita [6]. There is significant evidence that economic freedom is the cause of this prosperity [7]. It’s also worth noting that this income isn’t just going to the very rich, rather, it is going to the poor as well. The poorest 10% of income earners in the most economically free countries have an average income which is eleven times greater than the average incomes of the poorest 10% in the least economically free countries (when adjusting for purchasing power disparities across countries) [8].

Please share this info with your modern liberal friends and see if it provokes some thought.