When we buy for ourselves, every dollar we spend produces at least a dollar in satisfaction, because we shop carefully and purchase items that are worth more than they cost. Gift giving is different. We make less-informed choices, max out on credit to buy gifts worth less than the money spent, and leave recipients less than satisfied, creating what Waldfogel calls “deadweight loss.”
I’ll admit that I haven’t read the book, so there may be more to Waldfogel’s argument in the book, but I have a few issues with the main thesis.
First, the actual economic transaction between the retailer and the gift-giver creates value. When we go to the store to purchase a gift, say for $20, we value giving that gift more than the $20 we use to purchase it. So, without taking into account how much the receiver values the gift, the transaction creates positive economic value.
More generally though, by focusing on gifts as a method of allocating resources, Waldfogel misses the point of giving gifts at Christmas. The Christmas gifts we give each other symbolize the gift humanity received from God. As Dan Ariely points out in Predictably Irrational, the symbolic exchange of gifts is a perfectly rational exchange, governed not by a market mechanism, but by social expectations. Indeed, under the assumption that individuals maximize value, no one would ever give away anything of value for free. Economists like to think of people as rational utility-maximizers, mostly to simplify mathematical models. That assumption doesn’t always hold.
However, Waldfogel does correctly discern that individuals can choose best what goods benefit them the most. His logic applies to government welfare programs that collect taxes in order to spend money on goods that people may or may not want.
The U.S. economy lost 11,000 jobs in November, according to a report from the Bureau of Labor Statistics. The construction, manufacturing, and information industries lost about 85,000 jobs. Gains in the temporary service industry offset most of those losses. In other words, skilled, high-wage jobs continue to disappear, while unskilled, low-wage jobs grow.
The number of long-term unemployed people, those who have been out of work for at least 27 weeks, rose by 290,000. Of the unemployed, 38.3% have been out of work for longer than 27 weeks. The number of people working part-time for economic reasons essentially stayed the same, while the number of workers marginally attached to the labor force, those who have looked for a job in the past 12 months but not in the four weeks prior to the BLS survey, was 376,000 higher than this time last year.
The average workweek rose from 33 hours to 33.2 hours. A rise in the hourly work week precedes an increase in new hires, as employers assign more work to current employers before hiring new ones.
The BLS report is consistent with a economy where employers have put their hiring on hold. Temporary and part-time employment is up, but uncertainty about future legislation, including health care reform, cap and trade, and tax increases, prevents employers from making any long-term commitments. The coming recovery won’t last if the U.S. economy doesn’t employ its comparative advantage in the information industry.
James Bopp, Jr., the vice chairman of the Republican National Committee, has circulated a draft proposal of a ten point platform for the RNC to adopt in its January meeting. The resolution would require that candidates to support at least eight of the ten points before receiving RNC funding, which has prompted some mediaoutlets to label it a “purity test.”
I don’t see the big deal about the resolution. All parties adopt a platform. They exist to advance an agenda, and they have to define an agenda and agree to it before they can advance it. Besides, it’s mostly Democrat strategists telling the Republicans that they need to have a “big tent” and that they must moderate (i.e. adopt Democrat talking points) or get permanently relegated to minority status. If that were really the case, why wouldn’t the Democrats welcome a GOP purity test?
Anyway, the 10 points are:
1. We support smaller government, smaller national debt, lower deficits and lower taxes by opposing bills like Obama’s “stimulus” bill;
2. We support market-based health care reform and oppose Obama-style government run healthcare;
3. We support market-based energy reforms by opposing cap and trade legislation;
4. We support workers’ right to secret ballot by opposing card check;
5. We support legal immigration and assimilation into American society by opposing amnesty for illegal immigrants;
6. We support victory in Iraq and Afghanistan by supporting military-recommended troop surges;
7. We support containment of Iran and North Korea, particularly effective action to eliminate their nuclear weapons threat;
8. We support retention of the Defense of Marriage Act;
9. We support protecting the lives of vulnerable persons by opposing health care rationing, denial of health care and government funding of abortion; and
10. We support the right to keep and bear arms by opposing government restrictions on gun ownership.
I wonder how many Republicans already disagree with three or more of these positions? They are defined broadly and simply stated. For instance, what does “victory” in Iraq and Afghanistan mean? Does it mean building functioning democratic states, or does it mean preventing al Qaeda from using the countries as operating bases? As AllahPundit notes at Hot Air, only points five and eight are seriously contested within the party.
Moreover, the list is not inspiring in any way. As much as it positively defines what the party should stand for, the list seems composed as a response to the current Democrat agenda. Republicans will not return to power unless they can get Obama out of their minds. The party needs candidates in 2010 and 2012 that can clearly articulate conservative thought. Simply stating positions won’t get the job done; they need someone who can put together an argument, educate the public, and explain why the party has its platform.
Nonetheless, here’s what I’d propose as the party platform that articulates those first principles that should motivate the next elections:
1. We respect human individual freedom and the ability of the individual to dispose of his reason with respect for the law. 2. We support abliity of individuals to acquire personal property through labor and the ability of individuals to freely exchange their property in markets. 3. Given that monopolies discourage opportunity and choice, we support limited regulation that keeps markets free, open, and competitive. 4. All Americans are equal before the law. However, individual Americans have a diverse array of talents, which are not all distributed equally. Our republic should allow individuals to use their talents to the best of their abilities. 5. No two American cities or states are alike. Where possible, local solutions at the city, county, and state level will provide better outcomes than a uniform solution imposed from the federal government. 6. We support public discourse that welcomes religious dialogue, but recognizes that Americans have many beliefs. 7. We support a national defense that protects the life and limb of every American and protects our international commercial interests. 8. We support government policies that recognize human nature as it is. We oppose government attempts to change human nature through social engeneering. People are not pawns in a social science experiment; they are not objects under the control of some social planner. 9. We support incremental reform of our political system — reform that preserves what is good and seeks to improve what can be improved. We oppose any attempt to completely remake our society in an untested and unseen manner. Reforms should fall in line with our Constitution and the intents of our Founders.
NPR reports that the island nation of Kiribati recently implemented a fishing subsidy that created unintended consequences. Kiribati has two major industries: fishing and coconut harvesting. Concerned about overfishing, the local government decided to subsidize coconut harvesting. They argued that by raising the incomes of coconut farmers, that some fisherman would give up fishing to start farming. In economic terms, the government increased the opportunity cost of fishing — the money a fisherman could have made by farming.
Unfortunately for the government, a subsidy affects the quantity of coconut harvesting in two ways. The government meant for the substitution effect, the increase in the cost of fishing, to discourage the island’s residents from fishing. Instead, the substitution effect was dominated by the income effect; coconut farmers could obtain the same level of utility with less work, allowing more time for leisure. And in their leisure time, the farmers went fishing. Rather than decreasing, the level of fishing increased 33%.
Whether the substitution effect or the income effect dominates depends on the preferences of the island’s residents. Since the farmers prefer leisure to work, they will consume more leisure with a subsidy. If they had preferred the extra income from work over additional leisure time, then the substitution effect would have dominated.
Congress should consider both effects when deciding whether or not to continue subsidizing unemployment, now two years after the start of the recession. If Congress wants people to get back to work, it might be better to stop writing checks for unemployment benefits.
In the end, I don’t want four Democratic senators dictating to the other 56 of us and to the country, when the public option has this much support, that it’s not going to be in it.
Sorry, Sen. Brown, but the people of Louisiana, Arkansas, Nebraska, and Connecticut get representation in the Senate, whether you like it or not. I’m not surprised that those four senators aren’t anxious to jump on the public option bandwagon, given that opposition to the bill outnumbers support nationwide, and has for quite some time.
I have a feeling that Sens. Landrieu, Lincoln, Nelson, and Lieberman went along to get along with the Democrat leadership on the motion to proceed, but aren’t willing to risk their careers voting for something that the American people clearly don’t want.
Update:
Support for the Democrat health plan is at an all time low. Just 38% of likely voters support it.
Adam Kirsch, in an a recent review of Anne Heller’s Ayn Rand and the World She Made, calls out Rand for failing to live up to the capitalist ideas she advocated in Atlas Shrugged. Rand wrote a lengthy speech at the end of the novel, in which the main character, John Galt, lists the virtues of capitalism. Bennett Cerf, the publisher at Random House, asked Rand to cut the speech, which she refused to do. According to Kirsh,
Cerf offered Rand an alternative: if she gave up 7 cents per copy in royalties, she could have the extra paper needed to print Galt’s oration. That she agreed is a sign of the great contradiction that haunts her writing and especially her life. Politically, Rand was committed to the idea that capitalism is the best form of social organization invented or conceivable. … Giving up her royalties to preserve her vision is something that no genuine capitalist, and few popular novelists, would have done. It is the act of an intellectual, of someone who believes that ideas matter more than lucre.
In fact, I see this transaction as the ultimate expression of capitalism at work. Capitalism isn’t about maximizing profits; it’s about maximizing utility or, more colloquially, happiness. Rand decided that she wanted to express her ideas completely more than she wanted seven cents per copy in royalties. She bought the ability to express her ideas with her foregone royalties, thus making her better off than she would have been otherwise.
Today marks the 45th anniversary of the broadcast of “Rendezvous with Destiny,” a recording of Ronald Reagan’s speech at the 1964 Republican National Convention. I’ve heard the speech many times, and every time I listen to it, it continues to amaze me. Watch the whole broadcast, embedded below:
Yet even as budget director Peter Orszag was speaking, House Democrats were moving on a dozen spending bills for fiscal 2010 that total 12.1% in more domestic discretionary increases.
Yes, 12.1%.
Remember, inflation is running close to zero, or 0.8%. The good news, if we can call it that, is that Senate Democrats only want to increase nondefense appropriations by 8% for 2010. Because these funding increases become part of the permanent baseline for future appropriations, the 2010 House budget bills would permanently raise annual outlays for discretionary programs by about $75 billion a year from now until, well, forever.
Remember, this money has to come from somewhere. Government only gets money either directly by raising taxes or indirectly by printing new money, which devalues the wealth of citizens. Borrowing money from elsewhere only delays the date of taxation or inflation, unless the government can trick its creditors into accepting devalued currency as repayment of its debts. At some point we (or later generations) will have to pay for this spending.
The trouble is that the “market” for banking is so distorted—by switching costs, by government subsidies and guarantees, and by the banks’ market power—that it’s hard to know whether big banks are adding value or are simply exploiting their oligopolistic positions. We do know that too much concentration in finance increases risk, since a handful of dominant players are more likely to make the same kinds of mistakes, and jeopardize the entire system. Unless consumers rise up en masse to move their money to credit unions, the market isn’t going to deal with the problem. And that means Washington has to.
So I managed to let the one year anniversary of my first post pass by without any fanfare. It’s hard to believe that it’s been one year since I started writing. I’ve learned a lot about writing and I hope that those of you who have read my posts learned something from them as well.
For the second year, I want to make a few changes to the format of the site. My original approach to writing seemed a little too formal and stale. From now on, I’m going to let a little more of my personality show in the site. I have opinions on a lot of subjects besides economics, and over the past year I’ve found myself wanting to write about them just as frequently. Expect to see more posts on politics, philosophy, statistics, and mathematics.
I also read a ton of new stories online. I’m no Matt Drudge, but I’d like to think that I come across articles that others would find useful pretty frequently. I’ll add more posts simply linking to other articles when I don’t have the time to write up a full post.
Speaking of time, I haven’t had as much of it for this site as I would have liked in the last few months. With a full load of graduate school courses plus an internship and a teaching assistantship, I just simply haven’t had the time to update as frequently as I would have liked. I’m going to make time for this site, so please check back more frequently.
Finally, I’d like to thank you for reading what I have to say. It means a lot to me that you’ve passed up time you could have spent reading other material elsewhere. If you do find my writing informative, please feel free to share it with your friends.
My name is Parker Sheppard; I am a graduate student at Georgetown University and an aspiring economist. Since the recession started, I noticed that the new articles about the economy didn't contain much economic reasoning and that articles by economists often weren't accessible without a background in economics. I started this blog to cover the middle ground: to write about economics for non-economists. I also include thoughts on politics and philosophy, since those disciplines are closely linked with economics. I hope that ABMB gives you just a little help in following the news.
A Better GOP Platform
December 3rd, 2009
James Bopp, Jr., the vice chairman of the Republican National Committee, has circulated a draft proposal of a ten point platform for the RNC to adopt in its January meeting. The resolution would require that candidates to support at least eight of the ten points before receiving RNC funding, which has prompted some media outlets to label it a “purity test.”
I don’t see the big deal about the resolution. All parties adopt a platform. They exist to advance an agenda, and they have to define an agenda and agree to it before they can advance it. Besides, it’s mostly Democrat strategists telling the Republicans that they need to have a “big tent” and that they must moderate (i.e. adopt Democrat talking points) or get permanently relegated to minority status. If that were really the case, why wouldn’t the Democrats welcome a GOP purity test?
Anyway, the 10 points are:
I wonder how many Republicans already disagree with three or more of these positions? They are defined broadly and simply stated. For instance, what does “victory” in Iraq and Afghanistan mean? Does it mean building functioning democratic states, or does it mean preventing al Qaeda from using the countries as operating bases? As AllahPundit notes at Hot Air, only points five and eight are seriously contested within the party.
Moreover, the list is not inspiring in any way. As much as it positively defines what the party should stand for, the list seems composed as a response to the current Democrat agenda. Republicans will not return to power unless they can get Obama out of their minds. The party needs candidates in 2010 and 2012 that can clearly articulate conservative thought. Simply stating positions won’t get the job done; they need someone who can put together an argument, educate the public, and explain why the party has its platform.
Nonetheless, here’s what I’d propose as the party platform that articulates those first principles that should motivate the next elections:
1. We respect human individual freedom and the ability of the individual to dispose of his reason with respect for the law.
2. We support abliity of individuals to acquire personal property through labor and the ability of individuals to freely exchange their property in markets.
3. Given that monopolies discourage opportunity and choice, we support limited regulation that keeps markets free, open, and competitive.
4. All Americans are equal before the law. However, individual Americans have a diverse array of talents, which are not all distributed equally. Our republic should allow individuals to use their talents to the best of their abilities.
5. No two American cities or states are alike. Where possible, local solutions at the city, county, and state level will provide better outcomes than a uniform solution imposed from the federal government.
6. We support public discourse that welcomes religious dialogue, but recognizes that Americans have many beliefs.
7. We support a national defense that protects the life and limb of every American and protects our international commercial interests.
8. We support government policies that recognize human nature as it is. We oppose government attempts to change human nature through social engeneering. People are not pawns in a social science experiment; they are not objects under the control of some social planner.
9. We support incremental reform of our political system — reform that preserves what is good and seeks to improve what can be improved. We oppose any attempt to completely remake our society in an untested and unseen manner. Reforms should fall in line with our Constitution and the intents of our Founders.
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