Gasoline: Taxes v. Profits

From TaxProf Blog:

"Since 1977, governments collected more than $1.34 trillion, after adjusting for inflation, in gasoline tax revenues—more than twice the amount of domestic profits earned by major U.S. oil companies during the same period:"

Now, that's interesting.

Privatizing K-12 Education

We are all very aware of the condition of funding for education in the state of Colorado. We have been bombarded lately with ads for and against referenda's C and D, in hopes of helping the financial situation in Colorado. However, if there is such a problem with T.A.B.O.R (which limits the amount of money the state can keep each year) and Amendment 23 (requiring increases in K-12 funding every year), why don't we look at other ways to solve the problem?

I propose privatizing K-12 education to not only free up Colorado's financial obligation to K-12, but doing so would also increase efficiency. The article that is attached to this posting is a study that was done in Hawaii, after that state faced similar budget problems. The study compared private and public K-12 institutions, as well as private and public higher education institutions (however, for the purposes of this posting, I will focus solely on the finding of K-12).

The study found that private schools do a better job at hiring more teachers, which results in smaller class sizes (lower per pupil to teacher ratio), than public institutions. This results in more focused attention on individual students. Private institutions have higher test scores and higher teacher morale. The study shows that income growth in Hawaii is about five times as much with private institutions as it is with public institutions. This just means that the study shows a correlation between increases in participation in private K-12 and increases in gross product per capita. The study does show indicate some benefit from public K-12 in the long run, mainly because more students attend public K-12 rather than private and because some students who would go to private schools in Hawaii, end up going out of state to other private K-12 schools, because their parents can afford it. The survey indicates that the state legislatures should keep this data in mind when deciding what course to take, because private K-12 education helps promote efficiency and competition.

If we transfer some of these ideas to the current status of Colorado's educational system we could alleviate, or at least minimize, many of the budget problems. In 2002-2003, Colorado spent $7,384 per K-12 pupil, while the national average for cost of attending a private K-12 school is around $5,000. Colorado is spending over $2,000 per pupil more than it costs to attend a private school that generally has smaller class sizes, do better on tests, and recruit more teachers that are happier to be there (as seen in the study from Hawaii). If Colorado privatized their K-12 schools, this would create a massive market of K-12 competition, which would drive the cost of education lower-or at the very least stabilize it. It would also force the schools to manage their finances more than they currently do under the state system, because they would no longer have guaranteed state funding.

Of course there are potential flaws privatizing K-12, most importantly is the idea that some families wouldn't be able to afford to educate their children if they are forced to pay for it. This is definitely a concern that should be considered, but discounting the option of privatized based on this unproven idea is irresponsible. Privatized should be considered as a viable option to help resolve the state budget problems, create efficiency within K-12, improve the education that the students receive, and possibly increase state revenue, as shown in the Hawaii study.

Miers Withdrawl

I was very interested to see this morning that Miers had withdrawn as a nominee for the Supreme Court. I must admit that I was concerned about her nomination, since it seemed to me that her nomination was an extremely political move on the part of the president, and as such, it did not seem appropriate considering the role of the Supreme Court.
From reading her letter, it seems that Miers was concerned about the integrity of the executive branch. I find this admirable, and I appreciate her idea that it is the role of the Supreme Court not to make law, but rather to interpret the law.
Bush's reaction was interesting. He seemed to blame her withdrawal on what he seemed to consider unreasonable requests for documents that would help to inform people of her background. Though I understand that it is important to retain the integrity of the executive branch and the trust among the President and his advisors, I wonder at why it would be such a problem for Miers to speak with regard to her previous actions and as to what she would do with regard to interpretation of the law.
This situation serves as a good example to show why it would be helpful to require Supreme Court nominees to answer questions with regard to interpretation of the constitution. We never did learn what Miers' definition of commerce was as it applied to the commerce clause in the constitution. We also never heard what Miers' opinion was on whether or not the power to tax was limited. If she had been made a member of the Supreme Court, we would have had very little evidence to tell us how she would have interpreted a very important aspect of our government. I think, after reading her letter of withdrawal, we have a much clearer idea of what she would do if she was on the supreme court, but that is only in the face of her withdrawal.
It seems to me that if we nominate people to the Supreme Court without knowing how they would interpret it, we are being irresponsible in using a tool that we have for limiting government's coercive power and preserving our rights. Perhaps we would do well to encourage our President to be cautious in whom he nominates to the Supreme Court. I think that it is important to know how Supreme Court nominees would interpret the Constitution based on this particular event. Miers’ withdrawal should be applauded, in light of her not having any examples of her interpretation of the Constitution. She made an admirable decision, based on the power of the Supreme Court within our government, and based on the ability of the American people to trust her judgment.

Katrina & K-12 Vouchers

"Hey, this sounds like a voucher, we can't be doing things that way. It might work and things could then get out of hand. Vouchers in Colorado for higher education. Now vouchers proposed for helping children after Katrina. People may be starting to see there is wisdom in education vouchers, eh?"

Read the rest.

The Problem With ATM's

Banks provide convenient ATMs to their customers who open an account and regularly pay for the bank’s services. To offer these convenient ATMs, a bank must purchase the machines and the infrastructure necessary to integrate all of them. From the bank’s standpoint, both the ATMs and the overall infrastructure represent large indivisible fixed costs. On the other hand, each time a customer uses one of the bank’s ATMs, the bank incurs only a nominal variable cost for each transaction. Likewise, the cost of serving bank customers through a network of ATMs is less expensive then building more branches of the bank. As the bank serves more paying customers with its existing ATMs, the bank’s average cost declines because the fixed cost of the ATMs and infrastructure are spread across more customer transactions.
However, the prime locations where a bank can install an ATM are limited. By establishing a greater presence of ATMs in these prime locations, the bank can secure a slight competitive advantage over its competitors by improving the benefits (lowering transaction costs) to its customers. The strength of a bank’s competitive advantage is reflected by the premium the bank can extract from non-bank customers who use the bank’s ATM machines. Therefore, when two banks consolidate, they are likely to achieve greater economies of scale and a competitive advantage by attracting more customers through a larger network of ATMs. If two banks agreed to allow reciprocal use of their machines (that is, bank A and bank B allow each other’s customers to use their machines at no charge) the outcome would not be the same as is achieved through a merger. If the two banks were separate, each bank’s investment in a new ATM location would provide a benefit not just to the bank making the investment, but also to the bank which has reciprocal rights to the machine. As a result, two separate banks would invest in fewer ATM locations than would the consolidated bank—therefore, the consolidated bank would attract more customers.

Minimum Wage: Women & Eugenics

In my Constitution and the Economy class we recently studied the first Supreme Court opinion regarding the imposition of a minimum wage for women. The Court's opinion was that the law was unconstitutional (later to be overturned). Students were quite interested to read in the opinion that the legislature's concern was to protect the "health and morals" of women, as well to learn that the legislature sought to use the minimum wage to protect the future of the "race." But the context for the legislation was not very clear from the opinion.

Alex Taborrok notes a paper by Tim Leonard that probably provides the context:

"It's no surprise that progressives at the turn of the twentieth century supported minimum wages and restrictions on working hours and conditions. Isn't this what it means to be a progressive? Indeed, but what is more surprising is why the progressives advocated these laws. A first clue is that many advocated labor legislation 'for women and for women only.'

Progressives, including Richard Ely, Louis Brandeis, Felix Frankfurter, the Webbs in England etc., were interested not in protecting women but in protecting men and the race. Their goal was to get women back into the home, where they belonged, instead of abandoning their eugenic duties and competing with men for work.

Unlike today's progressives, the originals understood that minimum wages for women would put women out of work - that was the point and the more unemployment of women the better! "

Isn't it interesting that the constitutional jurisprudence that was created to support the constitutionality of the minimum wage we have today was erected on the foundation of an effort intended to keep women in the home and out of the labor force?

Would anyone like to return to the constitutional foundations and decide that the first Court opinion was indeed correct and it is unconstitutional to impose minimum wages?

C & D Referendum Debate

The October UCCS debate over Referenda C & D on this November's ballot was an interesting, but uninformative event. The debate between John Hazelhurst and Doug Bruce turned more into an infantile slam than the information sharing meeting I'd personally hoped it would be. I learned very little about just how Refs. C & D will actually help Colorado, but this was probably due to the fact that the lack of a C & D author in the debate made it less 'official' in nature. I did learn however that C & D is not a 'Tax Increase', as Mr. Bruce has tried to sell it as, but is rather a five-year hold on his precious TABOR in order to bring a little (and as Mr. Bruce puts it - very little) extra revenue into improving the general infrastructure of the state of Colorado. The lack of my puny twenty dollar refund each year over the next five years won't bother me in the least - IF it means we might have a few better roads, a few better schools and a little money for medicaid should we need it. I understand that those who have refunds in the hundreds may just want to put it back into their own pockets, and that is fine with me, but I just don't want to hear those people talk about how bad the roads are, the schools are, etc.

I think that Colorado has experienced growth at an unprecedented rate the last fifteen years and the increased tax revenues weren't enough to keep the infrastructure expanding equal to the growth rate. In our Public Finance class, we're learning just how important it is to provide society with the basics, and although we haven't gotten into the taxation side of government sector economics, we are at least privvy to the needs of the individual, and it seems that many of those who are in need in Colorado, probably aren't receiving the benefits necessary to tide them over in rough times, and the current system obviously isn't bringing in enough revenue to allow the legislature of Colorado to do what they need to do to keep Coloradans satisfied. Mr Bruce states that these Refs. are just a ruse to get more money so they can expand the general budget since C & D don't specify EXACTLY where the extra revenue will go, and Mr. Hazelhurst, in his lack of any real political experience, says that it doesn't matter where it goes, it will help Coloradans in the long run either way. Mr. Bruce says keeping our refunds is unconstitutional since TABOR forbids the legislature from spending the revenue from excess taxation, and C & D will cost the average family of four over four thousand dollars over the next year. He brought some shaky math to the debate, mainly because the majority of Coloradans aren't part of a 'family of four' (I've been here six years, have a twelve year-old son and personally don't know any four person families!), and the math looked at statistics that bent and molded to whatever he wanted to show. I didn't like the fact that his chart showing how the general budget of Colorado had grown in dollar amounts, but weren't adjusted for growth (per capita spending) or true inflation rates. But I think it is the idea that his TABOR is the main point of attack by C & D that causes Mr. Bruce the greatest source of frustration, but, as a Political Science major here at UCCS, I think Mr. Bruce needs to remember one very important American Constitutional fact - any part of ANY constitution is open for both amendment AND repeal - this includes his amendment.

Here is a link to NBCs 5/30 report on the debate. http://www.koaa.com/news/view.asp?ID=4132

Fire Department Wants to Charge for House Calls

An issue that has recently come up for Black Forest is the chance for the local Fire Department to charge for house calls. Currently non-emergency calls make up 5% of the responses that the Fire Department has to make. The Fire Department has been treating these calls for free, most of them consist of diabetes and asthma attacks. It is said that the average cost to respond to these calls is $150 for supplies. The department is suggesting putting a $100 fee to those that need their services. I don’t think that this is a bad idea although I wonder aren’t tax dollars used to purchase those supplies or is it only partial payment? If the Fire Department is experiencing this loss in supplies due to these calls I think that it is the best solution for the problem. Although 5% is not a large percent of the population these calls take away from the resources that could be used on people who are victims in household fires.

The charge of $100 for medical help in your home when otherwise you would have to seek medical help along with the $91 glucagons cost for those with diabetes seems to be well worth it not to mention the added cost to see a doctor! The opportunity cost of having medical service brought to you at a slightly higher cost than the medication seems like not too many people would want to give up that opportunity cost. It seems that the number of people treated by the Fire Department is fairly low and I would take into account the people that have health insurance and other resources to go to first. Black Forest has a wide variation of incomes and it seems with those variances would come different choices for health insurance. If one can avoid paying higher health insurance fees to get free medical treatment from the Fire Department this adds to the costs of the whole when they can be decreased with this new idea.

Talks about Eminent Domain

Efforts are being made to protect private property rights and to prevent government from taking land for economical reasons. The local Tribune had an article called “Eminent domain will be on defensive” displaying the concerns that people have for the ownership of their land. After the Supreme Court left the taking of land up to individual state government, there is a big movement to get protection of property on the 2006 ballot. This group that is coming together to help protect the individual rights of property owners in Colorado first came together after talks of taking land to make toll roads and strip malls. While these things would be nice for a community they are certainly more for public purpose and not public use. Colorado Rep. Al White was quoted as saying
“Eminent domain is completely out of control.”. As Olson’s theory says one key to having a successful economy is to have well defined property rights. If the government is able to take our land for the public purpose we have no solid ownership of our land and this will decrease the demand for ownership. Who wants to buy land just to have it taken away to build a strip mall? Not me. The Supreme Court needs to reread the Constitution and say that public use is NOT public purpose; otherwise we are going against Olson’s theory and headed for a world of hurt.
We can is in Iraq the new economic opportunities they have and the hindrance that they had when the land was taken from them by the government in the past. This has been seen and proven that defining our property rights is key to growth in the economy.

Steroids in Baseball

With the baseball season winding down, not all of the focus has been on the winning teams, but rather that steroid use has been tainting the game, some of its star players, and of course the controversial records it might have helped break. Many congressmen, like Senator John McCain of Arizona, have been very outspoken against the perilous use of steroids. Many fear that past and continued steroid use in the major leagues could have very serious repercussions in many facets of life such as the dangerous impact it has made with Americas youth and the records it might have helped athletes break. In a hearing brought about by the House Government Reform Committee, Committee members concluded that the sports drug testing policy wasn’t strict enough in deterring the use of steroids. Congressional action was threatened to reform the sports testing policy more in line with the Olympic policy, where first time offenders are handed a two year suspension compared to 10 days.

In speaking of the justification for Congress’s actions to change Baseballs steroid policy, we have to look at how steroids affect the market. In so far as that many congressmen are angry that steroids may have helped break records, that doesn’t give them an allowable reason to legislate. The only way their intervention would be necessary is if there is a market failure because of the use of steroids. Congressman Henry Waxman argued that “There is an absolute correlation between the culture of steroids in the major league clubhouse and the culture of steroids in high school gyms.” Congressman Waxman is making the argument that there is a negative externality involved with the use of steroids in the major league level. The extent that teenage steroid use is dependent on major league use is very debatable.

Even if the major leagues adopted a more stringent policy, it would be unforeseen if it would help prevent steroid use among teenagers. The potential salary an athlete could earn playing in the major leagues is just as good or better of a reason to use steroids as seeing a professional ballplayer using them. The opportunity cost of not taking steroids could be too high for players at the cusp of being a major league caliber athlete. Anyway they could improve their chances of making it into the majors they might take, regardless of if major league players discontinue their use of steroids. Steroids may hurt the legitimacy of the records it breaks but I don’t see it as a negative externality. It’s too implausible of an argument that if teenagers are using steroids, it’s because they are emulating their major league heroes. I don’t think steroid use in the major leagues is as much of a market failure as many of our members of congress do. Although their concerns are justified, the use of legislation to enact harsher policies isn’t from an economical stance.

Vaccine Shortages

Looks like government's heavy hand is at work again.

Miers Nomination

I've posted on my conclusion that I cannot support the nomination of Harriet Miers over at Economics & Liberty.

Do you agree with Robert Bork?

"Any philosophy that does not confine judges to the original understanding inevitably makes the Constitution the plaything of willful judges."

Net GDP or Tax Inefficiency

Is there a better way for the national government to raise revenue? Do we really want to loose 2% to 5% of the economy's output every year merely because of the way government chooses to raise revenue? The President has created a Commission to make proposals to reform the tax system, and I wonder, what are the odds the Commission's proposals will find a way to reduce this large tax burden of lost output?

Read the rest here.

Quote

A good quote that was in the paper by R.J. O'Rourke was "You can't get rid of poverty by giving people money." This really goes with what we are talking about in 321.

Finally a Real Explanation!

Finally an article that explains the reason for high gas prices! The Gazette printed an article by an economist from the University of North Texas who gives a clear explanation of supply and demand. Constantly hearing from the media and even Donald Trump that the gas prices are determined by the government or even a single person is absurd. Poor Mr. Trump, he may be rich but his schooling is not complete in the Econ department. Hearing people give their explanation of prices is crazy when one simple graph explains it all!

In the article "Let's not be too hasty with charges of price gouging", Bernard explains the increase of prices due to the decrease in supply (from the hurricanes) has given us the results of higher prices. The weeks after the hurricanes and thus increase in prices, the economic theory had been proven, demand fell by 5 percent. Even though this decrease in demand is not enough to bring prices completely down it is showing an effect in the market for gas. One illustration that I thought was relevant was just showing the increase in prices for lobster in the New England coast when there was a storm that destroyed the fishing tools and decrease the supply of lobster and thus created an increase in price.

Our resources are being used up daily and we do not have an infinite amount of gasoline to use, so I can't wait to see how people react to the natural increase in prices over time as the supply decreases. It seems that gasoline is something that virtually everyone uses and so when supply decreases by natural events people tend to jump to calling it a political issue. Now if people would just take one Economics course they may better understand the fluctuation of prices. Then they could stop pointing the finger at everyone else and start pointing at themselves; after all actions speak louder than words.

Oppression question

I think the term oppression can be used in different ways, however I think the most common way the term is used is in a political context. Oppression, as a political term, has to do with the unfair restrictions placed on members of society. Oppression is found throughout the histroy of the United States, from the African Americans to American women.I feel that it is important to look at oppression in another form, an economic form. As pointed out in another comment the definition of oppression is an "unjust or cruel exercise of authority or power." If you look back on previous court cases, oppression is something that has been going on for some time. From the limit on how much women could work in a week, to a limit on the amount of trade and the type of trade allowed to leave a state. These are forms of oppression in an economic standpoint. Oppression is not only found on the local and national levels but also on the international level. Countries often oppress another country by enforcing trade mandates, and some countries oppress themselves with their cultures. The countries that oppress members of their society based on culture or religion are also affecting their economy. For example the Middle East is known for their oppression of women. However I feel that if this oppression changed the economy in these areas would greatly increase because they would have more man power to create more output, which then creates more money. Oppression can be defined and found in many different ways. However I feel it would be best for the economy if oppression did not exist as much as it does. Other countries could learn from the United States, we have changed many laws that freed many who were oppressed and we have grown to be the most stable and powerful country in the international economy.

why urge higher fuel standards?

I think it's a bad idea for the government to regulate the feul economy of cars for two reasons. Firstly, this is a market activity. People in the economy are going to react to a rise in gas prices by considering their opportunity costs and either limiting their gasoline consumption, or pursuing other substitute goods. The market will handle the changed price of oil on it's own. Secondly, the constitution gaurantees economic liberties in the fourteenth amendment. The language is as follows;"Nor shall any state deprive any person of life, liberty, or property without due process of law."Liberty, as referred to in the fourteenth amendment relates to economic liberty as well. People have the right to buy and sell the things that they wish to, at the prices the owners set on their own. If there were no regulation from the government in the first place, there would be no constitutionally granted ability to regulate prices set by a free market. People are not gauranteed certain prices by the constitution. They are gauranteed the liberty to react to prices as they see fit.Another problem with instituting CAFE standarts is that The government would be hindering the natural correction our market diagrams would predict, and instead, the gov't would regulate the production of vehicles, not the price of gasoline. The market will equilibrate on it's own. This proposition simply begs the question, "Is it legal for government to react to high, market set prices by regulating industry?" Constitutionally, and economically, the answer is no. Market failure would result from government interaction. Price gouging does not have an economic meaning because people are going to react to ridiculously high prices by not paying them. They will consider other options, and the market will find the correct market price eventually.

Oppression

Merriam-Webster defines oppression as an, "unjust or cruel exercise of authority or power." This is pretty interesting because we can look at it from and economic point of view as well as a humanistic point of view.
I think It's more relevant to look at oppression from the definition of it being unjust for an economic discussion of it.
The Constitution of the United States sets out to define what is just and unjust. It's our framework for interpreting laws, and influencing policy...ideally.There are many instances in past supreme court cases where a person could argue that an unjust excercise of authority happened, and where the supreme court upheld that excercise. Economic liberty is provided for in the 14th amendment. In Muller v. State of Oregon in 1908, the supreme court regulated the hours a woman could work in laundrys. In other cases, the court upheld statutes that hurt competition, as in the case of McCray v. U.S. in 1904. There are also instances where public policy has created an unjust use of power. Some examples are education subsidies, CAFE standards, and even some of the taxes we have now.
If economic liberty is provided for in the constitution, then any act which infringes upon that right could theoretically be called oppression. It's a strong word, but Webster's definition is precisely related to economics, and the policies that we can analyze with efficiency analysis. Any oppressive policy would not be efficient. As we've already discussed in class, markets are better left on thier own, than interfered with by imposing undue subsidies (when there is no positive externality), or regulating industry in ways the constitution does not explicitly provide for. Oppression all of a sudden becomes a large part of our discussion of efficiency analysis, and the issue of public policy.

The Constitution is Not a NFL Playbook

The U.S. Constitution, signed in 1787, starts with these words: “We the People of the United States, in order to form a more perfect union, establish justice, ensure domestic tranquillity, provide for the common defence, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”

In its most general sense, a constitution is the fundamental, underlying framework of government for a nation or state. The United States has a constitution, which incorporates the ideas on which America was founded — commitment to the rule of law, limited government and the ideals of liberty, equality and justice. The United States’ Constitution requires everyone, regardless of position or office, to abide by higher law. The ultimate strength of the U.S. constitution, according to the U.S. Courts Web site, “is that it not only lets people know the limits of the government’s power, but the system of checks and balances that it has created ensures that these limits will be obeyed.”

Before ratifying the Constitution, several states, remembering how the British violated civil rights before and during the Revolutionary War, demanded the addition of sections which would protect individual citizens from government abuses. Since Article V of the Constitution allowed for changes, Congress in 1789 approved the first 10 amendments to our constitution. These are known as the Bill of Rights and list specific rights of the people.

In the wake of Katrina and Rita, many are calling for immediate direction and assistance from the federal government. However, this is not the responsibility of the President or Congress. The 10th Amendment “grants residual power to the states and to the people. The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The first responders to a calamity should be the local government through law enforcement and emergency services, not the U.S. Military. Funds to initiate full recovery should be from state and city bonds, not 62 billion dollars of the U.S. Treasury. The local mayor and state governor should be directing from the front lines as a good commander should, not wait on the President to give orders or the FEMA director to advise on proper courses of action.

Writing to Learn

Robert Frank:

". . . .there is no better way to master an idea than to write about it. Although the human brain is remarkably flexible, learning theorists now recognize that it is far better able to absorb information in some forms than others."

Looks like I'm not the only economist who thinks students can learn economics by blogging. Maybe next semester I should assign students 2 blog posts per month, eh?

And:

"Daniel Boorstin, the former librarian of Congress, used to rise at 5 each morning and write for two hours before going into the office. "I write to discover what I think," he explained. "After all, the bars aren't open that early." Mr. Boorstin's morning sessions were even more valuable than he realized. Writing not only clarifies what you already know; it is also an astonishingly effective way to learn something new."