Wednesday, May 5, 2010

Three interesting articles to read

Greg Mankiw linked to this interesting defense of price gouging:
When the demand for bottled water goes through the roof — which is another way of saying that bottled water has become (relatively) scarce — the price of water quickly rises in response. That price spike may be annoying, but it’s not nearly as annoying as being unable to find water for sale at any price. Rising prices help keep limited quantities from vanishing today, while increasing the odds of fresh supplies arriving tomorrow.
It is a great read on everyday economics.

By comparing Social Security to food stamps, Russ Roberts concludes that Social Security is a horrible Ponzi scheme:
Why would I want my children and grandchildren to support me if I can support myself? Why would I demand that YOUR children and grandchildren support me if I can support myself? It’s a horrible idea. So if I had my druthers, I’d get rid of the whole thing and let private charity help people who had bad luck or who failed to save for their old age. But the next best thing is to get the government out of the business of redistributing money to rich people under the guise of running an investment plan that’s really a ponzi scheme.
He makes some good points along the way. Click through to his page to see how he reaches that conclusion.

Finally, I leave you with an excerpt from an excellent Tim Harford column from last month. Here is one of the interesting takeaway points (there are many more):
Chetty’s research also tells us about benefits. He complains about the way tax credits are paid out in the US. These credits should encourage more work, because, in effect, they boost the hourly wages of poor households by applying a negative income tax. But they are not salient: people receive a cheque from the government at the end of the year, and most people don’t understand how it boosts their hourly income.

FYI: Raj Chetty -- whose work Tim Harford describes -- is an excellent presenter in addition to being a great researcher. He delivered one of my favorite seminars over the past couple of years at Becker's Applications Workshop at University of Chicago. The topic: Using break points in the tax code to estimate how responsive people are to changes in tax rates.

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