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Mercatus scholars apply economic analysis to the issues of the day

Come Together, Over the Fed?

by Dino Falaschetti, Chad Reese on March 03, 2015

Federal Reserve Board Chair, Dr. Janet Yellen, offered largely predictable testimony during last week’s hearings before the Senate Banking and House Financial Services Committees. Deviations from predictions have a way of standing out. Addressing a question from Banking Committee Chair, Sen. Richard Shelby (R-Ala.), Dr. Yellen may have left the door open to bi-partisan proposals that would reform how the Federal Open Markets Committee (FOMC) votes on monetary policy, and do so in a manner that could more consistently promote broad economic opportunity over narrow distributional interests.

The senator asked Dr. Yellen about a recent proposal from Richard Fisher, Dallas Fed’s president and a Democrat, to broaden the representation of district banks on the FOMC. Rep.Kevin Brady (R-Texas) has long championed a related proposal. Relative to her pointed concerns about a Congressional push to audit the Fed, Dr. Yellen offered a more measured assessment of the bi-partisan idea to...

Will Robots Take Our Jobs?

by Andrea Castillo on March 03, 2015

Today's robots may lack emotions, but they have quite a knack for rousing heated passions within their prevailing meaty overlords. Ray Kurzweil and his devotees daydream of a singularity rapture, when benevolent machine intelligence will overtake human knowledge to saturate and awaken the universe. On the gloomier side of the existential spectrum, Elon Musk recently donated $10 million to the Future of Life Institute to fight the rise of killer robots. Either way, these thinking machines are expected to be a pretty big deal. But we can hardly wait for cosmic horror or transhumanist actualization to start asking the tough questions: Will the robots take our jobs?

Robots are nothing new. Industrial robots have been employed in manufacturing for about as long as polyester has been belabored in fashion. But unlike synthetic fibers, synthetic laborers have gotten much better over time. Digital employees consistently become cheaper, smarter, and more prevalent with each doubling...

Junk Food Taxes Don't Work

by Michael D. Thomas on March 02, 2015

What if I told you there was an easy way to fix various health problems that had a variety of benefits and very little cost? Your first reaction could be "let’s do it." This is the promise that comes with taxing items to change consumer behavior. But, after many years of failed policy attempts, you should be a bit more skeptical of this approach.

In a new research paper to be published tomorrow by the Mercatus Center at George Mason University on “Regressive Effects: Causes and Consequences of Selective Consumption Taxation,” my colleagues and I explore the taxation of junk food in more detail. So many other people were talking about the health effects of bad diet that we wanted to know more about how to stop the high rates of heart disease, diabetes and other health concerns that come from eating foods high in fat, salt and sugar.

What we found is that many people live in areas where little else besides this type of food is available, areas called...

A Solid Choice for CBO Director

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by Charles Blahous on March 02, 2015

With their selection of Keith Hall to direct the Congressional Budget Office (CBO), the incoming chairs of the House and Senate Budget Committees, Dr. Tom Price and Senator Mike Enzi, have passed an unusually rigorous test. Their choice should be expected to not only well serve lawmakers, but also reflect well upon Congress, in the years ahead.

The end of previous director Doug Elmendorf’s term fostered a dynamic unseen with previous CBO director appointments. Some commentators attempted to discredit any choice the budget chairmen might make unless they took the highly unusual step of reappointing the other party’s outgoing choice. Much of this pressure was...

Is It Fair to Tax Capital Gains at Lower Rates than Earned Income?

by Scott Sumner on March 01, 2015

Capital gains—and how big a bite the government should take out of them—have become a major point of contention in the past couple of months.

In January, President Obama proposed tax changes designed to raise some $320 billion over 10 years, largely through higher levies on high-income Americans. The revenue would be used to cover $235 billion in tax breaks, mostly for moderate-income workers, along with other initiatives.

Among the changes he proposed: boosting the capital-gains rate to 28% for the top 1% of taxpayers, up from the current 23.8%, as well as a new capital-gains tax on many inheritances.

The GOP fired back that taxing investment income would harm economic growth by discouraging business investment and thereby hurt workers’ incomes.

All of which points to a broader question that divides experts: Are capital gains so different from earned income that they should be taxed at a different rate?

Below, two experts tackle that question....

Keith Hall to Direct Congressional Budget Office: Mercatus Center Commends Hall’s Continued Success

by Bob Ewing on February 27, 2015

Arlington, Va.—Starting April 1, Keith Hall will become the next Director of the Congressional Budget Office (CBO). Hall worked as a senior research fellow for the Mercatus Center at George Mason University from April 2012 to September 2014. 

“Keith Hall is a first-rate economist who understands fiscal responsibility and the importance of honest and accurate reporting of the numbers,” said Tyler Cowen, general director of the Mercatus Center.  “I expect he will do a great job.”

Now in its 40th year, the CBO supports the Congressional budget process by producing independent analyses of budgetary and economic issues. CBO is nonpartisan and does not make policy recommendations. 

Hall’s research at Mercatus focused on labor markets, labor market policy, and economic data.  His Mercatus publications include ...

Initial Thoughts on Obama Administration’s “Privacy Bill of Rights” Proposal

by Adam Thierer on February 27, 2015

The Obama Administration has just released a draft “Consumer Privacy Bill of Rights Act of 2015.” Generally speaking, the bill aims to translate fair information practice principles (FIPPs) — which have traditionally been flexible and voluntary guidelines — into a formal set of industry best practices that would be federally enforced on private sector digital innovators. This includes federally-mandated Privacy Review Boards, approved by the Federal Trade Commission, the agency that will be primarily responsible for enforcing the new regulatory regime.

Many of the principles found in the Administration’s draft proposal are quite sensible as best practices, but the danger here is that they could soon be converted into a heavy-handed, bureaucratized regulatory regime for America’s highly innovative, data-driven economy.

No matter how well-intentioned...

Screwed by Seniors

by Veronique de Rugy on February 26, 2015

This article appears in the March edition of Reason Magazine

Remember Occupy Wall Street, when thousands across the country took to the streets, sleeping in tents to protest the ultra-rich 1 percent? The occupiers' frustration was real, but their ire was misdirected. They should have launched an Occupy the AARP movement instead.

Government policies that transfer cash from the relatively young and poor to the relatively old and wealthy are the real scandal. In 1970, Social and Medicare accounted for 20 percent of federal spending. They have since grown to 40 percent; by 2030, they will be more than half. And these numbers understate the level of federal spending for the elderly. According to the Centers for Medicare and Medicaid Services, some 28 percent of spending on Medicaid, a program designed to offer health care to families in poverty, goes to older Americans.
...

Private Money in Virtual Worlds

by Andrea Castillo on February 26, 2015

This article appears in the March edition of Reason Magazine

Edward Castronova initially started researching the economics of cybernetic worlds as a joke, whimsically gathering stats on buying and selling in the roleplaying video game EverQuest starting in 2001. "Then," he says, "I saw how much money there is."

For those who know where to look, virtual worlds contain many riches indeed, from in-game currencies to Amazon coins to frequent flyer rewards. Castronova, a professor of media at Indiana University, has distilled his years of observing human economic behavior in online environments into a new book, Wildcat Currency. Evoking the so-called "wildcat banking" period in the mid-19th century, when American banks were only regulated by state governments, the book's title refers to the burgeoning system of digital currencies proliferating in virtual worlds. Equal parts...

Net Neutrality Rules Represent a Giant Step Backwards

by Brent Skorup on February 26, 2015

The Federal Communications Commission today voted, 3-2, that the Internet will be subject to many of the Title II regulatory provisions of the 1934 Communications Act. Applying Title II laws to broadband means regulating the Internet as a common carrier, akin to the telephone network, and gives significant control of the Internet to the FCC, lobbyists, and industry players.

The Title II order and new net neutrality rules have not been released yet, but the thrust of the regulations is clear from commissioners’ statements and media reports. In short, the FCC’s rules represent a giant step backwards to the days of command-and-control of markets.

The FCC’s actions derive in part from the myth that the Internet is neutral. In the evolving online world, the Internet gets less neutral—and better for consumers—every day. Through a hands-off approach from policymakers,...

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