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Mercatus scholars apply economic analysis to the issues of the day

Sugary Soda and the Logic of Nudges

by Sherzod Abdukadirov on August 24, 2015

Recent preliminary results from Mexico’s soda tax, which showed a 6 percent decline in soda consumption, are renewing public enthusiasm for a similar tax in the United States. In fact last year, Berkeley, Calif., became the first city in the United States to impose a tax on sugary drinks.

The problem with using taxes to change consumer behavior is that the politicians’ incentive to raise revenues directly contradicts their goal to reduce soda consumption. Berkeley’s proud announcement that it took in more than $116,000 during its first month and its decision to pre-apportion the taxes it expects to collect clearly demonstrate which incentive prevailed.

Research in behavioral economics, which combines insights from economics and psychology, points to several ways in which a soda tax might work as a nudge to change consumer behavior.

First, it may act as a reminder to consumers. Given all the things consumers have to...

Taxpayers Shortchanged by Agriculture Use-Value Assessment

by John E. Anderson, Seth H. Giertz on August 24, 2015

The 1.6 million people living in Manhattan, New York, and the 56,000 people living in Manhattan, Kansas are well aware that land values in the two locations are dramatically different. In fact, Zillow lists a property in Manhattan, Kansas for less than $30,000 an acre, whereas, the New York Fed estimates that that same $30,000 would buy just enough space to park a scooter, or a 15 square foot undeveloped lot, near the Empire State Building. However, an acre of land in the two Manhattans would have the same assessed value for property tax purposes, provided the land is used for agriculture.

This peculiarity is the result of use-value assessment practices, which assess the value of agriculture land not based on market value, but rather based on the assumption that land has no development...

Kim Kardashian vs. FDA

by Richard Williams on August 21, 2015

Kim Kardashian has 43.5 million followers on Instagram and 34.5 million on Twitter. Recent tweets include messages like, “My good friend @BySimoneCamile has the cutest bags & they are on sale!!!!” That product promotion may have been okay, but she apparently crossed the line with an Instagram post about a drug that helped her with morning sickness. While the cutest bag sale may have been useful for some, advising her millions of followers that a drug helped her overcome morning sickness caused the United States Food and Drug Administration to become apoplectic.

The FDA objected on the grounds that Kardashian was paid to promote the drug, and by not disclosing the...

Government Intervention Is Becoming Obsolete

by Fred E. Foldvary on August 20, 2015

Much government intervention has no economic rationale and is due instead to pressure from special interests. However, some interventions have a public-welfare justification, backed by conventional economic theory. Textbooks in the field normally present four such rationales: asymmetric information, external effects, public goods, and monopoly.

Advances in technology are fast rendering these arguments obsolete.

"Asymmetric information" means that in an exchange, one party has much more knowledge than the other. When one buys a used car or computer, the seller could take advantage of the buyer's ignorance. Therefore, says standard theory, the market fails.

But ignorance creates a demand for both information and assurance. The economy provides consumers information through such channels as Consumer Reports, Angie's List, and Yelp reviews. Advancing technology provides greater and cheaper information. The...

Remembering the Life and Honoring the Legacy of Whitney Ball

by Veronique de Rugy on August 19, 2015

Death focuses the mind. The recent passing of my dear friend Whitney Ball, who devoted her professional life to making it easier for people to support civil society, inspired this column.

Whitney founded Donors Trust, an organization that, as its mission details, "encourages philanthropy and individual giving and responsibility, as opposed to governmental involvement, as an answer to society's needs."

Her death comes near the 10th anniversary of the deaths of some 1,833 people as the result of Hurricane Katrina, a tragic event that showcased government failures at every level.

Government incentives kept people living in a below-sea-level city that was protected from the Mississippi River delta only by quickly eroding government-maintained levies. A disastrous hurricane was a highly predictable and predicted event. Commenting in December 2001 on a Federal Emergency Management Agency memo that listed a hurricane strike...

What Does Forking Mean for the Future of Bitcoin?

by Eli Dourado, Andrea Castillo on August 17, 2015

As Bitcoin has grown, so has the debate about whether limiting the size of the blockchain – which records Bitcoin transactions – is truly sustainable.  Recently, some Bitcoin developers have suggested creating a fork, meaning the underlying network would split and and create two incompatible blockchains.  The Mercatus Center’s Eli Dourado and Andrea Castillo share their thoughts on this latest development.

Eli Dourado, Director of the Technology Policy Program at the Mercatus Center at George Mason University:

The Bitcoin community has had lengthy discussions about the block size issue, and it is reasonable to wonder whether further discussion will be productive. Responsible forking is a legitimate way for cryptocurrencies to overcome intractable disagreement. A prohibition on forking would be tantamount to making the developers of the reference client permanent...

Regulations Create Two-Class Child Care System

by Diana Thomas on August 17, 2015

For most lower- and middle-class families, non-parental child care in a daycare center is a luxury that is beyond reach. In Mississippi, the cost of sending a child to daycare equals roughly 25 percent of the income of a family living at the poverty level. In Massachusetts, the same service costs on average 86 percent of the income of a family at the poverty level. The high cost of formal child care at a daycare center leaves most families looking for other options – and those options often include unlicensed, black-market providers.

There's a two-class system of child care in this country: high-cost, regulated care for high-income families and lower-cost, unregulated care for lower-income families.

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Effective Altruism: Where Charity and Rationality Meet

by Tyler Cowen on August 14, 2015

You are lucky enough to have some money to give away: It could be $100 or $1 million. Whether you are prepared to make a small donation or a big one, you would like to accomplish something good with it.

But how do you evaluate the best way to deploy your money? Alas, economic research until now has offered little guidance. Nonetheless, a new intellectual and social movement — a loosely affiliated group of people who call their effort effective altruism — is encouraging donors to think more scientifically about philanthropy.

From the standpoint of effective altruism, the problem behind a lot of charitable giving is that individuals often make donations without doing much analysis. They simply think the best of charities that interest them and accept at face value that these charities are doing a terrific job. Accountability is never considered.

To address this problem,...

Federal Agencies Fight for Warrantless Access to Emails

by Veronique de Rugy on August 13, 2015

How would you feel if the government could access a trove of information about who you are, what you do, who your friends are and what they do by collecting it from email and cellphone providers, search engines, social networking sites, and other websites every day? If you'd be outraged, hold on to that feeling.

Back in 1986 — in a bygone era before email, the modern Internet, Facebook, the widespread use of cellphones and sharing economy sites — the government passed the Electronic Communications Privacy Act. And believe it or not, this is still the law that protects the privacy of your electronic life in 2015.

A petition demanding reforms to ensure that emails cannot be accessed without a warrant achieved the necessary 100,000 signatures on the White House website to get a response. You see, right now, the ECPA considers remotely stored digital files more than 180 days old to be abandoned and forces service providers to hand over...

Humans Are More Valuable than the Smartest Machine. And They Always Will Be.

by Tyler Cowen on August 13, 2015

‘Humans Are Underrated” serves up two different books in one, each interesting in its own right. The first offers an overview of recent developments in smart software and artificial intelligence. The reader learns about the bright future of driverless cars; IBM’s Watson and its skills at “Jeopardy” and medical diagnosis; and the software of Narrative Science, which can write up stories and, in some cases, cover events as well as a human journalist. The overall message is a sobering one: The machines are now able to copy or even improve on a lot of human skills, and thus they are encroaching on jobs. We won’t all have to join the bread line, but not everyone will prosper in this new world. That material is well argued, and those stories are becoming increasingly familiar ground.

The second and more original message is a take on which human abilities will remain important in light of growing computer efficacy. In a nutshell, those abilities are empathy,...

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