Is Economic History Relevant?

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Taxing obesity?

By: Samantha Weinberg and Ryan Santana.
Edited by: Janaki Patel.

Many countries around the world have been trying to tackle the issue of obesity in new and creative ways. One such tactic has been to levy a tax on unhealthy foods so that they are less desirable for consumers. This was implemented in Denmark by the government so that 16 kroner (2.7USD) per kilogram of saturated fats in a product was added to costs. This led to an increase in costs for the producers of these goods and higher overall administrative costs in their attempts to adjust prices accordingly. Unfortunately, this “fat tax” did not have the desired results since it did not deter consumers from purchasing the unhealthy foods. In some cases, people actually crossed the Danish border to get their sweets from countries where it was cheaper without the tax.

The Danish government has announced plans to repeal the tax in light of its failure and has halted works on a sugar tax that was being considered. This failure calls into question what the government can actually do to encourage consumers to make healthy choices. In New York, and some other states, mandates have forced calorie information to be displayed in all restaurants so consumers can at least make more informed decisions. This method does not seem to be making much of a difference either. New York has also been one of the first states to place a ban on super-sized sodas. European countries have also tried to develop new ways to control the problem. One example is Hungary’s higher tariffs on soda and alcohol so the goods are more expensive on the local market.

With obesity becoming a growing problem in the United States and other developed countries the ability to curb this is seen as essential for governments. In light of Denmark’s failed attempt, other governments are questioning their tentative plans to implement similar programs. At some point government will need to decide how much of peoples’ decisions they can actually influence and also decide if it is worth the risk of potentially neglecting other important parts of the economy. The government will also have to ask itself whether it is realistic to control the problem of obesity. At the same time people must also take responsibility for the way they treat their body. There may be ways a government can attempt to deter the option for people to eat junk food but, like in the article stated, there are ways for people to ultimately get what they want.

The next step, as economists, is to try and think of ways that we can influence people’s choices without interfering with the direct interaction between consumers and producers in a negative way that leaves all parties worse off. Although education on nutrition is better than ever before we could probably look into putting more energy and resources in the education of nutrition rather than possibly hurting the market. Educating kids on nutrition at schools and raising awareness about junk food can be a better solution. And while we’re at it we should also inform people about the dangers of non-organic and processed foods. If people know exactly what they are eating then people can make much more informed choices as compared to simply looking at a calorie count on a menu.

Is America the Greatest Country in the World?

By: Luke Rebecchi and Jacob Beck.

“It’s not the greatest country in the world.” These words, spoken by WIll McAvoy, a newscaster played by Jeff Daniels on The Newsroom, could not have been more controversial. While Mr. McAvoy was trying to make a point that America has changed over the last few centuries, he took it a step further and essentially said that America sucks.

But is he wrong? Is this fictional big-wig news broadcaster incorrect when he questions the greatness of America? First, let’s start with what makes a country great, let alone the greatest. These factors will change country to country, mainly because people grow up in different places with different beliefs, leading to a different equation. Additionally, there is an inherent affinity to your homeland and for you, as a citizen, to believe that you live in the greatest country. For this task though, we looked at America in 5 different categories, to determine if it is, in fact, the greatest country: Democracy, Social Mobility, Children, Protection and Jobs.

Is America Democratic? Absolutely. Almost too democratic. Americans have an equal say in everything. Our lobbying system is one of the best around. People go to congress, say what they want, and either watch it happen or not, but we have the ABILITY to do that, and that is what matters. In a day and age where social media is the norm, people can start a message or a campaign in Florida and it could be in Oregon the next minute. We can start a movement and end a movement with the press of an “enter” key. Just look at this past election for example. The amount of people influenced by a clever meme or funny gif regarding one of the candidates was insanely high, but that is the day in which we live.

Key to the ‘bootstrap individualism’ that defines America’s ‘exceptionalism’ is the ability for those born in misery to attain great wealth, and those born in great wealth to lose it all. People in America, as it goes, succeed by the virtue and magnitude of their sweat and toil. The folksy ‘American Dream’ codifies the acceptance of and adherence to these principles. But, in light of income inequality reminiscent of the Robber Baron era, has America’s meritocracy been corrupted? In short, yes. Confirming much of the literature our class discussed recently, the work of the Georgetown University Center on Education and the Workforce consistently shows the return of a college education far exceeds a high school diploma. Further, amongst the most prestigious American institutions of higher education, only 3% of the student body come from families situated in the bottom income quartile, in contrast to a 74% representation of the top quartile. These elite, Tier-1 institutions pump out high earners that fill positions of power and prestige, but their composition shatters dreams of intergenerational social mobility. Wealthy adults regularly produce successful offspring, and vice versa for the poor. Only those fast asleep would view this as an ‘American Dream’. Furthermore, does the ‘American Dream’ include people struggling to find jobs? Probably not.

While Will McAvoy mentions America is 4th in the labor force, that is not necessarily a good thing. The only thing that says is that America is willing to work. We have people who are actively searching for jobs, awesome. The fact is, though, that many of Americans are unemployed. While we look forward to the day where unemployment will hover around 5%, we don’t know if that day is upon us. Sure, America has made strides since the beginning of the 1900s, now that we allow many more people to enter the labor force and encourage their participation. The desire to succeed has always been a bright spot for America, whether immigrants or not. People have a desire to work hard, keep a business running, and succeed, but right now, working in America sucks. One facet of America that isn’t too bad right now, however, is that of safety.

Though rarely a victim of foreign attacks (9/11 being the first foreign attack on American soil since the War of 1812), the American people pride themselves on their uncontested military power. With a military budget rivalling all other states combined, the U.S. regularly projects its hard power throughout the world, and does so with much enthusiasm from policymakers and (through outright deception?) the general public. In the words of former Secretary of State Madeleine Albright, “What's the point of having this superb military that you're always talking about if we can't use it?” Defining a country as great for its ability to project military power internationally is quite contestable. A number of empires throughout history have utilized force to attain strategic objectives, though we would certainly not consider Nazi Germany or the Soviet Russia as great. Greatness rests in utilizing that capacity wisely to protect American citizens domestically, and in accordance with, and for the protection of, basic human rights internationally. That the United States has not seen terror attacks in over 11 years speaks to our ability to protect our own. Quite conversely, the details of our most recent escapades in Iraq, Afghanistan, Yemen, and Pakistan question very seriously our commitment to international human rights.

Fiscal responsibility, is perhaps the most recurring theme in American politics. Beyond the simple extension of the frugal individual to the government as whole (a composition fallacy I will let slide), fiscal responsibility rests upon a moral argument that our children deserve a livable world. In this past election, both presidential candidates spoke often of sacrificing today for the well-being of our children and grandchildren tomorrow. So, extending the baseline indefinitely, how does the American child’s future appear? For one, he/she will live in a country that owes a bit of money. On first glance, a large debt frightens. More important than the size however, is the price of debt. Interest rates, the price of debt, are at historic lows, so it makes economic sense to purchase more. Hopefully, if and when interest rates rise, our policymakers will have the wisdom to change accordingly.

Beyond just debt, America’s children will have to adjust to a warmer and less inhabitable world, a stupid-expensive health-care system, and the rise of other states that challenge America’s preeminence. Each generation inherits a mess from the former, and only a fraction of it has been mentioned here. America has not quite abandoned its children, but her political intransigence will make their lives more historic.

The impact of income inequality in the US

By: Samantha Weinberg and Franziska Meinherz.
Edited by: Nikki-Lynn Marshall and Paulius Kosmarciukas.

In the last decade, the subject of inequality is one that has been a growing concern to developed countries. Presently, the US as well as other countries fear that an increase in income inequality will be detrimental to their economic growth. However, according to Diana Furchtgott-Roth in the article “A Big Gap Means There is Room to Move Up” inequality isn’t an obstacle to economic growth, but rather a consequence.

Roth argues that, as economies grow people will inevitably become wealthier, leading to an uneven distribution of wealth. This inequality however can spur further economic growth because the possibility of moving up incentivizes people to invest more effort. Furchtgott-Roth argues that the key to growth is job mobility rather than income equality. She proves that inequality can work as an incentive, whilst redistributive taxes may discourage growth using the example of Great Britain. In Great Britain, an increase in the top tax rate was shown to not increase revenues as predicted. Therefore, based on the argument that job mobility, rather than income equality furthers growth the focus should be on improved education rather than a change in the tax system.

Often people claim that inequality lowers growth because the poor don’t have the means to start climbing up the income ladder. But, according to Scott Winship in his article “Inequality is not what we imagine”, this doesn’t hold for developed countries such as the US. Inequality in the US as well as other developed nations is due partly to the increase in two-earner couples. Having multiple wage earners in a home creates a greater income disparity between households. Yet the US is far from facing mass poverty, which is associated with lower growth, due to the US’s higher living standard. The rising inequality is therefore mostly due to the wealthy families which get richer at a much faster rate than the lower income families.

We therefore agree that income inequality is clearly a result of economic growth, which the evidence supports in many instances, such as in the example of China. However, inequality is still a prevalent issue in many countries that needs to be addressed. This is because inequality can be an obstacle to growth if job mobility cannot be guaranteed and in countries such as the US. For the US in particular income inequality has recently become a more a prominent issue due to the economic recession and the present precarious situation for the lower income classes, who, due to rising costs of education have found it harder to climb up the social ladder.

Is income inequality too big to ignore?

By: Yannai Shmerer and Luay Kanaan.
Edited by: Nikki-Lynn Marshall and Paulius Kosmarciukas.

In Robert H. Frank’s 2010 New York Times article, “Income Inequality: Too big to Ignore,” he provide several explanations for the rising income inequality in the United States by looking at the 100 most populous counties in the country. He begins by analyzing the three decades that followed WWII and points out that they were decades in which incomes across the board rose both equally and rapidly. He then follows this discussion by looking at the last three decades (1980-present) and points out that in this period the income share of the top 1% rose from 8.9% to 23.5%.

In the article, Frank uses the results obtained from his working paper “Expenditure Cascades” to stress the importance of income equality. His studies show a strong positive correlation between income inequality and financial distress in terms of divorce rates and the commute times. As the gap between the upper and lower tail incomes in the economy widens, divorce rates increase and commute times get longer as a result of urbanization and booms in the housing markets. Even though the data collected offers a stable ground for argument, the extent to which increases in the divorce rates were primarily fueled by financial distress depend on the country’s sociopolitical and economic stance at that time. Thus, a cross-sectional study between divorce rates and income inequality should look at year-specific cohorts to correct for any lurking variables such as the impact of war, political unrest, or age at marriage.

The financial distress among the middle and lower classes that Frank talks about leads to those classes rejecting public expenditure legislation that would ultimately benefit the working class. This rejection is borne out of a fear of an increase in taxes for those already in financial distress. Frank uses “crumbling roads, weak bridges, and an unreliable rail system” as examples of issues that the rejected public expenditure would help to solve.

One of the points that Frank both opens and closes with is the idea that economists are reluctant to talk about rising income inequality, claiming they argue that it is a subject better left to philosophers not economists. Frank dismisses this argument and calls for something to be done about income inequality: “maybe we should just agree that it’s a bad thing - and do something about it.”

Despite some minor inconsistencies with Frank’s paper, his argument is as sound as it gets. Unlike other economists, he is willing to take on rising income inequality almost a year before the “Occupy Wall St” protests began. He also acknowledges that it is, in fact, a problem that needs solving. However, he doesn’t really offer much of a solution. One fairly obvious solution would be to increase taxes on the top earners of the country while simultaneously lowering taxes on the middle and lower classes.

American Misconception on Immigration

By: Adrian Nardella and Fiona Maguire.
Edited by: Luay Kanaan.

From Italians and Slavs in the early 1900’s to Central and South Americans in the late 90’s early 2000’s, the concept of immigration in the U.S. has managed to maintain its political prominence due its substantial impact on economic strength, native employment rates and wages.

For some, immigration is seen as a growing concern to the nation; however, the article “Immigration and American Jobs,” written by Eduardo Porter of The New York Times proves this stigma untrue. Immigrants, generally, are employed for manual labor in-part due to their inability to obtain the qualifications and skills held by native employees – thus leaving more specialized and verbal jobs such as being a clerk Americans. These manual labor positions often pay lower salaries, but they act to “reduce the prices of some products and services by providing employers with a new labor source and creating more opportunities for investment and jobs.” Also, because the undesirable jobs such as being a dishwasher or landscape contractor are being performed by immigrants, higher paid positions are created for qualified natives to fill.

However, immigrants influencing the cheap labor market have been under intense media/government and political scrutiny, especially during the Presidential race, because during economic hardships like the 2008 recession immigrants are seen to “steal” American’s jobs because they work for cheaper wages. Not understanding the positive effects immigration and cheap labor have on the long-term stability of the U.S. economy makes it easy for “proud” Americans to be misunderstood as xenophobic Americans.

This article, “Immigration and American jobs” relates back to what we have learned in class, regarding the topics of immigration and income inequality. In class, we discussed how when immigrants first begin to work in their new country, they earn a 17 percent lower wage than natives do. Then, within 15 years of coming to the new country, the immigrant’s wages overtake the natives and within 30 years of arriving to the country, these immigrants begin to earn around 11 percent more than the natives are, therefore stealing American jobs and money. However, this article explains that this is not the case of the poor immigrants that are coming from Latin America. Thus, these immigrants are either creating jobs for Americans or taking jobs that Americans are not willing to take such as the dishwasher at a restaurant.

These Latin American immigrants are not earning more than Americans are, as seen in the graph on a sign used for Occupy Boston portraying the average household income from 1979 to 2007. This graph shows how immigrants that are in the bottom 20 percent of the population in terms of income, tend to remain at the very bottom of the graph without any increases.

This article on immigration and its effects on American jobs explain how immigration can be seen from a different perspective. As Americans, we tend to think that immigrants are taking our jobs due to their willingness to work for low wages. However, immigrants are helping Americans create domestic jobs and at the very least accept the jobs that Americans do not want.

Inequality and Future Growth (or lack thereof)

By: Jonathan Burns and Kyle Peabody.
Edited by: Nick Tourville.

Income inequality has been growing in America for decades now. For years, it was something people were aware of, but beyond the fact that “the rich are getting richer,” not much was known about the phenomenon. Now, new evidence is emerging that the level of inequality in the United States has reached a point where it could begin to hinder future growth (if it hasn’t already).

According to the International Monetary Fund, job creation and economic growth could be slowed by as much as a third due to the growing inequality in the United States. For years, many saw the growing inequality as a result of preferential tax treatment to income vehicles that “the rich” frequently benefit from, such as investments. Now that research suggests that the inequality that we have amassed could stunt growth, organizations such as the International Monetary Fund and Organization for Economic Cooperation and Development are lobbying for both changes to tax structure and spending programs to reverse the disparity of income.

Large differences in income can have many problems for nations, such as political unrest – be it violent uprisings in the Middle East or movements such as the Tea Party or Occupy Wall Street in the United States. Most economists – and both Presidential candidates Mitt Romney and Barack Obama – agree that a strong middle class is an important part of a healthy economy and drives economic growth. At the same time, most recognize that the growing inequality is coming mainly at the expense of the middle class. Without corrective policy measures, such as more fairness in the tax and spending code including reductions in loopholes and subsidies, there is likely to be slower job and economic growth in the United States, which coupled with the inequality itself, could spill over into social issues as well.

Indeed, while much of recent literature on the issue of income inequality has been negative, one must not forget that there is another side to the coin. Some economists have maintained that this inequality is not necessarily as bad as it seems. First, some analysts have questioned the actual data used. They argue that it omits in-kind benefits, nonsalary benefits, and taxes, which are disproportionately borne by higher-income families. Thus, they argue that the data is skewed and shows more inequality than there is actually is. Second, there is the argument that while acknowledging the growing inequality, the large increases at the top will benefit the rest of society as a whole. These benefits would include improved living conditions, technology development, and overall growth of the economy. Essentially, while the poor would remain poor, their lives would be better off than they were before. In reference to these rapidly growing incomes of the top 1% and the stationary incomes of the 99%, some appeal to the saying “a rising tide lifts all boats”. However, as described earlier, new research suggests this inequality has the potential to stunt growth, if it hasn’t already. With this stunted growth, there would not be any “rising tide to lift all the boats”. Rather, with the “tide” unchanged (or perhaps even lower), a small portion of boats would just become much bigger boats.

Lowrey, Annie. "Income Inequality May Take Toll on Growth." New York Times: October 16, 2012.
Harbin, Christine. "Income Inequality is Not a Problem: The Free Market is Making All Americans Richer (Debate)." PolicyMic.

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