Category Archives: Public Policy

House of Debt

House of Debt –

This 1 hour long video (@ featuring Amir Sufi (who is the Chicago Board of Trade Professor of Finance at the University of Chicago Booth School of Business) was recorded last Monday evening as part of the Myron Scholes Global Markets Forum at Chicago Booth. Here’s a description of his talk:

“The Great American Recession resulted in the loss of eight million jobs between 2007 and 2009. More than four million homes were lost to foreclosures. Is it a coincidence that the United States witnessed a dramatic rise in household debt in the years before the recession—that the total amount of debt for American households doubled between 2000 and 2007 to $14 trillion? Definitely not. Armed with clear and powerful evidence, Professor Sufi will discuss his forthcoming book, House of Debt, and how it reveals the Great Recession and Great Depression, as well as the current economic malaise in Europe, were caused by a large run-up in household debt followed by a significantly large drop in household spending.”

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The Economist: Essay on the history of finance in five crises

From The Economist:

“This week we publish an essay on the history of finance in five crises. They have a common theme: in each case the state increased the subsidies and guarantees it gave to finance—and helped set up the next crisis. Our cover leader points out that this is happening again. An American can now blindly put $250,000 in a bank, knowing his deposit is insured by the state. Finance, we say, should be treated more like other industries.”

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The ’77 Cents on the Dollar’ Myth About Women’s Pay

The ’77 Cents on the Dollar’ Myth About Women’s Pay

In The Wall Street Journal, Mark J. Perry and Andrew G. Biggs write that once education, marital status and occupations are considered, the ‘gender wage gap’ all but disappears.

An important problem with the “equal pay” canard is its simplistic comparison of female versus male wages; as if the sole determinant of compensation were gender. We live in a multivariate world where all sorts of factors jointly determine outcomes.  Economists June and David O’Neill understand this and find, after controlling for various wage determinants such as education, experience, industry, occupation, time spent as an active labor force participant, risk, and so forth (see “The Declining Importance of Race and Gender in the Labor Market: The Role of Employment Discrimination Policies“), that labor market discrimination is unlikely to account for more than 5% but may not be present at all.

But then the “equal pay” canard really has nothing to do with economics. It has everything to do with identity politics. Identity politics is a long-time, proven formula for political success. You divide people into groups based upon ethnicity, gender, sexual preference, income, and so forth and then promise to deliver group-specific benefits at the expense of the rest of society. Politicians get away with this because the public at large is innumerate and not able (or lack incentives) to grasp even the basic statistical concepts and principles (such as the idea that there are multiple determinants of wages other than gender differences).

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Should the Minimum Wage Be Raised? Economists Weigh In

The Wall Street Journal’s Real Time Economics blog recently posted an article entitled “Should the Minimum Wage Be Raised? Economists Weigh In” @

I am most convinced by the recent (July 2013) survey article entitled “Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?” (available from which documents that minimum wages pose a tradeoff of higher wages for some against job losses for others.   I am particularly fond of the following quote from that article: “We revisit the minimum wage-employment debate, which is as old as the Department of Labor” (historical note: the US Department of Labor was founded March 4, 1913 :-))
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77 cents on the dollar

The key problem with the “77 cents on the dollar statistic” cited in President Obama’s SOTU speech is that it is based upon a naive comparison of average earnings for females compared with males. There are a number of other wage determinants (e.g., differences in occupations, positions, education, job tenure, hours worked, etc.) which must also be taken into consideration.  AEI scholar Christine Sommers notes (in the Daily Beast article linked below): “When all.. relevant factors are taken into consideration, the wage gap narrows to about five cents. And no one knows if the five cents is a result of discrimination or some other subtle, hard-to-measure difference between male and female workers.”
“It’s the bogus statistic that won’t die—and president deployed it during the State of the Union—but women do not make 77 cents to every dollar a man earns.”
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On the role of health insurance as an “enabling technology” that facilitates risky behaviors…


The vast majority of the ads shown on the website promote health insurance as an “enabling technology” that facilitates various risky behaviors; e.g., uncelibate sex, binge drinking, bungee jumping, white water rafting, etc. These ads are (condescendingly and stereotypically) targeting millenials whose overpriced premiums are needed in order to cross-subsidize premium costs for older, sicker people. It turns out that the financing model underlying the so-called Affordable Care Act (ACA) critically depends upon such cross-subsidies in order for ACA to be financially sustainable. Without these cross-subsidies, the more likely outcome for ACA is what Cutler and Zeckhauser (1998; cf. refer to as an “adverse selection death spiral” (see also AEI Resident Fellow Scott Gottleib’s Forbes piece on this very same topic @

Since the ACA is designed to vastly expand Medicaid and offer subsidies to households with incomes up to 400% of the federal poverty level, then somebody has to pay for it. And if the plan works as it is supposed to, young middle class workers will have to enroll in droves to pay for overpriced insurance. However, based upon the early returns from enrollment at the Federal and state websites, this does not appear likely. Thus the aggressive ads designed to convince otherwise reticent millennials to sign up for overpriced insurance.  Apparently health insurance can be “fun” because it makes it possible to not have to fully internalize the costs of risky behaviors.  This would be the Peltzman effect on steroids

The aforementioned website ( is “…a project of the Thanks Obamacare campaign, created by the Colorado Consumer Health Initiative and ProgressNow Colorado Education to educate everyone about the benefits of the Affordable Care Act.”


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Today’s page 1 Wall Street Journal story…

This (an article entitled “Software, Design Defects Cripple Health-Care Website“) is THE page 1 story in today’s issue of the Wall Street Journal. It provides a fascinating case study which corroborates historian John Steele Gordon’s essay from May 2009 entitled “Why Government Can’t Run a Business” (available from; in that essay, Gordon notes (among other things) that “Politicians need headlines. Executives need profits.”

Software, Design Defects Cripple Health-Care Website

The federal government acknowledged for the first time Sunday it needed to fix design and software problems that have kept customers from applying online for health-care coverage.

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US federal government indebtedness relative to US GDP: an historical perspective

I think most people understand that the United States has a debt problem, but I am not sure all that many people necessarily understand the magnitude of this debt. According to the website, US federal government debt (as of Monday, February 4) stands at $16.48 trillion (source: Since US GDP (as of Q4 2012; see is $15.83 trillion, this implies that the US debt to GDP ratio currently stands at more than 100%.

Using the resources cited in the previous paragraph, one can determine US debt totals and debt to GDP ratios at various points in recent history. On the day that George W. Bush was first inaugurated (January 20, 2001), US federal government debt stood at $5.73 trillion, and the US debt to GDP ratio at the time was 57%. By the time that President Bush’s second term came to an end (on January 20, 2009), US federal government debt had grown by $4.9 trillion (to $10.63 trillion), and the US debt to GDP ratio stood at 74%.  Since President Obama first took office on January 20, 2009, US federal government debt has grown by an additional $5.85 trillion, going from $10.63 trillion to $16.48 trillion.

Thus, the Obama administration (after one full term plus two weeks into a second term in office) accounts for 5.85/16.48 = 35.5% of the current national debt, President Bush’s two administrations account for 4.9/16.48 = 29.7% of the current national debt, and the previous 42 presidents cumulatively account for 5.73/16.48 = 34.8% of total US federal government debt.

The graph below (source: shows the US debt to GDP ratio over the period 1966-2012. I don’t about y’all, but the fact that this ratio is accelerating as we move through time is very disconcerting. Economists Carmen Reinhart and Ken Rogoff note that episodes in world history where debt ratios exceed 90% are not only rare, but also impede economic growth (see “Debt and growth revisited” (source:

Debt ratio, 1966-2012

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Actor Gérard Depardieu Surrenders French Passport

Apparently there is a diaspora of rich French citizens surrendering their French passports so as to avoid having to pay a recently passed top marginal income tax rate in France of 75 percent.  Quoting from the article accompanying this video, “French Premier Jean-Marc Ayrault said it was pathetic that people move to another country to avoid taxes after a Belgian mayor said that actor Grard Depardieu was moving to Belgium possibly to pay lower taxes.”

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