Once Again, D-Squared Explains It All:

[T]he Big Mac Index can plausibly claim to be the major methodological forerunner of Freakonomics, as it combines the two methodological techniques of choosing "quirky" instruments more valuable for their amusement value than their validity, and not checking anything to see whether it's economically meaningful.

I'm not certain that "economically" is strictly necessary there.

Tom Bozzo

agrees with Ken (but observes that even Garth Brazelton falls for the 'Pareto fallacy' [*]), and sees Brazelton's (so far) one anonymous comment, which takes issue with Brazelton's hypothesis that the Obama administration is giving us a backdoor safety-enhancing Pigovian tax:

This is probably incorrect. Tires like many other things need to meet standards. Tiers [sic] for America must meet American standards etc.

Indeed they do, but there's the econoworld of frictionless international trade in widgets and then there's the sausage making of actual trade in manufactured goods. Let's set the Way-Back Machine just two years ago to the case of Foreign Tire Sales below the jump.


Here's the lede of the NYT account:

Federal officials have told a small New Jersey importer to recall 450,000 radial tires for pickup trucks, sport utility vehicles and vans after the company disclosed that its Chinese manufacturer had stopped including a safety feature that prevented the tires from separating.

[snip]

[NHTSA's] top officials were “outraged” that Foreign Tire Sales’ executives waited more than two years to pass on their suspicions about problems with the tires. The company first suspected problems in October 2005. Almost a year later, in September 2006, the Chinese manufacturer, Hangzhou Zhongce Rubber, a former state-owned company based in eastern China, acknowledged that a gum strip that prevents the tread from separating was left out of the manufacturing process.

Now Foreign Tire Sales did not intend to import substandard tires:

The tires were supposed to exceed federal safety standards, partly by including a gum strip between the plies to prevent separation, and ultimately passed a road test in which they were driven 40,000 miles...

Nevertheless, a few years into the relationship with its factory, problems started to appear:

In October 2005, the company said it became concerned because of a sharp increase in customer complaints about the Hangzhou Zhongce radial tires. In investigating the complaints, Foreign Tire Sales’ officials became suspicious that Hangzhou Zhongce was manufacturing the tires without the gum strips or with inadequate gum strips, but the Chinese company denied it.

Tests of tire segments conducted by an outside firm were not conclusive but “seemed to indicate that there were no gum strips or insufficient gum strips in the inspected tires,” Foreign Tire Sales wrote in its June 11 report to the National Highway Traffic Safety Administration.

Foreign Tire Sales's ability to monitor its contract manufacturer and get to the bottom of the quality problems was surely compromised by the fact that it was a seven-person office that never actually touched the tires it brought into the country.

For the money shot:

Hangzhou Zhongce admitted in September 2006 that it had “unilaterally decided to omit the gum strips” in the tires, the report says. The Chinese company was “generally unresponsive” when asked how many tires were involved and what they were going to do to resolve the problem, the report says.

With little or no monitoring and financial returns to cutting corners, amazingly corners are cut. Lo, incentives matter! But that's not all!! Foreign Tire Sales, being asset-light, lacked the wherewithal to actually shoulder its obligations in the event of a large-scale recall. An account at the Huffington Post says that they were spared bankruptcy by virtue of most of the recalled tires having stayed on the road, sparing F.T.S. the expense of actually replacing them with tires more-or-less known to be up to standard.

The anonymous commenter makes a follow-up point:

There used to be a term Jap Crap for Japanese stuff. Now Japan sets the standard for manufactured items. China will do the same eventually.

This post was written on a Chinese-assembled laptop computer which, at age 3, is still working pretty well, so it's not that Chinese stuff necessarily is crap. Of course, Apple's handle on the product quality lead of its supply chain may be better than that on its contract workplace conditions. Certainly Korean products have improved radically since, say, Hyundai's entry into the U.S. auto market.

Perhaps if we could just trade with the Aspirational China with its fast trains, gleaming 500-meter skyscrapers, massive renewable energy investments, and middle class, some of the conditions might actually hold to justify the U.S. economist hand-wringing. Meanwhile promotion of trade should not be a suicide pact.


[*] I.e., because a policy may be Pareto-improving after the losers are compensated, it is worth implementing from a social welfare perspective even if we all know that the losers won't be compensated.

Cassander, writing at Steve Keen's Debtwatch,* puts the hammer to those arguing that the death of the patient had nothing to do with the doctor:

What a load of bollocks.

The "principles of economics" that [N. Gregory] Mankiw champions, and the "More economic research (and teaching)" that [Doug] McTaggart et al are calling for, are the major reason why economists in general were oblivious to this crisis until well after it had broken out.

If they meant "Principles of Hyman Minsky’s Financial Instability Hypothesis", or "More Post Keynesian and Evolutionary economic research", there might be some validity to their claims. But what they really mean is "principles of neoclassical economics" and "More neoclassical economic research (and teaching)"—precisely the stuff that led to this crisis in the first place. [emphases in original]

Go Read the Whole Thing: a worthy spew of bile from one of the blogs that I've been reading a lot recently, in part so I don't feel guilty not having written the same thing.

*Cassander is, I believe, Keen's nom-de-blog for non-personal posts. But I could be wrong.

Via Dr. Black, those RBC models may be missing a variable or two:

In April, the rate in the United States rose to 8.9 percent. When the European figures are compiled, it seems likely that the American rate will be higher for the first time since Eurostat began compiling the numbers in 1993....

First, it appears that the safety nets in many Western European economies made it easier for people to keep their jobs as the economy declined. In Germany, programs allow companies to get government help in paying workers, for example, keeping them employed. If the recession becomes severe enough and long enough, of course, it could turn out those programs do not so much avoid the pain as defer it.

Because the alternatives are either direct government unemployment benefits on top of a decrease in GDP or a decline in social welfare with generational implications.

Another factor may be the lack of an economic boom in many European countries, which has left them less vulnerable to recession-related cutbacks.

Ah, pure RBC theory: the seeds of the next recession are sown in the economic growth that preceded it, even if that growth was somewhat enhanced by long-term liabilities:

Interesting, not unrelated, notes:

Then, the United States had an unemployment rate of 4.7 percent, lower than all but three of the 15 European Union countries — Denmark, the Netherlands and Ireland — and equal to that of a fourth, Luxembourg.

As the graphic shows, the March rate for the United States was higher than the rates of 11 of the 15. The exceptions were Portugal, which has the same rate, and Spain, Ireland and France.

The Irish story was truly a country-wide "miracle," now featuring both higher highs and lower lows than even the U.S.

Spain and Ireland, two of the highest unemployment countries in Western Europe, suffered housing booms and busts that were comparable to the cycle in the United States.

Spanish banks hit the news earlier this week. U.S. banks are evermore heavily subsidized by the U.S. taxpayer (or that taxpayer's debt; see above). Or, as Robert Lucas told Arjo Klamer in May of 1982:

But I don't think unemployment is at the center of the story [of the Great Depression]. For those who do think it is the center, I can see why they don't look to me for enlightment.

What a difference 27 years makes.

Shorter Verbatim Lionel Hutz:

If there's one thing America needs, it's more lawyers. Can you imagine a world without lawyers?

P.S.: But for the National 'Ealth, Britain would be a capitalist paradise today!

P.P.S.: Brad DeLong is an optimist.

by Bruce Webb
reader Buffpilot in comments insists the answer is clearly yes on the grounds

The Dems, have NEVER, shown fiscal responsibility when in charge of the purse strings (or at least since before LBJ). So you have zero track record to back you up on thinking that the Dems will suddenly cut back government expenditures and raise taxes to at least get close to balancing the budget. Can you imagine the Dems actually cutting the size of the Federal governemnt? Or reducing its power? Neither do I. BTW the Rs have not been any better.

Well the historical record tells us something different. If we examine Total Debt as a percentage of GDP it went down or stayed even under every post-war President not named Reagan or Bush. We were able to fund the post-war GI bill, the Marshall Plan, Korea, the Great Society, Vietnam, navigate the first Oil Shock all of it except for two years with a Democratically controlled house. And came through the whole thing with debt as a percentage of GDP bottoming out in 1980. I am afraid the old narrative of Democrats as the party of tax and spend policy leading to ever increasing deficts while Republicans being the party of fiscal responsibility has really not been the case since Eisenhower left office. Instead the whole concept of Small Government has since 1964 and the birth of the Modern Republican Party meant "don't spend tax money on undeserving poor people".

Ken Houghton

Not Veteran's Day, which is a U.S. construction to make certain we don't have to give another Federal holiday to Those Who Served. And arguably not Remembrance Day, the version here in Canada, since (as Rob[ert] Farley notes) there are "only" ten known survivors remaining of The War to End All Wars, which ended ninety (90) years ago today. (Ten is pretty good, if you think about it; the youngest two are 107.)

So let's talk, in broad terms, about why it was not The War to End All Wars, why remembrance of mustard gas and Verdun and the Somme didn't cause everyone to realize we never wanted to do it again, at any price.

As I said, we're using wide brush strokes here, and this is an economics blog. SO let's talk about the Treaty of Versailles.

The U.S. was in the War to End All Wars for just over 18 months (6 April 1917 - 11 November 1918). For the time running up to the declaration of war, they sold equipment to both sides. Not necessarily equally, and maybe at a reduced pace to the German side after 7 May 1915, but there was commerce going on. (Same story in World War II, as followers of Henry Ford's career know all too well.)

France, by contrast, lost 1,400,000 soldiers in that war. There is a generation taken from the country, and a country to rebuild without those on whose backs such building usually occurs.

Can anyone wonder that France wanted the Germans penalized to the extent that they would not be able to support an armed force again? There would be no one to fight.*

And yet all one ever hears is the John Maynard Keyneses and Bernard Baruchs decrying the terms of the Treaty—how they were unfair to Germany.

And the subsequent talk has all been about how Keynes and Baruch and the others were correct, and it was a mean, evil thing to make poor Germany suffer after they destroyed the breeding-age male population (and then some) of another country. From that perspective, it is difficult to imagine a different Treaty being agreed, since anything less penurious would make France worse off, and therefore not be even weakly Pareto-optimal.

Which is where we turn this into an economics post.

Because there is a way to improve the solution: Compensating Variation. Everyone's lot is improved by some reallocations. And while Hicks does the mathematics in 1939, it isn't as if such a general pattern cannot be seen on the schoolyards of Flanders and Eton.

In this case, the United States was the clear winner of the War to End All Wars. THe British did not suffer so much as the French. And in both cases, prominent public officials (Baruch from the United States, Keynes from Britain) spoke out about the Treaty, forcing one to the suspicion*** that leaders in both countries suspected from the start that the terms were penurious, and would lead to resentment among the German people.

Which brings us to Compensating Variation. Why would not the U.S. and the U.K. (such as it were) not be offering aid to France, in exchange for terms in the Treaty of Versailles that would lessen the likelihood that Flanders Field would again be invoked?

The next time someone tells you that all will be well when a Treaty is executed, because all we need is that some of the winners offer compensating variation to the losers, ask them why Armistice Day now must honor not only its own dead, but also the dead of the wars that followed The War to End All Wars.

*And, indeed, the demographics corroborate this. In 1940, the total population of France is 42 million people. The population of Germany and Austria is 78 million. 1.86 to 1. More significantly, the Armed Forces of the respective countries stand at 4.6 and 17.9 million: 3.9 to 1.

The result is inevitable: the French have more civilian casualties (470K) than the U.S. does military ones (405K).**

**Canada, by the way, loses 3.57% of its military force in World War II: more by percentage than France, the U.S., Australia, or the Netherlands.

***I said I'm talking broad strokes here, but the 1919 publication of The Economic Consequences of the Peace and the necessity of publishing The Making of the Reparation and Economic Sections of the Treaty in 1920 makes it clear that the arguments over the harshness of the treaty were contemporaneous. (Baruch, in fairness, was one of the negotiators of the Treaty, and only later became discouraged as he saw both how the results were handled, and how Ford maligned and slimed him while profiteering.

Ken Houghton

Not Veteran's Day, which is a U.S. construction to make certain we don't have to give another Federal holiday to Those Who Served. And arguably not Remembrance Day, the version here in Canada, since (as Rob[ert] Farley notes) there are "only" ten known survivors remaining of The War to End All Wars, which ended ninety (90) years ago today. (Ten is pretty good, if you think about it; the youngest two are 107.)

So let's talk, in broad terms, about why it was not The War to End All Wars, why remembrance of mustard gas and Verdun and the Somme didn't cause everyone to realize we never wanted to do it again, at any price.

As I said, we're using wide brush strokes here, and this is an economics blog. SO let's talk about the Treaty of Versailles.

The U.S. was in the War to End All Wars for just over 18 months (6 April 1917 - 11 November 1918). For the time running up to the declaration of war, they sold equipment to both sides. Not necessarily equally, and maybe at a reduced pace to the German side after 7 May 1915, but there was commerce going on. (Same story in World War II, as followers of Henry Ford's career know all too well.)

France, by contrast, lost 1,400,000 soldiers in that war. There is a generation taken from the country, and a country to rebuild without those on whose backs such building usually occurs.

Can anyone wonder that France wanted the Germans penalized to the extent that they would not be able to support an armed force again? There would be no one to fight.*

And yet all one ever hears is the John Maynard Keyneses and Bernard Baruchs decrying the terms of the Treaty—how they were unfair to Germany.

And the subsequent talk has all been about how Keynes and Baruch and the others were correct, and it was a mean, evil thing to make poor Germany suffer after they destroyed the breeding-age male population (and then some) of another country. From that perspective, it is difficult to imagine a different Treaty being agreed, since anything less penurious would make France worse off, and therefore not be even weakly Pareto-optimal.

Which is where we turn this into an economics post.

Because there is a way to improve the solution: Compensating Variation. Everyone's lot is improved by some reallocations. And while Hicks does the mathematics in 1939, it isn't as if such a general pattern cannot be seen on the schoolyards of Flanders and Eton.

In this case, the United States was the clear winner of the War to End All Wars. THe British did not suffer so much as the French. And in both cases, prominent public officials (Baruch from the United States, Keynes from Britain) spoke out about the Treaty, forcing one to the suspicion*** that leaders in both countries suspected from the start that the terms were penurious, and would lead to resentment among the German people.

Which brings us to Compensating Variation. Why would not the U.S. and the U.K. (such as it were) not be offering aid to France, in exchange for terms in the Treaty of Versailles that would lessen the likelihood that Flanders Field would again be invoked?

The next time someone tells you that all will be well when a Treaty is executed, because all we need is that some of the winners offer compensating variation to the losers, ask them why Armistice Day now must honor not only its own dead, but also the dead of the wars that followed The War to End All Wars.

*And, indeed, the demographics corroborate this. In 1940, the total population of France is 42 million people. The population of Germany and Austria is 78 million. 1.86 to 1. More significantly, the Armed Forces of the respective countries stand at 4.6 and 17.9 million: 3.9 to 1.

The result is inevitable: the French have more civilian casualties (470K) than the U.S. does military ones (405K).**

**Canada, by the way, loses 3.57% of its military force in World War II: more by percentage than France, the U.S., Australia, or the Netherlands.

***I said I'm talking broad strokes here, but the 1919 publication of The Economic Consequences of the Peace and the necessity of publishing The Making of the Reparation and Economic Sections of the Treaty in 1920 makes it clear that the arguments over the harshness of the treaty were contemporaneous. (Baruch, in fairness, was one of the negotiators of the Treaty, and only later became discouraged as he saw both how the results were handled, and how Ford maligned and slimed him while profiteering.

by Divorced one like Bush
(successfully I might add)

I had the following quotes sitting around for awhile. Like May of 07. Being that we have a "crisis" with our economy (I have a hard time with the word crisis being used, it implies suddenness, unseen), a new governing philosophy in place and we really, really, really have to broaden our discussion, I feel this is the time to post some thoughts on GDP. It goes along with asking what I think is the most important, "In the beginning", big bang question to ask now that we have been a "great social experiment" for TWO HUNDRED and THIRTY TWO years: What do we want our economy to do for us?

I think it's about time we ask this question, No? The "for us" is the important subject of the question.

But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction - purpose and dignity - that afflicts us all. Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife. And the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
Robert Kennedy, University of Kansas. 3/18/68

Unfortunately GDP figures are generally used without the caveat that they represent an income that cannot be sustained. Current calculations ignore the degradation of the natural resource base and view the sale of non-renewable resources entirely as income. A better way must be found to measure the prosperity and progress of mankind”
Barber Conable,
former President of the World Bank, 1989

Simon Kuznets - GDP's creator - in his very first report to the US Congress in 1934 said[2]:
...the welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

by Divorced one like Bush
(successfully I might add)

I had the following quotes sitting around for awhile. Like May of 07. Being that we have a "crisis" with our economy (I have a hard time with the word crisis being used, it implies suddenness, unseen), a new governing philosophy in place and we really, really, really have to broaden our discussion, I feel this is the time to post some thoughts on GDP. It goes along with asking what I think is the most important, "In the beginning", big bang question to ask now that we have been a "great social experiment" for TWO HUNDRED and THIRTY TWO years: What do we want our economy to do for us?

I think it's about time we ask this question, No? The "for us" is the important subject of the question.

But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction - purpose and dignity - that afflicts us all. Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife. And the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
Robert Kennedy, University of Kansas. 3/18/68

Unfortunately GDP figures are generally used without the caveat that they represent an income that cannot be sustained. Current calculations ignore the degradation of the natural resource base and view the sale of non-renewable resources entirely as income. A better way must be found to measure the prosperity and progress of mankind”
Barber Conable,
former President of the World Bank, 1989

Simon Kuznets - GDP's creator - in his very first report to the US Congress in 1934 said[2]:
...the welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

And sometimes it would be better if it stayed that way.

Remember, Real Business Cycle is when you look back at the Perfect Storm and note how calm the water is now.

Yes, I know. prize in honor of and all that.

And sometimes it would be better if it stayed that way.

Remember, Real Business Cycle is when you look back at the Perfect Storm and note how calm the water is now.

Yes, I know. prize in honor of and all that.

Ladies and gentlemen, Tyler ("So Right It Hurts") Cowen presents the following, er, argument:

Excessive bank regulation is another danger. To be sure, the regulatory structure for financial institutions failed in the current crisis, and change is in order. But we shouldn’t reform in a way that will discourage bank lending and weaken the tie between savings and investment. Banks are already allergic to very risky mortgages — probably excessively so — and we shouldn’t overreact by punishing them for past mistakes. [emphasis mine]

Somewhere, an Economic Angel had its wings rent asunder.

Ladies and gentlemen, Tyler ("So Right It Hurts") Cowen presents the following, er, argument:

Excessive bank regulation is another danger. To be sure, the regulatory structure for financial institutions failed in the current crisis, and change is in order. But we shouldn’t reform in a way that will discourage bank lending and weaken the tie between savings and investment. Banks are already allergic to very risky mortgages — probably excessively so — and we shouldn’t overreact by punishing them for past mistakes. [emphasis mine]

Somewhere, an Economic Angel had its wings rent asunder.

Mark Thoma asks for comments on a set of supposed propositions of economic science that ran in the City Journal, a/k/a the glibertarian Manhattan Institute's house organ. I thought the best thing I could do would be to fill in some ellipses from Mark's extended citation:

1. The market economy is the most efficient of all economic systems.

Some market economies are more market, and more efficient than others. (At the same time? Hey, is that an underpants gnome over there?!)

2. Free trade helps economic development.

Unless it's trade in intellectual property.

3. Good institutions help development.

However, we have no idea what exactly those are.

4. The best measure of a good economy is its growth.

Growth is also acceptable as a measure of a not-so-good economy.

5. Creative destruction is the engine of economic growth.

So is non-creative destruction (see also #4).

6. Monetary stability, too, is necessary for growth; inflation is always harmful.

Especially wage inflation.

7. Unemployment among unskilled workers is largely determined by how much labor costs.

Because some sectors of the economy only have supply curves.

8. While the welfare state is necessary in some form, it isn’t always effective.

1. Freedom. 2. ??? 3. Dinner on the table!

And don't take away our cars.

9. The creation of complex financial markets has brought about economic progress.

In the finance and/or litigation sectors.

10. Competition is usually desirable.

But we're flexible on this in surprising ways.

Mark Thoma asks for comments on a set of supposed propositions of economic science that ran in the City Journal, a/k/a the glibertarian Manhattan Institute's house organ. I thought the best thing I could do would be to fill in some ellipses from Mark's extended citation:

1. The market economy is the most efficient of all economic systems.

Some market economies are more market, and more efficient than others. (At the same time? Hey, is that an underpants gnome over there?!)

2. Free trade helps economic development.

Unless it's trade in intellectual property.

3. Good institutions help development.

However, we have no idea what exactly those are.

4. The best measure of a good economy is its growth.

Growth is also acceptable as a measure of a not-so-good economy.

5. Creative destruction is the engine of economic growth.

So is non-creative destruction (see also #4).

6. Monetary stability, too, is necessary for growth; inflation is always harmful.

Especially wage inflation.

7. Unemployment among unskilled workers is largely determined by how much labor costs.

Because some sectors of the economy only have supply curves.

8. While the welfare state is necessary in some form, it isn’t always effective.

1. Freedom. 2. ??? 3. Dinner on the table!

And don't take away our cars.

9. The creation of complex financial markets has brought about economic progress.

In the finance and/or litigation sectors.

10. Competition is usually desirable.

But we're flexible on this in surprising ways.

Tim Harford (h/t Mark Thoma) presents the old trade-off between Rationality and Cooperation, with a curious parenthetic:

Except, nobody really thinks this is the way players would behave in reality. The optimal strategy seems sociopathic; isn’t it worth playing cooperatively in the hope that the other player will do the same thing? (Unlike much real human interaction, standard game theory does not accomodate the “hope” that someone else will play suboptimally: optimal play is to be expected at all times. )

But Ignacio Palacios-Huerta...and Oscar Volij gave the centipede game to skilled chess players. They found that the chess players were far more likely to play optimally; grandmasters always played optimally and took the $4. Hyper-rationality can be a disadvantage. (Or did the experiment discover something else: that chess grandmasters are sociopaths?) Palacios-Huerta and Volij don’t speculate. My guess is that they have discovered something about the rationality rather than morality or empathy of chess players, but I may be wrong. [emphasis mine; parenthetic link about real football omitted]

They should run the same experiment with Tour de France riders.

Tim Harford (h/t Mark Thoma) presents the old trade-off between Rationality and Cooperation, with a curious parenthetic:

Except, nobody really thinks this is the way players would behave in reality. The optimal strategy seems sociopathic; isn’t it worth playing cooperatively in the hope that the other player will do the same thing? (Unlike much real human interaction, standard game theory does not accomodate the “hope” that someone else will play suboptimally: optimal play is to be expected at all times. )

But Ignacio Palacios-Huerta...and Oscar Volij gave the centipede game to skilled chess players. They found that the chess players were far more likely to play optimally; grandmasters always played optimally and took the $4. Hyper-rationality can be a disadvantage. (Or did the experiment discover something else: that chess grandmasters are sociopaths?) Palacios-Huerta and Volij don’t speculate. My guess is that they have discovered something about the rationality rather than morality or empathy of chess players, but I may be wrong. [emphasis mine; parenthetic link about real football omitted]

They should run the same experiment with Tour de France riders.

Both would benefit from a higher inflation index than CPI. AEI hack (and former Social Security Administration commissioner!) Andrew Biggs redefines bracket creep (*) for the W$J op-ed page:

Tax revenues would skyrocket if the tax cuts expire, due to "bracket creep." Average incomes are higher today than in the 1990s, but income-tax brackets aren't adjusted for the growth of earnings. As a result, Americans will shift into higher tax brackets and pay a greater share of their incomes in taxes. [emphasis added]

Via Greg Mankiw, who for inscrutable reasons calls this "reporting."

Of course, tax brackets (with the notable exception of those of the Alternative Minimum Tax) now are indexed for growth in prices, at least to the extent that's measured by CPI. Really, this is part of a broader attack on progressive taxation, as you can see from an earlier effort along these lines by AEI über-hack Kevin Hassett of Dow 36,000 fame. Though I suppose there may be some positive side effects for society if the AEI's paymasters had to allow enough trickle-down to keep average wage growth ahead of CPI.

Both would benefit from a higher inflation index than CPI. AEI hack (and former Social Security Administration commissioner!) Andrew Biggs redefines bracket creep (*) for the W$J op-ed page:

Tax revenues would skyrocket if the tax cuts expire, due to "bracket creep." Average incomes are higher today than in the 1990s, but income-tax brackets aren't adjusted for the growth of earnings. As a result, Americans will shift into higher tax brackets and pay a greater share of their incomes in taxes. [emphasis added]

Via Greg Mankiw, who for inscrutable reasons calls this "reporting."

Of course, tax brackets (with the notable exception of those of the Alternative Minimum Tax) now are indexed for growth in prices, at least to the extent that's measured by CPI. Really, this is part of a broader attack on progressive taxation, as you can see from an earlier effort along these lines by AEI über-hack Kevin Hassett of Dow 36,000 fame. Though I suppose there may be some positive side effects for society if the AEI's paymasters had to allow enough trickle-down to keep average wage growth ahead of CPI.