This reminds me of those cases where the Mississippi floods out a bunch of people who were living in flood planes thanks to government subsidized insurance. The free market says “don’t do it!” but the state overrides it.
The Vermont state government is currently funding a study on the comprehensive effects of cannabis legalization.
I find myself wondering how you’d estimate such a policy’s tax revenue effects. I look forward to reading the study and seeing how they (the RAND corp) go about doing this.
The main thing to focus on is the effect of bringing the cannabis industry into de jure GDP. Right now lots of products are being sold on the black market. This really should be counted in GDP, because it’s a final transaction, but it goes untaxed and unrecorded. Its similar to the problem of home production. Before the 1970s working age women produced final food products and rendered household and childrearing services outside of the de jure economy. Lots of women still worked for cash, but you know what I’m saying, it’s not like today. Home-working women the ‘drug dealers’ in this example. Then, for complex reasons, women shifted into the cash economy, GDP statistics and the taxman captured the resulting change. However, the original production had a cash value greater than zero, so the measured effect exaggerates the gain in production.
If you’re the government, and your goal is to maximize tax revenue while also staying in power, you should be out hunting for opportunities to bring economic activity from the ‘informal’ side of the ledger to the ‘measured and taxed’ side.
The thing is, how do you measure the black market? How do you anticipate the industrial transformations that happen in the transition. Presumably, without the black market constraint, productivity in the industry will skyrocket, if only from the improvement in worker ability. In a case like this you never get much beyond ‘back of the envelope’ sorts of results.
This is why federalism is so great. The only reason Vermont is looking at this so soon is because the Colorado government made a boatload of money off their legalization. That’s evidence that convinces people. If your state’s politics permit legalization, and you’re a state government, this is a no-brainer, especially for a state like Vermont which is already has high taxes on obvious revenue sources. The Vermont state government is in a bind, because the governor overpromissed on a single-payer healthcare system. Just maybe the state can narrow the gap by becoming the weed-beer-skiing tourism hub for Boston, Montreal and NYC. There are risks, but then Vermont votes for governor every two years.
There are also tax gains from people shifting spending from consumer industries less-taxed than cannabis presumably would be. Imagine if people bought fewer groceries and more drinks at bars. A dollar of bar drink is taxed at a higher rate than groceries, especially food. This is less interesting, because it increases the Taxes:GDP ratio, which I don’t like, but it could still be a big source of cash for the government.
1.Which admittedly is buried within aggregate production growth and confounded by swings in productivity
2. I find that this example also helps show why real GDP is best though of as a production index. You can certainly come up with a reasonable dollarization of a given period of housewife production, but it’s somewhat misleading. The shift from home production to market production results in such a marked change in the economy that it seems odd to me that we’d choose to think of it first as a dollar concept. It’s more of a magnitude, a direction in a very big space. Using an index would more-readily bring the mind to this understanding, and I imagine that if RGDP were published as an index, with the dollarization buried in the release, that RGDP growth would get a lot less attention.
Can’t help but think this amnesty is a bad deal for 98+% of citizens. I’m most concerned about knock-on migration, rather than the direct effects.
I think it is an especially bad deal for U.S. citizens who will out-use the welfare state in the future.
I define the welfare state as all the usual programs, plus much of government employment, including useless non-combat, non-logistics military positions.
The welfare state is a zero sum game. It probably has a net effect of lowering potential GDP. If 12 people want food stamps, a 23 year old psychology major can’t have $90k-per-year Social Media Coordinator position.
When you increase the future burdens on The State, like Obama just did, you lower per capita transfers that future poor Americans can get. Essentially, it’s bad for any victim group that uses the welfare state a lot. It’s not Chinese engineers that are going to flood in, it’s people with 20th percentile productivity, who are going to be a net stress on hospitals, police, food stamps and schools. On the average, their grandchildren will be a net stress too.
My assumption is that taxes:GDP is really really hard to move much. More illegal immigration will just cause marginal son-of-a-steel-worker democrat-voters to turn Tea Party. The Democrats are setting themselves up great for the 2080s (or at least some quasi-successor party bearing the name Democrat), but it will take longer than they think to elect a new people, because said election so-harms their true base.
Even if I am wrong and even more illegal immigration by Latin America’s least-productive workers so-swings electoral dynamics that taxes/GDP increases enough to keep up with the net increase in the welfare-state load, a lot of people loose. I’m thinking of the ~50% of adults who pay income taxes…do they count though?
Update: Molyneux on the Obama Amnesty
A friend sent me a link to augur.net last night. It’s a decentralized prediction market start up. Unlike past prediction markets like intrade, these guys are going to try and set their market up using Bitcoin so it will be anonymous and hard for the bullies in U.S. government to shut down. I take this to also mean that Americans will be able to trade in the market, which won’t be the case with Sumner’s new NGDP market project.
I don’t know anyone on the team, and I haven’t even finished reading their theory paper yet, but so far it looks pretty cool. I particularly like that they’re using Bitcoin. If the government would just be reasonable and take a cut of the action (which is their right, as the uber neighborhood boss) we wouldn’t need Bitcoin, but for whatever reason its OK to bet on meaningless things like horses or football or spinning wheels, but not alright to bet on election outcomes or macro economic events, where the betting would yield socially useful signals. It’s possibly the government’s weirdest prohibition.
I just hope these guys aren’t based in the U.S., the safest place for them would be Russia or China (what a weird world we live in) but if I had to guess I’d say they’re in the Bay Area and if successful, will have their lives ruined.
Between direct consulting gigs, job interviews and a trip to San Francisco, I’ve flown a good deal in 2014. Right now I find myself on the tarmac at Laguardia, trapped with 50 other souls in a puddle jumper with some lady and her wretched squalling hellspawn.
There’s one on every flight.
I’m not much of a microeconomist, but the present way that Airlines deal with babies puzzles me. Every airline I’ve traveled on charges nothing for babies! I would gladly pay $50 an hour for a baby – free seat. I imagine others would be willing pay enough for airlines to offset their costs if they were to forbid babies on some on their flights.
Hi all, I know a lot of people in the U.S. and Brazil have been frustrated that they can’t get synthetic NGDP market forecasts lately. I confess that I don’t completely understand why the system is crashing so often, but I believe that the root cause is that my code is not capable of recovering from certain types of connection problems with my Amazon web server. I think that some times the traffic will be too high, which causes R to time out while it’s trying to open the text file that hold the current day’s intraday prices. I confess to not knowing what I am doing, but I am learning. I will fix it.
My hope is that if I port my web scraper into Python, from R, and maintain separate servers for 1.gathering intraday prices from financial websites and 2. updating the forecast and hosting the web pages, that this will increase stability. A hurdle to fixing things is that I am quite busy with a fantastic new job in a cool new city, and the fact that because things were so stable this summer, I sort of forgot the details of the R scripts that run everything. I don’t know when I will do the rebuild, but in the mean time I will continue to make remedial efforts to post forecasts. They may not always be real time, but I have my personal desktop computer running a backup web scrape, starting tomorrow, so if the gods are good I’ll have a viable backup.
My goal was to have forecasts for Japan and the UK running by the end of 2014. This is looking less likely, mostly because I’m having a hard time finding prices. If anyone is aware of real time data sources for Japanes or British inflation indexed bonds, normal bonds, REITs or other Japan- or UK-specific asset prices, please email me at justinpirving [that sign you use for email] gmail.com or leave a comment.
Thanks for barering with me.
1. Brazil is number two biggest traffic source for the site. I am honored.
I was going to write a post on what I think of Scotland leaving the UK, but then I came across this commentary by Pat Buchanan and now need only point you to it: What Would Brave Heart Do?
Here’s my favorite quote from Buchanan’s piece:
The call of blood, history, faith, culture and memory is winning the struggle against Economism, the Western materialist ideology that holds that the desire for money and things is what ultimately motivates mankind.
The point of life isn’t to maximize GDP, it’s to see that one’s genes and memes are replicated on into the future. Scottish independence puts the current citizens of Scotland (the people who own Scotland), and the super organism that is Scotland (genes and culture in the flesh), in a better footing for meeting life’s true imperative. It also meaningfully weakens Labour, which can’t be bad.
The only downside to independence is that is leaves the UK slightly militarily weaker in a world full of threats.