Matt Nolan

Raising the drinking age: Not a lifesaver

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Just saw this article courtesy of Greg Mankiw. In the article the authors talk about the impact of rising the drinking age from 18 to 21 in the US. There were two parts – a voluntary lift in some states, and later on a legislated increase for the whole country.

The key bit for me is this (highlighting by me):

The results are striking. Virtually all the life-saving impact of the MLDA21 comes from the few early-adopting states, not from the larger number that resulted from federal pressure. Further, any life-saving effect in those states that first raised the drinking age was only temporary, occurring largely in the first year or two after switching to the MLDA21.

So this isn’t saying that lifting the drinking age is necessarily a bad idea – but that it isn’t necessarily going to save lives either. In the end only the states which did it voluntarily (where it was more of a community effort) had any impact – and even that was only temporary.
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jamesz

Americans growing more tolerant of gay marriage

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After the sadness of California passing Proposition 8 banning gay marriage last year, there have been a couple of recent victories for civil rights campaigners in Vermont and Iowa. That motivated Nate Silver to work the numbers and ask when we might expect the rest of the US to reject a ban on gay marriage. The outcome is shown in the following diagram from The Map Scroll:

Rejection of ban on gay marriage

Rejection of ban on gay marriage

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Matt Nolan

Consumer prices – not asset prices

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Earlier I mentioned a piece by Steven Gjerstand and Vernon Smith that was a bit harsh on monetarism – as it ignored that the monetarist explanation and a economic readjustment explanation could be complements instead of substitutes.

Now Barry Ritholtz points out another interesting point from the piece – their discussion of the fact that house price growth was effectively taken out of the CPI.  The money quote is:

If home-ownership costs were included in the CPI, inflation would have been 6.2% instead of 3.3%. With nominal interest rates around 6% and inflation around 6%, the real interest rate was near zero, so household borrowing took off.

Let’s discuss.
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Matt Nolan

Obama supports bankruptcy of GM

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To a degree I support this.

Then again – there is an argument to keep them afloat.

If they are subject to a binding credit constraint, and they would be profitable in the medium term, a loan to GM (at market interest rates) could be good for everyone – especially if they are unable to efficiently sell parts of their captial (eg the learning by doing associated with their workers).

Then again what am I saying – GM won’t be profitable in the medium term. Let them eat cake!

Update:  Then again it depends how they do it – this doesn’t sound very good.

jamesz

Legalising drugs

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At Obama’s recent online town hall meeting the most popular question was whether he favoured legalising marijuana. There are plenty of persuasive arguments in favour: the revenues from sales tax and taking drugs out of the hands of gangs to name but two. It was suggested to Obama that taxation of marijuana might be a good way to put a dent in the budget deficit! Of course, there are negative externalities in terms of health costs and negative internalities from addiction (OK, that’s more contentious). According to drug and alcohol rehab centers, one of the worst side effects is addiction, which can also lead to death in extreme cases.

Recent posts here have shown commenters to be against regulation where no externality can be shown. My question is, if the externalities are removed via taxation, is there any good reason to ban drugs? Can the harm from them ever be so high that banning them doesn’t markedly reduce welfare? Here we also need to bear in mind the extreme highs that result from taking drugs and their positive effect on welfare. Read more

Matt Nolan

The US economy is still very mighty

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I was sent a book called “When Giants Fall” – which I am part of the way through.  It is very well written, although I have some issues about the economics type ideas in it.  Once I have finished it I will be sure to pop a review up.

One of the implicit claims in the book and among many people I’ve heard from is that the US is only ahead of everyone else because they are borrowing – once the game of musical chairs between developing nations and the US stops the US will not be the primary superpower, or even a superpower, anymore.

Now I don’t really buy this.  Lets think about the GDP of the US.  Now if the US is borrowing to buy things this wouldn’t increase GDP – as any increase in consumption or investment would be netted out by a similar increase in imports.  US GDP is currently $13.8 trillion pa (US definition of trillion 😉 also all figures are in US$ as of 2007).  The other big boys have:  Japan, $4.3 trillion pa, Germany $3.3 trillion pa, and China $3.3 trillion pa – these three produce less per year COMBINED than the US produces.  World GDP is $54.3 trillion pa – so the US accounts for about a QUARTER of world production.

Sure the US has borrowed a lot, and sure the US economy is in big big trouble at the moment, but lets keep some perspective here – the ability for the US to produce is far beyond anything that any of the rest of the world has.  Could this change over time – sure.  But I wouldn’t say that the US has solely relied on borrowing – it also makes a hell of a lot of stuff.