Archive forRegulation

Milton Friedman on the economics of legalization

I’ve posted a video of Milton Friedman before on minimum wage laws, this time it’s his take on the legalization of various drugs. Regardless of your stance on marijuana or any other illegal narcotic, there is still a huge discussion going on regarding the economics of it all. Friedman goes on to argue that through keeping many drugs illegal, in fact, the government is protecting the cartels allowing them to charge whatever price they wish for dangerous substances. These monopolies also bring in other crimes such as human trafficking and gun trade into the mix.


The rising U.S. debt crisis is real problem.

You may have heard in the news about  the “fiscal cliff” that the United States is appraoching. This is most certainly something to pay attention to. The fiscal cliff refers to the expected drop in the U.S. defecit in the first days of 2013 by roughly half, the (bi-partisan by law) Congressional Budget Office predicts that will lead to a recession in the begining of 2013. This is obviously not a good thing, and taxes most likely be raised in 2013 in order to combat this and will add %19.3 in tax revenue. However (not surprisingly with Obama in office), there only a .25% reduction in spending from 2012 to 2013. This doesnt not take into account the astronomical amount of debt we are accumulating. What the article attatched to this post reminds us of is: that the defecit is not the real problem. We currently have $86 TRILLION in unfunded debt and liabilites, and that number is still climbing, in fact its growing 21 times faster than the economy. THAT IS SCARY.

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Black Friday may not have an Economic Jolt

With people lining up early to wait in line at the malls, people might think that this is good for the economy, but it is really not helping bring change to the economy. People only have so much money that they will spend in a year, so they may splurge and spend a lot during black Friday, but that just means they will spend less other times in the year. The economy needs more exports and investments rather than consumer spending. It is interesting that this is not helping because it seems like such an influx of money being spent would be a good thing for the economy. In this article it brings up the idea of a consumer tax to try and help solve the problem, but it mentions how that would not be favored.

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“Law and Disorder” -The Economist

This article is relevant to the material we are currently working on of public goods, institutions, and social welfare. The author states that the abundance of overlapping and simultaneously independent groups/committees/organizations that prosecute financial institutions is leading to inefficiency in our government. Aside from the SEC, Department of Justice, and the CFTC, there are countless others that can take one firm to trial for essentially the same offense. Particularly alarming, these institutions – founded to increase social welfare by making wrongdoers responsible for their actions – are in fierce competition with each other to be the first to attack a firm. This is because the main course of action is to settle with the company, and whoever gets there first can get the largest amount of money. Many SEC cases recently were settled on the very same day that the complaint was filed. The person responsible for making such a deal in the governmental institution has a lot to gain monetarily and in prestige. Therefore, the personal incentives no longer line up with the social welfare; a SEC official is seeking out a high profile case to put him further in his career, not bringing justice to a financial firm.
Furthermore, there is the issue of transparency that makes this plethora of institutions damaging to social welfare. Being litigated by so many different groups means that most firms find the law confusing and abstract, the only solution when a problem arises being to throw money into a settlement. I believe that the tangled and overlapping administrations highlighted in this article are indicative of a major issue plaguing all of our institutions in the U.S.


Labor Markets: Airline pilots

This article in the Wall Street Journal predicts an in increase in pilot salaries, a shortage of pilots (because even higher salaries won’t enable pilots to train immediately), higher airline prices, and potentially riskier flights with some airlines.

This new regulation would be a good one to try modeling using either the competitive labor market model to see the impact on pilot salaries of the two shocks (high retirement rates and new regulation) or a competitive goods market model to see the impact of higher pilot salaries on airline prices.

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