That was the proposition being debated on the Intelligence Squared podcast.

Moderated by ABC News’ John Donvan, this debate featured Richard Fisher–President and CEO of the Federal Reserve Bank of Dallas and Simon Johnson–MIT Professor of Entrepreneurship, who argued for the motion; and Douglas Elliott–Fellow in Economic Studies for the Brookings Institution and Paul Saltzman, President of the Clearing House Association, who argued against the motion.

Here is description of the debate:

To prevent the collapse of the global financial system in 2008, Treasury committed 245 billion in taxpayer dollars to stabilize America’s banking institutions. Today, banks that were once “too big to fail” have only grown bigger, with JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs holding assets equal to over 50% of the U.S. economy. Were size and complexity at the root of the financial crisis, or do calls to break up the big banks ignore real benefits that only economies of scale can pass on to customers and investors?

Break Up The Big Banks?

/ Matthew Clemente / Leave a comment

Why No Hate for Job-Killing Advertising?

/ Edward Thater / Leave a comment

As the various branches of the federal government continue to struggle to find ways to put the nation’s fiscal house in better order, a key component of these discussions is whether and how to make tax reforms. If you spend more than five minutes watching Sunday morning news, you know that some policymakers are pretty insistent that taxes cannot be raised because taxes “kill jobs.” My response to this is, “So what?” A lot of economic actions “kill jobs,” many to a larger degree than taxes do, but no policymakers are looking to ban those actions as bad for the economy.

Now, don’t misconstrue me here, dear readers. I am all in favor of tax reform. I think our federal taxation system is too complicated, has far too high a level of compliance costs, and is otherwise a pretty bad way to go about raising government revenue. However, unless and until there is a political consensus about where and how much to cut government spending, there is a legitimate case to be made (one that you don’t necessarily need to agree with) for increasing our current tax revenue to cover more of the costs of government so that we can borrow less. (As an aside, the debate around government spending is usually off base as well. The question should almost never be “how much should we spend?” but rather “are we spending the correct amount of money on the correct things?” But that is a topic for a different blog post.)

It is quite well established that taxes reduce production and reduce jobs. Let’s say the government imposes a $10 tax on widgets. Let’s also say that for the purpose of this example, the market conditions are such that the price of widgets rises by $5. This means that consumers bear half of the cost of the tax through higher prices, while producers bear half the cost of the tax through a hit to their bottom lines. (A fuller discussion of tax incidence and why producers can’t simply pass on 100% of the tax’s cost to their consumers is beyond the scope of this particular post.) However, this means some consumers will be priced out of the widget market, as they will be unwilling and/or unable to pay the new, higher price. Likewise, facing diminished demand and the hit to their bottom lines, producers will scale back production or leave the widget business entirely. That means fewer people employed making widgets. Economists call this loss of economic activity (fewer people buying widgets and fewer producers making widgets) deadweight loss, and it does translate to fewer jobs on an economy-wide scale.

However, lots of other things cause deadweight loss besides taxes. Take, for example, monopolies. The reason monopolies are generally considered bad is because they maximize their profits by creating artificial shortages. This in turn creates a rise in the price per unit (shortage of supply drives prices up), which increases the monopoly’s profits. The monopoly could create more units and sell them at a lower price to people who want the units while still turning a profit, but it wouldn’t be as big of a profit as the one it gets from its artificial shortage. Thus, unchecked market power, which is the ability to control the market price by controlling the quantity produced, creates deadweight loss.

While monopoly is one extreme example of market power, millions of firms in the U.S. economy enjoy some level of market power that allows them to withhold production in order to increase profits. And what causes these firms to have this market power they exercise? For most of them, it is simple advertising.

Companies advertise to build their “market share” by attracting new customers and by building brand loyalty. This, in turn, leads to those businesses commanding a portion of their markets, which allows them to withhold production and make more money. If you’ve ever known someone who rushed to the store to buy the latest Disney DVD release before it goes “back into the vault,” you’ve seen this technique in action. But it’s not just Disney. Firms of all sizes use similar techniques to make more money.

So why aren’t any politicians railing against job-killing advertising? After all, given the millions of firms with some level of market power, the number of lost jobs to advertising is at least as big, if not bigger, than the number of jobs lost to taxes. The obvious political answers are that (a) few policymakers in D.C. have had any sort of economics training, and (b) business hate taxes, which hurts their balance sheets, but love advertising, which pads their balance sheets at the expense of their competitors, so they tend to lobby against the one and not the other.

There are many good reasons to support a smarter tax system with lower rates and a broader base. Such a system would cause less deadweight loss and be better for the economy in the long run. But unless you’re willing to go the extra step to crusade against any economic activity that causes deadweight loss, you should find a better argument to lower taxes.

Germany Is Outraged That America Does What Every Country Does

/ David Kailer / Leave a comment

German Chancellor Angela Merkel expressed outrage at reports that the American National Security Agency allegedly intercepted conversations to and from her mobile cell phone. This comes on the heels of a similar claim from France that the National Security Agency collected tens of thousands of French phone records between December 2012 and January 2013.

The Chancellor argued that such spying constitutes a breach of trust, and that the United States will need to rebuild that trust going forward. The revelation about National Security Agency surveillance is merely the latest in a string of similar stories since former U.S. analyst Edward Snowden leaked that the United States had a very wide-ranging intelligence and surveillance program.

In light of the incident, the German Chancellor suggested limiting the current data-sharing agreement in place between Washington and the nations of the European Union. The article points out that any additional limitations on the free flow of information between the United States and its European allies could have damaging repercussions in the American effort to combat terrorism.

This revelation might prompt the European Union to additionally tighten data privacy rules it is already in the process of drafting. Such new legislation might hinder companies collecting data in Europe and then disseminating that information to non-European nations. The legislation might also impose stiff financial penalties on any country caught violating the new rules.

Any new laws would also affect a program called Swift, based in Europe, which collects data on an international scale about electronic money transfers. Leaks by Edward Snowden indicate that the United States may bee repeatedly violating the agreement underlying the Swift program by retrieving more information than it is permitted to. The article does not indicate whether this suggests the United States pulls more data, or rather collects data about an impermissible range of subjects. The European Union has moved to suspend operation of the program until data sharing laws and policies can be put in place, while the United States has voiced concern that limiting access to the information collected by the program would greatly impede our ability to conduct effective counter-terrorism.

The article ends with a quote from the former head of France’s secret services, Bernard Squarcini, “I’m bewildered by such worrying naiveté. You’d think the politicians don’t read the reports they’re sent – there shouldn’t be any surprise, [t]he agencies know perfectly well that every country, even when they cooperate on anti-terrorism, spies on its allies. The Americans spy on us on the commercial and industrial level like we spy on them, because it’s in the national interest to defend our businesses. No one is fooled.”

This article deals with the moral and legal gray area that is the use of intelligence directed against international allies. In the absence of any binding agreements prohibiting it, should the United States continue gathering secret information about its allies? Should international law reflect a belief that allies are prohibited from spying on each other? Despite the international backlash, are there policy reasons why it might be beneficial to allow allies to spy on each other without explicit knowledge or consent?

The Real Housewife of Ciudad Juárez

/ Andrea Kao / Leave a comment

Border security is a big issue in past and current Immigration Policy debates. Policies in border security include measures that not only increase Border Patrol personnel at the Mexican-American borders, but also call for the erection of physical barriers between the two countries. This is true in “Operation Gatekeeper” in San Diego, California, “Operation Safeguard” in Tuscon, Arizona, and “Operation Hold the Line” in El Paso, Texas.

How does this affect the lives of families that straddle that border?

One woman, Emily Bonderer Cruz, writes all about this exact topic in her blog: The Real Housewife of Ciudad Juárez. She writes about crossing the border, about friends and family and work across the border, and she writes about her husband who is trapped behind that border.

Emily Bonderer Cruz is an American citizen who fell in love with an undocumented immigrant man from Mexico. While love (often) does not care about immigration status, Ray “Gordo” Mundo’s immigration status severely complicated their relationship. Ray Mundo, had been deported back to Mexico before he met Emily. Then he came back into the United States, again without immigration status. Then, he met Emily.  The previous order of removal meant that even if Ray and Emily were to be married, he’d have to live outside of the United States for ten years before being able to re-enter and adjust to Legal Permanent Resident status.

So, Emily moved. She moved with Ray. She moved with Ray to a border town in Mexico. And she commutes passed those giant walls, into El Paso, Texas, every morning.

In July, 2013, NPR’s This American Life featured Emily’s story. Listen to it. Read her blog. It’s fascinating.

The Problem with Possibly Postponing the ACA’s Insurance Mandate

/ Matthew Clemente / Leave a comment

The Problem with Possibly Postponing the ACA’s Insurance Mandate

Yesterday, NPR’s Story of the Day podcast replayed a story from All Things Considered which discusses the problems created by the glitches in the governments Affordable Care Act (ACA) website. Some critics of the ACA are calling for a delay in the implementation of the insurance mandate.  If people cannot sign up for insurance with the government, how can the government penalize people for not having insurance?  As the story explains, the seemingly simple fix of delaying the insurance mandate is complicated. 

Here is are excerpts from the story: 

One of the big questions now circulating concerns what will happen if the website can’t be fixed soon. Will the government really penalize people for not having insurance if they can’t realistically buy it?

Technically, people are supposed to have coverage starting Jan. 1, 2014. But there’s a 90-day grace period, meaning you actually have until the end of March, which is also when the current open enrollment period ends. . . .

Even the administration says it wants to fix this. At a briefing Monday, White House spokesman Jay Carney said, “In terms of the Feb. 15 date that you just mentioned, there’s no question that there’s a disconnect between open enrollment and the individual responsibility time frames in the first year only. And those are going to be addressed.”

And if that mismatch does get changed, it would give people an additional month and a half to sign up without risking a penalty — and without extending the existing open enrollment date.

But what about the possibility of extending the enrollment period, which even some Democratsare now calling for if the website isn’t fixed soon? Or of waiving the penalty for the first year?

That’s where you start to run into big issues with the insurance companies that are offering these products in the exchanges. They set their premiums based on the rules as they’re written — that healthy young people would be strongly encouraged to sign up by the prospect of a penalty, and that they would be encouraged to sign up within this six-month window.