Direction of Economic Policies

Here is where Greg Mankiw and I reach a Divide, he asserting that only the size of the Incentive is required, while I would claim that the Stick is very important in the reach for compliance in maintaining health care coverage. Using a Stick approach, Violations will generate a repetitive Tax, one which will be inflicted every time the individual approach a health care need (a new Doctor, Specialist, Clinic, or Hospital visit); the cost of the fines could easily exceed the cost of the health care coverage within one year. Under the Carrot approach of a Tax credit, the value will never equal the cost of health care coverage, and the lucky individual could save money over the interim period of a decade of youth by avoiding health care coverage. There are times for a Carrot, but there are also times for a Stick; Greg should place the entire situation in an economic model by the size of the Incentive, he would find health care coverage becomes about 80% more valuable under the Stick approach, rather than the Carrot approach (under the Carrot–the Insured can only lose the size of the Incentive; under the Stick, the Individual could easily lose an average four times the size of the Incentive).

Tim Haab gives Us a View of the new Drug of Choice–Ethanol. Here is the essential problem: continual construction of ethanol plants will soon make ethanol as expensive as Oil, and will not decrease easily; constructed Plant develops its own economic demand for Product, simply to pay for the Cost of Construction and Operation (another subprime Mortgage crisis). Corn acreage will be excessive, and that excess will not be Short-run, but will continue through the lifetime of the ethanol plants. Ethanol subsidies appear to be a heady Growth factor, except for the fact that Food Consumers will be paying a huge Price for those subsidies; the later can be translated as a indirect Tax on Food Products, and a Tax which will incite a Short-run increase in Food Costs of 10-12%, with a doubling of Food Costs through the full lifetime of the ethanol plants. And Economists say that Tariffs are bad, and Subsidies are great economic incentives.

Alex Tabarrok has a point in stating that the Income Tax is still progressive, even though modern Accounting methods encourage Everyone to cheat on their Taxes, as was inferred by this Post by Cactus at Angry Bear. The error in Tax policy, though, does not reside in this arena; realistically, Taxpayers are paying about what they should in taxes. The Need is for removal of the complexity of Tax law so that Individuals can rely on their own Math skills and simple IRS rules to file their own taxes without Aid or Charge. The next element necessary is an Energy tax with both limits Consumption, and replaces the Tax revenue lost to excessive Government Spending. The final condition is to force Imports to pay the same penalty in Tax, as does domestic production. There is no reason or rationale, or even justification for economic incentives, in the deficit spending of Government. We can generate a Budget Surplus, and still have excellent performance of the Economy, though with an actual 8% decline of Consumption as an operating factor in the Economy (People will buy less, but of more durable Product). lgl