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2slugbaits/Community Values

 
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PostPosted: Mon Jul 13, 2015 6:03 am    Post subject: 2slugbaits/Community Values Reply with quote

Menzie Chinn:

Bottom line: The ALEC ranking, which purports to measure business-friendly policies, is not correlated with real GSP growth, either short term or medium term. This is true if one controls for additional variables.

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PeakTrader:

Given states have to balance their budgets, cutting taxes requires spending cuts, which isnít a stimulative policy on GSP. However, Iíd expect the mix of GSP to change.

Iíd expect education to be a significant factor, because many new jobs are higher skilled jobs.

And, on the national level, the output gap Ė measured by per capita real GDP Ė hasnít begun to close, except through the destruction of potential output, even with accommodative monetary policy and stimulative fiscal policy.

Itís a very unusual period, because the country is still in depression, after the severe recession.

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2slugbaits:

...Finally, and this is really the heart of the matter, we want higher taxes because they tend to increase total welfare even if that higher welfare doesnít show up as higher observed GDP/GSP. This is because public goods tend to generate a lot more consumer surplus than private goods; and this is because individual demand curves for public goods are summed vertically while individual demand curves for private goods are summed horizontally. This means public goods, which are evaluated at the cost of providing the good tend to understate their true welfare value because so much of the consumer surplus is unobserved and unmeasured. Let me give you an example. In GDP and GSP accounting the value of crime fighting is evaluated by summing the costs for police, courts and prisons. But the value to the community is almost always much higher even though no one person would be willing to pay for 100% of the cost.

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PeakTrader:

I think, people are willing to pay. For example, I heard realtors say people are willing to pay an extra $50 a square foot for a house in a good school district. For a 2,000 square foot house, thatís an extra $100,000. Also, theyíre willing to pay several thousand dollars more for a house with parks or open spaces nearby.

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2slugbaits:

Peak Trader I think you misunderstood the example. Being willing to pay more to live in a safer area is not an example of a public good. The public good is in reducing crime, which is very different from moving away and shifting the burden of crime onto someone else. If everyone paid and extra $100K towards crime prevention the welfare benefits of lower crime rates would dwarf the private benefits of moving to a different district. Again, remember the geometry of public goods versus private goods. With public goods the benefits are summed vertically; with private goods the benefits are summed horizontally. In general the welfare triangle of the former is greater than the latter.

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PeakTrader:

2slugbaits, if you want to live in a safer area, or make your area safer, you have to pay for it. Public goods donít materialize out of thin air. People have different values. Thatís why all communities arenít the same.

The values of a community go a long way to explain the state of the community.

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