American Elephants


Rep. Trey Gowdy Questions Professor Jonathan Gruber by The Elephant's Child

At the House Oversight Committee hearing, Representative Trey Gowdy (R-SC) questions Dr. Jonathan Gruber, professor of economics at MIT, who has become known as an ‘architect’ of the Affordable Care Act. Professor Gruber has become widely known for remarks about the stupidity of Americans, but since Republicans unanimously opposed the Affordable Care Act, his demeaning comments could only be directed at Democrats. He was a major promoter of ObamaCare.



A Very Brief Lesson In Economics for Your Profit and Understanding. by The Elephant's Child

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Today’s economics lesson is from Casey Mulligan, professor of economics at the University of Chicago. In an article about the effects of the Affordable Care Act on Economic Productivity from Imprimus, he begins with a key economic concept called  “tax distortions.”

Tax distortions are changes in behavior on the part of businesses or households for the purpose of reducing their taxes or increasing their subsidies. We call them distortions because they don’t occur for real business or real personal reasons. They occur because of the tax code. A   prime example of a tax policy that creates distortions is the ethanol subsidy—technically it is a credit, not a subsidy—whereby gasoline refiners are subsidized on the basis of how many gallons of gas they produce with ethanol. Because of this subsidy, businesses change the type of gas they produce and deliver, people change the type of gas they use—which affects engines—and corn is used for ethanol instead of as feed or food. Nor do the distortions stop there. Arguably, food prices are increased due to the re-location of corn to different uses—and when food prices are higher, restaurants and households do things differently. There are distortions economy-wide, all for the chasing of a subsidy.  

To be clear, just because taxes cause distortions doesn’t mean that we should never have taxes. It just means that in order to get the full picture when it comes to policies like an ethanol subsidy or laws such as the ACA, we need to take into account the tax distortions in order to ensure that the benefits we are seeking exceed the costs.

Tuck that one away in the back of your head, and haul it out when another wonderful scheme is offered to save the planet or care for our health and well-being.




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