Value of a Human Life

October 4, 2011
The Cost of a Human Life

The US EPA places a dollar value of $7.9 million on human life.

The EPA estimates that a human life is worth 7.9 million dollars.

They use this figure when calculating the cost of implementing a new regulation.  Supposedly, if we’re worth $7.9 million each, the regulation should cost less to implement than the cost of losing the lives at risk absent implementation.

Figures on the cost of business compliance with Federal regulations range from $1.2 trillion annually to $2.2 trillion annually.  Using the Small Business Administration’s non-partisan figure of $1.75 trillion annually for business compliance costs, we can say that we spend $5,700 per year on compliance for every resident of the US.

But that’s not the only compliance figure.  There are many others, but for the sake of simplicity, we’ll look at the 6.6 billion hours spent per year filling out tax forms.  At the median wage of $16.27 per hour for opportunity cost, this means Americans forgo $10.7 trillion in opportunity cost just doing their taxes.

States also have compliance costs.  Using data from the Small Business Administration, it’s reasonable to estimate these costs at $3.7 trillion  per year.

Let’s add this up: $10.7 + $2.2 + $3.7 = $16.7 trillion (rounding causes imprecision).

Note that this figure includes a substantial amount of what economists call “dead weight loss” – the value that should be in the economy, but isn’t because of some complicating factor.  In this case, that factor is regulation.

Now, for the fun math.  The civilian labor force is (generously) 155 million people in the US.  Dividing compliance costs by the labor force gives us $107,742 in lost value per person per year because of compliance costs.

Now, divide the figure the EPA uses by the lifespan of the average American.  The result: $108,000 per year – or approximately equal to the cost of compliance with regulations.

The figures used above are accurate figures, though their real impact on the economy would likely be somewhere well short of 107,000 additional dollars per person per year.  Nevertheless, the math is clear.

If the US government wants to dramatically increase wealth (by as much as 100%) in the US, they should lessen the ridiculous burden of regulation.

Leave a Comment » | American Dream, Economy, Innovation, Regulation, Ridiculous, Taxes, Unemployment | Permalink
Posted by Vital Signs Blog

It’s the economy, stupid?

October 4, 2011

With electoral season well underway, it’s worth noting that, while the economy will undoubtedly be the biggest issue in the election, the earliest arbiters of the election might not care quite as much about the economy as other states.

The unemployment rate in NH and Iowa, the two earliest presidential determiners, is substantially lower (about 40% lower) than the national average, and within a standard deviation of national levels prior to the recession.

Unemployment and Primaries

This is perhaps the reason that creating jobs is third on the list of most important issues for NH voters, behind cutting the size of government and reducing the debt/deficit.

This is not to say the economy isn’t important.  Poverty is on the rise in both states, and median income has fallen substantially.

Leave a Comment » | American Dream, Economy, Election 2012, Unemployment | Permalink
Posted by Vital Signs Blog

Who owns the US?

October 3, 2011

Who owns the USA?

Ostensibly, we do.  But the numbers are striking – 30% of the US is owned directly by the Federal government.  See below for the striking amount of land owned in each state by the Federal government.

Perhaps with this in mind, the Obama Administration has launched an initiative to help shed off “excess” Federal land.  You can play with the map and see what specific properties are “for sale” in your state!  You can even download the list for use in Excel.

Excess Federal Property

The blue indicates property deemed to be excess by the US government.

Leave a Comment » | American Dream, Federal Government, Land, Taxes | Permalink
Posted by Vital Signs Blog

Smoking, Fast Food, and Recessions

October 3, 2011

Curiously, Americans seemed to be concerned cognitively about both smoking and fast food, even if it doesn’t impact their behavior.  As recent opinion polls show:

Even smokers understand that smoking is bad for them.  Apparently, addiction is greater than commonsense in this instance.

There’s a certain persistence to sales in these markets, due largely to factors like addiction and convenience.

A few studies indicate that, historically speaking, sales of these items fall during recessions because disposable income falls and these goods are luxuries.  I’ve been tracking American spending on “luxury” items on which Americans have become reliant throughout this recession.  Interestingly, many goods, like tobacco products, have had surprisingly sticky demand or even seen demand accelerate sharply.

Profits earned on tobacco and fast food products have accelerated upwards sharply immediately after the recession started and have dropped quickly as we emerged from the recession for each of the last two recessions.  Perhaps these goods, like our underwear index, can be bell-weather indicators for our next economic downturn.

In theory, our social reliance on these products might accelerate as a coping mechanism for the stress created by an economic downturn.  As families felt the stress of a recession in 2007-8, they smoked more and switched from higher-class restaurants back to McDonalds.  As the recession ended, they loosened the purse strings and cut back on bad habits again.

Maybe.  Somebody should do more research on this.

Leave a Comment » | Depression, Economy, Food, Ridiculous, Social Interaction, Underwear | Permalink
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Why Europe is Doomed

October 3, 2011

The Eurozone is doomed to fall apart.  Here’s how things got as bad as they did.

Borrowing costs for the all-but-bankrupt economies of southern Europe were artificially depressed for a decade, allowing these countries to rack up unsustainable amounts of sovereign debt.  Now, the bill is coming due, and all market signs point to a default.

When the euro was introduced, countries with bad credit ratings (like Greece) were suddenly granted the ability to borrow on the same terms as their comrades with good credit ratings (like Germany), causing the interest rates on bonds to converge.  It wasn’t until the financial crisis began to cause the global economy to unravel that markets realized the err of this policy.

As John Makin notes:

The European Monetary Union was, at first, attractive for all of its members, including Germany. European banks were happy to make euro-denominated loans to government and private borrowers in southern Europe who could suddenly borrow for less, given that the loans were denominated in euros. If a bank lent money to, for example, the Greek government, it acquired a claim on Greece that it could take to the ECB and use as collateral for further borrowing. The terms for that transaction were virtually identical to the terms available if claims on the German government were used as collateral. Easy credit accelerated European growth, not to mention German exports. As inflation and growth surged in southern Europe, so too did borrowing in those countries.

Adoption of the euro by countries like Greece and Spain meant that they got a German credit rating that enabled them to purchase more Mercedes–on credit. At first, German exporters were pleased. But now, Germans are being asked to help borrowers in these southern European countries repay these loans.

2 Comments | Debt, Deficit, Europe, Fiscal Policy, Monetary Policy | Permalink
Posted by Vital Signs Blog

Penalizing Savings

October 3, 2011

There has been a 54 percent reduction in the personal rate of savings since the fundamental tax reform of 1986.

Earlier, I commented (quite poorly) on why we might want to broaden the tax base.  There are many good arguments in favor of broadening the tax base.

There are several important arguments about how broadening the tax base might be bad, however.  As Alex Brill and Alan Viard point out:

One way base broadening can impede tax neutrality is by amplifying the income tax’s inherent distortion between current and future consumption…Broadening the income tax base may increase the saving penalty, undermining the pursuit of economic efficiency…The income tax’s penalty on saving causes an inefficient distortion of consumer choice and lowers the accumulation of national wealth and the long-run rise of living standards.

The fundamental tax reform of 1986, which was largely focused on base broadening and lowering marginal rates, may have had a sharp impact on the rate of personal savings.  From 1960-1986, Americans saved 9.1% of their personal income; from 1986-2011, Americans saved 4.9%, a 54% reduction over the previous period.  The decline is illustrated below.

The Rate of Personal Savings, 1986-2011

There are many reasons Americans don’t save as much any more; perhaps the tax code is one of them.

Leave a Comment » | American Dream, Economy, Saving, Taxes | Permalink
Posted by Vital Signs Blog

The Pursuit of Happiness?

September 4, 2011

What makes us happy?

We all know lots of things that don’t make us happy – substance abuse, traffic, broken marriages, bankruptcy, etc.  With roughly a billion self-help books on the market, you’d think we have an answer.

But what actually makes us happy?  It seems the ways we have pursued culturally haven’t helped.  As noted in The Happiness Hypothesis:

As the level of wealth has doubled or tripled in the last fifty years in many industrialized nations, the levels of happiness and satisfaction with life that people report have not changed, and depression has actually become more common.

I don’t pretend to know what actually makes people happy, but over the next few days, I’ll put up some stats that tend to correlate pretty closely with how frequently people report they are happy.

Feel free to take some guesses.

Leave a Comment » | American Dream, Social Interaction | Permalink
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Serious Tax Reform, part 1 of 3

September 4, 2011
Forty Seven Percent of Americans pay no federal income tax.

47% of Americans pay no federal income tax.

Sorry for the delay in publishing.  Personal issues took precedence over blogging.

On an earlier post, one comment wanted a more thorough explanation of this:

Lower marginal tax rates should be financed by broadening the tax base and closing arbitrary loopholes. This will raise tax revenues by making more people stakeholders in the process.

So, here goes.*

Our tax base needs to be broadened.  Currently, 47 percent of Americans pay no federal income tax.  Additionally, many large corporations pay little-to-nothing in the way of taxes, especially after rebates and subsidies are subtracted from the money they pay in to the tax system. (For studies on this phenomenon, I direct you here and here; many more are available.)

Two damning features emerge as a function of these facts.  The most straightforward economic distortion comes from the shifting of the tax burden.  Taxes are far from neutral; instead, they are used to incentivize certain types of behavior, irrespective of its market efficiency.

The presumption among most is that businesses favor laissez-faire capitalism because it keeps the government from meddling in corporate affairs.  Considerable anecdotal and quantitative evidence says this is not true. Capitalism implies competition, and competition means that some businesses lose.  Businesses are generally eager to support legislation that gives them a comparative advantage over their competitors.

Shifting the tax burden to distort its equity is one of the ways that businesses compete, and by crowding out true competition, we get less equitable outcomes.**

The more harmful feature of our tax system allowing so many free riders is the destruction of a stakeholder conception of democracy.  Democracy works best when citizens have a sense of involvement in the process.  By allowing certain groups to avoid paying into the tax system, we discourage them from taking part in that system.

Serious quantitative research indicates that people are happiest when they exercise some level of control over their environment.  Net tax payers are substantially more likely (by about 30 percent) to say that self-reliance is an important component of citizenship.  Indeed, if our goal with transfer payments is to make those on welfare self-reliant, paying taxes seems to be one way to encourage that virtue.

More to follow.

*Please note that my area of expertise is not tax policy.

**To be clear, I’m not advocating RAISING corporate taxes.  Corporations, in general, pay lots of taxes already.  I’m saying we should make the system more equitably distributed.

2 Comments | American Dream, Economy, Election 2012, Taxes | Permalink
Posted by Vital Signs Blog

Don’t Fear Chinese Investment, part 2

August 31, 2011
US exports to China have grown 4x as fast as our exports to the rest of the world.

US exports to China have grown 4x as fast as our exports to the rest of the world.

Earlier this week, I discussed how Chinese investment was a relatively miniscule amount of global investment thus far; in other words, while China was talking a big game on official FDI, it wasn’t putting its money where its mouth was.

China’s reciprocal markets for the US are another reason we shouldn’t fear our economic relationship with them.  According to the US-China Business Council:

  • Our exports to China grew by 468 percent over the past decade; to the rest of the  world, our exports grew by 55.7 percent.
  • China is our third largest export recipient, behind Canada and Mexico.

A trade war with China in the name of protecting US jobs would be disastrous for these particular figures.  Read more at Mark Perry’s blog.

 

 

Leave a Comment » | China, Economy, Trade | Permalink
Posted by Vital Signs Blog

Over-Regulation, Part 1

August 31, 2011

In the vein of an earlier comment and my lemonade stand post, I considered putting up stats and figures to support the idea that overregulation was stifling entrepreneurship, but Conor Friedersdorf, associate editor at The Atlantic, is a much better writer than me:

The normal mindset among U.S. officials is that prior permission should be required to sell legal goods to a willing buyer.Kids selling lemonade on the street are shut down. A Missouri man has been fined $90,000 for selling rabbits (he made about $200). In Illinois, an artisan ice cream maker is being shut down for lack of a dairy permit. Manuel Winn was arrested, handcuffed, and booked for selling magazines door-to-door without a permit. A Maryland mother of three was arrested for selling $2 phone cards without a license. Lots of municipalities are going after food trucks. A group of Louisiana monks had to go to court to win the right to sell simple wooden caskets to consumers.

If you read enough of these stories, you’ll see the targeted entrepreneurs say the same thing again and again: I just had a good idea and started a business. It never occurred to me that I needed permission. And, of course, other would be entrepreneurs don’t ever get started because they’re too intimidated to assess and grapple with the bureaucratic hurdles. Or else the regulations are written in a way that excludes from commerce folks who are operating at a very small scale.

More to come on over-regulation.

2 Comments | American Dream, Depression, Economy, Innovation, Regulation, Ridiculous, Unemployment | Permalink
Posted by Vital Signs Blog

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