Life – Page 4 – Donald Marron

The Vuvuzela Externality

Thus far, the top three stories of the World Cup are (3) Germany looks strong, (2) the U.S. got lucky, and (1) the vuvuzela is remarkably annoying.

For those who haven’t tuned in yet, the vuvuzela is a meter-long plastic horn whose name translates roughly as “making a vuvu noise.” And make a noise it does. When thousands of fans start blowing, you’d think a swarm of bees was taking over the soccer stadium … and your living room. Highly annoying.

And that’s not all. According to Wikipedia, the vuvuzelas raise other concerns:

They have been associated with permanent noise-induced hearing loss, cited as a possible safety risk when spectators can’t hear evacuation announcements, and potentially spread colds and flu viruses on a greater scale than coughing or shouting.

In short, the vuvuzela creates a host of externalities. So it’s not surprising that FIFA is under growing pressure to ban them.

I’ve been unable to come up with a market-based approach for dealing with the vuvuzela — there won’t ever be a Pigou club to limit the vuvu noise — and I would personally benefit from such a ban. So I’m all for it.

It is worth pondering, however, whether there are less drastic actions that might address some of the vuvuzela nuisance. Here’s one idea: ESPN and ABC should figure out a way to cancel out most of the vuvuzela noise. I still want to hear the cheers of the crowd and the screams of players who pretend to be hurt, but those are on different frequencies than the dreaded vuvu noise.

I don’t know how technically challenging that would be, but the marketplace is already providing similar solutions for consumers. According to Pocket Lint, you can change the sound settings on your TV, purchase an anti-vuvuzela sound filter, or even build your own filter at home.

Or you can go really low tech and use your mute button.

A Small Step toward Tax Equality for Same-Sex Couples

A trio of recent IRS rulings (here, here, and here) has rekindled debate on how our tax system should treat same-sex couples.

Under the Defense of Marriage Act, the federal government does not recognize same-sex marriages. As one consequence, same-sex couples must file individual tax returns even if they are married or registered as domestic partners under state law.

The new rulings were prompted by a 2007 California law that requires registered domestic partners to treat their earnings and some investment returns as common property for state tax purposes. Under this approach, the partners share equally in their combined income, regardless of which partner earned it. If one partner earned $50,000 and the other nothing, for example, they would each be viewed as having $25,000 of income.

Because “federal tax law generally respects state property law characterizations and definitions,” the IRS decided to apply that approach to federal taxes. As a result, domestic partners in California (most of whom are same-sex couples) will each report half their combined income from earnings or community property on their individual federal tax returns.

That approach will lower the tax burden for many eligible same-sex couples. For example, if one partner earns $50,000 per year and the other has no earnings, the couple’s combined federal tax bill would fall from about $6,000 to $3,000 (assuming they have no children). That decline is identical to the “marriage bonus” that the federal tax code currently provides to heterosexual married couples at that income level.

For that reason, some commentators have characterized the rulings as tax equality for same-sex couples (e.g., the Wall Street Journal ran the headline “Gay Couples Get Equal Tax Treatment”). But that interpretation exaggerates the impact of the rulings and understates the differences in taxation between same-sex and heterosexual couples.

First, the rulings apply only in states with these community property rules for same-sex partners. According to the WSJ, besides California, only Nevada and Washington might currently be affected.

Second, same-sex partners still can’t file joint returns. As a result, their tax burdens can differ from those of otherwise identical heterosexual couples. For example, one domestic partner might have investment income from assets that are not community property and thus are not shared with the other partner. Depending on their income, that can result in the same-sex couple paying more or less than a heterosexual couple.

Dividing income under the community property approach may also allow same-sex couples with high incomes to pay less in federal taxes than heterosexual couples. For example, a same-sex couple that earns $300,000 would pay about $66,000 in tax under the new ruling, while a heterosexual married couple would pay about $78,000.

Finally, the rulings don’t address a host of other ways in which same-sex couples face less-favorable tax treatment. At a recent TPC event, for example, Michael Steinberger of Pomona College noted that same-sex couples can face significantly higher estate taxes because they aren’t eligible for tax-free bequests to spouses.

For all these reasons, same-sex couples and heterosexual couples still aren’t treated the same under the tax code. The recent IRS rulings narrow the gap in some cases, but create new gaps in others. Given the complexities of our tax code, separate treatment will inevitably mean that some same-sex couples will pay more or less in taxes than comparable heterosexual couples do. If policymakers ever want same-sex couples to be taxed the same as heterosexual couples, the only practical way to do so would be to allow same-sex couples to file their tax returns as married couples.

This post first appeared on TaxVox, the blog of the Urban-Brookings Tax Policy Center.

“Matterhorn” by Karl Marlantes

To commemorate Memorial Day, let me recommend “Matterhorn: A Novel of the Vietnam War” by Karl Marlantes. There’s little that I can add to the overwhelmingly rave reviews over at Amazon: it’s gripping, intense, and authentic. I was particularly impressed with Marlantes’s skill in portraying the choices that confronted his characters, how seemingly irrational decisions might make sense from an individual’s perspective, and how faulty information and flawed incentives could lead to tragedy.

The First Vole of the United States (FVOTUS)

I’ve enjoyed the hullabaloo over the rodent that upstaged President Obama during his remarks on financial reform on Thursday. As an animal aficionado, however, I’ve been disheartened by the number of people who believe the critter was a rat or mouse. As the photos show, that just isn’t so:

That, dear friends, is a vole. Indeed, I’m pretty confident it’s a meadow vole, Microtus pennsylvanicus (you can tell by the size, body shape, ears, tail length, and presence in the Rose Garden). According to the AP, the experts agree:

“The rodent is definitely a vole,” said Paul Curtis, a wildlife biologist at Cornell University. “It has small ears hidden in fur, small eyes and a short tail. Given that the length of the tail is longer than the hind foot, I’m 99 percent certain it is a meadow vole.”

You might wonder why I think I can identify meadow voles. When I was young I caught one in the backyard (in a live trap) and kept it as a pet for a couple of days. My sister and I quickly released the little guy, however, after it leapt straight up from its cage to sink its teeth in her index finger. It took Jennifer forever, it seemed, to shake the vole off. After which we promptly returned him to the backyard. Not, I should emphasize, because we were afraid of him or mad at him. No, we were still pretty fond of him, but we feared for his life if our parents ever found out. [Obligatory warning: Kids: If a wild animal bites you, don’t wait thirty years to tell your parents.]

So watch out Mr. President, make sure Sasha and Malia enjoy the FVOTUS from a safe distance.

My New Gig

I am happy to announce that I will become the director of the Urban-Brookings Tax Policy Center on May 17. TPC has established a remarkable record of nonpartisan research on tax and fiscal policy issues over the past eight years, and I am honored to be joining their team.

Here’s the press release from the Urban Institute announcing the appointment:

WASHINGTON, D.C., April 13, 2010 — Donald Marron, who served as a member of the President’s Council of Economic Advisers and as acting director of the Congressional Budget Office, will become the director of the Urban-Brookings Tax Policy Center May 17.

Marron was a council member in 2008 and 2009. Earlier, he was the deputy director (2005–2007) and acting director (2006) of the nonpartisan Congressional Budget Office.

Marron’s White House experience includes stints as a senior economic adviser and consultant to the Council of Economic Advisers (2007–08) and as its chief economist (2004–05). He was with Congress’s Joint Economic Committee from 2002 to 2004, first as the Senate minority’s principal economist and later as the committee’s executive director and chief economist.

Marron succeeds Rosanne Altshuler, who will be returning to Rutgers University after nearly two years with the Tax Policy Center. The eight-year-old center, a joint venture of the Urban Institute and Brookings Institution, is the nation’s leading nonpartisan resource providing objective analyses, estimates, distributional tables, and facts about the federal tax system and proposals to modify it. Last year, Tax Policy Center researchers produced more than 50 reports and used their state-of-the-art tax model to generate over 500 sets of detailed tax estimates.

“Understanding and helping address the nation’s revenue problems require imaginative scholarship, crisp communication skills, and an insider’s knowledge about how good public policy can be made. Donald brings that and much more to the Tax Policy Center,” said Robert Reischauer, president of the Urban Institute.

Since leaving his White House post, Marron has been a visiting professor of public policy at Georgetown University and an economic consultant.

Marron, who holds a doctorate in economics from the Massachusetts Institute of Technology, was an assistant professor of economics at the University of Chicago’s Graduate School of Business from 1994 to 1998. He is a member of the Bipartisan Policy Center Debt Reduction Task Force and served as a member of the Federal Accounting Standards Advisory Board.

The Tax Policy Center’s leadership also includes two co-directors, William Gale, the Arjay and Frances Miller Chair in Federal Economic Policy at the Brookings Institution, and Eric Toder, an Institute fellow at the Urban Institute.

The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation. It provides information, analyses, and perspectives to public and private decisionmakers to help them address these problems and strives to deepen citizens’ understanding of the issues and trade-offs that policymakers face.

The Brookings Institution is a private nonprofit organization devoted to independent research and innovative policy solutions. For more than 90 years, Brookings has analyzed current and emerging issues and produced new ideas that matter—for the nation and the world.

P.S. I am also happy to report that I will continue my teaching at the Georgetown Public Policy Institute next year. Should be a fun and busy year.

Ultra Trouble for the Ultra Low Cost Airline?

Last week Spirit Airlines announced that it would start charging fees for carry-on bags this summer. Spirit described the benefits of this move as follows:

“In addition to lowering fares even further, this will reduce the number of carry-on bags, which will improve inflight safety and efficiency by speeding up the boarding and deplaning process, all of which ultimately improve the overall customer experience,” says Spirit’s Chief Operating Officer Ken McKenzie. “Bring less; pay less. It’s simple.”

As I’ve noted in previous posts, carry-on bags have become a problem on many flights. With advances in roll-aboard technology and in the face of new fees for checked luggage, more passengers are bringing baggage on board, sometimes overwhelming the capacity of the overheads. Airlines need to find a solution to that problem. Spirit’s fees are one possible answer.

I’m sure Spirit expected that some passengers and passenger advocates would object to these fees. I wonder, however, whether the airline ever suspected that it would incur the wrath of Washington?

Over the weekend, New York Senator Chuck Schumer denounced the proposed fees and sent a letter to Treasury Secretary Tim Geithner asking that he stop them. He’s also threatening legislation to prohibit them.

If you are like me, your first reaction should be to wonder why the Treasury Secretary–rather than, say, the Transportation Secretary–is the lucky recipient of Schumer’s letter. This being the middle of April, however, the answer shouldn’t surprise you: taxes, specifically the taxes that are levied on airline tickets (but not on some other fees associated with flying). The narrow issue is whether the carry-on fees should be subject to the tax. The broader issue is whether carry-on fees should be allowed separate from the ticket price.

Meanwhile, the Transportation Secretary, Ray LaHood, wasted no time in denouncing the proposed fees as well, saying:

I think it’s a bit outrageous that an airline is going to charge someone to carry on a bag and put it in the overhead. And I’ve told our people to try and figure out a way to mitigate that. I think it’s ridiculous.

So watch out Spirit Airlines; your experiment in pricing scarce overhead capacity may not be welcome in Washington, even if it does lead to lower fares and faster boarding.

P.S. The tempest over the baggage fees is temporarily overshadowing a much more interesting and important issue: the transparency and intelligibility of airline fees. Secretary LaHood touches on this in the interview linked to above, as does this article over at Philly.com’s Philadelphia Business Today. Given the panoply of fees and taxes on air travel–thanks both to the government and to the airlines–there’s a real question about whether consumers understand the full costs of flying when they make their purchasing decisions. And some airlines–most notably Spirit with its “penny” and “$9” fares–seem to be playing on that.

Spirit Airlines Combats the Tragedy of the Overhead Bin

As any frequent flyer knows, the competition for overhead space is tight. As I noted a few months ago (“The Warped Economics of Carry-On Luggage“), the situation has only become worse since airlines started charging fees for checked luggage. Budget-conscious travelers caught on quick and started carrying on more of their luggage.

In economic terms, the basic problem is a lack of property rights to overhead space. Without those rights, there is a tragedy of the commons as travelers try to grab space before their fellow travelers (just as some guacamole eaters compete for appetizers). Particularly egregious? The passenger in row 35 who brings on two over-sized roller bags and stows them in the overheads around row 15. No, I’m not bitter.

One solution to this problem would be to create property rights to overhead space. But that would be hard to operationalize.

Another possibility–which Spirit Airlines announced today–would be to charge for carry-ons. Spirit announced:

In order to continue reducing fares even further and offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others, the low fare industry innovator is also progressing to the next phase of unbundling with the introduction of a charge to carry on a bag and be boarded first onto the airplane.

The carry on fee ranges from $20 to $45, the same or more than the fees for a single checked bag (fees for multiple bags may be higher). Personal items (i.e., the things you put under your seat) remain free.

Note how Spirit frames this as helping the airline reduce fares. In the future, I hope some enterprising economist studies the different bag pricing approaches that the airlines use to see to what extent higher bag fees–checked or carry on–translate into lower fares and either more or less crowded overhead compartments.

Love Wins

The photos on the front page of the Washington Post are usually depressing. War, natural disasters, and other tragedies provide a seemingly endless stream of sad or horrifying images.

Not so this morning. When I picked up my paper, the images were joyful, depicting happy same-sex couples who were finally able to apply for marriage licenses in our nation’s capital. I went to the WaPo’s web site and discovered that it has a whole slide show of photos of happy couples. Here’s my favorite (note the poster):

I often tell my students that, in my humble opinion, one purpose of government is to help people be happy. The DC government did a good job on Wednesday.

The Tragedy of the Guacamole

One of the themes of this blog is that economics is everywhere in daily life. Property rights, for example, are at the heart of everyday battles over overhead bins, shoveled-out parking spaces, and food in shared refrigerators.

Continuing in that vein, a friend recently sent me a link to an amusing piece about sharing guacamole. I hesitate to link to it, since this is a family oriented blog, and the piece is decidedly R-rated and NSFW. So I will hide the link under the fold. The basic set-up is that a sort-of-advice columnist named Chris provides humorous answers to reader questions.

In slightly edited form, here’s the bit about sharing guacamole:

[Dear] Chris: My fiancée makes amazing Guacamole, but it leads to the following problem: she only makes one bowl of it, which we then share. The issue is, I like to utilize small amounts of Guac on each chip in order to maximize the amount of time I get to enjoy the sweet green stuff, while she likes to heap massive amounts on each chip, in an effort to eat less chips (which […] I find laughable). This drives me crazy as I always end up with the short end of the Guac stick, and so lately I have been separating the Guac into two equally-sized bowls once she’s made it, in an effort to preserve my fair share. She thinks this qualifies as me being [a jerk] and says I “must have failed sharing in Kindergarten”, but on the contrary, I think it’s her poor sharing that’s lead to the whole situation.

[Dear Letter-Writer:] Well, the obvious solution here is for her to make MORE guac. The other solution? Ask her the recipe, and then begin making it yourself. As head chef of the household, you are in full control of when that guacamole will be presented for consumption. I cook for my wife because it allows me the freedom to eat half of what I’ve made before it even reaches the table.

Furthermore, the strategy of using less guac per chip is fatally flawed. It’s guacamole. All guac is first come, first serve. You must heap as much guac onto one chip as humanly possible (as your fiancée does), only do it at a much faster rate. Think guacamole isn’t a race? IT IS. The faster you eat, the more you get. That’s how it works. And it’s a crucial strategy to exploit when dealing with guacamole, nachos, pizza, wings, and other shared food. Do not hesitate. Don’t even […] chew. You inhale […] until there’s nothing left for her. That’s what I do.

If you were out to eat with your guy friends at a Mexican restaurant, and you ordered guacamole for all to share, would you get [mad] at your friends for digging in too quickly? [Heck] NO. That guac is chum, and you are the sharks. ATTACK ATTACK ATTACK. Never play defense with appetizers.

There you have it, the world’s best explanation of the tragedy of the commons. Garrett Hardin eat your heart out. Let’s just hope we never find ourselves at a Mexican restaurant with Chris.

The letter-writer deserves kudos for endorsing the standard (and effective) economist solution to this problem: well-defined property rights. And his fiancée? Maybe she’s a fan of recent Nobel Laureate Elinor Ostrom.

Continue reading “The Tragedy of the Guacamole”

The Wonders of Costa Rica

On Thursday, New York Times columnist Nicholas Kristof had a wonderful piece about Costa Rica, home of “The Happiest People“) (ht Catie).

Kristof reports that Costa Ricans are the happiest people in the world, at least according to three broad surveys. Why? Kristof offers the following hypothesis:

What sets Costa Rica apart is its remarkable decision in 1949 to dissolve its armed forces and invest instead in education. Increased schooling created a more stable society, less prone to the conflicts that have raged elsewhere in Central America. Education also boosted the economy, enabling the country to become a major exporter of computer chips and improving English-language skills so as to attract American eco-tourists.

I’m not antimilitary. But the evidence is strong that education is often a far better investment than artillery.

In Costa Rica, rising education levels also fostered impressive gender equality so that it ranks higher than the United States in the World Economic Forum gender gap index. This allows Costa Rica to use its female population more productively than is true in most of the region. Likewise, education nurtured improvements in health care, with life expectancy now about the same as in the United States — a bit longer in some data sets, a bit shorter in others.

I like this hypothesis, but being an empirical guy, I should note another possibility: maybe one of the keys to happiness is whatever allowed Costa Rica to eliminate its military in the first place?

Over the holidays, I did some field research (aka vacation) in Costa Rica and am happy to report that the area we visited (the Guanacaste province) is indeed lovely. I won’t torment you with my travelogue here–my wife and I have another blog for that–but here are a couple photos of the local fauna: