The Declaration of Independence: A Transcription

The Declaration of Independence: A Transcription

IN CONGRESS, July 4, 1776.

The unanimous Declaration of the thirteen united States of America,

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.--Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refused his Assent to Laws, the most wholesome and necessary for the public good.
He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.
He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.
He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public Records, for the sole purpose of fatiguing them into compliance with his measures.
He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.
He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the Legislative powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.
He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.
He has obstructed the Administration of Justice, by refusing his Assent to Laws for establishing Judiciary powers.
He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.
He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.
He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.
He has affected to render the Military independent of and superior to the Civil power.
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:
For Quartering large bodies of armed troops among us:
For protecting them, by a mock Trial, from punishment for any Murders which they should commit on the Inhabitants of these States:
For cutting off our Trade with all parts of the world:
For imposing Taxes on us without our Consent:
For depriving us in many cases, of the benefits of Trial by Jury:
For transporting us beyond Seas to be tried for pretended offences
For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:
For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:
For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.
He has abdicated Government here, by declaring us out of his Protection and waging War against us.
He has plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.
He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.
He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.
He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.

In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.

Nor have We been wanting in attentions to our Brittish brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

The 56 signatures on the Declaration appear in the positions indicated:

Column 1
Georgia:
Button Gwinnett
Lyman Hall
George Walton

Column 2
North Carolina:
William Hooper
Joseph Hewes
John Penn
South Carolina:
Edward Rutledge
Thomas Heyward, Jr.
Thomas Lynch, Jr.
Arthur Middleton

Column 3
Massachusetts:
John Hancock
Maryland:
Samuel Chase
William Paca
Thomas Stone
Charles Carroll of Carrollton
Virginia:
George Wythe
Richard Henry Lee
Thomas Jefferson
Benjamin Harrison
Thomas Nelson, Jr.
Francis Lightfoot Lee
Carter Braxton

Column 4
Pennsylvania:
Robert Morris
Benjamin Rush
Benjamin Franklin
John Morton
George Clymer
James Smith
George Taylor
James Wilson
George Ross
Delaware:
Caesar Rodney
George Read
Thomas McKean

Column 5
New York:
William Floyd
Philip Livingston
Francis Lewis
Lewis Morris
New Jersey:
Richard Stockton
John Witherspoon
Francis Hopkinson
John Hart
Abraham Clark

Column 6
New Hampshire:
Josiah Bartlett
William Whipple
Massachusetts:
Samuel Adams
John Adams
Robert Treat Paine
Elbridge Gerry
Rhode Island:
Stephen Hopkins
William Ellery
Connecticut:
Roger Sherman
Samuel Huntington
William Williams
Oliver Wolcott
New Hampshire:
Matthew Thornton

The appropriate role of government

When the U.S. government was created, its job description included to “promote the general welfare of…ourselves and our posterity...” and to secure “our rights to life, liberty and the pursuit of happiness. See the Preamble of the U.S. Constitution: We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America. See also the U.S. Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

For more, watch The Story of Stuff or read its referenced and annotated script.

The Preamble to the Constitution of the United States

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.

The Convoluted Logic of the Austrian School

Sometimes people should look in the mirror when you they admonish others.

In his November 11, 2008 blog entry "Consumers Don't Cause Recessions," Robert P. Murphy rants against Nobel laureate Paul Krugman and the mainstream of the economics profession. His presumptions and wild leaps of logic are disturbing. For the record, however, here is his post:

There's one saving grace about Paul Krugman's column at the New York Times: when an Austrian economist wants to explain how mainstream economics leads to ruin, he can always trust Krugman to set up the target in a clear, concise manner. This saves us a lot of work, because we don't have to first build up the position before knocking it down.

Even the casual reader of the financial press knows that it is dominated by Keynesian "demand-side" thinking. For example, during the debate over the stimulus checks earlier in the year, the main objection was that taxpayers might use some of their rebate to pay down credit card bills, rather than blowing the whole thing at the mall. But the reader will never see a careful, step-by-step exposition of the worldview that generates such crazy notions.

Enter Paul Krugman. In a recent piece, "When Consumers Capitulate," the newest Nobel laureate spells out the method behind the madness. Let's take the opportunity then to show just why this focus on consumer spending is not only mistaken but downright dangerous.

"The Paradox of Thrift"
Krugman first tells us the (allegedly) bad news: "The long-feared capitulation of American consumers has arrived…[R]eal consumer spending fell at an annual rate of 3.1 percent in the third quarter; real spending on durable goods (stuff like cars and TVs) fell at an annual rate of 14 percent."

Now let's stop for a moment. Many left-leaning writers—including Krugman—have been warning for years that the US trade deficit was too high, and that the national savings rate was too low. So one would think that a drop in consumer spending would be a good thing. Ah, not so fast: Krugman tells us that "the timing of the new sobriety is deeply unfortunate….For consumers are cutting back just as the U.S. economy has fallen into a liquidity trap."

And now to the actual theory behind all these musings. Krugman writes,

[O]ne of the high points of the semester, if you're a teacher of introductory macroeconomics, comes when you explain how individual virtue can be public vice, how attempts by consumers to do the right thing by saving more can leave everyone worse off. The point is that if consumers cut their spending, and nothing else takes the place of that spending, the economy will slide into a recession, reducing everyone's income.
In fact, consumers' income may actually fall more than their spending, so that their attempt to save more backfires — a possibility known as the paradox of thrift.
My friend Bill Anderson actually derives sustenance from his hatred of Paul Krugman; at lunch one time, Bill skipped a sandwich and instead just bought a New York Times.[1] Now one of Bill's frequent remarks is, "Paul Krugman is not an economist." When I first heard that, I thought Bill was being unfair in order to score a funny point. But the above excerpt from Krugman changes all that.

The most central lesson of economic science—going back further than Adam Smith's "invisible hand" metaphor at least to Mandeville's 1732 Fable of the Bees—is that in a system based on private property, private vices can actually be harnessed for the benefit of the public at large. Specifically, a market economy steers greedy businesspeople into staying up all night, thinking about how best to satisfy their customers.

Besides this truth (discovered relatively recently in human history), people have always known that a wise person refrains from possible consumption in order to accumulate savings. The reason humans in the 21st century are so fantastically wealthy compared to those in the 11th century is not merely a matter of technological innovation. It is also the result of the growing inventories of machines, tools, and equipment (i.e., "capital goods") that have been bequeathed from generation to generation. "Everybody knows" that thrift leads to prosperity, while prodigal spending leads to ruin. There's even a famous story in the Bible on this topic.

It is truly shocking to learn that Krugman not only tells his students the exact opposite—namely that private virtue leads to public vice, and that saving makes the community poorer—but that he actually relishes the demonstration. Fortunately for one's sanity, we can uncover the fallacies pretty easily.

The Misleading "Circular Flow" Model
In a nutshell, the problem with Krugman's Keynesian analysis is that it is static, meaning that it doesn't involve the passage of time, and consequently it can't begin to grapple with the capital structure in a modern economy. The "circular flow diagram" illustrates the way Krugman views the economy:


So during a recession, Krugman thinks that (for some reason) consumers freak out and start spending less. This reduces the revenues earned by firms from the sale of goods and services. But then this means firms have less money with which to hire factors of production (natural resources, labor hours, and capital equipment). That means the income earned by the owners of these items—i.e., everyone in the economy—goes down. But with less income, people in their role as consumers can't spend as much on goods and services, so business receipts fall even further, and so on until the decentralized market economy crashes into a major depression. To repeat, Krugman thinks the free market can't solve this problem, because individuals rationally respond to the onset of the crisis by increasing their cash balances, which only makes the crisis worse.

According to Krugman, in order to escape from this vicious cycle, the government must coax consumers to start spending again, perhaps by cutting interest rates or giving tax refunds. But sometimes (as in the present situation) those remedies are inadequate, and then it is the duty of the politicians to be the adults and spend tens of billions in borrowed money to do a Control-Alt-Delete on the economy.

There are so many problems with Krugman's thinking that it's hard to know where to begin. For starters, if government pump-priming can boost firm revenues, which raises national income, which allows further business expansion, etc. etc., then why employ this technique only during recessions? Why not recommend that the government always engage in deficit spending, in order to create jobs and boost GDP?

"Well," the Keynesian would say, "in a state of full employment, further additions to aggregate demand wouldn't allow firms to hire more workers. The new demand for products and services at that point would serve merely to push up prices, not increase real output."

Ah, now we're getting somewhere. With all the talk of consumer spending and national income, we often forget that actual production must occur before people can consume anything. It doesn't matter how many green pieces of paper are in your wallet; you can't "demand" a TV set unless the store has an actual unit on the shelf. Pushing it back one step, no matter how many customers are lining up outside his store, the manager of Best Buy can't stockpile his shelves with TVs unless the manufacturer has previously assembled them. And of course, the manufacturer can't do so—regardless of how much money he is offered by the Best Buy manager—unless he can find enough workers, and enough of the relevant parts, to actually make the TVs.

We now see why the circular-flow diagram above is a very misleading model of the economy. It leads us to think that output of finished consumer goods can immediately rise and fall with "spending." This framework would hold if there were no capital goods, meaning that all consumer goods and services were produced immediately, as workers took gifts of nature and produced the finished item on the spot.

For example, in an economy composed of masseuses and jugglers, the circular-flow diagram might be useful. If someone wanted a massage and had the cash, the masseuse could go right to work. The only physical constraint on output in the "massage sector" would be the number of masseuses, and the fact that they needed to sleep at some point. Besides the input of the masseuse's labor, the only other item involved is a table, and the same table can be used in the production of thousands of massages before needing to be replaced.

Things are different with most of the goods and services produced in a modern economy. In almost every sector, the workers show up and rely on tools and equipment that greatly magnify their productivity. Moreover, the overwhelming majority of workers don't apply their tools directly to raw natural resources. Instead, they use their tools to transform materials that are shipped to them from other firms.

"There are so many problems with Krugman's thinking that it's hard to know where to begin."
It's useful to take a step back and just consider what happens every day in the worldwide market. There are billions of humans scattered over the planet. Some of us work on oil rigs, pulling up barrels of crude. Some of us work on farms, gathering wheat. Some of us work on oil tankers or drive tractor trailers, bringing the (somewhat) raw materials to others. As consumers, we only see the tail end of a "pipeline" that could be traced back many years. The finished goods you buy at the store are made of components that passed through probably thousands of different hands, in dozens of countries, before all coming together into the item you throw in your grocery cart.

Once we grasp the stunning complexity of the true "economic problem"—how all of this interlocking human activity is coordinated so that production flows smoothly and predictably—we see the absurdity of Keynesian pump-priming remedies. During a recession, it's not as if all output in all sectors falls by the exact same percentage. On the contrary, some sectors shrink more than others. This is because some sectors suffered huge losses, and they need to release some (or all) of their workers and other resources to more profitable sectors. This reshuffling takes time, especially because critical intermediate goods need to be produced so that operations further down the "pipeline" can resume. (In this article, I tell a quick story describing this process for a hypothetical island of 100 people.)

The Keynesians are right that in a condition of "full employment," their proposals won't cause more physical TVs and pickup trucks to roll off the assembly lines. But even in a state of widespread unemployment, the Keynesian solutions don't help. To repeat, this is because we can't simply increase activity in all sectors by, say, 1% to raise output back up to pre-recession levels. Generally speaking, this is physically impossible. No matter how much money consumers or the government throw at it, Ford can produce 1,000 more Rangers only if it can purchase 4,000 more of the appropriate tires. And the tire producer in turn can only meet Ford's request if it can buy the appropriate amount of extra rubber. And the rubber producer can only do this if…and so on.

When the recession is the result of a central-bank-induced artificial boom (such as the recent housing boom), the downturn is a period of readjustment, when misallocated resources are channeled back into more appropriate lines, consistent with consumer preferences and technological realities. When the government steps in and tries to prevent this readjustment, it simply maintains an unsustainable deployment of scarce resources. Bottlenecks occur in the millions of different "pipelines" tracing the flow of natural resources through millions of different workers' hands and onto the store shelves.

There Is Nothing Paradoxical About Thrift
In closing, it will be useful to spell out exactly what happens in a market economy when consumers decide to save more of their income. The first thing to realize is that people do not decide to "spend" or not; rather, they decide whether to spend in the present versus in the future. For example, imagine that thousands of couples in a large city one day decide to skip their weekly restaurant outings in order to save up for a summer cruise. At first, it seems that this would hurt the economy. After all, local restaurants see their sales drop, and so they buy fewer items from their suppliers and lay off some workers. The suppliers and workers in turn have less income to spend, and so sales are hurt elsewhere too.

However, so long as the entrepreneurs involved in the cruise industry anticipate the eventual increase in demand for their services, they will exactly offset the above effects when they hire more workers and other items in preparation for the busy summer months. The new savings (which were previously spent on restaurants) drives down interest rates, perhaps allowing the cruise operators to borrow money and pay for an additional liner. Thus the decision to save more doesn't reduce total income or employment, once everyone adjusts to the new spending patterns. It is really no different from a scenario where thousands of people become health conscious and decide to spend their money on vegetables rather than fast food.

Now it's true, in the present circumstances of our financial panic, consumer spending has fallen because of fear, not because of a fundamental shift in the desired timing of consumption. But still, the point remains that people cut back on present consumption in order to be able to "spend money" in the future. The difference between our present situation and the cruise-liner story above is just that people right now aren't sure exactly when, and on what, they will be spending this extra savings.

Even so, the best solution is still for the government to mind its own business and let people work things out voluntarily. The uncertainty isn't phony; people really don't know what's going to happen next month. In this situation, it is entirely appropriate for humans to stop cranking out so many iPods and designer clothes, allowing a temporary build-up of the resources that go into the production of these nonessential items.

What is especially ironic in all of this is that even on his own terms, Krugman's recommendations make no sense. That is to say, even if we put aside all of the real, physical readjustments that must occur to revamp the economy in light of the unsustainable housing boom, it would still be the case that the government ought to do nothing. If the present crisis really were largely the result of irrational panic and hoarding then government activism would only make people more uncertain about the future. In particular, no one has any idea what Paulson & Bernanke will announce next regarding financial companies and mortgages. If we're trying to reassure consumers that everything is normal, why would we resurrect tools from the New Deal playbook?


$22 $20

There is one more contradiction we should mention. The essence of the paradox of thrift and the liquidity trap is the insight that businesses won't expand operations if there is no demand for their product. But if Krugman and other pump-primers can see that the interruption in spending is only temporary, then so can the business owners involved. And to the extent that it is not temporary—for example, homebuilders are seeing much lower sales, and this isn't simply due to irrational hoarding—then government spending to "fill the gap" only screws things up even more.

For long-run sustainable output, businesses want to have finished products emerging from the pipeline just when consumers want to buy them. Market prices and the profit-and-loss system provide the best means of allowing entrepreneurs to make these forecasts. If the government starts buying, say, office copiers even though it doesn't really need them, that might provide jobs temporarily in a few firms, but the owners know that they can't trust this demand because it is subject to political whim. Thus the government's efforts will simply confuse entrepreneurs who are trying to configure their capacity to meet future demand.

Conclusion
In his discussion of the "paradox of thrift," Paul Krugman proves that he is not an economist—or at least, not a very good one. His policy recommendations are based on a Keynesian model bereft of time and the capital structure of production. Recessions are rooted in misalignments in this unbelievably complex structure, and there needs to be a period of below-normal output as these pipelines are fixed. Most important, consumers are doing the right thing when they increase their saving during a downturn. If solving a recession really were as simple as getting people to spend, then we wouldn't keep experiencing them.

Where the hell is Matt?

Where the hell is Matt? (2008) is a video of Matt "dancing badly around the world."

JU Economics Course Descriptions

ECONOMICS COURSES AT JACKSONVILLE UNIVERSITY
From the 2009-2010 Catalog.

ECON 201. Principles of Macroeconomics (3)
Three hours per week. This course satisfies the Core Curriculum requirement in economics. A “C” or better must be earned in ECON 201 as a prerequisite for ECON 305 and in order to use this course as part of the economics major or minor. In addition, a “C” (2.0) or better is required in order to use this course as part of the core requirement for any business major. This course provides students with an understanding of key macroeconomic issues facing our world and the policy prescriptions needed to address these issues. Students gain an understanding of basic economic concepts of resource allocation, supply and demand, national income, consumption, unemployment, inflation, government spending, and taxation. A firm foundation in essential economic theory and tools needed to understand these issues is established. Additionally, students are introduced to the broader functional areas of business as they relate to the overall understanding of daily economic activity.

ECON 202. Principles of Microeconomics (3)
Three hours per week. Prerequisite: ECON 201. A “C” or better must be earned in ECON 202 as a prerequisite for ECON 304 and in order to use this course as part of the economics major or minor. In addition, a “C” (2.0) or better is required in order to use this course as part of the core requirement for any business major. An introduction to microeconomics emphasizing current economic ideas, functions, and institutions. Also examined are topics concerning the problem of scarcity in a society of abundance, production, income distribution, price determination, competition, and monopoly.

ECON 301. Labor Economics (3; AR)
Three hours per week. Prerequisite: ECON 202. Analysis of the characteristics of the American labor force, factors influencing employment and unemployment, market forces determining wages and hours, nature of wage and hour legislation, and economic analysis of social security.

ECON 304. The Economics of Business Decisions (3; F)
Three hours per week. Prerequisites: ECON 201, and ECON 202 with a “C” or better. A “C” or better is required in order to use this course as part of the economics major, and it should be completed before senior status. This course is designed to give the advanced student a more detailed and analytical understanding of the role of prices in economic decision making.

ECON 305. Macroeconomic Analysis & Policy (3; S)
Three hours per week. Prerequisites: ECON 201 with a “C” or better, ECON 202. A “C” or better is required in order to use this course as part of the economics major, and it should be completed before senior status. National income accounts and the determination of the level of gross national product. Analysis is made of the forces that cause inflation and recessions in our economy and an interpretation of how monetary and fiscal policy alter the levels reached by the economy. Classical as well as Keynesian and post-Keynesian models are examined.

ECON 307. Comparative Economic Development (3; AR)
Three hours per week. Prerequisites: ECON 201 or consent of instructor. A study of the development and philosophy of various economies in the world, including the European Union, Russia, China, Japan, India, Latin America and Africa. Student research projects are an integral part of the course.

ECON 310. Money & Banking (3; F)
Three hours per week. Prerequisite: ECON 201. Role of money; commercial banks, other financial institutions, price level movements; money flow and the business cycle; Federal Reserve Bank organization and functions; the control of credit; and the interrelation of monetary and fiscal policy.

ECON 365. Survey of Modern Economic Thought (3; AR)
Three hours per week. Prerequisites: ECON 201 and ECON 202; junior or senior status. A study of the development of western economic thought beginning with the classical doctrines at the time of Adam Smith. Primary emphasis is on the high points in the main trains of thought and in the more significant departures from them.

ECON 381. Economic Policy Analysis (3; AR)
Three hours per week. Prerequisite: ECON 201 and ECON 202. This course is designed to study the functions of government in the three areas of allocation of resources, distribution of income, and stabilization of the economy. Special consideration is given to taxation, public expenditures, public borrowing, and fiscal administration. Additional topics treated include selection of a fiscal policy and analysis of revenue-expenditure relationships within the framework of that policy.

ECON 404. Current Economic Issues (3; AR)
Three hours per week. Prerequisites: ECON 201 and ECON 202. A study of contemporary economic issues. Emphasis is given to the applications of the tools of economic analysis to specific current economic conditions.

ECON/INB 410. The Economics of Globalization (3; F)
Three hours per week. Prerequisites: ECON 201 and ECON 202. A study of the issues created when economies become more global in scope. Topics include the effects of trade, trade restrictions, economic integration, international factor movements and government policies on domestic and foreign economics.

ECON 450. Applied Economic Analysis (3; S)
Three hours per week. Prerequisites: Senior status, ECON 304 or ECON 305, at least one major economics elective course or permission of the instructor. This is a course on the techniques of applied economic research. Included in the course are basic elements of applied econometrics, economic impact study analysis, forensic applications of economics, applied economic policy analysis and applied economic modeling for business decisions.

ECON 455. Senior Seminar in Economics (3; S)
Three hours per week. Prerequisite: Senior status. The purpose of this course is to use theoretical foundations and other material students have studied in the economics major for the analysis of current economic problems and policy issues. Practicing key economic skills in a collegial environment should reinforce students’ abilities and facilitate capable, independent life-long learning.

ECON 480. Special Topics in Economics (3; max. 6; AR)
Three hours per week. Prerequisites: ECON 201, ECON 202, Junior or senior status, and consent of instructor. A study of selected topics of major interest in economics not covered in other course offerings. Topic for the semester will be indicated in advance, and the student may repeat the course once if the topic is different for a maximum credit of six hours.

ECON 490. Internship in Economics (var. 1-3; F, S)
Five to fifteen hours per week. Prerequisites: Junior or senior status and an overall GPA of 2.5 or better and 3.0 or better in the major. For additional information, see the introduction to the College of Business section in this Catalog.

ECON 500. Essentials of Economics (2)
This course is intended to introduce MBA students to basic macro- and microeconomic principles and analytical tools that economists developed to study consumers, firms, markets and the economy as a whole. Its objective is to provide MBA students with a basic understanding of how individuals and firms make decisions, how markets function and how the overall economy operates.

ECON 520. Economics of High Performance (3)
Prerequisites: ECON 201, 202 and Calculus OR ECON 500. Designed to introduce MBA students to the application of macro- and microeconomic principles to managerial decision-making in the modern organization. Students discuss ways of directing scarce resources in an efficient manner to attain managerial goals and learn to strategically apply economic ideas, theories and methodologies to sustain high corporate performance. Special emphasis is placed on the concepts of corporate responsibility, demand analysis, production and cost determination, pricing and profit analysis, as well as application of computer-based forecasting and model building. Cases and problems are used to understand economic tools and their potential for solving real-world problems.

ECON 522. Managerial Economics (1.5)
Offered in the Executive MBA Program only.
This course is the first of the two Managerial Economics courses in the EMBA Program. This course explores the nature of economic decisions within the modern-day corporation. It presents the essentials of managerial economics. This course uniquely integrates the discipline to the other managerial functions to include accounting, finance, human resource management and marketing. It helps managers recognize how economic forces affect organizations and describes the economic consequences of managerial behavior. It links economic theories and concepts with quantitative methods to develop vital tools for managerial decision-making.

ECON 523. Managerial Economics and Applied Research (1.5)
Offered in the Executive MBA Program only.
This course is the second of the two Managerial Economics courses in the EMBA Program. Focuses on the application of economic theories to business decisions. Students learn to use microeconomic theories and quantitative methods to solve economic problems faced by management, such as pricing production, inventory, staffing size, investment and financing.

Tax Cuts Do NOT Pay for Themselves.

No credible economist believes tax cuts generate so much economic growth that tax revenues rise above what they would have been in the absence of the tax cut. Even conservative Republican economists understand this. Greg Mankiw, the Chairman of President George W. Bush's Council of Economic Advisers from 2003 to 2005, ridicules people who make such claims. In his best-selling textbook, Principles of Economics, Mankiw refers to people who say tax cuts increase revenues as "charlatans and cranks."

"Fad diets are popular because they promise amazing results wit minimal effort. Many people want to lose weight but are not eager to pay the price of eating fewer calories and exercising more regularly. These people are convinced all too easily by the reassuring words of some self-proclaimed expert selling a miraculous product. The want to believe that this new, easy-to-follow diet really will work.

"Fad economics is also popular, for much the same reason. Anyone can adopt the title 'economist' and claim discovery of some easy fix to the economy's troubles. These fads often tempt politicians, who are eager to find easy and novel solutions to hard and persistent problems. Some fads come from charlatans who use crazy theories to gain the limelight and promote their own interets. Others come from cranks who believe that their theories really are true.

"An example of fad economics occurred in 1980, when a small group of economists advised presidential candidate Ronald Reagan that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would rise by so much, they claimed, that tax revenue would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as far too optimistic. Lower tax rates might encourage people to work harder, and this extra effort would offset the direct effects of lower tax rates to some extent. But there was no credible evidence that work effort would rise by enough to cause tax revenues to rise in the face of lower tax rates. George Bush, also a presidential candidate in 1980, agreed with most of the professional economists: He called this idea 'voodoo economics.' Nonetheless, the argument was appealing to Reagan, and it shaped the 1980 presidential campaign and the economic policies of the 1980s.

"People on fad diets put their health at risk but rarely achieve the permanent weight loss they desire. Similarly, when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate. After Reagan's election, Congress passed the cut in tax rates that Reagan advocated, but the tax cut did not cause tax revenue to rise. Instead, tax revenue fell, as most economists predicted it would, and the U.S. federal government began a long period of deficit spending, leading to the largest peacetime increase in the government debt in history.

"Fads can make the experts seem less united than they actually are. It would be wrong to conclude that professional nutritionists are in disarray simply because fad diets are so popular. In fact, nutritionists have agreed on the basics of weight loss - exercise and a balanced low-fat diet - for many years. Similarly, when the economics profession appears in disarray, you should ask whether the disagreement is real or manufactured. It may be that some snake-oil salesman is trying to sell a miracle cure for what ails the economy."

-- N. Gregory Mankiw. Principles of Economics. Fort Worth: The Dryden Press, 1997, pp. 29-30.

Mankiw served as the chairman of President Bush's Council of Economic Advisers from 2003 to 2005.

Mankiws also has a July 2, 2007 blog entry entitled On Charlatans and Cranks.

U.S. Federal Budget - Fiscal Year 2008

The U.S. Federal Budget for fiscal year 2008.

The U.S. Federal Budget for Fiscal Year 2009

The U.S. Federal Budget for fiscal year 2009, which runs from October 1, 2008 through September 30, 2009.

Fiscal Policy - Taxation and Government Spending

Fiscal Policy – Taxation and Government Spending

Fiscal policy is the use of taxation and government spending to manage the macroeconomy by either increasing or decreasing overall spending on newly produced goods and services (i.e., aggregate demand). 

Aggregate demand (AD) for domestically produced goods and services is comprised of consumption spending (C), investment spending (I), government purchases of newly produced goods and services (G), and exports of domestically produced goods and services to foreign buyers (X) minus the items in consumption (C), investment (I), and government purchases (G) that are imported from foreign producers (M).  Thus,

AD = C + I + G + X – M

Expansionary fiscal policy seeks to increase overall spending (i.e., aggregate demand) by either: (a) increasing government purchases of newly produced goods and services (G), which is a direct effect, or (b) decreasing taxes to encourage more consumption (C) or investment (I) spending, which is an indirect effect because tax cuts might not result in new spending (e.g., if an individual uses the tax benefit to pay down credit card debt).  It is appropriate to use expansionary fiscal policy to reduce unemployment and attempt to slow or reverse economic downturns (recessions and depressions).

Contractionary fiscal policy seeks to decrease overall spending (i.e., aggregate demand) by either: (a) decreasing government purchases of newly produced goods and services (G), which is a direct effect, or (b) increasing taxes to discourage consumption (C) or investment (I) spending, which is an indirect effect because tax increases might not result in less spending (e.g., if an individual uses a credit card to maintain consumption).  It is appropriate to use contractionary fiscal policy to reduce inflation.

Fiscal policy has a political bias.  Citizens like expansionary fiscal policy, but dislike contractionary fiscal policy.  Because of this bias, society tends to rely more on monetary policy to manage the economy.

 

Taxation Principles

Efficiency – How much of a burden is imposed on society by the tax?  Example:  A poll tax (head tax) causes no distortions to behavior.  By contrast, an income tax may reduce the incentive to work.

Equity – How fair is the tax?

 

Who should pay taxes?

Benefits principle – Whoever receives the benefit of the government service should pay the tax to pay for it.  (e.g., fuel taxes to pay for roads and highways)

Ability-to-pay principle – People with a greater ability to pay tax should indeed pay more tax.  (But how much more?)

 

Taxes in Relation to Income

	Income	Tax Paid	% of Income	Tax Paid	% of Income	Tax Paid	% of Income
Lee	$25,000	$5,000	20%	$6,250	25%	$7,500	30%
Sandy	$50,000	$12,500	25%	$12,500	25%	$12,500	25%
Tracy	$100,000	$30,000	30%	$25,000	25%	$20,000	20%
		Progressive – the tax is a higher percentage of income for richer people.  Example:  individual income taxes (usually – but tax reforms, such as the reduction in the capital gains tax, make the tax proportional or regressive for some people).		Proportional – the tax is the same percentage of income for everyone. Example:  property taxes to the extent that assessments reflect differences in income.		Regressive – the tax is a higher percentage of income for poorer people.  Examples:  Social Security taxes, sales taxes, most fee (driver´s license, car registration, park admission fees, sewer and water assessments.)

Fiscal Policy - Questions for Further Study

QUESTIONS FOR FURTHER STUDY

1. Is it fair for one generation to pass trillions of dollars in public debt to future generations? Under what circumstances might this be justified?

2. Is it theoretically possible for public debts to be passed on to each succeeding generation without ever having to be paid? What conditions would be necessary for this to work?

3. Are there any government services you benefit from that you would be willing to forego if it meant you would pay lower taxes?

4. Are there any new government services you would like to receive for which you would be willing to pay higher taxes?



ENDNOTES

[1] http://www.concordcoalition.org

[2] Fiscal years are not the same for all governments. For example, some might begin the fiscal year on July 1st, while others might begin on September 1st.

[3] These data do not include revenues of publicly owned utilities, liquor stores, or insurance-trust activities. They also exclude intergovernmental receipts and payments between state and local governments.

[4] Fiscal years are not the same for all governments. For example, some might begin the fiscal year on July 1st, while others might begin on September 1st.

[5] These data do not include expenditures of publicly owned utilities, liquor stores, or insurance-trust activities. They also exclude intergovernmental receipts and payments between state and local governments.

[6] This category includes expenditures for libraries, hospitals, health, employment security administration, veterans’ services, air transportation, water transport and terminals, parking facilities, transit subsidies, police protection, fire protection, correction, protective inspection and regulation, sewerage, natural resources, parks and recreation, housing and community development, solid waste management, financial administration, judicial and legal, general public buildings, other government administration, interest on general debt, and other general expenditures not elsewhere classified.

[7]http://www.publicdebt.treas.gov/opd/opdpenny.htm

[8] With a progressive tax, people with higher incomes pay a higher percentage of their income than people with lower incomes. The structure of the U.S. individual income tax system is progressive because high-income people face a higher marginal tax rate than those with lower incomes. This is often referred to as being in a higher tax bracket.

[9] Market failures occur when the market system fails to provide the socially desirable outcome. If the market system is left completely alone, it creates too much of some things (e.g., pollution, poverty, and market power) and not enough of other things (e.g., national defense, education, and basic research).

[10] The ability-to-pay principle states that taxes should be paid by those who are best able to pay them. A contrasting idea, the benefits principle, states that taxes should be paid by those who receive the benefits from the services provided by the government. Both principles are used in the U.S. tax structure. Fuel taxes are designed to generate revenue for the construction and maintenance of highways and roads. Since the people who use the highways and roads the most also buy the most fuel, fuel taxes are based on the benefits principle. Since welfare programs redistribute income, they cannot be based on the benefits principle. The people who receive the transfers of income cannot also pay for them.

[11] With a regressive tax, people with lower incomes pay a higher percentage of their income than people with higher incomes. Payroll taxes for Social Security and Medicare, often referred to as social insurance taxes, are regressive because high-income people pay these taxes on only a portion of their income while low-income people pay these taxes on all of their income. Sales taxes are also regressive because they are a represent a higher percentage of income for the poor than for the rich.

[12] Individual income taxes provide about 50% of the federal government’s revenues. Payroll taxes provide about 35% of the federal government’s revenues.

[13] Wishful thinking is probably part of it, too.

[14] Workers tend to earn the most income, and thus pay the most tax revenue, in the years just prior to retirement.

[15] Baby-boomers will add significantly to the Social Security and Medicare expenses of the federal government.

Definitions - Fiscal Policy

IMPORTANT DEFINITIONS FROM CHAPTER 10


Fiscal policy refers to taxing and spending by the government.

Aggregate demand (AD) is overall spending on newly produced goods and services. It is composed of consumption (C), investment (I), government purchases (G), and net exports (X-M).

Expansionary fiscal policy attempts to stimulate the economy by increasing overall spending on newly produced goods and services through (1) increased government purchases (G), or (2) decreased taxes to encourage more consumption (C) and investment (I) spending. Expansionary fiscal policy can be used to fight unemployment. It also promotes economic growth if it generates investment in physical capital, human capital, and technology, which tend to increase productivity.

Contractionary fiscal policy attempts to slow the economy by decreasing overall spending on newly produced goods and services through (1) decreased government purchases, or (2) increased taxes to discourage consumption and investment spending. Contractionary fiscal policy can be used to fight inflation.

Fiscal policy’s political bias is that politicians are reluctant to conduct contractionary fiscal policy because increasing taxes and reducing government spending on constituents are politically unpopular.

The efficiency of a tax system refers to the relative costs it imposes on taxpayers beyond the monetary payments from taxpayers to the government. These costs include the effect on incentives and behavior and the administrative burden of complying with the tax laws.

The marginal tax rate is the tax paid on an additional dollar of income.

The opportunity cost is what is sacrificed or foregone when a choice is made.

Standard of living measures the amount of goods and services consumed by an average person.

Quality of life attempts to measure the fulfillment people receive.

The equity of a tax system concerns whether the tax burden is distributed fairly among the population.

Vertical equity is the idea that taxpayers with a greater ability to pay taxes should pay larger amounts.

Horizontal equity is the idea that taxpayers with similar abilities to pay taxes should pay the same amount.

The benefits principle states it is fair for people to pay taxes based on the benefits they receive from the government.

The ability-to-pay-principle states it is fair for people to pay taxes based on their capability to handle the financial burden.

A progressive tax is a tax for which high-income taxpayers pay a larger percentage of their income than do low-income taxpayers.

A proportional tax is a tax for which high-income and low-income taxpayers pay the same percentage of income.

A regressive tax is a tax for which high-income taxpayers pay a smaller percentage of their income than do low-income taxpayers.

The average tax rate is the total taxes paid divided by total income.

The marginal tax rate is the tax paid on an additional dollar of income.

A lump-sum tax is a tax that is the same monetary amount for every person.

A flat tax is a tax in which every taxpayer is subject to the same marginal tax rate.

Vertical equity is the principle that taxpayers with a greater ability to pay taxes should pay larger amounts.

Social Security is a government program that imposes taxes on wage earners and employers, and provides old-age, survivors’, disability, and medical benefits to workers covered under the Social Security Act.

A transfer payment is a government payment not made in exchange for a good or service.

National defense includes both the salaries of military personnel and the purchases of military equipment, such as guns, fighter jets, and warships.

Income security includes transfer payments to poor families.

Temporary Assistance for Needy Families (TANF) is a government social program that transfers income from taxpayers to poor families.

The food stamp program is a government social program that gives poor families vouchers that they can use to buy food.

Net interest is the amount the government pays on loans from the public.

Medicare is the federal government’s social program that provides health care benefits to the elderly.

Medicaid is the federal government’s social program that provides health care benefits to the poor.

The U.S. federal budget balance is the difference between U.S. government revenues and U.S. government expenditures.

A budget surplus is an excess of government receipts over government spending.

A budget deficit is an excess of government spending over government receipts.

The public debt is the accumulation of deficits and surpluses over time.

(Not) Paying for Government

(Not) Paying For Government
October 27, 2004

Americans are metaphorically drunk. We are living under the delusion that we do not need to pay for government. We love politicians who cut our taxes while increasing government services. We’ve had too much to drink at the party, but the host is talking us into just one more. The hangover is coming. And the party host won’t be around to deal with it. The politicians who get us all liquored up will be long gone when the country is huddled over the toilet.

The public debt is close to $7.5 trillion. This is the net amount of money borrowed by the U.S. government since its inception. In the first 200 years of U.S. history, the federal government accumulated less than $1 trillion of debt. In the last 25 years, we’ve added $6.5 trillion. So the baby boom generation has enjoyed trillions of dollars worth of government services it has not paid for. In the midst of a war and increasing concerns about homeland security, you might think Americans would be willing to contribute more to financially support the government. Yet, we insist on further tax cuts. Americans are incredible hypocrites. We profess to support the spread of freedom and democracy around the world, but are unwilling to pay the costs of doing so.

The American political system is biased toward fiscal irresponsibility. We don’t like politicians who tell us it’s good for us to pay our bills. It’s like your mother telling you to eat your vegetables. We much prefer the babysitter who lets us eat cake and ice cream for dinner. But gorging ourselves on sweets leads to an upset stomach.

Some astute members of Congress found a way to control the political bias in public finance. The 1990 Budget Enforcement Act initiated a pay-as-you go rule (commonly referred to as pay-go). Under pay-go, any increased spending on entitlement programs (such as Social Security or Medicare) or tax cuts must be offset by reductions is government spending or tax increases. Prior to pay-go, it was too easy for Congress to spend money or cut taxes without concern for its effect on the federal budget. And the program was extremely effective in enforcing fiscal discipline. Most analysts think the pay-go rule deserves much of the credit for the federal budget surpluses of late 1990s that began to pay down the huge public debt.

Some politicians don’t like to eat their vegetables, however. They want to enjoy government services and not pay for them. So the House of Representatives recently abandoned the pay-go provisions applied to tax cuts. And the result has been a return to massive budget deficits. This year alone we’ll add half a trillion dollars to the public debt.

A contributing factor to this fiscally irresponsible behavior has been declining interest rates, which have reached their lowest levels in forty years. When it’s cheap to borrow money, it’s easy to ignore the costs. But the only direction left for interest rates to move is up. Higher interest rates will require larger government expenditures just to pay the interest on the borrowed money and significant increases in taxes or reductions in government services to reduce the public debt. Future generations, including today’s college students, will bear the costs of this behavior. So have another drink or piece of cake and enjoy the party. But the pain is coming. Pass the Pepto-Bismol.

I.O.U.S.A. - the movie

I.O.U.S.A. is a non-partisan documentary movie that explains the U.S. federal debt and why fiscal responsibility should be an increasing concern.

A 30-minute version of the film can be watched online at the movie's web site or on YouTube.

The Economics of Conservatives and Liberals

The Economics of Conservatives and Liberals

Traditional conservatives believe government, and thus taxes, should be relatively small. They also tend to think it is fair for the tax burden to be distributed more broadly across people of various incomes than liberals do. They justify this belief by focusing on the progressivity[8] of individual income tax rates. Conservatives tend to believe either that market failures[9] are relatively small or that the government is ineffective at correcting them. Both are justifications for small government. Conservatives favor smaller government welfare programs and less redistribution of income. Thus, critics of traditional conservatives claim they are less concerned with issues of equity or fairness than liberals. Conservatives respond that people already have relatively equal opportunities (e.g., everyone has access to public education) or that it is not the government’s role to provide such opportunities. Conservatives point out that the waste and abuse of the welfare system is both inefficient and unfair. Conservatives are sometimes accused of being selfish and inconsiderate of others in society. However, wealthy Americans engage in a myriad of charitable activities and donate vast amounts of wealth to agencies that benefit others. They argue that private organizations tend to be more efficient at providing assistance to those in need than the government.

Traditional liberals believe government, and thus taxes, should be relatively large. Most liberals think it is fair for the tax burden to be borne primarily by the rich. They justify this belief using a philosophy known as the ability-to-pay principle.[10] Liberals claim conservatives ignore the regressivity[11] of social insurance and sales taxes and that tax breaks and shelters provide the most benefits to the wealthy. They also point out that middle and lower-income families already pay a larger share of taxes than they are given credit for[12] and argue the total tax burden is already relatively proportional. Liberals tend to believe that market failures are relatively large, that the government is fairly effective at correcting them, or that issues of fairness are more important than economic efficiency. Liberals are accused of being selfish when they want government benefits to be paid by other taxpayers. Critics of traditional liberals claim they lack sufficient concern for economic efficiency and have an exaggerated sense of fairness. Liberals are often accused of recklessly and wastefully spending other people’s money and promoting handouts that undermine the incentive to work. Liberals tend to think Americans do not have equal opportunities or that some citizens suffer from past inequities. Thus, they are more likely than conservatives to favor affirmative action programs or similar projects.

Compassionate conservatism is the phrase used by President George W. Bush to describe his belief in bigger government and lower taxes. Compassionate conservatives argue either that lower taxes will lead to such dramatic economic growth that future tax revenues will be sufficient to pay for today’s government spending and future government expenses, or they argue that deficits and government debt do not matter and debts can be passed to future generations without the need to ever be paid. Traditional conservatives and most economists think compassionate conservatives use flawed logic.[13] Budget deficits and increasing public debt place higher demands on government revenues in the form of interest payments to those who have loaned money to the government. While these may be tolerable in the short-run, they have the potential to be crippling to the U.S. economy when interest rates rise and the baby-boom generation progresses from being a significant source of revenue for the government[14] to being a significant expense[15].

U.S. Public Debt as a Percentage of Gross Domestic Product (GDP)

U.S. Public Debt as a Percentage of Gross Domestic Product (GDP)

Whenever a person applies for a loan, the bank (or other lending institution) requires the borrower to provide vast amounts of information on employment history, income, expenses, and other debts. The loan officer is trying to determine the likelihood that the borrower will pay back the loan. Loan officers acknowledge that the acceptable level of debt for an individual depends on that person´s wealth and income. A $10,000 credit card bill for Bill Gates (one of the wealthiest people in the world) is of much less concern than the same bill for an unemployed college student of modest means.

The same argument can be made for countries. As a country´s wealth increases, it is able to increase its debt and maintain the same perceived ability to pay it back. Thus, many analysts argue that the correct way to look at public debt is in relation to a country´s gross domestic product (GDP). Even by this measure, the U.S. public debt has increased dramatically since 1981.

See also the "U.S. Public Debt Since 1940" and the "U.S. Public Debt Since 1940 - Adjusted for Inflation".