Suchergebnisse

Governments provide a variety of incentives such as lower in-come taxes, tax holidays, import duty exemptions, and subsidies to attract foreign firms into their country based on the belief that multinational companies (MNCs) bring benefits to the host country. Among the benefits, technology transfer and the productivity growth of domestic firms are the most anticipated by policy-makers. For example, Mauritius and Bangladesh experienced a sharp increase in exports in their respective textile sectors upon the entry of multinational firms. Considering that export companies are more productive than non-export companies, the presence of MNCs within the territory may contribute to the productive growth of domestic firms. Multinational firms - enterprises that manage production establishments which span two or more countries - are well known to be larger and more productive than domestically-owned firms. Since they own their superior assets and modern technology, they can cope with high fixed costs when establishing foreign affiliates and pioneering new markets. The entry of foreign firms with modern technology into the host country may incur intended and unintended technology spillovers to the host country's domestic firms, and hence, reduce their average cost of production and increase productive efficiency.

Since the industrial revolution, the economic development of Western Europe and North America was characterized by continuous urbanization accompanied by a gradual phasing-in of urban land property rights over time. Today, however, the evidence in many fast urbanizing low-income countries points towards a different trend of "urbanization without formalization", with potentially adverse effects on long-term economic growth. This paper aims to understand the causes and the consequences of this phenomenon, and whether informal city growth could be a transitory or a persistent feature of developing economies. A dynamic stochastic equilibrium model of a representative city is developed, which explicitly accounts for the joint dynamics of land property rights and urbanization. The calibrated baseline model describes a city that first grows informally, with the growth of individual incomes leading to a phased-in purchase of property rights in subsequent periods. The model demonstrates that land tenure informality does not necessarily vanish in the long term, and the social optimum does not necessarily imply a fully formal city, neither in the transition, nor in the long run. The welfare effects of policies, such as reducing the cost of land tenure formalization, or protecting informal dwellers against evictions are subsequently investigated, throughout the short-term transition and in the long-term stationary state.

Um die Bedeutsamkeit von Mixed-Methods-Ansätzen zu verdeutlichen, greifen wir auf eine eigene Untersuchung zurück, in die verschiedene Datenquellen eingegangen sind, die üblicherweise einem eher qualitativen und einem eher quantitativen Forschungsstil zugeordnet werden. Wir entschieden uns damit bewusst für eine andere Herangehensweise als die traditionell, zumindest in Mexiko, zur Untersuchung von Arbeit übliche: anstelle der Hauptbezugnahme auf statistische Daten analysierten wir zunächst qualitatives Datenmaterial zu einer Gruppe mexikanischer städtischer Mittelschichtfrauen. Zur Integration der unterschiedlichen Datenquellen konstruierten wir eine Typologie mittels quantitativer Daten, die zuvor in der qualitativen Studie erarbeitet worden war und die es erlaubte, Bezüge zwischen vier Verlaufskurven (Schule, Arbeit, Heirat, Kindererziehung) zu verdeutlichen.

Selten werden in empirischen Untersuchungen einzelne Stufen der Entwicklung flexibel
gehaltener theoretischer Konzepte und entprechender methodischer Schritte detailliert
vorgestellt. Eine solche Offenlegung des Erkenntniszuwachses im Forschungsprozeß ist aber zum einen sinnvoll, um die Forderung nach Validierung der Ergebnisse durch die scientific
community mit Hilfe eines Einblickes in die "Werkstatt" der Untersuchung zu erfüllen.
Zum anderen ist es im Bereich der interpretativen Methoden häufig notwendig,
zur Passung des untersuchten Gegenstands und der Untersuchungsmethoden methodische Modifikationen oder Neuentwicklungen vorzunehmen, deren Adäquanz überprüfbar sein sollte. In diesem Sinne ist der vorliegende Beitrag zu verstehen, der im Rahmen des Projekts
A1 "Statuspassagen an der zweiten Schwelle II' des Sfb 186 entstand. Er soll zunächst
aufzeigen, welche theoretischen und methodischen Entwicklungsschritte der
heuristischen Typologie (berufs)biographischer Gestaltungsprinzipien zugrundeliegen.
Es schließt sich die Darstellung und Begründung einer Auswertungsmethode an, die insbesondere für die Analyse biographischer Gestaltungsprinzipien - spezifische
Bilanzierungs- und Handlungsmuster in Biographien von Statuspassagen - geeignet
ist. Sie ist erfahrungsgesättigt und daher auch forschungsökonomisch; sie soll die interpretative Kreativität nicht mit einem stark formalisierten Vorschriftenkatalog
behindern sondern fördern. Zuletzt gibt ein Fallbeispiel Gelegenheit, das Gelingen dieser methodologischen Ansprüche zu prüfen bzw. nachzuvollziehen.

Bento and booksWith all of my writing and translating about Spinoza and Marx as of late I am embarrassed to admit that there is a moment of their encounter that I have overlooked. The passage in question is in Chapter Eleven of Volume One of Capital (and I am indebted to Nick Nesbitt for pointing it out). In that passage Marx writes, "Vulgar economics, which like the Bourbons 'has really learnt nothing,' relies here as mere semblance as opposed to the law which regulates and determines the phenomena. In anthesis to Spinoza, it believes that 'ignorance is a sufficient reason."In the original:"Die Vulgärökonomie, die 'wirklich auch nichts gelernt hat,' pocht hier, wie überall, auf den Schein gegen das Gesetz der Erscheinung. Sie glaubt im Gegensatz zu Spinoza, daß 'die Unwissenheit ein hinreichender Grund ist". The notes to the Penguin edition points towards the Appendix to Part One of the Ethics as the source to this reference. If we followed that recommendation we might look at the following passage. "Nor ought we here to pass over the fact that the followers of this doctrine, who have wanted to show off their cleverness in assigning the ends of things, have introduced-to prove this doctrine of theirs-a new way of arguing: by reducing things, not to the impossible, but to ignorance. This shows that no other way of defending their doctrine was open to them. For example, if a stone has fallen from a roof onto someone's head and killed him, they will show, in the following way, that the stone fell in order to kill the man. For if it did not fall to that end, God willing it, how could so many circumstances have concurred by chance (for often many circumstances do concur at once)? Perhaps you will answer that it happened because the wind was blowing hard and the man was walking that way. But they will persist: why was the wind blowing hard at that time? why was the man walking that way at that same time? If you answer again that the wind arose then because on the preceding day, while the weather was still calm, the sea began to toss, and that the man had been invited by a friend, they will press on-for there is no end to the questions which can be asked: but why was the sea tossing? why was the man invited at just that time? And so they will not stop asking for the causes of causes until you take refuge in the will of God, that is, the sanctuary of ignorance.Similarly, when they see the structure of the human body, they are struck by a foolish wonder, and because they do not know the causes of so great an art, they infer that it is constructed, not by mechanical, but by divine, or supernatural art, and constituted in such a way that one part does not injure another. Hence it happens that one who seeks the true causes of miracles, and is eager, like an educated man, to understand natural things, not to wonder at them, like a fool, is generally considered an impious heretic and denounced as such by those whom the people honor as interpreters of Nature and the gods. For they know that if ignorance is taken away, then foolish wonder, the only means they have of arguing and defending their authority, is also taken away."A great deal could be said about this connection of the critique of political economy and the appendix. One could connect this point to capitalism as religion, or the religion of daily life as André Tosel puts it, but it is also worth pointing out that Marx's emphasis on ignorance is very different than thinking of ideology as having some sort of epistemic content, even if it is a distorted one. I think that Althusser has probably gone the farthest in positing ideology not as a set of ideas, but as some sense a relation to those ideas through the subject, an idea which is of course indebted to Spinoza. I would like to suggest a different direction of this particular intersection of Marx and Spinoza, one oriented not towards a theory of ideology, but of agnotology, towards a study of ignorance. I realize that the division between ideology, often defined as a kind of false knowledge, and what agnotology studies, ignorance is thin enough to be nonexistent. Many would claim that ideology is ignorance and those agnotology and ideology critique are two names for the same thing. Moreover agnotology is a relatively niche and undeveloped area of inquiry. Much of the work that does is exists is oriented towards empirical contributions to the sociology of knowledge, such as the work on the famous campaigns by tobacco companies and oil companies to foster doubt in the carcinogenic effects of cigarettes and the reality of global warming. Posing the problem of agnotology through Marx and Spinoza suggests a way to think the production of ignorance not through the campaigns of public relations, but the way in which social relations produce ignorance of their own conditions. Franck Fischbach's little book on Marx follows a suggestive examination in this direction.  As Fischbach argues, Marx and Engels' The German Ideology can be understood to be a text about the fragmentation of knowledge with the division of labor: the order and connection of ideas follows the order and connection of things. Framed in this way it is possible to see continuity from the concept ideology the theory of fetishism. Capitalist society is one in which there is increasing division between production and consumption. As Marx writes, "the taste of the porridge does not tell you who grew the oats, no more does this simple process tell you of itself what are the social conditions under which it is taking place, whether under the slave-owner's brutal lash, or the anxious eye of the capitalist, whether Cincinnatus carries it on in tilling his modest farm or a savage in killing wild animals with stones." This ignorance is not just a lack, thought as much as nature abhors a vacuum. The absence of knowledge of the real conditions becomes the basis for the projection of all kinds of qualities, from the commodity's value to its meaning and importance within the semiotics of consumer society. As Deleuze and Guattari write, elevating Marx's comments about porridge into a general epistemological thesis:"Let us remember once again one of Marx's caveats: we cannot tell from the mere taste of the wheat who grew it; the product gives us no hint as to the system and relations of production. The product appears to be all the more specific, incredibly specific and readily describable, the more closely the theoretician relates it to ideal forms of causation, comprehension, or expression, rather than to the real process of production on which it depends."Or, as Spinoza argued, our ignorance about the causes of things is refracted through our awareness of our own desires so much so that we "take our desires for reality," to twist an old May '68 slogan. Our own perceptions become the basis for truth. As Marx states above, appearance replaces reality. The danger of making such a direct connection between social division and epistemic fragmentation is that such theses often imply a restoration of some kind of wholeness, a dream of a society without divisions and fragmentation which would also be a restoration of knowledge. Such a society has not existed since some went to hunt and others went to gather, if ever. The passage about porridge from Marx even makes this clear, fetishism might have begun with the commodity form but ignorance of the conditions of production are much older. If there can be no return to wholeness, some restoration of our knowledge, ourselves, and society, then knowledge must be a construction. The question is how to structure society so that the divisions and diversity of tasks and productive activities necessary for human survival become the basis for an increase of our knowledge rather the condition for the production of stupidity. 

Collectively, according to recent campaign finance
reports perhaps the most competitive Louisiana Senate races are happening in
northwest Louisiana, although clarity has begun to emerge in the contests
mainly in Caddo Parish.

Those are the three-candidate Senate District 38
and 39 contests. Less certain in outcome are the paired matchups in sprawling Senate
District 31, which has a plurality of its voters in Caddo and Bossier Parishes,
and District 36, with mainly a Bossier constituency.

The reports filed last week importantly for most of
these candidacies reveal for the first time campaign donations and
expenditures. These give an idea of the relevant potency of a candidacy and the
kinds of supporters it draws, if any.

After qualifying, perhaps the most competitive of
the Caddo contests was thought to be SD 39 of the term-limited Democrat state
Sen. Greg Tarver, with Democrat former Shreveport mayor and two-tern state Rep.
Cedric Glover, Democrat caucus leader state Rep. Sam Jenkins, and Democrat former state
Rep. Barbara Norton all have a go at it. The open seat appears so valuable that
Jenkins and Glover gave up what would appear to have been easy reelections,
where four years from now term limits would have matched one or both up likely
against an incumbent.

However, finance data tell a more lopsided story. Glover
might have had the edge given an almost-uninterrupted quarter-century he has
spent in elective office. Yet he also sometimes has acted as a nonconformist among
Democrats, most recently by crossing party lines and traditional black political
organizations to support
white Republican Shreveport Mayor Tom Arceneaux
in his successful bid.

This contest appears to embody attempted payback. Glover raised only
a few thousand dollars to add little to an almost emptied campaign kitty,
mainly from corporate and political action committee sources although this is
2022 data as he apparently failed to file the report 30 days from an election
on time. Norton,
who in her dozen years in office didn't
exactly distinguish herself has done somewhat better but has spent little
more on campaigning. Rather, most money, over six figures, has poured into Jenkins' campaign, capturing
most of the traditional Democrat dollars – party organizations, activists, and
elected officials; labor; and trial lawyers; plus lots of PAC bucks and a few
GOP donors, and Jenkins has spent far more than his opposition combined on campaigning.
(Not surprisingly, Tarver, who Glover didn't endorse for mayor, endorsed
Jenkins.) This grants him the edge going forward.

SD 38, by contrast, has seen finances headed in a
more predictable direction. Republican state Rep. Thomas Pressly brought home six
figures from traditional GOP allies and PACs. The other traditional
Republican in the race, Chase Jennings,
in the less than a month of running picked up only a
fraction of Pressly's total and disproportionately it seemed came from officials
and congregants of Shreveport Community Church.

Former Democrat senator from the district, now
running as a Republican John Milkovich,
brought in about $75,000
although about half was his own resources. The social conservative but big government
spender acts as the stealth Democrat in the race but didn't receive much from
traditional Democrat sources as he crossed up the party on social issues during
his term. Instead, his donor base reflected an eclectic mix although heavier on
the trial lawyer side. These numbers confirm Pressly as the favorite, although
he might be pushed to a runoff by Milkovich.

Across the river, the heads-up matchups between
Republicans don't have clear favorites. SD 31 presents a classic Bossier
political establishment vs. staunch conservative battle between Mike McConathy and state Rep. Alan Seabaugh. Following the age-old
script, both are social conservatives, although the former has backing from the
diminishing white Democrat base and get-along-go-along Republicans, both of whom
favor bigger government, and has raised this year approaching
$200,000, while the latter has traditional Republican economic conservatives
in his corner and raised
a little less but has much more in campaign coffers.

Interesting also are the outside groups stumping
for each. The state
chapter of Americans for Prosperity, a national group emphasizing limited
government and conservative economics, has endorsed
and spent for Seabaugh. Meanwhile, a dark money group from Baton Rouge, Republican
Patriots Protecting Property Rights run by maverick Republican Scott Wilfong
who often crosses swords with the more conservative state GOP leadership, has
dropped some change on behalf of McConathy.

The reports confirm the closeness and dynamics of
the race. McConathy, who in the past has supported
white Democrats from Bossier Parish's former state Rep. Billy Montgomery
(who late in his career switched to the GOP) up to Democrat Gov. John Bel Edwards, having
coached basketball at the collegiate level in two places in the district
and is the son of a former Bossier Parish school superintendent, is popular but
Seabaugh has demonstrated campaign prowess time and time again and his
consistent conservatism shown in 13 years at the Legislature has won him many
fans in a heavily-conservative area.

The SD 36 contest in Bossier and Webster Parishes is
the most convoluted of all. Incumbent GOP state Sen. Robert Mills has an almost
unimpeachable conservative record. The Louisiana Association of Business and
Industry, which distributes a legislative
scorecard geared to measuring economic conservatism, rated him at 98
percent over his term, missing on only one vote and that because he was absent.
(Seabaugh, for his part, also scored 98 percent over the term.)

His filing demonstrates
this, with donations coming from a number of businesses and business PACs, as
well as a number of traditional GOP donors. He topped $200,000 and has almost
as much in reserve.

But his challenger, Republican Bossier Parish
School Board member Adam Bass,
is trying to argue Mills hasn't been enough of an economic conservative. Some
were upset that Mills, along with the rest of the Senate unanimously, this year
voted to allow for more spending on capital projects rather than paying down
pension liabilities and topping off the state's main savings account and in a
way that might have triggered tax cuts.

Bass tried to drive this point home in a recent
candidate forum on the Bossier Watch podcast/narrowcast, pointing to a
Mills vote on an amendment to a bill
hijacked from taxing marijuana to redistributing revenues from the general fund
to capital outlay. In the process, the amendment would have undone the 2025
expiration of the 0.45 percent sales tax increase first in 2016 then renewed in
2018 (where, in the renewal process, Seabaugh successfully maneuvered to prevent
a higher level that has ended up saving taxpayers tens of millions of dollars).

Several GOP senators joined Mills in voting for
that, which Bass argued constituted voting for a tax increase. But Mills and
all others later voted to strip that amendment and when the bill passed it was
revenue neutral, and concerning his record generally on taxes and spending the
LABI scorecard speaks for itself.

Bass raised almost $50,000
fewer for a campaign that got a later start. His filing reflects donors
less business-oriented and more Bossier-centric, including solid support from
the Bossier political establishment, who never has warmed that much to Mills,
an outsider to it, while Bass is firmly a member of it.

It all may come down to Webster Parish. The Bossier
City part of the district is new to Mills, but if he can keep it close there
his Webster precincts where he likely will do much better than Bass should put
him over the top.(note: this has been corrected since original posting.)

Public Sector Economics Master's final thesis topic is of interest because we consider the Lithuanian state pension system. Pension system - is one of the elements of social protection. Social security is the basic institution which protects the national market economy. Five years ago Lithuania was launched in the state social insurance pension system reform. This reform is part of the state social insurance pension system privatization. This step and the context of criticism and support. Lithuanian scientists perform calculations and statistical analysis is very critical and critical carried out the reform. According to the reformed pension system is not fair, they will suffer most from the current retirees and older workers today, outside the system (Gylys, 2002). Studies have shown that the state social insurance pension system creates greater social security or private pension systems (Bitinas, 2008). By the way Lithuania private pension system developed state social insurance pension account. The implementation of pension reform should address the question of the social impact of the pension system will in the future. Pension system should be managed in the interest of social justice. Free Market Institute, experts agree the privatization of the pension system, they argue that in order to save people's pensions, rather than the current Social Security system needs radical reform, with the ultimate aim of the mandatory state social insurance waiver. However, the social insurance welfare state development rate under the responsibility of the state. Pension Scheme, together with health care is generally considered the heart of the welfare state. Therefore, public retirement systems management efficiency can be increased by the introduction of new management methods. Member image depends on how it can take care of older and disabled people nationally. Recently, public pensions through industrialized countries have already rightly equated old age poverty. The working generation supports the contributions of its pension scheme. Funded pension system will undoubtedly have been associated with positive intentions. However, this system there is still a lot of problems. These systems benefit in the long term it is extremely difficult to predict. Prior to the pension system reform, and it was done by the start of an aggressive and irresponsible advertising campaign, which has information about the underlying luxurious old age, participation in the choice of pension reform in the second stage. However, it was completely silent on the possible effects of pension reform. The author's view, cumulative pension system and the effectiveness of optimistic results of Lithuania allow the question and an incomplete legal framework in this area. There is no defined risk management and liability transferred to the State Social Insurance Fund contributions. Does not provide for the mandatory pension funds and the profitability of their specific commitments and guarantees the pension fund participant. There is no doubt, and the pension system's objectives are achieved. Pension system of the Lithuanian Republic consists of a state pension and social assistance benefits paid from the state budget and the state social insurance pensions, paid from the State Social Insurance Fund budget. State pensions are paid for certain services rendered to the state or certain professions. The state pension coverage tends to increase, in addition to a systematic increase in state pension base. State pensions offer unreasonable benefits to their recipients in violation of social justice, finally, is compounded by the burden of state, increasing the State budget. Pay-as-you-go today as a government social security fund system in line with European standards and has its own advantages. This system provides a sound social security, the contributions of persons liable for the financial sustainability of this system is responsible for the State. This system is simple and versatile, collected contributions from the immediate allocation of benefits. For this reason, the management of the system is cheap. This system is stable, it is immune to investment risk and inflation, the system constantly monitors the state because it is \"public.\" The social security pension system creates greater social security. The main advantage of this system fosters solidarity. This feature of the welfare state, showing the state of social maturity and respect for its citizens. A state social insurance pension system in the pay and benefits approach, the main problem is the state social insurance budget formation. As shown by the State Social Insurance Fund budget analysis, a one-year budget is not stable. It depends on the country's economic situation. By the way, one-year budget is very difficult to provide balanced. Today the country's economy is global, depends not only on their country's economic indicators, but also from all over the world of global events. This is a direct effect on State Social Insurance Fund budget. There must be a reserve fund, which went State Social Insurance Fund budget surplus in order to cover the projected future costs. Another proposal of the state social insurance to ensure financial sustainability would be that a pension should increase their funding base, part of a pension, for example, the main part of the financing from the state budget; by the way the State has more sources in the collection of taxes. This would help to increase the state social insurance contributions and increase the competitiveness of companies in ensuring the State Social Insurance Fund budget for the financial sustainability. Five years ago started a partial state social insurance pension privatization. This reform was made subject to certain objectives. The paper addresses the following broad objectives and their implementation. One of the goals was to balance the budget of the State Social Insurance fund. As shown by the work of analysis, State Social Insurance Fund budget depends on the economy: in good times - the budget surplus, during periods of economic downturn - the budget deficit. Since the creation of private pensions is the DHS pension account balance the budget solely State Social Insurance Fund this budget is difficult, especially in the economic downturn. Another objective of introducing the reform was to change the pension system so that individuals receive a higher pension than without reform. The paper's calculations show that the 2004 - 2008 the average pension growth rate of 18.05, while the second-tier funds transferred funds only 3.57. This means that the funds transferred to the pension funds did not increase faster than the increase in the State Social Insurance Fund pension, the past five years their presence was detrimental. The ongoing pension reform was to abandon privileged pensions. The paper analysis showed that the current number of persons receiving two or more pensions waived privileged pensions, low to consistently and systematically increase the basic state pension level. To prepare for the pension reform was considered investing in private pension funds thanks to spur economic growth. But, since a large part of the capital invested abroad, our country's economy does not receive the investment and can contribute to economic growth. Pension reform is ongoing in many foreign countries. Pension system was reformed in several directions. That's raising the retirement age, and the introduction of private funded pensions, the supplementary voluntary pension insurance promotion Pensions Reserve Fund, the promotion of older people to remain in the labor market early and partial retirement. Foreign countries have a wide variety of pension, is a different experience in the development of private pension funds. Developed European countries set up additional reserves. In good economic situation in the accumulation of assets that, if necessary, to cover the increased costs of default. The largest funds are pension reserve funds have been generated in Finland, Sweden, Denmark and Luxembourg.

Public Sector Economics Master's final thesis topic is of interest because we consider the Lithuanian state pension system. Pension system - is one of the elements of social protection. Social security is the basic institution which protects the national market economy. Five years ago Lithuania was launched in the state social insurance pension system reform. This reform is part of the state social insurance pension system privatization. This step and the context of criticism and support. Lithuanian scientists perform calculations and statistical analysis is very critical and critical carried out the reform. According to the reformed pension system is not fair, they will suffer most from the current retirees and older workers today, outside the system (Gylys, 2002). Studies have shown that the state social insurance pension system creates greater social security or private pension systems (Bitinas, 2008). By the way Lithuania private pension system developed state social insurance pension account. The implementation of pension reform should address the question of the social impact of the pension system will in the future. Pension system should be managed in the interest of social justice. Free Market Institute, experts agree the privatization of the pension system, they argue that in order to save people's pensions, rather than the current Social Security system needs radical reform, with the ultimate aim of the mandatory state social insurance waiver. However, the social insurance welfare state development rate under the responsibility of the state. Pension Scheme, together with health care is generally considered the heart of the welfare state. Therefore, public retirement systems management efficiency can be increased by the introduction of new management methods. Member image depends on how it can take care of older and disabled people nationally. Recently, public pensions through industrialized countries have already rightly equated old age poverty. The working generation supports the contributions of its pension scheme. Funded pension system will undoubtedly have been associated with positive intentions. However, this system there is still a lot of problems. These systems benefit in the long term it is extremely difficult to predict. Prior to the pension system reform, and it was done by the start of an aggressive and irresponsible advertising campaign, which has information about the underlying luxurious old age, participation in the choice of pension reform in the second stage. However, it was completely silent on the possible effects of pension reform. The author's view, cumulative pension system and the effectiveness of optimistic results of Lithuania allow the question and an incomplete legal framework in this area. There is no defined risk management and liability transferred to the State Social Insurance Fund contributions. Does not provide for the mandatory pension funds and the profitability of their specific commitments and guarantees the pension fund participant. There is no doubt, and the pension system's objectives are achieved. Pension system of the Lithuanian Republic consists of a state pension and social assistance benefits paid from the state budget and the state social insurance pensions, paid from the State Social Insurance Fund budget. State pensions are paid for certain services rendered to the state or certain professions. The state pension coverage tends to increase, in addition to a systematic increase in state pension base. State pensions offer unreasonable benefits to their recipients in violation of social justice, finally, is compounded by the burden of state, increasing the State budget. Pay-as-you-go today as a government social security fund system in line with European standards and has its own advantages. This system provides a sound social security, the contributions of persons liable for the financial sustainability of this system is responsible for the State. This system is simple and versatile, collected contributions from the immediate allocation of benefits. For this reason, the management of the system is cheap. This system is stable, it is immune to investment risk and inflation, the system constantly monitors the state because it is \"public.\" The social security pension system creates greater social security. The main advantage of this system fosters solidarity. This feature of the welfare state, showing the state of social maturity and respect for its citizens. A state social insurance pension system in the pay and benefits approach, the main problem is the state social insurance budget formation. As shown by the State Social Insurance Fund budget analysis, a one-year budget is not stable. It depends on the country's economic situation. By the way, one-year budget is very difficult to provide balanced. Today the country's economy is global, depends not only on their country's economic indicators, but also from all over the world of global events. This is a direct effect on State Social Insurance Fund budget. There must be a reserve fund, which went State Social Insurance Fund budget surplus in order to cover the projected future costs. Another proposal of the state social insurance to ensure financial sustainability would be that a pension should increase their funding base, part of a pension, for example, the main part of the financing from the state budget; by the way the State has more sources in the collection of taxes. This would help to increase the state social insurance contributions and increase the competitiveness of companies in ensuring the State Social Insurance Fund budget for the financial sustainability. Five years ago started a partial state social insurance pension privatization. This reform was made subject to certain objectives. The paper addresses the following broad objectives and their implementation. One of the goals was to balance the budget of the State Social Insurance fund. As shown by the work of analysis, State Social Insurance Fund budget depends on the economy: in good times - the budget surplus, during periods of economic downturn - the budget deficit. Since the creation of private pensions is the DHS pension account balance the budget solely State Social Insurance Fund this budget is difficult, especially in the economic downturn. Another objective of introducing the reform was to change the pension system so that individuals receive a higher pension than without reform. The paper's calculations show that the 2004 - 2008 the average pension growth rate of 18.05, while the second-tier funds transferred funds only 3.57. This means that the funds transferred to the pension funds did not increase faster than the increase in the State Social Insurance Fund pension, the past five years their presence was detrimental. The ongoing pension reform was to abandon privileged pensions. The paper analysis showed that the current number of persons receiving two or more pensions waived privileged pensions, low to consistently and systematically increase the basic state pension level. To prepare for the pension reform was considered investing in private pension funds thanks to spur economic growth. But, since a large part of the capital invested abroad, our country's economy does not receive the investment and can contribute to economic growth. Pension reform is ongoing in many foreign countries. Pension system was reformed in several directions. That's raising the retirement age, and the introduction of private funded pensions, the supplementary voluntary pension insurance promotion Pensions Reserve Fund, the promotion of older people to remain in the labor market early and partial retirement. Foreign countries have a wide variety of pension, is a different experience in the development of private pension funds. Developed European countries set up additional reserves. In good economic situation in the accumulation of assets that, if necessary, to cover the increased costs of default. The largest funds are pension reserve funds have been generated in Finland, Sweden, Denmark and Luxembourg.

La tesi si articola nei seguenti 3 articoli, che rappresentano anche i 3 capitoli principali: 1. Asymmetric Information in the Credit Market and Unemployment Benefit as a Screening Device, 2. Redistribution as a Device for Total Screening in a Credit Market with Adverse Selection, 3. Moral Hazard in the Credit Market: the Case of Labor-Managed Firms in Italy after the Law n. 142/2001. La tesi inoltre comprende un 4° articolo supplementare, "How Trade Unions Promote Cooperation among Workers", scritto sempre durante il dottorato di ricerca, ma su un argomento diverso rispetto a quello dei primi 3. Il primo articolo riprende e sviluppa la tesi finale scritta per il conseguimento del Master in Economics presso l'Università di Louvain la Neuve. L'articolo parte dall'analisi principale-agente nel caso di asimmetrie informative nel mercato del credito. Il modello di riferimento è il classico Stiglitz e Weiss (1981) nel caso di adverse selection. I due autori hanno dimostrato come il razionamento può facilmente verificarsi in mercati (quello del credito è uno dei possibili esempi) dove ogni contraente ha un diverso grado di conoscenza rispetto alla controparte sui vari aspetti del contratto. Per evitare il razionamento del credito, e pertanto un più lento sviluppo dell'attività imprenditoriale (specialmente in aree meno industrializzate), alcuni autori hanno proposto (alle autorità istituzionali) interventi mirati ad alleviare i problemi legati alle asimmetrie informative. Mankiw (1986), ad esempio, suggerisce che i trasferimenti pubblici, sotto forma di sussidio all'investimento, possono generare miglioramenti nella soluzione di mercato. De Meza e Webb (1987), dimostrano come invece una tassa sugli investimenti può essere un modo per evitare il sovra-investimento da loro immaginato. Stranamente, pochi altri articoli investigano sui possibili interventi volti ad evitare il razionamento del credito. Uno di questi è Minelli e Modica (2003) i quali ricordano che la disponibilità di collaterale è lo strumento più efficace per segnalare la qualità dei progetti imprenditoriali. Pertanto, nel caso in cui i potenziali imprenditori non abbiano il collaterale sufficiente per segnalarsi, lo Stato dovrebbe intervenire fornendo alle imprese direttamente la somma necessaria. I 2 autori confrontano poi il costo della policy con i costi generati dalle 2 forme di intervento più conosciute e utilizzate dai governi: il sussidio al tasso di interesse e il sussidio all'investimento. Minelli e Modica concludono dimostrando che la loro proposta ha, così come il sussidio al tasso di interesse, il costo più basso possibile per le autorità. Sfortunatamente, però, i 3 interventi di policy citati da Minelli e Modica producono equilibri di pooling, cioè dove tutti i "tipi" di impresa ("buoni" o "cattivi") vengono finanziati. Questo non è un bene per la società nel caso in cui le imprese "cattive" hanno un valore netto minore di zero (vale a dire il loro output finale è più basso delle risorse utilizzate). Nel primo articolo della tesi, si dimostra come un sussidio di disoccupazione offerto ai potenziali imprenditori, può rendere meno conveniente la possibilità di chiedere un prestito per le imprese che hanno progetti scadenti. Il contributo principale dell'articolo sta nell'analisi del rapporto tra inefficienze riscontrate in un mercato (del credito) e le possibili soluzioni generate focalizzando l'attenzione su altri mercati apparentemente lontani. Il sussidio di disoccupazione produce equilibri separating, cioè dove solo le imprese "buone" chiedono un prestito. Inoltre (anche se non è essenziale confrontare i costi di interventi che producono un risultato diverso in termini di imprese finanziate), l'intervento proposto in genere costa meno delle altre alternative di policy. Il secondo articolo immagina uno scenario solo leggermente diverso rispetto al primo articolo. Invece di analizzare le interdipendenze tra mercati, il modello descrive i risultati di una redistribuzione del reddito iniziale di tutti i potenziali imprenditori. Se non tutte le potenziali imprese hanno il livello di collaterale richiesto dalle banche per classificare i "tipi" di impresa, le redistribuzione può essere un mezzo efficace per garantire a tutti il livello necessario. Solo nel caso in cui la ricchezza iniziale totale non è sufficiente a garantire lo stesso ammontare di collaterale per ogni potenziale impresa, l'autorità pubblica è chiamata ad intervenire con i propri fondi. Il modello produce ancora una volta equilibri di separating con le imprese "cattive" fuori dal mercato del credito per "paura" di perdere il nuovo capitale a disposizione. Il costo della policy risulta in genere più basso di quello di altre possibili alternative. Inoltre, quando l'output totale prodotto da tutte (e solo) le imprese "buone" è tale da potere rimborsare gli agenti che inizialmente possedevano più del reddito "egalitario" ottenuto dopo l'intervento, "svaniscono" i giudizi negativi sull'effetto delle redistribuzioni sugli incentivi alla produzione e sulla pareto efficienza. Il terzo articolo analizza il rapporto tra la legge e i risultati economici prodotti da questa. Il modello confronta il problema di moral hazard che può verificarsi nel caso in cui una banca, per fondi limitati, può scegliere di finanziare una cooperativa di lavoro (LMF) oppure un'impresa tradizionale (PMF). Com'è noto, la legge n. 142 del 2001 ha equiparato la posizione del socio e del lavoratore subordinato nelle cooperative di lavoro ai sensi della legge fallimentare. Come conseguenza le cooperative sono diventate meno competitive, dal punto di vista dei finanziatori, perché la posizione dei soci in caso di fallimento è adesso più forte. In altre parole, durante un procedura di liquidazione, le banche possono essere soddisfatte sui beni mobili dell'impresa fallita solo dopo i crediti di lavoro subordinato. Ciò acuisce il problema di moral hazard per le cooperative riguardo al livello di sforzo applicato da ogni socio. Infatti, gli imprenditori-lavoratori di una LMF avranno meno incentivo allo sforzo rispetto a quelli che guidano una PMF se, in caso di fallimento, riescono a recuperare il loro compenso direzionale oltre a quello eventuale di lavoro subordinato. L'articolo si aggiunge a quella parte della letteratura economica che investiga sull'effettiva efficienza di un sistema di imprese di tipo LMF. Il contributo principale riguarda l'analisi della relazione che può sussistere tra provvedimenti legislativi e asimmetrie informative nel mercato del credito. Il modello dimostra come una riforma della legislazione in materia fallimentare potrebbe essere sufficiente ad alleviare il problema di moral hazard sofferto dalle banche nei confronti degli imprenditori LMF. Questi ultimi possono effettivamente accrescere la loro reputazione di "buoni debitori" e produrre infine un output non necessariamente minore rispetto alle imprese PMF. L' articolo supplementare studia una delle possibili spiegazioni della presenza dei sindacati nel mercato del lavoro. Ciò che potrebbe sembrare una rigidità nei livelli salariali, può in realtà essere il risultato di un gioco cooperativo tra i membri di un sindacato. L'articolo spiega come un sindacato, riducendo la varianza del reddito atteso per ogni iscritto, produce un benefico effetto assicurativo. Il sindacato, in effetti, chiede una tassa di iscrizione agli occupati (riducendo il salario) e fornisce un sussidio, sotto varie forme, per i disoccupati (aumentando il salario di riserva). Rispetto al modello di cooperazione di Solow (1990), il presente articolo riesce a spiegare, grazie alla semplice presenza dei sindacati, la possibilità di osservare un salario più alto del livello competitivo senza la necessità di assumerlo come dato esogeno (com'è possibile, da un'ottica di equilibrio generale, assumere un livello salariale più alto di quello competitivo senza una spiegazione? ). Inoltre, il modello assume l'avversione al rischio dei lavoratori e non la neutralità. Oltre ad essere un'assunzione più realistica (non si accorgono, i lavoratori, di affrontare una lotteria ogni periodo tra salario alto e quello di riserva?), l'avversione al rischio consente di spiegare la più alta utilità attesa che deriva dalla riduzione della varianza del reddito atteso.

This post takes up from two previous posts (part 1;  part 2), asking just what do we (we economists) really know about how interest rates affect inflation. Today, what does contemporary economic theory say? As you may recall, the standard story says that the Fed raises interest rates; inflation (and expected inflation) don't immediately jump up, so real interest rates rise; with some lag, higher real interest rates push down employment and output (IS); with some more lag, the softer economy leads to lower prices and wages (Phillips curve). So higher interest rates lower future inflation, albeit with "long and variable lags." Higher interest rates -> (lag) lower output, employment -> (lag) lower inflation. In part 1, we saw that it's not easy to see that story in the data. In part 2, we saw that half a century of formal empirical work also leaves that conclusion on very shaky ground. As they say at the University of Chicago, "Well, so much for the real world, how does it work in theory?" That is an important question. We never really believe things we don't have a theory for, and for good reason. So, today, let's look at what modern theory has to say about this question. And they are not unrelated questions. Theory has been trying to replicate this story for decades. The answer: Modern (anything post 1972) theory really does not support this idea. The standard new-Keynesian model does not produce anything like the standard story.  Models that modify that simple model to achieve something like result of the standard story do so with a long list of complex ingredients. The new ingredients are not just sufficient, they are (apparently) necessary to produce the desired dynamic pattern. Even these models do not  implement the verbal logic above. If the pattern that high interest rates lower inflation over a few years is true, it is by a completely different mechanism than the story tells. I conclude that we don't have a simple economic model that produces the standard belief. ("Simple" and "economic" are important qualifiers.) The simple new-Keynesian model The central problem comes from the Phillips curve. The modern Phillips curve asserts that price-setters are forward-looking. If they know inflation will be high next year, they raise prices now. So Inflation today = expected inflation next year + (coefficient) x output gap.  \[\pi_t = E_t\pi_{t+1} + \kappa x_t\](If you know enough to complain about \(\beta\approx0.99\) in front of \(E_t\pi_{t+1}\) you know enough that it doesn't matter for the issues here.)Now, if the Fed raises interest rates, and if (if) that lowers output or raises unemployment, inflation today goes down. The trouble is, that's not what we're looking for. Inflation goes down today, (\(\pi_t\))relative to expected inflation next year (\(E_t\pi_{t+1}\)). So a higher interest rate and lower output correlate with inflation that is rising over time.    Here is a concrete example: The plot is the response of the standard three equation new-Keynesian model to an \(\varepsilon_1\) shock at time 1:\[\begin{align} x_t &= E_t x_{t+1} - \sigma(i_t - E_t\pi_{t+1}) \\ \pi_t & = \beta E_t \pi_{t+1} + \kappa x_t \\ i_t &= \phi \pi_t + u_t \\ u_t &= \eta u_{t-1} + \varepsilon_t. \end{align}\] Here \(x\) is output, \(i\) is the interest rate, \(\pi\) is inflation, \(\eta=0.6\), \(\sigma=1\), \(\kappa=0.25\), \(\beta=0.95\), \(\phi=1.2\). In this plot, higher interest rates are said to lower inflation. But they lower inflation immediately, on the day of the interest rate shock. Then, as explained above, inflation rises over time. In the standard view, and the empirical estimates from the last post, a higher interest rate has no immediate effect, and then future inflation is lower. See plots in the last post, or this one from Romer and Romer's 2023 summary:Inflation jumping down and then rising in the future is quite different from inflation that does nothing immediately, might even rise for a few months, and then starts gently going down. You might even wonder about the downward jump in inflation. The Phillips curve makes it clear why current inflation is lower than expected future inflation, but why doesn't current inflation stay the same, or even rise, and expected future inflation rise more? That's the "equilibrium selection" issue. All those paths are possible, and you need extra rules to pick a particular one. Fiscal theory points out that the downward jump needs a fiscal tightening, so represents a joint monetary-fiscal policy. But we don't argue about that today. Take the standard new Keynesian model exactly as is, with passive fiscal policy and standard equilibrium selection rules. It predicts that inflation jumps down immediately and then rises over time. It does not predict that inflation slowly declines over time.  This is not a new issue. Larry Ball (1994) first  pointed out that the standard new Keynesian Phillips curve says that output is high when inflation is high relative to expected future inflation, that is when inflation is declining. Standard beliefs  go the other way: output is high when inflation is rising.  The IS curve is a key part of the overall prediction, and output faces a similar problem. I just assumed above that output falls when interest rates rise. In the model it does; output follows a path with the same shape as inflation in my little plot. Output also jumps down and then rises over time. Here too, the (much stronger) empirical evidence says that an interest rate rise does not change output immediately, and output then falls rather than rises over time. The intuition has even clearer economics behind it: Higher real interest rates induce people to consume less today and more tomorrow. Higher real interest rates should go with higher, not lower, future consumption growth. Again, the model only apparently reverses the sign by having output jump down before rising. Key issuesHow can we be here, 40 years later, and the benchmark textbook model so utterly does not replicate standard beliefs about monetary policy? One answer, I believe, is confusing adjustment to equilibrium with equilibrium dynamics. The model generates inflation lower than yesterday (time 0 to time 1) and lower than it otherwise would be (time 1 without shock vs time 1 with shock). Now, all economic models are a bit stylized. It's easy to say that when we add various frictions, "lower than yesterday" or "lower than it would have been" is a good parable for "goes down over time."  If in a simple supply and demand graph we say that an increase in demand raises prices instantly, we naturally understand that as a parable for a drawn out period of price increases once we add appropriate frictions. But dynamic macroeconomics doesn't work that way. We have already added what was supposed to be the central friction, sticky prices. Dynamic economics is supposed to describe the time-path of variables already, with no extra parables. If adjustment to equilibrium takes time, then model that.  The IS and Phillips curve are forward looking, like stock prices. It would make little sense to say "news comes out that the company will never make money, so the stock price should decline gradually over a few years." It should jump down now. Inflation and output behave that way in the standard model. A second confusion, I think, is between sticky prices and sticky inflation. The new-Keynesian model posits, and a huge empirical literature examines, sticky prices. But that is not the same thing as sticky inflation. Prices can be arbitrarily sticky and inflation, the first derivative of prices, can still jump. In the Calvo model, imagine that only a tiny fraction of firms can change prices at each instant. But when they do, they will change prices a lot, and the overall price level will start increasing right away. In the continuous-time version of the model, prices are continuous (sticky), but inflation jumps at the moment of the shock.  The standard story wants sticky inflation. Many authors explain the new-Keynesian model with sentences like "the Fed raises interest rates. Prices are sticky, so inflation can't go up right away and real interest rates are higher." This is wrong. Inflation can rise right away. In the standard new-Keynesian model it does so with \(\eta=1\), for any amount of price stickiness. Inflation rises immediately with a persistent monetary policy shock. Just get it out of your heads. The standard model does not produce the standard story. The obvious response is, let's add ingredients to the standard model and see if we can modify the response function to look something like the common beliefs and VAR estimates. Let's go. Adaptive expectations We can reproduce standard beliefs about monetary policy with thoroughly adaptive expectations, in the 1970s ISLM form. I think this is a large part of what  most policy makers and commenters have in mind.  Modify the above model to leave out the dynamic part of the intertemporal substitution equation, to just say in rather ad hoc way that higher real interest rates lower output, and specify that the expected inflation that drives the real rate and that drives pricing decisions is mechanically equal to previous inflation, \(E_t \pi_{t+1} = \pi_{t-1}\). We get \[ \begin{align} x_t &= -\sigma (i_t - \pi_{t-1}) \\ \pi_t & = \pi_{t-1} + \kappa x_t .\end{align}\] We can solve this sytsem analytically to \[\pi_t = (1+\sigma\kappa)\pi_{t-1} - \sigma\kappa i_t.\]Here's what happens if the Fed permanently raises the interest rate. Higher interest rates send future inflation down. (\(\kappa=0.25,\ \sigma=1.\)) Inflation eventually spirals away, but central banks don't leave interest rates alone forever. If we add a Taylor rule response \(i_t = \phi \pi_t + u_t\),  so the central bank reacts to the emerging spiral, we get this response to a permanent monetary policy disturbance \(u_t\): The higher interest rate sets off a deflation spiral. But the Fed quickly follows inflation down to stabilize the situation. This is, I think, the conventional story of the 1980s. In terms of ingredients, an apparently minor change of index from \(E_t \pi_{t+1}\) to \(\pi_{t-1}\) is in fact a big change. It means directly that higher output comes with increasing inflation, not decreasing inflation, solving Ball's puzzle.  The change basically changes the sign of output in the Phillips curve. Again, it's not really all in the Phillips curve. This model with rational expectations in the IS equation and adaptive in the Phillips curve produces junk. To get the result you need adaptive expectations everywhere. The adaptive expectations model gets the desired result by changing the basic sign and stability properties of the model. Under rational expectations the model is stable; inflation goes away all on its own under an interest rate peg. With adaptive expectations, the model is unstable. Inflation or deflation spiral away under an interest rate peg or at the zero bound. The Fed's job is like balancing a broom upside down. If you move the bottom (interest rates) one way, the broom zooms off the other way. With rational expectations, the model is stable, like a pendulum.  This is not a small wrinkle designed to modify dynamics. This is major surgery. It is also a robust property: small changes in parameters do not change the dominant eigenvalue of a model from over one to less than one.  A more refined way to capture how Fed officials and pundits think and talk might be called "temporarily fixed expectations." Policy people do talk about the modern Phillips curve; they say inflation depends on inflation expectations and employment. Expectations are not mechanically adaptive. Expectations are a third force, sometimes "anchored," and amenable to manipulation by speeches and dot plots. Crucially, in this analysis, expected inflation does not move when the Fed changes interest rates.  Expectations are then  very slowly adaptive, if inflation is persistent, or if there is a more general loss of faith in "anchoring." In the above new-Keynesian model graph, at the minute the Fed raises the interest rate, expected inflation jumps up to follow the graph's plot of the model's forecast of inflation. As a simple way to capture these beliefs, suppose expectations are fixed or "anchored" at \(\pi^e\). Then my simple model is \[\begin{align}x_t & = -\sigma(i_t - \pi^e) \\ \pi_t & = \pi^e + \kappa x_t\end{align}\]so \[\pi_t = \pi^e - \sigma \kappa (i_t - \pi^e).\] Inflation is expected inflation, and lowered by higher interest rates (last - sign). But those rates need only be higher than the fixed expectations; they do not need to be higher than past rates as they do in the adaptive expectations model. That's why the Fed thinks 3% interest rates with 5% inflation is still "contractionary"--expected inflation remains at 2%, not the 5% of recent adaptive experience.  Also by fixing expectations, I remove the instability of the adaptive expectations model... so long as those expectations stay anchored. The Fed recognizes that eventually higher inflation moves the expectations, and with a belief that is adaptive, they fear that an inflation spiral can still break out.Even this view does not give us any lags, however. The Fed and commenters clearly believe that higher real interest rates today lower output next year, not immediately; and they believe that lower output and employment today drive inflation down in the future, not immediately. They believe something like \[\begin{align}x_{t+1} &= - \sigma(i_t - \pi^e) \\ \pi_{t+1} &= \pi^e + \kappa x_t.\end{align}\] But now we're at the kind of non-economic ad-hockery that the whole 1970s revolution abandoned. And for a reason: Ad hoc models are unstable, regimes are always changing. Moreover, let me remind you of our quest: Is there a simple economic model of monetary policy that generates something like the standard view? At this level of ad-hockery you might as well just write down the coefficients of Romer and Romer's response function and call that the model of how interest rates affect inflation.  Academic economics gave up on mechanical expectations and ad-hoc models in the 1970s. You can't publish a paper with this sort of model. So when I mean a "modern" model, I mean  rational expectations, or at least the consistency condition that the expectations in the model are not fundamentally different from forecasts of the model. (Models with explicit learning or other expectation-formation frictions count too.) It's easy to puff about people aren't rational, and looking out the window lots of people do dumb things. But if we take that view, then the whole project of monetary policy on the proposition that people are fundamentally unable to learn patterns in the economy, that a benevolent Federal Reserve can trick the poor little souls into a better outcome.  And somehow the Fed is the lone super-rational actor who can avoid all those pesky behavioral biases. We are looking for the minimum necessary ingredients to describe the basic signs and function of monetary policy. A bit of irrational or complex expectation formation as icing on the cake, a possible sufficient ingredient to produce quantitatively realistic dynamics, isn't awful. But it would be sad if irrational expectations or other behavior is a necessary ingredient to get the most basic sign and story of monetary policy right. If persistent irrationality is a central necessary ingredient for the basic sign and operation of monetary policy -- if higher interest rates will raise inflation the minute people smarten up; if there is no simple supply and demand, MV=PY sensible economics underlying the basic operation of monetary policy; if it's all a conjuring trick  -- that should really weaken our faith in the whole monetary policy project.  Facts help, and we don't have to get religious about it. During the long zero bound, the same commentators and central bankers kept warning about a deflation spiral, clearly predicted by this model. It never happened. Interest rates below inflation from 2021 to 2023 should have led to an upward inflation spiral. It never happened -- inflation eased all on its own with interest rates below inflation.Getting the desired response to interest rates by making the model unstable isn't tenable whether or not you like the ingredient.  Inflation also surged in the 1970s faster than adaptive expectations came close to predicting, and fell faster in the 1980s.  The ends of many inflations come with credible changes in regime. There is a lot of work now desperately trying to fix new-Keynesian models by making them more old-Keynesian, putting lagged inflation in the Phillips curve, current income in the IS equation, and so forth. Complex learning and expectation formation stories replace the simplistic adaptive expectations here. As far as I can tell, to the extent they work they largely do so in the same way, by reversing the basic stability of the model. Modifying the new-Keynesian modelThe alternative is to add ingredients to the basic new-Keynesian model, maintaining its insistence on real "micro-founded" economics and forward-looking behavior, and describing explicit dynamics as the evolution of equilibrium quantities.  Christiano Eichenbaum and Evans (2005) is one of the most famous examples. Recall these same authors  created the first most influential VAR that gave the "right" answer to the effects of monetary policy shocks. This paper modifies the standard new-Keynesian model with a specific eye to matching impulse response functions. The want to match all impulse-responses, with a special focus on output. When I started asking my young macro colleagues for a standard model which produces the desired response shape, they still cite CEE first, though it's 20 years later. That's quite an accomplishment. I'll look at it in detail, as the general picture is the same as many other models that achieve the desired result. Here's their bottom line response to a monetary policy shock: (Figure from the 2018 Christiano Eichenbaum and Trabandt Journal of Economic Perspectives summary paper.)  The solid line is the VAR point estimate and gray shading is the 95% confidence band. The solid blue line is the main model. The dashed line is the model with only price stickiness, to emphasize the importance of wage stickiness. The shock happens at time 0. Notice the funds rate line that jumps down at that date. That the other lines do not move at time 0 is a result. I graphed the response to a time 1 shock above. That's the answer, now what's the question? What ingredients did they add above the textbook model to reverse the basic sign and jump problem and to produce  these pretty pictures? Here is a partial list: Habit formation. The utility function is  \(log(c_t - bc_{t-1})\). A capital stock with adjustment costs in investment.  Adjustment costs are proportional to investment growth, \([1-S(i_t/i_{t-1})]i_t\), rather than the usual formulation in which adjustment costs are proportional to the investment to capital ratio \(S(i_t/k_t)i_t\). Variable capital utilization. Capital services \(k_t\) are related to the capital stock \(\bar{k}t\) by \(k_t = u_t \bar{k}_t\). The utilization rate \(u_t\) is set by households facing an upward sloping cost \(a(u_t)\bar{k}_t\).Calvo pricing with indexation: Firms randomly get to reset prices, but firms that aren't allowed to reset prices do automatically raise prices at the rate of inflation.Prices are also fixed for a quarter. Technically, firms must post prices before they see the period's shocks.Sticky wages, also with indexation. Households are monopoly suppliers of labor, and set wages Calvo-style like firms. (Later papers put all households into a union which does the wage setting.) Wages are also indexed; Households that don't get to reoptimize their wage still raise wages following inflation. Firms must borrow working capital to finance their wage bill a quarter in advance, and thus pay a interest on the wage bill. Money in the utility function, and money supply control. Monetary policy is a change in the money growth rate, not a pure interest rate target. Whew! But which of these ingredients are necessary, and which are just sufficient? Knowing the authors, I  strongly suspect that they are all necessary to get the suite of results. They don't add ingredients for show. But they want to match all of the impulse response functions, not just the inflation response. Perhaps a simpler set of ingredients could generate the inflation response while missing some of the others. Let's understand what each of these ingredients is doing, which will help us to see (if) they are necessary and essential to getting the desired result. I see a common theme in habit formation, adjustment costs that scale by investment growth, and indexation. These ingredients each add a derivative; they take a standard relationship between levels of economic variables and change it to one in growth rates. Each of consumption, investment, and inflation is a "jump variable" in standard economics, like stock prices. Consumption (roughly) jumps to the present value of future income. The level of investment is proportional to the stock price in the standard q theory, and jumps when there is new information. Iterating forward the new-Keynesian Phillips curve \(\pi_t = \beta E_t \pi_{t+1} + \kappa x_t\), inflation jumps to the discounted sum of future output gaps, \(\pi_t = E_t \sum_{j=0}^\infty \beta^jx_{t+j}.\)  To produce responses in which output, consumption and investment as well as inflation rise slowly after a shock, we don't want levels of consumption, investment, and inflation to jump this way. Instead we want growth rates to do so. With standard utility, the consumer's linearized first order condition equates expected consumption growth to the interest rate, \( E_t (c_{t+1}/c_t) = \delta + r_t \) Habit, with \(b=1\) gives  \( E_t [(c_{t+1}-c_t)/(c_t-c_{t-1})] = \delta + r_t \). (I left out the strategic terms.) Mixing logs and levels a bit, you can see we put a growth rate in place of a level. (The paper has \(b=0.65\) .) An investment adjustment cost function with \(S(i_t/i_{t-1})\) rather than the standard \(S(i_t/k_t)\) puts a derivative in place of a level. Normally we tell a story that if you want a house painted, doubling the number of painters doesn't get the job done twice as fast because they get in each other's way. But you can double the number of painters overnight if you want to do so. Here the cost is on the increase in number of painters each day.   Indexation results in a Phillips curve with a lagged inflation term, and that gives "sticky inflation."  The Phillips curve of the model (32) and (33) is \[\pi_t = \frac{1}{1+\beta}\pi_{t-1} + \frac{\beta}{1+\beta}E_{t-1}\pi_{t+1} + (\text{constants}) E_{t-1}s_t\]where \(s_t\) are marginal costs (more later). The \(E_{t-1}\) come from the assumption that prices can't react to time \(t\) information. Iterate that forward to (33)\[\pi_t - \pi_{t-1} = (\text{constants}) E_{t-1}\sum_{j=0}^\infty \beta^j s_{t+j}.\] We have successfully put the change in inflation in place of the level of inflation. The Phillips curve is anchored by real marginal costs, and they are not proportional to output in this model as they are in the textbook model above. That's important too. Instead,\[s_t = (\text{constants}) (r^k_t)^\alpha \left(\frac{W_t}{P_t}R_t\right)^{1-\alpha}\] where \(r^k\) is the return to capital \(W/P\) is the real wage and \(R\) is the nominal interest rate. The latter term crops up from the assumption that firms must borrow the wage bill one period in advance. This is an interesting ingredient. There is a lot of talk that higher interest rates raise costs for firms, and they are reducing output as a result. That might get us around some of the IS curve problems. But that's not how it works here. Here's how I think it works. Higher interest rates raise marginal costs, and thus push up current inflation relative to expected future inflation. The equilibrium-selection rules and the rule against instant price changes (coming up next) tie down current inflation, so the higher interest rates have to push down expected future inflation. CEE disagree (p. 28). Writing of an interest rate decline, so all the signs are opposite of my stories,  ... the interest rate appears in firms' marginal cost. Since the interest rate drops after an expansionary monetary policy shock, the model embeds a force that pushes marginal costs down for a period of time. Indeed, in the estimated benchmark model the effect is strong enough to induce a transient fall in inflation.But pushing marginal costs down lowers current inflation relative to future inflation -- they're looking at the same Phillips curve just above. It looks to me like they're confusing current with expected future inflation. Intuition is hard. There are plenty of Fisherian forces in this model that want lower interest rates to lower inflation. More deeply,  we see here a foundational trouble of the Phillips curve. It was originally a statistical relation between wage inflation and unemployment. It became a (weaker) statistical relation between price inflation and unemployment or the output gap. The new-Keynesian theory wants naturally to describe a relation between marginal costs and price changes, and it takes contortions to make output equal to marginal costs. Phillips curves fit the data terribly. So authors estimating Phillips curves (An early favorite by Tim Cogley and Argia Sbordone) go back, and separate marginal cost from output or employment. As CET write later, they "build features into the model which ensure that firms' marginal costs are nearly acyclical." That helps the fit, but it divorces the Phillips curve shifter variable from the business cycle! Standard doctrine says that for the Fed to lower inflation it must soften the economy and risk unemployment. Doves say don't do it, live with inflation to avoid that cost. Well, if the Phillips curve shifter is "acyclical" you have to throw all that out the window.  This shift also points to the central conundrum of the Phillips curve. Here it describes the adjustment of prices to wages or "costs" more generally. It fundamentally describes a relative price, not a price level. OK, but the phenomenon we want to explain is the common component, how all prices and wage tie together or equivalently the decline in the value of the currency, stripped of relative price movements. The central puzzle of macroeconomics is why the common component, a rise or fall of all prices and wages together, has anything to do with output, and for us how it is controlled by the Fed. Christiano Eichenbaum and Evans write (p.3) that "it is crucial to allow for variable capital utilization." I'll try explain  why in my own words. Without capital adjustment costs, any change in the real return leads to a big investment jump. \(r=f'(k)\) must jump and that takes a lot of extra \(k\). We add adjustment costs to tamp down the investment response. But now when there is any shock, capital can't adjust enough and there is a big rate of return response. So we need something that acts like a big jump in the capital stock to tamp down \(r=f'(k)\) variability, but not a big investment jump. Variable capital utilization acts like the big investment jump without us seeing a big investment jump. And all this is going to be important for inflation too. Remember the Phillips curve; if output jumps then inflation jumps too. Sticky wages are crucial, and indeed CEE report that they can dispense with sticky prices. One reason is that otherwise profits are countercyclical. In a boom, prices go up faster than wages so profits go up. With sticky prices and flexible wages you get the opposite sign. It's interesting that the "textbook" model has not moved this way. Again, we don't often enough write textbooks. Fixing prices and wages during the period of the shock by assuming price setters can't see the shock for a quarter has a direct effect: It stops any price or wage jumps during the quarter of the shock, as in my first graph. That's almost cheating. Note the VAR also has absolutely zero instantaneous inflation response. This too is by assumption. They "orthogonalize" the variables so that all the contemporaneous correlation between monetary policy shocks and inflation or output is considered part of the Fed's "rule" and none of it reflects within-quarter reaction of prices or quantities to the Fed's actions. Step back and admire. Given the project "find elaborations of the standard new-Keynesian model to match VAR impulse response functions" could you have come up with any of this? But back to our task. That's a lot of apparently necessary ingredients. And reading here or CEE's verbal intuition, the logic of this model is nothing like the standard simple intuition, which includes none of the necessary ingredients. Do we really need all of this to produce the basic pattern of monetary policy? As far as we know, we do. And hence, that pattern may not be as robust as it seems. For all of these ingredients are pretty, ... imaginative. Really, we are a long way from the Lucas/Prescott vision that macroeconomic models should be based on well tried and measured microeconomic ingredients that are believably invariant to changes in the policy regime. CEE argue hard for the plausibility of these microeconomic specifications (see especially the later CET Journal of Economic Perspectives article), but they have to try so hard precisely because the standard literature doesn't have any of these ingredients. The "level" rather than "growth rate" foundations of consumption, investment, and pricing decisions pervade microeconomics. Microeconomists worry about labor monopsony, not labor monopoly; firms set wages, households don't. (Christiano Eichenbam and Trabandt (2016) get wage stickiness from a more realistic search and matching model. Curiously, the one big labor union fiction is still the most common, though few private sector workers are unionized.) Firms don't borrow the wage bill a quarter ahead of time.  Very few prices and wages are indexed in the US. Like habits, perhaps these ingredients are simple stand ins for something else, but at some point we need to know what that something else is. That is especially true if one wants to do optimal policy or welfare analysis. Just how much economics must we reinvent to match this one response function? How far are we really from the ad-hoc ISLM equations that Sims (1980) destroyed? Sadly, subsequent literature doesn't help much (more below). Subsequent literature has mostly added ingredients, including heterogeneous agents (big these days), borrowing constraints, additional financial frictions (especially after 2008), zero bound constraints, QE, learning and complex expectations dynamics. (See CET 2018 JEP  for a good verbal survey.) The rewards in our profession go to those who add a new ingredient. It's very hard to publish papers that strip a model down to its basics. Editors don't count that as "new research," but just "exposition" below the prestige of their journals. Though boiling a model down to essentials is maybe more important in the end than adding more bells and whistles. This is about where we are. Despite the pretty response functions, I still score that we don't have a reliable, simple, economic model that produces the standard view of monetary policy. Mankiw and Reis, sticky expectations Mankiw and Reis (2002) expressed the challenge clearly over 20 years ago. In reference to the "standard" New-Keynesian Phillips curve \(\pi_t = \beta E_t \pi_{t+1} + \kappa x_t\) they write a beautiful and succinct paragraph: Ball [1994a] shows that the model yields the surprising result that announced, credible disinflations cause booms rather than recessions. Fuhrer and Moore [1995] argue that it cannot explain why inflation is so persistent. Mankiw [2001] notes that it has trouble explaining why shocks to monetary policy have a delayed and gradual effect on inflation. These problems appear to arise from the same source: although the price level is sticky in this model, the inflation rate can change quickly. By contrast, empirical analyses of the inflation process (e.g., Gordon [1997]) typically give a large role to "inflation inertia."At the cost of repetition, I emphasize the last sentence because it is so overlooked. Sticky prices are not sticky inflation. Ball already said this in 1994: Taylor (1979, 198) and Blanchard (1983, 1986) show that staggering produces inertia in the price level: prices just slowly to a fall in th money supply. ...Disinflation, however, is a change in the growth rate of money not a one-time shock to the level. In informal discussions, analysts often assume that the inertia result carries over from levels to growth rates -- that inflation adjusts slowly to a fall in money growth. As I see it, Mankiw and Reis generalize the Lucas (1972) Phillips curve. For Lucas, roughly, output is related to unexpected inflation\[\pi_t = E_{t-1}\pi_t + \kappa x_t.\] Firms don't see everyone else's prices in the period. Thus, when a firm sees an unexpected rise in prices, it doesn't know if it is a higher relative price or a higher general price level; the firm expands output based on how much it thinks the event might be a relative price increase.  I love this model for many reasons, but one, which seems to have fallen by the wayside, is that it explicitly founds the Phillips curve in firms' confusion about relative  prices vs. the price level, and thus faces up to the problem why should a rise in the price level have any real effects. Mankiw and Reis basically suppose that firms find out the general price level with lags, so output depends on inflation relative to a distributed lag of its expectations. It's clearest for the price level (p. 1300)\[p_t = \lambda\sum_{j=0}^\infty (1-\lambda)^j E_{t-j}(p_t + \alpha x_t).\] The inflation expression is \[\pi_t = \frac{\alpha \lambda}{1-\lambda}x_t + \lambda \sum_{j=0}^\infty (1-\lambda)^j E_{t-1-j}(\pi_t + \alpha \Delta x_t).\](Some of the complication is that you want it to be \(\pi_t = \sum_{j=0}^\infty E_{t-1-j}\pi_t + \kappa x_t\), but output doesn't enter that way.) This seems totally natural and sensible to me. What is a "period" anyway? It makes sense that firms learn heterogeneously whether a price increase is relative or price level. And it obviously solves the central persistence problem with the Lucas (1972) model, that it only produces a one-period output movement. Well, what's a period anyway? (Mankiw and Reis don't sell it this way, and actually don't cite Lucas at all. Curious.)  It's not immediately obvious that this curve solves the Ball puzzle and the declining inflation puzzle, and indeed one must put it in a full model to do so. Mankiw and Reis (2002) mix it with \(m_t + v = p_t + x_t\) and make some stylized analysis, but don't show how to put the idea in models such as I started with or make a plot.  Their less well known follow on paper  Sticky Information in General Equilibrium (2007) is much better for this purpose because they do show you how to put the idea in an explicit new-Keynesian model, like the one I started with.  They also add a Taylor rule, and an interest rate rather than money supply instrument, along with wage stickiness and a few other ingredients,. They show how to solve the model overcoming the problem that there are many lagged expectations as state variables. But here is the response to the monetary policy shock: Response to a Monetary Policy Shock, Mankiw and Reis (2007). Sadly they don't report how interest rates respond to the shock. I presume interest rates went down temporarily. Look: the inflation and output gap plots are about the same. Except for the slight delay going up, these are exactly the responses of the standard NK model. When output is high, inflation is high and declining.  The whole point was to produce a model in which high output level would correspond to rising inflation. Relative to the first graph, the main improvement is just a slight hump shape in both inflation and output responses. Describing the same model in "Pervasive Stickiness" (2006), Mankiw and Reis describe the desideratum well: The Acceleration Phenomenon....inflation tends to rise when the economy is booming and falls when economic activity is depressed. This is the central insight of the empirical literature on the Phillips curve. One simple way to illustrate this fact is to correlate the change in inflation, \(\pi_{t+2}-\pi_{t-2}\) with [the level of] output, \(y_t\), detrended with the HP filter. In U.S. quarterly data from 1954-Q3 to 2005-Q3, the correlation is 0.47. That is, the change in inflation is procyclical.Now look again at the graph. As far as I  can see, it's not there. Is this version of sticky inflation a bust, for this purpose? I still think it's a neat idea worth more exploration. But I thought so 20 years ago too.  Mankiw and Reis have a lot of citations but nobody followed them. Why not?  I suspect it's part of a general pattern that lots of great micro sticky price papers are not used because they don't produce an easy aggregate Phillips curve. If you want cites, make sure people can plug it in to Dynare. Mankiw and Reis' curve is pretty simple, but you still have to keep all past expectations around as a state variable. There may be alternative ways of doing that with modern computational technology, putting it in a Markov environment or cutting off the lags, everyone learns the price level after 5 years. Hank models have even bigger state spaces! Some more modelsWhat about within the Fed?  Chung,  Kiley, and  Laforte 2010, "Documentation of the Estimated, Dynamic, Optimization-based (EDO) Model of the U.S. Economy: 2010 Version" is one such model.  (Thanks to Ben Moll, in a lecture slide titled "Effects of interest rate hike in U.S. Fed's own New Keynesian model") They describe it as This paper provides documentation for a large-scale estimated DSGE model of the U.S. economy – the Federal Reserve Board's Estimated, Dynamic, Optimization- based (FRB/EDO) model project. The model can be used to address a wide range of practical policy questions on a routine basis.Here are the central plots for our purpose: The response of interest rates and inflation to a monetary policy shock.  No long and variable lags here. Just as in the simple model, inflation jumps down on the day of the shock and then reverts. As with Mankiw and Reis, there is a tiny hump shape, but that's it. This is nothing like the Romer and Romer plot. Smets and Wouters (2007) "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach" is about as famous as Christiano Eichenbaum and Evans as a standard new-Keynesian model that supposedly matches data well. It "contains many shocks and frictions. It features sticky nominal price and wage settings that allow for backward inflation indexation, habit formation in consumption, and investment adjustment costs that create hump-shaped responses... and variable capital utilization and fixed costs in production"Here is their central graph of the response to a monetary policy shockAgain, there is a little hump-shape, but the overall picture is just like the one we started with. Inflation mostly jumps down immediately and then recovers; the interest rate shock leads to future inflation that is higher, not lower than current inflation. There are no lags from higher interest rates to future inflation declines. The major difference, I think, is that Smets and Wouters do not impose the restriction that inflation cannot jump immediately on either their theory or empirical work, and Christiano, Eichenbaum and Evans impose that restriction in both places. This is important. In a new-Keynesian model some combination of state variables must jump on the day of the shock, as it is only saddle-path stable. If inflation can't move right away, that means something else does. Therefore, I think, CEE also preclude inflation jumping the next period. Comparing otherwise similar ingredients, it looks like this is the key ingredient for producing Romer-Romer like responses consistent with the belief in sticky inflation. But perhaps the original model and Smets-Wouters are right! I do not know what happens if you remove the CEE orthogonalization restriction and allow inflation to jump on the day of the shock in the date. That would rescue the new-Keynesian model, but it would destroy the belief in sticky inflation and long and variable lags. Closing thoughtsI'll reiterate the main point. As far as I can tell, there is no simple economic model that produces the standard belief. Now, maybe belief is right and models just have to catch up. It is interesting that there is so little effort going on to do this. As above, the vast outpouring of new-Keynesian modeling has been to add even more ingredients. In part, again, that's the natural pressures of journal publication. But I think it's also an honest feeling that after Christiano Eichenbaun and Evans, this is a solved problem and adding other ingredients is all there is to do. So part of the point of this post (and "Expectations and the neutrality of interest rates") is to argue that this is not a solved problem, and that removing ingredients to find the simplest economic model that can produce standard beliefs is a really important task.  Then, does the model incorporate anything at all of the standard intuition, or is it based on some different mechanism al together? These are first order important and unresolved questions!But for my lay readers, here is as far as I know where we are. If you, like the Fed, hold to standard beliefs that higher interest rates lower future output and inflation with long and variable lags, know there is no simple economic theory behind that belief, and certainly the standard story is not how economic models of the last four decades work. Update:I repeat a response to a comment below, because it is so important. I probably wasn't clear enough that the "problem" of high output with inflation falling rather than rising is a problem of models vs. traditional beliefs, rather than of models vs. facts. The point of the sequence of posts, really, is that the traditional beliefs are likely wrong. Inflation does not fall, following interest rate increases, with dependable, long, and perhaps variable lags. That belief is strong, but neither facts, empirical evidence, or theory supports it. ("Variable" is a great way to scrounge data to make it fit priors.) Indeed many successful disinflations like ends of hyperinflations feature a sigh of relief and output surge on the real side. 

This paper contributes to the economic analysis of illicit activities and money laundering. First, it presents a theoretical model of long-run growth that explicitly considers illicit workers, activities, and income, alongside a licit private sector and a functioning government. Second, it generates estimates of the size of illicit income and provides simulated and econometric estimates of the volume of laundered assets in the Colombian economy. In the model, the licit sector operates in a perfectly competitive environment and produces a licit good through a standard neoclassical production function. The illicit sector operates in an imperfectly competitive environment and is composed of two different activities: The first activity produces an illicit good that nonetheless is valuable in the market (for example illicit drugs); the second does not add value to the economy but only redistributes wealth (for example robbery, kidnapping, and fraud). The paper provides a series of comparative statics exercises to assess the effects of changes in government efficiency, licit sector productivity, and illicit drug prices. From the model, the analysis derives a set of estimable macroeconometric equations to measure the size of laundered assets in the Colombian economy in the period 1985 to 2013. The paper assembles a data set whose key components are estimates of illicit income from drug trafficking and common crime. Illicit incomes increased drastically until 2001, reaching a peak of nearly 12 percent of gross domestic product and then decreasing to less than 2 percent by 2013. The decline overlaps not only in a period of high economic growth, but also after the implementation of Plan Colombia. The data set is used to estimate the volume of laundered assets in the economy by applying the Kalman filter for the estimation of unobserved dynamic variables onto the derived macroeconometric equations from the model. The findings show that the volume of laundered assets increased from about 8 percent of gross domestic product in the mid-1980s to a peak of 14 percent by 2002, and declined to 8 percent in 2013.

Uninsured natural disasters can have devastating effects on human welfare and economic growth, particularly in developing countries where large segments of the population are in poverty and government resources and capacity to assist in relief, recovery, and reconstruction are limited. Therefore there is interest in exploring how these countries can design and implement disaster relief financing and insurance programs. This paper discusses four aspects of the microeconomics of disaster relief financing and insurance programs that are important for the ex post impact evaluation of such programs: (1) use of game setups to analyze the private willingness-to-pay for disaster protection through risk transfer or risk retention instruments; (2) use of ex post analysis of existing disaster relief financing and insurance schemes (such as Mexico's programs) to analyze the willingness to provide political support to such schemes; (3) use of ex post analysis of existing schemes to analyze not only ex post coping with shock, but also the ex ante risk management impact of disaster relief financing and insurance schemes, with the expectation that the latter can have a large effects on growth; and (4) use of mainly global data to do ex post impact analysis of natural disasters and the resilience-enhancing value of disaster relief financing and insurance schemes (examples exist for the disaster-impact relationship that can be extended to the role of disaster relief financing and insurance in risk reduction, coping with shock, and risk management). The paper proposes concrete research projects to pursue the analysis of these four dimensions of micro-level impacts of disaster relief financing and insurance.

Land and property rights, migration, and citizenship are complex issues that cut across all social, economic, and political spheres of West Africa. This paper provides an overarching scoping of the most pressing contemporary issues related to land, migration, and citizenship, including how they intersect in various contexts and locations in West Africa. The way issues are analytically framed captures structural challenges and sets them against the regional and global meta-trends of which policy makers and practitioners should be aware for conflict-sensitive planning. The paper points to some of the effective practices in managing and mitigating these issues and also raises several questions on areas for future research. Part one lays out the migratory context in West Africa. It points to the type, nature, and extent of mobility that characterizes the region. Part two sets out West Africa's land tenure and management systems, including structural challenges, general management policies, and key issues related to land tenure and migrants. Part three frames the key land and migration meta-trends in the context of fragility. Part four concludes with an overall exploration of the paper's results and puts forward a series of research questions that are necessary in order to discern the most effective and realistic operational approaches.

The Supreme Court is hearing a case with profound implications for the income tax. WSJ editorial here and good commentary from Ilya Shapiro here. This issue is naturally contorted into legalisms:  What the heck does "apportioned" mean? How is "income"  defined legally? I won't wade into that. What are the economic issues? What's the right thing to do here, leaving aside legalisms?Three general principles underlie taxation. The most important is: The government taxes what it can get its hands on. The economists' analysis of incentives comes much later: The government tries to tax in such a way that does not set off a rush to avoidance, either legal (complex structures to avoid taxes) or economic (don't do the thing that gets taxed, like earn income). So why does the government tax income? Because, circa 1913, income was easier to measure than sales, value added, consumption, or other economically better concepts. When money changes hands, it's relatively for the government to see what's there and take a share.  Tariffs really start from the same concept. It's relatively easy to see what's going through the port and demand a share, Adam Smith, David Ricardo and free trade be damned.  But the government wanted more money than tariffs could provide. So, even if it were a good idea to tax wealth, the problem is that there is not neceassarily any cash around where there is wealth or unrealized capital gains. When you sell an asset, you get some cash, and it's easy for the government to demand it. When you do not sell an asset, you have no extra cash. It's a "paper profit." What are you going to pay the government with? This comes up in practical terms with estate taxes. Yes, we have a 40% top marginal rate wealth tax right now. (If wealth taxes are unconstitutional, why isn't the estate tax number one on the chopping block? OK, I promised not to delve in to law, but I wish someone would answer it.)  But private businesses, family farms, and the like don't have 40% of their value sitting around in cash. Unless you carve out a Swiss cheese of loopholes, and complex legal structures, you have to break up or sell the business to get the cash. That's why the estate tax has said Swiss cheese. It also has happened in the news lately with internet titans who got big stock grants at the top of the market. The market crashes. They still owe tax on the value of stock when granted. Property taxes are another case. Yes, we have wealth taxes, in the form of property taxes. (They are state and local, not federal, and the issue is federal wealth taxes.) People sometimes can own a house but not have the money to pay the tax. Wealth and unrealized capital gains are also troublesome because in many cases it's hard to know exactly how much there is. Just what is the value of a house, a building, or a privately held business? Accountants can differ, especially if taxes are at stake. The minute you tax it,  accountants also can get creative about corporate structure to game valuation rules -- voting vs. non voting shares, debt with embedded options, options to buy that are never exercised, interlocking trusts, and so forth. See above estate tax Swiss cheese.Moreover, market values change. If I pay tax on unrealized appreciation this year, do I get my money back when the value goes down next year?So you can see it makes sense: If one wants to include "investment income" as "income." then tax it when there is a definite value -- the market sale price -- and  tax it when there is some cash around to grab; when it is realized. But now trouble perks up. It's reasonably easy to turn actual income into an unrealized gain. Suppose you have some income stream, and you don't plan to spend it right away. You want to reinvest it. Rather than pay income tax on the income, then additional income tax on the interest or dividends over time, and then more income tax on the appreciation of the final sale, create a corporation or other entity; let the income flow into the corporation which reinvests it. The "corporation" could just be a shell to receive income and put it in a mutual fund. Yes, you'll still pay capital gains tax when you sell, but that's a lot less. And delay is always great. Now you know why we have a corporate income tax at all. There is no economic point to corporate taxes, and "corporations pay their fair share" is nonsense. Every cent of corporate income tax comes from higher prices, lower wages, or lower payouts to stock and bondholders. We should tax those people. And if you want redistribution, taxing the "right" people, that's a lot easier to do when you tax people. But if there is no corporate tax, lots of people will incorporate to avoid income taxes. So, we tax corporate income and then your payout. Thousands of pages of tax law and regulation follow to plug one hole after another.  After 100 years of patchwork, including some taxing of unrealized gains, it sort of kept a balance, but people keep inventing new ideas. The case before the court involves domestic owners of a foreign corporation and the treatment of the income received into that corporation abroad. So, as revealed by the pro-tax arguments before the court, we have already stepped over the grab-it-while-it's-hot line and taxed a good deal of unrealized income. There was some sort of equilibrium of not overdoing it. But not overdoing it, obeying norms and gentlepersons's agreements, is going out of style these days. From WSJ:The Ninth Circuit's opinion opened up a freeway to tax wealth and property. And wouldn't you know, President Biden's budget this year includes a 25% tax on the appreciation of assets of Americans with more than $100 million in wealth....Justice Samuel Alito asked: "What about the appreciation of holdings in securities by millions and millions of Americans, holdings in mutual funds over a period of time without selling the shares in those mutual funds?" Ms. Prelogar replied: "I think if Congress actually enacted a tax like that, and it never has, that we would likely defend it as an income tax."Well, it's also called an estate tax, and we have it now!  There you have it. The Biden Administration believes the Sixteenth Amendment lets Congress tax the unrealized appreciation of assets. As Justice Neil Gorsuch noted, when the Supreme Court opens a door, "Congress tends to walk through it." The Justices should close the wealth-tax door. But it is also true that would upset the delicate balance above that allows the government to collect a lot of taxes. Someone has to pay taxes, so other rates would have to go up a lot. When one side overdoes it, the gentleperson's agreement explodes. Like corporate income, taxing investment income also makes no sense. You earn money, pay taxes on it, and invest it. If you choose to consume later rather than now, why pay additional tax on it? One of the main don't-distort-the-economy propositions is that we should give people the full incentive to save, by refraining from taxing investment income.So why take investment income? Again, because once you tax income, many people can shift labor income to investment income. If you run a business, don't take a salary, but pay yourself a dividend. If you're a consultant, incorporate yourself and call it all business income. In the 1980s even cab drivers incorporated to get lower corporate tax rates. The income tax is the original sin. Taxing income made no sense on an economic basis. The government only did it because it was easy to measure and grab, at least before people started inventing a century's worth of clever schemes to redefine "income."  It leads inescapably to more sins, the corporate tax and the tax on investment income. And now the repatriation tax on accumulated foreign earnings. What's the solution? Well, duh. Tax consumption, not income or wealth. Get the rich down at the Porsche dealer. Leave alone any money reinvested in a company that is employing people and producing products. Now we can do it. And we can then throw out the income tax, corporate tax, and estate tax. Income is really meaningless. You earn a lot of income in your middle years, but little early and late. The year you sell a house, you're a millionaire, but then back to low income the rest of the time. Yet our government hands out more and more benefits based on income as if it were an immutable characteristic. It is not. Consumption is a lot more meaningful! The case brings up another uncomfortable question. The couple invested their money, and then the IRS changed the rules and told them to pay taxes now on decades worth of past earnings. While we're playing lawyer, laws generally cannot penalize past behavior. Surely if they knew this rule, the couple would have arranged their business differently. Here there is an uncomfortable principle of taxation. Unexpected, just this once and we'll never do it again wealth taxes are economically efficient. The problem of taxation is disincentives. If you announce a wealth tax in the future, people respond by not accumulating wealth. Go on round the world private jet tours instead. (I hear UAE is nice this time of year, and all the smart people are there.) But if you tax existing wealth, and nobody knew it was coming, there is no disincentive. This is, however, one of the most misused propositions in economics. That promise never to do it again isn't credible. If the government did it once, why not again? And it feels horribly unfair, doesn't it? Grabbing wealth willy nilly unpredictably is not something responsive rule-of-law democracies can or should do. (This  issue came up with the corporate tax cut. There was a lot of effort not to reward past investment. That's the same principle as trying to tax that past investment now that it is made. I prefer stable rules.) Thus, I actually hope that the Supreme Court does blow up the tax system. It's a bloated crony-capitalist mess. Most people suspect that others with clever lawyers are getting away with murder, which is corrosive to democracy.  If the friends of the court are right that the tax system will not survive a narrow definition of income, that  might force a fundamental reckoning. We need a ground up reform. Not every decision taken in 1913 has to last forever. Let the income tax implode, and bring on a consumption tax. (Instead, not as well as!) I doubt it will happen though. The court is really good at constitutional law, but not at first-principles economics. With the continued political assault on their legitimacy, they will surely find a way to decide this narrowly, and wait to strike down the wealth tax when and if it is enacted.  But who knows, it's interesting that they took it in the first place.