Berkeley’s Emmanuel Saez won the 2009 John Bates Clark Medal awarded to the American Economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge. Saez’s major contributions have been in Public Economics and, particularly, in the theory and practice of optimal tax policy.

On 15 April 2009, Jacob Kirkegaard of the Peterson Institute wrote The Economics of a Career in Piracy. The current benefits to the pirates far outweigh the current costs to the pirates.

Kirkegaard then concludes:

In the end, the only way to reduce the expected rate of return from piracy is to increase the punishment meted out to captured pirates. As in all instances of limited government resources, the law must rely on deterrence. It is not a coincidence that piracy was historically a capital offence, and that the corpses of executed pirates were frequently displayed in harbors as a warning.

Less draconian punishments are surely warranted today. But swift, predictable, and sizable sanctioning for acts of piracy will nonetheless be required for careers in piracy to no longer make economic sense. The option to simply return to your pirate career even after capture must be ended.

The same economic logic suggests that any international legal framework for trying and sanctioning captured pirates must be complemented by armed rescue operations in which at least some pirates are killed rather than captured. President Obama’s order to use force if given the opportunity, followed by the swift execution of that order, made economic sense while serving the cause of justice and the interests of the hostages.

A little statistical humor from Washington Post cartoonist, Tom Toles.

Two items on taxes caught my eye today.

1.  Economix at the New York Times asks on 13 April 2009 Just How Progressive is the Tax System?

When you add in all taxes (federal, state, local), the tax system is not as progressive as one might have thought. Look at the graphs.

2.  On 15 April 2009, Berkeley public policy professor Robert Reich posts on his blog, A Short Citizen’s Guide to Kooks, Demagogues, and Right-Wingers on Tax Day, which addresses common myths promulgated by people on the Right. [By the way, I think the double entendre in the post’s title is intentional.] Reich ends with the following:

True patriotism isn’t cheap. It’s about taking on a fair share of the burden of keeping America going.

A little bit of history from Berkeley economics professor Brad DeLong. In the 15 April 2009 edition of The Week, DeLong wrote The Panic of 1825 in which he describes how the Bank of England overstepped its authority by lending money to a bank in the midst of runs of the banks. This quelled the panic and established a valuable precedent.

On 13 April 2009, Obsidian Wings in The Regulatory Origins of the Internet reminds us that the birth and continuing success of the Internet is due to regulatory oversight and initial R&D funding by the government. Importantly, the government did not allow the phone companies to dictate the terms of access.

‘Wisely, in the Computer Inquiries proceedings, the FCC opted for open, nondiscriminatory access.  The Twitters of yesteryear didn’t need permission from AT&T to start their business.  The nondiscriminatory access that made the Internet successful didn’t happen because AT&T was full of benevolent, far-seeing souls.  It was because of government regulation.  (On an aside, that’s why the fight over net neutrality is actually a battle to maintain a ridiculously successful status quo).

‘Given that the Internet is probably the single greatest advance of mankind since the printing press, you could plausibly argue that the Internet is regulation’s crown jewel.’

Let’s hope that environment continues to prevail.

‘If it’s not one thing, it’s another.’  By why so many all at once?

On 2 April 2009, Julie Connelly of the NY Times reports Doctors are Opting out of Medicare.  Finding a doctor who accepts Medicare isn’t easy.

‘Many people, just as they become eligible for Medicare, discover that the insurance rug has been pulled out from under them. Some doctors — often internists but also gastroenterologists, gynecologists, psychiatrists and other specialists — are no longer accepting Medicare, either because they have opted out of the insurance system or they are not accepting new patients with Medicare coverage. The doctors’ reasons: reimbursement rates are too low and paperwork too much of a hassle.’

More in the article.

In a 25 March 2009 post (Karl Denninger’s ‘Open Letter to the Ombudsman’ on the PPIP), I mentioned the possibility of troubled banks buying each other’s troubled assets at inflated prices and gaming the system.

On 2 April 2009 in the Financial Times, Bailed-out banks eye toxic asset buys indicates Citigroup, Goldman Sachs, Morgan Stanley, and JP Morgan Chase, are indeed thinking of buying toxic assets of their competitors.

The FT said, ‘The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.

‘Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

‘Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.” ‘

Read the whole article.