New Research on the Economic Situation and Externalities

The Economic Situation, September 2019

Bruce Yandle, Patrick McLaughlin, and Stephen Strosko | Policy Brief

This Economic Situation report begins with a discussion of the world economy and then focuses on the United States. Examination of data in both cases leaves little doubt that the days of better-than-three-percent sustained real GDP growth are in America’s past, at least for the next few years. The discussion of the US economy also pays attention to what is happening across the 50 states. President Trump’s use of tariffs and trade wars as instruments for achieving political goals is the focus of the report’s second section.

Turning to crazy season policy proposals, the report then addresses two proposals that, though rather extreme, may survive, depending, of course, on the 2020 election outcome. First, an increase in the minimum wage from $7.25 to $15.00 per hour over several years; second, student debt forgiveness. Once again, the report contains a section that focuses on a particular state. This quarter’s report puts New Mexico in the state spotlight. Finally, the report’s last section provides a couple of book reviews for interested readers.

Externality: Origins and Classifications

Donald Boudreaux and Roger Meiners | Journal Article

Externalities are ubiquitous in academic writing and, by definition, in the life of everyone. As economist Bryan Caplan explains, “positive externalities are benefits that are infeasible to charge to provide; negative externalities are costs that are infeasible to charge to not provide.” Economists and other policy advocates often urge governments to adopt policies that internalize an externality, so that costs and benefits will affect mainly parties who choose to incur them. Decisions by people and facts of nature affect us physically and mentally in positive and negative ways. People born with good looks earn a beauty premium that is largely independent of occupation. While we cannot do much about the faces we were born with, we can send signals to others by wearing stylish clothing and driving prestige cars. Such things create “positional externalities” causing resources to be frittered away on needless spending. Some argue that public policies should be considered to deal with such things.